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DIARY Book 346 January 8 - 12, 1941 -AAlcohol, Industrial Isopropyl alcohol may not be mixed with industrial alcohol: Treasury decision - 1/10/41 Alien Property Registration Book Page 346 292 See Var Conditions Aluminum See War Conditions -BBank Holding Company Legislation HMJr and Vagner discuss possible introduction today of Glass bill - 1/9/41 183 a) HMJr and Foley discuss language of bill Delano to be told to prepare material to be used at hearings - 1/10/41 a) Memorandum to Delano from HMJr - 1/10/41 Boeing Aircraft Company See War Conditions: Airplanes 185 293 438 -CCanada See War Conditions: Export Control Chile See Latin America China See War Conditions Correspondence Mrs. Forbush's resume' - 1/8/41 114 -DDavenport, John Confers with Monnet on HMJr's contribution to aid to Britain - 1/8/41 40 Dennis, Haines (Stenotype Reporter) HMJr and Watson discuss to succeed Kannee - 1/8/41. 24 -FFederal Bureau of Investigation Klans memoranda - 1/8/41, etc. a) Reported that Lewis is going to West Coast to "ease" Bridges out 30,274,275 -GGeneral Counsel, Office of Report of projects during December 1940 Book Page 346 427 Germany For patents, see War Conditions: Alien Property Registration For trans-Siberian shipments, see War Conditions: Germany Greece See War Conditions: Airplanes -IInflation See War Conditions Italy See War Conditions -LLatin America Chile: British Government trade mission resume' - 1/10/41 Mexico: Hochschild transmits report - 1/8/41 Lend-Lease Legislation See War Conditions -KMachine Tools See War Conditions: U.S.S.R. Mexico See Latin America Morgan, Anne (Miss) See War Conditions: France Munitions (National) Control Board See War Conditions: Export Control -0Ordnance See War Conditions: Purchasing Mission 387 28 -PBook Page 346 304 PM HMJr praises - 1/10/41 Patents (German) See War Conditions: Alien Property Registration Peacock, Sir Edward See War Conditions: Purchasing Mission Personnel, Division of Graves and Thompson still waiting to see HMJr 1/10/41 302 Price Control See War Conditions -RRepublic Aviation Corporation See War Conditions: Airplanes -SSt. Louis, Missouri 13% increase since July in cost of 6-room frame house - 1/8/41 a) FDR informed - copy to Henderson 42 Shipping See War Conditions -TTurkey See War Conditions: Airplanes -UU.S.S.R. See War Conditions United Kingdom See War Conditions: Military Planning -VWar Conditions Airplanes: Boeing Aircraft Company: Memorandum on delays 1/9/41 a) Young memorandum b) Delay caused by British changes rather than lack of leak-proof tanks: Young memorandum - 1/13/41: See Book 347, page 87 234 252 - W - (Continued) Book Page War Conditions (Continued) Airplanes (Continued): Deliveries by purchasers and types, 1/1/40--1/4/41 346 47.48 Greece: FDR promises additional 30 planes (60 in all); Hull thinks original 30 should be delivered to the Greeks before any deliveries are made to other foreign purchaser - 1/9/41 a) Navy promises cooperation P-40 Pursuit Planes: 261 269 Allocation of 300 extra P-40's limited to China and Great Britain - Hull informed 1/10/41 383-A Republic Aviation Corporation: Requisitioning of 28 planes at value set by War Department approved by FDR - 1/9/41 a) Money tied up in planes needed desperately so Walker tells HMJr - 1/10/41 253 342 Turkey: Conversation concerning 20 P-40 planes: impossible at this time - 1/8/41 Alien Property Registration: Attorney General Jackson told by HMJr Foley will represent Treasury - 1/9/41 German patents as applying to American countries to be investigated by Justice - 1/10/41 97 226 293 China: Chiang Kai-shek's thanks for HMJr's assistance in securing 100 pursuit planes transmitted by Soong - 1/8/41 American training planes to be assembled in Bangoon and flown to China - 1/8/41 Plane supplies: Young lists snags - 1/10/41 (See also Book 347, page 83 - 1/13/41) Exchange market resume' - 1/8/41, etc. 49 112 382 31,277, 385,465 Export Control: Canada: Elimination of export licenses discussed in Young memorandum - 1/9/41 258 Tin-plate scrap - exportation of: HMJr tells National Munitions Control Board of concurrency with their point of view - 1/10/41 441 Foreign Funds Control: Transfer of force to New York after passage of enlarged bill suggested in Bell memorandum to HMJr - 1/8/41 Frankfurter given copy of Executive Order for France: review - 1/10/41 Miss Anne Morgan asks for interview - 1/10/41 a) Pehle reports on interview - 1/16/41: See Book 348, page 291 96 384 411 W - (Continued) Book Page Var Conditions (Continued) Germany: Trans-Siberian shipments to and from Germany reported by American Consul, Manchuria, as being "unusually heavy" - 1/10/41 346 396 Inflation: Conference of Treasury group - 1/9/41 a) Proposed statement by HMJr agreeing with Jones and refusing to comment on Eccles' proposals 163 178 b) Tables showing price increases for selected industrial materials. 181 Italy: 1941-1942 budget - 1/8/41 Lend-Lease Legislation: Besume' of action taken: Foley memorandum 1/8/41 33 1 EUR suggests certain steps to Watson for FDR's consideration - 1/8/41 a) Lovett (Var Department) to help HMJr - 5 10 1/8/41 b) Forrestal to represent Navy Wadsworth tells Hull he favors program - 1/8/41 British Purchasing Commission figures of purchases in 1940 and intended purchases in 1941 - 1/8/41 Copies of bill sent to Hull, Stimson, Knox. Forster (Executive Clerk, White House) - 1/8/41 a) For copy of bill, see page 88 1) Press release as given out by Barkley and Rayburn - 1/10/41 a) Press comment 2) House bill and Senate bill White House conference; present: FDR, Hull, EXJr. 15 39 51 75 347,354 374 362,365 Stimson, Knox, Jones, Knudsen, and Foley; Senators Barkley, Connally, Harrison, and George: Congressman Rayburn, McCormack, Bloom, and Luther Johnson - 1/9/41 Military Planning: Report from London transmitted by Butler 1/9/41. etc Price Control: St. Louis shows 13% increase since July in cost of 6-room frame house - 1/8/41 a) FOR informed - copy to Henderson 222 279,446. 449,479 42 -V- (Continued Book Page War Conditions (Continued) Purchasing Mission: See also Mar Conditions: Lend-Lease Legislation Figures of purchases in 1940 and intended purchases in 1941 - 1/8/41 346 51 Assets: Phillips' nemorandum to Malter Stewart 1/8/41 105 a) French collapse brought about early exhanstion of resources b) Peacock (Sir Edward) and Hanbury-Williams to come to New York with fullest possible powers 1) HUJ to speed up passage - 1/13/41: See Book 347. page 53 2) Press release in London: Book 347, page 57 c) Estimate of remaining marketable securities d) Suggestions for meeting claimed deficit of $251 million e) Dollar requirements and receipts of United Kingdom, January 1 - March 1, 1941 107 109 111 Frank tells BUr of conference with investment bankers - 1/9/41 a) Gifford to be asked to conference with Frank b) Copy of Frank's proposed letter to FDR OK'd by BMJr - 1/10/41 Conference: present: representatives of Treasury, Securities and Exchange Commission, Phillips, Gifford, and Pinsent - 1/10/41 a) Hall told of conference Feis asked by HMJr to correct Hull's misinfornation as to amount of assets - 1/10/41 a) Feis tells HNJr of "sales talk" he has just given Hall - 1/10/41 b) Cochran memorandum on conversation with Feis - 1/10/41 c) HNJr-Hall conversation - 1/13/41: 227 233 419 307 337 412 334 413 See Book 347. page 10 1) Hall, HNJr. Stimson, and Knox to meet Stinson-HUr conversation: Book 347. page 24 Knox-HUr conversation: Book 347. page 30 Phillips' memorandum setting forth ways of financial relief through immediate payment for goods (wool, rubber, tin, etc.) on the sterling area to be acquired by United States Departments 1/10/41 414 a) Bell memorandus on conference with Jones 1/13/41: See Book 347, page 69 FOR to be informed by letter exact financial situation of British 439 - W - (Continued) Book Page 346 125 War Conditions (Continued) Purchasing Mission (Continued): Conference; present: HMJr, Lovett, Forrestal, Young, White, Cochran, Bell, and Foley 1/9/41 a) British requirements b) Dollar requirements and receipts of United Kingdom, January 1 - March 1, 1941. c) Contracts on which prompt action with contractors is necessary immediately provided by Purvis - 1/9/41 158,159 160 267 Ordnance: Stimson and HMJr again discuss War Department surplus which can be used to tide over until Lend-Lease legislation - 1/9/41 189 1/9/41 196 Second conference on ordnance surplus; present: HMJr, McCloy, Lovett, Foley, and Young - Vesting Order: Official sales of British-owned dollar securities - 1/9/41 12/15/40 Vesting Order: Price trends of securities acquired by British in comparison with general market: Haas memorandum - 1/9/41 a) Chart Statement showing dollar disbursements transmitted by Federal Reserve Bank of New York - 1/10/41 Security Markets (High-Grade): Recent Developments: Haas memorandum - 1/8/41 262 263 266 403 66 Shipping: British submit bid to Maritime Commission for 20 cargo vessels - Young to work with Navy on details - 1/8/41 a) Navy looks into unexpended funds 93 279 1) Reports none available - 1/13/41: See Book 347, page 82 Strategic Materials: Aluminum: Additional data on West Coast situation: Young memorandum - 1/8/41 55 U.S.S.R.: Machine tools for Russia discussed by Young, Russian Ambassador, and representatives of Amtorg - 1/8/41 45 a) Copy of Young memorandum to Welles Trans-Siberian shipments to and from Germany reported by American Consul, Manchuria, as being "unusually heavy" - 1/10/41 396 1 MEMORANDUM FOR THE SECRETARY'S DIARY Legislation to Aid the Democracies Wednesday, January 8, 1941 At 11:25 a.m., Mr. Foley conferred with Cox about the proposed legislation. He told Cox that John McCormack wants to have a different title to the bill and doesn't want to use the words "belligerent or neutral". At 11:45 a.m., Foley and Cox spoke to Middleton Beeman and John O'Brien on the telephone. Foley told them that there had been a conference this morning over in Hull's office at which Secretaries Morgenthau and Hull, and Messrs. Rayburn, McCormack, Deschler, and Foley were present. Foley said that McCormack didn't like the title. Both Foley and Beaman said that they weren't concerned how the title read, and whatever way they wanted it to read would be all right with them. Foley said that there was one thing that McCormack mentioned which worried him. McCormack wanted to take out the word "belligerent". Foley pointed out that that was the heart of the bill, but McCormack thought the language "notwithstanding any other provisions of law" would do the same thing. Foley said that the Neutrality Act had a prohibition in it and unless that prohibition was expressly removed, this Act would have to be read with the Neutrality Act. McCormack said he was talking psychology. He thought the word "belligerent" would give someone who was out to wreck the bill a way to do it. Besman said he didn't like to see it come out. Foley said he told McCormack that if we did it this way, we would be submitting an argument for a certainty and he wanted to make the bill air tight. Beaman said he would think about it and see if he could find substitute language that would meet the objection and yet be as good. Foley said that other then these two items, there were no objections. Foley said, confidentially, that they were going to try and introduce the bill on Friday. They thought that they would adjourn until Friday. Deschler said that unless the bill was overhauled, he would have to rule that it would go to the Foreign Affairs Committee in the House. Foley thought McCormack wanted it to go to the Ways and Means Committee so that Bloom would not have to handle it on the Floor, but Hull thought that Committee was too big. Foley said that the Speaker has four vacancies on the Foreign Affairs Committee to fill. Foley said that Hull felt more keenly about the Senate Committee. He wants it to go to the Finance Com- mittee. Foley said that there is to be a meeting this afternoon in Hall's office with Senator Barkley, Pat Harrison, and the Senate perlismentarism. It would be logical to have the President pro tem in on the meeting and then if Senator George's committee is to handle it, they can call him in when the President sees the chairman of the two committees on the bill be- fore it is introduced. 2 -2At 11:55 a.s., Mr. Foley spoke to Mr. Hackworth on the telephone. Foley told him of the conversation that he had had with Beeman and suggested that in addition to talking to Townsend, perhaps Hackworth would like to talk to Beeman. He thought is wasn"t necessary. Foley said be thought be would put it up to Stimecn, as he was a good lawyer, and get his reactions. Foley said that although we couldn't trenscend the whole body of international law by am act of Congress, we can shor that Congress gave it some consideration and expressed itself as desiring to 60 beyond international law and give help to a belligerent. Eachmonth said he had just talked to Towmsund, and he wanted to cell him back right away and get him on the right foot with regard to this international law angle. At 12:19, Folay spoke to Ben Cohen and told him of the meeting at Hull's office and what transpired. From a practical point of view, Ben said he - inclined to agree with McCormack because of the avoued purpose of the bill that there would be no risk. Those who administer this bill know what the President wishes and they are the comes who are going to interpret the Act. Ban said as a lawyer he would prefer to have *belligerent and neutral* remain, but he thought the circumstances outweighed this desire. Faley said he hedn't given up yet, but be was inclined to go along. Se said that the Secretary felt as Been did. Ben said that we here used statutes that were less clear them this one is going to be. Foley said that if we left out "belligerent and neutral", he thought American republic should be left out. Ben said be thought that would be much better. Foley said we get aray from the rule of e jusdem generis them. Been wated to know about the committee decisions, and Foley brought him up to date on that. Foley explained that Hall was taking more time on the Executive Order so that it would not be signed over this weekend. At 12:30, Mr. McCloy called Mr. Foley. Mr. Foley told him that he wanted his juigment on suggested changes in the pending joint resolution which were made at a meeting in Secretary Full's office this morning by Speaker Bayburn, McCornack, and the Parliementarian. They didn't like the title, and thought it was a little too pointed and suggested that it be changed to read To promote the defense of the United States, and for other purposes". Mr. Foley asked Mr. McCloy to turn it over in his mind and perhaps talk to Secretary Stimson. Also, Foley said they want to change Sec. 3(a)(1) by leaving out *belligerent or neutral* and just say Many other country". He said there was some argument on this point. Mr. McCloy asked what the argument was that dropped out the British Commonwealth. Mr. Foley said Hall said be didn't want to single out any one nation. That is foreign relations, and his juigment cm that is all right. Mr. McCloy said it WES his off-hand juigment that it doesn't make much difference about "belligerent or neutral". Mr. Falay said if we take it out, we ought to take "American republic out also. McCloy agreed. He said he hoped to see the Secretary 3 -3sometime this afternoon, at which time he would get Secretary Stimson's judgment on it, and in the meantime give it further thought himself. Mr. Foley said he would appreciate having his judgment and having him speak to the Secretary, and asked AcCloy to call him back before the 4:00 meeting this afternoon. At 2:30 p.m., Foley spoke to Besman over the telephone. Beaman said they were talking to McCorneck and he was agreeable to this sug- gestion we made. That is, to strike out "any American republic" and make it for "any country". That seems to satisfy McCormack, and Beaman thinks it's all right. Foley and Beams: agreed that this gets us around the Neutrality Act. Foley said be would rather do it the other way--but thinks this is all right. Foley said that way we would be naming the guilty party and if we leave it out, it's up to the opponent to insist it's there. Beazan said he didn't see how we were going to pass the bill without having people suspect it's intended to give aid to the British. Foley says he thinks McCormack is sincere and is trying to eliminate the difficulty for himself, but Foley wants to be sure. At 3:15 p.m., Foley spoke to Green Hackworth over the telephone. Heckworth said that Townsend talked to the Attorney General, and the Attorney General thinks that no harm would result from leaving those words out. Folcy told his that Besman and McCormack had gone over the thing and McCormack wanted to know if it would be all right, and this will satisfy McCormack, to strike out the words "any American republic or any other country" and the words about belligerent and neutral, and Foley told him that if we did it, that's the way it ought to be done. Hackworth didn't think there was any objection to that. Hackworth thought that was of happy solution. Foley attended the conference at Secretary Hull's office with Secretary Morgenthau from 3:54 to 5:11 p.m. At 5:15 p.m., Foley spoke to MeCloy over the telephone. McCloy said that he hadn't had a chance to call back before but he had talked with Secretary Stimson, who agrees with the suggestion to strike out "the government of any American republic or any other country belligerent or neutral" Mr. Foley said that is what we decided to do. He said that the Secretary and he talked with Barkley and Harrison and the Parliementarian and they think that, subject to final clearance with Sam Rayburn, they will kick this into Military Affairs. They are afraid of the Republican boys on Foreign Relations-Nye, Johnson, Vandenburg and some others who are "all over the lot" and there is Herring and a couple of others and they have three vacancies, and while they may pick good people, you don't know whether they will be all right. We have Austin, the ranking Republican on Military Affairs, and they think that is better. He is all for it, and this fellow Andrews from New York--he's all right on this, isn't he? Mr. McCloy said he was on this particular thing. Foley - said he is a good friend of Wadsworth who thought this should not go to Bloom's committee in the House, and they thought it would be better to get it into Military Affairs. Mr. McCloy said he know that was Stimson's idea and he was shocked about its going to Foreign Relations and I think he called the President. He said Jones asked for a copy of the bill and said he had heard it was a good job, and Mr. McCloy thought it was a good idea to let him have a copy. Mr. Foley then told Mr. McCloy of Barkley's suggestion that in (4) on page 2, he thought the wording is too broad; that it relates to the internal defenses of the United States. Mr. Foley said he told him we would talk it over with you and call him in the morning, and agreed that Barkley does have a point. If we strike out the last three words of (b) on page 1, and put a period Mr. McCloy said "But from time to time, without any statute, we have been giving dope to these fellows." Mr. Foley told Barkley that, and he doubts if there is any power to restrict the President as he has the constitutional power to do what is best to defend the country, and if that means giving information to those whose defense is related to ours, I doubt if his hands could be tied. Barkley said he realized all that, but he thought that is one thing they might pick out and make a lot of noise about, and it would be better not to give them the chance. Mr. McCloy said he would give Foley a ring in the morning. From 5:20 to 6:00 p.m., Foley told Cox about the results of this afternoon's meeting. 5 January 8, 1941 11:26 a.m. Operator: Yes, Mr. Secretary. H.M.Jr: Who is the young lady that sits next to Operator: Miss Barrows. H.M.Jr: Can I have her? Operator: Yes, sure, just a minute. (Pause) Miss General Watson? There Miss Barrows. Barrows: Yes, Mr. Secretary. H.M.Jr: Miss Barrows, I have quite a long message B: You have what? H.M.Jr: that I'd like General Watson to give to the I have quite a long message that I'd like General Watson to give to the President and I thought the easiest way was to dictate it to you over the telephone. B: H.M.Jr: Good. All right, sir, go ahead. Now at that 11:00 o'clock meeting tomorrow morning - he's got Stimson and Knox and those others coming. B: H.M.Jr: Just a minute - who? This meeting at 11:00 o'clock with Stimson and Knox and the whole group, I'd like Mr. Hull added to that list - Secretary of State. That's No. 1. B: H.M.Jr: All right. No. 2, I've just come from Mr. Hull's office and Sam Rayburn and McCormack were there and their proposal is that they' re going to adjourn Congress until Friday with the intention of introducing the bill of Aid for England on Friday. 6 -2B: Yes. H.M.Jr: Now, in order to accomplish that we're meeting with Senator Barkley at 4:00 this afternoon at Mr. Ball's office and then after that Bayburn and Barkley are going to have a meeting to decide which committee this bill will go to. Then what they'd like - and I want to emphasize this - that this is Speaker Rayburn's suggestion. He said it is most important that the President invite down to the White House Thursday afternoon the Chairman of the committee in the Senate and the House that this Aid to Britain Bill is going to go to so that they will feel the responsibility and that he personally can explain it to them. B: Don't know who it will be yet though. H.M.Jr: No. We'll know that the first thing in the morning, but the purpose of this is that General Matson will be saving some time Thursday afternoon, and then the bill will to adjourn Congress until Friday and letting be introduced Friday morning and they're going B: them know something important is coming. I see. H.M.Jr: So it's a very tight timetable, you see. B: I see. All right. I'll type this and give H.M.Jr: Wait a nimute! One more. 3: All right. H.M.Jr: In speaking with Secretary Hull B: In what? H.M.Jr: it to the General. In talking with Secretary Hull, he said that he had been so busy that he would greatly appreciate it if he could have over the weekend to study this so-called freezing order. It's the one that the President was going to sign tomorrow morning for me. 7 -3B: H.M.Jr: I see. Freezing of foreign funds, and the Secretary of State says if he could have over the weekend, he would appreciate it, and I recommend to the President that he does give him over the weekend to study it. B: I see. All right, sir. H.M.Jr: There were so many things that I thought B: Uh-huh. Well, fine. I'll type it just as H.M.Jr: I had better give it to you. you've said it. I've taken it down. And if there is anything that General Watson finds out that the President isn't in accord with, would you please see that he calls me back. B: H.M.Jr: Indeed I shall. I think he'll show this to the President just as I typed it. And if I don't hear from him I'll take it and you might add - hello? B: Yes. H.M.Jr: that we got a very good reception this morning from Speaker Rayburn and Mr. McCormack and they also had their Parlimentarian there. B: Oh, they did. H.M.Jr: Yes, and everything is going swell. B: Oh, good. All right, thank you. H.M.Jr: Thank you. 8 January 8, 1941 12:00 Noon RE AID TO BRITAIN Present: Vr. White Mr. Young Mr. Stewart Mr. Cochran Mrs. Klotz H.M.Jr: While we are waiting, do you know Lovett of Stewart: I don't know him personally. H.M.Jr: Do you know his reputation? Stewart: T think he is good. H.V.Jr: He made a good impression on me. Cochran: I have known him for four or five years. H.V.Jr: Is he good? Cochran: He is tops. Brown & Harriman? (Mr. Young entered the conference.) Cochran: We left the British in my office. H.M.Jr: Are they sweating or cooling or what Cochran: Oh, they are getting along all right. 9 -2Klotz: Isn't White supposed to come in? H.M.Jr: Yes. Who else is working on the British Young: Danny Bell? H.M.Jr: No. thing? (Mr. White entered the conference.) H.V.Jr: Harry, sit down. There will be two interruptions and you fellows can listen. (Telephone conversation with Secretary Stimson follows:) 10 January 8, 1941 12:00 noon H.M.Jr: Hello. Operator: Secretary Stimson. H.M.Jr: Hello, Henry talking. Henry L. Stimson: Yes. H.M.Jr: I just had a Mr. Lovet't here and I like him enormously. S: I'm very glad. He's a very good man. I talked to him right from the shoulder. Well, how did he talk to you? H.M.Jr: Shoulder to shoulder. S: H.M.Jr: S: H.M.Jr: S: H.M.Jr: Well, that's good. How's that? I mean, I unburdened on him everything that has been burning me up for the last two years and Well, I'm very glad. and gave it to him for what it's worth and said if he wanted S: Well, I think you'll find him pure gold. H.M.Jr: I do. So much 80 that I want to make a suggestion. S: Yes. H.M.Jr: You know we're having this meeting tomorrow at 11:00 at the White House. S: Yes. H.M.Jr: Now this thing - we're going to have to do a lot of finagling to get the British by for the next month or six weeks. 11 -2S: H.M.Jr: Yes, I know it will be a hard job. And it's largely financial and I wondered if in working with you whether I couldn't have the benefit of Lovett's advice and help on this particular phase on account of his financial background. S: You don't mean by that that you want to steal him from me? H.M.Jr: No, I just mean that when I want something that affects the War Department that has to do with financial aid to the British that I talk to him and he keep you posted. S: H.M.Jr: S: H.M.Jr: S: H.M.Jr: S: H.M.Jr: Of course his specialty is airplanes. I know, but he knowfinances. Oh, of course you can that. I mean, I want somebody that - I want to show them the British balance sheet. There's going to have to be a lot of finagling for the next six weeks, purely on the financial front. I'd like to be able to call him up and say, now look, will you tell Mr. Stimson this. Oh, of course, Henry. That goes without saying. of course you can do it. But purely on the financial things so that when I Oh, I mean you can do it anyway you like. I mean when I want to get S: The fact is that I may sometimes keep talking to him at the same time myself. (Laughs). H.M.Jr: Well, then I'll wait. Then I'll wait. S: That's all. H.M.Jr: And if I may also make a suggestion in view of this being financial, I'd like to suggest that you bring him to that meeting tomorrow at the White House, but you can think that over. 12 -3S: H.M.Jr: S: H.M.Jr: Yes. Well; I'11 think that over and see how it is. I think it would be all right, but I didn't want to - it seemed to be a meeting that was going to be rather small. Well, maybe you're right at that. I think we'd better keep it confined to Well, I'a like to - for instance there are a lot of things, and if he could digest them and then give them to you, that have to do purely with money in relation to the English contracts S: H.M.Jr: S: H.M.Jr: Well, if you think it would help there why I'd be very glad to. It would help me in my relations with you. Yes. All right. And will you tell him it's all right? Will you tell Lovett it's all right? S: By that you mean what? H.M.Jr: Well, that if I call S: Oh, for you to - oh, yes, I'11 tell him that. H.M.Jr: And that he's to keep you posted. He'll understand that. H.M.Jr: Yes. Oh, sure. Yes, I'll arrange that. That's all. S: Right off. H.M.Jr: Thank you. S: Thank you. I'm very glad to have that feeling S: H.M.Jr: that you approve of him. Oh, yes, I think he's swell and I want him to know the exact financial situation of the English and then he can keep you posted. 13 S: Yes. Well, that'll be a great help. H.M.Jr: Thank you so much. S: Yes. Well, that's fine. Good-bye. H.M.Jr: Good-bye. 14 -3H.M.Jr: You have to do everything three times. Just one second until I get Knox, and then I can concentrate on this thing. I have got hopes to have this bill introduced Friday. They are adjourning Congress especially to hold it they were adjourning it until Monday, and I got them to adjourn it until Friday morning. White: Were there any substantial changes? H.M.Jr: The only change was which Congressman McCormack made, where it said "any neutral or belligerent, he wants that left out. He says "or any nation. But at the beginning of the bill, it says, "notwithstanding any other legislation. Out, you see. And they are consulting Bob Jackson to make sure it is all right. (Telephone conversation with Secretary Knox follows ) 15 January 8, 1941 12:05 p.m. H.M.Jr: Hello. Operator: Secretary Knox. H.M.Jr: Hello, Frank. Frank Knox: Hello, Henry. H.M.Jr: How are you? K: Fine. I read that Order and I'm 100% with you. H.M.Jr: Well, Cordell has asked us to hold it until Monday because he has not had a chance to read it - he saye he's too busy - so I asked the President to wait until Monday. K: I see. H.M.Jr: But his people down the line are plaguing K: H.M.Jr: K: Cordell, I think, to go against it. I don't think it's Cordell that's against it, but I think it's some of those subordinates of his. Yeah, that's right. That's what I mean. Yeah. Let's organize a hanging bee over there some day and hang the ones that you and I pick out. H.M.Jr: K: H.M.Jr: We won't leave many people over there. (Laughs). All right. Well, I'm glad - this is what I'm calling you up for. In the next six weeks while we're trying to get this legislation through we're going to have to do a lot of skating on thin ice and wrangling to get some money for the British, and I wondered if it would be agreeable to you in my contacts with you if I kept Forrestal posted purely on the dollar side - the financial side, and if occasionally 16 -2he could drop over. I'd tell him what we're doing, he could give me his advice, and then he could tell you. K: Well, his advice would be a dann sight more valuable than mine because he's trained in that particular line and I'd rather have him there than go myself. H.M.Jr: K: Well, would you tell him that? I will and you can have him function in my stead, because he knows a damn sight more about banking than I do. All I do is borrow money from banks. H.M.Jr: Yeah, I heard you the other day. K: (Laughs). H.M.Jr: You're one of these fellows that has got these excess reserves that Eccles 1e going to remove. K: H.M.Jr: (Laughs). All right. I'11 tell Jim. Tell him, and I've asked Stimson whether I could use Lovett in the same capacity and he says yes. K: I see. Well, that's another good idea too because he's a good man. H.M.Jr: So between the two of them they'11 know what I'm doing and they can advise me. There's going to have to be a lot of wrangling done in the next six weeks. They just haven't got the cash. K: Yes. I've got that spendthrift, Arthur Purvis, in my office now. H.M.Jr: You have. K: Yeah. Looking at me and laughing. (Laughs). H.M.Jr: All right. Give him our best regards. 17 - -3 K: What? H.M.Jr: I've him my best regards. K: I will. H.M.Jr: Thank you. K: All right, Henry. Good-bye. 18 -4H.M.Jr: Well, that takes care of that. Now, what I want, gentlemen, is this. For tomorrow morning when I FO into this meeting at eleven o'clock I want this at ten, and you (Stewart) won't be here but you can help, and I am looking to you two fellows (White and Cochran) to have it at ten o'clock without fail. I want a statement and I want Stewart to collaborate it and see it before he leaves, letting me know how much money these fellows have got and how long it is going to last; and I don't want anything very complicated, but I want to be able to say to the President, "Now here is the situation," and I want to be able to tell him the moves that they have made, the more important moves that they have made recently, you see. I mean, Hull, Stimson, Knox, and Jones are going to be there and I want to say, "Now, this is what they have done. I think they are scraping the marrow, how many securities they have been selling and so forth and so on, about their direct investments. In other words, so that I can give the President a story tomorrow and once more rub his nose in it, which he doesn't like me to do on this thing, what is this situation. Then he is going to say, "All right, Henry, what are you going to do about it, and such suggestions as the possibility of the Army and Navy taking over some of the contracts, which Lovett likes. I will tell you what we are going to do. We are going to make this tomorrow morning at 9:15 instead, and I am going to have Lovett we will have a dress rehearsal. "This is what happened, Mr. President, in the last month. They have sold so many securities and they are doing this. 19 -5Harry, call un Jerone Frank and find out what the situation is on that investment trust thing, the man that is working on that is Schenker, you see. I mean, I would like to know. In other words, I want to be able to tell a story - I mean, not too much but enough, this is what it is, so I can let him know and then we have these suggestions, this interim report which I sent to these fellows, Jesse Jones possibly doing the thing, you know. White: You say there is an interim report? H.M.Jr: Yes. It went to everybody last night. White: Can I ask you one question about something H.M.Jr: else that relates to this? All those in favor Klotz: Aye. White: That is all I need. H.M.Jr: Did you say "Aye", also White: That makes it unanimous. (Laughter) The question of the extension of exchange controls, if it is likely to go in within the next day or two -- H.M.Jr: It isn't. Mr. Hull said he had to have time White: Fine, because there is a lot of work that has over the week-end to study it. to be done, and we would like as much notice as possible. H.M.Jr: You (Klotz) tell Pehle it will not happen before Monday. 20 -6White: O.K. H.M.Jr: I mean Hull - the man is so pressed. I see how he works. He has got his mind all in on this and the people below him are bedeviling him and he is upset, and I see he can't take any more. White: It is just as well, because there are a lot of problems. H.M.Jr: He is all upset, and these people down his line White: Can the proposal be set forth independent of H.M.Jr: Tell, I am also upset and I am concentrating are all upset, so -- the extension of control? I think it can. on this one thing, so I won't get to this thing before Monday; but I do want a workmanlike job from you fellows on this thing at 9:15 tomorrow morning, a review of what has happened. Does everybody know what I want? When I told Lovett, for instance, that they would run out of cash, he was just amazed. I said, Ne could take a lot of their contracts over. Young: They have taken one over. H.M.Jr: O.K. Do you (Stewart) want to see me before you leave today? Stewart: I don't think it is going to be necessary. There is one point, do you want to raise tomorrow morning the question of whether you want any comment made by the British on the coming of Peacock and further vesting? They have put their vesting order through, and it will go through Saturday. 21 -7H.M.Jr: You mean do I want publicity? Stewart: Yes, as to whether or not the Prime Minister H.M.Jr: No, I mean that was all the trouble with Sir Frederick Phillips coming over, there was should make any comment. You don't care? all this publicity and all the rest of it. Let Peacock come over here and after he has done a little something, I think it is time enough. I personally, shooting again from the hip, I would let him come and accomplish something and then say, "Well, Peacock is here and he is the fellow that did it." That is my reaction. Stewart: Well, the sort of thing Purvis had in mind last night is the possible action which could be referred to by the Prime Minister as an indication of their extent of representation over here. H.M.Jr: Well not now. I mean, I am listening - I think if this bill is introduced Friday, which I think it will be now, we can tell much better. Stewart: When may you go up? Have you any notion of H.M.Jr: No, but it won't be before Monday. Did you (White) get a copy of my conversation with that now? Wagner? White: H.M.Jr: I did last night. It is just crazy to start talking with Wagner's committee about British investments at this time. If I do it, I will do it just once and that will be before Foreign Affairs, so think up something else for the Wagner Committee to do. 22 -8Cochran: Mr. Secretary, Gifford is here. Do you want us to have any contact with him? You asked him down. H.M.Jr: Well, I want him to see this man (Stewart) White: Congress is going to want to know that among and -- the very first things. H.M.Jr: Well, that is all right, but not - take it from me - not a committee that has nothing to do with it. I am only going to tell the story once, and that is to the committee that is considering the bill and not Senator Wagner's committee. White: That specific question happens to be in their H.M.Jr: Well, it is unfortunate. It is a mistake, list of questions. Harry. Take the old man's word for it. Listen, let this fellow Gifford see Walter Stewart and then -- White: We don't have - we can get later information by calling on the British now. I take it there is no objection to his getting in touch with them. Some of his information is a week or two old. H.M.Jr: Make sure what Stewart has got. The three of you get together. I will tell you what we will do. In view of this thing of their bringing a man over, let him talk with Mr. Stewart today if he cannot stay over tomorrow, if he has to be in New York on account of the thing. I would let him go back and I will have him come down again next week. Cochran: Just discuss things to date with Mr. Stewart? 23 -9H.M.Jr: That is right. Cochran: And if he stays over until tomorrow, would you care to see him? H.M.Jr: I would rather not. Stewart: You want the three of us to talk with him? H.M.Jr: Yes, but I would like from the three of you four of you a memorandum at 9:15 which is a workmanlike document, and which - I mean so that anything that I should get over to the President is there, plus some concrete suggestions. 24 January 8, 1941 5:13 p.m. H.M.Jr: Hello. Edwin "Pa" Watson: Yean. H.M.Jr: Pa, H.M., Jr. W: Yeah. H.M.Jr: Now I just left Hull's office - hello? W: Yeah. H.M.Jr: I left Hull's office with Barkley and Harrison there and they're going back up on the Hill and meet with Sam Rayburn and they say they don't think they'11 be able to tell me until tomorrow morning W: That's all right. I tell you what I've got reserved - after Cabinet tomorrow afternoon, and it's all square. H.M.Jr: Good. Now there's one thing W: You'll tell me then who to invite. H.M.Jr: Yeah. One suggestion that Hull made which I W: think is very good and that is a suggestion to bring the Republican minority. Yes, that's all right. He asked me what you'd told me and I told him that you hadn't mentioned it. He said he thought it WRS a good idea. H.M.Jr: Who said that? W: Hull. H.M.Jr: Oh, you talked to him. W: Yeah. H.M.Jr: Did he just talk to you? No, about 3:00 o'clock. W: 25 2H.M.Jr: I see. Not the other thing: on this stenotype W: Yeah. H.M.Jr: thing that you spoke to me about - hello? This stenographer, you know. I told him about your call and told him to think it over and he's going to talk to Kannee and I told him to let him make up his own mind. W: Yeah. He hadn't broken his hand, had he? H.M.Jr: No. W: You were just kidding me. H.M.Jr: Yeah, but I mean here's an offer - I never W: stand in anybody's Well, look here, what I mean is we'll start him with five and Kannee was getting six. If he makes good he'11 get that. The reason I thought about that was McReynolds said he was a very trustworthy fellow and that you liked his very much and you could vouch for his being all right to get him close in to the President. H.M.Jr: W: That's all right; that's all true, but I'm sore as hell at Mac if he can't find somebody else in the whole of Washington, but if the President wants him, he comes first. Well, don't - just tell him that you're going to let him go if we have to have him. H.M.Jr: Well, I talked to him right after you called me W: H.M.Jr: What kind of looking fellow is he? He's a nice looking fellow and he's getting in touch with Kannee to find out what the job is like. See? W: H.M.Jr: All right. That's fine. But as soon as you called up I sent for him and said here 8 an offer, now you decide what you want to do 26 -3W: H.M.Jr: W: Yeah. to this man. So he's thinking it over and he's going to talk to Kannee tonight. All right. That's fine. H.M.Jr: But if the President wants somebody why the W: of course the President doesn't know a thing President about him. He just told me to go scurrying around, you know. H.M.Jr: Well, it took me two years to find this fellow and another two years to break him in. W: Well, if I can get another fellow I won't take him from you. H.M.Jr: W: H.M.Jr: But I'm being very honest - it has taken me a long time to break him in and it took me two years to find him, and there's one thing I want to point out. Yeah. He's a stenotype operator and not a shorthand operator so when he goes on the trips and runs after the President on these automobiles, he can't take shorthand. W: Well, he won't do then. H.M.Jr: He has to have his machine. W: H.M.Jr: W: H.M.Jr: W: H.M.Jr: Well, he won't do. But I've seen Kannee run up behind the President on his trips taking down shorthand. Well, that's the way he has to do. Well, this fellow has to have a machine. Well, I don't think he can do it then. But I wanted to point that out to you. 27 4 V: All right, sir. H.M.Jr: But I made him the offer. My President comes H.M.Jr: first always. I know. Then you and I will talk about the other thing tomorrow morning. I'm afraid that's going to knock that boy out. Well, I was kidding you about his hand. V: I knew that. E.M.Jr: And immediately after you called me I made V: Yeah. All right. Thank you very much. You'll H.M.Jr: Right. V: All right, sir. y: him the offer. tell me tomorrow about the other. ITH THECOMPLIMENTS 28 HAROLD K HOCHSCHILD Copy of Letter from B, Mexico City, January 8, 1941. One item of news is the appointment of the new Administrators of the Railways, who took charge of the National Lines on Monday last. For the position of Director General, the President selected Gen. Enrique Estrada, an old time politician with quite a revolutionary and military record but who, to the best of our knowledge, has had no experience in railroading. He is reputed to be energetic, which may be prime necessity for the job. His success will greatly depend on his a ability to return discipline to the Union of Railroad workers. We have heard hardly any comments regarding this appoint and cannot very well judge it ourselves, as we know too little about Gen. Estrada. On the Board of the Railroads appointed by the Government went Juan Gutierrez, at one time Manager under the Union administration, but, we believe, thoroughly disillusioned in regard to the Union. Gutierrez was forced by the Union to resign for having proposed a drastic reorganization. The other three Board members selected by the Government are Pablo M. Hernandez, Ing. Manuel Buenabad and Roberto Lopez, of whom we know very little, except for Lopez, who is a scheming pseudo economist. The Union's choice of the 3 remaining Board members fell on Santos Fierro, Pablo Cardoso and Alfonso Saucedo, all three unknown to us. That is the set up, and now it remains to be seen what they will be able to accomplish. Next on our list are labor matters concerning our industry. We have been informed that the Real de Monte contract discussions came to an end last Saturday, when an agreement was reached between the Company and the Union, whereby 650,000 pesos were to be paid by the Company for two years to meet economic demands of the Union. It is said that everything was ready for the signature of the corresponding documents on Monday last, when the Union backstepped and refused to sign what had been accepted by them. We heard from some one that Agustin Guzman, head of the Union, had seen the President between Saturday and Monday. In any event, discussions were reopened and no agreement reached so far. The Rosita strike also continues, and it seems to be difficult to obtain any concrete information on its present status. Some of the A.S.& R.Co's men seem to think that some settlement is not far off, whereas others seem to be thoroughly pessimistic. We have been informed, however, that coke stocks at the Smelting Company's metal- lurgical plants are running low and will be used up by about the last days of this month. If the Rosita strike is not ended before then, it will certainly raise havoc with the whole industry, including those of the Union's Cooperativas which are dependent on the custom smelters, as we understand that the Penoles smelters will run out of coke at about the same time. We find it discouraging that the new authorities have been unable to clean up these two cases, left over from the old administration. There is certain talk about the possibility of an extraordinary 29 2legislative period to be called in February, but this has not taken form yet and is, in our opinion, dependent on the President's intentions to modify present legislation. We believe that the initiative rests entirely with the President. The power situation in this part of the country is getting rapidly worse, according to statements made by the Power Company. New and severe restrictions may be expected between now and the beginning of the next rainy season, restriction which will certainly affect the economic considering that quite some of Mexico's industries are located in side, this central section. Copy of Letter from an American in Monterrey, N.L. January 6,1941. It seemed to me that the New Years dance at the Casino WES a better attended and much gayer affair than for some years past. I have a feeling that the people were celebrating not only the coming of a new year but also a definite turn for the better in the political situation. Avila Camacho haskeep doneit remarkably well so far. Everybody is wondering whether he can up. 30 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL TO Secretary Morgenthau FROM Mr. Klaus DATE January 8, 1941 FBI reports: January 7. At the CIO annual convention in November the United Mine Torkers Executive Board held a secret meeting at which it was decided to send J. C. Lewis to the West Coast to "ease" Harry Bridges out of control because of Bridges' alleged Communist connections; Lewis was president of the A.F. of L. Iowa State Federation for 16 years prior to entering the CIO. N 31 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 8, 1941 Secretary Morgenthau FROM CONFIDENTIAL Mr. Cochran Registered sterling transactions of the reporting banks were as follows: 52,000 Sold to commercial concerns Purchased from commercial concerns 11,000 The Federal Reserve Bank of New York sold 15,000 in registered sterling to a non-reporting bank. In the open market, sterling was first quoted at 4.03-1/2. It moved to 4.03-3/4 around noontime and closed at that level. Transactions of the reporting banks were as follows: To 1,000 Sold to commercial concerns Purchased from commercial concerns L 3,000 Closing quotations for the other currencies were: Canadian dollar Swiss franc Swedish krona Reichamark Lira Argentine peso (free) Brazilian milreis (free) Mexican peso Cuban peso Chinese yuan 13-15/16% discount .2321 .2385 .4005 .0505 .2357 .0505 .2066 7-13/16% discount .05-5/8 There were no gold transactions consummated by us today. No new gold engagements were reported. No gold or silver prices were received from Bombay today. In London, the prices fixed for spot and forward silver were both 1/16d lower, at 23-5/16d and 23-1/4d respectively. The dollar equivalents were 42.33# and 42.21#. 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 300,000 ounces under the Silver rchase Act. This represented a sale from inventory. 32 -2- According to the Commerce Department's daily statement of silver exports and imports, a refined silver bullion shipment of approximately 300,000 ounces was 6.sent from New York to an unnamed consignee in Le Locle, Switzerland around January In yesterday's report, reference was made to the $5,500,000 reduction, during the week ended December 31, in deposits and bills held by the New York agency of the Yokohama Specie Bank for account of Japanese banks in Japan and Manchuria. It was observed that, since Japanese bank deposits with the New York agency were credited with $3,000,000 resulting from the sale of Japanese gold imported on December 27. as much as $8,500,000 may have been withdraw from deposits in New York by Japanese banks. Today it was learned that the New York agency also credited Japanese deposits on their boaits with another $3,000,000 resulting from a gold import on December 31, and that the amount withdrawn from such deposits was in the neighborhood of $11,500,000. The Tokehana agency stated that the bulk of this amount was used by the head office of the Yakahana Specie Bank to purchase bills arising from goods imported by Japan. aml CO DENTIAL 33 GRAY JT ROME Dated January s, 1941 REC'D 3:59 p.m. Secretary of State, Washington. 21, January 8, 7 p.m. The Italian Council of Ministers yesterday approved the national budget Estimates for 1941-42 involving, according to press reports, expenditures of 39875.5 million lire and income of 31082.4 million. As compared with the corresponding initial Estimates for 1940-41 these figures which obviously pertain only to the *normal* budget involve an increase of 14.3 percent in Expenditures and 7.2 percent in receipts and the estimated deficit of 8794.1 million compared with previous *initial deficit* of 5892.9 million (SEE Embassy's telegram No. 51, January 22, 6 plm., 1940). For the Military Ministries (War Marine Arronautics) the combined Estimate is 12210.4 million, an increase of 12.6 percent. Allotments for other Ministrics also show increases EXCEPT for Italian Africa for which the decrease is Explained as due chiefly to cessation of appropriations for 34 -3- 21, January.8, .7. p.m., from ROME for colonization. The increase of the aggregate Estimate OVER that for 1940-41 is attributed in the press communique to the "greater costs of functioning of various SERVICES and to the increases in salaries and allowances of Government Employees decreed last April. The allocation for the Ministry of Finance is 15636.5 million lire an increase of 2199.3 million. This increase is reported to represent chiefly interest charges in connection with the "inevitable further increase" of the public debt. The Estimate of a deficit of 8794.1 million lire in the "normal" budget throws no light on the real deficit which will be incurred since the vast extraordinary outlays growing out of war operations are not included. An illustration of the great difference between real deficit and deficit from "normal" operations is furnished by figures of final results for 1939-40 which WEIE reported at the same meeting of the Council of Ministers. Whereas the initial Estimates for that year had envisaged a deficit of 4755 million lire the total actual deficit as now reported was 28038.4 million-incidentally EXCEEDING the 26 billion predicted by the Finance Minister near the end of the said fiscal year, SEE Embassy's telegram No. 375, May 18, 9 a.m., 1940. This deficit arose from Expenditures of 60388.9 million lire (of which 21890.5 million 35 -3- 21, January 8, 7 p.m., from ROME million WEIE "for EXCEPTIONAL Expenditures incurred because of military Exigencies" and for "valorization of the Empire") against receipts of 32350.5 million. The deficits for "normal" operations is stated at 6147.9 million. No statistical information is available as to progress of the current year's budget but that the deficit will dwarf the 1939-40 figure of BOME 28 billion lire is a logical deduction from the fact that the latter deficit was incurred EVEN before war operations began. KIRK CSB PLAIN HSM 36 Shanghai via N.R. Dated January S. 1941 Rec'd 9:55 E.E., 9th Secretary of State, Washington. 31, Eighth. Shanghai's 17, January 6, 5 D.M. Article January 1 FINANCE AND COMMERCE states that establishment of central reserve bank result of demand Nanking regime for financial independence, that Jananese army consent given only reluctantly inasmuch as bank in conception and sims "strikes right across the scheme of clammed economy devised by the Jananese army" and any continuation of "currency war in China through medium of new bank notes will injure military yen more then National Government fapi. Maintenance fabi seid essential to continuance Shenghai imports from non-yen block countries, while military yen under existing military economy essential for continuence imports from other parts yen bloc area, including Japan. Whereas fapi and military yen supported respectively by British-American financial resources and Jacanese economic power "behind the Chinese central reserve bank note there will be nothing but big political ideas". Article states that development new bank on lines foreshadowed by Nanking would injure yen bloc system as well as fani and predicts that "when the new note begins to make itself a nuisance to the military yes its further activities will be abruptly salted". Article calculates on basis information "authoritative sources' circulation military yen Central China one hundred twenty million, South China fifty million and notes steady upward movement during recent months military year exchange value. "Supported by Japanese trade control, the military yen is gradually usurping the role of the fapi and is trespassing upon the fapi reserves": the military yen can hold its position while such trade control is maintained and it is inconceivable army will sacrifice pet scheme to further Nanking designs, therefore Nanking will probably be left to own resources to do best it can with central bank but no (repeat no) material change financial outlook to be anticipated. Third branch Kiangsu High Court located French Concession in proclamation dated January 6 announced that court fees guarantee deposits et cetera henceforth shall uniformly be paid in the new currency; that if Chinese residents of the French Concession should harbor intent to destroy or refuse to accept such currency they shall upon apprehension be punished severely. Sent to Department. Repeated to Peiping, Chungicing. By airmail to Tokyo. LOCKHART id eh:copy 37 G-2/2657-220 RESTRICTED SITUATION REPORT No. 2577 M.I.D., W.D. January 8, 1941. 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 Mar. 1. Air Force Operations. During daylight on the 7th there were scattered raids by single German planes over England and the North Sea. Last night neither side conducted offensive operations because of bad weather. II. Greek Theater of Mar. Local actions reported. Very limited aerial activity. III. Mediterranean and African Theaters of Mar. The British report that operations toward Tobruk are procrediting satisfactorily. The main Tobruk airdrome at E1 Adem, fourteen miles southwest of Tobruk, has been captured, together with forty planes in unserviceable condition. The R.A.F. continued to attach along the Mediterranean littoral. Italian fighter reaction seems to have been slight. RESTRICTED 38 State Dept. Cong. MAJORITY LEADER BARKLEY AND SENATOR PAT HARRISON SPENT MORE THAN AN HOUR IN SECRETARY HULL'S OFFICE LATE TODAY. SECRETARY OF TREASURY HENRY MORGENTHAU ALSO ATTENDED THE CONFERENCE. NONE OF THE CONFEREES WOULD GIVE ANY DETAILS OF THE MATTERS DISCUSSED BUT BARKLEY SAID IT WAS *FAIR TO ASSUME* THAT CONGRESSIONAL ACTION TO IMPLEMENT FOREIGN POLICY WAS UNDER CONSIDERATION. 1/8--W0534P 39 January 8, 1941 Memorandum To: Secretary Morgenthau From: Secretary Hull (Via Mrs. McHugh) Congressman James Wadsworth came in this morning, and he is very strongly with us on our program. He said that he would like to suggest privately that it would be very helpful, on his side of the House, if the President could see his way clear to invite an appropriate minority Republican to his conference with Democratic leaders at the White House. I pass this on for whatever it may be worth to you and the President. 40 January 8, 1941. MINORANDOM TO: Secretary Morgenthau FROM: Mr. Gaston At your request, through McKay, I called Jean Monnet and said we would like to have him talk to John Davenport, who would call him. Monnet said he would comply gladly, but that he would like to talk with the first and so I made an appointment with him for four o'clock. He has just left. He wanted to know if he could talk freely to Davenport about that he regards as your essential contributions not only to the British-French program but to the present defense program and particularly whether he could tall Devenport how rosistance in the War Department caused most serious delays. I told him that he could talk perfectly freely to Davenport, since I felt sure John would check with us the stories he writes. 41 Jones- Eiches Plan SECRETARY JONES TOLD HIS PRESS CONFERENCE THAT HE WAS OPPOSED TO CERTAIN PHASES OF THE FEDERAL RESERVE BOARD'S PLAN TO INCREASE ITS MONETARY AND FISCAL POWERS. 1/8--W0448P ADD JONES ASKED FOR COMMENT ON THE RESERVE BOARD'S PROPOSAL TO DECREASE EXCESS BANK RESERVES BY RAISING REQUIRED RSERVES, JONES SAID *I'M FOR EXACTLY THE OPPOSITE." JONES INDICATED HE FELT THE BOARD'S PROPOSAL WOULD HAVE THE EFFECT OF DECREASING LENDING POWER OF BANKS. "I'M TRYING TO GET THE BANKS TO LEND MORE," HE SAID. "I WANT TO SEE AS MUCH BANK CREDIT AVAILABLE AS POSSIBLE." JONES DERIDED THE BOARD'S CLAIMS THAT IT MADE ITS PROPOSALS TO FORESTALL POSSIBLE MONETARY INFLATION. "I HAVEN'T SEEN ANY INCLINATION TOWARD INFLATION,* JONES SAID, "AND I DON'T SEE WHY WE SHOULD EXPECT IT." 1/8--W0455P 20-0 7. Henders Copyts me Henderson 1/10/41 42 JAN 8TH 1941 My dear Mr. President: I think you may be interested in the attached shart, which shows that the cost of a 6-room from house is the st. Louis area has increased 13 per cost since July, and shows in detail the individual seat items responsible for this increase. Faithfully yours, (Signed) E Morgenthan, Jr. The Prohident, The White Home. CC to Mr. Thompson By Messager 6 DA- 1/5/22 LE COPY 43 Residential construction costs 13 per eant above July Estimated costs of construction for a standard 6-reen frame house in the St. Louis district, compiled each month by the Real Estate Analyst, show an increase of 13 per cent since July. The itemised increases for materials, labor, and general costs are shown on the attached chart. It will be noted that the largest percentage increase has been in the cost of finished and unfinished lumber. Lun- ber costs, however, levelled out between November and December (The BLS figures on wholesale lumber prices also show a levelling out during the three weeks ended December 14, but in the last two weeks of December a further rise has carried then again to new highe.) The cost of heating and plusbing materials in December, according to this compilation, declined below the cost in July. The greatest advance during the past month was in labor costs, and certain general costs have also increased. (Lower sections of chart.) GCHilm 1/8/41 FILE COPY CHANGES IN COST OF CONSTRUCTION OF STANDARD 6-ROOM FRAME HOUSE, . ST. LOUIS Percentage Change, November and December over July 1940 PERCENT ITEM AND PERCENT CHANGE Materials JULY TO Dcc. 1940 COST DEC. 1940 30 UNFINISHED LUMBER 32.9% $493 25 FINISHED LUMBER 23.7% 805 20 WINDOWS, DOORS, ETC. 14.0% 645 15 MASONRY AND TILE MATERIALS 6.9% 655 10 PAINT, HARDWARE AND ELECTRIC MATERIALS 1.0% 390 5 HEATING AND PLUMBING -2.5% 508 0 MATERIALS $3,496 -5 NOV. JULY DEC. 20 MASONRY AND TILE MATERIALS 18.2% Labor UNFINISHED LUMBER 15.2% $726 182 15 PAINT. HARDWARE AND ELECTRIC MATERIALS 13.1% 10 259 FINISHED LUMBER 13.0% 243 WINDOWS, DOORS, ETC. 12.3% 219 HEATING AND PLUMBING 10.3% 321 $1,950 5 LABOR 0 -5 NOV. JULY DEC. 20 INSURANCE . General SALES TAX, CTC. 14.7% $375 15 GENERAL CONTRACTORS PROFIT 13.4% 585 10 SUBCONTRACTORS OVERHEAD AND PROFIT 8.0% 380 5 NOV. 0 JULY MISSOURI SALES TAX (NOW 2 PER GENT ON MATERIALS), OLD AGE AND UNEMPLOYMENT TAX (FEDERAL AND STATE), LIABILITY AND EMPLOYEES COMPENSATION INSURANCE, FIRE AND TORNADO INSURANCE, COMPLETION BOND. SOURCE: REAL ESTATE ANALYST. DEC. GENERAL $1,340 TOTAL COST. DEC. $6,786 TOTAL COST, JULY. $6,004 INCREASE $782 PERCENT 13.0 . copy origine to & Welles 3 pm MEMORANDOM TO: January 8, 1941 The Secretary FROM: Mr. Young RE: Machine feels for Russia I discussed our entire clearance procedure with the Russian Asbassador and representatives of Amtorg on October 31, 1940. At that time they agreed to supply us with information as to outstanding orders, with particular reference to machine tools, and to establish a system of Preliminary Negotiation Reports so that future orders would be cleared through the President's Lisison Committee before they were placed. On November 1, 1940 a representative of Astorg came in and discussed the machine tool situation, and left with us the following acchine tool lists: 1. List of equipment inspected and accepted by Soviet purchasing agencies for which export licenses have been thus far refused. 2. List of equipment is the process of manufacture, for which export licenses have thus far been refused. 3. List of equipment retained by the United States Government at manufacturers' plants. 4. List of equipment for which applications for export licenses here been filed, but not yet been asted upon. 5. List of equipment for which orders are intended to be placed. During this conference 11 was agreed that Preliminary Negotiation Reports would be filed for all the machine toolsincluded is Category 5 above. On December 6, 1940 we received nine Preliminary Negotiation Reports fres Astorg. These covered 26 45 -2machine tools from Miles-Bement-Pond Company, Cincinnati Planer Company, and Clearing Machine Corporation, with a total value of approximately $1,200,000. These were the first of such reports received from the Russians, and we have received none since. These reports were forwarded to the Army, Navy, and Defense Commission for clearance in the usual manner. on December 20, 1940 while these reports were still pending, we discussed this list with Mr. Yest of the State Department over the telephone, and sent a complete list of the tools to Mr. Berle with a letter dated December 21 so that they could be checked against the agreements which the State Department had made with the Ambassador. On December 26 we were advised by the Defense Commission that all these reports would be disapproved because of the needs of the U. S. defense program, but we suggested that they hold then in status que rather than forward then with a di sapproval pending receipt of word from the State Department as to whether they were covered by agreements with the Ambassador. We then contacted the State Department and were told that it would be necessary for them to know whether expert licenses had been requested on these tools before they could determine whether they were included in those which the State Department had agreed to release. We inquired on this point from Amtorg on December 27, but were told that it was impossible to determine exactly which tools were covered by license applications since these under present regula- tions of the Administrator of Export Control must be filed by the manufacturer instead of by the purchaser. We have discussed this situation briefly with representatives of the State Department since that time, but as yet have no reply to our letter of December 21, and the matter is therefore still pending. As it stands today these Preliminary Negotiation Reports will be disapproved by the joint recommendation of the War and Navy Departments and the Defense Commission, unless it is established that they are included in the tools which the State Department has agreed to release in its conversations with the Ambassador. The problem is for the Department to indicate whether these particular tools were included in their agreement. JCB:meo 46 78 91 is 18 14 a 18 78 46 37 52 81 52 73 81 118 695 126 124 111 166 152 112 519 100 119 737 300 176 276 337 320 389 300 253 the 305 419 405 135 119 386 681 438 129 144 124 110 112 July 21 Aug. 1,042 2,771 1,776 346Oct. 13 Oct. 26 1,672 1,099 1,965 1,284 7,209 4,516 2,693 Total 36 26 10 965 575 410 January a, 1941.July 21 Aug. 601 420 1,021 planes 2 2 4 8 4 2 & 8 74 10 39 81 16 6 113 92 10 200 108 Other planes 36 344 23 14 437 92 463 119 640 113 285 203 377 913 532 179 159 206 131 184 946 1,445 2,925 1,979 Commercial Trainers military 1 3 83 38 39 74 11 13 67 78 21 51 69 52 276 77 11 12 193 783 113 384 10 14 50 85 93 50 283 61 333 134 113 1,167 108 630 116 104 1,653 1,223 Pursuits 39 52 13 13 86 10 14 42 72 924 424 500 128 39 28 16 34 106 621 589 1,210 Bombers January 1, 1940 - January 4, 1941 DELIVERIES OF AIRPLANES, BY PURCHASERS AND BY TYPES OF PLANES 28 Dec. Subtotal July 7 Jan. 4 Subtotal July 7 Jan. 4 Total Jan. 1, 1940 - Jan. 4, 1941 Subtotal July 7 Jan. 4 Nov.24 Dec. . Deliveries under Fresch contracts were made up to June 30, 1940. Nov 10 - Nov. 23 Oct. 27 - NOV. 9 Sept. Sept. 15 Sept. Sept 14 28 Subtotal July 7 - Jan. 4 July 7 - July 20 Jan. 1 July 6 Subtotal July 7 Jan. 4 Total Jan. 1, 1940 - Jan. 4, 1941 Dec. 22 Jan. 4 Dec. 8 Dec. Sept. 29 Oct. 12 Nov. 10 - Nov. 23 80 Nov.24 Dec. Sept. 15 Sept. 28 Oct. 27 - NOV. : Sept. 1- Sept. 14 Oct. 13 Oct. 26 OTHER July 7 July 20 Jan. 1 July 6 Total Jan. 1, 1940 - Jan. 4, 1941 4Dec. 22 Jan. Sept. Sept. 15- Sept. Sept. 14 17 12 Jan. 1 July 6 July 7- July 20 July 21 Aug. Oct. 27 Nov. 9 Nov. 24 Dec. Nov. 10 Nov. 23 Oct. 13 Oct. 26 Aug. 18 - Aug. 31 Total Jan. 1, 1940 - Jan. 4, 1941 Sept. 15 Sept. 28 July 7 July 20 Sept. 29 Oct. 12 Dec. 8 Dec. Nov. 24 Dec. Oct. 13 Oct. 26 Nov. 10- Nov. 23 Sept. 1- Sept 14 Oct. 27 - Nov. BRITISH EMPIRE AND FRANCE* Aug. Aug. 17 Dec. 22 Jan. Dec. 5 - Dec. Aux. 18 Aug. 31 Total Jan. 1, 1940 - Jan. 4, 1941 Sept. Sept. 1- 15 Sept. Sept. 28 Jan. 1 July 6 July 7 July 20 Jan. 1 July 6 Sept. 29 Oct. 12 118 Nov. 24 Dec. Nov. 10-Nov. 23 July 21 Aug. 3 Oct. 27 Nov. NAVY Aug. 4- Aug. 17 Aug. 18 Aug. 31 14 ARMY TOTAL ALL PURCHASERS STRICTLY CONFIDENTIAL 0 Dec. 8 Dec. 21 Sept. 29 Oct. 12 Aug. Aug. 17 Dec. 22 Jan. Aug. 15 Aug. 31 Aug. Aug. 17 as July e Aug. Aug. Aug. 18 - Aug. Aug. 17 31 Sept. 29 Oct 12 Oct. 13 Oct. 26 Office of the Secretary of the Treasury Division of Research and Statistics. If 56 37 5a of 52 81 11 78Aug. Aug. Sept. 1- Sept. 14 July 21 Aug. 519 111 146 129 166 737 119 124 176 144 119 342 419 152 55 695 143 438 253 305 389Subtotal July 7 Jan. 4 99 73 1416 42 56 112 621 320 126 337 146 44 31 18 IS 91 276 July 21 Aug. 112 681 Oct. 13 Oct. 26 124 135 1,041 1,672 1,778 2,771 1,099 1,965 1,284 106 7,209 4,516 2,693 40 36 26 10 985 575 35 28 II 48 64Total Jan. 1, 1940 - Jan. 4. 1941 28 410 Oct. 13 Oct. 26 January 8. 1941. planes Jan. 1 July 6 a 2 4 2 2 2 Z 2 8 7 74 10 39 . 8 51 16 65 405July 7 July 20 10 92 14 95 601 300Dec. 22 Jan. 1,021 420 200 108 13 45 61 9 36 118 17 463 55 344 27 26 23 119 Total Jan. 1, 1940 - Jan. 4, 1941 437 67 92 is " 113 640 92 Aug. Aug. 17 96 110Jan. 1 July 6 113 56 57 60 377 285 203 96 913 72 179 532 179 131 164 171 946 159 1,445 2,925 1,979 2 83 2 7 69 51 77 7 74 Dec. 8 - Dec. 21 300 276 44 3 11 13 783 113 10 34 384 29 21 50 193 12 12 50 71 65 61 283 333 134 113 108 630 DOG 116 1,167 104 1,853 1,223 39 8 814 52 13 74 . 6 13 25 86 14 10 14 Nov.24 Dec. 11 924 424 42 72 Nov. 24 - Dec. 34 38 25 39 43 118 6318 500 Aug. 16 Aug. 31 61 589 1,210 Other Commercial Total Trainers Pursuits Bombers military planes TOTAL ALL PURCHASERS July July 20 January 1, 1940 - January 4, 1941 4 DELIVERIES OF AIRPLANES, BY PURCHASERS AND BY TYPES OF PLANES 4 4 Aug. 4. Aug. Subtotal July 7 - Jan. 4 subtotal July 7 Jan. Total Jan. 1, 1940 - Jan. 4. 1941 Subtotal July 7 - Jan. 432 Dec. 22 Jan. Dec. 22 Jan. Dec. . Dec. Nov. Dec. Oct. Nov. 9 Subtotal July 7 Jan. 4 July 7 July 20 Jan. 1 July 6 Total Jan. 1, 1940 - Jan. 4, 1941 Dec. 22 Jan. Oct. 27 Nov. 9 Sept. Sept. 28 Sept. Sept.14 Jan. 1 July 6 Total Jan. 1, 1940 - Jan. 4. 194110 July 7 July 20 Aug. 4- Aug. 17 Nov. 24 Dec. Sept. 29 Oct. 12 Oct. 13 Oct.26 Nov.10 Nov.23 Aug. 16 Aug. 31 100 OTHER Sept. 1- Sept. 14 Sept. 15- Sept. 28 Dec. 22 Jan. Sept. 1- Sept.125 Dec. 5 - Dec. 21120 Sept. 29 Oct. 12 July 7- July 20 18 Oct. 27 Nov. 9 Oct. 13 Oct. 26 July 21 Aug. Nov.10 Nov.23 Jan. 1 July 6 Aug. 18 Aug. 31 Dec. Dec. Nov. 10- Nov.23 Sept. 29 Oct. 12 52 Sept. 15 Sept. 28 Oct. 27 - Nov. 9 BRITISH EMPIRE AND FRANCE* Dec. Dec. 28 Sept. 15 Sept. 28 dept. 29 Oct. 12 July 21 Aug. 16 Sept. 1- Sept. 14 Nov. 24 Dec. Aug. 18 Aug. 31 Aug. : AUR. 17 Nov.10-Nov.23 Oat. Nov. NAVY ARMY STRICTLY CONFIDENTIAL Aug. Aug. 18 31 14 July 21 Aug. 2 Sept. Sept. 25 Sept. 29 Oct. 12 Oct. 13 Oct. 26 Nov. 10 Nov.23 . Deliveries under French contracts were made up to June 30, 1940. Office of the Secretary of the Treasury. Division of Research and Statistics. 49 4 103 NEWLANDS STREET CHEVY CHASE MARYLAND John USH Dear Mr. I talle pleasure in enclosing am from several Chicago Kai shek, planes Thanking telep pursuit a securing the hundredconsidered not be you for I hope I may touched for us. Lt / am profoundly her by effusive, yourus. working even on Christmas and year's Day to helf / been that you will soon be I Washington for a couple of honor walks, us and W leaving has will before hope Coming you to & a Chined disne at my house you leave. B frethy yours T. V. Song 50 January 8, 1941 Translation of Chinese telegram from General Chiang Kai-shek to Secretary Morgenthau dated January 6, 1941. I have just received a telegram from Dr. T. V. Soong that your untiring efforts to obtain the much needed airplanes for the defence of our cities and of the Burma Road have proved successful. My appreciation is all the greater as I realize the tremendous pres- sure from all countries for the release of airplanes, the production of which is still so limited. It is an urgent matter for all of us to secure air support for our large scale counter-attack on the Japanese in China, and in particular to bring home the attack by bombing Japan itself, and may I beg you to continue your efforts along that line. Again with warmest thanks. (signed) Chiang Kai-shek 5 51 (Copy of rough draft of memorandum handed by Mr. Pinsent of the British Embassy to Mr. Cochran in the Treasury on January 8, 1941.) 1. Stepping up of expenditure 1939 may be ignored: the Neutrality Act was only amended in November, and no serious purchasing by the British Missions was started till 1940. The following figures show, in round figures, the actual expenditure of the missions for 1940 and the estimated expenditure for 1941:January - June 1940 $350,000,000 July - December 1940 $ 1,000,000,000 January - June 1941 $ 2,000,000,000 July - December 1941 $ 2,500,000,000 These figures, giving a total estimated expenditure of $4,500 millions for 1941. cover only the programmes (known as Programmes 1, 2 and 3) which have been submitted to the Secretary of the Treasury during his discussions with Sir Frederick Phillips. If the schedule of needs which Mr. Purvis has since submitted is taken into account, and assuming that the maximum effort is made to meet those needs from American production. the total expenditure for 1941 might amount to $7,500 millions: but there may be a wide mar- gin of error either way in this figure. 2. Payments and deliveries. During 1940, the British Purchasing Missions made payments to the amount of $1,350 millions and received deliveries to the value of $800 millions, so that payments exceed deliveries for 1940 by $550 millions. Of this about $160 millions in capital and $390 millions down payments on contracts. 52 3. Drop of reserves during 1940 At the beginning of 1940 our holdings of gold and foreign exchange amounted to $2,100 millions. At the end, they amounted to $400 millions. Thus, during 1940 there was a net loss of some $1.700 millions. Many factors went to build up this figure. The net adverse balance of the sterling area with the United States during that period was of the order of $1,380 millions, including $1,350 millions expended by the British Purchasing Missions. On the credit side have to be brought in newly-sined gold ($500 millions) and the sale of U.S. securities ($250 millions): on the debit side there is the loss of gold and dollars to third countries, and above all to Canada. Beside these current items. there is a very large element of capital withdrawal in our dollar balance of payments. Since the beginning of the war something like L millions of U.S.-owned capital was withdrawn and sold on the free market. This sterling was available to pay debts in the sterling area. while the dollars counterpart never reached our control. Our desire not to penalise foreign holders of balances and investments led, therefore, to an enormous indirect drain on our resources: much the greatest beneficiaries of this policy were residents in the U.S. who held larger balances and investments than any other class of non-residents. 53 Net dollar deficit of the sterling area. 4. Setting on one side all the orders which have been placed, or would be placed by the British Purchasing Missions but for the lease-loan plan, the sterling area still has a net deficit of some $200 millions a year, in round figures, on current account in gold and dollars. This is arrived at as follows:(In millions of U.S. dollars) Favourable balance of Expenditure in gold and excluding payments by U.S. and Canada dollars by sterling area in countries other than sterling area with U.S., British Purchasing Missions Newly mined South 195 248 Net adverse balance African gold 480 Net dollar deficit 193 with Canada (see note below) 868 620 868 This figure of $193 millions is likely to increase as our purchases of essential goods from Canada increase; and it must be met from our reserves of gold and dollars. The figure given above for our adverse balance with Canada takes into account all they can do to help us by repatriation of debt and purchase of Canadian securities from us. If the lease-loan plan did not cover the whole of what would otherwise be procured by the British Purchasing Missions, the difference would have to be added to the above net dollar deficit of $193 millions. 54 5. Marketable securities. (In millions of U.S. dollars) A. Sold, as of January 6. 1941 Vested 117 Unvested 216 333 B. Unsold, as of January 6, 1941. Vested Unvested 229 527 Deduct sterling bonds with dollar option which in practice may prove unsaleable Remaining total 140 387 616 The total of securities set out above. including the sterling bonds with dollar options, comes to $1,090 millions, as compared with the Federal Reserve Board's estimate of $735 millions. (December 1939 Bulletin). It appears that a material part of the investments chasified by the F.R.Bd. as "direct investments" have in fact been registered under our regulations and are available for vesting. COPY:lap 55 January 8, 1941 MEMORANDUM TO: The Secretary FROM: Mr. Young Re: Additional Data on West Coast Aluminum Situation We have now received more specific information on the West Coast aluminum situation from the Defense Commission which can be summarized under the following headings: 1. Ingot All West Coast ingot requirements in 1940 were supplied by Alcoa's Vancouver, Washington, and Los Angeles, California, ingot facilities. These are now being expanded, and it is anticipated that they will be more than adequate for all contemplated West Coast requirements. In addition, there are several secondary smelters on the West Coast which are believed to have sufficient capacity to remelt all available scrap. 2. Forgings Alcoa's Los Angeles, California, forging plant is the only one on the West Coast. It supplied 65 per cent of West Coast aircraft forging requirements in 1940 and is being expanded so as to care for approximately 85 per cent of these requirements. The remaining 15 per cent, consisting probably of large forgings, will be supplied from Alcoa's Cleveland, Ohio, plant. 3. Sand Castings Alcoa's foundry at Los Angeles, California, together with requirements during 1940. A substantial increase in Alcon's capacity will be available in March, 1941, and it is believed that this increase, together with existing facilities, will take care of all anticipated West Coast requirements for sand castings. other West Coast foundries supplied 100 per cent of West Coast 4. Permanent Mold Castings Facilities on the West Coast were adequate to satisfy the entire demand in 1940, and it is estimated that they are also adequate to supply any anticipated increased demand. -2- 56 5. Rivets Approximately 50 per cent of West Coast requirements were taken care of by the plants there during 1940. Substantial increases in this capacity will be available by August, 1941, and it is anticipated that this increased capacity will be sufficient to take care of present or anticipated West Coast requirements. 6. Extrusions There was no capacity for the production of extrusions on the West Coast during 1940. Alcoa is installing at Los Angeles, California, 6 large extrusion presses and all auxiliary equipment necessary for their operation. The first two presses will be in operation in March, 1941, and all of them by September, 1941, at which time extrusion capacity will be sufficient to take care of approximately one-half of West Coast requirements. 7. Sheet There was no sheet capacity on the West Coast during 1940. With respect to the future, the Defense Commission advised us as follows: "Alcoa does not contemplate installing, for the present, a sheet nill on the West Coast although it plans to do 80 eventually. "In order to meet national defense requirements for high strength aluminum alloy sheet, Alcoa now has under construction sheet mill expansion at Alcoa, Tennessee, (near Knoxville), capacity approximately 10,000,000 pounds per month, which, when completed, will supplement existing sheet facilities in the country to an extent ample to take care of all sheet requirements at present contemplated by national defense as well as normal civilian requirements. The reason for locating this sheet mill expansion at Alcoa was that it could be put into operation much more speedily there than at any other location because machine tools necessary to its operation are already available at Alcoa and trained personnel, which more than any other factor determines the speed with which such a mill may be put into operation, also is available at Alcoa. Due to these two factors, a sheet mill located at Alcoa will be producing large quantities of aluminum sheet by a number of months sooner than would have been the case at any other location. 57 -3- "Alcoa plans eventually to build a sheet mill on the West Coast to take care of all or a part of West Coast requirements. This will be done either by establishing a new sheet mill there, or else transferring some of its present sheet mill machinery to the West Coast, only when, however, the national defense aircraft sheet requirement status shall have become such as to permit the transfer of rolling mill machinery to the West Coast, the securing of the necessary machine tools to maintain such a plant at that location, and the training of the necessary personnel to operate such a plant." 8. Rod, Wire, Tubing There were no facilities on the West Coast for the production of rods, wire, or tubing in 1940, and the installation of such capacity 18 not contemplated at present. P.U. 58 Treasury Department Division of Monetary Research Date To: 19 Miss Chauncey From: L. Shanahan Both memos went to Mr. D. W. Bell Jan. 8, 1941. 59 The Recommendations Made to Congress by the Board of Governors of the Federal Reserve System, Presidents of the Federal Reserve Banks and the, Federal Advisory Council Summary. The Federal Reserve System recommends: 1. Additional powers over reserve requirements for the Reserve System. It wants Congress to establish a statutory floor for reserve requirements equal to the present maximum, give power to the Reserve System to double these statutory levels, power to fix reserve requirements for non-member banks, and authority to vary the rates for types of banks. 2. Expanded powers for the Open Market Committee and contracted for the Board of Governors. Control of reserve requirements should be transferred from the latter to the former; the Open Market Committee is the body which the Treasury is asked to consult on certain other matters. 3. Removal of certain monetary powers from the President and the Treasury. These are the powers to devalue the dollar, to issue $3 billion of greenbacks, to monetize purchases of foreign silver, and to issue silver certificates against the seigniorage on previous silver purchases. 4. Consultation by the Treasury with the Open Market Committee. They request consultation prior to any operation of the Stabilization Fund which will affect excess reserves and in the event that any gold purchases are not sterilized or "insulated" from the credit system. 5. Policies for the Government to follow. They want the issuance of gold certificates to be stopped, Government borrowing from commercial banks to be either stopped or curtailed, and the budget to be balanced as nearly as possible and as soon as possible. The above recommendations, in their present form, have serious disadvantages: (1) They are aimed primarily at increasing the rate of interest and the income of bondholders. (2) They give to an agency which has no fiscal responsibility and which is only remotedly responsible to the public, powers: (a) greatly to increase the cost of the defense program and (b) even to impose serious obstacles in the 60 -2path of that program should the banking group so desire. (3) They cut down the emergency powers of the President and the Treasury at a time when the Government is confronted with an entirely unpredictable economic situation, comparable in its potentialities with the year 1932. It is a specious argument that the mere possession by the Government of such powers constitutes a threat of inflation. The Federal Reserve System has the power to increase bank reserves by $20 billions or more through the purchase of securities. But the Reserve System does not argue that possession by them of such an inflationary power is dangerous. (4) They greatly augment the powers of the banking group as against the Board of Governors by giving the representatives of the Federal Reserve Banks five votes as against six (or seven) votes of the Board in determining changes in reserve requirements. Essentially this development would be a reversion of monetary control from the Government to the bankers. (5) It is quite misleading and alarmist to imply that the mere existence of a large volume of excess reserves of itself constitutes an imminent danger of inflation. This is not to deny that the time may come when it will be desirable to tighten the money market in order to curtail borrowing by private interests. Still further, this is not to deny that at the present time there are occuring price increases resulting from monopolistic control and bottlenecks of capacity raw materials or skilled labor which require the application of specific measures of control. It does deny that the present situation calls for overall monetary controls to prevent inflation. (6) If emergency measures to reduce excess reserves are called for, it should not be overlooked that the Treasury and the Federal Reserve System already have strong powers. For example: (a) The Reserve System now has the power to raise reserve requirements by about $1-1/4 billion. (b) The Reserve System can sell some of its $2-1/3 billion worth of Government securities and thereby reduce excess reserves. (c) The Treasury can withdraw sums without practical limit by the simple operation of selling bills and transferring the proceeds to the Federal Reserve banks. 61 -3(d) The Treasury can reduce excess reserves by an additional $1/2 billion merely by transferring its deposits from banks to the Federal Reserve banks. (e) The Treasury already has the power to sterilize inflowing gold 8.6 it did in 1937. (f) Finally, the Federal Reserve Bank has the power to reclassify banks. This power of reclassification, which could be used for the emergency period, enables the Board to increase reserve requirements by several billion dollars. (7) However, in the near future it may be deemed desirable to give additional control over excess reserves by means of a single device. Adequate attention to the needs of the defense program, and more generally of the public interest, would require that if this broad power is granted to the Federal Reserve System Congress should require that it be exercised only with the approval of the Secretary of the Treasury. Treasury Department Date 1/8/41 19 2To: Mr. Bell From: Mr. White 62 This is the final revision suggested by Dr. Viner for the so-called "weak" draft. It is referred to as Draft No. 1. Will you please destroy the earlier version of this draft and write at the top of the other so-called "strong" draft Alternative Draft No. 2 I Division of Monetary Research Alternative Draft No. 1 The Recommendstions Made to Congress by the Board of Governors of the Federal Reserve System, Presidents of the Federal Reserve Council Banks and the Federal Advisory Summary. The Federal Reserve System recommends: 1. Additional powers over reserve requirements for the Reserve System. It wants Congress to establish a statutory floor for reserve requirements equal to the present maximum, power for the reserve system to double these statutory levels, power to fix reserve requirements for non-member banks, and the authority to vary the rates for types of banks. 2. Expanded powers for the Open Market Committee and contracted for the Board of Governors. Control of reserve requirements should be transferred from the latter to the former; the Open Market Committee is the body which the Treasury is asked to consult on certain other matters. 3. Removal of certain monetary powers from the President and the Treasury. These are the powers to devalue the dollar, to issue $3 billion of greenbacks, to monetize purchases of foreign silver, and to issue silver certificates against the seigniorage on previous silver purchases. Consultation by the Treasury with the Open Market Committee. they request consultation prior to any operation of the Stabilization Fund which will affect excess reserves; and also whenever gold purchases are not sterilized or "insulated" from the credit system. 5. Policies for the Government to follow. They want the Issuance of gold certificates to be stopped, Government borrowing from commercial banks to be either stopped or ourtailed, and the budget to be balanced as nearly as possible and as soon as possible. Comment. The Treasury concurs fully in the statements of the Reserve System as to the importance of the problems of financing the Defense Program, as to the undesirability of inflation, and the need to strengthen the powers to deal with the financial emergencies that may lie ahead. 63 -2The Treasury would agree with the Reserve System that the rapid increase of defense expenditures makes it desirable that the Government should be given additional powers to prevent inflation. The 1. Additional Powers for Reserve System. Treasury agrees that there should be greater and more flexible control of reserve requirements. This is in line with the general principle that discretionary powers should be available in order to deal with rapidly changing financial conditions. These additional powers over reserve requirements if vested solely in the Reserve System would enable the Reserve System, in periods like the present, substantially to affect the ability of the Government to finance its defense effort. Therefore, the discretionary powers to change the reserve requirements should not be exercised without the concurrence of the Secretary of the Treasury. 2. More powers for the Open Market Committee. The Treasury believes that the proposed enlargement of the powers of the Federal Open Market Committee and the proposed contraction of the powers of the Board of Governors are unwise. To give the Open Market Committee control over reserve requirements in addition to their control of open market operations would be to depart even further than at present from the principles of democratic control and of centralized authority over the monetary system. On the contrary, we would recommend that not only the proposed power to regulate reserves but also the existing powers over open market operations should be given to the Board of Governors of the Federal Reserve System and that the Open Market Committee should be made exclusively an advisory board. 3. Less powers for President and Treasury. The Treasury does not agree with the Reserve System in its contention that the specified emergency monetary powers of the President and the Treasury should be abolished. The emergency monetary powers in question were granted to the Government to enable it to cope with extraordinary deflations. The fact that no such deflation is now expected does not mean that one will never occur. The Government's record on this matter -- largely a record of not using these powers -- does not warrant any fear that they will be used to generate an inflation. It might be pointed out that the Reserve System has a similar power of much greater magnitude, with respect to which it has made no similar recommendation For 64 -3 instance, the System has the power, by the open-market purchase of securities, to increase the reserves of banks by more than $20 billion, and consequently to facilitate an increase in the supply of money of even greater dimensions. 4. Consultation with Reserve System. The Treasury believes that free consultation between the Reserve System and the Treasury on all important banking and monetary matters of mutual concern should be the general practice. 5. Government Policies. The Treasury is in general agreement with the statements of the Reserve System on the subjects of the budget, taxation, and borrowing from banks. However, on the subject of gold acquisitions the Treasury believes that their effect upon excess reserves is only one of several important considerations which should determine the Government's policy. 65 66 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 8, 1941 Secretary Mbrgenthau TO FROM Subject: Mr. Haas DI Recent Movements in the High-Grade Securities Markets; Excess Reserves; Estimated Supply of Tax-Exempt Securities. Summary (1) Sharp declines in the prices of Treasury securities have accompanied the publication of the Federal Reserve System's "five-point program" of monetary and banking policy (Charts I and II). High-grade corporate bonds meanwhile continued strong (Chart II), but municipals declined (Chart III). (2) In the year ended December 31, 1940, the excess reserves of member banks increased by about $1.4 billions to $6.6 billions. This increase is about double the average increase during the preceding 7 years. The increase in excess reserves since 1932 has been due almost entirely, and that during the past year completely, to the increase in monetary gold stock (Chart IV). (3) During the year ended June 30, 1940 the amount of privately held tax-exempt securities outstanding increased by about $1.5 billions. This increase was more than accounted for by the increase in partially tax-exempt Federal issues. During the decade of the thirties such issues have accounted for about 80 percent of the total increase of $25.8 billions in tax-exempt securities. This contrasts with the preceding decade during which the decrease in the outstanding supply of partially tax-exempt Federal securities WAS just about offset by the increase in the wholly exempt securities of State and local governments (Chart V). 67 Secretary Morgenthau - 2 I. United States Government and Other Lgb-Grade Securities The announcement of an impending policy statement by the authorities of the Federal Reserve System and the subsequent release on January 1 of the Special Report of the System to Congress, embodying the "five-point program', were accompanied by share declines in the prices of Treasury securities. Long- term Creasury bonds have fallen about 1-3/4 points since the close DI Kynday, December 30. Intermediate-term bonds have lost somewhat less than long bonds. The weakness of Treasury notes has been relatively less than that of bonds. Price changes are shown, by maturity classes, in Chart I and in the following table: Average price change December 30 - January 7 (Decimals are thirty-seconds) Totes 1 to 3 years 3 to 5 years - .05 - .10 Bonds 5 to 15 years to call 15 years and over to call -1.07 -1.22 Offerings during the break were not large but buyers showed little interest except at rather substantial price refuctions and appeared to be unwilling to follow prices up. In surprising contrast to the movement of the average yield of long-term Treasury bonds our index of high-grade corporate bonE yields indicates a slight rise in corporate bond prices since December 30 (Chart II). Municipals, however, DATE declined on balance (Chart m 68 Secretary Morgenthau - 3 II. Excess Reserves In the 12 months ended December 31, 1940, the excess reserves of member banks increased by about $1.4 billions to 16.6 billions. The latter figure represents some decline from the all-time high of $7.0 billions reached on October 31. This decline, however, is due entirely to the seasonal increase of money in circulation, and there is no reason to suppose that the factors which have been making for the increase in excess reserves during the past 8 years, will not resume their forward march from now on. Changes in the factors contributing to the growth of member bank reserves, in the factors offsetting the growth of member bank reserves, and in member bank reserves themselves, are shown in Chart IY and in the table below: Dec. 31, 1932 Dec. 31, 1939 :-Dec.31, 1939:-Dec.31, 1940 (Billions of dollars) Factors Contributing to the Growth of Member Bank Reserves: Monetary gold stock Treasury currency Federal Reserve holdings of Government securities Other Federal Reserve credit Total + 13.4 + .8 + .1 + .6 - .2 - .3 + 4.3 o - 14.6 + 4.1 + 2.2 + 2.1 + 1.1 Factors Offsetting the Growth of Member Bank Reserves: Money in circulation Treasury gold Other Treasury cash All other Total + .7 + .5 - .2 - .3 + 5.5 + 1.1 + 1.7 + 4.5 + 4.6 + 9.1 + 1.0 + 1.4 + 2.4 Member Bank Reserves: Required reserves Excess reserves Total 69 Secretary Morgenthau - 4 The increase of $1.4 billions in excess reserves during the past year the is about double7 the average increase of $0.7 billion during preceding years. The increase during the past year, even more than that during the preceding 7 years, has been dominated by the increase in monetary gold stock. This one factor, which accounted for about 92 percent of the total of all factors contributing to the growth of member bank reserves during the earlier 7 year period, accounted for more than the whole of them during the past year -- the other factors (principally Federal Reserve holdings Government securities) operating, on balance, in the reverseofdirection. III. Estimated Amount of Privately Held Tax-exempt Securities An estimate of the amount of privately held tax-exempt securities outstanding as of June 30, 1940 was published in the December issue of the Treasury Bulletin. Changes during the twelve-month period ended June 30, 1940, in the privately held supply of tax-exempt securities are presented in the table below. (Securities held by the Federal Government, its agencies and trust funds, Federal Reserve Banks, and by State and local government sinking funds are not included in the privately held supply.) (Billions of dollars) Issuer and type of tax exemption State and local governments Federal Government and instrumentalities: Total Net change - year ended June 30, 1940 + .2 Wholly exempt - .4 Partially exempt + 1.7 + 1.5 70 Secretary Morgenthau - 5 Chart V shows the estimated amounts of privately held tax-exempt securities annually, as of June 30, since 1913. It is interesting to compare the changes in the past decade with those during the twenties. These changes are shown in the following table: (Billions of dollars) Issuer and type of tax exemption Net change :June 30, 1920--June 30, 1930:June 30, 1930 :June 30, 1940 + 9.0 + 2.3 Wholly exempt + 1.7 + 3.1 Partially exempt - 9.3 +20.4 + 1.4 +25.8 State and local governments Federal Government and in- strumentalities: Total It will be seen that during the decade of the twenties wholly tax-exempt issues of State and local governments accounted for an increase of $9.0 billions, most of which was offset by a decrease in the Federal debt, principally in partially exempt securities. The total increase in tax-exempt securities for the decade was $1.4 billions. During the last decade, however, about 80 percent of the total increase of $25.8 billions in tax-exempt securities was accounted for by partially tax-exempt securities of the Federal Government and its instrumentalities. * 71 Chart I CHANGES IN THE PRICES OF U.S. SECURITIES Points Plotted Represent the Difference from April 6. 1940 Price of Each Maturity Class 1941 TO 1940 - 28 POINTS (ms GRANDE) (ACT CHANGE) Daily * Interday Quotations FERMARY JANUARY DECEMBER THE POSITI N of 43 43 N 421 as M 2 22 42 424 BONDS OVER 15 YRS. 2 +2 CALL *18 +1 NOTES NOTES 1-3 Yes +1 off of 413 BONDS 5-15 Yas. TO CALL 41 2 - -3 NOTES 3-6 Yes. 5-15 Yis. CALL 4 - & Over 15 free NOTES CALL 1-3 YRS. -1 -6 + -1 -14 -14 7 -1) -7 -1) -11 -11 + 7 - . , -2 24 WITH 15 14 MAY --- Office . the Security of the Treasury JULY 1940 194 MAY 7 MAR. -10 18 " DECEMSER 1940 21 20 25 4 3 - -10 22 . +++ FERENARY JANUARY 1941 F - 153 28 Chart II COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS 1940 1941 1940 DEC 1941 PER DEC PER CENT PER CENT PER CENT DAILY WEEKLY. Saturday Quotations IS 1.8 18 20 20 20 Long Term Treasury 22 22 22 Term Treasury as Long years - - data) 24 24 24 26 26 26 Corporate 20 28 28 Corporate 10 30 30 32 32 32 34 14 14 34 16 36 PER PER CENT CENT PER CENT 100 100 100 Spread Between Long Term Treasury and Corporate ac 80 80 40 60 Spread 60 40 40 40 20 20 20 - AND ANY 1940 OCT HOV be JAN FER MAR : o MAY SEPT MAY JAN JUNE AUR SEPT 1941 Change - composition of Long Term Treasury - OCT NOV DEC DEC 1940 - - . - - I in AUS AUS APR o - FEB MAR BY FEB JAN 1941 0 o JAN FEB MAR APR MAY 60 20 3.4Office the Secretary of the Treatment 26 24 40 2.8 22 Inverted Scale 20 PER CENT3.0 30 CENT PER F-134-A Inverted Scale DEC NOV H is AUG SEPT OCT. NOV DEC JULY 1940 JUNE of MAY average 17 APR Treasury MAR Term Long FEB of JAN .. : date)24 1.9 DEC n NOV -OCT - indicates SEPT AUG Differential JULY 1939 1940 "Bread 1939 44 JUNE JUNE JULY IF is MAY " Yields Based on Saturday Quotations Long Term Treasury' MAR FEB Twenty 20-Year Municipal Bonds 3.2 3.2 1 JAN 0 20 40 60 3.4 20 2.8 22 26 CENT PER CENT AND Dow-JONES AVERAGE OF MUNICIPAL BONDS APR COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U S S TREASURY 74 Chart IV FACTORS AFFECTING MEMBER BANK RESERVES MONTHLY 1934 1933 1935 1936 1937 1938 1940 1039 1933 1934 1935 DOLLARS 1936 1937 1938 1939 1940 DOLLARS Factors Factors of Supply Billions Reserves 26 26 20 24 24 24 22 XXX - 22 20 22 20 20 18 18 16 16 14 14 12 12 18 16 14 12 10 10 10 1933 1934 1935 1936 1937 1938 1940 1939 'case 1934 1933 General Pumin. 1935 1936 1937 1938 1939 1940 30. 1013 to 60 Issuer and Tax 55 Partiall Exempt 55 s. Government and Federal Instruments Wholly Except 50 State and Local Governments 50 45 45 40 40 15 35 30 30 25 25 20 20 15 15 10 10 5 5 0 1914 '16 18 20 22 24 26 28 '30 32 34 36 38 Retirated gross amounts outstanding less agencies and trust funds. Federal Reserve banks and State local Secretary Tensury 40 42 44 o 76% January a, 2041 My dear Cardell: I - transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United : States. Yours sincerely, Henry Honorable Cardell Ball, Secretary of State. Enc. 77 January a, 1941 ky dear OarGell: I - transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, Henry Honorable Coriell Ball, Secretary of State. By 78 January a, 1042 my - Gardells I - transmitting herewith, for your records. a photostat of the initialed - of the bill to promote the defense of the United States. Yours sincerely, Henry Honorable Cardell Ball, Secretary of State. / 79 January 8, 1941 My dear Mr. Stimsons I an transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, (Signed) Honorable Henry L. Stimson, Secretary of War. the By Messages 9"m 1/9/21 80 January 8, 1941 My dear Mr. Stimsons I am transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, Honorable Henry L. Stimson, Secretary of War. By - 81 January s, 1941 my - Mr. Stimpose I - transmissing herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, (Signed) E Jr. Honorable Heary L. Stimson, Secretary of War. By - 82 January a, 1941 My dear Frank: I as transmissing herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, Henry Honorable Frank Knox, Secretary of the Navy. tne. By Messages 9"m1/9 83 January s, 1941 My dear Frank: I as transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, Henry Honorable Frank Knox, Secretary of the Mavy. By Message 84 January 8, 1941 My dear Frank: I am transmitting herewith, for your records, a photostat of the initialed copy of the bill to promote the defense of the United States. Yours sincerely, Henry Honorable Frank Knox, Secretary of the Navy. By Message 85 January 8, 1941 My dear Mr. Forster: I an transmitting herewith, for the official records, three photostats of the initialed copy of the bill to pronote the defense of the United States. Yours sincerely, (Signed) Jr. Mr. Rudolph Forster, Executive Clerk, The White House. stone By 600 86 January s, 1941 My dear Mr. Forster: I an transmitting herewith, for the official records, three photostate of the initialed copy of the bill to pronote the defence of the United States. Yours sincerely, (Signed) E. Mr. Redelph Forster, Executive Clerk, The White House. By 87 No.: January e, 1941 my dear Mr. Forsters I an transmitting herewith, for the official records, three photostate of the initialed copy of the bill to pronote the defense of the United States. Yours sincerely, (Signed) E. Morgenthan, Jr. Mr. Redolph Foreter, Executive Clask, The white House. n Manager 88 BILL To furnish support to those nations whose defense is vital to the defense of the United States. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as "An Act to promote the Defense of the United States." Sec. 2. As used in this Act (a) The term "defense article" means: (1) Any weapon, munition, aircraft, vessel, or boat; (2) Any machinery, facility, tool, material, or supply necessary for the manufacture, production, processing, repair, servicing, or operation of any article described in this subsection; (3) Any component material or part of or equipment for any article described in this subsection; (4) Any other commodity or article for defense. Such term "defense article" includes any article described in this subsection: Manufactured or procured pursuant to section 3; to which the United States has or hereafter acquires title, possession, or control; or owned, Leased, or otherwise held by any foreign government. 89 -2(b) The term "defense information" means any plan, specification, design, prototype, or information pertaining to any defense article or to defense. Sec. 3(a). Notwithstanding the provisions of any other law, the President may, from time to time, when he deems it in the interest of national defense, authorize the Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government: (1) To manufacture in arsenals, factories, and shipyards under their jurisdiction, or otherwise procure, any defense article for the government of any American republic, or any other country, belligerent or neutral, whose defense the President deems vital to the defense of the United States. (2) To sell, transfer, exchange, lease, lend, or otherwise dispose of, to any such government any defense article. (3) To test, inspect, prove, repair, outfit, recondition, or otherwise to place in good working order any defense article for any such government. (4) To communicate any defense information to any such government. 90 -3 (5) To export any defense article to any such government. (b) The terms end conditions upon which any such foreign government receives any aid authorized under subsection (a) shall be those which the President decns satisfactory, and the benefit to the United States may be payment or repayment in kind or property, or any other direct or indirect benefit which the President deems satisfactory. Sec. 4. All contracts or agreements rade for the disposition of any cel'ense article or defense information pursuant to section 3 shall contain a clause by which the 1 oreign government undertakes that it will not, without the consent of the President, transfer title to or possession of such deiense article or defense information to gift, sale, or otherwise, or permit its use by anyone not an officer, employee, or agent of such foreign government. Sec. 5. The Secretary of ar, the Secretary of the Nevy, or the head of any other department or agency of the Government involved shall, when any such defense article or defense information is exported, irredictely inform the department or agency designated by the President to administer section 6 of the Act of July 2, 1940 (54 Stat. 1090), of the quantities, character, value, terms of disposition, EIN: destination of the article . no inforeation so exported. Sec. 6(c). There is hereby authorized to be appropriates Iron time to time, out of any money in the Treasury not otherwise 91 -4appropriated, such amounts as may be necessary to carry out the provisicns and accomplish the purposes of this Act. (b) All money and all property which is converted into money received under section 3 from any government shall, with the approval of the Director of the Budget, revert to the respective appropriation or appropriations out of which funds were expended in acquiring the defense article or defense information for which such consideration is received, and shall be available for expenditure for the purpose for which such expended funds were appropriated by law, during the fiscal year in which such funds are received and the ensuing fiscal year. Sec. 7. The Secretary of Tar, the Secretary of the Navy, and the head of the department or agency shall in all contracts or agreements for the disposition of any such defense article or defense information fully protect the rights of all citizens of the United States who have patent rights in and to any such article or information which is hereby authorized to be disposed of and the payments collected for royalties on such patents shall be paid to the owners and holders of such patents. Sec. 8. The Secretaries of War and of the Navy are hereby authorized to purchase or otherwise acquire arms, ammition, and in- plements of war produced within the jarisfiction of any country to which section 3 is applicable, whenever the President deems such purchase or acquisition to be necessary in the interests of the 92 -5defense of the United States. Sec. 9. The President my, from time to time, promulgate such rules and regulations as my be necessary and proper to carry out any of the provisions of this Act; and be my exercise any power or authority conferred on him by this Act through such department, agency, or officer as be shall direct. FK OK/JOR OTHES OK.Jhm R. off 1/10/41 93 Mrs. Klotz told Mr. Young today that the Socretary wanted him to work directly with Secretary Knox on this matter. 94 URGENT CONFIDENTIAL January 8, 1941 To: The Secretary From: Mr. Young 1/6 Attached herewith is a memorandum which I have received from Mr. Charles T. Ballantyne of the British Purchasing Commission. This memorandum states that the British have submitted a bid to the Maritime Commission for twenty cargo vessels and they would like to know if it is possible for the Navy Department to take over this bid of approximately 11 million dollars. Should I forward this directly to Secretary Knox or would you like to take it up yourself. This would make a good case for the Navy to work on in order to find out what it can do on interim financing for the British. P.4. hick 25 Knick x 95 MEMORANDUM FOR MR. PHILIP YOUNG Ee have put in a bid for twenty cargo vessels in the hands of the Maritime Commission and the deal, which should have been closed on January 6th, has been on technical grounds postponed but must be closed not later than January 13th. In view of our credit position it is felt that we cannot complete this deal and are, therefore, likely to lose those vessels. Our arrangements for the necessary reconditioning of those vessels are also completed. Ee wish to know whether it would be possible for our bid to be taken up by the Navy Department with the intention that the vessels might ultimately be transferred to us. If this could be done at once the reconsitioning could go forward and time might be saved which, under present circumstances, might be invaluable. A SUN of approximately $11,000,000, which includes the cost of reconditioning, would be involved in this transaction. British Purchasing Commission, Washington, D.C. Jan. 6, 1941. 96 January 8, 1941. MEMORANDER FOR THE SECRETARY: I understand that the Executive order extending the foreign funds control is likely to be signed within the next few days. In the form in which it was sub- mitted it will be immediately effective. This will of course necessitate a substantial increase in the force employed under Mr. Pehle. If administratively feasible, I believe that there would be important advantages for this force to be treasferred to New York, except for a supervisory and liaison group, of course including Mr. Pehle himself, which would renain in the Department. In the first place, such a move would put our men eleser to the place where the bulk of the transactions occur, and would tend to expedite action and minimize delay. In the second place, I afraid that it will be very difficult to secure office facilities in Washington sufficient to accomodate a force much larger than we now have assigned to the funds-control work. I suggest that the feasibility of making this change should be fully explored before Mr. Pehle's force in Washington is further enlarged. orig. to Pehle, after Sec'y marked EMS in upper right-hand corner, with note - "I think these possibilities should be surveyed. DWB." - 1/9/41 97 January 8, 1941 Dear Mr. Berle: On behalf of the Secretary of the Treasury, may I acknowledge your letter of January 2nd, concarning the desire of the Turkish Government to acquire twenty P-40 planes. As you are aware, the planes which were the subject of Secretary Morgenthan's letter to the Secretary of State, dated December 18th, were dis- oussed at a meeting in Secretary Hull's office on Monday, December 23rd. As a result of the actions taken at that time, there are no P-40 planes available for acquisition by the Turki sh Government. Sincerely yours, (Signed) Philip YOUR Philip Young Assistant to the Secretary Honorable Adolf A. Berle, Jr., Assistant Secretary of State, State Department, Washington, D. 0. PY:bj 98 SECRETARY OF STATE DEPARTMENT OF STATE WASHINGTON In reply refer to NE 868.248/ January 2. 1941 My dear Mr. Secretary: With reference to your letter of December 18, 1940, regarding surplus P-40 pursuit planes which might be produced by the Curtiss-Wright Corporation for delivery in May, June and July, 1941, there are enclosed herewith copies of two memoranda of conversation, dated Novem- ber 23 and December 27, between the Chief of the Division of Near Eastern Affairs and the Turkish Ambassador with regard to the desire of the Turkish Government to obtain twenty additional pursuit planes. It will be observed that the Turkish Government would welcome the acquisition of twenty P-40 planes, and has inquired concerning the price of the planes, fully equipped with machine-guns, radio, spare parts and other equipment. The Ambassador has been informed that his GovernThe Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 99 -2meat's wishes would be communicated to the competent authorities of this Government. Sincerely yours, For the Secretary of State: Emclosures: 2 memoranda of conversation, dated November 23 and December 27, 1940. warming Adolf A. Berle, Jr. Assistant Secretary 100 Department of State BUREAU NE ON ENCLOSURE TO Letter drafted12/30/40 ADDRESSED TO Treasury -.--- 1-1033 101 DIVISION OF NEAR EASTERN AFFAIRS DEPARTMENT OF STATE Memorandum of Conversation DATE: November 23, 1940. PURCHASE OF PLANES BY THE TURKISH GOVERNMENT SUBJECT: PARTICIPANTS: Mr. Mehmet Minir Ertegtin, Turkish Ambassador Mr. Murray COPIES TO: ... At Mr. Berle's request, I inquired of the Turkish Ambassador this morning whether the airplane orders placed by his Government in this country were moving along satis- factorily and I reminded him of our interest in meeting the needs of the Turkish Government for military supplies as far as this might be possible within the framework of our aid to Britain and our own defense requirements. I then inquired of the Turkish Ambassador whether he believed that his Government might require at an early date some 20 additional Curtiss-Wright P-40 pursuit planes which had become available and which would be earmarked for the Turkish Government in case it desired to avail itself of these planes. I mentioned that the planes would normally 102 -2- normally become available about next June or July and might even be obtainable as early as January. The Turkish Ambassador expressed great satisfaction and gratitude at this friendly gesture from the Department and said he would communicate at once with his Government by telegraph and inform us of the reply at an early date. He added that, while he did not of course want to emphasize the question of price, he would, if there were no objection and after he had communicated with his Government in the sense of the above, inquire of Mr. Young regarding the cost of the 20 planes. The Turkish Ambassador informed me, at the sace time, that his Government had placed an order two years ago for 50 Vultee cursuit planes and had recently become interested in obtaining 50 dive bombers which he understood were among the 100 planes purchased by France before the collapse and which were now being held at Martinique. He also stated that he had been instructed only recently by his Government to explore the possibility of obtaining 50 training planes in this country and indicated that he intended to discuss this matter with Mr. Young. NE:WSM:EMA 103 DIVISION OF NEAR EASTERN AFFAIRS DEPARTMENT OF STATE Memorandum of Conversation DATE: December 27, 1940. SUBJECT: PARTICIPANTS: Turkish Ambassador Mr. Murray COPIES TO: -The Turkish Ambassador called on me this morning to give an official expression of the appreciation of his Government as a result of the inquiry which I was authorized to make of him some weeks ago as to whether Turkey might be in need of twenty P-40 planes. It will be recalled that in the discussions which took place at that time, when it was decided that planes should be made available to Greece and to China, it was suggested that I should sound out the Turkish Ambassador as to whether his Government might be in need of twenty more American planes. The Ambassador has now been informed by his Govern- ment that it would indeed welcome the acquisition of twenty P-40's; that it would be helpful if we could meanwhile 104 -2meanwhile advise them as to the price of the planes, and that in any case the Government would need to receive the planes fully equipped with machine-guns, radio, spare parts, and other equipment. I told the Ambassador that I would make a record of his Government's wishes in this matter and communicate with the competent authorities of this Government. NE WSM/GC ION TM 3 IN 8 25 OE OFFICE BRITISH EMBASSY. WASHINGTON, D.C. January 8th,1941. Dear Mr. Stewart, I enclose some rough notes on the point you raised with me this morning. It has been very difficult for me to do so as the proper answer should come from His Majesty's Government but I hope you may find them useful. I am sure it is in all your minds, but I do hope someone will bring out emphatically at the right moment, the bearing of the French collapse on the unexpectedly early exhaustion of our resources. For over six months the burden has been doubled and the resources halved. I have been thinking over also once more whether we cannot here find any improvements on present procedure which would be of a nature to assist the Secretary in his very important task with Congressional Committees. I have been wondering whether it might not be of use to him possibly if he could say that he was personally satisfied with the present rate at which our marketable securities were being sold and that he had complete daily information on that point from a representative of his own in whom he had complete confidence. I am sure that we would welcome it if Mr. Morgenthau were to arrange that you should be in daily supervision of Gifford's operations in New York. 106 BRITISH EMBASSY, WASHINGTON, D.C. -2- As regards direct investments I understood from you that Sir Edward Peacock's appointment would be agreeable to Mr. Morgenthau and I have cabled London urging that his immediate arrival here, with the fullest possible powers, is of the greatest importance. I am also agreeing with them an announcement in London of his appointment which I will ask them to hold until they hear from me in case, so far as Mr. Morgenthau is concerned, there is any particular choice of dates which would be most suitable. On Peacock's arrival I have no doubt it would be agreeable to us if Mr. Morgenthau saw his way to arrange that you should collaborate in a similar manner with Sir Edward in the matter of the direct investments. In the meantime, and pending Sir Edward Peacock's arrival, we would ask His Majesty's Government to empower Mr. Gifford to consider with you what can be done to advance matters. If these suggestions fall short in any way, I shall be most happy to take up any further ideas you may have. Yours sincerely, Hellings Mr. Walter Stewart, Treasury, Washington, D.C. Handed F me by Mr. Cochan Jan 9th 1946 107 ask Crohvan who does this access from think 1. Our remaining marketable securities are about $600 millions with some less easily marketable amounting to another $140 millions. (As you know, these sums are substantially above U.S. estimates.) There are also the direct investments which American estimates put at a minimum of $900 millions, though the realisable value of them in practice it is not possible to state. There are no other assets in American dollars of any kind which could be pledged. 2. The marketable securities are already being sold more rapidly to finance ourselves during the interim period prior to Congressional action on the pending legislation, and when that interim period is over we shall of course still have to go on selling them both to maintain our working dollar balance at the minimum safe figure and because we have uncovered dollar liabilities outside the British Purchasing Commission's expenditures to an extent of at least $200 millions a year. If in fact the lease-loan plan on its final passage did not cover the whole of the expenditure of the Purchasing Commissions, there would of course be another continuing drain of dollars which could only be financed out of the marketable securities. 3. As regards the direct investments it would be of course very difficult for us to put any specific value on these, and I am a little doubtful whether the suggested pledging to the corporation really adds anything to the present position. As the British Government have already indicated, they are having immediate practical examination made of the extent to which these United Kingdom investments can in fact be used for the purpose of raising dollar exchange whether by way of sale or, if that does not seem 108 -2- suitable in certain cases, by requiring the British interests concerned to raise money in the United States by capital issues or otherwise. They are also sending Sir Edward Peacock (whose appointment we understand would be agreeable to the Secretary) to guide policy in these respects, and they are ready to announce this appointment at any time that is convenient to the Administration. British Embassy, Washington. 8th January 1941. 108 -2- suitable in certain cases, by requiring the British interests concerned to raise money in the United States by capital issues or otherwise. They are also sending Sir Edward Pescock (whose appointment we understand would be agreeable to the Secretary) to guide policy in these respects, and they are ready to announce this appointment at any time that is convenient to the Administration. British Embassy, Washington. 8th January 1941. 109 January 8, 1941. The following are suggested as possible methods of meet- ing the claimed deficit of $251 millions, and avoiding the exhaustion of the dollar balances of the British Government: 1. Sale of $18 millions of American Government securities now in Canada but not yet vested. 2. Export-Import rubber, wool, etc. Bank credit against future deliveries of tin, 3. Purchase by the Metals Reserve Corporation of strategic materials, to be delivered in the future, but payment to be made in advance. 4. Realization of present vested securities through offer to private purchasers in an entire block of around $220 millions at perhaps a 10 percent discount below current market value. 5. The purchase by some Government agency of the vested secu- rities with an arrangement that the British Government will re- purchase them at the same price over a period of months. Mr. Foley thinks this procedure is legal, but wishes to examine the matter further before committing himself definitely. 6. Sale to a Government agency of some or all unvested but registered American securities. These total $440 million of which $140 million would not be readily salable in the American market. 7. R.F.C. loan against securities as collateral. 8. Sale of any immediately marketable direct investments. 9. Arrangements by the Army and Navy to relieve British of current payments on contracts for material which might be utilizable by the American forces. The War Department believes not more than $50 million can be made available through such arrangements. 10. Purchase of sterling with funds from the United States Stabilization Fund, thus making the dollars available to the British, as needed. In view of the Secretary's commitments to Congressional Committees, their approval should be a prior condition to such a step. 110 11. It may be possible that the British Government will be able to reduce private dollar balances held by U.K. residents. On December 18, our report showed $312 million so held. A substantial portion is doubtless needed for the conduct of business, but Government's some of it may be available, at least temporarily, for the British use. 12. The British Government may be able to arrange a loan of some of the gold held by her Allies (excluding France). They have $568 million of gold in the U.S. and $520 million in the British Empire. 13. The gold reserves of the Empire countries, excluding U.K. and Canada, total over $600 million. It may be possible for the British Government to borrow some of this gold to tide her over the acute emergency. 14. The British list $75 million payments as due to Canada during the next 2 months. It may be possible for the British to arrange with Canada that she take Canadian securities (or sterling balances) instead of dollars for those 2 months. 15. In addition to the foregoing, the British have investments in Canada, Latin America and elsewhere, there is French gold in the British Empire, and there exist various types of Allied assets. Whether this can be utilized to tide her over the present emergency and how much are matters of policy. 111 DOLLAR REQUIREMENTS AND RECEIPTS OF UNITED KINGDOM FROM JANUARY 1 to MARCH 1, 1941 (As Submitted to Mr. Cochran by the British Government) (In millions) A. Requirements 1. Payments to Canada $ 75 2. Payments for purchases in United States by British Purchasing Mission on (a) Commitments on orders already placed (b) Repeat orders (c) New contracts (minimum) 3. Other items in the Balance of Payments (net) 4. Dollar advances to Greece 280 50 250 10 5 Total requirements $670 B. Receipts -- Cash that will be available from Jan. 1 to March 1 In Federal Reserve Bank Gold in transit and otherwise available Sales of vested securities $ 54 285 80 Total Receipts $419 $251 Deficit (British Exchange Equalization Account authorized dealers balances of $49 million which cannot be drawn down and consequently not included in the above total.) (There is approximately $33 million of gold in widely scattered localities such as Singapore, West Africa, Bombay and London; early shipment of some of this is impossible and switching against gold in Canada gives rise to difficulties. From the figures submitted by the British, it appears that and the British cash resources be exhausted deficit would bewill incurred byat the end of January, a This the necessity of the having a working balance on hand -- which they estimate does of not $251 take millions into account the end British of should February. Government be a minimum of $250 millions. CONFIDENTIAL No. 397 Rangoon, Burma, January 8, 1941. 112 CONFIDENTIAL SUBJECT: American training planes for China to be assembled in Rangoon and flown to China; Chinese hope that British permission in this instance will serve as precedent for future operations; Japanese report of recent destruction of planes in Yunnan generated. THE HONORABLE THE SECRETARY OF STATE, WASHINGTON, D.C. SIR: I have the honor to report that 66 American training planes for China are to be assembled in Rangoon, the British Government having approved a recommendation by the Governor of Burna that the required permission be granted, The planes consist of 36 North American and 30 Ryan trainers, and they will be assembled at the Rangoon airport by 90 Chinese workmen from the plant of the Central Aircraft Manufacturing Company at Loiwing, China. It is expected to have the work completed within the next three months. The assembled planes will be flown from Rangoon to destinations in China by Chinese pilots. Use will be made of emergency landing fields between Rangoon and Lashio in making the flights. The planes to be assembled in Rengoon, and which are now at this port, form part of 100 American trainers (50 North American and 50 Ryan) sold to the Chinese Government by Harvey Greenlaw, an American representing North American Aviation, Incorporated, and the China Airmotive Company, Federal Incorporated, at 2 reported price, c.i.f. San Pedro, California, of $2,300,000. The cost of the North American planes, which are advanced trainers, was given as $1,800,000, and that of the Ryan machines, as $500,000 (despatch no. 321, of June 24, 1940). Thirty-four of the 100 planes were shipped, several months ago, to the factory of the Central Aircraft Company at Loiwing, China, for assembly there, and several of the assembled planes were damaged when the factory was bombed by the Jacanese on October 26, 1940. British Action Possible Precedent. Chinese interests hope that the British permission for the assembly of training planes in Rangoon will serve as a precedent for similar action in connection with future operations of this kind. They have particularly in mind the possibility of being able to assemble fighting planes here, in the event that present efforts to obtain such planes from the United States are successful. Japancse Exaggerate Raid Results. On December 12, 1940, eight Japanese planes flew over the airfield at Chinese Yunnanyi, China, a point on the Burma Road about 200 miles from Kunming where the Air Force maintains a cadet school, and riddled and set on fire with incendiary bullets 20 training planes then on the ground there, according to C. B. Adair, of Greenville, South Carolina, a United States Air Corps reservist who has been serving as check pilot at the Yunnanyi school, and who is now in Rangoon on his way to the 113 -2United States. Mr. Adair says that the Tokio report of the raid, broadcast from Manila, placed the number of planes destroyed at 44, and described half of them as Russian fighters. He expl. 's that 18 of the -lanes were old Fleet trainers that had been in use for a long time, and that the other two planes were new Ryan trainers. No fighting planes of any kind were destroyed. The engines of several of the burned machines were salvaged. Respectfully yours, Austin C. Brady American Consul Distribution: In quintuplicate to Department. Copy for Embassy, London. Copy for Embassy, Chungking. Copy for Consulate, Kunming. 800 ACB/cp A true copy of signed original. eh:copy 114 MEMORANDUM FOR THE SECRETARY. January 8, 1941. Since just before the Christmas holidays the general mail has been almost exclusively on the subject of international relations. It reached its peak numerically between the "good risk" statement and the President's radio address December 29th. Since then it has been going off, and this morning there were only three or four letters. I am therefore sending a brief summary of this particular group. There is little use in quoting from individual letters as they cover exactly the same ground in the main divisions of the mail. In some cases they are almost identically worded, but on the whole, these letters do not seem to be rubber stamp campaigns. The nearest approach to that is the California mail on aid to China, where there is a form post card that evidently has been distributed widely for signatures. In all this mail there was only one letter against aid to China, and 262 strongly for it. The greater part of these letters also mentioned stricter embargoes directed against Japan, and the farther West the postmark, the greater the anti-Japanese feeling. The feeling against Great Britain is also very strong and very widely distributed. Since the abstract on which the group from Massachusetts was noted, there has been no one part of the country from which most of the mail seems to come. The general reaction is that ample security should be given for any loans -- the security mentioned, of course, is usually British territory on this hemisphere. The old war debts, the Neutrality Act, the Uncle Shylock wisecracks, and in a few scattered cases the British loan to China and British credit elsewhere are points made by the different writers. A few suggest an outright gift, others possible ways of getting around the Johnson Act, but in the majority of the letters the feeling seems to be that England has plenty of security to put up and should be expected to do this. In general, there were 41 letters pro-British and 351 anti- British. This does not include scattered anonymous comment. There was a marked increase in the number of suggestions for raising money. Small denomination bonds along the line of Liberty Loan ones were most favored as a general method of raising money. It is interesting that there were quite a few suggestions of annuities to old people to whom the Savings Bonds do not appeal because of their form of maturity. There are scattered offers of a week's pay, a day's pay, a cash contribution, etc., and every now and then a check or Money Order forwarded from the White House. 115 -2Memorandum for the Secretary. January 8, 1941. There are also all sorts of comments showing the general reaction to war conditions. One man suggests that brewers be forced to change from aluminum to wooden kegs and containers. He wrote that the brewers would "put up a terrible howl" because they are almost all Germans and would not want to be forced to release this valuable metal. Another writer protesting the set up of the Defense Council writes, "General Motors has forty million dollars invested in Germany. I have never met a General Motors man who was not an admirer of the Nazis. Mooney, their Vice President, is the biggest, and fought the selection of President Roosevelt in every dirty way". A few quotations from the "Foreign Relations mail are as follows: Mrs. O. C. Craft, South Haven, Kansas. U. S. Treasury is not personal purse of the Administration. A country cannot be a good risk that has not offered any payment whatsoever or any interest thereon. on a debt over twenty years old. England has never said she wants to pay us, or intends to do so. No more help of any kind and no sending of the boys. No more aid to China, they could not pay it back. Only financial announcement we want from U. S. Treasury is lowered taxes. 0. E. Geppert, Chicago, Ill. By our sympathetic attitude toward Britain, by making it easy for her to secure needed materials, we have strengthened her militarily as well AS in morale. We were of tremendous help in the World War, but after it was over, we received little thanks for it, and the bills are not yet paid. Jefferson made good trade with France for Louisiana. Time for similar action. Price paid Denmark for Virgin Islands might serve as basis for valuing Bahamas. Bermuda, haven for tax-dodgers, would be use- ful as well from naval considerations. British Honduras taken over as credit on old debt, then turned over to Mexico or Guatemala. Help to reduce debt and make good impression on Latin America. Commend giving aid to China. Full stoppage of war exports to Japan. Thomas Williamson, Frederick, Md. Great many people could be induced to purchase low interest bonds on plants manufacturing war supplies, if under Government supervision, as were the Liberty Bonds of the World War. Dorothy Joralemon, New York City. Quotation from Winston Churchill to William Griffin of the New York Inquirer in 1936: "Legally we owe this debt to the United States, but logically we don't, and this because America should have minded her own business and stayed out of the World War". Present situation same. Ye have a right to insist that Britain state her peace plans in detail before we even think of financing them. Lay mind knows that before it spends money it should know something about the object it is buying. 116 -3Memorandum for the Secretary. January 8, 1941. Ervia Y. Hahn, Garden City, N.Y. How do we even dare to contemplate loans OF credits to England in the face of her default on the last war's debt, and is the face of her recent huge loans to China Best take outright possession of as much Yestern Hemisphere territory of British expire as will cover default, and back new loans with first mortgage against additional English territory in this continent. V. S. Holmes, Handen, Connecticut. Britain is fighting Germany for trade and empire and nothing else. Not our war. One side is as crooked as the other. If money is to be given away, let it be to give parity prices to the overworked dirt farmer, real pension system for our aged and unemployed. food and homes for the southern sharecropper, and reduced or cancelled mortgages to the overtaxed home owner. Rather be taxed for these things. No democracy in England with its nobility and rigid caste system. Forget the British empire. J. P. Jones, Long Beach, Calif. "To be a sucker once is enough." Jim Grosse, Mill City, Oregon. Aid needed for starving American families, not Europe. J. Eastings, Wollaston, Mass. Get rid of war mongers. Not our war. Germany and Italy never did anything to us. Belongs to 7 fraternal organizations, membership 3,000, all opposed to aid for Britain. John Merlin, Boston, Mass. "England is justly crushed -- keep America at peace Eon. L. Stauffer Oliver, President Judge, Court of Common Pleas, No. 7. Judge's Chamber, 487 City Hall, Philadelphia, Pa. Tell the people the truth. Loans to Britain could not be repaid on gold or goods. Trade for outright ownership of the islands on which we have been granted bases, or ownership of the limited territory actually needed for the bases, or if not possible, give to Britain what she needs. Intellectual dishonesty will drive our two countries into a autual feeling of ill-will and misunderstanding. People can bear the truth. Oscar A. Bigler, Chicago, Ill. England's past record - failure to repay former debt, failure to support our 1931 protest to Japan on latter's seizure of Manchuria, and failure to protect Crecho-Slovakia against aggression -- cannot make her a good risk. Mr. and Mrs. John Stanley, Hollywood, California. 834 of the American people are opposed to any participation in this war. Loans are the fastest way to getting us in." 116 -3Memorandus for the Secretary. January 8, 1941. Ervin Y. Hahn, Garden City, N.Y. How do we even dare to contemplate loans or credits to England in the face of her default on the last war's debt, and in the face of her recent huge loans to China? Best take outright possession of as much Yestern Hemisphere territory of British empire as will cover default, and back new loans with first mortgage against additional English territory in this continent. M. S. Holmes, Handen, Connecticut. Britain is fighting Germany for trade and empire and nothing else. Not our war. One side is as crooked as the other. If money is to be given away, let it be to give parity prices to the overworked dirt farmer, real pension system for our aged and unemployed, food and homes for the southern sharecropper, and reduced or cancelled mortgages to the overtaxed home owner. Rether be taxed for these things. No democracy in England with its nobility and rigid caste system. Forget the British empire. J. P. Jones, Long Beach, Calif. "To be a sucker once is enough." Jim Grosse, Mill City, Oregon. Aid needed for starving American families, not Europe. J. Hastings, Wollaston, Mass. Get rid of war mongers. Not our war. Germany and Italy never did anything to us. Belongs to 7 fraternal organizations, membership 3,000, all opposed to aid for Britain. John Merlin, Boston, Mass. "England is justly crushed -- keep America at peace Hon. L. Stauffer Oliver, President Judge, Court of Common Pleas, No. 7, Judge's Chamber, 487 City Hall, Philadelphia, Pa. Tell the people the truth. Loans to Britain could'no be repaid on gold or goods. Trade for outright ownership of the islands on which we have been granted bases, or ownership of the limited territory actually needed for the bases, or if not possible, give to Britain what she needs. Intellectual dishonesty will drive our two countries into a mutual feeling of ill-will and misuinderstanding. People can bear the truth. Oscar A. Bigler, Chicago, Ill. England's past record - failure to repay former debt, failure to support our 1931 protest to Japan on latter's seizure of Manchuria, and failure to protect Czecho-Slovakia against aggression -- cannot make her a good risk. Mr. and Mrs. John Stanley, Hollywood, California. "83% of the American people are opposed to any participation in this war. Loans are the fastest way to getting us in." CONFIDENTIAL 117 Persphanes of Code Ballagree Received at the Year Department 14:07, January 8, 1941. Lender, filed January 8, 1941. 1. On Tuesday, January 7, planos of the Coastal Commond carried out routine patrols. All flights of Bember Command planos on January 7 and on the night before were cancelled because of favorable weather. 2. During daylight hours of January 7 the Germans dispatched single airplanes to areas all over Britain and were partimilarly active over Lenium, the Thomas Estury and Southeastern England. The German raids were the most severe in a number of weeks. During the night of January 7-8 there were no German air operations. 3. On January 6 the British earnied out a successful raid - Valena. On January 43 the British Air Force was very active in Lilges a total of 17 tess of beabs were used against the Tripali and Tebrul defension the British destroyed seven Italian fighter planos and seven bembers. Capies of Mr. Churchill's speech - Italy were also dropped in those areas. 4. While there is no conclusive evidence that German treese - in Italy at present 18 has - been determined that the Common secret police - very active there. There are also may German military technicians and specialists in Italy. s. Two British destroyers collided at night and were considerably damages. Twelve account vessals in commany have CONFIDENTIAL CONFIDENTIAL 118 arrived in Englead without the less of a single veggel. 6. The greatest damage to the city of Cardiff from the German raid of January 23 - cansed by the fires that were started. An extremely large number of incentlaries were used w the Common in this raid. While - equally large number of incumitaries were used in the German attack on this place during the night of January 45, practically no damage from fires resulted because of the fact that the civilian population and the fire water prefited by their experience in the earlier attack and were very successful in controlling the fires. Railway traffic in Cardiff is new back to normal. 7. In the German attack - Leader of December 29-30 incendiary boube were used almost eminatively - investigation reveals that practically all of the damage resulted from fires. No fire waterbare were in the city* - that sight and with the - of the regular police fores there - practically notely in this area. This fast is largely responsible for the effectiveness of the fire bombs. In addition, the James and streets in this area are so BATTON that it was practically impossible to massuver fire fighting equipment. Also the - and f nishings in buildings in this area were highly inflamable. Mile the British - effort will not be affected w this said, the destruction of historical buildings is to be regretted - the CONFIDENTIAL CONFIDENTIAL financial I of private - and eitions - great. rathery services are now back to a Distributions Secretary of the State Department Secretary of Treasury Asst. Secretary of Mar Chief of staff Mar Plane Division Office of Neval Intelligence AC 0-3 CONFIDENTIAL 119 120 CONFIDENTIAL Paraphrase of Code Rediogram Received at the War Department 14:07 January 8, 1942 London, filed January s, 1941. EXTRACT On January 7 the Chief Medical Officer of the Ministry of Health announced that the general health was good in spite of the fact that 29 percent of the population of central London are in domestic, commit or public air raid shelters. The public shelters alone are taking care of eight percent of the population. There was great fear that the crowding of large number of present into submay stations and other improvised shelters in times of bad weather conditions would result in spread of communicable diseases. The following tabulation indicates that, with the exception of cerebral spinal maingitis or spotted fever, there has been no serious increase in the member of cases of certain dreaded discoses since 1938. No. of Cases 1910 1938 Cereiral spinal maingitis 1,268 12,500 Baterie 1,300 2,800 Dysentay 4,170 2,500 Pneumonia 45,000 46,000 LEE Distributions Secretary of Mar WPD State Department ONE Secretary of Treasury PH A Secretary of Mar Chief of Staff so 0-1 CONFIDENTIAL CONFIDENTIAL 121 Paraphrase of Code Radiogram Received at the War Department 14:07 January 8, 1941 London, filed January s, 1941. EXTRACT 1. Conversations with the Director of Military Operations and with the Deputy Chief of the Importal General Staff in the Nar Office bring to light several interesting aspects of the British caspaign in Likya. 2. As previously reported, absolute mercy in Cafre as well as in Lender was primarily responsible for the great of this compaign. The information contained in General Revall's official reports to the War office communing his operations and plane is as more detailed them that appearing in the daily - It is thought that he will continue his drive into Migu, explaiting his - to the - This is what would be expected of the Migrapher and dissiple of General Allenty. so Practically all - operations in all theaters during this present conflict touch the - general Issue. That is, that - depends upon a determination to cooperate in every possible - and - the absolute flaxibility of all components of the a foress. In this empaign the Repul Air Pereo assisted is obtaining surgenias by miking its initial booking attack in a direction different from that of the - and by neutralizing - by the Italians. In addition to existing w perfire the Many mouted primare and supplied - write with where. CONFIDENTIAL 122 CONFIDENTIAL 4. n is possible to defune stather I ultidate the my. The - of the Intertay in carrying - and in wire exiting we followed by action of Register with in clearing test chotosies and making them pesible for wite. The amount fighting vehicles - followed - closely w Industry teesege who - - and took the primare. The main attack as well as the initial faint - supported by artillary fire. 5. It - explanated that a relatively large parentage of personal must be used in heeping a marriaally wall cutting edge in - operation. a One element in the operation which greatly pleased both the Director of Operations and the didnet of Staff - the emplote last of properties - the part of the for defense against the heavy December teats addition were - to last secretty during the - of 1940. - Metallation Security of The State Department -I Secretary of Treasury of - Older of Staff the Plans Division office of Reval Intelligence as CONFIDENTIAL 123 CONFIDENTIAL Paraphrese of Code Radiogram Received at the War Department at 15:41, January s. 1941. Reas, filed January 8, 1941. I was assured by Under Secretary of Ver, on when I called by invitation January 7. 1941, that no German land units of any sise are is Italy. He appeared quite depressed. There appears no cancers by the German over Italian reversals and apparently the Germane if accessary will intervene only enough to - British is Mediterreal and fores shipping w way of South Africa. The desision is hoped for in the north by - of air and shipping drive. FISKE Mstributions Secretary of Mar State Department Secretary of Treasury lost. Secretary of Mar Chief of Staff V.P.R. O.E.L. CONFIDENTIAL CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 16:23, January 8, 1941 Rome, filed 20:25, January s, 1941. The total number identified Italian Divisions in North Africa prior to attack on Sidi Barrani by British was composed of 9 regular 3 Blackshirts and $ native plus corps and army troops although never confirmed there were 4 other divisions reported. The strength of colonial divisions is (1) probably about 260,000. The strength of armed forces is (1) about 310,000 with police included. It is estimated losses to date and not replaced are about 70,000. In addition to corps artillery engaged much of other corps and army artillery lost at Bardia. Have positively identified 17 complete div- isions in Albania as well as three partial divisions. Italian troops in Albania estimated as 250,000. This accounted for by low strength of many special divisions. Troops a re now gen- orally transported by plane to Albania and are barely sufficient for replacements. It is probable Sodda will be relieved as Cavallero is in Albania. FISKE Distribution: Secretary of War State Department Secretary of Treasury Asst. Secretary of War Chief of Staff - 2 War Plans Division Office of Naval Intelligence CONFIDENTIAL 124 125 January 9, 1941 8:45 a.m. RE AID TO BRITAIN Present: Mr. Young Mr. White Mr. Lovett Mr. Forrestal Mr. Cochran Mr. Bell Mr. Foley Mrs. Klotz H.M.Jr: The reason I asked for this meeting, particularly to have you two gentlemez here who are supposed to know a little bit about money, is this. We have got two situations. be have got the legislative situation which is well in hand, and if we have any luck it is going to be introduced tomorrow. It is in good shape. The other one is, what are we going to do for the English to find the money so they can PAT their bills until this thing is passed. They are so worried that they are really, for the first time, talking in the Treasury, that they are getting hysterical about it, and they are beginning to get me, for the first time. Now, I asked for this meeting at eleven dclock at the White House, which Hull and Stinson and Knox and Jones and Knudsen will at- tend, and I have asked Phil to give 8 copy - I thought the chances are nine out of ten these fellows haven't got this. This is the latest statement of British requirements in quantities as to what they need. (See Attachment 1) 126 -2Has it got down to you? Forrestal: No. Young: That is the only copy we have in the building. Well, I will have a copy made of my copy and send it, but this is in quantity. I am going to give you the whole picture. I haven't delivered it to the President, but this is from Churchill to Roosevelt. Now, what I want to do for your benefit and for mine, is to give you a thumbnail sketch in strictest confidence of what is the British situation today, and then I would like to take the time - what the hell can we do to stretch this thing out, not only here until the legislation is passed but to find the money for them to pay for the things that they have already got on order, and of course the worst thing that could happen to them would be for their morale would be to default on those payments. It seems to be getting Churchill's goat for the first time. He is sending cables to the President which I think are a little unwise. Forrestal: I am wondering if some of that may not - it gets to real hysteria, Henry. E.M.Jr: I will show it to you. Yes. I don't.want to get that way myself. I never have. Now, who can give ne a thumbnail sketch as to their financial situation? White: It is on this page. (See Attachment 2) Dollar requirements of January 1 to March 1, '41. Are we all set? Payments to Canada, 75 million dollars; payments for purchasing, United States; commitment on all the orders placed, 280; repeat orders, 50; new contracts, 250. Now, let me interrupt. Two fifty, that is going on the assumption that they have to make the usual down payment? 127 -3White: Yes. That is the usual - they have to make down payments. None of those orders will or very and is within minimum. two months, little, be that ready a They expect that will be higher. H.M.Jr: Well, I an going to question the 250. Other items in the balance payments, 10; dollar advances to Greece, 5; total, 670 million. Receipts in cash available in Federal Reserve, 54; gold in transit, 285; sale of vested securities, 80. What is that, at a rate of-White: At the current rate, and that assumes that current market conditions will continue. Cochran: Ten a week. H.M.Jr: And that is not taking into account the sale of White: No. H.M.Jr: Total receipts, 419; deficit, 251. British Ex- any direct investments? change Equalization Account authorized dealers balances of $49 million which cannot be drawn down and consequently not included in the above total. What does that mean? White: They have 49 million dollars in various accounts which they feel are not available, though it is included in their account of the British equalization. We put it down here. Merle thought that someone might ask how about their British equalization fund, haven't they got some money? Cochran: That is in the hands of banks. Part of it may be covered. H.M.Jr: There is approximately 33 million in gold in locations such as Singapore, etc. 128 4 (Mrs. Klotz entered conference) H.M.Jr: From the figures submitted by the British, it appears the British cash resources will be exhausted at the end of January and a deficit of 200. (Mr. Foley entered conference) H.M.Jr: Good morning, Ed. Do you know Mr. Lovett? The early Mr. Foley. He never gets to work, but he brings home the bacon. How is that? Pretty good, isn't it, Ed. (Laughter) Foley: It is all right. H.M.Jr: I Foley: I haven't had breakfast. H.M.Jr: We will save your breakfast until afterward. and a deficit of 251 million dollars would be incurred by the end of February. This does not take into account the necessity of the British like this, it appears that the British cash resources will be exhausted # Government having a working balance on hand which they estimate should be a minimum of 250 million dollars." H.M.Jr: Well, there is the sad news, gentlemen. Now, the first thing I am going to challenge is on the new contracts, the 250. I am just going to talk with you gentlemen as though we are all in the Treasury. Yesterday, by accident, I learned that in the sar Department, Mr. Purvis didn't seem to know anything about it, they had a scheme whereby they are proposing to repay the British a hundred and 60 million dollars, money which was advanced on contracts, principally ordnance, and as I say, I have just heard about it by accident through one of my spies, and I just wondered if we couldn't 129 -5talk about that E minute, because, you see, that is a hundred and 60 million dollars and that isn't to be sneezed at. White: Mr. Secretary, as their situation is not serious and they certainly can, in my opinion, meet these payments, and I think it would be a gross tactical error from their own point of view for us to step in in any my to help them meet these payments, besides suggesting ways in which it might be done. H.N.Jr: You have got to back that statement up, Barry. White: Yes. H.M.Jr: How are they going to do it? White: There are memorous ways. The most obvious way - well, we have got various ways listed here, and them we can talk about the way in which I think it would be very simple and which they can arrange themselves. They have got about seven hundred million dollars of unvested and vested securities, of which, they maintain, a hundred and 50 are not readily marketable. Let's assume that to be so. They could make arrangements to sell those seven hundred million dollars of securities within two months to some corporation, some group, provided they were willing to take a substantial discount. It might be 10 percent. It might be 15 percent. And that only taps one source and they meedn't do more than they actually need. They probably can dig up amounts here and there, but they have got a deficit, according to their figures, of 250 million. They probably need a couple of hundred million as a working balance. They certainly can raise 450 million. They have got private balances here of 350 million. I am pretty sure they could borrow from those a hundred million or a hundred and 50 million without disturbing anybody. In other words, I think it is a problem that they can settle themselves. 130 -6H.M.Jr: Forrestal: Well, they say not. I think they are trying to put pressure on, Henry, and I think it is awfully bad tactics for them. I agree with Harry. The banks can't loan them money but Bob will check on this. Bob, couldn't you make a corporation that - into which these equities would go and the securities which they hold over here and the banks loan to that company whatever they want to get? Lovett: Yes, Jim, we suggested that in May 1939. (Breakfast was delivered to Mr. Foley by messenger) (Laughter) White: Talk about your quick service. Foley: What, no bacon? (Laughter) H.M.Jr: It is perfectly good coffee, now, don't be snooty about it. Foley: I will drink it. H.M.Jr: What, no bacon! (Laughter) (Off the record) Cochran: Well, we are admitting that this is one of the means. White: He have the various ways down. H.M.Jr: Well, before we - I just want to talk a minute because, as I say, the War Department is off on this angle and I say, there is a hundred and 60 million dollars involved. As I understand it, they started yesterday with the Kelsey Wheel and they concluded a verbal agreement whereby they would pay back the English eight or nine million dollars. 131 -7Lovett: Mr. Secretary, my recollection is that we discussed this very fully last night. We had a meeting here. My recollection is that the War Department has scraped the bottom of the box and has turned up unobligated funds which total approximately two hundred and 90 million dollars. White: Plus a possible hundred million. Lovett: Pluss a further possible 100. H.M.Jr: Two ninety? Lovett: Two ninety, sir. Plus a possible hundred which is - should be marked doubtful and underlined. Of the 290, 60 million comes from unobligated aircraft funds, the use of which is limited by their original directive and 230 we have roughly classified, I believe, as ordnance, wasn't it, Dr. White? White: That is what they said. Young: Yes. Lovett: Now, the arrangements under that were discussed very fully last night with the British representatives here, and I think that can be taken to represent the maximum that the War Department can do and the legalities apparently making it possible to make any down payments out of that. H.M.Jr: Now, I want to write it down. Just do this again. Lovett: Sixty million, sir, recaptured from unobligated aircraft funds. H.M.Jr: Now, let me get that. That is 60 million that the English have advanced to American manufacturers? Lovett: No, sir, that is 60 million of Air Corps 132 -8appropriations which have to be expended beginning in April 1941, and which will have to be replaced in some subsequent budget. H.M.Jr: I still don't understand 60 million dollars-- how are you going to use White: Can't, that is the trouble. H.M.Jr: I never say, "Yes," until I know. How are you going to use 60 million dollars of Air Corps' money to help out the British? Lovett: It can't be done, sir, except by buying for Air Corps' account those common planes in the new program. Bell: And when they come out of the factory you turn Lovett: They won't be ready for some months. Foley: The legislation will be through then. H.M.Jr: I still don't understand. White: There are still some strings, and I think Phil them over to the British, is that the idea, and the British will have to reimburse you? could begin from the beginning on that because the net result of that is that they thought possibly 50 million of all the monies which they were able to scrap together, not more than 50 million, possibly less, would be available as a contribution to help the British out now, and the reasons for that small proportion of the total funds which they can spend on various items, I think Phil can explain. H.M.Jr: That doesn't check with information-- White: No, the information you have just given us is something different. 133 -9Young: There are two different things, Mr. Secretary. H.M.Jr: Phil, you know what I know and what I don't know, so put them both together. Young: All right. There are two things the War Department could do. One is to place new orders for American type goods which subsequently may be turned over to the British for the War Department account. That is one thing. The other thing is to take over, as in the Kelsey Hayes plant, some British contract outstanding for an American type specification and take that over in the name of the War Department and have the manufacturer refund money to the British. H.M.Jr: Now, in that group I am told that it amounts to 160 million dollars. White: They didn't mention that last night. Lovett: No. Young: That didn't come up at the meeting last night. H.M.Jr: Of the type of the Kelsey thing, there are 99 million of ordnance and 60 million dollars of that is Air Corps - I don't mean Air Corps, I mean all of this money as I was told is a hundred and 60 million which the English have advanced for plant and down payment. Young: Yes. Well, this is the difference. Lovett: That is right, sir. H.M.Jr: For plant and down payment and that the Army were under the impression that they could take those contracts and reimburse the manufacturer, and as I understand it, in the case of the Kelsey Wheel, the Kelsey Wheel is going to the banks and borrow 134 - 10 the money and reimburse the British. I understand that is the way it is being done. Young: Yes, I understand Kelsey said they would go to the banks. H.M.Jr: Go to the banks and borrow money and reimburse the British and look to the Army for ultimate payment. Is that right? Young: Well, I don't think that is so. H.M.Jr: Well, that is what I was told. That is the contract they made verbally yesterday. Young: It can't work that way. This is the difficulty, putting it very simply, the hundred and 60 million dollars represents money the British have put out for contracts of American type stuff which conceivably can be taken over by the War Department, in the name of the Mar Department, and that excludes all contracts for British specifications. H.M.Jr: How much? Young: I mean this hundred and 60 you are talking about. The War Department says if it replaces that, that a hundred and 60 represents down payments and capital assistance. Now, the liar Department, if it had a hundred and 60 million, sir, couldn't take over all those contracts because they have to earmark the total value of the contract with their funds instead of just the down payment. H.M.Jr: Well, let me put it this way. Young: It is only maybe 20 million of it. H.M.Jr: Let me put it this way because evidently it is a mess. We have tried our best to find out and 135 - 11 - certainly - and I am handling the financial part for the President - I am entitled to know as he is entitled to know and we can not find out. You can see this three-cornered conversation, I mean, how silly it sounds, the three of us not knowing each - not understanding each other. So what I am going to ask you - I told Mr. Stimson I was going to look to you on the financial side - Can you find out so that you can let me know within a reasonable time - I know you are going away, but if somebody - I don't know if you have anybody. Lovett: Yes, we can get it in the works. H.M.Jr: So that in 24 hours, what I call a reasonable time, I can be told how much is the net amount of money that the British can be reimbursed that they are out of pocket, cash. As to the method, I won't bother with the explanation now, but I want to understand it later on. But how much money can the Army or the manufacturer put back into the pockets of the British that they can spend during the next two months. That is plain, isn't it? Lovett: Yes, sir. H.M.Jr: And I would like to ask the same thing of the Navy. I know you haven't worked on it, but if you would work on it, Jim. Forrestal: That was the question you asked last night, Phil. Young: Yes. H.M.Jr: But I think McCloy - I don't like to criticize somebody who isn't here, but Phil has tried despertly to find out during the last two weeks what is going on and we can't find out. I don't know whether Mr. Stimson knows himself. 136 - 12 White: I think that is information you definitely ought to have, but I would like to say this, Mr. Secretary, I think it would be a grave error to permit them to do that. I think the repercussion on the Hill when it is developed sometime in the future will look very bad. H.M.Jr: Harry, Mrs. Morgenthau says she has never seen me so excited as last night at a quarter past nine when I stumbled on this information, and I wouldn't call Purvis because I was afraid I would lose my temper. I said just what you said, you do this thing without anybody knowing it when I work day and night on this legislation, to have this thing in the War Department, that the program is over, there is a verbal agreement and I am not told, I think it is outrageous, because I said just the same thing that you said, that here, I faced Barkley, Harrison in the morning, in the afternoon Rayburn and the rest of them, and they said here is the whole picture, you know everything that I know, and they don't. They know everyting that I know, but I don't know the story. And that this thing is beating the gun, and I thought if the Hill found this thing out it might be - I said supposing Bert Wheeler gets hold of this information. If I can find it third-hand, Bert Wheeler can find it out. What does he do to the legislation? He says, "Why, Roosevelt isn't sincere. He is a two-timer. White: You mean if the Army should reimburse them? H.M.Jr: Well, Harry, I know what I am talking about. I know they closed a verbal agreement yesterday with Kelsey Wheel for eight or nine million dollars. White: Mr. Secretary, I would have no part of that. I think that is very, very bad. 137 - 13 H.M.Jr: That is why I asked yesterday for Mr. Lovett to work with me on this thing so this wouldn't happen again. Lovett: Well, this is all news to me. It didn't come up in our-- H.M.Jr: White: H.M.Jr: I know it is. But you see the political possibilities? Well, I learned about it at nine-fifteen last night just by accident. Lovett: Well, we will try to find out about it. H.M.Jr: If I know and the President looks to me - I am not talking about the contracts, but on the finances, to let him know at eleven o'clock today what the situation is, all I am asking is, let me know and then if I know and I make a mistake, then it is my responsibility, but I can't be held responsible for what I don't know. Forrestal: Henry, was this an order the British placed through the Army? H.M.Jr: This is an order - you check me - that they had with Kelsey Wheel for machine guns and they had advanced to Kelsey Wheel either eight or nine million dollars and the agreement which was en- tered into verbally yesterday afternoon was that the Army and Kelsey Wheel between them agreed to turn back the eight or nine million dollars to the British, cash, and the Army assumes the entire contract. Lovett: Did the information indicate where the Army got those funds? H.M.Jr: I believe Kelsey Wheel is borrowing the money themselves. There is some kind of promise from 138 - 14 the Army that they will in turn be reimbursed. I mean, they made the remark, 'Well, we can go to the Chase Bank and borrow it. Kelsey Wheel did. What do you think about that, Jim? Forrestal: Well, I think the whole thing is being handled in a very unfortunate fashion, myself. H.M.Jr: Well, I think you are being very self-controlled. That is what I call understatement. Forrestal: H.M.Jr: Well, I am leaving it to you (Lovett) if I may. If you will work for Mr. Stimson and the President and me, let's get what the facts are on this thing. Lovett: All right, sir. H.M.Jr: I am watching the clock for you. What time did you tell Patterson? Lovett: I guess he has already gone, sir, and there is another one standing by. I can get it about H.M.Jr: White: nine-thirty or nine-forty-five. I will hurry. This is the next thing you asked for. (See Attachment 3) White: We have listed all the possibilities. Some are much better than others. H.M.Jr: "The following are suggested as possible methods of meeting the claimed deficit of $251 millions." You read it outloud, Harry, will you? White: "1. Sale of $18 millions of American Government securities now in Canada but not yet vested." 139 - 15 Mr. Gifford stated he thought that within two months it would be easy to consummate that transaction and expected to. Cochran: But they planned to vest those this summer. White: Yes, they planned to rest them and they will be available in a few weeks so that is 19 million which they are going to get. "2. Export-Import Bank credit against future deliveries of tin, rubber, wool, etc." Similar arrangements such as was made to China. How much they would have available and whether they would do it, I don't know. H.M.Jr: You are wrong. Ed, they can't do that under the either the neutrality or the Johnson Act, can they, to a belligerent? Bell: Not the Johnson Act. Foley: You mean number one? H.M.Jr: Number two. Export-Import, credit to Great Britain. What? Out, isn't it? Foley: Out, right. H.M.Jr: Yes, that is what I thought. White: "3. Purchase by the Metals Reserve Corporation of strategic materials, to be delivered in the future, but payment to be made in advance." H.M.Jr: Purchase from England? White: From - well, it would be from the British Empire. H.M.Jr: It is out. It is illegal. 140 - 16 - Bell: I don't think that is, Mr. Secretary. I don't think so. Lovett: Mr. Secretary, wouldn't those purchases be made White: from the suppliers, from the wool suppliers in Australia through the Commonwealth Bank? H.M.Jr: Ed? Lovett: In other words, it does not have to be made from the British because we are bringing that wool inGovernment now. H.M.Jr: Well, ask Ed. Lovett: It is a normal shipment of wool shipped to this country for use in all sorts of stuff. It is probably a total of these raw commodities, around three hundred million. Foley: Who would buy it? Lovett: A syndicate of-- Foley: In this country? Lovett: Yes, ordinary users. Foley: Ordinary users would buy the usual wool requirements, and they would make payment for it. Lovett: That is right. Foley: There would be no credit and it would be a purchase. Lovett: Well, the American purchasers would have to re- ceive credit from private banks, but the purchases would be made through the British banks and thereafter what happens to the funds are no concern of ours. 141 - 17 White: They pay in advance several hundred million dol- lars when the first shipload comes in, although they won't get the deliveries until six months or a year beyond. Foley: Well, if itright. is not a credit, if it is a purchase, it is all Lovett: It is a credit to American purchases. Bell: Doesn't Jones have authority to make purchases under recent legislation which were subject to both the Johnson and Neutrality Actswhich is involved here? I think he is authorized to make advance payments. Lovett: Well, the Metals Reserve Corporation can do that right now. White: There are a lot of obstacles on any larger amount. H.M.Jr: Well, let Ed take a look at it. I question it. White: The next one is "Realization of present vested securities through offer to private purchasers in an entire block of around $220 millions at perhaps 10 percent discount below current market value." Walter Stewart thought that with a 10 percent discount they shouldn't have any difficulty in selling the block. That includes only the vested securities. They have additional unvested. H.M.Jr: Well, with you here - Forrestal was here the day they were yelling because they had to pay a dollar twenty, wasn't it, to the distributors. Was that what it was? Forrestal: About one dollar thirty-seven. 142 - 18 H.M.Jr: If they had to pay 10 percent, they would just faint. White: There is no doubt about it, but the alternative H.M.Jr: Well, I don't know - did Gifford say yesterday Cochran: He doesn't think that they can speed it up much is that we pay. how fast he is concluding these transactions? beyond the present speed. H.M.Jr: What is the rate a week now? Cochran: About 10 million a week. H.M.Jr: He doesn't think they can go faster? Cochran: No. He says they can throw in this extra 18 million dollars for the United States Government as soon as they get them, but he doesn't think they should go beyond 10 million a week. Foorestal: Well, they didn't think 3 million was excessive before. He thought three and a half million was the limit. Cochran: This was his statement yesterday, and he wanted to know if we had any reaction to that, Stewart and me. We said we would speak with you about it. H.M.Jr: Ed, would it be legal for a group of banks to advance them against these securities 90 percent, and then for the banks to liquidate this over the two or three months' period? Foley: It would be a purchase on the part of the bank, H.M.Jr: Yes. And then give the banks 90 days. titles of the securities to pass to the banks? 143 - 19 Foley: I think that would be all right. H.M.Jr: Or these investment trusts that the SEC is Lovett: I think it is all right, sir. White: They are going to be down here this morning. H.M.Jr: The SEC is organizing all the investment trusts. Forrestal: It is perfectly easy to do it, I think. Lovett: I agree with Mr. Forrestal, I think that is the forming-- obvious, immediate way and I believe the advance against non-deteriorating essential raw commodi- ties is a perfectly legitimate transaction which could be easily handled by the Commodities Corporation, which would borrow from the banks to make it possible to carry and enter into contracts. H.M.Jr: But as to the securities this group of investment trusts have got lined up, they could do that, couldn't they? Foley: So long as it is a purchase and not a loan, it is all right. If they bought the securities and took title to them and then distributed them when they could get a market, that would be O.K. Forrestal: But they could get a loan from the banks, Ed. Foley: Yes, so long as they didn't pay more than the market value for the securities, so long as it didn't take on any of the aspects of a loan or credit. H.M.Jr: But an outright purchase? Foley: That is all right. H.M.Jr: How would you ex-bankers suggest - I mean that the 144 - 20 investment trusts buying these - I mean how much cushion would they want in order to be fair to the British? Lovett: Jim, I suggest that would depend on the quality and diversity of the securities. Most of the stuff which has been sold is not a wholly investment class. I should think to be safe you would have to count on this 10 percent discount which-- H.I.Jr: And they they could, if they got more, say, "We will pay you up to 98 percent of what we received?" Lovett: If they took the risk of the market going down, they, of course, would expect the right to any depreciation which occurred, but if you set this 90 percent lower, I think they might do what Mr. Cochran and I discussed in Paris in 1939, May, of taking over the whole works at, say, 75, and agreeing to split the difference with the British on actual sales. H.M.Jr: But something could be worked out? Lovett: I am confident it could be. Jim, what do you think about it? Forrestal: Oh, I don't think it would be any trouble at all. I think that you could - you might even cut out the investment trusts and form a separate - a new corporation right over the telephone this morning, which I think you could do in very short order and have that-White: Would it be possible-- Forrestal: "Shadow company", if you will, which will be the holder of these securities, get a loan from the bank. White: Jim, would it be possible to have any competition 145 - 21 - in that? Could they bid for that block? Could there be two or three groups to bid for it? Forrestal: If you have time to do it, surely. White: You have got two months. Forrestal: Then you have ample time for procedure. I was thinking of what the Secretary said, that the British felt that they-H.M.Jr: They are not down - how much? Cochran: They will be down exactly at the end of January. H.M.Jr: That is a lifetime. Forrestal: I know that if Mr. Lovett wasn't in the War Department and could work with your people, it could be worked out in 10 days. H.M.Jr: Then I wouldn't ask him to do it, but with you two fellows where you are, you are in a perfect position to help me tell the SEC what I wan and let the SEC do it. If you will guide me as to what I should ask for, then I will just tell the SEC this is what I want, please do it, just the way they are doing this other thing now. But if you just guide me-- Forrestal: Of course there is another way, Henry, subject to limitation of the Sherman Act. You could sell some of these assets to American companies for dollars and they could make a loan. I am speak- ing of the direct investments. H.M.Jr: To the companies themselves? Forrestal: To the American companies in similar - I mean Viscose could be sold to DuPont for cash and they could borrow it from the bank. 146 - 22 H.M.Jr: Well, of course we haven't been able to get them to agree to sell indirect investments. Lovett: That will take time, Jim, because we will have Forrestal: Oh, much quicker, but I am just saying that on a desperate basis. They could certainly sell over 75 percent of what they have. You could to figure out the valuation. get a bid from Lever Brothers tomorrow morning. H.M.Jr: What is the next thing? White: The fifth is like what you just indicated, Mr. Secretary. "The purchase by some Government agency of the vested securities with an arrangement that the British Government will repurchase them at the same price over a period of months." That is so there won't be any loss in the trans- action. H.M.Jr: That is the President's suggestion. White: But Walter Stewart felt that that should be out because he said that is a repurchase agreement and hence is regarded in our courts as a loan. We called up Ed about and he didn't have much time to think about it and he just gave me a horseback opinion over the phone and he thought it was legal but he wanted a chance to work on it. Foley: The boys worked on it last night. White: Did they come to a conclusion? I don't know. Foley: 147 - 23 E.I.Jr: Ed is good on horseback, you know. (Laughter) White: This is all right, them. H.W.Jr: This happens to be the President's suggestion, White: Number six. "Sale to a Government agency of some or all unvested but registered American number five. All right. securities. These total $440 million of which $140 million would not be readily salable in the American market." That is, the RFC might buy them and attempt to distribute them to the SEC over a period of years. There is a possibility, but it is not as good as the others, but it is a possibility. Next is a "R.F.C. loan against securities as collateral. E.M.Jr: No. White: And the next is "Sale of any immediately marketable direct investments." That is what Jim was just talking about. It might take two months to sell some of their best ones, but they might be able to raise a hundred and 50 to two hundred and 50 million that way. Bell: I take it there is the same objection against White: Yes, I should think so, definitely, except that in two there is a definite specific loan, whereas in seven I don't know. Ed hasn't seen this, so I don't know whether those are legal or not. seven as there is against two, Export-Import Bank credit. 9. Arrangements by the Army and Navy to relieve British of current payments on contracts for material which might be utilizable by the American forces. The war Department believes not more than $50 million can be made available 148 - 24 through such arrangements." That is what we discussed last night, and what we discussed this morning. H.M.Jr: Lovett: And that is the thing there seems to be direct conflict on the information. Mr. Lovett will run that down. I would also like to find out as to the advisability of doing that in the face of the legislation. I think the red flag ought to be put up on that for at least 24 hours. It is very doubtful. White: The next is one we mentioned with a little hesitation. H.M.Jr: It is all right. White: "Purchase of sterling with funds from the United States Stabilization Fund, thus making the dollars available to the British, as needed. "In view of the Secretary's commitments to Congressional Committees, there approval should be a prior condition to such a step. Bell: It wouldn't be a bad way to liquidate your secur- ities, buy the British sterling and repay it. White: You can't buy your securities with the Fund. Bell: No, but they could put them up as collateral and liquidate them as they go along over a period of months and repay the Fund. White: Well, the fact that they would put the securities up as collateral and the fact that there would thereby be no risk, I don't think would alter the fact that you are extending a credit out of the Stabilization Fund and something which the Secretary said very definitely he would not do. 149 - 25 Bell: Oh, I agree with your last statement-- White: But it would be the easiest way to do it if it weren't for that. H.M.Jr: When defends my honor, I don't want to go againstHarry Harry. Bell: You really have to sit up and take notice when he turns around on the Stabilization Fund. (Laughter) H.M.Jr: Dan, this is a big day for me. Bell: I'll say. It is usually the other way around. H.M.Jr: But you notice it was on the page just the same. Bell: Yes, sir. White: Walter Stewart said it shouldn't be on and Merle thought it should. Now, the next page-- Bell: It is a little better than a couple we are just going through, I think. White: The next page, neither Mr. Stewart nor Mr. Cochran thought I ought to include, but I feel differently, so I put them in. Cochran: Well, we thought the Secretary ought to have the information, of course. White: Oh, did you? I am sorry. Who didn't you think should have the information? (Laughter) H.M.Jr: Around here you will get on that we just try to keep it from getting too tense. Otherwise we would be weeping all along. Go ahead. White: "11. It may be possible that the British Government will be able to reduce private dollar balances held by U.K. residents. On December 18, 150 - 26 our report showed $312 million so held. A substantial portion is doubtless needed for the conduct of business, but same of it may be avail- able, at least temporarily, for the British Government's use. You see, they may be able to borrow that and if Congress passes the legislation which we hope and think they will, I think that the British Government will be able to accumulate currently little sums with which they can repay these this amount over a period of six or eight months. "The British Government may be able to arrange a loan with some of our allies (excluding France). They have so much in the United States and so much in the British Empire. When we asked Sir Frederick about two months ago, he said that they may be able to get a loan from Belgian gold for a short time. Cochran: They have been trying and they haven't succeeded with any of them. The only way that the Bel- gians would agree would be if the United States would underwrite it to deliver an equivalent amount of gold to them after the war if the British couldn't. H.M.Jr: After that earmarking of gold that they had, they can do anything. They took the French gold in Canada and sold it down here and mentally earmarked some gold in South Africa for France. Now, if they can do that, they can do anything. Bell: Still in the ground? (Laughter) I think that is all right. H.N.Jr: If they can do that, they can do anything. White: Of course, the further down me go, the less more difficult it becomes. Gold reserve of Empire countries, excluding U.K. 151 - 27 and Canada, total over six hundred million dollars and it may be possible that the British Government may be able to borrow some of the gold reserves of her Dominions for an acute emergency. There is a possibility. Their credit ought to be good with their own Dominions. *14. The British list $75 million payments as due to Canada during the next 2 months. It may be possible for the British to arrange with Canada that she take Canadian securities (or sterling balances) instead of dollars for those 2 months." Because you remember in our examination of the Canadian position we showed that she will increase her gold holdings over a year on the basis of the data they gave us, so they may be able to part with this 75 million or a portion of it, getting down to smaller amounts. Bell: Well, Canada was all right for the period up to September but included in that balance sheet were payments from Great Britain in dollars. White: That is right, and this 75-- Bell: Don't know how much she could take out. Mite: They can take a portion of that because I think they had more than that accruing to them over that period. Cochran: But Phillips explained that he had been in touch with MacKenzie King trying urgently to get assistance. H.M.Jr: How recently did he say that? Cochran: Yesterday. E.M.Jr: I see. 152 - 28 White: Well, another way of stating that is that Canada feels that she cannot lend Great Britain 75 million at the present time. Cochran: She is giving all the help that she can. H.M.Jr: Let them slow up on their payments to Canada and maybe MacKenzie King would change his mind. White: Well, that is a small amount. E.I.Jr: Well-- White: Then in addition she has the rest of her assets. H.M.Jr: Do you (Lovett) want to go now? Lovett: Yes, sir. Before I go, may I raise one question, Mr. Secretary? H.M.Jr: Please. Lovett: Back under item 2, I was just talking to Mr. Foley about it, and we ruled that out in its present statement there, but by changing that a little bit, it occurs to me - Jim, you might check that - that an American corporation would be the appropriate obligor at this end for the purchase of essential raw materials and that that obligor would make payment to the suppliers either in cash or in credit, delivery of the articles being at a later date. That would not, as I see it, be an advance to the British Govern- ment or a British Government agency. It would be an ordinary commercial transaction providing funds, the proceeds of which under existing British laws, as I understand them, would be turned over to the British Government by the suppliers. 153 - 29 White: That almost duplicates your first arrangement with China in which there was an American corpora- tion set up here, the Universal Trading Corporation, and I think the loan was made to them against future deliveries, but whether in the light Britain of the legislation with or not-- they would do that Foley: Your Neutrality Act, in so far as China is concerned, doesn't apply because no state of war exists there. I am afraid if your future deliveries are so far in advance and your arrangement is against those future deliveries that it may be construed to be a loan rather than a purchase, but if you could dress it up so it is a purchase and it is a normal commercial transaction between two corporations, then it would be all right. Lovett: The reason I go back to it is-- Foley: But the difference between this situation and the Chinese situation is that the Neutrality Act would apply here, whereas in the Chinese situation it didn't. Forrestal: There is no war in China? Foley: No war in China under the Neutrality Act. Lovett: All of these commodities, or the largest number of them, have a market. Foley: Lovett: They are perfectly normal commercial transactions to handle it in that way - it seems all right. Supposing we have a look at it because I think that is the quickest, easiest way to get the majority of those funds. 154 - 30 Forrestal: Are the British paying for that Australian wool White: Yes. There is this large amount of wool coming they are storing? here and me are paying only the freight. It might provide a possibility for buying that wool. Forrestal: About two hundred million dollars, isn't it? White: Almost that. It is a very large sun. H.M.JP: Mr. Lovett, before you go, I want to ask you a question. Which of these things do you think I might bring to their attention first? Lovett: Yes. I think advances against strategic mate- Foley: Number three? Forrestal: Two. Lovett: Two and three together, really. There is cer- rials is the quickest. tainly some way of doing that because the banks all tried to do it directly. Number two would be the realization of present vested securities, through, I think, a separate corporation to make the offering rather than existing investment trusts. Forrestal: You will get too many people talking on it, and they will all have different ideas. Lovett: Do you agree on that? Forrestal: Absolutely. Lovett: Private corporation? 155 - 31 White: The amount need not be limited to the 220 which they now have vested because they could vest a substantial of the remainder, given a few weeks orportion a month. Lovett: Yes, sir, but talking just to this point. E.I.Jr: that was the suggestion you made as to the 220 million? Lovett: That a study be made of the possibility of having E separate private corporation set up to become the purchaser of these vested securities and after purchase, the issuer, if necessary, have collateral notes or other instruments, stocks, provide the portion of funds. Forrestal: The same as that old Anglo-British loan. Lovett: Yes. Forrestal: That would be a new company, Henry, and you would deal with one person, then. You would eliminate the investment trusts. Theycould buy from that if they chose but it would be an instrument through which you could have an immediate access to bank credit against those securities as col- lateral. I don't think that would violate the Neutrality Act, would it, Ed? Foley: I don't think so, Jin. We could take a look at that one. Lovett: Mr. Secretary, I am speaking of two and three together, you see. Then the third one is the vested securities, but I understand Dr. White wants to lump that with number four. White: The unvested. I don't know how many of them could be quickly available or I don't know how many of the hundred and 40 million - how much it would fetch, but I imagine-- 156 - 32 Lovett: White: Well, I think you could get a reasonable esti- mate on it. But at any rate, if you took their vested and unvested securities, they have got 7 hundred million. Certainly 5 hundred million of that ought to be forthcoming within 6 or 7 or 8 or 9 weeks. White: If the price of that security is good, and I think-If it isn't, then a 50 percent reduction. Lovett: Throw out 25 percent as being bun stuff. The Lovett: Forrestal: third thing is direct investments over here which would be like Viscose, Lever Brothers. There are substantial British interest in which the time element is the real-I don't think it would take any two months, though, Bob. I think you could do a negotiation within a month. Lovett: Yes. Give us four weeks and I think you would get enough to go ahead on. H.M.Jr: Because I begged them on my knees to do this six months before the money was needed. That is the time to do it. Forrestal: You have been doing it at intervals ever since I have been here. H.M.Jr: But I started last July, begging them. I said, "Don't do it when the world knows you need it. Do it when nobody thinks you need it. Put the money away." Lovett: Of course the problem is magnified after the arrival of the British financial agent and Lothian's trip. 157 - 33 H.M.Jr: Lothian dated it publicly. Well, I am ever so much obliged and we will keep you posted. I wanted you to stay, Jim. Forrestal: I have got to go in about 10 minutes. H.M.Jr: I was going to send for the English now. Forrestal: All right. (Mr. Lovett left the conference) H.M.Jr: I'll tell you what I think I am going to do. Rather than see them now, I think I am just going to shake hands with them and let them go. I think I am going too fast. I want to digest all this. Forrestal: You won't really get started before you have to go. H.M.Jr: Yes, I mean I have to - so I think what I am going to do is, I want to talk to Mr. Forrestal alone a minute and then I will go down stairs and excuse myself to these people, you see. 708 SECRET BRITISH SUPPLY COUNCIL IN MOPTE JEFICE Fillard Hotel Washington rc January 5, 1941 Dear Mr. Secretary: I inclose for transmission to the President the new statement of Fritish Requirements during 1941 and 1942 of Merchant Ships Aircraft Ordnance Steel Wachine Tools - which statement was promised in the Prime Minister's letter to the President of December 6th, 1940, paragraph 16, and again in his ceble of January 2, 1941. Very truly yours, arm Bhims Chairman The Secretary of the Treasury, Washington, D. c. 159 STATEMENT OF BRITISM - of Barchant Shipe Aircraft, Ordnance Steel and Machine Teals for delivery free the Daited States during 1943 & 1942 Insurance Estimated deliveries free orders already placed grees tens single 55 Increase size large Lisers. < engines IMMIT - Inconclusion 1,000 units 4,500 4,000 taci. health Great Total single above - Same 3,000 14,000 7,500 16,000 7,300 5,500 8,000 600 300 700 1,000 1,000 1,000 1,000 100 2,500 5,600 25,700 2,500 22,900 5,950 14,300 3,700 6,300 350 8,200 28,150 32,000 3,150 18,000 9,800 3,400 1,350 1,350 1,700 2,300 3,200 5,000 3,200 2,400 1,200 550 400 held - so lette - - Berry - Lach 2 - firm June items and jeary Jane 11,150 3,700 5,100 single 48,000 92,000 42,000 4,500 items 303 - 600 2,000 4,500 2,000 7,000 18,000 3,000 46,500 80,000 31,000 168,000 . 1,950 400 350 6,400 4,100 6,000 23,500 168,000 27,000 68,000 75,000 42,000 160,000 4,500 450 2,200 so 222 25 45 50 - 9,200 1,850 1,600 thousands 1,500 6,900 75 115 730 650 1,100 1,500 150 15 165 5,950 4,900 6,900 1,400 2X 85 29,000 4,950 3,950 2,120 110 3,000 360 - 20 1,460 25 725 18 222 500 900 900 13 100 DAD 6,500 725 no 900 1,500 900 1,000 - $ million 100 A. Bardent Shipe. Based - saintenance of United Kingdom a fleet at existing level. 3. Aircraft. Based - present British Air Staff estimate of aquadres requirements to a. E.-I Based - British Bar office strategie calculations. true - 5,Supply 2942Council is Borth learning Bashington 260 - - 6,600 1X a. Denoral. 1,000 6,500 18 900 F. 240 2,950 - 700 900 c. Thanks 165 20 tone aI 220 200 25 thousand Purpose Steel 7,600 12 12 6,600 Steel 650 not yet defined not - defined 10 10 1,600 4X 6,100 550 7,600 3,000 650 5,950 3,400 1,200 - 19,900 3,950 300 - 400 millions 50 20 7,600 -- 10 25 165 - thousands - - 23,000 1,000 Date 1,800 16,250 - = items 800 800 4,020 16,000 1,000 49,000 so 4,200 High Jane 4,500 550 2,700 4,200 600 so 2,900 1,200 400 400 5,900 single Sea Anti-Team 5,000 - SOWA 1,500 8,700 1,100 items agree CARTIAL 1,200 1,500 - Total Operational 200 1,500 700 - - Frying losts 2,906,300 2,000 100 200 spares 200 - our write - 3,250,300 200 150 150 1962 1902 2,650,300 3,200,300 250,000 50,000 from 1962 1941 - -- (other the terms free Patted States 1942 1941 Total Deliveries Required Deficiencies to be provided for under persitiation is Datted States - Sait of 1.0., after allowance for present rate of lessee. give preparderes over energy. Based - United Kingdom deficiency as . result of less of Continental - of supply. All of the above estimates - the mistenance of British output. 100 100 160 2 DOLLAR REQUIREMENTS AND RECEIPTS or UNITED KINGDOM FROM JANUARY 1 to MARCH 1, 1941 (As submitted to Mr. Cochren by the British Government) (In millions) A. Requirements 1. payments to Ganada 2. Payments for parchases in United States by British purchasing Mission on (a) Consiteents on orders already placed. (b) Repeat orders. (e) New contracts (minimum) 3. other items is the Balance of Payments (net) h Dollar advances to Grosse. Total requirements 75 280 50 250 10 5 0670 3. Receipts - Cash that will be available free Jee, 1 to March 1 In Federal Reserve Beak. Gold is transit and etherwise available Sales of vested securities. Total Receipts. 8419 Deficit. 8252 (British Exchange Account authorised declare balances of m million which cannot be &ram down and consequently not included is the above total.) (There is apprexiantaly 833 million of gold in widely seastered less littles - as stage West Adrica, Bonbay and Londons early shipneat of same of more impossible and switching against gold is Canada gives Piss to afficities. Pres the figures admitted by the Britten, as appeare that and the British each of will be be exhousted defines insuredat the and of January, a $251 - millions would by the the end British of February. Government This not take into account the mecessity of a howing a writing belease on hand - which they estimate to statement of $290 millions. what was 161 January 8, 1941. The following are suggested as possible methods of meet ing the claimed deficit of 8251 millions, and avoiding the - haustion of the dollar balances of the British Government: 1. Sale of $18 millions of American Government securities now is Canada but not yet vested. 2. Export-Import Bank credit against future deliveries of sis, rubber, wool, etc. 3. Purchase by the Metals Reserve Corporation of strategic materials, to be delivered in the future, but payment to be made in advance. 4. Realisation of present vested securities through offer to private purchasers in an entire block of around $220 millions at perhaps a 10 percent discount below current market value. 5. The purchase by some Government agency of the vested seen- rities with an arrangement that the British Government will re- purchase them at the same price over a period of seaths. Mr. Foley thinks this procedure is legal, but wishes to eranine the matter further before committing himself definitely. 6. Sale to a Government agency of some or all unvested but registered American securities. These total 3440 million of which $140 million would not be readily salable in the American market. 7. A.F.C. loan against securities as collateral. 8. Sale of any immediately marketable direct investments. 9. Arrangements by the Army and Navy to relieve British of current payments on contracts for material which night be utslisable by the American forces. The Hap Department believes not are than 850 million eas be made available through such arrangements. 10. Purchase of sterling with funds from the United States Stabilization Fund, thus making the dollars available so the British, as needed. In view of the Secretary's commitments to Congressional Committees, their approval should be a prior condition to each a step. HDW1dia 1/8/41. 162 11. It may be possible that the British Government will be able to reduce private dollar balances held by U.K. residents. on December 18, our report showed 8312 million so held. A substantial portion is doubtless needed for the conduct of business, but some of it may be available, at least temporarily. for the British Government's use. 12. The British Government may be able to arrange a loan of some of the gold held by her Allies (excluding France). They have #568 million of gold in the U.S. and 8520 million is the British Empire. 13. The gold reserves of the Empire countries, excluding U.K. and Canada, total over $600 million. It may be possible for the British Government to borrow some of this gold to tide her over the acute emergency. 14. The British list $75 million payments as due to Canada during the next 2 months. It may be possible for the British to arrange with Canada that she take Canadian securities (or sterling balances) instead of dollars for those 2 months. 15. In addition to the foregoing, the British have investments in Canada, Latin America and elsewhere, there is French gold in the British Expire, and there exist various types of Allied assets. Whether this can be utilized to tide her over the present emergency and how such are matters of policy. HDW:dia 1/8/41. 163 January 9, 1941 10:00 a.m. RE PRESS STATEMENT ON INFLATION Present: Mr. Gaston Mr. Bell Mr. Young Mr. Haas Mr. Kuhn Mr. White Mrs. Klotz H.M.Jr: I just want to make a little speech to you people. Haven't you got a big chart, George? Haas: No. I have one, but it is not up to date. H.M.Jr: Where is mine? H.V.Jr: (On Telephone) It is all right with me, and I will bring it up in Cabinet I am not, but he certainly told me That is all right, I would just as lief bring it up in Cabinet But I certainly expect him to see those leaders after Cabinet I wish you would call up Sam Rayburn and Barkley. Will you take care of that? Right. And then Hull and I ought to be there too at 4:30 164 -2We have been handling it, and the President hasn't seen the bill and there are several changes which he doesn't know about, see? Well, keep them going between now - that is right. That is right That is all right But the 4:30 thing and I would like to bring Foley with me, too, at that time Yes Well, you ought to have Hull and me and Foley there. You let me know. O.K. Haas: Mr. Secretary, how about those big ones that we had before? I have those. H.V.Jr: Well, ask the girl. Bell: Are they up to date? Haas: They are up to date as much as the Bureau of H.M.Jr: Labor Statistics. I didn't want that meeting this morning anyway, because I am not ready. After this other meeting, I am not prepared. Harry, keep this (handing papers to Mr. White) in your files. Don't let loose of it. I want to make a speech. There are three things which have happened, none of which as yet I have expressed myself on. One was the Eccles statement, two, Jones' statement that there is no inflation, and three, the President's Budget message. 165 -3- Now, I feel very, very strongly and that is the reason I asked you people in here to argue with me for 19 minutes, that I, as Secretary of the Treasury, ought to say something. They are certainly going to ask me about the President's Budget message, they are going to ask me about Jones. I feel very, very strongly about this inflation thing, and I think Jones is entirely wrong on it. And this thing in Standard Statistics plus one thing which Georgesuggested adding. Have you all read this thing? Gaston: Yes. H.M.Jr: Have you (White) read it? Well, I will read it out loud. My thought was that I would just say when they ask me - and that is why I want the big chart; when they see it and they will say, 'What is that?" And I will say, Well, that is the way we watch prices." I want the President to see it, see. I can say, "Well, gentlemen, I study everything I lay my hands on and the thing that expresses my feelings closer than anything I have seen is this statement in Standard Statistics which I would like to read to you, and then when I get through, plus one thing I want to add. And I would be glad to put my name to it. What have you got, George Let's see. Haas: These are the biggest increases not including lumber. H.M.Jr: Haas: I don't want to get into the specific ones. Lumber would be way up above the top. There is a separate one on lumber. 166 -4White: H.M.Jr: That looks very scarey. It should be scarey. Just put the one up. If anybody wants to see that, they can. Let me read this thing, you see. "Credit control policies alone cannot effectively control or prevent inflation. Mere elimination of excess reserves and the establishment of higher interest rates would not prevent an increased turnover of bank deposits, a further increase in deposits as a result of deficit financing, an expansion of bank loans, nor higher prices resulting from non-monetary factors such as rising wages, labor shortages, plant deficiencies, or raw material shortages. "There has long been a misconception relative to the importance of credit controls. At best, such controls only attack one facet of the inflationary picture. Borrowing, for example, is not discouraged merely by rising interest rates if business prospects are favorable. Credit has no bearing on wage increases in a period of sustained business activity, nor do credit policies produce new raw material supplies, new factories, or skilled workers. "If ultimate inflation as a result of excessive Government spending is to be averted, it will be because of a far broader control policy than the one proposed by the Federal Reserve last week. Effective restraints on inflation must include (1) reduced non-defense federal expenditures, (2) sales of Governments to investors rather than to banks, (3) restraints on rising wage costs, (4) industrial priorities where necessary, (5) closer cooperation between industry and Government to prevent a vicious circle of price advances, and (6), the thing which I was going to ask you to write a sentence on, George, plant extansion. 167 5- Haas: That is in there, I noticed, as you read it. H.M.Jr: I was going to say, "Gentlemen, this comes near, without my having written it, expressing the way I feel. Then if they say, "Well, how do you feel, do you think the President has gone far enough on non - reduced non-defense expenditures, I was going to say, "Well, itfederal is a start.' Gaston: I noticed one very serious - what seems to me one very serious defect in that statement which seems to be an argument against your giving it full endorsement. They stress wage increases, restraining wage costs, and they say nothing about extortionate profits. It isn't realistic to think of wage increases as forcing these high prices. What happens is that when you get a shortage of production of stocks, of capacity, there is an opportunity for those who produce and sell to stick their prices up and profits are always way in advance of any labor increases. They always lag behind, and this is just another example of the - of how the business tendency and the manufacturer's tendency is to blame these price increases on labor, which is neither realistic nor just, and that is the thing that is wrong with that statement. When they see an opportunity to get higher prices, they will get them. They say the market justifies it, and it isn't due to labor costs. Labor costs will lag behind. White: I agree with Herbert a hundred per cent on that issue. Bell: They haven't lagged behind in this situation, though, have they? Haas: Yes, profits have gone up more. 168 -6Gaston: Why you get your price increases is because White: They bid for labor. It is true that there are they see an opportunity creases. Then after thatto--get the price in- certain key unions, key by virtue of their excellent strength and position, who are able wage a increase process, to get but increases great deal through of the their wage bargaining which takes place, with the lag, takes place as a consequence of the employers themselves bidding among themselves for wage earners and to center the tension of the rising costs on that as I think that does, at least gives it undue emphasis -H.M.Jr: It is one of several things. Gaston: But they don't mention the other more important thing, which is the taking of high prices simply because the market situation enables them to take them. White: Moreover, I am wondering, Mr. Secretary, whether you couldn't write a better statement that would include all those things. H.M.Jr: Oh sure, Harry. You would wait a month for it, too. White: No, I think we could do it rather quickly rather than saying, This expresses my view." H.M.Jr: I would wait for one month and let everybody fight about it, and then they would all agree I shouldn't give it. White: Well, there is something in that. (Laughter) Gaston: Here are two short statements, one that I wrote and one that Ferdie wrote. (See attachments one and two) 169 7- H.M.Jr: Let's see it. We will go around and around and I can say this thing and I can add the thing about profiteering. Gaston: That would be all right. White: Yes, if you could say that. Say, Now, you don't agree with all of it, now this part about wages, and then go on. H.M.Jr: I don't have to say it. "This is a good statement," I can say, "But one thing they overlook on this thing is the - is war profiteering. Haas: They have it in there, Mr. Secretary, that last thing, I think, but it is submerged, where it says, "cooperation to prevent a price spiral" in the last sentence. That is included, but it is under cover, you see. White: But why take a crack at wage costs when there H.M.Jr: White: Well, I wouldn't include it. A lot of labor people will hear the statement. H.M.Jr: Which are these? Gaston: That is mine on top. H.M.Jr: Did he say -- Gaston: Here is Jones' statement. (See attachment three) is no indication at present that they are rising unduly? There are here and there a few spotty -- He just said, "I haven't seen any indication toward inflation, and I don't see why we should expect any such tendency." He didn't say monetary -- 170 -8H.M.Jr: No, he is talking about deflation. Gaston: But he was talking about the monetary phase H.M.Jr: If he is, it isn't in there. It isn't in the Gaston: of it. statement. You could say that you agree with Secretary Jones only to the extent that you don't see any signs of inflation from monetary causes or you could just omit, if they ask you about Jones' statement, you could just omit specific references to Jones and say that, "Well, so far as I am concerned, I don't see any signs of inflation due to monetary causes. H.M.Jr: I get back to this thing in this magazine, which is the best thing that has been written. They read the whole thing through. They don't say that the President should have those emergency powers taken away from him in the statement. White: That last sentence - in the last sentence you read, it seemed a little troublesome. Could you read - not on the rise, but the last one you read. H.M.Jr: "Closer cooperation between industry and Government to prevent a vicious circle of price advances. Haas: H.M.Jr: Gaston: White: I think it was under that heading they intended to include this other thing. If you added to the thing, if you said - to the thing -Is it all right if you qualified that by saying that -I don't like that job on that chart, Mr. Secretary. 171 -9H.M.Jr: White: Haas: It is too bad, it is facts. Yes, it is facts, but the scale is so high. Fifty-nine and sixty per cent. H.M.Jr: What are you worrying about? Bell: Should the fact that it is a low of the year H.M.Jr: be explained? Harry, inflation is on right now, and nobody has got the nerve to come out and say it. And what Jones is talking about, if you people would take the trouble to read it, he says, "There is no inflation in sight." He isn't talking about monetary inflation. Gaston: Well, I think you could say, "If Jones is talking about purely monetary inflation, he is right, but there isn't any sign of that." But we are having a beginning price inflation but I don't see any harm of using that Standard Statistics statement if you say that you think they stress the labor costs too much and they overlook what seems to you a much more important factor and that is the tendency to profiteer on the shortage. Haas: That would make it perfect. White: The more I think about it the more I would leave the subject alone, this morning. H.M.Jr: What subject? White: The reason being that either you have to disagree with Jones or you have to give the reporters that kind of a chart and they will make a good deal of it, and whether that is the way to meet the Eccles bill, whether they won't come out and 172 - 10 say something quite different than what you want then to say - I am not sure that I see what issue. is to be gained by taking this very important Gaston: They are going to ask the Secretary about this, and I think he has got to say something and I don't think he needs to disagree with Jones. He can say, "If Mr. Jones was talking about - I wasn't at his press conference, I didn't see his statement, but if he is talking about inflation due to monetary causes, he is right. I agree with him, but we do have a situation about price increases that we have got to do something about." Kuhn: And you have been doing something about it, Mr. Secretary. White: That is right, that there are some prices which are rising unnecessarily and that we are doing something about it and we will do more - some- thing of that character, which I think is a little bit different than showing -H.M.Jr: What you people have lost entire significance of is that I am going to be asked this thing on this Budget business and this statement takes care of that. I mean, I am going to be asked, do I like the President's Budget. We are all worried about this labor costs and the rest of the thing; I am much more worried about what I am going to say on the Budget, which is the news story today. What are you going to say about it? White: I would say it is fine. H.M.Jr: Well, I don't think it is fine. White: Which particular portion do you -- 173 - 11 E.V.Jr: On the non-military thing I think it is terrible. White: You mean that he doesn't go far enough in the reductions? H.M.Jr: Yes. He said he would, and he didn't. This thing takes care of it. He didn't touch three A's, he didn't touch the CCC. White: Well, I don't think he should have, but it is a difference of opinion. Eses: Mr. Secretary, I could only get four in the whole city of those copies. E.M.Jr: What do you think, Phil? Young: I don't think you can go sit in a corner and hide by any means on this situation. I line up with Herbert a lot more than I do with Harry on that. Secondly, it is going to be much simpler if you are going to have to say something, and I personally think you should, on it, to do it in this way than it is to take a direct issue. Until that is - if and when you want to make a statement of your own on it and sign your name to it, it is a perfectly good sort of a stop-gap in the meantime, and if I recall the language correctly in this, it says when it lists those five factors, it says included and it merely picks those five out of a theoretically larger group as being the most important. If you want to add on one or two of your own to that, I think that is perfectly all right; but I don't think you ought to limit it to the entire list, make a hard and set list of 5 or 6 or 8 or what not, leave the door ajar on it. 174 - 12 H.M.Jr: Bell: What do you think, Dan? Well, if you feel you have to say something, I would play it down as much as possible. I should think that you might say that there is no inflationary trend on the monetary side, and so far as the general price level is concerned, it hasn't gone up very much; but there are some individual commodities that need to be watched, and there are some plant shortages that need to be corrected; and we are watching those. I would play it down. I think you can start this talk outside, and it will really cause more harm than the actual rise in prices. H.M.Jr: What kind of herm? Bell: Oh, I think getting people scared and they start running certain directions and maybe buying common stocks, buying commodities for coverage. I am afraid that that thing might start something bad. H.M.Jr: That is just what happens as a result of the Eccles thing. The bonds are going down, and the common stocks are going up, and you have got this price inflation that is on us and nobody has got the nerve to say it. It is on us right now. White: That is too strong a statement, Mr. Secretary. H.M.Jr: I disagree with you a thousand per cent. White: I think you will find, Mr. Secretary, that in any period of rising prices that you get a dispersion on many commodities which may not be as startling as that in three or four, but you will get a substantial dispersion from the low to the high of any year; and you can make it look very spectacular. That doesn't mean, however, that 175 - 13 the situation mustn't be carefully watched and something mustn't be done like you are doing on Henderson. H.M.Jr: White: Oh, nuts on Henderson. He is just a big blowhard who isn't doing a thing. Then I would suggest other measures; but I would take the measures and not make the public state- ment. H.M.Jr: The only way you can get it is by talking about it, and if you sit here as Secretary of the Treasury and scared to say anything about any- thing -- Ehite: Mr. Secretary, why wouldn't you show a chart H.M.Jr: He has had it. White: A big one like that? H.M.Jr: Yes. White: I would show it to him again. Gaston: I don't think you need the chart. I think you like that to the President? will get some questions on the Jones statement. I don't think you need to disagree with Jones on the monetary inflation thing. There is in certain prices a danger of a price rise which we have got to watch very closely, and we must use means to control it and it isn't a price rise which is going to be due primarily to increased labor costs. Also a shortage produces profiteering. H.M.Jr: There isn't anybody in town who has got the nerve, and take it from me that we are right in it now. 176 - T4 - Nobody ever recognizes it. Nobody is willing to say it. All right, you just make the date. You look back six months from now. Tounc: You have got to hit a halfway point from between hiding your eyes on one side and crying wolf on the other, and give a perfectly calm, reasonable statement. Baston: I agree with Phil. Flass: The important thing to emphasize is that we E.V.Jr: Leon Henderson sat here three weeks ago and are on top of it and we recognize it. said that the lumber thing was all right. Now, suddenly since we out the pressure on him, he is beginning to talk and out a top of $20.00 on scrap and all the rest of the stuff. Bell: White: Steel was all right, too, and I see that the President asked for a report and gave him two days in which to make a report. Well, I wouldn't let his errors of judgment or fact be the determining factor as to whether or not this is the appropriate time or that is the appropriate way to bring to the attention of the public price rises in certain important commodities. I think a reporter looking at that chart will write cuite a story about it and they won't uphold the qualifications you would like them to see. It looks from that as though everything in the world is going up. They are not accustomed to looking at charts like that, and I think the statement must be made that there are certain trices which are rising high and that we have got to crack down on them and we mustn't be complecent about 177 - 15 - thinking that things will be all right, and we have got to be watching them and we have got to go further in that direction, anything of that character so long as you can confine yourself to the question of prices of a few commodities, and we have got to get it before you get started. Nots: I think that that is what you had intensions of doing. 177 - 15 - thinking that things will be all right, and we have got to be watching them and we have got to go further in that direction, anything of that character so long as you can confine yourself to the question of prices of a few commodities, and we have got to get it before you get started. Klots: I think that that is what you had intensions of doing. 178 I agree with Secretary Jones that there are no present indicat ions of inflation due to monetary causes. I think people often use that word *inflation* without any precise understanding of what they are talking about. The inflation that we need to guard against right now, in my opinion, is not an inflation of monetary origin, but an inflation of some prices due to other causes, such as increased demand coupled with temporary shortages of capacity or other bottlenecks in production. We have had already sharp prices rises in some important materials from those causes. There are ways to deal with that situation. Mere monetary controls would not meet the ********** need. Te shall have to use any powers we have available to prevent those who contra $ pply or production from taking extortio-ate adavantage of the country's need. 2 179 I'd rather not comment now on Chairman Eccles' proposals. They are being I studied, as I told you last Monday. But I do want to endorse Jesse Jones's statement yesterday that he could see no evidence of inflation from monetary causes. I agree with that ste tement completely. The trouble is not with monetary conditions. That bothers me. and what bothers Leon Benderson over at the Defense Commission, is the rise in the prices of physical things. Mr. Henderson spoke about steel scrap, and said that drastic steps to control scrap prices would be recommended unless voluntary action is taken quickly. And steel scrap is not the only commodity. as you will see on these charts. six weeks Now I want to 60 back - and remind you of something I said at a press conference in November. I price said then that inflation was one of If chief concerns, and ^ I meant what I said. I have been having constant discussions about it with Leon Henderson, and both of us are determined to nail any sign of a rising spiral, and to mil it hard, as soon as it appears. We are not going to let prices Tun away or eve = begin to run away. There they show signs of doing sop,we are determined to stop the process at the very beginning. That, to my mind, is the first and best way to guard the people of this country against inflation. The first and best way, in other words, is not to let it start. This is not the time for tinkering with money rates. It is the time for a resolutenals job on the prices of physical things. That is the job the Administration is now doing. 180 n.y. Hereld-Trib Jan 9, 1941. STATISTICS Centers With Memeramith The Man administrator said he had 31 first learned of the Reserve board Jones Assails New Reserve System Plans Favors as Much Avail- able Bank Credit as Possible, He Declares Reports No Trend Toward Inflation Loan Administrator Says He Does Not See Why We Should Expect It From the Berail Tribase Barees Bow football at the headlines in the had supporting Cotten glanced while returning game, from when the he papers Mr. James disclosed that he had conferred with the American Amto Cuba, George S. Mes- - - the question of an Ex- pert-Impert Bank loan to that country. However, be declared that the bank is prepared to lend "noth- ing like $50,000,000. Mr. James said be could not disclass at this time whether the procends of that loan would go to the Cubar government or to sugar com- canins But he declared. the pro- needs write be used to pay labor to inst and grind Cuba's sugar-cane crugs Commenting on the Reconstruetime Flinance Corp. defense activities, be revealed that the corporatime has made more than $1,000,000.- - in commitments for national deflem materials and plants. National definise plants have absorbed about $550,000,000 of the sum. About $260,000,000 has gone for stock piles of strategic materials, such metals and other materials, while $540,000,000 has been committed See rubber purchases. The R. F. c. is conducting negotiations for the purchase of 300,000 tons of nitrate WASHINGTON Jan. 28-Jesse H. Jones, as Federal Loan Administrator. said at a press conference today as a strategic material but did not be was opposed to the suggestion reveal details of the proposed trans- to control the level of excess reserves. The corporation has "asked for tentative proposals" on the constration of synthetic rubber plants advanced by the Federal Reserve system that it should have powers In a statement on Jan. 1. the board brought attention to the dangers of inflation inherent in the milti-billion defense program. "I am for exactly the opposite." Mr. Jones declared when asked to comment on the Reserve board pro- posals Furthermore, be added Tm Plant Proposals Asked by a - of rubber and oil prodaters. Be declined to disclose the names of the companies. Mr. Japes declared that negotiatiens to construct a tin smelter in the United States have not been abandmed and these negotiatime are being carried on with trying to get the banks to lend more. I want to see as much bank credits two American concerns American available as possible." Metals and Phrips Dodge Corp. Mr. Jones decried the board's claims that it made its proposals to forestall possible inflation action "I we will build one plant," he declared that neither its size or 10cation has been decided.' An an- haven't seen any inclination toward infiation." be declared "and I don't nouncement may be forthcoming in see why we should expect it." contracted to buy 18,000 tops of re- about . week The R F. c. has fined = from Bolivia. be said. 3 181 PRICE INCREASES FOR SELECTED INDUSTRIAL MATERIALS (NOT INCLUDING LUMBER) Percentage Increase From 1940 Low To Latest Quotation PER Wood pulp chemical SEEZ CENT 56 52 Tertoric acid 4792 Skina Sheep 478% 48 Mides Steer Terms 4772 44 Tellow 4382 40 Skina calf 3872 Steel Scrap 372% 36 Turpentine 34.7% Alcohol ethy 3232 Hemp.manile 32/2 Shellac 308X Yorn, cotton twented B27Z Woo/delaine 2942 Zinc 288X Leather side 2862 Broadc/oth cotton 2722 Wax.paraffin 25.0% Oanaburg. cotton 2192 Chinawood ON 2(8) Sheetingbrown,cectom 2122 32 28 24 Flaxseed 212% Berz,reinforcing 2062 Drills.brown.cofton 2052 Print cloth.cotton 2002 20 Acetone 200% Pig iren.ferromang 200z Leather.sale 197% Carbon black 192% Burlap 191% 16 Twine.cotton 181% Suiting.uniform serge 179% Drills.groy 178 Arsenic,white 67% Concrete blocks 6/1 Suiting.worsted 147 I Leed,pig 146% Rubber sm sheets 142X Potash,sulfate 136% 12 8 Rasin 28% Fuel Oil 128 3 4 0 1940 Low Latest Quotation* "Lotest BLS quetetion available Dec. 26, INC Source Bureau of Labor Statistics 182 PRICE INCREASES FOR SELECTED TYPES OF LUMBER Percentage Increase From 1940 Low To Latest Quotation a No. 527%52/2 PER CENT - 459% 48 44 415% for flooring = 400% Pto/ 384% Pine dimension No. 400% 40 Douglas for aiding = 379% Douglas fig flapring 27% Daugins fic. No.2 34% 36 - T ( better 347% - - No. 33.7% Douglas for drea siding 323% - flearing 32/2 32 Douglas - - - 275% - flooring . Chetter 273% 28 Detail - 264% UNITED GROUP INDEX 26.0% - finished TO better 252% 24 Sum Mb/com 22.1 /- 200% 210% Daughter - - No. zuz Daughter 20.5% 20 Service estere asx - Pandereas No2 BOX Member - place 17.5% - - - NO 16 DaP ast Order shingles - B7% 25% #2% 12 northern #2% /-ab2 Pr 10.9% SEX 49% - 95% - as% -t /d76% Z/X 8 68% 472 4 Rechard / 27% Reduced adding 18% Redeeed oz 0 1940 Low Letter Quotation" ALS - -- Indian - 183 January 9, 1941 11:13 a.m. E.M.Jr: Sen. Robert Wagner: H.M.Jr: Hello. Henry? Hello, Bob. Henry, on that banking bill I just talked to Carter Glass again and he has agreed to introduce the bill and then later on if there are any objections - he says he's going to do it with reservations. I said all right but of course Barkley won't be available tomorrow and it may be difficult to get together. H.M.Jr: I see. So that's all right with you. E.N.Jr: Yes. K: He'll introduce it today probably. E.M.Jr: Good. Now can I have you a minute? H.M.Jr: Yeah. I thought you were the busy guy. I'm never busy when I talk to you. Yeah. All right. H.M.Jr: Now this thing that you were talking to me about the other day. Yeah. H.M.Jr: You see, yesterday Hull and I met with Barkley and Harrison and they were to let us know what committee this Aid to Britain Bill was to go to. We haven't heard yet. Now frankly, and it's always best to be frank, I expect that they're going to - whatever committee it is will haul me over the coals as to what the British assets are and I'm going to have to be awful careful about it - not to destroy their credit. 184 -2Yeah. W: H.M.Jr: W: And once. I don't think I ought to do it more than All right. It's all right with me. I'll go on with something else. I'11 forget it. I was trying to help that was all. H.M.Jr: Well, you are. And if you think otherwise, I'll take your judgment because yours is better than mine on that proposition. I think you're right about it. I don't think you ought to have to go from one committee to the other, but I'm going to start this study as soon as I'm going to talk to Harry White and a few others on something else, you know. H.M.Jr: Yes, there are plenty of other things. Oh, yes. There are lots of other things. All right, I'11 forget that, Henry. H.M.Jr: Thank you. As I understand it, I haven't of course been consulted nor should I have been, but I understand that the bill is such that there is no phase of it that has anything to do with the banking committee so it will have to go somewhere else. H.M.Jr: W: H.M.Jr: Well, they're thinking in terms of either foreign affairs or military. Well, I hope they make it military. I'm second in seniority on Foreign Affairs but you're going to have a hell of a time there. I think they are thinking in terms of military. W: That's a swell committee. H.M.Jr: I think so. Y: Yeah, all right. H.M.Jr: Thank you. 185 January 9, 1941 11:16 a.m. H.M.Jr: Hello. Operator: Foley. H.M.Jr: Edward Foley: H.M.Jr: Ed. Yeah. Senator Wagner just called me and said that Glass was introducing the bank holding bill today. F: H.M.Jr: F: His old one? I don't know - that's why I'm calling you. I see. All right, I'll find out what he's doing. I talked to Barkley and also to Rayburn and they decided that the thing would have to go to Foreign Affairs in the House and Barkley says that that means that they'11 have to send it to Foreign Relations in the Senate because George would be on his ear if they tried to steer this thing around him and he's already started to talk about what he's going to do and schedule hearings and have Hull come down and all that and he expects to get this bill, so it looks as though it's going to the two Foreign Affairs or Relations Committees. Rayburn says that he just got a call from General Watson that they re to come to the White House at half past four this afternoon. H.M.Jr: F: Well, I suggested that Hull, you and I be there. I don't know whether we get invited or not but that's what I asked. Well, I've got language here to take care of Barkley's point and I talked with him about it and he's satisfied and he said he thought when we met at the White House there might be some questions raised as to a simpler bill that gave in more general terms - just gave broad power to the President. He said some 186 2 of them were talking a little bit about that and thought that maybe this was too particularized so he said you might give a little discussion on that when we come down to the White House. H.M.Jr: F: Well, we'll see. Thank you. O. K. 187 January 9, 1941 11:32 a.s. H.M.Jr: Operator: Frank Hello. Secretary Knox. Knox: Hello, Henry. H.M.Jr: How are you? Hello? K: H.M.Jr: Henry talking. All right. I just wrote you a letter saying K: that I'll be glad to cooperate with you on that matter the President wants us to do on the Greeks 60 planes. H.M.Jr: Well, how many planes do I get out of you? I: What? H.M.Jr: How many do I get? I: I don't know. I'll talk it over when you get H.M.Jr: the bunch together. I don't know that we've got any planes that they want. Well, I never know. K: I don't either. I'll bring Towers along with H.M.Jr: Well, I'm going to mention it at Cabinet I: H.M.Jr: me. When do you want to talk it over? today because I haven't been able to get anything yet. Well, I'll get hold of Towers and come loaded for you. No, I'a just going to report to the President at Cabinet that I haven't been able to get anything and I'll let the chips fall where they may. I: Well, the British ought to come across with some of them, they're fighting with them. 188 -2E.E.Jr: I: My God! they've just given up 100 to the Chinese. Aha, ha! 100 next summer! I: No, no! January, February and March. Are they going to do that? E.M.Jr: Yeah. Now I'll be damned if I ask them for I: Uh-huh. Well, we'll talk it over this E.M.Jr: January, February and March. E.M.Jr: I: any more. afternoon. Uh-huh. What did you call me about? - Did you have something on your mind? E.M.Jr: I: I had a call that you called me. Oh, I called you to find out whether that 11:00 o'clock engagement was on and I found that I couldn't get you so I called the White House and found that it had been postponed. E.M.Jr: Until 3:30. I: What? E.M.Jr: Until 3:30. I: What? E.M.Jr: They're going to have it at 3:30. I: 3:30 after the Cabinet meeting. H.M.Jr: That's right. They don't want to have it - we're all to march through Pa Watson's room and go in as though there was a new appointment and that way shake the V. P. K: I see. Go to Pa Watson's room after the Cabinet adjourns. E.M.Jr: K: Yeah. All right, Henry. 189 January 9, 1941 11:37 a.m. H.M.Jr: Hello. Henry L. Stimson: Hello, Henry. H.M.Jr: How are you? S: I'm rather troubled. H.M.Jr: What's the matter. S: H.M.Jr: S: Lovett reported your talk this morning, your evident feeling that something was out of the way. I couldn't understand it. I don't know what you're referring to. Well, I'm referring to what we've been doing in regard to the matter that I brought up in Cabinet with the President with you on December 19th; that is, as soon as he had made his announcement that he proposed to lease and lend or to become - have us, America, I mean the United States become the arsenal for the British and all other liberty-loving, fighting nations, you remember that I H.M.Jr: Oh, yes. What you said and I remember your saying was that you had several hundred million dollars of S: Yes, which we were trying to use to promote the President's plan, of getting it started as quickly as possible before he was able to get new appropriations, and I had a couple of papers there which I had gotten from my people showing that we had about $500 millions. $300 millions roughly I'm speaking was unappropriated or noncommitted for any particular thing, the last $200 being committed, so that that would need probably consultation or action by Congress also, but the first $300 million being free. And then I sent you copies of those papers on your request. H.M.Jr: That's right but there's no indication that it was to be done the way it seems to have been going yesterday. 190 -2 S: Well, let me tell you the problem that came up at once when we came to apply that money was that some of the most important items of the British were items for which we ourselves could not use - namely, . 303 rifles 25-pounder gune, things of that sort, and yet things which were the ones that the British wanted first of all. Well, in the course of the transaction and all of which as we knew was done with the full knowledge of Philip Young H.M.Jr: He says not. S: What? H.M.Jr: S: He says definitely not. Well, there are two-to-one against him here. (Laughs). I was very much surprised when I heard that he hadn't told you of it before. H.M.Jr: S: Well, he says that Wait a minute! Well, it came that the only way in which this most important help could be done for the British in this interval was to take over these other contracts which would be at a nominal cost, and let them use the released money in that way to go ahead with their purchases which we couldn't take. It was an appendix to the whole plan - nothing but an appendix, but H.M.Jr: Well, the fact that you call it an appendix I mean, shows that - you referred to the 19th it couldn't have been explained that time. S: Explained when? H.M.Jr: Well, at Cabinet. S: Oh, it wasn't. I didn't touch it at Cabinet. What I was touching in Cabinet simply was the use of War Department money to help carry out the President's plan of helping the British by furnishing money at once before he had time to get Congress to do it. 191 -3E.N.Jr: S: E.M.Jr: But this thing And one of the ways that it once came up in the doing of that was to pay those moneys out to certain of the contracts for things which were to us, which we needed, as we could useful do. Yeah. The only thing that we have done was matters which we could do any minute. If we found any contract now of the British was for articles that we needed at once badly enough we could take over that contract and that would auto- matically release to them moneys which they on their part could do what they wanted with, the whole matter being a bi-lateral matter between the two parties concerned in those contracts; namely, our Department on the one side and the British because they were con- tractees on the other. H.M.Jr: Yeah. S: Now, McCloy has been in constant contact - I've been having since I heard you were disturbed about it, I've had the record made and I'm going to show it to you. H.M.Jr: I'd like to see it. S: I'd like to show you the whole thing, and I'd like you to see both these gentlemen, and I hope you'll certainly do it before you go outside our two Departments in regard to it E.M.Jr: S: Oh, I will. because the only thing that I've been staggered at was that you should have been surprised as that could only happen because you had not had reported to you what one of your people was absolutely conversant with. H.M.Jr: The first I heard of it was last night. 192 4 S: Well, that's a perfectly enormous surprise to me and the thing is so germane to the whole plan that I can't conceive of its not being reported to you. Now, I'm going to ask you this. I am loaded pretty heavily now and making pretty to ask these twoheavy men weather of it. I'm going H.M.Jr: S: H.M.Jr: S: Which two? Lovett and McCloy, who have been handling this thing, to take all of the papers over to you and to talk with you about it. Good. And I'd like to have that done before you do anything more about it. I think it's too serious a matter for you and me who have been working so absolutely harmoniously, as I thought throughout this last six months, to have anything of this sort come up between us. H.M.Jr: S: Well, I certainly will correspond in the same spirit. Well, now they'11 be ready - they're right here with me now. (Talks aside). They can come over right off. H.M.Jr: Well, I can't do it right away. It'11 have S: Yes, well all right. H.M.Jr: This thing is coming up at 3:30 though. S: What's that? H.M.Jr: The President has postponed this meeting now to wait now until after Cabinet. until 3:30. Maybe S: Oh, I hadn't heard that. Great Scott! I heard that he was going to take it up at Cabinet - that's what troubled me H.M.Jr: Yeah, he's going to take it up at 3:30 193 -5S: I mean,first. this isn't a matter to take up at Cabinet H.M.Jr: No, the question I raised - I sent you a memorandum S: H.M.Jr: S: H.M.Jr: S: Yes, well I'm just raising the whole question. Supposing you let them come right over. Yes. Can they come right away? Yes. They can come right off. They'11 be over in ten minutes. (Talks aside). 194 January 9, 1941 12:00 noon. H.M.Jr: Hello. Operator: Mr. Purvis. I reached him in Mr. Buckley's office. H.M.Jr: Hello. Arthur Purvis: Yes, Henry. Arthur speaking. H.M.Jr: Arthur, this meeting which I thought was at 11:00 is postponed until 3:30. P: H.M.Jr: Yes. But what I ought to have and I haven't got of this list which I'm going to hand the President which you gave me coming from the Prime Minister - is there any priority list, is there anything that is more important than the others? P: Frankly, Henry, I don't think - it's a straight issue. of course, I tried to put them in the order of merchant ships and aircraft and so on, but actually it's almost impossible to single out any special priorities other than that I think the extra ten division items being an extra or less important than all the other items, you might say. H.M.Jr: P: H.M.Jr: P: Well, then you would rather have me consider them as a whole. I think 80 unless it were a question -- if you wanted - are we talking about the interim period or the total period? Total. The total I think really we should consider as a whole and I believe Knudsen, who called upon me to go over there and see him yesterday and Weir and Self with with me - we went over the things. He was getting the whole thing into man hours. 195 -2H.M.Jr: P: How about the interim period? Well, now on the interim period, we have already, I think, expressed a list of those items and we have boiled out from that list all those we felt could possibly be post- poned, and even now the list is formidable. Now that is a document that does exist on H.M.Jr: the interim situation. You would like a document before 3:30 giving that again. I'll just check, but I think it' 8 here. Well, make sure that that gets into Mrs. Klotz's hands 80 that she can get it to me at Cabinet 80 that I can use it before 3:30. P: H.M.Jr: P: H.M.Jr: Before 3:30. But it should be put into her hands. Yes. All right, I'11 do that, Henry. Thank you. 196 January 9, 1941 12:00 Noon RE AID TO BRITAIN Present: Mr. McCloy Mr. Lovett Mr. Foley Mr. Young Mrs. Klotz Lovett: I washed out the trip, Mr. Secretary, because this matter seemed to be of primary importance. When I got back I started to dig into the files, and as my introduction into this only dates to yesterday afternoon, I found that Mr. McCloy had the whole matter on his desk, and I went through it -- H.M.Jr: McCloy: Through his desk? Yes, he has absolutely no regard to privacy over in our bailiwick. I have the documents that started it. You remember you called Harry one time and wanted the document that had been given to the President. The reason for holding that thing back was because I had in great haste put the words, "But this is illegal" on the memorandum, and we didn't want to have that perpetuated. As a matter of record, it didn't look too good. (Laughter) So we dashed that off in five minutes before he rushed off to the President's meeting, and he got the President to sign this thing and it said, "Dubious but however it is illegal. O.K., F.D.R." And we thought that better not be perpetuated so we were gingery about it and 197 -2had another more modest one prepared, which we got the President to sign the next day. This is the one with the O.K., which is the thing that we have been hiding. Then as a result, there is another 200 million dollars H.M.Jr: which we may possibly get. That is 300? McCloy: That is 300, and there is another 200 which we Lovett: hope to be able to get if we can get the legislative leaders to commit themselves to replace that 200 million dollars, because it amounts to a double only if we apply it now. It has already been committed, in other words, but I hope -- Jack, let's see if we can't get the Secretary up to date on the actual figures because I don't believe they have been given. We are talking now, as I understand it, about 390 million dollars of unobligated War Department funds, of which 60 million dollars were allocated to the Air Corps and 230 largely to ordnance. Right? McCloy: All ordnance. H.M.Jr: Then it is 390 less 60, leaving 330? Lovett: Two hundred thirty plus 60, making 290 altogether, and we use the figure 300 million, as I get it, as a round amount. McCloy: Now then, in addition to that, there is also the possibility that we may get another 200 million dollars, but that we have already obligated ourselves for and we feel that we can't apply that to any orders until we get legislative authority. H.M.Jr: (On telephone) Hello. Right Hello 198 -3 How do you do Pardon? Thank you And it is all right to bring Foley, too? Got to have somebody to know what it is all about That is right You and me both Give her my regards. H.M.Jr: He says Anna Rosenberg is his lawyer. It was "Pa" Watson. He says, "My wife is the smartest woman in Washington." If I said, "Why is that?" "Because she picked the smartest woman in America to help her run this concert, Anna Rosenberg. VcCloy: Well, Mr. Young is familiar. You know all these Young: Yes. Well, that total, just to tie that together, that total of the original 230 plus the 200 figures. which you are trying to release from one commit- ment to another, totals 430, which is the figure given in the interim financing memorandum which was sent over by you to Secretary Stimson and Knox and so on. McCloy: And on top of that there is another 60 million Young: The 60 is also mentioned in the same message. H.M.Jr: for aircraft. It says the War Department has available 60 and 430 for Procurement of ordnance items. 199 4- McCloy: Of 430, 200 million is still questionable, but we are ready to commit on 230 right away, but that is what we have been dealing with the British on, and that is where we are at the present moment. Now, as a result of -- Lovett: That is all on ordnance, Jack? McCloy: That is all on ordnance. It has, of course, some aircraft items in ordnance, machine guns, and we have agreed on a program with the British in connection with ordering certain types of airplanes and in connection with that I will have to at the same time order the machine guns that go with the airplanes and they come out of the 230 million so they will take up some portion of the 230 million; but we want to get that order in right away. And we also want to get in the balance of the ordnance items and in order to do that, we have discussed with the British, particularly with Weir and of course we did with Fairey and with Self on the aircraft items, and we have been with Weir on the ordnance items. Weir and Wesson, the ordnance people, have been sitting down; and I took part in those conversations, made a memor andum of them, sent them over to Mr. Young. I think I have telephoned you (Young) from time to time to keep you up -Young: Memorandum of what? McCloy: Our meeting with Weir. Young: That was that mimeographed thing? McCloy: No, no, an ordinary letter. Lovett: What is the date? 200 -5McCloy: January 3rd. "Yesterday we had a conference relating to the utilization of the 230 million dollar fund which we found we had available in the Ordnance Department. The conclusions we reached are set forth in the attached memorandum, which I am sending to you for your information. Similar arrangements have been made in con- sultation with the British for the expenditures of the 60 million dollar fund for air ordnance. I think we made real progress." Then I telephoned you about the same time about it, and outlined it to you. But you have got a copy of that, too. Young: McCloy: I remember the telephone call. You have also got this in your files somewhere because it went out. Young: I don't recall it. H.M.Jr: What is the date on it? McCloy: That is January 3. But I have been constantly telephoning to Mr. Young throughout the whole progress of this thing, because I didn't want to get on any false path. And particularly did I not want to get on a false path because the RFC might have been involved, and I wanted to go over and see Mr. Jesse Jones about some other things, and I wanted to be sure we weren't crossing any wires on that before I went. But that is another story I want to talk to you about later, the Jesse Jones item, in just a minute. Now, that memorandum of that conference, the substance of the memorandum of that conference 201 -6H.M.Jr: Now, may I - here is where I claim that I am in the dark, where I shouldn't be. Let me state my grievance. ycCloy: Right. H.M.Jr: The grievance that I have is that up until last night I did not know that you were proposing to give back to the English money which they had advanced against contracts and new plants in this country. Now, how could I know that? Now, that is -- McCloy: Well, you could know that - the way you state it isn't accurate, but you could get the substance of that from this memorandum because one of the items that was discussed at this conferance which Weir and Wesson were present at, was that we found out that they wanted primarily free money to deal with the so-called "A" items, the non-standard items, the three point. They were very anxious to get those. They said they were more important than any of the standard items that were then on order. They wanted to continue the order of the non-standard - American standard military equipment. They didn't have any money to do it, so they told me. As the discussion progressed, it became evident that we might be able to take over from them their existing contracts on items that we vitally needed, such as 50 calibre machine guns and the first contract that was discussed was one with Kelsey Hayes. That was brought up by Heir as a good type, because he said if we took over that contract and they canceled it, there would be a refund due then which they could use as free money for the purchase of items that they, and they only, could purchase. Well, that seemed like a good idea to me. 202 -7Lovett: Excuse me, Jack, who would the refund come from? McCloy: From Kelsey Hayes. Of course, the War Department isn't going to pay the British anything, but as a result of the cancelation of that contract, there would be monies which could be reimbursed to the British and the Americans would take over lock, stock and barrel, the Kelsey Hayes contract. Kelsey Hayes was only a typical instance, and it was studied as a type. H.Y.Jr: That is the point that I am getting at. I still maintain that as far as I am concerned, and Phil Young can talk for himself -- McCloy: H.M.Jr: Oh, well -that I didn't know and I am under the impression that he didn't know that there was a program underway -- McCloy: For the cancelation of British contracts. H.V.Jr: Whereby the British would get some new money through cancelation of contracts or any form. Lovett: That apparently went out, Mr. Secretary, on January 3 with a memorandum attached. H.M.Jr: That plan? Lovett: Just exactly that plan. YeCloy: Just exactly that plan. It wasn't only in black and white, it was also in a number of telephone conversations. Young: We talked about the possibility on the telephone of the Army taking over that particular contract. 203 -8yeCloy: Young: H.M.Jr: The Kelsey Hayes, and we talked about it again last night when we -- We talked about it at six o'clock last night. Well, Young can talk for himself. I - Phil, if you told it to me, don't hesitate to say so. Young: I don't think I ever told you about the Kelsey Hayes.' Primarily for the simple reason that so far as I knew, it had never yet reached the point where any particular action was going ahead on it. I talked to Jack McCloy on the telephone about it. H.M.Jr: Did you know about this thing he is talking Young: I don't ever recall having seen it, the memo. H.M.Jr: about? You see, let me just take a minute. Now, for the first time, I bring Walter Stewart down here, who is an able citizen, to take a fresh look at this whole thing, where can he get some money, because I have a statement on my desk in which they say on February 1 they will not only be out of money, but they will be short several hundred million dollars, you see. Well, according to their statement as of March 1, confidential, they will be short 251 million dollars. Now, have anybody - and Walter Stewart comes in and says, "I think I have got an idea. It may not be any good," but he says, "maybe there is some way of getting a refund on the deposits that the English have on our contracts." This was Monday or Tuesday, as though he discovered something new; and I said, "It is wonderful; let's explore it." 204 -9McCloy: We did it three weeks ago. H.M.Jr: But he got this in conversation with Sir Frederick Phillips and Pinsent. McCloy: H.M.Jr: Well, I don't -Well, I am just trying - I am not on the contract end. I am on the financial side. I do take responsibility for that, and I am trying to find the money so in case they should default, Congress will say, "Well, why didn't you do something about it?" and so forth and so on. It is a terrific responsibility to carry, and here I find myself through an accident last night hearing that there is a way. I also - that is number one, not that I didn't know that, but I have been given the responsibility, as you know, of carrying the load for the President on this bill and in hourly conversation trying to get this thing through, I find something that looks to me as as though the Mar Department was trying to beat the gun on us. The point that I am making is, now, maybe it is good and maybe it isn't good. Maybe I should have known about it. I am sure nobody has told me about it. Maybe Young did know about it, but the point is that where you are working with these people, I can not let the President be put in the position that something is going on where we are going ahead of the legislation. Now, do you see what I mean? McCloy: That is just in my mind, Mr. Secretary. I am so conscious of that -- 205 - 10 E.M.Jr: All of this inter-office Insiness and all the rest of the stuff is important to keep our relationships because we - all working under white heat, we are all working IB and 20 hours a day, and anybody CSIT mile . mistake, but we are here facing each other emil is there something, after you and Young streightened out as to your relationshin, which is territy important, but is there something, after careful thought, that we want to do in of the introduction of this legislation McCloy: Yes. H.N.Jr: But that is the question - I raise. Now, there are two things, the is that plus the fact if there is 50 or E invilent or 200 million dollars which can lite salvagei, that means four weeks for these fellows. McCloy: Exactly. Tell, that is just the nroblem I was posed with when I first - ower to the department there, and that started me scraping the barrel, trying to fini STORE money because I SITE very conscious of the Sart that this interim veried is are entersive merine and no orders are going in either - our account or the British account, and it just doesn't make sense. So we have just Reter to pay Paul. We have taken Peter's latte commitments and we are putting them - for Paul's immediate commitments. E.M.Jr: This is all news to = It - the the answer. McCloy: Well, I don't think it is the comlete answer, Mr. Secretary, because III entit believe there is enough money. I don't believe there is enough in that 230 million dillers the solve all the British problems, and THE . discussion last 206 - 11 night on that very subject with Mr. White, Mr. Cochran, and Yr. Young and the British, and we came to the conclusion that there were such limitations on it - the conclusion is a fact - there are such limitations on that 230 million dollars that we can't really carry over the British during this interim period. Now, I think there are ways of carrying the British over during this interia period, but they - it can't be done ty the Bar Department because there just isn't enough money there. We will use the Ser Department money to the very limit, the last penny, on items which both the British and ourself can use. E.W.Jr: Now, could I take two minutes to read this? Tollay: Surely. E.F.Jr: Well, you certainly have taken the steps. It says, cancelation or replacements for new orders, perfectly clear. Melloy: Don't you think that is 8 sensible way of going about it Well, should you TO ahead with it in view of this legislation Helloy: Yes. Shouldn't we get this money released so that they can out in their orders for the 303, for the 5.7 which Heir tells me is vitally necessary to them; and it seems to me that that is making much more progress than just putting in new orders for American standard equipment. E.W.Jr: Well, I had am experience yesterday. I mean, I see Mr. Hull take an hour and a half to pass 207 - 12 on two words. YeCloy: Yr. Hull - pardon me, Mr. Hull doesn't have to -- E.M.Jr: But just the care and trouble that he takes McCloy: This is our money, Mr. Secretary. It is Har on two words. Department money, and we can spend it any way we see fit, so long as it is on American standard items. Now, we have sat down with the British to find out from them what items of American standard type they would most like to have, so our program will be coordinated with theirs. Our whole object is to help the British, and right away, get some bricks on top of bricks. Lovett: As I understand it, Jack, the purchase of these 50 calibres, for example, is to meet an urgent shortage that we have at the present time, and it is not merely taking the British planes but drawing a new contract for those same articles. McCloy: that is right, and even ordering a larger number of them, and then when the legislation comes along, if it goes through, we will be able to turn that over to the British; but in the meantime, there is nothing being done during this interim period which is helping H.M.Jr: really the British or ourself. Well, that is what I called this meeting for. Did you see the memorandum? McCloy: Yes, I saw that memorandum. That is just down Foley: That is right. McCloy: That is just what we are doing. the line of what we are doing. 208 - 13 H.M.Jr: Let me just ask Foley. Do you mind a minute? VcCloy: Surely. H.M.Jr: Relax. (Laughter) Ed, you have lived with this legislation now day and night for a week. On the assumption that you can't do anything in Washington without everybody knowing it, which is a pretty good assumption, supposing it gets out that this sort of thing is going on, cancelation of contracts and so forth and giving them money and so forth. Would it worry you, as far as we are concerned on the Hill? Foley: It wouldn't worry me very much, Mr. Secretary, because we may have to explain when we appear before the committees the extent to which such operations could be carried out in furthering the policy that the President has laid down and has advocated to Congress, within the limits that are available to us now, funds and authority, it seems to me that we could go ahead, pending the passage of this legislation and its consideration by Congress -- McCloy: Bear in mind this would have General Staff approval. We have gotten that, gotten Marshall Foley: to agree to it. I don't see as it is inconsistent at all. McCloy: Not at all. It is our stuff. We want it. H.M.Jr: It isn't Army money that you are refunding to the English? McCloy: No, the English will get their money from Kelsey Hayes or the typical contractor. 209 - It That must be am unusuall contract if they can cancel it. Meniday: Well, they are willing the cancel it. holder It couldn't have been writtlen that way. No manufacturer would Insure written it that way. I think the answer is that there is such an appalling shortage in 50 calibre machine tools as well as the guns themeelves, that in order to maintain production for Army requirements alone, Kelsey Hayes while have to go ahead with it. Therefore, they are perfectly happy to have the Army dem BE contract for that same production. Malllany: And the Army is perfectly hanny to take over all that capacity Let me get something hasn't been exclaimed to = yet. I - Tellory Haves and the English have advanced 8 million dollars to me so that I can make this run and II come alone and say to the English, "If will will cancel this contract, I - raing the may you back the 8 million dollars you have advanced to me." Valley: Yes, somebody else will assume the contract. follows I have got somebody else the assume the contract into who is going to give - even more. Wait a minute now... The B million - let's say it wasn't exactly the SETTLE production, it was slightly increased. How fines Kelsey Hayes get back that 8 million: The Army nicks up the shule contract, lock, stock and barrel. 210 - 15 E.Y.Jr: But it is a clean cut cancelation. McCloy: A clean cut cancelation and a new contract. Lovett: The Secretary's question, Jack, is that Kelsey Sayes mlanned to use that 8 million. There is it going to get that 8 million dollars? It is not going to get it from the Army, but it gets instead an Army contract which is . horrowable piece of paper. E.M.Jr: I get you. They get it from the Army. They are not going to give WE 8 million dollars séranced for plant and out in their own money. Young: They said they are going to borrow from the bank against the Army contract. E.M.Jr: But for the plant expansion and tools and all of that, Kelsey Hayes is going to expect you fellows to put it up, aren't they" McCloy: Not as much money as they demanded from the E.Y.Jr: On the down payment, but how about the plant? McCloy: I don"t know what those two figures are. Poley: Is the 8 million dollars related to additional plant capacity or is it related only to the British, because our credit is better. surply contract? H.M.Jr: McCloy: Foley: No, it is both. You are talking about 8 million dollars. I don't know what it is. Ism't that the advance payment? 211 - 16 McCloy: I don't know. It may be 10. Something. That is the take out. Whether it is eight million or five million, I don't know. It is composed of both items. To the extent that the Army would have to take over, they probably would take it over. We don't have to put it up. At any rate, it is a net gain of "X" dollars to the British. H.M.Jr: Have you heard of it before? Foley: No, I just heard of it this morning when you brought it up. E.M.Jr: Can you understand why I was moderately excited? }cCloy: I can understand why you didn't know about it but the Treasury Department as such - certainly Yourg and I have been at one on this all the way along. H.M.Jr: You fellows can get together. I don't know where Lovett: It is understandable if you hadn't heard about it that you should be shocked by it, and as I H.M.Jr: McCloy: H.M.Jr: McCloy: H.M.Jr: the trouble is, but we are all -- say, realizing that -I didn't hear about it until last night. Well, that is -No, it is on the Treasury. It is on us. "ell, it is more or less implicit -No, you couldn't do any more than write that memorandum. When you did that, you fulfilled any obligation you had to keep us posted; so it is on us. 212 - 17 McCloy: Well, irrespective of who it is, isn't it H.M.Jr: Well, I am just thinking a minute. I don't a good idea, shouldn't we go ahead with it work as fast as you New York boys. Lovett: Why do you have to bring that uo (Laughter) This is balm to one's soul. VeCloy: We haven't got it yet. We are hammering at ycCloy: the door, I am told. I have been just itching over here and say "How is it going to hear the news, but I haven't dared come H.M.Jr: I thought you were to get it Monday night. McCloy: Have they got it? Foley: No, but it is all set uo. The releases are ready and it is all set. YcCloy: Good news. H.V.Jr: Ed, if you think - I mean from the British standpoint, that the plan is swell, and it looks to me as though it was all right from the Army standpoint. If they are stuck about a contract they have got something they need bad. McCloy: General Staff says they needed -- H.V.Jr: It is just a question of whether anybody on the Hill could object to this kind of exchange of contracts that is going on in advance. Foley: Well -- H.M.Jr: And you -- Foley: I would like -- 213 - 18 E.M.Jr: Go up on the Hill for me. Foley: I would like to say this. When we got our E.M.Jr: This is not a legal matter. Toley: When we got our orders from you last Thursday, you said you wanted two things, you wanted orders -- the legislation to carry out what you and the President had in mind, and you also wanted some kind of an interim plan to take care of the situation before they got the legislation, like your post offices. You would have the steam shovels there all ready to dig just as soon as the President signed the bill. and we gave you Friday morning a general outline of both things, and it seems to me that what they are doing is carrying out in a particular way the broader thing that we try to envisage in the interim plan that we suggested, where certain money that the Army had now could be made available for orders that could be eleced now and those supplies taken off the Army's hands by the British if this legislation went through, and I don't see any difference, real difference, between what we were trying to outline there and what they are doing. It seems to me that it is all part of the same thing, and it is making their funds -- McCloy: Foley: It helps our program. go a little way toward relieving the British, so that there will be things that can be made available to the British that otherwise there wouldn't be on order if we waited until we had the legislation. 214 - 19 Lovett: Foley: Young: But the funds are only used, Mr. Foley, in those urgent shortages that the Army is anxious to have, British or no British. You understand that That is right, and with the added comment that what the Army is trying to do on it, as we brought out last night, cannot eliminate the need for this interim financing in some other form. YeCloy: That is right exactly. That is another subject. Lovett: Exactly. YeCloy: Lovett: That is what we - we explored this all last night at 6 o'clock. I feel increasingly clear on that other financing matter, too. H.V.-r: thich is that. Lovett: That we discussed this morning. I think that is becoming apparent, that they have got to have that. H.V.Jr: That is that, Lovett Lovett: The matter which you discussed at the early morning meeting this morning, the method of obtaining funds for the British. E.V.Jr: They have got to have that besides? Lovett: They have got to have that besides. H.M.Jr: Oh yes. 215 - 20 Young: This hardly affects that at all. E.Y.Jr: No, but now for the first time I feel as McCloy: Well now, let me go on, if I may, with what E.M.Jr: No, I don't. NcCloy: Well, when the "B" program - when Sir Walter though I am on top of my own responsibility, which is to keep these fellows going and that is all. But I definitely was out in the cold up until now. I have been doing with Mr. Jesse Jones. Do you think you ought to know about that? Maybe you know all about that. Layton was here, the "B" program was broached to the War Department, and Secretary Stimson took the responsibility of carrying out the "B" program. Lovett: McCloy: What is the "B" program? That is the Ten Division Program. We looked around there for means of building up capacity which would help that program, and we also reviewed our own situation and found that there was a great shortage in ammunition, partly because of the explosion at Hercules and the other powder explosions. So Marshall - we went to Marshall and asked Marshall whether he would not authorize the creation of additional capacity on powder facilities, which could be used both for the British program and ours. He said, "I am in great need of powder." So I went over to see Jesse Jones with General Wesson, and we laid that situation before him, 216 - 21 and he said that if the War Department said they needed it, which we were prepared to say that we did, for our own use, without any consideration for the British whatever, he would give me a hundred million dollars, give the Ear Department a hundred million dollars, to build that capacity. That hundred million dollars was not contingent on anything other than our statement of our own requirements. There was no take down, he didn't insist on there being any orders on top of that capacity. He simply said, "I will give you a hundred million dollars free and clear, because I think that ammunition capacity in this day and age is a good buy. So, we have started out a program of spending that hundred million dollars, and they are now talking this afternoon with Jesse Jones' people, the RFC people, the details of getting that money over, and we have gotten some items that Lovett: are just about to be placed - orders that are just about to be claced there. Are the British involved in this? McCloy: The British are not involved at all, except incidentally it makes it much more possible for us to handle the British ammunition requirements in the "B" program, or in the "A" program, if you please, assuming this legislation goes through, so that it incidentally helps the British; but the only way we could put it up to Mr. Jones is on the basis that it is helping us. Then I had the idea that we might also ask Mr. Jones to advance further funds out of the RFC to enable us to purchase some British capacity which we also wanted, thus releasing 217 - 22 - to the British more funds for this interim period, with which they could buy non-standard American items. After clearing it with Mr. Young - I didn't want to talk to them without the Treasury knowing about it - I went over to see Mr. Jones yesterday. I told the Secretary, Secretary Stimson, about it, before I went over it, and be said he wanted to go along, so he went along and General Tesson went along. Unfortunately, the way the conversation took place, there was some damning of the British for some of their slowness, and I think they zot off on the wronz attitude, the wrong atmosphere at the beginning, and Jesse Jones held back and said, "I am not sure that I want to do that. I mant to examine that more carefully," and we were to have another conversation today on that, but it rather looks as if the possibility of getting any additional money out of Mr. Jones at this particular juncture may be more difficult than T had first envisaged. But it may be that after we go through the particular items that we have in mini with him, and can point out to him how advantageous it would be for our own program to have that British capacity in our own hands, it might be that he would change his mind on that and we could get some additional funds from him for that purpose. E.V.Nr: Tell, I would like to say this in all fairness, that I think that what you are doing is extremely useful. NoCloy: Tell, I home it is. That is all I want to do. L.N.Jr: I think it is extremely useful, and I am just now that I know what is going on, I certainly feel better prepared when I meet the British as 218 - 23 - I do, and first Sir Frederick Phillips tells me one thing and then Purvis tells me another on the money thing, that they are running out. I mean that I would like to know - not minute to minute, but as promptly as possible if and where there is any money in sight until this bill gets through, what I call interim plan, and as I say, I asked the President Monday. thought it was important enough that he call I a meeting, and he is seeing us at 3:30 this afternoon on this very subject. I don't want to carry the thing alone, it is too big. It is too big a responsibility. If these fellows should by chance run out of money and couldn't pay their bills, it would be just as bad as if the Germans landed in Ireland or something like that. I think it would be a major defeat. Lovett: Oh yes. H.M.Jr: So if you will continue to keep Young posted and between the two of you - I have asked Lovett to help on these various devices to get money, so if between the two of you you could let me know. Ed has to know. I don't know who is going to carry the thing on the Hill, but maybe after this afternoon we can drop it. Have you heard it is going to Foreign Affairs? Foley: Yes. VcCloy: Foreign Affairs? H.V.Jr: Yes. Well everything was done. You know what we did. YcCloy: I know what you did about it, yes. 219 - 24 H.M.Jr: You told me yesterday Military Affairs. Foley: Yes, I did. That is what Hull and Barkley H.M.Jr: It is bad news, but anyway, until this thing is by, if you two gentlemen would drop in to and Pittman and Harrison said. see me when you have something important, YcCloy: it makes it a little bit easier for me. Yes, sir, I am sure it is. But this is definitely on us. Well, it isn't on anybody. It doesn't make H.V.Jr: Right, Phil? Young: Yes, I think so. I would like to inquire into the 160 million. That is one thing that hasn't Lovett: H.V.Jr: any difference. been cleared up yet. McCloy: Young: McCloy: I don't know what that means. It must be part of the 230. I surnose it is some part of it. I can guess as to what it means. Mr. Jones said yesterday that - he said, "The British have plenty of money, they haven't spent it all so far," and I said, Well, I have heard differently, but I don't know anything about that, I am just taking a situation and trying to get some guns in the meantime. I said, "Suppose the British made an assignment of all of their non-liquid assets at this juncture, wouldn't it be possible for the RFC to finance that?" He said, "I suggested that some time ago to Mr. Purvis, and I am quite prepared to act 220 - 25 - along that line again." Now, that is not in my realm, but -H.M.Jr: Well, we don't like it legally and we think there is another way to do it perfectly properly. McCloy: I have heard about that, yes. H.V.Jr: We are working on that, and as I say, we have got the SEC on the other end. 221 January 9, 1941 12:44 p.m. H.M.Jr: Operator: Jerome Frank: H.M.Jr: F: Hello. Jerome Frank. Hello. Jerry, talking. Is there anything new onHenry those investments? They're coming in at 2:30 to confer with us. Just about what, I don't know, and I'll let H.M.Jr: you know as soon as we're through with them. Fair enough. Thank you. F: All right. 222 x January 9, 1941 MEMORANDUM FOR THE SECRETARY'S DIARY Secretary Morgenthau and Mr. Foley attended the meeting at the White House at 4:50 p.m. today. There were present: The President, Secretaries Hull, Morgenthau, Stimson, Knox, and Jones; Senators Barkley, Connally, Harrison, and George; Speaker Rayburn; Congressmen McCormack, Bloom, and Luther Johnson; Messrs. Knudsen and Foley. The President read the attached draft of the bill to aid Great Britain section by section. He enunciated the need for speed, and pointed out that while the British had cash to meet present orders, no new orders could be placed until the legislation and the appropriations to carry out the act were passed. The President said that new orders for late 1941 and 1942 should be placed as soon as possible. He pointed out that it might take as long as two months for the legislation and the appropriation measures to pass. He said that all new orders placed by the Army and Navy would be restricted to materiel useful for our own Army and Navy and that nothing which could not be used by us would be ordered and paid for. During the two months' interim, while the legislation and appropriation measures were before the Congress, it would be possible - the President said by reshuffling existing appropriations for the Army and Navy -- to place orders for materiel in addition to their present needs which could be turned over to the British or the Greeks or the Chinese when the authorization legislation became law. Likewise, he said there is money now in the Loan Agency -- probably as much as $500,000,000 -- which could be used for additional plant capacity. He added that it was his intention to have Secretary Jones make that money available and start plant expansion now. Senator Barkley asked the President how much of the $500,000,000 that had been made available to the President for additional plant capacity, was still available. Mr. Knudsen replied that all of it had been committed or expended. The President then said he was not asking for additional money for plant expansion since there were adequate funds available to the RFC for this purpose. Congressman Johnson asked if it would not be wise to limit the amount that could be made available to foreign countries in the legislation under discussion. The President said "Emphatically, no," since it would probably run to several billion dollars -- that no figure was presently available. Congressman Bloom asked what the amount of the first appropriation would be if the legislation was passed. The President said he couldn't give any figure - for instance, he pointed out that the authorization 223 -2for an appropriation might be five or six billion dollars where the first appropriation or the aggregate appropriations might run only to two or three billion dollars. Senator Connally asked if the legislation was broad enough to cover Army and Navy materiel on hand as well as new material. Foley explained that the legislation very clearly provided that material on hand as well as material that would be ordered in the future could be made available. Connally asked if the battleship TEXAS could be made available to Great Britain. Foley replied that that would be possible under the legislation if the President determined that it was in the interest of national defense to do so. Senator Connally said he thought that the legislation should be restricted to new materiel since Secretary Knox had already said that he didn't want to make any battleships or destroyers on hand available to the British. The President said no, he didn't want it restricted to new materiel since it might be very helpful to China or Greece if we were able to take airplanes off airplane carriers when those planes could be replaced within a reasonable time, and make them available now to countries righting with their backs to the wall. Psychologically, the President continued, it would be very useful if those countries knew that we could do that. He pointed out that there was no need for making any battleships or other things that were made for our own defense available but if we didn't make the authorization broad enough to include those things, goodness only knew what we would be excluding by restricting the language. Senator Barkley said that it was his judgment that the broadest discretion should be given to the President and that the fight should be made to keep that language in the bill not only in the Committee but on the Floor. Speaker Rayburn asked the President to call Frank Kelly, the Democratic leader of King County, to get Congressman Preifer removed from the Foreign Affairs Committee. The President asked how many terms he had served in Congress. The Speaker said he thought Congressman Preifer was now starting his fourth term. The President said he would be willing to tak to Kelly but the Speaker would have to indicate to him some nice new vacancy that he could suggest to Kelly. The President asked the Speaker to talk to Congressman Cullen and when they had a concrete suggestion to give him a ring. Speaker Rayburn told the President that he had been talking to the Parliamentarian in the House and some of his associates, and they had come to the conclusion that the bill in its present form would have to be referred to the Foreign Affairs Committee. Senator Barkley then said that he had originally thought that it would be better to send the Senate bill to Military Affairs but in view of the House rule which would make it necessary to send the House bill to Foreign Affairs, he thought the bill should go to the corresponding Senate Committee, i.e., the Committee on Foreign Relations. 224 -3Senator George then told the President that he had a very vacancies on the would fill with measure. However, Senator George difficult situation with his Committee - there were two people his Committee friendly to which the he hoped Steering Committee or three believed that even under the most favorable circumstances, since the minority members would be almost unanimously opposed to the measure, that he could get the bill out with not more than one or two votes to spare. Under these circumstances, Senator George said he had suggested to Senator Barkley that the bill be introduced by the Majority Leaders. Senator Barkley then said that he first believed the Committee Chairman whatever committee the bill was sent to - should introduce the bill. However, after talking with Senator George, he was willing to introduce it. Senator George pointed out that this would eliminate a controversy on the Floor of the Senate as to committee jurisdiction. Congressman Bloom then remonstrated that the public would wonder why he, as Chairman of the Foreign Affairs Committee, wasn't handling the measure since it was a most unusual occurrence for the Majority Leader in the House to take custody away from the Committee Chairman. Speaker Rayburn then said that this was not unusual and Congressman Bloom should recognize that by changing a few words in the bill he could send the measure to any one of five committees, i.e., Ways and Means, Appropriations, Military Affairs, Naval, or Foreign Affairs. Under those circumstances, he pointed out that debate and controversy could be eliminated in the House if the measure were handled by Congressman McCormack. The President then said that in view of the particular importance of the measure and its many peculiarities and ramifications, he believed it would be wise for the measure to be handled by the Majority Leaders with the full support and help of the Committee Chairmen. The Speaker told the President he thought it would be a very good idea if the President would invite some of the Republican members of the Foreign Affairs Committee to the White House. The President said he was willing to talk to two or three of the Republican members but that he didn't want to talk to Han Fish and that Secretary of State Hull wouldn't let him talk to Tinkhan. Senator Barkley then said he thought it would be a good idea if the President could find time to talk to Senators Austin and White. Senator George then raised the question as to where Senator White would stand on this measure. The President pointed out that the people in Maine were solidly behind this measure and he had little doubt about where Senator Thite would stand since the Democratic senatorial candidate in September had lost by fifty or sixty thousand votes and he had lost in that State in November by only six or eight thousand. 225 -4The President said he was willing to talk to a limited number of Republican members in both Houses and that the Leaders should get together and give him their suggestionson it. Speaker Rayburn thought it might be well if the Republican members were taken to see Secretary Hull rather than to annoy the President with this. It was agreed that the bill would be introduced simultaneously tomorrow in both Houses by Senator Barkley and Congressman McCormack. Senator George asked Foley if section 3(a) (5) was broad enough to permit the transportation of material in our bottoms to combat areas? Foley pointed out that the language had been changed to "release for export" in place of "to export" which would not permit our ships to be used in violation of the Neutrality Act. Foley pointed out that this was so even under the old language which had been changed only to make it absolutely clear that our ships could not be sent into the war zone. Senator George agreed that this was better. Senator George then asked if the repair section was broad enough to take care of servicing foreign ships. Foley said the section was broad enough to permit the H.M.S. BOOD to be reoutfitted and repaired in the Brooklyn Navy Yard. Senator George said this was good and indicated that he would fight for that provision. Senator Barkley asked Foley to have 50 copies of a statement for the press ready for him in Colonel Halsey's office at 11:30 tomorrow morning. Congressman McCormack said he wanted only to see the statement but that the press conference would be held for both of them by Senator Barkley. After Foley returned to the office Speaker Rayburn called and asked that 20 copies of the release be left at his office not later than 11:30 in the morning since he was holding a press conference at 11:45 and didn't want the House press boys to have to go to the Senate for copies of the release. The meeting broke up about 6:00 o'clock. 226 January 9, 1941 6:10 p.m. H.M.Jr: Hello, Bob. Robert Jackson: Hello. H.M.Jr: Isecond. just got back from the White House this J: Yeah. What I wanted to do was to find out who you wanted to act on that committee to consider this legislation and the plan for handling these property registration and the sort. H.M.Jr: Now let me think a minute - setting up a committee - property registration. Do you want a lawyer? J: The Secretary is naming Berle and I'm going to put Shea on from here. H.M.Jr: Do you want a lawyer? J: Well, I'm not particular one way or the other. I'd like somebody who knows your policy and can - I think it 6 pretty important that we get something along fairly fast. H.M.Jr: How about Foley? J: That will be all right. H.M.Jr: Supposing you take Foley. J: That will be all right. H.M.Jr: Foley. J: All right, fine. I'11 get in touch with him. H.M.Jr: Thank you. J: All right. Thanks. 227 January 9, 1941 6:18 p.m. H.M.Jr: Hello. Operator: Chairman Frank at home. H.M.Jr: Hello, Jerry. Jerome Frank: Yes, Henry. H.M.Jr: I got word you called me. F: Oh, yes. I wanted to tell you I told Harry White about our conference today. H.M.Jr: F: Yeah, I just got back this minute from the White House. I see. Well, I'm going to get over to Harry the first thing in the morning a memo, but I can tell you briefly what it's about. H.M.Jr: Please. F: who are affiliated with the investment trusts - These boys came down - investment bankers and they make a fairly persuasive argument along these lines: that the effort to buy these securities ought not, they feel, be restricted to the investment trusts because there are lots of other people eager to buy these things. H.M.Jr: F: H.M.Jr: F: Right. Harry was interested to know, and you probably will be from his reaction, that they've been - a lot of them he says have been after Gifford for the last year trying to buy this unlisted stuff. I didn't know that. And he thought of them as sitting around with their tongues hanging out to get them. There is no possibility of not getting a good market. 228 -2H.M.Jr: F: Right. But they think and I think there's a good deal in it that there ought to be room for free play. Now, the only thing that I don't agree with them on is that I do think that those investment trusts not affiliated with investment bankers who ordinarily wouldn't be able to get a crack at this stuff ought to be allowed to get together and be one of H.M.Jr: F: H.M.Jr: F: H.M.Jr: F: the competitors. I see. And we concede it as fairly apportioned between Quinn and his group and we'd take it up with Thurman Arnold for them so there wouldn't be any trouble, but I'm sure there wouldn't because they are adding to competition and not subtracting from it. Well, I read your letter that you wrote to the President. It's O. K. with me to have it Well, I think in the light of this discussion I wouldn't have it just that way. Well, it's entirely up to you. O. K. Now, tomorrow morning's meeting is at 10:15. H.M.Jr: Yes. F: Now, I'm in difficulty. I can only stay about fifteen minutes. I've got & group of out of town stock exchange presidents coming to see me. H.M.Jr: F: H.M.Jr: Well, now, do you want it at 10:00? 10:00 would be better. Now, this is what I had in mind. I wanted to put it up to the British and give you a chance to give them a report where we stand on this. 229 -3F: H.M.Jr: F: H.M.Jr: F: H.M.Jr: F: Fine. I'll be glad to do that. And I can just as easily get them here at 10:00. I wasn't going to have Gifford here but I can get him here. Well, I think it would be just as well if he's here, or could be here. Well, I'll arrange to have him here at 10:00 tomorrow morning. Now, I'll have Phillips here too. Now, here's the point: I've been talking this over with two people and I haven't invited them yet. One is Bob Lovett, who is here with Stimson and has severed his connections with his firm A very able fellow. and the other fellow is Jim Forrestal. Well, now, they'd be very good to have. They'11 have the point of view of the fellows who were with me today. H.M.Jr: They'11 have the same. F: Their point of view will be that you ought to let the investment bankers loose on this. H.M.Jr: Well, of course, I've never discussed it. All I have them in for is purely to keep the Army and Navy informed as to the British financial condition. You see what I mean? F: Yes. H.M.Jr: I try my damndest to keep Stimson and Knox informed as to what we're doing so that they'11 know how much money is available. F: Well, I think really for the kind of discussion you're going to have tomorrow it might be just as well not to have those fellows because they'11 have a point of view. I've already talked to Jim about it and I know he'll have the Dillon-Read attitude. H.M.Jr: Well, then we'd better not have them. 230 -4 H.M.Jr: I think it is just as well not to. Well, I didn't invite them until I'd talked F: Now may I bring Schenker and Purcell with F: to you. me? H.M.Jr: Absolutely. F: Fine. Then they can stay if I have to H.M.Jr: F: H.M.Jr: F: H.M.Jr: F: leave. Well, I'll make the meeting at 10:00 o'clock and I'11 expect you to tell them. Very good. Fine. And then - do you think it's far enough along that maybe they could begin to make an offer to these people? Oh, I think they'd be willing to sit down right away. For instance, the Lehman fellows, they ve been after some copper thing they've got - they've been after them for months. Well, you're rather enjoying using this as a sort of weapon, aren't you? (Laughs). Oh, it's very amusing - the whole thing. H.M.Jr: F: I mean, you rather enjoy it, don't you? Sure. of course the amusing thing to me is these fellows talked about competition, you see, when we' re having a row with them under the Utility Act because e've been talking about requiring competition, and there "ain't" no competition in the investment banking business, so it amuses me to death. H.M.Jr: F: Well, now, does Quinn try to dominate this thing at all? No, it's only that they feel that - what he was trying to do = I don't think with any impropriety, but he was trying to say to 231 -5them now all right, if we come together as the investment trust group, then the bankers affiliated with the investment trusts ought to lay off, and they say that's not fair, that their won't be as much capital or as much competition as otherwise would exist and you can't gainsay that. H.M.Jr: Now, there are two things in the offing that I think you ought to know about: Jesse would like to do this business very much and the way it is set up I don't see any need for him, do you. F: H.M.Jr: I'don't, not at all, and I think there'd be terrific resentment if he did. Right. That's No. 1. No. 2: Carter Glass is introducing the bank holding bill with a death sentence. F: Marvelous. How long are you giving them? H.M.Jr: I think three years. F: That's marvelous. H.M.Jr: That's the way we wrote it, but also Jesse F: was opposed to that. Oh, of course, and I suppose Judge - as I call him - Judge Bird-dog is working on Jesse. You know whom I mean. Birdzell. H.M.Jr: F: H.M.Jr: Oh, Birdzell. I call him Judge Bird-dog. I see. And on the other thing - all this talk around town to make this aid to Britain through a corporation F: Yeah. H.M.Jr: That was Jesse also. F: Oh, of course, Jesse would like to do the whole job. 232 -6H.M.Jr: And he got licked on that. F: That's fine. Doesn't make me feel bad. H.M.Jr: Then I'll see you at 10:00 and you bring your crown with you. F: Fine. H.M.Jr: Thank you. 233 January 9, 1941 6:19 p.m. H.M.Jr: Hello. Operator: Mr. Cochran. Merle Cochran: Hello, H.M.Jr: Merle. C: Yes, Mr. Secretary. H.M.Jr: I was just talking with Jerome Frank and he's coming over at 10:00 instead of 10:15 to tell me what the situation is now on the investment banks and so I wish you'd get word to Sir Frederick to be here at 10:00 instead of 10:15. C: All right. H.M.Jr: And I consider it important that Gifford C: H.M.Jr: be here too. Gifford here in the morning, too. Right, at 10:00 o'clock. All right. I just got word to Phillips on that other business. H.M.Jr: Well, make it 10:00 for Phillips and ask them please to have Gifford here because Mr. Frank is ready to report what the situation is. C: All right. I'11 call him right back. H.M.Jr: Thank you. All right, sir. 234 o BOEING AIRGRAFT COMPANY Georgetever Station have January 9, 1941 Net I Address a Connecticut de Company CONFIDENTIAL Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: In the absence of Mr. P. G. Johnson I have for acknowledgment your letter of January 3, 1941 requesting additional information concerning delays in the receipt of raw material, as mentioned in our letter of December 21, 1940, to Mr. George C. Haas. I an enclosing herewith a copy of our letter of December 7 to the Assistant Chief, Materiel Division, Air Corps, which lists specific information regarding aluminum material requirements on order with the Aluminum Company of America for which satisfactory delivery dates have not been established. A copy of the list referred to in the above letter has been revised as of December 31, 1940, and is exclosed herewith. Based on a comparison of estimated shipping dates and deadline requirements, the revised list may be summarized as follows: 10 material items delayed 70 to 81 days . 49 . 53 . . 140 . 56 50 to 70 30 to 50 20 to 30 5 to 20 . . . . This Company has exerted and is continuing to exert every effort, on its own behalf, to obtain satisfactory or improved material deliveries. The purpose of our letter to the Material Division was to enlist the assistance of the Air Corps in our effort. A previous list of unsatisfactory material deliveries similar to that enclosed herewith was submitted to the Priorities Committee with our letter of 235 Boeing Aircraft Company of November 23. 1940. A revised list WSS submitted in a report to General Arnold dated December 31, 1940. The extent to which these material delays will interfare with our production schedule depends entirely 1000 the smount of improvement which may be obtained in material deliveries. Our present estimate, based upon information which we are constantly receiving regarding anticipated shipments, indicates that delivery of the first Codel 3-175 airplanes (Contract #535-AC-15677) will be delayed approximately sixty days. it are exerting every possible effort to elim- inate or reduce this delay and wish to assure you that any assistance which you may lend in improving the material situation will be directly reflected in our airplane de- liverles. Very truly yours, BOEING AIRCRAFT COMPANY H. 0 Ham Assist 4110) President 236 December 7, 1940 Befer No. 2368 Assistant Chief, Meterial Division, Air Corps, Tright Field, Dayton, Ohio for justions Schedules and Priorities Section Air Corps Factory Reprosectative c/o Boeing Aircraft Company, V Seattle, Teshington Term: Subject: Aluminum Alloy Materials regu ref for B-17E Airplanes - Contract 17 535 sc-15677 to secure your assistance in obtaining improved colivary dates to company 122.00 materials urgently needed for an initial portito of our contents T *** 12-25677 covering B-17E sixplanes, -3 are enclosing require- List date: December 7, 1940 This .... : BC - c of & similar list submitted to the Priorities Compittee with our to to X treesdated November 23, 1940. Ser entitted list of materials includes only 1.000 State = - too Aluminum of /morica ASS not scientiled deliveries it recordence ritz proce See iline requirements as indicated Restining claming PERIODS for the for portion of the E-173 project EPC, st the present Salivary DD 2 satisfactory basis to the flure 12 Compres 108 stort 7000028 squipped to supply our sluminus requirements. Based to latest sovices 1200 - Contain Company it is believed tast matarialis for ... final post. = of our contract may be obtained 21. a suitsfactory schedule. Tot stitched list shows both "moreal schedule delivery cates walch the the dates on walch the would moreally expect shipment of materials in order is pegin delivery of airplanes in April as per contrest required and in 'daadline delivery requirements dates, 11.00 ore : Letter costible dates in: would still enable 22 to meet contract delivery se Invoice A sucof the attacaed list povetle the accidented shipping item is compared 1.10 OUT deadline requirements include delayed shipments follower 11 zaterial orders delayed TO to et days a e " . If 63 30 to 50 20 to 30 5 to 20 . . 3 164 50 to 70 days. a . 71 . . 67 Page -2- o 237 Ref. No. 2363 December 7, 1940 Please note the vendor's dates shorn on our list are only estimates. Te not been able to obtain the Aluminum Company's assurance these dates will be set cave past experience mould the indicate a considerable portion will be delayed possibly and as such as 60 days beyond estimated dates. The Aluminum Company of America has been advised of our delivery requirements and our contract has ANMS Pricrity rating A-1. The materials can go immediately into York tast was they are received as necessary capacity and facilities for fabrication of the various parts are DOE available. As a matter of fact, lack of taesa storials has made it necessary for us to lay off men for lack of work. Tais company DCS exhausted every possibility of obtaining satisfectory delivery of materials, including purchase from jobbers' stocks and new sources. Since the contract release, orders for asterials to make redesigned parts, as required by B-17E specifications, have been placed immediately after Engineering release and usually b telegraph or long distance telephone. Our Purcussing Department ass vigorously pressed vendors for proper material deliveries and, except for tue orders listed, MAS been successful in securing our immediate requirements. During November our Assistant Purcussing Agent spent more than 8 reek at the Aluminum Company's Pittsburgh offices endesvoring to obtain improved delivery estilates and without success DD the items we not list, and on which we respectful.y request your assistance. To wish to advise you deliveries of B-17E type airplanes under contract F535 AC25677 will be delayed unless the are abie to secure satisfactory deliveries of required aluminus materials. On the basis of delivories now expected, the B-17E delivery program will be delayed at least 60 days; however, tais delay may be prevented or minimized if your efforts to assist US to obtain materials are incodistaly successful. Please be assured the Boeing Company has made and will continue to BSKS every effort to obtain materials and to maintain the contract delivery scuedule. It rill be appreciated if we can be informed of the action taken on this request and if te can be informed of developments as they occur in order that RE may plan our pro- duction program accordingly. BOEING / - CRAFT COLPANY (Signed) P. 3. Jonnson President 8. These materials are required on aircraft parts 83 stated b: the Boeing Aircraft Company. b. The materials are needed on the schedule indicated. C. The Company has employed reasonable diligence in endeavoring to secure the materials by its own efforts. The Company nas endeavored to use sub-contractors' support in lieu of increasing capacity b. expanding its ;lant. Deliveries of airplanes under Contract W535 AC15677 will be affected 05 described by the contractor. d. e. John D. Corkille Major, Air Corps Air Corps Factory Representative