Full text of Diaries of Henry Morgenthau, Jr. : Volume 349 : Part 1

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DIARY

Book 349

January 18 - 21, : - 1941

-

-ABook Page

Albania
See War Conditions

Allison Engineering Company
See War Conditions: Airplanes (Engines)

-BBank Holding Company Legislation

HMJr and Foley confer with Glass alone - 1/18/41
a) Glass states that FDR said to him he was

349

18

"neither for nor against a bank holding

company bill containing a death sentence"

b) Glass favors bill as it stands at the moment
but introduced it "with reservations" allowing
leeway in case of stiff opposition

Conference; present: HMJr, Bell, Delano, O'Connell,
and Foley - 1/21/41
a) History of bank holding company problem

133.

given by Delano

Glass bill

155

Conference; present: HMJr, Delano, Bell, Foley,
O'Connell, Eccles, Crowley, and Schenker
(Jones unable to be present) - 1/21/41
a) 1938 correspondence with FDR attached
b) 1/3/41 memorandum to FDR attached
Business Conditions
Haas memorandum on situation for week ending
January 18, 1941

198
213
219

325

-CCanada

See War Conditions: Export Control
Cooper, D'Arcy

See War Conditions: Purchasing Mission

-EErnst, Morris
See Revenue Revision

-FFats; Oils
See War Conditions: Price Control
Federal Bureau of Investigation
Klaus memorandum - 1/18/41, etc

67,263,320

- F - (Continued)
Book Page

Financing, Government

Debt limit discussed by HMJr, Bell, Sullivan,

and Foley - 1/21/41
a) Memorandum to FDR and drafts of two bills

349

228

relating to public debt and status of

Federal and State obligations from standpoint
of exemption from taxation

246

b) Memorandum to FDR giving Treasury's working
balance, etc

248

c) FDR asked for appointment to discuss - 1/21/41.

259

National Defense Notes - Proposed new issue of
(Haas memorandum) - 1/21/41

304

-IInaugural Address
FDR's speech - 1/20/41

82

-LLatin America

Weekly report by National Defense Council - 1/20/41..

90

Mexico:

Hochschild transmits report - 1/21/41
a) Cardenas fomenting agitation between labor

262

and farm elements

Law Enforcement Agencies, Treasury

Report for 1940 - 1/18/41

24

Liquor

"4/5 of pint" and McReynolds' interest discussed at
9:30 meeting - 1/21/41
-M-

Marshall, F. R. (Secretary, National Wool Growers' Assn.)
See War Conditions: Price Control (Wool)
Marshall, Verne
See Revenue Revision
Mexico

See Latin America

-NNational Wool Growers' Association
See War Conditions: Price Control (Wool)

-0Oils; Fats
See War Conditions: Price Control

112

- P. Book

Page

349

122

Personnel, Division of
HMJr has read Thompson-Graves memorandum; wonders

why Office of Director of Personnel is needed

at all - 1/21/41

a) Graves points out Executive Order
necessitates it
Price Control
See War Conditions

-RRevenue Revision

For debt limit, see Financing, Government
Tax-exempt Status: Memorandum on bona fide religious,
etc., organizations prepared for FDR - 1/21/41
a) Ernet (Morris) correspondence as a result of
Town Hall debate with Verne Marshall of

272

"No Foreign War Committee"

Reciprocal income taxation of incomes of Federal and
State employees: Resume' of action taken prepared
for FDR - 1/21/41
Roosevelt, Franklin D.
Inaugural address - 1/20/41

348

82

TTaxation
See Revenue Revision

-Unemployment Relief

Work Projects Administration report for week ending
January 8, 1941
United Kingdom

321

See War Conditions: Military Planning
-WWar Conditions

Airplanes:
Engines:

Allison Engineering Company: Deliveries and
shipments - 1/21/41

297,298

Albania:

Important decision indicated when Mussolini meets

Hitler - 1/18/41

Exchange market resume' - 1/18/41, etc
Export Control:

72

68,94,353

Canada:

Present Status of Export Control on Goods Going
to Canada: Young memorandum - 1/21/41

295

- W - (Continued)
Book

Page

349

252

War Conditions (Continued)
Lend-Lease Legislation:

Instructions given by HMJr that Federal Reserve,
State Department, and Commerce are to agree

on British assets and liabilities before
information is presented on the Hill - 1/21/41
a) Letter to Bloom (Chairman, Committee on
Foreign Relations)

Military Planning:
Reports from London transmitted by Butler 1/20-21/41.

War Department bulletin:
"The German Pioneers in Total War" - 1/21/41
Price Control:

253

99,372,375
383

Fats: Oils: Rise in price as result of Russian and

Japanese buying called to Henderson's attention 1/21/41

Wool: HMJr's letter to Marshall (Secretary, National
Wool Growers' Association) - 1/21/41

267
285

Purchasing Mission:
See also War Conditions: Lend-Lease Legislation

Stimson, Knox, Forrestal, Lovett, and Palmer confer
with Jones: Stimson-HMJr conversation - 1/18/41
a) HMJr confirms fact that no new orders can
be placed until Lend-Lease legislation is
passed; Knudsen insists that there be

1,14

sufficient British assets to pay for every

order placed up to that time
b) Stimson inquires about present backlog of

$6 million orders, as, for example, the
Buick and Studebaker engine orders

1) HMJr calls attention to differentiation
between standard American contracts
and what Knudsen calls "bastard

specifications"
c) HMJr explains situation to Jones
1) Jones differs with HMJr's stand -

3

he will place the orders and find the
money afterward

Monnet tells HMJr of Bullitt dinner at which
Frankfurter, MacLeish, Patterson, Forrestal,

Knox, Lovett, and Purvis were present - 1/20/41

a) Airplane engine situation should be entirely

reviewed and everything under 2000 horse-power

eliminated; cancellation of 6000 Rolls Royce
engine orders suggested by HMJr

b) Knudsen's position: Orders for United States
standard types for United States and Great
Britain after passage of Lend-Lease bill not
realized by Monnet
c) Patterson's unreasonableness commented on by

Monnet; Lovett considered clearest thinker
by Monnet

d) Bullitt and Frankfurter "didn't seem to know
what it was all about"

80

- W - (Continued)
Book

Page

349

163

War Conditions (Continued)
Purchasing Mission (Continued)

Conference: present: HMJr, Phillips, Purvis,
Young, and McCloy - 1/21/41

a) $60 million in War Department and
orders that may be placed against
that discussed
b) Memorandum covering contracts British
Purchasing Commission desires to place
prior to February 28 and estimated
initial down payments

c) Detailed list of contracts

184,307
185

D'Arcy Cooper's report on "matters on which he
was unable to make any substantial progress":
Manufacture in Great Britain of equipment

and clothing for United States Army; British
export of cocoa, lead, jute burlaps, shellac,
tea, copra, and sisal - 1/21/41

317

a) HMJr says his main business was "to sell
Lever Brothers" - 1/24/41: See Book 350,
page 338

Federal Reserve Bank of New York statement showing

dollar disbursements for week ending 1/8/41
(See also Book 351, page 24 - 1/15/41)

Wool

See War Conditions: Price Control
Work Projects Administration
See Unemployment Relief

86

1-18-41

1-21-44 copy to Philip Ed your

fallyJanuary 18, 1941
11:10 a.m.

H.M.Jr:

Hello.

Operator:

Mr. Stimson.

Henry L.
Stimson:

Hello, Henry.

H.M.Jr:

You certainly did a swell job on the Hill.
Well,
never mind that job. I'm on another
one now.

S:

H.M.Jr:

What's that?

S:

I'm here in R.F.C. with Mr. Jones and we're

trying to unravel this situation and get it

going. Frank Knox, Forrestal, Lovett, Palmer

and I have come down here.
H.M.Jr:

You're in Jones' office.

S:

Yes, he's right beside me here and I find
what I hadn't realized before that the
British have been stopped by your direction
on the word of the President from making
any orders about a month.

H.M.Jr:

That's right.

S:

Well now is there any way of releasing that?
Well, how can I tell them to place new orders
when they are fully committed after they've
sold every share of stock they own in the
United States and every physical property

H.M.Jr:

and after they've done that they then will
have about enough money to pay the American
manufacturers for orders already placed.
Well, I simply can't break faith with the

American manufacturers. There isn't a week
that passes that Bill Knudsen doesn't say

to me, Henry, is there enough money on hand.

S:

Well, how about there being released enough

for this six million orders that they've got

in?

H.M.Jr:

Six million orders they've got in for what?

1

2

-2S:

H.M.Jr:
S:

Well, things we're trying to iron out.
I don't know anything about it.
Well, now for instance the Buick and the
Studebaker contracts.

H.M.Jr:

Well, that's standard American products and
the Army and Navy should work it out so that
they can place the order and leave any new
money that comes in so that these people can
buy

S:

Possibly I can work that out. But here, are
you going to let all others stand until this
bill passes?

H.M.Jr:

S:

H.M.Jr:

Unless I discover some new money. Now
Knudsen says he won't place an order for
what he calls bastard specifications for
the English - not one.
What do you mean by that?

That unless it comes to the standards of
the American Army or Navy, he will not pass

one single order. So if there is any money
that comes up which is new money, it is my
feeling that they should conserve that for
the stuff that you fellows won't buy for
them.

S:

H.M.Jr:

That we should do what?

If they can get any new money, the English
are going to need hundreds of millions of

dollars for non-standard U.S. stuff, and

they're going to need a great deal of money
for that and unless Knudsen
S:

Oh you mean the purpose of this stop order
was to stop the purchasing of non-standardized

stuff.

H.M.Jr:
S:

No, of standard. Standard.
Well, now, we can work out the two principal
contracts for engines probably but that doesn't

help the rest of the stuff at all.

3

3-

H.M.Jr:

And I only

S:

The only thing is this block.

H.M.Jr:

Well, may I explain something else?

S:

Will you see us? I mean, I did not understand - I don't remember that I ought to
have understood it, I don't think I was there
at the time that the first announcement was
made about that - but that's neither here nor
there.

H.M.Jr:

October 29th was the date.

S:

Well, I don't know whether I was

H.M.Jr:

S:

Well, Harry, let me get this thing straight.
My understanding with the British is this:
there are no hard and fixed rules and that
each contract that they want to place will
be passed on individually. Now that's my
understanding with them. And I told them
that if they would bring in any particular

order in the forenoon, we would give them a
yes or no by 5:00 o'clock of the same day.
And what would be your criterion of passing it whether it wes stuff that could be used by
the American Army?

H.M.Jr:

My criterion is as to the emergency - that's
the thing, but we've got to get Bill Knudsen

in on this picture as well. I mean, there's

no use sitting down with me unless Knudsen
is present.
S:

(Talks aside. Mr. Jones would you like to

speak with him a minute? He's giving me his
reasons and I don't know how they would affect

you - for the general proposition)
Jesse

Jones:

Hello, Henry.

H.M.Jr:

Hello. Who is this?

J:

This is Jones.

4

4H.M.Jr:

Hello, Jesse. How are you?

J:

Fine.

H.M.Jr:

Do you want to know where I stand?

J:

Pardon.

H.M.Jr:

Do you want to know where I sit or stand on
this thing?

J:

No, I was wondering why you couldn't allow
them to go ahead and place these orders.

H.M.Jr:

Jesse, coming from you I don't understand

it. Let me explain my position. As far back
this room at which you were present, I told
these people that the money situation of the
British was such that unless the Chief of Staff
felt that these were materials which he could
use, I couldn't certify that they had the money
as October 29th in a meeting which was in

to go beyond the orders they already had on

hand. You see?
J:

Yeah.

H.M.Jr:

Now, I said - that was on October 29th, I
think you were there, I'm not sure of it,
but I said from now on unless the Chief of
Staff saye that this is something that he can
use that the English haven't got the money to
pay for, I can't tell the Army and the Navy and

the Defense Commission that they've got money
enough to go beyond what they already have.
Now that goes back to October 29th. Now,

the situation as it is now 18: they have to
sell every factory that they own, every share
of stock that they own in order to raise enough
dollars to pay for what they already have on
hand, and you and I know that they can't do
that certainly under twelve months. Hello?
J:

Yes.

H.M.Jr:

But if they sold everything, there would be
a couple of hundred million dollars of margin

as between what they've already got on hand.
Now that margin is as close as anybody can

figure it.

5

-5- H.M.Jr:

Now, they come along and my understanding with

Phillips and with Purvis is, if you gentlemen
have got something, you say you've got to have
it and if you will let us know in the morning,
I'll give you a yes or no by 5:00 o'clock in
the afternoon and we'll pass on each thing

separately.
J:

Yeah.

H.M.Jr:

But here's where I want you to get the thing:
Bill Knudsen says that he will not place a

single order for the British unless it is

U.S. standard. By that he means something
that the Army and Navy can use.
J:

Yeah.

H.M.Jr:

So they are going to need several hundreds
of millions - I don't know how many hundreds

of millions of dollars of what Bill Knudsen
calls bastard specifications. In other words,
things drawn to English specifications, and
therefore it is my feeling, subject to somebody
arguing me out of it, that if they do get any
new money that they ought to husband those
dollars for the so-called English specifications.

J:

Yeah.

H.M.Jr:

Now, doesn't that make sense?

J:

I suppose it does, Henry, what I was trying
to get at now is: the two things that with
the Secretary of War is the most pressing
of these two engine contracts - Studebaker
and Buick. Now, if you will remove your
order

H.M.Jr:
J:

But it's $40 millions, Jesse.
That's all right. Suppose it is. We know
we're going to use the engines.

H.M.Jr:
J:

H.M.Jr:

The English haven't got it.
But the United States has got it.
Oh, I've got nothing to say what the Army

and Navy orders. I've got no control over
them and wouldn't want it - wouldn't accept it.

6

-6Only last night - now let's go back to
Thursday at lunch. You see the trouble is,
Jesse - am I on the loudspeaker?

J:

No, no. Nobody on the phone but you and me
and the White House operator.

H.M.Jr:

Well, here's the trouble: there are 80
many cooks in this thing that they don't know
what two fingers on the same hand are doing.

J:

O. K. for that.

H.M.Jr:

Now on Thursday at lunch with Knudsen and

with Stettinius, he asked me just what you're
asking me, and he says, Henry, I am going to
go ahead and place the order and I think he
said I have placed the order and I'm not
going to wait for the English. Now that was
Thursday on these two engines. He said I am
not waiting for the English, he says, you are
entirely right and I am going to go ahead
and I think he said, I have placed the orders
with Studebaker and Buick, I'm not waiting.

Now that was on Thursday. Now what I suggest
is that somebody call up Knudsen and find

out what is the fact, and if that is the fact,
that 8 one less problem.

J:

H.M.Jr:
J:

No, but that's just for the - I suppose that's

probably just for the American engines.
Just for the American enginee.

The point is now if Studebaker is allowed
to go ahead and place the order - take the

order for the British and the British are
allowed to place it, I think as far as I
understand it that would solve that particular
problem.

H.M.Jr:

Jesse, in the first place even if I said
yes, I don't think Phillips representing the
Treasury would let them do it, but I think
it's wrong. I think it's wrong to let these
people - I don't think they would do it -

place orders with American manufacturers
when the money isn't in sight. Now, somebody

has to

7

-7J:

Why wouldn't they, Henry?

H.M.Jr:

Why wouldn't who?

J:

Why wouldn't the British place the order?

H.M.Jr:

Because they say they haven't got the money

and they're not going to hypothecate in this

situation - if that's the correct word.

J:

Afraid you've got a higher opinion of them
than I've got.

H.M.Jr:

Well, I've had this out with Phillips and
Purvis and they say they re not going to
and I think where the President looks to me
in view of what I've said, I just couldn't
do it, Jesse.
Well, I'm not asking you to do it at all.
I'm not going to do that.

J:

H.M.Jr:

I thought you were pleading with me.

J:

I certainly am not! To hell with it. I

want to help if I can and I thought I'd found
some way that you could help and if you
don't want to do it, that's up to you.
H.M.Jr:

Well, it's

J:

I'm expected to violate the law and I'm not
going to do it.
Well, let me put it the other way around.
If this was your responsibility, would you

H.M.Jr:

do it?

J:

I would in a minute. Certainly would.

H.M.Jr:

You would?

J:

H.M.Jr:
J:

Absolutely!
Well

And if I were Phillips and he didn't do it,
I'd fire him and get another secretary - if
I were the British. They' re fighting for
their lives.

8

-8J:

They can pay someway, somehow, sometime if

they want to and we can take chips and white

stones if we want to. We ve got to get a
in August - Purvis suggested - I think I
told you - to put up as collateral instead
of money - they didn't want to put up
collateral. I said go ahead and establish
the principle, putting up collateral. We take
good collateral to begin with and by and by
we'll be taking scrap for collateral. They
didn't want to do that. So I haven't got as

little love for it. I asked these fellows

high an opinion of them as you've got but then
I want to help them just as badly as you want
to help them.

H.M.Jr:

I know you do. Now let me ask you a question:
this thing that Frank Knox brought up in
Cabinet about your buying their $550,000,000
worth of contracts. Now where does that stand?

J:

Well, we can't buy their contracts. They've

only $148 million of it in plants and that's

very few plants that are independant plants.
That d be some tools in one plant and some
addition to another plant and on other people's

property. I'm trying to get at the facts about
it but they re none too cooperative in giving
us the facts. The British. I spent yesterday
afternoon with the four of them. I called

Purvis again this morning and asked him for
some more information, I called him at 8:30

and it isn't down here yet. All he'd have to

do would be to send back the paper that he
had yesterday afternoon.
H.M.Jr:

J:

Now let me ask you another one: the one that
Bell called up on my behalf about buying the
Australian wool. How does that look?

I'm trying to find some way. I'd a lot rather

if we could have taken that up with Chester
Davis who handled that end of it with the
wool growers. That would be a much better
basis for credit than it would for buying
because I think that the
H.M.Jr:

You mean you'd do it through a private
corporation?

9

-9J:

Not if it belonged to the British.

H.M.Jr:

I see.

J:

It might be - I think there's some value there,
I think there's a basis for finding some
money some way, somehow. I haven't found
theit.machinery for it yet; I've been working
on

H.M.Jr:

Well, there is $140 or $150 millions. If

J:

they got it we could do something with that.
Yes, I think that a basis for a very good
amount. There's some other things I've been
working on too along this general line.

H.M.Jr:

Well, if they can show some new money and -

J:

why that's another story.

I think this, Henry. I think that we could
get - well, I don't know. I get the impression
they're giving us the run-around.

H.M.Jr:

Well, I haven't got that yet. They've treated
me - on giving me this information as to their
assets, they've been slow, I've had to press
them and have to keep after them and remind
them and so forth and 80 on.

Yeah. But I think this, Henry. If you can turn
loose, or did turn loose these two contracts
that I don't think you're going to do anybody
an injustice. I don't think you're going to
stand Studebaker up or anybody else because

we're going to buy the engines. There's no
doubt in the world about that.
H.M.Jr:

Well, I don't see why the Army and Navy are

J:

Just a minute. (Aside - has Knudsen placed

so "het" up about it if Knudsen has placed
the contract already, and he said he

the contract for the British or just for the

American? With Studebaker? Does anybody
know whether Knudsen has given - placed the

order with Studebaker for the British - and
the Buick? Will you find out please?)

10

- 10 Bob Lovett is going into the other room to
find out.
H.M.Jr:

Well, he didn't tell me he was going to dace

it for the British but he said he'd place it

for the Army and Navy.
J:

H.M.Jr:

Well, that's probably what he's done.

Well, he didn't say he'd place it for the
British but he said he'd get it started and
get the factory going and so forth, then later
on if they came along and the bill passed,
then he'd place the rest of the order. I
don't see what's the matter with them.

J:

Well, except as I understand it, the British
don't want to give the order because they have
been told not to by you. Something to that
effect.

H.M.Jr:

Well, it's the general proposal, but Knudsen
told me he was going ahead and start Buick
and Studebaker building their plant, give them
the order and then later on he could increase

it.

J:

And we've agreed to make the loans to build

H.M.Jr:

the plants - $50 millions to Studebaker.
Now the Army - I don't think they re so
worried about the British as they are to get
these two factories started. You see?

J:

Yeah.

H.M.Jr:

And I think that if they find out that Knudsen
has given Studebaker and Buick the green light,
they re not going to be so excited about it.

J:

Well, I don't know enough about that because

H.M.Jr:

I haven't been in on the contracts. As I
understand it, the Studebaker can't make their and Buick can' t make their commitments for
materials for the British orders until they
have got the British orders.
Now, here's another thing. Last night Forrestal
called me up and he said if the British won't

11

- 11 lay down the money, he said, we think the

Navy has got it and we'll do it for them.

J:

Well, how can he?

H.M.Jr:

Well, let's just use figures. Let's say

that for argument's sake they want to give
an order to Studebaker for 6000 enginee.
I don't know whether that's right or wrong.
Say 3000 for the British and 3000 for the
Navy. Well, what he was talking about is

to give them an order for 6000 engines hoping

later on to sell or give half to the British,

and he said he thought he could find the money.

J:

Yes. Well, he isn't in here this morning,
he had to go

H.M.Jr:

Yes. There are 80 many people in it, Jesse,

it just drives me nuts, but at least you

know where I stand.
J:

Well, now, we want to do anything over here

that we can do that we've got the legal right
to do and we can't do more than that. Another

thing - I think if we did a foolish thing now
it would hurt the bill on the Hill.
H.M.Jr:

We can't afford to.

J:

We can't jump the gun on this thing.

H.M.Jr:

Well, Jesse, that's just the way I feel.
I mean, you've got certain requirements and
I've got to be able to say that there is
enough money there to pay for the orders
which they've already placed.

J:

Well, now, who do you say that to, Henry?

H.M.Jr:

Who do I say that to?

J:

Yeah.

H.M.Jr:

I said it on the Hill? I told them on the
Hill two things, Jesse. One, that they had

enough money to place, and the other thing
that they were not placing any more orders
and I gave Studebaker and Buick as an example
in my testimony.

12

- 12 J:

Uh-huh.

H.M.Jr:

Now how in the hell after testifying and
mentioning those two particular contracts in

my testimony can I turn around on Saturday
and do something else? I mentioned those
two as an example.

J:

Well, I suppose you only could if the British
come along with more stuff.

H.M.Jr:

With some new money. But I said to show

you how desperate the situation is, I said,
the Army and Navy want to place these contracts
and they want the British to take half. The
British can't do it, they're out of money,
and I went through the whole thing using

Buick and Studebaker as an example because
everybody has been calling me up two and

three times a day about it. I'm just through
testifying on the Hill - it's public property,

but I love to have you put pressure on me

for it. I get a great kick out of it.
J:

Well, I'm not trying to put any pressure on,
I'm trying to find a way to get around
something.

H.M.Jr:
J:

Well, I think if they get hold of
I've understood it from the British that they

couldn't place the orders because you wouldn't

let them and now then
H.M.Jr:

J:

That's right and they haven't told me that
they would if I would let them, but nevermind,
I'm willing to take it. But if your people
in that group would call up Bill Knudsen,
they may find he's already done it.
Yeah. Well, Lovett is in the other room trying
to

H.M.Jr:

Well, I'll be here for another ten minutes,
then I've got to go out, but I'm coming back
again.

J:

(Anything else you want to say - aside) All right.
We'll probably call you back as soon as Lovett
gets through on the phone.

H.M.Jr:

Thank you.

18

January 18, 1941
12:45 p.m.
H.M.Jr:

Hello, Jesse.

Jesse

Jones:

Yes, Henry. When I called back it was too
late and I had to go out.

H.M.Jr:

Oh.

J:

Well, now, we're pursuing these things as
fast as we can and as far as we can to see
what we can do and in the meantime I don'
know that there 18 much else to talk about,
is there?

H.M.Jr:

Well, I haven't heard anything since I've
talked to you.

J:

Well, I haven't either. I had to go out to
another meeting in about ten minutes and I

H.M.Jr:

just got through with that.
Well, let's get together

J:

Early next week, huh?

H.M.Jr:

Right.

J:

O. K.

H.M.Jr:

Thank you.

Copy to

14

taley

January 18, 1941
11:50 a.m.

H.M.Jr:

Hello.

Operator:

Secretary Stimson.

Henry L.
Stimson:

Hello.

H.M.Jr:

I was sorry to miss you but I was up on

S:

the Hill.

I see. Well, I was trying to get a little
further along in regard to this matter. I
can't understand it. I confess I'm all up
a tree about it. I don't quite understand
and I thought I would just go in and see

you myself. I was passing by on my way back
from Jesse Jones' and that was all there was

to it. Just on the spur of the moment I

H.M.Jr:
S:

H.M.Jr:

thought I'd stop and see you.
Well, that was very nice of you.

The thing is that I understood that you felt
compelled to leave your prohibition on even
if Studebaker himself didn't want the protection.
Well, that isn't the question. The question
is this: we're trying to get a bill through
on the Hill with the help of you and many

other people. Now, I don't know whether you
know it, but I testified on the very, particular
proposal that they put up to me and before this
Committee I said, (1) the English have enough
money to pay for the orders they've already
S:

H.M.Jr:

placed. (2) They are not placing
You didn't include in that this

Well, if I could finish. (2) I said, they

are not placing any more orders and then (3)
when they asked me - because Hull kept saying
that this bill would speed up production,
you see - I tried to give an example, and
the example I gave was the Studebaker and

Buick order which I said the English were

unable to participate with the Army in placing

15

-2because they didn't have the money, and I
used that as a specific example and that's all
on the record.
S:

H.M.Jr:

Well, that's unfortunate.
I don't agree with you because I was following
Hull, who said four times that the bill was
drafted in the Treasury and when he got to

any difficult question, he'd always say, well,
you'll have to ask the Treasury because the
Treasury wrote the bill.
S:

(Laughs).

H.M.Jr:

He did that either four or five times,

and then he made the statement that by passing
the bill we would speed up production. And
I said well now here's an example: the Army
can't go ahead with placing these orders
because the English haven't got the money to

match it and I think it made an impression
as to the necessity of getting this bill
through. I thought it was a good point.
S:

Well, I don't know. I'm a little afraid of
that. I think we'll get the bill through

but we'll lose at best. We won't get the
bill through for another six weeks and in
that time we re going to suffer a set-back
which is going to make a lag at & more vital
time further on.

H.M.Jr:

Well, now, will you do this?

S:

And now what would you say about this?

I'm thinking - I was talking it over this
morning - of taking, of letting - of writing
letters to R.F.C. that we can take those

planes - we want them.
H.M.Jr:
S:

H.M.Jr:

Well, that's something quite different.
And on that Jones said he would take - that
R.F.C. would take the planes.

That's quite different. You mean engines,

don't you?

16

-3S:

Yee, I mean engines.

H.M.Jr:

Well, I'd feel entirely differently.

S:

You have no objection to that?

H.M.Jr:

Oh, I'd be heartily in favor of it. I'd

be enthusiastic. There would be a solution
to what I call the interim plan. I'd be
heartily in favor and enthusiastic and be

more than pleased to give my support.
S:

Yes.

H.M.Jr:

But, Harry, after thinking it over, aside

from everything else, Knudsen says he looks
to me to see that the American manufacturer

gets paid. Now, in order for the American
manufacturer to get paid for the orders they
have on the books, the English have to sell
every fifth share of American securities,
plus all of their direct investments. Now
whether they're willing to do that and whether
they can do that, I don't know, but that's
what they have to do to raise over a billion,
three hundred million of American dollars.
S:

Yes. They've laid all those investments
open before you, have they?

H.M.Jr:

Yes, they have and they are laying more and
more every day and I just don't see as a

matter of straight ethics how I can let them even if they were willing to - hypothecate
their checks, and I think it would just sink
us on the Hill if they thought that we were
going behind their back and I think it would
just ruin the effectiveness of what I said
that the English were broke.

S:

Yes. Well, you think the Hill would understand

if we did it that it was an entirely different
thing.

H.M.Jr*

If you did it the way you said, yes, but
I would explain it to them. I certainly
would explain it to some of the leaders first
to make sure that they thought it was all right.

17
4-

But after thinking this over today or tomorrow
anytime that you want to get together with me,
I'm available.

S:

H.M.Jr:

Well, I certainly want to get together with
you. I think we've got to find some way of
spading through this six weeks that I see
is inevitable. I think that's minimum.
Well, Harry, that's what I've been crying

about. You remember we met at the President's
Thursday week about that. You remember I sent
advance notices for him to take some interest

in this interim plan. You remember.

S:

H.M.Jr:

Yes.

I'm keenly interested in finding a solution.
I think now maybe you have something but I
don't think the solution is to have me approve

their placing orders with American manufacturers
when they haven't got the money to pay for them.
But if the American manufacturer was told that
if this order is placed the Army and Navy have

use for it, and here's a letter saying so,
that's something quite different.

S:

Yes. All right. I'll be glad to talk with
you. I feel as if I were in a whirligig.

I've hardly had time to sit in my chair here,
but I'll see you any time. This time I was
out on the road, so to speak, and I thought
I'd stop at another customers. (Laughs).

H.M.Jr:

Well, as a salesman you've been doing a
magnificant job.

S:

All right, sir.

H.M.dr:

Thank you.

18
January 18, 1941
MEMORANDUM FOR THE SECRETARY'S DIARY

Secretary Morgenthau and Mr. Foley called on

Senator Glass at his office in the Senate Office Building today at twelve o'clock. Secretary Morgenthau asked
for the appointment and there were no other persons

present.

Secretary Morgenthau said that the President had

asked him to call together the banking group in the Administration interested in bank holding company legislation;
that he had arranged for a meeting on Tuesday at 3:00 P.M.,
but before he saw the other people in the Government, he
wanted to find out from the Senator how he stood.

The particular thing that Secretary Morgenthau
said he had in mind was a conversation he had had with the
President recently. The President had t old Secretary
Morgenthau about a conversation with Senator Glass in
regard to "chain banking." Senator Glass said he had
not said anything about chain banking", or "branch
banking." He said he called the President and asked
the President where he stood on his bank holding company

legislation? The President replied that he wanted to
consider the matter further but at the present time he
neither was for nor against a bank holding company bill
containing a death sentence. Senator Glass said the
President made a similar remark in regard to his other

inquiry, i.e., Eccles' proposal on excess reserves,

monetary powers and other related matters.

Senator Glass said after his conversation with the
President he had spoken to Senators Barkley, Wagner, Byrnes

and other associates, and then decided to introduce the

bill "with reservations." By that statement, which he

said was not an unusual one, he meant that he was r reserving

the right to offer amendments to his own bill in the light

of developments at the Committee hearings. Senator Glass

said that he was presently in favor of his bill, but thought
that it might incur such opposition that he might want to
offer modifications.

19

-2Senator Glass said he was against holding companies
because they were an instrument to violate the law through

bank control across state lines; that, in his opinion, the

Comptroller of the Currency was responsible for the growth
of the Giannini System, and that not only should additional
banks not be granted Bank of America, but there were too many
already. Secretary Morgenthau pointed out that "Jefty" O'Connor
was really the one responsible, and he had been appointed
before Secretary Morgenthau was made Secretary of the Treasury.

Secretary Morgenthau said he thought the real trouble was in
reopening the bank after the Banking Holiday without first
having simplified the complex structure.
Senator Glass said he was a little disturbed by
Secretary Morgenthau's reference to his having "laid a

wreath on the bill when he introduced it." Secretary

Morgenthau said he was merely trying to be facetious,

and didn't really understand what introducing a bill "with
reservations" meant.

Senator Glass said he was prepared to start hearings
on the bill whenever the Executive Departments were ready.
The Senator thought FDIC and the Comptroller of the Currency
should be fully prepared to present testimony.
The Secretary said he was very much taken back by

what the Senator had told him with regard to the President's
position; however, he said he had made his position perfectly
clear and was prepared to go ahead in any event. Senator
Glass said this was all right with him, and he wanted to
proceed also.

Mr. Foley suggested that SEC also be called as a
witness before the Committee. The Senator said he thought
that this was a good idea.
Secretary Morgenthau told Senator Glass he appreciated very much his being able to come up and talk to

the Senator so frankly about this matter; that he was going
to tell the Comptroller to be ready as soon as possible for
the hearings.

Treas

CONFIDENTIAL)

PARAPHRAS

CONFIDENTIAL

A telegram (no. 28) of January 18, 1941, from the
American Ambassador at Chungking reads substantially

as follows:

Although for the past month prices have continued

to be comparatively stable, costs of all commodities will
have a quickened rise at the Chinese New Year and in
February, according to persons who are thought to be

reliable. Rice will lead in this upswing in prices.
All of the officials in the Ministry of Economic
Affairs who were investigated in connection with the
control of prices have been acquitted. The officials
in the Ministry of Economic affairs have been more co-

operative in attempting to find a solution of the price
problem since the investigation.

20

21
(Message received by teletype on January 18, 1941, from San Francisco.)
RFF

WASH CUST AGCY MISS DERIEUX SPKG GA
GARDNER IN SF CALLING. IS MR GORMAN THERE GA

I BELIEVE so WILL CALL HIS OFFICE GA WITH MESSAGE
THE FOLLOWING MESSAGE FROM NICHOLSON WHO IS NOW IN SAN FRANCISCO FOR IMMEDIATE
ATTENTION OF ALDER (SECRETARY)

QUOTE. SINO BRITISH STABILIZATION FUND WHICH HAS BEEN
SELLING IN PAST FEW DAYS AT THREE ONE HALF PENCE DIS
CONTINUED SUPPORT AFTERNOON OF 16 TH. AS A RESULT
MARKET BECAME PANICKY WITH RATES NOMINAL AND GOLD
BARS QUOTED ABOVE $6800. MARKET COMMENTS ON CONTROL
BANKS OPERATIONS UNFAVORABLE SEMICOLON.

FIRST. SELLING CONFINED ONLY TO STERLING WHICH
OTHERWISE WOULD HAVE CREATED BETTER FEELING IF THEY
COULD SELL SIMULTANEOUSLY U. S. DOLLARS. ALSO SINCE
DEMAND MOSTLY IN U. S. DOLLARS IT MAKES CROSS RATE
ARTIFICALLY LOW.
SECOND. SUCCESSIVE LOWERING OF HONGKONG BANKS MERCHANT
RATES FROM FIVE ONE HALF TO FIVE ONE FOURTH HAD BAD
PSYCHOLOGICAL EFFECT.

THIRD. OVERBOUGHT POSITION ESTIMATED AROUND U. S.
DOLLARS TEN MILLION WHICH WOULD BE FORCED TO LIQUIDATE
IF RATES COULD BE MAINTAINED FOR ANOTHER WEEK BUT
WITHDRAWAL FROM SUPPORT ONLY PLAYS INTO HANDS OF
SPECULATORS. UNQUOTE.
ANOTHER MESSAGE, UNRELATED TO ABOVE, FOR ALDER (SECRETARY) FROM NICHOLSON.

QUOTE. NEW PUPPET CENTRAL RESERVE BANK NOW OPENED NANKING. EXPECTED
IT WILL OPEN SHANGHAI TWENTIETH. NEW NOTES NOT YET IN CIRCULATION.
OUTSIDE OF USUAL EVERYDAY POLITICAL MURDERS, KIDNAPPINGS AND ARMY ROBBERIES,
EVERYTHING VERY QUIET IN SHANGHAI. SAMPLES NEW NOTES FORWARDED FROM
SHANGHAI 16 TH. UNQUOTE.
ALSO A THIRD MESSAGE FOR ATTENTION ALDER (SECRETARY), FROM NICHOLSON.

QUOTE. RUMORED IN BRITISH DIPEOMATIC CIRCLES HONGKONG THAT PRESENT JAP
CABINET WILL RESIGN WITHIN THREE WEEKS AND THAT A NEW CABINET WILL BE FORMED.
THAT ADMIRAL NOMURA WILL NOT GO TO STATES AS AMBASSADOR BUT WILL BECOME
MINISTER OF FOREIGN AFFAIRS AND THAT THE EMPEROR IS ALL FOR APPEASING THE
DEMOCRACIES. THERE ARE ALSO RUMORS FLOATING ABOUT THAT THE EMPEROR IS
ABOUT TO BE DETHRONED BY MILITARISTS ON ACCOUNT OF HIS PRO- WESTERN STAND AND
THAT A REGENCY WILL BE SET UP. UNQUOTE.

21
(Message received by teletype on January 18, 1941, from San Francisco.)
RFF

WASH CUST AGCY MISS DERIEUX SPKG GA
GARDNER IN SF CALLING. IS MR GORMAN THERE GA

I BELIEVE so WILL CALL HIS OFFICE GA WITH MESSAGE
THE FOLLOWING MESSAGE FROM NICHOLSON WHO IS NOW IN SAN FRANCISCO FOR IMMEDIATE
ATTENTION OF ALDER (SECRETARY)

QUOTE. SINO BRITISH STABILIZATION FUND WHICH HAS BEEN
SELLING IN PAST FEW DAYS AT THREE ONE HALF PENCE DIS
CONTINUED SUPPORT AFTERNOON OF 16 TH. AS A RESULT
MARKET BECAME PANICKY WITH RATES NOMINAL AND GOLD
BARS QUOTED ABOVE $6800. MARKET COMMENTS ON CONTROL
BANKS OPERATIONS UNFAVORABLE SEMICOLON.

FIRST. SELLING CONFINED ONLY TO STERLING WHICH
OTHERWISE WOULD HAVE CREATED BETTER FEELING IF THEY
COULD SELL SIMULTANEOUSLY U. S. DOLLARS. ALSO SINCE
DEMAND MOSTLY IN U. S. DOLLARS IT MAKES CROSS RATE
ARTIFICALLY LOW.
SECOND. SUCCESSIVE LOWERING OF HONGKONG BANKS MERCHANT
RATES FROM FIVE ONE HALF TO FIVE ONE FOURTH HAD BAD
PSYCHOLOGICAL EFFECT.

THIRD. OVERBOUGHT POSITION ESTIMATED AROUND U. S.
DOLLARS TEN MILLION WHICH WOULD BE FORCED TO LIQUIDATE
IF RATES COULD BE MAINTAINED FOR ANOTHER WEEK BUT
WITHDRAWAL FROM SUPPORT ONLY PLAYS INTO HANDS OF
SPECULATORS. UNQUOTE.
ANOTHER MESSAGE, UNRELATED TO ABOVE, FOR ALDER (SECRETARY) FROM NICHOLSON.

QUOTE. NEW PUPPET CENTRAL RESERVE BANK NOW OPENED NANKING. EXPECTED
IT WILL OPEN SHANGHAI TWENTIETH. NEW NOTES NOT YET IN CIRCULATION.
OUTSIDE OF USUAL EVERYDAY POLITICAL MURDERS, KIDNAPPINGS AND ARMY ROBBERIES,
EVERYTHING VERY QUIET IN SHANGHAI. SAMPLES NEW NOTES FORWARDED FROM
SHANGHAI 16 TH. UNQUOTE.
ALSO A THIRD MESSAGE FOR ATTENTION ALDER (SECRETARY), FROM NICHOLSON.

QUOTE. RUMORED IN BRITISH DIPLOMATIC CIRCLES HONGKONG THAT PRESENT JAP
CABINET WILL RESIGN WITHIN THREE WEEKS AND THAT A NEW CABINET WILL BE FORMED.
THAT ADMIRAL NOMURA WILL NOT GO TO STATES AS AMBASSADOR BUT WILL BECOME
MINISTER OF FOREIGN AFFAIRS AND THAT THE EMPEROR IS ALL FOR APPEASING THE
DEMOCRACIES. THERE ARE ALSO RUMORS FLOATING ABOUT THAT THE EMPEROR IS
ABOUT TO BE DETHRONED BY MILITARISTS ON ACCOUNT OF HIS PRO- WESTERN STAND AND
THAT A REGENCY WILL BE SET UP. UNQUOTE.

22

PLAIN

ER

Bombay

Dated January 18, 1941

Rec'd 3 a.m., 19th.

Secretary of State,
Washington.

Eighteenth.

Silver displayed gradual rising tendency during WEEK
due favorable war news from Middle East which encouraged

optimistic feeling regarding outcome of war. Speculative

inquiries for silver for near positions were also noticeable
due rumors regarding possible increase in import duty on
silver in forthcoming budget. Local stocks small and held

mostly in strong hands so that import buying orders effect
local quotations appreciably. Stocks 2,500 bars daily
offtake 30 bars spot high sixty three rupees SEVEN annas

six pies low sixty two close sixty three two gold firm
with stocks increasing. Market was maintained at level
considerably above Export parity due activity speculators
who are reported in a moderately heavy overbought position.
Stocks 200,000 tolas and due absence Expert demand ready

deliveries are quoted at small discome - MAY sprivals
tolas 8,000 offtake 2,500 spot lew form on. Courteen three
GACE and high forty two rupees SUN DAES
INFORM TREASURY.
DONOVAN

the

TO:

The Sacretary 23

59.9 her cant if all
Fedual convictions

in 1940 and

60.3
per out of all
commitments
to
krism were
Treasury cases.
(See ( 17 of report.)

VII
From: MR. GASTON

24
TREASURY DEPARTMENT

Washington
SSISTANT SECRETARY

JAN 1 8 1941

The Honorable

The Secretary of the Treasury.
Dear Mr. Secretary:

I submit herewith a report of the Chief Coordinator
of Treasury Law Enforcement Agencies containing a review of
the work of these agencies during the calendar year 1940.
It contains instances of notable accomplishments and

reflects, I believe, further advances in integrated lawenforcement work which demonstrate the soundness of the

principle and the method of coordination as applied under
your direction to Treasury law-enforcement problems.
Sincerely,

Herbert E. Gaston

Assistant Secretary of the Treasury.

25
TREASURY DEPARTMENT
OFFICE OF COORDINATOR
TREASURY ENFORCEMENT AGENCIES

WASHINGTON

January 18, 1941.

MEMORANDUM FOR MR. GASTON.

There is returned herewith the report of the
coordinated Treasury law enforcement agencies
which you sent to me with suggestions for changes.
In addition to the changes which you suggested, I
have added a table containing aggregate statistics
for all of the Treasury enforcement agencies and
showing that 60.3 percent of all commitments of

Federal prisoners during the past fiscal year

were in Treasury cases. This table came to me
from Jim Bennett after the previous submission of
the report.
As you suggest, copies are being made and will
be forwarded to the Public Relations Division and

to all coordinators. In addition, copies are being

furnished to the heads of the agencies in Washington

and to the field supervisory officers.

Enc.

19th

26
TREASURY DEPARTMENT
OFFICE OF COORDINATOR
TREASURY ENFORCEMENT AGENCIES

WASHINGTON

January 3, 1941.

Honorable Herbert E. Gaston,

Assistant Secretary of the Treasury,
Washington, D. C.

My dear Mr. Gaston:

There is transmitted herewith a
report of the work of the coordinated

Treasury enforcement agencies. While

this report covers principally the work
during the past year, yet it is carried
further to show, in a brief way, what

was done before that period and what is
contemplated during the year 1941.
Very truly yours,

Enc.

Chief Coordinator

27

OUTLINE

Page No.

Introduction
New Methods

Winning Police Cooperation
Better Results from Coordinated Enforcement
Coordination Begun to Suppress Liquor Smugglers
Bootlegging Decreases - Federal Revenues Rise
Narcotics and Customs Violations

Coast Guard and Customs Cooperate in Neutrality
Law Enforcement

1

2

4

6

7

8

11

12

Tax Law Violators

13

Counterfeiting Drops to New Low

15

Aggregate Statistics

16

Personnel of Agencies

17

Specialized Training

19

Marksmanship Training

20

Enforcement Legislation

22

Conclusion

25

28

REPORT OF THE WORK OF THE
COORDINATED TREASURY ENFORCEMENT AGENCIES.

Our 1940 objective, pursuant to the decision to extend coordination beyond merely the limits of border and
coast line areas to embrace all enforcement districts
throughout the United States, has been accomplished, and

this plan is in full operation.
The new system has been organized for highest pos-

sible efficiency, as a result of meetings at headquarters
cities, sub-district offices and numerous other activities in which we participated. After a full year under
the enlarged setup, I find it to be both practical and
smooth in its functioning. In developing the plan, we
were able to go even beyond our first expectations and

establish in many of the districts closer cooperation
with other Federal agencies.

Our objective for the year 1941 is to strengthen the
gains made in our expanded efforts, and to make progress
in a new field that means so much to our own greater suc-

cess - by winning country-wide cooperation of State, city
and county police organizations. Before the close of
1940, many supervisory officers had already formed excel-

lent contacts in those local channels. The cultivation
of more friends in the ranks of peace officers has already

1.

29

brought splendid enforcement results. It augurs well
for the future.

More friendly relations with the fellow officer on
the local police beat will be of incalculable help to
Treasury enforcement personnel, when we have been able to

develop a clearly understood method by which the local officer may freely and fully communicate information to the
Treasury agencies.

Police officers, covering every section of the country, have more diversified problems than our own enforcement services. They gather information of vital interest
in their own communities, but they may not always recog-

nize its value to the Federal Government. They may not
know the best way to proceed in communicating information
which would be highly important to Treasury enforcement

officers.
Experience gained during the past year will be helpful, I am confident, in making a constructive approach

toward solution of this problem. It is our duty to build
up a readier means of contact and communication between

local police and Treasury personnel, and our supervisory

officers understand it to be one of our principal aims in
1941.
NEW METHODS

When it was decided to broaden the scope of the co-

ordination system, new district coordinators and assistant
2.

30

district coordinators were chosen from among the

supervisory enforcement officers in each of the fifteen districts in continental United States, and from
the Coast Guard in Honolulu and Puerto Rico. The sys-

tem was extended to all branch offices. Conferences
were held frequently. Closer contact between agencies

was facilitated, wherever possible, by placing enforcemont officers in conveniently accessible locations in
the same buildings where headquarters and branch offices
are maintained.

On October 1, 1940, after district coordination officers first appointed under the new system had completed

a full year of service, it was deemed advisable to rotate

other supervisory field officers in the responsibilities
of the jobs. Accordingly, new district coordinators and
assistant coordinators were appointed in each district
for 1941. Whenever it was found to be practicable, those
officers who had served as assistant coordinators were
promoted to the higher posts.

Close observation of results during the past year
affords convincing evidence that the regularly scheduled
meetings which bring enforcement officers together for
free discussion and interchange of ideas relative to mutual problems are becoming more important as a factor in

higher efficiency standards. In all districts throughout
3.

31

the United States, regular monthly meetings, sub-district meetings and "open" meetings have served to give
enforcement personnel a clearer picture of the other
fellow's problems. Great benefit has come from discus-

sion of current activities. Some cases have illustrated

an unusually skillful routine of investigation - a unique
pattern of crime detection which provides a valuable
guide to other enforcement personnel; some have revealed

a newly developed technique successfully followed by
other enforcement agencies.

In building up closer and friendlier contact with
officers of other Federal agencies, the sub-district
meetings have proved to be important. These meetings

bring together Federal officers in outlying cities sometimes far removed from headquarters. Many meetings of

this character are scheduled to be held in 1941, especial-

ly in cities and other areas wherein it is of the highest
importance for other Federal officers to have a more intimate understanding of the plan and objective of Treasury coordination.
WINNING POLICE COOPERATION

The "open meeting" provides one of the Treasury's

best opportunities to win local police cooperation. In
making up our calendar for 1941, arrangements will be
made to hold these meetings more frequently. Both Federal

4.

32

and State enforcement officers are invited to attend them.
Addresses are made by Treasury agency representatives and

by spokesmen for other organizations. United States attorneys as well as State, city and county prosecuting attorneys are invited to be present and to make talks.
These key men join in the discussions. Such meetings
won for us last year a great deal of local enforcement

cooperation that previously had been entirely lacking.
Important cases came to the attention of the Treasury

officers for the first time in these friendly close-range
contacts with State and local authorities. Invitations
extended to State and local police to visit Treasury services - to see how they function and meet other personnel
- brought about more sympathetic understanding of Treasury
problems of enforcement. Better understanding awakened a

new spirit of cooperation. This friendly approach to
more active cooperative contact and reciprocal aid between enforcement personnel, all with diverse problems

and points of view, certainly will effect stronger and
more helpful official relationships. There is every confidence that from this objective will come much in tangible results that will strengthen the hand of the law
against the criminal.

5.

33

BETTER RESULTS FROM COORDINATED ENFORCEMENT

Figures alone tell a vivid story of the Treasury's
success in smashing crooked combines that sought to per-

petuate illegal schemes. Dropping curves on the crime

charts reflect particularly the value of Treasury enforcement coordination, in the every-day work of crime detection.
When the Secretary, with farsighted vision, early in
his administration, took steps to unify enforcement agencies

and eliminate discordant rivalries, there was still a
large hangover of gangster lawlessness from the dry era.

The Secretary found the liquor smuggler and the big boot-

legger predominating in the crime picture with bold defiance of law. He took prompt measures to meet that problem. And, the corrective he applied was closely coordinated action among Treasury enforcement officers.

Contrasting totals in this review of enforcement
work reveal how Treasury officers operating efficiently
in the channels entrusted to them by law, have sharply

narrowed and restricted criminal activity. As the records show, in every succeeding year since the Secretary

about six years ago took the initiative for coordinated
attacks on crime, the Treasury enforcement personnel have

become steadily more effective, with correspondingly

larger gains for the Federal revenue as well as for the
cause of law and order.

6.

34

COORDINATION BEGUN TO
SUPPRESS LIQUOR SMUGGLERS

In the summer of 1934, the Secretary directed that
a concerted drive be made against liquor smuggling, which,
quieted down a few months after repeal, had soon revived
in a menacing volume. Experience demonstrated that full
success could be won only by the coordinated action of

all Treasury agencies. As a means of utilizing their combined facilities to the best advantage, it was decided to
establish a system of intelligent cooperation between
them.

By the Secretary's direction, a coordination program
was formulated during August 1934 by Mr. Harold N. Graves,
who directed a Committee composed of the heads and as-

sistant heads of the enforcement agencies at Washington.

The activities of this group meeting at frequent periods
resulted in the establishment of a definite cooperative
relationship between the agencies that prior to that time
had, to a considerable extent, functioned independently
and in ignorance of each other's problems.
In order to make effective the strategy developed by
the Coordination Committee in Washington for more inten-

sive operations against liquor smuggling, Mr. Graves selec-

ted district coordinators from the Coast Guard District
Commanders in the Treasury Districts along the seacoasts.
7.

35

These district coordinators followed the method of operation designed by the organization in Washington and
formed sub-coordinating committees composed of the dis-

trict supervisory officers of the enforcement agencies.
Alcohol smuggling reached its peak during May 1935.

At that time, twenty-one known vessels laden with contraband hovered off shore. Most of them were of British
registry. However, by March 1936, the combined efforts
of the Treasury agencies functioning in the manner described had stopped smuggling and the smuggling fleet had
been dispersed.
BOOTLEGGING DECREASES
FEDERAL REVENUES RISE

While these operations against smuggling were in

progress at sea, the Alcohol Tax Unit was waging a vigorous campaign against bootlegging ashore. They were as-

sisted in this, as far as practicable, and under the direction of the Secretary's Coordinator, by the other enforcement agencies, particularly the Coast Guard and the

Customs Agency Service. The production of illicit spirits
had become a major industry and illicit distilleries had
been set up in thousands of localities, both rural and
urban.

A new method of combating the rural activity was
introduced when Coast Guard airplanes began reconnoitering

8.

36

for distilleries. The airplanes kept in contact by radio
with Alcohol Tax Unit automobiles and were highly effective operating units. The Customs Agency assigned squads

of patrolmen to assist the investigators of the Alcohol
Tax Unit in consummating the arrests and seizures.

During the fiscal years 1935 to 1938, the Alcohol Tax
Unit and cooperating agencies established a most credit-

able record by reducing the volume of illicit distilleries
64.3 percent. Exclusive of the fourteen southern States,

illicit distilling was reduced by 78.5 percent for the
same period. It is significant that the withdrawals of
tax-paid whiskey have increased in proportion to the de-

crease in illicit distilling. Successful enforcement
probably has been primarily responsible for much of the
increased collections of liquor taxes.

During the fiscal year 1940, a total of 22,037 individuals were indicted in alcohol tax cases. Of these defendants 18,056 were convicted and approximately 14,000

were awaiting grand jury action or trial in Federal liquor
cases on June 30, 1940. A total of 3,552 of the defendants indicted were implicated in conspiracy cases involving
major frauds on the revenue.

In line with the recent trend a still further decrease
in illicit distilling was shown for 1940. The number of

9.

37

illicit stills seized was 10,661, a decrease of 1,398 as
compared with 1939. Distilled spirits seized dropped
from 336,268 gallons in 1939 to 264,590 gallons last year.
Seizures of mash amounted to 6,480,150 gallons, a decrease
of 1,596,311 gallons.

Despite the fact that the Treasury's coordinated offensive against both the moonshiner and bootlegger has
proceeded upon an ever widening scale, liquor law offenders arrested during the past year numbered 25,621 as
compared with 28,844 arrests the preceding year, which

indicates an effective preventive job.
Thus, there was a 12 percent decrease in the number

of stills seized as compared with the previous twelve
months, a 20 percent decrease in the gallons of mash seized, and an 11 percent decrease in the number of arrests.

As a result of concentrated enforcement activity, substantial progress has been made in the drive against
"moonshine" violators in the southern States. Despite
the general improvement in the United States as a whole,
the metropolitan areas of the North and East showed some

increase in the syndicate-controlled operations of illegal alcohol distilleries. Progress is being made in

the effort to suppress illicit distilling, but preventive
measures have become increasingly important in the general
enforcement objective.
10.

38

NARCOTICS AND CUSTOMS VIOLATIONS

Another major drive was directed against smuggling

and trafficking in narcotics. The Bureau of Narcotics,
and the Customs Agency Service, now known as the Divi-

sion of Investigations and Patrol, Bureau of Customs,
with the assistance of the other enforcement agencies,
notably the Coast Guard, coordinated and concentrated

their forces at the vulnerable points of entry in New
York City, the West Coast, and the Southwest, in an ef-

fort to break up extensive criminal syndicates. The results have been encouraging. Many of the major illicit
combines were suppressed and the conspirators prosecuted.

By 1938, the increase in narcotic prosecutions in New
York City required the appointment of three additional
prosecuting attorneys. The operations continue but on a
reduced scale. The war blockades have suspended the

European source of supply and the greatest activities
are now on the West Coast. Enforcement tactics in trail-

ing vessels suspected of carrying narcotics, detecting
narcotic smuggling across the docks, and combating the

traffic ashore have proved highly effective and afford
an excellent example of what can be accomplished through

intelligent coordination.
An outstanding accomplishment of the Customs Agency

Service and coordinated agencies following repeal was the

11.

39

case against the Canadian distillers for liquor smuggling
which resulted in settlements aggregating $3,500,000 and

bail bond forfeitures of $200,000.
During the fiscal year 1940, the Customs agents made

an extended investigation into the fraudulent registry of
approximately 200 American vessels. They were documented

under the American flag as the property of United States

citizens but were found to be owned by aliens, principally
Japanese. Many of the vessels have been forfeited and

libel proceedings are pending against the others.
COAST GUARD AND CUSTOMS COOPERATE
IN NEUTRALITY LAW ENFORCEMENT

The Coast Guard had one of the busiest years in its

history, its work being greatly multiplied by developments arising out of the war crisis. The Coast Guard,
actively engaged in the prevention of violations of the
neutrality laws, is closely coordinated with the Bureau
of Customs. The value of Treasury agency coordination is
amply demonstrated in the smoothness of cooperation established between Coast Guard and Customs, and by the present

expeditious and efficient handling of the many difficult
and delicate problems growing out of the emergency con-

fronting the country.
Coast Guard vessels cruised 2,182,706 miles last

year. Coast Guard aircraft flew 1,219,082 miles. A total of 4,510 vessels were trailed by Coast Guard vessels

12.

40

in the work of preventing the smuggling of narcotics.
Pursuant to their inspection and other duties Coast Guard
officers boarded 37,617 vessels. There were 1,208 vessels
reported for violations and subject to fines amounting to
$217,619. There were 18 vessels seized for violations,
the value of such vessels and cargoes amounting to $80,750.

A total of 4,397 radios were sealed on merchant vessels.
In neutrality law enforcement 163,119 vessels were identified. Armaments on 603 merchant vessels were inspected.

In cooperation with Alcohol Tax Unit, 718 illicit distilleries were located, 75 stills seized and 1,350 gallons
of contraband liquor seized.
TAX LAW VIOLATORS

While coordinated attacks against smuggling, boot-

legging, and narcotics were progressing, an intensive campaign was conducted by the Intelligence Unit in its con-

tinuous efforts against tax law violators. Many difficult
investigations were undertaken and carried to a successful
conclusion with the complete cooperation and support of
the other agencies of the Bureau of Internal Revenue, par-

ticularly the corps of internal revenue agents. Some of
these cases involved large-scale income tax evasions and

ranked in importance with the largest cases that have been
won in the Federal courts. Among the more important
cases won were against Johnny Torrio in New York,

13.

41

Thomas J. Pendergast of Kansas City, Ringling Brothers'

Circus of Florida and New York, William R. (Bill) Johnson
of Chicago, and, more recently, M. L. Annenberg of Chicago

and Philadelphia. Other important investigations are proceeding at the present time. The efficiency of the tax
statutory weapon in bringing to justice elusive and notorious violators of other laws has been demonstrated
repeatedly.

Successful prosecutions of nationally known racket-

eers, grafting public officials, and others from all walks
of life have resulted in substantial collections of taxes.
Also important have been the indirect results through the
fact that public exposure of tax evaders of prominence
stimulated proper tax payments by many who realized that

criminal prosecutions in their cases might result if they
attempted to make fraudulent returns. Special drives resulting in the "hot oil" cases in the southwest and investigations of racketeer ring violations in Kansas City,
Boston, Chicago, Atlantic City and other cities have produced numerous successful prosecutions. Violations of
the National Firearms Act and attempts to defeat the pay-

ments of taxes on tobacco, social security, and other
miscellaneous violations have culminated in successful
prosecutions.

In the fiscal year 1940, special agents of the Intelligence Unit obtained the indictment of 360 persons for
14.

42

evasion of income or other taxes. During the year 147
persons were convicted and given prison sentences and

cases against 224 persons are still pending. Those convicted were fined $266,640. Additional taxes and penalties totaling $33,319,063 were recommended for assessment

in cases investigated during the year.
Among those indicted were 52 individuals for attempts

to evade the social security tax. There were 37 convictions
for violations of the National Firearms Act.
Perhaps the outstanding achievement of the year was
the conviction of Moses L. Annenberg, who pleaded guilty

to charges of income tax evasion and agreed to pay

$8,000,000 in settlement of his income tax liability.
He is now serving a three-year prison sentence.
counterflit.ing DROPS TO NEW LOW

The Secret Service inaugurated a program of public

education in detecting counterfeit money. In the "Know
Your Money" campaign hundreds of thousands of business

houses were visited by Secret Service agents to show merchants and their employees how to detect counterfeit money.
The conferences with businessmen were supplemented by mov-

ing pictures, radio broadcasts, lectures, publicity
through newspapers, magazines and through other available

channels. The effectiveness of the program is evidenced

by the reduction of counterfeiting to the lowest in history.

15.

43

The average yearly total of counterfeit money detected by this agency from 1934 to 1937, inclusive, was
$759,105.32, as compared with $378,682.10 during 1938,

or less than one half of the average for the preceding
years. Secret Service arrests during the 1940 fiscal
year, totaled 3,281 persons, 2,222 of which were in con-

nection with check forgeries. In the cases tried, 97
percent of 2,897 persons were convicted, while 893 cases

were awaiting trial at the close of the year. During the
last year, the public lost $51,737.42 through acceptance
of counterfeit coins. There was an impressive reduction

of 50.5 percent in the losses to the public through acceptance of counterfeit notes, a drop from $294,057 in the
1939 fiscal year to $145,644 in 1940. Spurious currency
seized before it could enter into circulation amounted to
$94,589.
AGGREGATE STATISTICS

The results of the work of the coordinated enforcement

agencies are reflected in the following table, which was
furnished to me by the Director of the Bureau of Prisons of
the Department of Justice. This table shows the number of
persons convicted and sent to prison in Treasury law cases
and in other Federal cases for the fiscal year ended June 30,
1940.

16.

44

Convicted

Committed

185

51

2312

1487

24

6

120

42

42

23

3047
18221

2250
10003

23951

13862

Other Laws

16027

9141

Total

39978

23003

Customs

Counterfeit and Forgery

Gold Act cases
Internal Revenue
Firearms

Narcotics and Marihuana
Liquor

Total Treasury

An analysis of the above table reveals that 59.9
percent of all convictions and 60.3 percent of all commitments were in Treasury cases.
PERSONNEL OF AGENCIES

With the aim of developing the Treasury investigative

forces to the highest possible degree of efficiency, surveys of personnel have been made in all agencies. When
inefficiency became apparent, necessary changes were made.

Undesirable agents have been dropped. Other agents with
records of accomplishment and exceptional ability have
received promotions, some of them to supervisory positions.

In addition, the policy of carefully investigating the
character and ability of applicants for appointment to

17.

45

these services has been continued with the result that
appointments have been made only of those found to be

best qualified. Consequently, I firmly believe that
the character and efficiency of personnel of each of
these organizations is at this time at the highest peak
in history.
In 1936, the Customs Border Patrol, with 525 inspectors, was transferred from the Collectors of Customs
to the Customs Agency Service for better coordination
and the development of a united front against smuggling.

During the last year, smuggling has been sufficiently
subdued to warrant the return of a large number of these
Customs patrolmen to the offices of collectors where
their assistance is needed in current law-enforcement work.
In 1936, employees of the Bureau of Narcotics stationed
abroad were transferred to the Customs Agency Service to

centralize in that service the supervision of foreign
narcotic investigations. The war has made it necessary
to recall most of the agents from Europe and they are now

distributed among the various district offices of the
Customs Agency Service.

The general personnel situation in the Treasury
Department has been improved by the work of the enforce-

ment agencies. The Intelligence Unit has conducted many

investigations of serious charges against personnel in

18.

46

the Bureau of Internal Revenue and other services. For

instance, after investigations in one organization, five
supervisory officials were demoted for incompetency and
there were thirty-one separations of agents for cause

and eight transfers.
The wisdom of the policy requiring Intelligence Unit

investigation of applicants for positions in the Bureau
of Internal Revenue and other branches of the Treasury
Department prior to appointment has been fully demonstrated

by the rejection of 2,443 applicants from a total of 13,031.
SPECIALIZED TRAINING

The Enforcement Training Division for the coordinated
agencies has performed a very useful work in giving spe-

cial training to Treasury investigative personnel. A
regular system of schools throughout the country was inaugurated in 1937 and has continued with excellent results.

Practically all of the law-enforcement officers of
the Treasury have completed the prescribed course of in-

struction. In addition to the general coverage of criminal
investigation and law, the course embraced various special
subjects, such as tax fraud and personnel investigations.
Selected investigators were instructed in the technique

of lifting and comparing latent fingerprints and in moulage.
They, in turn, taught other employees of the agencies how
to take fingerprints of arrested persons. They also

19.

47

described legally approved methods of preserving evidence

found at the scene of crime for scientific study by ex-

perts, preliminary to its introduction in court. Technical instruction was given to Secret Service agents con-

cerning the printing of currency in the Bureau of Engraving and Printing and the manufacture of coins at the
Philadelphia Mint. This study served as background preparation for the "Know Your Money" educational campaign.
MARKSMANSHIP TRAINING

All armed officers of the enforcement services are
trained in the use of firearms and competitive matches

have been held to stimulate interest. Participation in
registered matches sponsored by the National Rifle Association is encouraged. Trophies and medals for winners
have been donated, or otherwise provided, and an excellent

spirit of competition has developed.
The principal competitive event of the year is an
annual match held in Washington, D. C. during August.
Selected teams representing each agency compete for Treas-

ury medals and custody of the Secretary's Cup. Following
this match, the five men with highest aggregate scores
are sent to Camp Perry, Ohio, where they take the police

training course and participate in the National Matches.
This training course qualifies them as instructors in
small arms defensive combat which includes the Thompson

20.

48

sub-machine gun and rough-and-tumble fighting. A system

of qualification and semi-annual requalification has been
established.

Under this program we have developed shooters who are

known nationally as Treasury Team No. 1. This team has par-

ticipated in the principal registered matches held during the
past three years at Cincinnati, Tampa, Miami, Detroit,
Los Angeles, Fort Francis E. Warren, and Buffalo, and in
the national matches at Camp Perry, Ohio. They have won

many trophies each year and have defeated all military and

police teams at one time or another. This team holds
national records in the 22 caliber, 38 caliber and 45
caliber classes, and several of the individual members also

hold national records. In the "American Rifleman" listing
of the thirty ranking shooters in the United States there
appear the names of eight Treasury enforcement officers,
including two Coast Guardsmen. The nearest to this record

is the Detroit Police with four men in the first thirty. No
other organization has more than two among the first thirty.

It is gratifying to report that practically all of the
enforcement officers of the Treasury Department are now

qualified pistol marksmen. The system of pistol training,
formerly administered by the Coast Guard coaches, now

functions under the Enforcement Training Division. The

21.

49

field direction has been placed under the district coordinators and agency personnel coaches are used, thus
eliminating considerable expense.
ENFORCEMENT LEGISLATION

Soon after the organization of the Alcohol Tax Unit,
it became apparent that in order to obtain more effective
enforcement of the liquor laws, it was essential to establish adequate control of the raw materials used in the

production of spirits. Accordingly, Joint Resolution 373
was enacted by Congress on June 18, 1934, which provided

for the supervision of raw materials used in distilling primarily molasses, sugar, and similar products. Many
violators shifted to denatured alcohol and solvents.

Additional legislation - the Liquor Tax Administration Act
of 1936 - was enacted and thus the system of control was
strengthened.

The Liquor Law Repeal and Enforcement Act of 1935

provided for the seizure and forfeiture of automobiles

used in illicit traffic and under this legislation the
Alcohol Tax Unit has supplied both its Enforcement and

Permissive Divisions with a sufficient number of cars

to provide adequate official transportation. Many additional vehicles have been transferred to other activities through the Procurement Division of the Treasury
Department.

22.

50

Through the cooperation of the State Department, certain foreign countries which were major sources of contraband, promulgated regulations either embargoing exportation

of alcoholic liquors intended for illicit traffic in the
United States or requiring vessels leaving their ports to
execute bonds to insure cargo delivery at the declared
destination.

The Marihuana Act of 1937 placed a new responsibility

on the Narcotic Bureau. Since its passage, more than 1,000
persons have been arrested for the illegal sale or possession of marihuana or its products. A system of export authorization for cannabis products was also authorized under
this Act.
Legislation has been enacted increasing penalties up

to not more than ten years for second offenders, and not
more than twenty years for persons having a record of three

or more convictions for certain violations of the Federal
Narcotic Laws.

Section 806 of the Revenue Act of 1936 amended the

Harrison Narcotic Act to require that each applicant for
registration be lawfully entitled to engage in the business
for which registration is sought, as a condition precedent
to registration. The Secretary's appeals to the Governors
of States urging the revocation of licenses of physicians
convicted of narcotic violations have proven most effective.

23.

51

Regulations issued under the Import and Export Act

have revived the export procedure for narcotic drugs and
provide for formal export permits.
The Act of August 9, 1939, which authorizes the for-

feiture of vessels, vehicles, and aircraft used to conceal
or transport contraband of whatever nature, and specific-

ally designating narcotics, counterfeit money, and illicit
firearms, has proven valuable. Under this Act, the Bureau
of Narcotics and the Secret Service Division have seized
and caused to be forfeited, automobiles which were not

subject to forfeiture under any other existing law. The
Intelligence Unit has seized several automobiles used in

transporting illegal firearms. However, the Act is not
sufficiently specific to provide for the seizure of conveyances used to transport marihuana.

The Intelligence Unit has offered suggestions and
recommendations for amending the Internal Revenue laws,

the recent "loophole legislation" having resulted from a
thorough survey in which special agents participated. As
you may recall, a tax fraud investigation by this Unit
first revealed the statutory defects which were corrected
by the new legislation.
Following repeal, many United States attorneys en-

gaged too frequently in the practice of compromising serious

violations of the liquor laws, thus threatening to undermine

24.

52

the enforcement program. Such compromises have been

reduced to a minimum as a result of action taken by the
Treasury Department.
CONCLUSION

In summing up the accomplishments of coordination

during the past year, I first wish to express appreciation of the ground work laid by the officers of the Coast
Guard when they were directing the activities of the various enforcement agencies in a coordinated effort to combat smuggling and in training the armed personnel of the
Treasury Department in the use of small arms. Because of
emergencies which have arisen they were unable to con-

tinue these activities and District Coordinators in each
of the Treasury Districts have been chosen from the different enforcement agencies to carry on coordination and
marksmanship training. The Coast Guard, however, still
occupies a prominent place in the enforcement picture and
is a valuable and necessary arm of the Treasury enforcement group.

The past year has been one of progress and accom-

plishment in respect to the laws enforced by the Treas-

ury Department as outlined in this report. I feel that
this is in a large measure due to the coordinated efforts
put forth by the several services which have worked

25.

53

together as a team on many important cases and brought

them to successful conclusions. The motto of Treasury
personnel has become, "We will help you" and this applies
not only to Treasury functions, but to other Federal
Departments. I know that we shall extend and consolidate

the gains thus far made. In addition to doing this, we
have mapped out a forward looking program. The personnel

are enthusiastic because of their accomplishments during

the past year and are eager to extend coordination into

non-Federal fields. I want to take this opportunity to
say that the personal interest of Secretary Morgenthau
and Assistant Secretary Gaston in enforcement matters and

in coordination is a stimulating inspiration to the entire
enforcement personnel.

Chief Coordinator.

Fantage
January 2, 1941.

26.

Draft of January 18, 1941
No. 2
EXECUTIVE ORDER

54

ESTABLISHING , CIVILIAN IC NOMIC DEFENS COMMITTEE,
REGULATING TRANSACTIONS IN FORMING EXCHANGE, FOREIGN
PROPERTY AND FOREIGN BUYING, CONTROLLING THE EXPORT

AND OTH LINGS IN DEFENDS SATERIALS, THE REGUISITIONING THEREOF, HIP ELEMENTS, ND THE PHOTECTION OF DEFINUE PRODUCTION FROM RESTRAINT AND
FORMILM CONTROL, AND RELATED LATTERS.

By virtue of ad pursu at to the authority vested in 20M by the
Constitution, by section 1 of Title 11 of the set of June 15, 1917

(40 its 220), by section 5(b) of the Ast of October 6, 1917 (40
Stat. 411), RE seconded, by section 2(a) of the Aet of June 28, 1940

(54 Stat. 676), by section 6 of the set of July 2, 1940 (54 Stat. 714),
by the Act of October 10, 1940 (54 Stat. 1090), and by virtue of A11

other authority vested in me, and by virtu of the continued existence
of a period of action emergency, it is hereby ordered as follows:
TITL I

Section 1. There is hereby established A Milis Teconic
Defense Committee (hereinsfter referred to 45 the "Committee").

The Consittee shalloomsist of the Secretary of State, the
Secretary of the Treasury, the attorney General, the Federal Lose
Administrator and a nember of the Office of Production Management

to be sprointed by it. The Committee, with the assent of the
Secretary of State, and acting either directly or through such
subcommittees, agencie or ersonnel as the Committee my designate,

shall formulate policies relating to the carrying out of the purposes
of this Order.
Section 2. Subject to policies formulated by the Committee

(a) Titles II and III of this Order shall b daimistered by the
Secretary of the Treasury, and (b) Title IV of this Order shall be
sdx nistered by the Attorney General.

55

-2TITLE II
Executive Order No. 8389 of April 10, 1940, as amended,

asending Executive Order No. 6560 of January 15, 1934 is
acceded to read as follows

Section 9. Notwithstanding say of the provisi as

of sections 1 to 8, inclusive, of this Order, all of the
following transactions are prohibited, except as specifically authorised by the Secretary of the Treasury by

means of regulations, rulings, instructions, licenses,
or otherwise, if involving property is which any foreign
country designated is this Order, or any national thereof,

has at any time on or since the effective date of this
Order and any interest of any nature whatsoover, direct

or indirects
A. All treasform of credit between any banking

institutions within the United States; and all tranefore of credit between any banking institution within
the United States and any banking institution outside

the United States (including any principal, agout,
home office, brench, or correcpisient outside of the
United States, of a banking institution within the
United States):

B. All payments by or to any banking institution within the United States,
c. All transactions is foreign exchange by may
person within the United States,

56

-3a. The export or withdrawal free the United
States, or the ourmarking of gold or silver coin or
bullion or currency by any person within the United
States,

3. All transfers, withdrawals or exportations
of, or deelings in, any evidences of indebtedness or
ovidonses of smorehip of property by any person

within the United States, and

7. Any transaction for the purpose or which

has the effect of ending or residing the foregoing
prohibitions.
Section 10.

A. All of the following transactions are probibited, except ns specifically authorised by the
Secretary of the Treasury by meens of regulations,

relings, instructions, licenses, or otherwises

(2) The acquisition, disposition or

transfer of, or other desling in, or with
respect w any security or evidence thereof

- which there is steaped or supristed, or to
which there is affixed or otherwise attached,
a tax stemp or other stemp of a foreign country

designated in this Order or a moterial or similar

seal which by its contents indicites that it was
strupped, imprinted, offixed or attached within
such foreign country, or where the attendant
circumstances disclose or indicate that such

57

stamp or seal may, as any time, have been

stamped, inprinted, affixed or attached thereto,
and

(2) The acquisition w, OF transfer to,
any person within the United States of any

interest in any security or evidence thereof
if the attendant circumstances disclose or

indicate that the security or evidence thereof
is not physically situated within the United
States.

3. The Secretary of the Treasury may investi-

gate, regulate, or prohibit under such regulations,
ruling, or instructions as he may prescribe, by
seens of licenses or otherwise, the sending, mailing,

importing or otherwise bringing, directly or indirectly,
into the United States, from any foreign country,

of olysecurities or ovidences thereof or the receiving
or holding is the United States of any securities or
evidences thereof so brought into the United States.
Section 11. The term "foreign country designated

in this Order asias s foreign country included is the
following schedule, and the time "effective date of this
Order means with respect to say each foreign country, OF

any national thereof, the date specified in the following
schedules (a) April 8, 1940 - Norsay and Demmark

58

050
(b) May 10, 1940 - the Netherlands, Belgium and Larembourg)

(e) June 17, 1940 - France, (a) July 10, 1940 - Latvin, Estomia

and Lithuania, (o) October 9, 1940 - Businia; (f)

. 1941

Albamia, Andorra, Austria, Bulgaria, Caeshoalovakin, Danxie, Fialand,
Coranay, Hungany, Italy, Liechtenstoin, Poland, Partagel, San

Marino, Spain, Sweden, Switserland, Yugoslavia. The "effective

date of this Order with respect to any foreign country not
designated in this Order shall be deemed to be

, 1941.

Section 12.

A. The Secretary of the Treasury may require, by

mosas of regulations, rulings, instructions, OF otherwise,
any person to farmish under oath, in the form of reports
OF other iso, from time to time and at such time or times
as he may designate, complete information relative to any

transaction referred to is subdivision (b) of section 5 of
the Act of October 6, 1917 (40 State 411), as amended, or

with respect to the interest of any foreign country or any
national thereof in any property, including the production
of any books of account, contracts, letters, or other papers,
in connection therewith, in the eastedy or control of such
person, either before OF after rush transaction is completed,
and the Secretary of the Treasury may, through any agrees

be may designate, investigate say such transaction or act,

or any violation of the provisions of this Order.
3. Every person ongaging in any of the treas-

actions referred to is sections 9 and 10 of this Order
shall keep a full record of each such transaction engaged
in by him, regardless of whether such transaction is effected
pursuant to license or otherwise, and such record shall be

59

-6available for examination by a representative of the
Treasury Department for as losst one year after the date
of such transaction.
Section 13.

A. The term *transactions . . . involving
property in which any foreign country designated in

this Order, or any national thereof, has ... any
interest shall include, but not by way of 11 itation,
(1) any payment OF transfer to such foreign country

or any national thereof, (11) any export or withdreal
from the United States to such foreign country and (111)

any transfer of erodit expressed in terms of the
currency of such foreign country.

3. The term *foreign country" shall include,
but not by way of limitation, the state and the
government thereof ea the effective date of this Order

as well as any political subdivision, agency or
instrumentality thereof or any territory, dependency,
colony, protectorite, acadate, dominian, possession

or place subject to the juriodictica thereof; and
shall also include any other government (including

any political subdivision, agency, or instrumentality

thereof) to the extent and only to the extent that
such government exercises or claims to exercise do
June or de feeto severeignly over the area which on

such effective date constituted such foreign country;

60

-7and shall further include any person who is, or
has been, or who there is reasonable cause to

believe is, or has been, acting or purporting to

act directly or indirectly for the benefit OF on
behalf of any of the foregoing.

C. The torm *national shall include any
person who has been domiciled in, or a subject,

citizen or resident of a foreign country at any time

on or since the effective date of this Order, but
shall not include any individual domiciled and

residing in the United States at all times on and
since such effective date, and shall also include
any partnership, association, corporation or other
organisation organised under the laws of, or which

on or since such effective date had or has had its

principal place of business in such foreign country,
or which on or since such effective date was or has been

controlled by, or a substantial part of the stock,
shares, bonds, debentures, notes, drafts, or other
securities or obligations of which was or has been

oured or controlled w. directly or indirectly, 1
foreign country and/or - or more nationals thereof
as herein defined; and shall further instate any
person to the extent that such person is, or has been,

since 1 effective date, asting or purporting to
not directly or indirectly for the benefit or on
behalf of such foreign country or national thereof;
and shall further include any other person who there

61

is reasonable cause to believe is a "ectional" as
herein defined. In any ease in which by virtue of
the foregoing definition a person is a action 1 of
more this one foreign country, such person shall be
deemed to be a astional of each such foreign country.

The Secretary of the Treasury shall have full power
to determine who is or shall be deemed to be a

*actional" within the meaning of this definition.
D. The ters "beaking institution as used in
section 9 shall include any person engaged primarily

or incidentally in the business of basing, of greating or transferring credits, or of purchasing or
selling foreign exchange or procuring purchasers and

sellers thereof, as principal or agent, or any person

holding errdits for others an a direct or incidental
part of his business, or brokers; and, each principal,
agent, home office, breach or correspondent of any
person so engaged shall be regarded as a separate

"beaking institution."
E. The term "this Order", AS used in this Title,
shall mass Executive Order No. 6560 of January 15.
1934, as amended.

Section 14. The Regulations of November 12, 1934,

are hereby modified in so far as they are inconsistent

with the provisions of actions 9 to 14, inclusive, of
this Order, and except as so modified are hereby continued

is full force and effect.

--

62

TITLE III

Section 1. Coordination of Foreign Bariag. Subject to the policies formlated by the Committee, the Secretary of the Treasury shall coordinate the buying,

or other acquisition, including aegotiations therefor, by or on behalf of any

foreign country or national thereof, of all defense articles, including all
military equipment and menitions, component parts thereof, and machinery, tools,

and antori 1 and sup lies necessary for the nufecture, servicing or operation

of defense rticles, in such : summer as will cost effectively further the interests of actional defense. For such purpose the Secretary of the Treasury
shall serve a the lisison officer between this Government and foreign countries
and actionals thereof. The Secretary of the Treasury shall keep the Committee

currently and fully informed of his activities in connection herewith.
Section 2. Export Emborgoop. The Proclamations, Order and Regulations

heretofore issued under section 6 of the Act of July 2, 1940 (54 Stat. 714)
shall, except as herein or otherwise assended, renain in full force and effect

nd the Functions of the Administrator of Export Control and his staff shall be
subject to the supervision and control of the Secretary of the Treasury acting
subject to the olicies formulated by the Conmittee and the licensing procedure

in effect as of the date of this Order shall remain in effect until modified,
amended or revoked by regulations hereafter issued by the Secretary of the
Treasury.

Section 3. Be unsitioning of Materials Demied Export, The Executive Order
nd Regulations heretofore issued under the Act of Descrober 10, 1940 (54 Stat. 1090)

shall, except as herein or otherwise amended, reasin in full force and effect,
except that the powers therein vested in the Secretary of far and the Secretary
of the Navy, acting jointly through the Army and Nevy Munitions Board, are hereby
transferred to the Committee, acting with the approval of the Aray and Havy Numi-

tions Board, and the function of the Administrator of Export Control and his
staff shall be subject to the supervision and control of the Scoretary of the
Treasury subject to the policies formulated by the Committee.

Section 4. Control of Ship Hovements. The Proclamation and the regulations

issued under section 1 of Title II of the Act of June 15, 1917 (40 Stat. 220) shall
remain in full force and effect, and the administration thereof by the Secretary
f the Treasury shall be subject to the policies formulated by the Committee.

63
- 20
TITLE IV

Section 1. Protection of Defence Preduction from Restructate

and Foreign Control. with such advice and assistance as he
may require from the several departments and agencies of the
Federal Government, the Attorney General shall, acting in
accordance with the policies formulated by the Committee and

parament to the authority hereinbefore referred to, or pursuant
to say other authority:

(a) Conduct investigations, bring grand jury proceedings, determine the need for legislative or other
programs, and take such other action as my be appropriate

for the purpose of dealing with restrictions, hindrences
or conduct otherwise detrimental to actional defease or

security, including all production and other operation
incident-1 thereto, by reason of or imposed by:

(1) any foreign control or influence over or

interest in, directly or indirectly, any American
business or industrial establishment,
(11) agreements, licenses, patent arrangements,

conspiracies or other practices or devices,
(111) industrial espionage or schotage or the

obtaining of any information by any foreign interest.

(b) In sid of national defense and security, furnish
information and render such assistance with regard to the
foregoing matters as my be of use to and is requested by
other interested agencies of the Government.

(e) Perform such other related functions as the
Committee may from time to time assign or delegate to him.

Section 2. Registration. The Attorney General is authorised
and empowered to prescribe from time to time regulations, rulings

and instructions to carry out the purposes of this Title.

64
- 11
TITLE v

Section 1. Recommendations by the Consittee The
Committee shall engage in such staties and shall make
such recommendations to the President, to the Congress

and to the appropriate departments and agencies of the
Government as the Committee doess is the interests of the
economic defence of the United States.

Section 2. Continued Validity of Prior Actions and
Savings Clause. Except as otherwise provided, this Order
shall not be deemed to revoke any regulation, license,

ruling, instruction or other setion issued or taken p
suant to any law, proolamation, order or regulation here-

tofore referred to which is in effect as of the date of this
Order; provided, however, that all such regulations, licenses,

rulings, instructions, or other actions shall be subject to
the provisions of this Order and the regulations, licensee, rulings,
instructions or actions issued or taken theremoter. Any
amendment, modification or revocation by or pursuant to the provi-

sicus of this Order of any orders, procleantions, regulations,

rulings, instructions or licenses shall not affect any act
done, or any right aceruing or accrued, or any suit or
proceeding had or commenced in any civil or orisinal ease

prior to such amendment, modified or revocation, and

all ponsition, forfeitures and liabilities under any such
orders, preclamations, regulations, rulings, instructions or
licenses shall continue and may be enforced as if such
assessment, modification or revocation had not been made.

Section 3. Regulations. Except with respect to Title
IV the Secretary of the Treasury is authorised and expowered

to proscribe from time to time regulations, rulings, and instructions to earny out the perposes of this Order and the
preclamations and orders herein referred to, and to

65
- 12 -

provide Shoreia or otherwise the conditions water

which licenses my greated w or through officers or agree as the Secretary of the Treasury
my designate. In so for as possible in administering
this Order, the Secretary of the Treasury shall limits

the number of applications - licenses required for
the performance of sets covered w this Order. The
decision of the Secretary of the Treasury with respect

to my application for a license shall to final.

Section 4. This Executive Order and
any regulations, relings, license OF instructions

issued horounder my be modified or revoked as
any time.

THE BOOKS,

194.

66

THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
FEDERAL RESERVE BUILDING
WASHINGTON, D.C.

Saturday

January 18, 1941
The Honorable

The Secretary of the Treasury

Washington, D. C.

Dear Mr. Secretary:

This will acknowledge receipt of your confidential
letter addressed to Mr. Gano Dunn.

Mr. Dunn is in New York today, and I have advised him

by telephone of its receipt. He is returning to Washington
on Sunday, the 19th, and will be here all of that week.
Sincerely yours,

Grounts Ehrlich
Bronette Ehrlich
Secretary to Mr. Dunn

was

del

67
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
TO

Secretary Morgenthau

FROM

Mr. K1aus

DATE January 18, 1941

The Dies report on Totalitarian propaganda states among other
things that "A high official in the United States Customs Service
has made the following observation within the past ten days," namely
that propaganda material via Russia and Japan has been coming in in
increased quantities and that it is addressed to thousands of individuals,
schools, colleges, business houses, etc., in the United States. The

point of the report is that legislation should be enacted to exclude

from the benefits of the Universal Postal Union agreement (under which

this country carries foreign mail free within the United States)
propaganda that is directed against the United States.

Ill.

68

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE January 18, 1941
TO

FROM

Secretary Morgenthau

CONFIDENTIAL

Mr. Cochran

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns

110,000
165,000

Open market sterling was first quoted at 4.03-1/2. Around mid-morning it
moved to 4.03-1/4, and closed at that level, Transactions of the reporting banice were
as follows:

Sold to commercial concerns
Purchased from commercial concerns

-0L 4,000

Closing quotations for the other currencies were as follows:
Canadian dollar

Swiss franc
Swedish krona
Reichamark

Lira

Argentine peso (free)

Brazilian milreis (free)
Mexican peso
Cuban peso

Chinese yuan

14-1/8% discount
.2321
.2385
.4005
.0505
.2360
.0505
.2066

8-3/16% discount
.05-3/8

There were no gold transactions consummated by us today.
No new gold engagements were reported.

The Bombay gold price was 2$ higher at the equivalent of $34.00. Silver was

equivalent to 44.76 up 1/8

The Federal Reserve Bank's report of January 15. listing deposits of banks in
Asia with the New York agencies of Japanese banks, showed that such deposits totaled
$103,420,000, a decrease of $1,253,000 since January 8. Most of the change in The
deposits took place on the books of the Yokohama Specie Bank's New York agency.

latter's principal dollar liabilities to and dollar claims on Japanese banks in Asia
stood as follows on January 15:

69

-2January 15

Liabilities: Deposits for Japan & Manchuria $54,830,000
Deposits for China

36,979,000

: U.S. Treas. bills, comm. paper,etc. 31,483,000
Claims

: Loans

$37,730,000

: Other - mainly Jap. import bills.. 15,266,000

Change from Jan. 8

- $1,416,000

+ 220,000
+ 703,000

- $2,156,000
+ 2,412,000

The last three categories refer mainly to Japanese banks in Japan and Manchuria.

CONFIDENTIAL

70
PARAPHRASE OF TELEGRAN SENT

TO I American Enbassy, Vichy
DATE: January 18, 1961

NO. : 53
The Enbasey is requested to continue to follow the
matter of the reports concerning the reshipment from
French Africa to Vichy, and thence to Berlin and Paris,
of Belgian gold and to attempt to obtain further information with regard to the amounts of gold which have been

or ROW are actually falling into the hands of the
authorities of Germany.
HULL

EA:GL:VGL

EARVOL

71
MARAPHRASE OF TELHBRAN SENT

TO 8 American Dahasay, Vichy.
DATE: January 10, 1941.

NO. : 54
with reference to the reports concerning the enforced
opening, in France, of safety deposit vouite, 11 to requested
that a report be submitted as to whether the Germa authori-

ties are taking possession, either directly or indirectly,
of the securities and gold which may be found in these
vaults.

The Department would also be greatly interestee in whatover information may be obtained by the Subascy concerning

the acquiring of the contents of safety deposit vauite in
Holland, Belgium, Norway and Denmark by the German

authorities.
HILL

RAIVOL

72

CONFIDENTIAL

Paraphrase of Code Radiogram

Received at the War Department

at 12:12, January 18, 1941.

Rens, filed January 18, 1941.
Gayallero and Masselini had a prolenged conversation

at Yoggia before n Dase set out to meet Ness Hitler. It is
thought that an important decision as regards Albania is ispending. The Italians will probably have to withdraw to the
line of the Shimmbia River unless the Germans take a hand in
some way. The Italians new have seven depleted divisions and

17 full divisions in Albania. Their total is believed to be
260,000 treeps.
FINKE

Distributions
Secretary of Var
State Department

Secretary of Treasury
Asst. Secretary of Year

Chief of Staff

War Plans Division

Office of Naval Intelligence

CONFIDENTIAL

73

January 18, 1941.

MEMORANDUM

To:

Secretary Morgenthau

From: Mr. Gaston

You asked me yesterday to find out whether
Coast Guard or Immigration had custody of the escaped
French convicts now at San Juan, Puerto Rico, and which

service was bearing the expense of maintaining them

M

while we are awaiting further instructions. We sent a
priority message yesterday to San Juan and received a

reply that the prisoners are housed in the district

jail at San Juan and that the Immigration Service is
caring for the expense of their maintenance.

74

January 18, 1941.

MEMORANDUM

To:

Secretary Morgeathan

From: Mr. Gaston

You asked me yesterday to find out whether
Coast Guard or Immigration had oustody of the escaped
French conviets now at San Juan, Puerto Rico, and which

service was bearing the expense of maintaining them

while we are awaiting further instructions. We sent a
priority message yesterday to San Juan and received a

reply that the prisoners are housed in the district
jail at San Juan and that the Immigration Service is
earing for the expense of their maintenance.

HEGI ds

75
RESTRICTED

M.I.D., W.D.

G-2/2657-220
No. 296

January 18, 1941.
12:00 M.
SITUATION REPORT

I.

Western Theater of War.

1. Air Force Operations. Bad weather continued.
Day: Limited offensive operations by the R.A.F.
Coastal Command.

Night: German. Moderate attacks around the Bristol
Channel and over London. Swansea was attacked fairly heavily.

Night: British. Small raids on Brest, Cherbourg and
two airdromes in occupied France.

II.

Greek Theater of War.

1. Ground. The Greek Command reports the capture of

1,000 Italians of the 7th (Lupi di Toscana) Division, not previously
reported in Albania. Otherwise no special activity is reported.

2. Air. No operations reported.
III. Mediterranean and Afridan Theaters of War.
1. Ground. Minor activity around Giarabub, Libya, and
on the Ethiopia-Kenya frontier.
2. Air. Limited activity. The Suez Canal zone was bombed, as was Port Sudan.

Note: 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.

RESTRICTED

UCAVE TIAL
Paraphrase of Code Ballogram
Received at the Var Department

at 8:58, January 18, 1941.

London, filed January 18, 1941.
1. On Friday, January 17, German merchant conveys were

attacked by planes of the Goastal Goward off the Dateh coast.
Direct hits were soored on a German mine layer and three earge
boats while considerable damage was inflicted on a member of

German ships. During the preceding night 81 planes of the Bember
Command again raided Vilhelashaven. German shipping and oil re-

fineries near Wilhelmshaven were bombed by five other planes of
the Bender Command.

3. On January 17 a single German plane attacked Canterbury.
Coastal reconnaissance with large patrols over the Deulogno-Galais
area and the Straits of Dever was carried out by the Germane during
the day. The British destroyed one German plane and damaged one

other. During the proceding night 130 German planes attacked Bristel
and started a number of fires which were quickly brought under control.
A total of 53 other German planes were plotted over England during

that night and a member of serious fires including one at an oil
storage plant were started at Avenmouth. During the night of January
17-18 Swanses was the main target of the German attacks which were
centered in South Vales.

3. During daylight hours of January 16 am intensive dive
bombing attack was made on the British aircraft carrier ILLUSERIOUS

in a harber at Malta. Italian fighter planes escorted the TO German

CONFIDENTIAL

76

77

CONFIDENTIAL
Junkers in the two waves of bombing that made up the attack. There
was only slight damage to the ILLUSERIOUS as a result of the one hit
made. Some damage was inflicted on other naval vessels. Ten of
the attacking Junkers bembers were destroyed, two others were

probably destroyed and is is possible that two others may have been.

4. In order to insure more rapid training and greater
mobility of labor it is thought that the Ministry of Labor may make
broader use of its compulsory powers. The government may assume

control over all deaks and deek employees will then become state

workers. In addition the Ministry of Labor is expected to use its
power to transfer workers from plants in which production is below
standard to factories that are producing.

5. Prisoners taken by the British in the Anglo-Agrptian
Sudan area indicate that supplies are being sent to Mogdishn, Italian
Somaliland, by the Japanese.

6. As of January 18 a total of 80,000 Italians had been
taken prisoner by the British in the Libyan theater. The morale of
these prisoners is extremely low.
SCANLON

Distribution:
Secretary of War
State Department

Secretary of Treasury
Asst. Secretary of Var
Chief of Staff
War Plans Division

Office of Naval Intelligence
Air Corps
a-3

-

CONFIDENTIAL

78

CONFIDENTIAL
Paraphrase of Code Cablegram Received at the
War Department at 15:18, January 19, 1941.

London, Filed January 19, 1941.

1. During the night of January 17-18 planes of the British
Coastal Command attacked a port, a seaplane base and an airfield

in France. Unfavorable weather that night caused the cancellation
of all flights of the Bomber Command.

2. During daylight hours of January 18 an unusually large
number of German planes were over Britain. One raid was made on

London and america of attacks were directed against targets in
Lincolnshire, Norfolk and Suffolk. There were a number of German
attacks over the east coast of England and along the Thanes
Estuary. There were no German planes over England that night.
During the preceding night, however, 140 German planes were plotted.
During daylight hours of January 17, one hundred German planes were
over England.

3. During the night of January 16-17 the airfield at
Maritsa, Rhodes, was attacked by British planes based in Egypt.
A fire was started and an explosion caused. On the same night

at Tobruk, ammition s tored underground and stores of gasoline

were hit by British planes. Very heavy explosions resulted.
4. During the night of January 17-18 Axis planes attacked

Tel Aviv and the Aqir (7) airfield in Palestine. There was no
damage.

CONFIDENTIAL

79

CONFIDENTIAL
5. It is believed here that the Germans now feel that
there can be no decisive Axis vistory without a successful in-

vasion of the British Ideas. Deberkation training is still
going on and many kinds of invasion crafts are still being constructed. All reports reaching London indicate that the Genema

will attempt the invasion sometime in the spring. February is

the earliest date referred to in any of these reports as the
possible date for the beginning of the operation.

SCANLON.

Distribution:
Secretary of War
State Department

-Secretary of Treasury

Asst. Secretary of Year

Chief of Staff

War Plans Division

office of Naval Intelligence

CONFIDENTIAL

80

January 20, 1941

Jean Monnet called on me at 8:45 Monday morning

at my request. I asked him whether he wouldn't please

look into the whole airplane engine situation as I felt

that everything under 2,000 h.p. in our planes would

just be out of date by the time they got into the air.

It seems to me that the place to get 2,000 h.p. engines

built quickly would be to have them built at the Curtiss
plant in Paterson and at the Pratt-Whitney plant at Hartford. I think it was a mistake to order 6,000 Rolls Royce
engines, and that it would be better to cancel the order

and lose the money rather than to get engines 12 and 18

months from now which would not be as good as what the
Germans would have at that time.

I then asked him what happened Friday night at
Bullitts, which he did. Jean Monnet had an accurate

picture of the whole situation. The only part that he
didn't seem to realize is that Knudsen is taking the position
that from now on, or rather after the bill passes, he only
expects to place orders for U.S. standard types, both for

ourselves and for what the British need. This leaves the

British in the position that they are going to have to find
the money with which to place orders for British standard

material.

Monnet said that Friday night Judge Patterson just
couldn't or wouldn't understand the situation, and was very

unreasonable about it. He said that the coolest, clearest

head there was Lovett, which interested me very much.

I pointed out to Monnet that I had been waiting
now at least a week to get from them a priority list as to
what they need the most, and I told him to be sure to have
the list show what they wanted to have of U.S. standards
and what they wanted of British standards. He also wanted
to know whether if they got $160,000,000 could they place
an order for four times that amount and not make any down

payment. He quite agreed with me that all the securities

81

-2-

which the English now have are earmarked against outstanding

orders, and that these securities could not be used twice.

I told Monnet that I was glad that at last the Army
and Navy were getting excited about the situation, but I

hoped the British Purchasing Commission would keep their

heads as this was no time to get excited. He agreed with
me on that and said that both Purvis and Sir Frederick
Phillips were keeping their heads, but personally I'm not
so sure of that.

Monnet said that at Bullitt's dinner was Felix
Frankfurter, MacLeish, Patterson, Forrestal, Frank Knox,

himself, and that Purvis joined him afterwards. Bullitt
took practically no part in the conversation and didn't
seem to know what it was all about. He made the same
remark about Felix Frankfurter. Monnet was here with me
about 45 minutes altogether.

82
CONFIDENTIAL
HOLD FOR RELEASE

HOLD FOR RELEASE

HOLD FOR RELEASE

FOR THE PRESS

JANUARY 20, 1941

The following, the Third Inaugural Address to be delivered
by Franklin D. hoosevelt, MUST BE HELD IN STRICT CONFIDENCE and no

portion, synopsis or intimation shall be released until its delivery

actually has begun. The same release of the text of the address also
applies to radio announcers and news commentators.
CARE JUST BE EXERCISED TO PREVENT PREPATURE PUBLICATION.

STEPHEN EARLY

Secretary to the President

On each national day of Inauguration since 1789,
the people have renewed their sense of dedication to
the United States.
In Washington's day the task of the people was
to create and weld together a nation.

In Lincoln's day the task of the people was to
preserve that nation from disruption from within.

In this day the task of the people is to save
that nation and its institutions from disruption from

without.

To us there has come a time, in the midst of
swift happenings, to pause for a moment and take stock to recall what our place in history has been, and to
rediscover what we are and what we may be. If we do

not, we risk the real peril of inaction.

Lives of nations are determined not by the

count of years, but by the lifetime of the human spirit.
The life of a man is three-score years and ten: a little

more, a little less. The life of a nation is the
fullness of the measure of its will to live.

There are men who doubt this. There are wen
who believe that democracy, as a form of government and

a frame of life, is limited or measured by a kind of
mystical and artificial fate -- that, for some unexplained
reason, tyranny and slavery have become the surging

wave of the future - and that freedom is an ebbing tide.
But we Americans know that this is not true.

Eight years ago, when the life of this Republic
seemed frozen by a fatalistic terror, we proved that

this is not true. We were in the midst of shock - but
we acted. We acted quickly, boldly, decisively.
Those lator years have been living years -

fruitful years for the people of this democracy. For

the have brought to us greater security and, I hope,

a better understanding that life's ideals are to be
measured in other than material things.

lost vital to our present and our future is

this experience of a democracy which successfully
survived crisis at home; put away many evil things;
built now structures on enduring lines; and, through

it all, maintained the fact of its democracy.

83

-2For action has been taken within the three-way
framework of the Constitution of the United States.
The coordinate branches of the government continue

freely to function. The Bill of Rights remains
inviolate. The freedom of elections is wholly

maintained. Prophets of the downfall of American
democracy have seen their dire predictions come to
naught.

Democracy is not dying.

lie know it because we have seen it revive and grow.

we know it cannot die - because it is built
on the unhampered initiative of individual men and
women joined together in a common enterprise - an
enterprise undertaken and carried through by the free
expression of a free majority.
.

We know it because democracy alone, of all

forms of government, enlists the full force of men's
enlightened will.
we know it because democracy alone has

constructed an unlimited civilization capable of
infinite progress in the improvement of human life.
The know it because, if we look below the

surface, we sense it still spreading on every continent for it is the most humane, the most advanced, and in
the end the most unconquerable of all forms of human
society.

A nation, like a person, has a body - a body
that must be fed and clothed and housed, invigorated
and rested, in a manner that measures up to the
objectives of our time.
A nation, like a person, has a mind -- a mind
that must be kept informed and alert, that must know
itself, that understands the hopes and the needs of

its neighbors -- all the other nations that live
within the narroving circle of the world.

And a nation, likea:person, has something
deeper, something more permanent, something rger

then the sum of all its parts. It is that something

which matters most to its future- which calls forth
the most sacred guarding of its present.

It is & thing for which we find it difficult even impossible - to hit upon a single, simple word.

And yet we all understand what it is - the

spirit - the faith of America. It is the product of

centuries. It was born in the multitudes of those who
came from many lands - some of high degree, but mostly

plain people - who sought here, early and late, to
find freedom more freely.

The democratic aspiration is no mere recent

phase in human history. It is human history. Itblazed
permeated the ancient life of early peoples. It
anew in the middle ages. It WGS written in Magna Carta.

84

-3In the Americas its impact has been irresistible.
America has been the New World in all tongues, to all
peoples, not because this continent was a new-found
land, but because all those who came here believed they

could create upon this continent a new life -- a life
that should be new in freedom.

Its vitality was written into our own Mayflower

Compact, into the Declaration of Independence, into the
Constitution of the United States, into the Gettysburg
Address.

Those who first came here to carry out the

longings of thei spirit, and the millions who followed,

and the stock that sprang from them -- all have moved
forward constantly and consistently toward an ideal

which in itself has gained stature and clarity with
each generation.

The hopes of the Republic cannot forever
tolerate either undeserved poverty or self-serving

wealth.

We know that we still have far to go; that we
must more greatly build the security and the opportunity
and the knowledge of every citizen, in the measure

justified by the resources and the capacity of the land.
But it is not enough to achieve these purposes

alone. It is not enough to clothe and feed the body of
this nation, and instruct and inform its mind. For

there is also the spirit. And of the three, the
greatest is the spirit,

Without the body and the mind, as all men know,

the nation could not live.

But if the spirit of America were killed, even
though the nation's body and mind, constricted in an alien
world, lived on, the America we know would have perished.

That spirit -- that faith - speaks to us in

our daily lives in ways often unnoticed, because they

seem so obvious. It speaks to us here in the Capital of
the nation. It speaks to us through the processes of
governing in the sovereignties of forty-eight States.
It speaks to us in our counties, in our cities, in our
towns, and in our villages. It speaks to us from the

other nations of the Hemisphere, and from those across
the seas -- the enslaved, as well as the free. Sometimes
we fail to hear or heed these voices of freedom because

to us the privilege of our freedom is such an old, old
story.

The destiny of America was proclaimed in words

of prophecy spoken by our first President in his first
Inaugural in 1789 -- words almost directed, it would

seem, to this year of 1941: "The preservation of the
sacred fire of liberty and the destiny of the republican

model of government are justly considered

deeply,

finally, staked on the experiment intrusted to

the hands of the American people".

85

- -4

If we lose that sacred fire -- if 10 let it be
smothered with doubt and fear - then we shall reject
the destiny which washington strove so valiantly and so

triumphantly to establish. The preservation of the
spirit and faith of the nation does, and will, furnish
the highest justification for every sacrifice that we
may make in the cause of national defense.

In the face of great perils never before
uncountered, our strong purpose is to protect and to
perpetuate the integrity of democracy.

For this we muster the spirit of America, and

th faith of America.

to do not retreat. Se are not content to stand
still. As Americans, we go forward, in the service of
our country, by thu will of God.

86
ss

Chauncey

January 20. 1941

Dear No. Enotes

Permit - to acknowledge. on behalf of Secretary
Borgoathen. the reseipt of your letter dated January 16.
1941. enclosing your compilation for the week called

January s. 1941. aboving dollar disbursements - of
British Repire and French accounts as the Federal and

the - w which those expenditures were financed.
Faithfully yours.

B. Morie Coshren

Testinical Assistant to the Secretary

3. v. Sanks. Require,

Time President,
Federal Reserve Bank of New Test.
See York, The Test.

87

619.87

FEDERAL RESERVE BANK
OF NEW YORK

January 16, 1941.
CONFIDENTIAL

Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
I am enclosing herewith our compilation for the
week ended January 8, 1941, showing dollar disbursements

out of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.

Faithfully yours,

L. W. Knoke,

Vice President.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.
Enclosure

88
ANALYSIS OF BRITISH AND FRENCH ACCOUNTS

(In Millions of Dollars)

1940

Jan. 4 - 31

Feb. -28

Feb. 29 Apr. 3

Apr. 4 May 1

May 2-29
May 30 July 3
July 6-31

182.8
89.0

54.8

16.8

124.2

2

24
31

Jan.

8

142.0
105.8

3.2

33.6
52.6

-11.2(d)

+113.5

86.2(e)

+ 35.3

72.7

32.8

11.6(g)
26.2(h)

99.6
84.8
101.4

35.9
29.4

56.7
60.9
46.8

17.9
21.5

93.2

7.1

25.9

301.3

5.1

12.9

212.2

10.8

24.7

261.1

2.0
1.0

26.4(1)

1293.2

605.6

211.2

260.9

316.8
196.7
241.0
234.6

244.3
167.8
201.1
206.8

1187.6
72.5
28.9
39.9

33.7
35.0

80.9

27.8

39.6

36.1

3.5

54.8
50.1
60.9

50.1
46.5

4.7

43.9

3.6

17.0(o)

1,828.2
308.9
198.5

259.5
198.0

71.2
27.5
74.5
47.9

Average bokly Expenditures Since Outbreak of War
$19.6 million
France (through June 19)
England (through June 19)

England (since June 19)

27.6 million
58.0 million

267.4
1,356.14

291.5
160.5
210.0
111.4

60.2
0.2

48.3
25.8

82.9
109.2

55.1
93.9

27.8

4.3

15.3

22.4

50.1

5.8
16.7
29.6
18.0

44.4

55.9
71.5
105.0
78.7
145.4

13.4

29.4

345.1(1)

5.0(f)

27.0

25.3
+ 36.1

8.4

10.9

866.3
8.6

449.7

4.4

4.2

1095.3
1.3

0.3

0.2

0.5

0.1

0.7

0.7
0.6

6.0

32.0(1)

0.5.

60.6(n) 36.6

2.1

26.0

4.0
8.0
8.0

7.0

0.8

19.3

-27.3

18.2

+24.4

-

0.2

+31.6

1.0

-

2.1

0.2
-

-

-

54.8
75.4
60.7
126.2
335.6

0.1
0.1

5.6

- 1.2
5.4
6.1

19.2

9.5(1)

44.0
+188.4

- 4.1

10.4

0.2
0.5

+ 2.0

900.2

195.1

+229.0

1.3

7.3

3.0

3.2

416.6

31.4(3)

+ 1.8
31.5(m) +18.5

127.3(1)
6.3
0.5

8.9

7.9

55.4

57.0

156.7(1)
7.3

6.0

18.0

30.0
39.9
63.7

15.9

108.3

93.0

12.4

31.5

21.5

108.8
101.0
87.3
77.3
137.9

- 8.1

41.2

58.7

33.7

15.4
14.5
26.1
23.6
145.3
156.7
180.2

126.2
319.3
225.0
294.8

11.3

35.0

28.1

61.5

17.8

100.9

11.3
76.2

105.4

11.4

20.6

86.4

13.4

51.8

78.6

43.4

14.2

88.6
86.8

38.0

94.0

Credits

6.0

19.4

22.5

75.2

115.5
113.4

Sales

tures(s)

85.9

23.0
10.4

25.0

WEEK ENTRO

Dec. 18

185.4
57.8
50.6

249.7

First year of war
Aug. 29 Ost.
Oct. 31 Nov. 27
Nov. 28 Dec. 31

8.9
8.7

283.2

Aug. 28
Ost. 3-30

191.7
97.7

207.8

Other

Credits

Other

0.5

- 0.1
- 1.5

0.7

0.6

0.1

0.1

0.1

+ 0.1

-

Nov. 30 Jan. 3

90.7
100.9

adj'ts)

in Balance

Expendi-

-

lov. 2-29

3.6
5.8

Gold

of Gold

Debits

Proseeds

Gov't

Total
Debits

-

Aug. 31 Sept.27
Sept.28 Nov.

94.3
106.7

Securities
(Est.) (b)

-

1939

Debits

Total
Credits

Total

Net Inor.
(+) or
Decr. (-)
in Balance

Other

-

tures(a)

Other

Net Inor.
Credits (+) or
(insl. Dear. (-)

CREDITS

-

PERIOD

Proceeds of
Sales of

Confidential
FRANCE

OF

DEBITS

CREDITS

Strictly

Jan. 8, 1941

-

Total
Debits

Gov't
Expendi-

BANK

BANK OF ENGLAND (BRITISH GOVERNMENT)

)

DEBITS

Week Ended

-

-

-

-

8.1(p)

14.0

-

-13.0

-

-

Transfers from British Purchasing Commission to
Bank of Canada for French Account
million
Jan.

8

Week Cumulation ended from July 6 $110.1 million

,

-

0.2

-

0.2

+ 0.2

(See fortnotes on reverse side)

Ministryfor
of account
Shipping.of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber
(a) Control,
Includesand
payments
(b) Through June 19, these figures represent total sales of American securities in Second District "reported for account of the United Kingdom.
ended
(Proceeds of these sales, however, may not have been credited to the Bank of England's account in all cases.) Beginning with the week
June 26, the figures represent transfers from the Bank of Montreal, New York Agency, which is custodian for requisitioned American securities

held in this country. The transfers apparently reflect proceeds of official security sales, including those handled through
private deals.
were
Fromprohibited.
June 17 to July 19, transactions in securities payable in specified foreign currencies, including dollars, by United Kingdom residents

(e)

Includes payments for account of French Air Commission and French Purchasing Commission.
(d) Includes adjustment for (b) above.
About $85 million transferred from accounts of British authorized banks with New York banks.
(f) About $11 million transferred from accounts of British authorized banks with New York banks.
About $8 million transferred from accounts of British authorized banks with New York banks.
(h) About $10 million transferred from accounts of British authorized banks with New York banks.
(e)

(g)

(1)

Adjusted to eliminate the effect of $20 million paid out on Jane 26 and returned the following day.
(1) About $2 million transferred from accounts of British authorized banks with New York banks.
(k) About $2 million transferred from accounts of British authorized banks with New York banks.
(1) About $4 million transferred from accounts of British authorized banks with New York banks.
(a) About $6 million transferred from accounts of British authorized banks with Now York banks.
(a) About $32 million transferred from C 00 unt s of British authorized banks with New York banks.
Includes 85 million transferred to a New York bank for account of Bank of Greece.
(p) Includes $2.4 million received from Federal Reserve Bank of Boston (Australian wool).
(o)

89
Strictly

Week Ended Jan. 8, 1941.

ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS

(In Millions of Dollars)
OF

BANK

DEBITS
Transfers
to

Total
Debits

Official
British

Other

Debits

Total
Credits

CANADA

COMMONWEALTH BANK OF AUSTRALIA
CREDITS
DEBITS

CREDITS

Proceeds Transfers from Official
of
British A/C
For Own

For French

Sales

A/C

A/C

15.1

0.8
2.1

Gold

A/C
PERIOD

Credits

Transfers

Total
Debits

Official
British

Other

Debits

Total
Credits

Other

of

Gold

in Balance

Sales

A/C

in Balance

Net Incr.
(+) or
Credits Deor. (-)

Proceeds

to

-

Dec. 31

48.0

16.6
-

35.2

-

7.1

31

13.7
1.8

96.3

306.4

117.6
73.6
504.7

44.3
26.7

43.9
28.6

35.2

69.6
60.6

11.0

-

-

42.9

53.9
412.7
16.4

10.4
12.4

14.0
49.2
42.5

10.3

13.7

2.0

3.4
1.6

1.8

7.0

5.4

7.1

-

-

24

72.5

72.2

48.0

-

DOX ENDED

11.0

50.2

18.7

-

-

1

31 Nov. 27

-

3 - 30

44.3
26.7

-

323.0
2

-

first year of war
29 - Oct.

18.7

29.5

-

4-31
1-26

-

-

42.3
23.2
37.9
44.1
28.2

29.3
24.8
50.0

-

-

3

16.1

-

1

30 - July

15.0

17.0

-

37.9
44.1
28.2

2-29

25.7

-

15.0

-

-

20.9
-

-

1.6

0.6

0.8

1.8

0.2
0.9

0.3

5.9
5.0

4.4
4.2

5.0
36.1
8.0

3.4

6.1

0.1

0.2

12.8

3.0

0.3

2.7

3.1

4.7

2.3
1.2

0.2

12.3

2.3

-

1.0
2.3

89.4

19.5

+ 54.9

3.0

3.8

+181.7

31.2

3.9

8.7

1.9

10.1

2.5
7.5

27.3
6.2
2.6

14.3

0.2
32.4
0.2
0.3

6.8

16.7

3.7

+ 34.4
+ 12.6

3.1

0.6

38.7

- 0.4

4.4

-

0.1
0.2
-

-

2.2
2.0
2.6

0.9

4.9
3.2

0.3

2.1

0.2

-

0.2

5.2
3.3

19.2

8.9

-

0.3

2.2

2.2

0.1

-

3.0

4.6

-

2.3
4.6

13.7

-

3.3
2.4

2.5

+ 28.4

27.3

-

5.8

7.2

0.3

-

-

2.5

6.5

0.2

-

-

1.9

5.8

4.5

-

1.6(a)

Trkily Average of Total Debits Since
of War
$ 6.7 Outbreakmillion
Through January 8, 1941

(a) Includes $1.5 million transferred from a New York bank by order of a Canadian bank.

4.8

0.6
+ 5.3
-11.7

1.7
0.1

5.2

0.9

1.4

-

4.6

-

2.5
4.8

-

1.7
0.1

-

-

-

-

1.9
3.3

1.9

1.1

-

42.3
38.2

Apr.

23.5
23.1

-

-

-

23.1

1 - 28

-

21.1

-

-

-

23.5

4-31

3.0

-

30.0

3

30.0

-

-

-

3

0.7

-

-

9.2

14.4
22.8

7.3
13.3
13.3

-

-

9.9

1940

4 - May

16.7

-

2-29
30 Jan.

0.3

9.3

-

nt.28 Nov.

16.9

4.3
7.1

5.9
7.3

-

-

9.6

at

0.6

21.8

-

17.5

31 Sept. 27

Jan. 8

Other

Net Inor.
(+) or
Dear. (-)

-

1939

Dec. 18

Conf idential

1.7

1.9

0.9

1.5

6.7
6.5

0.8
1.6
6.1
1.3
1.4

3.6

2.1

1.5

6.8

4.8

2.0

7.9

6.0

1.4

0.3
0.1

0.9

0.1

30.0

4.7

1.3

0.1

0.2
-

-

0.1
0.1

1.4
3.6

0.4
1.8

4.9

0.7

-2.2
+0.5

*2.0
+4.3

0.2

-1.3
-0.8

90

2560

COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS

DEPARTMENT BUILDING
WASHINGTON D.C.

You will find, herewith, for your
confidentinl information a copy of our weekly

digest of the current activities of the various departments and agencies handling matters
on inter-American concern.

Attachment

1 -7 0-ve -

91
2714

COUNCIL OF NATIONAL DEFENSE
COORDINATOR OF COMMERCIAL AND CULTURAL RELATIONS
BETWEEN THE AMERICAN REPUBLICS
TATE DEPARTMENT BUILDING
WASHINGTON.D.C.

January 20, 1941
WEEKLY PROGRESS REPORT

ON ACTIVITIES IN RELATION TO THE OTHER AMERICAN REPUBLICS
COMMERCIAL

Developments in Commodities

Central American Lumber: Information is being assembled concerning
the production capacity of various timber operations in Mexico and
Central America which might supply lumber for the defense needs of
the U.S. A survey of the requirements of the defense program has

been prepared at the request of this office, and this information

has been passed on to the Department of Agriculture, which is di-

rectly handling the question at the request of the President.
At present it appears that Nicaragua is in
the best position to supply pine quickly, with Mexico second.
Honduras apparently is the best organized country for hardwood

production, which might be utilized as a substitute for teak.

Copper: A number of large copper companies have indicated that they

are unable at present to obtain the copper they need. The first

purchases of copper are expected to arrive from South America early
in February.

Linters: Since the Defense Commission feels an increasing need for

gotton linters, steps will be taken to assist in increasing Brazilian production.

Tungsten: A proposal has been made by the Bolivian Government that

this Government enter a contract over a five-year period to purchase the entire tungsten production of Bolivia. While there will
probably be sufficient tungsten production elsewhere to take care
of the defense needs of this country, the Japanese have been buying
heavily in Bolivia for the account of Gormany at prices which pre-

clude any purchases by U.S. buyers.
Zinc: The zinc situation continuos unchangod, with the Mexican Governmont having undertaken negotiations to settle the labor dispute at
the Rosita smolter of the American Smelting and Refining Company.
Armaments for South America

The Coordinator has met with the joint advisory board of the War and Navy
Departments to discuss requests for armaments that have been received
from Central and South American countries,

92
i 2714
Page 2

January 20, 1941

Intor-American Bank

After a meeting last Monday, the officers and directors of the Bankors
Association for Foreign Trade issued a statement endorsing the InterAmerican Bank and recommonding that its activities "should properly be

confined to providing banking facilities where sufficient banking facilitios do not exist and that this institution should only supploment,
and in no way encroach upon, existing adoquate private banking facilities."
Shipping Shortage

Because of the possibility of a sovere shortage of world shipping within
the coming year, the Coordinator is taking immediate stops to bring about

a close working arrangement with the Maritimo Commission ( and other Govornment departments that may be involved) through which maximum utility
of shipping available to the Central and South American trade can be offected.

Montavon and Watt Become Consultants

William F. Montavon, of the Council of Catholic Charities, and Robert
Watt, of the American Federation of Labor, have agroed to serve as mom-

bers of the Advisory Committee of this Office. A member who will represont the C.I.O. will be named shortly.

A committee has been formed by the Office to handle the problem of antiAmerican activities by the agents of many U.S. businesses in Central and
South America. Its members include Mr. Wayne Taylor, the Under-Secretary
of Commerce; Mr. A. A. Borle, Jr., Assistant Secretary of State; and the

Coordinator. Mr. John S. Dickey (Coordinator's office) will serve as
Secretary.

93
2714

WEEKLY PROGRESS REPORT, Part II
Page 3

January 20, 1941
CULTURAL

Dr. Morley Leaving to Arrange Exhibition
Dr. Grace Morley, director of the San Francisco Museum of Art, will leave
for South America on January 22, to make arrangements for the exhibition
of contemporary American painting which will be shown in eleven or twelve
key cities of Central and South America between April and October. She

will investigate the types of U.S. art that appeal to Central and South

Americans, make arrangements for securing exchange material, and considor
bases for cooporation between South and North American scholars, artists,

critics, historians, and museum officials.

South American Art Loaders Coming to This Country

The Coordinator's office will help bring Contral and South American directors for the opening of the National Gallery of Art in April and for
a subsequent visit to New York museums. Dr. Grace Morley will make recommendations concerning these visitors.
John Dos Passos to Meko Translation

John Dos Passos has agreed to translate a book into Spanish from the list
selected by the literary committoo. The recommendations of the committee
are nearly completed. Houghton, Mifflin and Company is also initiating
a program of translations.
COMMUNICATIONS

Newsroel Camora Mon to Go to South America

The Coordinator's Office will aid the trip of two nowsrool camera mon,

one from "Nows of the Day" who will go down the cast const of South America, and one from "Movietone Nows" who will go down the west coast.

The shots taken on this expedition will appear under a special caption,
"Pan American News." The trip is in connection with the efforts of the
four principal nowsrool companies to develop more adequate coverage of

Central and South America.

Advertising Short-wave Broadcasts on News

To help build an audience for the thirty short-wave news broadcasts from
this country to Control and South Amorica in Spanish and Portuguoso, the
Executivo committoo of this Offico has approved in principle the extonsion of assistance for newspaper advortising of their broadcasts in the
Americas.

WEEKLY PROGRESS REPORT NO. 17

94

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 20, 1941.
Secretary Morgenthau
FROM Mr. Cochran

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
112,000

Sold to commercial concerns
Purchased from commercial concerns

-0-

The Federal Reserve Bank of New York sold 120,000 in registered sterling to a
non-reporting bank.

In the open market, sterling held steady at 4.03. Transactions of the reporting

banks were as follows:

-0-

Sold to commercial concerns
Purchased from commercial concerns

L 1,000

Except for a widening of the Canadian dollar discount and a small gain in the
riss franc rate, the other currencies experienced little change. Closing quotations

re:

Canadian dollar
Swiss franc
Swedish krona
Reichsmark

Lira

Argentine peso (free)

Brazilian milreis (free)

Mexican peso
Cuban peso

Chinese yuan

14-3/4% discount
.2321$
.2386
.4005
.0505
.2360
.0505
.2066

8-3/16% discount

.05

There were no gold transactions consummated by us today.
No new gold engagements were reported.

Further improvement took place in the Bombay metal prices. Gold was 4d higher

at the equivalent of $34.04. and silver was priced at the equivalent of 44.90 up
1/8

The prices fixed in London for spot and forward silver were both unchanged, at
23rd and 23-3/16d respectively. The dollar equivalents were 42.21# and 42.104.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
he Treasury's purchase price for foreign silver was also unchanged at 35

95

-We made one purchase of silver amounting to 75,000 ounces under the Silver Pur-

chase Act, consisting of new production from foreign countries, for forward delivery.
We also purchased 200,000 ounces of silver from the Bank of Canada. This is the
first purchase that we have made from that source in January.

MMP

CONFIDENTIAL

96

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, (Paris) Vichy

DATE: January 20, 1941, 6 p.m.
NO.:

82

FOR THE TREASURY FROM MATTHEWS.

I had lunch today with Rueff at Chatel Guyon. He said
that on the French financial front there 18 not much that
is new. There has been a slight increase, to approximately
213,000,000,000 francs, in the Bank of France's note circulation, with a moderate rise monthly of some two billion
francs. He said that the Treasury has a working balance

of roughly ten billions, and is "comfortably off", and
Treasury bills are being subscribed to at the monthly rate
of some seven or eight billions.

Rueff said that the old "closed capital circuit" seems
to be functioning fairly smoothly, assisted by substantial
expenditures by the Germans for their Army of Occupation.

In the occupied zone control of prices seems to be

working fairly well, though the growing scarcity of foodstuffs,
fuel and other articles complicates any general estimate.
He did not have any precise information as to how the
400,000,000 france paid each day for the German Army of

Occupation is being used. However, it is indicated from the
fact that their Bank of France balances have remained

at around forty million france for the past two months that
the

97

-2the Germans are using these funds to some extent for the

purpose of buying into French industries' properties,
and 80 on, "such as the mines de Bor", in addition to what
they are paying out for maintaining their Army of Occupation.
A new convention between the Finance Minister and the
Bank of France is published in today's issue of JOURNAL
OFFICIEL. Under the convention the provisional advances

to be made to the Government for the purpose of defraying
the "maintenance cost of the German occupation" are increased

to 85 billions (they formerly were 73 billions). Reference:
telegram of December 17, 7 p.m., No. 1151 from the Embassy.

Reference: telegram of January 17, 7 p.m., No. 68
from the Embassy. Rueff said he was not inclined to believe,
as did officials of the Ministry of Finance, that Germany
is dumping in Switzerland and Portugal any substantial

quantity of franc bank notes for the purpose of acquiring
dollar and other free foreign exchange. Rueff was more
inclined to believe that French prohibition against the
importation of currency was the cause of the recent fall
in the franc quotation on the markets of these countries.
Rueff said that as yet the Germans had not requested

that the French turn over to them their gold.

Note: It is my belief that the personal position of
Rueff

98

-3-

Rueff with Finance Minister Bouthillier is a difficult one,
and that Rueff may soon leave the Bank of France if

Bouthillier remains as Minister; I should personally regret
his leaving, particularly as his attitude has been since

last June quite helpful. Rueff at least is thoroughly in
sympathy with the blocking of French funds by the United

States, and he is convinced that the objectives of the
United States are to France's long-term benefit.
END OF MESSAGE.
LEAHY.

32

EA:LWW

99

BRITISH EMBASSY,
WASHINGTON D.C.

Personal and Secret

January 20th, 1941.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information copies

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

Dear Mr. Secretary,

Very sincerely yours,

Work Better

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

100

Telegram received from London

dated January 17th, 1941.

1. Naval. His Majesty's destroyer Woolston,
escorting a convoy sighted 3 enemy E boats off
Harwich at 2045 hours yesterday and drove them off
before they could attack the convoy.
2. Mediterrancan. Heavy air attack made on

Malta p.m., January 16th, "Illustrious" apparently
the main objective, hit aft but not seriously damaged,
"Perth" near miss and received bad shaking, H.T. ship

*ssex" badly damaged. Total of 70 aircraft made 2
attacks first by JU 84's, second by JU 87's, escorted

by Italian fighters. Dive bombing attacks driven
well home. Our fighters shot down or damaged several

machines. Wh guns ditto, and some by indirect guns

not known but total claim is nine certain, three
probable and two possible.

3. Convoys. Two convoys totalling 58 ships
have arrived in home waters from Canada without loss.
There were 17 tankers and 15 cargoes of ateel.

4. Royel Air Force. Night of January 16th/17th.
86 aircraft were sent out, of which 81 went to
wilhelmshaven docks. The remainder carried out light

attacks on oil plants and on shipping. Five heavy
bombers are missing.

5. German Air Force. Night of January 16th/17th.
183 enemy aircraft operated over the co untry, of which
130 were over Bristol area.
6. Home Security. Night of January 16th/17th.
Bristol, Avonmouth were attacked early and a number
of/

101

-2-

of fires were started which were quickly under
control. A later attack on Avonmouth at 2 a.m.
started several small fires including one at an oil
cistern which has already been put out. At Bristol

a direct hit on a generating station has cut off
electricity in a large area, but it is hoped to
restore supply by tonight. Continued bombing elsewhere
caused little damage.

7. Italian East Africa. Morale of the
Italian prisoners of war in the Sudan is high
compared with the morale in Libya which could hardly

be lower. Sudan prisoners often refer to importance
of Mogadiscio, where supplies from Japan have been

arriving.

102

Telegram received from London

dated January 18th, 1941.

Naval. Corvette Rhododendron mined and
one mine sweeper damaged by mines off Liverpool on

January 17th both reached harbour. 13 mines were

exploded off Liverpool on January 17th. In addition
damage to ships by air raids on Malta 16 dockyard had
many hite, damage caused to buildings electric power
and telephone service. Enemy losses now reported
ten certain one probable five damaged.

2. Almeda Star with 187 F.A.A. personnel
on board torpedoed 270 miles northwest of Bloody

Foreland on January 17th further report awaited.

3. Royal Air Force. Night of 16th/17th
January. Wilhelmshaven Docks were located by 46

aircraft and attack is described as excellent. Large
fires persisted especially at the railway station and
oil tanks. Some explosions and fires were started
in the docks at Emden and Rotterdam and "pitiless

results" reported from three channel ports. Three
heavy bombers successfully laid down mines.

4. January 17th Hudson sighted an escorted
convoy of 6 merchant vessels off the Dutch coast.

Subsequently our aircraft obtained direct hits on 3
merchant vessels and also on a mine layer which was

art in a sinking condition; these shipe formed part
of a total of 40 merchant vessels and seven escort
vessels moving along the Dutch Coast.

5. Night of January 17th/18th. 15 bombers
sent to Breat but bad weather hempered localisation of

targets. All returned safely. One heavy bomber

103

-2-

dropped leaflets over Northern France. Owing
to bad weather over our aerodromes all other
operations cancelled.

6. German Air Force. January 17th over
the Straits and Thames Eatuary. About 60 enemy

aircraft patrolling off and behind Cap Gris Nez when
our fighters destroyed one aircraft and damaged
another. In addition Hurricanes destroyed one
bomber and damaged another off the British coast.

7. Aircraft casualties in operations
over and from British Isles; Enemy two destroyed
by our fighters, two damaged. British. One fighter
destroyed.

8. Home Security. Night of January
16th/17th. Avonmouth. Large part of the town may

be without gas for four or five days. Many fires
were prevented by house and street distribution of
sand.

9. Bristol. Some key points will be
without electric power until January 20th.
10. Night of January 17th/January 18th.
Main attack Swansea and lasted for 6 hours. All
fires extinguished by 2:30 a.m. Most damage was
done to non-military property but some which may
prove serious occurred in the Docks.

CONFIDENTIAL
Paraphrase of Code Radiogram

104

Received at the War Department
at 10:25, January 20,1941

London, filed January 20, 1941
1. On Sunday, January 19, German earge boats were attacked

by planes of the British Coastal Command. On the - day and during
the preceding night there were no operations by the Bomber Command because of unfavorable weather.

2. The Germans operated patrols and reconnaissance flights
during daylight hours of January 19 over Norfolk, Suffolk and the Thomas
Estuary. One German Junker bomber was shot down. That night London and

the Thomas Estuary area were attacked and there were seattered raids on

the Midlands, Hampshire and Sussex. Another attack that night was directed against the Portamouth-Southamptom region. Four German planes taking

part in these attacks were shot down.

3. During the night of January 17-18 British fighter planes
from Egypt machine gunned an Italian position near Tobruk. Thirteen tens
of bombs were dropped on Tobruk that night and a gasoline storage plant

was set on fire.
4. During daylight hours of January 19 Grand Marber on Malta
was dive bombed by 40 Junker planes escorted by large forces of Italian

fighter planes in each of two raids. The dookyards and private property
suffered considerable damage. Antiaircraft fire was responsible for the
destruction of six German Junker bombers. Reyal Nevy and Reyal Air Force

fighter planes destroyed two Italian fighters and nine Juster dive bembers,
probably destroyed three other Junkers and damaged one fighter plane and

three other Junkers. On January 18, 20 tons of bembs were dropped on

each of two airfields at Halfar (i) and Luga (8), Malta, by 80 German

Junkers escorted by Italian fighter planes. While the damage inflicted
by these attacks was heavy it was not great when considered in the light

CONFIDENTIAL

CONFIDENTIAL

105

of the number of German dive bombers used. Antiaircraft fire and British
fighter planes were responsible for the destruction of ten Axis planes,
the probable destruction of one more, and for the damaging of two others.

5. Italian air operations against Egyptian targets were cansiderably increased on January 18 and during the night of January 18-19.
Italian planes bombed a motor convey 100 miles east of Port Said on reute
from E1 Qantara to Gal'st E1 Arish. Axis planes also bombed the Sues
canal at points near Ismailiya and E1 Qantara.

6. On January 17 a British ship off Bloody Foreland was terpedood. One hundred and seventy-seven mon of the Fiest Air Arm were on

board and as yet no survivers have been found. One January 18 the British
boarded the French vessel Mendosa and she is now on her way to Freetown,

Sierra Leane. On the same day a German surf raider shelled and sunk a

British tenlor 650 miles west of the Canary Islands. Two British ships
reached port after having been damaged by mines off Liverpool.
SCANLON

Distribution:
Secretary of War
State Department

Secretary of Treasury
Asst. Secretary of War

Chief of Staff

War Plans Division

Office of Naval Intelligence
AC 2
0-3, 1

CONFIDENTIAL

106

January 21, 1941
9:30 a.m.
GROUP MEETING

Present:

Mr. Young

Mr. White

Mr. Wiley

Mr. Kuhn
Mr. Haas
Mr. Pehle

Mr. Foley

Mr. Graves
Mr. Thompson
Mr. Gaston

Mr. Sullivan
Mr. Bell
Mr. Schwarz
Mr. Cochran

H.M.Jr:

You (Gaston) read this. This is very, very
refreshing.

Schwarz:

They used that as a newspaper story, also.

H.M.Jr:

And in today's Tribune they ran it. Henry

sent me this from Cleveland, (showing
Cleveland Plain Dealer) which was the way

they handled the thing out there. After
all, that is what we tried to get across.
Schwarz:

Especially west of the Alleghanies.

H.M.Jr:

Well, you are watching the clippings,
aren't you?

107

-2Schwarz:

Yes, sir.

H.M.Jr:

Harry, the President sent me his New Republic
and The Nation, which you see on this, what
I call for a better name, "The Eccles Memorandum.
I read them. You read them. Tomorrow we are
going to have the answer, aren't we?

White:

I thought you might designate a meeting today
so we could go over it.

H.M.Jr:

I can't do it today.

White:

So we could have it ready, but you don't have
to attend that meeting.

H.M.Jr:

Well, I want it tomorrow, and I will set a
time now.

White:

Well, Mr. Bell can set aside a time and we can

go over it before you see it.

H.M.Jr:

Well, I will set three o'clock tomorrow for
the so-called "Eccles Memorandum. That
doesn't hurry anybody too much, does it?

Bell:

No, not me.

H.M.Jr:

Bell and White and you (Haas) on Eccles' memo.

Bell:

Is that the first memo, first letter, you mean?

White:

Well, it is some suggested modifications which
the Secretary had.

H.M.Jr:

Bell:
H.M.Jr:

Signed Saturday a week ago.
Saturday a week ago?
Yes.

108

-3"hite:

Herbert took an active interest in it.

H.M.Jr:

Herbert Gaston?

White:

Yes.

H.V.Jr:

Did you?

Gaston:

I was in on it.

H.V.Jr:

All right, Herbert Gaston, Bell and White

and Kuhn tomorrow at three o'clock.

White:

And George.

H.M.Jr:

George also, yes. Is that leaving anybody
out? Philip, would you ask Mr. Purvis, does

he expect me to notify Stimson, Knox, Knudsen

and all the rest of them of his new status
or has he done it through Mr. Hull, you see?

Young:

I don't know.

H.M.Jr:

Ferdie, would you get a full statement of

what Mr. Beale said this morning?

Kuhn:

Yes, I would like to.

H.M.Jr:

I called up the head of the Federal Reserve.
I don't know what they call him, president
or governor.

Pehle:

President.

H.M.Jr:

From New York.

Bell:

Yes, president.

H.M.Jr:

And asked him please to investigate my suspicion

that that freezing story which kept Chick

Schwarz from going to sleep and also woke

109

-4up Mrs. Morgenthau at a quarter past
twelve - he said it was a great emergency
from the New York Daily News - and me woke us both up - I told Sproul I suspected

it came out of New York. I haven't heard

from my call.
Gaston:

Schwarz:

It had all the earmarks. It came here under

a New York date line.

The local office of the New York Times said
it came from New York, that they had cautioned

them against doing the story this late. They

said it may have been through at one time.
The story was a New York story.
H.M.Jr:

I got very good cooperation out of Joe Alsop.
If you read the story today - he had a long
talk with me and I said, "Now listen, Joe,

here are the facts. If you write them the

way I say, you put everybody on notice that
there is a 75 per cent chance that freezing and
everything else is coming in the Treasury and

if you do, we won't get it. If you think it

should come to the Treasury, you decide which

is more important, to write a story or have

the thing done. You see, he left it out
completely.

Foley:

I didn't see it.

Schwarz:

It is in this morning's paper.

Kuhn:

It is a beautiful job. Most of it was his

own digging, too.
H.M.Jr:

Yes. And he made it very, very plain three
times that he was unable to get anything out

of the Treasury, so - I didn't tell him,

though, because he didn't have it, that the
thing was really being done over in Justice.

I didn't tell him that, and he hasn't caught

110

-5-

up with that. But he did do a good job
this morning and it doesn't put Jones and
the rest of them on notice.
Foley:

We have agreed on the language, the committee

has, of this order; but State talked it over
among themselves a little more, and they still

have some reservations. Berle said some of
the people have reservations about taking
Export Control out of the State Department,
and they want to talk to the President about
freezing Germany and Italy; but the language is
all agreed to by the committee and the order

is all ready, but they want to talk to the

President.
H.M.Jr:

Well, I thought they had agreed to everything.

Foley:

Well, Berle hadn't, and he called up, but

H.M.Jr:

When was this?

Foley:

He said this last night. He called on Saturday
morning just before I talked with you.
Bob Jackson is sick. But they are going to
take it up with the President?

H.M.Jr:
Foley:

apparently --

Well, State wants to talk to the President
about freezing Germany and Italy.

H.M.Jr:
Foley:
H.M.Jr:

Well, that isn't what really bothers them,
is it? It is having the machinery over here.
I think so.
Somebody - did you see this article by
Mr. Cornelius Callahan, who says there are
31,000 applications in the State Department
and they have only cleared - how many?

Mr. Callahan of the Maritime Association.
Did you see that?

111

-6Foley:

No.

Gaston:

Harry Durning asked the State Department,

Division of Controls, if they couldn't give

them some blank applications because it
delays the manufacturers and shippers very

much. They have to write in for each individual
application and get the application back and

fill it out and send it to the State Department;

and they asked him, and he asked State if they
couldn't have some blank applications to

distribute. They asked for a thousand of

them. They said no, that would only me an
that they would have a thousand more applications to handle.

H.M.Jr:

If Kuhn and Foley will stay afterward, I
want to talk to them a minute. Herbert?

Gaston:

Waesche is holding a meeting this morning

of the International Ice Patrol Board. He
is Chairman and a number of Government

departments are represented. The State
Department is not represented, so we invited
Berle to send over a representative on the

question of whether the Ice Patrol will be

continued this year or some special arrange-

ments set up. The normal operation of it
gives out a lot of valuable military information

and we will probably need to change the character

of it. That is all.
H.M.Jr:

Edward?

Foley:

Here is a memorandum for the diary on that
conversation we had with Glass on Saturday.

H.M.Jr:

No answer for the President. What else?

Foley:

I have nothing else.

112

7H.M.Jr:

John, I didn't get to you yesterday until but after this meeting at three o'clock on

bank holding, maybe Bell has told you, he,
you, and I will have a meeting, and I have
asked for an appointment with the President
tomorrow on my financing; and then I will

try to ring in your - I have asked for an
appointment for him to see Bell, Sullivan,

and me; and if he gives me the half hour,

we will go to town on it - get a clearance
on the legislative program, taxes and so
forth, so whenever this meeting breaks up

on the bank holding thing, I will let you
know; and Bell has written out in pencil
roughly what I would like, so if you see him
between now and four --

Sullivan:

I will, sir.

H.M.Jr:

And at eleven thirty, I expect Bell and Delano
and Foley to have a dress rehearsal on that
bank holding thing. What else, John?

Sullivan:

Miss Lehand wrote you for some background

on a certain letter of the President's.

We sent it to her Saturday morning. Here
is a reply on the Morris Ernst memorandum.

He can do what he wants to do in a different

way. We can't help him. At least, we shouldn't.
H.M.Jr:

I see.

Well, while I am doing that, your (Graves')
friend, the Schenley man, has called up

Mac three times in the last 48 hours, and

he has been told that I am signing something.
Mac said he couldn't remember whether it was

on four fifths or a quart, and I mustn't

do it.
Graves:

It is four fifths pint.

113

-8H.M.Jr:

And I mustn't do it until he gets a chance
to see me. Now, how does he know I am going

to sign something when I don't know it.
Graves:

You are not going to sign anything. I me an,

there is nothing for you to sign.

Sullivan:

That is what he is trying to find out.

H.M.Jr:

What is it he thinks I am going to sign?

Graves:

Well, he apparently thinks you are going to
sign an order disapproving the pending
appropriation to permit the use of the

four fifths pint.

H.M.Jr:

Now it is a pint?

Graves:

It is a pint now.

H.M.Jr:

And if somebody wanted to go to four fifths --

Graves:

That is right. He wanted to go to four

H.M.Jr:

He is the fellow?

Graves:

He is the fellow. But in this case, the
proposition is for you not to act at all,
in which event the four fifths pint will not

fifths.

be permitted.
H.M.Jr:

But he wants the four fifths?

Graves:

Yes.

H.M.Jr:

Well, supposing I change my mind and want to

go to four fifths?

Graves:

Then it would be necessary for an amendment

to the present regulations to be signed

by you.

114

-9H.M.Jr:

Have I had a hearing on it?

Graves:

What happened was this. Mr. Sullivan presented

this matter to you, I should say, six weeks
or so ago, and you at that time indicated

that you didn't want this four fifths pint,

and asked Mr. Sullivan and me to take hold
of it and restudy it, which we have done, and

we concluded that the four fifths pint would
tend to be deceptive and turned the papers
back to Revenue. We are not going to act

at all in the matter.

H.M.Jr:

Supposing they reopen the whole thing and

Graves:

I think it would be very bad after the matter

take another look at it?

has been on the fire this long and a conclusion

arrived at. To now have it upset again I
think would be very bad.

H.M.Jr:

You think so?

Graves:

Yes, sir.

H.M.Jr:

Well, supposing - take another look at it,
will you, Harold?

Graves:

Yes, sir.

H.M.Jr:

Sullivan:

Graves:

Just tell them you are going to take another

look at it.
Then I think you had better call right off

and make sure there isn't any other announcement
going out.
There is an announcement and it has gotten
into the papers, Mr. Schwarz just showed
me.

Schwarz:

The paper indicates that we are opposed to it.

115

- 10 Graves:

That Revenue is opposed to it.

Schwarz:

That is right.

H.M.Jr:

I would like Harold to make another study.

Graves:

Very good.

Schwarz:

The Washington Post this morning in an

editorial opposing the general freezing

order at the opening has some very complimentary remarks about the freezing that

we have done to date. They say, for
example, "In a very effective way, the

United States lived up to its reputation
as a safe harbor for frightened capital."

On Sunday night, Nathaniel Hall and Verne

Marshall are reported to have said that
the statement that Britain has exhausted

her dollar credit in the United States is
baby talk.
H.M.Jr:

Coming from Verne Marshall I would say it
is a compliment.

Schwarz:

You may have that mentioned.

H.M.Jr:

I am glad I know that. The chauffer listened
to it Sunday night, and he gave me a garbled
account. The only thing he seemed to think

was important was that they mentioned my

name; and when I tried to pin him down as to
what they said -- (Laughter)

Schwarz:

That is all.

Cochran:

I am going down to the Navy at 2:45 today.
I would like to see you some time this
morning.

116

- 11 H.M.Jr:

You are going where?

Cochran:

To the Navy Yard.

H.M.Jr:

Sure.

Cochran:

Shall I ask the new commander?

H.M.Jr:

You stay right after this, and I will see
each
person in turn. I want to see Wiley,
too.
Ferdinand Kuhn?

Kuhn:

Nothing today.

H.M.Jr:

Pehle, how are your new quarters?

Pehle:

Very fine. I would like to have you come
down and see them.

H.M.Jr:

Are they air conditioned?

Pehle:

No, they are not air conditioned, although I
understand the air conditioning goes up to

the floor below us; so it is possible if it

gets too bad we can induce them to air condition

it. The quarters are very satisfactory.

On the matter of milk being purchased in
Switzerland by the Friends, Pickett wrote
back and quoted a cable which he received

from his director in France saying that
the - saying, "The export of milk from the

Swiss Government requires the import of food

of the same value," and they are going to

import peanuts from Dakar, which I assume

they will use as fodder; and as soon as it
gets to Marsailles, the Swiss will agree to
release the milk, which will be two to four
weeks, he said.

117

- 12 H.M.Jr:

Who is going to bring the peanuts in°

Pehle:

The French government, so the Swiss will

w.v.Jr:

And the peanuts go to Switzerland?

Pehle:

The peanuts go to Switzerland and I assume

allow the milk to come in from Switzerland.

it will be used for fodder. They can't get

the milk out.
H.V.Jr:

George, I sent your memorandum on fats to

Haas:

All right.

H.M.Jr:
Haas:

H.M.Jr:
Haas:

Leon Henderson today.

Anything else? You might be watching it,
will you?

All right. Here are the figures on Allison.
It is fluctuating.
I'll say it fluctuates, the wrong way, though.
I noticed steel orders, Mr. Secretary, are
way up now again.

Haas:

I will take a look at it.
That is all.

Young:

Gross of Lockheed is still in town.

F.M.Jr:

What does he want?

Young:

He wants to say hello to you.

H.M.Jr:

Do you think I ought to see him.

Young:

Oh, I think it would be nice of you shook him
by the hand and threw him out. (Laughter)

H.M.Jr:

118

- 13 H.M.Jr:

Well, if he is available at 11:15.

Young:

All right.

H.M.Jr:

Tell Mac. Will you bring him in?

Young:

Yes, sir.

H.M.Jr:

What else?

Young:

That is all I have. We cleared the British

H.M.Jr:

How much did that make in money?

Young:

Three hundred P-40's at about $63,000 apiece.

H.M.Jr:

Including engines and everything?

Young:

H.M.Jr:

contract for three hundred P-40's on Saturday.

No, that was without the engines. This is
the Curtiss contract. They buy their engines
direct from Allison.
I wondered how it would show up on the monthly

orders.

Young:

Well, it would be the largest contract in

H.M.Jr:

well now, I have the orders up to January 1,
haven't I, that I saw, what they have placed
up to January 1, when I went on the Hill?

Young:

You mean the contracts?

H.M.Jr:

Contracts, yes. I haven't had anything since

there.

then.

Young:

No.

H.M.Jr:

Supposing you let me have, or whoever does it,

119

- 14 George, what orders they have placed from

the first of January through until Saturday,

you see.
Haas:

Tomorrow you get your report.

H.M.Jr:

Tomorrow?

Haas:

Yes.

H.M.Jr:

For how long?

Haas:

You get it for the two weeks ending the
18th of January.

H.M.Jr:

O.K. Well George, would you personally put
it in my hands?

Haas:

Yes, sir.

Young:

Do you want it on a company basis? You saw

H.M.Jr:

I am interested just now in dollars.

Young:

Just in dollars?

H.M.Jr:

And then if Purvis comes for lunch, we will

that long table I made up showing the --

talk about this agenda for tomorrow morning

at 9:15 with these people, and I will explain

to you then what I want.
Young:

Right

H.M.Jr:

I will tell you now, so you can be thinking
of it. There are three things I am going to
take up at this meeting tomorrow morning.

You know Stimson and Knox and Knudsen and Jones

are coming, and you might be getting it.

Now, there is the stuff that - I don't know how

120

- 15 -

to describe it any better than that McCloy
is working on it, you see. Then there is the

stuff - the so-called 550 million dollars

worth of contracts that Frank Knox thinks Jesse
Jones ought to take over, and then the thing

that Bell took up, the buying of the wool,

you see.
Young:

Right.

H.M.Jr:

And I want to get a report on all three

tomorrow morning at 9:15 and what I would

like to do is to get word to each of these
people that that is what I want to take up,
you see, particularly to Jones. Maybe I had

better call Jones myself. I will call Jones T will tell you, Phil. I have got time here,
if you will just wait until I get through
with all of these others I will get on the phone
right then.

Cochran:

In that connection, Phillips told me on
Saturday, I think it was, that he had been

in touch with Jones on the suggestion you
had made and hadn't gotten very far. He has
to see him again today.
H.V.Jr:

Well, that is the 9:15 meeting tomorrow morning,
you see.

Foley:

Ben Cohen called un last night and said
Forrestal had called him to see whether or
not RFC had the power to take over those
contracts.

H.M.Jr:

Well, I got the story - I sent for Monnet
yesterday morning, and he said he repeated
this thing five times to these people, that

the collateral and the stocks which they have
is up against orders already placed, and he
said people like Forrestal were there and

120-A

- 16 -

people like Patterson, particularly

Patterson, see no reason why the British
can't pledge the same collateral twice.

It is perfectly ridiculous. I am most

unreasonable in my position. So are the

British. And Forrestal keeps saying all the

time that they are not trying to sell this

stuff and he thought he was most unreasonable

in his position. Altogether, it was one of

the craziest meetings he ever attended. He
said everybody was talking at the same time
and he said he kept going over and over the
same thing, but nobody listened to him or
paid any attention to what he was saying.
Foley:

I told Ben I would send him over a copy of

Cochran:

Phillips said that Jones was interested in
what he called "bricks and mortar", that is,

that interim plan.again. He read it once,
but he apparently lost it.
actual property.

H.M.Jr:

Well, at 9:15 tomorrow I am going over the
whole thing with these people and each person

is interested in his own particular part of
it and the Army is really tied up because

they can't get those two engine contracts
through; which is fine, but Monnet said he
was sure they didn't listen to him, although

he repeated the thing five times. He certainly
knows what it is all about. He has got it at
his fingertips.

Young:

The Army and Navy part of it doesn't mean a

thing in that picture. It is just a drop
in the bucket.

H.M.Jr:

We will go over it at lunch and we will have
it ready as sort of an agenda for tomorrow.
Harry?

121

- 17 White:

Milo Perkins sent me a memo which may have

been in the press, I didn't know. It has a
new wrinkle on how to - their triple program
that I thought you might be interested in.

They are going to pay in stamps to cotton
farmers, the stamps to be used for the purchase

of manufactured cotton goods, in part. It is

something new. T thought you might be interested.

H.M.Jr:

It doesn't register today. I mean, tell me

White:

All right.
If it is important.
Merely as a matter of interest, not that it

H.M.Jr:
White:

some other time.

affects us. Professor Southard, who has been,
I think, about eight months in South America,

has just returned and joined us, if you want
to see him some time this week.

H.V.Jr:

I don't know how long my resolutions are going

White:

to last, but I am certainly going to do less
outside things if possible. It may not last
very long, but I am trying to school myself
to do less things.
That is all.

H.M.Jr:

Harold?

Graves:

Tn December Mr. Foley's office drafted a

bill for the establishment of a new mint.
Also his office prepared letters for you

to sign transmitting that bill to the

Speaker of the House and the President of

the Senate. The bill and those letters went
to the Bureau of the Budget as required under

our routine, and came back here with Budget

approval on Friday. I have the letters here.

They are routine.

122

- 18 H.M.Jr:

Oh, one thing I wish you and Thompson would
think about. I have read that memorandum

on the office of personnel very carefully.
I read some of it twice, and I am going to

make a suggestion for you people to consider,
which may be absolutely worthless. The question

I raise is, "Why do we need an office of
Director of Personnel at all?" I mean, why
isn't Norman Thompson's office sufficient?

And instead of centralizing it, holding each
Bureau chief - his personnel man to this thing,

and when something unusual comes up, then they
come to Norman Thompson and if necessary, they
come to me.

Thompson:

That is virtually the way it operates now.

H.M.Jr:

But I just questioned why - I haven't signed
the thing. Why do we have any office of

We decentralized the whole thing.

that at all I have got you as an Administrative
Assistant in your office, and I don't see why
I need a director of personnel.

Thompson:

H.V.Jr:
Graves:

It is really just a branch of my office.
That Executive Order - I don't like it.
I think that is the answer to your question.
It is required by the Executive Order. Had
it not been for the Executive order, I doubt
very much whether this department would

ever have established any such function.

H.M.Jr:

Now, will you two gentlemen do me a little

favor? Find out how many other departments
have a Director of Personnel besides the

Administrative Assistant.

Thompson:

Virtually all of them.

Graves:

They all do.

123

- 19 H.M.Jr:

Does Burlew have one?

Thompson:

He has a Director of Personnel although he

H.M.Jr:

Get the other nine Cabinet heads and find out
what kind of orders the heads of these depart-

is still Administrative Assistant.

ments signed, whether it goes as far as this.
Thompson:

Ours is much more restricted. Agriculture
have a tremendous personnel organization.

Bell:

They always have had.

Thompson:

In Interior, Mr. Burlew is somewhat restricted.

H.M.Jr:

Well, I am just telling you my reaction to
what I read, and I just wondered why we
have got to have a Director of Personnel.

Thompson:

We have really reduced our Director of

Personnel to the activities of the Division
of Appointments.

H.M.Jr:

Bell:

Well, I am going to talk to you more about

it. I want to give you my reaction. Have
you studied it at all, Dan?
No. I am familiar with the Executive Order
that set it up.

H.M.Jr:

Yes, but I mean the order these fellows
drew for me of about five pages.

Bell:

No, I haven't seen it.

H.M.Jr:

Oh yes, at least five pages, isn't it?

Graves:

That is right.

Bell:

The original Executive Order contemplated

124

- 20 a training program in personnel management.
H.M.Jr:

That is something else again.

Bell:

Is the new order going to affect that?

H.M.Jr:

No, this doesn't include that.

Thompson:

We have had it un to --

H.M.Jr:

I have changed. When I first started I

thought everything ought to be here and
now - I have changed in the last seven
years.

Thompson:

Because it is necessary to have a central

recording office for dealings with the

Civil Service Commission. We have to have
uniformity.
H.M.Jr:

But that doesn't take five pages like this.

Graves:

I think our purpose in writing the five

pages was to make it clear to the Bureau

Offices precisely what this division was

supposed to do, because there have been a

lot of misunderstandings about it.
H.M.Jr:

Well, personally I would rather - if I was
going to sign an order, I would rather draw

up an order explaining what the Administrative
Assistant should do and then if he wants to
hire somebody to do this additional work,

that is his business. I mean, if there is

any question about your (Thompson's) authority -Thompson:

I think that is well covered by previous
orders.

H.M.Jr:

Well, I just questioned it, but if you need

somebody to look after the records, et cetera,

125
- 21 -

Graves:

all right, but I don't see why I have got
to sign a five page order tying my hands -It doesn't tie your hands. It ties the

H.M.Jr:

You never see the man. I never see - I see

hands of the Director of Personnel.

Norman Thompson.
Thompson:

It is a service unit.

H.M.Jr:

Well, I am still leaning, I believe, away

from it. I still don't like it. I am

satisfied with what Norman Thompson is

doing. Just think about it some more. You
are going to have a tough time with me.

I want to see Harold and Ed and you (Sullivan)

first.

126

January 21, 1941
10:21 a.m.

H.M.Jr:

Hello.

Operator:

Secretary Jones.

Jesse

Jones:

H.M.Jr:

J:

H.M.Jr:

Hello.

Jesse, Henry. Have you got a couple of

minutes?
Yeah.

Jesse, on this meeting that I asked for
tomorrow at 9:15, I wanted to tell you what

I had in mind and what I hoped you'd be able
to do because I'm looking mainly to you.

There are three different things that are up:
there is this job which the Army is doing
under a lawyer by the name of McCloy, who
is working on buying $160 million roughly of
English contracts. I don't know whether you

are familiar with that or not.

J:

I'm not.

H.M.Jr:

Well, that's why I'm calling. McCloy sent

me word a couple of days ago that they were

all up to the point - but in their contacts

with the R.F.C. when it came to taking over
the real estate, they had not come to an
agreement with the R.F.C. Now, that's all
I know.

J:

Yeah.

H.M.Jr:

Now, McCloy works directly under Stimson.

J:

Yeah.

H.M.Jr:

Then there's this thing that we put up to you
on wool and then there' 8 the other thing
that Frank Knox put up to you.

J:

Yeah.

127

-2H.M.Jr:

J:

Now, if you could tell us what you think
you can or cannot do tomorrow morning, I
think it would be very helpful.

I think we can tell you part, but I don't

think we can tell you a great deal about the
Knox matter for the reason that the British
haven't given us the information.
H.M.Jr:
J:

I see.

They've got probably a great many different

kinds of contracts, different kinds of

advance payments to the manufacturers.

Now, we' asked them to give us those
beginning with the big ones 80 that we can

start where the time will be the best step on the big ones first.

H.M.Jr:

I see.

J:

Now as soon as they give us the information

H.M.Jr:

we'11 work as fast as possible on it. On
the wool, I'll talk about that again today.
The other matter, I'11 call McCloy
McCloy is the fellow who is handling it for

J:

I'll call him.

H.M.Jr:

Thank you 80 much.

J:

All right.

H.M.Jr:

Thank you.

Stimson.

128

January 21, 1941
10:26 a.m.

H.M.Jr:

Operator:
Wm. S.

Hello.
Mr. Knudsen.

Knudsen:

Yes, Henry.

H.M.Jr:

Bill, good morning.

K:

Good morning, sir.

H.M.Jr:

At this meeting that I've asked for at 9:15

K:

things. I thought I'd tell you about it.
All right.

H.M.Jr:

The Army has got a plan where they think they

tomorrow morning we're to take up three

can buy $160 millions worth of English contracts,

you see, and that's bogged down.
K:

H.M.Jr:

That's the plane contracts?

Well, the one that I'm most familiar with
is the one that I think has to do with
50-caliber machine guns - the whole series
of contracts that they are talking about
buying and McCloy is handling.

K:

Yeah.

H.M.Jr:

And that's bogged down. Then there's this

thing - this talk that the R.F.C. should
take over all of the contracts of the English -

I mean, the down payments.
K:

Oh, yeah.

H.M.Jr:

And the third thing is we've put up to Jones

K:

Yeah. That is, more wool than he took

that he might buy some Australian wool which
would give them additional money. You see?
before, huh?

129

-2H.M.Jr:

Yeah. Well, wool which would come here but

K:

Yeah.
How much wool are you talking about
now?

H.M.Jr:

I think it is 250 million pounds and it's

K:

H.M.Jr:

wouldn't be paid for until it was used.

supposed to be worth 60%, and that would
give them money right away that they could
use because as far as I know it has not been

included in the list which I had earmarked
to get the outstanding contracts.
Yeah. I see.

But this thing 18 all over town, everybody

gets excited, everybody has his own ideas
and I'm saying

K:

I haven't heard about it before.

H.M.Jr:

Well, I'm saying to your face what I've

said behind your back that the only man
who seems to understand what I tried to
explain on December 2nd is Knudsen.

K:

H.M.Jr:

(Laughs).

It's true. I mean, the thing is 80 simple
that they won't listen, and that is that if

they sold every piece of property they have
in this country and every share of stock,
it would just barely pay for the orders they
have outstanding. Now what some of these
fellows say is, well, why can't they use the
stuff - in other words, put up the same
collateral twice?

K:

(Laughs).

H.M.Jr:

And I say well, it's just crooked.

K:

(Laughs).

H.M.Jr:

But Bill, really, I mean Judge Patterson

K:

cannot understand why they can't do that twice.

Well, he probably thinks they're going to
renig on paying for what they've got.

130

-3H.M.Jr:
K:

Well

As long as you have a definite commitment

for them that they are going to pay what
they've got on order and that you'll buy
certain it?
things, I think that settles it,
doesn't

H.M.Jr:

Well, I think so.

K:

How many people are you going to have in the

H.M.Jr:

Well, I asked Stimson, Knox, you and Jones.

K:

All
right. Let's not get a big meeting,
you see.

H.M.Jr:
K:

meeting?

No, that's all I've invited.
All right.

H.M.Jr:

But I suppose everybody will bring his

K:

Well, I'm not going to bring any lawyer!

H.M.Jr:

No, you never do. O.K.

K:

All right, fine.

H.M.Jr:

Thank you.

lawyer.

131

January 21, 1941
11:22 a.m.
H.M.Jr:

Have you got my father up there?

Oscar Cox:

Yes. He's enjoying himself.

H.M.Jr:

He is.

C:

Yes.

H.M.Jr:

Is he where he can hear?

C:

Yes.

H.M.Jr:

Good. Now, how's Kennedy doing?

C:

Very well.

H.M.Jr:

He 18.

C:

Yes.

H.M.Jr:

Are you where you can talk?

C:

Yes.

H.M.Jr:
C:

Well, what's the line he's taking?
He's taking the line that the heart of the

bill is all right, that he believes in

Congress exercising its coordinate functions
at all times including an emergency, but
he has also said that limitations on amount

are not necessary because the Appropriations
Committee handles that. He said he would

favor a limitation in time, that he would be
in favor of an amendment prohibiting convoys

if the bill had anything to do with it, but

he understands that it hasn't. He would be
in favor of limiting any step which would
lead the American people to feel that to
protect their prestige they ought to go to
war, but he says he understands that there
is nothing in the bill which covers that.
He's been very careful in what he said about
the bill and what his attitudes are.
H.M.Jr:

Is Fish through questioning him?

132

-2C:

Yes, Fish is through and Tinkham is

questioning him now and Tinkham seems to

be handling him very easily.

H.M.Jr:
C:

What's that?

I say Tinkham seems to be handling him

H.M.Jr:

very easily; he seems to be afraid of him.
I see. Seems to be afraid of him, huh?

C:

Yeah.

H.M.Jr:

C:

I see. Well, call me up again at sharp

12:00 will you?

I certainly will.

H.M.Jr:

Sharp 12:00.

C:

Right. Thank you very much.

133

January 21, 1941
11:30 a.m.
RE BANK HOLDING COMPANIES

Present:

Mr. Bell
Mr. Delano

Mr. O'Connell
Mr. Foley
H.M.Jr:

How are you?

Delano:

Very good, thank you, sir.

H.M.Jr:

Now, Mr. Bell and Mr. Foley, do you want

to give me the history when we first started
talking bank holding with this group? Who
can do that?

Bell:

I guess Mr. Delano.

H.M.Jr:

Go ahead.

Delano:

I have dug this out of the files, you see.
It antedates my time, Mr. Secretary, but I

thought you ought to have this correspondence
before Mr. Eccles came over because it has
to do, apparently, with a commitment which

was made by Jesse Jones and Ronald Ransom,

and Leo Crowley, and these gentlemen back in

1938, in the spring of 1938, and I just
thought I would - I wanted you to see that

before you talked to them.
H.M.Jr:

Fine. "RFC." This is addressed to me?

134

-2Delano:

Yes.

H.M.Jr:

"March 17, 1938. At the last meeting of the
interdepartmental committee held in your
office March 14 to consider recommendation

to the President regarding bank legislation -"

I will read it myself.

Let me ask you a question. "Governor Ransom
and the Comptroller see no reason for transferring

this authority which now rests with the Federal

Reserve Board and the Comptroller, although they

feel that if a change is made, it should be
the responsibility of one agency."

What authority?
Delano:

That is the authority for voting permits.

In '35, possibly '33, Federal Reserve Board
was granted certain authority over holding
companies by voting permits.

H.M.Jr:

Now, this is a bill which is now before

Senator Glass, and how does that handle
that?

Delano:

That simply removes all need for any such
permit.

H.M.Jr:

I see. So that controversy wouldn't come up.

Delano:

No that wouldn't come up.

H.M.Jr:

In the next paragraph, too. "The directors
and executive force of the Reconstruction
Finance Corporation are of the opinion that

this control is so involved with the question

of bank supervision that the two should be
considered together and ultimately rest

with the Federal Deposit Insurance Corporation."

135

-3That isn't up now, is it?
Delano:

No, I don't think that has any effect
on it. The thing I had in mind was this
statement that this was a unanimous agree-

ment, and if you will just turn the page
you will see what was recommended to the
President and that he did say it, so that
has become Administration policy.

H.M.Jr:

"The establishment and maintenance of a
sound banking system which would serve the

public interest has been a constant ob-

jective of this Administration.

"In furtherance of this objective, Congress

should again give consideration to the bank

holding company problem, and determine in

what manner existing laws, including legislation dealing with these companies enacted
during this Administration, should be
strengthened.

"I recommend that the Congress enact at this

session legislation that will effectively

control the operation of bank holding companies
and prevent holding companies from acquiring

control of any more banks, directly or indirectly, or banks controlled by holding companies
from establishing any more branches, and that

will make it illegal for a holding company, or
any corporation or enterprise in which it is
financially interested, to borrow from or sell
securities to a bank in which it holds stock.
"Believing it to be a sound principle of

government, I recommend that this bank legislation make provision for the gradual separation
of banks from holding company control or owner-

ship, allowing a reasonable time for this

136

4-

accomplishment, time enough for it to be
done in an orderly manner and without causing
inconvenience to communities served by holding
"

company banks."

Delano:

You notice the last paragraph in there is
exactly what we have in our bill and also he
says that he would prevent expansion and

this is that committee, this interdepartmental

committee, would prevent expansion or the
acquisition of more banks by holding companies

or the granting of any branches of holding

company banks, and that is exactly what we
are doing here through the Administration.

H.M.Jr:

Well now, what do I need besides this?

Delano:

Well --

Foley:

H.M.Jr:

You want the letter you sent to the President.
I guess that was sent to each one of these
people, though, wasn't it?

Well, they won't have this stuff. What have
you there, Dan?

Bell:

Your letter to the President and Jesse Jones'
letter, and the memorandum, which I take it
was included in the messsage.

Foley:

H.M.Jr:

I didn't refer to that. I referred to your

letter of January 3, 1941. That is the same
stuff that you just saw.
Well, I think what we ought to have is this

information for them, set like this in a nice
little book, Jesse's letter to me - the only
thing that isn't here is my letter to the
President of the 17th.

Delano:

Your letter to the President of 1938 is there.

137

-5H.M.Jr:

Is it?

Delano:

Yes.

Foley:

Yes.

H.M.Jr:

That is right, what is this?

Delano:

This is an excerpt from the Presidential
message. It shows that he used this.

H.M.Jr:

Isn't this the actual message?

Delano:

This isn't the actual message, this is what

you recommended and this is what he said,

and they are practically the same thing.

Foley:

And there is the death sentence recommendation

in the last paragraph.

H.M.Jr:

Well, could I - could your office have enough
sets of this so that everybody who is coming
could get a set of that?

Delano:

I don't know whether we can get the photostats,

but we can make copies.
Bell:

Sure, we have got plenty of time.

Delano:

Would you like it just in this form?

H.M.Jr:

I think it is very nice.

Delano:

And would you like to have anything else?

H.M.Jr:

No, I don't think so.

Foley:

Well, how about this letter?

H.M.Jr:

I would put that letter in, too.

138

-6Foley:

Yes, because that is what led up to the
meeting.

Bell:

What is that letter?

Foley:

That is the one on the third of January, '41,

asking that a similar recommendation for the
bank holding companies be included in the
current message to Congress. What the President
did is send a memorandum (January 16, 1941) to

each of these agencies and attach that letter.

H.M.Jr:

Where is that letter?

Foley:

I haven't got it. It said "Get together and

H.M.Jr:

You never saw it?

Foley:

I had to get mine outside.

H.M.Jr:

Where did you get it?

Foley:

Leo showed it to me.

H.M.Jr:

You have been snooping, have you?

Foley:

Yes, by request. (Laughter)

H.M.Jr:

I guess that is what you call a successful

work out a program.

snoop. This went to Treasury, Crowley,
Comptoller, and Eccles. You see, I have
added to that Jerome Frank and Jones.

Delano:

They are coming this afternoon?

H.M.Jr:

Yes. Now, we can show them this. I don't

think I would show them that because it would
only make Jones and Frank mad.

Delano:

That is right. Well then, we had better keep

139

-7this part out and put this part in.
H.M.Jr:

That is right.

Delano:

And I have got to have six of these made.

H.M.Jr:

Yes. And don't you think it might be a nice
thing to get it over to these fellows before
lunch, simply say, "This is what I am going

to take up with you gentlemen this afternoon"?
(Miss Chauncey entered the conference.)

Delano:

I think we can do it. It is just a question

H.M.Jr:

Well, we have photostat people downstairs.

of the photostats.

Miss Chauncey, there is here a memorandum

on January 16 from the President to me and
Secretary Jones and Crowley, returning my
correspondence of January 3. Take it over

on that table and see if you can fish it

out. It is not here.

Now, I think we could, don't you?
Delano:

Oh yes. Now that would be what is here plus

that letter of yours to the President, plus

his memorandum back.
H.M.Jr:

Do you think you would put that on?

Foley:

No, I wouldn't.

Bell:

No, I wouldn't.

Foley:

You can explain that he asked you to get the
group together and work out a program, and
that is the purpose of the meeting.

140

-8H.M.Jr:

Yes, and we are all members of that --

Foley:

Banking Committee, Interdepartmental Banking

Chauncey:

That memo is in Mrs. Klotz' basket asking
you to confer with those four gentlemen.

Committee.

H.M.Jr:

Is it in there?

Chauncey:

Yes. I will get it.

H.M.Jr:

Well now, just a second. I am simply going
to say, "Well, gentlemen, I have done this
and we will follow up what we did two years
ago. The President asked us to confer.
Now, when you send that over, I would put a

Delano:

H.M.Jr:

copy of the bill in there.
Yes, a copy of the last bill.
A copy of the last bill. Now, I am just
thinking out loud.

(Miss Chauncey returned with memorandum)
H.M.Jr:

Does anybody need this? I can have this on

my desk for three o'clock. I think we can
say, "Now, Jesse, you did a beautiful job

on this thing two years ago. Would you be

willing to - if there is any disagreement

amongst this group, if you want to change
the thing any from what Mr. Jones wrote me,
then I am going to ask Mr. Jones to act in
the same capacity as he did two years ago."
What do you think?

Bell:

You mean in writing this --

141

-9H.M.Jr:

No, he was Chairman of the Subcommittee.

Foley:

To work out a program?

H.M.Jr:

No. I am thinking out loud. I am simply
saying, "The President asked us to get
together. Does anybody feel differently

than he did two years ago about this thing?

If he does, let's talk it over."

Now, would you hand it back to Jesse? I

guess not. No, I have tried it. well, I

will simply say, "Does anybody feel differently,
or can I say to the President that we stand
just where we did two years ago?"

Delano:

And this last bill is a practical statement
of our position.

Bell:

I wonder how Eccles stood at that time? This

Foley:

memorandum was from Ransom, I take it.

Well, the letter to the President said that
the group was unanimous in recommending the

suggestion attached to be included in the

President's message to Congress.
Delano:

But the group, Ed -- it included Ransom and
not Eccles.

Foley:

But he was acting as Chairman of the Board

Bell:

Well, he has got an out. He can say, "Well,

Foley:

Well, it was his representative that committed

H.M.Jr:

Well, the purpose of the meeting is to see
if anybody disagrees and if they do, "Well,

at the time. Eccles was away.

I wasn't in on that."
the Board.

where do you disagree?"

142

- 10 Delano:

That is right.

Bell:

What date was that letter, May '38?

Foley:

Which letter, Dan?

Bell:

The one that Jesse Jones wrote.

O'Connell:

It was March 17, 1938. The President's

Bell:
Foley:

message was April 29, 1938, the message that
included the recommendation.

Marriner apparently was just away for a
few days.

Well, Ransom took the matter up with the
Board, I remember, at the time and he also
had conversations on the telephone with
Eccles.

H.M.Jr:

well, I just think--"Here it is, we have done
this thing. We asked Senator Glass to introduce this bill." Do you (Foley) want this?

Foley:

Well, Preston will probably need that for

H.M.Jr:

Yes, but how do I know that I am ever going
to get these back?

Delano:

Just a commitment from me, I guess.

H.M.Jr:

It is good enough. (Laughter)

Delano:

It puts me on the spot.
You mean before three or for your personal

Bell:

his photostats.

files? Are they your files?

H.M.Jr:

Yes, they are out of my diary. I don't know
how he (Foley) ever got them.

143

- 11 Bell:

It looked like permanent Treasury files.
He (Secretary) calls them a part of his
diary.

H.M.Jr:

All right, we will do it in a straightfrom-the-shoulder method, you see, the
innocent way.

Bell:

So what

H.M.Jr:

Yes, so what.

Foley:

This is what they are going to say. "What

H.M.Jr:

Simply this. If everybody is in favor of
this bill, I will simply write the President

program are we to work out here?"

and say that we are all behind it and I am
going to ask him to send a message up. I am
going to ask him to send another message,

a follow up, two years after he sent the

other one, to send the identical same message.

I think it will be all right.

Foley:

O.K.

H.M.Jr:

"Well, why didn't you consult us before?"
"Well, everybody was agreed. This is just
a follow up."

Foley:

Well, you can say this, that Senator Glass

was going to introduce his old bill the first
day of the session and he so told you.

H.M.Jr:

But which came first, the chicken or the egg?

Did I talk to him or did he talk to me? Would
he have introduced the bill if we hadn't gone
to see him? O.K. I am afraid it would have
been a Glass egg. I am right, am I not?

We prodded him.

144

- 12 Foley:

That is right, we went to see him on the

H.M.Jr:

Who went with me?

branches.

How did you (Bell) and Mario get along this

morning?
Bell:

Fine, very pleasant.

H.M.Jr:

What happened?

Bell:

Oh, he wanted me to call the committee

Foley:

Yes.

Bell:

And I told him that we didn't want to call a

together to thrash out the meaning of the
paragraph that set up the committee. Do
you remember, Ed? It set up the committee
to determine the value of the real estate.

committee together, that we wanted the matter

settled out there and we would out it in the

hands of this Subcommittee and we wanted them

to settle it and to go back and talk to him.
I told him I would talk to Preston again, but

that is what we would rather have him do. He

was very nice, he wasn't belligerent at all.
H.M.Jr:

Did he come alone?

Bell:

Yes.

H.M.Jr:

Nobody with him?

Bell:

No.

H.M.Jr:

Did you see him alone?

Bell:

Yes.

H.M.Jr:

And that is the only thing he had in mind?

145

- 13 Bell:

He didn't mention branches or anything
else. He said, "We have been getting along

fine out there." He said, "I don't want to

have any scraps with Wright because we have

to live with him; and if there are to be any
scraps, I want them back in Washington,

because I have to live with Wright." He was
really very nice. He never mentioned once
about his branches.

H.M.Jr:

Wonderful. Incidentally, Foley and I saw
Glass on Saturday and he says, "You gave

them too many branches. It is your fault,

Morgenthau, you never should have let them

grow that way. Don't you give them a branch.
Take some of them away from them. It is your
fault, you never should have let them grow
that way."

I said, "You know, Senator, Mr. O'Connor

was appointed before I came in." I said,

"I run the Comptroller's office." He said,

"You don't run it enough."
Delano:

That is perfect.

H.M.Jr:

"You don't run it enough, run it more."

Delano:

That is certainly --

H.M.Jr:

He says, "Not only too many branches, no more
branches, take some of them away from them.

You don't run the Comptroller's office enough."

I said, "Well, I am not trying to run it. I
can get along with Preston Delano and I
couldn't with O'Connor. I said, "You
fellows up here say I run it too much."

"You don't run it enough. Take them away,

take the branches away."

146

- 14 Delano:

I am just thinking about that one.

H.M.Jr:

Well, I am telling you.

Delano:

Yes.

H.M.Jr:

So you have everything that I have, on

the 18th - I don't think I am going to show
this around today - because I am a little
bit nervous after my talk with Glass. He
had been talking with the President. I wrote

the President and handed it over to the House
on the 18th.

"My dear Mr. President:
"On receiving your memorandum in reference

to the bank holding company legislation, I

have asked the various agencies involved to
meet with me next Tuesday afternoon at
3:00 o'clock.

"At this meeting, I propose to inform the
group that you favor the so-called deathsentence provision in the bill introduced by
Senator Glass, which separates the holding
companies from the banks by June 30, 1944,

which, as I understand it, is your position.
"For your information, I am attaching a copy

of Senator Glass' bill."

And I have had no answer. I didn't expect an

answer. But that certainly is very plain
English, isn't it?

Delano:

Certainly if he had any objection he would
get in touch with you before three o'clock,
I should think.

147

- 15 H.M.Jr:

Yes. I was telling Dan about it. I sent
that to him, and he had it at one o'clock

Saturday; and knowing the speed with which

he reads these things, I am sure that from
one o'clock Saturday - there is Sunday,

Monday, Tuesday, that is three days elapsed

time. I should think that --

Delano:

And this morning he had a good chance to get

at it, even after Inauguration.

H.M.Jr:

Oh yes, so that puts him on notice about my

position. I don't expect to use it, but

if anybody pushes me

All right, gents, I will see you at three,
and if you can do that physically.

Delano:

Righto.

148

January 18, 1941.

My dear Mr. Presidents

On receiving your memorandus in reference to

the bank holding company legislation, I have asked
the various agencies involved to meet with as next
Tuesday afternoon at 3:00 o'clock.

At this meeting,I prepose to inform the group
that you favor the se-called death-sentence provision
in the bill introduced by Senator Glass which separates
the holding companies from the banks by June 30, 1944,

which, as I understand it, is your position.
For your information I as attaching a copy of
Senator Glass' bill.
Yours sincerely,

The President
The White House

Attachment
EHFimp

1/18/41

By Memories

149

January 18, 1941.

My dear Mr. President:

On receiving your momorandus in reference to

the bank holding company legislation, I have asked
the various agencies involved to meet with no next
Tuesday afternoon at 3000 o'clock.

At this meeting,I propose to inform the group
that you favor the so-called death-sentence provision
in the bill introduced by Senator Glass which separates
the holding companies from the banks by June 30, 1944,

which, as I understand it, is your position.
For your information I as attaching a copy of
Senator Glass' bill.
Yours sincerely,
(Signed) H. Morganthau, Jr.

The President
The White House

Attachment
EHFimp

1/18/41

By Messoneer R 45

150

THE SECRETARY OF THE TREASURY
WASHINGTON

March 17, 1938.

The President,
The White House.

Dear Mr. Presidents

I have the pleasure to report to you that

after a number of mostings of your Committee on

Banking agreement has been reached on recommendations

as to the bank holding company situation.

You will find enclosed herewith a letter to from Chairman Jones of the Reconstruction Finance
Corporation, who has acted as Chairman of a sub
committee which has been mosting on the situation

daily for the last week, and also the taxt of a proposed message to the Congress.

I - pleased to be able to tell you that the
proposed message has the unanimous approval of the
members of the committee which has considered the
problem.

We await your further pleasure.
Sincerely,
(Signed) H. MORGENTHAU, Jr.

Secretary of the Treasury.

Enclosures,

151
RECONSTRUCTION FINANCE CORPORATION
WASHINGTON

Jesse H. Jones
Chairman of the Board

March 17, 1938

Dear Mr. Secretary:

At the last meeting of the interdepartmental committee
held in your office March 14th to consider recommendations to the
President regarding bank legislation, and particularly to suggest
a brief statement dealing with bank holding companies to be ineluded in his message to Congress, you asked that the committee
have further meetings and endesvor to arrive at, first, a suggested
statement for the President's message, second, a definition of what
constitutes a bank holding company and, third, what governmental
agency should be charged wi 1th the enfarcement of any Bank Act
affecting holding companies.

We have had two meetings and a free discussion of the
problems to be considered.

I attach the suggested statement for the President to
include in his message to Congress. This represents the views

of Governor Ranson of the Federal Reserve Board, Acting Comptroller
of the Currency Marshall Digge, Leo Crowley, Chairman of the
Federal Deposit Insurance Corporation, and the Reconstruction
Finance Corporation.

It is the unanimous opinion that the operations of bank
holding companies should not be allowed to expand. This being
true is an admission that the principle of bank holding companies
is not in the best interests of the country and that something
should be done about them. It is with this thought that the last
paragraph of the statement is included.
Should the President determine to use it and the Congress
act upon his recommendation, the question of branch banking will
naturally enter into the discussions.

The committee feels that other factors than a specific
percentage of share ownership will enter into a proper definition

of control. At all events it requires more time for study than

we have had and should properly be developed in the Congressional
Committee hearings.

152

is to the supervising authority, Mr. Greeley, Chkirsen
of the Federal Deposit Insurance Corporation, has stated that the

present Bill represents appreciately his

views, but thinks that the President or Congress should deside.
Governor Reason and the Comptroller see no reason for

transferring this authority which new rests with the Federal
Reserve Board and the Comptroller, although they feel that if a
change is made is should be the responsibility of one agency.
The directors and executive force of the Reconstruction
Finance Corporation are of the opinion that this control is so
involved with the question of bank supervision that the two
should be considered together and ultimately rest with the Federal
Deposit Insurance Corporation.

Sincerely yours,
1w/ JESSE H. JONES
Chairman

Honorable Henry

Secretary of the Treasury,
Weekington, D.C.

153
(suggested form of massage)

The establishment and maintenance of a sound banking system

which would serve the public interest has been a constant objective of
this Administration.

In furtherance of this objective Congress should again give
consideration to the bank holding company problem, and determine in

what manner existing laws, including legislation dealing with these
companies enacted during this Administration, should be strengthened.

I recommend that the Congress enact at this session legislation

that will effectively control the operation of bank holding companies
and prevent holding companies from acquiring control of any more banks,

directly or indirectly, or banks controlled by holding companies from

establishing any more branches, and that will make it illegal for a
holding company, or any corporation or enterprise in which it is finan-

cially interested, to borrow from or sell securities to a bank in which
it holds stock.

Believing it to be a sound principle of government, I recommend

that this bank legislation make provision for the gradual separation
of banks from holding company control or ownership, allowing a reason-

able time for this accomplishment, time enough for it to be done in an
orderly manner and without causing inconvenience to communities served
by holding company banks.

154
EXCERPT FROM THE PRESIDENT'S NESSAGE DATED

AFRIL 29. 1938

(b) Bank Holding Companies

It is hardly necessary to paint out the great
economic power that might be wielded by a group which may
succeed in acquiring domination over banking resources in any

considerable area of the country. That power becomes particularly dangerous when it is exercised from a distance and
notably so when effective control is maintained without the
responsibilities of complete ownership.
We have seen the miltiplied evils which have arison
from the holding company system in the case of public utilities, where a small minority ownership has been able to
dominate a far-flung system.
We do not want those evils repeated in the banking
field, and we should take steps now to see that they are not.

It is not a sufficient assurance against the future
to say that no great evil has yet resulted from holding
company operations in this field. The possibilities of great
harm are inherent in the situation.
I recommend that the Congress enact at this session

legislation that will effectively control the operation of

bank holding companies; prevent holding companies from acquir-

ing control of any more banks, directly or indirectly prevent

banks controlled by holding companies from establishing any
more branches; and make it illegal for a holding company, or

any corporation or enterprise in which it is financially
interested, to borrow from or sell securities to a bank in
which it holds stock.

I recommend that this bank legislation make provision
for the gradual separation of banks from holding company cantrol or ownership, allowing a reasonable time for this ascomplishment - time enough for it to be done in an orderly
nanner and without causing inconvenience to commities served
by holding company banks.

155

77TH CONGRESS
1st SESSION

S. 310

IN THE SENATE OF THE UNITED STATES
JANUARY 14,1941

Mr. GLASS (by request) introduced the following bill; which was read twice
and referred to the Committee on Banking and Currency

A BILL
To regulate the control of insured banks by holding companies,
and for other purposes.
Be it enacted by the Senate and House of Representa-

1

2 tives of the United States of America in Congress assembled,
TITLE

3

SECTION 1. This Act may be cited as the "Bank Holding

4

5 Company Act of 1941".
DEFINITIONS

6

SEC. 2. When used in this Act unless the context other-

7

8 wise requires9

(1) The term "company" means any bank, corporation,

10 partnership, association, joint stock company, business trust,

11 or organized group of persons, whether incorporated or not,

2

1 or any receiver, trustee, or other liquidating agent of any of
2 the foregoing in his capacity as such, but shall not be deemed

3 to include the United States, a State, any political subdivision
4 of a State, or any agency of the United States, of a State, or
5 of any political subdivision of a State.
6

(2) The term "insured bank" means any bank the de-

7 posits of which are insured under the provisions of section
8 12B of the Federal Reserve Act, as amended.
9

(3) The term "voting security" includes any security

10 entitling the owner or holder thereof to vote in the direction

11 or management of the affairs of a bank, either directly or
12 through any other person or company, and any security
13 issued under or pursuant to any trust, agreement, or arrange14 ment whereby a trustee or trustees or agent or agents for the

15 owner or holder of such security are entitled to vote in the
16 direction or management of the affairs of a bank.
17

(4) The terms "own", "control", "hold", and "ac-

18 quire", as applied to voting securities are intended and shall
19 be deemed to include the receipt, possession or enjoyment,

20 directly or through any other company, entity, device, or
21 status whatsoever, of any legal, equitable, or beneficial right,

22 title, or interest in any voting security.
23

(5) The term "Board" means Board of Directors of

24 the Federal Deposit Insurance Corporation.

156

3

(6) The term "State" means any State of the United

1

2 States or the District of Columbia.
The preceding definitions shall be broadly interpreted

3

4 so as to prevent the evasion or circumvention by any device

5 whatsoever of the provisions of this Act or of any rule or
6 regulation thereunder.
PROHIBITIONS
7

SEC. 3. After June 30, 1944, it shall be unlawful (a)

8

9 for any company to own, control, hold, or acquire more
10 than 10 per centum of the voting securities of an insured

11 bank, or (b) for more than 10 per centum of the voting
12

securities of an insured bank to be held by a trustee or

13

trustees for the benefit of the shareholders, members or par-

14 ticipants of any one company, or (c) for any company
15 to control in any manner, either directly, or indirectly
16 through any other company or individual, or otherwise, the
17 management or policies of an insured bank, or the election
18 of a majority of the directors of an insured bank.
19

20

EXEMPTIONS

SEC. 4. Notwithstanding the foregoing, the prohibitions

21 contained in section 3 of this Act shall not apply to any com22

pany which is determined by the Board (a) not to control

23

the management or policies of any insured bank, or (b) to

24 control only incidentally the management or policies of one

4

1 or more insured banks, the company being primarily engaged
2 in business not closely related to banking, when such control

3 will not, in the opinion of the Board, adversely affect the
4 banking business or the public or be inconsistent with the

5 general purpose of this statute. In addition, section 3 of
6 this Act shall not be construed as prohibiting any company

7 from acquiring in good faith any voting securities of an
8 insured bank in satisfaction of debts previously contracted in
9 the course of its business, but no voting securities so acquired

10 in excess of the amounts prescribed in section 3 of this Act
11 shall be owned, controlled, or held by such company for a
12 longer period than six months.
13

14

DIVIDEND RESTRICTIONS

SEC. 5. After the date of the approval of this Act, it

15 shall be unlawful for any insured bank, over the objection
16 of the Comptroller of the Currency if such bank is a national
17 banking association, or a bank or trust company doing busi-

18 ness in the District of Columbia, or over the objection of the
19 Board if such bank is not a national banking association, or

20 a bank or trust company doing business in the District of
21 Columbia, to declare or to pay any dividend or any of its
22 capital stock when, in the opinion of the Comptroller of the
23 Currency or the Board, as the case may be, the declaration

24 or payment of any such dividend would not be compatible
25

with the best interests of such bank, its depositors or other
26

creditors, or with the public interest.

157
5

SANCTIONS
1

SEC. 6. (1) Any company which knowingly violates

2

3 any provision of this Act or of any rule or regulation there-

4 under, upon conviction thereof, shall be subject, for each
5 violation, to a fine of not exceeding $100,000, and any indi6 vidual who knowingly violates any provision of this Act or of
7 any rule or regulation thereunder, upon conviction thereof,
8 shall be subject, for each violation, to a fine of not exceeding
9 $10,000, or to imprisonment for not exceeding five years, or
10 to both, in the discretion of the court.
11

(2) Whenever, in the opinion of the Board, any officer

12 or director of an insured bank is responsible for any violation

13 of any of the provisions of this Act, or of any of the rules
14 or regulations thereunder or, having knowledge of a violation,

15 fails to disclose such violation to the proper authorities, the
16 Board may cause notice to be served upon such director or

17 officer to appear before the Board to show cause why he
18 should not be removed from office. A copy of such order
19 shall be sent to each director of the bank affected by regis-

20 tered mail. If after granting the accused director or officer
21 a reasonable opportunity to be heard the Board finds that
22 he is responsible for or, having knowledge thereof, has failed

23 to disclose to the proper authorities any such violation, the
24 Board in its discretion may order that such director or officer

25 be removed from office. A copy of such order shall be

S. .310-2

6

1 served upon such director or officer. A copy of such order
2 shall also be served upon the bank of which he is a director

3 or officer, whereupon such director or officer shall cease to

4 be a director or officer of such bank. Any such director
5 or officer removed from office as herein provided, who there6 after participates in any manner in the management of such
7 bank, shall be deemed to have violated this Act and shall be

8 subject to the penalties prescribed in subsection (1) of this
9 section.
10

(3) Whenever it shall appear to the Board that any

11 person is engaged in or about to engage in any acts or prac-

12 tices which constitute or will constitute a violation of any of
13 the provisions of this Act, or of any rule or regulation there14 under, the Board may in its discretion bring an action, in any
15 court granted jurisdiction in such cases by this Act, to enjoin
16 such acts or practices and to enforce compliance with the pro-

17 visions of this Act or of any rule or regulation thereunder,
18 and upon a proper showing a permanent or temporary in19 junction or decree or restraining or mandatory order shall
20 be granted without bond.
21

JURISDICTION
22

SEC. 7. The District Courts of the United States, and the

23 United States Courts of any Territory or other place subject

24 to the jurisdiction of the United States, shall have original
25 jurisdiction over any proceedings instituted under any of the

158
7

1 provisions of this Act or of any rule or regulation thereunder,

2 and, concurrently with State and Territorial courts, of all
3 suits in equity and actions at law brought to enforce any

4 liability or duty created by, or to enjoin any violation of,
5 any provisions of this Act, or of any rule or regulation there6 under. No costs shall be assessed for or against the Board
7 in any proceeding under this Act brought by or against the
8 Board in any court.
ADMINISTRATION

9

SEC. 8. (1) The administration of this Act is hereby

10

11 vested in the Board which shall have authority to make,
12 issue, amend, and rescind such rules and regulations (in13 cluding definitions of banking, technical, and trade terms
14 used in this Act) as may be necessary or appropriate to carry
15 out the provisions of this Act.
16

(2) The Board, in its discretion, may investigate any

17 facts, conditions, practices, or matters which it may deem

18 necessary or appropriate for the purpose of determining
19 whether any company or individual has violated or is about

20 to violate any provision of this Act or of any rule or regula21 tion thereunder, or for the purpose of aiding in the enforce22 ment of the provisions of this Act, or aiding in the prescribing

23 of rules and regulations thereunder, or in the obtaining of
24 information to serve as a basis for recommending further legis-

25 lation concerning the matters to which this Act relates. For

8

1 the purpose of any investigation or any other proceeding

2 under this Act, any member of the Board, or any officer
3 thereof designated by it, is empowered to administer oaths
4 and affirmations, subpena witnesses, compel their attendance,

5 take evidence, and require the production of any books,
6 papers, correspondence, memoranda, contracts, agreements,

7 or other records which the Board, or any such member, or
8 any such officer, deems relevant or material to the inquiry.
9 Such attendance of witnesses and the production of any such

10 records may be required from any place in any State or in

11 any Territory or other place subject to the jurisdiction of
12 the United States at any designated place of hearing. In
13 case of contumacy by or refusal to obey a subpena issued to,

14 any person, the Board may invoke the aid of any district
15 court of the United States or of any United States court of

16 any Territory or other place subject to the jurisdiction of
17 the United States, in requiring the attendance and testimony
18 of witnesses and the production of books, papers, correspond-

19 ence, memoranda, contracts, agreements, or other records.

20 Any such court may issue an order requiring such person
21 to appear before the Board, any member of the Board, or
22 any officer thereof designated by the Board, there to produce

23 records, if so ordered, or to give testimony touching the
24 matter under investigation or in question; and any failure to
as

159
9

1 obey such order of the court may be punished by such court
2 as a contempt thereof.
SEPARABILITY OF PROVISIONS
3

4

SEC. 9. If any provision of this Act, or the application
5 of such provision to any person or circumstances, shall be
6 held invalid, the remainder of this Act and the application of
7 such provision to persons or circumstances other than those

8 as to which it is held invalid, shall not be affected thereby.

160
January 21, 1941
2:13 p.m.
H.M.Jr:

Operator:
Frank

Hello.

Secretary Knox.

Knox:

Hello, Henry.

H.M.Jr:

How are you?
Fine.

K:

H.M.Jr:

Frank, I wanted to tell you what this meeting

K:

All right.

H.M.Jr:

is going to be tomorrow morning.

Now, at that time there are three things
we're taking up. Stimson is working on a
plan to take over $160 million worth of
contracts and I think he is using McCloy.
Hello?

K:

Yeah.

H.M.Jr:

And they say they are stuck with Jones, and

K:

Yeah.

H.M.Jr:

K:

I brought that to Jones' attention. Then
there is the $550 million, which I call the
Knox plan, which I've asked Jones to be ready
to talk about.
Now we're going into this thing and we think
there 18" a conflict between those two. In
other words, overlapping, you see.

I don't know enough about it. No, I don't
think the British however have paid any

cash down on the Buick or the Studebaker
contracts, have they?

H.M.Jr:

Well, I'11 have all of that. Now, my
purpose is this: Phil Young said you've
got a man by the name of Wise in your

K:

office who works on this.
Wise. Wait a minute.

161

-2H.M.Jr:
K:

H.M.Jr:

Have you got somebody by the name of Wise?

Wait a minute, Henry. (Talks aside). Yes,
he's an attorney in Jim Forrestal's office.
Well, who 18 there that you'd like to - we're
working over here to get ready for tomorrow.

Is there anybody that you'd like to sit in

on it, to represent you?
K:

You mean in the way of a lawyer?

H.M.Jr:

No, somebody who knows money, finances.

K:

Well, Jim would be the best man of course.

K:

Or would you rather just wait until tomorrow
morning and then I'11 try to explain it
as best I can in the morning.
I think that would be better, Henry.

H.M.Jr:

All right. Well, that's the thing and I'11

H.M.Jr:

have it all in black and white tomorrow
morning.

K:

All right. Now, while I've got you on the
phone - I was going to call you up a little

later, I'll do it now. The last time I

was with the President and I had Stark with

me and Stimson and Marshall were there, he
talked about a possible break and nobody
knew when it might come, and he told me some
things he wanted me to do.

H.M.Jr:

Yeah.

K:

One of our fellows/thinks that in the light

down here

of the possible imminence of that break that
one of the first steps that would have to be

taken would be to take over the Coast Guard,
and they have just laid down on my desk which I haven't done anything about and didn't
propose to until I talked to you - a proposal and
to take over the Coast Guard right away
get these ships in shape for use in case we
had to handle the convoying proposition
across the ocean, and I didn't want to do

anything about that until I had talked to

you about it. How does it appeal to you?

162

- 3H.M.Jr:

Well, if you wouldn't mind staying behind
a couple of minutes tomorrow morning and

tellingreasonable.
me a little more, I'11 do anything
that's

K:

Well, I'11 do that. I'11 bring the corre-

H.M.Jr:

And anything that's reasonable I'11 be for.

K:

spondence from my own Bureau Chief with me
and show you what they say.
What?

H.M.Jr:

If it's reasonable I'll be for it.

K:

Yeah, I knew you would be but I didn't want

to do anything like that without first talking

to you.
H.M.Jr:

Well, I appreciate the courtesy.

K:

All right, Henry.

H.M.Jr:

Thank you.

163

January 21, 1941
2:15 p.m.
RE BRITISH PURCHASING PROGRAM

Present:

Sir Frederick Phillips

Mr. Purvis

Mr. Young
Mr. McCloy
Purvis:

We felt people would be coming and saying,

"Well, there is 60 million dollars in the

War Department. What orders would you

like to place against that?" That is the
present position.

Now, the story on that is, use of these

funds was once cleared, and such use was
subsequently denied that the purchases

were such as to be only British type.

It was Secretary Morgenthau's suggestion
that the War Department be consulted.
That has been agreed.

Now, whether that is now through and disposed

of, I don't know; but for the very reason

those two had been considered out of the
way for some time, we did not include them
with these because these were things we

would still like to do.

H.M.Jr:

Now, wait a minute. We are going over this
thing too fast. Now, what were those figures
that you (Phillips) gave me? The various
hundred and fifties, what were they

164

-2Phillips:

The figures I had, sir, were the amount of
advance payments we have made - down payments

we have made on contracts in excess of the
deliveries we have taken and 55 was my total.
Purvis:

Phillips:
H.M.Jr:

Purvis:

Six hundred five.

But my five fifty was divided 400 to United
States contracts -Is this on a sheet of paper?
This is the one that isn't in because we
were told that the money wouldn't be available
on Friday.

H.M.Jr:

This is what you called down payments?

Purvis:

Yes.

H.M.Jr:

This, I would say, Phil, would be Sheet No. 1,
down payments, 400 million for what?

Phillips:

United States type and 150 British type

H.M.Jr:

A hundred and 50 British type.

Phillips:

Then a little line under that. Then capital,

H.M.Jr:

Is this 150 in United States type or British

airplanes.

another 150, 150 being our investments -type?

Phillips:

I don't know. Seventy and 30 would probably

Purvis:

Here it is. Wait a minute, now, it is in

be close enough.

here somewhere. There it is, 149 million.

165

3-

H.M.Jr:

May I just put it this way? What we ought

to have is this. Phil, make 8 note. Sheet

No. 1 ought to be this: "Amount of Money That
Could Be Recaptured.

Purvis:

Yes.

H.M.Jr:

For the British on United States type material,
you see, and under that, you see, would come

400 million dollars of United States type and
"X" amount for capital, because the capital
would have to be what is laid down for United
States type.

Purvis:

Yes, you have got to follow the same pattern,
you see. Then, so that they have some conception of what it amounts to, I would say
down payments for British type - I would have
this on - I would draw a line across the page,
you see, and then have "Down Payments For
British Type" and "Down Payments For Capital,
you see.

Now, under the recapture of United States

type, it will amount to - well, 500 and some
odd million dollars. Then for the meeting
tomorrow, how can we propose - what is the

best method to get the recapture of this
money, you see. I mean, that is what I
want, to recapture this - between five and 600
million dollars which they have laid down
and that is why - when they get back, McCloy
and these other fellows, they won't all be

treading over their toes; and if they find
out we have gone so far - but Jesse Jones

won't go any further, we will say, "Well,
we could do this if Jones -" never mind if
he wants to do it one contract at a time
or 10 contracts at a time, but let's do one,
see?

166

-4-

Now, if the figure is 550 million dollars

that they have got in down payments for cash

on order and for capital, I can't get it

through my head why McCloy should have one
plan and Jesse Jones have another.

Now, let's just say for the moment - you

don't mind if I think out loud - let's just

say for a moment, "All right, we have done
that," and then you say, "All right, when
they have that and this money they get back,

the 550 million dollars, what are they going
to do with it," you see.

Purvis:
H.M.Jr:

That is all there.
Now, that comes, what are they going to do

with it, what do they want to buy most, of
United States type, because I take it, Sir
Frederick, that if you recapture this 500
million dollars from American type, your
Government would be willing to reinvest
that in additional American types, because

Purvis:

this 500, you see, wouldn't - this is like
making a revolving fund out of it.
This is not the capital facilities, otherwise, Sir Frederick, which we had devoted

to British type. It is the - well now,

is that - I am not sure that we haven't
had to allow for the sale of United States
type.

H.M.Jr:

Well now, I am putting it up to you. You
have got time. The way my mind is running,
if I am correct - we will use 500 million.
You recapture 500 million. That is part
of the one billion three that you owe us for
orders already placed, so instead of owing

one billion three, you will get back 500
million, which is - you would be owing 800
million.

167

-5Phillips:

No, I don't quite follow you, sir. Might

H.M.Jr:

Please.

I have those figures on paper?

Young:

This 500 million represents one third down
payments on the billion three.

Purvis:

On the what?

Young:

On the billion three.

Purvis:

That is right.

H.M.Jr:

What I am saying is, we want to get this
thing amongst ourselves straight.

Phillips:

The billion three would be the commitments

Purvis:

So it is on the billion eight.

Young:

Yes.

Phillips:

And of that my recollection was some 4800

still outstanding after the end of February.

figure - no, after the end of February -

during January and February we pay off about

300 and what is left after that is a little

more than a billion, of which a - a billion 50,
we will call it, of which something like 750
is United States type and something like 300

British type.

Now, Mr. Secretary, you say if we get back
550 cash --

H.M.Jr:

Let's say 500.

Phillips:

Five hundred. I don't know. I should have
to see how that left us at the end of the
year, shouldn't I?

163

-6H.M.Jr:

Well, am I not correct that the 500 is
part of the billion three?

Phillips:

Oh no.

Young:

Sure.
No, this is already paid out, this
500.

Purvis:

A billion three is still owed and the 500
million - otherwise, the total value of the

orders was a billion eight, of which we paid
out about 500.

H.M.Jr:

That is right. Now you are getting back
500 million. What would you do with it?

Young:

What you mean is to recapture this 500 million

H.M.Jr:

How is that?

Young:

Because this represents down payments on the

H.M.Jr:

we have got to put up a billion.

orders, and we can only take over the orders
through the governmental appropriations by
earmarking the total value of the orders.

Well, I am not going to worry about that.
I mean - but I see what you mean, but that -

well, they don't have to out un the - the

American Government doesn't have to put un
any money on orders.

Young:

Well, that is the trouble with McCloy's
plan. He has got 230 millions, but he can
only give back to the British about a third
of that.

H.M.Jr:

Why?

Young:

Because the 230 has to go for the whole value

of the contract.

169

-7H.M.Jr:
Young:

Has to be earmarked.

Yes, so it doesn't mean that they get back
230.

H.M.Jr:

Don't ruin my enthusiasm. It is perfectly
possible to go up to Congress and get a
little bill through just the way the President
rushed through the bill for the 300 ships.

Purvis:

That is what I was hoping.

H.M.Jr:

Now - but everybody has got a different
notion on this thing, you see, but I come
back and I am not pressing Phillips now,

but I want to know between now and tomorrow
morning if we could lay our hands on 500
million of money which you have already

paid down for one thing or another, what
would you, the British Treasury, feel you

should use that for, before I look at the
Priorities. I mean, would you use that for
United States type or would you use it for
British type?

Phillips:

I should have thought, sir, the answer was

British types, if their total amount of
British types was as big as that. On this
basis the interim period is absolutely
clear. I am worrying about the end of
the year.

H.M.Jr:

I see. May I see this a minute?

Purvis:

Yes.

H.M.Jr:

Let me just see that a minute. They are

going to ask me, "All right, let's say
we get back 500 million, what are the
British going to use this for?" Stimson
would say, "United States types." No,

170

-8that is something for the British to have
a chance to think about.

Purvis:

Phillips:
Purvis:

Young:

Purvis:

We would have to have the right to use it as
free money or we wouldn't be able to get

through our difficulties. That is really
what it comes to, isn't it, Sir Frederick?
I think so.
I mean money that we can use for British
types --

No strings on it.
For instance, perhaps to get by the cash
balances for a particular month or something

of that kind. Those are without any capital

at all.

H.M.Jr:

You don't need any capital?

Purvis:

It is all in these notes.

H.M.Jr:

Capital funds may be made immediately available

for creation of this new capacity of - shall

we say 300 million?
Purvis:

That is what we feel Mr. Knudsen should
be doing now with the bottleneck.

H.M.Jr:

Oh, with his own money?

Purvis:

Yes. Otherwise we are holding up -(Lieutenant McKay entered the conference

to inform the Secretary that Mr. Lovett

had another appointment, and could not

arrive until after three o'clock.)

171

-9H.M.Jr:

Tell Lovett I can't see him at three, and

McKay:

All right, sir.

H.M.Jr:

When McCloy comes in, would you show him in?

McKay:

Yes, sir.

if he could come here at three I won't be
available,
but could he go to Philip Young's
room.

(Mr. McCloy entered the conference.)
H.M.Jr:

This is what I am trying to do with this
meeting at 9:15 tomorrow, and they téll me
that Lovett will be over here at three
and I thought if we could understand ourselves, maybe you could give it to Mr. Stimson

before 9:15.
McCloy:

Good.

H.M.Jr:

Because there has been more misunderstanding

about this whole thing, and I haven't got

it straight yet. Here are the points that

I raise. You are working on a plan to take
over certain British contracts. Then along
comes Frank Knox who brings up in Cabinet

that the RFC should take over 550 million

dollars worth of commitments. I have felt
that there must be overlapping between the
two.
McCloy:

H.M.Jr:

There is no question about it.
But no one would admit it up until - we have
just had this meeting, you see.

Now, we get into a meeting like this. None
of these people have the time to put to it

except ourselves, and I am sure that you and
Jones are working on the same contracts. Then

there is the other thing. I got the message

172

- 10 from you the other morning, that you get
up to a certain point and when it comes

to real estate, Jones won't take it.

McCloy:

That is right. That is changed now.

H.M.Jr:

I spoke to Jones this morning.

McCloy:

I was there when you spoke to him, and he

H.M.Jr:

He told you that after I called?

McCloy:

Yes. That was just after you --

H.M.Jr:

I called him and I said, "McCloy tells

came in and said, "I can do it."

me that he is stuck because you won't buy

the real estate. Jones said, "I never

heard of it." He said, "I will get in

touch with him right away." And you were

over there?
McCloy:

I was over there.

H.M.Jr:

Marvelous.

McCloy:

And then we carried right on from that
and he said he would take over the real
estate provided it was in some tangible

form that he could buy it. He couldn't

do the over-all plan, that was too loose for him,
he said, but he could buy any specific
plant or any specific facility anywhere
and would.

Purvis:

If it was demarcated.

H.M.Jr:

What I would like you to do, as I say,

both for me and for Mr. Stimson and Knox
and Knudsen, these gentlemen are available

now - if we could get it down - you see,

173

- 11 -

we have got - this is the way I am setting

of and
say - down

it un with the help of Sir Frederick Phillips.

I put it this way. How much can we recapture
States types,

types, their figure is 400
million dollars. The British type down payand the for the United British then down they States payments have made rather for capital United the outlay payment that

ments are 150 and then they have lumped the

capital out. They haven't split the two into

British type and United States type, another
150.

Now, I take it that the plan for the moment and we had better not fool around - we are

McCloy:

H.M.Jr:

McCloy:

trying to buy up British type contracts, is
that right?
I think so.
For the moment. Because you will certainly

have trouble with Jones and Knudsen.

My partial solution on that would be to make
some British types American types. There are

some British types which I think with a little

persuasion our staff could make American
types.
H.M.Jr:

Fine. Now, they have given me, which I have

only just gotten, two lists giving me a

summary of the material that they want broken
down to United States types and British types,

which total, United States types, 883 million;
British types, 375.
Purvis:

That includes airplanes?

McCloy:

That is what you want to place?

H.M.Jr:

This is their emergency stuff.

174

- 12 McCloy:

This is your interim orders?

Purvis:

This is the emergency difficulty and this

H.M.Jr:

This is emergency. And then they have another

Purvis:

Taken by appropriations that might be available
and saying which orders we would like to place

is only above your 230 million and your
60 million that you have had in your plans.

list of things --

against each particular one if that sum of

money were available after further examination.
H.M.Jr:

Now, I put a question to Sir Frederick Phillips
which he says he has not yet been able to
answer, that if 500 million dollars was made

available, what would he do with it. The only
answer they have made so far - they would like

to have the free money, like to be able to use
it any way that they saw fit, you see.
Jones is also, at my suggestion, working on
a wool deal. I don't know if you know about
that.

McCloy:

I heard something about it.

H.M.Jr:

I am telling it all, you see, and Phillips

says that if he got a hundred or more million

dollars, he would consider that new money.

Now, when I say new money, let me go back.

I take it that you understand my position,
but Judge Patterson doesn't; so let me state

my position. My position before Congress was

very simple. I didn't take 50 words to say
it. The British Government have on order

here a little over a billion 300 million

dollars worth of goods, for which, in order
to pay for them, get the dollars, they would
have to sell every American factory that they

175

- 13 own, plus every share of American stock;

and if they did that, they could raise about

a billion 300 million dollars. Therefore,

all of their direct investments and physical
property, plus all their American securities,
are earmarked against outstanding orders.

McCloy:

H.M.Jr:
McCloy:

H.M.Jr:

That includes all fixed assets as well as
liquid?
Everything.

I see. That is Lever Brothers and the

insurance companies and everything else?

Everything, and on the assumption that our

estimate is right, that there is 900 million

dollars worth of Lever Brothers and that there
is 600 million dollars worth of American

securities, six and nine is a billion five,
and if they could get 90C on the dollar, it

would just about represent what they owe the
American manufacturers already. Did you
know that?
McCloy:

I didn't know that, no. I understood that

their marketable securities were sufficient
to cover --

Phillips:

No.

Purvis:

No. There is only 600 million of those.

H.M.Jr:

Shall I go over it once more?

McCloy:

I have it. You said it very clearly the
first time. Everything in the barrel is

necessary to meet existing British commitments.

H.M.Jr:

That is right, and you can't put up the same
collateral twice in United States or England.

176

- 14 McCloy:

H.M.Jr:

That is quite a trick.
Well, I mean neither the British Treasury
would be party to it, or would I, but I mean

that is the situation and if you didn't
understand it - if you didn't come over
for any other reason - if you could paw
that into --

Purvis:

I couldn't get that over to Judge Patterson

the other night, and I tried very hard. I

was invited to a dinner and I found him there,
and he just could not accept that.
McCloy:

I have heard around some places, I don't know
where it emanated from, that you had enough

money to take care of existing British

commitments and your - a substantial part

of your aid program. That isn't so?

Purvis:

It is just not so.

H.M.Jr:

Now, and furthermore --

McCloy:

And that includes the insurance companies?

H.M.Jr:

Everything.

McCloy:

There seems to be a lot of talk that insurance
companies weren't dumped in there.

Phillips:

It also seems you can sell the whole lot in
ten or eleven months, which isn't true at
all.

H.M.Jr:

Also in my testimony when I was put on the

spot, because Mr. Hull said, "If the Bill

passes it will speed up production, and
I have to think of something to say because
I knew you wouldn't get any more than the

next 90 days, so I said - I fenced this way.

177

- 15 -

I said, "If the English had the money, it

would accelerate United States Governments,"

and I said, "Let me give you an example.
I said, "The Army and Navy want to place
orders with Buick and Studebaker for engines,

part of which are going to go to the British
and are held up now because the British

haven't got the money," and I have testified.

Now, they want me to turn - it is all in

the record and after my testimony, I come

down here Thursday and have lunch with

Bill Knudsen Thursday and tell this to
Knudsen and he says, "You can't do it."

And I said, "I can't do it," because I

said,"I also told them that the English
aren't placing any more orders. So he

said, "All right, I will go ahead and place

the order for what we can afford to pay.

This was Thursday.

Friday night they pound Purvis because he

won't place the orders for the engines and

I believe, I haven't been able to ask, that
they were already placed.

McCloy:

H.M.Jr:

No, I can bring you up to date on that.
Good. But are you getting what I am saying?
I was on a spot on the Hill because Cordell

Hull said, "Pass this Bill and it speeds
up production, which wasn't true. But where
American defense is being retarded is because
they are unable to place these engines and

if the English could go along, they could
place the engines that we need for our own
defense. That was the only thing that I

could think of to get out of that very
difficult position; and so number one, I
am going to go over it again if you don't
mind, I am sure you have got it; but I am
going to bore you once more.

178

- 16 -

No. 1, in my testimony, 900 million dollars

worth of Lever Brothers, insurance companies

and what not, plus 600 million dollars worth
of American securities, makes a billion five.
The British have on order as of January 1,

a little over a billion three.

Young:

Unpaid balances.

McCloy:

So they have only got 200 millions free.

H.M.Jr:

Yes, on the assumption that in 12 months
you could get a hundred cents on the dollar

for everything that they own in this country.

McCloy:

H.M.Jr:

It is very clear. Those are words of one

syllable. I understand it.
But I didn't think you had it.

Now, if you could get that over to Stimson,

but particularly Patterson, particularly

Patterson, you would be doing all of us a
great service, including Judge Patterson.

McCloy:

Purvis:

You have got to get it over to more than
Patterson. You have got to get it over to

quite a group that don't believe in it.
I ran into it even in New York.

McCloy:

You have got to get it over to Jim Forrestal,
to a number of the other people who feel --

H.M.Jr:

Well, I have no sympathy with the people

McCloy:

Well, who don't understand it, who say

who don't believe it, but there are a lot
of people that don't want to believe it.

no, that isn't so, they haven't taken in

the insurance companies, they haven't done

179

- 17 -

this and that. Well, there is no question
about that. Patterson -H.M.Jr:

Now, we go from this other thing - we go
from this other thing to these 500 to 600

million dollars - something, nearer five,
that has been laid down on which you have
been working day and night. Now they put

up to Jones, and what I would like to have

on a piece of paper, what can I tell these

people? You can't recapture the same contract
more than once and what is the best plan
that I can lay before these people at 9:15
tomorrow morning to recapture the 500 odd

million of American specifications that
these people have plunked down.

McCloy:

H.M.Jr:

I am afraid I haven't got much of a solution
for that, because the only money that I have
been able to deal with thus far is this 230
millions.

May I interrunt you? I am going to let

you, if you will take a little time, go back

with these two gentlemen. If we can only
do this and I can join you later, make sure

that you and Jones aren't covering the same

McCloy:

ground twice so that if you could state -I don't think we are.

H.M.Jr:

I think you are. He is sending for contracts
and looking over them.

McCloy:

Maybe there is a difference, then.

Purvis:

Recently. He wants the contracts covering
the 160 million dollars we spoke of and
among them are machine guns.

H.M.Jr:

What I would like to get, McCloy, with your

180
- 18 -

help for tomorrow morning, is this.
"Gentlemen, if the English have paid down
400 million dollars down payment for
American standard equipment, plus a hundred

million for capital," have that here as a
we can give them back so much money.

I

formula, everybody working together, how

want a formula to give them tomorrow morning,

with your help. Does that state it?

Purvis:

That states it. We can fill in any gaps of

H.M.Jr:

Then, I don't say unless you say so - I think
if we tell them too much at a time - if we
show them this, it will only confuse them.

McCloy:

Mr. McCloy's.

Why don't you just give the figures you are

talking about now, how much you have spent
here and how much of it is American equipment,
how much of it is English equipment, how

much is capital, how much is product, stop
there.

H.M.Jr:

Have you got the time to help us?

McCloy:

Sure, I am willing to put the afternoon
on it.

H.M.Jr:

Then if you would go down - Lovett is on

his way over. He will get here at three.

And I will join you a little later.

McCloy:

Let me tell you about Studebaker and Buick

before you go. Lovett apparently got involved
in Studebaker and - the other day - and he
worked out with RFC some sort of a plan that
he thought would free the jam, and this
morning - I used to be counsel for Studebaker

and my former partner called me up this morning

181

- 19 and said he was in town with Vance and that
he had an idea that we might break this jam

if he could get a letter of intent. I said,
"Well, what sort of a letter of intent will
you give us?" He said, "I will dictate it.' "

H.M.Jr:

This is Vance?

McCloy:

This is Vance, yes. And he sent the letter

over, the letter of intent, and I thought it

was a very easy commitment for us to make,

and I took it around to Bob Patterson and

he signed it this morning. After we had
said that he would look into it and see if

had a talk with Jesse Jones, Jesse Jones

he couldn't work it out, but if the - if

the ar Department was ready to give the letter
of intent, he didn't see that he had anything
more to do with it, and I don't think he does,
so the letter of intent has now been signed,
Studebaker has gone back, and on the basis

of that letter of intent have gone to work;
and tomorrow Buick is coming down and we

are going to give them the - precisely the
same letter.

H.V.Jr:

Now, for the full amount of engines?

McCloy:

Full amount of engines.

H.V.Jr:

That both we need and the English?

McCloy:

And the British, yes.

Purvis:

That is very, very substantial. That principle
might lie elsewhere.

McCloy:

Studebaker and buick are out of the way.

Buick haven't signed up yet, but I think we
have got a tremendous lever against Buick
now.

182

- 20 H.M.Jr:

Studebaker builds what horsepower engine?

McCloy:

He builds a Wright engine. It isn't the

33, but what we did was to agree that we
would order the difference between 2,000
and 6,000, which is 4,000 Wright engines.
we didn't mention whether it was 33/100ths

or 26, and he said on the basis of that,
"I will go ahead with the 26 engine order
and do all the work with the subcontractors,
and I asked for no more. All that you have

to do is to --

H.M.Jr:

You spoke about a letter of intent several
weeks ago.

Young:

Weeks ago.

McCloy:

It isn't the regular formal letter of intent,
it is a much looser different sort of a thing.

Young:

No, you couldn't possibly make it formal.

Purvis:
McCloy:

But it is enough pending your appropriation
to set the wheels going?

Yes. And I think Buick is going to do the
same thing.

H.M.Jr:

Did your own law firm work it out with Vance

entirely on their own, or with Bob Lovett.

McCloy:

No, entirely on their own.

H.M.Jr:

This isn't Lovett's scheme?

McCloy:

Oh no. Don't give me any more plans.

H.M.Jr:

Don't you think maybe in an hour or so or two
you can get something?

183

- 21 McCloy:

H.M.Jr:

We will have a try at it.
And I have one thing which I was thinking
about which might be possible on this 500

million, because they need it - if everything
else fails, a little bill to give you the
authority to buy these things.
McCloy:

You mean up on the Hill?

H.M.Jr:

Yes.

Purvis:

Emergency bill?

H.M.Jr:

A bill to precede the other one.

McCloy:

H.M.Jr:
McCloy:

That has a lot of political -I am just raising it.
Yes. I am going to talk to you about this
bill some time when you get a chance.

H.M.Jr:

Just for my own education, do you work out

of Mr. Stimson's office or Mr. Patterson's
office?

McCloy:

Mr. Stimson's office entirely.

H.M.Jr:

O.K. I am ever so much obliged.

184
TELEPHONE REPUBLIC 7860
WILLARD HOTEL WASHINGTON, D. c.

BRITISH PURCHASING COMMISSION

January 21, 1941.

Dear -r. Secretary:

I inclose a statement covering (a) contracts which we desire to
place prior to February 28th.
(b) estimated initial down payments
required to be made against them
prior to February 28th
- all on the assumption that by end February the
period of the Congressional debates would be over.

None but the most vital contracts requiring
the promptest action are covered in the statement,
and we have ignored for the time being the further
items covered by the list forwarded to you with my

letter of January 5th.
The statement does not include the sum of
$290,000,000 ($60,000,000 plus $230,000,000) covering

contracts which the U. S. Army is about to place for
agreed types of aircraft and ordnance.

Yours Orthu sincerely,

The Secretary of the Treasury,
Washington, D. C.

185

DETAILED

LIST
OF

CONTRACTS

British Supply Council in North America,

Washington, D.C.
January 20, 1941.

186

SUMMARY

Total Value
of Orders

U. S. type British type

Estimated

Initial

Payment

(See Note 1)

$383,850,000

Product

$179,000,000

$

562,850,000 $140,000,000

-

-

-

-

Capital
LKKS & ORDNANCE

Product

289,220,000

165,715,000

454,935,000

114,000,000

Capital

39,570,000

30,890,000

70,460,000

70,460,000

112,500,000

28,000,000

8,500,000

8,500,000

50,000,000

20,000,000

HIPS & MARINE
QUIPMENT

Capital

8,500,000

-

112,500,000

-

Product

ISCELLANEOUS
-

50,000,000

Product

-

-

Capital

-

OTALS

Product

835,570,000

Capital

48,070,000
TOTAL

$883,640,000

344,715,000 1,180,285,000 302,000,000
30,890,000

78,960,000

78,960,000

$375,605,000 $1,259,245,000 $380,960,000

Note 1 - Air Orders.
The above orders relate to continued use of
existing capacity and therefore involve no question
of capital expenditure. The programme of orders
for production by new capacity has been deferred

for placing until after February 1941.

It is hoped that capital funds may be made

immediately available for the creation of this new
capacity to the extent of say $300,000,000, but
the corresponding production orders could follow

slightly later if action is immediately taken

towards the creation of the capacity.

187

DETAILED LIST OF CONTRACTS

Units

Product

Capital

(a) U.S. types - Military
Boeing Aircraft Co.
York Safe & Lock Co.

$7,000,000

-

Bombs, ammunition,

etc. for above

1,800,000

-

Various propellers to
}

program

Douglas Aircraft Co.
General Motors Corp.

(Allison Division)

Curtiss-Wright Corp.

United Aircraft
Various contractors

Curtiss-Wright Corp.

United Aircraft

Cowlings for Wright
engines

Spare parts to
service engines on
existing program
ditto

15,000,000

2,650,000
9,500,000

18,000,000

ditto

9,000,000

Spare parts to
service airframes
on existing program

6,000,000

Spare parts to
service propellers
on existing program
ditto

5,000,000
3,000,000

Curtiss-Wright Corp. 384 P40-D Pursuits

15,200,000

Boeing Aircraft Co. 168 A-20 Medium Bombers

18,000,000

720 Harvard Trainers

North American

Aviation Inc.

21,500,000

Glenn L. Martin Co. 540 B-26 Medium Bombers

60,000,000

Curtiss-Eright Corp. 720 P40-D Pursuits

28,800,000

Douglas Aircraft Co. 450 A-20 Medium Bombers

45,000,000

Consolidated Aircraft 96 B-24 Heavy Bombers

26,000,000

Corp.

Packard Motor Car Co.

Various suppliers

Coolant pumps, etc.
Various miscellaneous

400,000

2,000,000

accessories

$293,850,000

* Airplanes & 20% spare parts.

-

-

-

balance existing

-

Curtiss-Wright

United Aircraft

20 B-17 Heavy Bombers

-

-

-

-

-

-

-

-

188

Units

Product

Capital

(b) U.S. types - Naval

Consolidated Aircraft

Spare parts for PBY-5
Flying Boats at
present on order by

Corp.

British, but underprovisioned in that
respect.

$1,000,000

-

Grumman Aircraft Co. 180 36B Navy Fighter
(includes engines
(Pratt & Whitney

R1830-S3C4-G), pro-

pellers and 20%

spares for the complete airplanes)

9,000,000

-

Consolidated Aircraft * 180 PBY-5 Flying Boats

40,000,000

-

60 PBM-3 Flying Boats

20,000,000

Corp.

Glenn L. Martin Co.

*

Consolidated Aircraft * 60 PB2Y Flying Boats 20,000,000
$90,000,000
TOTAL U.S. TYPES

*

$383,850,000

Includes propellers and other

Government furnished equipment

but not engines.

**

Airplanes & 20% spare parts.

-

-

-

189

* Units

(c) British types
Lockheed Aircraft
Corp.

Lockheed Aircraft
Corp.

Glenn L. Martin
Lockheed Aircraft
Corp.

Product

Capital

600 Hudson Medium
Bombers

$42,000,000

-

Special equipment

for long range

Hudsons

4,000,000

-

32,000,000

-

276 Baltimore Medium
Bombers

720 Model 37 Medium
Bombers

Vultee Aircraft Inc. 360 Dive Bombers

64,800,000

-

25,400,000

-

Packard Motor Car Co.

Rolls Royce Engine
parts

5,000,000

General Motors Corp.

Aircraft General

5,000,000

Bendix Aviation Co.

Rotax starters

Stores parts

800,000

TOTAL BRITISH TYPES

$179,000,000

TOTAL AIR

$562,850,000

* Airplanes & 20% spare parts.

-

-

-

-

-

190

Units
5k

Product

Capital

ORDNANCE

U.S. types - Military
205,000
24,000

General Motors Corp.

.30 Rifles

$10,000,000

$3,500,000

40,000,000

15,000,000

23,000,000

2,000,000

7,500,000

3,275,000

20 mm.Hispano
Cannon

Chrysler Corp. or other
Houde & Colt's

2,000

Bofors guns

20,000

.30 Machine
guns

Light Tanks

12,000,000

1,200

M3 Tanks

69,000,000

3,000,000

365

M3 Tanks

9,000,000

1,000,000

400

American Car & Foundry
Chrysler Corp.

Pullmin Standard Car Co.

Armour Plate

for M3 Tanks 1,500,000

Oliver Farm Equipment Co.
Borg warner Corp.
Lufkin Foundry

3,200 Transmissions
& Final Drives

Parkersburg Rig & Reel

for 113 Tanks 15,000,000

|

(Union Steel Castings

3,200 Transmission
Castings for

Vickers Inc.

4,500

Blow Knox Co.

Loganport Pump Co.

250,000

1,900,000

100,000

for M3 Tanks

4,600,000

400,000

75 mn. Tank
Gun Forgings

445,000

Turret Power
Traverse
Mechanisms for
23 Tanks

Bla.. Knox Co.

1,000

(Unio Steel Castings
Division)

Midvile Co.

Hannifen dfg. Co.

1,000
1,000

Turret and other
small castings

Recuperators
for 75 mm.
Tank Guns

Otis Elevator Co.

2,150

37 Bil. Gun
Mounts for M3
Tanks

Auto Ordnance & others

50,000

1,000,000

6,750,000

M3 Tanks

Division)

120,000

1,375,000

125,000

1,900,000

100,000

10,000,000

.45 Thompson
Sub-Machine

-

-

Van Dorn Iron Works Co.

Firfield Co.

-

Various Suppliers

guns with drum

& box magazines
.30 SAA

Kinchester

126,000,000

9 mm. SAA

Winchester

13,000,000

.45 SAA

11,000,000
3,250,000
300,000

$228,520,000

3,700,000

-

225,000,000

-

Remington Arms

$33,570,000

191

Units

Product

Capital

U.S. Types - Naval
American Oerlikon
Gazda Corp. &

General Motors Corp. 4,000 20 mm.Oerlikon Guns $30,000,000 3,000,000
Various Suppliers 20,000,000 20 mm. Oerlikon AA
ammunition (conplete rounds)
30,000,000 3,000,000
3" L.A.
18,000
Various Suppliers
ammunition

Various Suppliers

16,000

300,000

4" L.A.

ammunition

400,000

-

$60,700,000 $6,000,000

TOTAL U. S. TYPES

$289,220,000 $39,570,000

192
Units

Product

Capital

British Types

2-pdr.Buffers &
Recuperators for

British tanks

Liberty Engines

for British
tanks

300,000,000 .303 SAA

for British
Tanks

2-3,000

Bethlehem Steel
Corp.

350,000

Pullman Standard

Crucible Steel

50,000
10,000
10,000

Barrels for

6,750,000
13,000,000

Medium Artillery
5.5" Shell
4,750,000

$

250,000

9,000,000
775,000

4.7"AP shot(Naval))
6" CPBC shot)

9.2"AP shot )

7,000,000

3,000,000

1,000

25-pdr. recuperator forgings

315,000

65,000

1,000

6-pdr. Carriages
for Anti-Tank
4,000,000
guns (British)

1,000,000

/

Champion Forge )

Julius Heil and

-

Transmissions

Buckeye Traction
Ditcher Co.

St. Louis Car Co.

-

Various Fuzes (#119,231,
16,000,000
254,etc.)

Various suppliers

Clifford Jacobs

14,000,000

.

Winchester

8,000,000

-

1,000

Vimalert Co.

600,000

$

-

1,850

York Safe & Lock Co.

4.5" Gun

Associates

360

Koehring Filer Stole

460 Gun Jackets for 1,500,000

carriages

5,500,000

1,000,000
500,000

4.5" & 5.5" Guns

and Associates

Reed Roller Bit and
Associates and others

1,000

2-pdr. Anti-Tank

Guns & Carriages 9,500,000

1,500,000

Borg Warner and
Associates

2,950

2-pdr. Naval 15,000,000

3,000,000

Pompoms

Associates

22,000,000

3,000,000

and Pistols

6,300,000

300,000

.303 Rifles

23,000,000

7,000,000

8,500,000

500,000

2-pdr. Naval

Julius Heil and

Pompon Mountings

100 Octuple

450 Quadruple
350 Simple

E. W. Bliss & Co.
Savage Arms or a
Massachusetts group

500

500,000

American
Car & Foundry 225,000
Co.

18" Torpedoes

7.2" Shell

TOTAL BRITISH TYPE $165,715,000
TOTAL TANKS & ORDNANCE $454,935,000

$30,890,000
$70,460,000

193

Units

Product

Capital

Ships & Marine Equipment
Todd Shipyards

60 New Merchant Ships

Various Suppliers

Motor marine engines

$ 87,500,000

$ 8,500,000

25,000,000

-

TOTAL SHIPS & MARINE EQUIPMENT

Miscellaneous

Machine Tools
Other
TOTAL MISCELLANEOUS

GRAND TOTAL

$112,500,000

8,500,000

$ 40,000,000

-

10,000,000

-

$ 50,000,000

$1,180,315,000

-

$78,960,000

194

January 21, 1941
2:51 p.m.
H.M.Jr:

Hello.

Operator:

Secretary Stimson.

Henry L.
Stimson:

Yes.

H.M.Jr:

Harry, this is Henry.

S:

Yes.

H.M.Jr:

S:

H.M.Jr:

In getting ready for that meeting tomorrow
morning I find, and I may be wrong, that the
80-called 550 that Harry - that Knox keeps
talking about - you know
Yes.

and the 200 some odd McCloy is working

on, that they are duplications. Hello?

S:

Yes.

H.M.Jr:

Therefore, I tried to get you and I asked

your office whether you could send McCloy
and Lovett over because I had Purvis and

Phillips here, and one of them is on the way
over - they are both on the way over, one
has got here.

S:

Who are on the way where?

H.M.Jr:

McCloy and Lovett to my office.

S:

(Laughs). Well, I was just hoping to get

one of them myself, I'm working pretty
H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:

Well, McCloy is here.

Well, can't I have one if you have the other?
(Laughs). Well, I've got McCloy
I haven't had either today.
I've got McCloy so I'11 let you keep Lovett.
(Laughs). Well, the point is there seems to
duplication and I was trying to make

195

-2S:

H.M.Jr:

Well, I think McCloy is the one who knows
more about that than Lovett.

Well, he seems to have it all at his fingertips. I called up Jesse this morning and I said
you know McCloy can't go any further because
you won't buy the real estate. So he said
I'11 send for McCloy and talk to him. Well,
McCloy was in the next room - Mrs. McCloy
told me - and Jesse walked in there and he

says I can do that, I can fix that up. So
that's a little progress.

S:

Fix up the real estate.

H.M.Jr:

Yeah, that McCloy has been waiting on 80 long.

S:

Yes.

H.M.Jr:

So could I keep MoCloy a little while?

S:

H.M.Jr:
S:

H.M.Jr:

But, as I say, I hope you don't mind but I
did it through your office.

(Laughs). Yes, if you'll as a quid pro quo

let me have Lovett.

Fair enough. Fifty-fifty.
(Laughs).

But on this thing there is 80 much Launderstanding
and McCloy has been working so hard on one thing
and then this thing that Frank Knox talked

about, they definitely overlap.

S:

H.M.Jr:

Well, I've never understood exactly how Frank
Knox got his figures and I haven't tried
either.

Well, I didn't either. So when I got into
it today at lunch I found that they overlapped
and then I called your office and asked if I
could have McCloy.

S:

Yes. That's all right. Well, now, let me say
to you the reason I couldn't get you this
morning was that we had a meeting of the O.P.M.
that took two and a half hours getting started.

196
3

But what I want - I'm also working on what I'm
afraid may be sprung on us pretty quickly.
That' 8 the hearing for the next Committee of
the Senate, and ve talked with Hull about

it over the telephone a little and I think

we ought to have some preliminary consultation

on that the way we did before of all the men
who are going before it.

H.M.Jr:

I think so.

S:

Hull hadn't heard of the proposed compromise

H.M.Jr:

Yeah, well that's no good.

S:

H.M.Jr:

S:

H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:
S:

of $2 billion outright.

Well, I don't know. I don't know how far
they go by that, but it might be very embarrassing, Henry. It might be very embarrassing.
Well, couldn't we meet at Hull's office on
that?

Well, I'd like to very much except you make
me meet so many times at your office and I
have to meet so many times at Knudsen's office
and I have to meet 80 many times at the White
House that I don't know my own office.

Well, I'11 come to your office.
(Laughs). Well, I didn't mean that but I
Well, let's leave it this way. Anytime you
think we ought to meet on it, I'm available.
Well, what I've been doing
I'11 meet you on the street corner.

You see, this is what happens: that plan
looks - could be dressed up to look very

tempting but it would knock out - in the first

place it wouldn't have half the chance of
prevention of the fall of the British fleet
as the other plan - the President's plan;
and in the next place it would serve as a
stop gap against what I think is the only
real assistance when the big blow comes;
namely, convoys.

197
4H.M.Jr:

S:

H.M.Jr:

Well, I'm at a disadvantage, I have people
here now. Could I call you back later.
Yes.

And anyway if Lovett comes, should I send
him back to you?

S:

Send him back. I think I'd like to see him.

H.M.Jr:

And anytime that you want to get together

on this thing that you're talking about,
I'll meet you any place you say.

B:

All right.

H.M.Jr:

How's that?

S:

All right.