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198 January 21, 1941 3:00 P.M. RE BANK HOLDING COMPANIES Mr. Delano Mr. Schenker Present: Mr. Bell - Mr. Crowley Mr. Foley Mr. O'Connell Mr. Eccles - H.M.Jr: Who is missing? Delano: Eccles. H.M.Jr: Jesse Jones couldn't come. (Mr. Eccles entered the conference.) H.M.Jr: Jones just phoned he couldn't come. Do you want somebody? Eccles: Well, it is too late to get them now. H.M.Jr: Well, this will be only one of maybe several, but if you want anybody, I will lend you O'Connell or Ed Foley or Schenker. They are all lawyers. Eccles: Well, we have got some lawyers. Bell: You don't want a lawyer? Eccles: Well, I can usually get along a damn sight 199 -2better without them. (Laughter) H.M.Jr: Well, the purpose of this meeting is, we sent the President a letter on January 3, suggesting he mention again in his message the way he did in 1938 something about the Bank Holding Bill, and I got a memorandum the way the rest of you did, that we should get together, and we put in this little portfolio the various things that happened on the bill going back to '38. I don't know whether you have had time to look at it or anything else, but in this report which Mr. Jones made on March 17, '38, it was a unanimous report at that time in regard to the bill and we sent over to the President what he put in his message on the bill, and he put it in, and the message is there and the present bill, so I think everything covering the thing is in this little thing here which the Comptroller got up for me. Feeles: Yes. Well, I had better make a report on what our situation is. When I got this message from the President, I called the Board and discussed it and we feel we have been very badly treated In this whole matter. In the first place, three years ago this thing was under discussion, and I haven't had a chance to go through this file. I wasn't here at the time. I checked up on - the Board has taken no action. There is no record in the minutes of the Board at all on this; and as a matter of fact, I haven't had a chance to check it thoroughly with Ransom, who was acting at that time. I came back here and went over it with the Board, and I was not in favor at all of the particular bill. I mean, I have been in favor for a long while of holding company legislation dealing with the holding company 200 -3picture in a proper and adequate way, but I wasn't in favor of this particular bill and nothing was done about it until Leo, he will recall, I think it was in '39, apparently got busy with the bill and you called him pretty hard on that action. I remember very well sitting in here and you called Leo at that particular time for undertaking a bill without consultation and discussion with the rest of us. H.M.Jr: Crowley: Eccles: Crowley: In '39? No. No, that -It wasn't '40. The Holding Company Bill was drafted for Glass by us in 1938. We had a conference, and I think we all pretty well agreed that the legislation - that is when the message - the President sent his message up, do you recall? H.M.Jr: Crowley: Yes. T think you are confused on that, Marriner. I don't recall that he (Secretary) and I ever had any disagreement; but the thing that brought about a disagreement between us was on the Glass Bill that dealt with bank examinations. Wasn't that right? But it had nothing to do with holding companies. That was a year later. Eccles: It was the Holding Company Bill after this bill that was introduced. It was not this bill, it was another bill. Foley: I remember vaguely the incident, but I think that Leo is right. I think we were talking about -- 201 -4Crowley: We were talking here. The Holding Company Bill was up, Marriner, in December of 1938; and the President put it in his message in March, 1938. Now, in 1939 Carter talked about an examination bill - or not Carter but some one from the Hill. Eccles: That was what that discussion was about. The Brown Bill? Crowley: Brown Bill, but that had nothing to do with Eccles: That is what it was. Well, it was a Bank Bill holding companies. then. Well now then, I remember the Secretary was we had a meeting in connection with it, and you (Secretary) were pretty well unset because Leo had gone ahead and done this. Well, anyway, this is the situation. Here is a bill now that we haven't been consulted about; and after all, we have had seven years of the only administration that the law provides for holding companies. In 1933, before I came to Washington at all, Congress saw fit to give to the Federal Reserve Board, rightfully or wrongfully, the administration of this particular job with inadequate powers, to be sure, and we have felt for a long while that the powers were not adequate to deal with the problem; and suggested as a substitute for '38, the type of program that would have been a practical program that would have gotten at dealing with this problem. Since that time, because every one thought - T know we did - that there would be a piece-meal legislation, that the Wagner hearings were going to take up a lot of matters 202 -5that had been in - that needed some correction, and possibly matters of controversy, and this bill, this particular bill, without any consultation with the only agency that has had the administration of this function - it is drawn up over here in consultation with, apparently, Mr. Crowley; because in a letter to the President he is not only familiar with the bill but recommended that the President say something about it in his message, which the President didn't say. Crowley: Now wait a minute, let me -- Eccles: And -- Crowley: Wait just a minute, Marriner. Eccles: Let me get finished now. The bill is then introduced and, of course, all we know about the bill is what we have read in the newspapers, and we naturally got a copy of the bill itself. Now, I am - the President says, "Please make out a program. We have been always ready to make out a program in connection with this sort of a bill. I feel pretty sure that the President in the first place possibly doesn't know that the Federal Reserve Board has the responsibility and the administration of this question, and has had for quite a long while and possibly should be as familiar, if not more familiar, with the whole problem than anyone else, and ought to have some idea as to ways and means for working it out. I am sure, too, that he doesn't know that this proposal has been drafted and made and we were never even consulted about it, and I would doubt very much if he knows that the whole thing is picked up bodily from the Reserve System and transferred over to the FDIC. 203 -6Now, unless we can clear away some of that brush, there just isn't, it seems to me, an awful lot to talk about. I am perfectly - have always been willing to recognize this problem and to work out a program to deal with the problem; and I think there isn't anybody who knows more about what the problem is than we do and - but we can't come here - even if I was willing to, I am perfectly sure the Board wouldn't do it - and rubber stamp a bill that has already been introduced without our con- sultation, without consultation with us, and that takes away the complete administration from us. Crowley: Now, may I talk to you a minute? Eccles: All right, you go ahead now. Crowley: In the first place, you talk about this bill being drafted without Federal Reserve being consulted. I didn't see the bill until after Senator Glass had introduced it. As a matter of fact, I haven't read the bill to this day, but the Federal Reserve -- H.M.Jr: Crowley: What is that, Leo? I am sorry. I didn't see the bill until after Senator Glass introduced it. My being in this thing was purely incidental. I came over to kind of raise a little hell about your (FRB's) interference on Federal Deposit Insurance, and this talk about this holding company bill was only incidental to another business. Now, the Federal Reserve seemed to assume that they are the only ones that have any right to interfere in the other fellow's business. Eccles: We haven't introduced any bills. 204 7- Crowley: No, but you have made a hell of a lot of public Eccles: All right, but it is public. Crowley: proclamations. And T just want to tell you now for my sake, as Chairman of the Federal Deposit Insurance, I would appreciate you keeping out of our business. Now then, as far as legislation is concerned, I am willing to go along on legislation -- H.V.Jr: Crowley: Leo, let's keep it clean. Do it with a smile, as long as you do it with a smile. (Laughter) T am willing to go along on legislation. I don't want to be like Henrik Shipsted, when he voted against the President's bill because he didn't think it went far enough. Two years ago we all agreed that something should be done on holding companies. I don't care who drafts the bill, but I am not going to surrender the things I believe in nor do I feel at any time that when someone else comes around here and does something that Federal Reserve comes around and raise this question about piece-meal legislation. With that reservation, I am willing to sit around and talk about anything, but this bill is now before the Senate and there is no other bill pending. H.M.Jr: I will make my position perfectly clear. This bill as introduced is a hundred per cent within the President's message, the way he set it un two years ago, and which, as far as I know, at that time in '38, the Federal Reserve -- Eccles: It was three years ago. H.M.Jr: It was '38. 205 -8Eccles: Three years ago. H.M.Jr: And as far as we know, Ronald Ransom, who was Eccles: With the President's message. The bill hadn't been worked out at that time. F.M.Jr: And if on your return you weren't in agreement with the President's message, you certainly Acting Chairman, advised through Jesse Jones that there was complete agreement. never let me know. Eccles: Well, there was no bill. The point is, there H.M.Jr: And if I could just finish - and three times now was in -- before the Appropriations Committee I have said that I thought that the bank holding situation was an unhealthy and unwholesome one, and Congress should do something about it. Perfectly frankly, I have gotten tired of waiting for the Federal Reserve to do anything about it, so I took the initiative. I mean, the Federal Reserve Board has had plenty of opportunity, as you say, for seven years to do something. Eccles: We haven't prepared or introduced any bill whatever since the Banking Act of 1935. H.V.Jr: And - well, here is the situation, and it demands attention; and as I say, nobody else seemed to worry about it except the Comptroller and Mr. Crowley and the SEC. Schenker: I don't want to inject myself, Mr. Secretary, but in connection with the preparations of investment companies, we deliberately omitted the bank holding companies who would come 206 -9within the purview of the definition of the investment companies, all predicated on the assumption that it was going to be dealt with very quickly and therefore there shouldn't be any overlap of jurisdiction, and I think T made that statement on the hearings and that is why they took it out. H.M.Jr: But that is the situation. There wasn't any personal offense meant to you as Chairman of the Federal Reserve, but frankly I was very restless that after all the difficulties I have had with the bank holding situation, that nothing is going to be done to correct it and no one else took the initiative, so I did and I am wholly to blame for it. I take full responsibility for the whole thing. It is my initiative and I take the entire responsibility. Now, if personally you or any of your Board over there are offended, I am very sorry; but the entire responsibility is mine. The bill is there. I am under the impression that it is wholly within the thing of three years ago; and if the Board wants to introduce their own bill or doesn't want to go along on this -- Eccles: Well, we would like to do either one of two things, either sit down and see if we could work out a substitute bill that in our opinion would meet the situation, and a program that we would believe in; or introduce an alternative bill, which I suppose, of course, a committee of Congress would have hearings on, possibly, and it would result in a merger of possibly the two bills, or they could take the bill that is up there and we could support a holding company bill with such modifications as, in our judgment, the bill should have. There are three ways of doing it. 207 - 10 Crowley: Well, Marriner, wait just a minute. I don't think that - Mr. Secretary, that the Federal Reserve - if you are going up there on hearings on this bill, this bill that is before us, then we should on have right of all of us expressing ourselves thethe bill. Now, we didn't draft this bill. We are willing to go along on it. If the Federal Reserve are going to introduce a bill, Federal Deposit is going to reserve the right to introduce a bill; you are just never going to get anything at all. All you will have is chaos. Eccles: Then we should sit down and start from scratch Crowley: I don't agree with that, Marriner, because every time a piece of legislation comes along here, one fellow wants to tear it apart and start from scratch and embarrass the piece of legislation. and get a bill. Now, if there -- Eccles: Crowley: You don't expect we are going to support a bill that we have had nothing to do with and simply say, "Why, this thing has been so handled that it ought to be transferred over to the FDIC"? We all have supported bills in the past that we didn't have anything to do with the drafting of. Eccles: And we have opposed bills, too. H.M.Jr: Well, could I ask for this? Would the Board care to give me a memorandum where they take Eccles: objection to this bill? Well, I will take it un with them and see if they would be willing to do that. H.M.Jr: I think -- 208 - 11 Eccles: Certainly we would file - we would no doubt Foley: You have already been asked, haven't you, Eccles: No. Foley: T thought each one of us had been asked to report on this measure. Crowley: We have. Foley: You have and the Comptroller has, and I assumed Eccles: Maybe it has come in in the last day or two. be asked, naturally, by Congress, to state -- Marriner? that the same thing went to you. We are asked to report on a lot of bills just as a matter of routine. Then there are other cases where it isn't altogether a matter of routine. Now, a lot of the routine requests are not always responded to; and where it is other than a routine request, they are always responded to. Foley: I should think this would fall in the category Eccles: What I me an is, it denends how the request comes. of being other than routine. It may be just the girl in the committee sends it to you as a matter of routine, and on the other hand, it is sometimes the chairman of the committee or the subcommittee that is handling it wants a report, which is the difference. Foley: Eccles: I think they want a report on this, because I think they intend to hold hearings. I would think they would, but up to the present time - what I meant, Ed, was that possibly what we had gotten was a letter that a girl in the 209 - 12 - office would send out as a routine matter. I am not referring to this as a routine bill. H.M.Jr: Well, supposing you think it over and talk with your Board; and if you care to make any suggestions, let me know so I can let the President know and we can see where we go from here. I am interested to know where the Federal Reserve thinks this is not a good bill. Eccles: Yes. H.M.Jr: To know where do they disagree, what provisions Eccles: We would like, I think - what I would like would in this bill they don't like. be to propose what we would consider an alternative provosal, we feel, that would meet the situation and one that we would feel that we could defend before committees of Congress. Now, anything that is done on this bill, I realize that we have got to go before committees of Congress, and we have got to answer questions. We have got to support whatever position we take. You have got to give it public support, and I would like for us to consider the type of support, or the objection, the alternatives, that we would give before a committee of Congress. That is going to take a little time. You can't take a thing like this and prepare a case for Congress and do it in a few minutes; and I say that we wouldn't want to take some position with you (Secretary) and give you a report on the thing and suggested alternatives unless we felt that we were going to stand by it in case we went up before Congress, so it is one preparation, really, in effect, isn't it? 210 - 13 H.M.Jr: Surely. Whenever you are ready, let me know. I doubt if they will start hearings on this thing until we get this lend-lease bill out of way. As soon as your Board knows, let the us know. Is FDIC satisfied with this bill? Crowley: Well, let me say this to you, that the FDIC, I presume, like every other agency in Washington, have their own views they would like to inject in this legislation, but as I assume, we can't do that without destroying the legislation; and we feel that there should be a curb put on these holding companies and for that reason we are willing to go along and give the bill whatever help we can in our testimony. It is the only bill that is there. Now, if everyone is going to have the right to inject their own theories in this thing here, of course, we would want the right to inject ours. H.M.Jr: I was under the impression that this bill was satisfactory to you. Crowley: I say we are willing to go along and give testimony in favor of this bill; but if there are going to be any changes in this bill, then we want the right to go into the thing ourselves, too. In other words, if the Federal Reserve are going to inject changes in this bill, we want to be sure to reserve our rights in the matter. Do you get my idea? H.M.Jr: No. I thought the bill was entirely satisfactory to you the way it was written. I didn't know there were any changes you wanted in it. 211 - 14 Crowley: You understand that we are perfectly willing to go along on this bill and go up there and testify for it; but if the Federal Reserve come along and make changes in this bill, we want to reserve our rights to talk about it. H.M.Jr: To modify their changes? Crowley: Yes. H.M.Jr: That is all right. Eccles: Sure. You will be testifying on something else, not this bill, though. Crowley: You mean that you would draft a new bill? H.M.Jr: No, what Marriner means is that you are reserving the right to testify on any changes that the Federal Reserve may suggest. Eccles: That is right. Foley: He has a right to object. Eccles: You don't know what they are, you haven't approved them, but here is a bill that you have apparently approved. Therefore, you wouldn't want to testify against any part of this bill; all you would want to testify for or against is changes that we may propose. Crowley: Marriner, let me tell you this as far as we are concerned in this bill. We didn't see the bill until after Senator Glass had introduced it. Now, I don't know particularly about the fine points of the bill, but everything in the bill in principle, we are in sympathy with. Eccles: Well, we are not, so you are in a little bit different situation than we are. 212 - 15 H.M.Jr: Well, I don't think - Marriner, unless you Eccles: No, I haven't a thing, because all I - I have got something else. haven't had a chance to think about it. We have had a couple or three days vacation here and I haven't - you called this, I think, Saturday morning or Friday. H.M.Jr: I don't know, somewhere around there. Eccles: Yes, Friday afternoon, so I took a bunch of this stuff home with me; and all I know about it is what I have been able to read over the weekend here. H.M.Jr: Is that all the questions? 212-A OFFICE OF THE COMPTROLLER OF THE CURRENCY January 21, 1941 MEMORANDUM TO MISS CHAUNCEY: The attached letter from the Secretary of the Treasury to the President, together with a letter to the Secretary from Chairman Jones of the RFC, and the text of the proposed message to Congress are returned herewith for the Secretary's file. These documents were borrowed by me personally from the Secretary this morning in order that there might be made certain photostatic copies, and I assured the Secretary at that time that I would personally see that the do cuments were returned to him. to Preston Delano HMS 213 THE SECRETARY OF THE TREASURY WASHINGTON March 17, 1938. The President, The White House. Dear Mr. President: I have the pleasure to report to you that after a number of meetings 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 me from attached Chairman Jones of the Reconstruction Finance Corporation, who has acted as Chairman of a sub-committee which has been meeting on the situation daily for the last week, and also the text of a proposed message to the Congress. I am 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, Secretary of the Treasury. Enclosures. 214 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 included in his message to Congress, you asked that the committee have further meetings and endeavor 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 with the enforcement 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 Ransom of the Federal Reserve Board, Acting Comptroller of the Currency Marshall Diggs, Leo Crowley, Chair man 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. 215 Honorable Henry Morgenthan Page two As to the supervising authority, Mr. Crowley, Chair- man of the Federal Deposit Insurance Corporation, has stated that the present Glass-McAdoo-Steagall Bill represents approximately his views, but thinks that the President or Congress should decide. 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. 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, Jan Jone Chairman Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. (Suggested for of Message) 216 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 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 217 -2provision for the gradual separation of banks from holding company control or ownership, allowing a reasonable 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. 218 EXCERPT FROM THE PRESIDENT'S MESSAGE DATED APRIL 29. 1938 (b) Bank Holding Companies It is hardly necessary to point 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 multiplied evils which have arisen 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 control or ownership, allowing a reasonable 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. 219 THE SECRETARY OF THE TREASURY Washington January 3g 1941 C 0 P I My deer Mr. President: You will recall our recent discussion relative to the need for legislation dealing with the bank holding company prob- lem. Since talking with you a bill has been drafted to meet this situation. The Comptroller of the Currency and I have discussed the measure with Senator Glass who had indicated sympathy with the general purposes of the proposed legislation but has withheld final approval until be had had an opportunity to compare our draft with his less drestic measure of 1938 and obtain the views of some of his associates. The bill which we have prepared prohibite any company, after June 30, 1966, from caming or controlling more than ten per cent of the voting securities of any bank insured by the Federal Deposit Insurance Corporation. IS also confers upon the Comptroller of the Currency with respect to national banks, and the Federal Deposit Insurance Corporation with respect to state insured banks, authority to forbid the payment of any dividends which would impair the stability and a of such banks. IS is believed that such dividend control is needed not only in contection with bank holding company legislation but also as general 220 -2authority to implement the supervisory powers of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Yesterday while talking with Chairman Crowley of the Federal Deposit Insurance Corporation, he suggested that your assuance to the new Congress contain a recommendation that legia- lation be enacted to control effectively the operation of bank holding companies. I agree with Mr. trowley's suggestion. You will recall that your message of April 29, 1938 contained a similar recommendation. For your convenience, I an attached a copy of that message. Mr. Crowley and I believe that a recommendation indicating that legislation of this character has your approval would be invaluable in securing consideration of such a measure in the new Congress. Language somewhat along the following lines would seen to be appropriates "In my message to the Congress on April 29, 1938 I had occasion to call to the attention of the Congress the dangers inherent in the existence and growth of holding companies operating in the banking field. I then recommended that legislation be enacted to meet the problem. "The seriousness of the problem involved in the control of banks by holding companies has, if anything, increased since 1938. Accordingly, I strongly recommend that the Congress enact at this session legislation that will effectively control the operation of bank helding companies, protect the soundness of banks controlled by 221 separation of basis from holding company control or dens - andtime without -inconvidence = IIIis a- orderly sufficient forcausing this tomine be to commities served by banks cased or controlled w holding companies." Faithfully years, (Signed) E. MORGENTHAU,JR. Secretary of the Treasury The President The White House. 222 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 4 SECTION 1. This Act may be cited as the "Bank Holding 5 Company Act of 1941". et DEFINITIONS 6 OS 7 SEC. 2. When used in this Act unless the context other- 8 wise requires9 oldefings IS (1) The term "company" means any bank, corporation, 10 partnership, association, joint stock company, business trust, is 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 de7 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. 223 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 8 9 SEC. 3. After June 30, 1944, it shall be unlawful (a) 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 et SEC. 4. Notwithstanding the foregoing, the prohibitions 21 contained in section 3 of this Act shall not apply to any com- 22 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 DIVIDEND RESTRICTIONS 14 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. 224 5 SANCTIONS 1 2 SEC. 6. (1) Any company which knowingly violates 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 01 (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 there- 6 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 shut 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 225 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 there- 6 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. 9 10 ADMINISTRATION SEC. 8. (1) The administration of this Act is hereby 11 vested in the Board which shall have authority to make, 12 issue, amend, and rescind such rules and regulations (in- 13 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 226 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. By Mr. GLASS Read twice and referred to the Committee on JANUARY 14. 1941 A BILL Banking and Currency 15. 310 holding companies, and for other purposes. To regulate the control of insured banks by 228 January 21, 1941 3:40 p.m. RE DEBT LIMIT Present: Mr. Bell Mr. Sullivan Mr. Foley H.M.Jr: The man who wrote the bill, the man who came to dinner, Mr. Edward Foley. (Laughter) I am still chuckling about this last meeting. Bell: It was a good meeting. H.M.Jr: You should have been here to see Marriner and Crowley. I said, "Keep it clean, Leo, keep it clean. " (Laughter). It kind of took Marriner's breath away when I said I take full responsibility for having intro- duced the bill without showing it to you. Bell: He didn't back up Mr. Ransom very well. H.M.Jr: No, he didn't back up anybody except Marriner Eccles. Foley: That is why he wants a copy of the record, H.M.Jr: I see. Now, Professor Bell. Bell: well, you wanted two things, One was the current situation for tomorrow. (Handing I think. memorandum to Secretary) 229 -2H.M.Jr: Bell: H.M.Jr: Has Mr. Foley written this, too? (Laughter) Just the financing announcement for Thursday, you wanted? "The Treasury's working balance is at the present time down to $742,000,000 and by the end of January it will be down to approximately $400,000,000. It is, therefore, necessary for us to raise an additional amount of new cash at this time to meet heavy expenditures for the next thirty days. I propose, therefore, offering on Thursday of this week, $500,000,000 of National Defense Notes, the income from which will be subject to all Federal taxes. is passed I contemplate Finance Corporation in "If our legislation to raise the debt limit and to tax income from all Federal securities the amount will enable commitment as well to the some $350,000,000 of its funds as your 1941 Budget. If this not enacted by that time, I shall have to issue of Defense notes in that amount. the capital that as before of return Corporation securities an about issue the legislation $500,000,000. middle of during Reconstruction to recommended Treasury meet offer of is that February, its another This month in "After this legislation is passed, I also contemplate issuing before March 15th, $1,000,000,000 of Treasury securities for new cash and refunding $1,222,000,000 of securities maturing on March 15th. It is hoped that the Treasury can at this time issue a long-term Treasury bond, the income from which will be subject to all Federal taxes. There is just one thing that isn't clear. "After this legislation is passed, I also contemplate issuing before March 15th a billion 230 -3of Treasury securities for new cash and refunding a billion -" do you mean to say that the thing together is two billion? Bell: Yes, sir. H.M.Jr: You don't mind rewriting this thing, do you? Bell: No, that is a draft. H.M.Jr: Make it, "When this legislation" instead of Bell: Or you could make it "In addition." "And in addition"? H.M.Jr: Bell: after. If that is clear, yes. Now, you wanted something that is a little longer and going into the whole situation. (Handing memo to Secretary) H.M.Jr: "In your Budget message you made the following statement: 'I am assuming that the Congress will accept the recommendation of the Secretary of the Treasury that the earmarking of taxes for retirement of defense obligations be repealed. "The Budget document shows, based on the program set out therein, that the gross -" sit down, Dan, please - "that the gross public debt will be $49,157,000,000 on June 30, 1941, and $58,367,000,000 on June 30, 1942. These two figures do not take into consideration the future accruals on Savings Bonds nor any contemplated aid to Great Britain. According to Treasury estimates, the balance of the borrowing authority under the combined debt limitations of $49,000,000,000 will be exhausted in May of this year. It will, 231 -4therefore, be necessary for the Treasury to ask Congress for an immediate increase in our debt limitation, and we should like to ask at the same time the elimination of the partition between the general limitation and the National Defense limitation, and the repeal of the provisions setting up the special fund into which earmarked taxes are to be deposited for the purpose of retiring any outstanding National Defense securities. "The attached statement shows in detail the Treasury's financing problem for the next six months, and in a general way for the fiscal year 1942 under the Budget for that year. In view of the Budget program and the additional financing which may be expected of the Treasury under the Lend-Lease Bill for Great Britain, I recommend that the public debt limi tation be fixed at $60,000,000,000. Bell: That 60 billion is tentative. I don't know whether you want that or not. Now, this memorandum doesn't have to go if you want an explanation of the bill which Mr. Foley has the memorandum for, but you wanted this table which gives you the six months period, and then the full fiscal year, 1942, broken down into receipts and expenditures showing you the cash deficit by months and for the year, and then the way to find it. You would have to have a billion dollar Treasury financing now, which will come on February 1, see, that is your 23rd of January financing. Now, there is 500 million in there for RFC if we get the legislation, and if we don't get the legislation, we may have to issue 500 million National Defense notes because if you take that out of your balance, it will be way down at the end of February. In 232 -5the first ten days of March, you would lose a lot of money. Now, I was just thinking over the week-end that you would be away from the first on - how far? H.M.Jr: How far away? Bell: No, how far from the first on. H.M.Jr: Oh, just one week. Bell: well, that is all right, because along in the middle of the month this balance may begin to get low, you see, and we may have to do some financing. H.M.Jr: No long distance consultation. It is a funny thing about that Arizona air. Bell: Yes, I know. H.M.Jr: Believe me, if anybody wants to make money, they can get up a hat pool on whether I go or not. Bell: Well, I think if we say the 15th or the 20th, we might have to make a decision on whether we want some more money. H.M.Jr: Well, "Pa" Watson put us down for half an hour tomorrow, and I hope we get there, but I think this, Dan. I think if you would put this as Sheet No. 1. Then comes this Sheet No. 2, right? And this would be Sheet No. 3. Bell: O.K. Well now, Ed has the memorandum on the bill which is about the same thing, and this just boils it down. 233 -6Foley: There is one question I think we ought to settle and that is whether you want to recommend to him in the light of his message to Congress the other day that the debt limit be increased to 60 billion dollars, or do you want to take it off entirely, and we have written the legislation both ways. H.M.Jr: I want to do it in the orthodox manner, with my hat on. (Laughter). Do you know what that means? Foley: No. H.M.Jr: Have you ever been to an orthodox Jewish Foley: H.M.Jr: wedding? They will tell you not to take your hat off. I was thinking of a dirty story. I wasn't. Keep it clean, boys. No, I want to do it with my hat on. Well now - no, I am not in agreement with the President on that at all. That is all right. He has gotten that off his chest and it is very nice, but if he thinks I am going to go up and play around with that on the Hill, he is mistaken. Bell: You won't get your bill, I don't think, very soon. H.M.Jr: He got that off his chest, and I think we will find he is calmed down now. Sullivan: I think he was just trying to break the ice very suddenly when he made that suggestion. H.M.Jr: I hope so. What comes next? 234 -7Sullivan: Ed has the different versions of the memorandum. Foley: Well, that question is settled, and that H.V.Jr: One what? Foley: Version. (Mr. Foley hands memorandum to Secretary.) H.M.Jr: This is? Foley: Dan's revision of the memorandum we got up. H.M.Jr: "Memorandum for the President. eliminates one version. "There are enclosed drafts of two bills relating to the public debt and the status of Federal and State obligations from the standpoint of exemption from taxation, which I propose to recommend to Congress if they meet with your approval. "The first bill, entitled "A Bill To Amend the Second Liberty Bond act, as amended, and for other purposes, " would accomplish the following objectives: "(a) It would fix the ceiling on the public debt at $60,000,000,000, an increase of $11,000,000,000 over the present statutory combined debt limit of $49,000,000,000 The new limit, of course, would not include guaranteed obligations issued by the Reconstruction Finance Corporation and similar agencies. "(b) It would give the Secretary of the Treasury greater and more flexible authority over Savings Bonds as a financing medium by giving him dis- cretion (1) to fix their denominations, (2) to determine the aggregate face amount of them which may be held by one person at one time, 235 -8and (3) to issue them on an interest-bearing as well as a discount basis." Does that take in every possible maneuver you can think of? Bell: H.M.Jr: I think it would. It is very broad. "(c) It would authorize the Secretary of the Treasury to issue, in the same manner as Savings Bonds are issued, a new obligation similar to the old War Savings Certificate called a "Treasury Savings Certificate." 11 "(d) It would eliminate the partition -" What do you think of the Treasury's Savings Certificate? What do you think, $5.00, $10.00, a hundred? Bell: Well, we were thinking of a six and a quarter stamp, three of which would make an $18.75 payment on a $25.00 bond, something like that. H.M.Jr: I see. But it could be anything? Bell: Yes. You could issue stamps or use Postal Savings Stamps now in existence. H.M.Jr: "Eliminate the partition between the general debt limitation of $45,000,000,000 and the National Defense limitation of $4,000,000,000, and would repeal that section of the Revenue Act of 1940 which earmarks certain taxes levied under that Act for the purpose of retiring, over a five-year period, any National Defense obligations issued under the National Defense debt limitation. "(e) It would remove from all Federal obli- gations (including those of corporations and other agencies of the Government) issued in 236 -9the future the privileges of exemption from Federal taxation, which they now enjoy. The purpose of the second bill is to provide the balance of the legislation necessary to enable us to complete our program of elimination of tax-exempt securities. Wouldn't you rather say, "The purpose of the second bill," rather than, "The purpose of this bill"? Foley: All right. H.M.Jr: "This purpose would be accomplished by: "(a) Making obligations issued in the future by any State, Territory, municipality, or other public body subject to income taxation by the Federal Government. To permit public bodies to take advantage of favorable market conditions, provision has been made for the refunding of outstanding callable bonds with tax exemption for the same period as the original issue." In other words, they can call them? Sullivan: No, if a town has outstanding some bonds at six per cent that mature in 1950, five million dollars worth, they can refund that and they can call those in and reissue the same amount with the same maturity date. Foley: I don't agree with that, but John says -- Sullivan: We have to have it. Foley: He has got to do it to get the bill through. That has been in every bill, hasn't it? Bell: 237 - 10 Sullivan: That is right. H.M.Jr: Why don't you agree with it, Ed? Foley: Well, because I don't see any reason at all why we should project into the future if municipalities do refundings the tax exempt feature. I think that if they call their obligations and issue 'new ones, that the new ones ought to be exempt from taxes - H.M.Jr: fully taxable. I do too. Bell: Of course, it will discourage refunding. Foley: Put you have got a bad situation out in Detroit, and everybody - I mean Senator Brown is in favor of this legislation, who was chairman of the subcommittee, and as I understand it, from John, he is the fellow that held out for this reservation. H.M.Jr: Why isn't it better to do it the way we would like to see it, in an ideal state, and then it gives you something to trade for. Sullivan: No, I think the way that we are doing it is better than the other. H.M.Jr: Well, I can't -- Sullivan: I me an why insist that a state pay six per cent when they are afraid to call them for fear they would lose the advantage in the tax? We are not going to lose anything. Foley: I know, but that is admitting, it seems to me, that there is a burden here and I don't think there really is. 238 - 11 H.M.Jr: And I agree with Ed, but I am too tired to argue. I mean, I agree you have got to let these fellows refund. Sullivan: No, it is only on those that are callable, sir. Foley: I mean, it is to the extent that they are not paid off. Let's say the City of New York has 50 million coming due next year. If they decide not to pay them off but they decide to refund them, they can issue, if this bill goes through, completely taxexempt securities to the extent of the amount that they refund, which would be 50 million dollars, and they could stick that off in the future 60 years. Sullivan: No, you are wrong there. Foley: Oh, not beyond the time. Sullivan: And we don't lose a thing, because if your bill passes, then they don't refund anyway. Foley: Why wouldn't they refund? Sullivan: Why would they? Foley: Simply because they couldn't put that amount in the Budget that year, John. They do the refunding whether you put this in or you don't put it in. I know, because I have worked for these municipalities, John. I know they do the refunding, all right. Your (Secretary's) little town of Poughkeepsie is still refunding obligations they issued back in the Civil War. They never pay them off, they just go right on refunding. 239 - 12 Sullivan: This bill won't permit them to do that, Ed. Foley: Yes it will. Sullivan: No, I beg your pardon. They cannot refund beyond the date of the present maturity in the bond that they are refunding. Bell: In other words, Mr. Secretary, if they have a bond out for 30 years, that can be called in the twentieth year, they can call that bond in the twentieth year and refund it, but they can't issue beyond a ten year bond. H.M.Jr: Well, I won't even give them that privilege. Bell: It discourages the refunding at the earlier date. They will wait until the last date to refund. You have got the same situation in the Treasury, but, you, of course, will always take advantage of the call date if you can -- H.M.Jr: Like all these things, we could argue about Sullivan: Well, I have never heard you express this opinion before, Ed. Foley: I have always had this. Sullivan: Well, I didn't know it. H.M.Jr: You never saw him at the right time of day. Sullivan: I have seen him at all hours of the day. it all day. From what I have heard, I would side with this fellow (Foley) but you (Sullivan) have got to handle it and you have got to present it on the Hill, see. 240 - 13 Foley: I raised it with my boys and my boys told me that you had committed yourself to Brown on it. this and you couldn't do anything about Sullivan: I have never discussed it with Brown. Foley: well, that is what the boys told me. Sullivan: No, sir, I have never discussed it with Brown. Bell: Of course, that is a slick way to do it, to get them out. H.M.Jr: Well, let me say, I have been around this town long enough; you sit over a bill and then somebody sticks in an amendment and - you know. But from what I have heard so far, I still say I side with him, but you will have to do it, John. Sullivan: All right. H.M.Jr: It is funny T should put my finger on that, though, and I wasn't coached. What does that mean, "non-discriminatory rights to states"? Foley: They can tax ours to the extent that we can Sullivan: It means they can tax ours to the extent they can tax their own. Foley: That is right. H.M.Jr: Now, just a question - I drew a line through here. I would like to have these things on tax theirs. separate sheets. 241 - 14 Bell: You mean the bills? H.M.Jr: Yes, these are separate bills. Bell: O.K. H.M.Jr: They are two separate bills. Bell: John has got another program which he gave you that involves, I take it, eight or nine billions. Sullivan: I think these two ought to go together. E.M.Jr: I think if we can get this through with the President and say, "Now look, Boss, we want to come back and talk to you about new taxes." Sullivan: Yes. The rest of the program isn't too much related to this. M.M.Jr: If we could get through this thing and after all, get him to agree on this financing, make him realize how much money we are going to have to raise, the necessity for this bill, try to get it introduced right away and so forth and so on, and then say, "Now, can I come back next week and have another half hour? we would like to talk taxes to you. Now, you can have your stuff with you, John, so if he says, "Now, what about raising some new taxes, you can say, "Well, here are some ways you can raise a billion and a quarter. Isn't that about what you had on there? Sullivan: Yes. Bell: How about your amendment to the Excess Profits Tax Bill? 242 - 15 Sullivan: Well, there is a technical - it is more than a technical amendment to the general relief provision in the Excess Profits Tax Bill that we ought to go in there with. We ought to start with the committee this week. On the floor of the Senate, Senator George introduced an amendment in the form of a general relief provision that was badly written and did just the opposite of what he intended to do; and in conference on the final day, on Sunday, they rephrased that so it didn't mean very much, and there was an understanding that at the opening of the session we were to introduce an amendment to that, that would be workable, and I have talked with Senator George about it -H.M.Jr: Sullivan: What will it do? Let's get the background. What will it do? Well, it is an attempt to iron out in the base period credits certain abnormal amounts. A fellow's credit on excess profits depends on his earnings in '36, '37, '38, and '39. Now, for instance, if there was a strike in an industry during that time or if a fellow couldn't get materials that he had to import and his earnings dropped way down without the general relief provision, that would mean his credit dropped way down. H.M.Jr: Have you (Foley) been in on this? Foley: No. H.M.Jr: Have you been into this, Bell? Bell: No. H.M.Jr: I wish you would try it on a couple of fellows around here. 243 - 16 Sullivan: We have been working on it for over two months, sir. H.M.Jr: Yes, but -- Bell: Was it promised last session? H.M.Jr: Just try it on some of your friends around in Treasury. They are all in the dark. They don't know anything about it. Well, my impression is that people around the Treasury - I will say this, when we get through you raise this thing with the President and see if you can get it, but if you can't and you have tried it on people like Bell and Ed and Herbert Gaston and if they think you are all right, go ahead. Sullivan: You see, all of Tarleau's shop and a good share of Blough's and the Joint Tax Committee have been working on this thing now for about two months. H.M.Jr: I still say, John, try it on Bell and Ed and Herb Gaston. Sullivan: I will be very glad to. H.M.Jr: And if they all think it sounds all right - you know, loosen up a little bit. Sullivan: Sure. I didn't want to bother them. I thought they had plenty to do. Bell: I thought it was something that was agreed upon pretty well as to general relief last year in the conference. 244 - 17 Sullivan: It was, in the conference. Bell: It was too late to get it. H.M.Jr: I know. They might agree on a lot of things which - as I say, I haven't had time to assimilate it, but if Bell and Foley and Gaston say they will go along with you, O.K. Sullivan: All right. H.M.Jr: And I will tell you now that if we get over the stuff - in the first place, if the President sees us, which I think he will, but you never know, but if he sees us and we get over it - be sure to bring this up. Sullivan: Yes, sir. H.M.Jr: And if you don't get a chance and the people around the Treasury think it is all right and you have got a commitment on the Hill, you had better go ahead with it anyway. Sullivan: "ell, it is something that was all agreed to in the conference at that time, and we have to do something. H.M.Jr: Well, Bob Doughton hasn't called you up, or Jere Cooper, have they? Sullivan: Oh, we discussed it many times last fall. H.M.Jr: Since the first of January Sullivan: No. Bell: Stam has been working on it? Sullivan: Oh yes, he calls us twice a day. 245 - 18 H.M.Jr: Well, you have my blessing if we have any time tomorrow to bring it up. If we haven't, try it on the fellows here, your own associates, and if they say it is O.K., go ahead with it. That is fair enough, isn't it? That is that. Sullivan: Well, you don't want to present this whole program tomorrow? H.M.Jr: Not tomorrow. Sullivan: Right. 246 MEMORANDUM FOR THE PRESIDENT There are enclosed drafts of two bills relating to the public debt and the status of Federal and State obligations from the standpoint of exemption from taxation, which I propose to recommend to Congress if they meet with your approval. The first bill, entitled "A Bill To Amend the Second Liberty Bond Act, as amended, and for other purposes," would accomplish the following objectives: (a) It would fix the ceiling on the public debt at $60,000,000,000, an increase of $11,000,000,000 over the present statutory combined debt limit of $49,000,000,000. The new limit, of course, would not include guaranteed obligations issued by the Reconstruction Finance Corporation and similar agencies. (b) It would give the Secretary of the Treasury greater and more flexible authority over Savings Bonds as a financing medium by giving him discretion (1) to fix their denominations, (2) to determine the aggregate face amount of them which may be held by one person at one time, and (3) to issue them on an interest-bearing as well as a discount basis. (c) It would authorize the Secretary of the Treasury to issue, in the same manner as Savings Bonds are issued, a new obligation similar to the old War Savings Certificate called a "Treasury Savings Certificate." (a) It would eliminate the partition between the general debt limitation of $45,000,000,000 and the National Defense limitation of $4,000,000,000 and would repeal that section of the Revenue Act of 1940 which earmarks certain taxes levied under that Act for the purpose of retiring, over a five- year period, any National Defense obligations issued under the National Defense debt limitation. 247 -2(e) It would remove from all Federal obligations (including those of corporations and other agencies of the Government) issued in the future the privileges of exemption from Federal taxation, which they now enjoy. The purpose of the second bill is to provide the balance of the legislation necessary to enable us to complete our program of elimination of tax- exempt securities. This purpose would be accomplished by: (a) Making obligations issued in the future by any State, Territory, municipality, or other public body subject to income taxation by the Federal Government. To permit public bodies to take advantage of favorable market conditions, provision has been made for the refunding of outstanding callable bonds with tax exemption for the same period as the original issue. (b) Consenting to non-discriminatory taxation by States of the interest on all Federal obligations issued in the future. I think it would be good strategy to have the bills acted upon by Congress in the order in which I have discussed them in this memorandum; however, since I want to be in the position of being prepared to move forward on both fronts at the same time if circumstances require, I am presenting both to you at this time. 248 January 21, 1941 TO THE PRESIDENT: The Treasury's working balance is at the present time down to $742,000,000 and by the end of January it will be down to approximately $400,000,000. It is, therefore, necessary for us to raise an additional amount of new cash at this time to meet heavy expenditures for the next thirty days. I propose, therefore, offering on Thursday of this week $500,000,000 of National Defense notes, the income from which will be subject to all Federal taxes. If our legislation to raise the debt limit and to tax the income from all Federal securities is passed before the middle of February, I contemplate an issue of Reconstruction Finance Corporation securities during that month in the amount of about $500,000,000. This will enable that Corporation to meet its commitments as well as return to the Treasury some $350, 000,000 of its capital funds as recommended in your 1941 Budget. If this legislation is not enacted by that time, I shall have to offer another issue of Defense notes in that amount. After this legislation is passed, I also contemplate issuing before March fifteenth, $1,000,000,000 of Treasury securities for new cash and refunding $1,222,000,000 of securities maturing on March fifteenth. It is hoped that the Treasury can at this time issue a long-term Treasury bond, the income from which will be subject to all Federal taxes. Draft - 2 249 MEMORANDUM FOR THE PRESIDENT: In your Budget Message, you made the following statement: # I am assuming that the Congress will accept the recommendation of the Secretary of the Treasury that the earmarking of taxes for retirement of defense obligations be repealed; The Budget document shows, based on the program set out therein, that the gross public debt will be $49,157,000,000 on June 30, 1941, and $58,367,000,000 on June 30, 1942. These two figures do not take into consideration the future accruals on Savings Bonds nor any contemplated aid to Great Britain. According to Treasury estimates, the balance of the borrowing authority under the combined debt limitations of $49,000,000,000 will be exhausted in May of this year. It will, therefore, be necessary for the Treasury to ask Congress for an immediate increase in our debt limitation, and we should like to ask at the same time the elimination of the partition between the general limitation and the National Defense limitation, and the repeal of the provisions setting un the special fund into which earmarked taxes are to be deposited for the purpose of retiring any outstanding National Defense securities. The attached statement shows in detail the Treasury's financing problem for the next six months, and in a general way for the fiscal year 1942 under the Budget for that year. In view of the Budget program and the additional financing which may be expected of the Treasury under the Lend-Lease Bill for Great Britain, I recommend that the public debt limitation be fixed at $60,000,000,000. 250 January 21, 1941 4:20 p.m. H.M.Jr: Allen Hello. Sproul: This is Allen Sproul, Mr. Secretary. I want to report back to you on this publicity on foreign funds. H.M.Jr: Yes. S: I've had a thorough check made of our people who actually were informed. here. First, there were nine men in the bank H.M.Jr: S: Yes. Questioned all of them and they all state without equivocation that they had no conversation with anyone outside that group about it. H.M.Jr: S: Yeah. I've further questioned any other men who although not actually informed are engaged in that department and who may have in some way or another heard rumors or talk, and I've had denials from them for what they are worth. I think they are sound. I've checked with the two places which published the story. The first story was in the Times. They say they have had the story, made it up over a period of weeks from various bits of infor- mation they 've picked up in New York, in H.M.Jr: S: Washington and even in dispatches from abroad. I see. But they finally referred the story to their Washington office for verification and it was there that they got the one thing that was really new to them and that was that an order had already been prepared which might be used. H.M.Jr: I see. 251 -2S: The Tribune people said they had picked up the story from the Times in the first instance and then had referred it to their Washington office or their Washington Bureau for verification and had gotten back from their H.M.Jr: S: Washington Bureau enough verification to warrant them in going ahead they thought. I see. I think it is safe to say that our people have been very discreet about it. H.M.Jr: Good. S: And I think it'11 do no harm to make this check, but we emphasized the confidential character of what information we had, we numbered all the copies of the documents which we did give out to nine people directly concerned and enjoined on them complete secrecy. H.M.Jr: Good. Well, thank you very much. S: All right, Mr. Secretary. H.M.Jr: Thank you. S: Good-bye. 252 January 21, 1941 Mr. White Secretary Morgenthau When you get the Federal Reserve and the Department of Commerce to agree on the English assets and liabilities, I think it would be very useful if you would show it to Herbert Feis and get him to agree also. Tell him that I would like to have him initial the memorandum for the State Department after Mr. Hull has seen it so that we can be sure the State Department is with us as well as the Federal Reserve and the Department of Commerce. Make sure that both Mr. Hull and Mr. Feis see it before it goes up on the Hill. 253 January 21, 1941. my dear Mr. Blees: when I appeared before your Consistee on January 15, I presented figures of the Britt ah dollar position as subsitted to as by the Byd Sish Treasury. Since then the British Treasury has communicated to me a more recent figure of their gold heldings. I submit this revised figure to you wi thout delay, as I want the Committee to have the latest information in the possession of the Treasury. The figure the British had previously submitted to me of their total gold holdings (on December 31, 1940) was $238 million; the revised figure is 8292 million, OF 864 million greater. The earlier Bydtish table included 633 million of gold seattered in various parts of the world, and not available for payments here; the new table sakes this figure only 830 million, which seans that 83 million more are available for use. On the other hand, the British Treasury has absisted to as an additional debit item of 821 million, representing conal twents already made on account of forward exchange contracts. This figure was not in our possession on January 15th and did not appear in ay ori ginal table of Britis liabilities. The difference between the present total and ay earlier total is, therefore, a not increase of 836 million in British dollar and gold assets which are available to pay for war supplies in this country. The following table of the United Kingdom's gold and dollar assets contains the revised figure of gold heldings on December 31, 1940, and to that extent supersodes the table I presented to you on January 15th. The present table ineludes also a set of figures which the British Treasury has just given us as to their gold and dollar exchange position on August 31, 1939. just before the outbreak of var. All the figures in the present table are supplied by the Byd tish except the estimate of private dollar balances, marked with an asterisk, which is Saken from United States Treasury data. 254 2- Gold and Dollar Exchange Assets of U.K. Aug. 31, 1939 Dec. 31, 1940 (In Millions) Gold official dollar balances *private dollar balances. Marketable U.S. securities. Direct and miscellaneous investments in U. $2,038 $ 50 54 545 305 950 616 900 900 54,483 $ 2,167 Total gold and dollar exchange as ets 292 From the total British gold and dollar exchange assets of ,167 million on December 31, 1940, the British exclude as unavailable 4305 million of private dollar balances regarded as necessary for the conduct of business, 830 million of gold scattered in different parts of the world, and $21 million (the figure I mentioned earlier in this statement) on account of forward exchange contracts. This leaves a total of 11,611 million in gold and dollar exchange assets which the British regard ac available, as connered with a figure of 1,775 million in the original table I presented to the Committee. It any be of interest to you to compare the British figures of their position on August 31, 1939, with the figures published in the Federal Reserve Bulletin of January, 1941. The Federal Reserve Sulletin estimated British gold and dollar Pessurges as of August 31, 1939, AS fellows: (In millions of dollars) Gold Dollar balances Market securities Direct and missellaneous investments in the U. Total TEXASA 1/21/41 12,000 595 1,080 1.185 $4,860 255 -3 The only significant difference between this estimate of the Federal Reserve Board and the British Treasury statement is in the figures of marketable securities and direct and miscellaneous investments in the United States. The Federal Reserve Board's estimates of the United Kingdom's heldings of U. S. securities and direct and other investments in the United States as of August 31, 1939, were based on U. S. Department of Commerce data. The difference of $130,000,000 in market securities is as night be expected between estimates built up from ontirely independent sourees of information -- particularly as nominee accounts are involved and the dates as of which the British have valued their investments differ somewhat from those of the Department of Commerce. Both estimates are based on market values. The Department of Commerce estimates of the value of so-salled direct and missellaneous investments de not purport to represent liquidating value since these figures are based on book value and on the capitalisation of earnings, respectively. The figure of the British Treasury for direct and missellaneous investments, stated to be "net in excess of $900 million", is a tentative estimate that will be re- vised as more exast information as to the sum of such investments is obtained by the British Treasury and as evidence of their liquidation value accumulates. New was it possible for British assets to shrink so rapidly between the start of the war and the end of 19407 The shrinkage as you will have seen from the first table submitted today, amounted to $2,316 million. The explanation will be found in the following table of the balance of payments of the British Empire, excluding Canada and Nonfoundland, with respect to all transactions requiring settlement in dollars or in gold. This table, which I now submit to the Committee, was compiled by economists of the Treasury Department, the Department of Commerce and the Federal Reserve Board, on the basis of data supplied by the British Treasury. TMK, 256 .4. Estimated Gold and Dollar Expenditures and Receipts of British Empire, Excluding Ganada and Newfoundland, from September 1, 1939 to December 31, 1940 (In Millions of U. s. Dollars) dold and Dollar Expenditures A. Payments to the United States by United Kingdom. 1. On British Government ordere in the United States. Goods delivered Advance payments. Capital assistance 2. For other a imports from the United States. 3. For shipping, interest, etc Shipping disbursements 8660 81,380 570 150 705 125 Interest and dividends Missellaneous (chiefly film royalties) 24 B. Payments to the United States by Empire countries, excluding U. K. and Canada 1. For commodity imports. 2. For shipping, interest, etc Interest and dividends Shipping (net) 197 82,282 435 463 40 s C. Payments by Empire countries, excluding Canada, to areas outside the U. 3. requiring gold or dollars 1. Payments by Empire countries (chiefly U.K.) to areas outside the U. s. and Canada requiring gold OF dollars 2. Gold payments by Empire countries to Ganada and Newfoundland (not) D. withdrawal of Capital 1. By American and others, through sale of free sterling to American Importers 2. By repayment of outstanding expert credite as required by our Neutrality not 3. By liquidation of forward exchange position in dollars. Compiled from data furnished by British Treasury For details see supplementary table appended. 550 225 775 300 200 235 735 257 -5Gold and Dollar Expenditures (Cont.) E. Residual - Miscellaneous items and errors of estimation Total gold and dollar requirements for all transactions Gold and Dollar Receipts A. Receipts from United States by United Kingdom 1. From merchandise exports $ 205 2. From interest, shipping, etc Interest and dividends Shipping earnings $ 85 Remittances from insurance companies 140 345 35 20 B. Receipts from United States by Empire countries, excluding U.K. and Canada 1. From merchandise exports 2. From tourist travel, resittances, etc. (net) 640 30 670 0. Dollar receipts by Empire countries, excluding Canada, from areas outside the U. S D. Receipts from sale of Empire gold (new production and dishoarding) Total gold and dollar receipts by Empire countries, excluding Ganada 50 965 $2,030 Total drain on gold and dollar resources of British Empire, excluding Canada and Newfoundland, Sept, 1, 1939 to Dec. 31, 1940. Total gold and dollar requirements for all transactions TMX:rel 1/22/41 2,316 84,346 258 -6Supplementary Table Estimated Expenditures and Receipts of Canada and Newfoundland with the Rest of the British Empire fyon September 1, 1939 to December 31, 1940 (In Millions of U.S. Dollars) A. Payments to Canada and Newfoundland by Empire countries 1. For purchases from Canada and Newfoundland by the United Kingdom 2. For purchases from Canada by other Empire countries. 8795 125 3. Other payments to Ganada by Empire countries 10 8930 B. Receipts from Canada and Newfoundland by Empire countries 1. Fres merchandise exports to Canada 170 2. Prem serehandise exports to Canada by other Empire countries. 100 and Newfoundland by U. K. 3. Fres interest and dividends paid by Canada to United Kingles 4. Other U.K. Receipts from Canada, principally Ganadian Expeditionar 85 20 Forces. 375 British Empire deficit with Canada and Newfoundland on merchandise, interest and dividends, etc. Canadian assistance to U.K. - repatriation of British-held Canadian securities and increase 555 330 is sterling balances held by Ganada Gold payments by British Empire countries with Canada and Newfoundland Sept. 1, 1939 to Dec. 32, 225 1940 I hope the foregoing figures will be helpful to the Committee. sincerely, Secretary of the Treasury. Honorable Sel Bleen, Chairman Committee on Foreign Relations, House of Representatives, Washington, D. e, 259 January 21, 1941 My dear General: I would appreciate it 1f you would arrange for an appointment for Mr. Bell, Mr. Sullivan and me to see the President Wednesday forenoon. As it is necessary for me to make a decision on how we will raise $500,000,000 before one o'elock tomorrow, I would appreciate being given the first appointment of the day. I will need half an hour, because I want to clear with the President a number of urgent Treasury legislative problems which I have refrained from bothering the President with up to now. Yours sincerely, Hmgr General Edwin C. Watson, Secretary to the President. Delivered by G. MaKay 920 260 January 21, 1941 My dear General: I would appreciate it if you would arrange for an appointment for Mr. Bell, Mr. Sullivan and me to see the President Wednesday forenoon. As it is necessary for me to make a decision on how we will raise $500,000,000 before one o' clock tomorrow, I would appreclate being given the first appointment of the day. I will need half an hour, because I want to clear with the President a number of urgent Treasury legislative problems which I have refrained from bothering the President with up to now. Yours sincerely, Hmgr General Edwin C. Watson, Secretary to the President. Delivered by Lt. Mekey 261 January 21, 1941 My dear General: I would appreciate it 1f you would arrange for an appointment for Mr. Bell, Mr. Bullivan and me to see the President Wednesday forenoon. As it is necessary for me to make a decision on how we will raise $500,000,000 before one o'slook tomorrow, I would appre- ciate being given the first appointment of the day. I will need half an hour, because I want to clear with the President a number of urgent Treasury legislative problems which I have refrained from bothering the President with up to now. Yours sincerely, Hmgr General Edwin C. Watson, Secretary to the President. Delivered by Lt. the Kay WITH THE COMPLIMENTS OF HAROLD K. HOCHSCHILD 262 Copy of Letter from A, Mexico City, January 21,1941. My silence last month is to be understood as due to the fact that nothing of any importance turned up worth while mentioning. However, things are taking a decided trend now. The new President seems to be very well intentioned. Some of his laws are very well received, but the agitation between the labour and the farm element is getting worse every day and it is quite common talk that behind all this is the former President Cardenas. Nobody has ever been forgotten so quickly as this man, but he is now, while ostensibly keeping entirely out of everything, presumably behind the labour agitation. Strikes are multiplying very fast and them were left over are purely invented, just to new while some of show from the Cardenas' President administration, the power of others the labour element, or better said, of the syndicates, as the workmen themselves are greatly opposed to these continued agitations and strikes. The new President therefore has to go very slowly and many a thing which needed to be done will have to wait, if it is ever done. Everything points to a show-down very soon. It is also reported from very good authority that Cardenas is supposed to have said that if the new Government should go one step more to the right he would take a hand in the matter. No doubt theactual President will triumph in the end, but in the meantime all kinds of things which should have been done are left undone to the detriment of the public economy. The most valuable time to make an agreement economically and financially with the States, like settlement of the oil question, land question, foreign debt, etc., etc., is being lost. Once the United States get more mixed up with European affairs or even as a belligerent into the War, they will have no time or mood to listen to Mexico's demands. There were persistent rumours the beginning of December to the effect that the present Cabinet is only temporary, and that there much will be big changes within a few months. Lately there have been rumours again, but it remains to be seen if such really is the show- case. Such a change would be undoubtedly a declaration of war for a down between the actual President and the past one. 263 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION TRICTLY CONFIDENTIAL DATE January 21, 1941 Secretary Morgenthau TO Mr. Klaus FROM FBI reports: December 19. Special Agent's report, German funds, New York City. It is indicated that the German Consulate has been exchanging $500 and $1,000 bills for currency of smaller denominations (which cannot be traced by serial numbers); the Estate of Hamilton Fish received $333 on October 31, 1940, from the German Consulate; it is believed that this may be for rent of certain property in Germany. An analysis of the withdrawals of the German Consulate General's account disclosed that $66,363.90 was withdrawn by checks payable to bearer (usually endorsed by an employee of the Consulate) during November, while employees in the Consulates of New York, Buffalo, and Philadel his received altogether $13,071.48, employees of the German Library of Information received $1,130.38, and all other payments amounted to $9,487.45, making a grand total of $90,053.21 for the month. Deposits to the account included $650,000 transferred from the account of Banco de la Nacion of Argentina on November 30, the other main item being transferred from the Reichsbank. It was ascertained that the $650,000 did not emanate from any single large deposit made in the Banco de la Nacion but resulted from an accumulation of credits received mostly from the Banco Italiano, Lima, Peru, from Swiss banks, and from J. Henry Schroeder and Company. December 20. Special Agent's report concerning foreign funds in the Spring- field, Illinois, area is to the effect that there are no bank accounts suspected of being used for subversive purposes and therefore no accounts in this area will be monitored. December 21. Special Agent's report on Heineken, manager of the Chicago branch of Robert Hautz and Company specializing in Rueckwanderer marks, shows that the largest part of the business in Chicago in Rueckwanderer marks is handled not by Heineken but by Berthold Mueller, who works through Fritz Heber- is ling, who in turn is attached to the German Consulate without portfolio but in reality said to be the highest ranking Nazi in Chicago, above the Chicago Consul General; it is possible that Heberling gets a cut in Mueller's business. It appears that Rueckwanderer marks were originally issued in 1938 or earlier for persons who were actually returning to Germany and had steamship to Ger- ac- comodations (mostly in connection with the German drive for the return main- many of American mechanics of German origin) and the business was handled to ly through Hapag Lloyd; later all foreign exchange agents were permitted of actually handle the business and it was not limited to Germans in the process which is returning. It also appears that the Super Tool Company of Chicago, of the said to have Navy contracts, is run by one Roy Matzen, a close friend Nazi leaders in this country. nr 264 January 21, 1941 My dear Mr. President: I thought you would be interested in reading the inclosed clipping. Yours sincerely, (Signed) H. Morgenthan, Jr. The President, The White House. Enclosure By Memmer 200 265 January 21, 1941 My dear Mr. President: I thought you would be interested in reading the inclosed clipping. Yours sincerely, (Signed) H. Morganitas. Jr. The President, The White House. Enclosure By Messenger A off. of these was in the purchase of with him his money-saving How much. If any of thisCommission who, like the one on of a little man on the Defense Army's buying practices. OneThe little man is Frank M. This bombardment, plus some 3,996,000-pound shipment was due inferring that he was long- usual exports to Russia. By DREW PEARSON and ROBERT S. ALLEN shoes-2,397,000 pairs. of every Mid- halfed amateur and demanded They assert that enough solethe stair in the verse, on second that "shoe expert' be ap leather was shipped from U. S and made a number of money This is the interesting story pointed to the Defense Com ports make to more Russia than in 2,000,000 November pairs to saving innovations in the is foreign price was $2.83. Under the new November west disclosed vote these in significantwas put on the Government was had skyrocketed to $3.31. McElwain Shoe Company, onecould do anything about it. he formal negotiated bids, seven that Another the interesting McElwain item was the strictly rural districts, but Street insiders in key defensethe fighting had shoes that South got nice slices of the Army announced 10 was in the picked up 1/2 of 1 per cent incerns.fitted, uniforms that didn't look tional Committee analysis of themake Under his method of in- betweenFrance as a first sergeant in the Merry-Go-Roundnational emergency. and he Gordon, 2,397,000 pairs at prices rang Wall Street law firm which has Small companies couldn't cope Sunday 1,840,000 pairs of shoes cost the heavily this when Folsom-to-tee signed Wright, charge Interesting sight at friend. Procurement Director the big manufacturers who, un- under forum. by just radio tanners treaty. leather winds up in the handsnot his fault, but that's ahead cessful. Folsom was quietly here October quietly Amtorg in September for trans and P. Murphy. for them. might provide an answercost the Government a lot of under what the Army paid in of army shoes, Also that thisFolsom. executive vice president potent wire-pulling was suc only part of an order placedpresident of Montgomery Ward, possible length and width. at all over the country for in- market for so many pairs of posts has given rise to this pun Folsom accomplished this feat Then the Army again went in the financial district. "I'dof one of Chicago's largest de- the industry wanted. in the old President velt night appointed a dollar-a-year shoe one's guess, The new tradewho could deliver contracts of In his place the commission of the Soviets' Nazi ally is any-look wasn't there- and how that The pa- pair, a trade (appr.) two strategic defense jobs $6,500.000 inturers Association domi- The New England Shoe Man. Russia Buys Leather mission. ideas. for complained indignantly to its cent over August quotations (Trade Mark Registered) pers printed scorching editorials largely to enormous/and un- A big Midwestern company which they claim are up 36 per Controlled Senators a protest meeting and irately the abrupt and precipitous price denounced the new buying plan. boost to increased leather costs. nated by a few big firms. Present Shoe manufacturers attribute policy is debated, is Alice Long der the old system had for later $3.10 a pair. Frederick Eaton and John P. teen shoe plants in New Eng shoes and asked for bids. whichfold. Under Folsom it received set by large gave the edge to a few big firmsLast fall, Folsom got the the World War price. an order for 50,000 pairs. Two towns: (2) German centers thatIt really begain 22 years ago, a pair or about $1.50 less than would see that the men who did "expert" regime this average items: (1) That the New Deal land. the Midwest and the company like burlap sacks, and blankets increased its business three this small gain losses was in the small som's plan made it possible for dollar-a year expert to help clothe the worth. Mrs. Burton K. Wheeler,out of the service. he made together in the front row landsolemn resolve: 2,397,000 pairs Folsom bought Ohl. as dollar-a-year men innew selective service army years enjoyed a virtual monop them to get contracts of a mod- erate size on an equal price and Mrs. Bennett Clark stiting oly of the Government's shoe In five months Folsom super lcudly applauding attacks on som's method car bit and they $100,000,000 worth or orders, business. They didn't like Fol- ing from a low of $2.65 to a the feet. Zachry & Parlin is a leadingwas 150,000 pairs. In both in- out to buy time as rather be Wright, Gordon thanwere traditionally Democraticsuch size in the time specified. months later. with him back in voted strongly against Roose way. This was the result: business rival and close personal Granick's stances it was a low bidder. but Theodore Everybody was happy-except chance to gratify this ambition him a as summoned Nelson. Washington Daily vised the placing of more than to Donald that were long enough to cover Merry-Go-Round - three members. Blackwell Smith when Folsom returned from of the story. eased out of the picture and port to Russia via Vladivostok.he wasn't there when the "bite" mer governor of New Hamp if the terms were known.money in buying Army shoes. of the big New England con- The heavy inroad of WallHow It Was Done Under the old system, the 1917-18. formal bids covering the shire and director of the J. F.saving of around $1.50 a pairand one of the greatest mer- number of shoes they could by the device of asking a large partment stores, formerly vice chandisers in the country. That number of shoe manufacturers with such giant orders. but Fol- Air Corps. As he was mustered $6,102,570 as compared toWashington high of $2.97, averaging $2.83 Chicago, the McElwain share Big Boys Squawk when his old Sears-Roebuck the AdministrationThat if ever there was another confidential Democratic Na. footing with the big fellows, let out a series of loud squawks. months earlier. Under Folsom the average 267 January 21, 1941 Dear Leon: I am sending you herewith a memorandum from George Haas. I want to draw your particular attention to the fact that it seems to be Russian and Japanese buying which is driving up the prices of fats. I think it would be worth while if you would have this investigated. Yours sincerely, (Signed) H. Morgenthau, Jr. Mr. Leon Henderson, Commissioner, Price Stabilization Division, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D.C. beclosure By Message 200 268 January 21, 1941 Dear Leon: I am sending you herewith a memorandum from George Haas. I want to draw your particular attention to the fact that it seems to be Russian and Japanese buying which is driving up the prices of fats. I think it would be worth while if you would have this investigated. Yours sincerely, (Signed) Jr. Mr. Leon Henderson, Commissioner Price Stabilisation Division, Advisory Commission to the Council of National Defense, Federal Reserve Building, Washington, D.C. E inclasure By Manager 269 January 16, 1941 Secretary Morgenthau Mr. Haas Subject: Explanation of why tallow prices have risen 50 per cent, in response to your request of today. The spot price of tellow, of the grade used in the BLS price index of 28 basic commodities, rose from an August low of 3.50 cents a pound to a price on January 15 of 5.25 cents. This represents a gain of 50 per eent, of which 43 per cent occurred prior to January 1. About 90 to 95 per cent of the domestic production of tallow is inedible and goes into industrial uses, particularly for soap making (where glycerin, used widely for industrial purposes and for explosives, is an important by-produes), for lubricants, for treating leather, and many other purposes. Current price relatively low Tallow prices are still relatively low in comparison with previous years, despite their recent sharp rise. Prices had declined in August 1940 to the lowest level since 1934, owing to a large domestic production of tallow, lard and other fats and oils, and to the constriction of world export outlets for these products. The price of 5.25 cents quoted on January 15 for packer's prime inedible tallow at Chicago (as used in the BLS price index), while above the average price of 1940, is lower than in all but a few months of the previous 5 years. (See attached chart.) Recent bullish price factors The sharp recovery in tallow prices during the last quarter of 1940 resulted from a combination of bullish developments: (1) A seasonal decline in oattle marketings at the end of the year reduced the current production of tallow. (2) A rise in lard prices, resulting from the pres- peet of a greater than seasonal decline in hog marketings in the late winter and from a Government report forecasting 270 2- a 14 per cent reduction in the spring pig erop in 1941, removed the competition of cheap lard as a soap material. (3) The difficulty of obtaining supplies of certain for tallow. This has been due partly to shipping diffieulties and partly, according to trade reports, to oils from abroad for soap making increased the desend very heavy buying of oil materials by Japan and Russia. These two countries are reported for example, to have been very heavy buyers of copra (from which occonut oil is extracted) in the Philippine Islands, thus raising the price sharply and limiting the supplies available for other buyers. Coeonut oil prices have recently been raised, owing to the inability of manufacturers to buy copra in any volume. (4) Tellow prices have shared in the recent general strength in prices of fate and oils, which trade sources have attributed in an important degree to heavy buying of lard and coconut oil by Russia and Japan, impliedly for trans-shipment to Germany. Russia is reported to have bought account oil heavily on the Pacific Coast around the first of the month, one trade report placing such purchases at 3,000 tons. Japan is reported to have obtained about 800 tons of lard in this country within the past month, and Russia is said to have been buying lard contracts heavily on the Chicago Board of Trade. Press reports of January 14 indicate that a delay in the movement of this lard to Russia is expected, due to inability of that country's agent here to obtain shipping space. (5) The high rate of industrial activity, together with defense buying, has doubtlese increased the demand for tallow and for glycerin (a by-product of all fate used in soap making). (6) Some advance buying of tellow by industrial users may have been a factor in the recent market, since the price outlook for this group is considered in the trade to be bullish, owing to the prospective decline in lard production, increased shipping difficulties, and expanding demand. The Department of Agriculture saye that "Lard, tallow, and grease prices are likely to advance relatively more than prices of other fate, because of prospective changes in the domestic supply situation". law 1/16/42 JAN.15 P-108-E1 '40 '39 '38 '37 '36 '35 Packer's Prime Inedible Tallow at Chicago '34 TALLOW 1933 8 10 PER CENTS POUND 6 4 2 272 JAN 21 1941 My dear Mr. President: The following comments relate to the suggestion that corporate organisations claiming a tax exempt status under the income tax laws should be required by Treasury Regulations to file annual information returns stating the names of officers and directors, the number and times of meetings, and all disbursements and receipts in excess of. say, $100. It is further suggested that this requirement night be waived is the case of bone fide religious and other organizations. (1) The revenue that would result from the suggested requirement would be negligible. The labor and cost involved, as respects both the organizations required to file the returns and the Bureau of Internal Revenue, would be very great. In round numbers there are over 50,000 corporate organizations having a tax except status; about 10,000 of these corporations are is the class of tax except cor- porations contributions to which are deductible. A recent cheek of about 40,000 tax exampt organisations disclosed that the status of only a handful was questionable. Fres a revenue standpoint, it is not feasible therefore to require annual detailed information returns for the purpose either of, one, checking the right of the organisation to possess a tax exempt status or, two, assertaining whether contributions claimed to have been made by individuals or corporations to a tax exempt organization were is fast made. (2) It would not be feasible to require animal information returns from all tax exempt organizations and then to exempt by regalstion those knows to be 'bona fide." The difficulties of classification and the policy problems inherent in such a classification make this procedure inadvisable. (3) It is feasible to check those specific organizations whose status is questionable. The present practice of the Burean of Internal Revenue is to investigate these organisations whose elais to tax exemp- tion is doubtful in the light of information furnished to the Durean. Consequently, if information from the Department of Justice or other Government agencies were furnished to the Bureau of Internal Revenue with respect to the validity of the tax except status of any organise- tion, that organisation could be required to file a return. This would largely bring about the same result as the method discussed under (2) above, but without the difficulties inherent is that method. 273 .1. (4) The Barean of Internal Revenue has under consideration procedure under which corporate organizations of appreciable sise claiming a tax exempt status would be required to file information returns every five years. the primary purpose of such returns could be to provide information regarding the eeepo and effect, and thas a the destrability, of existing tax exemptions. Faithfully youre, (Signed) H. Morgenthau, Jr. The President, The White House. Enclosures CC to Mr. Thompson By Messenger 200 1/21/41 274 Enclosures received with President's memo of 1/16/41 returned with letter to President dated 1/21/41 and photostat copies kept. 275 MR. MORGENTHAU'S OFFICE TOMr. Bell Mr. Thompson Mr. Gaston Mr. Foley Mr. Sullivan Mr. Graves Mr. Alexander Mr. Haas Mr. Allen Mr. Hall Mr. Bartelt Mr. C. S. Bell Mr. Hanna Mr. Berkshire Mr. Bernard Mrs. Betts Mr. Birgfeld Mr. Blough Mr. Broughton Mr. Bryan Mr. Cochran Mr. Collie Capt. Collins Mr. Harper Mr. Harris Mr. Helvering Mr. Irey Mr. Julian Mr. Kilby Mr. Mulvihill Mr. Rose Mrs. Ross Mr. Schwars Miss Diamond Mr. Sloan Mr. Spangler Mr. Tarleau Mr. Dietrich Mr. Upham Mr. Delano Miss Flanagan Mr. White Mr. Wilson Mr. Sullivan: The Secretary would like to have an answer on this by Tuesday. July THE WHITE HOUSE 10mg 10 J Jue WASHINGTON January 16, 1941 MEMORANDUM FOR THE SECRETARY OF THE TREASURY Please speak to Foley and Sullivan about this suggestion by Morris Ernet. It might actually result in throwing out a great many contributions thus increasing the revenues very substantially. Please return when you are through with it. F. D. R. Enclosure 276 Jan. 10,1941. To Miss Letter From Horris L.Ernst I thought you might think it worth while to show this to the President. GREENBAUM, WOLFF & ERNST 285 MADISON AVENUE NEW YORK IBENT A. NOLYT LEANST SHAPPRO TELEPHONE CALEDONIA 5.1582 NACE D DENNINOS January 10, 1941. Hon. Franklin D. Poosevelt The White House Washington, D.C. by dear Governor: at the Town Hall debate last night us indicated in the New York Times, Verne Marshall referred, though inaccurately, to "a set of letters". I thought you ought to know this fuct because Verne is u bud boy. after the debate he suid he would not let me see his list of contributors and said: "You are the fellow that hundled the Mallace letters after the conference at the White House with Hopkins and Biddle". I said: I have never been at the White House with Hopkins and Biddle, although I know them, but I do know something about the Wallace forgeries which you guys were thinking of printing". I taunted him to let me see the list of his contributors. Enclosed is is stenographic copy of the report. Subsequently Marshall hus refused to LO through with his promise. at last I think I got the techni ues for smoking out the anonymous forces back of movements. Several years ago I tried to Cet Oliphunt excited about it. Under the Revenue Statutes, without amendments and by mere regulation, the Treu- sury can find out who is in buck of who and possibly collect substantial additional income, and in any event, be informed in regard to exemption from taxes to what are presently called tax exempt organizations. I M sending a separate memorandum on this subject. Yours S incerely Encs (3) M Steno Paphic Copy of Report MODERATOR DENNY: I see Er. Morris Ernst about to ask a question. MR. LORRIS ERNST: Mr. Chairman, the reason why I think it is essential for the forces of Hitler to be defeated is. that this kind of a debate could not happen under the philosophy of a Hitler or a Stalin. (Applause) May I say, however, that for many years that I have been connected with this institution, I have never seen it used for advertising before, so I make the suggestion if anybody in the radio audience falls for the suggestion of writing to Mr. Marshall, that they ask him in good American fashion, "Who's back of you with money?" (Appleuse) MR. MARSHALL: Boy, I am glad that one was put in be- cause anybody, any time, even Mr. Morris Ernst -- on u day immediately following his discussions with Francis Biddle and others in the White about a set of letters, can come to our headquarters and read the list of contributions and the names, and addresses, of every real American who is willing to help keep his country out of war. (Applause) He cun always have them, Mr. Morris Ernst. Mr Ernst then asked George Denny Jr. head of Town Hall of the Air and Moderator of the eve- ning's program. to furnish him transcript of the broadcast so that NEW YORK TIMES, I MARSHALL DEBATE he might have Mr. Marshall's exact FRIDAY, JANUARY 10. words As transcribed by the National Broadcasting Company Mr Mar. tration from giving away our DA- shall's reply was tional defense, at the very moment Boy, am glad that one WRS when the President assures us we put in because anybody any time ON BRITAIN HECTIC even Mr. Morris Ernst on a day immediately following his discus sions with Francis Biddle and are in our greatest danger since set of letters come to our reached rapidly if his committee Jamestown." He said that objective would be others in the White House about A Sharp Questioning Follows His Debate With Dean Acheson on Aid to Allies CHALLENGES TO HECKLERS No-War Leader Asks Them to Come to Stage and Fight In a hectic radio debate on the question. Is a Hitler Defeat Essen tial to the United States Verne Marshall, chairman of the No For eign War Committee, supporting the negative, declared last night in Town Hall that the Roosevelt Ad ministration had it within its pow- en to promote a just and lasting peace. He said he believed Adolf Hitler, If victorious, would give the same opportunities to the nations Germany has conquered that DC asked for Germany Twice during the hous of the Town Hall of the Air radio pta. gram Mr. Marshall invited heel in the audience to come 15 on the platform and Bire! him in fistic de Date to whom M Marshall gentletian and might or might next meant took the question. who in willing to help keep his just and honorable peace, his an- Asked in the question period to define what he would consider A addresses, of every real American swer was that it would be one in which the peoples of all nations country out of war He can always have them. Mr. Morris Ernal Previously Mr. Marshall had BC have the same opportunities as the peoples of the rest of the nations cused Mr Denoy of "planting" Norman Thomas the Socialist leader: Dr Frank Kingdon presi- Do you believe Hitler would grant that kind of an opportunity to the countries he already has con- dent of Newark University and also a member of the Committee to De quered A questioner demanded. In my opinion, he definitely will was Mr. Marshall's answer and Frederick Libby of the Keep America Out of War Committee in the audience to make statements contrary to his position, while not asking any other member of the No Foreign War Committee to Mr. Acheson's affirmative answer to the question, 'Is R Hitler Defeat Essential to the United States was that the only. other alternative was R Hitler victory which he said would inevitably lead to a destruc- tion of free government and free speak Although the boisterousness of the life in this country He pictured what might happen If Britain should be defeated. see- meeting was unusual for a Town Hall broadcast, it was purely a vo outburst and those viu roosed Mr Marshall's views made PA et- LIVE Germany absorbing Italy, and with Japan marshalling all the resources of Europe Asia and Africa to attack this hemisphete econom- fort to continue the argument after he program Challenge to Critics seally, militarily and by penetra: tion. The first outburst of the evening came whete Mr. Mashall made his De somewhat sarcastic reference to Mr future be prevented by the only sure prevention a Hitler defeat It Arheson soon after the start of his rath and then went on to KNY that ran and will be done and to achieve am 111st is plain American it should be the cornerstone of There WPIP loud eries of No American policy No when he that state His The depared statement that ⑉is CAD and will he done WAS me! with ap THIS ON onsy angry. Mr Marshall and when he attempted to funish out his sentence and tepral reflect ed the phrase his words NEWS KPIC I am an American Let tim come UII here and SIV that here on this platform I'm Twenty pounds under but I don care how much drowned out by handclapping and shouth TLASTER the audience of 500 Mr Thomas when has was recor nized by M Denny and called studience WIN silent for a mo M Marshall went on to his great grandfather had W <hington JIIN grand Question Period Lively It LM essential to the United States that the possibility of such n Some one says 'No' when I say Dear Arbeson FORTHER fend America by Auding was widely enough supported fend America by Aiding the Alliex -Hedges on Backers Secretary of the Treasury member of the Committee headquarters and read the list of contributions and the names. and to speak saidfor he THE believed here THAT WINN not been presented DS M fund that the principa Unded Lancoln's Arms and that farie 1. private during the and life Hitlet the half and defeat send house Then to M of PL.J: FOR GOVERN ANT THE REFORMS ON ALLECED TAX EXX PA CORPORATIONS The secreoy upon which underground anti-American move- ments thrive depends to a great extent today on the inadequate on- forcement of present revenue statutes. Aside from individual spies, such work is carried on in the United States through organizations which claim to be non-profit making and hence entitled to an exemption as tax exempt entities. In addition, the contributors of money to such organizations claim deductibility on their tax returns for such oontributions. The number of such organizations runs into the thousands and the number of such contributions runs into the millions. In order )to procure tax exemption for the organization under present requirements, little more need be done than the submission of an affidavit disclosing the general objectives of the organization, the work it undertakes, oopies of the certificate of incorporation and by-laws, and a copy of the financial statement of the organization. In order to procure deductibility for contribution the taxpayer shows nothing except the amount he claims to have paid and the Government is put to the burden of checking back to see whether the particular organization receiving the contribution is in the exempt class. It would appear to me that the basis for exemption of organiastions is entirely inadequate and that by regulation without amend- ment statute the Treasury Department should require not only the present information necessary to procure exemption but the filing of reports giving names of officers and directors, number and times of meetings and breakdown of disbursements and of income, giv- ing the names of each contributor in an amount, say, of over $100 and of each disbursement of over $100 and the name of the person to whom disbursed. A waiver of the detailed tax returns might be allowed to bona fide religious, etc. organizations. The purpose of requiring this information would be: (1) By the filing of such reports the Treasury Department would be in a position to claim the abandonment of exempt category in the event of a shift in activities. Today the exemption continues rithout any now information if once granted, until some fortuitous circumstance brings additional information to the Government. (2) Individuals claiming the deductibility of contributions should not be entitled to tax relief unless the organization's records show the item. By having this information the Government can oheok the deduction. This is especially true of anonymous gifts where there is no evidence of payment. If the organization has no record of the contribution, the Government would be in a better position to disallow the deduction. (3) In many instances the organizations are formed for a temporary purpose and are out of business by the time the particular tax return of the contributor has been examined. (4) Many tax exempt organizations contribute in turn to non-tax exempt organisations, and in this way the revenue of the Government is considerably depleted. (5) Similar returns should be required of organizations hich are non-profit making and exempt even though contributions to such organizations are not deductible. Thus, as for example, an or- anization engaging in legislative work even though it is itself an exempt organization, should file full information as to names of oontributors, etc. so that the Government can readily check back to the records of contributors who unwittingly often claim deductibility for contributions to such organisations. (6) The filing of such returns will serve as a check that no individual is deriving peouniary profit from an organization. There are many one-man organizations with high sounding names which are herely devices for deriving profit to one or more individuals. (7) Under the present regulations exempt organizations are required to file information returns of payments of compensation of 31,000 or more. These returns are rarely filed because exempt organ- isations are under the impression they are not required to file any returns. (8) The filing of such returns will serve as a check that donations made for charitable, educational or religious purposes are being actually used for such activities and not merely accumulated. (9) Many exempt organizations are in fact used as family volfazo organizations by the contributors. Others have been formed to absorb profits which would otherwise be taxable to the individuals forming such organisations. These returns would act as a restraint from using the organizations for personal purposes. 30) By the annual filing of returns of information even all inisations, whether claiming tax exemption or not, the would be in a position to accumulate data upon which fur- ons of the statute might be indicated and in any event, in tion to prevent present avoidance of taxes. 385 January 21, 1941. Mr. F. R. Marshall, Secretary, National Wool Growers' Association, c/o Davenport Hotel, Spokane, Washington. Dear Mr. Marshall: For Secretary Morgenthau I am replying to your wire of January 15, which had reference to an Associated Press report of a statement with respect to wool prices made by the Secretary at a press conference on January 13. I have before me a press clipping of an Associated Press report of that date which reads as follows: "Secretary Henry Morgenthau, Jr., said today that he had been alarmed by what he called 'unwarranted rises' in the prices of lumber, scrap iron and wool, but that Loon Henderson, member of the National Defense Commission had been doing a 'grand job' in handling the price situation." This statement is essentially correct. The Secretary's concern over the price situation for woolen goods is shared by the Defense Commission as indicated in a newspaper article of January 6, which reads as follows: "Tomorrow, Mr. Henderson has invited representative members of the wool manufacturing industry to Washington to discuss prices on woolen piece goods. Buyers of woolen goods have complained to the Defense Commission of sharply advanced prices on fall lines and of high pressure sales methods by some sellers which tend to create an unnecessary rush to cover requirements at higher prices. It is reported that less than half of the increase in prices now being quoted can be explained on the basis of higher raw wool prices, Mr. Henderson said, adding that such unjustified increases in the cost of piece goods would inevitably be reflected in an increase in the price of retail clothing. It is hoped that this conference will draw the attention of the industry to the importance of preventing the start of an upward spiral in prices and will result in a recon- sideration of any contemplated price advances at this time when buyers are covering their fall requirements, the defense commissioner said." Secretary Morgenthan has indicated full agreement with the position taken by Commissioner Henderson and at his press conferonce on January 13 he referred to the experience of the Procurement 286 -2 Division of the Treasury Department in purchasing woolen goods for use by the Red Cross and non-silitary agencies of the Government. Section 303 of the Tariff Act, to which you refer in the last sentence of your telegram of January 15, authorises the Secretary of the Treasury to impose countervailing duties on imports of dutiable goods with respect to which it has been determined that export subsidies are being paid. Information before this Department is that there exists in Uruguay a currency control, which, as administered, may favor certain exports over others. With the exception of manufactured woolen articles wool is not at this time among the favored commodities. The Department is giving intensive study to the Uraguayan control system with the provisions of Section 303 of the Tariff Act in mind. Very truly yours, (Signed) Herbert E. Gasten Herbert E. Gaston Assistant Secretary of the Treasury. Morgenthau Is Alarmed In Increase of Prices WASHINGTON Jan. . retary Henry aid today that he had been alarmed by what he called "unwarranted rises" th Ices of lumber. scrap iron "grand in member and Commission c job" of but the in had that handling National Leon been Henderson the doing Defense price a situation. The Treasury head added that the danger of price inflation necessitated "every agency of the government watching the situation every minute of the time." In the Treasury, Mr. Morgenthau added, scarcely a day passes with- out some discussion of the price situation. He said that no use of tax powers to control prices appeared to be necessary at present but that this possibility was being studied Mr. Morgenthau said one of the price rises which he had noticed and which he thought "unreasonable" was a 13 per cent rise in the price of a six-room house in St. Louis since last July 288 Mr Rose Br-2144 STANDARD FORM NO. 14A APPROVED BY THE PRESIDENT MARCH 10. 1926 TREASURY DEPARTMENT WASHINGTON TELEGRAM OFFICIAL BUSINESS-GOVERNMENT RATES CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR (The approps fustune, hich payable must be stated on above line) .. - PROFESS 3-14117 Mr , R Marshall Deveaport Hotel Spokene Washington January 21 1941 Your wires January 15 and 19 re wool prices Letter to you will go forward today (Signed) Herbert E. Gaston Herbert E Gaston Assistant Secretary Treasury son 289 Mr Rose Br-2144 TANDARD FORM No. 14A APPROVED BY THE PRESIDENT MARCH 10. 1926 TREASURY DEPARTMENT WASHINGTON TELEGRAM CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR OFFICIAL BUSINESS-GOVERNMENT RATES (The approps Customer hich payable must be stated on above line) 2-1411 Mr F R Marshall Devenport Hotel Spokene Washington January 21 1941 Your wires January 15 and 19 re wool prices Letter to you will go forward today (Signed) Herbert E Gasson FCRS da Herbert E Gaston Assistant Secretary Treasury CLAIM OF SERVICE The . or with WESTERN its in character is in a ve suitable pre- de- the address ST - a. WHITE PRESIDENT UNION NEWCOMB CARLTON OF THE BOARD SYMBOLS DL-Day Letter LC-Deleved Cabb NLT-Cable Night Letter J. c. WILLEVER FIRST VICE-PRESIDENT Ship Radiogram time shown in the date line on telegrama and day letters is STANDARD TIME at point origin. Time receipt in STANDARD TIME. point distinction 290 CA298 24 NT=SPOKANE WASH 19 19 PM 7. HON HENRY L MORGENTHAU= DLR TREASURY DEPARTMENT WASHDC=F REFERENCE MY WIRE 15TH SENT AS SECRETARY NATIONAL WOOL GROWERS ASSOCIATION REQUEST YOU WIRE REPLY CARE DAVENPORT HOTEL SPOKANE ON TWO QUESTIONS ASKED YOU= F R MARSHALL. 11 v 15. THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE 291 indicated in a The Securities's read follows: The Associated Press statement of January 13 to which you refer in your telegram of the 16th makes the following mention of wool prices. quate Secretary Henry Morgenthau jr. said today that he had been alarmed by what he called quote unwarranted rises unquote in the prices of lumber, scrap iron and wool, but that Leon Henderson member of the National Defense Commission had been doing a quote grand job unquote in handling the price situation. unqueta I This statement is essentially correct. My concern over the price-situation for woolen goods is shared by the Defense Commission as in on earlier overe state- ment ented January 6. quote" Tomorrow, Mr. Henderson has invited representative members of the wool manufacturing industry to Washington to discuss prices on woolen piece goods. Buyers of woolen goods have complained to the Defense Commission of sharply advanced prices on fall lines and of high pressure sales methods by some sellers which tend to create an unnecessary rush to cover requirements at higher prices. It is reported that less than half of the increase in prices now being quoted can be explained on the basis of higher raw wool prices, Mr. Henderson said, adding that such unjustified increases in the cost of piece goods would inevitably be reflected in an increase in the price of retail clothing. It is hoped that this conference will draw the attention of the industry to the importance of preventing the start of an unward spiral in orices and will result in a reconsideration of any contemplated orice advances at this time when buyers are covering their fall re- guirements, the defense commissioner 1th the Defenes Commissioner in these said." views.unquoto I artee distate 2 v 232 January 18, 1941. Mr. Geston: Commissioner Johnson phoned the following as a suggested paragraph for a reply to make to Mr. F. R. Marshall of the National Wool Growers Association: the information before this Department is that there exists in Uruguay a currency control, which, as administered, may favor certain exports over others. With the exception of manufactured woolen articles wool is not at this time among the favored commodities. The Department is giving intensive study to the Uruguayan control system with the provisions of Section 303 of the Tariff Act in mind your / 293 Treasury Department TELEGRAPH OFFICE 12w WY12 M 140 NT JAN 16 AM 8 42 GREAT FALLS MONT JAN 15 1941 HON HENRY MORGENTHAU JR SECRETARY OF THE TREASURY WIRING AS SECRETARY NATIONAL WOOL GROWERS' ASSOCIATION REPRESENTING FIFTEEN THOUSAND WESTERN WOOL GROWERS WISH EXPRESS REGRET PUBLICATION ASSOCIATED PRESS STATEMENT JANUARY THIRTEEN QUOTING YOU SAYING HAVE BEEN UNWARRANTED ADVANCE IN WOOL PRICES. WE FEEL THAT CAREFUL CHECKING WILL CONVINCE YOU THAT STATEMENT IS UNWARRANTED AND UNFAIR TO WOOL PRODUCING INDUSTRY AND MISLEADING TO CONSUMERS. URGE YOU CONSULT DEPARTMENT AGRICULTURE "FARM PRICE FIGURES" WHICH SHOW WOOL PRICES Treasury Department 294 TELEGRAPH OFFICE 12w/2 NOW LOWER THAN FALL 1939 OR 1937 AND LOWER THAN AVERAGE TEN YEARS FOLLOWING 1914. WILL APPRECIATE YOUR WIRING ME DAVENPORT HOTEL SPOKANE SAYING IF YOU WERE QUOTED CORRECTLY AND IF so IF YOU WILL INVESTIGATE AND ISSUE FAIR CORRECTION. ALSO PLEASE ADVISE IF YOU HAVE COMPLIED WITH SECTION 303 TARIFF ACT WHICH REQUIRES YOU INCREASE DUTY ON WOOL IMPORTED FROM URUGUAY ACCOUNT EXPORT SUBSIDY BEING PAID BY THAT GOVERNMENT. WILL APPRECIATE EARLY REPLY. F R MARSHALL. 840A 295 MEMORANDUM January 21, 1941 TO: The Secretary FROM: Mr. Young RE: Present to CanadaStatus of Export Control on Goods Going Colonel Maxwell's Working Subcommittee on Proclamations, of which Mr. Buckley 18 a member, recommended on January 8 that instead of lifting all bans on exports to Canada by proclamation, that the Administrator of Export Control be given the power by proclamation to issue general licenses. The thought behind this was that then special treatment of any particular country such as Canada could be given in a more intelligent fashion on critical and quasi-critical items. This recommendation was adopted by Colonel Maxwell's Advisory Committee on January 10. Although there was no particular discussion in that meeting as to the type of general license which should be issued, Mr. Buckley tells me that in the Sub-committee there was a more or less general understanding that provision would be made for such information and regular reports as the Defense Commission and Army and Navy Munitions Board felt necessary, as well as for periodic reconsideration of general licenses for specific commodities and for particular destinations. We were rather taken back, therefore, to discover that the State Department had issued general licenses on January 17, 1940 eliminating export restrictions on all items going to Canada with the exception of tin plate scrap, graphite, plans and specifications for aircraft and related items, and some types of machine tools. This leaves in the neighborhood of one hundred categories of critical and quasi-critical items which are now to go to Canada without any type of prior advice to this Government. 296 -2In a meeting of Colonel Maxwell's Working Subcommittee on Proclamations held on January 18, Mr. Buckley explored the basis for this action. It was found that this very broad general licensing scheme had been discussed with Mr. Henderson of the Defense Commission, who said that they would be willing to go along with it for iron and steel products and petroleum products, but no further. Also, it had been discussed with representatives of the Army and Navy Munitions Board, who apparently were opposed to the entire scheme. It had not been discussed with Mr. Chalmers, Chief of the Foreign Tariffs Division of the Bureau of Foreign and Domestic Commerce, who is something of an expert in the techniques being followed by other governments in export licensing, nor had it been discussed with either the Bureau of Customs or my office here in the Treasury. Apparently this action has been taken by the State Department working in conjunction with and under the authority of the Administrator of Export Control without consultation with some agencies and in spite of the objections of others. P.4. ALLISON ENGINEERING COMPANY 297 Deliveries of Airplane Engines Actual Estimated deliveries : deliveries on existing orders : : 10 anuary May 1 - June 1. June 2 - 29. June 30 - July 27 July 28 - August 31 September 1 - 28 September 29 - October 5 October 6 - 12. October 13 - 19 October 20 - 26 October 27 - November 2 November 3 - 9 November 10 - 16 November 17 - 23 November 24 - 30 December 1 - 7, December 8 - 14 December 15 - 21 December 22 - 28 December 29 - January 4 10 15 31 50 91 221 49 73 61 48 80 44 49 19 56 30 86 78 52 12 1 January 5 - 11 January 12 - 18 January 19 - 31 February March pril May June July August September October November December 42 January February March April May 85 43 212 356 400 450 460 460 475 550 625 750 800 800 455 277 225 225 207 66 June fice of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1941. STRICTLY CONFIDENTIAL 298 ALLISON SHIPMENTS : ritish Nov.: Nov.: Dec: Dec.: Dec.: Dec.:Dec.29: Jan.: Jan.: Total :17-23:24-30: 1-7: 8-14:15-21:22-28:Jan 4: 5-11:12-18: 16 3 total 19 53 3 56 29 1 30 46 82 60 4 18 6 86 78 52 fice of the Secretary of the Treasury, Division of Research and Statistics. 8 83 4 2 12 85 418 41 2 43 43 461 January 21, 1941. STRICTLY CONFIDENTIAL 299 EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN AS SHOWN BY DEPARTURE PERMITS GRANTED Week ended January 18, 1941 RUSSIA SPAIN : JAPAN GREAT BRITAIN POLEUM PRODUCTS el and Gas Oil (including Diesel oil) 8,807 Bbls. -- -- 53,900 Bbls. rade - Blended or California High Octane Crude* All Other Crude --- --- --- -- -- ---- 118,500 Bbls. --- --- 5,019 Bbls. 28,551 Bbls. -- - -- -- -- -- -- -- -- 580 Tons -- -- - 1,850 Tons scline Gasoline A** Gasoline B* 157,788 Bbls. All Other Gasoline -- 82,000 Bbls. -- oricating Oil Aviation Lubricating Oil* All Other Lubricating Oil etraethyl Lead *** Boosters", such as IsoOctane, Iso-Hexane, or Iso-Pentane 1,218 Bbls. 19,612 Bbls. - AP IRON AND SCRAP STEEL taber 1 Heavy Melting Scrap Other Scrap ice of the Secretary of the Treasury, Division of Research and Statistics. January 21, 1941. Fee: Office of Merchant Ship Control, Treasury Department. Any material from which by commercial distillation there can be separated more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon mixture - President's regulations of July 26, 1940. Aviation Gasoline. As defined in the President's regulations of July 26, 1940. 300 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Jenuary 21, 1941. Secretary Morgenthau FROM Mr. Kuhn Joe Alsop was very appreciative of your message this morning and wanted you to know that "there is nobody in the government whom we would rather please". F.K. 301 January 21, 1941 Mr. Kuhn Secretary Morgenthau Please call up Joe Alsop this morning and tell him I appreciate very much the way in which hp wrote his column. 302 WASHINGTON POST - January 21, 1941. Capital Parade (5) Economic pressures: American banking and commercial nections all over the world can exert tremendous influence By Joseph Alsop and Robert Kintner behalf of the democracies and against the Axis, They need only be mobilized, and can be very easily. Economic Defense: The Next Step THE BEST PROOF the Prest. dent meant what be said in his inaugural address is the strong prob- ability that an economic defense effort will soon be tied into the massive economic strength of the The American defense program. United States has not yet been seriously exploited to embarrass the dictatorships and aid the de- mocracies But when our economic weapons have been taken down from the wall, we shall finally have embarked on an all-out pol- icv of aid to the democracies by every method short of war. Although the use of economic weapons has been suggested often. on AS THE AXIS has long used all these methods whenever possible w pritain and her allies. and for the present, where export embar- to undermine the economic and goes do not stand In the way, to Japan. But the screws can be strategic situation of the United States, there is little reason why this country should not retaliate urally be applied at once to Italy Just which governmental agency applied any moment to any nation, it seems advisable and will nat- and Germany. The Italians and will be given the job is not yet Commis. Germans, fearing a freezing order, clear, since the Defense Commerce Department are even now taking such cash as sion, the they can out of this country in the office of the Administrator of satchelsful for deposit in South Export Control and the Treasury are all candidates for manager of America (2) Monetary controls: Monetary controls may be exercised through the stabilization fund. or by simple Intergovernmental lending The Chinese loan, by which this counwill tungsten Chinese get in defense. economic But even at this stage of the economic defense plan's develop- ment, three things are obvious. Some governmental agency will be charged with coordinated the thebyAdministration untilofrecently and many leading members try return for support of the Chinese and of the intensified the above-listed use of powers all or most and an example currency. of is the the StatetheDepartment of deal that can be made The will work State the agency under This project The always Depart- op- kind supervision posed loan controls recent Argentine more ven economic the potential the feared grave where Department understood also of of repercussions in international pol- Ities Now. however it is authori- tatively understood that Secretary of State Cordell Hull has given his $50,000,000 have had clauses gory. a ment to is number putting of in it Monetary unpublished the same controls catehave adviser's vice on office ernmental will work has matters such long to given other ad- gov- And organizations. close cooperation it in more difficult con- for with the British Ministry of Eco. liaiapproval, on the strictaxes condition purposemake it as freezing that no economic willthe besametrols- swung without will be established the Department's enemies, and easier for friends, son nomic Warfare, with which through a to meet their war needs. British officials here. If the plan on (3) Preclusive buying: This is goes through. in fact. it will be the most familiar method of eco- a well-conceived step in the direcSECRETARY HULL'S condition warfare, by which supplies tion so timely pointed to by the is only sensible since careful man- nomic available to the enemy are previPresident advice and consent. agement will be needed to avoid trouble. For example, the worst ously bought up. leak into Germany today is along Actually, the raw material needs the trans-Siberian Railroad, which of this country are now so great is carrying some 20,000 tons that it is difficult to class any purchases as purely aggressive in week of copper. fats, cotton and special war metals, like tungsten purpose. At this moment Ameriand molybdenum. Yet it is desira- can ulfacturers are trying to ble not to disturb our present re- raid every one of the wartime lations with Russia, Stopping the stock piles built up by Edward R. other main leak. the airplane Stettinius' raw materials division transportation of special war met- of the Defense Commission The als from South America to Africa, fact that it would not please the is also a delicate problem. And Axis was not entirely forgotten last freezing all foreign assets in this week. however, at an inter-depart= country, which will be part of the mental meeting at which Secreeconomic defense system. must be tary of Commerce Jesse H. Jones large done in a way to avoid driving was persuaded to agree to the Japanese into an immediate purchases of Mexican mercury and other vital South American attack on the Netherlands Indies or Singapore metals. The only steps remaining defense system can be immensely buying program, and to make the buying contracts exclusive, tying to be taken are to obtain additionIf the pitfalls in the way appropriations to finance a large shrewdly skirted, an economic effective Fortunately, the skeleton of such a system already lists, and needs only to be animated up all supplies in sight (4) Shipping controls: Under an emergency power granted in 1917 and clothed with muscle by Presidential order coordinating and revived by the President's the use of several unrelated gov emergency proclamation, ships ernmental powers. There are presleaving our ports must obtain office five ent powers for each of the methods of economic attack. clearance from the Treasury of ship movements Clearance has The been quietly withheld before this, (1) Freezing controls: Treasury long ago began freezing in certain flagrant cases, such as the American assets of nations oc. that of an American all company cupied by Germany. A general using its tankers out of commerce Southern freezing order is now In prospect. ports to fuel German need after which no nation will be able raiders. Shipping controls to use its funds in this country only be extended and coordinated except under Treasury license with the British bunkerage conLicenses will be freely granted trol system. 303 THE SECRETARY OF STATE WASHINGTON January 21, 1941. My dear Henry: I want to thank you for your recent letter enclosing a memorandum prepared by Mr. Philip Young regarding the work of the Interdepartmental Committee for Coordina- tion of Foreign and Domestic Military Purchases. Your courtesy in making the memo- randum available to me is greatly appreciated. Sincerely yours, The Honorable Willing Henry Morgenthau, Jr., Secretary of the Treasury. 304 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 21, 1941 Secretary Morgenthau TO FROM Mr. Haas Subject: Proposed New Issue of National Defense Notes The attached chart shows the yields of outstanding Treasury notes based on Monday's closing bid prices. On this basis it would appear that the proposed new issue of National Defense notes could be offered successfully as 3/4's due on December 15, 1944, as 7/8's due on September 15, 1945, or as 1's due February 1, 1946. The estimated yield bases and probable premiums for these issues are as follows: Coupon premium 3/4 .60 18/32 7/8 .75 18/32 7/8 .80 .80 12/32 31/32 : December 15, 1944 (3 years, 10-1/2 months) September 15, 1945 (4 years, 7-1/2 months) February 1, 1946 (5 years) 1 Probable basis : Maturity : Estimated yield There are no note or bond maturities on any of the dates suggested, although each of the first two of them is the first call date for a large issue of bonds. This should cause no concern, however, as such calls will not have to be exercised unless convenient. The table indicates that a 5-year Defense note with a 7/8 percent coupon would probably be too thin. If the estimated yield basis on an issue of this maturity should turn out to be too optimistic by 5 basis points, the premium on a 7/8 percent note would be only 4/32. On the other hand, all of the other issues in the table could successfully withstand a drop in the market equivalent to a 5-basis point increase in yields. An additional margin of safety of about 5/32 could be obtained in the cases of the first two issues suggested in the table by shortening their maturities by three months. 305 YIELDS OF TREASURY NOTES JAN. 20.1941 Based on Closing Bid Prices 1943 1942 1941 1944 1945 1946 PERCENT PERCENT 1.0 1.0 Proposed New Issues x .9 9 8 .8 7 7 .6 .6 or 5 .5 4 .4 .3 3 2 2 .I I 0 0 DOLLARS DOLLARS Billions Billions AMOUNT OUTSTANDING (Including Treasury Bonds) 2.0 Notes Fixed Bonds 2.0 Callable Bonds 1.5 1.5 1.0 1.0 .5 5 o 0 1941 --- Office of the Secretary of the Transary 1942 1943 1944 1945 1946 F-197-1 306 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 21, 1941 Secretary Morgenthan FROM W. H. Hadley DEFENSE NOTES Approx. Term Coupon Maturity Yield Price Premium 3 yrs. 8 mos. 3/4% 9/15/44 0.58 0.62 100.20 100.15 20/32nda 15/32nds 3 yrs. 11 mos. 3/4% 12/15/44 0.63 0.66 100.15 100.12 15/32nds 12/32nds 4 yrs. 5 mos. 3/4% 6/15/45 0.71 0.73 100.7 100.4 7/32ads 4/32nda 7/8% 6/15/45 0.71 0.73 100.25 100.22 25/32nds 22/32nds 7/8% 9/15/45 0.74 0.75 100.20 100.18 20/32nds 18/32nds 7/8% 2/1/46 0.79 0.80 100.14 100.12 14/32nda 12/32nds 4 yrs. 8 mos. . 5 years . Open dates for notes, . British contracts (7) 307 WILLARD HOTEL WASHINGTON D. C. TELEPHONE REPUBLIC 7860 BRITISH PURCHASING COMMISSION January 21, 1941. Dear ar. 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 sincerely, The Secretary of the Treasury, Washington, D. C. Orther Branch 308 DETAILED LIST 0F C 0 N T RACT S British Supply Council in North America, Washington, D.C. January 20, 1941. 309 SUMMARY U. S. type British type Total Value of Orders Estimated Initial Payment (See Note 1) $383,850,000 Product Capital $179,000,000 $ 562,850,000 $140,000,000 - - - KS & ORDNANCE Product 289,220,000 165,715,000 Capital 39,570,000 30,890,000 454,935,000 114,000,000 70,460,000 70,460,000 PS & MARINE IPMENT Capital 8,500,000 - 112,500,000 - Product 112,500,000 28,000,000 8,500,000 8,500,000 50,000,000 20,000,000 SCELLANEOUS Product 50,000,000 Capital - - - - - ALS Product 835,570,000 344,715,000 1,180,285,000 302,000,000 Capital 48,070,000 TOTAL 30,890,000 78,960,000 78,960,000 $883,640,000 $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. DETAILED LIST OF CONTRACTS * Units Product 810 Capital U.S. types - Military Boeing Aircraft Co. 20 B-17 Heavy Bombers York Safe & Lock Co. - 1,800,000 - 15,000,000 - Bombs, ammunition, etc. for above Various propellers to Curtiss-Wright United Aircraft $7,000,000 } balance existing 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 2,650,000 Spare parts to service engines on existing program ditto 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 5,000,000 ditto 3,000,000 9,500,000 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-Wright 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. Coolant pumps, etc. Various suppliers Various miscellaneous accessories 400,000 2,000,000 $293,850,000 * Airplanes & 20% spare parts. - - - 311 ** Units b) Product Capital U.S. types - Naval Consolidated Aircraft Spare parts for PBY-5 Flying Boats at Corp. present on order by 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 com- plete airplanes) 9,000,000 Consolidated Aircraft * 180 PBY-5 Flying Boats 40,000,000 Corp. Glenn L. Martin Co. * 60 PBM-3 Flying Boats 20,000,000 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. - 312 *Units Product Capital c) British types Lockheed Aircraft Corp. Lockheed Aircraft Corp. 600 Hudson Medium Bombers for long range 4,000,000 - 32,000,000 - Bombers 64,800,000 - 360 Dive Bombers 25,400,000 - 276 Baltimore Medium Bombers Lockheed Aircraft Corp. Vultee Aircraft Inc. Packard Motor Car Co. 720 Model 37 Medium Rolls Koyce Engine 5,000,000 Aircraft General 5,000,000 parts General Motors Corp. Bendix Aviation Co. - Special equipment Hudsons Glenn L. Martin $42,000,000 Stores parts Rotax starters - 800,000 TOTAL BRITISH TYPES $179,000,000 - TOTAL AIR $562,850,000 - * Airplanes & 20% spare parts. 313 Units Product Capital & ORDNANCE U.S. types - Military 205,000 Various Suppliers 24,000 General Motors Corp. Chrysler Corp. or other Houde & Colt's 15,000,000 23,000,000 2,000,000 7,500,000 3,275,000 Cannon 2,000 Bofors guns 20,000 .30 Machine 12,000,000 3,000,000 9,000,000 1,000,000 1,500,000 120,000 Armour Plate for M3 Tanks Oliver Farm Equipment Co. Borg Warner Corp. Lufkin Foundry 3,200 Transmissions & Final Drives for M3 Tanks 15,000,000 3,200 Transmission Castings for Loganport Pump Co. 250,000 1,900,000 100,00 for M3 Tanks 4,600,000 400,000 75 mm. Tank Gun Forgings 445,000 Turret Power Traverse Mechanisms for M3 Tanks Blaw Knox Co. 1,000 (Union Steel Castings Division) Turret and other small castings Midvale Co. 1,000 Hannifen Mfg. Co. 1,000 Recuperators for 75 mm. Tank Guns Otis Elevator Co. 2,150 50,000 - 1,375,000 125,000 1,900,000 100,000 37 mm. Gun Mounts for M3 Tanks Auto Ordnance & others 1,000,000 6,750,000 M3 Tanks 4,500 - 69,000,000 365 M3 Tanks Van Dorn Iron Works Co. Vickers Inc. 40,000,000 20 mm.Hispano 1,200 M3 Tanks Pullman Standard Car Co. (Union Steel Castings Division) $3,500,000 400 Light Tanks Chrysler Corp. Blaw Knox Co. $10,000,000 guns American Car & Foundry Parkersburg Rig & Reel Fairfield Co. .30 Rifles 10,000,000 .45 Thompson Sub-Machine - guns with drum & box magazines Remington Arms Winchester Winchester 225,000,000 .30 SAA 126,000,000 9 mm. SAA 13,000,000 .45 SAA 11,000,000 3,250,000 300,000 $228,520,000 3,700,000 - - $33,570,000 314 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 (complete rounds) 18,000 3" L.A. Various Suppliers ammunition Various Suppliers 16,000 4" L.A. ammunition 30,000,000 3,000,000 300,000 400,000 - - $60,700,000 $6,000,000 TOTAL U. S. TYPES $289,220,000 $9,570,000 315 Units Product Capital British Types 2-pdr.Buffers & Recuperators for British tanks 1,000 Vimalert Co. for British 300,000,000 .303 SAA Various suppliers Crucible Steel 14,000,000 - Transmissions for British Tanks 2-3,000 Corp. Pullman Standard 8,000,000 Various Fuzes (#119,231, 254,etc.) 16,000,000 Buckeye Traction Ditcher Co. Bethlehem Steel - Liberty Engines tanks Winchester 600,000 $ - 1,850 - York Safe & Lock Co. 350,000 50,000 10,000 10,000 Barrels for 6,750,000 $ 250,000 13,000,000 9,000,000 Medium Artillery 5.5" Shell 4,750,000 775,000 4.7"AP shot(Naval)) 6" CPBC shot) 9.2"AP shot ) 7,000,000 3,000,000 Clifford Jacobs 1,000 25-pdr. recuperator forgings 315,000 65,000 St. Louis Car Co. 1,000 6-pdr. Carriages for Anti-Tank 4,000,000 guns (British) 1,000,000 Champion Forge ) Julius Heil and Associates 360 4.5" Gun 5,500,000 1,000,000 Koehring Filer Stole 460 Gun Jackets for 1,500,000 4.5" & 5.5" Guns 500,000 and Associates carriages 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 2-pdr. Naval 22,000,000 Julius Heil and Associates 3,000,000 Pompom Mountings 100 Octuple 450 Quadruple 350 Simple E. W. Bliss & Co. Savage Arms or a Massachusetts group 500 18" Torpedoes and Pistols 6,300,000 300,000 .303 Rifles 23,000,000 7,000,000 8,500,000 500,000 TOTAL BRITISH TYPE $165,715,000 $30,890,000 TOTAL TANKS & ORDNANCE $454,935,000 $70,460,000 500,000 American Car & Foundry 225,000 7.2" Shell Co. 316 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 $ 40,000,000 10,000,000 $ 50,000,000 $1,180,315,000 8,500,000 - - - $78,960,000 317 British Embassy, Washington, D. C. January 21, 1941 Dear Merle, I think you know about most of the things which M r. D'Arcy Cooper did succeed in doing while he was here. There were a few things also on which he was unable to make any substantial progress, and the enclosed note gives a short description of these points. I do not know whether the Secretary will have time to look at this, but he may care to note that these points were at least tried out. Yours ever, (Signed) Jerry Pinsent. Mr. H. Merle Cochran. Treasury, Washington, D. C. COPY:lap 318 COPY 1. Among other matters which the President of the Board of Trade asked Mr. D'Arcy Cooper to investigate during his recent visit to the United States was the question whether any orders for the equipment and clothing of the armed forces of the United States could be placed in the United Kingdom. Mr. Cooper was also asked to follow up any every possibility for the expansion of the United Kingdom's tradeand with the United States. In pursuance of these instructions and on the advice of Mr. Philip Young of the Treasury, Mr. Cooper sought interviews with Mr. Patterson, Under-Secretary of the War Department and Mr. Forestal, 2. Under-Secretary of the Navy Department. Mr. Patterson undertook to find out from the Quartermaster General which of the more important requirements of the United States Army were likely to be in short supply from domestic sources and which might not be available at reasonable prices. 3. 4. It was not possible to arrange an interview with Mr. Forrestal. Mr. Cooper did, however, see Mr. Jesse Jones and sent him a list of the more important commodities, normally imported into the United States from various parts of the Empire, of which the United States Government might require supplies. This list included cocoa, 5. lead, jute burlaps, shellac, tea, copra and sisal. It did not, as Mr. Cooper explained, include tin or rubber (which had recently been discussed by Sir John Hay and Mr. Lowinger) or wool (because discussions about the accumulation of a strategic reserve were actually going on). A t the request of Mr. Jones, Mr. Cooper saw Mr. W.L. Batt of the National Defense Advisory Council, who in turn referred him to Mr. Donald Nelson, Coordinator of National Defense Purchases. 6. The upshot of these discussions was a memorandum from the Quartermaster General setting out a list of raw materials and of semimanufactured and manufactured articles, classified according to the degree of scarcity and liability to increases of price but offering "competitive possibilities". The memorandum stated the *requirements for all major items of textiles", which Mr. Cooper had particularly emphasized the ability of United Kingdom industry to supply. "have been contracted for". The memorandum also stated that the domestic industry could "carry the load" of the additional large reserve of cloth for overcoats, coats, shirts and trousers which the Quartermaster General was anxious to secure, but for which no funds were available. The domestic industry was also said to be able to meet requirements of shoes and leather goods. It proved that arrangements for the supply of most of the materials of which the greatest scarcity was indicated 319 -2were already in hand. The Quartermaster General's office has been asked to provide further particulars as to methods and conditions of purchase, quantities and specifications, etc., etc. 7. Another commodity which seemed to Mr. Cooper to offer special possibilities was cocoa. He accordingly suggested to Mr. Nelson that chocolate should be included in the rations of the Army and the Navy. The reply was that they were already using substantial quantities and were expecting to use more. The Co-ordinator of National Defense Purchases promised to keep the matter before him and to do what he could to see that cocoa and chocolate were "given their proper place in Army diet". 8. It will be seen that the various departments of the U.S. Government are aware of the commodities of which the U.S. Government may be in need and which the British Empire is in a position to supply. It is difficult for H.M. Government to do more unless and until the U.S. Government is ready to place orders. dm 320 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE January 21, 1941 Secretary Morgenthau TO FROM Mr. Klaus FBI reports: January 16. More on Vera Montgomery and Leopold Hugo Paul Klotz. Vera is reported to be "two-timing" with one William C. Brady of Corpus Christi, Texas, who is in communication with Portes Gil, former president of Mexico, whom he is to meet at San Antonio January 21 with a brother, Lawrence Brady, and several other unidentified this case. persons. FBI is "conducting a thorough investigation" of January 16. More concerning German propaganda on phonograph records consigned to the German Consulate General, New York City, from the German Embassy in Tokyo. The records are in English and consist of speeches on "The Importance of the Surrender of British Possessions to the U.S.A.," "The Convoy System," "Germany's Total Blockade Declared Over Britain," "The Organization Todt and its Reconstruction Work," "German Film Production in War Time," "Emil von Behring, The Man and His Work," "Construction of Workers' Homesteads in Germany," "The German Labor Front's Cultural Program," "Labor Policy in Germany," "German Agri- cultural Engineering in War Times," and "Modern Industrial Chemistry in the United States and in Germany." January 17. Malcolm Read Lovell, Executive Secretary of the Queker Service Council, 26 East 38th Street, New York City (whose accounts are being monitored by FBI) is, according to a source in the German Embassy, working for a peace movement for the purposes of which he has introduced Henry Luce to an Embassy official on the representation that Luce wants information concerning conditions in Nazi Germany and Luce is making arrangements to send ex-Ambassador Cudahy to Germany for Fortune Magazine. This German Embassy official is said to have remarked that America does not have sufficient raw material to overcome the bottleneck in the defense program and that help to England will be too late. January 18. "A source close to the German Embassy" reports that the German Enbassy official says that General Weygand has been supplying General Graziani with fuel and that Weygand is loyal to his superiors' agreement with Germany; he had received word that Wilhelmshaven sustained a terrific bombardment by the R.A.F. and pointed out that the Germans did not need to land in Ireland in order to keep control over the British Isles which they accomplish by long-range bombers from French coastal points. nl 321 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 21,1941 TO Secretary Morgenthau FROM Mr. Haa 144 Work Projects Administration employment, during the week ended January 8, 1941, increased to 1,887,000 persons, over the 1,880,000 reported for the preceding week. Attachments 322 WORK PROJECTS ADMINISTRATION Number of Workers - Weekly United Employed States Week ending 1940-41 June 5 June 12 June 19 June 26 July 3 July 10 July 17 July 24 July 31 August 7 August 14 August 21 August 28 Number of Workers (In thousands) 1,858 1,785 1,714 1,665 1,608 1,620 1,659 1,690 1,701 1,709 1,708 1,698 1,691 September 4 September 11 September 18 September 25 1,690 1,687 1,689 1,704 October 2 October 9 October 16 October 23 October 30 1,747 1,762 1,768 1,776 1,779 November 6 November 13 November 20 November 27 1,783 1,785 1,806 1,820 December 4 December 11 December 18 December 25 January 1 January 00 Source: Work Projects Administration 1,832 1,855 1,872 1,878 1,880 1,887 323 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Monthly United States 1938 July August September October November December 1939 January February March April May June July August September October November December 1940 January February March April May June July August September October November December Number of Workers (In thousands) 3,053 3,171 3,228 3,346 3,287 3,094 2,986 3,043 2,980 2,751 2,600 2,551 2,200 1,842 1,790 1,902 2,024 2,152 2,266 2,324 2,288 2,092 1,926 1,665 1,701 1,691 1,704 1,779 1,820 1,878 Source: Work Projects Administration Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 324 WORK PROJECTS ADNINISTRATION Number of Workers Employed United States - 1936 Monthly V.P.A. Employment 1937 1938 - 1939 41 MM. BILLIONS MILLIONS MAY Weekly N.P.A. Employment NEL - - - - Mr...1940 MM NYA WORKERS WORKERS 3.4 1941 of PHILLIONS NORKERS 3.4 3.3 3.3 3.2 3.2 3.2 3.2 3.1 3.1 2.8 2.8 3.0 3.0 2.9 2.9 2.4 2.4 2.8 2.8 2.7 2.7 2.6 2.0 2.0 2.6 2.5 2.5 2.4 2.4 1.6 1.4 2.3 2.3 2.2 2.2 1.2 1.2 2.1 2.1 2.0 2.0 . 1.9 .8 1.9 1.8 1.8 1.7 .4 1.7 1.6 1935 1936 1937 1938 1939 1940 - 1.5 V 0 SN 1.6 1.5 JAN. 41 MAR. MAY JULY 1939 SEPT. NOV. JAN. MAR. MAY JULY 1940 SEPT. NOV. JAN. MAR. 1941 SOURCE: BORK PROJECTS ADMINISTRATION Z - 221 a2 1 States the Secretary of the Treasury 0 325 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE January 21, 1941 TO FROM Subject: Secretary Morgenthau M Mr. Haas The Business Situation, Week ending January 18, 1941. Summary (1) Business activity, after allowance for seasonal factors, is fully maintaining the gains scored in December. The New York Times and Barron's indexes of business activity reached new high levels in the week ended January 11. Steel operations for the current week are scheduled at a new high rate of 99.1 per cent of capacity, up 0.6 from last week. (2) Retail trade showed a slightly greater than seasonal expansion in December and reached new high levels for the year. Department store sales and retail sales of new automobiles thus far in January are showing substantial gains over year-earlier levels. (3) Primarily because of higher prices for hogs, the BLS index of 12 food prices increased noticeably last week. The index of industrial material prices was lower, with a decline in steel scrap prices the predominant influence. (4) The cost of living index rose 0.3 point to 82.3 in December (1926 = 100) largely because of an increase in food prices. This represents an increase of 1.5 per cent since December 1939. The further rise in food prices in January, if continued, may cause another advance in the cost of living. (5) Steel buying continues in heavy volume. New orders received by the U. S. Steel Corporation in the week ended January 9 rose sharply to 170 per cent of capacity. Steel scrap prices are lower, but market quotations are regarded as largely nominal and the situation is still unsettled. 326 -2Business activity maintains fast pace After experiencing the usual interruptions to production during the holidays, data now available for the post holiday period indicate that business activity on a seasonally-adjusted basis is fully maintaining the fast pace set in December. As a matter of fact, during the first full working week of the new year, both the New York Times and Barron's indexes of business activity pushed ahead of their December highs. Steel ingot production has advanced to record levels, automobile production for the past two weeks has been running in excess of all previous January produc- tion rates, while typical war material industries such as aircraft, machinery, etc., are reported by the Federal Reserve Board to have stepped up operations further. At the same time, due largely to a sharp rise in new orders for steel to the highest levels since September 1939, our new orders index has again turned upward with a strong gain. (See Chart 1.) The combined index, as well as the steel and textile components, have shown marked recoveries from the decline which occurred during the Christmas holiday week. Retail trade rising As might be expected in view of the rising trend of employment and payrolls, retail trade has been showing noticeable gains. Thus seasonally adjusted department store sales in December rose slightly above the previous month, and reached the highest point since October 1930. (See Chart 2.) On a volume basis, the comparison with this earlier year is considerably now prevailing.more favorable, in view of the lower price level Reference to Chart 2 will show that variety store sales in December on a seasonally-adjusted basis maintained the high level reached in November. Complete figures on rural retail sales in December are not yet available. Although department store sales in the week ended January 4 showed only a 4 per cent gain over the corresponding week of 1940, the gain in the week ended January 11 over year-earlier levels amounted to 16 per cent, with the Philadelphia, St. Louis, and Richmond districts showing substantially greater increases. 327 -3- Another evidence of rising public purchasing power may be seen in current reports of record retail sales of new automobiles for this time of the year. Preliminary reports for the first 10 days of January indicate a gain over year-earlier levels of around 20 per cent. General Motors, in fact, reports a gain of 31 per cent in new car sales above the first period of January 1940. One factor which may detract somewhat from the significance of current automobile sales and production figures, is that the industry, and to some extent consumers, may be antic- ipating requirements for fear of eventual curtailments in production arising out of the defense program. In this connection it is interesting to note that the Automobile Manufacturers Association have just announced that the annual national automobile show, which has been held for the past 41 years, would not be held this year. However, no indication has been given that new 1942 models will not be brought out. Food prices increased strongly The BLS price index of 12 foodstuffs increased 1.9 per cent last week (see Chart 3), the most important influence being an increase in the price of hogs. Hog prices increased 11.1 per cent in the week ended January 17, by far the greatest increase shown by any of the 12 foodstuffs included in the index. Trade comments attribute the increase primarily to unfavorable highway conditions brought on by unseasonally warm weather, which caused reduced country marketings. While the underlying situation continues bullish, in view of the prospect for a substantial reduction in the spring pig crop while consumer incomes are rising, the present cold wave will doubtless bring increased marketings and somewhat lower prices. Lard prices advanced last week under the influence of hog prices, although stocks of lard are increasing. Lard stocks in Chicago increased over 1,000,000 pounds during the first two weeks of 1941, reaching 187,000,000 pounds on January 14. Export trade in lard continued disappointing, although Japanese interests are reported in the press to have purchased 800 tons within the past month. Delivery of lard recently purchased by Russia on the Chicago Board of Trade, according to press reports, may be delayed because of lack of facilities for transportation, as the Maritime Commission is reported to have refused permission to accept this business on the part of United States vessels originally chartered 328 4 from the North Atlantic seaboard to Vladivostock. Permission is thereported ships. later to have been granted for the use of one of Tallow prices have resumed their advance, showing a substantial increase last week on reports of increased purchases levels. by soap manufacturers, but are still at relatively low Raw industrial materials prices lower The declines in the two steel scrap items were a major influence in the 0.8 point decline in the price index of raw industrial materials. (Shown in Chart 3.) Rosin prices also declined noticeably, and rubber was moderately lower. These were offset in part by moderately higher prices for wool, hides, and flaxseed. The drop in the price of rosin reflects heavier offerings, Rubber prices declined moderately on publication of somewhat bearish year-end figures of the rubber position. Stocks of crude rubber in the United States at the end of December were 318,000 tons, in addition to 146,000 tons afloat and finished goods inventories approximating an additional three months' supply. Reserve supplies in the hands of the Government totaled 113,000 tons. The combined total is considerably more than twice the supply six months ago. Rubber consumption in the United States set a new record in 1940 at 618,000 tons compared with 592,000 tons in 1939. Wool prices resumed their advance as mill buying increased. A tight situation has developed in the top combing and dyeing sections of the industry, according to trade comments, and present indications are that there will be no alleviation until well into the second quarter of the year, when the domestic clip will become available. Hide futures showed noticeable weakness at the end of last week, contrasting with a moderate increase in spot prices, on news of an accumulation of supply in packers' hands and reports that tanners are amply supplied. This may foreshadow a reduc- tion in spot quotations. Copper and zinc futures showed increases last week although no change was reported in the spot prices, both of which are nominal. The increase in zinc futures was sharp, with the heaviest volume of trading in many weeks. Trade reports explain the buying of copper futures as representing trade rather -5- 329 than speculative buying. Japanese interests are said to have been unsuccessful in securing copper and zinc to be delivered before the export licensing system becomes effective on February in price. 3, although they have offered substantial premiums Selected industrial materials show diverse movements In Chart 4, recent price movements are shown for 18 se- lected industrial materials which, in December, had risen 25 per cent or more above their 1940 lows. It will be noted that, among this selected group, fairly substantial declines are shown for pine timbers, sheep skins, shellac, and paraffin wax. On the other hand, sharp price increases are shown by tartaric acid (now 64.5 per cent above its 1940 low), by turpentine, and calf skins. Fine wool (Ohio delaine) has also advanced further. Tartaric acid is used in industry for setting dyes on both woolen and cotton cloth, in addition to its well- known use in baking powder. In Chart 5, the most recent quotation for each of these 18 commodities is shown in its relation to prices for that commodity over the past 6 years. It will be noted that for a number of commodities, in which extensive price increases have recently occurred, the percentage increase from the 1940 low has not yet been as great as in certain previous years, nor have prices risen as high in many cases as they did in 1937 or in 1939. It is important to keep in mind, however, that prices in the two earlier years were raised to artificially high levels, by speculative buying in 1937 and by the war scare in 1939. In each case the over-buying responsible for the increase in prices eventually brought its own correction. With the exception of the temporary periods in 1937 and 1939, present prices for 10 of the 18 selected commodities are higher than in any of the past 6 years. In connection with the decline in the price of pine timbers (selected as the BLS lumber item showing the largest previous rise), it may be mentioned that the BLS index of lumber prices as a whole (44 items) declined only to 118.5 in the first week of January, and has since held unchanged at that figure, as compared with a peak of 119.3 in the last week of December. A shortage of ocean shipping space for lumber from the Pacific Coast, according to some trade comments, may result in higher lumber prices. 330 - 6Consumer food costs higher in December The cost of living increased to 82.3 in December from $2.0 in November, according to the NICB index (1926 = 100). (See Chart 6.) This represents an increase of 1.5 per from December 1939. The increase of 1.3 per cent in the food component almost entirely explains the advance over the November figure. The steep rise in wholesale prices of basic foodstuffs in early January, if continued, may cause a further increase in the cost of living for January. Steel scrap market unsettled Since the request for a cut in steel scrap prices was made by the Defense Commission on January 7, a decline in prices has occurred, but quotations are still reported as largely nominal pending clarification of the whole market situation. At the end of the week, No. 1 heavy melting scrap at Pittsburgh was quoted nominally at $21.50 to $22.00 per ton as compared with $23.50 to $24.00 per ton prior to the request for the price cut. Steel buying heavy Since the holiday period, another wave of heavy steel buying has set in, with the U. S. Steel Corporation reporting incoming orders for the first full week of the new year at no less than 170 per cent of capacity. This is the highest level reached since the heavy buying movement of September 1939. The Iron Age reports that nearly all steel companies are sold out for the first quarter, with exceptions being made, however, for defense requirements. It is further stated that the bulk of current orders is for the second quarter of the year. Fear of the imminence of mandatory priorities and generous estimating of future requirements by consumers have doubtless been factors in this heavy steel buying. In view of the heavy pressure for increased production, the steel industry has managed to increase operations to a scheduled rate of 99.1 per cent of capacity during the current week, thus setting a new all-time record for weekly tonnage output. This rate compares with 98.5 per cent last week. In connection with recent discussions of possible bottle- necks in steel production, it is interesting to note that coke supplies, which have been the cause of some concern, are now reported to be adequate. The Office of Production Management 331 -7recently conducted a survey of the steel industry and found that all companies are more than adequately supplied with full and that some companies are even increasing theirrequirements coke inventories. Defense program boosts residential construction figures Due to a further increase in contracts awarded for defense construction, the December figure for residential construction contract awards as reported by the F. W. Dodge Corporation reached a new high for any month sime July 1929. Reference to Chart 7 will disclose that while total contracts awarded were rising to a new monthly high, mortgages selected for appraisal by the FHA (representing purely civilian construction) were showing the customary year-end decline. It will also be noted that the usual correlation between contract awards and mortgages selected for appraisal has been replaced, in the closing months of the year, with a pronounced divergence. This disparity is due to the growing proportion of total contract awards which are accounted for by the defense program. Thus, 60 per cent of the $71,000,000 gain from December 1939 to December 1940 was due to a rise of $42,000,000 in the clas- sification listed as "other shelter" which includes much military construction. At the same time, contracts awarded for one-family dwellings to be occupied by the owner rose by only a little over $1,000,000 or 4 per cent. One-family dwellings for sale or rent, however, rose by $14,000,000 or 34 per cent. Reference to the lower section of Chart 7 will show that mortgages selected for appraisal by the FHA in the opening weeks of the current year were about the same as in 1939. Weekly business indexes The New York Times weekly index of business activity during the week ended January 11 advanced 0.9 and thus reached a new record high at 123.5. The adjusted indexes of automobile and paperboard produc- tion, cotton mill activity and "all other" carloadings all showed substantial gains, while the only decline of consequence occurred in the adjusted index of electric power production. Fractional declines occurred in the adjusted indexes of steel ingot production and miscellaneous freight carloadings, and a moderate rise was shown by the adjusted index of lumber production. 332 -8Barron's index of business activity during the week ended January 11 rose at a faster pace than the Times' index, reaching a new high at 128.0 as compared with 125.6 in the previous week. Preliminary data for the week ended January 18 reveal a less than seasonal rise in steel ingot production, and a greater than seasonal rise in automobile production, which carried previous weekly week. output up to 124,000 units from 116,000 in the 333 INDEXES OF NEW ORDERS Combined Index of New Orders and Selected Components 1940 PERCENTAGE POINTS 220 ESCENTABLE POINTS 210 220 Total combined Index 200 1000 100 210 190 200 180 190 170 180 160 170 160 150 150 140 140 130 130 120 120 110 110 100 100 90 90 80 Total excluding Steel and Textiles 80 70 70 60 60 50 50 40 Steel Orders 40 30 30 20 20 10 Textile Ordere 10 0 A . 1940 D --I 0 1939 1941 - the Secretary of the Treasury 1-85-D Chart 2 334 RETAIL TRADE Urban and Rural Sales of General Merchandise 1929 = 100, Adjusted PCR PER CENT CENT Department Store Sales 100 100 90 90 1940 80 80 1939 70 70 1938 60 60 FCB. JAN. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. 110 110 Variety Store Sales 100 100 1940 90 90 1939 \ 1938 80 80 70 70 JAN. FCB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. 120 120 Rural Chain Store and Mail Order Sales 110 110 1940 100 100 1939 90 90 1938 80 80 70 70 JAN. ---- FEB. the Secretary of the Treasury MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. C 150-A 125 120 128 130 130 PER CENT D D 35 40 20 PER 15 LLL 30 25 CHAMELLAC VIHALLAG 13.00 MODTION -- . TRUSTER L.S. -- 5 0 CENT J 11. , F - - India M M multi A A M M 1 940 1940 16 Raw INDUSTRIAL MATERIALS A Weekly Average D 335 F M 941 194 1 NOVEMBER DECEMBER A A atis -.7% STULE 1.28 15 15.1 PRINT PLOTH 15.00 (LEAD 15.00 - 16.7% DEIDES 41.0% 20 BURLAP 22.00 COPPER 10. ANSTER SCRAP. EXP. 5.5% 10 10 ROSIN un M M 1111 125 PER 120 115 95 CENT STEEL SCRAP, DON. 14.5% 12 FOODSTUFFS 110 110 116 120 PCR 115 112 120 116 104 CENT 35 40 5 45 25 FLAKSEED 26.00 COCOA 25.00 30 0 PER le -5 CENT 23 NOVEMBER 30 16 23 30 7 7 Percentage Change for Individual Commodities, August 1940 Low to January 10. 1941, and to January 17. 1941 1940 14 120 45 - 45.49 MATERIALS 16 RAW INDUSTRIAL MATERIALS 124 124 16 RAM INDUSTRIAL 12 FOODSTUFFS DECEMBER AUGUST 1939-100 14 21 21 28 28 4 4 11 11 18 Daily 18 JANUARY JANUARY 25 25 1 8 8 1941 15 4 FEBRUARY FEBRUARY JAN.10 JAN.17 15 22 22 11.9% SMEAT 30.29 like SISTEERS 11-2 TALLOW $7.1% BUTTER 13.25 MARCH 15 111111111 15 COTTONSEED OIL 20.00 PER CENT 95 100 104 AUG. LOW B -5 @ JAN.17 MARCH JAN.10 LARD AUG. LOW SHALLEY P 187 Q3 1 of the Secretary of the Treasury 100 108 108 12 FOODSTUFFS 105 105 112 MOVEMENT OF BABIC COMMODITY PRICES PRICE INCREASES FOR SELECTED INDUSTRIAL MATERIALS Percentage Increase From 1940 Low To Specified Dates Tartaric acid 64.5% Wood pulp 58.8% PER CENT 56 52 Hides, steer 47.7% Turpentine 46.9% Skins, calf 46.7% 48 Pine timbers 44.9% 44 Tallow 42.6% 40 Skins. sheep 39.1% Steel scrap 37.2% 36 Wool,delaine 32.4% Alcohol, ethyl 32.3% Hemp,manila 32.1% Yarn.cotton 30.7% 32 Zinc 28.8% Leather. side 28.6% 28 Broadcloth. cotton 27.2% 24 Shellac 23.1% 20 Wax.paraffin 16.7% 16 12 8 4 Dec.26,1940 0 1940 Low Jan.15.1941 . "Lotest quotations available on Dec.26,1940 and Jan.15.1941 Source: B.L.S. P-20a-A 337 PRICES OF SELECTED INDUSTRIAL MATERIALS. MONTHLY DOLLARS PER TON METALS CENTS Steel Scrap PER LB Zinc 8 20 M 16 12 a Pine timbers 36 1939 1941 1935 1937 1441 1934 WOOD PRODUCTS AND ALCOHOL DOLLARS PER CWT DOLLARS' 1937 4 1935 CENTS Wood pulp PER GAL DOLLARS PER GAL Turpentine Alcohol ethyl Fax 35 Pare 60 50 30 32 55 40 28 25 50 30 20 24 4.5 - Service Per thousand board feet 20 1935 1939 1437 IS 1935 1941 1941 1939 1937 20 1935 4.0 1937 1935 1941 1434 1437 1934 1441 1939 1941 1939 1941 HIDES AND LEATHER Hides. steer PER LB CENTS DOLLARS CENTS CENTS Skins. calf PER LB PER LB Leather side PER LB Skins, sheep 1.75 27 24 20 150 24 20 125 16 21 16 100 12 18 12 1439 1937 1941 . 1935 75 15 50 1935 1937 1955 1441 1959 1941 1934 1937 1935 1437 . TEXTILES Yarn, cotton PER LB Broadcloth cotton PER YO CENTS CENTS PER LB CENTS CENTS Hemp. manila PER LB Wool delaine 12 45 34 16 N 14 35 26 6 12 10 a 40 30 30 22 1935 1937 1434 1935 1941 1937 1934 1937 1935 1941 1934 1941 MISCELLANEOUS CENTS Tallow PER LB Wax. paraffin PER LB 1937 Tertaric acid PER LB Shellac PER LE 1935 CENTS CENTS CENTS 4 25 10 18 18 50 16 40 14 7 12 4 30 5 10 3 20 1939 941 3 1937 1935 1437 Note Lotest Source BLS 1941 figures . 1435 1939 those available 1939 1437 1935 Jan 15. 1941 1941 1435 1937 1934 1441 2 COMMODITY PRICES AND COST OF LIVING 1926=100 1935 1941 1940 1939 1938 1937 1936 PER CENT PER Monthly CONT 90 90 88 88 86 86 COST OF LIVING, N.I.C.B. 84 84 82 82 80 80 78 78 863 COMMODITIES. B.L.S. hhH 1939 1938 1937 1936 1935 1941 1940 1939 PER CENT A PER CENT Weekly 80 80 76 863 COMMODITIES, B.L.S. 76 72 72 68 68 #28 BASIC COMMODITIES. B.L.S. 64 64 60 60 56 56 52 . A . 939 . . , o 1940 $ J . A . 52 o 1111 . . $ A 72 72 1941 1940 o 74 74 o 76 76 D 1941 *30 COMMODITIES PRIOR TO JANUARY 1940 ---- - the Secretary . the Treasury P. 196 RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES 1940 193 8 J DOLLARS M DOLLARS MILLIONS MILLIONS (MORTGAGES) (ABARDS) Mortgages Selected for Appraisal 138 130 and F.W. Dodge Awards Monthly 120 126 110 114 100 102 M 90 90 80 78 F.W. DODGE AWARDS 70 66 MORTGAGES SELECTED FOR APPRAISAL. F. H. A. 60 54 50 42 40 30 30 18 1940 1939 1938 DOLLARS JAN. MILLIONS TTT MAY MAR. JULY SEPT. NOV. Mortgages Selected 40 DOLLARS MILLIONS 40 for Appraisal, F.H.A. Weekly 35 35 30 30 25 25 1939 1941 20 20 15 15 1940 1938 10 10 5 5 0 0 MAR. Office of the Secretary of the Treasury Dividian of - and - MAY JULY SEPT. NOV. c 260 A Chart 7 340 GRAY EH Berlin Dated January 21, 1941 Rec'd 10:30 p.m. Secretary of State, Washington. 216, January 21, 7 p.m. (SECTION ONE). FOR TREASURY FROM HEATH. Although only the year End statements of a few of the smaller banks have as yet been published, the figures contained in them as well as articles in the press obviously based on more than published information and other information available to the Embassy indicate an Enormous increase in deposits during 1940, two to three times as great as during the previous year. It was already clear from the large increase in Government debt that bank. deposits had swollen greatly during 1940. During the first nine months of 1940 approximately 5.8 billion marks of li-loans WEIE taken by savings banks and insurance companies as compared with 3.2 billion marks in the corresponding period of the preceding year, 5.1 billion marks of Treasury bonds WEIE sold during the first nine months of 1940 alone (only part of course to banking institutions) and according to Vice President Puhl of the Reichsbank close to 2 billion marks WEIE sold during 341 hsm -2- No. 216, January 21, 7 p.m. from Berlin (Section 1) during the whole year as compared with 431 million marks in 1939 (the last portion of the 1938 loan issue). The total of these two forms of long term Government bonds issued during 1940 was probably between 15 and 16 billion marks. Amount borrowed by the Government through short term bills and certificates to a great Extent purchased by the commercial banks was 14.6 billion marks during the first ten months of 1940 no compared with 5.8 billion morko in the corresponding period of 1939. According to on article in the first January number of the BANK-ARCHIV there has been an average increase in bank deposits during 1940 of 30. per cent as compared with 10 to 15 per cent in the three pre-war years. If inter-bank deposits are Excluded demand and time deposits (but not including savings accounts) of the large Berlin banko increased by 40 to 45 per cent and the cavings deposits in the large Barlin banko and the regional increased by 35 to 40 per cent. According to computations of the BERLINER BOERSEN ZEITUNG the deposits of ten savingo banks which have published their year-end statements increased during 1940 by 34 per cent and on the bacis of this and the few statements of commercial banks which have been published the BERLINER BOERSEN ZEITUNG Estimates a greater increase in deposits than that indicated by the BANK-ARCHIV probably between to 30 40 342 hom -3- No. 216, January 21, 7 p.m. from Berlin (Section 1) 40 per oent. The entire German savings bank system according to our information increased its deposits (savings and giro) during 1940 by close to 8 billion marks, i. E. by one-third. This compares with absolute and relative increased during the pre-war four years ao follows: 1936, 1.1 billion marks, 7 per cent; 1937, 1.7 billion marks, 10 per ount; 1938, 2.3 billion marks, 12 per cent; 1939, 2.6 billion marks, 12 per cent. Diminution of reserve stocks according to the BANK-ARCHIV was not an important factor in the increase of deposits during 1940 since this was largely confined to the consumption goods sector whereas in the war industries there has probably been EVEN an increase in reserve stocks. The chief factor in their opinion hns been the difficulty of making replacements and improvements so that depreciation funds and sometimes EVEN parts of Earlier loans WEIE accumulated. Due to the informal limitation on dividendo a large portion of Earnings for which the corporation can find no Employment have also been deposited in the banks. MORRIS EMB 343 PARTIAL PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 216, DATED JANUARY 21, 1941, 7 p.m., FROM THE AMERICAN EMBASSY, BERLIN. The rise in deposits is said to have been fairly steady throughout the year up to December when it was somewhat retarded and the issuance of almost 8,000,000,000 marks of 4% treasury bonds sold to a considerable extent to private individuals and firms had practically no influence on bank deposits. A further important reason for the unusually large expansion of deposits was the extension of the activity of the banks into the newly annexed territories. An article in the Deutsche Rubricassen Zeitung of January 21, which, however, is concerned only with savings banks maintains that the chief source of the enormous deposits during 1940 was not unemployed capital but the small savings of the masses made possible by higher incomes on the one hand and consumption restrictions and scarcity on the other. There has been a much greater increase in the number of savings accounts than in previous years and deposits are again being made into many formerly inactive accounts but the average size of the payments deposited has also increased somewhat. According to this article these facts indicate that these are genuine savings and not unemployed working capital temporarily deposited in savings accounts. A further development during 1940 was the much smaller proportion of 344 -2- of withdrawals to gross in payments than in previous years. Whereas from 1937 to 1939 80 to 85% of the gross deposits were withdrawn this figure was reduced to 40 to 45% in 1940. The article in the Bank Archiv states that the large increase in deposits was accompanied by the further shift in the character of the assets in favor of government paper. Commercial loans and advances are said to have decreased by 15 So 20% during the year and the amount of commercial bills held has shown an even greater decrease. The total of bank assets has probably reached the 1929 figure but whereas in 1929 55 to 60% of the banks assets were in the form of loans and advances and 20% in commercial bills, at present barely 20% is in loans and advances and perhaps 5 to 10% in commercial bills. The commercial banks have invested their funds to a large extent in short and medium term treasury bills and certificates in view of the temporary character of a large share of their deposits expected to be withdrawn in case of peace. In addition they bought five-year treasury certificates in considerable amounts in the spring, sold some of them subsequently but toward the end of the year apparently bought larger amounts of the long-term treasury bonds. An 345 -3- An advance indication of the magnitude of the monetary problem which Germany will have to solve after the war is over is given by the above data regarding the expansion of bank deposits in Germany during the first full calendar year of the war. This problem will have to be solved by Germany either by inflation or perhaps by enforcing severe and unpopular restrictions on withdrawals or continued control of investments, working capital and consumption. (END OF MESSAGE) MORRIS EA:MSG 346 DEPARTMENT OF STATE Washington In reply refer to EA 840.51 Frozen Credits/1181 January 21, 1941. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses 8 copies of paraphrase of telegram No. 38 of January 18 from the American Embassy, Rio de Janeiro, regarding certain deposits of gold in the Bank of Brazil. Enclosure: No. 38 of January 18 From Rio de Janeiro. eh:copy 348 JAN 21 1941 ky dear Mr. President: The following is the information requested by Miss LeHand, concerning your letter of March 29, 1939 to Senator Karrison. While Kiss LeHand's request referred to a letter of March 14, 1939, it appears that the letter of March 29, 1939 is the one with respons to which she desired the requested information. H. R. 3790, a bill dealing only with the reciprocal income taration of incomes of Federal and State employees, passed the House of Representatives on February 13, 1939. On February 24, 1939, the bill was reported to the Senate by the Senate Finance Committee. On February 27, 1930 Senator Bailey, and on March 3, 1939 Senators Commally and Gillette, offered amendments to H. R. 3790 which proposed increases is the import tax on certain fish oils (See. 2491(a) of the Internal Revenue Code). in the processing tax on coconut oil, pala oil, and certais other vegetable oils and their derivatives (See. 2470(a)(1). I.R.C.). and is the import tax on certain vegetable oils (See. 2491(b). I.R.O.). The proposed amendments were not relevant to the subject matter of H. R. 3790 as passed by the House of Representatives and reported to the Senate. Hearings on the proposed amendments were held by the Senate Finance Committee on March 6, 7. 8, and 9. Because of the controversy resulting from the proposal of those amendments, action in the Senate on H. R. 3790 was deferred. On March 39, 1939 you sent a letter to Senator Harrison, Chairman of the Finance Committee, pointing out that the proposed amondments were in conflict with the trade-agreemente pregran and stating that you would vote H. R. 3790 in case the proposed amendments were adopted by the Congress. Thereafter the amendments in question were not pressed, and on April 4. 1939, H. R. 3790 was passed by the Senate without these amendments. IS was subsequently emacted and approved on April 12. 1939, as the Public Salary Tax Act of 1939. Faithfully yours, Enclosure: mimeographed copies of (Signed) H. Jr. President's ltr. to Sen. Harrison, 3/29/39. CC to Mr. Thonpson The President, The White House. SSS:- 1/21/41 By Messenger 2 349 THE WHITE HOUSE Washington 1939. My Dear Senator Harrisons I feel impalled to write to in regard to certain amendments now under consideration before your you committee which would amond R. R. 3790. a bill which deals with the important and entirely separate subject of recipreeal of income of Federal and State employees. these - would raise to new heighte the tame-is effect Rany imported fate and oils. I - addressing this letter to you because the amontments chairman, have been referred to the committee of which you are the I. of course, know that the Sensions who introduced these amendments asted in good faith. But there should be no illusion about the vital importance of the is as the - present. Se are not dealing here with botta fide exise - for revenue purposes, but with what in purpose and effect are tariffe of the enburge variety. The assessments F directly counter to the previsions of reciprocal- trade agreements already in form with such important countries as the United Kingdom, Canada, the Methorianis, and Brazil. If emeried they would destroy or at the very least seriously impair these agree- ments under which we have obtained concessions benefiting more than a quarter of a billion dollars worth of American exporte of agrieul- tural products alone. and they would hamper our efforte to conclude additional trade agreements in the interest of American agrieul tur and industry. The issue is clear. It is shother to sustain our present policy or to return now. or during the pendonary of the Trade Agreements Ast to the enbargo Bariff policy complified by the disastrous Handay-Smot Thriff Ast. The private interests who seek to benefit from the amendments apparently ignore the fast that on the basis of 1938 import values the rates as they nov stand have an ad valoren equivalent of a percent in the case of palm oil, 96 percent on edible pale-kernal oil, and 65 percent on inedible pala-itemel oil. Under the proposed amendments these ad valores equivalents would be increased to 149 percent, 151 percent, and 106 percent, respectively. In the place of present Fates on weel grease, ranging from 43 percent to 93 parent, the processis would substitute rates of from 60 percent to 146 percent. by and large these projocals call for 50 percent increase over the already hish rates. The resulting Pates could be described by as other word then "enbergees," If one industry 10 time to receive an enharmo all will domand it. Then other nations will inevitably impose exhorgine on our exporte. 350 -2AS first the proposals called for these tax increase staly. which would have meant outright violations of our trade agreements with the Unite Diagnose Canada the NotherLands, - Denail. New as is suggested that the effect of the conflicting tax increases shall be pertioned wall the four agreements montioned, which are of such great value to American agriculture and intestry, can be modified and terminated at the earliest possible - the terms of those agreements. Let no one be balled into Shielding that this andification of the meadments would remove the basic confliet between them and the pregnant The real issue would remain emotiy the - All the modification - to that we would not be convicted of violating outright four of international agreementes we would still Institutily lose a substantial part of the benefits of these important agreements and would - the - risk of losing all of them, I should 15th every from every producer of surpluses in this country everyone in all walks of life, to know how great the esst would be 15 these should be adopted. I should 1 them to know that the enactment of these a would seriously Jeopertise trade agreements by - of which concessions have been obtained - more them a quarter of a billion dollars worth of exports and on several Instreds of millions of dollars worth of our experte of factory and other products. I should 11th them to know that these - 1f passed. would conter or later expose this Image volume of trade to the danger of retalistery trade restrictions in the countries abroad affected, I should 11km them to know that those - would helper - efforts to obtain additional benefits for - agricultural and industrial preducers. And I should Like them to know that the power for Leadership of this country in the great test of rebuilding international trade under the principles of equality and animal profit, that which full and stable economic recovery in this country and in other countries cannot be realised, would be virtually destroyed. These - would seriously unternine a program which already has prevent of great benefit to merican agriculture, whithetanding the depressed state of our foreign market. Our exports of furn products to traderegreement countries increased w 55 percent in the fiscal year 1937-38 over 1935-36. our exports of fam products to - agreement constries increased by only 3 parent ever the - period. This comparism striking as is in. does not take into account the agricultural benefits obtained recently in the agreement of th the United Kingles or is the new agreement with Canada In 1936, the United Xingles alem bought cas-thisd of the artistinal products we sold abroad. Conscestome covering 92 parent of Shoes purchases were obtained in the agreement, effective Jempory 1 of this year. In other words - have obtained in one single wate agreement ingreved or more stable markete for marly a third or our total agricultural exporte, including - lay products as wheat, cotten, corn, Lard and tobacco, 351 -3- Our trade agreements with 19 foreign countries have done more for American agriculture than to improve and stabilise foreign markets for many of our agriculture products. They have increased purchasing power in the domestic market for our farm crops. When, for example, our exports of automobiles to Brasil water a trade- agreement concession increase, as they have done, by $4,500,000, there is more purchasing power available for our workers to buy mont, butter, milk, eggs. fruits, and vegetables. Our total exports to 17 agree- ment countries in the 2-year period 1937-38 were greater in value by 61.2 percent than the average for the preagrement period 1934-35. while exports to all other countries increased by an average of only 37.9. Such tariff or tax increases, when proposed. obviously should be treated as amendments of existing tariff legislation and should receive the kind of consideration that would be given to specific tariff legislation. This would include study of the proposals on their own merits by experts of the Tariff Commission and other agencies of the Government and by the appropriate committees of the Congress, as elements in the general tariff structure and in relation to the country's commercial policy as a whole. The inclusion of tariff revisione as parts of or as riders on other legislation creates a difficult situation for the Congress and a much more difficult situation for the Executive. It tryposes upon the President the necessity of accepting tariff rate revisions which he may consider contrary to the public interest in order to precerve the main legislation. His only al ternative is to vote the whole act and thereby delay and perhaps endanger the desirable and major portions of the act. In this case the adoption of the essendments would make it my clear duty to veto H. R. 3790. however meritorious the bill may be. Let - repeat, the trade-agreements program is an essential part of our general program for economic recovery in this country. It is also, particularly at this critical stare of world affairs, a vital part of our foreign policy. Attacks on the trade-agreements program such as that represented by this new drive for enbargo tariffs on fate and oils are, therefore, attacks on our efforts to attain full prosperity at home and to promote economic disarmament and peaceful relations throughout the world. Very sincerely yours, FRANKLIN D. ROOSEVELT. The Honorable Pat Harrison, Chairman, Senate Finance Committee, United States Senate. (Ref. Congre sional Record. Vol. St, Part 4, 76th Congress, 1st Session, March 30, 1939 to April 21, 1939. - Pages 3506 and 3507). 352 COPY THE WHITE HOUSE Washington January 15, 1941 Dear Mr. Secretary: Would you be good enough to send me memoranda in regard to the following: 2. Memorandum giving the surrounding circumstances and results of the President's -- with H.R. a reciprocal taxation State Senator taxes As this is to the letter, employees information 3790, on March Harrison, of several incomes bill amendments 14, imported re dealing 1939, of amendments be Federal which addressed included with products. dealt and to to in President's Public Papers and Addresses, it would be very much appreciated if you could let me have these memoranda as soon as possible since we are now in the process of compiling this data. Very sincerely yours, /s/ M. A. LeHAND M. A. LeHand Private Secretary, The Honorable, The Secretary of the Treasury, Washington, D.C. 353 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 21, 1941 Secretary Morgenthau TO FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: 152,000 Sold to commercial concerns Purchased from commercial concerns 10,000 In the open market, sterling remained at 4.03-1/2. Transactions of the reporting banks were: 13,000 Sold to commercial concerns Purchased from commercial concerns 18,000 The Canadian dollar discount widened sharply from 14-7/8% at the opening to 17-1/4% by mid-afternoon. It subsequently recovered to close at 16-1/2%. Today' eakness was reportedly due to the offering of 30,000 Canadian dollars in a very thin market. The Argentine free peso advanced to close at .2370, as compared with .2360 yesterday. The Cuban peso, which has held steedy at 8-3/16% discount during the nest few days, weakened today to 8-3/4% Closing quotations for the other currencies were: Swiss franc Swedish krone Reichemark Lira Brazilian milreis (free) Mexican peso Chinese yuan .2321 .2385 .4005 .0505 .0505 .2066 .05-7/16 There were no gold transactions consumated by us today. No new gold engagements were reported. The Bombay metal prices continued to improve, with gold rising 7$ to the equivalent of $34.11. The silver price was 3/16 higher at the equivalent of 45.06 354 -2- The prices fixed in London for spot and forward silver were both unchanged, at 23-3/16d and 23-1/8d respectively. The dollar equivalents were 42.10# and 41.99 Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35 We made five purchases of silver totaling approximately 400,000 ounces under the Silver Purchase Act, all of which consisted of new production from foreign countries, for forward delivery. The report of January 15 received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $8,876,000, a decrease of $374,000 in the short position. Net changes were as follows: Short Position Country England** Europe Canada Latin America Japan Other Asia All others Total January 8 $ 130,000 (Long) 3,535,000 277,000 (Long) 119,000 4,651,000 1,234,000 118,000 $9,250,000 Short Position January 15 $ 322,000 3,397,000 409,000 (Long) 234,000 4,281,000 1,061,000 10,000 (Long) $8,876,000 Change in Short Position* + $452,000 - 138,000 - 132,000 + 115,000 - 370,000 - 173,000 - 128,000 - $374,000 *Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign (-) indicates decrease in short position, or increase in long position. **Combined position in registered and open market sterling. CONFIDENTIAL 355 CONFIDENTIAL TO KEEP YOU POSTED January 21, 1941 To: The Secretary From: Mr. Young Re: Sperry Bomb Sight I had a telephone call from Ton Morgan of Sperry who advised me that the Sperry man named Vose, who had been sent to England with the Sperry sights released, had just returned to the United States. Mr. Morgan said that Sperry had already learned a lot from Vose's experience bearing upon the quality of the sights. Mr. Morgan thought that Sperry could make a real contribution. I gathered that the result of the first trial they had in England was not satisfactory due to the characteristics of the particular planes which were used for testing purposes, but Mr. Morgan added that the final trials after certain adjustments had been made were far better than anything which Sperry had expected. P.4. 356 CONFIDENTIAL TO KEEP YOU POSTED January 21, 1941 To: The Secretary From: Mr. Young Re: Play for Greek War Relief In line with your discussion with the Greek Minister the other day, Mr. Harold Vanderbilt of the Greek War Relief called me from New York to make sure that he had the story straight on "Panama Hattie". D.Y. COPY PARAPERASE OF TELEGRAM SENT TO: American Legation, Bern. DATE: January 21, 1941, 9 p.m. NO.: 13. Refer to our telegram no. 8 of Jan. 13, 9 p.m. THIS TELEGRAM IS PERSONAL FOR THE MINISTER. The French Embassy at Rio de Janeiro on Jan. 17th deposited in the Bank of Brazil in the name of the Bank for International Settlements 500 kilograms of gold bullion, on which the Rothschild mark was stamped. The source of this gold is not known to the Bank of Brazil. The Bank expects that further deposits will be made. We would like to have as full a report as possible on this transaction. HULL (SW) EA:FL:LMW EA:MSG Copy:ka 357 Draft of 1/21/41 358 EXECUTIVE ORDER ESTABLISHING A CIVILIAN ECONOMIC DEFENSE COMMITTEE, REGULATING TRANSACTIONS IS FOREIGN EXCHANGE, FOREIGN PROPERTY AND FOREIGN BUYING, CONTROLLING THE REPORT AND OTHER DEALINGS IN DEFENSE MATERIALS, THE RECEISITIONING THEREOF, SHIP MOVEMENTS, AND THE PROTECTION OF DEFEESE PRODUCTION FROM RESTRAINTS AND FORKIGN CONTROL, AND RELATED MATTERS. By virtue of and pursuant to the authority vested is - by the Constitution, by section 1 of Title II of the 1st of June 15, 1917 (40 Stat. 220), by section 5(b) of the Act of October 6, 1917 (40 Sent. 411), as amonded, by section 2(a) of the let of June 28, 1940 (54 Stat. 676), by section 6 of the Ast of July 2, 1940 (56 Stat. 714), by the Act of October 10, 1940 (54 sent. 1090), and by virtue of all other authority vested is no, and by virtus of the continued existence of a period of actional enorgonay, and finding that this Order is is the public interest and is necessary is the interest of national defense and security, it is hereby ordered as followes TITLE I Section 1. There is hereby established a Civilian Economic Defense Committee (horoisafter referred to as the "Committee"). The Committee shall consist of the Secretary of State, the Secretary of the Treasury, the Attorney General, the Federal Loan Administrator, and a member of the office of Production 359 -2Management to be appointed by 18. The Committee, with the assent of the Secretary of State is respect of policies under Titles II and XXX hereof, and acting either directly or through such subconsitiess, agencies or personnel as the Consittee may designate OF employ, shall formulate policies relating to the carrying out of the purposes of this Order. Section 2. Subject to policies formulated by the Consittee (a) Titles II and III of this Order shall be administered by the Secretary of the Treasury, and (b) Title IV of this Order shall be administered by the Attorney General. Title II Executive Order No. 8389 of April 10, 1940, as assended, asseding Executive Order No. 6560 of January 15, 1934, is assested to read as follows Section 9. Netwithstanding any of the previsions of sections 1 to s, inclusive, of this Order, all of the following transactions are prohibited, except as specifically authorised by the Secretary of the Treasury by mosas of regulations, relings, instructions, licensee, or otherwise, If involving property in which way foreign country designated is this Order, or any national thereof, has at any time on or since the effective date of this Order had any interest of any nature shateoover, direct or indirects A. All treasfers of credit betseen any banking institutions within the United States and all treasfers of credit between say beaking institution within the United States and any booking institution outside the limited States (including any principal, agent, home office, branch, or correspondent outside the United States, of a banking institution within the United States); 360 B. All payments by or to any banking institution within the United States; C. All transactions in foreign exchange by any person within the United States; D. The export or withdrawal from the United States, or the earmarking of gold or silver coin or bullion or currency by any person within the United States; E. All transfers, withdrawals or exportations of, or dealings in, any evidences of indebtedness or evidences or ownership of property by any person within the United States; and F. Any transaction for the purpose or which has the effect of evading or avoiding the foregoing prohibitions. Section 10. A. All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury by means of regulations, rulings, instructions, licenses, or otherwise: (1) The acquisition, disposition or transfer of, or other dealing in, or with respect to, any security or evidence thereof on which there is stamped or imprinted, or to which there is affixed or otherwise attached, a tax stamp or other stamp of a foreign country designated in this Order or a notarial or similar seal which by its contents indicates that it was stamped, imprinted, affixed 361 -4or attached within such foreign country, or where the attendant circumstances disclose OF indicate that such stamp or seal my, at any time, have been stamped, imprinted, affixed or attached thereto, and (2) The admisition by, or 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 eithin the United States. 3. The Secretary of the Treasury may investi- gate, regulate, or prohibit under such regulations, rulings, OF instructions as he may preseribe, by means of licenses OF otherwise, the sending, miling, importing or otherwise bringing, directly or indirectly, into the United States, from any foreign country, of say montities or evidences thereof or the receiving or holding in the United States of any securities OF evidences thereof so brought into the United States. Section 11. The term *foreign country designated is this Order seans a foreign country included in the following schedule, and the term "ffective date of this Order" means with respect to any such foreign country, or any national thereof, the date specified in the following schedules 362 .5. (a) April s, 1940 Hereay and Desmark; (b) May 10, 1940 the Netherlands, Belgium and Laxenbourg) (e) June 17, 1940 France; (d) July 10, 1940 Letvin, Estonia and Lithumia, (e) October 9, 1940 Rusenie, and (r) , 1941 Albania, Anderre, Austria, Bulgaria, Gsocheslevakie, Dansig, Finland, Germany, Hungary, Italy, Liechtenstein, Poland, Portugal, San Marino, Spain, Sweden, Switserland and Yugoslavia. The "effective date of this Order" with respect to any foreign country not designated is this Order shall be deened to be # 1941. Section 12. A. The Secretary of the Treasury may require, by seans of regulations, rulings, instructions, or otherwise, any person to furnish under oath, is the fora of reports or otherwise, from time to time and at such time or times as be may designate, complete information relative to any 363 - transaction referred to in subdivision (b) of section 5 of the Act of October 6, 1917 (40 Stat. 411), as amended, or with respect to the interest of any foreign country or any national thereof is any property, including the production of any books of account, contracts, letters, or other papers, in connection therewith, in the oustedy or control of such person, either before or after such transaction is completed; and the Secretary of the Treasury may, through any agency that be say designate, investigate any such transaction or act, or any violation of the provisions of this Order. B. Every person engaging in any of the transactions referred to is sections 9 and 10 of this Order shall keep a full record of each such transaction engaged in by his, regardless of whether such transaction is effected pursuant to license or otherwise, and such record shall be available for examination by a representative of the Treasury Department for at least one year after the date of such transaction. Section 13. A. The term *transactions involving property is which any foreign country designated in this Order, or any national thereof, has any interest shall include, but not by way of limitation, (1) any payment or transfer to such foreign country or any national thereof, (11) any export or withdrawal from the United States to such foreign country and (111) any transfer of credit expressed is terms of the currency of such foreign country. 364 -93. The term *foreign country* shall include, but not by way of limitation, the state and the government thereof on the effective date of this Order 58 well as say political subdivision, agency or instrumentality thereof or any territory, dependency, colony, protectorate, mandate, dominion, possession or place subject to the jurisdiction thereof; and shall also include any other government (including any political subsivision, agency, or instrumentality thereof) to the extent and only to the extent that such government exercises or claims to exercise de jure or de facto sovereignty over the area which on such effective date constituted such foreign country and shall further include any person to the extent that such person is, or has been, or to the extent that there is reasonable cause to believe that such person is, or has been, since such effective date, acting OF purporting to act directly or indirectly for the benefit or on behalf of any of the foregoing. C. The term "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, except as hereinafter provided, 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 organization urganised 365 - 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, OF which on or since such effective date was OF has been con- trolled by, or a substantial part of the stock, shares, bonde, debentures, notes, drafto, or other securities or obligations of which ang OF has been owned or controlled by, directly or indirectly, such foreign country and/or one or 2020 nationals thereof BE herein defined; and shall further include any person to the extent that such person is, or has been, since such effective date, noting or urporting to not directly or indirectly for the benefit or on behalf of such foreign country or actional thereof, and shall further include any other person who there is reasonable cause to believe is a "national* as herein defined. In any case in which by virtue of the foregoing definition a person is . national of more them one foreign country, ruch person shall be deemed to be a national of each such foreign country. The Secretary of the Treasury shall have full power to determine she is or shall be deemed to be a *national" within the meaning of this definition. without limitation of the foregoing, the tors *national* shall also include any other person who is determined by the Secretary of the Treasury to be, or to have been, since such effective date, acting or purporting to set directly or indirectly under the direction of . designated foreign 366 -9country OF national thereof, as horein defined. The term "direction", as used herein, shall include any power to guide, shape, determine or ascertain the activities or policies of say person, because of say relationship in fact, because of say contract, patent pool, understanding, agreement, including any licensing, marketing, OF royelty agreement, say agreement to exchange information, or any other agreement, whether or not legally enforcable. D. The tors "banking institution as used in section 9 shall include any person engaged pricerily or incidentally in the business of banking, of granting or transferring credits, or of urchasing OF selling foreign exchange or procuring purchasers and sellers thereof, as principal or agent, or any person holding credits for others as a direct or incidental part of bis business, OF brokers; and, each principal, agent, home office, breach or correspondent of any person so engaged shall be regarded as a separate *banking institution." E. The term "this Order", as used in this Title, shall man Executive Order No. 6560 of January 15, 1934, as amended. Section 14. The Regulations of November 12, 1934, are hereby notified in so far as they are inconsistent with the provisions of sections 9 to 14, inclusive, of this Order, and except as so modified are hereby continued is full force and effect. 367 -10TITLE III Sestion 1. Coordination of Zoreim Buring. Subject to the policies forsulated by the Consistes, the Secretary of the Treasury shall coordinate the buying, or other aqquisition, including negotiations therefor, w or on behalf of any foreign country or national thereof, of all defense articles, including all allitary equipment and minitions, component parta thereof, and machinery, tools, and anterial and supplies necessary for the manafacture, servicing or operation of defense articles, in such a as will nest effectively further the interests of national defence. For such purpose the Secretary of the Treasury shall serve as the lisison officer between this Government and foreign countries and nationals thereof. The Secretary of the Treasury shall keep the Committee currently and fully informed of his activities in connection herewith. Section 2. Export Buberness. The Proclamation, Orders and Regulations heretofore issued under section 6 of the Act of July 2, 1940 (54 Stat. 714) shall, except as herein or otherwise aseaded, remain in full force and effect and the functions of the Idministrator of Export Control and his staff shall be subject to the repervision and control of the Secretary of the Treasury acting subject to the policies formulated by the Consittee and the licensing procedure is effect as of the date of this Order shall remain in effect until nodified, smeaded or revoked by regulations bereafter issued by the Secretary of the Treasury. Section 3. heavisitioning of Materials Denied Exporte The Executive Order and Regulations heretofore issued under the Act of October 10, 1940 (54 Stat. 1090) shall, except as 368 - 11 - herein OF otherwise exended, romain in full force and effect, except that the powers therein vested in the Secretary of Sar and the Secretary of the Navy, seting jointly through the Army and Savy Hunitions Board, are hereby transferred to the Committee, seting with the approval of the Army and Savy Nunitions Board, and 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 subject to the policies formulated by the Committee. Section 4. Control of Ship Novements. The Proclamation and the regulations issued under section 1 of Title II of the Act of June 15, 1917 (40 Stat. 220) shall rensin in full force and effect, ABC the administration thereof by the Secretary of the Treasury shall be subject to the policies formulated by the Committee. TITLE IV Section 1. Protection of Defense Production from Restricts and Foreign Controls with such advice and assistance BE he may T S uire from the several departments and agencies of the Federal Government, the Attorney General shall, noting in accordance with the policies formulated by the Committee and pursuant to the authority hereinbefore referred to, or pursuant to any other authority: (a) Conduct investigations, bring grand jury proceedings, recommend legislative or other programs, and take such other action as say be appropriate for 369 - 12 - the purpose of dealing with restrictions, hindrenses OF conduct detrimental to national defense or security, and affecting production, trade and other operations incidental thereto, by reason of or imposed by: (1) any foreign control or influence over or interest in, directly or indirectly, any business or industrial establishment, enterprise, activity; (11) any agreements, licenses, patent arrangements, conspiracies or other practices or devices; (111) industrial espionage or sabotage or the obtaining of information by any foreign interest. (b) In aid of national defence and security, furnish information and render such assistance as the Attorney General may dees appropriate, with regard to the foregoing matters upon request of the office of Production Management or any other interested agency of the Government. (e) Perform such other related functions as the Committee, with the approval of the Attorney General, any from time to time assign OF delegate to his. TITLE v Section 1. Recommendations by the Consittee. The Committee shall engage in such staties and shall make 370 -13such recommendations to the President, to the Congress and to the appropriate departments and agencies of the Government as the Consittee doons in the interests of the economic defense of the United States. Section 2a Continued Validity of Prior Actions and Savings Clauses Except as otherwise provided, this Order shall not be desced to revoke any regulation, license, ruling, instruction or other action issued or taken pursunst to any las, proclamation, order or regulation here- Before referred to which is in effect as of the date of this Order provided, however, that all such regulations, licenses, rulings, instructions, OF other actions shall be subject to the provisions of this Order and the regulations, licenses,ruliage, instructions or actions issued or taken thereunder. Any amendment, sodification OF revocation by or persuant to the provisions of this Order of any orders, procleantions, regulations, rulings, instructions or licenses shell not affect any set done, or any right sceruing or accrued, or any suit or preceeding had or communed in any civil or criminal case prior to such accordment, sodification or revocation, and all penalties, forfeitures and liabilities under any such orders, procleme- tions, regulations, rulings, instructions or licenses shall continue and may be enforced as if such amendment, modification or revocation had not been made. Section 3. Regulations. Except with respect to Title IV, the Secretary of the Treasury is authorised and emposered to prescribe from time to time regulations, rulings, and instructions to curry out the purposes of this Order and the proclamations and orders herein referred to, and to 371 provide Sharein OF otherwise the conditions - which licensee my be - by or through officers or agencies as the Secretary of the Treasury - and the decision of the Secretary wish respect to the granting. dental OF other disposition of . license shall be final. Section 4. Is shall be conclusively processed this any regulation, license. ruling. instruction or other action by the Secretary of the Treasury or the Albertary General under the Order has been issued or Sales in accerdance with and subject to the policies fomulated by the Commisses with the access of the Secretary of State. Section 5. This Executive order and any regulations, relings, licenses OF instruc- Siens issued horounder may be - modified OF revelted as any time. THE WHITE moun, 1942. 372 BRITISH EMBASSY, WASHINGTON, D.C. Personal and Secret January 21st, 1941. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, havik Bother The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 373 Telegram received from London dated January 19th, 1941. Naval. Parthian reports sinking with torpedo (words undeeypherable) 7000 tone supply ship off Cape Spartivento, Southern Italy. 2. On the 18th January enemy air attack on convoy in Thames Natuary caused no damage. 3. The night of the 18th/19th west-bound channel convoy off Dover was shelled, no damage reported. A convoy of 27 ships has arrived in home ports from Canada. 4. Asturias boarded French Mendoza a.m. 16 miles from the Brazilian coast in latitude 27 degrees south. 5. Tanker British Union reported 2120 hours January 18th being shelled by enemy raider 650 miles West by South of Canary Isles. A.M.C. Arawa in the vicinity observed shelling, closed position but shelling ceased before her arrival and she sighted nothing but later picked up some survivors. No further report received of Almeda Star. Search being made. 6. German Air Force. Malta. On January 18th 80 German bombers escorted by fighters made high level attacks on 2 aerodromes dropping 40 1,000 1b. bombs on each. Preliminary reports as follows. 7. Halfar. Direct hits on one hangar, 5 aircraft damaged, many craters but aerodrome remains serviceable/ 374 -2- serviceable. Officers' meas seriously damaged telephone communications cut and water mains hit. 8. Luga. 2 hangare destroyed and 2 damaged. 1 aircraft burnt and another badly damaged and (words undecypherable) slightly damaged by bomb splinters. Electric power telephone and water services cut. Aerodrome temporarily unserviceable. only casualties reported are 2 airmen killed and 5 injured. 9. Five Hurricanes and 3 Fulmare on patrol destroyed 6 enemy aircraft. Anti-aircraft claim 3 direct hits. 2 Fulmare lost, but 1 pilot saved. 10. Home Security. 17th/18th. Swansea. In docks hydraulic and electric power systems were damaged and day work is at present stopped. National 011 Refineries temporarily shut down owing to lack of electricity and water. In one dry dock main shope and stores were gutted and considerable damage caused to plant and machinery. 11. At Weymouth some damage was caused to locomotives and rolling stock. 375 BRITISH EMBASSY, WASHINGTON, D.C. PERSONAL AND SECRET. 21st January, 1941. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Hand Bother The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 376 Telegram from London of the 20th January, 1941. Naval. on January 17th and 18th, six escorted French merchant ships totalling 33,000 tons passed through the Straits of Gibrelter. 2. Attacks on shipping. Armed merchant cruiser "Arawa" reported on the 19th having picked up one boat- load of survivors from "British Union." Search continuing. 3. An enemy reider is reported to have sunk two Norwegian "whaling" ships 12,200 tons each in the Antarotic waters south of South Georgia. 4. British ship (5,000 tons) has been bombed and sunk of Barwich. No further news received concerning "Almeda Star", "Zealandic" or the Greek ship mentioned in third sub-paragraph, paragraph one of the summary of the 17th. 5. Royal Air Force. Libya. on the night of the 17th/18th, our aircraft dropped 13 tons of bombs on "Tobruk" and started a very large fire near petrol dumps. 6. All home operations on the 18th and the night of the 19th/20th were cancelled owing to weather. 7. German Air Force. January 19th considerable enemy activity over shipping off the south and east coasts. A bomber was shot down into the sea by our fighters. only three enemy aircraft penetrated a short distance inland over the SouthEast Coast. /8. 377 2- The night of the 19th/20th. About 150 8. enemy aircraft were operating of which 35 were mine- laying. Activity was chiefly over London, home counties and Hampshire. Two enemy bombers were certainly destroyed during the night, and two more probably. 9. Malta. January 19th. Eighty German bombers escorted by several Italian fighters dive-bombed the Grand harbour and dockyards. Eight of our aircraft intercepted and destroyed eleven enemy including ten bombers, probably destroyed three others and damaged four more. In addition anti-aircraft claim to have shot down six bombers. One Hurricane is missing. Damage was caused to Government property in the dookyard and to civilian property elsewhere, no casualties reported. 10. Aircraft casualties in operations over and from the British Isles: Destroyed Enemy By A.A. fire night of 16th/17th 1 By A.A. fire night of 1 By A.A. fire night of 19th/20th nil. a 17th/18th Probable 2 2 British: Nil. 11. Home Security. The night of the 19th/20th. Bombing was spasmodic and distributed although London and Southampton areas received ohief attention. Apart from one case of industrial damage in East / London 378 -3 London and some damage to railway work shops, and public utility services in Southampton area, only dwelling house property was affected to any appreciable extent. 12. All fires were quickly put out. Road communications are blocked by snow in the North-West of Scotland and to a less extent in NorthEast and North-West England. All important roads in East Kent are clear. CONFIDENTIAL 379 Paragram of Sade Bollogram Received as the Year Department as 10104, January m. 1942. Renton, filed January n. 1941. 1. a Nonley, January 20, as airfield in southern Memory compied w the Commone and two small German eargo beate off the coast of Brittany were attached by planes of the Coastal Goosend. Flights w Dember Community planes were cancelled by aiverse weather conditions. 2. During daylight heave of January 19 a total of 88 German planos were pletted over Register and that night 180 German planes were active. Antiairman five was responsible for the destruction of five of the German because used in these attacks. It is new reported that several instances of severe infustrial damage in the Southerpten region resulted from these attacks and that serious damage was inflicted on one industrial target in Senion. a January 20 German air operations were slight with 119th damage resulting from the crossing of the coast line w single German planse. In northern Seetland one German reider was shot down. No - operations were reported during the night of January 20-21. s. Motor transport and military buildings at Baral were attached w British planes based in Greese. A motor transport contration as Teacher (8), a suspected submits base at Masagna, and the Baranta airfield near Masama were bonhed by British planos based in the Salam. CONFIDENTIAL 380 CONFIDENTIAL 4. - usually well informed though not official, are of the opinion that the chances of as attempted invasion are greater than formally. It is now thought that 18 may be attempted sooner that was formerly believed. 5. During the last four months of 1940 British deaths as a result of German air activities totalled 21,669. About 3,600 of these were persons less than 16 years old. During the same period 30,556 individuals vere seriously injured. These figures are official. 6. IS is assumed that the Greek ship and the two British vessels that were reported terpedoed on January 16 and 17 are total losses since there is no additional information concerning their fate. A 5,000-sen British eargo vessel was attacked by German planes off the English coast near Marwish and was sunk. off the Anteretic island of South Georgia two whaling vessels of Norvegian registry were sunk by a German naval raider. SCANLON Distributions Secretary of War State Department Secretary of Treasury Aest. Secretary of Mar Chief of Staff Wear Plans Division Office of Neval Intelligence CONFIDENTIAL CONFIDENTIAL Paraphrase of Code Radiogram 381 Received at the War Department at 1:57, January 21, 1941 Stockhelm, filed January 21, 1941. In reply to your cablegram No. 85, no official information is obtainable. The Norwegian and British military attaches, however, conour with - in the following estimates: There are at present in service 200,000 men, including 35,000 conscripts in training depots and 20,000 members of the Landstorm, but excluding 2,500 Coast Artillerymen who are under the Ministry of the Marine. At present 5 divisions are fully mobilised and the remaining 4 are largely demobilised but can be mobilised in 48 hours. On January 1, the 10th Division will be formed. In addition to the fully mobilised 9 divisions, there are separate forces in Gottland and in the North. It is estimated that the total effective strength is 400,000. WADDELL (Note: This cable is somewhat contradiotory, as it first states that 5 divisions are mobilized and 4 largely demobilised and later that 9 divisions are fully mobilised. It is probably meant that 4 divisions are mobilised but are skeletonised.) Distribution: War Plans Division Office of Naval Intelligence Coast Artillery Army War College CONFIDENTIAL 382 RESTRICTED G-2/2657-220 No. 297 M.I.D., W.D. January 21, 1941 12:00 M. SITUATION REPORT I. Western Theater of War. 1. Air Force Operations. German. In the whole period January 18-21, unfavorable weather prevailed and German offensive activity was generally light. There was a limited recrudescence of daylight raids. British. No important offensive operations. II. Greek Theater of War. 1. Ground. There have been no ground operations, probably because of unfavorable weather conditions. 2. Air. Limited activity in the combat zone. Piraeus, harbor of Athens, was raided on the 19th. III. Mediterranean and African Theaters of War. 1. Ground: Libya. Artillery and patrol action is reported on the Tobruk and Jarabub fronts. Sudan. The British have reoccupied Kassala. The Italians have been driven east of Sabderat and Tessenei, and localities about both towns have been occupied by British troops. This may be the beginning of an organized offensive against Eritrea. In the Metemma (Gallabat) area, British patrols are active. Kenya. Minor British offensive activity. 2. Air. Normal operations in Libya and East Africa, with British air superiority maintained. Aggressive air attacks on Malta continued, with considerable success but attended with heavy Axis plane losses. The R.A.F. raided southern Italy on the 20th. 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 383 NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS TENTATIVE LESSONS BULLETIN MILITARY INTELLIGENCE DIVISION, No. 82 G-2/2657-235 WAR DEPARTMENT, Washington, January 21, 1941. NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intelligence Division. For provisions governing its repro- duction see Letter TAG 350.05 (9-19-40) M-B-M. THE GERMAN PIONEERS IN TOTAL WAR SOURCE This bulletin contains a translation, somewhat paraphrased and abridged, of The Pioneers in Total Ear, an article by Major General Dr. von Schaewen which appeared during November in the Militar -Wochenblatt, authoritative German military journal. According to an American official observer, "the report is believed to be reliable," but its possible propagandistic intent should not be overlooked. CONTENTS 1. TRANSLATION OF ARTICLE 2. DISCUSSION BY OBSERVER NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS -1- 384 NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS 1 THE GERMAN PIONEERS IN TOTAL WART 1. TRANSLATION OF ARTICLE Total war is a war of peoples. It embodies an attempt not only to destroy the enemy's military force by use of arms, but to damage every phase of his life and thus compel him to sub- mit to the will of the victor. It employs destruction on a large scale, but it also involves defense on a large scale. Besides actual arms, it has many similarly effective weapons, including the economic and the propagandistic. The rise of this type of war has caused a break from the ideas employed when war was only a conflict between military forces. Because of an increase in the significance of mechanization, the engineers have been assigned broader fields of duty as technical combat troops. The following are the important functions, whether defensive or offensive, of the combat engineers: Combat involving fortifications; Combat involving lines of communication; Clearance of non-belligerents from danger areas and movement or maintenance of essential industry in those areas. 1. Attention has frequently been called in TENTATIVE LESSONS BULLETINS to the important role which German Pioneers have assumed in the combat effort. They have won an integral place in the fighting machine. In attack, the duty of the pioneer- that of providing for the uninterrupted advance of elements of other arms-may involve reducing fortifications, effecting river crossings and building bridges, clearing land mines from zones of advance, assisting with the movement of wheeled vehicles, brushing aside weak enemy forces, preparing advance landing fields, and similar activities. In defense, the mission of the pioneer-that of obstructing and neutralizing the move- ment and combat effort of the enemy-may include establishment of a system of demolitions and obstacles in forward areas and in gaps between units, with particular attention given to favorable avenues of approach for mechanized attacks. The pioneers may also be used as a reserve force. G-2. NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS -2- 385 NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS Since the pioneers first appeared in the army of Frederick the Great, new military technical problems have constantly been presented to them for solution. Each major case has resulted in either a broadening of their own field or the creation of a new branch of the service. For example, hand grenades and mine throwers, originally used by pioneers as close support weapons, were later provided for the infantry. Further, all communications troops, railroad troops, and even aviation personnel were pioneers until independent branches of the service were set up for them. The pioneers themselves have become primarily mechanized combat troops, and they are often entrusted with independent missions on the battlefield when such missions are necessitated by particularly effective enemy defense or attack measures. Pioneer detachments operate from the foremost line to the rear of the army territory, but the technical battlefield missions of today are so numerous that even a large pioneer corps could not accomplish them alone. More than ever before, each soldier in modern warfare must, to a certain extent, be an engineer. It has been proved in recent campaigns that a great deal of bloodshed can be prevented if troops, even during an attack, dig in during brief pauses, as required by the regulations. It has also been proved that difficult areas can be crossed much more quickly if all troops, following the instructions of pioneers, carry out the smaller technical pioneer tasks. Since the World War, nations have attempted to protect the entire length of their borders by deeply fortified zones. In their attempt to make these zones invulnerable, they have used all modern technical means. They have tried to make installations invulnerable to artillery fire and bombs by sinking them as deeply as possible into the earth and by reinforcing them with steel and concrete. Where it has been necessary for targets to remain exposed, they have been camouflaged for the purpose of minimizing the effect of enemy fire. It has been made difficult for the attacker to make a front for his infantry. Pioneers of assaulting infantry might manage to take old fortifications, surrounded by a wall and moat, by bringing up storm ladders and other equipment, but these methods are ineffective against modern fortifications. Even after thorough preparation by artillery and bombing, such fortifications present to the attacker numerous undestroyed fire openings, turrets, and doorways which can be taken only by hand-to-hand fighting and by the use of such modern technical means as flame throwers, smoke, and prepared ex- plosives. These devices are brought up to the objective by troops, usually under cover of a smoke screen, but the result can be NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS -3- 386 NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS achieved only by troops who recognize such missions as their own and who, during peace time, have been carefully trained in their execution. Thus, during close range attack on fortifications, pioneers should be employed not only to assist the infantry, but to storm such works independently. Fecause of their specialized training and equipment, they can perform the task while the infantry advances past them to the bettle proper. Success in breaking through the eastern French fortifications has proved this point. Modern offensive warfare is principally a war for lines of communication, and a war of mobility is waged principally along roads. The greater the degree of motorization, the more the attacker needs the roads. In addition to roads and highways, lines of communication include railroads and canals. The most effective method of blocking a road or railroad is to blow up its bridges. The defender often resorts to this action without consideration for the great value of a structure or its importance as an approach to a large city. One of the German armies which advanced deep into enemy territory in the West built 183 emergency bridges-each being from 25 to 400 meters in length and having a capacity of 16 or 24 tons-as well as 57 military bridges. Various types of bridge material were used, and the entire task was completed in a period of 8 to 10 weeks. This feat is proof of the tremendous tasks demanded of pioneers, as well as of construction troops and bridge construction troops.2 Military bridge construction equipment must be released as soon as possible, since ordinarily it is kept on hand only in limited quantities. It must be sent forward quickly for exploitation of victory. Emergency construction plays an important part in modern werfare, and bridge construction troops charged with it must be strong in numbers, extremely mobile, and provided with an ample supply of modern technical equipment. The speed of construction is mainly a question of organization. Procurement, preparation, and transportation of construction material-important parts of the construction mission-are the concern of pioneer officers and non-commissioned officers. Ingenuity in procuring material, quick judgment as to its possible use, correct estimation of repair possibilities, and rapid designing must be demanded of each pioneer officer, and, to a certain extent, of each pioneer non-commissioned officer. It is necessary to have good equipment and efficient 2. Construction troops are construction engineers and Todt Organization workers. NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS 387 NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS machinery, such as power driven circular saws, heavy rams, cranes, and smiths. In general, construction of heavy bridges-at least 16 tons-is most important, since immediate transportation of supplies is dependent upon the existence of such structures. Destroyed bridges encountered in the West were of the most varied types, including flat-arched stone structures of the Rococo period, ancient suspension bridges, and modern concrete and steel bridge types. Correct and quick estimation of repair possibilities required wide technical knowledge, and, above all, experience. Next in importance to troop training in river crossing constructions for direct support of attacks comes construction of emergency bridges, principally heavy structures with a capacity up to 24 tons. The fundamental principle that no obstacle has value except when defended has been proved again and again. Even tree obstruction zones several kilometers long provide delays of only a few hours unless they are defended by sufficiently strong pioneer forces. The attacker must not only make roads passable along the axis of the advance, but he must remove obstacles of all kinds from intervening sectors. He must repair for immediate use all destroyed bridges and roads for lateral traffic, since they are extremely important for troop transportation behind the front. Thus, there is a need not only for fighting pioneers, but also for bridge building and construction troops whose responsibilities are far greater than they were in former times. NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS