Full text of Diaries of Henry Morgenthau, Jr. : Volume 351 : Part 2

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

148

- 55 Foley:

I would rather have it that way, too,

H.M.Jr:

It is unanimous. (Laughter.)

Kuhn:

if it is all the same to you.

That is a good one.

But Ed meant at the House hearings -

I think the title wasn't read, and it

didn't specify that this was a married
man.

Foley:

Somebody might have picked it up.

H.M.Jr:

Edward Foley, Washington's most desirable

bachelor says, I should please say
"married couples".

Kuhn:

"With two children."

H.M.Jr:

Oh, and with two children.

White:

The rest of us wouldn't think of that.

Foley:

If they ask you if this includes state
taxes, it doesn't, because we don't
locate that couple anywhere. It is only
federal income taxes.

H.M.Jr:

Now we get down to page 13. "The last

table I want to submit to you - ",no.

White:

The final table? "Finally I should like
to submit to you"?

Bell:

"I should like to submit one more table."

H.M.Jr:

That is right. "I should like to submit

one more table to you which is an estimate-"

White:

H.M.Jr:

Or "it is"?
'Which is an estimate of the long-term

149

- 56 foreign investments of the United Kingdom outside the United State. These
figures, most of which were compiled by
British economists before the outbreak
of the war, are necessarily stimates.
Nobody can fix a definite valuation upon
such properties as ranches in Australia,

railways in Argentina, or oil wells in

Mexico.

Most of the investments a.e in sterling
securities; a large part of he Canadian
investment is in Canadian dolars, and
some of the other investment are in the
respective domestic currencis. However,
for convenience of presentation, the
estimated nominal value of tie investments
has been converted into stering.
The market values, where iven, are
calculated from current markt quotations
of the securities. Since market quota-

tions are not available for large part

of the investment, no total ;arket value
can be calculated."
Okeydoke. Now, the last thing. "The
problem before us is not Foley:

Bell:

Those tables are all right. We don't

have to re-cast them, do we, Dan?

No, I suppose the Secretary then he reads
them --

White:

No, those were done the old lay.

Bell:

Can find himself the totals.

H.M.Jr:

Yes. O.K., Dan?

Bell:

Yes.

150

- 57 -

H.M.Jr:

"The problem before us is not whether

the British Empire has resources; of

course it has, all over the world.

The problem is whether the British have
got the dollars they need, or can get

the dollars they need to spend in this
country."

"The problem before us is not whether the

British __"
White:

Bell:
H.M.Jr:

Kuhn:

This is the first time we have said

British Empire. You have always talked
about the United Kingdom. I think the
problem is not whether the United Kingdom has resources or the British people.
The British.
"The problem before us is not whether the

British have sufficient resources." What?
You don't want to say -This is in answer to the table, you see.

You have been giving these vast sums

invested all over the world, while the
impression you create is what --

H.M.Jr:

But isn't it, Ferdie, that the problem is
whether the British have sufficient
resources?

Kuhn:

It is whether they have enough dollars.

H.M.Jr:

No, whether they have sufficient resources.

Bell:

Whether they have dollar resources.

Kuhn:

Dollar resources.

Foley:

I would rather you said "resources".

151

- 58 -

H.M.Jr:
Foley:
White:

H.M.Jr:

All right.
Because when you say "sufficient", that

means adaptable.

The emphasis is between resources and

dollar resources.

"The problem is not whether the British
have the resources; of course it has,

all over the world."

Kuhn:

"Of course they have."

Foley:

"They have, all over the world."

H.M.Jr:

"The problem is whether the British have
got the dollars they need, or can get the
dollars they need to spend in this country."

I think that is all right. "If we expect

the British to go on getting supplies here _"
"if we expect the British to go on getting
their supplies here?" Do you mind putting
in a "their"?
"If we expect the British to go on getting

their supplies here--and that means if we
expect them to go on fighting--some way
must be found to provide either the dollars
or the supplies themselves. That, gentlemen, is the problem. I am ready now, Mr.
Chairman, to answer questions."

"If we expect the British to go on getting
supplies here" -- how about "to continue"?
White:

That next sentence is the one time you are

stepping out of the role.

H.M.Jr:

Yes, and I think it is a mistake.

152

- 59 -

White:

The others have said it. It is obvious.

Bell:

You mean about the fighting?

White:

Yes.

H.M.Jr:

I don't see why. I haven't done it.

White:

You were the only witness, but all the
rest were stressing that.

Young:

I believe you could leave out the last
paragraph.

White:

Wouldn't you leave it out?

Young:

I would, the last paragraph.

H.M.Jr:

I would be inclined to leave that out.
Do you think I can end on that? "Whether
they can get the dollars they need to
spend in this country. That, gentlemen,
is the problem, and I am now ready to
answer questions."

Kuhn:

We might say, "that, gentlemen, is the
problem which this Bill, to my mind,

solves". Or don't you want to link it
up with the Bill?

H.M.Jr:

Simply say, "that, gentlemen, is the prob-

Bell:

And I would transfer that up to the last

lem as I see it."

paragraph.
White:

After "they need to spend in this country",
and "that is the problem".

H.M.Jr:

Yes, right after - have a separate sentence,
so it sticks out. Separate paragraph.

153

- 60 -

gentlemen, is the problem as
I"That,
see it."
Bell:

And end right there?

H.M.Jr:

Sure. What is the problem? The problem is whether the British have got the
dollars they need or whether they can
get the dollars they need to spend in
this country.

White:

Would you want to say, "that, gentlemen,

is the financial aspect of the problem"?
There are a lot of other problems.

Bell:

You say his problem is whether the British
have got the dollars they need or can get
them.
"That,
as
I see
it. in gentlemen, is the problem

Foley:

He isn't supposed to see the other prob-

White:

There are other problems that he sees.

Foley:

Well, I know, but he is Secretary of the
Treasury. "As I see it", that is all
right.

Bell:

Well, that concerns the Treasury.

H.M.Jr:

Let me just think a minute. This is
important. "If we expect the British to
go on" and so forth. You see, that last

lems.

thing - of course, it is perfectly true,

but the last time my success was, I gave

them the cold facts, and I let the other

fellows do the editorializing. This is
the first time I step into that field,
in the last paragraph.

154

- 61 Foley:

You are going to have to say it. You
are going to have to say it in answer
to questions, Mr. Secretary, and I
don't see that it makes any difference

whether you put a punch line at the end

and give the Bill a boost or you wait
until they ask you the questions.

White:

Ed, I think it makes a lot of difference.

He is coming up to give them the finan-

cial situation; he is not going to discuss the political necessity, either
inter-national or domestic political
necessity of passing this Bill. He is
saying that they haven't got enough

money to pay more than their commitments.
Foley:

And the first question is, "Are you in
favor of this Bill, Mr. Secretary"?
"Yes, I am. "Do you think it is better
for us to make money available to them,

as Senator Taft has proposed in his Bill,

or to buy the supplies here and make them

available to them?' "I prefer to make

supplies available to them rather than go
through all of the things that we went
through to get the money."

White:

But he is still confining himself to the
financial aspect of it. At some point
he may want to answer what he regards as

policy, but I think it comes better in
answer to a question than in a prepared
statement. You don't think it would
really matter whether or not the Bill

passes, do you? I mean, it wouldn't have
the slightest significance, because he
can say that in response to the questions,
and they will know that.
(The Secretary on White House phone.)

H.M.Jr:

Hello

155

- 62 -

Thank you
Hello
Yes
Yes

I see

Now, what do you think?

You don't think he will go?
O.K

Yes

Yes

What?
O.K

My father always told us children, if "never
try to force pleasure on anybody.
Yes

I have seen the show

Well, then

Yes, it is
O.K

Thank you

156

- 63 -

H.M.Jr:

General Watson says the President does

not wish to commit himself to going to
see "Panama Hattie". I won't say
whether he will or whether he won't, so

somebody has got to let the Greek Minister

know that. You (Stenotypist) tell McKay.

I might as well do it. It is a nice job.

The President agreed if they would bring
it down here during the middle of February
that he would go, and they could give a
free benefit. He wanted to see the show,
and the only way I could dope it out that
he could see the show was to let the
Greeks get the benefit, and he agreed to
it. Now, after two weeks, he changes his

mind. I think, in order to save face on

this thing - just think it over - I think

we had better send word to the manager to

kill it up there; because the Greek

Minister cabled his government the wonderful thing about the President was going
to go and so forth and so on.
Young:

Why don't you call New York?

White:

Does the President know all that? Maybe
he will change his mind again.

H.M.Jr:

Oh, he knows all that. We kidded back

and forth on this for half an hour last
night.

(Discussion off the record.)
H.M.Jr:

Now, what about this last paragraph?

Should I, or shouldn't I say it?

White:

Well, up to this point there isn't a single
phrase there in which the opponents or

proponents of the Bill could take any issue

157

- 64 -

with or could be moved one way or the

other. It is a financial explanation
of events. In this last paragraph, if
it was included as it originally was,
there is something of the other character which moves in for the first time,

and it leaves them with that feeling,
so instead of
puts it on a

somewhat slightly different level. I
don't think it is very important, but
to the extent that it is important, it
does that.

H.M.Jr:

What do you think?

Bell:

I don't think it is very important, but

H.M.Jr:

If we are going to leave it out, I think

I don't think it adds a lot to it.

I would simply say, "that, gentlemen,

is the problem as I see it".

Bell:
H.M.Jr:

I think that is plenty.
You don't think that is any different?

Bell:

You will be asked a lot of things.

H.M.Jr:

I think it is a good job. Supposing you -

what is that?
Kuhn:

Mr. Secretary, what do you want done about

releasing this? Should it be mimeographed

for the press also, as well as for the
committee?

H.M.Jr:

Oh yes, and I promised the boys down here
that we would give them copies in advance

this time, but it is to be held for release

158

- 65 -

until we phone them from the Hill that
Kuhn:

I have started to testify.
That is all right.

H.M.Jr:

You tell that to Chick Schwarz. They can

have it. I told them they could have it.
What I said last night, I said, "Look,
gentlemen, this wasn't Treasury figures,
this was British government figures, and
the next time, as far as I am concerned,
I have got enough confidence in you,
you can have my figures a half day in
advance."

Kuhn:

Good.

H.M.Jr:

So as soon as the thing is ready, I would

give it to them, and tell Chick to hold

it until he phones from the Treasury Press
Room - from the Hill that I have begun to

testify.

Kuhn:

And also copies for the members of the
committee?

H.M.Jr:

Yes.

Foley:

You want one of these in front of each
member.

H.M.Jr:

Now, let me just - let us understand each

other. Unless I hear again, I take it
it will be 2 o' clock.

Foley:

At the earliest.

H.M.Jr:

Yes, but there is something on the ticker

that said that Hull might go on this after-

noon again.

159

- 66 -

Foley:

I say at the earliest. I mean it will

probably be much later. It may not be
this afternoon. You may not get on at

all. But we will be on call from 2 o'clock
on. Just as soon as I find out how Hull
is going and how it looks, I will let you
know.
H.M.Jr:

The point is that if it is 2 o'clock, we
will all leave together about a quarter
of two. Well, just wait one second until

we get this thing now.
White:

Do you plan on going up as soon as Hull

sees this statement? You can't tell just

what question will be the last, can you?
(Mr. Schwarz entered the conference.)
H.M.Jr:

Chick, we have just cleared the statement,

and what I thought, as soon as it is

mimeographed, you can give it to the boys.

This is the only thing. I wouldn't want

to give it to them a day in advance, because supposing - I mean --

Foley:
H.M.Jr:

That is right.
Let's find out - when I know that I am
going to testify - we don't know yet when

I am going to testify. To give it to

them a whole day in advance, it is too
much to ask for them to hold that.
Schwarz:

H.M.Jr:

I won't give it to them over night.
When I start up on the Hill, you give it
out here, and then you can say to them,
"Now look, boys, you can have this thing
and when Mr. Morgenthau starts to testify,
I will phone you to the Press Room to re-

160

- 67 -

lease it." But I don't think I would
give it to them until I know definitely
I am going to go on.

Foley:

You may not know, Mr. Secretary. You
may get called down there, and then the
thing may go on and they may get into

another lot of questioning, and they
may keep Mr. Hull longer, and you will
have to wait.

Schwarz:

Well, at least it will be the same day.

H.M.Jr:

Not necessarily.

Foley:

No. I should think you would wait until
you start to testify, and then Chick
can call back and release it.

H.M.Jr:

I think it is a mistake to let these boys

have this thing over night. Somebody is
bound to make trouble over it.
Foley:

What I mean is, the fact that he is going
down there doesn't mean he is going to

testify today. We can't govern those
things.

Schwarz:

What material do we have in there? If
we have something hot --

Foley:
Kuhn:

Schwarz:

H.M.Jr:

It is the same stuff.
We are giving it to them only so that -If it is no ammunition to the republicans -if it is something that they already have -Well, they know exactly what I am going to
say or not say.

161

- 68 -

Schwarz:

Well, we will have it mimeographed, and

we will know later better what the

chances are of your going, and we won't

give it to them -H.M.Jr:

I will tell you what you do, Chick.
Think it over, and before you give it

to anybody, talk to me again.
Foley:

Look, Chick, we are only doing the

reading copy. As soon as it is ready,
I will give it to you, and you can take
care of the mimeographed. We haven't

got anything yet.
Schwarz:

I will get it from you, then?

Foley:

Yes. You take care of the mimeographed,

Schwarz:

We will take care of that.

and there is no front sheet on there,
for release.

Prepared by white
of Kulum # 2,
unity tolay
shaft

Draft # 162 /

with
was
dis
and
reneed at this meeting.

STATEMENT BY SEGENTARY MORGHOPHAN

TO THE SEXATE FORMICM RELATIONS COMMITTEE

The Secretary of State has already outlined to you the

bread policy behind this Bill. The Secretaries of Var and
Havy will tell you how this Bill will strengthen the defensee
of the United States.

I - going to confine ayself to the

financial faste and figures which have helped to sale this

Bill messary.

The financial situation ean be s w in a very few
words. the British Government I is new committed to about
$1,400,000,000 worth of purchases in this country, meet of them

to be delivered in 1942. It has enough gold and dollar exchange

assets to pay for what 10 has entered has the British just
haven's w the dollars, and can't get them, to pay for anything
like what they will need from new on. And before they wis this
var, they are going to nood from - a far greater volume of
supplies than they have yet origined.

I have - here today to yes this problem before you
in detail, and to Lay before you all the information is the
possession of the treasury. To save your time, Mr. Chairman,

I should like to put on record a number of tables and other
hard faste which I have already submitted to the House Foreign
Affairs Committee.

The first is a table of the estimated dollar expenditures

163

and reseipte of the British Repire, excluding Counte, for the
solduler year 1941. This will show you what the British have

contracted for. in - materials and other purchases here, and
what they can count on. from exports and other control of dollars,

to help in mosting these obligations.
the second is a table showing the available assets of the

United gold. in dollar balances, is privately hold

American securities and in properties in this
country. These are figures which governments normally I

confidential and closely g but they are being submitted
to you with the consent of the British Government, " that
you can know what the position So.

the third exhibits, in the form of a letter to the
Chairman of the Name Foreign Mfaire Committee. brings the

previous table of assets still further . to date and reviece
" elightly. in addition, is shown what British assets were
as the start of the w. and shows that there is no real
between our figuree and the estimates published

recently in the Belletta of the Federal Reserve Board. I sight
add that the Federal Reserve exports have worked with - on

those figures, and that we are agreed that there to no diagroment

between - concerning than. Finally. this thind schibits share
you, is detail, how British gold and dollar enchange moste have

comporated. w more than - billion dollars, between the start

of the - and the start of yrs.

164

3It - interest you, w the my. to I her fast the
reserving assets are diagnosing. while this Bill is being
dolated. The British Systemy has Just informed no that

between December 30 and January 23-last gold and efficial dollar balances destined w eye million
and their holdings of United States securities w as million.
in other words, in a 119930 over three weeks there has I a

not destine is the British dollar assets of 997 million.
the last table I want to submit to you is on estimate of
the long-term foreign investments of the United Kington outside

the United States. These figures, most of which were - w
British commists before the outbreak of war. - are accounting
estimates. Rabely can fts a definite minution wee reaches

is Australia or milings in suggestion or mining properties is
Rhodesta, the kind of property which these estimates represent.

the problem before - is not whether the British Repire has
7000170001 of course as les. and rish case, all over the words.

The problem is whether the British have w the dollars they

need, or can - the dollars they need. I - convinced that they
have not got them, and connet in them with the speed that to

required. Six Minure Pensock, a representative of the British
Government, has Just arrived in this country to way to sell

Brittabe properties is this country to - dollars: but in
this sert of Liquidation share is a Limit to what 10.05 expose.

- 6.
If w expect the British to " - getting supplies here-and

165

that means 12 we expect them to go on fighting - must be found to provide either the dollars or the supplies

themselves. that, gentlemen, is the problem. I - ready
new, Mr. Chairman, to answer questions.

Pensed at this
meeting

Draft # 2166

The Secretary of State has already outlined to you

the broad policy behind this Bill. The Secretaries of
War and Navy will tell you how this Bill will strengthen
the defenses of the United States. I am going to confine

myself to the financial facts and figures which relate

to this Bill.
The British Government is now committed to about

$1,300,000,000 worth of purchases in this country, most

of them to be delivered in 1941. It has enough gold and
dollar exchange assets to pay for what it has ordered;

but the British just haven't got the dollars, and can't
get them, to pay for anything like what they will need
from now on.

167

.2 was

I have come here today to put this problem before

you, and I want to give you all the information in the
possession of the Treasury. I should like to put into
the record a number of tables and other facts which
I have already submitted to the House Foreign Affairs
Committee.

The first is a table showing the available assets
of the United Kingdom, in gold, in dollar balances, in
privately held American securities and in British-owned

properties in this country. These are figures which
governments normally keep confidential and closely

guarded; but they are being submitted to you with the
consent of the British Government, se that you can know

what their position is.

3

168

-

TABLE I

Gold and Dollar Exchange Assets of U.K.

Dec. 81, 1940

(In Millions)
Gold.

Official dollar balances.
Private dollar balances

$

292
54

305

Marketable U.S.

securities,

Direct and miscellaneous
investments in U.S.

616
900

$ 2,167

From the total British gold and dollar exchange assets
of $2,167 million on December 31, 1940, the British exclude as
unavailable $805 million of private dollar balances regarded

as necessary for the conduct of business, $80 million of

gold scattered in different parts of the world, and $21 million
on account of forward exchange contracts. This leaves a total
of $1,811 million in gold and dollar exchange assets which

the British regard as available for purchases in this country.

169

.4. Now I want to give you a table of the estimated

dollar expenditures and receipts of the British Empire,
excluding Canada, for the calendar year 1941. This will
show you what the British have contracted for, in war
materials and other purchases here, and what they can

count on, from exports and other sources of dollars, to
held in meeting these obligations.
TABLE II

Estimated Dollar Expenditures and Receipts of
British Empire, Excluding Canada, from January
1, 1941 to January 1, 1942.
Dollar Expenditures

A. U.K. payments to be made on total pur-

(In Millions)

chases from the U.S.

1. Sums to be paid during 1941 on
orders placed before Jan. 1,
1941.

(In addition, $119 million will
fall due after Jan.1, 1942)

2. Imports from U.S. not purchased
through the British Purchasing
Commission,--largely on private
accounts.

$1,274

280

$1,554

170

-5B. Purchases by Empire countries (exoluding U.K. and Canada) from U.S. during
1941

1. Commodity imports.

2. Payments for shipping, tourist

333

expenditure, interest payments,

etc.

5

388

C. Purchases by Empire Countries, excluding Canada, from areas outside the

U.S. requiring gold or dollars

1. Purchases by Empire countries

(chiefly U.K.) from areas outside

the U.S. and Canada requiring
dollars.
2. Payments by Empire Countries
(chiefly U.K. to Canada and
Newfoundland.

247

880

1,127

Total dollar requirements for all
transactions.

$3,019

Dollar Receipts

A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise to
U.S.
2. Net balance from U.S. to U.K.
on shipping, tourist expenditures, Interest payments, etc.

$ 165
15

$ 180

B. Dollar receipts by Empire countries
(excluding Canada)

1. Commodity exports.

2. Australian gold exports to U.S.
3. South African exports of gold

C. Canadian assistance to U.K.

Total dollar receipts by Empire countries,
excluding Canada.

560
75

480

1,115
260

$1,555

171

-6Total dollar deficit with countries other
than Canada during 1941.

$ 844

Total dollar deficit with Canada during
1941.

Total dollar deficit of British Depire,
excluding Canada, during 1941.

1,466

Total receipts and deficit - operations
with all countries other than Canada
during 1941.

$8.019

New I want to show you how British gold and dollar
exchange assets have declined, by more than two and a quarter

billion dollars, between the start of the was and the start
of 1941.

172

-7TABLE III

Estimated Gold and Dollar Expenditures and Receipts of
British Empire, Excluding Canada and Newfoundland, from
September 1, 1939 to December 31, 1940.

(Compiled from data furnished by the British Treasury)

(In(Millions of U.S. Dollars)
Gold and Dollar Expenditures

A. Payments to the United States by United Kingdom.
1. On British Government orders in
the United States.
$1,380
Goods delivered.

Advance payments.

Capital assistance.

$660
570
150

2. For other merchandise imports
from the United States.

705

3. For shipping, interest, etc.
Shipping disbursements,

Interest and dividends
Miscellaneous (chiefly film
royalties)

(197

$2,282

125
48
24

B. Payments to the United States by Empire
countries, excluding U.K. and Canada
1. For commodity imports.

435

2. For shipping, interest, etc.
Interest and dividends

Shipping (net)

48
40
8

C. Payments by Empire countries, excluding Canada,
to areas outside the U.S. requiring gold or
dollars
1. Payments by Empire countries

(chiefly U.K.) to areas outside

the U.S. and Canada requiring

gold or dollars.

550

483

173

-82. Gold payments by Empire countries
to Canada and Newfoundland
(net)

$ 225

D. Withdrawal of Capital
1. By American and others, through sale
of free sterling to American Importers
2. By repayment of outstanding export

775

300

credits as required by our Neutrality

Act

200

3. By liquidation of forward exchange

position in dollars.

235

735

E. Residual - Miscellaneous items and errors
of estimation.

71

$

Total gold and dollar requirements for all
transactions.

4,346

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.
Remittances from insurance
companies.

B. Receipts from United States by Empire
countries, excluding U.K. and Canada
1. From merchandise exports,

2. From tourist travel, remittances,
etc. (net)

140

$

345

85
35

20

640
30

670

C. Dollar receipts by Empire countries, excluding Canada, from areas outside

the U.

50

174

.9D. Receipts from sale of gold

(new production and dishoarding)

965

Total gold and dollar receipts by Empire
countries, excluding Canada.

$2,030

Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Newfoundland, Sept. 1, 1939 to Dec. 31,
1940.

2,316

Total gold and dollar requirements for all
transactions.

4,346

Supplementary Table

Estimated Expenditures and Receipts of Canada and Newfoundland

With the Rest of the British Empire from September 1, 1989 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 New
foundland by the United Kingdom
2. For purchases from Canada by other

Empire countries.

3. Other payments to Canada by Empire
countries.

$795
125
10

B. Receipts from Canada and Newfoundland by
Empire countries

1. From merchandise exports to Canada
and Newfoundland by U.K.

170

$930

175

- 10 .
2. From merchandise exports to Canada
by other Empire countries.

3. From interest and dividends paid by

$100

Canada to United Kingdom.

85

Forces.

20

4. Other U.K. receipts from Canada,
principally Canadian Expeditionary

$875

British Empire deficit with Canada and

Newfoundland on merchandise, interest and
dividends, etc.

Canadian assistance to U.K.--repatriation of
British-held Canedian securities and increase
in sterling balances held by Canada.

555

330

Gold payments by British Empire countries with

Canada and Newfoundland Sept. 1, 1939 to Dec. 31,

1940.

225

One vital factor in this drain of assets was the collapse
of France last Summer. The French had at least as much as the

British in gold and dollar assets in this country; these

resources were available, th the British, to pay
for purchases here in the first nine months of the war.
When the French collapse came, last June, the British took

over all French contracts in this country, although they

176

- 11 no longer had the help of French money to pay for them.

British liabilities were doubled. They were left to
face Germany alone. Their financial resources here

were out in half. The result was that the British began
to lose gold and dollar assets twice as fast after June
as before; and they have continued to lose than at the

faster rate ever since.
This war is now costing Great Britain more than fifty

million dollars a day, or almost two thirds of her national
income. The British are raising about forty per cent of
this cost by taxing their people at home. To give you an
idea of what the British people are doing to pay for the
war, you may be interested in the following table comparing
British and United States taxes at the present times

177

- 12 Comparison of British and United States Taxes

1. Personal income tax. A married couple with two
children would pay the following taxes in Great Britain

and the United States under present laws:
tax

43

-

311

-

1

$

2,500
5,000
10,000
20,000
50,000
100,000

1,196
3,451
9,426
32,401
76,276

75

$

440

2,143
13,741
42,948

Corporation income tax rates

British

I

2.

:

$ 1,500

U.S.
tax

:

8 British

Income

U.S.

:

421%

24%

3. Excess profits tax. The British excess profits tax

is 100 percent of profits in excess of base period earnings
for certain years 1935-1937. The United States excess
profits tax ranges from 25 to 50 percent of earnings in

excess of the average base period earnings for 1936-39, or
8 percent of invested capital, whichever exemption is higher.

4. Purchase tax. The British impose a purchase tax of
33-1/3 percent on the wholesale value of certain luxuries
and 16-2/3 percent on certain goods in common use, exempting
food.

178

- 13 5. Excise taxes. The British impose excise taxes on
several commodities at substantially higher rates than the

United States. Examples are given below:

Spirits, domestic, per
U.S. proof gallon
Beer, domestic, per bbl. of
31 U.S. Gallons

Cigarettes, per thousand,
weighing 3 lbs.
Tea, Empire, per 1b.

Coffee, full duty per 1b.

I

$ British

U.S.

$15.60

$ 3.00

11.16

6.00

11:70

3.25

10%

2.81

-

-

The last table I want to submit to you is an estimate
of the long-term foreign investments of the United Kingdom

outside the United States. These figures, most of which were
compiled by British economists before the outbreak of war, are

necessarily estimates. Nobody can fix a definite valuation
upon such properties as ranches in Australia, railways in

Argentina or oil wells in Mexico.

179

- 14 Most of the investments are in sterling securities;
a large part of the Canadian investment is in Canadian

dollars, and some of the other investments are in the
respective domestic currencies. However, for convenience

of presentation, the estimated nominal value of the
investments has been converted into sterling.
The market values, where given, are calculated from

current market quotations of the securities. Since
market quotations are not available for a large part of
the investment, no total market value can be calculated:

180

- 15 Estimated Long-Term Foreign Investments of the United
Kingdom Outside the United States
(Million Pounds)

Government Railways Other Total
In British Empire
Canada

Australia

Nominal
Market

(70)

Nominal

425

75

187

219

481

3

75

5-5

1

14

146

250
250

550
438

78

84

191

886

2288

263

83

390

47

160

Market (410)
New Zealand

Nominal

131

(125)

India

Nominal 300

Market (250)
Malaya

Nominal

Other

Nominal

V/V

6

Total in British Nominal 1,125
In Latin America
Argentina

Brasil
Chile

Uruguay

Nominal
Market

45

(32)

(52)

75

38

Nominal
Market

(14)

Nominal

20

20

(2)

(5)

18

14

(8)

(1)

Nominal
Market

(5)

(22)

(41)

65

105

10

48

(12)

(21)

181

- 16 Government Railways Other Total
Mexico

Nominal
Market

Nominal
Market

Pera

38

90

(1)

(1)

y

6

(1)
25

Nominal
Market

Cuba

Venezuela Nominal
Market

2

25

(2)

(1)

Nil

8

0.2

44

173

28 28
(4) (5)
(2) 28

18 20
(17)

(17)

Colombia, Ecuador

Bolivia, Paraguay,

Central America Nominal

50

International Nominal
Total in Latin
America

Nominal 204

451

317 1002

In Asia
China

Nominal

200

Japan

Nominal

50

Neterlands

East Indies

Philippines

Nominal
Nominal

Total Asia
In Europe

50

8

808

Nominal

In Other Areas y/ Nominal
Total U.K. Investments outside United
States - Nominal Value

250
75

3868

Not shown separately.
V/V

Mainly Iran, Egypt, Iraq and Portuguese East Africa.

182

- 17 The problem before us is not whether the British

Empire has resources; of course it has, all over the
world. The problem is whether the British have got
the dollars they need, or can get the dollars they need
to spend in this country.

If we expect the British to go on getting supplies
here--and that means if we expect them to go on fighting -some way must be found to provide either the dollars or
the supplies themselves. That, gentlemen, is the problem.
I am ready now, Mr. Chairman, to answer questions.

Draft #3 and final,

afternenums mode of
January 27, 1941

in 10 am 183
The Secretary of State has already outlined to you

the broad policy behind this Bill. The Secretaries of

var and Navy will tell you how this Bill will strengthen
the defenses of the United States. I am going to confine

myself to the financial facts and figures which relate

to this Bill.
The British Government owes American manufacturers

$1,400,000,000 on orders already placed. This sum will

largely have to be not in the calendar year 1941. It
has enough gold and dollar exchange assets to meet these

outstanding commitments, but the British just haven't

got the dollars to take care of their additional needs.
Reading copy of the Secretary's statement before the Senate
Foreign Relations Committee on the Aid-to-Britain Bill.
He appeared at 10 a.m. on 1/28'41

184

-2 I appreciate the opportunity of being invited
to come here today to discuss this problem wi th you

fully. I should like to put into the record a number
of tables and other facts which I have already submitted
to the House Foreign Affairs Committee.

The first table shows available assets of the
United Kingdom, in gold, in dollar balances, in
American securities and in British-owned properties

in this country. These are figures which governments
normally keep confidential and closely guarded; but
they are being submitted to you with the consent
of the British Government.

185

-3 TABLE I

Gold and Dollar Exchange Assets of U.K.
Dec. 31, 1940

(In Millions)
Gold

official dollar balances

Private dollar balances
Marketable U.S.
securities
Direct and miscellaneous
investments in U.S.

292
54

305
616

900
2,107

From the total British gold and dollar exchange
assets of $2,167 million on December 31, 1940, the

British exclude as unavailable $305 million of private
dollar balances regarded as necessary for the conduct of

business, $30 million of gold scattered in different parts
of the world, and $21 million on account of forward

exchange contracts. This leaves a total of $1,811 million
in gold and dollar exchange assets which the British

186

-4regard as available for purchases in this country.

I should like to present next to you a table of
the estimated dollar expenditures and receipts of the
British Empire,excluding Canada and Newfoundland, for

the calendar year 1941. This will show what the British
owe on outstanding contracts to American manufacturers

for war materials and other purchases here, and what they
can count on from exports and other sources of dollars,

to help in meeting these obligations.
TABLE II

Estimated Dollar Expenditures and Receipts of

British Empire, Excluding Canada and Newfoundland,

from January 1, 1941 to January 1, 1942.
Dollar Expenditure

(In Millions)
A. U.K. payments to be made on total purchases from the U.S.

1. Sume to be paid dur ing 1941 on
orders placed before Jan. 1,
1941

(In addition, $119 million will
fall due after Jan. 1, 1942)

2. Imports from U.S. not purchased
through the British Purchasing
Commission,-largely on private
accounts

$ 1,274
280

31,554

187

-5B. Purchases by Empire countries (excluding U.K., Canada and Newfoundland)
from U.S. during 1941

1. Commodity imports 308

2. Payments for shipping, tourist

expenditure,
interest payments,
etc.
338

C. Purchases by Empire countries, excluding Canada and Newfoundland, from

areas outside the U.S. requiring
gold or dollars
1.

Purchases by Empire countries

(chiefly U.K.) from areas outside the

U.S. Canada and Newfoundland

requiring dollars . .

2. Payments by Empire countries
(chiefly U.K. to Canada and

247

Newfoundland)

1,187

Total dollar requirements for all
transactions.

83,019

Dollar Receipts

A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise
to U.S.
2. Net balance from U.S. to U.K.
on shipping, tourist expenditures, interest payments, etc.
B. Dollar receipts by Empire countries

(excluding Canada and Newfoundland)

1. Commodity exports.

.$ 165
15

180

560

2. Australian gold exports to U.S.
3. South African exports of gold
C. Canadian assistance to U.K.

Total dollar receipts by Empire countries,
excluding Canada and Newfoundland

200

1,555

188

olTotal dollar deficit with countries other

than Canada and Newfoundland during 1942 . s su

Total dollar deficit with Canada and
Newfoundland during 1941

eep

Total dollar deficit of British Empire,
excluding Canada and Newfoundland,
during 1942

Total receipts and deficit on operations
with all countries other than Canada
and Newfoundland during 1942

1,406

$ 3,019

Next may I explain how British gold and dollar
exchange assets have declined by more than two and a

quarter billion dollars during the first sixteen months
of their war.

189

⑉7 TABLE III

Estimated Gold and Dollar Expenditures and Receipts
of Bratish Empire, Excluding Canada and Newfoundland,
from September 1, 1939 to December 31, 1940.
(Compiled by the Treasury Department, the
Department of Commerce and the Federal Reserve

Board from data furnished by the British Treasury)

(In Millions of U.S. Dollars)
Gold and Dollar Expenditures

A. Payments to the United States by United Kingdom.
1. On British Government orders in
the United States
Goods delivered.

Advance payments

$660

Capital assistance

570
150

$1,380

2. For other merchandise importe

from the tided.States

3. For shipping, interest, etc.
Shipping disbursements

Interest and dividends

705
125

Miscellaneous (chiefififfl
royalties)

48

24

197

$ 2,282

B. Payments to the United States by Empire
countries, excluding U.K. and Canada
and Newfoundland

1. For commodity imports
2. For shipping, interest, etc.
Interest and dividends.
Shipping (not)

435
40

483

C. Payments by Empire countries, excluding
Canada and Newfoundland, to areas out-

side the U.S. requiring gold or dollars
1. Payments by Empire countries
(chiefly U.K.) to areas outside
the U.S. and Canada and Newfound-

land requiring gold or dollars

550

190

--2. Gold payments by Empire countries
to canada and Newfoundland
(not)

$ 225

D. withdrawal of Capital
1. By American and others, through sale
of free sterling to American importers
2. By repayment of outstanding export
credits as required by our Neutrality
Act

3. By liquidation of forward exchange

position in dollars

775

300
200
235

735

E. Residual - Miscellaneous items and errors
of estimation.

71

Total gold and dollar requirements for all
transactions

Gold and Dollar Receipts

A. Receipts from United States by United
Kingdom
1. From merchandise exports.

2. From interest, shipping, etc.

205

Interest and dividends. . 85

Shipping earnings. .

Remittances from insurance
companies

35
20

B. Receipts from United States by Empire
countries, excluding U.K. and Canada
1. From merchandise exports.

2. From tourist travel, remittances,
etc. (net)
C. Dollar receipts by Empire countries, excluding Canada, from areas outside
the U. S..

140

$

345

640
30

670

50

191

-9D. Receipts from sale of gold

(new production and dishoarding).

965

Total gold and dollar receipts by Empire
countries, excluding Canada.

$2,030

Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Newfoundland, Sept. 1, 1939 to Dec. 31,
1940.

2,316

Total gold and dollar requirements for all
transactions.

4.546

Supplementary Table

Estimated Expenditures and Receipts of Canada and Newfoundland

With the Rest of the British Empire from 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 New-

foundland by the United Kingdom. .
2. For purchases from Canada by other

Empire countries
3. Other payments to Canada by Empire
countries

$795
125
10

B. Receipts from Canada and Newfoundland by
Empire countries

1. From merchandise exports to Canada
and Newfoundland by U.K.

170

$930

192

- 10 2. From merchandise exports to Canada

by other Empire countries.
.
3. From interest and dividends paid by
Canada to United Kingdom
40
other U.K. receipts from Canada,
principally Canadian Expeditionary
Forces

$100
83

20

8375

British Empire deficit with Canada and
Newfoundland on merchandise, interest and
dividends, etc.
Canadian assistance to UcKo-repatriation of
British-held Canadian securities and increase
in sterling balances held by Canada

555

550

Gold payments by British Empire countries with

Canada and Newfoundland Sept. 1, 1939 to Dec.

31, 1940.

225

One vital factor in this drain of assets was the collapse
of France last Summer. The French had at least as much as

the British in gold and dollar assets in this country; these
resources were available, together with the British, to pay
for purchases here in the first nine months of the war.
When the French collapse came, last June, the British took

over all French contracts in this country, although they

193

no longer had the help of French money to pay for them.

British liabilities were doubled. They were left to
face Germany alone. The result was that the British be-

gan to lose gold and dollar assets twice as fast after
June as before.

This war is now costing the British Government more
than 12 million pounds sterling every day, or approximate-

ly 60 per cent of the national income, and this expendi-

ture is steadily mounting. The British are raising about
40 per cent of this cost by taxing their people. TO give
you some idea of what the British people are doing to pay

for the war, you may be interested in the following table
comparing British and United States taxes at the present
time:

194

- 12 Comparison of British and United States Taxes

1. Personal income tax. A married couple with two
children would pay the following taxes in Great Britain
and the United States under present laws:
Income

$ 1,500
2,500
5,000
10,000
20,000
50,000
100,000

British
tax

U.S.

tax

43

1,196

75

440

76,276

2,143
15,741
42,948

2. Corporation income tax rates

British
42%

U.S.
24%

3. Excess profits tax. The British excess profits tax

is 100 percent 01 profits in excess of base period earnings
for certain years 1935-1937. The United States excess
profits tax ranges from 25 to 50 percent of earnings in
excess of the average base period earnings for 1936-39, or
8 percent of invested capital, whichever exemption is higher.
Purchase tax. The British impose a purchase tax of
33-1 percent on the wholesale val ue of certain luxuries

and 16-2/3 percent on certain goods in common use, exempting
food.

195

- 13 5. Excise taxes. The British impose excise taxes

on several COMMOGIATES at substantially higher rates than

the United States. Examples are given below:

Spirits, domestic, per
U.S. proof gallon
Beer, domestic, per bhl.

of 31 U.S. Gallons
Cigarettes, per thousand

weighing , lbs.
Tea, Empire, per 1b.
Coffee, full duty per 1b.

British

U.S.

$15.60

$3.00

11.16

6.00

11.70

3.25

10d

2.85

=

I should like to submit one more table to you which

is an estimate of the long-term foreign investments of
the United Kingdom outside the United States. These
figures, most of which are based upon studies made by

British economists before the outbreak of war, are

necessarily estimates. Nobody can fix a definite value
tion upon such properties as ranches in Australia, railways
in Argentina or 011 wells in Mexico.

196

- 24 Most of the investments are in sterling securities;
a large part of the Canadian investment is in Canadian

dollars, and some of the other investments are in the
respective domestic currencies. However, for convenience

of presentation, the estimated nominal value of the
investments has been converted into sterling.
The market values, where given, are calculated from

current market quotations of the securities. Since
market quotations are not available for a large part of
the investment, no total market value can be calculated:

197

- 15 Estimated Long-Term Foreign Investments of the United
Kingdom Outside the United States
(Million Pounds)
Government

Railways

Other

Total

187

219

481

3

75

503

1

14

146

250

550

250

438

76

84

In British Empire
Canada

Australia
New Zealand

Nominal
Market

75

(70)

Nominal
Market

(410)

Nominal

131

425

(125)

India

Nominal 300
Market

(250)

British Africa

Nominal

188

Malaya

Nominal

6

Other

Nominal

1/
1

31

Total in
British Empire Nominal 1125

191

886

2233

263

83

300

47

160

In Latin America
Argentina

Brazil
Chile
Uruguay

Nominal
Market

45

(32)

(52)

Nominal
Market

75

38

(6)

(5)

Nominal

20

20

(2)

(5)

18

(8)

Nominal
Market

(22)

(33)

65

106

14

10

42

(1)

(12)

(21)

198

- 16 Government Railways Other Total
Nominal
Market

Mexico

Nominal
Market

Peru

Nominal
Market

Cuba

Venesuela

Nominal
Market

38

90

(1)

(1)

6

L

(1)
2

(2)
N11

44

173

23

28

(4)

(5)

25

2

28

18

20

(1)
3

0.2

(17) (17)

Colombia, Ecuador

Bolivia, Paraguay,
Central America Nominal

50

International Nominal
Total in
Latin America

Nominal

6

204

453

292

1008

In Asia
China

Nominal

200

Japan

Nominal

50

East Indies

Nominal

50

Philippines

Nominal

Netherlands

Total Asia
In Europe

8

308

Nominal

In Other Areas 2/ Nominal
Total U.K. Investments outside
United States - Nominal Value
Not shown separately.

Mainly
Iran, Egypt, Iraq and Portuguese
East Africa.

250
75

3868

199
17

The problem before us is not whether the British
have resources; of course they have, all over the

world. The problem is whether the Britten have we
the dollars they need, w can get the dollars they need
to spend in this country.
That, gentleman, is the problem as I see st.

200
23-28

Statement of Secretary Morgenthau
Before the Senate Committee

On Foreign Relations
January 26, 1941.

The Secretary of State has already outlined to you the broad

policy behind this Bill. The Secretaries of War and Navy will tell
you how this Bill will strenghten the defenses of the United States.
I an going to confine myself to the financial facts and figures which

relate to this Bill.
The British Government owes American manufacturers

$1,400,000,000 on orders already placed. This sum will largely have

to be net in the calendar year 1941. It has enough gold and dollar
exchange assets to meet these outstanding commitments, but the

British just haven't got the dollars to take care of their additional
needs.

I appreciate the opportunity of being invited to come here today

to discuss this problem with you fully. I should like to put into
the record a number of tables and other facts which I have already
submitted to the House Foreign Affairs Committee.

The first table shows available assets of the United Kingdom, in
gold, in dollar balances, in American securities and in British-owned
properties in this country. These are figures which governments
normally keep confidential and closely guarded; but they are being
submitted to you with the consent of the British Government.

201
-2TABLE I

Gold and Dollar Exchange Assets of U.K.
Dec. 31, 1940

(In Millions)

Gold

official dollar balances

Private dollar balances
Marketable U.S. securities
Direct and miscellaneous investments in U. S.

$

292
54

305
616
900

$ 2,167

From the total British gold and dollar exchange assets
of $2,167 million on December 31, 1940, the British exclude

as unavailable $305 million of private dollar balances
regarded as necessary for the conduct of business, $30

million of gold scattered in different parts of the world,
and $21 million on account of forward exchange contracts.

This leaves a total of $1,811 million in gold and dollar
exchange assets which the British regard as available for
purchases in this country.

I should like to present next to you a table of
the estimated dollar expenditures and receipts of the
British Enpire, excluding Canada and Newfoundland, for

the calendar year 1941. This will show what the British
owe on outstanding contracts to American manufacturers for
war materials and other purchases here, and what they can

count on from exports and other sources of dollars, to help
in meeting these obligations.

202
-37
TABLE II

Estimated Dollar Expenditures and Receipts of British Empire,
Excluding Canada and Newfoundland, from January 1, 1941 to
January 1, 1942.

Dollar Expenditures

A. U.K. payments to be made on total pur-

(In Millions)

chases from the U.S.

1.

Sums to be paid during 1941 on
orders placed before Jan. 1,
$1,274

1941

(In Addition, $119 million will fall

due after Jan. 1, 1942)
2. Imports from U.S. not purchased through
the British Purchasing Commission, -largely on private accounts.
B. Purchases by Empire countries (excluding

280

$1,554

U.K., Canada and Newfoundland) from U.S.

during 1941.

1. Commodity imports.

$ 333

2. Payments for shipping, tourist expenditures, interest payments, etc.

5

338

C. Purchases by Empire countries, excluding

Canada And Nowfoundland, from Areas outside

the U.S. requiring gold or dollars
1. Purchases by Empire countrios
(chiefly U.K.) from Areas outside
the U.S., Canada and Newfoundland

requiring dollars.
2. Payments by Empire countries (chiefly

247
880

U.K.) to Canada and Newfoundland

$3,019

.

Total dollar requirements for all transactions

1,127

Dollar Receipts

A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise to U.S.
2. Net balance from U.S. to U.K. on
shipping, tourist expenditures,
interest payments, etc

$ 165
15

180

B. Dollar receipts by Empire countries (excluding Canada and Newfoundland)

1. Commodity exports.

560

2. Australian gold exports to U.S.
3. South African exports of gold

480

C. Canadian assistance to U.K.

Total dollar receipts by Empire countries,
excluding Canada and Newfoundland

75

1,115
260

$1,555

--

203

Total dollar deficit with countries other

than Canada and Newfoundland during 1941

$

844

Total dollar deficit with Canada and
Newfoundland during 1941

620

Total dollar deficit of British Empire,

excluding Canada and Newfoundland, during
$1,464

1941

Total receipts and deficit on operations with
all countries other than Canada and

Newfoundland during 1941

$3,019

Next may I explain how British gold and dollar exchange assets

have declined by more than two and a quarter billion dollars during

the first sixteen months of their war.
TABLE III

Estimated Gold and Dollar Expenditures and Receipts of British
Empire, Excluding Canada and Newfoundland, from September 1, 1939
to December 31, 1940.
(Compiled by the Treasury Department, the Department of Commerce

and the Federal Reserve Board from data furnished by the
British Treasury)

(In Millions of U.S. Dollars)

Gold and Dollar Expenditures
A. Payments to the United States by United Kingdom.

1. On British Government orders in the U.S.
Goods delivered

$660

Advance payments

Capital assistance

570
150

$1,380

2. For other merchandise imports from the U.S.

3. For shipping, interest, etc.
Shipping disbursements

705
125

Interest and dividends

48

Miscellaneous (chiefly film royalties)

24

197

$2,282

B. Payments to the U.S. by Empire countries, excluding U.K. and Canada and Newfoundland

1. For commodity imports

2. For shipping, interest, etc.
Interest and dividends
Shipping (net)

435

40
8

48

483

C. Payments by Empire countries, excluding Canada and
Newfoundland, to areas outside the U.S. requiring
gold or dollars.

1. Payments by Empire countries (chiefly U.K.) to

areas outside the U.S. and Canada and Newfound-

land requiring gold or dollars

550

204

-52. Gold payments by Empire countries
to Canada and Newfoundland (net)

$225

775

D. Withdrawal of Capital
1. By Americans and others, through sale

of free sterling to American
importers

300

Act

200

2. By repayment of outstanding export
credits as required by our Neutrality

3. By liquidation of forward exchange
position in dollars

235

735

E. Residual - kiscellaneous items and errors of
estimation

71

Total gold and dollar requirements for all transactions

4,346

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
Remittances from insurance
companies

B. Receipts from United States by Empire
countries, excluding U. K. and Canada
1. From merchandise exports

$ 85
35

20

2. From tourist travel, remittances,
etc. (net)

140

$ 345

640
30

670

C. Dollar receipts by Empire countries, excluding Canada, from areas outside
the U. S.

D. Receipts from sale of gold
(new production and dishoarding)
Total gold and dollar receipts by Empire
countries, excluding Canada

50

965

$2,030

Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Nowfoundland, Sept. 1, 1939 to Dec. 31,

2,316

Total gold and dollar requirements for all

34,346

1940

transactions

205
- -6 Supplementary Table.

Estimated Exponditures and Receipts of Canada and Newfoundland

With the Rost of the British Empire from Septembor 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 Now-

foundland by the United Kingdom
2. For purchases from Canada by other
Empire countries

$795
125

3. Other payments to Canada by Empire
countries

10

$930

B. Receipts from Canada and Nowfoundland by
Empire countries

1. From merchandise exports to Canada
and Nowfoundland by U. K.

2. From morchandisc exports to Canada
by other Empire countries

170
100

3. From interest and dividends paid by
Canada to United Kingdom

85

Forces

20

4. Other U. K. receipts from Canada,
principally Canadian Expoditionary
$375

British Empire deficit with Canada and
Nowfoundland on merchandise, interest and
dividends, etc.

555

Canadian assistance to U. K. -- repatriation of
British-hold Canadian socurities and increase
in sterling balances hold by Canada

330

Gold payments by British Empire countries with
Canada and Nowfoundland Sopt. 1, 1939 to Doc.
31, 1940

225

206

-7-

On vital factor in this drain of assets was the collapse
of France last Summer. The French had at least as much as the

British in gold and dollar assets in this country: these
resources were available, together with the British, to pay
for purchases here in the first nine months of the war. When
the French collapse came, last June, the British took over all
French contracts in this country, although they no longer had

the help of French money to pay for them. British liabilities
were doubled. They were left to face Germany alone. The result
WAS that the British began to lose gold and dollar assets twice
as fast after June as before.
This war is now costing the British Government more than

12 million pounds sterling every day. or approximately 60 per
cent of the national income, and this expenditure is steadily

mounting. The British are raising about 40 per cent of this
cost by taxing their people. To give you some idea of what the
British people are doing to pay for the war, you may be interested in the following table comparing British and United States
taxes At the present time:

Comparison of British and United States Taxes

1. Personal income tax. A married couple with two children
would pay the following taxes in Great Britain and the United
States under present laws:

U.S.
tax
-

43
-

$

1,500
2,500
5,000
10,000
20,000
50.000
100,000

tax

:

Income

:
:

: British

311

1,196
3,451
9,426
32,401
76,276

75

440

2,143
13,741

42,948

207

-2. Corporation income tax rates

British

U. S.

:

423%

24%

3. Excess profits tax. The British excess profits tax is

100 percent of profits in excess of base period earnings for
certain years 1935-1937. The United States excess profits tax
ranges from 25 to 50 percent of earnings in excess of the
average base period earnings for 1936-39, or 8 percent of
invested capital, whichever exemption is higher.
4. Purchase tax. The British impose a purchase tax of
33-1/3 percent on the wholesale value of certain luxuries and

16-2/3 percent on certain goods in common use, exempting food.

5. Excise taxes. The British ir-nose excise taxes on
several commodities at substantially higher rates than the
United States. Examples are given below:
U.S.

:

British

:

Spirits, domestic, per

U.S. proof gallon
Beer, domestic, per
bbl. of 31 U.S. Gallons
Cigarettes, per thousand,
weighing 3 lbs.
Tea, Enpire, per 1b.

Coffee, full duty per 1b.

$15.60

$3.00

11.16

6.00

11.70

3.25

10d

2.8

-

-

I should like to submit one more table to you which is an estimate
of the long-term foreign investments of the United Kingdom outside the
United States. These figures, most of which are based upon studies made

by British economists before the outbreak of war, are necessarily
estimates. Nobowy can fix a definite valuation upon such properties as

ranches in Australia, railways in Argentina or oil wells in Mexico.

208

-9Most of the investments are in sterling securities; a large
part of the Canadian investment is in Canadian dollars, and some

of the other investments are in the respective domestic currencies.
However, for convenience of presentation, the estimated nominal

value of the investments has been converted into sterling.
The market values, where given, are calculated from current

market quotations of the securities. Since market quotations are

not available for a large part of the investment, no total market
value can be calculated:
Estimated Long-Term Foreign Investments of the United Kingdom
Outside the United States
Million Pounds)
Government

Railways

Other

Total

219

481

75

503

14

146

250

550

250

438

78

84

In British Empire
Canada

Australia
New Zealand

Nominal
Market

Nominal
Market
Nominal

75

187

(70)
425

3

(410)
131

1

(125)
India

Nominal
Market

300

(250)

British Africa

Nominal 188

Malaya

Nominal 6

Other

Nominal

Total in British Nominal 1,125

Not shown separately.

1

1

31

191

886

2,233

1

10.

Government

Railways

Other

Total

In Latin America.
Argentina

Brazil
Chile

Uruguay

Mexico

Peru

Cuba

Venezuela .

Nominal
Market
Nominal
Market
Nominal

Nominal
Market

Nominal
Market
Nominal
Market
Nominal
Market
Nominal
Market

45

263

(32)

(52)

75

38

6)

(5)

20

20

(2)

(5)

18

14

(8)

(1)

38

90

(1)

(1)
1/

6

(1)
2

(2)

83

390

47

160

(22)

(33)

65

105

10

42

(12)

(21)

44

173

23

28

(4)

(5)

25

28

2;

(1)

Nil

3

0.2

18

20

(17)

(17)

Colombia, Ecuador

Bolivia, Paraguay,
Central America Nominal

50

International Nominal

6

Total in Latin
America

Nominal

204

453

292

1002

In Asia
China

Nominal

200

Japan

Nominal

50

East Indies

Nominal

50

Philippines

Nominal

Netherlands

Total Asia
In Europe

8

303

Nominal

In Other Areas 2/ Nominal
Total U.K. Investments outside
United States - Nominal Value

1/ Not shown separately.

2/ Mainly Iran, Egypt, Iraq and Portuguese East Africa.

250
75

3868

209

210
- 11 -

The problem before us is not whether the British have

resources; of course they have, all over the world. The
problem is whether the British have got the dollars they
need, or can get the dollars they need to spend in this
country.

That, gentlemen, is the problem as I see it.

January 27, 1941.
9:28 a.m.
211
H.M.Jr:

Hello.

Operator: Justice Frankfurter.
H.M.Jr:

Hello.

Felix

Hello, Henry, I'm sorry I didn't get your message

H.M.Jr:

Oh. What message?

F:

That you had called yesterday.

Frankfurter: until after you had left.

H.M.Jr:

Yesterday - well I got the most peculiar message
from you. I got a message from the White House
that you were coming over to see me and I called

back to make sure that you wouldn't go to all that
trouble because all I wanted to do was to talk to

you.
F:

(Laughter)

H.M.Jr:

But the White House insisted that you were on the

way over to my house.
F:

Well it's - they must have gotten the wires crossed

H.M.Jr:

Right.

F:

I had no such intentions.

H.M.Jr:

What?

F:

I had no such intentions.

H.M.Jr:

Well -

F:

Maybe that was a hangover from Saturday.

H.M.Jr:

Possibly. What I called you up for was to tell

- not I.

you that the things on the bill were going much
much better.

F:

They were?

H.M.Jr:

I was on it all day yesterday and we met with Hull
at my suggestion at his place but nothing happened
from across the street.

F:

Nothing did?

Pe

You got him all smoothed out did you?

-2H.M.Jr:

Who?

F.

Hull.

H.M.Jr:

Well, I don't know.

F:

At all events he -

H.M.Jr:

We met in his office 80 he -

F:

He sat at the head of the table.

H.M.Jr:

That's right. And we got four amendments which
were satisfactory to George and Rayburn and the

rest of them and to Hull and, I think, to the
President.
I gave them to him last night at
seven.
F:

Well, that's swell.

H.M.Jr:

And, so the thing is moving much much better.

F:

Your colleague at the War Office whom I saw is
- he spent a good part of the day on his news
statement which is going to be - he's going to
say something not new but different and more
reenforcing. Between you and me I suggested to
him that he could take advantage of his position;
that he isn't a New Dealer and that he isn't a,
as it were, an old pal of the President and perhaps
he could say something on this dictatorial power
business.

H.M.Jr:

Very good.

F:

Which he is going to do, needless to say.

H.M.Jr.

Very good.

F:

You can forget all this.

H.M.Jr:

Yeh, surely.

F:

But, gee he's a swell fellah!

H.M.Jr:

Yeh. Stimson.

F:

Stimson.

H.M.Jr:

on sure.

F:

Nothing small in his

212

213

-3H.M.Jr:

No, no.

F:

He doesn't -

H.M.Jr:

No, no. Well, I thought you'd like to know that

F:

Well, that's swell. That's awfully good.

H.M.Jr:

And, the most - I think the most important thing -

F:

He's all right is he?

H.M.Jr:

Oh he's wonderful!

F:

Hmm.

H.M.Jr:

He's better than anybody on the House side. He'11

things for the moment seem to be going much better.

I'm simply amazed at Senator George.

say, "Well, now look if this bill is to give the

President certain discretions I don't want to
turn his hands". (I mean "tie his hands".)
F:

Ham.

H.M.Jr:

See? I mean statements like that.

F:

Well, that's swell and it's good that he was on the
outs now?

H.M.Jr:

Oh yeh.

F:

Very good.

H.M.Jr:

Good. But I mean time and again something would

F:

Hmm.

H.M.Jr:

And I thought that on the power end he'd be the

F:

H.M.Jr:

come up to limit the President's power and he'd
be the one to say no.

most difficult person.
Well, that makes it particularly good for Stimson

to take the line that he will.

But I couldn't ask to have a man more cooperative
that George and seemingly thoroughly broad minded

on it.
F:

Hmm. Hmm.

F:

In other words, he really knows what the issue is
and cares about it.

-4H.M.Jr:

Cares
it and doesn't want through some
sly wayabout
-

F:

To get square.

H.M.Jr:

Right.

F:

Well, he's in my heart of hearts I've felt that
fellah is much better than Pittman would be.

H.M.Jr:

Oh, yes. Pittman would - was, well I mean he'd

make up his mind and nobody could ever talk to
him.
F:

Yes,
and then you didn't always have his mind,
did you?

H.M.Jr:

No, and you might just as well make this a silver
issue or something like that.

F:

Yes, yes, yes.

H.M.Jr:

So this man, from my little experience, is far
superior to Pittman.

F:

Well, he's a solid fellah. You know he's a He's well-tempered steel, Henry.

H.M.Jr:

That's right.

F:

Well-tempered steel.

H.M.Jr:

I think we're very fortunate.

F:

Well, you just keep on. Well I simply repeat.

I'11 give you an encore on what I said Saturday.
You go on doing the same thing.
H.M.Jr:

Thank you.

F:

Thanks for calling, Henry.

H.M.Jr:

Bye.

214

215
1/27/41

) Draft discussed with HM,Jr at 10 a.m.

216

January 27, 1941

The Secretary of State has already outlined to you

the broad policy behind this Bill. The Secretaries of
War and Navy will tell you how this Bill will strengthen
the defenses of the United States. I am going to confine
myself to the financial facts and figures which relate

to this Bill.
The British Government is now committed to about

$1,300,000,000 worth of purchases in this country, most

of them to be delivered in 1941. It has enough gold and
dollar exchange assets to pay for what it has ordered;

but the British just haven't got the dollars, and can't
get them, to pay for anything like what they will need
from now on.

217

-2I have come here today to put this problem before

you, and I want to give you all the information in the
possession of the Treasury. I should like to put into
the record a number of tables and other facts which
I have already submitted to the House Foreign Affairs
Committee.

The first is a table showing the available assets
of the United Kingdom, in gold, in dollar balances, in
privately held American securities and in British-owned

properties in this country. These are figures which
governments normally keep confidential and closely

guarded; but they are being submitted to you with the
consent of the British Government, so that you can know

what their position is

218

-3TABLE I

Gold and Dollar Exchange Assets of U.K.

Dec. 31, 1940

(In Millions)
Gold.

Official dollar balances.
Private dollar balances

Marketable U.S.

securities.
Direct and miscellaneous
investments in U.S.

$

292
54

305
616
900

$ 2,167

From the total British gold and dollar exchange assets
of $2,167 million on December 31, 1940, the British exclude as

unavailable $305 million of private dollar balances regarded
as necessary for the conduct of business, $30 million of

gold scattered in different parts of the world, and $21 million
on account of forward exchange contracts. This leaves a total
of $1,811 million in gold and dollar exchange assets which

the British regard as available for purchases in this country.

219

-4Now I want to give you a table of the estimated

dollar expenditures and receipts of the British Empire,
excluding Canada, for the calendar year 1941. This will
show you what the British have contracted for, in war
materials and other purchases here, and what they can

count on, from exports and other sources of dollars, to
help in meeting these obligations.
TABLE II

Estimated Dollar Expenditures and Receipts of
British Empire, Excluding Canada, from January
1, 1941 to January 1, 1942.
Dollar Expenditures

A. U.K. payments to be made on total pur-

(In Millions)

chases from the U.S.

1. Sums to be paid during 1941 on
orders placed before Jan. 1,
1941.

(In addition, $119 million will

$1,274

fall due after Jan.1, 1942)
2. Imports from U.S. not purchased
through the British Purchasing
Commission,--largely on private

accounts.

280

$1,554

220

-5B. Purchases by Empire countries (excluding U.K. and Canada) from U.S. during
1941

1. Commodity imports.

2. Payments for shipping, tourist

$ 333

expenditure, interest payments,
etc.

338

5

C. Purchases by Empire Countries, excluding Canada, from areas outside the

U.S. requiring gold or dollars

1. Purchases by Empire countries
(chiefly U.K.) from areas outside
the U.S. and Canada requiring
dollars.
2. Payments by Empire Countries
(chiefly U.K. to Canada and
Newfoundland

247

1,127

880

Total dollar requirements for all
transactions.

$3,019

Dollar Receipts

A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise to
U.S.
2. Net balance from U.S. to U.K.
on shipping, tourist expenditures, interest payments, etc.

$ 165
15

$

180

B. Dollar receipts by Empire countries
(excluding Canada)

1. Commodity exports.

2. Australian gold exports to U.S.
3. South African exports of gold

C. Canadian assistance to U.K.

Total dollar receipts by Empire countries,
excluding Canada

560
75

480

1,115
260

$1,555

221

-6-

Total dollar deficit with countries other
than Canada during 1941

Total
dollar deficit with Canada during
1941.

$ 844
620

Total dollar deficit of British Empire,
excluding Canada, during 1941.

1,464

Total receipts and deficit on operations
with all countries other than Canada
during 1941.

$3,019

Now I want to show you how British gold and dollar
exchange assets have declined, by more than two and a quarter

billion dollars, between the start of the war and the start
of 1941.

222

-7TABLE III

Estimated Gold and Dollar Expenditures and Receipts of
British Empire, Excluding Canada and Newfoundland, from
September 1, 1939 to December 31, 1940.
(Compiled from data furnished by the British Treasury)

(In Millions of U.S. Dollars)
Gold and Dollar Expenditures

A. Payments to the United States by United Kingdom.
1. On British Government orders in
the United States
$1,380
Goods delivered.

Advance payments.

Capital assistance.
2. For other merchandise imports
from the United States.

$660
570
150
705

3. For shipping, interest, etc.
Shipping disbursements.

Interest and dividends

197 $2,282
125
48

Miscellaneous (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)

435
48

$ 40
8

C. Payments by Empire countries, excluding Canada,

to areas outside the U.S. requiring gold or
dollars
1. Payments by Empire countries

(chiefly U.K.) to areas outside

the U.S. and Canada requiring

gold or dollars.

550

483

223

-82. Gold payments by Empire countries
to Canada and Newfoundland
(net)

$ 225

D. Withdrawal of Capital
1. By American and others, through sale
of free sterling to American importers
2. By repayment of outstanding export
credits as required by our Neutrality
Act

775

300

200

3. By liquidation of forward exchange

position in dollars

235

735

E. Residual - Miscellaneous items and errors
of estimation.

71

$

Total gold and dollar requirements for all
transactions.

4,346

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.
Remittances from insurance
companies.

B. Receipts from United States by Empire
countries, excluding U.K. and Canada
1. From merchandise exports.

2. From tourist travel, remittances,
etc. (net)

140

$

345

85
35

20

640
30

670

C. Dollar receipts by Empire countries, excluding Canada, from areas outside

the U.S.

50

224

-9D. Receipts from sale of gold

(new production and dishoarding)

965

Total gold and dollar receipts by Empire
countries, excluding Canada

$2,030

Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Newfoundland,
Sept. 1, 1939 to Dec. 31,
1940

2,316

Total
gold and dollar requirements for all
transactions.

4,346

Supplementary Table

Estimated Expenditures and Receipts of Canada and Newfoundland

With the Rest of the British Empire from 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.
3. Other payments to Canada by Empire
countries.

$795
125
10

B. Receipts from Canada and Newfoundland by
Empire countries

1. From merchandise exports to Canada
and Newfoundland by U.K.

170

$930

225

- 10 2. From merchandise exports to Canada
by other Empire countries.

3. From interest and dividends paid by

$100

Canada to United Kingdom.

85

Forces.

20

4. Other U.K. receipts from Canada,
principally Canadian Expeditionary
$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
in sterling balances held by Canada

555

330

Gold payments by British Empire countries with

Canada and Newfoundland Sept. 1, 1939 to Dec. 31,

1940

225

One vital factor in this drain of assets was the collapse
of France last Summer. The French had at least as much as the

British in gold and dollar assets in this country; these
resources were available, together with the British, to pay
for purchases here in the first nine months of the war.
When the French collapse came, last June, the British took

over all French contracts in this country, although they

226

- 11 -

no longer had the help of French money to pay for them.

British liabilities were doubled. They were left to
face Germany alone. ( Their financial resources here

were cut in half The result was that the British began
to lose gold and dollar assets twice as fast after June
as before; and they have continued to lose them at the

faster rate over since.
This war is now costing Great Britain more than fifty

million dollars a day, or almost two thirds of her national
income. The British are raising about forty per cent of
this cost by taxing their people at home. To give you an
idea of what the British people are doing to pay for the
war, you may be interested in the following table comparing
British and United States taxes at the present time:

227
- 12 Comparison of British and United States Taxes

1. Personal income tax. A married couple with two
children would pay the following taxes in Great Britain
and the United States under present laws:
U.S.

:

:

tax

tax

43

$

2,500
5,000
10,000

-

311

1,196
3,451
9,426
32,401
76,276

20,000
50,000

100,000

-

75

$

440

2,143
13,741
42,948

Corporation income tax rates

British
421%

:

2.

:

$ 1,500

British

:

Income

U.S.

24%

3. Excess profits tax. The British excess profits tax

is 100 percent of profits in excess of base period earnings
for certain years 1935-1937. The United States excess
profits tax ranges from 25 to 50 percent of earnings in
excess of the average base period earnings for 1936-39, or
8 percent of invested capital, whichever exemption is higher.

4. Purchase tax. The British impose a purchase tax of
33-1/3 percent on the wholesale value of certain luxuries
and 16-2/3 percent on certain goods in common use, exempting
food.

228

- 13 -

5. Excise taxes. The British impose excise taxes on
several commodities at substantially higher rates than the

United States. Examples are given below:

:

Spirits, domestic, per
U.S. proof gallon
Beer, domestic, per bbl. of
31 U.S. Gallons

Cigarettes, per thousand,
weighing 3 lbs.
Tea, Empire, per 1b.

Coffee, full duty per 1b.

British :

U.S.

$15.60

$ 3.00

11.16

6.00

11.70

3.25

10c

2.8₫

-

-

The last table I want to submit to you is an estimate
of the long-term foreign investments of the United Kingdom

outside the United States. These figures, most of which were
compiled by British economists before the outbreak of war, are

necessarily estimates. Nobody can fix a definite valuation
upon such properties as ranches in Australia, railways in

Argentina or oil wells in Mexico.

229

- 14 Most of the investments are in sterling securities;
a large part of the Canadian investment is in Canadian

dollars, and some of the other investments are in the
respective domestic currencies. However, for convenience

of presentation, the estimated nominal value of the
investments has been converted into sterling.
The market values, where given, are calculated from

current market quotations of the securities. Since
market quotations are not available for a large part of
the investment, no total market value can be calculated:

230
- 15 Estimated Long-Term Foreign Investments of the United
Kingdom Outside the United States
(Million Pounds)
Government

Other

Total

219

481

75

5-5

14

146

1/

250

550

I

250

438

78

84

191

886

2233

263

83

390

47

160

Railways

In British Empire
Canada

Australia
New Zealand

Nominal

75

Market

(70)

Nominal
Market

425

(410)

Nominal

131

187

3

1

(125)

India

Nominal
Market

Malaya

Nominal

Other

Nominal

300

(250)
6

Total in British Nominal 1,125
In Latin America
Argentina

Nominal

Market

Brazil
Chile

Uruguay

45

(32)

(52)

75

38

Nominal
Market

(14)

Nominal

20

20

(2)

(5)

18

14

(8)

(1)

Nominal
Market

(5)

(22)

(41)

65

105

10

42

(12)

(21)

231

- 16 Government Railways Other Total
Mexico

Peru

Nominal

38

Market

(1)

Nominal
Market

Venezuela

Nominal
Market

44

173

( 1)
1/

6

(1)
25

Nominal
Market

Cuba

90

2

25

(2)

( 1)

Nil

3

0.2

23 28
(4) (5)
(2) 28

18 20

(17) (17)

Colombia, Ecuador

Bolivia, Paraguay,

Central America Nominal

International

50

Nominal

Total in Latin
America

Nominal 204

451

317 1002

In Asia
China

Nominal

200

Japan

Nominal

50

Neterlands

East Indies

Philippines

Nominal
Nominal

Total Asia
In Europe

50

8

308

Nominal

In Other Areas 2/ Nominal

250
75

Total U.K. Investments outside United
States - Nominal Value

3868

Not shown separately.

Mainly Iran, Egypt, Iraq and Portuguese East Africa.

232
- 17 The problem before us is not whether the British

Empire has resources; of course it has, all over the
world. The problem is whether the British have got
the dollars they need, or can get the dollars they need
to spend in this country.

If we expect the British to go on getting supplies
here--and that means if we expect them to go on fighting-some way must be found to provide either the dollars or

the supplies themselves. That, gentlemen, is the problem.
I am ready now, Mr. Chairman, to answer questions.

233

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Bern, Switzerland
DATE: January 27, 1941, 11 a.m.

NO.: 15
The Legation refers to telegram of January 21,
No. 13 from the Department.

The following information has been obtained from
McKittrick:

No regular business in dollar securities is done by
the Bank for International Settlements for the account of
its clients. The B.I.S. received for safekeeping during 1940
only a small block of Argentine dollar bonds, and it still
holds these bonds. The Bank carries in New York about

ten million dollars in ninety day paper for its own account,
but does no other business in dollar securities.
The Bank has, during the past two months, transferred
back to New York about $1,000,000 which had previously

been brought to Switzerland for investment, but for which

the investment possibilities did not materialize. Regular
monthly transfers to New York are made by the Bank of

nearly $2,000 constituting interest received in Swiss
france on European investments. It receives other payments

of interest directly in dollars. Regular purchases and
sales of gold are made by the Bank against dollars, a license
for each transaction being secured from the United States
Treasury Department. Deposits with the B.I.S. are held
by

234

-by certain central banks, which deposits involve rather
infrequent receipt and return of substantial amounts.
The Central Corporation Banking Companies of Budapest

transferred to the Hungarian National Bank $725,000 in
the Bank's books in November. A credit of $1,050,000

was recently granted by the B.I.S. to the Banco Central
E1 Salvador, secured by gold which was deposited in New
York with the Federal Reserve Bank.

The foregoing account covers the dollar operations of

the B.I.S. since the first of November, other than the
purchase and collection of the 90-day paper which was

mentioned above, and a variety of transactions of less
importance, such 88 the receipt and payment of interest on
deposits, commissions received in connection with bond

issues of Germany and Austria, cable charges and freight,
insurance and handling charges in connection with shipments

of bullion, et cetera.
All operations of the Bank for International Settlements in American markets since the twenty-sixth of June

have been subject to license by the Treasury, but authorization
has been granted to the New York Federal Reserve to carry

out routine transactions without reference to the Treasury.

Special license is still required for operations in gold
and for any unusual transactions. The B.I.S. transacts with
the

235
03/13/33
3

-

the New York Federal Reserve all current business with the
exception of the purchase of 90-day paper. Although

McKittrick is ready to send extracts of the account for
the past month or two if you desire, he suggests that at
the New York Federal Reserve the same information is available,

and he would be glad if this source could be used; there
would also be less delay in such procedure.

As to the 500 kilos of gold at Rio, transferred ********* to
the B.I.S. last week by the Bank of France, it is being held
by the B.I.S. subject to instructions from the Bank of France.
The origin of this bullion is not known to the B.I.S., which
has not yet received the details as to marks and weights;
however, the B.I.S. understands that the Bank of Brazil
forwarded the gold.

MoKittrick said that he is anxious to cooperate with
us, and he would be grateful for any information which you
can give him as to doubts or misgivings that may be entertained

in Washington about the B.I.S.'s policies or activities.

In all transactions, it is the B.I.S.'s policy not to do
anything that would either increase the financial resources

of any belligerent country or its institutions, or to
increase the availability of such resources by any transaction
which its client could not use directly. You are requested
to refer to cable no. 292 of June 26, 1940 from McKittrick
to the New York Federal Reserve, which was communicated to the
Treasury Department.
EA:LWW

HARRISON.

H.M.Jr: Jesse.

January 27, 1941
2:12 p.m.

Jesse

Jones: What's the interest rate today?

H.M.Jr: It's going up, thanks to your friend Marriner.
J:

Huh?

H.M.Jr:

Thanks to your friend Marriner.

J:

Yeh.

H.M.Jr:

Do you know if I wanted to borrow five years' money
last week I would have had to pay one percent?

J:

You would, huh?

H.M.Jr:

Yes sir. And this last issue - we've had the

narrowest squeeze we've ever had - we priced it the
same and everything else. But it was four times over-

subscribed but it's just selling at 3 4/32 over par.

J:

Only four times?

H.M.Jr:

Well, four - a little over four times.

J:

I see.

H.M.Jr:
J:

With 23 percent allotment.
How much of that six -

H.M.Jr:

Well, let's see, the six hundred -

J:

Six hundred million.

H.M.Jr:

There was about - we got about - well, the allotment

was 23 percent.
J:

I see.

H.M.Jr: And there's nothing the matter; there's just as much
money there - but

J:

Why certainly.

H.M.Jr: But the people are nervous, they don't know what's
going to do next.
J:

Yeh.

H.M.Jr: You know there's no more money being borrowed.
J:

Not a bit and it's piling up all the time.

236

-2-

237

H.M.Jr: All the time and this thing
J:

- was bad medicine. I was talking to Dan this
morning about some of our little matters.

H.M.Jr:

Yes.

J:

I think soon as you want to do it you can -

we're going to be owing a good deal of money.
H.M.Jr:

Yes.

J:

So you can -

H.M.Jr:

Well Dan didn't have a chance but I hope if I get
any luck with my bill then we' like to borrow
five hundred million for you.

J:

Yes.

H.M.Jr:

See?

J:

I see.

H.M.Jr:

But if we have no luck with our bill we'11 just

have to go ahead and do it anyway.
J:

That's right.

H.M.Jr:

If that's all right with you.

J:

Yes.

H.M.Jr: But I've been holding back and I'm using that as
an argument.

J:

H.M. Jr:

Yeh.

So, do you mind sitting tight for two or three weeks

more?
J:

No, perfectly all right, perfectly all right.

H.M. Jr:

And - but I told these people and when I go up
Wednesday to testify I'm going to say there's nothing
the matter; there's plenty of money but you can't try

J:

H.M. Jr:

to regulate it artificially - anymore than you can
stop a river from going down hill.
That's right.

And we've got to pay more money and 80 do all the

other agencies. But if I went ahead and borrowed

now for you it would kind of - little bit spoil my
story.

238

-3J:

Yeh, Well, it's all right, anytime.

H.M.Jr: Swell.
J:

I called
particularly
I wanted
to speak
to you
about
Sandlin.
I spoke
to Preston
-

H.M.Jr:

Yeh.

J:

And asked him if he had any objection about
speaking to you and he said he certainly did not.

H.M.Jr:

Good.

J:

He's an awful good man. He's the best man down

H.M.Jr:

Well I'm glad to hear it. Sam Rayburn and Tom
Connally both have called me up 60 it seems to
be unanimous now.

J:

Well, he's the best man in that section of the

there in that field.

country.

H.M.Jr:

And you think he'd be pleasing to everybody then?

J:

Oh, I'm sure it would. I know the bankers would
like it very much.

H.M.Jr:

Well, Jesse, I'm glad to get it.

J:

O.K. Thank you.

H.M.Jr:

Thank you.

239

January 27, 1941
2:15 p.m.
RE DEBT LIMIT

Present:

Mr. Haas
Mr. Kuhn

Mr. White

Mr. Sullivan
Mr. Bell

Mr. Foley
H.M.Jr:

Has George indicated in any way what his
feelings are toward me?

Foley:

No, he hasn't, but I gathered that he felt

very friendly toward you and the Treasury,
didn't you, Ferdie?

Kuhn:

Particularly because of what he said about
Vandenberg, which showed that the was feeling

friendly and wanted to show it.

H.M.Jr:

Well, I thought we would start in. Hello,
George.

Haas:

Yes.

Bell:

Do you want Gaston on this? I sent him a
copy. I didn't know whether he had any
comments to make.

H.M.Jr:

Well, Herbert has got so much.

Bell:

I just sent him a copy for his comments. I

haven't gotten them back.

240

-2H.M.Jr:

You have not gotten them back?

Bell:

No. I sent it to him Saturday.
I don't think so.

H.M.Jr:

Bell:

He has got too much. I will get them.

H.M.Jr:

I will ask him. No, I mean, Herbert has
got more than he can take care of right
now. He has been doing this sort of thing
now for me for years, and I am trying to

make life a little easier for him. I hope
Herbert is getting so he feels better. It

will make things easier for Herbert and for

me.

You (Bell) didn't write this, did you?
Bell:

Yes, I wrote this and then sent it around

earlier in the game to Ed and Sullivan and
Ferdie and then corrected it according to
their suggestions. I guess Ed's boys saw

it. This is the result of a number of

changes.
H.M.Jr:

Instead of "I told you," we can say, "I
pointed out.' Who is going to correct
this, now? Are you going to carry this

one, Dan?

Bell:

Yes.

H.M.Jr:

You are carrying this?

Bell:

I will.

H.M.Jr:

All right. I pointed out. Do you get,

Ferdie, a little bit - whenever I get these
things, anything like that, that I am telling

the committee or wherever I seem to be laying

241

-3down the law that I always duck it. Do you

notice this? You never know when somebody

will say, "Oh, you are telling us." What?
O.K. on the first page.
Bell:

I suppose - some of them have suggestions.

They
got this Saturday to work on over the
weekend.
H.M.Jr:

Any suggestions on the first page?

Sullivan:

Yes, in the first line it should be the
"First Revenue Act of 1940."

Haas:

Check, I have that too.

Bell:

Then let's strike out "first appeared."

Sullivan:

"When I appeared before you last spring at
the time the revenue bill of 1940 was under
consideration, the National Defense program

Let's strike that out first.

then before Congress was less than $4,000,000,000.

I told you that on the basis of that program,

the balance of the borrowing authority under
the general debt limitation of $45,000,000,000

would be completely exhausted and the working
balance of the Treasury would be dangerously

depleted early in the calendar year 1941. In
view of this situation, Congress provided in
the first Revenue Act of 1940 for the issuance

of not more than $4,000,000,000 of short-term

obligations to raise funds to finance the

National Defense Expenditures.
H.M.Jr:

Sullivan:

Are you fellows through with your technical

corrections?

"The same Act provided additional taxes, most

of which were intended to be used to retire
within five years any defense obligations

242

-4issued under this authority. As I reported
to you, the provisions of the bill then

pending before your Committee were sufficient
to meet the situation as it existed at that
time.
H.M.Jr:

Bell:

Now, what do you mean, "The provisions of
the bill then pending before your Committee"?

That is the first Revenue Act which provided

the new taxes and the four billion dollars

of National Defense Notes. You told them
in view of what was before them at that time,

thatsituation.
that would sufficiently take care of
the

H.M.Jr:

"The balance of borrowing authority on

January 1, 1941, was $887,000,000 under the

general limitation, and $2,764,000,000 under
the National Defense limitation. These
combined balances provide the Treasury with
borrowing authority sufficient only for the
next three months.
O.K. Anybody want to say anything?

(Mr. White left the conference for a

phone call.)
Haas:

I have got one minor correction. Near the
bottom where it starts the sentence, "In

view of this enlarged program," I would
change the sentence to, "I do not believe

that it would be advisable to finance this
large program to be issued." The way it

is now, there is a slight intimation that
it was all right to finance this previously
all to short-term obligation.
Bell:

That is what he said, that that was the

whole theory of the last bill, wasn't it?

243

-5-

It was all right.
Haas:

Well, why repeat it again? I would just

throw it out for what it is worth.

Bell:

What we are trying to do is to explain to

the committee the difference between what we
are now asking for and what we asked for last
spring.

Sullivan:

Why we are changing our position.

Bell:

Why we are changing our position, and Jerry

Cooper says that is very important.

Haas:

Oh, that is all right.

Bell:

But we can work that out.

Haas:

Yes.

H.M.Jr:

All right?

Bell:

Yes.

H.M.Jr:

"I am therefore appearing before you today

in support of H. R. -Sullivan:

2653.

H.M.Jr:

"which provides for e limination of the partition

in the debt limit, raises the debt limit to

$65,000,000,000, provides greater flexibility
in our financing operations, and provides that

the income from all future issues of Government

securities, both direct and indirect, be subject
to all Federal taxes."
Sullivan:

I don't like "both direct and indirect." That

means to cover agencies, doesn't it?
Foley:

Guaranteed obligations are indirect. Indirect
are --

244

-6Bell:

Guaranteed.

Foley:

Regular obligations.
(Mr. White returned to conference.)

H.M.Jr:
White:

How is Ernest? (mm Hemingway, the author)
He is all right. He said he couldn't come
today because no planes are running, but

he will be glad to look at anything later

on when he comes through; and he will stop.
I thought we might send him some of the

stuff on the malarial situation.

H.M.Jr:

Foley:

Sure, send it to him. The other thing he
might look into, I wish he would look into
the traffic situation on the Irawadi River,
why they don't use it more, you see.
That is what Chen did.

H.M.Jr:

Yes, but I don't know whether he got anywhere.
Why don't they use that more?

Foley:

He went down there to look at it himself,
and he got malaria down there. That is where
he got his sickness.

H.M.Jr:

The reason is that the railway from Rangoon
up to Lashio, wherever it goes, is owned by

the State of Burma, and they don't like to
use the river boats because there is too

much competition and I understand there
are two thousand ton boats who can go up

within 150 miles of the back door of China
and they could handle the bulk of the freight;
but there is some graft or some situation
there which keeps them from using it, and
they could use a mass of this freight up
the river. Those boats, they say, are two
thousand tons, and they go up within 150

245

-7miles of the back door, and there is a
road that runs from the head of the
navigable waters right into China. There
is something funny, why they don't do it.

Malaria is not the answer. It is political,
graft. All right, Dan?
Bell:

I think the debt limit raise ought to be
first in that clause, which raises the
debt limit to 65 billion, and provides for
the elimination, and so forth.

H.M.Jr:

This isn't like that thing this morning

where every word had to be looked at.

"Because of rapid changes in world conditions,

our contemplated National Defense program,

according to the 1942 Budget just submitted,
has now been increased until it aggregates
approximately $28,500,000,000 in appropriations,
contract authorizations, and recommendations.
Now, what do you mean, "recommendations"?

Bell:

That means the estimates included in the

Budget, which are not yet either appropriations
or contract authorizations. That is what

they call them. It is what the President

called them in his Budget statement.
Sullivan:

I asked the same question. I wonder if it

wouldn't be well to say "Budget recommendations"
and save another question.
Bell:
H.M.Jr:

I was trying to avoid another question.
As long as I know what the answer is.
"The estimated expenditure programs included

in this Budget would result Well, Dan,

I would like to just make a note, to explain
what that 28 and a half billion is.

246

-8Bell:

I can have it to you just as it is in the

Budget. I haven't the breakdown by
authorizations.
H.M.Jr:

Just the way it is in the Budget. Then I
can study it, you see.
"The estimated expenditure program included

in this Budget will result in combined
deficits for the fiscal years 1941 and 1942
of more than $15,000,000,000."

That is if they put through the measure.
Bell:

That is right.

Sullivan:

That is also exclusive of any aid to Britain.

Kuhn:

You mentioned that somewhere.

Haas:

Nine one year and six another.

H.M.Jr:

"In view of this enlarge program, I do not
believe that it would be advisable to undertake to finance it through the issuance of
short-term securities and their retirement
out of earmarked taxes within a specified

period as contemplated in the first Revenue
Act of 1940."
White:

Would you want to make a slight change here?

H.M.Jr:

I am going to read through the whole thing.
I am not going to do words now.

White:

H.M.Jr:

Well, it is more than words, it is policy.
Well, what is it?

White:

Well, will we have another chance at it?

247

-9H.M.Jr:

Let me read it once. I haven't seen this.
Let me read this thing. This isn't the

last chance. I mean, it is my first

reading.

"Moreover, short-term securities would for
the most part be purchased by banks resulting

in a further inflation of deposits. It is

highly desirable to avoid such inflation

as much as possible and to some extent this
can be accomplished by issuing long-term
obligations attractive to permanent investors
outside of the banking system. It seems clear,

therefore, that the provisions of law authorizing
the issuance of $4,000,000,000 of short-term
public debt obligations and their retirement
within five years out of earmarked taxes
should be repéaled." "

I don't think that all that argument is

conclusive as to why the four billion should

be repealed, Dan.

Bell:

Not strong enough?

H.M.Jr:

Well, it doesn't sell it to me.

Bell:

All right. We will put in something
different, then.

H.M.Jr:

Incidentally, Walter Stewart will be here
at nine o'clock tomorrow just to help on

this, just to do this. I have asked him
to come down.

Bell:

Good.

H.M.Jr:

"The deficit figures just given also clearly
indicate that the general debt limitation

of $45,000,000,000 must be increased.'

248

- 10 -

That, if you don't mind my saying it - I
mean, it is the whole thing and then it
kind of peters out and you sort of say
out of the side of your mouth, "Oh yes,
and by the way we are going to have to

increase it 45 billion.

Bell:

Well, that is in line with what the President
said, no recommendation and it is Congress'

problem. I had in there, "I strongly
recommend, but they took it out and put
it this way.
H.M.Jr:

All right. I don't like it.

Bell:

Well, I like it the other way better, too.

H.M.Jr:

"It would appear advisable to increase this
limit to an amount sufficient to enable the
Treasury to meet all of its financing requirements for the next two fiscal years ending
June 30, 1942. I believe that the amount
fixed in the bill before you is ample for
this purpose."

Bell:

That isn't a recommendation. It is just
an agreement to something that Congress

has done.
H.M.Jr:

"This brings me to another matter of vital
importance in connection with the financing

of the National Defense program, and that

is the tax exemption features of the debt

obligations issued by the Federal Government
and its agencies.

I told you I didn't like that.
"I told you last year that if it were within

my power, I would issue National Defense series

obligations subject to all Federal taxes.
The discretionary authority of the Treasury

249

- 11 -

to issue securities subject to all Federal

is confined to Treasury notes with a maturity

of from one to five years. As to all other
types of Government securities, the law

itself definitely fixes the exemptions from
taxation, and there is no discretionary
authority in any executive office --"
Bell:
H.M.Jr:

Officer.
"

officer of the Government to vary
these exemptions. Ordinarily the Treasury

would have raised in December, 1940, a

substantial amount of additional cash and
it would have carried out its usual program
of refunding, three months in advance, the
obligations aggregating $1,220,000,000 that

mature on March 15, 1941. The money market

at that time afforded the Treasury an excellent
opportunity to refund the large maturities
and raise the additional cash needed largely
through the sale of long-term bonds."

Now, I would say here, "However, after consultation with the leaders in the Senate and
the House,"

Bell:

Well, I didn't know how much you could put
this decision on them.

H.M.Jr:

Well, I did have it.

Bell:

You see, what I tried to say here is you

made up your own mind and then consulted

them, and they thought it was all right.

H.M.Jr:

Did you say that?

Bell:

Yes.

250

- 12 H.M.Jr:

"However, after consultation with the leaders
in the Senate and the House, it seemed to me

highly desirable that the Treasury make no
further offers of long-term tax-exempt securities
until the Congress had had an opportunity to

consider the question again in the light of the
huge defense financing program before us. I
decided, therefore, to defer our refunding

program and to meet our immediate cash require-

ments through the sale of short-term notes,
the income from which is subject to all
Federal taxes, in order to give this Congress
an opportunity to consider the question of
eliminating tax-exemptions from Federal
securities.
White:

Are they liable to ask you at this point

could you have refunded those issues and
saved money with the interest rates lower,

and if your answer to that is yes --

H.M.Jr:

Well, my answer is "How the hell did I know
that the Federal Reserve System was coming

out with that blast on the first of January?

How did I know that Winthrop Aldrich was
going to take them all into camp?" Are you
satisfied?
Bell:

That is a good answer.

White:

It would be a good answer if you would make

H.M.Jr:

I will bet you another bottle of champaigne
that I will make it, leaving out Winthrop

it, but I doubt whether you will make it.

Aldrich; but I will certainly say, "How did
I know?' Maybe the Federal Reserve knew

because they sold about 75 million dollars

worth of bonds before they made the statement,

which is true. Isn't that right?

251

- 13 Bell:

Yes.

White:

I didn't know that.

H.M.Jr:

Sure they did, and the boy that got into

the Chase National Bank stock, one of
these days I am going to find out who

bought that stock, too. Am I not right?
Just before that they sold about 75 million,

didn't they?
Bell:
H.M.Jr:

Somewhere in that neighborhood. They sold
quite a few bonds.

Give me the figure, how much during the
month of December did they sell? I want

to know. The trouble is Harris, he is so

damn innocent and he trusts everybody.
White:

The way it implies here is, you felt it

was an excellent opportunity at that time.
H.M.Jr:

I did.

White:

Then you were afraid it might not be repeated.
Then you didn't anticipate they were going
to make that statement, but you thought --

H.M.Jr:

What I am trying to say is that I deferred
my refunding and raising of my large cash

through the issuance of bonds, because I
wanted to give Congress an opportunity to

eliminate the tax feature.

White:

I should be inclined to say just that.

Haas:

Everything was favorable but just one thing.

H.M.Jr:

You fellows can hash that out. I wouldn't
say, "I believe. I would say, "The program
explained to them met with their hearty

approval." I would leave off, "I believe."

252

- 14 Pell:

I think it did, but I didn't know how far

you wanted to go.
H.M.Jr:

Pat Harrison said a couple of times it was
the best meeting he ever had had.

Bell:

The program explained to them met with their
hearty approval"?

H.V.Jr:

Yes. Now, I would like you to say something
here, Dan, that Jesse called me, not only
for the Treasury, but we have got to borrow
for the RFC.

Bell:

I have got that in the last paragraph.

H.M.Jr:

Could you repeat that and out it in there
Yes. There is a repetition on this very

Bell:

thing.

H.M.Jr:

That is all right. The New York Tribune

gave us a left handed compliment. He is
glad we saw the light and SO forth, today,

as a result of this bill. He read the

bill and he liked it. The name was "anders.
He is financial editor of the Tribune.
He writes Monday morning.

Do I speak of myself, as to give the Secretary
control over the amount of savings bonds
Or would I say to give me, or give the Treasury?
White:

Treasury, I should think. either the

Secretary of the Treasury or the Treasury.

Bell:

I think that is all right.

H.M.Jr:

Then I would say to give the Treasury.

Fell:

To give the Treasury?

253

- 15 H.M.Jr:

Yes. Somebody open that last window,

Foley:

There are two of them there.

H.M.Jr:

Yes.

Fell:

Yes.

H.M.Jr:

Now, you know Odegarde is coming in with
a statement.

Bell:

So Ferdie just told me.

Kuhn:

He will be in tomorrow morning, and he is going

please. It is a little stuffy in here.

to talk to Milton about it in the morning.

H.M.Jr:

Good.

Kuhn:

At breakfast.

Bell:

He might go over the whole statement.

H.M.Jr:

Oh, I am anxious to have him do it.

Kuhn:

You wanted about 500 words on the savings
business, the campaign?

H.M.Jr:

Well, not to exceed that.

Kuhn:

Yes.

H.M.Jr:

I think this is a very good statement, Dan,
I think it is very workmanlike. Now, what
do you want to do, go into your office and
have a wrangle with these fellows?

Bell:

If they are willing. Did you notice the last
paragraph where RFC was mentioned?

254

- 16 H.V.Jr:

Yes.

Just before you fellows go, I have here
this thing which I thought I was going
to ge+ Saturday, a letter from the President
on - gentlemen, that is boiled down plenty,

isn't it - have you seen this

Bell:

I haven't seen this last draft, have To

White:

A copy was sent around this morning. There
was no change except in two paragraphs.

H.M.Jr:

Well, circulate it and I won't bother you
fellows with it until this is done. When
this is done, I will bother you with this
letter. How is that?

Bell:

All right.

H.M.Jr:

Did you get my blast on my record about

Bell:

getting together on the stocks
I sure did.

White:

It was very funny. Are you speaking now
of Swiss securities?

H.M.Jr:

Did you (Pell) see the memo

Pell:

Yes.

H.M.Jr:

Did you see it?

White:

Yes, I saw it. The have a man following it
and he has his instructions to keep me

informed and he does keep me informed and
he did send me a memorandum Friday saying

that the Swiss - I had it on my desk.

H.M.Jr:

Who told Papa' It didn't get to Papa.

255

- 17 White:

Well, we just didn't have an opportunity.

There are a lot of things like that that

we don't know whether to bother you about,

and this is what we started to do.

H.M.Jr:

I don't know where it belongs, Harry, I
don't know just where it belongs.

White:

well, it uncuestionably belongs with us
because we have been following it.

Bell:

T thought it belonged to Merle. He used
to feed you a lot of memoranda every evening
and you said to him one day, "Don't give

me any more until I tell you to." Ordinarily

you would have gotten this in this group.
Heas:

Harry's shop puts it together.

:hite:

We put it together.

H.M.Jr:

Where I differ is a little bit with Merle -

I have had this discussion with him. Let
me explain a little bit more. You see,

this is what happened. Wednesday or Thursday
night late, Merle sends me a memorandum, Gifford

thinks that the market is a little soggy, they
can't take any more securities, and I get it
late at night and I think it over and this
is wednesday night and watching it and having

checked it, I sense it too. So I tell him

to stop for a couple of days.

Now, then Friday or Saturday, somebody said

something and I said, Take a look and see
what the Swiss are doing. Nobody told me a

thing. Just a stab. And by golly if all

week they haven't been the heaviest sellers.

Merle says they can do this, but I don't

think - maybe T am wrone - that Merle has

got time enough or the training that he can

256

- 18 sense when is a good time and when is a

bad time for the British to sell. It gets
down to a question of market sense, you

see, and that is the thing and I just wondered
if these English figures which I have shown
to nobody, you see - if anybody is to blame,
I am not to blame for what they do each day whether somebody should be there to help
Merle or whether it should be Purcell or
something, Dan. I wanted to explain it

more to you. Do you see what I mean?
Bell:

Yes.

H.M.Jr:

Now, the SEC are worried because they

wrote me a letter which I told them to
bring to your attention about depressing
the market, and I would like to sit down

and talk this over with Jerome Frank because

I think it is important enough that the

very best man that the Government can have

should be hired to do nothing but just
watch this thing on an hourly basis the
way we used to. I used to watch it and

when I was in Farm Credit, I watched wheat;

and I don't think Merle has got the time or
the training.

Bell:

I don't think Merle can watch the market.

Whatever he would get on the market would
have to come from SEC.

H.M.Jr:

And the thing that is going through my mind,
if Jerome Frank - because he is worried,

he has written me, "Say all right, if you

would let me have everything, which you

haven't". and of course, up to now, in this
room, Terome has told me he didn't want it
because he couldn't guarantee to keep it
secret.

257

- 19 -

He said, "Don't let me have it." He says,

"I can't guarantee to you I will keep it

secret.
White:

well, we have been collecting the figures

but we certainly are not qualified to
follow the market, and I don't think it
is Treasury business.

H.M.Jr:

Harry, it is Treasury business to advise
Mr. Gifford.

White:

Well, it may be Treasury business to advise
him, but if so the Treasury ought to get
it from the SEC.

H.M.Jr:

That is the whole point of my story. That

is the point of my story. I think it is

SEC business, but up to now Jerome Frank

hasn't been willing to take it.
White:

It may be SEC responsibility to give them

the red light, tell them when to stop.
Beyond that, I think they ought to go
carefully merely in protection of the

American markets, but I doubt whether

they can go further than that.
H.M.Jr:

I am just illustrating this thing. One of

these days, somebody, Martin Dies or some-

body, is going to get hold of this whole

business in Foreign Funds. Friday or Saturday
I got two cables, one describing how they
are taking - the Germans are taking their
money out of safe deposit boxes and taking
it to their hotels in New York, and then comes
a cable from Vichy signed by Leahy, how they
have given them until the 31st of January
and they are going to forcibly open safety
deposit boxes in occupied France, the Germans

are, and break into the lock boxes, and here we
are mealy-mouthed and afraid to just - to freeze

258

- 20 funds, and while we are standing around

here, these fellows are taking satchel

fulls and sending them down to South
America or their hotel room or someplace.

Foley:

Well, while we are on that, there is an
editorial in the Tribune this morning
saying that these feeble efforts of the
Treasury and these other agencies to
coordinate these matters in connection

with economic defence ought to be brought

to a head and there ought to be set un
in the Office of Production Management an
economic control agency that would handle

all of these things.

Now, that editorial is geared to the
proposal of Colonel Maxwell to take all

of this stuff out of the Treasury. I
only want to say this, that with the

State Department the way it is, we have

got to be awfully careful that they don't
stick that Executive Order setting up

everything and taking away our freeze
control and our powers away from us and

giving it to the Office of Production

Management, that they don't stick that
in front of the President and the President

sign it.

White:

I think the whole fight ought to be
reopened.

Foley:

By God, that is where the State Department

White:

I think it ought to be reopened and refought
from where we started with the original

is liable to go despite us.

order which the President almost signed.
Instead of giving in as much as we have, I
think we ought to begin from there.

259
- 21 Foley:

I don't agree that we ought to start now,

and fight it all over again. I think it
is just as well to let the thing simmer

a bit, but I do think, Harry, that there

ought to be a caveat thrown up so that
that damn order doesn't get signed while
we are fooling around with our own order.
White:

That order was always misinterpreted. It

very definitely left control of the policy

in an inner Cabinet committee in which the

State Department could have been chairman.
Foley:

No, no, Harry, it is even better than that.
They have got absolute veto power. They
don't have to be chairman.

White:

Originally. The way it was originally,

there wasn't any necessity to recede from
it one iota, because we weren't taking away
from their power.

Foley:

We haven't receded from it, and the order
we have now is just as good as the original

order. There is danger that this Maxwell
order may get signed, and this editorial in
the Tribune today is a tin-off on where that
thing may go and I think the State Department

is spiteful enough to throw its weight that way
just to keep us from getting that additional

power.

White:

But I don't think it is a question of them.
I think they are vulnerable when the

situation is brought out in its proper
light.

Foley:

H.M.Jr:

Bell:

Did you see the editorial, Mr. Secretary?
No. O.K., gents.
On this Swiss, there isn't anything we can
do about it?

260

- 22 H.M.Jr:

No, but I thought you could get a little

meeting and when we catch our breath, we
will have Jerome Frank come over and talk

. to us; but I wanted to explain to you.
Bell:

T got your memorandum.

H.M.Jr:

O.K. But I don't agree with you - I don't
think we have anybody in the Treasury who
has good enough market sense.

Bell:

No, not when it comes to making decisions
as to when you should stop and begin.

H.M.Jr:

With all undue modesty, with the exception

of myself, and I haven't got the time.

261

Draft

When I first appeared before you last spring
at the time the revenue bill of 1940 was under
consideration, the National Defense program then
before Congress was less than $4,000,000,000.

I told you that on the basis of that program the
balance of the borrowing authority under the
general debt limitation of $45,000,000,000 would
be completely exhausted and the working balance

of the Treasury would be dangerously depleted

early in the calendar year 1941. In view of
this situation, Congress provided in the first
Revenue Act of 1940 for the issuance of not more

than $4,000,000,000 of short-term obligations to
raise funds to finance the National Defense
Expenditures.

-2-

262

The same Act provided additional taxes, most of

which were intended to be used to retire within
five years any defense obligations issued under

this authority. As I reported to you, the
provisions of the bill then pending before
your Committee were sufficient to meet the

situation as it existed at that time.
The balance of borrowing authority on
January 1, 1941, was $887,000,000 under the

general limitation, and $2,764,000,000 under
the National Defense limitation. These combined
balances provide the Treasury with borrowing

authority sufficient only for the next three months.

263

-3-

I am therefore appearing before you today in
support of H. R.

, which provides

for the elimination of the partition in
the debt limit, raises the debt limit to
$65,000,000,000, provides greater flexibility
in our financing operations, and provides that
the income from all future issues of Government

securities, both direct and indirect, be
subject to all Federal taxes.

264

-4-

Because of rapid changes in world conditions,
our contemplated National Defense program, according

to the 1942 Budget just submitted, has now been

increased until it aggregates approximately
$28,500,000,000 in appropriations, contract
authorizations, and recommendations. The

estimated expenditure programs included in this

Budget will result in combined deficits for the
fiscal years 1941 and 1942. of more than

$15,000,000,000. In view of this enlarged program,

I do not believe that it would be advisable to
undertake to finance it through the issuance

of short-term securities and their retirement out
of earmarked taxes within a specified period as
contemplated in the first Revenue Act of 1940.

265

-5Moreover, short-term securities would for the
most part be purchased by banks resulting in a

further inflation of deposits. It is highly
desirable to avoid such inflation as much as
possible and to some extent this can be
accomplished by issuing long-term obligations

attractive to permanent investors outside of the

banking system. It seems clear, therefore, that
the provisions of law authorizing the issuance of
$4,000,000,000 of short-term public debt

obligations and their retirement within five
years out of earmarked taxes should be repealed.

The deficit figures just given also clearly indicate
that the general debt limitation of $45,000,000,000
must be increased.

266

-6-

It would appear advisable to increase this

limit to an amount sufficient to enable the

Treasury to meet all of its financing requirements for the next two fiscal years ending

June 30, 1942. I believe that the amount fixed

in the bill before you is ample for this
purpose.

This brings me to another matter of vital
importance in connection with the financing of
the National Defense program, and that is the

tax exemption features of the debt obligations
issued by the Federal Government and its agencies.

-7-

I told you last year that 1f it were within my
power, I would issue National Defense series

obligations subject to all Federal taxes.
The discretionary authority of the Treasury to

issue securities subject to all Federal taxes is
confined to Treasury notes with a maturity of

from one to five years. As to all other types
of Government securities, the law itself
definitely fixes the exemptions from taxation

and there is no discretionary authority in
any executive office of the Government to vary
these exemptions.

267

268

-8-

Ordinarily, the Treasury would have raised
in December 1940 a substantial amount of

additional cash and it would have carried out
its usual program of refunding, three months
in advance, the obligations aggregating
$1,220,000,000 that mature on March 15, 1941.

The money market at that time afforded the

Treasury an excellent opportunity to refund

the large maturities and raise the additional
cash needed largely through the sale of
long-term bonds.

269

-9-

However, anticipating that the Congress would

consider the question of tax exemptions in this
session, it seemed to me highly desirable that
the Treasury make no further offers of long-term
tax-exempt securities until the Congress had had

an opportunity to consider the question again in
the light of the huge defense financing program

before us. I decided, therefore, to defer our
refunding program and to meet our immediate cash

requirements through the sale of short-term notes,

the income from which is subject to all Federal
taxes, in order to give this Congress an opportunity
to consider the question of eliminating tax-exemp-

tions from Federal securities.

- 10 -

270

I conferred with some members of both the
Ways and Means Committee of the House and the

Finance Committee of the Senate and explained

to them what I had in mind and that in taking
these steps it was my hope that Congress would

promptly enact legislation which would provide

that the income from all future issues of
securities of the Federal Government or any of

its agencies be made subject to all Federal taxes.
I believe that the program explained to them met

with their hearty approval. I am sure this
Committee appreciates the importance of prompt

action in this connection so that the Treasury can
take steps to refund the large March 15 maturities
in advance of that date.

271

- 11 -

Section 2 of H. R.

amends section 21 of

the Second Liberty Bond Act, as amended, so as

to limit the face amount of public debt obligations
issued under the authority of that Act to an amount
not to exceed in the aggregate $65,000,000,000
outstanding at any one time. This amendment as

written will repeal section 21(b) of that Act which
authorizes the issuance of $4,000,000,000 face

amount of National Defense notes. As previously

explained, this increased limitation will amply
cover the Treasury's present anticipated financing
requirements for the current and ensuing fiscal
years.

- 12 Section 3 amends section 22 of the Second

Liberty Bond Act so as to broaden the authority
under which United States Savings Bonds are

issued, in order, first, that the Treasury may
issue such bonds with maturities up to twenty
years; second, that it may issue Treasury savings

certificates with maturities up to ten years, and,
third, to give the Secretary control over the
amount of new issues of Savings Bonds and of

certificates which may be held at any one time by

any one person. In addition, this section would
authorize the Secretary to issue stamps or provide
other means to evidence payments for Savings

bonds and savings certificates, and to provide

for the exchange of savings certificates for
Savings Bonds.

272

- 13 -

273

This would permit the Secretary of the Treasury
to carry on a program somewhat similar to the war
savings and Treasury savings certificates programs
during the World War, programs which provided means

for popular participation in the financing of that
War through saving small amounts, and at the same

time were very effective in raising substantial
amounts of funds directly from the investing public.
There is ample evidence of a real desire on the

part of the American people to do their part and
the Treasury is most anxious to reach any individual
who desires to invest his savings, however small,
with the Government for the purpose of helping to
finance the defense program.

- 14 -

274

In this connection, the Treasury intends to
offer Government securities of a character which

should facilitate and encourage thrift and

savings. It is my hope that a substantial part
of the defense program for which we have to

borrow funds can be financed out of the real
savings of the people.
The present law fixes the maximum of Savings

Bonds which an individual may acquire in any one

year at $10,000 face amount. There is no authority
in the Treasury to increase or decrease this amount
to meet changing conditions. This section proposes

to give the Secretary of the Treasury the authority
to fix the amounts which may be held by any person

at any one time. I believe that such flexibility
is most desirable.

- 15 -

275

Section 4 of the proposed bill provides that

all obligations issued after its effective date
by the Treasury or any agency or instrumentality

of the United States, shall, as to both principal
and interest or other gain, be subject to all
taxes now or hereafter imposed by the United States.

As you know, every administration for the past
twenty years has recommended the complete

elimination of tax-exempt securities. The bill
now before you proposes that the United States

Government actually take the first step to
eliminate this undesirable feature from our
financing by providing that all future Government
securities, whether issued by the Treasury under
the authority of the Second Liberty Bond Act,

- 16 -

or by any corporation, instrumentality, or other
agency of the United States under authority of
any other act of Congress, shall be subject to

all Federal taxes. Under this bill, the owners
of these securities would pay Federal income
taxes on income from that source and thus

help finance the present National Defense or
any future program of the Federal Government.

Section 5 of the proposed bill terminates

certain obsolete authority to issue debt
obligations which the Treasury does not need and

which, therefore, might ES well be repealed and

eliginated from the statute books. The debt
limitation fixed by Section 21, as amended by this

bill, will then be all inclusive.

276

- 17 -

277

It also repeals section 301 of Title III of
the first Revenue Act of 1940, which sets up a

pecial fund to consist of earmarked taxes for
the retirement of any obligations issued under
the National Defense debt limitation of
$4,000,000,000. As previously pointed out,

this section constitutes an undesirable restriction on public debt financing at a time when the

greatest freedom of action is essential.

I urge its elimination.
Section C contains the usual saving clause

to protect the rights of the holders of any
obligations now outstanding and already issued

under the authority of the laws affected by this bill.

- 18 -

278

I am sure the members of this Committee

appreciate that it will soon be necessary for the
Treasury to raise additional funds for its own
account and also for the Reconstruction Finance

Corporation to meet expenditures under the enlarged
National Defense program now under way and that

prompt passage of this measure will greatly

facilitate the handling of our problems.

279

January 27, 1941
MEMORANDUM FOR THE SECRETARY'S DIARY

On Thursday, January 23, at 3:30 p.m., Secretary
Morgenthau and Ed Foley attended a meeting of the Subcommittee

of the Senate Committee on Foreign Relations called by Chairman George, in the Committee Room in the Capitol. Others
present were Secretaries Hull, Stimson and Knox, Senators

George, Harrison, Connally, Johnson and La Follette.
Senator George announced that the purpose of the meeting
was to discuss arrangements and procedures for the Hearings

before the full Committee on the Lease-Lend Bill which were to
commence on Monday, January 27, at 10:00 a.m., in the Democratic

Caucus Room in the Senate Office Building. He suggested that

Secretary Hull be the first witness, to be followed by Secretary
Morgenthau.

Senator George said that since the Senate Hearings were

following so closely on the heels of the House Hearings, no
new formal statements were necessary and that the witnesses

present themselves for questioning. However, he thought time
would be saved by having each witness send down twenty or

twenty-five copies of his formal statement to the House Committee
so the Senate Committee members would have an opportunity to

280

-2peruse the statements prior to the opening of the Hearings
on Monday. Secretary Morgenthau pointed out that he had
submitted no formal statement to the House. Senator George

said under those circumstances it would not be necessary for

him to send anything but be prepared to present his financial
tables and data to the full Committee when he appears.

Secretary Knox said that it was necessary for him to
be in Chicago on Wednesday and Thursday. There was a discussion as to whether Secretary Knox would appear ahead of

Secretary Stimson on Tuesday so that he might keep his

engagements, or appear after he returned on Friday. Senator

George said he would leave it tentatively for Secretaries
Hull and Morgenthau to appear on Monday and Knox and Stimson

on Tuesday. However, Senator George said if there were delays

it would be possible for Secretary Knox to keep his Chicago
engagement and appear when he returned.

Senator Harrison asked if Secretary Jones had been called
in the House. When he was told that Secretary Jones had not
appeared as a witness before the House Committee, he made no

further suggestion.
Senator George said he might want daily attendance of
someone from each Department to sit as a consultant or adviser.

281

-3It was agreed that someone satisfactory to Senator George
would be designated from each Department.

Senator George asked Mr. Foley if he would have a radio
address of about twenty to twenty-two minutes length prepared

for him on the Bill. The Senator said he wanted to have a

brief explanation of the Bill, a discussion of its constitutionality, and a general summary of the policy and the aims to
be achieved by the Bill. Mr. Foley promised Senator George
that such a speech would be prepared and be put in his hands
early Monday morning.

The meeting broke up at 4:15 p.m.

in th.

January 27, 1941
3:38 p.m.
H.M.Jr:

That's me.

Sam

Rayburn:

8:30

H.M.Jr: Oh-o-o!
That was confirmed and, by the way (close that
door) we left off all of the Foreign Affairs
Committee on the Republican side but Martin
and McNary are going. I think that's for
better.

R:

H.M.Jr:

on that's swell.

R:

That's all right. 8:30.

H.M.Jr:

But I am wanted am I?

R:

Well, I expect you. I don't know whether the

H.M.Jr:

Well, you're my boss on this.

R:

(Laughter) All right, Henry.

H.M.Jr:

And can I bring my man Foley?

R:

I think that would be a good idea.

H.M.Jr:

Don't you think 80?

R:

Yes, indeed.

H.M.Jr:

He's been helpful.

R:

boss does or not but I expect you.

Yes. But I'm not going to bring this drafting
service because they're a little bit too far
away, you know.

H.M.Jr:

R:

Yeh. You know I first used to think that having
Sam Rayburn for Speaker full of pep and vigor
was good; I'm beginning to have my doubts.
What's the matter?

H.M.Jr:

Too much energy.

R:

No (laughter) not that.

H.M.Jr:

What?

R:

No, not that. I'm the laziest man in this town.

282

-2H.M.Jr:

Too much energy - too much drive.

R:

I'm you.
the
see

H.M.Jr:

283

laziest man in this town. Well, I'11

I'm going to call you from now on my slave driver.

R:

(Laughter) All right. All right, bye.

H.M.Jr:

I'11 be there.

284

January 27, 1941
3:50 p.m

H.M.Jr:

Hello.

Wm. S.

Knudsen;

This is Bill.

H.M.Jr:

This is Henry.

K:

Say, maybe I'm getting a little bit too
anxious to get some of this stuff started.

H.M.Jr:

Yes.

K:

There are 1956 British planes on that list.
See?

H.M.Jr:

Yeah.

K:

Can you produce the funds for them?

H.M.Jr:

Well, I haven't got it in my vest pocket,

Bill, but I'd be glad to take a look.

K:

Uh-huh.

H.M.Jr:

1956.

K:

Supposing I give them to you over the phone

here.
H.M.Jr:
K:

All right, shoot.
Lockheed Hudson
Lockheed 37

Martin - Baltimore

Vultee dive bomber
Total

H.M.Jr:

-

-

-

600
720
276
360

1,956

Total of planes, 1956. Well, what type of

planes are these?
K:

They're British.

H.M.Jr:

Uh-huh.

285
2K:

See?

You
we're
with
then know,
McCloy
and working
Jones and
I Jones, and
H.M.Jr:

K:

Well, now, Bill let me ask you this.

Remember there was a footnote on that list $300 million for plant expansion. Do these
1956 need any additional plants?
No, sir.

H.M.Jr:

They do not.

K:

No, sir.

H.M.Jr:
K:

H.M.Jr:
K:

I see. In other words they go with
existing plants.
Correct.

Un-huh.
Well,
hard
to me
Bill.you're putting up something

(Laughs). Well, I thought if I could get

them on order I could get the motors on
order. See? We fiddle around and talk and
the first thing you know we're going to run
out of soap. (Laughs). Not only out of dough
but out of soap.
H.M.Jr:
K:

What do you mean by that?

I mean if I don't get these things in order

and get the materials going, see, away back,
then they
boat.
See?are liable to some day miss the
H.M.Jr:
K:

I see.

So if I can get this 1956 - they're British

planes
and I can't get the Americans to buy
them, see?
H.M.Jr:
K:

H.M.Jr:

Yeah.

But
if I could let the British place them,
see?
And you don't need any additional capacity?

286

-3K:

No,
there are not any plants connected with
these.

H.M.Jr:

I see. Well, I've done more difficult

K:

(Laughs).
to you, see.Well, I thought I'd put it up

H.M.Jr:

Well, that's fair enough.
If
it can't
be done, it can't be done and
then
I wait.

K:

H.M.Jr:
K:

H.M.Jr:

things than that.

Well,
coming from you I'll do the best I
can.
Thank you, sir.

Thank you, Bill.

287

January 27, 1941
4:20 p.m.
RE BRITISH PURCHASING PROGRAM

Present:

Mr. Young

Mr. Purvis
Purvis:

What delivery is there?

H.M.Jr:

It doesn't say anything about delivery.
He goes right along here. As I said,

"Are these English type," and he said, "Yes."
Young:

H.M.Jr:

That is right. They are on this list.
The English type. Are they on that list

Young:

Yes.

Purvis:

One hundred 79 million.

Young:

They are listed here in detail, the same
figures exactly.

Purvis:

That means that it is a question of getting
the money by the sale of the property
facilities to Jesse Jones. We have been
trying to get Jones to accept a letter of
intention on the part of our Government to
see it through, but so far I understood up
to this morning that he has definitely
said no. I had intended to ring him up and

ask him whether I could come along and see
him, but McCloy told me that.

288

-2H.M.Jr:

Well, let me throw this back in your lap,
and you might talk it over with Sir Frederick
Phillips.

Purvis:

Yes. That is exactly what Halifax is worrying
about. He said to me last night that he was
asked to send a cable not later than 24 hours
after he saw me about British types, and I
told him the United States type log jam had

been broken very largely at the moment.
H.M.Jr:

Oh, was he interested himself in that?

Purvis:

I was rather amazed, but evidently just
because he was coming. The last thing

Churchill said, "Don't get British types.

H.V.Jr:

You see, the other thing, Knudsen said if
you could do this thing - he said something
about getting going on the engines, you see.

Purvis:

Yes. Of course, it is exactly what we want

to place. It is purely a financial question.

H.V.Jr:

Well, I am passing it on to you, and if you
fellows have got any bright ideas, here I am.

Purvis:

Yes. You haven't any spare cash you could

let us have, Mr. Secretary? It is a mere 175
million. I know you told me that you only
could let us have 25 cents a week, but it is
not much more. Is there any chance at all
of any other way of suggesting?
H.V.Jr:

I don't know. You have got a fertile brain.
See what you can do. I am receptive.

Purvis:

Couldn't possibly - I mean, sterling doesn't
interest you, I suppose?

289

-3H.M.Jr:

No.

Young:

Isn't that cute? (Laughter)

H.M.Jr:

But the French gold is in Canada.

Purvis:

What about the Belgians?

H.M.Jr:

Here is the thought which I have had. It
has been cooking. I will supply the germ
of an idea. You people who can earmark
mentally - wait a minute, if you can do it
once, why couldn't you borrow from the
Bank of Canada against the French gold,

and the title would still stay with the

French?

Purvis:
H.M.Jr:

Yes.

See? It is still there. You would just

borrow it.

Purvis:

That is a beautiful mental job.

H.M.Jr:

well, I never would have gone through the
gyrations of

Purvis:

We started this thought.

H.M.Jr:

You went me a hundredfold better. You
mentally earmarked some gold in - French
gold in South Africa and when you mentally
earmark, that is a new one; but supposing
you wanted to borrow against the French
gold and borrow it from the Bank of Canada?

Purvis:

Yes. The British Government would mentally
earmark that as security for the Bank of

Canada and the Bank of Canada would be in
physical possession.

290

-4H.M.Jr:

Yes. What is the matter with that?

Purvis:

I must say it is a good principle. Once
started, there should be no difficulty.

H.M.Jr:

This is a much sounder one. I mean, the
gold is there with the Bank of Canada and
you say, "We want to borrow." That is the
way you do it. "We want to borrow from the
Bank of Canada 179 million dollars." Isn't
that what this thing came to?

Purvis:

That is right.

H.M.Jr:

And we are going to put up the French gold

as collateral, which we are mentally ear-

marking that we owe them. (Laughter)
Young:

Earmarking in the ground in South Africa?

H.M.Jr:

No, here is the French gold in Canada, and

after the war, "Of course, we will pay you
back and repatriate the French gold." It
is no more crazy than what you did before.

Purvis:

No.

H.M.Jr:

It is no more crazy.

Purvis:

I wonder whether we could do that with the
Belgian gold, which might be cleverer, because
there won't be the danger of repercussions.

H.M.Jr:

That is right, and how much does that amount
to?

Purvis:

I think there is some 400 million that we
have got somewhere.

H.M.Jr:

Well, here is a clean cut thing that you need.

291

-5You need 1960 planes, and here is Knudsen

saying he wants the order.

Purvis:

And here is Halifax saying he has got to
cable today and will I tell him what to
cable back to Churchill.

H.M.Jr:

Is it worth stopping in for?

Purvis:

Of course.

H.M.Jr:

I think your suggestion about the Belgian

gold is right because I think that the
squawk would be less.

Purvis:

I think so. After all, the other has a

German implication, and the Belgian thing,

we are allies, and we are in the position

where we are denuded -Young:

I don't see why the Belgians or the Dutch
don't place the order and let the War Council

of the allies take the product.

H.M.Jr:

Let the Belgian --

Young:

Let the Belgians or the Dutch place the order.
They have got the money. The Allied War
Council in London can allocate the use of
the planes. What is the use of having an
Allied War Council°

H.M.Jr:

I don't know, what use is it?

Young:

They just sit around and fight, as far as
I can find out.

Purvis:

It is the germ of an idea. Anyway, let's
pursue it with everything there is here;
and the fact that Halifax has to cable back
to Churchill what I think about it would be

292

-6 a good opening tonight with Halifax. God

help him.
H.M.Jr:

Are you seeing him tonight again°

Purvis:

No, but I shall see him on this. He asked

me particularly to get him something that
he could cable. He wanted to cable last
night, but I didn't know what he was to say.

H.M.Jr:

Here is the answer. Here is Knudsen ready

to place the order for 1960 planes if you
fellows can tell me where the money is.

Purvis:

And they are just exactly the number of

planes we wanted to get.
H.M.Jr:

He has copied the list, you see.

Purvis:

Let me go at it and see what happens.

H.V.Jr:

I will not only not retard you, I will
accelerate you. (Laughter)

Purvis:

You won't need to. Goodbye.

293

January 27, 1941
Mr. Haas

Secretary Morgenthau

Read the financial story today by George Wanders on
Page 19 of the New York Tribune. I see he refers to a

special article by a Dr. Palyi who evidently has written a
critical article about financing. I wish you would get
everything about Dr. Palyi, and if it looks good and he

has constructive criticisms to make, possibly we can use

him as a consultant. See if he is the kind of person

that I would be glad to have come into the Treasury.
Please move fast on this. Before you do anything else,
check with Sir Frederick Phillips about Dr. Palyi and see

what he knows about his background, and how he stands on

the Germans - is he Pro or Anti-Nazi?

Treasury Department

294

Division of Research and Statistics
Date Jan. 28, 1941 1940
Miss Chauncey
From:

E. Kailey
Attached memo was sent to the Secretary

last evening through Lieut. Stephens. Lieut. Stephens
returned it to us a few minutes later with a
note saying "The Secretary says 'drop it'. #
The memorandum is sent to you for your

files.

0

295
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE January 27, 1941.
TO

Secretary Morgenthau

FROM

Mr. Haas IOA
In accordance with your note of this morning concerning
Dr. Palyi, I telephoned Sir Frederick Phillips and he said he

would find out what he could about him immediately.

This afternoon Mr. Pinsent, Financial Counsellor of the
Fritish Embassy, called and said he had been unable to find out

what Dr. Paly1's present connections were and he did not know
whether Dr. Palyi had any contact with the "enemy". However

he said he knew him in Berlin and he was not of high character.
I asked him to particularize on that and he said Dr. Palyi was
the type of individual who was a "climber" and would be open to
anything which might bring him fame or money. Mr. Pinsent would
advise against having anything to do with him.
Mr. Pinsent mentioned that Dr. Viner probably knows him

and is more familiar with his present activities. I think Dr.

Palyi was a professor at the University of Chicago at one time
and he may still be there.

In view of the report which I have received from the

British Embassy I assume you do not wish me to make any further

investigation unless I hear from you to the contrary.

296

January 27, 1941

Messrs. Bell, Cochran, White and Haas
Secretary Morgenthau

Saturday, January 25th, I sent a memorandum to Merle
Coohran asking him to get me some information on foreign

selling, other than English, during last week, and I had a
hunch that possibly the Swiss were selling securities in our
market.
I find that since January 21st they have been selling
quite heavily.
It seems to me that somewhere in the Treasury organization somebody ought to watch these reports of foreign selling

which come into the Treasury every day, and when something

unusual happens, like heavy selling on the part of the Swiss,
the Treasury hadn't ought to wait until I have a hunch. Somebody should be here to bring this to my attention at once.
I don't know who receives these reports every day on

foreign selling, but I want Mr. Bell to call a meeting of
this group and give me a report. Besides this information, I

get a report each day as to how much the English have sold.

Up to now, this has been guarded very carefully, but if a

trustworthy person could be designated who would watch all

foreign selling, and then if there is something unusual,
bring it to my attention at once and not wait for five days,
it would be very helpful to me in conducting my business.
I understand that some of this information goes to
SEC, and what they do with it I don't know, but it is unbelievable to me that between the Treasury and the SEC, with

all the information at our disposal, everybody waits until

the Secretary of the Treasury has a hunch before anybody

does anything about it. Furthermore, here this information
is at our disposal, and we see these funds being turned into

cash on a PUMOR that we are going to freeze all funds, and

still we sit here and do nothing about it.

On the conference which Bell calls, Herbert Gaston,
John Wiley and Pehle should sit in.

297

January 27, 1941
Mr. Haas

Secretary Morgenthau

I wish you would talk to me about your organization,
and whether or not it needs strengthening in the government
finance section. Now that we are facing such a tremendous
borrowing program, I am wondering if you don't want to bring

in some other people to assist you, but I will go over the

whole situation with you. I would like to discuss it in the

presence of Dan Bell and get his advice as well.

Copy to D.W. Bell

298

Note:

As per instructions of Mrs. Klotz,
0

a photostat of this was turned over
to Dr. White today.
R. McH

Jan. 27/41

1-27-41

299

ORDER ON ADDITIONAL RESEARCH FUNCTIONS OF THE
DIVISION OF MONETARY RESEARCH

The Division of Monetary Research is hereby assigned the

function of conducting the research on economic aspects of foreign

funds control and to prepare and analyze statistical reports on
foreign funds control and foreign exchange control for the aid
of the Secretary, the Committee of Foreign Funds Control and the
Administrator of Foreign Funds Control.

Funds adequate for the purpose of carrying out these functions
shall be made available out of funds of the Foreign Funds Control.

This Order is effective immediately.

OK my

300

ACTION REQUIRED

CONFIDENTIAL

January 27, 1941

To:

The Secretary

From:

Mr. Young

Re: 100 Chinese P-40 Planes.

The Intercontinent Corporation has an exclusive contract
with Curtiss-Wright to sell and service Curtiss planes in China.
It is Intercontinent which operates The Central Aircraft Factory
just across from the Burma frontier, and which is probably the
only adequate facility for erecting and maintaining the P-40's
in China. Curtiss is bound by its contract to pay Intercontinent
a fee on the 100 P-40's regardless of services performed by
Intercontinent.

In my conversations with Universal, with Curtiss-Wright,
and with Intercontinent, I have taken the stand that as this
vas a Government arranged transaction there was no reason why
Intercontinent should receive any selling commission over and

above the price of the planes. The price charged for the planes
by Curtiss-Mright is the same price charged the British.

If Intercontinent is to do the job in China of receiving the
planes, transporting them into China, erecting and maintaining
them, it is justifiable that the Chinese Government should pay

for those services. Intercontinent has agreed that it should not
charge a selling commission, but it has also taken the stand that
it cannot give a breakdown of the services which it will perform
in China and that, therefore, A flat rate of 10 per cent will
have to be charged. It makes no difference to Intercontinent
whether its fee is paid by the Chinese over and above the British
price or comes out of the Curtiss-Wright profit.

Intercontinent has also taken the stand that it should receive this 10 per cent fee whether or not it performs any services
in China. I suggested that Intercontinent waive its contract with

301

-2Curtiss-Mright and make a separate deal with the Chinese Govern-

ment for actual services rendered in China. This, Intercontinent
refused to do on the grounds that it was legally entitled to a
fee under the Curtiss contract and due to the fact that it would
have great difficulty in collecting the money any other way.
There will be nothing to stop Intercontinent from collecting its
fee under the contract and then charging the Chinese Government

again in China.

Curtiss-Wright has been very cooperative in moving the planes
to Weehawken for shipment, but, of course, it has not gone 80 far

AS to offer to sacrifice any profit for the purpose of satisfying
Intercontinent. Both Curtiss and Universal feel that Intercontinent
should not get any fee except for services rendered.

At this point we can either back out of the deal and let the
three of them fight it out between themselves or we can insist that
Intercontinent justify the fee which it proposes to charge. I am

afraid that if it is left to itself the shipment of the planes will

be held up on February 3rd or else the Chinese will be getting
gypped. As this transaction was only made possible by the United
States Government, it could be insisted that neither Curtiss nor
Intercontinent take any profit.

Another possibility would be for Intercontinent to render its
services on a cost basis plus a fixed fee. In any event, we have
either got to determine the price, at least informally, or else back
out of the picture.

P.4.

302
ALLISON ENGINEERING COMPANY

LCTLY CONFIDENTIALDeliveries of Airplane Engines
Actual

deliveries

Estimated deliveries
on existing orders

940

January

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

10
15
31

50
91

221
49
73
61

48
80

44
49

19
56

December 1 - 7.

30

December 8 - 14
December 15 - 21
ecember 22 - 28

86

December 29 - January 4

78
52
12

941

January 5 - 11
January 12 - 18
January 19 - 25
January 26 - 31
February
March

April
May

June

July
August

September
October
November
December

85
43

33*
179
356
400

450
460
460
475
550
625
750
800
800

942

January
February
March

April
May

une

ffice of the Secretary of the Treasury,
Division of Research and Statistics.

455
277
225
225
207
66

January 27, 1941.

On January 25. 35 additional engines had finished tests and

were awaiting delivery to the British.

303

RICTLY CONFIDENTIAL

ALLISON SHIPMENTS

:

British

Army

Total

Nov.:Dec.:Dec.:Dec. : Dec. Dec.29:Jan. : Jan. : Jan. Total
124-30:1-7:8-14:15-21:22-28:Jan. 4:5-11:12-18:19-25:
53

3

56

82

60

46

8

83

41

1

4

18

6

4

2

2

30

86

78

52

29

Office of the Secretary of the Treasury,
Division of Research and Statistics.

12

85

43

33*

-

33*

435

40

475

January 27, 1941.

*On January 25, 35 additional engines had finished tests and were

awaiting delivery to the British.

304

JAN 27 1941

Dear Mr. Sanfords

On behalf of the President and Mr. Marvin K.
MoIntyre, may I thank you for your letters of
December 28, 1940, concerning the creation of a
new source for rifle production.
It is my understanding that your proposals
have already been placed in the hands of the Var
Department.

with respect to the delivery of Lee Enfield

rifles to the British, this situation has already
been thoroughly studied by both the Ver Department
and the British Purchasing Commission.
Sincerely,

(Signed) H. Jr.
Secretary of the Treasury

Mr. F. T. Sanford, President,
National Arms Corporation,
111 Broadway,

New York, New York.

Copy to Marvin H. McIntyre

and file rec'd from him ret' d. (by Messenger 5:00)

PY:bi

1/27/41

Dr.

305

JAN 27 1941

Dear Mr. Sanfords

On behalf of the President and Mr. Marvin H.
MoIntyre, may I thank you for your letters of
December 28, 1940, concerning the creation of a
new source for rifle production.
It is my understanding that your proposals
have already been placed in the hands of the Var
Department.

with respect to the delivery of Lee Enfield

rifles to the British, this situation has already

been thoroughly studied by both the Var Department
and the British Purchasing Commission.
Sincerely,
(Signed) E. Morgenthan, Jr.

Secretary of the Treasury

Mr. F. T. Sanford, President,
National Arms Corporation,
111 Broadway,

New York, New York.

Copy to Marvin H. McIntyre

and file rec'd from him ret'd. . (by Messenger 5:00)

Pitbj
1/27/41

306
THE WHITE HOUSE
WASHINGTON

December 31, 1940

MEMORANDUM FOR

SECRETARY MORGENTHAU

As per our telephone conversation.

MHM

M. . H. McINTYRE

Secretary to the President
Enclosures

Phil young and

prepare AM

307

COPY)

THE WHITE HOUSE

Washington

December 30, 1940

MEMO FOR

MAC

This should be taken up with
the Treasury Department by Mr.
Purvis.

F.D.R.

308
CABLE ADDRESS

TELEPHONE

SANMOTOR NEWYORK

2-1997

NATIONAL ARMS CORPORATION
111 BROADWAY

NEW YORK U.S.A.

December 28 1940

Mr. Marvin H. McIntyre
The White House

Washington, D. C.

My dear Mr. McIntyre:

As a British subject, long resident in
the United States, I have been closely cooperating with
representatives of the British Government in their war
program,particularly in relation to small arms. There is
an urgent need for more rifles and we have made a proposal
to the War Department to release Lee-Enfield rifles on an

exchange basis as set forth in the enclosed letters.

Up to the present time the Government

apparently has not been willing to sell these rifles to
the British Government. The exchange proposal is made to
meet the objection to a cash sale and at the same time to
create a new source for large scale semi-automatic rifle
production without cash investment on the part of the

United States Government.

If the Government can and will release

the rifles as indicated, Great Britain will receive vital

arms now at this critical time.

We propose to transfer the rifles to
the British, if they are released to us,at the same price

as established by the War Department i.e. $12.50 each,
plus an agreed percentage for the purchase of certain
additional machine tools, to build new models of the Pedersen rifle and for expenses involved.
We believe these suggestions should

be placed before the President personally and we send them

to you to ask if you will kindly present them to the President at the earliest possible moment.
Should the President desire to discuss
this proposal personally with us we will respond promptly
to his request.

Very truly yours
FTS/CD

President

309
CABLE ADDRESS
SANMOTOR NEWYORK

TELEPHONE

ECTOR 2-1997

NATIONAL ARMS CORPORATION
111 BROADWAY

NEW YORK U.S.A.

December 28, 1940

Hon. Franklin D. Roosevelt, President
The White House

Washington, D. C.
My dear Mr. President:

The enclosed proposal has been placed in
the hands of the Ordnance Department and as it relates to
our Defense Program we feel that you should be promptly informed.

The rifle involved in this proposal designated M2, embodies all the advantages of the Garand rifle

with none of its disadvantages. It is designed for mass
production which is vitally necessary if our forces are to
be adequately equipped during the next two years with efficient
semi-automatic rifles. This M2 rifle can be produced in quantities of 5000 per day if desired.
Our proposal has two prime objectives:

First:
To provide a procedure to deliver to the
British Government immediately 1,000,000 Lee Enfield Rifles
now in U. S. Government arsenals. In accord with your recently
announced program to give full aid to Great Britain without
requiring the U. S. Government to accept cash from the British,
we will accept these rifles in exchange for new M2 semi-auto-

matic rifles. The title to Lee Enfield rifles would then be

promptly transferred to the British. Our War Department would
receive from us new highly efficient semi-automatic rifles in
exchange.
Second:

To create a large independent source for

semi-automatic rifle production that is vitally necessary to
produce enough semi-automatic rifles to equip our armies.

Present production facilities for the Garand (M1) will require
years to deliver an adequate supply of rifles.
We are prepared to proceed immediately with

the carrying out of this exchange program upon authority from

the proper officials without a dollar of investment by the

U. S. Government.

Very truly
fts/vs

President

310
CABLE ADDRESS
BANMOTOR NEWYORK

NATIONAL ARMS CORPORATION
111 BROADWAY

NEW YORK U.S.A.

December 19th, 1940

Coff

C. M. Wesson, Major General
Chief of Ordnance
Munitions Building
Washington, D. C.
Dear Sir:

This is a proposal to manufacture
semi-automatic rifles for the United States Government.

Our production program will supplement production of the M1 (Garand) rifle thus providing a complete independent source for large scale
rifle manufacture which is highly desirable in our
present defense program.

The rifle in question, which may
be designated M2, is similar in type to the M1 - but
it is production designed throughout, permitting mass
production at less cost than is possible with the M1,
and with a delivery schedule relatively much more favorable than present production of the M1. A brief description of the M2 rifle is attached. Complete drawings
and details are available for thorough inspection.
The M2 was designed and developed by

John D. Pedersen one of the ablest professional gun
designers in the country.
The Proposal:

To deliver to the Ordnance Department

M2 Rifles as follows:
(1) New models incorporating the most
improved features of the magasine system

and "en bloc" clip and the gas operated

rotating breech bolt using 30. Cal. car-

tridges. These models to be completed
within six months of the authorisation
to proceed.

311

-2-

(2) Upon approval of models by the proper
authorities of the U. S. Government

we will solicit orders for deliveries
as follows:

The first 125,000 at $100,00

each deliveries to begin within eight
months after receipt of order.

Within 13 months after receipt
of order deliveries to be made at the rate
of 1,000 per day. Within 16 months after
receipt of order, 125,000 will have been
delivered.

(3) At any time during the delivery of the original
order for 125,000 rifles, the production can
be increased to 5,000 rifles per day or more
in 12 months from the date of an additional
order and at prices to be negotiated at the
time. Such increase is predicated upon
adequate volume of orders to warrent the
additional equipment required.

The above delivery dates are based
upon the rifle design and model as approved,
and are contingent upon deliveries to us of
certain additional machine tools also suitable

priorities in tool work, after receipt of the
original order for 125,000 rifles.

PAYMENT:

Cash advances with order of 30% of

the total purchase price -- balance at stated periods

to be determined.

In lieu of cash payments we will accept

in full payment for the 125,000 rifles originally ordered 1,000,000 Lee Enfield Rifles ( U. S. Military Rifles Model

1917) now obsolescent in the hands of the War Department -

provided the said 1,000,000 rifles with bayonet, scabbard

and sling constituting a rifle unit, are released immediately
for transfer to British interests.

As a figure has been established by the
War Department of $12.50 for each rifle unit, we will agree
to deposit in escrow as a guarantee of performance and

312

-5-

delivery of satisfactory models for testing, the sum
of $12,500,000., when 1,000,000 Lee Enfield Rifles
( U. S. Military Rifles Model 1917) have been delivered
to us. When the M2 models have been delivered, tested,
and approved certain percentages of this amount shall
be released from escrow from time to time to the National
Arms Corporation, all to be set forth in formal contract

between the Government of the United States and the
National Arms Corporation.

The executive organization of the
National Arms Corporation is to be headed by Mr. John
E. Otterson, former President of Winchester Repeating

Arms Co.

The engineering activities of the
Corporation will be in charge of Mr. John D. Pedersen
former head of Engineering and Design of the Remington

Arms Corporation.

Description of plant, equipment and

available facilities will be furnished in detail upon

request.

Yours very truly,
NATIONAL ARMS CORPORATION

President

fts/vs

313

January 27, 1941

Dear General Miles:

I have been receiving from you, up
to January 23rd, weekly reports of British,
Allied and neutral shipping losses.

I shall not need this information in
the future as I am getting it from the Navy
Department.

With my thanks for your kindness,
Yours sincerely,

General Sherman Miles,

Acting Asst. Chief of Staff, G-2,

War Department,

Washington, D. C.

314

January 27, 1941

Dear General Miles:

I have been receiving from you, up
to January 23rd, weekly reports of British,
Allied and neutral shipping losses.

I shall not need this information in
the future as I am getting it from the Navy
Department.

with my thanks for your kindness,
Yours sincerely,

General Sherman Miles,

Acting Asst. Chief of Staff, G-2,

War Department,

Washington, D. C.

315

January 27, 1941

Dear General Miles:

I have been receiving from you, up
to January 23rd, weekly reports of British,
Allied and neutral shipping losses.

I shall not need this information in
the future as I am getting it from the Navy
Department.

with my thanks for your kindness,
Yours sincerely,

(Signed) H

General Sherman Miles,

Acting Asst. Chief of Staff, G-2,

Mar Department,

Washington, D. C.

316
WAR DEPARTMENT
WAR DEPARTMENT GENERAL STAFF
MILITARY INTELLIGENCE DIVISION G-2

WASHINGTON

I.B. 11

G-2/2267-115

January 23, 1941

MEMORANDUM FOR THE SECRETARY OF THE TREASURY:

Subject: British, Allied and Neutral
War Shipping Losses.

The following is a tabulation of British, Allied

and neutral shipping losses for the week of January 12, 1941:
Gross
Number

British

9

Allied
Neutral
TOTAL

Tons

30,226

0

0

0

0

9

30,226

C Quiles
SHERMAN MILES,

Brigadier General, U. S. Army,

Acting Assistant Chief of Staff, G-2.

fk

Thank general unites

and
say
I
will
not
had this information

langer
as IHim
am/ getting it
Hem
the many

317

I.B. 11

G-2/2267-115

January 23, 1941

MEMORANDUM FOR THE SECRETARY OF THE TREASURY:

Subject: British, Allied and Neutral
War Shipping Lessee.

The following is a tabulation of British, Allied

and neutral shipping losses for the week of January 12, 1941:
Gross
Member

Tena

British

9

30,226

Allied

0

0

0

0

Neutral
TOTAL

9

30,226

SHERMAN MILES,

Brigadier General, U. S. Aray,
Acting Assistant Chief of Staff, G-2.

fk

318
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 25. 1941

:

JAPAN

RUSSIA

SPAIN

GREAT BRITAIN

ROLEUM PRODUCTS

al and Gas 011 (including
Diesel 011)

98,200 Bbls. 16,500 Bbls. 41,000 Bbls. 117,809 Bbla.

rude -

Blended or California
High Octane Crude*
All Other Crude

--

--

--

--

--

--

----

----

--

-

--

3,780 Bbls.

asoline -

Gasoline **
Gasoline B*

All Other Gasoline

--

25,238 Bbls.

----

ricating 011 -

Aviation Lubricating 011***
All Other Lubricating 011

11,087 Bbls.

55,000 Bbls.

90,243 Bble.
323 Bbls.

6,000 Bbls.

--

--

--

--

--

--

--

--

mber 1 Heavy Melting Scrap

--

--

--

6,030 Tens

1 Other Scrap

--

--

--

21,077 Tens

straethyl Lead***

Boosters". such as IsoOctane, Iso-Hexane, or
Iso-Pentane
P IRON AND SORAP STEEL

ce of the Secretary of the Treasury, Division of Research and Statistics.

January 27, 1941.

Ce: Office of Merchant Ship Centrol, Treasury Department.

Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrecarben or hydrocarben

mixture - President's regulations of July 26, 1940.

Aviation Gasoline.

As defined in the President's regulations of July 26, 1940.

319
Jan. 27, 1941

Prepared by Mr. Kuhn and Mr. Foley for Senator George to

deliver over the National Radio Forum program of the
Washington Evening Star, 10:30 p.m., January 27, 1941.

320

I speak to you tonight as the new chairman of the Senate
Foreign Relations Committee, but I think I can claim to be an
old hand, with almost nineteen years of Senate experience, at
judging the thoughts and the wishes of average Americans. Some-

times it is not easy to judge what the majority of our people want.
There is every sign, however, that the present policy of our Government is supported with as much unanimity and understanding as any
rational person could expect. The American people have made their

wishes clear, overwhelmingly clear. They have shown that they want

to rush all possible material help to England, so that the oceans
can be held in friendly hands, so that war can be held away from
our shores, and so that we may gain time to build for ourselves an
impregnable defense on every front.
I mention those deeply-felt purposes of the American people
because I think they have been obscured in the public debate over

the so-called Lend-Lease Bill now before Congress. There is nothing

mysterious about this legislation. Its clear intent and its certain
effect are to do what the American people want done. It proposes

to do these things simply, sensibly and efficiently. It is, in my
opinion, a good bill and represents a sound policy. It is also my
considered view that the bill is fully authorized by the Constitution,
and that it is in complete accord with established principles of
international law.

321

-I need not tell you that the bill has been subjected to
criticism by certain persons, and, in order that you may be in a

position to evaluate that criticism better, I want to explain to
you exactly what the bill is designed to accomplish. I want also
to show you that the bill and its purposes are in full accord with
our constitutional and international practices since the foundation
of our Government.

I sincerely believe that the enactment into law of the
Lend-Lease Bill is the most effective step open to us today to
prevent the involvement of the United States in the wars now
being waged in Europe, Asia and Africa. The Lend-Lease Bill seeks
to insure us against involvement in those wars by authorizing the

Executive to give material aid to those friendly nations whose continued independent existence is necessary for our vital defense.

Thus, the bill authorizes the President to manufacture in
our government arsenals and navy yard, as well as in privately
owned factories, weapons and war materials for those nations whose

defense the President deems vital to the defense of the United

States. It also authorizes him to sell, lease, lend, or otherwise
dispose of weapons to such countries. We all recognize that a

nation engaged in warfare of the modern kind often requires facilities
for repairing and testing and outfitting its own weapons of defense,

such as a battleship. Thus, it may be that a warship is injured on

322
-3the high seas, far from her home port. Unless she can be repaired and

again placed in service, she may be a total loss so far as her useful-

ness in the war is concerned. This bill authorizes the President to
assist nations, in whose defense we ourselves have a defense interest,

by permitting the repair of such vessels and other defense articles
in the United States.

The bill will materially expedite the flow of military
assistance to Great Britain. It is important at this time to eliminate
any friction or confusion in the procurement and production of weapons

for ourselves and for the democracies. This bill aids in the accomplishment of that purpose by giving to the President power to funnel
our own orders and those of Great Britain through one agency. We want

to place the President in the position where he has authority to run
the aid to Britain and the national defense program on an efficient
and business-like basis.

I do not mean to say the bill contains no limitations on
the broad powers which it gives to our Commander-in-Chief. There

are limitations. Thus, for example, the Lend-Lease Bill provides
that when war materials or defense information are made available
to a foreign government that foreign government must undertake that

it will not transfer such articles or information to any other foreign
power without the consent of the President of the United States.
Furthermore, the Congress of the United States has no

intention of abdicating by passing this bill. Ours is historically

323

-4a government of checks and balances. While the Constitution makes

provision for the exercise of vast powers by the Executive, it also
wisely provides for methods of checking those powers by the Congress

if they should be the subject of abuse. The Congress is desirous
that information regarding what defense articles and defense

information is exported under the authority of this bill should be
gathered together in one place, and provision is made in the bill
for that. Furthermore, the exercise of many of the powers granted

under this bill will require funds, and the Congress reserves for

itself its constitutional authority to grant funds. This bill makes
no appropriation.

The other provisions of this bill are largely administrative,
and I doubt that even the most ardent critics of the bill have any
objection to them. I should mention, however, that the bill does
empower the Secretaries of War and Navy to purchase and acquire

arms, ammunition, and implements of war in foreign countries whose

defense the President deems vital to our defense. If the Dutch have

tin which would be of importance to us militarily, I take it that we
are all agreed that the Executive branch of the Government should
have the widest powers to buy it.

I realize, as every responsible legislator does, that in the
give and take of debate and hearings, new points of view and new con-

siderations are brought out. That, I might add, is how a democratic

324
-5. -

government functions. I should be the last to say that debate and
consideration cannot bring forth need for some amendments to this

bill. We must be tolerant, and we must consider all points of view.
You may rest assured that if an improvement in the bill is suggested

in the course of the debates or hearings, it will be incorporated.
It has already been suggested that an amendment be added

80 as to make it clear that the bill does not authorise the use of
American vessels to convey ships to Great Britain. It has also
been suggested that Congress place some limitation on the time during

which the Executive may exercise the powers granted to it in the

Lend-Lease Bill. Some students of the bill in Congress feel that
provision should be made for periodical reports by the Executive to
the Congress, in which the Executive would explain and report what

it has done pursuant to the bill. Those are constructive suggestions
and I promise you that they will receive the most earnest consideration of the Foreign Relations Committee. At the same time we must be
careful to guard against emasculating amendments that would scuttle

the bill and block the achievement of its great purposes.
Among those who have been most vocal in their opposition

to this bill are those who purportedly base their opposition on
constitutional grounds. No one could be more jealous of the

Constitution than I am. Nevertheless, I am fully convinced that this

bill is entirely authorised by the Constitution. In Article II, section 2,

325
-6of the Constitution, it is, of course, specifically provided that
the President shall be the Commander-in-Chief of the Army and Navy.

As long ago as 1799. the great John Marshall stated that the

President is the sole organ of the nation in its external relations
and its sole representative with foreign nations. The provisions
of the bill which I have been discussing with you are obviously
connected with both our foreign relations and with the functions of
the Commander-in-Chief of the Army and Navy. The Constitution pro-

vides in Article I, section 8. that the Congress shall have power to
make all laws which shall be necessary and proper for carrying into

execution all powers vested by the Constitution in any officer of

the United States. This bill, therefore, is certainly concerned
with a field in which Congress may legislate.
But there has been some talk that this bill involves an
unconstitutional delegation of power. In 1936, the Supreme Court

of the United States had before it the Curtiss-Wright Corporation
case. The opinion for the Court was written by the Honorable

Mr. Justice Sutherland. Even the opponents of this bill would
acknowledge that Mr. Justice Sutherland was a strict constructionist

where the Constitution was involved. But in the Curtiss-Wright case,

the Court specifically held that where the external relations of the
United States are concerned, the ordinary rules concerning valid delegation

of power do not apply. Let me read to you from the opinion of the
Court -

326

-if, in the maintenance of our international relations.

.

.

embarrassment-perhaps serious embarrassment--16 to be avoided and

success for our aims achieved, congressional legislation which is to
be made effective through negotiation and inquiry within the international field must often accord to the President a degree of
discretion and freedom from statutory restriction which would not
be admissible were domestic affairs alone involved." And I might

call the attention of some of those critics who base their objection
on constitutional grounds to the Joint Resolution of June 15, 1940,
the 80-called Pittman Resolution, which authorised military and naval

aid to our sister American republics. That Joint Resolution gives the
President the power, in his discretion, to do many of the same things

covered by the present bill. The present bill limits the President's

discretion by requiring his actions to be in the interests of the
national defense and by requiring that the country assisted be one

whose defense is vital to the defense of the United States. May I
emphasize that the Pittman Resolution passed the Senate of the
United States on May 28 without even a record vote. And one opponent

of the present bill in the House of Representatives objected to
the Pittman Resolution. although voting for it, on the ground that
the Pittman Resolution did not go far enough. So much for the

constitutional aspects.

327

-8- The Lend-Lease Bill has also been attacked on the ground

that it authorizes violation of international law. The Supreme
Court has said, of course, that the law of nations is part of our
law, and I should never recommend for enactment a bill which I

thought violated the law of nations. But it is a strange law of
nations that does not permit a nation to defend itself. I believe
that most of those who oppose this bill on the grounds of international law have not given the matter sufficient investigation.
It has been said, for example, that the Lend-Lease Bill violates
the Thirteenth Hague Convention of 1907 on the Rights and Duties

of Neutral Powers in Naval War. Those critics, apparently, have
overlooked Article 26 of that Convention, which specifically provides
that the Convention does not apply unless all the belligerents are

parties to the Convention. At least four of the belligerents in
the present war in Europe never ratified the Thirteenth Hague Convention.

It is a fundamental rule of international and domestic law
that both parties must obey the same rules. If one country violates
the basic laws it cannot claim with unclean hands that another

country should follow less basic laws, to its own destruction.
Furthermore, Germany and Italy were soleanly bound with the

United States to observe the terms of the Kellogg-Briand Peace Pact.

328

-9In becoming parties to the Kellogg-Briand Peace Pact, Germany and

Italy pledged themselves to renounce war as an instrument of

national policy in their relations with the other signatories.
Poland and Greece were signatories. So also were Norway, Belgium,

and The Netherlands. So was the United States. Can it be denied
that Germany and Italy have violated the Kellogg-Briand Peace

Pact? It is the considered opinion of the best international law
authorities that the violation of the Kellogg-Briand Peace Pact
by one signatory gives to all the other signatories the power to:
"(a) Refuse to admit the exercise by the State
violating the Pact of belligerent rights, such as
visit and search, or blockade, etc.;
"(b) Decline to observe towards the State violating the Pact the duties prescribed by International
Law, apart from the Pact, for a neutral in relation
to a belligerent;

"(c) Supply the State attacked with financial
or material assistance, including munitions of war;
"(d) Assist with armed forces the State attacked."
These, I might remind you, are the interpretations of the
Kellogg-Briand Pact made by a conference of the world's foremost

international lawyers which met in Budapest in 1934.

I think we may safely say, therefore, that the actions permitted to be taken by the Lend-Lease Bill will in no way violate
international law if exercised against the Axis powers.

329
- 10 We have a clearly formulated policy of national defense and

the conduct of international relations, and that policy is plainly
based upon the interest and welfare of the United States. But national
defense and national self interest, to my mind, demand far more than

just keeping this country or this hemisphere safe from actual military

invasion. I am not much afraid of military invasion in the near future,
nor do I believe for one moment that the people of these free United

States will permit the other kind of invasion -- the invasion of hateful
ideas spread by the agents of foreign tyrannics. The most direct danger
that faces us as Americans is the danger that other countries as free as

our own may not survive. The most direct danger is that those free
countries may be swallowed up by the forces of darkness, and that we shall

be left alone and friendless in a world ruled by the powers of evil. If
Great Britain and other free countries should go down, for lack of the
help that we can give, there would be created in our country such economic

and social tensions, as well as such military peril, that our lives and
our children's lives as free men might well become impossible. We have

it in our power to see that the other free countries do not go down. Te
have it in our power to send them material support, in such overwhelming

strength, that they will survive and win. This Bill, I firmly believe,
provides the key to the kind of future which we want for ourselves. To
can turn the key without departing from the traditional American form
of Government, without abrogating any provision of the Constitution or

any principle of international law, and without becoming involved in

330

- 11 -

any inevitable war. This is our opportunity, one of the greatest
that has come to us in our history as a nation. I devoutly hope
that the Congress and the American people will seize the opportunity to safeguard America's future by the speedy enactment of

this Bill.

331

January 27, 1941

My dear Cordell:

On January 8th you asked me to give
you over the week-end to study the Executive

Order which would freese all foreign funds.
I gladly consented to do this.

I an really terribly worried that

we have not fromen German, Italian and Swiss

funds. At your convenience, I would like
very much to have a heart-to-heart talk
with you on this subject, and see if we can
not arrive at a meeting of minds as to what
course to pursue in these most difficult
times.
Yours sincerely,

Henry
Honorable Cordell Hull,
Secretary of State,

Washington, D.C.

Envelope marked

fidential

By Messinger 505

332

THE SECRETARY OF STATE
WASHINGTON

January 27, 1941

Dear Henry:

Thank you very much for your letter of January

twenty-fourth enclosing a copy of your letter to the
President regarding the purchase of Russian machine
tools.

I am very glad to have it and especially to
learn that my associates here have been able effectively to cooperate with the Liaison Committee.
Sincerely yours,

The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

333
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 27. 1941.
TO

FROM

Secretary Morgenthau
Mr. Cochran

CONFIDENTIAL

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

$36,000
112,000

The Federal
Reserve Bank of New York sold 10,000 in registered sterling to a
non-reporting
bank.
were as Open
follows:market

sterling remained at 4.03-1/2. Transactions of the reporting banks

Sold to commercial concerns
Purchased from commercial concerns

19 8,000

111,000

The Canadian dollar, which recovered on Saturday from Friday's low of 17-1/2%
discount, had a weaker tendency today. As against Saturday's closing discount of
16-5/8%, today's final rate was 17-1/8%

Trading in Swiss francs was at a virtual standstill after several Swiss banks
cabled New York banks this morning that they would supply Swiss france against dollars
at rates between .2321-1/2 and .2325 provided the Swiss france were used for strictly
commercial purposes. On that basis, the New York banks offered Swiss france at rates
ranging
from .2340 at the opening to .2327 at the close, but little business was
reported.
Two other European currencies, the Swedish krona and Portuguese escudo,

displayed strength in today's market, although very few dealings were recorded. The
Irona, which has remained in the neighborhood of .2386 for some time, rose to .2390 by
mid-afternoon, and closed at .2389. The escudo advanced to .0402 at the close, as
compared with the former prevailing rate of .0400-1/2. It is possible that the NewYork
banks raised their quotations for these units in the belief that foreign holders of
dollars, unable to convert to Swiss france unless for commercial usage, would become

buyers of other currencies.

Closing quotations for the other currencies were:
Reichamark
Lira

Argentine peso (free)

Brazilian milreis (free)
Mexican peso
Cuban peso

Chinese yuan

.4005
.0505
.2375
.0505
.2066

7-3/4% discount
.05-1/2

There were no gold transactions consummated by us today.

334
-2-

No new gold engagements were reported.

The Federal Reserve Bank's report of January 22, listing deposits of banks in
Asia with the New York agencies of Japanese banks, showed that such deposits totaled
$116,260,000, an increase of $12, 840,000 since January 15. Most of the change in
deposits took place on the books of the Yokohama Specie Bank's New York agency. The
latter's
liabilities
to and dollar claims on Japanese banks in Asia
stood
asprincipal
follows ondollar
January
22:
January 22

Change from January 15

Liabilities: Deposits for Japan & Manchuria
$67,663,000
Deposits for China
37,046,000
: U.S. Treas. bills, comm. paper, etc. 30,631,000

+ $12,833,000

"

: Loans

Claims

Other - mainly Jap. import bills.

$47,526,000
18,913,000

+

-

67,000
852,000

+ $ 9,796,000
+

3,647,000

:

If

The last three categories refer mainly to Japanese banks in Japan and Manchuria, It
will be observed that the $12, 833,000 increase in deposits of such banks was accompanied
by & substantial rise in the Yokohama agency's loans.

The Bombay gold price was 24 lower at the equivalent of $34.00. Silver was

priced at the equivalent of 44.76 off 1/8

In London, the prices fixed for spot and forward silver were both 1/16d higher,

at 23-5/16d and 23-1/4d respectively. The dollar equivalents were 42.33$ and 42.214.

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 four purchases of silver totaling 475,000 ounces under the Silver
Purchase Act. Of this amount, 200,000 ounces represented a sale from inventory, and
the remaining 275,000 ounces consisted of new production from foreign countries, for
forward delivery.

CONFIDENTIAL

335
Seig has seen
FEDERAL RESERVE BANK
OF NEW YORK

January 27, 1941.

Dear Mr. Secretary:

At the request of Under Secretary Bell, I am writing you to explain
what appear to me to be the principal reasons for the manner in which the market reacted to the current offering of National Defense notes, both in respect
to the volume of subscriptions received and to the market price.

First, let me enter a disclaimer. The reception of the note was the
resultant of all of the various forces existing in the investment market over
the whole country. In times such as these, certainly, it is impossible to tell
in advance exactly what this resultant will be, and even in retrospect not all

of the factors can be ascertained. My best judgment, based on a study of the
available factors and on reports from the market, is that the principal reasons

for the decline in volume of subscriptions, and the initial disappointing price
quotations were the result of the following:
1. Because of the general condition of the market and the
action in the market of the December issue of National
Defense Notes, it had been expected that subscriptions
to the new issue would be smaller, and allotments larger,

than for the previous issue. This expectation appears
to have fed on itself, causing the subscribers to pare
their subscriptions further than had been contemplated,
on the day of the offering.
2. This was especially true of those groups of subscribers
which may be said to have a speculative interest, rather
than an investment interest in an offering of this type.
A note of this rate and maturity was known to have a
relatively limited investment market - primarily in the
larger banks of the country. Those who were subscribing
to sell, therefore, cut down their subscriptions substantially and seem to have wanted to sell out quickly
at any price above par.
3. The larger banks, which in considerable part are the
final holders of such notes, on the other hand, in this
sort of a market and with the uncertainties surrounding
future government financing and the course of interest
rates, would not push up the market, reaching for notes,
of course.

4. A special factor may have influenced the action of such
buyers as savings banks and insurance companies in so far

FEDERAL RESERVE BANK OF NEW YORK #2.

Hon. Henry Morgenthau, Jr.

1/27/41.

336

as they do not buy for a quick turn, namely, the expectation that some special kind of government securities

which are particularly fitted to their needs will be
part of the government's major financing program.

5. Finally, and covering in all of the above, the uncertainty which exists as to future monetary and fiscal
policies in relation to the known magnitude of the

problems involved.

To my mind, the situation becomes clearer if reviewed in the light
of the events of the past few months, which I trust you will permit me to do.
Going back only to last Autumn, there was at that time & very substantial
potential demand for investments. Primarily, this was the result of the continuous refunding of securities and loans at steadily declining rates which,
in the absence of any substantial increase in the demand for bank loans,
necessitated larger purchases of securities in order to meet earning requirements. The fact that investors could not afford to dispose of income producing
assets also accounted for the limited supply of securities in the market. Even
though many investors remained out of the market, either expecting a rise in
interest rates owing to the large amount of financing necessary to cover the
large appropriations by Congress and the inevitable huge deficit of the Government or awaiting the results of the National election, there were some who did
not feel justified in deferring purchases and the demand from this source was
in excess of the supply.
The reelection of the Administration in November was regarded by
many as an assurance of the continuation of low interest rates and this was
immediately reflected in buyers entering the market. Substantial widespread
buying at that time was augmented as a result of your statement, on the second
day following election, that you would request Congress to eliminate the tax-

exemption privilege appertaining to Federal and other securities. During this
period there was an abrupt rise in Government security prices although sales
from the System Account tended to prevent a disorderly market. Notwithstanding
the sharp rise in prices, the market, for the most part, remained thin and the
upward trend in prices was accentuated later by your decision to postpone the
refunding of the March 15, 1941 maturities, and to confine new financing to
short-term issues under existing National Defense legislation pending further

action by Congress. The high peak of the market was reached on December 12,
and after temporarily declining nearly reached the peak again on December 30

since when, with the exception of a few rallies, prices have drifted lower in
a thin market, giving up a large part of the gains made since election. Although
some reaction to the sharp rise in prices since election might naturally have
been expected for technical reasons, the decline seems to have been more closely
related to other factors of a more fundamental nature.
Since the turn of the year developments in Washington have caused in-

vestors to give serious thought to the financial problems which face this
country for national defense. The principal events that brought about this
situation were the Federal Reserve System's report to Congress, and the more
definite announcements of the huge amount of Treasury financing necessary for

RESERVE

BANK

OF

YORK

#3.

Hon. Henry Morgenthau, Jr.

337
1/27/41.

national defense and the refunding of maturing securities. Both factors

resulted in a good deal of uncertainty among investors as to the have
fiscal policies under which the National Defense program will be carried monetary and

Although the Federal Reserve System's report to Congress resulted in out. selling, which had a disproportionate effect on prices, its principal effect, some
far, appears to have been an accentuation of the tendency of investors to stand so
aside. At least equally as important in this respect, however, has been the
apparent unwillingness of investors to enter the market pending clarification
of the manner in which Defense financing in the market is to be handled.

Our contacts with investors, both directly and through the dealers,
clearly indicate that on all sides people wish to do their share in the financ-

ing of the National Defense program, and that largely, they expect such financing to be done at low interest rates, although not so low as in the past few
months. However, in addition to the over-all program, they would like to be
advised more specifically as to what portion of the deficit will be
savings securities and market

with
of special market issues, securities, whether financed offerings securities will come in rapid succession, and whether some fixed
level of rates for defense financing is in mind. Moreover, the insurance com-

panies and savings banks have been led to believe by news items that some kind
of a long-term security might be offered to them which would be suitable for
their requirements at better than existing market rates and in greater volume
than by subscription to public offerings. Consequently, and with some supply
of corporate securities recently available, such institutions have been content
to stay on the sidelines with respect to Government securities, until the
Treasury's deficit financing plans were better known.

The aforegoing will, I trust, help to explain the reasons for the

general lack of demand in the market since the beginning of the year for outstanding issues of Government securities and for the new issue of Defense
notes. One important exception to this situation has been on the part of a
few large banks, mainly in New York City, which, not including the current
issue of Defense notes, have increased their holdings of direct and guaranteed
obligations by $145 million since the beginning of the year. Although these
purchases consisted mainly of short-term obligations, they undoubtedly were
somewhat of a restraining influence on the recent decline in prices. Another
point which seems worthy of mention is that, generally, banks outside of the

large cities, owing to the nature of their deposits, are not interested in
holding the lower interest-bearing securities. It is generally believed in

the market that a large part of the Defense notes issued last December have
drifted back to New York, although a few cases have been reported of country
banks subscribing to and holding the Defense notes for patriotic reasons.

With investors either on the sidelines or cautiously feeling their
way along, pending clarification of the country's future monetary and fiscal
policies, it was generally expected in the market that the reception for the

new issue of Defense notes would be less enthusiastic than for the issue last
December. That the curtailment of subscriptions was general, although with
significant variations, is reflected in the attached statement showing a com-

parison, by groups, of the subscriptions received in this district to the two

#4.

Hon. Henry Morgenthau, Jr.

FEDERAL RESERVE BANK OF NEW YORK

1/27/41.

338

issues of Defense notes. With respect to the market price for the new issue,

on January 23, the day on which the terms of the new issue were announced,
the market estimated that the new Defense notes should sell at a premium somewhere between 3/8s and 5/8s of a point. However, as the day progressed these
estimates were revised downward as reports were received in the market, directly
from subscribers that, in many cases, subscriptions were either being entered

for smaller amounts than usual or not being entered at all owing to the possibilities of a small market premium. By the close of the day, market estimates
for the premium were lowered to around 1/8 to 1/4 of 1% and this figure was
further lowered before the opening of the market the next morning when allot-

ments to be made on a substantial amount of subscriptions reached the market

for sale. Initial market quotations were 100.2 bid, 100.4 asked, and since then
the new notes have sold as high as 100.6. Buying interest has been concentrated
in several large banks. The fairness of the pricing of the note is evidenced,
I think, by the willingness of some of the large banks and dealers to purchase
substantial amounts of the new note in addition to the allotments they expected

on their subscriptions. I should not be surprised if the new note takes its
place
close
to the
estimates
level of
prices
and
interest unless
rates. and until there is some change in the general
You may have noticed that there have been reports in the press that
increased pressure against the practice of "free-riding" was partially responsible for the decline in subscriptions. Our attempts to eradicate this speculative practice have become more successful with the amplification last summer of
the required certification. As you know, the leading dealers have cooperated

in this effort, believing that the elimination of dealing in subscriptions prior
to the closing of the books was in the interest of all concerned. This, I under-

stand, has been your position as well as ours for some years. The informal
organization of dealers, which recently was enlarged to include all investment
houses with whom dealing in Treasury securities is a principal concern, were

fully back of this effort in this issue, with the result that many free-riders

did not enter subscriptions.

Faithfully yours,

Roberts
Roun
Robert G. Rouse,

VER

Vice President.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.
Enc.

S8 W 28

339
VOLUME AND NUMBER OF SUBSCRIPTIONS RECEIVED TO CURRENT OFFERING OF 3/4% TREASURY

NOTES SERIES D-1944 COMPARED WITH OFFERING OF 3/4% TREASURY NOTES SERIES B-1945
DATED DECEMBER 18. 1940

Group No.1
Number of

Trust Companies

Items

their own account

Percentage

Decline

641

Recember offering

555

January

Decrease

86

13.4%

Amount

Subscribed

Percentage
Decline

$906,510,800
717,880,700
188,630,100

20.8%

Group No. 2

lers and Brokers
228

December offering
"

January

41.6

217,566,000
159,515,000
58,051,000

26.7

63.5

65,747,200
22,054,500
43,692,700

66.5

18.6

240,683,000
143,377,000
97,306,000

40.4

51.8

281,120,000
104,380,000
176,740,000

62.9

69.2

97,885,000
40,500,000
57,385,000

58.6

133

Decrease

95

Group No. 3

Individuals
ecember offering

288

January

105

"

Decrease

183

Group No. A

Sivings Banks

December offering

113

"

January

92

Decrease

21

Group No. 5
surance Companies

December offering

54

January

26

.

Decrease

28

Group No. 6

financial and investment corps.
lading personal holding companies)
December offering

52

January

16

-

Decrease

36

Group No. 7

rations organized for profit,
than those separately classified
December offering

63

January

36

Decrease

27

126,346,500
42.9

46,330,000
80,016,500

63.3

Group No. 8

Trust Accounts
December offering

52,342,800

192

January "

11,455,900

61

Decrease

131

68.2

40,886,900

78.1

32.4

65,171,000
45,076,000
20,095,000

30.8

Group No. 9

All Others
December offering

74

January .

50

Decrease

24

RECAPITULATION OF CHANGES

Number of Items

Group No. 1 Decrease

86
95

2

183

3

.

28

-

4

.

36

7-

"

27

8-

.

-

6

"

9-

Total

21

.

5-

131
DELLE
24

631

Amount Subscribed
$188,630,100
58,051,000
43,692,700
97,306,000
176,740,000
57,385,000
80,016,500
40,886,900
20,095,000
$762,803,200

340

February 3. 1941

Dear Deb:

Just before the Secretary left
for a week's vacation he asked no to answer

year letter of January 27. 1941. and to

thank you for the very full report on the
recent financing. Ba appreciates the trouble
you have taken to prepare these data.
Sincerely yours,

s DAN

Mr. Rebert Reuse,

Vice President,

Federal Become Seak,

New York, N. Y.
DUS:ELE

341
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE January 27, 1941
TO

FROM

Mr. Morgenthau
W. H. Hadley
TREASURY BILL OFFERING

Aver. on 1st 100
mil. recd, NY & Chi.
91-day bills

100.

Aver. 1st 100 mil.
NY & Chi,last wk.

Aver. price for

100.002

100.+

country last wk.

Total tenders
recd. NY & Chi,
$211,527,000

1-27-41

342

To take home
own
Extract from the 1942 Budget

The Defense Program and Defense Expenditures

Sixty-two percent of the expenditures proposed in this Budget are
for national defense. No one can predict the ultimate cost of a program
that is still in development, for no one can define the future. When
we recall the staggering changes in the world situation in the last six
months, we realize how tentative all present estimates must be.
These expenditures must be seen as a part of a defense program

stretching over several years. On the basis of the appropriations and
authorizations enacted for national defense from June 1940 up to the
present time, plus the recommendations for supplementary appropriations
and authorizations for 1941 and the recommendations contained in this
Budget for 1942, we have a program of 28 billion dollars.

This is a vast sum, difficult to visualize in terms of work actually

to be done. If we can prove that we are able to organize and execute
such a gigantic program in a democratic way, we shall have made a positive
contribution in a world in which the workability of democracy is
challenged.

This defense program is summarized below:

Appropriations, authorizations,
and recommendations (June
1941, 1941, 1942)

(In millions of dollars)
Army

$ 13,704

Navy

11,587

Expansion of industrial plant

1,902

Other defense activities

1,287

Total

28,480

343

January 27, 1941

1/27/41

Inhad
me itClay
called and said
he
on authoritative
source
that Senates
Vandenling
would CROSS
- examine
the

Secretary Due senator has
been designated to each
Secretary Senator randenling

has been working for 3
days on an an alyosis of

the Butiva figures He

will especially can centrate
on the dis crepanders between

Treasury - Federal Reserve-

Commise
figures
British balan
asonIt will
be a comprehensing hearing
me
Clay
he hand
this
from
thesays
"horsesmonth".

344

DEPARTMENT OF STATE

Washington

In reply refer to
EA 840.51 Frozen Credits/1217

January 27, 1941.

The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and

referring to the Treasury Department's letter of
January 4, 1941, concerning the transfer of funds from
French Government accounts to the account of the Banco

Central de la Republica Argentina for payment to various
Argentine firms for meat and wool products shipped to
France, encloses herewith 5 copies of telegram no. 75
from the American Embassy, Buenos Aires, Argentina,
dated January 25, 1941.

Enclosures:

5 copies, no. 75
of January 25 from
Buenos Aires.

Copied: aja

345

JR

GRAY

Buenos Aires

Dated January 25, 1941
Rec'd 11:12 a.m.

Secretary of State
Washington.

75, January 25, noon.

Reference Department's instruction 581, January 11.

Full report sent air mail yesterday. There is no
doubt in the opinion of the Embassy as to validity and
authenticity of these accounts and release of funds is
recommended to enable payment.

ARMOUR

WSB

Copied: aja

346

PARAPHRASE OF TELEGRAM FROM CALCUTTA,

DATED JANUARY 27, 10 A. M., 1941.

Referring to the telegram from the Department dated November 28,

8 p. m., concerning holders of dollar bank balances, it is understood
that the administration of the regulations has progressed without
causing hardship and without discrimination. Americans permanently

domiciled in India are in theory not exempted from the regulations
but thus far no such cases have arisen.

845.5151/138

Copy:alm

347

No. 36.

His Majesty's Ambassador presents his

compliments to the Secretary of State and
in confirmation of a telephone message given

to Mr. Stewart of the Division of European
Affairs on January 24th, has the honour to
inform Mr. Hull that the Belgian Congo has

been included in the sterling area by a
Treasury order effective January 24th.

BRITISH EMBASSY,
WASHINGTON, D. C.

January 27th, 1941.

mg

COPY

348
This is a copy Mr. Foley took to the 8:30 p.m. meeting at the White House
on 1/27'41 when the President held a meeting with the Congressional leaders
to discuss amendments. The amendments typed on here are copies of those

sent to Mr. Foley by John O'Brien of the House Legislative Counsel. Mr.

Foley accompanied the Secretary to the meeting.

77TH CONGRESS
1ST SESSION

H. R. 1776

IN THE HOUSE OF REPRESENTATIVES
JANUARY 10,1941

Mr. McCorMACK introduced the following bill; which was referred to the Committee on Foreign Affairs

A BILL
Further to promote the defense of the United States, 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,

3 That this Act may be cited as "An Act to Promote the
4 Defense of the United States".
5

6

SEC. 2. As used in this Act(a) The term "defense article" means-

(1) Any weapon, munition, aircraft, vessel, or

7

8

9

10

boat;

(2) Any machinery, facility, tool, material, or
supply necessary for the manufacture, production, proc-

350
349
3
2
1

otherwise dispose of, to any such government any defense

essing, repair, servicing, or operation of any article

1

2

described in this subsection;

2

aragraph

(3) Any component material or part of or equip-

(1)

article, but no defense article not manufactured or procured under
shall 3 in any way be disposed of under this paragraph, except after such
(3) To test, inspect, prove, repair, outfit, recondi- consultation
with the

of

3

4

tion, or otherwise to place in good working order any Chief
Staff of the

ment for any article described in this subsection;

defense article for any such government.

4

5

(4) Any other commodity or article for defense.

(4) To communicate to any such government any

6

5

6 Such term "defense article" includes any article described

7 in this subsection: Manufactured or procured pursuant to

defense information, pertaining to any defense article

Army or the

Chief of
Naval Oper-

stiona of
the Navy as

the Presi-

7

dent may

8 to section 3, or to which the United States or any foreign

8

furnished to such government under paragraph (2) of prescribe.
9

9 government has or hereafter acquires title, possession, or
10

10 control.

11

(b) The term "defense information" means any plan,

12 specification, design, prototype, or information pertaining to

,

any such government.

(b) The terms and conditions upon which any such

13 foreign government receives any aid authorized under sub-

13 any defense article.
14

12

(5) To release for export any defense article to

(

11

this subsection.

14 section (a) shall be those which the President deems

SEC. 3. (a) Notwithstanding the provisions of any

15 other law, the President may, from time to time, when he

15 satisfactory, and the benefit to the United States may be

16 deems it in the interest of national defense, authorize the

16 payment or repayment in kind or property, or any other

17 Secretary of War, the Secretary of the Navy, or the head

17 direct or indirect benefit which the President deems

(c) Neither the President nor the head of any department
18 satisfactory. or agency shall, after June 30, 1943, exercise any of
powers conferred by or pursuant to subsection (a), except to carry out a contract
with
SEC. 4. All contracts or agreements made for the dis- or ment
agree-

18 of any other department or agency of the Government19

19

(1) To manufacture in arsenals, factories, and ship-

such a

20

yards under their jurisdiction, or otherwise procure, any

20 position of any defense article or defense information pur- government
made before

21

defense article for the government of any country whose

21 suant to section 3 shall contain a clause by which the foreign July
(d) Nothing

22

defense the President deems vital to the defense of the

22 government undertakes that it will not, without the consent inshall
thisbe
Act

23

United States.

authorise
23 of the President, transfer title to or possession of such defense construed

1,1943.

to

to

24

(2) To sell, transfer, exchange, lease, lend, or

,

mit the

24 article or defense information by gift, sale, or otherwise, or perof convoying vessels by naval vessels of the United States.

351

352
4

(

5

1 or permit its use by anyone not an officer, employee, or

1 by law, during the fiscal year in which such funds are

2 agent of such foreign government.
(a)

2 received and the ensuing fiscal year.

3

SEC. The Secretary of War, the Secretary of the

3

SEC. 7. The Secretary of War, the Secretary of the

4 Navy, or the head of any other department or agency of

4 Navy, and the head of the department or agency shall in all

5 the Government involved shall, when any such defense arti-

5 contracts or agreements for the disposition of any defense

6 ele or defense information is exported immediately inform

6 article or defense information fully protect the rights of all

7 the department or agency designated by the President to

7 citizens of the United States who have patent rights in and

8 administer section 6 of the Act of July 2, 1940 (54 Stat.

8 to any such article or information which is hereby authorized

9 714), of the quantities, character, value, terms of disposi-

9 to be disposed of and the payments collected for royalties on

10 tion, and destination of the article and information so
(b) The President from time to time, but not less frequently

10 such patents shall be paid to the owners and holders of such
11 patents.

11 exported. than once every ninety days, shall transmit to the Congress
report of operations under this Act except such information as he deems it not comSEC. 6. (a) There is hereby authorized to be appro- patible
12

12

the publi

13 printed from time to time, out of any money in the Treasury

SEC. 8. The Secretaries of War and of the Navy are

terest to di
close. Report

13 hereby authorized to purchase or otherwise acquire arms,

14. not otherwise appropriated, such amounts as may be neces-

provided for
under this

15 sary to carry out the provisions and accomplish the purposes
16 of this Act.

subsection $

14 ammunition, and implements of war produced within the

be transmitt
to the Sec-

15 jurisdiction of any country to which section 3 is applicable,

retary of th
Senate or th

17

(b) All money and all property which is converted

Clerk of the
House of Reg

18 into money received under section 3 from any government

19 shall, with the approval of the Director of the Budget,
20 revert to the respective appropriation or appropriations out
21 of which funds were expended with respect to the defense
22 article or defense information for which such consideration

sentatives,
the case may

17 to be necessary in the interests of the defense of the United
18 States.

be, if the
Sens to or to
House of Reg

sentatives,
the case may

19

SEC. 9. The President may, from time to time, promul-

20 gate such rules and regulations as may be necessary and

is not in
21 proper to carry out any of the provisions of this Act: and he

session.

22 may exercise any power or authority conferred on him by

23 is received. and shall be available for expenditure for the
24 purpose for which such expended funds were appropriated

16 whenever the President deems such purchase or acquisition

,

23 this Act through such department, agency, or officer as he
24 shall direct.

353

354
BRITISH EMBASSY,
WASHINGTON, D.C.

Personal and Secret

January 27th, 1941.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information copies
of the two latest reports received from
London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Henjex

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

Telegram received from London
dated January 25th, 1941
1.

Nineteen ships out of convoy of 22 have

arrived in the United Kingdom from Sierra Leone remaining
three were sunk or damaged by air attack. Cargoes mostly
foodstuffs.
2.

Westbound convoy of 36 shipe has cleared western

approaches.

Italian submarine previously reported at Las
Palmas left there early a.m. January 23rd.
3.

4.

British merchant ship on passage to Durban

reported being bombed a.m. January 24th 300 miles east
of the Seyschelles.
5.

Reference paragraph 6 of operational No. 84.

Two shipe of 1900 and 3800 tone are reported salvageable,

but there is no trace of the others.
6.

Military. Libya. Forward detachments of our

armoured troops are 35 miles south of Bomba and surrounding

Mekili. Enemy rearguard is being engaged astride BombaDerna road ten miles south east of Derna.
7.

Royal Air Force. Eritrea. Fighters of the

South African Air Force shot down one Italian bomber
and damaged two others over Keru on January 23rd.
8.

Home front. Night of January 24 - 25th. Six

Beauforts dropped 3 land mines and several bombs at

submarine base of Lorient. Accurate observation is not
possible.

German Air Force. January 24th. Constal
reconnaissance by single aircraft only. Night of January
24 - 25th. No enemy activity.

9.

356

Telegram from London dated

January 26th, 1941.
Naval.

His Majesty's Ship "Illustrious"
at Alexandria p.m. of January 25th. Two British
cruisers - part of a covering force - were attacked by

1.

German aircraft 80 bombers W.S.W. of Stavanger January
24th without damage.
2.

A British ship (1100 tone) WHB sunk by mine

in Themes %stuary January 24th. Nineteen survivors out
of 22.

Military The garrison of Girabub is estimated
at 1000 Italian and 700 Libyans. They are suffering from
3.

bad water and food shortage.

Kenya. In several areas our patrols are now
well into enemy territory.
4.

5.

Royal Air Force. January 25th and night of

January 25th/26th. No operations of importance.
6.

Mediterranean

On night of January 23rd/24th

our aircraft dropped 21 tons of bombs on Maritza aerodrome.
7.

Libya. on January 24th three enemy landing

grounds in Bengasi area were attacked at one of which two
grounded aircraft were damaged.
On January 24th our bombers attacked
Eritrea.
8.

Bishia railhead hitting station, railway tracks and motor
transport. Our fighters attacked a train on the railway and
army ce-operation aircraft bombed Umm hangar and machine

gunned trenches. One enemy aircraft WAS probably damaged,
another destroyed on the ground and a third damaged on the
ground.
9.

German

Air Force. January 25th. Activity

negligible and confined to single aircraft.
10/

357

10.

Night of January 25th/26th. Only 13

enemy aircraft operating. Soas minelaying suspected.

358
BRITISH EMBASSY,
WASHINGTON D.C.

January 27th, 1941.
PERSONAL AND SECRET.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a

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

Dear Mr. Secretary,

Very sincerely yours,

Halifex

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

359

Telegram from London of the
25th January, 1941.
1.

Nineteen ships out of convoy of 22 have

arrived in the United Kingdom from Sierre Leone
remaining three were sunk or damaged by air attack.
Cargoes mostly foodstuffs.
Westbound convoy of 36 ships has cleared
western approaches.
2.

Italian submarine previously reported at Las
Palmas left there early a.m. January 23rd.
3.

4.

British merchant ship on passage to Durban

reported being bombed a.m. January 24th 300 miles oast

of the Seyschelles.
5.

Reference paragraph 6 of telegram of January 24

Two ships of 1,900 and 3,800 tons are reported sal-

vagable, but there is no trace of the others.
6.
Military.
Libya. Forward detachments of our armoured
troops are 35 miles south of Bomba and surrounding

Mekili. Enemy rearguard is being engaged astride
Bomba-Derna road ton miles south east of Derna.
7.

Royal Air Force.
Kretrea.

Fighters of the South African Air Force shot
down one Italian bomber and damaged 2 others over Keru
on January 23rd.
8.

Home Front.

Night of January 24th/25th. Six Beaufotts
dropped 3 land mines and several bombs at submarine

base of Lorient. Accurate observation is not possible.
/ 9.

360

-8-

9.

German Air Force.
January 24th.

single aircraft only.
No enemy activity.

Coastal reconnaissance by

Night of January 24th/25th.

The

361
RESTRICTED

G-2/2657-220
No. 301

M.I.D., W.D.
January 27, 1941
12:00 M.
SITUATION REPORT

I.

Western Theater of War.

1. Air Force Operations.
Unimportant bombing raids over England and Germany.

Germans continued attacking British shipping claiming several ships
sunk.

II.

Greek Theater of War,

1. Ground. Restricted operations by the Greeks.

2. Air. Bulsa attacked by Royal Air Force and front objectives and Salonika bombed by Italians.

III. African and Mediterranean Theaters of War.
1. Ground:

Libya. British in contact with Italians east and south

of Derna.

Eritrea. Bisha has been captured by the British, who
are moving on Agaradat.

Ethiopia and Italian Somaliland. British operations of
light forces continue.

2. Air: Libya. Royal Air Force bombed landing fields.
3. Naval. Claim made that two other British cruisers were
crippled in January 10 raid and are now being repaired at Alexandria.

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.

CONFIDENTIAL

362

Paraphrase of Code Radiogram

Received at the War Department
at 8:33, January 27, 1941

London, filed 14:15, January 27, 1941.

1. On Sunday, January 26, planes of the British Coastal
Command attacked a German cargo vessel off the coast of Norway.
On the same day and during the preceding night the Bomber Command

engaged in no activities.
2. German air operations over England were limited to raids
on merchant ships in the Thanes Estuary and the North Sea and to

reconnaissance along the coast line. British naval antiaircraft
fire brought down three of the German attackers and there was no

loss of ships by the British.
3. Fighter and bomber planes of the Royal Air Force in the
Middle East cooperated with ground foress and attacked mater Bruse-

port conveys, troop concentrations and Italian drfields.
4. British troops from Kenya have penetrated into Ethiopia

in the vicinity of E1 Tibo (?) and are well across the frontier
of Italian Somaliland. British forces from the Anglo-Egyptian
Sudan have pushed forward in Eritres beyond Agordat and Biscia and
are approaching Gondar.

5. On January 26 the British at Malta probably destroyed
the one German dive bomber that attacked targets on the Island.
During the preceding night an Italian seaplane was captured when

it landed near Malta after having been lost.

CONFIDENTIAL

363

CONFIDENTIAL
6.

The damaged British aircraft earrier ILLUSTRIOUS which

- in harber as Malta has new arrived in Alexandria.

7. The War Office still has no confirmation of the press
reporte of visiting in Milan.
s. A earge vessel bound for Derban, Natal, was beeked 300

miles east of the Saychelle Islands in the Indian Ocean. (0-2
notes probably beenbed by planes from a German raider in this

visinity.) German aircraft attacked a convey of 22 British
mirdant vessals on route to England from Sierra Loans carrying

a earge of foodstuffs and succeeded in sinking three of the
vessels. A British vessel struck a mine in the Thomas Katuray
and sank.
SCANLON

Distributions
Secretary of War
State Department

Secretary of Treasury
MOST. Secretary of War

Chief of Staff

War Pime Division

Office of Neval Intelligence
Air Corps - 2
0-3

CONFIDENTIAL
-2-