Full text of Diaries of Henry Morgenthau, Jr. : Volume 378 : Part 2

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34

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 3, 1941
TO

FROM

Mrs. Klotz
Mr. Morgenthau

I want to write a formal letter to the President
in answer to his where he puts me on his four-man board.

In my letter to the President I want to, in a sense,
resign as his representative with these various foreign
missions. I want to resign as of March 1st, reminding
him that I gave him this memorandum of Phillip Young's

on the Russian situation, and it was agreeable to him

that this be taken up by the 4-man board. I want to trace
what I have done from the beginning when Jean Monnet first

came over here, and I want to point out that from now on

I am willing to share the responsibility with the other
three members because I feel that I cannot any longer take

the sole responsibility on handling these various foreign
purchasing missions. (see meeting

9:00 A.M.and letter dated 3/5/41

35
March 3, 1941
9:00 a.m.
PRESENT:

Mr. Kuhn
Mr. Young

Mrs. Klotz

HM JR: What I want to do is I want to use
this letter from the President on the four-man board to
notify him in a letter that the cash-on-the-barrelhead
era for foreign purchasing has ended, or that era is
coming to an end when he signs the Bill, and I want to
be relieved of that responsibility in order to take on my
new responsibility of the four-man board. Now this is
something like what I have in mind. I'll give you my general
ideas and then you can work it out.

I don't want to slide out and I don't want to
be pushed out. I want to resign; I want to be able to tell
these people I am no longer responsible. I had a terrific
job; I want to terminate it myself. Do you see? I'll give
you an idea of how I think it should be done. This isn't
a plan. I am simply sketching it and you'll do the work.
You can start out this way:
I will be delighted to be a member of the Advisory
Committee to assist the President in administering the Lend-

Lease bill. On the signing of this bill, the cash-on-thebarrelhead era for foreign orders will come to an end.

Beginning with November or December, 1938 (?), the President
sent Jean Monnet to see me to assist him to purchase planes

for France in this country. From that date on, I have served
in a personal capacity as coordinator and nurse for the
French, Chinese, English, Dutch - in all, 15 or 20 various
foreign countries who wished to place their orders here.
The fact that the President asked me to do this I considered
both a privilege, an honor and a labor of love, and all

the difficulties, including an investigation of the Senate,
I have felt have been distinctly worth while. All the

heartaches that I have had have been compensated for by the

fact that I have been able to be of some assistance to
these Democratic countries who have been fighting for the
Democratic principles, and by encouraging them in their
purchases, we were able to put our airplane manufacturers on
a production basis and gain valuable time.

36

-2During this era, I was first ably assisted by
Admiral Peoples and then by his successor, Captain Collins,
but when this work became too big for the Director of Procurement, I brought in Mr. Philip Young, and created a

small section under him to handle this work. This work
has grown so it is not only the contact of the various 20
or 30 purchasing missions, but also assisting them in
blank things.

I have already begun to turn over a part of my
work to Harry Hopkins and, in accordance with the President's
letter of February 25th, I have offered him the assistance
of any one that he needs in the Treasury to get ready to
administer the Lend-Lease Bill.

You see what I want to tell him is that I am
willing to take my share of the responsibility as a member of
this Advisory Committee but I would like to be completely

relieved of my old responsibilities as I feel that the two
are not compatible.

Then you can go on and say that on March 1st

I brought to his attention in the presence of the other

members of this Advisory Committee the problem of the

Russian Purchasing Mission, and he stated that he felt this
came within the purview of this committee. With this in

mind, I would like to turn over all of the work that we

have been doing to the committee to be administered by Mr.
Hopkins, and whatever he decides to do - well, I want him to

know that I am in the process of turning these various things
over to somebody.

I would just like you men to work on that and have
something for me after my press conference. I mean I would

like to take my responsibility which I will have on this

committee, but I want to completely divest myself of the
things I have been doing through this cash era.
Now Phillip said, "Well, what about the people who
pay cash?" Well, I don't know but I don't want to nurse them.
Hopkins thinks one thing can be done with one hand and the

other with the left hand, but I don't know. You two fellows
thrash it out and then come back. Phillip will ruin himself

physically.

37

-3Young: Well, the point I wanted to make was that
the same organization should do both; they should not be
separated physically.

Kuhn: The thing I noticed about the letter was
that you didn't mention anything about the people who still

had the cash to pay for the goods.

HM Jr: Well, as far as that goes, I would like
to be relieved of that, too. I only want the same responsi-

bility under this four-man board that any other member has,

and I want to get rid of this old sole responsibility.
Young: Should be a fresh start.

Mrs. Klotz: I think it serves many purposes. It

is really very smart.

HM Jr: I just want to get that to him. I mean

all the heartaches and everything didn't matter to me; the
job was worth while. I kept off his doorstep this whole
Senatorial investigation about the Frenchman in the plane
smashup, but I don't want anything to leave a bad tone,
you see?

Now this Executive Order which was written on
December 6, 1939:

"I have created an informal committee to
represent the Amn. Government in its contacts with the
interested foreign governments in all matters relating to
the purchase of war materials in the United States, consisting
of the following:
"(a) The Director of Procurement, Treasury

Department; (b) The Quartermaster General of the
Army; (c) the Paymaster General of the Navy.

"This committee will serve as the exclusive
liaison with reference to procurement matters between this
government and the interested foreign governments. It will
hold sessions at least once weekly, and at such more frequent

intervals as may be necessary. At these sessions, it will
receive an accredited representative of the embassy of any
interested foreign government for the purpose of giving

38

4-

consideration to the requirements of such government for sup-

plies, equipment, and materials, in relation to: (a) availability of the desired articles; (b) priorities, and (c)
prices. The committee will submit a complete report of its
proceedings, acts and recommendations, at least weekly to
the President through Mr. McReynolds.

"The Secretary of State has informed the British

and French Ambassadors of this arrangement.

"Will you please inform the Paymaster General of
his designation as a member of this committee."

Young: That's that original order?

HM Jr: It's a letter. You see this is a funny
thing. I have nothing to show that I should be doing this. I

have no official status whatsoever. This letter just created
this informal committee.

Now this one of June 9, 1940, just changes the

Quartermaster General - that's all. It just puts in General
Burns.

Kuhn: There has been no written request to you
to take this thing over from the President?
HM Jr: Nothing.

Kuhn: He just spoke to you about it?

HM Jr: The President's letter put it through
McReynolds.

I lay great stress on this letter. It is terribly

important. I want to review what I have done.

There's nothing in here (letter from the President
dated 12/6/39) telling me to do this. I have nothing. What
I tried to do was to get him to make it through me rather
than McReynolds, but he didn't do it.
Kuhn: Your letter doesn't seem to show that
there will still be some countries paying cash for their
goods, like Canada and the Dutch and others, and then

39

- 5 ..

there will be others coming under the Lend-Lease Bill.
HM Jr: I would like to have something after press

on this. I want to be sure to have that.
(Thereafter followed an informal discussion.)

40

December 6, 1939.

My dear Mr. Secretary:

I have created an informal committee to represent the
American Government in its contacts with the interested
foreign governments in all matters relating to the purchase

of war materials in the United States, consisting of the
following:

(a) The Director of Procurement, Treasury
Department; (b) The Quartermaster General of the
Army; (o) The Paymaster General of the Navy.

This committee will serve as the exolusive limison with
reference to procurement matters between this Government and

the interested foreign governments. It will hold sessions
at least once weekly, and at such more frequent intervals as
may be necessary. At these sessions, it will receive an

accredited representative of the embassy of any interested
foreign government for the purpose of giving consideration to
the requirements of such government for supplies, equipment,

and materials, in relation to: (a) availability of the desired
articles, (b) priorities, and (a) prices. The committee will

submit a complete report of its proceedings, aots and recommendations, at least weekly, to the President through
Mr. McReynolds.

The Secretary of State has informed the British and French
Ambassadors of this arrangement.

Will you please inform the Paymaster General of his
designation as a member of this committee.
Sincerely,
Signed by President
Hon. Charles Edison,

Acting Secretary of Navy.

copy

41

March 3, 1941
9:30 a.m.
GROUP MEETING

Present:

Mr. Wiley
Mr. Thompson

Mr. Gaston

Mr. Sullivan
Mr. Haas

Mr. Stewart
Mr. Graves
Mr. Pehle
Mr. Young
Mr. Kuhn
Mr. Schwarz

Mr. White
Mr. Foley
Mr. Cochran

Mrs. Klotz

H.M.Jr:

Go ahead, Norman.

Thompson:

Mr. Helvering has recommended the reappoint-

ment of William H. Burke as collector in
Kansas. He resigned to run for Governor

of Kansas and has now come back as collector.

H.M.Jr:

What is this I hear about you getting a

Thompson:

A friend of mine in New York sent me one.

H.M.Jr:

I know. Don't we draw lots for it?

Gaston:

Is there just one?

harmonica?

42

-2H.M.Jr:

Don't we draw lots? Phil says he wants it.

Thompson:

O.K. I can't play it, so I will let him

Gaston:

use it.

We had two that were cleared by the proper
channels. One was Burke and the other was

John Bright Hill.

H.M.Jr:

There is only one there.

Thompson:

Yes, Hill is coming along some time in June.

Graves:

I am intending to get in touch with Mr. Lubin

today. I wonder if you would like to talk
to him yourself?

H.M.Jr:

I can't.
(Mr. Foley entered the conference.)

H.M.Jr:

There is a chair up here, Ed. How is the
gasoline supply?

Foley:

O.K. I was here.

H.M.Jp:

Merle Cochran tells me shortly after nine
this morning he got a call from Ray Atherton
in which he says Hull wants us to go ahead
and freeze Belgium.

Pehle:

Bulgaria.

H.M.Jr:

But I would like to do this other thing
all at one time.

Foley:

I would too, and we have got a redraft of
the order and Bernie worked yesterday on

it. We are ready now, and we can call Shea
and Acheson and get together with them as

soon as they are available and get it cleared

43

3-

there, and I think we can get almost as
fast action that way on the larger order which
would include Bulgaria as we could by treating
Bulgaria separately, and I would rather do it

that way if it is agreeable with you.

H.M.Jr:

It is not only agreeable, that is what I

would like. How can we get Atherton and
Acheson together?

Cochran:

I asked Atherton if he knew what the result
was of the meeting on Saturday, and he said

he hadn't seen Acheson.
H.M.Jr:

Do you think it would be good if I called
Dean?

Foley:

Yes.

H.M.Jr:

John Wiley, the point that I am taking, you
see - and see if you think I am wrong or
right - we get word they want us to freeze
Bulgaria. We have an order now - this is

triple confidential in the room - for freezing
all of Europe with the exception of Jugoslavia,

Greece, and Turkey, and Russia.
Foley:

And Spain and Portugal.

H.M.Jr:

Yes. Now, I would like to do it all at once,
you see.

Wiley:

I heard about it last evening from a colleague

H.M.Jr:

If we are going to do it today, don't you
think we ought to do it all at once and not

in the State Department.

in two bites?

Wiley:

Yes. Of course, I think the alternate
may be unfortunate.

44

4H.M.Jr:

Talk louder.

Wiley:

Finland is going to be frozen and the Soviet
Union will not be frozen and there may be
a lot of questions asked about that.

H.M.Jr:

Well, that is unfortunately a minor thing.
Just let's leave it aside for a minute.
Whether the country is right or wrong, but
if the one is going to go through within 24
hours - if it is going to go through in 24
hours, wouldn't it be better to do it in one

bite instead of two, that is all I want to

know.

(Mrs. Klotz entered the conference.)
Wiley:

I don't think it would make a great deal
of difference.

H.M.Jr:

I think it shows - I should think the idea

would be that it shows displeasure on the
part of the United States toward Germany
and Italy, and therefore we are freezing
the whole bunch at one time.

Wiley:

Well, of course, to freeze Bulgaria shows

displeasure. If it is a question of 24 hours,
I don't see that it makes a great deal of
difference. We have waited so long.

H.M.Jr:

Well, displeasure with Germany and Italy.
You don't think it makes any difference?

Wiley:

I don't think so.

H.M.Jr:

Harry, I want to compliment you and your group

who prepared this British asset thing and a
few minutes before we get through here, if

you will ask the people who are mentioned in
here, I would like to meet them and thank

45

-5them, because I think it is an outstanding

accomplishment. You mentioned the various
people. When you see the meeting is about

through here, if you will send for those

people.
White:

They would be very pleased.

H.M.Jr:

If you want the list of names that is here,
they are Kamark and --

(Unrecorded telephone conversation with

Dean Acheson.)
White:

When did they tell you that Switzerland
would be all right with them?

H.M.Jr:

Just now.

Foley:

Saturday.

White:

Oh, did they?

Foley:

Well, we forced it down their throat. John

H.M.Jr:

I told that to you?

Foley:

That is right.

H.M.Jr:

Well, some day maybe some of these people

told them the Secretary wouldn't go along
unless they included Switzerland.

in the administration will recognize that
we are not doing business with a lot of toy
soldiers, and that this is a world war and
that some day we are going to have to pull

every stop in New York on the machine,
economic and otherwise, to defend ourselves.

Harold? I am going to see you at about a
quarter of four. You know, there was a memo

-6that came to your desk the other night.
Graves:

Yes.

H.M.Jr:

You and Kuhn and Schwarz, I want you to
come in and give me some - ten minutes of

four - some stuff to use at my press

conference. I would like to tell them
some things that we are doing on the
Defense Savings Bonds. Right?

Graves:

That is right.

H.M.Jr:

I mean give me some stuff. I want to have

Graves:

Yes, sir.

H.M.Jr:

These investment bankers were here and this
whole group of savings banks were in here.

Schwarz:

Are you going to give them that this after-

something from now on at every press conference.

noon?

H.M.Jr:

Yes, I want to feed them something all the

Schwarz:

Swell.

H.M.Jr:

Harry?

White:

I have nothing.

H.M.Jr:

Mr. Stewart is here today to assist me on

time.

this question of the cash position of the
English, and just as soon as this meeting
adjourns, I would like you (White) and
Cochran to get together with him and give
him everything that you can between now

and eleven, and then if the three of you

47

7-

will come in at eleven, we will go into
a huddle, plus my letter which I want to
send.

Cochran:

I have cleared that with Mr. Stewart, and
I am waiting to hear from the State Department and then I will show it to Mr. White.

H.M.Jr:

Yes.

Schwarz:

Here are a few stories which I have just
given to Stephens. One is from the West
Coast quoting John Hanes on these taxes

and Ros Magill --

H.M.Jr:

I saw it. I would like to get the full

story on Magill. There were two things.

They bunched them together.
Schwarz:

One is apparently not out yet. It is the

H.M.Jr:

Are you going to get that?

Schwarz:

I will get that, yes, sir.

H.M.Jr:

Right. And then - there is nobody here
representing Bell. Get me what O'Neill

March issue of Investors Magazine.

said on the Farm Bureau, will you? (Thompson)

I told Bell to stay home for two days.
Schwarz:

That is all.

H.M.Jr:

Find out from Bell's office and just give

it to Stephens, what is the correct amount
as of today of the percentage of turn-ins
on the notes and the bonds.

White:

Mr. Bell is not going to be here. Do you

want to wait until he comes back to pursue
the Chinese negotiations? We were waiting
on Mr. Bell.

48

8H.M.Jr:

Harry, I am so far removed from China, and I
have got just ten times more than I can do in
the next two days.

White:

Well,
then, it is all right with you if we just
wait?

H.M.Jr:

Well my God, it has been going for two months.

I don't know anything about it. It doesn't

interest me. Bell is handling it. I don't
know a thing about it. I just couldn't - the

thing today that I am interested in is English
direct investments, English cash position, plus

the Lend-Lease Bill. I mean, I am just desperate

on time, so anything else, I have just got ten

times more than I can take care of today and
for the next two days.
White:

All right.

H.M.Jr:

I don't know anything about China. I haven't

heard, or anything about the Argentine.
White:

Well, we have been making progress and have had

several conferences, and we were waiting for

Mr. Bell to get an opportunity to have the next
one.

H.M.Jr:

Well, he will be back Wednesday morning.

White:

Yes.

H.M.Jr:

The Director of the Budget never gets in. I

don't know what time that man ever gets to his
office, do you?

Foley:

No, I don't know.

H.M.Jr:

About 11 in the morning.
Chick?

49

9

Schwarz:

I am through.

H.M.Jr:

George?

Haas:

Here are those reports (handing reports to the

H.M.Jr:

I told Knudsen and his man, Meigs, any time

Secretary). It is the highest week on those
engines, I think.

they wanted to stop doing this - and they said

they can give me the service on airplanes and

engines. I am willing to quit. Have you heard

from Meigs?
Haas:

I haven't heard from anybody, Mr. Secretary.

H.M.Jr:

Well, I told them.

Haas:

There is a man named Jameson from Forrestal's of-

fice called this morning and wanted to know if
he could get some information prior to the makeup of the report. I don't know who he is, do
you?

H.M.Jr:

I wouldn't fuss with these people any more be-

cause we-are going to slip out of this thing just

as soon as Knudsen takes over.
Haas:

That is all.

Young:

No problems.

Kuhn:

Nothing.

Pehle:

Nothing.

H.M.Jr:

Well, now, when can you go to town on the big
freezing order?

Pehle:

Well, there are some decisions that have to be

50

- 10 made; and, as Mr. Foley knows, there are regulations which have to go out and general
licenses that have to go out simultaneously

with the order in order to make the thing work.

H.M.Jr:

Who has to make the decisions? Am I holding up

Pehle:

Well, I think this afternoon we will be ready

H.M.Jr:

anything?

for some things that you ought to focus on.

Well, it is up to Foley and you to get in to see
me.

Pehle:

All right.
One of the problems, for example, is how strong
measures we are going to take in the case of the
Italian banks in New York where you almost have

to let them continue as operating institutions

unless you just want to shut them flat down,
where they have local depositors in New York,
whether we don't want to put somebody in there,
a bank examiner or somebody, to regulate them.

H.M.Jr:

Well, whenever you are ready. Is it agreeable
to you to serve as Secretary, then?

Pehle:

Yes, sir.

H.M.Jr:

At the usual salary?

Pehle:

Yes, sir.

H.M.Jr:

Walter?

Stewart:

Nothing.

H.M.Jr:

You will go into a huddle with these fellows
right after the meeting, won't you?

51

- 11 Stewart:

Yes.

H.M.Jr:

Just so that you know, and I want this kept in
the room, I wouldn't touch anything other than

the freezing thing, the thing that I offered this export control and all that - I don't know

just where you are, but I just want you to know
it, you see. The day is passed that I would have

anything to do with it, you see. We will do
the freezing and nothing else. If Mr. Hull, which
he won't, would go on bended knee and ask me to

take it on and run it, I wouldn't do it today

for anybody. So I just wanted you to know that
I am completely washed up on any of it. The
day is passed when I am touching it. If that
in any way affects you (Wiley) or Herbert-Gaston:

Well, it doesn't affect me.
Dean Acheson was in on Saturday, and I talked

to him about export control, suggesting that he
look into those things. He shows quite a
cooperative attitude and not suggesting that
we wanted anything to do with it but indicating
that it was their problem.
H.M.Jr:

Well, just so it is perfectly plain to this

group, I don't want anything to do with it, and
I am preparing a letter to the President which
I will show to some of you in which I am pointing out that the end of the cash on the barrel

head era will pass when he signs the Lend-Lease

Bill, and I want to divest myself of all of the
things, which I have done, under that era.

Gaston:

The only thing we will have is the policing end
of the ports which we have had heretofore. I

think that is wholly right.

H.M.Jr:

I will show you the letter. I am telling you I

have done this from November '38 to date, and

52

- 12 -

when the Lend-Lease Bill passes, I want to stop.
(Unrecorded telephone conversation with Mr.
Harold Smith.)
H.M.Jr:

You (Thompson) had better give somebody to Foley

from Bell's office to go over there with him
so he doesn't have to repeat it all to Bell.

What is that man's name?
Thompson:

Heffelfinger.

H.M.Jr:

Yes. And then Bell would know. Because the

situation is terrible.

Now where were we? How far did we get?
Sullivan:

To me.

H.M.Jr:

You? Good. Thank you very much.

Cochran:

Nothing.

H.M.Jr:

Thank you.

Would you see - I gave the two copies I had of
your Coast Guard letter, one to the President and
one to Hopkins. Would you please make sure that
Mrs. Klotz has one, because I only have two.
Gaston:

Yes, I will get one. We have no word yet from
the - we have priority orders in the Navy yards.

We have no word yet as to just what the changes

will have to be on the cutters.

H.M.Jr:

Is everything all right?

Gaston:

Yes. I don't suppose you want to read a seven
page memorandum on political and economic condi-

tions in Japan that came from our Assistant

Treasury Attache. It is rather interesting.

53

- 13 H.M.Jr:

To show how far back I am in my reading, I

haven't even read the last three issues of the

Saturday Evening Post.
White:

You are improving. (Laughter)

H.M.Jr:

I have read the New Republic, though. Do you
know who is supposed to have done that job for
the New Republic on national defense? Michael
Straight is supposed to have done the whole
job. You know who he is?

Kuhn:

In the New Republic?

H.M.Jr:

That is right.

Foley:

Huntington says that what you want to do can

be done in so far as the direct investments are
concerned.

H.M.Jr:

Could Huntington sit in with us at 11 as your
representative?

Foley:

Sure.

H.M.Jr:

And he can keep you posted.

Foley:

Yes.

H.M.Jr:

That is fine. That is encouraging. And then
on that Underwood-Hartford thing--

Foley:

You haven't any financial interest in it?

H.M.Jr:

Yes, I have.

Foley:

Oh, I didn't know that.

H.M.Jr:

Wouldn't O'Connell be as good a man as anybody?

I would like him, if he isn't too busy - he isn't

very busy?

54

14 -

Foley:

Well, I mean today and tomorrow he is busy with
their hearings on the TNEC, but they will be
all over on Wednesday.

H.M.Jr:

Who can you let me have this morning?

Foley:

I think he could do it this morning.

H.M.Jr:

I want him to call up Congressman Koppleman and

find out is the strike still on, say he is

handling it for me, and I want to get the labor
union signed, NLRB signed, and let him call up

the Underwood, Mr. Waggoner, the President, and

tell them to find out their thing so he can get

it all bound up today and have it tomorrow morning, and assimilate it and let me know. I mean

NLRB, Labor Department, the labor union, and the
Underwood Typewriter, Let them each know that

it is me. Wouldn't O'Connell be as good as any?

Foley:

Sure.

H.M.Jr:

Is there somebody who can do it better?

Foley:

No, he can do it.

H.M.Jr:

It means getting on the phone for an hour.

Foley:

If O'Connell is tied up, Bernard can do it.

H.M.Jr:

No.

Foley:

H.M.Jr:

All right, O'Connell.
I would like that.

Foley:

I will tell him.

H.M.Jr:

O.K. Thank you all.

55

March 3, 1941

CONVERSATIONS NOT RECORDED * MACHINE NOT WORKING,

9:36 a.m.

Dean Acheson

9:50 a.m.

Harold Smith - Budget
Cordell Hull

10:30 a.m.

56

March 3, 1941
10:30 p.m.

RE AID TO BRITAIN

Present:

Mr. Cairns
Mr. Stewart
Mr. White
Mr. Cochran

H.M.Jr:

Mr. Eccles was telling me all his troubles

over who should be president of the bank of
Chicago, and I find myself in complete
sympathy with Eccles versus Jesse Jones. It

is an amusing situation. What they did is,
they never told him a word. They called a

meeting and Walter Cummings goes in with a

block of five votes and tries to put Emil

Schram through, and then, the story I get
from him and other sources, is that the
reason that Jones is doing this is because he
wants to get rid of Emil Schram, so the Board
has --

Stewart:

Well, we passed from the phase of getting private
bankers into the Reserve system to getting them
out of the government into the Reserve system.

H.M.Jr:

He says he can't let his system be dominated
by Jesse Jones and Walter Cummings. I am in
complete agreement with him. The Board said
any one of five they suggested would be agreeable to them. There were five names and they
never mentioned Schram. But there were five
people and all of them very good people.

57

-2-

Professor Leland of Chicago is working on it
with them. He is a Board member. Do you
know him?

Stewart:

I don't know him.

H.M.Jr:

You know who he is. But it is a funny situa-

Stewart:

If Marriner has reached the stage where he comes
and weeps on your shoulder, that is an achieve-

tion. I don't know why I - the fights I don't
create myself I am always invited into. This
is a nice fight.
ment.

H.M.Jr:

What I thought he was coming for, we decided

we would make a test of it and we sent out
twelve telegrams and letters Friday night to
the twelve presidents of the Federal Reserve
Banks asking them to check these Defense

Savings Bonds, their interest rates, and we
didn't go through the Board. I thought he was

coming over to talk about that. Normally, that
would have been a cause for a fight, but this is

so much more important. We think we ought to be

able to go to these heads of our fiscal agencies
without always having to clear through the Board
and let them know about it, but we don't always
have to say, "please." Now, if you gentlemen

will come a little closer.

This is what I know about this situation, and
then where I am not up to date or am out of date

or haven't got it right, you can tell me.

This situation, as I see the thing, is one, Sir
Frederick Phillips comes in to see me last week

and says that as of the first of March they will

have 69 million dollars cash on hand and that is
about the end of their rope, and they don't know

where to go from there on. I tell them in no

58

-3uncertain terms that they have just got to
find the cash until the Lend-Lease Bill
passes. Do you get it so far; are we together?

Cochran:

Yes, sir.

H.M.Jr:

I mean it is just up to them. I also called

Sir Frederick Phillips on the telephone Thurs-

day or Friday and let him know my complete displeasure when I am called on by a representative

of the S.E.C. that they haven't sold a single

direct investment and won't even see the people.

I said, "It is an impossible situation that I

am in, aside from your own, and here you say

you are going to be out of cash , but you don't
sell your direct investments, and there is the
other proposal, a letter delivered by Halifax
then followed up by a letter from Peacock, and
my answer to it, which I take it you have all
seen.

Cochran:

Yes. Harry has initialed it and Stewart has

H.M.Jr:

Well, I don't care so much - I mean, I would

seen it.

like you (Cairns) to see it, but that isn't why
you are invited into the thing. Now, in the
course of the conversation - am I right so far?

Cochran:

The only thing that might be a little wrong,

they have seen a number of visitors up in New

York. They hadn't seen the specific ones that

Schenker of the S.E.C. mentioned. They have been

seeing visitors.
H.M.Jr:

But they still haven't sold any?

Cochran:

No, sir, they have not.

H.M.Jr:

Is the picture about the way I painted it,
Harry?

59

-4-

White:

Yes, that is right.

H.M.Jr:

Now, I had all I could do to keep myself from
sending for Lord Halifax yesterday and telling
him what I thought of the British Government,

but fortunately I was so busy I didn't do it,
but I am just boiling over. Here I clear up
the 30 million dollars worth of ordnance for

them each week and take my reputation in my hands
by doing it, and they don't make a God damn

move on this thing; and I am still not convinced

that they really want to sell their securities
and I will show you why from this list which is
prepared by White. Then in the course of this
conversation with Phillips, I brought up certain things. They didn' know how much Canada

would or would not repatriate in the way of

securities and how much gold they had to keep

for that purpose, and therefore I said, "Well,

at my request, my suggestion, invite Mr. Clark
down here and let's put our cards on the table
so we know where we are at," and that is why
Clark is coming down. Check? My memory still
Cochran:

H.M.Jr:

all right?
All right.
My memory all right still? So Clark is coming
in at 3:00 to have a talk. You (Stewart) know

him?

Stewart:

Yes.

H.M.Jr:

And tell us what they will do because - well, as
to what the Canadians will or won't do. It depends upon how much gold Canada has to hold back

against - I mean England has to hold back gold in
Canada to pay for these repatriations of securities.
Now, on the Belgian thing, I told them, "Why

60

-5don't you pick up some of that Belgian?"
Well, a lot of palaver and somebody in Bel-

gium, the Finance Minister - who was the man
they mentioned?

Cochran:

Gutt is the one they mentioned. He is in
London. We had dealings with him before. Anyway, he is dealing with the British, but he
wants to consult Tunis, who is in New York.

H.M.Jr:

Well, all of this stuff - nobody does anything
on this thing. They just sit there and expect
I should do the worrying for them and the thinking. Now, yesterday - I mean, I have always
taken the attitude, never mind how much the

English are annoying me, it is my job to try to
keep this thing going, and I got this idea yesterday which I gave to Foley and asked him to
give to somebody, and he said Huntington could
pass on a possible method of raising money for

the English against their securities, and I

would like to hear that report first.
Cairns:

The method that you proposed, as I got it from
Ed, was entirely satisfactory.

H.M.Jr:

What was the method that I proposed?

Cairns:

That an American corporation will take title

to American securities or property owned by the

British government or British nationals. At the
time the title is taken, part of the purchase
price will be paid. The remainder of the purchase
price will be paid at some subsequent time, such
as when the securities are disposed of, or some
other time, dependent upon the contract arrangements. Now that plan does not violate either
Section 7 of the Neutrality Act or the Johnson
Act.

H.M.Jr:

What I said is this, for instance. If an invest-

61

-6-

ment trust group, which is organized, would
say, "Now here is a hundred million dollars

worth of assets. We have examined them and

their book value. is a hundred million dollars."

Would you be willing to advance 50 per cent

after you have looked at the thing, and then
as you begin to dispose of them, the difference
between the sales price and what you advance,

Cairns:

pay these people off. Is that right?
That is right.

H.M.Jr:

That is all right, is it?

Cairns:

That is all right.

White:

I thought you were referring only to securities.

Cairns:

This memorandum speaks only of securities, but

the principle is equally applicable to the real

estate holdings in New York.
H.M.Jr:

That was my idea, and I can't understand why

somebody didn't think of it and why it isn't
all right. Now, that isn't what they wanted
J.P. Morgan to do, is it? Did you sit in on
that?

Cairns:

No.

H.M.Jr:

Who sat in on that before you?

Cochran:

Foley had been sitting in on them himself.

White:

As he reported it, it was quite different. It
was a loan against collateral.

Cairns:

You mean the two corporations, the --

H.M.Jr:

No, as I understand --

62

-7-

White:

Cairns:
H.M.Jr:
Cairns:

Viscose could -Yes. Well, I prepared a memorandum on that.
What about that?

H.M.Jr:

That was legal too, but that isn't this plan.
What is the matter with this plan?

Cairns:

Nothing.

White:

If I understand it, they will take over all these

securities and extend 50 per cent of the book
value of them and the market value of the securi-

ties, is that the proposal?

Cairns:

I don't know about the percentages.

H.M.Jr:

I would just say 50 per cent of the sales value,
what they think they can sell the business for.
Let's say they say a business --

White:

Let's say the British say a billion.
The British - well, take this list of from one to
10 million dollars, you see. Well, here, gentle-

H.M.Jr:

men, are a bunch of businesses. Now, you pick
over these, you see, and you find that these are

worth a hundred million dollars. You satisfy
yourself they are worth a hundred million dollars.
Well, the British government sells you these
properties and you advance 50 million dollars.
Then you proceed to sell these at a price agreeable I mean, something has to be worked out, but the

point I am getting at, if you could get a bank -

a group of investment trusts or a bunch of banks
or anybody that this would make available that
this thing hangs on for another couple of weeks

another 50 to 100 million dollars. It gives

63

-8them another breathing spell. That is what

I am trying to get for them. As to the price

and how they would do it, they might advance

75 per cent to them - I said 50. They might
say 75, but here is a way of raising legally
a bunch of money for these people.

Cochran:

That leaves a lot of evaluation and examination,

of course, for a later time. Whether they
a big per cent on that basis, I don't know.

would be willing to advance a big amount or
H.M.Jr:

Well, the main thing, Merle, it is the idea that
this is legal, this would move fast, these
people could say - well, I don't know as to
how the property - they might get some ex-

judge of the Supreme Court of New York whom

they could hire to sit and have hearings and
decide on the value of the British and the
company and the buyer placing the thing before
them - Judge Crane, for instance -Cairns:

Yes, or it could be a cost plus basis.

H.M.Jr:

I mean Judge Crane, who is a retired judge of
the Supreme Court of New York, a very fine

gentleman. I mean, a man like that could sit wouldn't that be perfectly - highly ethical,
and they would appear before him and introduce
their testimony, and he would be the man to decide.

Cairns:

He is an excellent man.

H.M.Jr:

Isn't he one of the best?

Cairns:

One of the best.

H.M.Jr:

Do you know him?

Stewart:

No.

H.M.Jr:

Well, he is a Republican from Brooklyn and a very

64

-9high-class gentleman. Wouldn't that be a
procedure? I am shooting from the hip.
Cairns:

Yes, that is perfectly legal, or there are

corporations whose business it is to appraise
property, and they could agree to hire such a

corporation to do it.

H.M.Jr:

But all of that testimony could be introduced
before Judge Crane who, after hearing the testi-

mony, could say, "Well, after listening to all
you gentlemen, this is a fair price, and I set
such and such a price."

I know these appraisal corporations, and they
are not worth a damn. Right? Walter?
Stewart:

It is what I - what I understand is that you are
proposing a corporation which would make an installment payment against a collection of com-

panies, the value of no one of them having yet
been determined, but an amount within the limits

of the total, to be recovered through the final

sale of these when evaluated and sold to the
public.
H.M.Jr:

That is right.

Stewart:

It sounds all right to me except that I imagine
that each one of those companies has a very

particularly unique situation, and the difficulty in time is that each one of them has a
particular situation. You are dealing not with
a listed company or with a security. You are
dealing with each one as a unique thing with a
special set of accounts and history and ownership and so on.

White:

For three or four hundred million dollars worth,
you would be dealing with securities, so that
would give them --

65

- 10 Stewart:

Did you intend to put the --

White:

You could give them cash at once for that part.

H.M.Jr:

I was thinking - mind you, with all these things,
this has been kind of a subconscious thinking.

I have been groping and asked everybody else to
make a suggestion. No one has made one, and the

English haven't. This was my suggestion. I
was thinking in terms of direct investments.

If you want to sweeten the pot a little bit and

put in some Atchison or some New York Central

or something like that and make it both negotiable and non-negotiable securities, that would
make it that much easier, but what is my object?
My object is to get them so they don't default
on their payment while this bill is pending and
enough afterward so they don't default, because
there is no reason why they should, you see.
Stewart:

Is the loan equally legal as against the pur-

chase, if a company made an advance against it?
Could a corporation make an advance rather than
making it as a loan or purchase?
Cairns:

Title ought to pass.

H.M.Jr:

That is the point, you see. Nobody has - it has

always been this other thing, but my thought is
White:

that the title passes. I thought I was right.
They might like a little better than that. One

modification of that might be to permit those
transactions to take place only with respect to
the particular ventures which they select and as
they need the money instead of in one complete

batch. In other words, if they need a hundred
million dollars this month, they could decide
either to take the securities and do that, or
they could decide to take some securities plus
some of the particular investments which they

66

- 11 -

have selected, so they will not be in a position to have to decide to turn over all their
securities but only as they need the cash. I
imagine they would like that better.
H.M.Jr:

Well, again that is a modification, but you see,
Harry, I think I have got hold of something.

White:

Yes.

H.M.Jr:

Imagine, if these people - the bill passes the

day - passes and the day after the bill passes
these people should default, look at the spot
I am in. And these people have got to sell these
properties to keep good faith with me and the

American public. They have just got to do it,
and I am still not convinced that they want to

do it. Now, all these things and all this de-

lay and all that, but they simply have to keep
faith with me, who has gone up on the Hill and
has said this thing, that they were going to
sell this stuff and divest themselves, and they
have just got to do it and - is there any doubt
in your mind?

Stewart:

Not in my mind about the outcome.

(The Secretary left the conference.)

They probably have trotted out all of their
difficult cases, but I have heard, for example,
of distilling concerns which have the formulae

for distilling gins, and then do you sell the
trade-mark and produce here and sell them
abroad? There are a lot of things.

White:

Yes, that is why I think it is better to let them
select the ones which lend themselves most
easily to an evaluation and leaving a good many

of the - leaving all the difficult ones, the very
difficult ones, which incidentally include a lot

67

- 12 -

of those of small value. There must be a couple
of hundred there that may yield you a hundred

million dollars at most and will give you 90
per cent of your headaches. I think those could
be left, when, if, and as it is necessary. As
time goes on the situation will be more clarified,
and the war may end, they may be able to make

their commitments. To call upon them to sell
at once all their investments for subsequent
evaluation would be popular with some people in

this country, but I think it is --

Cairns:

Well, of course you have got a precedent in the
Lever Act during the last war. I don't know how
that worked out, but the government paid 75 per
cent - if the government and the seller could
not agree on the price, the government paid 75

per cent of its estimated price. The seller then
sued in a court of claims for the balance.

White:

Oh, I am sure it could be worked out legally, but
there is a question of good relations between
the good governments and a question of feeling

that they got a - and that we certainly ought to

be generous in this matter, because in the last
analysis it doesn't make any difference. You

are talking in terms of - you are ready to lend
them billions and why stop at the question of
a hundred or two hundred million dollars? It
is no time to be meticulous in an evaluation.
Cairns:

Not this government but the bankers who are going
to put up the money are going to be very meticulous.

White:

Yes, and there, I say, avoid those --

Stewart:

Do we know that there are a group of bankers who

are prepared to carry out this procedure?

68

- 13 -

Cairns:

I know nothing about it.

White:

This has never been suggested, but this has been
suggested by some groups along this line, but
there are some groups who are already to do it
with respect to groups and holdings.

Cairns:

Oh, I know. I have had a lawyer in Baltimore
approach me representing a number of clients
who would like to do this.

Cochran:

This very thing?

Cairns?

To acquire some British assets somehow. There
are some plums there.

White:

I don't think there would be any question of their
ability to arrange within a few weeks at the most

half a billion dollars to take care of what securities they have got left and some of the
clearest investment cases of the other.

Stewart:

I do.

White:

You think there would be difficulty?

Stewart:

I think so. I mean on a pig in the poke. A half
billion dollars is definitely subscribed to be
used to pay a percentage of something the value
of which is not appraised.

White:

They all know about 350 or 400 million of the
securities are marketable.

Stewart:

I am confining myself to the direct.

White:

Oh, no, I mean securities.

Stewart:

I think there is no doubt about that. I think
you can take the listed securities, and I think
you can take ten or twenty per cent off and
say, "This is what we will take it at," and I

69

- 14 -

think the British could well afford to do that,

and they would.
White:

My suggestion to the Secretary was, let them

sell whatever they - this way, let this corpora-

tion buy as they need it. Let them then make
their own sales, when and if they want. The
only thing in which this corporation would step

forward is if they needed 50 million dollars,
but let that take up only the slack.
Cochran:

They could do this first with the securities.

We agree that could be easily done.
White:

Easily done. Those bankers who were in here that

day --

(The Secretary returned to the conference.)
H.M.Jr:
Stewart:

This is - well, am I all right on this?
I think you are over-simplifying it myself in
terms of time. I think you will find in your
emphasis --

H.M.Jr:

But as to having it done?

Stewart:

It is one of the legal procedures. Have you got
any bankers lined up who will follow through on
it?

H.M.Jr:

Oh no, I only got this yesterday. I am so proud
of myself - well, all these bright young men are

around here, you know, and all the English,
why didn't somebody else suggest this?
White:

Oh, we had half a dozen schemes very much like

it, Mr. Secretary. Not exactly like it.

H.M.Jr:

That would work and get by these fellows?

White:

I think so. They proposed a couple themselves.

70

- 15 -

H.M.Jr:

Well, not one of them would work. Show it to
me.

White:

I will be glad to. I don't know if it is as

good as these, but they are very much like it.
H.M.Jr:

Maybe they are better. Between now and 3:00

o'clock see if anybody has anything. I would
like to see anything that anybody has that

would get by the lawyers.
White:

I think that this - if you want - didn't want
to take it all over, I think this could be a

very simple arrangement. If you let them take
it over only as they need the cash.
H.M.Jr:

Well, now, let me get this. What do I want
to do? I want to raise a hundred million dollars

cash for these. I don't want to fool with anything less than that. Which means, let them
select or anything else, put up two hundred

million dollars, part factories and part
negotiable stuff. Then what I would do is, I
would go to S.E.C. and say, "Now, gentlemen,

here is the proposal. Will you call down a
group for me and tell them what this is. You
fix me up a group, see. I don't know who it
would be, but you fix me up a group. I want a

group down here not later than Wednesday, pro-

viding the English are willing, and you fix me

up a group.

Wouldn't that be the way to do it?
Stewart:

Yes.

H.M.Jr:

And let them meet over at the S.E.C. Let the

S.E.C. do it. It is a question of the 20-day
registration and all the rest of that stuff
that S.E.C. would have to waive and all the
rest of that stuff.

71

- 16 -

White:

H.M.Jr:

It certainly ought to be under their governmental auspices if there is going to be any -I don't want to get mixed up in it.

Stewart:

Oh, no.

White:

And they have been in on evaluation of some of
these securities.

H.M.Jr:

Yes, they offered us their evaluation. section.
What is the matter with this, Walter?

Stewart:

I see no difficulty with the listed securities.
I have some reservation as to how rapidly you

can move on the direct investments. I think
for the impression created, it is very important for them to part with some of their direct
investments.

H.M.Jr:

Now one thing that I would insist on with this
corporation limited to so very modest a field.
I should think they ought to do it at two or
three per cent, something like that. Is that
too low?

Cairns:

Why would they take any fee?

Stewart:

You have to think of depreciation.

Cairns:

The bankers would organize the corporations and
the corporation would buy these securities and
investments.

H.M.Jr:

But I want them to give them a hundred cents on

the dollar for what they get for these things
and do it on a fixed-fee basis and not get their

profit out of juggling the stock. In other

words, the more they got the more they would earn

if it were on a percentage basis. There would
be no incentive for them - the incentive for them

72
- 17 -

would
could. be to get the British just as much as they
White:

If they work on a percentage basis, the incentive might be to sell the stocks even though they
don't get very much.

Cochran:

Yes, I think the British would have some reserva-

tion there that they don't have sufficient control

over the price.
H.M.Jr:

Well, you come in - if you want a man, I just
thought of him - a man like Judge Crane to sit what do you call it, in chancery, what do you
call that?

Cairns:

As an arbitrator?

H.M.Jr:

As an arbitrator. I think of Judge Crane. There
are other judges of a superior court who enjoy
a very high reputation who would sit and arbitrate.

Cochran:

The British wanted to appeal to the President as

H.M.Jr:

Well, that is out. I am protecting the President

the arbitrator.

of the United States.

Cochran:

But whether the government would be agreeable to
accepting some judge, no matter how high he is

in this country, as a final arbitrator --

H.M.Jr:

Well, in the room, Merle, get this - only in the

room - I am telling them, I am not asking them at

this stage, you see. I mean, that is - I am
telling these fellows. I have reached the end

of my rope. I have never been more outraged or
angry at any people than I am at the English

right now and I am telling them. Now, certainly
the President or I - he is not going to be put

in that position, nor am I. But there is no

73

- 18 -

reason in the world why this corporation - I
don't know what would be the fee. I am thinking of two or three per cent.
Stewart:

You are thinking of it as a agency to take and
sell.

H.M.Jr:

Stewart:

That is right.
I think that would be much more difficult.

Cairns:

That increases the difficulty, not the legal

H.M.Jr:

They are not going to keep these things.

Cairns:

I thought it was to be an outright sale by the
British to American interests.

H.M.Jr:

No, let's take the investment trust group, you
see. In some cases they will want to keep the
things, and in some cases they will want to dispose of them. If they want to buy them them-

difficulties.

selves, all right, if they want to sell them to

some outsiders, all right, but you are not going
to get any group to say, 'We are going to buy
these things and keep them", because there will

be some of the things that they don't want to
keep and on that basis they wouldn't let the
English pick; they would want to pick.
Cairns:

But it is your thought that the total purchase
price, total sales price derived by the corpora-

tion, is to go back to the British less the percentage?

H.M.Jr:
White:

That is right.
So that this corporation will be acting somewhat in the character of a public servant with
a reasonable reward for its services.

74

- 19 H.M.Jr:
White:

That is right.
And make possible the British receiving the
cash in - when and as they need it. But the
purchase price would not be known until the
total amount that they would get - it would not

be known until the final liquidation.

Cairns:

That is all right legally, but I am thinking
of it from the point of view of the American

bankers who are putting up a hundred million
dollars.
White:

But they are only putting up a portion of a
value which they think is reasonable, so they
are not taking any risk. At the same time,
the British would get the cash. The actual
sale might even take the form either that this
group would say, "We will hold on to this at
such and such a price," or they might sell it.

Cairns:

It would be a liquidating and management corporation.

H.M.Jr:

That is right.

White:

The management is rather important.

Stewart:

I can see that on the listed securities. I don't
see it on the direct investments. On the liquid
securities I can see them doing it, and I think
the British government could well afford to make
a real percentage sacrifice. You can take a whole
lump and deal with them on that form, I think.
On the direct investments, the theory that they
can take these direct investments and then sell
them to the public and take a commission, I don't
see that.

H.M.Jr:

Well,Walter, I always have one idea until you
tell me I am wrong. What is my idea? I want to

75

- 20 -

get these fellows a hundred million dollars.
What is my objective? That is my objective.
Stewart:

You
raise
that if you don't want to bring
in thecan
direct
investments.

White:

There are some you could bring in very easily.
For example, there was a gentleman in here who
stated there was a very reputable group. He was
from the S.E.C., and he said they were reputable.
I don't know who they are. He said they had 60

to 100 million dollars in cash that they were
ready to put down on the barrelhead, to use his
expression, in order to take over the Viscose

Company. Now, I take it there would be some range

over which they could agree as to the current

value of the Viscose Company. They might be ten

or fifteen million dollars apart. I think the

British unfortunately on the initial companies
may have to be reconciled to taking possibly a
sacrifice in order to make a sale. There are
several of such companies and they could raise

within a month or two on direct investments a
couple of hundred million dollars without any
trouble.

Cochran:

They were to receive those very people in New
York today and talk with them.

H.M.Jr:

I have read this thing. You take Brown and
Williamson Tobacco Corporation. Given time to
negotiate the thing, another one of these American tobacco companies would buy it up.

Cairns:

Well, that is a stock transaction.

H.M.Jr:

Yes. What I was thinking of in this corporation,
they would have some banks who would supply the
money. You would have some investment trusts and

some companies in the distributing business, but

S.E.C. could quickly do this thing or get up a

group of national banks in New York. They have
got the money and then let them hire somebody else
to do the selling. The quickest way, maybe, would
be just to go and invite any New York bank or any

76
21 -

bank that wanted to come in. I don't know.
Cochran:

May I offer a suggestion?

H.M.Jr:

Yes.

Cochran:

I think you told them the right thing the other

day, Mr. Secretary, that you were depending upon

them to go through with this and that they have
got to count on their own resources to get

finished, and I think hey can. I think they

can make arrangements to turn over those direct

investments. I think they can make a touch on
Canada temporarily. I think they might borrow
gold from the Union of South Africa or something

of that sort, and I wouldn't risk putting forward a suggestion like this at present. I would
leave them to their own resources.

White:

Then they shouldn't bother the Secretary that
they are running out of cash.

H.M.Jr:

And you (Cochran) bother me, too.

Cochran:

Of course I do. I want to keep you up on this.

H.M.Jr:

Well, that is right too, but I am under this
pressure, and that is your job to keep after me.
But I don't believe that they are going to do it.
Now, I would like to throw in their teeth a
suggestion like this and say, "This is legal,
gentlemen, now you take it. The S.E.C. says they

are here waiting to see you. Now you take it.

I would like to -Cochran:

I would leave it to their judgment to take it or
not. I wouldn't say, "You have got to take it."

H.M.Jr:

Oh, I wouldn't say, "You have got to take it."

Cochran:

Well, that is what you intimated a while ago, Mr.

77

- 22 -

Secretary.
H.M.Jr:

When I get down to terms - I am getting very
restless with them.

White:

But Merle, if this is suggested as a way out --

H.M.Jr:

Excuse me. It is just the way I told these

people in my room here, and I finally smoked
them out, and they hadn't been on the up and up

with me, and I said, "You can sell ten million
dollars worth of stuff a week." Were you here

when I told them that, Walter?
Stewart:

No.

H.M.Jr:

And they said, "We can't do more than one to
three," and it turned out because Gifford put

his chin out that his instructions were not to

sell more than one to three, and they have never

told me that. Now, I don't know that they have
issued the instructions to sell these direct

investments. I don't know that they have. It
is very nice to put it all in the lap of the
President of the United States, and I would like
to say to them this afternoon, "Gentlemen, now

here is a way that you can do this thing legally.
I have thought this thing out for you myself.
Now, the S.E.C. is willing to help you. Here is
a way to do it. Now, I don't want you to come
back in six weeks. I would like you to come
back tomorrow and tell me what you think of it.

And don't come around and tell me that you haven't
got the money, because here is a way to raise it."

Cairns:

Have you thought of a mortgage of the direct investments?

H.M.Jr:

I don't know whether I know what you mean.

Cairns:

Have the British corporations mortgage their

78

- 23 -

plants here to American banks.
Cochran:

That was --

White:

That was one of their suggestions, and that was
thought to be a subterfuge.

H.M.Jr:

We want title to pass. I want to have them - I
told Congress - it is all on the record - that
they are going to divest themselves of nine
hundred million dollars worth of property and

that that is their good will offer to us in

exchange for which - as a minimum, I was think-

ing of it this way - as a minimum I have to
raise a billion dollars more taxes out of the

American tax-payers in one year, and all we are

asking them to do is to sell a billion dollars
worth of direct securities in one year. As a

minimum. And it is going to be maybe two or

three times that in order to pay for the stuff

that we are going to give them. Now, as a token

of good will - good faith, not good will, all

we are saying is, we have said it publicly,
"In order to get this stuff through, gentlemen,
the English say that they will do this." Now,

I want them to live up to it. I think, Merle,

it is time I talked to them the way I am talking

here, because I am fed up with them.
Cochran:

I appreciate the urgency of their having to sell
them and all that, and I have told them that on
Friday when I talked with them; but my hope was
that you wouldn't put this up as the one way

that they had to act.

H.M.Jr:

Oh, I am not going to say that. I am going to
say, "Here is a legal, ethical way for you to

do it. It is highly ethical and it is highly
legal."

White:

I think what the Secretary does by presenting
them with that is making impossible any further

79

- 24 -

representations with respect to the lack of

cash necessary to meet their commitments, be-

cause there is always this way open, and particularly if he doesn't even suggest that they
turn them all over but that here is a group
ready to take whatever they are willing to
offer, then it seems to me that incident and
episode is closed. Whenever they feel short of
cash or think they are going to be short of
cash within a month, they have that avenue to
raise
a little more cash. I see that objection
as
to that.
Stewart:

I think the Secretary requires that as an insur-

ance policy against them, not merely - I am
doubtful whether or not the direct investments

will raise money rapidly. I think the listed
investments will, but I think you will need
something which is a catch-all.

H.M.Jr:

And that is why I want to insist that in this
corporation some of the things they put - the
bulk that they put are direct investments.

White:

The S.E.C. weren't doubtful about their ability --

H.M.Jr:

I am going to have them over here at 3:00 o'clock.

White:

That they could raise money on - not on all of
them but the small ones, which may total a couple

of million of this.
Stewart:

I have done some of this business, and when you

sit down with an individual company, with the
accountants and the lawyers to find out just what
the elements are to dispose and transfer of

title, you have a long job ahead of you, and it

can't be done merely by forming a corporation.

Part of your irritation is just that fact and not
the government --

(Telephone conversation with Mr. Jerome Frank
follows.)

80
March 3, 1941
11:45 a.m.
H.M.Jr:

Hello.

Operator:

Chairman Frank.

H.M.Jr:

Hello, Jerome.

Jerome

Frank:

Yes, Henry.

H.M.Jr:

The English are coming in at 3:00 today and
I was going to put up a proposal to them
along these lines: - Have you got a minute?

F:

Yes.

H.M.Jr:

That they permit somebody under your supervision
to form a corporation that will buy some of their
direct investments and some of their stocks
and advance against these purchases 50% of the
purchase price and that then they go ahead and
have these things evaluated, you see?

F:

Yes.

H.M.Jr

I was thinking something along these lines:

that the corporation would be compensated on

a percentage - I don't what's fair, 1-2-3% of whatever the value is of the properties that
they dispose of, and that so that it would be

fair that they would take somebody - for a
better name I was thinking of somebody like
Judge Crane in New York who would act as an
arbitrater. You see?
F:

H.M.Jr:

Yeah.

But that this corporation would be formed -

who is to come in it - with the help of the

S.E.C. Now Huntington Cairns has been over

this thing as to the legality of it against
the Neutrality Act and against the Johnson
Act and he says the title passes, it's all right.
F:

H.M.Jr:

Yes.

Now you see the situation we're in - they tell

us every day they haven't made any sales because

81

-2it takes such a long time and I have told
Congress that they would divest themselves
and they've just got to keep faith with me
which they haven't done up to now.

F:

Of course. Well, they're just going to ruin -

you don't know what'11 happen up on the Hill if
they don't.

H.M.Jr:

That's right. Now, I wondered whether you
and anybody you want to bring with you could
come over and sit with me at 3:00. Could you?

F:

Surely.

H.M.Jr:

And if you wanted to know anything more about

it or want any of the facts, Huntington Cairns
is available and Harry White - they could come
and see you before 3:00.

F:

Fine. I'11 get at it.

H.M.Jr:

Thank you.

82

- 25 -

H.M.Jr:

This is the answer, gentlemen. It is the answer

as far as I am concerned so they don't come
around and weep on my shoulders any more. If I
just had nothing else to do and could go down and

hire a room in a hotel or a room in the Federal
Reserve and just pick up the telephone, I bet you
I could organize a corporation in a day. Why,
it is
nice business. There is no risk concerned,
is
there?
Stewart:

It isn't nice business at two or three per cent,
I can tell you that. When you are dealing with
direct investments, the cost of --

White:

Well, the expense is added on to it --

H.M.Jr:

Walter, I am using figures. What I am trying to
get over is their cost plus a reasonable percentage.
Put it that way.

Stewart:

Yes. I make an entirely different classification
of the direct and indirect for this purpose.

H.M.Jr:

But you agree with me in this corporation should
go as many direct as possible?

Stewart:

Yes, I do.

H.M.Jr:

As many direct as possible, and sweeten it with
some stock exchange stocks. Right?

Stewart:

Yes. I don't care for this purpose except for the
necessity of raising cash. I wouldn't put the
stock exchange stuff in at all except for that.

H.M.Jr:

I would want whoever did it to make all expenses
plus a reasonable profit. Now, they can borrow
money for six months from the banks, certainly

not to exceed half of one per cent on this kind

of collateral. For a year, most likely, they

would pay one per cent. And I take it during the
process of the thing they would be getting the

83

- 26 -

earnings of the business, the dividend. You
see, I would like to get only those banking
groups in who are really anxious to help
England and would do it as a sort of public
service. Now, they distribute these things after

the stock exchange closes at an over-all one and

a half per cent. But that is a quick turn over,
one and a half per cent.

Stewart:

Yes,
there is no risk. They fixed the price of
those.

H.M.Jr:

Yes. All I am saying is, take a bank like Chase
or Winthrop Aldrich who is very very anxious to

help - I mean people who are very sympathetic to
England, they would be invited in.

Stewart:

Well, they could lend the money, that is all they
could do, isn't it? The Chase couldn't take

any direct participation, could it?

Cairns:

You mean because of some charter limitations?

Stewart:

I thought the national banks couldn't take any
direct purchase.

White:

They could lend money to a corporation that did.

H.M.Jr:

They would have to borrow it, the hundred million
dollars from a bunch of banks. The banks would

get their - whatever they are rated. I don't
follow those things, half of one percent, one

per cent, whatever it is. We borrowed money for
two years at three-quarters, and I am sure they
would be willing to lend money for one year at

one per cent. All of that, the people who are
doing it every day, they know what the rates are.
I can look these fellows in the eye and say,

"Look, you so and so's, here is a method. Now,
here is a way that you can raise enough money to
keep yourselves going for six months, because they

say they need 450 million dollars from now until

the first of July. Isn't that what they say?

84

- 27 Cochran:

Subtracting whatever Canada may help them.

H.M.Jr:

But
that is the figure. I have got my figures
straight?

Cochran:

That is right.

H.M.Jr:

Well, I will tell you what I would like you

people to do, the four of you, if you could go

someplace and just poke, poke, poke, see
whether you can find something wrong with this,
and I am seeing you (Stewart) at lunch alone.

Would you do that for another hour, or as long
as necessary? Huntington?

Cairns:

Yes indeed.

H.M.Jr:

And get the thing if you could - well, if there
are any changes between now and 3:00 o'clock

as a result of Jerome Frank, let me know.

Cairns:

Yes.

White:

I think it would be more profitable if we had a

little time to talk it over with them, since they

are so much more familiar.
H.M.Jr:

Who?

White:

Jerry Frank and whoever else he wants, because

any bugs or any difficulties would be something
that they would be much more apt to be familiar

with.
H.M.Jr:

Well, you have got from now until 3:00 o'clock.
Three hours and five minutes. All you need is

five minutes for lunch. (Laughter.)

All right. I feel very happy. I think it is a
good day's work.

Stewart:

Right.

85
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 3, 1941
Secretary Morgenthau
FROM

Mr. Foley

It is understood that a group of American bankers

propose to organize, under the laws of one of the states,
a corporation which will purchase American securities now
held by the Government of the United Kingdom and by subjects

thereof. The American corporation will take title to the
securities at the time of making an initial down-payment
thereon. The remainder of the purchase price will be paid
when the securities have in turn been sold by the American

corporation, and will depend on the price realized on such
resale.

A question has arisen whether the foregoing pro-

cedure will constitute a violation of Section 7 of the
Neutrality Act of 1939, 54 Stat. 8 (U.S.C., Sup. V, title 22,
sec. 245j-6), or of the provisions of the so-called Johnson

Act, Act of April 13, 1934, 48 Stat. 574 (U.S.C. title 31,
sec. 804(a)). It is my opinion that the procedure would
not constitute a violation of either of those statutes.

86

-2Section 7 of the Neutrality Act of 1939 provides,
in relevant part:
Whenever the President shall have
issued a proclamation under the authority

of section 1(a), it shall thereafter be

unlawful for any person within the United
States to purchase, sell, or exchange

bonds, securities, or other obligations of
the government of any state named in such
proclamation, or of any political subdivision of any such state, or of any person
acting for or on behalf of the government of
any such state, or political subdivision
thereof, issued after the date of such pro-

clamation, or to make any loan or extend any
credit (other than necessary credits accruing

in connection with the transmission of tele-

graph, cable, wireless and telephone services)
to any such government, political subdivision,
or person."

There is no proposal here to "purchase, sell,
or exchange" any securities of a government named in a

Neutrality Act Proclamation, or of any political subdivision
of such government, or of any person acting for it. The
proposal is to purchase American securities. The proposed

corporation will not make any loan or extend any credit to
the Government of the United Kingdom or its subdivisions

or subjects. On the contrary, they will extend credit to
the proposed corporation.

The so-called Johnson Act provides, in relevant
part:

87

-3"That hereafter it shall be unlawful
within the United States or any place

subject to the jurisdiction of the United

States for any person to purchase or sell
the bonds, securities, or other obligations
of, any foreign government or political
subdivision thereof or any organization or
association acting for or on behalf of a
foreign government or political subdivision
thereof, issued after the passage of this
Act, or to make any loan to such foreign
government, political subdivision, organization, or association, except a renewal or
adjustment of existing indebtedness while
such government, political subdivision,

organization, or association, is in default
in the payment of its obligations, or any

part thereof, to the Government of the United

States.

The considerations mentioned above with respect

to belligerent governments under Section 7 of the Neutrality
Act of 1939 are equally applicable to defaulting governments under the Johnson Act.

Both the Johnson Act and Section 7 of the

Neutrality Act of 1939 are criminal statutes highly penal.
The Senate Report on the so-called Johnson Act refers to

that statute as "a brief penal statute". (1933) Sen.
Rep. No. 20, 73d Cong., 1st Sess., 2. It is well settled,
of course, that criminal or penal statutes must be strictly
construed. France V. United States, (1897) 164 U.S. 676,
682-3; Prussian V. United States, (1931) 282 U.S. 675, 677;

88

-4United States V. Resnick, (1936) 299 U.S. 207,209.
Attorney General Cummings applied that rule to the
so-called Johnson Act in (1934) 3 37 Op. Atty. Gen. 506,
507.

E.H. Folly h.
by N.C.

89

March 3, 1941
10:33 a.m.

let you know what we're doing BO

H.M.Jr:

we can work together. Foley and Cox are going
over at 11:00 to see Harold Smith, the Director
of the Budget.

Stimson:

Foley and Cox are going over at 11:00 to see

H.M.Jr:

Yes and then Smith is coming over to see me

Smith.

at 4:30 and I just called up Cordell Hull and
suggested that we all meet at his office at

9:15 tomorrow before these Senators come 80

that the Treasury can report what the position
is of the Bureau of the Budget.

S:

H.M.Jr:
S:

H.M.Jr:

Well, McCloy is in here now and we were thinking
this thing over and trying to talk it over. I
am worried about the compromise that was in my

mind last night - yesterday. It's got to be
graduated as to certain types. No small percentage would do at all if it applied to
separate categories. What I mean if it applied
to a type of airplanes or anything like that,
we might very well want to send the whole damn
thing to Great Britain. You see?
Well, would you like to do this.
The one thing I want to do - I want to keep in
touch with this myself, personally, if I can
because I'm frightfully busy.
Well, I have one or two things also but this
thing is No. 1. How about having McCloy meet
over at 11:00 with our men when they see the
Director of the Budget?

S:

(Talks aside) I think that would be a very good

idea.
H.M.Jr:
S:

H.M.Jr:

Well, why not let McCloy go over to Harold Smith's
at 11:00 and then we'11 sit there together.
Are you going?

No. Foley and Cox are going.

90

-2S:

Yes. But I think he'd be useful not only

receptively but I think he could give you some
ideas
on
it. because we've been talking pretty hard

H.M.Jr:
S:

H.M.Jr:

And then he could come to my office at 4:30.
4:30 this afternoon?
Yes, and then - you see, I've asked Hull whether
we could meet at 9:15 - 45 minutes before the
Senators come.

S:

The Senators are coming at 10:00?

H.M.Jr:

Yes, and 80 we could sort of have a meeting

S:

H.M.Jr:
S:

before and he wanted me to call you - he didn't
want to call himself.

Yes. All right.
Is that all right?
That's all right. Now let me see if I've just

got these correct. The first meeting with Smith
of the Budget is at 11:00 at the Budget office,
and the second meeting is at 4:00 with you

H.M.Jr:
S:

4:30.

4:30 with you, McCloy representing me

this afternoon, and the preliminary meeting
tomorrow morning has been agreed to by Hull

and 18 at 9:15, and 10:00 the Senators are
coming in.

H.M.Jr:

That's right.

S:

All right, I think I've got that all right.

H.M.Jr:

Thank you.

S:

Thank you very much for calling me up.

91

March 3, 1941
10:38 a.m.
H.M.Jr:

Hello.

James

Forrestal:

Good morning, Henry.

H.M.Jr:

Good morning, Jim. I admire your youth and

F:

energy. I wish I could do it.
(Laughs). I don't know whether it's that or
ineanity.

H.M.Jr:

F:

H.M.Jr:

My wife said she thought it terribly unfair
to make you say, "hello, Henry" while you were
running up-hill.
(Laughs). I had somewhat the same view myself.

(Laughs) . But you did get it out like a
little man. What I'm calling for - I've been

trying to work here with my crowd to get
together with the Director of the Budget,
and Foley and Cox and I just talked to Stimson he's sending McCloy - are going over to the
Director of the Budget at 11:00 and I wondered
if you didn't want to send your lawyer over
there.

F:

You bet. I'd like to have you consider him just direct him where you - anything outside

that you want.
H.M.Jr:

Well, if you'll send Lockwood over there at
11:00

F:

O.K.

H.M.Jr:

Then the Director of the Budget is coming to
my office at 4:30 this afternoon and if Lockwood
would be here at that time representing you

F:

O.K.

H.M.Jr:

Now, one other thing. I called up Hull and
said could we get together 45 minutes in advance
of the Senators, namely, at 9:15 - I mean, you
Stimson
and I, plus our attorneys, and he said
O.K.

92

-2F:

H.M.Jr:

Right.

That would give us 45 minutes to thrash the
thing out.

F:

That's tomorrow morning.

H.M.Jr:

At 9:15.

F:

Where - at your office?

H.M.Jr:

No, Hull's.

F:

Hull's office. O.K., Henry. Now just to

repeat: Lockwood will be at Smith's office
at 11:00 and your office at 4:30.
H.M.Jr:
F:

H.M.Jr'
F:

And you tomorrow morning at Hull's at 9:15.
O.K.

Do you always run in the evening?
(Laughs). Well .....

H.M.Jr:

Or just Sundays?

F:

Well, I walk home sometimes and sometimes I go

over and run for awhile.

H.M.Jr:

Pick me up sometime and I'll try to sprint
along behind you.

F:

Well, how about walking home some night?

H.M.Jr:

Wonderful.

F:

O.K.

H.M.Jr:

All right.

93

March 3, 1941
11:55 a.m.
H.M.Jr:

Hello.

Operator:

Mr. Delano.

H.M.Jr:

Hello, Delano.

Preston
Delano:

Yes, Mr. Secretary.

H.M.Jr:

How are you?

D:

H.M.Jr:

D:

Pretty good, sir.
Did you get a memo from me to see whether you
could find me a Roosevelt banker?

Danny Bell spoke to me about it and we're
actively trying to find one. I gave you a
tentative name - Paul Davis who is a brother
of Norman Davis.

H.M.Jr:

Paul Davis.

D:

Yes, he's a brother of Norman Davis and a

friend of Hull's.

H.M.Jr:
D:

I don't hear you.
Paul Davis, who is head of a bank down in
Nashville, Tennessee, and we have a couple of

others and we're trying to find out what their
politics are - that we think favorably of.

H.M.Jr:

D:

Well, Paul Davis, as I remember, that was all
mixed up wasn't it with R.F.O. and

I'm a little bit afraid of that thing. I told

Danny that the one thing I thought might be
dangerous in that fact was that he was a little
bit too close to Jesse Jones.
H.M.Jr:

Yeah. Well, I don't know how dangerous it is
but I read the story about how he got his stock
and it didn't sound too ethical to me.

D:

Well, I think that's right; that's the one thing
that stood against that particular fellow.

94

-2Now we have another chap named Turner that

we're investigating and we were looking into
a fellow up in Boston that we're investigating.
I've got these fellows - all my district chiefs
are in here today and I'm going to pursue it
vigorously and just as soon as we can get
something
further why we'll give you a report
on
it.
H.M.Jr:

D:

H.M.Jr:
D:

Yeah. I don't think that that Paul Davis
sounds so hot.

Right. I rather agree with that - I just put
it forward as a thing that I thought of at the
moment.
Now, did Harold Graves get in touch with you?

Yes, I've just finished a talk with Sloan

and this new man, you see, and I've given them
what figures they want about banks and I've
also given them what meager advice I can as

to the problem which they're facing.

H.M.Jr:
D:

Good. Thank you.

Right-o, sir.

95

March 3, 1941
12:05 p.m.
H.M.Jr:

I didn't recognize your voice.

Harry

Hopkins:

Well, my voice 18 changing.

H.M.Jr:

Up or down?

H:

(Laughs). I hope not up.

H.M.Jr:

Well, with that fellow staying over at the
White House I don't - (laughs).

H:

H.M.Jr:
H:

(Laughs) God, not over the White House
telephone brother.
How many rooms away from you is he?

Well, he's away - he's on the other side of

the hall.
H.M.Jr:

A man came for one week and he's staying
how many?

H:

(Laughs).

H.M.Jr:

Well, anyway, I just thought I'd let you

know what I'm doing. Foley Cox and Stimson's
lawyer McCloy and Forrestal' 8 lawyer all went
over at 11:00 at my request to see the Director

of the Budget because I think - well, he's a
little bit interested in what Jimmy Byrnes is

doing, you see, and I think somewhat in
sympathy with it. See?
H:

H.M.Jr:

Yeah.

Then the Director of the Budget and this whole
crowd is coming over to see me at 4:30 to see
whether we can get together, and I called up
Cordell and asked whether we couldn't come
over 45 minutes before the Senatore did
tomorrow so that he and Stimson and Forrestal,

plus our lawyers, could get together. He said
all right provided I'd call each person up
80 I had to call everybody up. So that's what

the situation is and if you'd like to know after
4:30 what happens I'll give you a ring.

96
2-

H:

H.M.Jr:
H:

H.M.Jr:

H:

Well, yes, I'd like very much to know.
See?

Yeah.

Now, there is some finagling going on back
here I don't quite understand.
Do you see any advantage in having the

President
tell Harold Smith a few things
this afternoon?
H.M.Jr:

Well, let's wait and see just what he has
done, you see, and as soon as the crowd leaves
I'11 call up and if there are too many details
I'll send one of the boys over to give it to
you first hand. I can send Oscar over, you
see.

H:

H.M.Jr:

All right, fine.
And he can give it to you first hand, but

nobody was doing anything today and I wanted
to smoke Harold Smith out.

H:

Yeah, I think you've used a very good technic.

H.M.Jr:

Smith's attitude is that McCloy 18 kind of
needling Stimson and that McCloy is all wet
on this. That's what Harold Smith says. He
says that there are two things: one is the
appropriation and the other thing is production
and the two things have not got anything to do
with each other.

H:

H.M.Jr:
H:

H.M.Jr:

Well, I don't know.
But
anyway
where
we are.between 4:30 and 5:00 I'll know
That sounds fine.

Is there anything that you can tell me that

happened between the President and and the
leaders?
H:

No. No.

97

3H.M.Jr:
H:

H.M.Jr:

You don't know.

No. I don't think anything has happened.

This is what they tell me is the difference

between the way they are handling it in the
Senate and the House, and this I would like

you to tell the President. In the House,
while the bill was up, every morning the

Democratic members of Foreign Affairs, plus
the Speaker, plus McCormack, met for an hour
and decided what the strategy would be. Then
they went in united.

H:

H.M.Jr:

H:

H.M.Jr:

H:

H.M.Jr:

Yeah.

And Barkley is not doing that, or George, in
the Senate, and at that meeting our men sat
in with them. See?
You mean Oscar.

Oscar. So we knew all the time what was going
on, and they'd go on the Floor, put up a swell

fight and a united front.
Yeah. I think that's a damn good idea.

Now, if Barkley would do that beginning with
tomorrow morning

H:

H.M.Jr:

And ask Oscar again?

Sure, and then he could let you and me know
and that way the President would know by noon

just where the thing stood.

H:

That's a damn good idea. I'11 suggest that
the President call up Barkley and suggest it
to him.

H.M.Jr:

And my boys agree with me that some of these
other amendments are a damn-sight worse than

the one that Stimson is worrying about.

H:

Yeah.

H.M.Jr:

And that would keep it in hand.

98

Yeah.
H:

H.M.Jr:
H:

O.K.?

I'11 talk to the President right away.

H.M.Jr:

I hope your voice stays low.

H:

All right, don't worry.

H.M.Jr:

(Laughs). Good-bye.

H:

Good-bye.

99

March 3, 1941
1:08 p.m.
Ed Foley:
H.M.Jr:
F:

strike up in Hartford was settled and

the workmen went back to work today.
Wonderful.

I think they met the demands - the company did partially. I think they gave them a 30 increase;
I think they were asking for 10%. Now I

wondered if under those circumstances you

wanted Joe to call Wagner.

H.M.Jr:
F:

No, but I'd like to find out
We'11 get the rest of the story and put it in
a memorandum for you. I just wanted to be
clear on that.

H.M.Jr:
F:

H.M.Jr:
F:

Good.

We had a pretty good meeting over there with
Smith and we all agreed on language that
would still preserve what we want and perhaps
save the faces of Byrnes and the other fellows.

Well, do you think Smith is all right himself?

Yes, Smith is all right now. I think this

fellow with whom Jimmy Byrnes talks over there
was the bad actor. I gathered that from what

Kemp said. Ed Kemp, you know, is Murphy's man

over there. He's Smith's counsel, and he said,
"I don't want you to get me wrong but this 18
thethe
waytime."
I thought it ought to have been done
all
H.M.Jr*
F:

Well, I'11 be damned.

And he said he suggested that last Saturday
and they sort of pooh-hooed it because they

didn't think it could be done. But it's a

fundamental thing and they 've got to make a

fight for it.

H.M.Jr:
F:

O.K., Mr. Stimson.

All right, sir. (Laughs).

100
2H.M. Jr:

Don't go War Department on me now.

F:

I won't.

H.M.Jr:

F:

H.M.Jr:

Listen, Ed. I'm just tickled to death;
I think I've got the answer for the British
and I've invited you to be in at 3:00.
All right, fine. I got the message.
Yeah, I think it's all right. Jerome is
coming over.

F:

H.M.Jr:

Good. Well, I'll talk to Huntington before

3:00. I haven't had a chance to see him yet.
Well, that was what I'm trying to get over
to you.

F:

Yeah, I get it.

H.M.Jr:

All right.

F:

Thanks.

101

March 3, 1941
2:07 p.m.
H.M.Jr:

Hello.

Operator:

Foley.

H.M.Jr:

Ed, tell me, 18 the Vatican in or out of this

Ed Foley:

Well, it's out of the - (talks aside) - it's

freezing order.

out of the freezing order but I think that

we'll have to have some general licenses
right away because most of their people would
have their balances frozen because they are

Italian citizens, you see.

H.M.Jr:

But the Vatican as such though

F:

The Vatican as such is out and then we'll

H.M.Jr:

F:

H.M.Jr:
F:

H.M.Jr:
F:

have to clarify it after the order is signed.
But, I mean, when it goes out they'11 be
treated just the same
They'11 be treated just the same as Yugoslavia
and Portugal and Spain and Russia

And a little bit better.
And a little better, yeah. (Laughs).
O.K.

Could John and I speak to you just a second
about this thing?

H.M.Jr:

John who?

F:

Pehle and I.

H.M.Jr:

Sure. Come in.

F:

All right, thanks.

102
March 3, 1941
2:10 p.m.
Dean

Acheson:

Henry?

H.M.Jr:

Yes, Dean.

A:

H.M.Jr:

A:

H.M.Jr

I spoke to Mr. Hull about the Bulgarian
thing and he said anyway you wanted to do it
was all right with him.

All right. Now, when do you think you'll
have the other one ready?

Well, Bernie says that we are going to start
here as soon as Frank Shea comes and stay in
session until we get it ready and with those
intimidating words I'm going to work on it
and I think we'11 get it ready tonight.
Well, then we'd be ready to shoot it in the
morning.

A:

H.M.Jr:

A:

H.M.Jr:
A:

H.M.Jr:
A:

H.M.Jr:
A:

H.M.Jr:

I think 80. Bernie knows more than I do about

what is involved in this.

Well, my crowd from what I talked to them
about this morning seem to think that they can

get it ready during this afternoon and tonight.
Well, as I say, Bernie thinks it can be done
and well do everything we can to do it.
Has Mr. Hull expressed any doubts?

About getting it done?

No, no, about doing it all at once.
About putting Bulgaris in with the others?
Yes.

Oh, no. He just thought that you ought to
freeze Bulgaria. He has no idea how long it's
going to take to do the whole order.
Well, I'm planning to have it ready at nine
tomorrow morning.

103

-2A:

H.M.Jr:

Well, if there should be anything come up,
which I don't anticipate, and we shouldn's
do it then I suppose we'd just go ahead with
Bulgaria separately.
If something seems insurmountable and we can't

do it then we will go ahead, yes, but let'e
try awfully hard.

A:

H.M.Jr:
A:

H.M.Jr:

oh, yes. Well, I don't think there'11 be
anything from us on the

Well, if it isn't from you it'11 be done.

All right, sir.
O.K.

104

March 3, 1941
2:55 p.m.

RE AID TO BRITAIN

Mr. Wrong

Present:

Mr. Pinsent
Mr. Stewart
Mr. White
Mr. Cochran

Mr. Phillips
Mr. Clark

H.M.Jr:

On advice of counsel, in front of the Canadian
representative I am not going to unburden myself.

White:

Did you talk with the S.E.C.?

H.M.Jr:

I called off the meeting.

White:

But you didn't get their view?

H.M.Jr:

No.

White:

Well, I can repeat it in a sentence. They felt
that you ought to wait before taking it up with

the British until they had more time to discuss
it. They thought of several obstacles, one particularly that they thought might disturb you
with respect to some of these corporations
getting in on the inside of these large companies and managing them in such a way that it
might have serious repercussions. They wanted

more time to think over the aspects. They did

think that the listed securities might be

handled that way, but they wanted a little more
time to handle it.
H.M.Jr:

When did you see them?

105

-2-

White:

H.M.Jr:

We were there about two hours, from about
11:30 to 1:30.

I sent the message at 2:00 to call off the

meeting.

White:

They must have thought it was a consequence

H.M.Jr:

That is good, isn't it? I am a mind reader,
you see. (Facetiously.)

White:

They undoubtedly thought that was a result,

of their conclusions.

because that was what they recommended, and I

just had time to come back in and tell you
about it.

Stewart:

What is it you do hope mostly to get out of
these men today?

H.M.Jr:

Well, what I hoped to get out of them most today

is a reconciliation of figures as between the
English and Canadians.

Stewart:

Let Clark tell his story about what they are
doing and how they propose to do and so forth
and so on.

H.M.Jr:

Yes. Now, this letter to Sir Edward Peacock,
do I hand that to Pinsent or do I hand that to
Phillips?

Cochran:

I would say Pinsent, because it is addressed
in care of the Embassy.

H.M.Jr:

That is what I thought.

White:

Even if they are unable to sell some of their

securities,
I still feel that they can get cash
somehow.

106

-3-

H.M.Jr:

I am not going to worry about it. I am going

White:

I don't know where, but they can get some.

to let them worry.

( Messrs. Phillips, Clark, Pinsent, and Wrong

entered the conference.)
H.M.Jr:

What are you, Charge here?

Wrong:

No, the new minister is arriving very shortly,

H.M.Jr:

Have you been in Canada?

Wrong:

H.M.Jr:

and I am coming back with him.

Only for about a month. I only left England
after the New Year. I have been in London for
the last fifteen months or so.

Well, Mr. Clark, Sir Frederick Phillips and I

were talking about the bank balance of England,
and in the course of the conversation he said
he didn't know just what Canada was thinking of
doing, say between now and the first of July.
Is that a good time?

Phillips:

That is a good time, sir.

H.M.Jr:

Or between now and September?

Phillips:

I know what they are thinking of doing, doing
the best they could for us, but we haven't
gotten the figures.

H.M.Jr:

Well, anyway you put it.

Phillips:

That is quite right.

H.M.Jr:

I think the English people date their year from

now until September, and if you would care to

tell me - I mean, that was the idea of my invi-

107

-4tation.
Clark:
H.M.Jr:

Clark:

I see.

I mean, because it affects the British Treasury.
I mean, I don't know whether you are prepared
to talk.

Well, I didn't come prepared to do that. I

would have to go back, I think, and consult my own
government. As Sir Frederick has said,
the general principle we have been following
is to do the maximum which we can do by way of

assistance to England, either by way of repatriation of securities or accumulation of

sterling added on top of, superimposed upon,

our own direct military program. Now for the
second year of war, we started out the first -

for the first six months' period aiming at a
hundred and fifty million. We have -H.M.Jr:

A hundred and fifty million what?

Clark:

Canadian dollars. We have done, I think it is

about three hundred and twenty million dollars

altogether in that period.

H.M.Jr:

Of repatriation?

Clark:

Repatriation plus an accumulation of sterling,

only to - oh, I guess less than half of that

amount, but it would be represented by repatriation of securities. The normal process has been
to accumulate sterling until we were ready for a
repatriation operation, which would be of sub-

stantial size. I think the last repatriation

job we did has in October or November, and then
since that time we have been accumulating

sterling primarily.

H.M.Jr:

Well, I thought that you knew why I wanted to

108

-5see you.

Phillips:

Well, I explained to Dr. Clark, sir, the
difficulty in setting a figure simultaneously
for Canada and the United States, that we
couldn't present you with a very clear picture until we had had some discussion with
him as to the position of Canada.

Clark:

Yes.

Phillips:

But I think you will see the position as we go

on, sir. I think you will get the hang of it

pretty quickly.
H.M.Jr:

All right. Please.

Clark:

Well, as I say, we have done about 320 million,

I think, since - in the last six months. We
didn't expect to be able to continue that rate.

The fact is that we are superimposing repatriation or accumulation of sterling on top of a
major war job. Now, to give you some idea of

that, we introduced in the House of Commons the

appropriation for the new fiscal year. That
involved an expenditure of about one million one billion three hundred million against a

program of a billion four hundred seventy-four

million, representing our direct war effort.

Well, to that billion 474 should be added about
433 million of non-war expenditures. At that
time, my minister counted about 400 million of
repatriation for the year. Then you have
certain essential municipal and provincial
governmental expenditures. Well, if you add all
those up together, you get a total of something

like 52 per cent, 52 or 53 per cent of the

estimated national income of the country.

Well, now, how much more we can add to that by

109

-6-

accumulation of sterling is - it is a question.

We want to stretch - we started up there with
the assumption that we will do absolutely the
maximum and that we will not chisel on the
extent to which our resources are used for the
war effort. One way or another, we will do
absolutely the maximum that can be done.

Now, one element that has - a new element that
has entered the picture since I have been down

here is that the estimates of the British ex-

penditures in Canada in the next six months are
larger than we previously had been assuming, and

that will - that should have its effect on the

national income that we have been counting on,

and if we raise that national income, I think

that we can increase the amount of repatriation,
or rather, of assistance to the United Kingdom
that we are doing. There is, on the basis of
the present estimates, a very large gap to be
made up for the next six months, while your
estimated holdings in Canada are of the order

of six hundred million - it is about that, isn't
it?

Phillips:

I think so.

Clark:

In the six months' period I don't see how we

could do all of that. You couldn't get that out

of our economy added on to the other things we
are doing. We could go a considerable proportion

of the way, how far I don't know. I had assumed
that we would have a chance here to explore

various possibilities of meeting that deficit.
H.M.Jr:
Clark:

Well, how would you suggest you proceed?

Well, I am not so sure but the best way would be
to have Sir Frederick and myself sit down with
some of your officers and discuss it, Mr. Secretary.

110

-7-

H.M.Jr:

It is entirely acceptable to me. I think that

would be fine. Then when you have got some-

thing on a piece of paper --

Phillips:

Well, I have got some figures worked out, sir,
but they are no more gospel than any other
estimates made for the next six months. I
think we can get an idea of the real magnitude

of it - they are not very accurate.

H.M.Jr:

Well, for whatever they are worth, but --

Clark:

The best that can be done at the present time.

H.M.Jr:

But these three gentlemen are available now.

Clark:

Well, I would appreciate the opportunity of
talking to them in detail about these figures.

H.M.Jr:

Well, why don't you go down to Dr. White's

office and sit down and talk. Shall we say,
"go to it?"

111

March 3, 1941

H.M.Jr:

Sir Frederick Phillips stayed behind to

tell me that he had word from England that
he was pretty sure that they were going to
be able to borrow a hundred million dollars
of the Belgian gold located in Canada.

He said that if he didn't hear by tomorrow
night, he would send another cable.
I asked him to whom Sir Edward Peacock was

responsible, and he said he thought the

Ambassador.

I said, "How is he getting along?"
"Well," he said, "he thought he would have
something to show pretty soon on the Viscose
Company, but," he said, "you are not half
as annoyed as I am,' and he said, "I know
just how you feel, and he gave me the
impression that he didn't blame me for
being upset with the extreme slowness of

the progress or lack of progress of Sir

Edward Peacock.

112

March 3, 1941

Memorandum to:

Mr. Harry White

From:

Secretary Morgenthau

Sir Frederick Phillips stayed behind
to tell me that he had word from England that
he was pretty sure that they were going to
be able to borrow a hundred million dollars
of the Belgian gold located in Canada.

He said that if he didn't hear by
tomorrow night, he would send another cable.

Copy to:

Mr. Merle Cochran

113

March 3, 1941

Memorandum to:

Mr. Harry White

From:

Secretary Morgenthau

Sir Frederick Phillips stayed behind
to tell me that he had word from England that
he was pretty sure that they were going to
be able to borrow a hundred million dollars
of the Belgian gold located in Canada.

He said that if he didn't hear by
tomorrow night, he would send another cable.

Copy to:

Mr. Merle Coohran

114
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 5, 1941

TO Secretary Morgenthau
FROM H. D. White

Subject: March 3 Conference on Canadian Exchange Problem

Present: Sir Frederick Phillips and Mr. Pinsent for the
British, Mr. Clark and Mr. Wrong for Canada,
and Messrs. Stewart, Cochran, Coe and White
for the U. S. Treasury.

Mr. Clark said that Canada expected in the fiscal year
beginning in April to attain an "all out" war effort and he
presented figures from a recent budget message to show that
under this program Canadian Governments would try to collect

about 56 percent of the Nation's income. Mr. Clark believed

that Canada would soon exhaust its dollar exchange assets.
He pointed out that contrary to the impression which the U.S.
Treasury seemed to have, the United Kingdom was paying little

gold or U.S. dollars to Canada and that it was not guaranteeing

in the future to pay any at all. He said that in the last

six months, the United Kingdom had had a deficit of $380 million
(Canadian $) with Canada, had met only $60 million (Canadian $)

of this in gold, and had for the rest given sterling balances

and Canadian bonds.

Sir Frederick said that the British expected the deficit

of the United Kingdom with respect to Canada for the next four
months to be $385 million (U.S.$) and that although he was
not saying that Canada would get no gold, it was clear that
Britain could not meet Canadian deficits of this magnitude

with gold or U.S. dollars. In the course of the discussion

it developed that the Canadians are now discarding the figures
which the British recently gave Secretary Morgenthau respecting
their balance of payments with Canada.

Mr. Clark asked for advice on how Canada could meet the
approaching exchange problem. He promised to submit more

complete figures along the lines of those given us by the

British. Sir Frederick said that he was going to suggest

to the Secretary that Canada's orders in the United States
for goods to be processed in Canada and sent to the British
should be placed directly by the British Government under the
Lend-Lease program. He thought this would solve only part
of the problem, perhaps to the extent of $100 million.

115

--

Division of Monetary
Research

Sir Frederick was asked whether in view of the fact
that Britain was not paying gold or U.S. dollars to Canada,
understood in the recent discussion, the British Governhad
more
todollar
meet
its needs them in
as ment was
gold and
assets

this country. Sir Frederick replied that the British had

growing third country needs and that they must retain a

balance.

In answer to queries about figures of British gold
holdings, Mr. Pinsent stated that the recent British

statement of immediate available resources included only
that gold which could be immediately sold in New York.
At another point in the conversation there was reference
to the amount of French gold which remained in Canada
available for switching operations and it was not made
clear whether all the newly-mined gold was being sold to

the United States. Sir Frederick alluded to the

probable unwillingness of the British Government to

send gold to this country in anything but battleships
British to release battleships for this purpose.

and to the fact that it would be difficult for the

TO:

The Secretary

Secretary Hull at his press (12 mood
conference a few. minutes ago

told the boys that he favored
a freezing order against Bulgaria. Asked about other axis
nations, he said that the State

Department had given considera-

tion to that matter from time
to time and had reported its
opinion to the Treasury.

@

3/3/+1
From: MR. SCHWARZ

117

March 3, 1941
3:55 p.m.

RE FOREIGN FUNDS CONTROL
Present:

Mr. Graves.
Mr. Kuhn
Mr. Schwarz

H.M.Jr:

I got word at five minutes past nine this

morning that they wanted us to freeze Bulgaria.
We have got this other order in the works, and

I thought I would do a little finagling and
kind of hold it and do it all at the same time.

So I told this to Dean Acheson and said to put

it up to Mr. Hull. He said, "All right, let's

do it all at once. Why do two?" So he calls
back and says Mr. Hull says that is all right.

Then Hull holds a press conference and tells

them he has turned this thing over to me. I

don't know what they call that in the Tennessee
mountains but up in the Hudson Valley they call
it the double cross.
Kuhn:

I saw it on the ticker.

Schwarz:

The boys walked in and said, "What happened to
the messenger?"

H.M.Jr:

Now what am I going to tell them with the

foreign press here? I think just tell them the
truth, that the banks are closed and we are

watching it. So far, there is only one trans-

action of 20 thousand dollars from Bulgaria to

118

-2Yugoslavia. I will just simply say we have

got the request, and we are working on it and
we will have something in the morning.

Schwarz:

You are sure we will have something?

H.M.Jr:

Oh, yes, because I told him if we didn't clear
the other order we would do Bulgaria anyway in
the morning.

Schwarz:

Good. That is better. Just have something,
without saying what it is.

H.M.Jr:

No, we will have something in the morning.
Can you imagine the so and so saying that?

Well, you haven't got what I thought you would
have. I thought, what harm would there be in
simply saying that we have pretty well arrived
at, amongst ourselves, what we thought - I
would say after consultation with the Federal
Reserve Board, what we want, but in order to

field test the thing, we sent it out Friday to
the presidents of 12 Federal Reserve banks to

have a look at it, and after all, how do we

know what interest rates would seem attractive
in San Francisco and Dallas, and Minneapolis?

The only way to find out is to send out into
the field, and I hope to have the thing set
by the end of the week.

Graves:

I would advise against that.

Schwarz:

They will immediately go to the Federal Reserve
presidents.

Kuhn:

They will go to Elliott Thurston and get the
stuff, you know.

Graves:

It is still in the studying department.

Schwarz:

If you are not sure whether they will talk--

119

-3Kuhn:

H.M.Jr:

I might explain what the first part is-I am not going to saying anything. They will

have enough with the other.

120

March 3, 1941
4:30 p.m.

RE AID TO BRITAIN
Present:

Mr. Foley

Mr. Cox
Mr. Lockwood

Mr. Hackworth
Mr. Smith
Mr. McCloy

H.M.Jr:

The Stenotype is a very useful thing. We go
back sometimes for two or three years. Does
it bother you?

McCloy:

No.

H.M.Jr:

I can't remember. I don't bother to try to

remember. There are so many things going on
all day.
Colonel Dowling took me aside one time and said,"

What are you going to do to protect yourself
when you are Investigated?" So I told him. He
said, "You are all right. 11. He said, "You are
really going to be investigated. You might as
well know it." So he says, "Have you really
got a record?" and I said, "I have got a record."
He says, "You are all right, because he really
had the job of investigating all the Democrats
who came in during the World War. When they

121

-2-

get down to this military stuff - or anything
else. And I never read it, except we have it
all cross-referenced, and it is all filed and
everything with my librarian. But then these
things come up, and they have happened two or

three years ago, what about this Executive
order and that Executive order? and it is there

and it is very useful.
McCloy:

Yes. Of course you are apt to say things in
connection - you are apt to say - I don't think
that is a good idea, just when you are thinking out loud.

H.M.Jr:

I know, but there is only one copy, and it is
in the safe. The man who always gets up and

walks out of the room - not always, but usually,

is Herbert Feis. It just infuriates him. Let's

work. Harold Smith is always late anyway.
Foley:

All the changes are in two or three (referring
to draft of H.R. 1776, 77th Congress). That

first change is merely transposing the language
on lines 16, 17, and 18 down to line 25. The
committee is going to do that anyway. We are

just facilitating this. That thing got in the

wrong place. The committee put it in the wrong
place.

H.M.Jr:

Tell me what - I don't want to read all this,
Foley - what does it boil down to?

Foley:

Well, what we are doing here is saying that in

addition to the limitation of a billion three
on appropriations that have been made at the

time this act takes effect, there will be
further limitations. The defense articles may
be disposed of under authority of this statute

here unless Congress in the appropriation acts

prescribes a further limitation.

H.M.Jr:

They may be what?

122
3

Foley:

They may be disposed of.

H.M.Jr:

Say what you said before that.

Foley:

The defense articles to be paid for from future

appropriations may be disposed of under the

Lease-Lend Bill unless in the appropriation
acts Congress imposes restrictions.
H.M.Jr:

Foley:
H.M.Jr:

In other words, if they don't do anything, it is

all right.

It can all be disposed of.
And the way it was before was that unless
Congress did something, nothing could be disposed of.

Foley:

That is it.

H.M.Jr:

Right?

Foley:

Right.

H.M.Jr:

Well, it is O.K. by me.

McCloy:

Now, will Byrnes take that?

H.M.Jr:

That is something else.
How about your two bosses?

McCloy:

Well, Secretary Stimson said he still feels it

is unwise, of course, to make any restrictions,
but if you have to do something by way of a po-

litical compromise on it, this is all right,

but it means that we will have to make a fight

on every appropriation bill against any restriction which would be hampering British aid.

Foley:

You would have to do that anyway.

123

Lockwood:

Mr. Forrestal feels the same way, but he feels
you would have to do it anyway whether you

have this clause in here or not. This is only
declaratory of the law, he thinks.

H.M.Jr:

I think you would have to do it anyway.

McCloy:

I think that is probably so. We are going to

have to go up this Wednesday. We have got a

big bill, three billion eight, of which all

but two or three hundred million is for supplies,
all of which supplies, practically speaking, we
want to have available to switch to the aid of
any country whose defense is vital to ours.
We want to - we would be willing to have a
hundred percent restriction against the items

in that appropriation bill which relate to the

maintenance of troops and barracks and what not,
but as soon as you get talking about guns, we

can't tell. We might very well want to send
over any particular item, every item in that
program, to Great Britain.

Lockwood:

That bill won't be passed until after the LeaseLend Bill, anyway, will it?

H.M.Jr:

You want to make sure about that because it was

brought out if it is, then the 10 percent rule

applies.
Lockwood:

That is right. You have got a problem of timing there.

Foley:

I was talking to Jack just before we came in
here about what the effect would be.
(Mr. Hackworth entered the conference.)

Foley:

I was talking to Jack as to the effect of the

Byrd amendment, and he says in so far as the
Army is concerned, the Byrd amendment goes in,

124

-5and what they would do is to hide in the appropriations to carry out the Lease-Lend Bill
most of the things that they need and they
want to make available to Great Britain. In
other words, if their normal requirement was
five thousand fighters for next year and they
would want to get five thousand for Great
Britain, if the Byrd amendment went in, they
would ask for a thousand, for instance, and
under the - that would be under the regular
appropriation, and then they would ask for
nine thousand under the Lend-Lease.

H.M.Jr:

I think Mr. McCloy is a very smart gentleman,

but I don't think he is that smart, that he

can hide five thousand airplanes. (Laughter)

Foley:

On the other hand, if the Byrd amendment didn't

go through, if they actually needed five for
themselves and five for the British, they would
ask for ten for themselves, and they wouldn't
ask for any under the Lend-Lease Bill. I think

that is the effect of it.

McCloy:

You see, what we are doing now, for instance we have got a land force projected of a million
men. We are going to have arms for them. They
are going to be pretty well equipped. They are

going to be able to really fight this summer.
lion men for our land army, making a total of
two million. But we won't ever call those
second million, if we are not at war. What
we want to do is to create the capacity and
the weapons for that two million force, and
in order to create capacity, you have got to

We are now going ahead with another one mil-

get airplanes and those airplanes, when we get
them, will be useless to us unless we can send
them over to England to maintain the defense

of England, and that is the very thing that we
are going up to Congress for now.

125

6-

H.M.Jr:

Well, I think if they take this as a matter
of strategy, I don't think it will be so bad,

because I am not nearly so worried about this
as I am about the Ellender amendment.

(Mr. Harold Smith entered the conference.)
Smith:

Is this the same or a revision?

Foley:

This is the same, no changes.

McCloy:

How do you figure that Lodge is going to vote?

Foley:

McCloy:

Well, Walsh is against the bill. I figure
Lodge is against the bill.
Lodge told Marshall this morning after a session that we had with him that he was going to

vote for the bill.
Foley:

He did? Well, he didn't vote for all the

emasculating amendments, then because he was for

that proposal of Taft's that the thing to do was

to make a lump sum available to Great Britain
and not to have this delegation of power.
McCloy:

They talked about the Byrd amendment this morning.

H.M.Jr:

Are you (Smith) satisfied with this?

Smith:

Yes.

H.M.Jr:

Now, you are at a disadvantage, you and I,
because we didn't meet with these people.
Mr. Hackworth, would you like to ask some

questions of the Director of the Budget?

Hackworth:

I will tell you my position. Since I wasn't at

the meeting yesterday, I am more or less in the

126

7-

role today of observer. I am not in a position
to talk intelligently on the subject.
H.M.Jr:

Well, what I wanted was to give you the opportunity to ask these gentlemen any questions,
and then we are meeting with Mr. Hull at 9:15
tomorrow morning, and I thought you could get

this to Mr. Hull tonight, and he wouldn't get
it cold in the morning.

Hackworth:

H.M.Jr:

When
I read
this over, if I have any questions,
I would
like to.

We will just wait while you read it now. We
have got enough lawyers around here.

Did you take the bar exam, Harold?
Smith:

No.

H.M.Jr:

You and I, we are just a couple of farmers. You
see my lawyer has got in such shape he brings it

in, and he says, "Here, take it and like it;"
and I say, "Yes, sir," and that ends that argument.
McCloy:

What is a client for?

H.M.Jr:

Just to say, "Yes, sir."

Hackworth:

Well, Mr. Secretary, I don't see anything in

here that would seem to change the situation
materially. I may not understand these amend-

ments, but I don't see that the situation is

materially. changed except that you limit the

amount that may be turned over under existing

appropriations and leave it to the department of
the Government having control over these things

to determine their value. Isn't that about the
size of it?

127

-8McCloy:

That
the meat
first part
of it. The second part
of it isis the
of it.

H.M.Jr:

Can I put it in a very crude way, the way it
was explained, so that I can understand it?

The way the Byrd amendment read was that unless

a subsequent bill specifically said that a

certain percentage could be allotted for lendlease purposes, none of it could be done. This

says that it is all right to give all of it
for lend-lease unless in an appropriation bill
a limitation is set up. Is that right?
Foley:

That is right.

H.M.Jr:

Now, that is the difference. That is a very
important difference.

Hackworth:

Yes, I see. That is in the second part.

Foley:

That is right. The Byrd amendment hasn't been

adopted yet, but this is legislative strategy

to head off the Byrd amendment. It has been
explained to us by George that Byrd wants to
put Congress on notice that unless in the sub-

sequent appropriations for the Army and the Navy

they specifically deal with the amount of those
articles that will be purchased with those appropriations that may be made available to another country, all of them could be maid available to another country and instead of putting

it - instead of saying that none of the articles
could be made available to another country,

unless Congress specifically said in the appropriation that a portion of them could be made
available, which would be the effect of the Byrd
amendment, this puts Congress on notice another

way and says that unless affirmative action is
taken in the subsequent appropriation for the
Army and the Navy, all of it could be made
available to another country.

128

-9Hackworth:
Smith:

Yes.

And all of this, as I understand it, pertains

to appropriations subsequent to the date of the
adoption of the Lend-Lease Bill.

Foley:

And as to appropriations prior, there is a

Smith:

That is right.

Foley:

On the value that could be made available.

billion three limitation.

Here is the Byrd amendment, Mr. Hackworth.
Hackworth:

Yes, this is the reverse. It seems to me
questionable whether he will take it.

H.M.Jr:

Well, from remarks that Senator George made,

we thought that he would, at least that Byrnes
would take it. I don't know whether Byrd would,
but Byrnes would. Good luck.

Cox:

Thank you.

(Mr. Cox left the conference.)
Hackworth:

Well, I don't see anything wrong with it myself.

H.M.Jr:

Then we will cut it short that we will all be

at Mr. Hull's office at 9:15 tomorrow morning.
Harold,
talk withhave
me? you got a few minutes you could
Smith:

Yes.

129

Calendar No. 51
77TH CONGRESS
1st SESSION

H. R. 1776
[Report No. 45]

IN THE SENATE OF THE UNITED STATES
FEBRUARY 10,1941

Read twice and referred to the Committee on Foreign Relations
FEBRUARY 13,1941

Reported by Mr. GEORGE, with amendments
[Omit the part struck through and Insert the part printed in Italie]

AN ACT
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-

7

(1) Any weapon, munition, aircraft, vessel, or
8

boat;

9

(2) Any machinery, facility, tool, material, or
10

supply necessary for the manufacture, production, proc-

130
2

essing, repair, servicing, or operation of any article

1

described in this subsection;

2

3

(3) Any component material or part of or equip-

3

ment for any article described in this subsection;

4

(4) Any other commodity or article for defense.

5

6 Such term "defense article" includes any article described

7 in this subsection: Manufactured or procured pursuant to

8 section 3, or to which the United States or any foreign
9 government has or hereafter acquires title, possession, or
10 control.

(b) The term "defense information" means any plan,

11

12 specification, design, prototype, or information pertaining to
13 any defense article.

OA NA

SEC. 3. (a) Notwithstanding the provisions of any

14

15 other law, the President may, from time to time, when he
bstoons

16 deems it in the interest of national defense, to the extent
17 to-which funds are made available_ox contracts. are from
18 time-to time-authorized by-Congress, authorize the Secre-

19 tary of War, the Secretary of the Navy, or the head
20 of any other department or agency of the Government(c)

21

(1) To manufacture in arsenals, factories, and ship-

22

yards under their jurisdiction, or otherwise procure, any

23

defense article for the government of any country whose
(s)

10

24

defense the President deems vital to the defense of the
not

25

vigqtie

United States.to the extent to which funds are made available
or contracts are from time to time authorized by Congress.

131
3

1
2

(2) To sell, transfer, exchange, lease, lend, or other-

wise dispose of, to any such government any defense
article, but no defense article not manufactured or pro-

3

4

5
6

7
8
9

eured under paragraph (1) shall in any way be disposed of under this paragraph, except after consultation
with the Chief of Staff of the Army or the Chief of Naval

Operations of the Navy, or both. The value of defense
articles disposed of in any way under authority of this
paragraph, and procured from funds heretofore approThe value of such defense

priated, shall not exceed $1,300,000,000articles shall be deterby the head of the department or agency concerned or such other department,
(3) To test, inspect, prove, repair, outfit, recondi- agency or
officer as
tion, or otherwise to place in good working order any and in the
manner provided
in the
defense article for any such government/to the extent. rules and
funds
are made available or contracts are from time to time
10

11

12

13

horized by Congress.
14

regulations

(4) To communicate to any such government any issued hereunder. De-

15

defense information, pertaining to any defense article fense articles procured

16

17

18

19

20

furnished to such government under paragraph (2) of out of funds
hereafter
this subsection.

appropriated
may be disof

(5) To release for export any defense article to posed
under the
or authority of
any such government.
this paragraph unless

(b) The terms and conditions upon which any such Congress in

such appro-

21 foreign government receives any aid authorized under sub-priation
acts or other
provides
22 section (a) shall be those which the President deems wise
to the con-

23 satisfactory, and the benefit to the United States may be trary.

24 payment or repayment in kind or property, or any other
he

132
4

1 direct or indirect benefit which the President deems
2 satisfactory.

(c) Neither the President HOF the head of any depart-

3

4 ment OF agency shall, after June 30, 1943, exercise any
5 of the powers conferred by OF pursuant to subsection (a).
6 HOF shall such powers be exercised if terminated by # con-

7 current resolution by both Houses of the Congress, except

8 that until July +. 1946. such powers may be exercised to
9 the extent necessary to carry out # contract OF agreement
10 with such A government made before July +, 1948.
11

(c) After June 30, 1943, or after the passage of a con-

12 current resolution by the two Houses before June 30, 1943,

13 which declares that the powers conferred by or pursuant to
14 subsection (a) are no longer necessary to promote the defense
15 of the United States, neither the President nor the head of any

16 department or agency shall exercise any of the powers con-

17 ferred by or pursuant to subsection (a); except that until
18 July 1, 1946, any of such powers may be exercised to the
19 extent necessary to carry out a contract or agreement with

20 such a foreign government made before July 1, 1943, or
21 before the passage of such concurrent resolution, whichever is

22 the earlier.
23

(d) Nothing in this Act shall be construed to author-

24 ize or to permit the authorization of convoying vessels by
25 naval vessels of the United States.

is
5

(e) Nothing in this Act shall be construed to authorize

1

2 or to permit the authorization of the entry of any American

3 vessel into a combat area in violation of section 3 of the
4 Neutrality Act of 1939.
SEC. 4. All contracts or agreements made for the dis-

5

6 position of any defense article or defense information pur7 suant to section 3 shall contain a clause by which the foreign

8 government undertakes that it will not, without the consent
9 of the President, transfer title to or possession of such defense

10 article or defense information by gift, sale, or otherwise,

11 or permit its use by anyone not an officer, employee, or
12 agent of such foreign government.
13

SEC. 5. (a) The Secretary of War, the Secretary of the

14 Navy, or the head of any other department or agency of
15 the Government involved shall, when any such defense arti-

16 cle or defense information is exported, immediately inform

17 the department or agency designated by the President to

18 administer section 6 of the Act of July 2, 1940 (54 Stat.
19 714), of the quantities, character, value, terms of disposi-

20 tion, and destination of the article and information so
21 exported.
22

23

24

25

(b) The President from time to time, but not less frequently than once every ninety days, shall transmit to the
Congress a report of operations under this Act except such
information as he deems incompatible with the public interest

133

134
6

1 to disclose. Reports provided for under this subsection shall

2 be transmitted to the Secretary of the Senate or the Clerk
3 of the House of Representatives, as the case may be, if the
4 Senate or the House of Representatives, as the case may be,
5 is not in session.
6

SEC. 6. (a) There is hereby authorized to be appro-

7 priated from time to time, out of any money in the Treasury
8 not otherwise appropriated, such amounts as may be neces9 sary to carry out the provisions and accomplish the purposes
10 of this Act.
11

aloitre

(b) All money and all property which is converted

12 into money received under section 3 from any government

13 shall, with the approval of the Director of the Budget,
14 revert to the respective appropriation or appropriations out
15 of which funds were expended with respect to the defense
16 article or defense information for which such consideration

17 is received, and shall be available for expenditure for the
18 purpose for which such expended funds were appropriated

19 by law, during the fiscal year in which such funds are
20 received and the ensuing fiscal year; but in no event shall any

21 funds 80 received be available for expenditure after June
22 30, 1946.

(d)

23

SEC. 7. The Secretary of War, the Secretary of the
24

Navy, and the head of the department or agency shall in all

25 contracts or agreements for the disposition of any defense

135
7

1 article or defense information fully protect the rights of all
2 citizens of the United States who have patent rights in and
3 to any such article or information which is hereby authorized
4 to be disposed of and the payments collected for royalties on
5 such patents shall be paid to the owners and holders of such
6 patents.

SEC. 8. The Secretaries of War and of the Navy are
hereby authorized to purchase or otherwise acquire arms,

ammunition, and implements of war produced within the

7
8
9

10

jurisdiction of any country to which section 3 is applicable,

11

whenever the President deems such purchase or acquisition

12

to be necessary in the interests of the defense of the United

13

States.

14

SEC. 9. The President may, from time to time, promul-

15

gate such rules and regulations as may be necessary and

16

proper to carry out any of the provisions of this Act; and he

17 may exercise any power or authority conferred on him by
18 this Act through such department, agency, or officer as he
19 shall direct.
Passed the House of Representatives February 8, 1941.
Attest:

SOUTH TRIMBLE,
Clerk.

By H. NEWLIN MEGILL.

136

March 3, 1941
5:08 p.m.

H.M.Jr:

Operator:
Harry

Hopkins:

H.M.Jr:

Hello.
Hopkins.

Hello.

(In falsetto voice) Harry, how are you?
(Laughs).

H:

H.M.Jr
H:

H.M.Jr:

This is Henry.
Go to hell!
(Laughs).

A little of that is very funny.

H:

H.M.Jr:

What?

A little of that is very funny. By God,

H:

you're getting under my skin now.

H.M.Jr:
H:

H.M.Jr:

(Laughs). Oh, am I? Really?
(Laughs). Yeah.
I sent Cox over to see you. Has he come?
Not yet.

H:

H.M.Jr:

H:

H.M.Jr:

H:

H.M.Jr:

Well, he'll be over there. They got this

thing - they met in the morning with Harold
and they all came here with a lawyer from
State, War and Navy and we got in agreement,
and we're sending you over a copy. I thought
you might show it to the President tonight.
How is it going to go with the leaders?
Well, and Cox after he sees you is going to
try to see Barkley, Byrnes and George tonight.
Yet tonight.
Yet tonight. We worked hard.

137

-2H:

H.M.Jr:
H:

H.M.Jr:

Good. You didn't have a meeting with Hull.
No, that's scheduled at 9:15 tomorrow morning.
With the Senators?

Well,, at 9:15 with us - I mean the Departments and at 10:00 o'clock with the Senators.

H:

Do you feel a little better about it all?

H.M.Jr:

Just this particular amendment, if they'11

take it, this will do it. But as to the bill,

I don't know what has happened so I don't

know. Do you - anything on the bill?
H:

Well, I saw Bob Jackson and he told me he saw

Austin last night and Austin told him he
thought the bill wasn't going to pass for a
couple of weeks, which is bad news.

H.M.Jr:

Well, nothing has happened as far as I'm
concerned since I've talked to you to cheer
you up - to cheer me up, and there you are.

H:

Yeah. All right, Henry. I'll see Cox.

H.M.Jr:

Right.

138

March 3, 1941
5:10 p.m.
H.M.Jr:

Hello. How are you?

Arthur
Purvis:

Good afternoon, Henry.

H.M.Jr:

Are you calling me?

P:

Yes, I was calling you. Arthur Purvis.

H.M.Jr:

Right, Henry Morgenthau, Jr.

P:

(Laughs). Henry, I have here a little booklet

which covers not only the appropriations for
the Army and Navy, but also for the "C" class
items.

H.M.Jr:

Yeah.

P:

I would like to give that to you or better

H.M.Jr:

Well, I'm available.

P:

Are you?

H.M.Jr:

Yeah, I'm kind of lonesome. I haven't scen

still I'd like to send it over to you.

you in a week.

P:

All right. Well, I'll come over.

H.M.Jr:

Haven't seen you in a week.

P:

Well, I tell you, I've been in bed for two days
with one of those wretched influenza colds.

H.M.Jr:

Oh, for heaven sakes!

P:

I went to bed on Friday morning and stayed

u til yesterday evening.
H.M.Jr:
P:

H.M.Jr:
P:

Well, I'll be - can you get over in ten minutes?
Splendid. I'11 be there.
Have you had your tea yet?
No.

H.M.Jr:

I'll have some for you.

P:

Thank you very much.

139

March 3, 1941
5:23 p.m.
H.M.Jr:

Hello.

Operator:

Secretary Jones.

H.M.Jr:

Hello, Jesse.

Jesse

H.M.Jr:

How're you getting along?
I don't know.

J:

I want to sell you some Arkansas bonds.

Jones:

(Laughs).

H.M.Jr:

Well, I don't know. (Laughs). You got a

J'

Oh, I knew I'd get that. I'll be getting that

H.M.Jr:

Well, we had 94% turn-in on our refunding.

J:

94.

H.M.Jr:

wonderful press on it.

for two months. I knew that.

Yeah, 98 on the notes and 89 on the bonds
which is good.

J:

That's fine.

H.M.Jr:

So that's all right.

J:

H.M.Jr:

Well, the bonds - the 7-9's are going good
aren't they.

Yeah. They're going all right. So that's all
right and we'll just kind of let it simmer
and maybe at the end of the week or next week
we'll talk to you about maybe getting a little
money for you.

J:

Well, that's what I was going to ask you
when you had in mind because if we make any
of these Arkansas bonds available for the
present owners we'11 have to be working on

it with you in the next week or 7 or 8 days.

140

-2-

J:

H.M.Jr:

J:

Well, why don't you have - Dan will be back
Wednesday; I ordered him to take off two days have your fellow - what's his name?
Mulligan.

Have Mulligan get in touch with him Wednesday

or Thursday. How will that be?

That'll be fine, and about when do you think
it ought to be done?

H.M.Jr:

Well, I don't know. I'd want to talk it over

J:

Maybe the early part of next week.

H.M.Jr:

with Dan too. Certainly not this week but

Yeah. I just don't know. I'd have to do a
little talking but if Mulligan would contact
Dan, say, Wednesday or Thursday, they we'll
put our minds to it.

J:

O.K.

H.M.Jr:

How's that?

J:

That'll be fine.

H.M.Jr:

O.K.

J:

Thanks.

.

H.M.Jr:

141

March 3, 1941
6:45 p.m.
Present:

Mr. Foley
Mr. White
Mr. Kuhn

Mr. Bernstein

Mr. Schwarz

HM Jr: Well, it didn't work (Laughter).
The President said he isn't going to take any memorandum

from Cordell Hull through me. It should come direct from the
State Department through the regular channels he said, and he

wants the Secretary of State's initials and mine on the Executive Order before he signs it. He said, "What does that mean?"
I said, "I don't know," and then he said, "I want an agreement.
I want his name on it. "

White: Well, I guess that we better go through with

Bulgaria then.

HM Jr: That's what the Germans are doing (laughter).

White: That's pretty good. Is it the first time you

said that?

HM Jr: Of course, it's the first time. How could I get

the repartee? That reminds me of my friend, Nathan Straus.
Every time I say anything witty to him he always says, "Is
that original?"

Of course, I think the President is perfectly right,

and I have been saying right along - saying to the President :
this is the way he wants the thing. He wants us to agree.

White: That's right.
Bernstein: Acheson feels very unhappy. He kept saying
several times what a terrible hot spot he was in. I guess he

wanted me to appreciate it.

142

-2Foley: He thought he was in the clear and he so indicated
to the Secretary this morning.

Bernstein: He didn't know this was going to happen.
Apparently there is a conflict of views in the State Department.
(At this point, HM Jr talked to Robert Jackson on the
telephone and the following is HM Jr's end of the conversation:)
"I talked with the President and read him this and
told him of my conversation with you. He said, 'Why do I
get a memorandum from the Secretary of State through you?'

So I said, 'Well, Dean Acheson gave it to us and Hull gave

it to him.' The President said, 'Well, I'm not going to take

it. I asked that you and Bob Jackson and Hull get together
and do something.' Then he said, 'Send it back to the
State Department. What does that mean?' and I said, "I really
don't know.'

"I don't blame the President. I think he is right.
"No, I think it is hard on Dean Acheson because he has
tried hard, but I am going to send it back immediately to
Acheson. And the President told me this - that before he
signs any Executive Order he wants Hull, yourself and me

to initial it. I think what we will do is to go ahead and

do Bulgaria. Have you signed that?

"Well, where could the boys reach you?

"You will be at home. How long?

"I can't. I'm due at Hull's office at 9:15 tomorrow.
"Yes. On this lend-lease bill.
"I am going to ask Hull first to sign the Executive
Order on Bulgaria and then I will sign it, and if you will
leave word with the switchboard where the boys could reach

you so that you could sign it - have you a copy of it?
(Foley told HM Jr it was the same as all the other
orders.)

143

-3"Oh, Foley says it is just the same. Yes, Foley and

Bernstein are here.

"Has Townsend got a copy of it?

(Foley again mentioned to HM Jr that it was the same

order only that the name "Bulgaria" is used. Foley also said
that Townsend doesn't have a copy of it.)

"Yes, we can get a copy of it to Townsend.
"Pardon?

"Well, the President won't sign it unless your name

is on it.

"Townsend can sign it?

"You will tell Townsend. Well, that's all right. Well,
I'm going to insist that Hull sign it first.
"Thank you. Thank you."

HM Jr: Well, that's that. Now you boys can go to work.

-

144

DEPARTMENT OF STATE

THE SECRETARY

March 3, 1941.
Memorandum for the President

I have examined the draft of the
proposed executive order amending #8389

of April 10, 1940, and it is my opinion
that the proposed draft meets and complies
with your recent order or memorandum

to the Secretary of the Treasury, the
Attorney General, and the Secretary of

State, directing action along these lines.
You of course are aware of the doubts
and misgivings I have expressed during

past weeks as to the proposed action, but
now that you have decided the matter I

shall cheerfully do my part in carrying
out your instructions.

C

H

145

EXECUTIVE ORDER

ESTABLISHING A FOREIGN EXCHANGE AND FOREIGN.
OWNED PROPERTY CONTROL COMMITTEE, REGULATING

TRANSACTIONS IN FOREIGN EXCHANGE AND FOREIGN
OWNED PROPERTY, PROVIDING FOR THE REPORTING
OF ALL FOREIGN-OWNED PROPERTY, AND RELATED MATTERS.

By virtue of and pursuant to the authority vested in
me by Section 5(b) of the Act of October 6, 1917 (40 Stat.
415), as amended, by virtue of all other authority vested
in me, and by virtue of the continued existence of a period

of national emergency, and finding that this Order is in
the public interest and is necessary in the interest of
national defense and security, 1, FRANKLIN D. ROOSEVELT,
PRESIDENT of the UNITED STATES OF AMERICA, do prescribe

the following:
TITLE I

Section 1. There is hereby established a Foreign
Exchange and Foreign-Owned Property Control Committee (here-

inafter referred to as the *Committee"). The Committee

shall consist of the Secretary of State, the Secretary of
the Treasury and the Attorney General. The Committee shall

formulate policies relating to the carrying out of the purposes of this Order. It shall have a Secretary and such
staff as it deems necessary. Any member of the Committee
may act through a designee.

146

-2Section 2. Subject to the supervision of and
policies formulated by the Committee, this Order shall
be administered by the Secretary of the Treasury.
The Secretary of the Treasury shall keep the Committee

currently and fully informed as to the administration
of the Order.

TITLE II

Executive Order No. 8389 of April 10, 1940, as
amended, is amended to read as follows:

Section 1. All of the following transactions
are prohibited, except as specifically authorised by the Secretary of the Treasury by means

of regulations, rulings, instructions, licenses,
or otherwise, if (1) such transactions are by,
or on behalf of, or pursuant to the direction
of any foreign country designated in this Order,
or any national thereof, or (11) such transactions
involve property in which any foreign country
designated in this Order, or any national thereof,
has at any time on or since the effective date of
this Order had any interest of any nature whatso-

over, direct or indirects
A. All transfers of credit between any
banking institutions within the United States;
and all transfers of credit between any banking
institution within the United States and any
banking institution outside the United States

147

(installing - principal, agent, home office,
bread, or correspondent outside the United

States, of a booking institution within the
United States),

a. All payments by or to any banking

institution within the Suited States,
c. A11 transactions in foreign exchange

by - person within the United States
3. The expert or withdrewal from the United

States, or the easmaking of gold or silver coin
or bullion or currency by any person within the
United States

R. All transfers, withdrawals or exportations
of, or dealings in, any widesess of indebtedness
or ovidences of ownership of property by any person

within the United States, and
F. Jey transaction for the purpose or which
has the effect of evading or avoiding the foregoing

prohibitions.
Section 2.

A. All of the following transactions are prohibilled, assept as specifically authorised by the
Secretary of the Treasury by morns of regulations,

rulings, instructions, licenses, or otherwises

(1) The adquisition, disposition or
transfer of, or other dealing in, or with
respect to, any security r evidence thereof

148

- which there is steeped or impristed,
or to which there is offixed or otherwise
attached, a tax steap or other stemp of
a foreign country designated in this Order

or a motorial or similar seal which by its
contents indicates that it was stepped,
impristed, affixed or attached within such
foreign country, or where the attendant
circumstances disclose or indicate that
such steep or seal may, at any time, have
been stamped, impristed, affixed or attached
thereto; and

(2) The acquisition by, or transfer to,
any person within the United States of any

interest in any security or evidence thereof
if the attendent circumstances disclose or
indicate that the security or evidence thereof

is not physically situated within the United
States.

3. The Secretary of the Treasury may investigate, regulate, or prohibit under such regulations,
rulings, or instructions as he may prescribe, by
mosts of licenses or otherwise, the sending, mailing,

importing or otherwise bringing, directly or indirectly,
into the United States, from any foreign country,
of any securities or evidences thereof or the receiving

or holding in the United States of any securities
or evidences thereof so brought into the United
States.

149

-5Section 3. The tora *foreign country Sestigated
in this Order" means a foreign country included in
the following schedule, and the torm "effective date
of this Order" means with respect to any such foreign

country, or any national thereof, the date specified
in the following schedules

(a) April 8, 1940
Norway and
Denmarks

(b) May 10, 1940-The Netherlands,
Belgium and
Luxembourg;

(a) June 17, 1940--

France (including Monaco);

(d) July 10, 1940-

Latvin, Estonia and
Lithuania,

(e) October 9, 1940Rumania, and

(f) March 4, 1941
Albania,

Austria,
Bulgaria,
Csechoslovakia,
Dansis,

Finland,
Germany,

Hungary,

Italy,

Liechtenstein,
Poland,
San Marino,
Swedan, and

Switserland.

The "effective date of this Order" with respect to
any foreign country not designated in this Order shall
be deened to be March 4, 1941.

150

Section 4.

& - Sepretary of the Bronowy my require,

by - of regulations, relings, institutions, otherwise, any passes to fusish under eath, in
the form of reports or otherwise, from time to time
and as such time or times as he may designate,

complete information relative to any transaction

referred to is section 5(b) of the set of October 6,

1917 w Mat. 435). as a or with respect to
the interest of - foreign country or any national
thereof is - property, including the production

of - hosis of account, contracts, letters, or other

papers, is connection in the outsity or
central of 1 person, either before or after such
transaction is completed and the Secretary of the

m, / - agency that be my designate,
- 1 transsction or are, or any violation
of the provisions of this Order. the Secretary of the
Immunity shall w regulations regular the filing of

superto with suspect to all have property in
the United States.

3. I person express in any of the transactions
referred to in Sections 1 and 2 of this Order shall
happy a sell record of each such transaction engaged

is w him, regardless of shother - transaction is

effected - to license or otherwise, and such
record shall be available for examination by a recentative of the treasury Department for at least

- year after the date of such transaction.

151

Section s.

4. is used in the first paragraph of Section 1 of this
Order *transactions [which] involve property in which any

foreign country designated in this Order, or any national

thereof, has any interest of any nature shatecover,
direct or Indirect," shall include, but not by my of
limitation (2) any payment or transfer to any such foreign
country or national thereof, (11) any export OF withdrawal
free the United States to such foreign country, and (111)

say transfer of credit, or payment of an obligation, expressed
is terms of the currency of such foreign country.
a. The term United States means the United States and

any place subject to the jurisdiction thereofy the was
"continental United States means the states of the United

States, the District of Columbia, and the Territory of Alaska.

c. The term moone as individual, partnership,
association, corporation, or other organization.

9. The term *foreign country* shall include, but not
by may of limitation,
(2) the state and the government thereof on the effect

tive date of this Order as well as any political division, agency or instrumentality thereof or any
territory, dependency, colony, protectorate, mandate,

dominion, pessession or place subject to the jurisdiction
thereof,

(as) Any other government (including any political sub-

division, agency, or instrumentality thereof) to the
extent and only to the extent that such government

exercises OF claims to exercise a time or de facts
sovereignty over the area which on such effective date
constituted such foreign country, and

152

(sss) Any person to the extent that such

person is, or has been, or to the extent that
there is reasonable cause to believe that such
person 10, or has been, since such effective date,

esting or purporting to act directly or indirectly
for the benefit or on behalf of any of the foregoing.
E. The term *antional" shall include,
(1) Any person who has been doniciled in, or a

subject, eitison or resident of a foreign country at
any time on or since the effective date of this Order,
but shall not, except as hereinafter provided, include
any individual domiciled in and residing only in the
United States at all times on and since such effective
date and at all times on and since June 17, 1940, is
such effective date is subsequent to June 17, 1940,

(11) Any partnership, association, corporation
OF other organization, organized under the laws of,

or which on or since the effective date of this Order
had or has had its principal place of business in
such foreign country, or which on or since such

effective date was or has been controlled w, or 25
per centus or more of the outstanding voting

securities (or the equivalent thereof) of which
was or has been owned or controlled by, directly

or indirectly, such foreign country and/or one
or more nationals thereof as herein defined,

153

(111) Any person to the extent that
wash person 10, or has been, since such

effective date, asting or purposeing to

act directly OF indirectly for the benefit
or on behalf of any national of such foreign
country, and

(1v) Jay other person who there is
reasonable cause to believe is a Restional
as herein defined.

In any case in which by virtue of the foregoing
definition . person is a national of more than one
foreign country, such person shall be decared to be

a national of each such foreign country. In any
case in which the combined interests of two OF

more foreign countries designated in this Order and/or

nationals thereof are sufficient in the aggregate
to constitute, within the meaning of the foregoing,
central or 25 per centure or more of the voting

securities (or the equivalent thereof) of a partnerohip, association, corporation or other organisation,

but - central or voting interest is not held by
any one w foreign country and/or nationals thereof,
suck partnership, association, corporation or other
organization shall be deemed to be a national of each
of weak foreign countries.

F. The term banking institution" as need in
this Order shall include any person engaged primarily

or incidentally in the business of banking, of granting
or transferring credits, or of purchasing or selling

154
-10

foreign enchange OF procuring purchasers and sellers

thereof, as principal or agent, OF any person holding

erodite for others as . direct = incidental part #
his business, or brokers, and, each principal, agent,
home office, brench or correspondent of any person
00 engaged shall be regarded as a separate Banking

institution".
a. The term #this Order", as used in this Title,
shall mean Executive Order No. 8389 of April 10, 1940, as
amended.

Section 6. Executive Order No. 8389 of April 10, 1940,
as amended, shall no longer be deemed to be an amendment to

OF a part of Executive Order No. 6560 of January 15, 1934.
Executive Order No. 6560 of January 15, 1934, and the Regula-

tions of November 12, 1934, are hereby modified in se far as

they are inconsistent with the provisions of this Order, and

except as se notified, continue is full force and effect.
Nothing herein shall be deemed to revoke any license, ruling,
or instruction now in effect and issued pursuant to Executive
Order No. 6560 of January 15, 1934, as amended, or pursuent to

this Order provided, however, that all such licenses, rulings,

or instructions, shall be subject to the provisions hereof. Any
amendment, modification or revocation by or pursuant to the

provisions of this Order of any orders, regulations, rulings,
instructions or licenses shall not affect any act done, or any
suit or proceeding had or commenced in any civil or oriminal
case prior to such amendment, modification or revocation, and all

penalties, forfeitures and liabilities under any such orders,
regulations, rulings, instructions or licenses shall continue and

155
12

may be enforced as if such assessment, modification OF
revocation had not been made.

Section 7. The Secretary of the Treasury is authorised
and empowered to prescribe from time to time regulations,

rulings, and instructions to carry out the purposes of this
Order and to provide therein or otherwise the conditions
under which licenses may be granted by OF through such

officers OF agencies as the Secretary of the Treasury may

designate, and the decision of the Secretary with respect

to the granting, denial or other disposition of an applies-

tion or license shall be final.
Section s. It shall be conclusively presumed that

any regulation, licence, ruling, instructions or other
action by the Secretary of the Treasury purporting to be
under this Order has been issued or taken in accordance with

and subject to the supervision of and the policies formulated
by the Committee.

Section 9. Section 5(b) of the Ast of October 6, 1917,
as emended, provides is parts

as .. Woover willfully violates any of the provisions of this subdivision or of any license, order,
rule or regulation issued Sharembor, shall, upon con-

viction, be fined not more then $10,000, or, if a natural
person, may be imprisoned for not more than tea years,

or boths and say officer, director, or agent of any
corporation who knowingly participates in such violation

156

any be presisted by a fine, imprisonment,

- both."
Section 30. This Order not - regulations, relings,

licenses or instructions issued may be modified or serviced at any time.

- - HOUR,
. 1942.

157
CODE OF 31 FEDERAL - Money REGULATIONS and Finances Treasury
fittle

Caspter I - Monetary Offices, Department of the Treasury
Part 130

TREASURY DEPARTMENT,

Office of the Secretary,
March 4. 1941.

REGULATIONS UNDER EXECUTIVE ORDER NO. 8389, AS AMENDED.

Relating to Transactions in Foreign Exchange
and Foreign-Owned Property, the Reporting

of all Foreign-Owned Property and Related
Matters.(*)

The Regulations of April 10, 1940, as amended (Sections 130.1 to
130.6), are emended to read as follows:

Section 130.1. Authority for regulations. These regulations
are prescribed and issued under authority of Section 5(b) of the
Act of October 6, 1917 (40 Stat. 411), as amended, and Executive
Order No. 8389 of April 10, 1940, as amended by Executive Order
No.

of March 4. 1941(())
Section 130.2. Definitions.

(a) The tera "Order" shall refer to Executive Order No. 8389
of April 10, 1940, as amended.by Title II of Executive Order No.

of March 4, 1941.

(b) The term *regulations" shall refer to these regulations.
(e) The terms *property" and "property interest or "property
interests shell include, but not by way of limitation, money, checks,
drafts, bullion, bank deposits, savings accounts, any debts, indebtedness or obligations, financial securities consonly dealt in by
bankers, brokers, and investment houses, notes, debentures, stocks,
bonds, coupons, bankers' acceptances, mortgages, pledges, liene or

other right in the nature of security, warehouse receipts, bills
of lading, trust receipts, bills of male, any other evidences of
title, ownership or indebtedness, goods, res,Increasive, chattels,

stocks on hand, ships, goods on ships, real estate nortgages, vendors'
sales agreements, land contracts,treat estate and any interest therein,
lesseholds, ground rents, options, negotiable instruments, trade
acceptances, royalties, book accounts, accounts payable, judgments,
patents, breadmarks, consignte, contracts or licenses affecting or
involving patents, tradamarks or copyrights, insurance policies,
safe deposit boxes and their contents, annuities, peeling agreements,
contracts of any mature whitnoever, et catern.
(d) Safe deposit boxes shall be decned to be in the "custody"
not only of all persons having access the etc but also of the lessors

of such boxes whether or not such lessors have access to such boxes.
The foregoing shall not in any way be regarded as a limitation upon the
seening of the term "custody".

. Sections 130.1 to 130.68 - Sec. 5(b), 40 Stat. 425 and 966; Sec. 2
48 Stat. 1, 54 Stat. 179, Ex. Order 8389, April 10, 1940, as amended

by Ex. Order . March 4. 1941.

158

-2(c) For the meaning of other terms reference should be made to

definitions contained in the Order. In interpreting rulings,
licenses, instructions, etc., issued pursuant to the Order and regulaticas, particular attention is directed to the provisions of General
the

Ruling No. 4, as from time to time hereafter amended. (*)

Section 130.3. Licenses. Applications for licenses to ongage
any transaction referred to in sections 1 or 2 of the Order shall
be filed in triplicate with the Federal Reserve Bank of the district
in

or the Governor or High Commissioner of the territory or possession

of the United States in which the applicant resides or has his principal place of business or principal office or agency, or if the applicant has no legal residence or principal place of business or principel office or agency in a Federal Reserve district or a territory or
possession of the United States then with the Federal Res : Bank

of New York or the Federal Reserve Bank of San Francisco. Application
forms say be obtained from any Federal Reserve Bank, the Governor or

High Commissioner of a territory or possession of the United States,
or the Secretary of the Treasury, Washington, D.C. The original of
each application shall be executed under oath before an officer
authorised to administer oaths, or if executed outside of the United
States, before a diplomatic or consular officer of the United States.
The applicant shall furnish such further information as shall be requested of him by the Secretary of the Treasury or the Federal Reserve

Bank or other agency at which the application is filed. Licenses will
be issued by the Secretary of the Treasury, acting directly or through
any officers or agencies that he may designate, and by the Federal

Reserve Banks, acting in accordance with such regulations, rulings,
and instructions as the Secretary of the Treasury may from time to
time prescribe, in such cases or classes of cases as the Secretary of
the Treasury may determine. The Federal Reserve Bank or other agency

at which an application is filed will advise the applicant of the
decision respecting the application. Licenses for exports, withdrawals
or imports, after having been cancelled by the collector of customs
or the postmaster through whom the exportation, withdrawal or importation was made, may be returned by such collector of customs or post-

master to the licensee. Appropriate forms for applications and licenses
will be prescribed by the Secretary of the Treasury. Licensees may be
required to file reports upon the consummation of the transactions.
The decision of the Secretary of the Treasury with respect to an appli-

oction for license shall be final.(*)

Section 130.4. Remorks of Property Interests of All Foreim
Countries and Nationale Thereof.

(a) On or before April 4, 1941, reports shall be filed on
Form TFB-300, duly executed under oath, containing the information

called for in such Form, with respect to all property ubject to the

and
with
to
the
States on on March 4, 1941, in

Jurisdiction of the of business on

940, 10 United respect United the to opening all States property of on business the subject opening jurisdiction June which of 1,

the respective dates any foreign country or any national thereof had
, interest of any nature whatsoever, direct or indirect, regardless
whether a report on Form TFR-100 with respect to any such property

all have previously been filed. Such reports shall be filed bys

(1) Every person in the United States, directly or indirectly
holding, or having title to, or custody, control or possession of

159

-3 such property on either or both of the aforementioned respective

dates.

(2) Every agent or representative in the United States for
any foreign country or any national thereof having any information with respect to such property.
Provided, That no report on Form TFR-300 need be filed where the total

value of all property interests of any foreign country or national to
be reported is less than $1,000.

Without any limitation whatsoever of the foregoing, reports on
Form TFR-300, filed as required above, shall be filed by every partnership, association, corporation, or other organisation organised under

the laws of the United States or any state, territory, or district of

the United States or having its principal place of business in the United
States, with respect to any shares of its stock or any of its debentures,
notes, bonds, coupons or other obligations or securities or any equity
therein, in which any foreign country or any national thereof had on either
or both of the aforementioned respective dates, any interest of any nature
whatswever, direct or indirect.

(b) Reports shall be executed and filed in triplicate with the

Federal Reserve Bank of the district or the Governor or High Consissioner
of the territory or possession of the United States in which the party
filing the report resides or has his principal place of business or primcipal office or agency, or if such party has no legal residence or principal
place of business or principal office or agency in a Federal Reserve district
or a territory or possession of the United States, then with the Federal

Reserve Benk of New York or the Federal Reserve Bank of San Francisco. A
report shall be deemed to have been filed when it is received by the proper
Federal Reserve Bank or other agency or when it is properly addressed and
sailed and bears a postmark dated prior to midnight of the date upon which
the report is due. Each Federal Reserve Bank or other agency shall promptly

forward two copies of every report filed with it to the Secretary of the

Treasury.

(c) (1) All spaces in the report must be properly filled in.

Reports found not to be in proper form, or lacking in essential
details, shall not be deemed to have been filed is compliance with
the Order.

(2) Where space in the report form does not permit full
answers to questions, the information required may be set forth
in supplementary papers incorporated by reference in the report

and submitted therewith. Supplementary documents and papers must

be referred to in the principal statement in chronological or

other appropriate order and be described in such manner that they
can be identified.

(a) A separate report under oath must be filed by each person required to file a report except that persons holding property jointly my
file a joint report.

(e) The Secretary of the Treasury say, in his discretion, grant

such extensions of time as he deens advisable for the making of any or

all of the reports required by these regulations.

160

-4(r) Report Form TFR-300 may be obtained from any Federal Reserve
Bank, the Governor or High Commissioner of a territory or possession of

the United States, or the Secretary of the Treasury, Washington, D. c.(*)

Section 130.5. Penalties. Section 5(b) of the Act of October 6,
1917, as amended, provides in parts

..

Whoever willfully violates any of the provisions
of this subdivision or of any license, order, rule or regulation issued thereunder, shall, upon conviction, be fined not

more than $10,000, or, if a natural person, may be imprisoned
for not more then ten years, or both; and any officer, director,
or agent of any corporation who knowingly participates in such
violation may be punished by a like fine, imprisonment, or
both."(*)

Section 130.6. These regulations and any rulings, licenses, or

instructions issued hereunder shall not be deemed to authorise any
transaction prohibited by reason of any other law, proclamation, order
or regulation. (*)
Section 130.7. Amendment. Modification. or Revocation. These

regulations and any rulings, licenses, instructions, or forms issued
herounder may be amended, modified, or revoked at any tipe.(#)

Secretary of the Treasury.

161

March 3, 1941.

Proposed Disposition of Immediate Problems Raised by

Extension of Freesing Control

It is assumed that the fabric of the current freezing control
technique as embodied in outstanding general licenses, general rulings,
general authorisations to the Federal Reserve Banks, and in large part
the principles guiding the issuance currently of licenses, will constitute the nucleus of extended control. This memorandum is, therefore, confined to additional matters which it is felt would have to be
dealt with immediately.

(1) New general licenses.

(a) Payment of certain checks, drafts, etc.
(b) Freeing accounts of United States foreign
service officers.
(c) Payment of payroll expenses based on practices
in recent period.

(d) Freeing official accounts of Vatican City State.
(2) New general authorisations.
(a) To issue licenses where circumstances require
immediate action.

(b) To issue licenses to permit continuance of business operations pending further study of each
business concern.

(c) To permit transfers between blocked accounts in
the same name.

(d) To permit purchase and sale of listed securities
and securities issued by Federal, state and
local governments.

The foregoing general authorisations will be issued to the New York

Federal Reserve Bank and to other Federal Reserve Banks to the extent
that it appears necessary.

(3) Foreign banks.

There are a number of Italian and Swiss banks, principally
in New York, which will be immediately affected. At least in the case
of some of these banks, if the general license is not immediately the issued, interim

it will necessitate the closing of the bank. Accordingly, for licenses

the following course should be taken: Grant these banks general Such general

which will put them in the same position as American banks. to
license will, of course, not permit the Swiss and Italian banks pay

162

2-

out funds belonging to blocked nationals or do anything else, as, for
example, remit money to a blocked area which could not be done by an
American bank. Set up a group under the supervision of the Bank
Examiner at the Federal Reserve Bank of New York. This group will put
one or more representative in each of the Swiss and Italian banks to
supervise the transactions of such banks and to stop any transaction

not consistent with the purpose of the Executive Order. This group
would also obtain immediate and complete reports with respect to the
assets of the Swiss and Italian banks, particularly those assets that

could be readily disposed of without our knowledge, and make appropriate
arrangements for holding such assets in a form that they could not be
disposed of without knowledge. The Swiss and Italian banks will, of
course, be made to understand that unless they cooperate fully their
licenses will be revoked and other appropriate action taken. We are
already working with the New York Federal for setting up such an
organisation consisting of bank examiners from the Federal Reserve Bank,
Comptroller of the Currency's office and the New York State Banking
Department. People fully familiar with Foreign Funds Control will

also work with this group. It may be that the F.B.I. will also want their

representatives to work with this group.

(4) Clarification of existing administrative proceedings.
For some time we have been working on a new general ruling

which will define certain terms in such a manner as to facilitate the
administration of freesing control both from the point of view of the

Government and of the public. In this connection, we have also worked
on revisions of some of the important outstanding licenses. It would
seen preferable, before actually issuing same, to give certain of the
important private banks who have considerable activities in connection
with freezing control problems a few days' opportunity to study the
proposed changes and make suggestions.

(5) Switzerland. See memorandum attached.

(6) Expenses for diplomatic and consular services.
Presumably we will let each blocked country have whatever

it states it needs for such purposes. Reports will, of course, be filed
and checked by the Government to see that the amounts are reasonable.

(7) Publicity. To be discussed.

163

PROPOSED TREATMENT OF SWITZERLAND
UNDER FREEZING CONTROL.

I Treatment under existing or proposed general licenses will
permit

A. Payment into the blocked accounts.

B. Debiting blocked accounts for certain banking charges.
C. Payment of certain outstanding checks and drafts.

D. (1) Sale of listed securities and obligations of United
States, states and local governments.

(11) "Blanket" licenses will be issued to Swiss banking
institutions doing business in the United States
which will enable them to buy such securities for
Swiss accounts.

E. Payments to the United States.

F. Purchase and sale of commodities futures contracts.
G. Payments for living and traveling expenses in the
United States.

H. Access to safe deposit boxes under certain conditions.
I. The operation of Swiss banks in the United States on the

same basis as American banks with Government representatives

on the premises to check each transaction, etc. We will have
to explain to the Swiss why we are treating them differently
than other blocked banks like the Banque Belge pour l'Etranger
which has a general license.
J. Remittances to Switserland for support purposes.

II Matters to be dealt with by specific licenses:
A. Non-listed securities and investments other than in securities.
Licences will be granted in specific cases if the transactions
are legitimate from the point of view of the Order.
B. Exports to and imports from Switzerland.
Licenses will be granted either on a specific or blanket
basis where we are satisfied that there is a no Axis interest;

and perhaps even if there is an Axis interest, leaving it to
the British blockade to take care of the matter.

164

-C. Swiss owned business enterprises in the United States.
These will be given licenses comparable to existing

licenses given to blocked business enterprises. It may be,
as things develop, that we will wish to put Government
representatives into some of such institutions and to
require more extensive reports or otherwise limit the

licenses granted to them. This will be particularly true

with respect to any such Swiss business enterprise which

is acting for or on behalf of the Axis.

D. Transfer from one blocked Swiss account to another.

This will be clearly permitted if the transfers are in

the same name. If the transfers are not in the same name

it will turn on the facts of the case. For example, we would
not grant a license which would permit the transfer from a
blocked Swiss account to the Swiss Central Bank, the effect
of which will be to enable a Germon having funds in this
country in a Swiss account to obtain Swiss francs therefor
and thereafter be able to convert the Swiss francs into other
currencies. If, however, a genuine Swiss national having
dollar funds needs Swiss francs for working capital in
Switzerland or for living expenses there, we would license
the transfer to the Swiss Central Bank.

165

BRITISH EMBASSY,
WASHINGTON, D.C.

March 3rd, 1941

Dear Cochran,

I have now received from London a reply
to my enquiry as to the basis of composition of the

lists of securities believed to have fallen into enemy
hands, which I have sent you at various times, the last
being on the 27th of January.

The reply says that a press notice was
issued at the request of the British Treasury at the
end of June 1940 inviting the public to forward to the
Bank of England particulars of any bearer securities
which they believed had fallen into enemy hands. A
circular was also addressed to banks and bankers in the
United Kingdom by the Bank of England on the 28th of

June 1940. A copy of this circular is on its way from

England.

You will see, therefore, that the information received is reliable, though it is not exhaustive.
Yours sincerely,

(Signed) R. J. Stopford

Mr. Merle Cochran,
Room 279,

U. S. Treasury Department,
Washington, D. C.

dm

TREASURY DEPARTMENT

166

Office of the Secretary
Technical Assistant to the Secretary
Date

March 3. 1941

TO:

Secretary Morgenthau
Room

Mr. Livesey telephoned me at 12 noon

today that Secretary Hull had initialed
the draft which we had provided him of

the attached letter. Messrs. Cairns and

White have also initialed it.

fm P.
From: MR. COCHRAN

167

MAR 3 1941

Dear Sir Boards

Please accept my sincere thanks for your courteey is providing
with year letter of February 25. 1941, a nonorandum setting forth
the difference between the instructions under which you was to the

United States, for the purpose of disposing of British direct investseate is this country. and the plan which your Ambassador proposed
who be colled at the treasury es February 24, accompanied by
Mr. Pervis and yourself.

the A shoosaker's proposal, together with a copy of the statesent which be made is explaining the views of his Government, was

presented to the President w no. I here also had the benefit of
consultation with my colleague, Secretary of State Hall.

to are gominoly appreciative of the desire maifested by the
British Government to arrange for the disposal of British direct
investments is this country is the masser that may prove most offsetems. the morits of the plan outlined is the Ambressder's accordance

will continue to have our eareful study and consideration. 20 is our
megestion, however, that work be persond as actively as may so along

the lines which you have established since your recent arrival, with
real calls on as for consultation and advice as you may desire, and

168

that improvements is the methods of procedure - boat to made as
progress is achieved and as experience is gatest.
Very sincerely yours,

Secretary of the treasury

sis Moure a. Peasock, a. C.V.O.,
in care of His Excellency, the British Ambassador.

He HDW

aml

169

MAR 3 1941

Dear Sir Edwards

Please accept my sincere thanks for your courtesy is providing
with year letter of February 25. 1941. a memorandum setting forth
the difference between the instructions under which you same to the

United States, for the purpose of disposing of British direct investneats is this country. and the plan which your Ambassador proposed
when he called at the treasury on February 24, accompanied by

Mr. Parvis and yourself.

The A abassador's preposal, together with a copy of the statesent which he made is explaining the views of his Government, was

presented to the President by no. I have also had the benefit of
consultation with my colleague, Secretary of State Ball.
We are gessinoly appreciative of the desire mainested by the

British Government to arrange for the disposal of British direct
investments is this country is the manner that may prove meet offs-

stent. the morits of the plan outlined is the Ashaseader's accordance
will continue to have our careful study and consideration. 20 is our
suggestion, however, that work be parened as actively as may be along

the lines which you have established since your recent arrival, with
such calls ea as for consultation and advice as you may desire, and

170

- supportments is the methods of proceture - best be made as

- to additional and as signion to extect.
They sincerely yours,

Secretary of the Broomly

as Hours a. Pensock, e. a. v.e.,

is care of Ha the Bestish

171
PLAIN

JR

London

Dated March 3. 1941

Rec'd 3:20 p.m.

Secretary of State,
Washington.

1308, third.
For Treasury.

The British Treasury order has now been issued adding

to the sterling area French Empire territories listed in the
Embassy's no. 1208 of March 27, 6 p.m. and also Iceland and

the Faroe Islands. A blanket conversion transaction for the
eligible municipal loans (see Embassy's no. 1082 dated

March 19) is being worked out, a 3-1/2 per cent long-term
loan at par being expected by the market, with redemption

notices on May 1 of three or six months according to original
loan prospectuses.
WINANT

CSB

eh:copy

ICE

RECEIVED

172
Treasury Department

Division of Monetary Research
Date March 6

19

To: Secretary Morgenthau

This is a brief account
of the "subrogated securities"
episode which took place

during the last war.

In view of current discussions I think you will be
interested in reading the
summary.
MR. WHITE

Branch 2058 - Room 2141

173
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 3, 1941

TO Mr. White
FROM Mr. Kegan and Mr. Hebbard

Subject: Subrogated Securities
Summary

1. In 1918, the United States Treasury advanced $285,000,000 to
the British Government to take up certain secured notes floated in this
country by J. P. Morgan & Company and nineteen other banks. In return,

the United States obtained the right of "subrogation" to the securities
originally pledged as collateral for the British notes. (The Treasury
made no appraisal of the total value of the subrogated securities.)

2. Subrogation gave the United States Treasury the right to call

upon the British Government to pledge to the United States the collateral
formerly pledged to the private banks. The British Government was

"obligated at the request of the Secretary of the Treasury to deposit it

with the Treasurer of the United States".

Thus, the right of subrogation did not involve a present deposit of

the collateral and it did not contemplate immediate physical possession.

This collateral was never in the possession of the United States
Treasury. It was held in the custody of J. P. Morgan & Company.
3. In 1919 and 1920, the Treasury contemplated the release of the
subrogated securities in connection with negotiations for a debt settlement. These negotiations were broken off by the British in May 1920,
and, therefore, the Treasury's rights with respect to the subrogated
securities were retained. (At this time, the subrogated securities amounted
to a nominal value of about $344,000,000.)

4. The release of the subrogated securities was finally made by
Secretary Mellon in a letter dated June 19, 1923, in connection with the
funding arrangement of that year. The letter stated that "the United
States will not require the deposit by Great Britain of any of the so-called
subrogated securities".

The principal reason given at the time for waiving the right of
subrogation was that it would be "grotesque" to retain collateral for
only $285 million or 6 percent of the total British war debt of $4,600

million.

174
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE March 3, 1941

TO Mr. White
FROM Mr. Kegan and Mr. Hebbard

Subject: Subrogated Securities

1. In 1918, the United States Treasury advanced $285,000,000 to
the-British Government to take up certain secured notes floated in this
country by J. P. Morgan & Company and nineteen other banks. In return,
the United States Treasury obtained the right of "subrogation" to the
securities pledged as collateral for these British notes.
On February 1, 1918, there became due about $92,000,000 of an issue
of One Year 52% Secured Notes of Great Britain. The collateral for these
notes was a large amount of securities (aggregate nominal value about
$300,000,000) which either were owned by the British Government or had

been lent the British Government by its citizens upon certain understandings
as to their return.
The securities were pledged and deposited by the British Government
with the Bankers Trust Company as trustee under a trust agreement dated
February 1, 1917. The trust agreement provided that:

(1) Britain might proportionately withdraw the collateral security

so deposited as the notes were paid or surrendered for conversion;

(2) in case of British failure to pay when due, the collateral

security might be sold and the proceeds of such sales applied to the payment of the debt;

(3) the pledged securities might be released upon the substitution
of other securities of the same group and of equal aggregate value.
The Secretary of the Treasury was satisfied that the issue could
be refunded upon our markets in the existing situation only at a rate of
interest so high and secured by so great an amount of collateral as would
gravely impair the credit of Great Britain and the ability of the United
States to carry through successfully its own financing.
In these circumstances, the Treasury assented to the use by the
British Government of Treasury advances to meet the $92,000,000 maturity of
February 1, 1918. Such assent was given, however, upon the understanding
that the United States Treasury have the right of subrogation to the
securities pledged as collateral for the matured notes.

175

Division of Monetary

2-

Research

On September 1, 1918, there became due about $193,000,000 of
issue of TWO Year 5% Secured Gold Notes of Great Britain. These notes an were
secured on the same terms as those which matured on February 1, 1918, and

the security was pledged and deposited with the Farmers' Loan and Trust

Company under a trust agreement dated September 1, 1916.

With the greatly increased program of United States expenditures
at that time and the tremendous issues of Treasury certificates which were
then being made, the Treasury considered it impossible for the British to
finance a renewal of these notes on reasonable terms. It was considered
that borrowing by the British Government on extortionate terms would be
injurious to British credit and would create an unfavorable impression as
to the extent of sympathy between the British and the United States Governments.

The Treasury also thought that it would be unwise to permit the
British to resume sales of securities, as this would have a depressing effect
on the stock market and would tend to make it difficult for the United States
Treasury to get the money it needed.

The Treasury therefore assented to the use by the British Government
of Treasury advances to meet the $193,000,000 maturity of September 1, 1918
upon the same conditions as in the case of the February maturity.

2. Subrogation gave the United States Treasury the right to call

upon the British Government to pledge to the United States the collateral
formerly pledged to the private banks.
While the principle of subrogation was agreed upon by interchange
of cables and by oral discussions at the time the advances were made, it

was not formally defined until July 9, 1919, in a letter by Sir. S. Hardman
Lever, Financial Secretary of the British Treasury to Albert Rathbone,
Assistant Secretary of the United States Treasury.

This agreement to subrogate was an executory agreement; Great Britain

was "obligated at the request of the Secretary of the Treasury to deposit
with the Treasurer of the United States or, in case the Secretary of the
Treasury shall so request, with such depository as (the British Government)
shall approve". Thus, the right of subrogation did not involve a present
deposit of the collateral and it did not contemplate immediate physical

possession.

would
in
England
and
the
the asked for the physical delivery

Having regard to the British view that public knowledge of the agreement
enemy to subrogate countries, create Treasury an unfavorable never impression in of

was never in the of

the the United
securities.
collateral
States subrogated
Treasury. It was
held in This
the custody
of J.possession
P. Morgan &

Company. The collateral was simply held subject to the United States
Treasury's order.

176

Division of Monetary
Research

The Treasury made no appraisal of the total value of the subrogated

securities at the time of the Treasury's advances. The original trust
agreements contained lists of the pledged securities and of the unit value,
but did not indicate the amount pledged of each security. It is estimated
that the approximate value of the subrogated securities was $344,000,000 in
1919. The Treasury obtained appraisals only in connection with substitutions,
which were a small part of the total. A considerable part of these substitutions consisted of foreign securities.

3. In addition to the right of subrogation, the Treasury had the
secondary right to be consulted in regard to the disposition of all
British owned securities in this country.
When the Treasury advanced funds to the British Government to meet
the note maturity of February 1, 1918, the agreement entered into also

provided for the British not to use or dispose of, until the termination
of the war, any of the securities which the British owned or controlled
and which were physically within the United States on February 1, 1918, without
the prior consent of the Secretary of the Treasury.
The purpose of this agreement was to protect the American market
against depreciation from inopportune liquidation of British owned American

securities and to enable the United States Treasury to indicate its views
as to the most effective use which could be made of these securities.

4. In 1919 and 1920, the Treasury contemplated the release of the
subrogated securities in connection with negotiations for a debt settlement.
These negotiations were broken off by the British in May 1920, and,
therefore, the Treasury's rights with respect to the subrogated securities
were retained.

After the war, the British desired to obtain the release of these

securities because they claimed that the securities were not owned by the
British Government but merely loaned to the Government by their owners. It
cost the British Treasury 2% per annum on the nominal value to retain them.
However, since no payment was made which diminished the principal amount of the
debt to the United States in respect to which the British Government was
obligated to pledge the subrogated securities, the United States Treasury
retained the right of subrogation.
The Treasury contemplated the release of the subrogated securities only
an
inducement settlement which Mr.
was sent to in The British broke off

Rathbone as the to and Europe in connection to effect with 1919-1920. the debt

negotiations in May, 1920, and therefore there was no release of the

177

-4-

Division of Monetary
Research

subrogated securities. Mr. Rathbone's abortive funding agreement with
Great Britain, containing the provision for the release of the subrogated
securities, were reported by the Treasury to the Senate Finance Committee

in July, 1921.

5. The release of the subrogated securities was finally made by
Secretary Mellon in a letter dated June 19, 1923. in connection with the
funding arrangement of that year.

This final release was written in connection with the proposal dated
June 18, 1923, for the funding of the debt of Great Britain to the United
States. It stated that "in accordance with the understanding reached at the
time of the agreement for the settlement of the debt the United States
Treasury will not require the deposit by Great Britain of any of the so-called
subrogated securities".

At this time, the subrogated securities amounted to a nominal value
of about $300,000,000. They were subrogated for a British debt of $285,000,000.
The following reasons were given at the time for waiving the right of

subrogation:

(1) it would be "grotesque" to retain collateral for only $285 million
or 6 percent of the total British war debt of $4,600 million,
(2) it would embarass British financing in this country. This would
depress sterling exchange and this would tend to weaken all other exchanges.

As a consequence, Europe's power to purchase American products would be
reduced, and

(3) the original reasons for subrogation no longer existed.

178
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

March 3, 1941

Secretary Morgenthau
Mr. Foley

There are about five Italian banks and three Swiss banks in
New York which will be effected by the proposed Executive Order.
The preferable way to deal with them is as follows:

Issue general licenses enabling the Italian and Swiss banks
to do the same things as any American bank could do. Such

general licenses would not, of course, permit the Italian and
Swiss banks to send funds to Italy or to Switzerland or otherwise deal with funds belonging to Italy or Switzerland in any
way except pursuant to such licenses as would have to be obtained
by American banks.

Set up a staff of people composed of bank examiners from
the New York Federal, the Comptroller's of the Currency Office,

the New York State Banking Commission, representatives of the
Foreign Funds Control, and perhaps representatives of the

Federal Bureau of Investigation. This group will work in New
York under the direct supervision of the Chief Bank Examiner
of the Federal Reserve of New York. This group will have one
or more representatives in each of the Italian and Swiss banks.
These representatives will have the opportunity to pass on every
transaction to see that it is within the purpose of the Order
and to stop any undesirable transaction. Too, these Government

representatives will also immediately make a full report of all
of the assets of such banks, particularly those assets which

might be readily disposed of without our knowledge. The Swiss
and Italian banks will, of course, understand that unless they
cooperate with us fully their licenses will be revoked and
other appropriate action taken.
This proposal has been discussed with Upham and Folger

of the Comptroller's Office and with Knoke, who in turn discussed it with Sproul and other officials of the Federal

Reserve Bank. All concerned think the proposal reasonable and
workable and feel that the New York State Banking Department

should be asked to participate in this proposal.

179

-2The Federal has asked that the Treasury authorize it
discuss the matter with the State Banking Department so
that an organization can immediately be set up.
to

If you agree, we can tell the New York Federal to go

ahead and, at the same time, advise State and Justice of

what we are doing with a view to getting their approval.

E,s 7h

180

Bree
FEDERAL RESERVE BANK
OF NEW YORK

March 3, 1941.
Dear Mr. Secretary:

You have requested a report of "what happened and why" on Tuesday
and Wednesday last, with respect to the Treasury's refunding of its March 15th

naturities.

The criticisms in the market of the refunding offer arise primarily

from the omission from the offering of a higher rate, longer term security,
and from the current uncertainties as to tax and monetary legislation and long
range fiscal plans.

The background for the financing you sketched clearly at our preliminary meeting in Washington on February 19. Following that meeting the Treasury
interviewed representatives of the principal sections of the market, as did we.
It may fairly be said of our interviews here that preponderant opinion favored
two bond issues - one of the type offered, together with a higher rate longer

bond more suitable for insurance company and savings bank investment. It was
believed that two such bonds would leave a much smaller amount of securities
demanding secondary distribution and that a secondary market at a premium could
be more readily established. However, there was no unanimity as to the value of

or method of valuing the higher rate bonds, particularly the 2 3/4% coupon. You
will recall that it was our opinion that the Treasury could successfully refund
its March maturities by an offer of one intermediate bond, to be either a 2 1/4%
bond callable 1950-52 or a 2% bond of 1948-50. We also advised you that it was
the market opinion that the issue should consist of a combination of two bonds,

and on that basis we recommended a 2% bond of 1948-50 combined with a 2 1/2% bond

of 1954-56 or 57.

The following questions and comments appear pertinent to your request:

1. Was the market prepared for the offer?

No, the market was not prepared for the offering in that it
had expected two bond issues and that one of them would be a
2 1/2% or a 2 3/4% issue. There had been comparatively little this

liquidation of "rights" prior to the offering because of

expectation. The inclusion of the generous two-year 3/4 note or
was regarded by the market as representing extreme caution,
fear on the part of the Treasury of very unsettling developments while the books were open.
The market was confused both before and after the bond. offering The

to the method of valuing a Treasury taxable conas action of proper the market since the announcement has furnished

firmation of this opinion.

181
#2.

Hon. Henry Morgenthau, Jr.

3/3/41.

FEDERAL RESERVE BANK OF NEW YORK

2. Why did "rights" open about 101 5/8 and sell steadily lower
during Tuesday?

It was generally agreed that the 2% bond of 1948-50 was

generously priced but it was quickly realized that it was a one security offer unless the worst happened and the "storm-cellar"
note came into play. The new bond was attractive particularly

to banks but initially there appeared to be little interest at

a premium. The banks appeared to believe that they would, over
the near months, obtain an adequate supply of new securities at
par and that accordingly there was no need to pay a premium now.
There was also a tendency, because of the low coupon, to calcu-

late the new bond to its maturity date rather than its call date.
As the value of the "rights" declined, due to the weight of offerings, potential investors in the new issue became more cautious

and holders of "rights" attempted to liquidate their holdings
before prices reached a level which represented either a loss or
their conversion value into the two-year note. It was at the
latter point that stabilization came into the market.
3. What was the source of the selling?
(a) Holders of "rights who had expected and wanted a 2 1/2%
or a 2 3/4% bond.

(b) Trust accounts, corporations and individuals.
(c) Speculators in all classes.

(d) Banks, especially smaller ones, which are now paying or
on the borderline of paying taxes and do not want a taxable
bond. Many of these sales were on swaps into tax exempt
issues.

4. Who were the buyers?

Savings banks and a few large commercial banks and trading

sources, outright and on swaps out of tax-exempt securities.
5. Why did not investors to whom tax exemption is of no value
buy the new issue?

At present there are only three Treasury bonds outstanding
with a coupon as low as 2% and they are the 2s of 1947, the
old 2s of 1948-50 and the 2s of 1953-55. Generally speaking,
the other Treasury bonds are providing investors (particularly insurance companies and savings banks) a better return

than 2% so that there was little inducement for investors to

give up tax-exempts providing a yield of 2% or more and buy a
taxable bond on a yield slightly under 2%. Such buying as may
be expected from this class of investor should come largely

through outright purchases, at least until their cash needs
are filled. However, most of them preferred to watch the market or expected to do better on future offerings. Nevertheless,

there was a fair amount of purchases of the new issue on swaps,
particularly on Wednesday, by savings banks. Most of these

182
#3.
RESERVE BANK OF NEW YORK

Hon. Henry Morgenthau, Jr.

3/3/41.

swaps involved the sale of comparable maturities of tax-exempt
Treasury bonds and to some extent the sale of National Defense
notes.

6. Were insurance companies attracted by the offering?
Generally speaking, no; nor did we hear of any sizable swapping
on the part of insurance companies into the new 2s. This does
not mean that insurance companies would not have swapped had

they been able to acquire a new taxable bond providing them with

a higher return than they are currently receiving on their taxexempt holdings.

7. Is there still a large secondary distribution to take place?
This is indicated. Many of the new 2s have been taken by
temporary holders on arbitrage or hedge transactions by investors who feel that the new 2s are attractive in comparison
with tax-exempt issues; also, many of the new 2s have been
taken in exchange for "rights" by commercial banks, especially
the large ones, which may liquidate them once the market becomes firmly established.

8. Has the corporate bond market been affected by the refunding
offering?

No. On Tuesday small fractional gains were recorded in the
morning but these were lost in the afternoon trading and in
some instances losses of one-eighth of a point were recorded.
On Wednesday the market was firm throughout the day with

prices slightly higher. On Thursday a firm tone again pre-

vailed and prices remained unchanged to a shade higher.
Trading on these three days was light.

9. Was the pending tax legislation a factor in the market?
Yes, it definitely added to the uncertainties in the minds
of investors.

While these questions and answers omit incidents such as the introduc-

tion by Senator Taft of a bill affecting reserve requirements and a request for
additional appropriations, they furnish matters for consideration in connection
with future financing. The underlying problem appears to lie in the proper
preparation of the market so that the Treasury can count on secondary distribution of future issues at a satisfactory premium. Although in such consideration

different be to each of the criticisms offered, and all may

it is our that

be important, weights nevertheless, may applied opinion until there is better understanding between the Treasury and the market as to its long term borrowing

program and the rates at which it is to be done, no correction of individual
factors will assure the immediate success of individual issues. We had this

SERVE

BANK

OF

NEW

YORK

4.
Hon. Henry Morgenthau, Jr.

3/3/41

Treasury

we suggested prior to to the this market issue without that its through final general commitments the plans press with on the better its regard part

mind informally when give a lead the near months and now that there be a not to
abject derstanding to similar difficulties.

Yours faithfully,

old I : to its its longer fiscal program. between program the It over Treasury is even more and the important market if future issues are be

G. Rouse,
Robert Vice President.

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,
Washington, D. C.

184

March 3, 1941
Mr. Grevee

Secretary Morgenthau

I want something new to say about our drive on
the defense savings bonds at my four o'olook press confer-

ence. Please be in my office a little bit before four with
Fordinand Kuhn and Chick Sahwars. I would like to see all

three of you at about ten minutes to four. I think I want
to say something now at each of my press conferences of the
progress we are making in our campaign.

March 3, 1941

Material furnished by Mr. Graves

to the Secretary for use at his

press conference today.

I--Treasury Savings Bonds will be continued. There
will be a new series, but the special Defense
Series will preserve all the essential characteristics of the present Savings Bonds.
II--The new Defense Series of Savings Bonds will be
available throughout the country in about 60 days.
III--We are contemplating an immediate increase in the
number of outlets, for both savings bonds and
savings stamps.

Postal Savings Stamps are now available at about
7,500 post offices; Savings Bonds at 16,000 post
offices.
We are expecting to approach the banks with a

view to securing their cooperation--if possible,
we hope to have Defense Savings Bonds and postal
savings stamps on sale at all, or most all, banks,
in addition to post offices. Mention the offer

of the National Association of Mutual Savings Banks.

IV--Ultimately, we expect to have postal savings stamps

available at thousands of retail outlets (stores,
etc), in addition to post offices and banks.

185

186
TRICTLY CONFIDENTIAL
ALLISON SHIPMENTS

British

:

:

Jan. 12 18
Jan. 19 25
Jan. 26 - Feb. 1

Total

E

-

00

8

C

41 - 41
33 - 33
31 - 31

-

-

- 60

25

Feb. 9 15

30

1 31

32
77

Feb. 23 - Mar. 1

TOTAL Dec. 29 - Mar. 1

-

-

-

-

-

286

1 287

Office of the Secretary of the Treasury,
Division of Research and Statistics.

4

-2-2
-

60

-

Total

F

3

Feb. 2 8
Feb. 16 22

E

Grand

-

1

- 83

83

:

c

Jan. 5 11

:

Period

Dec. 29 - Jan. 4

Army

88

223

-

2

2

-

-

1-1
-

total
12

85
43
33
32

-

26

86

2

1

35

66

2

1

80

so

91

91

2 241

528

1

3

16

March 3, 1941.

187
TRICTLY CONFIDENTIAL
ALLISON ENGINEERING COMPANY

Shipments of Airplane Engines

1940

January

May 24 - June 22

June 23 - July 20
July 21 - Aug. 17
Aug. 18 - Sept. 14
Sept. 15 - Oct. 12
Oct. 13 - Nov. 9
Nov. 10 - Dec. 7
Dec. 8 - Jan. 4

:

shipments

:

Actual

Estimated shipments

on existing orders

10
28

43
47

140
263
233
154
228

1941

January 5 11

85

January 26 - February 1

32

January 12 - 18
January 19 - 25

February 2 - g.
February 9 - 15
February 16 - 22

February 23 - March 1
March 2 31

43
33

86
66

80
91

April
May

June

July
August

409
408
456
500
475
550
625

September
October

750

November
December

800
800

1942

January
February
March

April
May

June

Office of the Secretary of the Treasury,
Division of Research and Statistics.

529

304
225
225

225
124

March 3, 1941.

188
EXPORTS OF PETROLLUM PRODUCTS. SCRAP IRON AND SORAP STEEL

FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN
AS SPOWN BY DEPARTURE PERMITS GRANTED

Week ended March 1, 1941
JAPAN

RUSSIA

SPAIN

GREAT BRITAIN

191,501 Bbla.

PRODUCTS

Fuel and Gas Oil (including
Diesel oil)

31,170 Bbls.

--

--

67,100 Bbls.
101,000 Bbls.

---

---

----

--

Grade

Blended or California
High Octane Crude*
All Other Crude

---

Gasoline -

Gasoline A**
Gasoline B*

All Other Gasoline

----

--

8,000 Bbls.

--60,579 Bbls.

Inbricating 011 -

Aviation Lubricating 011***
All Other Lubricating Oil
Retraethyl Lead*

Boosters", such as IsoOctane, Iso-Hexane, or
Iso-Pentane

1,019 Bble.
1,020 Bbls.

---

--

22,000 Bbls.

24,454 Bbls.
74,029 Bbls.
--

--

--

--

--

--

--

--

--

--

10,254 Tons

--

--

--

6,126 Tons

RAP IRON AND SCRAP STEEL

Number 1 Heavy Melting Scrap
All Other Scrap

fice of the Secretary of the Treasury, Division of Research and Statistics.
March 3. 1941.
urce: Office of Merchant Ship Control, Treasury Department.

Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon
mixture - President's regulations of July 26, 1940.
Aviation Gasoline.

As defined in the President's regulations of July 26, 1940.

189
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 3, 1941.

TO

Secretary Morgenthau

FROM

Mr. Haas A

In Mr. Hamm's recent note, indicating what he was
doing with regard to price increases in imported commodities,
he did not specifically answer the question as to whether he
was to take this matter up with the President or wished you
to do so.

I telephoned Mr. Hamm today with regard to this question
and he said that Mr. Henry Dennison was handling the matter
for him, and that the Maritime Commission was now setting up an

organization to handle shipping priorities and to establish

shipping rate controls. Mr. Hamm said he had written Admiral
Land but had not as yet received a reply. In any case Mr. Hamm
feels that since the Maritime Commission has just undertaken
this task it would be better to give them about ten days
or two weeks to produce results before taking any further
action.

3/13/41

190

Mr. O'Connell advised today that he has no

further information on this matter, and that
the file should be closed.

3/3/41

At the 9:30 meeting this morning
the Secretary asked Mr. Foley to have
0.
O'Connell investigate this matter
immediately and report to him.

191

192
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 3, 1941

TO Mrs. Klotz
FROM Mr. Morgenthau

Please talk to me about the letter from Congressman
Kopplemann. I want to do something about getting correct
information about the strike at the Underwood factory.

That is one of the first things I want to do this morning.
(see attached expersof

letter and memo-

193
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE MAR 3 1941

Secretary Morgenthau

TO

FROM

E. H. Foley, Jr.

The strike which has tied up the Hartford plant of

the Underwood-Elliott Fisher Company for the past month

has been settled. The workers voted yesterday to approve

an agreement reached by the strikers' committee and the
management on Saturday, and the men all went back to work

this morning. The major point in issue was apparently one
of wages. The new agreement provides for a 3 cent an hour
increase in the hourly rate of pay and a 4 per cent increase
in the piece work rate. The settlement reached was ap-

parently a compromise between the original demands of the
Unions and concessions which the management was at first

willing to make. There were two Unions involved, both
affiliated with the American Federation of Labor.

Mr. O'Connell also discussed the general setup with
Mr. Peter Tracy, Secretary of the Machinists Union.
Mr. Tracy indicated that the company's labor policy has been

very unsatisfactory to the workers for a long period of time,
and that time alone will tell whether the new agreement represents a "change of heart" on the part of the management.
Mr. Tracy seems to feel that the attitude of the personnel
manager, a Mr. Stowell, has been an important factor in
causing discontent among the workers. He also stated that
the vice president and plant manager apparently had to go to
New York before he could make any decision involving labor

policy, and that this made the workers feel that the bad

features of the company's labor policy should be blamed on
the group referred to in Mr. Tracy's letter to Congressman
Kopplemann. Mr. Tracy is going to prepare a complete
statement covering the entire situation as he sees it and
send it down here tonight or tomorrow.
The records of the Office of the Production Manager do
not show that the Hartford plant of the Underwood Company has
any prime contracts for defense.

I will see to it that additional information is brought

to your attention immediately upon receipt.

inth

194

My dear Mr. Kopplemanns

I am in receipt of your letter of

February 27. 1941 with the enclosed letter

from Mr. Tracy with regard to the strike
at the Underwood-Elliost Fisher plant in

Hartford.

I appreciate the thought which prompted

you to make this situation known to - and
intend to give the matter immediate attention.
Sincerely yours,

Secretary of the Treasury.

Non. Horman P. Kopplemonn,

House of Representatives
Washington, D. c.

JJO°C.Jr/Low
3-3-41

[Initialed) J. O'C,

195

CONFIDENTIAL

C.G. CR-2000

MAR 3 1941

The Honorable,

The Secretary of the Navy.
Subject:

Proposed
Coast Guard Cruising Cutters;
characteristics.

References: (a) Letter from the Acting Secretary of the
Treasury to the Secretary of the Navy,
May 1, 1930, CONFIDENTIAL, with 1st

Endorsement, Acting Chief of Naval

Operations, 6 May, 1939 (Op-23B-EJM (SC)
Q813/S1-1, Serial 5954; 2d Endorsement

The Assistant Secretary of the Navy, 10
May, 1939 (SOSED-0-1-Kr-5/9, (SC) Q813/
S1-1; 3rd Endorsement, Bureau of

Engineering, 17 May, 1939, C-QS13 (5-1-Bd);
Fourth Endorsement, The Ohier of the

Bureau of Ordnance, May 22, 1939, Q813/

S1-1(2)/6) (T11-6, D9, F12, L10, M14)
Fifth Endorsement, Bureau of Construction
and Repair, June 8, 1939, Q813-(12) (DF);
and Sixth Endorsement, The Chief of the
Bureau of Ordnance, June 16, 1939, QS13/
S1-1(2)/6) (T11).
(b) Letter, Navy Department (Bureau of Ordnance)
to Coast Guard, March 24, 1928, ET14/873 (16).

Inclosures: 1. Reference (a).
22.
Three blueprints of Contract Plan No. 83-85
CR0101-4, 327-Ft. Cruising Cutters Nos.
83-85, "Profiles".
s. Three blueprints of Contract Plan No. 83-85
CR0101-3, 327-Ft. Cruising Cutters Nos.
83-85, "Arrangement of Decke".

Sir:

It is expected that funds in the amount of $11,370,000
will be made available to the Coast Guard for the construction
of three Cutters of the HAMILTON Class. These vessels were
authorized by the 76th Congress, as reported to the Secretary

of the Navy in reference (a). The appropriation takes into

196
CONFIDENTIAL

The Secretary of the Navy -

c.e. 08-2000

account the general policy outlined in reference (b), that

the Bureau of Ordnance, Navy Department, will furnish the
original equipment of guns and mounts. together with battery
tools, spare parts and accessories, without charge to the
Coast Guard except for preparation, handling and transportation.

The design indicates four 5t/38 eal. guns and three
1.1 guns, with appropriate directors, but the cost of these
items is not included in the appropriation. The views of

the Navy Department on the proposed armament of these Cutters
will be appreciated.

Within the limits of the appropriation, Havy requirements will be incorporated in the Cutters when built, to

minimize
the cost and time required for changes, should Havy
duties be undertaken.

In view of the heavy work loads in Navy Yards, the
Coast Guard is planning to invite bids from private contractors and assumes that the Havy will interpose no ob-

jection to their construction in a yard with capacity to
handle vessels of this character. It is desired that the

vessels be completed within thirty months from date of award.

Very truly yours,

(Signed) Jr.
Secretary of the Treasury.

File
CtoEinG
RHL/WRB

to

enclosures Engineer office, C. G.

By - 4's beach

197

March 3. 1941.

The Honorable

The Secretary of State.
Siri

Reference is made to your letter dated January 8,
1941, addressed to Secretary Morgenthau, in regard to
the exportation of tolmol to Sweden.
You are advised that the Swedish vessel CASTOR

sailed on February 28, 1941 from New Orleans, via Port

Arthur, Texas, for a port in Sweden, with a cargo of
some 500 tone of toluol.

By direction of the Secretary:
Very truly yours,

(Signed) Herbert E. Gaston

Herbert E. Gaston,

Assistant Secretary of the Treasury.

Maiga

198
DEPARTMENT OF STATE
WASHINGTON

In reply refer to
RA

March 3. 1941

My dear Mr. Secretary:
The Ambassador of Chile has submitted to the
Department an informal memorandum, a copy of which is

attached, concerning the possibility that the Government of the United States might be willing to consider
an agreement regarding the purchase of silver produced

in Chile. In referring to the agreement "existing
between the United States and Mexico", the nemorandum

presumably refers to the agreement with Mexico which
expired in 1938.

The Department would appreciate an indication of

the views of the Treasury Department in this matter so
that it may reply to the memorandum of the Ambassador of
Chile.

Sincerely yours,

For the Secretary of State:
(Signed) Summer Velles
Under Secretary
Enclosure:
From Ambassador of

Chile, February 26,
1941.

The Honorable

Henry Morgenthan, Jr.,
Secretary of the Treasury.
du

C 0 P Y:RA:MJC

199

EMBAJADA DE CHILE
WASHINGTON

(Informal)
MEMORANDUM

The Ambassador of Chile wishes to inquire of the Undersecretary of State concerning the possibility that the Government
of the United States might be willing to consider conversations
with respect to some agreement, such as that existing between the
United States and Mexico, regarding the silver production of Chile.

The annual production of silver in Chile may be estimated
at
one million troy ounces, which is distributed in the following
manner:

precipitates

#

II
#

TOTAL

If

mixed ores
copper bars

140,000 troy ounces
110,000
150,000
480,000

.

copper concentrates

#

In gold concentrates

120,000 "
1,000,000

We may deduct from this total the silver in bar copper,
480,000 ounces, and that combined with ores and concentrates, but

it must be taken into consideration that there are plants for the
cyaniding of silver ores which now do not operate with this class
of ore, 80 that to the 120,000 ounces noted above in precipitates,
there must be added some 180,000 ounces more, permitting an estimate

to be made of the production in precipitates, which, in turn, can
be reduced to 300,000 ounces of metallic silver annually.

Washington - D. C.
February 26, 1941.

da

200
(Premelation of copy of note addressed to Secretary of State and handed
as March 7 to Union Secretary Bell by Mr. Incour-Gayes,)

Referring to his note of February 11. 1941. the Ambrosader of
France wishes to call the attention of His Resellency the Secretary

of State to the financial I carlenged tv the French devers-

sent ever the exigration of refugees holding visas for countries
ea the American continent. It is, is effect, absolutely accessary
to find funds is foreign exchange which will make is possible to
furnish the enigrants with the sisteen amount required w than for

their vayage and admission to such country.

The French Government considere the only possible solution to

be the utilization for this purpose, with the authorization of the

United States treasury. of funds withdraw from the French credite
sev blocked is the United States. Full guarantees would be extended
should these credits be unblocked, since the countries eventually
receiving the refagees are situated ea the American continent, and
there is as possibility that Germany sight benefit free such usbleeking.

The French Government is prepared to study all practical scane
of enabling the American authorities to verify that the unblocked
funds are used solely to define the exigrants' traveling expenses.
A special dollar account, for example, could be opened and the
French authorities would turn over to the exigrants checks drawn ea
this account.

The interester of France would appreciate receiving from His
Reseilency the Secretary of State an expression of the attitude of
the United States Government toward this proposition.
Mr. Beary-Raye is pleased to take this oceasion to FOREV to
the Benerabic Gardell Hall the assurances of his highest consider-

ation.

Washington, March 3. 1941.
His Ensollency

The Renerable Cardell Full.
Secretary of State of the United States.
Washington,
D. C.

translationslop

201
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 3, 1941

Secretary Morgenthau

TO

FROM

Mr. Haas

YOR

A decrease of 8,000 persons from the previous week's employment is indicated by the Work Projects Administration

report of 1,885,000 persons employed during the week ended

February 19, 1941.

Attachments

202
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Weekly
United States
Week ending
1940-41

July 3
July 10
July 17
July 24
July 31

Number of Workers

(In thousands)
1,608
1,620
1,659
1,690
1,701

August 7
August 14
August 21
August 28

1,709
1,708
1,698
1,691

September 4
September 11
September 18
September 25

1,690
1,687
1,689
1,704

October 2

October 30

1,747
1,762
1,768
1,776
1,779

November 6
November 13
November 20
November 27

1,783
1,785
1,806
1,820

December 4
December 11
December 18
December 25

1,832
1,855
1,872
1,878

January 1
January 8
January 15
January 22
January 29

1,880
1,887
1,893
1,896
1,895

February 5
February 12
February 19

1,892
1,893
1,885

October 9

October 16
October 23

Source: Work Projects Administration

203
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Monthly
United States
Number of Workers
1938

July
August
September

October

November
December

(In thousands)
3,053

3,171
3,228

3,346
3,287
3,094

1939

January
February
March

April
May

June

July
August
September

October

November
December

2,986
3,043
2,980
2,751
2,600
2,551
2,200
1,842
1,790
1,902
2,024
2,152

1940

January
February
March

April
May

June

July
August
September

October

November
December

2,266
2,324
2,288
2,092
1,926
1,665
1,701
1,691
1,704
1,779
1,820
1,878

1941

January

1,895

Source: Work Projects Administration

Monthly figures are weekly figures for the latest week
of the month.

They include certified and noncertified workers.

204
WORK PROJECTS ADMINISTRATION
Number of Workers Employed

-

1935

United States

Monthly W.P.A. Employment
1937
1938

1940

Weekly W.P.A. Employment
'4 1

WILLIONS WILLIONS

MAR

OF

WORKERS WORKERS

1941

1940

NAT 1939 - MEL JOKA - MA. NOT ml MATA BYYA / or
WORLD'S

3.4

3.4

1.2

3.3

3.3

3.2

3.2
3.2

2.8

3.1
3.1

2.8
3.0

3.0

2.9

2.9

2.4

2.4
2.8

2.0

2.7

2.7

2.6

2.6

2.5

2.5

2.4

2.4

2.3

2.3

2.2

2.2

2.1

2.1

2.0

2.0

1.9

1.9

1.8

1.8

1.7

1.7

1.6

1.6

24

2.0

14

1.6

1.2

1.2

.8

.4

The J

0

1935 1936

1937

1938

1939

1940

4

1.5

1.5
JAN.

MAR.

MAY

JULY

1919

SEPT.

NOV.

JAN.

MA.

MAY

JULY

1940

SEPT.

NOV.

JAN. MAR.

1941

SOURCE WORD PROJECTS AIMINISTRATION
Other of the Secretary of the Treasury

Z 221 a2

205
TREASURY DEPARTMENT
Champoog

INTER OFFICE COMMUNICATION

Miss
For

DATE March 3, 1941

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

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

£41,000
£44,000

Open market sterling was first quoted at 4.03-3/4. It moved to 4.03-1/2 around
mid-afternoon, and closed at that level. Transactions of the reporting banks were as
follows:

Sold to commercial concerns

& 5,000

Purchased from commercial concerns

-0-

The Argentine free peso, which fell at the end of last week from .2365 to
.2342, weakened today to .2305 at the close. The new Argentine regulations described

'n our daily report of February 28, which tend to reduce the utility of the free peso,
... undoubtedly the main factor in the continued decline of the rate.
In New York, the closing rates for the foreign currencies listed below were as
follows:

Canadian dollar

14-1/2% discount

Swiss franc (commercial)

.2323
.2385
.4005
.0505
.0505
.2066

Swedish krona
Reichsmark

Lira

Brazilian milreis (free)
Mexican peso
Cuban peso

6-15/16% discount

In Shanghai, the U.S. equivalent of the yuan was 5-17/32, off 3/324. Sterling
was quoted at 3.91-1/2, off 2f. In Hong Kong, the H.K. dollar expressed in terms of
our currency was 24-7/16 off 1/16 Sterling was also lower at 3.91, off 1.
There were no gold transactions consummated by us today.

In London, the prices fixed for spot and forward silver both declined 1/16d to

23-5/16d and 23-1/4d respectively. The U.S. equivalents were 42.33 and 42.21+

Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35.

206
-2-

We made four purchases of silver totaling 560,000 ounces under the Silver
Purchase Act, all of which consisted of new production from foreign countries, for
forward delivery.

The Federal Reserve Bank's report of February 26, listing deposits of banks in

took
on
New
York
The
latter's principal claims on Japanese banks in Asia
with the New York agencies of Japanese banks, showed that such deposits totaled
$101,502,000, a decrease of $7,294,000 since February 19. Most of the change in

Asia

deposits place dollar the liabilities books of the to Yokohama and dollar Specie Bank's agency.

stood as follows on February 26:

Liabilities: Deposits for Japan and Manchuria
Deposits for China.

:

.

Claims

U.S. Treas. Bills, comm. paper, etc

: Loans

: Other - mainly Jap. import bills

Change from

February 26

February 19

$56,372,000
35,588,000
23,730,000

- 824,000

$54,547,000
9,645,000

- $5,256,000

- 1,135,000

- $2,810,000

- 6,613,000

It will be seen that the decline of $7,215,000 in Japanese bank deposits and holdings
of bills with the Agency was accompanied by a $9,423,000 reduction in the Agency's
claims on such banks.

CONFIDENTIAL

207
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

CONFIDENTIAL

DATE March 3, 1941

Secretary Mow genthau

TO

Mr. Haae

FROM

Subject:

LOA

The Business Situation,

Week ending March 1, 1941.
Summary

(1) Priorities, whether mendatory or voluntary, on raw
materials for defense production are already affecting the
supply of some consumer goods, especially those using nonferrous metals. The danger 18 that shortage of a few essentials such as aluminum and zinc may ourtail production in an
entire group of related purchases, such as those required in

home building.

(2) National income payments in January increased to
$79.0 billions (on an annual basis) compared with $74.1

billions in January 1940. Total earnings of factory workers
in January showed an increase of 20 per cent over January
1940. The general gain in purchasing power has caused sharp
increases in retail purchases.

(3) New orders for steel have continued to run substantially ahead of shipments, with forward buying an important
factor. A report released last week, prepared by Gano Dunn,
estimated that surplus steel capacity would amount to
10,000,000 tons in 1941 and 2,000,000 tons in 1942. These
estimates, however, are based on the assumption that national

income will total 80 billion dollars in 1941 and 90 billion
in 1942, and that certain additional facilities will be provided. These and certain other assumptions may be open to

question.

(4) Lighterage freight in storage in New York increased

to a new high of 11,361 cars in the week ended February 21,

owing to a greater reduction in export shipments than in receipts for exports. Storage space, however, remains ful

adequate.

(5) Prices of imported commodities continued to increase
sharply last week, largely because of expected ocean freight
shortages and higher ocean freight rates. Prices of domestic
products were also somewhat higher, primarily because of proposed new agricultural legislation.

208
2-

Defense priorities impede consumer buying

During the past week the first mandatory priorities

were imposed by the Defense Commission -- on machine tools
and aluminum -- marking a departure from the system of so-

called voluntary rationing which has been in effect in
various industries. This move toward stringent official
rationing is certain to have some restrictive influence on
the production of civilian goods. It begins to bring
pointedly to attention the effect of previous failures to
provide adequate capacity for the production of strategic
materials.

Priorities, whether voluntary or mandatory, which have

been forced on producers by the exigencies of the defense
emergency are already affecting a number of consumer goods,

especially those which use large quantities of non-ferrous
metals. Producers are introducing substitute materials or,
where that is impossible, reconciling themselves to the
certainty that consumers of their goods will use substitute
products.

The mandatory priorities imposed on aluminum last week
are having repercussions on the consumer goods markets, as
producers of goods using aluminum search for substitute

products. In the case of certain other products, where
mandatory priorities have not yet been imposed, civilian

consumption is already being cut down by voluntary rationing. Some curtailment in brass production is apparent because of the zinc shortage. In view of the essential character of brass in munitions manufacture, consumer indus-

tries are attempting to find zinc substitutes. One observer

has estimated that the automobile industry's consumption of
zinc may be cut by as much as 75 per cent.

A critical disadvantage of priorities is that the short-

age of a few essentials may prevent consumer buying of an en-

tire group of products. For example, absence of supplies of
zinc or brass might actually cut down new home building,
where zinc and other non-ferrous metals are, at present, necessary for many types of equipment. Furthermore, in their attempts to acquire certain essential components at almost any
price, manufacturers may seriously distort the price structures for these materials.
Builders and building supply manufacturers are becoming
aware that shortages of non-ferrous metals may interfere with
the supply of certain types of home equipment and even retard
home building. Plumbing supplies are already a problem.
Brass pipe may not be available, and the zinc shortage may
prevent alternate use of galvanized pipe. Chromium bathroom

209

-3fixtures may shortly have to be replaced with other materials.
A large electrical parts manufacturer has already reported

difficulty in securing stainless steel, which is a nickel
alloy, and stated that it is most difficult to find substitutes.
Consumer purchasing power increasing

National income payments showed a further increase in

January to $79.0 billions (on an annual basis after adjusting
for seasonal variation) as compared with $74.1 billions in
January 1940 and $82.1 billions for the year 1929. (See
Chart i.) If allowance is made for changes in the cost of

living since 1929, the "purchasing power" of income payments
in January was equivalent to $92.0 billions, as compared with

$82.1 billions in 1929. (Refer to Chart 1.)

Earnings of factory workers have been decidedly improved

during 1940, as the following table indicates:
Earnings of factory workers

Average wage rate,

dollars per hour

December

December

1939

1940

.662

.683

January

Average earnings,

dollars per week

January

1940

1941

25.51

27.59

Percentage

increase

t 3.2
Percentage

increase

t 8.2

Total earnings (BLS

payrolls index
1923-25 = 100)

99.8

120.2

/20.4

The average wage rate per hour increased 3.2 per cent
in the year ending December 1940. (January figures are not

yet available.) Average weekly earnings, on the other hand,
increased 8.2 per cent in the year ended January 1941, indicating the degree of improvement in the position of the individual worker. ng weekly earnings have increased relatively more than hourly rates, the average number of hours
worked per week must have expanded substantially. Total
earnings of factory workers, indicating the purchasing power

of factory workers as a group, increased 20.4 per cent in
the year ended January 1941.

210

-4Position of individual factory worker improved
The improved economic status of individual factory

workers can be seen from Chart 2. Average weekly earnings
of factory workers rose to 119.2 in January (1935-1939 = 100),

as compared with an average of 118.1 in the final quarter of
1940; which in turn was considerably higher than the highest
quarterly figure for 1937.
The relative increase in earnings is the more pronounced

in view of the stability of the cost of living. Chart 2
shows an index of the cost of goods purchased by wage

earners and lower-salaried workers in large cities, as compiled by the Bureau of Labor Statistics. The series has recently been revised, using weights based on family expenditures in 1934-1936. Beginning October 1940, the index is

available monthly.

This increased purchasing power of workers explains, in
part, the recent strong advance in retail sales, as mentioned
previously. Various reports appearing last week give further
evidence of the same tendency:

(1) The National Electrical Manufacturers' Association indicated sales of 350,000 household refrigerators
to distributors and dealers in January compared with
218,000 units in January 1940, an increase of 60 per
cent.

(2) The Vacuum Cleaner Manufacturers' Association
reported sales in January 23 per cent over January 1940.
(3) Sales of washing machines in January were the

highest ever recorded, totaling 133,411 units, an increase
of 12 per cent over January 1940.

(4) Sales of ironers were also at a new high in
January of 20,986 units, an increase of 102 per cent

over January 1940.

Heavy buying of steel continues
New business booked by steel producers has continued to
run substantially ahead of shipments, with forward buying,
prompted by the desire to cover future requirements, an
important factor. New orders received by the U. S. Steel
Corporation during the week ended February 20 rose 12 per

cent to 155 per cent of capacity. The Iron Age reports that

211
5-

the volume of new orders for steel has been so heavy that
producers' books are almost completely filled for the
second quarter, and in addition there have been large bookings for the third quarter and some for the last quarter.
The Iron Age sees the possibility that the mills may be
sold out for the year by May 1.
Steel scrap prices were unchanged last week, but concern is expressed in trade circles over the slowness with
which scrap is becoming available at the current price
level. Steel operations last week were scheduled at 96.3
per cent of capacity as compared with 94.6 per cent in the
previous week. However, actual production may have been

slightly lower due to a strike, which has since been settled,

at the Bethlehem Steel Corporation's Lackawanna plant.
Steel operations in the current week are scheduled at a new

high rate of 97.5 per cent of capacity.

The Gano Dunn report

The report prepared for the President by Mr. Gano Dunn
and released last week is an attempt to appraise the ade-

quacy of productive facilities in the steel industry. It
is still too early to know how the report has been received
by steel buyers, but if its findings are accepted, the result

may be some abatement in the current heavy pressure of consumers to buy steel.

The statement, if accepted at its face value, is a reassuring one as to steel capacity. Certain of its basic

assumptions, however, may be open to question, particularly

in view of the fact that the steel industry is falling

progressively further behind in its efforts to meet current

demands. As the New York Times says in commenting upon the

report: "It 18 to be hoped that the aluminum experience is

not to be repeated.'

Proceeding from basic assumptions of estimated national

income of 80 billions of dollars in 1941 and 90 billions in

1942, the report finds that if certain measures are undertaken there will be a surplus steel capacity of 10,000,000
tons in 1941 and 2,000,000 tons in 1942. In arriving at
these figures, the Dunn report estimated capacity of the industry at the beginning of 1941 at 87.6 million tons as compared with 84.2 million tons reported by the American Iron
and Steel Institute. The increase noted was obtained by includ-

ing facilities for the production of additional steel castings

212
6-

and cutting down on the time heretofore consumed in carry-

ing out repairs. Calculating capacity on the same basis,

up completion to 91.1 million of facilities tons by now the under end way of the would year. carry capacity

On the other hand, the report indicated that 1f the

steel industry were to operate at capacity throughout 1941

on the basis above mentioned, pig iron facilities existing
at the beginning of the year would be 2.3 per cent short of
requirements, while coke facilities would be 12 per cent
short. Pending the construction of additional facilities,
the report suggests that any shortages that might arise in
these products should be met by (1) increasing the ratio of
scrap to pig iron going into ingots, and (2) by diverting
coke from use in home and commercial units.

Export freight accumulating in New York harbor
Because of the slow movement of ocean shipping,

lighterage freight in storage and on hand for unloading in

New York harbor reached a new high of 11,361 cars in the
week ended February 21, as compared with a peak of 10,845

cars in the week ended January 4. (See Chart 3.) Storage
space is fully adequate, however, as only about one-third
the space available 18 now in use.

Receipts of freight for export at New York (see Chart 4)
have been maintained in recent weeks at a higher level than
actual exports, which have tended to decline. (See Chart 5.)
Thus in the week ended February 21, receipts of export freight
at New York totalled 4,341 cars, while indicated exports were
only 4,053 cars.

New orders continue at high level
No let-up has occurred in the heavy volume of new business booked by industrial companies in recent months, and
cur index of new orders for the week ended February 22 rose
6 per cent above the previous week. (See Chart 6.) The

principal factor in the rise was an increase in new steel

orders, although new textile business also showed a fair
sized gain, and other items in the aggregate maintained the
level of the previous week unchanged.

213
7-

Prices of imported commodities sharply higher
Prices of imported commodities advanced again last week,

with the tight ocean freight situation a primary influence.

News appeared that a system of priorities may be set up in
the ocean freight market to reserve American flag vegaels,
if necessary, for materials needed under the defense program.
The steep increase in the prices of imported commodities
since early February (see Chart 7, upper section) in prac-

tically all instances reflect present or prospective shortages of ocean freight, together with increased shipping
costs. One proposal for alleviating the ocean freight short-

age came from Philippine planters, who suggest using for com-

mercial freight purposes Army transports returning light
from Government bases in the Pacific, following the practice of World War days.

Freight rate increases of about 25 per cent have been
announced on shipments from the Far East, effective April 1.
From South America, rates on freight have been increased 20
to 25 per cent, effective April 1. Rates on COCOR from the
West African coast have now been increased about 45 per cent.
Prices of domestic agricultural products higher
Prices of domestic commodities advanced in the week
ended February 28 with cotton, wheat, and other agricultural
products in the lead. (See Chart 7, lower section.) Two

bills have been proposed for the benefit of agriculture
through higher loan rates on farm products, and other plans,
either of which would represent the first major change in
farm legislation since 1938. The trade interprets these
proposals as meaning higher prices for such farm products
as wheat and cotton. The prices of domestic oils and fats,
including cottonseed oil, tallow, and lard are higher partly
because the tight ocean freight situation may curtail supplies of imported oils.
General commodity prices climbing higher

Viewed in perspective, the BLS all-commodity price index

has been rising very sharply with no interruption since last
August (see Chart 8, upper section), while the cost of living has pursued an irregular but gradually upward course.

While the monthly all-commodity index is not yet available for February, the weekly index (lower section of Chart 8)
levelled out during that month, which suggests that the

214
-8monthly index will show little change from the January
figure. This levelling out, however, seems likely to be
followed by a further rise, in view of the renewed upturn
in prices of basic commodities during the past several
weeks.

Weekly business indexes

Gains moderately outweighed losses among the various
components of the New York Times index of business activity

during the week ended February 22, and as a result, the
index advanced 0.4 to 121.5.

A contra-seasonal rise in electric power output and a
less than seasonal decline in "all other" freight carloadings were principally responsible for the slight gain in
the combined index. In addition, the adjusted index of
cotton mill activity rose 2 points and the adjusted index
of paperboard production showed a very slight rise. All
other components of the index declined, but after allowance
for seasonal factors the only one to show a loss of more
than 1 point was the index of lumber production. This
component declined because of a less than seasonal rise in
actual lumber output.

Barron's index of business activity also showed only a

small change during the week ended February 22, and declined

slightly to 130.0 from 130.2 in the previous week.
Preliminary data for the week ended March 1 reveal a

slight rise in the adjusted index of steel ingot production,

and a small decline in the adjusted index of automobile production as a result of a decrease of 1,200 units in actual
output. However, the total for the week of nearly 127,000
units was still near the best levels of production on 1941
model cars, and represented a gain of no less than 25 per
cent over output in the corresponding week of 1940.

-A
NATIONAL INCOME AND ITS EQUIVALENT PURCHASING POWER
1937

1938

1939

1940

1941

1942

DOLLARS

DOLLARS

BILLIONS

BILLIONS

Monthly
95

95

90

90

PURCHASING POWER OF
NATIONAL INCOME*
85

85

80

80

75

75

70

70

NATIONAL INCOME
65

65

60

60

1937

1938

1939

1940

1941

1942

BASED ON COST OF LIVING INDEX OF NAT'L. IND. CONF. BD., 1929=100
SEASONALLY ADJUSTED. MONTHLY FIGURES MULTIPLIED BY 12
Office of the Secretary of the Treasury
Dividen of Research - Indial

C - 374 -

BARNINGS OF FACTORY WORKERS AND COST OF LIVING
1935-59-100

1936

1937

1938

1939

1940

1941

1942
PER

PER

CENT

CENT

Quarterly
125

125

120
120

115
115

AVERAGE WEEKLY EARNINGS

110

110

105
105

100

100

COST OF LIVING
95
95

90
90

85

1936

1937

1938

1939

1940

1941

1942

85

SOURCE: S.L.S.

Office of the Secretary of the Treasury
- of Research and Studiettes

C-381

2

217
LIGHTERAGE FREIGHT IN STORAGE

AND ON HAND FOR UNLOADING IN NEW YORK HARBOR*
1939
NOV.

194

940
DEC.

APR.

MAR.

FCB.

JAN.

JUNE

MAY

JULY

SEPT.

AUG.

OCT.

NOV.

DEC.

JAN.

FCB.

MAR.

APR.
CARLOADS
THOUSANDS

CARLOADS
THOUSANDS

12

11

11

10

10

9

9
8

8
7

7
6

6
5

5
4

4

3

26

3

28 11 25 9 + 23 6 20 3 17 2 16 30 13 27 11 25 8 22 6 20 3 17 31 14JULY
28 12 26 9 23 7SEPT.
DEC. 21 4 JAN. 18 1 FEB. 15 1 MAR. 151941
29 APR. 12
NOV.

DEC.

1939

JAN.

FEB.

MAR.

APR.

MAY

JUNE

I

12

AUG.

OCT.

NOV.

940

*LARGELY EXPORT FREIGHT, BUT ABOUT 10% REPRESENTS FREIGHT FOR LOCAL
AND COASTAL SHIPMENT. FIGURES EXCLUDE GRAIN.

c 303 A
Office of the Secretary of the Treasury
Division of Research and Statistics

RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT . OTHER NORTH ATLANTIC PORTS
GARLOADS
6.5
6.5
6.0

6.0
5.5
5.5

5.0
5.0

American

4.5

4.0

3.5

4.5

4
3.5

9 OTHER PORTS

3.0

3rd

2.5

2.5

2.0

2.0
1.5

1.5

1.0
1.0

.5

o

DCC.

1939

-I--

Office of the Secretary of the Treasury

22
6

NOV.

20

JAN.

3

28 11 25 9 23

17

FEB.

AUG.

JUNE

15

29

12 26

38

2

0

17

1

15
1

SEPT.

OCT.

NOV.

DEC.

FEB.

APR.

1940

said

C-30-1

CARLOADS OF FREIGHT EXPORTED FROM NEW YORK*

6.0

6.0

5.5

5.5

5.0
5.0

4.5

4.5

4.0

4.0

3.5

3.5

3.0

3.0

2.5

2.5

2.0

NOV.

1939

SEPT.

OCT.

1940

1941

"AS ESTIMATED FROM DATA or GENERAL MANAGERS of NEW YORK.

----

Office of the Secretary of the Treasury

C - 300 - A

220
INDEXES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1940
CACENTAGE

POINTS
POINTS
220

220

210

Total combined Index)
1000 100

210

200

200

190

190

180

180

170

170

160

160

150

150

140

140

130

130

120
120

110

110

100

100

90

90

80

Total excluding Steel and Textiles

80

70

70

60

60

50

50

40

40

Steel Orders

30

30

M
20

20

10

Textile Orders

10

o

0
$

1939

1940

I .05-D

A

221
MOVEMENT OF BASIC COMMODITY PRICES
Domestic and Imported
AUGUST 1939 100

941
4

o

PER

CENT

11

Weekly Average

PER
CENT

18 25

MARCH
22

15

APRIL
22

15

5

PER
CENT

FEBRUARY

JANUARY

29

26

19

12

94

940

PER
CENT

Daily

135
128

128

135

11 IMPORTED
COMMODITIES
130
130

124

124

125
125

11 IMPORTED

120

1

120

COMMODITIES
120
120

17 DOMESTIC
COMMODITIES

116

116

115
115

17 DOMESTIC

112

112

COMMODITIES
110

110

106

108
105
105

dum

104

100

4

J

M

1941

104
18

11

JANUARY

25

I

A

8

LLJ

15

FEBRUARY

22

1

,

J

D

N

o

$

A

1940

M

8

M

15

22

29

12

5

..

11.1

LU

100

26

19

APRIL

MARCH

1941

A

M

,

J

Percentage Change for Individual Commodities, August 1940 Low to February 21, 1941, and to February 28, 1941
PER

PER

CENT

CENT

11 IMPORTED COMMODITIES

17 DOMESTIC COMMODITIES

900L 52.96
0000A 50.00

SHELLAG 48.30

50
50

TALLOW 46.00
DURLAN 41.4%
40
40

33.3%

30
30

SHEAT

PRINT

COFFEE 24.1%

24.00

III

23.00

21.80

SUBAR 20.7%
21.1%

20

20

15.7%

RUSSES 9.00

15.0%

14.50

BILK 7.1%

10
10

13

THE 1.56

STEEL KCAP. EXP. 5.5%
0

0

- -4.1%
-10

-10

Aug. Low

----

Office the Secretary of the Treasury

Fca.21 Fco.28

Aue. Low

Frs.21 Fco.28

P 199 4

Chart 8

222

NONE

COMMODITY PRICES AND COST OF LIVING
1926- 100

PER

PER
CENT

Monthly

CENT

90
90

88
88

86
86

Cost of Living. N.I.C.B.
84
84

82
82

80
80

78
78

863 Commodities B.L.S.
76
76

74
74

72

1935

1941

1940

1939

1938

1937

1936

72

PER

CENT

PER

CENT

Weekly
80
80

863 Commodities, B.L.S.

76

76

72

72

68
68

28 Basic Commodities. B.L.S."
64

6.4

60

60

56

56

52
LU

D

J

J

A

S

M

o

A

M

F

J

D

N

O

1939

M

N

11

J

-

F

-

52

1941

1940

"30 Commodities Prior to Jenuery 1940

P.M.

S

A

TO:

223
Secretary Morgenthau

D

3/8/41

For your information.
OSC

Left with m Hopkers

31 .

MR. COX

224
MAR 3 1941

Terms of Disposition of Defense

Articles to Britain Under H.R. 1776

One of the first questions to come up after
H.R. 1776 is passed will be: What benefit is the United

States to receive for the transfer of defense articles
from existing stocks?

Since the appropriation request to carry out the
bill will then be pending or made soon thereafter, the
question is of strategic importance. The public and Con-

gressional reaction to the appropriation request will be

influenced by the terms of the first disposition. The opponents to the bill have led the public to believe that
the Government will receive nothing.

It may be well carefully to consider some of the

following possibilities for the first transfer pending a
determination of a master plan:

1) The transfer to the United States of the
United Kingdon's capital interest in munitions

and aircraft plants located in this country
subject to the right of the United Kingdom

225

-2-

to have the use of such plants for the
duration of the war unless the United
States exercises its option to such use
before then.

The United Kingdom has a capital investment of about $134,000,000 in such

plants located in the United States.
2) The transfer of an agreed amount of Bolivian
tin per year stretched over a comparatively

long period of time, if there is sufficient
ownership by British nationals for Britain
to enter into such an agreement;
My impression is that there may be

power in the British Government to do this.
We are now building smelters in this country

to smelt and refine Bolivian tin.

At least it might be well to investigate the situation.
3) The transfer of an extra copy of Magna Carta

and a small part of the rare books of interest

226

-3to the United States held by dealers in
Britain so that they can be under the con-

trol of the Library of Congress.
The foregoing are only suggested possibilities. There

are, of course, many others. The important thing is to
start consideration of this problem as soon as possible

even if it is finally deemed wise to require no consideration.

OSC:a ja

3/3/41

Typed: djb - 3/8/41

227
MAR 3 1941

Terms of Disposition of Defense

Articles to Britain Under H.R. 1776

.....

One of the first questions to come up after
H.R. 1776 is passed will be: What benefit is the United

States to receive for the transfer of defense articles
from existing stocks?

Since the appropriation request to carry out the
bill will then be pending or made soon thereafter, the
question is of strategic importance. The public and Con-

gressional reaction to the appropriation request will be

influenced by the terms of the first disposition. The opponents to the bill have led the public to believe that
the Government will receive nothing.

It may be well carefully to consider some of the

following possibilities for the first transfer pending a
determination of a master plan:

1) The transfer to the United States of the
United Kingdom's capital interest in munitions

and aircraft plants located in this country
subject to the right of the United Kingdom

228

2

to have the use of such plants for the
duration of the war unless the United
States exercises its option to such use
before then.

The United Kingdom has a capital investment of about $134,000,000 in such

plants located in the United States.
2) The transfer of an agreed amount of Bolivian
tin per year stretched over a comparatively

long period of time, if there is sufficient
ownership by British nationals for Britain
to enter into such an agreement;
My impression is that there may be

power in the British Government to do this.
We are now building smelters in this country

to smelt and refine Bolivian tin.

At least it might be well to investigate the situation.
3) The transfer of an extra copy of Magna Carta

and a small part of the rare books of interest

229

3-

to the United States held by dealers in
Britain so that they can be under the con-

trol of the Library of Congress.
The foregoing are only suggested possibilities. There

are, of course, many others. The important thing is to
start consideration of this problem as soon as possible

even if it is finally deemed wise to require no consideration.

OSC:aja

3/3/41

Typed: djb a 3/8/41

230

TO:

Secretary Morgenthan
For your information.

lot
$ March 1941

Went to m Hopkins
am

3/4/ + at 8

MR. COX

231

COPY

MAR 3 1941
MEMORANDUM

To:

Mr. Harry Hopkins

From: O. S. Cox

You may want to keep in mind the following two

considerations in connection with the lend-lease planning and appropriations:

1) The need for outstripping the Axis powers

in productive capacity for defense articles
and the amount of such articles on hand

within a specified time limit;
2) The relationship between appropriations
for expansion of productive capacity and
appropriations to buy finished defense

articles.
(1)

Outstripping the Axis Powers

One of the major defects in the French and British

war effort was the fact that they did not adequately face

or state their needs for war equipment. As a result, they

232

-2- have had to restate and expand their needs innumerable

times with the result that much valuable time was lost.
We have been making the same mistakes.

Consideration should, therefore, doubtless be given
to a re-examination of the fundamental bases upon which
War and Navy requests for appropriations are being made.
To date none of these requests have overshot the mark--

they have fallen short. Thus, for the fiscal year 1941
alone, there have already been more than sixteen appro-

priations for the War and Navy Departments. There will
doubtless be more.

Generally, the War and Navy Departments' requests

for appropriations are made on the basis of an assumed

number of men, an assumed number of tactical units, etc.

Thus, for example, the number of aircraft for which appropriations have been requested have been conditioned largely

by such factors. However, if it were assumed that our
main purpose is to outmatch the Axis powers, as soon as

possible, in the productive capacity for the best available

233

-3aircraft and in the number of such aircraft on hand, then
the War and Navy Departments' requests for the expansion

of aircraft facilities and the procurement of aircraft
would unquestionably be much larger. The appropriation
requests for aluminum and magnesium capacity and the pro-

ductive capacity for machine tools and aircraft engines
would also be commensurately larger.

If it is decided and known that we want and have the
funds to develop a productive capacity for and have

60,000 planes of stated types in fifteen months, the job
will be done differently than if we want 36,000 planes
of the same type in twenty months.
(2)

Expansion of Production and Procurement
As each new appropriation has been made to the War

and Navy Departments, it has generally been necessary to

retrace steps to get adequate productive capacity. To
produce the same number of a given weapon or plane has

and is taking longer than if our needs had originally been

234

-4- better stated and expansion of productive capacity had
been handled accordingly.

In many instances the speed of production of a given

number of defense articles within a stated time is directly
affected by the ratio of plant expansion to procurement.
Thus, for example, if the amount of money appropriated to

expand productive capacity for turret lathes or other
machine tools is 1% of the amount appropriated to purchase

them, it is not possible to get as many of such machine
tools produced in a given period as it would be if 15% or
20% of the procurement money was put into expansion of productive capacity.

If for policy reasons it is decided not to ask in one
swoop for all of the appropiations necessary to satisfy
our own and British needs--to outmatch the Axis powers-then care should doubtless be taken to include the funds

to get the productive capacity for the whole task in the

first request. Once the capacity is there, it will be much
easier and quicker to get the finished article with subsequently appropriated funds.

235
MAR 3 1941

MEMORANDUM

To: Mr. Harry Hopkins
From: O. S. Cox

You may want to keep in mind the following two

considerations in connection with the lend-lease planning and appropriations:
1) The need for outstripping the Axis powers

in productive capacity for defense articles
and the amount of such articles on hand

within a specified time limit;
2) The relationship between appropriations
for expansion of productive capacity and
appropriations to buy finished defense

articles.
(1)

Outstripping the Axis Powers

One of the major defects in the French and British

war effort was the fact that they did not adequately face

or state their needs for war equipment. As a result, they

I

o

o

236

-2have had to restate and expand their needs innumerable

times with the result that much valuable time was lost.
We have been making the same mistakes.

Consideration should, therefore, doubtless be given
to a re-examination of the fundamental bases upon which
War and Navy requests for appropriations are being made.

To date none of these requests have overshot the mark-

they have fallen short. Thus, for the fiscal year 1941
alone, there have already been more than sixteen appro-

priations for the War and Navy Departments. There will
doubtless be more.

Generally, the War and Navy Departments' requests

for appropriations are made on the basis of an assumed
number of men, an assumed number of tactical units, etc.

Thus, for example, the number of aircraft for which appropriations have been requested have been conditioned largely

by such factors. However, if it were assumed that our
main purpose is to outmatch the Axis powers, as soon as

possible, in the productive capacity for the best available

0

237

-3-

aircraft and in the number of such aircraft on hand, then
the War and Navy Departments' requests for the expansion

of aircraft facilities and the procurement of aircraft
would unquestionably be much larger. The appropriation
requests for aluminum and magnesium capacity and the pro-

ductive capacity for machine tools and aircraft engines
would also be commensurately larger.

If it is decided and known that we want and have the
funds to develop a productive capacity for and have

60,000 planes of stated types in fifteen months, the job
will be done differently than if we want 36,000 planes
of the same type in twenty months.
(2)

Expansion of Production and Procurement
As each new appropriation has been made to the War

and Navy Departments, it has generally been necessary to

retrace steps to get adequate productive capacity. To
produce the same number of a given weapon or plane has

and is taking longer than If our needs had originally been

o

238

better stated and expansion of productive capacity had
been handled accordingly.

In many instances the speed of production of a given

number of defense articles within a stated time is directly
affected by the ratio of plant expansion to procurement.
Thus, for example, if the amount of money appropriated to

expand productive capacity for turret lathes or other
machine tools is 1% of the amount appropriated to purchase

them, it is not possible to get as many of such machine
tools produced in a given period as it would be if 15% or
20% of the procurement money was put into expansion of productive capacity.

If for policy reasons it is decided not to ask in one
SWOOP for all of the appropiations necessary to satisfy
our own and British needs-to outmatch the Axis powersthen care should doubtless be taken to include the funds

to get the productive capacity for the whole task in the

first request. Once the capacity is there, it will be much
easier and quicker to get the finished article with subsequently appropriated funds.
OSCiaja

3/3/41

Typed: djb-3/6/41

239
BRITISH EMBASSY,
WASHINGTON, D.C.

March 3rd, 1941.
Personal and Secret.

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,

Italifax
The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

240

Telegram from London dated February 28th
1.

Naval. A/P Trawler mined and sunk off Humber

night of 26th/27th.
2.

M.M. Minesweeper "Sarna" mined and sunk in Sues
Canal on 25th February.

During the night after the capture of Castelorosso
Island two enemy motor torpedo boats raided the Island but
withdrew before contact could be made. Reported "Ladybird"
3.

withdrew after heavy raid when she was damaged slightly.
4.
Reference to air and U-boat attack on outward

convoy 26th/27th, position as now known:- fourteen ships
attacked, three sunk and three set on fire, eight damaged,
of which one in tow and two proceeding under own steam to
United Kingdom.
5.

on 27th, East Coast convoy twice bombed and

machine-gunned. One ship sunk, one damaged, one reported

being attacked, but no further details.
6.

Glasgow and raider. Now made clear Glasgow's

only available aircraft did sighting and shadowing, Glasgow
seventy miles distant with maximum speed of 24 knots. Position of "Canadian Cruiser" 480 miles E.S.E. Mombasa and

Dutch ship was 280 miles E.S.E. of "Canadian Cruiser".
7.
"Leander" a.m. 27th, 250 miles W.S.W. of the

Maldive Islands intercepted Italian ship "Ramb 1." The
ship under red ensign. When ordered to stop, hoisted
Italian colours and opened fire. Five salvoes from "Leander"
ended the engagement, "Ramb 1." then set on fire, abandoned
and Bank within one hour, 100 prisoners.
8.

Military. Libya. Considerable movement of mechani-

cal transport has been reported in coastal area between a

point fifty miles W. of Agheila and Misurata. About fifty
enemy aircraft were seen on the ground in Misurate area.
Advance/

241

-2-

Adsance elements of our mechanised foresa drive back a

reconnaissance unit of armoured fighting vehicles, believed
German, west of Agheila.
9.

Royal Air Force. Night of 26th/27th. Three air-

craft (not four reported yesterday) are missing, three crashed
on return, one of the crew saved.
10.

A night fighter on offensive patrol probably

destroyed one enemy aircraft, and damaged another over an
aerodrome in Northern France.
11.

27th and 27th/28th. No operations took place.

12.

Malta. On 25th Hurricanes shot down two enemy

bombers, probably destroyed another, and damaged a third.
13.

Albania. Nineteen Blenheims with fighter escort

dropped 31 tone of bombs in Tepelene area and 4 tons on

Fier with good results. Italian Fleet headquarters and two
ships off Valona were machine-gunned.

German Air Force. 27th. About fifty emmy aircraft were operating. An aircraft factory was attacked,
14.

also 12 Royal Air Force Stations and 2 military establishments.
Production at factory will be reduced by about
50% for 48 hours.
15.

Night of 27th/28th. No en emy activity.

16.

Helta. It is now reported that during the attack

on Luqua aerodrome on 26th four further Wellingtons were
damaged.

242

Telegram from London dated March 1st.
1.

Naval. Of convoy reported attacked February 26th/
27th now learnt one damaged ship has not been located and
one damaged now been abandoned in sinking condition.
2.

British force in Kasteloritso was withdrawn night
of February 27th/28th. During withdrawal Jaguar attacked
with torpedoes, ship located in inner harbour, four explosions
heard. Later she located an enemy destroyer which escaped
although hit twice.
3.

Military. Kritrea. To 7 P.M. February 27th.

February 25th our forces in the North were in contact with
enemy fifteen miles northeast of Keren. Free French

force sustained fifty casualties during attack.
4.

Libya. German reconnaissance unite and possibly

also units of an armoured division are operating in Libya.
There is no evidence that a large German force has arrived.
Royal Air Force. February 28th. Three medium

5.

bombers attacked Hotel at Quiberon believed occupied by sub-

: three direct hite were scored. Our

marine

fighters on Channel patrol probably shot down one bomber.

Night of February 28th/March 1st. One hundred and
sixteen aircraft attacked targets at wilhelmshaven including

6.

"Tirpits" and six bombed port of Boulogne. One aircraft is
missing. Results unobserved.
Albania. on 27th, nine medium bombers escorted by
9 Hurricanes attacked aerodrome at Valona with good results.
7.

Hurricanes shot down seven enemy fighters and two more were

destroyed in collision. On February 28th, 25 Italian aircraft shot down and nine more probably destroyed over Greek
lines.
8.

German Air Force, 28th and 28th/1st, very little

enemy activity.

9. Malta./

243

-2-

9.

Malta. Early on 28th parachute mines were

dropped in and near Grand Harbour, two exploded in Valetta

and caused considerable damage to property. Anti-aircraft
fire detonated one in the air and probably destroyed
one enemy aircraft.
10.

Aircraft casualties in operations over and from

British Isles.
German: One bomber probably destroyed.

British: One bomber missing.

244
RESTRICTED

0-2/2657-220

M.I.D., W.D.
March 3, 1941.

No. 329

12:00 M
SITUATION REPORT

I. Western Theater of War

Air: German. Scattered air activity on a moderate
scale. On the night of March 1-2, fairly strong attacks were
made on Cardiff, Southampton and Great Yarmouth. Last night
south and southwest England were raided. Operations against
shipping continued.

British. Normal night offensive operations.
On the night of the 1st-2d the Cologne area was heavily attacked.
Last night operations were principally along the west coast of
the continent. Several air fields, from Sylt south, were bombed
and Brest was raided again.

II. Balkan Theater of War.
Bulgaria: Units of the German Army have marched into
Bulgaria since March 2.

Albania: Ground. Patrol and artillery activity.

Air. Minor activity.
III. Mediterranean and African Theaters of War.
Ground: Libya. The Free French report that Kufra

Oasis surrendered on March 1.

Italian Somaliland. The British claim the
capture of over 9,000 prisoners and large quantities of war material.
Air: Axis. German planes continued active along the
Libyan coast as far east as Tobruk. Malta was heavily attacked.

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

245

Jasaphrese of Code Oublegrea
Received at the War Department

at 7:46, March 3, 10ki.

London, filed 13:15, March 3, 1941.
1. On Sunday, March 2, operations of the Constal and Bember

Commonia consisted of attacks on a shipping and herber facilities
at Holder, the seeplane base on the island of Sylt, two airfields in
Holland and two German vessels off the Norvegian ecost. In addition,
a direct his was seared on a German cargo beat off the conet of Desmark

and British fighter please earried out recommissance over the Goast of

France. During those operations the British lost no planes. During the
proceding night Cologne was attacked w 131 British heavy bombers and

severe fires resulted. In addition, Lone British planes reided harber
facilities and airfields in the Netherianie and in northwesters Germany
and three bombers reided Boulegue. The British lost three planos in
those night operations. During daylight hours of February 28 three

direct hite were seared by a force of three British busbers in as attack
on a hotel thought to be occupied by the Groun of a number of German

calcarines at Outbares, France.

2. a March 2 a small number of German please carried out
attacks against the Metions Islands, Valee and Commell and other German
planes carried out reconneissance over the North See area. There were

some civilian casunities and - damage to private property but as
British planes were lost. German losses were - plane destroyed and
one damaged.

3. British planes from Greese successfully carried out a severe

CONFIDENTIAL

246

CONFIDENTIAL

attack - Italian mary - motor - - I the
Albenian town of Bust - as This - I The Brittah destroyed -

three Itelline please is the / - a - missis State
Reyal Air Force please - with the British land foreen. a
these theaters the Brisish Increased - Italian planes.

4. A total of no - fighter please were pletted over Mile

but as bumbe were dropped.

5. In the Barthwest Aggresshoo - March & a Brissah -

ship was his w a toryodo. Firse - started - - British shipe when - airwart carried eat wide - in-board and out-home

conveys near Himmine Head. a the - day / sisceres been to
British cargo beats from Granda Just outside of Carligh Day. Both
vessels suffered severe damage.
SCANNER

Distributions
Secretary of Mar
State Department

of
Acct. Secretary
Treasury
Secretary
of -

other of staff
- Please Division
office
of Naval Intelligence
Ats Garge
6-3

CONFIDENTIAL

247
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941
For Miss

Secretary Morgenthan
FROM

Mr. Cochran

At 9:20, Saturday morning, March 1, the Secretary called me to his office. He
stated that he desired that I draft a reply to the British proposal with respect to
the handling of direct investments in this country. He telephoned Secretary Hall,

requesting that someone in that department be permitted to cooperate with me in this
task. and asking that Secretary Hull look over the draft when completed. Secretary
Hall stated that Dr. Feis was out of town, but that Mr. Livesey, whom the Secretary
valued highly, was available for consultation. At Secretary Morgenthau's request,
Secretary Hull replied that he would instruct Mr. Livesey to be available.

I returned to my office and drafted a letter to Sir Edward Peacock, thinking it

preferable to give an informal answer rather than a formal note to the Ambassador
himself, which should properly pass through the Department of State. At 11:30 I took
this draft to Mr. Livesey and we amended a couple of sentences. I left the revised
draft with Mr. Livesey and in my presence he diotated a memorandum to Secretary Hull,
explaining the circumstances, and indicating that the Secretary of the Treasury would
appreciate receiving Secretary Hull's approval to the draft by 10:30 on Monday morning,
since it was to be delivered to the British in the afternoon, and perhaps to be
cleared through the President at noon.
At 10:30 yesterday morning I telephoned Mr. Livesey. He promised to get in touch
with Secretary Hall's office. At 12 o'clock he telephoned me back that Secretary Hull
had initialed the draft in the form that it had been submitted to him. I had obtained
the approval of Mesers. Stewart, White and Cairns to the draft, and the finished
letter was sent to Secretary Morgenthau between 12 and 1 o'clock, and handed by him

to Mr. Pinsent when the latter came to the Secretary's office at 3 o'clock yesterday
afternoon to attend a conference of British, Canadian and American Treasury officials.

BMI

248

MAR m3 1941

Dear Sir Buards

Please accept - sissure thanks for your courtesy in providing
with your letter of February 25. 1942, a nonorandum setting forth
the difference between the instructions under which you ease to the

United States, for the pargose of disposing of British direct investmosts is this country. and the plan which your Ashasonder proposed
who he added as the Security es February 24, accompanied by
Mr. Pervis and yourself.

the A absorates's proposal, together with . copy of the statemeas which he made is explaining the view of his Government, was

presented to the President w m. I have also had the benefit of

consultation with - colleages, Secretary of State Ball.
to are annisely appreciative of the desire maifested w the
British Government to arrange for the disposal of British direct

investments in this country is the - that my prove most offs-

etest. the write of the plan outlined is the will continue to have - study and consideration. so 10 our
suggestion, however, that work be personal as actively as my to along

the lines which you have established since your - arrival, with
such calls on us for accountation and active as you may desire, and

249

that improvements is the methods of procedure can best be add as

progress to achieves - as - a
Tory sincerely years,

Secretary of the Sreamy

sir Monre a. Peason, e. e. v. ...
is care of His Receivency, the British Administrar

ANK

250

March 4, 1941.
MEMORANDUM FOR THE SECRETARY'S DIARY

On Saturday afternoon Messrs. Foley, Pehle and

Bernstein attended a conference at the office of Assistant
Attorney General Francis Shea, at which Mr. Shea and
Mr. Acheson were also present. The meeting presumably was
called as a result of the President's memorandum to the

Secretary of State, the Secretary of the Treasury and the

Attorney General dated February 26.

At the meeting we went over word by word the proposed
Executive Order extending freezing control on a geographic
basis. Various suggested changes were adopted and considered.
Mr. Acheson indicated that the State Department was opposed

to the inclusion of Yugoslavia, Spain and Portugal and also
hoped that Switzerland would not be included, but understood
that the President wanted it included. Mr. Foley, after consulting with Secretary Morgenthau by telephone, indicated
that the Treasury was willing to go along with excluding
Yugoslavia, Spain, and Portugal, but that Switzerland should
be included. Mr. Acheson did not seem at all surprised at
the decision since he seemed to take the view that that is
what the President wanted.

The meeting lasted until 7:30. By the conclusion of

the meeting Acheson, Shea and Bernstein had substantially
agreed on the form of the Order and had also arranged for a
further conference at 2 o'clock on Monday to go over the

Order in final form and also to go over the Regulations and
any other problems that would have to be considered. Bernstein
had indicated that the Treasury was prepared to work on the
matter on Sunday but Shea stated he was going up to New York
to make a speech on Sunday and Acheson stated he would be
doing some work alone on the matter and then would see Secretary

Hull Monday morning. Bernstein spoke to Mr. Foley late
Saturday evening and advised him of the status of the matter.
On Sunday Shea called Bernstein at the Treasury, and
Bernstein advised Shea that Pehle and Bernstein and members

of the Treasury staff were revising the Order and Regulations,

251
2-

general licenses and general authorizations so as to be
prepared to "go" at any time. Early Monday morning Secretary
Morgenthau talked to Acheson on the telephone about the
problem and advised him that the Treasury had received an
inquiry from Atherton of the State Department in connection

with extending freezing control to Bulgaria. Secretary
Morgenthau felt Bulgaria should be dealt with as a part of

the broader freezing Order which was being considered.
Acheson said he thought that this procedure was satisfactory.
The Secretary suggested that Acheson tell Atherton.
On Monday morning Bernstein called Shea and Acheson

and advised them that redrafts of the Order and Regulations
were ready for immediate discussion. Nevertheless, no meeting
was held Monday morning.

At 2 p.m. on Monday afternoon a meeting was held in
Acheson's office, attended by Acheson and Donald Hiss of the
State Department, Shea, who came in about fifteen minutes late,

Bernstein and, a little later, Mr. Pehle, who had been attending a conference in Secretary Morgenthau's office relative to

the problem of Swiss and Italian banks that would be covered
by the extended Order. Bernstein indicated to Acheson that
the Treasury had the papers all drafted and was prepared to
work on the matter with the Committee as long as necessary
with a view to reaching an agreement that day and submitting
documents to the President so that the control could be put
into effect before the opening of business the next morning.
Acheson thereupon phoned Secretary Morgenthau and advised

him of the State Department's attitude on freezing Bulgaria.

Secretary Morgenthau indicated that the Treasury was ready to
complete the extended freezing job before the opening of

business on March 4, and that if it was held up it would be
because of the State Department. Acheson said that Bernstein

was in the office and the Committee was prepared to continue

working until it agreed on all the papers that day. The group

reviewed the Executive Order, and made a few changes. With
these changes adopted, Bernstein phoned to the Treasury to have
the Order set up in final form and also mimeographed. (Copies
of the Order and Regulations as finally agreed upon are attached.)
This took place around 4 o'clock. Acheson and Shea raised
questions as to what should be the next move. They discussed

the possibility of simply reporting back to their superiors with

a view to a meeting being held by the three Cabinet officers
with the President on March 4. Bernstein indicated that he

252

-3could not agree with this line of procedure in view of the
fact that it was anticipated that an Order would be submitted

to the President before the opening of business on March 4.
Thereupon Shea went out of the meeting room to phone the Attorney
General and Acheson went in to Secretary Hull with a copy of
the Order as finally agreed upon.
Shea reported that Mr. Jackson said that if the Order was
satisfactory to Shea, Mr. Jackson was prepared to sign it imme-

diately, although he felt that it would be desirable to have a

Cabinet meeting with the President and that any press release
on the matter should be issued through the White House. Bernstein
indicated that there was no objection whatsoever to the press
release being given out through the White House rather than
through the Treasury; that the Treasury was simply working on a
draft of a release which would be submitted to the Committee for
their consideration and approval with a view to being made
public in any way the Committee thought desirable.
Acheson handed Bernstein the original of a memorandum to

the President, initialed by Secretary Hull, which Acheson said
was being delivered to the Treasury for submission to the President
with the proposed Executive Order. A copy of this memorandum is
attached. Bernstein said that since Secretary Morgenthau was

waiting to be advised of what action was going to be taken, he

would have to take Mr. Hull's memorandum to the Treasury, and
suggested that the group continue their discussions on the basis
of several memoranda which Bernstein distributed indicating further

action to be taken in connection with the extended control.
After Bernstein left, Pehle continued the discussions on
the basis of the memoranda, copies of which are attached. Shea
raised the question as to whether the general licenses, etc.,

described in such memoranda were available for detailed examination by the Committee. Pehle advised him that the general
licenses, etc., were being prepared by the Treasury Department

and that as far as the Treasury was concerned, it would be satisfactory for the Committee to pass upon the general policy questions

outlined in the memoranda. Both Shea and Acheson suggested that
the Committee might keep itself abreast of all that was happening

in connection with the administration of the Order, and it might

be necessary for both State and Justice to have several people
working in the Treasury to report to the respective Committee
members. They asked Pehle whether this would be satisfactory to
the Treasury, and Pehle indicated that the Treasury would want to
consider the matter. Shea said that he could not see how the Attorney General could "supervise" the administration of the Order
without some such procedure. Pehle replied that the term "supervision" had been included in the Order as a substitute for the Attorney

253

General's suggestion that the Regulations be approved by the
Committee and that accordingly the term "supervision" was not
intended to indicate that the State and Justice Departments

would pass on the details arising in the administration of the
Order.

Bernstein returned to the Treasury and joined the meeting
in Herbert Gaston's office. Messrs. Gaston, Foley, White and
Kuhn were also present. Bernstein described what had

at memorandum.
the State Department and discussed Secretary Hull's happened

It was the view of the group that Mr. Hull's memorandum made it
undesirable for the Treasury to submit the Order to the President.

Mr. Foley took Mr. Hull's memorandum and went in to see the
Secretary. Secretary Morgenthau called Mr. Jackson and told
him what had happened. Mr. Jackson said that he was prepared

to sign the Order but thought that it might be desirable to have
a meeting of the cabinet officers with the President. Secretary

Morgenthau told Mr. Jackson that he was going to call the
President and discuss the matter with him to which Mr. Jackson
agreed. Secretary Morgenthau called the President and told him

what had occurred and read the memorandum to him. The President
wanted to know how the memorandum had come to the Treasury

rather than directly to the President, and Secretary Morgenthau

explained that the State Department had given the memorandum to

the Treasury for the Treasury to deliver to the President with

the Order. The President told Secretary Morgenthau to return
the memorandum to the State Department and to tell the State
Department that the Treasury could not undertake to deliver
this memorandum to the President, that the State Department

could deliver it directly to the President if they desired and
that the President's memorandum of February 26 called for all
three cabinet officers agreeing to the Executive Order. The

President indicated that in view of the attitude of the State
Department, he would not be prepared to sign an Order on general

freezing but that he would issue an Order extending the freezing
control to Bulgaria.

Secretary Morgenthau called Mr. Jackson and told him of the
conversation with the President and what the Treasury was about
to do with respect to the memorandum. Secretary Morgenthau also
told Mr. Jackson that we had the Order extending freezing control

to Bulgaria which was going to be submitted to Secretary Hull for
his approval and that if Mr. Jackson would then indicate his
approval, Secretary Morgenthau would submit the Bulgarian Order

to the President. Mr. Jackson agreed to this procedure.

Secretary Morgenthau then instructed Bernstein to return

the memorandum to Acheson.

254

Bernstein returned to Acheson's office at around

6:30 and returned to Acheson Secretary Hull's memorandum

to the President. Bernstein told Acheson that the Treasury

felt that it was not in a position to deliver to the President

a memorandum which had been initialled by Secretary Hull;
that the Treasury construed the President's memorandum of
February 26 as calling for an agreement by the three cabinet

officers on any freezing Order that was submitted to the
President, and that this meant that the cabinet officers
should actually sign any Order to be submitted; that in view
of the fact that Secretary Hull was not prepared to sign an
Order involving freezing on a wider geographical basis, the
Treasury had prepared the freezing control Order on Bulgaria;
that if Secretary Hull and the Attorney General would sign
the Bulgarian freezing Order, Secretary Morgenthau would also

sign it and submit it to the President that evening for approval.

Bernstein also told Acheson that presumably if Secretary Hull
desired the President to have his memorandum, Secretary Hull

would submit it directly to the President. Acheson felt quite

concerned and asked what could be done about the matter in view
of the President's memorandum of February 26. Bernstein repeated
that it was the Treasury construction of that memorandum that the
President wanted something submitted to him only after it had

been agreed to by the three cabinet officers and that nothing
less than Secretary Hull's signature on the Order would
constitute such agreement, and that therefore the Treasury
could not submit the Order to the President.

Acheson took the Bulgarian Order up to Secretary Hull's
apartment and Secretary Hull signed the Order and Regulations.
Acheson brought the documents back to his office where they
were reviewed by Townsend and Shea of Justice and Townsend

initialed the documents on behalf of Mr. Jackson. Thereupon,
after consultation with Foley, Bernstein took the documents
to Secretary Morgenthau who initialed the Order and signed
the Regulations. Secretary Morgenthau arranged with the White
House for the documents to be signed by the President that
evening. Bernstein took the Order and Regulations to the
White House where the papers were signed by the President.
Thereafter, the documents were telegraphed to the Federal
Reserve Banks and released to the press.

255
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941
Secretary Morgenthan
FROM

For Miss

Mr. Cochran

STRICTLY CONFIDENTIAL
In accordance with the arrangement made with Mr. Gifford, as reported in my

memorandum of February 28, there appeared in the Financial Press of Monday, March 3.

further list of American securities which had been completely liquidated by the
British Treasury, through Mr. Gifford,

The list as published is as follows:
Stocks: American York & Hoe Co. common
Boston Edison Co.

Buffalo, Niagara & Eastern Power Corp. 1st 5% pfd.
Commercial Credit Co. 4-1/4% cum. conv. pfd.
Crown Zellerbach Corp. $5 cum. conv. pfd.
Eagle-Picher Lead Co. common

First National Stores, Inc., common

Marshall Field & Co. common
New Jersey Zinc Co.
Republic Steel Corp. common

Standard 011 Co. of California

Bonds: Consolidated Edison Co. of N. Y., Inc., 3-1/26 debs, due 1956
Consolidated Edison Co. of N. Y. Inc., 3-1/4% debs., due 1946
Japan, Imperial Govt. of, 6-1/26, due 1954
Southeastern Power & Light Co. 6% debs. due 2025

Southern Ry. Co. dev & gen. stge. "A" 6%, due 1956
Standard Gas & Electric Co. 6% debs. #B", due 1966

m.f.

256
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941
TO

Secretary Morgenthau

FROM Mr. Cochran

At 9:05 yesterday morning Mr. Atherton telephoned me to the effect that
Secretary of State Hull had told him on Saturday that he was to let the Treasury know
when the time had come to block Bulgarian assets in the United States. Atherton
stated that the time had now arrived. He said the State Department had planned orig-

inally to wait until the British Minister had left Sofia, but that this departure would

not take place until Tuesday, so the State Department said to go ahead with the blocking on Monday. I asked Atherton if he knew the result of the interdepartmental group
on Saturday afternoon which was considering the general question of freezing. He replied in the negative.

I immediately put in a call for the Secretary's office. I gave Mr. Pehle the

above information at 9:10. At 9:25 I spoke with the Secretary, giving him the above
message. He said we would discuss it at the Staff meeting. The stenotype record
covers the conversation on this point which took place at the 9:30 meeting.
At 2:30 p.m. the Secretary called me to his office and instructed me to ask

President Allan Sproul to pass the word in the Federal Reserve Bank of New York and

to interested banks in the city not to put through any Bulgarian transactions of any
importance yesterday afternoon without first getting in touch with the Treasury. I
gave this message to Mr. Sproul at 2:40 and asked him to call me personally on any

such case 80 that I could clear it with the Secretary. In answer to my query, Mr. Sproul
said that he had not been aware of any important transactions on Bulgarian account yes-

terday morning.

At various times between 3 and 4 o'clock Mr. Cameron telephoned me from the

Federal, reporting four transactions involving Bulgarian funds. The most important of
these were the following:

1. The Credit Suisse, New York Agency, is depositing with Federal a check
for $200,000 drawn on the Federal Reserve Bank of New York by the Chase
National Bank for credit to the account with the Federal Reserve Bank
of New York of Banque Nationale du Royaume de Yougoslavie, Belgrade,

Yugoslavia, by order of Banque Credit Bulgare, Sofia. Bulgaria. The
credit Suisse, New York Agency, received their instructions from not the
Credit Suisse, Zurich. The amount of $200,000 was to be debited
to the Bulgarian account but to the Credit Suisse, Zurich.

2. Bank Nacional Argentine instructed Central Hanover Bank & Trust Co. to
pay Federal Reserve Bank of New York $238,000 for account of Banque

Nationale du Royaume de Yougoslavie by order of Banque Nationale Bulgare.

257

-2There were two other smaller transactions, one covering a payment of $50,000 from

the Hanover Trust into the Bulgarian account with the Federal. I cleared these four

cases with the Secretary and telephoned Mr. Cameron to permit their consummation.

The Swiss Minister telephoned for me twice yesterday, once at 10:35 a.m. and

later at 1:20 p.m. Likewise the Finnish Minister telephoned at 10 a.m. I did not
accept these calls, pleading conference business, lest they might be on the freezing
problem concerning which I was not in a position to speak.
At 5 o'clock yesterday afternoon Mr. Stopford of the British Embassy called on me.
During the conversation he inquired as to the status of new freezing regulations. I
told him that I could only provide him with a copy of the Dow Jones ticker article of
March 3. 4:35 p.m., which read as follows:

"Secretary Morgenthau Says Government to Issue Some Form of Foreign Assets
"Freezing" Order by Tomorrow Morning.

Washington.--Secretary of Treasury Morgenthau told his press conference
today some form of foreign assets "freezing" order will be issued by tomorrow
morning.

Mr. Morgenthau had been asked if freezing of Bulgarian assets and all
foreign assets was in prospect. He replied an announcement on this will be

made "by tomorrow morning".

He declined to say whether the order would apply to Bulgarian assets
only or would be much broader to include either Axis or all foreign assets
in this country."

I suggested that Stopford call on Pehle as he was leaving the building, since
Pehle would have more current information than I on this subject.
The following is an extract from that portion of the Department of State Radio
Bulletin No. 51 of March 3. 1941. which covered the press conference of Secretary Hull:
"A correspondent inquired if there was any information the Secretary
could give concerning the Bulgarian situation. The Secretary replied that
he did not believe he had anything more than the press. Asked if the situation there now was such as to raise the question of the freezing by the
United States of Bulgarian funds in the United States, the Secretary replied

in the affirmative. A correspondent inquired in this connection if consideration was being given at the same time to the freezing of funds of
Germany and Italy. The Secretary referred the inquiry to the Treasury.

Asked if he had given the Treasury any opinion regarding the Bulgarian funds,
the Secretary replied in the affirmative and said he believed it was given
this morning. Asked if the press could assume from this that the Secretary
approved the freezing of Bulgarian funds, the Secretary again answered in
the affirmative."

K.M.P.

258
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4. 1941
Secretary Morgenthan

TO

FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

Following the group conference yesterday afternoon between British, Canadian and
American Treasury officials, Deputy Finance Minister W. C. Clark from Ottawa dropped
by my office for a chat. He mentioned that there had been registered with the
Canadian Government approximately $350,000,000 (Canadian) of United States listed, mar-

ketable securities. Under the War Act Canada can vest title to these securities.

Mr. Clark asked whether it was desirable from the American Treasury viewpoint that the
Canadian Government take title to these securities and commence liquidation thereof.

He said this could be done, although it would give rise to a political "rumpus". He
said, however, this would have to be faced sooner or later and he is willing to proceed in accordance with our wishes.

I described to Mr. Clark the arrangement which we have with the British in regard

to liquidating their holdings of listed American securities. I said that naturally
his aims would be similar to our own, that is, to get rid of the securities which he

takes over at as good price as possible without having a depressing influence on the
aerican market. The British had consistently marketed in an orderly fashion, and
had been able to accellerate in recent months the speed at which the securities were
sold.

When Mr. Clark mentioned the possibility of Canada obtaining some assistance under
our Lease-Lend Act, most likely through the United States paying for those armanent
purchases which Great Britain makes in the Dominion, I gave the personal suggestion that

if this came to pass it might be desirable from our standpoint that a liquidation of
Canadian holdings of American securities commence. I told Mr. Clark, however, that
this was only my first reaction, and that I would like to present the matter to the
Secretary for his consideration. I reminded Mr. Clark that he was free to communicate
with us directly at any time. In answer to my inquiry as to whether the Canadians had
any direct investments in this country which could be marketed. Clark replied that his
estimate was roughly some place between $20,000,000 and $40,000,000. Some of this

night belong to American citizens resident in Canada who could be approached only with

difficulty. Furthermore, he feared that perhaps ninety percent of this material could
not be realised on in any reasonable period of time.

I mentioned this conversation to the Secretary at 11:30 this morning. I said
that Mr. Clark was still in Washington. He will leave today. He did not expect any
reply from us before his departure.

13. M.S.

259
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941
Secretary Morgenthan
FROM

Mr. Cochran

STRICTLY CONFIDENTIAL
After the Secretary gave me yesterday afternoon the memorandum of his con-

versation with Sir Frederick Phillips to the effect that arrangement was likely to be

consummated whereby the British could borrow $100,000,000 of the Belgian gold located
in Canada, I reported that we had just received word from New York that $75,000,000
in gold was to be shipped on March 4 by the Bank of Canada from Ottava to New York for
sale on account of His Britannic Majesty's Government.

In talking with Mr. Pinsent, Financial Counselor of the British Embassy,
yesterday evening, I mentioned this reported $75,000,000 shipment, and inquired whether
this represented the first transaction under an arrangement with Belgium. He said

that he doubted this very much. In the first place, the British Treasury people here
have not yet received word of the conclusion of the Belgian arrangement. In the second
place, word has come in to Washington as to further arrangements which the British
Government has made in assembling and "switching" gold. I asked Pinsent to let me have
full details on these points as soon as possible.
At 12:30 today Pinsent called on no. He showed me a cablegram from London
indicating that the Belgian Minister of Finance Gutt is leaving London on March 20 for
this country. In answer to my query Pinsent replied that his people have not yet had
any word of the Belgian gold arrangement being consumated.

Pinsent had with him a work sheet on which he had reconciled the British
estimate of $69,000,000 of dollar exchange and immediately realisable gold as of
February 28 with the figures of Mr. White. He also let me see a copy of a cablegram
of February 26 which indicated that London would approve of arrangements for "switching
French gold in Canada against British gold held in Australia and certain scattered
parts. Pinsent had not been counting such gold as immediately realisable, and gold
of this type was not included in the figure for February 28. Gold of this type amounts
to at least $46,000,000. Pinsent thought that it was perhaps against" switching* of this
$46,000,000 of gold, and by adding to the proceeds $16,000,000 of gold which the
British already had in Canada that the greater part of the $75,000,000 which is today
being shipped from Canada was reached. He is not sure, however, of his figures. He
is awaiting a message from London and upon its receipt promised to give us the latest
detailed picture of the gold situation.

MMR

260
C

0

P

March 3. 1941

Y

Nemorandum to:

Mr. Harry White

From:

Secretary Morgenthau

Sir Frederick Phillips stayed behind to tell me that he had
word from England that he was pretty sure that they were going to
be able to borrow a hundred million dollars of the Belgian gold
located in Canada.

He said that if he didn't hear by tomorrow night, he would

send another cable.

Copy to:

Mr. Merle Cochran

261

March 4, 1941
8:55 a.m.
H.M.Jr:
Harry

(Laughs). Oh, you didn't like that yesterday.

Hopkins:

No!

H.M.Jr:

Well, it was you who said your voice had
changed.

H:

(Laughs).

H.M.Jr:

Listen

I'm having breakfast with a member of your
staff.

H:

H.M.Jr:

Are you going to let me have him before I see

H:

Yes, he's coming in a few minutes.

H.M.Jr:

I want to know what he did last night.

H:

Well, I guess he moved around, he talked to me.

H.M.Jr:

What?

H:

Hull?

He did it.

H.M.Jr:

I mean I want to get a report before

H:

Where areyou now?

H.M.Jr:

I'm at the Treasury.

H:

What time do you expect to seehim?

H.M.Jr:

Well, I've got to seehim before I go to Hull's

H:

All right. I'11 tell him right away he'd better

H.M.Jr:

at 9:15.

get going damn soon then. All right.
Now, wait a minute. That isn't what I called

you up about. What does one do when one likes

to help the British with ten cutters to get

the President of the United States to say yes

or no?

262
2-

Does it have to be done under the Lend-Lease?

H:

H.M.Jr:

Yeah,
as see
far as
I know.
the point
this: you
I wrote
theBut
President
a 18(2/28)
letter and I sent a man by the name of Hopkins
who
it. lives over in the White House a copy of

Yeah. Well, if it's going to come out of the
Lend-Lease bill you can't do a damn thing
about it until the Lend-Lease Bill is signed.

H:

H.M.Jr:

No, you're wrong.

H:

You can? You mean it doesn't come under Lend-Lease?

H.M.Jr:

Well, we can get the whole thing ready with
the armaments and everything and tell the
British to send their crews to Halifax 80 that
when the bill is signed these 10
and then go with the first convoy. We can do
everything.

H:

You mean, the President make a commitment in
advance.

H.M.Jr:

H:

H.M.Jr:

He doesn't have to make a commitment; he just
says to me, "Henry, go ahead." See?
Yeah.

And I then put the pressure on the English to
tell me how they want these ships fixed and
we'll fix them, and tell them to send their
crews over to Halifax and have them waiting

there. I don't mean Lord Halifax either.

H:

All you want to know is whether the President
wants it done.

H.M.Jr:

That's it.

H:

You don't want a written memorandum.

H.MJr:
H:

No, just if he'11 call me up or tell you I'm not fusey who I talk to.
All right, Henry.

263

-3H.M.Jr:
Hi

H.M.Jr:
H:

H.M.Jr:

All right?
Yeah.

Get Cox over here now.

All right. Right away.
Thank you.

264

MEMORANDUM OF CONFERENCE

MAR 4 - 1941

Place:

Secretary Hull's Office.

Time:

9:15 A.M. to 10:55 A.M.

Present: Secretary of State Hull; Secretary of the Treasury
Morgenthau; Secretary of War Stimson; Under
Secretary of the Navy Forrestal; Director of the
Budget Harold Smith; Special Assistant to the Secretary of War, John McCloy; General Counsel of the
Treasury, Foley; L. B. Lockwood, Assistant to
Forrestal, and Oscar Cox, Assistant to the General
Counsel of the Treasury.

Senators Barkley, Byrnes and George came in between

9:40 and 9:50 A.M., and General George Marshall, Chief of

Staff, came into the conference at 9:50 A.M.
The following points were covered at the conference:
1) Secretary Morgenthau opened the discussion by
stating that since the conference on Sunday, March 2nd,

the assistants of the Cabinet Officers had met with the
Director of the Budget, and had drafted an amendment to
take the place of the Byrd Amendment. Secretary Morgenthau

stated that, after this amendment had been drafted, he had
asked Oscar Cox to take copies of it to Senators George,

265

-2-

Barkley and Byrnes, and to answer any questions which

they might have about it. He asked Cox to report his
discussion with these three Senators.

2) Cox stated that he had delivered the material
to the three Senators, and discussed it with them. He
added that Senator George had said that the amendment

was satisfactory to him, and that he thought Senator Byrd

might well be sold on it. Senator George suggested that
Cox show this amendment to Senators Barkley and Byrnes.

Cox did this. Byrnes said that he did not know whether
Byrd would accept the amendment in the place of his own,

but added that the amendment was satisfactory to himself,
and suggested that Senator George was the man to try to

sell the amendment to Senator Byrd. Senator Barkley

told Cox that he thought it might be unwise to raise the
question at all by proposing the counter-amendment. Senator

Barkley thought that it would be better merely to point out
that Congress retains control of the purse strings through
the appropriation acts to be subsequently passed.

266

-3-

3) Before the three Senators arrived at the meeting,
Secretary Hull put forth three possible ways to meet
Senator Byrd's amendment:

a) A percentage limitation on the
amount of appropriations to the Army and

Navy which could be used for defense articles
transferred under H.R. 1776;

b) A provision in the bill to the
effect that any defense articles procured
from appropriations made after the passage

of the bill to the Army and Navy can be trans-

ferred to Britain, etc., if, within thirty
days, Congress does not disapprove the transfer

by concurrent resolution; and

c) That a six months' time limit be
placed on the transfer of defense articles
procured from apr opriations made after the
passage of H.R. 1776, with the idea in mind
that the greatest emergency would occur within
that period, and Congress could be faced at

267

-4-

the end of that period with a request for

more flexibility.
4) Senators George, Barkley and Byrnes thought
that the proposed amendment to meet the Byrd Amendment

ought to be presented to Senator Byrd by Senator George.

Their thought was that a great deal of time would be

saved by doing this. Senator Barkley still felt that
it might be undesirable to offer the amendment at all.

5) Secretary Hull raised for discussion the
Ellender Amendment providing that nothing in H.R. 1776

authorizes the ordering of troops outside the hemisphere.
Secretary Hull pointed out the fact that such an amend-

ment would be a fraud on the public, since nothing in

the bill in any way authorizes the ordering of the troops
outside of the hemisphere. Senator George pointed out

that the only political argument that could be made

against Secretary Hull's position was that, if nothing

in the bill authorizes the ordering of the troops outside
of the hemisphere, why not say so in the bill?

268

-5-

6) Senator George suggested that consideration ought
to be given to an amendment making it clear that radios and

newspapers are not covered by the bill. It was tentatively
thought that by changing the word "facilities" in the

bill to the word "plant" this could be covered.
7) General Marshall then gave a detailed analysis
of how equipment originally intended for the Army could,

as a military matter, be made available to Britain in
our own best interests. He pointed out that in the case
of guns and ammunition, for example, for an army of
1,200,000 men, there are enough guns on order so that,

if Britain held out when we were in quantity production,
the nine months' supply of such guns, ammunition, etc.
which was contemplated to maintain the army in a time

when we were at war, could be made available to Britain.
He pointed out that this amount of equipment, which
could soon be made available to Britain, would have a

dollar value of about $1,000,000,000. Similarly, General

Marshall pointed out the situation in connection with

269

-6-

critical items, such as heavy ordnance, which has already
been authorized for purchase by Congress. Here again,

in circumstances similar to that, for guns and ammunition
the Army could make available to the British about

$50,000,000 worth of critical items.
General Marshall also pointed out the situation in
connection with aircraft. He indicated that the Army had
in mind ultimately setting up 180 squadrons, consisting
of 54 groups, but that its immediate requirements in
minimum form were only 30 squadrons, as long as the pro-

ductive capacity was such that in a very short time 180
squadrons could be equipped with aircraft. He pointed
out that this assumed an adequate amount of training

planes to train the pilots ultimately necessary for the
180 squadrons. He made clear that when we had reached

or approximated this quantity production, we could, and
it would be to our advantage, make available to the

British the number of aircraft that made up the difference
between the 30 and the 180 squadrons.

osc

270
WAR DEPARTMENT
WASHINGTON

March 4, 1941

Honorable Henry Morgenthau, Jr.

Secretary of the Treasury
Department of the Treasury

Dear Mr. Secretary:

Enclosed is a corrected statement of
the materiel about which General Marshall spoke

this morning. In the original list which you had,
the top right-hand figure was $1,000,000,000, but

this took into account not only actual appropria-

tions but monies that have not yet been appropriated.
The correct figure, as shown on the attached list,
should be $400,000,000.

Sincerely yours,

JOHN J. McCLOY

Special Assistant to
the Secretary of War

1 Encl: Tentative
Policies

2, BBU 5-1

11) friday
copy
thirsell
3/6/71

271

TINTATIVE POLICIES reference possible releases of U. 5. Material
(now under contract) to British Government.

Provided under present Appropriations

Possible Allocation to British

s. Material for initial equipment

Material from present appropria-

and for 12 months' maintenance

tions

in field for 1,200,000 ground

troops.

Value - $1,350,000,000

Critical items for 800,000
additional ground troops, in-

Value - $400,000,000 (rough)

All of this material
Value - $650,000,000

cluding 12 months' maintenance

.. Value - $650,000,000
e. Airplanes - 21,500
(11,600 combat types)
Value - $1,745,000,000

2.3 billion shortage

. 0.8 billion shortage

8,001 Tactical types
5,400 Training types
Value - $600,000,000

RETURNED BY MR. KUHN

272
THE WHITE HOUSE
WASHINGTON

March 4, 1941.
MEMORANDUM FOR HENRY MORGENTHAU, Jr.:

This was received in reply to my
cable the other day. I don't know what public
announcements are being made in England but
this information might be put in the hands
of some of our friends.

I talked to the President about the

coast guard cutters a few minutes ago and I
gather from what he said that he wanted to
take a further look at it. He seems to think
that certain older cutters could be used.

At any rate, I gather he is going to talk
to you about it directly.

HAH
Harry Hopkins
Enclosure (1)

273

1.

Examples of war-time increases in taxation.

Direct taxation.
(a) The standard rate of income tax increased

from 5 shillings and sixpence to 8 shillings and sixpence
in the pound.

(b) The rate of Surtax (which is an additional
income tax imposed on all personal incomes exceeding

2000 per annum) increased on a graduated scale, so that
income above $20,000 per annum is taxed at 18 shillings

in the pound. Pre-war peak was 13 shillings and 9 pence
in the pound on incomes above 50,000 per annum.

(c) Examples of increases in the case of the
married man with two children.

Following amounts in L sterling:
Income
£500

61,000
£2,000
£5,000
+10,000

Pre-war Tax

Present tax

8.

37.

112.
359.
1536.
4173.

211.
600.
2356.
6006.

(d) Death duties also increased.
2.

War Time Profits.

All company profits pay income tax at the standard

rate (8 shillings and 6 pence in the D) and in addition
profits of trades and businesses in excess of a pre-war
standard are taxed 100%.
3.

Indirect Taxation.
This covers a wide range of commodities including

articles of food such as tea and sugar. The following
are examples of war-time increases.

(a) Spirits. Normal pre-war price of a bottle of
whiskey was 12/6d - of which 8/5/2 was tax. Now 16/- to

16/6d of which 11/4/ is tax.

274

-2(b) Beer. Average pre-war price was 6d per
pint of which about 2d was tax. Now 9d including 4-3/4a
tax - and the strength of beer reduced.

(c) Tobacco. Duty before April, 1939, 9/6d
per 1b. Now 19/6d per 1b. Popular packet of 20 cigarettes
has increased in price from 1/- (including 5 dd tax) to

1/6d (including just over lld tax).
(d)

Purchase Tax. New internal tax applied

to a wide range of goods including clothing - hardware -

furniture, etc. Rates of tax 1/6th or 1/3rd of the whole sale value.

275
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941

Secretary Morgenthau

E. H. Foley, Jr.

Subject: Liquidation of British Assets
At a meeting in Jerome Frank's office at
11:15 a.m. today, the following were present:

Chairman Frank, Commissioner Pike, Mr. Schenker,

Mr. Purcell, Mr. Louchheim, Mr. Kamarck, Dr. White
and Mr. Cairns.

Chairman Frank stated that it was difficult
for the SEC to appraise the plan proposed by

Secretary Morgenthau in view of the numerous impond-

erables that it contained. The SEC was, therefore,

advancing a new proposal. Chairman Frank thought
that the problem could be met by securing a group
of public spirited men who would serve without compensation as a committee. The committee, upon dis-

closure of British assets to it, would undertake to

secure American purchasers for the assets and would

advise the British whether or not the price offered

was fair.

After some discussion, the SEC agreed to

submit the plan in writing to the Treasury as soon
as possible, probably this afternoon.

276

March 4, 1941
11:00 a.m.

RE AID TO BRITAIN

Present:

Mr. Kuhn
Mr. Gaston

Mrs. Klotz

Mr. Foley

Mr. Cox

H.M.Jr:

I am waiting for Foley and Cox. What shape is
the letter in now?

Gaston:

Well, Phil brought it to me this morning and I

H.M.Jr:

What don't you like about it?

Gaston:

I think the order in which it is stated gives

didn't like the construction about it.

it a rather complaining tone.

H.M.Jr:

Really? That is interesting. That is the advantage of showing it around. Complaining?

Gaston:

Yes. It begins with a reminder of what you have
done in this liaison work and then gets down to

the real business of the letter, which is a
suggested consolidation. I would prefer to state

in a businesslike way your opinion that the that the thing ought to be consolidated for two
reasons, one is the advantage - the efficiency of
consolidation, and second, that it will leave you

the time that you will need for attention to the

committee, and then I think that you can work in
something about the history of it.

277
-2-

(Messrs. Foley and Cox entered the conference.)
H.M.Jr:

Well, Herbert, maybe you have missed the point

of what I am trying to get over. These other
fellows - if the two of them (Foley and Cox)
can
seenread
it. this while I am talking - they haven't

Kuhn:

Could Ed and Oscar hear Herbert's point quickly

again?
H.M.Jr:

No, let me state mine first.

Kuhn:

I see, surely.

H.M.Jr:

Then if Herbert wants to state his point after-

ward, that is all right. What I want to do,

Herbert, is this. What is motivating me? The

thing that is motivating me is that for a little

over two and a quarter years I have been looking at these various countries that want to buy
materials for cash in this country, and when the
Lend-Lease Bill passes, that era no longer exists,

and I want a clean-cut break. I don't want to
slide out of it, and I don't want to be pushed
out of it, you see. Now, that is the purpose of

the letter and after I wrote that, then Philip

Young - and that is why I have got Cox - who
was interested in this other thing added that
other thing, the question of how it should be

done. I would much rather write two letters. Do
you see what I mean? The thing that I am interested in is me, this time. For two and a quarter
years I have just given the best that is in me

to this thing, and I just say I don't want to
slide out of it or be pushed out of it. I want

to formally sever my connection with the President

on this particular front. Now, as to what he

does with my work, that is something beside the

point, but for this time I am going to think of
H.M., Jr. first, you see. Then these fellows

278
3-

took it. I told them to take it. What are you

going to do with the work? I would much rather
write two letters. Now, having said that, you
come back at me, you see. Now, you see, when

you go over this thing there is nothing from the
President to me ever having asked me to do this.
The committee was set up and reports to the
President through one McReynolds. It doesn't

report through me. There is absolutely nothing
to show my responsibility. Did you know that?
Gaston:

On the Liaison Committee?

H.M.Jr:

Not a thing. I don't exist.

Gaston:

Yes, I think I can find something for you, in

which the President formally stated that the

Liaison Committee had reported to the President

through you, in a release.

H.M.Jr:

Klotz:
H.M.Jr:

Then you are better than anybody else, but it has
been that way. That has happened before. That

is all right.
But even if it is --

Well, I would like to see that, but even if it
is, my first interest for once is me, you see.
Now, how would that - with that introduction,

how would you do the thing?
Gaston:

Just the way I am proposing to do it.

H.M.Jr:

You still would do it the same way?

Gaston:

Yes.

H.M.Jr:

In one letter?

Gaston:

Yes.

H.M.Jr:

Have you written it out?

279
4-

Gaston:

I have written half of it - two-thirds of it.

H.M.Jr:

Well, could you read what you have got?

Gaston:

Yes. Did you want to get these gentlemen's
(Cox and Foley) impression of the letter as it
stands? Maybe I am all wrong about it.

Foley:

I think for the purpose you have in mind it is

all right.

H.M.Jr:

Herbert thinks it is a complaining letter.

Cox:

Well, I think it has that implication. I had
read the letter before.

H.M.Jr:

You had?

Cox:

The draft of it, and I wasn't quite sure what
you were trying to do. It is clear now, and I

think you could say that much more directly and

to the point without giving any implication of a
complaint and also without necessarily covering

the second thing. It seems to me that is a

practical problem, whether you want to cover the
second thing in the same letter or a separate

letter.

Klotz:

It looks to me difficult to say what you want to
say without saying -I haven't seen the letter.

H.M.Jr:

You haven't seen the letter?

Klotz:

No. This must have happened after I left yester-

Gaston:

day.
Gaston:

It looks to me difficult to say what you want to
say without saying that you wish to surrender
this liaison work to the new committee, because

280

-5-

the President has already indicated he wants
the Russian purchases there and that turns out

to be the business of this letter, what is in
the latter part of it, a direct suggestion that
the Harry Hopkins organization, that is, the

new Advisory Committee, as a committee and not

through you, take over the work of coordinating
all foreign buying, and it seems to me that
suggestion should be made directly in the beginning of the letter, and there are two reasons

for it. One is that a logical coordination of

work - it all belongs in one place; and the
other reason is that your duties on this new

committee are going to be important and you want

to be free to do those and not have the thing
confused by having those added words.

H.M.Jr:

You wouldn't say anything about having done this?

Gaston:

I would, but I am going to try to work it in

smoothly and logically later in the letter. I
don't think it is logically brought in in the

letter as it now stands. Do you agree with me,

Oscar?
Cox:

Well, I think it is logically brought in, but it

is a question of what you want to emphasize. It
seems to me if the primary thing you want to emphasize is going off on a clean-cut break unless
the President wants to turn around and specifi-

cally ask you to do it, you ought to say that at
the beginning, and at the end explain a little
bit about the past history.
Gaston:

That is my idea of it.

H.M.Jr:

Well, I would like to say something without try-

ing to confuse it. I will tell you people now
I will be ready at 3:00 'clock to meet with

you again. You can conclude by that that I

consider this important. I don't want to confuse it, and I am not trying to influence you.

281
6-

But the reason that I am more sure than ever -

I will wait until you finish reading it.

Klotz:

I have. I am listening to you.

H.M.Jr:

The reason I am more sure than ever, there are

two things that have come up. I sent for Philip.
Hopkins told Philip that with his right hand he

should help him and with his left hand he should
continue to see these countries who - let's say
other than Great Britain, China and Greece, to
over-simplify it, you see. Now, Hopkins had two
hours with Purvis and he is sounding Purvis out,
where should we buy - again over-simplifying it -

the agricultural products and Purvis, I gather,
told Hopkins, "Well, the place to do it - the

only formal purchasing agency other than the
Army and Navy is the Procurement in the Treasury,

you see. Now, that means that I have got to
do it again, and I don't want to do it, which
all the more - this is the end of an era and
anything that I am going to do now - first I want

the President to ask me, and in the second place,

I want to weigh it very carefully and talk It

around and after - assuming my full 25 per cent

of the responsibility with this Board after all

the things we have been through this morning on
the Lend-Lease - but I have got to do two things
here. I have got to raise more money than any-

body ever raised before in the world without
having a capital levy, and two, we have got to
raise a lot more taxes than we have ever raised
any place; and those two things in themselves
are enough for any human being. I hope I can do
them. Now anything else, I think, ought to be
weighed by my staff very carefully as to whether
I can do them without so weighting myself down

that I have failed what I am charged to do.
Those two things are my first duties, and everything else is something extra.

282
-7-

Gaston:

I think you are tracking absolutely right.

H.M.Jr:

And therefore, we I hear of Purvis, who is my

friendback.
but
come

he also - he loves to see the thing

Klotz:

He does.

H.M.Jr:

And Philip, who has his own problem and who is
very loathe to go over and work with Hopkins

and has this organization on his hands, and all
of these things, that is all the more reason
why I want to have a very clean-cut line.
Gaston:

Yes.

Klotz:

I am with you a hundred per cent.

Gaston:

Well, I feel that --

H.M.Jr:

And that is why I am laying so much stress on

Cox:

That is right. Of course you have got a third

this letter.

thing which, it seems to me, as a member of the
Board and administratively, you have to handle is
the financial thing because of the past background
of knowing what the British investments are and

because it is essentially a financial problem,
and I should think in a very early stage the

President would have to ask you to steer that as
against the straight purchasing end.

H.M.Jr:

Well, tell them what Hopkins said.

Cox:

Hopkins said this morning that it seemed to him
very clear that the whole problem of what the
trade should be and the whole problem of picking
up existing British orders through the Army and
Navy and giving the British cash was a problem
the Secretary of the Treasury ought to handle and

not he. As it lined up in his mind, he thought

283

-8-

he ought to concentrate on the main job of

getting the British airplanes and the Finnish
guns and so forth, and the financial thing

ought to be separated out to the Secretary
of the Treasury again.
Gaston:

Well, that is another major job with some reference to that and also to the other duties of the -the other very increased load to the Secretary
ought to go into the record.

H.M.Jr:

I think yes, which isn't in at all, and don't

forget, Herbert, you are going to show me where
the President said in a release that I am the
fellow.

Gaston:

Yes.

H.M.Jr:

Ed, you are being quiet for once. Are you exhausted? Did Mr. Hull exhaust you?

Gaston:

Just let me say this, that I think that using this

review of what has been done toward the latter

part of the letter gives more that impression of
finality, you see, and the logical impression of
finality that you are washing your hands of it

than to start out with it.

Klotz:

That is right. I don't like the letter at all.

H.M.Jr:

Well, why don't we all meet again at 3:00 o'clock,
and if you fellows could meet in Gaston's office
a little bit before that and whenever he is

ready - so that you will have a little preliminary
boxing match, you see.

Gaston:

I will try to get my idea of a draft out within
the next hour and send copies to these three
gentlemen, and then we can meet on it before

3:00 clock.
H.M.Jr:

I wasn't entirely satisfied with the ending. It

284
-9-

seemed to kind of slough off there. But I
don't think - have another try at it, see,
because you see - am I right, Oscar, that
Harry Hopkins is groping?

Cox:

That is right.

H.M.Jr:

And by using all of our people, we could help
direct it either here or away from here?

Cox:

That is right.

H.M.Jr:

Now, you see the great trouble is - I mean,

you men have been working on me on this Lend-

Lease Bill, and when you see that there is nobody else around here who is doing the leg work

except us and - it is the same thing on this
other thing. I don't want Hopkins as a front
and the Treasury taking the full burden of everything.

Can't we get the N.Y.A. to give us a couple of
cabinet members as a defense project?

(Telephone conversation with Secretary Stimson

follows.)

285

March 4, 1941
11:16 a.m.
Henry

Stimson:

Hello, Henry.

H.M.Jr:

Hello, Harry.

S:

I've been thinking over this thing and talking
it over and I am profoundly disturbed by the
leadership - or absence of it - in the House in the Senate.

H.M.Jr:
S:

H.M.Jr:
S:

You and me both.

Well now I talked to the President the other
night and reported to him the first conference
and then I just called him up a few minutes
ago - he still was in his room - and I told him
about this.
Yeah.

I had urged him to strike for night sessions
on Saturday when I talked with him and he says
that he is meeting opposition on that; Pat
Harrison is the only one who is earnest in his
support of that, and the thing that troubles me
most is the absence of liaison direct with my

department on matters that the Army is concerned
in since we've gotten over in the Senate. You
see the House asked for help. Cox and McCloy
were up there.

H.M.Jr:
S:

H.M.Jr:
S:

Yes.

I wonder if we can't get them to - if it wouldn't

be a good plan to - for me to call up George
and offer to have them come up and confer and
be ready for inquiry.
I'd be delighted if you would.

I think that it's appropriate for me to do

it because as you see after Marshall speaks

H.M.Jr:

they understand how directly it hite us.
Yeah. I would be delighted. You know - well

there's no use going all over it - but fully

286
-2two months ago I called up the President and
asked him whether he wouldn't ask Hull to

consider this his responsibility. You see.

S:

H.M.Jr:

Yes.

And the President never did it. I followed
up on it and he never did it. Now, yesterday

or the day before, I told Harry Hopkins how
they used to meet in the House every morning the leaders in the majority, the Democrate in

the committee - and spend an hour going over
this thing and our men were up there with them.

S:

While this thing was going through the House,

you mean.
H.M.Jr:

Yee, and Harry said, "That's fine. I'll go
right in and tell the President and get him

to call up Barkley to do the same thing," and

nothing happened.
S:

H.M.Jr:
S:

Is Barkley the man to do it? Doesn't George
have the carriage of the bill through the
Senate? He's Chairman of the committee that

reported it.
Well, yes, I suppose 80, but don't underestimate Barkley, you know.

Oh, no. I'm not under-estimating him at all;
but I didn't want to put somebody's nose out
of joint by going to the wrong man.

H.M.Jr:

No, I think that if you called up George and

asked him this I think it would be all to the
good, because if he wants a couple of men by

S:

H.M.Jr:

his side it would be much better for him to
ask for it than to have Barkley tell him to
do it.
Yes. It seems to me so.

All right. Now what we're doing, we're going

to put down on a piece of paper - my men are what we can or cannot do with airplanes which
are on order or airplanes which we've already
taken delivery on because I am not

287

-3S:

Other stuff that we've taken delivery on.

H.M.Jr:

Anything.

Frankly, I blame myself very much for I didn't
catch the danger that I think inheres in that
amendment about the one billion three. It

S:

applies to all articles hereafter - I mean,
heretofore appropriated for and that means
almost anything.

H.M.Jr:

Of course I am not satisfied and nobody has
yet explained to me how you are going to

transfer 100 articles of war either which are

S:

on contract or which you have taken delivery
on under the present legislation.
Well, on contract I can see possibly that we
might use money from the Lease-Lend Bill to
pay for the downpayments to replace thoe e
and

H.M.Jr:

S:

H.M.Jr:

But it will depend upon how the appropriation

bill is written.
Yeah.

Well, I tell you, our boys are doing it and
as soon as it's written I'll send you over a
copy for your criticism.

S:

You mean a copy of the proposed appropriation?

H.M.Jr:

No. Just an analysis of what the situation

is today and what we would need, because the

Budget and the Treasury don't see alike on

this and we can't afford to have the thing

pass.
S:

No, we can't afford to have any splits on
our side.

H.M.Jr:
S:

No. So as soon as that is done, Harry, I'11
send it over to you.

I'll be very glad to see it and I'11 try -

as soon as there's a chance of getting at
George, I suppose he's on the floor now

288

-4H.M.Jr:

I don't know.

S:

I'll try to get him and

H.M.Jr:

Well,
if you'll
call up Colonel Halsey he'11
get him
for you.

S:

Colonel Halsey up there?

H.M.Jr:

Yes.

S:

Who does he represent? War Department or
Treasury?

H.M.Jr:

He's the Secretary of the Senate.

S:

Oh. Secretary of the Senate. All right.

H.M.Jr:
S:

H.M.Jr:

S:

H.M.Jr:

Being a Colonel I suppose he represents you.

(Laughe). Well, I'm not as well acquainted
with these heathen on the Hill. I used to be.
Well, Colonel Halsey is very nice and he's
with us.

He's Secretary of the Senate.
And he's one of us.

S:

Well, that's good.

H.M.Jr:

Yeah. More power to you.

S:

Thank you. Same to you.

289

- 10 Gaston:

The name of the vice-president is Henry Wallace.
(Laughter.)
(Mr. Stephens entered the conference.)

Stephens:

Mr. Young was over at the Defense Commission

and he is on his way back.

H.M.Jr:

Well, tell him to go back there. It is too late
now.

Klotz:

Poor Steve. He doesn't know whether you are

kidding or not.

(Mr. Stephens left the conference.)
H.M.Jr:

The Coast Guard gives me an aide, and in the first
two years I teach him how to get a sense of humor,
and in the next two years I teach them not to use

it too much. By that time their tour of duty
is over.

Klotz:

That is true.

H.M.Jr:

All right, Herbert, I am glad you expressed yourself on these things and the more people that see

it, the better, and I will see you all at 3:00,
and that is that.

290
Draft referred to by Mr. Gaston on page 1 as having been
turned over to him by Mr. Young this morning.

My dear Mr. President:

I shall be delighted to be a member of the Advisory
Committee to assist you in administering the Lend-Lease

Bill.

With the signing of this bill. the era of cash-on-

the-barrelhead will come to an and for most foreign

orders. It began in December 1938, when you asked

Jean Monnet to see no so that I could help him to purchase planes for France in this country. From that date
on, I have served in a personal capacity, at your TOquest, as coordinator and nurse for the British, French,
Chinese, Dutch, and many othera-altogether twenty-six
foreign countries which have placed their orders here.
The fact that you asked me to do this I considered
a privilege and an honor. The work has been a labor of
love. There have been many difficulties, including an
investigation by the Senate: but all the heartaches have
had constant compensation in the fact that I have been
able to be of some help to the democratic countries which
have been fighting for democratic principles. You have

made it for me to encourage them in their purchases, and at the same time to put our

facturers scale production so we
could valuable time our own

this of more than

first Admiral Peoples
successor,
Collins. WhenI the
big
for
the of Procurement,
Philip
Young
a small section under 10.
This work has grown so that it has involved than
During gain ably and possible Director on created Captain assisted a larger period by for brought rearmanent. two work basis and his aircraft years, became in then such to Mr. handle by I that manu- more was too his

contact wish the various purchasing stasions. The purchasers

have been put in touch with the right manufacturers; priorities have been worked out among the foreign buyers; foreign
needs have been reported and surveyed; everything possible

291

has been done to see that foreign requirements were net
and the goods delivered. More than 1,600 separate requests from foreign purchasers have been handled in the

past eight months, about 1,000 of then British, 300 Dutch,
and the remainder from other countries.
As I take on my share of the responsibility as a momber of your Advisory Committee, I should like to be relieved

completely of my old duties as I feel that I cannot do full
justice to the one without neglecting the other. On March
1st I brought to your attention in the presence of other
members of the Advisory Committee, the problem of Russian

purchasing, and you stated that you felt this came within

the purview of the new committee. Some foreign purchasers,

like Canada and the Netherlands, will continue to pay for
their American orders in cash; the Dutch expect to continue
paying cash for the duration of the war. If Harry Hopkins
is going to handle our aid to Great Britain and other
countries under the Lend-Lease Bill. it seems to me that
the same organisation ought to handle cash purchasing as

well. In fact it would be desirable and practical to have
all foreign Government purchasing. military and commercial,

coordinated in one place so that it can be fitted into United
States production.

with this in mind I should like to turn over all of the

work that we have been doing to the committee to be adminis-

tered by Mr. Hopkins. I have begun already to turn over a
part of ay work to Mr. Hopkins, and, complying with the request
stated in your letter of February 25th, I have offered him the
assistance of anyone that he needs in the Treasury to get ready
to administer the Lend-Lease Bill.
Sincerely,

The President,
The White House.

FK:bj
3/3/41

292

March 4, 1941
3:00 p.m.
RE AID TO BRITAIN

Present:

Mr. Gaston
Mr. Kuhn
Mr. Young

Mr. Foley

Mr. Cox

Mrs. Klotz

Gaston:

Mr. Young has made some relatively minor

suggestions which I think are good for
changes, but I haven't had time to in-

corporate them in that draft. I have a

note of them here in pencil.
H.M.Jr:

Oh, oh. Well, why don't you read it to

me with the changes?
Gaston:

Yes, I will read it to you.
"My dear Mr. President:

"With the signing of the Lend-Lease Bill,
the era of cash-on-the-barrelhead will come

to an end for the great bulk of foreign
orders. The new system means a great

extension of our own effort, and it obviously
calls for a completely different form of
organization.

H.M.Jr:

Say it again, Herbert.

Gaston:

"The new system means a great extension of

293

2our own effort and it obviously calls for
a completely different form of organization."
H.M.Jr:

When you say "our", who do you refer to?

Gaston:

The United States.

H.M.Jr:

Do you mind saying, "The new system means

a great extension"?

Gaston:

"Of our national effort"?

H.M.Jr:

That is all right. "Our national" or --

Klotz:

"Administration."

Gaston:

I think "national effort" is better.

H.M.Jr:

"Of our"?

Gaston:

Yes.

Foley:

"National effort."

Gaston:

"And it obviously calls for a completely

different form of organization. I fully

approve your decision to set up an Advisory

Committee --"
H.M.Jr:

Oh no, he wouldn't like that. I don't
like that, "fully approve." That is patronizing. "I fully approve --"

Cox:

Why not start off by saying, "Your decision
to set up an Advisory Commission --"

Gaston:

Yes, "Your decision to set up an Advisory

Committee to assist you seems to me to have
been very wise."

294

3H.M.Jr:

That is all right. Or would you say,
"Is a step in the right direction"?

Cox:

Yes.

H.M.Jr:

I would say, "It is a step in the right

direction.
It is a step in the right
direction."

Gaston:

Well, that is sort of derogatory.

Foley:

I think so, too. Why don't you say,

"I think it is wholly wise and I feel

greatly honored --"
Gaston:

"And I feel greatly honored that you have

H.M.Jr:

All right.

Gaston:

"I shall of course be delighted to do anything and everything I can to forward its

asked me to be a member of this Committee."

work.

"Co-ordination of all foreign buying will,
in my opinion, be not less but even more

necessary under the new system than under

the old cash sales plan.

H.M.Jr:

Just a second. Is that a little involved?

Gaston:

We will just say, "Complete coordination
in my opinion will be even more necessary --"

H.M.Jr:

That is right.

Gaston:

"Under the new system than under the old

"But not less than --"

cash sales plan. I therefore wish to suggest
that the liaison work on foreign purchases,

heretofore done in the Treasury under my

295
-4direction, be consolidated with the work
to be done by Harry Hopkins as secretary
of the new Advisory Committee.

"You will recall that at the first meeting

on March 1, of the newly constituted Advisory
Committee, I brought to your attention the
problem of Russian purchasing, and you

stated that you felt that this came within

the scope of work of the new committee. I
think the same considerations should apply __"
H.M.Jr:

Do you mind using the word "purview", because

Gaston:

Well, purview means contemplation.

H.M.Jr:

All right, scope is all right.

Gaston:

"I think the same consideration should apply

that is the word I used. Don't like it?

to negotiations with all other foreign purchasers. Some, like Canada and the Netherlands, will continue to pay for their American

orders in cash, and the Dutch expect to continue
paying cash for the remainder of the year."
Foley:

"War."

Gaston:

"War. Since the same questions of available
supply and knowledge of American capacity

will apply, it seems to me that the same
group that handles our aid to Great Britain

and other countries under the Lend-Lease Act,
should also handle such foreign purchases
as are made for cash."

H.M.Jr:

Excuse me just a second.

Foley:

Going to change this?

H.M.Jr:

All right. "In fact __"

296

5Gaston:

"In fact, it would seem both desirable
and practicable to have all foreign

government purchasing, commercial as

well as military, coordinated in one place
so that it can be fitted smoothly into

United States production.

"An added personal reason for this con-

solidation is that it will leave me much
freer to concentrate on the work that I
shall undertake as a member of the Advisory
Committee."
H.M.Jr:

Wait a minute. "An added personal reason _"
well, isn't what you want to say, "An added
personal reason for my recommending this
consolidation"?

Gaston:

Well, it is,"An added reason personal to
me for this consolidation."

H.M.Jr:

I just don't like the way it is worded.

Gaston:

Well, let's say, "for my recommendation."

"An added personal reason for my recommendation."

Young:

"Suggestion."

H.M.Jr:

Couldn't you say, "My recommendation is
influenced by my personal desire to be much

freer to concentrate __"

Gaston:

I don't think it is as much a personal desire

H.M.Jr:

All right. That is all right.

Gaston:

All right. "An added personal reason for

as a matter of necessity.

my recommendation is that it will leave me this recommendation --"

297

-6Cox:

Well, that is both personal and departmental. Wouldn't it be clearer to say,
"An added reason for this consolidation"?

H.M.Jr:

Yes.

Gaston:

Let's just leave out the "personal." How
would that be? "An added reason for this
consolidation is that it will leave me much
freer to concentrate on the work that I
shall undertake as a member of the Advisory

Committee. If I were to retain any part of
the liaison work along with my new duties,

I feel that I could not do full justice to

one activity without neglecting the other.
That is all the more true because I anticipate -

in fact I know - that the strictly fiscal

responsibilities of the Treasury Department,
including those in connection with the Lend-

Lease Act and the enlarged financing program
will add greatly to the demands on my time

and energies. I feel, therefore, that it

will be physically impossible for me to
continue to give to the foreign purchase
contacts the time and attention I have been
giving them."
H.M.Jr:

I am not crazy about it. Go ahead.

Foley:

Oscar has got a - and I have got a suggestion

H.M.Jr:

I am not crazy about it.

Foley:

You don't say anything about the taxes in
connection with the enlarged financing

on that paragraph.

program.
Gaston:

Yes, I thought of that.

Foley:

Enlarged tax and financing program.

298

-

Gaston:

"Enlarged tax and financing program," I

think that is good.

Foley:

And when you are talking about "physically
impossible," I don't know what - it seems
to me that you are not really doing what
you want to do when you say, "physically
impossible."

Klotz:

That is right.

Foley:

You mean, you are willing to do this if he
wants to give it back to us and give us a
free hand so we don't want to foreclose
that.

Gaston:

All right, let's just drop that sentence.

Foley:

Yes, I would take the whole sentence out.

H.M.Jr:

That is right.

Gaston:

The argument is too good.

H.M.Jr:

These bright young men are always reaching

for something more. (Laughter)

Foley:

You can't say that we are not around you

here. Almost a circle. I was wondering

if it was entirely correct to say, "If I

were to retain my part of the liaison work
along with my new duties, I feel I could
not do full justice to one without neglecting

the other.' I don't think that is quite
factually true.

Gaston:

There I simply picked up the sentence that
was written before.

Klotz:

Yes, I know.

299

-8Gaston:

Well, amplified by saying "that is all the

more
also. true. I think that is probably true

Foley:

You say, "any part."

Gaston:

Well, suppose we say, "just to retain the

direct liaison work, instead of, "any part
of the liaison work."

Foley:

All right, that is better.

Gaston:

"If I were to retain the direct liaison work."

Foley:

That is better.

H.M.Jr:

I just question that whole paragraph. I
question the whole paragraph.

Young:

Can't you take the whole paragraph out?

Klotz:

Instead of stating it, I would just leave
it - I mean, he will read it into there.

H.M.Jr:

I question the whole thing. He isn't interested
in how much work I have got to do.

Klotz:

He would say, "Everybody is doing more than

they can physically do.
Gaston:

That leaves the rest of it hanging in the

Foley:

I think they put it in there, Mr. Secretary,

H.M.Jr:

Yes, but you are taking three and a half
pages to say what I said.

Foley:

Well, this is the heart of what you suggested

air.

because they thought that is what you said
this morning.

300

-about your personal desires and the enlargement of your own Treasury activities
being an additional burden.
H.M.Jr:

Well, fix it up and I may lift it out

anyway. Make it smooth, and I can --

Gaston:

All right.
"If I were to retain the direct liaison

work along with my new duties, I feel that

I could not do full justice to one activity
without neglecting the other. That is all

the more true because I anticipate - in fact

I know - that the strictly fiscal responsi-

bilities of the Treasury Department, including

those in connection with the Lend-Lease Act
and the enlarged financing program will add
greatly to the demands on my time and energies.

I feel, therefore, that it will be physically
impossible for me to continue to give to

the foreign purchase contacts the time and
attention I have been giving them.
"For more than two years, since you set up
the Liaison Committee and informally asked

me to undertake supervision of it, it has been
absorbing an increasing amount of my effort.

I felt that you looked to me to contribute

the driving efforts and guidance necessary
to get results, and I have been contributing

them joyfully and to the best of my ability.
I was even willing to neglect some details

of Treasury responsibility by assigning them

to others, because I felt that there could

be nothing more important in the whole field
of our National effort than strengthening ourselves by adding to the defense of the nations
that were and are fighting to preserve democracy."
H.M.Jr:

I don't like that at all. That is what

301

- 10 Mrs. Morgenthau calls being self-righteous.

Well, let's go on. I don't like either of
these paragraphs on this page.

H.M.Jr:

Drop all of that -I don't like that.

Gaston:

You can drop all of that except the first

Gaston:

sentence. It would absorb an increasing
amount of my effort. Shall we do that?

H.M.Jr:

Yes.

Gaston:

"The physical work here in the Treasury has

constantly increased. I had able help in the

beginning from Admiral Peoples and later from

his successor, Captain Collins. Then the
volume of detail became too great for the
Director of Procurement, and I created a

small section under Philip Young to handle
it. The scope of the work has expanded far
beyond contacts with the various purchasing
missions. The purchasers have been put in

touch with the right manufacturers; priorities

have been worked out among the foreign buyers;
foreign needs have been reported and surveyed;
everything possible has been done to see that
foreign requirements were met and the goods
delivered. Before your Advisory Commission
on National Defense was set up, and even since
then, we have done a great deal, as you know,

to iron out kinks in production and directly
to induce manufacturers to expand their

productive effort. In the last eight months

we have dealt with more than 1,600 requests

from foreign countries, of which 1,000 were
from the British, 300 from the Dutch and 300

even more time-consuming requests from other
countries.

302
- 11 "We have seen others converted to the point
of view you and I had in 1938 and the work
of cooperation with the other democracies
has now assumed an extent and magnitude where,

as you have been quick to realize, responsibility
must be further shared. I feel strongly that
this sharing of responsibility must be cleancut; that we can not have confusion and twilight
zones of responsibility; and, further, that you
would not wish me to waste my energies by
scattering them."

Foley:

I think that last clause should come out.

H.M.Jr:

I just don't like any of it. Go ahead,
Herbert. We will finish reading it, please.

Gaston:

"Therefore, I request most urgently that I be
relieved as speedily as possible of all further
responsibility with respect to contacts with
foreign purchasers, except such responsibility
as I shall have along with the others who are
to be members of your Advisory Committee under

the Lease-Lend Act. I should like, with your
permission, to turn over immediately to this

committee, to be administered by Harry Hopkins,

all of the foreign purchase contact work we
have been doing. I have already begun to turn
over 8 part of this work to him, and complying

with the request stated in your letter of

February 25, I have offered him the assistance
of anyone he needs in the Treasury to prepare

for his task.

"Since this letter will, I hope, constitute a
final surrender of my responsibility as the
Presidential liaison officer of the Liaison

Committee on foreign purchases, I should like
to express my pleasure and satisfaction at
having been granted the privilege of doing
this work under you for a cause to which both
of us are so deeply attached, and to assure

303

- 12 -

you that I shall continue to devote not
less cheerfully all the energy I possess
to any new tasks you may set for me.

Faithfully,
Secretary of the Treasury"
H.M.Jr:

No, where is my letter, Herbert, the one we
had this morning?

Gaston:

Who has it --

Young:

You have it.

Klotz:

You mean the original that you dictated?

Foley:

I don't have it, Mr. Secretary.

Gaston:

I thought I brought it in here with me. I

will go back and get it if I didn't. I didn't

hand it to you, did I?
Kuhn:

I may have a copy.

Gaston:

It is on my desk if I didn't bring it in.

H.M.Jr:

Do you want to ask your girl? You can pick
up the phone.

Klotz:

You mean the original one you dictated?

H.M.Jr:

Yes.

Klotz:

I have got that whole thing you gave me.

Young:

You mean the thing I had this morning?

H.M.Jr:

I want the letter as I brought it in this
morning.

Was that with the corrections we made overnight?

304

- 13 Young:

Yes, sir. It wasn't retyped with the
corrections
in it.

H.M.Jr:

No, this is trying to tell them how to do
it, the whole Lend-Lease Bill. I can say

it in one page. I don't want to tell them
this whole thing. I will take it home

tonight and see what I can do with it.
I will show it to you people in the morning.
You were right on that release. You could
have bet me ten to one. I don't think I
ever saw it.
Gaston:

Yes, I think you saw it.

Klotz:

It is a White House release, that is why.

H.M.Jr:

I don't think I ever saw it. Is this the

only copy of this letter you have got?
Gaston:

I got that from Schwarz. I don't know

whether he has other copies or not.
H.M.Jr:

I am amazed. But if you people will just
leave these two with me, I will take it home
tonight and see what I can do with it. Thank
you all very much.

Foley, I want to do one thing with you on

this Palestinian thing, that story. I understand that each individual word - did you

mean yes or did you mean no?
Foley:

Oh, that? No.

H.M.Jr:

Who was that great astronomer.

Young:

Galileo?

H.M.Jr:

No, the German astronomer at Princeton.

305

- 14 Young:

Einstein.

Foley:

I believe this is not a propitious time to
promote any type of loan, the effect of

which is to give dollars to the British
Government.

H.M.Jr:

Now, do you agree?

Klotz:

Mr. Foley asked me to dig up this memo and

H.M.Jr:

You want me to say yes, that I agree with

for you to give a yes or no.

you?

Klotz:

That we don't give it to them.

Foley:

Yes, that is right, that we don't encourage
the British to raise money by way of loan.

H.M.Jr:

That is right.

Foley:

And if you agree, just say, "O.K., H.M.Juror.'"

That is all. That is enough.

H.M.Jr:

By order of Foley.

Foley:

That ain't fair. (Laughter)

H.M.Jr:

Signed, not fair to Foley. I will picket
you.

Foley:

It ain't cricket to picket.

Klotz:

Where does that leave me?

Foley:

You keep it, and I will tell Pinsent it is

Klotz:

I can give you a photostat.

confirmed, ratified, approved and adopted.

306

- 15 Foley:

Ihim.
don't need anything. I will just tell

H.M.Jr:

School dismissed.

Gaston:

Do you want another rewrite on this today?

H.M.Jr:

Yes, if I could, it would be very helpful,
and if you would give me a rewrite plus
this and give it to Stephens. I will be
leaving here about 4:30.

Gaston:

About 4:30? All right.

H.M.Jr:

Please. Thank you very much.

Foley:

You don't want to do anything on the

H.M.Jr:

Not now.

Lend-Lease?

307

March 4, 1941.

My dear Mr. President:

With the signing of the Lend-Lease bill the era
of eash-on-the-barrelhead will come to an end for the
great bulk of foreign orders. The new system means a

great extension of our own effort and it obviously
calls for a completely different form of organization.
I fully approve your decision to set up an Advisory
Committee to assist you in administering the provisions
of the bill soon to be passed, and I feel greatly
honored that you have asked me to be a member of this

new committee. I shall of course be delighted to do
anything and everything I can to forward Its work.

Co-ordination of all foreign buying will, in
my opinion, be not less but even more necessary under
the now system than under the old cash sales plan.

I

therefore wish to suggest that the liaison work on

foreign purchases, hertofore done in the Treasury under
my direction, be consolidated with the work to be done
by Harry Hopkins as secretary of the new advisory COM-

sittee.

You will recall that at the first meeting, on
March 1, of the newly constituted Advisory Committee
I brought to your attention the problem of Russian pur-

chasing, and you stated that you felt that this came
within the scope of work of the new committee. I think
the same considerations should apply to negotiations

with all other foreign purchasers. Some, like Canada
and the Netherlands, will continue to pay for their
American orders in cash, and the Dutch expect to contimes paying cash for the remainder of the war.

Since the same questions of available supply and
knowledge of American capacity will apply, it seems to
me that the same group that handles our aid to Great
Britain and other countries under the Lend-Lease Act,

308

-2should also handle such foreign purchases as are made

for cash. In fact, it would seem both desirable and

practicable to have all foreign government purchasing,
commercial as well as military, coordinated in one

place so that it can be fitted smoothly into United
States production.

An added personal reason for this consolidation

is that it will leave me much freer to concentrate on
the work that I shall undertake as a member of the
Advisory Committee. If I were to retain any part of the
liaison work along with my new duties I feel that I

could not do full justice to one activity without negleeting the other. That is all the more true because I

anticipate--in fact I know--that the strictly fiscal

responsibilities of the Treasury Department, including

those in connection with the Lend-Lease Act and the enlarged financing program will add greatly to the demands

on my time and energies. I feel, therefore, that it will

be physically impossible for me to continue to give to
the foreign purchase contacts the time and attention I

have been giving them.

For more than two years, since you set up the
Liaison Committee and informally asked me to undertake

supervision of it, it has been absorbing an increasing
amount of my effort. I felt that you looked to me to
contribute the driving effort and guidance necessary to
get results, and I have been contributing them joyfully

and to the best of ay ability. I was even willing to

negleet some details of Treasury responsibility by
assigning them to others, because I felt that there could
be nothing more important in the whole field of our
National effort than strengthening ourselves by adding
to the defenses of the nations that were and are fighting
to preserve democracy.

The physical work here in the Treasury has con-

stantly increased. I had able help in the beginning

from Admiral Peoples and later from his successor, Kaptain

Collins. Then the volume of detail became too great for
the Director of Procurement and I created a small section

309

-3under Philip Young to handle it. The scape of the work

has expanded far beyond contacts with the various purchasing missions. The purchasers have been put in touch
with the right manufacturers; priorities have been worked

out among buyers; needs
reported and the surveyed; foreign
foreign possible have
been
been
everything
has
done

to see that foreign requirements were met and the goods
delivered. Before your Advisory Commission on National
Defense was set up, and even since then, we have done a

great deal, as you know, to iron out kinks in production
and directly to induce manufacturers to expand their
productive effort. In the last eight months we have
dealt with more than 1,600 requests from foreign countries,
of which 1,000 were from the British, 300 from the Dutch
and 300 even more time-consuming requests from other
countries.

We have seen others converted to the point of view
you and I had in 1938 and the work of cooperation with
the other democracies has now assumed an extent and mag-

nitude where, as you have been quick to realize, responsi-

bility must be further shared. I feel strongly that

this sharing of responsibility must be clean-out; that we
can not have confusion and twilight sones of responsibility; and, further, that you would not wish me to waste
my energies by scattering them.
Therefore I request most urgently that I be re-

lieved as speedily as possible of all further responsibility

with respect to contacts with foreign purchasers, except
such responsibility as I shall have along with the others

who are to be members of your Advisory Committee under the

Lease-Lend Act. I should like, with your permission, to

turn over immediately to this committee, to be administered by Harry Hopkins, all of the foreign purchase contact
work we have been doing. I have already begun to turn

over a part of this work to in, and, complying with the
request stated in your 1. or of February 25, I have offered

him the assistance of anyone he needs in the Treasury to

prepare for his task.

Since this letter will, I hope, constitute a final

surrender of my responsibility as the Presidential liaison

310
-

officer of the Liaison Committee on foreign purchases,
I should like to express my pleasure and satisfaction
at having been greated the privilege of doing this work
under you for a cause to which both of us are se deeply
attached, and to assure you that I shall continue to dovote not less cheerfully all the energy I possess to any
new tasks you may set for me.

Faithfully,
Secretary of the Treasury.

The President,
The White House.

311

Mr. Gaston's re-write which was given to
the Secretary at about 4:30 pm on March 4.

The Secretary turned it over to Mr. Kuhn

who revised it as it was signed by the
Secretary on March 5th.

312
THE SECRETARY OF THE TREASURY
WASHINGTON

March 4, 1941.

My dear Mr. President:

With the signing of the Lend-Lease bill the

period of cash-on-the-barrelhead will come to an end

for the great bulk of foreign orders. The new system
means a great extension of our National effort and it
obviously calls for a different form of organization.

Your decision to set up an advisory committee to assist

you in administering the provisions of the bill soon to
be passed seems to me to have been wise, and I feel
greatly honored that you have asked me to be a member

of this new committee. I shall of course be delighted
to do anything and everything I can to forward its work.
Complete coordination of all foreign buying will,
in my opinion, be even more necessary under the new sys-

tem than under the old cash sales plan. I therefore
wish to suggest that all the liaison work on foreign

purchases, heretofore done in the Treasury under my direction, be consolidated with the work to be done by
Harry Hopkins as secretary of the new advisory committee.

You will recall that at the first meeting, on
March 1, of the newly constituted advisory committee I
brought to your attention the problem of Russian purchas-

ing, and you stated that you felt that this came within
the scope of work of the new committee. I think the same
considerations should apply to negotiations with all

other foreign purchasers. Some, like Canada and the

Netherlands, will continue to pay for their American
orders in cash, and the Dutch expect to continue paying
cash for the remainder of the war.
Since the same problems of availability, prices
and priorities will apply, it seems to me that the same
group that handles our aid to Great Britain and other
countries under the Lend-Lease Act, should also handle

313

-2such foreign purchases as are made for cash. In fact,
it would seem both desirable and practicable to have
all foreign government purchasing, commercial as well

as military, coordinated in one place so that it can

be fitted smoothly into United States production.

Therefore I request most urgently that I be relieved as speedily as possible of all further responsibility with respect to foreign purchases, except such
responsibility as I shall have along with the others
who are to be members of your advisory committee under
the Lend-Lease Act. I should like, with your permission,
to turn over immediately to this committee, to be administered by Harry Hopkins, all of the foreign purchase
contact work we have been doing. I have already begun

to turn over a part of this work to him, and, complying
with the request stated in your letter of February 25,

I have offered him the assistance of anyone he needs in

the Treasury to prepare for his task.
Faithfully,

Secretary of the Treasury.

The President,
The White House.

314
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 4, 1941

Secretary Morgenthan
FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

Mr. Gifford telephoned me from New York at 3:15 this afternoon. He wanted to
let me know that the large transaction which he had mentioned to me week before last
as being in prospect is being consummated today. This will total between $11,000,000

and $11,500,000. The market was off a little today or the figure would have been
between $11,500,000 and $12,000,000. The stock concerned is United States Steel and

is being distributed through Barney. I thanked Mr. Gifford for giving us this infornation.

I remarked that Mr. Gifford's statement for March 1 showed a sale of some United
States Government securities and added that he had made & little profit thereon by

not selling during any one of the first four days of the week. He admitted that we
had given him a good tip. He thought that the proceeds of his sales had been really
good the past few days, considering the trend of international events and the fluctuation of the New York market.

BMP.

315

March 4, 1941
4:10 p.m.
RE AID TO BRITAIN

Present:

Mr. Clark

H.M.Jr:

At Hull's press conference, "Secretary Hull
referred to the Treasury Department the
question of whether the order on freezing

Mr. Cochran
Mr. White

Bulgarian funds indicated the Government
abandoned the full policy of freezing German

and Italian funds at the same time."

I don't know what they do up in Canada,
but I am sure they never pass the buck,
do they?
Clark:

No, we try not to. Well now, I am afraid
that I wasn't speaking just - wasn't aware

of quite what was expected of me yesterday,

and I am afraid I may have left you with a
very inadequate picture of our point of
view, and I thought before leaving Washington
I would put down in a very brief memorandum

some of the essentials of our position. I

have done that.

If you look at the table there in the center
of the first page, you will see that - what
the various items in our Governmental costs

are, taking 400 million for assistance to

U.K., you see, which was the figure mentioned

by Mr. Ilsley in his speech to the House.

316

-2Well now, on the next page I referred to

the very best estimate that we could make
a month or two ago of our national income

for the next fiscal year, which we - for
which we arrived at a figure of five billion
three with the higher estimate of the

British purchases in Canada, which they

are now making, I think that that figure
may perhaps be a little bit low, and I
have used as well another figure of national

income of five billion six there. I would
like to go home and prove that a little bit
further, but for the purposes of that table
at the bottom, you see, I used those two
assumptions as to the national income and
showed what each item of Government cost

involved in relation to the national income.

You can see that the direct war expenditures

there are 26 to 28 per cent of the national
income.

Now, the figure at the top of page three

shows you what we would be taking out of

the Canadian people. The first line, assuming
the assistance to U.K. is 400 million dollars,
it would be 57.9 per cent in the one - in the
lower in the income figure, and 53 per cent

in the other. If we assume that that aid
goes up to a billion dollars, it would run
from 56.7 to 68.3.

Now, I don't know where it is going to fall
in between there. I am perfectly sure that
you can't in the North American countries

get 68 per cent out of the public. If that
other --

H.M.Jr:

Wait a minute, I don't understand. Why the
difference between the 58 and the 66?

317

-3Clark:

This column assumes that our national income

is
five
billionsix.
three. This assumes it is
five
billion

H.M.Jr:

Three hundred million can't possibly make a

difference of 12 per cent. It must be a

mistake.
Clark:

No --

H.M.Jr:

Three hundred million dollars can't make a

difference of 12 per cent.

Clark:

Let's see. My mathematics were very hurried
this morning.

White:

It is on a five billion income so 300 million

H.M.Jr:

Can't make a difference of 12 per cent.

White:

Almost eight per cent.

H.M.Jr:

The difference between five billion three
and five, six, goes from 58 to 66.

Clark:

Yes, that does look like a mathematical error

is --

there. Let's see, it would be five billion
six. Two billion 992, and you would add
600 to that. Three billion - 3,592, divided
by 56. No, it looks like 64 per cent, 64.1
per cent. Just let me take the other figure.
Yes, those two figures are --

H.M.Jr:

Somebody has made a mathematical error, but

Clark:

Yes, I am glad you caught that. The difference,
apparently, should be about four per cent, and

I just couldn't understand it. We will go
over it for you.

318

4

Isort.
think it is 64 and 68, something of that
H.M.Jr:

Well, the basic figures are there.

Clark:

Yes, the basic figures are there. Now,
apart from that, all I have shown in addition
to that is a little bit more of our exchange
position with you and with U.K. and I would

like to refer for a minute to the last
section there --

H.M.Jr:

What page is that?

Clark:

On page six. I think your feeling has been
that we have been getting gold constantly
from U.K. to balance their deficit with us.
Actually, we haven't had any gold since the
first of December.

H.M.Jr:

I see.

Clark:

They gave us five million gold in December.
Since that time, we have been meeting the

total deficit of the sterling area with

Canada by repatriation of - by accumulation

of sterling or repatriation of securities.

H.M.Jr:

That is something, isn't it?

Clark:

Yes. Now, whether we can keep that up, I
don't know. I don't think we can ke ep up

at that rate. And that is the problem which

we are now faced with. I would say the one

thing I want to discuss with you is this.
The increase in our own scale of war expendi-

tures and the higher estimates of the British

purchases in Canada means that the drain on

our United States dollar position is going

to increase pretty substantially. I think

319

-5the figures are going to be quite higher
than those I gave you in December.

Now, that brings us much closer to the day
when we have to consider with you the

liquidation of securities in this market

and if that were agreeable to you, I would

propose to go home this afternoon and immediately start discussions up there and

probably get the first steps under way -H.M.Jr:

Well, when you get to that, I just wondered
whether there was somebody - some way of

coordinating what you propose to do with
what Gifford is doing, you see, I mean I

just --

Clark:

You want the same methods or you want the

H.M.Jr:

I don't know. I have asked, only this week,

two to dovetail?

the Securities and Exchange Commission to

look into this thing, but if and when you

decide that you would like to sell American
securities in our markets, I would like you
to come down again.

Clark:

I see.

H.M.Jr:

And talk about it and meet with the members
of our Securities and Exchange Commission
and sit down with them.

Clark:

I see. Well, we would be very glad to do

H.M.Jr:

I would like you to come down again.

Clark:

I am going back to see what steps are necessary,

that.

and it is very probable that we will have to

320

-6-

require a registration of our securities

before we actually pass that. You see,
the last registration was as of November 1,

I think, 1939. Well, there would be a

good deal of changing of hands of those

securities in the last year and a half, and

we probably would have to require rerégistration
before we can take - we can actually vest

and start to sell, but I will do that; and

then before we take any overt steps, I will

have somebody down here to see you about it
and the SEC.

H.M.Jr:

Would you do that?

Clark:

Yes.

Now, the other thing, considering the weight

of that, meeting that British deficit over

and above our very large direct military
effort, the one thing that has occurred to me

as a possibility for reducing the strain on
the Canadian economy is this: If it were
possible for you to allow the British to
lease-lend the United States component of
the munitions that we are making for them.

Now, that may mean airplane engines and -H.M.Jr:

I don't understand. Give me an example.

Clark:

Well, let's say the British are buying 500

H.M.Jr:

Yes.

Clark:

It is practically certain that from 20 to 25
per cent of that 500 million dollars will

million dollars worth of munitions in Canada,
various kinds.

represent purchases in the United States.

321

H.M.Jr:

I see.

Clark:

Our economies are so closely tied together

that we buy from you materials and component

parts, you see, equal on the average in our
industrial processes to from 20 to 25 per
cent of what is done up there.

Now, that would consist, in our case, in the
case of the British orders in Canada, in
part of airplane engines and airplane parts,
gadgets of one kind and another --

H.M.Jr:

What you are asking me is, could you get 125

million dollars wor th of materials here on a
lend-lease basis?

Clark:

Could the British be allowed to use --

H.M.Jr:

British or Canada? Why couldn't we do it
right with Canada?

Clark:

Well, this is - these are munitions for Great
Britain herself. If we came in and lease-

loaned the American component of those orders,
it would mean that we were assuming the

ultimately built -H.M.Jr:

I see.

Clark:

For the British, for what is a British order,
you see.

H.M.Jr:

Again you are raising something which I would

like to think about and talk about with some

of my associates. I don't know. It is a very
important question, and if I gave you a snap
answer, it wouldn't be worth very much.

Clark:

I quite agree, sir.

322

H.M.Jr:

But it is within the realms of possibility.

Clark:

Now, in considering that, there would be

certain technical difficulties. It is all

right so far as machine tools and airplane
engines and aircraft and large pieces of

equipment are concerned, but you might find

it difficult to do it in respect of all the

materials, all the United States materials
that go into our manufactures up there. It
would include coal, for instance, and oil,
and so on.

H.M.Jr:

You will have to excuse me, because you are
asking me something which I can't answer,
and your friend Cochran said you wanted

ten minutes - five minutes. I have got what
you want. The thing that you are raising is:

One, if you want to sell securities, how
about it? I say "Come down and see us first."
Two, can you get in on the Lend-Lease Bill?

Clark:

And I say, "Let me think it over."
That is all I have to say, Mr. Secretary.

H.M.Jr:

I have got an idea, and I have thought it
through, and I may give you a ring on the

phone and ask you to come back.
Clark:

Thanks very much, Mr. Secretary.

H.M.Jr:

I am always glad to see you.

Clark:

Thank you very much indeed.

Copuents
white
m Dr
Cochram

3/6/41

323

CANADIAN LEGATION
WASHINGTON

March 4th, 1941.

Dear Mr. Morgenthau;

In conference with your officials yesterday, I gave such figures as I had with me relating to
certain aspects of Canada's war effort and exchange
position. These figures were limited, however, as
I had not been made acquainted with what was to be
expected from me at yesterday's conference, and in
view of apparent misunderstandings as to Canada's
position and as to the assistance we have rendered
to the United Kingdom during the last three months,

I promised your officials that when I returned to

Ottawa I would revise and bring up-to-date the data
and estimates I submitted in December and would place
the revised statement in your hands as soon as possible.

I felt, however, that before leaving
Washington it might be well to place on record for
your information a very brief statement of some of
the essentials of our war effort and our position.
I attach such a statement hereto. It is necessarily
inadequate, but is the best I can do with the figures
that are at my disposal here.
It also seems to me essential that we
should keep you better informed at all times in regard
to our budgetary and exchange position, and I propose
to see that as much information as possible is made

available to you, at least once a month. Needless to
say, we will also be only too ready to respond as best
we can to any specific requests for special information
which you may desire at any time.
Yours very sincerely,

The Hon. Henry Morgenthau,

Secretary of the Treasury,

Washington, D. C.

Moblesh

324

SECRET.
March 4th, 1941.

A. CANADA'S WAR EFFORT AND BUDGETARY POSITION.

The Dominion Government's Main Estimates (when

passed, these become the appropriations for our non-war

expenditures) and first War Appropriation Bill for the
new fiscal year have recently been introduced into
Parliament. These enable us to form a judgment as to
the magnitude of Canada's war effort during the new
fiscal year (which runs from April 1, 1941, to March 31,
1942) and of the burden which it will place on the
Canadian economy.

The facts may be summarized as follows:
Dominion Government
(1)

Estimated war expenditures, at least $1,474,000,000
Non-war expenditures (Main Estimates)

433,000,000

Additional cost for wheat

140,000,000

Total

(2)

$2,017,000,000

Provincial & Municipal Expenditures
Depending on relief costs, estimated
at from $550,000,000 to
Total

575,000,000

$2,592,000,000

Assistance to United Kingdom by way

of repatriation or accumulation of
sterling.

Amount assumed by Minister of Finance
Grand Total

400,000,000

$2,992,000,000

(1) Amount asked for in first War Appropriation Bill
is $1,300,000,000, but the Defence Departments

are going ahead with a war program that is estimated
to cost at least $1,474,000,000, and inevitably
additions will have to be made to the program from

time to time during the year.
(2) The Minister of Finance did not attempt to estimate
the cost of this item in his statement to Parliament,
but it will amount to at least the figure shown here.
The/

325
-2-

The significance of the above figures can only
be grasped if they are related to the national income.
When we were endeavouring to determine the

maximum size of the direct war effort of which Canada
a

was capable, we made/detailed estimate of the probable
magnitude of Canada's national income for the new

fiscal year and arrived at a figure of $5,300,000,000.
Figures just received from the United Kingdom showing
their estimated purchases from Canada during the next
six months are somewhat higher than were assumed for

the purpose of the above calculation, and it is possible that we should now revise upwards our estimate

of the national income, perhaps to as much as

$5,600,000,000, but certainly no higher.
Using these two estimates of the national income,

we are enabled to work out the following table of percentages of the national income which will be taken in
1941-42 by Canadian Governments for various purposes;
On basis of assumed national income
of

of

$5,300,000,000 $5,600,000,000
1. Dominion Government

(a) Non-war expendi-

10.8%

10.2%

27.8

26.3

is assumed

7.5

7.0

is assumed

18.9

18.0

36.3

33.0

46.7

44.3

47.1

43.2

57.5

46.5

10.8

10.2

tures (incl.wheat)
(b) Direct war
expenditures
(c) Assistance to H.K.
if $400,000,000

if $1,000,000,000

(d) Total war effort,

direct & indirect -

assuming aid to U.K.

of $400,000,000

assuming aid to U.K.
of $1,000,000,000
(e) Total Dominion
expenditures assuming aid to U.K.
of $400,000,000

assuming aid to U.K.
of $1,000,000,000

2. Provincial & Municipal
Governments

326
-3-

Grand Total

Assuming aid to U.K.
of $400,000,000

Assuming aid to U.K.
of $1,000,000,000

57.9%

53.2%

68.3

56.7

These figures speak for themselves. No matter
which of the two estimates of national income be taken
and no matter whether we assume that Canada's financial
assistance to the United Kingdom is $400,000,000 or

$1,000,000,000, or any figure in between these two
extremes, it cannot be said that Canada is not endeavour-

ing to make an "all-out" national effort. Even if we
take the most optimistic estimate of the national income
and the minimum estimate of the financial assistance to
be given to the United Kingdom over and above what Canada

is doing in her direct war program, any realistic observer
must agree that the program which Canada has set herself

is fully as difficult for her (a North American country
remote from the scene of war and with a federal form of
government) as the programs which the active European

participants in the war have set for themselves.
This may be more readily appreciated by applying
the percentages shown in the immediately preceding table

to the national income of the United States. It is
believed that the most competent estimates of the United

States national income for the fiscal year 1941-42
indicate a national income of at least $80,000,000,000.
On the basis of the lowest figure shown in the table
(namely, 53.2%), all governments in the United States
would have to take for defence and other governmental

purposes $42,560,000,000; while, on the basis of the

highest figure shown in the table (namely, 68.3%), all
governments in the United States would have to take for
defence and other governmental purposes $54,640,000,000.
B. CANADA'S/

327

B. CANADA'S EXCHANGE POSITION VIS-A-VIS THE UNITED STATES.

In the confidential memorandum submitted to the

United States Treasury in December last, it was estimated that Canada would have a deficit in her balance of
payments with the United States estimated St $448,000,000

(Can.) for the second year of war (September 1, 1940, to

August 31, 1941). This estimate took into account the
repayment of Canadian obligations in the amount of
$55,000,000 which were to mature in the United States
during the period.
For December, January, and February, the estimated

deficits (in Canadian dollars) were $48 millions, $32
millions, and $24 millions, respectively. Figures now
available indicated that the actual deficits for these
three months were $54.8 millions, $22.7 millions, and

$25 millions, respectively. On the other hand, there
were capital receipts during the period of $14.7 millions.
Taking these into account, we did better than we expected
during these three months by $16.5 millions.

It is obvious that the greatly accelerated tempo
of Canada's war effort and the much higher estimates of
United Kingdom purchases in Canada (referred to in
Section C of this memorandum) are going to mean that
Canada's purchases in the United States for war purposes

will be greater, probably substantially greater, than
were anticipated last December. This will, of course,
mean that the drain on Canada's supply of gold and

United States dollars will be more rapid than was expected,
and as a consequence will, if acceptable to the United
States Government, make it necessary to expedite the
program of liquidating United States securities owned
by Canadian residents.
As/

328

As at February 28th, Canada's official holdings
of gold and United States dollar balances were as follows:
Foreign Exchange Control Board
Gold

$136,000,000 (U.S.)

ULS. dollars, long $123,000,000
short

Net over-all position

8,000,000

$115,000,000 (U.S.)

Minister of Finance, U.S. balances 33,000,000 (U.S.)
A reconciliation of these figures with the figures given
in the memorandum of December 12th will be submitted later.

C. CANADA'S EXCHANGE POSITION VIS-A-VIS UNITED KINGDOM
AND THE STERLING AREA.

In the memorandum of December 12th, 1940, it was

estimated that during the second year of war, Canada
would have a favourable balance with the United Kingdom

of $843,000,000 (Can.) and with the sterling area as a
whole$898,000,000 (Can.). Estimates now made by British

officials appear to indicate that the above figures were
underestimates and that during the six months period
Marchl to August 31, 1941, the United Kingdom dericit with
Canada may amount to $634,000,000 and that the sterling

area deficit with Canada to $658,000,000. These estimates
will have to be further examined and I would propose to

submit to you at a later date, but as soon as possible,
a detailed statement of our prospective balance of payments with the United Kingdom and the sterling area,as

well as a complete revision on an up-to-date basis of
the Canadian position as outlined in the memorandum of
December 12, 1940.

There would appear to be a misunderstanding of
the/

-6-

329

the way in which United Kingdom's deficit with Canada

during the last few months has been taken care of. In
the memorandum referred to above, it was pointed out

that Canada had agreed to repatriate securities to the
extent of $150,000,000 during the six months beginning

August 1, 1940, that this was subject to revision upwards during the period, and that while no agreement
had been reached as to the specific amount of assistance
to be given by Canada in the subsequent period, nevertheless Canada's commitment from the beginning of the
war was to give the utmost assistance of which she was

capable, over and above her direct military effort.
What has actually happened since last August

is that Canada has given financial assistance to the
United Kingdom by way of repatriation of securities
or accumulation of sterling to the extent of
$293,000,000. The United Kingdom shipped gold to
Canada to the extent of $42,000,000 (Can.) in August,
$60,000,000 (Can.) in November, and $5,000,000 (Can.)
in December, but since early December Canada has met

all the deficit of the sterling area vis-a-vis Canada
either by the repatriation of securities or the
accumulation of sterling, chiefly the latter.
Canada wishes to continue to give the maximum

assistance of which she is capable, but what the extent
of this "maximum" may be must be considered in the light
of the figures presented in Section A of this memorandum

and particularly the fact that she is already committed
to expend 26.3% to 27.8% of her estimated national

income on her direct contribution to the war effort.

330

March 4, 1941
4:20 p.m.
RE AID TO BRITAIN

Present:

Mr. Foley

Mr. Cox
H.M.Jr:

All that Canada wanted was two things,
how could they sell $350,000,000 worth

of securities, one; and how could they
get in on the Lend-Lease Bill, two; but
they want to get in - that England should
get in on the Lend-Lease on things that
they buy in this country to be manufactured

in Canada, but Canada doesn't want to sign

its name
name
to it.to it, England should sign its
Cox:

That is called, "acting through his undisclosed principal.
H.M.Jr:

We have got a new system here. Everybody
in the White House uses White House envelopes.

So I called up and I raised a little fuss.
They
stuff. all use it, and you get all kinds of
Well, come on, children.
Foley:

H.M.Jr:
Foley:

Do
youSecretary.)
want to do this? (handing papers
to the
Hell no.
What do you mean?

331

-2H.M.Jr:

Oh, I am tired. T have had a lot of
unpleasant things happen today. I get
so tired of doing other people's work.
To make it simple for me, what can't you
do?

Cox:

Well, if Congress limits you in future

appropriations in any way, then you are
bound by those limitations as to defense

articles on order, which are to be paid
for out of subsequent appropriations.

H.M.Jr:

My mind isn't working. What I would like

Cox:

Lockwood?

H.M.Jr:

Lockwood, yes, and also to the Budget.
Send it over tonight and ask them where

you to do is this. I would like to have you
show it to McCloy, I would like to have you
show it to --

they agree or disagree; and I would like
the Adjutant General - who is the chief
of the law unit?

Foley:

Judge Advocate General.

Cox:

And of the Navy, too?

H.M.Jr:

Yes, because he is the fellow that Marshall --

Cox:

..... would have to get to interpret it.

H.M.Jr:

Yes. Let the thing be processed, and then
by that time my head will be clear.

Cox:

Also we can save you some time by getting
you something that everybody has agreed
on.

H.M.Jr:

That is right.

332
Some of the Ways in Which H.R. 1776
Can Work with Respect to Defense

Articles on Hand and on Order

The following are some of the ways in which H.R. 1776,

in its present form, can operate in connection with defense
articles on hand and on order.
(1)

Defense Articles Already Delivered
to the Army and Navy.

There are several possible ways in which defense

articles on hand can be disposed of to Britain:
a) Within the $1,300,000,000 limit, any defense
articles now on hand can be transferred to

Britain. This applies not only to defense
articles acquired years ago, but also to those
procured out of appropriations made before
H.R. 1776 is enacted.

b) Outside of the $1,300,000,000, aircraft now
on hand--whether or not they are surplus--

333
-2-

can be traded in for new models. Then these
older aircraft can be procured under Sec.

3(a)(1) for Britain. To so procure them for
Britain, subsequent Lend-Lease appropriations

would be necessary. The wisdom of this kind

of transaction should be carefully considered.
c) Other types of war materiel on hand can be

traded in if they are surplus, obsolete, deteriorated or unserviceable and handled in

the same way as aircraft. Here again it
should be seriously considered whether it is

wise to do this.
d) Traded-in aircraft and other war materiel can

also be handled in still another way. If some
of Britain's present orders, capital commitments or other obligations are taken over
through the use of regular Army and Navy appro-

priations or under 3(a) (1) of the bill, that
will release dollars to the British. Those

334

-3dollars can be used to buy the traded-in
materiel from the manufacturers to whom they

are delivered, if it is deemed wise to do
this.
(2)

Defense Articles on Order
Here again there are several ways in which H.R. 1776 can
be made to operate:

a) Within the $1,300,000,000, defense articles
which are on order under appropriations made

before H.R. 1776 is passed can be transferred

to Britain.
b) Defense articles which are now being produced

under contract authorizations to be backed up
by appropriations made after H.R. 1776 is

passed can be transferred without limit unless
Congress puts a limit into such subsequent

Army and Navy, etc., appropriation acts.
I understand that a very substantial
amount of equipment is being produced or can

be reasonably shifted to production under

335

-4-

contract authorization. Under Secretary D. W.

Bell is now getting up the figures on the dollar amount of outstanding contract authorizations which have not yet been backed up by ap-

propriations.
c) Defense articles which are now on order under
appropriations made before H.R. 1776 is passed

can be made available to the British by a procedure similar to the deferment procedure now
being used. These Army and Navy orders can be

transferred into 3(a)(1) orders and the Army

or Navy can agree to take later delivery of
more modern or the same type of defense articles.
To be able to transfer these Army and Navy orders

to Lend-Lease orders, appropriations to carry out
H.R. 1776 will, of course, be necessary.

d) Defense articles on order out of appropriations
made after H.R. 1776 is passed can be trans-

ferred to the British unless Congress prohibits

336

-5-

or limits such transfer in these subsequent

appropriation acts. In the main, two types

of situations will be presented: 1) Appropriation requests such as the pending War
Department supplemental request for about 3

billion 8 hundred million dollars; and 2)
The appropriation requests to carry out H.R.
1776. Congress may well handle each appro-

priation request differently. It may say
that none, all or any part of the defense
articles so procured can be transferred under
H.R. 1776.

337
MAR 4a 1941

Some of the Ways in Which H.R. 1776

Vill Work With Respect to Defense
Articles on Hand and on Order

The way H.R. 1776 in its present form will operate
in connection with defense articles on hand and on order

can be illustrated by several concrete examples.
(1)

Defense Articles Already Delivered
to the Army and Navy.

There are several possible ways in which defense

articles on hand can be disposed of to Britain, for example,
under H.R. 1776 in its present form:
a) Within the $1,300,000,000 limit, any defense
articles now on hand can be transferred to

Britain. This applies not only to defense
articles acquired years ago, but also to those
procured out of appropriations made before
H.R. 1776 is enacted.

338
-2-

b) Outside of the $1,300,000,000, aircraft now
on hand--whether or not they are surplus-can be traded in for new models. Then these

older aircraft can be procured under Sec.

3(a)(1) for Britain. For this, subsequent
Lend-Lease appropriations would be necessary.

The wisdom of this kind of transaction should
be carefully considered.
c) Other types of war materiel on hand can be

traded in if they are surplus, obsolete, deteriorated or unserviceable and handled in
the same way as aircraft.

d) Traded-in aircraft and other war materiel can

also be handled in still another way. If some
of Britain's present orders, capital commitments or other obligations are taken over under

3(a)(1) of the bill, that will release dollars
to the British. Those dollars can be used to
buy the traded-in materiel from the manufacturers to whom they are delivered.

339
3-

(2)

Defense Articles on Order

Here again there are several ways in which H.R. 1776
can be made to operate:

a) Defense articles which are now being produced

under contract authorizations to be backed up
by appropriations made after H.R. 1776 is

passed can be transferred without limit unless
Congress puts a limit into such subsequent

Army and Navy, etc., appropriation acts.

I understand that a very substantial
amount of equipment is being produced or can

be reasonably shifted to production under con-

tract authorization. Under Secretary D. W. Bell
is now getting up the figures on the dollar
amount of outstanding contract authorizations
which have not yet been backed.

b) Defense articles which are now on order under
appropriations made before H.R. 1776 is passed

340
-4-

can be made available to the British by a
procedure now being used. These Army and

Navy orders can be transferred into 3(a)(1)
orders and the Army or Navy can agree to take

later delivery of more modern or the same

type of defense articles.
c) Defense articles on order out of appropriations
made after H.R. 1776 is passed can be trans-

ferred to the British unless Congress prohibits
or limits such transfer in these subsequent

appropriation acts. In the main, two types of
situations will be presented: 1) Appropriation requests such as the present War Department

request for about 3 billion 8 hundred million
dollars; and 2) The appropriation requests to
carry out H.R. 1776. Congress may well handle

them differently. It may say that none, all or
any part of the equipment so procured can be
transferred under H.R. 1776.

341

March 4, 1941
4:38 p.m.
H.M.Jr:

Hello.

Justice

Frankfurter: Hello, Henry.
H.M.Jr:

How are you?

F:

Very well. I was terribly sorry I couldn't

H.M.Jr:

come to your party Sunday night but, as I
told you, I went to New York to see Christie.
Well, how did you find him?

F:

I did what is called a "mitzer".

H.M.Jr:

Pardon?

F:

I went up and did a

H.M.Jr:

A good deed.

F:

.....

(Laughs). Yeah. Well, I mean, to myself you know - a very dear friend, you're very
unhappy if you don't see them. Oh, Alfred
Cohen sort of saved his life. He was at the

Rockefeller.
H.M.Jr:

Good.

F:

Henry, what's happened since I saw you last?

H.M.Jr:

Well, at the meeting happened just what I

thought, that they could think of lots of

reasons why it couldn't be done and - I
suppose that I should have known it beforehand - but I'd like to see you. It's hard
to do it on the telephone.
F:

All right. When?

H.M.Jr:

Well, I don't know. Tomorrow is awful bad.

F:

How about on the way down in the morning?
Take me down.

342
-2H.M.Jr:
F:

H.M.Jr:

Well,
here's the thing: how early can you
be ready?
I'11 be ready as early as you want me to be.
Could you be ready at quarter of nine?

F:

Sure. Easily.

H.M.Jr:

I'll pick you up.

F:

Fine.

343

Mark 4. 192.

Bean Mr. Marks

I - sorry you asa not receive the further
reply that you should have and to your letter of

November 26, 1940.

The Secretary was wash interested in 11 and

asked to have - Invoice sade, but was away

from the office at the time the came in,

and through - oversight, the statement was not
passed - to you. % as new enclosing a copy of
Mr. Loss Henderson's report on the situation you
concribed.

with thanks for year courtery in winging the
matter to Mr. Margation's attention.
Sincerely yours,

m. S. Kiets,
Private Secretary.

w.s V. Class

-

San Cabrial Consultate Tile Company.

1186 as Press Drive,

San Caterial. California.
Inclumen.

344

Hards 4. 1961.

Dear Mr. Clarks

I - serving you ala not receive the further
reply that you should have had to your letter of

November 26, 1940.

the Secretary was wach interested in 18 and
asked to have as investigation make, but was away

from the office at the time the - in,
and through - oversight, the statement was not

passed - to you. I - new enclosing a copy of

Mr. Leen Nondernon's report on the situation you
concribed.

With Shanks for your courtery is bringing the
matter to Mr. Margenthes's attention,
Sincerely yours,

H. S. Kiets,
Private Secretary.

Mr. E. V. Clark

-

San Cabriel Generate Tile Company.

1186 as Press Drive,

San Caterial, California.

Inclusive.

345

March 4. 1941.

Dear Mr. Clarks

I - servy you did not receive the further

reply that you should have had to your letter of

November 26, 1940.

The Secretary was such interested in 18 and
asked to have - investigation made, but was away
from the office at the time the manarandum came in,

and through - oversight, the statement was not
passed on to you. I - now enclosing a copy of
Mr. Leen Henderson's report on the situation you
described.

With thanks for your courtesy in bringing the
matter to Mr. Morgenthen's attention,
Sincerely yours,

H. S. Kiots,
Private Secretary.

Mr. H. v. Clark,

San Gabriel Concrete Tile Company.
1196 is Press Drive,

San Cabriel, California.
Enclosure.

ORF/dbe

346

San Gabriel
bancrete Tile bo.
"Made the Best"
SAN GABRIEL . CALIFORNIA

1126 Lo Prese Drive

ATlantic 2.1266

Hamm
February 18,1941.

Hon.Henty Morgantheau Jr.,
Secretary Treasurey,

Washington,
D.C.

Dear Mr.Secretary,

Your letter of the third of December 1940.
Nothing
would have is looked
into. has come from your advice that you

It is my conviction that the sand and gravel
Goverenment could handle the situation,
Yours very truly,

business of this territory is telling them and it seems the

San Gabriel Concrete Tile Co.

347
THE ADVISORY COMMISSION TO THE COUNCIL OF NATIONAL DEFENSE
FEDERAL RESERVE BUILDING
WASHINGTON, D.C.

December 12, 1940

Dear Mr. Morgenthau:

The inquiry from Mr. H. V. Clark of San Gabriel,
California, transmitted with your letter of December 3,

reflects primarily a local situation and not a national

trend. Index numbers compiled by the Bureau of Labor

Statistics show that, on the average, producers' prices of
cement, sand and gravel were slightly lower at the end of

November, 1940 than they were in August, 1939. This means,

of course, that while there were price increases in certain
localities, such as San Gabriel, prices in other parts of
the country either were unchanged or declined.
The market areas for sand and gravel, because

of the availability of materials and of the weight of the

product, are usually much narrower than for other building
materials, some of which are distributed nation-wide by
large manufacturers. Therefore, prices of sand and gravel
in any individual wholesale market do not reflect the

national situation as well as do the prices of most build-

ing materials.
The Los Angeles area, which includes San Gabriel,
is one of the most erratic sand and gravel markets for
which data are collected by the Bureau of Labor Statistics.
Although little is known here about the competitive situa-

tion in this locality, statistics show that delivered prices

of sand, gravel and crushed stone have fluctuated violently
from 1935 to date. The figures below, quoted by a large

producer, show the range in each of the years 1935 to 1939
and the monthly data in 1940. These prices are producer to

contractor, per ton, delivered to job in Los Angeles.
Date
1935
1936
1937

Sand

$1.15-$1.25

1.02- 1.10
1.11- 1.68

Gravel

$1.35-$1.70

1.16- 1.45
1.21- 1.98

Stone

$1.35-$1.70

1.16- 1.45
1.21- 1.98

348

-2-

Date
1938
1939

Sand

$1.54-$1.68

1.00- 1.54

Jan.-1940

1.04
1.04
1.04
1.04
1.04
1.05
1.05
1.05
1.05
1.05
1.15

Feb.
Mar.

April
May

June

July
Aug.

Sept.

Oct.

Nov.

Gravel

Stone

$1.84-$1.98
.96- 1.84

$1.84-$1.98

1.04
1.04
1.04
1.04
1.04
1.05
1.05
1.05
1.05
1.05
1.25

1.04
1.04
1.04
1.04
1.04
1.05
1.05
1.05
1.05
1.05
1.25

.96- 1.84

The current price levels do not equal the prices
which prevailed during the last six years. However, we shall
look into the situation and check on the change in Bunker delivered price relationships, which is the basis of the
complaint.

The prices of cement in this area have not changed

nearly as much as for sand and gravel. The barrel net
delivered prices ranged as follows:
1937 - $1.72-$1.76

1938 - 1.50- 1.80
1939 - 1.40- 1.50

Jan. 1940
Feb.
Mar.

Apr.
May

June

July
Aug.

Sept.
Oct.
Nov.

1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.50
1.60
1.70

An examination of delivered prices for all these

materials indicates that the present levels are little, if
any, out of line with prices in other areas. However,

349

-3-

Mr. Clark's and other similar letters are useful in point-

ing out areas where rapid price changes are being initiated.
This is a very important type of cooperation and we appreciate his interest in bringing the situation to our
attention.
Sincerely,

Leon

Leon Henderson
Commissioner

The Honorable

The Secretary of the Treasury
United States Treasury Department

Henry Morgenthau, Jr.
Washington, D. C.

350

December 3, 1940

My dear Mr. Clark:

This will acknowledge receipt of
your letter of November 25th. Thank
you very much for bringing this matter
to my
I am having it looked
into
at attention.
once.
Yours sincerely,
(Signed) H. Morgenthau, Jr

Mr. H. V. Clark,
San Gabriel Cenerate Tile Company,
1126 La Press Drive,

San Gabriel, California.

351

December 8, 1940

Dear Leon:

I am sending you herewith a copy of a
letter dated November 25th which I have received

from Mr. H. V. Clark of the San Gabriel Concrete
Tile Company.

Will you please let me know what to tell
this man. He seems to have some very interesting
information.
Yours sincerely,

Henry
Mr. Leon Henderson,
Commissioner of National Defense,

Advisory Commission to the Council
of National Defense,
1844 Federal Reserve Building,
Washington, D.C.

Inclosure.

By Messenger

352

San Gabriel
boncrete Tile bo.
"Made the Best"

1126 La Presa Drive

SAN GABRIEL . CALIFORNIA

ATlantic 2.1266

November 25th. 1940.

Hon. Henry Morganthau Jr.,

Secretary of the Treasurery,

Washington,

D.C.

Dear Sir,

The writer has been very much afraid of inflation
and until you were reported to tell the press that you would

see there would not be inflation did I feel different.

On the third of October the Cement Companies raised
cement ten cents a mark, on the fifteenth of November they
added
ten cents a barrell which looks as if they were feeling
their way.
The Sand and Rock producers showed less tack they
came out with an increase at the Bunker of an advance of 80%
on sand and 120% on gravel.
The sand was advanced at the delivery point 10% and
on gravel which was an advance of 25% plus.

This price puts any one with a truck out of the game
and and it shows that was one purpose of the prepared prices.
I am informed that this is a feeler and will or may

be further advanced.
I am told that the sand companies have so much business from the Goverenment that it gives them a chance to get

higher prices with out fear of a loss or closeing down.
You can go twenty miles east and you will find million
and millions tons of gravel that is piled up and no sale.
Gravel is naturally a byproduct of sand and why it
no one can tell.
should be 80 much higher
I am giveing you this as it is a start and a fast one

on inflation.

Yours truly,
San Gabriel Concrete the Co.

353
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 4, 1941.
TO

Secretary Morgenthau
FROM

Mr. Haas IDA
Attached is a memorandum from Mr. Hamm, of

Leon Henderson's office, on "Increased Authority for the

Control of Prices: an Office of Price Administration".

Mr. you
Hamm
and Mr.
Ginsburg
would like to discuss this
matter with
at your
early
convenience.

354

MEMORANDUM TO SECRETARY MORGENTHAU

Attention: George Haas
From:

John E. Hamm

Subject:

JEH
Increased Authority for the Control of Prices: an Office
of Price Administration

1. While the price indexes have not as yet moved up to an alarming degree, the rise of some prices has been acute, and the price situation today is explosive. Three new factors are operative: First,
priorities for Army and Navy orders are diverting capacity and materials
of all kinds from ordinary channels to military uses; shortages are developing; second, disruption of foreign sources of supply, lack of bottoms,
increase of charter rates, war risk insurance, etc., are adding to the
cost, and hence the price, of the imported products; third, the release
of year-end balance sheets and the announcement of large profit figures
from defense orders are provoking demands for higher wages, which in

turn lead to increased prices. Unless basic prices are not only stabilized but reduced, with a consequent reduction in the profitability of

operations, these wage demands must be met.

2. The movement of certain prices has already adversely affected
the position of groups both of producers and of consumers, and further
acute injury must be expected unless the situation is brought under control at once. These price movements will not only create grave injustices which are disruptive of morale; they will encourage the speculative withholding of goods from production and seriously impede the defense program. In a number of instances this has already taken place.
3. Since these price movements inevitably have repercussions of
a cumulative character throughout the economy, every day of delay ren-

ders more difficult the task of maintaining stability and balance in
the price structure.

4. Legislation providing the power to maintain stability and
balance in the price structure is vitally important, and should be sought
when the lease-lend bill is out of the way. Such legislation is now being
drafted. In the meantime, it is equally important that a price administration be established which will make every effort to control further
speculative price increases.
5. It is proposed, accordingly, that an Office of Price Adminis-

tration, coordinate with the Office of Production Management, be set up

in the Office of Emergency Management.

(a) The Price Stabilization Division of the NDAC is today
purely advisory. It has little power except exhortation,

355

-2and no sanction except publicity. Furthermore, the
creation of the OPM has reduced the Division's status

so far as to render it largely ineffectual. Price

control
powers.

calls for executive rather than advisory

(b) The function of price control in the civilian economy
is wholly different from the function of production,
pricing, and procurement of defense material, and the
considerations which should determine policy are different in the two cases. Although these functions need
to be coordinated, they need also to be separate. If
civilian interests and morale are to be protected, price
control must not be subordinated to the military-industrial
group in OPM now charged with production for defense.
In view of the broad interests involved and the farreaching consequences of price control, it is important
that price administration be directly responsible to the
President. Therefore, there should be an Office of Price
Administration, not under but coordinate with the OPM and,

like it, responsible to the President through the OEM.

(c) All emergency price powers which are required to deal
with shortages (fiscal and monetary powers are thus excluded) should be centralized in this agency. In order
to make price control effective - to prevent bootlegging
and subterfuges from breaking through price ceilings these powers should include authority to control the
residual supply (that portion of production which is not
required for military uses). The establishment of such

civilian distribution quotas is likewise necessary for

the performance of the broad function of price administration, namely, the maintenance of a balanced economy.

6. A draft of an Executive Order establishing an Office of Price
Administration has already been submitted to and discussed with Harold
Smith in the Bureau of the Budget. He agreed that action should be
taken as soon as possible, but indicated that the President might be
reluctant to move until other elements in the Defense Commission besides

price (consumer, agriculture, and transportation) were taken care of.
We emphasize that delay is dangerous; price rises can be prevented, but
high prices can be reduced only rarely and with great effort, and then

only in certain basic, closely-controlled industries. If Leon is to be
charged with any responsibility for prices, his office must be given

increased status and authority. Efforts toward the maintenance of price
stability under present circumstances are increasingly futile. Action
for the establishment of an Office of Price Administration should be

taken, if at all possible, before the lend-lease bill is passed. Dave
Ginsburg and I would like to discuss this with you at your early

convenience.

March 4, 1941

356
Delivered to Treasury by Mr. Nicholson

Telegram from Shanghai March 4th 1941

From secret Japanese sources in Hongkong it is learned that

Japanese intend shortly fully occupy Thailand militarily and
may defer taking further military dispositions French Indo
China for fear latter may obtain autonomy from Vichy and
conclude some secret alliance with the United States and
Britain for combined blockading action against Japan A
Japanese named WACHI YONI head of Japanese intelligence ser-

vice in South Seas now residing Banglook and handling all

political action in Thailand and French Indo China

Copytalm

357
BRITISH EMBASSY,

WASHINGTON, D. C.

March 4th, 1941.
Dear Cochran,

I am informed by London that they have in
principle agreed that wool and silk should be exported
from Syria to the U.S. in exchange for exports from the
U.S. of newsprint and foodstuffs. They have authorized
our Consul General at Beirut to issue the necessary certificates of origin and that as soon as they know quantities and details of these consignments and of the consign-

ments which it is proposed to export in return, they will
consider applications for navicerts for such exports.

I have no information as to what arrangements
have been made on the financial side and should be grateful

if you can tell me anything about them. I hope that the
proceeds of the exports from Syria will not be allowed to
go into the free account of the Bank of Syria with the

French American Banking Corporation, but will in some way
be earmarked so that they can only be used for the counterbalancing exports from the U.S.
Yours sincerely,

(Signed) R. J. Stopford
Mr. Merle Cochran,
Room 279.

U. S. Treasury Department,
Washington, D. c.

da

358

March 4. 1941

Dear Mr. Hervills
on behalf of the Secretary may I express

the treasury's sincere appreciation of your kindmoss is transmitting under cover of your letter
dated February 27. 1941, a copy of . communication
from the Federal Reserve Beak of New York, written
on February 11, 1941. is regard to movements of

Faited States currency between this and foreign
countries.

Faithfully yours,

2ml
1. Herie Cochres,

Technical Assistant to the Secretary.

Checter Herrill, Sequire,
Secretary of the Board of Governors
of the Federal Receive System,
Smokington, D. c.

359

mm

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

I OF JX AND

WASHINGTON

OF THE R

ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD

February 27, 1941

Honorable Henry Morgenthau, Jr.,

Secretary of the Treasury,

Washington, D. C.

Dear Mr. Secretary:

For the confidential information of your Department, there is enclosed with this letter a copy of a

letter received from the Federal Reserve Bank of New York
under date of February 11, 1941, on the subject of the
movement of United States currency between this country
and abroad.

Very truly yours,

Chester Married
Chester Morrill,
Secretary.
Enclosure

360
CORY
FEDERAL RESERVE BANK
NEW YORK

February 11, 1941

Birsi
In the past we have, pursuant to Governor McKee's request of

February 13. 1937. drawn the Board's attention to significant develop=
ments in the movement of United States currency between this country and

abroad. We should like to take this opportunity to review the movement
during recent months.
Shipments of American bank notes to Europe, which amounted to

about $5,000,000 in both January and February of last year, have declined

steadily since that time, particularly after the invesion of the Low Countries in May, 1940 and the defeat of France in the following month. A1though shipments to the German-oocupied countries have stopped entirely,

the recent reduction in exports to Europe has been due largely to a deoline in shipments to Switzerland, which previously had been the principal

European recipient. It will be remembered that following the collapse of
French resistance a substantial repatriation of Swiss funds began and that

the flight from dollars was subsequently stimulated by fears that Swiss as-

sets in the United States might be #frozen." Since July, 1940 total shipments to Europe have amounted to well under $500,000 a month, practically

all of which has gone to Portugal, one of the few neutral European coun-

tries to which articles may be sent by air mail under the postal regulations.

361
Federal Reserve Bank of New York-=2

February 11, 1941

Although the European demand for American currency has dwin-

died to negligible proportions, shipments have continued to the Latin
American countries, the largest amounts going to Cuba. Small, though
rather steady, shipments have also been made in recent months to the Dominican Republic, owing, no doubt, to the growing colony of European

refugees there. These shipments, however, have been only part of a twoway traffic; small amounts have been received from this Republic, presumably representing bills which refugees have brought with them from
Europe.

The most significant development in the return flow of currency
to the United States has been the receipt of $420,000 of American bank
notes from Germany during the three months ended in January. These were
the first such shipments since September, 1939 and were the largest since

June, 1938, when $515,000 were shipped. Prior to the war the import of
United States currency from Germany amounted to around $20,000 a month

and represented chiefly the return of bank notes taken abroad by American

tourists. The receipts during the past three months have all been reported by one New York City bank. From this bank we have learned that these

shipments were of various denominations and arrived by air mail via South
Americas The assumption is that they were flown by Italian planes from

Italy via Africa to Brazil, although there were no indications that Brazil
had been touched. We have also learned that in addition to the currency,
a few small checks have gone through Trinidad where, surprisingly enough,

they have been passed by the British consor. In all cases the contents

362
Federal Reserve Bank of New York--3

February 11, 1941

of the envelopes have been examined pursuant to the Treasury Department's

General Ruling No. 5 pertaining to the import of securities.
While the current shipments have not been large, they may quite

possibly represent the systematic disposal of currency acquired from
German-occupied European countries, which have long been boarders of American bank nutes.

Faithfully yours,
(Signed) L. W. Knoke
L. W. Knoke,

Vice President.

Board of Governors of the
Federal Reserve System,

Washington, D. C.

Enclosure

363
SHIPMENTS AND RECEIPTS OF U. S. PAPER CURRENCY
TO AND FROM FOREIGN COUNTRIES IN THE MONTH OF JANUARY. 1941
SHIPMENTS

By 10 Monthly Reporting Banks

Bills

*By Other

:

:

$5 to $20 I Over $20
Bills
Bills
F.R. Notes F.R. Notes

$1 &

Total

Banks and
Firms

Total
Shipments

urope

$170,000

:

Portugal

aribbean Countriest
Dominican Republic

$75,000

$50,000

$170,000

$125,000

125,000

3,200

entral America
200

$3,000

3,200

27,000
$102,200

5.500
$8,500

36,100
$164,300

Costa Rica
anada

Total

3,600
$33,600

6,500
$176,500

42,600
$340,800

RECEIPTS

10 Reporting Banks

pe

Germany

Switzerland
Total

$120,000
6,000

$126,000

aribbean Countries

British West Indies
Cuba

Dominican Republic
Puerto Rico

Virgin Islands

63,700
1,000
69,000
88,000
105,000

Total

326,700

entral & South America
Brasil
Costa Rica
Micaragua
Uruguay

1,000
20,000
40,000
1,000

Total
anada
sia

62,000
249,500
8.400
19,000

China

astralia

Total Receipts
Total Shipments
Receipts over Shipments

10 Questionnaires sent out - monthly series
8 Banks had transactions
2 Banks had no transactions

Denominations of currency shipped not known

$791,600
340,800
450,800

MR. MORGENTHAU'S OFFICE TO-Mr. Bell

Mr. Thompson

Mr. Gaston

Mr. Sullivan

Mr. Foley
Mr. Graves

Mr. Allen
Mr. Ballinger

Mr. Harper

Mr. Bartelt
Mr. C. S. Bell
Mr. Berkshire
Mr. Bernard

Mr. Birgfold
Mr. Blough
Mr. Broughton
Mr. Bryan
Mr Decorative

Mrx Collie
Mr. Delano
Miss Diamond
Mr. Dunn

Miss Flanagan

Mr. Helvering
Mr. Irey
Mr. Julian
Mr. Kilby
Mr. Kuhn
Mr. Mack

Mr. Mulvihill
Mr. Pehle
Mr. Rose
Mrs. Ross
Mr. Schwarz

Mr. Sloan
Mr. Spangler
Mr. Tarleau
Mr. Upham

Mr. Hall

Mr. White
Mr. Wilson

Mr. Hanna

Mr. Young

Mr. Haas

364
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 4, 1941
TO

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£64,000
Purchased from commercial concerns £34,000

Open market sterling remained at 4.03-1/2. Transactions of the reporting

banks were as follows:

Sold to commercial concerns
£3,000
Purchased from commercial concerns £6,000

In New York, the closing rates for the foreign currencies listed below were

as follows:

Canadian dollar
Swiss franc (commercial)

14-1/2% discount

Mexican peso

.2323
.3385
.4005
.0505
.2305
.0505
.2066

Cuban peso

6-7/8% discount

Swedish krona
Reichsmark

Lira

Argentine peso (free)

Brazilian milreis (free)

In Shanghai, the U.S. equivalent of the yuan was 5-9/16 up 1/32 Sterling

advanced 3$ to 3.94-1/2.

There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported that the Bank of Canada shipped

$75,002,000 in gold from Canada to the Federal for account of His Britannic Majesty's
Government, for sale to the New York Assay Office.
The prices fixed in London for spot and forward silver were both 1/16d higher,
at 23-3/8d and 23-5/16d, respectively. The U.S. equivalents were 42.44 and 42.334.
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

365
-2We made three purchases of silver totaling 300,000 ounces under the Silver
Purchase Act, all of which consisted of new production from foreign countries, for
forward delivery.
The Bureau of Foreign and Domestic Commerce reported on March 3 a shipment

$265,000 worth of foreign silver coin, sent by the Guaranty Trust Co., New York,
to the Netherlands Indies Government, Batavia, Java. We understand that the Netherlands
Indies Government instructed the Guaranty some time ago to purchase 6,000,000 ounces

of

of silver for coinage purposes. In all probability, the above shipment consisted of
new coins minted under this order.

The report of February 26 received from the Federal Reserve Bank of New York

giving foreign exchange positions of banks and bankers in its district, revealed that
the total position of all countries was short the equivalent of $7,608,000, a decrease
of $473,000 in the short position. Net changes were as follows:
Short Position
Country

England**
Europe
Canada

Latin America
Japan

cher Asia
All Others
Total

February 19

February 26

$ 263,000

$ 185,000
3,547,000
133,000 (Long)
114,000

3,106,000
1,276,000
14,000 (Long)
$8,081,000

Short Position

3,292,000
109,000 (Long)
211,000
2,559,000
1,352,000

Change in

Short Position*

+ $ 78,000

- 255,000

+ 24,000
+ 97,000

- 547,000

40,000

+ 76,000
+ 54,000

$7,608,000

- $473,000

. Plus sign (+) indicates increase in short position, or decrease in long position.
Minus sign(-) indicates decrease in short position, or increase in long position.
" Combined position in registered and open market sterling.

16. M.S.
CONFIDENTIAL

HOTEL NEW YORKER
THIRTY-FOURTH STREET AT EIGHTH AVENUE. NEW YORK

march 4, 1941
Dear Mrs. Klotz,

she Secretary used to like
an occasional report of something

which was not a criticism or a
complaint. you may want to

pass this along?
I same up on the train
with Waeter Stewart who said he
was glad to go to Washington whenever

Henry Morgenthan asked him to, but
that the Secretary was the only man in
Washington for whom he would do

that. lipn

(over)

366

Arrry to miss that luce
today. 9

367

BRITISH EMBASSY,
WASHINGTON, D.C.

PERSONAL AND

SECRET - =

March 4th, 1941

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a
copy of the latest report received
from London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Halifax
The Honourable

Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.

368

TELEGRAM RECEIVED FROM LONDON

DATED MARCH 3rd. 1942.

1.

NAVAL

Three coastal aircraft a.m. second
attacked convey of seven merchant vessels

off Danish coast. One 2,000 ton was hit
amid-ships with torpedo.
2.

There is evidence that Italian re-

inforcements have recently arrived in Tripoli.
No details of strength are now available but
identifications are being sought.
3.

ROYAL AIR FORCE.

Hight of 2nd/2rd. 71 bombers were

sent out, principal target being cruiser at
Brest. No reports at present available.
4.

GERMAN AIR FORCE.

March 2nd. Activity slight consisting
chiefly of North Sea reconsissances. A Hurricane
shot down one enemy bomber off east coast and

2 Hurricanes damaged a Focke-Hulf off Shetland.

Night of 2nd/3rd, enemy activity negligible.
Aircraft casualties in operations over and
5.
from Great Britain.
German bombers destroyed, 1, damaged, 1.

British: 6 bombers missing.

BRITISH EMBASSY,
WASHINGTON, D.C.

March 4th, 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,

Halifax

The Honourable

Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.

370

Telegram from London dated March 2nd.

Naval. Since commencement of hostilities

1.

54,693 ships have been convoyed, out of which 192 British

and 31 allied and 19 neutral have been lost. Imports into
Great Britain by ships in convoy week ending February 22nd
931,433 tons. Merchant ships lost by enemy up to February
26th:

German 268 of 1,345,000 tons,

Italian 133 of 683,000 tons.
In addition 34 ships of 61,000 gross tons under enemy
control or useful to enemy have been sunk.
2.

During daylight March 1st, two Merchant ships

from Canada were bombed and severely damaged off

Cardigan Bay. East and West-bound convoys also attacked

off Kinnaird Head, 2 ships being hit and set on fire, 1 ship
torpedoed in North West approaches.
3.

Military, Ithlian Somaliland. Our troops

occupied Bardera on February 27th; up to the afternoon of
February 28th, prisoners taken during our advance along
the coast and at Mogadishu numbered 9,000 and many more are
surrendering in Mogadishu.
4.

Royal Air Force. Yesterday our fighters made an

offensive sweep over Northern France and destroyed 3 enemy

fighters.
5.

Night of March 1st/2nd. 131 aircraft attacked

industrial targets in Cologne and three bombed Channel ports
Results unobserved.
6.

Eritros. February 28th. Our aircraft dropped

over 6 tons of bombs on Asmara railway station, sooring

several direct hits.
German Air Force. March 1st. Daylight activity
7.
slight. A bomber was destroyed by our fighters off the
Isle/

371

-2-

Isle of Wight.
8.
Night of March 1st/2nd. 110 aircraft were over
this country, bombing was widespread and not intense, One
enemy bomber was destroyed off the coast of Scotland.

At Halta six J.U. 88's escorted by fighters made
an attack on March 1st, Many bombs were dropped, but

9.

only slight damage was done.

Aircraft casualties in operations over and from

10.

British Isles.
German: three fighters destroyed and two bombers
destroyed.

British: nil.
11.

Home Security. Night of March 1sty2nd. Some

residential damage was caused at Hull rendering several
persons homeless and a bus depot was damaged by fire at
Southampton.

372
RESTRICTED

TENTATIVE LESSONS AVIATION

MILITARY INTELLIGENCE DIVISION

No. 10
G-2/183-345

WAR DEPARTMENT

WASHINGTON, March 4, 1941.

NOTICE

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative

and in no sense mature studies.
This document is being given an approved distribution,

and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction see Letter TAG 350.05 (9-19-40) M-B-M.

AN R.A.F. AERIAL GUNNERY AND BOMBING SCHOOL
SOURCE

Late in November, 1940, an American official observer made

a visit to an R.A.F. aerial gunnery and bombing school. This bulletin
is based upon his observations.

CONTENTS

1. ORGANIZATION
2. EQUIPMENT AND TRAINING FACILITIES
3. CONDUCT OF TRAINING
4. SUMMARY

RESTRICTED

-1-

373
RESTRICTED

AN R.A.F. AERIAL GUNNERY AND BOMBING SCHOOL

1. ORGANIZATION

At the gunnery and bombing school, as throughout the R.A.F.,

the station itself does all the housekeeping. This includes running

messes, performing supply functions, and handling range details, both
operational and maintenance. Thus squadrons are left absolutely no

function except actual training. In the case of this school, the

station goes even further and performs all maintenance work on aircraft except daily inspections, which are carried on by squadrons at
dispersal points. This "full garage" system has not been used at

other R.A.F. stations recently visited.

There are three training squadrons at the school - one
charged with gunnery training, one with bombing training, and the
third with towing. This break-down of work makes for smooth functioning and is probably largely responsible for the great number of aerial
gunners and bombardiers turned out.
2.

EQUIPMENT AND TRAINING FACILITIES

a. Airplanes
The station is equipped with 70 Fairey Battles. This
airplane is excellent for gunnery training but not for bombing training. The station furnishes 12 planes to each training squadron daily,
with several reserves in commission to replace any that develop trouble
during the day.
b.

Bombing Trainers

There are four bombing trainers available, and all are
used to the maximum degree. Each trainer consists of a light-proof
room with a film projector which is located in the ceiling and which
throws a moving mosaic on the floor. The speed of the image may be
changed to simulate various bombing speeds and altitudes, and the

"pilot", who sits back of the bombardier, can change the direction of
travel of the image on the floor by using his rudder bar. The whole

effect is quite similar to that of actual bomb sighting from an airplane, and the bombing instructor states that the results are highly
satisfactory.
C. Ranges
The school is conveniently located for gunnery and bomb-

ing training. It is adjacent to a large shallow arm of the North Chan-

nel, where four gunnery ranges and three bombing targets are operated

concurrently. Sooring for bombing is all done by the two-tower tri-

angulation method. No attempt has been made to record practice bombing
RESTRICTED

-2-

374
RESTRICTED

results by photography, possibly because of the shortage of photographic equipment.
d.

Moving Gunnery Target

Convenient to the station is the ground gunnery range.
This consists of a full scale model of an Me-110, which provides a
fixed target at a range of 500 yards and may be used for both day and

night firing, and a moving target for practice in handling turrets
and deflection shooting.

The moving target is a scale model of an Me-109 mounted

on an electric trolley. The track is laid out in the shape of a tri-

angle 200 yards to the side, with an apex located 100 yards from the

turret station. The target travels at 30 miles per hour around this
triangle and offers opportunity for the standard stern quarter attack

used by pursuits, as well as for a quartering going-away shot and a
crossing shot. Observation of the fire of a four-gun Boulton Paul
turret and a two-gun Frazier-Nash turret at this target shows this
form of gunnery practice far superior to any previously encountered.

The R.A.F. range officer stated that the cost of the entire installation was approximately $20,000.
e.

Spotlight Gunnery Trainers

Spotlight gunnery training was not observed, since it

is still in the formative stage. The trainer consists of a hemisphere

with a diameter of approximately 25 feet and a standard Frazier-Nash
turret mounted opposite the center of this hemisphere. A motion picture

machine projects the image of a fighter plane flying at different ranges
and angles on the inside of the hemisphere. The student maneuvers his

turret until his sights are lined up, and when he presses the trigger
a spot of light is projected where the bullet would have hit; the projector automatically takes care of the bullet trail and drop for dif-

ferent ranges and deflections. The whole mechanism can be stopped when

the shot is fired, and the student's errors can be analyzed. The principal advantages of this trainer appear to be the excellent facilities
offered for practice in range estimation, deflection shooting, and
turret operation.
f.

Gun Cameras

Gun cameras are used extensively during the early part

of the course given at the school. It is the opinion of the staff of
the school that their sole value is for checking progress in training
on range estimation. It is a common error to suppose that gun cameras

are of value in training for deflection shooting.
RESTRICTED

-3-

375
RESTRICTED

3.

CONDUCT OF TRAINING
a.

Aerial Gunners

The students in the aerial gunnery class have previously
had a three months' course as radio operators. Classes average 130
students, divided into sections of 15 each for control. Their course
lasts four weeks.
b.

Aerial Bombardiers

Each class of aerial bombardiers consists of about 60
students who have previously completed the three months' course in
aerial navigation. In each combat crew one man - usually a sergeant is navigator, bombardier, and gunner. The course lasts eight weeks,
with time about equally divided between bombing and gunnery. Bombing
training involves about 20 bombs at low altitude - 2,000 to 4,000

feet - and about 60 bombs at high altitude - 12,000 feet. All bombing
is level, and no night bombing is practiced; this is notable because
in actual operations practically all bombing is done at night from a
power-off glide. Some practice simulating actual conditions is obtained in operational training squadrons, which are intermediary between the school and actual operating units.
4. COMMENT

It appears from careful observation at this school in opera-

tion that, while the R.A.F. is well ahead of our service in aerial

gunnery training, we are more advanced in training of bombardiers.
With the exception of the bombing trainer in use at this school, which
is a definite improvement on our own, our equipment and methods seem
more effective.

We could learn many lessons in aerial gunnery from the
British. Many hours and all available equipment of the proper type
are devoted to training in range estimation, which the British con-

sider the very foundation of aerial gunnery. In addition, their facil-

ities for ground training much more nearly approximate actual air firing than our own.

RESTRICTED

-4-

376
RESTRICTED

G-2/2657-220
No. 330

M.I.D., W.D.
March 4, 1941
12:00 M.
SITUATION REPORT

I.

Western Theater of War.

Air: German. Activity over Great Britain last night

was on the largest scale since last December. Cardiff was heavily
attacked. Newcastle and various British airfields also were
bombed.

British. Fragmentary reports indicate normal
activity along the Channel coast.
II.

Balkan Theater of War.
Bulgaria: The German High Command announces that the

march of German troops into Bulgaria continues according to plan.

Albania: Ground. Activity by small infantry units
and intense artillery action is reported by the Greeks.
Air. No important operations reported.

III.

Mediterranean and African Theaters of War.

Ground: Italian Somaliland. British troops have
occupied Villaggio Duca Abruzzi, which is 50 miles northeast of
Mogadiscio; Bulo Burti, on the Uebi Shebeli, about 100 miles due
north of Villaggio Duca Abruzzi; and Iscia Baidoa, about 150
miles northwest of Mogadiscio.

North Africa. The Italians report that
another attack by British mechanized troops on Jarabub has been
repulsed. They also report another clash between German and

British armored forces in Libya.

Air: No reports of operations available.

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

See rica
CONFIDENTIAL

377

Samplesse of Bollogram
as

the

as 9 s, will.
21106 the March m will
1. a Heading, March 3, please of the British Constal -

emeries - the - petrols - me British because - in the atr.
During the proofing night staffelds in the Motherizate and in a

I - haber Sectibities at Betterina were bonbod w - of small maters of British please. a addition, - attack was carried

- w 72 British heavy Dembers against Breat. A - evaloor of the

ANNUAL - class to as part there - this was the principal
objective of the attack. It is thought that the orniour was I in
spite of the that this no direct tits were observed. Six of the Britter
limbare taking pm in those attacks failed to return to their bases.

2. During the night of March 34 the - carried out a
seed over Sender which Insted for a langer parted than - during the just

- weaks. As a result there we some - to the - the
establete of Section. 2a addition, a number of civiling - billed and

postute I - considerably d in the area
which - the object of a severe - attack during the - night. It
is maintent w the British that there was no damage to military instal3. the sixfield at Dorat, Miles, me severely beebed by British
please been in Greese. In all other middle Eastern theaters please of the
Reyes Ats Force supported the questions of Isad Strees.

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378

4. Share has been no report of Asia ats executions is the
theaters.

5. the character of - air against Seitsta during
the past few vesits Indicates this the principal - air effort will be directed against Brittah assistant chipping and options British parts

another the against island eities. This - policy is intented to lead

- to the recent increase in Germa submits activity.
6. It is estimated w the British this in the visinity of Since,
Miles, there are 50 - airplanes and - Comma brights - communicated
w light assessed fighting vehicles. Additional Italian reinferesmente -

reviving in Tripoli. It is also thought w the War office that foress in Bietly and is southern Italy total two small - divisions
with accompanying light - fighting vehicles.

-

7. State the - reinfurnment of Italian troope in Albeate
as is estimated that there are new appreciately 300,000 Italian coldiers
there.

Distributions

Secretary of Benefitiary of Mar

What of Staff
State

Benefitiary Treasury

Year Please Division

office of Naval Intelligence
Air George

e-j

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