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DIARY Book 38 October 6 - October 10, 1936 -ABook Page Albania See Stabilization American Red Cross HMJr asks Harrison to read complete statement in Wall Street Journal - 10/6/36 a) Felix Warburg was the one who gave out the story in New York and tipped off the Hearst XXXVIII papers Meeting of Endowment Committee - 10/7/36 Merz (New York Times) consults HMJr about proposed editorial on HMJr's "famous letter" - 10/8/36 HMJr discusses Wall Street Journal article with Hogate 10/9/36 24-26 150-156 269-272 318-322 Australia See International Trade BBleakley, Judge HMJr discusses case with J.F.T. O'Connor and Prenties 10/9/36 287 Bonus Suggested statement of HMJr in answer to Governor Landon read to Early, and at his suggestion, sent to Democratic National Committee to be wired to Michelson - 10/8/36 171 -cCampaign, Democratic, 1936 "FDR makes first bid for agricultural vote" - 10/9/36 357 Coast Guard Conference on purchase of planes; present: HMJr, Waesche, Peoples, Chalker, Cocklin (Aeronautical Engineer, United States Coast Guard) - 10/9/36 Customs Agency Service Reorganization in Europe and the Near East a) Commissioner's memorandum - 10/7/36 hait memorandum from Paris, on recommendations - 10/9/36.. Czechoslovakia 341-346 147 347-349 See Stabilization -DDevaluation of Dollar FDR indicates he will seek to keep emergency power to devalue dollar - 10/6/36 a) HMJr discusses statement with McIntyre; considers statement major mistake; thinks what FDR meant was continuation of Stabilization Fund - 10/7/36 b) Comment in London papers 41-43 66-68 69-70 -FBook Page Fisher Body Company FDR asks HMJr to hurry case now before Board of Tax Appeals - 10/7/36 XXXVIIII 149 a) HMJr asks Oliphant to investigate - 10/7/36.. 169-170 France See Stabilization G- Germany See International Trade See Stabilization Gold See Stabilization Great Britain See Stabilization: England -HHogate, Kenneth C. (Wall Street Journal, Dow-Jones, Barron's) Telephone conversation concerning American Red Cross letter.. 318-322 Holland See Stabilization: Netherlands -IInterdepartmental Committee on Health and Welfare Labor Department representative (now that Altweyer has gone to Social Security Board) discussed by Miss Roche with HMJr - 10/7/36 a) FDR reconstructs Committee; Committee informed only through newspapers; HMJr asks Bell to help Miss Roche International Trade League of Nations Committee to study problem of abolishing trade barriers - 10/6/36 FDR denies most favored nation treatment to Germany and Australia - 10/7/36 142-143 55-56 71 -Roumania See Stabilization Rubber Restrictions unchanged for balance of 1936 - 10/8/36 119-120 Book Page Stabilization (arranged chronologically) (See Cochran resume September-December, 1936, Book XLIII) Meeting to prepare supplementary declaration to that of September 25; present: Feis, Taylor, Lochhead, Oliphant, Gaston, Haas, and White - 10/8/36 XXXVIII a) Discussed with Bewley 1) Conversation with Cochran b) Copies sent to Federal Reserve Bank of New York c) Copy sent to Cochran 213-239 244-249 250-257 260-264 278-280 Cochran reports, after having read to Auriol and Baumgartner Chamberlain's message and HMJr's proposed statement 10/9/36 a) HMJr discusses with Feis, Cochran phone conversation. Conference with Mallet and Bewley - 10/9/36 HMJr and Cochran discuss situation - 10/10/36 HMJr announces: "United States, Great Britain, and France tomorrow will go on new gold standard; the new agreement will permit exchange of gold for conversion of paper currencies of individual countries and will operate on a day-to-day basis" - 10/10/36 Albania: will devalue (United Press) - 10/6/36 289-302, 326-336 337-340 350-356 367-373 385 60 Czechoslovakia: Crown will be devalued by 10- to 16% of its present value 10/6/36 a) Bill passed, effective October 10 61,87, 122-124,25 317 England: Reaction to French decision to readjust exchange value of the franc - 10/7/36 Mallet and Bewley bring note from Chancellor of Exchequer, concerning cooperation between exchange controls - 10/8/36. a) Copy sent to Cochran 77-78 172-186 240-243 France: Cochran cables to HMJr just before visit to Auriol to find out whether France may care to make statement - 10/6/36 Baungartner tells Cochran he thinks French might agree to declaration on a reciprocal 24-hour basis - 10/6/36 Auriol tells Cochran, Van Zeeland (Belgium) is coming to see him soon about plans for cooperation - 10/6/36 Devaluation profit totals 17 billion francs ($793,900,000) 10/7/36 Resume of French situation (Dow-Jones) - 10/7/36 Cochran tells HMJr satisfactory answer from Chamberlain; answer being prepared - 10/8/36 1-4 6-16 31 74,130 76 202-212 Germany: Text of Schacht statement to Central Committee of Reichsbank with respect to attitude of German Government on devaluation of currencies of France, Switzerland, and the Netherlands (See also Book XL, pages 259-269) "Reich astonished by new isolation; feels Italy betrayed her by joining general monetary stabilization measures" (New York Times) 10/9/36 88-106 353 - S - (Continued) Book Page Stabilization (Continued) Netherlands: Resume of situation during week ending October 5 XXXVIII 45 Roumania: Policy of a balanced budget at present rate of exchange will be maintained - 10/6/36 50,53 Yugoslavia: Rumored that dinar will be gradually allowed to sink to competitive levels with other devalued currencies - 85 10/7/36 Stabilization Fund Operations discussed by HMJr and Knoke 10/6/36 19-20,27-3 33-35 158-160, 163-168 301-302, 10/7/36 10/9/36 323-325 -T Tax Revision Memorandum on comparative individual income taxes in United States, Canada, and Great Britain - 10/8/36 281-285 U- Unemployment Relief HMJr informs McIntyre officially that Gill has laid off 9,000 persons; asks McIntyre to tell FDR - 10/6/36 a) Telephone conversation with Gill b) Conference: HMJr, Hopkins, Gill, and Bell - 10/7/36.. 36 37-40 133-138 193-194 Bell reads to HMJr proposed memorandum to FDR - 10/8/36 a) Suggests designated sun be allocated to Works Progress Administration, broken down by states, for projects covered by: "(f) Assistance for educational, professional, and clerical persons; "(g) Women's projects" FDR tells HMJr to explain to Hopkins "if he allocates, for example, $2 million to Chicago through Ickes and Hopkins is already spending $10 million in Chicago, he wants Hopkins to spend only $10 million minus $2 million allocated to Ickes, or $8 million"; plan to be followed in every community where money is allocated to Ickes - 286 10/8/36 Resume' of Works Progress Administration funds, in connection with Gill request for additional $202.7 million, given in 387-388 Bell memorandum to FDR 10/10/36 (Gill request on page 389) a) FOR allocates $75 million instead of $202.7 million, as suggested by Bell - 10/12/36 390-391 Book Page Yugoslavia See Stabilization XXXVIII 85 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: October 6, 1936, 9 a. m. NO.: 970 FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY. By telephone last night, in two conversations, you mentioned the probable issuance by you of a statement on gold, and the possibility that the French and British might make simultaneous declarations. As you instructed, I am now at 9:30 going to the Ministry of Finance to sound out Auriol as to whether France may care to make a statement like this. Around noon I shall telephone you if by that time I have an answer for you. ex I was asked by Droop for my opinion (?) matter of declarations. I hoped, I told you(?) to follow as generous a policy as is possible. Practically no nation, with the exception of Belgium, is really eligible to receive gold from the United States under the existing rules, in view of the break down of the gold bloc. We must revise our rules about yielding gold unless we want to freese a good part of the gold supply of the world, or move further towards cornering it. If the three-power monetary arrangement is to work, such action is necessary. If we implement this arrangement in this manner, we have at the same time an opportunity for a grand 2 -2grand gesture which will not be a great expense to us. I respectfully recommend that at this moment the only declaration that would be necessary would be one on your part, and that this should merely be an amendment to the statement which you made on the thirty-first of January, 1934, to the effect that hereafter until further notice you will "sell gold for immediate export to, or earmark for the account of, foreign monetary authorities". There would not have to be any alteration in the remainder of the statement. In using the expression "monetary authorities" I include central banks, the B.I.S., stabilization and equalization funds, monetary commissions, and so on. We have far more than our share of gold, and there is no scarcity of the metal. In 1933 at the London Monetary and Economic Conference even the United States subscribed to the principle that gold should be used for settlement of international balances. Even though the United States does not permit internal circulation of gold, it is surely to its advantage to assist international circulation. Greater benefits will accrue to us the more gold is used for this purpose. What would be the reason for our restricting the use of gold in settling balances between our own country and others? Great effort has been put forth in getting trade treaties, and this policy is contradicted by 3 -3making it difficult for our customers to keep balances in the American markets. Our customers have been forced to operate over London, where, because they know that they can get gold for the currency if they want it, they have ******* been willing to risk a fluctuating currency. Each additional banking operation costs and diminishes interest in and capacity for trade with the United States. We should help such countries as Yugoslavia and Austria to get gold to build up their resources, if we are seriously striving for international monetary stability. The United States does not want dinars or crowns, so why should it seek gold reciprocity from Yugoslavia and Austria? The United States prefers to carry on its trade in dollars, and at the present moment it has an opportunity to really make an international currency of the dollar. There has always been doubt in my mind as to the efficacy of our gold as a weapon to force stabilization by the British. Even though in the past it may have constituted some potential threat toward this end, we have now received from the British as binding a pledge toward stability as can ever be hoped for before the British decide of their own free will to make a definite return 4 -4return to a fixed gold parity. Therefore this threat no longer has validity. The United States still has access to the London free gold market without any demand for reciprocity on our part. Yesterday a purchase of twoand one-half tons of gold was made by France from Belgium without any formality other than to indicate to the National Bank of Belgium the day's price that the Bank of France was ready to pay for the gold. Therefore, with the greatest respect and loyalty, I venture the opinion that the proposed Treasury statement as contained in telegram No. 367 of September 23, midnight, from the Department, is narrow and short- sighted. We have had reaction to our credit from the part we played in the triangular monetary arrangement. It is my feeling that a statement from the United States now involving a "24 hour" policy, a day to day certificate of eligibility and demanding reciprocity from Great Britain which already has a free gold market, from the gold bloc which yielded gold to us until it had no more, and from Italy and the vast number of other nations whose gold resources have almost disappeared, would go a long way toward disappointing a hopeful world. It would, incidentally, also go far toward diminishing the esteem which our monetary policy is beginning to command. BULLITT. EA:LWW 5 OFFICIAL COMMUNICA TIONS TO SECRETARY OF STATE WASHINGTON DEPARTMENT OF STATE WASHINGTON October 6, 1936. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses five copies of paraphrase of telegram No. 971 of October 6, 1936, from the American Embassy, Paris, and five copies of telegram No. 47 of October 5 from The Hague, transmitting financial reports. In paraphrase of telegram No. 970 of October 6, from Paris, the first two lines of the second paragraph of the text should read as follows: "I was asked by you for my opinion on the matter of declarations. I hoped, I told you, that you would follow as If Enclosures: As stated. U. 6 October 6, 1936 9:30 a.m. H.M.Jr: Hello. Operator: Mr. Cochran. H.M.Jr: Thank you. Cochran: Mr. Morgenthau? H.M.Jr: Yes. C: When I talked with Baumgartner this morning - H.M.Jr: With whom? C: Baumgartner - H.M.Jr: Yes. - I explained to him your idea of a declaration on a reciprocal 24-hour basis. C: H.M.Jr: Yes. C: He said that he thought they would be in agreement H.M.Jr: Yes. C: on the idea of such a declaration. He said that he would speak to the Minister and to the technical men - H.M.Jr: Yes. C: - at the Bank of France. H.M.Jr: Yes. C:; At one o'clock he called me back and said the Minister of Finance is in agreement with the idea if we wanted it - H.M.Jr: C: H.M.Jr: Yes. And he said, of course, the British would have to begin on it soon, and they wanted to know if we had had the British reply. Yes. -2C: H.M.Jr: C: I told him that I did not think you had. Had asked the British for a reply? No - had received the British reply. H.M.Jr: No. C: I told him that we had not. H.M.Jr: No. C: And he said he had spoken to the technical men, Fournier and Cariguel and they were of the that the British should not join in suchopinion a declaration. H.M.Jr: I see. C: That was their opinion, but the French Ministry is willing to go into an agreement if the British do. H.M.Jr: C: Yes. Well now this - this sort of looks as though we were seeking this. We're not seeking this. No, that's - that's why I went over it so carefully last night with you. I mean I went over it carefully to - to find whether you were trying to search for an agreement or just give them the chance to join in such an agreement. H.M.Jr: Well, I mean I made it - after all, you've been asking us three, four times, when would we give an answer to the French? (Pause) C: H.M.Jr: Well, I - I put it up in the sense that they had an opportunity to join in if they wished. But if - that isn't the way, Cochran. You asked me at least three times, when were we ready to answer the French on this question of giving up gold? (Pause) I mean, after all, the original request came from the French. C: Yes. H.M.Jr: Now, I don't want to be put in the position that this is something that we're seeking. This is something that the French are seeking. C: No, I meant in the - in the declaration. They're 7 -3- H.M.Jr: C: willing to give gold on a reciprocal basis. Well, the declaration is - is very unimportant. I told them that you had to make a declaration. H.M.Jr: That's true. C: Yes. H.M.Jr: That's right. I - we have to - yes. C: The declaration is up to them. H.M.Jr: Yes, but now, let's just forget the declaration for a minute. This other question though about giving up gold on a reciprocal basis - that's something that they've been seeking. Yes. They're - they're willing to do that with us; they're already doing it with the British. C: H.M.Jr: I see. C: They have a practical, working arrangement with H.M.Jr: Yes. the British. (Pause during which H.M.Jr. talks to some one in the office.) H.M.Jr: Hello. C: Yes. H.M.Jr: They have such an arrangement? C: H.M.Jr: C: H.M.Jr: Yes, they - they said that they - they give gold at the day's price. Yes, well - now - arrangement with the British. All right. Now our point is we're simply going to sit tight until we hear from the British. C: I see. H.M.Jr: See? 8 -4C: Yes. All right. H.M.Jr: But now - and as far as the French are concerned, C: they say they're going to do what - wait? They - they'11 - in regard to the declaration - H.M.Jr: Yes. C: They want to wait to see what the British do. H.M.Jr: C: H.M.Jr: C: That's all right. As soon as the British are in accord, they'11 fit in. Well, now just a minute And they say that they already have - H.M.Jr: Now Cochran, - C: Yes. H.M.Jr: 9 - everybody in the room here, including myself, feel that you are laying entirely too much emphasis on this question of the declaration. I'm not laying any emphasis on it. I'd have to an- nounce, but if they don't want to join us, that's unimportant. (Pause) I mean you're laying too much emphasis on the question of the declaration. (Pause) C: H.M.Jr: C: Well I - I didn't lay any emphasis - that's what I went to see them about was the declaration. No. No, I'm afraid you've misunderstood. Isn't it a technical arrangement of giving gold against the Bank of France that you want done? H.M.Jr: Pardon me? C: Isn't it principally a technical arrangement with H.M.Jr: C: H.M.Jr: the Bank of France that you want? That I want? That the French want. But I understand that it must be reciprocal. True - but this - but I want to make sure that you understand and they understand that thi3 thing has originated with the French. -5- 10 Yes, yes, they understand that. C: H.M.Jr: After all, in answer to your requests, we sent you that cable for you to hold it. C: Yes. H.M.Jr: And you've told me at least three times that they've C: Right - yes. H.M.Jr: asked you, when are we ready to give up gold? All right. Well, now, that's the position. Now, in connection with that, I simply felt it would be a nice gesture if alloo: - if we did do it, that we'd all announce it at the same time because we H.M.Jr: have to make a public declaration if we do do it. There - there's no misunderstanding on that at all. There isn't? C: No, sir. C: H.M.Jr: C: H.M.Jr: All right. Now just a moment. (Pause) Well, now, do they understand that we're going to sit here and wait until we hear from the British? They - they only say that they - they wouldn't go in with this unless the British would also. Well, let - let me go over this thing once more. The British may come back and say, "Yes, we'll give up gold, but we don't want to announce it publicly, see? C: Yes. H.M.Jr: That's all right, but even if the British don't want to do it either publicly or any way, we're prepared to go ahead and do it with France. C: Yes - yes. H.M.Jr: Now do you understand that? C: Surely. H.M.Jr: What? C: Yes, I understand it. 11 -6H.M.Jr: Yes, but I mean I get the feeling that you're laying so much emphasis on this declaration and which I am not. (Pause). It's - it's just my position, Cochran. C: What do you want me to do with the French now? H.M.Jr: I don't want you to do anything. C: All right, sir. H.M.Jr: I mean there - there isn't anything to do. What - C: Well, that's just what I'm asking you. I did what could you do now? not stress the declaration to them. H.M.Jr: C: H.M.Jr: C: All right - all I went to them to talk about it this morning Well, just - just Of course, the main point is still whether we can get gold. H.M.Jr: Yes. Well, just go over it once more, and let's see whether we understand each other, please. I mean, how does the situation stand now? The situation is that I went to the French this morning, to the Minister of Finance - C: H.M.Jr: Yes. - I explained to him that you were studying the matter of giving up gold - C: H.M.Jr: Yes. C: - this three-cornered arrangement necessitates H.M.Jr: C: H.M.Jr: giving up gold if it's to work. Yes. - that you had promised the press during one of your conferences that when you did make any change in the old arrangement Yes. -7C: 12 - with regard to giving gold only to those countries whose central banks yielded gold to us when the gold points were reached, that you would make a public declaration. H.M.Jr: Yes. C: I said that you were now studying a public declaration H.M.Jr: Yes. C: -first anddeclaration the three of-us had been partners in the H.M.Jr: Yes. C: H.M.Jr: C: H.M.Jr: C: - and that you had approached the British yesterdayYes. - and asked me to see Auriol here Yes. - and see if they would be interested - (Pause) H.M.Jr: Hello. C: Hello, H.M.Jr: C: H.M.Jr: C: H.M.Jr: I didn't - we had a gap there - the phone stopped working. - that I was approaching them Yes. You were approaching the British first - to see if they, our partners, would be interested in making up gold. a declaration on this subject of giving Now, just a minute - now, Lochhead just said that that's where we seem to be at difference. Just a moment, please. (Pause during which H.M.Jr. speaks to Mr. Lochhead.) Now, Lochhead makes this point. This is evidently where we're a little bit at difference. C: Yes. -8H.M.Jr: What I simply told the British was this: 'We are about to enter into an agreement with the French. We simply feel that the three of us are partners. Before we enter into such agreement with theBritish. French, we want to make the same offer to the C: H.M.Jr: Yes. It's not important to us whether they accept it or not, but we just felt that if we did make such an agreement with the French, we'd want to first give same opportunity to the British. You the see? C: H.M.Jr: C: H.M.Jr: Yes. That's the way I worded it to the British. Yes. Then I said, 'Under the law, we have to make a declaration, a public declaration - C: Yes. H.M.Jr: -'and if we are going to make a public declaration, it would beYou a nice same time.' see?gesture if we did it all at the C: H.M.Jr: C: H.M.Jr: C: H.M.Jr: C: H.M.Jr: C: Yes. But - that is the way I put it up to the British Yes. - and I didn't tell them that if they didn't want to do it or they didn't want a declaration, I left it that it wasn't important as far as we're concerned. Yes. Now does that - does that sort of clear up that point? Yes, yes. That's clear. You see? Yes. 13 -9H.M.Jr: 14 All right. Now, I think that's where possibly maybe I didn't make it clear enough yesterday hor I felt about it, but I was very casual in my statement to the British, and they went out of here feeling that we had been very generous - C: H.M.Jr: C:; H.M.Jr: Yes. - and had been very courteous in giving them the same opportunity that we were going to give to the French. Yes, I see. And I simply told - kept stressing the fact that this is something that we had to do publicly and possibly they'd care to join us, but I'm not laying any stress on this declaration, you see? C: H.M.Jr: Yes. Now, are we together? C: Yes - yes - absolutely. H.M.Jr: Fine. C: All right. H.M.Jr: C: H.M.Jr: C: H.M.Jr: C: H.M.Jr: C: Fine. Now, as soon as I hear from the British, I'll give youjust a telephone call. Yes. And, just - you've done your end and the minute I hear from them - now, I told them that - please that thisor was matter that I'd like to clean up in a day two,a see? Yes, yes. And to please give us an answer as quickly as possible. Yes. And I have no objection, if the French want to talk to the British, you see? Yes - 10 H.M.Jr: C: H.M.Jr: C: H.M.Jr: C: 15 I mean they're at perfect liberty to discuss this thing with the British if they wish to. I made no suggestions on that at all. You didn't. Well, I'd just let it rest now. Yes, yes. I'd just let it rest. (Pause) Just a minute. Yes. (Pause during which conversation is carried on in H.M.Jr.'s office.) H.M.Jr: C: Hello. Hello. H.M.Jr: Mr. Taylor thinks that possibly you ought to go back and see them again and clear up the fact that tion. we're not laying undue stress on the declaraC: I did insist that there was too much stress on thenot declaration. H.M.Jr: C: You did not? No, sir. H.M.Jr: Well, I got that impression from your conversation this morning. C: No, I - I - I did not. I'm sorry if I gave that impression. H.M.Jr: Well, got that impression, but - well, if you didn't,Ithen that's good. C: I - I did not. H.M.Jr: Good. Well that - that clears up that point. Well, then - then I wouldn't go back and I just would sit there and wait now until you hear from me. C: H.M.Jr: All right. Fine. Thank you. - 11 - C: All right then. H.M.Jr: Goodbye. 16 17 2.35 FEDERAL RESERVE BANK OF NEW YORK FICE CORRESPONDENCE CONFIDENTIAL FILES L. W. Knoke DATE October 6, 1936. SUBJECT TELEPHONE CONVERSATION WITH BANK OF ENGLAND. Mr. Bolton called me at 10:38. They had had a very busy day today; dollars had been bid from the opening. At the time of gold fixing they had stepped in and sold about $3,000,000 at 4.90 3/4 which had kept the rate steady until about half past two when New York opened and began to bid for dollars. So far the market had absorbed in the neighborhood of $15,000,000. A fair amount of gold had been dealt in fixing, probably for shipment to New York. I indicated that, according to our information, part of the dollars which Europe wanted was going into the stock market here where foreign purchases on Saturday and Monday had been extremely heavy, about half of the orders coming via London. Bolton replied that there was a strong feeling in London and on the Continent that we were going to have a boom here be- fore the end of November. Another reason for the weakness of sterling, he thought, was the fact that capital was going back to France and that holders of short positions were still trying to cover them. The daily amount transferred to Paris, Bolton estimated in the neighborhood of £5,000,000. Apart from capital movements to France there were very definite indications of repatriation of Swiss funds. The Dutchmen, on the other hand, seemed to be in no hurry as yet to take their funds home; the very sudden turn in the guilder rate today from weak to strong was due to weakness of sterling in general. In discussing possible operations by us, I suggested that we would probably buy some sterling if the market kept on sliding down to 4.90 where we might decide to give it serious support today. FEDERAL RESERVE BANK OF NEW YORK 18 DATE October 6, 1936. FICE CORRESPONDENCE SUBJECT: TELEPHONE CONVERSATION WITH CONFIDENTIAL FILES L. W. Knoke -2- BANK OF ENGLAND. Bolton then inquired whether I had time for a little talk to discuss with him the question of the arrangement that was now under discussion between Washington and London. They had been talking about it today, he said, and although it was of course not up to him to make the decision he would like to go into the details of the transaction. In reply to my question whether he thought that some- thing would come of the plan, Bolton said that he had no doubt at all; it was just a question of fixing up technical details first. In view of the difficulties of keeping in close touch with us right through the day, partly because of difference in time, partly because of telephone service, which was at times slow and unsatisfactory, he thought the simplast way for them to proceed would be to quote us the price es- tablished at fixing and we could then deal on that basis during the day and know exactly where we stood. Another basis, he thought, might be the average of the gold price the same day and that of the day before, or of the same day and that of the following day. In the long run, he thought, it really would not make any difference what basis we used. I agreed with him; the only sound and sane way to proceed for us was to agree on some basis, observe how transactions actually worked out, from time to time compare notes, and if necessary try another basis. As long as we understood eachother I was quite satisfied there was no technical difficulty that we could not overcome. We agreed that the most important thing at the beginning was to have an arrangement that was as simple as possible. LWK:KMC October 6, 1936 11:53 a.m. H.M.Jr: Hello. Operator: Mr. Knoke. Knoke: Good morning, Mr. Secretary. H.M.Jr: How are you? K: Oh, I am fine. Thanks. H.M.Jr: So am I. K: Well, that's splendid. H.M.Jr: K: H.M.Jr: 19 Archie is getting nervous. He says it's six minutes to twelve, and I haven't given you any orders. Oh, well, the market at the present time walks like a grown-up. No ! K: Yes, it's - it's still on the bid side 4.90-3/4 bid, but I dare the wise thing would be to stand readysay withthe an-order. H.M.Jr: Right. Well, now, I'm going to give you and Archie 500,000 pounds to work with. K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: Yes. See? 500,000 pounds? Is that enough to start with? Oh, yes. I mean that will pay for your lunch. Yes (Laughs). H.M.Jr: Get a better one - K: It'11 last until after lunch. H.M.Jr: K: What? It'11 last until after lunch. -2H.M.Jr: No, I said that will buy you a lunch. K: Yes, it probably would (Laughs). . H.M.Jr: Yes. Now, Archie told me of your conversation you had with the Bank of England and I think that sounds very encouraging. K: Well, I - that was very fine. was my reaction. I thought it H.M.Jr: Fine. K: Because he made it perfectly clear that he was not the fellow to decide, but in his opinion, there was no question but that the thing would go through. H.M.Jr: Right. K: It was what the British were anxious - H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: Yes. - to have. Well, now, if anything exciting happens, you let me know. Very well. And, terday.I'd follow about the same procedure as yes- All right, sir. See? I'll keep in touch with Archie on the rates. If you please. K: All right, sir. H.M.Jr: Thanks. K: Goodbye 20 21 October 6, 1936. 11:55 a.m. Operator: H.M.Jr: George Operator. Just keep off the wire a minute. I want to put this on the record. It's now 11:55. It's now 11:55. (Pause) Hello, George. Harrison. Good morning, Henry. H.M.Jr: How are you? H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: First rate, thank you, and I hope you are. I'm all right - a little weary. I think you might be. Yes. Henry, I just had a long talk this morning with Williams and Knoke and I just wanted to callup and tell doing onyou this again thing. what a fine job I think you're Well, that's very encouraging. Well, I think that you handled it just right yesterday. Now - well, they were very helpful. Now, George, when are you coming down? I'd like to have a chin with you this week. Well, I can come down any time you want. Well, your Board meeting is Thursday. Yes. Why don't you come down Friday? That's right - I've got to be there When? All of next week - the first four days of next week. H.M.Jr: Well, let's - let's see how this - 22 -2H: H.M.Jr: You're not going to be there Saturday, are you? Yes, but I don't like to make appointments. H: Yes, well I don't blame you. Well, I'll come Friday if you want it - any time you want. H.M.Jr: Well - well, were you coming down for the weekend? H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: No, I hadn't planned to but I will. Well, why don't you do this? Supposing, I'll make a note - I'll call you Thursday morning Yes. And then let's see how this thing breaks. All right, sir. And knoke reported his conversation to Lochhead Yes. - with the Bank of England, and they seem to take it perfectly for granted. Taking it all in their stride, yes. And I think to have done it with France and not to have talked to England would have been a great mistake. H: Oh, you would have spoiled the whole effect of your preliminary agreement. H.M.Jr: Notwithstanding the fact that we know that France and England have made such an agreement without consulting us. H: Well, you see they had to. H.M.Jr: I suppose so. H: They had to in a hurry. H.M.Jr: Yes. But this - I think this is going to be all right, and if we could be so fortunate again to 23 -3get out a simultaneous statement, I think it would be awfully good. H: Yes. H.M.Jr: Don't you? H: Yes, you mean when you've got something more to say. H.M.Jr: H: Well, I mean if - if we do come to an agreement. Yes. Of course. H.M.Jr: Yes. H: Well, I think it would be fine because everybody H.M.Jr: H: H.M.Jr: H: is waiting for our next step. That's right. Yes. Do you where? see anything - any bugs in the thing any- Not yet. I think the difficult hurdle, of course, is going to be to get the British on the question of the rates. H.M.Jr: H: Yes. And there are differences of opinion about that. H.M.Jr: Sure. H: And - H.M.Jr: Well, if we do it on a day-to-day basis, there can't be much doing. H: Yes, but I think there's some - you'll probably find that the British won't want to announce the day-to-day basis. H.M.Jr: No, no; that isn't the point. H: That shouldn't be done because that gives the speculator a chance to raid you. That's not necessary. H.M.Jr: 24 -4H: Yes. H.M.Jr: But under the law, we do have to announce that we H: Yes. H.M.Jr: But we don't have to announce the day-to-day rates. H: No - no. That would be a great mistake. H.M.Jr: Yes, but just the fact that we have an understanding. H: Yes. H.M.Jr: That's all. H: Yes. Henry, I wanted to tip you off to one thing. H.M.Jr: Yes. H: Williams tells me that Eccles and all that crowd H.M.Jr: Oh - oh - is Eccles back? H: Yes. H.M.Jr: I get you. have an agreement, that's all. saw him there yesterday. H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: H: H.M.Jr: All right. Let - let me tip you off. (Laughs) Did you see my statement on the Red Cross and bonds? Yes, I did. Did you read it? Well, I read it only in part. Well, read the one on the front page of the Wall Street Journal. They have the best statement. All right. Well, - I'll get it all. I read it in the Times, and only in parts Well, the Wall Street Journal front page has it accurately, and I called up - Gaston called up Grayson last night and he's very much pleased. And you know who gave the story out in New York? 25 -5H: No, I don't. H.M.Jr: And tipped off the Hearst papers. H: Really. H.M.Jr: Yes, Mr. Felix Warburg. H: No, really. H.M.Jr: Yes. I think it's a dirty piece of business to H: Yes. bring politics into the national Red Cross. H.M.Jr: Well it is - Felix Warburg tipped off the Hearst H: Well, did they quote your original letter? H.M.Jr: No. H: Yes. H.M.Jr: publications in New York. No, I just gave them the extracts and, personally, I think I've come out on top. H: Yes. HLM.Jr: Don't you? H: Yes. The only thing that I was worried about was H.M.Jr: Yes. H: frankly -- - was your - in your original letter, the statement, not merely what the Red Cross should do H.M.Jr: Yes. H: H.M.Jr: - but announcement of a principle of trustees, No, that wasn't in the - that wasn't in the letter. H: - should buy only Government bonds. H.M.Jr: No, no - that isn't in the letter. But it's all right, and some day when I see Felix I'll tell him what I think of him. 26 6H: Yes. Well, I don't know who else could have done H.M.Jr: Nobody else was worried about it. H: Yes - I didn't know it was out. H.M.Jr: Well, no - the - the Hearst papers carried it H: Yes. H.M.Jr: Well, that's that. H: Yes, all right. Well, I just - you'll - you'll it. In fact, I didn't know it was out. Sunday and there's nobody else worried about it but Felix. cover the Eccles thing maybe. H.M.Jr: I will cover Eccles. H: (Laughs) All right. H.M.Jr: I - I - I'll take care of him. H: H.M.Jr: All right. Well, I haven't said a word about it, of course, to him or anybody. Oh, no, no, no - no - don't. That's all right. H: Because my position has been - H.M.Jr: I'll send for him this afternoon. H: Yes. H.M.Jr: I get you. H: And then I think I'll go to a baseball game. H.M.Jr: You go to a baseball game. H: Yes, all right. H.M.Jr: Fine. H: Fine. (Laughs) Goodbye. Operator: Operator. H.M.Jr: 12:05 - 12:05. Operator: All right. 27 October 6, 1936 12:32 p.m. H.M.Jr: Hello. Operator: Mr. Knoke. H.M.Jr: Knoke? Knoke: Yes, sir. H.M.Jr: Are you doing anything? K: No. At the moment, it's .90-3/4 bid to 7/8. I just discussed it with Lochhead, and we both felt that we should give the market a chance to move on its own. H.M.Jr: K: You haven't had to do anything? No, nothing yet. H.M.Jr: Fine. Thank you. K: All right, sir. H.M.Jr: 12:33 - just one minute - just one minute. 28 October 6, 1936 12:59 p.m. H.M.Jr: Hello, Knoke. K: Yes, Mr. Secretary. H.M.Jr: How's she going? K: Unchanged - market 3/4 - .90-3/4 bid - H.M.Jr: Very nice. K: Very little business just now. H.M.Jr: I think we'll sit by, don't you think so? K: Yes, yes. H.M.Jr: What? K: At this level, we shouldn't do anything. H.M.Jr: All right, Knoke. Thank you. K: All right, sir. H.M.Jr: Goodbye. H.M.Jr: It's 1 o'clock; it's 1 o'clock I don't - I feel that way. October 6, 1936 2:02 p.m. 29 H.M.Jr: Hello. Operator: Mr. Knoke. Knoke: Yes, Mr. Secretary. H.M.Jr: Hello, Knoke. K: The market unchanged at 4.90-3/4 and there is some buying from abroad at an eighth lower, so I think there's - enough of support in the market for us toenough hold back. H.M.Jr: K: Now say - say that again, please. The market here is 4.90-3/4 bid. H.M.Jr: Yes. K: The Guaranty tells me they have an order from South America to buy at 4.90-5/8. H.M.Jr: Yes. K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: So I think there is enough of support in the market Yes. - so that at the moment we don't have to do anything. No. It may get weaker later on. Yes. I was tremendously cheered up to learn that Albania is also going to devalue. Well, I haven't even heard it yet. Yes. It's very - it's very cheering to me. There's nobody left now (Laughs). Well, let's see - we've got Albania. We haven't heard from Persia yet. K: No, that's right. We've notefrom Turkey either. H.M.Jr: How about Liberir.? 30 -2K; Well, I think they have other problems (laughs). H.M.Jr: Yes, well, all right (laughs). K: (Laughs) H.M.Jr: All right. K: All right, Mr. Secretary. H.M.Jr: Thank you. Operator: Operator. H.M.Jr: It is now 2:05 - it is now 2:05. 31 Paraphrase of Section three of telegram No. 971 of October 6, 1936, noon, from the American Embassy, Paris. I was told by Auriol that while we have now made considerable progress much more must be done in the way of consolidating our gains and looking to future management of monetary and financial crises. Premier Van Zeeland, he said, will come to see him soon about plans for cooperation in the premises. He said he will be glad to inform me of the course of their conversation. I went to see Auriol for the purpose of sounding him out as to whether the French may be interested in making a declaration with regard to gold; he said he wanted to consult his assistants and the appropriate Bank of France officials. During the course of the day I will receive an answer from the Ministry of Finance. END MESSAGE. BULLITT. EA:LWW 32 GRAY LMS Paris Dated October 6, 1936 Rec'd 2:40 p. m. Secretary of State, Washington. 972, October 6, 5 p. m. FROM COCHRAN. On Paris market today demand for francs against dollars was not large and rate was held at 21.39 by Bank of France. On the other hand sterling was offered heavily against francs. Rate decline to 104.90 but later rose to 104.93. Swiss franc slightly stronger and in demand. French rentes and shares suffered a relapse. New Italian lira is at exact parity in Paris. Italian devaluation favorably received by British and French press. There is considerable tendency to lend political significance to Mussolini's move and interpret it as a setback for the Germans. Czechoslovakia reported to be setting up exchange equalization fund. BULLITT KLP 33 October 6, 1936 3:45 p.m. H.M.Jr: Hello. Operator: Knoke. Knoke: Yes, Mr. Secretary. H.M.Jr: How are things going? Well, the market is dead again. It's 9/16s. We bought 80,000 pounds at 1/2, and haven't done anything the last three-quarters of an hour. The market is - there's a small lot at 9/16s. It isn't worth while going after it. K: H.M.Jr: 9/16s? K: Yes. H.M.Jr: 9/16s - that's - let's see - K: A sixteenth over a half. H.M.Jr: K: Yes. What are we bidding now? A half. K: You don't want to raise it a sixteenth? Well, it seems to me we have - we have held this H.M.Jr: Yes. K: - with the general tendency just now in favor of H.M.Jr: Well, just a minute. (H.M.Jr. speaks to some one H.M.Jr: Archie says if it shows any signs of strength we might follow it up. K: Yes. H.M.Jr: Well, let's see - I'll call you again in a little while. H.M.Jr: fairly steadily this afternoon at this level - talking sterling down - I think - personally, I prefer to let it go. K: H.M.Jr: in his office. All right, sir. It's 3:50 - it's 3:50. 34 October 6, 1936 4:42 p.m. H.M.Jr: Hello. Operator: Mr. Knoke. Knoke: Hello, Mr. Secretary. H.M.Jr: Hello, Knoke. K: Well, I think they - we took, I think, 210,000 pounds. H.M.Jr: Yes. The market is 4.90 - is dead at 4.9050 for regular delivery which is tomorrow, but there's some hanging over the market for - for Thursday's delivery, which I think is more or less speculative. K: H.M.Jr I see. K: And seems to me it is not particularly useful goingit after that. H.M.Jr: Yes. But she'll close about 4.90 - K: 4.90-1/2 bid for regular delivery; 4.90-9/16 offered for - for Thursday's delivery. H.M.Jr: Yes. Well, I think that's all right. K: Yes, it's much steadier than it was yesterday. H.M.Jr: Yes. K: - at the lower level. H.M.Jr: K: H.M.Jr: K: I think so. Have you heard anything more from abroad? Not a word. Yes. Well - I mean there's nothing more from abroad. Well, ah - H.M.Jr: You haven't talked to anybody else? K: Well, yes - I guess Lochhead told you that I spoke to the Bank of England. H.M.Jr: Yes. 35 -2Well, I mentioned it to you, too, and - K: H.M.Jr: Yes. K: - while they - H.M.Jr: Well, I haven't heard anything from them. K: Pardon me? H.M.Jr: I have not heard anything from them. K: You have not? H.M.Jr: K: H.M.Jr: No. Well, I asked this fellow - did - did it look to him as though this thing would go through with his people, and he said, 'Absolutely. It's only a question of straightening out details. Well, we'll put it to bed at 4.90-1/2, huh? K: Yes. All right, sir. H.M.Jr: Thank you. K: Goodbye. H.M.Jr; Goodnight. H.M.Jr: It's 4:45 - it's 4:45. 36 October 6, 1936 After HM,Jr. had concluded a telephone conversation with Corrington Gill, a transcript of which is attached, the Secretary called Col. McIntyre, repeated to him the gist of the conversation and told him that he wanted to officially inform him so that he (McIntyre) could tell the President that Gill had reported this afternoon that he laid off 9,000 people; that HM,Jr. had told Gill that it was not his (HM,Jr's) responsibility or Gill's but that it was Harry Hopkins'. 37 October 6, 1936 3:15 p.m. H.M.Jr: Corrington Do you want to talk to me? Gill: Very much, sir. H.M.Jr: When and what? G: As soon as you can make it, very briefly, on the H.M.Jr: Yes. G: - to the states about these rescinding chief H.M.Jr: Yes. G: H.M.Jr: G: results of the wire I sent out - projects. With their replies and where we Well, is Hopkins in town? He's in New York today. He was in town. He's in New York today and will be back tomorrow. H.M.Jr: G: Well, wouldn't it wait until he gets back? Well, I suppose it will. There are 9,000 people out of work so far though. H.M.Jr: What? G: There are 9,000 people who have been dropped so far and more will be dropped every day. H.M.Jr: By whom? G: By projects to an end -- by WPA because projects have come H.M.Jr: G: H.M.Jr: Yes. - and project applications Well, I've said for three weeks now that I want to see Hopkins, and there's no use my seeing anybody else but Hopkins. G: Well, all right. He'll be in tomorrow. 38 -2- 29 H.M.Jr: And I spoke to the President about it this morning - G: Yes. H.M.Jr: - and I told him that I told you - G: That's right. H.M.Jr: - that I wanted to see Hopkins. It's exactly one month - it's been one month since we've had this thing up, and you and I don't agree on this thing, and it's - and I told the President, and he said, 'Well, see that Hopkins gets here. I can't see that Hopkins gets here. And the minute that Hopkins will deign to see me, I'm here. Well, it isn't that, Mr. Secretary. G: H.M.Jr: Well, I mean, I don't know what's the matter. I mean you and I have approached this thing from every angle. You've tried to do your best and we've tried to do our best, and we don't agree. Now I think it's up to Hopkins to come here. I feel - I never felt any stronger about anything. G: Yes. He'll be here in the morning, and I'll tell him again. H.M.Jr: Well, I - I mean it's up to Hopkins. He's the head of this organization. It's his responsibility and it isn't yours and it isn't mine. G: No. O.K. H.M.Jr: And if Hopkins will come to see me, why I'm here G: Well, I'll be glad to - H.M.Jr: G: H.M.Jr: G: and I'll drop everything. I can't do anything more than that. I'd love to see you but it's a waste of your time. Yes. Well, I'll I mean I think it's been just about one month now that you and I have been working on this. That's right. 39 3- 30 H.M.Jr: And all - I mean I've never said that - the President is free to do as he wishes. After all, this is just the way that I feel about the thing. G: Of course, there are $61,000,000 worth of projects held up in the Treasury that aren't going to - H.M.Jr: Not held up by me - not been held up by the Treasury. G: H.M.Jr: Well, the Bureau of the Budget then. Well, the Bureau of the Budget is responsible to the President and I've given them no orders - not any orders. G: H.M.Jr: G: H.M.Jr: G: H.M.Jr: G: H.M.Jr: G: H.M.Jr: G: H.M.Jr: Well, I'll - I've got this material here ready for Harry when he gets back. I'llwork. tell you of what I'll do because I've got lots Yes. I'll sit Hello? down tomorrow morning, 11 o'clock - Yes. And comeyou withsee him.if you can produce Hopkins. You better All right. Fine. And you better bring Aubrey Williams, too. All right. Because Aubrey Williams has been doing a lot of ittalking out. and he better come here and we better have All right. I don't like all this talking behind my back. I don't like it at all, and Aubrey better come over and we better have it out here. G: Well, I'll be glad to tell Harry and Aubrey to come over tomorrow morning. -4- 3 40 H.M.Jr: If you would, please. G: O.K. H.M.Jr: Hello - hello? Operator: Hello? H.M.Jr: Operator: Tell Mr. - hello? Yes, sir. H.M.Jr: Who is this? Operator: Mrs. Spangler. H.M.Jr: Tell Mr. Bell that Mr. Hopkins will be here at Operator: Mr. Hopkins at 11:00? H.M.Jr: Yes. Operator: Right. 11:00, and I want him here, please. Prenim elam a OUT, CALIFORNIA 19 INVOLUTION IN MONETARY THE PRESSITION OR $15 COUNZ He ADVISARS to is that (ULF NE PACT THAT THE with OF THE PM The Prep's The that tren 0.12 PERSONANT DISCUSSION WORL MONETARY CODAY SAIA THE GOVERNMENT SHOWLE BE ARMED water POWERS TO PREVENT DESTINATION OX DONEST.CO VALUES THROUGH ANOTHER NATION INNATIONS. 2014 42 UNITED PRESS - October 6, 1936. WCNS99 ADD ROOSEVELT PRESERVATION OF DOMESTIC VALUES, HE INDICATED, WAS THE PRIMARY PURPOSE OF THE AMERICAN MONETARY PROGRAM. BEYOND THE BRIEF STATEMENT, HOWEVER, HE WOULD NOT GO. MEANWHILE, THE PRESIDENT REVEALED THAT HE WAS STILL WORKING ON RAILROAD TIME TABLES IN CONNECTION WITH HIS WESTERN TRIP THAT WILL BEGIN FRIDAY AFTERNOON. THE FIRST MAJOR SPEECH WILL BE MADE SATURDAY NIGHT IN OMAHA. MR. ROOSEVELT SAID THAT HE PLANNED TO START WORK TOMORROW ON HIS SPEECHES. HE INDICATED THAT THOUGHT WAS BEING GIVEN TO A POSSIBLE CAMPAIGN TOUR THROUGH MINNESOTA AS PART OF THE PRESENT SWING. 10/6--E435P. OCT 6 1936 ROOSEVELT INDICATES HE WILL KEEP EMERGENCY POWER TO DEVALUE DOLLAR WASHN - PRESIDENT ROOSEVELT INDICATED TODAY THAT HE WILL SEEK TO KEEP HIS EMERGENCY POWERS TO DEVALUE THE DOLLAR WHICH WITHOUT ADDITIONAL LEGISLATION WILL EXPIRE AT THE 4. 45 END OF JANUARY THE PRESIDENT SAID THAT THERE SHOULD BE IN THE GOVERNMENT EMERGENCY POWERS TO PREVENT DES- TRUCTION OF DOMESTIC VALUES BY UNEXPECTED ACTION OF SOME FOREIGN POWER - HE EMPHASIZED THAT SUCH POWERS WOULD BE USED ONLY UNDER FOREIGN COMPULSION THE PRESIDENT MADE HIS STATEMENT IN REPLY TO A QUESTION ON WHETHER HE COULD GIVE UP HIS DEVALUATION POWERS BEFORE GREAT BRITAIN FIXED A GOLD VALUE FOR THE POUND - WHEN IT WAS POINTED OUT THAT THE BRITISH REGULATE VALUE OF THE POUND IN THE LONDON GOLD MARKET THE PRESIDENT REPLIED THAT SINCE AMERICA CONTROLS so MUCH GOLD IT HAS QUITE AN INFLUENCE ON THE FREE GOLD MARKET -0- REMINGTON RAND DOW JONES - October 6, 1936. 44 D.J. 2:30 P.M. October 6, 1936 REMINGTON RAND Remington Rand Inc states that its assets in France and other gold standard countries were fully protected against devaluation by hedging oper tions during past four months. of The company sold more than 13,000,000 francs forward covering outstanding accounts receivable bank balances and inventories. Prices of American office equipment the company says are advancing in France and other European countries in proportion to the devaluation that has occurred. DOW JONES - October 6, 1936 OCT 6 1936 ADD STERLING LOWER 45 12.02 THE SAME CONTROL DOES NOT SEEM TO HAVE DEVELOPED IN THE GUILDER MARKET WHICH IS THOUGHT TO ACCOUNT FOR FIRMNESS IN GUILDERS THIS MORNING THE FIRST STRENGTH TO BE SHOWN BY THE EXCHANGE IN THE PAST FEW DAYS- AS COMPARED WITH A LOW YESTERDAY OF 52 45 CENTS GUILDERS ARE QUOTED AT ABOUT 53 12 CENTS PUBLICATION OF THE STATEMENT OF CONDITION OF THE BANK OF NETHERLANDS THIS MORNING SHOWS THE EXTREME PRESSURE TO WHICH THE DUTCH GOLD RESERVES WERE SUBJECTED ON THE SATURDAY FOLLOW- ING FRANC DEVALUATION AND WHICH FORCED THE DUTCH AUTHORITIES TO FOLLOW SUIT IN THE WEEK ENDED OCT 5 GOLD RESERVES FELL EXACTLY 100 000 000 GUILDERS TO 569 800 000 GUILDERS A LOSS OF ALMOST 15 PC- MOST OF THIS LOSS OCCURRED ON SATURDAY OCT 3 AND FORCED THE REALIZATION THAT UNLESS AN IMMEDIATE EMBARGO WAS PLACED INTO EFFECT THE PRESSURE ON THE GUILDER WOULD HAVE CONTINUED UNTIL THE GOLD RESERVES HAD BEEN EXHAUSTED AND GUILDER DEVALUA- TION WOULD HAVE BEEN FORCED WITH PRACTICALLY NO GOLD RESERVES LEFT- IT FORCED A DROP IN THE RESERVE RATIO TO 63 6-10 PC FROM 76 7-10 PC WHILE THE STRAIN BROUGHT BY THE DEVELOPMENTS IN THE EXCHANGE MARKET RESULTED IN AN INCREASE IN ADVANCES OF CENTRAL BANK CREDIT TO 265 300 000 GUILDERS FROM 137 400 000 GUILDERS ADD STERLING LOWER OCT 6 1936 12.11 THE ITALIAN LIRA IS QUICKLY ADJUSTING ITSELF TO THE NEW CONDITIONS WITH OFFICIAL CONTROL CONTINUING TO HOLD THE MARKET STEADY - MARKET IS QUOTED AT 5 26 CENTS BID AND 5 26 1-2 CENTS OFFERED - A GOOD COMMERCIAL DEMAND FOR LIRA IS STILL REPORTED AND NO SIGNS OF PRESSURE AGAINST THE EXCHANGE HAVE DEVELOPED -0- 11:45 OCT 6 1936 STERLING LOWER DECLINE IN STERLING WHICH CONTINUED THIS MORNING CARRIED QUOTATIONS FOR THE POUND INTO NEW LOW GROUND FOR THE YEAR- EARLIER IN THE MORNING STERLING WAS OFFERED DOWN TO 4 90 7-16 BUT LATER STEADIED TO 4 90 5-8- MARKET IS AGAIN ON THE OFFERED SIDE AT 4 90 1-2 AND EXCHANGE TRADERS STATE THE UNDERTONE IS HEAVY LOCAL EXCHANGE CIRCLES SAY THERE ARE TWO PRINCIPAL FACTORS INVOLVED IN CURRENT WEAKNESS IN STERLING- FIRST IS LONDON BUYING OF AMERICAN SECURITIES WHICH IS ATTRACTED BY RISING QUOTATIONS IN THE LOCAL SECURITIES MARKET SECOND IS REPATRIATION OF EUROPEAN BALANCES FROM LONDON WHICH IS DEVELOPING ON A FAIRLY GOOD SCALE- AS FAR AS CAN BE DETERMINED LOCALLY THIS REPATRIATION FROM LONDON DOES NOT YET INVOLVE ANY IMPORTANT LIQUIDATION ON THE LONDON STOCK EXCHANGE BUT REPRESENTS LARGELY TRANSFER OF STERLING BALANCES WITH THE DUTCH AND SWISS MOST ACTIVE ON THIS ACCOUNT FRENCH FRANCS DO NOT REFLECT THESE MOVEMENTS IN THE DOLLAR-FRANC RATE AS WHATEVER REPATRIATION FROM LONDON TO PARIS IS TAKING PLACE IS OFFSET BY OFFICIAL CONTROL OPERATIONS TO KEEP THE FRANC STEADY AT AROUND 4 67 1-2 CENTSFRANCS HAVE APPRECIATED HOWEVER AGAINST STERLING 92 WERE TO 94SWISS FRANCS 21 37 1-2- 9:29 DEALINGS OPENED IN THE LIRA UN THE BASTS UF THE PREMIUM ON THREE MONTHS DOLLARS WAS I 1-4' TO I ON BRUSSELS 10 TO 7 AND GENEVA 4 TO 2- THE DISCOUNT ON PARIS WAS 1-4 TO 1-2 AND ON AMSTERDAM II TO 14 -0- OCT 6 1936 DORDON - WCNS26 LONDON.--ATTACKING THE GOVERNMENT FOR NOT TAKING THE LEAD IN SETTLING THE WORLD'S ECONOMIC ILLS AND THEREBY ELIMINATING THE DANGER OF WAR, THE DAILY HERALD, ORGAN OF THE LABOR PARTY, ASSERTED TODAY THAT POWERFUL VESTED INTERESTS WERE FIGHTING TO PREVENT BRITISH COOPERATION IN AN ATTEMPT TO UNRAVEL THE TANGLE OF WORLD TRADE RESTRICTIONS. THE "INTERESTS," THE HERALD CHARGED, HAD BENEFITED UNDER TARIFF PROTECTION AND THE DEPRECIATION OF THE POUND STERLING "FAILING REDUCTION IN TRADE RESTRICTIONS, AND THE OPPORTUNITY OF ECONOMIC EXPANSION AND RISING LIVING STANDARDS WHICH COULD THUS BE PROVIDED, NO SETTLEMENT OF THE ECONOMIC CAUSES OF INTERNATIONAL FRACTION CARRYING WITH THEM THE DANGER OF WAR IS POSSIBLE." THE HERALD SAID. 10/6--R943A 1:31 RUMANIAN MONETARY POLICY OCT 6 1936 LONDON - REUTERS DISPATCH FROM BUCHAREST STATES THAT RUMANIAN FINANCE MINISTER CANZICOV ANNOUNCED RUMANIA WOULD MAINTAIN THE POLICY OF A BALANCED BUDGET AND THE PRESENT RATE OF EXCHANGE WHICH HAS ALREADY BEEN ADJUSTED TO INTERNAL AND EXTERNAL NEEDS -0- DOW JONES - October 6, 1936. OCT 6 1936 SPANISH GOLD EXPORT BAN 10:43 LONDON - A REUTERS DISPATCH FROM MADRID SAYS A DECREE FORBIDDING THE EXPORT OF GOLD AND SILVER FROM SPAIN WAS PUBLISHED TODAY IN THE OFFICIAL GAZETTE WHICH ALSO FORBIDS TRAVELLERS TO TAKE MORE THAN FOUR PESETAS OF SILVER COINS OUT OF THE COUNTRY -0- LIRA DEVALUATION OCT 6 1936 10:46 LONDON - A REUTERS DISPATCH FROM ROME STATES THAT ITALIAN BOURSES REMAIN CLOSED BUT THE PUBLIC IS CALM DEVALUATION BEING DESCRIBED IN THE NEWSPAPERS AS EQUALIZATION OR THE RETURN TO 1927 STABILIZATION BUT NEVER AS DEVALUATION MR ADD LIRA DEVALUATION OCT 6 1936 0:48 THIS ACTION IS CLAIMED TO BE AN ACT OF GOODWILL AND COOPERATION WITH AMERICA GREAT BRITAIN AND FRANCE - THE ONLY ANXIETY EXPRESSED WAS THAT THE FORCED LOAN AND ADDITIONAL TAXES ON REAL ESTATE MIGHT CAUSE A SLUMP IN THE VALUE OF HOUSE PROPERTY - THE NEW TAX IS EXPECTED TO YIELD ABOUT 15 000 000 000 LIRE WHICH WILL BE NECESSARY TO FINANCE THE EMPIRE AND ARMAMENTS -0- OCT 6 1936 SUGGESTS DROPPING TRADE BARRIERS 828 GENEVA -UP- HOLLAND SUGGESTED TODAY THE ESTABLISHMENT OF A LEAGUE OF NATIONS COMMITTEE TO STUDY THE PROBLEM OF ABOLISHING TRADE BARRIERS IN ORDER TO RESTORE THE VITAL FLOW OF WORLD TRADE WILLIAM VAN LANSCHOT OF THE NETHERLANDS DELEGATION TO THE LEAGUE ASSEMBLY MADE THE SUGGESTION TO THE LEAGUE-S ECONOMIC COMMISSION HE SAID THAT HOLLAND WAS OPPOSED TO A NEW INTERNATIONAL TRADE CONFERENCE AT THE PRESENT STAGE OF ECONOMIC RELATIONS - HE PRAISED THE RECENT UNITED STATES-NETHERLANDS TRADE AGREEMENT AS A STEP IN THE DIRECTION OF NORMALIZING COMMERCIAL RELATIONS INDICATING THAT THE NETHERLANDS FAVORS AN EARLY RETURN TO THE GOLD STANDARD VAN LANSCHOT SAID THAT CURRENCY STABILIZATION WITHOUT A CORRESPONDING REVISION OF THE IMPORT QUOTA SYSTEM AND EXCHANGE CONTROL WOULD PRE- VENT A RETURN TO NORMAL ECONOMIC RELATIONS BETWEEN STATES -0- GENEVA DOW JONES - October 6, 1936. 53 OCT 8:20 ROUMANIA SUPPORTS FINANCIAL PACT GENEVA -UP- ROUMANIA PLEDGED ITS SUPPORT TO THE AMERICAN BRITISH FRENCH FINANCIAL AGREEMENT AS A MEANS OF LEADING TO PROGRESSIVE ABOLITION OF TARIFF QUOTAS AND FOREIGN EXCHANGE CONTROL PRAISING THE AGREEMENT ANNOUNCED COINCIDENT WITH THE FRENCH PLAN FOR DEVALUATION OF CURRENCY VICTOR ANTONESCU ROUMANIAN FOREIGN MINISTER SAID BEFORE THE SECOND ECONOMIC COMM- ISSION OF THE LEAGUE OF NATIONS -THE PROBLEM OF ECONOMIC DISARMAMENT PRESENTS ITSELF IN TERMS PRACTICALLY SIMILAR TO MILITARY DISARMAMENT AND PRESUPPOSES LIKE THE LATTER WIDE EFFECTIVE INTERNATIONAL COLLABORATION- -0- 54 UNITED PRESS - October 6, 1936 WCNS24 ADD TRADE, GENEVA IT WAS NOTED THAT, WHILE STATESMEN TALKED OF ECONOMIC DISARMAMENT AS CALCULATED TO END THE BITTERNESSES IN ECONOMIC RELATIONS WHICH ARE REGARDED AS AN IMPORTANT FACTOR IN THE DANGEROUS WORLD POLITICAL SITUATION, A NEW LEAGUE OF NATIONS DISARMAMENT COMMISSION STARTED ITS WORK AT GENEVA--AGREEING AS A FIRST STEP TO INDULGE IN NO GRANDIOSE DREAMS BUT TO PROCEED CAUTIOUSLY AND PRACTICALLY so THAT NO MATTER HOW SLOW PROGRESS MIGHT BE, IT WOULD AT LEAST BE SURE. AT THE SAME TIME IN ITS 10TH ANNUAL SURVEY OF WORLD PRODUCTION AND PRICES THE LEAGUE EXPRESSED THE OPINION: "RECOVERY IN WORLD PRODUCTION ACTIVITY, BEGUN IN THE MIDDLE OF 1932, CONTINUED IN 1935 AND THE EARLY PART OF 1936." PRICES OF MOST BASIC COMMODITIES, THE REPORT SAID, ROSE IN 1935 AND FURTHER PROGRESS WAS MADE IN 1935 TOWARD RESTORATION OF PRE-DEPRESSION PRICE RELATIONSHIPS. 10/6--R931A UNITED PRESS - October 6, 1936. 55 League meeting WCNS6 GENEVA.--HOLLAND SUGGESTED TODAY THE ESTABLISHMENT OF A LEAGUE OF NATIONS COMMITTEE TO STUDY THE PROBLEM OF ABOLISHING TRADE BARRIERS IN ORDER TO RESTORE THE VITAL FLOW OF WORLD TRADE. 10/6--R837A WCNS7 ADD TRADE, GENEVA WILLIAM VAN LANSCHOT OF THE NETHERLANDS DELEGATION TO THE LEAGUE ASSEMBLY MADE THE SUGGESTION TO THE LEAGUE'S ECONOMIC COMMISSION. HE SAID THAT HOLLAND WAS OPPOSED TO A NEW INTERNATIONAL TRADE CONFERENCE AT THE PRESENT STAGE OF ECONOMIC RELATIONS. HE PRAISED THE RECENT U.S.-NETHERLANDS TRADE AGREEMENT AS A STEP IN THE DIRECTION OF NORMALIZING COMMERCIAL RELATIONS. INDICATING THAT THE NETHERLANDS FAVORS AN EARLY RETURN TO THE GOLD STANDARD, VAN LANSCHOT SAID THAT CURRENCY STABILIZATION WITHOUT A CORRESPONDING REVISION OF THE IMPORT QUOTA SYSTEM AND EXCHANGE CONTROL WOULD PREVENT A RETURN TO NORMAL ECONOMIC RELATIONS BETWEEN STATES. 10/6--R839A AGREAT BRITAIN AND ERANGE PRESENTED A RESOLUTION TO THE COMMISSION OF THE NATIONS TODAY, EMPLASIZING THAT MIC UF.COVERY WOOD CONSOLIDATE PSACE AND URGENTLY RECOMMENDING OF QUOTAS AND EXCHANGE CONDROL GRESS TRADE HARRIERS ARE LOWERED AND THE ARMS RACE NALTED IN THE CEST FOSSIBLE TIME, THE PEOPLES OF THE WORLD NAY REVOLT AND PROVOKE STANLEY BRUCE OF AUSTIALIA WARNED THE COMMISSION. POINTING TO THE "TERRIBLE DETERIONATION" OF THE WORLD FROM REFECTS OF THE ECONOMIC CRISTS, SPAINTED AXGRAIM PICTURE BY DWINDLING PROSPERITY AND RISING UNEMPLOYMENT WORLD ROME OCT 6 1936 57 DOW JONES - October 6, 1936. ITALIAN MARKETS 11:37 ROME-U P- THE DOLLAR WAS QUOTED OFFICIALLY TODAY AT 19 LIRE -5 263 CENTS FOR THE LIRAAND STERLING WAS QUOTED AT 93 1-2 LIRE- THE BOURSE REMAINED CLOSED BUT GENERALLY IS EXPECTED TO REOPEN TOMORROW -0- 12.00 ITALIAN BOURSES TO REOPEN TOMORROW ROME- BOURSES THRUOUT ITALY WILL REOPEN WEDNESDAY -0- OCT 6 1936 AMSTERDAM DOW JONES - October 6, 1936. 5 HOLLAND TO ABOLISH LEATHER QUOTA AMSTERDAM - THE IMPORT QUOTA ON VARIOUS KINDS OF LEATHER WILL BE ABOLISHED SHORTLY AND OTHER ABOLITIONS ARE EXPECTED THE GUILDER IMPROVED WITH THE DOLLAR QUOTED AT I 88 5-8 AT MIDDAY - THE BOURSE REACTED WITH ROYAL DUTCH AT 365 -0- OCT 6 1936 12.10 DUTCH IMPORT COFFEE DUTY CUT 50 PC AMSTERDAM - DUTY ON IMPORTS OF COFFEE IN HOLLAND HAS BEEN REDUCED 50 PC -0- 12:45 DUTCH EQUALIZATION FUND AMSTERDAM - THE REDUCTION IN THE GOLD RESERVES OF THE BANK OF NETHERLANDS AS SHOWN IN THE STATEMENT OF CONDITION TODAY WAS DUE TO THE TRANSFER OF METAL TO THE NEW EQUALIZATION FUND THE AMSTERDAM BOURSE REACTED SHARPLY ON PROFIT TAKING WITH QUOTATIONS DROPPING 2 TO 11 POINTS WITH ROYAL DUTCH AT 365 1-2 AMERICAN RAYON SHARES WERE HEAVILY OFFERED RALLY CONTINUED IN THE GUILDER WITH THE DOLLAR CLOSING AT I 885 GUILDERS -0- ALBANIA 59 DOW JONES - October 6, 1936. OCT 6 1936 ALBANIA NOT TO DEVALUE 10:44 TIRANA ALBANIA - MINISTRY OF FINANCE AN -NOUNCES THERE WILL BE NO DEVALUATION OF THE ALBANIAN FRANC -0- UNITED PRESS - October 6, 1936. WCNS64 TIRANA, ALBANIA.-- THE FINANCE MINISTRY ANNOUNCES THAT THE ALBANIAN GOLD FRANC WILL BE DEVALUED. 10/6--E12:7P 60 PRAGUE DOW JONES - October 6, 1936. OCT 6 1936 CH CROWN DEVALUED 4.21 PRAGUE - REUTERS- - THE CZECHOSLOVAKIAN CABINET HAS APPROVED A BILL BY WHICH THE CROWN WILL BE DEVALUED BY 10 TO 16 PC OF ITS PRESENT VALUE -0- 61 62 October 7, 1936 The Secretary called the President and said, "Things are going perity goes.along all right as far as the American pros- "I have arranged that our boys come in at 9 o'clock each morning with a series of charts and other data showing effect of the international monetary situation on our do- mestic economy. This will include a chart and table of prices of export and import commodities compared with those of European countries; stockmarket and Government bond prices and United States imports and exports, and a chart on gold movements and the return of gold from hoards. If 18 any danger signal, they are going to show it to there me. "For the time being, we are going to get telegraphic reports on imports and exports. This morning I have on my desk the net sales and purchases of stocks for yesterday in our stock exchange. For instance, all the purchases for yesterday for all the countries were 5,558,000 and the total sales were 4,541,000, or a net of 917,000. Every country bought more than they sold, except Canada and the Netherlands. "We have arranged with the Securities and Exchange Com- mission to receive at the close of the market each day the purchases and sales of American securities by foreigners. Their man in New York gets telephonic reports, as soon as the markets close, of all their transactions. They are then tabulated and at 7:30 telephone the information to the Treasury. "I feel that until we see some indication that it is affecting our internal prosperity, we have nothing to worry about. I just want to let you know that we are watching it very, very closely and that if there is any indication that we are slipping, we will have the information the next morning and not next month.' The President said that his talk in Chicago will be on "Death and Taxes." The President said that he liked the'speech' that Mr. Morgenthau gave him the other night on taxes and he would like to give that one. Mr. Morgenthau said that he would 'talk' it to Gaston and that Gaston would write something up and send it over. When asked whom Gaston should contact, the President said Sam Rosenman. First Report its kind Transactions in domestic stocks executed on October 6, 1936, for account of foreigners. (Values in thousands of dollars) Purchases Sales Net Purchases 2534 1620 914 France 715 493 222 Netherlands 696 1006 Switzerland 717 683 Canada 400 521 Others 496 318 178 5558 4541 917 Country Great Britain TOTAL Net Sales 310 34 121 (Twenty-four firms reporting regular transactions, nine firms reporting arbitrage.) 64 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 7, 1936 TO Secretary Morgenthau FROM Mr. Haas 1044 In your office at 11:45 o'clook yesterday morning you asked that I arrange with the Securities and Exchange Commission, through Mr.Goldsmith, to receive at the close of the market each day, the purchases and sales of American securities by foreigners. Mr. Goldsmith indicated that his New York staff was rather shorthanded. You said you would be glad to arrange to have the Treasury Department take care of any additional expense that the compilation of these figures would entail. You asked that I make the necessary arrangements to secure these figures, and that I have a copy of them on Mr. Lochhead's desk by 8:30 o' clock each morning, and also that I send a copy by special messenger to the Securities and Exchange Commission. 65 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 7, 1936 Secretary Morgenthau TO FROM Mr. Haas DA In your office at 9 o'clock yesterday morning you stated you wanted to follow very closely the international monetary situation and its effect on our domestic economy. Therefore, you asked that I have on your desk each morning at nine o'clock a series of charts and supporting data indicating significant changes in those economic series which are most sensitive in the international monetary situation. You acked that there be included a chart and table of prices of export and import commodities of the United States compared with similar prices of European countries; stockmarket and government bond prices; and United States imports and exports. You asked that I arrange with the Bureau to obtain these data more frequently and more promptly thanCustoms now available. You also indicated that you wished to follow very closely the domestic business situation, and asked that significant developments be reported to you each morning. You also expressed your interest in gold movements and the return of gold from hoards, and suggested that this whole matter be carefully studied and that a system of charts and tabular material on this whole field be worked up, brought up-to-date each day and presented to you for review each morning. You indicated that although you did not expect a thorough-going system by next Tuesday, that you wished as much of the material as possible ready by then, and that each day now material was to be added as developed. 66 October 7. At 5 p.m. last night, HM,Jr. called up McIntyre on the telephone and read to him the statement which the President made at his press conference today, which came over the U.P. ticker: "President Roosevelt, discussing the world monetary situation today, said the Government should be armed with emergency powers to prevent a destruction of domestic values through unexpected action by another nation or nations." HM,Jr. said to McIntyre, "If the President did not think it was an impertinence, I should like to come over and talk to him about this statement. I do not know what the President means and I do not know how this statement is going to be interpreted. I think if the President would read this statement, as reported by the U.P., he would want to give an additional statement to the press. I believe what he meant by his statement was that he wants to continue the Stabilization Fund." McIntyre told the Secretary that the President could not see him because he was in conference but that the President had sent for the U.P. ticker and would read it. As stated above, this conversation took place at 5 o'clock. At 5:28, the following message came over the U.P. ticker: "Such action, the President pointed out, would be used only in the event of a world convulsion in monetary matters. "He gave his offhand exposition of this country's attitude when he was asked whether it would be advisable to let our devaluation powers lapse in view of the fact that the price of the pound is fixed by the London free gold market." The Secretary said he felt that the President did not know what he was talking about and that he felt that he had made a major mistake. add The Pres 67 CNS105 ADD ROOSEVELT (WCNS98.) SUCH ACTION, THE PRESIDENT POINTED OUT, WOULD BE USED ONLY IN HE EVENT OF A WORLD CONVULSION IN MONETARY MATTERS. HE GAVE HIS OFFHAND EXPOSITION OF THIS COUNTRY'S ATTITUDE WHEN HE AS ASKED WHETHER IT WOULD BE ADVISABLE TO LET OUR DEVALUATION POWERS LAPSE IN VIEW OF THE FACT THAT THE PRICE OF THE POUND IS FIXED BY THE LONDON FREE GOLD MARKET. 10/6--E528P. CNS98 Pres on Monstary Situation PRESIDENT ROOSEVELT, DISCUSSING THE WORLD MONETARY SITUATION TODAY, SAID THE GOVERNMENT SHOULD BE ARMED WITH EMERGENCY POWERS TO PREVENT A DESTRUCTION OF DOMESTIC VALUES THROUGH INEXPECTED ACTION BY ANOTHER NATION OR NATIONS. 10/6--E433P. 69 COPY THE LONDON TIMES, October 7, 1936 American Currency Policy. President and Dollar From our own correspondent Washington, Oct. 6. President Roosevelt during his brief stay here was asked this afternoon whether as a possible method of accelerating the positive, as distinct from the present conditional, stabilization of currencies, some engagement might be made not to resort to a further devaluation of the dollar under the powers still possessed by the Executive. Mr. Roosevelt said such a question involved the consideration of the primary purpose of devaluation, which was favourably to affect the American price level. He believed that there should be left in the hands of the American Government emergency powers which might be used in the event of unexpected action by another nation or number of nations - something, he said a moment later, "like a world convulsion. Another question touched on the exchange position of the British currency, which, it was suggested, was determined by the free gold market in London. The President agreed, but reminded the questioner that the large stocks of gold held by the United States gave this country a considerable influence over the movements of the market. COPY 70 THE LONDON TELEGRAPH, October 7, 1936. Future of the Dollar. Mr. Roosevelt and Devaluation From our own correspondent Washington, Tuesday. Mr. Roosevelt gave an important hint to-day on the future of the gold policy of the United States. Answering questions put to him at his bi-weekly Press conference, he indicated that if he were re-elected he would probablytoask Congress extend the legal powers of the President devalue the to dollar. Underearly the terms of the present Act this authority will expire next year. Mr. Roosevelt went on to explain that the primary purpose of a devaluation scheme in the United States was To maintain that possess emergency to prevent the to protect destruction Government domestic should values. powers purpose any of domestic values as a result of any unexpected action by any other nation or nations. Mr. Roosevelt declined to be drawn into a discussion on the British policy of fixing currency value by a free gold market in London. He pointed out, however, that the United States, through controlling so large an amount of the world's gold, might have an important influence on the gold market. THE PRESIDENT DOW JONES - October 7, 1936. 2.0 ROOSEVELT DENIES MOST FAVORED NATION TREAT -MENT TO GERMANY AND AUSTRALIA OCT 7 1936 WASHN- IN A LETTER ADDRESSED TO SECRETARY MORGENTHAU PRESIDENT ROOSEVELT DIRECTED THAT GERMANY AND AUSTRALIA BE EXCLUDED FROM MOST FAVORED NATION TREATMENT UNDER THE NEW RECIPROCAL TRADE AGREEMENT ACT THE EFFECT OF HIS LETTER WILL BE TO DENY THE TWO COUNTRIES TARIFF CONCESSIONS GRANTED TO OTHER NATIONS UNDER RECIPROCAL TRADE AGREE- MENTS- THEY WERE SINGLED OUT THE PRESIDENT SAID BECAUSE -THEIR TREATMENT OF AMERICAN COMMERCE IS DISCRIMINATORY- -0- 71 OCT 1936 2.45 9861 2 100 LONDON MARKET AT NEW HIGHS REFLECTING BULLISH ENTHUSIASM WHICH SWEPT LONDON STOCK MARKETS TODAY FOLLOWING OPTIMISTIC SPEECH BY CHANCELLOR OF THE EXCHEQUER NE- VILLE CHAMBERLAIN LONDON INDUSTRIAL AVERAGES PREPARED BY LONDON FINANCIAL TIMES SCORED SHARPEST ADVANCE TO BE RECORDED SINCE THE SERIES WAS BEGUN IN THE FALL OF 1932 - RAILS ALSO BROKE INTO NEW HIGH GROUND AGAIN BUT ADVANCE WAS NOT AS SPECTACULAR AS IN INDUSTRIAL AVERAGES FINANCIAL TIMES INDUSTRIAL AVERAGE JUMPED 3 3-10 POINTS TO A NEW RECORD HIGH OF 140 3 RAILS ADVANCED 3-10 OF I POINT TO ANOTHER RECORD HIGH OF 72 3 - PRESENT LEVELS COMPARE WITH 133 5 FOR INDUSTRIALS AND 71 2 FOR RAILS ON SEPT 25 WHICH WAS LAST MARKET SESSION FOR LONDON PRIOR TO DEVALUATION OF THE FRANC -0- 73 MARKET COMMENT DOW JONES - October 7, 1936. OCT 7 1936 STERLING AT NEW LOW 11:10 DECLINE IN STERLING CARRIED QUOTATIONS TO NEW LOW FOR THE YEAR- MARKET QUOTES STERLING CURRENTLY AT ABOUT 4 89 1-16 OFF I 7-16 CENTS AFTER HAVING BEEN AS LOW AS 4 88 3-4- FRENCH FRANCS ARE STEADY BUT LOWER AT ABOUT 4 67 CENTS OFF 5-8 POINT AND GUILDERS ARE FIRM AT 53 18 CENTS UP 12 POINTS- LOCAL EXCHANGE MARKET IS QUIET LOCAL EXCHANGE CIRCLES ATTRIBUTED THE DECLINE IN LOCAL QUOTATIONS FOR STERLING MAINLY TO INDIRECT EFFECTS OF A LARGE DEMAND FOR FRANCS WHICH DEVELOPED THIS MORNING IN LONDON REPRESENTING FOR THE MOST PART IT IS BELIEVED COVERING OF SHORT POSITIONS- LARGE SCALE INTER- VENTION ON THE PART OF OFFICIAL CONTROLS WAS NECESSARY TO MAINTAIN STABILITY IN THE EXCHANGE RATES THROUGH HEAVY SELLING OF FRANCS TO MEET THE DEMAND -0- 74 PARIS WCNS30 UNITED PRESS - October 7, 1936. French Devaluation Profit PARIS.--THE GOVERNMENT PROFITED 17,000,000,000 FRANCS ($793,- 900,000) BY ITS DEVALUATION LEGISLATION, OF THE TOTAL 10, 1000,000,000 FRANCS ($467,000,000) WAS DEVOTED TO A STABILIZATION FUND, 4,000,000,000 ($186,800,000) WAS EARMARKED TO REPAY THE GOVERNMENT DEBT TO THE BANK OF FRANCE ON CURRENT ACCOUNT, AND 3, 000,000,000 ($140,100,000) WAS ADVANCED TO THE CREDIT FONCIER (THE GO VERNMENT SUPERVISED LOAN BANK) TO ENABLE IT TO REDUCE INTEREST RATES ON LOANS. NOTHING WAS ALLOTTED TO ARMAMENTS. 10/7--R1028A LONDON UNITED PRESS - October 7, 1936. 75 Sir Walter Layton WCNS11 LONDON.--FRANCE*S CURRENCY AND TARIFF MEASURES, POINTING THE WAY TOWARD ECONOMIC DISARMAMENT, MAY WELL RESULT IN THE "SELF- ABSORPTION" OF DICTATORSHIPS AND THE STEMMING 0 THE TIDES OF WAR IF CARRIED ON AS THEY SHOULD BE, SIR WALTER LAYTON, ECONOMIST, TOLD THE UNITED PRESS. HE WARNED THAT ANY TREND TOWARD THE "SELF ABSORPTION* OF DICTATORSHIPS MUST BE PARALLELLED BY THE STRENGTHENING OF DEMOCRACY, AND THE USE BY DEMOCRACIES OF TACT. HE SAID ALSO, THAT WHILE THE FRENCH INITIATIVE WAS A TRIUMPH IT WOULD BE NECESSARY, IF IT WERE TO BE UTILIZED TO ITS FULLEST EXTENT, FOR THE U.S. TO HELP IN P. CONSTRUCTIVE WAY NOW THAT THE BALL HAS BEEN STARTED ROLLING. 10/7--R902A 76 DOW JONES 9861 2100 - October 7, 1936. OCT 7 1936 FRENCH PRICES HIGHEST SINCE 1932 1:50 PARIS - RAPID RISE IN FRENCH PRICE LEVELS WHICH BEGAN A YEAR AGO AND WHICH WAS INTEN- SIFIED BY THE SOCIAL LEGISLATION DURING THE SUMMER BY THE BLUM GOVERNMENT HAS NOW CARRIED WHOLESALE INDEX AS OF THE END OF SEPT TO 426 ON THE BASIS OF 100 FOR 1914 - THIS IS THE HIGHEST LEVEL TO BE REACHED SINCE EARLY 1932 AS COMPARED WITH AUGUST 31 WHOLESALE INDEX HAS RISEN BY 8 PC BY 14 PC FROM JUNE 30 AND BY 27 PC AS COMPARED WITH A YEAR AGO - INCREASE IS DUE LARGELY TO RISE IN PRICES OF NATIONAL PRODUCTS WHICH ARE UP 20 PC SINCE BEGINNING OF YEAR WHEREAS PRICES OF IMPORTED PRODUCTS ARE UP BUT 10 PC AN INVESTIGATION WHICH HAS BEEN UNDERTAKEN BY THE ECONOMIST CHARLES RIST FORMERLY OF BANK OF FRANCE SHOWS THAT BEFORE DEVALUATION OF THE FRANC RETAIL FOOD PRICES WERE ANYWHERE FROM 15 PC TO 50 PC HIGHER THAN IN OTHER COUNTRIES WITH EXCEPTION OF SWITZERLAND PRICES OF MANUFACTURED ARTICLES GENERALLY ARE THE HIGHEST IN THE WORLD WITH EXCEPTION OF SWITZERLAND - SOLD EXCEPTION IS PRICE OF SHOES WHERE WORLD PRICES ARE IDENTICAL WITH FRENCH WITH EXCEPTION OF HOLLAND WHERE SHOE PRICES ARE HIGHER AND IN BELGIUM WHERE THEY WERE 30 PC LOWER THAN WORLD PRICES ADD FRENCH PRICES HIGHEST SINCE 1932 IN PREVIOUS ITEM IN THIRD GRAPH 9TH LINE SECOND WORKD SHOULD READ -SOLE- 77 DOW JONES - October 7, 1936. OCT 7 1936 9,10am CHAMBERLAIN ON MONETARY MOVE LONDON-U P- -TO THOSE WHO HAVE BEEN WAITING AND HOPING FOR A CHANGE IN THE INTERNATIONAL SITUATION THE DECISION OF FRANCE TO READJUST THE EXCHANGE VALUE OF THE FRANC COMES LIKE THE CRACKING OF ICE AND APPROACH OF A WARMER SEASON TO A POLAR EXPLORER WHOSE SHIP HAS BEEN FROZEN FOR MONTHS IN IMMOBILITY- NEVILLE CHAMBERLAIN CHANCELLOR OF THE EXCHEQUER SAID IN A SPEECH TUESDAY NIGHT CHAMBERLAIN REGARDED AS THE MOST FORCEFUL MEMBER OF THE CABINET AND AS THE NEXT PRIME MINISTER MADE HIS SPEECH BEFORE A DISTINGUISHED AUDIENCE AT THE HISTORIC GUILD HALL WHERE THE LORD MAYOR GAVE A BANQUET TO BANKERS- HIS REFER -ENCE TO THE NEW MOVE TOWARD ECONOMIC DISARMAMENT WAS ENTHUSIASTICALLY APPLAUDED HE FORECAST THE EVENTUAL RETURN OF THE GOLD STANDARD -I SEE NO REASON TO ALTER THE VIEW I HAVE EXPRESSED BEFORE THAT EVENTUALLY WE PROBABLY WILL RETURN TO AN INTERNATIONAL MONETARY STANDARD ON THE ONLY BASIS WHICH APPEARS TO GIVE GENERAL CONFIDENCE- CHAMBERLAIN SAID OF THE GOLD STANDARD- -IF WE CAN PREVENT VIOLENT FLUCTUATIONS IN THE VALUATION OF GOLD AS EXPRESSED IN TERMS OF COMMODITIES I SEE NO INSUPERABLE OBSTACLES IN THE WAY OF OUR ULTIMATELY ARRIVING AT A CURRENCY SYSTEM BASED ON THE FREE EXCHANGE OF GOLD- -0- LONDON EXCHANGE .039.29 -9E61 2.100 LONDON- FEATURE OF FOREIGN EXCHANGE MARKET WAS ACTIVE DEALINGS IN FRENCH FRANCS WHICH WERE FIRM ON BEAR COVERING REPATRIATION AND DEMAND FROM LONDON BY OPERATORS DESIRING TO INVEST ON THE PARIS BOURSE- FRENCH CONTROL IS REPORTED TO HAVE SOLD FRANCS FROM 104 85 DOWN TO 104 89- OCT 7 1936 ADD LONDON EXCHANGE 9:30 THERE WAS A CONTINUED DEMAND FOR DOLLARS PARTLY FOR COMMERCIAL ACCOUNT BUT MAINLY FOR INVESTMENT IN WALL STREET AND IT IS THOUGHT THAT AMERICAN CONTROL MAY SOON INTERVENE AS A SELLER OF DOLLARS WHICH ALSO WOULD CAUSE SYMPATH -ETIC WEAKENING OF FRENCH FRANC IT IS BELIEVED THAT MOST OF GOLD OFFERED IN THE OPEN MARKET TODAY WAS TAKEN BY ARBITRAG- EURS FOR SHIPMENT TO NEW YORK BUT SOME ALSO IS BELIEVED TO HAVE BEEN BOUGHT BY BRITISH AND SWISS CONTROL AUTHORITIES- TURNOVER IN SWISS FRANCS WAS CONSIDERABLE BUT THE RATE WAS STEADY AROUND 21 25 I-4 PREMIUM ON THREE MONTHS DOLLARS WAS I 1-4 TO I - - BRUSSELS 7 TO 3 AND GENEVA 5 1-2 TO 2 1-2DISCOUNT ON THREE MONTHS PARIS WAS 1-8 TO 3-8 FRANC AND AMSTERDAM 10 TO 12 DUTCH CENTS -0- GENEVA UNITED PRESS - October 7, 1936. 79 WCNS7 GENEVA. -- NEARLY THREE SCORE NATIONS, COMPRISING THE LEAGUE OF NATIONS, WILL GET BEHIND THE DRIVE FOR ECONOMIC DISARMAMENT - AN ECONOMIC APPROACH TO PEACE--BY THIS WEEK END, LEAGUE LEADERS PREDICTEI TODAY. THE ECONOMIC COMMISSION OF THE LEAGUE ASSEMBLY WAS EXPECTED TO APPROVE TODAY A RESOLUTION WHICH LEADERS SAID WOULD ACT AS A SPRINGBOARD IN THE ECONOMIC RECOVERY CAMPAIGN- - A JOINT FRENCH-BRITISH PROPOSAL CALLING ON WORLD NATIONS TO SCRAP TRADE BARRIERS AS A STEP TOWARD PEACE AND PROSPERITY, AND AWAY FROM THE DESCENT INTO THE MAELSTROM OF WAR. IT WAS REGARDED AS CERTAIN THAT THE ENTIRE ASSEMBLY WOULD APPROVE THE RESOLUTION THIS WEEK. 10/7--R853A 80 WCNS17 ADD ECONOMICS, GENEVA THE TEXT OF THE FRENCH-BRITISH RESOLUTION URGENTLY RECOMMENDED IN CONCLUSION "THAT THE STATES CONCERNED, AS AN ESSENTIAL CONDITION TO FINAL SUCCESS, ORGANIZE WITHOUT ANY DELAY DETERMINED AND CONTINUED ACTION TO INSURE APPLICATION OF THE ABOVE INDICATED POLICY, REDUCE EXCESSIVE OBSTACLES TO INTERNATIONAL TRADE AND COMMUNICATIONS AND PARTICULARLY TO RELAX AND AS SOON AS POSSIBLE TO ABOLISH THE PRESENT SYSTEM OF (IMPORT) QUOTAS AND EXCHANGE CONTROLS." DEBATING THIS RESOLUTION TODAY, WALTER STUCKI, SWISS MINISTER OF NATIONAL ECONOMY, CONSIDERED THE WORLD'S FOREMOST EXPERT ON COMMERCIAL TREATIES, WARMLY ENDORSED THE TARIFF POLICY OF SECRETARY HULL. SWITZERLAND, HE SAID, WAS PROGRESSIVELY REDUCING HER TARIFFS. BUT HE WARNED THAT SHE WOULD RELAX HER IMPORT QUOTAS ONLY IN FAVOR OF COUNTRIES THAT TREATED SWISS EXPORTS FAIRLY, PAID THEIR DEBTS AND PERMITTED TOURISTS TO GO TO SWITZERLAND (SOME NATIONS NOW DISCOURAGE TOURIST, BOTH AS A MATTER OF ECONOMY AND TO MAKE IT IMPOSSIBLE FOR POLITICAL ENEMIES TO SEEK REFUGE ABROAD). APPARENTLY REFERRING TO GERMANY, STUCKI SAID THAT 50 PER CENT OF SWISS TRADE WAS WITH COUNTRIES WHICH PREVENTED THEIR IMPORTERS FROM PAYING THEIR DEBTS. 10/7--R925A DOW JONES - October 7, 1936. 8.50 FRENCH-BRITISH TRADE RESOLUTION 81 OCT 7 1936 GENEVA - COPYRIGHT BY UPP - THE ECONOMIC COMMISSION OF THE LEAGUE ASSEMBLY WAS EXPECTED TO APPROVE TODAY A RESOLUTION WHICH LEADERS SAID WOULD ACT AS A SPRINGBOARD IN THE ECONOMIC RECOVERY CAMPAIGN - A JOINT FRENCH- BRITISH PROPOSAL CALLING ON WORLD NATIONS TO SCRAP TRADE BARRIERS IT WAS REGARDED AS CERTAIN THAT THE ENTIRE ASSEMBLY WOULD APPROVE THE RESOLUTION THIS WEEK ALREADY FRANCE GREAT BRITAIN THE NETHERLANDS AUSTRALIA AND ROUMANIA HAVE JOINED ACTIVELY IN THE PIONEERING FOR ECONOMIC DISARMAMENT -THE ASSEMBLY NOTING WITH SATISFACTION THE JOINT DECLARATION OF FRANCE THE UNITED STATES AND THE UNITED KINGDOM OF SEPT 26 -IN CONNECTION WITH FRENCH DEVALUATION- AND THE IMMEDIATE ADHESIONS THERETO BY SEVERAL STATES -RECOGNIZING THAT THIS DECLARATION HARMON- IZES WITH RECOMMENDATIONS MADE BY THE -LEAGUEECONOMIC COMMITTEE IN ITS RECENT REPORT ON THE PRESENT PHASE OF INTERNATIONAL ECONOMIC RELATIONS -CONSIDERING THAT A CONCORDANCE OF POLICY DESIGNED TO REESTABLISH A DURABLE EQUILIBRIUM BETWEEN THE ECONOMIES OF VARIOUS COUNTRIES TO LAY MORE SOLID FOUNDATIONS FOR STABILITY OF ECONOMIC RELATIONS AND TO PROMOTE INTERNATIONAL TRADE WOULD EFFECTIVELY CONTRIBUTE TO CONSOLIDATION OF PEACE RESTORATION OF INTERNATIONAL ORDER GROWTH OF WORLD PROSPERITY AND IMPROVEMENT OF THE STANDARD OF LIVING OF PEOPLES -AFFIRMS THE GENERAL DESIRE OF LEAGUE MEMBERS TO PURSUE THE REALIZATION OF THESE OBJECTS AND INVITE ALL STATES WHETHER LEAGUE MEMBERS OR NOT TO COOPERATE FULLY TO THAT END - AND -URGENTLY RECOMMENDS THAT THE STATES CONCERNED AS AN ESSENTIAL CONDITION TO FINAL SUCCESS ORGANIZE WITHOUT ANY DELAY DETERMINED AND CONTINUED ACTION TO INSURE APPLICATION OF THE ABOVE INDICATED POLICY REDUCE EXCESSIVE OBSTACLES TO INTERNATIONAL TRADE AND COMMUNICATIONS AND PARTICULARLY TO RELAX AND AS SOON AS POSSIBLE TO ABOLISH THE PRESENT SYSTEMS OF -IMPORT- QUOTAS AND EXCHANGE CONTROLS- THE TEXT OF THE FRENCH- BRITISH RESOLUTION ON WHICH ACTION IS EXPECTED TODAY STATES -0- ROME DOW JONES - October 7, , 1936. 9.15am OCT 7 1936 ROME BOURSE ROME- -REUTERS- -THE TONE AT THE REOPENING OF THE BOURSE WAS VERY FIRM-SNIA VISCOSA WAS QUOTED AT 420 LIRA AGAINST 389 SEPT 25 WHEN THE BOURSE CLOSED- FIAT WAS 448 AGAINST 415 1-2 AND MONTECATINI 179 AGAINST 156 -0- 83 84 BATAVIA DOW JONES - October 7, 1936. /2.10,1sam/ RUBBER EXPORT DUTY RAISED OCT 7 1936 BATAVIA - REUTERS - NETHERLANDS EAST INDIES EXPORT DUTY ON NATIVE RUBBER WILL BE INCREASED ONE GUILDER TO 51 GUILDERS PER 100 KILOGRAMS EFFECTIVE OCT 8 -0- 85 YUGOSLAVIA DOW JONES - October 7, 1936. OCT 7 1936 YUGOSLAVIA MONETARY DEVELOPMENTS /BELGRADE - REUTERS - DESPITE THE OFFICIAL STATEMENT THAT THE DINAR WILL NOT BE FURTHER DEVALUED IT IS RUMORED IN WELL INFORMED CIRCLES THAT THE DINAR WILL BE GRADUALLY ALLOWED TO SINK TO COMPETITIVE LEVELS WITH OTHER DEVALUED CURRENCIES -/WHILE THE OFFICIAL VALUE OF THE DINAR HAS FALLEN ONLY SLIGHTLY THE QUOTATION IN THE UNOFFICIAL MARKET IS 245 DINARS TO THE POUND STERLING -IT IS BELIEVED DINARS MAY BE ALLOWED TO FALL TO THE FORMER LEVEL OF 27570 THE POUND STERLING -0- 113 1936 ADD YUGOSLAVIA MONETARY POLICY OCT 7 BUDAPEST- REUTERS- ACTING PREMIER DR DE GARAMY DECLARED THAT THE RECENT DECISION OF THE GOVERNMENT TO TAKE NO NEW MONETARY MEA- SURES IS DEFINITE DESPITE DEVALUATION OF THE LIRE AND THE CZECH CROWN -0- NETHERLANDS DOW JONES - October 7, 1936. 11:35 OCT 7 1936 AMSTERDAM MARKETS AMSTERDAM - FOREIGN EXCHANGES WERE QUIETER - PROBABLY AS THE RESULT OF THE FIRST INTERVENTION OF DUTCH CONTROL THE DOLLAR WENT TO I 885 THE BOURSE WAS STRONG UNDER THE LEAD OF ROYAL DUTCH WHICH SPURTED 12 TO 377 5-8 AMERICAN ISSUES ARE MEETING KEEN DEMAND ES- PECIALLY THE COPPERS STEELS OILS AND RAILROADS - CANADIAN PACIFIC WAS BUOYANT -0- OCT 7 1936 1.01 DUTCH GOLD CLAUSE CONTRACTS THE HAGUE - IT IS UNDERSTOOD THAT THE NETHERLANDS GOVERNMENT , WHICH IS INVESTIGATING THE QUESTION OF CANCELLING ALL GOLD CLAUSES ON DUTCH CONTRACTS IN CONNECTION WITH THE CHANGED NETHERLANDS MONETARY POLICY DOES NOT INTEND TO INCLUDE GOLD CLAUSES OF FUNDS OFFICIALLY QUOTED IN FOREIGN CURRENCIES ON THE AMSTERDAM STOCK EXCHANGE ACCORDING TO REUTERS -0- 86 87 JR GRAY Praha Dated October 7, 1936 Rec'd 9:10 a.m. Secretary of State, Washington. 50, October 7, 9 a.m. My 47, October 3, 10 p.M. Bill provides for reduction of from 10.6 to 15.98 per cent reduction gold content. WRIGHT CSB 88 OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE Bwlin Act 7, 1936 DEPARTMENT OF STATE WASHINGTON In reply refer to October 19, 1936. EA 851.5151/1074 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses three copies of despatch No. 3080 of October 7, 1936, from the American Embassy, Berlin, Germany, transmitting the text of Dr. Schacht's statement to the Central Committee of the Reichsbank on September 30, 1936, with respect to the attitude of the German Government on the devaluation of the currencies of France, Switzerland and the Netherlands. Enclosure: No. 3080 of October 7, 1936, from Berlin. H.F 89 Berlin, October 7. 1936. No. 3080 Subject: Text of Dr. Schacht's Statement of September 30, 1936, to the Central Committee of the Reichabank. The Honorable The Secretary of State, Washington. Sir: with reference to the Embassy's telegram No. 296 of September 30, 6 P. m., I have the honor to transmit 1/ the original text and a translation prepared in this office of Dr. Schacht's statement to the Central Committee of the Reichabank on September 30, 1936, with respect to the attitude of the German Government on the devaluation of the currencies of Frence, Switzerland and the Netherlands. Respectfully yours, colosure: William E. (+dd. Dr. Schacht's statement to the Central Committee of the Reichabank 601 truecopy of the signed origi- ER na) M.A. 90 Enclosure. Text of Dr. Schacht's Statement to the Central Committee of the Reichsbank on September 30, 1936. on the 27th of this month the French Government transmitted to the Reich Government the declaration issued by the three governments in Paris, London and Washington concerning the devaluation of the French in doing so franc and thereby directed particular attention to Paragraph 5 in which the cooperation of the other nations in the carrying out of the policy formulated in the declaration is desired and requested. This circumstance and the fact that the devoluation of the French franc must have considerable effect on the development of international economic and currency relations makes it appropriate also to inform the public concerning the German view in these matters. The intention announced in the declaration of the three powers "to preserve peace, to favor the creation of conditions which may best contribute to the reestablishment of order in international economic relations, and to pursue a policy aimed at the development of prosperity in the world and at the improvement of the standard of living of the peoples", corresponds completely to the wish and will which the Fuhrer and Chancellor has expressed in his repeated solemn dee- larations to the world in the name of the Reich Govern- ment. I would only point out as A proof of this to the 91 -2- the Reichstag speech of May 21, 1935, with its adherence to economic cooperation and to the diplomatic note of the Reich of March 31, 1936, which contained an allombracing peace plan. The eharacterization in the three power declaration of one of the permanent objects of its policy as be ng "to maintain a maximum equilibrium on the international currency market" is welcomed by us but unfortunately cannot prevent our point- ing out that through the English as well as the American devaluation, the economic equilibrium of the world was most seriously disturbed. This, however, will not prevent the German Government from supporting on its part all efforts which, according to the three power declaration, are intended "gradually to ameliorate the present system of contingents and currency control with the final aim of their complete abolishment". If these intentions are measured by the devaluation of the French franc and the method employed, 1t must un- fortunately be stated that little has been altered by this step as regards the insecurity of the international currency situation. Indeed, whereas heretofore the gold bloc, at least for its own territory, guaranteed stability, this has also disappeared now that the devaluation of the French franc has brought about the devaluation in Switzerland and Holland. The currency agreement between the three powers does not even envisage a mutual fixed relation between these three currencies. similarly switzerland and Holland have failed to establish such E ratio so that the instability as compared with past conditions has 92 -3- has even been increased. Except for Germany and 3 or 4 other countries there is at the moment, now that the former general connection with gold has been abolished, no longer any currency in the world which in principle has a firm basis and, on the contrary, all other currencies part lywithin certain bounds and partly without restriction are subject to menipulation at will by their governments and quite predominately have no fixed relation amongst themselves. While Cermany, therefore, does not believe in the success of such measures which have not been ad- justed to each other, Germany is nevertheless very far from critimising or disturbing in any manner the measures which the French Government believed it had to adopt. on the contrary, it can only be very welcome to us if the success desired by the French Government according to its declaration occurs and if in particular international security and freedom of payment should be again achieved. Furthermore, we quite feel it to be our duty to investigate the question as to bysshat possible measures on our part we can contribute to the achievement of this sim. The Reich Government and Reichsbank in the course of this investigation have arrived without hesitation at the decision that we do not wish to increase the uncertainty of international traffic which has been increased by the devaluation measures of foreign countries by also contributing on our part an element of insecurity to the currency situation. The countries which engage in commerce with us must know that we regard permanence as an indispensable foundation of international traffic. We 93 We desire, however, that not only foreign countries recognize this but the German saver and worker must also be able to rely or the fact that the National Socialist Government desires to maintain at their full value his purchasing power and his pay. While occasionally German interests voice the desire for a devaluation of the mark, I would not like to exaggerate the weight of the argument for it by polemizing against them in detail. I would prefer to say only one thing for Germany, namely, that the system of foreign exchange control, the discomfort and flaws of which we have always recognized, could not be made superfluous by mere devaluation. The heavy burden of debt arising from the injustices of Versailles and the difficulties of our raw material supply make this control necessary. Only their amelioration will make the German foreign exchange control superfluous. To the solution of this question attaches not only the economic prosperity of Germany but also that of all those countries which are interested in a receptive market of 70 million people. We are completely aware that the present international currency situation imposes heavy secrifices on us but no pressure will cause the Reich Government to do any- thing which is contrary to the interest of its own people and country. on the other hand the Reich Govern- ment will at all times be prepared to participate in suitable international negotiations which are directed toward a free international economic and payments traffic, of course preserving the national interest which was also stressed 94 -5- stressed in the currency declaration of the three powers. If in the course of the proceedings of the three powers such a possibility should result we shall welcome it and be prepared for a new examination. Meanwhile, we can and will watch developments equably and reach our decision on each occasion according to our free will. Thanks to our foreign exchange control, we have had in our currency a stable economic foundation the hole time under the National Socialist Government and we will keep it. This tremendous advantage, equally important for producer and consumer, outweighs all discomforts connected with the foreign exchange control. JWR ER 95 Berlin, October 7, 1936. No. 3080 Subject: Text of Dr. Schacht's Statement of September 30, 1936, to the Central Committee of the Reichsbank. The Honorable The Secretary of State, Washington. Sir: with reference to the Embassy's telegram No. 296 of September 30, 6 p. m., I have the honor to transmit 1/ the original text and a translation prepared in this office of Dr. Schacht's statement to the Central Committee of the Reichabank on September 30, 1936, with respect to the attitude of the German Government on the devaluation or the currencies of France, Switzerland and the Netherlands. Respectfully yours, Enclosure: William 3. Dodd. 1. Dr. Schacht's statement to the Central Committee of the Beichabank. ont JVR SR true cop. of the algred origi- cal M.A 96 Enclosure Text of Dr. Schacht's Statement to the Central Committee of the Reichabank on September 30, 1936. on the 27th of this month the French Government transmitted to the Reich Government the declaration issued by the three governments in Paris, London and Washington concerning the devaluation of the French frane and thereby directed particular attention to Paragraph 5 in which the cooperation of the other nations in the carrying out of the policy formulated in the declaration is desired and requested. This circumstance and the fact that the devoluation of the French franc must have considerable effect on the development of international economic and currency relations makes it appropriate also to inform the public concerning the German view in these matters. The intention announced in the declaration of the three powers "to preserve peace, to favor the creation of conditions which may best contribute to the reestablishment of order in international economic relations, and to pursue a policy sized at the development of prosperity in the world and at the improvement of the standard of living of the peoples", corresponds completely to the wish and will which the Fuhrer and Chancellor has expressed in his repeated solean deelarations to the world in the name of the Reich Govern- ment. I would only point out as a proof of this to the 97 -2- the Reichstag speech of May 21, 1935, with its adherence to economic cooperation and to the diplomatic note of the Reich of March 31, 1936, which contained an all- embracing peace plan. The charscterization in the three power declaration of one of the permanent objects of its policy as be ng "to maintain a maximum equilibrium on the international currency market" is welcomed by us but unfortunately cannot prevent our point- ing out that through the English as well as the American devaluation, the economic equilibrium of the world was most seriously disturbed. This, however, will not prevent the German Government from supporting on its part all efforts which, according to the three power declaration, are intended "gradually to emeliorate the present system of contingents and currency control with the final aim of their complete abolishment". If these intentions are measured by the devaluation of the French frane and the method employed, it must un- fortunately be stated that little has been altered by this step as regards the insecurity of the international currency situation. Indeed, wherees heretofore the gold bloc, at least for its own territory, guaranteed stability, this has also disappeared now that the devaluation of the French frane has brought about the devaluation in Switzerland and Holland. The currency agreement between the three powers does not even envisage a autual fixed relation between these three currencies. similarly switzerland and Holland have failed to establish such a ration so that the instability as compared with past conditions has 98 -3- has even been increased. Except for Germany and 3 or 4 other countries there is at the moment, now that the former general connection with gold has been abolished, no longer any currency in the world which in principle has a firm basis and, on the contrary, all other currencies partlywithin certain bounds and partly without restriction are subject to menipulation at will by their governments and quite predominately have no fixed relation amongst themselves. While Germany, therefore, does not believe in the success of such measures which have not been ad- justed to each other, Germany is nevertheless very far from critimising or disturbing in any manner the measures which the French Government believed it had to adopt. on the contrary, it can only be very welcome to us if the success desired by the French Government according to its declaration occurs and if in particular international security and freedom of payment should be again achieved. Furthermore, we quite feel it to be our duty to investigate the question as to byshat possible measures on our part we can contribute to the achievement of this sim. The Reich Government and Reichsbank in the course of this investigation have arrived without hesitation at the decision that we do not wish to increase the uncertainty of international treffic which has been increased by the devaluation measures of foreign countries by also con- tributing en our part on element of insecurity to the currency situation. The countries which engage in commerce with us must know that we regard permanence as an indispensable foundation of international traffic. The 99 We desire, however, that not only foreign countries recognize this but the German saver and worker must also be able to rely or the fact that the National Socialist Government desires to maintain at their full value his purchasing power and his pay. hile occasionally German interests voice the desire for a devaluation of the mark, I would not like to exaggerate the weight of the argument for it by polemizing against them in detail. I would prefer to say only one thing for Germany, namely, that the system of foreign exchange control, the discomfort and flaws of which we have always recognized, could not be made superfluous by mere devaluation. The heavy burden of debt arising from the injustices of Veraailles and the difficulties of our raw material supply make this control necessary. Only their amelioration will make the German foreign exchange control superfluous. To the solution of this question attaches not only the economic prosperity of Germany but also that of all those countries which are interested in a receptive market of 70 million people. We are completely aware that the present international currency situation imposes heavy secrifices on us but no pressure will cause the Reich Government to do any- thing which is contrary to the interest of its own people and country. On the other hand the Reich Govern- ment will at all times be prepared to participate in suitable international negotiations which are directed toward a free international economic and payments traffic, of course preserving the national interest which was also stressed 100 -5- stressed in the currency declaration of the three powers. If in the course of the proceedings of the three powers such a possibility should result we shell welcome it and be prepared for a new examination. Meanwhile, we can and will watch developments equably and reach our decision on each occasion according to our free will. Thanks to our foreign exchange control, we have had in our currency a stable economic foundation the hole time under the National Socialist Government and we will keep it. This tremendous advantage, equally important for producer and consumer, outweighs all discomforts connected with the foreign exchange control. JRR ER 101 Berlin, October 7, 1936. No. 3080 Subject: Text of Dr. Schacht's Statement of September 30, 1936, to the Central Committee of the eichabank. The Honorable The Secretary of State, Tashington. Sir: With reference to the Embassy's telegram No. 296 of September 30, 6 p. m., I have the honor to transmit the original text and a translation prepared in this 1/ office of Dr. Schacht's statement to the Central Committee of the Reichabank on September 30, 1936, with respect to the attitude or the German Government on the devaluation or the currencies of France, Switzerland and the Netherlands. Respectfully yours, Enclosure: William E. Dodd. 1. Dr. Schacht's statement to the Central Committee or the Reichabenk. 001 JTR ER true copy of 102 Enclosure Text of Dr. Schacht's Statement to the Central Committee of the Reichabank on September 30, 1936. on the 27th of this month the French Government transmitted to the Reich Government the declaration issued by the three governments in Paris, London and Washington concerning the devaluation of the French frane and thereby directed particular attention to Paragraph 5 in which the cooperation of the other nations in the carrying out of the policy formulated in the declaration is desired and requested. This circumstance and the fact that the devoluation of the French frone must have considerable effect on the development of international economic and currency relations makes it appropriate also to inform the public concerning the German view in these matters. The intention announced in the declaration of the three powers "to preserve peace, to favor the creation of conditions which may best contribute to the reestablishment of order in international economic relations, and to pursue a policy simed at the development of prosperity in the world and at the improvement of the standard of living of the peoples", corresponds completely to the wish and will which the Fuhrer and Chancellor has expressed in his repeated solemn dee- larations to the world in the name of the Reich Govern- ment. I would only point out as a proof of this to the 103 -2- the Heichstag speech of May 21, 1935, with its adherence to economic cooperation and to the diplometic note of the Reich of March 31, 1936, which contained an allembracing peace plan. The eharacterization in the three power declaration of one of the permanent objects of its policy as be ng "to maintain a maximum equilibrium on the international currency market" is welcomed by us but unfortunately cannot prevent our point- ing out that through the English as well as the American devoluation, the economic equilibrium of the world was most seriously disturbed. This, however, will not prevent the German Government from supporting on its part all efforts which, according to the three power declaration, are intended "gradually to ameliorate the present system of contingents and currency control with the final sim of their complete abolishment". If these intentions are measured by the devaluation of the French frane and the method employed, it must un- fortunately be stated that little has been altered by this step as regards the insecurity of the international currency situation. Indeed, wherees heretofore the gold bloc, at least for its own territory, guaranteed stability, this has also disappeared now that the devaluation of the French franc has brought about the devaluation in Switzerland and Holland. The currency agreement between the three powers does not even envisage a autual fixed relation between these three currencies. Similarly switzerland And Holland have failed to establish such a ratio so the the instability as compared with past conditions has 104 -3- has even been increased. Except for Germany and 3 or 4 other countries there is at the moment, now that the former general connection with gold has been abolished, no longer any currency in the world which in principle has a firm basis and, on the contrary, all other currencies partlywithin certain bounds and partly without restriction are subject to monipulation at will by their governments and quite predominately have no fixed relation smongst themselves. While Gemmany, therefore, does not believe in the success of such measures which have not been ad- justed to each other, Germany is nevertheless very far from critimising or disturbing in any manner the measures which the French Government believed it had to adopt. on the contrary, it can only be very welcome to us if the success desired by the French Government according to its declaration occurs and 11 in particular international security and freedom of payment should be again achieved. Furthermore, we quite feel it to be our duty to investigate the question as to bysebat possible measures on our part we can contribute to the achievement of this aim. The Reich Government and Reichsbank in the course of this investigation have arrived without hesitation at the decision that we do not wish to increase the uncertainty of international traffic which has been increased by the devaluation measures of foreign countries by also con- tributing on our part an element of insecurity to the currency situation. The countries which engage in commerce with as must KROX that we regard permanence as an indispensable foundation of international traffic. To 105 We desire, however, that not only foreign countries recognize this but the German asver and worker must also be able to rely on the fact that the National Socialist Government desires to maintain at their full value his purchasing power and his pay. hile occasionally Cerman interests voice the desire for a devaluation of the mark, I would not like to exaggerate the weight or the argument for it by polemizing against them in detail. I would prefer to say only one thing for Germany, namely, that the system of foreign exchange control, the discomfort and flaws of which we have always recognized, could not be mode superfluous by mere devaluation. The heavy burden of debt arising from the injustices of Versailles and the difficulties of our raw material supply make this control necessary. Only their amelicration will make the German foreign exchange control suparfluous. To the solution or this question attaches not only the economic prosperity of Germany but also that of all those countries which are interested in n receptive market of 70 million people. lie are completely aware that the present international currency situation imposes heavy secrifices on us but no pressure will cause the Reich Government to do any- thing which is contrary to the interest of its own people and country. on the other hand the Reich Covern- ment will at all times be prepared to participate in suitable international negotiations which are directed toward a free international economic and payments traffic, of course presenting the national interest which was also stressed 106 -5- stressed in the currency declaration of the three powers. If in the course of the proceedings of the three powers such a possibility should result we shall welcome it and be prepared for a new examination. Meanwhile, we can and will watch developments equably and reach our decision on each occasion according to our free will. Thanks to our foreign exchange control, NO have had in our currency a stable economic foundation the hole time under the National Socialist Government and we will keep it. This tremendous advantage, equally important for producer and consumer, outweighs all discomforts connected with the foreign exchange control. JWR ER 107 FEDERAL RESERVE BANK OF NEW YORK OFFICE CORRESPONDENCE To. CONFIDENTIAL FILES DATE October 7, 1936. SUBJECT: TELEPHONE CONVERSATION WITH L. W. Knoke FRO BANK OF ENGLAND. I called Mr. Bolton at 10:08 today. They were having a rather rough day, he said; the demand for French francs, Swiss francs and dollars was very big; their turnover in French francs immense; at the moment they were selling at 104 23/32. The way it looked now they would probably lose from £4,000,000 to £5,000,000 of gold today. He had sold $2,000,000, the first million at 4.90 5/8, the next at 4.88 3/4, where he was now operating rather extensively. The demand for dollars he continues to ascribe, in part at least, to the purchase of American securities for foreign account, in part to speculation. I told him that it seemed quite probable that we would want to support sterling a little in this market 1 even before London closed. If we did, I would keep him informed. The turnover in gold at fixing today was about £1,500,000. Large amounts continue to come out of hoard. They calculated that something like £20,000,000 to £25,000,000 had so far been liquidated. The movement was keeping up but not quite as heavy as a few days ago. Repatriation of capital to Switzerland and to France seemed to continue; nothing so far had gone to Holland, however. That, he thought, would be an added trouble when it began. I repeated my previous request that he cable me daily in time for his message to be in my hands 9o'clock our time. LWK:KMC 108 GRAY LMS Paris Dated October 7, 1936 Rec'd 2:15 p. m. Secretary of State, Washington. 975, October 7, 4 p. m. FROM COCHRAN. London buying dollars and franc, latter heavily. Few dollars offered and rate in Paris rose to 21.43. Sterling opened around 104.80 but Bank of France was flooded with offers and gradually lowered peg to around 104.73. Swiss have resumed contracting gold at London for delivery next week. They are said to have ceased such operations yesterday until they could catch up with their bookkeeping. Paris Bourse less active. French rentes down slightly. International shares are up especially those subject to arbitrage with New York. Important financial group actively buying German Young bonds. Market gossip here is that Schacht favored valuation but political leaders oppose it. The following is an extract from Chancellor's speech of last night as reproduced in today's FINANCIAL NEWS. To those who have been whiting and hoping for a change 109 LMS 2-No. 975, October 7, 4 p. m., from Paris, change the decision of the French Government to effect a readjustment of the exchange value of the franc must have come like the cracking of the ice at the approach of a warmer season to the polar explorer whose ship has been freezing for many months into immobility. As operation like that, often expected, often deferred, was bound to cause some anxiety in anticipation lest it should prove to be a signal for a sort of Dutch auction in which the nations would be competing with one another as to which should be the last on the currency list (END SECTION ONE) BULLITT HPD 110 LMS GRAY Paris Dated October 7, 1936 Rec'd 3:35 p. m. Secretary of State, Washington. 975, October 7, 4 p. m. (SECTION TWO) A race of that kind would have been disastrous to the trade and this country with its world-wide ramifications would certainly not have been the least to suffer. When the French Government communicated their inten- tions to His Majesty's Government and the Government of the United States they found not only a sympathetic under- standing of their difficulties but the fullest readiness to help by giving the assurance that the action of the French Government would not be followed by any deliberate depreciation of the pound sterling or the dollar and the result of that was that this most essential step forward was taken not in a cloud of uncertainty but to the accompaniment of declarations by three of the strongest financial powers in the world which have created fresh hope for an advance in international cooperation. I must say I have been agreeably surprised at the quickness with which the world seems to have grasped the implications of these common declarations - what they mean and 111 LMS 2-No. 975, October 7, 4 p. m., Sec. 2, from Paris. and what they do not mean. They do not mean that there was any further understanding between the three countries than that which was conveyed in their declaration. They do not mean that any of them sought an advantage for itself at the expense of others or the world. They do not mean that there has been any change in the general policy of this country or of the United States. Sterling is still free. It is unlinked to gold or to any other currency. There is no alteration in the credit policy which is necessary to preserve the internal prosperity of this country or of the other countries of the British Empire. But the world was quite right to see in these three declarations a community of views as to the need for the revival of international trade and as to the nature of the first step which is necessary if we were to move in the right direction. What is the next step? It was already indicated by the Economic Committee of the League of Nations. The adjustment of currencies out of line could not of itself affect the restoration of international trade (END SECTION TWO) HPD BULLITT 112 LMS GRAY Paris Dated October 7, 1936 Rec'd 3:45 p. m. Secretary of State, Washington. 975, October 7, 4 p. m. (SECTION THREE) unless it was accompanied or followed swiftly by the relax- ation of those other restrictions in the shape of quotas and exchange controls a relaxation which, at the same time, would open the channels of trade again and would prevent external prices from being forced up too high. Therefore we welcome most heartily the announcement by the French Government of their desire to follow up the reduction of duties and the abolition of certain quotas which they have already effected by the elaboration of a new customs tariff from which quotas would be entirely excluded. It is very gratifying to see that the Governments of Italy, of Switzerland and of Holland are apparently working on similar ideas and with their cooperation, with the assurance that any danger of a competitive currency depreciation is at a minimum, I think we may legitimately hope that the recovery of the export trade will in due course follow the recovery of the home trade which we have 113 LMS 2-No. 975, October 7, 4 p. m., Sec. 3, from Paris. have already secured. I have heard it (*) that the measures taken by the various members of what is known as the gold bloc meant the final end of the gold standard; meant that we were about to enter upon a new era, a feature of which would be a permanent system of managed currencies. Well, I think that is very unlikely. I do not see any reason to alter the view which I have expressed before that in the end we shall probably come back to an international monetary standard on the only basis which appears to give general confidence. of course it would be necessary before we did that to provide security against those violent fluctuations in the value of gold as expressed in terms of commodities which have occasioned so much disturbance in recent years. (END SECTION THREE) BULLITT CSB (*) Omission 114 LMS GRAY Paris Dated October 7, 1936 Rec'd 4:09 p. m. Secretary of State, Washington. 975, October 7, 4 P. m. (SECTION FOUR) If we can do that - and that is a matter for further international cooperation - then I do not see, myself, any insuperable difficulties in the way of our ultimately arriving again at a currency system based on the free exchange of gold". London TIMES today carried following story dated Washington October 6th. "President Roosevelt during his brief stay here was asked this afternoon whether as a possible method of accelerating the positive, as distinct from the present constitutional, stabilization of currencies, some engagement might be made not to resort to a further devaluation of the dollar under the powers still possessed by the Executive. Mr. Roosevelt said such a question involved the consideration of the pleasant purpose of devaluation which was favorably to affect the American price level. He believed that there should be left in the hands of the American 115 IMS 2-No. 975, October 7, 4 p. m., Sec. 4, from Paris. American Government emergency powers which might be used in the event of unexpected action by another nation or number of nations, something, he said a moment later, like a world convulsion. Another question touched on the exchange position of the British currency which it was suggested was determined by the free gold market in London. The President agreed but reminded the questioner that the large stocks of gold held by the United States gave this country a considerable influence over the movements of the market," In reporting the President's interview PARIS HERALD TRIBUNE used following head lines "President wants to retain dollar control; says United States can influence world gold mart; mute on monetary accords" (END MES3AGE) BULLITT CSB UNITED STATES UNITED PRESS - October E, 1936. 116 GODAN THE U.S THEY P WITH THE WORKING AGGRED MM INGINO ABOUT RAPID READJUSTINE DE WORLD thank ININUM OF TRADE DISTURDANCES 20% ANT OF MENEUNERING For POSITION SECTED REFORESEXCH EAT P.S. THAT STICK DEVEMORTS the BEEN NLACIPATED TO COART ACAINST SUDDE DISTORNANCE AS 7 CONNETY AGAFTMENT BRAGAN FROM FRANCIS WERE INTAGNOSED HOLLAS ALANDO WESTERDAY POINTS TREASURY STEPPED THE TKI-NATION AGREEMENT AND YORK MARKET OFFERED? BY THE STATE BANK OF RUSSIA MORGENTHAL TERMED A PRICE. OFFICIALS SAID THERE NO ABNORMAL TRANSFECTIONS THE STABILIZATION FUND, THE LARGEST BEING ,000 EXPRESENTED A COMBINATION OF ORDERS EXPRESSED PRIVATE THAT THE LOWERIN OF THE BY THE BANK OF FRANK? FROM THREE TO This ANDONE white FAVORABLE SIGN IN THE INTERNATIONAL PICTURE. INFOPITION THAT A LOAN-HANGE STADIETto DOW JONES - October 8, 1936. 118 (DJ 11:11 A.M., 10/8/36) Add No U.S. British Monetary Competition Wash. - Tremendous changes in monetary valuations and internatl. trade conditions are still taking place, but the Admin. feels that the objectives for which it has been working in the monetary field are being satisfactorily achieved. (DJ 11:00 A.M. Ocr.8, 1936): No UNITED STATES, BRITISH MONETARY COMPETITION. WASHINGTON - ADMINISTRATION OFFICIALS SAY THERE IS NO MONETARY COMPETITION BETWEEN THE UNITED STATES AND GREAT BRITAIN CONTRARY TO PUBLISHED REPORTS THAT THE BRITISH WANT A CHEAP POUND. THE VIEW IN TREASURY CIRCLES IS THAT MONETARY ROADJUSTMENTS WILL TAKE PLACE SWIFTLY AND WITH A COMPARATIVELY SMALL AMOUNT OF INTERNATIONAL DISTURBANCE. TIME ALONE WILL INDICATE THE FUTURE LEVELS OF THE VARIOUS WORLD CURRENCIES BUT EXCHANGES ALREADY ARE RAPIDLY SETTLING TOWARD NORMAL ACCORDING TO THE VIEW EXPRESSED TODAY IN HIGH GOVERNMENT QUARTERS. 119 DOW JONES - October 8, 1936. 2:09 PROMPT AGREEMENT FIXING DOLLAR-STERLING RATE URGED BY DE KRAFFT VICE PRESIDENT OF U S RUBBER OCT 8 1936 OCT 8 1936 ADD DE KRAFFT 2:14 -A PROMPT AGREEMENT IN RESPECT TO FIXING THE DOLLAR STERLING RATE WILL HAVE FAR GREATER EFFECT THAN MANY OF US IN AMERICA REALIZE- WILLIAM DE KRAFFT CHAIRMAN OF THE FINANCE COMMITTEE AND VICE PRESIDENT OF U S RUBBER CO STATED ON HIS ARRIVAL HERE ABOARD THE BREMEN -0- 0018 1936 RUBBER RESTRICTIONS UNCHANGED FOR BALANCE OF 1936 SAYS TOWNSEND PRESIDENT OF RAYBESTOSMANHATTAN 2.20 ADD TOWNSEND THE MEETING OF THE INTERNATIONAL RUBBER RESTRICTION COMMITTEE HELD IN LONDON SEPT 29 HAS MADE NO CHANGE IN THE PERCENT OF RESTRICT- IONS FOR THE BALANCE OF THE YEAR COL A F TOWNSEND CHAIRMAN OF THE BOARD OF RAYBESTOS- MANHATTAN INC ON HIS ARRIVAL HERE ON THE BREMEN STATED COL TOWNSEND IS THE AMERICAN MEMBER OF THE INTERNATIONAL RUBBER RESTRICTION COMMITTEE ADVISORY BOARD -THE DEVALUATION OF THE CURRENCY IN FRANCE HOLLAND AND ITALY ON THE PREVIOUS SATURDAY WAS A MAJOR FACTOR IN GOVERNING THE COMMITTEE-S ACTION AS NO ONE KNEW THE RELA- TIVE VALUES OF THE VARIOUS CURRENCIES - THE REDUCTIONS IN WORLD STOCK OF RUBBER HAVE RATHER EXCEEDED THE COMMITTEE-S CALCULATIONS BUT AT THE SAME TIME THE FIGURES AVAILABLE AT THE OCT MEETING ONLY COVERED TWO MONTHS OUT OF THE SIX MONTHS PERIOD OR THE LAST HALF OF 1936 WHICH WAS SUPPOSED TO BE THE PERIOD FOR WHICH THE 65 PC RESTRICTIONS COVER 121 ROME DOW JONES - October 8, 1936. 10:28 TOURIST LIRA RATE FIXED 9E61 8 100 ROME - THE TOURIST LIRA HAS BEEN FIXED AT 100 TO THE POUND STERLING -0- PRAGUE UNITED PRESS - October 8, 1936. 122 WCNS47 ADD DEVALUATION, PRAGUE UNDER THE MEASURE THE CROWN IS TO BE DEVALUED TO CONTAIN BETWEEN 30.21 AND 32.21 MILLIGRAMS OF GOLD. THIS COMPARES WITH THE FORMER GOLD CONTENT OF 37.15 MILLIGRAMS. THE GOVERNMENT ORIGINALLY PROPOSED THE DEVALUATION BE BETWEEN 31.21 AND 33.21 MILLIGRAMS GOLD CONTENT. 10/8--R12N Czechoslovation WCMS43 PRAGUE.--PARLIAMENT TODAY PASSED A BILL FOR DEVALUATION OF THE CZECHO-SLOVAKIAN CURRENCY. 10/8--R1131A cost ... DOW JONES - October 8, 1936. 10.20 9861 8 LINCZECHOSLOVAKIAN DEVALUATION PRAGUE-REUTERS- THE CHAMBER OF DEPUTIES CHANGED THE DEVALUATION BILL BY FIXING THE NEW GOLD CONTENT OF THE DEVALUED CROWN AT A MINIMUM OF 30 21 MILLIGRAMMES AND A MAXIMUM OF 31 21 - THIS MEANS DEVALUATION BY BETWEEN 15 98 PC AND APPROXIMATELY 19 PC - THE BILL AS AMENDED IS EXPECTED TO BE PASSED TONIGHT -0- ADD CZECHOSLOVAKIAN DEVALUATION 10:45 PRAGUE- PREMIER M HODZA TOLD THE BUDGET COMMITTEE THAT CZECH DEVALUATION WOULD BE ACCOMPANIED BY STEPS TO REMOVE OBSTACLES TO INTERNATIONAL EXCHANGES AND WOULD AVOID ANYTHING OF THE NATURE OF DUMPING SO THAT THE GOVERNMENTS OF THE UNITED STATES GREAT BRITAIN AND FRANCE WOULD HAVE NO REASON TO IMPOSE HIGHER TARIFFS AGAINST CZECH GOODS CZECHOSLOVAKIA IS READY TO COLLABORATE IN THE CREATION OF A NEW ECONOMIC SYSTEM IN CONFORMITY WITH THE MONETARY POLICY OF THE TRI- - PARTITE AGREEMENT HE SAID 124 12:29 1936 OCTS ADD CZECHOSLOVAKIAN DEVALUATION PRAGUE-UP- THE CHAMBER OF DEPUTIES PASSED THE FINAL TEXT OF THE DEVALUATION BILL EVALU- D ATION IS FIXED AT 10 3-10 PC MINIMUM AND 18 8-10 PC MAXIMUM AND THE CROWN-S GOLD CON- TENT IS ALTERED TO A RANGE OF FROM 30 21 TO 32 21 MILLIGRAMS -0- -8.13 PARIS POLICE RAID FASCIST SOCIALISTS PARIS - COPYRIGHT BY UP - POLICE OCT 8 1930 ACTING ON URGENT GOVERNMENT ORDERS SWEPT DOWN ON HEADQUARTERS OF THE FASCIST SOCIAL PARTY OVER THE ENTIRE GREATER PARIS AREA TODAY -0- 125 26 Octobe , 1976. 3 BANK OF FRANCE TOONY LOWFRES THE BANK RATE FROM NT COVERAGEST SHEPT, DOWN THE RASCIST SOCIAL PARTY OVER THE ENTIRE TAKEN 105 SHARD AGAINST LEAKAGE OF INFURIATION the TO THE FASCISTS. SQUADS DEBOENDED ON HEADQUARTERS OF THE ORGANIZATION ALE OFFICIALS OF THE SEINE DEPARTMENT PROSECUTION OFFICE M a H BASTY Nonoush SERROR or PESPES AND FILL CARINETS AND SEIZED ALC DOCUMENTS THE MATERIAL SEIZED, THE PROSECUTORS, ACTINGAIN OF PREMIER BLUM'S LEFT WING COALITION GOVERNMENT, EXPECTED TO PROVE THAT THE FRENCH SOCIAL PARTY IS THE of CRO17 BE FEIL ORGANIZATION OF COL. DE 4.A ROQUE IN BISGUISE. LASHODUE'S HOME WAS AMONG THOSE RAIDED. 28 RAIDS, POLICE SAID, INCLUDING THE PARTY GENERAL FADQUARTERS AND THE HEADQUARTIAS OF THE PARTY'S SPORT OCIETY issueal ADD PARIS POLICE RAID FASCIST HEAD- Q UARTERS 9061 8 100 3:08 PARIS- COPYRIGHT U P- - SEARCH OF THE VARIOUS HEADQUARTERS AND HOMES OF LEADERS CON- TINUED ALL DAY LONG AND BY MID-AFTERNOON INDIVIDUAL RAIDS TOTALED 37 THE CHARGE ON WHICH THE RAIDS WERE BASED HERETOFOKE MADE OUT AGAINST JOHN DOE FOR RECONSTITUTING THE DISSOLVED LEAGUE AND ILLEGAL ASSEMBLY TOTAY PERSONALLY NAMED COL CASIMIR FRANCOIS DE LA ROQUE HEAD OF THE FRENCH SOCIAL -FASCIST- PARTY AND FIVE LIEUTENANTS INCLUDING THE FLIER JEAN MERMOZ AND THE BASQUE DEPUTY JEAN YBARNAGARAY WEAPONS AND A DAGGER MADE IN GERMANY WERE SEIZED BY POLICE IN THE RAID ON THE HOME OF LA ROQUE -0- 128 DOW JONES - October 8, 1936. OCT 8 1936 2 1-2 PC FRENCH BANK RATE 8.45am PARIS- BANK OF FRANCE HAS REDUCED DISCOUNT RATE TO 2 1-2 PC FROM 5 PC -0- OCT 1936 AJ.9:48 BANK OF FRANCE STATEMENT PARIS-/STATEMENT AS OF OCT 2 SHOWS GOLD 57 358 000 000 FRANCS vs 50 III 000 000 ON SEP 25- CIRCULATION 86 026 000 000 vs 83 749 000 000 -RATIO 60 47 PC vs 54 42 PC -0- 10:01 OCT 8 1936 ADD BANK OF FRANCE STATEMENT PARIS - IN FRANCS AND 000 000 OMITTED SEPT 25 OCT 2 GOLD 57 358 50 III 15 11 SIGHT BAL ABROAD I 464 7 528 NEG BILLS BOUGHT ABRD COMM BILLS FRANCE TREAS BILLS DISCOUNTED - - - I 222 7 135 - - ADV AGNST SECUR 4 007 3 552 30 DAY ADVANCES I 626 838 NEG BONDS OF S F TEMPORARY ADV TO STATE 86 026 8 827 CIRCULATION TOT CR CURR ACCTS TREASURY SINKING FUND PRIVATE 5 639 12 304 O! 592 83 749 8 339 167 I 536 I 511 6 616 6 511 RATIO 94 854 60 47 PC BANK RATE X 3 PC TOT SIGHT LIABILITIES 5 639 15 900 92 089 54 42 PC 5 PC X-RATE WAS REDUCED TO 3 PC ON OCTOBER 2 AND TO 2 1-2 PC OCTOBER 8 -0- 10:02 01 OCT 8 1936 ADD BANK OF FRANCE PARIS- REVALUATIO OF GOLD AND FOREIGN EXCHANGE RESERVES OF THE BANK OF FRANCE HAS PRODUCED A REVALUATION PROF I IT OF 17 000 000 000 FRANCS OF WHICH 10 000 000 000 FRANCS HAVE BEEN WITHDRAWN FOR THE EXCHANGE FUND LEAVING AN ADDITIONAL 7 000 000 0000 FRANCS FOR THE BANK-S OWN RESERVE OF THIS LATTER AMOUNT 3 000 000 000 FRANCS HAVE BEEN EARMARKED FOR EVENTUAL DELIVERY TO THE CREDIT FONCIER AS AN OFFSET TO THE PROSPECTIVE REDUCTION OF INTEREST ON ITS LOANS TO PROVINCES AND MUNICIPALITIES- THE BALANCE HAS BEEN USED TO REDUCE ADVANCES MADE BY THE BANK OF FRANCE TO THE STATE UNDER THE LAW OF JUNE 1936- THE CURRENT STATEMENT SHOWS A NET REDUCTION IN THIS ITEM DURING THE WEEK OF 3 500 000 000 FRANCS 131 DOW JONES - October 8, 196. (DJ 8:45 A.M. OCT.8, 1936): 2 1-2 PC FRENCH BANK RATE. PARIS - BANK OF FRANCE HAS REDUCED DISCOUNT RATE TO 2 1-2 PC FROM 5 PC. LONDON DOW JONES - 13: October 8, 1936. BANK OF ENGLAND STATEMENT AS OF OCT 7 OCT 8 1936 SHOWS CIRCULATION 450 842 000 PDS vs 449 396 000 PDS ON SEPT 30 - RATIO 39 3 PC vs 39 8 PC 8.50 - BULLION 249 751 000 PDS vs 249 000 PDS 1936 9:43 ADD BANK OF ENGLAND STATEMENT LONDON- IN POUND STERLING AND 000 OMITTED OCT 7 CIRCULATION SEP 30 450 842 449 396 24 752 49 714 125 134 101 668 BANKERS ACCOUNTS 84 192 60 719 OTHER ACCOUNTS 40 942 40 PUBLIC DEPOSITS PRIVATE DEPOSITS 949 GOVT SECURITIES 79 753 80 323 OTHER SECURITIES 28 860 28 990 8 588 20 402 60 359 DISC AND ADV 9 291 SECURITIES 19 569 RESERVES 58 909 PROP RES TO LIAB 39 3 PC BULLION BANK RATE 249 751 39 8 PC 249 755 2 PC 2 PC -0- BANK OF ENGLAND RATE UNCHANGED LONDON - THE BANK OF ENGLAND MADE NO CHANGE IN ITS DISCOUNT RATE OF 2 PC OCT 8 1936 CT 8 1936 133 32 October 7, 1936 Harry Hopkins, Corrington Gill and Mr. Bell met with the Secretary at 3 p. m. today. HM,Jr. said, "The proposition your people have put up to us for one month is that they want the President to sign approved projects for women up to $100,000000. We have taken the position here that we advised the President not to sign this as we feel he would be breaking the spirit of the law if he signs approvals of projects in excess of the amount allotted by Congress. That is the whole proposition and ever since this has started I have been asking to see Hopkins because in the six years that we have worked and fought together we never left each other without an understanding." Mr. Hopkins answered, "Yes." The Secretary then said, "I don't like the way you say 'yes'." Hopkins re- plied, "I have a big office to run and when I am away it must go on running. They must make decisions." HM,Jr. then remarked, "I gave the President my advice and the decision is not mine. I have no authority here." Hopkins' answer was, "The net result has been the same. 22,000 women are off the payroll." HM,Jr. then said, "That is the fault of your organization." Harry Hopkins, however, disagreed with this statement, saying "No, because the projects have not been signed, and if the projects are not signed, 22,000 more will be off." The Secretary said to Mr. Hopkins, "Yesterday Gill told me it was 9,000. How could it be 22,000 today? And the President of the United States was not advised of it." Mr. Hopkins' answer was, "You know the President will not sign anything that Dan Bell does not tell him to." To this remark the Secretary answered, "He signs other projects." Mr. Hopkins then said to the Secretary, "Our belief is, and we have the responsibility for running this, that you cannot keep these people at work by merely having approved the number of projects and the amount of dollars which the law permits." Gill added, "$1,070,000 has been spent and $2,300,000 has been obligated." The Secretary's response to Mr. Gill's remark was the question, "you mean to say that out of an approval of $98,000,000 new money, you have spent $1,070,000?" Mr. Gill's answer was, "In 134 -2- the hearings before the House and Senate Committees, Mr. Hopkins explained fully the procedure of our organization, in allocating funds for various projects." The Secretary remarked, "This is the first time you have ever told me that.' "You have complete control," Mr. Hopkins said to the Secretary. "The Treasury Department knows, day by day, how much money we obligate under any one of these items by states and by the country. We could take, let's say, at the time when we obligate 80 percent of whatever it is ($90,000,000), we could sit down and agree with the Treasury that 80 percent -- the exact letter of instructions which would go out would make it absolutely certain that we could not spend more than 80%. Now the President approved over $7,000,000,000 worth of projects for WPA, which was five times as much as we spent. I never heard one word of criticism of that action at any time. Ever since I have been in this work relief game, it has been understood that we would have to get many more projects approved than we would spend money for. Every other department gets money when the project is approved. We don't. We merely get a project approved and then some money to keep the thing going. The control which the Treasury has over us is that we should not spend more money either than the law allows or than the President has given us. The President is taking no chances in approving a project for $500,000 and then giving us $50,000 to operate it because he has complete control over the dollars and so does the Treasury. It would be illegal for us to spend more than $98,000,000 on women's projects and if we had the dollars every time we got a project approved, this thing would not be particularly complicated. As it is, running projects as we are in every city in the country, we cannot run this program unless we can get many more projects approved than we have money to pay for." The Secretary's reaction to Mr. Hopkins' statement was, "That does not mean that it is wrong." Mr. Bell added, "You always did get it." Continuing his remarks, the Secretary said, "I would be more than delighted to go back to the system which existed up to June 1; that is, turn the whole $98,000,000 over to you in a lump sum with the understanding that as each project was approved by the President, you would set up the full amount of the project. That worked up until June 1 and then the thing that happened 135 34 -3- when we appeared before the President, Aubrey Williams made the statement that due to me there were unfinished projects all over America and I turned to Harry Hopkins and so'. I said, 'Is that so?' and he said, 'No, it is not Gill's comment was, "That can't possibly work now because there is not that much money." "I have never interfered with you people once the money was turned over to you," the Secretary said to Mr. Hopkins and Mr. Gill. I will go back to the way it worked up to June 1. I cannot get it through my head. If you have 5,000 unfinished projects on February 1 and I am still here and I come along and say that you will have to shut off at 80 percent, then you put me in the position that I am stopping projects and I will not be put in that position. I am perfectly willing, as long 000 to Hopkins and let him spend it. That is all that as Hopkins is head of unemployment, to turn over $98,000,- Hopkins can ask of me. I will sign such a statement this minute. How he spends it is Hopkins' responsibility to the President and not to me, but I am not going to change my position, which the President can overrule if he wants to, to approve $150,000,000 when he only has $98,000,000." Mr. Hopkins' response was, "The President will never give us $98,000,000 without tying a lot of other strings to it." "I do not believe," Mr. Morgenthau said, "the President knows now how this thing operates. As to the principle, we do the buying for you and your auditing. I cannot say anything more. I will go to the White House and see the President with you and hand him a piece of paper recommending that I turn over $98,000,000 to you." At this point Mr. Hopkins inquired, "Does the law say that the President has to approve individual projects? Can the President authorize me to approve projects?" Mr. Bell's answer was, "No; certain class of projects. Mr. He can give you $98,000,000 for Williams' projects." Hopkins then asked, "What about doing the whole business that way?" The Secretary asked Mr. Bell, "What do you 136 -4- think, Dan?" Mr. Bell replied, "That is a matter of policy for the President to approve." The Secretary then asked Mr. Hopkins, "Do you feel that as far as running through your shop, it is purely a formality?" Mr. Hopkins answered, "In the main it is. " The Secretary remarked, "It is largely a matter of formality. I have stated my position and I am sticking by it. As Secretary of the Treasury, I simply feel that it is my duty to see that it is pointed out to the President that he does not approve or spend more money than has been authorized by Congress. How it is spent is the responsibility of the man he appoints to spend it. I think the President ought to give us a half hour." Mr. Hopkins inquired, "Is the President going to see us just before election?" Mr. Gill asked, "If you feel that way about women's projects, how about other projects?" Mr. Morgenthau's reply was, "My answer is Yes. As man to man, can you have any difference with me as to the position I am taking?" Hopkins remarked, "One clear implication is that the President would have to givebe us money under a certain classification. That would fine. That would be the best thing we have ever had." The Secretary then said, "Let Bell and Gill draw up a memorandum and I will sign it." Mr. Hopkins remarked, "Any one of these sewing projects is a completed project 30 days hence and I can say that on February 1, hundreds of projects will have been completed." The Secretary asked, "How much did you spend last month?" Gill replied, $150,000. How about the Comptroller General?" HM,Jr. answered, "I told you that my shop would go over there with you." Hopkins was pleased, saying, "This is fine. I want to know if Dan approves it." The Secretary explained, "I spoke as Secretary of the Treasury and he can talk as Director of the Budget. " Bell said, "I think under the Act the way it has been handled is the right way, but I think we can work that out and throw a control around it if we can get the projects approved." Hopkins' comment was, "We can get the projects approved, and if necessary we can get the Comptroller to approve them." The Secretary's closing remark was: "I think this thing ought to be done right away." 137 COPY October 8, 1936. MEMORANDUM FOR THE PRESIDENT: About ten days ago the Secretary of the Treasury and I discussed with you the matter of approving projects under the Emergency Relief Appropriation Act of 1936 in excess of the limitations set out in that Act. We particularly dis- cussed the limitation covering women's projects and advised you at that time that you had approved projects in the aggregate amount of approximately $85,000,000, which is the amount of the limitation. We also advised you that the Works Progress Administration had to have, for the purpose of flexibility, projects approved under this particular limitation in the aggregate amount of about $150,000,000, but controlling the obligations incurred thereunder through the Works Progress Administration and the Treasury Accounts Of- fices. You stated at that time that you would like to avoid the approval of projects in excess of the limitations in the Act, and asked the Secretary to work out with Mr. Hopkins a procedure whereby this could be avoided. We have discussed the matter quite thoroughly with Mr. Hopkins and Mr. Gill and this morning had a conference with them and with the Acting Comptroller General. We have reached the unanimous conclusion that the best way to handle the matter is for you to allocate a designated sum of money to the Works Progress Administration broken down by States for the projects covered by "(f) assistance for educational, professional and clerical persons", and "(g) women's projects." The aggregate amount of the allocations which you would approve under these two limitations could not, of course, exceed the amount of the limitation in the Act, namely, $85,500,000 in each case. Attached you will find two letters allocating in each case $15,000,000 to the two about mentioned limitations. This procedure has the informal approval of the Secretary of the Treasury, the Acting Comptroller General and the Works Progress Administrator. It is important that this matter receive your prompt attention. /s/ D. W. Bell Inclosures Acting Director. 138 37 October 8, 1936. MEMORANDUM FOR THE PRESIDENT: About ten days ago the Secretary of the Treasury and I discussed with you the matter of approving projects under the Emergency Relief Appropriation Act of 1936 in excess of the limitations set out in that Act. We particularly discussed the limitation covering women's projects and advised you at that time that you had approved projects in the aggregate amount of approximately $85,000,000, which is the amount of the limitation. We also advised you that the Works Progress Administration had to have, for the purpose of flexibility, projects approved under this particular limitation in the aggregate amount of about $150,000,000, but controlling the obligations incurred thereunder through the Works Progress Administration and the Treasury Accounts Offices. You stated at that time that you ould like to avoid the approval of projects in excess of the limitations in the Act, and asked 500 Secretary to work out with Mr. Hopkins a procedure whereby this could be avoided. We have discussed the matter quite thoroughly with Mr. Hopkins and Mr. Gill and this morning had a conference with them and with the Acting Comptroller General. We have reached the unanimous conclusion - that the best way to handle the matter is for you to allocate a desig- nated sum of money to the Works Progress Administration broken down by States for the projects covered by "(f) assistance for educational, professional and clorical persons", and"(g) women's projects." The aggregate amount of the allocations which you would approve under these two limitations could not, of course, exceed the amount of the limitation in the Act, namely, $85,500,000 in each case. Attached you will find two letters allocating in each case $15,000,000 to the two above mentioned limitations. This procedure has the informal approval of the Secretary of the Treasury, the Acting Comptroller General and the Works Progress Ad- ministrator. It is important that this matter receive your prompt attention. Inclosures Acting Director. slowfree 139 38 October 7th At the 9:30 meeting held in Secretary Morgenthau's office this morning the following were present: Miss Roche Mr. Bell Mr. Gaston Mr. Haas Mr. Oliphant Mr. Taylor Mr. Upham Mr. Gaston: Don't you think the papers treated the President beautifully? H.M.Jr: I certainly do. Mr. Gaston: We have some friends. H.M.Jr: Somebody did a beautiful job. Mr. Gaston: For the first time there is evidence of the boys handling this thing on a patriotic basis. H.M.Jr: Do you think I should say something to Steve congratulate him? Mr. Gaston: Yes I think so. Note: At this point Secretary Morgenthau put in a call for Mr. Steve Early. H.M.Jr: There are two things, Herbert, if you dont mind. That paragraph - Mr. Gaston: I will do it to-day. H.M.Jr: Let Corcoran know you are doing it and let Sam H.M.Jr: I just talked to the President. He liked the Rosenman know. speech on "Death and Taxes". He asked me would I please give it to you and Same Rosenman. He likes it so well he is giving it himself. I worked out a speech on Death, Taxes and Inflation at 2 o'clock in the morning and showed it to the President. He likes it so well he said he wants to give it in Chicago. 140 -2Miss Roche: You should have one on "Life and Taxes". H.M.Jr: I have worked it out on an entirely new angle. We crossed this bridge of inflation when he would raise money by taxation rather than borrowing. On the 5th of January was the test that we would not have inflation. Mr. Oliphant: On the representation of the bond holders. H.M.Jr: H.M.Jr: to Gaston: That has not been pointed out - the decision, whether we would use the printing press or raise it through taxes, was made on the 5th of January. I will give it to you. You can bring in a stenographer. It won't take me ten minutes to do it. H.M.Jr: to Gaston: Mrs. Elizabeth McDuffey, who is Mrs. Roosevelt's maid, will give a speech in Springfield, Illinois, and she said she wants something on finances. She is a darling. She said, "I have a swell speech on CCC and, she says, finance is a little bit difficult. I just want you to give me a little something not too complicated". So what I would do is something on interest rates and revenue. Something like that. Get it over to her to-day. Mr. Gaston: To-day? H.M.Jr: Yes, I would let somebody knock it out. Miss Roche: H.M.Jr: That mimeograph stuff of yours is grand. What is that? Miss Roche: Something he (Gaston) has gotten out. Mr. Gaston: This is on the Death Taxes and the Budget. H.M.Jr: Send it over to her with my card. Gaston: Mrs. Elizabeth McDuffey? H.M.Jr: Yes, Mrs. Gaston: Oh, McDuffey's wife. H.M.Jr: Yes. 3g 141 -3- 40 Mr. Oliphant: Is Mac sick? H.M.Jr: Note: There was a golf party that he went to yesterday. At this point Secretary Morgenthau called the operator and asked about Mac and she reported back that he was not feeling well. Note: Then Secretary Morgenthau told the operator to find out if Admiral Peoples was in. Mr. Gaston: Did Peoples go along? H.M.Jr: It was the same party. H.M.Jr: to Gaston: Note: Well if you take care of the President on his copper, gold and silver and Mrs. McDuffey on finances that's all I have this morning. Admiral Peoples' call came through and Secretary Morgenthau jokingly asked him what he did with his Administrative Assistant as he was not in this morning. They joked back and forth. Note: Secretary Morgenthau then sent for Dowling and when Dowling appeared the Secretary gave him some money and instructed him to go out and buy one single lily and send it up to Mac's house. H.M.Jr: Wayne? Mr. Taylor: It seems that the Export-Import Bank have some Note: surplus funds that they wish to invest. Mr. Taylor then read the letter from the Export-Import Bank. (Copy attached). H.M.Jr: Who is that from? Mr. Taylor: From Warren Pearson, President of the Export-Import Bank. It happens to be similar to some of the others. Mr. Bell: Well I object to the practice. I think we ought look upon the government service as a whole. The Treasury should not be borrowing money from these companies to invest in the government bonds. to -4- 142 4 Mr. Bell: I told you the Home Owners Loan put in a subThey H.M.Jr: Do you want to get them all together? Mr. Bell: If it is important enough. I don't know whether you want to do it just for that. We are borrowing money on the market and then allowing these corporations to invest it in government securities. Well frankly I don't get it but let's you and I sit down and talk about it. H.M.Jr: H.M.Jr: scription of 20 million of the last ten. put it in at 2 o'clock. I told them I would let it go in but I was opposed to the practice. Wayne, when the Red Cross come at 10 o'clock I want you to stay. I have invited Bell. Mr. Taylor: I don't entirely agree with Dan. They have idle funds for a temporary period. H.M.Jr: Cy? Mr. Upham: Nothing. H.M.Jr: Dan? Mr. Bell: Nothing. H.M.Jr: You are coming at the 10 and you are coming at the 11? (Meaning two meetings) Mr. Bell: Yes. Miss Roche: I have a matter which I would like to clear with you on an Executive Order on the Inter-departmental Committee. I would like to talk to you about it a minute. I am going to New York at 1 o'clock. H.M.Jr: At 1 o'clock. Well do it right now. Miss Roche: You remember a year ago when the President appointed an Inter-department Committee he named four Assistant Secretaries. They worked out their agreements and they cleared right up to the Assistant Secretary who can speak for the department and put in force. We thought we were getting on great when Mr. Altmeyer was transferred to Social Security Board. She (Secretary Perkins) insisted that he act for Labor. -4- 143 42 Miss Roche: Without any warning we picked up the papers about two weeks ago and saw the press release that the H.M.Jr; President had reconstituted this Committee, leaving me on as Chairman and leaving Mr. Chapman and Mr. Wilson on. In the Labor Department they realize that it is just an effort to get McGrady off the committee. It has completely wrecked the committee set-up. Mr. Studebaker would want to go on. I talked to Early and he agreed 100%. Yesterday Mr. Altmeyer talked with the Secretary of Labor and then he called me and said she would be quite willing to have McGrady go on. Don't the Executive Orders clear your desk? Bell: Sometimes. H.M.Jr: Inasmuch as this is so close to the Assistant Secretary of the Treasury, could we assist Miss Roche? When you go out of here work this thing to Bell: out with Miss Roche. Bell: Yes. H.M.Jr: Formally they would go through his (Bell's) office. Bell: Yes. Miss Roche: H.M.Jr: It is all right for me to press that? Entirely. Bell is in a perfect position. Bell: They are supposed to go through. Miss Roche: Thank you very much. Would you assist Miss Roche on this? All right. Does that take care of your problem? It gives you the assistance you need? Miss Roche: Yes sir, unless I get into some trouble with the H.M.Jr: Secretary of Labor. H.M.Jr: If you do, come and see me. But for the moment you are fixed up? Miss Roche: Yes. 144 -5Mr. Haas: The material you asked for Tuesday on foreign material we will probably have to-day. H.M.Jr: Well that will go in with the President's speech. Give it to Gaston. H.M.Jr: to Gaston: I want certain groups. If your income was $1500, you had two children - you paid so much. Let's Mr. Oliphant: see what you would pay in England. Will he devote all his speech to that? We have plenty of material way back to what Jackson used. H.M.Jr: Let it go through the funnel. Mr. Haas : The other thing is Miss Lonigan has come back from New York. She wants to tell you about her trip but she does not want to put it in writing. You didn't want her to make field excursions. The less I know the better. I mean I can't help it if Hopkins can't run his own shop but if he is sick and can't run his business he should say so. After all, if we get sick and can't do our business we should say so. You can't let the whole unemployment go. Is that a fair statement? Yes sir. It (the work) is more important than Mr. Oliphant: H.M.Jr: we are. Miss Roche: He's been writing a book. H.M.Jr: Well he's been doing something and I will find out what it is when he comes here at 11 o'clock. Miss Roche: He has been writing a book, "Saving by Spending". H.M.Jr: Mr. Bell: H.M.Jr: In the meantime, they have laid off 9,000 people because there is something wrong in Hopkins' own shop. I am not going to let them hang it on Bell or me or the President. I heard he wasn't wanted in Washington. Well they said they are afraid to let him hold a press conference. In the meantime, I am going to protect the President, Danny Bell and myself. You got your money to continue Health didn't you? Miss Roche: Yes. H.M.Jr: 145 6H.M.Jr: Well you wouldn't have it if it wasn't for us. H.M.Jr: George, your money is coming O.K? Mr. Haas: Yes sir. Mr. Gaston: Count Biondi, who is the correspondent here for Stefani, official Italian newspaper, would like to know if you would say some word to Italy. He thinks it would do some good. This is a semi-offi- cial news agency. He wondered if there was anything that you could possibly say to him that he could use in a dispatch for Italy. I told him that whatever you might like to say you would have to be very careful about anything that might disturb the situation. Mr. Gaston: The Editor of Fortune would like to see you to see if there is anything he can write about the Stabilization Fund. H.M.Jr: Oh Herbert, see me later on. I have these two big jobs on - the Red Cross - the speech. Hit me at 12 o'clock. 146 45 (COPY) EXPORT-IMPORT BANK OF WASHINGTON Washington October 6, 1936 Office of The President Personal Dear Wayne: As repayments are received from the present Cuban silver transaction, it appears likely that the Bank will have some surplus funds not immediately needed in its loaning operations. Rather than permit these monies to remain idle it has occurred to us that they might well be invested in obligations of the Government. Before presenting this to the Trustees, I would be interested in learning whether or not the Treasury Department has any objection to the practice as a matter of policy. It is understood that other governmental or semi-governmental agencies have followed a similar plan. It will also be appreciated if you could advise us as to the issues which might most advantageously be purchased. Sincerely, (signed) W.P. Hon. Wayne C. Taylor Assistant Secretary of the Treasury Washington, D. C. 147 REORGANIZATION OF THE CUSTOMS AGENCY SERVICE IN EUROPE AND THE NEAR EAST ORGANIZATION The Treasury Attache at Paris is being designated Supervising Treasury Attache for Customs Agency District No. 16 comprising the countries in Europe and the Near East. He will have general supervision and authority over all offices and employees of the Customs Agency Service in those countries, under the direction of the Deputy Commissioner of Customs in charge of the Customs Agency Service. NARCOTIC. CRIMINAL. AND FRAUD INVESTIGATIONS 1. Four or more Treasury Representatives shall be employed exclusively on investigations relating to violations of the revenue laws and inter- national phases of the illicit traffic in narcotics. 2. Travel by Treasury Representatives so employed shall be performed only when directed by the Supervising Treasury Attache. 3. All Treasury Representatives se employed shall have their headquarters at Paris. 4. All reports of investigations, and information pertaining to law violations, shall be sent to the Supervising Treasury Attache for transmittal to the Deputy Commissioner of Customs in charge of the Customs Agency Service, except that in cases requiring immediate action such reports and information may be transmitted direct to Supervising Customs Agents by cable or mail, copies thereof to be furnished the Supervising Treasury Attache for his files and for transmittal to the Deputy Commissioner of Custome. 5. All requests for such investigations, and information that will be of interest to Treasury Representatives so employed, shall be sent to the Supervising Treasury Attache by the Deputy Commissioner of Customs in charge of the Customs Agency Service, except that where the exigencies of the case will not permit of such routing requests and information of this character may be transmitted by Supervising Customs Agents direct to the Supervising Treasury Attache, a copy thereof to be transmitted immediately to the Deputy Commissioner of Customs. 148 2- 6. All United States diplomatic and consular offices in Europe and the Near East will be notified that the Treasury Attache at Paris has been designated Supervising Treasury Attache for Europe and the Near East and will have supervision over the operations of all customs officers in those areas. The Department of State will be requested to make arrargements whereby a copy of all mail or cable despatches emanating in Europe and the Near East concerning violations of the narcotic or revenue laws shall be sent immediately to the Supervising Treasury Attache at Paris by the office making the despatch. 7. The Supervising Treasury Attache will arrange to cooperate with, and to secure the cooperation of, United States Diplomatic and consular officers and police and other officials in Europe and the Near East, in narcotic, criminal, and fraud investigations. 8. All files concerning narcotic, criminal, and fraud investigations in Customer Agency District No. 16 will be kept in Paris. 9. The Supervising Treasury Attache as well as the Commissioner of Narcotics, will attend meetings of the Opium Advisory Committee of the League of Nations, on occasions when the Treasury Department is requested to participate in such meetings. OTHER CUSTOMS INVESTIGATIONS AND ADMINISTRATIVE MATTERS 10. All requests for investigations in Europe and the Near East will be transmitted by the Deputy Commissioner of Customs in charge of the Customs Agency Service to the Supervising Treasury Attache, who may assign them to any office or officer in his district. 11. Reports of routine custome investigations shall be transmitted by Treasury Attaches to the United States as at present. 12. Travel, other than in the vicinity of the area to which a Treasury Attache or Treasury Representative is regularly assigned, shall be per formed only under the authority of the Supervising Treasury Attache. 13. All correspondence and recommendations concerning personnel, administrative procedure, and other matters to be taken up with the Bureau of Customs or the Department, arising in the offices of the Treasury Attaches at Berlin, London, and Vienna, shall be addressed by the Treasury Attaches at those places to the Supervising Treasury Attache. Commissioner of Customs. Approved 10-7 . 1936: Secretary of the Treasury. 149 48 October 7, 1936 The President called HM,Jr. al 4:35 and said, "Don't shout, Henry, until I talk to you. I want you to see whether you can do something about the Fisher Body case which is up before the Board of Tax Appeals. I do not know anything about the merits of the case. All they want is to have it speeded up so they will know where they are at. The case has been referred to the Technical Unit of the Board of Tax Appeals." HM,Jr. replied, "I will do what I can, but may I explain that the Board of Tax Appeals is not in the Treasury?" The President said, "I know it is not, but see what you can do." The Secretary answered, "I will do the best I can.' HM,Jr. then asked the President, "My appointment still stands for tomorrow morning at 9:15?"and the President answered, "Yes." 150 October 7th At the American Red Cross meeting, held in Secretary Morgenthau's office at 10 o'clock this morning, the following were present: Mr. Baden Mr. Daniel W. Bell Mr. James A. Hendrix Mr. William D. Hoover Mr. W. A. Julian Mr. Harry G. Meem Mr. Parker Mr. Howard J. Simons Mr. Wayne C. Taylor Mr. Corcoran Thom Mr. Wilkinson Mr. Simons: I had hoped that we would have a full committee. Mr. Davison is indisposed. We will check and see if we have a quorum. Would you like me to proceed? H.M.Jr: Please. Note: Mr. Simons then proceeded to read the rather lengthy minutes of the previous meeting. Note: Reading of minutes now concluded. H.M.Jr: What are your wishes? Do you move that the minutes Group: Aye. H.M.Jr: Motion is carried. Mr. Simons: Before Mr. Parker presents his items there are two other items. The following two stocks have been declared of no value: 16 shares ofHiggins Wildcat Company. A letter from Mr. Higgins advises that these are of no value. 5 shares of Pittsburgh Northern Railroad Company. A letter from Mr. Goody advises the stock is of no value. H.M.Jr: Does somebody move that -- be adopted? All those in favor say Aye. Mr.Wilkinson: I move. I second it. Those in favor say aye. H.M.Jr: Group: Aye. 151 -2H.M.Jr: Motion is carried. Mr. Simons: Real estate is coming in in larger volume than heretofore. We have inherited 664 parcels of land in the State of Minnesota. We have inherited the Bemdem Coal Company. We have inherited other estates and large mortgages against apartment houses. Negotiations in connection with that were started by Mr. Hughes, Legal Adviser of the Red Cross. He has carried negotiations through and he has his fingers on approximately everything. If they were turned over to us it would mean it would be placed on the Treasurer. The Central Committee, in passing on to the Board of Trustees, has itself decided what goes into the Endowment Fund. Mr. Hoover: Where is the title to that? Mr. Simons: It is in the Board of the National American Red Cross. Mr. Hoover: Make the sale and turn it over. It would be easier that way. Mr. Simons: Yes. Mr. Hoover: You recommend that? Mr. Simons: Yes. Mr. Hoover: I so motion. In favor? Group: Aye. Mr. Hoover: Motion is carried. Mr. Simons: Mr. Parker of Standard Statistics prepared a report -Well before Mr. Parker makes a statement I H.M.Jr: would like to make one. There has been considerable misunderstanding as to just what my position is and I would like to make it clear to you personally because, while the papers reported accurately what I said, I would like to tell you and ther ask your advice because I don't want to do anything hastily that would in any way injure the Red Cross. This is the way I feel and I feel it strongly. Ordinarily the Under Secretary is Chairman of the Board. 152 -3 Mr. Simons: The Secretary of the Treasury has always been elected Chairman of the Board. H.M.Jr: H.M.Jr: I take my duty as the Secretary of the Treasury seriously and it is impossible for me to be passing on commercial securities. I cannot be put in that position. In the first place, it puts me in a false position. I can't say whether XYZ company is good or bad and the fact that no other Secretary felt that way makes no difference. It is just how I feel and how I will take my responsibility and when I am asked, "How should this Committee invest it's funds"?, officially I can only say one thing and that is, "In a government security or a government guaranteed security". I am not trying to say whether a government security or Home Owners Loan is better than any other security. If, as Chairman of this Board, it is an embarrassment to this Committee for me to take this position I would be very glad to resign but I am a great admirer of the work that the Red Cross does. My father has been connected with it for years and I don't want to do anything that will injure the Red Cross. H.M.Jr: I have been told how Mr. Warburg feels and if any Members of the Board feel that way, the Red Cross is more important than I am and the Red Cross must go on but my interpretation of my duties is that I cannot be put into the position of saying this security is good and this isn't. I cannot, as Secretary of the Treasury, be passing on commercial securities. Anything that you people feel is to H.M.Jr: the best interest of the Red Cross I am willing to do. If that is an embarrassment to this Committee, why I would be very glad to resign and let the Committee invest its money as it thinks best. I told the newspaper men, off the record, that I thought it was very unfortunate that this story was given out in New York to the Hearst papers. Someone in New York told about the contents of this letter and I think it is very unfortunate. It came out Sunday in the New York American by Cecil Dickinson. Then when they (newspapermen) all piled into my regular Press Conference they wanted to know what it was all about. They put me in the position that I was using this fund in order to bolster up the government bond markets 153 -4 - And that I used this fund to force down your throats government bonds. H.M.Jr: If my being Chairman is an embarrassment so that you want to carry out your investments calmly and without any watching on my part, I would be pleased to resign. Mr. Simons: I hoped that Admiral Grayson would be able to attend this meeting. I would like to put in a word, if I could, representing a MemberCross of the Management of the Red Cross. The Red would feel a terrible loss if our present arrangement of having the Secretary of the Treasury as Chairman of our Endowment Fund was changed by your resignation. We have hadI it for years and it means everything to us. think you can understand how it would. H.M.Jr: Mr. Thom: I am telling you very calmly how I feel. Following that line of reasoning through - at the present time the question about government bonds - I personally feel it would be wise to invest in government bonds. Investments are one thing - sales are just as important. Is it embarrassing for you to say, "We have too much in such and such a railroad"? I am using railroads as an example. We ought to be going out to sell. Is that just as embarrassing as the other side? H.M.Jr: Yes. Mr. Thom: So that brings in two phases of the situation. Just like saying, "Shall we sell CCC or do we sell so and so and so and so. Following your other reasoning it seems that would be the same position. H.M.Jr: Put yourself here. I am the Fiscal Officer for the United States Government. Mr. Bell and Mr. Taylor brought up this question this morning. The Export-Import Bank has written us a letter that they have surplus funds and they want to know how to invest them. Home Owners Loan have some funds and want to know how to invest them. Should I be put in the position of telling these agencies how they should invest their money? -5Mr. Thom: 154 5F I understand perfectly your position but that puts us in a rather difficult situation. H.M.Jr: What do you think? Mr. Thom: I am frank to say that if that is your attitude I don't think you should continue. But if you don't H.M.Jr: feel that you can pass on what railroads to take I think that the funds would be put in a rather embarrassing position. I was shocked when I saw it in the paper. Comments do leak from the Treasury. So I can see you are in an embarrassing situation. You can see the importance if I advise this Committee. If I should say it and it should leak - "I think you better get out of steel or you better get out of railroad" - that's more of an embarrassing situation than the buying. H.M.Jr: I take my position very very seriously. I don't think you can take it too seriously and as long as I feel that way -- Mr. Julian: Does this contemplate the separation of the government interest in the Red Cross fund? H.M.Jr Only as to this particular fund. But it does not bring up the question, "Should the Under Secretary continue to be Chairman of the Red Cross?" Mr. Julian: Well this is a continuing fund running for many years. I realize the sincerity of it but the question is whether the announced withdrawal of the Secretary of the Treasury from this Committee would not have a serious effect on the Red Cross and its activities. It has to collect its money. It stands under the government and it has that tinge for many, many -Note: At this point Mr. Julian was interrupted by a Mr. Julian: All these trust funds are on the same ship that this is and an effort is being made to obtain a reasonable return on its capital. I remember a couple of members that had the same difficulity but I didn't H.M.Jr: telephone call which came through for Mr. Morgenthau. resign from the Board. As Treasurer of the United States you are a Member of these Boards? Mr. Julian: No. 155 6- 5# Mr. Julian: The question for me is whether you are going to injure the Red Cross by publication of your serverance from this Committee. H.M.Jr: I think it is important. As I say, I have been more familiar with the Red Cross due to the activity of my father than anything I have done. But this thing that I expressed - I expressed this feeling when I came in in '34 and I think Mr. Coolidge felt the same as I did. He carried on for two years. This thing has come up since Coolidge left. This is not something I want to do hastily. Mr. Julian: You are a very busy man. You haven't the time to give to detail. We have to trust these men to good management and can we trust them to go ahead and make mistakes - good investments and poor? H.M.Jr: I have complete confidence in it. I would rather have Standard Statistics advise me on my own securities but it is just a question, "What are the responsibilities of the Secretary of the Treasury to advise anybody"? Mr. Julian: My own position is that while they are responsible decisions they are not accurate decisions and you don't want to take it that way. H.M.Jr: Well do you want to vote to-day whether they should sell XYZ? Mr. Julian: Not particularly. All I would advise them is that as the funds come through put them in the government. Mr. Hoover: Mr. Secretary, I don't think that the questions that embarrass you may not arise to-day. Speaking purely for myself, I would be in favor of making investments of the funds we have in government bonds. If the others should feel that way why then that embarrassment is relieved and we get our money invested. This is a very important matter that you have raised. So if we could to-day dispose of these things which might not embarrass you then we could consider the other questions that you have raised. H.M.Jr: 156 7H.M.Jr: 5F If you have done all the business but this then you can discuss it in the room across the hall where the Under Secretary used to be. You people can go in there and it is at your disposal. And then if somebody would act as Chairman other than myself you can go ahead with your business and you can discuss this without my embarrassment. Mr. Hoover: You don't embarrass us at all. Mr. Julian: I believe you can with dignity continue as Chairman. As I said first, I consider the Red Cross more H.M.Jr: important than H.M.Jr., but I have to decide what I can do and what I can't do and I don't think it is immodest for me to say that I haven't done anything that I should be ashamed of as a citizen. Mr. Hoover: H.M.Jr: As I look at this matter it is your personal view. If the embarrassment is too great you will have to decide that but we are not going to be embarrassed by you sitting Well it is not pressing as far as I am concerned. One of you gentlemen can act as Chairman. Use Coolidge's room. Mr. Hoover: Well we will be sorry to lose you. Mr. Julian: I would like to have you avoid that decision. The sooner you can come to that decision the better the fund will be. H.M.Jr: May I point out this. If the RFC is continued I am going to be asked to be taken off that Board. I am taking the position that, as Secretary of the Treasury, I should not be on any Boards. I told Senator Glass I would be very glad to be relieved. The only other thing is the Library of Congress. As far as I am concerned let's let it rest. 157 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO FROM October 7, 1936. The Secretary Mr. Taylor Last night, at about a quarter of ten o'clock, Mallet of the British Embassy called me to give me a message for you. The message was as follows: That the Chancellor appreciated very much the important messages which he had received from the Secretary of the Treasury and the spirit of cooperation which they evidenced. Unfortunately, he had had a day which was so crowded with engagements that he had been unable to answer the messages, but expected to be able to do so tomorrow (today). Mallet also told me that Bewley was expected this morning and that he felt that 100 could expect an answer today. wer. October 7, 1936 11:08 a.m. Operator: Knoke: Mr. Knoke. The market went down to 4.88-3/4; at the moment it's in ness. H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: the doldrums again at 4.89, and no busi- Good. The British began supporting at - this morning they've done about two and one-half million dollars. And that's all? Sold twotoand one-half sterling that extent.million dollars; bought Well, what I thought is this: These boys may get on to the fact that - that we only come in at twelve,start and Archie's here, and I thought today we might a little earlier. Well, that is - that's what I told the British this morning - they would probably find we would do. H.M.Jr: Well, I think - I thought now - I mean try to keep it from going below 4.89. K: Yes. H.M.Jr: See? K: Yes. H.M.Jr: K: H.M.Jr: I - try to keep it from going below 4.89. Yes. that. At the moment, we'll have no difficulty in Yes. Well, I'd do that, and you can't see any tricks yet, can you? K: Tricks? H.M.Jr: I mean anybody - K: Positively I'mtricks. - I'm satisfied in my own mind that there not. are no 158 -2H.M.Jr: 159 Well, from what Archie tells me with so much gold going out of England, I should think they would be glad to have this reciprocal thing so they could draw on us. Well (Laughs) surely; as a matter of fact, they were the ones to raise - to - to originally approach you, weren't they? Of course, at that time sterling was high and they just didn't know which way to turn. K: H.M.Jr: No, but they might be glad to see some of the K: Oh, sure. H.M.Jr: Yes. K: Yes, exactly. H.M.Jr: I mean right now if you were sitting over there - K: Yes. H.M.Jr: gold come out of our country instead of it all going out of their place. - I mean the fact that gold is leaving, they - they their standpoint why they shouldn't be willing to might say - I mean I can't see any argument from go into this arrangement with us, can you? K: Why they should not? H.M.Jr: Yes. K: No, except - but I would say this, that, of course, with sterling above 5.00 - H.M.Jr: Yes. K: - they would have been gaining gold whereas today K: they are - they are losing gold. Yes, but they However, as long as the thing is on a reciprocal H.M.Jr: Yes. K: - I think it is, from their viewpoint, very desirable H.M.Jr: basis - that it should be consummated. 160 -3H.M.Jr: Right. All right, Knoke. I'd begin now at 4.89. K: All right. We'll do it. H.M.Jr: Thank you. K: Goodbye. H.M.Jr: Mr. Knoke - 11:15 a.m. 161 October 7, 1936 11:17 a.m. Senator Bone: Hello there. H.M.Jr: Hello, Senator. B: Yes, this is Homer Bone of Washington. This is Morgenthau. H.M.Jr: B: Say - I wonder - are you going to be in a for a little while today? H.M.Jr: Yes. B: I'm in town for just a few hours and I'd like to drop in and see you for a moment some time that would be agreeable to you. H.M.Jr: How about 12 o'clock? B: H.M.Jr: That will be very fine. I'm down in my office now; I'll drop down and be there at twelve. I'll be glad to see you. B: Fine. H.M.Jr: Thank you. October 7, 1936 11:21 a.m. H.M.Jr: 162 Mr. Goldsmith? Dr. Goldsmith: Yes. H.M.Jr: This is Mr. Morgenthau speaking. Yes, Mr. Secretary. G: H.M.Jr: G: I just want to compliment you on the very prompt service that you gave us on those reports. Well, I'm glad we could be of some help. I'm sorry I couldn't get you about Saturday but on the first day we just had a little bit of trouble. H.M.Jr: Well, I understand you flew up to New York yourself. G: Yes - yes. H.M.Jr: Well, that's fine and very helpful. Well, we're glad that we could be of any help, G: Mr. Secretary. H.M.Jr: G: H.M.Jr: Thank you. Thank you. Goodbye. October 7, 1936 163 12:23 p.m. H.M.Jr: Hello. Operator: Mr. Knoke. Knoke: Yes, Mr. Secretary. H.M.Jr: Knoke? K: Yes. H.M.Jr: K: I hear there's - there's a boom in sterling. Yes, rate. well (laughs) - the market has turned at any H.M.Jr: Well, what is it? K: It's about .89-1/2 bid. We are bidding .89-5/8. H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: H.M.Jr: K: Oh, you are. Yes. Oh, God - you - you fellows down there - you're so bullish always. Well (Laughs) - as a matter the instructions to do that. of fact, I thought I had What? called - called in and - that's the message II got from Lochhead thatthat's - Well, I've just - he's sitting here - I'm teasing. Oh, I see (Laughs). Yes, I just was calling up tell you that - no, I'm teasing - everything is to fine. Well, I don't think it's all - this is entirely technical. It seems to me the market has turned for how long I don't know. H.M.Jr: Well, I could give you this. You see yesterday's stock purchases were - on balance from Europe was less than a million dollars, did you know that? -2- 164 K: No. H.M.Jr: I mean as a favorable balance, there was less than a million dollars as against six million the day before. K: No, I didn't know. H.M.Jr: Well - K: But the banks told me this morning - I checked up with two of them - that the amount of sterling offered by the - as a result of foreign - of American - the purchase of American securities by foreigners was less today than it had been. H.M.Jr: Yesterday's was about six - nine hundred thousand against six million the day before. K: H.M.Jr: Yes. Well, that - that should - that ought to tell the story. So, and we're - we're getting them now. I organized it yesterday, so that I get it at 9 o'clock in the morning what happened the day before. K: H.M.Jr: K: H.M.Jr: Yes. But this morning is the first morning that's happened. Yes. Well, that ought to be very great help to you. It will - and there's no reason why Archie shouldn't pass it on to you in strictest confidence. H.M.Jr: Thank you very much. It will help me. Archie's sitting here. There's no reason why we shouldn't pass it on to you, but we only - today is the first day's that we've had. K: Yes. H.M.Jr: I mean that - that fast. K: Yes. H.K Jr: But we'll have it every morning. We've arranged it. I think that's very fine. That ought to be a con- K: K: siderable help. 165 -3H.M.Jr: I think so where there's - K: Yes. H.M.Jr: Where it has so much to do rather than just guess about it. K: Yes - yes. K: All right. Thank you. Yes, sir. H.M.Jr: Goodbye H.M.Jr: 166 October 7, 1936 4:26 p.m. H.M.Jr: Hello. Operator: Mr. Knoke. Knoke: Yes, Mr. Secretary. H.M.Jr: Well, anybody want to sell at best right now? K: No (Laughs). H.M.Jr: What? K: Nobody in sight. H.M.Jr: What? (Laughs) K: Nobody in sight. H.M.Jr: How's she going? K: 4.89-1/2 bid in - for small amounts on - for account of one of the Japanese banks. There's no sterling around at that level, and we haven't been able haven't been able to get any at our bid of 9-3/8, - H.M.Jr: Do you think - K: - after those 75 and 10,000. H.M.Jr: Do you think that we ought to move it up or just leave K: it the way it is? Well, no, I think the market is - is - the tone is good. H.M.Jr: Leave it alone, huh? K: I think you said it because it's very hard to say - whether you would get any at 4.90 or 4.90-1/4, I don't know, and tomorrow morning H.M.Jr: Is another day. K: Right. H.M.Jr: - another day. That's all right with me. K: All right, sir. Tha's fine. -2- 167 K: Do you hear much of this gossip up in New York that there's going to be a 4.40 pound? No (laughs) - 4.40? H.M.Jr: Yes. K: No, I - I had a long talk - I had several talks, and H.M.Jr: people thought whether - whether 4.86 was not a reasonable rate. H.M.Jr: Yes. K: 4.40 - I think if - that is somewhat old-fashioned by now. H.M.Jr: Yes. K: It seems to me that even the - the leading British economists have gradually - the majority of them come around to - to admitting that 4.86 might, after all, be a perfectly good rate. You only talked to the Bank of England once, did- H.M.Jr: n't you? K: That's right. Yes. H.M.Jr: Well, we haven't heard a thing down here. K: Nothing from - from Cariguel either - from - from Cochran? H.M.Jr: Well, I didn't talk to Cochran today. I had K: I see. H.M.Jr: - there was no reason to call him. K: Hello? H.M.Jr: Hello? K: You just had the message that - that - from nothing to say and I - there was - Chamberlain that he would answer today, wasn't H.M.Jr: that it? Well, he said he was terribly busy. He made that speech, and he'd answer as soon as he could get around to it. -3K: H.M.Jr: K: Yes. Yes. That came in last night, and Bewley called up today and spoke to Taylor, and said he was back and he supposed he would see him this afternoon, but we haven't heard from them. And I'm not going to say a word. I'm just going to sit tight. I'm not going to show any anxiety whatsoever. Well, I don't think a day makes much difference anyhow. H.M.Jr: No, I'm not - I'm not going - I'm going to sit tight. We're playing poker, and a day or two days doesn't make any difference. K: 168 Well, Bewley will probably see you as soon as he's had his cup of tea. H.M.Jr: Possibly - and his golf. K: (Laughs). H.M.Jr: (Laughs) - All right. K: All right, sir. H.M.Jr: Another day well done. K: Goodnight, sir. H.M.Jr: Goodnight. H.M.Jr: 4:30 - 4:30. 169 October 7, 1936 4:45 p.m. Oliphant: Yes. Operator: Mr. Oliphant. 0: Yes. H.M.Jr: Herman? 0: Yes. H.M.Jr: Will you ask your group to find out what the status is of the Fisher Body case which is up before the Board of Tax Appeals. 0: Yes. H.M.Jr: The President of the United States has inquired 0: Yes. H.M.Jr: But all they want is they want the thing speeded up 0: Right. H.M.Jr: He said that he knows nothing about the merits of 0: I'll take care of it. H.M.Jr: And - 0: Report to you on it in the morning? Would you mind? He said it's before some technical committee. I don't know that means. H.M.Jr: about it. That's for you. one way or the other. They'd like to have this thing settled. the case, but he'd like to have it speeded up. H.M.Jr: Report to you at 9:30? Make it 9:29. 0: 9:29 - on a piece of paper. H.M.Jr: How are you otherwise? 0: Otherwise I'm grand. Morris Ernst is with I.e. 0: 170 -2H.M.Jr: What? 0: Morris Ernst is with me. H.M.Jr: Is he? 0: Yes. He's full of interesting ideas. 0: Full of vim and vigor? Full of wim and wigor. H.M.Jr: Women and vigor? 0: Women and vigor - I don't know about the women but H.M.Jr: the wigor is here all right. H.M.Jr: (Laughs) 0: He says, 'Yes, women, too.' H.M.Jr: What? 0: He says, 'Yes, women, too.' H.M.Jr: How long is he going to be down there. 0: (Aside: 'How long are you going to be down here?!) Going back tonight. H.M.Jr: Well, give him my best regards. 0: H.M.Jr: I'll give him your best. See you in the morning. All right. ed to Steve Early 9:45am. 10/8/36 and at his suggestion $7.06 sant murphy at Dam nate Com171to was usedtotoFamilies michelson The statement referring to the adjusted service payment to veterans given out by Governor Landon yesterday appears to be based on a misunderstanding of the facts and should be corrected to avoid confusion and misapprehension among those who are not fully informed on the matter. President Roosevelt in his address at Pittsburgh oh October 1 spoke of a net increase in the public debt during his administration, after allowance for increase in recoverable assets, of eight billion dollars. He said that of that increase "over a billion and a half went for the payment of the World War veterans' bonus this year instead of in 1945," and added "That payment is now out of the way and is no longer a future obligation of the Government. This statement, only a part of which Governor Landon uses as a basis for his criticism, is entirely correct. The increase in the public debt and the increase in the deficit during the fiscal year 12th 1936 on account of the payment to veterans, was 1 billion 773 millions, which is considerably more than a billion and a half. Governor Lundon attempts to make a point of the fact that much of the bonus payment was made in bonds, which continue to be an obligation of the Government. But this obligation has already been taken into account, both in the deficit and the public debt, so that it is not an obligation to be assumed in the future. Another fact with which Governor Landon is apparently unfamiliar, although it has been called to the public's attention in Treasury statements, is that of more than 1 billion 700 millions in bonds issued directly to veterans, more than , billion 200 million have already been paid off in cash. 172 October 8, 1936 Mr. Lochhead and Mr. Taylor were in the Secretary's office at 8:30 this morning, awaiting the arrival of Mr. Mallet and Mr. Bewley. The Secretary said, "Doesn't Mr. Bewley look disgustingly healthy, while we were here trying to save the world." Mr. Bewley said, "They told me if I started off it would be all over when I got here.' Mr. Mallet said, "Here is the answer from Mr. Chamberlain. Mr. Morgenthau said to Mr. Bewley and to Mr. Mallet, "You understand why I have you here at this hour. It 16 because I have an appointment with the President and he is leaving at noon." Mr. Morgenthau then read the note from the Chancellor of the Exchequer, as follows: "Following from Chancellor of the Exchequer. "1. Chancellor of the Exchequer welcomes Mr. Morgenthau's suggestion for cooperation between exchange controls by way of a mutual arrangement for conversion of currency into gold and vice versa at prices to be agreed from day to day. He accepts proposed suggestion in principle and will gladly reciprocate on lines set out below. "2. An arrangement on similar lines is already in opera- tion between Bank of England and Bank of France. Price is agreed between two Banks on telephone in close relation to exchange rates of moment. Experience shows in order to main- tain this close relationship price may have to be varied several times in the course of one day. This presents no difficulty with both markets open and with telephonic communication frequent and cheap. Same conditions cannot obtain between Bank of England and Federal Reserve Bank of New York. "3. No difficulty arises as regards conversion of dollars into gold or vice versa. This can be effected on terms pro- posed by Mr. Morgenthau namely that United States Treasury will sell and buy gold at 35 dollars per ounce (plus or minus 1/4%) whenever British exchange equalisation account has occasion to convert dollars into gold or vice versa as a result of intervention in market. 4. But for conversion of sterling into gold it seems necessary to arrive at an agreed basis to suit conditions of the two markets which open and close at different times. Chancellor suggests therefore that any sterling acquired by 173 -2- United States Treasury through control operations of Federal Reserve Bank should be converted into gold in London at price fixed in London market whether on that day or on previous day or at mean between the two as Mr. Morgenthau prefers. Similarly 1f United States Treasury were oversold in sterling as a result of their control operations Bank of England would be willing to buy gold from them on following day for delivery in London at London price for gold determined as above. At option of Bank of England such gold could be set aside in New York instead of being shipped. "5. These minor modifications are technically necessary and Mr. Morgenthau will no doubt agree that they respect spirit and intentions of his proposal. The arrangement will naturally be subject to such further technical adjustments as may be found to be desirable in practice. Chancellor assumes that arrangement takes form of a working understanding rather than of a formal agreement. "6. Chancellor notes that in proposal as made duration of understanding is left indeterminate. He assumes that arrangement is intended to remain in force for an indefinite period subject to a right reserved to each side to suspend it or review it (without prejudice of course to past transactions) or to terminate draft agreement in the event of unforeseen circumstances arising. "7. Chancellor trusts that Mr. Morgenthau will be in agreement with foregoing and that under these conditions arrangement may result in effective cooperation between exchange controls. "8. Chancellor would be grateful for an opportunity of considering terms of any announcement found necessary in United States and of coordinating any similar announcement if one becomes necessary." When he had concluded reading the note, the Secretary said, "The spirit of this thing I will call an open-ended understanding." Mr. Bewley agreed, saying, "I think so. Both sides could change it at any moment." Mr. Morgenthau then said, "I would say, upon reading that very hastily, that it is at least 90% all right. I am so pressed for time and I will have to get a decision out. of the President. Let me read this again." When he read the sentence, "Chancellor suggests therefore that any sterling acquired by United States Treasury through control operations of Federal Reserve Bank should be converted into gold in London at price fixed in London market whether on that day or on previous day or at mean between the two as Mr. Morgenthau prefers", he said, "That 18 something that when I come back we can work out here. 174 white "a" very confidential. Following from Chancellor of the Exchequer. 1. Chancellor of the Exchequer welcomes Mr. Morgenthau's suggestion for cooperation between exchange controls by way of a mutual arrangement for conversion of currency into gold and vice versa at prices to be agreed from day to day. He accepts proposed sug- gestion in principle and will gladly reciprocate on lines set out below. 2. An arrangement on similar lines is already in operation between Bank of England and Bank of France. Price is agreed between two Banks on telephone in close relation to exchange rates of moment. Experience shows in order to maintain this close relationship price may have to be varied several times in the course of one day. This presents no difficulty with both markets open and with telephonic communication frequent and cheap. Same conditions cannot obtain/ 175 obtain between Bank of England and Federal Reserve Bank of New York. No difficulty arises as regards conversion of dollars into gold or vice versa. 3. This can be effected on terms proposed by Mr. Morgenthau namely that United States Treasury will sell and buy gold at 35 dollars per ounce (plus or minus 1%) whenever British exchange equalisation account has occasion to convert dollars into gold or vice versa as a result of intervention in market. But for conversion of sterling into gold it seems necessary to arrive at an agreed basis to suit conditions of the two markets which open and close at different times. 4. Chancellor suggests therefore that any sterling acquired by United States Treasury through control operations of Federal Reserve Bank should be converted into gold in London at price fixed in London market whether on that day or on previous day or at mean between the two as Mr. Morgenthau prefers. Similarly if United States Treasury were oversold in sterling as a result of their control/ 176 control operations Bank of England would be willing to buy gold from them on following day London for delivery in London at/ price for gold determined as above. At option of Bank of England such gold could be set aside in New York instead of being shipped. 5. These minor modifications are technically necessary and Mr. Morgenthau will no doubt agree that they respect spirit and intentions of his proposal. The arrangement will naturally be subject to such further technical adjustments as may be found to be desirable in practice. Chancellor assumes that (9 arrangement) takes form of a working understanding rather than of a formal agreement. 6. Chancellor notes that in proposal as made duration of understanding is left indeterminate. He assumes that arrangement is intended to remain in force for an indefinite period subject to a right reserved to each side to BUSpend it or review it (without prejudice x of This team f course to past transactions) on termination of draft agreement in the event of unforeseen recording error circumstances arising. will he verified 7. Chancellor/ or to terminate 177 7. Chancellor trusts that Mr. Morgenthau will be in agreement with foregoing and that under these conditions arrangement may result in effective cooperation between exchange controls. 8. Chancellor would be grateful for an opportunity of considering terms of any announcement found necessary in United States and of coordinating any similar announcement if one becomes necessary. -3- 178 There 18 no argument about that." Bewley agreed, saying, "Yes, just for you to choose. The Secretary then said, "I would much rather he said 'from day to day'. The way the thing has been working out here, it works out -- in the morning you fix the price in the open market, then as sterling drops during the day we could buy freely knowing that any time during the day we could convert it into gold at a price which would not be in excess of $35.00. And we wouldn't want it the day before. It's like all these things. We have taken one step; it seems to have worked; the curtain is drawn aside and we can see just a little bit further. And this seems to be the next step. And, if it works, I don't know what the next step will be. And incidentally, I will have a little time to do a little philosophying afterward. Everything you and I have said, both sides have kept their words and the spirit. You remember our conversation on the porch?" Bewley answered, "Oh, yes." Continuing, the Secretary said, "And I said I would make this offer if and when we reached this agreement. I didn't want to wait for you people to come and ask me." Bewley answered, "I recognize that and fully appreciate that." H.M.Jr.: "I had to refer to our conversations with each other, but I imagine they had been covered in dispatches and they could check up and see how near the truth I was telling. But the foundation was laid months and months ago. This did not come overnight." Bewley said, "Yes." H.M.Jr.: "I want to read this thing very carefully, but it looks to me as if we have something -- 95% Let me ask you this: In this thing, you understand our position -- that under the law, or whatever it is, that it 18 compulsory that when the President makes a change in the Gold Act and gives a license to the Bank of England to do this thing, he would have to make it public. I explained that.' Bewley asked, "On each occasion? On each day?" Mr. Morgenthau answered, "Oh, no. Just a general public announcement." Bewley again asked, "But not a publication of each transaction." Mr. Morgenthau said, "No. Here is his answer in the last paragraph. "After I have seen the President, I would like to have you people come back again and then I will explain in great detail. I will be able to give you the form of the announcement." Mr. Mallet said, "That's what they want to know." Mr. Morgenthau explained, "It's just an announcement that we have issued a license." He asked Mr. Lochhead, "Is it a license?" Mr. Lochhead said, "Yes. We issue a license." Mr. Mallet said, "But you will have a chance to hold up publication until the Chancellor has seen it?" Mr. Morgenthau's 179 -4- reply was, "I wouldn't think of dcing it otherwise. We will give you the full text of the contents of this license. We will do the same thing with the French. You understand that as far as the license is concerned, it has to be our wording." Mr. Bewley agreed, saying, "Oh, yes. It is a matter of your law. Continuing, Mr. Morgenthau said, "And we will simply give you that. Then I will try to draw up very carefully the state ment which I will give verbally to the press explaining it and of which I will also give you a copy." Bewley and Mallet both said, "Yes." Mr. Morgenthau then said, "I will draw up what I will say to the press explaining it and I will do the same thing for the French. And I knew of this arrangement you had with the French. The Bank of France told us. But, for reasons which I went into, I think if we again announce simultaneously on the same evening, it would be a nice gesture. Don't you think BO?" Bewley answered, "Yes, it looks well." Mallet said, "Yes. We have not announced our answer to the French. How long has that been going on?" Mr. Morgenthau informed him, "Since last Saturday." Bewley explained, "It's a new agreement, but it 18 also a continuation. However, it has not been announced." Mr. Morgenthau said, "It's like the French. They sell francs in this market and then some mornings they seem to forget to do it and we have to call them on the phone and remind them." The Secretary then asked Mr. Taylor and Mr. Lochhead, "Do either of you men see anything on this?" Lochhead's judgment was, "It seems to be a perfectly practical working arrangement." Taylor's opinion was, "Just what we visualized. It's just a matter of whether you want to decide to take the price of the day before." Mr. Lochhead said, "The way I feel about it 18 this. To take the day before might in one circumstance be unfair to one side or another in fixing any rates. The idea would be to work it out so that it would be perfectly clear and equitable to the Bank of England and the Federal Reserve. Our thought is that using the fixed price of each day would be the best one but if we find that that works to the disadvantage of one or the other, the idea would be to get together with the Federal Reserve Bank and the Bank of England and adjust it. We don't want to fix our practice and then find it imposes a hardship on the other. My idea is that between the Federal Reserve and the Bank of England, they could fix it." Bewley remarked, "It might be unfair on one occasion but generally it seems all right." Mr. Morgenthau said to Mr. Bewley, "You saw this headline? (See clipping attached - marked "B") That originates on this Echibit WALL *STREET JOURNAL Oct 8, 1936 Old Sterling Parity, Aim; France May Repay Loan Summary of World Trade, Financial Developments England and the United States are experimenting with a pound between $5 and $4.86. No English demand has been made for a pound lower than the old parity. The above developments came to light after rumors spread in Paris that England planned to cut the pound's value drastically. They chilled bullish spirit on the Paris Bourse, where stocks reacted in late trad- U.S., Britain Try $4.86-$5 Range POAgree They Can Live in Comfort With Currencies Around These Levels ing. France is preparing to repay the £40,000,000 sterling credit without recourse to Bank of France gold. Bank of France is expected to cut bank Gold Bloc's Importance Minor rate to 21/2% today. Volume of trading expanded in New York and London stock markets. London industrials staged a sensational advance. New York market closed steady and was absorbing profit taking. New impetus was given to reduction in trade barriers by Anglo-French proposal to scrap trade barriers made to Economic Commission of League Assembly, Dehoarding of gold is believed to have developed in France and 2,000,000,000 francs of gold are reported to have been returned to Bank of France in past few days. BY EUGENE S. DUFFIELD WASHINGTON - Great Britain and the United States have thus far lived harmoniously together under the tripartite monetary agree- ment without fixing a definite dollar-pound ratio, and there has been no insistence from abroad on a pound lower than the old gold parity. These facts were learned here yesterday al- though the Treasury and State departments still decline to discuss officially the functioning under the agreement of September 25 or the negotiations which led up to the agreement. Both nations appear to be going through an exploratory period in which, without formally setting any limits, they are experimenting with a pound sterling of between the old $4.86 parity and $5. Contrary to reports that the pre- agreement conferences and subsequent relation. ships between America and England have been disturbed by English demands for a $4.40 pound, no demand at all for any specific pound value has been made, and the discussions all involved a range above $4.86. Test of Time Awaited Although there has been no meeting of minds between the American and English governments on a dollar-pound ratio or even upon a range within which the two currencies should vary, the two nations have had no disagree ment on this point. Rather the question has not been forced by either side. The situation, as nearly as can be learned here, is roughly as follows: Both England and America, recognizing that Please turn to page 8, column 3 Sterling's New Level (Continued from First Page) baggling over ratios and ranges might be fruit less at this time, have agreed that each appar- ently can live comfortably with the two our- influences rising out of a return of funds to Paris from New York and London may have run themselves out Explains Roosevelt Stand The fact that the countries are willing to experiment with the relationship of the two currencies explains why each reserved the right in the agreement of September 25 to protect its internal prosperity. It also explains why President Roosevelt on Tuesday indicated that he would seek to retain his discretionary powers over the dollar's value beyond January 30, their present expiration date. believes itself to which of the other if These reservations are necessary so that If either side the currency injured has by sunk the level and cooperation and discussion fall to produce a cor- rective, then the injured party can proceed on its own. attention here is concentrated almost the future of the to theOfficial exclusion thebloc's gold and future. the pound entirely uponof dollar Whatever devaluation the former gold standard countries agree upon is regarded here as of very minor importance in comparison with the future of the dollar and pound. . rencies in approximately their present relationships. Only time can demonstrate to each side how far movements of the other's currency can go on without adverse effects. The present period of cooperation may bring out the answer to this all-important question. In the meantime certain artificial conditions which existed at the time of the September 25 agreement may have evaporated. The boost in the value of the pound which was caused by the pre-agreement rush of funds from Paris to Lon. don will have abated. Similarly, any exchange -5- 181 side, I am sorry to say, but not from the Treasury. I want to make it clear that it does not come out of the Treasury and I am trying to run it down and it is perfectly persistent. Yesterday the Wall Street Journal picked it up from the HeraldTribune and it's all been in the Herald-Tribune. I know it all comes from this side and I am trying to stop it. But if I show any anxiety, it is a sign of weakness, so I have had to be very careful. But I want you to know it's on this side. "After all, what we are doing now, certainly we wouldn't do. You let us know at noon just what you have done and we send a cable at night reporting what we have done that day to the very dollar and you do the same with the pound. So when they arrive at the bank they know exactly what we have done in our market and when we take over at noon you phone us and tell us exactly what you have done, so we know to the dollar. And you people have spent a great deal more money than we in supporting the pound, 80 that's why this story irks me. But that information between the Treasuries and the two banks naturally does not go outside. But it's worked beautifully and there has not been the slightest suspicion that each one is not playing the game, is not being very sportsmanlike about it and I personally am very much pleased with the way the thing has gone. There is no one more pleased than I. And if you would care to say that to Mr. Chamberlain, I would be delighted. Mr. Bewley: "Certainly," Continuing, Mr. Morgenthau said, "There isn't a single thing that I could ask for that has not been done, and it's very difficult, especially in the afternoon here when we get the brunt of the whole world from 12:00 o'clock on. We just get the whole world and with the exception of 'the Russian incident' the biggest sum that has come in our market at one time has been 75,000 pounds sterling. That's the biggest sum of any one transaction, isn't it Archie?" Mr. Lochhead answered, "Yes, but there certainly have been an awful bunch of small ones. Continuing his remarks, the Secretary said, "And this talk which they have been trying to feed, that a million pounds is nothing. Your people and our people know it isn't so. It's a great deal. There is one transaction in ten days of 75,000 pounds and that's all. And that was a couple of them from South America." Mr. Lochhead remarked, "It was perfectly natural. It came from the Argentine. Mr. Morgenthau added, "But I still say that a million pounds ordered sold 'at the best' is an unnecessarily large amount. It was the one thing that kept me from taking life too seriously over that weekend." Mr. Mallet asked, "Did you settle the Russian Marshal? Mr. Morgenthau said to Mr. Bewley, "Did you hear that story? The Russian Marshal told our Military Attache 'Just leave it to 182 -6- the soldiers. They will take the necessary steps to take care of these civilians and the army could take care of the situation.' Mr. Bewley said, "That's good." The Secretary then asked Mr. Bewley, "Were you on the other end of this thing when this was in the making?" Bewley: "Part of the time. I was back in England but I didn't see it all, but I did give such assistance as I could." H.M.Jr.: "Did you see Monick on occasions?" Bewley answered, "No, he was in Paris. I wasn't in London a great deal. I was only in London the last ten days." Mr. Morgenthau said, "We laid the foundation when you were here." Bewley's response was, "I hope we did good work." Mr. Morgenthau's answer was, "I think it has shown that. There 1e nothing, since I've been in the Treasury, that has pleased me as much because I feel very sincerely that in international affairs this will be the turning point and, after all, it has demonstrated that until we get this money thing straightened out we could not get trade barriers set tled." Bewley said, "I think in London they are very hopeful." Continuing, Mr. Morgenthau said, "But this is the foundation and other things will fall into line. But this had to be done first,' The Secretary said to the men, "What most likely will happen is, I will see the President, and as soon as I come back we will phone you, and as soon as I have worked out what I will say to the press informally in connection with this, I will give it to you, and you can cable it over. Then you can get an answer for me by tomorrow morning, most likely, because of the difference in time." Mr. Bewley said, "We can try at least." Mallet said, "We will do our best. The sooner the better, of course. There 18 six hours difference in time. The Secretary suggested, "Why don't you think it over about using the telephone?" Bewley's response was, "They are awfully shy of using the telephone because of secrecy. They kept on insisting on that. Mr. Morgenthau said, "We haven't had any leaks. Bewley said, "Well, anyhow, we will do our best." Mr. Morgenthau then stated, "Because, as I say, let's see how the President feels and then I will get in touch with you." To Mr. Bewley he said, "I am awfully glad you are back." Bewley answered, "I never thanked you for providing the airplane." Mr. Morgenthau asked, "Was it fun?" Mr. Bewley answered, "Very good fun, indeed." Mr. Morgenthau then asked, "And they took care of you when you landed?" Mr. Bewley said, "Oh, yes. They were very nice to me." Mr. Bewley and Mr. Mallet left and the Secretary went over to the White House to keep his 9:15 appointment with the President. 183 October 8, 1936 10:05 A. M. Mr. Oliphant, Mr. Taylor, Mr. Haas, Mr. White, and Mr. Lochhead met in the Secretary's office. The Secretary said to them, "What I want you people to do as soon as this is over 18 to go into what I call the Under-Secretary's room. The British note 18 here. It looks all right. They came in at 8:30 this morning and we have been over the whole thing and I have seen the President, and he approves this thing. What the British want 18 a copy of the official statement we give out. I explained to them it is not a question of their changing it, but we will be very glad for them to see it. I mean the actual statement, whichever one we decide on, where we give England and France the right to buy gold here. I think it is the general license one. (The Secretary had before him the following documents, copies of which are attached todiary of September 26.) 1. PUBLIC ANNOUNCEMENT (a) Press release (for President's approval) and supplement thereto. (b) Letter to Federal Reserve Bank of N. Y. (for President's approval). Letter of confirmation to Federal Reserve Bank (c) Letter to Assay Office. 11. SALE WITHOUT ANNOUNCEMENT (a) License to Federal Reserve Bank of New York (for President's approval). (b) Letter to Assay Office. 111. OPERATION THROUGH STABILIZATION FUND (a) Letter to and authorization from President for sales (for President's approval). (b) Letter to and authorization from President for purchases (for President's approval). Which one do we take, the public announcement release or the letter to the Federal Reserve Board?" Oliphant replied, "I think you use the press announcement. You use the text as your authority. You can make it public or not, but use that text as your authority and under that you can operate under the stabilization fund. That would be 1-A or 1-B." -2- 184 The Secretary began to read the announcement, as follows: "Supplementing the announcements made by him on January 31 and February 1, 1934, to the effect that the Treasury would buy gold, and on January 31, 1934, referring to the sale of gold for export, the Secretary of the Treasury states that, hereafter, and until, on twenty-four hours notice, this statement of notice may be revoked or altered." At this point, he said, "Does the other one say 24-hours?" Oliphant answered, "Do you want to say until further notice? I think you want that thought of the 24 hours in there -- a dayto-day operation." Mr. Morgenthau said, "I don't like the words 24 hours. I like until further notice. Is this the form?" Mr. Oliphant answered, "Yes. Is the President available to sign the slight change?" Mr. Morgenthau replied, "Yes, he could do it up to 11:30. I think it should be until further notice. I don't like 24 hours. We have passed that stage now. I can go over and get the President to change that word. Is that the form we want?" Mr. Oliphant answered, "That is the set we want. We want No. 1." Lochhead added, "That's the only public announcement." Mr. Morgenthau inquired, "What's the matter with No. 3?" Oliphant explained, "That's an operation through the stabilization fund only and under No. 1 you could operate under stabilization or as Secretary of the Treasury." Mr. Morgenthau wanted to know, "What does that mean, 'as Secretary of the Treasury? Mr. Oliphant explained, "Under the Gold Reserve Act you, as Secretary of the Treasury, have authority to buy and sell gold at any price, as Secretary of the Treasury. Under stabilization, there 18 Henry Morgenthau, Jr. and he has power to buy and sell gold. It seems to me better to leave it free so you can shift from one to the other.' The Secretary said, "You fellows go and work on it. I have sent for Herbert Feis. I want to send this form both to the English and the French and in addition to that, I want you fellows to prepare, with Feis' assistance, what I am going to say to the press in explaining this thing. The President has shown his confidence in me, that what I say to the press he leaves to my discretion. But the English said it would help them if they knew what I was going to Bay. And the President also said-- I asked him, When would you rather have this announced, Saturday, Sunday or Monday. He thought Saturday, but he didn't care. Personally, my own preference is to do it Saturday noon, for Sunday morning release and give the world a chance to digest it. And the markets are closed. What I would like to do is have this thing cleaned up and send for the British and have them here at 12:30. And, with the exception for my press conference today at 10:30, and except for going across the street to get it changed, if we want it changed -- I have nothing else to do; rather, I won't do anything else -- this is what I want to do. But let everybody read it. I think it is a swell thing. But my -3- 185 thought is, I want to send the legal document that we are going to use to the British and have a copy of that to give them at 12:30 and then send a copy over to Cochran." Oliphant asked, "Have you already sent for Feis?" And Mr. Morgenthau answered, "Yes." Oliphant inquired, "No reason why he should not be in on this angle?" The Secretary replied, "I want him to be in on the whole angle. Also, if and when you want to, I will bring Knoke along. On the British thing, I want the gold price as of today and not yesterday." Mr. Oliphant then said to the Secretary, "One thing we had to pass over because you were pressed with so many other things, and that was the discussion in connection with your proposed statement, whether or not you want to take this occasion to transfer more to the stabilization fund." The Secretary replied, "It's not necessary because we have $50,000,000 tucked away, which we will immediately release. No sense in keeping this $50,000,000 secretly." Mr. Oliphant then said to the Secretary, "Let me take a minute. We all have the feeling that it would have been a grand thing if the whole thing had been put into stabilization a long time ago, months before this came up, and some had a feeling that this offered a grand opportunity to do it without its attracting particular attention.' The Secretary's reaction to this was, "I will listen to you but I can't see any need for it." Mr. White said to the Secretary, "You made a reference to this morning's exchange rate, I mean gold price, as of the day. The thought in my mind is that it might be preferable to take advantage of the previous day's and today's. The Secretary answered, "Much more difficult to operate and we say if it does not work for three days, we can shift. The thought I have on my press statement is this. This is the way I feel: We are all in a fog, and the fog has gone aside and we can go forward one step. Now, it's again aside a little bit further and we can push the ship a little bit further and we can see just a little bit further through this fog which has been hanging over the world. And I don't know, but under the fog which has existed, every nation has had to surround itself with artificial barriers and we have just been able to see one step at a time. Now we see another step. We can just go ahead that much further." Oliphant added, "We are moving as the wisdom of experience from day to day guides us." H.M.Jr. said, "And we are watching all danger signals as we go forward. Up to now there have not been any. Mr. Oliphant said, "When we get to that angle, we can get Gaston." And Mr. Morgenthau said, "And Feis. I will send him in there." 186 October 8, 1936 10:21 a.. H.M.Jr: Hello. Operator: Yes, sir. H.M.Jr: Find out whether Dr. Feis is on his way over here. Operator: All right. (Pause) Operator: He left a few minutes ago. H.M.Jr: All right - thank you. 187 REPORT ON SECRETARY MORGENTHAU'S PRESS CONFERENCE, OCTOBER 8, 1936 H.M.JR.: As long as you've got them in writing, let me Clarence Sure, I'll give them to you. have them. Linz: H.M.JH.: (Reads Linz's questions) Do you know why Morgenthau has given up support of the pound sterling? The rate is now far below what it was when the pound was raided by Russia. What happened to the stabilization fund proper? The low rate yesterday was four eighty-three and Q. a quarter; the low last Saturday, the 26th, was $4.91 -- still going down and my question would be -- the speed with which the Treasury went to the defense of the pound at that time seems to have lost a great deal of momentum; you might have a story on that. A. Q. Time will have to answer that. Does that mean that that's the policy which is being pursued in regard to the ratio between the dollar and the pound? A. Q. A. No. It's an experimental stage now and you will allow it to go ahead until time does answer it? For background, anybody that's writing stories that there's any difference or competition as between Great Britain and ourselves are going out on the end of the limb. This is for background. These stories have been in the paper every day about dif- ferent things. I haven't got the papers here this morning and I don't want to refer to any particular paper anyway. If you fellows could sit here from twelve o'clock on when the rest of the markets of the world are closed and have the thing coming in 188 -from every corner of the world the way I have the last ten days -- there's a new order -- the dif- ferent countries have devalued very very rapidly: we are having quotas dropped every single hour and the thing is moving so fast that the things that this Administration has worked for, for the last three years, are coming to a head every day. This is for background. And I sit here after twelve o'clock and the exchanges of the world come across my desk, and what we have been able to do is to keep the thing on an even keel; that's all that we can attempt to do. But there has been nobody since the Russian incident who has attempted to move or alter the pound and the franc any way artificially. The transactions which have come across my desk have been legitimate business transactions and (this is all background stuff) the stories that ran a million pounds wasn't an abnormal transaction were incorrect. The biggest transaction which has taken place since then, which was a combination of a number of transactions the bank had was seventy-five thousand pounds. That's the biggest transaction which has taken place since Saturday a week ago. In New York? Q. Anywhere in the United States. A. What was the amount? Q. A. Seventy-five thousand pounds; that was a number of transactions -- orders for five thousand pounds, ten thousand pounds -- everything has been for business men who have transactions throughout the world. Since Saturday a week ago the biggest order, which was a combination of two or three orders, was seventyfive thousand pounds. Q. Mr. Secretary, couldn't we have, on the record, a statement that nobody since September 26th has attempted to move the dollar or the pound or the franc? Take out the reference to Russia, if you want to. A. No, I think we'd better let it go. What do you say, Herbert? GASTON: I think so, yes. 189 -3H.M.JR.: Let what I said go. What I have told you are facts. My questions weren't directed to that. Q. A. I know. Q. With things moving so rapidly, the policy would be not to try at this time to fix the ratio between the dollar and the pound. What I've told you are the facts. Just look at the forces which are moving here. This thing, for the first time, the Treasury from twelve o'clock on is the financial nerve center of the world. And here, every single minute, you've got different countries A. devaluing, dropping quotas: it means American business men adjust themselves. They can buy in dif- ferent places, they can sell in different places; it means their rates of exchange are different. In ten days we have had something happen here that we've been working for for three years, and un to now there's every indication that the American busi- ness man is getting the benefit of this, and I think he'll get the benefit of it, and I think the world will get the benefit of it. Everything I've said is for background -- it's all for background; but I'm just giving you the picture. Nobody is trying, not only isn't trying to hurt this thing, but everybody is trying to help -- the governments, banks, business men -- here's a chance for world peace, world prosperity, and everything that goes with it, and everybody is putting their shoulders to the wheel; the thing is going along beautifully and it's moving so fast it's hard to keep track of it, but all the reports I get, both internally and externally, to date, is that it has been to the advantage of America. When I say America, that takes in labor, industry, agriculture, everything. My personal opinion is I think it will continue; I think it's going to grow: it's hard to grasp this thing it's moving so fast. Q. A. It isn't so hot for the steel industry, according to my paper, although I haven't had a chance to read it today -- the steel people seem to think they won't be so happy in the world markets. That doesn't check with the U. S. Steel. 190 -Q. I haven't read the story. A. Ask one of your reporters to go around and feel out U. S. Steel about it. They're selling steel where they've never sold it before; this is all off the record -- there's nobody who's looking at this thing from the standpoint of the welfare of the American people who has yet been able to point out but what this is a constructive move. Everything I've said is for background. Everybody has put his shoulder to the wheel and the thing is moving forward just as rapidly as it can. This thing has got to be watched from minute to minute, which takes all the energy and all the intelligence I have and my staff has got to watch this thing minute by minute to protect the interests of the American people; to date we have been able to do it. Everything I've said is for background. Thus far everything has tended toward increasing American prosperity. Q. As far as I can tell. I haven't seen a single in- A. dication anywhere. At nine o'clock in the morning my statistical staff walks in here and gives me the reports for the previous day. the previous week -- everything we've got, and we've got as good information as anywhere in America. Q. We have reports from France that the Bank of France had again lowered its rediscount rate from three and one-half to three per cent: how do you interpret that? A. That's all right; it's an internal matter: for back- ground, I would interpret it as a sign of increasing confidence on their own part. Have I said anything on the record so far, Miss Chauncey? I don't think you have. MISS CHAUNCEY: H.M.JR.: Good. 191 -5Out of London came a story last night that the British are anxious that you press farther with the stabilization move through tariff reductions and reduced quotas and that sort of thing, and rather peculiarly suggested that the President might not want to bring this up before election so they would send Sir Montagu Norman over to take care of it. I'm not going to comment on that. But that gives A. you a little bit of the picture that we have. Mr. Secretary, can you say anything on the record Q. about this? No, it's too important to do it without writing it out, and, therefore, I'd rather it were for A. background, and I'11 place my reputation in your hands. I have had only the best of cooperation, and I'm perfectly willing to talk for background and leave it to you boys; you've done well by me. It's too important for me to take a chance of talking on the record without carefully working it out. Did you see accounts of what the President said at his press conference the other day -- about Q. the power to devalue; it isn't clear in my mind that he spoke of emergency powers in the sense of powers for this Administration or powers for future administrations. A. Q. A. You don't expect me to interpret what the President said. I thought you could throw some light on it. No, I read the story very carefully in the morning papers. It was brought up here and I said I would certainly recommend the extension of the stabiliza- tion fund and I think we'll let it ride the way it appeared. Q. Do you still have the million pounds you got on the A. You've asked a question and you'd be most surprised 26th? if I answered it. 192 -6Q. I wouldn't; you might be frank. A. I might also be foolish. No. 2. Mr. Secretary, for background purposes, could you tell us what would be the ultimate -- these things have moved so rapidly -- what would be the ultimate results? Would they settle for stabilization purposes? I think they're very rapidly settling -- but there A. are all these things -- and I think, when you consider and compare what happened in 1931 to what happened now, I think it's perfectly remarkable the way this tremendous move has taken place and with a minimum of disturbance, absolutely a miniinform. We couldn't have done it this way if we hadn't had this agreement, and if you read the newspapers of 1931, September, and see what happened when England went off gold, see the disturbances here -- and here's this very, very important monetary move and we've had a minimum of distrubance, and I think these various currencies are finding their levels with great rapidity. Q. A. While they are, there will obviously be no effort to fix any definite ratio. That would be a logical conclusion from that situation. I think that I've explained that enough: I think you fellows are smart enough to get what I've said. I've talked for background and I have put my reputa- tion in your hands. All right, gentlemen? 2. Thank you. ooOoo 193 October 8, 1936 11:20 a.m. Daniel Bell: 'The Secretary of the Treasury and I discussed with you the matter of approving projects under the Emergency Relief Appropriation Act of 1936 in excess of the limitations set out in that Act. We particularly discussed the limitation covering women's projects, and advised you at that time that you had approved projects in the aggregate amount of approximately $85,000,000, which is the amount of the limitation. We also advised you that the Works Progress Administration had to have, for the purpose of flexibility, projects approved under this particular limitation in the aggregate amount of about $150,000,000 but controlling the obligations incurred thereunder through the Works Progress Administration and the Treasury Accounts Office. You stated at that time that you would like to avoid the approval of projects in excess of the limitations in the Act, and asked the Secretary to work out with Mr. Hopkins the procedure whereby this could be avoided. We have discussed the matter quite thoroughly with Mr. Hopkins and Mr. Gill, and this morning had a conference with them and with the Acting Comptroller General. We have reached the unanimous conclusion that the best way to handle the matter is for you to allocate a designated sum of money to the Works Progress Admin- istration, broken down by states, for the projects covered by '(f) Assistance for educational, professional, and clerical persons; and (g) Women's projects. The aggregate amount of the allocations which you would approve under these two limitations could not, of course, exceed the amount of the limitation in the Act, namely, $85,500,000 in each case. Attached you will find two letters allocating in each case $15,000,000 to the two above-mentioned limitations. This procedure has the informal approval of the Secretary of the Treasury, the Acting Comptroller General and the Works Progress Administrator. It is important that this matter receive your prompt attention. H.M.Jr: Who signs tha t? B: How does that sound? H.M.Jr: It sounds O.K. Who signs it?