Full text of Diaries of Henry Morgenthau, Jr. : Volume 38 : Part 2

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194

-2B:

I sign it and send it over with the letters.

H.M.Jr:

Well, he's leaving in about five minutes.
Well - oh, is he?

B:

H.M.Jr:

Yes.

B:

Five
minutes - I thought it was 12:00. Well, I'll
try and catch -

H.M.Jr:

Well, the train leaves at 12:00.

B:

I thought that I might try and catch the train and
let it go along.

H.M.Jr:

Yes. I- I - I say O.K.

B:

All right. Well, the Comptroller General would go
along on f and g but I don't think that he would
go along on any of the other limitations.
Yes, well, send me - after you get it signed, send

H.M.Jr:

me a copy, please.

B:

H.M.Jr:
B:

All right. Fine.
All right.
Thanks.

October 8, 1936

195

11:26 asm.
am.

Operator:

Mr. Knoke.

Knoke:

Good morning, Mr. Secretary.

H.M.Jr:

Knoke, I don't know whether the - did you read what
I said on the Dow Jones ticker?
Not yet.

K:

H.M.Jr:

Well, let me read it to you - at my press conference,
I said everything for background, and this is the
way they wrote it, which to me is entirely satisfactory - it was on at 11:00. It says: Washington Administration officials say there's no monetary
competition between the United States and Great
Britain, contrary to published reports that the
British want a cheap pound. The view of the
Treasury circles is that the monetary re-adjustment
will take place swiftly 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 towards normal, according to the
view expressed today in high Government quarters.'
Additional - 'Tremendous changes in monetary valuations and international trade conditions are
still taking place, but the Administration feels
that the objectives for which it has been working
in the monetary field are being satisfactorily
achieved.

K:

Good.

H.M.Jr:

What?

K:

Well, I think that - my - my first reaction is that's

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:

splendid, I think.
Yes. Well, that It's very helpful.
- that takes care of these stories about the wars,
you know, and all that.
Yes - yes - yes.
Now, we've got the British answer and it's satisfactory. The boys are working at it, and Lochhead will

tell you about it a little later, see?

K:

Fine.

-2H.M.Jr:

But it's all right, and we're preparing an answer
now. It's not yet for publication, see?

K:

Yes - yes.

H.M.Jr:

But we told the British we'd show them what we're

K:

Yes.

H.M.Jr:

196

going to do before we do it, and we're going to
show it to the French, see?

But there's nothing - they're just in the midst
of it now, and a little later on Lochhead will give
you the whole thing.

K:

Thank you very much.

H.M.Jr:

And now, how about - how's the market behaving?

K:

Well, there's - there's very little to say about
the market here.

H.M.Jr:

Fine.

It's - there's practically no volume. The last I
heard was 4.89-1/2 and I arranged with Lochhead
that I would put in an order at 4.89-1/4 if the

K:

market showed downward tendencies.

H.M.Jr:

Yes. You got - did you get your figures this morn-

K:

Not yet - no. You see Lochhead has been tied up

H.M.Jr:

ing on the stock market?

in a conference - I spoke to him very little.
I see. There is on balance for the world a little
bit better than $4,000,000, all bought and sold.

K:

$4,000,000? Which is up again -

H.M.Jr:

A little bit -

K:

Which is up from the day before.

H.M.Jr:

Yes, the day before was a little bit less than a

million and today it's a little bit over - well,
just a second.

K:

H.M.Jr:

Yes, I see.
Four million two, and the net purchases of - net
purchases from Great Britain were two billion

-3-

197

eight seventy-nine.
K:

Two
eight seventy-nine net purchases of
Greatbillion
Britain?

H.M.Jr:

Yes. France, three eighty-nine.

K:

I see.

H.M.Jr:

Netherlands, three ninety-three (Pause).

K:

Yes.

H.M.Jr:

Switzerland, four ninety-nine.

K:

Yes.

H.M.Jr:

Canada, net sales a hundred seventy-three.

K:

Net sales?

H.M.Jr:

Yes.

K:

(Laughs)

H.M.Jr:

And others, net purchases two ninety-one.

K:

Two ninety-one?

H.M.Jr:

Total net purchases four million two seventy-eight.
Four million two seventy-eight net purchases for

K:

the day?

H.M.Jr:

Yes.

H.M.Jr:

Well, those figures ought to be very helpful.
I think so.

K:

Yes.

H.M.Jr:

It shows you where it's coming from.

K:

Yes.

H.M.Jr:

Here's a statement from the United Press. I'll read
it to you. This was on the United Press ticker
here - 'Officials said they were pleased with the
working of the accord thus far and believe it is
bringing about rapid readjustment of the world

K:

-4currencies to proper levels with a minimum of
trade disturbances. They intimated that a certain amount of maneuvering for position among
international currencies was to be expected before exchange levels shake down to stabilized
ratios. 1
Yes.

K:

H.M.Jr:

'It was indicated that such developments had
been anticipated and that Great Britain, France
and the United States were cooperating carefully
to guard against sudden exchange disturbances
as a result of such jockeying, 1

H.M.Jr:

Yes - again that's helpful, I think.
Isn't that helpful?

K:

Yes.

H.M.Jr:

I think it's very good -

K:

Yes.

K:

H.M.Jr:

- myself. And the boys have handled it beautifully. I talked entirely off the record and that's
the result.

K:

Fine.

H.M.Jr:

What?

K:

Yes, I think there's no fault to find the - the

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:

way that works.

That ought to steady the thing.
Oh, I think so - yes.
And now, if we get this other thing straightened
out, why it's just another step.
Well, what is the other - you mean with the I mean this - this question of giving up gold.

K:

Oh, yes - yes.

H.M.Jr:

Yes.

198

-5K:

Well, there's no question in your mind, is there?

H.M.Jr:

About that?

K:

Yes.

H.M.Jr:

Oh, no, no, no.

K:

Yes.

H.M.Jr:

199

No, it's just a question of working out the

mechanics.

K:

Yes, I understand - yes.

H.M.Jr:

Yes.

K:

Thank you very much.

H.M.Jr:

Thank you. Hello?

K:

Yes.

H.M.Jr:

You'll report this to Governor Harrison, won't you?

K:

I will - yes.

H.M.Jr:

Please - tell him I asked you to.

K:

Yes, all right.

H.M.Jr:

Thank you.

K:

All right, sir.

CUU

0.60M 2-36

FEDERAL RESERVE BANK
OF NEW YORK

ICE CORRESPONDENCE
CONFIDENTIAL FILES
FROM

L. W. Knoke

200
DATE October 8, 1936.

SUBJECT:

TELEPHONE CONVERSATION

WITH BANK OF ENGLAND.

Mr. Bolton called me at 11:35 today. Things were very,
very quiet; movement in London had stopped completely; there was

no demand for French francs, Swiss francs or dollars; as a result
sterling was really quite firm, for the moment anyway. The change
in trend, he thought, was due to two reasons: (1) The world
seemed to have built up a bull position in dollars and was not

willing, for the time being at least, to increase it, (2) the
Russian Government's two notes threatening intervention in Spain

if support of the rebel cause was not discontinued by Italy, Germany
and Portugal, which was placing the Blum Government in a difficult
position and might ultimately mean its fall.
Bolton then referred to the negotiations now going on between
the two Treasuries and the discussion he and I had had a few days ago

as to the basis of the price for gold he would quote us daily. He repeated that he had suggested to his people that his daily price for us
should be the price established every morning at fixing or, as an al- ternative, the average between the price established at fixing the
day before and the same day. I replied that it seemed to me the simplest method would be the most desirable and the simplest in this case,

it appeared to me, was the price established daily at fixing. I added
that if, after a few days of trial, this did not seem to be working out
properly, we would have to get together and discuss some other basis.

I inquired whether he would quote us two prices, one for buying and one

for selling and he replied that he would quote one price only, at which

we could either buy or sell. I tried to sound him as to what his ideas

201
FEDERAL RESERVE BANK
OF NEW YORK

DATE October 8, 1936.

OFFICE CORRESPONDENCE
SUBJECT:

CONFIDENTIAL FILES

WITH BANK OF ENGLAND.

L. W. Knoke

ROM

TELEPHONE CONVERSATION

-2were regarding balances accumulated before this arrangement went

into force. Bolton thought that they would agree to anything be would
want to do. ( I intend to suggest to him tomorrow that the question
of old balances be left pending for the moment.)

LWK:KMC

202
October 8, 1936.
11:48 a.m.

H. Merle
Cochran:

Hello, Mr. Morgenthau - yes.

H.M.Jr:

How are you? Cochran? Hello?

C:

Hello, Mr. Morgenthau.

H.M.Jr:

Can you hear me?

C:

Yes, very well now.

H.M.Jr:

Good. I'm going to take a chance on the telephone.

C:

All right.

H.M.Jr:

We've had a very satisfactory answer from Mr.

C:

Fine - I'm glad.

H.M.Jr:
C:

H.M.Jr:

C:

H.M.Jr:
C:

H.M.Jr:

Chamberlain.

And he - we're working now on an answer which will
be ready sometime around four o'clock.
You - you are working on the answer?

Well, it - it really doesn't require - we gave him
a statement and he came back with an answer which
is 98 per cent satisfactory. Now what they've
asked us to do is to give them a copy of our
proclamation, plus a copy of what I am going to
give to the press, you see?
Are you giving them a copy of the Of our proclamation You're giving to the press?
No, a copy of the proclamation and a copy of the
press statement, you see?

C:

There are going to be both, are there?

H.M.Jr:

There are two.

C:

Yes.

H.M.Jr:

There's a proclamation and 2 copy to the press.

C:

Yes.

-2H.M.Jr:

203

And when we give it to - and when we give it to them,

we'll get it off immediately by cable to you.

C:

I see.

H.M.Jr:

But we - we - they're coming in to see us about

four o'clock so that'11 get in tonight, and if
you could have it decoded, you could take it
around to Mr. Auriol the first thing tomorrow
morning.

C:

I see.

H.M.Jr:

Now my thought is that - and Mr. Chamberlain seemed

to like the idea of our making a simultaneous
statement.

C:

I see.

H.M.Jr:

As a matter of fact, I'll send you a copy of

Chamberlain's message to me. Then you'll have
the whole business.

C:

All right.

H.M.Jr:

And the thought is that sometime over the week-

C:

I see.

H.M.Jr:

(Aside: 'Oh, all right. Come on.') Hello.

C:

Hello.

H.M.Jr:

Sometime over the weekend, we'll - we'll get this out.

C:

I see.

H.M.Jr:

See?

C:

Yes.

H.M.Jr:

end we'll get this out, see?

Now just a minute. Dr. Feis is here and he's shaking
his head. Just a moment.
(Pause)

C:

Yes.

H.M.Jr:

Wait a minute. (H.M.Jr. speaks to Dr. Feis). No, no,

C:

I see.

he said - no, I thought he was disagreeing on something.

204

-3H.M.Jr:

No - everything is all right.

C:

Fine.

H.M.Jr:

Now that ought - will go out of here so that you'll
get it. I mean that it'll go out of here some
time between four and five, and by the time it's
coded and everything, it'11 get in there tonight.
Have your code people in fairly early, will you?

C:

Well, I'll - I'll have them in tonight if you're
going to get it in.

H.M.Jr:

I think so.

C:

All right. Then does this call for any statement on the
part of the French?

H.M.Jr:

Yes. Well, now let me put it this way. We have
to make a statement, see? Hello?

C:

Yes.

H.M.Jr:

And after they've seen this thing, I think they'11
want to make a statement, but it isn't necessary.
I see. That - that's the way.

C:

H.M.Jr:

It's not necessary for them to make a statement
Chamberlain will.

but I think that they will and I think that Mr.

H.M.Jr:

I see - exactly.
But it's not necessary.

C:

I see.

H.M.Jr:

But this will be an announcement -

C:

-

C:

Issued at once?

H.M.Jr:

Pardon me?

C:

You will not be issuing this publicly at once?
I don't hear very well.
You will not be issuing this at once?

H.M.Jr:
C:

H.M.Jr:

No, my thought is that this would be issued most

likely - the time that I prefer to issue it is
for Sunday morning papers.

205

-4C:

Sunday morning?

H.M.Jr:

That's when I'd like to do it, so that it gives the

C:

Yes.

H.M.Jr:

You see?

C:

H.M.Jr:

people a chance to digest it.

But I'm to show this to these people at once and
get any reaction from them.
That's the idea, and when - the time that I'd like
to do it is Sunday morning to become effective
Monday.

C:

I see.

H.M.Jr:

You see?

C:

Yes.

H.M.Jr:

We give it out for Sunday morning papers to go into

C:

I see.

H.M.Jr:

Now let me see if our people here have got anything

effect Monday morning.

that they'd like to ask. Just hold the wire,

please.
C:

All right.
(Pause during which conversation is carried on in

H.M.Jr.'s office.)
H.M.Jr:

Hello?

C:

Hello?

H.M.Jr:

That statement we sent you ten days ago - this
is going to supersede that.

C:

It does - I'm glad.

H.M.Jr:

See?

C:

Yes, yes.

-5H.M.Jr:

We're working on something new now, and this will

C:

Fine.

H.M.Jr:

206

supersede that.

Now, I'got your statement; I got your suggestion,
and I want you to feel free at any time to send
me any ideas you've got, and I'm not going to
always accept them -

That's all right - I don't expect you to.

C:

H.M.Jr:

- but, on the other hand, you're there, and I want
you to think; I want you to use your head; and any
time you have any ideas you send them along.

C:

All right, sir.

H.M.Jr:

And I'll accept them in the spirit in which they're

C:

All right. Well, I appreciate that very much.

H.M.Jr:
C:

sent.

Now, just a moment. Just a minute. (Pause) When
did you plan to go to Basle?
I planned to go down on the night - on Saturday

H.M.Jr:

night.
Well -

C:

That would be about eleven o'clock I'd leave here.

H.M.Jr:

C:

H.M.Jr:

Well, let's see how this works out, but what I'd
like to do, as I say, is to make this effective

Monday and give it out for Sunday morning papers.
I see.

Now just a minute. I - I gave out a short statement here. If you've got somebody - I'll give it
to you and you can copy it down, see?

C:

H.M.Jr:

C:

All right.
I think it will be helpful because there's been
constant stories here that there is a war on between
ourselves and the British as to the rates, you see?
I see - yes.

-6H.M.Jr:

207

And this is what just came out over the Wall Street
ticker - the Dow Jones ticker - you see?

C:

Yes.

H.M.Jr:

Have you got somebody you could repeat this to?

C:

Just a minute - I'll get my secretary.

H.M.Jr:

All right.
(Pause, during which, conversation and laughter were

carried on in H.M.Jr.'s office.)
C:

Hello? Hello?

H.M.Jr:

Hello?

C:

If you could just read it to me, I'll repeat it

H.M.Jr:

All right. 'Administration officials -

to my assistant here.

H.M.Jr:

Administration officials - 'say there is no monetary competition -

C:

say there is no monetary competition -

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

- 'between the United States and Great Britain, - between the United States and Great Britain, -'contrary to published reports -contrary to published reports -'that the British want a cheap pound.
That the British want what?

H.M.Jr:

- 'a cheap pound.

C:

A cheap pound?

H.M.Jr:

Yes. Paragraph.

C:

Paragraph.

H.M.Jr:

'The view in Treasury circles -

C:

The?

-7H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

- 'The view in Treasury circles The view in Treasury circles - 'is that monetary readjustment - is that monetary readjustment -

- 'will take place swiftly - will take place swiftly -

C:

- 'and with a comparatively small and with a comparatively small - 'amount of international disturbance.
- amount of international disturbance.

H.M.Jr:

Paragraph.

C:

Paragraph.

H.M.Jr:

'Time alone -

C:

Time alone -

H.M.Jr:
C:

H.M.Jr:

H.M.Jr:
C:

H.M.Jr:

- 'will indicate - will indicate.- 'the future level -

H.M.Jr:

- the future level - 'of various world currencies, -

C:

- of various world currencies, -

H.M.Jr:

'but exchanges already -

C:

C:

H.M.Jr:
C:

H.M.Jr:
C:

The - the first word?
- 'but exchanges - but exchanges already -

- 'are rapidly settling - are rapidly settling

208

209

-8H.M.Jr:
C:

- 'toward normal - toward normal -

H.M.Jr:

- 'according to the view - according to the view - 'expressed today -

C:

- expressed today -

H.M.Jr:

-'in high Government quarters.'

H.M.Jr:
C:

C:

- in high Government quarters.

H.M.Jr:

Paragraph.

C:

Paragraph.

H.M.Jr:

!Tremendous changes -

C:

Tremendous changes -

H.M.Jr:

- 'in monetary valuations - in monetary valuations - 'and international trade conditions - and international trade conditions -

C:

H.M.Jr:
C:

C:

- 'are still taking place, - are still taking place -

H.M.Jr:

- 'but the Administration feels -

C:

What?

H.M.Jr:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

- 'but the Administration feels - but the Administration feels - 'that the objectives - that the objectives - 'for which it has been working - for which it has been working -

210

-9H.M.Jr:
C:

- 'in the monetary field - in the monetary field -

H.M.Jr:

- 'are being satisfactorily achieved. 1

C:

- are being satisfactorily attained or achieved?

H.M.Jr:

Achieved.

C:

Achieved?

H.M.Jr:

Yes.

C:

All right.

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Now I gave that out for background and they've all

got it.

I see.

And I did that - I think that'11 help a lot.
All right. Fine.
And you can use it where you think best.

All right.
Now, you'll - this stuff will go out of here to-

night, and you ask to see Mr. Auriol the first
thing in the morning -

C:

Yes.

H.M.Jr:

- and you tell them that if Great Britain and France
are agreeable, why we'd like to give it out Sunday
to go into effect Monday.

C:

All right.

H.M.Jr:

And we will send you our statement - the declaration -

C:

Yes.

H.M.Jr:
C:

- plus a copy of the memorandum which I received
this morning from Mr. Chamberlain.
I see.

H.M.Jr:

See?

211

- 10 C:

Yes.

H.M.Jr:

And then as soon as you see Mr. Auriol, you telephone me.

C:

I - I telephone you as soon as I've seen him?

H.M.Jr:

Yes. Is Bullitt out of bed?

C:

H.M.Jr:
C:

Yes, he's down for the first time. He was down an
hour day before yesterday - I think it was.
Yes.

And I just spoke to him a minute ago. Would you

want to speak to him?
H.M.Jr:

No, no.

C:

Well, I mean he'd be glad to say 'hello,' I'm sure.

H.M.Jr:

No - well, tomorrow. maybe.

C:

All right.

H.M.Jr:

Tomorrow.

C:

H.M.Jr:
C:

Here, I have just one point - it's the same old
point and you're solving it. What does the Ministry
of Finance and the Bank of France do on this whole
business? That's just what you're settling.
Pardon me?

I say the Bank of France has called me once and
Baumgartner called me this morning -

H.M.Jr:

Yes.

C:

- wanting to know if there was anything new.

H.M.Jr:

Well this is the answer -

C:

- a more complete basis; I was sure I could tell

H.M.Jr:
C:

him shortly.

This is the answer - you'll have the whole story
the first thing tomorrow morning.

Yes. Well they - they were very nice, but that's

all they want - that's all.

212
- 11
H.M.Jr:

Well, I think if it can work out that the three
Governments make a simultaneous statement, it
will
be very helpful, but we're not holding out
for that.
Yes.

C:

H.M.Jr:

But I think that you'll find that the British
will want to -

H.M.Jr:

Get up all of that.
- get up all of it and join hands.

C:

Yes.

H.M.Jr:

I can't imagine them giving up such an opportunity.

C:

I see.

H.M.Jr:

Yes.

C:

Well, the other day they - they seemed willing to

H.M.Jr:

Fine.

C:

do anything that we might suggest.

H.M.Jr:

They should - they'11 get the gold.
Well, you'll have everything on your desk in the

C:

All right. Fine. I'll have my code clerks down

H.M.Jr:

Good.

C:

So that they'11 have it all prepared.

H.M.Jr:

All right.

C:

Well, thanks so much.

H.M.Jr:

Goodbye.

C:

morning.

tonight.

October 8, 1936
3:10 P. M.

213

Mr. White, Dr. Feis, Mr. Haas, Mr. Taylor, Mr. Lochhead,
Mr. Oliphant and Mr. Gaston met to discuss with the Secretary
the proposed public statement.
The Secretary began to read Mr. Gaston's draft as follows:
(Copy is attached).
"Supplementing the declaration with respect to transactions
in gold with certain foreign countries issued today, the Secretary of the Treasury makes the following statement:
"Developments in the international monetary situation since
the statement of September 25th, declaring the common views of
the governments of the United States, Great Britain and France
have made possible a further step to advance the common objectives of the three governments.
"To protect the domestic value of our currency and at the
same time to maintain the monetary equilibrium envisaged in
the declaration of September 25th, it has seemed advisable to
provide means for transactions in monetary gold between the
three countries.

"Initiation of such transactions on a mutually satisfactory
basis has been facilitated by the establishment of an exchange
stabilization fund in France, through which transactions may be
carried on with similar funds of the United States and Great
Britain.
"The cooperation envisaged by the statement of September

25th is going forward. This cooperation will be strengthened
by the present arrangement for purchases and sales of gold between the funds reciprocally. Full liberty is of course retained by each of the governments to deal only on terms satisfactory to it and in harmony with the desires of each primarily to safeguard their own domestic economies but at the same
time to facilitate international commerce. "
The Secretary's comment was, "There is something the matter

with this thing." He then added, "Before I forget it, has that
memorandum from Mr. Chamberlain to me been sent to Cochran?

Don't you think we ought to have asked permission?" Feis
answered, "Just for luck, I wrote in the cable to Cochran 'For your information. IN The Secretary added, "Because, across

the top of the memo is the word 'confidential.'" Feis said,
"The phrase 'For your information' I think guards that."
Mr. Feis then said, "If you are going to accept one, Taylor's
substitute would save you the trouble of re-drafting that first
sentence." The Secretary then read the third paragraph of the

214

Sarton
Supplementing the declaration with respect to transactions in

gold with certain foreign countries issued today, the Secretary of the
Treasury makes the following statement:

Developments in the international monetary situation since the
statement of September 25th, declaring the common views of the govern-

ments of the United States, Great Britain and France have made possible
a further step to advance the common objectives of the three governments.
To protect the domestic value of our currency and at the same time

to maintain the monetary equilibrium envisaged in the declaration of
September 25th, it has seemed advisable to provide means for transactions
in monetary gold between the three countries.

Initiation of such transactions on a mutually satisfactory basis
has been facilitated by the establishment of an exchange stabilization
fund in France, through which transactions may be carried on with similar
funds of the United States and Great Britain.
The cooperation envisaged by the statement of September 25th is going

forward. This cooperation will be strengthened by the present arrangement for purchases and sales of gold between the funds reciprocally. Full

course

liberty by each of the governments to deal only on terms satisfactory to it and in harmony with the desires of each primarily to
safeguard their own domestic economies but at the same time to facilitate
international commerce.

215
Substitute for 2nd and 3rd paragraphs.

In order to permit the close cooperation of the stabilizati on
funds envisaged in the declaration of September 25th, it is ne cessary
to amend the regulations issued by the Treasury in order to permit the

transfer of gold between the stabilization funds of the three countries
on a reciprocal basis.
This change in the regulations permits the hour to hour cooper-

ation and flexibility which are necessary to achieve the goal of stable
international currency relationships.

dayler

216

Substitute for 2nd and 3rd paragraphs.

fosilitate

In order to possit the close cooperation of the stabilizati on
funds envisaged in the declaration of September 25th, it is necessary
to amend the regulations issued by the Treasury in order to permit the

transfer of gold between the stabilization funds of the three countries
on a reciprocal basis.
This change in the regulations possits the hour to hour cooper-

ation and flexibility which are necessary to achieve the goal of stable
international currency relationships.

Maylei

217

Substituta for 2nd and 3rd paragraphs.

In order to permit the close cooperation of the stabilisati on

fn

funds envisaged in the declaration of September 25th, it is no cessary

was To hwords

to amend the regulations issued by the Treasury in order to permit the

transfer of gold between the stabilization funds of the three countries
on a reciprocal basis.
This change in the regulations permits the hour to hour cooper-

ation and flexibility which are necessary to achieve the goal of stable
international currency relationships.

218

It was on the basis of fitting our actions to the changing
conditions in international monetary relations as they unfold from
day to day that we joined England and France in a statement of common objectives. The present step has been taken on the same basis,
no

until its

and other decisions she will be made their wisdom becomes
^

clear.

October 8, 1936.

-2-

219

draft and said, "Let me start out entirely differently, 1f
I may.' He then dictated the following draft: (Copy is
attached.)

"Two weeks have passed since the United States Government

joined with Great Britain and France in issuing simultaneous
statements in regard to realignment of the French franc. During this short period we feel that it has been demonstrated
that this understanding has met with great success and has
pointed the way towards a much larger field in world peace
and commerce.

"We now find that another step is necessary in order to
permit the three Stabilization Funds of the three respective
countries to carry out this gentlemen's agreement, to wit:
to even out the fluctuations in the various financial capitals
of not only the three respective countries but almost every
capital in the world. We also find that it is necessary to
take an additional step to assure the national prosperity of
the United States.

"With this objective in mind, we are issuing on Monday

the statement under which gold may be exchanged between the
Governmental agencies of the United States, England and France,

always keeping in mind that our first thought is our own
national prosperity."
Mr. Gaston remarked, "That is a very different thing from

what I supposed we were working on."
Each of the other members present then read to the

Secretary the drafts they had prepared. (Copies are attached.)
Mr. Lochhead said, "Monday 18 Columbus Day and a legal holi-

day in New York and all our exchanges will be closed on that

day. Great Britain and France will be open; we will all be
closed, so there will probably be no transactions on Monday."
The Secretary said, "Herbert (Gaston), how do you like this?"
Mr. Gaston replied, "This, then, is something different? This
is a statement to be issued in advance, in which we give notice
of the latest statement?

The Secretary replied, "This is to be given out. Let's

say we are going to give it on Monday, to get my timing correct.
This is given out on Sunday in advance, announcing that we are
going to do this thing on Monday -- issue this license." Gaston
remarked, "I had a different understanding, that you would make...'
Interrupting him, Mr. Morgenthau explained, "No, this is my
statement to the press, why I am taking this additional step,
and what the English ask is, would we do them the courtesy of
letting them see the kind of statement we are going to make be-

220

1m statement
Two weeks have passed since the United States Government

joined with Great Britain and France in issuing simultaneous
statements in regard to realignment of the French franc.
During this short period we feel that it has been demonstrated
that this understanding has met with great success and has
pointed the way towards a much larger field in world peace
and commerce.

We now find that another step 18 necessary in order to

permit the three Stabilization Funds of the three respective
countries to carry out this gentlemen's agreement, to wit:
to even out the fluctuations in the various financial
capitals of not only the three respective countries but almost
every capital in the world. We also find that it is necessary
to take an additional step to assure the national prosperity
of the United States.
With this objective in mind, we are issuing on Monday
the statement under which gold may be exchanged between the

Governmental agencies of the United States, England and France,

always keeping in mind that our first thought is our own
national prosperity.

-3-

221

cause they most likely will want to make one, too, and my
thought was to do it on Sunday so people could digest this

thing. After all, if it appears in our papers on Sunday,

it means the rest of the world has half-a-day's advantage to
work on this and, whether or not we do this on Sunday, the
permit will begin to issue Monday and we are closed, and I
would rather do it on Monday and the license begin to work
on Tuesday so that they don't get half-a-day's advantage."
Gaston repeated, "That 18 a very different thing from what I
supposed we were working on."

Dr. Feis said, "I think it is an excellent statement of
what may be involved in this action ultimately. It definitely

steps up and dramatizes the importance of these new regulations
permitting the movement of gold between stabilization funds.
Now you alone can judge whether you will be satisfied whether

it is read that way. I should think it would be more expedient to present it less dramatically, more as a minor step
than a major step. That 18 what 18 behind Taylor's presentation."
At this point, Dr. Feis read his own draft statement, as
follows:

(Copy is attached)

"The policy declared in the simultaneous declarations regarding monetary stability, issued two weeks ago by the French,
British and American Governments, is operating most successfully.
"To make it fully effective it is necessary to provide, on
a reciprocal basis, for the transfer of funds between the three
stabilization funds. In order to provide for this, and thus
permit the close cooperation of the three currency funds, it
is necessary to amend the regulations issued by the Treasury, etc."
and suggested using the closing paragraph in Gaston's draft in
addition to his.
Mr. Taylor remarked, "Feis is quite right about wanting to
treat it not as a matter of major importance."
Haas said, "Many people, when we gave out the first statement, took it for granted that you had in mind, if it was not
already discussed, some way of handling the gold movements."

The Secretary said, "I don't want to plead for my thing.
I didn't know I was dramatizing it. But, from the monetary end,
there is nothing more dramatic. We have 10 or 12 billions of
gold and I can't permit France to have a reciprocal basis and
cut out the tremendous importance of the English. After all,
it's another step." Mr. Taylor added, "Another very important
step."

The policy declared in the simultaneous

declarations regarding Honetary
stability. issued two weeks ago by the

French, British and american
governments is operating flast

successfully,
Jo make it fully effective it is
necessary to provide, on a reaprocal

bases, for the transfer of funds
between the three stalrizat from

funds. In order provide for this,
and thus permet the close Co.- operation

of the three currency funds, t
is necessary to amend the regulations

issued by the Treasurez

-4-

223

Continuing, the Secretary said, "Taking care of the one
cricitism that Herbert Feis has, when we see the boys we can
explain the difference between this and the old gold standard,
which is that under this agreement, operations in gold are between Governments only and at a price fixed by those Governments. Under the old gold standard, anybody could operate
between the gold points. That, as I understand it, is the old
gold standard. That's what you said, Herbert. You said you
had to entirely re-educate yourself as to your thinking. This
can be explained to the men, that this thing just works on a
day-to-day basis and the thing is not fixed, and explain it.
The great trouble in this thing 80 far as the criticism I have
received is this: 'It is very nice, but what have you done?
Nobody understands what you have done. The taxicab driver
doesn't understand it. IN
The Secretary then read aloud the statement he had dictated above. He said to the group, "This 18 something I am

going to read to the boys myself, talking just as I did this

morning, talking informally to the newspaper boys." Oliphant
inquired, "That is to go to Mr. Chamberlain?" Mr. Morgenthau
replied, "Yes. They asked how they can explain it." Mr. 011phant then asked, "This is not to be a written statement?" Mr.
Morgenthau answered, "Whether it is written or not, this is my
explanation when I hand out this license."
Mr. Gaston remarked, "It seems to me we should have a formal
statement, something like 'The Secretary announced today that
regulations will be amended on Tuesday so as to provide, etc. IN

Mr. Morgenthau said, "I have told them right along that there
was no further understanding than what I had told them.' Gaston
added, "It is a furtherance of the objectives." And Taylor said,

"It will facilitate the close cooperation."

The Secretary read his draft again, and remarked, "I think
it's a damn good statement." Haas asked, "Could you take out
the word 'necessary?' The Secretary answered, "Before you get
down to words, you can tear it apart."
Oliphant expressed his opinion as follows: "We never know
how any of these things are going to take on. I was surprised,
and probably other people were surprised, that the press and
the world attached a great deal more importance to the other
thing than you could foresee and I think there 18 danger of an
anti-climax. The danger is, Morgenthau is oversold on the
importance of this step. And that's borne out by the fact that
Gaston said that as soon as a tri-partite statement came out,
the newspaper boys came to him and said, Now you must sell gold
to each other. On what terms is that going to be? As an anticlimax this will sort of fall flat. They know it is going to
be done and they are merely curious about the terms."

-5-

Mr. White said, "I am inclined to agree that we have
squeezed the maximum advantage out of this move; that it
has taken hold and that we are getting great results. I
don't see how we can get any more profit only in the nature
of an anti-climax. I like some of your statement. I like
the general principles. I think with some changes that
could fit in with the thesis of making it over as the next
step in the procedure and without making it seem as though
this was not contemplated; that we did not know this next
step would be necessary. In other words, I am in favor of
not making it dramatic. I don't think this does make it
dramatic, provided certain changes can be made in it, and
that statement can provide a basis for a public statement,
1f we would work on it a very little, without providing the
danger of an anti-climax."
The Secretary then said, "Unfortunately, we have not been

sitting together. I make this statement very quietly. I am
not seeking any climax, any publicity. I have to say something. I give this out. It may go on the back page or on
the front page, but what am I going to say? I say about 150
words and that's all. You people are sort of talking that I
am trying to publicize this thing. I have to say something.
I don't say anything dramatic. I am taking the next step.
When we first gave out the Vandenberg letter, the men came
around to Gaston and said, There is nothing new in this. That
was their reaction. But the men at the desk thought there
was. That's what you told me they said anyway, Herbert.
Gaston explained, "They said, There isn't any statement of
new policy in this. And I said, No."
Continuing, Mr. Morgenthau said, "The boys said, Why does
Morgenthau get excited about this?" Gaston remarked, "Oh,

they all realized it was a good story." The Secretary then
said, "But they thought I was unduly excited. Now, I am not
unduly excited about this but I have to explain it. And what
you handed me does not explain it. What I have said here is
an honest statement of what has happened and that waited for
a couple of weeks. And they asked, Is there another step? I
didn't know. And it wasn't perfectly clear when we entered
into the other agreement that we were going to do this."
Mr. Lochhead said, "When we made the first statement,
somebody said, You are going to give up gold? That was what

they were trying to find out. That was a certain step." Mr.

Morgenthau answered, "It wasn't clear in my own mind. We are
now going to give up gold and we are going to announce that
we will give up gold to France and England. We have to let
them know that we have gained enough experience in this short

period that we have confidence to take this step. I don't
honestly believe that in the beginning there was anything in
the tri-partite statement that would give anybody assurance

224

-6-

225

that we would give up gold. The newspapermen were just trying us out. When we did this, some of you people said that

500 million dollars of gold would leave this country right
away. There was not a single person who said to me, If you
do this thing you will gain gold. Some thought that people

would sell stocks and take their money. Nobody thought there
would be a big buying boom from England in our stocks. There
wasn't anybody who dared forecast that 10 or 12 countries

would immediately follow on this, Italy in particular. I
didn't myself know that I would do this thing. I never rec-

ommended it to the President. There 18 nobody who was able

definitely to forecast that this thing would happen this way.
Is that right?"
Mr. White said, "I think I did in a memo." Mr. Morgenthau
said, "If you did, I didn't see it. If you did, I don't remember it. The point I am getting at is, I consider I was
nervous about the other stuff, more nervous than almost anything I have done. I am still nervous about this, because I
don't know that this is the right thing and all I say is that
during the last two weeks this thing has worked.'
Dr. Feis' comments were: "The fact that this was not complete, indicated by what we have done previously, gives it its
dramatic importance. You may be sure it will find its way on
the front page and not on the back page. It is dramatic in
that it is experimental in two regards -- you don't know how
public opinion is going to take it and we don't know how it
is going to operate; therefore, the reason for treating it in
an ordinary fashion rather than in a dramatizing fashion. Certain parts in there, reference to world commerce and world
peace, and the very start of the sentence 'Two weeks ago' -that's oratorical. I am not afraid that this will be an anticlimax at the moment, but later it might make it almost as
much a climax as the first action."
Taylor expressed his opinion as follows: "Also, you don't
want to give the impression that you weren't thinking of this
as a possibility because you were thinking of this back in June
and you ought not to act too surprised about it. You hadn't
made up your mind you were going to do it." The Secretary remarked, "The French didn't have a fund." Taylor, continuing,
said, "I think you have to avoid two things -- 1, making it
too important, and the other, giving the impression that you
had not thought about it, because you had thought about it before but you hadn't said you'd do it."
Oliphant expressed his opinion as follows, "This contains
little or nothing of the sort you outlined this morning." Mr.
Morgenthau said, "I left that out. I read this morning's
editorial in the Herald-Tribune where they say I am in a fog

and, if I say I am in a fog, they will say, I told you so.'

-7-

226

H.M.Jr. then said, "Let's take this paragraph by paragraph."
He read the first paragraph of his draft:
"Two weeks have passed since the United States Government

joined with Great Britain and France in issuing simultaneous
statements in regard to realignment of the French franc. During
this short period we feel that it has been demonstrated that
this understanding has met with great success and has pointed
the way towards a much larger field in world peace and commerce.
He then said, "Since then the French have set up a stabilization fund and if you put that in, you have reason to go
ahead with this step."
Gaston suggested, "I think the best way to do this is to
work from the fact of wanting to confer with England and get
their approval; just tell the boys what you propose and if you
are going to write it out and submit it to the British, that
would be the normal way of telling it to the boys. You could
say to them, 'I have an announcement to make which I think will
be of considerable news value to you. We will issue on Monday
some regulations which will permit England and France, through
their stabilization funds, to obtain gold from our stabilization fund, and we in turn will be able to obtain gold from them.
Then proceed that it 18 the logical step. But you begin by
announcing the news." The Secretary said, "That's all right
with me. I got away with it this morning and I had not rehearsed that."

Continuing, Gaston said, "You will not have the slightest
trouble telling the boys the facts but the only complication
is the apparent necessity of checking with the British on what
you are going to say. So that requires writing out something.
Taylor suggested, "Can't you fix that by saying, 'I will
make this simple verbal statement'. What do you think of that
Herbert (Feis)?" Dr. Feis answered, "I agree with Gaston, beginning with the news." Mr. Gaston then inquired, "But could
we just tell the British that the Secretary on Saturday verbally
and informally will tell the boys of the formal announcement he
will make on Tuesday." Dr. Feis said, "No reason why not."
The Secretary said, "Let's talk about the date. Columbus
Day, coming on Monday, maybe it would be better to announce it
Monday, effective Tuesday." Lochhead said, "I don't feel there
will be any operations by the two stabilization funds. I doubt
whether there would be any necessity for them to buy gold from
us on Monday. Therefore, it could hold over until Tuesday.'
The Secretary said, "We could announce it Monday morning, the
license to go into effect Tuesday. Is it a license? Oliphant
answered, "No, it'a a statement." Gaston said, "It's an amendment of our regulations." Oliphant added, "You are buying and

-8-

227

selling gold under a statement which you issue. A statement
of new methods in transactions in gold which are outside the
methods heretofore promulgated.

Mr. Haas suggested: "There is another consideration with
regard to timing. There may be some advantage in holding it
for Tuesday and the psychology may be wrong to do it over the
week-end. In other words, it's nothing which should have a
bad effect on the market. The Secretary said, "We will do
it for Tuesday morning."

Gaston inquired, "Why announce it without giving out the
text of the statement?" And the Secretary said, "We will."

Mr. Taylor said, "The more I listen, I think it is just 'business as usual. Feis agreed, saying, "That's right. Treat

it as a subordinate step."
The Secretary said, "Let's just stop and think a minute.
We give the British a copy of this press statement. Then the
thought is, we will announce this -- give this to the boys?"
Gaston replied, "Give it to the boys Monday afternoon and give
a verbal explanation of why this is done."
The Secretary then inquired, "You wouldn't want to do it
for Monday morning, a day in advance?" Gaston said, "Monday
afternoon is our regular press conference. If you would give
it out Monday afternoon, the European markets will all be
closed and they will act simultaneously on it, or call a press
conference on it Monday morning." The Secretary said, "But
the markets are closed on Monday." Mr. Gaston then said, "I
should think that would argue in favor of giving it out Monday
afternoon, after the markets are closed. I would give it out
at the regular press conference Monday.
H.M.Jr. said, "Let me tell you what we will do. These

fellows will be here in five minutes. Let's try it out this

way: Here is the statement we propose to give out Monday

afternoon for Tuesday morning's papers. With it I will just
simply explain: 'You can take notes. I will tell you about
what I am going to say. I will not have a formal statement.
This is the way I feel. IN Gaston agreed, saying, "I think
that is best by all odds."
Continuing, the Secretary said, "As a matter of fact, it

may be better than to have it subsequently come out and, before
I can make a statement to the press, I have to ask permission
from England and France. Who is not satisfied that I do this
in an informal manner?"

Mr. White remarked, "Providing, I understand you are not
going to include a couple of sentences you have in your pre-

liminary draft." The Secretary asked, "What are you referring

-8-

228

to?" And Dr. White replied, "Tell the British that within

the last two weeks everything has operated with great success.
Because that seems to give our O. K. to their action of
letting sterling drop to 4.95." Lochhead said, "You have
to give it to both of them. That has to be put down in
writing to go to the French." Mr. Morgenthau said, "I will
do it over the telephone." Mr. Lochhead, continuing, said,
"Unless, on the other hand, you want to cable the statement
to Cochran and then call him on the telephone."
The Secretary asked Dr. Feis, "Herbert, are you satisfied
to have me do it this way?" Feis answered, "Entirely. I have
a distinct preference that you do it the way you now suggest
doing. I sympathize with White's observation of saying anything that they could take as a complete endorsement of the
exchange abroad."

In answer to this, Mr. Morgenthau said, "I said it to them
this morning. I said I was pleased and that I thought they
had acted extremely well. I have gotten White's reaction
through Lochhead. There is nothing to show that the English
have in any way forced this thing; they have spent about three
times to our one to keep it up. They have spent about three
times as much money as we have. There has never been a time
in the United States Treasury's history that you could tell
there was $10,000 of sterling being sold. The Secretary of
the Treasury never knew and no Secretary of the Treasury knew
when the marriage season was on in India because it wasn't of
importance to them. But this stuff -- I've been suspicious
of the English for three years and SO has the President and
we have worked this thing, inch by inch, until we have gotten
to where we are. And they were very suspicious of us. And I
will go on record now and maybe history will prove me wrong -that the last two weeks they have played ball and there isn't
the slightest sign that they have eased it down."
Mr. White said, "I don't mean that they eased it down but
they didn't help to keep it from going down." Mr. Morgenthau
then said, "There is even that statement supposed to have been
made by a member of this administration who 1s looking to a

4.86 pound. It has appeared in all the papers. It's on this
side." Haas remarked, "If you go further back than that, didn't
they put in a bid the first day of 4.90, when it was 5.07?"

Taylor said, "When it was 4.91." Mr. Morgenthau said, "When the

thing was 4.91, they came through with an order for 3 million
pounds at 4.90."

Dr. Feis' comment was, "I have not the slightest speck of
suspicion regarding their conduct, but nevertheless, on the
general basis of experience, I wouldn't want to indicate any

relaxation of attitude."

-10-

The Secretary said, "In this thing, we have left it on
a 24-hour basis. Listen, I will rehearse my statement with
all of you people about three times more and, in view of

seeing how I feel, I would be more than pleased if you
would take a shot at writing something on a page for me
and you have from now until Monday morning to do it. I

would be very much pleased if you would. But when we went

all through this thing before, you, Herbert, suggested and
we decided to put it a different way."

Dr. Feis said, "This will go all right, too; just talking to clarify
method
better."the position." White said, "We all like that
Mr. Morgenthau's comment was: "Thanks for the vote of

confidence. Now I think you might as well go ahead."

229

230

H.O.
1. The picture of which this arrangement for the interchange of
gold is a technical part is that of foreign exchange as a three-cornered
plane, the three corners resting on the purpose of the three governments to

minimize fluctuation in exchange rates by the use of their respective stabilization funds and other appropriate and effective means.

3. Thus, public officers, responsible to their government and in

231

turn to the people, are taking the regulation of the medium of exchange in
foreign trade out of the hands of the relatively few individuals engaged
as international speculators in foreign exchange. Thus, instead of having
these persons who are responsible to no one and who recognize no flag, in
control of foreign exchange markets, gradually governments are taking over

this function with the result that business men who export and import will
find one of their business risks gradually eliminated--namely, - the risk of
fluctuation in foreign exchange. As this medium for doing business among
countries is gradually made more dependable by the elimination of such

factors of uncertaintly as unhealthy speculation in foreign exchange, international trade and commerce will prosper with the removal of other barriers

to it, such as trade restrictions set up by various countries to prevent the
dumping of goods made possible by exchange and other competitive advantages.

232

1. Three-cornered plane, each corner rests on a foundation

of a stabilization fund.
2. Each country operates to equalize its own currency by

buying and selling exchange in terms of other currencies. No
country wishes to accumulate too much paper currency of other

countries, and, therefore, we will permit each country to convert

its (other fellow's) paper money into gold, the price being fixed
each day.

3. Thus the officers responsible to the electorate are taking
out of the hands of the international speculators in foreign ext
change the regulation of the mediums of exchange. Thus instead
of having individuals responsible to no one and recognizing no
flag running the foreign exchange markets, gradually the various

Governments are taking over this function with the result that the
business man who exports or imports can gradually eliminate one

risk in his business, namely: the risk of foreign exchange. As
the medium for doing business between countries is gradually smoothed

out and foreign exchange competition is eliminated, trade barriers
set up between countries to prevent dumping of goods through exchange

advantages fall automatically.

233
1. Three-cornered plane, each corner rests on a foundation

of a stabilization fund.
2. Each country operates to stabilize its owa currency by
buying and selling exchange on other countries. No country wishes
to accumulate too much paper currency of other countries, and, there-

fore, we will permit each country to convert its (other fellow's)
paper money on the day or day after he acquires it into gold, the
price being fixed each day.
3. Thus in each of the three countries the government, which

is responsible to the electorate, is taking out of the hands of the
international speculators in foreign exchange the regulation of the
mediums of exchange. Thus instead of having individuals responsible
to no one and recognizing no flag manipulating the foreign exchange

markets, gradually the various Governments are cooperating to stabilize
foreign exchange rates. As this cooperation advances one important

business risk for the man who exports or imports will be minimized;

namely, the risk of foreign exchange. In turn, as the machinery for
doing business between countries is gradually smoothed out and foreign

exchange competition is eliminated, those trade barriers set up
between countries to prevent dumping of goods through competitive
exchange manipulation will cease to be necessary and should disappear.

white

as

234

The level of foreign exchange as between France, Great

Britain and the United States may be thought of as a triangular
plane, each corner of which rests on the foundation of a
stabilization fund. (As other countries come under the agreement,
the geometrical form of the plane can change, with other corners
being added).

As one of the other corners rises or falls, the country
at the third corner uses its stabilization fund to equalize
that action and keep the plane level. It does this by buying or
selling the currency of one or the other of the two cooperating
countries. The agreement now being consummated permits the

conversion of these accumulations of paper currency into gold.
The price at which gold can be acquired by one country from
another will be fixed each day.

235

The exporter and the importer, and the banks xxtak which

finance their foreign trade will not now be subject to the
risks that have been inherent in international exchange by
and
reason of speculative activities of currency pirates. 8

1

Hands of governments will not be tied by fixed and unchanging

gold parities, so that they are helpless against the speculator.

1. The level of foreign 236
exchange as between
M.S. - get. Britain f France

my thought of as A plane.
Each carner reots on

the foundation of
a stabilization fund. .

-

TOTALS

2. Each country operates to equalize its own currency by buying
and welling exchange in terms of other currencies. No country wishes to
accumulate too much paper currency of other countries, and, therefore, we

will permit each country to convert its (other fellow's) paper money into

gold. The Price Being fixed each day

This represents a divorcement of the control of the
foreign exchange market from internati nal speculators. The
responsible Governments of the people will now cooperate to
assure that exchange fluctuations

237

follow the flow of international trade. Persons with
merchandise to sell abroad or who are buying for importation
will be free to operate through their banks in KREEPIRE
regular and normal embhange operations. The international

Speculator, responsible to no one, and recognizing no flag
in the conduct of his business, will not now be able, by
rapidly shifting his funds from market to market, to reap
private advantage through stimulating chaos in foreign e exchange.

Hong

238

The level of foreign exchange as between the United
States, Great Britain and France may be thought of as a
IV

triangular place. Each corner rests on the foundation
of a stabilization fund.
Each country operates its own stabilization fund to
equalize its own currency by buying and selling exchange

in terms of other currencies. By that I mean, in this
market we buy sterling or francs. In London they would
be buying dollars or francs.
No country wishes through these operations to accumulate too much paper currency of the other countries and,

therefore, we propose to permit each country to convert the
other countries' paper money into gold, the price being
fixed each day.

This represents a divorcement of the control of the
foreign exchange market from the few individual interna-

tional speculators. The responsible Governments of the
people will now cooperate to assure a minumum exchange

fluctuation.
Business men with merchandise to sell abroad or
business men who are importing merchandise will be free

to operate through their respective banks in regular and

239

normal exchange operations.

The international speculator,
responsible to no one and recognizing no flag in the con-

duct of his business, will in the future not be able by
rapidly shifting his funds from market to market INN to
reap private advantage through stimulating chaos in foreign
exchanges.

240

TELEGRAM SENT
LMS

GRAY

October 8, 1936
3 p. m.
AMEMBASSY

PARIS (FRANCE)
391.

FOR COCHRAN FROM THE SECRETARY OF THE TREASURY.

There follows below the text of the Chancellor's
communication:
QUOTE

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
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

241

LMS 2-No. 391 to Amembassy, Paris.

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 proposed by Mr. Morgenthau namely that United States

Treasury will sell and buy gold at 35 dollars per ounce
(plus or minus 1/4 per cent) whenever British exchange
equalization 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 differenct

times. Chancellor suggests thereDrs that any sterling
acquired by United States Treasury through control opera.
tions of Federal Reserve Bank should be converted into

gold in London at price fixed in London market whether or
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 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

242

LMS 3-No. 391 to Amembassy, Paris.

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 assumos
that arrangement is intended to remain in force for an
indefinite period subject to a right reserved to cach

side to suspond it or review it (without prejudico of
course to past transactions) on termination of draft agreement in the event of unforescen circumstances arising.

7. Chancellor trusts that Mr. Morgonthau will be
in agreement with foregoing and that under those conditions arrangement may result in effective cooperation
botwoon exchange controls.

8. Chancellor would be grateful for an opportunity
of considering terms of any announdement found necessary

in United States and of coordinating any similar announcement if one becomes necessary. END QUOTE.
I have

243

LMS 4-No. 391 to Amembassy, Paris.

I have given you the text as we now have it. Thoro
is probably a garble in numbered paragraph six in regard
to the phraso "on termination" which does not make clear
sonso.
CARR, ACTING
(HF)

EA:HF:LW!!

244
October 8, 1936
4:05 P. M.

Mr. Bewley came in to see the Secretary. Mr. Lochhead,
Dr. Feis and Mr. Taylor were also present.
Mr. Bewley said, "I want to apologize for Mr. Mallet and
also to explain that just before I came down he got a
message from London that there was a telephone conversation
coming through and as it is a telephone message, and coming
at 10:00 o'clock (London time), it must be very important.
Mr. Morgenthau said to Mr. Bewley, "The brain trust of
the Treasury, of which Dr. Feis is an active member
"Honorary member," Dr. Feis said.
has been going back
and forth and they finally gave me ten different drafts of
what I was supposed to say at my press conference. And I
wrote one. And it was as good or bad as the rest of them.
.

Here's the trouble. After talking it all over, we feel that
when I give out this statement, I should just talk perfectly
naturally, the way I do. And, if you don't mind, if you will
take a pencil, I will try it out on you. In the first place,
here is the official form in which the announcement will be
made, what we will say officially. That is for you, for you

to send to Mr. Chamberlain." Mr. Bewley said, "Oh, yes, quite."
Mr. Morgenthau then said to Mr. Bewley, "Before we go on,
you have no objections to our sending a copy of the message
Mr. Chamberlain sent to me to Mr. Cochran in Paris?" Bewley
answered, "Oh, not at all. I suppose your arrangement with
France 18 something along the same lines.'

Mr. Morgenthau explained, "What we are doing is sending
exactly the same statement to Cochran and asking him to give

this to Mr. Auriol tomorrow morning, the same thing that I am
handing you, and it will be exactly the same arrangement.
That's what we have been waiting for, isn't it?" Bewley answered,
"Quite." Mr. Morgenthau added, "We might almost say praying
for, that this thing would work with the three countries. That's
the point." Bewley answered, "Yes."
Continuing, the Secretary said, "I might say I talked to
Cochran and the French have again courteously asked, When is
this going to happen? And this is something they would like
very much to have. Now once your people get my statement and
turn it over to the Bank of England, then I think it simply
gets to the point of the Bank of England working it out with
the Federal Reserve Bank in New York. I would simply turn
the whole thing over to them." Bewley agreed, saying, "Yes,

I think that's right. It is a matter for the banks.

Resuming his remarks, the Secretary said, "What I thought

-2-

245

I would do; we find now that Monday 16 Columbus Day and every-

thing is closed here. And I have a regular press conference
Monday afternoon. What I thought I would do, provided always
that this thing clicks, is on Monday afternoon I will simply
hand this out to the press and simply say that we have taken

this step and that this is a natural step.

Mr. Bewley inquired, "And this regulation would be issued
Monday, effective Tuesday morning?" Mr. Morgenthau replied,
"Yes, it would begin on Tuesday. We are closed on Monday. It
would be effective Tuesday morning and I would simply give them
a very short explanation and simply say, Now that the French
have a stabilization fund that this license, or whatever you
want to call it -- we are entering into this reciprocal agreement with France and Great Britain on a 24-hour basis and that
this is another step which will make the mechanism of the
agreement work. You see?"

Mr. Bewley then inquired, "It is necessary to announce the
names of the foreign countries daily? That means you say
France and Great Britain every morning." Mr. Morgenthau answered, "We won't keep repeating it."
Mr. Bewley then asked, "It doesn't have anything to do with
the amounts?" Mr. Morgenthau replied, "No, and we won't an-

nounce amounts. What I will say to the press is this: I am
not going to see the press every day. I see them twice a week,
which is sometimes twice too often. I will simply say this

is good until further notice -- that until further notice this

agreement exists between England, France and the United States.

I never know what questions I am going to be asked -- but it is
to put this down any other way than this. This is the announcement, plus a verbal explanation. What I would like is that

very difficult for me -- we tried it here -- very difficult

your Government would make some sort of announcement Monday

night and the French make some sort for Tuesday morning. This
would go into effect Tuesday.

"This is the way I feel. May I make myself clear? Having
received this thing, and I now take it that this agreement has
been arrived at, I accept what Mr. Chamberlain has said and I
am ready to enter into this agreement Monday night to go into
effect Tuesday." Mr. Bewley answered, "Yes."
Continuing his remarks, the Secretary said, "The reason I
have picked Monday night 10, in the first place, it's a holiday
and, in the second place, it happens to be my regular press
conference afternoon and I don't want it to seem out of the
ordinary -- perfectly normal thing, just talking informally.
Do you see anything in this thing that anybody could object to?"
Mr. Bewley read the statement very carefully and then said:

246
-3-

"It seems perfectly all right as far as I can see. The only

phrase which takes my eye -- 'will hereafter announce daily
the names of the foreign countries complying with the foregoing conditions'. I don't particularly mind the phrase but
I wonder if the other governments will be surprised to think
it is necessary to announce it daily." Mr. Taylor explained,
"I think it is entirely a legal point. It's a question of
adding to the list, rather than anything else." Bewley then
said, "I am quite sure that no one could make any objection
to it. Have the Dutch or Swiss made any suggestion of this
sort?" Mr. Morgenthau answered, "Just the French."

Mr. Oliphant, who had been sent for, came in at this point.
The Secretary said to him, "Mr. Bewley 18 asking me about
the legal reason for the necessity for a daily announcement.
He says that the only thing that his Government might question
is the reason for a daily announcement."
Mr. Oliphant explained, "The only thing in mind there is,
in the set-up there is a good deal of formality involved in
getting necessary authorizations. It is set up on the basis
that it can be an expansive list and other countries could be
added from day to day." Mr. Bewley said, "Yes. I don't suppose
anybody would raise any point about it, but I just wondered if
they would understand. But that's all it is, merely to permit
additions to the list if required?" Mr. Oliphant answered,
"Yes." Mr. Bewley then asked, "So if the Czechs come in you
don't have to get another new proclamation -- you simply add
their name?" Mr. Oliphant said, "That's right." And Mr.
Bewley said, "I understand.
"The question I suppose the press would ask when you make
the announcement is, Are you going to announce purchases by

the different countries?" Mr. Morgenthau answered, "I can
assure you very definitely that we will not. When I told them
that we had made this particular purchase of the famous Russian
offer that I had broken my rule; that I wanted to announce then
and there that I most likely would never do it again. I am no
more desirous than you people to let anybody know daily, weekly
or monthly operations of our funds because there are so many
reasons why they shouldn't." Mr. Bewley said, "Quite."
Mr. Morgenthau said, "This thing never could have come about
if we could not have done it secretly. I think it has been
amply demonstrated that so-called conferences are not very
fruitful of results but when a person can do it the way we did
the last one, it seems a method of arriving at a successful conclusion and I can assure you that the workings of the American
stabilization fund will be kept secret. And the only thing in
this thing 16 Mr. Oliphant feels he spent literally months on

this and that this 16 the way to do it. This isn't something

-4-

247

that was drafted today. This is simply our method of doing
it." Mr. Bewley answered, "Quite. Oh, yes, I quite understand that."
Continuing his remarks, the Secretary said, "Every day,
as I will explain to the country, until further notice, these
are the countries and if there are any other countries who
want to join, they will be added to the list. I wouldn't know
how we would do that with a country that didn't have a stabil-

ization fund. Bewley said, "That will be met when it arrives."

Resuming, the Secretary said, "But if some other country
comes in and says, We would like to have this same privilege -I haven't been able to think beyond this. But you can see, to

write out a formal statement is rather difficult. What else
comes to your mind?"

Bewley said, "I don't like the phrase, 'the exchange equalization or stabilization funds of those countries whose funds

likewise are offering to sell gold to the United States. Is

it possible that gold might be offered by the Bank of England
and not the fund?' Mr. Morgenthau replied, "As I explained to
you when I saw you in July, the point I wanted, if we gave up
gold, I wanted the guarantee of the British Government. I don't
care where they get their gold or whose gold it is but it should
be between the British Government and the United States Government. You see?" Bewley answered, "Yes."
Mr. Morgenthau continuing, said, "Whether it's open market
or whether it's gold that you got out of China. How do I know
where you got the gold?"

Bewley then said, "I was only wondering on this actual
phraseology, 'The United States will also sell gold for immediate export to, or earmark for the account of, the exchange
equalization or stabilization funds. IN
Mr. Morgenthau answered, "I suppose it 18 right but it
might be a technical position. In London gold would be earmarked for the Bank of England." Mr. Oliphant said, "It is a
question of agency, on which I think we would have no trouble."
And Mr. Bewley remarked, "I don't think 80." Mr. Oliphant
added, "The Bank of England would act for the fund just as the
Federal Reserve Bank does for our fund in New York.
Mr. Morgenthau said, "As I say, once this gets over to
England, we would turn it over to the banks and let them get
together." Mr. Bewley inquired, "You mean the actual text or
the actual workings?" Mr. Morgenthau replied, "The text -it's Thursday night. They will have Friday, Saturday and
Sunday." Bewley said, "Oh, yes. I think there 18 plenty of
time. I was just thinking of any conceivable points that might
arise." Mr. Morgenthau added, "And I am here over the weekend.

-5-

248

Mr. Tay lor then said, "There is one point: This meets
all the legal requirements of our situation and unless there
is some particular thing that requires alterations, we would
much prefer to have it stay exactly as it is. Mr. Oliphant
said, "We are not submitting this text for discussion or for
alterations." Mr. Bewley said, "I quite understand that.
Continuing, Mr. Oliphant said, "This document has been executed by a sovereignty. I thought Mr. Taylor's statement
might be misleading." Mr. Morgenthau added, "And this thing
is signed both by the President and by myself. They might like
to know that." Mr. Bewley said, "Yes." And Mr. Morgenthau
added, "And for your information, he signed it before he left."
Mr. Bewley said, "I am not suggesting for a moment that we
would ask for alterations."
The Secretary then said to Mr. Bewley, "We understand each
other. There might be something in here that would be absolutely unworkable from your standpoint." Mr. Bewley replied,
"I don't think so. The Secretary then said, "If there is,
that's what we would like to know. I take it that you people
are also going to say something Monday afternoon and when you
do, I would appreciate the courtesy of knowing what it is.
Bewley answered, "Yes. Quite.

"I think there is one point that has not been clearly
brought out," Dr. Feis said. "If, at the press conference,
when you give this out, the newspapermen say -- The statement
tells the price at which we will sell gold. Does the British
stabilization fund promise to sell gold, and so on. will we
make that public or not? Did you mean to ask Mr. Bewley?" The
Secretary answered and said, "Isn't the answer to that, that
the price is arrived at each day; that I am very sorry but that
is an agreement between the two funds which are operated secretly." Mr. Bewley said, "I imagine there will be no objection to
saying, 'the current price of the day. H.M.Jr. said, "I can
get away with it. I don't have to say anything.' Taylor added,
"On a basis which is mutual and satisfactory." Bewley: "Yee.
Quite."

The Secretary said to Mr. Bewley, "Remember I wanted to

ask you a question about our situation and just remember this:
that there were no leake out of this Treasury and there haven't
been since I've been here. You know that.'
At this point, a message arrived that the British Embassy
was on the phone and wanted to speak to Mr. Bewley right away.
When Mr. Bewley returned, he said, "I am very sorry to
have gone out. Mallet was on the phone and said that the message rom London was that they could not possibly manage for an
announcement tomorrow."

-6-

249

Mr. Morgenthau said, "You explained to them?" Mr. Bewley
said, "Yes."

Mr. Morgenthau then said, "I will tell you what I am going
do. I have a call coming in from Cochran. There may be
some reason why the French would not want to wait. As far as

to

we are concerned, Monday afternoon would be ideal. Do you

mind waiting while I talk to Cochran?" Mr. Bewley answered,

"No, not at all."
Mr. Bewley left the Secretary's office.
Dr. Feis said to the Secretary, "I think this message to

Cochran that you want me to send is one that I will have to
submit here. You want me to relate to Cochran everything that
you have told Bewley?" The Secretary answered, "I am going to
give it to Cochran over the telephone. All you have to do is
send the press relese."

At this point, the Secretary talked to Mr. Cochran on the
telephone. Record of their conversation follows:

October 8, 1936
4:36 p.m.

250

Operator:

On
the
diplomatic
circuit, Mr. Morgenthau, I won't
have
the
call at 4:30.

H.M.Jr:

When will you have it?

Operator:

They're trying to clear it now.
Well, ask them if there is other - any other cir-

H.M.Jr:

cuit which has secrecy besides that.

Operator:

All right.

H.M.Jr:

H.M.Jr:

They seem to have another circuit besides that one.
Yes, they do.
Ask them for that one.

Operator:

All right.

Operator:

(Pause)

H.M.Jr:

Hello.

Operator:

I'm ready now.

H.M.Jr:

Thank you.

Operator:

Go ahead.

H.M.Jr:

Hello?

Cochran;

Hello, Mr. Morgenthau.

H.M.Jr:

How are you?

C:

All right - thank you.

H.M.Jr:

Are you at home?

C:

Yes, yes.

H.M.Jr:

That's good. Got on your slippers?

C:

Beg Pardon?

H.M.Jr:

Have you got your slippers on?

C:

(laughs) - no,not quite.
Not quite (laughs). Cochran?

H.M.Jr:

251

-2C:

Yes.

H.M.Jr:

After working here all day -

C:

Yes.

H.M.Jr:

- we've decided that we cannot submit a formal press

statement to either the French or the British. It's

too difficult to prepare. What we have done - Mr.
Bewley has been here for a half an hour C:

Yes.

H.M.Jr:

- and we have given him a copy of the statement the official statement which will be signed by the
President and myself -

C:

Yes.

H.M.Jr:

- which will permit the interchange on a recipro-

cal basis of gold between England and the United
States, and between the United States and France.
Hello?

C:

Yes.

H.M.Jr:

We will send you through the State Department a

C:

Yes.

H.M.Jr:

You - please, explain this - let me - that this is
the itstatement
which
on
for months
- our attorneys, after working
I don't hear you very well.

C:

copy of this statement this afternoon. You'll
get it during the night.

H.M.Jr:

This statement is a legal statement which has been
drawn up by our attorneys -

C:

Yes.

H.M.Jr:

And they feel that this is the proper form that it
has to take in order to comply with the law.

C:

I see.

H.M.Jr:

Now on account of Monday being a bank holiday here -

C:

Yes.

H.M.Jr:

- and our barks being closed -

-3-

252

C:

Yes.

H.M.Jr:

- we thought - I have a regular press conference (Aside, 'Is it 4:00 or 4:30?1)
You will have what kind of a press conference?

C:

H.M.Jr:

No,
I have
a regular press conference every Monday
at four
o'clock.

C:

Four o'clock?

H.M.Jr:

Monday -

C:

Yes.

H.M.Jr:

- and I thought that I would give out this statement
on Monday and then simply explain it verbally.

C:

Yes.

H.M.Jr:

And it would be for release for Tuesday morning.

C:

H.M.Jr:

I see.

And if - and this - do you want to call it - whatever you call it; I call it the license; the lawyers
tell me to call it the statement - would go into
effect Tuesday because all of our banks are closed

here Monday.
C:

I see.

H.M.Jr:

You see?

C:

Yes.

H.M.Jr:

Now I think Mr. Feis has already sent you Mr. Chamber-

C:

Hello.

lain's message to me - hello? Hello?

H.M.Jr:

Mr. Chamberlain's message which we got this morning
has already been sent to you.

C:

By the State Department?

H.M.Jr:

Yes.

C:

Yes.

H.M.Jr:

And this will go on the wires also, so you will
have to present to Mr. Auriol tomorrow morning

-4-

253

this statement which I propose to release at

four o'clock Monday afternoon C:

Yes.

H.M.Jr:

- to go into effect Tuesday -

C:

Yes.

H.M.Jr:

- and it's for Tuesday morning's papers.

C:

Yes.

H.M.Jr:

I have made exactly the same statement to the

British.

C:

Yes.

H.M.Jr:

And if I hear anything from the British, I will
immediately communicate with you.

C:

Yes.

H.M.Jr:

Now as to the actual workings, I told the British
that they should at once get in touch with the

Bank in New York.
C:

I didn't get that - you told them to get in touch

with the Bank in New York?
H.M.Jr:

The Federal Reserve.

C:

Yes.

H.M.Jr:

- in New York.

C:

Yes.

H.M.Jr:

- And work out the details.

C:

Yes.

H.M.Jr:

And you make the same suggestion to Mr. Auriol.

C:

I see. When - when could they get in touch - at

once?

H.M.Jr:

Tomor- - beginning tomorrow morning.

C:

They could get in touch directly tomorrow?

H.M.Jr:

Yes - immediately after you've presented this
statement to them.

-5C:

Immediately after I've presented this state-

ment?

H.M.Jr:

Yes.

C:

Yes.

H.M.Jr:

And this is entirely different from the one you
had before. This is the official statement -

C:

Yes.

H.M.Jr:

- and please make note that it will be signed by
the President of the United States and the
Secretary of the Treasury.
I see - finally it does come out.

C:

H.M.Jr:

What's that?

C:

Then it comes out.

H.M.Jr:

Yes.

C:

Is there a proclamation, too?

H.M.Jr:

This is - this is the proclamation.
It is the proclamation?

C:

H.M.Jr:

Yes. And then there'11 simply be an informal
explanation by myself.

C:

Yes.

H.M.Jr:

Now when you get it, there may be certain things
that you don't understand on account of the legal
language, and if you don't understand it, why call us up and we'll explain it, but I think it's
perfectly understandable.

C:

I see.

H.M.Jr:

And -

C:

Then the - the first sentence of your conversation I - I didn't get - that is, whether there's
anything that these people would give out.

254

-6-

255

H.M.Jr:

Well,
that's up to them. I should think that they
would.

C:

Yes.

H.M.Jr:

Now just a moment. (Pause during which conversa-

tion is carried on in H.M.Jr.'s office.) Hello?

C:

Yes.

H.M.Jr:

You'll have this thing the first thing in the
morning, -

C:

Yes.

H.M.Jr:

- and this is the statement - I'll repeat - this

is the official document which I will propose, I'm
proposing to give out Monday at 4 o'clock.

C:

Yes.

H.M.Jr:

With it, I will explain verbally - answer any

questions that the press may ask me, you see?

C:

Yes.

H.M.Jr:

But I am not going to explain that we are doing
this on a - the daily price of gold. I'm not
going into any details, you see?
Yes, I understand.

C:

H.M.Jr:

But I think after you get it, you'll understand

C:

Yes - all right.

H.M.Jr:

And - and we're proposing to do it Monday at

it because you know how these things work.

4 o'clock, provided that this meets with the approval of the French and the British.

C:

Yes - yes.

H.M.Jr:

You see?

C:

Yes.

H.M.Jr:

But when you get Mr. Chamberlain's statement,

you'll realize that we're in 98 per cent complete
accord. The only differences are in the minor
details - how the thing will work.

-7C:

May I show Chamberlain's statement to Auriol?

H.M.Jr:

Yes.

C:

It's permissible?

H.M.Jr:

Yes.

C:

All right.

H.M.Jr:

256

Now just a moment - (Pause during which conversa-

tion is carried on in H.M. Jr.'s office.) Hello?

C:

Hello?

H.M.Jr:

I - I think - I think when you get this in the

morning you'll understand it. Now if you don't,

you call me, see?
C:

The point is I will try to see him before noon,
you see?

H.M.Jr:

Pardon me?

C:

I've already telephoned the Ministry this evening -

H.M.Jr:

Yes.

C:

- and it is agreeable that I shall come over in
the morning as soon as I have this decoded.

H.M.Jr:

Well, then as soon as you've seen Mr. Auriol,
you call me, please bearing in mind there's five
hours' difference.

C:

Yes - yes, that's just it. That's why if it's

H.M.Jr:

morning and then gall you shortly after lunch.
Shortly after what?
Yes - to - to tell you the reaction here.

clear to me, I'll go to see Mr. Auriol in the

C:

H.M.Jr:

You'll call me when?

C:

Say 2:30.

H.M.Jr:

That's a good time.

C:

9:30 your time.

H.M.Jr:

That's a good time.

-8-

257

C:

You'll be back at the office then?

H.M.Jr:

All right.
And the only point is - I mean I can't tell until

C:

H.M.Jr:

I've seen these documents but they'll - they'11 be
in shape so that I could leave a copy with Auriol.
Yes - yes, you could leave a copy - you could leave
a copy of everything we sent you.

C:

I see.

H.M.Jr:

Yes.

C:

All right, and if I have any uncertainty, I'll hold
until I get in touch with you.

H.M.Jr:

That's right.

C: ;

Otherwise, I'll see them and call you back at 2:30
to give you their reaction.

H.M.Jr:

Thank you.

C:

All right, sir.

H.M.Jr:

Goodnight.

C:

Goodnight.

-7-

258

Mr. Lochhead said to the Secretary, "May I send a copy
of that statement to the Federal Reserve?" The Secretary
If

answered, "Yes. I would mail it to them.

Mr. Bewley was invited to come back to the Secretary's
office. The Secretary said to him, "I just spoke to Cochran
and he had nothing new. He has an appointment to see Auriol
tomorrow morning and he is going to do just what we have done

here and explain this thing and tell them that we will do this
as of Monday afternoon, if this is acceptable to all three
countries." Mr. Bewley said, "All right. Thank you very much."
The Secretary added "And if you get anything, give us a

ring. Mr. Bewley answered, "Yes. I will."

259

LMS

GRAY

Praha

Dated October 8, 1936

Rec'd 12:58 p. m.

Secretary of State,
Washington.

51, October 8, 5 p. m.
My telegram No. 50, October 7, 9 p. m.
House this afternoon adopted amended bill provid-

ing for devaluation of from 13.3 to 18.6 per cent.
Please inform Commerce.
WRIGHT
PEG

260

October 8, 1936
4:48 p.m.
Oliphant:

H.M.Jr:
0:

H.M.Jr:

These documents are modelled on previous ones but

they have not been cleared with the staff at the
Federal Reserve Bank, namely, their lawyers, etc.
Now
that. I want you to tell me when we can start doing
Staff of the Federal Reserve where?
In - in New York.

Well, let me - you and Archie get together on

that. He just raised that very - this question.

O:

H.M.Jr:

Yes.

I'll leave it - I'll leave that - you can start

right now.
O:

Right.

H.M.Jr:

Now -

0:

Then
on it. as soon as you release Archie I'll go to work

H.M.Jr:

Yes.

0:

Right. All right.

261

OCT 8 1936
My dear Mr. Knoke:

copies of
Enclosed are the following documents about which we

telephoned you this afternoon

1. Fress release.
2. XXXXXXXX Statement to be issued each day by

the Secretary of the Treasury.

3. Letter from the Secretary of the Treasury to
the Federal Reserve Bank of New York,

4. Letter from the Secretary of the Treasury to
the Assay Office in New York.

5. Letter to and authorisation from the President
for sales through the Stabilization Fund.
6. Letter to and authorization from the President
for purchases through the Stabilisation Fund.
Kindly advise us at the earliest moment of any consents you
may have to make in connection with these documents. Needless to

add, these documents should be treated as very confidential.

Very truly yours,
(Signed) Horman Oliphant
General Counsel.

L. E. Knoke, Esq.
Assistant Deputy Governor
Federal Reserve Bank of New York
New York, New York.

RECEIPT FOR REGISTERED ARTICLE NO.
fee paid.

class postage paid.

Know
From
7664
regular
arst Res
to

Addressed to

-

Accepting employee will place Initials in space below, indicating restricte

Special delivery fe

Return receipt fee

K JGH

is person

Delivery restricted to addressee
or

order

Postmaster, pe

October 8, 1936
4:50 p.m.
Operator:
George

Go ahead.

Harrison:

Hello?

H.M.Jr:

Hello?

H:

Henry?

H.M.Jr:

Yes.

H:

George.

H.M.Jr:

Yes, George.

H:

I've been keeping up indirectly with what's -

H.M.Jr:

Yes.

H:

- been going on down there, and I think your note

was a fine one.
H.M.Jr:

Which note was that?

H:

Well, I mean - I don't know - I haven't seen it,
but Lochhead told - told Knoke the substance of
the one you got which I thought was -

H.M.Jr:

Oh, oh.

H:

- pretty good.

H.M.Jr:

Well, now here's the thing - here's the thing the
way this thing is breaking.

H:

Yes.

H.M.Jr:

I've just told Oliphant and Lochhead to give the our official statement which we are proposing to
release now on Monday at 4 o'clock, to your bank
and to your lawyers and all that thing, see?

H:

Yes.

H.M.Jr:

And I think that rather - that - that you better
be on the New York end tomorrow and see that
this thing all goes smoothly. But I've told both
the Bank of England and the Bank of France that
they should work directly from now on with you
people for the next two days.

H:

Yes.

262

-2H.M.Jr:
H:

H.M.Jr:

H:

H.M.Jr:

263

See?

Well,
want. that's all right and I'll come any time you
Well, I think that Friday and Saturday will be in New York - will be the important end now that

we've gotten together, see?
Oh, I see.

And undoubtedly both the Bank of France and the

Bank
of England will be calling you a number of
times tomorrow.
H:

Yes - well - first rate. Well, now, Henry -

H.M.Jr:

Yes.

H:

When did you say you were going to release it?

H.M.Jr:

We're proposing to release it Monday at 4 o'clock.
Monday at four?

H.M.Jr:

Yes, on account of your being - everything's
closed Monday.

H:

Yes.

H.M.Jr:

Yes.

H:

That's not a bad idea.

H.M.Jr:

See? What?

H:

Yes, that's all right.

H.M.Jr:

Everything is closed on Monday.

H:

That will be all right unless they need to do something before then, which I doubt if they will.

H.M.Jr:

I don't think so. I don't think so.

H:

Yes.

H.M.Jr:

If - the only thing, the French can get their gold
from London if they want it.

H:

Yes. Are you - you're having Lochhead telephone
the thing up to us?

-3H.M.Jr:

264

I've - I've just told Lochhead and Oliphant to get

in immediate touch with your people.
H:

First rate.

H.M.Jr:

See?

H:

All right - well, thank you so much. Then I won't
come down tonight?

H.M.Jr:

No.

H:

All right.

H.M.Jr:

Thanks for calling.

H:

And you let me know, whenever you want me I'll come.

H.M.Jr:

Right.

H:

Fine.

H.M.Jr:

Thank you.

H:

Goodbye.

265
October 8, 1936
4:55 p.m.
H.M.Jr:

Hello.

Gardner
Jackson:

Hello, Mr. Morgenthau.

H.M.Jr:

How are you?

J:

All right - how are you?

H.M.Jr:

Fine.

J:

To be right to the point -

H.M.Jr:

Please.

J:

There is a speech to be delivered over a nationwide
hookup tonight at 8 o'clock by Father Ryan of the
National Catholic Welfare Conference in defense of
the New Deal.

H.M.Jr:

Yes.

J:

It's called 'Roosevelt Safeguards America.'

H.M.Jr:

Yes.

J:

The National Catholic Welfare people told me it is
under the auspices of a Democratic National Com-

mittee.
H.M.Jr:

Yes.

J:

Father Ryan handed me a copy of it this morning as
I was leaving a conference with him, and told me

that the Democratic National Committee is to print
a good many thousand for circulation.

H.M.Jr:
J:

Yes.

It defends Roosevelt against the charges of Commun-

ism, Felix Frankfurter against those charges, Rex

against those charges, Sydney Philman against them,
and David Dubinsky.

H.M.Jr:

Yes.

J:

Then it drags in these two paragraphs which I want

to read to you. 'A considerable part of th exces-

sive trepidation about Communism in America is
due to reckless propaganda manufactured by

notorious newspapers. Another part had its

-2-

266

origin in the unspeakable excesses and atrocities
committed by Communists and Anarchists in the deplorable conflict now raging in Spain. Timid,
undiscriminating and ill-informed persons with
too active imaginations transfer the bloody
scenes of that conflict to our own land. They
are misled by the sympathy which the Spanish
Communists are receiving from certain selfstyled Liberals in the United States. The
latter are credited with much more influence
than they really possess. Many of them are the
victims of misinformation and false inferences.
Just as some innocent Americans are induced to
believe that Roosevelt is a Communist, so a great
many well-meaning American Liberals have been
deceived into thinking that the present Spanish
Government is Liberal and Republican. The truth
of the matter is that the Government has been
unwilling or unable to control the anti-religious,
Communistic, and Anarchistic elements in the
Spanish population. The revolution began the
middle of last June. During the three months
immediately preceding that date, 160 churches
were burned, attempts were made to burn 250

other churches, 10 Catholic publishing plants

were destroyed, and 33 others were attacked.
260 persons were killed, and 1,287 injured.

No solid hope could be entertained that the
Government would restore order or protect the
rights of Catholics. It is no wonder that the
decent elements in the community revolted.
Thank God, they now seem likely to be successful.

In passing, may I say frankly that if I had to
choose between Fascism and Communism, I should
unhesitatingly take the former. I profoundly
detest both these forms of despotism and tyranny,
but I believe that Fascism is the lesser evil
because its despotism is less comprehensive.
Fascism exhibits less disregard for individual
rights than does Communism, and it shows more

consideration for humanity's dearest possession;

that is, religion. Well -

H.M.Jr:

Yes.

J:

The consequences of that thing, I think, are

likely to be terrific.

H.M.Jr:

Well, you'll have to explain. I mean I (laughs) -

this is a little bit out of my field.

-3J:

H.M.Jr:
J:

267

Yes, I know it is.
I mean what are - what are the possible consequences?

Well, there - politically in the first place. Spon-

sored by the Democratic National Committee, you have

there an utterance that can be interpreted as nothing
more really than pro - pro-Fascist. It's going I talked to John Lewis about it and - in New York and he hit the ceiling, and he said, 'Of course,
you're
That's going to alienate just no end
of laborright.
votes.'
H.M.Jr:

I see.

J:

The next thing, of course, is the obvious international complications involved in this thing. The
new Spanish Ambassador arrived today. He's to present his credentials tomorrow or the next day -

whenever the President gets back.
H.M.Jr:

Yes.

J:

Here a person speaking under the auspices of the
political arm of our Government calls his Government
a bunch of villians and cutthroats and what not.

H.M.Jr:

Yes. Well, now - I don't know. Where are you?

Where can I reach you?
J:

Well, I'm in my office at the moment. I've got

to leave. But now what - what has been done thus

far, I - I talked to Rex H.M.Jr:

Yes.

J:

- Rex wanted me to get Steve Early right away and
Steve is out playing today and I couldn't find him.

H.M.Jr:

Yes.

J:

I got Wallace's crowd - Wallace, oddly enough,
having called me down there last week for a talk

on just this subject of Fascism H.M.Jr:

Yes.

J:

- and his fear of the things in this country -

H.M.Jr:

Yes.

-4-

268

J:

Well, I talked with them about it, and they have
putD.it -on the wire to Wallace on the train with
F.

H.M.Jr:

Yes.

J:

- which they hope they'll catch. And Waters - Jim
Lacarne I think of Wallace's staff has called - no,
Ickes has called Jim Farley and expressed what - his
concern about the thing. But I just thought that
you ought
to know
might
tackle
it - if there is any angle that you

H.M.Jr:

Well, what did - what did Ickes report?
I haven't - I don't know that.

J:

H.M.Jr:

Well, this is Father Ryan, is it?

J:

Yes - Father John A. Ryan.

H.M.Jr:

And - and - what - and what is his organization?
The National Catholic Welfare Conference.

J:

H.M.Jr:

Oh, yes, - National Catholic -

J:

He's the leading Cath- - one of the leading Catholic
Liberals in this country.

H.M.Jr:

Yes. Well, I don't know whether I can do anything
but I'll see and I certainly appreciate very much
your calling me.

J:

Righto, and I hope when something lets down some time -

H.M.Jr:

Yes.

J:

- that we may see you and your wife.

H.M.Jr:

Yes - right. I hope so, too.
You bet.

H.M.Jr:

Thank you very much.
Righto.

H.m.Jr:

Thank you.
Goodbye.

269
October 8, 1936
5:04 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Merz.

H.M.Jr:

All right.

Operator:

Go ahead.

H.M.Jr:
Merz:

Hello, Merz.
Hello.

H.M.Jr:

How are you?

M:

Good.
I wanted to write a short editorial for
tomorrow -

H.M.Jr:

Yes.

M:

- in the Times about this Red Cross business.

H.M.Jr:

Yes.

M:

The Sun has got en editorial on it tonight, and

undoubtedly you saw the Herald Tribune this

morning H.M.Jr:

Yes.

M:

- and I never have seen the text of this famous
letter that so much fuss is being made about.

H.M.Jr:

Yes.

M:

We put in very little of it, but as I understand
it, all you said in that letter was that you
didn't feel that you could indicate your approval

H.M.Jr:
M:

of the purchase of any securities other than
Government obligations or Government organizetions gueranteed as to principal and interest,
and that you didn't undertake - that you didn't
feel it was your - you were in a position to
pass on the investments in private securities.
That's right.
In other words, the - the attempt to read your
letter 88 an implication that the Government
alone offers protection to the investor and that
any funds put into the securities of private
correspondence - corporations was unsafe, was un- -

not justified -

270

H.M.Jr:

-2And untrue - it's untrue.

M:

What?

H.M.Jr:

It's untrue.

M:

I mean there's nothing - there was nothing in the
full
text of it that carried any such implication
as that, was there?

H.M.Jr:

No, and they had a meeting of that particular
organization in my office yesterday -

M:

Yes.

H.M.Jr:

- and I explained in great detail my position to
them, that I simply felt that as the Secretary of
the Treasury, that I could not pass on commercial
securities.

M:

Yes. Well, now, have you got time for me to read
one paragraph to you?

H.M.Jr:

Sure.

M:

That's all I was going to write -

H.M.Jr:

Sure.

M:

- but I didn't think - I thought it was a tempest
in a teapot but I didn't like to see it go by

without something being said to set the H.M.Jr:
M:

It's - it's Just - it's a month before elections.
Yes. Well, I've written just one paragraph, and
if you would mind pricking any misstatement of

fact in it, I'd appreciate it.

H.M.Jr:
M:

Well, thank you for reading it.
All right. I just say, 'Much ado is being made
about a letter of Secretary Morgenthau written
last May on the subject of investments by the
Red Cross Endowment Fund. As Chairman of the

Board of Trustees of that Fund, Mr. Morgenthau

said in his letter that he did not feel he could
indicate his approval of the purchase of any
securities other than direct obligations of the

Government or obligations of a Governmental

organization, guaranteed as to both principal
and interest. -

271

-3 H.M.Jr:

Yes.

M:

- 'In some quarters efforts are now being made to
interpet this as an indication on the Secretary's
part that the Government alone offers real protection for the investors, and that funds put in the
securities of private corporations are unsafe.
Mr. Morgenthau himself explains that he was not
attempting to draw any comparison between
Government and private obligations, -

H.M.Jr:

Right.

M:

- 'and his letter was written in reply to a request

made by the Secretary of the Board of Trustees for
advice as to investments, and that he regards it
as improper for the Secretary of the Treasury to

H.M.Jr:
M:

pass on investments in private securities. Absolutely right.

- 'That explanation ought to satisfy all reasonable people. I

H.M.Jr:

It's 100% right.

M:

All right, sir.

H.M.Jr:

And I appreciate -

M:

Thank you very much. How are you?

H.M.Jr:

Oh, I'm all right. I got to hold myself in my chair
with both hands to keep me from getting partisan.

M:

(Laughs).

H.M.Jr:

But this - this thing is pretty small stuff.

M:

Yes.

H.M.Jr:

And - what you say is absolutely accurate and when
I met with them there wasn't a member of the Board
who disagree with my position.

M:

H.M.Jr:

Yes. Well, I'm sure of that. This There's only - there is one member and he wasn't
here, and he's the man who has made all the trouble.

272

-4M:

Yes.

H.M.Jr:

And he's a prominent Republican.

M:

Yes.

H.M.Jr:

But I -

M:

Well, as you say, it's just the - the last three
weeks of the campaign.

H.M.Jr:

That's right.

M:

Well, you see -

H.M.Jr:

You know the only - the only thing that would have

been a story in this thing - if I had come out
and had endorsed their buying those things.

M:

Absolutely - I'm with you on that point.

H.M.Jr:

That might have been a story.

M:

Yes. Thank you very much.

H.M.Jr:

Thank you.

273
October 8, 1936
5:11 p.m.
Gaston:

- and then we called in Graves and later we got
ahold of Elmer Irey, and we decided that it was
best to let Elmer's men do the investigation
rather than that - rather than Procurement. They
might fumble it, so we - so Elmer called Hugh
McQuillan on the phone and told him to get to
the bottom of the thing and see what it amounted
to, and we suggested to Procurement that they
don't definitely fire the man until McQuillan
has a chance to work on him.

H.M.Jr:

Well, the ticker said he had been suspended.

G:

Well, apparently that was the action of Ford, his
immediate superior in New York. The story appeared in the early edition of the Herald
Tribune. I mean the World Telegram.

H.M.Jr:
G:

Well does - does Peoples know anything about this?

Peoples is at home. I haven't called him. I - the
only man I've talked to over there is Rehlaender,
and Peoples hasn't been down today, and I didn't
call him at home. The man is a - the man is a
project clerk on WPA work at $2100 a year. He
is a reserve officer who was a captain of infantry in the World War. He doesn't seem to be
just a crazy man.

H.M.Jr:
G:

He doesn't just seem to be a crazy man?

No, I wouldn't think from that record that he

was.

H.M.Jr:
G:

Well, what do you think we ought to do?

Well, I think that this thing is clearly the kind

of subversive activity that can't be permitted
as he's organizing a Fascist army - it's just
the same as - a factional army - it's just the
same as if he were organizing an armed corps
of Communists. There isn't any difference.
And - and I think the man will ultimately have
to be fired, and - and we'll have to make it
plain that no such activities are going to be
tolerated. But I think that first that we want
to find out just how far the thing has gone and
whether there's anything more in it than just
this fellow Eldred's imaginings.
among Government employees. It's just the same

-2H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:
G:

274

And the thing is - but has - has Ford suspended him?

The U.P. ticker said - quoted Eldred as saying he
had been suspended, but that was not done by action
from here. It may have been done by Ford.
Have you been asked questions?

Yes, and we have simply told them that we know

nothing about it other than that there is such a
man as a project clerk, and we're investigating.
I don't see what else we can do, do you?

No, we - we ought to move pretty cautiously. It's
a scheme to put us - it's either, first,a crazy man
on his own initiative or, second, it's a scheme
to put us on the spot. But we can't back away

from the thing. I think if - if it's what he says
it is, why it's - it's the kind of an organization
that you couldn't tolerate Government employees

participating in.

H.M.Jr:

Right.

G:

Yes.

H.M.Jr:

Well, we'll go coasting now.

G:

Yes.

H.M.Jr:

Yes - good. Thank you.

G:

All right. Say, we've been asked by several people
about this William Phillip Stimms' story that
Germany is going to get into line with a - evening
out the market, probably devaluing, and I'm simply
told them
about
it. that there's no comment - we know nothing
I haven't seen it.

H.M.Jr:
G:

Well, the - it's in the evening news here. He says-

H.M.Jr:

Well.

G:

- says Germany is about to devalue and eliminate
her exchange restrictions.

H.M.Jr:

Well, we don't know anything about that.

275

-3G:

H.M.Jr:

Yes - right. Well, then there's just no comment, All right.

G:

- until we get something.

H.M.Jr:

O.K.

G:

Right.

H.M.Jr:

Goodbye.

G:

Goodbye.

276

sms

GRAY

Paris

Dated October 8, 1936
Rec'd 5:35 p.m.

Secretary of State,
Washington.

980, October 8, 7 p.m.
FRO CO CHRAN

Storling not so much under pressure today and

benefitted from natural support due to Chase being

a big purchaser for, I believe, Spanish account. No
big turnover in dollars at Bank of France, rate of
21.415. Florin stronger.
Bank of France statement as of October 2 was

released this afternoon, being first since devaluation.
It showed gold gain 7,240,000,000 francs; discounts
up 420,000; th irty day advances up 788,000,000; advance to Government under Articles One and Two down

1,539,000,000; advances under Article Three which
totaled 570,000,000 preceding week wiped out thus
these two items presunably indicate reimbursement by

Treasury to Bank of France approximately 3.5 billion
francs; discounts up 488,000,000; circulation up
2,300,000,000

277

sms

2 - 980, October 8, from Paris.

2,300,000,000; coverage 60.47 versus 54.42. Discount rate lowered to 2.5 percent; advances with
securities to 3.5; and thirty day advances to 2.5.
BULLITT
sms
emb

278
PARTIAL PARAPHRASE OF TELEGRAM SENT

TO: American Embassy, Paris, France

DATE: October 8, 1936, 6 p.m.
NO.: 393
FROM THE SECRETARY OF THE TREASURY.
FOR COCHRAN.

I quote below the text of the statement which I
propose to issue.
QUOTE. 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, refer-

ring 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 intention may
be revoked or altered), the United States will also sell
gold for immediate export to, or earmark for the account
of, the exchange equalization or stabilization funds of
those countries whose funds likewise are offering to
sell gold to the United States, provided such offerings
of gold are at such rates and upon such terms and conditions as the Secretary may deem most advantageous to the

public interest. The Secretary announces herewith, and
will hereafter announce daily, the names of the foreign
countries complying with the foregoing conditions. All
such sales of gold will be made through the Federal
Reserve Bank of New York, as fiscal agent of the United
States,

279

-2States, upon the following terms and conditions which
the Secretary of the Treasury deems most advantageous to

the public interest:
"Sales of gold will be made at $35
per fine ounce, plus one-quarter percent
handling charge, and sales and earmarking will
be governed by the Regulations issued under
the Gold Reserve Act of 1934.END QUOTE.

This statement, as I told you over the telephone,

will be signed by the President and by myself and if it

is satisfactory, I plan to give it out at the regular
press conference I will have next Monday afternoon. It
will be for release in the papers Tuesday morning, and
beginning Tuesday will be effective.
At the press conference when I give out the statement I shall make a short and informal explanation of
its purpose and meaning, without going into details as
to the arrangements made regarding it. I hope that
similar statements will also be made on Monday afternoon
by the French and British Governments.
The British Embassy in Washington has been given a

copy of this same text for transmission to the Chancellor
of the Exchequer in London.
of

280

-3Of course, I shall be glad to consider any comment
which the Chancellor of the Exchequer or Minister Auriol
may have to make, but the text must naturally conform to

the legal requirements in this country.
Also, as I told you over the telephone, I leave it
to the Federal Reserve Bank of New York to work out
with the Bank of France and the Bank of England the

details of operation. These institutions, if they wish,
may be free to begin discussion of the matter tomorrow,
Friday, with the Federal Reserve Bank of New York.
CARR

Acting.

EA:LWW

20kfeller
Treasury Department

Division of Research and Statistics
Date
To:

10/19

1936

Secretary Morgenthau

From: Mr. Haas

In accordance with your request,
I gave Mr. Gaston a copy of this memo-

randum on October 8th.

281
Memorandun prepared by

Mr. L. H. Seltzer,
Division of

Research and Statistics.
October 8, 1936
To:

Secretary Morgenthau

From:

Mr. Hasa

Subject: Comparative individual income taxes in the United States,
Canada, and Great Britain.

1. It is not possible to make perfectly accurate international
comparisons of income taxation. This is particularly true if the com-

parisons are limited to the rate schedules as such.

(a) Taxable income is differently defined in different

countries. The United States includes various proportions
of capital gains in taxable income, for example, whereas
Great Britain and Canada exclude the greater part of such
gains.

(b) Treatment of certain sources of income and expenditures, as well as of exemptions and credits, varies.
Dividends received by individuals are exempt from the
British normal taxes, for example, the tax having been paid
by the corporation at source: United States individual income taxes on dividends are in addition to corporation in-

come taxes. Credits against the tax are allowed for life

insurance and annuity premiums within certain limits in
Great Britain; they are not, in the United States.

(c) Some 30 American States impose individual income

taxes in addition to those levied by the Federal Government;

no comparable income taxes are imposed in England, but they
are in Canada.

(d) The income tax occupies a different position in
the aggregate tax structure of different countries, and
taxes imposed by local governments are likewise of varying
importance in the aggregate tax structure of the several

countries. There is also considerable variation in the

services rendered by the national governments in different

countries.

2. Despite these diff! culties, it is possible to make roughly

accurate comparisons of the incidence of the national income tax laws
of the United States. Canada and Great Britain, upon a representative

series of individual incomes. That is, it is possible and illuminating

to compare the amounts paid in national income taxes on American incomes
with the amounts that would be paid upon the same incomes identically

constituted, if the latter were subject to the Canadian or the British
income taxes. This is done in the appended table.

BI

282

Secretary Morgenthau - 10/8/36 - 2

To obtain maximum comparability, it was necessary, first, to adjust
the statutory net income, as defined by American law, to include wholly
tax-exempt interest. Second, it was necessary to break down each
adjusted selected income by sources of income in order that appropriate
allowance might be made for the varying treatment of capital gains and
losses, earned income credits, tax-exempt interest, and investment income
in the three countries. This breakdown was based upon the data prepared
for the Statistics of Income for 1934.
In consequence of these adjustments, the final figures may be said
to represent the national income taxes that would be paid by the average
American of his income class reporting any of the statutory net incomes
listed in the table, under (1) the United States Federal income tax law;
(2) the Canadian Dominion income tax law: and (3) the British income tax
law.

This comparison is valid for the purpose of illustrating how much
worse off the average American of virtually every income class would be,
as respects national income tax laws alone, if his American income were
subjected to the Canadian or British law, rather than to the United
States law. It assumes, of course, that an income of a given amount in
the United States represents the same economic and social power and is
derived from the same sources as the same income would be if it were

taxed under the Canadian or British laws. It further assumes that the
1934 composition of American incomes is substantially typical of American
income composition over a period of years. For the higher-income groups,
the 1934 composition minimizes the normal importance of capital gains;

for the lower-income groups, it is presunably typical because of the
overwhelming importance in these groups of wages and salaries.

3. The table clearly demonstrates that if American incomes were
subjected to the British tax laws, the taxes paid would be very substantially in excess of those payable under American law (1936). A single
individual with no dependents, reporting a statutory net income of
$1,500, would pay $71.99, instead of $14.00; if his statutory net income
were $2,500, he would pay $270.30, instead of $50.00; if his statutory
net income were $3,500, he would pay $468.61, instead of $88.00. A
married individual with two dependents, reporting a statutory net income

of $2,500, would pay $46.57. instead of nothing; if his statutory net
income were $3,500, he would pay $231.11, instead of nothing; if his

statutory net income were $5,000, he would pay $559.57. instead of
$56.00; if his statutory net income were $10,000, he would pay $1,654.59.
instead of $362.88; and if his statutory net income were $50,000, he

would pay $20,018.19. instead of $8,621.

If American incomes were subject to the Canadian law, the taxes
paid would also, in nearly every case, be greater than those paid under
American law, though the Canadian rates are much less severe for most

income classes than the British rates. A single individual without

283

63
Secretary Morgenthau - 10/8/36 - 3

dependents, reporting a statutory net income of $1,500, would pay
$15.24 under the Canadian law as against $14.00 in the United States.
If his statutory net income were $3,500, he would pay $95.90, instead
of $88.00. A married individual with two dependents, reporting a
statutory net income of $3,500, would pay $21.54 if subject to the

Canidian law, instead of nothing in the United States; if his statutory
net income were $5,000, he would pay $89.22, instead of $56.00; is his
statutory net income were $10,000, he world pay $595.76, instead of
$362.88; if his statutory net income were $300,000, he would pay
$161,318.01. instead of $161,700; and if his statutory net income were
$1,000,000, he would pay $693,618.62, instead of $678,436.

The table presents these data by percentages of total income as
well as in absolute amounts.

Attachments

284
Procedure Used in Computing Taxes on Selected American Incomes
under American, Canadian, and British Income Tax Laws

1. A representative series of American statutory net incomes was
chosen ranging from $800 to $3,500 for a single individual without dependents, and from $1,000 to $5,000,000 for a married individual with two
dependents.

2. Because certain sources of income are differently treated for tax
purposes in the three countries, it was first necessary to determine the
composition (by sources) of each selected statutory net income. This was
done on the basis of the data compiled for the Statistics of Income for

1934. It was assumed that each selected statutory net income has the same
composition as the average of the income items in the income class in

which it fell in 1934. For each income class, the amounts of business,
partnership, and capital losses were deducted from the like positive items,
and there was then added the amount of wholly tax-exempt interest in each
class. The percentage composition of the adjusted total income for the
class, thus obtained, was then determined by sources of income; and these
percentages were applied to arrive at the composition by sources of each
selected statutory net income, as adjusted to include wholly tax-exempt

interest. This procedure had the incidental effect of pro rating statutory deductions for taxes paid, contributions, etc., over all the various

sources of income. In most cases, the selected statutory net income fell
on the borderline between two income classes, and in these cases, the
average composition of the two classes was used. All incomes under $5,000
are grouped in one class in the Statistics of Income analyses. Our fig-

ures for the selected income of $5,000,000 were based upon the average
composition of all income classes over $1,500,000.

3. The procedure just outlined made it possible to exclude from the
application of the Canadian and the British income tax laws the portions
of capital gains and losses which are recognized for income tax purposes
in the United States, but which are not so recognized in Canada or Great
Britain; and to include, for the application of the Canadian and the
British income tax laws, the amounts of interest reported in the United
States that enjoyed complete tax exemption in 1934. The full amount of
wholly tax-exempt interest in the United States was assumed to be taxable
under Canadian income tax laws. despite the fact that negligible amounts
of wholly tax-exempt interest exist in Canada. On the other hand, it was
necessary to ignore the not inconsiderable amount of wholly tax-exempt

interest that is believed to be regularly omitted from the returns filed
by taxpayers in the United States. In applying the British law to dividend
income, the normal tax, which is actually paid at the source by the corporation, was included in the tax paid by the individual.
4. Our final figures reflect adjustments for differences in the
three countries in the treatment of capital gains and losses, wholly tax-

exempt interest. earned income credits, and personal exemptions and
credits for dependents; and they therefore overcome the major obstacles

to arriving at comparable figures. They ignore various minor differences
in allowable deductions and credits, but these are not believed seriously
to impair the validity of the comparison.

National income tax of United States,

Canada and Great Britain ied to American incomes 1
:Statutory :

Amount of tax

:net income:

: United
: States

: adjusted

:

Statutory

net income
United
States

:to include:
:wholly tax:

United
States

Canada

Tax as a percentage of (2)

United

United

Kingdom

States

United

Canada

Kingdom

exempt

interest
(1)

(4)

(3)

(2)

Single individual
$

800

$

800

1,000
1,500
2,000
2,500
3,000
3,500

1,000
1,500
2,000
2,500
3,000
3,500

1,000
1,500
2,000
2,500
3,500
4,500
5,000
10,000
20,000
30,000
50,000
100,000
300,000
500,000

1,000
1,500
2,000
2,500
3,500
4,500
5,056
10,204
20,768
31,746
53,821
110,856
329,308
572,738

1,000,000

1,129,944

13.31
26.53
71.99
171.02
270.30
369.34
468.61

-

-

$

$

$

14.00
32.00
50.00
68.00
88.00

.15

15.24
30.40
50.52
70.75
95.90

-

-

-

.93

1.60
2.00
2.27
2.51

2

1.02
1.52
2.02
2.36
2.74

1.66
2.65
4.80
8.55
10.81
12.31
13.39

Married individual with two d ependents
-

-

-

-

-

-

34.80
56.00
362.88

1,493.52
3,402.40
8,621.00
31,997.00
161,700.00
303,568.00
678,436.00

-

-

-

-

-

21.54
58.92
89.22
595.76

2,534.91
5,594.37
13,005.15
37,983.68
161,318.01

317,428.42
693,618.62

13.46
46.57
231.11

429.42
559.57
1,654.59
4,998.93

9,431.99
20,018.19
50,754.33
180,900.08
332,483.98
685,331.93

-

-

-

-

-

-

.62

.77

1.31

1.11
3.56
7.19
10.72
16.02
28.86
49.10
53.00
60.04

1.76
5.84
12.21
17.62
24.16
34.26
48.99
55.42
61.39
67.88

5,000,000 8,605,852 3,788,370.00 5,841,407.65 5,514,061.73 44.02

Treasury Department, Division of Research and Statistics
1

-

-

Procedure described in accompanying memorandum. Pound converted at $5.00.
Less than .005.

-

-

.67

1.86
6.60
9.54
11.07
16.22
24.07
29.71
37.19
45.78
54.93
58.05
60.65
64.07

October 12, 1936

286
BE

October 8, 1936

The President said I should explain to Hopkins that
if he allocates, for example, $2,000,000 to Chicago through
Ickes and Hopkins is already spending $10,000,000 in Chicago,
he wants Hopkins to spend only $8,000,000. He wants this
plan followed in every community where he allocates money
from now on to Ickes and it's up to Bell to see that this

is carried out. The President lays great stress on this.

287
69

October 9, 1936

HM,Jr. called in Mr. Prentice and Mr. O'Connor.
Speaking to Mr. O'Connor, the Secretary said, "While you were

away, I got hold of Mr. Prentice. He prepared a report
for me on Judge Bleakley. I want to give it back to him.
I went into this with the President and Governor Lehman

and the question as to whether a Supreme Court Judge can

or cannot take a salary is not a clean-cut legal one and
after talking it over with Governor Lehman, we have both
decided that it is too small and not dignified and that we
did not like it and, besides, Governor Lehman says he does

not need it. Let's just forget the whole matter."

#

288

THE COMPTROLLER OF THE CURRENCY
WASHINGTON

October 15, 1936.
Dear Henry:

This morning Senator Joseph Guffey called
me from New York and wanted to know, if he sent
a representative to Yonkers, New York, whether
he could secure certain information that was being

talked about quite generally about a certain party
who is indebted to the receivership of the national
bank there and his connection with the open bank.

I told the Senator that a similar request

had been made to you and you were of the opinion that
it would not be proper and that it seemed to us here

as if it would be hitting below the belt. Joe took

it good-naturedly and I am inclined to believe he
was satisfied with the explanation. However, I thought
he might call you and I wanted you to know just what
conversation took place.

I had a wonderful audience in Philadelphia
and also at Mayfield, Pennsylvania, and 52 business
men and bankers gave me a dinner in Scranton, which
gave me half an hour over the air on the accomplishments under the banking program.

Cordially yours,

gight

J. F T. O'CONNOR
Comptroller

Honorable Henry Morgenthau, Jr.

Secretary of the Treasury

Washington, D. C.

289

October 9, 1936.
9:01 a. m.
H.M.Jr:
H.Merle
Cochran:

Hello?
Hello?

H.M.Jr:

Cochran?

C:

Yes.

H.M.Jr:

Go ahead. Good morning.

C:

I received your two telegrams this morning -

H.M.Jr:

Yes.

C:

After
they were decoded I went over to the Ministry
of Finance.

H.M.Jr:

Yes.

C:

I was received by Auriol and Baumgartner.

H.M.Jr:

By whom?

C:

I summarized the - the telegrams to them.

H.M.Jr:

Yes.

C:

Then I went into Baumgartner's room, and let him
read the two messages completely.

H.M.Jr:

Yes.

C:

Then I left with him excerpts therefrom.

H.M.Jr:

Yes.

C:

That is the complete text of Mr. Chamberlain's
communication -

H.M.Jr:

Yes.

C:

- and the full text of your proposed declaration.

H.M.Jr:

Yes.

C:

And I explained to them about Monday being a
bank holiday -

H.M.Jr:

Yes.

290

-2C:

- as the reason why you would have to postpone

until 4 o'clock that day H.M.Jr:

Yes.

C:

- the announcement.

H.M.Jr:

Yes.

C:

Now - now just one question - I notice that you say
you trust that the French and British will also
make similar statements.

H.M.Jr:

Yes.

C:

Now, I'm - I'm not so sure on that point. Do you
want them to make statements indicating that they
are willing to give gold?

H.M.Jr:

Pardon me?

C:

- and that they will buy?

H.M.Jr:

You'll
have to repeat. I didn't get that. I didn't
hear that.

C:

In your telegram, after quoting the statement

which you propose H.M.Jr:

Yes.

C:

- then you say that, "At the same time that I give
it out, I shall make a short and informal explanation, simply and briefly, without going into
details as to the arrangements. I trust that the

British and French Governments will also on
Monday afternoon make similar statements."
H.M.Jr:

Yes.

C:

Now what - what's the idea? You want them to

make statements H.M.Jr:

That - that - the thought is that they would make
a statement in which they would say that they
will give up gold to us under similar conditions.

C:

Well, I mean this - this refers to your general
statement which says to what countries you will
give up gold.

291

-3H.M.Jr:

Pardon me?

C:

H.M.Jr:

I say - this - your statement is quite general.
No - well, the statement that will be - let's say
we set the time for Monday at 4 o'clock -

C:

Yes.

H.M.Jr:

- which is 9 o'clock your time.

C:

Yes.

H.M.Jr:

Then I will say this statement goes into effect

Tuesday, and the arrangement is with Great
Britain and France, you see?
C:

H.M.Jr:

C:

H.M.Jr:

Yes.

And my thought is that if 9 o'clock Monday evening,
the French and the British will make a statement
in which they will say: "We've entered into an
agreement with the United States, and on which we
will give up gold on a day-to-day basis."
I see.

I mean whatever technical statement they want to

make.
C:

I see. Well this - this thing where you say
about a similar statement, isn't it - it refers
to your general statement there?

H.M.Jr:

Well, this is something - I'll be quite frank that Herbert Feis must have written after he
went
back. I have not seen it. I haven't got
it on my desk.

C:

I see.

H.M.Jr:

He went back and he said he was going to write
something.

C:

You see, we didn't - there was no comment on the

thing at all except Baungartner said to me - he
said, "Well, do you want us to make a statement
as to whom we are willing to give gold and in what
circumstances, or do you want us to give to the
French press the text of the Secretary's
statement - that's your formal statement - and
give a little comment thereon?"

292

-4H.M.Jr:

Well, the answer to all of those things is yes.
I would like them to give my statement -

C:

Yes.

H.M.Jr:

- I'd like them to make a comment on my statement--

C:

Yes.

H.M.Jr:

- and I'd like them to make a statement of their
own.

C:

H.M.Jr:

I see - as to their policy on giving up gold?
Yes. Now is that perfectly clear?

C:

Yes.

H.M.Jr:

That's perfectly clear?

C:

I mean not just as to giving up gold vis-a-vis you
and vis-a-vis the British, but their general
policy?

H.M.Jr:

Their general policy.

C:

General policy?

H.M.Jr:

Yes.

C:

All right.

H.M.Jr:
C:

H.M.Jr:

Now - now just a minute; let me check with the
people here. Let - let me repeat.
A11 right.

My thought is this: They will give out a copy of

my statement that I'm giving out here.
C:

H.M.Jr:

Yes.

They '11 make some comment on it explaining it.

C:

Yes.

H.M.Jr:

And I take it, they'11 give out a statement which
will say that they are going to give up gold under
similar conditions to Great Britain and United
States. (Pause) Hello?

293

-5C:

Yes.

H.M.Jr:

That's all.

C:

Nothing further than that as to general policy -

H.M.Jr:

I don't
think so. I don't think it's necessary
at
this time.

C:

Yes - yes, I just wanted to be sure on that.

H.M.Jr:

No - no - no. I don't think anything beyond that.
Now, after all, let's say that we do this on

Tuesday C:

Yes.

H.M.Jr:

- and then on Tuesday, let's say that Switzerland
or Holland or Sweden calls us up and says, "We

want to get in on this."
C:

Yes.

H.M.Jr:

Then all we've got to say is, "To this list has

H.M.Jr:

been added Sweden," and that's all.
Yes - yes.
- or Holland.

C:

Yes.

H.M.Jr:

And then the one statement will go for all. That's
the reason we worded it so that we won't have to
continually get out additional statements. We'll

C:

simply have to announce additional countries have

joined it, that's all.

C:

Yes. And you'll - you'll give out this one statement as your statement, of course?

H.M.Jr:

Yes - yes.

C:

Yes.

H.M.Jr:

And then as - as additional countries join us -

C:

Yes.

H.M.Jr:

- in asking for this privilege, we'll simply an-

nounce that additional countries - we won't have
to get out any more statements.

294

6C:

I see. I see.

H.M.Jr:

Now the one thing that the British worried was,
were we going to announce every single morning
that we have this arrangement with Great Britain
and France. We said, "No."

C:

Yes.

H.M.Jr:

- That in my verbal statement I was - verbal
explanation I was going to say, "This statement
is good until further notice. "

C:

H.M.Jr:

I see.

And if any other countries join us, we'll simply
say whatever country, Holland -

C:

Just announce that there was a new addition.

H.M.Jr:

Just announce the new addition; that's all.

C:

I see.

H.M.Jr:

Now be sure we understand one another.

C:

I - I - I've got that point. Have you had the
British reply yet to - to the cable which transmitted this statement?

H.M.Jr:

No. I spoke to them and I gave them that and I
take it that from now on, I told them that they
should - the British and the Bank of England should talk to the Bank in New York.

C:

Yes.

H.M.Jr:

And that - I told them that I considered this an
accomplished fact - that we were in agreement -

C:

Yes.

H.M.Jr:

- and unless there was some point that they wanted

to raise, I took it for granted that this would -

C:

H.M.Jr:

that they'd do this Monday at 9 o'clock in England.
At 9 o'clock the evening of Monday?
Yes. Now just a minute. Archie Lochhead is making
faces at ine.

C:

Yes.

-7 -

295

(Pause during which conversation is carried on in

H.M.Jr.'s office.) Ah C:

Yes.

H.M.Jr:

Cochran, in order - this is so important. Would you
mind - Lochhead is a little worried - repeating
what your idea is now of what I'd like you to do.
Just repeat - I mean what you're going to tell the
French, so we're - we're in perfect accord.
I'm going to tell the French that you are giving
out this statement at 5 - at 4 '' clock on Monday

C:

afternoon, -

H.M.Jr:

Right.

C:

- to become effective the next day. That you ask
that they give out a copy of your same statement.

H.M.Jr:

Right.

C:

- That they make any comment on the statement which
they wish to make.

H.M.Jr:

Right.

C:

- That they also indicate what their policy - what
their policy is going to be toward giving gold to
the British and the Americans.

H.M.Jr:

Right. And that's all.

C:

That's all?

H.M.J.:
C:

That's all. We - we have perfect understanding.
Just - just one question -

H.M.UT:

Yes.

C:

The text of this I find is practically identical
with the original text.

H.M.Jr:

Yes.

C:

Is it?

H.M.Jr:

Well, I - I - I'm under such pressure here. If
you
say it is I'll take your word for it. I haven't
checked them.

296

-8C:

Well, I - I just wanted to be sure that it was all
right.

H.M.Jr:

Hello?

C:

Hello?

H.M.Jr:

Oliphant's people have been over it and over it and
over it and this is what they say they feel is necessary in order to comply with the law.

C:

I see.

H.M.Jr:

Now there's certain -

C:

Well, I mean I understood yesterday -

H.M.Jr:

- there -

C:

- that it was a replaced statement.

H.M.Jr:

Well,
I - you
can't
imagine the pressure I'm
underI -here.
It's
terrific.

C:

I - I understand it thoroughly.
And the point is this - the 24-hour business is

H.M.Jr:

for home consumption, see?

C:

Surely.

H.M.Jr:

And - while if you read the British note, they more
or less say the same but they say this thing will
run along until something goes wrong, you see?

C:

H.M...
C:

H.M.Jr:

Yes.

And I'll - I'll more or less indicate that in my
verbal interpretation.

I see.

But - but Mr. Chamberlain certainly puts in all the

hedges. He even talks about an hourly business,

you know?
C:

Yes, on - on the rates.

H.M.Jr:

Yes.

C:

Yes.

297

-9H.M.Jr:

And there is a little criticism here - you know,
foreign entangling alliances and all that sort of
thing.

C:

Yes; yes.

HMJr:

And - from the Hearst papers - and this 24-hour day
takes it, but I can explain that when I talk to
them verbally, see?
Yes, surely.

C:

H.M.Jr:

But the thought is that we've made one step - I'll
just take time to explain it to you how I feel I feel it has met with great success, far greater
success than I ever hoped for.

C:

The - the first step - yes.

H.M.Jr:

The first step. This is a second step which seems
necessary.

C:

H.M.Jr:

Yes.

If it works, it'11 - it'11 become more or less

permanent, you see?
C:

Yes.

H.M.Jr:

Now what the third step is, nobody can tell?

C:

I see.

H.M.Jr:

But we're moving in the right direction - everybody
that hasn't got his mind on the election thinks
this is a great constructive move, the most
constructive economic move in - since England
went off gold.

C:

Yes; yes.

H.M.Jr:

And everybody is very happy about it and that it's

safe. They - they can't find much fault with it,

see?
C:

They what?

H.M.Jr:

They can't find much fault with it. They can't
find much fault with it, I say.

- 10 -

298

C:

No, they can't.

H.M.Jr:

Now, let me ask you a question.

C:

Yes.

H.M.Jr:

Did any of that material which I gave you over
the telephone - did any of that come in the French
papers?

C:

That you gave me yesterday?

H.M.Jr:

Yes.

C:

It was in the British papers. I didn't see it in

a single French paper.
H.M.Jr:

But in the British papers?

C:

Yes; yes.

H.M.Jr:

Yes.

C:

It came at first with Dow Jones ticker.

H.M.Jr:

Yes.

C:

You see?

H.M.Jr:

Did they handle it all right.
It didn't use the exact wording but it was very

C:

good.

H.M.Jr:

It was all right. Now may - let me ask you something else?

C:

Yes.

H.M.Jr:

Are you worried over there about Russia's statement
on interference in Spain - does that bother you
people over there?

C:

In the market yesterday, they said.

H.M.Jr:

Pardon me?

C:

That affected the market here some.

H.M.Jr:

Yes, but how is it today?

299

- 11 haven't heard the stock exchange quotations yet.

C:

I

H.M.Jr:

Yes.

C:

But the exchange was - well sterling was stronger,
of course. The dollar was up .495 to 1.05. You see
sterling is stronger.

H.M.Jr:

Well, sterling was stronger here, too.
/

C:

H.M.Jr:
C:

Yes
- yes. I don't think that's going to be too
serious No.

- but it - it has made a little setback in their

rentes here and in their stock market.
H.M.Jr:
C:

H.M.Jr:

On the other hand, the Chinese-Japanese thing

seems to be a little better.

Yes.

Po - well now you're going back to see them, are

you?
C:

Yes.
While I was
with Fournier
- there, Baumgartner got in touch

H.M.Jr:

- Yes.

C:

- and has an appointment for 3 o'clock.

H.M.Jr:

Fine.

C:

It's a quarter past two.

H.M.Jr:

Yes.

C:

So I'm going to lunch now, and then he's going to
call me between four and five.

H.M.Jr:

And then - and then as the day goes along you'll
call me again?

C:

Yes. You'll - you'll be there?

H.M.Jr:

Yes.

300

- 12 C:

Fine. Well, I'll call you - well, as soon as I get

an answer from them which may be near six. That
would be one o'clock.
H.M.Jr:

Well, don't call me between - try not to call me

C:

Don't call between one and three?

H.M.Jr:

Yes - either call me before one or after three.

C:

All right.

H.M.Jr:

See?

C:

Well, it'11 - it'll just depend upon the hour I

between one and three.

get the word from them.

H.M.Jr:
C:

H.M.Jr:

All right.
All right.
Thank you.

October 9, 1936
10:08 a.m.

H.M.Jr:

Hello.

Operator:

Mr. Knoke.

Knoke:

H.M.Jr:

Good morning, Mr. Secretary.

Hello, do
Knoke.
Well, my
of yesterday
didn't
any harm,
didstatement
it?
K:

ly. the contrary, I think it helped very decidedOn
H.M.Jr:
K:

Yes.
And
haveit hated
see the
to 4.87
forI would
the effect
wouldtohave
- thing go
Yes.

H.M.Jr:
K:

- about all these - the Rumelys, and the Rands and
the Vanderlips, and that whole crowd, you Know?
Yes. Yes - yes.

H.M.Jr:
4.90?
And
K;

H.M.Jr:

- but she seems - what is it? 4.90 - 8.90 -

No, it's 4.90 - 4.90-1/4 about.
That's very nice.

K:

4.90-1/4 with very little business, but probably
a
little
side
justmore
now.on the bid side than on the offered
H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:
K:

Verynice.
Well,
how
and
from abroad,
have
you- on
- you haven't heard yet

No.itI in
putthe
in next
a callfew
forminutes.
England and I expect to
get
Are you going to talk to Cariguel today?

I will later on - yes.
Right. And then would you let Archie know?

I shall - yes.

H.M.Jr:
K:

But everything seems lovely, doesn't it?
Everything seems fine.

301

-2H.M.Jr:

302

The Germans have - seem to be having a hard time.

K:

Yes, well (laughs) of course I - they'll have to
come around ultimately. Just how Schacht will work
it out, I don't know. That's a -

H.M.Jr:

No.

K:

- that's a tough job he has.

H.M.Jr:
K:

Yes
time. - very. He's had it all his own way for a long
Yes, and he - he's the kind of fellow who wanted all
his own way, too.

H.M.Jr:

Right. Tell me, in talking to the people that you
talk to, has anybody made any sarcastic remarks
about my statement on the Red Cross investments?

Have you picked that up at all?

K:

H.M.Jr:

K:

H.M.Jr:

No, I haven't spoken to anybody on that.
I mean nobody has mentioned it to you? I'mean

I'm trying to gather how important - I mean I don't I mean the New York Tribune and Sun editorially,
of course, took a dirty crack at me because I Yes - that I saw.
- and I wondered whether that is getting down to
the people who are really dealing in finance.

K:

Well I - I must frankly say I've been so much -

H.M.Jr:

Yes.

K:

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:

- occupied with the - the exchange end that I haven't
had a chance to talk to anybody on the outside at
all.

Good.
Well,
I'm going
to ask - I'm going to ask
Burgess.
He might
Yes, he's much more in touch with the market.

Right. All right, thank you.
All right, Mr. Secretary.
Hello? 10:15 - 10:15.

303
OCT 9 1936
AURIOL ON DEVALUATION

9:40

PARIS-COPYRIGHT U P- IN THE FIRST INTERVIEW HE WAS GRANTED SINCE FRANCE DEVALUED HER

CURRENCY FINANCE MINISTER AURIOL SAID THAT HE
HOPED -ALL GREAT NATIONS- WOULD SUPPORT A WORLDWIDE FINANCIAL AND ECONOMIC ORGANIZATION TO
AVERT THE THREAT OF WAR

AURIOL HAILED AS THE -BEGINNING OF A NEW
ECONOMIC ERA- THE RECENTLY ANNOUNCED MONETARY

ACCORD BETWEEN FRANCE THE UNITED STATES AND

GREAT BRITAIN- AN INTERNATIONAL
FINANCIAL AND ECONOMIC ORGANIZATION AURIOL
SUGGESTED WAS THE LOGICAL SEQUEL TO THE ACCORD

-UNTIL NOW WE WERE ENGAGED IN A MONETARY
WAR WHICH WAS FORM OF ECONOMIC WAR- AURIOL

SAID -EVERY COUNTRY LIVED BEHIND TARIFF BARRIERS
AND UNDER A REGIME OF MONETARY DISPARITY
-EVERY NATION OF ANY IMPORTANCE ISOLATED

ITSELF AND PROTECTED ITSELF AGAINST THE
ECONOMIC ACTIVITY OF OTHER COUNTRIES AND THUS
EVEN COUNTRIES WHICH DECLARED THEY WERE NOT

IN REALITY WERE UNDER A REGIME OF ECONOMIC
AUTOCRACY

-BY ADJUSTING OUR CURRENCY ON THE BASIS OF
WORLD PRICES WE LEVELLED THE GROUND OVER WHICH
MERCHANDISE CAN PASS FREELY FROM COUNTRY TO
COUNTRY

-THE ATTITUDE OF OTHER NATIONS PARTICULARLY
THAT OF ITALY SHOWS THE CONSIDERABLE IMPORTANCE

OF THE EVENT WHICH -NEVILLE- CHAMBERLAIN AND
SECY MORGENTHAU WERE ABLE TO DESCRIBE AS A CAPIT

-AL POINT IN THE HISTORY OF OUR PEOPLESTURNING TO THE TASK OF THE IMMEDIATE FUTURE
AURIOL SAID
-NOW WE MUST ENLARGE AND CONSOLIDATE THIS

VAST ENTERPRISE AND WE DO NOT INTEND TO HALT ON
THE ROAD- PREMIER MUSSOLINI WAS RIGHT WHEN HE
SAID WE MUST GO FROM THE TEMPORARY TO THE DURABLE- WE MUST COMPLETE THIS COMMON EFFORT AND
LEAD PROGRESSIVELY TO A EUROPEAN AND WORLDWIDE
FINANCIAL AND ECONOMIC ORGANIZATION

-IT GOES WITHOUT SAYING THAT NOBODY WILL
BE EXCLUDED FROM THIS EFFORT AT COOPERATION AND

IT IS TO BE HOPED THAT ALL GREAT NATIONS WILL
GIVE IT THEIR SUPPORT
-BUT IT WAS NECESSARY TO HAVE A BEGINNING
AND THAT IS WHY I REJOICE THAT OUR THREE GREAT
POWERS HAVE SET AN EXAMPLE-

IN RESPONSE TO QUESTIONS THE FINANCE MINISTER SAID HE WAS CERTAIN OF BALANCING THE BUDGET
IN FRANCE BUT POINTED OUT THAT OTHER BUDGETS

-NOTABLY THOSE OF THE UNITED STATES AND BELGIUMWERE NOT BALANCED

-I MUST SAY THAT A BALANCED BUDGET IS
IMPORTANT NOT FOR THE IDEAS BUILT UP AROUND
IT BUT FOR THE CONSEQUENCES- IF TOO PRESSING

305

DEMANDS ARE MADE ON THE CAPITAL MARKET TO MEET

THE DEFICITS WE AGAIN WILL ARRIVE AT INCREASING
INTEREST RATES AND HAMPER PRIVATE INDUSTRY

-BUT THE BUDGET DEFICIT CAN AND SHOULD BE
FILLED BY THE RESUMPTION OF ECONOMIC ACTIVITY-

IT IS IN THIS DIRECTION THAT WE WILL BEND OUR
EFFORTS- THE EXPERIMENT OF DEFLATION PROVED IT

WAS TOO SENSELESS TO TRY- I AM CERTAIN I SHALL
BRING A BALANCED BUDGET-

AURIOL SAID HE FELT CERTAIN THAT -FROM AN
INTERNAL VIEWPOINT THE MONETARY ADJUSTMENT WILL
LEAD TO RECOVERY OF OUR FOREIGN TRADE AND FRENCH
TOURISM-

-MANY STUPID THINGS HAVE BEEN SAID ABOUT
DEVALUATION- HE ADDED -NOTABLY THAT WE WERE
GOING TO RUIN THE COUNTRY- BUT THE EXAMPLE OF
OTHER NATIONS PROVES THE CONTRARY-

-0-

UNITED PRESS - October 9, 1936.

306

(in Min Carrit

WCNS11

PARIS.--FINANCE MINISTER AURIOL TOLD THE UNITED PRESS TODAY THAT
HE HOPED "ALL GREAT NATIONS" WOULD SUPPORT A WORLD-WIDE FINANCIAL AND
ECONOMIC ORGANIZATION TO AVERT THE THREAT OF WAR.

AURIOL WHO ISSUED THE DECREES WHICH TOOK FRANCE OFF GOLD,
HAILED AS TE "BEGINNING OF A NEW ECONOMIC ERA" THE RECENTLY ANNOUNCED

MONETARY ACCORD BETWEEN FRANCE, THE U.S. AND GREAT BRITAIN. AN
INTERNATIONAL FINANCIAL AND ECONOMIC ORGANIZATION, AURIOL SUGGESTED,
WAS THE LOGICAL SEQUEL TO THE ACCORD.

"UNTIL NOW, WE WERE ENGAGED IN A MONETARY WAR WHICH WAS A FORM OF

ECONOMIC WAR," AURIOL SAID. "EVERY COUNTRY LIVED BEHIND TARIFF
BARRIERS AND UNDER A REGIME 0 MONETARY DISPARITY.
"BY ADJUSTING OUR CURRENCY ON THE BASIS OF WORLD PRICES, WE LEVELED
THE GROUND OVER WHICH MERCHANDISE CAN PASS FREELY FROM COUNTRY TO
COUNTRY.

*THE ATTITUDE OF OTHER NATIONS, PARTICULARLY THAT OF ITALY, SHOWS
THE CONSIDERABLE IMPORTANCE OF THE EVENT WHICH (NEVILLE) CHAMBERLAIN
AND SECRETARY MORGENTHAU WERE ABLE TO DESCRIBE AS A CAPITAL POINT

IN THE HISTORY OF OUR PEOPLES."
PREMIER MUSSOLINI WAS RIGHT WHEN HE SAID WE UST 60 FROM THE
TEMPORARY TO THE DURABLE. WE MUST COMPLETE THIS COMMON EFFORT AND
LEAD PROGRESSIVELY TO A EUROPEAN AND WORLD-WIDE FINANCIAL AND ECONOMIC
ORGANIZATION.

307

"IT GOES WITHOUT SAYING THAT NOBODY WILL BE EXCLUDED FROM THIS

EFFORT AT COOPERATION, AND IT IS TO BE HOPED THAT ALL GREAT NATIONS
WILL GIVE IT THEIR SUPPORT.
IN RESPONSE TO QUESTIONS, THE FINANCE MINISTER SAID HE WAS CERTAIN
OF BALANCING THE BUDGET IN FRANCE, BUT POINTED OUT THAT OTHER BUDGETS
--NOTABLY THOSE OF THE UNITED STATES AND BELGIUM--WERE NOT BALANCED.

10/9--R908A

UNITED PRESS - October 1, 1936.

WCNS60

308

League Ec, Survey
GENEVA, --AMERICAN BUSINESS HAS ADVANCED TO THE POINT "WHERE

SIGNS OF RECOVERY ARE UNMISTAKABLE, " THE LEAGUE OF NATIONS'S WORLD
ECONOMIC SURVEY REPORT SAID TODAY.

AFTER CITING THE SET-BACKS IN PRESIDENT ROOSEVELT'S RECOVERY PROGRAM
RESULTING FROM SUPERME COURT DECISIONS, THE SURVEY SAID:

"MARKETS WERE A LITTLE PERTURBED BY THESE JUDICIAL CHANGES. STEADY
INCREASE IN ECONOMIC ACTIVITY, DESPITE THEM AND DESPITE THE APPROACHING ELECTION SUGGESTS ECONOMIC AS DISTINCT FROM POLITICAL INFLUENCES
ARE GAINING THE ASCENDENCY.

THE REPORT SAID MAINTENANCE OF THE DOLLAR SINCE 1934 AT A CONSTANT
LEVEL ON WORLD EXCHANGE AND THE GOVERNMENT'S WORK RELIEF PROGRAM WERE
IMPORTANT FACTORS IN RECOVERY.

10/1--R1055A

UNITED PRESS - October 8, 1936.

309

WCNS44

ADD MONETARY AGREEMENT

SCORES OF COMMUNICATIONS FROM AMERICAN BUSINESS MEN AND PERSONS LINKE

CLOSELY WITH FOREIGN TRADE HAVE POURED INTO THE TREASURY EXPRESSING

SATISFACTION OVER THE AGREEMENT, IT WAS SAID.
RECENT MONETARY ACTIONS IN FRANCE, HOLLAND, BELGIUM, ITALY AND
SWITZERLAND WERE VIEWED AS TENDING TO PUT THESE CURRENCIES ON A NORMAL
LEVEL PREPARATORY TO STABILIZATION,
TREASURY OFFICIALS WERE NOT ALARMED OVER THE DROP IN THE PRICE

OF THE POUND. IT CLOSED YESTERDAY AT $4.88, THREE POINTS BELOW THE
FIGURE WHEN THE TREASURY STEPPED IN WITH THE STABILIZATION FUND SEPT. 26
THE DAY AFTER THE TRI-NATION AGREEMENT, AND PURCHASED 1,000,000 POUNDS
IN THE NEW YORK MARKET OFFERED BY THE STATE BANK OF RUSSIA AT WHAT
SECRETARY MORGENTHAU TERMED A "DISTRESS" PRICE.

TREASURY OFFICIALS SAID THERE MAD BEEN NO ABNORMAL TRANSACTIONS

INVOLVING THE STABILIZATION FUND, THE LARGEST BEING 75,000 POUNDS,
WHICH REPRESENTED A COMBINATION OF ORDERS.

OFFICIALS EXPRESSED A PRIVATE BELIEF THAT THE LOWERING OF THE
REDISCOUNT RATE BY THE BANK OF FRANCE FROM THREE TO TWO AND ONE-HALF

PER CENT WAS A FAVORABLE SIGN IN THE INTERNATIONAL PICTURE.
ADMINISTRATION OFFICIALS TOOK THE POSITION THAT A LONG-RANGE STABILIZATION AND TRADE IMPROVEMENT PROGRAM WAS COMING RAPIBLY TO A HEAP AS
A RESULT OF THE AGREEMENT.

10/8--R1134A

310

WCNS39

ADMINISTRATION OFFICIALS SAID TODAY THE U.S. AND GREAT BRITAIN
WERE COOPERATING ACCORDING TO PLAN IN THE TRI-PARTY MONETARY ACCORD

AND THAT THERE WAS NO THREAT OF A SPLIT OVER THE EXCHANGE RATIO OF THE
POUND AND DOLLAR.

10/8--R1123A

WCN342

ADD MONETARY AGREEMENT
K

THE OFFICIALS SAID THEY WERE PLEASED WITH THE WORKING OF THE ACCORD
THUS FAR AND BELIEVED IT WAS BRINGING ABOUT RAPID READJUSTMENT OF WORED
CURRENCIES TO PROPER LEVELS WITH A MINIMUM OF TRADE DISTURBANCES.
THEY INTIMATED THAT A CERTAIN AMOUNT OF MANEUVERING FOR POSITION
AMONG INTERNATIONAL CURRENCIES WAS TO BE EXPECTED BEFORE EXCHANGE LEVELS

SHAKE DOWN TO STABILIZED RATIOS.
IT WAS INDICATED THAT SUCH DEVELOPMENTS HAD BEEN ANTICIPATED
AND THAT GREAT BRITAIN, FRANCE AND THE U.S. WERE COOPERATING
CAREFULLY TO GUARD AGAINST SUDDEN EXCHANGE DISTURBANCES AS A
RESULT OF SUCH JOCKEYING.

10/8--R1128A

DOW JONES - October 8, 1936.

11.00 am

311

OCT 8 1936

NO U S BRITISH MONETARY COMPETITION
WASHN- 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 READJUSTMENTS 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

-0-

312

11.11

ADD NO U S BRITISH MONETARY COMPETITION
WASHN - TREMENDOUS CHANGES IN MONETARY

VALUATIONS AND INTERNATIONAL TRADE CONDITIONS

ARE STILL TAKING PLACE BUT THE ADMINISTRATION
FEELS THAT THE OBJECTIVES FOR WHICH IT HAS
BEEN WORKING IN THE MONETARY FIELD ARE BEING
SATISFACTORY ACHIEVED

-09861 8 190

12.11

Diary

9861 8 100
ADD NO U S BRITISH MONETARY

COMPETITION

WASHN - NO ARTIFICIAL ATTEMPT TO MOVE THE
DOLLAR-POUND-FRANC RELATIONSHIPS HAS BEEN

MADE SINCE THE SALE BY RUSSIA OF I 000 000
POUNDS STERLING ON SEPT 26 IT WAS LEARNED THE LARGEST TRANSACTION SINCE THAT DATE IN NEW
YORK AGGREGATED ONLY 75 000 POUNDS ACCORDING TO STATEMENTS MADE HERE

OFFICIAL CIRCLES INTERPRETED THE LOWERING
OF THE FRENCH DISCOUNT RATE TODAY AS A SIGN
OF INCREASED CONFIDENCE AND WELL BEING WITHIN
FRANCE

-0-

MISC. 3.2 60M 2.36

313

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
To

FROM

CONFIDENTIAL FILES

L. W. Knoke

DATE October 9, 1936.
SUBJECT:

TELEPHONE CONVERSATION

WITH BANK OF ENGLAND.

I called Mr. Bolton at 10:18 today. Sterling was on the
bid side in London, he said, and he wondered whether there was not

an oversold position in New York. I replied that I did not know;
but if there were, it could not be very substantial because the
market's whole exchange position was not important. Bolton exhibited
some interest in the sterling market for forward delivery. There appears to be considerable buying for European and British account of

sterling for one and three months delivery against simultaneous sale

for spot delivery, with the result that the discount on future
sterling has narrowed quite a little.
I inquired whether there were any new developments with re-

gard to the arrangement now under contemplation. Bolton replied that
they had seen a copy of the Secretary's message to Mr. Chamberlain
and that it looked as though they would get an an swer off tonight.

I stated that in this connection I wanted to discuss the following
point with him and be sure there was no misunderstanding:

Assuming, I said, that everything was set for Tuesday, and

we bought sterling on that day and decided to convert this sterling
into gold at the price quoted them, we would have to cable the same
night, giving the amount purchased and making the request for conversion. Bolton agreed. That being so, I continued, I assumed that
they also would cable us on Tuesday night and, for that matter of
course, daily, whenever operations were consummated, giving us the

dollar amount and asking us to convert into gold. If, for reasons of
their own, they did not elect to request conversion into gold the same

314

MISC 3.2 60M 2.35

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE

DATE October 9, 1936.

CONFIDENTIAL FILES
FROM

L. W. Knoke

SUBJECT: TELEPHONE CONVERSATION WITH

-2-

BANK OF ENGLAND.

day, it was my understanding that subsequent conversion would be a matter

of negotiation. Otherwise, we would be at a disadvantage because we had

to convert daily in order to be able to use the rate quoted us on that
day. Bolton repeated that he agreed entirely.
As regards the balance which they had with us, and for that
matter that which we had with them, it was my understanding that a settlement of this would not be automatic but rather a matter of negotiaion. Therefore, pending a decision as to what we would both wish to
do with these balances, I suggested that they be set aside for the time
being and that if Tuesday were the first day under the new arrangement,
we would convert on that day only what had been done on Tuesday but not
previous transactions.

LWK:KMC

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
CONFIDENTIAL FILES
FROM

L. W. Knoke

315
DATE October 9, 1936

SUBJECT: TELEPHONE CONVERSATION

WITH BANK OF FRANCE.

I called Mr. Cariguel at 10:40 today. Things were moving

very satisfactorily, he said. With regard to the arrangement now
under contemplation, Cariguel seemed a little uneasy lest, in case
of cancellation, he find himself in a position where he could no
longer convert into gold dollars purchased by him in the Paris mar-

ket for regular delivery, that is, two days. I replied that he
should not worry on that score because it was certainly my understanding that abrogation of the arrangement would be without prejudice to past transactions.

I then went at great length into the question of converting daily into gold the foreign currency bought by each of us. Assuming, I explained, that the arrangement becomes effective on Tuesday and that on Tuesday he buys dollars, he would, as I understood

it, cable us the amount the same night and request that these dollars be converted into gold; such conversion would then be automatic.
If, however, for reasons of his own he decided not to request conversion the same day, subsequent conversion of such dollars would

no longer be automatic but a matter of negotiation. In other words,
if he decided to accumulate balances in New York, the subsequent conversion of them would be subject to negotiation.

I explained that we took it that he would operate on this
basis because in cases where we bought francs in New York we would

naturally have to advise Paris the same night and request conversion

in order to be sure that the gold rate quoted us that morning would
apply. Cariguel very clearly replied his understanding that, "The
arrangement, in order to be valid has to be operated daily."

316

MUSC 1.2 60M 5-36

FEDERAL RESERVE BANK
OF NEW YORK

DATE October 9, 1936

OFFICE CORRESPONDENCE
TO

FROM

SUBJECT: TELEPHONE CONVERSATION

CONFIDENTIAL FILES

WITH BANK OF FRANCE.

L. W. Knoke

-2-

He then referred to the balances which he had accumulated
since the French fund began to work [which now amounted to

$19,000,000 and which might increase in volume because, after having
purchased in London gold to the extent of $20,000,000, he was not

able to get any more there since the Swiss National Bank was also

a buyer. I replied that since conversion into gold would be automatic only for new transactions from the day the arrangement became effective, conversion of his old balance into gold would have
to be a matter of negotiation. I suggested that, as soon as the
arrangement was in force, he advise us by cable what he wanted to

do with his balance and, if he requested conversion into gold, his
request would be given prompt consideration.

I then made reference to his daily orders to sell francs
and asked that he tellus definitely whether the rate quoted by him
was to be net to him or whether brokerage and Commission in this

market were to be for his account. Cariguel replied that the rate
he cabled us was always meant to be net to him.

317

GRAY

U

Praha

Dated October 9, 1936
Rec'd 11:20 a.m.

Secretary of State
Washington

52, October 9, 2 p.m.
My telegram No. 51, October 8, 5 p.m.
Bill as amended by House passed Senate today Effective

10th instant.
WRIGHT

KLP:RR

Bill providing for devaluation.

318
October 9, 1936
11:01 a.m.
H.M.Jr:

Hello?

Operator:

Mr. Hogate.

H.M.Jr:

Hello?

Hogate:

Hello, Mr. Secretary.

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:

Fine - thank you. And you?
Oh, I'm in a good humor but kind of as though
they've put me through the wringer.

I'll bet you are. You've had a pretty tough two

weeks of it, haven't you?
It's been almost unbelievable.

Well I can - I can believe it.
it's about I think you've done a fine job.
Thank you. It's about all one person can handle.
4 little more so, I should say (laughs) .
I agree with you. I just wanted to kind of gossip with
you for a minute or so Yes.

- as a friend. I discussed at my press conference

on Monday this so-called Red Cross letter.

H:

Yes.

H.M.Jr:

And your people carried on the front page, a perfectly
straightforward story, and I was entirely satisfied,
and so did the Tribune, see?

H:

Yes.

H.M.Jr:

Since then the Tribune and the Sun have taken a

crack at me editorially, and I - my own feeling

and inclination is to let her ride- forget about it.

319

-2H:

Yes.

H.M.Jr:

I wondered if you thought I was right or whether
it - it should be handled again.
Well, a strange thing - my wife and I were talking
about that last night. She's seen - I haven't seen
the Tribune editorial. It seems that the Tribune
did have an editorial.

H:

H.M.Jr:

Yes, they had one, and the Sun had one practically
the same. I don't know - they're working it in so
now it's a Communistic state. I don't know how they
get that.

H:

(Laughs)

H.M.Jr:

But they brought that in.
And - my preliminary disposition has been the same
as yours - not to say anything about it, -

H:

H.M.Jr:

Yes.

H:

- but Ann was asking me about it, and I gave the
same explanation which you had given, which we
published, -

H.M.Jr:

Yes.

H:

- which cleared it up entirely in her mind.

H.M.Jr:

Yes.

H:

I don't know though really what you can do about it.

H.M.Pr:

No.

H:

An -

H.M.Jr:

Well, the point is this - some of the people called up -

H:

I beg your pardon?

H.M.Jr:

There's some people - I just want to know, is it really
making any difference to the people who are not over-

political or over-partisan - I mean - I think - I

mean the man who has his money to invest and running
trust funds, etc., is it making any - do they understand what I've done?

320

-3H:

Oh, I think so entirely. I've - I - I have been -

yesterday I had lunch with a group of bankers, and
the matter didn't come up at all. I mean, I think if
they were concerned about it, they would have said
something about it.

H.M.Jr:

H:

Yes. Well, the way I'd like to leave it, if you
think it should be handled again, I'd greatly
appreciate if you'd call me.

I'll be happy to do it, and as a matter of fact I'll

kind of just touch upon the subject H.M.Jr:

Yes.

H:

- with a few people and see if I can get any rise from
them.

H.M.Jr:

I - yes - my own inclination was I gave the explanation;
the men who write straight through stories handled it
absolutely nicely, and I can't control the editorial

writers.
H:

H.M.Jr:

H:

H.M.Jr:

You - you cannot, and you'd be making almost a mis-

take, I think, to try it.
Well I - I - I think so. I mean the whole thing is I mean - I - I mean it is the most unusual thing. I
mean the letter was written back in May; it's been
there all this time; and, of course, I knew who dug
it out and I know who gave it out, -

Yes.

and I was never so shocked in my life to think that a

man of his standing would go as far as he did.
H:

Well I - I think it was pretty ridiculous. You are

abiding by - by what? The by-laws of the Red Cross you're a member of that Committee, aren't you?
H.M.Jr:

That's the point. And, if - I mean, and if the

Secretary of the Treasury is a member, that organization then becomes a quasi-public institution.

H:

That's right.

H.M.Jr:

And as a quasi-public institution, I can't recommend
that they put anything of their money into anything
except Governments, and there was no inference at
any time on my part did I say that they can't buy
commercial securities.

321

-4H:

H.M.Jr:
H:

H.M.Jr:

H:

H.M.Jr:
H:

Yes.

And that's what they're trying to make, and your
people have got it.
I thought our - I thought our explanation was
perfectly clear.
It was 100% satisfactory to me, and, as a matter
of fact, when people have called me up, I said,
'Please get the Wall Street Journal and read the
front page story in the Wall Street Journal which
is the best explanation that I can give.' That's
what I've told everybody.

well I'm - I'm happy that you're - that you're
able to do that.
Well, you write a straight through story.
Well, any time we don't I want you to tell me
about it.

H.M.Jr:

Don't worry - I will.

H:

(Laughs)

H.M.Jr:

And - but

H:

-

By the way I understand that we had a little sub rosa
help from you on a very nice story yesterday morning
on the pound situation, -

H.M.Jr:

Well -

H:

- and it was a very nice story.

H.M.Jr:

Yes. And you've - yes. Well, you ran it all right.

H:

Well, -

H.M.Jr:

You didn't get it from me but you got it, I think,
from Taylor.

H:

H.M.Jr:

Beg your pardon?

I think they got it from Taylor, didn't they? Or

Gaston?
H:

Yes, well I - I didn't know. I knew it came from

the Treasury and that you knew something about it.

322

-5H.M.Jr:
H:

H.M.Jr:

Yes, that's right, and it meant I - I thought it made a good story and - and then I followed it up and you people carried
it on the ticker, and I thought it was good enough.
I read it over the long distance overseas telephone the Dow Jones ticker.

H:

Yes, good (Laughs). .

H.M.Jr:

Well, but it isn't you know - now this thing Well, I'll be glad to check into that, Mr. Secretary,

H:

H.M.Jr:
H:

and see Yes.

- but my present disposition is to believe that it
hasn't caused any - any furore outside of definitely
partisan circles.

H.M.Jr:

Well, if I don't hear from you, I'll take it that's

H:

All right and I'll - I'll make some inquiries.

H.M.,T:

Thank you very much.

H:

All right - thank you. Goodbye.

the way it is.

323

October 9, 1936
12:30 p.m.
H.M.Jr:

Hello.

Knoke:

Yes, Mr. Secretary.

H.M.Jr:

Knoke?

K:

Yes.

H.M.Jr:
K:

What's the matter with you fellows? Can't you give
me a little excitement up there?
No; the market refuses to be excited.

H.M.Jr:

Yes.

K:

Very quiet and I should say Thank Heaven (laughs).

H.M.Jr:

Me too. Everything appears to be behaving beauti-

K:

H.M.Jr:

fully, don't they?
I think so, yes.

Yes. And I gather from your conversations abroad
that the Bank of England and the Bank of France

are satisfied.

K:

H.M.Jr:

Yes, I think there's a perfect clear understanding
as to what the arrangement is - is driving at. The
Bank of England - they told me they thought a cable
would go out to the Treasury - from the Treasury
to the Treasury tonight Yes. I hear they think we've got a few extra
lawyers down here.

K:

Well they certainly do (laughs) .

H.M.Jr:

(Laughs).

K:

But no - no - not only in. Washington - they think
there are too many lawyers in this country (laughs).

H.M.Jr:

Well, I'd love to write that.

K:

(Laughs).

H.M.Jr:

Yes. I'll have to write that.

K:

Yes.

-2-

H.M.Jr:
K:

H.M.Jr:

But the thing looks all right?
Very quiet, and I think it looks all right to me.
And did they raise any question as to our - to the
time we picked?

K:

H.M.Jr:

No. No, as a matter of fact, I think we can do
it none too soon for the French.
No, but I think Monday at 4 o'clock is all right,

don't you?
K:

Oh, I think it's - it's the best time. It's
better than Saturday afternoon, I think.

H.M.Jr:

A better time?

K:

H.M.Jr:

It's better than Saturday afternoon.
Yes, I think so.

K:

Yes.

H.M.Jr:

And when we get this thing, I'm not going to stand
on the letter of the law. I mean if the French
have got some gold they've accumulated, I'm going
to be very generous with them.
Well, I think that would be a -

K:

H.M.Jr:

I may charge them a half of one per cent instead of

K:

No, you won't.

H.M.Jr:

(Laughs) .

K:

(Laughs) .

H.M.Jr:

All right.

K:

All right, sir.

H.M.Jr:

All right.

K:

Goodbye.

H.M.Jr:

Goodbye.

a quarter but otherwise it's all right.

324

325

-3H.M.Jr:

11:33. Let me just put on the record - what is the

Operator:

I have 12:33.

H.M.Jr:

What time is it?

Operator:

It is now 12:33.

H.M.Jr:

O.K.

Operator:

All right.

H.M.Jr:

Thank you.

correct time? You answer me.

326
October 9, 1936
4:13 p.m.

H.M.Jr:

Hello? Hello?

Cochran:

Hello.

H.M.Jr:

Hello?

C:

Hello, Mr. Morgenthau?

H.M.Jr:

Yes.

C:

an you hear me?

H.M.Jr:

Yes.

C:

After I talked with you, I got in touch with

Baumgartner H.M.Jr:
C:

H.M.Jr:
C:

Yes.

- who was with Fournier at the Bank of France,
and talked over this matter.
Yes.

I gave them your present explanation in regard to
the declaration.

H.M.Jr:

Yes.

C:

- and then they talked with London -

H.M.Jr:

Yes.

C:

- and all three of them - that's Fournier and

Baumgartner and the Minister himself H.M.dr:
C:

Yes.

- have been a little uneasy over that 24-hour

business.
H.M.Jr:
C:

what's that?

I say they have been a little uneasy over the

reference to 24 hours.
H.M.Jr:

Yes.

C:

But I've convinced them that was the best part
of the whole thing.

-2H.M.Jr:

You convinced them what?

C:

That - that's a joke.

H.M.Jr:

Oh.

C:

They - they accept it all right. They talked to

327

London, and the London people gave them the text

of the declaration which they are going to release.

H.M.Jr:

I didn't get that.

C:

I say the Bank of England -

H.M.Jr:

Yes.

C:

- gave to the Bank of France when the Bank of

France telephoned them H.M.Jr:
C:

Yes.

- gave the text of the communique which they, the
Bank of England, are going to give out on Monday

H.M.Jr:

night.
I see.

C:

And I have that text now.

H.M.Jr:

You have?

C:

And the French have agreed to give out an iden-

H.M.Jr:
C:

tical text.

Oh, well we haven't received it yet.
May I read it to you - it's very short?

H.M.Jri

Just a minute (Pause).

C:

Hello?

H.M.Jr:

Yes.

C:

They - they would give out your declaration,

H.M.Jr:

Yes.

C:

- and the French will translate your declaration they're working on it now -

H.M.Jr:

Yes.

the British -

328

-3C:

- and will show me the translation in the morning,

H.M.Jr:

Yes.

C:

And they're making a translation of the British
communique, -

H.M.Jr:

Yes.

C:

- which they will use just changing a few words.

H.M.Jr:

Yes.

C:

France for Great Britain.

H.M.Jr:

Yes.

This is the British statement which will accompany
the issuance of your statement.

C:

H.M.Jr:

Yes.

It says: 'Arrangements for technical cooperation
with the monetary authorities in the United
States of America -

C:

H.M.Jr:

Yes.

C:

- 'have now been completed.

H.M.Jr:

I didn't get that.

C:

- 'have now been completed - have now been com-

pleted, H.M.Jr:

Yes.

C:

- 'and the new regulations have been published by
the Secretary of the United States Treasury, -

H.M.Jr:
C:

Yes.

- 'which will enable gold to be obtained in the

United States of America -

H.M.Jr:

Yes.

C:

- 'in exchange for dollars by any country which

gives reciprocal facilities to the United States of

America.

H.M.Jr:

Yes.

329

-4C:

'His - paragraph -

H.M.Jr:

Yes.

C:

H.M.Jr:
C:

'His Majesty's Government have arranged for such

facilities to be afforded in London to the United
States authorities.
Yes.

Paragraph. 'This day-to-day working arrangement
should greatly facilitate the technical operation
of the exchange control.

H.M.Jr:

Yes.

C:

- 'Similar arrangement - arrangements have been
made with the Bank of France, so as to provide
for effective cooperation between the three
centers.

H.M.Jr:

Yes.

C:

H.M.Jr:

That's it.
Well, you better repeat it again. Then we'll
surely have it. Just repeat it once more.

C:

There's - there's three short paragraphs.

H.M.Jr:

Yes.

C:

'Arrangements for technical cooperation with the
monetary authorities in the United States of
America have now been completed, and the new
regulations -

H.M.Jr:

And the what?

C:

- 'and the new -

H.M.Jr:

Yes.

C:

- 'regulations -

H.M.Jr:

Yes.

C:

- 'have been published by the Secretary of the
United States Treasury, which will enable gold
to be obtained in the United States of America

330

-5in exchange for dollars by any country which

gives reciprocal facilities to the United

States of America.
H.M.Jr:

Yes.

C:

Paragraph.

H.M.Jr:

Yes.

C:

'His Majesty's Government has arranged for such

facilities to be afforded in London to the
United States authorities. -

H.M.Jr:

Yes.

C:

Paragraph. 'This day-to-day working arrangement

H.M.Jr:

Yes.

C:

- 'Similar arrangements have been made with the

should greatly facilitate the technical operation
of the exchange control. -

Bank of France so as to provide for effective
cooperation between the three centers.
H.M.Jr:

Yes. well, I think that sounds all right to me.

C:

It looks awfully good - yes.

H.M.Jr:

Doesn't it?

C:

And I mean, I said, 'Well, that finishes it then.'

H.M.Jr:

Yes.

C:

He said, 'Well, Fournier just had one question
about 48 hours instead of 24 on certain arrangements with the Federal Reserve Bank.' I mean
a little technical point, and he was in touch
with the Federal this afternoon.

H.M.Jr:

Yes.

C:

(Squealing Noise)
What's that?

H.M.Jr:
C:

On the arrangements - there was no question about that your arrangements such as you have with the

British.

H.M.Jr:

Yes.

-6C:

H.M.Jr:

331

I mean that technical arrangement seemed to - to
please Fournier

Well, Lochhead said that's being taken care of,
that he talked to the Federal this afternoon.

C:

That's it. He talked while - while Baumgartner was there

H.M.Jr:

Yes.

C:

And Baumgartner said he understood it had been arranged.

H.M.Jr:

Archie says, 'Yes'

C:

Yes - good. I didn't talk with Fournier after he
talked with New York.

H.M.Jr:

Archie says, 'Yes, it's all right.'

C:

Fine.

H.M.Jr:

Now wait a minute. Of course, I take it that the
British will have a cable in tonight or tomorrow
and then I'll get it, you see?

C:

Oh, we -

H.M.Jr:

Hello? Hello? (Pause)

C:

Hello?

H.M.Jr:

Cochran?

C:

Yes.

H.M.Jr:

I imagine that the British will walk in here tonight

or tomorrow morning with their cable.
C:

H.M.Jr:

Will what?

They'11 most likely get a cable on this thing tonight
or tomorrow morning - the British Embassy here.

C:

Yes.

H.M.Jr:

And as soon as I get it, we'll send you - we'll

C:

H.M.Jr:

either phone you or send you a cable, see?
You - you will what?

We'll telephone you as soon as we hear from the
British Embassy here in Washington.

-7C:

H.M.Jr:

All right.
But I would say that this thing is all through, but
we have to hear officially from the British here,
which we haven't.

H.M.Jr:

I see. Of course, there might be a word different
here because they got it by telephone That's that.

C:

- from London, you see.

H.M.Jr:

I understand, and then our lawyers haven't looked

C:

at it either, but I guess it's all right.

C:

Yes - yes.

H.M.Jr:

Now I think that sounds fine, don't you?

C:

I - I don't see anything else to do. It looks
pretty complete.

H.M.Jr:

332

Now all you've got to do is write up your notes
on what's happened.

C:

(Laughs) All right.

H.M.Jr:

Have you done that?

C:

I tarted on it; I haven't finished it.

H.M.Jr:

Well remember now you can't go to Basle until you

C:

Oh - oh - you might make me miss my train.

H.M.Jr:

(Laughs). Well, don't forget it.

C:

I'm going down there.

H.M.Jr:

What?

C:

Is it all right to go to Basle tomorrow night?

H.M.Jr:

Yes.

C:

All right.

finish that.

-8H.M.Jr:

C:

H.M.Jr:

333

Why don't you - yes - this thing will be - well you
wait until you - the minute I hear from the British
I'll telephone you.
All right.
But I don't want you to go until we hear from the
British but the minute I hear it's O.K.

C:

I see.

H.M.Jr:

See?

C:

Now that would be after noon, wouldn't it?
Well it would be - ah - they might phone tonight and
if we - if they phone tonight why we'll send you a

H.M.Jr:

cable.

C:

All right.

H.M.Jr:

They might phone this to Taylor tonight.

C:

I see.

H.M.Jr:

See?

C:

So then if everything is clear in the cable it would
be all right for me to go down there.

H.M.Jr:

Yes. When does your train leave?

C:

It leaves tomorrow night at 10 o'clock.

H.M.Jr:

Oh, yes.

C:

The only thing is I'd buy my ticket before noon to-

morrow.

H.M.Jr:

Well, I think it's a pretty good gamble.

C:

All right.

H.M.Jr:

Yes.

C:

Well I'll - I'll be available here up until 9 o'clock
tomorrow night.

H.M.Jr:

Well, the minute we hear we'll either phone or cable
you - the minute.

334

-9C:

Well I'll be in the house all night tonight. I'm
staying home now.

H.M.Jr:

You'll be home tonight?

C:

You can get me tomorrow here, too.

H.M.Jr:

Well are they pleased - are the French pleased?
I told you the only point is just about that 24 hours.
Yes. Now let me ask you - they know what time I'm
going to release it here, don't they?
Yes, at 4 o'clock your time - 9 o'clock here.
That's right.
9 o'clock Monday night.
Fine - well -

C:

And they're giving me their translation tomorrow.

H.M.Jr:

Fine.

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

And then if the British text is any different from
this text I'll notify the French at once.
Fine. Well, I think you handled this again very

C:

Oh - surely.

H.M.Jr:

I'm very much pleased.

C:

C:

well.

I'm going to Basle and if you ever wanted me there
you could get me at Hotel Schweitzerhoff.

H.M.Jr:

Schweitzerhoff?

C:

Schweitzerhoff.

H.M.Jr:

Schweitzerhoff?

C:

That's it.

H.M.Jr:

Schweitzer or Kaiser?

C:

Schweitzer.

H.M.Jr:

Schweitzerhoff. All right.

335

- 10 C:

Schweitzerhoff.

If I want to - Schweitzerhoff - If I want you I'll

C:

just call up Dr. Schacht and then I'll get you.
That's right.

H.M.Jr:

(Hearty laughter)

C:

(Hearty laughter)

By the way he sent an emissary here the last few days.
H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Yes.

And the people here tell me - or told me tonight that
he's being fired.
What?

Fired, b e cause his chief said, 'Look here - you're
supposed to keep up on all these international
shinanigans and this is one you didn't know about.'
Well, there's a man that writes for the New York
Times from London by the name of Augur - A-u-g-u-r.
Yes - yes.

Well I don't know whether they carry his stuff in
Europe but he wrote a very surprising article about that Mr. Hitler was very much annoyed with Dr.

Schacht because he didn't keep him informed.
C:

Yes - yes.

H.M.Jr:

And that's the same idea, isn't it?

C:

No. They sent a man here who tells the French
Treasury that.

H.M.Jr:

They did?

C:

Yes.

H.M.Jr:

I see.

C:

H.M.Jr:

They - they just told me tonight when I was over
there at 7 o'clock.

Ah-ha. Well, that's very interesting.

336

- 11 C:

Well I'11 see them all down there if I go and get
what reaction they offer to -

H.M.Jr:

Fine.

C:

- things that are taking place.

H.M.Jr:

You know Monday - all the banks are closed here Monday.

C:

Yes - yes. Columbus Day.

H.M.UT:

All right.

C:

All right. I'll - I'll defer these plans until I

H.M.Jr:

But I'm very much pleased.

C:

All right. I'm glad it's gone this way.

H.M.Jr:

Thank you.

C:

All right - good night.

get your clearance on this British.

October 9, 1936
4:32 p.m.
Herbert
Feis:

Hello, Henry.

H.M.Jr:

Herbert, Cochran just called me from Paris -

F:

Right.

H.M.Jr:

- and he said that the French have been in touch

337

with the British, the British read their communique
to them which they are sending to us, and the French
are going to copy it word for word and use the same

one, and the F:

I'm a little bit mixed up.

H.M.Jr:

Well -

F:

The -

H.M.Jr:

The what - the announcement that the British are
going to make at 9 o'clock Monday night -

F:

Yes.

H.M.Jr:

- they telephoned a copy of it to the French -

F:

Yes.

H.M.Jr:

And the French agreed that they would use the same

F:

H.M.Jr:

thing, only translating it into French.

Well, have we seen it yet?
No, because I suppose they've had to code it and I
suppose -

F:

Oh, all right - that's swell.

H.M.Jr:

But I mean it's - it's completed and the British
showed it to the French, and the French accepted
it and are translating it into French, and I
suppose in three, four hours we'll hear from the
British.

F:

And that also means, I take it, that in the announcement they'11 cover not only our arrangements but
the arrangements between the British and the French
themselves.

>

f

H.M.Jr:

True. It's all in it.

-2F:

H.M.Jr:

F:

H.M.Jr:
F:

H.M.Jr:

338

Well, that Well, but I mean I told Cochran that he shouldn't he's anxious to get off tomorrow night to Basle
but he should not go until I had heard from the
British, but I suppose that in two or three hours
they'11 call up.
We'll get it from the British and not from Cochran?
We'11 get it directly from the British.
Well, probably they'11 hold it until morning.
Well, they usually let us know that they have a
message, you see? I'm not going to say anything
to them, would you?

F:

No.

H.M.Jr:

But I've got it from Cochran -

F:

No.

H.M.Jr:

I think the thing - I haven't - I never tried to

F:

Of course.

H.M.Jr:

And, after all, we have until Monday.

F:

Of course.

H.M.Jr:

But the thing's through - it's finished.

F:

H.M.Jr:

Well, that's grand.
Don't you think it's pretty nice?

F:

I think it's - it's grand.

H.M.Jr:

He read me the British communique over the phone.

show any anxiety. I can wait until the morning.

The girls are typing it now. If they get it through,
would you like to see it?

F:

Very much.

H.M.Jr:

I'll tell them that as soon as it's through -

F:

Just send me a copy.

-3H.M.Jr:
F:

H.M.Jr:
F:

339

It's one of these trans-Atlantic telephone things;
you know, it may be a little sketchy.
You like it, do you?
I think it's fine. and I told Cochran my lawyers

haven't seen it yet but it's all right.

Well, honest, I'm terribly pleased that we've now
moved to the point of an international monetary
system, and yet on a basis that can be reshaped
with accumulating experience.

H.M.Jr:
F:

Exactly.

And on this my hunch is that accumulating experience will probably indicate necessary changes.

H.M.Jr:

Oh, surely. The thing that Cochran said that the French didn't like the 24-hour business, but
he talked them out of it. But - oh a lot of this he says that's putting up to what - they've got
17, 18 million dollars here - would we convert
them? I told them the chances are we most likely
will, because they said we told them that we
were going to do this thing, and we've taken two
weeks, would we do it. And I told them the changes
are nine out of ten, we will. Hello?

F:

Yes.

H.M.Jr:

Those are all faithful things to do -

F:

I - I think so.

H.M.Jr:

- and we can do them very easily, see?

F:

Yes.

H.M.Jr:

But -

F:

"e've taken in - how much gold have we taken in
since September 1?

H.M.Jr:
F:

God, I don't know.
We've taken in 250 million, haven't we?

H.M.Jr:

Something like that. What's 17 or 18 million more
or less.

F:

Yes.

340

-4H.M.Jr:

Well, I thought you'd be pleased and I -

F:

I'm very pleased. It's - you have no -

H.M.Jr:

And I'll tell the -

H.M.Jr:

And you have no objection, of course, to letting the
Secretary know. He's just gotten in.
Oh, yes. Well, would you tell him.

F:

May I, and perhaps he'11 want to telephone you.

F:

H.M.Jr:
F:

H.M.Jr:

I just - I haven't seen him yet.
Well, please tell him and tell him I'll be here
for about - until five o'clock.
Well, I'll try and see if I can get to him now.
And I'll tell Mrs. Klotz as soon as the girls have

F:

typed - have worked that telephone thing over,
I'll send one copy tothe Secretary and one to you.
Right. Thank you.

H.M.Jr:

O.K.

341

October 9th

At a meeting held in Secretary Morgenthau's

office at 10:20 this morning the following

were present:

Admiral Waesche

Admiral Peoples
Captain Chalker

Admiral W:

H. S. Cocklin,

Aeronautical Engineer
of U.S. Coast Guard

We got bids from four people. The Fairchild
Corporation came in with low bid but it is a
plane which didn't comply with all the specifications. The Hall people bid exactly aame

as last time - $117,000; Consolidated $146,000
and Sikorsky $145,000.

Note:

At this point Admiral Waesche handed Secretary
Morgenthau a large sheet.

Admiral W:

The right hand column gives the total bid.

H.M.Jr:

The right hand column?

Admiral W:

Yes.

H.M.Jr:

What's the thought?

Admiral W:

We are all in accord with the Hall Aluminum bid.

H.M.Jr:

What kind of a plane will they use?
Going to give us an 8 ton flying boat based on a
design which was originally turned out in 1927 It
has been changed to bring it up to date as far as
the power plant is concerned and to give us additional strength throughout the airplane where the
landing requirements demand it. At the same time
requirements were set up about three years ago
by the Navy so that this plane could be used as a
3,000 mile plane. The requirements for flight
were changed by the Navy so that it can be operated
the same as a 21,000 pound airplane. This sets
the design up a little less than 17,000 pounds.
It is an all metal ship except for fabric covering
on the surfaces themselves and it has been specially
changed to suit our purpose.

Cocklin:

.M.Jr:

What horsepower are the engines?

342

-2Cocklin:

We recommend the Wright Cyclones which are rated

850wish.
but we can get more than that out of them
ifatyou

H.M.Jr:

Cocklin:
H.M.Jr:

Cocklin:
H.M.Jr:

Cocklin:
H.M.Jr:

Cocklin:
H.M.Jr:
Captain
Chalker:
H.M.Jr:

Cocklin:

Is that what they call the "sea level engine"?
It is almost sea level.
It is not the supercharged?
No.

You get more on the take-off.
Yes.

What do you call that other engine?
The Pratt and Whitney.

It seems
to have more power on the take-off than the
Pratt
and Whitney.
We
found the
Wright was a better engine for this
particular
plane.
What is the cruising radius?

Set3,000.
up for 2,000. With additional tanks we can
get

H.M.Jr:

This is a flying boat?

Cocklin:

Yes.

H.M.Jr:

Cocklin:
H.M.Jr:

What about delivery?

They promise complete delivery within 14 months.
What about the strength?

Cocklin:
H.M.Jr:

Cocklin:
H.M.Jr:

The strength has been brought up to 10 - about 25%
What is the cruising speed?
The
cruising speed is between 100 and 110 - not a
fast airplane.
What is the maximum?

Cocklin:

The maximum is 160 - that is at 3,000 feet,

343

-3H.M.Jr:

A little bit faster than the Douglas.

Cocklin:

About 20 miles.

H.M.Jr:

Everybody in agreement?

Group:

Yes sir.

H.M.Jr:

But we don't save any money on this. This is the

Waesche:

Yes.

H.M.Jr:

Now the next thing is how many. How many do you

Waesche:

We better get six. We have enough to get six from
the old appropriation. That will leave us enough
money to get four to six - Fairchilds and Stinsons light land planes for this alcohol tax work.
Can't you pick up some little stuff from the Army

H.M.Jr:

same budget.

think Waesche?

and Navy?

Chalker:

Most of their planes are not fitted for Alcohol Tax.
They are fitted for high landing speed.

Waesche:

Army and Navy never use this type of plane that we
use in inland work.

H.M.Jr:

You really want six?
Oh yes we need six. We have 8 stations and I don't
know whether Chalker intends to distribute these but
we should have two at Salem, two down in South Carolina,

Waesche:

H.M.Jr:

two in San Diego and two in Los Angeles. For this
long-range plane work we should have two of those
planes at all our important stations.
Will these be more expensive to operate than the
Douglas?

Cocklin:

A little more on account of horsepower.

H.M.Jr:

Well they won't be going out as much.

Chalker:

They can save them for sea landings.

344

-4H.M.Jr:

Cocklin:

79

Is this plane like a Condor?
It is designed something like it - came up from the
PN class. That development came through from '25

to '30 and Mr. Hall got this job to make it special.

H.M.Jr:

Cocklin:
H.M.Jr:

Cocklin:

What is this special plane for the Navy?
That is a torpedo plane for bomb work. I am trying
to think of a type that you might be interested in
This will be the only bi-plane?

This will be the only bi-plane. The bi-plane has
the advantage of being able to carry special loads
so it works in very well for our purpose. The bi-plane
has advantages for our particular wants. If we wanted
a real speedy ship

H.M.Jr:

We don't need a speedy ship.

Waesche:

As near as I can find out the only advantage in
a monoplane is increased speed and economical
operation at high speeds. What we want is low
landing speed.

Chalker:
H.M.Jr:

The Navy is still buying bi-planes.
Someone told me - I don't know where I picked this
up - that the Consolidated is building a Hall type
plane.

Cocklin:

That is not exactly so, The Navy goes through the
Bureau over here up to a certain speed and that includes
tunnel work. It is basically what we call the old
71. PFLB was based on the same design. That was
one of the first monoplanes the Navy brought out.
What is the landing speed of this plane?
60 with a full load.

H.M.Jr:

With flaps?

Cocklin:

No you get less than that with flaps.

H.M.Jr:

What do these monoplanes land at?

Cocklin:

H.M.Jr:

-5-

345

80
Cocklin:

63.

The Consolidated job is designed for a 27,000

pound plane.
H.M.Jr:

Cocklin:

What do the present Douglas land at?

Close to 60 with the flaps. 68 on full load.

We have actually measured it. It has been tested
with calibrated instruments.
H.M.Jr:
Peoples:

Then everybody is satisfied you want this?
Yes sir.

H.M.Jr:

And how much money over?

Waesche:

$71,000 in round figures - two Stinsons for $4,000
each and four Fairchilds at $12,000 or three and one.
Well get one kind of plane.

H.M.Jr:
Waesche:

Well the difference is we need a faster plane on the

Mexican Border. For Alcohol Tax we need a slow plane
for going over trees looking for stills. At San
Antonio we are using an old type Navy plane. We have
changed
aviators and they both agree that they want a
faster
plane.

H.M.Jr:
Chalker:

Do you have to get out more bids?
We have bids for the Fairchild.

H.M.Jr:

Do I sign anything?

Waesche:

Chalker:
H.M.Jr:
Chalker:

No sir - just your O.K.
We will have one ready on the Fairchild next week.
Whats
plane. the matter with the old Waco - they made a good

The most rugged plane we can find is the Stinson.
We were at the Naval Air Station and they can put that
plane down on one corner of the runway and stop it
before they hit the other end. They can stop within
300 feet after they put the wheels on the ground.
They
getTax.
off in 400 feet. That's what we wanted for
Alcohol

346

-6-

8F
H.M.Jr:

Why would it be better?

Cocklin:

Well it costs twice as much as the other.

H.M.Jr:

What is it's cruising speed?

Cocklin:

Around 140.

H.M.Jr:

That costs $14,020. What is the other?
$6,000. We are buying them off the shelves.
You can get a Fairchild with a 50 mile an hour

Cocklin:
H.M.Jr:

Cockling:
H.M.Jr:

landing speed?

Yes. With that we can just circle around and

hover a little.
Have you satisfied yourself that Hall is financially
able to carry out this project?

Cocklin:

Yes.

Waesche:

Yes sir, we are satisfied.

347

October 9, 1936

MEMORANDUM FOR THE SECRETARY,

(THROUGH ASSISTANT SECRETARY GIBBONS)

The undersigned have gone very carefully into the matter
of strengthening the Customs foreign service in Surope, especial consideration having been given to the recently authorized consolidation of European districts under one supervisory
head and the establishment of a unit to be specially engaged
on narcotic and other enforcement work, -and have to recommend
the following changes in personnel of the Customs Agency Ser-

vice: viz.,

1. Transfer Customs Agent Sidney J. Kennedy, Caf-12,
$4600. per annum, to the existing vacancy of Treasury Attache,
London, England, Caf-14, $6500. per annum.

Agent Kennedy is 41 years of age, and entered the Customs

Service in 1920 as a clerk in the office of the Collector of

Customs at New York. He was appointed a customs agent in 1929.

In 1930 Mr. Kennedy was transferred to the position of Assistant Collector of Customs at San Juan, Puerto Rico, and two
years later was made the Collector of Customs (under Civil

Service) of that district, at $5600. per anmun. In 1933 the

present Collector of Customs, Mrs. Jean Springstead Whittemore,
was appointed to the collectorship at San Juan, and Mr. Kennedy

was transferred to his former position of customs agent at
$4600. por annum. He is now under special assignment to the
Appraiser of Merchandise at New York, as acting Administrative
Assistant to the Appraiser.

It is felt that Mr. Kennedy's past varied customs experience
and accomplishments exceptionally qualify him for the post in
London.

2. Transfer Charles L. Turrill from his present position

as Treasury Attache at Vienna, Caf-13, $5600. per annum, to the
position of Customs Agent, Caf-12, $5000. per annum, with of-

ficial station at Boston, Mass.

348

-2-

3. Transfer Charles R. Clark from his present position
as Assistant Treasury Attache, London, England, Caf-15,$5600.

per annum, to the position of Treasury Representative at Berlin, without change in present grade or compensation.
4. Promote Charles R. Howard from his present position
as Treasury Representative, Caf-12, $4600. per anmun, to the

position of Assistant Treasury Attache, at London, Caf-13,
$5600. per annum, vice Clark.

5. Promote Hugo Wallenfels, Treasury Representativo,
Caf-10, $3500. per annum, to Caf-12, $4600., with designation
as Treasury Representative Acting in Charge, at Vienna, vice
Howard.

6. Transfer Wilson C. Boors, Treasury Representative,
Caf-10, $3500., at Vienna, to the position of Treasury Representative, Caf-11, 85800. per annum, at Paris.

7. Change the official station of Percy G. Dayre,

Treasury Representative, Caf-10, $3500. per annum, at Paris,
to London, without change in present grade or compensation.
8. Promote Lucien L. Picard, Treasury Representative, Vienna,
Caf-9, $3200. per annum, to Caf-10, $3500. per annum.
9. Promote Martin H. Rawlyns, Treasury Representative, London, Caf-10, $3500. per annum, to Caf-11, $3800. per annum.
10. Promote Ronald N. Marquis, Treasury Representative, London, Caf-10, $3500. per annum, to Caf-11, $3800. per annum.

11. Authorize the appointment of a stenographer-typist, at
$1700. per animum, in the office of the Treasury Attache, at Paris,

for duties in connection with the contemplated enforcement setup at Paris.
NARCOTIC ROLL

12. Promote Quentel Violett from his present position as

Special Employee (Bureau of Narcotics), $2600. per annum, to
Special Employee and Acting Treasury Representative, at $3200.

per anmm, with official station at Paris.

349

13. Promote Marin Vachon from his present position as
Special Employee (Buroau of Narcotics), $2300. per annum, to

$3000., with official station at Paris, France, thus placing
him on a parity with Clerk Micholas Paterniti, at Milan, under
the Paris office.
14. Change the present designation of Charles B. Dyar,
Special Employee (Bureau of Narcotics), $3900. per annum, to
that of Speciall Employee and Acting Treasury Representative,

with official station at Paris, France.

The above changes will result in no increase in expense
to the customs appropriation.

Deputy Commissioner of Customs.

Bermand wait
Treasury Attache, Paris, France.

approved by
any oer 13/36

October 9, 1936
5:20 P. M.

350

Mr. Mallet and Mr. Bewley came in to see the Secretary.
Mr. Mallet said, "I got the message from the Chancellor
of the Exchequer. He says he has no changes or criticisms to
make on the American announcement which you gave us yesterday

and, if you concur, he would like to issue a statement for
Tuesday morning's press and I give you a copy of it. He says
that the last sentence of that statement, the final sentence,
is subject to French agreement, which London 18 seeking. And
the Chancellor of the Exchequer entirely concurs that the
exact method of price fixing should be left to the two banks.
Mr. Morgenthau read the following statement: (See
Exhibit A attached)
"Proposed terms of statement are as follows.
"Arrangements for technical cooperation with monetary
authorities in United States have now been completed and a

new regulation is being published by Secretary of United States
Treasury which will enable gold to be obtained in United States
in exchange for dollars by any country which gives reciprocal
facilities to United States. H1s Majesty's Government have
arranged for such facilities to be afforded in London to United
States authorities. This day to day working arrangement should
greatly facilitate technical operations of exchange control;
similar arrangements have been made with Bank of France 80 as
to provide effective cooperation between the three centres."
Referring to the fourth line of the second paragraph,
"published by Secretary of United States Treasury", Mr. Morgenthau said to the British, "If you don't mind, it is Secretary
of the Treasury of the United States." Mr. Bewley said, "Quite

true. Let's make a note of that."
Mr. Morgenthau said to the British, "Let me tell you what's
happened. About 4:15 Cochran called me from Paris. The French
had your statement. They agreed to it; they are translating
it word for word, and changing just two words, making it read
the French Government instead of the British, and they have accepted this. Now what I would like is, I want my people here
and the New York Federal Reserve Bank to take a look at this and

if it looks all right I will ask you to drop in. But I just

want to give them a chance to look this over. I had it an hour
ago. As you know, we have lawyers and foreign exchange experts
and professors, and I want them to look it over, and sometime

in the morning you people will be in. But, as far as I can tell,
it looks all right. Don't you think so, Wayne? (Taylor). Mr.
Taylor answered, "I think the fellows you have mentioned will
look at it hard."

351

Proposed terms of statement are as
follows.

Arrangements for technical cooperation

with monetary authorities in United States have
now been completed and a new regulation is being

published by Secretary of United States Treasury

which will enable gold to be obtained in United
States in exchange for dollars by any country which

gives reciprocal facilities to United States. His
Majesty's Government have arranged for such

facilities to be afforded in London to United States
authorities. This day to day working arrangement
should greatly facilitate technical operations of
exchange control; similar arrangements have been
made with Bank of France so as to provide effective
cooperation between the three centres.

-2-

352

Mr. Morgenthau then said, "The spirit of the thing is
there. We have our experts and you have yours. I am not an
expert and it looks all right to me. But the experts have
their very good use and I would, sometime in the forenoon
I may actually go and ride horseback if it is a clear day -but sometime in the morning I will ask you to come in. But
this is very pleasing to me. Cochran told me the French have
it. They are taking it verbatum except that they are using
the word French Government instead of British. Wayne, you
might send this over right away to Herbert Feis and tell him
to ask the French please to call me Secretary of the Treasury

of
the United States. I think it's fine." Mr. Mallet answered,
"Good."

Mr. Morgenthau then said, "We are really getting places."
Mallet agreed, saying, "Oh, yes."
The Secretary then said to the British, "If you haven't
read the New York Times today, read the dispatch by your man
Augur out of London. (Clipping attached). Very interesting.

Mallet said, "I don't believe I read it." Bewley said, "I
don't think I read it either." The Secretary then said to the
gentlemen, "You must get it. Hitler is furious at Schacht.

Continuing, H.M.Jr. said, "Here's a bit of gossip for you.

The Germans sent somebody into Paris and chided the French

Treasury very severely for not having told them what was going
on when Schacht was there a couple of weeks ago; chided them
for not having told them what was going on. of course they

all get together at Balse Sunday and they will all hash this
thing over. I think we are moving in the right direction and
all I can say is, I am very much pleased. Even if sterling is
above 4.90, and I don't believe we did anything." Bewley asked,
"Went up by itself?" The Secretary answered, "As far as I
know, we didn't do a thing. The statement I gave our cleared
the thing up. The idea that somebody was looking for a 4.40
pound was tommyrot and, as far as I know, England took care of
itself today.
"I take it the time 18 agreeable -- 4:00 o'clock here and
9:00 o'clock there?" Mallet said, "Yes. Tuesday morning's
papers." The Secretary said, "But ask them not to give it out
before 9:00 'clock your time, because it is a little bit embarrassing if you give it out first. Mr. Mallet said, "It
will be given out 9:00 o'clock Monday night, London time." And
Mr. Morgenthau answered, "That's all right. Our markets are
closed and yours will be, too.
"But sometime tomorrow morning you either will hear from

Wayne Taylor or myself. As far as I can see, it's all right

but I am very happy over the whole thing. The thing pleases me
tremendously. I never thought that the whole situation would

353

REICH ASTONISHED
NEW YORK TIMES

BY NEW ISOLATION

Oct 9, 1936

Feels Italy 'Betrayed' Her by
Joining General Monetary
Stabilization Measures.

ment view the economic situation
inside Germany with great apprehension. Hitler has linked rearms-

creating under Italo-German leadership, a powerful group of States

adopting barter instead of cash

ment with his fight against

payments as the basis of their eco-

BRITISH PUSH PARLEY PLAN

catastrophic unemployment. Once

nomic exchanges.

started, the process cannot be inter-

Although stabilization of currencies is only beginning it already ex-

rupted without political tragedy.
Marshal Werner von Blomberg
and high officials of the Foreign

ercises an Irresistible pull over
most European countries The
Force Germany Into the Open

by Cooperation Moves.
By AUGUR
Wireless to THE New YORK TIMES

LONDON, Oct. 8.-Behind the
smoke screen created by the animated exchanges and diplomatic
broadsides in the battle over non-

intervention in the civil war in

Spain, work is proceeding quietly
to prepare the ground for the proposed conference of the five "Lo-

lost their power to attract

Germany to change her present pol-

A

There is reliable information that

tlement. In any case, full agree-

ment exists between the British and

French Governments on the way
the matter of the "Locarno" conference must be handled.

The unexpected outcome of the
Anglo Franco American parallel
moves toward stabilization of currencies has been to strengthen immensely the hands of the AngloFrench entente

The Germans have for years

feared military encirclement which
however, has been slow in coming.

But as result of the drawing together of the pound, dollar and
franc to form a world-wide zone of
sane finalolal conditions, Hitler's
Reich is now faced with the peril
of real economic encirclement, es.

pecially since Italy, by devaluing
the lira. has shown that she does
not hold with the German idea of

sia will be excluded from participation in any direct or indirect West.
ern European settlements In other
words, the French Government be

frane exploded. Dr. Schacht was in

lieves Hitler's attack on the
Franco-Russian alliance will de

velop further. Now Paris may have
cooled toward Moscow, but the alliance will be maintained
The British Government always

many spoke to them about the suc.

cess of his scheme for drawing

Eastern and Southern Europe into
the mesh of the German commer-

approved It when the late Louis
Barthou first broached the subject
in London before initiating nego-

cial system. He even held forth on

price of leaving Germany a free
hand elsewhere Then like a clap
of thunder came the French decision to lower currency, accompanied by American and British
promises of strong support for in-

the Germans to resist a demand for
inclusion of Russia in the final set-

on an advance assurance that Rus-

fairs. A few weeks before the

prefer restricting the negotiations
entirely to diplomatic channels so
formed of the true situation. Also,
in that case it would be easier for

The French have informed their
British partners that they apprehend that Hitler equally will insist

Schacht, Minister of Economics, for
allowing this thing to happen. with
Germany left out in the cold as if
she were non-existent in world at-

the subject of Hitler's plan to undertake conquest of the Ukraine

public opinion would not be in-

nature.

Hitler is furious with Dr. Hjalmar

would be faced by the same questions that until now it has avoided
answering in spite of strong pressure from London.

Chancellor Adolf Hitler would

icy to saner methods
London expects that if ever Hitler
agrees to send a delegation to the
"Locarno" conference, he will first
try to obtain in advance an unquali
fied promise of concessions of this

the stifling atmosphere of over-

Paris, but French financiers refrained from informing him what
was coming
The economic dictator of Ger-

The British Government is fully
aware that Berlin is not averse to
concluding a new treaty but dislikes the idea of an international
conference in which the Reich

sacrifices in the form of credits and
the delivery of colonies to permit

crowded and impoverished Europe.

either to bring off this meeting
before the and of the year or to
maker.

unless the Western powers agree to

breath of fresh air has been let into

bombshell of devaluation of the

expose Germany, by incontrovertible evidence, as "Curope's trouble

guished British guests insist upon
the danger of a warlike explosion

even though by slow stages, to the
old system of easy trading. without
prohibitive tariffs, innumerable restrictive quotas and other brakes,
has created new hope for easier life
on the Continent. Hence, the onerous bartering agreements have

carno" powers.

London and Paris are prepared

Office, when they meet distin-

prospect of being able to return,

tiations with Joseph Stalin and
again when Pierre Laval, before
signing the treaty, gave notice to
the Foreign Office here But the
advice given to the French Gov-

provided Western powers consented

to buy peace for themselves at the

ernment is to show firmness toward
Moscow. and the German manoeu

vre will be defeated before it
begins

The British Government is delighted with the attitude taken by
the Italians, and hope is expressed
that a better atmosphere will now
prevail, permitting settlement of
the Mediterranean problem. It is
significant that the Foreign Office

ternational stabilization
Dr. Schacht was obliged to confess to Hitler his ignorance of this
momentous move. Then came the
blow of what Germans describe as

the Italian "betrayal, followed by
signs of the break-up of the labo

here denies knowledge of an intend-

ed visit by the Turkish Premier

riously constructed system of barter
agreements with the Balkan States.

important to Germany because of
their agricultural resources.
Hitler now must decide whether
the mark shall remain in splendid
isolation, proudly maintaining
fictitious value far above the true
level indicated by the disastrous
state of the German trade balance,
or capitulate to "democratic" pres
sure and bring the currency with a
rush down from the present unwarrantably high level, destroying the
carefully nurtured faith of the German people in their ability to exist
Independently from the rest of the

world.

Experts of the British Govern

with military and naval experts, to
London. If this had taken place,
Anglo-Italian relations might have

come under a new cloud.
a

They and the French Want to

354
-3-

develop so rapidly after we had done this thing."

Mr. Mallet remarked, "It has been very exciting to watch."
Mr. Morgenthau said, The most exciting thing since I've been
here and I really am tremendously pleased with the whole thing.
I have no business to say this, but I am going to say it. I
am not in the diplomatic field, but I personally feel that this
kept
Japan
going into China. That's my own feeling."
Bewley
said,from
"Yes."
Continuing, the Secretary said, "Japan thought that this
was the time because they thought there would be this revolution in France. And while everybody was worried over there,
this was the time to jump on China. I am purely out of my
field, but I believe that was what made Japan back down and
she has backed down. And if we had had that and the Russians
and all the rest, we would all have been in a mess. And I
personally believe that what we have done has prevented us from

having a world conflagration. I am out of my field, but every-

thing looked as though Japan was picking the time and that France
would blow up. This has caught her unaware as it caught Germany,
and this thing has steadied Germany and Japan is not going to
jump on China because, if she does, everybody has time to look

at her." Mr. Bewley said, "I think that's right." And Mallet
said, "I think it is very likely. I have not seen much news

from China the last few days." Mr. Morgenthau informed him,
"It's all good news. I have been the only one around here who
said for the past week that Japan would back down and she has.
We strained a point or two here with China over the last week.'
Bewley asked, "Is the Chinese scheme in fact going satis-

factorily?" Mr. Morgenthau answered, "Going beautifully." Mr.
Mallet inquired, "Is the extension to the south going all right?"
Mr. Morgenthau replied, "Beautiful. Beautiful. The thing there
has gone forward just as rapidly and as well as this thing has
in Europe and they are making tremendous strides. Tremendous
strides. And I am doing everything I can to help them." Bewley
said, "I am sure we appreciate that." And Mallet added, "We
have a common interest." Mr. Bewley said, "Certainly we have
the strongest possible common interest."

The Secretary then said, "If the President will let me
talk more -- I am very indiscreet now -- I would like to talk,
but if we had not pulled this thing off, we would have had a
Japanese-Chinese war and everything else would have piled in on
it and I think this 18 the only thing that stopped it. And our
interests are far more important on what happens out there." Mr.
Mallet said, "Our interests in China are very, very big." H.M.Jr.
said, "I may say, like the cat that swallowed the canary, I am
very pleased.

355

-4-

As they were exchanging good-byes, Bewley asked Taylor a

question. And Mr. Bewley said to the Secretary, "I was asking if there 18 a written agreement between you and China. .
The Secretary laughingly replied, "Come in next week and we
will have a talk. Nobody knows!" Continuing in his facetious
tone, the Secretary said, "I don't know how many people have
been
shottotrying
clearance
talk." to find out! I will see if I can get a

u

a

356

Proposed terms of statement are as
follows.

Arrangements for technical cooperation

with monetary authorities in United States have
now been completed and a new regulation is being

published by Secretary of United States Treasury

which will enable gold to be obtained in United
States in exchange for dollars by any country which

gives reciprocal facilities to United States. His
Majesty's Government have arranged for such

facilities to be afforded in London to United States
authorities. This day to day working arrangement
should greatly facilitate technical operations of
exchange control; similar arrangements have been
made with Bank of France so as to provide effective
cooperation between the three centres.

UNITED STATES UNITED PRESS - October 9, 1936.

357

WCNS111

ST. PAUL.--PRESIDENT ROOSEVELT TONIGHT MADE HIS FIRST BID OF THE
CAMPAIGN FOR THE AGRICULTURAL VOTE, CITING BENEFITS TO THE FARMER
FROM HIS RECIPROCAL TRADE POLICY AND THE RECENT MOVE FOR STABILIZATION
OF FOREIGN EXCHANGE.

HE CITED THE DECLINE OF THE COUNTRY'S FOREIGN TRADE IN DEPRESSION
YEARS, RECALLED LOANS TO FOREIGN NATIONS AND THEN TURNED TO THE PACTS
"THAT HAVE BEEN MADE WITH 14 FOREIGN COUNTRIES FOR MUTUAL TRADE ADVANTAGE."

OBSERVING THAT SECRETARY HULL HAD SPOKEN IN MINNESOTA "CLEARLY AND
UNEQUIVOCALLY" IN REGARD TO THOSE AGREEMENTS, MR. ROOSEVELT

ADDED THAT "HE POINTED OUT TO YOU THE CHAPTER AND VERSE OF THE STATISTICAL RECORD WHICH SHOWS WHAT THESE AGREEMENTS HAVE ACCOMPLISHED

TO INCREASE THE TRADE AND INCOME NOT ONLY OF THE INDUSTRIAL WORKERS

BUT OF THE FARMERS OF THE NATION."

"IT WAS NOT A QUESTION OF WINNING OR LOSING ANY TREATY," HE SAID.
"MUTUAL ADVANTAGE HAS BEEN THE SUCCESSFUL OBJECTIVE: AND OUR EXPORTS

BURING THE FIRST HALF OF THIS YEAR, AS COMPARED WITH LAST YEAR, HAVE

INCREASED BY $132,000,000.*

10/9--E828P.

DONATION

DOB

-

October 8, 1300.

LONDON FOREIGN EXCHANGE MARKET OPENED

358

9.00

FAIRLY ACTIVE WITH FOREIGN CURRENCIES IN
DEMAND BUT LATER THE TENDENCY REVERSED IN
FAVOR OF STERLING AND THE MARKET BECAME LESS

ACTIVE - THERE WAS NO SIGN OF INTERVENTION
BY ANY OF THE CONTROLS AND CURRENCIES WERE

BEING LEFT TO FIND THEIR OWN LEVELS - IMPROVEMENT IN STERLING IS BELIEVED TO BE DUE
MAINLY TO UNCERTAINTIES ARISING OUT OF MOSCOW-S

THREAT TO INTERVENE IN SPAIN WHICH TEMPORARILY RESTRICTED REPATRIATION OF BALANCES
TO EUROPE - DISCOUNT ON THREE MONTHS PARIS

WAS 5-16 TO 9-16 FRANC AND AMSTERDAM 10 1-2
TO 12 1-2 DUTCH CENTS
9861 6120

359
PARIS

UNITED PRESS - October 9, 1936.

Brof-name
WCNS17

PARIS.--THE BANK OF FRANCE TODAY LOWERED THE BANK RATE FROM 3

TO 2 1/2 PER CENT.

10/9--2914A

French Situation
WCNSS

PARIS.--POLICE, ACTING ON URGENT GOVERNMENT ORDERS, SWEPT BOWN
ON HEADQUARTERS OF THE FASCIST SOCIAL PARTY OVER THE ENTIRE GREATER
PARIS AREA TODAY.
EVERY PRECAUTION WAS TAKEN TO GUARD AGAINST LEAKAGE OF INFORMATION

REGARDING THE RAIDS TO THE FASCISTS.
RAIDING SQUADS DESCENDED ON HEADQUARTERS OF THE ORGANIZATION ALL
OVER PARIS SIMULTANEOUSLY.

OFFICIALS OF THE SEINE DEPARTMENT PROSECUTION OFFICE BEGAN A HASTY
BUT THOROUGH SEARCH OF DESKS AND FILE CABINETS AND SEIZED ALL DOCUMENTS

FROM THE MATERIAL SEIZED, THE PROSECUTORS, ACTING IN BEHALF OF
PREMIER BLUM'S LEFT WING COALITION GOVERNMENT, EXPECTED TO PROVE

THAT THE FRENCH SOCIAL PARTY IS THE OLD CROIX DE FEU ORGANIZATION OF

COL. DE LA ROQUE IN DISGUISE.
LA ROQUE'S HOME WAS AMONG THOSE RAIDED.

IN ALL THERE WERE 28 RAIDS, POLICE SAID, INCLUDING THE PARTY
GENERAL HEADQUARTERS AND THE HEADQUARTERS OF THE PARTY'S SPORT
SOCIETY.

10/9--R846A

FRENCH DECREE ON SECURITY TRADES

11.55

PARIS - THE GOVERNMENT HAS ISSUED A DECREE
WHICH COMPELS BROKERS TO REPORT THE NAMES ADDRESSES AND DETAILS OF PURCHASES OF ALL

CLIENTS TAKEN UP AT THE LAST SETTLEMENT OF
SHARES BOUGHT FOR FORWARD DELIVERY

THE DEVALUATION LAW IMPOSES A 50 PC

TAX ON NET PROFITS RESULTING FROM THE LIQUIDA-

1
9

TION OF FORWARD OPERATIONS CONTRACTED BETWEEN

SEPT 21 AND SEPT 26 IN ALL SECURITIES LISTED ON
THE BOURSE EXCEPT RENTES UNLESS OPERATIONS
CORRESPOND TO COMMERCIAL REQUIREMENTS

OCT 9 1936

ADD FRENCH DECREE ON SECURITY TRADES

PARIS- IT WAS SUPPOSED THAT BY TAKING UP
SHARES BUYERS WOULD ESCAPE THE TAX AND THERE12:25
FORE AT SETTLEMENT LARGE BLOCKS WERE TAKEN UP

so THAT OFFICIAL FIGURES SHOWED THE LONG POSITION HAD INCREASED ONLY 20 PC OVER THE MONTHEND
THE DECREE OF WHICH THERE WERE RUMORS
YESTERDAY WHICH DISTURBED THE BOURSE IS LIKELY
TO BE A RUDE JAR TO SPECULATORS WHO PRESUMABLY

NOW ARE REQUIRED TO PROVE POSITIONS LIQUIDATED
WERE CONTRACTED BEFORE SEPTEMBER 21 OR NO PROFIT

WAS REALIZED AT LIQUIDATION

-0-

GENEVA - BOW JONES - October 9, 1936.

4.15 1.1'
OCT 9 1936
LEAGUE RESOLUTIONS ON RECOVERY

GENEVA -UP- THE LEAGUE OF NATIONS ECONOMIC
COMMISSION ADOPTED FOUR RESOLUTIONS WHICH IT
FORWARDED TO THE LEAGUE ASSEMBLY IN AN EFFORT
TO SPEED UP WORLD ECONOMIC RECOVERY - THE
FOUR WERE-

I - A FRANCO-BRITISH RESOLUTION ENDORSING
THE THREE-POWER DECLARATION OF SEPT 26
ASSERTING THAT ECONOMIC RECOVERY WILL REINFORCE
PEACE AND RECOMMENDING ALL NATIONS REDUCE EXCESSIVE TRADE BARRIERS ESPECIALLY IMPORT QUOTAS
AND EXCHANGE CONTROL

2- A BRITISH RESOLUTION LAUNCHING A LEAGUE
INQUIRY INTO THE QUESTION OF -EQUAL COMMERCIAL
ACCESS FOR ALL NATIONS TO CERTAIN RAW MATERIALS-

3- A POLISH RESOLUTION STRESSING THE
IMPORTANCE OF EMIGRATION IN ECONOMIC RECOVERY

4- A FRENCH RESOLUTION FOR A LEAGUE INQUIRY
INTO THE FISCAL FRAUD OF DOUBLE TAXATION

-0-

361

AUSTRIA DOW JONES - October 9, 1936.

8.55

OCT 9 1936

FINANCE MINISTER DRAXLER OF AUSTRI SAYS
THAT COUNTRY IS DETERMINED NOT TO DEVALUE

THE SCHILLING DECLARING AUSTRIA-S LOW
STANDARD OF LIVING WOULD MAKE IT IMPOSSIBLE

FOR HER TO STAND A RISE IN PRICES WHICH MUST
FOLLOW DEVALUATION ACCORDING TO REUTERS
VIENNA DISPATCH

362

ROME

OCT9 1936

363
DOW

JONES - October 9, 1936.

TALY FIXES GOLD PRICE 10212 5-01

ROME-UP- THE BANK OF ITALY FIXED THE PRICE

OF FINE GOLD AT 21 381
ion LIRE PER GRAM - THE
ACTION WAS IN LINE WITH RECENT DEVALUATION OF

THE ITALIAN UNIT .
FIGURE IN SECOND LINE SHOULD READ 21

381-1000
-0-

364

and

DOW JONES

-

PRAGUE

October 9, 1936.

CZECHOSLAVAKIA DEVALUES 16 PC

PRAGUE - THE GOVERNMENT HAS FIXED THE GOLD

CONTENT OF THE CROWN AT 3. 31 MILLIGRAMS
REPRESENTING A DEVALUATION OF 16 PC ACCORDING
TO REUTERS

-0-

NATIONAL BANK OF CZECHOSLOVAKIA

105.12.441

PRAGUE-UP- STATEMENT FOR WEEK ENDED OCT 7

SHOWED GOLD STOCK OF 2 593 200 000 CROWNS vs

2 594 500 000 A WEEK EARLIER - NOTE CIRCULATION
DROPPED FROM 5 742 300 000 TO 5 705 300 000

CROWNS OCT 9 1936
-0-

DOTON EXPORT DUTYES
AMSTERCAM- DUTCH GOVERNMENT CONTEMPLATES

INTRODUCTION OF EXTRAORDINARY EXPORT DUTIES
loca

ON DUTCH - INDIAN PRODUCTS PROBABLY COMBINED WITH

IN CERTAIN IMPORT

A REDUCTION DUTIES 1281

-0-

IDJ.

366

October 10, 1936

Just before ten o'clock this morning the Secretary
Copy of their conversation follows:
spoke to Cochran.

367
October 10, 1936
9:37 a.m.
Operator:

Hello?

H.M.Jr:

Hello? Hello?

Cochran:

Hello?

H.M.Jr:

Cochran?

C:

Yes, Mr. Morgenthau.

H.M.Jr:

How are you?

C:

All right. Thank you.

H.M.Jr:

Cochran, the British are coming in here in another

C:

Yes.

H.M.Jr:

And the statement that they gave me is acceptable to

C:

Yes.

H.M.Jr:

But I'd like you to wait about an hour before you

20 minutes.

us. Hello?

say anything to the French.

C:

H.M.Jr:

I see.

Now let's see - it's ten - it's - what's that, five
o'clock? It's twenty minutes of - what time is it
in your place?

C:

Twenty minutes to three.

H.M.Jr:

What's that? Hello?

C:

Hello?

H.M.Jr:

What time is it?

C:

Twenty minutes to three.

H.M.Jr:

Well, I wouldn't say anything to them until four

C:

I see.

H.M.Jr:

But by four o'clock, you tell them. I mean I want to

o'clock.

give them -

368

-2C:

Tell them that it has been settled?

H.M.Jr:

You tell them that everything over here is settled.

C:

Is this the British one telephoned to Paris last

Hello?

night?

H.M.Jr:

Wait a minute. There's something wrong with this.
Wait a minute - hold on.

Operator:

Operator.

H.M.Jr:

Tell them this circuit is not satisfactory.
Not satisfactory - all right.

Operator:

(Pause)

Outside

Operator:

Privacy is not on this circuit.

H.M.Jr:
Outside

No privacy?

Operator:

No privacy.

H.M.Jr:

All right. Thank you.

Operator:

Go ahead please.

H.M.Jr:

Hello?

C:

Hello, Mr. Morgenthau.

H.M.Jr:

Now, Cochran, we have no privacy on this telephone

C:

so I'll be very careful.
Yes - all right.

H.M.Jr:

Now I can hear you very well.

C:

Yes.

H.M.Jr:

Our friends have come in; they've given me the docu-

ment they're going to give out; and we've studied

it. It's entirely satisfactory.

C:

I see.

H.M.Jr:

Hello?

C:

Yes.

369

-3H.M.Jr:

C:

They're sitting outside of my room now, and I'm
going to tell them that everything is set for the
time which I said - which - you know what time.
Yes - I - I know the hour.

H.M.Jr:

And I'm going to ask them please to be very care-

ful to see that this does not get out in advance,

and I'd like you to tell your friends there in Paris
the same thing.

Is the copy which you received identical with the

C:

one which I read you?

H.M.Jr:

I haven't had time to compare it but, wait a minute -

C:

Well, I - I can - hello?

H.M.Jr:

We haven't had a chance to, but -

C:

Well, my - my friends here received a copy by mail -

H.M.Jr:

Yes.

C:

- this morning, and they said it was identical with
the telephoned version.

C:

Well, then I guess it was the same.
And they have made a translation here, both of it -

H.M.Jr:

Yes.

C:

- of your document -

H.M.Jr:

Yes.

C:

- and of their short statement.

H.M.Jr:

H.M.Jr:
C:

Are you going to send us a copy of the translation?
I - I have the copies now and I found two or three
corrections, which I am going to get in touch with

my friend this afternoon And -

C:

- and call to his attention

H.M.Jr:

.

H.M.Jr:

- And you have - the mistake in the English one
was, it should read 'Secretary of the Treasury of
the United States.

4C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

370

I mean not - not use United States as an adjective.

Well, they - they - as I have it, they said, 'Secretary of United States Treasury.'
Yes, Secretary of the Treasury.

It should be Secretary of the Treasury of the United
States.
Yes; yes.

Secretary
- itStates.
should1read 'Secretary of the Treasury
of
the United

All right. I'll - I'11 watch that.

H.M.Jr:

Will you tell him that, please.

C:

Yes; yes.

H.M.Jr:

Otherwise it's all right. We've been over it very
carefully. Now you know the time on Monday?

C:

Yes - I - I know the time and I'll use - I'll see
if the French translation of the text as received

from London is correct.
H.M.Jr:
C:

Pardon me?

I say - I'm - I'm going to get them this afternoon,

and show them one or two errors in their translation.

H.M.Jr:

Right. And then - but tell them again - let's see
if we can do this thing and hold it until the proper
time on Monday.

C:

I see - just - just as we did before -

H.M.Jr:

Yes.

C:

- Keep it absolutely quiet.
That's right.

H.M.Jr:
C:

H.M.Jr:
C:

All right.
And the - things here are very quiet, financially
everything's quiet.
Yes. It's quiet here this morning. There's nothing
exciting.

-5-

H.M.Jr:

The papers here play up this Spanish thing tremen-

C:

Yes. But here there wasn't quite so much about it.

H.M.Jr:

Yes.

C:

They're having some Communist meetings down in

371

dously.

Alsace-Lorraine tomorrow, -

H.M.Jr:

Yes.

C:

- which worry them a little bit -

H.M.Jr:

Yes.

C:

- and these regulations in regard to taxing profits
from alleged speculation -

H.M.Jr:

Yes.

C:

- are being criticized pretty sharply by the finan-

H.M.Jr:

I see.

C:

H.M.Jr:

cial papers.

But there's nothing exciting. The - the stock market
has - has slumped a little bit Yes.

H.M.Jr:

- but their recovery was so quick that you couldn't
expect it to stay up very well.
Yes. Well, then you're going on up to Basle and

C:

No, I - I would leave there Monday night. I will be

C:

you'll be back Monday?

here at seven o'clock Tuesday morning.

C:

That's all right.
Well, but I'll - I'll see that everything is O.K.

H.M.Jr:

All right.

C:

The only thing is the translation -

H.M.Jr:

All right.

H.M.Jr:

on this.

-6-

372

C:

-away
and on
I'll -- on
I'll that.
go over and see Baumgartner right

H.M.Jr:

Right.

C:

And
you have my address there. If you wanted me to
phone -

H.M.Jr:

Yes.

C:

- anyBasle.
of these people, I can get them in ten minutes
from

H.M.Jr:

All right. Thank you.
Fine. And so I'll send it - the telegram on Tuesday

C:

giving any gossip from down there.

H.M.Jr:

That's right.

C:

And I wanted to explain about the little delay in this
letter, you know, which you want.

H.M.Jr:

Yes.

C:

I had one stenographer - I've had him four years and
and went back to the states.
For Pat's sake !

a half - and he quit just at the height of this thing

H.M.Jr:
C:

And so I took a code clerk as a replacement -

H.M.Jr:

Yes.

C:

- until now, and two of the code clerks have been
sick from overwork.

H.M.Jr:

I see.

C:

So it sort of ruined the staff, but I'll get it out.

H.M.Jr:
C:

H.M.Jr:
C:

Yes, because I'd like very much to have it.
Surely - surely.

All right.
All right. Ther I'll - I'll let you hear from me

Tuesday then.
H.M.Jr:

Thank you.

-7
373
C:

All right, sir.

H.M.Jr:

Goodbye.

C:

Goodbye.

374

-2-

Bewley and Mallet came in and the Secretary said to them,

"Our people have been over this thing very carefully and they
have no suggestions to make, so I think we are all set. We
would like to keep the thing secret until 4:00 o'clock Monday."
Mallet said, "Yes. 9:00 o'clock London. We telegraphed that."
The Secretary then said, "We cautioned Cochran to caution
the French to treat it secretly, but I am afraid when all the
central banks get together in Balse tomorrow, I am a little
fearful. They have this monthly meeting tomorrow in Balse."
Mr. Mallet asked, "How many of them know anything about it?"
And Mr. Morgenthau replied, "The only one that knows anything
about it is Cochran." Bewley said, "Norman must, of course,
know it." Mr. Morgenthau then said, "Just those three," Mr.
Mallet asked, "Does Cochran go to Balse?" Mr. Morgenthau
answered, "He goes there in an informal capacity. He used to
be Consul there. He has been doing it for about 5 years.
He picks up a lot of stuff there too. They have a grand gossip
fest." Mr. Mallet said, "Yes, a very good opportunity." And
Mr. Morgenthau said, "Oh, yes, they always have a grand gossip
fest."
Mr. Mallet then inquired, "Then we can telegraph that
everything is in order? We telegraphed already the moment of
the release." Mr. Morgenthau said, "Yes. And, as I understand

it, when I give out mine, I will also give out this or 18 that
not necessary - just give out ours?" Bewley said, "I don't
think that's necessary." Mr. Mallet said, "You can say a similar statement is being issued at this moment by the British
Government in London, but there is no harm. But by all means
say a similar one is being issued in London." Mr. Morgenthau
remarked, "They will pick it up over there. Those things come
across very fast. Things are very quiet. I'm very much

pleased - sterling is 4.90 3/4." Mallet said, "Oh, is it?"

Mr. Morgenthau then said, "I think they are playing up

this Spanish thing here much more than they seem to do abroad.
They are not 80 much disturbed over there in Paris as our

people are here, according to Cochran." Mallet said, "I thought
it was a little bit inclined to be a newspaper stunt." Mr.
Morgenthau said, "After all, if they were going to do anything,
with these people about to fall, it's pretty late to get excited." Mr. Bewley agreed, saying, "It's too late in the day.'
And Mr. Mallet said, "I think it 18 for internal consumption in
Russia. They don't want the communist party to say they have
done nothing." Mr. Morgenthau said, "Anybody who had a diplomatic office in Lisbon must have known what was going on. They

tell me everybody can see it. I can't get excited about it,
because we feel those things 80 fast through the foreign exchange market. You feel those things. Mallet asked, "There
has been no bad reaction?" Mr. Morgenthau replied, "None at

all.

375
-3-

"I think if we make this move now and then we will see

what the next one is. I haven't thought it through - I am
just throwing this out. There undoubtedly will be other
countries who will come and say, We would like the same arrangement. Whether we should do it together or separately - I
haven't thought that through. You gentlemen might be thinking of that. Say this comes out in Tuesday morning's papers
and Belgium says, We want to get in on this. Do we do it together or separately? Bewley said, "We might put that up to
London." Mallet added, "And say it 1s passing through your

mind, if you will allow us to say that."

Mr. Lochhead said, "I think Belgium 18 the last one that
is still covered by your old gold regulations, Mr. Morgenthau.
Take Holland or Switzerland." Mr. Morgenthau agreed, saying,
"You're right. Let's take Sweden or Norway who have been
nibbling for the last three to six months with us." Bewley
said, "You might put it up to London. I think the amounts
they would want are small. They could always get it on the
open market in London." Continuing, the Secretary said, "They
have talked to us in the last six months. We have done
nothing."

Bewley said, "I am pretty vague about Norway and Sweden,

but haven't they a loose connection with sterling already?"
Mr. Morgenthau answered, "Sweden had dollar balances here and
they wanted to convert them into gold. Suppose they want to
do it in France. They are all right as far as you are concerned, but this 18 something new for us. I am just throwing

it out, it isn't very big -- I am just wondering. Supposing
Tuesday or Wednesday, Sweden says, We have about 5 or 10
million dollars here and we want to convert it into gold. Is

it all right? Should we just go ahead and add them to the list?"
Lochhead explained, "They couldn't be added to that list because they haven't a stabilization fund."
To Mr. Bewley and Mr. Mallet, the Secretary said, "Forget
it for the moment. I wouldn't send it because we haven't

thought it out. Don't let's complicate it." Mallet said, "We
will say nothing about it." Mr. Morgenthau, continuing, said,
"Because they might attach more significance to it. But, if any
country comes in and wants it, I will talk to you first. Mallet
said, "That's perfectly all right." And Mr. Morgenthau said,
"If you want to send that back, that's all right."
Mallet inquired, "Are the Italians likely to?" Mr.
Morgenthau answered, "There you are. But before we do it for
any other country, we will discuss it here informally. Bewley
said, "That's very satisfactory." The Secretary said, "But if
some other country comes in, we will talk to you first." And
Mr. Mallet said, "We might tell the British that." Mr. Morgenthau then said, Because we have something here and before we

-4-

376

give it up we might make the best use of it." Bewley agreed,
saying, "Oh, certainly."
The Secretary then said, "As far as we are concerned, our
only objective is general recovery in the world. We will take
our chances on getting our share." Mr. Mallet said to the
Secretary, "It is a great thing to find you taking such an
active part. Great encouragement for all of us. Enormous
encouragement for us in Europe." Mr. Morgenthau replied, and
said, "This whole business, as I see the picture today, all
these things -- it doesn't seem that anybody learned anything
out of the World War. I think we have something now that's
going to help."
Mr. Taylor then said, "One other thing that doesn't have
anything to do with this situation at all - we get a lot of
silence out of South America and I just wonder if you could

pass on to us any feeling that you get. It isn't terribly
important but, of course, there is a silence and if you have
any reaction Mr. Bewley interrupted and said, "About

what?" Mr. Taylor answered, and said, "About this monetary

situation. But they are liable to be deliberate and we get
practically nothing." Mallet said, "I have heard nothing."
And Bewley said, "We have heard absolutely nothing at all.'
Mr. Taylor said, "There is no rush about it but it would be
interesting to us to know what that situation 18 there." Mr.
Bewley said, "We will be very glad to pass on anything we have
got." Mr. Mallet added, "I have heard absolutely nothing BO
far.

377
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED

gent

FROM: American Embassy, Paris, France

DATE: October 10, 1936, 1 p.m.

NO.: 985
FROM COCHRAN.

French financial press continues to criticize
France's legislation and regulations against alleged
hoarders and speculators, it being felt that such measures
are tending to prevent reflux of French capital. Some
concern continues to be felt over internal political
situation, particularly in connection with communist
meetings.

I talked to Cariguel, who told me they had a quiet
morning at the Bank of France. During the morning part
of his operations involved the purchase of sterling
needed by a French railway to pay off a London loan.
Approximately one million dollars were acquired against
france during the forenoon.
Tonight I am going to Basel, where on Sunday and

Monday the BIS directors will meet; on Tuesday I will
send my next telegram.
BULLITT.

EA:LWW

378

GRAY

U

Bombay

Dated October 10, 1936

Rec'd 2:20 a.m.

Secretary of State
Washington

October 10, 11 a.m.
FOR THE SECRETARY OF THE TREASURY.

WEEK opened with silver at rupee 49-12 per 100 tolas

and gradually advanced to 50-3 in consonance with appre-

ciation of the dollar and steadier advices from London but
closed at 49-15, Stock on hand estimated at about
115,000 bars and daily average off take about 50 bars.
A shipment from London reported valued at 260,000 pounds.
WEEK'S imports about 475 bars.

In sympathy with dollar gold opened at rupees 34-14

per tola, touched 35-3-3 but closed at 35-2-3.
WATERMAN

KLP

HULL COMMENTS ON LEAGUE ACTION 10.57
WASHN- SECY OF STATE HULL TOLD HIS
PRESS CONFERENCE THIS MORNING THAT HE WAS

GRATIFIED WITH ACTION OF NATIONS REPRESENTED

AT GENEVA IN THEIR ACTIVITIES TOWARDS

RESTORATION OF ECONOMIC ACTIVITY - HE SAID
THERE IS A GREATER MOMENTUM IN THAT DIRECTION

AT THIS TIME THAN AT ANY TIME WITHIN HIS
MEMORY

-0-

9861 0 I 100

UNITED STATES - October 10, 1936.

380

SEE ETANY HILL TODAY EXPRESSED "INTEREST AND STATIFICATION OVER
sock OF PARTORS GOVERNMENTS EOCKING TOWARLY LYFE NATIONAL MONE-

TARY START AND Le ERIN: TARIFY WASHIERS.
OLD STEPS SROWED DEFINITE SIGNS OF NORE MOMENTUM AND for
No UNITY TOWAXE RESTORING INCOMAL INTERNATIONAL ECONOMIC

HE RETERRED TO STOPS of FRANCE, SWITZENLAND AND OTHE

(TOWARTH EXCHANGE AND TARIFF REDUCTIONS.
$1235

381
PARIS UNITED STATES - October 10. 1936.

FRANCE STEE TO DRINK SIPLOMA 110 PRESSURE ON

ies pirt IT'S THEAT w x
FACT, SAT UNTIL ACTIDA as TAKEN IO
you

TID R THE STRATE
17 IN ESPECTED THAT PREJICE DOR CHARLES CERAIN PM
OF INSTRUCTOR TO see with UNVEST NATION OF THE somet
AND on FORTUGY-1 HAVE ASSISTED the SPINISH

CAN to CARTEST MEPAINO WITHIN THE

10.44
FOREIGN EXCHANGES QUIET

LOCAL FOREIGN EXCHANGE MARKET IS DULL AND
STEADY DUE BOTH TO APPROACH OF THE LONG WEEK

END AND QJIET CONDITIONS PREVAILING IN LONDONPRIVATE CABLE ADVICES FROM LONDON INDICATE THAT

ACTIVITY IN EXCHANGES THERE IS SMALL WHICH
IS TAKEN AS A REFLECTION OF BETTER TONE IN
POLITICAL SITUATION ABROAD THIS MORNING
STERLING IS STEADY AND ABOUT UNCHANGED FRENCH DEMAND FOR STERLING WHICH WAS A FEATURE

YESTERDAY APPARENTLY HAS DRIED UP AND
MOVEMENT OF FUNDS IN EITHER DIRECTION
BETWEEN PARIS AND LONDON SEEMS TO BE AT A
STANDSTILL

FRENCH FRANCS ARE A SHADE SOFTER BUT THIS

IS BELIEVED TO BE THE RESULT OF OFFICIAL OPERATIONS RATHER THAN OF PRIVATE SELLING OF
FRANCS - AS COMPARED WITH THE RATE OF 4 67
CENTS WHICH WAS MAINTAINED FOR THE GREATER

PART YESTERDAY ONE OF THE CONTROLS IS BELIEV-

ED TO BE READY TO SUPPLY FRANCS AT 4 66 15-16
CENTS - TRADERS STATE THAT THE CONTROL IS
NOT ACTIVELY OFFERING FRANCS AT THAT LEVEL
BUT RATHER IS MEETING ALL DEMAND FREELYBUSINESS IS SMALL

-0-

UNITED PRESS

- October 10, 1936.

383

WCNS48

PARIS.-COL. FRANCOIS DE LA ROCQUE, LEADER OF FASCISM IN FRANCE,
CHARGED THE SOCIALIST GOVERNMENT AUTHORITIES HAD "FRAMED" HIM AND
OTHERS WHEN INDICTED TODAY FOR ALLEGEDLY REORGANIZING THE CROIX DE
FEU, OUTLAWED FASCIST GROUP.

10/10--R1125A

WCNS51

ADD LA ROCQUE, PARIS

"I TOLD THE JUDGE THE INDICTMENT HAD BEEN DECIDED BEFORE THE RAIDS,"
LA ROCQUE SAID, ON LEAVING THE COURTHOUSE AFTER THE FORMAL NOTIFICATION
OF THE COURT'S ACTION.
HE AND FOUR OTHER FASCIST LEADERS WERE INDICTED AFTER POLICE RAIDS
RESULTED IN CHARGES OF UNLAWFUL REORGANIZATION OF THE BANNED ORGANIZA-

TION OPPOSED BY PREMIER LEON BLUM AND HIS SOCIALIST CABINET. THE OTHER
DEFENDANTS ARE JEAN MERMOZ, FLIER; CHARLES VALLIN, GEORGE RICHE AND
PHILLIPE VERDIER, WHO APPEARED BEFORE MAGISTRATE BETEILLE OF THE
SEINE COURT.

10/10--R1138A

GENEVA

-

e

DOW JONES - October 10, 1936.

LEAGUE TO ACT ON ECUNOMIC COMMISSION
REPORT

8:17

OCT 10 1936

GENEVA-U P- THE LEAGUE ASSEMBLY-S ECONOMIC
COMMISSION TODAY URGED THE NATIONS TO REMOVE
IMPORT QUOTAS CONTINUE THE PRESENT MOVEMENT

TOWARD CURRENCY STABILIZATION TO OPEN THE
CHANNELS FOR A FREER ACCESS TO RAW MATERIALS
AND TO LIBERALIZE EXCHANGE CONTROL
THESE REFORMS WERE RECOMMENDED IN A REPORT

SIGNED BY REPRESENTATIVES OF 52 NATIONS- THE
LEAGUE ASSEMBLY SESSION OPENED THIS MORNING TO
ACT ON THE REPORT
URGING ABOLITION OF EXCHANGE RESTRICTIONS

AND FREER ACCESS TO MATERIALS IT ADDED

-THE INFLUX OF FOREIGN CAPITAL AND THE
RETURN OF HOARDED CAPITAL WILL LEAD TO CHEAPER
MONEY AND LOWERED PRODUCTION COSTS-

-0-

8:30
OCT 10 1936

ADD LEAGUE

GENEVA-U P- THE PRESENT MOVEMENT TO FREE

CURRENCIES IS ADMIRABLE THE REPORT SAID BUT
ADDED

-THE GOVERNMENTS SHOULD NOT CONFINE THEMSELVES TO THE FIRST MEASURES WHEREBY THEY
ACCOMPANIED THE NEW MONETARY LAWS BUT ENTER

NEGOTIATIONS AT THE EARLIEST MOMENT WITH A VIEW
TO OVERHAULING THE WHOLE COMMERCIAL POLICY-

-0-

385
SECRETARY MORGENTHAU UNITED PRESS - October 10, 1936.

WCNS158

SECRETARY MORGENTHAU ANNOUNCES FOR MORNING PAPERS THAT THE U. S.,
GREAT BRITAIN AND FRANCE TOMORROW WILL GO ON A "NEW GOLD STANDARD

WHICH WILL ROUT MONEY SPECULATORS AND AID FURTHER STABILIZATION OF
WORLD CURRENCIES.

THE NEW AGREEMENT, UNDER WHICH THE THREE NATIONS WILL PERMIT AN
EXCHANGE OF GOLD FOR THE CONVERSION OF PAPER CURRENCIES OF THE INDI-

VIDUAL COUNTRIES, WILL OPERATE ON A DAY-TO-DAY BASIS. IT MAY BE CANCELLED BY ANY OF THE PARTICIPANTS ON 24 HOURS NOTICE.

"IT IS A NEW GOLD STANDARD, A WAY OF DOING BUSINESS WHICH HAS
NEVER BEEN TRIED BEFORE," MORGENTHAU SAID. "IN AGREEING TO THE PROPOSAL
WE TOOK INTO CONSIDERATION FIRST AND ALWAYS OUR INTERNAL PROSPERITY.

"IF, FOR EXAMPLE, WE FIND THAT THE AGREEMENT AND ITS OPERATIONS
ARE RETARDING RECOVERY, WE'LL SCRAP IT. ENGLAND AND FRANCE HAVE THE
SAME PRIVILEGE."
THE NEW PLAN, MORGENTHAU SAID, DIFFERS FROM THE OLD GOLD
STANDARD IN THAT IT WILL PERMIT THE EXPORT OR EARMARKING OF GOLD ONLY
TO AND BETWEEN GOVERNMENTS INSTEAD OF PRIVATE BUSINESS INSTITUTIONS AND
TRADERS.

OCT 10 1936

RUBBER EXPORT DUTY RAISED

BATAVIA- NETHERLANDS EAST INDIES EXPORT

DUTY ON NATIVE RUBBER WILL BE RAISED TO 52
GUILDERS PER 100 KILOGRAMS UP I GUILDER
EFFECTIVE OCTOBER 11 ACCORDING TO REUTERS

-0-

q.29

387

October 10, 1936

MEMORANDUM TO THE PRESIDENT:

The attached letter allocating $202,700,000 to the

Works Progress Administration has been prepared for your

signature at the request of Mr. Gill as set forth in his

letter of October 7, 1936 which is enclosed herewith.
You have already allocated to that Administration the
full amount which you indicated you were willing to have
expended prior to December 31, 1936. Mr. Gill, however,
states that this additional amount is needed to carry the
program through November, 1936.

As of September 30th, the latest date for which complete figures are available, the Works Progress Administration had an unexpended balance of $467 million, of which
$282 million was unobligated. At the present time,
obligations are being incurred at the rate of about $170
million per month and expenditures at the rate of about

$165 million per month. At this rate, the present unobligated balance should last over 1à months, and the unexpended
balance over two months. It is necessary of course that a
substantial amount be available for obligation sometime in
advance of actual expenditure. Due to the large number of
accounts, among which this must be distributed, I feel that
the Works Progress Administration should be permitted to
start November with an unexpended balance of about $400

million, about half of which should consist of unobligated
funds.

If no allocation is made at this time the unexpended
balance on October 31st should be about $330 million, of
which $145 million would be unobligated. (The $30 million
recently allocated for class (f) and class (g) projects is
included in these estimates)
I therefore suggest that you reduce the amount to be

allocated in the attached letter to $75 million and sign
the draft of the enclosed letter to Mr. Hopkins which I
have prepared.

The present unallocated balance of the appropriation of
$1,425 million (less amounts reserved for the Resettlement
Administration) is only $340 million with no reserve for

388

- Page 2 -

administrative expenses. If the Works Progress Administration is allocated the full amount requested, it would
leave only $138 million available to carry out your entire
program after November 30, 1936 including administrative
expenses. Expenditures by all agencies which have received
allocations are now being made at the rate of about $240
million per month, which will practically exhaust available
funds before the end of the year.
In order that you may have sufficient funds to carry
out your program, without rescinding funds previously allocated to other agencies, until the new Congress votes addi-

tional funds, it is important that the entire question of

expenditures of emergency funds be given serious consideration
before the end of October.

(Signed)

D. W. BELL

Acting Director.

389

WORKS PROGRESS ADMINISTRATION

Walker-Johnson Bldg.

1734 New York Avenue, NW.

October 7, 1936

Harry L. Hopkins
Administrator
COPY

Mr. D. W. Bell, Acting Director
Bureau Treasury of Department the Budget

Washington, D. C.

Dear Mr. Bell:
In accordance with my memorandum of September 19,

1936, summarizing the financial requirements of the Works
Progress Administration, request is hereby made for an allocation of funds in the amount of $202,700,000 to cover the
cost of operating the Works Progress Administration program
(not for actual expenditure) through November, 1936.
The above figure includes $39,700,000, representing the difference between $183,700,000 requested on
September 5, 1936 to cover the cost of October needs, and
the allocation of $144,000,000 made on September 14, 1936.
There is also included an item of $6,000,000 representing
the cost incident to increased drought employment for the
month of October. The balance of $157,000,000, represents
$152,000,000 to cover the cost of the regular Works Progress
Administration program for the month of November plus $5,000,-

000 for drought for November. The total of $202,700,000 will
be required by October 10, 1936.
Kindly bear in mind that this entire sum is required to operate the program through the remainder of October
and the month of November and it cannot be reduced without a
proportionate reduction in the number of persons employed.
Very truly yours,
(Signed)

Corrington Gill
Assistant Administrator

390

88
October 12, 1936

My dear Mr. Administrator:

I have today signed a letter allocating $75,000,000
to the Works Progress Administration instead of the
$202,700,000 requested by Mr. Gill in his letter of
October 7, 1936 to the Acting Director of the Bureau of
the Budget.

On September 14, 1936, I indicated to Mr. Gill that
he was not to spend more than $780,000,000 between July 1,
and December 31, exclusive of the National Youth Admin-

istration, and allocated $144,000,000 for the month of
October. It will be necessary for you to so arrange your
operations that this additional $75,000,000 together with
your unexpended balance of $467,000,000 on September 30,

1936, of which $282,000,000 was unobligated on that date,

will last until November 30, 1936. This contemplates that
the unobligated funds will amount on October 31 to approximately $220,000,000, including the $30,000,000 recently
allocated for class (g) and class (f) projects.
Sincerely yours,
(Signed) Franklin D. Roosevelt
Honorable Harry L. Hopkins
Administrator
Works Progress Administration

331

BY
THE WHITE HOUSE
WASHINGTON

OCT 1 2 1936

My dear Mr. Secretary:

By virtue of the authority vested in me under the Emergency

Relief Appropriation Act of 1936, approved June 22, 1936, it is
requested that the following funds be transferred from the appropristion made in said Act to the Works Progress Administration
for the purpose indicated below:

AMOUNT: $202,700,000 75,000,000.
PURPOSE: For the prosecution of non-Federal public projects
within the District of Columbia, approved by me prior to June
22, 1936 under the provisions of the Emergency Relief Appropristion Act of 1935, provided that the aggregate amount ex-

pended upon any one project shall not exceed the amount indicated

therefor in the schedules of projects in which such project

appeared. 30 The expenditures under this allocation shall be subjoot to the employment provisions of the Emergency Relief Appro-

pristion Act of 1936. )

Sincerely yours,

The Honorable,

The Secretary of the Treasury.

ReliefLudge 484-10/46

5483

392
30

October 10, 1936.

At 10 o'clock A.M., Mr. Taylor and Mr. Upham called on
Chairman Eccles of the Board of Governors of the Federal Reserve

System in his office in the Washington Building. This conference
was in continuation of a talk which Mr. Morgenthau and Mr. Eccles
had on their way to the office this morning.
As agreed upon between them, there was left with Mr. Eccles
for his exclusive information, a copy of the statement which it
is contemplated will be issued on Monday next with respect to the
licensing arrangement agreed upon by the governments of Great

Britain, France and the United States governing the government
purchase and sale of gold in each of the three markets.

After a few moments preliminary discussion of Mr. Eccles'
experiences in the west during the weeks of his vacation this summer

and of the political situation generally, Mr. Eccles read through
the "license" statement and then, basing his observations on the
statement and his early morning discussion with Mr. Morgenthau,
Mr. Eccles reviewed his understanding of the meaning of the new
arrangement and operations to be conducted under it.

Mr. Eccles mentioned the fact that prior to devaluation of the
Franc, the British Equalization Account had been able to operate
in foreign exchange by using the gold Franc as a fulcrum. Since
devaluation, he said, there was no gold currency to peg the Pound

against. The Dollar is the only one of the three currencies which
has an absolute fixed gold content. Heretofore it has been our
practise to permit the purchase of gold at a fixed price by and
through the Central Banks of countries which are similarly on gold.
Under the new arrangement, we will permit the British and the French
governments to purchase gold in this market at our fixed price for

-2-

393 II

24 hour periods, the privilege being renewable each day. In return
the British and French governments will advise us each day a fixed
gold price at which we may buy gold from them for a period of 24
hours, in their cases the price and the permission being renewable
each day and the price possibly being changed upon occasion. He
described it as a "gold standard by the day" or a "24 hour renewable
gold standard".
Mr. Eccles discussed some of the economic factors involved

and the possibilities of fluctuations in the price of the Pound
particularly. He suggested that it is fortunate that we do not
have an export surplus for if we did it would tend to depress the
Pound unduly. Other factors which he mentioned as likely in the
coming months to maintain the Pound are general business prosperity

in this country, the likelihood of an increase in American tourist
trade in Europe and the likelihood of an increase in immigrant
remittances. He expressed hopefulness that there would be some

movement of gold out of the United States. He stressed particularly
that the United States should not be disturbed about the downward
tendency in the Pound -- expressing the view that we are in an
extremely favorable position where we more or less dominate the
international situation and that we should be generous and liberal

and not suspicious of the British or anyone else.
Mr. Taylor interposed to assure Mr. Eccles that that is the
position of the Treasury and State Departments and added that the
messages which go back and forth between Mr. Morgenthau and Mr.
Chamberlain contain many informal assurances of mutual respect

and affection.

-3-

394

Mr. Eccles then began a discussion of the relationship which
should exist between the Treasury and the Federal Reserve System.
He declared that the Federal Reserve System is vitally interested
in many of the things that the Treasury is doing and vise versa.
He referred particularly to the situation under which the Federal
Reserve Bank of New York acts as fiscal agent for the Treasury and
in some instances is informed about Treasury and Stabilization Fund
activities which are unknown to the members of the Board in Washing-

ton. He referred to the old condition under which the Federal
Reserve Board and, indeed the Treasury, and perhaps even the White

House were dominated, so far as financial matters were concerned,
by the Federal Reserve Bank of New York -- Mr. Harrison, Mr. Young,

Mr. Mitchell, etc. In many instance he felt Secretary Mills and
Governor Myers were ordered what to do by New York. The Congress,

in the Banking Act of 1933 and of 1935 and the Securities and

Exchange tried to put an end to this. They made it illegal for
the Federal Reserve Bank of New York to engage in conversations

or negotiations with foreign central banks without making full and
complete disclosures to the Board of Governors in Washington. He
was of the opinion that even when acting as fiscal agent for the
Treasury it is illegal for the Federal Reserve Bank of New York to
withhold information from the Board of Governors.
He referred to the fact that the Board now has many authorities over the Reserve Banks which it did not previously have. The
very fact that appointments in the Reserve Banks must be approved
by the Board gives them an added influence over the banks. The

395
-4-

93

reserve activities of the System are now centered in Washington
and Professor Williams of the New York Bank is not only assistant
to Dr. Goldenweiser as economist for the open market committee

but as a matter of fact, in his capacity as adviser to the New York
bank, really a part of the economic or research section of the
Board itself. He thought it unsatisfactory all the way round for
those in the New York bank to have information which is not available to their superiors in Washington.
Mr. Taylor explained that the Treasury had looked upon the

New York bank as its fiscal agent rather than as the part of the
Federal Reserve System as such.

Mr. Eccles was certain that any information which people in
the New York bank had was sooner or later made known to the private
bankers and business men who are members of their Board. This

seemed to raise the question which I understand had been raised by

Mr. Morgenthau at the early morning discussion with respect to the

propriety of having an institution of private character act as
fiscal agent for the Government in its confidential international
transactions.
Mr. Taylor explained to Mr. Eccles how foreign exchange

market is handled by telling him that the British and French take
care of the market up to 12 noon and that W6 handle it from then on

until the rest of the day.
Mr. Eccles expressed his pleasure at an arrangement which
had been entered upon at his request, under which he and Governor
Ransom will have luncheon once a week with Mr. Morgenthau and Mr.

Taylor to be followed by supplementary conferences between Mr. Haas

-5-

396

24

and Mr. White for the Treasury and Dr. Goldenweiser and Mr. Gardner
for the Reserve System.

Mr. Eccles felt that it is the duty of the Federal Reserve
Board to keep the officials of the Federal Reserve banks regularly
and accurately informed on events which transpire and that the
bankers and business men of the country look to the reserve banks

for such information and that it can be a very valuable service
to the Treasury.
Mr. Eccles was of the opinion that the Federal Reserve ought
to be informed about tax and budget operations and proposals
inasmuch as they cannot properly exercise the financial duties

for which they are responsible without a complete picture of what
is going on. He added that unless the Board of Governors were in

a position to know, that he was not particularly interested in
retaining the position as Chairman of the Board. He seemed to be
completely satisfied with the arrangements for mututal exchange of
views which has been established.