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329 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 12, 1941 Secretary Morgenthau Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £48,000 £12,000 Open market sterling held steady at 4.03-1/2. Transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £ 5,000 -0- The Argentine free peso had an easier tendency today. It closed at .2296, as compared with yesterday's final rate of .2303. In New York, the closing rates for the foreign currencies listed below were follows: Canadian dollar Swiss franc (commercial) Swedish krona Reichamark Lire Brasilian milreis (free) Mexican peso Cuban peso 15-1/16% discount .2322-1/2 .2384-1/2 .4005 .0505 .0505 .2066 6-1/2% discount We sold $998,000 in gold to the Central Bank of the Uruguayan Republic, which was added to its earmarked account. No new gold engagements were reported. In London, the prices fixed for spot and forward silver were both 1/16d higher, at 23-7/16d and 23-3/8d respectively. The U. S. equivalents were 42.56 and 42.446. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35 We made three purchases of silver totaling 150,000 ounces under the Silver Purchase Act, all of which consisted of new production from foreign countries, for forward delivery. 330 -2- The Federal Reserve Bank's report of March 5. listing deposits of banks in with the New York agencies of Japanese banks, showed that such deposits totaled Asia $101,960,000, an increase of $458,000 since February 26. Also reported were the Yokohama Specie Bank Agency's dollar liabilities to and dollar claims on Japanese banks in Asia, which stood as follows on March 5: March 5 Liabilities: Deposits for Japan and Manchuria Deposits for China U.S. Treas. Bills, comm. paper, etc... : Claims : Loans : Other - mainly Jap. import bills $56,812,000 35,855,000 23,655,000 $60,753,000 9.991.000 Change from February 26 + $440,000 + 267,000 - 75,000 +$6,206,000 + 346,000 Most of the $6,206,000 additional funds received from Agency loans (made primarily to Japanese banks in Japan and Manchuria) were used for Japanese commitments in this country, it was reported. MMP CONFIDENTIAL 331 BRITISH EMBASSY. WASHINGTON, D.C. March 10th, 1941. Personal and Secret Dear Mr. Secretary, I enclose herein for your personnal and secret information copies of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely your, Halifax The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Telegram from London dated March 8th, 1941. 332 1. livel. Hornegian loaded tanker (5000 tons) was sunk off the Lest coast yesterday and a British ship (6,400 tone) outward bound in convey, with general earge, was torpedoed in the North Western approaches early March 7th. 2. Hilitary, British Someliland. Ferfer 210 miles north of Megadishu on Harar road has been occupied and Belet Uen aeroerome 1e fit for use} the roads and bridges are intact, water plentiful and large quantities of petrol and oil have been captured. Patrole have been sent forward to Oddur and Dolo (North West of Lugh Ferrendi). Among material captured at and on the way to Mogadiscio are 345,000 gallone of M/T petrol and 8,000 gellone of aviation petrol. 3. Bulgaria. German reconneissance detachments reached the vicinity of the Greek frontier on March 3rd and by March 5th the main concentrations were developing in Sliveno Yambol area, where heavy tanks are reported and in the Struma Valley near Gorna Djumeya and Petrich. Estimated that B divisions of German troope are in Bulgerian territory. 4. Bulgerian divisionsappear to be disposed as follows: Yugoalav frontier 1 motorised, 2 infestry, 2 reserve infentry forming ...... Turkish frontier, 2 motorised, 7 infantry, Nacedonian frontier 4 infestry, Southern Dobrudje 1 infentry. Bulberie general headquartere is reported et Stere 2egore. 5. R.A.F. 333 5. R.A.P. March 6th 1 medium bomber attacked railway targets at Ohent. Night of March 6th/7th. Operations cancelled. 6. G.A.F. Night of March 6th/7th. 40 air- craft were operating over this country but only 5 came inland, the remainder were mine-laying. 7. Malta. Malta was attacked March 5th as reported yearerday by about 100 aircraft including 60 bombers. Damage was slight at one aerodrome but et Hal Far barracks and bangare considerably damaged; 4 aircraft were destroyed on the ground and all remaining aircraft on the aerodrome were rendered temporarily unserviceable. 11 of our fighters int corcepted and shot down 7 enemy aircraft probably an eighth and damaged four more. Antiaircraft destroyed a further nine and damaged four. One of our fighters is missing. Aircraft essuelties in operations over and from British Igles. 8. German destroyed one, damaged one. British oil. Home Security. March 7th. Two R.A.F. aerodromes were attacked by ........ some damage to buildings but no serious casualties. 9. Telegrom received from London dated March 8. 1941. 1. Naval. In the Suez Canel divers have located mines which were counter-mined. Believed 3 mines remain to be dealt with, expected Canal will be open March 7th. Twenty-three mines were exploded at verious home ports on March 7th. 2. One enemy aircraft laid mines off Sayers P.M. of Harch 7th. L.L. sweepers detonated these the same afternoon. Between 14.30 and 16.30 hours March 7th six aircraft laid since in the Number entrance, fifteen were seen to drop. 3. on March 7th convoye were attacked by Uboat in the Western approsches and off the East Coast by sircreft, and during the night of March 7th-8th by Seboats. of the nine shipe torpedoed or damaged by sircraft four sinking or sunk. One sircraft shot down one damaged. 4. On March 7th off the Hook of Holland a 2500 ton merchant vessel use bombed and left sinking by coastal aircraft. Ethiopia. In Goffem area patriot operations continue against retreating garrison of Surye. 300 5. prisoners and four guns have been captured and on aeroplane abot down. 1,700 deserters have surrendered. 6. Kenya Colony. Heavy rain has fallen on Ethiopian border and may roads are under water. 7. R.A.F. March 7th. During the day eircraft from the Coastal Command bombed so aerodrome in Holland hitting hangars also naval dockyard at Renhelder and left a 2,500 ton merchant vessel in a sinking/ 335 -2sinking condition off the Dutch Conet. 8. Night of March 7th-March 8th. Operations cancelled. 9. German Air Force. March 7th about fifty enemy aircraft were operating overland in wide localities and forty more were working off East coast. One enemy aircraft was destroyed by antiaircraft shore battery and one by a Neva trawler, a third hit the mast of a ship and creshed. 10. Hight March 7-March 8th. Activity negligible. 11. Halts. Night of March 6th/March 7th. Twelve enemy aircraft made individual attacks on various objectives without causing serious damage or casualties. 12. March 7th. Four bombers escorted by 10 ME 109's damaged a Sunderland by machine-gun fire, shot down a Glen Martin and also one Hurricane out of seven which intercepted. Pilot saved. Two enemy aircraft were probably destroyed by anti-sircraft fire. Aircraft casualties in operations over and from British Islee. German, three destroyed. 13. British nil. 14. Home Security March 7th. A bell-bearing factory was hit and seriously damaged. Thirty-six persons were killed and forty-seven seriously injured; production has been stopped probably for seven days. 15. six/ 336 15. Six Royel AIR Force stations, a belloon barrage centre and an infentry training centre were attached. - Little damage and for casualties. CONFIDENTIAL 337 Paraphrase of Code Ballogram Received at the War Department at 10:06, March 10, 1941. Losion, filed 15100, March 10, 1941. 1. a Sunday, March 9, adverse weather caused the consoliation of all flighte of British planes. During the proceding night occupied airfields is narthern Trease were Dember by British Bristol Blenhoins but there were as planes of the Bember Goumai over the Constant because of the bad weather. 2. During the night of March 9-10 German vaide were carried out over the Midismia, Partmenth, Livergool Day and Buffelk. In addition, there ma a large seale atteck on Leader. the extens of the damage done has not been determined. During the proceding day - aircraft patrols were mintained over the Bever Straite and only eight German please pensivated bayand the coast Line of Regions. British fighter please were in the air during this day and the following night but were wable to intereept any of the attachers. During the night of March 8-9 tea - please planted miss along the British const. A total of 120 other - planos were pletted over south- east Britain, Partmouth, Herfelk - Baffolk. During the - night Lonica was attached w 60 more German please. Private property in Losion suffered heavy damages and the intertreat area was damaged sens. a the Baskingbea Palase grounds a leigh was meeted. - busing fell - - restaurant in which as individuals were killed and more than 80 were injured. British antiairmant fire brought down three of the - please and damaged two others. During daylight hears of March 7 a British Infentry training ember, a believe barrage center and six Mayal Air Force stations were boubed by - please. A small number of casualties and some damage resulted. CONFIDENTIAL CONFIDENTIAL 338 During the - day 36 laborers were killed and by were injured seriously during a German attack on a British ball boaring manfacturing plant. Production at this plant will have to be suspended for a period of - week. 3. British air activities in middle Hastern theaters were as follows: the Albentan city of was boubed by British please beeed is Greece; in the Britross theater the area was attached w Salan-based British bombows; in the Likyan theater Britten bembers attached the Tripoli barbor and dropped I - the airfield at Somet (Seed Income). It is known that please of the - Air Force are based at this latter place which is about 25 miles want of Birte. 4. General air activities is the Middle East consisted of a said by five planos against Malta. British installations suffored no damage and one of the Gomman please was shot down. 5. the Bass Onal will probably be response to traffic by March 11. British divers have found all of the alass planted is the Onani w please and only three more are to be exploies before the - is completely sleared. 6. A all has been made w the Ministry of Labor for 100,000 to velanteer for service in million and was intestry factories. These valuatears will be need primarily in filling artillety shells. 7. During the day and night of March 7 a British merchant convey mas w of also vessels was or in the North Sea. Two of the vessels were beached and three others mak. During the early morning hears of March 8 a - submitted attented a Bristels market - was . of 54 vessels 180 miles must of Gage Bionoo, on the West Count of Africa. Five of the earge heats were lest. e CONFIDENTIAL CONFIDENTIAL 339 8. late in the afternoon of March 8 from Smithsh mits located the two - 86,000-tea - - half-may between the Gage Vendo Intents - the / Islands. Distributions Secrotary of Mar State Department of Year Asst. Secretary H of Treasury Chief of Staff Mar Please Division Office of Naval Intelligence Air Garge 6-3 CONFIDENTIAL 340 RESTRICTED M.I.D., W.D. March 10, 1941 G-2/2657-220 No. 335 12:00 M. SITUATION REPORT I. Western Theater of War. Air: German. During daylight of the 8th and 9th there were normal operations against shipping at sea and scattering attacks over Great Britain. During the night of the 8th-9th a strong attack was launched against the London area. This was apparently the heaviest German night raid of 1941. Last night the attack was renewed in less force and Portsmouth also was systematically bombed. British. Apparently no night operations. On the 9th fairly heavy daylight attacks were made over northern France. II. Balkan Theater of War< Ground: Bulgaria. No change. Albania. The Greeks report their offensive continues and new positions in the Tepelini sector were occupied despite strong Italian counter-attacks. The Italians admit Greek attacks in the sector of the Eleventh Army (southwest sector) but claim they were repulsed by counter-attacks. Air: Albania. Considerable air activity on both sides in close support of the ground operations. III. Mediterranean and African Theaters of War. Ground: Italian Somaliland. British troops have occupied Gabredarre which is about 165 miles by road northwest Ferfer which was captured March 5, 1941. Libya. The Italians report another attack on Giarabub Oasis by the British has been repulsed. Eritrea. A successful counter-attack is claimed by the Italians in the Cheren sector. Air: Axis. Pressure maintained in Libya. Malta was bombed again on the 9th. British. No reports of activity. Note: This military situation report is issued by the Military In- inGeneral Staff. In view of the occasional classified as telligence clusion of Division, political information and of opinion it is Restricted. RESTRICTED 341 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941. Secretary Morgenthau TO FROM Mr. Hear In accordance with your request of March 10, we are preparing a written analysis of the Gano Dunn report on steel capacity, which we expect to complete and submit to you on Thursday afternoon of this week. We disagree with the con- clusions of Mr. Dunn's report and it has taken a little time to assemble and organize our refutation. 342 See entry of 6/5/41 which states that a copy of the President's memo of 3/10/41 was given to Mr. Hopkins by HM,Jr. 343 This is referred to in H Jr's report 6/10 which is filed in President's folder. luncheon meeting with the President on 344 Hmp. Bicense of The general finmine picture can you harry up (4) R.C. taking over of British payments made for plants (b) Was Oft. taking mr, 17 material payments mail by the British. 110 at Runch march 10th 1941. 345 MAR 11 1941 Dear Jesse: For your information I am transmitting herewith photostat copy of a memorandam which the President gave me yesterday at lunch, concerning the British financial picture. As I as now giving careful consideration to the British financial requirements for each month from now until the end of this calendar year, I would appreciate 11 if you will furnish Under Secretary Bell, at the earliest possible moment, the amount of funds that the Inconstruction Finance Corporation can sake available each month during this period for payments on account of plant facilities which it may take over from the British. Sincerely yours, Honorable Jesse H. Jones, Administrator, Federal Lean Agency, Washington, D. C. DESIGNS March 11, 1941 DWB Replied to by m Jones 3/19/41 346 STRICTLY CONFIDENTIAL MAR 11 1941 My dear Mr. Secretary: For your information I as transmitting herewith photostat copy of a memorandum which the President gave se yesterday at lunch, concerning the British financial picture. As I as now giving careful consideration to the British financial requirements for each month from now until the end of this calendar year, I would appreciate 11 if you will furnish Under Secretary Bell, at the earliest possible moment, the amount of funds that the Mar Department can make available each month during this period for payments on account of contracts which 10 may take over from the British. Sincerely yours, (Signed) E Mergenthan Jr. Secretary of the Treasury The Honorable, The Secretary of Var. DVBINLE March 11, 1941 owB copy to then Edelin Replud by 3/17/41 By Messenger 230 347 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Miss TO For FROM Secretary Morgenthau Mr. Cochran Mr. Ganson Purcell telephoned me from the Securities and Exchange Commission at 12:35 yesterday noon. He told me that Chairman Frank had discussed with the other Commissioners the question of giving publicity to the meeting which was taking place at the Securities and Exchange Commission yesterday afternoon with representatives from the investment associations in New York to study a plan for liquidating British investments in this country. It had been the opinion of the Commissioners that no publicity should be given to this meeting, considering the exploratory character thereof. Chairman Frank desired this information to reach Secretary Morgenthau before the latter's press conference. I gave the Secretary the substance of this message at 3 o'clock yesterday afternoon. 348 March 11, 1941 Some time during the night I woke up and got the idea that if we were going to refund the $500,000,000 June notes, we also ought to, at the same time, raise five or six hundred million cash, and make an issue of sufficient size and do it all at one time. Strangely enough, I still remembered it when I woke up this morning, and I sent for Bell and gave him this idea, and asked him to speak to the people in New York and find out whether they have finished digesting the last issue. 349 March 11, 1941 10:20 a.m. RE AID TO BRITAIN Present: Mr. Foley Mr. Bell Mr. Cochran Mr. Bernstein Mr. White Mr. Acheson Foley: They wanted the same control you had over the Bell: They will get around now to blaming me. Foley: No, but you remember. Bell: Sure. Well, that is the Budget's job. I am smypathetic. It is absolutely budgetary control. (Laughter) Foley: Sure, there he comes. H.M.Jr: All right. Now, Merle, will you state the case four million eight hundred eighty million. again, please? Cochran: On Saturday morning we considered the memorandum which had been submitted by Mr. Pinsent on March 7. It was decided that we needed more data with respect to the paragraph headed "Final Result on page four of this memorandum. This paragraph reads as follows: 350 -2"To cover our shortage up to August 1941 and to provide a cash balance on lines proposed in assumption six, we need assistance before the end of August to the extent of three hundred sixty-five millions on the basis of the first alternative and one hundred eightyfive millions on the basis of the second alternative, subject to the fundamental point raised on assumption three. It is hoped that such assistance can be provided in the form of the taking over after the passage of the bill of our existing con- tracts by the United States Government to the extent necessary to cover the above amounts. The taking over of capital assets by the RFC will, of course, provide part of this assistance. For the rest, it should not be difficult to select suitable contracts up to the amount required. Speed of action is very desirable as deliveries are constantly reducing the outstanding value of existing contracts. Even after August, our deficit will still rise for a time. This should be automatically taken care of, since many of the contracts to be taken over are bound to have payments due after August as well as before, of which we shall be relieved. The months to August are the most difficult ones. The deficit of the early months will in part be currently met from gold borrowed by the U. K. Government; but, as this is only a tempo- rary expedient and leaves a responsibility to repay in gold, no account has been taken of it in the calculations above." H.M.Jr: Let me approach this thing in my own peculiar manner. As of January 1, their outstanding contracts were approximately a billion four? Bell: That is given in Table 1. 351 -3H.M.Jr: Just for my purposes, you see. Bell: A billion three thirty. H.M.Jr: All right, a billion three thirty. Now, this is the 28. eleventh of March. We can use February Bell: Yes. H.M.Jr: Now, from January 1 to February 28, I want two figures, I want, one, how many contracts have they paid for, you see. You can get that from how much have they paid for during the month of January. That subtracted from a billion three thirty would give us the figure on March 1. Has anybody got the figure? Bell: The billion three thirty, Mr. Secretary, is a February 28 figure. H.M.Jr: No, I want the January 1 figure. White: I haven't got the payments on those earlier contracts, but we have got the payments which are due on the first of each month. H.M.Jr: Just let me put it this way. Let's say it is a billion four. This is the way I want to approach this thing. A billion four, January 1. Then so many contracts, so much - they took delivery of so much stuff during January. Let's just say for argument's sake they took care of three hundred million, which left them on the first of March outstanding one billion one of the contracts which were in existence prior to January 1, not the ones that they have written since. Now, of that three hundred million dollars that they have paid for during the month of January, where did that money come from? In other words, how much of it came 352 -4- from the sale of securities to the stock exchange, how much of it from gold, how did they pay for it? In other words, what I am groping for is this: I had mentally earmarked a billion four hundred million as of January 1 when I testified, you see. Now, I have said toward that there is nine hundred million of direct investments, there is six hundred million listed securities, and there is four hundred million dollars annual output of gold from South Africa, or a total of nine and six are fifteen and four are a billion nine. Now, what I want to know is, of this three hundred million how much of it came from those three sources. Now, is that assumption correct, Dan? Bell: Your figures are about correct. It is a billion eleven, as I understood it, instead of a billion nine. H.M.Jr: But my assumptions. So then we carry this thing along and I will tell you why I explained it. Is there any other place that they can get this - have it pledged to me and I in turn to Congress - the billion four hundred million contracts outstanding and then that their listed securities, their direct in- vestments and their gold or anything else that we counted in should go toward payment. Now, for argument's sake they paid three hundred million dollars out. Now, where the hell did it come from? Cochran: Well, they had gold which was sold on January 2 of a hundred and seventy-six million; Jan- uary 30, twenty-six million; and on February twenty-six million. That wouldn't count. You have a hundred million of gold there, a hundred ten of their securities and then some taken from the balances which they had on hand 353 -5the first of January. H.M.Jr: Well, do you see what I want, Harry? White: I see what you want, yes. I am not sure that H.M.Jr: You mean where it is going to? White: No, those first three questions are fine. that-- You want to know, A, they owed you a certain amount on commitments on Jan uary 1. How much did they pay on those commitments? You knew their assets. Where did that money come from? Presumably it came from those assets. If it did, then their present assets ought to be just the difference between the two as compared to their January 1 assets. H.M.Jr: Then on the first of March - I mean, I don't know just how we will handle it. I am groping. I don't know just how we will handle the contracts they have signed since then, you see. I don't know what I am going to do with them. Let me just think out loud a minute. Now, they come in and say, between now and the first of August they need three hundred sixty million dollars. Is that what you have got? Cochran: That is, if they pay Canada gold. H.M.Jr: Well, they are going to pay that to us. Cochran: Then it is only a hundred and eighty-five. H.M.Jr: All right. They need a hundred and eighty- five million dollars. Now, I say before I am interested, see, "Gentlemen, I want to know where are you getting the cash to pay your bills today. In other words, are you taking 354 -6some of the fat off the bone that we said we didn't want? Where is it coming from? You say you need a hundred and eighty million dollars." Now, let me just give you this picture. Then they take on more contracts. I mean, it is like a going concern. They have got so much to pay out and they have so much of their assets. Which of their assets did they use and what is their position as of March 1? Cochran: They have given us that. White: They have given us that. H.M.Jr: What? Cochran: They have given you a statement of their credit position and debt position for the month of March to show how much they expect to use in gold, how much they expect to get from market- able securities. H.M.Jr: This is for March? Cochran: Yes, sir. H.M.Jr: But I - I will come to that in a minute, but I want to know what happened in January. How did they finance themselves in January? Now, they ought to know now. I mean, I want - what did they do in January? Through the Federal Reserve we can quickly check up what did they pay out. Cochran: That is just what I was reading. H.M.Jr: Do you know how much they paid out in January? Cochran: Yes. 355 -7H.M.Jr: You out toldinme how much gold. How much did they pay January? Cochran: It isn't broken down by months here. H.M.Jr: Well, it should be. Cochran: Well, it out.this comes in weekly, but I can figure H.M.Jr: Well, give it to me rough. Can you give it to me roughly? Take your time. Cochran: January 2 to 29, total debits were a hundred and ninety-seven million, four, paid out of the account with the Federal. H.M.Jr: Well, that is roughly two hundred million dollars. Cochran: And that was raised by gold, one hundred mil- lion, securities about seventy-five, and the rest came out of the balance. H.M.Jr: Well, did it? Then they only ate into their balance by twenty-five million. Cochran: I mean, I can make it accurate but that is roughly. H.M.Jr: Well, I want it accurately now. What did they forecast for March? Cochran: For March they count their official dollar balances as eighty-two as of March 1. H.M.Jr: Read it, I will listen to it. Cochran: The official dollar balances as of March 1, eighty-two million dollars. Gold as of March 1, one hundred two million. 356 -8H.M.Jr: Cochran: That is a hundred and eighty-four. Newly mined African gold to come in during the month, forty million. H.M.Jr: That is two hundred twenty. Cochran: Sales of marketable securities and direct investments, seventy-five. H.M.Jr: Well, that is two ninety-five. Cochran: Two ninety-nine. That is forty in marketable securities and they just guess thirty-five for direct investments. That is the first time they have carried any item there. So that is two ninety-nine and ten under debits is an expenditure by British Purchasing Commission, two hundred fifteen million dollars. Now, the breakdown on contracts placed by March 1, one hundred seventy-five million; B, con- tracts to be placed in March, forty million; and second entry, balance of all other gold and dollar items, twenty-four million. Esti- mated balance at March 31, sixty million. H.M.Jr: Let me just see if I have got it. Roughly, they figure that expenditures for March will be three hundred million? Two hundred million? Cochran: Two hundred forty. H.M.Jr: Their total expenditures. Cochran: Two hundred forty. H.M.Jr: Two hundred forty and they figure they can pick up how much money? Cochran: Well, they would have a balance left of sixty 357 -9- million. H.M.Jr: And they started the month with eighty-two? Cochran: Eighty-two. H.M.Jr: Well, I think we ought to take a careful look at what happened in January. What? White: We ought to be able to go over the figures and see how close we can come to what you want. I didn't know the figures were available that would give us that monthly payment, but are those later figures than what we got last week? Cochran: What do you mean? White: Those that you are reading from. Cochran: These aren't complete because it is just what is paid out of the Federal, you see. White: Well, if you give us both a chance at that, we can come-- H.M.Jr: I am going to give you a chance and I will tell you why I am in no hurry. In the first place, they have got plenty of money for this month and in the second place, very much in this room, I can't overemphasize the confi- dential nature of it, I saw Lord Halifax last night after I got the President's approval and I said if by the end of this week they didn't show concrete evidence that they wanted to sell some of their factories, I suggested that they put somebody else in charge of these sales. Well, he was very much disturbed and Sir Edward Peacock is a great friend of the head of the Bank of England and the thing which always riles me in these times, he has 358 - 10 - got strong political backing, you see, so it would be a great to-do, to use his language, to sack Sir Edward Peacock. So he said he thought he would have after dinner - I don't know whether he said Purvis and Phillips or Purvis and Pinsent. So I said, "Well, you know, Mr. Ambassador, through Merle Cochran and Phillips and Pinsent I am sure you heard last week how I was distrubed about this, so this doesn't come like a bolt out of the blue, and I said, "I cannot go on the Hill and try to explain on this appropriation bill why the English Government has not been able to sell one of its many hundreds of factories in this country. I can't explain it? So he tried every way possible to make be back down. "Do you think it is wise to tell this to Purvis and the others?" I said, "I certainly do." I didn't give one single inch. Now, we will continue our studies, but until this English industrial crowd permits its government to sell some of these factories, I am not interested in their financial picture and I am not going to do a damn thing about it. Now, as I told Halifax last night, I said, "I don't have to tell you that I am friendly to the English cause. I even demon- strated it in the past," and he said that - could he come and see me at the house if he had something to say, and I said, "Yes. And I want you to know, Merle, because you are my mouthpiece on this thing, as far as I am concerned you can listen, see, but until these fellows come in and demonstrate con- clusively to me that they are going to sell some factories, I am not going to see them any more. I am not going to see Phillips or anybody. I am not available and I just want you to know that, because I am not going to go up on the Hill and the first thing - "Well, Mr. 359 - 18 11 - Morgenthau, give us the report on what has happened," and the first thing they are going to ask is, "How many properties have they sold," and I say, "Zero." "Well, why?" I can't give any answer. I told Halifax last night - it was all very quiet but he used all his English tradition to getme to swerve. Make a partial sale - not a partial sale, I mean a sale with partial payment. I said, "There are lots of things that you can do." I read last night what they sent over to Hopkins on this Lend-Lease to hurry the thing up. We signed a contract to lend-lease them some cutters and then we decide afterward what the price is in order not to hold them up. That is our attitude. But I want a complete - I mean, it is one thing for Cochran when he gets his orders - whether he believes in them or not, he carries them out. He demonstrated that. As my representative with these people, I want you (Cochran) to know until they move, anything further on their financial problem just doesn't interest me, and I want you please to take that front because I have cleared it with the President, and you are representing the President and me on this, you understand, Merle. Cochran: H.M.Jr: This is new as of today, because Saturday we asked them for this and last night Phillips was in talking to me about this. No, you can see them. You listen. No, this is the follow-up of my time when I asked you to send for Phillips. How long ago was that? Cochran: That was Friday evening. H.M.Jr: Not last Friday? Cochran: Last Friday, yes. 360 - to H.M.Jr: Oh, no, it must have been Friday a week ago that you put the heat on. Cochran: Yes, I guess that was Friday the week before. H.M.Jr: It is Friday a week ago. Do you want to check me? Cochran: I will have to on that. H.M.Jr: Do you mind, right now? I would like to know. Cochran: They asked - that was when I had Playfair. H.M.Jr: Just take a minute. I will wait until you come in. I told the Ambassador it was my impression that 10 days had passed. Cochran: I will get it. Bernstein: Is this it? Cochran: Yes, this was on February 28. H.M.Jr: I was right. Well, that is all right. It was over a week. Well, now we go ahead and get this stuff. Now, let me just get on this contract business so we understand that. The President - have you people seen this note that the President gave me to show the Army and-- Cochran: You read that little short memorandum yesterday. H.M.Jr: Well, we will put all the pressure on them, and I don't know whether you have those figures and the money that they get from there, I am more than willing that they segregate that to be used for - if they want to earmark it for strictly English standard stuff, you see. 361 Foley: Well, suppose they want to use it to meet outstanding commitments? H.M.Jr: They can. Foley: Use it for any purpose they want? H.M.Jr: Any purpose that they want to, but that is why I want to study the January thing to find out exactly where they got the money from, you see, and more details of where it went to. mean by classifications. I mean, how much I of it went for food, how much of it went for armament, how much of it went for dividends. I don't know what, you see. Cochran: H.M.Jr: Do you want February, too? I think I would like to start with January. Of course, this is March. White: January and February. H.M.Jr: I am talking two months. Yes, I am confused. Yes, January and February. By classifications, I would like to get more familiar with how they spend it and raising it is the easy part. Yes, January and February. But, Dan-Bell: You just want a total? When you say classifications, you don't mean classify expenditures? H.M.Jr: Well, I was thinking - yes. No, I will tell you what I meant. In one classification, let's say munitions, and in another classification maybe food. Another classification may be paying dividends. I don't know what. White: Shouldn't one of the classifications be what they paid on their past commitments? 362 - 18 H.M.Jr: Yes. White: That should be one classification. H.M.Jr: I would like to play with this thing, you see, and get so we know really more about it. We have it, but we have never examined their checks that they paid through the Federal Reserve in New York. Bell: I take it, one item might very well be net on balance of payments. White: I think if we could just put the questions that we would like to ask, what they paid on past commitments, what they paid on other expenditures that weren't listed in the past commitments, and let them fill in the figures, rather than if we examine their - unless they have given recently data to Merle which would answer that, the data which we have up to now would not enable us to answer that. H.M.Jr: Well, keep after it. Cochran: Well, I have passed on everything I have here to Harry. White: Then W6 haven't got the data. H.M.Jr: Well, you see what I mean. White: I know. H.M.Jr: After all, if we are going to finance these people, I want to know how much goes to food, how much goes to non-essentials. White: I am wondering whether in order to enable you to know exactly each month what is happening, 363 15 - 16 - H.M.Jr: White: if you want that continued Yes, I do. Whether we couldn't set up a statement - we will leave everything but the figures to be filled in, which they can fill in each month. go over statement to that want in form you it, and then each month they figures as they have, and we will fill in such figures as we have and will You in contains which fill everything in the want such you see that the it make it a current thing instead of having to come back and - we get the stuff in a different form each time and it is impossible to compare their figures. H.M.Jr: You see, what I am thinking of, I am taking plenty of time. I have been operating differently. Yesterday, you know, we gave plenty of time to this thing. This morning I have got nothing but this, you see, this morning. I am practicing on you people, so you can practice on me. Up to this point, the President and I are together. He knows what we are doing. When they really run out of money I just don't know what we are going to do, but when we do, then all of this S tuff that we are talking about now, why they run out of it, and what they have spent, it all helps, doesn't it? Now, of course what they are going to try to do is to put everything, including the kitchen stove, under the Lend- Lease and we have to be prepared to say yes or no, and it comes back always to two things, their question of their securities and the question of their direct investments and how much of that have they used up since the first of January. I ought to know so that the President - "Well, now, look, Henry, they say you are being awfully tough on them, and I 364 - just want to be sure that you are right. Now, can we take over some of these contracts, or can't we?" Which leads me to the thing - I mean, do you people know today how much the RFC has taken over and how much-Bell: There is a memorandum here that they haven't taken over any, but there are only a couple of them that are even close. Cochran: Even then they couldn't make the funds avail- able until the latter half of the year, isn't that right? Bell: Yes. H.M.Jr: Do you have that picture? Bell: No, I haven't a very good picture on it. There is a memo here that isn't very good. H.M.Jr: From whom? Can't we go the other way around? Ask Jones and the Army for a memorandum? We will use the President's thing as a - you see? I will dictate a letter to the Secretary of War and Jones, with your help, you see, using the thing - saying, Would you please inform me how much money can we expect the English to get from your taking over their contracts?" you see. "We are making our estimates from now until September, and we would like to know during this period of the hundred and thirty-four million, how much can you do," and the Army, "How much can you do?" White: And approximately when it will be available. H.M.Jr: And approximately when it will be available. Cochran: That will leave out that one thirty-four. We 365 -17can't identify that unless Ed can tell us just what it is. Foley: I have got a breakdown of it. Bell: You can identify a hundred and five million here, but there is a difference between a hundred and five and a hundred and sixty- seven million; and, I take it, they have taken these contracts of a million over in one case and ten million over-H.M.Jr: Are you handling that or are these fellows? Bell: Well, we have all got it. H.M.Jr: Who can write a letter for me to sign to War and Commerce? Bell: We can, together. We can have it for you before noon. H.M.Jr: All right. When I see Jesse I can hand it to him at lunch. Then one can go over to-- Bell: Yes, we will take care of it. H.M.Jr: Don't you think that is the way to do it? And ask them what they want, you see. Well, this is a perfect thing from the President. Simply say, "I have got to know, gentlemen, Mr. War and Mr. Commerce, how much money are you going to make available to the English and how soon. I think we are beginning to tie the thing in you see. Bell: I wonder if it would help you if you had eacy month a statement from the British just like our own giving cash position, giving the back figures-- 366 18 - 19 (Miss Chauncey entered the conference.) H.M.Jr: Two photostats of what the President gave me at lunchfor the Army and Navy. Mr. Bell needs them. He is going to prepare a letter for me to sign. Please. Chauncey: All right, sir. (Miss Chauncey left the conference.) White: I think in the coming months you are going to be so concerned with problems of how much they are using that I think that something not half but a good deal of your problem is in knowing what the situation is, not in making the decision but in knowing the facts. H.M.Jr: Well, what we want is, first an analysis of what they have done through January and Feb- ruary and then a forecast like Bell makes through all the departments. I mean, our cash needs when we have a financing. Isn't that right, Dan? Bell: I think that would give a pretty good picture. White: Then each month or every two weeks there ought to be a statement which will be of a character such as will be most helpful to you, and it ought to be the same statement, and it ought to be comprehensive. I think if we spend a little time drafting that up ahead of time, and then they can adjust their bookkeeping to meet that need if necessary. H.M.Jr: And you make up the forms. But what about the past stuff? The past stuff will have to con- from with the form. Will you take that? 367 20 Bell: Yes. We will bring it from January 1. We don't need to go back of that, do we? White: No, but it will be a current form which - each month you will get a similar statement. H.M.Jr: Well, I think each week, Dan. Bell: That is a little difficult to change state- ments in the future on each week. You can get the actual figures up to date. H.M.Jr: Bell: Cochran: I think once a month is all right. I think so, too. Because we know their gold and security po- sition daily. H.M.Jr: This is a good meeting. Don't you think so, Ed? I mean, we are getting somewhere. What? Foley: Sure. H.M.Jr: And then all of this - having this, putting it back, shows them how seriously we are tak- ing the thing, and then as I say, I can go over and explain - now, I am just thinking of this. In order that I don't get the ground cut out from under me by the State Department, what would you think if I ask Dean Acheson if he could just drop over here for five minutes so I could tell him exactly what our position is? Bell: I don't get why they-- H.M.Jr: Why? So that when Halifax goes to complain to Mr. Hull about how ruthless I am, they will have the whole picture, and they will appreciate it, they won't give him any sympathy. 368 er - This is important, high policy, and Hull ought to know about it, and I am going to try to work through Acheson. Bell: Well, he ought to know about it, then, don't H.M.Jr: Don't you think so? Foley: I don't know how much good it will do. White: I am wondering whether you might not tell H.M.Jr: Oh-- Foley: Well, he could do both, Harry. I think if he is going to tell Hull directly he might better tell Acheson first and then tell Hull. Cochran: What is the alternative to Peacock, sending you think? Hull directly. out some new man from London? H.M.Jr: I didn't make any suggestions. Cochran: It is a rather long process, we found out. H.M.Jr: I think I did drop a hint that they might let Gifford take it over. Cochran: Because he is working in there now. H.M.Jr: I did, I am quite sure. "Gifford has done well. Why not let him take this thing?" Cochran: Peacock should - now, I am not defending him, because I am not happy over his record any more than you are. He ought to know something about the security market here that Gifford doesn't. He was head of the Dominion Securities up in Canada for years, you see. 369 - -22 - H.M.Jr: How long ago? Cochran: Well, that was some time back, before he went to London, but there he was head of Baring Brothers and has been in the Bank of England. H.M.Jr: I said this. I said, "Peacock is inheriting the fact that the British Government didn't do anything with this beginning with last June. I said, "He is inheriting all of this, which is unfair to him, but the fact remains that somebody has to crack this thing.' Cochran: But with the pressure you have on Purvis and you have on Phillips now on holding this up, I think you may get some action. That is my guess. H.M.Jr: Holding what up? Cochran: I mean holding up any conversations with them Cochran: on this matter of contracts, which concerns Phillips very much. I mean, he was in to see me last night? Well, he asked about the gold first, and I said, "Well, we have made commitments up on the Hill that the gold from South Africa and Australia will be sold to us," and he says, "Well, we have just got to build up some sort of reserve in so that we can take care of immediate needs-- he said, with the war centering for the moment down in the Near East, they ought to have gold available in South Africa to send up to Egypt and around those parts. He said they don't want dollar balances, they want gold there, and he said, "If they give us every bit from South Africa," he said, we just haven't got it. We would like to build up a little reserve." He said, 370 22 - 28 "We are going to be embarrassed now because I don't think we are getting the full production from the Bank of South Africa. I told him that Playfair had intimated that production had fallen off. He said, "I don't think it is that, I think South Africa isn't getting it." H.M.Jr: Merle, it is your job to repeat this to me, see? Now, you have done it. I am not im- pressed with what Phillips is saying. It is your job to repeat to me what he says. Cochran: That is right, because I can add to it. They are getting certain gold from Belgian Congo and Rhodesia and so on. H.M.Jr: I am just not impressed. Merle, I, personally, want a demonstration that the Bank of England and what they stand for, see, really want to sell these assets in this country. They have got to make me believe, see, and pick up today's Washington Herald and see the thing at the beginning - the story in the Washington Herald about how the American taxpayer is going to have to pay through the nose in order to give England this stuff. The campaign is started. It is in the Washington Herald, the tip-off. And I forecast this thing several weeks ago, that that was what would happen. Now, before I take the gaff, publicly and privately, for these people, I want them to prove t hat they want to win this war and that they are willing to do everything possible to make a billion dollars worth of assets - turn them into cash, and give up the control of the American thread business in this country, which they control, and the viscose, which they control, before we in turn turn over seven billion dollars to them. Now, I am not convinced. I am asking at this moment seven 371 for one, and I don't know whether the Bank of England and that gang is running the British Government or whether Churchill is. I don't know. I told Berle last night - I didn't tell him much, but I told him a little of this. I didn't tell him about my conversation with Halifax. I said, "There is nobody in this town that has done more for the English than I have," and Berle says, "You are absolutely right." I need faith. Talk about Halifax being religious and all of that, I need faith, I need confidence. I think we are on the right track now, Dan, if you could get this thing up. I talked this way in this room, but what is going to happen when somebody from the Treasury goes up on the Hill? Bell: Is there some indication-- H.M.Jr: Do you think I am overemphasizing this, Dan? Bell: No, I don't think you are overemphasizing the importance of it. I am a little bit worried about his successor and the delay. Foley: Dan-- White: That is the way to handle it. Foley: Dan, if it isn't done, it is my judgment the first time you go before the committee and you tell the committee that not one damn cent has been realized from the sale of these assets, that the committee is going to force our hand and turn the whole works over to the RFC, lock, stock, and barrel, and that is what the British are up against, so you are being a friend to the British when you are telling them that they have got to show some results and giving them another opportunity on their own to do 372 24 - 25 it, because it is the last call. Bell: Well, do you help the situation by forcing the man in there now out when it may take months to replace him, weeks anyway? Foley: But what other way, Dan, have you got of mak- Cochran: If we hold up on this contract business as the ing them realize the significance of the situation? Secretary said, that is the thing that is worrying Phillips most; and I am convinced that Phillips has the idea of selling these and Purvis has the idea. H.M.Jr: True. Cochran: And I think that we can bring pressure on them to get that improved just as when you got Gifford here he admitted that he had instructions from the Treasury not to go ahead. You got that rectified. If you can get Gifford working in there with Peacock-- H.M.Jr: May I interrupt you? It wasn't until I got Gifford and Phillips sitting next to each other that I smoked out the fact that the Treasury had not given them the instructions, see. Cochran: That is right. H.M.Jr: Well, the same condition, Merle, may be true here. Maybe Sir Edward Peacock hasn't got the instructions. Cochran: But my point is-- H.M.Jr: Maybe he hasn't got it. The two fellows sat there and I took my hat off to Gifford when he turned to this fellow and he said, "You 373 25 -26 never told me to sell more than two to three million a week. Cochran: You remember we were pretty well fed up with Gifford, we hoped we would get someone in his place, and now he has turned out to be a good man when he has the proper instructions. H.M.Jr: Instead of putting the pressure on Peacock, who is 69 years old and who has an expression- less face, I am putting the pressure on the representative of His Majesty, the King, who can take it. I am putting it - I asked you 10 days ago to do it on his two representatives and I got nowhere. I waited 10 days, and then I put it on the representative of the King instead of putting it on Peacock. Bell: I am not so sure that that isn't where the fault lies. It may not be Peacock. It may be just the other end, just like Gifford. Foley: There is only one way to find out. Bell: I agree to that, and I think the Secretary is right in putting the pressure on the Ambassador rather than Peacock. H.M.Jr: Just the way they sat here and kept telling us that they couldn't do it, they go back and - Merle, remind me. Then we developed that he never got the instructions. Now, how do I know that poor Peacock has got the instruc- tions to sell? Maybe his instructions are to stall. I don't know. Bell: Well, the instructions were given out and were rather vague, you remember. He said he came over to look into the situation, not to dispose of them. 374 -2T White: Well, the Secretary cannot impute the good faith of the British Government and the only position he can take is that his man is apparently not carrying out your instructions competently, and therefore he wants another man. That serves a dual purpose, it appears to me. In the first place, as he says, it smokes out the real orders; and, in the second place, I think, some publicity, both for the British public and to the Ameri- can public, is called for at this point; and, if the Secretary can take the position in the future, if necessary, that he demanded the recall of this man because he didn't show action, he is in a much better position if no action is taken. If action is taken, then the man can stay here. Bernstein: Well, if this man is as important as the Ambassador says he is and-- Foley: The pressure is on the Ambassador. Bernstein: They are not going to fire him. Cochran: They are not going to make a whipping boy out H.M.Jr: He is the second man in the Bank of England? Cochran: There is no ranking there. He is the man closest to the Governor. He is a senior. He hasn't any position other than-- H.M.Jr: If he is as close as that to Montague Norman, then this fellow Peacock is never going to make a sale unless we build a bonfire under him and put a couple of sticks of dynamite in it, but I don't have any confidence in Montague Norman wanting to give up anything and really of Peacock. win this war. He typifies everything to me that is the worst in England. 375 23 28 Cochran: Did Walter Stewart speak to you the other day, Mr. Secretary, about the idea of having these competitors in steel and so on approach these people? (Mr. Acheson entered the conference.) H.M.Jr: Dean, I want to tell you something that is important to us and I want Mr. Hull to know about it, but I would like it guarded as much as possible. Yesterday at lunch I had a chance to sketch to the President of the United States just what we were doing here in - in relation to the English financing, I mean how all of the English money is deposited with the Federal Reserve of New York as our fiscal agent and we know how much money they have put in and how much they have spent each week and how we have Phillips here representing the Treasury and how we are in constant touch with them and get the amount of their sales each day of their securities and now Sir Edward Peacock is here supposedly to sell their direct investments, so the thing all flows here. Now, the Army is supposed to be in a process of taking over English contracts where they have made down payments, you see, and the RFC is supposedly in the process of taking over their contracts where they have created plants. As far as we can find out, the RFC hasn't consummated a single contract and if the Army has done anything, they have done five million dollars worth of it. We are trying to find out how much it all amounted to. The reason for this coming to a head is that Phillips, Sir Frederick Phillips came in last week and sat down and said, "What are you going to do about our financial situation?" and I said "What do you mean?" We have been trying to get a lot of information. Now, the situation 376 29 - on the first of January, roughly, was that they had commitments for about a billion four hundred million dollars of contracts in this country, and we are going to analyze just how much of those were for munitions and how much for other things than muni- tions, also how did they raise the money. We think we know, but we want more informa- tion. Then Bell is going to prepare for them a sheet just like we have as to the future needs, how much they are going to spend and how they are going to raise it, going through to their war year, which is September 1. Now, in my testimony on the Hill I pointed out as of January 1 they had outstanding about a billion four. To pay for this, they had somewhere around nine hundred million dollars worth of direct investments and six hundred million dollars worth of securities. We have been unable, or they have been unable, they claim, to sell a single factory in this country, although we have been after them since last June. Friday a week ago I had Cochran send for Phillips and Pinsent, the financial attache, and tell them that I was very much disturbed about this, it was most embarrassing, I might be asked any time on the Hill why they don't do it and so forth and so on, and that they just had to get busy and make good on this thing and never mind all the reasons why. They just had to produce and show that they were willing to sell some of these investments. Well, yesterday I asked told the President if he approved that I would like to tell Halifax that unless by the end of this week they demonstrated they were go- ing to sell some of their direct investments, they had better recall Sir Edward Peacock, who was in charge of these sales, and I got the President's approval to do it, and I told 377 Halifax last night and he was very much disturbed and told me what great political backing Peacock has. It always irritates me when they talk about political backing but ask how they are going to win the war. Why am I so exercized? Well, somebody in the Treasury, when this appropriation goes up on the Hill, has to review the English financial situation before the Congress of the United States is going to vote "X" billions of dollars under the Lend-Lease Bill and particularly since the plan now is to put it all in one bill, and I pointed out this morning the campaign is open in the Washington Herald for all the increased taxes we are going to have to pay for what we are going to give to England. The posi- tion which I am taking is that until I get an answer from Halifax - I want to point out this. Several months ago I kept saying, "Why don't you sell more securities?" and they said they couldn't. They were selling from one to three million dollars. I got Gifford and Phillips sitting next to each other, and when I kept saying to Gifford, "I know you can sell more, that the American market will absorb it,' he finally turned to Phillips with a flushed face - but he says, "My instructions from the British Treasury are not to sell any more," and then Phillips got flushed, as a result of which beginning with the next week they sold ten million dollars a week and I think every week after that they have done so. Cochran: They have kept it up. H.M.Jr: They have averaged ten million a week. Now, I don't know that Peacock has the instructions, really, to sell these businesses or not and until they do it, there is no reason, no 378 - matter how much Purvis, whom I have the greatest confidence in, tells me that they are his instructions - but he doesn't know any more than - until I made it so unpleasant for Gifford that in anger he turned on Phillips and says, "Well, I haven't got the instructions from the British Treasury." Now, what I am preparing to do is to sit tight here and do nothing after my notice to Halifax with the British on their finan- cial situation until they make some move. Now, they are all right for the rest of the month. They admit they are all right, you see. They have got enough money. They are all right. So they are not going to default on any contracts. Nothing scandalous is go- ing to happen. But somebody from the Treasury is going to have to go up within three or four days on the Hill and one of the first things they are going to ask is, "Well, what about their financial condition?" Now, the financial crowd in New York has been perfectly swell, because Peacock has treated them absolutely shamefully. Reputable people have gone in and said, "We would like to have a chance to figure on such and such a thing," and he treats them like dogs. I get this from the SEC all the time. Different people call them up, and he either can't see them or won't see them, people that have got the cash and want to buy these different businesses, and I just wanted to get the picture. We have it from the British. The Army is supposed to buy - pick up the contracts where they have made down payments and the RFC is in the process of picking up any plants that they own in this country, but pending hearing from these people, in order that I keep faith with Congress and they keep faith with me, they have got to keep my morale up and say that they mean to 379 31 - 32 - do what they say, never mind the difficulties. The President - I have his complete backing. Now, why do I send for you? In case they go to do the baby act over there and complain about me, I would like to feel that the State Department will say, "Well, this is a Treasury matter, it is a hundred percent finance, and either hands off or if you - I mean, I am not asking you. If Mr. Hull or whoever sees the English would say, "Well, we think until you have complied with what the Treasury is asking, that the position that they take of going on a sit- down strike is right," but the least I would like to have is hands-off, you see, because I am sure that Halifax is going to run to the State Department and try to get sympathetic hearing for this - whatever kind of treatment he calls it, I am giving it. Now, you can ask me questions because I am full of this and you are not, but I wanted you to get it. Acheson: The Army is to pick up the contracts on which they have already made down payments? Foley: British supply contracts. Acheson: And the RFC is to take over the financing of Foley: Well, they own certain plants all over the their plant buildings? country, powder plants and ordnance plants and airplane plants, title to which is in corporations wholly owned by the British Government. Acheson: And the RFC is going to buy those from them? Foley: Yes. 380 32 -35Acheson: Well now, what are the proceeds of these sales of private businesses going to be used for? H.M.Jr: Their own British standards, that was the understanding I had with Purvis. To be used for things of British specifications. White: He said - he wanted to know what the proceeds of the sale of the private businesses would be for. H.M.Jr: Let me go back first. The money that they get, I will come to that. The money that they get from the RFC and the Army would be, so to speak, free money that they could use for anything that they wished to. The thing that Peacock gets is pledged by me to the Congress against a billion four of contracts that they had outstanding on the first of January. Acheson: I see. The actual financing of the billion four is - so far as the American suppliers are concerned, is supposed to be taken care of, 1, by the Army, and 2, by what Jesse Jones produces, is that right? H.M.Jr: The billion four outstanding on the first of January, as I testified, would be taken care of, 1, by the six hundred million dollars worth of U.S. listed securities; 2, the nine hundred million of direct investments; and 3, the four hundred million dollars output of the South African gold mines. Acheson: Well, now, where do the Army and Jesse come H.M.Jr: The Army and Jesse come into the picture that in on this picture? they are in the process of picking up the factories that they have invested in, the 381 33 - 34 advance payments in the case of the Army that they have made on contracts. Foley: That doesn't amount to so much. H.M.Jr: No, but anyway - and that money, my under- standing with Purvis was that they could feel free to use that for anything they wished to. Acheson: On new orders? H.M.Jr: Anything. Foley: Under the Lease-Lend Bill, stuff that we couldn't use. H.M.Jr: Anything that these - it was free for them to use any way that they wished to. It wasn't obligated. Acheson: I see. That is a backflow to them? H.M.Jr: Yes. Acheson: And when the Army reimburses them for down payment that they have made, is the Army going on with further payments or are the further payments part of the one billion four? Foley: The Army will assume those contracts. Acheson: But the one billion four are some wholly different contracts? Foley: Yes, they would be different contracts. H.M.Jr: No, they are part of the same thing. They overlap. White: There are a few of those contracts which 382 apparently the Army will be able to take over, but it will not amount to a great deal. H.M.Jr: Fifty million dollars. Bell: Won't it be largely these new contracts that have been entered into since January 1? H.M.Jr: Now, since January 1 the thing that we have tried to keep very, very secret here, because I have risked my neck, I told Congress that for all ostensible purposes all buying had stopped. Instead of that, I let them average thirty-five million dollars a week new purchases and if I ever had been called up on the Hill I just never could have explained Acheson: it. I think I have it clear. H.M.Jr: Do you want to go over it again? Acheson: The only thing I am not quite clear about is Foley: Maybe we can give him the amounts. H.M.Jr: Give him everything. Acheson: I see that the British have commitments of H.M.Jr: As of the first of January. Acheson: Which they have got to take care of by the the Army and the RFC. a billion four. sale of their six hundred million dollars of direct investments, the nine hundred million or privately owned plants and things of that sort in this country, and four hundred million dollars of African gold. Now, the six hundred million is going ahead all right. 383 35 - -36 - The four hundred is presumably all right. But they are getting nowhere on the nine hundred. H.M.Jr: That is right. Acheson: And then I understand what you said about Peacock and that situation and what you would like the State Department to do. The thing that I am not quite clear about is where the RFC and the Army come in or whether it is important that they come in at all. H.M.Jr: It is only important in this way. When we were worried about the money, everybody got their heads together and there were to kinds of contracts. There was one where, for in- stance, they made a twenty-five percent down payment and McCloy, in order to try to help this thing out, said, "Well now, we will pick up those, you see. Acheson: That is, that our Army would take over those H.M.Jr: Assume them. The only one they have done is contracts? Kelsey Wheel. e Acheson: That takes it right out of the billion four? H.M.Jr: Yes. Foley: If it was part of the billion four. Those Acheson: I see. H.M.Jr: Now, the Army couldn't assume plants, so they contracts might be the ones that were entered into subsequent to January 1 in some instances. went to the RFC and they said, "Jones, will you buy the powder plants that the English 384 36 - 87 - have built in this country?" and supposedly they amount to a hundred and thirty-four million dollars. If the information is correct, to date, although he has been on it for weeks and weeks, he has been unable to consummate a single British contract. Acheson: That they could apply to the billion four? H.M.Jr: Yes, or to anything else that they needed. But you can see what an impossible position - I told this to Halifax - I would be in to go up on the Hill and they say, "Well, all right, now, Mr. Morgenthau, how about these English factories? What has happened to them?" "Well, I am terribly sorry, but the English just haven't sold any." Now, there is no danger in this thing, because they are all right, certainly for another month and maybe another couple of months, but certainly we can see daylight and they admit they are for the rest of this month, so by sitting still and saying I won't do anything until they move on the direct investments, I am no endangering anything, you see, other than our relations with them, but I thought it was important enough that you ought to know about it and Hull ought to know about it, so whoever re- ceives Halifax, if he brings it up, you would be posted, but it isn't the kind of thing that I would want to pick up in the papers and read, you know. Acheson: Yes. H.M.Jr: I needn't point that out. Acheson: No, I can understand that. And the British did come down and start talking with you about this and then you discovered that they are not moving forward on the nine hundred 385 37 - 36 million? H.M.Jr: Acheson: Oh, yes. And so in talking with the President you said what you wanted to say to Halifax, which was that if they don't make some headway by the end of the week they would have to recall Peacock? H.M.Jr: That is right. And mind you, Friday a week ago, Cochran told the English financial representative how upset I was about it and so they have had ten days' notice and they just had to do something. He told them this Friday a week ago. And since Friday a week ago to yesterday, nothing happened. Now, there is one other thing. In the course of my putting this pressure on them, they came through with this letter which - who helped us on that? Cochran: Livesey. H.M.Jr: Which they said this pressure goes back to about a month ago. It is about a month, isn't it, roughly? And I have been putting this pressure on them steadily so they came back and said, "Well, that is all right. We will assign all of these properties to the President of the United States. Of course, I said the President didn't want to take this responsibility and I advised him not to. But we left the whole matter in suspense. We didn't turn it down and we didn't say yes. I want you to know that they have tried every way possible - I told Peacock it is very nice of him to give this to the President of the United States, but we have got to look to them to do this. We don't want the President of the United States to sell English holdings in 386 38 - 29 - this country. But the matter is so that we could always say, "All right, now we will take it over. You make out a deed to us and we will take over all of these properties. Acheson: Iright think I have got it straight, and I will go over now and see Mr. Hull. H.M.Jr: If you want anything - Merle sees the financial people, Merle Cochran, so if you want to refresh yourself, I think if you want to call him to it. come over and see you, he will be glad to do Acheson: All right, fine. H.M.Jr: Merle Cochran. Acheson: Yes. H.M.Jr: Because he is on the State Department payroll on a lease-loan to us and we are very glad to have him, so if you want something or Mr. Hull wanted to get it word of mouth what did I say to Pinsent or Phillips, Cochran has all of that. Acheson: I will speak to Mr. Hull right away and then if you want to say anything further, we will call Merle. H.M.Jr: All right, fine. I appreciate your coming over. But this is the kind of thing that you can be useful on. (Mr. Acheson left the conference.) Bell: Give the Secretary of War and Jesse Jones a copy of this? 387 39 - 40 H.M.Jr: Yes. Well now, doesn't that finish that chapter? I think it is good to tell Dean. You know, he has come over here and he wants to help. Don't you think so? Bell: Dean is all right. H.M.Jr: Well, is there anything more on this? Cochran: There is just that one point, you asked for a letter on the gold. You remember, the British had raised the question of their negotiations with Canada? They had two points in there. One covered the lease-lend part, as far as parts and materials; and the other on the gold. H.M.Jr: Well, I want them to - excuse me, was it a letter to us about the gold? White: It was a memorandum. Cochran: It was a memorandum. Bell: You had asked for a reply, which Merle was preparing to go back. H.M.Jr: Where is that? Cochran: Have you one? White: We have three replies, one of which Bernie and I recommend. I haven't seen his, although we primarily recommend no written reply. Bernie and I definitely feel there should be no written reply, but we have written replies prepared. H.M.Jr: If I could go along with that and delegate Merle Cochran, the next time they come in, to simply say, "Gentlemen, we want the gold to come here rather than to Canada." 388 40 - 4I White: I am wondering whether you would want to put it that way or maybe you would want to put it that you don't feel it appropriate for you to comment on what they do with their funds, indebtedness to foreign coun- tries. All our concern is that they make their commitments here, because I am wonder- ing whether they wouldn't use that informa- tion in Canada and make it a little difficult for us. Put it the other way around, Merle. If you take a note, simply say that we have been counting on it and all they have Cochran: got to do is read the Secretary's testimony. I didn't get to talk with Harry and Bernie because they were working on it last night when Phillips was with me, so I have just drafted a note in which I quoted your testimony up on the Hill. H.M.Jr: May I see it? "Dear Sir Frederick: "By memorandum dated March 5, 1941, you raised two questions. The first was an inquiry as to whether I would see any objection to Great Britain paying Canada in gold to the extent that you may have gold available for that pur- pose in the future. You explained that this would not cover more than a fraction of the adverse balance with Canada, and that gold so utilized would reach United States eventually in payment of Canada's adverse balance with the United States. "It will be recalled that in the data prepared with your assistance and submitted to Congress by me, we estimated for the current calendar year Australian gold exports to the United States at $75 millions and South African 389 41 - 42 - exports of gold at $480 millions. (see page 11 of Part 1 of "Hearings before the Committee on Foreign Relations, United States Senate, on S. 275.") "May I also invite your attention in this connection to the following extract from my testimony before the Committee on Foreign Affairs, House of Representatives, as reported on pages 64 and 65 of the volume of Lend-Lease Bill Hearings. I think this, unless there is some good reason, Merle, that you think otherwise, I would show them this part of my testimony, you see. I mean, just lift my testimony out of this letter. I wouldn't send them the letter. And simply say, "This is what Mr. Morgenthau says and he hasn't changed his mind any since he has testified." What do you think about that? Bell: That is all right. Is it in there that this data that the Secretary gave to the committee is with the approval of the British Govern- ment? Cochran: I said prepared with their assistance. H.M.Jr: And you could add on there, "approved." White: Well, they gave it to us. Bernstein: Well, there is a point in the testimony where you make it perfectly explicit that you were submitting the information with the approval of the British Government. H.M.Jr: Let's just rehearse. Let me say it and you people disagree, if you wish to. I would send 390 42 -43 for these people and say, "We have considered this and I would like to show you a copy of Mr. Morgenthau's testimony and the position he took in regard to the disposition of the Australian and South African gold and his position hasn't changed any. Is that enough? Cochran: I prefer it that way. H.M.Jr: You prefer it that way? Cochran: Yes. H.M.Jr: Ed? Foley: Yes. H.M.Jr: Bernie? Bernstein: Quite all right. H.M.Jr: Harry? White: All right. H.M.Jr: It is unanimous. Cochran: Just that last paragraph. You know they raised in a memo two questions and I say, "As to your second question with respect to the application of the Lend-Lease Bill to American parts and materials entering into Canadian-manufac- tured munitions for Great Britain, I beg to inform you that this question is having the attention of the Treasury during its study of the general problem of operating under the Lend-Lease plan." H.M.Jr: I don't think I would say that. Cochran: I mean, they have raised that question. 391 43 - 44 White: I would just ignore that part of it. H.M.Jr: I would just answer him on the gold. White: There is just one question, in order not to make it possible for Canada to misunderstand or to raise any difficulties, if they do ask, "Well then, is it that the Secretary wants us to pay the gold to him?" I am wondering whether a statement to the effect that the question as to how the British Treasury shall meet its commitments to other countries is not a matter on which the Secretary feels he can appropriately express an opinion might not be made? Then they wouldn't be able to go to Canada and say-- H.M.Jr: If you fellows could only see each other before you see me, you see. I don't know why it can't be done. White: Well, we were all tied up until the last minute. H.M.Jr: Well, just at this time - I am tired now and I don't want to go any further just now. Show them that testimony. Cochran: All right, and I will tell them the considera- H.M.Jr: But please, gentlemen, before you come in here, try to see each other and show each other tion of anything else is deferred. your memoranda. White: It was just impossible. He (Cochran) was with Bell this morning and we were waiting in his office. H.M.Jr: He was what? Cochran: I was with Dan trying to get the corrections on 392 this thing. We were going over this because there were errors in it which-White: There was a desire to get together. H.M.Jr: There was a desire? Cochran: Oh, yes, I should say so. But last night I was seeing Phillips when they were working. H.M.Jr: Just so that the intentions are good. Cochran: The very best. White: Then Merle Cochran will not tell them that you want all the gold to come here, rather than to Canada? H.M.Jr: What he is going to say is, there is my testimony in which I say that the gold should come here. I mean, "Mr. Morgenthau's position is as he testified." Isn't that what you understand? Cochran: Yes. H.M.Jr: Does anybody object to him saying this is my testimony and my position is just what it was then? Now, from that they could only draw one conclusion, that we wanted it to come here. White: But they won't be able to tell the Canadian Government that you want all their surplus dollars to go to you and not to the Canadian Government, and that is the only thing I wanted to avoid. H.M.Jr: They will put me in the wrong light whatever way you do it. Cochran: You would rather have it in writing, Harry? 393 45 - 46 White: No, I think you should tell it to them orally. 394 Dear Sir Frederick: By memorandum dated March 5, 1941, you raised two questions. The first was an inquiry as to whether I would see any objection to Great Britain paying Canada in gold to the extent that you may have gold available for that purpose in the future. You explained that this would not cover more than a fraction of the adverse balance with Canada, and that gold so utilized would reach United States eventually in payment of Canada's adverse balance with the United States. It will be recalled that in the data prepared with your assistance and submitted to Congress by me we estimated for the current calendar year Australian gold exports to the United States at $75 millions and South African exports of gold at $480 millions. (See page 11 of Part 1 of "Hearings before the Committee on Foreign Relations, United States Senate, on S. 275.") May I also invite your attention in this connection to the following extract from my testimony before the Committee on Foreign Affairs, House of Representatives, as reported on pages 64 and 65 of the volume of LendLease Bill Hearings: Sir Frederick Phillips, K.C.M.C., Under Secretary of the British Treasury, Washington, D.C. 395 -2"Mr. Tinkham. Every year Great Britain is receiving gold from South Africa where it is mined to an extent of $700,000,000 to $750,000,000. What reason is there, that you know of, why that gold in due course and under proper arrangements should not be transferred to us? I mean, of course, as security and collateral for what we may advance it which may be an unlimited amount. "Mr. Morgenthau. Mr. Tinkham, under that section B(3) it says South African exports of gold, $480,000,000, which they advise me is the amount which would flow to the United Kingdom. There is $480,000,000. We have also listed in Australian gold $75,000,000. "Mr. Tinkham. We will not dispute about the amount. I have seen seven hundred to seven hundred fifty million dollars repeatedly stated as the amount of gold produced in the Rand in English publications, which I could submit to you. If they are submitting a larger amount and we have notices of approximately the amount of $450,000,000 or $750,000,000, or as I suggested, $700,000,000, why should not they transfer it to us as collateral against such loans as we are making so the American taxpayer does not have to meet their bills as is pro- posed in this legislation? "Mr. Morgenthau. You and I think alike on this point. I believe that any amount of South African gold that the United Kingdom receives during this year they should use to pay for merchandise which they buy in this country. "Mr. Tinkham. Now, have they been doing that, do you know? "Mr. Morgenthau. They have been paying their bills. "Mr. Tinkham. But you do not know whether they have used that or whether they are segregating that, cacheing it, as it were, in London? "Mr. Morgenthau. No. "Mr. Tinkham. Or even selling it to us, of course, at a very heavy profit at the present prices you are paying for gold? "Mr. Morgenthau. That is something else again. They have been selling us most of their South African gold and they propose to sell us all the South African gold that they produce. 396 -3 "Mr. Tinkham. Sell us! Yes; but do you not think that where we are to let them have an unlimited credit it should be given us as security and as collateral annually? "Mr. Morgenthau. I do not think you really mean that. "Mr. Tinkham. What did you say? "Mr. Morgenthau. I do not think you really me an that. "Mr. Tinkham. Certainly, I do, Mr. Morgenthau; I am always very serious. "Mr. Morgenthau. These figures which I presented here today include, I believe, all of the gold that will be mined in South Africa and Australia within this coming year and they need all of that gold and all of the securities of their citizens and they need all of the investments they have in this country to raise sufficient dollars to pay for the orders already placed here." The foregoing paragraphs indicate the commitments which I have given Congress insofar as current production of South African and Australian gold is concerned. As to your second question, with respect to the application of the Lend-Lease Bill to American parts and materials entering into Conadian-manufactured munitions for Great Britain, I beg to inform you that this question is having the attention of the Treasury during its study of the general problem of operating under the Lend-Lease plan. Sincerely yours, Secretary of the Treasury. 397 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTIAL In accordance with the decision reached at this morning's group meeting on the financial position, Under Secretary Bell, with a suggestion now and then on drew up a we contemplated to the my British part, list of here forms with whichfrom the view British Treasury representatives to obtaining themsubmitting regular and uniform monthly reports upon their financial position, both with respect to current assets and commitments and prospective receipts and disbursements. At 3:15 I telephoned Sir Frederick Phillips that we had this plan under way and hoped that he would let his assistants meet with us this afternoon to see whether our forms were workable from the British standpoint, and to suggest any amendments. Phillips agreed with this and had Messrs. Playfair and Allen of his staff meet with Nears. Bell, White and myself at 4:15 this afternoon. The forms which had been prepared in Mr. Bell's office were studied and some slight amendments thereto made. The British representatives took the forms away, with the understanding that they would tudy them and report back to us any new suggestions that might require consideration Before the system is set into operation. BMR. 398 March 11, 1941 3:00 p.m. RE TAX PROGRAM Present: Mr. Gaston Mr. Foley Mr. Bell Mr. Sullivan Mr. Blough Mr. Tarleau H.M.Jr: Well, I see Tarleau and Blough. It smells like taxes. Sullivan: Did you see the headlines in the afternoon paper? H.M.Jr: No. Sullivan: Seven billion for the Lend-Lease. Gaston: Gone up? Sullivan: Woodrum made the announcement coming out of the White House this morning. He said everybody in the conference except one was agreeable. Taber was there, and he spoke of his having been a severe administration critic, the inference being that he was the one who had protested. H.M.Jr: Well, what do you Coast Guard fellows want today? Sullivan: Well, we have a variety of schedules here, 399 -2starting in with invested taxes that would yield a billion six H.M.Jr: Excuse me. Coast Guard is life-saving, isn't it? Take it all back. Sullivan: Another schedule of two billion one, a third H.M.Jr: Well, this is the Roosevelt-Bernie Baruch plan, you see. The President doesn't know whether these figures are correct, but he thought invested business on the present schedule would give us two billion more taxes. Yes? No? Sullivan: Well, there is an estimate in your report that of two billion and a half, a fourth of three and a half and a fifth at just about four billion. an increase from - in national income from 90 to 100 million would give an increase in revenue of two billion two. H.M.Jr: My report? Sullivan: Yes, sir. H.M.Jr: Well, do you expect it to be a hundred on the average in the next fiscal year? It is 78. now. Sullivan: I think they are planning about 84. Foley: When? Bell: 1941. Foley: June 30, '41? Bell: Calendar year, which affects your 1942 reve- nues, materially. Sullivan: That is right. 400 -3Bell: 1942 calendar year hasn't been estimated, but it is assumed that on the present upper trend, it will go to 90 or better, possibly 95. H.M.Jr: Calendar year, how much? Bell: Eighty-five, I think. It is close to 80 now. H.M.Jr: Seventy-eight was the last I heard. Foley: Well, that is a jump of five since when? Bell: Since last January. Foley: Since January 1, '41? Bell: 'Forty. Foley: Oh, you mean in fourteen months? Bell: No, the estimate in January, '41, was 79 and a half, and the estimate in January, 1940, was 74. H.M.Jr: What we are talking about, isn't it, is how much business for the calendar year - let's see, six months of '41, isn't it? Sullivan: Yes. H.M.Jr; And twelve months in '42? Sullivan: You mean on these taxes? H.M.Jr: Yes. Sullivan: Yes, except on the income taxes. They won't come in - there will be six months of fiscal '42. 401 -4- H.M.Jr: Well, have you struck a kind of an average for the year that we are talking a bout? Sullivan: You mean -- H.M.Jr: In the calendar '40 year - how much will business be in the '42 calendar? Bell: Forty-two or '41? H.M.Jr: Forty-two. Bell: In the '41 calendar year, I think our estimates were based on 85. H.M.Jr: Yes, that is what you said, 84? Bell: I don't know. We have no estimates for '42, but there has been talk that it might go up to 90 or 95. I don't know whether the capacity is there or not. H.M.Jr: Let's just say we strike an average of 90. How much revenue will that produce on the Sullivan: present bill? It would be well toward two billion dollars. H.M.Jr: Then his figure of around two was right. You get two more. What he spoke about is two more and a billion and a half new taxes. Now, how much would that give us in revenue, gents? Sullivan: Well -- Bell: About 12. Sullivan: Not quite that. Bell: Well, 11.7. 402 -5- Blough: You mean gross, or after Social Security is pulled out? Bell: Net. Eight, two plus three, five would be eleven, seven. Just a little under twelve billion. That is net. H.M.Jr: Twelve billion and how much are we going to spend? Sullivan: Eighteen. Bell: That is about right, 18 or 17. H.M.Jr: Well, that is two-thirds. Blough: That was before Lease-Lend. H.M.Jr: Well, I know, but it is two-thirds. That would be perfect. Bell: And if your capacity increases and your national income increases, your revenue will again go up to take care of the increased expenditures on the Lend-Lease Bill in 1943, if necessary. Sullivan: I think the country -- Tarleau: That is good. Sullivan: ....will take something more than that. I think you can take a lot more than that without in any way interfering with your borrowing plan. Bell: God, he is driving us! H.M.Jr: Well, what figure are you shooting for? Sullivan: I have got them all the way up to four. 403 -6- H.M.Jr: Do it the way friend Willkie does, throw a dart, and pick one. Sullivan: We think we could take four without throwing in a monkey wrench. H.M.Jr: You mean four on top of the two? Sullivan: The two isn't anything that anybody is giving us. That is something we are giving them. H.M.Jr: That is a volunteer offering. Sullivan: No, I mean because business is better, they are earning that much more. That isn't an increase in taxes. Gaston: I think John is right. Sullivan: I don't think we ought to talk at all about any additional yield because of improvement of business conditions. H.M.Jr: All right, we will just gracefully accept two billion more -- Sullivan: When, as, and if we get it. H.M.Jr: And you want how many more taxes on top of that? Sullivan: I am willing to go the whole way, sir, and I think they will take it. H.M.Jr: I wondered why you invited Herbert. Gaston: I didn't know until now. I didn't know until now. H.M.Jr: You know what we call it up in Duchess County? It is a horse shedding. S-h-e-d, for some of you boys who haven't lived in the country. 404 -7- Bell: What is wrong with taking that much? Foley: It all depends on how you do it. Bell: We will take it out of the lower brackets. (Laughter.) Foley: We are against that, aren't we, Dan? Bell: Yes, we certainly are. We have got to do something about the ones we have got on the books now. Gaston: It is a long time before we can foresee any reduction in Federal expenditures, a long time. If the war is suddenly over, we are going to have domestic expenditures on a much higher scale than we have ever had before. H.M.Jr: You are one of these spending boys, are you? Gaston: No, I am one of these -- Bell: Realistic. Gaston: Yes, one of these "balance the budget" fellows. (Laughter.) I am quite serious about it. I think we have got to get down to business. H.M.Jr: Well, what would four billion do to whom and where and how? Foley: Yes, with which and to whom? (Laughter.) H.M.Jr: I may like it, you know. Cheer up, Herbert. 405 8- You might just as well smile while we are all operated on. Gaston: I hardly can. Sullivan: Of that four, half would come from income taxes, 353 million from estate and gift taxes, 645 from corporation taxes, 350 from liquor, 200 from tobacco, 200 from increased taxes on automobiles and gasoline, 132 and a half million on the "Bell" tax Bell: Is that all? A nickel a bottle? H.M.Jr: We just fixed Pepsi-Cola up. Are you going to take it away from them? Bell: It did all right last year. It earned $24 a share. Sullivan: John Burns is counsel for them, and he says their only worry is that the water rates will go up in New York City. That is, it is a very important item in the cost. I had the miscellaneous tax outfit working on your (Bell's) tax, and of course, we have to tax the drinks that are sold at the soda fountains, the flavoring and the -- Bell: Sure. Sullivan: And the water, carbonated water, and in order to equalize the tax with the tax on bottled goods, we have to tax the goods three times as much as it sells for. H.M.Jr: O.K. Sullivan: Now, I have receipts for all of you of all of these different schedules. 406 -9- H.M.Jr: All right. I don't like Herbert when he is so serious about this--thing. This is a plan to raise additional Bell: Have you got anything here to raise income, salaries or anything? Gaston: That is what we are trying to raise, salaries. Bell: Or reduce our installment payments. H.M.Jr: I told you the joke about the President, didn't I? I think it is the best joke I have heard yet. You can't repeat it. He says, "Now, Henry, when you get down to line 31 on the income tax, it says - say your net income is about $5000. Then what I want you to do is _" I can't remember whether I did - but he says, "In line 32, we just add two per cent to t he tax." So I said, "Mr. President, have you made out your income tax yet?" He said, "No." And I said, "Well, when you get to line 32, you will find it is 10 per cent." He said, "Well, I haven't got down that far yet." Don't you love it? He had discovered something new. Sullivan: Baruch may want to do that same thing over again, and that doesn't solve any problems at all. H.M.Jr: Sullivan: That is what he wants. He wants line 32, you see -- Baruch has been giving Harrison a awful lot of stuff, and Harrison called me yesterday afternoon and wanted to know if I wanted to see him 407 - 10 - on anything right away because he was leaving Wednesday for four or five weeks in Arkansas, and he sounded as though he was not at all well. H.M.Jr: Well, here is the thing that amused me. Bell and Jesse Jones and I had lunch together today, and I said, "How about the Baruch plan?" Jones said he spent the last two weeks here, not lobbying, just visiting. I said, "Have you heard about the Baruch plan?" He said, "Sure, it is all right for Bernie, he has only got tax-exempts. He likes to write the ticket. He has only got tax-exempts." I don't see anything in here on apples. Sullivan: No, we are saving that until after the war. H.M.Jr: You fellows are certainly full of pep and vinegar, aren't you? (The Secretary held a telephone conversation with Mr. Harold Smith.) 408 - 11 - H.M.Jr: What you heard, gentlemen, is in the room, if you please. I was putting on a show for the benefit of Smith and not for you. Sullivan: Purvis was called down to the Embassy last night about 11:00 o'clock. H.M.Jr:- Was he? Sullivan: We were having dinner at Forrestal's, and I drove him down, I thought it must be important, or they wouldn t have called at that hour. H.M.Jr: He was sent for? Sullivan: Yes, he was. H.M.Jr: I happen to know what it was. It was as a result of a conversation that I had that they sent for him. He didn't know what it was, I know he didn't. Sullivan: Well, he wouldn't have told me anyway if he did. H.M.Jr: He didn't know what it was, but that is amusing, Sullivan: We had a little game of poker in which he won most of the money and Knudsen says, "This is isn't it? Lease-Lend poker. H.M.Jr: Is Purvis a good poker player? Sullivan: He said he hadn't played. I hadn't played for fifteen years, and I was the only one who won any money, so I couldn't say. H.M.Jr: You and Knudsen and Forrestal, and who else? Sullivan: And Ralph Budd and Admiral Towers. Ingersoll was there and Blandy, the Speaker, and Vinson, 409 - 12 - the Chairman of Naval Affairs. Dean Acheson was there. H.M.Jr: Was it fun? Sullivan: It was all right. H.M.Jr: Well now, look, I don't see why I should waste your time. This is all very clear, and I am going to take this home tonight and study it. Tomorrow is Wednesday, isn't it? Sullivan: That is right. H.M.Jr: And -- Sullivan: The last ones, 5A and 5B are just alternative choices. H.M.Jr: I will take this home and study it. Sullivan: We have felt that this Excess Profits Tax is pretty unsatisfactory, and we are not hopeful of working out a fair and equitable tax at all. I think we can get the Undistributed Profits Tax back up there on a tray, and I think we can get as much money as we are going to get out of Excess Profits and not nearly half the expense or half the grief, or half the casualties to concerns we shouldn't want to penalize. H.M.Jr: I am going to continue this discussion at 10:15 tomorrow morning. Sullivan: Yes, sir. H.M.Jr: You gentlemen are all invited. I would like to study this. Bell: You probably won't be able to sleep. 410 - 13 - Tarleau: That is what I did. I didn't sleep. Now I feel a little better. When you assimilate it, you feel a little better. I feel much more cheerful today than at the first look at it. Sullivan: It only hurts for a little while. You will notice that there aren't any sales taxes. H.M.Jr: We gave - we had lunch with Jones. I said, "Well, Bell and I figured that before this show was through, we would have to spend 50 billion dollars for armament." Jones jumped back. That is what we figured. Gaston: I should say that the British will need pretty desperately around 12 billions, at a rate of a billion a month, as fast as we can get to it. 411 Subtotal Individual State te Plan (State) 1 504.0 2,630 2 992.3 2,380 3 2,240.7 2,600 s 2,700.0 3,600 5 2,020.0 4,000 s 103.0 7 322.0 (2,630 (2,150 (2,600 (3,600 (4,000 412 Flas to Faise an additional $1,650 million of revenue V I Emiliate increase Source 1 $ 504.0 individual income terms Increase ourbax rates by adopting attached rate schedule (1/7/41) 103.0 lotate and an terms (1) Increase the estate tax rates by adopting the attached rate schedule; and (2) increase the gift tax Tates to three-quarters the rates in the attached schedule (1/22/41) 575.0 Corroration tease (1) Ixcess profite taxi Increase rates and revise base (2) Normal taxi Increase rate on all corporations 15 (Not an official estimate) 500.0 75.0 132.5 soft crinks Impose a tax on bottled seft drinks at the rate of 1 cent per bettle with equivalent taxes on unbottled drinks and fountain ayrupe (1/31/41) 56.0 Check tax Reenact the 2-cant check tax which was imposed by the Revenue Act of 1932 (1/22/41) 55.0 Admissions tax Reduce the exception under the admissions tax from 20 cente to 9 cents (1/22/41) 40.0 Automobiles Impose an additional 2 percent tax on the items covered in Sec. 3403(b) of the I. N. C. (1/2/41) 192.2 Liever Dietilled spirites Additional 81 per gallen Permanted salt liquores Additional 81 per barrel time, certifies and liquoures Increase of 16 2/3% Floor stock taxes (first year only) Distilled spirits, 81 per gallon Permanent malt liquors, $1 per harrel 135.0 55.0 2.2 (29.0) ( 3.0) (11/29/40) 1,657.7 1/ Octinates for Individual income taxes are on basis of calendar year 1941 levels of Income all other estimates are at business levels estimated for the fiscal year 1942. The date when the estimate me made is given in parenthesis after each course. diff 3/13/40 413 Plan to raise an additional $2,150 million of - 1/ Source Estimated Inspease (In 8 992.3 Individual income texas Increase partax rates by adopting attached rate schedule, without defense tax (2/11/41) 103.0 State and an taxes (1) Increase the estate tax rates by adapting the attached rate schedule; and (2) increase the gift tax Fatos to three-quartere the rates in the attached schedule (1/22/41) 575.0 Corporation taxes (1) Excess profits tax: Increase rates and revise base (2) Normal taxi Increase rate on all corporations 1% (Net an official estimate) 500.0 75.0 132.5 Soft drinks Impose a tax on buttled soft drinks as the rabe of 1 sent per bottle with equivalent taxes on unbottled drinks and fountain gyrups (1/31/41) 56.0 Check tax Beenact the 2-cent check tax which was imposed by the Revenue Act of 1932 (1/22/41) 55.0 Admissions tax Reduce the exemption under the admissions tax from 20 coats to 9 cente (1/22/41) 40.0 Automobiles Impose an additional 2 percent tax on the items covered in section 3403(b) of the I. R. C. (1/2/41) 192.2 Liquor Distilled spirits: Additional 81 per gallon Permented malt liquores Additional $1 per barrel Vines, certifies and liquoures Increase of 16 2/3% Floor stock lanes (first year only) Distilled spirite, 81 per gallen Permanted salt liquore, 81 per barrel 135.0 55.0 2.2 (29.0) ( 3.0) (11/29/40) 2,146.0 1 Estimates for individual income tames are OR basis of calendar estimated year 1941 levels of income all other estimates are of business levels for the fiscal year 1942. The date when the estimate was made is given in parenthesis after each cource. Air 3/12/42 Plan to raise - additional $2,600 million of revenue N Sensee $1,140.7 (author) issues team series Fulle w adopting attached rate schedule, including defense tax (2/11/41) 321.0 Istate and an lease Relate tax changes (1) Delace - from $40,000 to 125,000 (2) adopt the attached estate tea rate schedules (3) reduce inverence exclusion from $40,000 to 625,000 an tax changeast (1) Reduce the exception from $40,000 to $25,000, (2) Increase the an tea Value to threefourth the rates in the proposed estate tax schedule (1/27/42) Certionation team (1) I profite taxt Increase value and novice base (2) Normal taxs Increase rate - all corporations 15 (Net an official estimate) 575.0 500.0 75.0 132.5 ton driver Encount a tax on bettled sen drinks as the rate of 1 east per bottle with equivalent teams on unbettled drinks and fountain syrups (1/31/41) % Check tea. I the 2-am check tax which - imposed by the Revenue Act of 1932 (1/22/41) 95.0 Melasions tax Reduce the esception under the admissions tax from 20 sente to 9 easts (1/22/41) 40.0 Impace all additional 2 parent test - the Items evered in section 3403(b) of the I. R. C. (1/2/41) 192.2 Hour Distilled spiritos Additional 81 per gallon Ameaded salt liquores Additional 81 per terms Vines, certifies and liquouses Increase of 16 2/36 Floor stock lease (first year only) Distilled episite, 61 per galles Termented salt liquore, 01 per barral 135.0 95.0 2.2 (29.0) ( 3.0) (11/29/40 70.0 Televes Manufacture of cigare. tobacco and - Double rates 2,982.4 (Net - official estimate) V Estimates for individual income texts are on basis of calender year 1961 Invoice of was at bastages, - is lovels - of the your a 1942Thealldate other the adidaseare when estimates 3/22/42 - Plan to valoe - additional $3,600 million of - V Source 415 IT I STATE address income team $1,700.0 Lover exceptions to $300 fee elagle potion and 81,000 for a married person and increase mee by adopting attached without defense the (Net -rate official octibate) state and an team Salate tax 321.0 - (1) Reduce specific - from $40,000 to 645,000 (2) adopt the attached estate tax rate schedules (3) reduce insurance exclusion from $40,000 to $85,000 an tax chances (1) Reduce the specific exception from $40,000 to 825,000 (2) increase the an tax sates to three-fourthe the sales is the proposed estate than schedule (1/27/41) convertion tesse (1) Excess profite tax: Ingresse Fubes and revise base (2) Normal taxs Impresse rate on all corporations is (Net - official estimate) 575.0 500.0 75.0 350.0 Meat Matilled spirits: Additional $2 per gallen Presented salt liquors Additional $2 per barrel Vises, certifies, and 33 1/35 increase (Net - official estimate) 200.0 classe Cigarettes Additional 75 cents per 1,000 130. Manufacture of cigare, tobacco and sweff: Souble rates (Net - official octinate) 70. 200.0 utomable texts insluding geoline Items covered in less. 3403(s) and 3403(e) of Codes Double rates Sasoline taxt Increase 1/2 and per gallon (Net an official estimate) in trisks so. 120. 132.5 Impose a tax on bettled seft brinks as the rate of 1 cans per bottle with equivalent teams on missilled drinks and (1/31/21) las 56.0 the 2-our check tax which was imposed by the - Ast of 1932 (1/22/41) les 55.0 the comption under the advisotions test from 20 estate to 9 esta (1/22/41) 3,509.5 for individual income bases are on basis of sales year 14 Invoice of I all at business levels estimated for the fiscal year 1948. other estimates are after each searce. The date thes the estimate - made is given in parenthesis Sife 1/12/42 Plan to miss - additional a Million of revenue V - I ITWO # Source 416 adidas issues terms $2,020.0 Loves - to $300 for single person and 81,000 for a married porson and increase - Indes w slopting abtashed note exhabite, with defense tax (Net - efficial estimate) State and an tests 353.0 Relate tax changes (1) Reduce sposition essention from $40,000 to $25,000 (2) Adopt the attached estate tax rate schedule, with defense tax (3) Decease incurrence emainsten from $40,000 to $25,000 an tax changes (1) Reduce the specific from $40,000 to 825,000 (2) Increase the an tax retors to three-fourthe the water in the program solate tax schedule, with defense Bast (Net an official estimate) organities temps 635.0 (1) inconclusive pressue test Increase rates and service have (2) Normal tast Increase rate es all corporations 1% (3) Capital stock Bass Increase rate to $1.50, including defense tax 500.0 75.0 60.0 (Not an official estimate) 350.0 Heart Digilled spiritos Motional $2 per gillen lomated mail liquores Additional 82 per barral Times, certifies, and liquouses 33 1/36 increase (Net an official estimate) 200.0 Schools cigarettes Additional 75 conte per 1,000 of dears, tobness and - Double rates (Not as official estimate) steabile leases, including modified Items envered is Seen. y403(b) and 3403(e) of Codes Double takes Geooline taxt Increase 1/2 can't per gallen (Net - official estimate) trials 130 TO 200.0 so 120 132.5 Expose a tax - bettled sen driaks all the sate of 1 and per bottle with equivalent taxes on unbottled drinks and fountain syrups (1/31/42) 1 the S-out check tax which - tapased w the (1/22/41) - AND of 1932 fax - the examplion valor the abdiestone tax from so omb to 9 conte (1/22/41) 56.0 95.0 3,991.5 Intimates for individual income bases are on has of entered year 12 levels of Income all other estimates are all Impleses levels estimated for the fiscal year 1942. The date when the estimate - make to given is parenthesis after each suaree. 3/22/02 Plan to raise - additional 04 billion of - N 417 IT - Searce Minimum I terms $2,000.0 Love assessions to $300 for stagia person and 83,000 for a married person and increase estimate tubes to despite abtashed rube schedule, with defence Bast (Net - official estimate) 353.0 Relate and an terms date has (1) Reduce specific - from $40,000 to 825,000 (2) Adopt the attached estate tax rate schedule, with defense tea (3) Reduce insurance exclusion from $40,000 to $25,000 our tax cheams (1) Todacc the specific comption from $40,000 to 825,000 (2) Increase the an tax rates to these-fourth the Vales is the proposed estate - schedule. with defense tax (Net - official estimate) 805.0 Corporation tests (1) Capital atock test Increase rate to $1.50, including defense tax (2) Normal taxs Increase mate u (3) Undistributed profite team Beenact the 1936 Law (Net - official estimate) 60.0 360.0 225.0 2/ 350.0 Hear Million spiritus Additional $2 per gillan Permented salt liquores Additional $2 per barrel Vince, cardials, and license 33 1/36 increase (Net as official estimate) cigarettes Additional 75 seate past 1,000 Instructure of clears, telesso and self: Double rates (Net as official estimate) Interable I instating meeling Items covered la Sees. (b) and (e) of Code: Double rates Georline taxt Increase 1/2 am yes gallan left Oriska 200.0 130 70 200.0 so 120 (Net as official octinate) Impass a tax on bettled seft drive as the rate of 1 cont per bottle with equivalent tense on unlettins trisks and fontain syrups (2/32/41) Spiritus 132.5 56.0 Lower the check tax which me imposed by the (1/22/41) - Ast of 1932 fax I the - under the admissions tax from 20 conts to , esta (1/22/41) - 55.0 3,991.5 institutes for Individual income texts are - beese of calendar for year the 1942 fiscal Smoke year of lipeney all are as each i/ 1942. the date other when octinates the estimate was was is given is after - is The indirect effect of the undistributed profite tax to taken into the estimates fee the Individual Income team. 3/12/41 418 1 Individual rate schedule 8504 million. with defense tax (Setimated calendar 1942 income levels) 4 6 6 8 360 s 10 560 10 12 800 & 12 14 14 16 16 16 20 20 22 24 22 26 27 26 32 30 38 33 4 36 50 40 9-8 60 44 TO 47 so 50 90 53 100 56 100 - 150 150 - 200 200 - 250 250 - 300 300 . 400 400 - 500 500 - 750 58 750 - 1,000 72 1,000 - 2,000 2,000 - 5.000 Over 5,000 3/12/41 80 2 22 90 camulative 4 18 32 38 44 50 60 70 80 - 751bfa . 0246810 12 14 16 18 20 - (Percent) 1 $ Total surfax & of dollars) Bracket rate : (in thousands 1 Surtax not income : 60 62 64 " 33534 68 TO 73 74 200 1,080 1,400 1,760 2,160 2,600 3,080 4,160 5,960 7.940 10,100 12,500 16,900 21.600 26,600 31.900 37.500 66,500 96.500 127,500 159.500 225.500 293,500 468,500 648.500 1,378,500 3,998,500 - 75 419 1 Comparison of surbax rate schedules under present law and proposal $ incoue (1000) I 1 Present - 1 Property 2 Total custos signing $ 0 Bracket rate 1 Sertax not 1 Present Low - 4 - - 6 - 8 $ 246 8 10 . 12 14 16 18 20 22 26 32 38 44 50 60 70 so - 4 8 80 6 10 200 10 8 12 360 800 12 10 14 it 560 1.080 1,400 1,760 2,160 2,600 3.080 4,160 5.960 7.940 10.100 12,500 16,900 21.600 26,600 31,900 37.500 66,500 96.500 127,500 159.500 225.500 293.500 468,500 6 8 12 16 800 16 15 18 18 18 20 20 21 22 22 1,100 1,460 1,880 2,360 3,440 5,240 7.220 24 24 26 27 27 32 30 30 36 33 33 $4 36 36 90 40 40 60 44 44 TO 47 47 30 50 50 90 90 - 100 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 750 - 1,000 1.000 - 2,000 2,000 - 5,000 over 5.000 T2ibfa 3/12/41 4 80 200 53 53 56 56 58 58 60 60 62 62 "a FREE 68 66 68 TO TO 72 72 73 ID 74 the 75 75 9.380 11.780 16,180 20,880 25,880 31,180 36.780 65.780 95.780 126,780 158,780 224,780 292.760 467.780 647.780 1.377.760 3.597.780 - 360 % 98.500 1,378,500 3,598,500 420 1 Comparison of present and proposed individual income taxes on not inconce of selected sises 1/ Married person - no dependents Preposal : : $ : $ 31 33 75 Effective Fates Present I law .4% 1.0 1.8 TO 158 110 264 2.2 150 370 2.5 317 625 528 924 4.0 5.3 858 1,255 2.336 3,843 14,128 27.768 43,476 330,156 717,584 1,364 1,874 3,106 4,635 14,920 28.560 44,268 330,804 718.232 3,916,545 3,917,196 6.9 8.4 11.7 15.4 28.3 37.0 43.5 66.0 71.8 78.3 I I $ 5,000,000 11 1 1,000,000 : 25,000 50,000 75,000 100,000 500,000 : 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 law 1 before personal exemption 2/ Amount of tax V Precent Proposal 1.3% I Net income increase in las Amount Percent $ 22 2.5 44 4.0 88 5.3 6.2 154 220 200.00 141.9 125.7 140.0 146.7 97.2 75.0 7.8 308 9.2 10.9 12.5 15.5 13.5 29.8 38.1 396 506 792 2.9 44.3 792 648 1.8 66.2 71.8 75.3 616 770 792 792 99.0 49.0 33.0 20.6 5.6 648 648 Under the preposal the attached surfax rate schedule is substituted for present schedule. Maximum earned income assumed. Includes 105 defense tax. Less than .05 percent. 1/12/41 .2 .1 421 a Individual surtax rate schedule 6 992.3 million, without defense tax $1,078.9 million, with defense tax (Estimated calendar 1941 income levels) 6 240 6 400 8 18 640 15 940 20 1,540 1,040 2,440 8,140 5,940 4,040 6,540 9,090 21,090 51,590 82,590 114,000 146,000 179,090 247,000 317,080 677,090 25 16 so 18 85 20 40 22 45 25 so so 55 50 50 - 100 100 - 150 150 - 200 200 - 250 250 - 300 500 - 400 400 - 500 500 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 8/11/41 camulative 8 10 - 12 12 - 14 TZ-ar Total surtax 6 8 - 10 14 16 18 20 22 25 30 - I 4 46- (percent) , 0- 8 $ of dollars) Brachet rate $ Surtax not income 8 (in thousands 60 01 62 68 64 66 66 TO 72 74 1,407,090 3,627,090 75 - 78 422 8 Comparison of surtex sebedules under present law and proposed Schedule B Surtax surtax casulative :Bracket Presentrates (Person) : Total Present . ($000) 1 024- 8 2 - 4 - 6 6a 10 16 16 18 20 22 18 22 - 80 - 180 - 6 12 800 8 15 360 040 10 20 580 12 as 800 15 80 18 85 1,100 1,460 1,880 2,560 8,170 5,440 4,840 5,240 7,220 9,580 11,780 16,180 20,880 25,880 81,180 86,780 65,780 95,780 186,780 186,780 884,780 892,780 467,780 667,780 1,540 1,840 2,440 5,140 8,940 4,840 6,340 6,890 9,090 10,290 15,890 17,480 21,000 27,190 $5,890 88,390 45,480 51,590 82,590 114,080 146,000 179,090 247,090 817,080 497,080 677,080 1,577,780 8,507,780 1,407,080 5,887,000 - - a 21 40 24 45 27 so 27 55 26 - so 80 55 so SR so 60 82 38 44 50 - 38 as 60 44 se 60 50 40 80 60 44 61 70 80 80 90 67 61 so 61 88 61 56 61 58 62 60 68 or 64 64 66 66 68 66 TO TO 78 72 T2 73 73 6G TO 90 100 100 - 150 150 - 200 200 - 250 250 - 800 500 - 400 400 - 500 500 - 750 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 TZ-ar 8/11/41 Properal 6 25 - 26 25 law 6 as 10 12 Proposal 840 400 640 8 18 - 14 14 - Lass : not incone 14 74 75 75 so 2 Comparison of present and proposed individual incoue taxes on not incoues of selected aises V Married person - no dependents : : : : 11 : tax $ 40 Present:Withouts with with defense tax 44 31 88 97 70 184 280 202 150 376 317 606 920 414 669 110 308 1,256 2,336 5,843 14,128 27,766 45,476 550,156 717,564 1,410 2,054 3,804 6,204 21,754 37,984 54,234 355,564 715,514 1,012 1,551 2,250 4,104 6,824 23,929 41,686 58,811 351,899 745,963 5,916,548 3,825,474 3,942,927 528 858 Procesal . Percent Proposal : last defens defense :Without de-swith de- #Without deeWith dotax : : 1,000,000 5,000,000 : defense $ 2,500 5,000 4,000 5,000 6,000 8,000 10,000 12,500 16,000 10,000 25,000 50,000 75,000 100,000 500,000 : Without Law Amount 1 : $ Present : examption : & Proposal increase in tax . : Proposal $ before personal Effective rates Amount of tax Net income : .4% 1.0 1.8 2.2 2.5 4.0 5.8 6.9 8.4 11.7 15.4 28.8 37.0 43.5 66.0 71.8 78.3 1.65 2.9 4.6 5.6 6.3 7.6 9.2 11.5 18.7 19.0 24.8 48.5 50.6 54.2 67.1 71.6 76.5 tax ifense tax ifense taxifones text a 1.85 & 29 3.2 5.1 6.2 6.9 57 66 114 132 170 226 198 8.4 291 10.1 12.4 15.1 20.9 27.3 47.9 55.6 58.8 70.4 76.4 78.9 392 552 484 552 695 796 1,468 2,561 7,626 10,216 10,758 5,596 2,070 -91,074 $ 33 264 1,001 1,848 2,981 9,801 18,918 15,335 21,843 26,379 26,579 265.68 185.9 162.9 154.5 150.7 91.8 74.2 64.3 63.3 62.8 61.4 54.0 36.8 24.7 1.6 -$ 2.3 500.0% 212.9 108.6 180.0 176.0 111.0 91.7 80.8 79.6 79.1 77.6 69.4 50.1 36.3 6.6 8.7 1/ Under the proposal, the attached surtax rate schedule b is substituted for the present schedule. 2/ Maximum earned income assumed. LS-or 3/12/41 .7 424 , Intividual surtax rate schedule 11,033.1 million without defense tax $1,240.7 million with defense tea calenter 1948 income levels) Burbon not income 8 (in thousands of Millera) Special Date 8 (persons) Total mater consistive 8 $ 20 6 12 6 8 14 8 10 10 12 24 16 080 1,800 1,560 1,060 2,460 5.780 100 300 400 500 - 1,000 - Trided 3/12/41 425 3 Surgeries of survey education water present law and prepared Schedule 0 Barbar not iscome (in thousands of collers) Present law 0-9 $ 8 4 4 6 Parposal 6 s Procent law - 10 h ' 22 80 24 200 16 8 10 s 10 12 10 12 14 12 800 16 15 16 18 1,100 1,460 1,000 2,360 3.170 3,440 4,640 5.240 7.220 9,380 11,780 16,180 20,880 14 16 - is - so 20 22 22 12 IS 20 30 32 38 a 50 60 60 TO TO so 90 100 150 200 250 300 400 500 - Faided 3/12/41 too 360 560 11 14 27.36 so 90 100 150 sto 200 300 110,160 142,160 175.160 600 500 MBB 790 - 1,000 1,000 - 2,000 2,000 - 5,000 Over Proposal 5.000 3,693,160 Comparison of present and proposed individual income taxes on not inconce of selected since 1/ Married pareon - so dependents a defines law tax with defense tax , 2,900 3,000 6,000 5.000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 560,000 1,000,000 5.000,000 $ Increase is so $ 108 32 an TO 110 150 360 2X SOE 327 1,160 1,660 2.33 3.00 14,128 27.76 330,186 717.50 3,916,586 law 8 8 22 $ 1.5% Present 2.29 3.644 5.504 18,124 34.054 50,304 331,624 711.589 3,821,584 35 119 200 - 566 1.27 1,826 2,457 4,008 6,054 19.936 37.00 740,426 3,939,390 . 1.0 1.8 2.2 2.5 4.0 5-3 6.9 8.4 11.7 15.4 28.3 37.0 43.5 66.0 71.8 78.3 with dishons 8 with 'defence defense tax 2.0% 3.6 5.6 7.2 8.3 10.1 11.6 13.3 14.9 18.2 22.0 36.2 55.4 50.3 66.3 71.2 76.4 tax 8 tax 2.25 4.0 6.2 74.0 78.8 tax - 154 250 200 $ 3/12/42 200.0 227.3 230.7 154.9 119.7 93-5 77.6 56.0 43.2 28.3 22.6 15.7 396 572 632 802 The 976 - 1,308 1,661 3.996 6,286 6,826 1,468 6,000 95,004 968 1,199 1,672 2,211 5.808 9.691 11,796 18,306 22,842 22,842 Under the properal the attached cartes Schedule 0 is substituted for the present schedule. Maximum carrel income assured. state 176 401 tax mm $ 77 $ 7.9 9.1 11.1 12.5 14.6 16.4 20.0 24.2 39.9 49.9 53.3 69.7 8 Without 8 with defense Idefence 8 defense séefance 8 Without Present complian $ rates , 8 I Net income before personal A .4 - .8 2.4 . tax 400.00 253.9 251.4 200.0 m.o 190.4 141.7 112.5 95-3 72.6 57.5 41.1 34.9 27.1 5.5 3.2 1.6 427 Individual surtax rate schedule 1/ $1,150.7 million, without defense tax $1,261.3 million, with defense tax (Estimated calender 1941 income levels) 2 10 b 12 2 4 6 8 10 (Percent) I 0- $ Bracket rate 6 14 8 16 10 18 12 20 12 14 22 14 16 24 16 18 26 18 20 28 20 22 30 22 26 33 26 32 36 32 - 38 35 44 Rx 4 50 45 50 60 by 60 70 52 70 80 55 80 90 58 90 100 100 150 150 200 200 250 250 300 300 400 400 500 500 1,000 1,000 - 2,000 2,000 - 5,000 Over - 5,000 Total surtax cumulative I of dollars) : (in thousands : Surtex not iscome : 61 62 63 64 " 68 70 72 T3 R 200 # 440 720 1,040 1,400 1,800 2,240 2.720 3,240 3,800 4,400 5.720 7.850 10,220 12,740 15,440 20,340 25,540 31,040 36,840 42,940 73.940 105,440 137,440 170,440 238,440 306,440 668,440 1,398,440 3,615,440 - 75 1/ Combined with reduced exemptions of 8500 for a single person and $1,000 for a sarried person, 11 is unefficially estimated that this schedule, without the defense tax. would yield approximately $1,700 million. Treed 3/12/41 428 4 Comparison of present and proposed individual income taxes on not incourse of selected eises 1/ Married person - no dependents I : law TO $ $ 145 - 11 220 31 295 70 466 110 638 150 832 317 1,241 1,694 2,321 3,018 4,646 6,560 18,583 33,708 50,857 344,880 736,862 528 858 1,258 2,336 3,843 14,128 27.768 43,476 330,156 717,584 3,916,548 - - .4% 1.0 1.8 2.2 2.5 4.0 5.3 6.9 8.4 11.7 15.4 25.3 37.0 43.5 66.0 71.8 78.3 Increase in tax under proposal Amount Percent Proposal 4.75 - $ 1,000,000 5,000,000 Proposal rates I Present: I : 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 Effective I 1 26500 : law : I Present exemption 2/ 1,500 2,000 tax 3/ 1 Amount of I Net income before personal $ 70 7.3 145 8.8 209 9.6 11.7 12.8 13.9 15.5 16.9 18.6 20.1 23.2 26.2 37.2 44.9 50.9 69.0 73.7 78.7 204 396 528 682 924 1,166 1,463 1,760 2,310 2,717 4,455 5.940 7.381 14.72b 19.278 19,296 1,900.0% 851.6 565.7 480.0 454.7 291.5 220.8 170.5 139.9 98.9 70.7 31.5 2.4 17.0 4.5 2.7 1 Under the proposal personal exemptions are reduced from $600 to $500 .5 for a single person and from $2,000 to $1,000 for A married person, and the attached surtax rate schedule A is substituted for present 2 schedule. Maximum earned income assumed. Includes 10 persent defense tax. TZ1eb 3/12/41 429 Comparison of surtas schedulee under present law and proposes Schedule A law I : 10% : I 2 Present Proposal : Proposal : : 0- : ($000) law Total suries realative : not income Bracket rates (Percent) Present : Sartax $ $ 12 - 4 200 440 - 2 6 44 14 80 16 200 18 360 4 6 8 720 b 10 8 8 10 12 12 10 20 560 14 12 22 800 14 16 16 18 18 20 20 22 22 25 25 26 26 30 30 32 32 35 18 44 44 50 50 60 15 * 18 26 21 26 24 30 27 33 27 33 30 36 30 36 33 39 36 42 40 45 44 by 60 TO 47 52 70 80 50 55 80 90 90 100 100 150 150 200 20 250 250 300 300 400 400 500 500 750 750 1,000 1,000 2,000 2,000 5,000 Over 5,000 71:eb 3/12/41 53 58 56 & 58 68 60 6 62 64 & " " 66 68 70 TO 72 72 72 73 To 73 T 1,100 1,460 1,880 2.360 3,170 3,440 4,640 5,240 7.220 9.380 11.750 16,180 20,680 25,880 31,180 16,780 65.780 95.780 126.780 196.780 224,780 292,780 467.750 647.780 1,377,750 3.997.780 - 75 75 1,040 1,400 1,800 2,240 2,720 3,240 3,800 4,400 5.390 5.720 7,160 7,880 10,220 12,740 15,440 20,340 25.500 31,040 16,840 42,940 73,940 105,440 137,440 170,440 232,440 306,440 485,440 666,440 1, 398,440 3,615,440 - Comparison of present and proposed individual income taxes on not inconce of selected sisee V Married persons - no dependents : before personal $ 1,500 2,000 2.500 3.000 4,000 5,000 6,000 5,000 10,000 12,500 15,000 20,000 25,000 80,000 75.000 100,000 500,000 1,000,000 5,000,000 Account of tax 1 - al Net income Present law Proposal 3 Increase or decrease in tax Effective rates under proposal Present law' Proposal Amount I $ - a $ 11 132 200 31 268 TO high - 110 580 756 150 1,128 1,540 2,110 317 528 858 2.7 1,256 2.336 4.224 5.964 16,894 30,644 46.234 3,83 14,128 27.768 43,476 330,196 327.04 727.50 707,624 3,916,546 3,617,664 - .45 1.0 1.5 2.2 2.5 4.0 5.3 6.9 8.4 11.7 15.4 28.3 37.0 43.5 66.0 71.8 76.3 4.35 6.6 8.0 8.9 10.6 11.6 12.6 14.1 15.4 16.9 18.3 21.1 23.9 33.8 40.9 46.2 65.5 70.5 76.4 $ Percent a 132 189 1,718.25 237 1,012 1,252 1,486 1,888 2,121 2.766 2,876 2,758 764.5 505.7 427.3 404.0 253.8 191.7 145.9 118.1 80.8 55.2 19.6 10.4 6.3 -2.512 -9.660 us 35th 470 606 811 -96.94 ..8 -2.5 y Water the proposal personal exemptions are reduced free $800 to $500 for a single porses and fres $2,000 to $1,000 fee a married person, and the attached vertex rate schedule "A" is substituted for present schedule. N Maximum earned iscome assumed. y without 10 percent defense tax. TE: ab 3/12/41 431 a Individual surtax rate schedule cumulative 220 I 2 11 4 14 500 6 16 820 6 19 10 21 12 22 12 14 25 14 16 27 16 18 29 16 - 20 31 20 22 33 22 26 36 26 32 39 82 58 42 38 44 - 44 45 50 48 50 60 51 60 70 54 70 80 57 80 90 59 90 100 100 160 150 Total suztax , 10 : 468- (percent) 1 02 I of dollars) Bracket rate : Surtax net income (in thousands 200 200 - 250 250 - 300 500 - 400 400 - 500 500 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 $ 61 62 63 64 66 68 70 72 75 74 75 Treasury Department, Divisionor Tax Research 1,200 1,820 2,080 2,580 3,120 5,700 4,320 4,980 6,420 8,760 11,280 13,980 16,860 21,960 27,360 38,080 $8,960 45,060 76,060 107,560 159,500 172,560 240,560 $10,560 670,580 1,400,560 8,080,560 - March 11, 1941 432 9 Comparison of surtax rate schedules under present law and proposal 1 Present law 1 - 6 - 14 4 16 6 5 E10 12 14 16 18 20 22 26 32 - 10 8 560 14 12 25 16 15 27 18 18 29 20 21 31 22 24 26 27 33 36 30 39 38 33 42 3E - is 36 45 his - 50 40 48 60 44 51 70 47 54 50 57 53 59 56 61 58 62 60 63 62 64 64 66 66 68 68 TO TO 72 72 72 73 73 74 74 75 75 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 750 - 1,000 1.000 - 2,000 2,000 - 5,000 Over - 5,000 3/12/41 500 820 80 360 23 & 90 90 100 8 - 21 10 220 - 200 12 so casulative 1 Present law Preposal 19 32 50 60 70 - Total vertax $ 242 - Promotol 11 2 4 6- (perment) 1 I I 0- I incone (1000) Bracket rate I Bartax not 800 1.100 1,460 1,850 2.360 3.440 5,240 7.220 9,380 11,780 16,180 20,880 25,880 31,180 36,780 65,780 95.780 126,780 158,780 224,780 292,780 457.780 647,780 1.377.780 3,597,780 - 1,200 1,620 2,080 2.580 3,120 3,700 4,320 4,980 6,420 8.760 11,280 13,980 16,860 21,960 27,360 33,060 38.960 45.060 76,060 107.560 139.560 172.560 240.560 310.560 490.560 670,560 1,400,560 3.620.560 - $ 433 5 Comparison of present and proposed individual income taxes on net incomes of selected sises y Married person - no dependents Increase in tax Effective rates under premenal : . $ & 100,000 500,000 1,000,000 5,000,000 I 50,000 75,000 : 1,500 2,000 2,500 8,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 Proposal $ - $ 76 - 156 - 11 237 $1 317 70 510 110 150 704 317 1,258 2,356 3,845 14,126 27,768 43,476 330,156 717,584 1,384 1,905 2,615 5,392 5,185 7,864 20,112 35,796 58,100 866,788 758,770 3,916,548 3,957,758 588 850 980 AS 1.0 1.8 2.2 2.5 4.0 5.5 6.9 8.4 11.7 16.4 20.5 87.0 45.5 66.0 71.8 76.3 5.15 7.8 9.5 10.6 12.8 14.1 15.3 17.3 10.0 80.9 22.6 25.9 29.1 40.2 47.7 55.2 69.4 78.9 78.8 Percent Amount : lass 2/1 iPresent: Proposal law 1 : Present : personal execution Amount of tax V : Net income before 8 76 - 156 - 226 286 440 594 770 1,067 1,875 1,755 2,184 2,849 3,421 5,984 6,080 9,713 16,652 21,186 21,204 2054.56 922.8 688.8 $40.0 518.5 856.6 260.4 206.5 100.0 182.0 80.0 42.4 28.0 22.5 5.0 5.0 of Treasury Department, Division of Tax Nessarch V Under the proposal personal exemptions are reduced from $800 to 8600 for a single person and from 82,000 to 61,000 for a married person, and the attached surtax rate schedule is substituted for present schedule. & Maximum earned income assumed. V Includes 10 percent defense tax. JC-ar 8/12/41 434 Setate and esfs fax Rate Schedule $103 million combined effect, without defense tax, assuming gift tea Fates are equal to three-quarters of estate tax rates (estinated fiscal 1948 business levels) (parent) S a 10 . 60 100 - 100 280 26 280 860 - 800 100 27 20 9 so 13 40 13 so 10 8 180 - 1,000 1,000 - 1,200 1,250 - 1,500 1,800 - 2,000 2,000 - 2,800 2,800 - 3,000 8,000 - 8,800 8,800 - 4,000 4,000 - 8,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over 80,000 a 28 = a 88 as as 41 44 or so 83 86 62 - as . or TO -- Comulative tax on higher 1 10 20 so 40 - so - 3/12/41 1 05- $ $ (in thomasade) : specific exemption Breaket rate : Net estate after $ 190 1,580 2,860 4,080 5,880 7,960 17,280 56,660 182,180 196,600 272,300 386,660 442,180 652,150 837,180 1,007,180 1,292,150 1,842,180 2,072,189 2,682,180 8,292,180 8,862,180 4,462,180 5,113,180 11,812,160 $2,812,180 - 435 6 Proposed estate tax rates under Schedule I compared with process estate Bax rates Pressure rates 1/ Net estate after Transport rates 1 Schedule Is specific exemptions Bracket rate star 1 Cumulative : Breaket rate 1 Committive on highers tax on higher (percent) (percent) (in the of dollars) , 1 5 1 0. 1- B $ 10 6 20 9 30 13 10 20 so 40 - 40 15 so 18 80 60 n 60 100 as 100 - 200 280 - 300 000 - 180 700 1,000 1,000 1,200 1,280 - 1,800 1,800 2,000 3,000 2,800 2,800 - 3,000 3,000 - 3,800 3,800 - 4,000 4,000 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 - 30,000 20,000 - 80,000 over 80,000 as 27 20 31 as 30 se 41 44 47 so 88 se w 61 68 06 or 89 180 $ 480 1,280 2,550 4,000 5,850 7,980 17,180 84,000 182,180 194,680 372,180 354,850 442,180 632,150 867,180 1,007,180 1,392,180 1,542,180 2,072,180 2,632,180 8,222,180 3,832,189 4,462,180 5,112,180 11,812,180 82,812,180 TO V Insinsive of temparary defense has. VOHI Jav 3/12/41 - a 100 200 $ 2 660 4 6 0 10 13 18 14 17 20 20 - 23 as - as 26 a as 82 30 38 42 44 47 so as 86 se 62 68 6 or 8 TO 1,200 2,000 3,000 4,300 9,600 38,600 99,600 181,600 223,600 302,000 382,600 667,600 747,800 952,800 1,172,800 1,407,200 1,922,800 2,482,000 8,072,600 3,662,600 4,312,600 4,962,600 11,662,000 32,362,800 - 436 6 Comparison of proposed estate tax unier Schedule I with present estate tex ea not estates (before exception) of selected since 1 Present I law : Proposal : 2/ Inscruse in tax 1 exemption : (000) Schedule It : before Affective rate Amount of tax Net estates Present lear Preposal Schedule Is Amount Percent 275 125.06 125.0 108.8 1 so 200 $ $ 660 8 60 80 100 200 400 000 1,000 2,000 4,000 6,000 10,000 30,000 40,000 60,000 100,000 2,300 4,620 21,780 64,460 113,740 233,100 597,980 1,537,680 2,706,220 5,430,280 18,799,380 27,978,800 43,288,080 74,068,080 400 1,400 4,485 6,763 38,365 92,785 153,805 285,735 678,648 1,074,385 2,870,720 5,894,765 12,063,885 26,143,000 48,432,865 74,232,885 0.46 1.2 2.8 4.6 10.9 10.1 19.0 28.8 20.9 30.8 45.1 54.8 64.0 69.9 72.1 14.1 1.00 3.5 5.6 8.7 17.7 23.8 26.6 28.6 33.0 41.9 47.9 56.9 64.0 70.3 72.4 74.3 8 825 2,286 4,135 13,505 28,325 39,765 83,625 80,685 146,685 104,506 184,805 164,508 164,505 164,505 154,505 69.8 68.4 43.9 25.0 28.1 13.5 9.6 6.1 8.0 1.3 Treasury Department, Division of Tax Research 1/ Under the proposal the attached rate schedule is substituted for the present schedule. 2/ the specific exemption of $40,000 allowed water present law 10 retained under the properel. N/ Includes 10 percent defense tex. YON: Jaw 3/12/41 .6 A .2 437 7 Relate - an tax rate schedule $321 million combined effect without defense team $268 million from estate tax and #33 million from an tax accusing are tax rates are equal to three quarters of estate tax rates, the specific exemption water both tames 1a reduced from $40,000 to $25,000 and that the insurance exclusion under the estate tax is reduced from $40,000 to 825,000 (Retiented fiscal 19he business levels) access : 1 5 4 10 8 20 12 30 16 40 20 60 23 so 26 100 29 150 200 38 250 39 x 300 in 500 be 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over - 50,000 3/12/41 tes on higher 1 500 , 1,000 1,000 - 2,000 2,000 - 3,000 3.000 - 4,000 4,000 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 6,000 8,000 - 9.000 TESTED (Percent) Comulative : 20 30 40 60 80 100 190 200 250 300 - : 0510 - : of dollars) $ I (in thousands Dracket sate t Net estate after specific comption 47 49 52 53 55 57 59 61 63 65 67 69 200 8 600 1,800 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73,500 94,000 182,000 417,000 907,000 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 5,547,000 12,347,000 52,947,000 - TO 438 7 Proposed estate tea make under Schedule II composed with present estats tax rates Present rates X Net estate after Cheese miss 1 Behadula u 10 8 20 18 20 30 16 30 to 20 40 60 23 60 80 N 80 100 29 150 38 10 100 150 200 200 250 250 300 300 500 500 1,000 1,000 2,000 2,000 - 3,000 3,000 4,000 4,000 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 5,000 8,000 - 9,000 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over 50,000 200 8 600 1,800 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73.500 94,000 182,000 427,000 907,000 35 38 41 44 47 by 52 53 " 57 " 61 63 6 67 69 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 5,547,000 12,247,000 32,947,000 TO 1/ Reside of temperary defence tax. valited 3/12/41 - Deneket rate Comulative I the on higher ament 1 1 5- 4 5 amount I 0- tax on higher : specific exemptions Bracket note (in thousands (pereme) of dollars) Comulative 2 P & 6 8 10 12 12 14 14 17 27 20 20 20 - 23 23 29 x 35 38 41 44 by 50 53 % " Ris 63 65 67 69 TO # 100 200 600 1,200 2,000 4,200 6,800 9,600 18,100 26,600 36,600 46,600 89,600 222,600 557.600 952,600 1,407,600 1,922,600 2,482,600 3,072,600 3,682,600 4,312,600 4,962,600 11,662,600 32,362,600 $ 439 7 Comparism of proposed estate tax under Schedule II with present estate tag on net (before of selected sinceestates 1/ : 1 law I 2/ (000) Proposed I Schedule II: Present law : 1 Present Insurance is tax 1 before execution affective rate Amount of tax 3 Net estatel Proposed Amount Schedule II: Percent 1 90 220 660 $ $ 80 200 400 500 1,000 2,000 4,000 6,000 10,000 100,000 660 2,200 4,620 21,780 64,460 113,740 232,100 597.960 1,960 5,940 11,000 44,590 132,440 231,210 436,020 976,140 1,527,680 2,706,220 5,430,260 74,065,060 2,116,380 3,348,620 6,073,100 74,710,900 60 100 $ 0.45 1.3% 4.6 10.9 16.1 19.0 23.2 29.9 38.2 45.1 3.3 7.4 11.0 22.3 33.1 38.5 43.8 43.8 53.0 95.8 54.3 74.1 60.7 74.1 1.1 2.8 $ the 1,380 3.740 6,380 22,770 67,980 117,480 205.980 378,180 590,700 642,400 642,840 642,840 800.0 200.0 170.0 134.1 104.5 105.5 103.3 88.7 63.2 38.7 23.7 11.8 1/ Unier the proposal the attached rate schedule is substituted for the present schedule. 2/ The specific exemption of $40,000 allowed unier present Law is retained under the proposal. 3/ Includes 10 percent defense tax. valited 3/12/41 .9 440 March 11, 1941 3:17 p.m. H.M.Jr: Hello, Harold. Harold Smith: Yeah. H.M.Jr: How are you feeling today? S: Well, I don't know how I feel. I know we ve got a job of putting all this stuff together. I just thought I'd give you a ring - you're probably away shead of me, but I just wanted H.M.Jr: S: H.M.Jr: No, I'm about a couple of blocks behind you today. No one tells me anything. Is that so? I wasn't at the meeting this morning. Were you? S: Yeah. I was late - I was up on the Hill and they gave me a ring to come down to the White House. I didn't know what it was about until I got there and I found about fifteen Senators and Congressmen in. H.M.Jr: S: I wasn't there 80 you're ahead of me. I don't know what Now, here, he talked to you the other day, I understand, about the total amount, and he talked to me, and he talked to these people in terms of $7 billion straight cash appropriation. Now, I didn't know what he was going to say aside from that; he was sort of letting the Congressional people take the lead on it; and they agreed that there oughtn't to be any contract authorization in it and it would be be better if it were a straight out-and-out appropriation. But the President said - been the thing that disturbed me was that he had canvassing the situation around and that of he was going to put it all in and instead taking a couple of bites at the cherry, he was going to take one bite. 441 -2H.M.Jr: S: Yeah. Well, now, what I'm afraid of is here is the British request for about nine billion and they are being carried down by the Army and Navy to fit into the productive situation as best they can but this is really for 42. H.M.Jr: S: Yeah. is And it 1s?it/not the whole bite as I see it. Do you think H.M.Jr: Well, I don't know. I'm out in the cold till - I S: Well, you know more about it than I do. I mean I H.M.Jr: Hello. S: H.M.Jr: really don't know. just saw the nine billion dollar figure I think yesterday for the first time. Hello - And there was another sheet, you know, that went well way beyond that - that I think you gave me. Well, that's - from that which is about a week or ten days old, Harold, I haven't seen a thing and the President hasn't told me a thing and I don't know as much about it as the cop on the corner. S: Well - H.M.Jr: The President said he wanted me at the meeting this morning and then I didn't get any word so I didn't call up or anything. S: I didn't know about the meeting except I saw something in the paper and I was down before the Civil Service Commission in the House and I got a call from the White House to come down and I didn't know what the hell it was either. The story - then they got mixed billion three versus the total of seven - the one three was to thebillion seven or not. They decidedthat was up by on the whether onefinally be reimbursed it to be reimbursed by the seven billion dollar amount which set us scurrying around then to change the whole if set I sent somebody down to see Burns to see we can up. get that appropriation language changed to fit that picture. -3- 442 H.M.Jr: Well, you had better know about it because I hear S: Where did you hear that? H.M.Jr: oh, a little birdie. S: H.M.Jr: S: H.M.Jr: S: H.M.Jr: S: you're going up to testify on the bill. Ah - (laughs). Listen, I hear you are too. Oh no. I don't know anything about it. I don't know why the Director of the Budget should testify on this. Well, he's doing it - it's the President's bill. It's written the way you and he want it. Well - And I - they just dropped me at the first way station. I made all my offers about wanting to cooperate what things are there - but I'm in no position to testify about anything. I don't think I am either because all the information we've got here is in the last 24 hours and very much second hand because this is the first time I've had anything to do with it - with this set up. H.M.Jr: Well, the last time I think was Saturday a week ago, and I sent you what I had. I haven't had anything on it since then. S: No, no. H.M.Jr: I don't know how the seven billion is arrived at or anything. S: Well - the Army and Navy apparently have processed those military sections of the British requests and have said that, "Well, they can only end with Knudsen. Now that's what they brought to us last night and have said, "Well, this is all we can put in to our productive machinery and probably more". H.M.Jr: Yeah. S: And the boss says, "You got to squeeze the whole thing down to seven billion". Well that means paring off of several of these items. What would you think what would you think about, after we get this thing tentatively set up, of talking to Purvis about it? Do you think that would be appropriate? You've got 443 the background on that, maybe I ought to bring the thing over to both of you. H.M.Jr: S: Well, I don't know what Hopkins is doing. Well, I don't contacted me. know either. I mean only once has he H.M.Jr: Well, was he at the meeting this morning? S: No, no. And I just heard this afternoon that they're worrying over in Agriculture about what can be transferred under the one billion three and somebody told me that the - well, Wickard said he understood the President was going to make an announcement tonight of what could be transferred. Well, I've never heard anything about that. I don't know whether - just what their problem is - whether it's a legal problem or what it 18. H.M.Jr: Well, as far as I know, Hopkins is supposed to be contacting Purvis. You see I'm not doing it anymore. I see. S: H.M.Jr: And I've asked to be relieved of that but I'd see him occasionally. Hello. S: Yeah. H.M.Jr: But I know that Hopkins sees him and Hopkins has said that he expects to contact the British Purchasing Mission. And - well, I'm very serious, Harold, as far as I'm concerned I'm in no position to testify about anything because I don't know this stuff and you can't - I'm not going to go up and display my ignorance publicly. S: Well, I can't learn about it in 24 hours either. All I'm trying to do is to get an estimate together here for the boss which he says he wants to sign by tomorrow when he signs the bill and there are at least, apparently, two dozen people involved in the thing. H.M.Jr: Well, if you're trying to find out if I'm in on it, I'm not. S: (Laughs) H.M.Jr: So you can just - there's just 23 people. S: (Laughs) All right. 444 -5H.M.Jr: And if I've got anything I'll give you a ring but the last I knew is when I sent that sheet over to you. S: H.M.Jr: Yeah. And with that exception and the time we were in Hull's Office when you were there I know less than nothing. S: H.M.Jr: S: H.M.Jr: S: H.M.Jr: Apparently, this sheet that we got there is not the one that they're working from. Well - Well, I just thought I'd give you a ring. I told you Well, I appreciate it. I appreciate it. I know the boss mentioned the seven million. I suggested that he be sure and talk to you about that. Well, he told me it was seven billion. He told me the seven billion and that's all. He said, "That's the figure. S: H.M.Jr: Yeah. But, if I knew anything and if I had anything I'd give it to you but I'm only repeating. I know less than nothing. S: H.M.Jr: Well, then I'd better check with Hopkins on whether it's appropriate to raise some questions with Purvis. I suppose that we ought not to process entirely in a vacuum. I don't know what all the implications of it are. Well, I think if you want to see Purvis, I think you better talk to Hopkins. S: Yeah. All right, air, thank you. H.M.Jr: Thank you for calling. S: You bet. Bye. 445 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION plasus DATE March 11, 1941 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL At 3 o'clock this afternoon the Secretary called me to his office and asked that Mr. White, who was with the Secretary, explain to me the result of the several meetings which had been held at the Securities and Exchange Commission with the view to evolving suggestions to expedite the liquidation of British investments in this country. Mr. White told me that the basic idea which had been discussed at the S. E. C. had been that of organising a private corporation which would float a bond issue, pre- sunably at a low rate of interest, to obtain funds which could be utilized in taking over the complete holdings of British vested securities. This plan was not considered feasible insofar as direct investments are concerned. The plan would be for this corporation to advance payment to the extent of 65 to 70 percent of the market value of the securities taken over. The percentage would be less if the securities were found to be below the average in marketability. It would be necessary that the British Misclose to this group their complete holdings, and the group would only consider the proposition as a whole. The group would proceed with the sale of securities and remit the balance of the proceeds obtained therefor, deducting only necessary expenses. If there should be any question of a difference between the group and the British Government as to the sale price, this should be settled by an arbiter. It was explained that the S. E. C. had studied this plan. and had then invited to Washington yesterday afternoon Messrs. Fox and Connely (*) representing investment associations in New York. The two representatives from New York had not insisted that they be drawn into any private corporation which might be set up. They were available, however, for consultation if the British may desire to look into the plan or desire recommendations as to possible concerns and individuals to constitute the suggested group. After receiving this explanation from Mr. White, I telephoned Mr. Gifford. the I learned from his New York office that he was in Washington, and I reached him he had at offices of the British Purchasing Commission at 3:15. He let me know that he come to Washington this noon and added, confidentially for our ears, that was the here S.E.C. with Sir Edward Peacock. I told him that Mr. White had attended meetings at results and that the Secretary had authorized me to acquaint Mr. Gifford with the word of thereof. I thereupon repeated Mr. White's recital to me. I added the operations explana- in tion that desired in no way to criticize Mr. Gifford's the the Secretary securities. The plan which has been under study was It origi- had disposal of marketable in liquidating direct investments. to nally 10W been conceived as of difficult possible of assistance application to this field, but readily adaptable the marketable considered security field. I renewed the explanation made previously that the President Emmett P. Connely of the Investment Bankers Association of America. 446 - Treasury naturally degires to look into every possible means for assisting in the orderly liquidation of British assets, and that I was confident Mr. Gifford shared our interest toward this end. Mr. Gifford thanked us for bringing the foregoing that theour proposal waswill instructions he to has. note report and think He information which his He is, attention. however, He taking stated of beyond any it over. would require completely new instructions before he could accept such a proposal. which would completely rearrange the plan for disposing of marketable securities in such a to unless the it. I him this country. His first reaction was that he would not feel in plan London with recommendations Treasury justified urged submitting told that the Secretary desired to bring to his attention the results of the study which had been made, but to leave action to Mr. Gifford's judgment. 447 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthau TO FROM Mr. Cochran STRICTLY CONFIDENTIAL Acting upon the Secretary's instructions, I asked Sir Frederick Phillips to come to my I recalled to Sir Frederick had interest thethatextent visitedme office emphasized yesterday at 3:30 eveninghis this afternoon. he had in learning when he to which existing British contracts could be taken over under the Lend-Lease plan. Furthermore, I recalled our conversation on gold. I let Sir Frederick know that the Secretary had held a group meeting this forenoon at which the British position had been studied. The Secretary had asked me to give an oral reply to Sir Frederick's memorandum of March 5 in which inquiry was made as to whether the Secretary would see any objection to Great Britain paying Canada in gold to the extent that it may have gold available for that purpose in the future. I permitted Phillips to note on page 11 of Part I of "Hearings before the Committee on Foreign Relations, United States Senate, on S. 275". the estimates which the Secretary had submitted to Congress (based upon figures supplied by the British Treasury for the current calendar year Australian and South African gold exports. also invited his attention to the testimony which the Secretary gave before the Committee on Foreign Affairs, House of Representatives, as reported on pages 64 and 65 I of the volume of Lend-Lease Bill Hearings. I told Phillips that the Secretary's attitude toward South African and Australian gold remained the same as presented in this testimony. Phillips took note of the two references to the published testimony described above. Phillips reminded me that the British had hoped to use certain of their gold in meeting payments due Canada. He asked if he was free now to tell the Canadians that the Treasury insisted upon all South African and Australian gold being sold for its benefit. He asked further if we had been in touch with Mr. Clark on this subject. I told Phillips that we had had no conversation with the Canadian Deputy Minister of Finance since he left here a few days ago. There was no reason, however, why Phillips should not continue his discussions with Mr. Clark, bearing in mind the testimony which the Secretary has given. I told Phillips that a group of us had net with the Secretary on Saturday, Monday and Tuesday to study an operating plan for the Lend-Lease Bill, and that in these meetings the British position had been given particular attention. I let Phillips know that after receiving the British memorandum of yesterday which gave details as to outstanding contracts and negotiations with the R. F. C. and the Army and Navy on possible taking over of some of these engagements, we had written both the R. F. C. and the War Department requesting data from their side as to prospects for there consumma- is tion of their negotiations with the British in the premises. I added that positively no use of our attempting to discuss the question of contracts further the Bill at and present. I showed Phillips the ticker tape which reported the passing of announced that the President anticipated asking for a $7,000,000,000 appropriation 447 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL Acting upon the Secretary's instructions, I asked Sir Frederick Phillips to come to my office at 3:30 this afternoon. I recalled to Sir Frederick that when he had visited me yesterday evening he had emphasized his interest in learning the extent to which existing British contracts could be taken over under the Lend-Lease plan. Furthermore, I recalled our conversation on gold. I let Sir Frederick know that the Secretary had held a group meeting this fore- soon at which the British position had been studied. The Secretary had asked me to give an oral reply to Sir Frederick's memorandum of March 5 in which inquiry was made as to whether the Secretary would see any objection to Great Britain paying Canada in gold to the extent that it may have gold available for that purpose in the future. I permitted Phillips to note on page 11 of Part I of "Hearings before the Committee on Foreign Relations, United States Senate, on S. 275". the estimates which the Secretary had submitted to Congress (based upon figures supplied by the British Treasury) for the current calendar year Australian and South African gold exports. also invited his attention to the testimony which the Secretary gave before the I Committee on Foreign Affairs, House of Representatives, as reported on pages 64 and 65 of the volume of Lend-Lease Bill Hearings. I told Phillips that the Secretary's attitude toward South African and Australian gold remained the same as presented in this testimony. Phillips took note of the two references to the published testimony described above. Phillips reminded me that the British had hoped to use certain of their gold in meeting payments due Canada. He asked if he was free now to tell the Canadians that the Treasury insisted upon all South African and Australian gold being sold for its benefit. He asked further if we had been in touch with Mr. Clark on this subject. told Phillips that we had had no conversation with the Canadian Deputy Minister of I Finance since he left here a few days ago. There was no reason. however, why Phillips should not continue his discussions with Mr. Clark, bearing in mind the testimony which the Secretary has given. I told Phillips that a group of us had met with the Secretary on Saturday, Monday and Tuesday to study an operating plan for the Lend-Lease Bill, and that in these meetings the British position had been given particular attention. I let Phillips know that after receiving the British memorandum of yesterday which gave details as to outstanding contracts and negotiations with the R. F. C. and the Army and Navy F. C. on possible taking over of some of these engagements, we had written both the R. and the War data from their side as tion their of Department with the British in the premises. negotiations requesting to prospects I contracts added that for further consumm- there at is positively no use of our attempting to discuss the question of the Bill present. I showed Phillips the ticker tape which reported the passing of and announced that the President anticipated asking for a $7,000,000,000 appropriation 448 - to complement the Act. I told him that Treasury representatives would have to appear before Congress to support the appropriation measure. I stressed the embarrassment representatives, report to Congress and that there Secretary, experience if British direct investments. accomplished progress any progress depends importantly upon something being accomplished along this line immediately. Phillips volunteered that Gifford and Peacock were in town for consultation. which such particularly the would obligedI made to had notthat yet liquidating the point ourbeen in I should add that when we were discussing gold, I let Phillips know that I had reported to the Secretary the information which Phillips had given me last evening, namely, that it appeared that gold production in South Africa was not falling off, but that recently the Bank of South Africa evidently had not turned over all current production to the British authorities. Phillips had also made the point that the British required a certain stock of gold in South Africa, because of the necessity of having some of this metal available for hurried despatch to Egypt or other centers in the Near Eastern war area. In our talk today. Phillips minimized the amount of gold that could be counted upon to come from Belgian Congo, Rhodesia and other scattered areas of production. 449 March 11, 1941 4:30 p.m. Present: Mr. Gaston Mrs. Klotz HM Jr: Herbert, please sit down. I thought that you could listen while I dictate this. Harry Hopkins called me about 4:15 and said the President was going to take some action this afternoon under the Lend-Lease Bill. He had spoken to the President about the Coast Guard cutters and asked for permission to speak to me. He asked me whether I knew what the President had in mind and if the President had discussed it with me. I said, "No," and then I told him that he ought to know better than I what the President has in mind. So he said that he didn't. I told Hopkins that if he asked me what I thought would be most useful to the British this Spring, it is the ten cutters that I wrote about in my first letter. Then I said that we could get them ready in two or three weeks if the English would tell us what kind of armaments they needed and if the Navy would equip them promptly. Hopkins asked me if we didn't usually get cooperation from the Navy and I said, "No, not as far as the Coast Guard is concerned. Then Hopkins asked me some more questions, and I said I never felt that I knew less than what I did right now about what was going on. He said that nothing was going on at this time. I then said that the President told me yesterday he was going to hold a meeting this morning and wanted me to come, but I never got word as to when it was going to be held. He said that he wasn't at the meeting either so he did not know what went on. Hopkins told me then that Young was with him and had some message from the English saying how they wanted these ships equipped, but it was news to me. 450 2- Gaston: Waesche told me that the Navy had received word from the English that they would be very glad to have the cutters. That's all the message I got. HM Jr: Did you tell that to Phil? Gaston: No, I haven't seen Phil since I heard that. I haven't had a chance to tell him. that. HM Jr: I don't know whether you agreed with me on Gaston: That would be very useful - yes. If we are going to do anything, that's the thing to do. HM Jr: Well, I'm glad to hear you say that. Gaston: Yes, that's the thing to do. Just when you called me, I was talking to Oscar Cox, who was asking me a lot of questions. He said that Harry Hopkins had been asked to do something about it for the President. He didn't say that you had talked to Hopkins. Evidently Harry Hopkins wants to get some information, and he's trying to have Cox get it for him. HM Jr: Where was Cox when he called you? Gaston: Why I think he was in his office. I was talking to him when they said you wanted me so I excused myself and hung up. (At this point, HM Jr told the operator that she should find out whether Oscar Cox and Philip Young had returned to the Treasury.) Gaston: I really don't know. He may not have been in his office. HM Jr: How long ago was this, Herbert? 451 -3Gaston: and came right in here.Just before I walked in here. I hung up HM Jr: Well, my call was about 10 minutes ago, so he must have asked Oscar to get the information on it. (Operator reported that neither Oscar Cox nor Philip Young had returned to their offices.) HM Jr: Well, they haven't come back yet. I think thatbe I will walk around the block and by that time they probably will here. 452 The British Supply Council in North America March 11, 1941 Philip Young, Esq. President's Liaison Committee, Treasury Department, Washington, D. C. Dear Mr. Young, The British Naval Attache has just received a reply to a cable to the British Admiralty with regard to the ten coast guard outters which we hope will be released to us by the U. S. Treasury. The Admiralty advise as follows: 1. That an offer of ten cutters would be cordially welcomed. 2. That the vessels would be acceptable in present condition with low angle armanent only, high angle arnament to be fitted in the United Kingdom. 3. Ammunition for 5" guns would be required from United States, both outfit and reserve, including practice. 4. That the never type having a speed of 20 knots would be of considerably greater value than the older type which has a speed of 16-1/2 knots. As the Navy Department has been pressing for this infornation. the British Naval Attache, through whom it was obtained, has given it to them direct. Yours very truly, (Sgd.) 0. T. Ballantyne 0 0 P Y 453 MAR 11 1941 My dear Mr. Presidents I should like to bring to your attention the stealy increase in prices of importal materials that has base under - for a month or more. The contract, as compared with the rather first treat of domentic complety prices, to shown on the attached abort make from prices of the 12 imported materials and 17 materials is the a Sureas of labor Statistics daily price intex of 25 basic committee. The price intex of imported materials has gained 10 per cent since the and of January. es compared materials. with a 2 per cont average gata is prices of donestic While the increased prices are attributed is the press to the light - shipping extraction, - increase of ene-thirt in prices of - and shelles within five weeks would also suggest that speculative buying has been a factor. I note that the vilme of trailing in coopa futures increased shargly last week. Increasing spoculative activity in my - of commodities would tend to affect other groups, and would old to the dieStenity of holding a general price rise in check. Withfully yours, (Signed) H. Morgenthan Jr. The President, the White Name. Copy to MN Thompson W 3/10/11 FILE COPY By Memories 3 n 454 MOVEMENT OF BASIC COMMODITY PRICES Domestic and Imported AUGUST 1939-100 PER PER CENT CENT PER Weekly Average CENT 135 135 PER Daily CENT 132 132 130 130 128 128 // Imported Commodities 125 125 // Imported 124 Commodities 120 120 115 115 124 120 o N D J S F A J J F J 1940 M A M mium 108 J M 4 100 A 112 = 100 112 IA JAN 1941 25 I 105 a 105 116 IS I 110 M 17 Domestic Commodities 116 110 22 FEB 108 is 22 29 5 17 Domestic Commodities 120 MAR 26 10 12 APR 1941 Percentage Change for Individual Commodities. Jan.31,1941 to March 7,1941 PER Cocoa 35.4% PER 17 Domestic Commodities CENT CENT +30 +30 +25 +25 +20 +20 II Imported Commodities Shellee 30.3% Burlap 16.2% +15 +15 Lard 11.7% Print Clech 9.0X Cuttoneeed Oil 6.5X Lead 4.5X +10 10000 3.0% +10 Rubbac 8.8% H Cotton 20% Sugar as% Scrap.dom. 26% Corn 23% +5 Coffee 42% Wheat 14% Fallow ox Site 5/% +5 24% Tin 22% Steel Scrop.erg. 0% Butter 0% Cooper ox 0 Pleased ox 0 Zine ox Mage -2.5% Hides -19% -20% Steers -83% -5 Jan.31 / Office the Secretary of the Treasury -5 Mar.7 Jan.31 Mar.7 . B.L.S. Indexes P-100 455 Seventy-seventh Congress of the United States of America; at the First the Begun and held at the City of Washington on Friday, the third day of January, one thousand nine hundred and forty-one AN ACT Further to promote the defense of the United States, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as "An Act to Promote the Defense of the United States". Sec. 2. As used in this Act(a) The term "defense article" means(1) Any weapon, munition, aircraft, vessel, or boat; (2) Any machinery, facility, tool, material, or supply necessary for the manufacture, production, processing, repair, servicing, or operation of any article described in this subsection; (3) Any component material or part of or equipment for any article described in this subsection; (4) Any agricultural, industrial or other commodity or article for defense. Such term "defense article" includes any article described in this subsection: Manufactured or procured pursuant to section 3, or to which the United States or any foreign government has or hereafter acquires title, possession, or control. (b) The term "defense information" means any plan, specification, design, prototype, or information pertaining to any defense article. Sec. 3. (a) Notwithstanding the provisions of any other law, the President may, from time to time, when he deems it in the interest of national defense, authorize the Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government- (1) To manufacture in arsenals, factories, and shipyards under their jurisdiction, or otherwise procure, to the extent to which funds are made available therefor, or contracts are author- ized from time to time by the Congress, or both, any defense article for the government of any country whose defense the President deems vital to the defense of the United States. (2) To sell, transfer title to, exchange, lease, lend, or otherwise dispose of, to any such government any defense article, but no defense article not manufactured or procured under paragraph 456 H. 1776-2 (1) shall in any way be disposed of under this paragraph, except after consultation with the Chief of Sta£ of the Army or the Chief of Naval Operations of the Navy, or both. The value of defense articles disposed of in any way under authority of this paragraph, and procured from funds heretofore appropriated, shall not exceed $1,300,000,000. The value of such defense articles shall be determined by the head of the department or agency con- cerned or such other department, agency or officer as shall be designated in the manner provided in the rules and regulations issued hereunder. Defense articles procured from funds hereafter appropriated to any department or agency of the Government, other than from funds authorized to be appropriated under this Act, shall not be disposed of in any way under authority of this paragraph except to the extent hereafter authorized by the Congress in the Acts appropriating such funds or otherwise. (3) To test, inspect, prove, repair, outfit, recondition. or otherwise to place in good working order, to the extent to which funds are made available therefor, or contracts are authorized from time to time by the Congress, or both, any defense article for any such government, or to procure any or all such services by private contract. (4) To communicate to any such government any defense information, pertaining to any defense article furnished to such govern- ment under paragraph (2) of this subsection. (5) To release for export any defense article disposed of in any way under this subsection to any such government. (b) The terms and conditions upon which any such foreign government receives any aid authorized under subsection (a) shall be those which the President deems satisfactory, and the benefit to the United States may be payment or repayment in kind or property, or any other direct or indirect benefit which the President deems satisfactory. (c) After June 30, 1943, or after the passage of a concurrent resolution by the two Houses before June 30, 1943, which declares that the powers conferred by or persuant to subsection (a) are no longer necessary to promote the defense of the United States, neither the President nor the head of any department or agency shall exer- cise any of the powers conferred by or pursuant to subsection (a) except that until July 1, 1946, any of such powers may be exercised to the extent necessary to carry out a contract or agreement with such a foreign government made before July 1, 1943, or before the passage of such concurrent resolution, whichever is the earlier. 457 1776-3 (d) Nothing in this Act shall be construed to authorize or to permit the authorization of convoying ressels by naval vessels of the United States. (e) Nothing in this Act shall be construed to authorize or to permit the authorization of the entry of any American vessel into a combat area in violation of section 3 of the Neutrality Act of 1939. SEC. 4. All contracts or agreements made for the disposition of any defense article or defense information pursuant to section 3 shall contain a clause by which the foreign government undertakes that it will not. without the consent of the President, transfer title to or possession of such defense article or defense information by gift, sale. or otherwise, or permit its use by anyone not an officer, employee, or agent of such foreign government. SEC. 5. (a) The Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government involved shall, when any such defense article or defense information is exported, immediately inform the department or agency designated by the President to administer section 6 of the Act of July 2, 1940 (54 Stat. 714), of the quantities, character, value, terms of disposition, and destination of the article and information so exported. (b) The President from time to time, but not less frequently than once every ninety days, shall transmit to the Congress a report of operations under this Act except such information as he deems incompatible with the public interest to disclose. Reports provided for under this subsection shall be transmitted to the Secretary of the Senate or the Clerk of the House of Representatives, as the case may be, if the Senate or the House of Representatives, as the case may be, is not in session. SEC. 6. (a) There is hereby authorized to be appropriated from time to time, out of any money in the Treasury not otherwise appropriated, such amounts as may be necessary to carry out the provisions and accomplish the purposes of this Act. (b) All money and all property which is converted into money received under section 3 from any government shall, with the approval of the Director of the Budget, revert to the respective appropriation or appropriations out of which funds were expended with respect to the defense article or defense information for which such consideration is received, and shall be available for expenditure for the purpose for which such expended funds were appropriated by law, during the fiscal year in which such funds are received and the ensuing fiscal year; but in no event shall any funds so received be available for expenditure after June 30, 1946. 458 H.R.1776-4 SEC. 7. The Secretary of War, the Secretary of the Navy, and the head of the department or agency shall in all contracts or agreements for the disposition of any defense article or defense information fully protect the rights of all citizens of the United States who have patent rights in and to any such article or information which is hereby authorized to be disposed of and the payments collected for royalties on such patents shall be paid to the owners and holders of such patents. SEC. 8. The Secretaries of War and of the Navy are hereby authorized to purchase or otherwise acquire arms, ammunition, and implements of war produced within the jurisdiction of any country to which section 3 is applicable, whenever the President deems such purchase or acquisition to be necessary in the interests of the defense of the United States. SEC. 9. The President may, from time to time, promulgate such rules and regulations as may be necessary and proper to carry out any of the provisions of this Act; and he may exercise any power or authority conferred on him by this Act through such department, agency, or officer as he shall direct. SEC. 10. Nothing in this Act shall be construed to change existing law relating to the use of the land and naval forces of the United States, except insofar as such use relates to the manufacture, procure- ment, and repair of defense articles, the communication of information and other noncombatant purposes enumerated in this Act. SEC. 11. If any provision of this Act or the application of such provision to any circumstance shall be held invalid, the validity of the remainder of the Act and the applicability of such provision to other circumstances shall not be affected thereby. Speaker of the House Representatives. Henna Wallace Vice President of the United States and President of the Senate. fine klin Quaswell March 11-1441 459 [PUBLIC LAW 11-77TH CONGRESS] [CHAPTER 11-1st SESSION] [H. R. 1776] AN ACT Further to promote the defense of the United States, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as "An Act to Promote the Defense of the United States". SEC. 2. As used in this Act(a) The term "defense article" means(1) Any weapon, munition, aircraft, vessel, or boat; (2) Any machinery, facility, tool, material, or supply necessary for the manufacture, production, processing, repair, servicing, or operation of any article described in this subsection; (3) Any component material or part of or equipment for any article described in this subsection; (4) Any agricultural, industrial or other commodity or article for defense. Such term "defense article" includes any article described in this subsection: Manufactured or procured pursuant to section 3, or to which the United States or any foreign government has or hereafter acquires title, possession, or control. (b) The term "defense information" means any plan, specification, design. prototype, or information pertaining to any defense article. SEC. 3. (a) Notwithstanding the provisions of any other law, the President may, from time to time, when he deems it in the interest of national defense, authorize the Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government- (1) To manufacture in arsenals, factories, and shipyards under their jurisdiction, or otherwise procure, to the extent to timeofthe or any the country which funds are made available therefor, or contracts are author- such any no article ized from for time the government to by any Congress,of United President deems vital to the defense thewhose both, defense States. defense (2) To sell, transfer title to, exchange, lease, lend, or otherwise manufactured or (1) shall in any way be disposed of under defense dispose of, article to any not government procured defense this paragraph, under article, paragraph but except after consultation with the Chief of Staff of the Army or the of the or of indisposed any way defense Chief of articles Naval Operations Navy,under both. authority The value of this of paragraph, and procured from funds heretofore appropriated, shall not exceed $1,300,000,000. The value of such defense articles 2 3 (Pos. LAW 114 shall be determined by the head of the department or agency cerned or such other department, agency or officer as shall condesignated in the manner provided in the rules and regulations be issued hereunder. Defense articles procured from funds hereafter appropriated to any department or agency of the Government, other than from funds authorized to be appropriated under this Act, shall not be disposed of in any way under authority of this paragraph except to the extent hereafter authorized by the Con. gress in the Acts appropriating such funds or otherwise. (3) To test, inspect, prove, repair, outfit, recondition, or other wise to place in good working order. to the extent to which funds are made available therefor, or contracts are authorized from time to time by the Congress, or both, any defense article for any such contract. government, or to procure any or all such services by private (4) To communicate to any such government any defense information, pertaining to any defense article furnished to such govern- ment under paragraph (2) of this subsection (5) To release for export any defense article disposed of in any way under this subsection to any such government. (b) The terms and conditions upon which any such foreign government receives any aid authorized under subsection (a) shall be those which the President deems satisfactory, and the benefit to the United States may be payment or repayment in kind or property, or any other direct or indirect benefit which the President deems satisfactory. (c) After June 30, 1943, or after the passage of a concurrent resolution by the two Houses before June 30, 1943, which declares that the powers conferred by or pursuant to subsection (a) are no longer necessary to promote the defense of the United States, neither the President nor the head of any department or agency shall exercise any of the powers conferred by or pursuant to subsection (a) except that until July 1, 1946, any of such powers may be exercised to the extent necessary to carry out a contract or agreement with such a foreign government made before July 1, 1943, or before the passage of such concurrent resolution, whichever is the earlier. (d) Nothing in this Act shall be construed to authorize or to permit authorization of convoying vessels by naval vessels of the United the States. (e) Nothing in this Act shall be construed to authorize or to permit the authorization of the entry of any American vessel into a combat area in violation of section 8 of the Neutrality Act of 1939. SEC. 4. All contracts or agreements made for the disposition of any defense article or defense information pursuant to section 3 shall contain a clause by which the foreign government undertakes that it will not, without the consent of the President, transfer title to or possession of such defense article or defense information by gift, sale, or otherwise, or permit its use by anyone not an officer, employee, or agent of such foreign government. SEC. 5. (a) The Secretary of War, the Secretary of the Navy, or the head of any other department or agency of the Government involved shall, when any such defense article or defense information is exported, immediately inform the department or agency designated by the President to administer section 6 of the Act of July 2, 1940 (54 Stat. 714), of the quantities, character, value, terms of disposition, and destination of the article and information so exported. once(b) The President from time to time, but not less frequently than every ninety days, shall transmit to the Congress a report of operations under this Act except such information as he deems incompatible with the public interest to disclose. Reports provided for under this subsection shall be transmitted to the Secretary of the Senate or the Clerk of the House of Representatives, as the case may be, if the Senate or the House of Representatives, as the case may be, is not in session. SEC. 6. (a) There is hereby authorized to be appropriated from time to time, out of any money in the Treasury not otherwise appropriated, such amounts as may be necessary to carry out the provisions and accomplish the purposes of this Act. (b) All money and all property which is converted into money received under section 3 from any government shall, with the approval of the Director of the Budget, revert to the respective appropriation or appropriations out of which funds were expended with respect to the defense article or defense information for which such consideration is received, and shall be available for expenditure for the purpose for which such expended funds were appropriated by law, during the fiscal year in which such funds are received and the ensuing fiscal year; but in no event shall any funds so received be available for expenditure after June 30. 1946. SEC. 7. The Secretary of War, the Secretary of the Navy, and the head of the department or agency shall in all contracts or agreements for the disposition of any defense article or defense information fully protect the rights of all citizens of the United States who have patent rights in and to any such article or information which is hereby authorized to be disposed of and the payments collected for royalties such patents shall be paid to the owners and holders of such patents. SEC. 8. The Secretaries of War and of the Navy are hereby authorized to purchase or otherwise acquire arms, ammunition, and implements of war produced within the jurisdiction of any country to which section 3 is applicable, whenever the President deems such purchase or acquisition to be necessary in the interests of the defense of the United States. SEC. 9. The President may, from time to time, promulgate such rules and regulations as may be necessary and proper to carry out any of the provisions of this Act; and he may exercise any power or authority conferred on him by this Act through such department, agency, or officer as he shall direct. SEC. 10. Nothing in this Act shall be construed to change existing law relating to the use of the land and naval forces of the United States, except insofar as such use relates to the manufacture, procurement, and repair of defense articles, the communication of information and other noncombatant purposes enumerated in this Act. SEC. 11. If any provision of this Act or the application of such provision to any circumstance shall be held invalid, the validity of the remainder of the Act and the applicability of such provision to other circumstances shall not be affected thereby. Approved, March 11, 1941. MARCH 11, 1941 460 THE HOUSE APPROVED SENATE AMENDMENTS TO THE BRITISH AID BILL BY A VOTE OF 317 TO 71 AND SENT THE BILL TO THE PRESIDENT. ONE MEMBER VOTED PRESENT. SPEAKER SAM RAYBURN SIGNED THE BILL IMMEDIATELY. 3/11--2344P FLASH PRESIDENT SIGNS BRITIS H AID BILL 3/11--N0351P PRESIDENT ROOSEVELT TODAY SIGNED THE LEND-LEASE BILL AND PREPARED TO ASK CONGRESS TO APPROPRIATE $7,000,000,000 TO CARRY OUT ITS PROVISIONS FOR GIVING MATERIAL WAR AID TO BRITAIN AND OTHER NATIONS FIGHTING AGAINST THE AXIS. 3/11--W0353P 461 March 11, 1941 Dear Senator Georges Now that the Lend-Lease Bill is out of the way, I should like to send you my sincere thanks for all that you did to ensure its passage. Looking back over the debate, I cannot help feeling that it was a good thing for our country that you were Chairman of the Foreign Relations Committee at this particular time. It is to your great credit that serious mistakes were avoided and that, from first to last, the debate was kept on a high democratic level. It was a long, hard fight, and you gave it every ounce of your skill and energy, but I believe that the results will more than justify your efforts. Please let me thank you also, on personal grounds, for the unfailing courtesy you showed me during the hearings and on all other occasions when we discussed this Bill together. Sincerely yours, Mergasthan, St. Honorable Walter F. George, United States Senate. FK: By you 462 March 11, 1941 Dear Senator Georges Now that the Lend-Lease Bill is out of the may, I should like to send you my sincere thanks for all that you did to ensure its passage. Looking back over the debate, I cannot help feeling that it was a good thing for our country that you were Chairman of the Foreign Relations Committee at this particular time. It is to your great credit that serious mistakes were avoided and that, from first to last, the debate was kept on a high democratic level. It was a long, hard fight, and you gave it every ounce of your skill and energy, but I believe that the results will more than justify your efforts. Please let me thank you also, on personal grounds, for the unfailing courtesy you showed me during the hearings and on all other occasions when we discussed this Bill together. Sincerely yours, (Signed) Sr. Honorable Walter F. George, United States Senate. FKimmo By Messenger 463 March 11, 1941 Dear Senator George: Now that the Lend-Lease Bill is out of the way, I should like to send you my sincere thanks for all that you did to ensure its passage. Looking back over the debate, I cannot help feel- ing that it was a good thing for our country that you were Chairman of the Foreign Relations Committee at this particular time. It is to your great credit that serious mistakes were avoided and that, from first to last, the debate was kept on a high democratic level, It was a long, hard fight, and you gave it every ounce of your skill and energy, but I believe that the results will more than justify your efforts. Please let me thank you also, on personal grounds, for the unfailing courtesy you showed me during the hearings and on all other occasions when we discussed this Bill together. Sincerely yours, Honorable Walter F. George, United States Senate. FK:nmc By Messenser 464 March 11, 1941 Dear Alben: Now that the long debate is over, I think that sincere thanks are due to the pilot who brought the Lend-Lease Bill safely into port. You steered a straight course and you did a perfectly grand job. Sincerely yours, (s/ Henry Honorable Alben W. Barkley, United States Senate. 7Kinne By Messenger 4 w 465 March 11, 1941 Dear Alben: Now that the long debate is over, I think that sincere thanks are due to the pilot who brought the Lend-Lease Bill safely into port. You steered a straight course and you did a perfectly grand job. Sincerely yours, /s/ Henry Honorable Alben W. Barkley, United States Senate. 7 By Messenger 466 March 11, 1941 Dear Alben: Now that the long debate is over, I think that sincere thanks are due to the pilot who brought the Lend-Lease Bill safely into port. You steered a straight course and you did a perfectly grand job. Sincerely yours, (age) Henry Honorable Alben W. Barkley, United States Senate. time. By Messanour 467 March 11, 1941. My dear Mr. Purvis: The President has today authorized the Secre- taries of War and Navy, pursuant to the Act of March 11, 1941, to dispose of the defense articles, set forth in the annexed schedules, to His Majesty's Government in the United Kingdom. The President has also requested the Secretaries of War and Navy to communicate directly with you to arrange for the time, method, and other details of the disposition. Very sincerely yours, Harry L. Hopkins (sgd.) HARRY L. HOPKINS Honorable Arthur Purvis, British Purchasing Commission, Washington, D. C. 468 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF WAR TO THE UNITED KINGDOM 2322 Ground Signal Projectors 150 M 1916 - 75mm Gun, Hi speed American type 300 Field Howitzers - 155mm (not Hi speed) 435 Field Howitzers, 8" (no ammunition available) 500 Caissons, 75mm Howitzers 200 Limbers, 75mm Howitzers 116,100 Signal Cartridges 100,000 H. E. Shells, 75mm Normal Charge, Gun 60,000 H. E. Shells, 155mm Howitzers 15,000 W.P. Shells, 155mm Howitzers 60,000 Reduced Propelling Charges for 155mm Howitzers 15,000 Normal Propelling Charges for 155mm Howitzers 40 Tractors, Medium (track laying) 150 Scout Cars, M3A1 (less armament) 200 Scout Cars, Old Models MARCH 11, 1941 469 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF THE NAVY TO THE UNITED KINGDOM ORDNANCE 150 4"/50 L.A. Equipment - U. S. Type 300 3"/50 L.A. Equipment - U. S. Type 8000 4"/50 L.A. Projectiles 8000 4"/50 Complete Rounds - U. S. Type 18000 3"/50 Cal. Ammunition - U. S. Type, L.A. 1200 3"/23 Cal. Ammunition - U. S. Type 3000 Propelling Charges for "Y" Guns - U.S. Type SHIPS 28 Motor Torpedo Boats March 11, 1941 470 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF WAR TO THE ROYAL GREEK GOVERNMENT 50 M 1916 - 75mm Gun, Hi speed American type 150,000 H.E.Shells, 75mm Reduced Charge, Gun 30,000 H.E.Shells, 155mm Howitzers 30,000 Normal Propelling Charges for 155mm Howitzers March 11, 1941 471 March 11, 1941. My dear Mr. Secretary: Consultation having been had with the Chief of Staff of the Army, I find that: (1) The defense of the United Kingdom is vital to the defense of the United States; (2) Sections 4 and 7 of the Act of March 11, 1941 have been complied with by the necessary agree- ment on the part of His Majesty's Government in the United Kingdom; (3) It would be in the interests of our national defense to transfer the defense articles set forth in the annexed schedule. I therefore authorize you immediately to make the transfer to His Majesty's Government in the United Kingdom of the defense articles set forth in the annexed schedule. I would appreciate it if you would arrange with the Chairman of the British Supply Council in North America for the time, method, and other details of the disposition. Very sincerely yours, Franklin D. Roosevelt (sgd.) The Honorable The Secretary of War 472 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF WAR TO THE UNITED KINGDOM 2322 Ground Signal Projectors 150 M 1916 - 75mm Gun, Hi speed American type 300 Field Howitzers - 155mm (not Hi speed) 435 Field Howitzers, 8" (no ammunition available) 500 Caissons, 75mm Howitzers 200 Limbers, 75mm Howitzers 116,100 Signal Cartridges 100,000 H. E. Shells, 75mm Normal Charge, Gun 60,000 H. E. Shells, 155mm Howitzers 15,000 W.P. Shells, 155mm Howitzers 60,000 Reduced Propelling Charges for 155mm Howitzers 15,000 Normal Propelling Charges for 155mm Howitzers 40 Tractors, Medium (track laying) 150 Scout Cars, M3A1 (less armament) 200 Scout Cars, Old Models MARCH 11, 1941 473 March 11, 1941. My dear Mr. Secretary: Consultation having been had with the Chief of Naval Operations of the Navy, I find that: (1) The defense of the the United Kingdom is vital to the defense of the United States; (2) Sections 4 and 7 of the Act of March 11, 1941 have been complied with by the necessary agreement on the part of His Majesty's Government in the United Kingdom; (3) It would be in the interests of our national defense to transfer the defense articles set forth in the annexed schedule. I therefore authorize you immediately to make the transfer to His Majesty's Government in the United Kingdom of the defense articles set forth in the annexed schedule. I would appreciate it if you would arrange with the Chairman of the British Supply Council in North America for the time, method, and other details of the disposition. Very sincerely yours, (Signed) Franklin D. Roosevelt The Honorable The Secretary of the Navy. 474 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF THE NAVY TO THE UNITED KINGDOM ORDNANCE 150 4"/50 L.A. Equipment - U. S. Type 300 3"/50 L.A. Equipment - U. S. Type 8000 4"/50 L.A. Projectiles 8000 4"/50 Complete Rounds - U. S. Type 18000 3"/50 Cal. Ammunition - U. S. Type, L.A. 1200 3"/23 Cal. Ammunition - U. S. Type 3000 Propelling Charges for "Y" Guns - U. S. Type SHIPS 28 Motor Torpedo Boats March 11, 1941 475 March 11, 1941. My dear Mr. Secretary: Consultation having been had with the Chief of Staff of the Army, I find that: (1) The defense of the Royal Greek Government is vital to the defense of the United States; (2) Sections 4 and 7 of the Act of March 11, 1941 have been complied with by the necessary agreement on the part of the Royal Greek Government; (3) It would be in the interests of our national defense to transfer the defense articles set forth in the annexed schedule. I therefore authorize you immediately to make the transfer to the Royal Greek Government of the defense articles set forth in the annexed schedule. I would appreciate it if you would arrange with the Minister of Greece for the time, method, and other details of the disposition. Very sincerely yours, (Signed) Franklin D. Roosevelt The Honorable The Secretary of War. 476 DEFENSE ARTICLES AUTHORIZED FOR TRANSFER BY THE SECRETARY OF WAR TO THE ROYAL GREEK GOVERNMENT 50 M 1916 - 75mm Gun, Hi speed American type 150,000 H.E.Shells, 75mm Reduced Charge, Gun 30,000 H.E.Shells, 155mm Howitzers 30,000 Normal Propelling Charges for 155mm Howitzers March 11, 1941 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA TELEPHONE REPUBLIC 7860 Box 680 BENJAMIN FRANKLIN STATION WASHINGTON D C March 11, 1941 My dear Mr. President: We represent on behalf of His Majestyts Government in the United Kingdom, pursuant to Sections 4 and 7 of the Act of March 11, 1941, that: 1) Every contract or agreement for the disposition of any defense article or defense information, pursuant to Section 3 of the Act of March 11, 1941, to His Majesty's Government in the United Kingdom shall be deemed to include a clause that His Majesty's Government will not, without your consent, or the consent of someone designated by you for that purpose, under the Act, transfer title to or possession of such defense article or defense information by gift, sale, or otherwise, or permit its use by anyone not an officer, employee or agent of His Majesty!s Government; and 2) If as a result of the transfer to His Majesty's Government of any defense articles or defense information, it is necessary, ursuant to Section 7 of the Act of March 11, 1941, fully to protect the rights of any citizen of the United States, who has pátent rights in an. to any such defense article or information, His Majesty's Government will do.so, when so re uested by you or your designee for that purpose Very truly yours, The President of the United States White House Clive tailver Director General of the British Purchasing Commission Approved: arthur as Chairman of the Eritish Supply Council in North America QASO! Director General of the British Air Commission ROYAL GREEK LEGATION WASHINGTON March 11, 1941. My dear Mr. President: I represent on behalf of the Royal Greek Government, pursuant to Sections 4 and 7 of the Act of March 11, 1941, that: Every contract or agreement for the disposition of any defense article or defense information, pursuant to Section 3 of the Act 1) of March 11, 1941, to the Royal Greek Government shall be deemed to include a clause that the Royal Greek Government will not, without your consant, or the consent of someone designated by you for that purpose, under the Act, transfer title to or possession of such defense article or defense information by gift, sale, or otherwise, or permit its use by anyone not an officer, employee or agent of the Royal Greek Government; and 2) If, as a result of the transfer to the Royal Greek Government of any defense articles or defense information, it is necessary, pursuant to Section 7 of the Act of March 11, 1941, fully to protect the rights of any citizen of the United States, who has patent rights in and to any such defense article or information, the Royal Greek Government will do so, when BO requested by you or your designee for that purpose. Very truly yours, C. Diamantopoulos, Minister of Greece. The President of the United States, White House. I, Viscount Halifax, His Britannic Majesty's Ambassador to the United States of America, hereby certify that the Director General of the British Purchasing Commission, the Director General of the British Air Commission, and the Chairman of the British Supply Council in North America have the power necessary to make the commitments required of His Majesty's Government in the United Kingdom by Sections 4 and 7 of the Act of March 11th, 1941 98 set forth in the annexed letter dated March 11th, 1941, eigned by these officers of the British Government. Done at Washington this 11th day of March, 1941. Halifax as MASS. BARKLEY, 480 CHAIRMAN PAT GEORGE KY. M. LAPOLLETTE, M.WI. CAPPER, KAMS H VANDEMMERL DAVIS P MICH. CABOT LODGE m. MASS. DANAMEN CONNAL TAFT, CHAR GERRY. United States Senate SUFFEY. M. COMMITTEE ON FINANCE BROWN CLERK March 11, 1941. Dear Henry: It was good of you to write me as you did on the anniversary of my thirty years legislative service. One of the finest things about this job is the splendid associations I have enjoyed, and I am sure I need not tell you how much I appreciate your friendship and association. With best wishes always, I am Sincerely yours, Finding Honorable Henry Morgenthan, Secretary of the Treasury, Washington, D. 0. ERAL OFFICES ST. LEGISLATIVE DEPARTMENT ILL HUNSEY BUILDING WASHINGTON. D.C. AM 481 AU PARTENCE CHEDERATION TELEPHONE NATIONAL 3342 WASHINGTON, D.C. March 11, 1941 MEMORANDUM TO: SECRETARY MORGANTHAU The statement presented to you by Senator Bankhead concerning S.935 mentions the "parity price loan" feature of his plan but does not go into any explanation of this feature of this bill. Most of the memorandum deals with the problem of adjusting the supply of cotton to meet current demands. Briefly, Senator Bankhead's bill proposes: 1. A system of commodity loans at 100 per cent of parity for cotton, wheat, tobacco and rice conditioned on marketing quotas being in effect to control supplies. An 85 per cent loan rate on corn is provided because the representatives of the corn producers do not want a loan higher than 85 per cent of parity. The American Farm Bureau Federation is recommending a loan rate of 85 per cent instead of 100 per cent for all five commodities. (See attached statement presented by President O'Neal to the Senate Committee on Agriculture for summary of Farm Bureau plan). The commodity loan plan has this great advantage,-that it gives the farmers parity or very close to parity in the market-place. If a 100 per cent loan is made available, no appropriations are needed for parity payments; if an 85 per cent loan is made available, appropriations for parity payments would be needed to meet the 15 per cent deficiency. But careful estimates indicate that under this plan farmers could receive 100 per cent of parity with about the same appropriations as are now being made. Under the Bankhead proposal of 100 per cent loans, as already pointed out, there would be no parity payments to farmers, as the farmers would get parity prices in the market-place for their entire crop. The buyers of cotton, for example, would either have to pay the farmers parity price or the farmers could put the cotton under the loan. In order to prevent cotton from piling up in the loan, this plan proposes first to maintain our fair share of the world market for cotton by selling cotton for export at the world price and reimbursing the Commodity Credit Corporation for any losses incurred by reason of such sales. Export payments to exporters could be made if necessary to prevent cotton from going into the loan. In addition, the Bankhead bill proposes to bring about an adjustment of production of cotton down to approximately 482 10,000,000 in 1941, which is the estimated amount needed for domestic consumption bales and exports. 2. A provision for payments to cotton farmers to reduce their production below their current allotments for the purpose of adjusting the supply of cotton to current requirements for comestic consumption and exports. In his memorandum Senator Bankhead suggested two methods of securing a voluntary reduction in production of 2 to 2g million bales below the allotments for 1941, which have already been announced and which total about 12 million bales. One of these methods consists of a payment in kind at the rate of one-half bale for each bale taken out of production; the other method proposes a payment in cash at the rate of so much per pound to take cotton out of production, utilizing the $85,000,000 appropriated for parity payments for the purpose of making these payments for extra reduction in production. The Farm Bureau has recommended a payment in kind at the rate of one-half allotment. bale for each bale taken out of production below the present among R. Ogg Director of Research Sun glaw 483 much 7/41 S. 935 For the purpose of indicating the objective of this bill and its probable effect, I beg to present the following as it applies to cotton: Using round figures, the government owns 6,200,000 bales. It holds under loan 4,900,000 bales. There are two primary objectives involved; first is better income to farmers and second is better protection to the United States Treasury. Distribution. Domestic consumption next year may amount to 9,000,000 bales. The export market is practically eliminated. From August 1 last until March 1 last, only 504,000 bales were exported in the channels of trade. There were total exports of approximately 700,000 bales but the balance of the cotton was exported under the rubber exchange with Great Britain. Assuming the same exports next year and a slight increase in domestic consumption, there will be a distribution of approximately 9,500,000 bales. The cotton allotment, assuming normal weather, will produce 12,000,000 bales. To the cotton now under the government loan there will be added from next year's crop about 2,500,000 bales, thus increasing the government owned and loan cotton to 13,500,000 bales. It is evident that something must be done about the continued surplus production. The bill, while accepting the announced 484 -2- allotments for this year of 12,000,000 bales, provides two methods of securing voluntary reduction in production of from 2,000,000 to 2,500,000 bales, as follows: 1. To pay in kind with Commodity Credit cotton one-half bale for each bale taken out of production up to a certain limit. 2. Use the parity payment appropriation of about $86,000,000 allotted to cotton farmers to pay so much a pound to take cotton out of production. If the parity price loan plan is put into operation, the appropriations for parity payments will not be required for that purpose and can be used to protect the price of cotton and the Treasury by adjusting the supply to a quantity that must be bought by domestic consumers plus a nominal amount to be exported. The cotton under loan covers loans for the crop years 138-139 and 40-'41. The bill provides that farmers who dispose of their equity in cotton loans after the day the bill was introduced cannot participate in the parity price loan. That is intended to enable the government to retire that cotton from the market and take it out of competition with this year's crop. The bill further provides that the farmers shall be paid the value of their equity in cotton the day the bill was introduced. There is no equity in the '38 loan because the loan price and the carrying charges exceed the present market value. There is a small equity 485 -3- of from two to four dollars a bale on the '40 crop. The equity for that cotton can be paid with from five to seven or eight million dollars. With the loan cotton taken over by the government, as it must ultimately be done, and with the crop reduced to 9,500,000 to 10,000,000 bales, there will be practically no cotton going into the loan. Such amount as goes in must be taken out by the consumers before a new crop comes to market. This plan will increase the present totally inadequate income of cotton producers and will stop increasing the government stocks and may later be adjusted so as to gradually eliminate the government stocks. TO: miss Chamies 486 1 mentioned the 'heal letter to it him at it - - heg Canced said he wouldn't need of From: LIEUT. STEPHENS 48 AMERICAN FARM BUREAU FEDERATION Munsey Building Washington, D. C. 487 March 11, 1941 Honorable Franklin D. Roosevelt President of the United States The White House Washington, D. C. My dear Mr. President: We are all greatly distressed that Chester Davis is leaving the Federal Reserve Board. He has certainly been our good friend there. May I respectfully present for your consideration to fill his place the following: If you want someone from the midwest, I would suggest the name of Earl C. Smith, President, Illinois Agricultural Association and Vice President, American Farm Bureau Federation if you want someone from the northeast, I would suggest W. I. Myers, Professor of Economics, Cornell University and former Governor, Farm Credit Administration; or if you want someone from the south, I would suggest the name of R. E. Short, President, Arkansas Farm Bureau Federation. I believe any of these men could ably fill this position and would have the confidence of our farmers. Farmers feel very strongly that agriculture should be represented on this important Board. Hoping these suggestions will have your earnest consideration and with warm personal regards, I am Sincerely yours, EAO'N.g is Edw. A. O'Neal - President 488 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthau Mr. Cochran FROM STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19, 1940: No. of Shares Sold March 7 8 $ Proceeds of Shares Sold Nominal Value of Bonds Sold 19,080 218,632 24,449 126,017 36,912 3,026 1,442,474 11,408,484 428,116 $ Proceeds of Bonds Sold 793,163 3,581,120 1,433,373 255,955 81,000 160,000 31,000 291,000 117,000 159,400 60,348 125,498 31,950 296,108 120,123 174,748 18,914,569 839,400 808,775 March 3 -Jift to Treasury 4 7 428,120 18,914,576 Sales from 2/22/40 to 3/1/41 5.595.088-1/2 172,222,599 19,483,700 18,664,818 TOTAL 2/22/40 TO 3/8/41 6,023,208-1/2 191,137,175 20,323,100 19,473,593 Miss Poate reported sales of non-vested securities for the week ended March 1 totaled $300,000. TMP 489 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthan FROM Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £56,000 Purchased from commercial concerns £22,000 The Federal Reserve Bank of New York sold £15,000 in registered sterling to the American Express Co., and purchased £2,000 from Thos. Cook & Son. Open market sterling remained at 4.03-1/2, and there were no reported trans- actions. In New York, the closing rates for the foreign currencies listed below were follows: Canadian dollar Swiss franc (commercial) Swedish krona Reichsmark Lira Argentine peso (free) Brasilian milreis (free) Mexican peso Cuban peso 15% discount .2322-1/2 .2384-1/2 .4005 .0505 .2303 .0505 .2066 6-5/8% discount In Shanghai, the yuan in terms of our currency remained at 5-1/24, and sterling advanced 24 to 3.91. There were no gold transactions consummated by us today. The Federal Reserve Bank of New York reported that the Central Bank of the Colombian Republic shipped $2,921,000 in gold from Colombia to the Federal for its own account, disposition unknown. The prices fixed in London for spot and forward silver were unchanged at 23-3/8d and 23-5/16d, respectively. The U.S. equivalents were 42.44 and 42.334. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/4*. The Treasury's purchase price for foreign silver was also unchanged at 35#. 490 2- We made six purchases of silver totaling 500,000 ounces under the Silver Purchase Act, all of which consisted of new production from foreign countries, for forward delivery. The report of March 5 received from the Federal Reserve Bank of New York giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries was short the equivalent of $7,286,000, decrease of $322,000 in the short position. Net changes were as follows: Short Position Short Position Change in February 26 Country March 5 Short Position England** Europe Canada Latin America $ 263,000 3,292,000 109,000 (Long) 211,000 Other Asia 2,559,000 1,352,000 All others 40,000 Japan Total $7,608,000 $ 515,000 3,207,000 173,000 (Long) 126,000 2,316,000 1,329,000 34,000 (Long) $7,286,000 + $252,000 - 85,000 - 64,000 - 85,000 - 243,000 - 23,000 - 74,000 - $322,000 Plus sign (+) indicates increase in short position, or decrease in long position. Minus sign(-) indicates decrease in short position, or increase in long position. Combined position in registered and open market sterling. M.M.P. CONFIDENTIAL 491 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 11, 1941 Secretary Morgenthau TO FROM Mr. Haas LDA. Subject: Current Markets Developments in the High-grade Security SUMMARY (1) Treasury securities have regained since February 15 about one-third of the price declines suffered between December 30, 1940 and February 15 (Charts I and II). (2) The increased issue of Treasury bills on March 5 was absorbed entirely by weekly reporting banks in the Chicago and St. Louis Federal Reserve districts. Bills are now in demand in these districts for the purpose of avoiding local property taxes. (3) High-grade corporate and municipal bonds have gained in price only moderately as compared with Treasury bonds during the past two weeks (Charts II and III). (4) Estimates of the yield differential between fully taxable and partially tax-exempt Treasury bonds vary from as low as 17 to as high as 57 basis points, de- pending upon the assumptions made with respect to the correct pricing of the new 2 percent Treasury bond (Chart IV). (5) The price of the new 2 percent bond offered on February 25 declined from an opening bid around 101-20/32 to a low of 100-21/32 at the close that day, but recovered somewhat, on balance, before the books closed the following day. As the result of the offering of a new note with the bond, the refunding was never in danger. The new note was worth at least 100-16/32, and if the price of the bond had fallen below that of the note, rights would have been converted into the new note. As it was, the bond never fell below the note, and when the books closed, it was substantially above it (Chart v). 492 Secretary Morgenthau - 2 I. Price and Yield Movements of Government Securities Prices of long-term Treasury bonds have enjoyed a net increase of over 2 points since February 15, when they reached a low for the year. Intermediate bonds have gained about 1 point during this time, while Treasury notes have gained, on the average, between 1/4 and 1/2 of a point (Chart I). This rise represents an average recovery of about one-third of the net decline from December 30, 1940 through February 15. Long bonds have shown the greatest strength, recovering about 54 percent of their losses bement securities continues to be very thin, and hence sub- tween December 30 and February 15. The market for Govern- ject to rather considerable price fluctuations. Price changes since December 30, 1940 are shown in the following table: Average price change Dec. 30, 1940-:Feb. 15, 1941Feb. 15, 1941 :Mar. 10, 1941 (Decimals are thirty-seconds) : Notes 1 to 3 years 3 to 5 years - .25 -1.00 + .09 + .11 -3.11 -4.09 +1.02 +2.10 Bonds 5 to 15 years to call 15 years and over to call The average yield of long-term Treasury bonds, moving inversely to prices, which increased by 29 basis points from December 30, 1940 through February 15, has decreased, on balance, by 15 basis points since February 15 (Chart II). 493 Secretary Morgenthau - 3 II. Absorption of New Treasury Bills The issue of Treasury bills on March 5 amounted to about $200 millions -- an increase of $100 millions over previous weeks. This entire increase and $20 millions more was absorbed by weekly reporting member banks in the Chicago and St. Louis Federal Reserve districts. Treasury bills are in demand in these districts at the present time forand the Missouri. purpose of avoiding local property taxes in Illinois The March 5 issue of bills was also the first issue of taxable bills. The increased size of the issue and the special demand mentioned above, however, tend to obscure the effect of the tax feature upon the rates of discount at which they were awarded. The average rate on the last issue of tax-exempt bills -- dated February 26 -- was 0.043 percent, as compared with a rate of 0.086 percent on the first issue of taxable bills. III. High-grade Corporate and Municipal Bonds Unlike prices of long-term Treasury bonds which have risen markedly since February 15, prices of high-grade corporate bonds have fluctuated within a fairly narrow range and have improved very slightly (Chart II). Highgrade municipal bonds have gained moderately in the last two weeks (Chart III). New bond offerings to the public in the New York market were $22.8 millions last week as compared with $9.8 millions the week before. The largest of last week's of- ferings -- $16.0 millions of Public Service Company of Oklahoma 30-year, 3-1/4 percent bonds (priced to yield 3.07 percent ) -- is reported to be moving slowly. The principal demand is said to come from medium- and small- size insurance companies. The RFC took the entire $136 millions State of Arkansas refunding bonds on February 27 at a price to yield about 3.2 percent. A nation-wide banking group which had been prepared to bid for about two-thirds of the issue on about a 3-1/2 percent coupon basis withdrew at the last moment. 494 Secretary Morgenthau - 4 IV. Pricing and the Value of Tax Exemption Secondary distribution of the new 2 percent bonds of 1948-50 is still far from complete, and the market for Government securities as a whole remains thin as it has been since the first of the year. It is thus difficult to draw any valid conclusions as to the yield differential being established in the market between fully taxable and partially tax-exempt Treasury bonds. Chart IV compares the yield of the new bonds with the yields of outstanding Treasury bonds. Two curves are shown for the outstanding issues: an optimistic one based on low coupon bonds with 2-year call periods, such as was used by Mr. Piser of the Board of Governors in pricing the new issue, and a very conservative one based on the bonds in this area with the highest yields, irrespective of coupon or call period, such as was used by the Division of Research and Statistics in pricing the issue. Inasmuch as the opinion is widely expressed in the market that the new bond should be regarded as a 1950 maturity (on the ground that partially tax-exempt bonds will be called before matu- rity, but that taxable bonds will be allowed to run their full term) yields both to earliest call date and to final maturity are shown for the new 2's. On the basis of yields to earliest call date the spread between the new bonds and partially tax-exempt bonds of com- parable term is about 57 basis points when the optimistic curve is used, and about 38 basis points measured from the conservative curve. On the assumption that the new bond should be figured to maturity (other issues continuing to be computed to call) the corresponding spreads are 35 and 17 basis points, respectively. The spread which may be attributed to the taxability of the new bond thus varies from as low as 17 to as high as 57 basis points, depending upon various assumptions which may be made - all with some authority - with respect to the proper pricing of the new bond as a partially tax-exempt security. # It should be noted, however, that the supposed necessity for pricing the new issue to maturity rather than to call is itself attributed to the tax factor, and thus creates a sort of "quasi-tax-differential" consisting of pricing the new issue as a 9-year rather than as a 7-year security. 495 Secretary Morgenthau - 5 When these differentials are expressed as equivalents of a tax on the coupon they vary from a low of 8 percent (or only one-third of the corporation tax) to a high of 28 percent (or more than the whole amount of the corporation tax) as shown in the following table: assumed for new bonds : Probable redemption date Curve used in pricing Conservative Optimistic (Percent of coupon) 1948 (Call) 28 1950 (Maturity) 17 19 8 The truth doubtless lies somewhere within these extremes, but the wide range makes it very difficult to say exactly how much allowance the market is now making for the taxability of the new bond, V. Refunding of the March Maturities The pricing of the new securities to be offered in ex- change for the maturing 1-1/2 percent note of March 1941, and the 3-3/8 percent bond called for redemption at the same time, presented a special problem because of the difficulty in estimating the allowance to be made for the taxability of the new issues. The problem was met by your offering an intermediate-term bond, and - as a "backstop" to insure the success of the refunding - a 2-year note. Opening bids on Tuesday, February 25, were about 101-20/32 for the new 2 percent, 7-9 year Treasury bond, and about 100-11/32 for the new 3/4 percent 2 year note. From the open- ing the price of the bond declined steadily, while the price of the note rose. At the close on Tuesday the prices of the new bond and the new note were the same (Chart V). On Wednesday the new securities gained, on balance, the bond 496 Secretary Morgenthau - 6 showing the greater strength, although at one point during the day its price fell back again to that of the note. As a result of the offering of a note together with the bond, the refunding was at no time in danger. After the first two hours of trading, as the chart suggests, the note was always worth a minimum price of about 100-16/32. If the price of the bond had fallen below this price, rights would have been converted into the note rather than the bond. As it happened the price of the bond twice ricochetedit upward from the price of the note, but never fell below (Chart V). Attachments 497 Chart I CHANGES IN THE PRICES OF U.S. SECURITING Points Plotted Represent the Difference from December 20, 1940 Price of Each Maturity Class 1942 1941 FEDRUARY POINTS BARON (NET CHANGE) POINTS (NET CHANGE) Saturday Quotations POINTS (HCT CHANGE) Daily +1 +1 +3 +1 + +2 + +2 of 0 +1 0 +1 + NOTES -3 + NOTES Yes. 1-3 Yes. 0 + + 0 + N -1 1 -1 -1 NOTES -1 NOTES 3-5 Yes. 3-5 Yes. -14 -14 -2 -14 -11 -3 -14 -14 -2 BONDS + 5-15 Yes A TO CALL + -2 -24 BONDS, BONDS OVER Yes. -5 5-15 Yes. TO CALL -7 -21 TO CALL & -21 -6 -21 -3 -3 -3 -36 -7 -> -34 -34 -6 -31 1 BONDS. OVER 15 Yes. TO CALL -9 -9 -10 + + - - -4 4 -4 -4 -10 JULY 1941 SEPT. NOV. JAN. 1942 THE -5 1 MAY -5 a 15 FEBRUARY 22 1 MAR. 8 -11 JAN. IS NASCH 22 29 5 -11 19 12 26 APRIL 1941 Office of the Secretary of the Treasury - Research and Invoice F. 153 -C 498 Chart II COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS - PER CENT 140 OCT. NOV pec FEB MAR 1940 941 APR. MAY OCT. NOV 1941 DEC DEC JAN PER PER CENT WEEKLY. Saturday Quotations DAILY IS 1.8 I.S 20 n 20 Long Term Treasury 20 22 22 2.2 Long Term Treosury or years or more to contract 24 24 24 26 26 24 28 28 28 30 10 Corporate Corporate 3.0 32 32 3.2 3.4 3.4 34 3.6 36 36 PER PER PER CENT CENT CENT .00 100 1.00 Spread Between Long Term Treasury and Corporate M 80 80 80 60 60 60 Spread 40 40 40 20 20 20 Nov. MAY JUNE JULY AUG SEPT OCT 1941 1940 Change in composition of Long Term Treasury average NOV DEC 0 OCT." APR in DEC 1940 . SEPT MAR 28 " AUS FEB - ANY JAN . . Modifo Secretary (the Treatment MAY DEC " JAN 1941 - FEB APR JMC AND FEB . -JAN MAR + + 29 0 o-+ MAR Ch III COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY AND Dow-JONES AVERAGE OF MUNICIPAL BONDS - : Yields Based on Saturday Quotations 1941 1940 JAN FEB MAR APR JULY 4.11 MAY 4.14 4.44 JUNE anMAY JUNE JULY AUG SEPT OCT NOV DEC JAN FEB MAR APR AUG SEPT OCT NOV DEC 14 30 Inverted Scale Inverted Scale PER CENT PER CENT Long Term Treasury" 1.8 (12 1.8 years or more to corliest call date) 2.0 2.0 2.2 2.2 2.4 2.4 2.6 2.6 Twenty 20-Year Municipal Bonds 2.8 2.8 3.0 3.0 3.2 3.2 PER CENT PER CENT .60 .60 . Differential .40 40 .20 .20 at JAN .. : 0 0 ..... - - of FEB HH - MAR DEC 14 1941 APR 1940 "Break - line indicates change in compension of Long Term Treasury average ---- Office # the Secretary of the Treasury F-184-0 500 Chart IV COMPARISON OF YIELD OF NEW 2% TREASURY BOND WITH YIELDS OF PARTIALLY TAX-EXEMPT - TREASURY BONDS Based on Closing Bid Prices, March 10, 1941 1948 PERCENT 1949 1950 PERCENT NEW BOND YIELD TO MATURITY 1.9 1.9 Now BOND YIELD TO CALL 1.8 1.8 CONSERVATIVE CURVE 1.7 1.7 1.6 1.6 1.5 1.5 1.4 1.4 OPTIMISTIC CURVE 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 1948 Office of the Secretary of the Trateury Dividian of - - - 1949 1950 F 203 Chart BID PRICES OF NEW TREASURY SECURITIES Hourly, February 25 and 26, 1941 DOLLARS DOLLARS 1014 1014 101+ 101+ 2% BONDS, MARCH 15, 1948-'50 101 101 101 101 1004 100 * NOTES, MARCH 15, 1943 100 100 100 100 100 12 FEBRUARY 25 - of I - Office of the Secretary of the Treasury 10 4 1 11 3 2 TIME 11 12 1 10 4 2 3 100 FEBRUARY 26 F 202 502 Treasury Department Division of Monetary Research Date To: March 11 1941 From: Secretary Morgenthau Mr. White Subject: Financing of Argentine food shipments to Spain J Cable advice from Buenos Aires indicates that the Spanish interest in the Argentine Electricity Company will be used as the security for the Argentine credit to Spain to finance "immediate shipments" of meat and wheat to a value of 35 to 40 million pesos (about $10 million). This is the first case which has come to our attention of Argentine acquisition (probably only as collateral) of foreignowned enterprises. Possibly these securities can be resold in the Argentine capital market to acquire pesos to pay Argentine grain and meat producers. But apparently they are to be used only as collateral. MR. WHITE Branch 2058 - Room 208 503 EH PLAIN Calcutta Dated March 11, 1941 Rec'd 9:11 p.m. Secretary of State, Washington. Eleventh. Government notification March tenth requires British subjects holding twenty-four American securities surrender them within one month at fixed prices. Preferred stocks American power light fives electric bond share fives common stocks Telandtel Anaconda Bethlehen Chrysler electric bond share General Motors National City Bank Republic Socony National Power Light United States Steel Government bonds eleven issues. GROTH NPL Copy:ala 504 Peiping via N. R. JR Dated March 11, 1941 Rec'd 1:02 p.m. Secretary of State, Washington. 80, March 11, 2 p.m. As of March 1 the Federal Reserve Bank is reported to have refused to issue export permits covering articles made in whole or in part of silver, brass or other metals, including cloissonne, and costume jewelry. An official of the bank has stated informally that although no such restriction has been promulgated the matter is presently under consideration. The customs authorities state they have no instructions in the premises but refuse clearance without a permit from the bank. This restriction if universally applied will in effect eliminate the only remaining major export from this area. Sent to the Department, repeated to Chungking, Tientain and Shanghai. By air mail to Tokyo. SMITH GW eh:copy 505 (CONFIDENTIAL) PARAPHRA SE A confidential telegram dated March 11, 1941 from Consul Brady at Rangoon reads substantially as follows: Reliable figures show that during the two months from December 30. 1940 to February 28, 1940 there were shipped into China by the Southwest Transportation Company supplies of all kinds for the Chinese Government to the amount of 22,026 long tons. It is reported that there was reopened to traffic on March 3 the new bridge across the Mekong River which in December was badly damaged by bombing. For weeks a pontoon ferry has been used to handle traffic across the Mekong River and there is now being built a pontoon bridge. The old Mekong River suspension bridge is still in a wrecked condition. mg COPY 506 RESTRICTED 0-2/2657-220 No. 336 M.I.D., W.D. March 11, 1941 12:00 M. SITUATION REPORT I. Western Theater of War. Air: German. Daylight activity on the 10th was limited to attacks on shipping. Last night a heavy attack was made on Portsmouth. British. On the night of the 10th-11th Cologne was heavily attacked. Invasion ports, including Brest, Cherbourg and Boulogne, were also raided. II. Balkan Theater of War. Ground: Bulgaria. No change. Albania. The Italians report patrol action by the ninth army and artillery and local infantry action by the eleventh army in the Tepelini sector. The Greeks report they have repulsed strong Italian attacks along a widened front in the central sector (Tepeleni-Klisura). It would appear that the Italians are preparing for a general offensive. Air: Normal close support operations in Albania. III. Mediterranean and African Theaters of War. Ground: Abyssinia (Ethiopia). British forces have captured Dambacha and are threatening Debra Marcos 32 miles to the southeast on the road to Addis Ababa. of Giarabub. Libya. Minor operations incident to the siege Sea: The British report an Italian cruiser has been torpedoed and almost certainly sunk. Air: German. Harrassing attacks in the Bengazi area. British. A rather strong attack was made on Harrar, Ethiopia. Note: This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as Restricted. RESTRICTED CONFIDENTIAL 507 Paraphrase of Code Radiogram Received at the War Department at 10:38, March 11, 1941. Lenden, filed March 11, 1941. 1. On Monday, March 10, British fighter planes flying at 30,000 feet carried out three offensive sweeps over the French const between Calais and Beulegno but encountered no German planes. During the preceding night as British planes were over the Continent. 2. During the night of March 10-11 targets on Liverpeel Boy and the Saturary of the Thrase were the objectives of secondary German reids. The principal raid was a fairly severe German attack carried out against Pertemouth. The extent of the damage done has not been determined. No British please were lost. Garasa lesses were one plene which creshed. During daylight hours of March 10, 41 German planes were on reconneissance missions over the English Channel and the North Sea. Twenty-sine Gerara planes were pletted over Great Britain. One German plane was shot down and no British planes were lost. There was no damage to military installations. During the night of March 9-10 Reyal Nevy deak facilities and Army borrocks in the Portmouth orea suffered some damage. During the same night 120 German planee took part in the attack en Lendon. The Nonston airfield in southern Britein was attacked by 18 Gerasa Nesserochmidt dive bombers without deseage in the early daylight hours of March 9. 3. Reyal Air Force operations in Middle Eastern theaters were ag followst seven Italian please were shot down and 10 is probable that two others were destroyed by British fighter planes ever Kelayre (this may be CONFIDENTIAT CONFIDENTIAL 508 Kereire which is the Greek asme for the island of Certa - G-2): - Italism mater transport concentration and Italian forces in the visinity of Topoleni, Albenia, were attacked by British pleases British bombers success- fully carried out a severe attack on the harber of the Albonian city of Duresses is the Eritreen theater two Itelian please were destroyed and the highway between Assare and Keren was bombed: in the Libyes theater the airfield at Tonet (Smed Kessan) and the city of Tripeli were attacked by Brttish bombers. 4. Axis sir operations in the Middle Eastern theaters were as follows: at Helta 12 German planes attempted to carry out a raid but the British shot down one of the Gerasa planes, damaged two others and drove off the rest; in Libya Gerara bombers attacked the city of Agedabye without damage. 5. During the night of March 9-10 a British arego beat in the Straite of Dever was susk by Gerusa boabs. During the preceding day Gerapa bombers attacked two British a conveys along the east coast of England but caused no damage. 6. During the night of March 7-8 German airplanes attacked and caused siner damage to the 1,370-ten British destroyer IMPERIAL is the Mediterreason near Malte. SGANLON Distributions Secretary of Ver State Department Secretary of Treasury Aust. Secretary of Var Chief of Staff Var Pleas Division Office of Nevel Intelligence Air Corps as CONFIDENTIAL CONFIDENTIAL 509 Paraphrase of Code Radiogram Received at the War Department at 9:47, March 11, 1941. Rome, filed March 11, 1941. The Italian Army now has the following divisions in Albenia: 16 line infantry divisions, 5 Alpine Divisions, 2 armored divisions, 1 motorised division. In addition to these there are the eorys and army troops for 6 corps and 2 armies. These figures include one Colore groupment. At present the total strength of the any in effectives may be placed at 420,000. It is believed that an offensive is imponding. There is a report that Colono has been given the command, but as yet there is no sufficient confirmation. FISKE Distribution: Secretary of War State Department Secretary of Treasury War Plans Division Office of Naval Intelligence CONFIDENTIAL