Full text of Diaries of Henry Morgenthau, Jr. : Volume 382 : Part 2

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

214

-8H.M.Jr:

Yes. And Harold Smith has it, doesn't he?

Bell:

He has it and he has gone to the capitol.

H.M.Jr:

I would do that, send all of them a copy.

Bell:

Well, the British said that if you can't accept

that, you can just tell them and they have seen

the questions and the answers and thank us very

much. They don't say that they have their
approval. I said we didn't exactly want your
approval, we want your advice.

You had better do it for me once more. I
don't quite get the significance.
Bell:

Well, they wanted to show to the Congress that

they are not going to meet all of their existing liabilities out of the dollar resources,

as you have told the committee that they would.
H.M.Jr:

I see.

Bell:

What they want to show is that some of these
contracts now in the process of being carried
out might be taken over under the Lease-Lend

Bill in the interests of the United States.
I believe that would just raise a question

which would tear these hearings wide open,
and you might have to go up there and explain

it and it would be difficult.

H.M.Jr:

Now, Dan, will you take an other responsibility?
Monday, will you take it on yourself to see
that before I leave here Thursday night I
should call on whoever corresponds to - what
is the man in the House who is sub-chairman
on this thing?

Bell:

Woodrum?

215

9H.M.Jr:

Well, Clif Woodrum is not in the Senate. I
ought to get up there and call on him with

you and tell him what we are doing, and that
I am going away and what the arrangements

have been in the House, and I hope it will
be the same in the Senate, you see. In other
words, I don't want them to suddenly pick up
the phone and find out I am in Arizona, but
I think you and I had better call on him,
whoever he is. Who is the man?

Bell:

I don't know. Glass is head of the committee,

and I don't believe they have a sub-committee
on deficiency.
Thompson:

It is the full committee.

Bell:

I think it will be Glass.

H.M.Jr:

However it is, you and I ought to go up and
call on them.

Bell:

Probably ought to have Glass and Byrnes.

(Mr. Foley entered the conference.)
H.M.Jr:

Well, the point is that I don't want to go and
finally have the thing fall in your lap, you
see. I would like to take care of it before
I go away, because I don't want them suddenly

sending for you, and I think if I call on them,
I could keep it - it won't be unpleasant for

you.

Bell:

All right.

H.M.Jr:

Has anybody got anything he wants to ask me?
I have.

Pehle:

Sullivan:

Early in the week you wanted me to talk to you

216
- 10 -

H.M.Jr:

about Gulick before he comes down on Tuesday.
Well--

Sullivan:

Monday?

H.M.Jr:

Yes.

Sullivan:

Do you know where I can get hold of Mr. O'Neil
on that tax man he wanted?

H.M.Jr:

White:

H.M.Jr:
White:

Sure. He is here in Washington. The fellow

who is working with him on it, who has been
very cooperative with us, his name is Ogg, He
is an economist? He is an economist, isn't he?
I don't know.
I think he is an economist, the same as Harry.
I am sorry, I misunderstood your question. He

is definitely an economist. There are all
kinds. He is one too. (Laughter)
H.M.Jr:

Anyway, I would get in touch with him.

Sullivan:

How much they want to pay--

H.M.Jr:

Ogg is the fellow, and he has been very use-

ful to us. While I am on that, so there is no

misunderstanding, the Secretary of Agriculture
has told the Congress of the United States that
inasmuch as the Treasury is opposed to the cer-

tificate plan, he is opposed to it, and Senator
Bankhead tells me he will not push it, but he
wanted the President to tell Fulmer that he, the

President, is opposed to it. I told Wickard I

was not interested in how they reduce acreage

in cotton, as Secretary of the Treasury, or how
they compensated. All I was interested in was,

how big was the pie and not how they divided

it up.

217
- 11 Bell:

I think that is right.

H.M.Jr:

As long as they didn't try to build another
tax collection agency over in Agriculture, how

they ran or spent their money was not our
business.
I didn't have time to study cotton
and
so forth.
Bell:

Hold it to the minimum.

H.M.Jr:

So I just wanted to tell you that.
What?

Bell:

All right.

H.M.Jr:

O.K.?

Bell:

Fine.

H.M.Jr:

Do you agree with me on that?

Bell:

Yes.

H.M.Jr:

Now, didyou (Sullivan) explain that to Ed?

Sullivan:

I will give him the whole story, yes, sir.
Tell him now so if he isn't in sympathy, he

H.M.Jr:

can tell me.

Pehle:

The Norwegian Minister saw Dan yesterday and

wants a transaction approved which will involve
the Norwegian Relief Committee, an American group,

sending 500 thousand dollars to Russia to pay

for grain to be sent into Norway.

(Mrs. Klotz entered the conference.)
He is very urgent.

Now, what I would like to do is tell the

218
- 12 Norwegian MinisterH.M.Jr:
Pehle:

What country is this?
It is coming from Russia and going to Norway.

It may be coming from the Baltic and be like

that deal Hoover wanted to push through before.

It sounds very much like it. I should think

we would want State to tell us that they
wanted the deal to go through.

Just state it once more to see if I understand

H.M.Jr:

it.

Pehle:

The Norwegian Relief Committee has collected
funds from Americans, and they want to use you remember we allowed them before to use
some funds for prefabricated houses. Now they
want to buy some grain in Russia which may or
may not come from the invaded countries, Esthonia,

Latvia, Lithuania, and send it to Norway.

H.M.Jr:

I think we ought to get a letter from Mr. Hull.
Anybody else want to raise their hand?

Bell:

I would like to ask one other question. Do you
want to see anybody on Monday or Tuesday from
the Open Market.

H.M.Jr:

Yes.

Bell:

Want us to make up a list?

H.M.Jr:

Yes.

Bell:

Would you rather do that Monday or Tuesday?
We ought to make the decision about noon on
Tuesday.

H.M.Jr:

I think we had better do it - why not let's

219
- 13 -

bring in B. M. Edwards? I can get rid of him
by just shaking hands and turning him over
to Harold. I would like to see them on a

15 minute schedule from 10 to 12.
Bell:

Don't you think that is a little fast?

H.M.Jr:

What do you mean, fast?

Bell:

I mean every 15 minutes?

H.M.Jr:

Every half hour. And then I have got from

three to four. That will give you a chance for
six people.

Bell:

Yes. Want us to make up a list or do you have
any preference?

H.M.Jr:

I will tell you what I would like you to do.

If you would make up a list and then come in
in about half an hour and submit it to me.
Bell:

All right.

H.M.Jr:

Do you (Foley) concur?

Foley:

Well, the only thing that I waswondering about
was the necessity for a detailed brief on each
one of these points. Might not a layman's
supposition of our position as to each one of
these things and our conclusions be enough in

a letter?

H.M.Jr:

Again, I am not going to get into it. Give me
something good, something that will convince

somebody. How you present the case is up to you

two attorneys, you see; but I was thinking,
leaving the President out, everyone of these
other fellows have got a corns of lawyers with

a finger in some of this stuff, and I would
make It as convincing as possible. But I will

220
- 14 -

leave it to you.
Is everybody else happy?
Schwarz:

I have got one point here that is deferred to
October, but we ought to respond to the letter.

Ray Blakey, whom Herbert says you know, has
invited you to speak in October to the National
Tax Association.
H.M.Jr:

I just gave the answer to Mrs. McHugh on that.

Schwarz:

I will check it.

H.M.Jr:

I told Mrs. McHugh here, I saw her at 9:30 and

Schwarz:

H.M.Jr:

I said all of those things go to Harold Graves.
I mean, anything to do with selling bonds or
anything like that.
This is-Oh, tell him to write me in September. The
man is a jackass to write me now. (Laughter)
I told him to write me in September. I had
another request to talk for a group, and I said,
"Write me in September." I hope I am alive
in September. I hope the Democracy is still
alive in September.

What else?
Schwarz:

That is all.

Sullivan:

I think Chick deserves a couple of orchids on

the publicity on income tax returns. I think
it has been far better than it has ever been
any other year. Have you noticed in the papers

and cartoons and radios and everything?
H.M.Jr:

Well, to be honest, I haven't, but if you say
orchids, orchids it is.

March 15, 1941
12:05 p.m.
H.M.Jr:

Operator:
H.M.Jr:

Operator:

Hello.
Mr. Max Gardner.

Hello.
Go ahead.

H.M.Jr:

Hello.

Max Gardner:

Mr. Secretary, this is Max Gardner.

H.M.Jr:

Hello, Governor, how are you?

G:

H.M.Jr:

221

First rate. I hope you are well, sir.
All right, alive anyway.

G:

(Laughs) Well, that's something.

H.M.Jr:

What's your worry?

G:

I wanted to talk to you, if I might. I represent

H.M.Jr:

Yeah.

G:

H.M.Jr:
G:

the American Viscose Company and the rayon industry.

And I have got a balance sheet of the American

Viscose Company - it represents a third of the
rayon production in the United States.
Yeah.

And they are under great pressure up there, as
you know more about than I do, but I met with

the industry in New York this week and the little
companies are hoping that no precipitant action
will be taken to force this company into liquidation until they'd have a chance some way by which
they could keep the control if possible in the
hands of the men who are now running it.

H.M.Jr:
G:

Well now what I'm going to do 18 ask you to tell

your story to Ed Foley. Hello.
Yes, sir. I know him.

H.M.Jr:

And I'11 tell him that - he can see you Monday.

G:

He can see me Monday.

H.M.Jr:

Right.

-2G:

H.M.Jr:

I'11 will.
appreciate it very much, Mr. Secretary, if
you
O.K.

G:

Thank you,sir.

H.M.Jr:

Thank you.

222

223

March 15, 1941

At lunch today with Purvis, he told me that Sir
Frederick Phillips is shutting down on his placing any
more orders for cash; in fact, there is an order which
they want to place for Thompson machine guns, and Phillips

tried to stop it. So I asked him why they didn't put all

their new orders under the Lend-Lease Bill. He said he
didn't know why, and I said that it seemed pretty dumb to
me that they had not tried it.
I then called up Hopkins on the phone around four

o'clock and asked him. He said he did not think that it
could be done. I got hold of Young and Cox then, and they
both think it can be done, and they are going to go to work

on it. I said that it seemed to me that all new orders which

the British want to place should be placed under the Lend-

Lease Bill.

224

Notes on Conversation between

the Secretary and Philip Young at the

Secretary's House on Saturday Afternoon
about 4:30, March 15, 1941.

The Secretary inquired as to the amount and type
of materiel which had been made available to the British
and the Greeks under the Lend-Lease Act. Philip Young
described it as small amounts of surplus stock Items,
such as 3-inch and 4-inch guns, some anmunition, etc.,
but he emphasized the fact that it did not amount to anything, and that it seemed as though Harry Hopkins was
getting the run-around by the Army and Navy.

Mr. Young said that he thought Hopkins did not yet
realize that an Army officer could not be counted on to
offer to give up anything which might hurt the Army program but yet at the same time might not jeopardize the
defense of the United States.

In this connection, Young added that Hopkins was
considering appointing General Burns to run the lendlease program while Hopkins was out of town with the
President for the next two weeks. The Secretary thought
that to be absolutely wrong as Burns did not have a suf-

ficiently broad point of view. Young also added that
Hopkins was considering Fuller as a possibility. The

Secretary said that he would see Hopkins that night and

would inquire into the situation.

The Secretary asked if anything had been done by

Hopkins in the aircraft field. Young replied that he
did not know of anything. The Secretary specifically
asked concerning the Martin B-26 bomber. Young said

that nothing had been done with respect to any aircraft
and that he felt it was about time the situation was again
thoroughly canvassed. The Secretary stated that he saw no
reason why the British should not get combat planes on a
one for one basis, that is, every other one should go to
the British.

225

-2In addition to the conversation about planes, the
Secretary specifically inquired as to whether or not the
contracts still being placed by the British and approved

by Sir Frederick Phillips and Secretary Morgenthau could
not be lend-leased from now on. He added that it was
the 15th of March which was a good starting point, and he

felt that it should be taken over by Hopkins.

Young said he saw no reason why it could not be
lend-leased by some method provided that appropriations
could be found to cover the purchases. He added that
it would be desirable to arrange some sort of blanket
directive creating an open account formulated for the

placement of all the small contracts for such things as
iron and steel, machine tools, etc. The Secretary said
that he had talked with Hopkins about it on the telephone

and that the latter had seemed amazed even at the possi-

bility of lend-leasing such stuff. The Secretary evidently

assured him, however, that he thought it could be done, and

Hopkins replied that if it were true he would drop every
thing else and work out that problem.

The Secretary went on to say that he had had lunch
with Purvis and also talked with him about lend-leasing

the daily contracts. Purvis thought it was a fine idea

and promised to go over the ground with Hopkins.

Purvis had also told the Secretary about the sale of
American Viscose although official notification would
reach the Secretary later in the afternoon from the British

Ambassador. The Secretary said that it was a great success
for him as the sale had only been made after he had exerted
great pressure on Sir Edward Peacock. In fact, within
twenty-four hours after the Secretary had advised the British
that he would ask for the withdrawal of Peacock if some action were not taken, the basis for the deal had been worked
out.

During the course of the conversation, the Secretary
called Mr. Cox on the telephone and talked with him about
lend-leasing the daily contracts, and Cox confirmed Young's
belief that it could be done by one means or another. The
Secretary said that he would call Hopkins and ask him to

have a conference on Sunday with Purvis, Young, and Cox to

settle the matter. (This conference was never held.)

Py.

226

March 15, 1941

Lord Halifax came to have tea with me at 5:30. He told
me that they had put through the Viscose deal and it is going
to be announced Monday morning. He said that they had put it
through on the suggestion that I had made; namely, that they
take a down payment and then settle as to the final price

later on. I told him I was very much pleased because I felt

that this situation was very difficult.

I then told Lord Halifax about the incident in my

office when I asked Gifford about selling more stocks a week.

I said that when I put the pressure on him he finally turned
to Phillips and said that he had orders from the British
Treasury to the effect that they should sell only one to three

million. I said that after that incident happened in my office,
it gave me reason to have doubts about whether or not Peacock's
orders were really to go ahead and make sales. The Ambassador
had not heard the story. He asked me to have confidence in
Peacock.

I brought up the question of gold, and he seemed to
have some doubts about that. He asked me if I would see

Phillips and have a talk with him, and I said, "Surely."

I said that during the past seven years one of the high spots
in my life with the Treasury was the fact that there was no
trouble between the British Treasury and myself, and I did not

want any now.

I told Halifax about how today I had given the idea to
Hopkins that beginning with Monday all new orders should be
under the Lend-Lease Bill, and I thought that would cheer up
the British Treasury.

Halifax was very friendly, but if I had not gotten

the background of what had been going on during the past week

from Purvis, I would not know that they had put through this
deal 24 hours after I had put the pressure on them, and that
my suggestion had worked. I thought that Halifax might have

been a little bit more gracious about it, but he is pretty

cool with an outward smile. There is no warmth to the man,
and it is not easy to get on an open and frank basis with him.

227

-2I feel tremendously relieved because I went out on the
end of a limb when I told him to put through a direct sale of
some factories in this country or else to have Peacock recalled.

If they had not gone through with it, I don't know just what I

would have done, but evidently they took my threat very seriously

and made good. I think that this is all to the good, and I am
sure that Halifax must have much more respect for me because

the suggestion I made turned out to be a workable one. I think
that the newspapers on Monday carrying the fact that they have

sold this big industry will have a good effect on the Hill.

Halifax again, for the second, or third time, brought

up the question that he would like very much to have a man

sit with Peacock. I told him I would think the matter over,

and I would give it more favorable consideration now that the
first deal has gone through. Frankly, I did not want a man to
sit with Peacock until he had put a deal through for fear that
if it went wrong, he would say, "Well, it is the Treasury man's

fault."

228

March 15. 1941

My dear Mr. Knudsens

For your information, there is transmitted herewith copy of a homorandum furnished the Director of

the Dureau of the Budget this morning to be inserted

is the record of the hearings before the Appropriation
Committee on the appropriation bill to carry out the
provisions of the Lend-Lease Act. The questions
presented in this memorandum were given to Mr. Smith

yesterday with the request that he get the answers from
the Treasury.

Sincerely yours,
(Signed) H. Morgenthau, Jr.

Henerable William S. Kandson,
Director,
Office of Production Management,

New Social Security Building,
Washington, D. 0.

Enc.

DEBICE

By Memoring

LABB

2 copies to D.W. Bell
CC to Mr. Thompson

Original to Harry Hopkins

3/15/41.

MAR 15 1941

KEMORANDUM
To:

Harry Hopkins

From:

Oscar Cox

Subject: Aid to Britain in the Next 120 Days.
Following up our talk of yesterday, you may want
to think about and have exploreds

1. Getting defense articles to Britain without
the use of ships.

a) If an air base is built in Greenland,
more of the shorter-range planes can probably

be forried across in hops. I understand that,
if we start right away, we can get the base
finished in less than two months.
b) By relaxing the past-procedure on the

training of pilots and crows for ferrying which can doubtless now be done legally - longrange bombers can be gotten across appreciably

faster,

229

230

e) To the extent that it is possible,
the long-range bombers and flying boats should
be armed here and carry across what load they

can - whether it be bombs or other defense

articles.
2. Getting defense articles to Britain without
the use of merchant ships.

a) The Neutrality Act does not apply to
vessels owned by the Havy or Coast Guard. In

all probability, an aircraft carrier, for example, could be used to deliver planes to Halifax.

Similarly, other defense articles could be dolivered to points closer to the ultimate intended
destination of the articles than New York or San
Francisco, for example, and thus relieve British
merchant shiyping.

b) Railroad and other means of transporte-

tion might also be used, as far as possible, to

relieve shipping. In the case of lumber and
dried fruits, for example, they might be transported

231.

-3*
from the West Coast to the East Coast or

Canada by rail rather than ship.

3. Relieving the Load on British Shipping.
a) By the use of the Maritime Commission's
requisitioning power and the Interstate Commerce

Commission's priority powers, our shipping can
be concentrated on the more essential items,

and possibly some of the British shipping in
the Far East and in the South American routes
can be released.

b) By acquiring - through requisition or
charter - the Danish and other ships in our

ports, we can doubtless relieve British ship-

ping directly or indirectly.
4. Getting urgent defense articles out of existing
stocks for Britain.
a) By giving the Army, Navy, etc. open
drawing accounts of $1,000,000, or several mil-

lions each, for example, and putting bird-dog

232

non in those departments on the job, many

itass which are necessary to Britain can
doubtless be dug up and transferred quickly

to Britain,
2) By sufficient and adequate probing,

additional defence articles out of existing
stocks can probably be obtained It is natural
for the services not to want to give up what
they have, In many cases, however, the rate

of production of the item and the other facts when dug up - will indicate that the transfer
can and should be made.

& Removal of the Limiting Provisions of the
Neutrality Acto
a) The Land-Lesse Act suspende many of the

provisions of the Seutrality set. A detailed
review should doubtless be made of the extent

to which this suspension takes place, to the
practical and of determining how more effectival

aid can be given to Britain in the next three
months,

233
0

0

THE ECONOMIST

March 15. 1941
DOLLARS AND POUNDS

A week ago the tenacious resistance of the isolationist minority in
the United States appeared to be likely to hold up the inevitable passage
of the Lease and Lend Bill for another week or ten days. But on Friday a
earning from the President of the ill effect of delay produced its effect.
A whole series of amendments came to the vote in rapid succession, and all
those that were not accepted by the Administration were disposed of by
comfortable majorities. The final vote in the Senate late on Saturday
passed the Bill by a vote of 60 to 31; the House of Representatives on
Tuesday concurred in the Senate's amendments by the vote of 317 to 71, and

the Bill became an Act with the President's signature on the same day -March 11, 1941. It is a date to remember; the passage of this Declaration

of Interdependence may come in after years to be regarded as an event more

significant than even the war that has provoked it.

The Act as finally passed incorporates only two amendments to the

original text that are of substantial importance. The first, inserted by

the House of Representatives, limits to $1,300 millions the value of the
assistance to other countries that the President is authorised to grant out
of war material now in existence or already appropriated for by Congressthat is, substantially, out of existing stocks and the 1940-41 programme
together. This is not considered to be a crippling limitation. The second
amendment, inserted by the Senate, provides that separate appropriations must
be made for any goods to be supplied to foreign countries, and no valid
objection can be raised to a desire of the taxpayers' representatives to
know beforehand how much money is to be spent on which purposes.

All other amendments that would have limited the discretion of the
President, whether as to the parts of the world in which the armed forces
of the United States could be used or as to the possibility of convoying
supplies across the Atlantic, were rejected. In substance, Mr. Roosevelt
has the powers and the discretion for which he asked, and it has been made
plain that they extend to the provision of food just as much as to the more
specifically warlike requirements of the belligerent democracies. Action
under the Act is to be taken at once. Under the limit of $1,300 millions
for existing stocks, a large number of badly needed implements of war will
be despatched at once: it has been widely reported that destroyers and other
escort vessels are to be given priority, but, in other respects also the
President is prepared to cut America's own stocks to the 1:mit of safety in
order to assist in the Battle of Britain. Though the amounts that are
immediately available are necessarily limited and the beginning of the main
flood of supplies is still many months ahead, this immediate help is many
times more important than mere value figures would indicate. The longer-term
programme is also getting under way in majestic fashion. A request for an
appropriation of no less than $7,000 millions for goods to be supplied under
the Act has gone to Congress at once,

234
-2-

Shortage of Dollars

The political and historical importance of the new Act would require
no further demonstration even if it had not been adequately emphasised in
the Press of both countries. Some of the more purely economic effects of

the Act have received much less attention. This is partly due to the
public's lack of exact information and to the obscurity that necessarily
attaches to a measure in which so much is left to the President's discretion.

But it is nevertheless important that obvious misconceptions should be removed,
For example, there is some tendency in this country to assume, now the Bill is

an Act, that the dollar anxieties of the British Treasury are at an end. It

is, of course, an immeasurable relief, but the shortage of dollars remains.
This can be illustrated in general terms by the Treasury's estimates of the

probable balance of payments between sterling and dollars in 1941 which have
been published in the United States and are recorded in a Note on page 345.
According to these figures, the trade between the United Kingdom and the

United States in all items, other than Government orders, is expected to

result in a net deficit of $100 millions, while payments in gold or dollars
to Canada and other countries outside the sterling area (except, of course,

the United States itself) will require $867 millions. Against these are the

favourable net balance of the sterling area's trade with the United States
and the value of the gold which can be dug out of the mines or hoards in the
course of the year. The position can be set out as follows:Estimated Requirements of Dollars for Purposes other
than Government Orders, 1941

Debit items ($ millions)

(net)-

:

Trade between U.K. and U.S.A. (net)

Payments in gold or U.S. dollars

Credit items ($ millions)

100: Trade between sterling area
(exc.U.K.) and U.S.A. (net)

222

: Newly mined and dishoarded

Canada

620:

Other countries

247:

gold,

Deficit
967:

555

777
190

967

This is not, of course, the whole story. The Treasury figures record an
amount of $1,274 millions outstanding on December 31st in respect of Government
orders placed in 1940, and this amount will, of course, have beon increased by

any orders that have been placed in the intervening months. It might be rash to

that all of these will now be assumed by the United States

and still more made since 1st will

Government assume be obligations so that payments actually January
refunded. Moreover, is it right to suppose that the new Act will cover
everything that the British Government requires from now on? On two sorts of

items the need for conceivablysrise. The first is on
have been or be for munitions which are of
British orders that independent placed, payment may may placed,

design or may, for other be of no value to the United States.

drafted with the intention
not necessarily with the effect) that it should apply only to goods that
the British Government acquires for its own use and not for re-sale. Can it,
therefore, be held to cover goods re-sold to civilians, such as some of the
The (though second arises from the fact that reasons, the Act is

petrol and food?

235

It may be that a favourable answer can be given to these questions, but
their existence by itself shows how premature it would be to assume that all
anxieties on the score of dollars are now at an end. The available capital
resources on January 1st were returned as $1,811 millions. But almost half

of this figure consists of the so-called "direct investments" whose liquidation

must necessarily be slow. Moreover, these reserves have undoubtedly been drawn

upon since the beginning of the year. Only those in possession of the full
facts can judge whether the final account is likely to balance without further
assistance from the United States Government. But obviously there is no ample
margin, and dollars will remain one of the very scarcest of all the raw

materials of war.

It is impossible to leave the subject of the supply of and demand for
dollars without remarking what a relief would be secured if it were possible
to make with Canada arrangements similar to the Lease and Lend Act. It is
somewhat anomalous that a neutral should be providing munitions free of cash

payment while gold or American dollars are still being paid to a belligerent.
There is no reason to suppose that this is not appreciated in the most realistic

and generous spirit in Ottawa,

Domestic Consequences for America

If the economic effects of the new Act for Great Britain will be almost
entirely external to the national economy, the reverse is true for the United
States. The $7,000 millions appropriation which the President is to submit to

Congress represents in the main additional to be

funds. Not all the $7,000 millions is additional. In the
American
months
financed
outGovernment
sixteen spent
of
from September,
1939.activity,
to December,
1940, the British

$1,380 millions in the United States and part of the $7,000 millions will
merely continue this activity. Another part may possibly be going to pay for

merchandise which was bought last year on other than British Government orders.

But, in round figures, $4,000 to $5,000 millions out of the new

entirely additional more to

Ontop
can
be taken
to be production-with
perhaps
appropriation
come.
of this,
the estimates
for purely American
defence
expenditure in
the

financial year July, 1941, to June, 1942, amount to $10,800 millions, which is

more than $8,000 millions above the for the calendar 1940.

is subject
increase.
It between
the two
figure too
figure to
appears,
then,
year programmes,
This
as if something of the order of at least $12,000 millions a year more is to be
spent on armaments than in 1940.

These are gigantic figures, but they need to be related to the still more

same issue of the of

astronomical figures of the American national income (which are discussed and

some
in a from
Our New York
on 340).
analysed
in detail
message
Correspondent
page

assets
andrequirements
there is Reserve
an authoritative
discussion
British In the dollar
the Federal
Bulletin that contains
estimates by

the Reserve Bank of New of

Mr. the effect
John H.expenditure
Williams, Vice-President
Federal York,
that defence
is to have theofAmerican

points out income of the United States in

here
we
are
still
in
He
that
expenditure
and is incapable
there,
a surplusreaction
situation."
argues
of producing
an inflationary
until much
morepublic
general
which may
threaten
1940 Mr. Williams at about $75,000 millions, that, with "despite the national likely specific shortages
upon economy.

shortages develop, and he puts the danger-point at a national income of about

236
$90,000 millions. This is the point at which bottlenecks will be beginning
to be serious; it is not the limit of the expansion of the national income
but the point at which "we shall need to be pursuing a positive policy aimed
at preventing a general inflation."
To discuss all the implications of America's new policy on her domestic
economy would require a whole series of articles, but it is clear from
Mr. Williams's argument that the crucial change is not far off. At present
the United States is in a peace economy, "a surplus situation." But if the
existing national income of $75,000 millions is now to be increased by at
least $12,000 millions of additional defence expenditure, together with
such additional private activity as may be generated thereby, the danger
signal of $90,000 millions will soon be reached. The United States will then
pass into the phase of semi-war economy, when in one field after another,
but not yet generally, civilian consumption must be cut down if it is not to
impede the expansion of war production. Whether America will ever reach the
stage of a full war economy, when, instead of there being a "surplus situation"
there is a universal "scarcity situation," and at what national income that
would be reached, are matters for speculation. But if a total defence expenditure of some $18,000 millions (considerably more than the present
domestic war effort of the United Kingdom) is only enough to bring the American
economy to the first danger signal, the ultimate productivity of American
defence industry would be enough to swamp the whole Continent of Europe.

For the moment, however, American rearnament is still in an early stage.
At $18,000 millions out of a national income of $90,000 millions (a rate that
will not be reached for some time yet), the proportion will only be about
half that already ruling in the United Kingdom. But the tendency, which is
manifest in the United States and has been blessed by the highest authority,
to argue that America can have guns and butter ad infinitum has its dangers.
There is no need for a policy of restriction of civil consumption yet-except
in one or two of the earliest bottlenecks. But the need for such a policy will
develop rapidly, and the constitutional arrangements of the United States will
create more difficulties in implementing it there than exist either in Maxi
Germany or even in a centralised democracy such as Great Britain. The
Administration will be very well advised to have its plans ready. If the
spending of the money goes according to schedule, they will be needed in twelve
months' time,
The Problem of Repayment

A final aspect of the Lease and Lend Act has, somewhat naturally,

received entirely inadequate consideration on both sides of the Atlantic. This
is the problem of repayment. It is being very widely, and far too easily,
assumed in this country that the problem will never arise in any serious form,
that the apparatus of leasing and lending is merely a provisional substitute for
an ultimate free gift. Such an assumption does not arise solely from that
natural arrogance of which the British are so frequently accused; it is the
logical conclusion to be drawn from the whole tenor of the discussion in the
United
with
its emphasis on the self-interest that America has in the
supportStates,
of British
resistance.

237
But it is not the intention of Congress that the munitions and materials
to be supplied are to be regarded as a gift. It is not the intention oven of

the jajority who have passed the Bill, as can be seen from the suggestion made
by Senator George, Chairman of the Foreign Relations Committee and one of the
Bill's sponsors, that British tin and rubber resources should be pledged
against ultimate repayment. It should be remembered that the money borrowings
of the last war were widely believed, at the time they were incurred, to be

merely a formality to be turned into a gift after the Armistice. But it did

not turn out so, and the British public may be making an equal mistake this

time if it refuses to adopt any but the most optimistic assumption. It is a
great advantage to have moved the argument from the monetary plane to that of
goods: but that may turn out to be the only change.

If repayment is ever required it must not be supposed that the United
States will be so foolish as to accept large quantities of obsolete military
equipment. Payment, if it is to be made, will have to be made in goods useful
in peacetime, and the goods that will come first into question will be precisely
those raw material resources on which Senator George's eye has already lighted,

together with such additional things as shares in African mines and Latin
American utilities. The objections, from the American point of view as well
as the British, to any such payment are, of course, obvious. They would intensify
the sterling area's shortage of dollars, which is likely to be serious enough in
any case; they would compel the retention of a severe exchange control and reduce

British purchases of American exports to the irreplaceable minimum. But it would
be rash to assume that these arguments will be such more acceptable, when the

time comes, than the only slightly more subtle objections to a financial transfer.
There is, of course, nothing to be done about this problem in either country

now, except to hope that it will never arise, but to be prepared for it if it

does. In the meantime, nothing will be more calculated to spoil the chances of
a happy issue than if Englishmen treat too easily as gifts what Congress has been
at quite deliberate pains to describe as loans.

COPY:mg:5/7/41

238
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 15. 1941
Secretary Morgenthau
Mr. Cochran

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns

£33,000
£14,000

Open market sterling was quoted at 4.03-1/2, and there were no reported

transactions.

Continuing its improvement, the Cuban peso moved to 5-7/8% discount, as against

6-1/16% last night.

In New York, the closing rates for the foreign currencies listed below were
as follows:

Canadian dollar

Swiss franc (commercial)
Swedish krona
Reichsmark
Lira

Argentine peso (free)

Brazilian milreis (free)
Mexican peso

15-3/16% discount
.2321-1/2
.2384-1/2
.4005
.0505
.2310
.0505
.2066

In Shanghai, the yuan was quoted at 5-13/32 off 1/16 and sterling moved

off 1/2 to 3.91-1/2.

The Federal Reserve Bank's report of March 12, listing deposits of banks in Asia
with the New York agencies of Japanese banks, showed that such deposits totaled
$105,187,000, an increase of $3,227,000 since March 5. Most of the change in deposits
took place on the books of the Yokohama Specie Bank's New York agency. The latter's

principal dollar liabilities to and dollar claims on Japanese banks in Asia stood as
follows on March 12:

Liabilities: Deposits for Japan and Manchuria
Deposits for China
: U.S. Treas. Bills, comm. paper, etc
Claims

: Loans

: Other - mainly Jap. import bills

March 12
$59,883,000

37,021,000
21,786,000
64,622,000
10,017,000

Change from
March 5

+ $3,071,000
1,166,000

+

- 1,869,000
+ 3,869,000
+

26,000

.

Of the $3,869,000 increase in Agency loans, about $3,000,000 represented advances
to Japanese banks in Japan and Manchuria, while $600,000 was loaned to Japanese banks in
China. These new loans were accompanied by a rise in deposits held for account of such
banks.

239

There were no purchases or sales of gold effected by us today.
No now gold engagements were reported.

CONFIDENTIAL

PMP

240

Shoreham Hotel

Washington, D. C.
March 15. 1941

PERSONAL

Hon. Henry Morgenthau, Jr.,
Secretary of the U. S. Treasury
Washington, D. C.

My dear Mr. Secretary:

In my capacity as Director of the Anglo-Palestine
Bank, Ltd., in London, I venture to write to you as follows:
Mr. Montagu C. Norman, Governor of the Bank of England,

whose very valuable help I am fortunate to have from time to
time in financial and economic matters of Palestine, has suggested that I proceed to the United States to examine the
possibility of increasing the resources of my bank by disposing

of various assets or by raising in this country a loan, in
cooperation with the dollar raising (for Palestine) organiza-

tions in the U.S.A.: such a loan would provide necessary
liquidity for the Anglo-Palestine Bank and for the Jewish Agency
engaged in the upbuilding of Palestine. The Bank of England
would grant the necessary authorizations to sell or pledge
assets on condition that the dollars made available would be
placed at the disposal of H.M. Treasury in accordance with the
Defense Finance Regulations.

I was given expert advice to the effect that since the
whole exchange benefit of such a dollar loan would accrue to
H. M. Treasury, who presunably would use these funds for war
purchases in this country, my loan proposal might be favorably
considered by the Export-Import Bank and/or by the Reconstruction
Finance Corporation if the British Government were to give their

official support. I have, therefore, applied to the Bank of

England, the Governor has intervened with H. M. Treasury, and I
am now informed that such official support is forthcoming and
that the British Embasay in Washington are instructed accordingly.

Under the circumstances I shell be grateful if you can
see your way to grant me an interview, to enable me to explain
to you the proposition and hear your views on the subject.
Respectfully yours,

h. Johnson
L. Istorik

241

PARAPHRASE OF TELEGRAM RECEIVED
FROM:

American Embassy, Rio de Janeiro (Brazil)

DATE:

March 15, noon.

NO:

174

Dollar balance of $11,500,000 in New York of

National Bank of Yugoslavia transferred late yesterday
through Chase National Bank to Bank of Brazil.

CAFFERY

RA:MJC

242
DEPARTMENT OF STATE

Washington

Is reply refer to

March 15. 1941

7 840.51/75

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and transmits
herewith a copy of despatch no. 341 from the American
Consulate General at Barcelona dated February 24, 1941

relating to a news item in the Barcelona press concerning
the alleged disposition of French gold.

Enclosure:

No. 341, February 24.

From Barcelona.

chicopy

No. 341

AMERICAN CONSULATE GENERAL

243

Barcelona, Spain, February 24, 1941.
STROY: French Gold.
HONORABLE

THE SECRETARY OF STATE,
WASHINGTON.

I have the honor to report that "Solidaridad Nacional* (Barcelona daily and
Valange party organ) of February 21, 1941, features on its front page a news item
under Paris date line, transmitted through the EVE news agency, quoting the French

oblication "Le Matin in a discussion of the alleged disposition made of a French
cold stock of 100 billion france. The headline used is: 100,000 MILLIONS OF GOLD
TRANCS TAXES FROM FRANCE BY REYNAUD AND BULLITT.

It is stated that Ambassador Bullitt, following the signature of the agreement
veen Paris and London excluding a separate peace, addressed himself to M. Reynaud

to get him to agree to the transportation of French gold to the United States. Mr.
Raynaud agreed, it is said, to send 60 billions, and the remaining 40 billions continued
to be held by the Bank of France in Saumur, in Bordeaux, and finally in Clermont-Ferrand.
Kr. Reynaud subsequently ordered the transportation of this gold to Dakar, the item

continues, and it is for the reason that he knew this gold to be in Dakar that General
do Gaulle formally attacked that port.

It is alleged that a portion of the gold sent to Dakar has been transferred to
South America in payment for foodstuffs, and that respecting the 60 billions of gold
france in the United States, the American Government has seized 12 billions on behalf
of the Belgian Government in London.

Respectfully yours,

800

American Consul General

A. C. Frost
KPG/AC

quintuplicate to Department.
Copy to Embassy, Medrid

true copy of the
signed original. A.C.
chicopy

RESTRICTED

244
M.I.D., W.D.
March 15, 1941

0-2/2657-220
No. 340

12:00 M.

SITUATION REPORT

I. Western Theater of War.
Air: German. During the night of the 14th-15th German
air activity was widespread over Great Britain. Fairly heavy
attacks were made on Glasgow, Leeds, London and Sheffield.

British. Normal night offensive operations,

centering on the Ruhr. Gelsenkirchen and Dusseldorf were attacked
in force.

II. Balkan Theater of War.
Ground: Bulgaria. No change.
Albania. Fighting has died down, with some
activity continuing in the central and southern sector.

Air: Albania, Italian close support operations continue.

III. Mediterranean and African Theaters of War.

Ground: Abvssinia (Ethiopia). British troops have
occupied Asosa (about 25 miles east of the Sudan border) and
are advancing toward Mendi about 45 miles to the southeast.
The British "Patriot" force operating in the Goggiam area has
reached the vicinity of Debra Markos.

Eritrea. The Italians claim that British
attacks in the Cheren sector were repulsed.

Air: Minor activity only.

Note: This military situation report is issued by the Military Intelligence Division, General Staff. In view of the occasional inclusion of political information and of opinion it is classified as

Restricted.

RESTRICTED

-

CONFIDENTIAL

245

as etc, 35, w.

filed 13:30, House 19, was.

L. a Friday, March n I of - - - a street ass - a - - base off the - as / Relation
Doring the presenting might Senated - I - one a midd option

complet alstiable in the - 1 of I - - a - -

bust of 3,000 - off the - of - with 2a I

- - 190 Britten I - active against - in - complet
- w 150 British busbare and is - -

a mid on I - pleased along the - - of I
w other British please. - of those British Imbers failed to - to
Registral

a. x has - I reported that the Brittels attestes darking the

sign of March 10-15 - in - - to - haster -

of Dortin, to a I - w - as - - to the
- should - I

5. Saring the sign of Mark th-is the Marger - - - -

of the - wide Beb - attention daring this night - -

- - all of Regional - - - - of - - - of

the
I
I
/
sin
- of the - / and - I as a - of the -

of British sign / - those continued - - / Date the

meeting w she - signature - - - I alme -

- Mas or Belgium and / a / w - / - CONFIDENTIAL

246

CONFIDENTIAL

/ - Britten - - a wall - of - - -

- - and w -

statted - Regional No British - - Seat - / stomers I
4. Note reports - - during - sign of Mode 15-56

- valid I - the - to a / - to - -

I- - toshipped
as
/
/
w
/
/
nothered properties as this etty, - - - w the
Selecter Repul - - in / - - we private properties as Hall - along the - A total of no -

- - statted - Regional leading this mg Total - N
militing from the - sold - - coins the sighs of March 10-11

I - I reported. Sm printe / - billed - n - Injured

while military - - I - - x billed - ass Injury
antonity.

5. Reput Ats Paren activities is the made Natural - -

as follows: is the Albenica the signer please - a
foreation of 90 Italian please - the city of Blave and - 16
of thing is the - Member business assessed sis Station eleftebles

is Britten the city of - - Immed w British pleases in salge between as Brigeli - objected to health Brattah I

a Aste ate additions to made - - - as sellerge
- the telent of Grate Institute bustons - - . sald - a Britten staffeld

which resulted is - - to the - w as - to Bottled eleptences
is Milga a two of Bettish I I as Agentia - additional w -

please British - fise I - - of the - please is the abbeak - Agentia - there - as - to -

CONFIDENTIAL

CONFIDENTIAL

247

7. Addressing to the - Office - - - - / I
ml Give business in the violaity or - Migu. a / Marce to a

- Anny - I Briggli. the - office botters this

the total - Issa I in - - made division is strength. Tate fores is with - or the Highs - signing

vehicle elements of three accord divisions. - of these attrictions, the Date
has been particularly tontant for colontal nature.

a. 28 has born reported to the Settish M office w a bulters
to be trustmently that - has program a pies to the w which

- would vesetive bases at Solea not is - for a settlement of the we.
9. off the Similar const at Milito - Ame courge bosts totalling
6,000 tens - seak w a British V-beat. orr the Speateh coest at age

Pintsterre two - vessale were by a Swisish ohly and both of
the German beats were continue.

10. the British - office be I voltably informed that - Inc

-

- from Totals to directing this the subsvission of the - station
- as Fresh Marceso, be overally weaked and provented - is
weeking.

Metributions

- of /
Secretary of -

State Department

Asst. Secretary of -

Shief of Staff

The Please Division

office of Basel Intelligence

Air Garge
6-5

+

CONFIDENTIAL

CONFIDENTIAL

248

I of Code /

Recessed as the the

as 20136, March 36, MA.

Leaton, filed 13:40, March 16, 1944.

1. a Saturday, Hund 19, please of the British Constal carried out two offensive patrels. British becture coured - nieses during
as attack on - shipping off the const as Deskist - Getend. ALL of

the Brissah please involved related safely - - - please - who
down. During the proceding night with weather continuous the
British please state as a part in Bermy est carried one boobing vaide -

concentrations of masfacturing plants is the Bater and as bestoe
facilities as Datch, Nervegton and Freach parts, oil refinaries as
compted staffelde in the Methoriento and storee of gooding as Botterins.
Many of those attache resulted is the starting of serious fives.

2. During the night of March 15-16 - - please was over
Witney, TO were pletted over Section, five at Southerpten and four as North-

ongton. This is the essillest number of - please that has been used in
reids - Register for the past week. Heavy sists and entrens destance bept

the British night fighters - the ground. the extens of the I date
has not been determined. During the proceding day appreciantely - fighter please were nool in patrels over the Dotur Struite. During the day so - please were plessed over Absortions, Name, Southweld - the
the extent of the damages done has an been determined.

3. IS to am I that n - also layers, se fighter please
and STS bembers were used in the - associate - Destate during the sight of

March 14-15. During the proceding day 15 - - please, 19
fighters and 90 busbero - pletted over Register - we - please -

CONFIDENTIAL

CONFIDENTIAL

249

- petech any along the I - / - - I -

sticked - Brissah - loving the - - - - - -

stately - as might, these others - only may Instigu - two others regular - - I of mission to / and

Instigue - - - regular - - of / -

4. n to the optain of the Brissah - office this - place
to wing - and to the signiting in the Ballows w Agents 1 other w operations or through

5. - - as Indications that a Investor attage will be

-

- is the - Sature but so is I this programs - - a
- are constantly going terms
Motifications

Secretary of Amer. Secretary of the

Chief of Staff

State

Secretary of /

the Please Division

office of Month Intelligence
Ats Garge
6-3

CONFIDENTIAL

250

March 16, 1941

At 6:05 p.m., I received from Lord Halifax a copy (plase/17)
of the announcement of the sale of Viscose. So ends a

victory of almost eight months' battle. It has been the
most difficult fight I think I have waged against the
vested interests and also the most significant, because
the tie-up between the so-called "City" in London and

our own Wall Street is terribly close. I consider this

a great New Deal victory.

251

March 16, 1941

Harry Hopkins called me at 9:20 p.m., as a result

of my trying to reach him around seven.

I asked him, one, could he try to get the President

to sign the documents asking me to turn over ten Coast
Guard cutters to the English so that they could get busy on

the convoying of ships out of Halifax; and, two, I told him
that Parran was here and the President ought to see him

because the thing Parran is trying to do is to arrange for
a thousand U.S. doctors to go to England where they are
desperately needed. He said that his trouble was with
Norman Davis, and I said that I wished Hopkins would talk
to the President about it, and he said he would.

252

March 17, 1941

My dear Mr. Ambassador:

Thank you for your courtesy in
sending me the news of the sale of the
American Viscose Corporation.

Yours sincerely,
(Signed) E. Morgeathai, m

His Excellency,
The British Ambassador.

258
March 17, 1941

by dear Mr. Ambassador:

Thank you for your courtesy in
sending me the news of the sale of the
American Viscose Corporation.

Yours sincerely,
(Signed) H. Morgenthes, 322

His Excellency,
The British Ambassador.

254
BRITISH EMBASSY,
WASHINGTON, D.C.

March 16, 1941.

Dear Mr. Secretary:

In order that you may

at once be as fully informed as possible
regarding the sale of the American Viscose
Corporation to American interests, I am
sending to you with this letter copies of

the statements which are being issued to-day
to the Press for release on Monday morning
by Sir Edward Peacock and by Messrs. Morgan

Stanley & Co. These, I understand, include
all essential particulars and the only
additional explanation I need to make is
that the provision for the approximate five
per cent of the Viscose shares being retained
by Courtaulds, Ltd. was inserted in the
contract on the insistence of the purchasers
in order to encourage continued collaboration.
I am glad to be able to
tell you that Courtaulds Ltd. have been most
helpful in every way, and have given valuable
assurances to the purchasers.

Yours sincerely,

Halifex
The Honourable

Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.

Encs.

255

BRITISH EMBASSY,
WASHINGTON, D.C.

STATEMENT BY SIR EDWARD PEACOCK.

"I am now in a position to state that
I have completed on behalf of the British
Government a sale to American interests

of American Viscose Corporation, which is
an American subsidiary of Courtaulds Ltd.

of England, and is the largest producer of
rayon in the United States. The sale could
only have been completed in so short a time

as has been available by the exercise of
good will and mutual trust on both sides.
I desire to express my appreciation of
the way in which this matter has been
dealt with from the American side.
The purchasers are a group of investment
bankers headed by Messrs. Morgan Stanley
& Co. and Dillon Read & Co."

256
BRITISH EMBASSY,
WASHINGTON, D.C.

STATEMENT ISSUED BY MORGAN STANLEY & CO.

The American Viscose Corporation, the largest
manufacturer of rayon in the United States and
probably in the world, has been purchased from the
British Government by a group of Investment Banking
firms headed by Morgan Stanley & Co. Incorporated

and Dillon, Read & Co. including the following:Kuhn, Loeb & Co.

Mellon Securities Corporation.
Lehman Brothers.

Union Securities Corporation
The First Boston Corporation
Harriman Ripley & Co. Incorporated
Smith Barney & Co.
Blyth & Co. Inc.
Kidder, Peabody & Co.
Clark, Dodge & Co.
Dominick & Dominick
Goldman, Sachs & Co.

Hemphill, Noyes & Co.
Shields & Company

White, Weld & Co.

The American Viscose Corporation has been

for many years an American subsidiary of Courtaulds,
Limited, a British Company.

It is the intention of the purchase group to
arrange for an offering of securities in the public

markets at a later date by a nation-wide underwriting

257
BRITISH EMBASSY,
WASHINGTON, D.C.

-2and distributing group in which participants
in the original purchase may participate.
The plans for such offering cannot be
announced for a considerable time. Various
preliminaries will have to be arranged.
Registration with the S .E. C. will be

necessary and the completion of engineers'
studies now under way will also take some
time.

The total price to be paid to the

British Government depends on the amount

to be realised on re-sale by the original
stated. The purchase contract requires a
payment on account amounting to $40,000,000,
less adjustment for minority interests of
purchasers and therefore cannot now be

about 10 per cent which include approximately
5 per cent retained by Courtaulds, Limited.
Subsequent additional payments to the British
Government are provided for as follows:-

From the ultimate price realised there will
be deducted the initial payment, expenses,
and certain specified profits of the purchase
group and the syndicate managers, after which
90 per cent of the balance will be paid to
the British Government.

258

C0PY
WAR DEPARTMENT
WASHINGTON

March 17. 1941

Honorable Daniel W. Bell
Under Secretary of the Treasury
Department of the Treasury
Dear Mr. Secretary:

At the direction of the Secretary of War, and in accordance
with the letter of the Secretary of the Treasury to the Secretary
of Var dated March 11, 1941, I wish to give you the following information:

1. The War Department is procuring items aggregating
$230,000,000.00 which have heretofore been included on lists of

British requirements but for which (with the exceptions indicated
in paragraph 2) the British have not become obligated. Schedule "A"
sets forth a list of these items and the estimated cost thereof.

2. In four instances included in Schedule "A" the British
have existing contracts which the War Department is replacing by
new contracts being negotiated with the respective manufacturers.

This will result in the repayment to the British of part of the

advances heretofore made and releasing the British from future

obligations under these contracts. Schedule "B" sets forth the

amount of such obligations and the estimated amounts of repayments

to the British.

3. Steps are also being taken to place orders for the
manufacture of supplies and the acquisition of facilities which
have heretofore been included on lists of British requirements.
Since the War Department does not have existing appropriations
for this purpose, this is being done by Reconstruction Finance

Corporation in accordance with the letter of the President to the

Federal Loan Administrator dated January 23. 1941. The amount is
not to exceed an aggregate of $197,560,000 of which $89,580,000 represents Ordnance items, $74,410,000 Air Corps items, and $33,570,000

facilities. You are doubtless being advised directly by the Reconstruction Finance Corporation as to these transactions.

259

Hon. Daniel W. Bell

4. It will be noted that as a result of the foregoing
the British will be relieved to the extent of $427,560,000 for
supplies and facilities necessary to its program.
Sincerely yours,
(Signed) John J. McCloy
JOHN J. McCLOY

Special Assistant to

the Secretary of War.

2 Inclosures
Schedule "A"
Schedule "B"

da

SCHEDULE

$230,000,000 PROGRAM
(BRITISH)
ITEM

QUANTITY

TOTAL COST

AMMUNITION DIVISION

Shell, HE, 90 - AA

Shot, AP, 37 - Antitank Gun

Shell, HE, 20 - for Aircraft Guns

270,000
4,500,000
16,000,000

75 - AP Shot

600,000
100,000
114,000
125,000*
350,000*

Bombs Demolition, 300+, M31
Bombs, Demolition, 500+, N43

Flare, Aircraft, Parachute, MSA1
Flare, Aircraft, Parachute, M24

$ 8,500,000
19,600,000

22,800,000 $50,900,000
13,000,000
10,200,000
19,800,000
5,000,000
21,000,000

69,000,000

ARTILLERY DIVISION

Guns, Aircraft, 20 - M2
Guns, Antiaircraft, 90 -

12,000
6g**

Guns, Antitank, 37 -

1,500

20,000,000
8,000,000

8,000,000 36,000,000

SMALL ARMS DIVISION

Machine Guns, Aircraft, Cal. .50
Machine Guns, Aircraft, Cal. .30
Cart., Cal. .30 for Aircraft Machine Guns
(Equitable div. of AP and Tracer)
Cart., Cal. .50 for Aircraft Machine Guns
(Equitable div. of AP and Tracer)

34,000
18,000

40,000,000
9,600,000

75,000,000

4,500,000

100,000,000

16,000,000 70,100,000

Reserve for probable increase in estimated costs.
*

**

Temporarily
in
Magnesium. deferred, awaiting arrangement to clear up present shortage
With complete fire costs equipment

4,000,000
$230,000,000

261

SCHEDULE #B#

I. Approximate amount of obligations of British under Four Contracts for
Machine Guns:
MANUFACTURER

Colt's Patent Fire Arms Manufacturing Company

$17,500,000.00
12,100,000.00
15,600,000.00
12,800,000.00

The High Standard Manufacturing Company
Kelsey-Hayes Wheel Company

Buffalo Arms Corporation
Total

$58,000,000.00

II. Advance Payments Made by British to Four Machine Gun Manufacturers:
MANUFACTURER

Colt's Patent Fire Arms Manufacturing Company
The High Standard Manufacturing Company
Kelsey-Hayes Wheel Company

Buffalo Arms Corporation

$12,797,420.78
5,560,259.00
8,476,875.96
7,847,357.53
$34,681,913.27

III. Estimated Amount to be Repaid British:

$29,000,000.00

It is estimated that approximately $21,000,000.00 will be paid to the manufacturers named above by the Defense Plant Corporation for facilities, and approxi-

sately $8,000,000.00 by the War Department in connection with new contracts being
negotiated. The manufacturers in turn will repay said suns, aggregating $29,000,000.00
to the British on account of advances heretofore made to them by the British.

It is believed that the $8,000,000.00 to be paid by the War Department willbe
forthcoming within the next ninety days.

262

Copy for the Secretary

CONFIDENTIAL

March 17. 1941

To:

Mr. Hopkins

From:

Mr. Young

Attached herewith is a summary of how operations under
the Act of March 11, 1941, may be carried on from a preetical point of view and on an organised basis. These comments are based largely on the experience which this office
has had over the past year. No attempt has been made to
work out detailed forms OF mechanical routines in the
attached although considerable thought has been given to
them and discussions with respect to the details have been
carried on between this office and the Var Department.

Regardless of detailed plans for organization or 00ordination, is seems to me that two things must be kept in
mind; first, there must be a central point at which proper
reports and records may be mintained and through which
direct and coordinated supervision may be exercised. Seconly. ideas as to ways and means of developing effective
aid can only be evolved at a point where the whole picture
can be seen and by persons divorced from any direct OF indirect interest in specific governmental departments and
agencies.

For instance, no person in the Agency or Havy or the

Maritime Commission is going to offer to release any material
which sight hurt the Army. Herry OF Maritime Commission

although such a release night not in any way jeepardise the
defense of the United States. Such ideas or suggestions

must come from persons outside of the departments involved

and be made in the light of the program as a whole.

(Initialed) P.Y.
PY:bj

263

Operations Under the Age of March 11. 1941.

Operations under the Ast of March 11, 1941, fall into five
general fields of activity: (1) the determination of requirements
(2) the determination of the availability or production of the
items required; (3) the disposition or allocation of the items
sade available or prednoods (4) the establishment of reporting
procedures necessary to operate and to fulfil the requirements of
the Act: and (5) the working out of financial arrangements including the determination of quid pro que, methods of valuation and
bookkeeping procedures.

(1) The Determination of Reguirements.--One of the initial
steps in land-lease operations must necessarily be the determinetion of what the British and their allies want, and what the Army
and Navy need for the defense of the United States. First, the

British representatives in the United States must find out, if

they do not already know, what is required by London. It may or
may not be necessary to secure additional information with respect
to these requirements from the British representatives in the
United States or through the office of Averill Harrima in London.
When those British requirements have been determined, steps
must be taken to ascertain how they fit into or match United States
defense requirements of the Army, Havy, Maritime Commission, etc.
It seems obvious that this consolidation of separate requirements
into a single program will require detailed discussions between
British and American tockmicians and nears. Such discussions must
thoroughly canvase the question of standardization, the proving of

types, and the quality of the items.

In many instances, final determination of standardisation

and type questions ean only be made by British and American policy
heads, such as the Chief of Staff or the Chief of Neval Operations.
The only practical method of determining such questions and of
formulating a combined and consolidated program is the use of
joint committees made up of representatives of the British and
representatives of the United States departments or agencies in
volved. Those committees must have adequate supervision and should

confine their activities to technical considerations.

As a matter of fact, this system is already in operation is
aircraft and task fields where joint committees representing
the British, the Army, the Nevy. OPM, and the President's Linison
the

Committee have accomplished motoverthy results with response to

ironing out questions concerning standardination, allocation of
deliveries, and the related production problems.

264

-2It seens perfectly possible that a group of basic joint

committees could be established dealing with such categories as
ordnance, tanks, explosives, navel facilities, communications,
military supplies, etc. Each of these committees could call
upon informal technical subcommittees for detailed research and
specific recommendations. The Army and Navy members of these

major joint committees should keep the Army officer or the Naval
officer working with the Executive Secretary of the Land-Lease
Board fully informed at all times as to progress, delays, policy
questions involved, etc.
From each of these joint committees should come a single
list of requirements representing British needs plus United States

defense needs. This list should indicate the items, approximate
quantities and rate of production desired. The combination of the
lists reported by each joint committee will represent the combined
British-United States program.

(2) The Determination of the Availability or Production of
the Items Required. combined program as developed under No. 1
above must next be studied from the point of view of availability

of the goods desired in the light of existing and future surplus
stocks and existing and future production capacity. Conceivably,
some reduction in the basic requirements might be made if surplus

stock items were released for allocation to the British. This,

however, must necessarily be very small and represents only a slight
ramification of the basic problem.
The combined program regardless of future allocation of product should be turned over to OPM. Regardless of whether the

actual orders are placed by Var, Navy, or Maritime, the initial
responsibility for getting the goods manufactured and delivered

in accordance with the schedules established should rest with OPM,
and production reports should be submitted periodically to the
Executive Secretary of the Lend-Lease Board. It has already been
pretty well defined both by Executive Order and by the testimony
of Mr. William 8. Kandsen that the Office of Production Management
is directly responsible for production under the defense program.

It is very possible that in studying the combined program
OPM may report that funds will here to be made available for of in-

creased plant facilities, personnel training and other items

a similar nature. Those must be duly considered by lend-lease the lend-lease funds

authority and provision made for an allocation of
or other funds where available, presumably with the concurrence and
backing of the Director of the Budget.

265

-3Undoubtedly, plus and minus adjustments, cancellations, withdrawals and additions will be made to the basic program during the
production period. Because of the pressures exerted by shortages
and bottlensoks on strategic and vital year materials, machine

tools, labor. etc., only OPM which has control over these fields
is in a position to keep the program on the track. As in the case

of the basic program, such changes or adjustments should be reported

to the lend-lease authority in order that OPM night be directed to
sake its program conform. In this way there can be established a

direct line of authority and responsibility all the way from the
White House to the supplier.

In connection with this combined program, which is larger
than the actual defense needs of the United States due to the fast

that part of the production will be allocated to the British and

others, a question can be raised as to whether requirements of the
Army and Herry which are not desired for export allocation should
be cleared through the lend-lease authority. At the present time
such requirements are supervised and approved by OPM directly.

It would not seen to be necessary for these items to clear
through the lend-lease authority provided that adequate reports.

either from OPM or from the specific departments concerned, were
submitted so that an over-all production picture might be compiled.
Such reports could also serve as a basis for future discussions
when requirements not now realised might arise.

(3) The Disposition or Allocation of the Items Made Available

or Produced disposition of goods from surplus stocks to the
British or allies is a relatively simple procedure. After the

British requirements have been determined, as in No. 1 above, and

the availability of surplus stocks ascertained, a net list is com-

piled which shows what the British want and what the United States

can release. Each item contained in this not list should be based
upon an individual case history which should include the principal
senoranda signed by the responsible authorities pertaining to the
determination of the requirements and the determination of availability.
Each case history should include a single summary sheet which
would show the actions in the particular case, and which would also
serve as a progress report with respect to the particular item pending its final disposition. After the case histories have been be com-

piled and summised by the net list, this information should

made available to the Executive Secretary for direct action by the

266

President. This direct action will take the form of a specific

directive to the Secretaries of the departments involved ordering
the disposition of the goods to take place with the details to be

worked out between the specific department and representatives of

the British or allies.

In order that the case histories may be complete and a check
maintained as to the progress of the disposition, the principal
memorands within a department issued as a result of the President's
directive should be transmitted to the Executive Secretary to complote the record. The question of valuation of items made available from surplus stocks will be discussed below under No. 5.

with respect to the disposition and allocation of new goods
from existing contracts or contracts to be placed in the future,
the procedure should be basically the same, but with the exception
that it provide for adequate consideration of the policy questions

which may be involved.

The question of allocation of goods being currently delivered
from existing Army and Navy contracts for use of the British or

allies must be treated slightly differently from the allocation of
goods to be delivered from future contracts. Concerning future
contracts, there will presumably be established a theoretical base
allocation at the time the order is placed even though is may be
subject to radical change during the production period.

If goods are to be allocated for the use of the British and

allies from contracts already placed by the War and Nevy Depart-

ments, a policy allocation of the specific items can only be determined in the light of United States defense requirements and the
urgency of British needs at the time.
It would seem that adaquate case histories of individual
items would be even more important in instances where goods are
in production or to be produced as adequate policy demisions must
depend upon adequate factual information. In order that allocations may be properly determined, accurate knowledge must be had

at all times as to the production situation of the material on
order. The question of valuation of goods is production or to be

produced can readily be determined from the actual costs involved

and
the value of the goods as defined at the date of final alloontion.
(4) The Establishment of Reporting Procedures Necessary to

Operate and to Parall the Regairersate of the Act.-In order that
operations my be controlled adequately and a complete record main-

267

-5tained, three basic types of reports will be necessary. For the
purpose of advising Congress and the Administrator of Export Control, summary reports based upon the detailed case historics of
the items involved must be compiled showing the disposition of
goods whether from surplus stocks or from existing or future con-

tracts. This part of the record will be dead and the case histories presumably closed at the time of the receipt of the goods

by the British or their allies.

In some instances, however, it may be necessary to secure

additional reports as to the actual use of the material or as to
its destruction in instances where the nature of the material is
not in itself expendable or exhaustible. This part of the record

will constantly increase is sise as more and more goods are turned
over for foreign use.

A second category of reports will be the equivalent of a
perpetual inventory control. IS would seen necessary that the

Executive Secretary and the Land-Lease Board have at their command

at all times a complete picture of the program as a whole, including all requirements and all types of items.
This picture will be subject to constant change and adjustment on the part of all interests involved. Such day to day changes
must be reflected both individually and as part of the whole by
adequate reporting procedure. Such an operation cannot be carried
on successfully within any one Government department. It can only

be done efficiently as part of the Executive Offices.

The third type of reporting must cover those requirements of
the United States and those requirements of the British and allies
which are not yet a part of the combined program. and which either
must be fitted into the production scheme or discarded. Such requirements may involve specific types of items, large future expansion schemes, experimental types for future production or miscellanecus requirements which may be necessary but not urgent.

In addition to the reporting operations discussed. some
special attention should be paid to the making of studies concerning such things as strategic and critical raw materials, foreign
export controls, pressures exerted by dollar exchange, economic the more

efficient use of shipping. propaganda, and coordinated
cooperation between the British and allies and other countries
covered by the lend-lease area.

268

(8) The Marking Out of Financial Insisting the
Determination
of Motheda of
ins thought and effort has already been directed

toward the determination of both blambet and specifie quid pro que.
The carrying out of specific studies, such as mentioned above, will
undoubtedly bring to light additional material and information is
this connection.

The use of blanket quid pro que for the immediate amount of
$1,800,000,000 has already ba3a generally determined. As the

present time the guid pro quo for the 7 billion dollars to be

appropriated need not be decided as 10 will not become RECORDARY

until actual allocations of goods produced under that appropriation
are specifically node. This time lag should afford ample uppertunity for studying this whole problem.

The principal problem with respect to valuation applies to
the disposition of goods from surplus stocks. In the case of goods
to be produced either from existing or future contracts, adequate
valuation basis is already established. It would seen eminently
desirable that all goods disposed of from surplus stocks be valued

upon the - basic principles.

Due to the fast that different valuation methods and accounting procedures are used by the Mar Department, the Heavy Department,

and other agencies which my become involved, the treasury should

be the agency to determine the valuation with the help of the fiscal
and accounting officers of the departments concerned. It is possible
that a joint committee could be established under the supervision of
the Treasury to de this job and to supervise the actual bookkeeping
operations.

Necessity for Central the foregoing may

Miented and there are two poists with 10-

would spect to lond-lease operations which cannot be overemphasised, central

needly, the seape of such operations and the need for Britain and and

nondepartmental control. First, the policy of aiding

for bayend the more disposition of surplus stocks
Items which will

of aircraft, allocation of

anchine toels, training
involve joint efforts by all interested governmental

of allies capacity, increased the was Army production control 8 and Nevy. of really of holy, British iron such and personnel, steal as agen- ships,

etc., eles. The case where only one agency is involved has always preved

to be the exception to the rule.

269

Security, strong central control must be - a departmental basic over the - be a whole. Steve constination
and cooperation - be achieved not only between -

mental agencies but also between main agencies and the British.

there has to be in the future, as their has been in the past, a
fecusing point for the processing of requests, for the companied
of conferences on neutrat surritory under Separtial supervision,
and for the preparation of over-all reports.
Even more important is the fact that $9 is only as a result of
the exercise of central control that - idens - be developed from

the over-all picture and existly and effectively. For

emaple, is - Instance yet has the Apply - Many offered to release
material which 29 night hart to give - although its release would

not the defense of the United States. the - or Bury

officer can be expected - - he afford to mile such - offer.
the ideas - the requests must - from I other source which
has a complete understanding of the situation and a sufficiently
broad outlook to treat the picture as . whole.

FY:bj
3/16/42

270
MAR 17 1941

KENORANDUK
To:

Barry Hopkins

From:

Oscar Cox

Subject: Greenland Air Base.
You may want to have Dean Acheson look into

this question from the State Department viowpoint,

It may be that time can be saved If this is
done, and any necessary action is taken by the
President before he leaves this week.

(Initialed) O.S.C.

OSC:djb

3-17-41

271
3/17

Copy to:

meno
Mr. Foley

Mr. Cox
Mr. Young
Mr. Kuhn

Dr. White

272
THE WHITE HOUSE
WASHINGTON

March 17, 1941

MEMORANDUM FOR

H. K. Jr.,
I approve giving con-

sigeration to British library
nection with trade or financial

holdings of rare books in con-

terms to be worked out under the
Lend-Lense Bill.
Such manuscripts or

books -- or even paintings or

prints -- should, of course,
inure to the benefit of the

Smithsonien, the National Museum,

or to the Library of Congress.

F. D. R.

273
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 17, 1941

TO

Secretary Morgenthau

FROM Mr. Cochran

STRICTLY CONFIDENTIAL

At 4:30 Sunday afternoon. March 16, the Secretary telephoned me, requesting that

1 come to his residence at 6:30, and have Assistant Secretary of State Dear Acheson

there, to learn of a message which the President had given the Secretary on the question of Yugoslav balances in this country. The Secretary also desired that I obtain
the latest reports from the Department of State on Yugoslavia.
I immediately telephoned Mr. Acheson's residence, and left a message for him upon
learning that he was visiting in the country. where he could not be reached by telephone
but would be back in town around 6 o'clock and would be at home for a 7:30 dinner.

At 5:50 I visited the Department of State where Mr. Brown of the Secretary's
office showed me the latest messages from Europe on the Balkan situation. I also tele-

phoned Mr. Acheson from there and confirmed that he had received word to be at the
Secretary's home at 6:30.

When the Secretary received Mr. Acheson and me at 6:30. he explained that he had

rooken again with the President on the question of Yugoslavia. The Secretary had been
wite encouraged by remarks made at a luncheon by Sforza, former Finance Minister of

Italy, upon the significance of Yugoslav resistance to German pressure. The Secretary
had told the President that he did not desire to discourage such resistance by taking
any action with respect to a mere $11,250,000 of Yugoslav funds. Mr. Acheson explained

to the Secretary that the State Department had gotten in touch with the Yugoslav
Minister in Washington on Friday night, after the Secretary had spoken with Mr. Acheson
and that the Minister had cabled his government. Furthermore, the State Department had
sent a message to the American Minister at Belgrade, setting forth our concern over
the order which the National Bank of Yugoslavia had given the Federal Reserve Bank to

sell gold and transfer half of the balance of the proceeds to the Central Bank of Brazil.
Both through the Minister of Yugoslavia in Washington and the American Minister at
Belgrade effort was being made to convince the Yugoalav authorities that the United
States was doing everything possible to assist and strengthen Yugoslavia and had full
confidence in that country. The President felt, however, that Yugoslavia, in turn,
should show confidence in us by not transferring funds from this country to Latin
America.

It was agreed at the Secretary's residence that the Treasury should not hold up
beyond 1 p.m. on Monday the purchase of the Yugoslav gold and the carrying out of the

telegraphic orders which had been received by its fiscal agent, the Federal Reserve
Bank of New York, To refuse to purchase gold thus offered would be a definite change
in Treasury policy. Mr. Acheson had confirmed before coming to the meeting that no
reply had been received by the Department of State, directly or through the Yugoalav ConseKinister, to the representations which had been made on Friday and Saturday. touch
Quently, Mr. Acheson volunteered to have the State Department people get in

with the Yugoslav Minister again last night.

274
2-

At 8:30 Mr. Acheson telephoned me at my home, stating that his associate in the
Department of State had spoken with the Yugoalav Minister again. The latter had
promised to send a cablegram at once to his Prime Minister and also to telephone him.
The Minister would endeavor to impress upon Belgrade the importance of their meeting
the President's wishes through authorising a rescinding of the orders given to the
Federal Reserve Bank of New York. The Minister hoped to have an answer for Mr. Acheson
on Monday forenoon. Mr. Acheson, in turn, has undertaken to get such information as
is available to the Department of State to the Treasury by 1 o'clock today. Considering the resistance which Yugoslavia is still making to German pressure, it is agreed
that we should not impose freezing control upon Yugoslavia at this time. We should
have, however, either a revocation of the orders given the Federal Reserve Bank, or
satisfactory explanation thereof. But, even lacking a satisfactory explanation, we
feel obliged to purchase the gold and carry out the instructions. unless we have word
before 1 p.m. that these are revoked or being revoked.
a

At 9:00 this morning I telephoned Mr. Pehle and also Mr. Knoke, giving the status
of the Yugoslav case, without going into all of the confidential details set forth

above. It was agreed that we would exchange with each other any information that
night be received this morning. At 10:30 Mr. Knoke called me back to let me know that
cablegram sent from.Belgrade on March 15 had this morning bean received which
instructed the Federal to pay $11,223,000 to the account of the Central Bank of
Argentina with the Federal. This sum represents the balance out of the proposed gold
sale of $22,250,000, after transferring the other half to the Chase Bank for account

of the Bank of Brazil. The Federal will take no action on this order until instructed
urther by the Treasury. Mr. Knoke inquired as to whether the gold, when and if purchased, should be by the Stabilisation Fund, as usual in such cases of release from
earmark by foreign Central Banks, or through the Assay Office. Unless otherwise

instructed by the Secretary, I shall tell Mr. Knoke that the Fund will be the buyer.

At 11:45 this morning I telephoned Mr. Acheson to let him know of the above-mentioned instruction from the Central Bank of Yugoslavia to transfer $11,223,000
to the account of the Central Bank of Argentina with the Federal. Mr. Acheson told
no. in turn, that Under Secretary Welles was shortly receiving the Yugoslav Minister.
Furthermore, a cablegram had been received from our Minister at Belgrade reporting
result of the carrying out of the instructions which the State Department had sent
him. Mr. Acheson understood that Mr. Welles would acquaint Secretary Morgenthau with
the contents of this cablegram. Just as Mr. Acheson began to read it to me,
Secretary Morgenthau called me to his office.

The Secretary had with him at his 12 o'clock conference Messrs. Bell, Foley,
Bernstein and myself. He summarized to the group the developments over the weekend

and his conversation with Mr. Velles. The point was that the Prime Minister of Yugoslavia was obliged to consult other members of the Government as well as the
Governor of the National Bank of Yugoslavia before his desired purpose of revoking
the instructions to the Federal Reserve Bank at New York could be carried out. Until
this could be done the Prime Minister, through his duly accredited representative in
Washington, asked that the sale of gold be held up provisionally. It was the opinion
of General Counsel Foley that it was possible for us legally to delay acting upon the
instruction under reference. It was decided, therefore, that the purchase of the gold
would be under consideration today and that the Federal should take no action thereon.

275
3

Who Secretary telephoned Mr. Welles while the group was still present and reported
our decision. It was agreed by Mr. Welles that he would write a letter to Secretary
Morgenthau setting forth the Yugoalav position in the premises.

In accordance with the Secretary's instructions, I telephoned Mr. Acheson at
12:20 noon to report the result of our meeting. I then telephoned Mr. Knoke at 12:30.
I explained the situation to Mr. Knoke and told him that there would most likely be
no action today, and that the matter of the gold purchase would be carried over until
tomorrow morning, by which time the Yugoalav Government should have had time to resolve

the question and issue the pertinent instructions. It was the opinion of Mr. Knoke and
myself that the purchase can properly be made by the Stabilisation Fund once it is
decided upon. Mr. Knoke thinks it advisable, however, that all of the gold should be
sent to the Assay Office and accepted there. At 12:45 I phoned Mr. Pehle, bringing

him to date on developments.

At 4:45 this evening I spoke again with Mr. Knoke and told him what had happened
since we last discussed the question. He said that his lawyers were discussing with
Mr. Bernstein the propriety and wording of a possible cablegram from the Federal to
the National Bank of Yugoalavia.

At 5:35 this evening Mr. Bell had Messrs. Bernstein, Pehle and Cochran meet with
him. Mr. Bernstein presented the draft of a cablegram which the lawyers of the Federal
Reserve Bank at New York had discussed with him. This would have informed the National
Bank of Yugoslavia that no action had been taken on their instructions. It was decided
y the group that no such cablegram should be sent and Mr. Bernstein was to advise the
Federal Reserve Bank to this effect. Likewise, it was decided that no action should

be taken today on the B. I. S. application for a transfer of dollars for the Yugoslav
account into Swiss france.

At 5:45 this evening Mr. Knoke called me back again after having received the
Treasury decision against sending the cablegram to Belgrade this evening or approving

the B. I. S. application today. I told Mr. Knoke that our group this afternoon, when

considering these two questions, had agreed upon the desirability and necessity of
later providing the Federal Reserve Bank at New York with a letter for the latter's
protection, setting forth the instructions which we had given the Federal, and our
reasons therefor.

276
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 17. 1941
TO

FROM

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL

In accordance with instructions received from the Secretary at his residence at

6:30 last night, I telephoned Sir Frederick Phillips at the Willard Hotel last night
at 7:30. I did not succeed in reaching him until 10 p.m. At that time I told him

that the Secretary had asked that I remind him of the urgency of our having word
on Monday the 17th of the British acceptance of our proposal that at least $120,000,000
of gold be sold to us for transportation from South Africa to the United States on
the United States cruiser which is now en route to South Africa via Brazil. I
reminded Phillips that the cruiser would arrive at a Brazilian port today and would
only be there a short time fueling.
Phillips said that he thoroughly understood the urgency of this matter and had,
in fact, already endeavored to telephone London yesterday for the necessary approval,
since no reply to his cablegram had yet been received, but he was unable to reach
anyone in authority at the British Treasury yesterday. He assured me that he would
endeavor to telephone on Monday morning and would certainly give me the British answer
some time during the day.

At 10:45 this morning I spoke with Phillips again by telephone and inquired as to
the above question. He said that he had not yet succeeded in getting his call through,
but was still trying, and planned to give us an answer before evening.

277
March 17, 1941
8:45 a.m.
H.M.Jr:

Hello.

Cong. Bob
Doughton:

All right.

H.M.Jr:

Hello, Bob. How are you?

D:

H.M.Jr:
D:

All right, Henry. Fine. How are you?
O.K. I saw by the papers that you say

no tax bill until after April 1.
Oh, I didn't say no tax bill until after

April 1. I said it would probably be about
that time before we got ready to get down
to active work.

H.M.Jr:

Well, I was glad to hear you say it.

D:

What's that?

H.M.Jr:

I was glad to hear you say it. Now, what
I wanted to tell you - I'm not advertising
it, but I'm thinking of going away Thursday
night to be gone for about a week or ten
days, and I just wanted to get your per-

mission.
D:

H.M.Jr:
D:

Well, you don't need my permission, but
I'm sure - we've got this Coal Bill here
and some other bills that the Secretary

of State - Secretary Hull has called to
our attention which will take a little
time, and it will take that long anyway
to get anything like a knowledge of the
returns, won't it?
That's right.

of March 15th and I think we won't be able

to get down to it before that time.

H.M.Jr:

Well, is it all right if they ask me at my

press conference to say that I talked with

you today and my understanding is from you

that we won't get down to it until after

April 1?

278

2D:

H.M.Jr:
D:

H.M.Jr:

Yes, that'd be all right.
Is that all right?
Not earlier than April 1 or not until after
April 1, either way you wish to make it.

Well, I'll say I talked with you and my
understanding is that you'll not get to it

until after the 1st of April.

D:

These numerous articles keep coming out

in the paper about tax matters. I'm going
to make a statement about that today. I
don't know where they emanate but they re
very embarrassing.

H.M.Jr:

Well, that's why I called you. They don't
come from the Treasury.

D:

Well, I was certain they didn't. I don't

know where they emanate. I'm going to make

H.M.Jr:

a statement - if you want me to, I'11 read
it to you over the phone after I get it
ready. I wouldn't want to say anything in
there that you thought was not fair to you
or to the Treasury.
Well, I'd be glad to hear it because we've

got a big financing Wednesday and Thursday,

you see.
D:

Well, I'll tell you what I'll do. I've just

H.M.Jr:

What could be fairer.

D:

All right. I'll call you.

H.M.Jr:

Thank you.

D:

Thank you.

now dictated it to my stenographer. I'll
have it ready in fifteen minutes and I'11
call you and read it to you over the phone
and if there is anything in it you don't
like, or you don't like any of it, why
of course I wouldn't give it out.

279

March 17, 1941
9:41 a.m.
H.M.Jr:

Hello.

Cong. Bob
Doughton:

All right, Henry.

H.M.Jr:

Go ahead, Bob.

D:

Did you see that article in the Star
yesterday about that tax bill that is
being written?

H.M.Jr:

No.

D:

You didn't see it? I'll tell you where it

is so you can see it if you want to, there
and I'll tell you where that is so you can

has been 80 many articles lately this week

D:

read it later.
Well, I can find it.
All right. I'11 tell you where it is when
I get through. Just wait a minute. (Pause)
I'll tell you before I get through. Here
is my statement and if you don't like it,
why I'll change it.

H.M.Jr:

Go ahead.

H.M.Jr:

D:

"As numerous articles regarding tax legislation have recently appeared in the press,
causing frequent inquiries to be made of
me concerning tax legislation, I feel I
should say something on the subject, which
is creating such wide interest at this time.
'The Constitution of the United States

specifically provides that all bills for

raising revenue shall originate in the House
of Representatives. IN That's a quotation.
H.M.Jr:
D:

Right.

"Under the rules of the House of Representatives,
the Committee on Ways and Means is charged

with the duty of considering all legislation
relating to the revenues, or such matters

as purport to raise revenues and the bonded
debt of the United States."

280
2H.M.Jr:
D:

Right.

"In carrying out this constitutional

function, the Committee on Ways and Means
in cooperation with the Committee on Finance

in the Senate, has in the past made every

reasonable effort to carefully consider
legislation having to do with taxation and

public finance made by the Treasury Department or any other executive agency in the
Government. In addition, the Congressional
tax committee with the advice and assistance

of their technical staff have been continuously alert - continually alert - to
discover and correct defects in our revenue
legislation whether or not such action was

suggested by appropriate executive agencies."

H.M.Jr:

Right.

D:

"Neither the origin nor the purpose of

suggested changes in revenue legislation
can relieve the Committee on Ways and Means

or the Congress of the plain duty of examining such subjects independently.
H.M.Jr:
D:

Yeah.

"No revenue legislation from any source
whatever can relieve those charged with

these responsible duties of their responsi-

bility. In these crucial times, when the
proper financing of our normal defense

program, combined with the necessary normal
expenditures, places upon the tax committees
of the Congress a tremendous and exacting

task of raising the largest amount of revenue
possible without seriously upsetting and
disrupting our economy, it is more important
than ever that revenue legislation receive

most careful deliberation.

H.M.Jr:
D:

Right.

"For this and other reasons equally
pertinent, the current practice of making
suggestions for revenue legislation to the
press rather than the appropriate committees

281

-3of Congress is of no help and to be deplored."

Won't say anything about by whom.
H.M.Jr:
D:

Yeah.

"The Committee on Ways and Means is fully

cognizant of its duties and responsibilities.
It is alert to the tremendous ta8k before
it and will, in the proper time, in the not
too distant future, take under careful consideration tax legislation and hopes and

expects the harmonious cooperation of the
Treasury, Senate Finance Committee, and

other interested persons or agencies to
continue in the future as in the past.
But it should be clearly understood that
the Committee on Ways and Means is not

going to be a rubber stamp or a yes-committee

in matters of taxation. A well-balanced and

scientific tax bill cannot be written over

night, but requires careful thought and
study, and this our committee at the proper
time will undertake to give."
H.M.Jr:

Bob. Hello?

D:

All right.

H.M.Jr:

I'd leave off that rubber stamp and yes
business.

D:

(Laughs). Well, our Committee is getting -

I don't know where it is coming from.
H.M.Jr:
D:

Well, I think I know.

It's just a-cussing about it. I've been

awful patient about it, you know, but it

just seems to be when those things come out,

there has been no denial of them, and it's

getting awful irksome. But I won't put in
anything that you think would be any
reflection whatever on you or

H.M.Jr:

No, no, no. This isn't a reflection on me;
this is a reflection on you. I wouldn't
put it in - this rubber stamp and yes business.
I think that is a reflection on you.

282

Well,
know. if we'd be that it would be, you

D:

H.M.Jr:

D:

H.M.Jr:

Well,
mind. you'd just put it in the people's
(Laughs). Well

.....

You were just asking me. I was thinking

of you not of me. I think you'd just put

D:

H.M.Jr:
D:

I won't put anything in there you think
oughtn't to be in there.
I just think you put a false idea in the
people's mind.

Well, I'11 eliminate that part of it.
of course, I didn't want to give it out
until I let you know what it was.

H.M.Jr:

Now, I can't prove it, but we think we

D:

How's that?

H.M.Jr:

We think we know where it's coming from

know where that stuff has been coming from.

but I can't prove it. We think it comes
from Stam.

D:

You do?

H.M.Jr:

That's what we think.

D:

Well, if it was, you know, I'd think that
he was totally unworthy to hold the job the position he holds.

H.M.Jr:

I can't prove it, but that's what our boys
think. You can take it for whatever it is
worth.

D:

H.M.Jr:

Well, I won't say anything to him about it
but I'll check on that to see what I can
find out.
will you do that?

283

-5D:

H.M.Jr:
D:

I certainly will.
O.K.

A11 right. Thank you very much. I hope
you have a nice vacation.

H.M.Jr:

Thank you.

D:

Good-bye.

284

March 17, 1941
9:45 a.m.
RE FINANCING

Present:

Mr. Haas

Mr. Bell
Mr. Hadley
Mr. Murphy

H.M.Jr:

I haven't had a chance to read this thing,

have you?
Bell:

Just hurriedly read it before I came in.

H.M.Jr:

George, tell me what is in it, to save my
eyes.

Haas:

Well, we arrived at a - we started out with

the assumption you wanted two and a half and

we arrived at a bond callable in March, 1952,
and maturing in March, 1954. No, I get into we are not in agreement. We have done the
best we could to get agreement, but we are

not in agreement. Piser puts it out one year
longer and Hadley puts it out two years longer,
and Hadley and the New York Bank, I understand,

are in agreement. I am not sure about that.
Bell:

That is about right.

Murphy:

They were on Friday.

Haas:

And the - Hadley and the New York Bank price it

directly, as they call it, and we price ours in
relation to the Government market and they are

pricing theirs in relation to their corporate

marke t.

285

-2H.M.Jr:

They are longer or shorter?
(Mr. Hadley entered the conference.)

Haas:

Murphy:
Haas:

One reason they get so optimistic is, you
take a look at your corporate markets on your
table there.
Page 3.

Those are the prices, you see. They are really
too good. It shows that the bond which we just
issued at 48-50, the two per cent bond, is

selling too low. Or another way of stating it,
if you had used their system when that was

priced, you would have been in difficulty.
H.M.Jr;

One thing I would like to have some of your
boys do, just take the ones that they have
here and give me a price chart going back
six months. What I want to see is, how much
were they knocked off, you see.

Murphy:

The corporates?

H.M.Jr:

Yes.

Murphy:

Sure.

H.M.Jr:

Go back to the first of July and see what has
happened. They may still get theirs, you see.

I think that is what you will find. But go back
to the first of July.

Bell:

It hasn't changed much, has it?

Hadley:

No.

H.M.Jr:

But just - well, that is the point, and I
think they are vulnerable. But just test it,
you see, by going back to the first of July.

286

3Haas:

O.K.

H.M.Jr:

The 17th of March, isn't it? (Referring to

Murphy's green flower.) You are not wearing
a green tie.
Murphy:

I am torn between race and esthetics. I try

H.M.Jr:

I see. Go ahead.

Haas:

You recall last time, nearly without exception
the people that you sent in to see us warned

to wear brown neckties with brown suits.

us against using the corporate market because

of this. I mean, I think it is a little difficult to price it. It is difficult either way,

but we are very reluctant to go over and use
the corporate market to price this Government
issue. On page four, Mr. Secretary, you will
see there what might happen. In other words,

if Mr. Hadley's - if we decided to take his

pricing, what might happen in case the pricing

we suggested was correct. We worked out those

alternatives.

H.M.Jr:

Well, I will tell you what we will do. I will
read this thing. We have got two days. I am

going to send some of these people back to
you that I am seeing today, and when I do,
Haas:

let Hadley sit in and listen, you see.
I would like very much to stretch it as far
as we can and be safe, because it compares
better with the new savings bonds you are

putting out.
Bell:

That is right.

Hadley:

That is a point there, that you are putting out a
twelve year two-forty and if you sold this at
less than a savings bond, they would go for

287

-4the savings bonds.
Haas:

Of course, they are not comparable things, but

even
so, the longer you get, the better it
will
look.

H.M.Jr:

Oh, oh! That is all the more reason why I
should wait until the day after. I hadn't
thought of that one.

Bell:

You may bet a better market today.

H.M.Jr:

Of course, that savings bond, though --

Haas:

Is a demand.

H.M.Jr:

Yes, which is worth a lot.

Hadley:

There is one thing with this issue. It is
possible that whatever year you pick, it will

set a minimum price on that; and if we set a
thirteen year, they would say, "That is good.
If we set an eleven year, they would say, "That

is the price. That is as far as the Treasury

wants to go.

So while we are writing our ticket, whatever
we do between limits is going to determine
what the interest rate is going to be on our
future offerings, and if we think we can only
go eleven, the market will say they can only

go eleven and set it up on that basis. If we
name thirteen, they will say, "Well, they can
go thirteen and we will work from there.

H.M.Jr:

Maybe.

Haas:

Yes.

Bell:

Of course, it hasn't worked that way, Hadley.
We put out a two and seven-eighths 55-60 and

288

-5we
with a two and three quarters
andGame
the nalong
later -Hadley:

That was over quite a period, but this is
sort of a new thing.

Bell:

It seems to me it ought to find its own level

H.M.Jr:

That is very pretty, Hadley, but it doesn't work
that way. It didn't work that way last time.

Hadley:

Well, the last time you had a heavy amount of

H.M.Jr:

There is always something that you can't - it
is the unforeseen, but I am not going to argue
now. I am going to listen today and then

in the market.

selling of rights.

tomorrow morning we can digest what we hear.

Bell:

There really isn't a lot of difference between
any of them in terms of yield, even if you
assume the corporate rate. Only on that 18

per cent, there is only three basic points,
as I recall. You had a two forty-six.
H.M.Jr:

Well, let's get on with this thing.

289

March 17, 1941

Secretary Morgenthan
Mr. Haas

Subject: March Financing

I. Bond to be Used is the Financing
We recommend that the bond to be offered this week should

be an 11-13 year, 2-1/2 percent issue. We esticate the yield
basis and probable opening price of this issue as follows:

:

March 15. 1952-54

:

$

2-1/2

yield

basis

2.35

opening

price

$

: Goupen

:

Naturity

: Equation T Protein

101-14/33

(11 - 13 years)

The pricing of this issue - that is, the fixation of the

call date and naturity - is subject to a great deal of doubt.

When we last checked our results with those of Mr. Piser and
Mr. Hadley late Saturday morning, Mr. Piser was recommending an
issue one year longer and Mr. Modley an issue two years longer
than that recommended above. we understand also that the reconmendation of the New York Bank is about the same as that of
Mr. Hadley. There are many considerations, soreover - parties- in
larly the optimistic tone of the market and the excellent which way
which it has taken the announcement of the financing - and

make it likely that the pricing of Mr. Medley

the New York appear Bank 18 correct and our own 10 unduly conservetive.

290
Secretary Morgoathen - 2

Were 18 a question of probabilities alone, therefore, we
not one of probabilities alone. The issue must net only

should recommend the leager issue. The question, however, is

probably go. It must certainly go. The longer issue is indieated, however, only by a new prioing technique, which is
relatively untried and subject to considerable logical ob
jection. We have consequently recommended going out only as
far as the old method would take us.
The fundamental difference between the new and the old
techniques is simple. Eithorte new Government Assues have

been priced primarily by Petersone to OIL Coverant Leoner.
Our technique continues the practice, making what appear to
be appropriate adjustments - the new tax situation. The technique, en the other hand, 10 based primarily upon a -

partson of Government Issues VIII corporator.
The reason the two methods give somewhat different results
say be explained as follows: Based on the surve which we have

used is pricing the new issue, the market is now allowing for
a 21 percent tax on the outstanding taxable 2's of 1948-50.
There is a reasonable presumption that it would be satisfied
with less on a longer higher-coupen issue. New such less is,
of course, not known. We have supposed that a reduction of

2 percent - that is, to 19 percent - is reasonably sare to

occur and have made this allowance is our pricing. It results
is a March 1952-54, Mr. Fiser, using fundamentally the same
technique but a somewhat more optimistic curve and a 1 percent

lever tax assumption (1.0., 18 percent), is able to push out
a little further and recommends a March 1953-55.

The March 1954-56 recommendation of Mr. Hadley and of the
Federal Reserve Bank of New York, on the other hand, is based
primarily on a comparison with corporates, This was the meaning of the interchange at the Friday meeting when Mr. spreal,

replying to a question by Mr. Eeeles as to what his *tax
assumption" was, said that he had none - that he priced the
new issue directly. Such "direct" prioing permits more optimistic results,
The corporate market is this and seattered, however, and
a more se than is the Fifties, which are beyond the
range of the recent equipment trusts and before that of the
sajer lev-seupen refunding issues, We have been able to find
only six corporate issues is the area 1946-56, which were

291
secretary Borgonthea - 3

traded last week on the Big Board and which are sufficiently
Migh-grade for comparison with Governments. Pour of those
are serial materities of the United States Steel Responsision,
- as issue of the Liggest and Hyere Tobacco Company, and
another of the standard 011 Company of New Jersey. their
maturities and yields on the last day traded were as follows:

8

maturity

note

:

United States Steel

2.10's

11-2-49

1.85

United States Steel

2.20's

11-1-50

1.86

United States Steel

2.85's

5-1-51

2.08

Liggest and Hyers

5's

8-1-51

2.13

Standard 011 of New Jereey

2-3/4's

7-1-53

2.29

United States Steel

2.50's

11-1-53

2.21

These yields .... to more than justify the printing of
Mr. Hodley and of the New York Bank, and we find them very
permesive. We are wwilling to place primary reliance upon
them for two reasons, however. First, as sincerely pointed out,
the market is servic. the Board volume on all sis bonds last

week me only $61,000. the velume of was
ing is not known, but is probably not Large. Second, they
prove tee - for they show that the outstanding 2's of
1946-90 are seiling too low, and w would have been a poor
guide is prioing that issue, IS might be added is this mostisa that the Treasury we very generally consigned as

that time to piece reliance ea the corporate masket,

and that this coution was very much justified is the outcame. We have preferred, therefore, to place primary

reliance on the old technique of printing Government by
reference to Governments,

292
Secretary Morgeathes - 4

The question may finally be asked "What would be the offeet of as issue priced according to one method 18 the other
mothed should prove to be correctic The answers to this
question are about as follows:

(1) Mr. Hadley estimated on Saturday that the
issue recommended by us - a March 1952-54 - would
sell at from 102-10/32 to 102-30/32. He estimated

at the same time that the issue recommended by
101-25/32 to 102-20/32.

Mr. Piser - a March 1953-55 - would sell at from

(2) The issue reservented by Mr. Hadley -- a
March 1954-56 - has an implied tax allowance, as
measured against our curve of from 13 to 16 percent,
depending upon the end of his range from which is
is measured. If the market should make the tax
allowance assumed by us (19 percent), Mr. Hadley's

issue, as assessed against our curve, would sell at
a price of 100-18/32.
(3) If the tax allowance made by the market
should be 21 percent -- the same as on the outstand-

ing taxable 2's of 1948-50 - the price of the issue
recommended by Mr. Hadley would be only 100. Under
similar circumstances, the price of the issue recen-

mended by us would be 100-31/32.

II. Other Considerations
The bond just discussed would be offered for $500 millions
of new money. It would also be offered in exchange for the
1-3/8 percent notes saturing on June 15. It is recommended that
noteholders also be given their option of accepting is exchange

the 3/4 percent two-year note used at the time of the last

financing.

About 9/32 of interest will access on the 1-5/8 percent
notes between April 1 and their maturity es June 15. Subtractsing what could be earned on an investment in treasury bills
is the interis, it may be assumed that the old notes are worth
about 100-8/32 in the absence of any exchange offer. This such
must, therefore, be stricken from the margin of safety, as far
as the enchange portion of the offering is conserned. This is

293

Horpostime s
not

.
to

however,
the

notes is desired,

beats is excess of about 24/38 which a of
safety for this purpose.

294
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 17, 1941

Secretary Morgenthau

TO

Mr. Haas

FROM

DA.

Subject: March Financing

I. Bond to be Used in the Financing
We recommend that the bond to be offered this week should

be an 11-13 year, 2-1/2 percent issue. We estimate the yield
basis and probable opening price of this issue as follows:

Probable

Estimated :
:

:

March 15, 1952-54

:

: Coupon

2-1/2

yield
basis

2.35

opening

: price

:

Maturity

101-14/32

(11 - 13 years)

52 - 54

The pricing of this issue -- that 18, the fixation of the

call date and maturity -- is subject to a great deal of doubt.

When we last checked our results with those of Mr. Piser and
Mr. Hadley late Saturday morning, Mr. Piser was recommending an
issue one year longer and Mr. Hadley an issue two years longer
than that recommended above. We understand also that the recommendation of the New York Bank is about the same as that of
Mr. Hadley. There are many considerations, moreover -- particu-

tone of the market in

larly
theit optimistic
and
the excellent
which
which
has taken
thefinancing
announcement
of the
-- way
make it appear likely that the pricing of Mr. Hadley and

the New York Bank is correct and our own is unduly conservative.

295
Secretary Morgenthau - 2

Were it a question of probabilities alone, therefore, we
not one of probabilities alone. The issue must not only
should recommend the longer issue. The question, however, is

probably go. It must certainly go. The longer issue is indicated, however, only by a new pricing technique, which is
relatively untried and subject to considerable logical ob
jection. We have consequently recommended going out only as
far as the old method would take us.

The fundamental difference between the new and the old
techniques is simple. Hitherto new Government issues have
been priced primarily by reference to old Government issues.
Our technique continues this practice, making what appear to
be appropriate adjustments for the new tax situation. The new
technique, on the other hand, is based primarily upon a comparison of Government issues with corporates.
The reason the two methods give somewhat different results
may be explained as follows: Based on the surve which we have

used in pricing the new issue, the market is now allowing for
a 21 percent tax on the outstanding taxable 2's of 1948-50.
There is a reasonable presumption that it would be satisfied
with less on a longer higher-coupon issue. How much less is,
of course, not known. We have supposed that a reduction of

2 percent -- that is, to 19 percent -- is reasonably sure to
occur and have made this allowance in our pricing. It results

in a March 1952-54. Mr. Piser, using fundamentally the same
technique but a somewhat more optimistic curve and a 1 percent
lower tax assumption (1.e., 18 percent), is able to push out
a little further and recommends a March 1953-55.

The March 1954-56 recommendation of Mr. Hadley and of the
Federal Reserve Bank of New York, on the other hand, is based
primarily on a comparison with corporates. This was the meaning of the interchange at the Friday meeting when Mr. Sproul,

replying to a question by Mr. Eooles as to what his "tax
assumption" was, said that he had none -- that he priced the
new issue directly. Such "direct" pricing permits more optimistic results.

The corporate market is thin and scattered, however, and
nowhere more 80 than in the Fifties, which are beyond the
range of the recent equipment trusts and before that of the
major low-coupon refunding issues. We have been able to find
only six corporate issues in the area 1948-56, which were

296
Secretary Morgenthau - 3

traded last week on the Big Board and which are sufficiently
high-grade for comparison with Governments. Four of these

are serial maturities of the United States Steel Corporation,

one an issue of the Liggett and Myers Tobacco Company, and
another of the Standard 011 Company of New Jersey. Their

maturities and yields on the last day traded were as follows:

:

Maturity

Yield

:

:

:

United States Steel

2.10's

11-1-49

1.85

United States Steel

2.20's

11-1-50

1.86

United States Steel

2.25's

5-1-51

2.08

Liggett and Myers

5's

8-1-51

2.13

Standard oil of New Jersey

2-3/4's

7-1-53

2.29

United States Steel

2.50's

11-1-53

2.21

These yields seem to more than justify the pricing of

Mr. Hadley and of the New York Bank, and we find them very

persuasive. We are unwilling to place primary reliance upon
them for two reasons, however. First, as already pointed out,
the market is narrow. The Board volume on all six bonds last
week was only $61,000. The volume of over-the-counter trading is not known, but is probably not large. Second, they
prove too much, for they show that the outstanding 2's of
1948-50 are selling too low, and so would have been a poor

guide in pricing that issue. It might be added in this conthat time to place little reliance on the corporate market,
and that this caution was very much justified in the outnection that the Treasury was very generally cautioned at

come. We have preferred, therefore, to place primary
reliance on the old technique of pricing Governments by
reference to Governments.

297

Secretary Morgenthau - 4

The question may finally be asked "What would be the effect on an issue priced according to one method if the other
method should prove to be correct?" The answers to this
question are about as follows:
(1) Mr. Hadley estimated on Saturday that the
issue recommended by us - a March 1952-54 - would
sell at from 102-10/32 to 102-30/32. He estimated
at the same time that the issue recommended by

Mr. Piser - a March 1953-55 - would sell at from
101-25/32 to 102-20/32.

(2) The issue recommended by Mr. Hadley -- a
March 1954-56 - has an implied tax allowance, as
measured against our curve of from 13 to 16 percent,
depending upon the end of his range from which it

is measured. If the market should make the tax

allowance assumed by us (19 percent), Mr. Hadley's

issue, as measured against our curve, would sell at
a price of 100-18/32.
(3) If the tax allowance made by the market
should be 21 percent -- the same as on the outstand-

ing taxable 2's of 1948-50 - the price of the issue

recommended by Mr. Hadley would be only 100. Under

similar circumstances, the price of the issue recom-

mended by us would be 100-31/32.

II. Other Considerations
The bond just discussed would be offered for $500 millions
of new money. It would also be offered in exchange for the
1-3/8 percent notes maturing on June 15. It is recommended that
noteholders also be given their option of accepting in exchange
the 3/4 percent two-year note used at the time of the last
financing.

About 9/32 of interest will accrue on the 1-3/8 percent
notes between April 1 and their maturity on June 15. Subtracting what could be earned on an investment in Treasury bills
in the interim, it may be assumed that the old notes are worth
about 100-8/32 in the absence of any exchange offer. This much
must, therefore, be stricken from the margin of safety, as far
as the exchange portion of the offering is concerned. This is

298

Secretary Morgenthau - 5

not important, however, as the 3/4 percent notes are now worth
a premium of 24/32, and 60 provide an ample margin of safety
to assure the success of the exchange. It should be noted,
however, that if an exchange into the new bonds rather than
the notes is desired, it is only the estimated premium on these
bonds in excess of about 24/32 which constitutes a margin of
safety for this purpose.

299

March 17, 1941

HM,Jr's pencilled notes made during his
conferences today with various bankers and bond
men in connection with the financing.

A
$ not life

I HL Felat
Minimal family BRS.
2th 10-17
10-13
51-53

good for 400 method

Life his 600.
Banks 2000.
3000.

18% allotment

garner

Either 2 th or 2314

2-2

53-55-1 hereer

54-56

Thompsing

Bankers Trust

For Refunding
offer Slast
vote
2-2% 53-55 prefer

52-54

new money

23/4 23-25 years.

Col. Pofe
Refunding

11-13

3

Discount

53-55
12-1 14

Parkison

Lou Douglas

Devine
22 52.54
or
Refunding

27460-63
2 1/2

Cash 250 752.54
250 460-63 4

Bayers

53-55 - 101

Walter Cummings

Chicago

14-15 2/2yrs.

over-the-Counter Closing Quotations on United States Securities
(Decisal except in yield columns are shirty -seconds)
Intex

of

issue

11

32

Low

Date

109.24

11-19-36

97.29

1-10-34

111.14

67.20

1-11-32

10-15-33

111.07
111.26

6-5-39
6-5-39

97.29

1-10-3

6-7-39

99.30

9-17-3

12-15-24
9-16-35
12-15-37
3-15-26
6-15-34

3 10

6-15-31

3 11

10-16-22

3 12

12-15-38
1-15-41

3 15

3-16-36
3-15-38

3 16

12-5-39

17

Date

6-15-33

39

R

High

6-15-27

4-16-30

is

1941 range 1/

Range since first traded 1/

12-15-35

116.19
110.12

6-22-39
12-12-40

109.24

12-14-40
12-14-40

116.14

94.06

1-11-32

99.27
101.31
69.18

9-17-35
12-15-37
1-12-32

100.22

2-25-41

101.08

99.10

110.22

12-12-40
12-12-40

100.30
101.10

4-1-37
4-2-38
5-24-40

110.05
106.05

1-2

115.04
108.25

12-12-40
12-10-40

101.07

12-15-3

114.10

1-2

96.19

108.01
106.03
110.02

1-2

113.01
105.25
103.26
105.24

12-10-40

99.15

98.16

3 21

9-15-31

82.08

2
1A

101.08

104.24

12-14-40
12-12-40

1-11-32

12-22-39
10-7-40
1-22-40

113.24
106.24

12-30-40

322

106.24

12-12-40

13

3-15-35

111.30

12-12-40
12-30-40

111.06

1-1-19

11
12

6-15-36
12-15-30
6-15-37

1

15

111.06
111.22
1.86%

103.03
103.06
104.18

101.19
102.02

2-15-41
7-24-40

9-20-35

12-30-40

98.30
98.10
99.15

12-10-40

99.14

9-25-39

12-30-40

3-29-39

6-5-39
5-18-39

9-15-37

105.28

4-5-39

12-15-37
3-15-41

105.03
100.26
103.00

6-24-39

5.84%

98.19
97.31
99.26
100.26

9-20-37

9-25-39
5-20-20

4-10-37

2-15

112.08
108.00
107.13

2-15
2-15

541

113.00

2-15

489

109.20
110.10
119.04
104.21

2-15

1,036

3-12

819

3-5
3-11

759

100.22
107.25
107.08
103.24

2-15

2-25
2-15
2-15

2-7/8
2-3/4

1-2

919

2-3/-

6-15

1-2

107.06

2-15

1,485

2-3/4

12-15

204

2-15

426

2-15

342

3-14

232
12

99.21

1-25-41
12-9-40

99.21
98.26
99.11

3-3-41
6-10-40
3-11-41

office of the treasury, Division of Research and

108.10

107.25

112.14
108.09

107.27
113.16
109.30
110.17
119.17
105.06

64

.01

.00

.87

.00

107.26

.00

.82

.00

82

113.14

.00

.99

.00

2.66

01

1.55
1.75

109.29

.00

110.16

.00

119.16
105.05

-.01

101.02

101.01

109.00

108.10
104.28

108.31
108.09
104.27

-.01

.00

1.02

629
279

421
515
416

1.84

+.02

1.40

.00

-.01

1.36
1.34

+.01

IIIII
1.34

.00

1.47

.00

107.00
109.03

106.31
109.02

-.01

111.30

112.00
104.22

111.31
104.21

-.01

104.20

6-15

102.20

102.22

6-15

104.24

104.26

110.04
109.21

110.06

110.05

109.23

109.22

110.02

110.01

-.07

110.06

110.05

-.09

.00

1.55
1.70
1.76

-.05
1.76

-.03
2.04
2.02
2.06
2.12

B - 9-15 42

1-3/4 0 - 12-15 42
D - 3-15 by

103.05
100.23
102.00
101.25

t-1/8 A- 6-15
C - 9-15 4

43

102.09
101.19

1-1/8 3 -B12-15
by of
3-15
6-15

283

C - 9-15 44

635

D - 9-15 M

100.07

2-15

718

3/4

99.11

3-11

531

3/4

100.27
101.22

14

12-15-45

1.88

1.90

17

1.90

3 18

.00

1.53

19

.00

1.97

20

+.01
+.01

2.04

21

1.84

22

+.02

1.79

+.01

1.89

+.02

2.22

+.01
+.02

2.11

23
2 26

2.18

B 27

+.02

2.21

3 28

+.01

103.06
100.24

+.01

4/32*

-.01

37

102.02

102.01

.00

.22

.00

22

101.27

101.26

.00

.27

.00

27

102.11

102.10
101.20

+.01

-.01

28

101.21

45

+.01

45

103.07
100.25

.00

-.01

-2/32°

27/32*

0/32
0/32

18/32*

15/32

+1/32*

13/32*

+1/32°

4/32*

+.01

100.29

100.25

.00

.00

be

101.23

-.02

+.01

50

99.30
100.30

99.29
100.29

-.01

99.18

99.17

.00

78

.65

2

37

101.24

.00

24

LTA

+.01

101.16
102.07
103.13

it

00

27/32*

101.06

101.07
101.17
102.08
103.14

R

.00

18/32*
15/32*
13/32*

99.25
100.28
99.16

3-15 45

12

.00

102.06
103.12

2.32
1.20

-.02

101.05

101.15

1-1/4 C - 12-15 41
1-3/4 - A- 3-15 42

A-

.00

1.97

Treasury Notes

11

.00

-.01

102.21
104.25

9

B 10

-.04

106.24

1-3/8 B- 6-15 41

/

00

-.01

112.26

60-65

NA

1.16
1.20

112.27

110.00
110.04

2

-.01

106.25

51-53

17/32*

Long-term average w

3-13

1-25
1-2
1-2

100.05

112.15

9-15 51-55

982

100.05
101.02
100.08

1-31-41

112.13
108.08

51-54

2,611

2-19

1.55

112.25
106.23
106.30
109.01

2-15
2-15

101.14

.00

104.26

2-15

1-4

1.60

-.01

48-50

107.16

2-15

.01

12-15

48

106.28
106.28

100.09

.00

101.00
108.30
108.08

1-2

1-16

107.06
108.08

48-50
45-51

1-2

2-15
2-15

2.18

107.09
108.09

3-15
3-15
9-15

2-1/4

101.30
101.07

107.07

105.04

681

1-17
1-15

12-22-39

2-3/4
2-1/2

17/32*

+.02

47

725

50

Index

0/32*

12-15

2-15
2-15

3-12

ity

-.01

10-15

12-15

102.21
102.05
101.05
102.07

yield

-.02

109.25
110.15
119.14

2-1/4

2-15

yield

price

Kean

106.30

46-48

755

2.15%

Matur-

101.24

46-49
47-52

1,118

101.16

6-11-40

6-15
6-15

3-1/8
4-1/4

2-15

1-2

Change

3J

106.31

113.13

2-15

1-2

Tield

101.25

46-56

110.00
103.00
101.19
102.31

1-2
1-2

1-4

9-6-39

3-15

221
6-15

2-25
2-15
2-15

6-10-40

12-15

2-3/4

101.26

97.16
100.10

2-1/2
3-3/4

1,627

491

is

101.23
106.29

108.07

12-15 44-54
9-15 45-47

2-15

1-2

1-2

1-10

100.13

46.46

3-1/8 12-15 49-52
2-1/2 12-15
49-53
2-1/2
50-52
9-15

102.15
102.05

11-9-40
12-9-40
12-9-40

4-15

1,786
1,186

103.02
100.22

102.15
101.15
102.16

3-1/4

2-15
2-15
2-15

1-25
2-28

9-6-39

8-1

3-3/8
6-15
43-47
10-15
3-1/4
43.45

701

451

Ask

Change

Treasury Bond

111.14
105.01
105.04
107.00

103.23

98.30

3-1/4

571

1-25

100.26

B14

1,037
1,214

1,116
1.223

Over-the-counter closing

Issue

2-15

103.30

4-2-40

12-12-40

1,401
1,519

9-16-37

103.08

100.18

1-2

2-15

102.23

12-15-38
11-1-39

101.12

3-10
1-2

834

box

9-7-37

100.22

3-15-40
12-18-40

1-2

outstanding

(Millions)

2-17

4-9-37

11-8-40

99.04

1.92%

1-2
1-2

3-12

100.30
101.14
101.28
103.05

102.15

4-3-40

110.24
110.11
110.10
110.16

1-2

101.20
106.25
107.02
108.02

Date

1-29
1-29
1-28

6-15-60

2-28-41

101.05
100.22

111.29
112.17
121.24
106.30

Low

101.20
101.31

12-15-37
2-25-41
9-6-39
6-11-40

6-15-39

1-2

3-10-41
12-12-40

12-30-40

LE

1-2
1-2

101.05
111.18
111.01
107.00

12-14-40
12-12-40

106.30

12-15-38

1-2

9-17-34
1-11-32
10-8-23
9-25-39

110.24

3 28

1-4

83.05
98.18
99.14

9-15-38

6-15-38

1-4

97.28

-15-36

3 27

1-4

12-14-40

3 19

13

113.22
109.25
109.08
115.16

1-28

12-16-40

120

12-15-36

102.22
107.29
108.10
109.10

Date

112.28
113.19
122.22
107.20

4-8-37
9-25-39
4-1-37

18

High

Date: March 17. 1941

Amount

$

Date

.00

.78

+.01

52

.00

85

N9
10

11
H
W 13

11
15

Statistics

history
expressed beginning 1s yields, 9/30/39. high yields 2) Computed representing to low prices and vice versa. The

mean

of

closing

bid

and

ask

Included

quotations.
in

long-term

When

issued

average.

prices
of

1/ Today's of the prices Secretary not included. Bond prices prior call to date 9/30/39 when are prices closes are on above N.T. pari Stock *Date to Exchange. of maturity issue is date Other that when prices of prices commencement are are below of par. the average. 3/ *Excess of price over sero yield.

included
Ranges

is

Over-the-Counter Closing Quotations on Securities Guaranteed by the United States
(Decimals except in yield columns are thirty-seconds)

Range since first traded 1

Date

1941 range 1/

Amount

of

Index

High

Laste

Date

6-8-39
6-6-39

Date

Low

100.01
98.23

High

Date

1-2

9-21-35

103.03
103.04

outstanding
Low

Date

102.18
102.20

3-15

(Millions)

106.27

3-1-33

106.15

45-A

110.07
109.22

6-8-39

98.02

1-2

107.31

1-2

106.29
106.24

2-17

95.03

9-16-34
9-12-34

106.08

6-5-39

2-15

835

100.22

3-26-40

100.07
103.06

100.03

3-15

191

6-5-39

9-13-39
11-16-35

1-13

105.22

99.19
98.20

1-15

102.18

3-4

875

109.18
103.26

6-6-39

95.03

9-12-34

779

9-25-39

1-2

106.18
101.27

2-15

96.24

107.26
103.04

1-2

12-13-40

3-5

755

101.10
101.11

6-6-39
6-9-39

99.19
99.19

9-11-39
9-11-39

100.15

1-17

100.09

3-6

211

100.21

1-29

100.16

3-15

299

101.09
101.25

3-11-40
3-15-40

99.16
100.18

9-7-39
5-28-40

100.25
101.08

1-2

100.17
100.29

3-6

no

3-12

276

3-15-40

99.08

3-15

20k

6-1-40

101.02

12-14-40

1-2

100.07
100.20
100.18

203

100.18
100.06

100.10
100.25
100.25

3-15

1-18-40

9-6-39
10-18-39
8-15-40

1-29

11-2-3

100.24
101.14

2-19

289

0 16

11-1-40

100.05

11-4-40

3-15-41

103.02

12-14-40

100.01
102.00

112

2-1-39

1-28
1-2

3-15

0 17

100.03
102.26

2-17

114

5-15-34

9-17-35

1-2

3-15

s

1

0

1

Over-tho-counter closing

Change

is
314

Ask

Hean

price

Tield

Change

Matur-

al

yield

yield

Index

sty

TTNC

1-15-32

02

Issue

Date: March 17. 1941

236

35

103

2-3/4

1-15 42-47

102.17
102.17

102.20

5-15 44.49

107.01
107.00

107.04
107.03

5/85 L 5-15 41
2-1/40- 7-1 42-44

100.02
102.18

100.00
102.20

100.03

.00

102.19

.00

1-1/2 K E 44-52 45-47

106.22
102.01

106.24
102.03

106.23
102.02

-.01
-.01

100.08
100.15

100.10
100.17

100.09

-.01

.06

-1/32

.06

09

100.16

.00

.07

-.01

.07

G 10

100.17
100.29

100.19
100.31

100.18

.00

.20

.00

.20

G 11

100.30

.00

.27

-.01

.27

0 12

100.06

100.08
100.21
100.20

100.07

.00

.05

-.01

.00

.06

.00

OF

100.20
100.19

014

.00

.47

.00

.47

0 15

3-1/4

95

- 3-1 42-47
3-15 44-84

102.20

102.18
102.18

.00

-.02

2/32

0/32

.07

0.05

107.02

-.01

86

+.01

107.02

-.01

74

+.01

2.52
2.29

RA

2.63
2.06

⑆2

0

HOLO

5-15-39
7-1-35

0

5-1-30

6-1-39

<.02

.05

.05
.24

-.01

1.44

.82

+.01
+.01

1.15

1.00

:1

2.31

:I

G

RFC

09

1-20-34

0 10

11-1-38

0 11

2-15-39

12/11-10-39

1-2

7/85 N - 7-20 41

7/8 P - 11-1 in

7/8 -1-15 42

1 S - 7-1 42
OCO

01
0 15

6-1-39

1-29

1

013

5/85 D - 8-1 41
1-11-15 in

3/4 7- 5-1 by

100.19
100.18

USHA

100.01
99.07

9-25-39

1/45 1- 11-1 kg

1-3/83- 2-1 44

100.00
102.04

100.02
102.06

100.01
102.05

.00

+.01

.20

.62

.00

20

0 16

-.01

.62

0 17

Office of the Secretary of the Treasury, Division of Research and Statistics
V

Today's

prices

is history beginning 9/30/39.

3/

Computed

to

0 13

included

Other prices are mean of closing bid and ask quotations. When leased prices

not included. Bond prices prior to call 10/30/39 date when are prices closes are on N.T. above Stock pari Exchange. to maturity date when prices are below par. *Excess of price over sero yield.

308
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

plical
TO

FROM

DATE March 17. 1941

Secretary Morgenthau
Mr. Cochran

At 10:35 this forenoon the Secretary called me to his office, where Messrs. Foley,

Young and Cox were present. The Secretary had just received through Mr. Young two
requests from the British for the Secretary's approval to cash payments on contracts
involving $6,000,000 for Thompson machine guns and $2,000,000 for trucks.

In accordance with the instructions which the Secretary gave me I immediately

called Sir Frederick Phillips. I told him that the Secretary desired to assist the

British Treasury in arranging for the immediate application of the Lend-Lease Act to
current British transactions. Consequently, he was refusing to approve the two applications under reference, and was advising the British immediately to approach the
appropriate Lend-Lease authorities in the premises. Phillips was aware that advice
along these lines had been given by the Secretary to Mr. Purvis, and he gladly agreed
to follow the suggestion.

309

March 17, 1941
11:55 a.m.

RE

JUGOSLAVIAN GOLD

Present:

Mr. Bell
Mr. Cochran

Mr. Foley
Mr. Bernstein

H.M.Jr:

I don't know whether you (Foley) want to

come into these things in the future or

not. You can tell me after you listen to
this thing whether you want me to work

directly with Bernie. It is the question
of the Jugoslavian gold. Do you like to

hear those things?
Foley:

Well, I like to hear the Jugoslavian gold,
sure. It is up to you, but if you want me

in on this, it is all right.

H.M.Jr:

I do, but I don't know whether I am pulling

you out of something else.
Foley:

That is all right, I can always drop every-

H.M.Jr:

Anyway, this conversation with Welles they

thing I am doing to come in here.

can read in your (Mrs. Klotz) room. She is

typing it now. A lot of rigmarole. Welles
says that the Jugoslavian people have to

consult with about five people in their

country to change these orders, and they are

310

-2-

in the process now of changing it. They
wanted to know, boiling the whole thing

down - Welles wants to know whether we can

find some way of holding up the transfer
of gold until the Jugoslavs have a chance

to tell us not to. This comes from the

Jugoslavian Minister, and inasmuch as he

said the orders will be here shortly
telling them not to sell the gold, we

can't do that - if we can do it, at least

we can hold the dollars for them which we

pay them for the gold. Now, he said, lacking
that, could we hold the dollars. But it
seems to me without - that if here is the
accredited representative of this government asking us to try to hold this thing up
a couple of hours until the foreign minister
can see the various people who are affected,
then why shouldn't we comply with that re-

quest.
Foley:

I assume it is more than a couple of hours.
It would be not --

Cochran:

We would miss the business day.

Foley:

We wouldn't clear the thing today.

Bell:

Well, you are not legally obligated to carry
through a transaction of that kind --

Foley:

No, I don't see any reason why --

Bell:
Foley:

at any particular hour of the day.
.....We wouldn't be able to say that the
matter is under consideration. That is the

answer that the bank in New York could give,
that they had referred the matter down here
and the matter is under consideration, and

they haven't had specific instructions, and

311

-3they can't close without clearance from

Washington.
Bernstein:

Would it also be possible to argue, Ed, that
you do have the request coming through to

sell the gold, and at the same time, you have
the accredited representative of the country

saying, "Hold up, don't sell. I am trying
to get the thing through"? It in effect
nullifies the instruction. You don't know

where the instruction is, and you therefore

are entirely justified.

Foley:

That is one of the reasons why the clearance

hasn't come from Washington, because Washing-

ton is negotiating directly with the Minister,
and Washington is clarifying the instructions
and isn't giving its answer to New York until

it is satisfied.

Bernstein:

That is right.

Bell:

Does this answer go to any place except the
Federal Reserve Bank? Is the Chase involved?

Cochran:

Well, the Chase is involved because the dollars -

half the dollars will go to the Chase for the
account of Jugoslavia.

Foley:

They wouldn't be involved until the purchase

Bell:

Then I see no objection to telling the Fed

Foley:

H.M.Jr:
Foley:

is made.

that.

There is no liability on the part of the Fed
on this transaction.

All right?
Yes. I am satisfied.

312
4-

H.M.Jr:

Is there another transaction?

Cochran:

Another wire was received today dated the
15th from the National Bank of Jugoslavia

for the Fed to pay eleven million two hundred
twenty-three thousand dollars out of the proceeds of their gold to the Central Bank of

Argentine account.
H.M.Jr:

I am only dealing right now with this eighteen

million gold. It is eighteen million, isn't
it?

Cochran:

Twenty-two and a half.

H.M.Jr:

And you fellows can tell Knoke just to hold
the thing.

Foley:

It doesn't involve a change of policy at all.

We haven't refused to buy this gold. We are
simply considering it.

H.M.Jr:

Worry you too much?

Cochran:

No, not when we have the Minister's word here

H.M.Jr:

I am going to ask Welles to confirm that in
writing.

Cochran:

From what Ed says, I think there will be no

about it.

difficulty.

H.M.Jr:

If you get over there at the usual time, there
is this cable which he read to me in part, and
the thing in Jugoslavia looks much better.

Cochran:

I heard that much, and then I came in.

H.M.Jr:

Well, if I can have a copy of that cable sometime, you see. But Acheson is doing it with
you and Welles insists on doing it with me,

(Welles etc 3/16 dates 5/17)

313

-5-

(Telephone conversation with Summer Welles

follows:)

314

March 17, 1941
11:40 a.m.
Summer

Welles:

Hello, Henry.

H.M.Jr:

Yes.

W:

H.M.Jr:
W:

I know you have somebody with you but I'11
have to give you this message.
Please.

The Yugoslav Minister has just been in to
see me. He was finally able at 7 o'clock
this morning to get through on the telephone
to his own foreign secretary. The foreign
secretary said that he fully understood the
situation and was strongly in favor that the
orders to the Federal Reserve here be
cancelled, but that before the Minister

could receive an instruction to that effect,

he, the foreign secretary, would have to
consult the Prime Minister, the Finance
Minister and the Governor of the Bank. He
believed they would all be in accord with
him. He said that he would send the Minister
an instruction and he believed it would be
in that sense sometime this afternoon at
the latest. The Minister consequently
hopes that the sale of the gold can be
delayed.

H.M.Jr:
W:

I see.

However, he said if you couldn't delay it
for some technical reason - the sale of the
gold - he believed that you would see no
reason why the dollars resulting from the
sale of the gold could not be kept here.

H.M.Jr:

I see.

W:

Is that possible?

H.M.Jr:
W:

I don't know. I'11 find out right away.
All right, because I told him I'a let him
know what your statement would be.

315

2

H.M.Jr:

Well, I'll find out and if I don't call

you, I'11 have Merle Cochran come over and

tell you in person.

H.M.Jr:

All right.
Is that all right?

W:

Yes, indeed.

W:

H.M.Jr:

Now, I'll get an answer to you either from
me or Merle Cochran within the next fifteen
minutes.

W:

All right, Henry. If you have time, I'll

read you a telegram that came in from Lane,
this morning.

H.M.Jr:
W:

Please.

"Prime Minister claims" (this was sent last
night at 10 o'clock, in other words, before
the Minister was able to talk with the
Foreign Secretary). Prime Minister claims
to be ignorant of the orders to convert the
$22 millions gold to their account. Am
asking Minister of Finance for explanation
tomorrow. He is not in Belgrade today.
The Prime Minister said that $3 million
transferred to Switzerland and Turkey were
to pay for cotton bought in Russia and
Turkey. I recommend that Treasury defer
decision until receipt of report of the
Minister of Finance explanation. The Prime
Minister is emphatic that no German troops
or war material will be allowed in Yugoslavia. He said he had explained to Hitler
(1) Yugoslavia will not permit passage of
troops, (2) Yugoslav Army will resist
attack and (3) Yugoslavia has vital interest

in Salonika. There is some more to it but

that is the essential part. I think there
better in that situation during the past
few days and if you can find some way to
hold this up until the Minister gets his
instructions, I think it would be helpful.

has been a very decided change for the

316

3

H.M.Jr:
W:

Well, that's what we want to be - helpful,
and I'll get you an answer right away.

All right, Henry. I'll wait until I hear
from you.

317

-6-

Cochran:

Well, shall I tell Knoke, then, to --

H.M.Jr:

Yes. And that we are doing this at the
request of the Jugoslavian Minister.
Now, I just asked you (Foley) that because I didn't always want to pull you
out of conferences and that sort of stuff.
But you likee?

Foley:

Sure, I likee.

H.M.Jr:

O.K.

Foley:

It is easier for them (indicating legal
staff).

Reed by
THE UNDER SECRETARY OF STATE

3/17/14

WASHINGTON

March 17, 1941

My dear Mr. Secretary:

In accordance with our telephone conversation of

this morning, I am enclosing for your information a
paraphrase of a telegram dated March 16, 10 p.m.,

from the American Minister to Yugoslavia.

The Minister of Yugoslavia called to see me this
morning and informed me that he had succeeded in reach-

ing the Foreign Minister of Yugoslavia on the telephone
this morning at 7:00 a.m. and had urgently recommended
that the orders issued by the Government of Yugoslavia

for the transfer of Yugoslav deposits in the United
States be cancelled. The Minister told me that his
Foreign Minister strongly agreed that the orders should

be cancelled, but stated that before an official instruction could be sent to the Minister in that sense, the
Minister for Foreign Affairs would have to consult the
Yugoslav Prime Minister and Finance Minister, as well
The Honorable

Henry Morgenthau, Jr.,

Secretary of the Treasury.

319

-2-

as the Governor of the Bank of Yugoslavia. The Foreign

Minister further stated that these consultations would
take place today and that instructions to the Yugoslav
Minister here would be sent by cable in the course of
the afternoon. The Minister of Yugoslavia expressed the

belief that his instructions, when received, would contain authorization for cancellation of the previous orders.
In view of these facts the Minister urged that the
Treasury Department delay action of the Federal Reserve

Bank in New York for the time being, or, if the sale of
the gold deposits could not be delayed, that the Treasury
Department find some way of holding up the transfer of

the dollars received from the sale of the gold until the
Minister received final instructions.
I told the Minister that I should be glad to communicate to you the information he had communicated to me.
Believe me

Yours very sincerely

Enc.

Paraphrase

A

Nelly

320

TERTOTLY

PARAPHRASE OF TELEGRAH
TO:

The secretary of State, Washington.

Frees

Bolgrade

Dateds

March 16, 10 P.M.

Rec'de

March 16, 11:59 p.m.

No.

198.

I discussed with the Prime Minister orders for the
conversion of 629,000,000 gold to a dollar account but

he claims to be ignorant of the matter. In as much as
the Minister of Finance is not in Belgrade today I asking him for an explanation tomorrow. The Prime
Minister told me that the 83,000,000 transferred to Turkey
and Switzerland were to pay for cotton that had been bought

in Turkey and Russia. Until I have had the Finance Minister's explanation I recommend that the Treasury defer

its decision.
The Prime Minister was most esphatic in his state.
ment that no German war material or troops would be

allowed in this country. He told me that he had explained
to Hitler than Yugoslavia would not permit the passage

of troops, that attack would be resisted by the Yogoslav
army and that Salonika is of vital importance to Yugoslavia,

Re, heaever, replied in the negative when I asked his if
Yugoslavia would attack should Salonika be occupied w

Germany. In this connection, the Prince Regent also

indicated

321

indicated that Yugoslavia would not consider as a
seasus bell1" an occupation of Salenika.

Ovethovie said there is a great military diffs.
oulty in the fact that if Yugoslavia is threatened
with attack the northwest part of the country must be
left undefended as the troops in Slovenia and Greatis
would have to be brought south.
The Department has asked my opinion regarding

Yugoslavia's attitude. I believe that the Government
and the Army would resist any attempt at occupation

but that the offensive will not be taken by Yugoslavia.
It may be felt necessary to sign a pact with Germany

without the military clauses but it is obviously
impossible to forecast the final attitude which will
depend upon the extend and nature of the demands made
by Germany.

Copies to:

disidis

with

322

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Belgrade (Yugoslavia)
DATED: March 17, 2 p.m.
NO:

195

National Bank of Yugoslavia is to transfer
$25,000,000 of funds in the United States, half
to Brazil and half to Argentina, according to advice
received by British Minister from National Bank of
Yugoslavia.

LANE

RA:JSH

OF

100

I

323
March 17, 1941
2:55 p.m.
Jerome

Frank:

Hello, Henry. Jerome.

H.M.Jr:

Hello, Jerry.
Sometime ago - many months ago - I got

F:

a green light from the President to start
thinking about capital issues control.

H.M.Jr:

Yeah.

You may have noticed what we did recently
in cooperating with the Defense Commission.
We're now, on any new issues where there

F:

seems likely to be any priorities question,

we get from them whether there 18 or not.
H.M.Jr:
F:

H.M.Jr:
F:

No, I didn't know that.
If it appears there is, then we make the
issuer put that in his registration statement, that he is not going to be allowed
to use the money for the purpose for which
he has been obtaining it.
No, that's all news to me.
Well, that kills the deal, you see. Now
we can do that with any securities that are
offered publicly. If, however, they go
through private placement to the insurance
companies or if the banks make loans, then
we don't have any control.

H.M.Jr:
F:

Un-huh.

I was talking to Jim Forrestal about the

whole problem, which he thinks is going to
become acute, and I sent him a memo and

he thought very well of it, and he suggests
that something be done to move forward
promptly because somebody is likely to do

it in a screwy way over in the Defense
Commission.

H.M.Jr:

Yeah.

324

-2F:

I've got a memo and a proposed order which

Jim has been over and thinke pretty well

of. I'd like to send it over to you if I

could and maybe you could have one of your

boys study it.
H.M.Jr:

Good.

H.M.Jr:

May I send it over this afternoon then?
If you please.

F:

Fine, thanks.

H.M.Jr:

Thank you.

F:

F:

H.M.Jr:

I understand our boys told yours what
you wanted to know about that question
you asked me about last night.
O.K.

325
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 17, 1941
TO

FROM

Mrs. Klotz
Mr. Morgenthau

Please see that I call up Sir Edward Peacock and
congratulate him on the sale of Viscose Company. Lord

Halifax wanted me to do something like this and I will be

very glad to do it. (See telephone Conversation

on this late.

326

March 17, 1941
12:00 noon
H.M.Jr:

Sir Edward

Hello.

Peacock:

Hello.

H.M.Jr:

Sir Edward?

P:

Yes.

H.M.Jr:

Morgenthau.

P:

Oh, good morning, sir.

H.M.Jr:

Good morning to you. I just want to tell
you the sun seems a little extra bright
and more friendly today than it has been
in a long time.

P:

H.M.Jr:
P:

oh, thank you so much.

And I'm simply delighted at the news that
you ve put through that transaction.
Thank you 80 much. We've done out best.

It wasn't easy, but we've got it done in
time.

H.M.Jr:

P:

Right. I know that things were difficult

and I also appreciate that you accumulated
about eight months of do-nothing.

(Laughs). Well, I suppose that was what I

had to do.
H.M.Jr:
P:

But I thought you got a very good press.

Yes, it seems good, what I've seen of it,
and I've done my best to assure that the

British press is good too. I saw them all
yesterday and they all promised to play up,
so I hope that will be right although I
can't control it in the same way, and our
Treasury and the Bank of England both

promised to do what they could there too.
H.M., Jr:

Good. Well, I can't tell you how much it
will help the whole cause.

327
-2P:

H.M.Jr:
P:

H.M.Jr:

Well, that's a great comfort to me because
that's why it was done.

Yes, it will be very helpful.
Good.

I hope when I come back from a little
holiday I'm taking Thursday - I hope you'll
come down and I'd like to see you.

P:

Oh, well, thank you so much sir. There
are one or two problems that I really would
like to discuss with you before I have to

tackle them, but I'll hold those over until

you come back and then I'11 take advantage

of your invitation and ask to come and see
you.

H.M.Jr:

Now, Lord Halifax again repeated the
request that he'd like us to have somebody

from our Treasury sit with you. Is that

P:

something that you' d like very much?
I would like somebody if I could with whom
I could discuss some of these problems, and

who would look at it from your point of

view, you know, and rather keep a check on
me without being too troublesome.
H.M.Jr:
P:

(Laughs). I see.
But I'd like it to be if possible somebody
who has a sort of practical knowledge of
these business things.

H.M.Jr:

I see. Well, I'm giving it careful

P:

Thank you so much.

H.M.Jr:

Good-bye.

consideration.

328

March 17, 1941

Mr. Foley
Secretary Morgenthau

the

I wish you would talke to me about putting one of

your best assistants to sit with Pescook. I think it would
be very useful for many reasons, one being to make sure

that they do not sell some of these companies to existing
companies, and thus form monopolies.

Please think over who would be the very ablest
man you have. Also, by having him sit with Peacock, we would
know what was going on.

329
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 17. 1941

Secretary Morgenthau

TO

FROM

Mr. Cochran

STRICTLY CONFIDENTIAL
When the Secretary spoke by telephone with Sir Edward Peacock in New York this
noon, expressing his congratulations upon the success of the Viscose transaction,
Sir Edward mentioned that he had certain problems which he hoped to be able to discuss
with the Secretary upon the latter's return from a holiday. He mentioned among them
the desirability of having the Treasury assign someone to his organization in New York
who could be of use, but not bother too much. The Secretary promised to take this
under consideration.

When I was with Sir Frederick Phillips, Pinsent and Playfair this afternoon the
British mentioned their relief at the Viscose transaction being consummated. I told
them that the Secretary had expressed his appreciation to Sir Edward Peacock and that
the latter had hoped to come down after the Secretary returns from Arizona and discuss
problems with him. Pinsent made the point that Peacock had felt himself somewhat
handicapped by having been hastened into expediting sales so soon after his arrival
here, without opportunity really to discuss the whole problem with the Treasury and
find out just what our ideas were in the premises. The first big sale has now been
accomplished, but this means no relaxation in effort and the British will push ahead
with others. At the same time, they hope that Sir Edward will be able in the near
future to come down and discuss with Secretary Morgenthan and the British Treasury
people here certain problems of policy which must still be settled. They told me
that Sir Edward's suggestion as to a Treasury man being with him in New York was with
the idea of having a Treasury representative there who could discuss the broad aspects
of Treasury policy with Sir Edward and his assistants. They did not require someone
for legal advice.

When I saw the Secretary at 3:50. I summarized the above conversation to him.

I also let him know that Deputy Minister of Finance Clark was arriving in town from
Ottawa this afternoon and that the British hoped the Secretary could receive both
the British and Canadian Treasury representatives together or separately on Wednesday.
The Secretary gave me an appointment for 11 o'clock for this purpose. I told him
further that the British hoped to get together with some of the Secretary's staff
tomorrow to do some preliminary work for this conference. The Secretary said Mr.

Bell could not be spared from financing, but that I was free to work with the British.
I gave this information to Pinsent later this evening, and it was agreed that we
should fix our hour tomorrow morning for a meeting.

In his conversation with me the Secretary stressed his desire to continue to be
helpful to the British, now that we have begun to move forward on several lines.
told him that Phillips had been appreciative of his assistance in putting him so
quickly and directly in touch with Mr. Hopkins with the view to having the Lend-Lease
Bill be immediately applied to British transactions.
I

x.m.g.

330

March 17, 1941
12:03 p.m.
H.M.Jr:

Hello.

Operator:

Mr. Welles.

Sumner

Welles:

Hello.

H.M.Jr:

Summer?

W:

Yes, Henry.

H.M.Jr:

We're going to tell the Federal Reserve
that we ve got the matter under consideration
and we'll not be able to give them an answer
today.

W:

H.M.Jr:

W:

H.M.Jr:

That's fine.
There's no use telling them a couple of
hours. We might as well do it for the rest
of the day.

Well, that's fine. I think that'11 take

care of it perfectly, Henry.
Now, what I'd like for my records, if you
wouldn't mind writing me a little note
giving me - simply saying that you've asked
us to hold it over at the request of the
Yugoslav Minister.

W:

I'd be very glad to do that.

H.M.Jr:

So I have that for my records.

W:

Yes, indeed. I'11 send you that this

H.M.Jr:

We're doing this at the request of the

W:

Right.

H.M.Jr:

afternoon.

Yugoslav Minister.

And we'll hold this up now for the rest
of the working day. That gives us again
until the first thing tomorrow morning.

331

-2W:

That will give us certainly time - all
reasonable time necessary.

H.M.Jr:
W:

It
looks a little cheerful, doesn't it,
over there?

I think it looks a little better. I think
that there is a lot of backbone that has

suddenly come into them and I think that

a freezing order at this time, of course,
would have been a dish of cold water on
their head.

H.M.Jr:

W:

H.M.Jr:
W:

Have you people any - do you hear very
much of what the English are or are not
doing with troops in Greece?
We have nothing that the War Department

doesn't give us on that.

I see. Well, I get that. All that you

have is from the War Department.

That's right, practically. Practically
everything.

H.M.Jr:

Right.

W:

All right, Henry.

H.M.Jr:

Thank you.

W:

Thank you so much. Good-bye.

H.M.Jr:

Good-bye.

332

March 17, 1941
12:09 p.m.
H.M.Jr:

Hello,

Sir Frederick
Phillips:

Hello. Yes.

H.M.Jr:

Morgenthau speaking.

P:

Oh, yes.

H.M.Jr:

How are you?

P:

First rate.

H.M.Jr:

Sir Phillips.

P:

Yes.

H.M.Jr:

I just wanted to tell you how delighted
I am over that sale of Courtaulds. It

helps tremendously, clears up the atmosphere
and everything.
P:

Yes, it was well worth it. I don't think
they dropped very much.

H.M.Jr:

You don't think they dropped very

P:

I don't think they did.

H.M.Jr:

Well .....

P:

3 or 4 million perhaps.

H.M.Jr:

How much?

P:

3 or 4 million perhaps.

H.M.Jr:

3 or 4%?

P:

Yes, something like that.

H.M.Jr:

3 or 4% or 3 or 4

P:

Because they had to pay bigger commissions

than they'd otherwise have paid and so that's
about the extent of the damage, I think.

333
-2H.M.Jr:

P:

H.M.Jr:

Oh. Well, anyway, I just wanted to let you
know how pleased I am, and it was very,
very
helpful.
Yes, I hope it ought to do good.

It will do a lot of good. You. got a
very good press, you know.

P:

H.M.Jr:
P:

Yes, I looked at the Times and the Washington

Post. They're both quite good.
Well, I'll be seeing you soon.

Yes. Now, I don't know whether they told
you, Mr. Secretary, but Clarke is coming
up today.

.....

H.M.Jr:

Clarke of

P:

Ottawa.

H.M.Jr:

No. No one told me.

P:

Well, I didn't know it until late last
night. I didn't call any of your people

this morning, but I expect he'll want to

have a word or two with you tomorrow.
H.M.Jr:

Well, I don't know about tomorrow but
maybe Wednesday. We're in the midst of

pricing our issue and I'm right up to my
eyebrows and I doubt if I can do it before

Wednesday.
P:

I see.

H.M.Jr:

But he can see our people here.

P:

Yes. Well, I was thinking later this

afternoon I'd just bring him around and
see if we could find Cochran. You see?

H.M.Jr:

oh, Coohran is here. He's not in on this

P:

He isn't tr

Government financing.

334

-3H.M.Jr:
P:

H.M.Jr:

P:

No. He has nothing to do with it.
Well,
anyhow, I'll find someone to talk
to.
But, as I say, Cochran has nothing to do
with it but it is Bell and I who are tied
up on this.
I see.

H.M.Jr:

But I could see him on Wednesday if he

P:

Yes. Perhaps I can come around with him.

H.M.Jr:

I'd be delighted.

P:

Yes.

H.M.Jr:

Will you ask for an appointment?

P:

wants to.

I haven't yet, sir. I was just thinking
of doing so. I haven't got in touch with

him yet.
H.M.Jr:

Well, when you're ready, call Lieutenant
Stephens.

P:

Yes. Right.

H.M.Jr:

Right. Good-bye.

P:

Thank you. Good-bye.

335
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 17. 1941
TO

Secretary Mergenthau

FROM Mr. Cochran

STRICTLY CONFIDENTIAL

Shortly after I returned from visiting the British Treasury representatives this
afternoon, Mr. Pinsent telephoned me that Mr. Joseph Alsop had interviewed him. Alsop

had a story to the effect that the British had offered to turn over all of their direct

investments to the United States Treasury against an advance. Pinsent had first tried
to evade this question. When Alsop repeated it, Pinsent denied it.
Alsop also had some story about there being a period of one week within which
the British Government had expected Sir Edward Peacock to produce results. Pinsent
said he know nothing of such an idea. Alsop commented further upon the unusual

character of the Viscose transaction. Pinsent admitted that it was unusual, but argued
that the whole idea of selling direct investments of a foreign country was unusual, so
unusual methods might be utilized.

Upon seeing the Secretary at 3:40, just before his press conference, I gave him
the foregoing information. At his request, I then asked Mr. Kuhn to come to my office
nd gave him the above story, so that he could receive instructions from the Secretary

at 4:30 p.m. with the view to killing this story. Mr. Kuhn told me that he had lunch
today with Mr. Kintner, and had at that time found that this partner of Alsop's had
the above story. Mr. Kuhn had endeavored to correct Kintner's impressions and doubted
that any story would be published. He went from my office to see the Secretary.

B.M.P.

336

March 17, 1941

Mr. D.W. Hell
Secretary Morgenthan

Could you let me know how many different agencies

in the Government are spending money to train man and women

in industry? Francas Perkins brought up the question at
Cabinet, and there does not seen to be any central, wellthought-out program. I gather that the expense of training

an individual is something terrific.

Same. Bell's
memo 13/80/94

337

March 17, 1941

Dear Mr. Attorney General:

For your information I an
enclosing a copy of the letter which
I have given to the President today
on the inter-governmental tax immunity
problem.

Sincerely yours,
(Signed) H. Worgenthau, JP.

Secretary of the Treasury

The Honorable

The Attorney General
Enclosure

KHF15 3-17-41

By Message y" my/y

338

March 17, 1941

Dear Mr. Hillman
You your information I am

enclosing a copy of the letter which
I have gives to the President today
on the inter-governmental tax Seamity
problem,

Sincerely yours,
(Signed) H. Morgenthan, THE

Secretary of the Treasury

Im Sidney Hillman

Annociate Director General
office of Production Management
Washington, D.C.
Suclesure

Kifts 8-17-41
By Motornate 4

339

March 17, 1941.

Dear Mr. Secretary:

For your information I am

enclosing a copy of the letter which
I have given to the President today
on the inter-governmental tax immunity
problem.

Sincerely yours,
(Signed) H. Morgenthan, Jr.

Secretary of the Treasury.

The Honorable

The Secretary of the Navy

Enclosure

Minista
3/17'41

By Messenaer 3/19/41

/

March 17, 1941

Dear Mr. Secretary:

For your information I an

enclosing a copy of the letter which
I have given to the President today

- the inter-governmental tax immunity
problem.

Sincerely yours,
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury

The Honorable

The Secretary of Mar

Inclusive

KHFts 3-17-41

By Mecameter 4" mg/19

341

March 17, 1941

Dear Mr. Kaulsons

For your information I am

enclosing a copy of the letter which
I have given to the President today

- the inter-governmental tax immity
problem,

Sincerely yours,
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury

- William S. Kenisan

Mrester General
Office of Production Management

Markington, D.C.
Inclesure

By Messegger 4-0-3/19

3-17-41

342

March 17, 1941.

My dear Mr. President:

I should like to renew my objection to the attached
draft of a press release submitted by Secretary Stimson on
Friday.

Secretary Stimson's proposed press release states:

"The position taken by these states [which
impose sales and similar taxes has caused
such uncertainty that materielmen are
threatening not to sell and contractors
are threatening to stop work."
So long as the Federal Government continues to reimburse

contractors for state and local sales taxes as part of the
contract cost, there is no reasonable basis for any contractor
who works for the Government on a cost-plus-a-fixed-fee basis

to threaten to stop work because of such state and local taxes.
The proposed press release also states:

"It is obvious that, if these taxes are
paid, certain favored states will be

unduly enriched at the expense of the
national defense program and of other
states.

This seeks to isolate one small phase of the whole field of

Federal and state tax immution and fails to take into
consideration the broader aspects of the inter-governmental

343

immity problem.
The legislation suggested in the press statement
proposed by Secretary Stimson would compel us to give up

our present efforts (1) to end the exemption from Federal

taxation of the income from future obligations of state and
local governments, and (2) to give state and local govern-

ments the right to tax the income from future Federal
obligations.

Furthermore, it would place us in the untenable

position of trying to collect taxes on all private income,
even if it is derived from a state OF municipal government,
while at the same time preventing the states from taxing in
a non-discriminatory manner purchases of private contractors
because they have a contract with the Federal Government.
You and I have been disturbed for some time by the

overlapping of Federal, state and municipal taxation and by

the inequalities resulting from the doctrine of reciprocal
immunity. The Treasury has been trying to clarify this situstion in Congress and in the courts.
In carrying out the program to end tax-exemption, the
Bureau of Internal Revenue last Friday began a test case
against seven bondholders of the Port of New York Authority,

for the purpose of settling the constitutionality of a

344

-8Federal income tax on future state and local obligations.
Once the courts have established the validity of such a

tax, it will greatly facilitate the enactment by Congress
of the short and simple statute twice recommended by you

to end the immunity from income tax of those issues.

An immunity bill of the sort suggested by Secretary

Stimson would, in my opinion, frustrate our efforts in this
direction and might remove for many years any hope of repeal-

ing the exemption in the Internal Revenue Code of state and

municipal issues. The question of the taxability of state
and municipal bondholders upon the interest they receive is

closely analogous to that of the taxability of articles
bought or used by a Federal contractor. In both cases the
expenses of the Government might be lessaned if an exemption

were granted, but this is not an adequate basis for asserting
immunity. The sound test is whether the taxing statute
discriminates against the Federal Government or against a

Federal contractor in favor of other taxpayers. To prohibit
the imposition of state sales taxes as suggested by Secretary

Stimson abandons this test and substitutes by legislation
the reciprocal immunity dootrine only recently discarded by
the Supreme Court.

345
-

The taxes of which the contractors now complain are

not disoriminatory. They are state sales taxes, gasoline

taxes and the like, which are applied equally to Federal trustore and to all other taxpayers.
The buries on the Federal Government resulting from

state sales taxes is a normal incident of the organization
within the - territory of two governments, each peecessed
of the taxing yours.
Our Treasury estimates, incidentally, show that the
additional cost to the Away and Havy as & result of such state
and mulcipal taxes would not exceed $5,000,000 a year, and

that the total additional cost of controlles contracts for the
shale as 1/2 billion dollar defense program would not be over
$15,000,000. On the other hand the Treasury will ultimately

receive additional revenue of $200,000,000 a year if it cools in its attempt to and tax-exemption of interest from

future state and mm/cipal accurition. This figure 100 of
course, based upon present insono-tax rates, and will be in

creased materially w the higher rates - shall have to in
pose to finance national defense.
Horeover, Secretary Stimpon's progosal would also

prevent the states and mmicipalities from deriving additional

- from Federal defense activities to pay for expenses

346

insurred as a result of those activities.
If we must choose between Secretary Stinson's pro-

posal and the Treasury's program, it seess to - that should choose the legislation which will not only result
in a far greater saving to the Government but which will
help us to build a more equitable tax system as well.
I strongly recommend against the issuance of Sours-

tary Stimson's press release and the introduction of the
legislation suggested by him.

Faithfully yours,
(Signed) H. Morgenthan, ⑉

Secretary of the Treasury

The President
The White House

Inclosure
Delivered by Secy when he

went over for lunch.

3-17-41

My attention has been called by the War and Navy

Departments to a serious condition caused by uncertainty as

to the application of state sales and similar taxes levied on
contractors engaged on national defense projects on a cost-plusa-fixed-fee basis.

Eighteen states have held that taxes of this nature
are not applicable because of Federal immunity, and a number have

not ruled on the question. However, several states have held
that such taxes do apply and have taken active steps to make

collection. The position taken by these states has caused such
uncertainty that materielmen are threatening not to sell and con-

tractors are threatening to stop work. It is obvious that, if
these taxes are paid, certain favored states will be unduly enriched
at the expense of the national defense program and of other states.
Due

I am having a bill prepared for submission to Congress

ON designed to clarify this situation.

Until the matter is adjusted.

the Government will refrain, where practicable, from placing any
cost-plus-a-fixed-fee contracts in those states which insist upon
applying their taxes to transactions covered by such contracts.

348

March 17, 1941.

My deer Mr. President:

I should like to renew my objection to the attached
draft of a press release submitted by Secretary Stimson on
Friday.

Secretary Stimson's proposed press release states:
"The position taken by these states [which
impose sales and similar taxes has caused
such uncertainty that materielmen are

threatening not to sell and contractors
are threatening to stop work."

So long as the Federal Government continues to reimburse

contractors for state and local sales taxes as part of the
contract cost, there is no reasonable basis for any contractor
who works for the Government on a cost-plus-e-fixed-fee basis

to threaten to stop work because of such state and local taxes.
The proposed press release also states:

"It is obvious that, if these taxes are
paid, certain favored states will be

unduly enriched at the expense of the
national defense program and of other
states.

This seeks to isolate one small phase of the whole field of

Federal and state tax immuities and fails to take into
consideration the broader aspects of the inter-governmental

349
Sermity problem.

The legislation suggested in the press statement
proposed by Secretary Stimson would compal us to give up

OUP present efforts (1) to and the exception from Federal

taxation of the income from future obligations of state and
local governments, and (2) to give state and local govern

mate the right to tax the income from future Federal
obligations.
Furthermore, it would place us in the untenable

position of trying to collect taxes on all private income,
even is it is derived from a state OF municipal government,
while at the same time preventing the states from taxing in
& non-disoriminatory manner purchases of private contractors
because they have a contract with the Federal Government.
You and I have been disturbed for some time by the

overlapping of Federal, state and municipal taxation and by

the inequalities resulting from the dostrins of reciprocal

immuty. The Treasury has been trying to clarify this situ
tion in Congress and in the courts.
In carrying out the program to and tax-exemption, the
Barean of Internal Revenue last Friday bagan a test ease
against seven bondholders of the Port of New York Authority,

for the purpose of settling the constitutionality of a

350

Federal income tax on future state and lenal obligations.
Once the courts have established the validity of such a

tax, it will greatly facilitate the enastment by Congress
of the short and simple statute twice recommended by you

to and the immuty from income tax of these issues.

An immity bill of the sort suggested by Secretary
Stimson would, in - opinion, frustrate our efforts in this
direction and night renove for may years any hope of repealing the exemption in the Internal Revenue Code of state and

minicipal issues. The question of the taxability of state
and aniscipal bondholders upon the interest they receive is

closely analogous to that of the taxability of articles
bought OF used by a Federal contractor. In both cases the
expenses of the Government night be leased if an exemption

were granted, but this is net on adequate basis for asserting

inumity. The sound test is whether the taxing statute
discriminates against the Federal Government OF against a

Federal contractor in favor of other taxpayers. To prohibit
the imposition of state sales taxes as suggested by Secretary

Stinson abandone this test and substitutes by legislation
the reciprecal immutity dootrine only recently discarded by
the Supreme Court.

351

The taxes of which the contracture now complain are

not discriminatory. They are state sales taxes, gasoline
taxes and the like, which are applied equally to Federal con-

tractors and to all other taxpayers.
The burden on the Federal Government resulting from

state sales taxes is a normal incident of the organisation
within the same territory of two governments, each possessed
of the taxing power.

Our Treasury estimates, incidentally, show that the
additional cost to the Army and Navy as a result of such state
and mmisipal taxes would not exceed $5,000,000 a year, and

that the total additional cost of cost-plus contracts for the
whole 28 1/2 billion dollar defense program would not be over

$15,000,000. On the other hand the Treasury will ultimately
receive additional revenue of $800,000,000 a year if it sueseeds in its attempt to end tax-exemption of interest from

future state and mmicipal securities. This figure is, of
course, based upon present income-tax rates, and will be in-

creased materially by the higher rates we shall have to in
pose to finance national defense.
Moreover, Secretary Stimson's proposal would also

prevent the states and annicipalities fres deriving additional
revenue from Federal defense activities to pay for expenses

352

incurred as a result of those activities.
If w must abouse between Secretary Stimpon's posal and the Treasury's program, it secus to - that should choose the legislation which will not only result
in a for greater saving to the Government but which will
help us to build a more equitable tax system as well.

I strongly received against the issuance of Searer
tary Stimson's press release and the introduction of the
legislation suggested by him.

Faithfully yours,
(Signed) H. Morgenthsu, Jr.

Secretary of the Treasury

The President
The White House

Inclosure

3-17-41

353

March 17, 1941

Philip Young

Fordihand Chinn

Secretary Morgenthau

Will you please write a letter for me to the Chinese
Ambassador similar to the one written to Arthur Purvis,
informing the Chinese Government that I no longer am advising

them or assisting then in their purchases in this country,
and Mr. Hopkins will look after them from now on.

I would like also to write a little less warm letter
to the Greek Minister. I think that I also ought to write to
him.

I would like to have the letter to the Chinese
Ambassador very friendly and along the same lines that I

wrote to Arthur Purvis, but on a less personal tone.

Letters sent 9/17/41

354
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 17. 1941

Secretary Morgenthau

TO

FROM

Mr. Cochran

STRICTLY CONFIDENTIAL

When I returned from luncheon this noon there was a message waiting for me that

Sir Frederick Phillips desired to see me at once at his offices in the British

Purchasing Commission. I was received by Phillips. with Messrs. Pinsent and Playfair
present, at 3 p.m. Phillips let me know that at one o'clock today he had received
approval by telephone for a sale of $120,000,000 of gold to be delivered to an American
navel vessel at a South African port. He told me, however, that he had been instructed
to raise with us the point of Great Britain having gold to take care of payments to
third countries. I told him that I was aware of this problem and had mentioned it to
the Secretary yesterday evening. He expanded on this to some extent, again stating

that the British, in spite of their protests, are only receiving current South African
gold production at the rate of $300,000,000 per year instead of the full production
rate of $480,000,000. He said that, aside from the proposal of giving gold or dollars
to Canada, which he is not pushing for the moment, there remained the very necessary

provision of a certain amount of gold to pay for neutral shipping, especially Swedish.
He stressed the importance of such ships to the British war effort, and said that it
was essential to pay in gold for some of the ships, acquired outside the Empire and
outside of the Allied nations. The British are pruning down to the limit the gold or
dollar expenditures to third countries, but again remind us that this is a real problem,
and was definitely contemplated in the data which the British Treasury submitted to

the American Treasury for presentation before the Congressional Committees on the Lend-

Lease Bill. In answer to my question as to whether the British sale of the $120,000,000
of gold is directly contingent and conditional upon some agreement on our part with
respect to leaving the British ample gold for meeting other needs, Phillips replied in
the negative. They do desire, however, to hold this question open and to have an early
opportunity to discuss it with us.
It was agreed that I should give word for our naval vessel to proceed to South
Africa and also send a cablegram to London, using the same channel as last time, outting
up the formal proposal for the gold transaction. Terms and conditions were to be
similar to the earlier case.
After returning from the British Purchasing Commission, I was received by
Secretary Morgenthau with Mr. Bell present, at 3:50 p.m. I told of my visit with the
British, and the Secretary authorized me to get in touch with Admiral Noyes. This I
did at 4 o'clock. It was agreed that the Admiral would send word this evening to the
navel vessel due at Pernambuco today to proceed on to Capetown as soon as fueling was

completed. He will give instructions as to the technical character of the trip after
the ship has cleared. I am to draft a cablegram for sending by the Navy to their
representative in London for further delivery to the British authorities. I am to
take this message to Admiral Noyes tomorrow or Wednesday.

XMR

355
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

March 17, 1941

Secretary Morgenthau
Mr. Cochran

STRICTLY CONFIDENTIAL
Mr. Knoke has discussed with various people, and raised with me this afternoon,
the question as to whether we had advised Mr. Gifford that J. P. Morgan and Company

vere not required to report to the Federal Reserve Bank at New York transactions

involving the sale of securities officially vested with the British Government. Mr.
Knoke thinks that Morgans should report to the Federal, as do other banks, on foreign

transactions of this type. It is my feeling that there is now no reason why Morgans
should not report the transactions which they themselves handle, but I do not believe

hey should be responsible for reporting anything in addition thereto. It might be

vell for me to indicate this position to Mr. Gifford, if the Secretary is agreeable
thereto.

pm.g.

356
0
P

Y

TREASURY DEPARTMENT
Inter Office Communication

Date:

To:

Secretary Morgenthau

From:

Mr. Haas

March 17, 1941.

Mr. Purcell, of the Securities and Exchange
Commission, sent over the attached list, which he said
was in response to an inquiry you made to Chairman Frank.

357

C

0

P

March 17, 1941

MEMORANDUM

To:

Mr. Haas, Director of Research, Treasury Department

From:

Ganson Purcell, Director, Trading and Exchange Division,
Securities and Exchange Commission.

The following is a list of securities issues covering

which registration statements have been filed with the

Commission and which may become effective - and publicly
offered - during the week beginning today, March 17, 1941.

Those which will, I am advised by the Registration Division
of the Commission, probably become effective today are
designated by an asterisk.

The Kansas Electric Power Preferred stock issue is being

held up owing to action by our Public Utilities Division and

may not become effective until next week. Those which are
ready to clear and be made effective at any time but as to
which effectiveness is being held up by the company itself
are listed under a separate heading at the end of the schedule.
2-4660 -- State Loan Company #
$550,000 or 5,000 shares of 6% Cumulative

Preferred Profit Sharing Stock

2-4679 -- Kansas Electric Power Company
$2,724,350 or 26,450 shares of $100 Par
5% Cumulative Preferred Stock

2-4620 -- Continental Air Lines, Inc.

$521,250 or 104,250 shares of Common Stock
$1.25 Par.

2-4678 -- Deposit National Bank #
Voting Trustee

Voting Trust Certificates representing

12,800 shares of Common Stock $50 Par of

Brockway Glass Co.

358
#2#

2-4681 -- Honolulu Gas Company, Ltd.
$1,025,000 or 25,000 shares Common Stock
$20 Par.

2-4631 -- United Resources Corporation
$1,000,000 - General Reserves Trust Fund

Ser. A Full Paid Certificates

2-4646 -- Texas South Western Gas Co. #
$850,000 - 4 3/4% First Mortgage S. F. Bonds
due 1956.

2-4673 -- Rearwin Aircraft and Engines, Inc.

$550,000 or $220,000 shares of Common Stock
$1 Par.

2-4693 -- Container Corporation of America
$5,250,000 or 50,000 shares of 70 Cum.
Preferred Stock - No par.
2-4591 -- Chain Stores Depot Corporation
2,769 Shares Common Stock. No par.

2-4694 -- Brainard Steel Corporation

$218,197.50 or 29,093 shares of Common Stock
$1 Par.

2-4657 -- Alleghany Corporation
$29,633,000 - 5% 15 Yr. Collat Trust Bds. Conv. 1944
$21,661,000 - 5% 20 Yr. Collat Trust Bds. Conv. 1949
$21,307,000 - 5% 20 Yr. Collat Trust Bds. Conv. 1950
2-4676 -- Pacific Gas & Electric Company
$110,000,000 - 3% First and Refunding Mortgage
Bonds, Series J.
2-4683 -- San Jose Water Works

$780,000 or 30,000 shares of $25 Par 4-3/4%
Cum. Series A Preferred Stock

READY TO CLEAR BUT BEING HELD BY COMPANY

2-4626 -- Standard Oil Company (Ohio)
$15,900,000 or 150,000 shares of 4% Cum.
Preferred Stock $100 Par.

359
*

3

#

2-4658 -- Republic Steel Corporation
$65,000,000 - First Mtg. S. F. Bonds 1961
$25,000,000 - Conv. S. F. Bonds
1956
shares of Common Stock No Par

2-4674 -- General Telephone Corporation
$2,200,000 or 40,000 shares of
$2.50 Cum. Conv. Pfd. Stock $50 Par.
and 80,000 shares of Common $20 Par.

360

THE UNDER SECRETARY OF THE TREASURY
WASHINGTON

March 17. 1941

TO THE SECRETARY:

Attached is the income tax statement showing that we

are running in actual collections $12,000,000 ahead of our

estimates. Based on the latest information from the
collectors which was received yesterday, the Bureau of

Internal Revenue estimates that we will receive during the
month of March, $1,065,000,000, which is $42,000,000 in excess
of our estimates of $1,023,000,000. We have made some rough

calculations here in our own office and we think this excess
over our estimates might run up to as much as $100,000,000.

I do not believe that it would be wise to give any
figures out as to what our estimates are or what we expect

to receive on these latest returns.

own

The Secretary of the Treasury.

361

CONFIDENTIAL

ESTIMATE
INCOME TAX DEPOSITS
MARCH 1941

Estimate

Date

March 1941
$

7,000,000

March 1941

Corresponding Day
March 1940

* $ 7,120,191.07

$ 4,176,334.79

1

2 Sunday
3

Actual Deposits

Actual Deposits

7,500,000
8,500,000
8.500,000
9,500,000
13,000,000
14,500,000

9,181,768.71
9,399,078.76
10,063,742.38
12,278,233.63
16,523,632.94
15,555,171.46

4,092,588.28
5,337,925.10
5,453,269.16
5,996,795.32
8,742,008.17
9,315,081.33

17,500,000
20,000,000
23,000,000
27,000,000
50,000,000
206,000,000
85,000,000

19,868,301.23
16,707,985.35
22,081,860.43
32,525,592.89
41,645,478.15
212,951,037.00
90,138,842.80

11,029,320.18
12,671,948.52
15,191,657.71
17,213,831.52
32,679,701.70
131,900,461.78
51,434,445.77

4
5
6

7
8

9 Sunday
10
11

12

13
14

1 to 14
15

16 Sunday
17
18

19

20
21

1 to 21
22

245,000,000
135,000,000
129,000,000
70,000,000
60,000,000
930,000,000
30,000,000

148,561,358.44
82,396,811.07
100,235,774.35
43,803,758.70
37,934,658.09
596,267,268.20
18,993,037.75

26,000,000
15,000,000
8,000,000
5,000,000
4,000,000
3,000,000

17,265,447.07
10,712,610.90
4,970,912.03
3,254,043.43
2,206,827.20
2,385,400.61

2,000,000

2,780,727.06

$1,023,000,000

$658,836,274.25

23 Sunday
24
25
26
27
28

29

30 Sunday
31

Total 1 to 15

291,000,000

303,089,879.80

183,334,907.55

Adjusted daily to include
mail reports from General
Deposi taries.

362
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

March 17. 1941

Secretary Morgenthau
TO

Mr. Cochran

FROM

STRICTLY CONFIDENTIAL

Official sales of British-owned dollar securities under the vesting order
effective February 19. 1940:

No. of Shares
Sold

$ Proceeds of
Shares Sold

Nominal Value
of Bonds Sold

$ Proceeds of
Bonds Sold

36,550
50,553
60,127
71,159
39,935
7.777

1,981,181
1,852,021
1,927,638
1,592,624
1,180,925
465,613

166,525
92,400
230,000
68,400

179,180
109,413
169,972
50,833

1,102,500
Nil

1,113,073
Nil

266,101

9,000,002

1,659,825

1,622,471

6.023.208-1/2

191,137,175

20,323,100

19,473,593

6.289.309-1/2

200,137,177

21,982,925

21,096,064

March 10
11
12
13
14
15

Sales from

/22/40 to
3/8/41

TOTAL 2/22/40
TO 3/15/41

Miss Poate reported sales of non-vested securities for the week ending
March 8 totaled $700,000.

1mm

363
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE March 17, 1941
Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£46,000
Purchased from commercial concerns £15,000

Open market sterling remained at 4.03-1/2. Transactions of the reporting banks

were as follows:

Sold to commercial concerns
& 5,000
Purchased from commercial concerns...I 1,000

The Argentine free peso, which closed on Saturday at .2310, was first quoted
at .2325 this morning. It subsequent eased, however, and closed at .2315.
In New York, the closing rates for the foreign currencies mentioned below were

follows:

Canadian dollar
Swiss franc (commercial)

Swedieh krona
Reichsmark

15-1/16% discount
.2321-1/2
.2384-1/2

Lira

.4005
.0505
.0505

Cuban peso

5-7/8% discount

Brazilian milreis (free)

.2066

Mexican peso

In Shanghai, the yuan in terms of our currency moved off 1/32 to 5-3/84.
Sterling was 1/2 lower at 3.91.
We sold $3,491,000 in gold to the Bank of Portugal, which was added to its
earmarked account.

The Federal Reserve Bank of New York reported that the Bank of Canada was
taking two shipments of gold, having a combined value of $6,449,000, to the Federal
for account of the Government of Canada, for sale to the New York Assay Office.

In London, the spot and forward silver prices were unchanged at 23-1/2d and
23-7/16d respectively. The U.S. equivalents were 42.67d and 42.56
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/41.
The Treasury's purchase price for foreign silver was also unchanged at 35g.
We purchased 450,000 ounces of silver from the Bank of Canada, representing
the first silver bought from that source in March under our regular monthly agreement

AMP.

to purchase up to 1,200,000 ounces.

STRICTLY CONFIDENTIAL
364

ALLISON ENGINEERING COMPANY

Shipments of Airplane Engines
:

:

Actual
shipments

Estimated shipments

on existing orders

:

1940

January

10

May 24 - June 22

28

June 23 - July 20
July 21 - Aug. 17
Aug. 18 - Sept. 14
Sept. 15 - Oct. 12
Oct. 13 - Nov. 9
Nov. 10 - Dec. 7
Dec. 8 - Jan. 4

43

47

140
263
233

154
228

1941

January 5 - 11
January 12 - 18
January 19 - 25

January 26 - February 1
February 2 - 8
February 9 - 15
February 16 - 22
February 23 - March 1

March 2 - 8.
March 9 - 15
March 16 - 31

85
43

33
32

86
66
80
91
77

80

April
May

June

July
August

September
October
November
December

239
418
466
510
485
550
625
750
800
800

1942

January
February
March

April
May

June

Office of the Secretary of the Treasury,
Division of Research and Statistics.

538
308
225
225
225
134

March 17, 1941.

STRICTLY CONFIDENTIA

365
ALLISON SHIPMENTS

British

Army

Total

C

Grand

Total

F

C

total

:

Dec. 29 - Jan. 4

8

8

83

an. 12 - 18

41

an. 19 - 25

33

an. 26 - Feb. 1

31

feb. 2 - 8

60

- 83
- 41
- 33
-

30

-

1

25

31

32
77

-

eb. 23 - Mar. 1

-

-

-

ar. 9 - 15

6

298

-

60

-

6

-

2

2

-

-

-

12

2

85

2

-

-

1

88

33
32

26

86

2

1

35

66

2

1

80

80

-

91

91

-

71

77

2

74

80

4

386

685

3

6

69

2

-

72

-

6

299

364

Office of the Secretary of the Treasury,
Division of Research and Statistics.

43

-

1

-

1

-

4

1

-

Jar. 2- 8

-

-

31

eb. 16 - 22

OTAL Dec. 29 - Mar. 15

-

1

3

Jan. 5 - 11

b. 9 - 15

-

18

March 17, 1941.

366
EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL

FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN
AS SHOWN BY DEPARTURE PERMITS GRANTED

Week ended March 15. 1941
JAPAN

RUSSIA

SPAIN

GREAT BRITAIN

SPROLEUM PRODUCTS

Fuel and Gas 011 (including
Diesel 011)

10,925 Bbls.

--

240,650 Bble.
91,494 Bbls.

--

5,000 Bbls. 126,191 Bbla.

Crude -

Blended or California
High Octane Crude*
All Other Crude

--

--

--

-

-

Gasoline -

Gasoline A**
Gasoline B*

--

117,842 Bbls.

All Other Gasoline

----

-

130,951 Bbls.
--

-

--

ubricating Oil Aviation Lubricating 011***
All Other Lubricating 011
Tetraethyl Lead

"Boosters", such as IsoOctane, Iso-Hexane, or
Iso-Pentane

--

-

--

--

--

-

--

--

--

-

--

--

-

7,400 Tons

--

--

3.990 Tons

1,147 Bbls.
7,566 Bbls.

--

27,000 Bbls.
26,523 Bbls.

CRAP IRON AND SCRAP STEEL

Number 1 Heavy Melting Scrap
All Other Scrap

ffice of the Secretary of the Treasury, Division of Research and Statistics.
March 17. 1941.
ource: Office of Merchant Ship Control, Treasury Department.

Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon
mixture - President' a regulations of July 26, 1940.
Aviation Gasoline.

As defined in the President's regulations of July 26, 1940.

367
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

CONFIDENTIAL

DATE March 17, 1941

Secretary Morgenthau

TO

FROM

Mr. Haa MR.

Subject: The Business Situation,

Week ending March 15, 1941.
Summary

(1) On the basis of preliminary data, industrial produc-

tion in February rose about the usual seasonal amount and
the FRB adjusted index for the month is now estimated at 139,
unchanged from January. Adjusted weekly business indexes in

the first week of March declined, but it is believed that the

loss was at least partly due to the effects of adverse weather
conditions.

(2) The recent rise in commodity prices gained further

momentum in the past week, with numerous domestic commodities

joining imported products in the upward movement. The BLS
price index of 28 basic commodities rose above the previous
peak reached during the September 1939 boom. The cost of
living index in February, however, rose only 0.1 above the
previous month, continuing a gradual rise that has been in
progress for some months.

(3) New orders for steel continue to be received in
undiminished volume. Orders received by the U. S. Steel
Corporation in the first week of March rose to 163 per cent
of capacity, a new high since early January. Estimated unfilled orders of the Corporation rose substantially to a new
high at the end of February as incoming business during the
month again exceeded shipments.

(4) Construction activity is showing notable increases.
Engineering construction contracts awarded thus far in 1941
total $1,257,000,000 as compared with only $546,000,000 in

the corresponding period of 1940. Structural steel orders
this year to date have shown a gain of 65 per cent over the

corresponding period of 1940. Contracts awarded for small
home construction in February were at the highest volume for
that month since 1928, and the value of mortgages selected
for appraisal by the FHA in the first week in March made a
new record high.

368
2-

General situation

Preliminary data indicate that industrial production in

February rose by approximately the usual seasonal amount, and
the FRB index for the month is now estimated at 139, unchanged

from the previous month. Weekly business indexes, after allowance for seasonal factors, declined in the first week of March,
but the recession is believed to have been largely due to the
retarding effect of bad weather conditions on freight carloadings.
During the past week the rate of steel operations on a
tonnage basis reached the highest point on record, and automobile production, which only the previous week had been reported hampered by minor parts shortages, rose to the highest
level since May 1937.

Further evidence of expanding trade activity was seen in

a rise of $53 millions in "commercial, industrial and agricul-

tural loans of reporting member banks in New York City in the
week ended March 12. However, more than $30 millions of this
figure was accounted for by loans to two large utility corporations. Loans under this classification by weekly reporting
member banks in 101 cities have risen steadily from a level
slightly under $4,500 millions last July and August to $5,287
millions in the week ended March 5.

A slightly improved tone was noted in the securities

markets while commodity prices continued the recent tendency
to move up toward higher levels.
Commodity prices continue to rise

Viewed in perspective, a rather rapid rise in commodity

prices has been under way for a number of months (see Chart 1.

upper section), and recent data indicate that the trend is
continuing. The cost of living has continued to rise very
gradually. The Conference Board cost of living index for
wage earning families (shown on Chart 1) rose 0.1 in February
to 82.6 per cent of the 1926 average, due to slightly higher
costs of food, housing and clothing.
The BLS price index of 28 basic commodities last week

rose above the peak reached during the September 1939 boom.

(See lower section of chart.) Some levelling-out tendency

was shown during the past month in the BLS weekly all-commodity

index, but the recent rise in prices of basic materials appar-

ently points to a renewed advance in general commodity prices.

369
3-

Domestic materials join price rise in import commodities
Prices of import commodities continued to rise sharply
last week, and domestic commodities also joined strongly in
the upward movement. The passage of the lend-lease bill had
a general bullish influence on commodities, since various
domestic foodstuffs and other materials are expected to be involved in aid to Britain. Among the 28 basic commodities
making up the BLS index, only one (wool) declined in price
last week, and even in this instance the decline was fractional.
(See Chart 2.) Increased prices in the futures markets have been
accompanied by a noticeable increase in the volume of trading,

apparently reflecting increased speculative activity.

Most noticeable price advances among the domestic com-

modities were scored by the fats and oils group. Tallow
prices rose very strongly gaining 14 per cent in the week,
doubtless reflecting the position of this commodity as a
source of glycerine used in making explosives. Lard prices
rose on buying credited in part to press reports of a lard
deal with Great Britain. Japanese interests were said to
be offering prices above the market in order to obtain more

lard in this country. They are reported in the press to have

bought about 750,000 pounds last week. Cottonseed oil prices
were likewise sharply higher.
Cotton, wheat, and corn prices rose somewhat further in

expectation of favorable agricultural legislation. In the

case of wheat, the Association of American Railroads has
warned its member roads of the possibility of a shortage of

freight cars to move this year's crop. The report mentions
that conditions justify anticipating "an exceptionally large
if not a bumper crop", while present storage facilities are
carrying stocks of unprecedented proportions.

Cocoa prices have risen further, together with prices of

a number of other imported commodities affected by the shipping
shortage. However, a steamer arrived last week with the
largest cargo of West African cocoa ever carried by a single
ship, and three other heavily laden 0000a ships are reported
en route from Africa.
The Netherland East Indies Government 18 reported in the
press to have suspended all shipments of a number of commodities
for one month in order to provide shipping space for rubber
and tin to the United States and Canada.

Raw sugar prices have risen to the highest level since
October 1939, despite expectations of an increase in the sugar

quota. Print cloth prices have risen further on a continued
heavy volume of buying in the textile markets.

370

-4New orders maintained at high level

New business continues to pour into industrial plants
in heavy volume. Despite a decline in textile orders, our
index of new orders for the week ended March 8 rose about
2 per cent over the previous week. A noticeable gain occurred
in steel bookings, while orders for other types of products
in the aggregate continued their recent tendency to rise
gradually higher. (See Chart 3.)
No let-up in steel orders
Although some observers were of the opinion that publication of the Gano Dunn report on the steel industry might be
followed by a slowing up in new orders, no evidence of any
noticeable abatement in steel ordering has appeared thus far.
On the contrary, some trade comment now is concerned with

the possibility of increased demand arising from the passage
of the lend-lease bill. According to the Iron Age, orders
in the Pittsburgh area this month have been running even
with bookings in February, which was one of the best months

in the history of the industry, while in the Chicago area

the flow of incoming business is reported to be unabated.
One factor in the demand for steel which is reported to have
surprised the trade is the continued heavy buying by automobile producers. Steel prices for the second quarter have not
been announced yet, and one trade source attributes the delay
to uncertainties over negotiations with labor regarding wages.
New orders received by the U. S. Steel Corporation con-

tinue to run far above capacity. New orders in the first
163 per cent of capacity, the highest since the early part

week of the month rose 9 per cent above the previous week to
of January.

During February, the volume of the U. S. Steel Corporation's new orders and shipments dipped slightly below the
January totals due to the shorter month. (See Chart 4.)
Actually, shipments in February were the highest for that
month in the company's history. However, a further substan-

tial rise to a new high occurred in unfilled orders as new
business again ran considerably ahead of shipments. (See
lower section of chart.)
Thus far in March the steel operating rate has been rising, and the tonnage of steel ingots produced last week was

the highest on record. Steel operations during the current
week are scheduled at 99.4 per cent of capacity as compared
with 98.8 per cent last week.

371

-5 The situation in the steel scrap market continues confused pending clarification of last week's move by the
Defense Commission to fix differentials on the various
grades of scrap. Trade sources continue to report that

consumers in some areas are unable to obtain adequate sup-

plies of scrap at current price levels.

Engineering construction contracts awarded in large volume
Engineering construction contracts awarded in February

attained the third highest monthly total ever reported by the
Engineering News Record, having been exceeded only by

January of this year and October 1940. Furthermore, as a
result of an increase in contract awards in the week ended
March 13, the current month gives promise of maintaining
the strong showing of recent months. (See Chart 5, upper

section.) Thus far in 1941, engineering construction

awards have totalled $1,257,000,000 as compared with only
$546,000,000 in the corresponding period of 1940 -- a gain
of 130 per cent.

This large volume of awards for heavy engineering construction, of course, has been accompanied by a pronounced

gain in lettings of structural steel. Thus far in 1941,

bookings have been 65 per cent greater than in the same pe-

riod of the previous year. Reference to Chart 5, lower sec-

tion, will disclose that a decline in structural steel orders

in February and the beginning of March has been followed by

a substantial rise in the week ended March 11. The most important items in the week's booking of nearly 52,000 tons of
construction steel were over 6,000 tons for a Virginia plant
of the Celanese Corporation, 6,000 tons for a Ford Motor

Company assembly plant, and 4,000 tons for an ordnance project
for the War Department.

Residential construction recovers from seasonal deoline

Affected partly by defense housing, residential construction contracts awarded in February, as reported by the F. W.

Dodge Corporation, rebounded from the January decline and

showed a more than seasonal rise. Despite the fact that
February had 4 less working days than January, residential

construction contracts awarded rose to $116,000,000 from
$111,000,000 in the previous month and only $75,000,000 in

February 1940. (See Chart 6, upper section.)

Mortgages selected for appraisal by the FHA in February
rose 16 per cent above the previous month and 18 per cent

above February 1940. (See Chart 6, upper section.) The rise

372
6-

which has occurred in mortgages selected for appraisal by
the FHA thus far this year may be seen more clearly by
referring to the lower section of Chart 6. It will be noted
that not only have mortgages run consistently above levels
of earlier years, but that the February gains above mentioned

have carried over into the current month, The figures for
the first week in March slightly exceeded the previous record
high level reached in the week ended May 4, 1940.
Rise in small home construction

One of the outstanding features of the F. W Dodge
Corporation's report on construction contracts awarded in
February was the disclosure that the value of contracts let
for small home construction ran 59 per cent above February
1940, and that the volume of such construction reached the
highest levels for that month since 1928. Increased housing
demands in cities affected by new defense activity have
doubtless been a factor in the increase in new home construction.
The spurt which occurred in February in the number of
new homes to be built may be seen by referring to Chart 7.
It will be noted that in the peak week in February, the
number of new homes to be built under the FHA program was only

slightly below the previous high reached last May. However,
it will also be noted that the usual spring upsurge in homes
actually started under FHA inspection has not yet got under

way. Nevertheless both FHA and F. W. Dodge data forecast a
heavy volume of small home construction this spring despite
the rise which has been taking place in building costs. Some

of this building may be prompted by fears of still higher
costs at a later date.
Weekly business indexes

Due largely to a contra-seasonal decline in miscellaneous
freight carloadings, the New York Times index of business
activity for the week ended March 8 declined 1.1 to 121.5.
The decline in freight carloadings is believed to have been
due at least in part to unusually adverse weather conditions
at the end of the week mentioned.
In addition to miscellaneous freight carloadings, automo-

bile and paperboard production, as well as "all other carloadings", also declined contra-seasonally. The principal offsetting factor was a contra-seasonal rise in electric power
production to a new high. The remaining 3 components of the
combined index showed fractional gains.

-7-

373

Barron's index of business activity during the week

ended March g confirmed the trend of the Times index and
declined 1.7 to 129.3.
Preliminary data for the week ended March 15 reveal

that steel operations increased to a new high in a rise of

approximately seasonal proportions. During the same period,
automobile production rose by over 5,000 units to 131,000 -a new high since May 1937. However, the adjusted index of
automobile production during the week mentioned will show a

decline of over 3 points, since the seasonal factor calls for
an even sharper gain than actually occurred.

COMMODITY PRICES AND COST OF LIVING
1926 = 100

1938

1937

1936

1935

1940

1939

1941
PER

PER
CENT

CENT

Monthly

90
90

88

88

86

86

COST OF LIVING, N.I.C.B.
84

84

82
82

80
80

78

78

863 COMMODITIES, B.L.S.
76
76

74
74

1940

1939

1938

1937

1936

1941

72

1941

1940
o

1939

11/11/11/11

N

1935

72

J

PER

o

A

PER

CENT
CENT

Weekly
80
80

863 COMMODITIES, B.L.S.
76
76

72
72

68

68

#28 BASIC COMMODITIES, B.L.S.
64
64

60

60

56
56

52

1111

.
.
o

N

F
J
$

Secretary of the Treasury

A

-/--

1939

J

J

A

A

.

1940

$

52

D

1941

374

*30 COMMODITIES PRIOR TO JANUARY 1940
P - 196

Chart 1

NOVEMENT OF BASIC COMMODITY PRICES
Domestic and Imported
AUGUST 1939 100

1941
1943 1
4

Wookly Average

GENT

PER

PER

CENT

GENT

25

18

11

MARON
22

15

8

PER

FEBRUARY

JANUARY

APRIL
22

15

29

5

1940

26

19

12

PER

CENT

Daily

135
135

136

134

132

132

130
130

125
125

11 IMPORTED
COMMODITIES

128

128

11 IMPORTED
COMMODITIES

120
120

124

124
115
115

17 DOMESTIC

120

120

COMMODITIES
110
110

17 DOMESTIC
116

116

COMMODITIES

105
105

mill

11111
15

FEBRUARY

22

194

15

22

29

12

26

19

APRIL

MARCH

I

4

J

M

A
M

JANUARY

25

I

F

1941

18

8

N

o

$

A

1940

..................
11

1

J

little

112

8

J

D

.

100

5

LLI

u
100
.

A

M

,

J

Percentage Change for Individual Commodities, August 1940 Low to March 7, 1941, and to March 14. 1941
PER
GENT

PER

CENT

cocaa 75.00

11 IMPORTED COMMODITIES

FALLOW 71.4%

17 DOMESTIC COMMODITIES

60
60

N.A
11.96
50

48.30

50

NUISES 41.00
40

99.6%

40

--

NAME 34.08

35.7%

SOUFEE 27.98

30

NAME 26.48

STREET 20.1%

30

1 23.08

ALEAN

BABLEY
ABALLY

20

22.0%

24

CLIMS AZING 15.15
SCRAP
HSTEEL

- 18.95

20

AND 12.48
14.5%

ABUTTER

10

ATIN 3.08

10

STEEL MAAP, EXPORT 0.25
0

-,
0

-10
-10

Aug. Low

MAR.7 MAR.14

Aug. Low

MAR.7 MAR.14

P 199 8
Office of the Secretary of the Treasury
Division Research - Statistics

112

INDEXES OF NEW ORDERS
Combined Index of New Orders and Selected Components
CRCENTAGE

PERCENTAGE

POINTS

220
220

210
210

Total combined Index)
1006 100

200
200

190
190

180
180

170
170

160
160

150
150

140
140

130
130

120
120

110
110

100
100

90

90

80

Total excluding Steel and Textiles

80

70

60

50

40

Steel Ordere

30

20

10

Textile Orders
0

1939

940
1.85.0

Chart 4
CONFIDENTIAL

377

REPORTED NEW ORDERS, SHIPMENTS, AND INDICATED

UNFILLED ORDERS OF THE U.S. STEEL CORPORATION
NET TONS
THOUSANDS

NET TOMS
THOUSANDS

2400

2400

2000

2000

REPORTED NEW ORDERS
1600

1600

1200

1200

800

800

REPORTED SHIPMENTS
400

1938

1939

1940

0

400

1941

NET TOMS

0

NET TONS

MILLIONS

MILLIONS

5

5
4

4
3

3

INDICATED UNFILLED ORDERS
2

2

1

1
0

6

1938

Office of the Secretary of the Treasury

Division of - and -

1939

1940

1941

I 133 A

Chart 6

379
RESIDENTIAL CONTRACT AWARDS AND F.N.A. NORTGAGES
1940
DOLLARS
DOLLARS

BILLIONS
(INSTRACTS)

BILLIONS
(AMARDS)

Mortgagee Selected for Appraisal

160

and P.W. Dodge awards

174

Monthly
150
162

F. w. Doess AMA
140
150

130
130

120
126

110
114

100
102

90

90

80

78

MOSTRAGES SELECTED FOR

APPRAISAL, F.N.A.
70

66

54

1941

1939

DOLLARS

JULY

MAR.

JAN.

SEPT.

NOV.

DOLLARS

MILLIONS

WILLIONS

Mortgagee Selected
40

40

for Appraisal, F.H.A.
Weekly
35

35

30

30

25

1941

25

1939
20

20

15

15

940

10

10

5
5
0

111

JULY

0

JAN.

I--

Office of the Secretary of the Treasury

SEPT.

MAR.

c 260 a

381
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

MAR 17 1941

Secretary Morgenthau

TO

FROM

Mr. Foley

In accordance with the request contained in
Mr. Thompson's memorandum of December 26, 1939, there is

attached a summary report of studies or projects carried
on in the Office of the General Counsel for the month of
February, 1941.

is 7L.

382
SUMMARY REPORT ON STUDIES OR PROJECTS IN
THE OFFICE OF THE GENERAL COUNSEL FEBRUARY 1941

The following matters received attention in the
Office of the Chief Counsel for the Bureau of Internal
Revenue:

1. Bill (S. 670, 77th Cong., a 1st Sess.) to extend
old age and survivors insurance. The Department
was requested by Chairman Harrison of the Senate

Finance Committee to report a bill to extend the
Federal old-age survivors insurance benefits of the
Social Security Act to certain employees of religious and charitable organizations. This bill contains the same provisions as S. 3579 (76th Cong.,
3d Sess. ). S. 3579, it is understood, was sponsored
by the National Catholic Welfare Conference, and was
introduced by Senator Walsh. S. 670 was also introduced by Senator Walsh.

2. Personal service corporations regulations. T.D.
5036, prescribing regulations under the Second Rev-

enue Act of 1940 with respect to personal service
corporations, was approved on February 3.

3. Excess profits tax regulations. T.D. 5037, prescribing regulations under the Excess Profits Tax
Act of 1940 (Subchapter E of Chapter 2 of the

383

-2Internal Revenue Code as added by the Second Reve-

nue Act of 1940), was approved on February 8.
4. Excess profits tax amendments. There has been
officially reported out by the House Ways and
Means Committee under date of February 24, 1941,

H.R. 3531, entitled the "Excess Profits Tax Amend-

ments of 1941". This bill retroactively amends
certain provisions of the Internal Revenue Code and
adds new sections, all relating to the Excess Profits
Tax Act of 1940.
The above matters were handled under the supervision of G. E. Adams, Head, Legislation & Regulations
Division.

The following matters received attention in
the Office of Assistant General Counsel Cairns:
5. Exemption of state corporations from Federal
taxes. A special study, prepared by Mr. DuBois and
Mr. Meeker, reviewed proposed decisions of the Bureau of Internal Revenue relating to exemption from
Federal income, document, and excise taxes of the
following state corporations: Central Delaware Authority, Charity Hospital of Louisiana, Delaware
River Joint Commission of Pennsylvania and New Jer-

sey, Grand River Dam Authority, New York City Tunnel

384

-3Authority, Port of New York Authority, and local
units carrying out the policies of the United
States Housing Authority. The study discussed in
detail the constitutional limitations on Federal
taxation of state instrumentalities and the scope
of the various express clauses of exemption in the
revenue statutes. The conditions that must be
satisfied before any of the corporations concerned
in the Bureau of Internal Revenue's ruling might
claim tax immunity on constitutional grounds were
stated, and the meaning of the terms "state" and
"political subdivisions" in the exemption statutes
was considered.

6. Authority for the Department to employ part or
full time physicians and nurses for purpose of operating relief rooms. An opinion on this question,
signed on February 3, 1941, concludes that the Secretary has such authority. It is pointed out that
authority to hire rests on the Secretary's power
under U.S.C. title 19, section 6.
7. Overtime compensation: Everett Smith of the
Legal Section, Customs, has prepared a draft of a
bill to amend section 451 of the Tariff Act of 1930
as amended, to authorize collectors of customs to

385

-4assign customs officers or employees to regular
tours of duty at nights, on Sundays or holidays,

without overtime compensation. This clarification of the law is necessary because of a recent
decision of the Court of Claims that customs employees are entitled to compensation at overtime
rates for work done on regular tours of duty, at
nights, or on Sundays or holidays. Although the
causes of action in the cases in which that decision was rendered arose prior to the amendment of

section 451 of the Tariff Act, by section 9 of
the Customs Administrative Act of 1938, the court
observed that even the language in that amendment

to the effect that nothing in that section should
be construed to impair the existing authority of
the Treasury Department to establish regular tours
of duty at night, or on Sundays or holidays, did
not provide that such regular tours of duty should
be without overtime compensation. Mr. Fred Ivey,
of Customs, has prepared a letter addressed to the
Department of Justice, discussing the possibility
of a motion for a new trial in the Court of Claims

and an application for writ of certiorari to the
Supreme Court.

386

-58. Legislation. Everett Smith of the Legal Section, Customs, has prepared a draft of a bill to
be submitted to Congress for enactment as a Cus-

toms Administrative Act of 1941. This bill is
designed to eliminate various administrative problems which have arisen and also to clarify certain
provisions of law administered by the Bureau of
Customs. The draft is now being reviewed by the

administrative officers of the Bureau.
9. Currency Conversion. Mr. Smith also prepared
drafts of proposed Treasury Decisions relating to
the proper customs conversion rate of Brazilian,
Chilean, Uruguayan, and Federal Reserve Bank of
China currencies. These proposed Treasury Decisions would apply where the Federal Reserve Bank

of New York has certified two rates of exchange

for a foreign currency. Upon presentation to the
Federal Reserve Bank of New York for approval, the
Bank demurred to the issuance of the proposed deci-

sions on the ground that its position in certain
litigation in the New York state courts might be
prejudiced thereby. As an alternative, the Treasury representatives agreed to prepare a draft of
a bill amending section 522 of the Tariff Act of

387

-61930 in such manner as to authorize the certification of dual or multiple rates of exchange by
the Federal Reserve Bank of New York and the se-

lection or derivation of a customs conversion
rate by the Secretary of the Treasury from the

rates so certified. A draft was prepared in accordance with that understanding and, after consultation among various members of the General
Counsel's staff and the Monetary Research Division,
was presented to the Federal Reserve Bank of New

York for comment. The representatives of the
Federal Reserve Bank offered several amendments

in respect of the language thereof and indicated
that if such amendments were incorporated in the

bill, there would be no objection to the bill.
draft giving effect to the suggestions of the FedA

eral Reserve Bank has since been prepared.

The following matters received attention in
the Legislative Section under the direction of Assistant General Counsel Bernard:
CONTINUATION OF PROJECTS

10. Bill to relieve the hospitals from double
taxation under Harrison Narcotic Act (for description see original report, item 9). This bill,

388

-7prepared by Miss McDuff, together with subsequent

material submitted in support of particular phases

of the bill, is still receiving consideration by
the Bureau of the Budget.

11. Fidelity bond bill (formerly identified as
"Bond Survey") (for description see original report,
item 10). Due to the interest of about ten other
agencies in this bill, which was prepared by Mr.
Spingarn, the Bureau of the Budget has not yet
been able to give it the usual clearance.
12. Federal Depositary System (for description see
original report, item 6). The Legislative Section
is cooperating with Mr. O'Connell's office in redrafting this bill, as suggested by Under Secretary
Bell, to carry out the suggestions made by the Office of the Comptroller of the Currency.
13. Acting Administrators bill (for description
see June report, item 33). Miss McDuff is continuing her study of the necessity and feasibility of
general legislation to provide for acting bureau or
division chiefs in the absence of a chief.
14. Law Committee of Defense Communications Board

(for description see November report, item 23). Mr.
Spingarn is continuing his work as the Treasury

389

-8representative on the Law Committee of the Defense
Communications Board.

15. Codification of Public Debt laws (for description see December report, item 14). Mr. Koken is
continuing his work on this project.
16. Survey of tax-exempt Federal securities, other
than obligations. In conjunction with Mr. Sullivan's
office, Mr. Morton is undertaking a study to determine what agencies, corporations, associations, etc.,
issue stock, evidences of indebtedness, and similar

Federal securities, other than obligations, which are
tax-exempt.

The following matters were worked on under the
direction of Assistant General Counsel Bernstein:

17. Foreign funds control. We have done a great deal
of work in connection with the proposed Executive orders, regulations and general licenses and general
authorizations and other plans in connection with the
possible extension of foreign funds control. We have
also participated in numerous conferences with representatives of State and Justice Departments in this
connection.

In addition to the constant flow of work on individual cases coming up from the Foreign Funds Control

390

-9Section calling for legal or other advice, we also
worked on general authorizations which are being

sent to the Federal Reserve Banks, the effect of
which will be to decentralize our dealing with applications, greatly lighten the burden in Washington and generally increase the efficiency of the
control throughout the country. The entire staff
worked on these matters.

18. Belgian securities. We discussed with the
counsellor of the Belgian Embassy the possibility
of getting enough additional information to get up

a blacklist of foreign securities, particularly dollar securities, which may have been left behind in
Belgium or France and acquired by an agressor. We
also discussed with him the best way of dealing with
the situation presented by 7,000 Belgian dollar
bonds, the coupons of which had been picked up in
Belgium and were being shipped to this country
through Lisbon. After discussing the matter with his
government, the counsellor of the Belgian Embassy indicated that there were very few dollar securities
left behind in Belgium, and that there was not much

391

- 10 -

of a blacklist that could be gotten up. Messrs.
Bernstein, DuBois and Luxford worked on this matter.

19. Securities - general blacklist. We have done
some additional work on the problem of getting up
a blacklist of securities that may have been picked
up in the invaded area. We have the Federal Reserve Bank of New York doing some work in this connection. We have also discussed the matter with
Stopford and Helm of the British Embassy. Messrs.
Bernstein, Luxford, and DuBois worked on this.

20. Lease-Lend Bill. We prepared, together with
White's office, a speech for Congressman Arnold on
the Lease-Lend Bill describing what Germany has
done from an economic point of view in the invaded

areas. Mr. Bernstein and Mr. Luxford worked on this
matter.

21. Inter-American Bank. We attended conferences
with representatives of the various interested agencies discussing the criticisms of the Bank made by

certain banking institutions, and also working out
a procedure dealing with this matter. We also participated in a conference which was attended by

392

- 11 -

representatives of such banking institutions, at
which time a formula was agreed upon for writing
a letter to the Senate indicating the Administration's willingness to urge certain changes in the
By-Laws of the Inter-American Bank when it is set
up. With this private banks agreed not to oppose
the convention, etc., of the Bank if this letter
were written. Mr. Bernstein worked on this matter.
22. Argentine Agreement. After further consultation with the Argentines, the State Department has
decided not to ask Argentina to enact a statute
as suggested by the Treasury, and has prepared a
letter to Ambassador Armour enclosing memoranda

which outline certain points and documents to be

certified by the Argentine Foreign Office and points
to be included in an executive decree. We are
presently working on this suggested procedure with
the Federal Reserve Bank of New York, and will
probably submit a memorandum to the State Department

embodying certain further suggestions. Messrs. Bernstein and Sutton worked on this matter.

23. Liquidation of British direct investments in
this country. We were asked by the British to assist in dealing with the situation involving the

393

- 12 -

application of the Johnson Act and the Neutrality
Act to the contemplated loan by Morgan's to
Courtald secured by that company's holdings in its
American subsidiary, Viscose. The Secretary decided that our policy would be to urge the British
to sell such securities rather than borrow against
them and the British were advised accordingly.
There is, therefore, no need to seek to obtain an
Attorney General's opinion on the matter.
We have also been asked to give our opinion
in connection with a proposed transaction involving
the Anglo-Palestine Bank. We reviewed the problem
and prepared a memorandum indicating the Treasury's

opposition to the proposed loan transaction.
We also prepared a memorandum describing a

proposed stabilization loan to Britain collateralized by British-owned securities, direct investments,
and other assets in this country.
Mr. Bernstein worked on these matters.
24. Rueckwanderer marks. We have worked on a memo-

randum being sent over to the Attorney General and

the Federal Bureau of Investigation describing the
financial aspects of the Rueckwanderer mark transaction and the violations of the Johnson and Neutrality

394

- 13 -

Acts involved therein. Messrs Bernstein and Friedman worked on this matter.

25. Pioneer Import Corporation. We have participated in the investigation and discussions concerning this case, which involves the importation of
diamonds and securities that may have been seized in
the invaded areas. DuBois went to New York in con-

nection with the investigation. The records of the
company are being examined by Customs agents with

a view to obtaining as much information as possible

concerning the activities in general of the corporation. A $50,000 diamond shipment purporting to come
from Germany containing diamonds that appeared to
have been cut in Belgium or Holland is being held by
Customs and may be handled as a violation of the

Tariff Act.
With respect to the importation of securities,
the two sailors who were caught bringing such securi-

ties into this country have been held at $1,000 bail
each, which bail has been put up by Mr. W. von Clemm,

president of the Pioneer Import Corporation. It has
been agreed with the United States Attorney and Cus-

toms that no action will be taken with respect to

395

- 14 Executive Order No. 8389, at least on the basis

of the present facts, and that if any action is
taken it will be for violation of the postal laws.
Mr. Bernstein, Mr. Luxford, and Mr. DuBois worked

on this matter.

396
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE March 17, 1941
TO

Secretary Morgenthau

FROM Mr. Haas

The attached tables and chart indicate that a decline
of 61,000 from the preceding week brought Work Projects Administration employment to 1,806,000 persons during the week
ended March 5, 1941.

Attachments

397
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Weekly

United States

Week ending
1940-41

August 7
August 14
August 21
August 28

Number of Workers

(In thousands)
1,709
1,708
1,698
1,691

September 4
September 11
September 18
September 25

1,690
1,687
1,689
1,704

October 2
October 9
October 16
October 23
October 30

1,747
1,762
1,768
1,776
1,779

November 6
November 13
November 20
November 27

1,783
1,785
1,806
1,820

December 4
December 11
December 18
December 25

1,832
1,855
1,872
1,878

January 1
January 8
January 15
January 22
January 29

1,880
1,887
1,893
1,896
1,895

February 5
February 12
February 19
February 26

1,892
1,893
1,885
1,867

March 5

Source: Work Projects Administration

1,806

398
WORK PROJECTS ADMINISTRATION

Number of Workers Employed - Monthly
United States
Number of Workers
1938

July
August
September

October

November
December

(In thousands)
3,053
3,171
3,228
3,346
3,287
3,094

1939

January

2,986

March

3,043
2,980

February

April
May

June

July
August
September

October

November
December

2,751
2,600
2,551
2,200
1,842
1,790
1,902
2,024
2,152

1940

January
February

March

April
May

June

July
August
September

October

November
December
1941

January
February

2,266
2,324
2,288
2,092
1,926
1,665
1,701
1,691
1,704
1,779
1,820
1,878
1,895
1,867

Source: Work Projects Administration

Monthly figures are weekly figures for the latest week of
the month.

They include certified and noncertified workers.

399
WORK PROJECTS ADNINISTRATION
Number of Workers Employed

United States

Monthly W.P.A. Employment
935

Weekly N.P.A. Deployment

1939

41

BILLY

AMERICAN

MAY

WILLIONS WILLIONS

-

MPL

or

1940
NET

1941
MEL

NOT

M

LORS
or

MAKERS

ORLERS
OMER

NONEERS

3.2

3.4

3.4

3.3

3.3

3.2

3.2

3.1

3.1

3.0

3.0

2.9

2.9

2.8

2.8

2.7

2.7

2.6

2.6

2.5

2.5

2.4

2.4

2.3

2.3

2.2

2.2

2.1

2.1

2.0

2.0

1.9

1.9

1.8

1.0

3.2

2.8

2.8

2.4

2.4

2.0

2.0

1.4

1.4

12

1.2

.5

A

A

0

1935 1936

0

THE

1.7

1.7

1.6

1.6

1.5
JAN.

41

MAR.

MAY

JULY

1939

SEPT.

- -

are

MAY

JULY

1940

1.5

SEPT.

NOV.

JAN.

MAR.

1941

BOUNDER WORK PROJECTS AINISTRATION

----

Office of the Secretary of the Transary

I 221 a

400

CONFIDENTIAL

TENTATIVE LESSONS AVIATION

MILITARY INTERLIGENCE DIVISION

No. 12
G-2/183-345

WAR DEPARTMENT

WASHINGTON, March 17, 1941.

NOTICE

The information contrined in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative
and in no sense meture studies.
This document is being given an approved distribution,

and no additional copies are available in the Militery Intelligence Division. For provisions governing its reproduction see Letter TAG 350.05 (9-19-40) M-B-M.

THE PHOTOGRAPHIC RECONNAISSANCE UNIT OF THE
BRITISH COASTAL COMMAND
SOURCE

This bulletin is besed upon information submitted by
American official observers in England during December, 1940.
CONTENTS

1. ORGANIZATION AND MISSION
2. EQUIPMENT

a. Photographic Devices

b. Airplanes

3. PHOTOGRAPHY TECHNIQUE

8. High Altitude Photography
b. Low Altitude Photography
c. Processing Film
4. TACTIOS AND NAVIGATION

CONFIDENTIAL

-1-

401
CONFIDENTIAL

THE PHOTOGRAPHIC RECONNAISSANCE UNIT OF THE
BRITISH COASTAL COMMAND
ORGANIZATION AND MISSION

1.

The Photographic Reconneissence Unit, commonly referred to

as the P. R. U., is organized into four flights of four airplanes
each. Its mission is to obtain both high and low level air photographs and to render reports, after visual reconneissence, on movements of shipping, positions of belloons, and presence of enemy

pircreft. Each flight of the unit covers a definite sector of enemy
territory.
The P. R. U. was established when losses of reconneissence
planes on photographic missions reached 25% and thus became pro-

hibitive. Losses of modified fighters on photographic missions have
amounted to only about 1.2%

Seventy per cent of P. R. U. missions are high altitude
missions and 70% of these are successful. The other 30% fail as a
result of weather conditions.
Pilots fly an everege of 30 to 40 hours per month, with
one day of rest epch week and en edditional seven days each three

months. The everage pilot flies about 40 high eltitude missions and
is then sent to less strenuous flying duty for e period of three
months. After this he is recelled by the P. R. U. Reconneissence

pilote - not fighter pilots - pre desired for P. R. U. work,
2.

EQUIPMENT

8. Photographic
(1) Cemeras

The F.24 cemera has e focal plane shutter, 5 x 5inch recording, and a 125-exposure megazine. A special magazine
offers 250 exposures. The cemera is mede on B unit basis so that
lone cones of different lengths OPD be fitted to the same cemere
body. The longer focal lengths - 20 end 21 inches - are used in the
fuselege, and the eight-inch focal length is used in the wings.
The F.8 cemera has a focal plene shutter end
x 7-inch recording when 7 x 9g-inch film is used. This opmers is
7

very similar to the F.24.

Some Feirchild KBA cameras and 12 or 24-inch

focal length lens are being used.
CONFIDENTIAL

-2-

CONFIDENTIAL

402

Cameres are electrically driven, fully autometic,

and operated by remote control. The camera and intervolometer
mechanism function well at extreme altitudes.
(2) Cemere Heating Devices

Fuselage cameres are heated by means of electric

muffs which keep the cameras et 15 degrees centigrade above fuselage

temperature. They are also fitted with electrically heated optical
flets as lens heaters for the purpose of preventing condensetion.

Wing cameres are herted by the air normally used

for heeting guns in the Spitfire. This air is let into P wing box

which is large enough to accommodete two eight-inch cameras and which,

along with its cowlings, is hert insulated. The air blows streight

onto the opmeres, pround them, and through their spertures, Cemeres
are kept about 40 degrees higher then the outside temperature.

The critical temperature for film opmerae is -10
degrees Centigrade, for below this temperature film becomes brittle
and breaks or tears while pessing through the cemere or during processing, In cold weather, cemeres are normelly kept in a heated room

and installed in the plenes just before they teke off. For high elti-

tude missions, interiors of cpmerps are blown out with regular heaterdryer
of the "beauty shop" type, end thus all moisture and moist
air are fens
removed.
(3) The Type-35 Control

The Type-35 control hes, in addition to the pilot's
werning light, a green light which indicates the film is presing
through the camera. This is important, for all cemeres are operated
by remote control and none is visible to the pilot.
(4) Teerdrops

Teerdrops are fitted to the hood or canopy of the

sirplene for better rear and forward visibility.
(5) Film

Since smell negatives end enlergements would delay

production, they pre not used in the ordinery course of events. In
any case, enlargements can be obtained by megnifying stereoscopes.

Film used for normel work is the equivelent of
Kodak Super XX. Ilfords and Kodek collaborate on an emulsion.
CONFIDENTIAL

-3-

403
CONFIDENTIAL

Infra-red is being developed more for the purpose

of obteining critically sherp pictures under hezy conditions then for
the purpose of obtaining reversal in tone. Such pictures cannot be

obtained with ordinary panchromatic emulsion. Kodak hes evolved a

specially fast infre-red film which, with a furniture red filter, has

about one-fifth or one-sixth the speed of Super XX. Investigation
hes been mede with a view to eliminating vibration from mountings in
order to permit the use of one-fiftieth of e second exposure with
infre-red film.
Supply is hendled by normal meintenance units ex-

cept that film is dispetched directly from the menufecturer to insure
high speed and freshness. Film which hee been stored for es long as
three months is returned to the menufecturer for distribution to
ordinery units.
(6) Developing Units
The spool type developing unit is used in tenks
on a time and temperature brsis, with time varied eccording to temperature and length of the film to be developed. Pyrometol, the
standard Air Force developer, is used.
(7) Automatic Printing Devices

Williamson reprographs are used. These are modi-

fied to control the temperature of the developing solution by an
immersed heeter which is controlled by e thermostet. The reprographs
are very effective, and they are employed for elmost all contect
printing. They are adjustable to take 5 x 5-inch or 5 x 7-inch prints
and turn out approximetely 700 of the former end 600 of the latter per
hour.

(8) Peper
The ordinery commercial bromide papers made by

Ilfords, Barretts, and Kodek are used. There are two gredes which
compare approximately to Grade 3, soft, and Grade 5, contresty.

b. Airplenes
The four plenes of each flight are stenderd Spitfire
fighters which have been redesigned and modified by removal of guns

and by instellation of the following equipment on the verious types:
(1) Type B
One F.24 cpmere in sterboard wing:
One 7.24 camera in the port wing:
CONFIDENTIAL

404
CONFIDENTIAL

One 14-inch spotting camera mounted behind the

pilot;

One extre 30-gellon fuel tenk behind the pilot;
(2)

Type BB

One F.24 opmers in the sterboard wing:
One F.24 comera in the port wing:

One extre 30-gellon fuel tank behind the pilot;
F.24 3--inch cemeres at an angle of 45 degrees.

(3) Type C (Original)
One Eagle 4, one Eagle 9, or one F.8 with 20-

inch or 21-inch lens behind the pilot;

Two F.24 cemeres in the sterboard wing:

Two extre oxygen bottles, meking three in all;
Hot air control in the cockpit and camera compertments;

Clips for the Verey pistol;

An outside air thermometer;
A Merk I windshield;
Teerdrops on the hood;

Control run eltered to eccommodete instellation
of Eagle 4, Eegle 9, or F.8 cemere:
One extre 30-gellon fuel tenk behind the pilot;
One extre 30-gellon fuel tenk in the port wing:
An extre-lerge oil tank in the nose.
(4) Type CB

Seme as Type C, except that there is no reer fuel
tank and no Eegle 9 cemera behind the pilot.
(5) Type C (New)

One Eagle 4, Eagle 9, or F.8 cemera with 20-inch

or 21-inch lens, as available, behind the pilot;
Two F.24 eight-inch cameres (split) in the sterboard wing:

Two extra oxygen bottles, meking three in all;

Hot eir control for the cockpit;

Hot eir control for cemere compertments in the

wing:

the wing:

One outside air thermometer;
One air thermometer for cemere compertments in

Clips for the Verey pistol;

Control run on the elevator end rudder controls
CONFIDENTIAL
-5--

CONFIDENTIAL

are altered to suit installation of the Eagle 4, Eagle 9 or F.8;
Plain windshield, without bullet-proof glass;
Teerdrops on hood;

One Type-35 control and one selector box for
operating F.24 cemeres:
One Type-35 control for operating 20-inch or
21-inch cemeres;

One extra 30-gellon fuel tenk in the port wing;
One extre 30-gellon fuel tenk behind the pilot;
An extre-lerge oil tenk in the nose:
Front ermor removed and reer ermor fitted;

redio stowage door:

Increase made in size of mep pocket;
One Plessey signelling device:
New stowage for sterting hendle on inside of

Bettery fitted in wing:
Rotol propeller.

(6) Type D
Special long-range plane prepared by Supermerine;

Fitted with leeding-edge tanks in wings:
Wings modified to take two cpmeres on either side

if necesspry, or, elternetively, en extre 30-gellon fuel tank in the

port wing and cemeras in the sterboard wing:
Able to eccommodete Eegle 4 or Eagle 9 behind

the pilot;

Three extre oxygen bottles, meking four in all;
Hot air control in cockpit and cemere compertments;

Clips for Verey pistol;

An outside eir thermometer;
Merk I windshield;
Teerdrops on hood;

Control run eltered to eccommodete instellation
of Eegle 4 or Eagle 9 cemere.

There is elso e possibility of instelling a 30gellon fuel tenk behind the pilot.
(7) Type E
Two Eagle 4 cemeres behind the pilot;
Two F.24 cemeres in the sterboard wing:

Two extre oxygen bottles, meking three in ell;
Hot eir control in the cockpit and cenere compertments;

Clips for the Verey pistol;

Mark I windshield;

Teardrops on the hood;
CONFIDENTIAL

-6-

405
CONFIDENTIAL

of Eegle 4 cemera;

Control run altered to eccommodate installation

One extre 30-gellon fuel tenk behind the pilot;
One extre 30-gellon fuel tenk in the port wing:
An extre-large oil tenk in the nose.
(8) Type F
Two F.24 cemeres behind the pilot;
pertments;

Three extre oxygen bottles, meking four in all;
Hot eir control in the cockpit end camera com-

Clips for the Verey pistol;

An outside air thermometer;
Merk I windshield:
Teerdrops fitted to hood:
Control run altered to eccommodate instellation
of cameres behind the pilot;
wing:

One extre 30-gellon fuel tenk in the sterboard
One extre 30-gellon fuel tenk in the port wing:
One extre 30-gellon fuel tenk behind the pilot;
An extre-large oil tenk in the nose.
(9) Type G

Standard operetional Spitfire with eight guns,

with wing tenks removed;
One 14-inch F.24 oblique spotting opmers (fitted
according to Drewing FIE.25);
One 14-inch F.24 vertical opmere behind the pilot;
One 32-inch F.24 vertical cemere behind the pilot;
Push button control for oblique spotting opmers;
Type-35 control for 14-inch verticel cemera;
Cemere gun control switch for 32-inch vertical

camere;

Teardrops fitted to hood,
(10) Type P

Prectice sirplene with eight guns fitted.
(11) Type PF

Ex-prectice eirplene with eight guns end two F.24
cpmeres behind pilot;
Teerdrops fitted to hood:
Control run pltered to accommodate installation
of cameres behind pilot.
CONFIDENTIAL

-7-

406
CONFIDENTIAL

3.

PHOTOGRAPHY TECHNIQUE

High Altitude Photography

8.

The objective should be kept in view PB long PB possible

with the sight directed downward and slightly forward. If the objective disepperrs from view, P slight correction right or left should
be used to bring the pirplene over the target. Cemerps should be set
working end not switched off until the terget is well behind,
Photographing ports is ressonably epsy, since a coest-

line is P good mark along which to fly. Photographing pin points and
aerodromes is more difficult and two runs should be attempted in each

cese. It is better to cover an area thoroughly at the expense of a
lerge quentity of film then to feil to secure the desired photographs

through trying to be economical. As proficiency increases, the amount
of film used becomes less.
b.

Low Altitude Photography

(Dicing," the process of meking photographs at eltitudes from 10,000 feet downward, becomes necessary when weather

conditions preclude high flying. Limitations on the area that can

be covered cut down on the velue of low pltitude photographs.

The flight to the target should be mede just under
the bese of the clouds so thet observation of the pirplene is rendered
more difficult, whether from the ground or from the air. When the
terget is appropched, speed should be increpsed to meximum cruising,

and the least possible time should be spent in the vicinity of ground
defenses.

After a photograph hes been teken, the eircreft should
be turned away from the terget in order to creete the impression thet
the pilot is returning home. Then the next objective should be approached. If it is impossible to photograph an objective because of
bed weether, a visual report should be mede es to the number of guns,
ships, belloons, or other important objects seen.
C.

Processing Film

When the eirplene lends, its megazines are submitted
with a report steting the exposure given, the number of exposures
for each magazine, the filters used, and the betch number of the

film, with weather conditions on the reverse. This information
enables the processing staff to employ correct processing times.
The film is processed with a herdening fixing bath
end then immersed in two beths of methylated spirits to accelerate
CONFIDENTIAL

-8-

407
CONFIDENTIAL

drying. A titling stemp of transparent edhesive tape is stuck on
the pressure gless of the printing mechine 00 thet the number and
the necessary dete are recorded on each print. Prints pre then
passed to the Intelligence Section for despetch. Three prints are
done for each negative.

The Super XX film does not plter its contrest appreciably after about seven minutes development at 78 degrees
Fehrenheit, but it continues to gein speed up to about 14 to 16
minutes development. Exposures are set by the person who despetches

the plene; the film is deliberetely over-exposed by one stop for
sunny conditions end for the perticular time the plene is over its
target. When conditions are sunny, film is developed for "correct

exposure" - that is, P reduction is made in meximum development
time. When the sun is obscured by high clouds, films are developed

for one stop under normel. If conditions pre dull, film is devel-

oped for gross under-exposure. Because of the cherecteristics of
the film end differences in development, the speed of the film is
veried within limits to compensete for any error in exposure.
This system works well with the Super XX type of

film, but it would have to be used very discreetly with film of
higher contrest and less letitude, such PS Penchrometic X.
4.

TACTICS AND NAVIGATION

The success of missions lies primerily in speed end our-

prise. A single eirplene is en elusive terget, but for proper

defense it must be both fpst and high. It descends below 30,000
feet only when condensation or other etmospheric phenomens render

lower altitudes necessary. Pilots weer derk goggles and keep

perticularly plert for enemy fighters attecking from the direction
of the sun.

When approaching a terget from high eltitude, the pilot
changes course ebout every five seconds. Geining end losing 1000
feet of eltitude CPN be used as a veriftion to turning. When
cerrying out low eltitude revisions, the pilot makes use of cloud
cover and flies just below the cloud base.

A pilot must show greet initistive, but he should take
risks only when risks are necessery.
High stenderds of pilot nevigation end preperation are
necessary, especially on flights cerried out over the sea and in

bed weather. On long flights ell meteorological information eveilable is used for creeting the essential mentel picture of the
weather.
CONFIDENTIAL

-9-

408
ONFIDENTIAL

Rapid and accurete map reeding is essential, in order
that the exect position of the Pircreft mey be determined at frequent intervels. From take-off to coest, the amount of drift is
carefully determined so that minimum time is consumed in reaching
the target.

Prominent features on or neer the terget are carefully
noted. From high altitudes, lerge wooded props or estueries are
the features most likely to be picked out. The pilot should be
femilier with the terrein over which he is passing 80 that he can
reedily recognize lendmerks, end he should concentrate carefully
on keeping his course. Accuracy in mentel celculations is necessery for wind velocity at 30,000 feet is sometimes PB great 88
200 miles per hour.

CONFIDENTIAL

-10-

409
BRITISH EMBASSY,

Personal and

WASHINGTON, D.C.

Secret

March 17th, 1941.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a copy

of the latest report received from
London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Halifax

The Honourable,

Henry Morgenthau Jr. ,

United States Treasury,
Washington, D. C.

410

Telegram received from London

dated March 14th, 1941.

NAVAL

His Majesty's Sloop SCARBOROUGH intercepted

two Norwegian whalers sent in priso by German reider

in South Atlantic, 350 miles west of Cape Finisterre,
March 13th. Both whalers scuttled themselves, 1 German

officer, 7 ratings and 22 Norwegians were picked up.
2. Minesweeper MILFORD QUEEN attacked and

almost certainly destroyed a D.O. 17 off Great Yarmouth,
March 12th.

3. Submarine TRIUMPH sank two merchant vessels

of 2,500 tons each anchored off Melito South of Italy.
4. Correction to casualties at Portsmouth.
Night of March 10th/11th. Services: 54
killed, 113 wounded. Civilians, 10 killed, 131 wounded.
This was for the whole of the Hampshire area, not only
Portamouth.

5. MILITARY

There is reliable evidence that German

forces in Tripolitania continue to be re-inforced mainly
by amouned units. Total German strength so far thought
not to exceed 1 division.

6. Royal Air Force. Night of March 12th/13th.
Bombing results very actiofactory. Targets hit included
Blohn and Vose shipyard, Hamburg, Focks wulf factory,

Bressn, industrial and docks area in Berlin and cooks
at Boulogne.

7. March 13th. 9 fighter squadrons carried
out sweep over Northern France some escorting medium

bambers to attack Calais aerodroms. During day
3 enemy
aircraft/

411

-2-

aircraft destroyed, 2 probable and 1 damaged; 2

spitfires shot down, 1 pilot missing. Merdhant
vessel of 2,000 tone was hit by bomb off Norway and
another (3,700 tone) probably damaged by near miss

off Dutch coast.
8.

Night of March 13/14th.
153 bombers sent to Hamburg (139)

Rotterdam (14): some mine laying and leaflet dropping

over Northwest France also carried out. Six aircraft
missing and 1 sellesley shot down over this country.
A Beauford torpedoed and sank 3,000 ton merchant vessel

off Dutch coast.
9.

Rhodes.

On night of March 11th/12th, 5 heavy
bombers attacked harbour and 2 aerodromes, at both

of which large fires were started.
10.

German Air Force. March 13th.
About 33 enemy aircraft approached our

coasts and 3 R.A.F. stations were attacked.
11.

Night of March 13/14th.
About 400 aircraft came over of which

about 80 concentrated on Glasgow area.
12.

omitted)

Bombing was widespread and very (words
Glasgow, Humber, Mersey Side and

Southempton areas were attacked. In Glasgow area
damage was caused to railway services and docks and

high explosives fell in 2 shipbuilding yards; fires
were started in Hillingdon industrial estate. At
Olydebank fires occured at John Brown's yards and at
a Distillery. Serious damage was caused to Royal

Ordnenes Factory at Dalmuir. on Merseyside considerable
damage was caused to property in Wallancy area but
no/

412

no vital points were hit. Bone damage was caused

to industrial property in Hull.
13.

Aircraft casualties in operations over and
from the British Ieles.
Germani

Destroyed by day 3, by night 13, on March

12th, probably destroyed; day 2, night nil, March 12th:
damaged day 1, night 5 March 12th.

British,
7 bombers, 2 fighters (1 pilot safe)

413
CONFIDENTIAL

0-2/2657-220

M.I.D., W.D.
March 17, 1941.

No. 341

12:00 M.
SITUATION REPORT

I. Western Theater of War.

Air: German. On the night of the 15th-16th air activity
was light, with a minor attack delivered on the London area. Last
night attacks were made on a moderate scale, centering on Bristol
and Portsmouth.

British. On the night of the 15th-16th attacks in

limited force were made on the Ruhr, principally on Dusseldorf.
Last night apparently no offensive operations were undertaken.

II. Balkan Theater of War.
Ground: Bulgaria. The German High Command reports the
march of German troops into Bulgaria is running according to schedule.

(Note: This is the first mention of Bulgaria by the German High

Command since March 6.)

Albania, Normal activity by patrols and artillery.
Air: Albania. Small scale raids in the combat zone by

both sides.

III. Mediterranean and African Theaters of War.

Ground: Eritrea. The Italians claim a heavy attack
in the Cheren sector was repulsed.

Air: Libya. German harassing activity.
Malta. Was bombed again on the 15th.

Sea. The Germans claim a successful attack on
major naval units in the eastern Mediterranean.

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.

414

CONFIDENTIAL

Iasas- - the
or
I
37, 1941.
I filed / 17, 1941.
Beviets

- 1. moking From a - / voliable - is is I

1 by Name.
have to be I a - I of with the 6-place - with officer. a 10-glane Name / / which - is this / the

I

3. 2. the State m is being 1 monthly w

the like States - Signee - a 100 - / to w - divisions. U.S.B.2.

Distributions STATE / of or
M War
Child
of Staff of Time
Division

arrice or

Air Garge
6-5

CONFIDENTIAL

w

CONFIDE TIAL

415

of Date
Received as the War approximent

as 9:50, March 27,

Lesson, filed March 17, 1941.

1. a Banky March 16, please of the Royal Air Force - in
the usual patrole. During the proceding night Jane British reiders carried
out abtasis on tergets is the Netheriante, the Rahe Valley and at Breast.

/ British Dembers attached Desceident. Six manineturing plants

- a U-beat base at Enrient were targete of a - of 37 Brittah
busbers. - British please failed to return to Registed Daring the night

of March 24-15 a total of 159 Britten please were - in wide - /
compted territory. or this number, two failed to return to Regions.
a. During the night of March M6-17 three - bombous earried
out a said - the city of Walshpool, Makes, Deales, Sections, was attached

w two others, - another small formation was platted over the area -

remiting and the principal - attack during
this sight was - against the region in which a total of
345 - please were word. the extent of the - - to British
installations has not yes been determined. - of the - attentions

- - British fighter please bought - another - of them. Daring
the provoting my there were only two - - Details. Abortem
- the tanget for - - Reventure - suided during the other.

5. Sate reports indicate the extent of the I - w recent
- wide. During the night of March 15-16 commities in - TO
Institutionals killed - - sajured seriously. In addition the - distrib.

using - a yetab factory, - min-treat installations in Senter

CONFIDENTAL

CONFIDENTIAL

416

suffered seee damage from fires. - reids during the night of March 14-15
were directed as five British areas. the Plymouth and desite suffered damages the Tilbury desks in Loston were damaged, five destroyed two Mangoe

manfacturing establishments, at Glydebeak 400 individuals were injured
seriously, 120 were billed and private residences suffered considerable damages

and manfacturing plants and shipe in harbor at Looks were damaged w fires.
During the night of March 15-14 the German attack in the Olyde area resulted

in the killing of 115 private officers and the damaging of two British
destroyers being built in this area. German aircraft lessee during this
night were 13 destroyed and six damages. During the night of March 12-13

the Gomma attack - Liveryeel resulted in the death of 156 individuals and
the damaging of saves Britten earge beats in part.

4. Activity of the Reyel Air Force in the Middle Basters Sheaters
were as follows: four Italian airplanes were destroyed and a gooding supply

potat was set on five w British please from Greese during a soid - the

Albenton eities of Valess and Bornt, in the Britroom theater - Italian railread supply train was destroyed - targets in the visitility of Earns were
attached w British bembers, on March 16, early in the morning, a number of

British twoope were Insted on both sides of Berbers, the capital of British
in the Sthiepian theater six Italian please were shot down w

British fighters over the term of Disclass.

5. Maite was attached w a formation of 12 - sigglease but
there were no casualties and British installations - the island were damages.

6. In the late afternoon of March 15 a - surface sulder -

CONFIDENTIAL

CONFIDENTIAL

417

Brittah
British
- TOO
- shipe
is the 1
violate
- - of - other
Distributions
Acct. Secretary
of Mar of Mar
of

of -

Air Bearetany mill State Other Garge Department Stats

as New Office Plana of Revel Division Intelligence

+

CONFIDENTIAL