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0 0 Department of State P Y Washington 193 reply refer to April 12, 1941 My dear Mr. Secretary: As a result of discussions which have been held between representatives of this Government and of the French Government, it has been decided to afford facilities to the authorities of French North Africa for the purchase of certain specified commodities in the United States. These commodities, a de- tailed list of which is now under examination and a copy of which will be forwarded to you later, constitute the supplies urgently needed to preserve the established economic system in French Morocco, Algeria and Tunisia, The British Government has expressed its concurrence in the desirability of maintaining the economy of French North Africa and has agreed to facilitate the passage of supplies under certain safeguards and assurances as to non-reexport. In order to effect the desired purchases in the United States, it is proposed to set up a special account in the Franco-American Banking Corporation in New York City, consisting of funds transferred thereto from existing dollar balances in the United States of the French Government and the Moroccan Protectorate. A brief memorandum on this subject prepared by the French Embassy is transmitted herewith. According to this Department's understanding, approximately seven million dollars will be required for immediate shipments of American goods to North Africa, to be followed by quarterly requirements in amounts to be determined later. I should greatly appreciate your cooperation in giving prompt effect to this policy by arranging for the release of the necessary French funds in this country. It is suggested that the details of the transactions be carried out 194 -2in consultation with the Adviser on International Economic Affairs, who will be in close touch with the Financial and Commercial Attaches of the French Embassy is Washington. Since it is desired to make the first shipment, consisting of petroleum products, on the French tanker Sheherezade about April 20, I hope that appropriate instructions may be given with as little delay as possible. Sincerely yours, (Signed) Cordell Hull Enclosure: Memorandum. The Honorable The Secretary of the Treasury, Washington, D. C. Copytals 195 (COPY:JBJ) (Translation) FINANCIAL ARRANGEMENTS FOR PURCHASES INTENDED FOR NORTH AFRICA 1) A sum of $ will be transferred every quarter from the "Paierie Generale" account to a special account "French Government: N.A. Account" opened with the French American Banking Corporation. 2) The sums transferred to this account, as well as the amounts not expended at the end of each quarter, may be freely used in payment of the purchases of North Africa (Algeria, Tunisia and Morocco) in the United States and in countries of the American continent. 3) The sending to North Africa of the documents necessary to obtain the imported American merchandise will likewise be authorised. 4) The payments contemplated above may be effected by debiting the "French Government N.A." account, either directly by checks to exporters when the purchases are effected by the commercial and financial services of the Embassy; or by a draft to the credit of accounts of the Bank of Algeria and of the State Bank of Morocco on the French American Banking Corporation, when the purchases are effected by private importers. TR:AVA Copytals 196 BRITISH EMBASSY, WASHINGTON, D.C. PERSONAL AND April 12th, 1941 SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, The Honourable, Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 197 TELEGRAM RECEIVED FROM LONDON DATED APRIL 10th, 1941 NAVAL. On April 9th unknown ship reported attacked by raider southwest of Freetown. 2. His Majesty's Destroyer Avon Vale and an armed trawler together brought down bomber off Falmouth taking two prisoners a.m. April 9th. P.M. April 9th. His Majesty's ship Valerous shot down an ME 110 attacking a convey off Harwich. One minesweeper trawler attacked by enemy aircraft off Lowestoft same April 9th. Was des. troyed. Minesweeper trawler damaged by near miss mine off Liverpool P.M. April 9th. A 5,000 ton Merchant vessel escorted by nevel units, attacked and possibly hit with torpede by British aircraft so miles east of Ushant. 3. MILITARY. LIBYA. April 7th. Some of our armoured forces withdrawing from forward positions by roaa west of Derna were out off. A severe dust storm hampered the withdrawal of motorised forces from Mechili on April 8th. There are indications that the impetus of the enemy's thruat is diminishing and that his ad- ministrative situation is acute. YUGOSLAVIA, Germans have crossed the Danube at two points near the Iron Gates and Drava in direction of Virovitica, which they have occupied. Five German divisions/ 198 divisions including amoured forces have captured Nish and have reached Prokuplje and Rasanj. North of Skoplje German armoured forces have taken Urosevae and are advancing towards Pristine and Stim L.J..E. The advance from Prilep towards Bitoli has reached Mogila. 4. ROYAL AIR FORCE, KIEL April 7th/8th and 8th/9th. Industrial centre and especially Krupp and Deutsche Worke Naval Yards were bombed. In these two successive attacks 348 aircraft were employed and very large fires were started at all primery targets. A total of about 320 tons of H.E. and more than 50,000 incendiaries were dropped which included 7 bombs (2,000 1bs) 11 (1,900 1bs) and 91 (1,000 1bs). Ten Manchesters carried 40 1,000 1b. bombs besides many incendiaries. Night of April 9th/10th. 96 aircraft sent. 80 Berlin, other Emden and shipyards near Bremen. 8 sircraft missing. 5. GH HMAN AIR FORCE. Enemy activity chiefly over sea. Four aircraft destroyed, one of our fighters missing. Night of April 9th/10th About 250 enemy aircraft operating inland plus about so minolayers. Principal attacks on Birmingham and Tyneside. Ten enemy aircraft destroyed, we lost one fighter. 6. HOME SECURITY. COVENTRY. April 8th/9th. Casualties, preliminary estimate 150 killed, 200 seriously wounded, six serious and 40 medium fires. Night of April 9th/10th. Preliminary reports indicate attack on Birming hem fairly heavy, and that both here and on Tyneside 199 Tyneside damage caused to industry and in ship yards. No estimate of casualties yet available but on Tyneside thought not to be heavy. 200 RESTRICTED G-2/2657-220 - No. 364 - M.I.D., W.D., April 12, 1941 - 12:00 M. SITUATION REPORT I. Western Theater of War. Air: German. Last night heavy attacks were made on England, with Bristol as the principal focus. Portsmouth and the Midlands were also raided. Successful attacks on shipping are claimed. British. Normal attacks on the Ruhr and Rhineland. II. Balkan Theater of War. Ground: Yugoslavia. The German thrust Sofia-Nish is definitely directed on Belgrade and has reached the northern exits from the mountains. In the north the Germans have occupied Zagreb. The drive Skoplje-Monastir-Florina is developing power and the Germans claim to have penetrated the British line at Florina. Albania. Minor activity on the Greek-Italian front. North of Lake Ochrid a junction has been effected between German and Italian troops. Air: German. Close support of the offensive continued. British. Persistent attacks on German columns in southern Yugoslavia. III. Mediterranean and African Theaters of War. Ground: Libya. The British situation east of Tobruk continues serious. Air: Axis. Tobruk was attacked. German aviation is assisting the supply of the striking force in Cyrenaica. Malta was bombed again. RESTRICTED 201 SECRET By authority A. C. of S., G-2 1941 Date APR 14Initials ( Rs ) Paraphrase of Code Cablegram Received at the Mar Department at 8:32, April 12, 1941. London, Filed 14:10, April 12, 1941. There is reason to believe that the British Anny will be foreed to intervene in Issua I of imcreasing trouble w That agents. Information to this effect was received w British Military Intelligence from the Minister in Iraq. LEE. Distributions Secretary of state Department Secretary of Treasury Under secretary of Orief of staff instatent Chief of staff, as - Plans Division office of Naval Intelligence SECRET CONFIDENTIAL 202 Paraphrase of Code Cablegram Received at the War Department at 8:33, April 12, 1941 London, filed 14:00, April 12, 1941. 1. British air activity over the Continent a. Daylight, April 12. RAF pursuit ships made three flights over the shores of France and convoyed medium bombers on missions against seaborne traffic and minesweepers off the Danish and Lowlands coast. b. Night of April 10-11. Official confirmation of damage caused by British attacks on the Continent is lacking. The scale of the raids was as follows: German battleships at Brest, 53 heavy bombers; Dusseldorf 54, airfield at Bordeaux 11; fuel storage at Rotterdam 3. G. Daylight. April 10. An axis freighter of 8,000 tons was sunk by the British off the French coast. d. Night of April 9-10. The British in their raid on Berlin dropped 11,400 incendiary and 44 tons of high explosive bombs. 2. German air activity over Great Britain a. Night of April 11-12. German air missions were of more restricted proportions, chiefly over the neighborhood of Bristol with some activity over Portsmouth and Southgupton. b. Daylight, April 11. Activity was limited to scouting and sea patrols in the Dover-Calais area with a flight of five bombers over Tentorden and Wyo. G. Night of April 10-11. A total of 15 minelayers, 10 fighters and 280 bombers were observed over England. d. Daylight, April 10. A total of 320 pursuit planes were active in defense over the French coast with 35 additional attacking shipping. Twenty-five scouting planes and 35 bombers were utilised on missions over Britain and the Channel, CONFIDENTIAL CONFIDENTIAL 203 3. Air losses, British Theatre a. British (1) April 11. One fighter was lost. (2) April 10. Seven planes failed to return from raids over the Continent. b. German (1) Night of April 11-12. Night pursuit formations accounted for one German bomber shot down and two damaged. (2) Daylight, April 11. One plane was shot down with one other probably in attacks on English inland towns. 4. British air activity, Middle East Theatre a. Libya, Daylight, April 10. British squadrons were very active during daylight hours, attacking with machine gun fire and bombs I vehicle convoys and marching colums near Bengasi. The destruction of 85 vehicles and two Junkers 52's operating as supply carriers in the vicinity of Mechili was claimed as well as serious casualties among troops. b. Greece, Daylight, April 10. At least eight mechanised vehicles and many trucks were destroyed by British planes. A railroad bridge between Bitolj and Prilep was damaged as was also a train carrying troops. Casualties among German troops were reported severe. 5. German air activity, Middle East Theatre a. Greece Daylight, April 10. German aerial operations were limited to scouting flights near Mt. Olympus and Volos. LEE Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Asstag Chief of Staff, G-2 War Plans Division Office of Naval Intelligence _2- CONFIDENTIAL 204 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 11:40, April 12, 1941 Lisbon, filed 13:53, April 12, 1941. During the week of April 7. a recently constituted Battalion, 830 strong, left for the Asores to reinforce the garrison there. In addition to the foregoing. a similar unit is expected to sail soon for the Cape Verde Islands and another to further reinforce the Asores. CAUN Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of Var Chief of Staff Assistant Chief of Staff, G-2 Var Plans Division Office of Naval Intelligence CONFIDENTIAL CONFIDENTIAL 205 Paraphrase of Code Radiogram Received at the War Department at 9:23, April 13, 1941 London, filed 14:00. April 13, 1941. 1. British air activity over the Continent. a. Darlight April 12. Three offensive sweeps of British pursuit units were in operation over Occupied France and the Belgian coast attacking airfields with success. The Goastal Command attacked seaborne traffic with medium bombers off Flushing and Occupied France. Similar attacks were made against military objectives in the Lowlands and the Ruhr. b. Night of April 11-12. Adverse weather conditions grounded both German and British operations. 2. German air activity over Britain. A. Mishi April 12-13. German operations were limited to raids by single planes on Swanses, Southampton, Exeter, Bournsmouth and Ply- mouth. Information as to the extent of damage is not available. 1. Daylight April 12. German operations were limited to acouting patrols principally over the Dover Straits. No planes were reported over Britain. e. Night of April 11-12. Two hundred ten planes were employed in raids on Great Britain. & Darlight April 11. Fifty planes were reported over Britain. 3. German air lesses British theater. Daylight April 12. One German plane was shot down over the Continent and one off the Dever coast. CONFIDENTIAL 206 CONFIDENTIAL British air activity Middle East theater. 4. A. Libra. Daylisht April 12. British claimed destruction of 35 motor vehicles and one German plane in raids from Egyptian airfields during which a hangar was destroyed on the Derna airfield and a supply dump south of Mechili was bombed. Motorized columns on roads were also bombed. b. Italian East Africa. DaylishtApril 13. British air activity was limited to support of feet troops. s. Greese. Daylight April No information has been received concerning air activity. 5. Axis air activity Middle East theater. a. Libra. Paylight April 12. British forces in Tobruk were bombed by German unite without success. B. Kalta. Daylight April 12. Ten German bombers were responsible for minor damage to civilian facilities. 6. German air losses Middle East theater. a. Libra. Daylight April 12. Two German bombers were destroyed in attacks on Tobrak. & Malta. Daylight April 12. Two enemy planes were shot down with three others probable in attacks on Malta. a. Daylight April 10. British pursuit planes destroyed twelve Italian planes in the visinity of Addis Ababa with an additional plane damaged. 7. British night pursuit squadrons were in the air on the night of April 13-13 but contact was not gained with German raiders. SCANLON Distribution: Secretary of Var. State Department, Secretary of Treasury, Under Secretary of Wart Assistant Chief of Staff, G-21 WFD;ONI;AC;G-3 CONFIDENTIAL CONFIDENTIAL 207 Paraphrase of Code Radiogram Received at the Mar Department at 9:32, April 13, 1941 London, filed 14:00, April 13, 1941. Following is a digest of information released by War Office up to 7:00 A.M., April 13. 1. Greak Front. There has been contact between German and Pritish patrols in the visinity of the Anyntalian on the morning of the 11th but newspaper accounts of heavy fighting there are not confirmed by any government source. 2. Only one Greek division remains in Thrace as the Fourteenth was evacuated to Thases. 3. Small German units have established limison with the Italians at Strugs on the Albanian border after capturing Octorid. 40 Trails between Toback and Bardia and K1 Adem in the Toback area have been out by German mechanised vehicles. An attack was launched against Tobruk by foot elements supported by eleven medium tanks without success. Axis forces are advancing toward Salla by Sidi-Assis. British service units have evacuated the Sellum area. Light German mechanised vehicles have captured Bardia. Small feet elements and mechanised units have been out off at Toback but the rest of the British Army are in defense lines west of Sellum, 5. Three Yugualav divisions have taken up position along the Sava River between Zagreb and Bred. Other Tugeulav forces are in position south of Belgrade to counter German selmes advancing from Rish. Counterattack has taken place from the Morava River and - CONFIDENTIAL 208 CONFIDENTIAL German mechanised units in the visinity of Shaplie have been surrounded. Kragujevao-Kruserak is now in Tugoalav hands and Prohmplje has been receptured. Yugoalav column are advancing in the vicinity of the Kacanik Gerge where the Germans have lost a number of machanised vehicles. Subotion in Merthers Yugoalavia has been occupied without a struggle by Hungarian forces. 7. Five Groat divisions are reported to have ceased fighting and two Slevene divisions are making a withdrawal temmis the south. SCARLON Distributions Secretary of War State Department Secretary of Treasury Under Secretary of Mar Assistant Chief of Staff, G-2 War Plans Division office of Naval Intelligence Air Corps CONFIDENTIAL 209 CONFIDENTIAL Paraphrase of Code Cablegram Received at the War Department at 9:32, April 13, 1941. London, filed 14:00, April 13, 1941. MATRAOT You can get in touch with our Military Attache, who is with the British Military Attache at the headquarters of the Tugeslav Army, through the Var Office, London. LEE Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-3 Var Plans Division Office of Naval Intelligence CONFIDENTIAL SECRET have Paraphrese of Code Cablagree Received as the Was Department By authority A. C. of S., G-2 Date APR 14 1941 BPH Initials 210 at 10:25, April 13, 1941. Give, filed 20130, April 11. 1941. 1. Extensive and effective operations were carried out by the L.A.F. throughout April 10. Thirteen airplanes, for the most part ES-222's, were destroyed in Gyronnies (eastern province of sign). Susvive Bristel Menhsins, divided into two nights of six each, researcally attacked on assored unit on the Bitelf (Neasetir) Prilep Read in Southern Tageslavia. The attack was made from - altitude of between 1,000 and 8,000 feet. Five direct hits with 280n. be were wale es as many tanks. Heavy damage to several mater transport conreys was inflicted by those same planes. 3. British recommissence planes eighted six destroyers and aloves medium ships in the harber of Tripeli. Also reported were se instating encisers and destroyers at Palerso (Staily), and a - of five large shipe and three destreyers due west of Malta. the convey was heading south. 3. Hegi airplanes have bone photographing the Island of Malta having the last four days. PERSONS Retributions Secretary of Year State Department Secretary of treasury Union Secretary of Mar Assistant Oklef of Staff, as Your Plane Minister office of Reval Intelligence SECRET CONFIDENTIAL 211 Paraphrase of Code Cablegram Received at the War Department 10:25, April 13, 1941. Dadapeat, filed April 11, 1941. Hungary has concentrated 3 Army Corps against Yugoslavia and $ more are believed to be mobilised but not concentrated. PARTRIDGE 0-3 Hotel Hungary possesses 9 Army Corps in all. Distribution: Secretary of Mar State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-3 War Plans Division Office of Naval Intelligence CONFIDENTIAL 212 CONFIDENTIAL Paraphrase of Goda Radiogram Received at the War Department at 10:26, April 13, 1941 Rome, filed 21:12, April 11, 1941. The air industry in Italy is still in a bad situation. The main cause is lack of either designs or planes for improved pursuit planes and bombers. So far there are no new and up-to-date designs which are regarded as satisfactory. The Italian government has as wish to start series production again on present type planes slightly modified, when they are already out of date. There are reasons to believe that the industry itself does not want to re-teel se that it can use designs from Germany. Instead of this, they have sent 30,000 trained workers in the air industry to Germany. In certain cases, the Italian factories are doing repair work. Sone are assembling planes of German make for the Eighth Air Fiest. Others are making either units or instruments for German planes. the latter group have simply become units in the German system of 'shallow' fasteries. FINES Retribution Secretary of War State Department Secretary of Treasury Unior Secretary of Var Chief of Staff Assistant Ohiof of Staff, 0-3 Var Plans Division Office of Naval Intelligence Air Gerys 213 TREASURY DEPARTMENT Washington Press Service FOR IMMEDIATE RELEASE, No. 24-56 Monday, April 14, 1941. Secretary of the Treasury Morgenthau today announced the sub- scription figures and the bases of allotment for the offerings of 7/8 percent notes of Series U and 1-1/8 percent notes of Series V of the Reconstruction Finance Corporation. The amount of each offering was $300,000,000, or thereabouts. Reports received from the Federal Reserve Banks show that subscriptions for the Series U notes aggregate $2,646,000,000 and for the Series V notes, $3,560,000,000. Subscriptions for the Series U notes were allotted 12 percent and for the Series V notes 9 percent, but not less than $1,000 on any one subscription. Further details as to subscriptions and allotments will be announced when final reports are received from the Federal Reserve Banks. -000- 214 April 14, 1941 9:41 a.m. Jesse Jones: Hello, Henry. H.M.Jr: How are you, Jeese? J: Pretty good. How are you? H.M.Jr: I'm about the same. J: About that, huh? I can't brag. H.M.Jr: No. Are you going to attend this meeting of J: Leon Henderson's this morning at 11:00 o'clock. H.M.Jr: I've got to. They called it at my office. J: Good. Well, then I'11 be there. I can't help myself. Well, I just wanted to check. H.M.Jr: I didn't know anything about it until I J: H.M.Jr: read about it in the papers; I don't know whether you did. J: I did not. That's the first I heard about it. H.M.Jr: Because the President said at Cabinet, how he'd consulted others and mentioned me, but I never knew a thing about it until I saw it in the papers. J: Well, now, I notice it provides for alter- nates. Have you decided who you're going to H.M.Jr: No. I wanted to see just which way it is going to go because I think that this can be one of the most useful and also one of the most dangerous groups that J: You're entirely right about it. 215 -2H.M.Jr: ..... J: You're entirely right about it. It's if it was misused. going to be terrible responsibility. H.M.Jr: So I want to see the way it goes over the weekend. I've been trying to rack my J: brain to think of who to put in. I thought for awhile I'd like of watch it myself. Well, I think that's desirable. Harry H.M.Jr: Yes, he has. J: I've been trying to figure out who I would H.M.Jr: You think Harry White would be good, huh? J: I think he's awful good any time. H.M.Jr: Yeah. Well, I'm glad to hear that. J: He's just got a good level head and he H.M.Jr: Who are you thinking of? J: Well, I was trying to figure out. I White has got a pretty level head. doesn't get excited and I just think awfully well of him. thought maybe John Goodloe. John Goodloe is handling the importation of the wool from Australia. I got him back from the Commodity Credit. He ran that all the time. H.M.Jr: J: I don't know him. And he's a good, cleancut youngster and he understands - I think we've got to have somebody who understands these various organizations - these Departments and the way - sort of the way the Government works. H.M.Jr: Yeah. 216 -3And I was talking to Sam this morning J: about it and talking to Will Clayton about it. I could wish it on Will Clayton but he's pretty busy and I haven't yet made up my mind fully but I just wanted to check with you before to see what your slant on it was. H.M.Jr: Well, I was watching it and I thought I'd watch it for a little while and see it get started. J: Well, that's fine; then I'11 be over at H.M.Jr: Right-o. J: If you have any time after that I could talk a little bit about British-American H.M.Jr: Well J: It won't take much. H.M.Jr: Right-o. 11:00. 217 April 14, 1941 9:50 a.m. H.M.Jr: Hello. Operator: Mr. Mack. Clifton Mack: Good morning. H.M.Jr: Hello, Mack. Things are moving along all right on this M: lend-lease program. We have now just two or three requisitions that we're ready to go ahead on - or rather that we can go ahead on, and that's on chemicals on $100,000. There are a number of requisitions with the O.P.M. and I'm going over there right now in a few minutes to talk to them about the requisitions and to work out the procedure with them on their clearances to us. H.M.Jr: I see. M: So that I'11 probably have something more H.M.Jr: M: definite to report tomorrow morning. I see. Did they get through that hurry order on netting or whatever it was? Yes, sir. We picked up 640 rolls and as a matter of fact, before we received the order the British had gone out - the British Purchasing Commission had gone out to check up on the same material and evidently had only picked up some- thing like 30 or 40 rolls. H.M.Jr: How many rolls did you pick up? M: 660. H.M.Jr: M: H.M.Jr: M: I see. Did it get to the steamer? Yes, sir, it was there. Now do they in any way let you know their pleasure at the thing? Well, yes. They were very much pleased. They had a representative down here Saturday morning, and I rather think that tomorrow 218 -2on morning we!11 be able to report/a number of these requisitions that have gone over to O.P.M. and probably will be released to us either tomorrow or the following day. H.M.Jr: O.K. M: Yes, sir. H.M.Jr: Thank you. 219 April 14, 1941 9:52 a.m. H.M.Jr: Hello. Operator: Mr. Currie. Lauchlin Currie: Good morning, Mr. Secretary. H.M.Jr: Lauch, is this my call or are you calling me? C: H.M.Jr: I'm calling back from a call you made me last Friday afternoon. Oh. Well, the President spoke to me after he went over our preliminary on the tax thing and he said amonget other people that he'd like us to get your suggestions. So if John Bullivan hasn't already contacted you ...... C: I drove in to work with John Sullivan this morning, and we had a little verbal talk and I just made a couple suggestions of change of emphasis. I like the items but I would change the emphasis a little bit and perhaps it might be worth my while to get together further with John. H.M.Jr: Yes, I wish you would. C: O.K. H.M.Jr: Right-o. C: All right. Many thanks for calling. 220 April 14, 1941 10:06 a.m. H.M.Jr: Operator: Tom Hello. Mr. Corcoran. Corcoran: Mr. Secretary, this is Tom Corcoran. H.M.Jr: How-do-you-do. As a private citizen I always get introductions to you before I try to call you C: now, and I have an introduction to you this morning through Mr. Harry White. H.M.Jr: C: Not as a father, huh? (Laughs). Well, as a father I'm going through a bewildering time. I'm in a new field and I have to brush my way along. Mr. Secretary, when I saw this SovietJapanese pact this morning - as you know with the blessing of your people and at their suggestion I'm in trying to help pull this Chinese thing together, and I know from a conversation I had last week with the President that he was going to suggest that you bring Soong in to see him, and that the idea now was to put it over until he came back from Warm Springs. H.M.Jr: C: That's right. Well, now he isn't leaving for Warm Springs until Wednesday and I was just thinking as a matter of psychological morale, if we could have you bring Mr. Soong in tomorrow or before the President goes and he could announce the formation of his aid-to-China plan, it would be an excellent immediate answer to this Soviet-Japanese thing. This is the dramatic moment at which to pull it, and then to make sure that the Administration had a control over the Soong situation, and I understand how we have to make a lot of crowds work together, I was suggesting that since Mr. Delano had the Chinese color 221 2 of the Roosevelt family, that he go in as the Chairman of Soong's Board and that would give you an additional hold over it. Now, Mr. Delano is willing to go but he's to see the President about it sometime in the next couple of days. But if those two things could happen - if Mr. Soong could go in under your wing, say, today or tomorrow and then Mr. Delano announce the formation of this Aid-to-China organization, you'd have a magnificent, spectacular answer as a matter of morale to the Soviet-Japanese pact. H.M.Jr: C: I see. And I only wanted to call to suggest to you that the time problem was psychologically very important in view of the news this morning. H.M.Jr: I don't know why the President changed his mind. C: Well, I think he just simply had so many things to take care of. But Currie the other day - and I thought you'd like to know this - was handed by Hopkins the whole problem of the Far East, Dutch East Indies and China. H.M.Jr: Did Lauch finally get in to C: Finally we pushed it through and Lauch finally got in to see Harry, and I thought you might like to have Lauch report to you today, because we've got the pieces ready to pull together and it looked much more favorable after Lauch talked with Harry than at any other time. H.M.Jr: Good. C: Harry wanted something done right away. But much is - I know the difficulties about Soong. I'm quite sure he is not going back to China in any hurry but he is the dynamo that keeps this thing together, and you have to use horse power wherever you can find it. 222 -3H:M.Jr: C: H.M.Jr: Right. Thank you. Thank you. 223 April 14, 1941 10:10 a.m. Steve Early: that defense tax story in the paper this morning and it says in there - now I'm only inquiring about the Roosevelt message phase of it - do you want him to send a special message? Is that the plan? H.M.Jr: E: H.M.Jr: Well, this story - when I saw it - I think you newspapermen call it a thumb-sucking story, or a weekend story Oh, yes. That's right. A weekend story. Well, this fellow is a smart fellow. Now where he got that from I don't know, but you notice no other paper had it. E: Yeah. H.M.Jr: And old Doughton is going to have kittens all over the Capitol about it. Now for and all that - that's just the bunk. The your information, about having a meeting understanding was in order to keep it secret this is just for you - Doughton arranged with Senator George - they were going to meet at my house on the morning of the 16th in secret so that the papers wouldn't get onto it and plan it. Now, Doughton isn't even in town. He doesn't get back until tomorrow. E: H.M.Jr: E: H.M.Jr: Uh-huh. Now as to the message part, which affects you, the President did say to me, "When you see these people, find out if they would like to have me send a message, and if they do, then let me know." Now he must have told that to somebody else because I haven't repeated it to anybody. Yeah. I'd never heard it. Well, he told me and I haven't had a chance to tell Doughton and George because I don't see them until the 16th. 224 -2Yeah. E: H.M.Jr: I know that he talked this tax thing over both with Eccles and Currie and he might have said something to either one of those. E: Yeah, yeah. H.M.Jr: See? Does that E: Yeah, that last one throws a lot of light on it to me. H.M.Jr: E: H.M.Jr: See? Yeah. Because he told me to get in touch with both of them because he had discussed taxes with them. See? E: Yeah. Uh-huh. H.M.Jr: But I was waiting until I saw these leaders E: H.M.Jr: on Thursday. You haven't even spoken to them about it yet - haven't had a chance. No. They're both out of town, and you know me, how closely I guard these things. E: Sure. H.M.Jr: Does that help you any? E: Yes, it helps me a lot. H.M.Jr: Right-o. E: Yes, sir. Thanks, Henry. 225 April 14, 1941 10:53 a.m. Frank Knox: Hello, Henry. H.M.Jr: How are you? K: How's your cold? H.M.Jr: I think it's gone. K: H.M.Jr: Oh, that's good. What did you do to it? Well, I went up and spent the night with Mrs. Morgenthau up on Skyline Drive, up at their lodge up there. K: I see. H.M.Jr: I recommend it. K: H.M.Jr: Well, that certainly sounds good. Frank, I'm lunching with the President. Are you ready to talk on that memorandum of mine? K: Yes, I've got Stark and Turner and Ingereol with me now. We've just been talking over a number of matters, that among them, and the consensus of opinion here 18 that until we take over the whole Coast Guard under the War Statute that all we'd better take over now, in order to avoid confusion, is the seven big cutters and let the rest go until we get into actual hostilities or H.M.Jr: get into more Well, that's what this memorandum says, K: No, you were going to give us the 125 isn't it? footers too, but we think the best thing for you to do with all the duties you retain is to keep those and just turn over for the present the seven big cutters. We already have a couple of them. 226 -2H.M.Jr: Yeah. You want the crews with them? K: Oh, yes, your crews and everybody, but Waesche will stay with you and we'll just take these ships over into the Navy temporarily. That's the best solution down here from our point of view. H.M.Jr: Well, I'm going to report that to the President at lunch. Is that right? K: That's all right. That's quite all right, H.M.Jr: I mean, tell him that you only want the K: That's all. That's all, with the crews H.M.Jr: K: Henry. seven now. and everything that goes with them. You don't want the others? No, not now. Not until - by law under war why the whole damn thing comes over anyway and we think it better for our purposes to just take the seven big ones now and let the Coast Guard function as usual until later. H.M.Jr: O.K. K: O.K., Henry. H.M.Jr: Thank you. 227 April 14, 1941 11:00 a.m. RE PRICE STABILIZATION Chairman: Mr. Henderson Present: Secretary Morgenthau Secretary Jones Secretary Wickard Mr. Knudsen Mr. Hillman Mr. Ayres Mr. Rider Mr. White Mr. Goodloe Mr. Clayton Mr. Ginsburg Henderson: Well, I presume you gentlemen know that you were named in the Executive Order creating the new Office of Price Administration and Civilian Supply as a committee. It was named as a price administration committee, and this follows out something which they found very desirable in the last emergency. Brookings himself relied very heavily upon the committee which he had and the agencies which were represented. I think Mr. Ayres will remember very, very much the cloth studies which the Trade Commission made, which were the basis of a lot of prices which were fixed. I thought it would be a good idea to get started fairly early, because I want to 228 -2arrange for two kinds of services from the committee. One of them I would like to check. The major undertakings that we are likely to put into operation fairly soon with the committee, and second, I would like to arrange in the - particularly in the period in which we have no enlarged staff to tap I might say continue to tap some of the technical assistance and in some cases perhaps the administration of some of the activities that we are likely to need. I would like to just kick the ball off with after we get through with the administration, with - or I mean a sort of a set-up, I would like to arrange for this committee, if we could, to meet every week; and I would like, if possible, if each of you that are named, and by the way I am asking the President to appoint SEC also as a member, both for senti- mental reasons and also because we are using them very, very heavily in some of our oper- ations, particularly in getting set up. I would like to arrange that if you have an alternate, that he be as near a full time man for our stuff as possible. Something like, for example, O'Connell was on the TNEC. That proved very, very valuable, as you know, or have somebody who in between times was getting around to the different agencies, seeing their reports, and appraising his superior as to what was likely to come up at one of these meetings. I expect all of us have served on committees and not known what in the hell was coming up except a little brief agenda, and you get back to your office and you wonder how in 229 3- the hell you ever came to make that decision, except that there it was and you had to say one thing or the other, and the easiest thing seemed to be to go along with whoever was pushing something. I would like to just pitch into two or three things that we are faced with right today, and I realize that I am responsible for the ultimate decision and I think you realize also that I wouldn't want to take a step in any of our decisions that would cut across what has been the assigned functions of the other agencies and particularly I would certainly regret any step which brought us which I might say - up sharply with the knowledge that we had overlooked something that we could get out of this committee. Now, the first one, of course, is steel, and the -- Jones: What was that, Leon? Henderson: Steel. My best information is that the United States Steel Corporation will sign at a ten cent rate per hour increase with the Steel Workers' Organizing Committee today. Now, when the steel men came to see me at the President's suggestion last week - and I might say that while they talked, I think Fairless made a beautiful statement of all the things he didn't talk to the President about for the public, their question was very baldly this one. They could afford five cents an hour increase without any increase in price. They were faced with a - with Weir's announcement of the ten cent increase, followed by some of 230 -4smaller ones, and if they had to meet the full ten cents, they wanted to know - they wanted to - not a commitment, because they are too fine people for that, but they wanted to know what would be our attitude against a price increase which would cover the additional five cents, and I made no commit- ment, because I felt that it was not a part of our job to get in a place where as a matter of bargaining, one side or the other had a lever against them. However, we did have some over-all figures submitted to us, and we have been working quietly for at least ten weeks on the profit statements particularly, and we made an analysis of the prospective increases which ten cents an hour would occasion to the steel corporation and tried to assess what its effect would be on the steel industry generally. The steel corporation is almost at the median line, as far as earnings are concerned, and -Jones: What line? Henderson: At the median line. When the corporation makes, say, seven per cent, as they did seven and a half per cent, as they did in 1940, you could expect them to be about midway between the marginal man at the bottom and - Inland and National and some of the others at the top. So that it is - and I might say that earnings in the steel industry have a pretty wide range, and particularly the ratio between net earnings or profits after all charges and wages. That is, a wage increase affects Charlie Hook and Weir much less than it does Coates- ville, Lukens-Worth, or any of those. 231 -5Now, on a basis of what the corporation presented and assuming an additional five per cent increase in the tax rate, that is, assuming a thirty per cent rate instead of the existing twenty-four, they would be left with about - on their own figures, about five and a half per cent return. Now, they calculate something like this. They calculate an exact quotation of the fourth quarter results would give them about two hundred million dollars of gross before taxes and any additional charges. Ten cents an hour extended to their white collared people up to four thousand and with vacations, would make it cost them about sixty-two million. They buy in the open market goods and services which in a calendar year are going to run in excess of four hundred million, and they estimate that a ten per cent increase, partly due to the general rating effect of their increase, since it is a bellwether, would mean another forty million, or roughly that this increase, if granted, taken together with other things, would cost them about a hundred million, leaving them with about a hundred million of net before their taxes, and that would get them down to about five and a half per cent. Rider: That is on the invested capital? Henderson: That is on the invested capital. H.M.Jr: Five and a half per cent on their common? Henderson: No, five and a half per cent on the total investment, that they have on their books. (Mr. White entered the conference.) 232 -6Jones: Depreciated investment? Henderson: Now, on their basis, as I say, of making all these assumptions, that would leave them with five and a half per cent. That would jeopardize - well, I would put it this way. That would mean that the smaller companies, particularly the non-integrated companies, would have less than five and a half per cent, and so the question of price increase is not so much the one addressed to the steel corporation itself, but of the other companies. They represent about twenty per cent of capacity and about thirty of the companies and whereas in the last emergency, as I know from talking over with Baruch, they made various adjustments in the prices of say pig iron and so forth that went to the small fellows to try to make it up on the net. However, we have made a re-examination of their estimates, and as you would expect, we found that any time they were in doubt, they erred on the liberal side and that a small change in the - their gross, and it is likely that there would be, because they are running around ninety-nine per cent now, and have run a hundred and two, and they have got orders which ought to keep them there; and also, we feel that the ten per cent in- crease in prices can be held down and par- ticularly if we held the price of steel down it would materially help them, would probably leave them - you take on our best estimate, leave them with about seven per cent return. Well, they made seven and a half in 1940. That is, I will put it roughly this way. With reasonable luck and assuming that they 233 7- had - holding the steel price in line would help us hold all prices in line, the ten cent increase which they are likely to grant today and - would give them about seven per cent return on their invested capital, which is a half per cent less than 1940. Now, the earnings of the corporation between - and that would be roughly ninety-five million. Between 1922 and 1928, which were, of course, the lush years, they averaged ninety-two million. In 1929 they - nobody quite understands the earnings of the steel corporation in '29. It is a sport. They made about a hundred and seventy millions, as I remember, but they had no increase in volume to amount to any- thing; and I don't know what it is, but taking the additional amount and spreading it over the whole Twenties, including 1929, it would be something like what our estimate is. Now, unless there is from the President and I have taken this up with him, and I have got no dissent. I put it to him, unless he sees some reason and unless this group sees some reason, my proposal is that we establish a ceiling immediately, at the end of today, on prices as they existed before the wage increase was granted, with a statement that at the end of the second quarter we will be prepared to consider any suggestions for alteration, and as I say, keep in mind that on the basis of the steel corporation's own estimates, they would have about five and a half per cent return. That is, it isn't a case where they will be out of pocket on - compelled to take business at a loss. 234 -8Rider: And your estimate was seven per cent, was it? Henderson: Our estimate is nearer to seven per cent, Rider. That is over the full year. We don't - you take it this way. They esti- mate thirty-nine million dollars increase in their goods and services on four hundred twenty million. Well, that is about ten per cent. That ten per cent is not going to take place tomorrow and stay in effect over the whole period. We have estimated that it might run as much as twenty million instead of the thirty-nine million, par- ticularly if we can have as much luck with this industry as - with a number of the basic industries as we have had with paper. Now, we had a threatened flurry in paper last week and the week before, and we got hold of the leaders of the industry and we had a re-examination made, and we found out we had certain capacity between here and Canada of about five million tons, and as a result individually a number of the leading producers have given me to understand that unless they have extraordinary changes in their costs, with only minor changes in the price, they can hold the present level. Jones: Your second quarter being July, ending July. Henderson: Yes. Jones: So you propose to leave prices as they are Henderson: Until - it would be later than July 1, until July 1? because we wouldn't have the second quarter returns in until about the middle of July. 235 -9Jones: And then you would consider. If they felt they need an increased price, at that time you would consider it? Henderson: That is right. And we would also consider, Jesse, what other things could be done for the relief of the marginal operator, the low cost operator. For example, my guess is - I don't know what you think about it, Bill, but twenty-four dollars and a half for pig iron is pretty high. They have got costs, I don't suppose and the ratio between that and where we have fixed the scrap at twenty dollars is too wide. There is a normal relationship that exists between scrap and pig iron. Now, if we pull down the price of pig iron and that means an examination of some of the earnings records for last year, which I hope we can get - we can help that nonintegrated man on his costs, if we can keep scrap flowing to him in pretty liberal quantities at twenty dollars. That will help him. There are different ways of helping him. We can study other things. But steel is a very crucial and critical element. There is another one in this, in my opinion. If we embark on a proposition that in any industry, any kind of a wage increase can be negotiated just so it is added to price, we are licked from the start. I think that in this case a good sharp negotiation did take place, and then some new factors in the bargaining came in, like Weir, and they probably got a little more this time, Sydney, than they would have gotten if they had to 236 - 10 - battle it out on their own figures. We wouldn't have had such a tight situation, frankly, if Weir hadn't come in. Hillman: You mean if the settlement had taken place four weeks ago they could have settled for less? Henderson: That is right. They could have settled for less and I would say the union could have settled for less earlier. Hillman: I am speaking for the union, and the collective bargaining would not have brought it up that far. Henderson: That is right. Jones: How long a contract does this - is this ten cents good for with the union labor? Henderson: It is an open end contract, subject to the usual twenty days' notice; and that is not from the standpoint of the union. The union would like to have a period of two years, preferably, and at least a year - the corporation doesn't feel operating at ninety- nine per cent of operation, having gotten all of the gains it probably can out of a full operation, that it can enter into a contract which would be good in case they went down to say eighty per cent operation, so the corporation is the one that wants the right to negotiate a new contract. Jones: Not the union? Henderson: Not the union. The union would like to have this means, Jesse, - let me see, the steel corporation's rates are about eighty-seven cents now, an hour. This means ninety-seven cents for them. 237 - 11 Jones: The point in my mind was, if on July 15 or some approximate date you permit an increase in the price of steel, then will the labor come along and say, "Give it to us"? What is your thought about that, Sydney? Hillman: No, I think the corporation is ill advised by not taking the term contract. I think the term contract gets the sense of stability. I have also been for a two year contract, and if necessary to have an annual revision, either upward or downward, so that you know you have got a two year contract for the company; but I don't believe that there is any danger at all for any question in July for increases if we keep the general level of prices within reason. The last increase they received was in 1937. Jones: Hillman: Do you think it would be just -I think that would settle the situation, ought to settle it at least for a year, in my judgment. Henderson: My opinion is that if the present levels of operations continue anywhere near where they are, it is good for at least a year. Jones: You want this meeting to determine whether or not you should -- Henderson: What I would like to do - if this procedure doesn't suit you - I say, for me to tell you what I am going to do unless some of you see some staunch reason why I shouldn't. In other words, I don't think I ought to come into a meeting like this and ask you to take a responsibility and I go out and say that the - "Well, my committee has decided 238 - 12 - that I ought to do this." You haven't been sitting on it. On the other hand, as I said before, I wouldn't want to do it if you see some vigorous reason why I shouldn't do it. I would want to canvass that. I couldn't reach Olds before I left, and my deputy, John Hamm, did reach him and told him that if they settled today, we wanted to be consulted before any announcement on price was made, because we had some ideas ourselves, and he said that they would; but he said that tomorrow night was the deadline and he anticipated a settlement prior to that time, and he felt that when they released the news of the wage increase, some statement would have to be made about prices. Well, I am ready on our end on a statement on prices, which is what I have indicated, that there will be no increase in price at this time, that we would start an examination of the whole structure now, and then would relate that to the second quarter results particularly, and if a price change was warranted, we would take it up at that time. Jones: What is your thought about it, Bill? Knudsen: I wonder if it isn't going to co st you more the longer you wait? If you know that it is going to be dependent on the second quarter savings, the second quarter savings might not be so good, I suppose. Jones: What do you mean? Knudsen: Whatever commitments you have, he will have to depend on whatever price is set by the Government. He has got an advantage in the National Steel Company of four dollars a ton. That is where he came in. 239 - 13 - Jones: What do you think about this proposal of Leon's? Knudsen: Well, I said I was wondering whether postponing the evil day isn't going to cost you more in the end. Jones: You mean not - you mean not raise now, it may cost more in the end? Knudsen: No, what you are setting now is the ceiling. You are not setting the price. Henderson: Well, we are setting a ceiling, but that is likely to be the price, because all the old cheap contract stuff is running out, and their new deliveries would be taken on this basis, this quarter. Knudsen: Take it on the basis of whatever price is set in July. Henderson: Yes. Most of the commitments taken now would be for future business after this quarter, but they have got a lot of contracts which were taken previously which say that the price shall be as of the price of the date of delivery, so they took contracts last January and February which are for July delivery, and they are to bear the price of - prevailing in July, so they would get some of the advantage. Practically all of the concessions have gone out of the market, and some of the smaller companies have been charging premiums, and we know it and haven't done any- thing about it. When we set this thing, however, we will get at that premium basis. We will cut the premiums out of the market and get it down to the -Knudsen: How could you increase the price of steel and cut the price of iron? 240 - 14 - Henderson: How can you? You can't. The thing to do is, you can keep the price of steel as it is. It is five percent above 1929 now. And then the corporation doesn't sell much pig. It is Interlake and that Pittsburgh Iron and Coke Company are the ones that have walked away with the price to the non-integrated mills. I think Janell just had to buy forty thousand tons of pig recently. So it is a factor, but there is a margin in that cost of pig that I think we can get down for the benefit of the smaller ones. It is a very, very important thing that, as far as the inflationary psychology is concerned, that we do this right now and -Jones: Have you reached the conclusion that it is fair to the steel corporation to make the decision that you are making. Henderson: Knudsen: Yes. I think he wants to see the first quarter state- ment. Henderson: I want to see the first quarter statement also, but the first quarter statement has been delayed on account of the negotiations. The first quarter statement is going to be, in my opinion, better than the fourth quarter of last year, don't you think so? Knudsen: Yes. Henderson: Wickard: And they have figured it on the basis of the fourth quarter. Is that the reason for your difference between Henderson: That is part of it. The reason roughly is this. five and a half and seven? 241 - 15 They estimate a gross based on the fourth quarter of about two hundred million. We estimate closer to two hundred eight million, so there is eight million there. They estimate that on their - some four hundred million of outside purchases of goods and services, that they will have an increased cost of thirty-nine million. We estimate that it would only run twenty million, so there is twenty-eight million there which is the big part of the difference. Rider: Have you gone into the invested capital, as to how justified the invested capital figure is? Henderson: Yes - no, I haven't now, but we did in the TNEC, and I think I ought to say this. Under Taylor's administration, there were three major things done in the steel corporation for which we ought to be damn good and thankful at this time in needing as much steel from them as we do now. One of them was a complete reorganization of the capital structure, getting rid of that high-bond cost that they had, and in addition, they washed out nearly all of the inflation that was put in in 1902 when Morgan put the corporation together; and the second thing was their personnel; and the third thing was their technological increase. Rider: They really made a lot of new plans. Henderson: Yes. Rider: What did they do to their capital structure at that time, their old plants, did they write those off? Henderson: Yes. I wouldn't want to be held to the figure, but it was a very large amount. H.M.Jr: Before I volunteer an expression of opinion, 242 - 16 what assurances have you got from the steel company that if the government says no increases until we get a look at the first and second quarters, that they will abide by that decisfon? Henderson: I haven't got anything in the way of definite assurances, but I feel pretty confident that they will abide. Our relations - you take such relations as I have had with them about the price of steel, since I have been on this, have been pretty good. We haven't had any difficulty. And when there was a threat of some of the things running away which they sell, like pig iron, Fairless didn't wait for me to call on him. He called and said, "We will give you help on this." H.M.Jr: In order to start the ball rolling, I take it you will go around the room? Henderson: Yes, I do. H.M.Jr: I am willing to say that I think your proposal Wickard: I am wondering if your TNEC investigation on is sound and fair. It is all right with me. their capitalization or on their investment agreed with their figure. You say you made an investigation. Henderson: I will put it this way. The figure which they are carrying now in their annual report, my men who worked in TNEC say is not an over-inflated figure. Ginsburg: We checked that yesterday. Ayres: May I ask how they are going to take into consideration the price of pig and fuel and coal and so on. 243 - 17 - Henderson: That is one of the things that bothers me. We don't know how much coke is going to cost until we know what this new coal settlement costs. We don't know whether we can get the price of pig down for the non-integrated. That is the reason why I would like to hold it at this price, even though, as I say, on their own basis it leaves them at about five and a half percent return, which they might think is not high enough for a full operation. Ginsburg: The sixty-two million dollar figure which they gave you as increased costs, already includes a dollar increase in coal. They had -Ayres: Had what? Ginsburg: That figure which they gave us for increased costs also takes into account a dollar increase in coal. Ayres: I see. Ginsburg: And all of the figures assume that there will be a dollar increase in coal. Wickard: May I ask what comparison the steel has now with the last year or two years or five year average or something like that. You spoke about 1929. Henderson: In 1929 - it is five percent higher. In 1937 it was roughly five percent higher than it is now, but you can't - that is the published price. It is the realization that counts. That is, there is a lot of jugglery goes on, not on the price, but on the extras and on the concessions. At a time when they need business badly, they will make concessions in the way of extras. As it comes up now, they get almost the published price. That tends to narrow it. We haven't got that, because 244 - 18 - that lags considerably. We haven't got that. We know, however, that they are getting almost the published price now. In other words, I will put it this way, Wickard, there has been an increase in the price of steel since last year, despite the fact that the published price has not advanced. Wickard: It is practically the same. In other words, they are wiping out the concessions, which increases their return, but you don't know what their return is now compared with last year or a five-year average. I mean, the net return. Henderson: No, but I know what their income is. Wickard: You go entirely on an income basis? Henderson: I don't go entirely on that, but that is the thing which it adds up to finally, and I am sure that -- H.M.Jr: Leon, this is entirely - is not entirely relevant, but sitting next to him, I would just like to point out an interesting fact, that the four hundred and fifty million dollars that the Senate increased the Agriculture appropriation above the budget equals exactly six percent on the corporation taxes. In other words, we went from twenty- four to thirty. It produces four hundred twenty million dollars which is the exact amount that the Senate has increased the Agricultural bill over and above the Bureau of the Budget. I was just pointing it out. I mean, we talk in big figures and what it means in wages and so forth and so on, and we are going to try to hold it to the other, but I just thought it was an inter- esting thing. I mean, they passed the thing through and then four hundred and fifty million which is six percent on all corporation and excess profits tax. 245 - 19 Wickard: Are you arguing, Mr. Secretary, that I should be in favor of this or that we should get four hundred fifty million? H.M.Jr: I just want to be sure that when we go after that in the House you get the full appreciation of what it means since you are on this committee, you see. (Facetiously.) I am pointing it out. I am very serious. If it passes, it will be the first time that this Congress has increased a non-defense appropriation above the President's budget. It has just as much to do with the increases in costs and everything else as the thing that we are talking about, and as Secretary of the Treasury, I don't want to miss a chance to maybe get a little sympathy. Jones: I sympathize with you. H.M.Jr: That is all right. He is all right. He (Wickard) tells me he is so all right that he has lost all his friends on the Hill. Wickard: In the country, too. I will have to come to you for sympathy. You haven't heard a sob story yet. Wait until I give you mine. H.M.Jr: Wickard: I haven't any sympathy left. I was asking these questions because, on the face of it, it seems fair enough. You can increase labor costs ten percent without increasing the cost of the product to the consumers. It seems fair enough. That is where I was trying to dig into these questions, where the previous price was pretty high. It must have been. Henderson: This gain, Claude, represents now - the gains that come from operating at almost full capacity. Wickard: But they haven't been operating at full capacity 246 - 20 - for long. Henderson: No, in 1940 their rate of operation only averaged eighty, so they are at ninety-nine now. Rider: In the fourth quarter they were about a hundred, weren't they? Henderson: Yes, between ninety-three and a hundred. Ginsburg: They were figuring on deliveries in the fourth quarter to bring their thirty-two million dollars net and that was figured on a ninety-four percent basis, whereas they are now operating at a hundred. Wickard: It seems fair enough to me based upon the statements you have made. I don't see any chance in the world for getting it down. Henderson: Oh, no. Wickard: So if you can hold it, all right. Of course, it all depends on what you do from here on, and that depends upon the statement for the next two quarters, it seems to me, or rather this quarter and the next. I don't know. That is the open end on the thing, but you have to go from where you are with the information you have now. Henderson: Rider: It has got to be left that way, and it ought to have a definite date when we re-examine it. Yes. It seems to me that the method you suggested for the best method of approach, it seems to me when you allow increases over existing prices, they should be pretty fully established, pretty certainly established that it is necessary, and where it is doubtful, I think it should be post- poned until we have a certain degree of certainty. We have enough agencies of the government along 247 - 21 - with the cooperation of these agencies that can determine time to do it. these things if they are given Henderson: What do you think about this -- Rider: By that statement, I mean to approve that method of going at it. It seems to me that from your statement of it, the data that they have given doesn't make it certain that an increase is necessary. Henderson: That is right. Rider: It may be, and what we are telling them is that we will continue the present prices, and we will study them, and if a case can be made, if they can show - establish later that an increase is necessary, we will grant it. H.M.Jr: Sydney? Hillman: I think it is a very sound approach. We think it will be a very fine influence on the whole labor relations, that you don't just set the thing, but it can be negotiated for increases. From the point of view of the company, it is even a very desirable thing. Knudsen: Could you make a better decision on the basis of the first quarter statement? Henderson: No, because the new costs won't go in until the second quarter. I think we will know at the end of the first quarter how well they can absorb it, but you see, they have got this vacation pay and then -Knudsen: That is two million dollars. Ginsburg: Three. 248 - 22 Henderson: And then there is this question of their de- livery rate, whether their delivery rate will not be more nearly eighty-nine percent than the ninety-five percent that they have had. There are a number of things in there. But it is more important to the small companies to see their second quarter results, because they are the ones that have run out of their low-cost inven- tory all along the line. Rider: Are these small companies non-integrated com- panies? Henderson: Most of them, yes. Rider: And they are high cost producers? Henderson: Twenty percent of the capacity I am speaking about, yes. All the steel companies except one small one in Baltimore, as I recall. They were out of the red last year. But some of them were just out a very small amount. Well, we have got the sentiment here. Now, we have got one other one. Jones: May I make a little suggestion? It seems to me that if you are sure that the manufacturer will have a fair hearing, fair consideration, after the facts are known, it seems to me that you are approaching it on a fair basis. Henderson: As you probably know, we copied this from the proposals that were made, some of them by the Army and Navy Munitions Board and also by Baruch in his various testimony as to the - how you ad- just the ceiling. 249 - 23 Jones: Henderson: Well, it is not long until the 15th of July. And as I said, I don't think we will bring them down below the cost of production. The next one is, we fixed, with Ickes' concurrence and the approval of the President when the coal strike broke out, the price of coal, whether it was at the mine or in the wholesale yards or in the hands of the retailer. We did that because of the uncertainty as to how long the strike might run and how unfairly it might affect a Iot of non-defense industries and particularly retailers. Knudsen's organization canvassed as to the defense industries and found that they had a satisfactory supply by way of anticipation which would carry them and Ickes-- Knudsen: Well, there were spots. Henderson: There were spots. Ickes' organization has no power to fix maximums and has nothing to do with retail. Now, we have got a situation in which there is likely to be a settlement today or tomorrow which will represent the northern operators with fifty some percent of capacity and there is about 15 percent which is operating, comprising Illinois and Michigan and various little groups that have made a settlement. We said in our order that when there was a substantial tonnage at work that we would lift that, and we are very anxious to lift it because our policy is not one of trying to impose controls and close administration but is to prevent excesses and to leave as much as possible to the ordinary transactions of business, as to what is to be the specific prices. Now when that - if that settlement is made, we 250 - 24 - want to lift our ban with the feeling that several things will operate to protect the consumer and the small industry. One is the approach of warm weather. The second is the price is always protected by - somewhat by the competitive fuel. Third, the inventory, although it is spotty, is reasonbly satisfactory with this kind of resumption, and fourth, the 70 percent of capacity that has gone back to work can make all America can possibly burn in any period as long as the railroad companies can haul it. This one is a relatively simple one compared to the other one, and if there are any expres- sions against that method, I will be glad if you would make them now. Otherwise, we are going to - that is the proposal we intend to follow. Wickard: I am not sure that I understand what percentage of the production will be involved in this settlement you spoke about. Fifteen percent of the total? Henderson: Fifteen percent of the total of the country and the 15 percent is already set. Wickard: You know what the settlement was for? Henderson: Well, I know what the basis of settlement is. Wickard: Is it some increase? Henderson: Oh, yes. Knudsen: It is the southern operators that have the biggest kick. It will lift them 40 cents more. Henderson: And they have chosen to go out of conference on that. It is an age old story. I had at 251 - 25 - least seven people working all the time on the question of the tonnage and geographic differentiations. Rider: Is there any basis of transportation caus- ing the differentiation there? Henderson: Not particularly. Rider: That is the see for it. only basic justification I could Wickard: What do you think will be the effect upon the price of coal of the settlement? Henderson: It is going to be up. There is no doubt about that. White: Leon, do you see the full implications of the decision that you are making with respect to steel? I think they are apparent, but I wonder whether they might be called to attention again. Two months from now you are going to undertake to determine whether or not the various steel companies are warranted in increasing their price on the basis as to whether or not they are getting a fair return for their effort and for their in- vested capital, et cetera. What you are doing, in effect, is setting a pattern for the determination as to what constitutes a fair return and what constitutes a reasonable profit and the rest. Now, is that the direction in which you want to go? Henderson: That is not a general pattern. That would be a pattern only for an industry that was operating at full capacity and in which you have got this kind of differentiations in cost and profits, and you take in the one where we have made really an informal settle- ment, that is based entirely, not on the 252 - 26 - return, but on the fact that there is a surplus of capacity available, and it may constitute a precedent in similar industries, but we face this. As compared with the cost method of determination with the fixing of set margins such as they do in coal at the present time, I think this is much to be preferred. White: Well, but at any rate it is a very important novel step which the Government is under- taking to introduce into the field of pri- vate enterprise, the same criterion and the same considerations that apply in the field of public utilities, a fair rate upon a fair return. It is a very important step in that direction, and I am wondering whether-Hillman: Isn't there a difference, that you are making a decision here of how much the industry should absorb of an increase in labor costs? We are not assuming, you know, to regulate what happened before, so that you are not quite committed to that kind of a thing. As you are simply saying, here is a company under the old rules could increase the price with the increased labor costs, and you are asking them not to do it. Now, the earnings may be more than you would establish as a matter of public policy, but you are not entering into that because-- Henderson: We will be at that decision. Harry is right. We will be at that decision when it comes up in July as to whether - we will be up against their ideas of what a fair return is as against what ours might be in a price ceiling. I don't think that can be avoided. Rider: No, I don't either. I don't think you can 253 - 27 - avoid that. If you go into putting price ceilings, you can't avoid getting into that question. White: But I am wondering whether there may not be another approach. I am not sure whether you might avoid putting it on that basis by making it rather a bargaining proposition between you and the steel companies by not making it public what the basis of your decision is. Henderson: One thing I wanted to avoid is, where you have got a - two strong elements, and particularly where you have got a price leadership situation as you have here, I wanted to avoid getting in the middle in the bargain- ing. I almost got in there as it was just by raising questions which I thought are proper for a price unit to raise. On this coal thing-- Ayres: I am just wondering, Mr. Chairman, how you are going to arrive in the first quarter as to whether or not you can continue the plan which you have outlined here? I say, after trying it out for the first quarter. How are you going to arrive at whether or not you can continue that plan? What kind of an investigation are you going to make? Henderson: Before you leave, Mr. Knudsen, I would like just one thing. Let me get this thing here, and I will put this other one up while you are here. Can I get your (Ayres) idea on coal, about lifting our ban if they resume? Ayres: Yes. Wickard: Will you describe the ban, please? 254 - 28 Henderson: We fixed the price as of March 28 prices of all coal in the hands of miners, wholesale and retailers, and now we want to lift that ban if they go back to work. Wickard: You fixed the price as of March 28? Henderson: That was it, and we want to lift our ban. Wickard: Why are you lifting it? Henderson: Because they are going back to work. We only fixed it on account-- Wickard: Do you think coal will go down? Henderson: I don't know. It might go up. H.M.Jr: He says it will go up. Henderson: I think it will go up on account of the additional cost. Ginsburg: But it is a sick industry. Wickard: It is a what? Henderson: Not only that, it is Ickes' job to handle the question of what is the minimum price of coal. Rider: Does he have any authority to put the maximum price? Only the minimum. Henderson: Oh, yes, he has got the authority after about four months of investigation, and ours we can fix over night. How do you like that, Mr. Secretary. Wickard: It is all right, as far as I know. 255 - 29 - Henderson: How about it, Henry? H.M.Jr: I don't know enough about this, Leon. I would rather not - I mean, I just don't know enough about it. Henderson: Jesse? Jones: That is exactly the way I feel about it. I don't know enough to be intelligent about it. Henderson: All right, we will just make that kind of a record then. We have got one other one, and I will just outline it so that we can discuss it next week. That is automobiles, the question of-H.M.Jr: Is that why you wanted Mr. Knudsen to stay? Henderson: Sure. (Laughter) As I understand it, Knudsen has known for sometime there has got to be some shutting down of the automobile production, particu- larly for necessary materials and things like that, and he is probably in the middle of it and there are decisions that are probably going to be taken fairly soon-- Knudsen: Thursday. Henderson: On what that is to be. Now, we are interested from two standpoints, one of which is whether or not there is going to be an attempt to add an additional price to automobiles as a means of curbing the use of them, or whether there is - I want you particularly to hear this one. H.M.Jr: I am sorry. 256 - 30 Henderson: There is a proposal that I have heard that a recommendation has been made by one of the companies to the Federal Reserve Board for pressure as against consumer credit, which would compel the field - the shortening of terms by the finance companies and that would narrow the people, possible cus- tomers who could buy. It happens that I worked in that field, the consumer credit, for a great many years. I am convinced that unless it was a very elaborate scheme running clear back to everybody who loans money, that it wouldn't work, and I don't regard it as the ideal control method, and I don't suppose you (Knudsen) do. You would like to say, "This is how many you make," rather than-Knudsen: Yes. Henderson: I was worried about that, and I mean we have my successor from the Sage Foundation, Nugent, as our expert, and I think he advises the Federal Reserve, and I think he also works for your people, Jesse, in Commerce, and I wanted to say that we wanted to look into that because if there are going to be sug- gestions made as to control of consumer credit, they need to be gone into with great prayer and thoughtfulness rather than being adopted overnight, and I like the more direct approach. I think you (Knudsen) understand it pretty well, but I didn't know whether the rest of them did. Knudsen: I suppose I will have to make my peace with the Secretary of the Treasury. He wants to raise the excise tax and get the same amount of money on the same production. 257 - 31 Wickard: The question that you bring up then is the handling of credit, whether we want to touch that or not? Henderson: Yes. White: Leon, it would be very helpful wherever possible if you could notify the various members at least several days or more in advance of the specific topics that you are going to take up. Henderson: Before you came in, I suggested the appointment of a full time alternate who would know from talking wi th us. Knudsen: You will have to accept my apologies. I have to go and give a talk. You will pardon me? H.M.Jr: Sure. Henderson: Sure. Knudsen: Goodbye. (Mr. Knudsen left the conference.) Rider: There is no proposal on the price of automobiles, is there? Henderson: There is no proposal but last year, faced with the prospect that they might have in- creased cost and also might have a reduced volume, they increased them about three to four percent. I talked with Knudsen at that time, and we got no where mainly, I would say - there wasn't any good place to talk, and we didn't know the thing very well. I have looked into the situation since quietly, and when I get to talking on automobile 258 - 32 - prices I think I will know a little more. Wickard: What about new models? Henderson: Oh, new models - you have got - there is a whole series of questions that I would like to tell you about sometime when we have got more time, make that a topic for this group. Wickard: Well, I mean you can change the model a little bit and change your price, and you haven't got a comparable basis. Henderson: That is what makes it difficult to control, is the matter of price. On the other hand, if you get an understanding from the Automobile Manufacturers Association that that will not be done, then you can keep a control. H.M.Jr: Well, if you are going to get into this, be- fore this committee decides to do it, Leon, I would like to talk with you about it because that gets into the whole question of pools of capital and the Treasury position and the whole financing of the Treasury, so don't let that jell until you and I have a little talk, will you? Henderson: That is right. But this was more-- H.M.Jr: For instance, it gets into this whole question. I mean, if you need - you haven't got enough materials to go in the automobiles, that is one thing, whether you want them to continue to make automobiles. If you want to choke them off through credit. before you do it through the credit thing, I would like to have plenty of time to talk to you because that would go to FHA housing and as there are a million things that would go into, and if there is going to be a shortage of money, then I think the Treasury's financing program 259 - 33 comes first and we would like to be 51 percent in that picture. Henderson: Well, my reason for bringing it up today was-- Hillman: That is fair. (Laughter) Henderson: I had heard that there was a decision imminent, and I did not have it officially as I do now that it will be Thursday that they are going to talk about what the automobile volume will be next year. Rider: What? Henderson: Volume. And I also wanted to bring out into the open this rumor that I had heard of what the proposal had been and the proposal had emanated from the automobile companies and, as I know and as you people probably know, the handling of installment paper is a pretty delicate thing. When you attempt to regu- late the number of automobiles sold by terms on installment selling, it looks to me like the worst kind of way, and we couldn't get at it from the standpoint of holding the price in line. Rider: Henderson: Unless we turned to the old method of letting prices rise and cutting out the man who can't afford to buy. And I think Miss Elliott's division and certainly our Civilian Supply Division wants something to say about that. Hillman: If you think of the increase in earnings, that won't stop it. You will have to go directly to the root of the problem. Wickard: I don't believe I understood you. 260 - 34 Hillman: Increased income will not stop it. They will pay the additional cost and it won't get you any control. Jones: Do youhalf want each Department represented at least time? Henderson: Yes. Jones: A man half time with you? Henderson: Yes. Jones: And that is all you want of us today? Wickard: You want a price man? Henderson: As much as possible. I would like to have somebody familiar with your Departments who has access to you, to inform you as to what is going on. Jones: What you propose to do? Henderson: Yes, and we will set up the proper arrangement ourselves so that that is made easy for him. Wickard: You say you may call upon us for additional help of one kind or another? Henderson: That is right. We are already doing that. The Tariff Commission is making an investigation of costs of producing copper in upper Michigan. We are working with the Trade Commission on various things. We are working with the Treasury back and forth. Nearly every agency we have been getting some in- formal help from, and I would say that as we move further - for example, if we would have to fix something related to an agricultural 261 - 35 product, say a processed product, we would have to fix a price there, I would need some help out of you people on the administration of that. We are able to handle now the administration of a price-Wickard: H.M.Jr: Henderson: I think I would need help too. (Laughter) I was going to say, "It is the lame and the halt." Trouble comes, as some of the veteransknow. It isn't just fixing that price, it is making it stick, and in those secondary metals we have had pretty good luck. On the machine tool thing, for example, we have got two people. We have got the man that buys the second hand stuff-H.M.Jr: If you don't mind, I think you have given us enough to digest today. Wickard: Do you have any idea what time it will be for meetings? Weekly meetings? Henderson: I would like to have weekly meetings. Wickard: There will be one next week, I suppose. Henderson: Yes. Jones: Do you want a meeting when you have got an important decision to make? You do, don't you? Henderson: If it is highly important, I will let you know through your alternates. If it is just a reporting meeting where we report - I want us to report to you what we are doing. want you to know what is going on. I 262 - 36 Ginsburg: Jones: The meeting could be attended either by the alternate or the principal. I say we will want to know because it is the most important thing we have got. Henderson: Oh, it is very, very close to all of you. H.M.Jr: Why don't you set it temporarily, say, for 11 o'clock next Tuesday? Henderson: Eleven o'clock next Tuesday, and Mr. Ginsburg will act as secretary. 263 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1941 TO Secretary Morgenthau FROM Mr. Haas Subject: The price situation for fats and oils In response to your request, I am submitting herewith a memorandum on the fate and oils price situation, outlining the causes of the recent price increases and the domestic supply situations for individual commodities in this group. You will note that the importation of many important fate and oils is discouraged by high import duties and excise taxes, which in some cases are equal to the price of the commodity in the foreign producing area. The President's proclamation of March 27 put under export control (effective April 15) all animal and vegetable fats and oils, and oil-bearing raw materials. Coconut oil and copra had been placed under export control in the proclamation of March 4. Attachments 264 The Price Situation for Fats and Oils General remarks Commodities in the fats and oils group have been among the leaders in the sharp rise in prices of basic commodities that has been under way since early February. Principal causes of the price increases in this group have been: (1) A rise in consumer demand. (2) Difficulty of moving supplies of foreign oils from the Far East and other areas because of the shortage of ocean shipping. (3) A recent decline in lard production, the effect of which is accentuated by a prospective reduction of about 14 per cent in the spring pig crop. (4) Passage of the lend-lease bill, which is expected to require quantities of lard and perhaps other fats to be shipped to England. (5) Recent announcement by the Surplus Marketing Admini- stration of proposed open market purchases of butter, pork and other farm products. (6) Heavy buying of coconut oil, copra and lard by Japan and Russia during the past several months. (7) Increased speculative buying as indicated by an expanded volume of trading in the futures markets, and by an apparent increase in inventory accumulation. Extent of price advances The extent of the price increases among the more im- portant fats and oils is indicated on the attached Table 1, which compares recent prices with the August 1940 lows, and with the annual averages for 1938, 1939, and 1940. It may be mentioned that prices generally had become stabilized during 1938 and the first half of 1939, following the speculative excesses of 1937. In the summer of 1940, on the other hand, prices of some fats and oils were unduly depressed by an accum- ulation of world supplies, due to the closing of European markets. 265 -2Situations for individual commodities Tallow As shown on the attached Table 1, tallow prices have risen 107 per cent above the August 1940 low, a larger increase than shown by any other of the selected fats and oils. The most recent quotation of 7.25 cents a pound compares with annual averages in the past three years ranging from 4.60 cents in 1940 to 5.72 cents in 1938. A major cause of the rise in tallow prices has been recent heavy and persistent buying by large soap manufac- turers, apparently to build up inventories. Rising prices of coconut and palm oils used in soap making, and a threatened curtailment of imports because of shipping shortages, has caused a marked increase in the demand for tallow. Glycerine, a by-product of soap manufacture, is used in making explosives. Reported stocks of tallow in the United States are relatively large (see attached Table 2), amounting to 310,156,000 pounds on January 1, 1941, as compared with 248,811,000 pounds on that date in 1940, and 202,453,000 pounds in 1939. These include stocks held by manufacturers, in storage, and in transit. The next quarterly figure (as of March 1) will shortly be issued by the Bureau of the Census. Argentina is a large producer of tallow as a product of its cattle and sheep industries. The substantial quantities of tallow normally exported by Argentina are indicated by the attached Table 3, which shows exports of beef and mutton tallow for the three years 1938, 1939, and 1940. Exports for January and February 1941, given in the table, show a large decline from those in the corresponding months of the previous year. This may indicate that stocks of tallow are accumulating in that country. Tallow was one of the products under consideration in the proposed trade agreement with Argentina. The importation of tallow into the United States from Argentina and other countries is restricted by almost pro- hibitive tariffs on imports. An import duty of 1 cent a pound and an excise tax of 3 cents a pound on imports (listed in Table 4), together amount to about one-half of the present domestic price of tallow. 266 3- The removal of both the above-mentioned levies would approximately double the price which could be paid for im- ported tallow landed in the United States. Very little revenue would be lost by such action, judging from the fact that the combined import duty and excise tax on our imports of tallow during the calendar year 1940 amounted to only $47,950. United States imports of tallow in 1940 (see Table 5) amounted to 1,370,000 pounds. Of this amount, 577,000 pounds came from Canada, 428,000 from Argentina, 319,000 from New Zealand, and 45,000 from Australia. Palm oil Despite an 89 per cent increase in the price of palm oil since last August, as shown in Table 1, the price has not yet reached the average price of any of the past three years. Palm oil is largely used in soap making, and is imported chiefly from the Netherlands Indies, the Belgian Congo, and Nigeria. It 18 duty free, but subject to a 3-cent processing tax, except for the exemption of palm oil used in tin plating. Stocks of palm oil in this country on January 1 were moderately heavy. (See Table 2.) In recent months the shortage of ocean shipping, causing a prospective curtailment of imports from the Netherlands East Indies, has been a bullish price factor. Lard A 60 per cent increase in lard prices since last August has carried them substantially above the average prices in 1939 and 1940, but not as high as the 1938 average. The price increase has occurred despite an accumulation of lard stocks in this country to the highest figures on record. Stocks of lard in storage on March 1 (see Table 2) reached the record figure of 325,842,000 pounds, which compares with the relatively high figure of 256,640,000 pounds a year earlier, and substantially smaller figures in previous years. Recent bullish price factors for lard include: (1) A decline in hog marketings during the early part of this year, with a corresponding decline in lard production. 267 (2) The prospect of further declines in lard production next fall and winter, due to a prospective reduction of about 14 per cent in the spring pig crop. (3) The probability of heavy under the lend-lease act.lard shipments to England (4) Heavy buying by Japan during the past several months. Current press reports mention that a train of 100 carloads of lard, bought by Japan, will move shortly from Chicago to the Pacific Coast. (5) Recent announcement that the Surplus Marketing Administration proposed to buy pork in the open market at prices above those currently prevailing. Olive oil The price of this product (see Table 1) has risen 60 per cent since its August low to a level substantially above the averages in any of the previous three years, chiefly be- cause of the virtual elimination of Italy as a source of supply. The demand has consequently been diverted to other vegetable oils, helping to raise prices of those products. Stocks of olive oil at the beginning of the year (see Table 2) were unusually heavy. Cottonseed oil A rise of 58 per cent in the price of cottonseed oil since the August low (see Table 1) has carried it sharply above the average levels of the previous three years. Speculative activity in this commodity has apparently expanded sharply, since the volume of futures trading in cottonseed oil during March substantially exceeded the previous record volume established in December 1936. Domestic stocks of cottonseed oil at the beginning of the year (see Table 2) were noticeably below those of the previous two years, and in fact were the lowest for that date since 1937. A further bullish factor is the possibility of a reduction in the cotton crop this year by Government effort to 11 million bales or less, whereas the normal con- sumption of cottonseed oil requires a crop of around 12 million bales. 268 -5Soybean oil The price of soybean oil (Table 1) has risen 44 per cent since its August low, and the current price exceeds the average prices in any of the past three years. In addition to the general bullish factors affecting prices of all fats and oils, the price of soybean oil has been strengthened by an indicated reduction in the domestic acreage of soybeans for commercial uses this year. The production of soybeans and soybean oil in this country has expanded rapidly in recent years, and this oil has become a leading competitor of cottonseed oil in the edible oil markets. About 90 per cent of our production goes into food uses. While stocks of soybean oil at the beginning of the year (Table 2) were at a new record high for that date, this partly reflects the rising trend in consumption. Some soybean oil has in past years been imported from Japan, Kwantung, and the Netherlands. Coconut oil The price of coconut oil has risen 30 per cent above its August 1940 low, and is now selling substantially above the average levels of the past three years. (See Table 1) Practically all of the United States supplies of coconut oil come from the Philippine Islands (largely because of the preferential processing tax), either as oil or as copra, from which the oil is extracted. It is also produced in other countries of the Far East and in Africa. The price of coconut oil has been strengthened over the past several months by heavy Russian and Japanese buying of oil and copra in the Philippine Islands, and by the curtailment of shipments to the United States because of the shipping shortage. Russia, earlier in the year, is reported also to have bought coconut oil heavily on the Pacific Coast. Stocks of coconut oil in the United States at the beginning of the year were at an unusually high level. (See Table 2). Linseed oil and tung (chinawood) oil The demand for these two oils, used largely in paints and varnishes, has been strengthened by the building boom associated with the defense program. Supplies on the other hand, have been restricted by the shortage of ocean shipping which has interfered with imports of flaxseed from Argentina, and by a sharp decline in receipts of tung oil from China. The result has been 269 -6a 25 per cent increase in the price of linseed oil since the August 1940 low, and a 13 per cent increase in the price of tung oil, carrying both above the average prices in any of the previous three years. Roughly one-third to one-half of our total consumption flaxseed is produced in the United States. The rest is usually imported almost entirely from Argentina, but during of the past year an appreciable quantity has also come from Uruguay. The import duty of 65 cents a bushel is about equal to the present price of flaxseed in Argentina.. (May futures in Buenos Aires on April 10 were 69-7/8 cents; in Minneapolis, $1.86.) Stocks of linseed and tung oil in the United States at the beginning of this year were about normal. (See Table 2). Butter A rise of 20 per cent in butter prices since last August, while partly due to seasonal influences, has carried prices above any monthly average for this time of year since 1937. Butter prices have been strengthened by the rise in consumer purchasing power, and more recently by the proposed plan of the Surplus Marketing Administration to buy butter in the open market around current levels, which would operate to prevent the normal spring and summer price decline. Unusually low stocks of butter (see Table 2) have also been a bullish influence. On the other hand, it seems likely that the production of dairy products this year may establish a new high record. Milk production, which established a record in 1940, was at a new high level on March 1 this year, about 3 per cent higher than on the same date last year. Peanut oil The price of peanut oil shows the least rise of any of the major products in the fats and oils group, having gained 15 per cent since the August low. A depressing price influence has been the unusually heavy domestic production of peanut oil last year, which resulted in a record accumulation of stocks at the beginning of 1941. (See Table 2). 270 Table 1 Prices of selected fats and oils (Cents per pound) : : : : : 1 2 : : Tung oil, N. Y. 107 60 58 20 Percent increase 1 5.7 5.4 2.25 4.25 89 26.0 26.3 32.0 31.33 50.00 60 8.4 7.6 7.6 6.62 9.50 44 7.65 6.85 6.25 7.50 9.75 30 9.1 9.3 9.7 8.50 10.60 25 10.2 13.5 9.4 21.0 8.8 8.50 25.75 edible, N. Y. Linseed oil, ref., N. Y. 7.25 8.50 8.45 31.75 6.1 Coconut oil, raw, N. Y. Peanut oil, 3.50 5.30 5.35 26.50 Annual averages : :August: : 1940 April 4, low : 1941 1938 :1939 :1940 Palm oil, Sumatra, N. Y. Olive oil, edible, N. Y. Soybean oil, ref., N. Y. 4.60 6.03 6.18 28.69 increase 1 1941 low : : quotations : Butter 5.55 6.92 6.59 25.31 :1940 : : Cottonseed oil :1939 : Lard Agriculture 1938 5.72 8.67 7.93 27.10 Tallow Department of Annual averages : :August: 1940 : April 9, : Percent : BLS quotations 26.3 Increase over August 1940 low. March 28, 1941. 9.75 29.00 2 15 13 271 Table 2 Stocks of selected fats and oils as of January 1 (In thousands of pounds) 1939 Butter Coconut oil Cottonseed oil Lard Linseed oil Olive oil, edible Palm oil Peanut oil Soybean oil Tallow Tung oil 128,770 216,570 783,324 107,421 141,803 4,950 150,650 27,557 76,709 202,453 61,189 1940 1941 55,462 191,022 777,179 162,105 142,457 8,827 41,497 257,997 669,459 294,069 153,820 133,432 154,686 43,179 94,524 21,266 71,562 248,811 31,400 9,947 310,156 57,128 Stocks of butter and lard as of March 1 (In thousands of pounds) Butter Lard 92,780 125,281 18,366 256,640 16,520 325,842 Source: Butter and lard from Agricultural Marketing Service; others from Bureau of the Census. 272 Table 3 Tallow Exports from Argentina (In thousands of pounds) Beef Tallow Mutton Tallow 1938 50,754 791 1939 80,849 1,054 1940 54,062 879 Year Month 1940 - January February 1941 - January February 7,172 8,642 1,225 4,172 - - 344 143 Source: Argentina, Ministerio de Hacienda, Direccion General de Estadistica de la Nacion 273 Table 4 Duties and taxes on imported fate and oils Butter 14d per pound duty Coconut oil 2% per pound duty, plus 30 per pound processing tax on imports from the Philippine Islands or other possessions of the United States, or Cottonseed oil 50 per pound processing tax on other importe 30 per pound duty Lard 3d per pound duty Linseed oil 434 per pound duty (Flaxseed, 65% per bushel duty) Olive oil Inedible Duty free Edible 8% per pound duty (packages under 40 pounds) 614 per pound duty (packages 40 pounds and over) Palm oil Duty free, 3d per pound processing tax (Use for tin plating exempt) Peanut oil 44 per pound duty Soybean oil 314 per pound duty, but not less than 45% ad val. Tallow, edible and inedible # per pound duty, plus 30 per pound excise tax Tung oil Duty free Table 5 Imports of selected fate and oils for domestic consumption January 1940 to date (In thousands of pounds) Tung Year and :Coconut: Cotton- Linseed: Olive : Palm :Peanut:Soybean: Tallow oil oil oil : oil oil oil oil :seed oil: month : 34,266 110 May 34,977 18,150 June 26,729 July August September October November December Total 36,659 - - - - 3 275 1 2,748 - 26,286 21,684 135 36,157 34,412 40,224 2,637 370,683 12,030 502 - 1 - - - 4 4 10 1941 January February 22,157 32,207 - - Source: Department of Commerce. 4 11 3,599 15,730 8,104 5,061 9,557 13,277 12,408 8,607 6,175 3.729 6,786 4,107 2,689 14,156 14,936 14,895 23,201 19,475 24,804 51 19 125 417 311 703 619 222 1,343 2 16,158 7,262 8,886 1,279 8 1,372 235 11,862 8 14,874 18,721 9,941 1,884 4,414 428 10 - 97 5 286 4 97 5 14,312 12,082 16,239 104 9 150 2,063 187 272 121 84,099 225,035 3,120 4,849 1,370 1,444 24,021 107 1,976 24,646 27,522 27,683 63 48 - - : March April : 5,620 - - : 34,899 26,240 January February : 1940 3 - 5 456 1,312 - 180 97,049 959 76 275 April 14, 1941 Jesse Jones gave me this at the 11 o'clock meeting today. Given to the Secretary by Mr. Jesse Jones 4/14/41. 276 (COPY) April 14, 1941 MEMORANDUM. The British American Tobacco Company holds notes of the Brown and Williamson Tobacco Corporation of $10,500,000 and preferred stock $4,000,000. It proposes to sell to the Brown and Williamson Tobacco Corporation all of the common stock of the Export Leaf Tobacco Company, a Delaware Corpora- tion, and all of the preferred stock of Smith Paper, Inc., a Delaware Corporation, for $5,500,000. The RFC could lend these three items, which aggregate $20,000,000. The money would in that way be made available to the British American Tobacco Company and the dollars re- captured by the British. The Brown and Williamson Tobacco Corporation also owes the Guaranty Trust Company of New York $15,000,000. With this consummated they would owe a total of $35,000,000, $20,000,000 to the RFC and $15,000,000 to Guaranty Trust. The RFC would hold the note of Brown and Williamson Tobacco Corporation and would require all of the capital stock to be pledged with us so as to make it entirely within our con- trol until their debt to us and the Guaranty Trust is paid. I understand it to be the opinion of Brown and Williamson Tobacco Corporation officials that $35,000,000 is about as much as they could get for the property on forced sale, and possibly more. My own opinion is that we could, if necessary, lend them $25,000,000 instead of $20,000,000. That would give the British that much additional money with which to meet their commitments for purchases in this country. 277 April 14, 1941 12:27 p.m. H.M.Jr: Hello. Operator: Cochran. H.M.Jr: Merle. Merle Cochran: Yes, Mr. Secretary. H.M.Jr: C: Would you get in touch with Sir Frederick Phillips and ask him if he knows yet what he thinks he can get for Brown and Williamson if he sold it outright? I see. What they could get if they sold it outright. H.M.Jr: Yes. I mean, sold the control of the business. In other words, if the British- American Tobacco Company sold their stock in Brown and Williamson, do they know yet what they could get for it. C: I see. H.M.Jr: Not going through the R.F.C., you see. C: H.M.Jr: Yes. Not going through the R.F.C. No, if they went to private bankers. C: All right. H.M.Jr: And if he knows, let me know. C: All right. I have a letter this morning from Sir Edward Peacock that gives that memo which he promised to send down. H.M.Jr: All right. You hold it. C: You don't want it yet. H.M.Jr: I don't want you until I have a breathing spell. 278 - 2Cochran: Beg pardon? H.M.Jr: Ask Stephens to give you an appointment C: All right. Fine. But I'll get this now. whenever I have fifteen minutes free. 279 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 14, 1941 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL At 12:30 this noon Admiral Noyes telephoned me that the ship from South Africa is at Tompkinsville at 1 p.m. on Wednesday, April 16. It was agreed that he would escertain how long it would take the ship to arrive alongside at Brooklyn Navy Yard, since I expressed the hope that the cargo could be unloaded the same afternoon. It as been our effort in previous cases to discharge the cargo before the men were peritted to have shore leave, and the Commanding Officers have found it difficult to reuse shore leave to their men once the ship is alongside. Admiral Noyes was to find bether the tides would permit arrival along a schedule such as we desire. tue At 3:30 this afternoon the Admiral telephoned me back that the tide would permit cassage from Tompkinsville at 13:42 o'clock on Wednesday, April 16. He figured this would permit the ship to be alongside at 2 o'clock. He informed me that the Acting Commandant at the Navy Yard is Captain McKittrick, and that the Federal Reserve officers should get in touch with this officer at the appropriate time, as in previous cases. I told the Admiral I would check with the Federal Reserve Bank at New York to see that we ad sufficient facilities available to accept the cargo in the event that the arrival la Brooklyn is around 2 p.m. I reached Mr. Knoke on the telephone shortly after 4 o'clock this evening and gave in the above information with the request that he call me back yet today, in order that I may pass word to Admiral Noyes who would like to be able to despatch a message his ship tonight indicating that the arrival should be speeded up sufficiently to ermit the above outlined schedule to be met. Mr. Knoke phoned me back at 4:35 p.m. It had not been possible to get in touch with Mr. Lynch, as the Assay Office was closed. Mr. Knoke and I agreed, however, that It was entirely feasible to take off the cargo if the ship arrives around 2 o'clock. Consequently I telephoned this to Admiral Noyes at 4:45 p.m. The latter said that he ould immediately send an appropriate instruction to the Commanding Officer. I told Mairal Noyes further that Mr. Peter Lang would be the Federal Reserve Bank official the would take charge of the carge on arrival. The Admiral asked that the Federal have ang identify himself to Captain McKittrick. In agreement with the Admiral I called Commissioner of Customs Johnson at 4:50 p.m. told him that the U. S. Cruiser Vincennes was arriving at the Brooklyn Navy Yard round 2 o'clock on Wednesday, April 16, and that we desired to land secretly a cargo taken him that the a o he be to the of Assay Office.giving I told the Treasury write formal Department Commerce details would of the cargo, so thatletter no Customs to atry should be required. I asked Johnson to attent to any Customs problems and also o the usual pratique. The Commissioner said he might have his confidential man on the pier, not to interfere, but to keep anyone else from interfering with the discharge and handling of the cargo. HMP 280 APR 14 1941 MEMORANDUM To: Mr. Harry Hopkins From: Oscar Cox Subject: Lend-Lease Aid for Exile Governments. Lt. Col. Greenbaum has an idea which may be of some psychological value. The idea is for the President, for example, to call together the representatives of the exile Governments of Norway, Holland, Belgium, Poland, Denmark, etc., to announce that these Governments are receiving LendLease aid. The defense articles so supplied would doubtless be integrated into the British war effort, and it would make little--if any--net difference in the amount of mate- rial aid received by Britain. At the same time, this action might well stiffen the morale of the peoples in these countries. 281 THE WHITE HOUSE WASHINGTON April 14, 1941 Dear Mr. Secretary: Thank you for your letter of March 12th concerning the operations of the Liaison Committee for the coordination of foreign and domestic military purchases. I would like to thank this committee for the work which it has done in the past year, and may I express my ap reciation to you for your sincere and continuous efforts to make war materials available to those countries defending themselves against engressor nations. The work of the Liaison Committee as a coordinating body for foreign and dumestic military purchases is no longer useful since the signing of the Lend-Lease Act and will be dissolved. Purchasing operations by all countries in the Lend-Lease area will be supervised by Harry Hopkins, and such operations by all other countries which must necessarily involve consideration of foreign policy will te processed by the Department of State. Sincerely yours, The Honorable, The Secretary of the Treasury. 282 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1941 TO Mrs. Klotz FROM Mr. Morgenthau Please see that I get in touch with Senator Glass tomorrow, Tuesday, and ask him when he will give me a hearing. I mentioned to the President at lunch today that I was going to testify on the bank holding company bill and, much to my surprise, he seemed pleased. In Phone concernation at 11:34 on 4/15/41 with Sen. glass - 283 4/14/41 Original of this given to the President today by HM,Jr. The President was tremendously interested and said he was going to use it at his press conference. 284 April 11, 1941 KEMORANDOM TO THE SECRETARY: Negotiations have been concluded for the purchase of the first list of equipment and supplies for the British Purchasing Compission, as detailed on the attached sheet. As reported to you orally the remaining items on the list furnished by the British Purchasing Commission have been withdream We have received further requisitions for which purchases will be negotinted promptly upon receipt of priority and production clearances from the Office of Production Management. A requisition for 1,000 rolls of netal screening, specifying shipment from New York April 13, is now in process. The purchase of the supplies for Greece and Yugoalavia will be made upon receipt of notification of allocation of funds which matter is now before the Bureau of the Budget. Clifton E. Mack, Director of Procurement. Att. CKN/ejw 285 LIST OF EQUIPMENT AND SUPPLIES FOR THE BRITIS GOVERNER COMMODITY Spare Parts for Road Rollers CHANTIST 200 Sets AMOUNT $ 62,008.71 CONTRACTOR Huber Mfg. Co. 170 80,750.00 Standard Steel Works Spare Parts 80 208,376.80 Lancaster Iron Works Stone Heaters 20 36,380.00 Bituminous Tar Kettles Bitumon Paddle Mixers and Stone Crushers and Spare Parts Chipping Granulators and Spare Parts White Mfg. Co. 120) 423,506.16 Diamond Iron Works, Inc. 15) Bituminous Distributors 6 18,930.00 Portable Air Compressors 50 108,250.00 Worthington Pump & Nachiaary Corp. 250,249.43 Caterpillar Tractor Co. 123,550.46 Caterpillar Tractor Co. Tractors 32) Graders 11) Tractors 13) Graders 6) Tractor Winches 18 Road Graders 18) Tractors 36) 29,520.00 E. D. Stayre Co. Willimette Hyster Go. 126,124.50 Caterpiller Tractor Co. Hewist Rubber Co. Fire Hose 600,000 Ft. 210,000.00 Fire Hose 250,000 Ft. 87,500.00 Quaker Rubber Corp. Fire Hose 50,000 Ft. 17,500.00 Whitehead Bros. Rubber Co. $1,784,616.06 286 Laira Copy APR 14 1941 Sir: X attach herewith an original and use copy of a proposed bill, the purposes of which are to extend to all Government agencies engiged in defense purchasing authority similar to that which the Bar end Bavy Departments already have fee the negotiation of w fance extracte, and to breeden correspondingly the authority to assign priorities to such contructs. There are also attached original and - copy of the Letters of transmitted to Congress. Secretary Borgenthes has discussed this proposed legisin- tion personally with the President - has indicated that 10 has his appearal and has instructed that 14 be transited to Congress through your Bareas is occurdence with established proceture. Very twelty yours, Assistant to the Secretary. The Director, Dureas of the Beiger. are 4/9/41. 287 EXTRA COPY April 21, 1941 Sir: I transmit herewith a draft of a proposed bill, the purposes of which are to extend to all Government agencies the authority to enter into contracts without advertising OF competitive bidding when it is in the interest of national defense, and to broaden 001-> respondingly the authority to assign priorities to such contracts. To date the legislation on negotiated contracts and statutory priorities for defense purposes has been enasted piccaneal and differe in its appliestion. While the War and Havy Departments have rather substantial, though different, powers in these n spects, the other agencies of the Government parti- cipating in the defense program have little or no power to negotiate contracts OF obtain priorities. The existing statutory provisions on both subjects as regards contracts and orders of the War and Havy Departments are contained in Section 2 of the Act of June 28, 1940 (Public, No. 671, 76th Congress), and Section 1 of the Act of July 2, 1940 (Public, No. 708, 76th Congress). The enclosed 288 draft has been dream along similar lines. The life of the bill would be limited, however, to the period ending June so, 1948. The draft bill has been so fremed that its provisions will be supplementary to, and not in lieu of, other provisions of law authorising priorities or the negotiation of contracts. It would seen particularly desirable at this tim, in view of the heavy lead of defense purchasing, to facilitate as for as possible the participation of other experienced and well-equipped agencies, such as the Procurement Division of this Department, in the program The Land-Lease Act, under which any deporto meat OF agency may be designated to perform procurement, affords an example of the greatest present consequence. without the - opportunity that the War and Newy Departments now have to obtain compulsory priorities, however, and without being frood from the doubts that would otherwise be present as to the applicability of the competitive bidding requirement of Section 8709 of the Revised Statutes, as assessed (U.S.C., title 41, m 5), it may be questioned mother other agencies are in a position to do the job effectively. Legie- lation along the lines proposed therefore - to to be necessary to clear the way for & more equitable 289 and more efficient distribution of defense purchasing. In exempting the War and Navy Departments, and in certain more limited exemptions applicable to defense procurement by other agencies, the Congress has already recognised that the competitive bidding procedure POO quired generally by Section 8709 of the Revised Statutes is markable and inappropriate as regards defence purchasing. There have been a number of obvious reasons for this. First and most Important is the need for speed, not attainable under the standardised competitive bidding procedure. Second, and applicable to a substantial part of the defense program, is the need for getting any from the full publicity which attends competitive bidding. A third factor, which is becoming increasingly important, is the volume of purchasings with respect to an increasing number of articles and commodities the purpose of Section 8709 of the Revised Statutes to extend to all qualified concerns as opportunity to obtain Devirement business through open competitive bidding has last its force as applied to present conditions. As to such articles and commedities the present problem is more one of utilising to the fullest possible extent the entire productive especities of the industries concerned, and of controlling and coordinating Government desends so that industry can meet them. Section 8709 of the 290 Revised Statutes presupposes a normal competitive market and under present conditions would undoubtedly operate more to the detriment than to the benefit of the Government if retained in full force as to defense purchases. I believe that legislation of the character of the attached draft bill is necessary to the peoplet and effective carrying out of the defense program, and I, therefore, recommend it to the favorable con- sideration of the Congress. I have discussed this proposed legislation with the President of the United States, and he has advised me that it has his approval. It will be appreciated If you will lay the attashed bill before the Senate. A similar comminication has been transmitted to the Speaker of the House of Representatives. Very truly yours, The President of the Senate. (signed) H. Morgenthan, Jr. Secretary of the Treasury. 291 A BILL To authorise the heads of the various departments and agencies of the United States to enter into contracts without advertising or competitive bidding when it is in the interest of the national defense, to authorise the President to give priority to deliveries under such contracts, and for other purposes. Be it enacted by the Senate and House of Represents- tives of the United States of America in Congress assembled, That, whenever he doess it in the interest of the national defense, the head of any department OF agency of the United States may enter into contrasts (which he is otherwise authorised to enter into by or pursuant to law) without advertising OF competitive bidding. No contract which would otherwise be subject to the provisions of the Act of June 30, 1986, 49 Stat. 2036 (U.S.C., Sup. v, title 42, seec. 85-45) shall be exempt from the provisions of such Act solely because of being entered into without advertising or competitive bidding pursuant to this section. The cost system of contracting shall net be used under this section, but this shall not be construed to prohibit the use of the form of contract when such use is deseated necessary by the head of the department OF agency involved. The head of any department OF agency involved. is authorised to exercise the authority conferred en him by this section through 292 any officer of his department OF agency. SEC. 2. Delivery under any contract entered into without advertising OF competitive bidding pursuant to section 1 of this Act shall, in the discretion of the President, take priority over all deliveries for other public account, for private account, OF for export. The President is authorised to exercise the authority conferred on his by this section through such officers OF agencies of the Government as may be designated by his for that purpose. SEC. s. The head of each department OF agency shall report every three months to the Congress the contracts entered into by his department or agency without aivertising OF competitive bidding pursuant to section 1 of this set. SEC. 4. This Act shall be supplementary to, and not is lieu of, all other provisions of law authorising you orities or authorising officers of the United States to enter into contracts without advertising OF competitive bidding. SEC. 5. The authority conferred by this Act shall terminate June so, 1948. 293 A BILL To authorize the heads of the various departments and agencies of the United States to enter into contracts without advertising or competitive bidding when it is in the interest of the national defense, to authorise the President to give priority to deliveries under such contracts, and for other purposes. Be it enacted by the Senate and House of Represents- tives of the United States of America in Congress assembled, That, whenever he doens it in the interest of the national defense, the head of any department OF agency of the United States may enter into contracts (which he is otherwise authorised to enter into by OF pursuant to law) without advertising or competitive bidding. No contract which would otherwise be subject to the provisions of the Act of June 30, 1986, 49 Stat. 2086 (U.S.C., Sup. v, title 41, sees. 35-45) shall be exempt from the provisions of such Act solely because of being entered into without advertising OF competitive bidding pursuant to this section. The costsystem of contracting shall not be used under this section, but this shall not be construed to prohibit the use of the sent-plus-e-fixed-200 form of contract when such use is deemed necessary by the head of the department or agency involved. The head of any department OF agency involved. is authorised to exercise the authority conferred on him by this section through 294 -2any officer of his department or agency. SEC. 2. Delivery under any contract entered into without advertising or competitive bidding pursuant to section 1 of this Act shall, in the discretion of the President, take priority over all deliveries for other public account, for private account, or for export. The President is authorised to exercise the authority conferred on him by this section through such officers or agencies of the Government as may be designated by him for that purpose. SEC. 3. The head of each department OF agency shall report every three months to the Congress the contracts entered into by his department or agency without advertising or competitive bidding pursuant to sestion 1 of this Act. SEC. 4. This Ast shall be supplementary to, and not in lieu of, all other provisions of law authorising priorities or authorising officers of the United States to enter into contracts without advertising OF competitive bidding. SEC. 5g The authority conferred by this Act shall terminate June so, 1948. 295 EXTRA DORE April 21, 1941 Sir: I transmit herewith a draft of a proposed bill, the purposes of which are to extend to all Government agencies the authority to enter into contracts without advertising OF competitive bidding when it is in the interest of national defense, and to broaden cor- respondingly the authority to assign priorities to such contracts. To date the legislation on negotiated contracts and statutory priorities for defense purposes has been enacted piecemeal and differe in its appliestion. While the War and Navy Departments have rather substantial, though different, powers in these respects, the other agencies of the Government parti- cipating in the defense program have little or no power to negotiate contracts OF obtain priorities. The existing statutory provisions on both subjects as regards contracts and orders of the War and Navy Departments are contained in Section 2 of the Act of June 28, 1940 (Public, No. 671, 76th Congress), and Section 1 of the Act of July 2, 1940 (Public, No. 703, 76th Congress). The enclosed 296 draft has been dream along similar lines. The life of the bill would be limited, however, to the period ending June so, 1943. The draft bill has been so framed that its provisions will be supplementary to, and not in lieu of, other provisions of law authorising priorities or the negotiation of contracts. It would seem particularly desirable at this time, in view of the heavy load of defense purchasing, to facilitate as for as possible the participation of other experienced and well-equipped agencies, such as the Precurement Division of this Department, is the program. The Lend-Lease Act, under which any depart= ment OF agency may be designated to perform procurement, affords an example of the greatest present consequence. Without the same opportunity that the War and Havy Departments now have to obtain congulsory priorities, however, and without being freed from the doubts that would etherwise be present as to the applicability of the competitive bidding requirement of Section S709 of the Revised Statutes, as menied (U.S.C., title 41, see. 5), it my be questioned whether other agencies are in a position to do the job effectively. Legislation along the lines proposed therefore seens to as to be necessary to clear the way for a more equitable 297 8 and more efficient distribution of defense purchasing. In exempting the War and Havy Departments, and in certain more limited exemptions applicable to defense procurement by other agencies, the Congress has already recognised that the competitive bidding procedure required generally by Section 3709 of the Revised Statutes is unworkable and inapprepriate as regards defense purchasing. There have been a number of obvious reasons for this. First and most important is the need for speed, not attainable under the standardised competitive bidding procedure. Second, and applicable to a substantial part of the defense program, is the need for getting away from the full publicity which attends competitive bidding. A third factor, which is beeoning increasingly important, is the volume of purchasings with respect to an increasing number of articles and commodities the purpose of Section 8709 of the Revised Statutes to extend to all qualified conserns an opportunity to obtain Government business through open competitive bidding has lost its force as applied to present conditions. As to such articles and commodities the present problem is more one of utilising to the fullest possible extent the entire productive capacities of the industries concerned, and of controlling and coordinating Government demands so that industry can meet them. Section 3709 of the 298 ... Revised Statutes presupposes a normal competitive market and under present conditions would undoubtedly operate more to the detriment than to the benefit of the Government if retained in full force as to defense purchases. I believe that legislation of the character of the attached draft bill is necessary to the proupt and effective carrying out of the defense program, and I, therefore, recommend it to the favorable can- sideration of the Congress. I have discussed this proposed legislation with the President of the United States, and he has advised - that it has his approval. It will be appreciated If you will lay the at tached bill before the Senate. A similar communication has been transmitted to the Speaker of the House of Representatives. Very truly yours, The President of the Senate. (signed) E. Morgenthaus Jr. Secretary of the Treasury. 299 A BILL To authorise the heads of the various departments and agencies of the United States to enter into contracts without advertising or competitive bidding when it is in the interest of the national defense, to authorise the President to give priority to deliveries under such contracts, and for other purposes, Be it enacted by the Senate and House of Represents tives of the United States of America in Congress assembled, That, whenever he doens it in the interest of the national defense, the head of any department OF agency of the United States may enter into contracts (which he is otherwise authorised to enter into by OF pursuant to law) without advertising OF competitive bidding. No contract which would otherwise be subject to the provisions of the Act of June 80, 1986, 49 Stat. 2086 (U.S.C., Sup. v, title 41, sees. 35-45) shall be exempt from the provisions of such Act solely because of being entered into without advertising OF competitive bidding pursuant to this section. The costsystem of contracting shall not be used under this section, but this shall not be construed to prohibit the use of the fora of contract when such use is deemed accessary by the head of the department or agency involved. The head of any department OF agency involved. is authorised to exercise the authority conferred on him by this section through 300 2. any officer of his department or agency. SEC. 2. Delivery under any contract entered into without advertising OF competitive bidding pursuant to section 1 of this Act shall, in the discretion of the President, take priority over all deliveries for other public account, for private account, or for export. The President is authorized to exercise the authority conferred on his by this section through such officers or agencies of the Government as may be designated by his for that purpose. SEC. S. The head of each department or agency shall report every three months to the Congress the contrasts entered into by his department OF agency without advertising OF competitive bidding pursuant to sestion 1 of this hot. SEC. 4. This Act shall be supplementary to, and not in lieu of, all other provisions of law authorising priorities OF authorising officers of the United States to enter into contracts without advertising OF competitive bidding. SEC. 5. The authority conferred by this Act shall terminate June so, 1943. 301 see meeting in Deep office +110 at 4:15 pen. April 14, 1941 The President said that HM,Jr should talk with Colonel Knox about this at lunch tomorrow and see if he can settle it. 1 COPY 302 THE WHITE HOUSE Washington April 1, 1941 CONFIDENTIAL MEMORANDUM FOR THE SECRETARY OF THE TREASURY To speak to me about. F.D.R. Enclosure. 303 COPY NAVY DEPARTMENT Office of the Chief of Naval Operations WASHINGTON reply refer to itials and No. 17 March 1941 Op-10 Hu NFIDENTIAL MEMORANDUM FOR THE SECRETARY The Coast Guard in time of war is taken over by the Navy and may be in time of peace when 80 directed by the President in an emergency. The plan is to have the Coast Guard continue its usual functions and administration through the Coast Guard Headquarters in Washington in liaison with the Navy Department. In this manner it will operate somewhat as does the Marine Corps. The Coast Guard district set-up has recently been revised to have the Coast Guard Districts correspond almost exactly with Naval Districts geographically. The Coast Guard District Commander will, when the Coast Guard is taken over by the Navy, report to the District Commandant and will work under the District Commandant, continuing to administer Coast Guard affairs as in peace time. The military control of the Coast Guard will, however, conform to Naval District requirements, and the Coast Guard Lighthouse Service vessels and Port Captains will be under the control of the Naval District Commandant. Port Captains will continue their existing functions so that they may discharge their duties as required under the Secretary of the Treasury, or their military duties as required under the District Commandant for the Secretary of the Navy. A plan to effect this has been made in cooperation with the Coast Guard. The Coast Guard will continue these functions which are discharged normally for the Treasury Department, as the duties of the Captain of the Port, for example, in policing harbors and assigning anchorages, exercise of control over the handling of explosives and com- bustibles, etc., in the harbors. In general the routine peace-time duties of the Coast Guard will continue to be performed by the Coast Guard under the direction of the Commandant of the Coast Guard with a minimum of change. (Initialled) H.R.S. F.D.R. This sounds o.k. to me. F.K. 304 April 14, 1941 TO: The President FROM: The Secretary of the Treasury The following embodies my understanding of your verbal instructions of this day with respect to the assignment of certain equipment and functions of the Coast Guard to the Navy: With the exception of those vessels which are especially adapted to use as ice-breakers, and with the exception of cutters needed for operations on the Great Lakes, the entire seagoing fleet of the Coast Guard together with the necessary personnel to man it will here- after operate as a part of the Navy under the Chief of Naval Operations. The normal operation and maintenance costs of the vessels of the Coast Guard which are to operate as a part of the Navy will be defrayed from Coast Guard appropri- ations. All major alterations and other unusual costs to fit the above ships for Navy service will be defrayed from Navy appropriations. If necessary, legislation is to be obtained to authorize this. Together with the operation of the present seagoing fleet of the Coast Guard the Navy will take over reresponsibility for (1) off-shore rescue and assistance work; (2) weather observation patrol; (3) Bering Sea and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality patrol. With the above exceptions the Coast Guard will retain its present organization, functions and equipment. 305 -2- The functions which the Coast Guard will continue to perform include the following: (1) All in-shore assistance work. (2) All merchant ship control and other duties performed by Captains of the Ports. (3) Operation, maintenance, repair, construction and development of lighthouses and other aids to navigation. (4) All duties on the Great Lakes normally falling within the scope of operation of the Coast Guard. (5) Ice-breaking in interior and coastal waters of the United States, including the Great Lakes. (6) Training of merchant marine and Coast Guard personnel. Equipment to be retained by the Coast Guard will include: (1) All present Coast Guard shore establishments. (2) All Coast Guard aircraft. (3) All other floating and shore equipment necessary to the performance of the functions listed above. "Seagoing fleet" as used above, is understood to include the followings Seven 327-foot cutters; four 240-foot cutters; seventeen 165-foot patrol boats; twenty 125-foot patrol boats, and the following unclassified seagoing cutters: UNALGA, TALLAPOOSA, NORTHLAND, REDWING, SHAWNEE. APPROVED: April . 1941. 306 April 14, 1941 The President FROM: The Secretary of the Treasury TO: The following embodies my understanding of your verbal instructions of this day with respect to the assignment of certain equipment and functions of the Coast Guard to the Navy: With the exception of those vessels which are 68pecially adapted to use as ice-breakers, and with the exception of cutters needed for operations on the Great Lakes, the entire seagoing fleet of the Coast Guard together with the necessary personnel to man it will here- after operate as a part of the Navy under the Chief of Naval Operations. The normal operation and maintenance costs of the vessels of the Coast Guard which are to operate as a part of the Nevy will be defrayed from Coast Guard appropri- ations. All major alterations and other unusual costs to fit the above ships for Navy service will be defrayed from Havy appropriations. If necessary, legislation is to be obtained to authorise this. Together with the operation of the present seagoing fleet of the Coast Guard the Navy will take over reresponsibility for (1) off-shere rescue and assistance work; (2) weather observation patrol; (3) Bering Sea and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality patrol. With the above exceptions the Coast Guard will retain its present organisation, functions and equipment. 307 -2- The functions which the Coast Guard will continue to perform include the following: (1) All in-shore assistance work. (2) All merchant ship control and other duties performed by Captains of the Ports. (3) Operation, maintenance, repair, construction and development of lighthouses and other aids to navigation. (4) All duties on the Great Lakes normally falling within the scope of operation of the Coast Guard. (5) Ice-breaking in interior and coastal waters of the United States, including the Great Lakes. (6) Training of merchant marine and Coast Guard personnel. Equipment to be retained by the Coast Guard will include: (1) All present Coast Guard shore establishments. (2) All Coast Guard aircraft. (3) All other floating and shore equipment necessary to the performance of the functions listed above. "Seagoing fleet" as used above, is understood to include the following: Seven 327-foot cutters; four 240-foot cutters; seventeen 165-foot patrol boats; twenty 125-foot patrol boats, and the following unclassified seagoing cutters: UNALGA, TALLAPOOSA, NORTHLAND, REDWING, SHAWNEE. APPROVED: April , 1941. 308 April 14, 1941 The President FROM: The Secretary of the Treasury TO: The following embodies my understanding of your verbal instructions of this day with respect to the assignment of certain equipment and functions of the Coast Guard to the Navy: With the exception of those vessels which are especially adapted to use as ice-breakers, and with the exception of cutters needed for operations on the Great Lakes, the entire seagoing fleet of the Coast Guard together with the necessary personnel to man it will hereafter operate as a part of the Navy under the Chief of Naval Operations. The normal operation and maintenance costs of the vessels of the Coast Guard which are to operate as a part of the Navy will be defrayed from Coast Guard appropri- ations. All major alterations and other unusual costs to fit the above ships for Navy service will be defrayed from Navy appropriations. If necessary, legislation is to be obtained to authorise this. Together with the operation of the present seagoing fleet of the Coast Guard the Navy will take over reresponsibility for (1) off-shore rescue and assistance work; (2) weather observation patrol; (3) Bering Sea and Alaskan patrol; (4) international ice patrol; (5) Greenland patrol; (6) transport and supply service to Pacific equatorial islands; (7) off-shore neutrality patrol. With the above exceptions the Coast Guard will retain its present organization, functions and equipment. 309 -2- The functions which the Coast Guard will continue to perform include the following: (1) All in-shore assistance work. (2) All merchant ship control and other duties performed by Captains of the Ports. (3) Operation, maintenance, repair, construction and development of lighthouses and other aids to navigation. (4) All duties on the Great Lakes normally falling within the soope of operation of the Coast Guard. (5) Ice-breaking in interior and coastal waters of the United States, including the Great Lakes. (6) Training of merchant marine and Coast Guard personnel. Equipment to be retained by the Coast Guard will include: (1) All present Coast Guard shore establishments. (2) All Coast Guard aircraft. (3) All other floating and shore equipment necessary to the performance of the functions listed above. "Seagoing fleet" as used above, is understood to include the following: Seven 327-foot cuttors; four 240-foot outters; seventeen 165-foot patrol boats; twenty 125-foot patrol boats, and the following unclassified seagoing cutters: UNALGA, TALLAPOOSA, NORTHLAND, REDWING, SHAWNEE. APPROVED: April , 1941. 310 April FROM: TO: , 1941 The President The Director of the Budget The Secretary of the Treasury Please see that the necessary steps are taken as promptly as possible to transfer to the Treasury Department and the Maritime Commission the present functions of the Bureau of Navigation and Marine Inspection of the Department of Commerce in accordance with the plan heretofore filed with the Bureau of the Budget and recommended by the Secretary of the Treasury, the Chairman of the Maritime Commission and the Chief of Naval Operations. 311 April a 1941 FROM: TO: The President The Director of the Budget The Secretary of the Treasury Please see that the necessary steps are taken as promptly as possible to transfer to the Treasury Department and the Maritime Commission the present functions of the Bureau of Navigation and Marine Inspection of the Department of Commerce in accordance with the plan heretofore filed with the Bureau of the Budget and recommended by the Secretary of the Treasury, the Chairman of the Maritime Commission and the Chief of Naval Operations. 312 April 14, 1941 3:23 p.m. H.M.Jr: Philip Hello, Philip. Young: Yes, sir. H.M.Jr: You called me? Y: Yeah. I just talked to Mrs. Klotz. H.M.Jr: Y: Have you seen her? I got the message. I didn't know there was anything else. I talked with her because I tried to get hold of you yesterday and you were out of town. I was going to drop over and chat for a moment with you because Oscar and I were both scared to death. Moving out in such a hurry we didn't want to hurt your feelings or take you by surprise or anything of that sort. H.M.Jr: Y: H.M.Jr: Y: I see. And this whole business developed very suddenly on Saturday and we just picked up the various parts of the lend-lease stuff and moved it on down to Federal Reserve. I see. I certainly didn't want to catch you by surprise or not have you know anything about it. H.M.Jr: Well, it seems sort of funny to have you Y: Well, I think it's awful. That's my feeling H.M.Jr: Well, I'11 try to work you in. I understand out. about it. you and Oscar want to see me sometime. Y: Well, we just wanted to sit down and chat with you and tell you what had developed in the last day or so and tell you what was going on. 313 -2H.M.Jr: Well Y: Anytime at your convenience in the morning H.M.Jr: Well, do you want to come at 10:00 tomorrow? Y: 10:00 tomorrow will be fine. H.M.Jr: Will you tell Oscar? Y: I will. H.M.Jr: All right. Y: Thank you. H.M.Jr: Good-bye. or 314 April 14, 1941 It was at this press conference on March 3rd that the Secretary gave birth to the name "Defense Savings Bonds". . 315 April 14, 1941. MEMORANDUM Mr. Graves TO: FROM: Mr. Schwarz @ The following is an excerpt from Secretary Morgenthau's press conference of March 3, 1941: Now can you talk about new financing, Mr. Secretary? Q. A. No. I just caught my breath. Give me a chance. Q. Not even savings stamps? A. Only that the organization is going ahead. They are working very hard, and I am working very hard on it, and I think by the end of the week we will know what we are going to offer. I think certainly we will by a week from today. We are working on the outlets, provision of places where we can put these defense savings bonds on sale. How do you like that for a name? Q. Defense Savings? A. Defense Savings Bonds. Q. A. It is O.K. I thought I would try it out on the Press. Q. Are you serious? A. I am serious, Q. I think it is good. 316 -2A. Defense Savings Bonds. Q. I would like to have No. 1. A. I think Mr. Roosevelt will get it. -00o- 317 April 14, 1941 Used by HM, Jr in news reel pictures (to be released Friday, April 18th) describing forthcoming sale of Defense Savings Bonds and stamps scheduled to begin May 1. 318 These Defense Savings Bonds and Stamps will be on sale at post offices and banks throughout the country beginning the first day of May. They will give us all a way to take a direct part in building the defenses of our Country -- an American way to find the billions needed for National Defense. The United States is today, as it has always been, the best investment in the world. This is an opportunity for each citizen to buy a share in America. 1st drack April 11, 1941. Suggestion for brief talk to newarsels. These Defense Savings Bonds and Stamps are offered to help to finance the National Defense Program. The Government must do more than find billions of dollars. It must find these dollars in a way that will best safeguard the Nation against the evils of inflation, and will give every American citisen an opportunity to take a direct part in the defense of his country. The smallest Defense Stamp is 10 cents. The largest Defense Bond is $10,000. Between these limits, we know that you can find the amount you want to invest. For $18.75 you can buy a Defense Bond at your post office or bank. After ten years, the Treasury will redeem this Bond for $25.00. Meanwhile, the money you pay for your Bond will be put to work in the National Defense program to protect the independence and safety of the United States. Thousands of Americans are asking us what they can do to help the Defense program. This is our answer. You can go to your post office or bank and make regular purchases of Defense Bonds and Stamps. 319 address april 12 194/320 These Defense Savings Bonds and Stamps are coming off our presses and are going on sale all over the country May 1. They are an American way to find the billions needed for defense, to guard against the evils of inflation and to provide for individual security. They give every one of us a chance to take a direct part in the protection of our country. The smallest Defense Stamp is 10 cents. The largest Defense Bond is $10,000. For $18.75 you can buy a Defense Bond at your post office or bank. After ten years, the Treasury will redeem this Bond for $25. Your neighbors and fellow-Americans by the thousands are asking what they can do to help. Reguler purchases of Defense Bonds and Stamps will put your money to work to strengthen and safeguard the United States. <000~ 321 These Defense Savings Bonds and Stamps will be on sale at post offices and banks throughout the country beginning the first day of May. They will give us all a way to take a direct part in building the defenses of our Country - an American way to find the billions needed for National Defense. The United States is today, as it has always been, the best investment in the world. This is an opportunity for each sitizen to buy a share in America. 322 will Gn on These Defense Savings Bonds and Stamps are coming Sale pack offices andall and banks beguning off ouratare going on eale over the country that They are an American way to find the billions national needed for defense to guard against the evile of inflation N May and to provide for individual Security, They give every one of us a chance to take a direct part in the protection of our country. The smallest Defense Stamp is 10 cents. The largest Defense Bond is $10,000. For $18.75 you can buy a Defense Bond at your post office or bank. After ten years, the Treasury will redeem this Bond for $25. Your neighbors and fellow-Americans by the thousands are asking what they can do to help. Regular purchases of Defense Bonds and Stamps will pu your money to ork to strengthen and safeguard the United States. -000- How about saying something about u 8. H. is Best Investment in the Vold and this is an offertionity or each citizen the "buy a share america. 323 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE APR 14 1941 Secretary Morgenthau Mr. Foley Obsolescence 1. The Treasury's severely criticized position that congressional legislation was needed to authorize amortization allowances has been sustained by the judiciary. On April 7, 1941 the Court of Claims unanimously decided that where the underlying reason for the abandonment and disposition of a plant is to save the extra operating cost of maintain- ing it, the manufacturer is not entitled to a deduction for extraordinary obsolescence. [S. S. White Dental Manufacturing Co. V. United States (414 CCH 19376)] 2. You will recall that Electric Boat and other armament manu- facturers claimed that prior to the enactment of the amortization provisions of the Second Revenue Act of 1940 you had ample authority to permit the cost of additional facilities required for the national defense program to be amortized over a shorter period than their physical life. In a memorandum dated December 12, 1939, I gave you an opinion that the mere fact that an excess productive capacity for peacetime needs was being created did not warrant a deduction for extraordinary obsolescence. Subsequently, Dr. Viner criticized my memoandum and argued that extraordinary obsolescence was allowable. 324 -2 3. In the course of its opinion in the White case the Court of Claims said: "It is required that the taxpayer show that the physical properties are being affected by economic conditions that will result in their being abandoned at a future date prior to the end of their normally useful life; that the time of the be- ginning of the obsolescence be shown; and that a reasonably definite time be ascertained as to when the property will become obsolete. "It is incumbent upon taxpayer to place in the record evidence showing obsolescence and where facts appearing therein are so meager as to leave the existence and degree of obso- lescence matters of conjecture, the allowance will be denied. 4. The Court of Claims quoted from the opinion of Mr. Justice Douglas in Real Estate Title Co. V. United States [309 U. S. 13], which was cited in support of the position I advised you to take, that obsolescence under the Internal Revenue Code "requires that the opera- tive cause of the present or growing uselessness arise from external forces which make it desirable or imperative that the property be replaced." 5. In view of the widespread misunderstanding of the Treasury's position, coupled with the statements of Mr. Hanes and others on the Treasury's powers to grant an amortization deduction, you may wish to give some publicity to the decision in the White case. i.1.7h. 325 December 12, 1939. Secretary Morgenthau Mr. Foley In accordance with your request, I have prepared a memorandum out- lining the scope of the Treasury's authority to assist in the program for national defense by exercising powers conferred upon it by the internal revenue laws. The discussion falls under three headings: (1) closing agreements, (2) obsoloscence allowances, and (3) romedics of taxpayers. I Closing Agreements Closing agreements wore first authorized in 1921. Revenue Act of 1921, $1312. Restrictivo provisions in the law, however, provonted any extensive uso, even though in 1924 the original limitations wore modified. Rovenuo Act of 1924, 1006; Revonue Act of 1926, $1006(b). In 1928 both the Committoo on Ways and Monns in the Houso of Ropro- sontatives and the Committee on Finance in the Sonate criticizod the continual reopening of tax cases, by the government as well as by taxpayers. Both committees suggostod that increased uso of closing agreemonts would operate to diminish the number of reopenod tax cases. In an offort to solvo tho problem of rooponed tax casos, Congress removed the tochnical restrictions which had made the use of closing agreements inoffectual. Rovenue Act of 1928, $606. Howover, since 326 -2- Congress had liberalized the provision relating to closing agreements primarily to settle finally income taxes for prior years, the law pormittod the execution of such agreements only in respect of a previously existing tax liability. It was not until last year that the authority to execute closing agreements was extended to cover future tax liability. Revenuo Act of 1938, §801. In delogating this authority to the Treasury, Congress recognized that the power would have to be exercised with considerable restraint to avoid discrimination among taxpayers. The Ways and Means Committee of the House of Representatives in making its report declared that "since closing agreements of this type will constitute a now method of sottling controversies, it is contenplated that the Commissioner [of Internal Revenue] will oxorciso his discretionary powor only where such exercise is in the intorest of a wise administration of the revenue system. House Report No. 1860, 75th Cong., 3d Soss., p. 67. It is clear, therefore, that Congress intended closing agreements to be usod solely for the purpose of assuring taxpayers some cortainty in entering into business transactions by settling in advance factual and legal questions likoly to be of a constantly recurring nature and involved in the transaction in question. With this object in mind, the Treasury can bo of assistance to taxpayers who intend to subnit bids for the production of itons needed for 327 -3- the national defense by exocuting closing agreements to assuro such bidders of the nothod of computing the cost for purposes of the Vinson- Tronnoll Act of jigs, dies, tools and special mochinory dosignod, constructed and suitable only for the performance of a single job. On the basis of such a closing agreement a prospective biddor may be able to arrivo at his estinate more intelligently than ho could if he did not know how the cost of such itens would be trented. It has never been supposed, howover, that by neans of a closing agreement a taxpayer night obtain concessions to which he any not be ontitled by low. Nor has it boon thought that such an agreement could be utilizod to fix a tax liability upon the basis of nere conjecture and without regard to the actual occurrence of the facts upon which the agreement is prodicated. The purpose of the closing agreement is to expodito the settlonent of tax liability by cliningting logal uncertaintios; its purpose is not to expodite the sottlement of tax liability by elininating taxable profits. II Obsolosconco Allovancos Undor the Vinson-Trannell Act the nothod of ascortaining the amount of excess profit to be paid into the Trensury is determined by the Secrotary of the Tronsury in agreenent with the Secretary of the Novv. Public No. 135, 73₫ Cong., $3, 48 Stat. 505. Under the national defense act of 1939 the provisions of the Vinson-Treamell Act are nado applicable with rospect to contracts for aircraft for the Arny in the sano nannor 328 that such provisions are applicable to contracts for aircraft for the Navy. Public No. 18, 76th Cong., $14, I.R.B. 1939-20, 13. Pursuant to these acts, the Treasury has issued excess profits rogulations for Navy contracts for vessels and aircraft, with the concurrenco of the Secretary of the Navy. T.D.4906, 4 F.R. 2492. The Treasury has also issued sinilar regulations for Arny contracts for aircreft, with the concurrence of the Socretary of Yar. T.D.4909. 4 F.R. 2733. These regulations provide that there my be charged as part of the cost of performing a particular contract, or subcontract, under the Vinson-Trannell Act indirect factory expenses including "depreciation and obsolescence of special equipment and facilities necesserily acquirod for the performance of the contract or subcontract. T.D. 4906, $17.9: T.D. 4909, $16.8. Yith the concurrence of the Socretary of the Nevy, it was ruled in 1935 that the doterninction of a proper allowance for obsolescence of such special equipment must await the termination of the contract or subcontract for which such special equipment was required inastruch as it could not be reasonably ascertained until thon whether the special equip- nont would be usoful in performing other contracts. I.T.2861, C.B. XIV-1, 530. In order to assure contractors that their profits derived from such contracts or subcontracts would not be distorted, it was ruled in June of this year that if, upon the completion of such a contract or subcontract, the Commissioner of Internal Revenue determines that special facilities 329 -5- required and usod sololy in the performance of the contract or subcontract are no longer boing used in connection with any othor operations nor have any further prospectivo uso, thon "their ontire and reasonable cost, loss salvage value, will be generally accepted C.S part of the cost of perform- ing the particular contract or subcontract," but if the Commissioner of Internal Revenue determines that the special facilities in quostion wore not used solely to perform the particular contract or subcontract, thon "allowance for oxhaustion, wour and tear, and obsolosconco shall be nade in accordance with a reasonably consistent plan, on a basis which will ro- turn to the contracting party the reasonable cost of such facilitios at the end of their expected oconomic term of usofulness, and The part of the cost, if any, romaining after doducting such allowances and the salvage value of such facilitios will be generally accepted as a part of the cost of performing the particular contract or subcontract." I.T.3289, I.R.B. 1939-24, 13. Under the Internel Revonuo Codo it is provided that in computing not income there should be allowed as a doduction "n reasonable allowance for the oxhaustion, woar and toor on property used in the trade or business, including a reasonable allowance for obsolesconco." I.R.C. $23. In accordance with this provision, the incono tax rogulations state that if a texpayor shows that physical property is "boing effected by economic conditions that will result in its being abandoned at a future date prior to the and of its normal usoful life, so that deprociation doductions alone are insufficient to return the cost or other basis at the 330 -6- and of its economic torn of usefulness, a reasonable allowance for obsolesconce, in addition to depreciation, my be allowed in accordnnce with the facts If Rogs. 101, art. 23(1)-6. It will be noted that the provision in the incone tax law and in the income tax regulations permitting a deduction for obsolescence in computing the incone tax is in general torns and applies alike to all taxpayors. Soo Ganbrinus Browery Co. v. Anderson, (1931) 282 U. S. 638, 644. There is nothing to indicate that Congress intended that, for incone tax purposos, the taxable incones of privato manufacturers of ernanent should be determined according to any different rules from the rules applicable to the taxable inconos of all other private manufacturers. Likewiso, there is nothing to indicato that Congress intended that, for Vinson-Trannell Act purposos, obsoloscence should be dotermined under rules different from those which provail with respect to the incono tax. All texpayers, and all contracting partics subject to the VinsonTrannoll Act, share aliko the privilogo of deducting a reasonable allowanco for obsolesconco. The amount of this allowance is the sun which should be sot aside for oach taxable year, in order that at the end of the useful life of the facilities in question, the accregate sun sot aside will (with the sun sot asido for deprociation plus salvago value) be sufficient to provide an amount equal to the original cost. Obsolosconco is a quostion of fact in each caso. It may arise as the result of laws regulating or forbidding the particular uso of the 331 -7- property as well DB from changes in the art, the shifting of business centers, loss of trade, inndequacies or other causes. Burnot V. Nicgara Falls Browing Co., (1931) 282 U. S. 648, 654. In the case cited, the browing company had clained deductions for obsolescence in the years 1918 and 1919 because the imminence of national prohibition would require it to coase to use its browory for naking boor. The Suprene Court took judicial notice of the fact that the Eightoonth Anendmont had been ratified by twolvo states in the first six months of 1918, by throo more before the end of 1918, and that in January, 1919, (bofore the tax return for 1918 was due) twenty-one additional statos ratified and prohibition was established to take effect one year later. On the basis of these facts, the Suprene Court held that the browing company was justified in the early part of 1918 in concluding that its property would become usoless for the purpose for which it was acquired. Applying this sano principlo, the Suprence Court hold that a snall arns anmunition manufacturer who had constructed a plant solely to nanu- facture war communition was entitled to trent the value of such plant romaining after the Arnistico as salvago in computing the company!s income tax liability for the year 1918. United States Cartridge Co. V. United States, (1932) 284 U. S. 511. The general requirement that losses be deducted in the year that they are sustained follows from the need for a practical tost in computing incone. The only reason an exception is node in the case of sone losses, such as obsoloscence, is because such loss is not only reasonably certain 332 -8- in fact but is ascertainable in amount before the loss is absolutely realized. Hence, the right to on obsoloscence doduction must rost upon sub- stantial reasons for believing that the property in question will becono obsolete prior to the end of its ordinary useful life, and it must be known or susceptible of being known to a reasonable dogroo of certainty when that event will likely occur. That the value of property or its earning power hns declined does not of itself furnish the basis for a deduction. First National Bank of Koy Most V. Commissioner, (1932) 26 B.T.A. 370. It follows that, in the case of permanent buildings and standard nachinory, the fact that it is impossible on the basis of available ovidonce to compute any Greator than the normal amount of deprociation and obsolescence forbids the oxocution of closing agreements determining in advance on extraordinary obsoloscence allowance for such permanent buildings and standard machinery. To do otherwise would be to purport to grant private manufacturers of arnanent more than they are ontitled to under tho law. III Romodies of Texpayors The inconce tax low is based upon a procedure of self-assessment, and the Vinson-Trannell Act provides that the assessment, collection, and ro- fund provisions applicable with respect to the incoro tax shall bo applied to Vinson-Trazmell Act casos. Generally spooking, a taxpayer makes out his return, corputos the tax on the net incono shown in the return which 333 -9- he thon files, and pays the tax indicated on the return. If the Collector of Internal Rovenue for the district in which the return is filed, or the Concissionor of Internal Revenue, finds after reviewing or auditing the tempoy's return that the taxpayor owos a greater tax than that which ho indicated in the return, the Collector or the Connissionor, as the case my So, advises the tax- payer of this dotormination and of his intontion to increase the tax. The taxpayer is thon civon an opportunity to protest the proposod assessment of an additional tax and to show that ho has not under- assessed hinsolf. If the correct amount of liability is not agreed upon, the Commissioner usually proceeds to sond the taxpayor a notice of deficiency which sets forth his determination of a deficiency in the tax, and the taxpayer noy within 90 days petition the Board of Tax Appoals for a rodotomination of the deficiency, or the taxpayer may pay the tax and file a refund clain. I.R.C. §$271-277. The procedure by which the taxpayer may obtain a refund in such case is, on the whole, the sone as if he had originally overassessed and ovorpaid his tax and sooks to recover the amount of overpayment. The taxpayer may claim a crodit or refund within three yours from the time the return was filed or within two years from the tino the tax was paid. I.R.C. $322(a)(b). If the Comissioner should reject the taxpayor's clain for refund, the taxpayer may bring an action in the courts to recover the taxos alloged to have beon corroneously collected within two years after the 334 -10- Commissioner sonds a notico of rejection. I.R.C. §§3772-3774. If, however, the taxpayer has olected to file a petition with the Board of Tax Appenle, as a rule, the courts would have no jurisdiction over an action for the recovory of an overpayment for the taxable year which is pending before the Board. I.R.C. $322(c). It has not been intended to discuss in dotail in this nenorandun all the applicable statutos and multitudinous decisions relating to the determination, assessment and collection of incone taxes, and the nothods for securing the return of overpayments. It has been dooned sufficient nerely to indicate that ample remedies are open to a texpayer, or a contracting party subject to the Vinson-Tresnell Act, who may feel hinself aggrieved by a determination of the Commissioner of Internal Revenue. Nor do these remodies enbrace only statutory and legal proceedings. In an effort to reduce repotitious stops and long delays in the sottlenent of tax liability, the Tronsury inaugurated on March 1, 1938, a definite program looking to the decentralization of the appellato procodure for the administrative sottlement of tax cases. With certain exceptions as to review of audits in Washington, this procodure is followed with respect to casos arising under the Vinson-Travelle Act. Through the uso in field divisions of the sottlement procodure do veloped by the Technical Staff of the Buroau of Internal Revenue since its ostablishnont in 1933, the Tronsury has provided a. method for the expeditious and economical disposition of tax disputes. 335 -11- It is fair to conclude that, although an erroneous determination of the appropriato allowance for obsoloscence nay from tine to tine occur, the tax laws and the procodure developed for their administration in- variably afford the taxpayer full opportunity to have any such nistakos rectified; and it is safo to prodict that whonevor the fact of obsoloscence can be definitely shown and the point of tine of complete disappearance of value other than salvage value can be definitely ascortainod, the taxpayer will obtain the full bonofit of the reasonable allowance for obsolesconce granted by the Congress. Eir Faby 2. 336 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL DATE April 14, 1941 Secretary Morgenthau TO FROM Mr. Wiley FBI informed us today that a collateral value of their study of Rueckwanderer Mark applications has been demonstrated to lie in the identity of the applicants for purchase of Rueckwanderer Marks.* They have already discovered a person em- ployed in a technical position in the Brooklyn Navy Yard and another employed in the Brewster Aircraft Corporation to have applied for Rueckwanderer Marks. FBI proposes, it is understood, to get MID and ONI to do something about these in- dividuals. FBI itself has no power to compel their discharge. Returning-immigrants marks. the 337 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1941 Strictly Confidential TO Secretary Morgenthau FROM Mr. Wiley FBI reports: March 21. In the course of investigating into Nazi fund activity in New York City FBI was informed that the Foreign Department of the Chase Bank con- tains a large number of German employees, a good many of whom have been request- ing assignments in the branches in South America. April 9. Attention is called to reports that the Japanese Government is trying to buy depreciated Bolivian bonds which are secured by a mortgage on the electric railroad in Bolivia over which tin is carried. April 9. The Canadian Government purchased from Indalecio Prieto airplane parts stored in Mexico City, paying Prieto $675,000. am 338 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14,1941 Secretary Morgenthau TO H. D. White FROM Subject: The Canadian foreign exchange position. Mr. Coyne, Financial Attache of the Canadian Legation, has submitted to us a detailed and excellent summary of Canada's foreign exchange position. The document brings out the following significant facts: 1. Canada, at the close of February, had gold and other assets convertible into U.S. dollars amounting to $910 million (U.S.). (Millions - U.S.) Gold Official dollar balances Private dollar balances $136 148 20 $304 $280 U.S. securities Direct investments in the U.S. 330 610 Total $910 This figure of $910 million does not include about $140 million of dollar balances and about $520 million of U.S. securities held by Canadian chartered banks and life insurance companies. No significant change has occurred in the Canadian dollar exchange position since the close of February. 2. Canada's net requirements of U.S. dollars during 1941 are estimated at $380 million, as follows: 339 -2- Division of Monetary Research (Millions of U.S. dollars) Anticipated payments to the U.S. $1,220 Anticipated receipts from the U.S. (including $191 million from the sale of newly-mined gold) 850 Deficit 370 Add net U.S. dollar payments to other countries 10 Total deficit of U.S. dollars 380 3. $342 million of the $1,220 million payments to the United States during 1941 are for munitions and materials for war production imported from the United States. Almost two- thirds of that $342 million is for the production of supplies for Britain. In other words, more than half the expected deficit for Canada with the United States in 1941 will be due to the Canadian purchase of American materials for production of supplies for Britain. If Canada does not obtain any dollars or gold from other British Empire sources she will have to pay the U.S. about $380 million out of her current assets of $900 million. If, however, the United States makes some Lend-Lease arrangements with Canada or if Canada does not have to pay for the Canadian imports of materials used to supply the British, the deficit will be less than $380 million. 4. In her dealings with the Empire countries Canada anticipates for the year 1941 a sterling balance due Canada of the equivalent of $920 million U.S. as follows: (Million U.S.) Payments due Canada from the U.K. and other Empire coun- tries Canadian payments due U.K. and other Empire countries Balance due Canada $1,430 510 $920 (less $100 million of the anticipated amount due Canada from the Empire countries is for service items not connected with the war effort.) 340 3- Division of Monetary Research Net payments from the Empire countries due Newfoundland are estimated at $20 million. 5. How much, if any, of the estimated $920 million deficit of British Empire countries with Canada will be met in gold or U.S. dollars is uncertain at the present time. The British Treasury has stated how much gold or U.S. dollars they will be able to pay Canada depends upon the amount of B.P.M. commitments in the United States which are assumed by the U.S. Government under Lend-Lease arrangements and upon the rate of liquidation of British-held American assets. 6. During the first 17-1/2 months of war, September 15, of the sterling area) had a deficit with Canada of the 1939 - February 28, 1940, the United Kingdom (and the rest equivalent of $670 million (U.S.). This deficit was settled in the following way: (Millions - U.S. ) U.K. transfers of gold to Canada Canadian repatriation of U.K.- $227 held Canadian securities Canadian accumulation of sterling balances in London 299 144 $670 Total deficit 7. Canada's cash deficit of U.S. dollars during the same 17-1/2-month period totalled $437 million. This "unfavorable" balance was met as follows: (Millions - U.S. ) Gold received from U.K. Sales of Canadian-held U.S. securities and miscellaneous investments in U.S. New capital inflow Depletion of U.S. balances Total deficiency $227 66 20 124 $437 341 0 DEPARTMENT OF STATE Y WASHINGTON April 14, 1941 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a memorandum dated March 24, 1941 entitled "Recent Economic Developments in Germany" and a strictly confidential memorandum dated March 24, 1941 reporting a conversation with the Senior Vice President of the Reichabank on monetary conditions in Germany, received from Mr. Donald R. Health, First Secretary of Embassy, Berlin. Enclosures: Memoranda. 342 EMBASSY OF THE UNITED STATES OF AMERICA Berlin, March 24, 1941. MEMORANDUM FOR TREASURY FROM HEATH RECENT ECONOMIC DEVELOPMENTS IN GERMANY The Excess Profits-Price Reduction Order and Dividend Limitation. The most important economic news in Germany during the past fortnight was the price and excess profits order of the Price Commissar reported in the Embassy's No. 989, March 18, noon and Funk's speech reported in the Embassy's No. 950, March 13, p.m. The price and profits order provided that profits in excess of those made in peacetime under normal competitive conditions must be paid into the Reich Treasury and the manufacturer or industry making the excess profits must reduce prices sufficiently to prevent the recurrence of "abnormal" profits. The effect of this order and Funk's speech in which he announced that hereafter six per cent would be the maximum dividend allowed by the government, promptly threw the stock market into a sharp decline. Since then, in spite of obviously inspired and convincing editorial reminders that Funk had also indicated that undercapitalized stock companies could escape the 6 per cent limitation by issuing additional stock or stock dividends, the general tone of the market has been one of continued uncertainty and nervousness. The BERLINER BOERSEN ZEITUNG index of stock quotations on the Berlin stock exchange stood at 175.6 on March 22 compared with 179.6 on March 15 and 183.4 on March 8. Apparently, despite the reassuring editorials, it is still feared that many firms will simply lower dividends without increasing their capital, as was already done by one firm last week, and the now price regulations have been interpreted in come quarters to mean that no dividend increases even by firms heretofore paying less than 6 per cent will be possible. From one point of view the order of the Price Commissar is a revenue measure, inasmuch as it will produce a one-time yield of excess profit taxes. No estimate is available as to the revenue which may be expected from the operation of this order, but it will certainly be relatively un- important compared to the huge amounts now being spent by the Reich. The main cause of this order is to be found in the concern of the economic authorities over the price rises which have occurred during the past year, and the increase in inflationary psychology and apprehension. The inflationary psychology is evidenced by the continued increase in illicit trading in rationed articles and the developing tendency of the public to buy anything without much regard to price or utility. Illicit trading has apparently become very widespread even among the poorer classes, due in part to increasing opportunities for its practice through access to the supplies 343 -2- of the occupied countries. Illustrative of this fact and of the buying and present monetary psychology in Germany is the case of one charwoman with a gross income, due to long hours of work, of about 35 marks a week who paid 25 marks ($10 at par of exchange) for a pound of tea on the black market. It may be said here that this expenditure would still theoretically leave her enough to feed herself since the fixed prices for minimum qualities of the articles comprising the normal ration amount to a little over 3 marks a week. This calculation, however, is for the cheapest grades and cuts which are often not obtainable and it does not include vegetables and other non-staple articles. As stated in the Embassy's telegram above referred to, it is to be doubted that the new price decree will have complete success but the organization and discipline is strong enough so that the authorities may be able for a time to offset inescapable price increases in certain articles by reductions in others. The food situation. The prediction of a decrease in meat and fat rations which was reported in my memorandum of January 24, 1941 has now become a fairly general rumor that meat rations will be diminished from 500 to 400 grams during the next few months. Fairly well informed sources are authority for the statement that Germany in particular and Europe in general will be in the almost unprecedented situation of having no grain reserves of any significance at the end of the present crop year. In spite of this situation, however, there are no rumors of reductions in bread rations but it is significant that whereas until now the full amount of the bread ration could be taken in white bread if desired, beginning April 7 only part of the total (varying as to district - in Berlin 50 per cent) may be taken in wheat bread. Although reductions of meat and fat rations appear certain this year, it must be said that in the second winter of the war the German public has in general been adequately fed, so that for a time a diminution of fat and meat rations should not produce much discontent or suffering. Not only the quantity but quality of the food during the past months was superior to that of the first war winter, supplemented as it was by drafts on the food stocks of occupied countries and greater imports of fruit and vegetables. Recently in Berlin and certain other centers the diet of the higher income groups has been improved by the development of frosted fruits and vegetables whose prices are, however, prohibitively high for the working classes. General opinion here is that the military occupation of Rumania and Bulgaria will not add importantly to the Reich's supplies of either food or raw materials except that presumably the full output of the Rumanian oil industry will be available to the Reich's military machine. German-Russian trade. The only practical source of increased imports of food and raw materials is Russia. It has so far been impossible to get any statistical data as to the development of Russian trade. I am told by 344 -3- contacts that Russia has been fairly well supplying the quantities specified in the trade agreements with Germany and I am informed that arrangements for a further increase in the deliveries of certain products were recently agreed upon. On the other hand, it is understood that German counter-deliveries are somewhat late and insufficient and I am told that recently the Reichsbank made a shipment of gold in the value of 20 million marks to Moscow to balance the clearing account. Whatever the amount of Russian deliveries, they are far below German needs. Statistical data regarding Germany's industrial raw material position are jealously concealed but it is evident that it is worsening. Rubber, copper, nickel, alloys and gasoline are believed to be the chief cause of concern. The supplies of retail goods are visibly diminishing and customers are increasingly informed that certain staple articles are no longer produced. This scarcity of industrial raw materials is accompanied by an ever more stringent labor shortage, in part occasioned by the recent and apparently still continuing expansion of the armed forces and presumably in part by efforts to develop new military production to offset future American deliveries to Great Britain. While there is evidence of increasing scarcity and strain, no indication of any vital deficiency is as yet apparent. While the process of economic deterioration will continue, I do not believe that any vital economic weakness will develop during 1941. (s) Donald R. Heath, Donald R. Health, First Secretary of Enbassy Approved: Leland Morris Charge d'Affaires ad interim Cory:bj:4-23-41 345 AIR MAIL EMBASSY OF THE UNITED STATES OF AMERICA Berlin, March 24, 1941. Strictly confidential MEMORANDUM for Treasury from Heath I called by appointment on Puhl, Senior Vice President and active administrative head of the Reichsbank. Puhl said that he was distressed over the trend of events but that he was pleased that the standstill agreement with American banks had been renewed. It was well that these little economic ties between the two countries be maintained as long as possible and if events brought about an interruption that the interruption be as short as possible, since after the war there would have to be cooperation between the Reichsbank and the financial and monetary authorities of Britain and the United States. He hoped from the standpoint of maintaining normal ties as long as possible that the United States would not block German funds but realized this was a possibility. He spoke of the monetary situation in Germany saying that with the price control and ration system they had managed substantially so far to escape inflation. Nevertheless a certain amount of actual inflation had already occurred and also a certain degree of inflationary psychology. Without actually saying so,he conveyed the impression that he was concerned over the inflationary possibilities in Germany. He remarked that so far the Reichsbank had been fairly successful in its efforts with the government to keep down an excessive issue of currency, but said that it was a constant struggle. He went on to say that the monetary situation of the country was a pretty infallible index of its economic situation. He then remarked that he was going to take a trip to Norway and intimated that he was worried over the monetary and economic situation in that country. He said that the Reichabank's representatives there were having a terribly hard time and observed that it was dangerous to make too heavy economic drafts on a country in the situation of Norway. In regard to the general economic situation of Germany, he said that there was no particular weakness at the present moment but that, frankly, there was an unavoidable deterioration of production and transportation. With respect to the new price and excess profits order and Funk's speech (see my memoranda of March 24 on recent economic developments in Germany and Embassy's telegrams No. 950,March 13, 4 p.m., and 989 of March 18, noon) he said that the stock market and business had been a little too frightened by these two occurrences. He said laughingly 346 -2- that particular fright had been caused in the stock market by typographical error in the manuscript of Funk's speech. Funk had said that industry would have to face an effective prohibitive taxation, (wirkende prohibitiv Besteuerung) whereas what originally had been written and intended was "an effective progressive taxation". He quoted a rather ironical north German proverb about the use of foreign words. He remarked that Funk was essentially conservative a and that his announcement that German dividends must be restricted to 6% was really social window dressing: that it did not look well for dividends to be too high, but that concerns paying higher dividends could conform to the 60/0 (six per cent) requirement by enlarging share capitalization through stock dividends or other methods. As regards the capture of excess profits under the new price and excess profits order, he said that it was in no way an attack on capitalism but quite a normal and just procedure in war time. (s) Donald R. Heath Donald R. Heath First Secretary of Embassy Approved: (s) Leland Morris Leland Morris Charge d'Affaires a.i. DRH/eah Copy:bj:4-23-41 347 (COPY) DEPARTMENT OF STATE WASHINGTON April 14, 1941 In reply refer to Cc The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses, for Mr. Morgenthau's information, three copies each of five press releases issued by the Department setting forth the proclamation issued by the President on April 10, 1941, modifying the combat area established in accordance with section (3) of the Neutrality Act of November 4, 1939; the President's proclamation of April 10, 1941 proclaiming a state of war between Germany and Italy on the one hand, and Yugoslavia on the other hand, issued pursuant to section (1) of the aforementioned act; and rules and regulations issued pursuant to various sections of that same act. Enclosures: Three copies each of five press releases dated April 11, 1941, numbers 168, 169, 170, 171 and 172. 348 DEPARTMENT OF STATE FOR THE PRESS: MODIFICATION OF A COMBAT AREA APRIL 11, 1941. NO. 168 BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION WHEREAS section 3 of the joint resolution of Congress approved November 4, 1939, provides as follows: "(a) Whenever the President shall have issued a proclamation under the authority of section 1 (a), and he shall thereafter find that the protection of citizens of the United States so requires, he shall, by proclamation, define combat areas, and thereafter it shall be unlawful, except under such rules and regulations as may be prescribed, for any citizen of the United States or any American vessel to proceed into or through any such combat area. The combat areas 80 defined may be made to apply to surface vessels or aircraft, or both. (b) In case of the violation of any of the provisions of this section by any American vessel, or any owner or officer thereof, such vessel, owner, or officer shall be fined not more than $50,000 or imprisoned for not more than five years, or both. Should the owner of such vessel be a corporation, organization, or association, each officer or director participating in the violation shall be liable to the penalty hereinabove prescribed. In case of the violation of this section by any citizen traveling as a passenger, such passenger may be fined not more than $10,000 or imprisoned for not more than two years, or both. (c) The President may from time to time modify or extend any proclamation issued under the authority of this section, and when the conditions which shall have caused him to issue any such proclamation shall have ceased to exist he shall revoke such proclamation and the provisions of this section shall thereupon cease to apply, except as to offenses committed prior to such revocation." AND WHEREAS on June 11, 1940, I issued a proclama- tion in accordance with the provision of law quoted above defining a combat area. NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, President of the United States of America, acting under and by virtue of the authority conferred on me by section 3 (c) of the joint resolution of Congress approved November 4, 1939, do hereby modify my proclamation of June 11, 1940, defining combat areas into which it shall be unlawful, except under such rules and regulations as shall be prescribed, for any citizen of the United States or any American vessel, whether a surface vessel or an aircraft, to proceed, by eliminating from the scope of that proclamation 349 -2- proclamation the combat area defined in the second numbered section thereof as: "Beginning at the intersection of the North Coast of Italian Somaliland with the meridian of 500 longitude east of Greenwich; "Thence due north to the mainland of Arabia; "Thence eastward along the coast of Arabia to the meridian of 51° east longitude; "Thence due south to the mainland of Italian Somaliland; "Thence westward along the coast of Italian Somaliland to the point of beginning." And I do hereby proclaim that it shall no longer be unlawful for any citizen of the United States or any American vessel, whether a surface vessel or an aircraft, to proceed into or through the area defined above. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the United States of America to be affixed. DONE at the City of Washington this tenth day of April, in the year of our Lord nineteen hundred and forty-one, and of the Independence of the United States of America the one hundred and sixty-fifth. FRANKLIN D. ROOSEVELT [SEAL] By the President: CORDELL HULL Secretary of State. 350 DEPARTMENT OF STATE FOR THE PRESS: APRIL 11, 1941 PROCLAMATION OF A STATE OF WAR BETWEEN NO. 169 GERMANY AND ITALY, ON THE ONE HAND, AND YUGOSLAVIA, ON THE OTHER HAND BY THE PRESIDENT OF THE UNITED STATES OF AMERICA A PROCLAMATION WHEREAS section 1 of the joint resolution of Congress approved November 4, 1939, provides in part as follows: "That whenever the President, or the Congress by concurrent resolution, shall find that there exists a state of war between foreign states, and that it is necessary to promote the security or preserve the peace of the United States or to protect the lives of citizens of the United States, the President shall issue a proclamation naming the states involved; and he shall, from time to time, by proclamation, name other states as and when they may become involved in the war." AND WHEREAS it is further provided by section 13 of the said joint resolution that "The President may, from time to time, promulgate such rules and regulations, not inconsistent with law as may be necessary and proper to carry out any of the provisions of this joint resolution; and he may exercise any power or authority conferred on him by this joint resolution through such officer or officers, or agency or agencies, as he shall direct." NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT, Presi- dent of the United States of America, acting under and by virtue of the authority conferred on me by the said joint resolution, do hereby proclaim that, Germany and Italy having wantonly attacked Yugoslavia, a state of war exists between Germany and Italy, on the one hand, and Yugoslavia, on the other hand, and that it is necessary to promote the security and preserve the peace of the United States and to pro- tect the lives of citizens of the United States. And I do hereby enjoin upon all officers of the United States, charged with the execution of the laws thereof, the utmost diligence in preventing violations of the said joint resolution and in bringing to trial and punishment any offenders against the same. And I do hereby delegate to the Secretary of State the power to exercise any power or authority conferred on me by the said joint resolution, as made effective by this my proclamation issued thereunder, which is not specifically delegated by Executive order to some other officer or agency of this Government, and 351 -2- and the power to promulgate such rules and regulations not inconsistent with law as may be necessary and proper to carry out any of its provisions. IN WITNESS WHEREOF, I have hereunto set my hand and caused the seal of the United States of America to be affixed. DONE at the City of Washington this tenth day of April, in the year of our Lord nineteen hundred and forty-one, and of the Independence of the United States of America the one hundred and sixty-fifth. FRANKLIN D. ROOSEVELT [SEAL] By the President: CORDELL HULL Secretary of State. 352 FOR THE PRESS: DEPARTMENT OF STATE APRIL 11, 1941. NO. 170 RULES AND REGULATIONS GOVERNING THE SOLICITATION AND COLLECTION OF CONTRIBUTIONS FOR USE IN YUGOSLAVIA The Secretary of State announces that the rules and regulations under section 8 of the joint resolution of Congress approved November 4, 1939, which he promulgated on November 6, 1939, henceforth apply equally to the solicitation and collection of contributions for use in Yugoslavia. CORDELL HULL Secretary of State 353 DEPARTMENT OF STATE NO. 171 REGULATIONS UNDER SECTION 2 (c) AND (1) OF THE JOINT RESOLUTION OF CONGRESS APPROVED NOVEMBER 4, 1939 The Secretary of State announces that the regulations under section 2 (c) and (1) of the joint resolution of Congress approved November 4, 1939, which he promulgated on November 10 and November 25, 1939, henceforth apply equally in respect to the export or transport of articles and materials to Yugoslavia. CORDELL HULL Secretary of State : APRIL 1941 FOR THE PRESS: 354 DEPARTMENT OF STATE APRIL 11, 1941. FOR THE PRESS: REGULATIONS UNDER SECTION 5 OF NO. 172 THE JOINT RESOLUTION OF CONGRESS APPROVED NOVEMBER 4, 1939 The Seoretary of State announces that the regulations under section 5 of the joint resolution < of Congress approved November 4, 1939, which he promulgated on November 6, and amended November 17, 1939, henceforth apply equally in respect to travel by citizens of the United States on vessels of Yugoslavia. CORDELL HULL Secretary of State For Miss Chauncey 355 April 14, 1941 COMPIDENTIAL Dear Mr. Knoke: Permit as to acknowledge, on behalf of the Secretary, the receipt of your letter of April 10, with which you enclosed your compilation for the week ended April 2g 1941. showing dollar disbursements out of the Byitish Repire and French accounts as the Federal Reserve Bank of New York and the assas by which those expenditures were financed. Faithfully yours, E. Marie Cochran Technical Assistant to the Secretary L. W. Knoke, Require, Vice President, Federal Reserve Bank of New York, Bow York, New York. KNOtlap:inc. 4.14.41 356 FEDERAL RESERVE BANK OF NEW YORK new April 10, 1941. CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran I am enclosing herewith our compilation for the week ended April 2, 1941, showing dollar disbursements out of the British Empire and French accounts at this bank and the means by which these expenditures were financed. Faithfully yours, L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure 10 THE Del Vb8 IS W a v. DEBYKINEHI PERIOD Gov't Expendi- BANK Proceeds of Sales of Other tures(a) Debits 94.3 106.7 3.6 90.7 5.8 191.7 8.9 97.7 54.8 Total Credits Securities Official (b) Gold OF DEBITS CREDITS Credita(a) Net Inor. (+) or Dear. (-) in Balance 22.4 138.8 +113.5 35.3 48.0 85.9 19.4 88.6 78.6 24.6 22.5 Other Proceeds Gov't Total Debits FRANCE CREDITS Expendi- Other tures (d) Debits 6.0 13.4 Total Credits of Gold Other Sales Credits 1939 Aug. 31 - Sept. 27 Sept.28 - Nov. Nov. 2 - 29 Nov. 30 Jan. 3 185.4 100.9 182.8 207.8 142.0 105.8 8.7 89.0 75.2 50.6 16.8 38.0 43.4 20.6 108.8 101.0 87.3 108.3 94.0 56.7 60.9 86.4 46.8 77.3 137.9 93.0 80.9 126.2 93.2 319.3 225.0 301.3 1940 Jon. 4 - 31 Feb. 1- 28 3 1 Feb. 29 Apr. Apr. 4 - May May 2 - 29 ray 30 - July 3 July 5 - 31 Aug. 1- 28 First year of war Aug. 29 - Oct. 2 Oat. 3 4-30 Oct. 31 - Nov. 27 Nov. 28 - Doo. 31 124.2 15.4 115.5 113.4 100.9 283.2 249.7 14.5 26.1 23.6 145.3 156.7 1,187.6 72.5 28.9 241.0 244.3 167.8 201.1 274.6 206.8 308.9 198.5 259.5 198.0 2,793.1 Jan. 30 Feb. Feb. 27 - Apr. March 12 19 26 6.9 16.7 19.1 19.6 21.0 15.0 10.8 21.5 - 27.0 99.6 84.8 78.7 60.7 101,4 29.4 57.0 55.4 25.3 44.4 145.4 126.2 29.4 345.1(e) 335.6 26.4 420.1 1.0 3.2 3.0 0.2 8.9 0.5 416.6 8.4 10.9 1095.3 10.4 449.7 900.2 0.5 195.1 0.5 18.5 0.8 8.6 62.2 2.1 63.4 19.0 12.0 6.3 14.0 13.0 14.0 18.3 14.1 + 8.2 421.4 0.2 0.7 1.3 0.5 0.7 0.7 - 2.1 0.6 - 456.9 1098.4 - - 6.6 0.1 6.1 0.6 0.2 6.2 0.7 1.6 - - +50.8 13.2 4.2 0.2 4.4 0.3 0.1 - 900.2 (6.9(f) =16.7 Transfers from British Purchasing Commission to 0.3 0.6 0.6 Bank of Canada for French Account 0.1 151.7 million million +188.4 - 4.1 - - 0.7 - 2.0 +229.0 1.3 - 7.3 - 0.5 0.7 - 0.6 198.2 0.1 1.5 +220.1 8.2 - - . + 44.0 1.6 + 0.9 0.3 0.2 - - 0.1 - Week ended April 2 Cumulation from July 6 - - - 6.1 18.0 6.3 1.8 + 5.4 19.2 9.5(0) 7.3 866.3 + 4.3 29.6 127.3(e 33.7 35.0 - 7.9 31.4 32.0 31.5 105.0 56.7(e 26.0 72.0 32.3 29.2 5.8 54.8 75.4 878.3 76.8 28.4 50.1 71.5 10.8 24.8 35.3 55.9 39.9 63.7 575.6 50.1 - 5.6 - 1.2 30,0 108.0 95.4 + 22.4 32.8 35.9 2,109.5 1.7 15.3 31.5 2.1 49.0 93.9 61.5 36.6 56.7 109.2 72.7 60.6 229.7 82.9 11.4 111.4 26.6 - 12.4 - 15.9 - 24.7 - 8.1 11.3 41.2 27.8 22.8 + 36.1 in Balance 35.0 55.1 11.3 76.2 51.6 18.0 26,0 103.7 30.9 27.6 41.5 April 2 Average Weekly Expenditures Since Outbreak of War $19.6 million France (through June 19) 27.6 million England (through June 19) 54.0 million England (since June 19) 58.7 210.0 101.4 37.1 28.1 6.0 237.9 44.6 45.5 86.8 6.0 32.1 3.0 8.4 2.0 105.4 271.5 26.8 416 12.0 3.0 61.8 160.5 197.6 WEEK ENDED: 14.0 20.0 1.0 316.8 Mr period through Dec. - 52.0 1,993.2 Jane - I,35671 828.2 27.8 1356.7 - 294.8 180.2 605.6 39.9 - 212.2 267.4 261.1 196.7 3.2 57.8 - - Net Inor. (+) or Deer. (-) + Total Debits BANK OF ENGLAND (BRITISH GOVERNMENT) Confidential - (In Millions of Dollars) DEBITS Strictly Week Ended April 2. 1941. + ANALYSIS OF BRITISH AND FRENCH ACCOUNTS 0.6 0.7 - + 0.7 (See footnotes on reverse side) (a) Includes payments for and account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of Supply Timber Control, Ministry of Shipping. (b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the proceeds of Official British sales of American securities, including those effected through- direct negotiation. In addition to the official selling, substantial liquidation of securities for private British account occurred, particularly during the Jearly months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation of our securities through December 1940 amounted to $334 million. (o) Includes about $85 million received during October from the accounts of British authorized banks with Now York banks, presunably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts during more recent months apparently represent the acquisition of proceeds of exports free the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliminate the effect of $20 million paid out on June 26 and returned the following day. (f) Includes million transferred from accounts of British authorized banks with N. Y. banks and $1.6 million from Commonwealth Bank of $8.3 Australia. 2F (In Millions of Dollars) DEBITS Transfers Proceeds to Total Debits Official British Other Total of Debits Credits Gold A/C PERIOD Nov. 2 - 29 Nov. 30 Jan. 1 Feb. 29 Apr. 0.8 - 5.9 + 4.3 9.6 0.3 9.3 16.7 7.3 2.1 - 7.3 7.1 9.9 0.7 9.2 14.4 13.3 1.1 4.5 50.0 22.8 13.3 23.5 23.1 42.3 23.2 37.9 25.7 17.0 21.1 16.1 29.5 29.3 42.9 24.8 50.2 50.0 4421 72.5 72.2 28.2 117.6 96.3 18.7 73.6 504.7 53.9 412.7 43.9 28.6 16.4 - 14.0 - 69.6 49.2 - 60.6 42.5 534.8 - Apr. 4 May May 2 - 29 May 30 July July 4 - 31 42.3 38.2 37.9 28.2 18.7 Aug. 1 28 323.0 44.3 26.7 2 Oct. 3 30 35.2 Oct. 31 - Nov. 27 Nov. 28 - Dec. 48.0 477.2 33.7 31 Jan. 2 29 Jan. 30 - Feb. 26 Feb. 27 - Apr. - - - 15.0 44.1 3 First year of war Aug. 29 Oct. - 31.1 2 WEEK ENDED: March 5 60.9 13.6 19 8.5 8.2 26 12.5 12 April 18.1 - - 16.6 - - - 16.6 306.4 44.3 26.7 35.2 48.0 460.6 33.7 - 31.1 60.9 707.4 33.9 24.3 46.0 14.3 23.1 7.1 14.4 4.3 9.2 12.5 15.7 4.4 18.1 3.8 3.4 13.6 8.5 8.2 Weekly Average of Total Debits Since Outbreak of war million $ 7.3 Through April 2 16.9 2.6 3.6 - 3.0 - - - - 15.0 - - - - 20.9 20.9 - - - - - - - - + 2.2 5.2 0.3 - 12.8 3.3 3.0 2.3 0.2 0.3 + 4.7 + 12.3 1.2 + 28.4 + 89.4 2.3 + 54.9 6.8 31.2 2.1 0.2 32.4 27.3 0.2 14.3 0.3 3.7 + 34.4 16.7 13.7 110.7 15.0 6.8 19.1 2.3 10.1 +181.7 - 0.4 + 1.9 4.4 + 12.6 41.0 2.0 +230.2 0.2 3.2 6.8 3.8 4.6 8.7 - - - - 1.9 2.5 5.8 5.8 4.9 3.3 3.0 0.3 - 4.6 in Balance - - - Gold Net Incr. (+) or Credits Dear. (-) Other 1.9 - - - of Sales - - - - - 6.1 Total Credits A/C 2.5 19.5 38.7 19.2 - - Official Other British Debits - 7.2 3.1 - Total Debits 6.5 0.9 0.2 - - Proceeds to in Balance 15.1 23.1 1 A/C 21.8 23.5 3 A/C Credits 16.9 1940 Jan. 4 31 Feb. 1 28 Sales Other Net Inor. (+) or Deen (-) 0.6 30.0 3 For French - Sept.28 - Nov. Transfers Transfers from Official British A/C For Own CREDITS DEBITS CREDITS 17.5 1939 Aug. 31 - Sept. 27 COMMONWEALTH BANK OF AUSTRALIA CANADA - - 2.4 2.2 2.7 2.2 1.6 - 2.3 2.0 1.8 0.2 0.6 0.2 0.2 1.0 2.6 5.9 5.0 1.7 0.9 4.4 1.5 4.2 0.8 5.0 36.1 30.0 3.2 0.1 0.3 2.3 - OF BANK Strictly Confidential Week Ended April 2, 1941. ANALYSIS OF CANADIAN AND AUSTRALIAN ACCOUNTS 4.6 - 3.8 3.0 3.9 27.3 2.5 6.2 8.0 7.9 3.4 6.7 6.5 2.1 4.8 1.6 - - +1.9 +3.3 -1.9 0.9 -0.8 -0.3 +1.4 +3.6 +0.4 -1.8 6.3 4.9 1.3 1.4 -2.2 -0.7 10.1 3.1 4.8 7.5 2.6 0.6 2.5 4.8 3.6 6.8 57.9 14.5 43.4 62.4 50.1 12.3 6.8 5.1 1.7 3.2 0.6 2.6 1.8 +7.9 4.8 1.5 2.0 0.5 2.0 +4.5 2.0 1.7 3.3 14.9 4.8 5.0 5.8 0.8 50 13.7 12.5 1.2 1.1 - 5.9 1.8 0.8 1.0 6.6 6.4 +4.8 1.1 5.9 0.2 0.2 0.4 0.1 -10 200 0.6 - 0.6 20 6.0 0.5 7.5 0.6 0.6 0.2 8.1 1.1 - 1.1 0.1 0.1 0.1 0.3 14.3 0.3 - 0.3 6.3 0.1 5.9 0.4 -1.4 -0.5 +6.0 359 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 14, 1941. Miss TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £55,000 235,000 The initial quotation for open market sterling was 4.03-1/4. Around noontime it dropped to 4.03 and remained at that level for the balance of the day. There were no reported transactions. In New York, the closing rates for the foreign currencies listed below were as follower Canadian dollar Swiss franc (commercial) 12-3/45 discount Swedish krona .2322 .2385 Reichsmark .4005 Lira Argentino peso (free) .0505 .2330 .0505 .2066 Brazilian milrois (free) Mexican peso Cuban peso 4-1/2% discount Due to the holiday in Shanghai there were no quotations received from that city. There were no gold transactions consummated by us today. No new gold engagements were reported. Because of the holiday in London, there were no silver prices fixed. Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44. The Treasury's purchase price for foreign silver was also unchanged at 35 We made no purchases of silver today. pmg. 360 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 April 12, 1941 RUSSIA SPAIN GREAT BRITAIN : : : : JAPAN : ETROLEUM PRODUCTS Fuel and Gas 011 (including Diesel 011) 81,679 Bbls. - -- 331,047 Bbla. Crude Blended or California High Octane Crude* All Other Crude 126,924 Bbls. --- -- - --- Gasoline - Gasoline A** Gasoline B° All Other Gasoline 89,235 Bbls. ---- 47,000 Bbls. 20,000 Bbls. 155,012 Bbls. 120,452 Bbls. 23,500 Bbls. abricating 011 - Aviation Lubricating 011*** All Other Lubricating 011 fetraethyl Lead*** - - - - -- -- -- 2,244 Bbls. 94,496 Bbls. - 90 Bbls. 921 Bbls. "Boosters", such as IsoOctane, Iso-Hexane, or Iso-Pentane SCRAP IRON AND SCRAP STEAL Number 1 Heavy Melting Scrap All Other Scrap -- -- 3,175 Tons - -- 11,805 Tons Mfice of the Secretary of the Treasury, Division of Research and Statistics. April 14, 1941. Source: Office of Merchant Ship Control, Treasury Department. Any material from which by commercial distillation there can be separated more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon mixture - President's regulations of July 26, 1940. Aviation Gasoline. As defined in the President's regulations of July 26, 1940. 361 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau FROM Mr. Haas April 14, 1941 Employment under the Work Projects Administration showed a decline of 46,000 persons to 1,662,000 during the week ended April 2, 1941. Attachments 362 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Week ending 1940-41 September 4 September 11 September 18 September 25 Number of Workers (In thousands) 1,690 1,687 1,689 1,704 October 2 October 9 October 16 October 23 October 30 1,747 November 6 November 13 November 20 November 27 1,783 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 February 5 February 12 February 19 February 26 1,892 1,893 1,885 1,867 March 5 March 12 March 19 March 26 1,806 1,764 1,736 April 2 Source: Work Projects Administration 1,662 1,762 1,768 1,776 1,779 1,785 1,806 1,820 1,893 1,896 1,895 1,708 363 WORK PROJECTS ADMINISTRATION Number of Workers Employed - Monthly United States Number of Workers 1938 July August September October November December (In thousands) 3,053 3,171 3,228 3,346 3,287 3,094 1939 January February March April May June July August September October November December 2,986 3,043 2,980 2,751 2,600 2,551 2,200 1,842 1,790 1,902 2,024 2,152 1940 January February March April May June July August September October November December 1940 January February March 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 1,708 Source: Work Projects Administration Monthly figures are weekly figures for the latest week of the month. They include certified and noncertified workers. 364 WORK PROJECTS ADNINISTRATION Number of Workers Employed United States Monthly W.P.A. Employment 1938 1937 Weekly V.P.A. Employment 1940 MAR. MAY MAL - - MIL any IN 1939 WILLIONS MILLIONS 1941 H OF or BORKERS BORKERS WORKERS MARKERS 3.4 3.4 3.3 3.3 3.2 3.2 3.2 3.2 3.1 3.1 2.8 2.8 3.0 3.0 2.9 2.9 . 2.4 2.8 2.4 2.8 2.7 2.7 24 2.0 2.6 2.0 2.5 2.5 2.4 2.4 1.6 1.4 2.3 2.3 2.2 2.2 1.2 2.1 1.2 2.1 2.0 2.0 1.9 .8 1.9 1.8 1.8 1.7 A 1.7 1.4 1939 1940 1.5 0 1935 1936 1937 - 1.6 1.5 JAN. '41 MAR. MAY JULY 1939 SEPT. NOV. JAN. MAR. MAY JULY 1940 SEPT. NOV. JAN. MAR. 1941 SOURCE: WORK PROJECTS ADMINISTRATION --- Office of the Secretary of the Treasury Z - 221 82 365 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE April 14, 1941 Secretary Morgenthau TO FROM Subject: Mr. Haas IAA The Business Situation, Week ending April 12, 1941 Summary (1) Commodity prices increased somewhat further last week, despite the unsettlement of speculative sentiment caused by the German advance in the Balkans. Increases were primarily among fats and oils, rubber, and cocoa, with some evidence that a good part of the heavy buying was for inventory. (2) Weekly earnings of factory workers increased consider- ably in February, and a further increase is indicated for March. Advances in wage rates in several basic industries such as steel, coal, and automobiles have recently been granted or demanded. These influences, while raising the level of national income, are tending to make the control of prices more difficult. (3) Reflecting the increased consumer incomes, General Motors retail sales of new cars and trucks in March rose to the highest monthly figure on record. Stocks of new cars reported by General Motors Corporation declined in March for the first time since last August, although used car stocks rose to a new high. (4) Steel ingot production, pig iron production, and the U. S. Steel Corporation's shipments of finished steel, all reached record highs in March. The wage increase granted by the National Steel Corporation last week probably foreshadows similar action by other steel producers. The coal strike is beginning to interfere with steel production, and has already forced a few blast furnaces to close down. (5) Total construction awards as reported by the F. W. as contracts let for factory construction expanded sharply. Dodge Corporation in March rose to a new high since June 1930, Mortgages selected for appraisal by the FHA in March also advanced to a record level. -2- 366 General situation The German invasion of the Balkans jolted speculative sentiment early last week, with a resultant decline in stock and commodity prices. However, largely due to renewed strength in fats and oils and some imported products, commodity price indexes were again moving higher by the end of the week. Retail trade is making a strong showing as a result of increased public purchasing power and the late Easter, while new orders continue to flow into industry in heavy volume. Weekly business indexes have dropped as a result of the adverse effects of the coal strike, which has caused a sharp decline in freight carloadings and is beginning to threaten steel operations. Automobile production was cut by the Ford strike, but should show some recovery in the near future now that a settlement has been reached. Wage rates in basic industries such as steel, coal and automobiles are trending higher, and the consequent increases in consumer purchasing power and industrial costs are causing inflationary tendencies in industries where capacity is a limiting factor. All-commodity index at new high For the week ended April 5 the BLS all-commodity index reached a new high since 1937 at 82.2, an increase of 0.2 point over the previous week. This was the sixth consecutive weekly advance. The fats and oils group increased 3.6 per cent in the week, making a total of 32 per cent increase since the first of March. Prices of fats and oils sharply higher The following individual commodity price changes last week (between April 4 and April 10) merit special attention. (See Chart 1, lower section.) Tallow: Increased 3.6 per cent. Purchasing by manufacturers has been heavy and continuous, apparently to build up inventories. Cottonseed oil: Increased substantially. Futures prices increased further continuing a very steep advance which began early in March. (See Chart 2.) Trading in futures continued the heavy volume previously reported. Tentative trade estimates indicate a contra-seasonal increase in consumer buying for March. Quotations on vegetable oil shortening advanced. -3- 367 Lard: Prices rose noticeably. Recent price increases have occurred in spite of an accummulation of lard stocks in this country to the highest on record. The rise in futures prices, like that for cottonseed oil, has been very steep since early March. (Refer to Chart 2.) Cocoa: Prices increased 5.0 per cent in spite of record receipts. According to press reports, big consumers are buying huge quantities in order to have an adequate supply even if the war cuts off imports entirely. Although imports for 1940 established a record at almost 5 million bags, arrivals this year have totaled nearly 1-3/4 million bags, which exceed imports for the same period last year by more than 60 per cent. The largest single cargo ever booked arrived several weeks ago from West Africa; an even larger cargo has now been booked. The present stock pile in the United States is estimated to equal 8 months' needs. Rubber: Prices increased considerably on reports of a German raider in the Indian Ocean and the uncertainty caused by war activity in the Near East. Tire shipments in the first quarter of 1941 were the largest number for that quarter since 1929. Hogs: Increased 6.9 per cent on expected Government purchases of pork products. The press reports that consumers are placing commitments for 6 months or even further ahead. Wheat: The Government crop report on winter wheat indicated (as of April 1) an expected production of 616 million bushels, in the period 1930 to 1939. The figure was in line with private compared with 589 million in 1940 and an average of 569 million estimates released in the previous week. Earnings of factory workers substantially increased Continued advances in earnings of factory workers are tending to increase the national income, and to expand the volume of consumer buying. On the other hand, the difficulty of holding down industrial costs and prices is being correspondingly increased. Average weekly earnings of factory workers reported by the BLS increased to $28.56 (preliminary) in February compared with $27.70 in January. A further increase in weekly earnings is estimated to have occurred during March, judging from confidential BLS data based on a relatively small sample. (See Chart 3, which presents these data on a 1935-1939 base, in comparison with the BLS cost-of-living index). 368 - The steep increase in weekly earnings beginning in the third quarter of 1938 contrasts with relatively small increases in the cost of living during that period. The es- timate for March 1941 16 based on NICB data. Automobile sales rise sharply One of the most striking manifestations of the rise in purchasing power has been its effect on automobile sales. General Motors confidential sales figures for March reveal that sales of new cars and trucks to consumers during the month rose 45 per cent above March 1940 to the highest monthly figure on record. (See Chart 4.) This strong showing is more significant in view of the fact that an unusually good sales volume has been maintained ever since the 1941 model cars were introduced. Although the boost in public purchasing power undoubtedly has been the dominant factor in the heavy sales volume, fears of production curtailment and price increases have also been contributing factors. Due to the heavy sales to consumers, new car stocks reported by General Motors Corporation declined during March for the first time since last August. As a result, stocks at the end of March were 4 per cent lower than a year earlier, and the ratio of stocks to sales was well below that prevailing on the same date in the past few years. (See Chart 5. upper section.) Although used car sales of General Motors dealers in March were 30 per cent above. March 1940, they ran 2 per cent below the previous month's unusually heavy volume. By the end of the month stocks of used cars in the hands of dealers had reached a new high, although the ratio of stocks to sales was still moderately below that of comparable dates of the past few years. (Refer to Chart 5, lower section.) Wages and prices absorbing attention in steel industry While wage negotiations were still under way between the U. S. Steel Corporation and the Steel Workers' Organizing Committee, the National Steel Corporation at the beginning of last week suddenly announced a wage increase of 10 cents per hour. This was the equivalent of a 16 per cent increase in the wage rate for common labor. This action was followed near the end of the week by a formal demand on the Bethlehem Steel Corporation by the S.W.O.C. for a wage increase of 10 cents an hour. Since soft coal miners are on strike for 369 -5higher wages, and some increase in wages for iron ore miners appears likely, the question has arisen as to the effect of these moves on steel prices. Contrary to the usual practice, price announcements have not yet been made for the second quarter and it remains to be seen what action will be taken. Trade comment indicates that there has been no diminu- tion in new business booked by the steel mills. Latest avail- able weekly figures of new orders received by the U. S. Steel Corporation shows a rise of 4 per cent to 165 per cent of capacity. Orders and backlogs for plates and bars in the industry are reported to be especially heavy, and automobile producers are said to be exerting great pressure for shipments of sheets and strip. At the same time, the Iron Age reports that the automobile industry has been advised that it cannot have as large a steel tonnage as desired for production of 1942 models in the latter half of the year. Record steel production in March Despite some labor trouble near the end of the month, steel ingot production for the industry as a whole reached a new high at 100 per cent of rated capacity in March, as compared with 96.8 per cent in February, according to the American Iron and Steel Institute. Shipments of finished steel by the U. S. Steel Corporation also set a record in March, with tonnage exceeding the previous high of May 1929 by 1 per cent. Pig iron tonnage also reached a new high during the month as a result of a 3 per cent gain over daily average output in February. On April 1, 205 furnaces were in blast as compared with 202 on March 1. The coal strike has begun to affect pig iron production. During the past week 2 blast furnaces in the Chicago district and at least one each in both the Youngstown and Pittsburgh districts were reported closed down because of the strike. Further difficulties in this connection were expected unless the coal strike was settled promptly. The movement of iron ore down the Great Lakes has already started and was expected to be in almost full swing by the end of last week. Navigation through the Soo Canal is reported to have been opened at the earliest date in the history of lake transportation. Steel ingot production last week was scheduled at 99.3 per cent of capacity, a gain of 0.1 point over the previous week. Steel operations during the current week are scheduled at 98.3 per cent of capacity. 370 -6New orders at record high Due largely to a sharp spurt in new textile business, marked by large orders for woolen goods, our index of new orders rose 23 per cent in the first week of April to a new record high. (See Chart 6.) Steel bookings also showed an increase, although the gain of 4 per cent was of modest proportions in comparison with the increase in textile orders. New orders for items other than steel and textiles showed a contrary trend and declined 4 per cent from the previous week. Construction activity booming Due chiefly to a sharp increase in contracts awarded for non-residential construction, last month's total construction awards, as reported by the F. W. Dodge Corporation, reached a new high since June 1930. The total for the month rose to no less than $480,000,000 from $270,000,000 in the previous month and $272,000,000 in March 1940. In reflection of the drive for increased industrial production to speed up the defense program, contracts let for factory buildings rose to $122,000,000 from only $22,000,000 in March 1940. Heavy engineering construction awards in March, as reported by the Engineering News Record, reached the third highest level on record and ran 152 per cent above March 1940. Although residential construction contracts awarded in March rose by less than the usual seasonal amount, they attained high levels and were still 21 per cent above the corresponding month of last year. (See Chart 7, upper section.) Furthermore, a great amount of residential construction in the next few months, particularly in defense areas, is foreshadowed by FHA data. Additional impetus to residential construction will be received from liberalizing legislation enacted recently whereby the FHA was authorized to insure mortgages up to a combined total of $100,000,000 in communities where a shortage of defense housing exists. Mortgages selected for appraisal by the FHA in March (on a dollar basis) rose to a new high and exceeded the best previous month on record by 7 per cent. This strong showing carried over to the first week of the current month, when weekly figures of mortgages selected for appraisal by the FHA also reached a new record high. (See Chart 7, lower section.) Of the total number of mortgages selected for appraisal, the number of new homes to be built under the FHA program has increased, with only one notable interruption since the beginning 371 7- of the year, and attained new record levels in the first week of April. (See Chart 8.) The number of new homes actually started under the FHA program fell seasonally to a low for the current year in the last week in February, after which a strong seasonal upswing set in. By the first week in April, the number started was nearly double the recent low and 17 per cent above the corresponding week of 1940. (See Chart 8.) Weekly business indexes Due almost entirely to a sharp drop in carloadings of coal arising because of the coal strike, the New York Times index of business activity in the week ended April 5 declined 2.6 to 121.7. The principal offsetting 'factor was a moderate gain in the adjusted index of steel ingot production, as a result of a rise in steel operations. In addition, the adjusted indexes of cotton mill activity, miscellaneous freight carloadings, and electric power production all showed slight fractional gains. On the other hand, the adjusted indexes of lumber and paperboard production showed fractional declines and the adjusted index of automobile production declined nearly 8 points, due largely to the drop in production caused by the Ford strike. Barron's index of business activity for the week ended April 5 showed a smaller decline than the Times index and decreased to 132.2 from 133.3 in the previous week. Preliminary data for the week ended April 12 reveal another sharp drop in the adjusted index of automobile pro- duction as a result of the cut in output resulting from the Ford strike, and a small decline in the index of steel ingot production. MOVEMENT OF BASIC COMMODITY PRICES Domestic and Imported AUGUST 1939-100 PER PER CENT PER PER CENT CENT Weekly Average CENT Daily 145 145 140 140 140 140 // Imported 130 Commodities 130 // Imported 135 135 130 130 125 125 Commodities 120 120 110 17 Domestic Commodities 120 O N D J S J J 1940 F A A M M 115 IS J M FEB. 1941 115 22 I A IS . M 22 29 - $ 100 100 120 APR MAR. 24 10 3 110 17 24 a 17 Domestic Commodities MAY 1941 Percentage Change for Individual Commodities. August 1940 Low to April 4 and to April 10. 1941 Tellow 107.1% PER PER CENT +90 CENT 17 Domestic Commodities +90 II Imported Commodities +80 +80 +70 Lord 64.2% Cottonseed Oil 636X +60 aPrint Cloth 474X Hage 393X +50 Wheat 35.2X Regin 278% Barley 25.9% alead 232X +40 Butter 208X +30 Cocoa 75.0% Burlap 729% Shellac 69.0% +70 +60 Wool 47.8% +50 Coffee 464% Hides 462% +40 Flaxesed 34.2X Sugar 303X +30 Steel Scrap.dom. 16.7% Steers 16.3% Cotton 16JX +20 Rubber 18.9% +20 Silk 13.0% Zinc 15.1% Copper 11.8% Steel Scrap. exp. 82% +10 +10 Tin 2.5% Corn 8.0% 0 0 Aug Low Apr. Apr. 10 Aug. Low Apr. 4 Apr.10 P-199-16 Office of the Security of the Treasury BUSINESS CENTS CENTS GENTS POUND POUND PER 110 PER 120 130 100 PER 140 " 10 --/ 2.6 2.4 2.2 2.8 6 6 12 9 a 7 2.0 8 7 1.4 1.6 1.8 70 6 5 9 90 90 80 7 10 Million MAY - - OCT. FUTURE ss SEPT. 1940 Lard Bugar Fool Tops Cottonsoed 011 Wheat Cotton Coffee 9.5 PVT: NOV. Coffee 40 9.5 - m MAY FUTURES - BOY MAY SEPT. FUTURES - FUTURES. 1941 94 Weekly Averages (Putures) on MEL - BUSHO CENTS 2.0 2.4 2.2 2.4 - CENTS FOUND 1.8 POUND 2.0 10 PER 6 PER 110 100 6 7 $ 80 70 120 130 140 CENTS CENTS PER " 10 90 se 12 9 BUSHEL 10.0 POUND 2.2 CENTS DENTS DENTS 2.0 24 6.5 8.0 7.0 2.4 2.8 9.0 7.5 8.5 7.0 8.0 6.5 8.5 POLING 7.5 7.0 6.0 8.5 PER PER 110 140 7.5 120 130 90 80 PER 10 11 9 16 16 Sugar Cottonseed 011 Lard FEBRUARY Wheat Fool Tops Cottes FEBRUARY 23 23 2 TTTT , MARCH MARCH 16 MAY FUTURES 1941 -DEC. FUTURESH 23 1941 30 6 APRIL 13 APRIL 20 27 373 11 27 2.0 2.4 2.6 2.8 8.0 10.0 8.5 9.4 6.5 2.2 6.0 8.5 FOUND 6.5 BUSNEL CENTS 7.0 7.5 8.0 8.5 CENTS PER 90 DENTS POLICE PER PER 80 110 120 130 11 140 10 9 Daily Futures about PRICES OF SELECTED AGRICULTURAL COMNODITIES SEPT. 190 13 EARNINGS OF FACTORY WORKERS AND COST OF LIVING 1935-99-100 1936 1937 1938 1941 1940 1939 1942 PER PER CENT GENT Quarterly 125 for 125 120 120 115 115 AVERAGE WEEKLY EARNINGS 110 110 105 105 as 100 100 COST OF LIVING 95 95 90 90 85 85 1936 1937 1938 1939 1940 1941 1942 MONTHLY IN 1941 SOURCE: B.L.S. 3 - of - - I Office of the Secretary of the Treasury C-381 GENERAL MOTORS Retail Sales of New Cars during Model Years 1938 - 41 SEPT. OCT. NOV. DEC. JAN. FEB. APR. MAR. MAY JUNE JULY AUG. CARS CARS THOUSANDS THOUSANDS 225 225 200 200 1941 MODEL YEAR 175 175 1940 MODEL YEAR 150 150 125 125 1939 MODEL YEAR 100 100 75 75 1938 MODEL YEAR 50 50 25 25 0 0 SEPT. OCT. Office of the Secretary of the Treasury Division of - - Redde NOV. DEC. JAN. FEB. MAR. APR. MAY JUNE JULY AUG. STRICTLY CONFIDENTIAL CONCIDENTIAL I 121 Chart 5 CONFIDENTIAL STRICTLY CONFIDENTIAL 376 GENERAL MOTORS Stocks of New and Used Cars, Ratio to Sales JAN. NOV. SEPT. MAR. MAY JULY PER PER CENT CENT New Cars 300 300 250 250 1938 MODEL YEAR 200 200 150 150 1939 MODEL YEAR 100 100 1940 MODEL YEAR 50 50 1941 MODEL YEAR 0 0 MAR. JAN. NOV. SEPT. MAY JULY 200 200 Used Care 1938 MODEL YEAR 150 150 1939 MODEL YEAR 100 100 1940 MODEL YEAR I 1941 MODEL YEAR 50 50 0 0 SEPT. Office of the Secretary of the Treasury Dividen of I and India NOV. JAN. MAR. MAY JULY 1-122 INDEXES OF NEW ORDERS Combined Index of New Orders and Selected Components PERCENTAGE POINTS POINTS 220 220 210 210 Total combined Index) 1036 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 00 Total excluding Steel and Textiles 80 70 70 60 60 50 50 40 40 Steel Orders 30 30 20 20 10 Textile Orders 10 0 0 A 1939 1940 1-85-D Secretary RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES 1 94 1 1 940 19 39 MJJA$ DOLLARS DOLLARS MILLIONS MILLIONS (MORTGAGES) (AWARDS) Mortgages Selected for Appraisal 160 and F.W. Dodge Awards Monthly 174 150 162 F. W. DODGE AWARDS 140 150 130 138 120 126 110 114 100 102 90 90 80 78 MORTGAGES SELECTED FOR APPRAISAL, F. H. A. 70 66 60 o $ N J M 1941 1940 J 1 939 DOLLARS D A MAY MAR. JAN. JULY SEPT. . 54 NOV. DOLLARS MILLIONS MILLIONS Mortgages Selected 40 40 for Appraisal, F.H.A. Weekly 35 35 30 30 194 1 25 25 1939 20 20 15 15 940 10 10 5 5 0 1 1 LLL 0 JAN. MAR. MAY JULY SEPT. NOV. 378 NEW HOME CONSTRUCTION. F.H.A. Daily Average Number of Homes 1940 1050 1050 1000 1000 950 950 900 900 MM 850 850 HOMES TO BE BUILT 800 800 750 750 700 700 650 650 600 600 550 550 HOMES STARTED 500 500 450 450 400 400 350 350 300 300 MN 250 250 200 200 C - 359 Office of the Secretary of the Treasury - of Research and Stationer 380 BRITISH EMBASSY, WASHINGTON, D.C. PERSONAL AND SECRET April 14th, 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, The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 381 Telegram received from London dated April 12th, 1941 NAVAL N.T.B.'s at 0210/11 off Dieppe attacked with torpedoes enemy tanker and two trawlers. One hit probable one M.T.B. considerably damaged in burst of machine gun fire. 2. Armed Merchant Cruiser Voltaire is over due at Freetown. 3. MILITARY LIBYA. To Dome of 10th. Advance enemy elements Astride the road to Derna-Tebruk have been in contact with our troops within Perimeter. Enemy have withirem. Air and ground reports show general movement of armoured fighting vehicles and motor trans. port from the went towards Gasala front, about 700 meter transport were moving eastward. On the morning of the 11th enemy column of A.P.V. and N.T. penetrated between Tobruk and F1 Adem and are reported to have reached the road Bardie Tobrake About 30 A.F.V's including some 8 wheeled amoured cars seen stationary on Hardia Toback road 5 to 10 miles east of Tobryk. 4. ALBANIAN FRONT. Germans have captured Ohrid and have joined forces with Italians at Strugs. YugoSlavian advance on Puke and Elbasan continues and German column thrown back from Prisron to Saha Roke. 5. ORSECH. April 10th. British troops in contract with/ 382 ... with the Germans at Bitolj where patrol of our armoured cars shot up Debussing enemy infantry. We had no casualties. 6. ROYAL AIR FORCE. Night of 10th/11th. 50 tons of high explosive dropped at Brest where Gneiseneau and Scharnhorst clearly seen and reportedly straddled; fires started in docks. At Bari 25 tons of high explosive dropped and at Harignze. Direct hite scored on hangare and buildings. 7. Attack reported yesterday on Borkum was made on Norderney. B. Yesterday Blenheim bombed merchant vessel of 1500 tone left sinking. Two hite soored on mine sweeper and another probably hit. In Calais area fighters attacked enemy troops and m E-boat and probably destroyed a seaplane in tow. One enemy aircraft destroyed 1 probably destroyed and 1 damaged. Two of our aircraft missing. 9. Night of 11th/12th. Bombing operations cancelled. 10. GREECE. 10th/11th. Our bombers and fighters successfully attacked enemy motor transport convoys and troops in Prilep and Bitolj areas. Some A.F.V.'s two tanks and many lerries destroyed, heavy essualties and great confusion resulted. Train hit south of Bitolj and bridge destroyed at Polyeastron. Libya/ 383 11. LIEYA. April 10th. Our bombers and fighters destroyed or damaged about 85 enemy motor transport vehicles and caused heavy casualties amongat enemy troops. 12. GERMAN AIR FORCE. April 11th. Enemy activity restricted to patrols and reconneissences over shipping off the French Coast and in Dover Straits. Night of 11th/12th. 13. Enemy operations on smaller scale than the previous nights and directed chiefly against Bristol area with Southampton and Portsmouth as secondary objectives. Four enemy aircraft destroyed three probably destroyed and one damaged. 14. HOME SECURITY. Coventry April 10th.11th. A serious fire occurred at a telephone and radio works and three large fires at another important factory. The General Post office was burnt. Casualties so far reported 48 killed, 65 seriously wounded. 18. AVONMOUTH. April 11th.12th. Ship in docks set alight and some damage caused at two flour mills. 384 CONFIDENTIAL MILITARY INTELLIGENCE DIVISION TENTATIVE LESSONS BULLETIN No. 91 WAR DEPARTMENT Washington, April 14, 1941. G-2/2657-235 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction see Letter TAG 350.05 (9-19-40) M-B-M. GERMAN ADMINISTRATIVE SERVICES SOURCE This bulletin is based upon information prepared by a high British official source in mid-1940. CONTENTS 1. SUPPLY SERVICES 2. MEDICAL SERVICE 3. VETERINARY SERVICE 4. PROVOST SERVICE 5. POSTAL SERVICE CONFIDENTIAL -1- 385 CONFIDENTIAL GERMAN ADMINISTRATIVE SERVICES 1. SUPPLY SERVICES a. General The supply service is responsible not only for the provision of ammunition, food, equipment, and motor fuel, but it also provides mobile workshops for the repair of motor vehicles, arms, and equipment of all types. In addition, it includes personnel necessary for loading and unloading the vehicles of its various columns and for establishment of refilling points, dumps, parks, and the like. The supply organization is kept very fluid. As far as can be ascertained, the establishment of the supply service in a formation is not at any time fixed. Columns are of standardized carrying capacity and are transferred from one formation to another, according to the requirements of the situation. In addition to the supply columns described in 1b, 1c, and ld, GHQ has a reserve of mechanical transport columns, each with a carrying capacity of 60 tons. These can be used to augment divisional, corps, or army columns. The system as regards food supply is that one day's rations are carried in the unit field kitchens, two days' in the unit supply transport, and one day's in the divisional supply columns. Each man carries one day's iron rations, and a similar reserve is kept on the unit field kitchens. With regard to forage, the day's ration is carried on the animal or on its vehicle, two days' forage is carried by the unit supply transport, and a further forage in the divisional supply column. An iron ration of forage is carried on the animal or in its vehicle. As a general rule, the delivery of rations to sub-units is organized as follows: At the divisional delivery point, the motorized second echelon of the regimental supply transport receives the supplies on a battalion basis. They are then handed over from this second echelon to the first - composed, in the case of infantry battalion, of horsed vehicles. In exceptional cases the second echelon delivers direct, and the horsed first echelon follows its sub-unit loaded. Each motorized unit has a motor vehicle which carries two days' supply and consequently draws only every other day from the divisional delivery point. The system as regards anmunition supply is the same as that of the British Army - that is, systematic replacement from rear CONFIDENTIAL -2- 386 CONFIDENTIAL to front. Gasoline, oil, and grease are replaced systematically from rear to front. Motor vehicles of non-motorized units fill up from the divisional motor column for gasoline and oil. Motorized units have special fuel and stores vehicles which act as links between unit vehicles and divisional or army motor columns for gasoline and oil. In calculating quantities of fuel needed, the Germans classify motor vehicles according to their nature and gasoline consumption. The unit of consumption is that quantity of fuel which the vehicle requires for a 60-mile run. b. Supply Service in the Division The supply service of the division is under the command of the division supply officer. He has under his control units whose type and number are dependent upon the situation. Among these are the following: (1) Supply Columns These are horsed or small motorized columns which have a carrying capacity of 30 tons. Each horsed column contains 40 vehicles and each small motorized column has ten 3-ton vehicles. There are probably eight of these supply columns in a normal infantry or motorized infantry division and seven in an armored division. Supply columns of motorized infantry divisions and armored divisions are invariably motorized. In certain terrain it is necessary to employ mountain horsed columns and pack transport columns. Each of the former has a carrying capacity of only 15 tons, and a pack transport column, even under the most favorable conditions, can transport only five tons. Each pack load is between 100 and 180 pounds. The maximum daily run of horsed and mechanized columns is 19 and 100 miles respectively. The average speed of motor columns is 15 to 20 miles per hour, or five times greater than that of the horsed columns. These columns provide fighting troops with ammunition food, clothing, arms, and equipment of all kinds. They evacuate damaged weapons and equipment, captured materiel, used cartridge cases, and the like, as well as wounded men and animals in case of necessity. These columns normally form the links between army supply columns, described in ld(1), and divisional refilling points, but in certain cases they may operate from railhead to divisional refilling CONFIDENTIAL -3- 387 CONFIDENTIAL points. At the latter, ammunition is handed over to light infantry, cavalry, artillery, engineer, or signal columns, and rations to the motorized portion of the unit's supply transport. When action is imminent, an artillery anmunition echelon is formed from the motorized columns carrying ammunition. This echelon is placed under orders of the division artillery commander, and transports ammunition to the unit ammunition echelons or to the gun positions. (2) Motorized Column for Gasoline and Oil In the case of an infantry division, this divisional unit is believed to consist of one officer and 30 other ranks, with 24 motor vehicles. It establishes gasoline points for motor vehicles of the staff and of non-motorized units, as well as for motorized units. The divisional motorized column for gasoline and oil procures its supplies of motor fuel, oil, and lubricants direct from the gasoline railhead or from the army motor column for gasoline and oil. (3) Mobile Workshop Sections There is believed to be one unit of this type in a normal infantry division. It consists of three officers and 190 other ranks, with 100 motor vehicles, 12 trailers, and eight motorcycles. Personnel carry out second line repairs to motor vehicles; first line repairs are carried out within units themselves. (4) Supply Companies These companies, which are divided into ammunition, ration, technical, and collecting sections, are responsible for loading and unloading of vehicles at divisional refilling points. The division supply officer has under him an officer who controls the divisional supply refilling point and the divisional field bakery and butchery. C. Supply Service in the Corps The commander of the supply service of a corps is known as the corps supply officer. He has under his control a number of units of the same type as those in the supply service of a division. These units are used to reinforce supply columns of divisions when necessary and also to supply corps troops. d. Supply Service in the Army The commander of the supply service of an army is known as the army supply officer. He has under his control a number of units CONFIDENTIAL 388 CONFIDENTIAL of the types given below with the actual number dependent upon the situation: (1) Supply Columns These are motorized columns of 10 or 20 3-ton vehicles which have carrying capacity of either 30 or 60 tons. They normally form the link between the ammunition and supply railheads of the army and the army ammunition and supply depots, where their loads are partly taken over by the divisional supply columns and partly retained in the depots. (2) Motorized Columns for Gasoline and Oil These columns have tank capacity of either 5,500 or 11,000 gallons of motor fuel. They work on the "endless band" system - direct from supply railhead to units in divisions, or to the divisional motorized column for gasoline and oil. (3) Field Workshops In these units repairs to weapons and equipment are carried out. (4) Supply Battalions These units are divided into ammunition, ration, technical, and collecting companies, which are located at various army parks. They are responsible for the loading and unloading of vehicles of the divisional and army supply columns and for other duties in connection with the parks themselves. (5) Parks and Depots The following types of parks and depots exist in an army: Depots: ammunition, supply. Parks: infantry, artillery, engineer, signals, mechanical transport, equipment, anti-gas equipment. In addition, the army supply officer has under him an officer in charge of supplies who controls the army supply depot and the army field bakeries and butcheries. CONFIDENTIAL -5- 389 CONFIDENTIAL 2. MEDICAL SERVICE The GHQ of armies in the field has at its disposal ambulance units, field hospital units, and army medical units. There are, in addition, hospital ships and hospital trains with necessary medical personnel. Each army disposes of a number of ambulance units, one field hospital unit, and one medical unit, as well as hospital trains. The field hospital unit establishes separate hospitals for serious and for light cases. The latter are for casualties who are likely to return to their units after three or four weeks' treatment. The army medical unit contains medical companies, detachments to establish field hospitals, and ambulance sections. Army medical companies and field hospital detachments reinforce or relieve divisional medical companies and one field hospital detachment; army ambulance sections are generally employed in rear of divisional areas. No medical units are allotted to a German army corps. Each infantry division has one, or occasionally two, medical companies. A company consists of six officers and 278 other ranks; 84 of its personnel are armed with pistols. This unit, partially motorized, is reported to contain 14 motor vehicles and six motorcycles, as well as 50 horses. There is also in each division a field hospital which, it is believed, consists of seven officers and 85 other ranks, with 30 motor vehicles and five motorcycles. In addition, there are two ambulance sections, each of one officer and 50 other ranks, with 21 motor vehicles and three motorcycles, and there may be a horse-drawn ambulance section. Wounded are first collected and tended at regimental aid posts by unit medical personnel. They are then taken to one of the car posts, where they are taken over by divisional motorized or horse-drawn ambulance sections and transported to the advanced dressing station. Adjacent to the advanced dressing station are the walking wounded collecting posts, to which walking wounded proceed on foot. Thereafter casualties are evacuated either to the divisional field hospital or to casualty clearing stations and army hospitals. It is not known how many dressing stations can be formed by a divisional medical company, but it is probable that the latter has sufficient personnel and equipment for the provision of one main and two or three advanced dressing stations. Divisional medical resources are responsible for the care and evacuation of wounded from the car posts or walking wounded collecting posts to divisional field hospitals or, until evacuated, to the casualty CONFIDENTIAL -6- 390 CONFIDENTIAL clearing stations or army hospitals. 3. VETERINARY SERVICE The GHQ of armies in the field has at its disposal veterinary hospitals, mobile animal blood-testing units, and horse transport columns. There are, in addition, hospital trains and ships for the evacuation of sick and wounded animals, which may be suballotted to army commands. Armies have veterinary hospitals which receive animal casualties evacuated by divisions and also horses which have become available by purchase or capture. Horses which have recovered from wounds or sickness are accomodated in veterinary depots. Should the distance between army veterinary hospitals and divisional veterinary companies be too great, veterinary evacuating stations are established by order of GHQ from resources provided by army field hospitals. Army horse transport columns evacuate animal casualties from divisional veterinary hospitals. No veterinary units are allotted to a German army corps. The infantry divisional veterinary company consists of six officers and 228 other ranks, with 188 horses. It comprises a collecting section, a hospital section, and a stores section. In action, the veterinary company establishes one or more horse collecting stations which are also distributing centers for remounts and for veterinary stores. It is believed that the evacuation of sick and wounded animals is approximately the same as in the British Army. 4. PROVOST SERVICE a. Military Police Units of military police are employed with divisions, corps, etc. The divisional military police unit consists of two officers and 18 other ranks. In home territory their duties include military police and security service and the custody of prisoners of war; they act in close cooperation with civil police. In enemy territory they are also responsible for traffic control, collection of stragglers, prisoner of war cages, burial of the dead, establishment of information bureaus, control of civilians, the organization of civil labor, control of animals, and fire fighting and air raid precautions services. The military police work in close cooperation with the field secret police and with district commanders and town majors. CONFIDENTIAL -7- 391 CONFIDENTIAL Guard Battalions b. in each army. These units police the depots, etc. They are included Secret Field Police C. It is believed that the duties of this organization are the same as those of the Field Security Police in the British Army. Some of their functions are thought to be:(1) To prevent and discover espionage and other offenses against the security of the army and to control identification cards, permits and passes, and the movement of all civilians; (2) To prevent civilians living in the area occupied by the army and capable of bearing arms from joining enemy forces; (3) To supervise war correspondents, press photographers, etc.; (4) To recruit suitable persons to act as agents for the Intelligence Service. It is probable that the Gestapo has furnished some of the personnel of the Secret Field Police. District commanders and town majors, with their detachments, are established as required in back areas. They are responsible for provost duties in their areas, as well as for their other administrative duties. For this purpose military police are included in their detachments, and additional police units are placed under their command where necessary. In enemy territory civil authorities are subordinate to district commanders and town majors. 5. POSTAL SERVICE It is believed that this service, which exists only in war, is organized in the same way as the equivalent service in the British Army. The divisional field post unit consists of two officers and 37 other ranks. In order to disguise locations of formations and units, a system of field post numbers came into force at the outbreak of war. These numbers are allotted to the field army and to certain units and offices of the home forces. CONFIDENTIAL -8- 392 CONFIDENTIAL Five-figure numbers are assigned to formations, units and sub-units; L or M prefixed indicates an air force or naval unit; the letter A, when added to a military number indicates battalion headquarters, while the letters B, C, D, and E indicate the four companies of the battalion. Numbers are assigned to units with a studied absence of system, with army, air force, naval, and police numbers occurring at random in the same series. when letters or other communications are addressed, the field post number alone is used, with no mention of the unit permitted. It seems likely that, for security reasons, the field post number will replace the name of the unit on identity discs and in paybooks. CONFIDENTIAL -9- 393 RESTRICTED 0-2/2657-220; No. 365 M.I.D., W.D. 12:00 M. April 14, 1941. SITUATION REPORT I. Western Theater of War. Air: German. Limited activity over the British Isles. Further attacks on shipping. British. Subnormal activity on the night of the 12-13th, when scattering attacks were made over Germany and the occupied territories. Limited activity last night. II. Balkan Theater. Yugoalav Front. Hungarian and German units have occupied all Yugoslav territory north of the Danube. Belgrade has been captured by the armored force of General Oberst von Kleist which had advanced through Nish. Italian columns operating from Fiume, Trieste, and Zara have occupied Laibach (Ljubljana) and a considerable portion of northern Dalmatia, The Yugoslav army is attempting to create a defense line in the north along the Sava river. Between three and five divisions are still intact in this area. The situation in central Serbia is unclear. Considerable Yugoslav forces are intact in this area, and British official reports indicate that these have obtained successes in counterattacks toward Nish, Greece and Albania. German troops hold Florina. No major engagement has yet occurred between German and British troops in this area. In southeast Albania the Italian Ninth Army has begun a push toward Corizza (Koritsa). There is evidence that the Greek right has started to withdraw. Air: German strategic bombing continued. The port of Piraeus was again attacked. The R.A.F. concentrated on German communications in southern Serbia. III. Mediterranean and African Theaters of War. Ground: Libya. Axis troops have completed the encirclement of Tobruk and have captured Sollum on the Egyptian side of the Libyan border and Fort Capuzzo on the Libyan side. The situation of the weak British force (estimated at an Australian Division plus a weakened mechanized brigade) in Tobruk is believed to be very serious. Air: Toburk was steadily bombed. There is evidence that aviation is being used extensively to supply the German ground forces in Libya, RESTRICTED 394 SECRET By authority A. C. of S., G-2 Date Initials Paraphrase of Code Cablegram Received at the War Department at 9:34, April 14, 1941. Gaire, Filed April 13, 1941. 1. Troops of the Indian Army are being formed as an Engine Reserve at Matruh. 2. Miner assault operations by Axis treeps against Tebruah failed April 12th. 3. Two British companies are holding Bardia. 4. In the sester south of Tebruch British observers have n parted 660 lerries and 100 mechanised vehicles. Amis artillery are being brought forward. Heavy antistreraft guns are explaced as the n Gesala sinkness. 5. An officer captured by the Germans and who later energed states that the German foress are employing transport by airplane extensively. 6. There is an Axis force advensing on Salm from Assis. The British servison of the farmer place is two infentry hattalions - from the Support Group of the 7th Amount Division. FELLERS Metributions Secretary of War State Department Secretary of Treasury Under Secretary of Year Chief of staff Assistant Chief of Staff, 0-3 WPD ONX Collection Section as AO SECRET 395 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 11:58, April 14, 1941 Budapeat, filed 17:00, April 14, 1941. Hungarian War Office will give out no information relative to their own or German military operations. The protected occupation of territory north of the Danube is claimed as great Hungarian victory. Small numbers of German air force and army personnel continue to pass through Budapest. German troops that occupied Zagreb came from Nagykanissa. PARTRIDGE Distribution: Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, G-2 War Plans Division Office of Naval Intelligence CONFIDENTIAL SECRET By 396 authority of S-G Date APR 15 1941 Initials Paraphrase of Code Cabilogram Recei ved at the War Department at 1:41, April 14, 1941. Caire, Filed 12:54, April 12, 1941. In reference to our cable of April 9 in which units of the 3d Mechanised Brigado were reported immobilised through failure of gas supply the circumstances were as follows: On April 2 this brigade was near Msus and was mistaken for a Our - solum by air accuta who attacked it causing casualties. They followed up by destroying all gasoline supplies located - the way to Meshili. Similar occurrences took place north of Mills Ababa not long ago when South African aquadrum bombed that - motor transport column. Sush instances of attack by friendly planes have occurred at least four times. FELLERS. Distributions secretary of War State Department Secretary of Treasury Under Secretary of Orief of Staff Assistant Chief of staff, 0-2 - Plans Division office of Naval Intelligence Air Carge Assistant Chief of staff, 0-3 SECRET 397 CONFIDENTIAL Paruphrase of Code Radiogram Received at the War Department at 14:31, April 14, 1941. Vishy, filed 17:37, April 14, 1941. EXTRACT ... It is the opinion here that current German objectives arei- (1). Sues Canal; (2). Straits of Gibraltar. French official estimates of German Divisions are:- 45 Divisions in France: 10 Divisions in Belgium. Laftwaffe forces in France have been reduced. LEAHY Retribution: Secretary of Mar State Department Secretary of Treasury Under Secretary of Var Chief of Staff Assistant Chief of Staff, 0-3 War Plans Division Office of Neval Intelligence CONFIDENTIAL CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 21:32, April 14, 1941. Listen, filed 20:21, April 14. Bound for Angra do Heroismo in the Asores, an Infentry Dattalion sailed this date. GAUN Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0.3 War Plans Division Office of Naval Intelligence CONFIDENTIAL 398 399 Paraphrase of Code Cablegram Date APR 15 1941 ( Received at the War Department G-2 Ro Initials at 21:40, April 14, 1941. Gaire, filed April 12, 1941. 1. Army authorities are confident that the supply situation of the Germans in Libya is serious and that the attack has begged down. 2. On his return from Tobraah General Vavell stated that the morals of the Australian division was entirely satisfastory. Only 140 man were last during the withdrawal. Major elements of the 3d Mechanised Brigado and the meterised Indian Brigads have not yet been heard from. Smiler last waite, however, have succeeded in getting through the Gerasa lines at Tobrach with captured enemy personnel. 5. The system of sabi-sireraft defense for Alexandria is in the process of being strengthened. 4. British Military Intelligence state that Axis troops in saya consist of 2 German mechanised divisions and 4 Italian materised infentry divisions. FELLERS Secretary of War State Department Secretary of Treasury Under Secretary of War Chief of Staff Assistant Chief of Staff, 0-3 War Plans Division Office of Naval Intelligence Air Corps as SECRET ) SECRET By authority A. C. of S 400 CONFIDENTIAL Paraphrase of Code Radiogram Received at the War Department at 9:34, April 14, 1941. Sefia, filed April 14, 1941. Bulgaria is OR the verge of coming into the var against Yugoslavia according to reports going around in sesi-official circles here. The sole consideration that deters her is the reflection that by doing se she will bring down on herself the displeasure of both the United States and of the Seviet Union. The town of Unicub (Staplie) has been nine-tenths destroyed by bombardment. Priseners brought in from the Tugoslav Army say that terror caused by German Stakes, bombs, and tanks made them surrender. Troops now passing through Sefia are largely artillery (horse-drawn). transportation (also horse-drawa), and infentry marching on feet. These are moving to the south by way of the Bulgarian capital. According to local reports they are OR their way to the Greek front. JADWIN Retribution: Secretary of War State Department Secretary of Treasury Under Secretary of Var Chief of Staff Assistant Chief of Staff, G-2 Var Plane Division Office of Naval Intelligence Air Gorps CONFIDENTIAL