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167 10 Excise taxes :Estimated increase Source (In millions) $255.0 132.5 Gasoline, 1 cent per gallon additional Soft drinks, 1 cent a bottle and equivalents Possenger automobiles, parts and accessories, 79.9 double rates 57.0 Check tax, 2 cents per check Admissions, reduce exemptions from 20 cents to 55.0 9 cents Tires and tubes, increase rates from 2 and 4₫ conts to 5 and 9 conts Telephone, telegraph, cable, etc., lower exemptions and increase rates Passenger transportation, 5 percent of amount paid (35 cent exemption) Telephone bill, 5 percent Furs, 10 percent of retail sale price Jewelry, 10 percent of retail sale price 52.5 40.4 37.6 28.6 20.7 19.6 15.0 10.0 (1932 Act exemption) Photographic apparatus, etc., 10 percent Clocks, watches, etc., 10 percent Mechanical refrigerators, increase rate from 5 to 10 percent 9.8 8.5 Sporting goods, 10 percent Matches, 2 cents per 1,000 7.1 Radio sets and parts, increase rate from 5à to 10 percent Toilet preparations, revise basis Trunks, suitcases and other luggage, 10 percent Phonographs and phonograph records, 10 percent Candy, chewing gum, 5 percent Musical instruments, 10 percent 6.3 5.0 4.5 4.5 3.6 3.6 Bowling alleys, $15 per alley, billiard or pool table Club dues, initiation fees, lower exemptions and redefine base Playing cards, increase rate from 11 to 15 cents Sefe deposit boxes, increase from 11 to 20 percent Cabarate, 4 percent of total charge Total 3.4 2.8 1.7 1.7 1.0 $867.3 : - 11 The Tronsury has given caroful consideration to the relative merits of a general sales tax and a group of excises on selected commodities in the light of present requirements. In concluding against a general sales tax, it was not influenced morely by a knowledge that such a tax would fall more heavily on the very lowost income groups but also by the realization that such a tax would militate against achievement of the basic principles set forth in the opening of my statement. Aside from these general questions there are several more technical reasons for staying clear of the gonoral sales tax at this juncture. Among these the following may be mentioned. 1. The effective administration of a general sales tax would require the creation of an elaborate administrative structure entailing more time and expense than is warranted if the sales tax is to be used only as a temporary source of revenue. 2. The superimposition of a general sales tax on the existing Federal excises would add to the complexity of the Federal tax structure and unless the present excises were exempt from a general sales tax lovy, some of the commodition would almost certainly be taxed too heavily. The use of selected excises avoids this complication and nakes possible fitting the rates of tax for each commodity more nearly to its peculiar market situations. 3. The Federal-State fiscal conflict involved in the imposition of a Federal sales tax in addition to the existing State and local sales taxes is mitigated by the proposed selected excises. 168 169 - 12 For those general and more specific technical reasons, we have come to the conclusion that it is inadvisable to risk the dislocations in business and elsewhere which a general sales tax would occasion. Instead, we propose to avoid experimentation and stay as nearly as possible within the scope of our previous experience by limiting our consumption taxes to excises on carefully selected connodities. We are faced with a job, a severe and unenviable one. But we feel that the program outlined for you will do that job * effectivoly and in fairness to everyone./ I believe you will agree with ne that the Treasury's suggestions will raiso the money for the gigantic task ahead of us; that it distributes the burden in a fair and equitable manner and that this entire tax program will be accomplished without disrupting or dislocating industry or our economy. In all its tax proposals the Treasury seeks equity. Just as we have sought equal treatment to all taxpayers in the repeal of the tax exemption of future issues of Federal securities, and in our frequently expressed desire for the repeal of the exemption in favor of future issues of State and Municipal securities, so too, here we offer a plan we believe to be eminently fair to all. 170 A-1 Tax changes aggregating approximately an additional $3,600 million of revenue 1/ :Estimated increase Source (In millions) : $1,520.7 Individual income taxes Increase surtax rates, adopting attached schedule (with defense tax) 34762 Estate and gift taxes Estate tax changes: (1) reduce exemption to $25,000; (2) adopt attached estate tax rate schedule (with defense tax) (3) reduce insurance exclusion to $25,000 Gift tax changes: (1) reduce exemption to $25,000; (2) increase the gift tax rates to three-fourths the rates in the estate tax schedule 934.5 Corporation taxes (1) Surtax: 5 percent on first $25,000 not incomes: 6 percent on the balance (2) Excess profits tax 188.3 112.8 75.5 Tobacco Cigarettes: Additional 75 cents per 1,000 Cigars, tobacco and snuff: Double rates 177.6 Liquor Distilled spirits: $1 per gallon additional Fernented malt liquors: $1 per barrel additional Wines, cordials and liqueurs: Increase of 16-2/3 percent Other excise taxes 122.3 52.8 2.5 867.3 255.0 Gasoline, 1 cent per gallon additional Soft drinks, 1 cent a bottle and equivalents Passenger automobiles, parts and accessories, double rates Check tax, 2 cents per check Admissions, reduce exemptions from 20 cents to 9 cents Tires and tubes, increase rates from 2 and 42 cents to 5 & 9 cents Telephone telegraph, cable, etc., lower exemptions and increase rates Passenger transportation, 5% of amount paid (35 cent exemption) Telephone bill, 5 percent Furs, 10 percent of retail sale price Jewelry, 10 percent of retail sale price (1932 Act exemption) Photographic apparatus, etc., 10 percent Clocks, watches, etc., 10 percent Mechanical refrigerators, increase rate from 5 to 10 percent Sporting goods, 10 percent Watches, 2 cents per 1,000 Radio sets and parts, increase rate from 5 to 10 percent Toilet preparations, revise basis Trunks, suitcases and other luggage, 10 percent 132.5 79.9 57.0 55.0 52.5 40.4 37.6 28.6 20.7 19.6 15.0 10.0 9.8 8.5 7.1 6.3 5.0 4.5 4.5 3.6 3.6 Phonographs and phonograph records, 10 percent Candy, chewing gum, 5 percent Musical instruments, 10 percent 3.4 Bowling alleys, $15 per alley, billiard or pool table 2.8 Club dues, initiation fees, lower exemptions and redefine base Playing cards, increase rate from 11 to 15 cents Safe deposit boxes, increase from 11 to 20 percent Cabarets, 4 percent of total charge Summation of items Less: Allowance for interrelated tax bases (approximate) Total Treasury Department 534.5 400.0 1.7 1.7 1.0 4,035.6 435.6 3,600.0 April 24,1941 1/ Estimates for individual and corporation income taxes and the gift tax are based based on income levels estimated for calendar year 1941; All other estimates are on income levels estimated for fiscal year 1942. 171 A-2 Individual surtax rate schedule 4 : 2 : 0 : $ Bracket rate (percent) 11 : of dollars) : Surtax net income (In thousands Total surtax cumulative 320 $ 500 14 2 46- 6 8 19 10 21 12 23 14 25 16 27 18 29 20 31 22 33 26 36 32 39 38 42 44 45 50 48 60 51 70 54 80 80 90 57 90 100 61 8 10 12 14 16 18 20 22 26 32 38 44 50 60 70 - 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 1,000 1,000 - 2,000 2,000 - 5,000 Over - 5,000 820 16 59 62 63 64 66 68 70 72 73 74 1,200 1,620 2,080 2,580 3,120 3,700 4,320 4,980 6,420 8,760 11,280 13,980 16,860 21,960 27,360 33,060 38,960 45,060 76,060 107,560 139,560 172,560 240,560 310,560 670,560 1,400,560 3,620,560 - 75 Treasury Department, Division of Tax Research April 24, 1941 172 A-3 Comparison of individual surtax rate schedules under present law and proposal (percent) : Present law : cumulative Proposal Present law : Proposal : : : ($000) Total surtax : income Bracket rate : Surtax net - 11 - $ 2 $ 14 - 220 500 0 - 4 2 16 4 80 $ 6 4 19 200 21 360 6 8 6 10 8 8 12 10 23 560 10 14 12 25 800 12 14 16 15 27 16 18 18 29 18 - 20 21 31 20 22 24m 33 22 26 27 36 32 30 39 26 32 38 33 42 38 44 36 45 44 50 40 48 50 60 44 51 60 70 47 54 70 80 50 57 80 90 53 90 100 100 - 150 150 - 200 200 - 250 250 - 300 300 - 400 400 - 500 500 - 750 750 - 1,000 1,000 - 2,000 2,000 - 5,000 Over 5,000 59 56 61 58 62 60 63 62 64 64 66 66 68 68 70 72 73 74 75 70 72 72 73 74 1,100 1,460 1,880 2,360 3,440 5,240 7,220 9,380 11,780 16,180 20,880 25,880 31,180 36,780 65,780 95,780 126,780 158,780 224,780 292,780 467,780 647,780 1,377,780 3,597,780 75 Treasury Department, Division of Tax Research 820 1,200 1,620 2,080 2,580 3,120 3,700 4,320 4,980 6,420 8,760 11,280 13,980 16,860 21,960 27,360 33,060 38,960 45,060 76,060 107,560 139,560 172,560 240,560 310,560 490,560 670,560 1,400,560 3,620,560 - - April 24, 1941 173 A-4 Comparison of present and proposed individual income taxes on net incomes of selected sizes 1 Married person - no dependents : : : 11 law 72 $ Present 4% tax under pronosal Proposal 2.9% $ 61 $ 31 152 70 312 110 506 1.0 1.8 2.2 150 700 2.5 317 4.0 1,258 2,336 3,843 14,128 27,768 43,476 330,156 717,584 1,131 1,628 2,316 3,073 4,800 6,824 19.540 35,127 52,474 346,122 738,086 71.8 3,916,548 3,937,050 78.3 528 858 5.1 121 7.8 242 5.3 6.9 8.4 10.1 11.7 14.1 16.3 18.5 20.5 11.7 24.0 15.4 28.3 37.0 27.3 39.1 46.8 52.5 43.5 66.0 Treasury Department, Division of Tax Research 1 Increase in : Proposal law Effective rates : : 1,000,000 5,000,000 Present : 2,500 3,000 4,000 5,000 6,000 8,000 10,000 12,500 15,000 20,000 25,000 50,000 75,000 100,000 500,000 Amount of tax 3/ : Net income before personal exemption 2/ 69.2 73.8 78.7 396 550 814 1,100 1,458 1,815 2,464 2,981 5,412 7,359 8,998 15,966 20,502 20,502 April 24, 1941 Under the proposal the attached surtax rate schedule is substituted for the present schedule. 2/ Maximum earned income assumed. Includes 10 percent defense tax. 174 A-5 Estate tax rate schedule (Percent) Cumulative tax on higher : amount : : : : 0$ $ : of dollars) Bracket rate : specific exemption (in thousands : Net estate after 200 4 $ 5 10 600 8 5 10 20 30 - 20 12 1,800 30 16 40 20 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73,500 94,000 182,000 417,000 907,000 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 40 60 23 60 80 26 80 100 29 100 150 - 150 200 35 200 250 38 32 250 300 41 300 500 44 1,000 2,000 49 500 1,000 2,000 3,000 3,000 4,000 4,000 5,000 5,000 6,000 6,000 7,000 7,000 8,000 8,000 9,000 9.000 10,000 10,000 - 20,000 20,000 - 50,000 Over - 50,000 47 51 53 55 57 59 61 63 65 67 69 5,547,000 12,247,000 32,947,000 - 70 Treasury Department, Division of Tax Research April 24, 1941 175 A-6 Proposed estate tax rates compared with present estate tax rates Present rates 1 : Cumulative Cumulative specific exemption: Bracket rate tax on higher: Bracket rate :tax on higher (in thousands (percent) (percent) : amount amount of dollars) Proposed rates 1 : Net estate after : : : : 10 : 5 : 0$ $ 4 200 $ 600 8 100 $ 2 200 2 5 10 20 - 20 12 30 16 30 40 20 40 60 23 60 80 26 80 100 29 100 150 - 150 32 200 35 200 250 38 250 300 41 300 500 44 500 - 1,000 1,000 - 2,000 2,000 - 3,000 3,000 - 4,000 4,000 - 5,000 5,000 - 6,000 6,000 - 7,000 7,000 - 8,000 8,000 - 9,000 9,000 - 10,000 10,000 - 20,000 20,000 - 50,000 Over 50,000 47 49 51 53 55 57 59 61 63 65 67 69 70 1,800 3,400 5,400 10,000 15,200 21,000 37,000 54,500 73,500 94,000 182,000 417,000 907,000 1,417,000 1,947,000 2,497,000 3,067,000 3,657,000 4,267,000 4,897,000 5,547,000 12,247,000 32,947,000 - Treasury Department, Division of Tax Research 1/ Exclusive of temporary defense tax. 600 4 6 8 10 12 12 14 14 17 17 20 20 20 23 23 29 32 35 38 41 44 47 50 53 56 59 61 63 65 67 69 70 1,200 2,000 4,200 6,800 9,600 18,100 26,600 36,600 46,600 89,600 222,600 557,600 952,600 1,407,600 1,922,600 2,482,600 3,072,600 3,682,600 4,312,600 4,962,600 11,662,600 32,362,600 - April 24, 1941 176 A-7 Comparison of Federal estate tax (before allowance of credit for State death taxes) under present and proposed rates, upon net estates (before exemption) of selected sizes 1 $ $ 60 80 100 200 400 600 800 1,000 2,000 4,000 6,000 10,000 20,000 40,000 60,000 100,000 660 2,200 4,620 21,660 63,780 112,340 167,340 228,780 588,000 1,499,640 2,655,140 5,323,500 12,532,700 27,391,820 42,361,380 72,521,380 $ 2,860 4,840 9,735 15,290 50,205 139,020 237,575 340,095 442,455 974,265 2,099,085 3,306,945 5,977,065 13,186,595 28,046,045 43,015,770 73,175,770 : 220 :Present: law 0.4% : : 50 : (000) Effective rate : Increase in tax Proposal 5.7% 1,1 8.1 2.8 12.2 15.3 25.1 34.8 39.6 42.5 44.2 48.7 52.5 55.1 59.8 65.9 70.1 71.7 73.2 4.6 10.8 15.9 18.7 20.9 22.9 29.4 37.5 44.3 53.2 62.7 68.5 70.6 72.5 Treasury Department, Division of Tax Research : Amount of tax 2/ Net estate before exemption: Present law Proposal Amount $ 2,640 4.180 7,535 10,670 28,545 75,240 125.235 172,755 213,675 386,265 599,445 651,805 653,565 653,895 654,225 654,390 654,390 Percent 1,200.0% 633.3 342.5 231.0 131.8 118.0 111.5 103.2 93.4 65.7 40.0 24.5 12.3 5.2 2.4 1,5 0.9 April 24, 1941 1/ Under the proposal, the attached rate schedule is substituted for the present schedule, and the specific exemption is reduced from $40,000 to $25,000. In the computations, the credit for State death taxes is assumed to be 80 percent of the tax imposed under the 1926 Act, both under present law and under the proposal. The defense tax is 10 per- cent of the Federal tax after allowance of the credit for State death taxes. 2/ Includes defense tax. 177 RADIO COMMENT April 24, 1941 178 5:45 P.M. RADIO STATION WINX GRAY MORGAN: In Congress the House Ways and Means Committee has before it the Treasury's new tax bill calling for an over-all increase in the income tax from the present 4.4 percent to a new high of 16.5 percent. Secretary of the Treasury Morgenthau appeared before the Committee and warned the nation that all citizens, the poor and the rich, must bear their fair share of the burden. The Treasury is trying to raise three billion five hundred million dollars in additional revenues for meeting the defense costs. Treasury experts explained that if all other taxes remain the same, it means that the American people will be contributing twenty-four percent of their national income to taxes next year. 6:00 P.M. RADIO STATION WJSV EDWIN C. HILL: The Treasury Department today presented Congress with its plan to raise three and one half billion dollars in additional revenues, disclosing their aim to increase present tax rates from 4.4 per cent, the current basic rate, to a new high of 16.5 per cent. The boost in 179 -2federal levies will mean that all taxing agencies, federal, state, and local, will be taking twenty-four percent of the national income next year. Henry Morgenthau, Secretary of the Treasury, warned the nation today that all citizens, rich and poor, shall bear their fair share of the tax burden. 6:15 P.M. RADIO STATION WMAL ANNOUNCER: The Treasury Department discloses today that the present income tax rate of 4.4 percent will presently be increased to 16.5 percent. Treasury experts advised the House Ways and Means Committee that assuming state and local taxes remain the same, the increase in the federal levies will mean that all taxing agencies, federal, state, and local, will be taking twenty-four percent of the national income next year. 6:30 P.M. RADIO STATION WRC BAUKHAGE: Here in Washington while we are thinking about war, we are talking about taxes. That topic probably will be discussed here and elsewhere for some time to come. Secretary of the Treasury Morgenthau and his assistant, John L. Sullivan, explained to the House Ways and Means Committee, the details 180 -3of Treasury's plan for raising that three billion six hundred million dollars. Secretary Morgenthau suggested right off that non-defense expenditures of Government could be out as much as a billion dollars. He said the Federal farm program, for instance, could stand a big cut. The specific new tax proposal was presented by Sullivan. It calls for a minimum of eleven percent surtax on the first dollar of taxable income, as well as new surtaxes on corporate income. Another Treasury official, Undersecretary Daniel Bell, estimated that the new taxes, plus those already in effect, would be about twenty-four percent of the national income next year. Secretary Morgenthau described it as a small price to pay for security against aggression. 6:30 P.M. RADIO STATION WOL WALTER COMPTON: Taxes were the talk of Washington again today and probably they will be the main topic for many days to come. Treasury Secretary Morgenthau and his assistant, John L. Sullivan, explained to the House Ways and Means Committee details of the Treasury's plans for raising three billion six hundred million dollars. Secretary Morgenthau 181 -4suggested right off that non-defense expenditures of Govern- ment could be cut as much as one billion. The specific new tax proposal was presented by Sullivan. It calls for a minimum eleven percent surtax on the first dollar of taxable income, as well as new surtaxes on corporate incomes. Another Treasury official, Undersecretary Daniel W. Bell, estimated that the new taxes, plus those already in effect, would be above twenty-four percent of the nation's income next year. Morgenthau described it as a small price to pay for security against aggression. 6:45 P.M. RADIO STATION WJSV ERIC SEVEREID: The Secretary of the Treasury turned over to Congress today his new plan to raise three and a half billion dollars in new income taxes. To a Congressman who objected to the strain of all that, Morgenthau replied: "Well, how much is it worth to be a free man living in a free land?" And that is the situation in Washington. 182 -56:45 P.M. RADIO STATION WMAL LOWELL THOMAS: The Administration's plan to raise money for national defense and aid to Britain was formally presented by Secretary of the Treasury Morgenthau today. He placed it before the Ways and Means Committee of the House of Represen- tatives. The Secretary's recommendations come under two headings - raise taxes, and cut down non-military expenditures. The tax proposal presented the figure that we have heard before, three and a half billion dollars to be raised by extra taxation. The Secretary said that this will be a small price to pay for the defense of national freedom. He declared that the public is willing to accept the new burden, the heaviest tax bill in American history. The principal feature proposed is a drastic raise of income taxes which also is according to information that we have had previously; the basic four percent income tax to remain the same, but a surtax to be put on every dollar of income, a surtax beginning at eleven percent on all incomes. The Secretary of the Treasury pointed out that extra taxes amounting to three and a half billion dollars would take only four percent of the national income which is rising rapidly. The proposal brought out the 183 -6fact that the new taxes added to those already in effect would consume twenty-four percent of the national income. The Secretary of the Treasury went on to argue that the new taxation would have the desirable effect of keeping down prices of the ordinary goods of life, because after paying taxes, then the American people would have less money to spend. Another argument that came up in the Committee hearing was this; that even after paying all the taxes, the average citizen would be better off financially than the men called in the Army and Navy, because those called up are giving up a year of earning, just to get a basic rate of pay of only thirty dollars a month. In other words, they have given up a lot more than the taxpayer is called upon to do. The drastic plan proposed by the Secretary is not the only one under consideration. Congressional leaders have formulated another not nearly so stiff, something that would not bear down so heavily on the people with small incomes. As for cutting down nonmilitary expenses, Secretary Morgenthau told the Congressional Committee that a billion dollars a year could be saved. He said that there should be no cut in necessary relief money. He declared that the Government must continue to provide for 184 -7those in want, those in urgent need of relief. He suggested that large sums of cash could be saved by cutting the budgets of the Civilian Conservation Corps and the National Youth Administration, which already are scheduled for a total of six hundred seventy million dollars during the next year. All of those items ought to be re-examined, said the Secretary of the Treasury. And he also thought that the money paid to farmers should be cut. The present budget originally called for a two hundred twelve million dollar farm bill. Congress raised that to four hundred fifty millions. "That is one place where a lot of money could be saved," 80 said the Treasury head today. 7:00 RADIO STATION WOL FULTON LEWIS, JR.: As far as Congress is concerned, the most significant news tonight is that a considerable revolution is brewing on the new tax bill. The full import of that tax bill is just beginning to seep into the consciousness of the average Congressman. Once it gets inside, it seems to cause him a great deal of pain. Already there is one substitute proposal, a substitute tax program, devised by the tax expert 185 -8for the Congressional committees themselves, and it reflects very well the preference of Senators and Congressman as such. It reduces the drastic increases on the income tax rate for people in the lower income tax brackets from ten thousand dollars a year down; but the difficulty is that this proposal does not supply anything that is very convincing as a sub- stitute for the income that the Treasury loses by that reduction. The organization, so-called the little business men, who made themselves famous by their meeting here several years ago, sent the committee a suggestion today by telegram. They want a payroll tax of five to ten percent of all salaries of all workers. Just for your information, that is out of the question from a political point of view. Secretary of the Treasury Morgenthau and Mr. John L. Sullivan, of the Bureau of Internal Revenue, appeared at the Capitol today, and they testified on the subject of this program that they have prepared. They had, however, nothing particularly new to offer. They merely insisted that a three and a half billion dollar tax bill is necessary, and in their opinion their program is the simplest way to get it. Secretary Morgenthau did propose that drastic economies be made in every possible way. He 186 -9said that he thinks the appropriation for the CCC, for the National Youth Administration, and for farm benefits should be cut down to rock bottom. There is one compromise proposal on this tax picture that seems to be gaining some general favor around the cloak rooms and the offices, a combination of sales tax and income tax increases. In effect, it really is just about the plan that was offered by the Congressional tax advisers about which I told you just a moment ago, with a small sales tax to make up that difference. In some cases, it was suggested that a general sales tax of one percent be levied on everything. That would mean a nickel in taxes on every five dollars worth of groceries you buy. The argument was made that that certainly is not a burden to anyone. The other alternative was, a two percent sales tax on general commodities with an exemption for food, fuel, clothing, and medicine. The first idea would bring about six hundred million dollars worth of revenue, the second would bring about four hundred million dollars worth, but both of them still are strictly in the talk stage. The only thing that is certain is that some sort of a tax bill is going through, and it is going to be a steep one. And that brings up a bit of news 187 - 10 that I think you are entitled to know, inasmuch as you and I are paying the bill for whatever is spent. We call it national defense, and there are probably a very few people in the country who begrudge a single penny that goes for that purpose; but it begins to appear that in some quarters there is an effort to tap the pipe line of this national defense spending so that part of the money the public will pay in taxes will go for other things than national defense. 7:15 P.M. RADIO STATION WRC FORD PEARSON: Secretary of the Treasury Morgenthau formally handed Congress the job of raising three and a half billion dollars in new taxes, calling the sum a small price to pay for freedom. 9:00 P.M. RADIO STATION WOL GABRIEL HEATTER: Well, the new tax bill is on its way tonight The amount recommended by Mr. Morgenthau is what earlier reports said it would be, three and a half billion dollars. And that is tempered by a plan to save about a billion dollars of non-defense spending. The basic tax rate on incomes will 188 - 11 - will probably remain at four percent, but surtaxes of a minimum of eleven percent affecting the very first dollar of taxable income are almost certain to come. And where we spent about four percent of our national income for defense, we shall now be spending approximately twenty-four percent. 9:15 P.M. RADIO STATION WOL FRANK BLAIR: Away from the flurry of these developments, Congress and the nation heard from the Treasury what Mr. and Mrs. America must pay for defense. The Treasury's program is twofold. More taxes, and economy in non-defense projects. The Administration's specific tax proposals called for drastic surtaxes on lower and middle income brackets, and a general increase in most other levies. 10:30 P.M. RADIO STATION WRC CLAUDE MAHONEY: When I said that two Cabinet officers made news, I should have said three; for Secretary Morgenthau is in the news again, though not 80 definitely as though he had mad a speech. He told the House Ways and Means Committee today that the proposed three and a half billion increase 189 - 12 - in taxes is a small price indeed to pay for liberty. He said there is a possibility that the war may spread to this continent, and that sounds like the other speakers. The committee was hearing him on new defense tax schedules, and I submit that his statement might also have been read in advance by the same master proofreader. 11:30 P.M. RADIO STATION WOL ANNOUNCER: Assistant Secretary of the Treasury Sullivan told Congress today that a manufacturer's sales tax high enough to meet present defense needs would require a levy of more than eighteen percent on virtually all commodities. Sullivan was questioned during an appearance before the House a Ways and Means Committee on a possible substitution of sales tax for the Treasury plan for raising three and a half billion dollars in new defense funds. He said that the Department had considered the sales levy in making its study of tax resources, but had rejected it in favor of levies against incomes, inheritances, and luxury commodities. Earlier the Assistant Treasury Secretary had laid before the Committee a detailed recommendation for sweeping new taxes to 190 - 13 provide money for the mounting defense program. The recommendations included an eleven percent surtax on individual incomes which would increase to sixteen and a half percent the lowest bracket tax on private earnings. It included a proposed new six percent surtax on corporate income, sharp increases in inheritance rates, and higher excise levies. 12:00 Midnight RADIO STATION WINX ANNOUNCER: Assistant Secretary of the Treasury Sullivan told Congress today that a manufacturer's sales tax high enough to meet present defense needs would require a levy of more than eighteen percent on virtually all commodities. Sullivan was questioned during an appearance before the House Ways and Means Committee on a possible substitution of a sales tax for the Treasury plan for raising three and a half billion dollars in new defense funds. He said that the Department had considered the sales levy in making its study of tax resources, but had rejected it in favor of levies against incomes, inheritances, and luxury commodities. Earlier the Assistant Treasury Secretary had laid before the 191 - 14 Committee a detailed recommendation for sweeping new taxes to provide money for the mounting defense program. The recommenda- tions included an eleven percent surtax on individual income which would increase to sixteen and a half percent the lowest bracket tax on private earnings. It included a proposed new six percent surtax on corporate incomes, sharp increases in inheritance tax rates and higher excise levies. 4/24/41 192 Mr Kuhn said today that he had ridden with Secretary to the tax hearing this morning, and he felt sure that the Secretary, after thinking it over, did not care to write a letter to the New York Times on this subject. 193 April 24, 1941 . Ferdinand Kuhn, Jr. Secretary Morgenthau Please talk to me today about the tax editorial in the New York Times. I think maybe we ought to write a letter to them and tell them that if they think our tax bill is so lousy, I would like to have them give me a plan how to raise three and a half billion dollars additional in taxes. 194 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 24, 1941. For wise TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Cochran Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £34,000 Purchased from commercial concerns £12,000 Open market banks were as follows:sterling held steady at 4.02-1/4. Transactions of the reporting Sold to commercial concerns Purchased from commercial concerns £ 3,000 -a The Canadian dollar, which closed at a discount of 11-9/16% last night, weakened to close at 11-7/8% today. In New York, closing quotations for the foreign currencies listed below were as follows: Swiss franc .2320-1/2 Swedish krona Reichsmark .2384 .4005 Lira .0505 .2350 .0505 .2066 Argentine peso (free) Brazilian milreis (free) Mexican peso Cuban peso 4-3/16% discount In Shanghai, the yumn in terms of our currency was unchanged at 3-5/324. and sterling was again quoted at 3.90. There were no gold transactions effected by us with foreign countries today. No new gold engagements were reported. In London, the price fixed for spot and forward silver remained unchanged at 23-1/2d, equivalent to 42.674. The Treasury's purchase price for foreign silver was unchanged at 350. Handy and Harman's settlement price for foreign silver was also unchanged at 34-3/44. Ve made no purchases of silver today. HMR. 195 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 24, 1961 STRICTLY CONFIDENTIAL TO FROM Secretary Morgenthau Mr. Wiley The Criminal Division of the Department of Justice has ruled that organ isations engaged in the business of soliciting orders for food packages for individuals in belligerent countries are not required to register as agents of foreign principals or as persons soliciting contributions to relieve human suffering in belligerent countries (under Section 8 of the Neutrality Act of 1959). few 196 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION STRICTLY CONFIDENTIAL TO DATE April 24, 1941 Secretary Morgenthau FROM Mr. Wiley FBI reports: Recent FBI reports indicate that deposits are being made in German accounts in this country of currency traced to prior large cash withdrawals from Italian accounts. On April 15 Hamburg-American paid $250,000 in cash to J. P. Morgan and Company in packages of old bills the bank straps on which were from the Banco di napoli Trust Company and the Corn Exchange Bank in which the Banco di Napoli has an account and from which it has in the past made large cash withdrewals. On April 21 the Reichs-Kredit-Gesellschaft deposited $113,000 in cash at the Central Hanover for the credit of the Banco de la Nacion in Buenos Aires; 110 $500 bills in this deposit had been withdrawn by Credito Italiano from the Irving Trust on January 14. In addition a total of $36,500, withdrawn in large bills by Credito Italiano some months ago, have been traced to cash deposits of various German representatives during March. April 18. The Japanese government is said to be arranging to place its merchant ships in the Pacific in the event of hostilities breaking out with the United States. ONI reports: April 1 and 8 - Mexico City. A document has come to ONI's attention in Mexico purporting to be signed by Velasquez, new chief of the CTM, the Mexican labor organization, addressed to the officers of the organization, calling on them to cooperate with the National Socialist Party in accordance with "our contracted obligations." It is also reported from Tampico that the Mexican immigration officials there are pro-Nazi and have been contriving to permit the crows of seized Axis vessels to enjoy freedom from arrest or detention. new 197 THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA Box 680 Benjamin Franklin Station Washington, D. 0. April 24, 1941 Dear Mr. Morgenthau: When I saw the President a few days ago, I described, at his request, the general British shipping and imports position in broad outline, and subsequently summarized this description in a kind of aide memoire. Knowing your friendly interest and active help in all that concerns American assistance to the British and Allied war effort, I thought that you might care to see this note, and I am, therefore, sending it to you. You will, of course, appreciate that the shipping problem varies rapidly, as losses occur and the strategic position changes. Nevertheless, the broad outline remains fairly constant for some time, and such a general picture as I have tried to present may provide a useful background to current events. In particular, Purvis tells me that he is, at your request, obtaining certain information as to the volume of goods waiting for shipment at the different ports. Such information reflects one aspect of the shipping difficulties, but is perhaps more useful if it 18 considered in relation to the more general shipping situation. Otherwise the "last moment* difficulties resulting from a shortage of shipping which are reflected in statistics of goods actually at the ports may be misleading. In any case, you may care to glance through this general note, which I shall be happy to supplement at any time you may wish. Yours sincerely, (Signed) ARTHUR SALTER Honorable Henry Morgenthau, Secretary of the Treasury, Washington, D. 0. Enclosure 198 THE SHIPPING PROBLEM 1. 2. Two things are necessary: (a) to out-build losses as early as possible in 1942; (b) to bridge the interval. Since the collapse of Western Europe last summer, losses have been at the average rate of 5 million gross tons a year. Every possible effort to improve protection is, of course, needed but the enemy's attack is also increasing in strength. It would be imprudent to count on a lower average rate of losses. British building, in the United Kingdom and elsewhere in the British Empire (Canada and Hong Kong), is at the rate of 1 1/4 to 1 1/2 million gross tons. In view of naval building and repairs, this figure will probably not be exceeded and may be seriously reduced if there 18 heavy bombing in the shipyards. U.S.A. building is the only other source. To meet the deficiency at the present rate of loss, 3 1/2 to 3 3/4 million gross tons a year would be required even to match current losses at present rate but before the full American production can reach its peak, tonnage will have been further depleted. A mergin is, therefore, needed to make up arrears apart from some insurance against a possible increase in the rate of loss. It is important, therefore, that American production should 199 be increased 80 as to reach the rate of at least 4 million gross tons (or 6 million tone deadweight) as early as possible in 1942. This was the rate programmed in 1917 and attained in 1918-19. The speed with which production can be expanded is no less important than the scale ultimately aimed at. The most energetic action is, therefore, needed at once. On the present plans American output will amount to 800,000 g.t. in 1941 and about 3 1/4 million in 1942. 3. If we assume provisionally that from the latter part of 1942 combined building can be brought up to equal the current losses, there remains the question of how the interval is to be bridged. The shipping required for this purpose may be best judged from a brief summary of the present shipping and import position of Great Britian. In what follows, (A) ordinary ships and cargo and (B) tankers carrying oil will be considered separately. 4. A. (EXCLUDING TANKERS AND OIL) British ocean-going tonnage, including what has been added to the British flag by capture, requisition and purchase, now amounts to 13 million g.t. In addition, we have on charter 3 million g.t. of allied and neutral ships in war service., -2- 200 of this total of 16 million tons, 4 million tons are used by the Navy and Army (for armed merchant cruisers, troop carriers, etc.), about 2 million tone are under repair and about 2 1/4 million tone are employed in maintaining Empire supplies. This leaves about 7 3/4 million tone available for importing into Great Britain. 5. The imports which we can secure with this tonnage are reduced (a) by the need to bring from more distant sources what we imported in peace-time from Europe; (b) by the delays necessarily involved in the convoy system, and (c) by losses of cargoes afloat and ashore. After allowing for every economy we can make in ships under our own control (such as diverting from Australasia to the Atlantic), we estimate that, on the assumption that the present rate of loss continues, U.K. imports (excluding oil) cannot possibly exceed 30 million tons this year. How serious this position is may be judged from the following facts: Our imports (excluding oil) averaged for the three years immediately before the war 56 million tons. The corresponding imports in the worst year of the last war (1917) were 34 million tons (and our population was then less than it is now by 10%). In the first year of this war we imported 43 1/2 million tone and our plans were made on the basis of 40 millions -3- 201 being a minimum below which real food difficulty and some impairment of our war effort through shortage of raw materials would be involved. We were a few months ago compelled to out down our programmes on the basis of a prospective total import of 35 million tons, of which food was to take 15, and raw materials and munitions 20. This would have involved a severe hardship and shortage of some materials needed for manufacture of munitions, but on that figure we might perhaps have just pulled through. In any further reduction below a total of 35, food cannot bear an equal proportion of any out and the main result must be to deplete stocks and stint supplies of the raw materials wanted for munitions manufacture. 6. B. TANKERS AND OIL. We have (not counting fleet auxiliaries in attendance on the fleet and thus not available for replenishing stocks) 3 million g.t. of British ocean tankers and 1 1/4 million g.t. of allied and neutral tankers. In spite of severe rationing of petrol, we need to import all forms of oil into Great Britain and to transport about 15 million tons for bunkers and fleet supplies abroad and for the civilian needs of the Dominions. We estimate now that we shall be short by at least 500,000 g.t. even if future losses are from now on balanced by replacement. -4- 202 7. We thus reach the question, "How much additional tonnage 18 needed during the next 12 to 15 months to prevent the danger of a serious impairment of the war effort (through shortage of either food or raw material or an enforced reduction of military action in the Middle East, etc.) We need an additional importation of 7 to 10 million tone beyond what we can ensure by our own tonnage. We must assume that the Middle East will absorb in total rather more tonnage than it does now and we cannot prudently allow for any net reduction in the rate of loss. We must also bear in mind that any tonnage brought into our service will come in gradually and will not be actually importing for the whole of the forthcoming year. Taking these factors into account, it seems clear that we really need an increase of the tonnage engaged in importing or in carrying military stores of between 3 and 4 million gross tone coming into service rapidly enough to make them at least equivalent in carrying power to 2 million tons gross or 3 million tons deadweight immediately added and continuously employed. 8. It will naturally be asked whether some contribution cannot be made to the above tonnage requirements by some re-routing of British or Allied tonnage. As far as British tonnage is concerned, however, e very possible effort has been, and is being, made, under -5- 203 the compelling pressure of our imports shortage, to secure the maximum importing use of our shipping by withdrawal from foreign trade and diversion from distant sources (e.g., Australasia) to the Atlantic. The above estimate of our prospective imports (and, therefore, of the extent of the deficit) allows for the effect of these diversions. A detailed analysis has been made of the employment of all the British ships and was recently given to Mr. Hopkins in London. This shows that there is only about 500,000 tone deadweight or 300,000 gross tons physically suitable for ocean work. These ships are, however, engaged in essential work. They could be drawn into importing work if replaced, but not otherwise. Any further diversion would not, therefore, reduce the amount of extra tonnage required. But it would enable some part of this tonnage to be taken in the form of the allocation of shipping to work in safe areas. As regards Allied ships, a certain amount of Norwegian, Greek and Dutch tonnage has been left outside of direct war service in order to earn dollars required to meet existing obligations and essential auvrent necessities. Most, but not all, of this tonnage, is -6- 204 however, engaged in important work for which provision must be made in some way. Allowing for this, it 18 possible that something like 400,000 g.t. of further Allied tonnage could be gradually brought into war service, if the Allied Governments could be furnished with the dollar exchange now earned by their work. This might take the form of LeaseLend purchase or chartering by the U.S. Government with allocation to war service. 9. Taking the requirement, as explained in paragraph 7, as say 3 1/2 million g.t. spread over the next year until June, 1942, it remains to consider from what source this might be met. They consist of (A) tonnage not under the U.S.A. flag, which might be obtained with the aid of the U.S.A. Government and (B) U.S.A. flag tonnage. The former category (A) includes Danish ships, German and Italian ships in U.S.A. ports; a few Jugoslav ships; the Allied tonnage referred to in paragraph 8. As more remote possibilities are the French ships, perhaps some of the enemy ships in Latin American ports which the Governments concerned might Beize if the U.S.G. gave a lead (a few of which might perhaps come into our service); possibly also a few of the "Panamanian" ships might be secured by the U.S.A. -7- 205 Taking into account political considerations and the serious damage to most of the enemy shipping, it would be improvident to hope for more than a total of 3/4 million g.t. from all the above sources, and much of this will come into service very late. The second category, (B) - American "flag tonnage* includes both existing ships and new ships which will be produced between now and June 1942. The existing American Mercantile marine (excluding Great Lakes tonnage) consists of about 7 1/2 million gross tons. Much of this, of course, 16 unsuitable and the great part of the remainder cannot be spared from the work in which it 18 now engaged and to which it is being di verted for U.S.A. defense needs. A great deal of "inter-coastal" work (1.e., from Pacific to Atlantic via Panama) could be transferred to rail or road) and some of the "domestic" work could be similarly transferred or restricted. Conceivably 1 million g.t. could be obtained from these two sources. In addition, passenger vessels (which would release some of our good cargo carriers from troop carry- ing), tankers, and other tonnage might yield another 1/2 million g.t. New production between now and the end of June 1942, is planned to reach about 2 1/4 million tons. Some of this will be required to replace ships -8- 206 scrapped through old age. But most old ships could be 10. kept going a year or two longer. Conceivably, 1 1/2 million g.t. could be allocated from new production. The above withdrawals, if they were all possible, would on the assumption of the present rate of loss - almost meet our deficit on essential needs (with allowance for time lag in entry on service) until the middle of June, 1942, or a little later. By that time, American production might be so expanded that, when added to British production, future current losses might be offset. The problem, therefore, though urgent and difficult, is not insoluble. Several conclusions, however, emerge clearly: 1. Immediate shipping assistance on a large scale is indispensable and the date at which ships are forthooming is as important as their number. For the vital year ahead, a ship supplied tomorrow is worth two ships in six months. 11. The adequacy of the action described above, as regards both production and interim assistance from existing ships, depends upon the future rate of losses. The enemy's strength in attack, by both U-boat and air, is increasing. It is uncertain whether our protective forces can keep the rate of loss down to even the present high figure in spite of their own increase in strength. -9- 207 It is obviously better to save a ship than to build one in replacement. Anything that is possible to assist in protection 16, therefore, doubly valuable. 111. Increase of production (e.g., by using the resources of the Great Lakes) is highly desirable if possible, in order to ensure some margin against the uncertainty of further production, and to hasten the date at which equilibrium between losses and replacement will be reached. Acceleration in the work is in any case required, and to secure results even in 1942 the action is required now. Every week's avoidable delay involves serious loss in essential supplies. iv. For every form of assistance the most urgent and drastic action will be required by the American administration responsible (the Maritime Commission), and intricate co-ordination with the British supply organization. This will throw a heavy strain on the personnel of the Commission, and it is highly desirable that officers and appropriate subordinstes shall have sufficient authority and sufficient time to carry through the work involved, in daily collaboration with the members of the British Shipping Mission, by the decisions of - 10 - 208 policy taken from time to time by the President. Here, as in the sphere of production, any delays through inadequacy of the administrative arrangements, might be fatal. Arthur Salter April 22, 1941 - 11 - 209 (1) Six leading operational types. (2) Number of pilots. (3) Planes undergoing repairs, overhauled, etc. 210 MINISTRY OF AIRCRAFT PRODUCTION 1785 MASSACHUSETTS AVE WASHINGTON. D.C. OFFICE OF THE REPRESENTATIVE April 24, 1941 The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. SECRET AND NFIDENTIAL Dear Mr. Secretary: I enclose usual monthly figures up to the end of last month. To refresh your memory, the key is as stated on the attached slip. Yours sincerely, mountain Morris W. Wilson, Representative. T 211 SECRET AND CONFIDENTIAL 1 2 3 1940 May 10 3,209 3,101 1,874 Sept. 27 3,735 4,149 1,882 Nov. 29 4,185 4,398 Dec. 31 5,004 4,586 1,804 Jan. 31 5,477 4,630 1,815 Feb. 28 6,239 4,528 1,762 Mar. 31 6,648 4,613 1,773 - 1941 212 5. District Noted RESERVE BANK R. Hawkey OF NOW TRAKE Agril 24, 1943. COMPIRED Dear Mr. Secretary: Attention: Mr. K. Marle Geohran I an enclosing herewith our compilation for the week ended April 16, 1941, showing dollar disbursements out of the British Repire and French accounts at this bank and the means by which these expenditures were financed. Withfully years. 1w J. W. NoKoon, J. V. MoKoon. Assistant Vice President. Nenerable Heary Jr., Secretary of the treasury, Backington, 3. e. Declarare COPY FOR OFFICE FILES Distributed by Mr. Coohran to: Cocretary it Bolt Mr. Sometern Mr. Pohle 1 Mr. Upham Mr. White Mr. Wiley AND ADSPRATTAN ACCOUNTY Total Debits A/C PERIOD 1939 Aug. 31 - Sept. 27 Sept.28 - Nov. Nov. 2 - 29 Nov. 30 Jan. Official British Proceeds Transfers from official British A/C of Total Other For Own For French Debits Credits Gold 1 17.5 9.6 0.6 0.3 9.9 0.7 30.0 3 Sales A/C 0.8 2.1 16.9 21.8 15.1 9.3 9.2 30.0 16.7 14.4 7.3 13.3 3.0 25.7 17.0 29.5 21.1 - 1940 23.5 23.1 23.1 42.3 38.2 37.9 3 1 3 July 4 - 31 28.2 28.2 117.6 96.3 18.7 18.7 73.6 53.9 412.7 16.4 14.0 49.2 35.2 15.0 16.6 - - Happened Group Dea 477.2 33.7 Jan. 2 - 29 16.6 31.1 60.9 April 16 504.7 44.3 26.7 43.9 12.5 18.1 28.6 69.6 60.6 707.4 33.7 16.9 60.9 33.9 24.3 46.0 12.5 4.4 3.6 18.1 3.8 6.5 7.5 2.3 2.3 4.1 4.1 Wookly Average of Total Debits Since Outbreak of war million 7.2 Through April 16, 1941 $ 42.5 534.8 460.6 31.1 - WEEK ENDED: March 26 306.4 35.2 48.0 - 48.0 2 37.9 44.1 26.7 26 42.9 44.1 44.3 27 Oct. 31 - Nov, Nov. 28 - Dec. 31 23.2 29.3 24.8 50.0 72.2 42.3 - 16.1 50.2 72.5 323.0 2 Aur. 1 - 28 First year of war Aug. 29 Oct. Oct. 3 - 30 Jan. 30 - Feb. Feba 27 ADT 23.5 - - Jan. 4 - 31 Feb, 1 - 28 Feb. 29 Apr. Apr. 4 - May May 2 - 29 May 30 - July - - 15.3 22.8 - - - 15.0 - - - - 20.9 - - 20.9 4.3 7.3 1.1 4.5 6.5 7.2 2.5 4.6 2.2 5.2 0.9 6.1 3.3 4.9 3.3 3.0 0.3 3.2 2.4 2.2 0.2 0.3 2.7 2.2 2.3 1.8 1.0 2.0 2.6 1.7 0.6 0.2 0.9 2.3 5.9 4.4 1.5 4.6 5.0 4.2 0.8 28.4 2.3 - 4.6 6.8 312 14.3 16.7 0.3 0.4 1.9 13.7 3.7 4.4 34.4 12.6 110.7 41.0 +230.2 57.9 2.0 0.2 4.8 0.5 0.3 0.1 0.2 0.2 0.1 5.8 1.2 27.3 8.7 10.1 3.1 3.0 3.9 2.5 7.5 0.6 4.8 -0.9 -0.8 -0.3 +1.4 +3.6 0.4 -1.8 4.9 0.7 5.0 3.4 30.0 1.6 6.1 6.2 8.0 6.7 1.3 2.6 7.9 6.5 1.4 2.2 2.5 3.6 2.1 0.5 6.8 4.8 1.5 2.0 43.4 62.4 50.1 12.3 4.8 6.8 5.1 1.7 5.0 3.2 13.7 0.6 2.6 1.2 5.0 5.8 8.1 1.1 1.1 0.1 442 0.3 1.2 0.3 63 1.2 0.6 0.2 0.2 3.5 - 1.9 36.1 6.8 1.7 0.8 3.3 27.3 4.8 14.5 1.6 - 3.8 14.9 143 1b 5.8 12.3 $181.7 3.4 - 2.5 0.2 0.2 0.3 5.9 3.9 Deer. (- in Balance 1.9 2.3 39.4 0.6 Credits 1.9 3.0 3.2 3.8 Gold - 12.8 4.7 2.1 Total Credits Sales 3.1 0.2 Debits - 0.2 19.1 British - 7.1 19.2 19.5 38.7 0.1 3.6 5.9 official Other A/C 89.4 +54.9 15.0 6.8 - to Total Debits in Balance 0.3 - 14.3 23.1 - - - Not Inor. (+) or Credits Deon (-) Other A/C - - to Strietly Confidential Week Ended April 16 1941. 3.3 12.5 0.1 5.9 0.4 0.6 +6 2.0 -1.6 +.7.9 -1.0 -0.6 +6.0 -0.2 (a) Includes Ministry, British Supply Board, Ministry of Supply (b) Estimated figures based on transfers from the New York Agency of the OF the for private proceeds of official British sales of American securities, including those effectedBritish throughnoonunt direct negtitiation. occurred, particularly during the the to the official selling, subetantial liquidation at this Bank cannot be identified with any noouracy. According receipt ofofsecurities proceeds to early data months supplied of the by war, the British although Treasury and released by Seorethry Morgenthau, total official and private British liquidation of our securities through December 1940 amounted to $334 million, Includes about $85 million received during October from the accounts of British authorized banks with Now York banks, presumably months (o) the requisitioning of private dollar balances. other large transfers from such accounts during more recent apparently reflecting represent the acquisition of proceeds of exports from 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 $36.5 million representing the initial payment on the sale of the American Viscose Corp. - subsidiary of Courtauld's, Ltd. ANALYSIS OF BRITISH AND FRENCH ACCOUNTS Week Ended Apr. 16. 1941. (In Millions of Dollars) Proceeds of Sales of 207.8 185.4 1 142.0 3.2 105.8 57.8 Nov. 2 29 Nov. 30 Jan. 3 3 1 3 July 5-31 Aug. 28 First year of war Aug 29 Oct. Oct, 3 - 30 Oct. 31 - Nov. Nov. 28 - Dec. Har period through 2 27 31 Deo. Jane Feb. 2E Apr. Feb. WEEK ENDED: March 26 April 9 16 8.9 8.7 89.0 75.2 50.6 54.8 124.2 115.5 16.8 38.0 43.4 20.6 15.4 113.4 26.1 108.8 101.0 87.3 100.9 23.6 77.3 108.3 94.0 86.4 126.2 283.2 249.7 145.3 137.9 156.7 93.0 319.3 225.0 261.1 180.2 80.9 294.8 1,793.2 1187.6 316.8 605.6 244.3 72.5 196.7 241.0 234.6 167.8 201.1 206.8 28.9 39.9 2,782.3 1975 425.6 1940 Jon. 4 - 31 Feb. 1 - 28 Feb. 29 Apr. Apr. 4 - May May 2 - 29 Day 30 - July 5.8 14.5 27.8 - - - - 78.6 24.6 86.8 28.1 22.8 11.4 61.5 51.6 15.9 19.1 - 21.5 19.6 21.0 27.0 828.2 1.356.1 308.9 271.5 160.5 210.0 111.4 6.0 6.0 18.0 26.0 32.6 29.2 24.8 23.8 Average Weekly Expenditures Since Outbreak of Yer $19.6 million France (through June 19) 27.6 million England (through June 19) 52.9 million England (sinoe June 19) 125.6 6.0 2.0 58.7 22.4 31.5 30.0 5p.1 54.8 75.4 5.8 32.8 55.9 71.5 105.0 16.7 29.6 5.6 1.2 5.4 78.7 60.7 126.2 18.0 6.1 19.2 44.0 +108.4 57.0 127.3(0) 145.4 345.1(e) 44.4 29.4 3.2 335.6 3.0 9.5(e) 0.2 4.1 0.5 416.6 8.4 10.9 10.4 0,5 2.0 449.7 1095.3 90p.2 195.1 7.9 4.4 4.2 32.0 1.8 0.5 0.3 0.2 1.3 0.5 +229.0 7.3 31.5 18.5 0.8 0.1 0.7 -36.6 2.1 2.1 456.9 and 0.2 0.7 1,098.4 0.6 0.6 60.6 14.1 16.9 140 4.3 15.3 8.9 0.7 13.0 27.8 866.3 8.6 8.2 2.1 12.4 35.0 62.2 29.2 8.1 41.2 33.7 0.2 6.9 11.3 35.0 1.0 63.2 28.4 11.3 76.2 6.3 48.8 35.3 47.6 in Balance 7.3 26.0 72.0 Credits 93.9 55.4 878.3 103. Sales ( or Dear. (-) 55.1 29.4 101.4 Other 82.9 84.8 56.7(e) of Gold 109.2 35.9 10.8 237.9 49.0 24.7 105.4 99.6 72.7 575.6 32.1 369 138.3 25.3 36.1 61.8 39.9 63.7 108.0 199.6 7.8 5.4 88.6 26.4 420.1 31,4 229.7 41.5 35.3 1.0 26.6 13.4 85.9 22.5 52.0 52.0 6.0 48.0 3.0 2.0 2,109.5 176.2 Debits 19.4 301.3 212.2 267.4 2,793.1 tures (d) +113.5 15.0 10.8 198.5 259.5 198.0 Expendi- 22.4 138.8 14.0 20.0 12.0 101.4 164.6 56.7 60.9 46.8 93.2 - Total Debits 6.7 47.0(1) 6.1 16.7 +105.7 19.8 421.4 IV 0.6 0.7 0.6 0.1 0.5 0.1 0.5 Transfers from British Purchasing Commission to Bank of Canada for French Account Week ended Apr. - 0.5 - - 900.2 16 9 Cumulation from July 6 $ 152.3 million million 0.4 0.1 198.2 +220.1 16 16 0.1 1.3 0.5 0.7 0.6 0.2 0.2 - 0.7 - 90.7 100.9 182.8 3.6 in Balance - 94.3 106.7 191.7 97.7 Official)(b) Credits(2) Gold - Total Credits 1939 Aug. 31 Sept. 27 Sept.28 Nov. Securities Other Expendi- Other tures(a) Debite Total Credits Other - Total Debits Proceeds Gov't ) Gov't Net Inor. (+) or Dear. (-) FRANCE OF DEBIT CREDITS DEBITS PERIOD BANK (BRITISH GOVERNMENT Strially - Confidential - - 1.5 1. 0.9 0.6 0.7 0.1 0.7 0.4 0.1 (See footnotes on reverse side) 216 PLAIN LONDON LS Dated April 24, 1941 Rec'd 12:18 p.m. Secretary of State, Washington. 1621, Twenty-fourth. FOR TREASURY. (1) By way of closing a smell loophole the Bank of England yesterday instructed banks that in future no business in United States dollars with the Argentine must be entered into unless a prior import permit in free devisen has first been obtained from the Argentine Foreign Exchange Control Office by the Argentine im- porter. British banks financing dollar trade between the Argentine and other countries have in some cases recently received no return of dollars despite their disbursement in the first instance so that a loss of dollar exchange was occurring. The Argentine author- ities have agreed to provide United States dollars to reimburse British banks in all cases where permits are granted. According to this morning's press similar arrangements have recently been made with Brazil. The FINANCIAL NEWS regards the new restrictions as "demon- strating the close collaboration existing between the Bank 217 -2- 1621, Twenty-fourth from London. Bank of England and the central banking institutions of Latin America." (2) The parliamentary secretary to the Treasury announced in the House of Commons last night that the local authorities participating in the conversion offers, referred to in the Embassy's no. 1082, March 19, are being asked to adopt uniform terms for conversion offers which will be at par for 31 percent stock having a life of 19-29 years. The 22 local authorities concerned will issue redemption notices on May 1 giving three or six months notice according to prospectus terms. MINANT WSB 219 C 0 VI DEPARTMENT OF STATE WASHINGTON reply refer to 840.51 Frozen April 24, 1941 edits/1638 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and transmits a partial paraphrase of telegram no. 192 dated April 22, 1941, from the American Legation in Budapest, reporting a conversation with the Prime Minister of Hungary, and a copy of a letter dated April 22, 1941 from the Hungarian Minister at Washington, seeking the issuance of licenses for Hungarian diplomatic and consular expenses in the United States. Enclosures: 1. No. 192, April 22, from Budapost. 2. From Hungarian Minister, April 22. 220 PARAPHRASE OF INFORMATION RECEIVED IN TELEGRAM NO. 192 DATED APRIL 22, 1941, 10 p.m., FROM BUDAPEST. - I was asked by the Prime Minister last night to request the Department to give reconsideration to the United States freezing of the $800,000 which the Hungarian Legation now has on deposit. To begin with, $900,000 was withdrawn by the Hungarian Legation to be used by Legations and Consulates in England and South America: but $200,000 was redeposited by the Hungarian Legation due to the fact that it was necessary to pay out $700,000 for the coming year in England and South America. However, the Treasury has evidently added the redeposit to the $600,000 which never were withdrawn and has blocked the whole amount as the bank declined to pay $20,000 for the expenses of the New York Consulate General. It is my conviction that the Hungarians are acting in good faith; therefore it is my hope that at least part of the funds will be freed to take care of legitimate running expenses of the foreign diplomatic missions of Hungary. The Prime Minister also denied rumors that Hungary, complying with German demands, would police Croatia, thereby re- placing German soldiers who could then be used in other places. According to the Prime Minister no serious troubles between Rumania and Hungary now were anticipated and already Hungary's troops were gradually being demobilized. TRAVERS EA:MSG Copysbi:-4-24-41 221 C 0 P April 22, 1941 Y My dear Mr. Berle: With reference to our conversation of today, I beg to enclose herewith for your information a list showing the monthly requirements for the normal maintenance and administration of this Legation and of the Hungarian Consulates in New York, Cleveland and Chicago, as well as their joint consular agencies and offices. I would deeply appreciate your help and assistance in obtaining for us the required licenses so that the current and necessary expenses and salaries may be paid without delay, namely, a. a license for the Legation to draw from the Riggs National Bank its own monthly requirements, b. a license for the Riggs National Bank to remit from the account of the Legation to each of the Consulates their monthly requirements in the amounts set forth in the enclosed list, and C. licenses for each of the Consulates enabling them to draw on their respective accounts with their own banks indicated in the enclosed list to the extent of the amount transmitted to then pursuant to the license indicated under no". I wish to reiterate once more the assurance I gave you orally that the amounts intended for the maintenance and administration of the Hungarian Legations and Consulates in South America, in London and in Canada will be kept here intact until the pending questions relating thereto are settled. May I express the hope that the authorities of the United States will perceive no objection if, from the amounts originally intended for the maintenance of the Hungarian Legation in London and the Hungarian Consulates in Montreal and Winnipeg, the travelling expenses of the personnel of these offices and the cost of transportation of their belongings be paid when they pass through the United States on route to Hungary. Permit me to express to you my deep appreciation for your kind assistance in this matter. I remain, my dear Mr. Berle, Very sincerely yours, (signed) GEORGE OHIKA Hungarian Minister Enclosure The Honorable Adolf Berle,Jr. Assistant Secretary of State. 222 LIST OF MONTHLY REQUIREMENTS FOR THE MAINTENANCE OF HUNGARIAN LEGATION, KASHINGTON HUNGARIAN CONSULATE GENERAL, NEW YORK $10,000. 15,000. HUNGARIAN CONSULATE GENERAL, CLEVELAND (INCLUSIVE OF ITS OFFICE IN PITTSBURGE, PENNA.) 7,000. HUNGARTAN CONSULATE, CHICAGO (INCLUSIVE OF THE DEPUTY CONSULAR AGENCY IN LOS ANGELES, CALIFORNIA) The Banks of the Consulates are as follows: Chase National Bank, New York National City Bank of Cleveland, Ohio Third National Bank of Chicago, Illinais, 4,000. 223 DEPARTMENT OF STATE EA 811.5151 Washington Control/ April 24, 1941 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of a paraphrase of telegram no. 229 dated April 23, 1941, to the American Embassy at Rio de Janeiro, regarding the transfer of Yugoslav funds from the Bank of Brasil to the Federal Reserve Bank of New York. Enclosure: No. 229, April 23. to Rio de Janeiro. 224 PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Rio de Janeiro. DATE: April 23, 1941, 8 p.m. NO.: 229. This telegram is for Caffery's attention. Reference is made to our telegram no. 222, April 21, 6 p.m. Department has been advised by the Yugoslav Minister here that he has now been instructed by the Prime Minister of Yugoslavia to notify the Yugoslav Minister in Rio to request the Bank of Brazil to transfer $11,250,000 to the Federal Reserve Bank of New York for the account of the National Bank of Yugoslavia. Department is further advised that the Yugoslav Minister here has so instructed the Yugo- slav Minister in Rio de Janeiro. The Yugoslav Minister in Washington understands that the request will soon be made of the Bank of Brazil. We consider it important for this transfer to be made at once. We hope that this can be done in a routine manner; however, you are authorised in your discretion to advise the Brazilian officials that the United States Government and the Federal Reserve Bank of New York recognize fully and favorably the instructions which the Yugoslav Government sends its Minister as to disposal of Yugoslav funds. You are requested to keep in contact with the Yugoslav Minister there and to report any developments to the Department. HULL EatHF:FL:MSG EU EA:MBG ehicow 4-24-41 (SW) 225 BRITISH EMBASSY, WASHINGTON, D.C. April 24th, 1941. Personal and 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, Halifex The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 226 Telegram from London dated April 22nd. 1. Naval. British submarine sank 10,000 tons tanker probably German, off Brest April 18th and Free French submarine torpedoed a large tanker Southwest of Norway April 21st. 2. Attacks on shipping by submarine British ship (10,300 tons) homeward bound with food, was torpedoed in Atlantic and a British tanker (7,100 tons) sunk off Crete April 18th. 3. By aircraft. on April 21st British 6000 ton tanker was damaged by a near aise off Crete and abandoned. 4. At 0500/21 strong force of Mediterranean Fleet including three Battleships bombarded Tripoli harbour for 42 minutes. Attack preceded by bombing by naval and Royal Air Force aircraft from Bari. Surprise achieved. One big fire and explosions seen by Fleet, one destroyer, six merchant ships seen hit, one of the latter seen later by reconnaissance aircraft to have capsized in naval basin. on the previous day Fulmars from Formidable met five J U 52 troop carriers, they shot down four and also one Cant. No damage to His Majesty's ships. 5. Military. Greece. Our troops have taken up defensive lines in the region of Thermopylae running roughby from Molos to Kratini. Enemy bombing of roads and ports continues very heavy. 6. Royal Air Force. April 21st. Thirty-six medium bombers sent out, 18 with fighter escort attacked enemy shipping. Near misses were obtained on a convoy of four 2000 ton merchant ships. 7. Night of April 21st/22nd. No operations by bomber command; six coastal Blenheims attacked Havre, hitting harbour station and warehouses, two fighters attacked enemy aerodromes/ 227 / -2- aerodrome and destroyed one 4 engined aircraft. 8. Libya. During the night of April 19th/20th and on April 20th heavy bombers attacked enemy aerodromes and medium bombers harressed enemy M/T and tanks. Two bombers and one fighter lost. Eight Wellingtons successfully attacked Tripoli on the night of April 20th/21st. German Air Force, April 21st. Enemy activity 9. negligible. One fighter destroyed and one probably destroyed and a fighter and a bomber damaged. We lost two fighters, 1 pilot saved. Night of April 21st/22nd. About fif ty enemy aircraft were mine-laying off the East coast; about 160 bombers visited Plymouth and Devonport. Home Security. Night of April 21st/22nd. Plymouth and Devonport attack lasted about four hours chiefly on 10. Dockyard area where severel fires were caused. Two Barracks also set on fire. All fires except two under control by 6.00 a.m. 16 228 CONFIDENTIAL AIR BULLETIN No. 19 MILITARY INTELLIGENCE DIVISION WAR DEPARTMENT G-2/183-314 Washington, April 24, 1941 NOTICE The information contained in this series of bulle- tins will be restricted to items from official sources which are reasonably confirmed. This document is being given an approved distri- bution 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. AIR OPERATIONS FEBRUARY 16 - MARCH 15, 1941 INCLUSIVE CONTENTS 1. WESTERN THEATER a. Germany b. Great Britain 2. MEDITERRANEAN-AFRICAN THEATER a. Germany b. Italy C. Great Britain 3. GREEK THEATER a. Italy and Germany b. Greece and Great Britain CONFIDENTIAL -1- 229 CONFIDENTIAL AIR OPERATIONS FEBRUARY 16 - MARCH 15, 1941 INCLUSIVE 1. WESTERN THEATER a. Germany (1) General. The German Air Force concentrated its main attack during the period February 16-March 15 against ports and harbors in England and Scotland, with heavy secondary attacks directed against industries, rail centers, and airdromes. An average of 49 German planes flew over England during daylight operations and an average of 145 planes during night operations. There was more activity against shipping than for the preceding 30-day period, and casualties were heavier. (2) Day Operations. The main effort during daylight was directed against shipping, and sufficient reconnaissance was used to carry out missions. The Germans claim that 36 ships were sunk by their air force during this period and that 19 merchant ships were sunk and 12 were damaged, including one cruiser, in waters off the English coasts. On February 25, a unit of Heinkel-III bombers was reported by the Germans to have attacked a convoy 310 miles west of Ireland, sinking nine ships, displacing a total of 58,000 tons and damaging 23,500 additional tons. Other shipping attacks were reported in the North Sea and off the Hebrides. The appearance of the Focke-Wolf Kurier in increasing numbers has considerably enlarged the area dangerous to British shipping. Several heavy defensive patrols were maintained off the coast of France. On February 25, 200 fighters were off the coast and an additional force of 115 bombers patrolled from the English Channel to the North Sea. On March 12, 230 planes patrolled the Straits of Dover. Inland operations of the Air Force were directed chiefly against airdromes in East Anglia and along the south and southwest coasts of England, in Scotland, and in the Orkney Islands. On March 6, low level attacks against airdromes were made by 44 planes. These raids resulted in damage to hangars, barracks, and to a few planes on the ground, according to German sources. Repeated harassing attacks were carried out against objectives in London, Cardiff, and Portsmouth; a number of East Coast harbors were mined, and harassing attacks were carried out against the industrial centers of Cardiff, Newcastle, and other cities. The British CONFIDENTIAL -2- 230 CONFIDENTIAL report that several harassing attacks on London resulted in damage to residential areas only. On February 16, nine planes bombed the naval station at Skegness with considerable damage reported. Although several harbors and ports were raided, there was no main concentrated attack by a large number of planes during daylight operations inland. (3) Night Operations. The main concentration of attack was on ports and harbors with 21 attacked in England and about six in Scotland. Heaviest raids were carried out against harbor objectives in London, Liverpool, Portsmouth, Glasgow, Hull, Cardiff, and Swansea. During the nights of March 8, 9, and 15, London was attacked by formations of more than 100 planes, with heavy damage reported to harbor facilities. The heaviest raid on Liverpool was made on March 12 by 316 planes operating also against harbor areas between Liverpool and Birkenhead, with heavy damage claimed to shipyards, petroleum storage, flour mills, and power and gas works. Portsmouth was attacked March 10 by 238 planes which dropped thousands of incendiaries and caused damage to oil storage and power stations. On March 13 a total of 421 planes were reported over England. Of these, 56 attacked harbor works at Liverpool; 75 bombed objectives in Hull with destruction to warehouses and flour mills; 251 raided Glasgow, releasing 272 tons of high explosive and 58,000 incendiaries on harbor works, shipyards, gas works, and grain storage. About 100 fires were observed along the Clyde River. The next night Glasgow was again attacked by 203 planes, which damaged the Rolls- Royce factory and other objectives. Heavy attacks were made against industrial centers and important rail communications. The Cardiff-Bristol rail areas were bombed on March 3 by 160 planes, which started more than 50 fires and caused heavy damage to rail facilities. The heaviest industrial attack was carried out against Birmingham on March 11 by 135 planes, which bombed factory sites and started a large number of fires. Heavy destruction to steel mills in Sheffield was reported by the Germans after an attack by 105 planes on March 14. Night attacks on airdromes were carried out over the midlands and East Anglia, with repeated attacks made against those of Norfolk and Suffolk. Several airdromes north of London were repeatedly raided. Thirteen different airdromes were raided on February 25, and 11 more were attacked on March 3. Damage to hangars, barracks, and planes on the ground was reported. (4) Volume of German Bombs. Reports covering operations of the German Air Force over England have not stated the actual volume of bombs dropped during raids, or during any given period. Raids were CONFIDENTIAL -3- 231 CONFIDENTIAL more numerous and heavier, however, for the period February 16-March 15 than for the preceding month. Large numbers of planes made heavy attacks, with a great amount of damage reported to factories, ware- houses, harbor facilities, and rail centers. Thousands of incendiaries must have been released during the heavier raids to start the large number of fires reported for the areas attacked. (5) Effect of German Bombing Raids. During the period February 16-March 15, the Germans made three fairly heavy attacks upon London. On the night of February 17 a direct hit was made and fires were started in an air raid shelter, with the result that 70 people were killed and 46 injured. On the night of March 8 the North Lodge of Buckingham Palace was demolished, and a hit on a cafe brought death to 26 people and injuries to 80. The following night 120 aircraft bombed London, set fires, and damaged docks and business property. Swansea was the target for attacks on the nights of February 19, 20, and 21. During these successive nights, warehouses, lumber yards, and residential areas were damaged considerably; many fires were started in the center of the city, and 128 people were killed and 194 seriously wounded. Cardiff received attacks on the nights of February 26, March 3, and March 4. Numerous fires were started; there was a great deal of damage to private and business properties, and railroad facil- ities were dislocated as a result of a direct hit on the railroad station. During an attack on Portsmouth the night of March 10, the Royal Naval Barracks were damaged by fire, as were dockyards, a power station, and electrical workshops. At Gosport, oil tanks were set on fire. A number of other attacks on varied areas caused damage to the water, electricity, and gas services in towns. On February 7 a balloon barrage center, an infantry training center, and 6 R.A.F. stations were attacked. Some damage was done at each. b. Great Britain (1) Day Operations. During the period February 16 to March 15 inclusive, day raids made by the British were not on a large scale. Executed in the main by small formations of Coastal Command planes supplemented by single planes from the Bomber Command, they attacked shipping and coastal cities of the occupied area. Either alone or in conjunction with the Bomber Command, fighters made a few sweeps on airdromes and industrial centers of Northern France, Belgium, and Holland, CONFIDENTIAL 232 CONFIDENTIAL On February 16, 21, and 25 and during the first week in March, the Coastal Command and the Bomber Command made attacks on German shipping along the Channel coasts and dropped a few bombs on oil farms, airdromes, shipyards, and docks in the occupied countries. The naval dock yards at Den Helder, Holland, received four attacks in less than a week. On February 25 and 26 and March 4, 5, and 10, bombers and fighters made quick sweeps into the occupied zone, with air fields in Northern France as the main targets, while on February 26 two sweeps of about 40 bombers and fighters each were made on airfields in the vicinity of Calais. According to German reports, little damage was done on these sweeps, which employed a ratio of four fighters to one bomber. A number of attacks were made by lone bombers on the coastal cities of the occupied zone. Planes usually made a quick flight to the objective, dropped their load, and returned. Not much time was spent on selecting the target or on accurate sighting. (2) Night Operations. The night operations of the British during this period had more offensive weight than in the preceding month, and larger numbers of planes were used in raids. On February 16, a total of 189 planes of the Bomber Command were out, of which 40 attacked the city of Boulogne; 73 attacked oil refineries at Holton, Holland and Sterkrade, Germany; 70 attacked Hamburg; three attacked harbor facilities at Calais, and three took action against a German warship in the Port of Brest. Of these, five were lost. Seventy-one bombers were sent out against Helder, Calais, and Boulogne on February 23. Harbor facilities of these ports were the objectives, and large fires were observed at Calais and Boulogne. The harbor at Brest was attacked on February 24 by 70 medium bombers from the Bomber Command and the Coastal Command, with a German cruiser of the Admiral Hipper class as their target. On February 25 industrial plants at Dusseldorf were bombed by 80 heavy bombers, while other planes of the Bomber Command and the Coastal Command attacked merchant shipping and harbor facilities at Boulogne, Le Havre, Dunkirk, and Calais. A number of fires were started at these places. Seventeen other medium bombers made attacks upon air fields in Northern France. The industrial area of Cologne was bombed by 155 heavy bombers on February 26, and a large number of fires were started. Four bombers were lost during this raid. On the same night, Coastal Command CONFIDENTIAL -5- 233 CONFIDENTIAL planes attacked a manufacturing plant at Abbeville and the port of Le Havre. Mines were also laid in occupied ports on the French coast. Wilhelmshaven was attacked on February 28 by 98 heavy bombers. Additional targets were 26 other areas in Northwest and Western Germany. On March 1 the industrial area of Cologne was again bombed - this time by using 131 bombers, of which three were lost. The cruiser at Brest was again attacked on March 2 by 71 heavy bombers, while small formations of bombers raided air. fields in the Netherlands near Rotterdam and in Northern France. During these attacks, six bombers were lost. On March 3, Boulogne was attacked by 10 bombers, the Cologne area by 72 bombers, and the cruiser at Brest by seven. Of the total of 89 planes sent out, two were lost. Fighters made a sweep on the air fields in the Poix-Amien area of Northern France. During the night of March 10-11, bombers from the Coastal Command attacked the cruiser at Brest; 31 heavy bombers raided the air field at St. Aubin and the harbors of Le Havre, Boulogne, Dieppe, and St. Nazarie; 19 other heavy bombers were active against Cologne. Two bombers were lost in these operations. Air fields in the vicinity of Bremerhaven were attacked by formations of heavy bombers and the ship building plants in Kiel were raided on March 11 by 27 bombers. The following night 254 bombers operated in attacks as follows: 88 on Hamburg; 72 on Berlin; 86 on Bremen; 7 on Boulogne and one on Calais. Seven of these bombers failed to return. Six Coastal Command planes attacked and torpedoed a destroyer during raids on merchant vessels in the Skaggerale. On March 13 Hamburg was attacked by 139 bombers; Rotterdam by 14; and the German occupied area by 150. Coastal Command planes raided air fields in South Norway and also mined the northwest coast of France. Six of the bombers used in these raids were lost. Bombing raids were made during the night of March 14 on the manufacturing area of the Ruhr and Dusseldorf; on harbor facilities at Dutch, Norwegian and French ports; on oil refineries at Gelsenkirchen; on occupied air fields in the Netherlands, and on stores of gasoline at Rotterdam. The Coastal Command also mined the Norwegian coast. Of the 159 planes used in these raids, two were lost. On March 15, 37 bombers attacked six manufacturing plants and a submarine base at Lorient and 21 planes bombed Dusseldorf. Longrange bombers attacked targets in the Netherlands. The largest raids made by the British during the entire CONFIDENTIAL -6- 234 CONFIDENTIAL war occurred during this period. From 200 to 260 planes operated nightly over a number of targets. The largest number used on one target was 159 over Hamburg on March 13. (3) Volume of British Bombs. From all information available, the British dropped an average of about 38 tons of high explosive and 7500 incendiaries during large-scale raids. Information on this subject is very meager, and the only figures which are known concern nights during which the largest number of bombers were employed. (4) Effect of British Bombing Raids. British air raids against industrial areas of Germany have resulted in damage to a limited number of factories. At Dusseldorf one of the Krupp factories is reported to have been completely destroyed, with considerable damage to other works. Although heavy attacks have been made at Cologne and in other industrial centers along the Rhine, reports have not indicated heavy damage to military objectives, but heavy damage to residential areas has been reported by the Germans. Attacks on rail centers have resulted in damage to rail facilities in Duisburg and Cologne, but the extent of this damage has not been indicated. After attacks on ports and harbors in Germany, reports have admitted damage to buildings and plant facilities in the navy yard at Kiel. In Bremen, an airplane factory was damaged by bomb hits and fires. The heavy raid on Hamburg, during which 300 high explosive bombs and 600 incendiaries were released, resulted in hits on the Blohm and Voss Shipyards, but there was no interruption of plant work. Considerable damage was reported to residential areas in Hamburg with 11 houses destroyed and 44 others severely damaged. Bombing of Hamburg has resulted in destruction to flour mills, warehouses and one shipyard. In occupied territories considerable damage has been reported to objectives in ports and harbors, usually by fires. The naval base at Den Helder in the Netherlands had a number of bomb hits which caused minor damage to buildings. At Rotterdam, considerable damage to petroleum plants and storage facilities was claimed by the British. Damage to residential areas in Rotterdam, Boulogne, and other cities in occupied territories has been reported by the Germans. It has been admitted that in Calais and Boulogne railway facilities have suffered considerably. 2. MEDITERRANEAN-AFRICAN THEATER a. Germany The German Air Force directed its main attacks against Mediterranean shipping and against the ports and harbors of Libya and CONFIDENTIAL 235 CONFIDENTIAL Malta during the period under consideration. Italian planes operated in conjunction with German bombers in the Mediterranean Area. The Gernans moved from 800 to 1000 planes into Italy and Sicily in a strong effort to dominate the Central Mediterranean. Tripoli and the Dodecanese Islands were also being used for bases. Repeated attacks - 69 in all - were made against air- dromes and harbors at Malta, most of them effected by dive bombers. On February 26 a strong formation of German dive bombers with Itelian escort attacked the air field of Luqua, causing considerable damage to the flying field, hangars, barracks, and fuel supply. During this raid, according to the British, seven Axis fighters were shot down by British fighters and five by antiaircraft. The following day 144 bombers and 26 fighters attacked at Luqua, Kolafiana, and Hal Far airdromes. Seventy-six bombers which raided Malta on March 5 completely destroyed a hangar and a barracks building, according to the Germans. Bombing raids against Malta are reported to be reducing its value as a naval and repair base. There have been 411 attacks on the island, including 142 bombings, since January. Operations over the Mediterranean and Libya were carried out with an average of 37 bombers escorted by an average of 22 fighters. Attacks on ports were made in Bengazi, Tobruk, and along the coast of Cyrenaica. On February 28 a number of ports were attacked by 99 bombers with 19 fighters for escort, and it was said that the harbor at Bengazi would be useless until considerable repairs can be made. Raids against British ground forces were carried out 100 miles south of Agedabia, near Derna, Agheila, and at Bengazi. On February 23, 40,000 German troops had succeeded in disembarking from 60 ships at Tripoli. Attacks on shipping in the bediterranean resulted in the reported sinking of eight vessels, including a 5,000-ton auxiliary cruiser and the 7,000-ton monitor, "Terror." Eleven other ships, including 2 destroyers, were danaged by bomb hits, it was said. Operations against the Suez Canal were generally carried out at night and for purposes of mining. The Canal was scheduled to open on March 6 after a channel had been cleared of mines for the purpose of allowing ships of less than 20 foot draft to pass through, but the Canal was again mined on March 5. A similar incident prevented opening of the Canal on March 11. CONFIDENTIAL -8- 236 CONFIDENTIAL Casualties to Axis aircraft in this theater were reported by the British as follows: By naval antiaircraft By ground antiaircraft By fighters 6 9 21 Total 36 b. Italy Activities of the Italian Air Force have not been reported as especially extensive or noteworthy. Raids were made against Libyan ports in Cyrenaica and Bengazi; harbors and airdromes on the Island of Crete were bombed during four raids, and in the Agean Sea harbor works on Mytilene Island were raided. Attacks against British ground troops and emplacements were reported near Agedabia and Bengazi. On March 6 the Italians reported an attack on a convoy in the Eastern Mediterranean, scoring hits on a cruiser, a destroyer, and a merchant vessel. Italian air losses during this period have been reported as 41 shot down by British fighters, four by antiaircraft, and eight destroyed on the ground. C. Great Britain Planes of British forces based at Malta made two attacks upon' airdromes in Sicily and one upon Tripoli in Libya, with docks, harbors, and shipping, as targets. Planes based at Sudan made a number of attacks upon Ethiopian bases and against Italian forces there. Planes based at Aden concentrated on Eritrean cities and on the assembly plant and air fields at Caproni. Italian Somaliland was attacked by planes, based at Kenya and the Libyan area was attacked by planes based in Egypt. In all these areas raids were scattered and directed at troop concentrations, supply bases, and airdromes occupied by Italian and German troops. There was considerable cooperation with ground troops in all of these areas during the period under consideration. The tactics employed during the Libyan campaign involved, (1) intensive counter-air CONFIDENTIAL -9- 237 CONFIDENTIAL force operations; (2) air attack against strategic objectives, and (3) intense close-support operations, with all types of aircraft in use. Fighters were used for army cooperation work and also for ground strafing operations. Because of the necessity of consolidating positions and establishing lines of communications, offensive action against Italian forces were voluntarily curtailed. This allowed the release of one bomber squadron and two fighter squadrons for use in Greece. Most of the airplanes in use in Africa are old and have no de-icing equipment, carburetor heat, automatic pilots, or modern bomb sights. The squadrons are being reformed as rapidly as equipment becomes available. In addition to the tactical squadrons, the following units, all of which are organized differently, are stationed with the R.A.F.: 2 air transport units; 2 transport units; 1 marine section; 25 air base stations; 4 supply columns; 5 medical detachments; 5 port detachments; 4 maintenance units; 8 air stores; 3 repair and salvage units; 8 staging posts. 3. GREEK THEATER a. Italy and Germany There was little air activity in the Greek theater during the period of February 16-March 15. While Axis planes were reported in operation, there was little to indicate that Germany offered much aid to the Italian Air Force in Greece. Scattered attacks were carried out by Italian planes against targets in the Tepelini area, Larissa, and Preveza, and along the The Greek frontier raids were made against Greek troops and emplacements. Italian offensive, extending from the Adriatic Sea to Lake Ochrid on the Jugoslavia frontier, failed to receive support from the Air Force. In Albania a few attacks were made by Italian planes against Greek ground troops and military objectives. Italian and Axis losses in this theater were reported as 31 planes shot down by British fighters. CONFIDENTIAL -10- 238 CONFIDENTIAL Larissa, Greece, was the objective of two raids; one by German planes on the night of March 2 and one the following night by Italian planes. These attacks occurred shortly after the city had been severely damaged by an earthquake, and it was unable to defend itself in any manner. It was later claimed that the five Italian planes participating in this attack were destroyed by British pursuit planes. b. Greece and Great Britain The airdrome situation in Greece was very critical, since there are no all-weather fields in the country and the British were confined to fields at Athens and Taussa and an advance field at Janina. Many important missions were cancelled because of the unserviceable condition of airdromes and the fact that their location made operations with short range airplanes very difficult. The lack of airdromes also required the crowding of squadrons into areas extremely vulnerable to air attack. The mountainous terrain between airdromes and the objectives presented another obstacle. Because of icing conditions in the clouds, which cover the mountains for long periods during the winter, it was often necessary to route bombardment missions along the coast from airdromes at Athens. The effective field of operations was decidedly limited. The advance airdrome at Janina is located in a pocket between high mountains which handicapped fighter operations to a considerable extent. Italian airplanes could often operate against Greek rear areas when weather conditions tied British airplanes to the ground only a few miles away. The British Air Force in Greece was augmented during this period by one squadron of long-range bombers and one fighter squadron. This part of the R.A.F. was unusual in that much of its administrative work was performed by the Army, as is the case in the United States Air Corps. The R.A.F. in Greece is operated like an air corps group under the general directive of the R.A.F. Middle East Headquarters in Cairo. Consistent with limits of aircraft, terrain, weather, and availability of airdromes, the policy, generally strategic, closely follows the doctrine of the United States Tactical School. Operations are well planned and executed skillfully and with determination. They are calculated to produce the maximum effectiveness under extremely difficult conditions. Close support bombardment missions requested by the Greek High Command were per- formed when possible, but these missions contributed more to Greek morale than to the common effort. CONFIDENTIAL -11- 239 CONFIDENTIAL The main targets operated against during this period were motor transport trains, supply bases and ground forces, particularly in the Tepeleni and Berat areas; Brindisi and airdromes at Valona, Two or three raids were made upon air fields on the Island of Rhodes. During the period of the full moon, raids were made by long range bombers from Egypt on Italian and Albanian ports. These planes were ferried from Egypt and opera in the Athens area. om one or both of the airdromes CONFIDENTIAL -12- 240 RESTRICTED 0-2/2657-220; No. 374 M.I.D., W.D. 12:00 M., April 24, 1941. SITUATION REPORT I. Western Theater of War. Air: German. A fairly strong attack was made on Plymouth last night for the third night in succession. Minor attacks over southeast and northeast England and over south Wales. British. Night attacks along the Invasion Coast. II. Greek Theater of War. Ground: On April 23, British troops held a line from Molos in the Thermopylae area to Eratini on the Gulf of Corinth. The German High Command communique of April 24 reports a "penetra- tion into the British Thermopylae position". Unconfirmed reports from Istanbul state that German troops have occupied the Aegean islands of Lemnos and Skyros. Air: German. Strong support of the ground forces plus bombing of harbors. III. Mediterranean and African Theaters of War. Ground. No special change in the situation. Air: Several Axis attacks on Tobruk. RESTRICTED CONFIDENTIAL 241 Paraphrase of Code Rediogram Received at the War Department at 10:45, April 24, 1941 Meesew, filed April 24, 1941. 1. The Iranism Government notified the Iranian hubeseader to Messow that the fronkier between Iran and the U.S.S.R. is still open. 2. Rush instructions have been issued for complete double-tracking of the Caucasian Railroad. 3. According to the Turkish Military Attache, the Soviet Uniden continues to refuse to sell supplies of military equipment to Turkey. YEAR ON Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War War Plans Division Office of Naval Intelligence CONFIDENTIAL 242 SECRET By authority A. C. of S., G-2 Date 25Ap41Initials (. B , Paraphrese of Code Radiogram Received at the War Department at 9:51 A.M., April 24, 1941 Ambara, filed April 23, 1941. British officials at the British Babasay here are starting to send their children from Turkey to Palestine quietly. Their hope is to get them either to Canada or the United States sooner or later. KLUSS Distributions Secretary of War State Department Secretary of Treasury Under Secretary of War Assistant Chief of Staff, 0-2 War Plans Division Office of Maval Intelligence (2) SECRET CONFIDENTIAL 243 Paraphrase of Code Cablegram Received at the Mar Department at 11:03, April 24, 1941 London, Filed 16:40, April 24, 1941. I. Daily Cable. 1. British Air Activity over the Continent. a. Daylight, April 23. Hits were scored on two freighters and one anti- aircraft vessel in raids on seaborne traffic off the NetherLands. b. Night of April 22-23. Thirty-six British bembers again attached the two German battleships in the harber at Brest. No damage was observed. 2. German Air Activity over Great Britain. a. Might of April 23-24. German aquadrons again bombed Plymouth with an estimated total of approximately 160 planes. Portamouth area was subjected to a since attack and East Coast terms from Wisk to Marriah were reided by single planes. There was some see-sining, and enemy fighters attacked British airfields. b. Daylight, April 23. German air activity ever Britain was of minor prepartions with no damage having been reported. 2. Eight of April 22-23. A total of 220 planes were employed in the German booking attacks on Great Britain. CONFIDENTIAL CONFIDENTIAL 3. Air Losses British Theater. a. Daylight, April 23. No losses were reported by either side. b. Night, April 22-23. One British bomber was shot down in attacks on Brest. 4. British Air Activity Middle East Theater. a. Libya. From air bases in Egypt the British bombed Bengasi and machine gunned German motor convoys near Gambut with heavy damage reported. b. Greece, Daylight of April 23. No British air operations took place in Greese. 5. German Air Activity Middle East Theater. a. Malta, Night of April 23-24. Damage was reported to naval facilities in the port after bombing raid by 40 German planes. 6. German Air Losses, Middle East Theater. a. Malta, Eight April 23-24. One German plane was shot down in raids on Malta. b. Libya. British fighters shot down four Axis planes with two additional considered probable. II. The following is a SUMMARY of British Military Datelligence information as of 07:00, April 24. 1. Greese. 2 CONFIDENTIAL 244 CONFIDENTIAL 245 & It is new reported that the Germans have not landed on the Island of I as formarly reasored. b. The King and the Greek Government have evacuated the mainland to Grate. On the Epirus front registance of the Greek Army has terminated and the troops are taking to the mountains. There has been, however, no advance of German column south of Jamine. c. Up to 22:00, April 23d, the British positions on the Moles-Eratini front had not been attacked by the Germans. German air activity over the whole expanse of British rear positions has been greatly increased and mass bombing attacks on shipping near the south Greek coast are taking place. 2. Libra. a. In the Bollas area a German motorised infantary column accompanied by tanks was engaged and repulsed by British artillary. b. Eight of April 21-22. Many Axis casualties were claimed and 500 prisonars, chiefly Italian, were taken by British infantry and tanks who, advancing from Toback, raided the enemy positions to the south and southerst. The British last - light tank and had minor camalties. IKE. Distributions Secretary of Mar State Department of Treasury Under secretary of Mar Mar Plans Division Office of Naval Intelligence Air Corps Assistant Chief of staff, 0-3 -> CONFIDENTIAL CONFIDENTIAL 246 Paraphrase of Code Rediggrous Received at the War Department at 12:21, April 24,1901 Subsport, filed April 24, 1941. A milerate - of German troops continues restured by rail and read through KOLOKSYAR rather them as femerity via ARAD. PARTRIDGE Distribution: Secretary of War State Department Secretary of Treasury Under of May Assistant Secretary Chief of Staff, 0-2 War Plans Division Office of Naval Intelligence CONFIDENTIAL 247 BRITISH EMBASSY, WASHINGTON, D.C. April 25,1941 PERSONAL AND 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, Ksvik Butter The Honourable, Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 248 TELEGRAN RECEIVED FROM LONDON APRIL 23RD, 1941 Naval Battle Gruisers still at Brest, April 23rd. 2. Two coast conveys attacked by aircraft April send, but no damage. 3. Military. Libya During the night April 19th/20th, an unopposed landing was carried out in Bardia area by raiding party 450 special service troops. Dump of new Italian tyres burnt bridge deztroyed and breach blocks of four old defence guns rendered use- less. Five officers and sixty-two other ranks failed to recabark. Enemy has announced their depture. One landing craft with two officers and thirty-nine other Danks on board missed its parent ship but reached Tobruk. 4. No contact with the enemy on Thermopylae position reported up to 9.35 Pollo April sand. 5. Royal Air Force Daylight April 22nd. Blenheim hit enemy merchant vessels northwest of Stavanger. Night of April 22nd/23rd. Thirty-six aircraft sent to attack enemy battle cruisers at Broat. One aircraft missing. Libya April 21st Our bombers heavily attacked two aerodromes and transport concentrations in Capusso and Bardia areasy considerable damage caused to vehicles and aircraft on the ground. 6. German Air Force April 22nd. Enemy activity slight; one bomber destroyed by Spitfires. Night of April 28nd/23rd. About 165 enemy aircraft operating. Plymouth and Devenport again attacked. Malta was bombed on April 21st and 22nd - some damage to naval property. One German fighter destroyed by anti-aircraft. 7. Home Security Night of April send - 23rd. Plymouth / 249 Plymouth and Devempt worse than on the previous night. Full particulars not yet available but at 8.85 some reported that over a large area in commercial centre fires were not yet under control. 250 RESTRICTED HILITARY INTELLIGENCE DIVISION WAR DEPARTMENT Washington, April 25, 1941 TENTATIVE LESSONS BULLETIN No. 96 0-2/2657-235 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 Hilitary Intelligence Division. For provisions governing its reproduction, see Letter TAG 350.05 (9-19-40) M-B-M. IMPRESSIONS OF AN AMERICAN UNOFFICIAL OBSERVER IN FRANCE SOURCE The information in this bulletin was obtained in an interview with a United States Reserve officer who lived in Paris for many years and left that city only on December 11, 1940. In civil life the officer is a munitions and weapons expert. CONTENTS 1. TANKS 2. NOTE ON PANZER DIVISIONS 3. DEMOUNTABLE ARMOR 4. IMPROVEMENT OF AIR FIELDS 5. BRITISH BOMBING 6. IRON RINGS FOR ARTILLERY SHELL 7. POSSIBLE SHORTAGES 8. ATTITUDE OF FRENCH 9. ATTITUDE OF NAZIS RESTRICTED -1- 251 RESTRICTED IMPRESSIONS OF All AMERICAN UNOFFICIAL OBSERVER IN FRANCE 1. TANKS The observer was greatly impressed with German tanks. Built of ordinary steel with little chrome, they are of extremely cheap construction, but because of their lines they are tactically effective. Ricochet angles have been 80 carefully studied that it is difficult to penetrate tank armor despite its poor quality. A French 25-mm. gun can easily penetrate the average German light tank if the angle at which the projectile strikes the tank is not too great, but quite often projectiles glance off from the "ricochet-lined" tanks. Having examined shell holes in tank armor, the observer says they were not what he calls "resisting holes" - that is, the armor around the hole was almost melted. The Germane admit that the French Somua tank was far and I away the best tank engaged on the West Front in 1940, according to the observer. All derelict Somuas were gathered up by the Germane, taken to the Somua plant, repaired, and shipped away by train. According to French rumor, they were destined for Pumania. 2. NOTE ON PANZER DIVISIONS On three occasions the observer saw German Panzer divisions pass on the road. Each took about 3 hours to pass, with the troops moving at 60 to 70 Hilometers an hour. The driving was impressively good. In each case a ponton train moved near the leading elements and a second ponton boat detachment vas located about in the middle of the division. The observer concluded that the pontons were organically part of the Panzer divisions. 3. DEMOUNTABLE ARMOR German personnel-carrying trucks have demountable armor on the sides and a sloping shield, also demountable, in front. The armor can be removed and the truck used for ordinary purposes. The top is always open, for there is no armored roof. Artillery tractors which pull 150-mm. and larger pieces have similar armor available, but usually they appear without this on the road and install it when the guns are unhooked. 4. IMPROVEMENT OF AIR FIELDS The Germans are enlarging and improving all air fields in RESTRICTED -2- 252 RESTRICTED Occupied France, and drainage is being provided for even the old French emergency fields. The soil is turned up. several inches of cinders are put in, and the soil is put back and rolled, with much of the work done by mechanical devices. Concrete is being laid at good fields, and large numbers of men, mostly prisoners, are engaged in this work. Verneuil on the Oise, Senlis, and Compiegne are among the fields where the observer knew that large scale work was in progress. 5. BRITISH BOMBING The Dunkirk plant of a vital war industry has been bombed four times by the British since it resumed operations. Warning had been given by the British that the plant would be bombed if work was resumed there. In each of the four cases, the British used only 65-pound bonbs, and these were quite ineffective. The observer heard from a German source in which he has confidence that Cologne was raided 128 tines between September 15 and December 1, but that only one or two planes - usually one - effected each attack. Material damage had been insignificant; the principal result was loss of sleep. 6. IRON RINGS FOR ARTILLERY SHELL Instead of copper rings, the Germans are using rings of pressed powdered iron on artillery shells of 120-mm. and larger. They have discovered some means of making powdered iron soft, compressing it and pressing it onto the shell. Results are as good as with copper rings. The present German capacity for powdered iron is believed to be 20 tons a day, and a large new plant is being constructed near Dussel- dorf which will have a capacity of 50 tons daily. 7. POSSIBLE SHORTAGES The Germans act as if there were an aluminum shortage. They exerted considerable pressure on the Pechinet aluminum group, which had plants in Occupied France, to get bauxite sent in from the unoccupied section, and the observer believes Germany regrets not having occupied those parts of France which produce bauxite. From German sources he understands that German airplane production has been limited to 1750 planes a month because of the aluminum situation, but he doubts that the aluminum shortage is so great. French monthly steel production, formerly 600,000 to 700,000 tons, is now only about 50,000 tons, or less than half the limit imposed by the armistice. The chief reason is the lack of lubricating oil in the occupied area, but the observer does not believe that Germany herself lacks lubricating oil. RESTRICTED -3- 8. ATTITUDE OF FRENCH French upper classes in Occupied France are inclined to be pro-German. The middle classes and laborers, at first ready to accept the Germans, are now weary of the occupation and of their conquerors. Increasing sabotage is probable. 9. ATTITUDE OF HAZIS The observer was impressed by the morale and fanatical spirit of the young Nazi soldiers, and he feels that they would be extremely difficult to defeat. They appear not only willing, but almost eager to die for Hitler. Their attitude is that of crusaders. RESTRICTED -- 254 RESTRICTED M.I.D., W.D. G-2/2657-220; No. 375 12:00 M., April 25, 1941. SITUATION REPORT I. Western Theater. Air: German. Estimated that about 150 bombers were employed over England last night. Main attack was made on Portsmouth. Further successes are claimed against shipping. British. Normal activity last night centering over Kiel and Wilhelmshaven. Scattered attacks were made along the west coast of Europe from Norway to France. II. Greek Theater. Ground: German troops have captured the pass of Thermopylae. British GHQ in Cairo has announced a new but orderly withdrawal of the British forces in Greece. Air: Germans continued to bomb in the combat area and to attack suspected embarkation ports. No appreciable Allied activity. III. Mediterranean and African Theaters. Ground: North Africa. Considerable patrol activities with no special change in the situation. Abyssinia (Ethiopia). The British have broken through forward Italian defenses in the Dessye sector. Air: The R.A.F. bombed Tripoli and Rhodes. RESTRICTS CONFIDENTIAL 255 Paragramm of as as 9ml, Agent n I filed Agent m, 1961. Please autobilitate - Vento - - I for the I "385" in No. w from this office. - Distributions Secretary of Wes State Department Materof Treasury - of - Assistant Chief of staff, as Mar Piens Division office of Neval Intelligence Assessed Furee Cominy CONFIDENTIAL CONFIDENTIAL 256 / of Gate / Received as the No as 11.15, Agent m, was. Messon, filed 16:11, Agous 15, 2014. 1. - of - health - - to be growing. There has body observed - of wage - material in the weekness direction. Weethouse toutite - the - Distroned has boon expented for 10 degree this supporte voliable information of the transfer of the 15th Annual of 8-10 divisions from the For Seat to - West. my Day provide is perstatently - as the - of of all international traffic from April 25 to May 5. There has been accoloration in the middlection of wage involving - immediate of calling w Series compariate as sign. - of - Motiliation E Natu of Summer of Medication ON of Stoff, a - Those Division office of Mont CONFIDENTIAL 257 TREASURY DEPARTMENT FOR RELEASE, MORNING PAPERS Friday, April 25, 1941 The Secretary of the Treasury, by this public notice, invites tenders for $100,000,000, or thereabouts, of 91-day Treasury bills, to be issued on a discount basis under competitive bidding. The bille of this series will be dated April 30, 1941, and will mature July 30, 1941, when the face Amount will be payable without interest. They will be issued in bearer form only, and in denominations of $1,000, $5 000, $10,000, $100,000, $500,000, and $1,000,000 (maturity value). Tenders will be received at Federal Reserve Banks and Branches up to the closing hour, two o'clock, p.m., Eastern Standard time, Monday, April 28, 1941. Tenders will not be received at the Treasury Department, Washington. Each tender must be for on even multiple of 1,000, and the price offered must be expressed on the basis of 100, with not more than three decimals, e. g., 99.925. Fractions may not be used. It is urged that tenders be made on the printed forms and forwarded in the special envelopes which will be supplied by Federal Reserve Banks or Branches on application therefor. Tenders will be received without deposit from incorporated banks and trust companies and from responsible and recognized dealers in investment securities. Tenders from others must be accompanied by payment of 10 percent of the face Amount of Treasury bills Applied for, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank or trust company. Immediately After the closing hour, tenders will be opened at the Federal Reserve Banks and Branches, following which public 24-75 258 -2announcement will be made by the Secretary of the Treasury of the amount and price range of accepted bids. Those submitting tenders will be advised of the acceptance or rejection thereof. The Secretary of the Treasury expressly reserves the right to accept or reject any or all tenders, in whole or in part, and his action in any such respect shall be final. Payment of accepted tenders at the prices offered must be made or completed at the Federal Reserve Bank in cash or other immediately available funds on April 30, 1941. The income derived from Treasury bills, whether interest or gain from the sale or other disposition of the bills, shall not have any exemption, as such, and loss from the sale or other dis- position of Treasury bills shall not have any special treatment, as such, under Federal tax Acts nor or hereafter enacted. The bills shall be subject to estate, inheritance, gift, or other excise taxes, whether Federal or State, but shall be exempt from all taxation now or hereafter imposed on the principal or interest thereof by any State, or any of the possessions of the United States, or by any local taxing authority. For purposes of taxation the amount of discount at which Treasury bills are originally sold by the United States shall be considered to be interest. .. Treasury Department Circular No. 418, as amended, and this notice, prescribe the terms of the Creasury bills and govern the conditions of their issue. Copies of the circular may be obtained from any Federal Reserve Bank or Branch. -000- 259 April 25. 1941 Mr. W. N. Thorpace Mr. Cochran Reference 10 made to the a free Mrs. Base which was addressed to you under date of April 21, setting forth the inscriptions on the plagues which have already been given to navel vessels which have carried gold for the Treasury. will you kindly have three additional plaques prepared, similar to those already avaided, bearing the following inscriptions: 1 Presented by Sensy Morgenthes, is., Secretary of the Treasury. to the Commanding Officer of the U.S.S. Vincennes, Captain J. a. Boardall, U. S. Havy. in appreciation and acknovledgment of the efficiency of the Captain and officers and area under his command in the conveyance and safe delivery of she million dollars of gold free Gasablanca. Mereces to the heary Office in New York any June 10. 1940. June 22. 1940. 2 Presented w Heavy Hergeathes, Sr., Secretary of the treasury. to the Descenting Officer of the U.S.S. Sentoville, Commender E.S. Nelson. V. s. Havy, in appreciation and admovieignent of the officients of the Geptain and officers and erow under his commond is the conveyence and safe delivery of 150 million dollars of gold from Simonotesa. Usion of South africa. to the and Office is New York City, January 6, 1941, January 23. 1941. 3 Presented w Beary Margoathes. Jr., Secretary of the treasury. to the Communities officer of the U.S.S. Vincence, Suptoin 3. 3. Boardall. V. s. Many. in appreciation and of the offectomer of the Gaptala and officers and erow enter his command is the conveyence and safe delivery of 132 million dollars of gold from Union of South africa. to the Assay office is New York city, March 30. 1941. April 16, 1941. MMP. 260 level 25. 19th Files M. Cochuse On spott n 8 telephoned m. Control is the Federal Reserve Bank at New York writing his to give - the details of the last More gold shippents which w have received w ordinar. AS 3.4g on April as he telephoned so certain date. 2 also telephoned Mutsal Sayee. giving Ma the date from m. - and asking Ma to check and complete those. 20 was agreed with the Matral that the coccal date on each plaque which 10 to be warded to the Commanding orn car of the naval vessel which has transported gold for the treasury should be the final date of delivery of the earge at the Anery office. Free the above courace the following date were accounting, and have been found to check with our otra Treasury records 1 v. s. 8. Vincennes. Geptain As Seartall, laft has 10. 19to and arrived Breekings Juss w. 1940, the corgo of gold valued as $841.575.997.53 - discharged on June a and m. 8 v. s. s. Southville, Communicate a. J. Salesm. Loft Union of South Africa. January 6. 19th - arrived Breaking January 83. sees, the large of was valued as was discharged - January 23. 1945. , v. 8. s. Reptale a. a. Startall, safe Union of South since March 30. 19th. and arrived Brooklyn appll 16. 2042, the - of good valued as $132,804,812.00 - discharged on were 36. 1943. is indicating the value of the gold so has been agreed that only round sumbers to the a million will be used. amp 261 April 25, 1941 9:30 a.m. GROUP MEETING Present: Mr. Odegarde Mr. White Mr. Sullivan Mr. Thompson Mr. Graves Mr. Haas Mr. Foley Mr. Bell Mr. Schwarz Mr. Gaston Mrs. Klotz H.M.Jr: Herbert, in the future, don't you and Waesche both go out to lunch at the same time. It is not fair to me or to the Treasury, because when people call up - Knox wants an answer, and I can't get you, and I can't get Waesche, and I can't get - what is that fellow's name over there? Gaston: I was available at the Custom House. I had talked to my office earlier in the morning, and Stephens got in touch with me right away, and I gave him an answer in half an hour. H.M.Jr: One of you always be here. Gaston: All right. H.M.Jr: Is it true that Waesche doesn't get up until 262 -2- nine-fifteen in the morning and has breakfast at a quarter of ten? That is the answer I got, that he wasn't called until nine-fifteen. Is that what time he gets up? Gaston: I don't know what time he gets up. I have talked to him at a few minutes after nine a number of times. He is in my office right now. H.M.Jr: Will you come in with him? Was this dinner he went to so important? Gaston: He went to two things. I forget the name of the association. One was a marine luncheon, and one was a marine dinner. H.M.Jr: Well, if you just see that you or he are available, always one or the other. Gaston: It happened that they had this annual importers' dinner -- H.M.Jr: Well, if you don't mind, that is pretty damn unimportant. Gaston: I think so, yes. H.M.Jr: And this other thing - I mean, where the Navy is looking for something every minute, I mean one or the other ought to be here. Gaston: All right. H.M.Jr: What else have you got? Gaston: Well, on those cutters, everything is moving along perfectly normally. I gave a full report to Stephens yesterday at eleven o'clock on the thing. H.M.Jr: Well, I want something in writing. 263 -3- Gaston: I can read you what we have got in writing. H.M.Jr: Isn't it in writing? Am I going to get it? Gaston: You are going to get it. I am having it photostated and it will be in here. H.M.Jr: Let's wait until eleven o'clock. Gaston: Yes. H.M.Jr: What else? Gaston: Phil Young called up yesterday on that matter of appropriations for the replacement of those cutters. I want to talk to Cox this morning about what we should do about that. Of course, there are three things. There is the original cost of these outters, which is twenty-five million. The replacement cost today if we were to get the same boats would be about thirty million. If we get the five - or get the two heavy ice-breakers and five large cutters, the cost will be around thirty-five million. I don't think that there is any existing fund from which that could come. H.M.Jr: I thought it would go to Congress. Gaston: It has got to go to Congress. So why shouldn't we send in an estimate of what we will need for the two ice-breakers and five cutters, which will be around thirty-five to forty million. H.M.Jr: Sure; that is right. Gaston: And just as soon as we can get that, send it over. ..M.Jr: Please. Gaston: Right. Of course, we really need ten cutters in 264 -4addition to he two ice-breakers. H.M.Jr: Well, I asked for five. Why not ask for ten and then be cut down on them? Gaston: Sure. H.M.Jr: The way the Bureau of the Budget is working now, I would ask for three big ice-breakers and ten cutters. Gaston: Yes. H.M.Jr: That is the way Harold Smith works. The more I see him the less I think of him. O.K.? Gaston: Yes. Just like a Congressional Committee. H.M.Jr: Only worse. I am not sold on Harold Smith. Foley: Here is a letter to Hull. That is the over-all H.M.Jr: O.K. Foley: Here is a memorandum on the Stabilization Fund. I spoke to Sam Rayburn as you suggested, and he agreement. I don't know whether that is the letter you want or not. wanted to wait until we got the tax bill out of the way, and I told him I was afraid that that would be too late; and he said that he talked to the chairman of the House Weights, Coinage, and Measures Committee, Somers, and would let us know. Larry Bernard says that Somers has got to go to the hospital for a very serious operation, the Committee. I think the sooner we get started, the better. in which case Cochran would be acting chairman of (Mr. Odegarde entered the conference.) 265 -5H.M.Jr: All right? Foley: Yes. H.M.Jr: I rode down with and had a long talk with Stimson this morning. Incidentally, he brought up this question of the Labor thing. So he said he would send for Donald Nelson. Donald Nelson really didn't know what he had signed. He had made a very poor explanation, but he got him to change his mind. I wouldn't do anything about it. It is in the President's lap. Let's see what happens. Nelson really didn't know what he signed. O.K.? How did you (Sullivan) get along? Sullivan: I had a nice time yesterday afternoon. They had a lot of questions. I think it was a good hearing all the way through. They were all delighted with the way you handled it in the morning. H.M.Jr: I haven't seen your statement yet, you know. Sullivan: Here it is. H.M.Jr: I never got it. I never did get a copy of it. Sullivan: Congressman Disney called this morning, and he said he thought it would be very helpful if he could get some figures on what the contractors having contracts were doing, and I told him I didn't know just what we could get, but we would be very glad to get what we could; and it occurred to me that, if you wanted the material that we were assembling on those hundred leading companies, Monday will be a grand time. H.M.Jr: Yes. Have you got it? Sullivan: I have sent in to you memoranda with the informa- 266 -6- tion on, I think, eighty-one or -two of them. If I coula have that back, we will work up the material for Monday. You asked for it Wednesday morning coming down in the car, and I told you it had just come over from the Bureau, and I think it came in yesterday morning. The Committee is meeting in executive session this morning, and I think they are going to have quite a time. The purpose of this meeting is to find out who gave out this information to P.M. and so on and so forth. We are not invited. They know we are out. H.M.Jr: I take it we also are not guilty. Sullivan: Oh, no; we are not. Gaston: P.M. means Post Mortem. (Laughter.) Schwarz: If we are sure we are all right, that is all right. H.M.Jr: Anything else? Sullivan: No, that is all. I thought if there wasn't anything you wanted, I might like to get out this afternoon. H.M.Jr: It is all right. You mean golf? Sullivan: Yes, sir. H.M.Jr: Good. Sullivan: I will attempt it. H.M.Jr: Merle, did you get my message that I want you to 267 7- go over with me when I go over to the English at a quarter of one? Cochran: No. H.M.Jr: I told Stephens this morning. Cochran: Over where? H.M.Jr: They asked me to go over for lunch, and frankly, I want you to go along as a reporter. Cochran: Oh, I see. At a quarter to one, come in your office. H.M.Jr: Leave at twenty minutes of, and I would like you to go with me with your brain open. Cochran: I have nothing. H.M.Jr: Professor Odegarde? Odegarde: I have nothing to report. H.M.Jr: I sent you a memo. It may not have come to you yet. I wonder - you have these connections, I think, with the Gallup Poll - whether you couldn't get the Gallup Poll people to make a poll on the increase in taxes and how the people feel on outting expenses. Odegarde: They have been working on those questions, Mr. Secretary. H.M.Jr: But those two things. Odegarde: That could be done. H.M.Jr: That didn't come to you, because my dictaphone at the house didn't work. Would you take it up? 268 -8- Odegarde: Yes. H.M.Jr: Harold, chair. you are sitting on the edge of your Graves: We have been in touch with the Boy Scouts. H.M.Jr: Hooray! Graves: ....who have - as a matter of fact, they have come to us. H.M.Jr: Two fingers in salute. (Laughter.) Graves: ....to find out what way the Scouts can be of service -- H.M.Jr: What about the Girl Scouts? Graves: Ain't heard from them. I am not sure that is true. We probably have. (Laughter.) Schwarz: You hope. Graves: We have tried to be careful in working out a program for the Scouts. They have wanted to do some soliciting and taking orders and that sort of thing, more or less keeping up with what they did in a very fine way during the World War. We have deferred consideration of everything except one thing. They want to distribute that poster for us, and we think that they probably can do a very fine job on that, and we have accepted their services in that connection. We are giving them a million of those cards, and their proposition is that they will put those cards in store windows and on counters everywhere. 269 -9H.M.Jr: Wonderful! Graves: Throughout the country in such a way as to avoid any wasteful distribution, which is a common thing when you are dealing with poster material. H.M.Jr: That is right. Graves: Now, they wanted a letter from the President, who is the honorary head of the Boy Scouts. H.M.Jr: Yes. Graves: And they have drafted and given us such a letter. I have here a memorandum for you to sign addressed to the President. H.M.Jr: Asking them to do this? Graves: Asking him to endorse this program of theirs and sign that letter as Honorary Head of the Boy Scouts of America. H.M.Jr: Sure, let's try it. Graves: It is their letter and I thought if you would sign that I would give It to Mr. Schwars to hand to Mr. Early. He is to see him about another matter. H.M.Jr: All right. 270 - 10 - Graves: We had organization meetings on Wednes- day in Missouri and yesterday in South Carolina, and I have heard from both by that very to our people telegraph successful, and telephone according they were who went out from here to attend those meetings. H.M.Jr: Good. Graves: We are appointing Mr. Saul Haas, as I told you some days ago, our state administrator for the State of Washington-- H.M.Jr: Mr. Gaston's pal? Graves: Yes. Gaston: One of them. Graves: And Collector of Customs Bartley in the State of Montana. These two men have been here for some time. We sent them down to the South Carolina meeting to get the hang of the thing. Gaston: Bartley is a very good man. Graves: Both of those men, I am sure, will make a success of this. We sent them down to our meeting at South Carolina, and Saul phoned me last night that he was very much impressed with the spirit of the thing and the way the people down there were taking hold. There 271 - 11 is a meeting of some kind of the American Bankers Association group at Hot Springs this week. Mr. Edward is going there for us, and he has been urging me to come down for one day. I thought if you see no reason why I shouldn't go, I would leave here this afternoon and go down there and be back here Sunday night. H.M.Jr: Where? Graves: Hot Springs, Virginia. H.M.Jr: Sure. Nice place. Graves: That is all I have. H.M.Jr: Where is that poster of Peter Hurd with the-- Graves: I have it in my office. H.M.Jr: Send for it please, now. Graves: I will get them both in. Odegarde: Mr. Secretary, could I ask a question? What H.M.Jr: How do they feel about increasing taxes were the two questions you wanted? three and a half billion dollars and how do they feel about cutting the non-defense expenditures by a billion? Okeydoke? Odegarde: Yes. H.M.Jr: George? Odegarde: You would like that as soon as possible? H.M.Jr: Yes. 272 - 12 Haas: I have got a good deal of this defense H.M.Jr: Let's see it. Everybody else will be Haas: This isn't quite what you wanted. Here is statistical material here. interested. a sample of this chart and here are the actual figures, cumulative here, and here is the monthly one. For the total period they are behind 64. H.M.Jr: Perfect. Haas: We could do that for each of the major procurement items. H.M.Jr: That is right. Now, Mr. McCloy says the sooner he can get one the better, but I think we had better give it to Stimson and always to the Undersecretary and Assistant Secretaries over there and the Chief of Staff. That is perfect. This is for me? Haas: Yes. Well, I thought you had in mind - you thought the most important one-- H.M.Jr: I would send them anyway. Haas: All right. You see, that was the month that Biggers said was going to be a hundred in April. It is the April figures. H.M.Jr: You are just going back to January? Haas: That is what I thought. H.M.Jr: Maybe Bell can help you on the other thing 273 - 13 - I want. I would like to know the day that the President signed the bill and how much the appropriation is. This may be two appropriations or three appropriations. Then how long before the contract was signed. This is fine. That is all right. That is just the way I want it. What else? Bell can help you on that. Bell: It is very difficult to follow appropriations because they get contract authorizations in addition to appropriations. H.M.Jr: Well, he will have to talk to you. Haas: Here are some charts you haven't seen. They are not made up this way, they are made up-- H.M.Jr: Why not stay behind a minute? Haas: All right. H.M.Jr: I will do it later. To show you how effective these figures are, the last one I sent over on planes, I was told by one of the Assistant Secretaries of War that Mr. Stimson spent a whole half day on it pressing buttons and sent for one man after another to try to prove that they werewong, and each man that came in said, "No, they are right. He said he spent the whole morning sending for one man after another trying to prove my airplane figures were wrong. Everybody he saw came in and said they were all right. Bell: What was done about it? 274 - 14 H.M.Jr: Well, if he spends a half day on it, he gets his teeth into it, anyway. He has one of these dictaphone boxes, or whatever you call it. You know, that he calls people? He called somebody on the phone and he says, "What is the matter with this thing? Why don't you get after it?" And the voice came back, "If you would only get rid of that blankety-blank so and so, the things would be better." And the blankety-blank was sitting there. (Laughter) Since that they have called it his Pandora box. Gaston: It is a dangerous tool. H.M.Jr: The other story I have heard, they say that Knox has a whole list of buttons on his desk, each one for an admiral, and this man says he has been in his office a half dozen times and he presses one after another and he ays he has yet to be able to find that Knox has been able to press the button that produces an admiral. Schwarz: I have here the - some comments on yester- day's tax stuff. On the radio, for example, Lowell Thomas, 500 words, and all the others. I have it all. H.M.Jr: Wonderful. Schwarz: And Collier's today winds up a nice editoral called "Better Buy Some Bonds." H.M.Jr: I have seen that. That Collier's thing is very fine. Schwarz: Do you want to send a letter to Tom Beck? H.M.Jr: It has been taken care of. 275 - 15 Schwarz: The ticker says there is a small clique of people in the United States who are well known as enemies of Germany: Hull, Knox, Stimson, Dorothy Thompson, Morgenthau, and Donovan. H.M.Jr: Wonderful. That is the best we have heard yet. Schwarz: How do we get in that circle? H.M.Jr: This radio thing is something new you are doing, Chick. That is fine. That is awfully good. Gaston: Did you see F. P. A.'s paragraph last night? It said that while it isn't legal, they still think they ought to confer on you the title of "Sur Tax Morgenthau. Schwarz: They have got a saying in Hollywood that you have changed the name of Twentieth Century Fox to "Penitentiary Fox." H.M.Jr: Incidentally, I don't get it, but they say Bob Hope regularly once or twice a week has something funny. You couldn't get any of his script? Schwarz: I will get some. H.M.Jr: I would like to send a little note saying my children hear it but I haven't. They say it is very funny. They say every week he says something. Anything else? George? Haas: I got back in the line over here. It is 276 - 16 - Harry this time. White: You take my turn today. (Laughter) Haas: All right, give me your stuff, Harry. White: I haven't anything. H.M.Jr: What is this, a shell game? White: I haven't anything, so I thought I would let him have my chair. H.M.Jr: Did you make an appointment? White: I haven't been able to yet. H.M.Jr: Otherwise, all right? Daniel? Bell: Here is a memorandum (dated April 18) of our conference the other day at the White House on the Agricultural Bill. H.M.Jr: Oh, yes. Bell: We have 15 million dollars in that 50 million investment of the two and a half's for the trust funds. That is all we have got until the thirtieth. There isn't much we can put it in except postal savings or FDIC, and there wouldn't be any harm in letting it lapse if we didn't want to in- vest it. We have a hundred and eleven in two's, Postal, and 19 in FDIC. H.M.Jr: Give it to Postal. Bell: All of it, or split it? H.M.Jr: How much have you got? 277 - 17 Bell: Fifteen million. H.M.Jr: I would us now. Bell: They would be glad to get it. H.M.Jr: I would give it to Postal. Bell: give it to Postal. They are helping The a hundred and on the eighteenth, Esy is giving out a Home ninety Owners million and Mr. Loan dollar will maturity pay Fabey off public statement on May 1, and in that statement he is saying that this hundred and ninety million dollars will be available for the investment in the new savings bonds which you are announcing that day, and we thought that that morning we might give you some figures, that is Thursday, and you will have a press conference that day, so that you might also say something about it. H.M.Jr: Fine. O.K. What else? Bell: That is all. Thompson: I have one item, if I can stay a minute. It will keep over. H.M.Jr: I will take it up after the meeting. And then George, I will take you on right away. May 1, 1941 278 Professor Odegarde reported at the 9:30 meeting today that the Gallup Poll is going ahead with these two questions, and that it will be done at the expense of the Gallup Poll. 279 April 25, 1941 Professor Odegarde Secretary Morgenthau I wonder if you could get in touch with the Gallup Poll people, and ask them whether they could run a poll on the three and one-half billion tax increase; also particularly on my suggestion that we save one billion dollars on our present non-defense expenditures. 280 APR 25 1941 MEMORANDUM FOR The PRESIDENT The Boy Scouts of America have volunteered their services to the Treasury in its program for promoting the sale of Defense Savings Bonds and Stamps. As a beginning, they have offered to assist in the distribution of posters throughout our cities and towns. Their help in this matter will be very valuable, and we have of course accepted their offer. The Scout executives have told us that it will add greatly to Scout morale for them to have a letter from you, as their Honorary President, expressing your ap- proval of this project. I take pleasure in attaching a draft of such a letter for your consideration. (Signed) H. M. JR. HNG/mff (Handed to Steve Early by Mr. Schwarz) Copy to Mr. Thompson. 281 My dear Mr. Heads It will be most gratifying to me as Honorary President of the Boy Scounts of America to have Boy Scouts under the leadership of our 545 local councils and 48,000 scout units, covering all parts of the United States, land their aid to the Secretary of the Treasury as special messengers in the distribution of the official Government posters announcing the United States Savings Bonds and Stemps for Defense, and cooperate in such other ways as may be determined suitable for boys of Scout age and Scout training. It is important that these posters be distributed promptly throughout our country so that our people may be fully informed of this opportunity to share in carrying forward the Defense Program of the Government. Moreover, this will give every Seout and Scouter an opportunity to help through personal service. As I said in my anniversary message on February 8th, the Boy Scouts have always responded generously when called into action, and I am confident that this, the first specific request presented is the present emergency, will bring each and every member great satisfaction, and materially help the Secretary of the Treasury and those working with him in going forward effectively with their plans. Sincerely, Mr. Walter W. Head, President of the Boy Schedule of America. 282 April 25, 1941 10:12 a.m. Col. Leonard Ayres: Yes, sir. H.M.Jr: Henry Morgenthau, Jr. A: Yes, sir. H.M.Jr: A: H.M.Jr: I just wanted to tell you how much I appreciate the cooperation that you are giving to George Haas. Well, we'll try. It's very helpful, and I spoke to Mr. Patterson about it and it's entirely agreeable to him. He knows all about it. A: H.M.Jr: A: Yes, sir. And I suggest that George Haas come over and see you this afternoon some time. All right. I'11 be very glad to see him, indeed. H.M.Jr: What time would be good for you? A: Almost any time. It would be better after H.M.Jr: 2:30? A: H.M.Jr: 2:00 o'clock. Yes, sir. He'll be there. A: All right. H.M.Jr: Thank you. 283 April 25, 1941 11:14 a.m. H.M.Jr: Hello. Operator: Mr. Hoyer-Millar, the First Secretary. Mr. Millar: Good morning, Mr. Secretary. H.M.Jr: Mr. Millar, Secretary Knox has had two (British Embassy). messages from London, one from Forrestal and one from Harriman in which it said that the British Admiralty said that they would not be able to operate these Coast Guard cutters on account of their not being familiar with the electric drive. M: Yes. H.M.Jr: Captain Palliser of the Malaya says that M: Yes. H.M.Jr: he is satisfied that he can. Admiral Waesche, the head of the Coast Guard, has had it up with Admiral Pott and he says he is satisfied. I wish you would speak to Admiral Pott and ask him if he is satisfied that the British personnel can run these Coast Guard outters to your own satisfaction, and then if you could call me just as soon as possible, please. M: Right-o, sir. Would you like me to get Admiral Pott to talk to you on the telephone? H.M.Jr: M: That would be fine. I'11 get him to ring you back. There may be some technical details that he could explain in person. H.M.Jr: If he would do that, that would be fine. M: Right-o. You'll be at the Treasury H.M.Jr: You call on District 2626. 284 -2District 2626. I'll go and speak to M: Pott now. H.M.Jr: That's my own - I have my own private operator. M: Yes, I'11 go down and get hold of Pott now straight away. H.M.Jr: M: District 2626. District 2626. Right-o, sir. 285 April 25, 1941 11:30 a.m. Admiral Pott: Is that Mr. Morgenthau? H.M.Jr: Talking. P: Good morning, Mr. Secretary. Admiral Pott speaking. H.M.Jr: Good morning, Admiral. P: I understand there has been some communi- cation about these Coast Guard cutters. H.M.Jr: Well, I've had two. One from Secretary Knox yesterday, saying he had a message from Mr. Forrestal and Mr. Harriman, saying that your Admiralty in England said that yourEnglish sailors would not be able to operate these outters on account of the electric drive and therefore they wanted us to put some men on for six months. P: Yes. H.M.Jr: Well, I asked Waesche to go up and see Captain Palliser and he reported that he could, and I understood that Waesche also spoke to you. P: Yes, sir. H.M.Jr: Well, inasmuch as Secretary Knox was making quite a thing of it, I just wanted to know from you direct whether you felt everything was in hand. P: Yes, sir. We're absolutely happy about it here. H.M.Jr: Are you entirely happy? P: Absolutely happy about it. H.M.Jr: P: Well, I wanted to report that at Cabinet then that you are entirely satisfied. Yes, sir, we're entirely satisfied. 286 -2H.M.Jr: P: Then you can take these outters all over and operate them. Yes, sir, absolutely. Actually, Captain Palliser sent a dispatch to London day before yesterday giving the dates when he would take them over and when they would sail. This 18 the first I've heard of any difficulty at all. It doesn't come from this end. H.M.Jr: No, no, no. P: How the Admiralty could know that we can't operate them I don't understand. H.M.Jr: P: Well, maybe they have a crystal ball. (Laughs). Well, I'm very sorry this has happened but please quote me and Captain Palliser if you will, sir, both of us, that we are confident that we can. H.M.Jr: Well, I'm sure that will end it. P: Yes. Well, thank you very much, Mr. Secretary. H.M.Jr: And if anything should turn up that you are not satisfied, I'd be very glad to hear about it personally. P: Yes, sir. We'd let you know at once, sir. H.M.Jr: Thank you. P: Thank you, sir. 287 April 25, 1941 11:35 a.m. RE CHINA Present: Dr. T. V. Soong Ambassador Hu Shih Mr. White Mr. Cochran Mrs. Klotz H.M.Jr: I was anxious to see you gentlemen before I went to Cabinet, you see, in case this question of China came up so I would be prepared to answer it; so I would like to have the opportunity of talking, as I say, before I went to Cabinet. Hu Shih: It is very kind of you to give us any time at all. We know you must be very, very busy. H.M.Jr: Well, we always have time for China. Soong: Well, Mr. Secretary, after we left you, the Ambassador and I sent a telegram to General Chiang Kai-shek. To this telegram up to the present we have no reply. The situation in China is very bad, so we have come here to make an earnest plea to you to sign the agreement as soon as possible. You see, my Government is only too anxious to cooperate with you in every respect. You were the first, in a way, to discover China, after the President. So you can depend upon our Government and especially the new chairman of this board - we have 288 -2announced it, Mr. K. P. Chen. H.M.Jr: Has it been announced? Soong: Yes. Hu Shih: It was in the Times yesterday. H.M.Jr: I didn't see it. Soong: You may be sure that he will give you the upmost cooperation. More than that, China will have to depend on you and the United States for years to come; so I hope you will have the agreement signed soon. H.M.Jr: Have you had any answer at all? Soong: No reply yet. Hu Shih: I think that is probably because General Chiang may be out of Chungking. His move- ments are very uncertain. They are usually not known to the people, even immediately in the Government. H.M.Jr: Putting this to one side for a minute, in this letter which I got - I think it was dated the seventeenth of March, from General Chiang Kai-shek to President Roosevelt, which I was given a copy of, there were really three things; the Stabilization Fund was one, aid to China under the Lend-Lease was two, and then the freezing of Chinese assets in this country, is that right? Soong: Yes. H.M.Jr: Well now, how is the Lend-Lease going? 289 -3Soong: The Lend-Lease, I have seen Mr. Hopkins and the 80-called committee - some sort of some committee in the various military offices, and also I have seen your Procurement Division. I have not had the opportunity of seeing the Joint Aeronautical Committee. H.M.Jr: Well, have you got anything? Soong: We have been discussing things, and so far they seem to indicate that for the Burma Railway there is a good chance of getting some materials. There is a chance for getting some trucks. Also scattered items in the -H.M.Jr: Any definite commitments? Soong: No commitment yet. H.M.Jr: And on the freezing of funds, is that something the Generalissimo wants? Soong: The Generalissimo sent a message on that subject. H.M.Jr: Now, if we freeze China's funds, is it necessary Soong: To make it effective, we must freeze the also to freeze the Japanese? Japanese also. H.M.Jr: Why? Soong: Because otherwise all our exports would be sent to Japan and shipped from Japan. H.M.Jr: Suppose we froze all the funds in this country. Wouldn't that give you the protection you need? 290 4Soong: There are first exports from China, you see. H.M.Jr: Explain it. Soong: For instance, after freezing the funds, we must also freeze the future funds coming to this country, future Chinese funds. H.M.Jr: They would be. Soong: But instead of allowing Chinese to export from the main points of entry, the Japanese will collar all the goods and send them to Japan, you see, and export them as Japanese products, so that we cannot avoid that. H.M.Jr: But you have heard nothing on the message the other day. Soong: Not yet. H.M.Jr: I see. Well, I want to report this to Cabinet and see what the President says. If there is any change, I will let you know when I come back. Hu Shih: Mr. Soong and I really came here to, as I said, make a personal plea to you because you have been so helpful from the very beginning, and really you are the person who practically found a way of concrete aid to China. to ask In this case of the Stabilization Fund, while we are waiting for a reply - and we hope it will be a favorable reply - in the meantime to consider this as you done, to see if you could waive this - the we you sympathetic are coming spirit you, matter Mr. have Secretary, in always the almost most to only restriction you are having. Could 291 -5this sum be paid to us in a lump sum and as the - made available, the whole amount. On our side, the details would be a question of understanding between you and the Government here, and the Chinese Government; but to facilitate an earlier signing, to more or less accede to some of the wishes of the Generalissimo and at the same time when - the spirit, I am sure, will be preserved. We can trust our friend, K. P. Chen, for example. That is what we are here to - that is very kind of you to give us this time. H.M.Jr: K. P. Chen has been announced as chairman? Hu Shih: As chairman. H.M.Jr: That makes a lot of difference to me, You see, in the publicity which I read, there was no intimation in the publicity that you wanted to get the whole fifty million. That is, in the statement which was prepared. White: H.M.Jr: It merely said fifty million is made available. Yes. I mean, nobody knows it. I mean, in the press release. It didn't say fifty million, of which only five million a month can be spent. Am I right? Soong: Yes, sir. But the thing is this. It is getting so everything is known, and I may say that sometimes people are not discreet. Such things get talked about. H.M.Jr: Sure. Let me see what I can do at Cabinet. Hu Shih: Thank you very much. 292 -6H.M.Jr: I never make any promises. I only tell afterward what I have or haven't done; but my interest in China is no less than it has ever been. I think you people have put up a magnificant fight, and I think you should get every kind of encouragement that is possible. I will get you some kind of message - if I have a favorable message, then maybe we can still sign this afternoon. We will see. Hu Shih: Thank you very much. (Mr. Hu Shih, Mr. Soong, and Mr. Cochran left the conference.) White: Mr. Secretary, I don't like the implication that I am putting on pressure. I have not talked to anybody; and if you would like a chance to think it over, all right, but I would really like to avoid any possibility H.M.Jr: What do you call it? White: Well, it isn't pressure. H.M.Jr: What is it? White: It is giving you, to my knowledge, the best advice under the circumstances. I have nothing gained by this loan going through other than the conservation -- H.M.Jr: Well, nobody is implying that. White: I feel this way about it, if there is any doubt in your mind at all as to the wisdom of it, think it over during the week-end. 293 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE April 25. 1941 mind For TO FROM Secretary Morgenthau Mr. Cochran STRICTLY CONFIDENTIAL At 12:45 today the Secretary, accompanied by Mr. Cochran, was the guest of Mr. Arthur B. Purvis at a luncheon given in the British Mission's private dining room at the Willard Hotel. The other guests consisted of Sir Henry Self, Head of the British Air Commission, Sir Arthur Salter, Head of the British Merchant Shipping Mission. Commander Galbraith of the British Admiralty Mission, Sir Clive Baillieu, Head of the British Purchasing Mission, Sir Frederick Phillips, Under Secretary of the British Treasury, the Honorable R. H. Brand, Head of the British Food Mission, Admiral French, in charge of repairs, Mr. Jean Monnet of the British Purchasing Mission and Mr. Playfair of the British Treasury Mission. After an exchange of greetings, Mr. Purvis talked with the Secretary at one side with respect to aviation and shipping matters, including the delivery of planes by air to Singapore, as well as to England via Canada. Sir Henry Self entered the conversation as the guests were seated at the table to talk on the subject of actual deliveries airplanes for the British. He remarked that the General Motors output had been quite disappointment, falling some 3,000 below the promised output for 1941 of 5,900. Pratt and Whitney were doing splendidly, being considerably ahead of program. The Wright people were moving along, but behind schedule. Sir Clive Baillieu told the Secretary that the British might endeavor to enlist his help in the near future with the view to obtaining from the United States a delivery of one hundred anti-aircraft guns weekly. This particular article was specially required, and speed in obtaining the guns was essential. The subject about which discussion centered during most of the luncheon was that of merchant shipping for Great Britain. The Secretary unofficially advanced the sug- gestion that the British might well launch an appeal to the American public for shipping to transport foodstuffs to the British Isles to meet the needs of under-nourished mothers and children, as well as the fighting men of England. The Secretary made the point that the American public does not have an understanding of the actual food situstion in England, and of the privations that the British are now suffering in this field. The British themselves know what they are doing without, and the Germans undoubtedly have their way of keeping informed as to what the British lack in the way of foodstuffs. Perhaps there had been some mention of British rationing in our press, but the Secretary thought our public should be given the shocking picture of the limits placed upon prime articles entering the diet of the British, particularly mothers and children. In answer to his inquiry, he was informed that the British meat ration is at present one shilling per week; that is, two pence a day for six days in the week. The point would be to show that necessity has obliged the British to establish a very severe rationing. here would be no purpose served in describing particularly supplies or amounts trans- rted. It would suffice to show the meager rations of certain vital articles that are 294 -2 permitted to be consumed. The Secretary's idea was that an appeal of this sort would much more effective with the American people, than a call for ships to transport unitions. It is a much more appealing story to recount that infants are going unfed than that so many tons of munitions are on an American dock awaiting shipping space. The Secretary understood that only four American merchant vessels have actually been transferred recently to the British. Sir Arthur Salter confirmed he said were for more. The Migeffort negotiations the transfer still continuing Secretaryvessels thought this, thatbe although to obtain of perhaps sixty coastwise might expe-the lited by a plea such as that above described. The desirability was mentioned of saving the plea come from some outstanding British woman, such as Lady Reading. This led to the unanimous agreement that the most effective source of such a plea would be the Queen herself. Mr. Brand questioned whether it would be wise for the British to make such a plea of desperation. Might it not have the adverse effect of diminishing American confidence in the British ability to carry on? The reply was made both by the Secretary and Mr. Purvis that since the actual need exists, it is better to risk the sentiment side than on the actual side. That is, if shipping space is not immediately made available for more food, British resistance will weaken. When the discussion reached this point Sir Arthur Salter joined the group. He had some reservation about a plea of despair being made with respect to food. His argument took the line that the people of England would not be permitted to starve. The result would be, and is already tending in that direction, of taking shipping space W from munitions and giving it to food. The calculations in the past have been ed upon a figure of twenty million tons of space for munitions and fifteen million for food. If and when the figure of tonnage goes under thirty million, the policy will be to cut down two tons of munitions for one ton of food. The shortage of shipping space has thus arrived now at a point where it will be necessary sharply to curtail munitions shipments to permit food to reach England sufficiently even for the present severe rations. The Secretary left the foregoing thought with the British, again reiterating that this was purely a personal idea of his own, and had not been submitted to anyone in the Government, except that he had discussed it briefly with Secretary of War Stimson this morning and had found the latter quite interested. In answer to the question as to whether Lindberg's New York speech would spread & Wave of defeatism throughout the country, the Secretary gave an opinion to the contrary. The British agreed that the remarks yesterday of Secretary Hull and Secretary Inox should have a strong tendency to refute Lindberg. The Secretary added that at his press conference the President had declared that Messrs. Hull and Knox were speaking for the Government. To Sir Frederick Phillips the Secretary remarked that a message had come from our Embassy in London with respect to a coming visit to this country by another British Treasury representative. Phillips know about this. He thought the visit would be only a short one. He was not aware as to whether the visitor, Professor Leynes, would arrive by ship or by plane. The Secretary was obliged to take leave at 1:50 to attend a Cabinet meeting. At the request of Sir Frederick Phillips, Mr. Cochran ged behind for a few minutes to talk with him and Mr. Playfair in Sir Frederick's office. Phillips stated that Secretary Morgenthau had let him know upon entering the 295 3ing room that the Chinese Ambassador and Dr. Soong had been at the Treasury efore noon beseeching the Secretary to sign the Sino-American Stabilization Agreement just oday. The Secretary was going to take this up at the Cabinet meeting and had asked Cochran to arrange with Under Secretary Bell for everything to be prepared a signing at was the President. had yet as to the American proval been 4:30 received approved back from by London Phillips pointed suggested out that change in no the text of the British press communique. He said that Soong had been pressing the ritish for signature of their agreement today or tomorrow, asserting that this egently are reopened on herefore, that we at until Saturday, and preferably until desirable before could delay the exchange signing markets least Monday. Phillips was hoped, onday. Mr. Cochran promised to call Sir Frederick as soon as a decision was received from the Cabinet. Upon returning to the Treasury Mr. Cochran asked to see Mr. Bell. He was with Under Secretary when Secretary Morgenthau telephoned from the White House that President approved of the signing of an agreement, without reservations, at o'clock this evening, and that we were to make the necessary arrangements. At Cochran's suggestion, Mr. Bell told the Secretary of Phillips' request, but the ecretary felt obliged to go ahead. Consequently Mr. Bell telephoned the Chinese officials. Mr. Cochran telephoned Mr. Playfair, and also let Mr. Hamilton of the State Department know that Secretary of State Hull had approved Secretary Morgenthau's Invitation for Mr. Hamilton to be present at the signing this evening. When Cochran spoke with Mr. Playfair, it was ascertained from the latter that approval the British press communique had just been received from London, except for one it. Mr. Playfair was to discuss this with Messrs. Phillips and Rogers, and was ed by Mr. Cochran then to communicate with Mr. Bernstein as to the British plans, also as to whether any change in the American press comunique would be necesitated. At 3:30 Mr. Bernstein came to Mr. Cochran's office to discuss the arrangeents and received a phone call from Dr. Soong at that time. Mr. Bell then received essre. Bernstein and Cochran at 3:40. and telephoned Mr. Playfair that it was necesary that the American press release be given out after the signing at 5 o'clock tonight. Mr. Bell did not think the Secretary would approve of the British suggestion that it be held until tomorrow morning. Mr. Playfair was urged to telephone London once with the view to arranging for a simultaneous release of the British statement London. To m.P. 296 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941 TO FROM Secretary Morgenthau H. D. White Subject: The British Cash Position Appended is a digest of Sir Frederick Phillip's Aide-Memoire dated April 18 covering the British cash position and their needs during the next five months. An examination of the figures reveals that they will have enough dollars and gold available to meet their estimated dollar requirements - at least until September 1. However, their dollar balances (official, not private) may not rise during this period above $175 million and may at times drop considerably lower. This is less than the $250 million cash balance which they wish to attain by the end of August. They can increase their dollar balances in one of the following ways: 1. Transfer additional plants and contracts. So far they are to receive in refunds only $49 million and are to have commitment taken over by the Army and Navy of only $24 million. It is our understanding that they would receive at least $200 million through the assumption of contracts and purchase of capital equipment. 2. Increase their sales of direct investments. Their present plans call for liquidation at the rate of $40 million a month. It may be possible to step up this rate. 3. Postpone repayment of the Belgian loan of $100 million in gold. This would add $100 million to their cash balance as long as the loan remained outstanding. 4. Maintain the former rate of gold production in South Africa. They report a rate of acquisition of South African gold of about $160 million a year lower than their previous estimates. It is not clear whether the reduction in their estimate arises from a decline in production or a decrease in transfers to U. K. In either case, they may be able to correct the situation. 297 -2- Division of Mone tary Research 5. In a pinch, they may be able to borrow some more gold from Belgium and some dollars or gold from the Netherlands. All things considered, it is doubtful that you need be seriously concerned about the British cash position for the next few months. Of course, if Lend-Lease does not take care of aswill many the situation bepayments different.as the British may expect, 298 anded to me by arthur Purvis 25th April 1941 Following discussions with Mr Gamie, he proposes to let us have, regularly each month, a statement framed on the following lines - 1. Giving priority shipping requirements as cabled from London at the middle of each month, e.g. those for May are approximately as follows:Grain and Cereal Steel, Pig Iron and Scrap 673,000 tons toks 455,000 . 1,128,000 Miscellaneous giving a total of 191.000 . 1,619,000 tons This consists of some 200 items of all descriptions - Plywood, Silk, Glucose, Canned Fruits, Lumber, etc. 2. ship There will be some 231 ships, according to Mr Gamie, required to this tonnage. He states that for Miscellaneous and Steel there will be shortage of 20/25 ships, and he estimates that there will probably be a further 20/25 ships short for shipment of Grain and Cereal on present indications. 3. Cable indication from London covers both the U.S., Canada and the East and West Coast ships, and Mr Gamie is therefor building up his statement to cover the whole North American situation. 4. He is sending down a statement giving the detailed picture for May and asking us to indicate the form in which we would like a regular statement of the shipping needs framed. 299 APR 85 1941 My dear Mr. Secretary: , Enclosed are several copies of the most recent draft of an over-all agreement to cover defense articles made available to Great Britain under the Lond-Lease Act. This document has been discussed informally with Assistant Secretary Acheson. The last time I spoke to the President and Harry Hopkins they indicated that the agreement should be taken up first with the State Department and later with the Attorney General and the Bureau of the Budget. Accordingly, I suggest that you fix a time which will be convenient to you when we night get together and discuss the proposed agreement. Very truly yours, (Signed) H. Morgenthan, Jr. Secretary of the Treasury. The Honorable The Secretary of State. Enclosures 3, of draft BBtEHFivls - 1922 File sent to Mr. Foley By / 300 WHEREAS, the President of the United States is authorised by the Act of the Congress of the United States of March 11, 1941 (Public No. 11, 77th Congress, and hereinafter called the Act) to sell, transfer title to, exchange, lease, lend OF otherwise dispose of, and to take certain further action with respect to, defense articles to the government of any country whose defense the President deems vital to the defense of the United States, on such terms and conditions as the President deems satisfactory, and WHEREAS, the President has determined that the defense of the United Kingdom is vital to the defense of the United States, NOW, THEREFORE, it is agreed by the United States and the United Kingdom as follows: 1. From time to time and in such amounts as the President may determine, the United States will, pursuant to the Act, (a) furnish to the United Kingdom certain defense articles; (b) test, inspect, prove, repair, outfit, recondition or otherwise place in good working order any defence article, or procure any or all such services by private contract; and (e) communicate defense information pertaining to any defense article furnished hereunder, as valued and listed or otherwise described in schedules, appropriately identified, now or hereafter to be attached to this Agreement, 301 - 2. Within such period or periods as determined by the President, notice of which determination shall be given to the United Kingdom, (a) The United Kingfom agrees to redeliver to the United States such defense articles furnished to the United Kingdom hereunder which, in the opinion of the President, are not used up, worn out, destroyed, OF otherwise rendered incapable of effective use. (b) The United Kingdom agrees, in the case of defense articles, other than agricultural commodities, which in the opinion of the President are used up, worn out, destroyed, or otherwise rendered incapable of effective use, to furnish to the United States an equivalent amount of similar defense articles, which, in the opinion of the President, are of a quality, efficiency and relative value substantially equal to the defense articles furnished hereunder to the United Kingdom. (o) The United Kingdom agrees, in return for (1) agricultural commodities, and (ii) other defense articles, services and defense information, furnished to it hereunder and for which the United States has not otherwise received full reimbursement, to furnish to the United States an equivalent in tin, rubber, jute, and other products and commodities produced in the British Empire or elsewhere and which, 302 8- in the opinion of the President, are needed by the United States. Such products and commodities shall be furnished in such quantities and at such time OF times as shall be determined by the President. (d) In lieu of returning or furnishing the defense articles or similar defense articles as provided in paragraphs (a) and (b) above, the United Kingdom may, at its option, furnish or transfer to the United States any raw materials or other property, services, information, facilities, or other consideration or benefits acceptable to the President. To the extent that, during such period or periods determined by the President, the United States shall not have received pursuant to paragraphs (a), (b). (c) and (a) full reimbursement for the defense articles, services, and defense information furnished to the United Kingdom here- under, the United States shall be entitled to receive OF otherwise acquire, and the United Kingdom agrees to furnish or otherwise transfer, property, services, information, facilities and other consideration and benefits acceptable to the President. 8. By future agreement, the parties may substitute, in lieu of Section 2, any other payment or repayment in kind OF property, or any other direct or indirect benefit to the United States, which the President deems satisfactory. ... 303 4. The President shall determine the fair value of any property, services, information, facilities or other consideration OF benefit received by the Unit states from the United Kingdoms and the United Kingdom shall be credited therefor on account of the defnese articles, services and defense information furnished to the United States hereunder. For any defense article returned to the United States pursuant to paragraph (a) of Section 2 above, the United Kingdom shall receive a credit equal to the value given to such defense article in the schedules now or hereafter to be attached to this Agreement. The parties to this Agreement shall periodically review the status of the accounts arising under this Agreement, and the President my from time to time determine any credits to be given to the United Kingdom by reason of any oonsi- deration or benefit which the President determines shall have been received by the United States from the United Kingdom. 5. The United Kingdom agrees that it will not, without the consented the President, transfer title to OF possession of any defense article or defense information furnished to the United Kingdom herounder or permit its use by anyone not an officer, employee, or agent of the United Kingdom. 6. If, as a result of furnishing to the United Kingdom any defense articles or defense information, it & - 304 is necessary for the United Kingdom to take any action or make any payment in order fully to protect, pursuant to the set, say of the rights of any citises of the United States who has patent rights in and to say such defense article OF information, the United Kingdom will do so, when so requested by the President. 7. Any defense articles, materials, OF other personal property to be returned, furnished, OF paid to the United States herounder, shall be delivered or paid by the United Kingdom at such place OF places in the United States, OF any place subject to the jurisdiction thereof, as from time to time shall be determined by the President. Any do- fense article OF other property, service, information, facility, OF other consideration or benefit to which the United States shallbecome entitled herounder shall, in so for as the rights, powers and privileges of the United States may thereby be effected, be exempt and immune from any taxes, charges, restrictions, regulations and controls of any nature under the law of the United Kingdom or any political subdivision thereof. 8. The United States may at any time cease furnishing the defense articles, services and defense information referred to in Section 1 above. Such cessation shall not effect my of the rights, powers, or privileges of the United States OF of the President herounder or of any of the duties, liabilities, or obligations of the United Kingdom, all of which shall continue in effect until the e- United Kingdom shall have fully performed its duties and obligations and discharged its liabilities horounder. Any default by the United Kingdom in the performance of any of its duties or obligations or in the discharge of its liabilities herounder shall entitle the United States, by appropriate action to be determined by the President, to enforce its rights, powers, claims and privileges herounder. 9. The President may exercise any power or authority conferred on him herounder through such officer or agency as he shall direct for that purpose. The terms "defense article" and "defense information" as used in this Agreement shall have the same meaning as defined in the Act. 10. Any notice under the hand of the President or any officer designated by him shall be deemed and taken as the notice of the United States and the President and shall be sufficient if delivered at the British Enbessy at Washington, D.C., OF at the office of the Permanent Secretary of the British Treasury in London) and any notice by the United Kingdom shall be sufficient is delivered to the American Rabassy in London, or to the Secretary of the Treasury of the United States at the Treasury of the United States in Washington, D.C. Any wiver of any notice required hereunder shall not extend to OF affect any subsequent notice OF waive any right of the parties to require notice herounder. 306 -711. The parties to this Agreement, and the officials signing this Agreement on their behalf, each for itself, himself, or themselves, represent and agree that the execution and delivery of this Agreement have in all respects been duly au thorized, and that all acts, conditions and legal formalities which should have been performed and completed prior to the making of this Agreement have been performed and completed as required by, and in conformity with, respectively, the laws of the United States and the United Kingdom. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate at the City of Washington, District of Columbia, this day of , 1941. THE UNITED STATES OF AMERICA BY (Title) HIS MAJESTY'S GOVERNMENT IN THE UNITED KINGDOM BY (Title) 307 CONFIDENTIAL Action Required April 25, 1941 To: The Secretary From: Mr. Young Re: Request of Procurement Division for $118,800,074 from lend-lease appropriations. Attached is a memorandum addressed to you, signed by the Director of Procurement, requesting an allotment to the extent of $118,800,074 for the purpose of procuring material for the British. This request is ready to be passed on to the Bureau of the Budget but before doing so it needs your approval. Oscer Cox and I are also attempting to establish a system whereby goods purchased under this allotment can be transferred to the British as fast as they can be procured without an additional Presidential directive. You will hear more from us on this point very shortly. DY. 308 April 22, 1941 MEMORANDUM TO THE SECRETARY: Under date of April 18, 1941, the British Purchasing Cap mission submitted to the Presurement Division as estimate of British requirements totaling $209,655,500, of which a total of $126,229,108 is covered by requisitions already submitted or now in process of submission as outlined in photostatic copy of their letter herewith. There is attached herete a statement of the available funds and a schedule of further alletants which will be required to cover the requisitions already received or to be submitted in the immediate future. It is requested that we be authorised to make commitments under the several classifications listed to the extent of $118,800,074, and that allotments of funds be made for that puper pose. It is also requested that the authorisation provide for the delivery of such commodities to the proper representatives of the United Kingdom. Att. Director of Procurement SATIES Clinton E. ALLOTMENTS REQUIRED TO COVER REQUISITIONS ON HAND April 21, 1941 Alletment Commodity 4/3/41 Encumbered METALS: Forrous Non-ferrous Steel Bress reds and wire Requisitions On Hand Alletments Required to Cover Requisitions $118,800,000.00 $115,050,000.00 623,214.00 214,447.94 184,094.00 $3,000,000.00 750,000.00 MACHIVERY & EQUIPMENT: (Including read building equipment agricultural and related equipment) Agricultural implements 1,000,000.00 Read Building Equipment 1,500,000.00 $1,469,646.06 FIRE FIGHTING EQUIPMENT: (Other than machinery) Fire Hese Heef & Hera Meal 700,000.00 70,000.00 316,000.00 ELECTRICAL EQUIPMENT: CHEMICALS and ACIDS: Nitrate Phosphate Reck Phosphates MISCELLANEOUS MFG. MATERIAL: 500,000.00 250,000.00 600,000.00 230,000.00 315,000.00 35,000.00 794,180.00 794,180.00 4,021,800.00 2,771,800.00 90,470.67 309 $8,500,000.00 $1,875,116.73 $124,803,641.94 $118,800,074.00 Figures shown in third and fourth colums include requisitions now - hand and these in proparation for dispasah by the British Purchasing Commission WIL HOTEL, WASHINGTON, D.C. TELEPHONE REPUBLIC 7860 BRITISH PURCHASING COMMISSION April 18, 1941. Mr. Clifton E. Mack, Director of Procurement, Treasury Department, Ninth & D Streets, S. W., Washington, D. C. Dear Mr. Mack: Following Mr. Swiggett's conversation with you yesterday, and the receipt of additional data from London, we have prepared a general forecast of requirements for materials which we understand will be secured through the Procurement Division. You have asked us to supply as detailed requisitions as possible under various headings. We trust that you will understand that we fully appreciate your need for such detailed figures and the corresponding need of the Bureau of the Budget, and trust that you will understand that we are doing everything possible to secure complete details and requisitions. Except as indicated the estimates are intended to cover the period ending June 30, 1941. 11 fil We indicate below the present status of our needs, but should point out how difficult it is to make these completely positive and since enemy action at sea, and particularly in the air over England, any moment require a complete change of program. This means that da which we indicate are unlikely to be lowered, but that they may ified, either in quantity or in kind at almost any time, due to the of war. 1 S, including both ferrous and non-ferrous: Iron & Steel Non-Ferrous Metals Zinc, July 1, 1941December, 1942 $ 98,000,000 9,157,500 16,640,000 $123,797,500 The following requisitions are en route to you: Iron & Steel Zinc Brass Rods $ 98,000,000 20,000,000 800,000 $118,800,000 Mr. Clifton E. Mack, April 18, 1941. Page and Our steel preliminary forecast for these groups totalled $107,157,500. The iron figure is unchanged but, as we have been able to forecast minimum zinc requirements to the end of 1942, we have increased the requirements from $3,360,000 to $20,000,000. Therefore, as shown zinc vised general program attached, our ferrous and non-ferrous metal on our re- ments total $123,797,500, of which requisitions are en route to require- ing to $118,800,000. There is, therefore, a balance on which it you is amount- expected that requisitions can be shortly prepared covering brass rod, bar, and strip, copper, tin residues, bismuth metal, amounting to $4,997,500. 2. MACHINERY AND MISCELLANEOUS INDUSTRIAL EQUIPMENT, including Road Building, Agriculture, and related equipments. Our general program now shows a total for this group of $11,000,000. Against this we have issued, or have in preparation, requisitions for the following: (a) Road Building Machinery: Spare Parts for Road Rollers Bitumin Paddle Mixers Stone Crushers Bitumin Distributors Air Compressors Bituminous Tar Kettles Stone Heaters Tractors, Graders, Spare Parts Tractors, Graders, Spare Parts Tractors and Graders Winches, Spare Parts Tractor Spares Spare Parts for Earth-Moving Equipment 8 61,013.20 208,376.8 416,101.2 18,930.03 108,250.00 80,750.00 36,380.00 250,270.00 123,668.00 127,924.50 29,520.00 28,910.84 194,000.00 $1,684,094 (b) Agricultural Implements: Tractors Tractor Spare Parts Tractor Spare Parts Plows, Harrows Plows, Harrows Tractor Spare Parts Tractor Spare Parts Trucks, Plows Tractor Spare Parts Discs and Harrows - Spare Parts Discs and Harrows, Spare Parts Agricultural Equipment Starter Motors for Agricultural Tractors Agricultural Equipment Agricultural Equipment 28,584.80 21,388.62 10,703.32 2,926.44 1,782.00 109,203.97 8,508.98 65,621.87 41,505.98 4,125.00 1,995.99 11,803.75 9,598.00 37,358.07 32,123.27 Mr. Cliston E. Mack, April 18, 1941. Page 3. Threshers $ Spares for Agricultural Equipment Spares for Agricultural Equipment Spares for Agricultural Equipment Spares for Agricultural Equipment Spares for Agricultural Equipment 27,459.80 77,000.00 1,204.76 56,369.05 536.80 5,278.75 8,865.98 3,832.50 Tractors, Cultivators, Harrows, etc. Combine Harvestors Tires, Tubes, Rims, various sizes for Agricultural Tractors 37,760.92 2,676.00 5,000.00 5,000.00 5,000.00 Milking Machine Spares Combines Cultivators & Spares Tractors & Spares $623,214 These figures total $2,307,308; therefore, a balance of $8,692,692. From general knowledge of the situation, we believe that London's requirements on agriculture will be specified shortly in an amount of approximately $500,000. leaving a balance of $8,192,692. The material required under this balance will probably be the fol- lowing road building machinery: Approx. 600 Track Tractors of various sizes with earth-moving attachments. 20 Athey Trailers 125 Trailer Compressors 50 Jaeger Bitumen Mixers 25 Barber Greene Mixers 28 Barber Greene Ditchers 20 Stone Heaters 100 Diesel Locomotives, 60 CM gauge 100 Diesel Road Rollers 300 Diesel Engines 50 Trailer Mounted GM Diesel Generating Sets, 35 KW and 75 KW 50 Diesel Driven Generating Sets, 25 of 5 KW and 25 of 12 KW 2 Portable Diesel Air Compressors, 250 Cubic Feet Capacity, oh we have put an approximate estimate of 8 million dollars. MICALS AND ACIDS. Our general program indicates 90-day requirements of $20,000,000. Lowing requisitions have been forwarded or are in preperation for imme- dispatch: Polyvinyl Chloride Paris Green Butanol $ 144,000 15,000 79,200 Mr. Clipton E. Mack, April 18, 1941. Page 4. Diphenylamine $ 82,500 Filter Powder Lithium Hydroxide 105,000 156,000 182,000 22,100 3,036,000 Ethylene Glycol Ground Sulphur Acetone Pharmaceuticals: ) ) ) ) Atropine Sulphate Creosote Oil Caffeine oil of Chenopodium Podophyllum Stromonium 200,000 These requisitions total $4,021,800, and we have cable indications that the following requisitions may shortly be expected: Triple Super-phosphates Phosphate Rock Calcium Carbide Guanadine Nitrate Glycerine Glycerine $3,300,000 3,500,000 900,000. 680,000 338,000 1,700 to a total amount of requisitions prepared, and immedia 6 requirements anticipeted, of $14,439,800. We have been advised by London that the breakdown on the balance of approximately 5g million dollars may be expected shortly and we have also asked them to forecast as far ahead as possible their other requirements. You will realize, however, that plants making such materials are of a nature where enemy action in the air may cause a complete change in requirements of large dimensions. under $2. ind The category of civil defense equipment had seemed to us a proper one hich to group certain materials on which we had estimated the needs at 00, but in accordance with your suggestion we are glad to divide this as in paragraphs 4 and 5. 4. ING SUPPLIES AND HARDWARE. th don will shortly require the following: No requisitions have been prepared for this material but we believe Bitumen-treated Tarpaulins Roofing Felt Hurricane Lanterns Pneumatic Tools for Demolition Clearance 5. $ 750,000 750,000 26,000 80.000 $1,606,00 FIGHTING EQUIPMENT OTHER THAN MACHINERY. Fire Hose Hoof & Horn Meal $ 700,000 70,000 Mr. Cliston E. Mack, April 18, 1941. Page 5x Of these, requisitions are en route to you for the following: Fire Hose Hoof & Horn Meal $ 315,000 35,000 We believe that material in the same proportion will be required for the balance of the proposed allocation very shortly. you today: We now show requirements under eight new categories suggested by 6. PAPER AND PAPER PRODUCTS. Woodpulp for Paper & Cellulose Wadding Cotton & Linen Rags Bagasse Paper & Boards $2,520,000 39,000 66,000 1,350,000 On this no requisitions have yet been prepared. 7. PETROLEUM AND PRODUCTS. From the United States From U.S.-owned Sources $15,000,000 15,000,000 No requisitions have been prepared on this while awaiting advice from London. 8. RUBBER AND RUBBER GOODS. Our only item in this category is rubber piping to be used in stirrup pumps for fire fighting and in view of this, it would perhaps be simpler include this in Fire Fighting Equipment, but in view of your proposed cat we have here separated it. Estimated value $70,000. 9. th No requisitions have been prepared on tools, but we indicate below limates on tools and machinery submitted to us by London: Air and Gas Compressors Type Moulder Extrusion Presses Parts for Road Motor Vehicles Boat Oars Bearings Testing Apparatus for Machines Pumps Other Essential Machinery Sewing Machines Refractory Bricks $ 195,000 68,000 1,775,000 125,000 450,000 120,000 38,000 200,000 250,000 20,000 Mr. Clifton E. Mack, April 18, 1941. Page 6. Wooden Tool Handles Brass Screws & Fittings Needles Accounting Machines $ 270,000 38,000 75,000 120,000 10. TEXTILES: requirements have been certified but the estimates from the U. K.No arespecific $400,000 for silk. 11. LUMBER AND TIMBER. The figures from London include soft woods, hard woods, ply woods, and Veneer, Sitka spruce and box board. Total, $4,050,000. There is a special qualification to be made of the estimates for Paper and Paper Products, Petroleum, Lumber and Timber, and Textiles. The figures included in our estimates were prepared in England some weeks ago. They are now, we understand, the subject of further scrutiny in London and we shall no doubt receive further particulars in due course. 12. CORDAGE AND ROPE. No requisitions have been prepared but the London estimates are for Manila hemp, $645,000. 13. ELECTRICAL EQUIPMENT AND SUPPLIES. The total value of the estimates for these supplies is $1,213,000. of this, a requisition has been forwarded to you for 50,000 photolonce of the estielectric cells at an approximate value of 1 mated needs are: Electrical Generating Sets & Magnetos Wireless Apparatus Batteries & Parts $ 38,000 200,000 225,000 us This completes the new proposed categori today. In addition, we have the following requirements which we have listed which we shall be glad to re-allocate according to your suggestions. 14 DICAL AND SCIENTIFIC EQUIPMENT. X-Ray Apparatus Medical Glass Tubing Scientific & Official Instruments Raw Drugs $ 240,000 60,000 345,000 45,000 E 690,000 Mr ton E. Mack, April B, 1941. Page 15. MOLASSES. High Test, from Cuba $6,200,000 While we have tried to avoid all miscellaneous groups, we have felt it advisable to indicate, as in our previous program, the estimated needs for miscellaneous raw materials and miscellaneous manufactured materials. They are as follows: 16. MISCELLANEOUS RAW MATERIALS. $1,250,000. No requisitions have been submitted in this category, which covers Carbon Blacks, Lamp Black, Pine Tar, Rosin, Liquid Rosin, Turpentine, French Chalk, Raw Hair, Asphalt, Asbestos & Plastic Materials. 17. MISCELLANEOUS MANUFACTURED MATERIALS. $245,000. No requisitions have been prepared under this category, but these will be submitted as soon as possible. We trust that we have given you in these further estimates a sufficient basis for future Budget allocations. Faithfully yours, HIS MAJESTY'S GOVERNMENT IN THE UNITED KINGDOM By James anu of and on behalf of the lu. hing Director General of the British Purchasing Commission. IS ESTIMATE OF BRITISH REQUIREMENTS (Not including Dominions, India, or Colonies) assigned to PROCUREMENT DIVISION, TREASURY DEPARTMENT GENERAL COMMODITY ESTIMATE Metals - Ferrous & Non-Ferrous Yachinery & Industrial Equipment $123,797,500.00 11,000,000.00 Chemicals 20,000,000.00 Bldg. Supplies & Hardware 1,606,000.00 Fire Fighting Equipment 770,000.00 Paper & Paper Products 3,975,000.00 Petroleum 30,000,000.00 Rubber & Rubber Products 70,000.00 Tools 3,744,000.00 Textiles 400,000.00 Lumber & Timber 4,050,000.00 Cordage & Rope 645,000.00 Electrical Equipment & Supplies 1,213,000.00 Medical & Scientific Equipment 690,000.00 Tolasses 6,200,000.00 liscellaneous Raw Materials 1,250,000.00 liscellaneous Manufactured Materials 245,000.00 $209,655,500.00 COVERED BY REQUISITION $118,800,000.00 2,307,308.00 4,021,800.00 None 350,000.00 None None None None None None None 750,000.00 None None None None $126,229,108.00 BALANCE TO BE REQUISITIONED $ 4,997,500.00 8,692,692.00 15,978,200.00 1,606,000.00 420,000.00 3,975,000.00 30,000,000.00 70,000.00 3,744,000.00 400,000.00 4,050,000.00 645,000.00 463,000.00 690,000.00 6,200,000.00 1,250,000.00 245,000.00 2 83,426,392.00 We expect to submit figures for the Dominions, India, and the Colonies within a few days. We shall also have figures from the Air Commission on needs for Aluminum and Magnesium, on which they are the only British users. 318 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE OF THE DIRECTOR WASHINGTON April 25, 1941 MEMORANDUM TO THE SECRETARY: Weekly Report - Lease-Lend Purchases (4/18 - 25, 1941 Purchases to 4/18/41 $1,892,316.73 No purchases were made this week Estimated Cost Requisitions Pending Awaiting clearance by O.P.M $1,037,330.00 2,483,704.37 Total pending requisitions (Including steel, equipment, chemicals, etc.) $3,521,034.37 Cleared by O.P.M In accordance with the decision of the Bureau of the Budget that allocations of funds would be made only to cover issued requisitions, the British Purchasing Commission sup- plied a schedule of issued requisitions enroute to us which, together with those already submitted, have been used as the basis of our request of April 22 for an allotment of $118,800,074 for purchase commitments. In the meantime, all preliminary purchase steps are being taken on pending requisitions to avoid delay. Clifton E. Mack, Director of Procurement. Copy for Secretary Morgenthau Thompson 319 April as, 1942 Yes Mr. Stay Hopkins From Philip Thanks beni--lease operations have now progressed to a point where adequate statistical tabulations become imperative If we are to have - kind of - over-all picture of what is going ea. A good sample is the summary table of alletments against the , billion dollar appropriation, which has just been cospiled and distributed. This table was a homemade job, and if 18 is to be issued regularly should be hamiled w a pareen OF persons qualified to & so. Further, this table - measurerily be only the first of a general owree swatching the administration with allogate Information as to goods sale available under the $1,800,000,000 limitation, goods ordered free the $7,000,000,000 appropriation, goods actually shipped, etc., classified by trice and by commition. Share is - need to establish a separate establistical organisaties for best-terms, and there is - used for othersal statis- timel information which is interesting - of m procetient quality mine. - is great and for adequate tabulations is order that the administration my operate intalligently will in order that there will be provided antisfactory fustual information on which to Inco the - questionly reports to the President. Originally 29 was thought that the Recourch and Statistics Division of the Treasury night be millions in this respons. but the presente of - week has 8 increased that " - be - designable to request the help of that division for this payment. Similarly, - policy years so - be equally undestrable to n quest the - of - my's statistical service. As exprenise solution from a prestical point of view, $ the would 1 the to a - that this office bestow Mr. Weeley Mindow from 320 -2Research and Statistics Division of the Treasury, together with one of his assistants, to work full time with me on this problem. It is necessary that the person in charge of this operation be physically part of my office if the job is to be performed satisfactorily. In fast, the passing of each day makes the job more difficult. To be sure. this man will have to call upon some statistical unit already in operation for mechanical facilities and clerical help. This represents only a minor part of the problem, and those facilities could be is any department or agency of the Government - Treasury, Federal Reserve, OPM, Farm Credit, etc. My suggestion has two principal advantages; first, the experience which Mr. Lindow has acquired for the last twelve months in his work on foreign purchasing will not be secrificed, and, secondly, there could be no added strain upon the Treasury Division of Research and Statistics except the loan of Mr. Lindow and his principal assist- and. (Initialed) P.I. Copy to Secretary Morgenthan 320 -2Research and Statistics Division of the Treasury, together with one of his assistants, to work full time with me on this problem. It is necessary that the person in charge of this operation be physically part of my office if the job is to be performed satisfactorily. In fact, the passing of each day makes the job more difficult. To be sure. this man will have to call upon some statistical unit already in operation for mechanical facilities and clerical help. This represents only a minor part of the problem, and these facilities could be in any department or agency of the Government - Treasury, Federal Reserve, OPM, Farm Credit, etc. My suggestion has two principal advantages; first, the experience which Mr. Lindow has acquired for the last twelve months in his work on foreign purchasing will not be sacrificed, and, secondly, there could be no added strain upon the Treasury Division of Research and Statistics except the loan of Mr. Lindow and his principal assist- and. (Initialed) P.I. Copy to Secretary Morgenthan 321 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE Secretary Morgenthau TO FROM April 25, 1941 Mr. Cochran STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19. 1940: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold 18 9,351 4,429 10,009 11,661 49,341 19 324 176.710 136,526 591,415 132,014 570,428 8,894 85,115 1,615,987 215,500 191,762 7.561.940-1/2 233,694,960 27,074,250 26,272,324 7.647.055-1/2 235,310,947 27,289,750 26,464,086 April 14 15 16 17 159,000 36,500 2,000 12,000 6,000 Nil 138,708 34,491 1,602 11,655 5,306 Nil Sales from 2/22/40 to 4/12/41 Total 2/22/40 to 4/19/41 Miss Poate reported sales of non-vested securities for the week ending April 12 totaled $200,000. 322 April 25, 1941 4:31 p.m. H.M.Jr: Hello. Operator: Major Smith stepped out of his office. H.M.Jr: Well, when he comes in I want to speak to him. Operator: Right. 4:59 p.m. Major Smith: H.M.Jr: Yes, Mr. Secretary. Hello, Major. I don't know whether Stephene - has Stephens talked to you in the last minute or two? S: No, sir. I just this minute got into H.M.Jr: oh. Well, then, I'11 do it. When the office. General Marshall lunched with me on Tuesday, he invited me to make a trip and visit his army. 8: Yes, sir. We've been wanting you to do that for a long time, Mr. Secretary. H.M.Jr: And he wanted you to accompany me. Now, last night Mr. McCloy asked me to go down to Aberdeen, see, and I'm going down Tuesday morning. I wanted General Marshall to know that I was going, see, but that I don't consider this - (laughs) - anything to do with the trip that he wanted me to take. S: I see, Mr. Secretary. Well, I'11 tell him. H.M.Jr: Tell him I've got a rain check on his trip. This is just a little side one. 323 -2S: H.M.Jr: S: Tuesday you're going to Aberdeen, sir? I'm going down here about 8:30.Tuesday morning leaving oh, yes. Well, you'll enjoy that. They'11 give you an interesting show but of course the Army is elsewhere. H.M.Jr: I know, but I just wanted the General to know because he has been very kind. S: H.M.Jr: S: H.M.Jr: Thank you, Mr. Secretary. Now, the other thing was that the English told me about the Boeing 17 making its first trip over Germany and I spoke to Mr. Stimson about it at Cabinet and he said that they had a cable in describing its performance. Hello? Yes, sir. And if permissible, I'd like to have a copy of it. 8: That's the Boeing, the B-17. H.M.Jr: Yes. It made its first flight over Germany with a load of bombs and I gather the performance was quite remarkable, and it is so seldom that we ever hear that they like our planes I'd like to know about it. S: (Laughs). Yes, Mr. Secretary. I'11 chase that up and get it over to you tomorrow morning. H.M.Jr: Up to now - well, forget it. Monday will be time enough. S: We haven't had - General Maloney came back the other day. You know it's unfortunate, I mean the innate cussedness of inanimate objects - he said that while he was there word came into the War Office 324 -3that have our first tank may heard this.had arrived - you H.M.Jr: No, I haven't. S: Our first tank had arrived, it was unpacked at the dock, and a mechanic hit the turret with a hammer and a piece of metal about the size of a pie plate dropped off. I expect in 5,000 tanks that wouldn't happen, but it happened on the first one that landed in Britain. H.M.Jr: Well, I'11 be darned. S: Well, they took it pretty well. They H.M.Jr: said they hoped it wasn't a bad omen but there you are. Now, isn't that too bad? Well, it's too bad and on the other hand when they get something good, they never say so either. S: H.M.Jr: S: That's right. I know that. They're dantankerous about it. That's right. Well, thank you for calling us, Mr. Secretary, and I'll get this thing over to you tomorrow. H.M.Jr: Thank you. 325 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941. TO Secretary Morgenthau FROM Mr. Haas 904 Attached to this memorandum is Mr. Knudsen's letter to Secretary Knox commenting on the charts of airplane and airplane engine production. Mr. Knudsen is essentially correct in pointing out that in general the trend in airplane and airplane engine production has been upward in recent months. with respect to pursuit planes, however, the best that can be said is that the movement has been sidewise since the end of last year. The upward movement in the trend of production of bombers and military trainers may not show up in any particular two-week period, it might be pointed out, because the flow of finished products from the production lines of the various plants is quite uneven. The aircraft companies, it appears, deliver their planes and engines in "bunches" -- a whole group of the same or similar models being delivered within a few days of each other following the com- pletion of tests or the installation of parts, the delivery of which had been delayed. The effect of these day-to-day fluctuations may be eliminated from the delivery data by the use of a period somewhat longer than two weeks, and I am attaching a table that adds together the figures that appeared on our charts 80 that they represent four-week periods. Attachments 326 Deliveries of Airplanes and Airplane Engines, June 9, 1940 - April 12, 1941, by Four-Week Periods Pursuits Bombers Military trainers Engines over 1000 h.p. : : June 9 - July 6 98 171 256 420 July 7 - Aug. 3 119 170 227 687 Aug. 4 - Aug. 31 109 156 270 743 Sept. 28 44 165 343 911 Oct. 26 53 166 390 1,168 Oct. 27 - Nov. 23 77 226 253 1,044 Nov. 24 - Dec. 21 124 231 315 1,247 Dec. 22 - Jan. 18 175 231 367 1,282 Jan. 19 - Feb. 15 154 264 478 1,406 Feb. 16 - Mar. 15 275 203 527 1,569 Mar. 16 - Apr. 12 304 224 575 1,661 Sept. 1 Sept. 29 - - Office of the Secretary of the Treasury, Division of Research and Statistics. April 25, 1941. 327 THE SECRETARY OF THE NAVY WASHINGTON April 21, 1941 My dear Henry: I enclose herewith letter from Bill Knudsen, together with charts to which his letter refers. As you will note, in requesting this data, I mentioned the charts which you submitted to the War Cabinet meeting on April 15. Apparently, based on the production charts used by O.P.M. aircraft production is on the increase. Yours sincerely, /s/ Frank Knox Honorable Henry Morgenthau Secretary of the Treasury, Washington, D. C. Enc. 328 OFFICE OF PRODUCTION MANAGEMENT Social Security Building Washington, D. C. April 16, 1941 Honorable Frank L. Knox Secretary of Navy Washington, D. C. My dear Mr. Secretary: This is in reply to your memorandum inquiring as to the reason for the apparent drop in production of aircraft during the past two weeks, as indicated by the charts submitted by Secretary Morgenthau at the War Cabinet meeting April 15. You will note that these charts, which are returned herewith, illustrate deliveries as reported for bi-weekly periods, and the resulting chart lines have in the main a saw-toothed character. If the deliveries reported at about the middle of one month are compared with the deliveries reported at about the middle of previous months, it will be observed that this recent "mid-month trend" is upward. This has been emphasized by superimposing red lines on the charte in question. In other words, reports of aircraft deliveries obtained for portions of the month should not for the present be taken to indicate the trend for the full-month period. Aircraft production contracts employ monthly schedules, and the efforts of the manufacturers are directed toward the meeting of a monthly quota rather than a bi-weekly quota. Production lines are not yet turning out aircraft in an even daily or weekly flow, but every effort is being made by this office to 80 plan and schedule the flow of materials to the aircraft plants that in turn the production therefrom may flow more evenly. Attached herewith are three pages from a monthly report (Report No. 12-C) prepared by the Aircraft Section of this office. Examination of the bar charts at the lower right corner of these pages indicates that there has Hon. Frank L. Knox -2- 329 4/16/41 been a rather steady increase in aircraft production. February with its shorter number of working hours is the exception. These latter charts employ data derived from the Army Air Corps Consolidated Statistical Report, in the production of which I understand your Department is cooperating. You may be sure that I shallbbe very glad to supply you and other members of the War Cabinet with reports of the Aircraft Section of this office if you so desire. Very truly yours, /8/ Wm. S. Knudsen Wm. S. Knudsen Director General TOTAL PAGE CONFIDENTIAL ACTUAL AIRPLANE DELIVERIES BY MONTHS, JULY, 1940, TO DATE PLANES PLANES 8000 8000 97 Mal 7000 1000 6000 6000 Fab 5000 1000 JON 4000 4000 Dec 3000 3000 NEW 245 M 14 Our 2000 2000 .11 FAT Seat H - - 1000 Ang to 1000 N/O THE AL AND 262 IN TOTAL O ICE NAVY ARMY COMMERCIAL OTHER BRITISH FOREIGN DELIVERIES AHEAD OR BEHIND CONTRACT JULY, 1940, TO DATE DELIVERIES MANUFACTURERS PLANES PLANES CUMULATED PLANES PLANES 1500 1500 1000 1000 2000 2000 1500 1500 500 500 1000 1000 HEAD 5 500 500 500 500 1000 000 1500 11 O 500 0 BRITISH $ 17. 174 NAVY C OFFICE OF PRODUCTION MANAGEMENT ANDRAIT PRODUCTION SECTION ARMY N TOTAL CONFIDENTIAL TACTICAL CONFIDENTIAL (ALL COMPANIES) ACTUAL AIRPLANE DELIVERIES BY MONTHS JULY. 1940, to DATE PLANES 3500 3000 Mot 2500 Fab 2000 2000 JAP Det 500 NO one 000 1 400 500 ARMY TOTAL NAVY CMMERCIAL OTHER BRITISH FOREIGN DELIVERIES AHEAD OR BEHIND CONTRACT JULY 1940, TO DATE MANUFACTURERS DELIVERIES PLANES CUMULATED AMS PLANES 100 500 000 1000 600 500 500 500 200 000 C 100 500 O PRODUCTION MANAGEMENT PRODUCTION SECTION ARMY NAVY BRITISH A TOTAL CONF IDENTIAL ALL COMPANIES) CONFIDENTIAL ACTUAL AIRPLANE DELIVERIES BY MONTHS, JULY, 1940, TO DATE LANES PLANES 3500 3500 3000 3000 Mar 2500 2500 Fan 2000 2000 IF 128 Mar 500 500 Dec Fat No 17 000 000 De De leg 500 500 Aug 214 Art O O TOTAL ARMY NAVY OTHER BRITISH COMMERCIAL FOREIGN MANUFACTURERS DELIVERIES DELIVERIES AHEAD OR BEHIND CONTRACT, JULY. 1940, TO DATE PLANES CUMUL ATED PLANES PLANES 600 600 PLANES 400 400 300 300 200 200 500 500 400 400 100 DD HA AMEAS 300 300 100 DO 200 200 200 200 300 300 100 100 400 400 O O TOTAL PRODUCTION MANAGEMENT HOUS PRODUCTION SECTION ARMY NAVY BRITISH CONFIDENTIAL N Deliveries of Trainers, M-rookly June 22, 1940 ta April 12, 1941 Kotal go BRO UPWARD TRENDINDIATED 200 BY MIDDLE OF MONTH REPORTS 180 160 140 180 LOO 80 Brikiah W22 8/3 sk7 8/3 9/24 9/28 10/2 D/26 n/9 11/23 12/7 12/211941/4 1/18 2/1 2/15 3/1 3/15 3/29 4/12 tho-yeek periods ended H Deliveries of Airplane Enginee over 1,000 R.P. . 31-veekly, June 22. 1940 to April 12, 1941 Perber 1000 950 900 Total UPWARD THEND INDICATED GY MIDNE OF MONTH REPORTS 700 690 600 British 550 500 hugo 800 390 300 250 800 190 100 D go o 4/12 R22 KG 1940 WE 817 8/3 9/H 9/25 101.2 D/26 11/9 11/25 12/7 12/21 1/4 10k1 1/18 2/1 2/15 3/1 3/15 3/29 Too-veak periods ended Member Deliveries of Pursuit Planes. M weekly, June 22. 1940 to April 12, 19kg 800 190 100 170 160 180 140 Total 3.30 180 r 110 TREND INDICATED BY MIDDLE CR MENTCH REPORT 100 90 so 70 British 60 50 40 30 20 10 4/12 22 1990 20 8/3 8/17 8/31Two-week 9/14 9/28 1012 10/26 11/9 1/2 12/7 12/21 1/4 1941 1/18 2/1 2/15 3/1 3/15 3/29 periods ended Support Deliveries of Bombers, M-rookly. June 22. 1940 to April 12, 1941 200 190 180 170 160 190 140 UPWARD TREND INDICATED CY MIDDLE OF MONTH Rotal 13 REPORTS 180 110 3.00 90 80 4/12 17/20 C/3 8/17 8/31 9/14 9/26 10/12 10/26 11/9 11/23 12/7 12/21 1A 1/18 2/1 2/15 3/1 3/15 1941 3/29 24 tvo-veek periods ended 337 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941. Secretary Morgenthau TO FROM Alan Barth THE DEMAND FOR LEADERSHIP Counterattack This has been the isolationists' week. As expected, they cited the Greco-British defeat as proof that war against the Axis is futile. Colonel Lindbergh, echoed by Senators Wheeler, Walsh and Nye, proclaimed that "it is now obvious that England is losing the war" and that "we cannot win this war for England." It seems improbable, judging from a study of newspaper response to their arguments, that they have appreciably deflected the current of American thinking. The only notable convert to their point of view during the past week was Dr. Felix Morley. Writing in The Wall Street Journal, he reasoned that a complete victory is impossible for either side and that therefore the United States should negotiate a peace recognizing German suprem- acy on the Continent of Europe. It is a point of view ill-attuned to the national psychology; to tell Americans that they can't win a scrap is almost a way of daring them to have a try at it. The latest Gallup poll shows -2- 338 clearly that the public does not accept the basic isolationist premise. Asked prior to the Balkan invasion which side will win the war, 78 per cent picked Britain, while only 4 per cent believed in an Axis victory. In response to the same question after the Balkan campaign was under way, the division shifted to 57 per cent for Britain, 11 per cent for the Axis, with a considerable jump in the percentage of those undecided. The popular conviction that the Axis can be beaten with American assistance was reflected in an earlier Gallup poll revealing that 71 per cent of the public favors convoying by the United States Navy, if necessary to ensure victory. Editorial reaction to the isolationist appeals of the past week has been overwhelmingly hostile. Editorial writers, columnists and radio commentators in general, have manifested a sense of obligation to check defeatist sentiment. Without denying the gravity of the setback in Greece, they have pointed out consistent- ly that it is not decisive as to the outcome of the war. A great deal of indignation has been expressed, not only over Lindbergh's reasoning, but also over the delivery of his speeches at a time when it was felt that American morale ought to be sustained. In reporting Lindbergh's New York speech, newspapers made rather prominent mention of the noisy presence in his audience of Bundists and Christian Mobilizers. No doubt this was calculated 339 -3further to alienate the affections of the mass of Americans from the isolationist position. Messrs. Lindbergh, Wheeler and Nye have come in for rather rough handling in many newspapers. Their minority position is no longer accorded the tolerance it enjoyed during the period when the Lend-Lease law was under debate. Feeling has become so in- flamed, in fact, that the objectivity which is supposed to characterize the news columns of American papers is sometimes con- spicuously lacking in accounts dealing with the activities of the America First Committee and other organizations opposed to the Government's foreign policy. It is perhaps worth noting, however, that the double-barrelled indictment of all of the foreign policy opponents of the Administration delivered not long ago by Secretary of the Interior Ickes met with almost universal editorial disapproval. Skepticism While there has been little growth of defeatism as to the ultimate destruction of the Axis, newspapers have shown decided discouragement concerning the immediate prospects for the British. There is a widespread feeling among commentators that they have been deluded -- or have deluded themselves -- with false hopes. They no longer cheer themselves with thoughts that Italy may collapse, that the Russians may enter the war against Germany, that 340 4- conflict on a second front may exhaust Nazi resources. On the contrary, they now foresee complete German victory in the Mediter- ranean and a likelihood that Spain, France and Turkey will soon join the Axis forces. Indeed, this gloomy "realism" leads the commentators to discount or doubt even the more heartening reports from abroad. It has also, in some measure, shaken complacency over the progress of rearmament at home. There is considerable discontent with the pace and scope of American production. The renewed demand for a curb on strikes is perhaps an outgrowth of a general sense of frustration. The one great fear that obsesses commentators everywhere is that America's contribution to the defeat of Hitlerism may be "too little and too late." Direction Such doubts and fears appear to have produced a treadmill quality of mind, a loss of that feeling of direction which animated the American public immediately after passage of the Lend-Lease law. There is a depressing awareness of danger, but no clear comprehension of its nature or of the steps which must be taken to combat it. The thought which has dominated newspaper editorials of the past week is that the nation now wants and needs a strong, affirma- tive statement of purpose by its President. A great majority of -5- 341 the commentators agree that the public is ready to be told the facts, however harsh and disagreeable they may be; ready also to be told what must be done, however great the dangers of the course proposed. The plea is for leadership. 342 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941. TO FROM Secretary Morgenthau Herbert Merillat PRESS REACTION TO TREASURY TAX PROGRAM Before the Treasury's specific tax proposals were announced, press comment on the 31 billion dollar revenue goal continued to be favorable in all parts of the country. No one pretended to be happy at the prospect of heavy taxes, but there has been sober recognition that, so far as possible, it is better to pay defense costs through current taxation than to borrow the necessary funds. There have been some sour notes. The papers most critical of the Administration's fiscal policies have taken the occasion to say that heavy taxes now are an inevitable result of extravagance in the past, but grudgingly concede that the tax goal is realistic and sound. A few bitter-end isolationist papers proclaim that a staggering tax burden will be the price of our "adventure" in bolstering British resistance. But the overwhelming majority of papers have applauded the announced revenue goal as realistic, if unpleasant. No one has suggested that the goal was set too high. However, the love feast now is over. It was agreed that the Treasury's defense bond program is well conceived, that heavy new taxes are necessary and desirable, and that the outline of tax 343 -2policy in your statement before the Ways and Means Committee is sound. But this almost unprecedented harmony on fiscal matters was shattered when the Treasury's tax proposals became known. It is now clear that when the press spoke of the need of paying-aswe-go, it had the wage earner in mind as the man who would pay. Of the papers so far canvassed (all from the Eastern seaboard cities), only PM has a good word to say for the Treasury's program. It is said that the Treasury's recommendations fail to achieve the objectives prescribed by you -- fair distribution of the tax burden and curtailment of purchasing power to encourage production of war materiel and prevent inflation. The Administration is accused of political cowardice in failing to recommend taxes on low incomes and of sinister designs to liquidate the middle class. Wage earners and farmers, the chief beneficiaries of preparedness prosperity, it is said, escape with swollen pocket- books intact. More specifically, these are the criticisms made: the failure to broaden the income tax base and the sharp increases in surtaxes result in a disproportionate burden on present income taxpayers; the absence of income or sales taxes on low incomes means that curtailment of consumption will be negligible; heavy inroads will be made on corporate earnings, but wage earners and farmers will not pay increased taxes. Accordingly, papers which previously had been reluctant to make specific tax recommendations 344 3- now call for lower personal income tax exemptions and broader sales levies. The press shows no disposition to analyze the technical difficulties involved in a broader income tax base and a general sales tax, or to publicize the present tax load borne by people in the low income brackets. Rather it paints a picture of a tax-free low-income group which could easily be made to bear its "proper share" of taxes by the simple device of lowering exemptions or imposing a general, or a greater number of selective, sales taxes. Corporation Taxes Although the interest of most papers naturally centers in the personal income tax and excise tax recommendations, the finan- cial journals and other oracles of business have much to say about the inequity of the proposed increases in corporation income and excess profits tax. Comments on reported Treasury proposals to reduce both the average earnings credit and invested capital credit under the ex- cess profits tax law assert that such a reduction will result in penalties on many corporations which have not profited from the defense program and will cut into normal earnings. It is said that increases in the present corporation taxes accentuate the inequity resulting from failure to take into account the various earningsto-capital ratios of corporations. But there has been no suggestion 4- 345 that the original Treasury excess profits tax proposal, which did just that, should be revived. Non-defense Spending Your suggestion to the Ways and Means Committee that the pos- sibility of cutting non-defense and non-relief expenditures be carefully studied has been welcomed in the press, but there is skepticism as to whether the Administration and Congress will follow up the recommendation. In recent weeks, the demand for reduction of non-defense spending has been growing and editorial comments on the willingness of the public to pay more taxes generally add that taxpayers expect government economies as part of the emergency fiscal program. Press suggestions for cuts in such expenditures are seldom specific. The items most generally assailed in the press -- increased parity payments to farmers and the St. Lawrence waterway project -- constitute added expenditures rather than expenditures already covered in the budget. Defense Bonds As May 1st approaches, the sale of defense bonds is again receiving wide publicity. Some writers have expressed the opinion that the Treasury's tax proposals may have an adverse effect on the sales program. The rumor that a forced loan plan is under consideration has gained such currency in all parts of the country that it too may affect sale of the bonds. Percent 1930 1940 Percent 10 (Calendar years) 10 9 9 8 8 7 7 6 6 5 5 (Amounts in millions of dollars) 4 National Income Produced 68.900 54,540 40,074 42,440 50,304 55,833 64,792 70,925 634499 69,308 73,900 4,172 6,082 5,812 5,276 6,160 6.4 8.6 9.2 7.6 Federal Tax Collections 3,424 2,267 1,673 2,362 3,286 3,698 Perdent 1930 1931 6.6 Title THE SHO 1932 1933 6.5 1934 6.16 1935 1936 1937 1938 1939 8.3 1940 347 April 25, 1941. MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston I cal led Sumner Welles on Wednesday about the Magruder matter. He thanked me and said he would talk to the President. He called me today to tell me that he has spoken to the President and the President said that if a promotion were available for Magruder and Magruder wished to accept it, that would be all right with him, but that until and unless Magruder decided of his own free will that he wished to retire, his continuation in his present position is what the President desires. I told Mr. Welles that I understood this to mean that it was not necessary for us to take the matter up with Magruder at all and he said that was the way he understood it. The PARAPHRASE OF TELEGRAM 348 C No. 371, April 25, 6 p.m., from 0 Embassy, Buenos Aires P Y The 160,000,000 Argentine peso credit proposal was formulated, it appears, by the Spanish Government and is intended for the refunding of various purchases by Spain of products of Argentina. The proposal has not progressed thus far beyond the conversation stage and the question of satisfactory guarantees is the chief difficulty. Spanish payments have heretofore been guaranteed through setting aside a portion of the remittances which Spanish utilities in Argentina have ordinarily been required to send to Spain or through earmarking of the peseta debt service of Argentina. The Argentine-Spanish agreement which the Central Bank is about to sign on the part of Argentina involves the former type of guarantee. There is an agreement between the Spenish American Electricity Company and the Spanish Government with regard to certain payments which as a result of the Spanish Civil War have been in arrears. The Argentine branch of this company (the C.H.A.D.E.) under the terms of this agreement is to pay direct to the Central Bank of Argentina in five equal annual installments the sum of 35,000,000 pesos to cover 2,000 tons of frozen meat and 380,000 tons of wheat which are to be shipped to the Spanish Government. Incidentally, the price of wheat was fixed in this operation at 6.375 pesos on freight car per 100 kilograms at the Port of Buenos Aires. ARMOUR (CONFIDENTIAL) 349 0 0 P Y PARAPHRASE A telegram (no. 53) of April 25, 1941 from Consul Reed at Hanoi reads substantially as follows: On April 24 the economic agreement between Japan and Indochina was initialed or signed and the Inspector General of the Bank of Indochina is going back to Indochina. As yet details of the final agreement are not known. The above information was received from a person who is usually reliable. That Japan will in the near future start a pressure toward the south (naval bases in the southern part of Indochina being mentioned) is the firm conviction expressed by the highest Indochinese representative at Tokyo in a letter of which the above-mentioned informant has direct knowledge. Copy:bj:4-30-41 350 APR 25 1941 Dear M. Belless In a letter of February 26, 1962, you reised a number of issues connected with the Himmoing of a proposed railway which is to be constructed jointly by the British and Chinese Governments from Lashio to Kunning. I agree that 10 is desirable that the building of this vailway should be undertakes and completed as rapidly as possible. with respect to your inquiry as to whether there is any legal barrier which prevents China from using the dollars which 18 obtains from this Government to buy rails and other railway construction materials is this country, I as informed that there is - a the basis of information now available to the Treasury, this Department believes that the funds recently made available to Chima w the Supert-Inport Beak and other holdings of dollars by the Chicago would be the most appropriate sources for the proposed expenditures. Very truly yours, (Signed) H. Morgenthan, Jr. Secretary of the Treasury. Benerable - Hollow, Union Secretary of state, State Department, D. e. VPCsies 4/3/41 By Messenger 4/26-9052 - File to Mr. White Copy to Mr. Thompson 351 Treasury Department Division of Monetary Research Date March 8, 1941 Mr. Coe To: Mr. White From: Mr. Taylor Subject: China. Burns Railroad (Lashie to Kunning) (1) British Aide-Mascire, Feb. 17, U.K. ambassador at Chunghing advised Chinese Gov't.: (a) U.K. will provide finances to allow Burma to construct railroad from Lashie to border: (b) In return China will agree to settlement of Burma-Yunaan border dispute, on the lines of the offer already made by the Gov't. of Burna", (e) China will construct railway from/border to Kunning: (d) If U.K. cannot provide sufficient rails, bridging materials & other steel the Chinese Gov't. will finance these purchases from dollar sources, to be replaced or repaid when U.K. is able. It is proposed to use immediately 132 kms. (82.5 ml.) of rails belonging to China, now in Rangeons (e) Currently political and strategie considerations only necessitate construction, but it is hoped, when normal conditions are restered, that China will direct enough traffic to the railroad to llew its continued use. (2) U.S. State Dept. Aide-Hemoire, Feb. (a) Questions whether U.S. loans to China may be used for finan- oing U.K. purchases of steel rails, bridging asterials, etc. or even for purchase of these items by China. Matter will be taken up with other interested agencies of the Gov't. (b) Any attitude taken must not be construed as approval of or assent to border settlements. (3) Chinese Ambessador, conversation with State Dept. Job. 17. It is likely China would wish use of its American credits for purchase of railway materials. (See page 2) MR. WHITE Branch 2058 - Room 208 Treasury Department 352 Division of Monetary Research D Date 19 To: -2(4) Cable.U.S. Consul. Rangoon. Feb. 19. Reported that: length of British section of railway to be built, 110 miles, lowest estimated cost L 2,000,000; time of completion, 2 years. (s) Under.Sect.folles to Treasury, Feb. 28. (a) Could U.S. loans to China be utilized to purchase mater- isls for construction of the Chinese section of the railroad? and to finance U.K. steel purchases? (b) Would railroad be completed in time to aid China's war efforte? It is urged that favorable *paychological" effect upon Chinese morale be considered. (Dept. of State. Mr. Telles to Treasury. 2/28/41) o MR. WHITE Branch 2058 - Room 208 353 (COPI) a reply refer to 845C. 7793/ DEPARTMENT OF STATE Washington February 28, 1941 My dear Mr. Secretary: There are enclosed copies of an aide-memoire left with the Department of State by a member of the staff of the British Embassy on February 17, of a memorandum of conversation on February 17 between the Chinese Ambassador and an officer of the Department of State, of a paraphrase of a telegram dated February 19, 1941, from the American Consul at Rangoon to the Department of State, and of a memorandum of conversation between Mr. Butler, Minister- Counselor of the British Embassy, and an officer of the Department of State, in regard to the proposed construction of a railway between Lashio, Burma, and Kunming in China. There is enclosed also a copy of this Department's preliminary reply of this date to the British Embassy. The project outlined in the British Embassy's aidememoire raises a number of considerations, among which may be mentioned the following: (1) The statements made in paragraph numbered five of the British Embassy's aidememoire and the information communicated to the Department by the Chinese Ambassador indicate that the cost of the purchase of materials for the construction of the proposed The Honorable Henry Morgenthau, Jr., Secretary of the Treasury railway 354 -2railway would have to be met, at least in considerable part, from funds made available to the Chinese Government by the Government of the United States. The Government of the United States has made available to the Chinese Government various loans and credits for certain purposes. There is raised the question whether these loans and credits could be appropriately utilized to purchase materials for the construction of the China section of the proposed railway, should the Chinese Government 80 desire. There is raised the further question whether these loans and credits could be appropriately used for supplying steel materials to be used in the construction of the British section of the proposed railway, should the Chinese Government 80 desire. (2) It would seem important to estimate whether the proposed railway could be completed within a period of time which would make utilization of the railway important to China's defense effort or whether completion would take 80 long as to make it likely that the railway would be useful mainly as a peace-time enterprise. It would also seem important to consider, even should completion of the railway require an extended period of time, the favorable psychological effect which the undertaking of the project at this time would have upon Chinese morale. (3) This Government is of course following a policy of rendering to the British Government and to the Chinese Government all 355 -3all appropriate and practicable assistance. An early expression of your views in regard to point numbered one above, together with such further comment as you may feel in position to offer, would be appreciated. A similar letter is being sent to the President of the Export-Import Bank. Sincerely yours, For the Secretary of State: /8/ Sumner Welles Under Secretary Enclosures: (See following-pages) 1. Aide-memoire from British Embassy, February 17. 2. Department's reply thereto. 3. Memorandum of conversation, February 17. 4. Paraphrase of telegram from Rangoon, February 19. 5. Memorandum of conversation, February 24. 355 -3all appropriate and practicable assistance. An early expression of your views in regard to point numbered one above, together with such further comment as you may feel in position to offer, would be appreciated. A similar letter is being sent to the President of the Export-Import Bank. Sincerely yours, For the Secretary of State: /8/ Summer Welles Under Secretary Enclosures: following-page ) 1. Aide-memoire from British Embassy, February 17. 2. Department's reply thereto. 3. Memorandum of conversation, February 17. 4. Paraphrase of telegram from Rangoon, February 19. 5. Memorandum of conversation, February 24. Handed to me by Mr. Butler of the British Embassy, (OOPY) February 17, 1941 SKH 356 AIDE MEMOIRE His Majesty's Ambassador at Chungking has been instructed to make a confidential communication to the Chinese Government on the subject of the Burma-Yunnan Railway project on the following lines: 1. His Majesty's Government have decided that subject to satisfactory assurances from the Chinese Government on the matters mentioned in paragraphs 3 to 6 inclusive they will themselves provide the finance required to enable the Government of Burma to construct the sections from Lashio across the Salween River to the frontier and on receipt of a satisfactory reply from the Chinese Government will request the Government of Burma as a matter of urgency to complete the necessary surveys in Burma and start the construction of the sections already surveyed. 2. With their present preoccupations there are few ways in which His Majesty's Government can render practical assistance to the Government of China, and they gladly take this opportunity to help them in a project on which Chiang Kai-shek sets 80 high a value. His Majesty's Government realise that without such a railway it is impossible for the Government of China, so long as they are denied access to the sea otherwise than through Burma, to import many heavy and bulky articles of which they have serious need and which cannot be conveyed by road over a mountainous route. You should impress on the Chinese authorities the importance of this consideration which makes it imperative that the difficult section of the line in the neighbourhood of the Mekong River should be covered by the railway and not by road, as the Chinese Ambassador's memorandum of December 17th suggests is the present plan. 3. His Majesty's Government confidently expect that in return for their offer of help to the railway project the Chinese Government will agree to settle the outstanding question of the undemarcated Burma-Yunnan frontier on the lines of the offer already made by the Government of Burma. Though the Government of Burma will not themselves be responsible for building the railway out of their own resources, the construction of a railway must entail for them various new obligations. The ultimate revenue prospects of the railway are so uncertain that the Government of Burma would have no incentive to involve themselves in these obligations unless they were enabled, by adjustment of the frontier on the lines suggested, to establish their administration 357 -2- administration east of the Salween in a satisfactory manner. As you know this requirement has been taken a considerable way in discussion with the Burma mission. 4. As regards the section in British territory, His Majesty's Government will accept the whole liability for the construction and any operational loss, provided that the Chinese Government undertake the construction as soon as possible of the section of the line from the Burma frontier to Kunming out of their own resources or out of dollar credits available to them in the United States. 5. Provision from the sterling area of the requisite steel material as and when required may present difficulty. His Majesty's Government must ask the Chinese Government that if at any stage any rails, bridging material and other steel needed for the Burma section cannot be provided from sterling sources as required, the Chinese Government will finance the purchase from dollar sources with their dollars on the understanding that either an equivalent amount of materials from the sterling area will be made available by His Majesty's Government later when our supply position has sufficiently eased or that the Chinese revenues will receive an appropriate share of future profits from the Burma section in compensation. For example, in order to prevent any delay to construction in Burma, the 132 kms. of rails belonging to the Chinese Government which are now lying in Rangoon should be used for construction in Burma on the understanding suggested above in regard to compensation. 6. Though it is proposed that the project be pursued at this juncture without regard to financial return and purely on political and strategical grounds, it is necessary in connexion with such a long-term undertaking as a railway to look to its ultimate revenue prospects. It is hoped therefore that when normal conditions are restored throughout China, the Chinese Government will endeavour to direct a sufficient volume of trade from and to the provinces of South West China to use the railway now projected. The further financial success of the Kunning-Lashio Line must depend to a large extent on the successful development of mineral resources, so situated that their natural outlet would be towards Rangoon. BRITISH EMBASSY WASHINGTON, D.C. February 17th, 1941. 358 (COPY) AIDE*MEMOIRE Reference is made to the aide-memoire left by Mr. Butler of the British Embassy with Mr. Hornbeck on February 17 and to Mr. Butler's conversation with Mr. Hornbeck on February 24, in regard to the proposed construction of a railway between Lashio, Burma, and Kunming, China. This Government has noted with interest that the British Government is prepared, provided it obtains satisfactory assurances from the Chinese Government in regard to certain matters, to provide the finance required to enable the Government of Burma to construct the sections of the proposed railway from Lashio to the Chinese frontier and to ask the Government of Burma as a matter of urgency to complete the necessary surveys in Burma and start the con- struction of the sections already surveyed. It is noted that the British Government has stipu- lated that, if at any stage rails, bridging material and other steel needed for the Burma section cannot be provided from sterling sources as required, the Chinese Government shall finance the purchase from dollar sources with their dollars. This presumably would involve dollars made available by this Government under credits to the Chinese Govern- ment. The question whether credits made available to the Chinese Government by this Government may appropriately and advisedly be used for this purpose (or for the purchase of materials 359 -2- materials for construction of the Chinese section) is being taken up with other interested agencies of the Government, and the Department of State will expect to communicate further with the British Embassy following the receipt by it of the views of those agencies. With regard to that stipulation in the British proposal which makes the British Government's consent to and approval of the project under consideration contingent upon acceptance by the Chinese Government of the settlement of a boundary dispute between the British and Chinese Governments "on the lines of the offer already made by the Government of Burma", this Government desires that any attitude which it may take with regard to the Burma-Yunnan railway project be not construed as expressing approval of or as assenting to such a stipulation. Department of State, Washington, February 28, 1941. (COPY) 360 DEPARTMENT OF STATE Memorandum of Conversation Division of Far Eastern Affairs Date: February 17, 1941. Subject: Construction of the Burma-Yunnanfu railway Participants: The Chinese Ambassador and Mr. Hamilton Copies to: During the course of a call by the Chinese Ambassador he mentioned that he had received a telegram from the Chinese Ambassador at London to the effect that the British Government had decided to make funds available for the construction of the railway from Lashio to the Burma border, a distance of about eighty miles. The Ambassador stated also that he thought the Chinese Government would wish to utilize a portion of the American credit to complete the construction of the railway from the Burma border to Yunnanfu. 361 (OOPY) (CONFIDENTIAL) PARAPHRASE The following is the substance of a confidential telegram dated February 19, 1941, from the American Consul at Rangoon: The British Government has decided, according to information received in Rangoon from the Chinese Embassy in London, to construct at Imperial expense, and as a strategic line, the Burma section of the Burma-Yunnan Railway. The lowest estimate of the cost of the Burma section, which will require two years for completion, is 2,000,000 pounds and the length of the section will be about 110 miles. The British Government is said to have informed the Chinese Government that Britain cannot at present help the Chinese in the construction of the Chinese section of the railway, either in regard to materials or money. According to Burmese budget estimates just presented, nearly twenty-four percent of all of Burma's revenue will be required by defense services during the coming fiscal year. Burmese expenditures during the coming year are estimated at Rupees 182,800,000 against a total income of Rupees 168,900,000. Due mainly to defense measures the fiscal year is expected to close with a deficit of more than 11,000,000 rupees. 362 COPY) DEPARTMENT OF STATE Memorandum of Conversation Date: February 24, 1941. Subject: Burna-Yunnan Railway Participants: Mr. N.M. Butler of the British Embassy Mr. Hornbeck Copies to: Mr. Butler, Minister Counselor of the British Embassy, called on me this afternoon at his request. Mr. Butler referred to a memorandum which he had left with me a few days ago on the subject of the Burma-Yunnan railway. He inquired whether I could give him any indica- tion of our reactions. I replied that, immediately after he had left with me the memorandum under reference I had sent it on to other officers primarily concerned; that in the interval I had been away; and that since my return yesterday I had had no opportunity to canvass the situation. Mr. Butler requested that we inform him as soon as possible at least of our informal reactions. I said that I would try to find cut today how the matter standa and I would let him know in due course. PA/H:BKH:ZMK 363 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941 For Miss TO FROM Secretary Morgenthan Mr. Cochran CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns £52,000 Purchased from commercial concerns e 2,000 Open market sterling was first quoted at 4.02-1/4. In the early afternoon, the rate moved to 4.03 and closed at that level. Transactions of the reporting banks were as follows: - Sold to commercial concerns Purchased from commercial concerns £13,000 In New York, closing quotations for the foreign currencies listed below were as follows: Canadian dollar Swiss franc Swedish krona Reichsmark Lira Argentine peso (free) Brasilian milreis (free) Mexican peso Cuban peso 11-7/8% discount .2321 .2384 .4005 .0505 .2350 .0505 .2066 4% discount In Shanghai, the yuan advanced 1/32# to 5-3/16 and sterling was 1/24 higher at 3.90-1/2. We sold $5,484,000 in gold to the Central Bank of the Argentine Republic, which was earmarked for its account. On April 18, we reported the issue of Treasury licenses permitting the Federal Reserve Bank to transfer $939,155 in gold from B.I.S. account #2 (their own gold) to the Bank of Portugal's account. Today, the Treasury amended the above licenses, which had been issued under the Gold Reserve Act and Executive Order No. 8389, as amended, so that the Federal would transfer only $636,080 in gold from B.I.S. to Portuguese account. Similar licenses were issued permitting the Federal to transfer the difference of $303,075 in gold from B.I.S. account $2 to the account of the Bank of Sweden. -2- 364 No new gold engagements were reported. The price fixed in London for both spot and forward silver was again 23-1/24, equivalent to 42.674. The Treasury's purchase price for foreign silver was unchanged at 35#. Handy and Harman's settlement price for foreign silver was also unchanged at 34-3/44. We made two purchases of silver totaling 100,000 ounces under the Silver Purchase Act, both of which consisted of new production from foreign countries, for forward delivery. CONFIDENTIAL 365 WAR DEPARTMENT OFFICE OF THE UNDER SECRETARY WASHINGTON D.C. April 25, 1941. The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: I have just been furnished a copy of your letter of April 16, 1941 to the Secretary of War in which you express your feeling of appreciation for my work as a member of the President's Liaison Committee. I wish to thank you for your kindness and thoughtfulness and I may also add, your generosity. Sincerely yours, A% H. BURNS, Major General, U. S. Army, Executive. 366 APR 25 1941 Dear Harrys State the Lisicon Committee on foreign purchases has been discontinued and responsibility for coordination of foreign with donestic needs now rests with you and with the State Department, I should like to have the members of the Treasury staff relieved of all further responsibility for preparation of statistical reports relating to these matters. I make this request particularly in view of the increasing value of work before the Treasury in connection with financing and tax problems, and I should appreciate having the arrangement effective not later then May 1, 1942. Sincerely, (Signed) Henry Benerable Barry Replaine, The White House. By Messenger 4th GCH:ek Mids File to Mr. Thompson V 367 APR 25 1941 TO THE PARTIENTS is you know, the stabilisation and dollar devaluation persons eigire - June so, 1942. Annexed are drafts of letters from you to the Vice President and to the Spoolar of the Bouse, recommending the - of legislation extending these powere to another - years, No will also take the matter up Informally with the I and peovide them with a of the legislation (Signed) H. Morgenthan, Jr. Secretary of the Treasury. Binra - 4/22/41. File to Mr. Foley Copy to Mr. Thompson my / 12" 368 My dear Mr. Wallace: The powers conferred by section 10 of the Gold Reserve Act of 1994, as amended, dealing with the stabilisation fund, and the powers specified in paragraph (b) (2) of section 43, title III of the act approved May 12, 1933, as amended, relating to the fixing of the metallic content of the dollar, will expire on June 30, 1941. The existence and use of these powers have enabled the Government to take important steps in the field of international monetary and economic cooperation and to safeguard the country's interests. Unfortunately, present world wide circumstances, including the international monetary and economic situ- ation, is not such as would warrant the eraination of such powers. Under all the circumstances, I be- lieve that it would be in the nation's interest to extend these powers until June 30, 1943. The Secretary of the Treasury and other representatives of the Treasury Department would, of course, be available to discuss in detail with the appropriate committees of the Congress the problems relating to the extension of such powers. Very truly yours, Hon. Henry A. Wallace, President of the United States Senate. 369 My dear Mr. Rayburns The powers conferred by section 10 of the Gold Reserve Act of 1934, as amended, dealing with the stabilisation fund, and the powers specified in paragraph (b) (2) of section 43, title III of the act approved May 12, 1983, as amended, relating to the fixing of the metallic content of the dollar, will expire on June 30, 1941. The existence and use of these powers have enabled the Government to take important s teps in the field of international monstary and economic cooperation and to safeguard the country's interests. Unfortunately, present world wide circum stances, including the international monetary and economic situation, is not such as would warrant the termination of such powers. Under all the eir. customees, I believe that it would be in the nation's interest to extend these powers until June 30, 1943. The Secretary of the Treasury and other representatives of the Treasury Department would, of course, be available to discuss in detail with the appropriate committees of the Congress the problems relating to the extension of such powers. Very truly yours, Hon. San Rayburn, Speaker of the House of Representatives. 370 BILL M is - be the Senate and Socce of of Method Mates all in assembled that member (c) of socidina 20 of the sale Secure see of 1934, approved January 30, 1934, as - to further to read as follows ((e) All the powers confered by this section shall expire June 30, 1943, unless the President shall sooner declare the existing energency ended and the operation of the stabilization fund terminated. See. 2. The second sentence added to paragraph (b) (2) of Section 43g III, of the Act approved May 12, 1933, by section 12 of said sold Secure an of 2934, as so further amended to read as followee the polure of the President specified in this paragraph shall be document to be separate, distinct, and continuing powers, and my be - w him, - time to time, neverally or together, - and as the expressed objecte of this section is his Judgeont my requires essent that such powers shall expire June 30, 1943, unless - President shall - doclare the existing energency ended." 371 NAVY DEPARTMENT CONFIDENTIAL HOLD FOR RELEASE MORNING PAPERS FRIDAY, APRIL 25, 1941 ADDRESS OF FRANK KNOX, SECRETARY OF THE NAVY AT THE ANNUAL DINNER OF THE BUREAU OF ADVERTISING OF THE AMERICAN NEWSPAPER PUBLISHERS ASSOCIATION THURSDAY, APRIL 1941 AT THE WALDORF-ASTORIA, NEW YORK Mr. Toastmaster, Ladies and Gentlemen: I feel a very natural gratification over the opportunity to address you. My satisfaction flows not alone from the honor you have done me but because of the opportunity which this rostrum affords for a frank discussion of the situation which confronts us all. If I could have my choice among all the audiences which might be assembled, I should have unhesitatingly chosen this audience for what I have to say. Of course, that feeling is a very natural one for me since I am a member of the same profession as yours, and hold that the free press of America, which you represent, wields a greater influence upon our national destiny than any other single agency in our complex modern society. Having thus made confession of my sense of indebtedness to you for this opportunity, may I express also the deep sense of personal responsibility I feel in coming before you, as a life-long member of your profession, who for the moment, is charged with a grave public responsibility. This sense of gravity is increased when I remember that my official responsibility has to do with the maintenance and swift enlargement of the nation's first line of defense in a world devastated by war - war whose dark shadows gather in threatening clouds upon our own horisons. 372 -2 From me, my fellow craftsmen, you have a right to expect utter frankness; and from me, as Secretary of the Navy, engaged in constructing the greatest Navy the world has ever seen, you have a right to expect the sober truth. Because I am a newspaper man as well as a public official, may I say that I have a very lively interest in the establishment and maintenance of the friendliest and frankest possible relationship between the Navy and the press. As a newspaper man, who has known no other occupation, and who feels a great sense of pride in his profession, I am utterly and unreservedly opposed to any form of compulsory censorship, especially in time of peace. In time of war, necessarily, there must be certain vital military information which no loyal and patriotic newspaper man would want to publish anyway, withheld from publica- tion; but even in time of war, with this single qualification, I am opposed to censorship. I believe the end desired can be achieved by a purely voluntary cooperation between the War and Navy Departments and the newspapers. To the establishment of such a relationship, I am already bending my efforts and shall continue to do so as long as I continue to serve as your Secretary of the Navy. In a democracy, in a time of grave national peril, unity is imperative. You do not achieve unity, whether in the field of labor, of capital, or of public relations, when you resort to compulsion Unity may be achieved only through the processes of mutual understanding and close cooperation. While the relationship which should exist between those charged with the national defense and the various organs of publicity is of the gravest importance, I would turn your thoughts tonight to a far graver question. I am going to ask you to survey with me the world situation. If our survey is to be of use, it must be utterly realistic and objective. It should savor neither of a destructive pessimism nor a blind, unreasoning optimism. When grave danger threatens to all that we cherish, we can afford to indulge in neither wishful thinking, nor in cowardly defeatism. As Secretary of the Navy, of course, I do have access to intimate details 373 34 of information, from all parts of the world, that are not available to all, but this larger and more intimate knowledge in nowise changes the general aspect of the world situation as it is set forth daily in your publication and mine, What we all see is an America which is gradually becoming encircled by military powers whose ideals, institutions and methods are all of them irreconcilably antagonistic to our ideals, institutions and methods. These same powers have also openly and repeatedly proclaimed themselves our enemies, and these openly avowed enemies have joined themselves together in a pact which they do not hesitate to say is aimed at us, and at us alone The only reason that this hostile pact, admittedly aimed at us, has not resulted in open warfare upon us has been because it does not suit the present purpose of these powers to engage in war with us. Whenever, in the judgment of the axis powers, it better suits their purpose to begin hostilities, hostilities will begin, and nothing that we can do, save prostrating ourselves in abject surrender, will change this, For months, there has been almost complete suspension of all direct contact between the United States and all of Europe, save Britain alone. Across the course of the ships that ply this single route have been flung an enlarged fleet, no one knows how numerous, of submarines - submarines which, due to scientific dis- coveries, are vastly more effective than they were in the last war. The sea-going range of these submarines has been immensely increased, and the field of their activity steadily expands Westward, far over the line which divides the Atlantic between Europe and America. Possession of convenient bases on the French Coast has added a whole fleet of surface raiders - ships of high speed, and some of them of great gun power, which prey disastrously upon the commerce between Britain and America. Finally, from bases in northern Norway and western France, huge fleets of heavy bombers circle back and forth to add terror from the skies to the dangers that lurk along the sea lanes leading to a beleaguered England. Steadily the toll of lost ships -4- 374 mounts far faster than replacements can be made. To the southward of conquered Europe lies the Mediterranean, an accustomed highway for our ocean commerce in times of peace, Today the Mediterranean is forbidden waters. On its bosom ply only the craft that carry supplies to fighting armies, and the British and Italian men of war who fight for its control. Gone is all of our contact with the nations that border that sea. in itself a field The great continent of Africa - for contending armies, Offers no ports for our merchant trade. Its western coast, which thrusts itself halfway across the South Atlantic, affording an excellent base for operations against the southern half of the Western hemisphere, is denied our commerce, Whether we swing eastward around the Cape of Good Hope or to the westward through the Straits of Magellan, we find enemy raider-infested seas. At the end of our journey, go we westward or eastward, we encounter an axis partner who openly proclaims he entered that partnership in an effort to prevent us from interfering with their policies of ruthless military aggression. The latest link in this chain of encirclement that is being forged by the axis powers is the recently announced agreement between Russia and Japan. The most interesting feature of this agreement is that it constitutes a clear gain for the axis powers. Russia gains little, or nothing, and Hitler has made a long stride toward his objective in the Far East - the involvement of Japan in war with Britain, and ultimately with us. Russia was not in any peril of attack by Japan. Japan not only has her hands full, and more than full, in her attempt to subjugate Southern China by force of arms, but her aspirations are not northward. They are southard. Japan imperatively needed assurance assurance that she would not be attacked in the north while she was pressing her des! gns in the south. Just how much assurance Japan feels that her Manchukgro border is safe, I do not know, but whatever that assurance may be it enhances the likelihood of an expansion of hostilities by Japan into a region which is one of the sources of critical war materials for both Great 375 5 Britain and ourselves. The conclusion of this pact is certain to strengthen the hand of the war party in Japan and foster the aims of these Japanese mili- tarists who regard the present world situation as a golden opportunity never to come again for the establishment of Japanese military and political control of Eastern Asia. Japan's promise, on the other hand, not to help Hitler if Hitler should attack Russia, is an empty promise. Japan could not help Russia in Europe if she wanted to, and Hitler does not need the help of Japan for such a purpose. The end, therefore, of this deal between Russia and Japan which tightens the circle around us, leaves Russia quite as likely an object of attack by Hitler as she was before the deal was made, and Japan free from any Russian interference in the Far East. Summed up in military terms, the Russo-Japanese agreement makes Japan more secure as she pursues her dream of domination of all Eastern Asia; leaves Russia no stronger in the event of an attempted Nazi seisure of The Ukraine; and leaves us far more gravely threatened with war on our Pacific front. Thus, everywhere as we estimate the situation the world around, the pressure on us grows - through Libya; through Egypt and the Suez; through Yugoslavia and across to the sea; from the western coast of Africa to South America; through the Pacific to the Dutch Netherlands and, most vital of all, across the broad North Atlantic from German bases in France and Norway now to Greenland. German stra- togy - world strategy, carefully planned and efficiently executed-is becoming clearer each day. German aspirations for world dominion can no longer be mis- taken, The jaws of the Nasi trap are closing, How long will we remain benused and stupified while the Axis powers press their plans for our isolation and ultimate defeat? Wherein lies the difference between what Germany has done to her earlier victims and what she is doing to us? First, the bland and hypocritical assurance that she has no hostile plans. That is what she told Poland when she signed the Polish non-aggression pact. -6- 376 Then, the organization of a skillfully integrated information service that would lay bare our weaknesses, our internal divisions and our vulnerable spots just as she did in France; and then, the organization of her fifth columns, not yet loosed to the maximum but sufficiently active to warn us unmistakably of their presence, just as she did in Norway. Next, a steady encirclement and seizure of vantage points from which to launch her attack, just exactly as she has just done in Yugoslavia. Why, we even emulate the Axis victims in our psychology. We think we can escape while all the rest of the world suffers. We keep alive a wretched partisanship when a united patriotism should characterize our thinking. We refuse to believe that the Axis powers even intend to attack us, or could be successful if they did. We refuse to face the realities of the situation in South America, the protection of which from successful invasion is a primary condition of our defense. In that great region to the south of us, readily available as a base for an attack upon us, there is neither the military nor naval power to resist against invasion. In our fatuous complacency we ignore that in the present economic setup, the tug of self interest comes from Europe and not from North America. We fail to give due consideration to the size and significance of the subversive, pro-Nazi elements in many of the countries in that region - subversive elements that would speedily promote revolutionary chaos to the advantage of the Axis itself. Many of us fail to face what it will mean to our security if the Axis powers once gained a foothold close to our borders. We ignore what that might mean to the safety of the Panama Canal, the most vital line of communication under the American flag. Too few of us realize, and still fewer acknowledge, the size of the disaster to American hemispheric safety if Germany, already the conqueror of France, should establish herself in Dakar, a French Colonial possession. From there, with her surface ships, submarines and long-range bombers, a victorios Germany could substantially cut us off from all commerce with South America and make of the Monroe Doctrine a scrap of paper. 377 Finally, some of the very blind among us refuse to see what will be the inevitable result if the final link in the chain of our encirclement is forged and the battle of the Atlantic is lost and England succumbs with her fleet sunk or captured. This is but a partial, withal a brutally blunt, summary of the strategy of encirclement of which we are the victims. Before we attempt an inventory of the measures we could take to meet this growing menace, this obvious encirclement, let us thoroughly digest this fact: Suppose this should happen - that our encirclement and isolation was complete and England had fallen, we then will be given but two choices - the choice of sur- render or the choice of fighting. We won't surrender and we will fight. No one who knows about America and Americans doubts that, Consequently, we must fight ultimately unless we find and put into effect measures that will enable Britain to win without our fighting We have already gone far in this direction. We have declared that the fight that England is making is our fight. We have likewise affirmed that the enemies she is fighting are our enemies. We have denounced, without reserve, Axis aggression, Axis faithlessness to treaties, Axis brutal and murderous disregard of international good faith, and we have said, with an overwhelming public approval of this statement, that we are in the fight to stay until victory for human liberty, for justice and for good faith is won, We have made our productive facilities available to those who are fighting the Axis. We have loaned them much of our military equipment although we had insufficient for our own defense. We have passed the Lease-Lend Bill and appro- priated seven billion dollars to implement that bill by an almost unanimous vote of our Congress. We have opened up our yards and docks for the repair of British men-of-war and merchantmen. We have taken over Greenland. We will build air and naval bases there. We have seized Axis ships and propose to make them available for British use. We have removed restrictions on American flagships sailing to the Red Sea so that we might relieve Britain of the burden of supplying the armie. 378 fighting in that theatre. All of these things we have done, and some of these things constitute acts of wars Hence, we are now at war with the Axis powers in everything but actual fighting. We have gone a long way, and all of it with the support of an overwhelming public opinion. The latest test of public opinion discloses the America nation to be 70 per cent for aid to Britain even at the risk of war. Having gone thus far, we cannot back down. There is no retracing our steps We have committed ourselves in this world struggle. If we should attempt to back down now, England would go down to catastrophic defeat and we would face a world wide victorious Germany and her allies whom we should have to fight alone. We have declared that the aggressor nations must not be permitted to win. We have irrevocably committed ourselves to see that that is prevented. We have put all of our resources into the scales to bring defeat to those who would rule the world by force. We have acknowledged that our destiny just as much as the destiny of the British Empire and the ultimate destiny of the conquered peoples of the Low Countries, of Scandanavia, of France and of the Balkans are at stake. Having gone thus far, we can only go on. Hitler cannot allow our war supplies and food to reach England - he will be defeated if they do. We cannot allow our goods to be sunk in the Atlantic - we shall be beaten if they do. We must make our promise good to give aid to Britain We must see the job through. We must insure the delivery in England of the goods she needs to win, All of this is needed for our own safety and our future security. This is our fight. The American people have recognized the catastrophic quality of a Totalitarian victory and by overwhelming majority they have endorsed every step along the progress we have made to our present posture. Proclaiming, as we do, our faith in the ultimate victory of the good over evil, our devotion to the cause of human liberty, our century and a half of the pursuit of justice between men on terms of equality, we can no longer occupy the immoral and craven position of asking others to make all the sacrifice for this victory which we recognize as so essential to us. Our manhood and our selfrespect demand that we shall assume our part of the burden. 379 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941 TO FROM Subject: Secretary Morgenthau A. M. Kamarok The Situation in the Middle East (Summary of the appended cable from the military attache at Cairo based on information supplied by General Wavell ) 1. Our military attache is of the opinion that Cairo is not now actively endangered but by the middle of May the axis will be capable of launching a major offensive. 2. About the maximum military forces that can be supplied in an attack on Egypt using Tripoli, Benghazi and direct air transport is about 150,000 men with 600 tanks or 110,000 men with 1,200 tanks. The axis now has in North Africa about 110,000 men with 650 tanks. A full-sized German Panzer division with 425 tanks which are included in the total of 650 is now on its way from Tripoli to the front. It 18 expected to reach Tobruk on May 8. The Germans can land one of the new-type reduced-size Panzer divisions (200 tanks) in North Africa every five weeks. 3. The British have a total of 50,000 men in North Africa, 50 to 100 tanks and armored cars, and less than 100 airplanes. At present, the British have superiority in the air. There is an acute British deficiency in tanks, armored cars, anti-aircraft guns and motor transport. An urgent need is also felt for more airplanes. Even now, there are not enough available for army and naval cooperation missions. As soon as the Balkan campaign is over, the axis will be able to shift large numbers of planes to North Africa. 380 -2- Our military attache is of the opinion that the axis attack can be resisted if enough air and naval forces are made available to prohibit the use of the axis water lines of communication from Italy. Under these circumstances the Germans could supply by air about 25,000 men and 600 tanks in a campaign against Egypt. 4. The whole political position of the English in thethe Middle East in 18Egypt. weak and depends on successful resistance to Germans (a) Egypt The Egyptians while they would prefer They refuse to enter the war because of fear of British defeat, their belief that it is not their war, and because the British refuse to promise to evacuate Egypt after the war. The Egyptians may become violently anti-British if another blunder is committed such as once more threatening to dethrone the King if he refuses to declare war. (b) Palestine The Arabs are dissatisfied and the British fear to placate them at the expense of the Jews. A serious reduction of the British garrison would be an opportunity for a successful revolt. English domination to German would rather have neither. (c) Iran Popular sentiment is anti-British. There is a strong German fifth-column. The Iranian leaders fear the Soviet Union most, England next, Italy not at all. There is little fear of Germany but a great deal of respect. (d) Iraq The new government is pro-German. The situation is threatening but fluid. (e) Afghanistan Both the Russians and the British are feared. The officials appease the British for support against Ruesia. German prestige is strong. However, the British report the situation as satisfactory. SECRET 381 By authority A. C. of S., G-2 Permphones of Code Cablegree Received as the Mar Department Date APR 24.1941 BPH, Initials as 17:58, April no, 1041. Satre, filed 22:50, April 27, 1941. (this is . continuation of a eable from Gaire received at the Year Department as 8:16, April 18, 1941.) General Merell destree to explasise that the following informal sion would be most - and night load to diesster if it fell into hostile hands. 1. General Wevell has forwarded w cable a message to the Mar office as Lender strongly appealing for antiaireraft artillery, basis, motor transport and ammoned ears. As the situation stands the Anto three have a presented separiority in this - in Zilya. 20 is of - Superiness that reinferesment in this equipment be effected. The accounty cannot be too much streeced. 2. Foresa at Toback consist of approximately four informay brignie - and 25 mixed mechanised vehicles. Electhore in the Westmin Deport there are eight infortay briggte groups with 30 members - is three informay brignts groups. This does not instate astistment which is deficient in saturatio and light equipment. n is estimated that foress available for reinferement within two months - from brights groupe with 50 teaks. 3. in informay brigito - consists of three informay buttelions, 1 regisers artillery, - 1 congen of engineers . a total of you mm. the artillary regiment has from 16 w as - of the SECRE. SECRET 382 Depender class. - is also one battery of from eight to Invive - - - Dospite the 3900 thank this force " to - so strong as would be expected oving to the - of abdols I as to be 4. MAILE of the Herebies People. - September - a Brittah victory and - willing to all, but not to morition, to that and. They - be activated to - - active fighting position. Potential Locators water the leadership of ALL Maher receive support from palace influence. The Prime Minister as the months is confident of British - and accordingly when his where the Supplies Anny, including a large part of the voluntable force, is leading support and equipment. The King, however, is nervous - as is thought probable that if be that the - will - New he will - - - Herebian people are funds. mentally - they 4 not faver demination. In the event, I of a three compation w another nation, they would poster the British to - - mater. Text has born hope out of the - w for of a Britten defect, bolier that their saterests have nothing to do with the I conflice, last of prepared - the refund of the Bettled authorities to - considerate to emonate the coming as the - of the 5. IS to considered that there is likelihood of and sprinting in two, miless the situation in the made Best Meeter - - - - threebeating. - stands of the - the - inconclusive - - fool that they are signing have's - - the letter that no - would have common as the British had amounted SECRET SECRET 6. 383 If during the present emergency the British should commit a blunder such as case more threatening dethreement if the King refuses to declare me, violent anti-British feeling would result. Blane would be attached to the British if the Germans should beeb Gaire - the grounds that they had refused to evacuate the military foress in that city and thas prevented 11 from being considered an open town. 7. The feeling of the Terrytime towards Germany is neither pro nor ambi. The public is apothetic but transasiously improssed with the power of Germany and its anti-Bemetic activities. The fact that Egyptians are already a subject race tempers the effect of the threat of German domination by force as presented by the British, without, however, lessening Egyptian fear of German occupation. 8. The ability of Genusa air equadrons to operate in Likya and Terms is contingent - their maintenance which in tara depends upon communications between Stelly and Likya. Supplies are rapidly being leased as Tripeli. If the British Air Force and the Nevy can begin operations against this line of communications immediately with reasonable - the British do not anticipate being overwhelmed in the air provided aircraft continues to arrive steadily from America. At present the two British fighter and three bombing aquadrome hold superiority in the air over the Western Desert. With the consention, however, of resistence in the Balinas Germany will be able to act against the British is Africa with oversholaing air superiority. 9. The situation in Palestine is a serious threat to the British. The Arabe are diestiefied because of the Jewish problem and -3- SECRET SECRET 384 the British fear to placate the Araba as the cost of the Jove under - conditions. the British - expect neither aid nor Legality from the Arabe and the serious reduction of British weepe complet with the - assistance which could be accured in Irea presente - opportunity for a - revels. If the British position in should I dangerous their position in Palestine extensitially because equally so. 10. I A yoursal Mest Fifth Colame estimated in members of 3,000 exists in Tehran which brings pressure on the government to cancel the British oil leases. Televen and Askers are the principal of - activity in middle East. Sentiment in the country is anti-Mritish. Seviet Bussia is the object of great four to the leaders, Britata less so and Italy not at all. The feeling towards is remotely of four but more immediately of great respect. 11. Materials Beviet Bussia and Britain are alike feared in the people are distressful of strangers, but efficials - Britain in hage of support against Baseta. Commany has furnished toods - technical aid and - that account and - account of the respect for that point, their prestige is strong. The General propages mekine will was the street of British defeats. Despite the controliction isvalved, British 6-8 reports the situation as satisfactory. 12. I the assitule of the officiale of the new is - Although the opposition is driven water - the present Prime Watster is - - British anticipate that intervention will take the form 15 took in Mast influence SECRET SECRET 385 bought to Year measurfully - the Any assorts that the English - attempting to drive Issua tabe the wr. I if British authorities - - the de taste - the - will - be able to presente - action. the situation in - is Marcaloning bee the British smeller 16 fluid. 13. It is - - optation the Asia - attage a media assistant - supplies from the air w wy of the water Salim, the - m Region, This is a good doors read is is the route that Generals Wilson and O'Conner feared would be played w the Italians in their investion. The movement will sake place, if as all, as I as the - have air superiority. 24. One German American Division and one German Colonial American Division em be ministent interimitely as for east as the Hile Solts by - of the analiable 150 Junhars x - please. Well the - of Dongest as a part I prestimale only - - division, - - sciented accured division and - Italian motorized division - to members esset of sias Bermal. After the respecting of the part of Sungent - additional Italian or - - accured division - be 15. 28 - - are able to mistata thats - rate, - employely estential - division with its motor - - to Instead - five weeks. 16. s Multi - I SECRET I SECRET 386 5th - Colonial Division (196 - 1304 Italian Artete Amount Division (70 I 1000 Italian Trunte Interiose Division 27th Italian Broosta Indianay Division 17th : Stalism Javia Division Schools. 15th Common Amount Division (486 basis of which 156 are medium) 17. The last mentioned division in proceding peraphraph completed debortation April 18 and is engable of reaching Schools w My 8. 10. The Italian heavy tank is M-13. The heaviest Bank in General use is Mark 4. 19. s - attention in is potentially full of parti if Britata suffere - - to the extens that British greating detertion the - positions in Inc. Irea and Palestine, in fast, Management the entire Hear Best, will be greatly almoses. the failure to vetain Days consetvably could - the loss of the war. 4. the ability to defeat Gaire is directly centingent on time and - 25 will to hold If the present deficiencies in material and abroads - be mile - in time to most the attack. British foress of all - in Name - sufficiently strong in month to messerfully resist major offensive operations but equipment is deficient. the air strength SECRET 387 SECRET is too thinky continued and is too mail to - - - head foress a mm operations. Gaine is and occurity - as this - but w middle of most month the Anto will I expobilities for a major officative. the - be - resisted If six - mm Street were made available to intention the date Item of below Metty - African. PELESSIS Distribution Secretary of War of Treasury Water Secretary of Wear Assistant Chief of Staff, G-2 War Pleas Division office of Revel Intelligence as Ate Sage SECRET 388 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE April 25, 1941 TO FROM Secretary Morgenthau A. M. Kamarck Subject: Weekly Military Report 1. The bombardment of Tripoli by the British fleet on April 21 must have unquestionably seriously damaged this chief supply port of the axis Libyan armies. According to reports, 1,000 tons of shells struck the harbor and city. This quantity of high explosives concentrated on a relatively small target is about double the weight of bombs dropped by the Germans on London on April17 in their biggest raid of the war to date. The Nazis in the heavy eight-hour raid used 450 bombers. On the average, these bombers would each carry a ton of bombs. This would give a total of around 500 tons of high explosives dropped on London during the attack. The bomb-load of a single plane is about equal in weight to that of one shell of a 15-inch gun. Actually, of course, the destructive effect of a one-ton shell 1s much greater than that of a one-ton bomb. This is because a shell is propelled by a powder-charge whereas a bomb must depend on gravity alone. The accuracy of naval bombardment is also superior to that of bombing since gunfire can be corrected and adjusted on the target. In view of the foregoing considerations and our partial knowledge of the extensive havoo done by 500 tone of bombs in London, it is evident that 1,000 tons of shells must have resulted in considerable damage to Tripoli. 2. The recent reports illustrate very well the clever German tactic of blanketing their next objective in a multiplicity of objectives: We have received information from every part of Europe purporting to name the next place Hitler will strike and each report has named a different goal. 389 -2Turkey(a) is Istanbul next. and other Balkan sources are convinced (b) London military sources see signs that a German invasion of England will be undertaken around the first of May. The consensus of Vichy opinion is that Gibraltar may be(o) next after Suez. (d) "Reliable" sources in Rome informed our military attache that the Germane intend to strike across the Egyptian desert from the Jarabub oasis against Cairo. (e) From the report of our Berlin military attache, it is evident that the German army is being concentrated against Russia. (f) The Nazis are reported as making extensive photographic reconnaissance of Malta. This tends to have the implication that Malta is next.