The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Book No. - 396
continued
from
Page 102
102
RESTRICTED
M.I.D., W.D.
G-2/2657-220; No. 386
12:00 M., May 8, 1941.
SITUATION REPORT
I.
Western Theater.
Air: German. Small daylight attacks over the southeast
coast of England continued. Last night unusually large bombing
forces were employed against Liverpool, Hull, Hortlexpool, Middlesborough and Bristol.
British. Night attacks of undetermined strength
along the western European coast. Hits claimed on the German
battle-cruisers at Breat. Destruction claimed of 22 German bombers
by night fighters.
II. Mediterranean and African Theaters.
Ground: North Africa. According to the Italian High
Command, German and Italian forces have occupied important posi-
tions at Tobruk. Patrol activities are reported east of Sollum,
East Africa. In southern Abyssinia (Ethiopia)
British troops are attacking a strong Italian position at Waddara
(Vadara), about 30 miles north of Neghelli.
British troops have occupied
Bendar Cassin (Bender Bela) on the northeast coast of Italian
Somaliland,
Air: Axis. Raids on Tobruk continued. A heavy night
attack was made on Malta.
British. An Axis convoy was attacked in the
Mediterranean.
III. Iraq.
British forces, reinforced by air, appear to be gaining
the upper hand at Habbaniya. The R.A.F. bombed airdromos in the
vicinity of Baghdad.
RESTRICTED
103
May 9, 1941
9:30 a.m.
GROUP MEETING
Present:
Mr. Haas
Mr. Sullivan
Mr. Thompson
Mr. Graves
Miss Chauncey
Mr. Cochran
Mr. Graves
Professor Odegarde
Mr. Gaston
Mr. Schwarz
Mr. Kuhn
Mr. Bell
Mr. White
H.M.Jr:
Dan, I read an editorial today in the
Washington Herald about staggering the
paydays. That was your pet some time ago
and I thought you had done it.
Bell:
No, it is still pending before the Budget.
We had a conference over there I guess two
weeks ago, and they were going to take it
up with the local people.
H.M.Jr:
But you recommended it?
Bell:
Yes, and you signed the letter recommending
not only that we stagger the paydays, but
we fit it into a thirty-nine hour week,
instead of six days, seven hours, and a
fraction on Saturdays. But they don't like
104
-2to take up the thirty-nine hour week at this
time because of the emergency work.
H.M.Jr:
Bell:
I agree with them.
Well, I don't see that it ill do any harm
because that is what we are working, is thirtynine hours, but it is put in terms of days,
seven hours a day with four hours on Saturday
instead of thirty-nine hours.
H.M.Jr:
Bell:
H.M.Jr:
Haas:
Well, let's talk about it Monday.
O.K. But I think they were talking about
issuing an Executive Order.
George, I see that our drawing attention to
Agriculture, that they are buying up this
cotton and so forth, aggravates the situation
and they admit it.
They are the bottlenecks in the manufacturing
end.
H.M.Jr:
But they just weren't aware of it.
Haas:
Well, he said - Milo Perkins had a meeting
H.M.Jr:
with Don Nelson on it, and they are still
working on it.
Just remember it, if I get in a tight corner,
it is a good illustration. In the meantime,
will you find out what they are buying from
the cotton manufacturers, just how much they
are buying, have they been buying since the
first of January.
Haas:
Do you want me to find out?
H.M.Jr:
Yes. How much business has the Department of
Agriculture added to the cotton manufacturers
since the first of January.
105
-3Haas:
H.M.Jr:
O.K.
And what kind of stuff have they been ordering.
In other words, they have been given that
money and how much have they aggravated the
situation while the War Department and Navy
have also been in the field. Why in the hell
hasn't Don Nelson known about it a long time
ago?
Thompson:
The President has made available to General
Burns a hundred thousand dollars for his
division and that money will be available
for picking up the staffs of Phil Young and
Oscar Cox. Cox, however, we can continue
to carry Oscar Cox on our defense allotment.
H.M.Jr:
Well now, what about these good men we let
Thompson:
There is one accountant, Mr. Banning, and he
can remain on detail.
H.M.Jr:
I wonder if he wants to leave the Treasury?
Thompson:
He should stay on detail.
H.M.Jr:
What is his name?
Bell:
Paul Banning. He is Assistant Commissioner
of Accounts, and he shouldn't be transferred.
H.M.Jr:
That is right. Well, I don't want Oscar Cox
them have out of Bell's office?
to leave.
Thompson:
No. Well, we will take care of Oscar.
H.M.Jr:
And Banning is a good man, I don't want him
to leave.
Bell:
He doesn't want to leave.
106
-4H.M.Jr:
And Philip Young can make up his own mind.
Thompson:
Well, we are having a meeting this morning
H.M.Jr:
Well, that is up to Phil, whether he wants to
Thompson:
H.M.Jr:
That is up to him to decide. I would put
it up to him.
with OEM people.
leave or not.
That is right.
I think that - don't you think it would be
nice if each one of these people that have
been on the Treasury payroll, even though they
were a twelve hundred clerk, were given a chance
to say whether they wanted to go over to OEM
or come back to Treasury?
Thompson:
H.M.Jr:
Well, I think most of them are pretty well
satisfied.
Well, now let's do it for two reasons. In
the first place, it is good democracy, if a
fellow isn't sold down the river. And in
the second place, if they decide they want
to do it, I don't want them to come back and
cry on my shoulder six months from now when
somebody changes his mind and says, "We don't
need that any more. I would like to come
back on the Treasury payroll.
If they are given a chance now and they don't
want to do it, then they have made their bed;
but if in three months there is a reorganization
and they are all out on the street, then they
are no longer my wards. Is that right?
Bell:
That is all right. I suppose there are people
over there on the emergency roll, which is an
uncertain factor at the present time. We
107
-5don't know how much money we will get this
next year.
H.M.Jr:
After all, here is a fellow and suddenly he
is ordered to Siberia. Well, if he doesn't
want to go he doesn't have to.
Thompson:
I think there are only three detailed from
Emergency Relief, and they would undoubtedly
rather be over there because the present
appointment on relief will expire June 30.
But I will take care of it.
H.M.Jr:
What else?
Chauncey:
Miss Alexander, who went over to Mr. Young's
H.M.Jr:
Smart girl. Where is she now? Well, that is
all the more reason. I just don't want them
to feel they are being ordered to Siberia.
They may think it is Vienna, or Paris, or
office, came back two days later. She preferred being back in the Treasury.
whatever used to be a good spot, Shanghai.
Thompson:
I will take care of it.
H.M.Jr:
Just to give them a chance.
Dan, how much is your working balance?
Bell:
One billion four hundred eighty-nine million.
H.M.Jr:
You are all right until Monday.
Bell:
We are fixed until Monday, yes.
Here is this little matter of the Library of
Congress wanting approval of the payment of
their insurance premiums. You can put your
initials on that.
108
-6H.M.Jr:
Bell:
I shouldn't read it?
No. It is only a hundred and eighty-two
dollars.
H.M.Jr:
What else?
Bell:
That is all.
H.M.Jr:
Harold?
Graves:
We have been visited by Paderewski, who wants
H.M.Jr:
Give us a recital?
Graves:
No, he wants to make our translations before
H.M.Jr:
Graves:
to --
his broadcasts.
Ignace himself?
Yes. He is very old and feeble, as you know.
He is eighty-one. But there is some likelihood
that he will broadcast for us. Maybe you will
be announcing it to the press.
H.M.Jr:
And don't forget my other man there.
Graves:
Mr. White and I have talked about him. He
apparently is not at the University of Virginia.
H.M.Jr:
Harold Ickes knows where he is, because I met
him at his house.
Graves:
But we have not forgotten that.
H.M.Jr:
But I think it is fine if we get old Ignace
and we get - what is the name of that German
authority?
Schwarz:
Ludwig.
109
7-
H.M.Jr:
Ludwig and Paderewski. I think it is swell,
Odegarde:
Very good.
Schwarz:
You know this past winter in Florida, Paderewski
H.M.Jr:
He is a great friend of my father's. You see,
don't you?
asked if he could go over to visit Mrs. Roosevelt and she instead went to visit him because
he wasn't very well.
my father went on that mission for Woodrow
Wilson to Poland after the war, and they have
been great friends for years.
Graves:
They are broadcasting any number of foreign
language announcements, and I think, although
I am not very well informed, I think we get
a good deal of volunteer service from many
people.
H.M.Jr:
There must be some good Czechs in this country,
too.
Sullivan:
It would be a pretty good time to get a good
Greek, too, wouldn't It?
H.M.Jr:
The reason I am laughing is, I want to say
just for myself, all the time the Greeks were
coming in here to get help, I just couldn't
see them and - I mean, see them in the sense
that - in their methods, and I used to say the poor devils have put up a good fight and
lost - but I used to say if I could only hire
a good Armenian to advise me how to treat the
Greeks because no matter what you told this
Greek Minister, if you give him every bomber
you had, it is not good enough, he wanted
twice as much; and every time you made a deal
he would slide out from under it and he never
110
-8stuck by any agreement that he made.
Sullivan:
The Greek people raised an awful lot of money.
H.M.Jr:
But as to keeping an agreement
I don't know whether it went or not.
I will never forget when I went out to visit
my father when he was in Greece, this friend
of mine was in the export business and he had
bought a shipment of hides from Greece and
when they got here they were about as different
from what they ordered as goat skins could be
from steer skins, and he wanted me to take it
up. He couldn't get anything, and he lost a
lot of money, I guess about forty thousand
dollars.
So when I was out there I sent for this fellow
and said to him, "You know this friend of
mine bought these things in good faith on
your say-so that they were such and such a
grade, and so forth and so on.
"Why," 11 he said, that friend of yours must be
a fool,' he says. "He bought these things
without even looking at them. Why, he just
took my word." (Laughter)
Sullivan:
I had a case once where I had a Greek witness
who couldn't talk English, so I had to find
another Greek to interpret.
I said, "Now, go in and talk it over with him
and tell me what he says." He came out in a
few minutes and said, "We won't need him,
and he told me all about it. I guess I saw
that accident myself." "
We had to hold up the trial while I sent a
sheriff out and got the man.
111
-9H.M.Jr:
Where were we? You?
Graves:
I think I am all through.
H.M.Jr:
Harry White? Thanks for the book, Harry.
White:
You are welcome.
H.M.Jr:
Much obliged.
White:
There is a report that is put out by the --
H.M.Jr:
Thanks for the inscription, too.
White:
That is all right.
H.M.Jr:
I don't think I have ever seen your handwriting
before. You write almost as bad as I do.
White:
Can you read it?
H.M.Jr:
Did you ever get a note from me in longhand?
White:
No, I don't think I have.
H.M.Jr:
All right.
White:
The OPM puts out a summary of national defense
which reports the various progress made in
production, etc. If you see that, all right.
If you don't see it, I have a letter here
asking to receive it. I know that it is
issued and I know that some people get it
and a letter from you could make it available
to the Treasury. It would be helpful.
Haas:
White:
H.M.Jr:
I get it. It comes into our office.
All right.
Doctor White, meet Doctor Haas. Mr. Haas, meet
Mr. White. (Laughter) All right.
112
- 10 White:
That is all. I saw some of the men yesterday
over at Social Security.
H.M.Jr:
When are you going to start?
White:
Well, I will spend most of the day seeing
the various men. You have got answers to
each one of them, which were very friendly,
and I will finish today and start Monday
morning. Today or tomorrow.
H.M.Jr:
Let the office know where you are at night.
White:
I will do that.
H.M.Jr:
Is Mrs. White going?
White:
I think so. She hasn't definitely made up
her mind yet.
H.M.Jr:
Anything else?
White:
That is all.
H.M.Jr:
Chick?
Schwarz:
Charlie Lucey, whom Dick Parker had sent over
to help us once before, recently, is now
working on a non-defense economy series, and
he is asking for help and Harry and I have
talked about it and he seems so far to know
about as much as we do until we can get some
specific ideas, but I would like to help him
if you have any suggestions.
H.M.Jr:
Well, I was disappointed in the other stuff
he wrote.
Schwarz:
There were limitations on that, of course.
White:
I understand he wants to write an article, as
I got it.
113
- 11 Schwarz:
A series, maybe.
White:
A series of articles, in which he will tie
up the defense - the plea for economy with
your testimony. Personally, I think we ought
to fight shy of it until we --
H.M.Jr:
I think so.
Schwarz:
He doesn't have to tie it in, but he just
H.M.Jr:
We are not ready.
Schwarz:
I will hold him off.
H.M.Jr:
Anything else, Chick?
Schwarz:
I have some clippings. Did you note in the
H.M.Jr:
Schwarz:
wants --
Herald Tribune the story on our bond sales?
They are disappointed, is that the one?
Yes, and then when you read the story, they
merely say, "if they continue disappointing."
It is another case of a head writer stretching.
H.M.Jr:
Anything else?
Schwarz:
That is all.
H.M.Jr:
George?
Haas:
Mr. Secretary, the other day when you cleared
the distribution of these British reports, I
overlooked some of them.
That list included all that we prepared, but
the British sent down some of their reports
which are really raw material reports and
they are distributed --
114
- 12 -
H.M.Jr:
Can't you just apply the same formula?
Haas:
I can except in one instance. There is a
machine tool report which goes to a machine
tool committee. It is composed of a captain in the Army, a captain in the Navy, a
colonel in the Army, and Maxwell and a man
in OPM. Otherwise, it all conforms.
H.M.Jr:
For the time being, let that go.
Haas:
All right.
H.M.Jr:
Anything else?
Haas:
That is all.
Kuhn:
I have nothing.
H.M.Jr:
Peter?
Odegarde:
Could I see you for about five minutes
about that matter you referred to me?
H.M.Jr:
Oh, yes. Are you going to be here today?
Odegarde:
Yes.
H.M.Jr:
Let me just see how it works out. It depends upon whether we do or don't have
Cabinet. I will work it out. Will you be
in the building?
Odegarde:
Yes. Any time.
H.M.Jr:
All right.
Cochran:
Mr. Knoke is in town. He is going back
at four this afternoon. He said he would
like to drop in.
115
- 13 H.M.Jr:
I would like to shake him by the hand.
Cochran:
He is coming in to see me at twelve. Shall
H.M.Jr:
Yes, I will see him right at twelve.
Cochran:
All right, sir.
I let you know?
Yesterday, John Erhardt, in charge of
personnel over at the State Department
asked me if we had any objection to Donald
Heath being transferred from Berlin. He
has been there three or four years, and
they need him at a post down in Latin-
America, and I told him I didn't think you
would have any objection.
(Mr. Foley entered the conference.)
H.M.Jr:
Just a minute. (Looking at Mr. Foley through
magnifying glass) I never knew when you
looked through this thing that the people
are upside down. That is a funny thing.
Sullivan:
Maybe it is just the people.
H.M.Jr:
Doesn't Mr. Foley look funny? It is very
good.
What did you do? Did you forget to go to
bed last night?
Foley:
Yes, I went to bed.
H.M.Jr:
Aren't you feeling well?
Foley:
Yes, I am all right. I over slept. I am
sorry.
H.M.Jr:
Wonderful. I am embarrassed with Miss
116
- 14 -
Chauncey here. (Laughter) I will ask you
afterward.
How far had we gotten when Foley so rudely
interrupted us?
Cochran:
I was just half way.
Erhardt also told me they had a personal
letter from Ambassador Winant suggesting that
he would be happy if he could get someone
like Win Riefler to come over and be his
financial adviser. Jack asked me if I knew
Riefler, and I said, "Yes," I doubted if he
would want to go.
H.M.Jr:
Let Riefler decide.
Cochran:
Yes. I don't know whether they are going
to put it up to him or not. This Mr.
Russell who came to your office was here
yesterday and is coming back at ten, and
I am going to take him in to see Ed because
he has a proposition on this British security, direct investment. Peacock has asked
that we pass on it here. It is agreeable
to him. I think it would be all right, but
we will check with Ed.
H.M.Jr:
John?
Sullivan:
I gave the Vice President your message on
Professor Hall, and then I talked with
Mr. Cochran and he is getting in touch
there.
Collector Squires writes and wants permission to publish the names of people who
make gifts and contributions, people who
haven't any tax liability, but who write
in to the collector and say they want to
do their bit. He thinks if he has the
117
- 15 authority to give the names of those people
that there will be a lot more. Mr. Hel-
verning sent over a memorandum, of course,
if there is no tax liability, they are not
tax payers, and there isn't the same legal
prohibition against giving out the names,
but he thought, as a matter of policy, that
we should pass on it. I frankly don't know
what to do about it.
H.M.Jr:
Would anything spoil if you let it go until
Monday.
Sullivan:
Not a thing.
H.M.Jr:
Let it go.
Bell:
There are an awful lot of those people who
donate money, and I should think we would
have to give their names out too, and I
question whether we ought to do it.
Gaston:
You get yourself into what looks like a
campaign for voluntary contributions which
is voluntary and unequal taxation, and it
is bad business.
Sullivan:
Senator Tydings sends an inquiry in regard
to the bill for an automatically balanced
budget and a very searching questionnaire.
I don't know whether you got one, Dan.
Bell:
The Secretary got one and sent it in to
me.
Sullivan:
I think we ought to put some time in on
that.
H.M.Jr:
Bell:
I am smart, I turned it over to Bell.
One question he asked was whether or not
you wanted to appear and testify before
the committee. I should think probably not
118
- 16 -
at the moment. Maybe later, but I shouldn't
do it now.
H.M.Jr:
Well, if and when you are ready to discuss
it.
Anything else?
Sullivan:
That is all, sir.
H.M.Jr:
Before I leave you, John, I got this idea
during the night in regard to this bill of
Jesse Jones' where he brings up this ques-
tion of the state taxing federal contractors,
whether it might not pay me to write a
letter to Jesse and send it over this morning and say that in view of the situation,
and give him the reasons, we would appre-
ciate it if he would life that section out
and postpone it.
Foley:
Either that or ask him to give us the
figures as to the cost that taxing these
transactions entails in so far as the Defense Corporation and these other corporations of the RFC are concerned.
H.M.Jr:
I think something. I don't know whether you
are going to have a chance to do it or whether
Monday is too late, but I won't have time
to assimilate it today, and I don't think I am all tied up this morning and there is
Cabinet this afternoon, but I think we will
just have to wait until you and John can
give me something bright and early Monday
morning, see.
Foley:
All right.
H.M.Jr:
If you will collaborate together. And then
John gets his hearing on his tax bill at
119
- 17 ten fifteen, John?
Sullivan:
All right, sir.
H.M.Jr:
I have allowed forty-five minutes.
Sullivan:
That is all, sir.
Gaston:
You sent me in a--
H.M.Jr:
I would like you (Bell) in here on that.
The same group, if they are interested.
Gaston:
You sent me a telephone transcript of a
conversation with one of Pat Harrison's
secretaries in regard to one of the positions down there. They always get confused
with the appointment date and the time
when a man takes his oath. This doesn't
expire until April 15, and I suggest you
send a letter endorsing the man for re-
appointment.
H.M.Jr:
Who is McDermott?
Gaston:
Johnston, I mean.
H.M.Jr:
For Pat's sake, if we could get word to
Johnston today.
Gaston:
Yes, I will call Johnston up today and tell
him the date of expiration and all that is
necessary for the Senator to get the letter
to send in.
We are going to be seriously embarrassed in
New York by the Army's space demands. It
affects not only the investigating agencies
but it affects the revenue agents, Krigbaum
and his unit. The Army is insisting on their
moving out immediately from that building
on Church Street.
120
- 18 H.M.Jr:
Gaston:
Is that the post office?
No, it is the downtown Federal Office Building on Church Street just back of the Wool-
worth Building.
H.M.Jr:
Oh!
Gaston:
But I wanted - Guy Helvering called me up
this morning, and I wanted to talk to Norman
Thompson about it, but we might want to
ask your help because it seems to be quite
unreasonable. The Army is not going to find
enough space in that building. They are
going to have to scatter all around lower
New York anyway, and what is going to hap-
pen is that they are going to scatter our
agencies and put especially the revenue
agents in a terrible jam at a time when
they are in the midst of going through their
returns.
Thompson:
We have fought it out with them, and they
H.M.Jr:
Who is "they"?
Thompson:
The Post Office Department has jurisdiction
over that space.
have turned us down.
Gaston:
They are just gradually pushing out one
agency after another.
H.M.Jr:
Lower New York is full of offices. Why
can't we go into one?
Gaston:
It is awfully inconvenient and expensive
right now, especially for the revenue agents.
H.M.Jr:
The Postmaster has decided against it?
Thompson:
He has decided we shall move and give that
121
- 19 space to the Army and Navy.
H.M.Jr:
Thompson:
I don't want to get in on it.
I suggested to Mr. Gaston yesterday that
we might have a conference with the Postmaster General.
H.M.Jr:
But leave me out of it.
Gaston:
O.K. I have got just one suggestion. If
you move, I would move all Treasury out of
there.
Thompson:
We would move the whole thing.
H.M.Jr:
God, there is all kinds of space down there.
Thompson:
A hundred and forty thousand square feet.
H.M.Jr:
You can get space at a dollar a foot in
downtown New York today.
Gaston:
We can get whole buildings downtown.
ThompsonL
We will move a hundred percent.
H.M.Jr:
I would move a hundred percent.
Gaston:
As far as our agencies are concerned, that
is what we ought to do.
H.M.Jr:
You can get all the space you want. Just
whisper it, and you will have all of the
New York people here.
Anything else, Herbert?
Gaston:
I would still like to talk to you for a
minute or two sometime today, if you have
any chance.
H.M.Jr:
On what?
122
- 20 Gaston:
About that matter of this coordinating
the exchange of war information. I don't
want to have anything to do with it, if
you can let me out.
H.M.Jr:
Gaston:
You are out.
So we will have another - you wrote a letter
designating me. It is a matter I know nothing
about, and I don't want it, if you don't
mind.
H.M.Jr:
You have reasons? You won't tell me?
Gaston:
No, I think whoever - if anybody cooperates
on that thing, he should know something
about what the problem is, and I don't.
H.M.Jr:
Well, which don't you know?
Gaston:
The sources of information, what information and how much we want to give those
people or whether we want to go into any
scheme at all for the exchange of information.
H.M.Jr:
What I don't get is, you don't know the
Treasury sources or what?
Gaston:
That is right.
H.M.Jr:
Oh, it is the Treasury sources?
Gaston:
Yes.
H.M.Jr:
You mean, what Merle gets from me?
Gaston:
H.M.Jr:
Gaston:
What anybody gets. I know nothing about it.
Are you sore? You sound sore.
Well, I wanted to talk to you about it.
123
- 21 H.M.Jr:
All right, I will give you a chance. O.K.
You and Peter Odegarde. I mean, you both
want to see me on separate matters.
Gaston:
All right.
H.M.JrL
O.K.
124
This Chauncey
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE May 9, 1941
Secretary Morgenthau
Mr. Cochran
FROM
STRICTLY CONFIDENTIAL
At the 9:30 Staff Meeting this morning I mentioned my conversation with
Mr. John G. Erhardt, Chief of the Division of Foreign Service Personnel, regarding
Mr. Donald Heath. The Secretary told me that the Treasury imposed no objection
to Mr. Heath's transfer.
I also reported to the Secretary that Ambassador Winant had written a
personal letter indicating his interest in having a financial adviser in London,
such as Dr. Winfield Riefler, I had told Mr. Erhardt that Dr. Riefler is eminently
qualified, and has served as Special Adviser to the Treasury Department. I
doubted, however, whether Dr. Riefler would be interested in going to London.
After the meeting I telephoned Mr. Erhardt and waived any objection to
Mr. Heath's transfer from Berlin. I gave him Riefler's background, and told him
that the Secretary of the Treasury had no objection to the State Department or
Ambassador Winant ascertaining directly whether Riefler might be interested in
going to London.
amp
125
May 9, 1941
10:15 a.m.
RE TAXES
Present:
Mr. White
Mr. Sullivan
Mr. Blough
Mr. Tarleau
Mr. O'Donnell
Mr. Schwarz
Mr. Haas
Mr. Gaston
Mr. Foley
Mr. Kades
Mr. Bell
H.M.Jr:
Well, "I am Mr. Doughton. What was that
you said, John?"
Sullivan:
I guess if he had wanted you to hear it,
you would have heard Mr. Doughton. He
called a little while ago and wanted to be
sure everything was hotsy-totsy. He wanted
to know if I had heard what had happened
yesterday afternoon and if I appreciated
H.M.Jr:
Sullivan:
his position.
That is nice.
Yes. Of course, I gave it to him. He wanted
to know what time Monday I wanted to go on.
I told him I am ready any time, we hope.
I don't think we can go ahead discussing
this problem as we have done up to now without making a major decision which I think
126
-2cuts across all discussion we have had thus
far, and that is whether or not the present
excess profits tax should be thrown out the
window and an attempt made to rewrite the
whole thing; and I think that before we
decide what the Treasury's position is going
to be, we have got to make that decision.
H.M.Jr:
Well, would you, as the Assistant Secretary
in charge of tax legislation, make a recommendation?
Sullivan:
Yes, I will make a recommendation. This
present tax is raising a great deal more money
than we had any idea it would last year. If
there is no change in the rates in either
excess profits or corporations this year,
the calendar year '41 excess profits tax
liabilities will be a billion and twenty-five
million dollars, which is a great deal more
than we had any hope of getting last summer
while we were working on it.
Bell:
I thought the estimates were what, between
eight and nine hundred million?
Sullivan:
Eight hundred.
Bell:
That is a collection item. The liabilities
would be greater.
Sullivan:
On fiscal '42, the estimate has been raised
O'Dennell:
That is correct. You are both correct. The
to six hundred seventy-five million dollars.
estimate on the basis of what we forecast
corporate incomes to be, though, was about
eighthundred fifty; but since then, you have
increased the defense program so that the
business estimates are up and that is the
di fference between the present estimates
127
-3that John is giving you and what Dan is
speaking about.
Bell:
Sullivan:
That isn't a lot. I mean, it is eight fifty
to a billion twenty-five. That isn't a big
jump, I don't think.
It will be a very easy matter by such a change
have suggested or by lowering the credits
hundred as or we increasingmillion
fifty the rates out to of get it, another which would six
give us a billion seven hundred million on
calendar '41 liabilities, which is a lot of
money.
Now, neither Mr. Tarleau nor Mr. Blough nor I
believe that there is any chance of throwing
out the present system and substituting therefor
our original plan unless the President were to
call in the leaders and tell them that was his
desire, and make a terrific fight for it.
We are not confident that he would win if he
did. We think he would have a chance. We are
pretty sure that even if we win, it would mean
a very substantial delay in the entire Revenue
Act, which won't be as important as the excises as it would be under the present proposal because under the present proposal every month's
delay costs us about a hundred million dollars.
(Mr. White entered the conference.)
H.M.Jr:
Don't you want to get in on this, White?
White:
I do. I had forgotten about the hour.
Sullivan:
I think it is perfectly possible for us to
present these changes if the Congress prefers
not to rewrite the law but merely to so revise
it that the revenue is increased. In that
way we can protect ourselves so that any time
128
-4-
in the future we want to go after it, we still
can do so.
H.M.Jr:
Say that again, John.
Sullivan:
I think it is quite possible for us to make
such a suggestion as we have proposed, making
it in the manner of a slight change in the
present law to increase the revenue from the
present law without going into the question
of a general revision, so that our rights are
protected and if, at any other time, the
President decides he wants to revise it, we
still would be able to do that.
H.M.Jr:
Well now, when you go up, are you proposing to
recommend that the excess profits be taken off
first?
Sullivan:
I am afraid I don't understand, sir.
H.M.Jr:
Well, as a deduction.
Foley:
Yes.
Sullivan:
No, they are swapped simultaneously.
H.M.Jr:
But you deduct them first?
Sullivan:
Oh yes, yes.
H.M.Jr:
You are proposing that?
Sullivan:
That is right.
H.M.Jr:
Well, after having had time to study the
thing, do you think that that is a more
equitable way?
Sullivan:
Yes, we do.
129
-5H.M.Jr:
In what way does it affect dividends of
Sullivan:
Well, I don't think you can lay down a general
companies? What way will it hit some companies
more or less high?
rule. I think when you pick out individual
cases and figure them, you get results that
don't lay down a general rule. The net result
would be to decrease the credits on invested
capital companies down to five point six, and
with the average earnings companies, it would
decrease their credit which is now ninety-five
percent of their average earnings in the base
period from ninety-five percent down to seventynine percent.
Now, there have been fifty-five hundred excess
profits tax returns filed already.
H.M.Jr:
How many?
Sullivan:
Fifty-five hundred that we have had an oppor-
tunity to go over. Of that number, eighteen
hundred filed under invested capital and thirtyseven hundred under average earnings. That is
The amount of money
the average
is about four times the
tax paid by those eighteen
capital companies, but none of the big boys on
average companies, two to one. earnings company, hundred paid amount invested by earning the of
either side are in there.
H.M.Jr:
I see. Well, who wants to cross examine
Mr. Sullivan?
Bell:
John, have you had an opportunity yet to go
over the cases to find if there are any glaring
injustices or administrative difficulties in
the Act that need to be amended - I mean, Excess
Profits Tax Act.
130
-6 Sullivan:
No, we don't get any very great complaint,
Dan, because almost everything along that
line that was glaringly bad was cured in the
amendment this spring. That ironed out a
great deal of the inequalities.
Bell:
Then the only thing you need to do now is to
Sullivan:
When I say, Dan, that the inequities are ironed
out, that is comparatively speaking. There
decide whether you want additional revenue
and you need to amend it for that purpose.
are, and there always will be, a lot of inequities in an Excess Profits Tax Act.
Bell:
What I meant, you wouldn't seek the amendments
at this time to correct those? They are not
such that they need to be taken care of im-
mediately?
Sullivan:
No, but I mean we are beset by all kinds of
problems. For instance, Jewett, of the Chamber
of Commerce, was in pleading for fifteen small
airplane companies without very much invested
capital who had no average earnings to speak of
at all during the base period, many of them
running at a loss, and, of course, they are in
a hopeless competitive position against the
bigger companies that were making a lot of
money during those years. But generally speaking,
it is a vastly improved bill over the one that
was passed last September.
White:
John, I am wondering if it is possible or if
it is too late to recanvass the position from
a more fundamental point of view. It appears
there are good arguments that can
on the of public
the of ethics and on
be to on me advanced that grounds grounds the grounds policy tax and of
economics to stand for an excess profits
based on capital earnings with some modifications
131
7-
to take care of some of the most serious
criticisms. The most serious criticisms
would be, one, the small man can be taken
care of by being given preferential treat-
ment. How much can be easily decided on in
discussion. You can take care of the new
companies, such as the last one you suggested,
by some flexible - some provision which would
allow them - allow a company that has just
started or allow a company that has low capital
invested under certain conditions gain a higher
rate of return, in other words, distinguishing
between those companies.
You might even take care of the - if you wish the larger companies that have, for some
special reason, a low or a high capital invested. You can treat them differently, I
think. But assuming that those three modi-
fications are possible to take care of the
worst criticisms and admitted that there still
would be inequities left, which, as you say,
is inevitable in any system of general application of a rule, if you approached the tax
principle on the basis of an excess profits
tax on an earnings basis, selecting some figure,
whether it be five or five and a half or six
or six and a half or seven or seven and a half it can be determined at a conference - it would
be a compromise in any case - then you can claim
the following, it seems to me, for that position.
On grounds of policy, public policy, it would
be popular with the mass of the people because
it is easy to understand, it seems reasonable
to expect corporations to make sacrifices just
as individuals during wartime.
You can strengthen that position by having a
tax applicable only during the emergency period.
Have that so stated in the bill. At least,
that is your present intentions. So that upon
132
8-
cessation of the emergency, then a defense
principle is involved. It would certainly
be popular with, as I say, the soldiers and
the workers and so on, and I think that with
that kind of a bill you can go further in the
direction of taxing the others, either through
indirect taxation, and you can go further in
taking strong positions demanding sacrifices
of the others, because the public can under-
stand it. That is one point.
On the grounds of economic policy, it has this
advantage. I think it will yield more revenue
or it can be so devised to yield more revenue.
It will in no way discourage expansion because
you are going to discriminate between new
capital, and you can indiscriminate - you can
even make a distinction on the basis of the
very company you spoke of; and the fact that
a corporation has had large earnings in the
past will not influence its activities now
if the earnings are lower except so far as
new capital, and you would take care of that,
so it will not discourage enterprise.
The same thing is true of the point you raised
about people who have bought stocks on the basis
of anticipated earnings, and now you impose a
tax which falls more heavily, and therefore the
value of their shares diminishes.
Well, in the first place that is true of any
tax. It is always true. You have got to
expect that. You don't guarantee that taxes
will remain the same when a person buys a
capital asset.
In the second place, you can minimize that by
making it clear that is an emergency tax, and
the tax holds true only during wartime. Therefore, the investment which took place before
the war will continue to have the same capitalization value on a peacetime basis later, whenever
133
-9that may be.
In other words, the new tax applies only during
the emergency. So that - and a grounds of on ethical grounds, certainly you can make a
much stronger case for abiding by a principle
of that kind than you can by any other principle.
And moreover, it seems to me, you are in a strong
position, because you have got a principle which
is the guiding light. You can divert from it
as the occasion requires, but at least, you
have got something to hang your hat on instead
of being deprived of a principle to defend any
position you take.
Sullivan:
Now that peg you are going to hang your hat
on, Harry, is that every dollar that is made
above a certain percentage of invested capital
is going to be subject - is going to be deemed
to be excessive.
White:
Not necessarily. I mean, make that fifty seventy - it would constitute the taxable base.
We are not discussing the question whether the
rate of taxation on the excess profits shall be
twenty percent, fifty, or a hundred. That is
another problem.
Sullivan:
All right. You are going to say that every
dollar that is earned in any kind of a business
above five and a half or six percent, or whatever
figure you pick out, is going to be subject to
an excess profits tax, regardless of the type
of business.
White:
With these modifications --
Sullivan:
Oh, well now. That is something else, Harry.
Regardless of the type of business and regard-
less of whether it is connected with the defense
program in any way and regardless of how much
money it made in a --
134
- 10 White:
Sullivan:
Definitely.
in a previous experience. In other
words, a corporation that had a en-year
lease or had leased a piece of property for
ten years at a stated amount of rent, although
it had received twenty thousand dollars a
year for that particular property in '36,
37, '38 and '39, would be subject to excess
profits although it received no more.
White:
If you are speaking of profits, yes, and it
applies right through, again with the understanding that ingenuity will be required to
introduce modifications to take care of both
the economic necessities and some of the worst
inequities.
Sullivan:
Well, once you get into that, Harry, you are
into everything and that is the underlying
difficulty of an excess profits tax in which
you try to lay down one formula that applies
to all different types of businesses and
different kinds of situations.
White:
Well, the problem in any case is not simple,
John, you said that yourself.
Sullivan:
That is right.
White:
Therefore it is a question of choosing among
difficult possibilities.
Now, it appears to me, and I admittedly haven't
the administrative angle, so
but it to me that
gone know, into appears it four, should I five don't be
possible to make, whether three,
or a half dozen different classifications,
under which the tax would apply which would
not remove all the inequities but would take
care of the most serious ones.
135
- 11 -
Blough:
You are very close, Harry, to the plan which
the Treasury presented last summer, are you
not?
White:
I think I was close to the principle but I
am not familiar enough with the details to
know, but I think that as I remember reading
it over, it could have been modified and
improved but - and if that is so, I am very
much in favor of fighting to a principle that
you think is right and if you are going to
be overridden, let somebody else override you;
but let the Treasury stand for the best tax
proposal - not under ideal circumstances,
but that is politically feasible as well with
the masses of the people. That is an important
consideration, and I think that the public
would be behind you in that whereas in this
other thing, in the first place they won't
understand it and in the second place, after
they do understand it they will find such
glaring inequities as to make difficulties.
Sullivan:
There are far fewer inequities in the proposal
than there are in the present law, Harry.
White:
Well, I am comparing your proposal with the
suggestion which I very roughly - very briefly
outlined as a principle.
I don't think we should confine grounds for
criticizing it to ethical grounds. I think
it could be substantiated on economic grounds
and I certainly think it would be a wise
political gesture.
Sullivan:
All right, now to allow a reasonable rate of
return to a company that has been making twenty
or twenty-five percent on its capital through
the years, Harry, you would have to allow a
set amount of credit on invested capital that
136
- 12 would let out United States Steel, American
Car and Foundry, and all the fellows we are
trying to get.
White:
Tarleau:
I think that even there you might take some
of the large companies. You might be justified
in making the decision that many of these larger
companies ought to have a different rate.
John, we presented the Secretary with a bill
on the twenty-first day of last July that had
precisely what you (White) are talking about.
We took into account the size of the companies,
both with respect to their capital and with
respect to their borrowed capital.
We paid some attention, though not very much,
to their condition just prior to the defense
expenditure period by allowing them a very
small differential for their earnings during
that period.
In other words, we had every single one of
the things you are talking about. We had an
excess profits tax which was as good an excess
profits tax as I think you will find in the
statute books of any country, even though we
worked under tremendous pressure.
The Secretary will recall that last July we
the in twenty-one days, because you
conference on the
did
calledand
your
thirtieth day of July day
of June
onthing
the twenty-first
he had that bill. I am willing to stand by
that bill today.
White:
You felt that that was a desirable bill
then?
137
- 13 Tarleau:
Now, if you are talking about me personally -
if you want an excess profits tax, I think
that is a good excess profits tax, as good
a one as you can have.
Well, we went up there, and I think that it
was as bitter a fight as we have ever had.
White:
I am laying down the circumstances of changes.
You have got some new allies.
Tarleau:
John said just before you came in to the
Secretary, that he feels that if you want
to go back to that plan, the plan we had last
July, modified as our experience indicates
it should be modified since that time, the
thing to do is to very carefully lay our
plan of campaign and to at least start with
the utmost push on Congress from the Secretary
and from the President in order to give us
some breathing chance at least of getting
this bill through.
The conference we had on this second Revenue
Act of 1940, Mr. Doughton told me in his
thirty years of experience on the Hill was
the bitterest conference he ever attended,
and by means of that conference fighting
tooth and nail, and you have got to give
Jere Cooper credit for it, we managed to
knock down the average earnings from a hundred
percent to ninety-five percent.
Now, if you are going to kick the whole
average earnings concept out, you will
certainly have to do an awful lot more
backing for John Sullivan before he even
has any prayer of getting by even the Ways
and Means Committee.
138
- 14 White:
Well, obviously that is a matter of policy.
For myself, I would rather have the Treasury
be licked defending a sound proposal than
win defending one that is more or less indefensible.
Sullivan:
Well, I think that is the question we have
to decide, whether we are going in here and
fight for a principle we fought for last
summer and then quit on it or whether we
are going to do the best we can revising
the present law.
Foley:
Well, I didn't think we quit, John. I
thought what we said was this: "This
isn't what we want, and this isn't what
we asked the Congress to give us. It is
second best any way you look at it. Now
we are going to put it into effect. We
have no alternative. We are going to wait
until the returns come in on the fifteenth
of March, and we are going to take a good
clean look at them, and if we are not
satisfied at that time with the way the
thing is operating and the way it falls
on the different companies, then we are
coming back, and we are going to tell the
committee what we think the committee ought
to do." Now I don't see--
Sullivan:
I don't recall any such statement as that,
do you, Tom?
Tarleau:
No, not in those words, and I don't even
know, Ed, to be very frank with you,
whether, after the battle was all over,
whether we left that impression, because
at the end we--
Foley:
That was the impression that I had.
H.M.Jr:
What was the letter that John Sullivan
139
- 15 read?
Sullivan:
Foley:
Sullivan:
In the Senate Finance?
Yes.
That was when everything was going out the
window. Everything in the bill was going
out the window at that time.
H.M.Jr:
John, let me just offer this as a possible
suggestion. Supposing you went up there I am going to say something and let me
finish the statement, and what I may say
may not hold water, you see. I will simply
say this: "Now, look, gentlemen, you have
asked us to come up here and talk about
excess profits. We have had a chance to
see what effect excess profits takes on
some of the companies. These larger com-
panies have not yet made their returns, so
we don't know, and we have only got a
partial picture, but those that we have, I
would like to point out how unevenly it
hits them," giving how unevenly some of
them pay. "Therefore, as far as we have
gone, we simply feel that this is not the way the bill is drawn now, that it is
not an equitable bill. Now, we realize
perfectly that in appearing, we said so in
connection with the debt limit last year,
that we can't always get what we want, but
on the other hand, we would like to point
out that we feel, with no undue pride of
authorship, that the suggestion which we
made a year ago was a better one. It had
more merit to it. And we feel that way
especially in view of what we know now.
Now, we want to point that out. Because,
after all, we are here as your guests. We
can simply make this thing and the position.
Now, if you don't want to take our advice,
140
- 16 -
that is your privilege. You are the
elected members responsible to the people.
Now, we have made that - that is the way
we feel. Now, if you will say to us,
'All right, you have said your piece, we
are going to disregard it', and you want
us to make recommendations on the existing
law, and after carefully deciding, you
want to go ahead and apply the existing
law, we have certain suggestions to make
to modify the existing law, and we would
like to make those now."
Now something along that line. How does
that hit you?
Sullivan:
I think that is somewhat in accordance with
what I first suggested.
H.M.Jr:
How does that hit you? My facts may not
just be right, but as to the principle in-
volved?
Sullivan:
I think we can amply protect the position
we took last summer, and leave plenty of
room for future revision and make suggestions as to changes of the present act.
H.M.Jr:
Well, that wouldn't quite satisfy me.
Sullivan:
What you want is for us to renew our ob-
jections to the present law.
H.M.Jr:
Yes, I wouldn't put it - I would just that might be a little bit too bald. I
would put it this way, "That in view of the
returns which have come in, we find that
there are certain inequities, and we feel
that if Congress had taken our suggestion
which we made before this committee last
June and July, in view of the evidence that
we have, we think that that would be a more
141
- 17 -
equitable one," if that is true, you see.
And then give them definite examples.
"Now, gentlemen, we have got to tell you
what we think. You don't have to take it.
If you don't want to take it, after we
have given you the examples - " give them
the examples, how it would hit different
kinds of companies if they had taken your
recommendation of last spring. "Now, this
is what would happen in view of the year
which has passed. We think this is fair
and will satisfy the people better. We
think this will satisfy the fellow who has
had to give up his business and go and work
for a dollar a year. That is what we
honestly believe, that they are the examples
of how these companies would have been
treated if you had taken our suggestion of
last year." I am going always on the assump-
tion that that is so. "And if you don't
want to take it, if you want our suggestions and you say, 'Well, we don't want it,'
we are prepared to give you suggestions how
to change the existing law."
Sullivan:
I would like to ask Roy a question here.
There isn't any doubt that we can pick out
individual returns that will show that, but
I am wondering whether or not they couldn't
pick out individual returns that would show
that under the other it would be just as
inequitable in the other direction.
Blough:
The great difficulty is in what you will
understand to be normal. A great many
people down there do not accept the definition of normal profits which Harry mentioned
a while ago as a certain percentage return
on invested capital. They constantly talk
about normal in terms of a war profits tax,
not in terms of an excess profits tax. They
talk about normal as what we earn during the
142
- 18 -
base period. Now, if their definition
of normal is correct, then our suggestion
of last summer was not correct, and the
suggestion that Harry made is not correct,
and would give rise to terrific inequities
because the concern that was making, say,
50 percent on its invested capital during
the base period, and that was considered
to be its normal profit, could point out
that the plan we proposed and the plan
Harry proposes would be extremely inequi-
table. Now, if you accept the return on
invested capital as the correct basis,
then you can point out other things which
are equitable and are inequitable.
Now, if you can get an agreement on the
part of the committee as to what they mean
by noraml and as to what they mean by excessive, we certainly can point out how these
various measures and various proposals com-
pare in their equitability. But until
you get them to agree as to what they mean
by normal, with you, for every example you
present as a horrible example, they will
come back with another horrible example.
You don't think their example is horrible,
and they don't think your example is horrible, and so there is no meeting of the
minds because there is no basis understanding of what is meant by normal and
what is meant by excessive.
White:
Exactly. That is why I think you are licked
before you begin when you use the word
"normal." It is not the defense of your
tax program--
Gaston:
That concedes the main argument, if you
will excuse me. It makes it--
143
- 19 -
Foley:
There is nothing normal about it.
Gaston:
It makes it a war pfofits, not an excess
profits.
H.M.Jr:
Wait a minute. Give Herbert a chance.
Gaston:
I am sorry. But when you use the word
"normal" in the sense in which Roy uses it,
you are conceding the main argument. You
are saying, using the word "normal" in the
sense of profits that they have been accustomed to make or that they hope to make in
the series of profitable years, and that
makes it, when you superimpose taxes only
above that level, that makes it a war profits
bill, an extraordinary war profits bill and
not an excess profits bill. Now, if you
use some other word of justifiable profits,
reasonable profits, or something like that--
White:
Under the circumstances.
Gaston:
But I think, too, that a better argument
for going back to this conception of an
excess profits tax bill as against a war
profits tax bill is the great change in the
economic situation, Harry.
White:
In the political situation.
Gaston:
New developments, the country has engaged
in an all-out effort toward full production
to support the democracies and that changes
the situation.
White:
There is no such thing as normal to be used
as a criterion.
Sullivan:
All right, it doesn't make any difference,
Harry, what adjective you use.
144
- 20 White:
It makes a great deal.
Sullivan:
Whether you call it reasonable or justifiable, or what label you hang on it, you
have the same fight.
White:
You have the fight, of course you have the
H.M.Jr:
Could I interrupt a minute?
White:
I am sorry.
H.M.Jr:
No, I am trying to keep my day. and I want
to be clear in my own thinking. Supposing
fight.
you (Sullivan) do this. We will meet again
at a quarter of three, you see. What I would
like to do is, if it is agreeable to you,
let's take some of these things, examples,
applying the principle that you advocated
before the Congress, how would it apply,
and let's have a mock court here and let
Roy take the answers - let Tarleau take come in this afternoon with some cases and
argue for the bill as you presented it last
year to the House, you see, and present some
cases. And let Roy take the committee's
point, "Well, this is no good, and these
are abnormal," and do the other side, you
see.
Sullivan:
Yes, sir.
H.M.Jr:
And they can certainly get a half dozen
cases between now and a quarter of three on
both sides.
Schwarz:
May I express a thought?
H.M.Jr:
What ?
145
- 21 -
Schwarz:
Could I express a thought?
H.M.Jr:
Yes. But let me just - hold it a minute.
Tarleau:
Yes, Mr. Secretary.
H.M.Jr:
I mean, you, Tarleau, take the case of the
bill as it was presented and bring in some
Do you see what I mean?
arguments of what you know this afternoon,
you see, why we should go back to the old
bill, and then Roy says for every example
you show, he will show another horrible
example why it won't work. Well, let him
bring in some. Is that agreeable to you?
Sullivan:
Yes, it is.
H.M.Jr:
Is that agreeable to you, John?
Sullivan:
Yes, it is.
Tarleau:
Yes, I think we ought to be able to.
Blough:
As long as I am understood just to be the
Tarleau:
Well, that goes on both sides.
H.M.Jr:
Well, would you rather switch? (Laughter)
Tarleau:
Oh, no, no.
H.M.Jr:
I don't care. Would you rather switch?
Sullivan:
Devil's advocate, that is all right.
You talk it over and just as long--
Instead of promising the chairman they will
get together, I promise you they will keep
apart.
H.M.Jr:
I don't care just as long as one keeps each
side.
146
- 22 Gaston:
I think they are both on both sides anyway.
H.M.Jr:
Maybe you have been insulted. (Laughter)
Sullivan:
After last summer, that isn't any kind of
an insult at all. We don't even pay any
attention to those.
H.M.Jr:
Has anybody got anything - I will give you
a chance in a minute, Chick. Is there any
better - is there any way to get forward
quicker than that?
Sullivan:
I think that is a good idea. That is a
H.M.Jr:
Isn't that good?
Sullivan:
Yes, it is.
H.M.Jr:
I mean, if you go up there and take the
direct answer to the observation I made.
suggestion I made and Roy says, "Well, they
will bring others," Well, let's have horrible examples on both sides.
Sullivan:
That is right.
Bell:
How does this question come up at this time?
It has just been injected in here?
H.M.Jr:
No, because he has to testify.
Bell:
Originally we had no thought of doing anything on excess profits, had we?
Sullivan:
We knew we would have to do something to
get more money out of excess profits, Dan.
Bell:
Was that in your estimates?
Sullivan:
Four hundred million.
147
- 23 -
Bell:
Four hundred million excess profits?
Sullivan:
That is right.
H.M.Jr:
Does that answer your question?
Foley:
I think Dan has got in mind the same thing
I have got in mind. Instead of making the
proposal that you make, why can't John go
up there and say, "We want to pass it this
time on excess profits. We haven't had
sufficient time to go into this. We have
made our recommendations on individual
rates. We have made our recommendations
on excise taxes. In so far as the excess
profits tax is concerned, it may well be
that the Treasury will want to recommend
a very fundamental change here, and we are
not ready now because we haven't had an
adequate opportunity to study this problem,
and in so far as the Treasury is concerned,
we don't wish to make a recommendation at
this time. If
H.M.Jr:
Does that mean - then I will answer you,
acting as chairman - does that mean, Mr.
Foley, you are coming up later in the season
with another tax bill?
Foley:
It means we would like to reserve the right
to come back here when we have completed
our study and lay our conclusions before
this committee.
H.M.Jr:
Then you are going to recommend another tax
bill later in the season?
Foley:
I believe, sir, that that is what we will
do, and this committee will be in session
undoubtedly continuously throughout the
year.
148
- 24 White:
What do you mean, you haven't had time to
study this problem? What has the Treasury
been doing all these months? (Laughter)
I am speaking as chairman now.
Foley:
I am in the same position as Roy Blough.
White:
Which side do you want to take now?
Haas:
A lot of the returns haven't come in yet.
Bell:
That is exactly what I was coming to. I
think we should have no bill if we don't
need
into it.it. I don't think we ought to go
Foley:
It is a very complicated and difficult
Gaston:
Well, Ed, I would suggest it wouldn't
subject, and we need a little more time.
necessarily mean a new tax bill, because
this committee has got plenty to work on
ahead of the excess profits tax, if they
will be considerate enough to put the
others ahead of the excess profits. It
might be a matter of 10 days or two weeks,
and you might come down there following a
letter from the President to the Chairman
of the Ways and Means Committee.
H.M.Jr:
Or you might say, "In view of the unexpected
testimony of Mr. Eccles and Mr. Henderson,
we haven't had time to study their testimony." (Laughter)
Bell:
Well, I am wondering if you couldn't ask
for the additional revenue you want with
whatever amendment you need and say you
are going to study this bill further when
the returns are fully in, and that you may
be down later, but you are certain you will
149
- 25 not apply the new law to the present calendar year incomes. It may be that even in
the next session you will ask for a change
in the law. I think busines
entitled
to that chance to work along under the
present bill and get familiar with it any-
how before you start changing it on this
year's returns.
H.M.Jr:
Now, Mr. Schwarz.
Schwarz:
Thank you. I came in as an observer, but
I would like to bring up this thought.
Instead of thinking in terms of going back
to what we did last year, I think there is
some responsibility on us to look ahead.
We are planning on another tax bill, and I
think we ought to think of the same kind
of bill, but think of it as applying to the
future. Maybe we are premature, but by the
time this gets passed, lost of things might
have happened, and I think we can make that
positive approach rather than the negative
one that this didn't work out. That is
past history, and I think Harry is right
that we have allies in the public. I know,
I could make a much better fight publicly
and help, and even if we don't make it
this time, I think our record is better.
H.M.Jr:
Well, now, may I just say this, because I
have got this other meeting at eleven.
Come in at a quarter of three, will you,
John, and - I don't know if this has helped
you at all. Everybody is invited to be back
at a quarter of three.
150
May 9, 1941
10:30 a.m.
H.M.Jr:
Hello.
Senator
O'Mahoney:
Henry.
H.M.Jr:
Yeah.
0:
H.M.Jr:
0:
You may remember that the T.N.E.O. checked
a little bit on our American investments
in foreign countries.
Yes.
Among others I have a table here showing
investments of about a dozen big companies
in Axis-controlled countries. This, no
doubt, has been coming to your attention
too. You don't overlook very much. But
what I had in mind was checking on whether
or not there would be any possibility of
the Hitler regime to bring any sort of
pressure to bear on some powerful groups in
this country releasing to them income from
their investments.
H.M.Jr:
0:
Well, I think that is a very good point.
Now, International Harvester, for example,
has about eleven million invested in Axis
controlled countries and they are not getting
any income 80 far as I can see.
H.M.Jr:
Yeah.
0:
The Chicago Tribune has a certain policy
that you may know about.
H.M.Jr:
0:
I've heard about it.
of course General Motors has big investments
in Germany, 34 million according to my
information, and there is the Texas and the
Eastman Kodak and the rest of them. Have
H.M.Jr:
you done anything to check on that possibility?
No, I have not.
151
-20:
I tell you what I'm going to do, Henry,
I'11 make you a copy of this table that
I have showing this information and I
think you might want to have somebody
check into that possibility of what could
be done by the German Government in
intimating to some of these people, well,
now if such and such were done, maybe we
could release some income.
H.M.Jr:
Well, I think it is an excellent point.
0:
I don't think we've approached it.
Is that 80.
H.M.Jr:
They may have but I think you've got a new
0:
H.M.Jr:
0:
H.M.Jr:
idea.
Well, it's something worth looking into,
I think.
Well, I'm tickled to death and if you'11
send it down to me we'll put somebody on it
right away and let you know.
All right, Henry.
I think you've got a good idea.
0:
O.K.
H.M.Jr:
Thank you.
152
May 9, 1941
11:05 a.m.
RE DEPARTMENT OF SUPPLY
Present:
Mr. Thompson
Mr. Bell
Mr. Foley
Mr. McReynolds
Mr. Spingarn
Mr. Cochran
Mr. Kuhn
H.M.Jr:
Why I asked you gentlemen over, I am trying
to do something over here and keep it quiet
as long as possible, for the President. The
President doesn't know I am doing it, but
he will when I send this over to him.
It occurred to me about a week or ten days
ago that just as long as this whole question
of manufacturing guns and ships is left in
these various hands, we will never get them
in time to be of any use, and the conception
I had is that if the appropriation goes
through, the Army will have their thousand
planes.
The Army says what kind of planes it wants,
specifies them, but from that time on, Pro-
curement and everything else will be handled
by a new department to be called the Department of Supply, a new Cabinet post, and that
this would make things very much easier for
the President and would stop all this fighting,
153
-2and the thing that I am so desperately
worried about is, every time I go into this
picture, are we getting guns and ships,
I find we are not, and the situation is
just desperate. I can't put it any better
than to quote David Lloyd George, December
20, 1915, as Chancellor of the Exchequer.
"Too late in moving here, too late in
arriving there, too late in coming to this
decision, too late in starting with enterprises, too late in preparing. In this war
the footsteps of the Allied forces have
been dogged by the mocking spectre of
'too late. ,"
See if you can put it any better.
Now, as I say, I am doing this as I have
before, for the President. I haven't read
this yet but I would like to read it out
loud and then you fellows can stop me any
place you want to. Do you see, Mac?
McReynolds: Yes.
Cox:
I think if you read the letter first it will
H.M.Jr:
This is an inscription. The book was given
sound like a contribution from David Lloyd
George. I haven't seen the report.
to me by Harry and he inscribed that to me
with that book.
This is the suggestion I gave Oscar this
morning a little bit before eight, and Oscar
is here in his capacity as a Treasury official
and not in his capacity as a counsel to
Harry Hopkins. Harry doesn't know anything
about this.
154
-3"Dear Mr. President:
"The action of the House yesterday in amending
the Vinson priorities bill to provide for a
Director of Priorities and a detailed legislative handling of the priorities problem is
another symptomatic illustration of the dangers
of handling the supply problems of the Government in a piece-meal fashion.
"The supply problems of the Government have
grown and will grow to such an extent that
unless they are centralized at one point 80
much of your time and energy will be continuously
used up tying them together that you will not
have sufficient time to pass on other equally
important problems.
"In addition to conserving your time, a co-
ordinated and stream-lined Department of Supply
could doubtless do a speedier and more effective
job than is now being done by the sprawled-out
departments and agencies presently engaged in
handling the many related phases of the supply
problem. At least that has been the experience
of every government in modern times when it was
faced with the critical situation of arming
It is one of
itself
British
thethe
unfortunate did not
thingsquickly.
of our time
that
create their Ministry of Supply until July 13,
1939 - only a few months before they were at war.
"In order that you may give consideration as
soon as possible to the creation of a Department
of Supply, I am sending you herewith a first
draft of a bill to set up such a Cabinet De-
partment together with a brief covering memorandum summarizing the need for it and what powers
it should have.
Sincerely yours,"
155
-4-
Well, for a first draft it is very good.
We will just get the idea. I would want
to change it a little bit.
Now, I will read this.
"Department of Supply.
"1. At the heart of the defense program is
the compelling necessity to get enough of
the best planes, guns, tanks and other sinews
of war as fast as possible.
"2. The present diffused and uncoordinated
production and procurement policies and methods
are far from the best way of getting the necessary
military and naval equipment.
"3. Daily the need for a centralized and streamlined handling of the supply functions of the
Government becomes more apparent.
"4. In terms of the present necessities, the
time is now doubtless at hand to consider the
creation of a new Cabinet Department of Supply.
"5. The major functions of such a Department
of Supply should be:
a) Over-all Requirements
To obtain from time to time our over-all
needs for military, naval and other
equipment and supplies and to see that
they are matched by productive facilities
and manufacture.
At the present time, for example, it is
well-nigh impossible to ascertain with
any accuracy what aluminum capacity we
need to do the job adequately. One of
156
-5-
the principal reasons for this is that
our over-all requirements are not ascertained in time.
b) Manufacture
To have jurisdiction over the manufacture
of all supplies for the Government:
The specifications for guns, ships, etc.
can be prepared by the users of them the Army and Navy - or they can partici-
pate in their formulation. To a degree
this is what is done now in the Army and
Navy."
(Mr. Kuhn entered the conference.)
Sit down. We are talking about a Ministry of
Supply.
"Thus, for example, Ordnance collaborates
with Infantry in the design and manufacture of infantry equipment.
Full utilization could be made of existing
personnel. Army and Navy officers skilled
in the manufacture of guns and ships,
could, for example, be detailed
"
H.M.Jr:
This is too much detail, Oscar; I think these
sentences
"to the Department of Supply to work in
the arsenals or shipyards.
c) Procurement
To coordinate procurement under one
centralized purchasing agency:
157
-6Many of the defense articles used by
the Army and Navy are the same and
should doubtless be purchased at the
same time. Many more which are not
now the same could doubtless be
standardized through a central Department of Supply.
d) Production Expansion
To tie together expansion of productive
facilities:
In the past few years, particularly,
there have been many instances where
uncoordinated plant expansion for Army
and Navy materiel has taken place. If
this expansion had been properly tied
together, greater speed and efficiency
would unquestionably have resulted.
Today, funds for the expansion of plant
facilities are available to the War
and Navy Departments, to the RFC,
Maritime Commission and the Lend-Lease
appropriation."
I would leave out the examples of the failures
because after all, the fact that this setup
of the seven and all that was the President's
responsibility - I don't want him - "Well,
what is Henry doing, telling me I don't know
how to run the thing?" Don't you agree, Mac?
McReynolds: I was going to suggest that.
H.M.Jr:
Leave the criticism out but look at the gains.
McReynolds:
What you want to do, not what you should have
H.M.Jr:
Do you check with me?
done.
158
-7McReynolds: I do.
H.M.Jr:
I mean, the gains.
"In many instances these funds are available
for the same or similar purposes. They can
most effectively be used through a central
source.
"e) Storage
To plan and coordinate storage facilities:
Department of Supply storage depots at
key spots would doubtless be more efficient
and safer than the present methods of
storage.
f) Priorities
To coordinate and centralize the handling
of priorities:
A Department of Supply should obviously
have the power to determine priorities
between civilian consumers as well as
between the Government and others. It
should also be the central source to
exercise priorities in transportation
by rail, air, ship, etc.
g) Price Control
To handle price control:
In addition to the control over prices
which a Department of Supply can exercise
by its powers to expand the supply of
any article and through cumulating and
timing its purchasing, it should also
have the power to control prices through
the fixing of ceilings, etc.
159
-8h) Requisitioning
To handle the requisioning powers of
the Government:
Foley:
H.M.Jr:
Cox:
H.M.Jr:
Why don't you read the bill, Mr. Secretary?
You get a better idea.
Yes. This isn't too good, Oscar, if you don't
mind.
Oh no.
"A Bill to establish a Department of Supply
in order more effectively to coordinate and
expedite the national defense program of the
United States, and for other purposes.
"Be it enacted by the Senate and House of
Representatives of the United States of America
in Congress assembled, That this Act may be
cited as the "Department of Supply Act of 1941.
"Sec. 2. Where used in this Act, unless the
context clearly indicates otherwise -"(a) The term 'agency' __"
Foley:
We can skip the definitions.
H.M.Jr:
I think so.
"There shall be at the seat of government an
department to be known as the Depart-
of and a Secretary
referred to as the
who shall be the head thereof, and
appointed by the President, by and with the
ment executive (hereinafter Supply of Secretary), Supply shall be
advice and consent of the Senate, and have
a tenure of office and salary like those of
the heads of the other executive departments.
160
-9Section 158 of the Revisedsec.
Statutes, as
and the
amended to include (U.S.C., such Department, title 5, 1), is provisions amended
of Title IV of the Revised Statutes, including
all acts amendatory and supplementary thereto,
shall be applicable to such Department if not
inconsistent with this Act.
"Sec. 4(a) There shall be in the Department
of Supply an Under Secretary of Supply, a
General Counsel --"
God, I knew you would get that in. (Laughter)
and seven Assistant Secretaries of
Supply, who shall be appointed by the President,
by and with the advice and consent of the Senate,
all of whom shall exercise such functions as
may be prescribed by the Secretary or required
"
by law. The Secretary is authorized to exercise
any function now or hereafter conferred or
imposed upon him through any of the foregoing
officers, or any other officer of his Depart-
ment whom he may designate. The Under Secretary
of Supply, the General Counsel, and the Assistant
Secretaries of Supply shall each receive a
salary of $10,000 per annum.
"(b) In the absence or disability of the
Secretary, or in the event of a vacancy in
that office, the Under Secretary of Supply
shall act as Secretary."
I think we will go to Section 5.
"There shall be in the Department of Supply such
major Divisions as the Secretary shall by regulations prescribe, which regulations shall be
approved by the President. In addition, there
shall be in the Department of Supply such lesser
subdivisions, sections, and offices, as the
Secretary shall by regulations prescribe. All
161
- 10 -
regulations under this section shall be
published in the Federal Register.
"Sec. 6. There shall be at the head of each
major Division of the Department of Supply --"
That is all right.
"Sec. 7(a). The President is authorized to
transfer by Executive Order to the Department
of Supply any agency or function relating to
any one or more of the following activities:
(1) The manufacture or production of any
property by or under the supervision of any
agency:
(2) The management, coordination, and stimu-
lation of expansion, of the manufacture or
production of any property by private industry,
private persons, or other persons or entities;
(3) The procurement, warehousing, trans-
portation, and distribution of any property
for national defense or other governmental
purposes;
(4) The establishment of priorities with
respect to:
(i) deliveries of property under any
contracts, orders or suborders;
(ii) the carriage of any property, or
classes of property, by any means of transportation;
Does that put railroads under this?
Cox:
Yes. This is priorities.
162
- 11 -
"(iii) the carriage of any message -"
Foley:
H.M.Jr:
Is that again just priorities?
Yes. Establishing priorities with respect
to these three things.
"(5) The allocation of property for defense
or for export, in the public interest or to
promote the national defense;"
Again, that is just priorities?
Foley:
Cox:
That is allocations.
It is like priorities.
H.M.Jr:
Does that mean that General Maxwell will go
under this?
Cox:
No, Stettinius and his fellows.
Foley:
In other words, all the aluminum goes to
Boeing and Consolidated rather than to the
fighter plants.
Spingarn:
Cox:
H.M.Jr:
I understand the English use the allocation
system more extensively than the priorities
system. I think they come out the same.
No, they come out differently.
"(5) The allocation of property for defense,
for private account, or for export, in the
public interest or to promote the national
defense,
"(6) The requisitioning of any property;
"(7) The control of prices and the protection
of consumers; and
"(8) Such other activities as the President
163
- 12 may deem so closely related to one or more
of the foregoing that they should be administered in the Department of Supply.
(b) The President is authorized to transfer
by Executive Order any agency or function of
the Department of Supply to any other agency."
Well now, is there anything else except on
that one page?
Cox:
The only other one is the transfer of ap-
propriations and personnel and handling of
details. That is just routine. Section 7
is the guts of it.
H.M.Jr:
That is the guts?
Spingarn:
Of the bill, yes.
In other words, Mr. Secretary, this bill just
McReynolds:
The same procedure followed when we split
H.M.Jr:
At first blush, Mac, what do you think of it?
McReynolds:
sets up a hollow shell and authorizes the
President to transfer certain types of functions
enumerated in Section 7 into it.
Labor and Commerce.
You have been in the hotbed of this thing.
McReynolds: Well, of course the thing that you have missed
has been a responsible head that the President
would rely upon in this field and without
Cabinet status, of course, there would always
be the heckling. We would still have some
heckling with Cabinet status, but the President
would be expected to turn the thing over.
It gets to the right man and comes up in the to
right way. It is the only way I can see
relieve him of a burden that is getting to
be more than he can carry.
164
- 13 H.M.Jr:
Foley:
What have we missed?
He said up to now the thing in the picture
that hasn't been there is a responsible head
with statutory authority that the President
could hold responsible for all of these
things.
H.M.Jr:
I thought Mac said we had missed something.
Foley:
No, and he is leading up to a blessing of
McReynolds:
I think it is an excellent idea.
H.M.Jr:
I thought you meant what I had missed.
McReynolds:
this.
No, what the President has missed on the
program now. It has been scattered, as you
say, and there has been nobody that had the
standing in this administration to resist
the disintegration of this thing. It has
been split here and split there and this
guy wants this and the other one wants that
and there hasn't been - there has been a
good deal of cooperation from Army and Navy
but there hasn't been the responsible leadership that is necessary in order to get a
thing done.
Now, I think this is a good way to do it. I
don't know of any way to put the thing in the
position where the President will turn it
over and let the head of the organization
run it unless you can get an officer of that
class, a man who sits in the Cabinet.
H.M.Jr:
Do you think this is a good idea?
McReynolds:
I think it is a good idea.
165
- 14 H.M.Jr:
Bell:
Dan?
I think it is a good idea. I think you will
have a terrible time getting it through Congress
because of their opposition to creating any
more departments, first, and then you will
have a terrible fight on between Army and Navy
opposing it, particularly the officers.
McReynolds:
I wouldn't expect great opposition to the
additional Cabinet member because I think
there is a good deal of opposition to the way
this thing runs now, but I do think that you
will find the Army and Navy group opposing it.
They are always opposed to giving away authority.
Bell:
I am wondering if you haven't got most of this
authority now in the Procurement Division as
it was originally set up. All of the authority
to procure in Army and Navy is now delegated,
isn't it, from the Secretary of the Treasury
to the Army and Navy. Wouldn't it be a good
start for that delegation to be withdrawn for
the present to set up a strong organization in
Procurement and then say, "Let's make a Cabinet
out of it." I mean, take the step --
Cox:
That is the one we discussed originally.
Bell:
There wouldn't be any delay here and confusion.
H.M.Jr:
Could I answer that, Dan? I have come to the
decision - I have got nobody in mind, see, but
whoever the man is, Mr. Brown, that he puts
in there, unless this man is in the Cabinet
and has the full authority --
McReynolds:
Bell:
It will kill you if you put it in Procurement
under Treasury.
No, I was thinking of that as a preliminary
step.
166
- 15 Foley:
The Army and the Navy would just cut to ribbons
the fellow that you put in that spot in Procurement, Dan. You have got to make him of
equal stature with the Secretary of War or the
Secretary of the Navy.
Bell:
Eventually, but I am wondering if we can't do
it as a preliminary step.
McReynolds: I think you would kill it and Dan, I have
gone through a half dozen investigations of
new things on that very problem.
Foley:
You would never get it off the ground.
McReynolds:
You just can't do it because it is killed
H.M.Jr:
The way I feel is this. I don't know any
immediately.
situation which is more desperate. They brought
the thing up. I don't think it is any more
difficult to get the President to make up
his mind that he wants to do this, which is
the right way to do it, than it would be to
get him to change the present setup.
McReynolds:
It would be harder for him to change the
present setup than it would be to do this,
in my opinion.
H.M.Jr:
That is what I think.
Bell:
That is probably true.
McReynolds:
I have seen it tried before.
H.M.Jr:
Foley:
This is so drastic that he could do this and
say, "I am sorry --"
This is the answer to his critics who say
that he hasn't centered responsibility in so
far as the defense program is concerned in
any particular individual.
167
- 16 H.M.Jr:
On the other hand, the beauty of this is,
and that is why I want to keep it so secret,
it would be the President's plan and it isn't
Arthur Krock's plan or Bernie Baruch's plan,
and they can't say, "This is what we have
been telling the President, because nobody
has suggested it and this is the President's
plan. There has been no one suggested this
thing publicly.
McReynolds:
It isn't even Henry Morgenthau's plan.
H.M.Jr:
You know me by this time. It is the President's
plan.
McReynolds: Sure.
H.M.Jr:
I mean, you know me. I give these things
tied up in a pink ribbon, and it is the
President's plan, and no Krock or any of these
so and so's can say, "Aw, we have been sug-
gesting that for six months."
McReynolds:
I think it is a good idea. I don't know what
the result will be. I don't know how much you see, that Army and Navy gang have a hell
of a lot of influence with the committees up
there on the Hill, but if the boss would take
it and say, "This is what I want," and put
pressure enough on, I think he could get it.
H.M.Jr:
Let me see if I can't write a very short letter
from the heart on this thing without any
summary. The Bill is good enough.
Cox:
Yes. Well, I think you just have to take
that fight on and I think when the Commander
in Chief says he wants it, you are going to
stop the Army and Navy procurement offices.
Foley:
It will be the most salutary thing that has
168
- 17 been done in a long time, Dan, because so
long as they have got hold of the program,
it isn't going to flow the way the President
wants it to flow.
McReynolds:
That is true. You see, on Lend-Lease --
H.M.Jr:
This wouldn't cut across the Lend-Lease.
Foley:
No, he is giving another example.
McReynolds:
You won't get - you have got to depend on --
H.M.Jr:
This is to the President: (Dictating letter
to Mrs. McHugh)
"My dear Mr. President:
I have been lying awake nights trying to think
of some way to make things easier for you in
these extraordinary - in these most difficult
times.
It seems to me that if you were to ask Congress
to create a new Department of Supply, with a
new Cabinet member at its head and throwing
into this department everything that has to do with
the procurement and production of materiel for
national defense --"
Bell:
Do you want everything else in there?
H.M.Jr:
Well, I mean I am just getting it now.,
that this would be a real contribution
toward lightening your great responsibilities.
"
I have had in the Treasury prepared a bill
carrying out these ideas. On page four,
Section 7(a), are the guts of the bill; and
if this thought appeals to you, and I most
sincerely hope it will, I would like to discuss
it with you further at your convenience."
169
- 18 -
(Speaking to Mrs. McHugh) Now, I will tell
you what you do. Supposing you write that
out and then let Cox and Kuhn smooth it up,
the two of you, see, so I can have something
a little bit before one o'clock, see. But
isn't that about the idea?
Cox:
H.M.Jr:
That is right.
Smooth it up a little bit. Don't you think
that would appeal to him, Mac?
McReynolds: I think that is the best way to approach it.
H.M.Jr:
Don't you think so?
McReynolds:
Yes. It is between you and him. That is the
H.M.Jr:
Having been in this thing, isn't that a step
McReynolds:
only way I know of --
in the right direction?
I am thoroughly in favor of it because - he
has had a lot of boys working hard. Some of
them I have no criticism of, but there is
always the lack of standing, officially, and
also politically. There is somebody dropping
and are hectic
- confuse the issue so far as
and I they
don't
know
anythe
way
in is it between concerned,
they
and they
to make boss
eliminate that except if you could put a place a Cabinet place, right next to the President,
and nobody can get in.
H.M.Jr:
Cox:
You know, leaving out my good friend Walker,
it is perfectly asinine today to have a Cabinet have
position of Postmaster General and not to
one of Supply.
That is right, it is amazing.
170
- 19 -
H.M.Jr:
I mean, if you stop to think. If you say
it is only limited to ten. Well, hell,
don't have a Cabinet position. Why should
there be - Frank Walker is a swell guy and
so is Jim Farley. They come in and the President says, "Well, what have you got, Boys?"
"Well, our first class post offices have
increased their business so much over last
week.
"Anything else?"
"No, that is all."
"Anything else, Frank?"
"No."
"All right, next man."
Now, that is no exaggeration.
Kuhn:
Is it the right way to appeal to the President,
to speak first of lightening his load of
responsibility? Mightn't it be better to
speak first of speeding up or making more
efficient the production and then lightening
his load?
H.M.Jr:
No.
Kuhn:
You know best.
H.M.Jr:
I don't think so.
McReynolds:
I think he is at a point now where that is
the
approach,
to be
a killingbecause
job forafter him. all, it is getting
H.M.Jr:
No --
171
- 20 McReynolds: And he knows it.
H.M.Jr:
If I do that, then he says, "Oh, Henry is
critical of me." He will say, "Henry is
saying production isn't so good and this
isn't so good and this isn't right and he
is blaming me," but if I say I am worrying
how I can make things easier for him - the
man has been sick for two weeks and he gets
this today. That is why I want to hurry.it
And he says, "Well, maybe Henry is right and
why the hell haven't I thought of that," and
he will call me up and say, "You know, I
dreamed of that the other night."
Then I know we are on our way. (Laughter)
Kuhn:
He is ready for something now which will
H.M.Jr:
He will do it - Ferdie, he will think of the if he reads this thing, is, "Heavens, he is
lighten that load?
like all the rest of the God damned columnists.
He just says this isn't going right and he is
blaming me; but he says, "Henry is worried
about me, I have got too much and God knows
he is right, and if I can get a good man, and
he has somebody in mind, I won't have to be
seeing Henderson and Miss Elliott and Stettinius
and Nelson and Knudsen and Biggers and have
all those scraps and getting phoney figures
on production and all the rest of the stuff."
He may say, "Well, I will just see the one man.
That is ten people less I have got to see."
And if in his heart he knows, which he must
now, that the original committee of seven was
wrong, and Mac knows and God knows I didn't
want it --
McReynolds: We tried hard enough to keep it from starting.
172
- 21 H.M.Jr:
And he has got a hodge-podge and he knows
he hasn't got the planes. He knows what
he hasn't got, because I have fed him enough
figures. It may just hit him right. And If
it doesn't, we can take it up again in a day
or two, but Mac has been in the center of
this thing.
If he would say, "Well, Boss, you are wrong,
everything is going lovely --
McReynolds:
I think you are right. I think it will appeal
to him. You never can tell, but I think it
certainly ought to be tried.
H.M.Jr:
Thompson:
Cox:
Is there anybody that you know of, Budget or
anybody else, who has got something like this
up their sleeves?
It might counteract some of the Army and Navy
sabotage, so to speak --
They are not thinking about it except on this
priorities business which we have and the OPM
and all the different branches of OPM, this
morning, all had a vague hunch that you ought
not to freeze by statute the handling of
priorities but nobody, as far as I can find
out, had any idea as to why it shouldn't be
frozen.
The relation should be with one fellow handling
the priorities.
McReynolds: But it is scattered in too many places.
If Stimson and Knox were in favor of this
Kuhn:
really whole heartedly, would that sway the
Army and Navy officers?
Cox:
No effect at all.
173
- 22 -
Foley:
It is the generals and admirals who will be
McReynolds:
It is the gold braids that do the damage
Foley:
opposed to it.
up there.
That is the thing. They have the most entrenched kind of bureaucracy there is. You
can talk about the rest of it, but you don't
know what it is all about until you run up
against that kind. It is the worst there is.
174
Dear Mr. President:
The action of the House yesterday in amending the
Vinson priorities bill to provide for a Director of Priorities
and a detailed legislative handling of the priorities problem
is another symptomatic illustration of the dangers of handling
the supply problems of the Government in a piece-meal fashion.
The supply problems of the Government have grown
and will grow to such an extent that unless they are centralised
at one point so much of your time and energy will be continuously
used up tying them together that you will not have sufficient
time to pass on other equally important problems.
In addition to conserving your time, a coordinated
and stream-lined Department of Supply could doubtless do a
speedier and more effective job than is now being done by the
sprawled-out departments and agencies presently engaged in
handling the many related phases of the supply problem. At
least that has been the experience of every government in
modern times when it was faced with the critical situation of
arming itself quickly. It is one of the unfortunate things of
our time that the British did not create their Ministry of Supply
until July 13, 1939 - only a few months before they were at war.
In order that you may give consideration as soon as
possible to the creation of a Department of Supply, I am sending
175
-2 you herewith a first draft of a bill to set up such a
Cabinet Department together with a brief covering memorandus
sumarising the need for it and what powers it should have.
Sincerely yours,
176
MEMORANDUM
The President
To:
From:
Secretary Morgenthau
Subject:
A Department of Supply
1. At the heart of the defense program is the compelling necessity
to get enough of the best planes, guns, tanks and the other
sinews of war as fast as possible.
2. The present diffused and uncoordinated production and
procurement policies and methods are far from the best way
of getting the necessary military and naval equipment.
3. Daily the need for a centralized and streamlined handling of
the supply functions of the Government becomes more apparent.
4. In terms of the present necessities, the time is now doubtless
at hand to consider the creation of a new cabinet department
of supply.
5. The major functions of such a Department of Supply should be:
a) Over-all Requirements
To obtain from time to time our over-all needs for
military, naval and other equipment and supplies
2
177
-2-
and to see that they are matched by productive
facilities and manufacture.
At the present time, for example, it is well-nigh
impossible to ascertain with any accuracy what
aluminum capacity we need and shall need sufficiently
in advance of the need to do the job adequately. One
of the principal reasons for this is that our
over-all requirements are not ascertained in time.
b) Manufacture
To have jurisdiction over the manufacture of all
supplies for the Government:
The specifications for guns, ships, etc. can be
prepared by the users of them - the Army and
Navy - or they can participate in their formulation.
To a degree this is what is done now in the Army
and Navy. Thus, for example, Ordnance collaborates
with Infantry in the design and manufacture of
infantry equipment.
Full utilisation could be made of existing personnel.
Army and Navy officers skilled in the manufacture of
guns and ships could, for example, be detailed to
the Department of Supply to work in the arsenals
or shipyards.
178
-3-
c) Procurement
To coordinate procurement under one centralized purchasing agency:
Many of the defense articles used by the Army and
Navy are the same and should doubtless be purchased
at the same time. Many more which are not now the
same could doubtless be standardised through a central
Department of Supply.
d) Production Expansion
To tie together expansion of productive facilities:
In the past few years, particularly, there have been
many instances where uncoordinated plant expansion
for Army and Navy material has taken place. If this
expansion had been properly tied together greater
speed and efficiency would unquestionably have
resulted. Today, funds for the expansion of plant
facilities are available to the War and Navy
Departments, to the RFC, Maritime Commission and the
Lend-Lease appropriation. In many instances these funds
are available for the same or similar purposes. They
can most effectively be used through a central source.
179
-4-
e) Storage
To plan and coordinate storage facilities:
Department of Supply storage depots at key spots
would doubtless be more efficient and safer than the
present methods of storage.
f) Priorities
To coordinate and centralize the handling of priorities:
A Department of Supply should obviously have the
power to determine priorities between civilian. consumers
as well as between the Government and others. It
should also be the central source to exercise priorities
in transportation by rail, air, ship, etc.
g) Price Control
To handle price control:
In addition to the control over prices which a Department
of Supply can exercise by its powers to expand the
supply of any article and through cumulating and timing
its purchasing, it should also have the power to control
prices through the fixing of ceilings, etc.
180
- -5-
h) Requisitioning
To handle the requisitioning powers of the Government:
Upon the payment of just compensation, the Department
of Supply should be empowered to requisition any plant,
facility or article useful for defense. This is a
much needed power which does not exist now, but legis-
lation is pending to grant this power to you.
6. Annexed is a draft of a bill to create a Department of Supply.
FIRST DRAFT 5/8/43
3
A BILL
To establish . Department of Supply
is order more effectively to coordinate
and expodite the national defense pregran of the United States, and for other
purposed.
is " estated by the Beneta and House of
the letted States of Media is assembled That this set
my be eited as the Department of Supply set of 1944°.
see. 2. There used in this not, saless the extent clarity
indicates otherwise
(a) The term Sagency" includes any executive department, independent establishment, commission, office, board, bureau, service,
administration, authority, Federally overed or controlled corporation,
agency, division, or activity of the United States, abother is the
District of Columbia or is the field service, or any part thereof.
(b) the term #functions" includes any rights, privileges,
powere, immities, duties, authority, or functions, or any part
thereof.
(a) The term "property" includes any articles, goods, make
rials, things, facilities, structures, improvement), machinery,
equipment, stores, supplies, or any other property or rights in
property, real or personal, tangible or intengible, including
(without any limitation of the Sarageing) any defease article or
defense information as defined is section 2 of the set of March 11,
1941 (Public No. 11, with Congress).
181
182
sec. 3. There shall be at the seat of government as live department to be known as the Department of Supply and a
Secretary of Supply (hareinafter referred so as the Secretary),
she shall be the head thereof, and shall be appointed by the
President, by and with the advice and assount of the Someto, and
have a team of office and salary like these of the heads of the
other executive departments. Section age of the Devised Statuton,
as under (W.S.C., state so see. 2), is amended to include Department, and the provisions of Title IV of the Devised Statuton,
including all asts amoniatary and supplementary thereto, shall be
applicable to such Department If not inconsistent with this act.
sec. 4(a) There shall be in the Department of Supply as
Under Secretary of Supply, a General Counsel, and seven Assistant
Secretaries of Supply, who shall be appointed by the President, w
and with the advice and concent of the Senate, all of when shall
exercise such functions as my to prescribed by the Secretary or
required by law. The Secretary is authorised to emureise any
function - or hereafter confurred or imposed upon his through
any of the foregoing officers, or any other officer of his Departo
meat them he my designate. The Under Secretary of Supply, the
General Counsel, and the Assistant Secretaries of Supply shall
each receive a salary of $10,000 per (b) In the abounce or disability of the Secretary, or in the
meat of a menney in that office, the Under Secretary of Supply
183
-30
stall - as = the absence - / of / or
the terios 1 of - is both office, - of the - - is
of Supply - the / / shall - as - -
another Assistant Security or the / - shall w
Union Secretary, in - - as my be / w the - as
taxy. to an the Security - / - office of Ma -
Council, as the - - - - I the -
in a Director of - as / Master of
eten, the the - - - of the office - Miss
another event of a 1 in the office Invoices. w / - is
else office in an asking aspecity - this / a
of thatoffice.
any function which - be - w the regular 1 my Divisions see. So There shall to in the - of supply -
Johies as the - shall w regulations - major
to in - shall be - w the / = / which w
office, / of supply - I additional Show shall
How - as the - shall w regulations - section, and
sm. a shie addition shall be - in the 433 -
/ - shall be as - head of - - Register.
/ of sumply a Name - shall be - w of the
420,000 regular - to the service - and stall - the . -
may - - - - w - - - many - of
find - - shall be appointed w the (as - -
184
obo
/ regard to the sives meries Lane and each shall receive a
milery of 99,000 - sm. 7(a). the Provident to authorised to treater w Inspective
order to the Department of supply any - w Sessition relating w
- - or - of the addening additions
(2) the - - protection of - property w or -
the of any -
(a) the / - and shimistion of -
of the - or production of any property w police private persons, or other - w entitions
(3) the - transportation, - distribute
time of any property for national defense or other - purposes
(a) The entablishment of priorition with response ⑉
(a) deliveries of property enter - - w
contracts, orders or a
(as) the anriage of any property, w - of
property, by my - of transportations /
(ass) the carriage of - - or class of w - - of committeetion Samility
(5) The allocation of 1 for defense, for private or for aport, in the gubilia interest or to promote the millional defenses
(6) the registrianing of any propertys
(9) The control of whose - the probection of - (a) Subh other activities as the President my - so alostly
related to - or - of the Strengting that they should be administrated
185
in the Department of hopping
(b) The President is authorised to treater w Investive Order
/
- agency or function of the Department of - to - other is the - - and subject to the - provisions of this Ast or
other law as is the lease of . of - / or famotica to the
Department of Supply under administration (a).
(a) Each Insurance Order - this mobilee shall be writed is
the Federal Register, and shall also be writed in - Statutes as
large is the - view as the public I
NO. e(a) in supervisory or other functions - w any
officer of any agency with respect to - - w Senation formed to the Department of Supply when this Ast are transfersed to
the Secretary.
(b) The Secretary shall administer the Jaws relating to any or Summetion transferred to the Department of Supply to this Ast or
brought within the Juliotiction and certifical of - Department by or
- to - other provision of Ism.
- (a) The Sucretury shell - a meal or office to be side
for the Department of Supply, of such design as the President shall
- and Juliatal notice shall be Sahan of such more
(b) The Secretary shall - as the aless of such final
year, all a report in writing to the Compress, siving as account of
ing - received and - w the Department of Supply and I
make the - - w that Department, No shall also from time w Mas
1 special Investigations and reports as he - - - -
186
as be my be required to min w the President or requested to who
by either Souse of Compresso
see.
10(a) The Secretary is - subject to the sintl
service love, to appelas - officers and employees as he -
- to e his to - the September - or becomether
enfersed or imposed - his or his Department w or - to Lee,
and the - of all 1 officers and - shall be Flood
in accordance with the Cleanification 400 of 1923, as 1
(b) Notesthetending the provisions of - (w) the Searce
tary is authorised to employ - compensated or - /
" he is his discretion my - - for - or special
w service end my - present my be appointed without regard to the eivil
regard Jane, ml, se compensated, my receive compensation without
to the Classification Ast of 1923, as SEO. 11. the Secretary my eater tate continues (which be
etherwise authorized to enter into by or - to Ins) without to
be working or - blooing. No which would otherwise us.
2096; subject to the provisions of the Ast of - 30, 1936 (40
the U.S.O., - " 08220 a - 35-450, shall be state
/ provisions of - Act salely I of being entered - into w compositive Malling - to this action without
/ this write of continueting shall not be The the mellon, but this shall not be - to whichs - - of
- form of contract when such Use is the I -
187
.7.
/ w the a Secretary 14 report - with to the Impress the contracts research late w his -
without advertising - - bidding - to this /
this motive shall be - w and as in Item etc all providers of In - official of the Indian States to -
tab controls 1 - w - / - contained w this - shall - - no 100%
- 32(a) - - - - this - /
symptos or Amotions stall - - - - the
transfer or - / of - - ( office
-- - /officialed
andw/- I- of - w
(a) the - - - - - - of
any or the 85020 of - office / w the / - of
w a the - of - - office w to the m - may w - - - w - - I - lake of
/ I-of
/
mill
to
as - - w - / a as a
my / " w - bond of - - as - / of / - -
/- -/- -whit
/
/
of
Me
/
(
/ - of - n -w-the
detail
to -/ of
as1me
I w I be - - - in
188
.00
m. 33 w 422 - nice, / - - privileges, - termed, - orrated w - in respect of - -
or function / - this - = to office at - the of
the - shall / in office w m I / as as -
I and not - - / / w supported
w No with 1 w - I Increase -
or splant the head of my - - - officer w employee of w
United States, in Ma official - - in relation to the - of his official outles, shall state w - of - treater of these the - office, employee, - - of the United States to
- union this see, I the - - with - -
potition filed as - time within toulve souths after - taken . other offers, thering a - for a serving of 1 was assime
my - to obdita a additionent of the - Involved,
aller the - to to mistained w - agrieus the hand of -
- to - m - is -
w 432 Jame relating to - - - Semotion treatment
- in
this set shall, tarefar as - Issue are - and fores - offects
m. 24. to - - this w shall have - /
(a) of / - - - Sensition begand - date
- may n 1 have - as - transfer had not I
(w) of - - Senation the time - the
- in - " me vested before the - to the
189
.90
- of supply 1 have terminated as 1 transfer
bed w been under or
(a) of authorising the Department of Supply the -
w - - - w offsem, to - -
- a - w w - to Love
SHC. 15. Share is - authorized w be appropriated - as my be - to corry - the provisions of this sobe
and/ore
5/09/11
190
May 9, 1941.
My dear Mr. Presidents
I have been lying smake nights trying to
think of some way to make things essier for you in
those most difficult times.
It seems to - that if yes would ask
Congress to create a new Department of Supply as
a part of your Cabinet, and threw into this Depart
mat everything that has to do with the procurement
and production of defense articles, and other
related functions such as priorition, requisitioning, and price central, this would go a Long my
towards lightening the great lead you are carrying
so magnificantly.
I have had prepared in the Treasury a draft
of a bill to carry out this idea. On page four of
the enclosed draft you will find the guts of the
bill.
If this thought appeals to you, and I most
sincerely hope it will, I should like an opportunity
to discuss it with you at your convenience.
Sincerely yours,
(Signed) Henry
The President,
The White House.
Enclosure.
HM Jr.imp 5/9/41
By Messenger
/ 25 pm
191
May 9, 1941.
My dear Mr. President:
I have been lying awake nights trying to
think of some way to make things easier for you in
these most difficult times.
It seems to me that if you would ask
Congress to create a new Department of Supply as
a part of your Cabinet, and throw into this Departnent everything that has to do with the procurement
and production of defense articles, and other
related functions such as priorities, requisitioning, and price control, this would go a long way
towards lightening the great load you are carrying
so magnificently.
I have had prepared in the Treasury s draft
of & bill to carry out this idea. On page four of
the enclosed draft you will find the guts of the
bill.
If this thought appeals to you, and I most
sincerely hope it will, I should like an opportunity
to discuss it with you at your convenience.
Sincerely yours,
(Signed) Henry
The President,
The White House.
Enclosure.
HM Jr.imp 5/9/41
By Messenger
FIRST DRAFT 5/8/41
192
& BILL
To establish . Department of Sapply
in order more effectively to continuate
and expedite the actional defense gram of the United States, and for other
purposes.
is " stated be the Senate and Massa of of
the Matted States of in - assembled that this ast
my be eited as the Department of Supply are of 1942°.
see. 2. - used is this see, whose the ontant clauty
indicates otherwise-
(a) The term includes any - department, in
dependent establishment, commission, office, board, bureau, service,
edministration, authority, Federally over or controlled corporation,
agency, division, or activity of the United States, abother in the
District of Columbia or is the field service, or any part therset.
(b) The term includes any rights, privileges,
powere, immition, dation, authority, or functions, or any part
thereof.
(a) the term "property" includes any articips, goods, mta
rials, things, facilities, structures, improvements, machinery,
equipment, stores, supplies, or any other property or rights in
property, real or personal, tangible or intengible, installing
(without any Mediation of the foregoing) any defense article or
defease information as defined in section 2 of the set of March 11,
1943 (Public No. 11, 77th Congress).
193
SEC. 3. There shall be at the seat of government an tive department to be known as the Department of Supply and a
Secretary of Supply (horoimatter referred to as the Secretary),
she shall be the head thereof, and shall be appointed by the
President, by and with the advice and consent of the Senate, and
have a tenare of office and salary Like these of the heads of the
other executive departments. Section 198 of the Revised Statuton,
as amended (U.S.C., state 5, see. 2), is amended to include each
Department, and the provisions of Title IV of the Revised Statuton,
including all asts amountary and supplementary thereto, shall be
applicable to such Department if not inconsistent with this Act.
ORC. 4(a) There shall be in the Department of Supply as
Under Secretary of Supply, a General Counsel, and seven Assistant
Secretaries of Supply, who shall be appointed by the President, by
and with the advise and consent of the Senate, all of whom shall
exercise such functions as my be prescribed by the Secretary or
required by law. The Secretary is authorised to enurcise any
function - or hereafter conferred or imposed upon him through
any of the foregoing officers, or any other officer of his Departmeat when he my designate. The Under Secretary of Supply, the
General Counsel, and the Assistant Secretaries of Supply shall
each receive . salary of $10,000 per I
(b) In the absence or disability of the Secretary, or in the
event of a Tecaney in that office, the Under Secretary of Supply
194
-30
shall an as Secretary. In the absence or disability of both or in
the - of vacanties in bette office, - of the Assistant terios of Supply or the Company Comman shall as as Becrotary, and
another Secretary or the General Councel shall - Inter Secretary, in - enter as my be determined by the tary. the Secretary my designate any officer of his Departame
to an as the Under Security - Assistant Security the denoval
- . Director of Division, or as restorant Director of Divistem, is the abounds or disability of the officer involved, or in
the event of a meansy in the office involved. Any officer filling
another office in an acting capacity under this exhocation my else any function which night so exercised by the regular incurrent
of that office.
SEC. 5. There shall be in the Department of Supply such eajer
Divisions as the Secretary shall by regulations preseribe, which regard
Sationa shall be approved by the President. In addition, there shall
be is the Department of Supply such leaser subdivisions, sections, and
office, as the Secretary shall by regulations penscribe. 432 register
tions ender this section shall be published in the Federal Register
sm. 6. There shall to as the hand of each enjor Division of the
Department of Supply a Director, who shall be appointed w the Secretary
without regard to the aivil service I and shall receive a salary of
410,000 per - and - or - Assistant Directors (as the tary my find measury) who shall be appointed by the Secretary
195
without regard to the civil service have and each shall receive a
salary of $9,000 per SEC. 7(a). The President is authorised to transfer by Executive
order to the Department of Supply any agency - Sensition relating to
any one or more of the fallening activities,
(1) The manfasture or production of any property by OF under
the supervision of any agency
(2) The management, coordination, and stimulation of expension,
of the manufacture or production of any property by private industry,
private persons, OF other persons or entities,
(3) The procurement, warehousing, transportation, and distribution of any property for national defense or other governmental purpose,
(4) The establishment of priorities with respect to
(a) deliveries of property under any contracts, subcontracts, orders or suborders,
(11) the carriage of any property, or elacess of
property, by any means of transportations
(111) the carriage of any massage, or class of massage,
by any manner of committee facility;
(5) The allocation of property for defense, for private account,
or for export, is the public interest or to promote the national defenses
(6) The requisitioning of any property;
(7) The central of prices and the protection of and
(8) Such other activities as the President may does se closely
related to one or more of the foregoing that they should be administered
196
---
is the Department of s
-
(w)
The or President - of is authorized to / w
the - - - - the Department of I to I - Online
other is In as in - to the - providers other Department of I the - - of / a / (a). of - - - of - this des w - the
Federal (c) In / and - - this - shall to in
large is the - - as stall - miss also be I / in the / write as
officer - or Na) - - - - - other -
formod to with - to - / w the
- the - of / - this - an - - - - / to
brought or freetion (b) the / - to shall the / - the I relating to -
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- for w (b) - and Na) Juliates The of / / mild shall of shall - be - / a 1 as the or - / to be mall -
- the - shall 1 - of -
m all - . - in withing to the - as the - of New
Ing the - - - w and 1 w the - siving of as 1 of
- - / - - No shall
alsoasabe-- --/ n- -/and reports
197
.6.
as be my be required to make by the President or requested to make
by either House of Congress.
SEG. 10(a) The Secretary is authorized, subject to the civil
service laws, to appoint such officers and employees as be desus
necessary to enable his to energise the functions now or bereafter
conferred OF imposed upon him or his Department by or parent to Ism,
and the componention of all 1 officers sad employees shall be fixed
is accordance with the Classification Act of 1923, as
(b) Hotwithstanding the provisions of subsection (a), the Searetary is authorised to employ such compensated or uncompensated persons
as be in his discretion may deen necessary for partative or special
work, and any such person my be appointed without regard to the civil
service laws, and, is compensated, may receive compensation without
regard to the Classification Ast of 1923, as amended.
SEC. 11. The Secretary may enter into contracts (which be is
otherwise authorised to enter into by or pursuant to low) without advertising OF competitive bidding. No contract shish would otherwise
be subject to the provisions of the Act of June 30, 1936 (49 State
2036, U.S.C., Suppo v, title 42, seen. 35-45), shall be example from
the provisions of such Act solely because of being entered into without
advertising or competitive bidding parement to this section. The costsystem of contracting shall not be used under
this section, but this shall not be construed to prohibit the use of
the form of contrast when such use is deaned
.7.
by the Secretary. The Secretary shall report every three
months to the Congress the contracts entered into by his Department
without advertising or competitive bidding parement to this section.
This section shall be supplementary w and not in lieu of, all other
provisions of law authorising officers of the United States to enter
into contracts without advertising or competitive bidding. The therity conferred by this section shall terminate June 30, 1943.
SEC. 12(a) Each Executive Order under this Ast transferring
agencies or functions shall contain appropriate previsions for the
transfer or other disposition of records, property (including office
equipment), personnel, and unexpended balances of appropriations or
other funds, affected by such transfer.
(b) The Secretary may appropriately change the I of any
agency or the title of any officer transferred to the Department of
Supply.
(e) In the case of any commissioned officer or enlisted sen of
the Army, Havy, or Cones Gard transferred by any such Executive Order
to the Department of Supply, wash transfer shall be regarded as a
detail, revoeable at any time by the President. In addition, the
President, or the head of any agency at the request of the Secretary,
may at any time detail any officer or employee of his agency (including
commissioned officers or enlisted man of the Army, Havy, or Coast
a to the Department of Supply. such detail to be reveable in
the same manner in which 10 was made.
198
199
m 13 (a) All entere, sales, registrations, permits, - other
with terms, or quested w or is respect of - egency
or / ester tate noto and in effect of the time =
w - shall continue is offers to the - - as as 1
qualify and - - will certified - or
(w) No with active or other proceeding Issually - w
or squane the head of - again w other officer - employee of to
United States, in his official equality or in relation to the /
of his official added, shall state w - of - treatfer of time from - office, employee, or against of the United States to
another water this set, be the - - nation or applemental
position filed as any time within twelve months after 1 treater
takes offer, aboving a - for a animal of - with actime
or other proceeding to obtain a settlement of the questions involved,
my allow the same to to mistained w or against the hand of the
agency to which the treatfer is add
(a) All Ism selecting to any - - - this see shall, teacher as - less are w Imapplicable, remise
in full force and affects
me. 24. No treater - this as shall have the offect
(a) of continuing - - w beginal the date
- so 1 have at 1 - and - I
only
(N) of continuing - Qualities begend the time - the
- in which so was vested before she quester to the
200
.9.
onde) w of and work have translated is - /
bed nothere
Separtment
or
- (a) of other the / 4 is -
which is not - w office, to - - faction
SHO. authorized w w - to Immo
- 19. Thing to I 1 to w - be to canny w the providions of this w
5/88
-
201
May 9, 1941
11:15 a.m.
H.M.Jr;
Robert
Hello, Bob.
H.M.Jr:
Hello, Henry. How are you this morning.
Oh, I'm alive.
J:
Well, that's good deal of an accomplishment
H.M.Jr:
I think so.
J:
I wanted to ask you whether you know any-
Jackson:
these days.
thing about this matter of the use that is
made of marine insurance through the reinsurance. You have probably seen the
articles that have appeared lately.
H.M.Jr:
J:
No, I don't.
More than a year ago I called attention in
a speech to the danger of this insurance
situation because they do send great details
of information for insurance purposes and
of course
H.M.Jr:
J:
I'm not familiar with it. Do you want us to
get in on it?
Well, I wondered if you'd - it impressed me
as being very strange that the British,
re-insuring company in the world
been
in on
it and -I no,
if
knew
anything
hadn't the thought biggest you didn't about know it them I
we're putting the men on it, have had
on it for some time, but the difficulty is
of getting any information as to what
happens to information after it goes abroad.
See what I mean?
H.M.Jr:
J:
Well, let me inquire around. Some of our
boys might be on this, I don't know.
We know that a certain amount of information
does go abroad from that source.
202
-2H.M.Jr:
Well, I'11 inquire from Herbert Gaston
who looks after that for me and if he has
anything I'll have him get in touch with
you direct.
J:
Thank you very much.
H.M.Jr:
Thank you.
J:
That was a nice meeting the other night.
H.M.Jr:
What was that?
J:
That was a nice meeting the other night.
H.M.Jr:
Yes. Oh, you mean at Judge Lehman's.
J:
Yes.
H.M.Jr:
Yeah, that was very nice.
H.M.Jr:
I was glad to see Arthur Goodhart again.
Yes, he's fine.
J:
Great chap. Well, I'11 be seeing you.
H.M.Jr:
Thank you, Bob.
J:
Good-bye.
J:
203
May 9, 1941
12:14 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Jones.
Jesse
Jones:
Hello, Henry.
H.M.Jr:
How are you?
J:
Pretty good. Henry, you have nothing but
the highest regard for - opinion of Bill
Myer have you.
H.M.Jr:
Bill Myers?
J:
Yeah.
H.M.Jr:
J:
Oh, he's a swell guy.
That's what I thought. His name had been
mentioned in connection with some work down
here and I
H.M.Jr:
Oh, no. I think Bill is
J:
I think awful strong of him myself.
H.M.Jr:
What have you got in mind for him?
J:
Well, confidentially, strictly, I suggested
H.M.Jr:
You mean for R.F.C.
J:
H.M.Jr:
when Stettinius came over here to talk about
Schram to help him I suggested Bill Myer.
No, for Ed.
As assistant to Ed?
J:
On that priorities thing.
H.M.Jr:
Oh, oh, oh.
J:
See? I thought that Bill Myer is - in the
first place I think he has got as good a
mind and is as clear a thinker as anybody
I know.
204
-2H.M.Jr:
J:
That's right.
I know he is thoroughly honest, he's not
involved in any industry of any kind and
I thought he was ideal for that kind of
job, and 80 I suggested him to Ed but Ed
had his heart set on Emil.
a
H.M.Jr:
Oh, yes.
J:
And, frankly, I called Bill up the night
that Ed came to see me, I guess two weeks
ago or three, and just visited with him.
I didn't tell him what the job was. I told
him that things were getting pretty serious
down here and that he might have to ask his
boss to lend him to the Government again
for a few months, something like that.
H.M.Jr:
J:
I see.
And he hoped that we wouldn't ask him to
come - anybody - and that was as far as I
went with him and so the thing is up again
now and I see - I don't know what Congress
did yesterday about that priorities job but
if you agreed with me about it I'd be glad
H.M.Jr:
J:
H.M.Jr:
Well, I'11 put it this way: I'd endorse
Bill Myers for any job.
Well, what I was going to say was that I
don't see in the hell if they make that a
regular job up there why Bill wouldn't be a
good man for the place. That's what I want
to talk to you about.
Well, he's a good man anyway you put it.
put
J:
H.M.Jr:
J:
H.M.Jr:
Anyway you/lt. Well, that's what I thought.
All right, Jesse.
Feeling all right?
Friday afternoonish, you know.
205
-3J:
H.M.Jr:
Yeah. Are you going away for the weekend?
Yeah.
J:
Well, good luck.
H.M.Jr:
Thank you.
206
May 9, 1941
2:45 p.m.
RE TAXES
Present:
Mr. Sullivan
Mr. Haas
Mr. O'Donnell
Mr. Blough
Mr. Tarleau
Mr. Bell
Mr. Gaston
Mr. Foley
Mr. Kades
Mr. Schwarz
Mr. White
Mr. Kuhn
Sullivan:
The gladiators have changed uniforms. They
H.M.Jr:
What do you mean?
Sullivan:
Well, they haven't any seconds either. Isn't
have swapped sides.
Ed coming?
H.M.Jr:
I don't know. I think he has overslept.
Sullivan:
I delivered your message to the gentleman across
H.M.Jr:
He thought he would?
Sullivan:
Yes.
the street. He thought he would have to get
direct orders.
207
-2H.M.Jr:
I think it is about time some of the boys
across the street did get some direct orders.
Was he sore?
Sullivan:
He was disappointed.
H.M.Jr:
Well, let him get some orders.
(Mr. Foley, Mr. Kades and Mr. Schwarz
entered the conference.)
H.M.Jr:
Ed, last night you overslept. What have you
Foley:
Trying to get down here, sir.
H.M.Jr:
Can't you wait until over the week-end?
Foley:
I went to that dinner where I listened to
H.M.Jr:
That is where you went first.
Foley:
Well, I went from there home. Congressman
been doing since lunch?
your house guest last night.
Sumners from Texas made the worst speech I
ever heard in my life.
Sullivan:
You ought to hear him when he isn't brief.
Foley:
Well, it got me down. I slept until nine
'clock.
H.M.Jr:
Well, who comes first?
Blough:
I suppose I should come first since I am
attacking the war profits idea and defending
the invested capital idea.
H.M.Jr:
Yes.
Blough:
I think for both of us I might say that the
problem of selecting actual examples from the
208
-3data available proved too much for our limited
time. We have some actual examples, but we
will have to give you some hypothetical cases.
We shall not, however, give any hypothetical
cases that we do not - that we are not sure
exist. I mean, we are sure these things exist
and we can get the cases if we have any more
time.
Because the Treasury plan of last summer was
essentially an excess profits tax plan rather
than a war profits tax plan, I will devote
myself primarily to advocacy - or pointing
out examples in which the excess profits plan
would be necessary in order to cure the difficulty which is complained of.
(Mr. Bell entered the conference.)
Blough:
You recall that the plan last summer provided
that the corporation would be able to earn in
the taxable period, free from tax, what it
earned - the rate on invested capital which
it earned during the base period with a maximum
allowance of ten percent and a minimum of four
percent.
In other words, if in the base period it earned
on the average less than four percent, it was
allowed to earn four percent on its capital
free from tax. If in the base period it earned
more than ten percent, it was allowed to earn
in the taxable period ten percent without tax.
If during the base period It earned between
four percent and ten percent, it was to be
allowed to earn free from tax the percent it
did earn, so it was an invested capital plan
but with a scale of credit between four and
ten percent, six percent on the first five
hundred thousand dollars of capital; between
four and ten percent it was a - we had a sliding
scale there, but otherwise it was an invested
capital plan.
209
-4Now what, then, is wrong with the war profits
type of thing which we now have in the law;
namely, a tax in which the average earnings
of a pre-emergency or pre-defense period are
set up as standards of normal profits and
above that standard, any profits above that
standard are to be subject to tax; but no
profits are to be subject to tax until they
are in excess of that standard.
Now, one of the horrible examples that is
to come up is the case of the corporation
with very high return on invested capital.
During the base period and now.
We have some figures on the Coca-Cola Company,
which has figured in these proceedings to some
extent. The figures I am giving are quite
approximate. The rate on invested capital
one
half
during
so
the concern is allowed in the taxable period
to have been about
appears percent the forty-eight base period, and
to earn about what it earned during the base
period, which figures to about forty-eight
and a half percent on invested capital before
it would be subject to any tax; and at the
rates of taxation
would
pay
and
million dollars on
present Coca-Cola one half Company in without tax about change, three the
estimated 1940 earnings, which means that
it did earn more in 1940 than it earned during
the base period.
H.M.Jr:
Excuse me. You are now talking dollars. A
minute ago you were talking percentages. It
is kind of confusing.
Blough:
I am sorry, Mr. Secretary. I will try to
H.M.Jr:
You were talking forty-eight percent and now
straighten that out.
you are talking three million dollars.
210
-5Blough:
What I really was doing was hunting papers
and letting my mouth talk. I beg your pardon.
The forty-eight and one half percent represented
about twenty-six million dollars, which it
would be allowed to earn during the base period.
Some slightly more than that. So until it
earns more than the twenty-six million dollars,
it isn't going to be subject to tax.
Now, that twenty-six million dollars represents
a very high percentage on its invested capital.
Now, the question there is this. It comes
down to this. Should Coca-Cola with such a
high return on its invested capital pay a
special tax, an excess profits tax, not only
on any increase in profits above what it made
in the base period, but also on some of those
profits it made during the base period?
Should we say to Coca-Cola that, "You will be
allowed ten percent return on your invested
capital, maybe nine or ten million dollars,
and on everything above that, you will be
subject to tax"?
Now, an argument which can be made in favor
of that, I think a strong one, is that a
concern does not need more in many cases than
six or eight or ten percent income to keep
it in business, to keep it operating at its
present level, and to keep it going. Some
concerns with high risk do, but certainly very
few concerns in the situation of Coca-Cola
need forty-eight percent in order that they
may continue to function and an excess profits
tax needed in the time of emergency to be taken
from the economy where it will hurt less
certainly can come from some of those profits
above the level of six or eight or ten percent,
and that is one of the criticisms which is made
of the present law and which I think is a valid
one.
211
6-
Coca-Cola is not a bad example. Now, do you
want me to proceed to the end of my statement
or do you want to stop at this point?
H.M.Jr:
We will just try this. This is new. Would
you (Tarleau) like to try to break down his
case on Coca-Cola or would you like --
Tarleau:
Well, I want to break down his case on Coca-
Cola and demolish it, but I think I had better
do that after he has completely stated his
position.
H.M.Jr:
The only trouble is if you wait too long,
maybe my mind will close and I will think
he is O.K.
White:
I thought he was going to present the other
Sullivan:
They switched.
White:
Oh, I see.
H.M.Jr:
I gave them the option.
White:
Oh, I didn't know you did.
Blough:
side.
The reason for the switch was not primarily
one of intellectual honesty but because many
of the objections come more closely in
Mr. Tarleau's field than they do in mine.
Well now, a second argument, aside from this
first one, which is that there are many
profits - there are many companies with
which can be subjected to a special
inthe
anand
of
profits hurting tax emergency economy, this that kind those without profits
should be taxed, even though they are not
in excess of the base period earnings,
212
7-
that is the first point.
The second point is this, that the present
tax is not a tax on defense profits. It
just pretends to be a tax on defense profits.
It takes 1936 to '39, averages the profits
of those four years and says, "Now let us
assume that those profits are normal profits
and anything that is earned over that in the
taxable year is due to defense," and having
made that primary assumption, they go on as
if that were true when as a matter of fact
it is not true in numerous cases.
For instance, we know that business cycles
have different intensities in different
industries and in different concerns. We
know that the lows are lower in some concerns
than in others. We know that the date when
business is depressed is different in some
businesses than in others, so that company
"A", let us say, was abnormally depressed
during the base period. It may have had low
prices for its product. The Spanish Civil
War may have had some effect on it, the drouth
or something else. It had very low earnings.
H.M.Jr:
The Democratic party?
Blough:
Well, we wouldn't admit that, I am sure.
(Laughter) I will come to that in my next
illustration.
It would have earned more in this taxable
year regardless of the defense program. It
might even have earned, and there are many
companies that would have earned more in
the taxable year if there hadn't been any
defense program than they will earn.
Now, the assumption that all increases in
earnings over that period are defense profits
213
-8-
is simply not tenable. It isn't so.
Or take company "B". Company "B" had abnormally
high earnings during the base period. That is
due to the Democratic Party, shall we say?
(Laughter) It had abnormally high earnings.
Its cycle of business was high then or some
circumstances were such as they often are in
a business that many types of abnormalities
gave it high earnings.
In a taxable year it would have expected in
the normal course to have earned less than
it earned during the base period, but due to
defense it doesn't earn less. It earns as
much as it did during the base period. That
amount is surely really defense profits.
It is not subject to tax under this plan.
Now, the point is this, that if you could
chemically strain or precipitate out or separate defense profits from other profits and
say, "These are defense profits, then certainly they would be suitable for very special
heavy taxation; but if you can't do that, if
what you do is a rough approximation, hits
many profits that are not defense profits,
misses many profits that are, wouldn't it be
better, is a valid suggestion, I think, to
go to some other system of determining what
is excessive and not try to rely on what is
a profit for defense.
Now, the third and the last point I am going
to try to make here, and we will keep this to
most important matters, is this, that the tax
in its present form operates to maintain old
established businesses and monopolies in
their present positions.
H.M.Jr:
You mean the present tax law?
214
9-
Blough:
The present tax law, the present type of law,
on the average earnings basis, operates to
maintain monopolies and other established
businesses in their position and to hold down
growing - new and growing competitors from
being able to take a position - a competitive
position.
Suppose we take again some hypothetical
companies. Take company "D", which during
the base period has had heavy profits due
to monopoly, let's say. There are many such.
Or, due to frictions, or what have you. Maybe
due to good management, for that matter.
But it has had heavy profits and it is an
established business. It has been earning
fifty percent a year on its capital.
Now, it can go into this taxable period
continuing to earn its fifty percent with
no special tax.
Company "E", its competitor, was, during this
base period, struggling for a foothold, earning
very little money, increasing its reputation,
and was just getting into a position to compete successfully with the big company and
to grow strong on its earnings during the
taxable period.
Company "F" didn't start in to business until
the taxable period. To company "F" we allow
a certain percent, eight percent, seven percent,
or whatever it is. Under the present law it
is eight percent.
Company "E" we allow eight percent, or if that
is reduced in some subsequent time as is proposed, we would allow it even less.
Company "D" is allowed fifty percent. I think
it is not hard to see that companies "E" and "F"
215
- 10 -
will have a whole lot harder time trying to
compete successfully, develop their position,
grow strong and break the monopoly grip of
company "D" than they would have in the
absence of this tax.
So that the tax as it operates at present in
this contention establishes monopoly businesses
in their position and makes it difficult for
new competitors to come along and dislodge them.
Now, there are other points that could be made.
I think these are the most important, and in
order not to unduly complicate the situation,
I will just stop at that point.
H.M.Jr:
I think it is a very able and not too passionate
Bell:
Very good.
H.M.Jr:
Now, how about you? (Tarleau)
Tarleau:
Mr. Secretary, it is the position of the
presentation.
persons taking the opposite side from Mr.
Blough that the object of this bill is to raise
an excess profits, or war profits, call it
what you will, as against the normal corporate
tax and the ordinary surtax is to prevent war
profiteering. It is to see to it that pe rsons
don't get wealthy, don't grow fat, as the
President said and as you have said before
the Ways and Means Committee, because of the
acceleration of the economy due to national
defense expenditures.
It is our position, therefore, that if
corporations earn more today than they earned
during a normal base period, we can with fairness and we can with some justice state that
they are benefiting directly or indirectly
in a great number of cases because of the
216
- 11 acceleration of the economy due to the
defense expenditures, even though they are
not directly affected by war contracts
themselves.
In other words, in times of stress such as
we are undergoing now, if a person is more
prosperous in the time of stress than he is
in his normal times, we can fairly levy an
excess profits tax upon him.
On the other hand, it should be bornein mind
that corporate profits already to the extent
that they are profits over and above expenses
are subject to thirty pe reent taxes, that
everyone who is making money, whether they are
making more or less than they did prior to the
defense period, is paying heavy Government
taxes and should continue to do so, but he
is not escaping tax.
The question is, should he bear an additional
tax because of some excess profits concept.
Now, for example, let us take two companies.
There is one company that during the base
period, 1936 to 1939, earned thirty percent
on its invested capital. As soon as the
war broke out it became immediately cut off
from half of its foreign markets. It was
very adversely affected by the war situation,
such as the moving picture companies, for
example, and some other companies. Its
profits were immediately cut from thirty
percent on its invested capital to fifteen
percent on its invested capital.
There is a corporation in another line of
business. Prior to the defense period it was
making, like American Car and Foundry, for
example, a very small amount, two or three or
four percent on its invested capital.
217
- 12 Immediately upon the war situation developing,
it goes up and makes fifteen percent on its
invested capital. Giving a credit to both
of those companies of approximately the same
amount, it would be taxing almost as heavily
a corporation which lost about one half of
its return on its invested capital due to
defense expenditures as you are taxing a
corporation that has doubled or tripled, per-
haps, its income due to defense expenditures.
In other words, the return on invested capital
alone does not reflect the position of the
company or the change in the position of the
company due to the war situation and the way
my side views it for the purposes of this
argument, our endeavor ought to be that no
company should prosper, that there should be
no acceleration of profits due to the expenditures that we are making now for national
defense.
That is the first point that we have to make
in opposition to an invested capital concept.
We feel that we will be even worse off now
than we were hitherto. We feel that the very
purpose of the tax is not achieved thereby.
In the second place, assuming that you wanted
an excess profits tax, the Treasury plan nor
no plan that has yet been suggested gives
you an excess profits tax which will sustain
any rates which with good conscience you can
at this time put on in excess of a thirty
percent rate.
Now, I am getting into what may be the more
legalistic part of this argument, but I think
it is something overwhelmingly important if
we go from an average earnings over to a purely
invested capital concept that it should be
pointed out. It should be striking that
218
- 13 -
Mr. Blough cites, as a return on invested
capital of Coca-Cola, forty-eight percent.
Now, of course, that to an ordinary investor
is a very unreal concept. He isn't buying a
share of Coca-Cola and getting a forty-eight
percent return. That is very obvious to
everybody. Consequently, the first thing
that requires attention would be, what is
your concept of invested capital.
Now, in the law itself we have defined invested
capital in the old Treasury plan and in the
law as it now stands, we have defined invested
capital as money or property paid in for stock,
Money or property paid in for stock, Mr.
Secretary, at any time, money or property
paid in for stock in 1890, 1900 or 1939.
That makes no difference.
Moreover, because of the difficulties of
evaluation of the money or property paid in
for stock - of course the question comes in
on property paid in for stock - what was the
value of the property at the time it was paid
in for stock, we have had to arbitrarily assign
a basis to that property and that basis is,
what the basis of the property is in the hands
of the corporation for the purpose of determining
gain or loss on the sale of the property, which
leads to the following hypothetical illustration.
Suppose in 1900, back at the turn of the century,
"A" and "B", both brothers, inherited real estate
from their father, equal sized blocks of real
estate, each worth a hundred thousand dollars
in 1900.
In 1920 brother "A", whose real estate was
worth one million dollars at the time, put
that real estate into a corporation in exchange
for the stock of the corporation.
219
- 14 -
Brother "B" waited until 1924 to do exactly
the same thing. He took his real estate, which
was worth a million dollars, and put it into
the hands of a corporation.
In 1925 both brothers sold their stock to
outsiders, so that they are completely out
of the picture and now we are concerned with
the invested capital in 1941 of "A" corporation,
which was the corporation of "A's" real estate,
and "B" corporation, which was the corporation
that incorporated "B's" real estate.
In the case of "A", who incorporated his real
estate in 1920, the invested capital of that
company is one million dollars, the value of
the real estate at the time it was incorporated.
In the case of "B", who incorporated his real
estate in 1924, instead of the real estate instead of the invested capital being a million
dollars, the invested capital is a hundred
thousand dollars.
H.M.Jr:
Why?
Tarleau:
The invested capital is a hundred thousand
dollars, Mr. Secretary, because the cost of
the land that was transferred to the corporation
in exchange for the stock of the corporation,
while worth a million dollars at the time,
cost "B" only a hundred thousand dollars back
in 1900.
Bell:
Is that by reason of the revenue legislation?
Tarleau:
Yes. In the Revenue Act of 1924, we provided
such a transaction took the
did not take the
corporation
property time
it place,
at put the
value ofthat
thewhere
property
at the
was
into the corporation, but took the property at
220
- 15 the cost to that predecessor owner.
In 1920 the law was just to the contrary.
The law of 1920 said, "We disregard the basis
of the predecessor owner," and you take the
value of the real estate as of that time.
This is just one example of many that could
be cited and many that have been called to
our attention whereby the very concept of
invested capital is creaking and is loose
and leads to inequities.
In the second place, the amount of invested
capital itself in a corporation and the amount
of return that that invested capital in a
corporation should have in order to have a
fair return, as even Mr. Blough admitted,
varies tremendously from one industry to
another. A spread of two percent or even
of four percent isn't adequate to take into
account the different risks between different
businesses.
Capital put in some business demands a much
greater return than capital put into other
businesses. So far as the Treasury plan is
concerned, the differential as between busi-
nesses is only taken into account on what they
earned during the base period, that is, we
allow between six and ten percent, depending
upon what they earned in the base period.
I think the testimony at the hearings and
what we have heard from taxpayers indicates
that that is far from sufficient to take
into account the risks between different
types of business. Therefore, I think the
invested capital concept hasn't proven itself
sound on that point.
The third--
221
- 16 H.M.Jr:
How much more time would you want, Tarleau?
Tarleau:
I am willing to drop it now.
H.M.Jr:
I mean how much more do you want to go? Five
minutes more?
Tarleau:
No, I am willing to stop it now, Mr. Secretary.
H.M.Jr:
What was your third?
Tarleau:
Well, I was going to take into account the
point that Mr. Doughton and the others feel
so keenly about, the inequity of persons
buying into the corporations --
H.M.Jr:
Go ahead and develop that.
Tarleau:
Well, going back to the point where we had
two corporations each having the same types of
assets but acquired in different years, exactly
the same type of real estate, one having an
invested capital of a million, the other
having invested capital of a hundred thousand,
both of the brothers have disappeared out of
that picture many years ago. Investors have
bought in, thinking they had a million dollar
corporation and figuring their return on a
million dollar basis.
When we put this act through, why of course
one group is treated on a million dollar
basis and the other group of investors is
treated on a hundred thousand dollar basis.
H.M.Jr:
Let me ask you a question. I realize it is
a difficult thing that you have gone through.
You have done it very well. But these particular questions, couldn't those be corrected
legally? I me an, can't you correct those
things? I mean, supposing you went through
222
- 17 what we call the 1940 plan of the Treasury.
Wouldn't there be provisions made for cases
like this and any others which would be hit
particularly on account of peculiar circum-
stances, so that there would be some compen-
sating factor?
Tarleau:
Yes, certainly - we must make provisions for
a great many of those types of cases if we
go back to the Treasury plan. That is un-
doubtedly true.
H.M.Jr:
Couldn't that be done?
Tarleau:
A hundred percent, ninety percent, eighty
percent, I don't know. To a certain extent
It can be done.
H.M.Jr:
Seventy-five percent?
Tarleau:
To a certain extent it can be done.
H.M.Jr:
It can be done as they develop. We got through
Bell:
For the purpose of excess profits tax, could
Tarleau:
You see, they are placed on a comparable basis
today because of the fact that I have assumed
one relief provision very quickly this spring.
they all be put on a somewhat comparable basis,
such as the "A" company you spoke of?
that here is the same type of real estate
earning the same amount of money. Both of
them appeal to their base period experience,
which is, of course, the same; and consequently,
that inequity doesn't play any part today.
The other countries have been faced with the
same problem on invested capital, isn't that
true? The whole question is one of evaluation.
It is one of the monumental obstacles to a
223
- 18 -
fair excess profits tax.
Bell:
I feel a good deal like the justice of the
peace. Blough made his argument and I said,
'You win." No use of you arguing, Tarleau.
Now that you have argued, you win. (Laughter)
Blough:
H.M.Jr:
It is what we have been struggling with for
the last year, Dan.
Well, the way I feel is this. I don't suppose
any tax law can be written so that we can ever
be entirely fair. I mean, not as long as you
have got the present structure. Although,
as I say, you can make special provisions for
exemptions.
But just as I accused the Congress of remaining
static in their thinking on non-defense spending,
there are an awful lot of waters gone over the
dam since we appeared there last summer, and
the situation is a great deal different and
a lot of people are talking about - so far,
rather glibly, about all our effort and every-
body is, before we get through, going to have
to make sacrifices, depending upon their positions
and I frankly - I just couldn't face a group
and explain that we had acquiesced to a law
which would freeze the profits of the corporation,
never mind when the money was put in, but
whenever it was put in, whether it was 1800
or 1900 or whenever it was, that if a man
should be fortunate enough to be one of the
original stockholders, that that profit should
be frozen at thirty or fifty percent and that
those people who have bought in more recently
will be the sufferers.
On the other hand, the people who did buy
their Coca-Cola and held it, and there are
such people, would be given an advantage which
224
- 18a-
they are not entitled to, particularly if
they take their earnings or the dividends
and then invested those over a number of
years in totally tax exempt securities.
I really think, John, unless it goes against
your fundamental beliefs - if it does you
don't have to - nobody has to do anything he
doesn't believe in - that after listening to
this and everything, I would like you to point
this out to Congress.
Sullivan:
You mean to --
H.M.Jr:
That under the present system, the way it is
written now, that it gives certain people freezes them at an advantage and makes it
so that they do not contribute their fair
share of their wealth through taxes to this
national defense program, and that we here
believe that there should be some kind of
law devised that everybody as near as possible
should make their fair contribution, whether
he is in the ten thousand dollar bracket or
the half million dollar bracket or - and the
way it is devised now, it not only exempts
certain people but freezes that situation.
Sullivan:
You mean corporations?
H.M.Jr:
Corporations.
Now, is that a request which you can intel-
lectually feel free to present?
Sullivan:
I presented that same argument for three
months last summer, as forcefully and as
strongly as I could; and I think I was in
a better position to present it last summer
than I am now, because there was no doubt
in my mind last summer that as a result of
freezing the base period excess profits we
225
- 19 would be confirming a monopoly in the hands
of an old, well-established concern as against
a new or developing concern.
I don't think that we have seen any evidences
of the operation of that competitive advantage
so far, and I know we will be asked that.
H.M.Jr:
I didn't mention that in my statement just
Sullivan:
Well, I mean that is the essence of the com-
H.M.Jr:
If you didn't notice, I very carefully avoided
Sullivan:
I know it, but that is the reason for the
complaint, isn't it?
H.M.Jr:
No. Did anybody follow me very closely on
what I said?
Sullivan:
I followed you closely, but I thought that
Gaston:
now. If you listened carefully, I didn't
talk about competitive advantage among operators.
I didn't mention that.
plaint, sir.
that.
must be --
Yes, you were talking about the competitive
advantage of two concerns, one of which was
able to freeze earnings based on their other
earnings. You weren't speaking of competitive
advantage. You were speaking of just the
inherent injustice, as I get it, of being
allowed to make profits on that scale simply
because they always have made them, and that
other industries generally, not their competitors, but other industries generally are
being taxed on a different basis.
Sullivan:
On the assumption that their increase in tax
is due to the defense program.
226
- 20 H.M.Jr:
In part. John, we are talking here about
profits and I think that we are on unsafe
ground in a tax bill to be talking about
monopolies, you see.
Sullivan:
Yes.
H.M.Jr:
I mean, I don't think that that is particularly
a place to talk about it. I mean, if you want
to go up and talk about profits, we should not
talk about monopolies. We can each have our
own opinion about it. The thing that I was
thinking about was this, from listening to
them.
The man who invested in Coca-Cola in 1910,
one hundred dollars, will be getting a fortyeight dollar a year dividend.
Sullivan:
No, I don't think that is so.
Tarleau:
Well, that is close enough.
Sullivan:
Tarleau:
All right, go ahead.
That is close enough to be fairly accurate.
Haas:
It might be seventy-five on the first one,
H.M.Jr:
You say it is close enough?
Tarleau:
I think so, don't you, Roy?
Blough:
It is very large. Everyone will agree to
The original man who put in a hundred dollars
in cash for a share of Coca-Cola, on that
one hundred dollars of invested capital, they
are earning a return you (Blough) say, of fortyeight percent.
because that forty-eight is the average.
that.
227
- 21 Sullivan:
Go ahead.
H.M.Jr:
Now, for us to say or for us to acquiesce
by keeping our mouths shut that this company
should be permitted in these times to con-
tinue to make earnings at that rate without
making a heavier contribution than those
companies who are earning ten percent on
their original investment, I just say I
think we are not asking them to do everything that they might under the present
program. Whether those additional earnings are due to national defense or one
thing or another, the fact remains that
they are doing it and that we need a tre-
mendous amount of money to pay for the
armaments to defend this country.
Now, these people - if we stayed that way -
would continue to do just that, and I
realize perfectly it is tough on the fellow
who bought his stock yesterday, and is only
going to get six dollars on his hundred,
but that is his hard luck just the way the
fellow who was earning thirty-six hundred
dollars a year has to go in the Army and
earn three hundred and sixty. That is his
privilege or hard luck, whichever way you
want to look at it. I mean, you can put
up just as big an argument that the fellow because during '36 to '39 his individual
earnings averaged four thousand dollars a
year, why shouldn't he continue to get it?
I mean, if you want to carry it out. Why
should he have to only go out and get a
dollar a day? And I see Jere Cooper foaming at the mouth about the fellow who made
a couple of hundred thousand dollars while
he was oversea getting gassed four times
and I - I think one is as logical or illogical as the other. But I should say I will
228
- 22-
never - I mean, I am not going to - you
just continue. I will be back in a minute.
(The Secretary left the conference.)
Bell:
Is the definition of invested capital, as
Tarleau explained it, a little narrow? Why
should it be what the man actually puts in?
Why shouldn't it be what they have ploughed
back? That is the invested capital.
Tarleau:
Our definition of invested capital is money
paid for stock plus reinvestments.
(The Secretary returned to the conference.)
H.M.Jr:
What do you think, John?
Sullivan:
I think this, sir. I think we are all con-
vinced that there are things that are wrong
with both systems. Roy and Tom and I are
convinced that whatever we do to either
system, there will be inequities left in
it that we won't be able to iron out. We
started a revenue bill. We were beaten
overwhelmingly on this thing last year,
and the question is whether to leave one
system which has its defects for another
system in which we know there will be other
defects. Now, if we are to renew the fight
we waged last year, I think it would be
folly to start until we put it up to the
Congressional leaders and have gotten their
opinion. We had two friends, one in each
body, last year, Jere Cooper in the House
and Senator LaFollette in the Senate. I
think if we were to start without any warning to the Congressional leaders, it would
be very much more of a bombshell than any-
thing that happened last year, and I think
it might very seriously jeopardize the
standing of the Treasury in regard to the
229
- 24 -
rest of the revenue bill.
H.M.Jr:
Then let's do it this way. It is time to
get out of here at a quarter of four.
Supposing you go up on the Hill and see
Doughton and you can put it entirely on
me, you see, if you want to, and say that
I feel that I would like to have the Treasury
express itself and point out some of these
things. Say, "A year has gone by. Four
billion dollars last year looked like it
would take care of the national defense,
and now it is forty billion, or just ten
times as much. We have gone just that far.
You have got a million and a quarter men
under arms at a dollar a day. The situa-
tion is just as different today - it is
ten times worse today than it was less
than a year ago. If we expect the people
to buy our bonds and put their savings
in there and the boys to go out and work
like hell ten or twelve hours a day, and
these fellows to work in the factories and
all that, that the people who are getting
fat out of this tremendous program have got
to make a bigger share of contribution than
we had contemplated before," and that is
the way I feel. How to do it, I don't know.
But I do feel very, very strongly that I
would like to express that opinion, but I
don't want to do it without first talking
to him.
Now, would you be willing to carry that
message to him?
Sullivan:
Yes, I would be willing to carry the message to Garcia, but I think it would be
very much more effective if you could have
Jere and Mr. Doughton down here.
H.M.Jr:
Well, I can't do it before Monday.
230
- 25 Sullivan:
Ihere
didn't
know whether
tomorrow
or not. you were going to be
H.M.Jr:
No, I am not. I am more tired mentally
than I have been any time since we last had
a tax bill.
Sullivan:
Right. So am I. I started tired and I have
never relapsed. I know exactly what you
mean.
H.M.Jr:
So if they will wait until Monday morning
and postpone seeing you, I will be back
bright and early Monday morning and put the
thing up to them.
Sullivan:
I think that we should do that, sir.
H.M.Jr:
All right.
Sullivan:
Because this is--
H.M.Jr:
Were you going away tonight anywhere?
Sullivan:
No, sir, I am not leaving town until this
thing is through except the twenty-eighth
of June.
H.M.Jr:
You call me up after supper, call me up
Sullivan:
No, sir. Oh, you are going home to New
York tonight?
H.M.Jr:
The minute we get through, I am getting in
about - I will still be awake around eight
o'clock your time. It is nine o'clock daylight saving. Are you out for dinner?
the plane. I have held the plane since two
o'clock to have this meeting.
Sullivan:
You want me to call you at eight o'clock?
231
- 26 H.M.Jr:
Standard time.
Now, just before I do this, let me ask you
a question. In what I am preparing to put,
is there any fundamental difference between
you and me?
Sullivan:
Just this, that you are proposing this
change so that no one will get fat out of
this defense program, and that is not con-
H.M.Jr:
sistent with forsaking average earnings.
That is not consistent?
Sullivan:
No, sir, it is not, because if a man is
not - is allowed to earn no more than he
earned in the four base period years,
without subjecting it to tax, then he is
not getting rich out of the defense program.
Gaston:
I think rather you meant to say that nobody
should make extravagent earnings. Nobody
shall make extravagent earnings during this
defense period.
H.M.Jr:
That is all I am saying.
Foley:
It isn't a question of making extravagant
earnings. It seems to me it is a question
of making people who have ability to pay,
pay for this program.
White:
That is the point.
Foley:
I mean, if you are going to double or mul-
tiply by four the taxes that I have to pay,
and my income is still the same, why the
hell isn't it just as fair to do the same
thing with the corporations? They can pay.
They are making money. It has nothing to
do with what the guy was making before.
233
- 28 moved up before you know it. But we beat
the gun on the question of going after
people's savings. We beat the gun on the
three and a half billion dollar people's
taxes. We beat the gun on a billion dollar
savings of non-defense expenditures, and I
think the other thing, the important thing,
as I see it now - God knows I make enough
mistakes, but I have had enough time -
that I would be derelict in my duty if I
didn't go up there - and I am perfectly
willing to go myself, I mean publicly, and
simply talk about the principle of the thing,
that the people who are making the money,
whatever it is, the fellows that are making
the big sums should contribute in a large
way toward making this country strong.
Now, I can't write a bill and I shouldn't
have to, but I can have the feelings. I
think one thing after another. I have
been lucky enough, through hard work and
by listening to my advisers to have been
right up to now, and I think the biggest
contribution that we can make toward national
unity in making this nation strong is to go
after these fellows that have been getting
unduly fat out of the existing situation,
no matter how it hits them. Now, that is
principles. It isn't law.
Sullivan:
I am in thorough accord with that principle,
Mr. Secretary. There isn't any doubt
about that at all, and if this proposal
through with these surtax rates - you
of a fellow getting
fat. It has
those funds and that fellow is get
goes speak tion doesn't get fat. to going A distribute corpora- to
it and he is going to get an awful sock.
H.M.Jr:
Well, John, but you do. You let the corporation get fat because it doesn't begin
234
- 29 -
to pay until its earnings exceed the '36
to '39 basis.
H.M.Jr:
It doesn't being to pay in excess profits.
That is right.
Sullivan:
But it pays a corporate tax, and then it
Sullivan:
pays out its dividends, and the people who
own the corporation then pay through the
nose.
H.M.Jr:
It may pay out the divididends; it may.
Sullivan:
Well, we haven't any evidence yet that they
Foley:
We have got Viscose, with sixty-five million
dollars of accumulated surplus. They weren't
paying out the dividends.
H.M.Jr:
Well, the point - what I think is going to
have failed to do that.
happen, what it looks like to me is this,
that if we go to 30 percent and all this
other, you have got General Motors and U.
S. Steel, Chrysler, up to a certain point,
but then the jump from there on this year
isn't going to be like what I think it should
be. It looks to me as though their increase
is very small. Is that right or is that
wrong?
Tarleau:
I think that is right.
H.M.Jr:
General Motors' and Chrysler's and DuPont's
and those companies'.
O'Donnell:
First quarter Chrysler earnings are down
from last year quite radically. They are
down, I think, in the neighborhood of
fifteen million to about nine million,
235
- 30 -
but personally, I. can't reconcile it with
their great increase in unit sales, and I
think there are some charges in there that
are perhaps quite different from last year.
General Motors shows the reverse picture.
H.M.Jr:
And so does U. S. Steel.
O'Donnell:
And shows they are advancing up.
H.M.Jr:
John, that is the point, you see, and if,
for instance, U. S. Steel and those others
will show twenty-five, fifty percent more
earnings this year than they did last year
and we sit here and don't take as much of
the increase in '41 calendar as we did in
'40, I think it is a weak link in our arma-
ment.
Sullivan:
Then the thing for us to do and the only
way we can get United States Steel is to
abolish the invested capital and then they
have to pay on whatever their increase is
over the base period here.
H.M.Jr:
But you see, John, here is the thing. All
I am asking to do is, for you or me--
Sullivan:
Yes, sir.
H.M.Jr:
I agree with you we should warn the fellows.
You get in touch with them and tell them
just how I feel. I don't want to be dragged
into the technical discussion, but I am
more than willing Monday to go up there and
talk about principles, and if they say,
"Why didn't you say this thing when you
were up here two or three weeks ago, couldn't
I say, Gentlemen, to be just as frank as
I know how, I wasn't wide enough awake to
the situation then, and I didn't realize
236
- 31 -
it until these returns came in and this
thing has been brought to my attention.
Now I know. Maybe I should have seen it
two weeks ago. What of it? I didn't know
that defense was going to be forty billion
dollars last June or July and nobody else
did. I didn't know that Greece was going
to fall, either, or Yugoslavia, or Rumania.
And nobody else did. But I see it now, and
I want to say it."
Let me say it. But put them on notice this
afternoon, will you, John?
Sullivan:
H.M.Jr:
Yes, sir, I will.
That certainly on the principles you and I
must see eye to eye.
Sullivan:
Absolutely, sir, and--
H.M.Jr:
And I would love to say it on Monday.
Want to say something, Tarleau?
Tarleau:
No. I think - if I may just give a personal
word about this thing, I think your position
is as defensible now as it was when we
argued the thing out last June, John. I
think the Treasury bill that we put up there
last June and on which we got licked was a
bill that we can, with good conscience, go
up there and work for. I don't think the
issue is as completely black and white,
however. I don't feel, personally, it is
as completely black and white as Harry and
the Secretary and Ed feel about it. I
think they have a good many arguments on
their side of the picture. But if the
Secretary, having heard both sides presented
to him, wants to go up on the Treasury program of last June, we certainly have enough
237
- 32 prepared to back him up on it. We have
got enough right to go up there morally
and legally, I think.
H.M.Jr:
Tarleau, again, I don't care whether it
is last summer or the 1918 program or the
1941 program, but I see it clearly now.
We have beenwrangling around, and I have
taken it out on myself and I have taken it
out on John, but I see it, and I see how
I feel.
Now, it is like any other situation. I
shouldn't be Secretary of the Treasury if
I knew how towrite a tax bill. That isn't
my job any more than I ought to know how
to make out my own income tax. That isn't
my job. I am here as the President's
representative, and I know when I am say-
ing it, if I could see the man, that he
would be in entire sympathy, and I have
seen these other things in time, and I
see this clearly, and I don't have to run
for reelection and that is why I can say,
and these Congressmen who have to run for
the next election won't say it - but I
shouldn't know how to write a tax bill,
and if these people say, "Well, how would
you do it, Mr. Morgenthau?" all I can say
is, "I know what I feel as far as principle,
but it is your job, Mr. Congressman, plus
your technical staff, to write this bill,
if you agree with me."
Tarleau:
That is it, if they agree with you. The
writing of the bill, Mr. Secretary, is
secondary. That will be done, whatever
the determination is. It has been done
in the past. We did it last year, and we
will do it next year, and--
238
- 33 H.M.Jr:
That is the point. It is like my cousin,
Arthur Goodhart, said last night, "The
people in England, most of them, were
delighted about the high taxes, it is such
a relief. They don't any more have to
worry about how they are going to keep
their property." He said, "It is such a
relief." He said, "It is one less worry
we have. We don't have to worry. The
Government takes it all anyway, so we can
think about winning the war.
This thing, every single day I am impressed
more and more that this country is not
unified, The people haven't got their
heart in this thing, and I don't see why
they should have at the present time if it is strictly Treasury business - we
don't say to these corporations, "You
have got to make even a bigger contribu-
tion of your earnings in the form of taxes."
Now, how it should be done and how the
big and the little and all the rest of them
can lie down in the same bed, I don't know,
but there are enough people in this country
smart enough who do know, who were trained
that way.
Herbert?
Gaston:
I was going to say I objected to - I thought
it was an error to say that the proposal
of last year is as defensible now as it
was last year. I think that is a woeful
understatement. The situation is wholly
different. The need is tremendously greater.
We are engaged in a different kind of an
effort, so much greater that it is totally
different in kind and character, so we are
facing a wholly different economic and
239
- 34 -
political situation, so I would say that
if there were any justification for this
proposal last year, there is a thousand
times more justification now. I wouldn't
talk about being as defensible.
Sullivan:
If our problem is that every corporation
making money shall pay a larger proportion
of its earnings to the Government in taxes
because of the present situation, and we
want to avoid the inequities we know are
inherent in either system, we have a very
easy way of solving that problem, Mr.
Secretary. All we have to do is put the
regular corporate rate up to fifty percent
or sixty percent or seventy percent, and
we get that money, and it comes from every
corporation making money.
H.M.Jr:
What is the argument against that?
Sullivan:
I don't know.
Foley:
There isn't any.
White:
It is right.
Sullivan:
And there isn't any "but" in it, Harry, and
I am telling you that American business
would gladly agree to a corporate rate of
fifty percent with a repeal of excess profits.
White:
Well, there are so-(Mr. Kuhn entered the conference.)
H.M.Jr:
I am sorry. Sit down here a minute. I want
to talk to you personally. You had better
get your hat because you are going to have
to ride down with me. Do you wear a hat?
240
- 35 Kuhn:
Yes, but it is not important.
H.M.Jr:
Get a hat. I will be leaving in two or
three minutes. I want to tell you something.
John, I wish either Idid or didn't have a
couple of hours. Maybe the fact that I
don't - but what the hell is the matter
with that?
Sullivan:
I don't know, sir. This thing started
on the first of July. We had Randolph
Paul and Ros Magill and Carl Shoup down
here and those men had spent years study-
ing excess profits, and they gave you as
their conclusion that there wasn't any
such thing as a fair excess profits tax
bill. We had to go ahead anyway. Every
day I have done anything on excess profits
or thought about it, I have become more
and more convinced that it is impossible
to have an excess profits tax that applies
fairly and equally to everybody.
White:
There are two disadvantages to that that I
think need be mentioned right at the start.
One is, they may not distribute the dividends.
Foley:
Yes.
White:
That is the most important objective. How
Sullivan:
White:
you raise the tax, that is enough to kill
it, in itself, unless it is coupled with
an undistributed profits tax.
You are right about that.
Therefore, unless you couple with an un-
distributed profits tax, that is out the
241
- 36 window. Because it will aggravate people
rather than cure it.
Secondly, and of secondary importance, is
the fact that it doesn't have the same
popular appeal, doesn't have the same shall I say, the same arguments that appeal
to the mass of the people as does the idea
that you are going to tax excess profits
very highly.
Sullivan:
Then if it doesn't, Harry, it is our fault
because the total number of companies that
pay an excess profits tax this year will
not be over thirty thousand and the total
number that pay a corporate tax will be
over a quarter of a million.
H.M.Jr:
I think John is right.
White:
I do too.
H.M.Jr:
It isn't - well, after all, it is my fault
that we haven't gone out and sold these
tax programs to the country, because we
have always had such a hodgepodge and it
has been so damn complicated that you
White:
couldn't explain it, at least I couldn't.
I think there is more serious criticism of
our policy than that matter and that is, if
I may say so, the position that you have
taken from time to time that you have been
reluctant to sell tax programs, and I think
more or less as time goes on, you back what
you consider a good tax program.
H.M.Jr:
Harry, I am glad you made the statement
because it gives me a chance to answer you.
Up to this year I wouldn't have gone up and
242
- 37 -
talked about three and a half billion dollars on my own, more or less, or the billion
dollar savings, either. I mean, I have
changed on the whole front. Let's be fair.
And - I mean, I have changed as the situation has changed.
White:
That is right. It is more--
H.M.Jr:
I mean--
White:
....
H.M.Jr:
more urgent, more serious.
I have changed, and I haven't worried about
what the other heads of the other financial
agencies think or do, and I wouldn't have
dreamt - was it you or Ed or somebody, when
I was talking about the thing - yes, about
the statement I was going to give. It was
either you or Ed. "Well, you can't do this
without showing it to the President."
Which one of you said that?
White:
We might both have said it. We both feel
that way.
H.M.Jr:
I am going to do it anyway, so I mean, on
the whole business, as I feel the serious-
ness of the situation, I have tried to rise
to the occasion, and the tax thing is
White:
H.M.Jr:
only part of it.
I think that is a very fair statement.
So I mean, where I wouldn't have dreamt
last year of going up and recommending a
thing as drastic as this thing, I would do
it this year because I don't care about
the consequences personally any more.
They are too unimportant. I mean, the
thing is too big and it is too tragic. So
the tax thing is only part of the whole
243
- 37 change which I have gone through in the
last two or three months. So I am still
not going to recommend a definite program
to Congress.
Gaston:
I think a flat corporate tax, say a percentage for everybody, would be a very
hard thing to defend. It would be considered comparable to taxing the man who
makes a thousand dollars a year fifty
percent and the man who makes a million
dollars a year fifty percent.
White:
It is not progressive in nature.
Sullivan:
Well, I don't think a corporation tax should
be progressive, Harry.
White:
You could defend that on the basis that
there is a progressive element in your
income tax.
Sullivan:
You have a hundred shares of United States
Steel through a corporation tax, and you
pay just as much out of your interest in
the earnings of that company as J. P. Morgan
does if he has a hundred shares.
Gaston:
You can think of progressive from another
point of view in relation to the earnings.
The question of whether you want to tax
a company that is making three percent on
an investment, one half of their earnings
and, at the same time, tax one who is making
forty-eight and a half percent, one half
of its earnings, and have that the only
corporate tax.
White:
I think the Secretary's position, which I
feel is just as important, and he makes it
even more so, lies in the impact of the
244
- 38 proposal which the Treasury could make
setting forth those principles on the
various elements in the public, the
workers, the farmers and others, that it
is extremely important when we are going
to demand of them sacrifices, and sacrifices, when we are going to try as we should
try to keep wages of labor down, when we
are going to try to get them behind the
Government's foreign policy, that you are
able to come to them in their language and
in terms which they understand, show that
you are advocating at the same time the
kind of sacrifices for corporations which
they can understand, even though in your
bill you have modifications which greatly
iron out inequities and modify the basic
principle.
In other words, I think in this particular
consideration, as never before, the public
must be won over.
H.M.Jr:
John, let me leave it this way.
Are you through, Harry?
White:
Well, I would like to see the Secretary go
further. I personally don't feel it is a
responsibility that he can pass on to an
assistant secretary. I think the Secretary of the Treasury, in a matter of this
kind, ought to go before the public and
state what his idea is in principle. I
don't mean in detail. That is your job.
H.M.Jr:
I agree with you.
White:
Either before the public or before Congress
or before the committee. Confine himself
to the principles and show that the Treasury
245
- 39 -
is behind those principles, and then you
can work out the details.
H.M.Jr:
John, supposing you do this. Supposing
you get these people and tell them that I
have got some very definite ideas, that I
started the other day when they came down
here, but I got off on the wrong foot.
Sullivan:
The same two men?
H.M.Jr:
Yes. Let's say - if I say ten o'clock
Monday, that means that the hearings might
be postponed, but you know, after all, we
waited week after week last year. They
wouldn't move until the two experts, so to
speak, were ready.
Sullivan:
We won't have any trouble on that.
H.M.Jr:
I don't want them to postpone the hearings,
but I don't want to get back before, because
I have just got to rest. If they don't
want to postpone them, we could do it right
after lunch.
Sullivan:
All right, sire. Do you want me to tell
H.M.Jr:
Yes, and I think of all the things which have
come out, I think that idea of a higher
them what your ideas are?
corporate tax hooked up with an undistributed profits tax sounds to me like the
most reasonable thing.
White:
That is different.
Foley:
You can do that and you can repeal your
H.M.Jr:
John, you and I are faced with this thing.
excess profits tax.
246
- 40 They had an o ther thing up on the pedestal,
you know, this thing on airplanes at
twelve percent, what was that?
Sullivan:
H.M.Jr:
Vinson-Tranmell.
And when the thing got hot enough, it just
melted, even though the great Louis Johnson
had promised the airplane manufacturers of
America twelve percent. It was so hot you
couldn't touch it, you know. I mean, it
was vested property, wasn't it?
Sullivan:
That was before I got into it, almost.
H.M.Jr:
It was considered a sacred thing, and we
couldn't touch it. Now, this thing is
wrong and the public and everybody else
has got an idea of excess profits as some-
thing to do with the distribution of
excessive earnings that doesn't work, just
the way the Vinson-Trammell thing didn't
work, and after thinking about it and
everything else, why shouldn't we say so,
and I think I am the person to say so.
I don't think it is fair to ask you to say
so.
Sullivan:
I am not afraid of it.
H.M.Jr:
No, I know you are not, but I mean, the
last suggestion comes from you anyway, but
I agree with you that these people should
be on notice. I would love to put the
President on notice. But I would rather
wait a week and be blamed for waiting a
week.
Sullivan:
I don't think you need to concern yourself
about that at all, sir, because a day
saved now might cost a month and a half on
247
- 41 the other end, and I don't think we should
hesitate at all to ask for a postponement
now of a day or three days or a week, and
I am very sure that they would much prefer
to have us discuss this with them and arrive
at some conclusions rather than have us
come up--
H.M.Jr:
I personally think the meeting should take
place in the Speaker's rooms, with McCormack
there and Doughton and Cooper. The fellow
that has given me the most disinterested
advice on the Hill has been Sam Rayburn.
Sullivan:
H.M.Jr:
Now, John McCormack--
I would rather have the meeting in Sam
Rayburn's room because he has given me more
disinterested advice than anybody else.
Sullivan:
Then after I see those two, I should get
in touch with the Speaker and also with
John?
H.M.Jr:
That is right.
Sullivan:
John was one of those who fought the un-
distributed profits tax most bitterly, and
John last year, sir, proposed in committee
that we substitute undistributed profits
for excess profits.
H.M.Jr:
I feel pretty good.
248
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 9, 1941
TO
Secretary Morgenthau
FROM Mr. Kamarck
Subject: Airplane Deliveries to the British
Summary
1. Shipments for the latest week reported totalled
106 airplanes. This is the second highest weekly total
reported (141 being the highest, for the week ended February
15 by air and January 18 by sea).
2. In this week, 41 reconnaissance bombers were shipped.
This is more than triple the average weekly shipments of these
planes.
249
--
Division of Monetary
Research
Airplane Shipments to the British
(From January 11 to April 12 by see
February 1 to May 3 by air)
Table A. - Shipments by Area
Latest
Week
To the United Kingdom
Bombers
Heavy bombers
Reconnaissance bombers (Lockheed)
Nevel patrol bombers
(Consolidated PBY)
Total to United Kingdom
To the Middle East
Bombers (Martin 167)
Pursuit (Curties P-40)
Total to Middle East
To the Far East
Reconnaissance bombers (Lockheed)
Naval patrol bombers
(Consolidated PBY)
Pursuit (Brewster F2A)
Trainers (to New Zealand)
Total to Far East
10
Total
Reported
To Date
81
9
1
38
138
-
33
-
50
261
10
111
15
240
25
351
1
6
3
}
5
82
0
55
27
148
31
Totals
Bombers
20
192
9
1
Heavy bombers
Reconnaissance bombers
Naval patrol bombers
Pursuit
Trainers
Grand Total
41
2
144
38
15
322
27
55
106
760
250
-3-
Division of Monetary
Research
Table B. - Total Shipments by Types
Latest
Week
0
Boeing B-17
Brewster Buffalo (F2A)
Consolidated Catalina (PBY)
Liberator (B-24)
Curtiss Tomahawk (P-40)
Douglas - Boston
Glenn Martin Maryland (Martin 167)
Lockheed Hudson I
Hudson. III
Hudson IV
Hudson V
Electra
North American Harvard II
Grand Total - All Types
Total
Reported
To Date
5
82
0
38
2
1
5
15
240
10
81
10
111
1
O
36
1
O
40
18
86
0
3
27
55
106
760
251
-4-
Division of Monetary
Research
Table C. - Plane Deliveries to the British by Weeks
eek
Bombers
nded
Heavy
Bombers
Bombers
Naval
Patrol
Bombers
Pursuit
Trainers
-
-
17
8
3
5
100
-
-
9
15
33
eb. 22
30
eb.
-
ar. 1 *
5
-
2
37
-
5
10
-
ar.
62
-
25
5
142
-
27
-
*
13
8
29
-
3
3
31
-
ar.
15
r.
22
ar.
29
14
*
1
-
12
4
12
2
13
3
-
22
41
-
5
12
-
18
46
-
101
-
Dr. 5
6
-
*
15
73
7
52
-
Dr. 12
2
12
27
9
2
-
pr. 19
6
14
4
5
ay
10
*
20
3
192
32
3
-
Dr. 26
Total
25
-
Recon-
naissance
2
1
9
13
41
144
28
56
3
15
27
106
2
38
322
55
760
The date given is for shipments by air. Shipments by
water start three weeks earlier. That is, the statment
*
reporting the shipment of planes by air for the week ending May 3 would report the shipment of planes by water
for the week ending April 12.
252
TREASURY DEPARTMENT
PROCUREMENT DIVISION
WASHINGTON
OFFICE OF THE DIRECTOR
May 9, 1941
MEMORANDUM TO THE SECRETARY:
Weekly Report - Lease-Lend Purchases
(5/3 - 5/9/41
Purchases to 5/2/41
Purchases 5/3 to 5/9/41
$ 1,916,619.83
Total to 5/9/41
$ 2,482,371.36
565,751.53
Estimated Cost
Requisitions Pending
Awaiting clearance by O.P.M.
$ 138,606,433.71
5,298,389.60
Total pending requisitions (Including steel,
$ 143,904,823.31
Cleared by O.P.M.
equipment, chemicals, etc.)
Nine purchases ($550,751.53) have been made this week for
China Defense Supplies, Incorporated, and deliveries are now
being made to ship scheduled to sail next week.
The President allocated $118,800,074 on May 2 and
authorized commitments for Metals, Road-Building Equipment,
Electrical Equipment, and Chemicals and Acids.
All
Clifton E. Mack
Director of Procurement
System
Secretary Morgenthau - Room 280
253
May 9, 1941.
DEFENSE SAVINGS STAFF
ADVANCE NOTICE RADIO PROGRAMS
Today:
Friday, May 9.
Time:
3:45 P.M.
Station:
WRC, Washington, D. C., and National Broadcasting
Company, Red Network.
Program:
"The Guiding Light"
254
May 9. 2941
Files
it. George
Mr. John Baseell of Sensiula eailed at my office yesterday morning
as I was departing with the treasury group for hearings ea the Stabilization
Pund. just Be was then received w Assistant Secretary Sestem. Mr. Gaston spoke to
of this visit end gave no a meneration thereon. In agreement with Hr. Gaston,
no I asked Mr. Bussell to come to my office yesterday afternoon, which he us. No
outlined the proposition which be had in stat. I asked his to give us a and arranged for Mr. Velay to seceive Mr. Sussell this morning. he w
case thereon, out free this serving's Staff Meeting. Mr. Feloy stopped w in ay office to
most Mr. Baseell. the letter left with as the attached letter addressed to no.
Mr. Feloy and I prestood to study this and give Mr. Baseell as annual es Monday
fuestay nest, since 11 appears that Sir Revers Peaceok does not desire that the
or transaction be consumerted unless the Treasury approves. se is ay suggestion that
we sight desire to telephone Sir Bluerd Peacook before giving our final conver to
Mr. Bussell at Goartland 7-0440, New York City.
HMC:da:5.9.41
255
May 9, 1941
Mr. H. Kerle Coohran
Technical Assistant to
The Secretary of the Treasury
Washington, D. 0.
Dear Mr. Coohran:
I am digesting here the plan that I have in mind
which will enable us to release certain shares of American
companies in Hawaii owned by members of the Davies Family
and their associates in England from control of the British
Treasury.
I list here what I believe to be the shares involved
but there may be a few less in each case:
Theo. H. Davies & Co., Ltd.
Honolulu Iron Works Co.
Waiakea Mill Co.
Laupahoehoe Sugar Co.
Hamakua Mill Co.
Kukaiau Ranche Co.
48
66.38
34.39
54.18
98
45.36
16.66
13,000 Shares Common
4,338
9,864
4,063
9,800
6,431
Preferred
"
"
.
"
"
250
A brief description of each company follows:
T. H. Davies & Co., Ltd. operates a merchandise busi-
ness in Hawaii and Manila and manages Sugar Plantations and
Ranches in both places. It also acts as fiscal agent of Honolulu
Iron Works Co.
Davies & Co. own a majority of the shares of Kukaiau
Ranche Co. and a minority interest in Honolulu Iron Works and
Hamakua Mill Co. which combined with the holdings of the Davies
Family gives control of both companies to the Davies interests.
Davies & Co. own no part of Laupahoehoe Sugar Co. or Waiskea
Mill Co. which are controlled by the Davies Family holdings.
256
-2-
Honolulu Iron Works Co. operates a large merchandise
business as wholesalers of Iron ware and plumbing supplies in
Hawaii and in the Philippine Islands. Shops are maintained in
Honolulu, Hilo, and Manila. The Company also controls a small
shop in Sagua Le Grands, Cuba.
Waiakea Mill Co. operates a sugar plantation and mill
adjacent to Hilo on the Island of Hawaii. Their annual pro-
duction is approximately 17,000 tons.
Laupahoehoe Sugar Co. operates a sugar plantation and
mill on the Island of Hawaii and has an annual production of
perhaps 20,000 tons.
Hemakua Mill Co. operates a sugar plantation and
mill on the Island of Hawaii with an annual production of
approximately 14,000 tons.
Kukaiau Ranche Co. This is a small but profitable
ranch on the Island of Hawaii with a herd of about 5,200 head
of beef cattle.
The fact that the parent Company, Theo. Davies & Co.,Ltd.
control the management of the other companies listed results in
a large amount of merchandise, insurance and commission business
to Davies & Co. The association of all the units as at present
is mutually beneficial to all the companies but is absolutely
essential to the profitable operation of the parent Company.
It is my purpose to release all the shares listed for
the largest sum I can arrange to raise; at the moment the out-
side figure is two million dollars.
I propose to raise this in a capacity as Agent under
full powers of attorney, or as Trustee for all the English
shareholders concerned -- they have agreed to this plan, and
Sir Edward Peacook is also sympathetically aware of it.
Actually, I propose to obtain the money by pledging
all the shares mentioned, together with a mortgage of the
lands and properties of the Laupahoehoe Sugar Co. In this
way it may be possible to raise $1,350,000 and the other
$650,000 will be furnished by advances from Theo. H. Davies
& Co. and the Honolulu Iron Works Co.
All the above shares will then be held by Laupahoehoe,
or Honolulu Iron Works, or by Davies & Co. -- that detail has
not yet been worked out, but the point is that after the deal
is completed there will in fact be no change of ownership, for
257
-3-
the Trustee or Agent will really represent the original
ownerships. The difference will be in the fact that these
securities will be held as collateral for a loan of two
million dollars, which will be served and repaid by all of
the dividends which remain after American income taxes to
non-resident aliens have been withhold. We figure that it
will take the English shareholders almost twenty years to
pay off the debt and in this period they will get no income
at all from their American investments. They will, however,
be building up an equity in America and the protection thus
afforded is sufficient warrant for their entering the deal.
I have worked earnestly to raise as much money as
possible. The highest loan value obtained has been $1,350,000,
but we have added to that by committing the two companies to
furnishing 650 to 700 thousand, as indicated previously.
The question is: will the Secretary of the Treasury
look with favor on the transaction as outlined. I understand
that it is not very different from the loan recently mede by
R.F.C. to the owners of Brown & Williamson Tobacco Co.
I am deeply obliged to you for permitting me to see
you yesterday and for the privilege of arranging today's
meeting for me.
Sincerely,
258
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE May 9. 1941
Secretary Morgenthau
TO
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
By appointment, Mr. Coyne, Financial Attache of the Canadian Legation,
called on me at three o'clock today. He presented the attached studies which he
has been making, one with respect to the Hyde Park Declaration of Policy and the
other on U.S. Components of U.K. Orders in Canada. Mr. Coyne hopes to receive
data from Ottawa early next week to enable him to complete a memorandum with
respect to specific contracts which might be taken over under the Lease Lend Act.
Furthermore, Mr. Clarke, the Deputy Minister of Finance of Canada, is expected to
arrive in Washington on Monday or Tuesday next. Mr. Coyne hopes that we in the
Treasury may have opportunity to study the attached memoranda and perhaps have a
conversation with him before Mr. Clarke or he might take up the subject with
Secretary Morgenthau. I promised to call Coyne on Monday or Tuesday with respect
to our plans.
M.M.P.
259
C
0
(Handed by Mr. Coyne, Financial Attache of the Canadian
Legation to Mr. Cochran in the Treasury at 3:30 p.m.,
May 9, 1941.)
Washington,
May 8, 1941.
The Hyde Park Declaration of Policy
Canadian purchases in the United States
required for Canadian production for
the United Kingdom.
A large part of the drain on Canada's available U.S. funds has
been caused by the necessity to make certain purchases in the United
States of machinery, parts, materials, etc., needed in Canadian production for the United Kingdom. The President and the Prime Minister
agreed at Hyde Park that, rather than have Canada continue to pay
U.S. funds for U.S. goods to be supplied to Britain, the latter
should obtain these goods under the Lease-Lend Act and forward them
to Canada. Technical and financial details are now to be worked out.
In considering this matter it has become apparent that to
attempt to deal only with specific individual articles in which the
U.K. interest or title would be clear and continuous, would present
many administrative difficulties and would cause much unnecessary
work involving time, trouble, expense and delays for the procurement
officials in the United States as well as for the Canadian and U.K.
purchasing missions and the munitions factories themselves. It also
seems that only about 50% to 60% of the amount involved could be
dealt with on this basis and some other basis would in any event have
to be found for the remainder. Moreover, while the principle that
the Hyde Park agreement applies to purchases being made under uncom-
pleted existing contracts in the United States has been recognized,
it is a major task to arrange for the cancellation of hundreds of contracts and the substitution of more or less similar contracts by the
U.S. War Department and other agencies.
It is accordingly suggested that this particular approach to
part of the problem be not made, but instead that a simpler method
be adopted with a view to the overall amount of these purchases rather
than to individual items. Under this method, the United Kingdom would
hereafter simply obtain under the Lease-Lend Act for transfer to
Canada defense articles equal in value to the amount of U.S. funds
paid out by Canada, or which otherwise would have to be paid out by
Canada, for the purpose of producing war supplies for Britain. In
this manner the full degree of the problem can be met, as is desired
by all parties, but each individual article obtained will not have
to be specifically identified and followed through to the finished
Canadian product supplied to Britain. Moreover the Lease-Lend
260
-2machinery will not have to cope with hundreds of additional contracts,
but can be concentrated on such larger items as will make up the
total amount involved without regard to whether any particular item,
considered by itself, is ultimately supplied to Britain or to Canada.
Canada will provide all possible information to establish the
overall estimated amount of U.S. funds required to be spent on U.S.
goods in connection with Canadian production for Britain.
COPY dm
(Handed by Mr. Coyne, Financial Attache of the Canadian
Legation to Mr. Cochran in the Treasury at 3:30 p.m.,
261
C
0
May 9. 1941.)
P
May 6, 1941
J.E.C.
U.S. COMPONENTS OF U.K. ORDERS IN CANADA
1. Available statistics are inadequate, particularly as to
orders placed in the U.S. by private Canadian firms. Timing is
based on scheduled delivery dates of the finished article in Canada.
In certain cases the amount declared to be on U.K. account is simply
a mathematical calculation based on the U.K. share of deliveries of
the finished article - the actual machine tools, for example, cannot
be divided physically in the case of a Canadian plant producing
similar munitions for Canada and the U.K.: in many such cases the
plant has a single order from the Department of Munitions and Supply. and
the allocation of deliveries as between the U.K. and Canada is not
finally settled, or is changed from time to time. The same applies to
some extent in the case of the allocation of aircraft for the British
Commonwealth Air Training Plan. (A small amount for Australian and
New Zealand orders is included in the figures which follow.)
2. The most inclusive estimates include a large amount for components which cannot be specifically identified in any particular case.
The totals are as follows, in millions of U.S. dollars, cumulative from
May 1, 1941 to June 30, 1941, December 31, 1931 and June 30. 1942
respectively:
June
Orders by the Government
(already placed)
Dec.
June 1942
25
30
86
121
19
65
7
Orders by contractors
(a) with existing U.K.
orders
21
(b) assuming renewal
orders
1
Allowance for price
increases
11
0
3
- 29
133
227
The foregoing does not include any machine tools that may be
required under extensions of the capital assistance and defence construction programmes that may be undertaken but are not yet determined.
262
2-
3. The following estimates are more useful for present purposes,
as being confined to readily identifiable components (but still subject
to the qualifications mentioned in paragraph 1). Orders placed by contractors cannot be definitely classified as existing or future commitments, but this is probably very similar to the available classification
between components of present U.K. orders in Canada and of expected
renewal orders.
Cumulative totals
June
Machine tools
Government - already placed
to be placed (a)
June 1942
Dec.
10
10
4
0
11
3
Contractors - for present U.K.
orders
for renevals
5
1
3
1
0
0
Aircraft
Government - already placed
to be placed
20
15
3
0
0
0
Contractors - for B.C.A.T.P.
present orders
10
5
0
2
1
renewals
0
for U.K. direct
8
6
present orders
renewals
2
3
1
0
Tanks, Universal Carriers, Mechanical Transport:
2
2
1
Government - already placed
to be placed
1
0
0
11
11
1
Contractors - present orders
renewals
31
10
0
Summary of machine tools, aircraft and tanks, etc.
27
32
8
Government orders already placed
to be placed (a)
Contractors - for existing U.K.
orders
for renewals
12
3
0
4
25
12
0
34
37
263
-3Total orders already placed or
required for existing U.K. orders
Total orders to be placed
Grand total
12
0
12
52
66
15
49
67
115
In addition, estimates for iron and steel, petroleum and its
products, and coal and coke are as follows (no distinction possible
between existing orders and new orders).
Iron and steel
Petroleum and products
Coal and coke
COPY dm
41
24
5
13
2
9
14
2
9
The TO: Secretary - 5/9/41
called and
Senator
Glass " office
Banking a Currencylike
to on or
whichever is
Committee hear you mouday would at 10:30
divy
Tuesday, ou Convenent pen to you 1438 -
extending the certain R.F.C
powers of
From: LIEUT. STEPHENS RR
Note: The Secretary did not appear as the matter was
handled by the letter to Secretary Jones of 5/12.
265
may 8.
or 1941
may 9, FH
from m Bell:
ms. Bell said Couq. Cochrau
called him and said he
had asked Ceeles to affect
Refore
Committee
on
Thousday Ceeles declined,
said he would if he had
to, but would make a
frank statement
E eles
wasn't inferested
in
the
but
hestability
did notation
like fund
the
devaluation power
Co chrau is going to try to
get lunderson Canderson wild draw
his motion for Cicle's
appearance - ifnot
265
he
will
live
up
the
Democrate to vote
against it
266
PLAIN
JR
London
Dated May 9, 1941
Rec'd 12:40 p.m.
Secretary of State,
Washington.
1835, ninth.
FOR TRE.SURY.
1. The approval by the Banking and Currency
Committee of the House of Representatives of legislation
to authorize the REconstruction Finance Corporation to
lend on security of British direct investments is C.S
favorably commented on in this morning's press E.S would bE
expected. The TIMES city Editor emphasizes particularly the
time advantage bECausE "it is much quicker and easier to
arrange than an outright sale" End notes that the step
"is in line with the series of recent measures that the
United States have taken to recelerate the delivery of wc.r
supplies to this country".
The TELEGR.PH financial Editors also emphr.size the
time factor, stating that the method, besides relieving
the United States financial system of the task of absorbing
large blocks of shares, should also benefit American
industry by accelerating advances to Britain and
consequently
267
-2- #1835, May 9 from London.
consequently speeding up the placing of British orders,
the FINANCIAL TIMES quoting Reuter makes the same point
in almost the same words,
The FINANCIAL NEWS points out that the measure
tears through the Neutrality and Johnson Acts, but that
these were both side-stepped by the LEASE and Lend Act
and pronounces the development as EVIDENCE of cooperation
and a tribute to the "generous spirit in which the
American administration has always met the problem of
mobilizing our available dollar assets".
The DAILY TELEGRAPH stat=s that the purpose of
Keynes' visit is to establish a clearer definition what
is to be included in the LEASE and Lend Plan and has
no direct connection with deals relating to direct
investments. The FINANCIAL TIMES considers the House
Committee's action as lending additional interest to
Keynes' visit which it believes to bE primarily concerned
with lease and lend matters and with payment for current
needs not purely of a war nature. This comment concludes;
"Some quarters EXPECT the Emergence of SOME schedule of
materials for inclusion under LEASE-Lend from the talks.
It is agreed on all sides that Mr. Keynes is a man of
constantly fresh ideas whose freedom from any hidebound
Economic tradition fits him peculiarly well for the job
of
268
-3- #1835, May 9 from London.
of plecing new suggestions before American minds to solve
the common problem of financial cooperation under the
new system now envisaged".
2. Two bank of England notices to banks are
intended to close loopholes in the Exchange control.
One requires specific approval of all withdrawals from
their sterling accounts by members of the British foreign
service and forces serving in the United States, Canada and
Newfoundland.
The other notice is worded as follows:
"All applications for foreign Exchange or for the
transfer of sterling to countries outside the sterling
area by residents of the United Kingdom who on account of
their nationality are EXEMPT from certain defence (finance)
regulations, must be referred to the Bank of England, this
has been done in order to make it Easier for banks
receiving such special applications to take a decision as
to whether or not they should be granted. In many cases
persons of foreign nationality with funds in this country,
on wishing to transfer, have made application direct to
the Bank of England instead of going to their bankers.
Cases have also been frequent of such persons keeping
two OI' more banking accounts with different institutions
so
269
-4- #1835, May 9 from London.
so that it could never be definitely certain that all or
any of their bankers were in possession of knowl EdgE
of what transactions were being Effected".
The British Treasury has explained to the Embassy
that this provides merely a change in administrative
procedure deemed necessary to SECURE that when foreign
residents in the United Kingdom have payments to make in
their own countries (such as insurance premia, Etc.)
they shall USE any available foreign Exchange which is
exempted by the concessions reported in the Embassy's
2014 of October 12, 1939, in lieu of obtaining permission
to Exchange or transfer sterling.
WINANT
RR
270
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 9, 1941
Secretary Morgenthau
Mr. Pehle
You may be interested in the following:
Indo-China has substantial amounts of blocked funds
in the United States. Under the arrangements now in effect
Indo-China can get funds to pay for exports from the United
States only by sending to this country strategic materials
such as rubber.
There is now pending before the Foreign Funds Control
an application to use $460,000 of blocked funds to pay for
the manufacture in this country of 50,000 trench mortar
shells (81 mm.) ordered by the Government of French Indo-
China.
On May 6, I had a conference with counsel for the exporter, Messrs. Briggs and Diggs of Culbertson and Leroy,
and a Mr. Dodge who represents Lehigh Foundries, Inc., who
are to make the shells. It was pointed out to me that the
manufacture of such shells had been approved by the State
Department and we were urgently requested to release blocked
funds to pay for them. Mr. Dodge stated that he can obtain
certain high-carbon steel necessary for the manufacture of
these shells at the present time, but that if the steel is
not taken immediately Lehigh Foundries, Inc., will not be
able to get another lot at least until October. He went on
to state that Lehigh Foundries, Inc., has a plant at
Lancaster, Pennsylvania, which is equipped with gauges
and tooling to make 81 mm. shells of the type in question
and that at present the part of the plant equipped to make
such shells is completely idle.
When I asked Dodge whether he had tried to obtain an
Army contract to manufacture 81 mm. shells, I was advised
"off the record" that he was not interested in an Army
contract because the Indo-Chinese would pay him 50% in
271
advance and the Army would not. When I asked him whether
he could not obtain adequate credit facilities on the basis
of an Army contract he admitted as much but stated that he
was sure the Army knew of the facilities which his company
had available to make these shells, and that neither our
Army nor the British had shown any desire to use his com-
pany's facilities for making this type of shell.
I indicated that in view of the nature of the trans-
action, this Department would not approve the use of any
blocked funds for this purpose unless we received a written
request from the Secretary of State that such a license be
issued.
I am bringing this matter to the attention of Oscar Cox.
JAME
272
COPY
CULBERTSON & LEROY
Attorneys and Counsellors at Law
Mr. Charles P. Curtis, Jr.,
Colorado Building
Washington, D. C.
April 30, 1941
Department of State,
Washington, D. C.
Re: Indo-China Funds
Dear Mr. Curtis:
The American authorities have allotted to Indo-China
production capacity to produce arms to the value of
approximately $1,200,000.
As I have said to you, these orders were placed with
American manufacturers at least on the belief, --we thought
on the understanding, that these and subsequent orders
for arms would be paid for out of the blocked funds which
belong to Indo-China. Unfortunately, decision has been
delayed upon this point.
In the meantime the Indo-China Government, under the
necessity of meeting its urgent need as well as its obligations to American manufacturers, has been compelled by the
delay in the American Government's decision in the matter
of blocked funds to use approximately $700,000 of free
funds to make the payments for arms.
In this connection we were gratified to learn that
in a conference in Mr. Acheson's office the assurance was
given that when the present free funds are exhausted the
Treasury would release blocked funds to meet Indo-China's
needs. It should be noted that, while there appears at
present to be a substantial sum in the Free Account, this
is not in fact the case since practically all of this
account is earmarked for authorized purposes. See for
example our memorandum of April 16, 1941. In addition
to the items therein mentioned, the above-mentioned
$700,000 comes out of the present Free Fund Account.
273
In the meantime there remains unprovided for so far
as financing is concerned the following P.N.R.'s: I-3
and I-4, amounting approximately to $500,000.
In view of all the circumstances in this case, we
express the hope that the American Government will
authorize immediately the release of $500,000 from the
Blocked Fund Account to meet these payments.
Respectfully yours,
WILLIAM S. CULBERTSON
DEPARTMENT OF STATE
WASHINGTON
or to
April 17, 1941.
Re: P.N.R. No. I-4.
Dear Mr. Rondon:
In accordance with the procedure established for
handling Preliminary Negotiation Reports, you are
advised that the following report is approved as of
this date:
Report No. I-4, involving 50,000 complete pro-
jectiles with American fuses for 81 - Mortars from
the Triumph Explosives Company, the Pollack Manufacturing
Company, and the Lehigh Foundries, Incorporated, sub-
feet to the following provisions:
(a) That neither the delivery of orders nor
allocations of the Tar Department relating
to said company be delayed or affected
by the aforesaid procurement;
(b) That said contracts be placed within 45
days of this clearance;
(c) That a copy of the procurement contract
be furnished to the War Department for
its files;
(d) That there is no interference with current
Nevy procurement through the facilities
involved.
Jean L. Rondon,
e/o Culbertson and Leroy,
Colorado Building
Washington, D. C.
-2It is further reco ended that the supply of
materials be limited to those sources not required
United States defense purposes.
Sincerely yours,
Charles P. Curtis, Jr.
Special Assistant to
the Under Secretary of State
276
C. GERARD DODGE
20 Exchange Place
New York
May
Seventh
1941
Mr. Paley,
U. S. Treasury Department,
10th Floor - Raleigh Hotel,
Washington, D. C.
Dear Mr. Paley -
Just a line to thank you for
your courteous reception yesterday and for the amount
of time you kindly gave the writer and Messrs. Diggs
and Briggs.
I still hope that it may be
possible for us to get the French Indochina order for
Sl's as we would like to put our plant in operation
while it is still possible to get the necessary com-
ponent parts without very serious delay and, of course,
we would be glad to get the advance payment of 50% and
the irrevocable letter of credit for the balance, which
they have promised to give us, in accordance with our
Letter of Intention signed some days ago.
Again thanking you for your
courtesy, I am
Very truly yours,
/s/ C. Gerard Dodge
277
PARAPHRASE OF TELEGRAN RECEIVED
FROM: American Rebasay, (Paris) Vichy
DATE: May 9, 1941, 3 p.m.
NO.: 580
FOR THE TREASURY DEPARTMENT FROM MATTHEWS.
The JOURNAL OFFICIEL has just published a law whereunder
the Treasury is authorised to retire various bonds guaranteed
by the Government which the Credit National had issued.
The latter is a semiofficial organization which lende money
to property owners ss they can repair damages suffered
because of military action. The amount of the bonds to be
retired is 11 billion franes, and they carry interest
rates of from 4 1/2 to 6 percent. The Treasury is authorised
to raise the funds necessary for this operation by fleating
a 4 percent long term lean.
The estimate of the Ministry of Finance is that
there will be a reduction of 250,000,000 franes a year
in the public debt charges through this conversion operation.
This new law indicates that easy money" conditions
prevail in France at the present time.
It is the Enbasay's understanding that a second VRX long
term issue, at 4 per cent, will be floated for the purpose
of funding part of the fleating debt 1f the above operation
GVI
10
MY
is a success, This second loan would involve between
16 and 20 billion france, according to Guinyeay of the
Foreign Finance Section of the Finance Ministry.
LEARN.
EA:LNW
278
(Translation of code message received from the President of the Swiss
National Bank, dated Zurich, May 9. 1941, by Mr. Cochran in the
Treasury on May 9. 1941.)
H. M. Cochran
United States Treasury Dept. Wash. D.O.
CONSIDERING THAT SITUATION RENDERS IT ADVISABLE THAT WE HAVE
REPRESENTATIVE IN THE UNITED STATES WE HAVE DESIGNATED FOR THIS
APPOINTMENT OUR DIRECTOR VICTOR GAUTIER WHO WILL START AS SOON AS
POSSIBLE STOP WE HOPE THAT NEW CONTACT WILL BE AGREEABLE TO YOU
AND SERVE COMMON INTERESTS OF OUR COUNTRIES
WEBER
COPY:lap:5/12/41
279
PARAPHRASE OF TELEGRAN SENT
TO: American Embassy, Rio de Janeiro, Brasil
DATE: May 9, 1941, 6 p.m.
NO.: 286
The following telegram is confidential:
A telegram giving a report of a talk between our Minister
to Canada and the Governor of the Bank of Canada has been
received by the Department. The substance of this telegram
is as follows:
Yesterday evening I was informed by Graham Tewer that
efforts were being made by the Ganadian Foreign Exchange
Control Board to persuade Brasil to accept sterling in place
of American dollars in payment for the large amount of cotton
which Ganada is now buying from Brasil. No objection is
being put up by the British Government in view of the fast that
there is a shortage of sterling in Brasil. The sua involved
would be large enough to affect directly the dollar exchange
position of Canada. Tewer told me that the competitive position
between cotton from the United States and cotton from Brasil
would not be affected in any manner by the currency of payment
and that no efforts would be made artificially to divert future
purchases of cotton by Ganada from our country to Brazil.
It would be appreciated by the Department if the Embassy
would transmit its comments on the above, particularly on
the statement that there is a shortage of sterling in Brazil.
HULL
RA:EGG:MJC EA TA Eu (POD)
EA:LNW
0
280
THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680
Benjamin Franklin Station
telephone: REpublic 7860
Washington, D. C.
9th May 1941.
Dear Cochran,
We were asked the other day by
Mr. Jones if we could let him have a list of
British direct investments. I enclose a copy
of the list which we are sending: it excludes
insurance companies, since the Department of
Commerce already have very full data about them.
Yours sincerely,
/s/ F Phillips
Mr. H. Merle Cochran,
U. S. Treasury,
Washington, D.C.
281
LIST OF BRITISH INVESTMENT IN U.S.A.
Abington Textile Machinery Works
Abdulla Corp. of America
Ackroyd Bros. (Boston) Ltd.
.J.C. Ainsley Packing Co. Inc.
Alabama State Lend Co.
Allen-Sherman-Hoff Co.
Alliance Films Corp.
Amalgemated Textiles Ltd.
Amarel Co.
American Association Inc.
American British Chemical Supplies Inc.
American Development Co. of U.S.
American Doucil Co.
American Ecla Corp.
American Marsden Co.
American Mat & Matting
American Metal Co. Ltd.
American Mining Co.
*American Murex
American Potash & Chemical Corp. (Del.)
American Schuster Machine Co. Inc. (Formerly Smithdrum Schuster Machine Co.)
American Thread Co.
American Totalisator Co.
H. Reeve Angel & Co.
Anglo-American Direct Tea Trading Co.
Anglo-Indian Investment Corp.
Arkwright Finishing Co.
*Arzaco Inc.
Asbestos Cement Pipes Inc.
Claudius Ash Sons & Co. Inc.
*Asphalto-Concrete Corp.
Associated Operating Co.
Astra Bent Wood Furniture Co.
1.
BRITISH INVESTMENTS IN U.S.A. Cont.
Atlantic & Danville Railway Co.
*Atlantic & St. Lawrence R.R. Co.
Atlantic Stevedoring Co. Inc.
Atlantic White Sea & Baltic Co.
Atlantis Sales Co.
Ayerst, McKenna & Harrison Ltd.
Ayres, William C. Jones, Inc. (Formerly S. L. Ayres & Co. Inc.)
Baird Television Corp.
Baker Perkins Inc.
Balfour Guthric Co.
Jos. Bancroft & Sons Co.
Bank Line 011 Co. (Cal.)
Barker Bros. Silver Co.
Barry & Staines Linoleum Inc.
Bartholmay Co. Inc.
*Baxter's Leather Co. Ltd.
Bay State Stevedoring Co. Inc.
Beacon Realty Co.
Beecham's Pills Inc.
Bemax Laboratories Inc.
Bengol Trading Co. Inc.
*Jos. Benn Corp. (Previously called Greystone Mills Inc.)
F. W. Berk & Co. Inc.
J. Bishop & Co.
Henry Black Ltd.
Boosey & Hawkes Inc.
Booth American Shipping Corp.
Booth & Co. Inc.
Borax Consolidated Ltd.
*Border Line Transportation Co.
Bovril of America Inc.
Bowster Paper Co. Inc.
Bowring & Co.
2.
282
BRITISH INVESTMENTS IN U.S.A. Cont.
Bradford Dyeing Association U.S.A.
Brandeis Goldschmidt & Co. Inc.
British American Fur Co.
British Ropes Ltd.
Jonas Brook & Bros. U.S.A. Inc.
Budd International Corp.
Buell Engineering Co.
Burberry's Ltd.
Burroughs Wellcome U.S.A. Inc.
Burt & Willia Inc.
W. J. Bush Citrus Products Co. Inc.
W. J. Bush & Co.
E. Butterworth & Co. Inc.
Cambridge Instrument Co. Inc.
Camp Bird Tunnel Mining & Transportation Co.
Casey & Casey Inc.
J. & J. Cash Inc.
Celanese Corp. of America
Chapal Donner Corp.
Chappell & Co. Inc.
Chevy Chase Land & Co.
*Cholmondley Realty Co. & Missouri Corp.
Ciro of Bond Street Inc.
*Civic Premier Pipe Co. N.J.
Clark Thread Co.
The Clark Thread Co. of Georgia
J. & P. Coats (R.I.) Inc.
Columbia Lace Co.
Combined Chemical Corp.
Commercial Molasses Corp.
Congoleum-Nairn Inc.
*Control Systems Ltd.
*F. W. Cook & Co.
3. 283
284
BRITISH INVESTMENTS IN U.S.A. cont.
Thomas Cook & Son (Wagon Lits) Inc.
William Cooper & Nephews Inc.
Copeland Thompson Co.
Cork Insulation Co. Inc.
Cory Mann George Corp.
Coaby Brush Co. Inc.
Costs Rica Rly. Co.
County Perfumery Co.
Crittall Manufacturing Co. Inc. (Del.)
Crosse & Blackwell
Crown Faste ner Corp.
Crown Mills
*Dalraddy Ltd.
Dampney Co. of America
Dansmidth Corp.
Darwin & Milner Inc.
Theo. H. Davice & Co. Ltd.
Davies Turner Co. Inc.
Death Valley Hotel Co.
Decca Records Inc.
Deerfield Packing Ltd.
Delta Planting Co.
Delta & Pineland Co. of Mississippi
Denston Felt & Hair Co.
Dent-Allcroft & Co.
Dentists' Supply Co. of N.Y.
*A.W.G. Dewar Inc.
Dick & Goldschmidt Inc.
R. & J. Dick Co. Inc.
T. B. Dick & Co.
Distillers Co. Ltd. (Del.)
Dixie Lumber Co. Inc.
*Dodd-Simpson Press Ltd.
5.
BRITISH INVESTMENTS IN U.S.A. Cont.
Dodwell Dock & Warehouse Co. Inc.
Dowty Corp.
D'Oyley Carte Inc.
Dufaycolor Co. Inc.
*Dunhill Razor Corp.
Duncan Fox Co. Inc.
Dunlop Tire & Rubber Corp.
*Durham Trading Co. Inc.
Ellerman's Wilson Line N.Y. Inc.
Ellis Silver Co. Inc.
*H.L. Elterich Inc.
English China Clay Sales Corp.
J.C. Eno
Ensign Bickford Ltd.
Escocesa Finance Corp. Ltd.
Oscar Evain Inc.
Excess Management Corp. Inc.
F. & O. Standard Cedar Co. Inc.
*Fairbanks Gold Dredging Corp. Ltd.
Federal Composition & Paint Co.
Federal Debenture Co. Inc.
Fein & Co. Inc.
Fenchurch Export Corp.
Ferguson-Sherman Mfg. Corp.
Ferodo & Asbestos Inc.
Ferrenti Electric Inc.
Alfred Fields Co. Inc.
Firth Carpet Co.
Firth Sterling Steel Co.
M. Fisher Sons & Co. Inc.
Fleming Oarless Lifeboat Corp.
*Ford City Machinery Sales Co.
R.T. French Co. & Atlantis Sales Co.
285
6.
BRITISH INVESTMENTS IN U.S.A. Cont.
Thomas French & Sons Ltd.
Frismar Inc.
Fritz & Larue Inc.
Funch Edye & Co. Inc.
Furness House Inc.
Gasoline Anti-Oxidant Co. (Del.)
*Gaspesia Sulphite Co. Ltd.
Gawsont British Picture Corp. of America
General Register Corp.
Genotherm Corp.
Gerhard & Hey Inc.
Anthony Gibbs & Co. Inc.
5. & A. Gilby Ltd.
Glendinning McLeich & Co. Inc.
*Glow Investment Trust Ltd. U.S.A.
Golf Ball Developments Inc.
William Goodacre & Sons Ltd.
John H. Graham & Co. Inc.
Gregg Car Co. of N.Y.
Gregg Car Co. of Del.
Gregg Car Co. Panama
Green Fuel Economiser Co. Inc.
*Griffith Hughes Inc.
*J.R. Guant & Sons Inc.
Guiterman Co. Inc.
H & B American Machine Co.
Haffenreffer Brewing Co.
H. Heigh & Co. Inc.
*John T. Hardaker Inc.
L. & C. Hardmuth Inc.
T.B. Harms Co.
Harriman Fifteen Corp.
Harvester Office Co.
286
7.
BRITISH INVESTMENTS IN U.S.A. Cont.
Havana Terminal R.R. Co. Inc.
Havana Central R.R. Co.
Hecht Levis & Kahn Inc.
*Heublein A-1 Sauce
John W. Higman Co.
The Hing & Harrison Plush Co.
3. & G. Hindle Ltd. Inc.
Holland & Sherry Ltd.
William Hollins & Co. Inc.
Hopes Windows Inc.
Horne Bros. Inc.
*Hotel Bermudina
House of Comoy Inc.
*Houghton Land Corp. Ltd.
Joshua Hoyle & Sons Ltd.
Hudson's Bay Co.
*Hudson 011 Co. Inc.
*Hunglas Ltd.
Hunt & Winterbotham Mills Ltd.
Hunter Benn & Co.
Imperial Tobacco Co. of Kentucky Inc.
India House Inc.
*Innes Land & Lease Co. Inc.
Interlaken Mills
Innis Speiden & Co.
*International Ever Ready Co. Ltd.
International Paint Co.
Irwin-Harrisons-Whitney Inc.
M. & L. Jacobs Inc.
Jaeger Co. Inc.
Jessup Steel Coy.
Johnson Matthey & Co. Inc.
Justrite Co.
287
8.
PRITISH INVESTMENTS IN U.S.A. (Cont.)
Jute Industries Ltd. Inc.
Kaylene Ltd.
Keasbey & Mattison Co.
William Kenyon & Sons (America) Ltd.
Kern County Land Co.
Kern oil Co.
*Kiemer Gold Mining & Milling Co.
Kingan & Co. Inc.
Kistler Lesh & Co.
Kohinoor Pencil Inc.
Korena Airlight Quilt Co. Inc.
Lampson Fraser & Huth Inc.
LeRoi Co.
Lea & Perrins Inc.
Leacock & Co. Inc.
Arthur H. Lee & Sons Inc.
T.B. Lee Inc.
Leeland Water & Land Co.
Lehigh Portland Cement Co.
William Liddell & Co.
Linen Thread Co. Inc.
T.J. Lipton Inc.
R.A. Lister
Lister Blackstone Co.
*Lithoprintex Corp. (Del.)
*London Bros. Ltd.
Longmans Green & Co. Inc.
Louisiana Tung Corp. (Del.)
MacDougalls of Inverness Inc.
Mairs Investment Co.
*Marsali Estates Ltd.
Henry Matier & Co.
McComb Estates Corp.
288
9.
BRITISH INVESTMENTS IN U.S.A. (Cont.)
McLaurin-Jones Co. of America
Macmillan Co.
Manila R.R. Co.
Vatador Land & Cattle Co.
Mellins Food Co. of No. America
*Melling & Bevington Ltd.
Menley & James Co.
Mergenthaler Linotype Co.
Mersey & Hudson Wharfage Corp.
Metal Traders Inc.
Mexnorwest Holding Co.
Mica Insulator Co.
A. J. Mills & Co. Inc.
Mincing Trading Corp.
Missouri Kansas Pipe Lines Co.
Mitchell Hutchins & Co.
Molins Machine Co. Inc.
Monolity Portland Cement Co.
Morganite Brush Co. Inc.
Morton Sundour Co. Inc.
*Moull Products Corp.
Mountain Copper Co.
National Meter Co.
National Portland Cement Co.
Natural Chemicals Inc.
Nectar Wine & Liquor Corp.
Thomas Nelson & Sons Inc.
Norma-Hoffman Bearings Corp.
North American Chemical Co.
North American Services Ltd.
North British Rubber Import Co. of America Inc.
North Georgia Processing Co. Inc.
O'Cedar Corp.
289
BRITISH INVESTMENTS IN U.S.A. Cont.
O'Cedar Holding Corp.
O'Konite Callender Cable Co. Inc.
old Bleach Linens Inc.
Oldbury Electro Chemical Co.
Olympic Portland Cement Co. Ltd.
*Oxford Chemical Co. Ltd.
Pacific Coast Borax Co.
Pacific Commercial Cable Co.
Pacific Molasses Co.
Pantheon oil Co.
*Paraquay Land & Cattle Co. Inc.
Parsons Marine Turbine Corp.
Patent Scaffolding Co. Inc.
Patons & Baldwins Inc.
Frank Patridge Inc.
Paulaboro Mfg. Co.
Pearce & Friedman Inc.
Pembroke Chemical Corp.
Penfold Golf Balls Inc.
Pitman Publishing Corp.
*Pitter Trust
*Plews Oiler Co.
*Poore & Co.
*Potter Fine Spinners Inc.
Potter & Moore Ltd.
Pratt & Sons Inc.
Price & Pierce Ltd.
B. Priestley & Co. Inc.
Progress Petroleum Inc. (formerly Crusader Petroleum Inc.)
Pyrites Co. Inc.
*Radio National Corp.
Ralli Bros. Inc.
Ratsey & Lapthorn Inc.
10.
290
291
BRITISH INVESTMENTS IN U.S.A. Cont.
Rawlplug Co. Inc.
Reckitt (N.Y.) Inc.
Red Hand Composition Co. Inc.
Revertex Corp. of America
Richardson Scale Co.
*Rimmel Inc. N.J.
Ritchie & Janvier Co.
*Hobb, Robertson & Birch Ltd.
Robinson, Butler, Hemingway & Co.
Roche Organon Inc.
*Roland Works Inc. (Wilmington)
Rolls Razor Inc.
Ross Bros. Inc.
*Roupy Models Inc.
Royal Society Inc.
Thos. M. Royal & Co.
Rycade Corp.
*Sahagi Corp.
Saint Louis Brewing Asan.
San Bernardino Borax Mining Co.
San Jacinto Land Co.
Sanday & Co. Inc.
Scandinavia Belting Co.
Schiaparelli Parfum Inc.
J. Henry Schroder Banking Corp.
Schroder Rockefeller Inc.
Schroder Trust Co. N.Y.
Scott & Bowne
*Selby Valves Inc.
Selegna Petroleum Corp.
Arthur Seligman & Co. Inc.
Shell Union oil Corp.
*Shield Developments Co. Ltd.
11.
292
BRITISH INVESTMENTS IN U.S.A. Cont.
Simons & French Co.
with & Nephew Inc.
L. Sonneborn Sons Inc.
Southland Cotton 011 Co.
H. R. Spandel Inc.
spear & Jackson Inc.
Spence Bryson Inc.
Spencerian Pen Co.
Spirella International Inc.
Spool Cotton Co.
Spratts Patent (Amer.) Ltd.
Constance Spry Inc.
Stanley Belting Corp.
Stein Brennan & Co.
*Stephens Estates Realties Ltd.
Sterling Offices Ltd.
*Stewart Orchard Co. (Operates in U.S.A. from Wisc.)
Stowell-MacGregor Corp.
Suckow Chemical Co.
Surpass Leather Co.
Sykes Inc. (Formerly Joseph Sykes Bros. America Inc.)
*Sylva 011 Co. Texas
*Talbot Non-Corrosive Ling Co.
Tanners Trading Co.
Tannin Corp.
Tar Distilling Corp.
*Taylor, Law & Cartwright Ltd.
C. Tennant Sons & Co.
*Tennessee River Navigation Co.
Joseph Tetley & Co. Inc.
Texas Land & Mortgage Co.
Texas Mining & Smelting Co. (controlled by Cookson & Co. Ltd.)
Thermal Syndicate Ltd.
12.
293
BRITISH INVESTMENTS IN U.S.A. Cont.
Thomson-National Press Co. U.S.A.
Tonopah & Tidewater Rlwy. Co.
*Triplex Safety Glass Co. of North America
*Turner Machine Co. Inc., Conn.
Twenty-five Broadway Corp.
Raphael Tuck & Sons Co. Ltd.
Ulster Weaving Co. Ltd.
United American Furs Inc.
United Baltic Corp. Inc.
*United Indigo & Chemical Co. Ltd.
United Port Service Co. Inc.
U. S. Borax Co. of W. Virginia
U. S. Potash Co.
U. S. Products Corp.
Universal Gear Corp.
Universal Pictures Corp.
*Unwins Ltd.
*Valleyfields Silk Mills Ltd.
*Vickery Inc. U.S.A.
Victaulic Co. of America
*Whllbrook Tobacco Co. Inc. (Del.)
Mander Co.
Warner, William R., & Co.
Josiah Wedgwood & Sona Inc. of America
Wesley & Winter Inc.
Weswin Holding Co.
*Wessex Properties Ltd.
West Coast Plywood Co.
West Gas Improvement Co. of America
*West Regent 011 Gas Co. Ltd.
*Western Industries Inc.
A. J. White Ltd.
White, Lamb, Finlay Inc.
13.
294
BRITISH INVESTMENTS IN U.S.A. Cont.
14.
*R.J. Whitle & Co.
Benjamin Whittaker Continental Co. Inc.
Benjamin Whittaker Inc.
*Wilkinson Rubber Co. Ltd.
J.H. Williams & Co. Inc.
J. & R. Wilson Inc.
*Wirek
*Wireless Publicity
*Woodmore Producers Co.
Norcester Royal Porcelain Co. Inc.
Dan Wuille & Co. Inc.
Yardley of London Inc.
York St. Flex Spinning Co. Inc.
Mote: In all cases indicated by an asterisk (*) addresses are not known
to date, May 7, 1941, and investigations for such are still being
made.
295
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE
May 9. 1941
Secretary Morgenthau
TO
Mr. Cochran
FROM
STRICTLY CONFIDENTIAL
Official sales of British-owned dollar securities under the vesting
order effective February 19. 1940:
No. of Shares
Sold
April 28
29
30
May 1
10,825
46,886
19,542
51,545
54,720
2,046
2
3
185,564
February 11
Adjustment
$ Proceeds of Nominal Value $ Proceeds of
Shares Sold
of Bonds Sold
Bonds Sold
175,363
180,275
11,728
77,779
227,000
286,000
25,500
1, 079, 000
698,000
7,000
5,223,206
2,322,500
1,110,259
497,465
776,256
753,929
1,572,276
1,545,501
471, 774
267,151
3,968
100
Sales from
2/22/40 to
4/26/41
7.832.461-1/2
238,441,435
27,710,750
26,950,023
Total 2/22/40
to 5/3/41
8,018,025-1/2
243,664,741
30,033,250
28,060,282
Miss Poate reported sales of non-vested securities for the week ending
April 26 totaled $500,000.
AM
For Miss Chauncey
296
May 9. 1941
CORFIDENTIAL
Dear Mr. NoKoon:
I have pleasure is acknovledging, on behalf
of Secretary Margenthan, the receipt of your letter
of May s. with which you enclosed year compilation for
the week ended April 30. 1941. showing dollar disbursemeats out of the British Empire and French accounts at
the Federal Reserve Bank of New York and the means by
which these expenditures were financed.
Faithfully yours,
nmg
E. Marle Declaran
Technical Assistant to the Secretary
J. W. NoKeen. Require.
Assistant Vice President,
Federal Reserve Bank of New York,
New York, New York.
HMC:1ap-5/9/41
297
0
FEDERAL RESERVE BANK
OF NEW YORK
May 8, 1941.
CONFIDENTIAL
Dear Mr. Secretary:
Attention: Mr. H. Merle Cochran
I am enclosing our compilation for the week
ended April 30. 1941. showing dollar disbursements out
of the British Repire and French accounts at this bank
and the means by which those expenditures were financed.
Faithfully yours,
/a/ J. W. McKoon
J. W. McKeen,
Assistant Vice President.
Honorable Heary Morgenthan, Jr.,
Secretary of the Treasury,
Washington, D. O.
Enclosure,
COPY:ng:5/9/41
million
million
(See footnotes on reverse side
+0.3
-0.2
-0.1
0.3
0.1
0.3
0.1
-
Oat
0.4
0.1
-
-
0.1
For monthly breakdown see tabulations prior to April 23, 1941.
England (since June 19)
52.0 million
England (through June 19)
27.6 million
France (through June 19)
$19.6 million
Avorage weekly Expenditure since
War of Outbreak
Cumulation from July 6
Week ended April 30
Bank of Canada for French Account
Transfers from British Purchasing Commission to
162.2
-
-
0.3
-
0.5
-
0.1
-
11,117
4.0
-
15.1
6.3
20.7
27.0
13.5
3.0
-
16.5
4.6
+19.8
47.0
2.0
-
49.0
5.4
32.6
23.8
+105.7
6.7
6.0
125.6
138.3
7.8
24.8
37.2
29.2
32.6
- 11.9
-
0.3
- 20.7
0.5
0.1
*
30
23
16
April
WKE ENTED:
Dec. 4-31
Oct. 30 - Dec. 3
Oot. 2 - Oct. 29
Aug. 28 - Oct. 1
(0/29/40-8/27/4)
Second year of war
July 31 - Aug. 27
July 3 July 30
May - May 28
Apr. 3 - Apr. 30
Feb. 27 Apr. 2
May 29 - July 2
-
0.2
1.2
0.5
-
1.6
-
0.9
0.9
0.9
1.6
0.2
0.5
0.7
0.2
1.7
1,098.4
456.9
-
-
+92.9
0.9
0.7
78.3
62.2
15.0
125.6
+8.2
72.0
0.2
63.2
48.8
26.0
103.7
26.6
1.7
62.5
31.7
52.0
421.4
878.3
10.8
575.6
108.0
-
-
-
0.9
-
-
24.1
101.9
32.1
157.6
229.7
26.8
137.8
34.7
162.7
164.6
197.4
356.72.793.1
425.6
2,782.3
198.0
27.8
39.9
206.8
201.1
234.6
241.0
28.9
167.8
196.7
72.5
244.3
316.8
Aug. 29 Oot. 2
605.6
1,793.2
(8/29/39-8/28/40)*
218.9
237.9
101.4
176.2
259.9
126.0
Jan. 30 - Feb. 26
Jan. 2 - 29
-
1941
+220.1
198.2
-
0.6
0.7
0.5
7.3
1.3.
1.5
0.1
-
+229.0
in Balance
900.2
-
-
-
-
0.6
2.1
2.3
36.6
60.6
26.0
2,109.5
111.4
0.7
0.7
0.1
0.8
18.5
31.5
18.0
210.0
259.5
0.5
0.2
4.2
0.3
4.4
0.5
8.6
1.8
32.0
6.0
7.9
31.4
6.0
160.5
271.5
198.5
308.9
52.0
,356.1
828.2
Gold
Credits
1.3
900.2
1.095-((e)
449.7
416.6 (e)
866.3(e)
35.0
420.1
Credits
Sales
Credits
Total
Debits
tures (d)
in Balance
Credits(o)
Other
Expendi-
Debits
of Gold
Gov't
DEBITS
FRANCE
Confidential
Strietty
OF
Total
Dear. (-)
(+) or
NOTE Inor.
Other
Officen 1)(
Securities
Sales of
Proceeds of
Total
CREDITS
BANK
Week Ended April 30, 1941.
Nov. 28 Deo. 31
Oct. 31 Nov. 27
Oct. 3 30
1940
195.1(a)
Other
War_parted through Doo.
In Millions of Dollars)
ANALYSIS OF BRITISH AND FRENCH ACCOUNTS
1,187.63
Debits
tures(a)
Other
ExpendiGov't
DEBITS
Debits
Total
First year of war
PERIOD
(f) Includes 82 million transferred from Yugoslavian account at this bank.
(e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(d) Includes payments for account of French Air Commission and French Purchasing Commission.
receipts.
1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar
presumably reflecting the requisitioning of urivate dollar balances. Other large transfers from such accounts since October,
(a) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks,
of our securities through December, 1940 amounted to $334 million.
to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation
early months of the war. although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the
proceeds of official Brit ish sales of American securities, including those effected through direct negitiation. In addition
Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the
Supply Timber Control, and Ministry of Shipping.
(b)
(a) Includes payments for account of British Purchasing Commission, British Air Ministry, British Supply Board, Ministry of
For monthly breakdown see tabulations priorThrough
to April 23,
1941.
April
30
0 163
million
Wookly Average of Total Debits Sinoo Outbreak of War
0.6
1.2
-
-
0.2
3.9
1.2
+ 4.2
5.9
1.2
1.9
10.0
-
6.8
8.0
2.0
3.6
13.9
7.5
0.1
6.5
16.9
11.7
4.0
16.9
11.7
-
-
0.5
-
0.3
0.2
- 8.9
+2.2
+3.5
1.1
0.3
2.3
-
-
0.6
4.6
-
-
1.1
-
0.2
0.7
-
0.2
4.4
-
-
+4.3
- 0.2
-0.6
0.5
-
- Oat
30
23
4.0
16
2.3
April 9
WEEK ENDED:
Doc. 4 - 31
Oct. so Doo, 3
Oct. 2 - Oct. 29
Aug. 28 - Oct.
(8/29/40-8/27/41)
I
Amoon your of war
July 31 - Auge 27
July July 30
May July
+
4.9
-
0.7
-
In Balance
(-) Dear.
3.3
4.8
62.4
43.4
4.8
6.8
4.8
2.1
3.6
2.5
50.1
2.0
1.5
1.4
6.5
7.9
2.6
1.3
6.7
8.0
6.2
6.1
30.0
36.1
27.3
Other
Gold
of
1.7
-
14.5
0.6
7.5
2.5
3.9
Credits
Total
Debits
Other
British
official
to
Transfers
Strictly
5.0
4.8
Week Ended April 30g 1941.
12.9
10.5
- 14.9
3.8
19.1
6.8
3.2
6.8
0.2
2.0
15.0
41.0
3.1
+12.6
+34.4
4.4
3.7
16.7
10.1
+ 1.9
0.3
14.3
8.7
31.2
0.4
+181.7
0.2
32.4
in Balance
Debits
Total
Dear. (-) Credits
Other
(+) or
Net Iner.
12.5
-
23.1
14.3
-
16.9
-
20.9
110.7
13.7
+230.2
57.9
4.8
A/C
Sales
Credits
0.8
1.0
-
2.2
5.1
3.2
6.8
5.0
2.8
5.8
-
49.2
14.0
-
-
27.3
534.8
42.5
16.4
-
38.7
20.9
412.7
A/C
A/C
Sales
For French
For Own
British A/C
Transfers from official
Gold
of
Proceeds
CREDIT
Dollare)
ANALYSIS OF GANADIAN AND AUSTRALIAN ACCOUNTS
34.9
35.9
34.9
46.0
24.3
33.9
60.9
31.1
33.7
707.4
460.6
60.6
69.6
28.6
48.0
35.2
-
26.7
-
43.9
44.3
504.7
306.4
60.9
-
31.1
-
33.7
-
1941
16.6
477.2
48.0
35.2
-
26.7
44.3
-
Debits
Other
Oct. 3-30
Aug. - Oct.
1940
16.6
323.0
(8/29/39-8/28/40)*
First year of war
PERIOD
A/C
Credits
Total
Nov. 28 Dec. 31
Oct. 31 Nov. 27
2
+
2.0
0.5
12.
+
+
4.5
1.7
0.6
13.7
2.8
-
+ 2.0
12.5
5.9
-
- 1.8
4.6
+
+ 7.9
1.3
1.2
2.6
-
+ 3.1
May 1 - May 28
Apr. 3 - Apr. 30
Feb. 27 - Apr. 2
Jan. 30 PoD. 26
Jan. 2 - 29
British
official
to
Transfers
DIBITE
Debits
Total
301
REPORT ON MAIL RECEIVED FOR THE PERIOD MAY 9TH TO MAY 16TH
There is a marked increase in the mail urging that no convoys
be supplied, and strongly anti-England and "keep out of war". Of the
former, 26 plus several petitions signed by anywhere from 2 or 3 persons
up to one with 5,000 signatures.
5 letters.
Pro-convoys and all-out aid
Abusive of HMJr. -- signed, 2; anonymous, 5.
Abusive of the President -- signed, 2; anonymous, 3.
Will not buy bonds unless guarantee money not going to British - 3.
Cut Government expenditures to the bone - 5.
Stop strikes if you wish support of Administration - 3.
Pro-Lindbergh - 3; anti-Limdbergh - 3.
Spanish War Veterans protesting cut in pensions - 3.
Cut in pensions for any Veterans - 1.
Close CCC Camps, abolish NYA, reduce WPA - 3.
For sales tax - 3; against sales tax - 2.
For a Government lottery - 3.
Comments on Taxation
Suggested new taxes on bank deposits, revenue stamps on checks and
documents; increase in postage; race tracks and bets placed there; dollar cosmetics; a
all bridge rubbers played at clubs: bowling alleys; bachelors; a
thousand on assessed value of land; minimum income tax on everyone; big
corporations; used cars; fuel oil and gasoline; advertisements, and income
tax of one quarter of one per cent on gross.
Many advocate pay envelope deductions; forcible savings of wage
increases of defense workers; permission to pay income tax in monthly
installments, etc.
-2-
302
Various writers urge that there be no tax placed on bank checks;
musical instruments (which are as educational as books or maps) the poor
and laboring classes; gasoline; second-hand or resale of cars; tea, and
any food.
Comments on Bonds
Comment on bonds is in the main favorable, but a number reflect the
anti-British sentiment, and others criticise Government spending, and the
appeal to the public for further financing. There are many suggestions
that bonds be issued to use in payment of estate taxes, income taxes, or
in some way meet the needs of elderly people who would be buying annuities
or investing for quick return. Several suggest that defense stamps be
sold by retail stores where sales people could suggest that small amounts
of change be made by stamps instead of in coin.
There was one letter urging that there be a general referendum on
entering the war.
Quoted comments from a number of letters follow:
V. C. Desinger, Fort Wayne, Indiana, writes for 120 men and women in his
business to convey the thought that this country should build a defense
program with all possible speed, help England in every possible way, but
absolutely and definitely take no steps that will involve us in war.
"It is an abasement of the character and the spirit of the people of the
United States to credit Hitler with being able to successfully attack our
country. a a It would be bad enough if circumstances compelled us
to go into war. It is horrible to think we might go in voluntarily.
Letter enclosing a petition containing over 5,000 signatures of residents
of Ohio, secured within ten days, says in part:
"We are definitely opposed to any measure which would directly or indirectly involve America in a foreign war. We hope and pray that you
will use the influence of your high office to keep this great country
out of foreign wars. We honestly believe that the welfare of the United
States is more important than the defeat of any foreign despot, regardless
how tyrannical.
For the benefit of America, let our own East Coast discard its inferiority
complex, on the question of self-defense, which has been nurtured, more a or
less, by insidious British propaganda. In its place let then develop
state of MATURED AMERICAN SELF-ASSURANCE, which is held by the great
majority of the people in our great country."
303
-3
People's Peace Committee, Baltimore, Md. Copy of resolution being
widely circulated. War preparations have been made at behest of Wall
Street. Secretary has recommended tax increase to fall on workers and
middle class. Government should make Wall Street pay for Wall Street's
war.
William L. Coff, Edgewater, Md. Circulated private questionnaire asking
opinions on all out aid to England. Reaction was 75 to 1 in favor of
it even if it led to open trouble with Germany.
Former Senator Edward R. Burke, Omaha, Nebraska. Anxious to mobilize
public opinion in defense of "Right to work." Sends circular letter
attacking C. I. O. labor policies.
Anonymous attack on Sydney Weinberg of Goldman Sachs, who sold public
"cat and dog stocks" in 1929. Now promoted to be member of O. P. M.
T. H. Ressler. Rockville Center, N. Y. Strange the Secretary could be
so ill-informed concerning way his idealist father and President Wilson
were deceived and mocked by British Statesmen. How can Secretary allow
himself to be tool in their hands when he should have settled score with
men who deceived his father1
J. Baranowsky, Bridgeport, Conn. His child took contents of bank,
about $20, to post office to buy bond. Clerk told them to take money
to bank and have counted and put in bills and then bring back. Can
they make him do this? Why cannot U. S. officer accept U. S. money in
any form?
Denton County Texas Farm Bureau, Members disturbed by clipping reporting
Secretary's opposition to parity payments. He goes far beyond attitude
of President. Secretary should be mindful of hardships on farmers which
these payments only partially meet.
E. C. Blomeyer, Chicago, Illinois. Suggests that citizens who want to
contribute beyond buying bonds be allowed to deduct gifts for defense
from their income tax statements even if over 15% limit.
H. J. Devereaux, Ocean Beach, Calif. Spanish War Veteran. Has between
four and five thousand dollars, which he will put into U. S. bonds when
Government openly declares for aid to England. We are craven cowards if
we let Germany beat England. If that happens, will feel United States
not worth worrying about.
304
-4
I. H. Nakdimen. President, City National Bank, Fort Smith, Arkansas.
Sends copy of letter to Senator Bennett Champ Clark. Says best part
of his speech, as printed in Congressional Record, that it did not
occupy more space. Majority of Americans behind President. Greatest
country has produced and no individual can affect this belief in him
by such speeches.
C. C. Ferris, Saratoga Springs, N. Y. 80 years old. Nine people on
pay roll, If tax bill goes through could not pay taxes from income and
would shortly be bankrupt. This would throw his family and employees
on relief. Begin to save where savings should begin, and that is
Washington. "I an for the President and what he stands for 100% but
not for his ideas of finance."
W. P. Gaylor, New York City. A houseman at Pennsylvania Hotel. Suggests
everyone sacrifice 25% yearly wages for all out aid to Great Britain
short of war, but if worst comes we can face it.
"I. O. Lotts" San Francisco, Calif. New Deal having killed business and
removed profits from security markets is now trying to float bonds.
Remove fear and complicated restrictions, and bond markets and manu-
facturers will go ahead and make money for Government as well as indivi-
duals.
Amos Pinchot of New York City is circulating copies of his letter to
Secretary Stimson on his call for convoys. Mr. Pinchot regards the
Secretary as inadequately informed and actually distorting the facts.
Anonymous "Middle Class Tax Payer" We fear U. S. will go bankrupt
trying to save the British Empire. "You are an honest noble man and
in a hard position." Wish peace could be brought about now.
Randolph Smith, Owner, Diamond S Ranch, Terry, Miss. Receives beautiful
bond folders and, like most Mississippians, approves virtues of savings
plan. State is 90% agricultural, and in same mail as last pamphlet he
received "dun" from Federal Land Bank, calling for 6% interest and repayment on money borrowed to save roof overhead. How does the Government
reconcile its charge of 6% and the 2.9 interest paid, when it borrows
from its citizens?
W. H. Hough, E1 Dorado, Kansas. Day our Government decides to use battle-
ships to convoy supplies to England will buy $1,000 bond, and will do so
every six months as long as Navy is used. Does not want to see supplies
bought with his money go to bottom of ocean. "I am a life long Republican.
Let's get action."
305
-5William Low, North Hollywood, California, Manager of local branch of
Bank of America advised his brother not to buy any amount of new
defense bonds, saying that they were poor investment and he would have
trouble getting money out of them. Writer a Catholic and American,
a Democrat and member of labor union. "I think more of my country
than I do of my money."
Sara S. Mathews, Reno, Nevada. Telegram. At request of Government,
Americans turned in their gold. Why not now ask unions to turn in
their reserves? Could give defense bonds bearing adequate interest
for all money taken over.
A. J. Smith, Norwood, Ohio. Few ordinary people fail to practice
thrift, so Government should not lecture then on doing so but should
effect every saving possible before asking pennies, nickels, and dimes
to support Government which continues W. P. A., etc. Commends
Secretary's economy stand.
J. R. Reese, Nashville, Ark, Cut W. P. A. Stop paying owners of large
farms to cut production, which does not help small farmers. Strikes are
treason at the present time. "I hope to hear that strikes are busted
and that the C.C.C.s, W. P. A.S. farm payments and Soil Conservation
are knocked into a cocked hat."
A. L. Campbell, Memphis, Tennessee. Would profit from parity payments
as owns many Southern farms. However, urges President veto 85% parity
bill. Farmers should not receive additional money from Treasury.
Opposed to all appropriations not vital to defense.
Franklin R. Hyde, Pierre, S. Dak. Telegram. "Don't see how you can
expect salaried class to save and invest in bonds when commodity markets
and cost of living is booming daily as witness yesterday's wheat market."
By reference from the White House: 18 letters received from New York
City (Bronx) regarding articles in the newspaper PM, and elsewhere, stating
that the small wage-earner is going to bear the major portion of the
3 billion dollar tax bill because "the little person" is not being
represented at the House Ways and Means Committee meeting. Urges
President to act in favor of the poor people.
306
May 9, 1941
MEMORANDUM FOR THE SECRETARY
General mail continues to fall in the two general classifications
of comments on Administration policy in regard to war and comments on
taxation and fund raising efforts.
In the first classification, mail during the week has included the
following:
Violently abusive of the President, signed 9, anonymous 9
Abusive especially against Great Britain and no convoy 22
Abusive on score of wasteful spending, need for economy 15
Pro-Lindbergh 4 Critical of failure to help Greece, Slave 4
No bonds will be bought until strikes on Defense work stopped 3
Freese Axis funds 3 Enbargo on oil 2
Support England with convoys and var if necessary 3
Abolish C.C.C., N.Y.A. 1 Support them 1 Abolish W.P.A. 3
No justification warlike attitude toward Germany, America could
make peace 2 Challenge to debate Secretary's policy dragging
us to war 1 Watch Ireland and Irish here - will betray England
if permitted 1
Several signed or included in comment "One of 85% who do not want
to go to war." There must have been some poll or figure of the sort
printed somewhere.
On income taxes and other taxes or fund raising for Defense:
Inquiries as to whether writer should sell securities to buy
Defense Bonds 2 For sales tax 9 For lottery 7
Approving regular salary deductions, special bank accounts or
forced monthly deposits to provide for next year's income tax 11
Suggestions that additional taxes might be levied on the following:
All income taxes increased 5 Advertisements 4 Checks and business
documents 2 Bank deposits 2 Radio 4 Labor unions 3
Cosmetics, beauty shops or barbers 7 Dogs and cats 2
Childless married couples 3 "Big business" 2 Liquor 2
Coffee or tea 2 Also vehicles, department stores, luxury foods,
vacant land, and confiscated/taxes unpaid. Sales taxes on new
models of automobiles only. Race tracks, Chicken stores, alimony,
lawyers, insurance policies, night clubs, bachelors, perfume,
yachts, and small retail stores which send in no returns. One
writer also suggested income tax on gross rather than net income,
would prevent untruthful deductions for salaries, expenses, etc.,
and catch the dishonest as well as the honest person.
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307
Protests against increased taxes on the following:
Real estate, owners already the worst sufferers now 2
No tax on soft drinks 3 On any food 7 Small business 4
Coffee or tea 3 Pensions or annuities 8 Small investors 1
Middle class 9 Railroad workers 2 Married men with families 2
There were also 5 letters urging an allowance for legitimate
medical and hospital expenses.
General suggestions for raising money included:
Taking over life insurance companies for Government benefit; everyone
give a penny a day; a chain letter scheme; the coining of 1/2 cent
pieces for paying taxes on soft drinks, magasines, etc. Announce
a weekly collection of voluntary subscriptions to be deposited in
mail boxes and collected with some ceremony, newspaper announcements
of weekly total, etc.
It was also urged that retail stores be allowed to sell Defense
Stamps with purchases; that the stamps be given with purchases of
$2 or more; that they be sold at drug stores, in coin machines, etc.
A number of writers urge that the Government accept Defense Bonds
and Stamps for income tax payments.
Gabrielle E. Forbush
308
J. E. Smith, Salt Lake City, Utah: Americans would all be inclined to
make sacrifices if they resulted in improvement of conditions among our
own people instead of saving the British Empire. We are fed up with
hysteria over a German invasion and threat of "war or slavery" which is
very silly considering this country has twice the population and infinitely
greater resources than Germany. From the very beginning the present
Administration has sided with England and the President has surrounded
himself with stooges.
A. J. Grossweiler, Brooklyn, N. Y.: Lives in German neighborhood and
listens nightly to fanatical Hitlerites who predict people will soon
be sick and tired of Roosevelt and his crew and will overthrow Government.
Believes there are definite attempts to depress stock market as well as
other propaganda activities. Has heard that Lindbergh is financially
connected with German airplane building plants so why is he allowed to
inspect Sperry plant in Brooklyn and other airplane factories to see
latest designs and new gadgets.
B. Kupersmith, Dorcester, Mass.: Realises strain and burden Secretary
has borne. "I think you have done a swell job. Future historians will
rank you with Alexander Hamilton as our greatest Secretaries of the
Treasury." One grave problem has apparently escaped notice -- liquidation
of National banks. The Receivers appointed were usually politicians,
anxious to prolong not expedite liquidation. In Massachusetts many
banks not liquidated after ten years. Unless Secretary orders this done
will be prolonged indefinitely. Mr. Kupersmith would invest any final
dividends in bonds and believes others would do the same.
B. H. Davidson, Columbus, Georgia: W. P. A. worker. Painter at Ft. Benning.
Willing to give day's work for his Country's defense. Thinks most W. P. A.
workers would do the same. Would rather see his wife and two kids sit down
to bread and water than for country to go back on President now.
Vm. O. Wilson, Attorney, Cheyenne, Wyo.: For years has bought Government
bonds and urged for estates. Refers to Saturday Evening Post article
intimating Jesse Jones considers Government bonds poor investment. outlet If
true, no wonder people fail to have confidence in U. S. bonds as
for savings.
Stanley Sperber, New York City: It is up to Secretary and his high by priced
experts to uncover British assets here. Believes these covered up
legal cleverness and blames Secretary for trend to war.
to
get
Louise F. McCann. Nutley, N. J.: For month she and sister Complied trying with
bonds changed because of death of mother. sufficient
beneficiary requirements, on sent affidavits Superintendent of her death. of Mails Treasury at Nutley said not to give addi-
wants tional Cashier affidavits. of bank One and Post Office official who gave affidavit employed
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309
there 25 years. She, her sisters and these two men would have to give
up day's work and salary to comply with requirements. Her mother was
not owner of bonds, only beneficiary. She and sister have been buying
one $100 bond a month and plan to do so indefinitely. Are co-owners,
and can see if either died other would be tied up instead of able to
get funds easy. Last letter turning down evidence they sent of mother's
death reached them day Defense Bonds went on sale. Incidentally, Treasury
continues to use wrong address although notified several times of correct
one.
Carley L. Hayden, Estacada, Oregon: 14 years old. Will put her savings
into Stamps. Glad children of America can do their share -- and asks
autograph.
Violet Richardson Ward, Berkeley, Calif.: At one time definitely against
war. In view of developments of last two years goes on record as saying
all possible aid to Great Britain even to extent of war.
L. W. McKeehan, Secretary, Department of Public Safety, Knoxville, Tenn.:
"I beseech you as a conscientious American to again endeavor to extend
economic blockade to Switzerland. The American public is sick of legal
technicalities used to frustrate every attempt to employ economic weapon.
How can Administration expect citisens to support bond sales and join the
Army when Government still permits shipping oil to Japan, etc?
H. E. Clayburgh, San Francisco, Calif.: As investment broker, knows that
few who have large fortunes have made provision for estate taxes. Heirs
sell at sacrifice and blame Government. Those who lack this foresight
usually have large life insurance policies or cash in bank. Suggests
estate bonds payable in ten years, but that can be used for this purpose
if buyer dies. Would move funds idle in banks and would also bring
group of those 60 or over into the market.
Anonymous: Domestic servant writes that after working in German and
Italian families in Jersey City she finds 50$ of every dollar goes over to
seas to Hitler and Mussolini. They starve themselves and children
send money abroad. Can't this be stopped?
E. J. Tatro, Stillwater, New York: Sends snapshot showing buildings country. of
C.C.C. camp practically in his side yard. Plenty of room clean in and open decent?
Why crowd it in on citizen who wants to keep his home defense bonds
Noise, smoke, etc. very distasteful. Hard to stint raise to buy 4 children on
when
extravagantly this way. Trying to would
$2,000money
spent If there were any attempt to help him, his money
go back a into year. the Government in taxes and bond purchases.
--
309
there 25 years. She, her sisters and these two men would have to give
up day's work and salary to comply with requirements. Her mother was
not owner of bonds, only beneficiary. She and sister have been buying
one $100 bond a month and plan to do so indefinitely. Are co-owners,
and can see if either died other would be tied up instead of able to
get funds easy. Last letter turning down evidence they sent of mother's
death reached them day Defense Bonds went on sale. Incidentally, Treasury
continues to use wrong address although notified several times of correct
one.
Carley L. Hayden, Estacada, Oregon: 14 years old. Will put her savings
into Stamps. Glad children of America can do their share -- and asks
autograph.
Violet Richardson Yard, Berkeley, Calif.: At one time definitely against
var. In view of developments of last two years goes on record as saying
all possible aid to Great Britain even to extent of war.
L. W. McKeehan, Secretary, Department of Public Safety, Knoxville, Tenn.:
"I beseech you as a conscientious American to again endeavor to extend
economic blockade to Switzerland." The American public is sick of legal
technicalities used to frustrate every attempt to employ economic weapon.
How can Administration expect citizens to support bond sales and join the
Army when Government still permits shipping oil to Japan, etct
H. E. Clayburgh, San Francisco, Calif.: As investment broker, knows that
few who have large fortunes have made provision for estate taxes. Heirs
sell at sacrifice and blame Government. Those who lack this foresight
usually have large life insurance policies or cash in bank. Suggests
estate bonds payable in ten years, but that can be used for this purpose
if buyer dies. Would move funds idle in banks and would also bring
group of those 60 or over into the market.
Anonymous: Domestic servant writes that after working in German and
Italian families in Jersey City she finds 50$ of every dollar goes over to
seas to Hitler and Mussolini. They starve themselves and children
send money abroad. Can't this be stopped?
E. J. Tatro, Stillwater, New York: Sends snapshot showing buildings country. of
C.C.C. camp practically in his side yard. Plenty of room in and open decent?
Why crowd it in on citizen who wants to keep his home to clean buy defense bonds
Noise, smoke, etc. very distasteful. Hard to stint raise 4 children on
when
spent attempt
extravagantly
thishim,
way.his
Trying
to would
money
to help
money
$2,000 a year. If there were any bond purchases.
go back into the Government in taxes and
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310
J. R. Browne, Fort Collins, Colo.: Time lost in strikes would have
given England planes and ships. Will not buy bonds until Government
puts end to unpatriotic strikes. Senator Clark of Missouri backed by
25,000 German and Italian voters in this State. Nye has a huge
German vote behind him. Must convoy ships and enter war if necessary.
Our day of isolation is gone forever.
V. A. Ross, Detroit, Mich.: "I have studied your tax plan and consider
it very thorough and very fair to all of our citisenry." Delighted to
see change in attitude of U. S. Chamber of Commerce, judging by remarks
of new President.
H. J. Moody, San Francisco, Calif.: ("Never anonymous") You are quoted
as asking how much it is worth to be a free man living in a free land.
Where is the free man, and where is the free land? Certainly not
Washington. When you show us a restored and liberated nation, free of
political quackery, bureaucratic despotism and group pressure, all of us
will go along with you,-but not now.
Norman B. Barr, Chicago, Ill.: "All success to you in your efforts to
prevent the loading of the new taxes on the poor man's table!" As a
Minister for 40 years, not in favor of promoting revolution by further
expression of the masses. "I am in all sympathy with the President and
his cabinet, as they seek to serve all the people all the time."
Mehitabel Perkins, New York City: Has received many "charming letters'
about bonds, but has traveled widely last years and has seen so many
wildcat schemes started and abandoned, so many miserable slums near
extravagant public buildings and so many political parasites that has
completely lost confidence in business management of Administration.
Is willing to deprive self of comforts in old age for Country's defense,
but not for Florida Canal, or other reckless and unnecessary spending.
For the President to talk "thrift" makes one laugh - or perhaps weep.
Must have guarantee money used for defense only. Otherwise, will continue to keep money in stocking, which is just as sensible as to bury
gold in the ground.
Anonymous, S.S. Shawnee, Clyde Mallory Lines: States German sympathizers Boat
and spies about to report activities of our Navy or Air Force. communists and
between New York and Jacksonville-Niami, and what
travelling German syspathisers in crew have excellent opportunities to see their
U. and free of all supervision which would check passing
on valuable S. is doing information. Officers are blind to what is going on.
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311
R. Kuehl, Berisford, South Dakota: How about issuing bonds to make good
Government defaults to farmers on hog processing tax. Has $2300 coming
and until he gets it will not invest in bonds. So far as one gypped hog
producer goes, bonds will have tough going.
C. H. Lee, Palos Verdes, Calif.: Would be interesting to have answer
to question: When a country repudiates its promise to pay interest on
its bonds in gold, why should we depend on its promise to pay either
principle or interest on such obligations as we are now being called
upon to buy.
Safe Deposit Associations are campaigning against the proposed tax on
safe deposit boxes. The St. Louis group writes that the Defense Bonds
circular speaks particularly of safekeeping facilities, indicating need
of adequate protection for valuable property. The largest proportion of
safe deposit box renters are people of average means who will simply give
up boxes depriving the Government of revenue and jeopardising the safety
of their own bonds, etc. The Chicago, Illinois, Association requests reconsideration as does the Cleveland group which states an increased tax
will actually cut the Government intake rather than increase it.
Louis M. Fleisch, Dentist, Topeka, Kansas: Urges high tax on soft drinks.
Local soft drink manufacturers are protesting tax because principle consumers of soft drinks are children. Dr. F. says every child would be
better off drinking milk any way, and suggests taxing drinks 5 a bottle.
Also believes chewing gum, candy and sugar should be heavily taxed.
"Only time there has been an appreciable drop in deaths due to heart
disease and diabetes was in 1919 when sugar was 30$ a pound."
Anonymous: Bought Defense Bond for $750. Will sell it after 60 days
as result of seeing Nasi film shown in Flushing, New York. Why does
Government permit oil shipments to Japan and foreign propaganda here,
and at the same time ask me to help oppose Germany
J. D. Shatford, Railroad Owners Association, Washington, D. C.: Circularising copy of letter to the President reminding him of enormous
majority by which he was elected and stating that this was highest
that he could have for active aid to Britain. Commends article Willkie's
of
authority support andrecent
says circularization
that 2,500 objection,
copies of and that
that fight with England brought only one extra
urging from German. Navy Requests for reprints compelled him to print 2,000 small
copies a all distributed to members of the Association who represent
investments and "Main Street."
J. T. Pocatello, Idaho: Don't meddle with Spanish C. War C. Veteran's C. and
pensions. Pedlechek, These should be increased rather than cut. Keep
give farmers more help rather than less.
312
J. O. Thompson, Iola, Kansas: American born, 66 years old, would like
to buy stamps and bonds. Put out of small business by confiscation of
stock by Pure Food officials. Later agreed unnecessary. but no restitution made. Lost properties when let tenants out of work stay without
paying rent. Sold for delinquent taxes. Cannot get job or Social
Security help. Meanwhile, Surplus Commodities Corporation shipped into
community butter so rancid local food authorities said absolutely unfit
for food. Asks how to get work or maintain small business with legal
curbs, Government competition, and prejudice against age.
G. F. Wolfe, President, game manufacturing company, Minneapolis, Minn.:
"Here's one business man who is for taxes and more taxes." Sells punch
cards, etc. Taxed 10 per cent under excise tax, repealed few years ago.
Could stand 15 per cent easily and revenue would be over a million dollars.
Frank A. Harden, New York, N. Y.1 Circular letter attacking Senator Pepper
and stating that Americans expect President Roosevelt to keep his promise
that we will not go into the war.
Americans United, Forest Hills, L. I.: Quotes President Roosevelt's
assurance that boys will not be sent to foreign wars, and asks all citizens to oppose in every way the war mongers who are urging convoys, etc.
"The preservation of the British Empire is not worth the life of one
American soldier."
313
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 9, 1941
Secretary Morgenthau
TO
FROM
Alan Barth
THE PRICE OF SECURITY
Shift
The impact of events abroad has produced a mass migration
in American opinion. It is not only that individuals and groups
have shifted in relation to one another; the whole body of opinion
has moved, so that the foreign policy issue is now viewed in a
quite new atmosphere.
The old definitions no longer obtain. Today's isolationist
follows the precepts of yesterday's interventionist. He favors
ineffectual intervention. So intransigeant an opponent of the
Lend-Lease law as The Chicago Tribune, for example, recently sug-
gested, as a preferable alternative to convoys or patrols, American
delivery of goods to Iceland for transfer there to British vessels.
At the same time, those who not long ago were labeled interven-
tionists because they endorsed aid to Britain as a means of avoiding war for the United States, have moved forward to a demand for
convoys; some, indeed, no longer hrink from shooting.
In respect to the great bulk of the public, never properly
identifiable as isolationist or interventionist, the shift appears
to have been one of emphasis: from an insistence that Hitler be
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314
defeated by methods short of war, it has turned to a simple insistence that Hitler be defeated.
Gallup polls, Fortune polls, newspaper editorials and radio
comments combine to substantiate the generalization that the pop-
ular attitude is neither defeatist nor complacent over the chances
of an Axis victory. There is no geographical sector of the country
where the newspapers do not preponderantly urge more effective aid
to Britain. The large metropolitan dailies have taken the lead in
pressing for more militant action; but a majority of the papers in
smaller cities and rural areas show a tendency to follow with increasing vigor. This demand for forthright intervention, it should
be noted, is made alike by liberal journals which have consistently
supported the New Deal and by a large portion of the conservative
press accustomed to denounce this Administration and all its works.
This community of viewpoint on foreign policy is made manifest
also in the composition of committees formed to promote more militant
governmental action. If, as has been charged, the Committee to Aid
the Allies is chiefly representative of conservative interests, the
newly formed Union for Democratic Action is headed exclusively by
noted progressives and proponents of economic and social reform.
The latest Fortune Forum of Executive Opinion shows unmistakably that big business, which has been the source of appeasement in
other lands, indulges in little of that sentiment over here. Of the
business leaders polled, 36.5 per cent foresaw costly armaments as
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315
the result of an Axis triumph; 22.6 per cent anticipated eventual
war with the new "Nazi order"; 25 per cent predicted continuous
conflict and economic chaos.
In the available indices to public opinion there is no indication that the isolationists have gained any ground whatever in con-
vincing America either that the Axis is unbeatable or that it presents no menace to this country.
Strategy
The failure of the isolationists to establish either of these
theses has led them to concentrate on a somewhat more subtle and
perhaps more dangerous form of attack. They are seeking -- and with
some degree of success -- to make the choice before the country appear to be one of war or peace, rather than a choice between de-
feating Hitler or permitting him to triumph.
This strategy is implemented by three devices: (1) President
Roosevelt's pre-election pledges to avoid military, naval or aerial
involvement in the war are incessantly reiterated. (2) Measures
which the President takes or may take to defend American security
are called offensive and violative of his pledges. (3) The implication is sedulously fostered that the Administration, through these
measures, aims to trick the country into war by deliberately provok-
ing Axis retaliation.
By putting matters in this light, the isolationists capitalize on the natural and strong American aversion for war and seek to
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316
disregard the even stronger American aversion for the "new order"
of the Axis. Anti-administration statements stress the fact that
a Gallup poll recorded 81 per cent of the public opposed to war at
this time, overlooking the infinitely more significant fact that
the same poll recorded 68 per cent in favor of American belligerency
if it appeared certain that no other means would encompass an Axis
defeat.
Awakening
Patently, a high degree of uncertainty prevails among the
American people. They are willing to pay whatever price may be
necessary to bring about Hitler's downfall; but, of course, they
would like to make the purchase as cheaply as possible. They
simply do not now know what price must be paid.
There is a rapidly growing awareness that the present price
is insufficient. The recent measures taken by the President to
implement American intervention have been generally, yet unenthus-
iastically, applauded. Patrols, ship seizures, the mobilization
of shipping, machine tools and skilled labor, the 24-hour operation
of plants have all been accepted as steps in the right direction.
More such steps -- the freezing of Axis funds, embargoes and pre-
clusive buying -- are widely advocated. But there appears to be
no popular conviction that, of themselves, these will accomplish
the desired end.
317
-5Recent speeches by members of the Cabinet have prepared the
public mind for acceptance of the fact that more drastic action is
required. But there is not likely to be a full acceptance of this
fact unless the President himself declares it to be so. There is
a general expectation that he will do something of this order when
he speaks before the Pan American Union on May 14.
Analysis of the temper of the several means of public expression seems to warrant the prediction that the American people will
demand whatever action the President declares to be necessary for
the world-wide defense of this nation's security. Their united support can best be enlisted, however, through having action forced by
them, rather than upon them. For the sake of morale, it would appear to be preferable to have the people push the President into
danger than to have them pulled into it by him.
318
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 9, 1941
TO
FROM
Secretary Morgenthau
Herbert Merillat
HEARINGS OF WAYS AND MEANS COMMITTEE
May 9, 1941
All witnesses who appeared today were protesting various
increased or new excises proposed by the Treasury or Stam on
gasoline, cigars, soft drinks, candy, admissions, film rentals
and sporting goods. The protest against increases in the taxes
on gasoline and cigars received the most sympathetic hearing of
any, but there was insufficient comment by committee members to
indicate where the committee stood. Doughton displayed impatience
with the amount of time taken by representatives of the petroleum
industry to present their case. In fact his attitude toward all
the protests today was critical and unsympathetic. Remarks by
Cooper and Treadway concerning the Henderson proposal of a 20%
tax on automobile sales indicated that they had been impressed
by Henderson's testimony regarding excises. With regard to the
tax on cigars, Robertson developed the thought that an increase
in the tax would react unfavorably on tobacco growers. A proposal to eliminate taxes on certain sporting goods seemed not
to impress any committee members favorably.
319
TREASURY DEPARTMENT
FOR RELEASE, MORNING PAPERS
Friday, May 9, 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 competi-
tive bidding. The bills of this series will be dated May 14,
1941, and will mature August 13, 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, May 12, 1941. Tenders will not be
received at the Treasury Department, Washington. Each tender
must be for an 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
25-8
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320
opened at the Federal Reserve Banks and Branches, following
which public announcement 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 May 14, 1941.
The income derived from Treasury bills, whether inter-
est 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 disposition of Treasury bills shall not have any
special treatment, as such, under Federal tax Acts now or here-
after 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 Treasury bills and
govern the conditions of their issue. Copies of the circular
may be obtained from any Federal Reserve Bank or Branch.
4456
321
CONFIDENTIAL
SUMMARY OF STENOGRAPHIC TRANSCRIPT OF MEETING OF
PRICE ADMINISTRATION COMMITTES
May 6, 1941
11:00 a.m.
Chairman: Mr. Henderson
Present:
Secretary Wickard, Messrs. March, Knudsen, Ryder,
Clayton, O'Connell, Ezekiel, Pike, Snaughnessy,
Barnes, Weiner, Galbraith, Ginsburg, Thompson
1. Organization
Mr. Henderson introduced Mr. Joseph Weiner, Assistant
Administrator in charge of Civilian Allocation, and Mr. J. K.
Galbraith, director of the Price Division, and announced that,
in addition to the office of General Counsel, there are two other
operating divisions in OPACS--Consumer Protection, directed by
Miss Elliott, and Civilian Supply, for which a director has not
yet been named. He also announced that Mr. R. K. Thompson is
to be his assistant to act as contact between him and members
of this committee.
2. Cotton yarn
Mr. Henderson reported that representatives of OPACS
had met with some of the cotton yarn producers last week. The
manufacturers admitted that prices had gotten out of hand, claimed
that the fantastic prices being charged by jobbers are the result
of bidding on the spot market since most of their current production
had been sold at lower prices four to six months ahead. Canvassing
of OPM's Purchasing and Production Divisions established that better
planning of the Government's purchasing would iron out some of the
peaks in ensuing months, that schemes have been worked out to increase
the number of spindles available for varn and that pressure had thus
been eased in that direction. Mr. Henderson said that fair prices
would be worked out and discussed with the 12 important cotton yarn
producers, after which they would be published as suggested prices.
3. Tax testimony
Mr. Henderson indicated that, in his testimony before the
Ways and Means Committee on May 7. he intended to stress the impor-
tance of having the tax program geared to assist in the necessary
diversion of materials from consumer durables to defense use, rather
than having the excises fall too heavily on consumer commodities
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4456
322
such as cigarettes, cigars, distilled spirits, gasoline, soft drinks,
telephone bills, admissions, etc. To implement this policy, taxes
rubber tires and tubes, etc.
should be increased on automobiles, refrigerators, washing machines,
Mr. Ezekiel questioned the desirability of taxing used
cars since such a tax falls most heavily on low income consumers, but
Mr. Henderson expressed his belief that as a matter of price control
a proportionate * must be imposed on second-hand cars.
4. Fats, oils, and drugs
Mr. Henderson reported that a ceiling for fats, oils, and
drugs, involving a very large number of items, was under consideration
because some of these items had increased as much PS one or two thousand
percent. The problem is further complicated by the increasing scarcity
of bottoms, and speculation on the commodity exchanges. Secretary
Wickard reported that, though no specific steps had been taken to en-
courage additional planting, the oils supply might be increased since
the current flax planting is probably the largest on record and the
soybean acreage is quite large.
5. Rubber
Mr. Henderson stated that both the supply and the price of
rubber are causing concern and that A decision should quickly be reached
on the synthetic rubber program. Mr. Knudsen expressed his belief that
every rubber company should have its own synthetic plant. Mr. Clayton
emphasized the fact that the rubber problem is principally a shipping
problem, since production is at 100 percent in the Malay Straits and
the Dutch East Indies. He indicated the magnitude of the shipping
problem in that the 1941 requirements of nine strategic materials which
must be imported are 9.8 million tons while normal importation is about
5 million tons. He added that unloading rubber on the Pacific Coast
would save about 30 or 35 days but that it is problematic whether the
railroads could handle the increased load.
6. Fuel oil
Mr. Henderson called attention to the possibility of specific shortages in oil (due partly to the diversion of 50 tankers)
which may become acute by autumn and involve problems of Commission, price control,
priority and allocation. He reported that the Maritime
various agencies in the Interior Department, OPM, and OPACS are working on the problem.
Mr. Pike suggested that, because of both shipping and land be
problems, 2 or 3 billion feet of natural which gas might could be
brought transportation from the Gulf Coast to the East by pipelines,
constructed in about 5 months.
The committee adjourned at 12:15 p.m. to meet Tuesday,
May 13 at 11 a.m.
323
EXPORTS OF PETROLEUM PRODUCTS, SCRAP IRON AND SCRAP STEEL
FROM THE UNITED STATES TO JAPAN, RUSSIA, SPAIN, AND GREAT BRITAIN
AS SHOWN BY DEPARTURE PERMITS GRANTED
Week ended May 10, 1941
RUSSIA
SPAIN
:
JAPAN
GREAT BRITAIN
:
PETROLEUM PRODUCTS
Fuel and Gas Oil (including
Diesel oil)
133,000 Bbls.
--
252,000 Bbls.
---
---
68,885 Bble.
--
--
26,298 Bbls.
--
--
---
--
--
56,500 Bbls. 241,479 Bbls.
Crude -
Blended or California
High Octane Crude*
All Other Crude
--
Gasoline -
Gasoline A**
Gasoline B*
All Other Gasoline
105,000 Bbls.
--
--.
Abricating Oil Aviation Lubricating 011
All Other Lubricating 011
Tetraethyl Lead
"Boosters", such as IsoOctane, Iso-Hexane, or
Iso-Pentane
793 Bbls.
44,437 Bbls.
--
1,350 Bbls.
112,036 Bbls.
90,441 Bbls.
--
--
--
--
--
--
--
--
--
4,037 Tons
--
--
--
3,270 Tons
--
SCRAP IRON AND SCRAP STEEL
Number 1 Heavy Melting Scrap
All Other Scrap
Office of the Secretary of the Treasury, Division of Research and Statistics.May 12, 1941.
Source: Office of Merchant Ship Control. Treasury Department.
Any material from which by commercial distillation there can be separated
more than 3 percent of aviation motor fuel, hydrocarbon or hydrocarbon
mixture - President's regulations of July 26, 1940.
Aviation Gasoline.
As defined in the President's regulations of July 26, 1940.
324
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 9, 1941
TO
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
£29,000
Sold to commercial concerns
Purchased from commercial concerns £ 8,000
The Federal Reserve Bank of New York sold £15,000 in registered sterling to
the American Express Company.
Open market sterling was again quoted at 4.03-1/4. The only reported transactions consisted of £1,000 in sales to commercial concerns.
The Canadian dollar, which closed at 12-1/4% discount last night, weakened
to close at 12-7/8% today.
The Cuban peso continued to move off from the current high of 2-1/4% discount
reached on May 7. Today's final rate was 2-7/8%
In New York, closing quotations for the foreign currencies listed below were
as follows:
Swiss franc
Swedish krona
Reichsmark
Lira
Argentine peso (free)
Brazilian milreis (free)
.2321-1/2
.2385
.4005
.0505
.2375
.0505
2066
Mexican peso
In Shanghai, the yuan in terms of our currency was quoted at 5-11/32
representing a further gain of 1/16 Sterling advanced 7/8 to 3.90-7/8.
We sold $1,496,000 in gold to the Central Bank of the Uruguayan Republic,
which was added to its earmarked account.
No new gold engagements were reported.
The Foreign Trade Statistics Division of the Commerce Department San reported Francisco, on
May 8 that 464,600 ounces of refined silver bullion was shipped from been
consigned to Bombay, India. We were informed that this silver had previously
imported into this country from Canada around April 25.
2-
325
In London, a price of 23-1/2d was again fixed for both spot and forward
silver, equivalent to 42.67
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 one purchase of silver amounting to 50,000 ounces under the Silver
Purchase Act. This consisted of new production from various foreign countries,
and was bought for forward delivery.
CONFIDENTIAL
326
BRITISH EMBASSY,
WASHINGTON, D.C.
May 9th, 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,
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
327
TELEGRAM FROM LONDON MAY 7th. 1941.
Naval.
During air-raid on Belfest night of May 5th/
May 6th two naval corvettes badly damaged and considerable
damage done to merchant shipping.
Naval Boarding vessel mentioned in yeaterday's
E.
summary has sunk.
His Hajesty's Submarine Taku reports sinking
3.
enemy tanker north of sicily.
on May 6th British Franconia 20,175 tons home-
4.
ward bound from Cape Town reported attacked by submarine
180 miles west of Free Town.
Militory,
5.
We have occupied H 3 station 28 miles west of
Rutba.
Fao at the mouth of Shatt-el-Arab has been
6.
reinforced by our troops.
Royal Air Force. May 6th.
7.
Medium bombers sank one enomy trawler and
damaged another off Texel. Two are missing.
Right of May 6th/7th.
6.
115 bombers sent to attack industrial area and
shipyarda at Hamburg; small numbers sent to Le Havre and
Lorient. One sircraft missing.
9.
Lybia. 8 heavy Night bombers of 4th/5the attacked Benghazi harbour and
enery aerodromes. At Benine five aircraft including one
or two Focke-Wolf destroyed. one aircraft missing.
10.
Aircraft Irace from flying training school successfull
bombed gun positions, armoured care and troops in Habbaniya
area. Blenheim fighters on reconnaiscance Nosul damaged
two enemy aircraft.
Air Force. May 6th
11.
German A Kent aerodrome machine-gunned by ten /aircraft enemy
328
2.
aircraft. Over the channel during the day we destroyed
one and probably two fighters and lost six fighters,
four pilots safe.
Night of May 6th/7th.
260 enemy aircraft estimated operating, of
12.
which 180 over Clydeside and 60 over Liverpool area.
Night fighters destroyed 8 and probably 2 more.
My telegram of May 6th. Paragraph 1.
Correction. Suda Bay bombed on May 4th by
13.
16 Junker 88's; our fighters and anti-aircraft destroyed
one probably two, and damaged five.
Iraq.
14.
On May 6th two Gladistors on the ground
destroyed at Habbaniya aerodrome.
15.
Home ecurity, Hight of May 6th/7th.
Considerable damage to property occurred in
Greenock district of Clyde-side. Some damage done to
John Brown's ship-yard and serious fire reported at
Royal Ordnances factory Ardeer.
Attack on Merseyside concentrated mainly on
16.
Liverpool but did not assume serious proportions and
no important damage reported.
On Tyne-side and fee-side damage and casualties
17.
reported as slight.
,
329
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MILITARY INTELLIGENCE DIVISION
TENTATIVE LESSONS BULLETIN
No. 102
0-2/2657-235
MAR DEPARTMENT
Washington, May S, 1941
NOTICE
The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies.
This document is being given an approved distribution,
and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction see Letter TAG 350.05 (9-19-40) M-B-M.
TACTICS OF GERMAN INFANTRY AND ITS SUPPORT BY OTHER ARMS
SOURCE
The information contained in this bulletin is from a
German manual, translated and published by the British in September,
1940.
CONTENTS
1. TASK OF THE INFANTRY
2. INFANTRY TACTICS
3. COOPERATION WITH ARTILLERY
4. SYSTEM OF PLOTTING REFERENCE POINTS
5. INFANTRY PIONEERS AND THEIR COOPERATION WITH ENGINEERS
6. COOPERATION WITH THE AIR FORCE
7. ANTIAIRCRAFT DEFENSE
8. COOPERATION WITH TANKS
9. ANTITANK DEFENSE
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TACTICS OF GERMAN INFANTRY AND ITS SUPPORT BY OTHER ARMS
TASK OF THE INFANTRY
1.
The infantry is the principal arm, and all other arms
support it. It defeats the enemy by fire and movement. It breaks
down the enemy's last resistance in the attack and holds out against
his assault in the defense. The infantry carries the main weight of
battle and suffers the heaviest losses.
The success of infantry depends upon its offensive spirit,
which, in turn, depends upon confidence in its own arms. This spirit
must be cultivated, and infantry tactics must be dominated by the
will to advance and attack.
2.
INFANTRY TACTICS
Both in the attack and in the defense, infantry tactics
are based upon fire. Even in hand-to-hand fighting, results are
speedily decided by bullets or hand grenades.
The object of infantry fire in battle is to overwhelm and
destroy the enemy by establishing fire superiority. It is the duty
of infantry commanders to bring about fire superiority by employing
an appropriate number of weapons with sufficient quantities of ammunition, and by systematic fire control both as regards time and
place.
In the attack, all fire - especially the concentrated fire
of light and heavy weapons and artillery fire - must be exploited
by infantry in rapid forward movements.
The most important part of all infantry training, from
individual training to regimental training, is the use of fire.
Mastery in the use of each weapon, cooperation of all infantry
weapons, their cooperation with artillery in the attack, and the
firm determination of each infantry soldier to utilize all fire
support for advancing and to facilitate the advance by his own fire,
are the principles of this training.
In the assault all arms develop their maximum fire power.
Accompanying light machine guns advance to within a. very short distance of the enemy and fire at the enemy immediately in front of
them. Hand grenades are used to deal with enemy elements under
cover. Armed with machine-pistols or rifles, platoon and section
commanders lead their men forward. The enemy, if still resisting,
is overpowered in hand-to-hand fighting. All forward zone weapons
which are not engaging the point attacked bring fire to bear on the
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rear of the enemy's positions, or on the flanks if they are holding
up assaulting troops. During the assault, battalion and company
commanders place themselves at key positions.
Forward artillery observers accompany infantry in the
assault. Some artillery sections prepare to move to their forward
positions.
COOPERATION WITH ARTILLERY
3.
Good liaison between infantry and artillery is of first
importance. It is facilitated under the following circumstances:
a. When the two commanders try to locate their headquarters
in such a way that personal contact is possible;
b. When the OP's and gun positions are immediately behind
the infantry which they are to support;
C. When signal communications have been established.
Light and heavy artillery batteries make use of their
liaison detachments to maintain close contact with infantry. The
liaison detachment of an artillery battery is usually sent by the
battery commander to the point where artillery support is of the
greatest importance and where direct observation can be of the
greatest use in enabling the artillery to intervene rapidly. The
liaison detachment is usually attached to the battalion which is to
deliver the main thrust or which, in the defense, is to hold the
position where the heaviest enemy attack is expected.
Cooperation between infantry and artillery is also
facilitated by direct contact between advanced infantry elements
and artillery OP's and forward observers. Arrangements must be
made in good time for forward artillery observers to be attached to
all attacking battalions.
The position of OP's must be known to all units. Infantry
commanders and forward observers for heavy infantry weapons must
establish and maintain contact with forward artillery observers in
their sectors so as to coordinate observation, reconnaissance, and
requests for fire support. Conversely, forward artillery observers
must maintain constant touch with infantry in their vicinity.
4.
SYSTEM OF PLOTTING REFERENCE POINTS
In order that targets may be rapidly indicated and fire
from all weapons concentrated on certain sectors of the ground,
important points are noted as reference points.
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332
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The infantry reference points are described by the letter
"I" followed by a number. These are known as "I points." The
"I points" for use by a battalion are numbered from 100 to 199;
those for use by a regiment from 200 to 299.
The allotment of reference points within the battalion
or regiment is made by the battalion or regimental commander as
the case may be.
"I points" for the machine gun company are the lowest
numbered. The higher numbered "I points" are allotted to the other
heavy weapons.
The infantry and artillery should know one another's
reference points, and these should be coordinated.
5.
INFANTRY PIONEERS AND THEIR COOPERATION WITH ENGINEERS
Infantry pioneer platoons must be provided in good time
with any special materials which they may require, and they must
be in a position to carry out their work with the simple tools at
their disposal.
They can be used for the following work:
a. Clearing roads and making temporary bridges over
small streams;
b.
Constructing obstacles against enemy tanks and
infantry:
C. Constructing defensive works, light and splinterproof shelters, OP's, obstacles, etc.:
d. Removing enemy obstacles of all sorts;
e. Clearing passages through obstacles and destroying
embrasures when assault detachments attack permanent fortifications;
f. Making arrangements for gas detection and decontamination of ground over small areas.
Engineers will be used to carry out more difficult tasks.
They will be attached for a limited time to infantry regiments for
such duties as removing mine fields and other extensive obstacles,
building defensive works, giving support in attacks on permanent
fortifications and strong points, and bridging streams. For more
extensive work, labor corps units may be attached to engineers.
Engineers employed in a sector, even when they are not
under the orders of infantry, must maintain contact with the responsible infantry commander and inform him of any important work which
they are carrying out and which may affect the infantry.
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333
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COOPERATION WITH THE AIR FORCE
6.
Radio communication with the air force is not possible
unless the divisional signals battalion provides the infantry with
the necessary radio instruents.
Direct communication between infantry and aircraft is
necessary when aircraft are supporting land fighting. Aircraft attack
enemy points of resistance, strong points, concentrations, and artillery
positions with bombs and machine-gun fire for the purpose of destroying
them and, at the same time, undermining the enemy's will to resist.
The infantry must exploit such attacks rapidly and vigorously if it
is to achieve its object. If aircraft are employed to support land
operations, infantry first lines must be clearly indicated by ground
signals without special orders at the time fixed for the air attack.
If no time has been fixed for the air attack, the infantry must indicate its advanced line as soon as friendly aircraft appear.
Other ground signals for aircraft may be laid down by the
higher consand or they may possibly be arranged between the infantry
and the air force direct.
7.
ANTIAIRCRAFT DEFOUSE
All troops must be constantly ready to defend themselves
against air attack. Although they may be ordered to increase their
intervals and distances to reduce the effect of air attack, units
must always remain under the immediate control of their commanders.
The battalion has in its machine guns and rifles the means
of defending itself effectively against low flying aircraft. Infantry
weapons are not effective against aircraft flying at high altitudes,
but these will usually deliver attacks only when the battalion is
passing through defiles, etc.
Machine guns and light machine guns are effective against
aircraft up to a meximum range of 1,100 yards. If fire from the
largest possible number of rifles is concentrated, it may be effective up to 550 yards, and frequently it obtains material and moral
results which are more effective than those of machine gun fire.
When the rifle is used as an antiaircraft weapon, the
rifles of a platoon or at least a section must be concentrated.
Since the fire of a single rifle against aircraft is quite ineffective,
it is prohibited.
If no decision has been made by the regimental or battalion
commander, unit commanders decide the number of machine gun, light
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334
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machine gun, and possibly rifle platoons which are to be used for
antiaircraft defense.
The number of weapons to be allotted for antiaircraft
defense depends on the likelihood of air attack, the situation, and
the ground.
In battle, every platoon commander may utilize machine
guns for defense against air attack when the situation and the task
in hand permit. Section commanders may also order their sections to
engage aircraft with their rifles.
If antiaircraft defense is to be effective, it is essential
that all troops be warned in time of the approach of hostile aircraft;
for this purpose it is essential to have trained personnel as air
sentries. Air sentries report to platoon commanders whose responsi-
bility it is to decide whether to give the order "Air Attack." When
this order is given, personnel detailed for antiaircraft defense take
up their positions and are themselves responsible for opening fire
at the correct moment. Anti-gas measures are also taken.
If enemy aircraft are effecting a gas spray attack - and
such an attack is possible only from aircraft flying at less than
350 feet - the order "Gas Attack" must be given. Troops adjust
their respirators and protect themselves with their "gasplanes",
which are anti-gas capes or squares of gas-proof material or paper.
Personnel detailed for antiaircraft defense then engage enemy aircraft, leaving off their "gasplanes" if necessary.*
It is always essential for effective antiaircraft defense
that each man know exactly what he is to do in the case of air attack.
*The British General Staff makes the following comment: Although
the Germans appear to teach that gas spray is possible only from
low altitudes, it is not safe to assume from this that medium or
high spray will not be employed by them. It is interesting to note
that they teach troops to adjust their respirators when sprayed.
This may be to protect the eyes, but if so, action will not be
quick enough to prevent drops entering the eyes and causing perma-
nent blindness. The British teaching is that on no account must
respirators be adjusted because there is no immediate vapor danger
and because it is important to keep the respirator from becoming
contaminated. Eyes should be protected with eyeshields. G-2.
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8.
335
COOPERATION WITH TANKS*
Tanks generally attack in two waves. Usually the task of
the first wave is first to destroy antitank guns and then to attack
the artillery. The second wave attacks enemy infantry. In addition,
detached tank units may be allotted to infantry regiments to break
down rapidly any enemy resistance which shows itself after the attack
by the second wave of tanks.
When an attack is to be carried out with limited tank support,
tanks may frequently have to attack in one wave which must engage both
enemy antitank defense and the enemy infantry.
Every effort must be made to ensure that a tank attack is
a surprise attack in order to give the enemy as little time as possible
to strengthen his antitank defenses in the sector attacked.
The moment at which the tank attack is to be launched depends
upon which of the following methods of attack is chosen:
a. Combined attack by infantry and armored formations to
obtain a break-through;
b. Attack by armored formations after infantry has penetrated
into the enemy position with the object of converting the penetration
into a break-through;
C. Attack by armored formations without immediate infantry
cooperation.
The essential characteristic of an attack with tanks is
mutual support by infantry and tanks. Apart from the greater importance
of neutralizing antitank weapons, infantry carries out an attack with
tank support on the same principles as an attack without tank support.
The paralyzing effect of tanks breaking into the enemy's defense must
be utilized by the infantry as quickly and as boldly as possible for
its own advance.
The advance of the second wave of tanks against the enemy
gives the infantry fresh support which may be particularly effective.
The infantry should effect its break into the enemy positions with
this second wave at the latest. So long as it possibly can,
*According to the British General Staff, the Germans pay particular
attention to avoiding loss of surprise by drowning the noise of their
own tanks with the sound of artillery fire and low-flying aircraft. G-2.
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336
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infantry should keep well up with the second wave, taking full
advantage of its support to destroy the enemy, and thus achieve a
break-through.
In an attack with tank support, infantry must be particularly
careful to guard against enemy weapons firing from a flank of the
sector to be attacked, for this flanking fire may separate infantry
from tanks. For this reason it is generally necessary to allot to
certain heavy infantry weapons and certain artillery on the flanks
of the attacking tanks the task of neutralizing any such flanking
fire.
If the infantry is separated from the second wave of tanks,
it will continue the attack with the support of the tank unit attached
to it. This unit will move, as ordered by the regimental commander,
either as a complete unit under the orders of its own commander, or
by sections attached to battalions, either with or immediately after
the leading infantry units. At the same time advantage of the ground
should be taken so that the advance of the infantry can be observed.
If enemy resistance holds up the infantry advance, the tank company
or sections of it - either on its own initiative, at the request of
the infantry, or on the order of the regimental or battalion commander goes forward and destroys the enemy by fire at close range. These
tanks then wait until the following infantry comes up.
If the infantry loses contact with the tanks, it must
continue the attack alone.
Ground unsuitable for tanks or enemy antitank defenses -
in particular antitank obstacles - may make it necessary to hold
back the attack by armored formations until the infantry has broken
into the enemy lines.
Tanks can also be employed without immediate infantry cooper-
ation to exploit certain favorable opportunities. These opportunities
may arise particularly when the enemy is fighting a delaying action,
in the pursuit, and in the retreat. Tanks can then attack without
waiting for the infantry, utilizing their speed to the full.
Close liaison between tanks and infantry is a necessary con-
dition for the effective cooperation of the two arms. The following
measures should be taken:
a. Pre-arrangement of a plan to be drawn up as soon as
possible between the connanders of the two arms;
b. Attachment of armored liaison detachments to infantry
regiments;
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C. Marking the location of infantry HQ, down to platoon
HQ, by pre-arranged signals;
d. Indication of objectives by infantry on the ground.
The armored liaison detachment consists of an officer
with a tank fitted with radio and a certain number of despatch riders.
9.
ANTITANK DEFENSE
The regimental commander will base his orders for the
employment of antitank company on the reconnaissance carried out by
its commander.
The 20-mm. antiaircraft guns which are placed at the disposal
of the infantry are effective against tanks up to 550 yards; the
light infantry guns can be used at ranges over 330 yards against
light armor and tracks; the heavy infantry guns can be used against
concentrations of tanks and for defense of their own positions. Explosive charges, antitank ditches at distances of 100 to 350 yards,
rifles, and machine guns may also be used.
When a coordinated plan for antitank defense is drawn up,
the nature of the ground, obstacles, and antitank weapons must be
considered.
In antitank defense, the decisive factor may be to recognize
the imminence of a tank attack a.s soon as possible and to warn all
troops. Special reconnaissance units, in addition to the usual means
of reconnaissance, may be employed for this purpose.
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G-2/2657-220: No. 387
M.I.D., V.D.
12:00 M., May 9, 1941.
I. Western Theater.
Air: German. Fighter sweeps over the southeast coast of
England resulted in fairly sharp combats. Last night large scale
attacks were made on Hull, and on industrial areas in the Midlands.
London was raided lightly. Estimated that total scale of this
effort was in excess of 500 bombers.
British. Last night the R.A.F. made its heaviest
attack of the war on Germany, employing 300-400 bombers. Chief
centers of attack were Hamburg, Bremen and Emden.
II. Greek Theater.
Itrlian Infantry and Naval Forces have occupied the Greek
Islands of Samos and Furni in the Aegean.
III. Mediterranean and African Theaters.
Ground: North Africa. The situation at Tobruk is reported
unchanged. Operations were hampered by a severe sandstorm.
Near Sollum the British claim a vigorous raid on
Axis troops seeking to thrust into Egypt.
Sea: In the Western Mediterranean and in the Aegean the
Italians claim considerable success with torpedo corrying planes
and bombers against British convoys. The British Chelled Benghazi.
Air: Axis planes raided the Suez Canal.
IV. Iraq.
Situation unchanged.
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SECRET
By authority A. : of 8., 0=P
)
Paraphrese of Code Indiagram
Received as the New Department
Date 10 mg 41 ( Initials gt
at 9:00, May 9, 1941.
339
Ashare, filed May 8, 1941.
the read commeting bee
great importance to the - as a route for trade. Along " share are
operating something 1 the a bestred Ford and Chevrolet trucks. IS so
believed that there are also about fifty Gorasa vehicles with capacities
reaging between , - 5 team. Those are supposed to have arrived recently.
The leads carried into Fereia inside multions of verious sorts up to
light artillery. Pereia smile best in return mainly hides, wool, and
cotton. the reilway has been extented bayend Senjon, honded
toward Tabris but operations - is are still limited is extent. Common
also bee a - of communication with Irea by my of Pass and Dates.
Secover, Seasion restrictions have those last mosse of communication
during the last few months. This is suppored, according to meantimed
statements, to be the main route used to w - personal take Persia,
though a very few are also using the Probised reate. From a treatmently
Tark I learn that he has a report indicating that as may as tea thousand
Commone have mangot to sake their my into Persia. Some of these -
have then - - into Iron, Afginnisten, and Syria. Recept for there is no indication of - out-or-the-artimary Basetes assuments of
troope, the Tarkiah General Staff says. Opposite the Tarkish frontier,
the Bassiese are erecting fertifications, but all those assoures - to
be intented to defeat the all-producing areas.
SECRET
SECRET
Ha
340
In the optation of a high official from
have, there is as apartal activity of a military seleve along the
railway in the direction of the Caspies Sea. Neither is there - in
steelf. the Government of this has advised a Chicken source
I
that there are indications that the Densions - moving wage from enth
to meet.
Distribution:
Secretary of Mar
State Department
Secretary of Theory
Union Semotory of Mar
Ohiof of Staff
Assistant Shief of staff, 6-2
Wear Please Division
Office of Naval Intelligence
SECRET
341
CONFIDENTIAL
Paraphrase of Code Cablegram
Received at the Wax Department
at 19:49, May 9, 1941
Ankara, filed May 9, 1941.
1. The Island of Sance was occupied on May 8. Taken
also are the islands Pares and Names.
2. At first Baglad refused to send a cable in code but
preferential treatment was obtained when Ankara warned of retaliation.
3. There are indications that German troops are moving
northward from Bulgaria and Greece although this has not been confirmed.
4. In connection with cable 208 my office, 20 classes
have been called to the colors. The number affected is 25,000 to
30,000 according to revised estimates.
5. It is requested that I be furnished an assistant and
additional alerical personnel.
KLUSS
Distributions
Secretary of Mar
State Department
Secretary of Treasury
Under Secretary of War
Chief of Staff
Assistant Chief of staff, G-2
War Plans Division
Office of Naval Intelligence
CONFIDENTIAL
CONFIDENTIAL
342
Paraphrase of Code Rediogram
Received at the War Department
at 20:48, May 9, 1941
Berlin, filed May 9, 1941.
1. It is reliably reported that the German army is gradually
replacing its standard 37-mm, antitank gun with a new 50-mm. antitank gun weighing about 1980 pounds. This new weapon will also be
used in the Mark III tanks.
2. German antitank guns use two types of shell. One type
penetrates armor and then explodes. The other type is a high explesive
shell for use against personnel and other targets.
3. The question as to whether solid shot are also being
used is still being investigated.
4. A report of fair reliability indicates that explosive
bullets are being developed for the 15-mm Machine for use against
airplanes. All new planes are being so constructed that they can
be equipped with this machine gun.
PEYTON
Distributions
Secretary of War
State Department
Secretary of Treasury
Under Secretary of War
Chief of Staff
Assistant Chief of Staff, 0-2
War Plans Division
Office of Naval Intelligence
G-3
as
Armored Force
Ordnance
Field Artillery
Infantry
Cavalry
Chief of Air Corps
CONFIDENTIAL
343
CONFIDENTIAL
Paraphrese of Code
Received at the Yes Department
at 5134, My 9, 1941.
Cairo, filed my 7, 1941.
1. Below are listed coveral Greek islands which have been
occupied by the German to date:
a April 16 - Thoses
a April 20 - Samothenes
a April as - Lense
a April 96 - Kythore
a May 5 or 4 - Nyticano
a my 4 - Miles and Seate
2. It is also considered probable that Sense was occupied May ,
3. The coopetian of Zythere was accomplished by - of
paraciate troope.
PERSONS
Distributions
Secretary of Mar
State
of
Seastary of War
Secretary Under Department Treasury
Shief of Staff
Assistant Ohiof of stoff, e 2
Year Please Division
Office of Boral Intelligence
Air Garge
8-3
CONFIDENTIAL
TREASURY DEPARTMENT
146 344
Office of the Secretary
Secret Service Division
MEMORANDUM
May 10, 1941
To:
Miss Chauncey
From:
Mr. Powen, Secret Service
We enclose our today's teletype
message to our New York Office,
instructing that an agent go to the
home of Mr. Roswell Magill near
Westport, Connecticut, at five o'clock
Daylight Savings Time Sunday, May 11,
to pick up an envelope and deliver to the
Secretary at his farm at Fishkill.
NB
345
New York, N. Y., May 10, 1941 12:05 PM
SECRETARY NEAR DESIRES THAT WE SEND AGENT WITH CAR TO HOME OF
MAGILL WESTPORT, CONNECTICUT, AT FIVE OCLOCK DAYLIGHT ROSWELL SAVINGS
SECRETARY TIME SUNDAY, AT MAY 11, TO PICK UP AN ENVELOPE AND DELIVER TO
FARM
FISHKILL.
HOW TO REAHXXHIS
REACH
THEAT
MAGILL
HOME.FOLLOWING ARE DIRECTIONS AS TO
AFTER LEAVING WESTPORT TAKE ROUTE 57 FOR TWO AND ONE HALF MILES.
TAKE RIGHT FORK ON ROUTE 105 FOR THREE AND ONE HALF MILES UNTIL
YOU
COME
TO LYONS PLAIN. TAKE RIGHT FORK ON ROAD CALLED ELEVEN
OCLOCK
ROAD.
MAGILLS HOME.
GO ONE HALF MILE TO END OF ROAD. TURN LEFT TO MR.
MR. MAGILLS TELEPHONE NUMBER IS WESTPORT 4230.
OK MALONEY ENDO
BOWEN END
346
Confidential
between 1th
of he mapel
weston can
10th man 1941
347
memo for secretary Morgenthan
1. The excess profits tax as t stands
how is not an efficient means of skimminp off party current "excessive props
for the Treasury; nor does it accord with
usual standards of fairness. many mature
and financially sound corporations, for
example organized in the twenties, have
large invested capital so that a consider
able increase in earnings will still
subject them tittle excess propts
taxation Others have high average
excusing so that they have little tax to
tear. again, the law is so shot full
of relief provisions of varying Rindsinserted because the Inaftsman were
hoperly afraid that the law would operate very
inequitable - that it does not affect
many proftance corporations. iP on the
other side the law still severely
penal.
young
iyes the rapidly growing a car portion.
etass tend this courage proptable
expansion and refinancing whenever the
resulting gains would throw the carper
tim into kigh excess propts brackets.
learned of a case last week where
a corporation could same a millim
348
by refinancing, but cannot afford to do
it on account or the excess propts
tax situation. think t will he found
that many of the strongest American
corporations will have no excess profts
tax tiper atall and that surprising
taxes will he paid by much smaller
corporations, which have no was propts
at ael.
2. what the excess proptstax needs is a
major reinsim of its substantive provisions
noto its relief provisions, before there is
any increase in rates. et is questionable whether it can he made to work,
but the effort is worth the time. if
men are to he Inagted, excess propts
certainly should he too. The difficulty
will he to work but a satisfactory
single standard by which determine
excessiveness American corporations
are so Riverse in their financing,
the risks involved and the degree
of public ownership that it will
he hand to work out a measuring
stick for excess propts. 200 not think
anyone has one made worder at
present. what is needed is several
349
months work by the best staff of Experts
you can assemble followed by a Detailed
report in the face. They ought to work
quietly without any fanfare atall,
and he given until say September 15 to
present their results
3 all agree that the fairest method
of taxation for corporate profts would
he one which takes fuel
applied to total corporate earnings
the rates of tax applicance to the
individuas who own it. Possibly
today this could he achieved directly,
by taxing individual stockholders upon
there pro rata shares of total corporate
carnings, whether distributed or not.
(The Sugment Court in Eisner macmhey
thought the scheme unconstitutional,
itwas upheld however, during the
Civil was TP another method of
achieving a similar result is to
place a very ^ heavy tax on corporate
earnings, and than provide a credit
for earnings distributed The credit
might he for distributions over a
stated percentage. of course This
latter plan is like the undistributed
350
propts tax,
The main trouble with that cax was
that it was fuel of compromises that
reimed its effeciency and fairness, If
the plan is twork, the lax on corporation
must he so heavy that earnings are
pretty sure to he distributed and there
must he few credits and exemptions.
4. In my opinion additional it would he tairer
to raise whatever, sums are assigned
to he raised hy taxing corporations,
through the ordinary corporate income
tax, than through the present excess
profts tax. should certainly have
the letter studied and rednafted through
the summer by a sufficiently large
and competent staff (added to your
present force) So as trassure usable
practical results by early fael. Also
the two plans mentioned in paragraph
3 above empth he simulationsly
-
examined unless the staff has done
so much work on the excess propts
tax that they are prepared now to
recommend amendments but
which will make it fair and satis.
351
factory in their opinion, Ishould not
make important increases in to rates
right now, The fall would he much
helter a stuf increase in corporate rates
will
he
more
generally
appricable
and
elhince will work better.
5. as your statement to congress my
ideas would he these. you have no dis.
position to take outor their hand the
decision as to the exact method the used
tonaise these great sums. Everyone must
contribute as much as he fairly can,
There must le sacrifices by
and by industry. no one can fairly
claim The excluded man the heavy
increases that must he made in
excise taxes, income taxes etc.
The general principles to be followed
are i 1) to tax all incomes of all kind
in excess of modest exemptions at
sharply progressive rates, 2) to lower
estate and gift tax exemptime and
increase the rates sential
mm. 3) to unpage and excise
and sales taxes on^ luxury items and
on items in any was competitive
with national defense 4) to stop all
remaining loopholes that interfere with
352
a join but stringent application of the
tax. among these are : tax- exempt
interest; some of the income tax
deduction provisions; the exclusim of
special powers of appointment from
the estate tax; community property,
itc.; 4) arefeet all possible economies
in non. defense expenditurer
These weas are not as good nor
as helpful as wish they were, but
have one what a can for you
an hag a day's rejection in the
country. etwould have been much
hetter to discuss the subjects with
you for an evening. I you would
regard this meno as confidential,
between you and me. ef you want
me to Elahorate anything let me Know
he passing, me s my difficultus is
that because r fatigue or something my
left eye has hear practically useless
for a week. But Ican still work
with the right me)
the hestor luck to you. you have a
terrible joh, and me are all pulling
for you
Ram
Prepared by m Kucha for
353
possible used usen sein 5/10/41
I am glad of this opportunity to come before you again,
because I feel that the principles which should govern a sound
tax program may have been obscured by conflicting testimony, or
may have been left unclear through some fault of my own.
I should like to begin by restating those principles,
very briefly, as I outlined them to your Committee on April 24th:
The first is that we should pay as we go for what I called a
"reasonable proportion" of our expenditure. I have taken that
to mean that we must find tax revenue to cover at least two-thirds
of our spending. Translated into dollars, it means that we must
find at least $3,500,000,000 in additional taxes in the new fiscal
year. This objective has been endorsed by the President, and has
been accepted by the country generally, without partisanship, and
with a spirit of patriotism that I consider beyond praise.
The second main principle is that all sections of the
people shall bear their fair share of the burden, according to
their ability to pay. The third is that our taxes should become
a weapon of our defense; that they should help to mobilize our
resources for defense by reducing the amount of money the public
can spend for comparatively less important things. And the fourth
is that taxes should prevent a general rise in prices by keeping
-2-
354
the total volume of monetary purchasing power from outrunning
production. It is around the second of these principles, primarily, that obscurity has arisen. Everyone agrees that all should
carry their "fair share" of the load: but there is wide disagreement and confusion as to what that means.
I was pleased to see that Leon Henderson and Marriner
Eccles not only approved these four principles when they ap-
peared before you, but helped, in my opinion, to clarify the
nature of the job before us. Mr. Henderson, for example, submitted a chart to you, showing that persons earning less than
$500 a year already pay a larger share of their income in Federal,
State and local taxation than any until you come to the $10,000 $15,000 class. This shows why, among other reasons, the Treasury
is so emphatically opposed to general sales taxes, which would
add to the burden on the small wage earner, and why the Treasury
did not recommend a broadening of the income tax base to include
the lowest income groups.
And I am glad, too, that Mr. Eccles urged still higher
excess profits taxes, for in doing so he put his finger on one
of the weaknesses of our tax structure as it exists today. That
is the difficulty of deciding fairly, and yet effectively, how
much of the common burden shall be borne by the great corpora-
tions of America, which are earning more today than they did
even in 1929.
-3 -
355
I don't suppose any tax law can be written so that
we can ever be entirely fair -- certainly not as long as we
have our present tax structure. But we can and we should ar-
range our tax schedules so that corporations, like individuals,
should pay their share in proportion to their ability to pay,
regardless of the source of their earnings. It is not enough
to prevent the relatively small number of corporations largely
engaged on defense orders from profiteering out of the nation's
peril. Many leading, long-entrenched corporations realized
extravagant profits even when the business index was compara-
tively low.
The weakness of our existing excess profits tax law,
as I see it, is that it constitutes a barbed-wire fence protecting these profits of well-established corporations which
are not primarily concerned with defense production and which,
nevertheless, earn heavy profits consistently year after year.
Under our existing excess profits tax law, we are not able to
touch these profits to any appreciable extent. We are not able
to ensure that such rich and strong corporations bear their
full share of the burden. We have a corporation tax that ap-
plies almost equally to all companies, rich or poor, great or
small, and we also have an excess profits tax that applies to
new companies or to those whose earnings have jumped rapidly
-4-
356
during the defense emergency.
The present law permits all corporations to elect to
pay an excess profits tax only if current profits exceed 95% of
the average profits during the base period, plus an additional
allowance for so-called growth corporations. By reaching only the
profits outside the barbed-wire fence, the law actually immunizes
from excess profits taxation those corporations best able to bear
their fair share of the tax burden. It leaves a huge field of
revenue virtually untouched, although the present emergency is
such that we shall need to tap every field if the defense program
is to be paid for.
Needless to say, we should continue to permit those
corporations which had low profits before the defense program
a reasonable opportunity to recoup losses. But we cannot afford
to continue the existing lopsided system of defense taxation which
deals so tenderly with excess profits and departs so sharply from
the principle of "from each according to his ability to pay."
There is an inherent injustice in being allowed to make profits
on a huge scale simply because you have always made them, and
seeing other industries, newer industries, taxed on a different
basis simply because the source of their profits or the course
of their earnings over a long period happen to be different.
-5-
357
Suppose a company is making a consistent return of
forty or fifty per cent on its original investment while another
is making ten. It seems to me unfair and intolerable, at this
particular time, that the first company should continue to make
earnings at that rate, and at this particular time of emergency,
without making a progressively heavier contribution than the
second company. Obviously a tremendous advantage is accorded
the established prosperous corporation against a competitor whose
earnings have not been so consistently large. Whether those additional earnings are due to national defense or to something else,
the fact remains that the well-established company is making huge
earnings in a time of national danger, and that we need a huge
amount of money to pay for the armaments to defend this country.
The phrase "ability to pay" means just what it says.
It means that unless we go further than the mere taxing of what
I might call "war profits", we shall not be attaining the objective
which you and I and the overwhelming majority of the American
people have endorsed. This is a matter of principle, and not of
mere money raising.
Our criterion in taxing should not only be whether a
firm has made undue profits out of the defense emergency. It
should also be whether a firm has made undue profits during the
--
358
Defense emergency. For this reason, it seems to me that we must
put a ceiling on the excess profits tax structure, limiting the
credit for average earnings to a fair return on invested capital.
And by "fair return" I do not mean an extravagant return.
If we tax such profit-earners heavily, it will, I know,
be hard on the fellow who bought his stock yesterday, and is only
going to get six dollars on his hundred instead of forty dollars
on his hundred. But that is not nearly as hard as the luck of the
man who was earning $3,600 a year, with a wife and a happy home,
who has to go to the Army for at least a year and earn $360. You
might as well argue that such a man should continue to get $3,600
a year in the Army, because he had averaged such earnings between
1936 and 1939, as to argue that a company earning $3,600,000 a
year should have its profits relatively unimpaired.
After all, everyone is going to have to make real sacri-
fices before this defense effort of ours is over. Everyone is
going to have to dig deeply into his treasure to help the country
surmount this period of crisis. There has been much talk of the
sacrifices the American people have made and are making. In my
opinion, nobody has yet made a real sacrifice except the boys who
have been drafted, and their wives and families who wait at home.
Events have moved so fast that we can no longer apply
the standards which seemed good enough a year ago. We were
359
-7 spending four billion dollars on defense a year ago; we are
now spending forty billion. We have a million and a quarter
men under arms at a dollar a day. If we expect these men to
give up a year, and perhaps their lives, for their country;
if we expect our defense workers to work ten or twelve hours
a day; if we want our people to feel that they should take
their places in this defense program, all 130,000,000 of them,
then the people who have grown rich out of American industry
will have to make a bigger share of contribution than we had
contemplated before.
TREASURY DEPARTMENT
360
INTER OFFICE COMMUNICATION
DATE May 10, 1941
TO
Secretary Morgenthau
FROM Mr. White
An additional disadvantage of high excess profits tax as
compared with an increase in corporation taxes (provided the latter
is accompanied with a high undistributed profits tax) is the
following:
A high excess profits tax provides a corporation subject to
such taxes with increased incentives to
(a) Increase unduly their expenses. For example, corporations spend heavily on advertising (as they did during the last
war) because they consider that the Treasury pays half or three-
fourths of that advertising bill. They get the advantage of building up good will for the future largely at Treasury expense. The
same goes for numerous other expenditures, with the result that
wasteful expenditure from the point of view of the present emergency
and public revenue are encouraged.
(b) Corporations are much less reluctant to grant wage increases because they take the position that the Government is pay-
ing the largest portion of the wage increase. Thus, it has come
to my attention that the General Electric Company in New England
18 reported to have just given a flat wage increase of 10 cents
an hour to all its employees, and has stated widely that the
Government 18 paying 8 cents of that 10-cent increase. As a
consequence, the demand for wage increases, I have been told, in
that area has greatly increased. Labor presents the powerful
argument that the Government is paying three-fourths or four-
fifths of the wage increase, therefore, why not give it.
I think that you could easily check up on this information,
and if it proves to be true it provides another good argument in
favor of the undistributed profits tax coupled, of course, with
an increased corporate tax and increased rates on the income tax.
361
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE May 10, 1941
Secretary Morgenthau
TO
Herbert Merillat
FROM
Tax-the-Wage-Earner Strategy
Papers in the hinterland which at first were cautious
or noncommittal have begun to follow the lead of such New York
papers as the Times, Herald-Tribune, and Wall Street Journal
in attacking the Treasury tax proposals. The line of criticism
remains the same. The failure to recommend a broader income tax
base while asking heavy increases on present income taxpayers
is almost universally disapproved in the press.
There has now been sufficient press comment, of a fairly
standard character, to indicate the strategy of opponents of
the Treasury program. Their arguments may be outlined as follows:
1. The nation is faced with a danger of inflation which can
be met only by sluicing into the Treasury much of the additional
national income resulting from the defense program. That can
be done only by a much broader income tax base or broader sales
taxes.
-2-
362
2. Workers in factories and shipyards (through increased
wages) and farmers (through huge war orders) are the chief
beneficiaries of the defense program and should be heavily
taxed. On the other hand, the white-collar middle classes,
who will be "soaked" by the Treasury tax proposals, have rel-
atively stable incomes in the form of salaries, annuities, etc.,
and will benefit little from the defense preparations.
3. Wage increases and price ceilings will limit the profits
of corporations. Further increases in corporation income and
excess profits taxes will unjustly penalize corporate earnings
and destroy the profit motive.
4. Middle-class taxpayers tend to make long-term commitments
in the form of insurance, purchase of homes, and provision for
education of their children. Therefore sudden increases in
their income taxes are hard to meet out of current income. (One
paper went so far as to suggest that people in income brackets
below those now taxed do not make such commitments and are,
therefore, better able to pay income taxes.)
5. Persons in the $5,000 - $25,000 brackets are the chief
powers of the nation and heavy tax increases on them will threaten
the success of the savings bond program.
These are the arguments. They could, of course, be demolished,
but the fact is no contrary arguments are being made in the
363
-3overwhelming majority of newspapers.
The Henderson and Eccles Plans
Opinion of leading Eastern conservative papers is divided
on the Henderson and Eccles tax plans. The New York Times,
seconded by Walter Lippman, applauded their excise recommenda-
tions as being well conceived to assist defense production. On
the other hand, the Wall Street Journal and Journal of Commerce
attacked the two programs, as they did the Treasury plan, for
failure to recommend excise taxes which would cut the purchasing
power of low income groups and for proposing heavy excess profits
taxes on corporations. All of these papers welcomed Eccles'
suggestions that the Treasury's proposed surtaxes on lower taxable
incomes might be too high and that the tax base be broadened.
The President's Letter on Taxes
The President's tax letter to Chairman Doughton was con-
sidered disappointing by the press. It was criticized chiefly
because it failed to urge reduction on defense spending or to
make clear-cut recommendations on taxes. The statement that
income tax liability cannot be fixed with equity "as long as the
tax basis is defined to exclude substantial and significant
elements of income" has been variously interpreted. Although
expressing the hope that this was a hint to broaden the income
tax, many papers thought that the President probably referred
to such things as tax-exempt interest, community property, and
-4-
364
capital gains.
Prepayment of Taxes
The plan to provide for advance payment of income taxes
through special stamps or securities has met with universal ap-
proval in the press.
Are New Taxes Necessary?
The Philadelphia Record has featured a series of articles
questioning the need of any additional taxes at this time. They
assert that present taxes are more than enough to raise the 12
billions revenue goal and therefore the Treasury's proposed program
will "siphon to the Treasury a lot of money it doesn't need." The
Denver Post editorializes to the same effect. Thus far, other papers
have not taken this line. However, several straws in the wind indicate a developing campaign for a reduction of the revenue goal:
a report in the Wall Street Journal that Ways and Means Committee
members consider Treasury revenue estimates too low; the question-
ing of Mr. Eccles by Republican members seeking to establish that
the Treasury estimates are over-conservative; Congressman Woodruff's
call for a cut in the revenue goal equal to your proposed cut of a
billion dollars in non-defense spending.
Taxes on Foods
Your statement condemning proposals to tax coffee, tea,
and sugar has evoked considerable press comment pro and con. Many
-5-
365
papers have criticized the statement, saying it was dictated by
political considerations and ignores the need for taxes on articles
of mass consumption to prevent inflation, but the majority have
agreed that a tax on foods should be a last resort.
TREASURY DEPARTMENT
366
INTER-OFFICE COMMUNICATION
DATE May 10, 1941
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns
£18,000
3,000
£
Open market sterling was quoted at 4.03-1/4, and there were no reported
transactions.
The Canadian dollar, which declined from 12-1/4% discount to 12-7/8%
yesterday, moved off further to 13% today.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Swiss franc
.2321-1/2
Swedish krona
.2385
.4005
.0505
.2375
.0505
.2066
Reichamark
Lira
Argentine peso (free)
Brazilian milreis (free)
Mexican peso
Cuban peso
2-3/4% discount
In Shanghai, the yuan was again quoted at 5-11/32 and sterling remained
at 3.90-7/8.
There were no gold transactions consummated by us today.
No new gold engagements were reported.
The Foreign Trade Statistics Division of the Commerce Department reported
May 9 that 305,500 ounces of refined silver bullion had been shipped to
San Francisco from Canada. It appears that this silver will be trans-shipped to
the Chartered Bank of India, Australia and China in Bombay, India.
on
Mr.S
TREASURY DEPARTMENT
366
INTER-OFFICE COMMUNICATION
DATE May 10, 1941
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns
£18,000
£ 3,000
Open market sterling was quoted at 4.03-1/4, and there were no reported
transactions.
The Canadian dollar, which declined from 12-1/4% discount to 12-7/8%
yesterday, moved off further to 13% today.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Swiss franc
.2321-1/2
Swedish krona
.2385
.4005
.0505
.2375
.0505
.2066
Reichamark
Lira
Argentine peso (free)
Brazilian milreis (free)
Mexican peso
Cuban peso
2-3/4% discount
In Shanghai, the yuan was again quoted at 5-11/324 and sterling remained
at 3.90-7/8.
There were no gold transactions consummated by us today.
No new gold engagements were reported.
The Foreign Trade Statistics Division of the Commerce Department reported
on May 9 that 305,500 ounces of refined silver bullion had been shipped to
San Francisco from Canada. It appears that this silver will be trans-shipped to
mm
the Chartered Bank of India, Australia and China in Bombay, India.
367
MEMORANDUM
CONF IDENTIAL
May 10, 1941
To:
PRICE ADMINISTRATION COMMITTEE
From:
R. K. Thompson, Secretary
The following items are on the agenda for
discussion at the regular meeting to be held on
Tuesday, May 13, 1941, at 11:00 a.m.:
1. Control of installment credit
2. Question of stock pile of lead
3. Present rate of production in
automobile industry
4. Price of hides
5. Nitrogen situation
6. Control of speculation in
commodity exchanges
Appointment made
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for 11 am. 5/12/41
THE MAYFLOWER
Washington, D.C.
May 10th, 1941
Mr. Secretary Morgenthau,
The Treasury,
Washington, D.C.
Dear Mr. Secretary,
The Chancellor of the Exchequer has sent me on
a brief mission to Washington, particularly charged with
a message to yourself. I should, therefore, greatly ap-
preciate it if you can fix a time when I can wait upon
you. It is seven years since I was last in Washington
and I recall your kindness to me then. It would be a
great pleasure to renew in these very different circumstances the contact we made then.
Very sincerely yours,
/s/ J. M. Keynes
368
369
393
RESTRICTED
G-2/2657-220; No. 388
M.I.D., W.D.
12:00 M., May 10, 1941.
SITUATION REPORT
I. Western Theater.
Air: German. Scattered attacks on the night of the 9th-10th
on a reduced scale. Fighter activity continued today over southeast
England.
British. Normal offensive activity last night. Mannheim,
Berlin and numerous coastal points were bombed.
II. Greek Theater.
The following Greek Islands have been occupied by Axis troops:
By Germany; Kythera.
By Italy; Andro, Tino and Terma.
III. Mediterranean and African Theaters.
Ground: North Africa. At Tobruk action is limited to artillery fire and patrol activities.
The main effort of previous Axis attacks on Tobruk
has been from the southwest. The British now anticipate another
heavy Axis attack with the main effort coming from the southeast.
Air: British. Harrassing raids in Libya.
IV. Iraq.
Resistance of Iraqi organized units is slackening. The
British claim complete control of the air.
RESTRICTED
370 0
0
P
DEPARTMENT OF STATE
Y
In reply refer to
Washington
May 10, 1941
DCA 893.50/242
My dear Mr. Secretary:
In accordance with the request contained in a letter dated April 28, 1941
from the Honorable D. W. Bell, Acting Secretary of the Treasury, and a memorandum enclosed therewith, I have instructed the American Consul General at
Shanghai, China, to consider the requirements of the Treasury Department in
the preparation of economic and financial reports.
The Consulate General at Shanghai is currently submitting a large volume
of required and voluntary reports upon economic and financial matters, and it
is believed that much of the desired data can be supplied with very little
change in the present schedules. The Division of Commercial Affairs of the
Department will augment its distribution of economic reports from China and
transmit to the Treasury Department those containing the material now desired
by you.
The Department appreciates your reference to the helpful information
supplied by Mr. Horace H. Smith. Mr. Frederick W. Hinke, American Consul at
Tientsin, has recently returned to the Department and is at present on detail
with Mr. Charles K. Moser, Chief, Far Eastern Unit, Bureau of Foreign and
Domestic Commerce. Mr. Hinke is well informed concerning matters of a financial and economic nature pertaining to the Tientsin Consular District, and
the Treasury Department might wish to consult with him.
Sincerely yours,
/s/
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Copytalm 5-12-41
Cordell Hull
DEPOSITS IN TREASURER'S ACCOUNT FROM SALE OF GIITED STATES SAVINGS BONDS (ALL SERIES)
(In Thousands of Dollars)
(Based on Telegraphic Reports)
TOTAL
TO
MAY 10
MAY 1
MAY 2
MAY 3
MAY 5
MAY 6
MAY 7
MAY 8
MAY 9
Treasury
58
27
36
31
30
65
16
39
302
Boston
23
177
37
2,127
1,959
238
1,367
2,246
8,174
New York
511
2,128
683
1,336
1,292
1,842
1,604
2,634
12,030
Philadelphia
201
182
216
246
1,121
1,146
801
581
4,494
Cleveland
955
246
942
1,158
2,467
1,444
823
1,013
9,048
Richmond
163
234
289
292
1,021
1,166
423
459
4,047
Atlanta
121
305
174
1,317
523
298
291
570
3,599
Chicago
457
634
740
1,233
585
983
1,246
2,142
8,020
St. Louis
534
804
1,822
1,538
505
981
834
1,031
8,049
Minneapolis
150
567
73
238
569
242
319
57
2,215
Kansas City
695
876
388
863
827
843
689
575
5.756
Dallas
271
157
429
271
824
585
343
696
3,576
San Francisco
312
572
534
687
259
1,333
761
682
5,140
4,451
6,909
6,363
11,337
11,982
11,166
9,517
12,725
Cumulative Total 4,451
11,360
17,723
29,060
41,042
52,208
61,725
74,450
TOTAL
Office of the Under Secretary
May 10, 1941.
DATE
Secretary Morgenthan - Room 280
372
:
THESE RADIO PROGRAMS PROMOTE
DEFENSE BONDS AND STAMPS
SATURDAY, MAY 10
Time:
12:30 - 1:00 P.M.
Station:
WJSV, Washington, D. C., and Columbia Broadcasting
System Network.
Program:
"No Politics" - U. S. Congressmen discuss bonds.
Time:
12:30 - 1:00 P.M.
Station:
WMAL, Washington, D. C., and National Broadcasting
Company Blue Network.
Program:
Ilka Chase's "Luncheon at the Waldorf".
373
THE WHITE HOUSE
WASHINGTON
May 10, 1941
My dear Mr. Secretary:
I find that:
(1) The defense of the United Kingdom is vital to
the defense of the United States;
(2) Sections 4 and 7 of the Act of March 11, 1941
have been complied with by the necessary agreement on the part
of His Majesty's Government in the United Kingdom;
(3) It would be in the interests of our national
defense to transfer the defense articles set forth in the annexed schedule.
I therefore authorize you to make the transfer to
His Majesty's Government in the United Kingdom of the defense
articles set forth in the annexed schedule.
I would appreciate it if you would arrange with the
Chairman of the British Supply Council in North America for the
time, method, and other details of the disposition.
Very sincerely yours,
The Honorable
Secretary of the Treasury
374
TRINSER DIRECTIVE NO D-21-T.
Defense Articles Authorised
for Transfer to the United Kingdom
by the Secretary of the Treasury
equisition
Number
120
121
Articles
Quantity
As specified in
requisition
Description
Spare Parts for Agricultural Tractors
Model HK-316 Ingersoll Rand Portable Air
6
Compressor Units
164
191
D-155023 Photo-electric Cells
50,000
Model HK-160 Compressors
Model JASS Jackhammers Dry
2
6
12 lengths
24 sets
1 box
50 feet 3/4 inch Air Hose
No. 209 Drilling Tools
Motor Spares and/or Set of Spares for 2 Years
Running of Jackhammers
344
Grain Master Combines
15
536
1 long ton
Creosote
577
2 long tons
Stramonium
579
1/2 long ton
643
1 long ton
011 of Chenopodium
Caffeine
375
MEMORANDUM
May 10, 1941
Reid am Ireas
To:
Mr. Morgenthau
From:
Oscar S. Cox
late Sat pm.
sel'd town c
835 am 5/12.
For your information:
I just talked to Wayne Coy and he tells me that
the Budget is doing some thinking about a Ministry of
Supply. He apparently got the first indication of this
late yesterday afternoon.
ose
376
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
TO
Secretary Morgenthau
FROM
Mr. Wiley
DATE May 10. 1941
FBI and ONI both report that Italian seamen in this country have been
notified by Captain Tosi of the Italian Lines to withdraw immediately all
their funds from the Banco di Napoli Trust Company. It is not clear
whether this is in anticipation of freezing or for some other reason.
and
377
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
TO
Secretary Morgenthau
FROM
Mr. Wiley
DATE May 10, 1941
FBI reports:
May 3. Property of American decedents to which persons in Germany
fall heir are a source of German financing in the United States. From
San Francisco it is reported that the attorney for the German Consulate
there usually receives the inheritance from the executor of the deceased
and turns the net over to the German Consulate General which collects
the dollars and informs the German Foreign Office. The latter arranges
to pay the German heirs the equivalent in marks at the rate of 2.50 per
dollar. For the period of a few months in the latter half of 1939 the
San Francisco Consulate collected $100,000 in this manner. Demands on
such funds are made by the Embassy in Washington to which the Sen Freecisco Consulate has forwarded between $40,000 and $50,000. The Consulate
quarters in San Francisco were purchased from this fund. Funds are also
carried in and out of the United States by special couriers and the
Jananese Embassy on several occasions has been used for this purpose.
Since greater amounts are left by decedents in the United States to
relatives in Germany than vice versa the inheritance business is ex-
tremely profitable, even where the Germans agree to pay American heirs
of German decedents.
and
378
SECRET
Received at the War Department By authority A.C. of 5, G-2
Paraphrase of Code Cablegram
at 22:12, May 11, 1941
Date
Initials
Gairo, filed 20:03, May 10, 1941.
1. Ten to fifteen Martins are the only American planes used
in combat to date. These were employed in medium range reconnaissance.
They have not yet been employed in bombing on account of their load
of eight 250-pound bombs, which is considered not sufficient, and
bomb racks are now being altered to hold four 500-pound bombs. The
Martins have been found in general satisfactory for reconnaissance,
but communication between pilot and navigator needs improvement and
a reduction of noise is desirable.
2. Through lack of Ferry pilots and the inefficiency of
assembling facilities, only two squadrons of Tomahawk are available
for combat operation. They will be in the air in approximately two
weeks.
3. Graummaus and Mohawks have been grounded pending replace-
ment of the end seal bearing spacer rings in R-1820 engines. Hudsons
and Lodestars have been employed in transport duty and have proved
satisfactory except for excess engine wear due to desert conditions.
Air observers will inspect combat units after the Tomahawks are in
operation. Further detailed information will be sent forward.
4. The following is the status of American planes in
Egypt:
-1-
SECRE I
SECRET
379
TOTAL
Name of Number
IN
Number under
Plane Serviceable Inspection
Major
Awaiting
Repairs Ferry
and repair
in
Erected
Un-
erect-
not in
ed
Depots
Martins
24
Tomahawk 21
but
Enroute
from
U.S.
use
9
4
1
42
0
80
32
23
18
25
150
0
237
60
10
12
10
7
Mohawk
Grauman
Lockheed
Hudsons
22
17
Lodestar 1
3
2
27
32
26
FELLERS
Distribution:
Secretary of War
State Department
Secretary of Treasury
Under Secretary of War
Chief of Staff
Assistant Chief of Staff, G-2
War Plans Division
Office of Naval Intelligence
Air Corps
SECRET
2-
30
3
3
GRAND TOTAL 46
ME
212
19
362
122
SECRET
380
By authority A. C. of S., 0-2
16
Initials
)
(
Dat MAY 14 1941
Paraphrase of Code Cablegram
Received at the War Department
May 10, 1941
London, filed 14:45, May 10, 1941.
1. British Air Activity over the Continent.
s.
Daylight. May Air activity was on a restricted scale and
censisted of fighter missions over occupied France and attacks on
shipping off the Norwegian and French coasts.
A
Eight. May a. 183 bembers attacked Hanburg and 133 attacked
shipyards at Bremon. An additional 45 bombed Retterdam, Berlin, Flushing,
Kiel and Bremerhaven. Airfields in southern France and the harber at
Saint Nasaire were attacked by planes of the Coastal Command. Five offensive missions were performed by fighters over occupied France.
3. German Air Activity over Britain.
a.
Eight of May 9-10. German air operations over Britain were
on a relatively reduced scale as compared to recent days, but from
Gravesend in southern England to Toban on the northwest coast of Scotland
attacks were widespread and included five airfields.
3. Air Losses British Theater.
& British
(1) Eight of May 19. In the course of large scale raids
ever Germany 10 bembers were shot down.
German.
(1) Eight of May 2-10. Night fighters shot down one German
bomber.
SECRET
SECRET
4.
British Air Activities Middle East Theater.
A.
Daylight. May 9.
381
(1) British planes were chiefly employed in reconnai esance
flights over Likya and Palestine. However, in Iraq an airfield and
defensive positions near Baghdad were bombed.
Air Activities Middle East Theater.
5.
Daylight. May 9. Slight damage was reported after the bombing
&
of Tobrak. However, 40 - (1) between Pert Said and Kantara were
damaged by parachute mines dropped on the night of May 7. (0-3 Note:
This may refer to damage to railroad.) An estimated 12 mines remain
as a peril to navigation and as a result the Ganal has been closed.
6.
German Air Lesses Middle East Theater.
a.
Daylight. May In attacks on Tobruk 3 German planes were
shot down by Antiaircraft Artillery with 2 more considered probable.
7. In the British Theater in the first eight nights of May, including the night of May 8-9, the German air casualties have totalled
TO shot down by night fighters, 15 by antiaircraft and 2 destroyed by
balloon barrage, making a total of 77.
8. After the bombing and complete destruction of a large troop
column, Iraq troops appeared to be demoralised. They have retreated to
Renadi and Fellujah abandoning much material and many weapons. All the
commercial quarters of Basra have been occupied by the British and the
situation there has returned to normal.
9. May 8. One British trawler was sunk by enemy action in
SECRET
SECRET
382
addition to 2 mina aveepers. The lesses of merchant shipping by enemy
action during last month totalled as follows:
s
British - 60 ships, 293,089 tens:
Allies - 43 ships, 189,473 tens:
Neutral - 3 ships, 5,562 tens:
& Total - 106 ships, 488,194 tons.
This refutes the figures used by Senator
10. Severe damage was caused to 2 British destroyers in Liverpool
harber and at Hull 3 others were slightly damaged.
LIKE
Distribution:
Secretary of War
State Department
Secretary of Treasury
Under Secretary of Var
Chief of Staff
Assistant Chief of Staff, 0-3
War Plans Division
Office of Naval Intelligence (2)
Air Gerpa
as
SECRET
CONFIDENTIAL
383
as
Paraphrase of Oods Cablegram
Received at the War Department
at 08:45, May 11, 1941
London, filed May 11, 1941.
1. British Air Activity over the Continent.
a.
Daylight May 10. There were two offensive air missions
performed by British fighters over Dunkirk and Le Havre and vicinity.
Eight. May H. large scale bombing of Mannhain resulted in
considerable destruction while attacks on a smaller scale took place
ever Berlin, Galais and shipping off the Dutch coast. Airfields in
Norway and shipping in the port of Kristiansand were attacked by planes
under the Geastal Command as were small naval craft at Ijwuiden and
Beulogne. There were four offensive missions performed by fighters
over airfields in occupied France.
2.
German Air Activity over Britain.
&.
Eight of May 10-11. Extreme heavy bombing took place over
London with major destruction all over the city, without question the
retaliation against the recent British bombing of Berlin. The attacks
were aimed exclusively at civilians. On the morning of May 11 an
inspection revealed heavy civilian damage and that historical landmarks
such as Westminster Abbey, Westminster Hall, Grey's Court Hospital and
Queen's Hall had been set on fire and severely damaged. From the roof
last night after the attacks I was able to count more than 15 serious
fires. The most encouraging factor was the efficiency of the night
fighters and in this connection the German casualties listed below will
probably be increased as further reports are received.
CONFIDENTIAL
384
CONFIDENTIAL
383
Dezlisht May 10. A few German air elements were in action
A
ever Sussex and Kent with scattered single planes over Sectland,
Ireland, Germall and Derset.
3.
lerma Air Lesses over Britain
a.
Eight. May 10-11. In a heavy attack on London German plane
casualties verified up to this time amounted to 31 shot down by night
fighters and 2 by antiaircraft fire,
Daylight May 10. In the scattered air actions against Britain
2 single planes were reported damaged.
4.
British Air Activity Middle East Theater.
a.
Daylight May 10.
(1) The port of Bengasi and airfields at Maraua and
Derma and motor conveys near Tobruk and Bardia were attacked from bases
in Syrpt.
(a) Italian Mast Africa. Amba Alagi was bombed.
(3) Malta. Axis sea borne traffic and Lampedusa harber were
attacked by British planes.
(4) Iras. The remainder of Iraq troops now econyming Bashid,
Danquia and Signature were bombed by the Royal Air Force.
5. German Air Activity Middle East Theater.
&. Daylish May 10. Tobrak was bembed and paracinate mines were
dropped by five German planes in the Sues Ganal near Ismailiym.
6. Reports of the presence of German single engine fighters in
Norway have been confirmed.
CONFIDENTIAL
385
CONFIDENTIAL
BSB
The majority of German attacks on the sea berns traffic
7.
during the last bright moonlight nights have taken place at night and
seas planes have been reported showing navigation lights we to the
moment of commencing attack.
LESS
Distribution:
Secretary of War
State Department
Secretary of Treasury
Under Secretary of War
Chief of Staff
Assistant Chief of Staff, G-3
Var Plans Division
Office of Naval Intelligence (2)
Air Gerps
G-3
CONFIDENTIAL