Full text of Diaries of Henry Morgenthau, Jr. : Volume 4 : Part 2

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52D
TREASURY DEPARTMENT

Washington
FOR IMMEDIATE RELEASE,

Press Service
No. 4-48

Saturday, March 9, 1935.
3/9/35

Secretary of the Treasury Morgenthau announced today that subscriptions

aggregating $513,000,000 have been received for the current offering of
five-year 1-5/8 percent Treasury notes, which were offered only in exchange

for Treasury notes maturing March 15, 1935. The subscription books for

that offering closed last night.
The Secretary further stated that up to this time approximately
$555,000,000 of the Fourth Liberty Loan bonds called for redemption on
April 15, 1935, have been exchanged for the Treasury bonds of 1955-60.

The subscription books for the bond offering will remain open until further
notice.
000-000

53
March 11th

Senator Glass called up and said that the

Senate Finance Committee had unanimously passed a resolution

on Saturday, March 9th, at 11 o'clock ordering Mr. Morgenthau
to fire Berney. Senator Glass said instead of doing it he,
as Chairman of the Committee, decided to officially call me
up and ask me to do it. Senator Glass also said that none
of this money for alcohol could be used to pay Berney.
Mr. Morgenthau told Senator Glass that he would call him back
in five minutes and the following is their conversation:
Morgenthau speaking.

This is Glass.
H.M.Jr:

Good morning sir.

G:

Good morning. I tried to get you on Saturday
and Sunday.

H.M.Jr:
G:

H.M.Jr:
G:

I was up in New York City with my family.
I was told you were out of town. Well Mr. Secretary
the Appropriations Committee, without a dissenting
voice, felt that this man E. E. Berney, of the
Internal Revenue Bureau, ought to be removed from
his position.
I see.
And the resolution was offered and unanimously
adopted,in the sub-committee I mean, providing
that the salary - that no part of the appropriation
should be used to pay this man's salary. Now I
suggested in the Committee that a more orderly
proceeding would be to authorize me, as Chairman
of the Committee, to communicate with you and tell
you just what the situation was, so that it might
not be necessary to proceed to that most unusual and in that most extraordinary way and this I
wanted to do when I called you Saturday.

H.M.Jr:

Well I'm sorry that they didn't tell me - I spoke

G:

Yes.

to you Saturday morning, if you remember.

54
H.M.Jr:

I called you up to thank you.

G:

Yes.

H.M.Jr:

I was in New York at the time I called you. I

G:

ca lled you about 9 o'clock Saturday morning.
Yes but that was before the action was taken.

The action was taken at 11 o'clock or half past
eleven Saturday and I immediately tried to get
in communication with you.

H.M.Jr:

Well now Senator.

G:

Yes.

H.M.Jr:

Can I kind of turn this over in my mind. W hen are
you leaving for the hill.
Well I'm on the hill now. I'm going to the

G:

Appropriations Committee in ten minutes.

H.M.Jr:
G:

Oh. Well can I call you back in five minutes?
Yes. Yes. Yes you can call me back in five minutes.
I'11 wait here in my office.

H.M.Jr.

What's your extension number?

G:

974.

H.M.Jr:

Thanks. I'll call you back in five minutes.
Alright.

G:

H.M.Jr:

Senator Glass.

G:

Yes.

H.M.Jr:

Can I talk to you for a minute unofficially

G:

Yes.

H.M.Jr:

I mean just as -

G:

Post

Any way you please.

I mean - I'd like to talk to you absolutely I mean
unoffficially.
G:

Yes.

55

H.M.Jr:

I wish I could come up and see you.

G:

Yes.

H.M.Jr:

Here's the thing. Now I know all about Berney
and all about the charges that Senator McKellar
made against Berney.

G:

Yes.

H.M.Jr:

Those charges were all very carefully gone in to.

G:

Yes.

H.M.Jr:

And we were unable to find a single charge
substantiated.

G:

Yes.

H.M.Jr:

Now we went into it very very carefully.

G:

Yes.

H.M.Jr:

And the charges which were made about his

political activities and his being here and
there - we were unable to find a single charge
substantiated. I went into it very thoroughly.
Now here is one fellow singled out and I ask
myself, just as a citizen I mean the question
of fairness - should I fire this man when I

know that he is serving the government honestly
and well?

G:

Yes well I'll tell you this Mr. Secretary.

H.M.Jr:

Yes.

G:

H.M.Jr:
G:

Unofficially
Unofficially.
I don't think it was so the McKellar charges
against the man, that caused the action of the

Committee, as the reading of his testimony before
the Committee on Post Offices and post roads.

H.M.Jr:

His testimony before the Post Office?

G:

What?

56
H.M.Jr:
G:

I don't know that I'm familiar with that.
I said the reading of his testimony before the

Committee on Post Offices and Post Roads.
H.M.Jr:

Yes.

G:

Which indicated this man was almost idiotic.

It indicated he didn't know what his politics
were, if he had any. He said he hadn't voted
but once in his life and then it was shown

before the Committee that he was an active
member of the Coolidge Club here in Washington,
that when he was asked if he hadn't contributed
to the Hoover campaign he said yes he contributed
to both campaigns and even the Republican members
of the Committee reached the conclusion that he

was a man of the intellectual type that ought not
to occupy as important a position as he had.
It wasn't so much the McKellar charge that the man
in picking out his various employees didn't pick
out any Republicans - that wasn't the thing but
the man doesn't seem to be a normal man.

H.M.Jr:

G:

Well now Senator let me again unofficially - let
me get this - I mean its so unusual. I appreciate
your courtesy in calling me. Unofficially let me
say this. Your - what they're proposing to do
is to pass a resolution saying that none of this
money can be used for Berney. Is that the idea?
I'll read you the resolution that they did pass
and withheld at my request.

H.M.Jr:

Yes.

G:

In order that I might tell you the situation.

H.M.Jr:

Yes.

G:

G:

"Resolution 1. Provided that no part of any
appropriation in this bill shall be used to
pay the salary of E. E. Berney, now acting
as Field Office Inspector in the Alcohol Tax
Unit in the Bureau of Internal Revenue".
Now that's a most unusual thing and a most

extraordinary thing and I didn't want to see
it go into an appropriation bill and I suggested
to them that a better way to accomplish the
result, if they were determined to accomplish it,
was to direct me, as Chairman of the Committee,
to have a talk with you and see if you - to apprise
you of the situation and see what you wanted to
do about it.

57
H.M.Jr:

Well unofficially what do you advise me to do?

G:

Well I don't know. I really got the impression

myself Mr. Secretary that this man, although he is
a college graduate, has no practical sense.
H.M.Jr:

Well let's put it this way. I'm going to talk to

you very frankly. Supposing I could get this man
a job in another - something outside of the Treasury
but in the government.

G:

H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:
G:

That would be alright.
Would that be alright?
Yes that would be alright.
That would be alright?
Yes certainly it would.

Well if I can do that and - then I'll see that he

gets a job at something else outside of the Treasury.
Well well I would personally advise you to talk to
the man personally and get your own impression of
him because the very distinctive impression that
the committee got, and I confess I shared in it,
was that the man hasn't got any common sense at

H.M.Jr:

all.
Well I'll have a talk with him and if - with the

understanding that I can get him a job in some
other Department see?

G:

H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:

That'11 be alright.
And that they'11 leave him alone there.
Oh yies that will be alright.
Well under those circumstances why I'll go along
on that basis see.

Alright.
And I appreciate very much the spirit in which

you helped me.
G:

H.M.Jr:
G:

H.M.Mr:
G:

You'll learn not to mind any disappointments.

I certainly know I'm going to try my best.
Alright.
Alright.
Goodby.

58
March 12th, 1935.
Hon. Kenneth McKellar,
United States Senate.
My dear Senator McKellar:

The receipt is acknowledged of your letter of
February 26th, expressing the opinion that Mr. E. E. Berney,
an employee of the Alcohol Tax Unit, should be removed from
the service for the reason, as you say, that in testifying
before the Senate Committee on the Civil Service he did not

tell the truth about his politics.
As you know, the law provides that no employee

in the classified service may be removed for misconduct except
upon charges preferred by the head of the Department in which
employed. So far as his testimony before the Senate Committee

on the Civil Service is concerned, it is of course to be
remembered that Mr. Berney was not before the Committee as a

representative of this Department, but in his personal capacity
in response to a call made upon him by the Committee.
As I believe I have told you, Mr. Berney has

been capable, efficient, and loyal in the discharge of his
duties in the Treasury Department. I find nothing either in
his record here or in his testimony before the Committee which
would warrant my preferring charges against him.
Very sincerely yours,

(Signed) H. Morgenthau, Jr.
Secretary.

59
UNITED STATES SENATE

Committee on

Post Offices and Post Roads
February 26, 1935.

Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:

I wish again to call your attention to the case of
E. E. Berney, now holding a position in your Alcohol Unit.
On May 11, 1934, Mr. Berney was called before the Senate
Committee on Civil Service to testify regarding his selection of the Prohibition or Alcohol Unit for reappointing in your Department. I quote from Mr. Berney's testi-

mony, as shown on Page 96 of the record:

Senator McKellar: "Where are you from?"
Mr. Berney: "From Central, Pennsylvania."
Senator McKellar: "Are you a Democrat or Republican?"

Mr. Berney: "I do not know."
Senator McKellar: "You do not know? An expert in
the Bureau of Prohibition, and not know whether you are a

Democrat or a Republican?

Mr. Berney: "If I may place my own test, I assume

the test of a man's political faith is determined by his
registration in a primary. I have never registered to vote
in a primary in my life. I voted once in my life, in the
State of Connecticut, at a general election, and I have
never lined up with a political party; so I do not know."
Senator McKellar: "How did you vote then?"

Mr. Berney: "I voted on a machine."
Senator McKellar: "I know; but how did you vote?
Did you vote for the Democratic candidate or for the
Republican candidate?"

60
Secretary Morgenthau - #2

Mr. Berney: "I voted for both. "
Senator McKellar: "You voted for both the Democratic and the Republican candidate at the same time?"

Mr. Berney: "I certainly did."
This man was educated at Yale University, I believe
he graduated there, and had been working for the Government
since 1918, when he went into the Bureau of War Risk Insurance. He entered that Bureau by standing a competitive
examination for Claims Examiner and Reviewer. (P. 93) He
admitted that he was a member of the committee that prepared
the list of former employees that could be restored. (P.97)
Mr. Berney did not know of President Roosevelt's
order which limited the reinstatement of these employees to
January 30, 1934. (P. 98) He did not know how many of the
eight hundred twenty-five employees selected by him and his
committee were Democrats and how many were Republican.
(P. 103) He said that his method of handling the matter
was as follows:
"My passing upon them was specifically and definitely
limited to pulling records and passing out information, with

certain restrictions." (P. 108)

He claimed that he was appointed during the Wilson

Administration and served under the others, but boasted that
he had never voted in his life, except once, and that time
for both the Democratic and the Republican candidate, and

that he had no interest in politics. I quote from him:
Senator McKellar: "You said that you are not in
politics?"
Mr. Berney: "Yes, sir."
Senator McKellar: "You take no interest in it?"
Mr. Berney: "No, sir." (P. 138)

These statements were unqualified, but he soon had
to admit that he was mistaken.

61

Secretary Morgenthau - #3

Senator McKellar: "Is it not a fact that during

the campaign of 1932 you made bets on the Presidential
election, and bet that Hoover would defeat Roosevelt?"

Mr. Berney: "That is an unqualified misstatement
of fact and falsehood. I made no bets in the campaign
except one, which was that if the Democratic Party were
successful, in my judgment, the Republican money powers
over the country would so handle things that the New York
exchange would close. I bet one man in the service 10 to
5 that that would happen, and I collected the bet."
Senator McKellar: "That if the Democrats won, the
stock exchange would close?"

Mr. Berney: "Yes, sir."
Senator McKellar: "I thought you did not take any

interest in politics. That is absolutely surprising.
Mr. Berney: "I didn't say I don't take any interest in politics. I said that I was not qualified and

am not qualified to vote either way, and I did not attempt
to vote either way."
Remember that he had just testified in words that
he took no interest in politics.
At the time I was questioning Mr. Berney concerning
his politics I had a paper in my hand that a gentleman had
passed up to me and I was appearing to look at the paper
before asking Mr. Berney the question, and the following
occurred:

Senator McKellar: "If a man takes enough interest
to bet on an election of any kind, he has some political
views or opinions. It is entirely out of harmony with your
previous testimony that you took no interest in politics,
and that politics never had anything to do with any decision
you made about personnel or anything of the kind."

Mr. Berney: "I still say that it never affected any
official action of mine, but I still think I have the right
to visualize what may take place in different political

62
Secretary Morgenthau - #4

campaigns, and I am sufficiently interested in American

citizenship to do so." (P. 138)

Senator McKellar: "Were you a member of a

political club known as the Hoover-Curtis Club?"

Mr. Berney: "I would say I was not. I can give

you the story behind that."
Senator McKellar: "I would be glad to have it."

Mr. Berney: "Very well, sir. In, I believe, 1924,
I was in the Veterans' Bureau, and I was invited by a subordinate of mine to attend a notification exercise for

President Coolidge. I attended them. We got down to the
place where they were held.'
Senator McKellar: "Where was that?"

Mr. Berney: "I believe it was Constitutional Hall.

We got down there and were about to take our seats. The
man I was with was a member of the Sons of the American

Revolution, and other agencies of that kind in the District.

Someone came to him and told him the man in charge of the

door was not going to be there, and wanted him to take
charge. He asked, 'What does it require?' They said, 'Well,
we have a couple of marines to keep things in order.' He
said, 'Mr. Berney is experienced mor3 than I am in such
things. Why not ask him to go to the door?' I went to the
door and organized these men at the Convention Hall, so that
we could have order."
Senator McKellar: "of course, it was not the love

of politics, but your love and loyalty to law and order that

brought you to that Coolidge meeting in 1924."

Mr. Berney: "It was my interest in the leader of
this nation at the time. I have had an interest in the
person, and I will say the personnel, of the White House

ever since I have been old enough to read and write."
Senator McKellar: "But you never had enough inter-

est to go to the trouble to vote for anybody for that office?"
Mr. Berney: "If I could have afforded to go back to

Pennsylvania I would have."

63
Secretary Morgenthau - #5

Senator McKellar: "You were getting $6,000 a year.
Would
not that permit you to go to Pennsylvania if you
wanted to vote?

Mr. Berney: "I have no residence there." (P. 139)
hand.

Remember I still had the little memorandum in my

Senator McKellar: "You can vote anywhere you please.
You can vote in Maryland or Virginia. You can declare your
residence there and vote. You never looked into that, but
while you did not have enough interest to vote, you had
enough interest in politics -- or in law and order, not in
politics -- to be present at a Coolidge meeting and act as
doorkeeper."

Mr. Berney: "Senator, I would like to clear your

mind on that."

Senator McKellar: "It needs clearing very much."
Mr. Berney: "Nothing would please me better than
to be able to tell you, while I am under oath, that I am
a member of one of the two great parties. Nothing would
please me better. I wish that I could tell you that. I
want to clear up my position as to that situation."

Senator McKellar: "All right."
Mr. Berney: "Some time later I was amazed one day

to open a letter in which I found a check for $5 for my
services signed by somebody who is in Chicago, very likely

a member of one of the committees."

Senator McKellar: "You mean the Republican com-

mittee, do you not?"

Mr. Berney: "Yes, sir."
Senator McKellar: "You did not take that check?"

Mr. Berney: "I took that check and endorsed it
back to the man who wrote it and returned it."
Senator McKellar: "You regarded practical politics

64
Secretary Morgenthau - #6

as so debased and low that you had to send it back?"

Mr. Berney: "I did not regard it as debased or low
or loathsome in the least. I regard it as a very fine
proposition. It means as much to me as the citizenship of
Rome meant to a Roman. If I am permitted to carry this
through, I would like to tell you the entire story."
Senator McKellar: "Go ahead. I thought you were
through.

Mr. Berney: "Not quite. In the next campaign I
received a letter, the same as I received letters from the
American Legion, of which I am not a member, and other
agencies for contributions. I received a letter saying
substantially that in Washington there was but one place
established where people could vote, and to keep that
place up they were asking for a donation of $5 or $10, as
the case may have been, I don't remember which. I sent a
contribution for that purpose."
Senator McKellar: "To the Republican organization."
Mr. Berney: "To a Presidential organization."
Senator McKellar: "It was Republican, was it not?"
Mr. Berney: "I don't know. It had been questioned

very seriously whether Mr. Hoover was a Republican or not.
He didn't know whether he was or not."

Senator McKellar: "It was a Hoover organization?"
Mr. Berney: "Yes." (P. 140)
And again he testified that he had done the same

thing the following year. (P. 140)

Senator McKellar: "As I understand it, you were
doorkeeper at a Republican meeting in this city in 1924."
Mr. Berney: "It was not a Republican meeting."
Senator McKellar: "I would suppose that it was, if
it was for Mr. Coolidge.

Mr. Berney: "It was a notification exercise."

Secretary Morgenthau - #7

65

Senator McKellar: "Mr. Coolidge was a good

Republican. And you say that you contributed to the
campaign of Mr. Hoover in 1928, and contributed again
to the campaign of Mr. Hoover in 1932."
Mr. Berney: "But my contribution was for the
purpose of establishing these booths for these men and
women to vote."

Senator McKellar: "In other words, you helped
Mr. Hoover's cause in 1928, the first time he ran, when
he was elected; and in the same way you helped Mr. Hoover's
cause in 1932, when he happened to be defeated."

Mr. Berney: "I have given the facts, and you can

draw your own conclusions.

Now, Mr. Secretary, that was the testimony of the
man you now have in your employ under Civil Service regu-

lation. There is no possible objection to Mr. Berney's
being a Republican, and as I look at it there is no
possible objection to Mr. Berney's having contributed to
the Republican campaign from 1924 on, up until 1932. He
had a perfect right to do it, but the point I make to you
is that I do not believe your Department should keep in the
public service a man who will falsify about the facts
connected with his political activities. Remember, in the
first instance, Mr. Berney testified that he took no interest in politics, he had never voted, except once when he
voted both the Democratic and the Republican ticket, the
inference being all through the first testimony that he
was far removed from any political thought or action.
All of the men he selected from Tennessee for reappointment on this list were Republicans, and, as far as
I know and as far as I have been able to find out the men
he selected from the list in other states were Republicans.
His arguments seemed to be that it was a more coincident
that all of these reappointees were Republicans. All his
associates on the committee were Republicans and all those
reappointed were Republicans.

And then some young man, whom I do not know, handed

me a memorandum, I held it in my hand and examined Mr.

Berney about his political activities. With this memo-

randum in my hand, the witness not knowing what was on the
memorandum, he admitted that he had taken part in a

66
Secretary Morgenthau - #8

Coolidge ratification in 1924, that he contributed to

President Coolidge's campaign, that he contributed to
Mr. Hoover's campaign in 1932; and while he beat around
the bush, he substantially admitted that he had bet on
Hoover as against Roosevelt in 1932.
Now, I am not asking that Mr. Berney be removed
because of his support of Mr. Hoover in 1928 and 1932 or
because he is a Republican, but I am asking for his re-

moval because he did not tell the truth about his politics,
but on the contrary trying to pervert the truth and conceal the truth as his evidence shows.

Under separate cover, I am sending you a copy of

the testimony for you to read it all.

I am informed that notwithstanding my protest to
you last year, Mr. Berney is still on the Government payroll. I think he should be removed therefrom.
Very sincerely yours,
(Signed) Kenneth McKellar.

66A

March 11, 1935.
Monday

O'Mahoney: Hello Henry.

H.M.Jr: Good morning, Joe.
O'M:

Good morning to you. Have you got your pencil handy?

H.M.Jr:

I got a pencil handy. Sure I'm ready for my orders.

O'M:

All right. Write this down.

H.M.Jr:

Yes.

O'M:

Section 4--

H.M.Jr:

Section?

O'M:

Yes. Section 4--

H.M.Jr:

Section 4--

O'M:

No part--

H.M.Jr:
O!M:

H.M.Jr:
O'M:

H.M.Jr:
O'M:

No part--

of any appropriation-No part of any appropriation-Contained in this act--

Yes, well, I know what you're going to tell me.
Shall be used for personal services not specifically

organized by law. All right, that was the --

this

morning.

H.M.Jr: Now wait a minute. Let me

Section 4. No part

of any appropriation -- Will you give it to me again?
O'M:

H.M.Jr.
O: M:

H.M.Jr.

Yes.

I thought it was something else.
Contained in this act-Contained in this act--

66 B

-2O!M:

Shall be used--

H.M.Jr:

Shall be used--

OIM:

For personal services-For personal services--

H.M.Jr:
O'M:

H.M.Jr:
O'M:

H.M.Jr:
01M:

Not specifically-Not specifically-Authorized by law.
Authorized by law. What does that mean?

Well, it may mean that a lot of your experts and

publicity men, if you have any, will be out. You
H.M.Jr:
O'M:

H.M.Jr:
O'M:

better have it checked up.
I see.

That's what it's directed against particularly.
Gaston, for example, specifically authorized by law Dr. Viner. Do you get me?
I get you.
O.K. A word to the wise is sufficient. You had better
look around.

H.M.Jr:
O'M:

Pardon me?

I say a word to the wise is sufficient. You better look
around.

H.M.Jr: I will. I'll look to it right away. Do you know about
Glass' conversation and mine this morning?
O'M:

No.

H.M.Jr: About Bernie. That's why I thought I know what was
coming.

66C

-3 O*M:

Oh no, oh no. No, I - I didn't -- no, I didn't know
that he talked to you about it this morning.

H.M.Jr:

Well, he talked to me.

O!M:

I know that he was discussing something.

H.M.Jr: Yes, he did and I told him that would it be agreeable if we got Bernie a job in another department
and he said it would be all right. See?
O!M:
I see. Well, good luck to -.

H.M.Jr: I know, but I - I thought that -O'M:

Of course, Bernie made an ass of himself before
that committee.

H.M.Jr: Evidently.
O!M:

H.M.Jr:

And you didn't acknowledge that letter to McKellar.
Didn't I?

O:M:

No.

H.M.Jr:

Now, let me see if I got this thing right. Section 4.
No part of any appropriation contained in this act shall
be used for personal service not specifically authorized
by law.

OIM:

O.K.

H.M.Jr: Thank you very much. I appreciate it.

66 D

March 11, 1935.

Monday.

Couzens: Hello Secretary.
H.M.Jr:

How are you?

C:

Pretty good, thank you. How are you?

H.M.Jr:
C:

H.M.Jr:

C:

H.M.Jr:

All
Senator,
andright.
the pink
slip. about this publicity about myself
Yes.

I think that the reason for that is there was some
organization
called the Sentinels, or something like
that Yes, The Sentinels of the Republic.

Got out a long telegram in which they said that the
Treasury newspaper men were of the belief that I was

really in favor of this thing.
C:

H.M.Jr:

Yes.

And a representative of the Treasury press room came

up to tell me that they had never said such a thing C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Yes.

And in fact, that they had denied it.
Yes.

I - I have officially talked to both Senator Harrison
Yes.

And to Mr. Doughton, and I told them both officially
exactly what my position was.

C:

Yes. Was there ever any report made, this is - I'm not --

H.M.Jr:

Yes.

C:

I'm not going to use this publicly, of course. Was there
Revenue that this was difficult to handle?
ever any report made by the Commissioner of Internal

H.M.Jr:
C:

Well now - just a minute. There's some of our people in
the room and I'11 ask them. I-I don't know.
Yes.

66 E

-2H.M.Jr:

Did Internal Revenue ever make a report that this was

difficult to handle? You don't.

The men in the room say that what they think they said

was that, I'm not sure of this -C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Yes.

That, that the Bureau said it would take a long, long
time to assemble it.
Yes.

And that it would be some time in October before the
information was available.

Oh, it wouldn't be ready until October eh?

Well that's what they say but I'M not, I- I'11 find out
if you want me to.

Well, I was wondering you know -There - There's nothing this year has gone up on the
Hill from the Treasury, except my word to Senator
Harrison and to Mr. Doughton, and you': re at perfect

liberty to quote me -

C:

H.M.Jr:
C:

Yes.

That the Treasury stays absolutely neutral and will not
express any opinion on this matter.

Well, I don't want to use it for publicity but would you
mind writing that in case in later years that I was
challenged on that statement?

H.M.Jr:
C:

H.M.Jr:

I have no objection to writing it.
Well I don't ask you to say anything but neutral. If
you' 11 just put that in reply to my letter I'11 appreciate

it.
It is perfectly - it's perfectly all right with me.

Yes. Well, I wish you'd do that.
H.M.Jr: Because that's exactly our position and everybody is

C:

trying to twist it, you see.

66F

-3C:

Sure.

H.M.Jr: As
a matter
fact, there
was a Congressman on the
floor
of the of
House
C:

Yes.

H.M.Jr: Said that I was in favor of this.
C:

Yes - in favor of repeal?

H.M.Jr:

Yes.

C:

Yes.

H.M.Jr: And my position has been absolutely clean-cut.
C:

Well I think it is, but I wish you'd put that in
your
reply to my letter 80 that I can just have it
as a matter of record.

H.M.Jr:

Quite all right.

C:

Now is there any -- has the Bureau of Internal Revenue
drafted any regulations or rules with respect to the time
that these will be ready?

H.M.Jr: Not that I know of but anything that you want to know
I'11 find out and let you have it.
C:

H.M.Jr:
C:

Well I wish you'd ask Helvering to let me know whether
he has anything because I've been one of the leaders
up here for years and years in behalf of these matters
being public record, and I have in mind that my own
income tax is going to be subject to the greatest public
attack of all and I'll probably ask you next week some
time to give mine out.
I see.

You won't object to it if I do, will you?

H.M.Jr: Well, I'd have to ask the Counsel on that.
C:

H.M.Jr:

Yes, well that - well that

I don't know whether that would be legal.

C:

Well, that's what I want you to find out.

H.M.Jr:

Yes.

Items 22, 1952.

-4C:

will you find out and let me know?

H.M.Jr:

I - I'11 find out

C:

Yes

H.M.Jr:

And let you know.

C:

Thank you Mr. Secretary.

H.M.Jr:

Thank you.

used

135mg

Covil with

didn't care

to stop you from
average

17 want so the 10 tax the Senate
of

ee

All right
CUS other shing It's sleeping over - you

restriction you entered me yesterday again about my position

on the >the 3315.
The.

H.K.

And alien - Doughton and Senator Harrison called
they took 16 over the phone. you see -

66 H
March 12, 1935.
Tuesday

H.M.Jr: Morgenthau.

Senator

Cousens: Good morning, Mr. Secretary.
H.M.Jr:

How are you?

C:

First rate.

H.M.Jr:

Senator, on the question of whether you have asked

us to publish your individual pink slip-

C:

Yes.

H.M.Jr:
C:

Our people tell me that, from an administrative
standpoint, it would not be feasible.
It would not be feasible?

H.M.Jr:

No.

C:

Well, I can give it out myself, can't I?

H.M.Jr:
C:

H.M.Jr:
C:

Well, I - I-if you want to publish your own income.
Yes, there's no objection to that, is there?
I can't see any objection.
I was just thinking, you know, on this pink slip
question, you know, they're raising the devil with
me
and I - I just want to show them I didn't care
about mine.

H.M.Jr:

-

C:

Giving my own out.

H.M.Jr:

Giving your own.

C:

No, and especially if I want to give it in the Senate

I don't tell anybody to stop you from --

where we have the freedom of --

H.M.Jr:

So I read (Laughter)

C:

All right

H.M.Jr:

Senator, one other thing I'm sleeping over -- you
remember you asked me yesterday again about my position
on the pink slip.

C:

Yes.

H.M.Jr:

And when Mr. Doughton and Senator Harrison called up,

they took it over the phone, you see -

66
-2C:

Yes.

H.M.Jr: And then if I turned around and wrote you a letter

well, I don't know, it might look sort of funny.
C:
You mean the fact that you are neutral. Well, all
right, if it embarrasses you, I won't cry about it.
H.M.Jr: Well, I mean they took it verbally and if it would be
agreeable to you, I wish you'd take it the same way.

C:

All right. I won't bother you about it. Now --

H.M.Jr: I mean I have a Press Conference twice a week and
twice a week I've told the newspaper boys the same
C:

thing and -And of course, they don't want to publish it.

H.M.Jr: Pardon me?
C:

I say of course they don't want to publish it.

H.M.Jr: No, but I told everybody on the hill who has asked
me - I've told them the same thing.
C:

Well, all right, then I won't ask you for a letter
then.

H.M.Jr: Thank you.

Say, are you getting me that Mellon transcript?
H.M.Jr: Yes, I asked for it and its on the way.

C:

C:

Thank you very much.

H.M.Jr: Thank you.

"
March 11, 1935.
Monday.

H.M.Jr: Fine.
Vinson:

Has the order been issued relating to the free gold?

H.M.Jr:

The free gold?

V:

Yes.

H.M.Jr:

Well how do you mean?

V:

Well the - this order that I see in the paper to-day
effective of the 15th of March, -

H.M.Jr:

Yes.

V:

In regard
to withdrawal
of national bank notes. I mean,
yes,
the national
bank notes.

H.M.Jr:

V:

Well,
we've announced it that we're going to use that
money.
Well have, have they got out an Executive Order or something - your order or anything that would be available to
show just how that 1s?

H.M.Jr: Well I've got the order. I, I - we've got - we have the
announcement. Is that what you want?

V:

Well, I thought that - what I wanted was your statement.
I've been reading the newspaper articles and I think I
thoroughly understand it.

H.M.Jr:

Yes.

V:

But I wanted to know, just as far as I could, just what it

was.

H.M.Jr: Well, I'11 give you a copy of of all the official documents
that relate to it. How's that?

663K

-2 V:

Well well now that's fine Mr. Secretary, and

H.M.Jr:

What do you think of the order?

V:

How's that?

H.M.Jr:

How do you like it?

V:

I think it's fine.

H.M.Jr:

You think it's fine.

V:

Yes sir.

I think that it's sound and I think it's -- I think

it ought to be quite helpful, to the entire situation.

H.M.Jr: Fine.

I'm -- I thought that you did a good piece of work. H.M.Jr: Fine.

V:

V:

About the case -- that's my usual frame of mind in
regard to you.

H.M.Jr: Well that's awfully nice of you to say that.
V:

There was another matter, Mr. Secretary.

H.M.Jr:

Yes.

I saw in the paper where Mr. Patman stated that he had
received a letter from you.
H.M.Jr: Yes.
V:

V:

H.M.Jr:

Would a copy of that letter be available -Surely, surely.

"

-3V:

All right sir.

H.M.Jr: Surely. I did -- Surely, I'11 get those two things
and have them up within the hour.

colog

V:

All right. Thank you ever 60 much.

H.M.Jr.

Thank you.

contained

that

Hapkins

and

of

the

following in

organition

the

Harrison is transmit

by

of Frances

view
not

MIL
so the
further

cable to-day to the

objective with

syspection Not

Jolet offer

purticipate

THIS

and

not

signs
Annualing
at

has

hinder

been
e

in

the

part

Franco-British

propathetic support to

67
March 12th

Jefty O'Connor told Mr. Morgenthau that he has
finished his investigation on Crowley and, inasmuch as Crowley
promised him that as soon as his bill was through he was going
to resign, O'Connor was not going to bring the investigation to
the foreground. O'Connor has talked to the President about

this. He also says that the report on Crowley is very bad.
Mr. O'Connor told Mr. Morgenthau that Hopkins,
the man whom Crowley a pointed to make an investigation of

his interests, called Mr. Brown, the investigator appointed
by O'Connor to investigate Crowley, and asked him that when
the report on Crowley was finished that it should be turned
over to one of O'Connor's Deputies instead of O'Connor
directly, the idea being that Hopkins wanted to get the
information contained in the report for Crowley which he

could do because he knew O'Connor's Deputy. Brown, of course,

reported this thing to O'Connor.
Mr. Morgenthau discussed with Mr. Oliphant and
Mr. Haas a proposal for financing the government through selling securities to the Federal Reserve Banks instead of in the
open market. Mr. Haas is going to study the situation further.
The following is the message which Mr. Morgenthau

asked Governor Harrison to transmit by cable to-day to the
Governor of the Bank of France:
"We view the objective with sympathy but

would prefer not to participate in a joint offer

of a credit to the Bank of England which has not
been requested by them and which we understand

would not likely be accepted by them and might
therefore be both futile and embarrassing. Assuming
that what is presently aimed at is an exchange
relation among the pound, franc and the dollar at
a level substantially where it has been in the past
year, we would do nothing to hinder a Franco-British
arrangement and would give sympathetic support to
this objective whenever possible".

x

68

The following are three cables recently exchanged
between Governor Harrison and the Bank of France in

regard to their suggestion for a joint approach to Great
Britain with respect to exchange stability.
(1)

March 12, 1935.
Tannery Gouverneur,
Banque de France
Paris
No. 46

CONFIDENTIAL FOR THE GOVERNOR

We have been requested by the Secretary of the Treasury
to transmit to you the following message from him in reply
to a communication sent to Washington at your request through
the American Embassy at Paris:

"We view the objective with sympathy but would

prefer not to participate in a joint offer of

a credit to the Bank of England which has not

been requested by them and which we understand

would not likely be accepted by them and might
therefore be both futile and embarrassing.

"Assuming that what is presently aimed at is an
exchange relation among the pound, franc, and
dollar at a level substantially where it has
been in the past year, we would do nothing to
hinder a Franco-British arrangement and would
give sympathetic support to this objective
whenever possible."

Harrison.

Federal Reserve Bank
of New York

69
March 14, 1935.

To: CONFIDENTIAL FILES

Telephone Conversation with

From: J. E. Crane

France.

Mr. Cariguel of the Bank of

I telephoned to Mr. Cariguel at the Bank of France
at 3 p. m. today to advise him that the franc had declined to
about 6.60 this afternoon and to let him know that if the exchange rate on Paris dropped to the gold import point and
neither the American nor French banks were willing to ship
gold from Paris, I had been informed that our principals
would intervene to prevent the franc from declining.
Mr. Cariguel said he thought that was fine and that he was
glad to hear of it. I added that I thought both he and we
should encourage the banks to move gold but that we wanted
him to know that we would be ready to act in case the market did not function on its own account.
I asked Mr. Cariguel whether he knew about how

much sterling had been purchased by our friends in London

during the recent sharp drop in the pound. He said that
their intervention on two days, Thursday and Friday, had
totaled about $5,000,000 and that so far as he knew they
had not intervened for any substantial amount on any other

day during that period. Mr. Cariguel said that sterling
had been very steady today largely as the result of the
export of capital from Belgium to London.
The substance of the foregoing was telephoned to
Secretary Morgenthau.

70
(2)

Paris,

March 15, 1935.

Federal Reserve Bank of New York
New York

No. 82 CONFIDENTIAL FOR GOVERNOR HARRISON

I thank you for your sending to me message from
Secretary of the Treasury in reply to communication
made to him through American Embassy in Paris. While
regretting that under present circumstances Secretary

of the Treasury did not think fit to follow our

suggestion under the form in which it was transmitted
to him I feel from your cable that American Government
regrets as ourselves recent sterling weakness. The
further element of uncertainty resulting therefrom
cannot in fact fail to make itself felt as well upon
situation in United States as upon situation in Europe.

Similarity of our interest in this field ought, it
seems to me, to induce us to inquire whether it would
not be possible to adopt a joint attitude. I notice
that Secretary of the Treasury is feeling that, as
Bank of England has required nothing, a spontaneous
credit offer would run the risk of being futile and

embarrassing. Does it not seem to you that under such
circumstances we might at any rate agree together to
make, previous to any concrete offer, a joint application
to Bank of England in order to see only in what measure
they would be ready to use the technical cooperation which
our large gold stocks might enable us to put at their
disposal. I should be grateful to you to let me know
how this suggestion will be received by your government.
Tannery.

71
(3)

March 16, 1935.

Tannery Gouverneur
Banque de France
Paris
No. 49

CONFIDENTIAL FOR GOVERNOR TANNERY

We have discussed with the Treasury your cable

No. 82 of March 15. They are concerned with the

situation which appears to be developing with respect
to various currencies. They are wholly sympathetic
with the French desire that there be developed some

steadying influence but do not believe that a joint
approach at this time of the order suggested in your
cable would advance that purpose. They are hoping

however that the British authorities will appreciate

the importance of indicating that their policy is in
accord with that purpose and perhaps take some initiative.
Harrison.

71A
March 12, 1935.

Tuesday.

H.M.Jr:

Yes.

John

In doing it, they struck in an amendment at the
instance of Blanton and Ramspeck of Georgia and
some of the rest of these poison patronage
fellows -H.M.Jr: Yes.
Fahey:

F:

Providing that, after ninety days, we must discharge and must not again appoint any people in
our state district or regional offices unless
they were residents of the congressional districts
in which it was located when the offices were
open.

H.M.Jr:
F:

I see.

Incidently, they all knew that this ought to be

applied to all Government departments.
H.M.Jr:

Yes.

F:

Now, you realize that in the last year we have
tightened up all over the country and that we
have put these loan examiners in with veto power
in every important office in the country and
these regional offices control the matter of extensions so far as payments are concerned and

collections, foreclosures, rentals and all that
sort of thing, and if we were obliged to throw
out these key men who have been trying to protect
the corporationS the Government all over the

country, we would have one of the damnest messes
on our hands that you can imagine.
H.M.Jr:

Yes.

I'm going to -- these fellows are going to make
an assault on it
pass the House. We got to
somehow get it out in conference if we can.
H.M.Jr: Sounds terrible to me.

F:

F:

but
they're
Well, now it's not only a
going to do that and get away with that up there

they'11 be hopping on you next on your Alcohol work
and on your Internal Revenue inspections and every-

thing else.

-2- -

71B

H.M.Jr: Yes, but how about the fact that they raised

$250,000,000 and make you open up for another
sixty days?

F:

Well, on the sixty-day business, I'm not so
alarmed because they put a protecting clause
in there, fortunately, which we think we can

probably use to advantage and be able to prove
that they attempted it in good faith to file
this application before November 13th. See?

H.M.Jr: But why sixty days? Why not make it one hundred and sixty days?

F:

Well, might just as well, but they agreed to
limit it to sixty days. Of course, they did
that over our complete protest on it, the same
as they did in raising the 150 up to 1750.
The sixty-day thing as it now stands may cause
us
an awful lot of trouble.

H.M.Jr:

I see.

F:

There again I think there may be some chance of

getting it out or at least modifying the language
in the Senate Committee. But -- and we'll have
to fight it out and see, that's all. But on
these things, I am going to try to talk to the
Boss about it tomorrow -- on this patronage drive
which
-- because that's just what it is -- on
this
business and the rest, I am going to
try to talk to him about it tomorrow.
H.M.Jr:

O.K.

F:

-- And I wanted to post you on it because I think
we've got to have all the help we can -- we go the
limit in stopping -- in carrying this kind of
rating any further.

H.M.Jr:

Well-- after you talk to the President, I'd like to

know what you decide.
F:

Yes. Well, what I'm going to do is -- I think that
he's got to talk to some of those fellows in the
Senate right away because they're carrying on this

propaganda over in the Senate.
H.M.Jr:
F:

Well, it's too big for me to handle.
I only want to inform you about it.

TIC

-3H.M.Jr:
F:

Right. Well, you have my sympathetic support.
Well, whenever you get a chance to put in a
good word, do it.

H.M.Jr:

I'll do whatever I can to help you, John.

F:

Will you please? Because God knows we need it

because I tell you that if we ever get into the
which is what they're
driving at, the right of forgiving people on
collections and suppressing the facts about it
hands of these

have no control whatever on

we're

going to have a scandal on our hands that will

raise the devil -- I tell you that.

H.M.Jr:

All right, John.

F:

All right.

H.M.Jr:

Goodbye.

F:

Goodbye.

Yes,

71 D

March 12, 1935.
Tuesday

H.M.Jr:

Hello.

Bob

Doughton: Mr. Secretary, this is Bob Doughton.
H.M.Jr:
D:

Hello, Mr. Doughton.

I want to speak with you about this pink slip

problem

H.M.Jr:
D:

passed the House yesterday.

Yes.

About the repeal of this publicity
Now then, if the Senate shouldn't pass that by
the 15th, but should pass it some time in the
next -- in a reasonable length of time, would

it have the same purpose, or would it be necessary to be passed by the 15th?

H.M.Jr:
D:

No -- well, now just a minute. Mr. Oliphant's
here. I think I know the answer, but I'll check.

All right.
(Pause)

H.M.Jr:

Hello.

D:

Right.

H.M.Jr:
D:

H.M.Jr:

D:

Oliphant says that if it's passed after the 15th
it will have the same effect.
Same effect. Well, they were talking to me about
it in the Senate this morning. Pat Harrison just
called me up. Pat put a rider on the relief bill,
but I told him that would be a bad thing.
No. Pat Harrison called me up on the same thing
and asked me if they passed it after the 15th

whether it would still be effective and I told
him that it would be all right.
Well, that's fine. I'm mighty glad to hear it.

H.M.Jr:

We put it through the House, but I
I saw that.

D:

Yes.

TIE
2H.M.Jr:

Now, let me ask you a question.

D:

Yes.

H.M.Jr:

When
are you going to begin to have hearings on
taxes?

D:

On taxes?

H.M.Jr:

Yes.

D:

Not until you all call on us,

We
with couldn't take that up now until we get through
The N.R.A. covered that though.
H.M.Jr:

Yes.

D:

H.M.Jr:

I see.

D:

the N.R.A. on your anti-smuggling bill,
I was going to try to do that tomorrow.

H.M.Jr: Good.
D:

H.M.Jr:

Yes.

D:

if you want the taxes put in
ahead of administration measures, why, that will be
,

all right.
H.M.Jr: Well -D:

Have you got anything else in mind about taxes or
just a reenactment of excise taxes.

H.M.Jr: I want to talk to you sometime. We got something on
these holding companies.

D:

Well, all right. I'll be glad to talk with you again.

H.M.Jr: Right.
D:

Right. Thank you. Goodbye.

11F

March 12, 1935.
Tuesday

H.M.Jr:

Hello.

Pat

Harrison:

Henry?

H.M.Jr:

Yes, Pat.

H:

I want to talk to you about this pink slip

legislation that passed yesterday over the

House. Do you know what the vote was and
so on?

H.M.Jr:
H:

Yes.

And I'm going to try to get it up in my
committee sometime before we adjourn this
morning. Now as I understand, the attitude

of the Department is that they made no
recommendation one way or the other. That's

right, isn't it?

H.M.Jr:

We made no recommendation one way or the other.

H:

That's right. Now -We're strictly neutral.
of course, this law goes into effect on the

H.M.Jr:

Yes.

H:

H.M.Jr:

H:

H.M.Jr:

15th of March.

It's impossible for us to pass this before
that time and I'm afraid a lot of people will
be left in an uncertain state of mind with
reference to this proposed legislation, and
some of them might not file it. I think that
we had better make it clear that those things
must be filed.
oh we have, we have. We're going right ahead,

Pat. We're going right ahead and -- with our

machinery and we've been ordered to -- I mean
by law.

H:

Yes. Well, now the query that I want to make

ao that I will be in a position to tell the
committee --

71G

-2 H.M.Jr: Yes.
H:

I understand that it would be at least in

October before you could make these things

published.
H.M.Jr:

Well, I wouldn't put it a statement would

be made in October, I would say a number of

months -H:

A number of months.

H.M.Jr: Three, four, anything. I'd say somewhere
between three to six months.

H:

Anywhere from three to six months.

H.M.Jr:

Yes.

H:

So there isn't any need for any particular
rush.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

No.

All right, Henry.
No, it will take three to six months before
they can get that stuff ready.
My impression is that the Senate isn't going
to repeal that law.
I see.
Due to the fact
Well --

H:

All right - that's what I wanted to know.

H.M.Jr:

Thank you, Pat.

H:

All right.

March 13, 1935.

72

The Open Market Committee of the Federal Reserve Board met

in the office of the Secretary of the Treasury at 11:00 A.M. Those
present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
T.J. Coolidge, Under Secretary of the Treasury,
M.J. Fleming, Governor, Federal Reserve Bank of Cleveland,
G.J. Seay, Governor, Federal Reserve Bank of Richmond,

G.J. Schaller, Governor, Federal Reserve Bank of Chicago,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,

D.W. Bell, Acting Director, Bureau of the Budget,
G.C. Haas, Director, Research & Statistics,
R.A. Young, Governor, Federal Reserve Bank of Boston,
C.B. Upham.

Mr. Young, as Chairman of the Reserve Bank group, suggested

that Mr. Burgess tell the committee what transactions are under way.
Mr. Burgess said that he had bought $9,000,000 Governments for

their account and $3,250,000 for the account of the Treasury -that the Reserve Banks are limiting their purchases to 3's and
3-1/8's while the Treasury is buying 4's.
Mr. Coolidge interposed to say that the Treasury had bought
$10,000,000 direct one day making $13,000,000 total Treasury purchases.

Mr. Burgess said that the Reserve Banks had converted half of
their called Fourths and were holding the rest hoping to replace

them with something else - that conditions were not satisfactory
at the present time.

-2-

73

The System has some $42,000,000 of called Fourths and some

$40,000,000 of the new 2-7/8's -- representing about 50% conversion.

Mr. Young said that it seemed silly for the Reserve Banks
to sell while the Treasury was supporting any particular issue. He
thought the banks might do well to convert their $42,000,000 of
called Fourths if they can't do anything else and then later make
an exchange so that they wouldn't have too many of one issue. If
the Fourths need no Treasury support the banks might dispose of
some.

Mr. Coolidge said the Treasury has $25,000,000 in postal savings which ought to be invested, and that they have no called
Fourths so will buy some of the new issue.
Mr. Burgess interposed to say that in previous conversions
the Treasury had taken some of the Reserve Banks called bonds but

it is difficult to do that now.
Asked by Mr. Morgenthau about proper central bank holdings,

Mr. Burgess said that a central bank should have the bulk of its
investments in short-term securities. Some day there must be a
turn, he said. At that time the Reserve Banks can let their short-

terms run off instead of selling their long-terms. They can only
take a moderate amount of long-terms and there must be a proper

distribution of maturities within that group.
Mr. Morgenthau asked what proportion should be in maturities

of over five years.
Mr. Burgess replied that if called bonds are included the
System now has 10% to 15% of its holdings in maturities of over

-3-

74

five years. of definitely long-term bonds, he said, the holdings
were around $160,000,000.

Mr. Morgenthau commented that this was not near 20% or 25%,

to which Mr. Burgess replied with a reference to their potential
obligations and said his idea was higher than that of Federal
Reserve Bank directors.

Mr. Morgenthau asked what relationship the $2,500,000,000
of Governments bore to total resources in January 1934 and now.

Mr. Burgess replied that we have $1,000,000,000 more of gold

now and that the relationship to total resources is not the question
anyway -- that a central bank should not be putting money in the
market up to its capacity.
Mr. Morgenthau said he wanted to state the facts plainly -that the Treasury does not need the Reserve System now but that

it would like to know what their resources were in the event a need
developed later.
Mr. Seay remarked that when the Reserve Banks get Governments

they have to keep them.

Mr. Morgenthau replied that this was not necessarily true
and said that the Reserve Banks had been ineffective because they
wouldn't sell when things looked good.
Could we, inquired Mr. Schaller.
Anytime within the last six months, Mr. Morgenthau replied.
We would like to, said Mr. Schaller.
Mr. Burgess said that each Federal Reserve Bank would be
glad to have a smaller holding of Governments but that in the

public interest he did not think it wise for them to sell.

-4-

75

Mr. Morgenthau said that his attitude had been not averse
to selling by the Reserve Banks.
Mr. Burgess agreed to this and said that Mr. Morgenthau had
never interfered.
Mr. Seay remarked that the public is not accustomed to a
fluctuating portfolio and that if Reserve Banks had sold others
would have followed suit.
Mr. Schaller said that it was better for the member banks to
be buying and selling.
Mr. Morgenthau said that had been done in November and December.

Mr. Morgenthau said that he would like to invest $25,000,000
in the new bonds and proposed that on every 1/32nd down that

$3,000,000 of the called Fourths be bought.
Mr. Coolidge agreed with this procedure.
During that process, it was agreed the Federal Reserve Banks

would not sell. If the market took a turn and climbed, Mr. Burgess
and Mr. Coolidge could get together and determine what to do.
It was thought that sales could not be made until the price was
above 101 but if it reached that point, the Reserve Banks might
go in the market.
Mr. Young asked what was going to be done with respect to the

First 4-1/4's and 3-1/2's. He figured that $1,900,000,000 was too
much to handle at one time. He suggested that the $500,000,000 of
4-1/4's be called and that the 3-1/2's be let ride. He said they
had no other recommendation and stood on that unless the Treasury

had something better to suggest.

Mr. Coolidge said considerable thought had been given to the
matter and that there was considerable sentiment for calling both

-5-

76

issues. He commented that there is only a small maturity in June
C

and that it is a poor thing to have such a high rate bond in the
market. He thought it not too big to handle if a part of the
exchange is in 5 year bonds and a part in long-term. He thought
the psychological reaction would be good. He believed holders
would be willing to sell and reinvest in long bonds. If the price
is right he thought we might offer a conversion into 5 year 1-5/8's
and a long bond at the option of the holder. If the market is
down we might have to go into a short term maturity.
Mr. Saye asked what maturity was contemplated and Mr. Coolidge
replied perhaps 15 years.

Mr. Fleming was fearful of calling the 3-1/2's, which he said
are in the hands of the public and not banks.
Mr. Coolidge thought this very fact would make for a good
investment demand.

Mr. Saye said the effect of not calling them would have to be
considered.

Mr. Coolidge thought that would be interpreted as an indication
of weakness and fear.

Mr. Schaller said he had been canvassing information among

banks in the Seventh District and that they thought the Treasury
was offering too low a rate on its long-term financing. The banks
are selling bonds. They do not like the Banking Act of 1935.
They want 2-3/4 for 8 to 10 year bonds and 3% or better for longer
term. They think the President's statement of a few days ago
did considerable damage. There is a distinct sentiment against
long bonds.

-6-

77

Mr. Coolidge said that the individuals who hold 3-1/2's
would buy something. Perhaps they would not buy Governments.

It might be necessary to put some notes in the banks, but not
much.

Mr. Morgenthau said the called Fourths were coming in pretty
good, that $75,000,000 came in yesterday.
Mr. Burgess said the atmosphere was sour.

Mr. Morgenthau said "they are turning them in."
Mr. Coolidge said that his New York bank friends to whom he
talked a day or two ago were very much pleased although they may
change their minds in the meantime.
Mr. Burgess said they had.

Mr. Schaller said there was quite a little selling in Chicago -that the volume is not much but the transactions ran about 10 sales
to 3 purchases.

Mr. Burgess explained that the Chicago Federal Reserve Bank

buys and sells for its members so it can keep track of banking
transactions.

Mr. Coolidge remarked that we had expected that and Mr.

Morgenthau said he thought it healthy. He said"we had hoped that
the insurance companies and similar institutions would take them"
and remarked that the Open Market Committee had told him at the

last meeting that that is what would happen.
Mr. Coolidge said that the exchanges were going better than
he had thought they would.

Mr. Burgess said that it has been kept attractive by a good
c

deal of pulmotor work. The market has been supported. He thought

-7-

78

it would go over but we must recognize that it is awful thin now.
We may squeak by but it is pretty uncomfortable. It has been
demonstrated that the market is volatile and subject to slumps and
that it mustn't be hit with too big chunks.
Mr. Morgentheu asked those present what, if anything, they
would call.
Mr. Young said that when he came in he thought he wouldn't

call over $500,000,000 -- that he fears the reaction from the public.
He commented that probably from a profit standpoint it would have
been better to call 4-1/4's than the $675,000,000 of 2's. On the
whole he still felt that the way the present issue was going and
considering the feeling of the market toward long term issues that
this is not the opportune time to call the whole $1,900,000,000.
Mr. Bell said he would like to see the $1,900,000,000 called
c
but that the June maturity would make this add up to a considerable
figure. If the use of short-term bills can keep us out of the market for new money it might be possible. He said we will probably
need $1,000,000,000 of new money.

Mr.Seay said that he thought as a matter of strategy it would
be necessary to call both. If we did not, the reaction would be
adverse.

Mr. Schaller recommended calling just $500,000,000. He said

there would not be much gained in either rate or maturity on the
3-1/2's.
Mr. Coolidge commented that the tax exempt feature makes the

3-1/2's practically 4's.
Mr. Schaller said the $1,900,000,000 would be a pretty heavy
load and that the banks will pull off Governments and make loans.

-8-

Mr. Morgenthau's comment was "swell".

Mr. Fleming agreed with Mr. Schaller.

Mr. Burgess said to call only the First 4-1/4's. He remarked
that the First 3-1/2's are highly tax exempt, that they are distributed among individuals and that if they are called investors will
give them up and the banks will have to take the new bonds. The
Government market needs the greatest care in treatment at this

time. There is talk that the point of tolerance has been rached.
There is a huge deficit, Congress is passing a $4,800,000,000

Bill. The exchange situation is not good, the business situation
is not good and can be expected to decline during the next three
months. Two things in the past have made refunding difficult, he
said. One is a business decline and the other is inflation or
monetary disturbances. We are facing both now -- big slaps of
Governments on the market are too much. Enormous big wads are

absorbed slowly. A $2,000,000,000 call on March 15th might finish
making present issues go sour. Then there are the Fourth 4-1/4's
to be called on April 15th. He urged the taking of reasonable bites.
Mr. Schaller said he had a reaction from two large holders
that they would keep out of the Government market and buy no more

at the present level.
Mr. Coolidge said they had to put their money in something.

Mr. Burgess said maybe not -- that they were putting it in
storm cellars. He said State and municipal bonds are increasingly
popular.

Mr. Morgenthau suggested that the group adjourn to Mr. Coolidge's
room for further discussion, but commented that no one had mentioned

80

-9-

the Taft law suit just filed.

to

Mr. Burgess said that it was not yet a market factor but that
it might be later.
Mr. Morgenthau remarked that he was not as cocky as he had
been about calling the whole $1,900,000,000.

The discussion continued in Mr. Coolidge's room.

Mr. Coolidge said he had & feeling that the 3-1/2 rate would
take that bond up to 112. He said we might know more when we
see the returns for today. He had an idea of splitting the 3-1/2's
into 2 issues, onehalf to five years and one half to 25 years at
going rates. He would like to getnot
the gold bonds out of the way,
and is disposed to take a gamble/with the idea of selling long
bonds but of selling what the market wants and will take.
Mr. Schaller commented on impending legislation as a difficulty.
Mr. Coolidge said it had had no influence marketwise.
Mr. Burgess said it might flare up any minute.
Mr. Schaller urged six months delay on the 3-1/2's.
Mr. Coolidge said that only 8.2% of the outstanding 3-1/2's
are held by banks, whereas 27% of other Libertys are so held and
30% of Treasury bonds.

Mr. Coolidge said he didn't think investors would take cash that there might be some delay and that $200,000,000 or $300,000,000

cash might be required from the banks. The 3-1/2's are a prize
investment held by big trusts who would have to change. Moreover,
he said, the banks need more bonds to help out their earnings.
Mr. Burgess said if they were scared enough they would let
of police
their earnings go.

-10-

Mr. Schaller said the public expects the Fourths to be
cleaned up instead of the Firsts.
Mr. Burgess said the last ten days has made a great difference.
Mr. Coolidge asked him if he would have advised calling the
3-1/2's ten days ago.
Mr. Burgess said he was not sure - it seemed like an awful
lot of money.

Mr. Coolidge said that having in mind the point of view
of Congress, it might be a good thing to have refinancing operations
of considerable magnitude under way.

Mr. Young said if we slip once it is too bad. He is so
skeptical that if he were in the position of the Treasury he
wouldn't undertake it unless he had a definite commitment from the
Federal Reserve System that they would take $300,900,000 or more.

Mr. Burgess said that is just what we want to avoid -- that it
would be bad for the Treasury to depend on the Federal Reserve Sys-

tem at this time.
Mr. Coolidge said he has a sort of feeling that we have reached
the stage where we ought to clean up the high rate bonds and sell
a maturity to take care of what doesn't go. The 3-1/2's are too
much out of line. They will go up 2 points if we don't call them.
The market expects them to be called.
Mr. Burgess thought the market indicated an even chance;that
it was certain of the 4-1/4's, he regarded the 3-1/2's as a toss up.
He remarked that they had gone down only 1 point, but Mr. Coolidge
commented that they usually go up when the others go down.

It was agreed that the matter was a question of policy to be

81

-11-

determined by the Secretary of the Treasury or maybe even by the
President.

Mr. Burgess agreed that the problem is not wholly financial,
but partly political. He said he had more apprehension about the
present conversion than the Treasury did.
Mr. Young said whatever is done the Reserve Banks will go
100% to help. All agreed on calling the First 4-1/4's and that
if that were done it should be taken in our stride -- no special
conversion bond should be offered for $500,000,000.

82

March 14, 1935.

83

Thursday.

H.M.Jr:

Senator, I em calling you up on a small matter,
but it is a very important matter to me. You
remember when you called me up about the
resolution about Berney?

Senator
Glass:

Yes.

H.M.Jr:

You asked me about it - I said that I'd let it

go, but with the understanding that I could get

him a job in some other branch of the Government.
G:

Yes.

H.M.Jr:

- and you said that that would be all right.

G:

Yes.

H.M.Jr:

Is that correct?

G:

Yes.

H.M.Jr:

Well, we wanted to get him a job - could get him

G:

Yes.

H.M.Jr:

- and - so they said well, they didn't want to
take him unless they were assured that McKellar
wouldn't follow his line of attack to Farm Credit.

one in Farm Credit.

So, we sent someone up to see McKellar yesterday,
and he said that he would keep on after Berney

until he drove him out of the Government.
G:

Well, I think you made a mistake in communicating
with McKellar. You had the understanding with me
and I was prepared to prevent him from driving him
out of the Government under our arrangement.

H.M.Jr:

I see. Well, I think -

G:

You shouldn't have conferred with him at all.

H.M.Jr:

Well, I had to for this reason - that Farm Credit
wouldn't take him unless they had the assurance
that McKellar wouldn't attack Farm Credit for
taking him.

G:

Well - I - I don't think a department of the Government ought to take that position.

-2H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:

84

Well -

McKellar isn't the whole Senate, you know.
I know He isn't the whole appropriations committee by
a darn sight.

No, but you - you see what this thing is getting

down to now - it looks as though a man was being

persecuted, see?
G:

H.M.Jr:

Well, I don't intend that he should be persecuted
so far as appropriation bills are concerned.
But, after all, as far as his work goes, you see,
for us -

G:

Yes.

H.M.Jr:

- it's a hundred percent. I mean it's not - his

work is excellent and his superiors say so. Now,
I can't permit McKellar to - I don't know what
the word to use - bulldoze me into letting Berney
go and then to have him driven out of the Government service, because 1-

H.M.Jr:

I don't intend that he shall be driven out as far
as I'm concerned, Mr. Secretary. I think the
mistake you made was in assuming that McKellar
could do all that by himself. He can't do it.
Well, I thought so - let's say it was a mistake.

G:

Yes.

H.M.Jr:

- I mean because Farm Credit said they wouldn't
take him unless they had the personal assurance
from McKellar that he wouldn't go after Farm
Credit.

G:

But, I have gone to him, see?

G:

Well, I think that's sort of nonsense myself.

H.M.Jr:

Yes.

G:

Nobody can give any department of the Government

any assurance as to what Mr. McKellar will do, but
I could assure you that he wouldn't be permitted
to put anything on the appropriation bill that
affected anybody.

-3H.M.Jr:
G:

85

Yes.

- as far as I could prevent, and I think I could

prevent.
H.M.Jr:
G:

Well - it's Now, you see, I'm in a position now of simply saying to McKellar and others who are interested in
the matter that the thing was all arranged and
therefore, they didn't persist in that provision
of the appropriation bill which would have designated this man by name and -

H.M.Jr:

Well, now -

G:

- rejection of any appropriation that would pay his
salary.

H.M.Jr:
G:

Well, now -

- that - that would have ruined the man -- he not
only couldn't have gotten any position in any

Government Department, but he couldn't have gotten
any position anywhere else.
H.M.Jr:

Well - could - I feel that this matter - so strongly
that I'd like to come up and see you this morning.

When would be convenient for you?
G:

Well, I don't know, Mr. Secretary, all my time is
taken up this morning to the time of the assembling
of the - of - of the Senate, then I've got to go

right in on this relief bill.
H.M.Jr:

On the what bill?

G:

On the relief bill.

H.M.Jr:

Well, could I come and see you tomorrow morning at
your hotel?

G:

I would think so.

H.M.Jr:

At what time would be convenient?

G:

That I couldn't tell right now, because it all
depends upon circumstances - I - I would think
about around ten o'clock though.

H.M.Jr: Shall I call up your secretary this evening?
G:
Yes, you could do that or call me up in the morning before ten o'clock.

4-

86

H.M.Jr:

All right. And - I - supposing we leave it -

G:

Can't you place the man with somebody else beside

the Farm Credit? I think it was very stupid in

Farm Credit to take any such position because

H.M.Jr:

that's an assumption that McKellar can drive anybody out of Government service, and he can't do
anything of the kind.
Well, of course -

G:

The fact of the business is, the whole committee
was
impressed with the stupidity of this particular
man.

H.M.Jr:

Well -

G:

- and with his violation of the President's

H.M.Jr:

Executive Order of June 10, '33.
But, there seems to be another element in it which

I wasn't aware of before and I'd like to talk to

you about.
G:

Yes.

H.M.Jr:

So - let's see - I'll call you in the morning and
iftenit'so'clock.
all right, I'll come over and see you at

G:

All right.

H.M.Jr:

Thank you.

87
March 14th

Ken Watson, of the Cleveland Press, stayed
after the Press Conference to report to Mr. Morgenthau

that Mrs. Pyke, Collector of Customs at Cleveland, is
politically active and has entered in the row between

Governor Davey and Harry Hopkins - assisting Governor

Davey.

H.M.Jr. said he would have the matter investigated and the attached is a copy of the report made by
Dick Maher, a political writer of the Cleveland Press,
arranged for by Steve Gibbons.

H.M.Jr. decided to call all of the First
Liberties outstanding - 1 billion 900 million dollars.

87A
TREASURY DEPARTMENT

Washington

FOR IMADIATE RELEASE

Thursday, March 14, 1935.

Press Service

No. 4 52

Secretary of the Treasury Morgenthau today unnounced that all outstanding

First Liberty Loan bonds, including those of the original issue and those subsequently issued on conversion, are called for redemption on June 15, 1935.

The First Liberty Loan, in the form of 3-1/2 percent bonds, WAS originally
issued June 15, 1917, in the total amount of $1,989,455,550. Subsequently three
conversion privileges arose and the 3-1/2 percent bonds were in part converted

into other First Liberty Loun bonds bearing interest ut 4 or 4-1/4 percent, and
the 4 percent bonds issued on conversion were largely converted into 4-1/4

percent bonds. First Liberty Loan bonds now outstanding, are divided among the
four issues us follows:

First 3-1/2's

First Converted 4's
First Converted 4-1/4's
First-Second Converted 4-1/4's
Total

The text of the formal notice of call follows:

$1,392,226,250
5,002,450
532,489,100
3,492,150
$1,933,209,950

FIRST LIBERTY LOAN BONDS
NOTICE OF CALL FOR REDEMPTION BEFORE MATURITY

To Holders of First Liberty Loan Bonds of 1932-47, and Others Concerned:

Public notice is hereby given:

1. All outstanding First Liberty Loan bonds of 1932-47 are hereby called
for redemption on June 15, 1935. The various issues of First Liberty Loan
bonds (all of which are included in this call) are as follows:
First Liberty Loan 3-1/2 percent bonds of 1932-47 (First 3-1/2's),
dated June 15, 1917;

First Liberty Loan Converted 4 percent bonds of 1932-47 (First 4's),
dated November 15, 1917;

First Liberty Loan Converted 4-1/4 percent bonds of 1932-47 (First
4-1/4's), dated May 9, 1918; and
First Liberty Loan Second Converted 4-1/4 percent bonds of 1932-47
(First-Second 4-1/4's), dated October 24, 1918.

2. Interest on all such outstanding First Liberty Loan bonds will
cease on said redemption date, June 15, 1935.

Full information regarding the presentation and surrender of First
Liberty Loan bonds for redemption under this call will be given in a
Treasury Department circular to be issued later.
3.

4. Holders of First Liberty Loan bonds now called for redemption on
June 15, 1935, may, in advance of that date, be offered the privilege of
exchanging all or any part of their called bonds for other interest-bearing
obligations of the United States, in which event public notice will hereafter
be given.
HENRY MORGENTHAU, JR.,

Secretary of the Treasury.
Treasury Department,
Washington, March 14, 1935.

FIRST LIBERTY LOAN OF 1932-47

(February 28, 1935)

First 321's - Original issue June 15, 1917
Amount offered for subscription

$2,000,000,000
3,035,226,850
$1,989,455,550

Amount subscribed.

Amount allotted - final (amount issued)
Amount retired on conversion to
First 41g

First 421
First-2nd Conv. 41's.....

$568,318,450
7,570,550
3,492,150

Amount redeemed

$579,381,150
17,848,150

597,229,300

$1,392,226,250

Amount outstanding

First 4's - Converted issue Nov. 15, 1917
Amount issued on conversion from First 3's
Amount retired on conversion to First 42's
Amount redeemed

568,318,450
547,641,750
20,676,700
15,674,250

Amount outstanding

5,002,450

First 4215 - Converted issue May 9, 1918
Amount issued on conversion from

First 311

First 4's

Total issued on conversion

Amount redeemed

7,570,550
547,641,750

555,212,300
22,723,200

Amount outstanding

First - Second 41's - Converted issue Oct. 24, 1918
Amount issued on conversion from First 31's all outstanding
Total amount First Liberty Loan bonds outstanding

$ 532,489,100

3,492,150

$1,933,209,950

88
INFORMATION ON MRS. BERNICE PYKE AS SUPPLIED BY DICK MAHER, A
POLITICAL WRITER, CLEVELAND PRESS.

Mrs. Pyke is supposed to have been called to Columbus on Monday,

March 11th, by Governor Martin L. Davey, ostensibly to line up
two Ohio State Senators behind Clarence Burke, whom Governor
Davey desires to appoint as State Liquor Director. Apparently
Governor Davey had called a meeting of the Cleveland Legislative
Delegation for this purpose, and Mrs. Pyke is supposed to have

participated in it. Before the meeting on the Liquor Director
adjourned, the question of the attitude the Cleveland Delegation

would take in the relief row pending between Governor Davey and
Federal Administrator Hopkins also is supposed to have arisen,
although Mrs. Pyke, who says she was at the Governor's residence

as a dinner guest, states that she left for Cleveland before any
discussion of relief took place. Newspapermen are now endeavoring to ascertain whether her statements are correct.
The liquor situation, which ostensibly was the basis of the conference, involves, the Governor lining up State Senators William
Zoul and John Davis, of Cleveland, to support Burke, Davey's

choice, and Mrs. Pyke is supposed to have advised the Governor
that she would line up both men. However, when the Senate Committee met to consider the Burke appointment on March 14th, both
Zoul and Davis refused to vote for Burke, and the matter was
postponed until next week. However, in the meantime, licenses
of eight Cleveland night clubs were suspended, and the operators,
who are close to the Cleveland County Democratic Organization,
are supposed to be bringing pressure to have a Liquor Director

appointed who will be friendly to their continued operation.

Mrs. Pyke is supposed to have talked to Governor Davey by telephone on March 14th and agreed to get State Senator Zoul and
Davis lined up for Burke by Monday, March 18th. In the meantime efforts will be made to ascertain what Burke's attitude will
be on the Cleveland night Clubs.

Dick Maher, the political writer, is making a file of Mrs. Pyke's
reported political activities, and will have this information
available whenever called upon. He will not be at the office
Saturday, March 16, as this is his day off, but can be reached
at home, otherwise will be at the "Cleveland Press".

March 15, 1935.
HK

89
March 14th

Lew Douglas made the following statement which
appeared in various newspapers as shown below:

BALTIMORE Sun

3-15
Douglas Warns Fiscal Policy
"Logically " Leads To Dictator

Blun

Former Federal Budget
Director Tells U. Of Pa.

Students U. S. Spend-

ing Threatens Currency And Middle-Glass

Bills In

(By the Associated Press)
Philadelphia, March 14- Destruction

of the nation's currency and "middle
class" population, and possible estab-

lishment of a dictatorship were seen

today by Lewis W. Douglas, former
Director of the Federal Budget, as
ultimate possibilities in a continued
policy of Governmental spending.

In a criticism of the National Ad-

ministration's "spending policies" and
the "increasing deficits" in the Federal
Budget, Douglas painted an "extreme-

ly black and forbidding picture of
events" which can follow continuance
of such a fiscal course.

Sees Possible Catastrophe

"If the spending policy continues

quite: the

IN paqsequun
COUND SAES

snuoq [9918 our 01

Juez UBA any kg pand

de was any SUM 'Ires

Kuire 30 ked or renbe
Krejes e 10 JEM 30 swip ut
am JOI mead

LEWIS DOUGLAS
UL

pres ussig are suops
Joqui se JUJ os

DO spusy door asnur
"repuage,

pue [ an ay

any 2uoure aram Jaquin;

89
March_14th

Lew Douglas made the following statement which
appeared in various newspapers as shown below:

Lettle W. Douglas Warns
"Destroyed Communy

SPEAKER AT U OF PA.
Former Budget Director Asserts
Revolution And Destruction or
Middle Class Are Likely
(Continued from Page D

stroyed with the Torgetten man,' the
Reserve which created the highest
standard of living the world
known

"If the Administration pursues its

present course if it Insists upon

spending and spending then

ultimate
collapes not please for
the Torgotten man'
"The destruction of the middle

induced by destroyed currency. indeed
lays the foundation for revolu.
tion."

--

Is Net "Propheaying*

T went make
clear." Douglas
"that

explained

propheeving

that have attes doubt et a too logical

I am merely stating that if

the prement nding policy the Ad.

ministration is continued the ultimate
results may conceivably be MI have

pictured mm.

"The only method known man of

protecting currency balance

-

the budget of the
power."

This could be done in two years
the United States Douglas
by the following steps:

Convert Federal credit agencies

"purely liquidating agundas

Hald

000,000

plus

ordinary
about

works lesson"et obligation existing

Appropriation of $1,250,000,000

"allocation to the States

list.

Works Cost Big Drain
"The huge obligations entered

- account public works

said "will continue for many years
constitute tremendous drains
Federal treasury.

"Nor there - lack of founds.

time ebserve that the great
vershadowing

bureaucracy

on essential
emergency

expenditures

without
great resistance submit
dismemberees

Turning the Federal
System
and the credit the United
States
Government Douglas

"Give

apparent

impairment
picture

bankrupt

most

Insolvent

term

solvent

banking

strayed

currency

class

Warns of Calnage Evil
He warned that the exercise

- their "power - money

... for purpose pay

ing their bills." always has and

ways will

destroy

the

medium

of exchange."

This seems to me." he said, *

the most brutal and

the do to

ag government cruel thing its people which

. destroys the middle class, the
.

Man man'

89

N. Y. sun
3-14
DOUGLAS WARNS

NEW DEAL MAY

Former RUIN his Assails Director Spending CURRENCY of Policy Budget

of Administration
TALKS AT WHARTON SCHOOL

Declares Only a Dictator Will

Be Able Ultimately
Cope With Situation

89

apr

WASHINGTON POST

3-15
Douglas Fears

A Dictatorship
Will Rule U.S.

Post

Headed

Spending WP. Week Toward truction, the Policite Associated Currency Is View 2:15 De-

Philadelphia, March 14-Lewis
W. Douglas former director of the

Federal budget, criticizing
"spending policies" of the

NEW YORK HERALD TRIBUNE

3-15
Spending May

Bring Revolt,
Warns Douglas

NUHT
Former Prestor Budget,

Speakingia Philadelphia,
Sees Dietator ship Ahead

Herland

FindsCurrency in Danger

of the liberties for which the AngleBazon race has struggled for more
than thousand years and thus there

will be destroyed, with the forgettes
man." the America which created the

highest standard of living the world

has ever known in the pres-

ant spending policy of the Administration is continued the ultimate resuits may connetvably be as I DATE
pictured them.

Criticists Lower Production Theory
Referring to the "hectic struggle for

security" for capital labor and agriculture. Mr. Dougles said that If the
"theory of becoming wealthy by produeing leas" be true. then "If must be

equally true that - CAD become
fabulously wealthy by producing noth.

ing." and that the only way diatri.

Says Liberty May Share bution
wealththe
canwealth
"effectedis
without
compel
Fate of Forgotten Man'
tem under which more goods will be
aye.

to

produced

by The Associated Press
,

PHILADELPICA March 14-Lawla

at

lower

prices

Continue increase of Federal den.

cita Mr Douglas warned ultimately

W. Douglas former Director of the

may put the at the limit

Federal Budget, criticianing the "spend.

might be "forced to "resort" to the

ing policies" of the prement Adminis.

tration today warned of "destroyed
currency" and of the possibility of .
"complete change in our political or-

ganisation."

"Only . dictator a be .

dictator of socialism or a dictator of
fascism a unimportant -will be ade.
quate to cope with the situation be

asseted in an address before student assembly of the Wharton School

of Finance and Commerce of the

University of Pennsylvania
Seee Liberties Endangered

Pointing out that experience of the

past demonstrates "at all times

is all places, under all etresmatances.
wherever governmental have continu-

borrowing capacity. when If

power to cola money to DAY its bills

leading inevitably to destruction of
the medium of exchange

"This, 11 seems to me. is the most
brutal and cruel thing which ADT gov.

ernment can do to its people. for IT

destroys the middle class and lays the

foundation for revolution.

27 Miners End 22d Da
In Pit to Keep Their
Some of 6 Others Care

May Die From o
BEUTHEN Upper Bile

outy expended more than they have

March

feesa of partially or wholly de

miners today comp

taken in their people eventually have
been plunged into the destructive et.
stroved currency. Mr. Douglas said

"If the emergency in the spring of

1933 was sufficient to vest in the Ex.
acutive greater powers than ever be

fore in our history

is

there

the
any reason to doubt that
sheet weight of economic forces quite

respective of desire or intent, will

force complete change in our polits.
cal organization?

Referring to the necessity of die.
tater in such a situation be went on

Thus there will be wiped out all

to retain their
second day below

Lulsenglueck of
When the
Lice that
cutties

thirty-12
cided
were
time

jof

I

8

UNIVERSITY SHIPON?

NEW YORK TIMES

3-15

/

DOUBLAS HITSAT SPENDING

PHILADELPRIA March 14.statement continued govern-

was W.
the

Federal Budget meat # lines tion can Middle of spending the only today Roosevelt lead along in Director by to an the dictatorship address administra Lewis present of be

tore students of the Whartos School

of Please of the University of
People
The estimate effects of such

appointed with not be felt for some

time to - Mr. Douglas said

but - - will be estad
- be avoided at least

in part I have no doubt. be said.

la the conviction

"provided there and day courage to do

the

with each addressing month
and
each
so, with
succeeding expendi-

to greater and

ture, intrenching
greater
extent the vested interests
created by spending. the task be

comes more difficult."

1

89

N.Y.WORLD-TELEGRAM

3-14
ALARMED
LDING POLICY
Currency or

90
The President dictated the following statement
which he wanted Eccles to make in answer to Lew Douglas but
this statement was never given out to the Press:
"Free speech in a Democracy is guaranteed except
where such free speech advocates the destruction of
government. A speech which seeks to make the public
believe that government is bankrupt; that the banking
system is "bust" comes very close to the kind of lack
of patriotism which tends to the destruction of government. In time of war, that kind of lack of patriotism
goes under the word "treason". In time of peace all
that one can do is to call it by the mild appellation
of "lack of patriotic decency". When such a statement
is enunciated by a man who has served in the Congress
and has held a responsible position in government, it
becomes all the more reprehensible - not only because
of its lack of veracity but also because Mr. Douglas'
former positions will lead many people, unthinkingly,
to lend some weight to what he says."

90A
March 14, 1935.

Thursday.
H.M.Jr:

Hello.

Mayor

LaGuardia: Hello.
H.M.Jr:

How are you?

LaG:

Good morning, Mr. Secretary. Pretty well, thank
you.

H.M.Jr:

That's all right. Are you in good humor?

LaG:

I always am.

H.M.Jr:

Any truth to this gossip that they're going to

make Bob Moses Administrator for the Four Billion
Eight?

LaG:

What?

H.M.Jr:

Any truth in the gossip that they're going to make
Bob Moses Administrator of the Four Billion Eight
Fund?

LaG:

No1 Who said that?

H.M.Jr:

I'm just kidding.
(Laughter)

LaG:

Bet he would do a good job of it, Morgenthau.

H.M.Jr:

What?

LaG:

Yes,

H.M.Jr:

If you've got a minute, I want to read you

a

document which I'm sending to Admiral Peoples.

It's just one page. That will give you the story.
LaG:

Yes.

H.M.Jr:

'It has been decided to accept the rate offered by

the Consolidated Gas Company for the Government Light

and Power in New York. Please see that the necessary

details are attended to effectuating this purpose.
The following further conditions should be explicitly
made part of any proposal or final contract. 1. That
no representation agreement on the part of the Government is included in or shall be implied from the
acceptance of any date or any agreement made thereon
in any way affecting temporarily or permanently the
proposal to arbitrate a publicly owned or operated

90B

-2power plant. 2. That the successful bidders for
all purposes of the rate offered are reasonable
and not less than cost plus reasonable profit.
3. That the government shall not be bound to
make its requirement to any specific quantity

or title service for

whatsoever, but

only at the rate being made upon

quantities

will not be available in the event smaller
quantities are furnished. 4. That the books of
the successful bidder will be opened at all times
for the federal government, the State and the City
of New York to determine the relation of the rates

charged the federal government - the rates charged
by the company to its other customers.
LaG:

That's - certainly broader than anything that's

H.M.Jr:

Well, this is what we're going to put up to them.
I had it - lunch with the President and he concurred

ever put up to them. I'll - I'll admit that.

with the understanding that when we do give out the

publicity we can't count on it for the fact that we
had to do this to bring all this pressure to bear,
and they didn't voluntarily come and offer the

LaG:

government a better contract and we've been paying What does the President say about it?

H.M.Jr:

Well, he's oked it.

LaG:

Oh, he has.

H.M.Jr:

Yes.

LaG:

Well, now if I may ask, how about that three million
seven for government plants in New York?

H.M.Jr:

Well, we're not going to do anything about it for

LaG:

Not going to do anything.

H.M.Jr:

No, we're just - if they ask us - we're just con-

LaG:

H.M.Jr:

the time being.

tinuing our studies.
And could that be allocated to us?
Sure. I mean I can't promise anything, but I mean
I'm not going to turn it back right now.

LaG:

If that could be allocated -

H.M.Jr:

I mean I won't do anything about that for the time

being.

90C

-3LaG:

Well, now I'll get ahold of the White House and
see if I can come around and see the President
early next week so that I can coordinate -

H.M.Jr:

Well, now you see, Peoples will have to start
his negotiations with the Consolidated and if
they agree to this before I give out the publi-

city, I'll call you up again. See?

LaG:

H.M.Jr:
LaG:

You won't mind if I -

No, no, no, no - fine, but I - I just want to be I think that this is pretty damn strong.
Yes - Now if we can arrange for that three million
seven for

either

H.M.Jr:

for that purpose
to one of our plants,

I think
Well, I won't release the three million seven without first talking to you. See?

LaG:

H.M.Jr:

I mean - I don't know how Peoples can get him to

LaG:

sign on this basis, but before we sign Don't sign anything.
- before we sign, we'll call you up again.
All right, thank you, Mr. Secretary.

H.M.Jr:

Thank you.

LaG:

H.M.Jr:

90D
March 15, 1935.
Friday.

H.M.Jr: Yes sir.
Garner:

How are you, boy?

H.M.Jr:

This is old money bags talking.

G:

Yes, you bet your life. Say, money bags, let me
ask you something.

H.M.Jr:

Yes.

G:

We're talking about this soldier up here and I
thought

H.M.Jr:

About what?

G:

About this Baby Bond business and the soldier

H.M.Jr:

Oh, yes.

H.M.Jr:

I wanted to find out one query from you.
Yes, sir.

G:

Suppose a man had a Baby Bond in his name -

H.M.Jr:

Yes.

G:

- and he wanted to transfer it to another man -

H.M.Jr:

Yes.

G:

- how about it, could he do it?

H.M.Jr:

Not under the present law.

G:

What?

H.M.Jr:

Not under the present regulation.

G:

Not under - well - can you - have you all tried

G:

H.M.Jr:
G:

under the present law to make regulation where
you can transfer it to somebody else?

My guess would be yes, but I could find out in
two minutes and call you back.

Well, all right, I'm in my office, and if you

find out right away - and let me know because
that'11 be quite important, you know if the damn

GOE

-2important, you know if the damn fellow got a Baby
Bond, say against the thousand dollar bond due in

35 and he could sell it for $750. But who in
hell would he sell it to if he couldn't transfer
it to him?

H.M.Jr:
G:

Well, at present he can't sell it to anybody but
to Uncle Sam.

Well, that's what I say - that - that would make
it impossible to do a thing of that kind, you
know.

H.M.Jr:
G:

H.M.Jr:
G:

Well, of course But, are you authorized to change that by regulation?

I'll - I'll call you back in three minutes.
All right. All right, Henry.

H.M.Jr:

Mr. Vice President?

G:

Yes.

H.M.Jr:

Now, what we can do is this by regulation. We
can get out a separate issue.

G:

H.M.Jr:

Yes.

- for the soldiers and make them both saleable
and transferable.

G:

Yes. That's right. Well, I'll tell you what

H.M.Jr:

Yes.

G:

If we'd make a

- I don't think we can do

a God damn thing with it, Henry. I'll tell you

the truth. on every contingency.

Why, we could just authorize by law
payable in '45 to the amount of their
Then, by God, he could sell it where he please.
H.M.Jr:
G:

That's right.
Well, that's all. Much obliged, Henry. Sorry
to have bothered you.

H.M.Jr:

You never bother me.

G:

All right.

March 15, 1935.

Friday.

H.M.Jr: Hello.
Senator
Glass:

Mr. Secretary, this is Glass.

H.M.Jr:

Yes, Senator.

Senator
Glass:

I was talking to McKellar first thing this
morning and he authorizes me to say,and I'll
write you a letter accordingly, that he won't
bother with that man in either of those
positions you want transferred.

of

H.M.Jr:

I see.

G:

I'll write you a letter to that effect.

H.M.Jr:

Well, that's very nice.

G:

All right.

H.M.Jr:

Thank you.

91

TREASURY DEPARTMENT

Washington
RELEASE, MORNING NEWSPAPERS,

Monday, March 11, 1935.
3-9-35.

92

Denstary
Morgenthan
Press Service
No. 4 - 47

Secretary of the Treasury Morgenthau announced today (March 9) that the

two per cent Consols of 1930 would be called by the Treasury on March 11 for
redemption on July 1, 1935, and the two per cent Panama Canal Loan bonds of

1916-36 and 1918-38 for redemption on August 1. 1935. About $600,000,000 of
the Consols and about $75,000,000 of the Panama Canal bonds are now outstanding.

These bonds bear the circulation privilege.

In retiring these bonds, the Treasury will make use of the free gold

resulting from the reduction in the weight of the gold dollar. The Treasury
proposes to issue to the Federal Reserve banks an amount of gold certificates

about equal to the bonds being retired. The gold certificates will be issued
under the authority of the Gold Reserve Act of 1934, and for every gold

certificate so issued there will be withdrawn from the general fund of the
Treasury and hold as security an amount of gold equal to the gold certificates
so issued.

By a provision of the Federal Home Loan Bank Act, enacted July 22, 1932,

all bonds of the United States boaring an interest rate of 3-3/8 per cent
per annum, or less, were given the circulation privilege for a period of

three years. This provision expires July 22, 1935. At that time, banks
with circulating notes outstanding under this temporary authorization will
have to replace the bonds, now serving as security, with lawful money to
retire their outstanding notes thus secured.
The retirement of the two per cent Consols and the two per cent Panama

Canal bonds, and the expiration of the temporary authorization for issuance

of national bank notes against other bonds will accomplish a simplification
of the currency system through the elimination of national bank notes, an
action contemplated at the time of the passage of the Federal Reserve Act. More

-2-

than $500,000,000 of the bonds being called are now on deposit with the

Treasurer as security for this type of currency.
The Federal Reserve bank notes authorized as emergency currency in the

Emergency Banking Act of 1933 are now in process of retirement. National

bank notes will be retired as rapidly as they are presented to the Treasury.

It is expected that the great majority will be cancelled within a year. This
will leave as permanent circulation Federal Reserve notes, silver certificates,
and United States notes. Additional Federal Reserve notes will be issued to
replace the national bank notes as they are retired, and as demand arises.

The gold certificates to be delivered to the Federal Reserve banks will form
added reserves against which Federal Reserve notos may be issued.

At the time the gold content of the dollar was reduced, a gold increment
of $2,812,000,000 was realized. Of this amount, $2,000,000,000 was placed in
the Stabilization Fund. Congress has appropriated $139,000,000 for loans to
industry through the Federal Reserve banks, some $13,500,000 of which has been

used for that purpose. Congress has appropriated an indefinite sum to meet
losses in melting gold coins estimated at $8,000,000, and has authorized an

appropriation of over $23,000,000 for the Philippine currency fund. This
leaves free gold of $642,000,000 which will now be used as a basis for debt
retirement.

As the outstanding national bank notes are retired and replaced with
Federal Reserve notes, these items will disappear from the public debt statement entirely. The total amount of outstanding currency should not be changed

as a result of this program. National bank notes will morely be replaced
by Federal Reserve notes. The effect on member bank reserves will be
immaterial.
000-000

wate. This was prepared by Examiner Hargeustain,

93

referred to as "A. 5. H.
September 4, 1035.

NATIONAL GRAIN YEAST CORPORATION
CHRONOLOGICAL DIARY

MARCH 15, 1955 to OCTOBER 2, 1935.
September 3,
March 1935

Alcoholic Beverage Control of the State of New Jersey
receives an anonymous complaint making certain charges

against National Grain, etc.

September 6,

April 11, 1935

Investigator Evans interviews George Bowles at Grafton,

Mass., and identifies him as the writer of the anonymous complaint.

July 12,

New York Herald Tribune states that Mr. James Roosevelt

refuses to reveal the firm's backers and adds, "while
refusing to volunteer information, Mr. Roosevelt confirmed that the Secretary of the Company is Harold
Goldman and the Treasurer is Frank J. Hale, Mr. Goldman,

he said, is a lawyer of 80 Broad Street, and he would
identify Mr. Hale only as an associate of Mr. Goldman."

The same article states that Harold Goldman was associated with Samuel Brass and that Samuel Brass, in 1928,

had his application for an alcohol permit rejected on
account of his refusal to disclose the financial backers
of the Company. The article further quotes Mr. Brass as
saying that he holds enough stock in the National Grain,
etc. to make a living.

September 6,

September

July 20,

Pennington, Supervisor, writes Deputy Commissioner -Mr. James Roosevelt elected President National Grain,

etc., much publicity regarding election of Mr. Roosevelt, and attaches report dated July 15, 1935, of Evans

and Sullivan.
July 23,

Memo Mr. Avis to Mr. Mellott "This Company has quite
a history, perhaps you may want to talk to me".

August 27,

Memo Mr. Mellott to Mr. Avis,
Yeast Concern. ,in New Jersey.

August 30,

#

me

report

on

Memo report by A.S.H. to Mr. Avis re National, etc. and
Samuel Brass, Case No. 17-A and I.A.P. permit No. 107.
This includes supplemental memo of August 31.

September 4,"

Memo Koehler, Asst. Supervisor, reported interview with
John Wilson Wade, representative of the Daily Mirror,
N. Y. C. Present Mr. Stephenson. Wade asks Koehler
for report on National Grain etc. and Samuel Brass for

94
September P, 1938.
September 4, 1935.

presentation to Mr. Brisbane. Wade shows Stephenson

a typewritten complaint (evidently a copy of Bowles'
anonymous letter) saying, "It would make a swell
story", etc., adding that he was going to Trenton
to search records.

September 5,

4 M.-Conference Mr. Graves with A.S.H. re National
Grain, etc. and Brass, Memo report of August 30 and
31 examined. History of National and Brass discussed.

September 6, "

11:20 A.M. --Conference with the Honorable Henry

Morgenthau, Jr. A.S.H. stated contents of memo report
of August 30 and 31, (history of National and Brass),
results of examination of income tax files of Company
and Brass, names of officers and directors according

to mercantile reports, that Director Frank J. Hale,

might be the same Frank Hale, who while a Prohibition
Agent and Supervisor, was involved in extensive graft
taking; that present identification was prevented by
reason of the Hale file being loaned to the Department of Justice and not then in our possession. (We

have never been able to get this file back.) Directions were given to identify Hale, complete examina-

tion of income tax files, make further investigation

and report.
September 5,

"

September

them

Pennington, Supervisor, wires Deputy Commr., "Frank

J. Hale, Treasurer at Plant positively identified

as former employee of Bureau of Prohibition."
September 6, #

Investigator Robsky reports nothing at Trenton from
which newspaper Reporter Wade could obtain any information.

September 9, "

11 A.M. Messrs. Graves, Wollner, and Harzenstein
leave Washington. Arrive Newark 2:46 P.M. Meet
Pennington, Supervisor, and proceed to National Plant

at Belleville. Interview Mr. James Roosevelt at

Plant.

(a) Mr. Roosevelt writes letter dated Sept. 9, 1935,
as President of National Grain, etc., requesting that
the Department make an investigation of alleged charges

of illegal operation.

(b) Report of interview. Mr. Roosevelt called in Company officers Hale and Goldman to attend interview
and states that Government may proceed to examine

plant, production, equipment, and books relating
thereto, together with records of sales, purchases,
etc. A.S.H. asks permission to include minute book

95
September 9, 1935. and stock certificate books. Hale states that our

examination should commence with date July 1, 1935.

Mr. Roosevelt states that he can see no objection to
our going back as far as 1932. Hale bursts into a
rage and states that we have a right to be interested

in what happened since Mr. Roosevelt became associated

with the Company, but not before. Mr. Goldman pacifies Mr. Hale and states that we can 868 any and all

records for all time, that the minute and stock books
are in New York City, and that he will produce them
10 o'olook the following morning for our inspection,

and that we could commence with 1926.

(o) In the meantime, Goldman walks away and Penning-

ton, Harzenstein, and Hale, while awaiting in the
outer office, engage in miscellaneous conversation.
Hale displays strong resentment, uses vulgar language, talks of a proposed outing at Hyde Park, and
refers to Mr. James Roosevelt in familiar language.
Without being asked, he denies any wrong doing in
the service and speaks of himself fraternizing with
persons formerly holding high office and infers that
he was unfairly let out of the service due to change

in political conditions. He denies any wrong doing

at the Plant and states that had there been any

violations, an efficient and energetic officer like

Commander Pennington would surely have uncovered them
heretofore.

Letter from the Honorable, the Secretary of the
Treasury to Mr. James Roosevelt, undertaking investigation of charges as per request.
the

September 10,

is
"

September 10,

At Belleville Plant, Messrs. Wollner, Vlases, and Harzenstein spend entire day examining plant, equipment
and production, taking samples, interviewing chemist,
production manager, bookkeeper, examining and copying

records of production, purchases, sales, etc. Mr.

Goldman phones that he will be busy in Court and will,
therefore, produce the minute and stock certificate
books the next day.

(a) Interview with Mr. James Roosevelt. Mr. Roosevelt
was absent from the plant during the day and arrived
about 5 P. M. and sent for Messra, Wollner and Harzen-

stein, who accordingly called at his private office.

The conversation was friendly and at first general.

During same, Mr. James Roosevelt made the following
statements: That their production was approximately

163B.

35,000 lbs. per day; their selling price 11g per 1b.
of yeast; their cost since installing a new formula,
7d; and profits per 1b., 4d; that the annual salaries

96
September

10, 1935. of the three officers was $75,000, and the Company's
expected profit $125,000 to $130,000, making a total
expected
profit of $200,000 to $205,000. That the
September 18, 1936.

reduced profit was due (1) to their stopping use of

September 17,

Standard Brands formula which is cheaper and their
present use of a more expensive formula, (2) new
building improvements, (3) and repairs to machinery
which was left badly worn, That Goldman and Hale
own 53% of the stock, Brass 27%, and that the Company held in its Treasury 20%. That the Company
intends to buy Brass' 27% stock, and that he intends

to buy the Company's 20%. That he is familiar with

the Hale and Goldman background. That the directors
were Roosevelt, Sargent, Hale, and Goldman.
September 19,

(b) 7:30 P.M. to 11 P.M., Wollner and Harzenstein

return to office of Supervisor and total production,

sales, purchases, etc. figures for comparison, and
make notes of conversations and list questions to be
asked and things to be done for the following day.

September 11, 1935. Wollner and Harzenstein return to Plant in company
with Investigator Evans, who had previously been asSeptember 10,

September 23,

signed to this matter. Examination of the records
is continued. In the afternoon Goldman calls with

minute and stock books, and same are examined, together with agreement dated July 17, 1935, between
parties. Mr. James Roosevelt appears and asks
whether we are receiving proper cooperation, and he

is assured that we are. Goldman states that the
Plant is free of encumbrances, that their production
is 1,000,000 lbs. per month, that their net selling
price is 10d per 1b., and therefore, their net sales
$100,000 per month, that their net profit per 1b. is
3d, their net profit per month is $30,000 and their
net profit per year $360,000. That their product
costs more to make than Fleischmann's and that they

sell it for less. He named the officers, stock-

holders, and directors and referred to the existing
agreement between the parties.

(a) 5:30 P.M. to 11:30 P.M., A.S.H. dictated and had
typed, progress report, dated September 11, to the

Honorable Harold N. Graves,

September 12, 1935. 8:30 A.M., conference Messrs. Grayes, Avis, and

Harsenstein. Later in morning conference with the
Honorable Henry Morgenthan, Jr. Presented progress
report dated September 11, 1935, and stated contents.

September 1s, 1935. Report by Dr. Wollner, stating plant operations licit.

97
September 12, 1935. Memo re Brass income tax deficiency of $145,822
handed to the Honorable W. H. McReynolds,

September 16, 1935. At Supervisor's office Newark, N. J., A.S.H. examined Supervisor's file A-17 re National Grain,
etc. and Federal Distillers file and reports under
Regulations 17.

September 17,

A.S.H. with Investigator LaHart makes comparison

of production, sales, purchases, etc. figures submitted by National with those submitted by other
companies under Regulations 17 and make other

check and verification as set forth in report by

LaHart.
September 17,

10 A.M., A.S.H. (by appointment) interviews Harold
Goldman at his New York City office, makes further

examination of minute book and agreement dated
July 17, and discusses Standard Brands case and mis-

cellaneous pertinent matters.
September 18,

Letter from Mr. James Roosevelt to A.S.H., Examiner,
stating Borasky Bakery Co.'s apparent unsatisfactory

final sale of yeast.

September 19,

the

A.S.H. reports to Mr. Graves (1) the seriousness and

details of Standard Brand suit, (2) further contents

of agreement of July 17, (3) contents of unsigned
draft dated June 14, and (4) miscellaneous new matter.
September 23,

9 A.M., Conference Messrs. Graves, Avis, and Harzenstein.

(a) 10 A.M. to 1 P.M., A.S.H. attends (as non-participant)

Income Tax conference re Samuel Brass $145,000 tax
deficiency. Present conferees Chapman and Golding,
A.S.H., Messrs. Bank and Bernbach, accountants for

Brass. The parties seemed constantly "far apart" and
unable to agree on the facts or basis for a settlement.
Bank (for Brass) offered a settlement which would require Brass to pay approximately $15,000 and remarked
that he would recommend the Company pay an additional
$1,700 for prior years and approximately $8,000 for
the year 1934 on account of royalties disallowance.

September 27,

Mr. James Roosevelt phoned Mr. Graves and stated that

the Brass income tax deficiency of $145,822 was settied at the conference on 9/23/36 for $15,000. Mr.
Graves asked A.S.H. whether this were a fact and to
state further the general outcome of the income tax
conference on September 23.

-

98
(a)

September 27, 1935.

A.S.H. stated that in substance $15,000 was offered,
but that the conferees made no indication about ao-

depting it, they simply took it under consideration;

adding that after the conference was adjourned, he
talked privately with the conferees who indicated
that the offer was about $5,000 or $10,000 less than
they had hoped for, that the conferees were considering both sides of the question and show clearly that
their mind was entirely open, and that they had arrived at no conclusion and were considering whether
under certain decisions the tax-payer wouldn't be

liable for nearly the entire amount. A.S.H. further

stated that the gist of the outcome was that Bank
would recommend to Brass that he settle on a certain
basis, which would make him liable for approximately

$15,000; and that he would recommend that the Company

pay an additional $1,700 in connection with their
liability up to and including 1935; and that since
the Company's deduction for royalties had been dis-

allowed for 1933 and they had made similar deductions
for 1934, that he would recommend that they send in
an additional check for the year 1934, which, he
stated, would amount to approximately $8,000, although
he had not yet made the calculations. Conferee Golding

was present at the conference in the matter of the
Company's tax sinoe the Brass matter and that of the
Company were inseparably related,

that

the

(b) Mr. Graves then directed A.S.H. to ascertain
whether the matter had been settled between September 23 and September 27. A.S.H. then phoned Conferee
Chapman, who stated that the matter had not been set-

tled, that his final report had not been completed,

but that he expected that he would recommend a deficiency assessment of $121,000 for the years 1932
and 1933, and approximately $5,000 for the year 1989,
and no assessment for the year 1928, since he was

satisfied that the evidence submitted by the Account-

ant explained away that portion of the tax liability.
(o) Mr. Graves thereupon immediately phoned Mr.

James Roosevelt at the Belleville Plant and stated
that he had made inquiry and was given to understand

that Brass' tax matter had not been settled. Mr.

Roosevelt then stated that he was informed that the
income tax docket was marked to prohibit any settle-

ment of Brass' matter until the investigation of the

National Grain Yeast Corp., undertaken by the Secretary,
had been disposed of; that Examiner Harzenstein was

and

99

September 27, 1935 (a) present at the conference for the purpose of opposing settlement, even though he know that the Company had assumed and was bound to pay Brass' income

tax liability.

(d) Mr. Graves stated that there was no such marking
on the income tax docket; that Examiner Harsenstein
did not attend the conference for the purpose of opposing settlement and took no part in the discussion
OR negotiations, and attended by virtue of his author-

ity as an Internal Revenue officer; and that neither

he nor A.S.H. had any knowledge or idea before that
very moment that the Company had assumed Brass' in-

a ome tax liability; that further, the matter was being
handled in the regular course of business just like any
other such case; and offered to came to Newark and bring

A.S.H. to explain all the details and answer any questions. Mr. Roosevelt added that the assumption of
liability was contained in one of the resolutions appearing in the minute book and since A.S.H. had examined the minute book, he should have observed this;

that he was not asking for anything except that he
did not want any difficulty greater than any other
tax-payer would have in a like situation.

(e) Mr. Graves than phoned Mr. Russell, Deputy Commissioner, Alcohol Tax Unit, and determined that there
was no obstacle in the way of adjustment of this case

and that it was being treated similar to like cases.

(f) Mr. Graves instructed A.S.H. that he could leave

Washington and proceed with his other duties at New
York city and that he would communicate with him should

Mr. Roosevelt want to see them at Belleville within
the course of the next several days.
September 27,

Mr. James Roosevelt phoned Mr. Graves and asked when

the investigation would be finished, that its contin-

uance was upsetting the personnel, and expressed dissatisfaction and almost resentment, and he referred
again to the Brass income tax settlement and Mr. Graves
reiterated that we had no knowledge of the assumption

of liability, etc. Then Mr. Roosevelt asked for a

letter making reply to his of September 9, showing results of the investigation, and Mr. Graves said that

he would prepare such a communication.
September 30,

-7-

Letter Deputy Commissioner to Mr. James Roosevelt, acknowledging receipt of complaint re Borasky Bakery Co.
and assuring thorough investigation.

October 1, 1935.

A.S.H. at New York City visited Harold Goldman at

the latter's law office with a view to ascertaining

(1) how Mr. Roosevelt got the impression that we
were opposing settlement of the Brass income tax matter, (2) to deny that he had ever been informed or
knew that the Company had assumed Brass' obligation,
and (s) to give assurances that the matter would be
handled in the regular course of business, that there

certainly was no disposition to interfere with or im-

pede, and that every precaution was taken to do nothing
to prejudice the Company's interest.

(a) A.S.H. was received with the customary cordiality,

From the conversation, it was evident that Accountant

Bank had reported to Mr. Goldman and that Mr. Goldman

had added to such report to Mr. Roosevelt and that
this was the basis for Mr. Roosevelt's impression and
Statement to Mr. Graves.

(b) Mr. Goldman stated that he was not at all familiar
with the details of Brass' income tax matter, that he
had left this entirely in the hands of his Accountant,
Harry W. Bank, who had told him, in his opinion, the
Government's assessment of $145,822 was erroneous and
he had no doubt whatsoever that the Government would

lose the case before the Board of Tax Appeals, and
that based on his long experience in these matters, he

felt that he could settle the case for about $10,000
or possibly less, and that when he had left the conforess on the meeting prior to September 23, their
frame of mind was such that they should be "ripe" for

settlement on the 23rd. Goldman added that Bank, upon
his return from the Conference on September 23, reported that he had a "bad break"; that a man by the
name of Barzenstein, whom he had never seen at the
Bureau before, attended the conference; that the oon-

forees, instead of going on from where they had left
off by assuming the existence of certain facts in
order to arrive at an amicable adjustment, had com-

menoed arguing the whole case over again, and it was

his (Bank's) feeling that this was due to Harzenstein's
presence; that in view of the conferees getting "hard"

he thought he had best make them a better offer, and
thereupon raised it to approximately $15,000 instead
of the $10,000 which he had had in mind. Goldman,
not having studied or become familiar with the case,
relied entirely on Bank's statement of opinion and
obviously reached a ocholasion that A.S.H. had opposed

the settlement to the extent of an additional $5,000.

N would seem that Goldman honestly believed that he
had unaveyed to A.S.H. the information that the Complain

100
October 1, 1935. had undertaken these liabilities.
(a) At the Interview of September 17, Goldman had
stated that he had been, for many years, Brass' attorney, and while he was very anxious to sever all
relations with Brass permanently, he was considering
the expediency of going with Brass to the income tax
conference on the 23rd. Since Goldman had previously
stated that he had urged Brass to dispose of this
matter and that Brass had answered him that the delays were due to his Accountant Bank's procrastina-

tion and no fault of his, and had at this time added

that inasmuch as he (Goldman) had represented Brass
for many years and Brass had treated him properly,

that there was a personal element which he could not
very well ignore, and for this reason he was considering going to Washington. Harzenstein suggested that
in view of his (Goldman's) desire to sever relations
with Brass and to disassociate Brass' name from that
of the Company, that it would seem the wiser course

to let someone else represent Brass. That by a lack
of entanglement, this representative might possibly

fare better in the case's disposition. To this

Goldman remarked that he did not know what he would

do, but that it was the "dollars" that he was considering,

(d) It is on this last statement by Goddman to the
effect that it was the "dollars" he was considering
in the Brass matter, that he based his statement to
Mr. James Roosevelt that A.S.H. knew of the Company's

assumption of Brass' liability. In view of what went

before, such statement was hardly sufficient to ap-

prise one of such fact. Again this is inconsistent

with Mr. Roosevelt's statement that Harzenstein knew
this because he had examined the minute book. It
should be noted that A.S.H. copied what he considered
pertinent portions of the minute book and that such

resolution does not appear in his notes. It should
further be noted that the minute book consists of a
loose leaf ring binder, standard size, and that none

of the pages are numbered, that many of the pages
are undated, that no record appears for over a two
year period, and that some of the pages are fastened
to one of the covers by a rubber band.
October 1,

A letter from the Honorable Harold N. Graves, Assistant to the Secretary, to Mr. James Roosevelt, President,
National Grain Yeast Corp., stating that pursuant to

the request contained in the latter's letter of

101
October 1, 1935.

September 9, and in the absence of the Secretary,
he is informally advising that nothing was found
in the ocurse of the investigation which would

substantiate the complaints referred to, and that

we have concluded that the Company's plant is being operated exclusively for legitimate business.
October 2,

1

Letter from Mr. James Roosevelt to Mr, Graves, acknowledging receipt of letter of October 1, and
stating that the officers and personnel are pleased

to receive the report of their clean record and

standing with the Department and giving assurances

/

that they shall endeavor to maintain such record.

Secretary

Share

is

I

President
of

have

associated

dele

110136
or

stated
exchange

market should
THE
6E the to the
-10-

102
stepting to the Biase Male and deliver own want
which of kiya 00.000 starte ALE of 80,000 Everyo

and
salt
miss
what
de
nith
and Shiphily - We - the valing penalt of the

mjerity
11,
1000
"esting have in - and Sale,

The activities agencies in the is - while the certain
kt that With is is healthe effective appear pastr

Imarable Harold Save by No dis canity this purchase

instatement to Secretary of treasury. the CASSA of $100,000.00 wishda

D. or Ma agreement with impractical under the

Siri1 - This is pursuant to verbal instructions issued

September 9, 1935. ** the

instinut the coder area

2 - The set-up of the company is as follows:of

(a) officersi

Barbi-

Certificate

Cheese

Freak J. Nata
Farila

Mr. s. - President

Family

Frenk 3. Hale - Treatmen my 3. 1938

10,000

of

87. 1975
AR. 1934

28
13
&

10,000

3. Co.

a

Harold Goldman - Secretary

2

3g

2039

There is no elected vice president.

the about which the As to Same is 3,000 shares

was formerly an appointed vies president bee has
Ident been discharged and his relations:with the company are
a

patients. severed. Solution 1,000.00. This socket the

Break L Rembers was as appointed vice president but has little
or no authority, he is now in the position of head bookkeeper or

septrolled, at a salary of $5200.00 per - Mr. J. stated

for
reasts
be was
prior
- or THE
altuarethat
SR 28.90
per share

staffidentially that he was wealtering-Mis removal and Elechange 00.

did set entralls INCE again for has stock, ha WOO voted BE

attempts f'so (b) Histore and irea DA4 $5,000.00 is and and

$20,000.00 # these taurao of stock. The records would Indicate

the bala's "purehs 8. its stock - more or lass to
that of 903 Suggest that the issue Danie was to

be lefs at the further association and the
instructions to be as is the provasted
at Joha Diagnos the company holds CB option

be management the 27.000 shares of Special Denies for $50,009.00

- specifing 29 Mark s. Hale as hape to this

about - No able to borroe the SECURITY Stands.
Under the present arrangement the board is evenly divided. Recever,

- continuties of Insurance does that the By-Lawe were

to provide for a board of directors of five numbers, to be

This company 1209 ander the Lowe
1

103
elected by the stockholders. Since Hale and Goldman own more
than 50% of the stock (being 53,000 shares out of 80,000 issued

and outstanding). it appears that they could elect a fifth member
and thereby control the company. However, the voting power of the
majerity stockholders might be controlled by the existence of a
"voting trust agreement" executed by Mr. J.. Goldma and Male.
The agreement appears to be in force now, while the verbel under
standing is that the agreement is to become effective upon performance of a condition precedent by Mr. J., namely the purchase
of 20,000 shares of COMMON stock for the sum of $130,000.00 within

12 months. A study of the agreement was imprestical under the
circuestances.

(e) Stockholders:

According to the records presented for examination the stockholders today are:
Name

Frank J. Hale
Harold Goldman
Samuel Bress
a

N. Co.

No. of Shares
33,000
20,000
10,000
10,000
7,000
20,000

Date of Certificate
March 27. 1935
December 20. 1934
February 3. 1932

No. of

Certificate
12
13
5

6

.

.

7

February 3, 1932

The stock which the company is authorised to issue is 5,000 shares

of preferred with a par value of $100.00 per share totalling

$500,000.00 and 100,000 shares of common (voting) stock with a

par value of 14 per share, totalling $1,000.00. This makes the

entire capitalization 91,000.00.

It should be noticeithat Mr. J. is given an option to purchase

the above 20,000 shares of treasury stock for the sum of $130,000.00.
while Goldman (according to the Minute Book) received his at
$20,000.00 or $1.00 per share as against $6.50 per share. Goldman
did not actually pay anything for his stock, he was voted as
attorney's fee of $25,000.00 and was paid $5,000.00 in cash and
$20,000.00 in these shares of stock. The records would indicate

that Hale's "purchase" of his stock was more or less similar to
that of Goldman's. It was "agreed" that the Minute Book was to
be left at the company's office for further examination and the
instructions to be at headquarters in the morning prevented
copying of exhibits at this time. The company holds an option

to purchase the 27,000 shares of Samel Brass for $250,000.00
and according to Goldman they plan or hope to accomplish this
should they be able to borrow the necessary funds.
(d) Stock Redemation:

This company was incorporated under the Laws

104
of the State of New Jersey on December 13. 1926 and was authorised

to issue 5,000 shares of stock at $100.00 per share making its
authorised capital $500,000.00.
Subsequently on December 23, 1931 the charter was amended author-

ising the company to increase its capital from $500,000.00 to
$501,000.00. by issuing 5,000 shares of preferred non-voting

stock at par value $100.00 per share and 100,000 shares of common

voting stock at 1f per share. The preferred stock was made

redeemable by the company at per plus accumulated dividends of

6%

According to the records examined. the company has redeemed all

of the preferred stock by the cash payment of $500,000.00. of
this money. $150,000.00 was paid to Samuel Brass in 1932,

$150,000.00 in 1933 and $80,000.00 in 1934. In 1934 a total

of $92,500.00 in stock was redeemed. The balance was redeemed
subsequent to December 18, 1934. We have not had time to complete

our audit in this respect.

3 - We have examined the company's payroll and personnel
cards and selected therefrom the names and other data of persons

who appear to be in key positions, plus others. It is thought

that we might want to know the background and history of a number
of these persons and particularly to whom they owe allegiance.

A list of these will be submitted. The main ones appear to bet (a) Personnel:

Frank L. Chambers - Comptroller - Salary $100.00

6 Perry st.,

Belleville, N. J.

per week

He has been in the company's service since 1926 in the capacity
of bookkeeper. auditor. comptroller. "dumny" stockholders and

"damy" officer. His appearance is satisfactory and we know nothing
otherwise about him. He probably owes allegiance and has friendshipe with the old regime and for this reason Mr. J. stated that

he was considering his dischurge.

Samel Taeger - Sales Manager - Salary $85.00

504 Leelie St.,

Hillside, N. J.

per week

Was with the company five years.

Sebastian C. Lats - Production Manager - Salary

124 W. Passaic Ave.,

Boomfield, N. J.
Was with the company seven years.

-3

$150.00 per week

105
Robert R. Irvia - Chief Chemist - Salary $101.92

8 Formeliff Road,

Bloomfield, N. J.

per week

Considered with company several years, was employed in connection

with a fellowship in Mellon Institute and recently brought to plant.
(b) Payroll:
The company's payroll for the week ending

September 6. 1935 was $5,368.00.

4 - The normal and expected profits of the company

would seen to run between $200,000.00 and $400,000.00 per annum.

(a) Profits
Mr. J. stated that he expected the profits of the

company for the year 1935 to run between $125,000.00 and $130,000.00.

From this sum he subtracted $75,000.00 in salaries for the three
executives, namely himself, Hale and Goldman. It would appear
that Hale and Goldman do not devote their time exclusively to this
business. Since these "executive" salaries are based OR sharing
the company's profits and not on necessary services rendered, it
is considered that Mr. J.'s estimate of the net earnings of the

company is $200,000.00.

This estimate is considered extremely conservative. Based on the
figures submitted we cannot avoid the conslusion that the company's
normal annual net profits are and will be approximately $360,000.00.
Generally speaking, the production is 35,000 lbs. of yeast per day
or one million pounds per month. The net selling price received
by the company averages around 10 (or slightly more) per 10. The
cash received from sales per month is $100,000.00. The total cost

of production is about 7+ per 1b. The profit per pound is 3 or
better. Therefore, it would appear that the anmal not profit of
this enterprise runs somewhere around $360,000.00. Indeed this
is borne out by past performance. For example, in the year 1933
the company declared a net profit of $240,000.00 and redeemed out

of surplas profits $150,000.00 worth of stock. Goldman stated that
he has filed his income tax return for the calendar year 1934 and
while he does not recall the precise net income declared therein,
that it was about $360,000.00.

5 - The records de not disclose any persons who were

or might now be in ultimate interest. The stock certificate books

and Minuse Book appear to be regularly kept. 411 issued and
concelled stock certificates have been accounted for with the
esceptionout two which were for small amounts and therefore un-

important. At my request and in my presence certain stock certi-4-

106
ficates were marked "cancelled" and others which had been endorsed

in blank were marked to indicate that they were the property of
the company. Such details were probably normal oversights. The
shares of stock held by Bress, although issued on the same date

were divided into numerous certificates indicating the probability
that some of them were held for others. Mr. J. stated that Hale
and Goldman admitted that they were associated with the company for

the past several years even though the records would indicate that
they came in during a reorganization in the latter part of 1934
and early 1935. The Minute Book discloses that Brass surrendered
for cancellation 20,000 shares of common stock to the company in
consideration of the company releasing him of all claims by reason
of Brass receiving more paid up stock in December 1926 than the
value of the property which he transferred to the company in exchange
therefor. While the company released Brass, Brass also was required
to sign a general release in favor of the company.
6 - According to the stock certificate books and Minute

Book, the only stockholders who ever appeared on record are:
Samuel Brass, H. L. King, F. L. Chambers, William Alter, Eleanor

Gill, Richard F. Cleveland, Robert M. Allen, Harry 3. Bernard,
David K. E. Bruce, Frank J. Hale and Harold Goldman.

7 - The agreement previously referred to between Mr. J.,
Hale and Goldman is dated July 17, 1935. It is in substance a
voting trust agreement and gives Mr. J. 12 months in which to
exercise an option to purchase 20,000 shares of COMMON stock at

$6.50 per share or a total of $130,000.00. Tab duration is five
years and it provides that the same officers and directors will
maintain their present positions, that no stockholder can sell,
assign, pledge or otherwise encumber or part with his stock without
first offering the same for sale to the remaining stockholders,
who shall have a 90 day option to purchase. A resolution of the
board of directors provides that the president of the company
shall alone be authorised to make and execute all contracts. The
real estate is free and clear of all encumbrances. Samuel Brass

resigned from his position as president and member of the board
of directors on June 26, 1935.

8 - In a detailed conversation with Mr. J., he stated
that he had carefully considered and investigated the matter of
becoming president and director of this company. It would appear
that the inducement was a financial one, that this business is one
of those rare enterprises where the field is not overcrowded with
difficult competition and that it afforded an ususual opportunity
for development and industrial success. Mr. J. seemed to be
familiar in a general way with the former unfavorable background
of Mesers. Hale and Goldman. He stated that an acquaintance
connected with the Department of Justice had furnished him with

-5-

107
some information contained in some of Hale's files while the
latter was in the Bureau of Prohibition, and that when he confronted Hale with the information he had acquired, that the

latter unhesitatingly admitted his defalcations. It would

appear that Mr. J. has moved with considerable caution and
has taken steps to remove some persons of the old order and has
installed and intends to install persons known and to be
selected by him, into the key positions and has done other
things to insure the proper conduct of the business.

9 - While only a short time has been spent in the
examination of the affairs of this business, it has been of
such a nature and by such persons that we cannot avoid the
conclusion that no violations of any kind are being committed

here.

10 - Mr. J. has not yet made AAY financial investment.
While the company earns tremendous profits, it is at present in
need of funds. It needs approximately $50,000.00 to repair its
buildings at the plant. The apparatus used creates much vibration
and repair work has been sadly neglected in the past. A new
office has just been erected at an approximate cost of $10,000.00.
The machinery and equipment is getting older and will now need
repairs from time to time. This equipment is expensive and is
probably worth installed approximately $250,000.00. The company
has been drained of its reserves by the redemption of $500,000.00

worth of its capital stock during the last three years. A suit

is pending against it by Standard Brands, Inc. which will probably
result in the company's paying about $150,000.00 in damages.

It just paid $17,000.00 for 1933 income tax deficiency. Large
attorney's fees are payable and the overhead, particularly in

large salaries, would be considered more than the average business

could carry. The cash in bank now is about $50,000.00 which is
& small amount for an enterprise of this kind which is facing its
present contingencies.

11 - Obviously much cash is needed and we are inclined

to believe that Mr. J. will be expected to borrow or otherwise

raise. in behalf of the company, large sums of money, such as
$200,000.00 or $300,000.00.

12 - The report as to the examination of the plant and
its apparatus is being submitted by Dr. H. J. Wollmer.
Conclusion

(a) There is no evidence of any present violation.
(b) The stockholders are Frank J. Hale, Harold Goldman and

-6- -

108
Sensal Brane, persons not entitled to the confidence of the
Government

Respectfully,

A. s. Harsonstein,
Examiner

109
March 15th

Mr. Morgenthau saw Senator Glass to-day in

regard to Mr. Berney. Senator Glass said "You tell Farm
Credit or General Hines or anybody that they can take my
word that Senator McKellar will not go after Berney if they
give him a job" H.M.Jr. said "That is awfully nice
Senator Glass and I appreciate it but they do not want
Senator McKellar to descend on Berney once he is in their
employ". He then said quite emphatically "they will have
to take my word" but H.M.Jr. replied "I am sorry Senator but
it is not enough. Senator McKellar must write a letter
saying it is agreeable to him that if Berney is transferred
out of Alcohol Tax he can go anywhere else in the government.
Unless I get a letter from Senator McKellar all bets are off.

Glass said "all right, I will see what I can do".

Senator Glass then said "Morgenthau I am very

fond of you and I do not want you to get yourself into any
unnecessary trouble. Don't defend this banking bill too hard.
H.M.Jr. inquired why and Senator Glass said "Well I will tell
you what the President told me at 5 o'clock on March 4th.
He said "I am only interested in two things, (1) to get the
Federal Deposit Insurance bill through and (2) to have a
unified bank examination. The President said I am not
interested in anything else. To show you how little interest
I have in No. 2, I did not send Eccles supporting memorandum up".
H.M.Jr. then said to Senator Glass "I want to get my Lending
Committee together" and Glass said "forget it. Now remember
Morgenthau don't get yourself out on the end of the limb. The
President is not interested. This is Eccles' bill and he doesn't
know what he is talking about". H.M.Jr. then told Senator Glass
that he would see the President over the week-end and discuss
it with him.
(Mr. Morgenthau's own very confidential opinion
is that the President sold out the Banking Bill in exchange

for getting Carter Glass to support the four billion eight
bill.)

I also told Glass in confidence to-day that
exclusive of Professor Rogers' expenses the total expenses
of the Stabilization Fund were less than $40,000. Glass said
"If anyone brings this up I will not give them figures but
I will say that it is so inconsequential that it is unnecessary
to mention".

Oliphant reported that Senator King has been
calling him in regard to the Thomas amendment which he wants

attached to the four billion eight bill. H.M.Jr. called

110
McIntyre and told him that he felt that neither the Thomas
or the Wheeler amendment ought to be attached to the four
billion eight and that at the proper time, after the four
billion eight is passed, we all ought to get together with
the President. H. M. Jr. said that we would refer Senator
Wheeler to the White House and McIntyre said he would pass
it on to the President.
Granducci came in to see me to-day and told

me that their financial man had heard that the President
has not endorsed the Banking Bill. I told him to find out
where their man got his information.

111
March 16, 1935.

To Governor Harrison:
YESTERDAY AND TO-DAY PRIVATE DEALINGS IN GOLD IN
BELGIUM TOOK PLACE ON THE BASIS OF PREMIUM OF FIVE PER CENT
FOR GOLD SOLD AGAINST BELGAS. THREE MONTHS' FORWARD RATE ON
BELGAS TO-DAY REPORTED AS COSTING FIFTEEN PER CENT AND TWENTY

PER CENT PER ANNUM. UNLESS SATISFIED WITH OUTCOME OF PARIS
MEETING MONDAY, REAL POSSIBILITY THAT EITHER RESIGN OR DECIDE
IN FAVOR OF DEVALUATION OF BELGA, POSSIBLY TYING ON TO
STERLING AND THAT SUCH ACTION MIGHT OCCUR VERY SOON. PRESENT
STRENGTH OF POUND LARGELY DUE TO SALE OF BELGAS BY BELGIUM
FOR POUND OVER PARIS. THEUNIS GEORGES HAS JUST TELEPHONED

PARIS THAT SITUATION so URGENT HE WILL ARRIVE THIS SATURDAY
EVENING.

(Signed) FRASER

March 18th

112

The President's wedding day. Had supper with
the President, Mrs. Roosevelt, Mr. and Mrs. Boettiger, Frederic
Delano and one of his sisters and Miss LeHand. About 10 o'clock
the Boettiger's left and Mrs. Roosevelt and Miss LeHand having

left right after supper. At 10:30 the Delano's left. I stayed

on with the President until 11:45. He and I were alone. After
supper was over I asked him if I could talk to him alone telling
him that I wanted to tell him a funny story. I told him my funny
story which he enjoyed enormously. He then kept me and said
"I want to tell you my idea about how to handle the European
situation." The matter was fresh in his mind as Hitler had
announced the day before that he was going to call a large number
of troops to arms. The President said, and it was his idea that
England, France, Italy, Belgium, Holland, Poland and possibly
Russia should get together and agree on a ten year disarmament
program which would look forward to doing away with all methods

of warfare other than what a soldier can carry on his back and
in his hand. That only big guns would be permitted for the
protection of fortification and trenches along frontiers also
the use of barbed wire. His thought was that these countries
would sign this pact themselves and would then approach Germany
and ask her to sign. If she refused, these countries would then
establish a two way blockade around Germany, not permitting anything at all to enter or leave Germany. That we would send an
Admiral abroad who would assist in seeing that our ships did not
run through this blockade.
He said that after about six months we would
then take up the question of disarmament with Japan andAEngland,
France and ourselves would sign a pact of disarmament and then

would approach Japan offering her the right to maintain a fleet
as large as the American Pacific fleet, and if Japan didn't sign
that the three countries would establish a blockade around Japan.
The President pointed out that having settled the peace of Europe,
England's fleet would be free to concentrate on Singapore and
could assist in a big way in the blockade of Japan. The President
asked me what I thought of it and I said it was a grand idea.
He asked me whether I thought he could trust the British
Ambassador Lindsay and I told him "Yes" and he asked "how about
the others" and I said "why not send for the French, Italian
and British at the same time and make this suggestion to them."
I told the President that I thought the world had everything
to gain and nothing to lose by trying this program and if it
didn't succeed the only thing we could look for was a world war."
Thehave
President
said"1f
will
a world
war".this does not succeed the chances are we

113
We then adjourned upstairs. When I was alone

with the President I said to him "I would like to talk to you
about something very confidential". He said "close the door".

I said "Viner tells me that Rex Tugwell came out to Chicago
about two weeks ago and talked to a group in a man's house and
didn't caution anybody that it was confidential and told them
that he felt that he was going to attach himself to support
Governor Olsen of Minnesota". He felt that he was the man
of the hour. They pointed to him Olsen's unsavory private
life and Tugwell said "that would just add a romantic charm
to his candidacy for President". Much to my surprise the
President did not seem disturbed by this information. I said
to him, "knowing that Tugwell is disloyal do you think you
should appoint him to a new position of responsibility". The
President then told me that he intended to put Tugwell in
charge of Rural Housing and the new Communities to be laid
out close to the city. He said "you know when Napoleon had
a Marshall in whom he did not have complete confidence he would
put him in a position of the greatest responsibility and test
him." He said "that is what I am going to do with Tugwell.

This will be one of the most difficult posts under the 4 billion
8.

He said "You know, Henry, in studying the third
party movements it is interesting to know that whenever they
have started a National Convention they have always failed."

He said, "anybody who starts a third party has to get its start
at least a year in advance. If I should put Tugwell out to-day
what would he do? He would start writing a few articles,
lecturing, saying that he tried as long as possible to be loyal
to the Administration but he just could not possibly continue
to go along with this policy of restricting production and that
he was for the policy of plenty, and gradually he would work up
a following. If I put Tugwell out to-day there would be another
big hullabaloo that I turned to the right. They would magnify
it tremendously and the thing for me to do is not to give these
people a chance to go out and work against me now. I know what
I am saying is straight politics but it is good politics."
He said, "I consider Tugwell one of the most ambitious and
clever people here in Washington".

He said, "Friday night, a week ago, I decided
to take a big chance for the following reason. The two
LaFolletes had promised me their support in 1936. I heard
rumors that they were weakening. I let them know that I knew it.
Bob LaFollette sent word he wanted to see me so I decided to see
LaFollette, Wagner and Costigan at the same time." He said,
LaFollette sat next to me on the sofa and before the evening was
through he was so full of liquor that he actually was crying on
my shoulder. Wagner got so tight he had to go to bed for two
"

days to get over it. Costigan doesn't drink. He said, "I asked

these fellows "are we Progressives going to stand together or
do I have to go to the country and explain that it was you three
men who wrecked my Administration? I told them that I knew
they were out on the end of a limb and they could write any

114
compromised amendment that they wished to to save their faces

and I would accept it. " I told them that if we followed the

McCarran Amendment we would end up by having State Socialism

as every man would want a job with the government because it
would pay more than private employment. He said "if that is
what you want, it is all right with me." (Somewhere during
this conversation he let it slip out and tried to cover it
up that the price he paid for the LaFollette support was that
he was going to turn over to them for their Administration
in Wisconsin the 4 billion 8 fund.)

I gather that they did not come to an agreement
that evening because the President said it took over ten days
to work out a compromise. I gather from the way he spoke that

he must have been good and very forceful.

I said "Mr. President, Senator Glass told me
last week that I should not get myself out on the end of a
limb on this Banking Bill because you told him at 5 o'clock
on the afternoon of March 4th that you were only interested
in a unified bank examination and the permanent plan for

F.D.I.C." All the color left the President's face and he said

nothing for a few moments. Before he could say anything I said,
"I suppose you agreed to this in order to get Glass' support

of your 4 billion 8 bill". He said, "not at all. I will tell

you the story". Somewhere along about January 5th Glass came

to see me and I told him that I did not want much in the Banking
Bill except the two things mentioned above. He said he did

come to see me on March 4th and I again repeated that I only
wanted two things but added that I am holding my mind open

until the picture develops further. (This is approximately
what he said). The President did not convince me at all and
from the way he acted I think he did agree with Glass and that
was the price he paid to get Glass' support.
The reason for my feeling this way is because
he seemed so disturbed when I told him this story.

I then told him that I would have to testify
this week and that I thought we would have to come out in
favor of buying the stock in the Federal Reserve Bank. This
was my suggestion and not his. Also that the question of
National Credit, Open Market Committee, etc., should be vested
with the Federal Reserve Board. He then said, "all right go
on the hill, say that you do not know anything about banking
or details but that you are in favor of:
1. Unified examination of banks.
2. Permanent plan of Federal Deposit Insurance.
3. Bringing to Washington Open Market Committee, etc.
4. The Government buying Federal Reserve stock.

115

The thing to do is to try to get hold of

Henry Steagall and get him to agree to limit your testimony
to these four points and nothing else."
Just before I left I brought up the question
of Bonus and he said, "remember if I do anything on the bonus
I will insist that the policy be laid down that whatever we
do for the soldiers that from now on the question of soldier
legislation must be taken out of politics".

115A

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Press Service

No. 4 - 53

Monday, March 18, 1935.
3/16/35

Secretary of the Treasury Morgenthau announced today (March 16) that

the issue of Treasury Notes of Series A-1940, as a result of the exchange
of Treasury notes maturing March 15, 1935, amounted to $513,884,200. The

subscription books for this issue were closed on March 8, 1935. Subscriptions and allotments were divided among the several Federal Reserve

districts and the Treasury as follows:
Federal Reserve

District
Boston
New York

Philadelphia
Cleveland

Richmond

Atlanta
Chicago

St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Total

Total Subscriptions
Received and Allotted
$ 11,318,800
315,785,600
9,349,000
14,485,900
28,403,700
7,574,100
67,471,200
7,159,600
5,680,100
8,443,900
16,634,000
20,445,900
1,132,400
$513,884,200

115B

TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Monday, March 18, 1935.
3/16/35

Press Service
No.4-54

Secretary of the Treasury Morgenthau announced today (March 16) that

the subscription books for the current offering of 2-7/8 percent Treasury
Bonds of 1955-60, in exchange for Fourth Liberty Loan Bonds called for
redemption on April 15, 1935, will close at the close of business Wednesday,

March 27, 1935. Subscriptions placed in the mail before 12 o'clock,
midnight, Wednesday, March 27, will be considered as having been entered

before the close of the subscription books.
The Secretary stated that up to this time approximately $1,140,000,000

of the Fourth Liberty Loan Bonds called for redemption on April 15, 1935,
have been exchanged for the new bonds.

The subscription books are being kept open for the considerable further

period in order that all holders of the called Fourths, and particularly
the small holders, may have ample opportunity to take advantage of the
exchange offering.

The attention of holders of the called Fourths was invited to the
fact that the new Treasury bonds issued on exchange bear interest from
March 15 and on exchanges after that date accrued interest at 2-7/8. percent is charged from March 15 to the date the Fourths are submitted.

Movestic 19th

116
the

the

March 19th

you

Mr. Morgenthau told Mr. Oliphant to-day at
one o'clock to have everything ready in case he
should decide to put an embargo on gold both ways
and put in an exchange control.
H.M.Jr. wanted everything ready so that the

President could sign it, if we decide to, before

he went away.

will

look

March 19th

117

Wright Patman called up and said he wanted to see

H.M.Jr. at the President's suggestion. H.M. Jr. told him to come
right over. In the meantime he telephoned the President through
Kannee and asked him if he could give him a tip on how to handle
Wright Patman. The message came back "talk to Wright Patman who
wants to talk to you about the bonus but don't commit yourself in
any way".

Wright Patman said that he suggested to the President

to date the whole bonus certificate back from 1925 with interest to
1918 when the war ended, November 11, and it appealed to him. That
the interest from 1918 to 1925 the veterans did not get - that would
make them payable in 1937 and fix it so that the needy ones will
get it now.
H.M.Jr: What is the argument against dating it back?
Patman: 25% increase was to take care of it from 1925

to 1945 that is for waiting. By dating it back to 1918 it will come
due in 1938 and if the needy want it now, they will have to take a
discount. We will take those on relief rolls first - then those who

need the money for payments on homes.

H.M.Jr. said all he is concerned about is financing I do not want to get into the political end. However, I will look

into your idea.

w

March 19, 1935.

118

The Banking sub-committee of the Interdepartmental Loan
Committee met in the office of Under Secretary Coolidge, at
3:00 P.M. Those present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
T.J. Coolidge, Under Secretary of the Treasury,
Marriner S. Eccles, Governor of the Federal Reserve Board,
Jesse H. Jones, Chairman, Reconstruction Finance Corporation,

Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation,
J.F.T. O*Connor, Comptroller of the Currency,
Herman Oliphant, General Counsel for the Treasury Department,
C. B. Upham, Secretary of the Committee.
Mr. Coolidge placed before the meeting a memorandum prepared

by the legislative committee of the American Bankers Association,

listing 9 proposals for changes in the Title II of the Banking
Act of 1935 made by Governor Eccles before the House Banking and
Currency Committee and 3 proposals of the American Bankers Committee

offered in lieu of 2 of Governor Eccles' suggestions.
There was discussion
of the first proposed amendment of Governor
the chief

Eccles, namely, that/executive officer of a reserve bank be approved
by the Federal Reserve Board every three years rather than annually,
and it was agreed to.

Mr. O'Connor, however, restated his position in opposition to
the transfer of the authority to appoint the chairman of the local
Federal Reserve Bank from the Federal Reserve Board to the member
banks.

There was some discussion as to what attitude the Treasury

should take in connection with the proposals of Governor Eccles and
the ABA committee.

-2-

119

Mr. Ecoles thought that Mr. Coolidge should support the
bill and his amendments.

Mr. Coolidge doubted that the committee would want to present
the ABA document or

take any formal action with respect to it

but merely go over it to be informed.
Mr. Crowley thought it would be bad politically for the
committee to go on record as concurring with the ABA recommendations.

Mr. Eccles thought it would be well if the committee reached
the same agreement as the ABA but without any official connection.
Mr. Coolidge suggested that the memorandum be read and if it
is desirable to make any suggestions of changes to the ABA committee
that can be done. He said that he would like to be prepared when
he goes on as a witness to answer questions on changes proposed
by Mr. Eccles.
The second and third modifications suggested by Mr. Eccles
were read and no objection was made to them.

Mr. Morgenthau pointed out, in connection with the fourth

modification, that this represented a shift of position from
that which Mr. Eccles took in the committee discussion prior to
introduction of the bill.
There was general objection the fourth modification and
Mr. Eccles agreed to recede from his proposed modification. The
only excuse for it anyway had been the objection (which the
committee thought "silly") that a President might remove the
entire Federal Reserve Board seriatim through designating each
one as Governor.

Mr. Eccles gave as the reason for the fifth modification

120

-3-

that it is to meet the arguments of those who want to reach a
fixed price level.

Mr. Oliphant thought it an off hand tricky way of settling
a grave issue.

Mr. Jones thought it was "bunk".
It was disagreed to.

With respect to modification six, Mr. Jones was of the
opinion that there should be three groups of banks rather than two
for the purposes of reserve requirement changes by the Federal
Reserve Board, but did not insist upon the point.
There was no particular objection to modifications seven
and eight.With respect to the composition of the Open Market
Committee considerable discussion was had.

Mr. Coolidge stated his general position as one of desiring
that both the Federal Reserve Board and the Reserve Bank Covernors
be represented on the committee.

Mr. Morgenthau wanted to go back to the original provisions

of the bill.

Mr. Eccles said the objection to that was there might be a
conflict between an Open Market policy agreed upon by one of the
members of the board and two Governors (a majority of a committee

of 5) and the views of the other 7 members of the Board. He

pointed out that he had not agreed to the proposal in theoriginal
bill prior to or at the White House conference, but he had been
outvoted.

126

Mr. Morgenthau said that he felt so strong about this point
that he would seek an opportunity to testify against Mr. Eccles'
changes. He characterized it as the "guts" of the whole bill --

121
if the present Federal Reserve Board should have Open Market

powers, it would be just too bad.
Mr. Eccles asserted that the Board now has control over
rediscount rates and reserve requirements. He suggested that
the Board be changed but that he can't make such a proposal.

Mr. Oliphant said that if the Board couldn't be changed
we shouldn't go ahead with proposels that are predicated upon
the theory that a change will be made.
Mr. Morgenthau said that he wouldn't have taken this pro-

posal to the President at all if he had thought that the
committee was not in agreement. He said it is the only thing

in the bill in which he is interested.
Mr. Coolidge asked if he should suggest a change in the
composition of the Federal Reserve Board end Mr. Morgenthau
doubted the advisability of that.

Mr. Coolidge said that he thinks it is important some day
for the Board to be composed partly of Governors.
Mr. Morgenthau referred again to his experience with the
Farm Board and his action in requesting the resignation of the
Members of that Board and of being visited by disappointed members who actually cried at the treatment accorded them.

Mr. Eccles insisted that his position as a member of the
Board, it would be impossible if he proposed to remove some of
the members and then the legislation didn't go through.
Mr. Morganthau insisted that the present Board is not fit
to be the Open Market Committee. He spoke of an Open Market
Committee of three Board members and two Governors.

-5-

122
Mr. Jones said that he thought the Secretary of the Treasury
should have a voice in Open Market operations.

Mr. Coolidge and Mr. Eccles said that he has a voice.

Mr. Oliphant said that it might well be sometime that he would
not.

Mr. Morgenthau said that he didn't want to be on the Open

Market Committee. He said that as long as the Board continues
as it is he would rather have the Open Market situation as it

now is if the proposal in the original bill cannot be upheld.
If the Open Market Committee doesn't want to operate, he can
use the Stabilization Fund as he has been compelled to do so far.
Mr. Morgenthau stated his position as agreeable to any one

of three things: either leave the Open Market Committee as it is,
or have it constituted of three members of the Federal Reserve
Board and two Reserve Bank Governors, or buy the stock of Federal
Reserve Banks.

Mr. Eccles said that in that case the composition of the
Federal Reserve Board ought to be changed.

Mr. Morgenthau reminded him that he had ten days of hearings

in which to suggest it, to which Mr. Eccles replied that he wasn't
in a position to make the suggestion.
It was agreed that either three Reserve Board members and two
Governors or five reserve Board members and four Governors would

be satisfactory as an Open Market Committee.

With respect to modification nine on real estate loans,
Mr. O'Connor restated his dislike of real estate loans by National
banks, "unless the Federal Reserve Banks will take the commercial

-6-

19, 1935.

123

banks out when they are in trouble."
Mr. Eccles made a distinction between old loans in the banks
and new loans to be made and thought that the percentage of

valuation on old loans might continue to be 75 or 80, while
that on new loans was limited to 60.
Mr. Morgenthau said that he considered 60 top and that the

talk of 80% has made a bad impression. It is impossible, he
said, to get any first mortgage money in New York today--"I
suspect that Mr. O'Connor is now brining pressure for reduction

on mortgage liabilities, and if so he is right."
Mr. Jones said that he was opposed to letting the Federal
Reserve Board say whether banks can loan on real estate.
The three proposals of the ABA committee were not discussed.

March 19, 1935.
Tuesday.

H.M.Jr:

George?

George

Harrison:

Yes, Henry.

H.M.Jr:

Good morning.

H:

H.M.Jr:
H:

H.M.Jr:

Good morning, sir.

Things seem a little bit upset.
Yes, they are.
Have you got anything very recent?

H:

Well, I just got now - I just asked some of my
associates to come in here. We're just going
over things now.

H.M.Jr:

Yes.

H:

Trying to collect what there is.

H.M.Jr:

You haven't talked to Paris?

H:

Talked to Paris yesterday.

H.M.Jr:

But not today?

H:

Not today.

H.M.Jr:

Yes.

H:

Maybe Crane has. (Get Crane to come in anyway).
Maybe Crane has - I haven't.

H.M.Jr:

Yes.

H:

But -

H.M.Jr:
H:

I'd like to keep in close touch with you. If

you get anything, will you phone me personally?
Yes - and Norman called me yesterday -

H.M.Jr:

Yes.

H:

- and he was just chatty. He didn't have anything to say. Said that things were all upset
there - that there wasn't much that any of us
at Central Banks could do - that it was all in

123A

-the hands of the government, and that they
weren't on very good speaking terms apparently.
H.M.Jr:

They were not?

H:

The governments were not.

H.M.Jr:

The governments were not?

H:

Yes. And -

H.M.Jr:

That mean - include us?

H:

No, he wasn't. He was talking about Europe then.

H.M.Jr:

Oh, yes.

H:

- because he said he thought that things were
not respectively improved by the end of this
month when he implied
going abroad to have talks. Now, you see in
this morning's paper
The French are awfully discouraged. They are
very much disappointed and upset that we turned
them down on their offer. I asked them whether
they were going to do anything alone. They said
well, they hadn't decided but they didn't think
so. They said that wouldn't be the same thing

at all - the way they said it.
H.M.Jr:

I see.

H:

- and I just reiterated. I said that the

H.M.Jr:
H:

H.M.Jr:

position of our government was
That the French -

I told this to the French - up to the British
Did Norman know anything about it, do you think?

H:

No,
told he
him.didn't know a thing about it. Nobody

H.M.Jr:

Oh, yes.

H:

No, I had to be very careful not to.

H.M.Jr:

Yes, that's right. Well, I'm here and if you
hear anything or if they call anything, I'd
appreciate your letting me know right away.

123B

-3 H:

All right, I will.

H.M.Jr: We're watching the exchange thing. So far, it
hasn't got out of bounds.

H:

The Belgium Cabinet is resigned, you know -

H.M.Jr:

Yes.

H:

- on the gold policy thing.

H.M.Jr: There's
is there?nothing really that we can do right now,
H:

Crane tells me there's a run on the Bank of

Brussels.
H.M.Jr:

Run on the Bank of Brussels.

H:

That's not the National Bank.
On the Bank of Brussels.

H.M.Jr:
H:

(Laughter) Crane says the National Bank will be
next.

H.M.Jr:

The National Bank will be next.

H:

He's being flippant.

H.M.Jr:

Oh. Well, I'm glad that he feels flippant.
But, their banking situation is bad there.

H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

How're the governments today, do you know?

Oh, they're sick.
An eighth to a quarter off (How far off are they as a whole, Burgess?)
Called 4th opened 3/32d off.

Yes. I want to talk to Jeff. I don't know
what's he doing. (will you ask Mr. Coolidge
to come in, please?) I'll have to get you to

work with Burgess on it.
H:

The - most of the Treasury bonds are off from
one to 4/32d.

H.M.Jr:

Is Burgess with you?

123C

1230

-4H:

H.M.Jr:
H:

Yes.

Is he - are we doing anything, do you know?

Well, I think you got some orders in to the

called 4th, that's all.
H.M.Jr: Yes. That's right. That's right.
H:

Yes.

H.M.Jr All right, George. Well, if anything All right. I'll let you know if anything H.M.Jr:
If I get anything, I'll let you know.
H:
All right.
H:

H.M.Jr:

Thank you.

124
March 20, 1935.

At a time when it was thought that France and possibly other
gold standard countries might have to suspend payments of gold, several
plans were considered by the Treasury, in consultation with officals of
the Federal Reserve Banks, designed to lessen the shock to this country
and the world.

One plan was to stop imports of gold to the United States and
restrict foreign exchange transactions by amending the general license
which was granted November 12, 1934, so as to require a special license
for general transactions aggregating more than $100 in any seven-day
period. While in the minds of many people the foreign exchange restrictions
which had been in effect from the beginning of the banking holiday

relate to sales of dollars, those restrictions, in fact, have always

related quite as much to purchases of dollars. The possible tightening
of foreign exchange regulations would then, it was thought, have the
effect of preventing a flight from France, and possibly other goldstandard ccuntries, to the dollar, by other means once we had cut off
imports of gold. I spoke of the plan as though it would be put into
effect only after France had gone off gold. Of course, it was possible
to have put it into effect a little time before and thereby stave
off exportations of gold payments particularly if England and other
countries took similar steps.
The other principal plan contemplated no changes in our gold
or foreign exchange regulations, but assumed that the situation could

be met by facilitating credits and gold exports. This plan was based
partly on the conviction that psychologically a flight to the dollar
would be encouraged rather than discouraged by the announcement

of the change in regulations which made the acquisition of dollars

more difficult.

As I recall, the attached papers designed to make the first
plan effective were not signed because of a general conviction that
the second plan would be better.

John G. Laylin
June 15, 1936.

THE SECRETARY OF THE TREASURY
WASHINGTON

dear Mr. President:

On September 4, 1334, with your approval, I authorized
the Federal Reserve Bank of !lew York, as fiscal sgent of the United

States, to purchase or sell, or egree to purchase or sell, at home
or abroad, for the account of the Stabilization Fund established in
Section 10 of the Colc Reserve Act of 1934, foreign exchange (in

cluding foreign coins and currencies and/or coins or bullion into
which the same may be convertible) for present or future delivery.

A copy of this letter of authorization is attached. In order tist
there may be no question of the authority of such bank to purchase

or sell, at home or abroed, gold bullion and gold coins (other than
United States gold coins situated in the United States or exported
therefrom contrary to law) I propose to send to the Federal Reserve
Bank of New York & letter confirming its authority to make such
purchases and sales. The proposed letter is attached.
If the proposed letter and the purchases and sales therein
authorized to be made or agreed to meet with your approval, I should

appreciate it if you would signify such approval by signing the notation
at the foot hereof.
Faithfully yours,
the

Henry of Treasury.
APPROVED:

-2-

advised to you by the Secretary of the Treasury or on his behalf by an
official of the Treasury designated for that purpose by the Secretary
of the Treasury. The giving of each such specific authorisation and

advice shall constitute a determination that the transactions specifically authorised theroin are authorised under Section 10 of the Gold
Reserve Act of 1934.

Effective until further notice, I have designated the Under Soore®
tary of the Treasury, Thomas Jefferson Collidge, as such official of the
Treasury who may adviso of specific authorisations in my behalf under

this letter.
It is agreed that in consideration of your acting in accordance
with this authorisations

(1) The Secretary of the Treasury will provide you (for
yourselves and any agency or agencies you select hereunder) with

(a) funds in United States dollars equal to the total of the

purchase price of all foreign exchange purchased or
agreed to be purchased in accordance with this authorisa-

tions

(b) foreign exchange as required to fulfill commitments,
contracts, and agreements, for the sale of foreign

exchange made in accordance with this authorisations

and

(o) all out-of-poeket or other necessary expenses, and oustomary charges (Including, where loss of interest is
sustained, debit interest at rates current at the place
where such loss is sustained), incurred by you, or by
any agency or agencies selected by you hereunder, in
connection with transactions authorised herounder)

September 4, 1934

Gentlement

CONNIDENTIAL This letter is not to be
shown to, or referred to
in paraphrase for, any one

but the officers of the Federal

Reserve Bank of New York and
the Federal Reserve Board,

Pursuent to the authority vested in the Secretary of the Treasury
by Section 10 of the Gold Reserve Act of 1934, for the purpose of

stabilising the exchange value of the dollar, I hereby authorise and

request you, as fiscal agent of the United States, acting directly or
through such agency or agencies as you may from time to time select,

to deal in foreign exchange for the account of the fund established in
said Section 10 (herein referred to as the #Fund"), as follows:
To purchase or sell, or agree to purchase or sell, at home or
abroad, for account of the Fund, foreign exchange (including foreign
goins and currencies and/or the coins or bullion into which the same

may be convertible) for present or future delivery, The kinds of such
foreign exchange to be purchased or sold, or agreed to be purchased or
sold, the rates at which such purchases and sales are to be made OF
agreed to, and the maximum amounts to be purchased or sold within

designated times and at designated places, will be specifically
authorised from time to time by the Secretary of the Treasury and

-3(2) You are authorized, as fiscal agent of the United
States, to pay or agree to pay to yourselves, and to any agency
or agencies you may have from time to time selected herounder,

the funds referred to in subparagraph (1)(a) above, the foreign
exchange referred to in subparagraph (1)(b) above, and the
expenses and charges referred to in subparagraph (1)(e) above
and to charge the amounts BO paid to the account on your books

designated Secretary of the Treasury Special Account";

(3) No liability will be incurred by you in connection
with any acts, arrangements, or agreements entered into or

performed in accordance with this authorisation, except for
your own negligence)

(4) Enclosed is a form of letter which has been approved
by the Secretary of the Treasury, and which you, as fiscal agent

of the United States, are authorised to write to each of the
agencies selected by you to carry out transactions authorised

by this letter and by specific authorisations received by you
hersunder. You are also authorised to advise each such agency
that it may rely upon the agreements made by you as fiscal

agent of the United States in this form of letter and the
specific authorisations given by you thereunder, as binding
upon the United States;

(5) You are authorised, as fiscal agent of the United
States, to agree with every agency selected by you hereunder,

in consideration of its seting in accordance with your

authorisation to it, that no liability will be incurred by it
in connection with any acts, arrangements, or agreements entered

into or performed in accordance with your authorisation to it
granted in accordance herewith, except for its own negligence;

(6) You are authorised, as fiscal agent of the United
States, to pay or agree to pay to any agency selected by you
hereunder a commission of not in excess of .00125 per French

frane and .005 per Dutch guilder and Belgian belga, on all purchases and sales of, or agreements to purchase or sell, foreign
exchange made under this authorisation through such agency (which

commissions will be in addition to any reasonable and customary
commissions paid through such agency to brokers for the execu-

tion of such purchases or sales); and

(7) You are further authorised to make such incidental
arrangements or agreements with any such agency as may be neces-

sary or reasonable in connection with the purchases or sales or
agreements to purchase or sell herein authorised and requested
to be made.

The operations authorised by this letter have been approved by
the President.

Very truly yours,
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, How York.
Enclosure.
APPROVED

(Signed) Franklin D. Roosevelt.
THE WHITE HOUSE,

SEPTEMBER 21, 1934.

JGL/kk 9/18/34

This letter is not to be shown to,
or referred to in paraphrase for,
any one but the officers of the
Federal Reserve Bank of New York
and the Federal Reserve Board.

Gentlement

Reference is sade to my letter to you of September 4, 1934. The

authority therein conferred relat ex ressly to #foreign exchange
(including foreign coins and currencies and/or the coins or bullion
into which the SEAS any be convertible)". This will confirm that such
authority includes authority to purchase or cell or agree to purchase

or sell, it home or abroad, for account of the fund established in
Section 10 of the Gold Reserve Act of 1934, gold coins and gold bullion.
According ly, wherever the tera "foreign exchange" appears in that letter,

it shell be construed to include such gold coin or gold bullion, whether
acquired at home or abroad. This authority does not include, however,

the sale of any United States gold coin or the purchase of United States
gold coin situated in the United States or exported therefrom contrary
to law.

This confiraction meets with the approval of the President.
Very truly yours,

Secretary of the Treasury.
Feceral Reserve Banx of New York,
New York, New York.
JOLaes

2.20.35

THE SECRETARY OF THE TREASURY
WASHINGTON

CONFIDENTIAL:

This letter is not to be shown to,
or réferred to in paraphrase for,
any one but the officers of the

Federal Reserve Bank of New York
and the Federal Reserve Board.
Gentlemen:

Reference is made to my letter to you of September 4, 1934. The

authority therein conferred related expressly to "foreign exchange
(including foreign coins and currencies and/or the coins or bullion
into which the same may be convertible)". This will confirm that such
authority includes authority to purchase or sell or agree to purchase
or sell, at home or abroad, for account of the fund established in
Section 10 of the Gold Reserve Act of 1934, gold coins and gold bullion.
Accordingly, wherever the term "foreign exchange" appears in that letter,

it shall be construed to include such gold coin or gold bullion, whether
acquired at home or abroad. This authority does not include, however,

the sale of any United States gold coin or the purchase of United States
gold coin situated in the United States or exported therefrom contrary
to law.

This confirmation meets with the approval of the President.
Vcry truly yours,

Secretary of the Treasury.
Federal Reserve Bank of New York,
New York, New York.

1

E.

TREASURY DEPARTMENT,

Office of the Secretary.
, 1935.

REGULATIONS

Amending the Regulations of November 12, 1934, Relating

to Transactions in Foreign Exchange, Transfers of
Credit, and the Export of Coin and Currency.

Article 2 of the Regulations of November 12, 1934, Relating to
Transactions in Foreign Exchange, Transfers of Credit, and the Export
of Coin and Currency, and the general license therein granted are
amended to read as follows:

"Article 2. Licenses may be granted, and a general

license is hereby granted, to all individuals, partnerships,

associations, and corporations, authorizing any and all
transactions in foreign exchange, transfers of credit, and

exports of currency (other than gold certificates) and silver

coin, involving amounts not exceeding in the aggregate $100
in any seven-day period for the account of any one individual,

partnership, association, or corporation or by any one individual, partnership, association, or corporation acting,
directly or through an agent or agency, for the account of
himself or itself. The general license herein granted authorizes transactions to be carried out and exports to be made

within the maximum amounts herein provided which are permitted
by the Executive Order of January 15, 1934, under license

therefor issued pursuant to such Executive Order; but does not
authorize any transaction to be carried out which, at the time,

is prohibited by any other order or by any law, ruling, or

regulation."

The regulations of November 12, 1934, and the general license
therein granted, as emended, may be modified or revoked at any time.

HennySecretary
H. MORGENTHAU,
JR.,
of the Treasury.
APPROVED:

A.

THE SECRETARY OF THE TREASURY
WASHINGTON

Dear Mr. Coolidge:

There are attached hereto the following documents:

"B." A draft of amendment to the Provisional Regulations issued under the
Gold Reserve Act of 1934, authorizing the Secretary of the Treasury
to suspend
or restrict the authority of the mints to purchase imported
gold;
and
"E." A draft of amendment to the Regulations of November 12, 1934, issued
under the Executive Order of January 15, 1934, Regulating Transactions
in Foreign Exchange, Transfers of Credit, and the Export of Coin and
Currency.
These documents have been approved by the President. I have signed

each of the documents subject to the condition that each one shall bear the
date of, and become effective on, the day on which you deliver them as herein
provided. You are authorized to deliver each of the documents when, in your
judgment, the public interest requires that the amendments therein contained

should become effective; and, it is understood that you will deliver the
documents or one of them in accordance with advice communicated to you from me.

Delivery shall be made by dating the document the date it is to become

effective and filing the document so dated in the official files of the
Treasury Department.

Faithfully yours,

Hon. T. J. Coolidge,
Under Secretary of the Treasury.
Enclosures.

Henry Secretary of the Treasury.

TREASURY DEPARTMENT,

Office of the Secretary.
, 1935.

AMENDMENT TO PROVISIONAL REGULATIONS

Issued under the
GOLD RESERVE ACT OF 1934.

The Provisional Regulations issued on January 30, 1934, under
the Gold Reserve Act of 1934, as amended, are further amended in

Section 35 by substituting a semicolon for the period at the end
thereof and adding the following:
"And provided further, That the authority of the Mints to
purchase gold imported into the United States may be with-

drawn, suspended, or restricted at any time by the Secretary

of the Treasury without notice other than by notice of such
withdrawal, suspension, or restriction mailed or telegraphed
to the Mints."

Henry
Secretary of the Treasury.
APPROVED:

C.

THE SECRETARY OF THE TREASURY
WASHINGTON

The President,
The White House.

Dear Mr. President:

On January 31, 1934, with your approval, I issued statements an-

nouncing that I would, until further notice, buy imported gold at 835

an ounce (less 1/4 of 1%), and sell gold for export to foreign central
banks at $35 an ounce (plus 1/4 of 1%). Sections 3700 and 3699 of the
Revised Statutes, as amended by the Gold Reserve Act of 1934, authorized
these purchases and sales at rates and on terms and conditions deemed by

the Secretary of the Treasury most adventegeous to the public interest.
It is possible that there may be disturbances in the foreign exchange

markets such that the public interest will require (1) alterations in
the rates, terms, and conditions under which such purchases and sales

are made, or (2) the discontinuance or suspension of sone or all of
such purchases and sales.

If you approve of such discontinuence or suspension or alt-ration

in the rates, terms, and conditions of some or all of these purchases or
sales as the Secretary of the Treasury deems most adventageous to the

public interest, I shall appreciate it if you will signify such approval
by signature of the notation at the foot of this letter.

APPROVED:

Streng Faithfally Secretary of yours the Treasury. what

136

March 20th

H.M.Jr. reported that he talked to Governor Harrison
last night. The Federal Reserve System has, roughly, about
one hundred million dollars worth of the new 2 7/8% bonds.
H.M.Jr. would buy from the Federal Reserve System 25 million

of their 2 7/8% bonds for the Stabilization Fund with the
understanding that they will use this 25 million dollars in
the market . His reason is that he wants this income for
the Stabilization Fund to offset any possible loss in sterling
that we now own.

laterday

H.M.Jr. discussed this with Mr. Coolidge and Bell and
decided to modify the suggesti on which Mr. Morgenthau made to

Governor Harrison last night and that is - in the Stabilization
Fund we have, roughly, about 26 million dollars of Consols and
Panamas. The thought is that we would offer the Federal
Reserve System these in exchange for an equal amount of
2 7/8% bonds.

H.M. Jr. called Governor Harrison at a quarter to ten
and gave him this new suggestion but said that if Governor
Harrison wanted cash instead of the Consols he would be glad

to give it to him. H.M.Jr. told Governor Harrison that his
purpose is to keep the 2 7/8% bond because he wanted the

income for the Stabilization Fund - the Consols expiring
on July 1st . He also told Governor Harrison that if we
did swap he could sell the Consols and buy other things.

March 20th

136

H.M.Jr. reported that he talked to Governor Harrison
last night. The Federal Reserve System has, roughly, about
one hundred million dollars worth of the new 2 7/8% bonds.
H.M.Jr. would buy from the Federal Reserve System 25 million

of their 2 7/8% bonds for the Stabilization Fund with the
understanding that they will use this 25 million dollars in
the market . His reason is that he wants this income for
the Stabilization Fund to offset any possible loss in sterling
that we now own.

H.M.Jr. discussed this with Mr. Coolidge and Bell and
decided to modify the suggesti on which Mr. Morgenthau made to

Governor Harrison last night and that is - in the Stabilization
Fund we have, roughly, about 26 million dollars of Consols and
Panamas. The thought is that we would offer the Federal
Reserve System these in exchange for an equal amount of
2 7/8% bonds.

H.M. Jr. called Governor Harrison at a quarter to ten
and gave him this new suggestion but said that if Governor
Harrison wanted cash instead of the Consols he would be glad

to give it to him. H.M.Jr. told Governor Harrison that his
purpose is to keep the 2 7/8% bond because he wanted the

income for the Stabilization Fund - the Consols expiring
on July 1st . He also told Governor Harrison that if we
did swap he could sell the Consols and buy other things.

137
The two reasons that he gave Governor Harrison for wanting

to do this is:
1.

That he wants this income for the Stabilization Fund.

2.

He wants to give the Federal Reserve 25 million dollars
worth of money for securities which they can swap in
supporting the market.

He also told Governor Harrison that we were working
on all kinds of regulations in the way of embargoes and
exchange regulations in case we should want to do something.

The President is going south on Saturday for two weeks
and H.M.Jr. wanted certain documents signed in order to be
ready for any possible emergency.

What he will actually do, if an emergency should

arise, is another question but he did want to be ready.
Governor Harrison said he would think over the
above propositions and let H.M. Jr. know.
H.M.Jr. told Mr. Coolidge that he wanted to be a

little more aggressive in buying for the account of Postal
Savings.

After Bell left Coolidge stayed behind and told
Mr. Morgenthau that he felt it would be a great mistake
to put on exchange restrictions and begged Mr. Morgenthau

not to do it.

138
March 20th

Governor Harrison called back in the afternoon
and said that he had gotten in touch with his Executive
Committee and that they are prepared to make a swap and
take 26 million of Consuls and Panamas in exchange for
26 million worth of 2-7/8% bonds.

138A
March 20, 1935.
Wednesday.

H.M.Jr:
George

Yes, George.

Harrison:

Henry, I got in touch with all our executive

H.M.Jr:

Yes.

H:

- and we're prepared to make that swap.

H.M.Jr:

Good. Do you want to make it in the form

committee -

of a swap?

H:

H.M.Jr:
H:

Well, I think that's better.
It suits me.
We'll make it in the form of a swap then we
avoid any question of excess reserves.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

That's all right with me.
And - we'll do it today or any time you say.
Well -

I'd rather - almost rather do it today.
I'd like to do it today. I don't know what
the prices are - fix it up with Jeff as to

prices H:

H.M.Jr:
H:

H.M.Jr:
H:

Well, I'll get Burgess - I'm just talking
Now, there's only one other question. As a
rule, I like to tell Eccles in advance, but

I can never get a hold of him, but I'm sure
there won't be any trouble there.
Well - well - how can there be?

Well, there can't be.
I mean - you want me to tell him?
No, I'll talk to him as soon as I can get
him on the telephone, but I was calling you
quickly to get you before 10:15.

H.M.Jr:

Well - then - then, it's a bargain -

H:

Yes.

hold

Happy

2H.M.Jr:

13TB

- and
whatever
are
this
morning.the prices are - at which prices

H:

Some place between 25 and 30 million.

H.M.Jr:

It was around 26, I think.

H:

H.M.Jr:

Yes. Well, my authority between 25 and 30.
Well,
we'll sell you all the Panamas and the
Consols we have.

H:

All right.

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

Now,
don't rip the market on me, 'til we get
the prices.
No, I won't if you won't. (Laughter)
Well, you're my agent. (Laughter)

Now, I talked to Fraser, and Fraser says that
things are surprisingly calm over there considering the action that the Belgians are taking.
Really?

- that he doesn't think the new cabinet has

been formed yet unless it has been formed in
the last two hours.
H.M.Jr:

Yes.

H:

- that it will undoubtedly be either a socialist
cabinet or a socialist cabinet

H.M.Jr:

I see.

H:

- but that in either event, whichever cabinet it
is, he thinks
the belga will go, that is they'11
devalue
-

H.M.Jr:

They'11 devalue.

H:

- or devalue in some way

H.M.Jr:

Yes.

H:

He says he doesn't think that the other fellows

sterling

will go,
that they
areoff.
going to try to hold on
until
they're
forced

-3H.M.Jr:
H:

I see.

- that, of course, the German situation is pre-

occupying them a great deal now and he thinks
they would be a lot more concerned about the

belga thing if it weren't for that political

question in Germany. But,he's going to keep me
posted of anything that he hears.
H.M.Jr:

H:

Well, if - if the Belgians devalue and the others
didn't, that wouldn't necessarily mean that we'd
have to do anything ourselves, would it?
No, I don't think it would make very much difference at all to us. He - I asked him what he
thought would be the effect on sterling. I think
we both agree that the initial effect would be
some increase in sterling due to the fact that
there would be some swapping from Belgium to
London,
but that in the long run the influence
is depressing,

H.M.Jr:

Yes.

H:

- on sterling.

H.M.Jr:

Well, let's - I'm glad to get that. Now, let me

ask you, was it you or somebody else told me that
amongst
the bankers
New York they consider
Potter
about
the mostinable?
H:

Well,
I don'the
know
but I think
is. if anybody else told you that,

H.M.Jr:

Yes.

H:

- he and Reynolds.

H.M.Jr:

He and Reynolds amongst the two ablest.

H:

Yes.

H.M.Jr:

What?

H:

H.M.Jr:
H:

Yes - depends upon what you want them for, of
course,
butfellows
I mean
as a generalization I would put
those two
up.
You would?

- at the top, yes, of the commercial banker.

138€

+2SH
1380

-4H.M.Jr:
Games
Happiness

Right. Well, then, I'll tell Jeff that that
deal's on and he'll work out the details
later.

H:

That's right.

H.M.Jr:

Thank you.

H:

All right.

and

offer

of

addition
you
voice

which
Xea.

S.M.291

because

maleris sans
Busin 14)
H

Care about what?

H.M.Jrs

The

Hi:

H.M.JPI
1:

H.M.Jr:

2

you
rund

those

7/8.

you your

either 103
it one of
sell those,

March 20, 1935.

138 E

Wednesday.

H.M.Jr:

George?

George

Harrison:

Yes, Henry.

H.M.Jr:

In talking
over my suggestion that I made last
night
-

H:

H.M.Jr:

Yes.

- with Coolidge and Bell, we want to modify it

slightly. They tell me that in the Stabilization

Fund
we have roughly around 26,000,000 of Consols
and Panamas.
H:

H.M.Jr:

H:

H.M.Jr:

Yes.

- and the thought was that we'd offer you those
in exchange for an equal amount of 2 and 7/8.
See?
Yes.

Well, let's put it this way. We'll give you your
choice of those or cash, either one, either way
you wanted it. Jeff would rather have it off of

your Consols than Panamas, let you sell those,
which I am told are readily saleable.
H:

H.M.Jr:

H:

H.M.Jr:
H:

Yes.

- because at this time he said he doesn't particularly
care much about having the excess reserves
built
up.
Care about having what?

The excess reserves built up unnecessarily.

No, I - I don't think we ought to do anything in

any way that would increase the excess reserves
right now.
H.M.Jr:

Well, this way it would not.

H:

You mean if we swapped?

H.M.Jr:
H:

H.M.Jr:

If we swapped.

No, it wouldn't make any difference.
If we swapped it wouldn't make any difference and -

-2H:

Well, why would you want to swap?

H.M.Jr:

Well, just for that reason. That's just a sug-

H:

Well, I mean you're not much better off then.

138F

gestion.

You mean you get

H.M.Jr:

Well, we'd keep the 2 and 7/8, yes.

H:

What's that?

H.M.Jr:

We'd keep the 2 and 7/8 in the Stabilization Fund

H:

I see.

H.M.Jr:

You see what I mean?

H:

Yes.

H.M.Jr:

The other one would expire the first of July.
We're mulling it over here now I knew you were and I wanted to give you that
thought and we'd keep those - I want the income
in the Stabilization Fund.

H:

H.M.Jr:

as an investment. I want it for the income.

H:

Yes, I see. All right, well, I'm - if we - if we

H.M.Jr:

Yes.

H:

H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:
H:

don't swap, but just pay cash -

- then we've got to consider what we've considered
in the past,
Yes.

- the effect of our decrease in our total holdings.
Well, you could take - well If we don't swap, I say.
Yes. Then if we do swap, you could sell the Panamas
and buy other things.

Yes, that's right.

H.M.Jr: See?
H:

Yes, all right. Well, now let me - I'll check -

3-

1300

H.M.Jr: You take the Panamas and the Consols and I - the
men here say they're like cash and you can sell
them and buy other things.
H:

Yes.

H.M.Jr:

You see, I - I've got two reasons that I'm
trying
in the
to do this and then there's the
third reason.

H:

H.M.Jr:

Yes.

I mean the third portion. Reason number one is, I
want this for investment in Stabilization Fund, see?
want some income. Number two, I want to give you
$25,000,000 worth of money or securities that you
could swap in supporting the market, you see? - To
I

the extent of $25,000,000 worth of - other than
call on 2 and 7/8.

H:

Yes.

H.M.Jr:

See?

H:

Yes.

H.M.Jr:

Now, those are my objectives.

H:

Well, then that - all right, then let me continue
it along that line.

H.M.Jr:

H:

Now, look, when you get through with that, call me I tell you, 10:15 until 11:00 I have appointments,
but I'm available up to 10:15.

Well, I'll try and get you before then. My call to
the Treasury is coming through pretty soon. I'll
see if

H.M.Jr:

Right, and then after that - we're working here on
all kinds of regulations in case we should have to
do something in the way of embargoes and exchange
regulations and so forth and so on, and Oliphant's
going to get, or Laylin will get in touch with
Crane, see?

H:

Yes.

H.M.Jr:

- and -

H:

You're not - you're not talking anymore about talkto anybody, are you?

H.M.Jr: No, no, but this thing what I'm thinking of is after

138H

-4the President goes away Saturday, he'll be gone
for two weeks. I've got to get these documents
signed and put them in the safe, and I want to

H:

be ready for any possible emergency, see?
I see.

H.M.Jr:

- and - then as to what the best thing is to do

H:

Yes.

H.M.Jr:

But, if you can settle this bond question between
now and reasonable time, then after I would like
to talk to you and Jeff'11 want to talk to you

after the emergency arises is another question.

about -

H:

Well, I couldn't settle it right off the bat myself anyway. I'd have to talk to the committee
and all the rest.

H.M.Jr: That's all right. I'm not - I mean - I
H:

How many have you got of the Consols?

H.M.Jr: They tell me the Consols and the Panamas are
about 26,000,000.

H:

Yes.

H.M.Jr:

Goodbye.

H:

All right, sir.

march 20 139
In discussion with Tom Smith, Coolidge and Oliphant,
it was brought out that Oliphant gave Eccles a statement
of the law as to what the investments of the Governor
of the Federal Reserve could or could not be.

Tom Smith said that Eccles told him yesterday that
the opinion as to his investments was given to him by
Wyatt, General Counsel of the Federal Reserve.

It now appears that I have learned to-day for the
first time that Eccles sold his odds and ends of bank
shares to the Eccles Family Investment Corporation, that
this corporation owns a chain of 20 banks along with a
lot of other property and that Eccles' interest in the
corporation is about 9%
Tom Smith sat next to Mrs. Carrie Grayson at Coolidge's
and Mrs. Grayson told Smith that Senator Glass had told her
that he (Glass) had enough votes to defeat Eccles.

I told the three men present that after the bill

passed the house, I would then study it and discuss with
to do for political expedient reasons.

Tom Smith and the Committee what it might be necessary

Smith asked me whether I heard much discussion about

the Federal Reserve stock and I said yes I did and that

I was open minded.

much - 16

by Ho

adrepts 140
The time has arrived for a further word on money and prices.
There should be no uncertainty concerning the Government's position

on this matter because I have repeatedly stated that it has been,

and is, the fixed and definite policy of the Government to raise
the general average of commodity prices until agriculture and industry

are able to give work to the unemployed; until it is possible to

Little

pay public and private debts more nearly at the price level at which
they were incurred; and until a normal balance in the price structure
has been restored. With equal definiteness and certainty, I have stated
that, when such level and balance of prices have been attained, we

shall seek thereafter to maintain a dollar not subject to disturbing
changes in its purchasing and debt-paying power.

The purpose to attain a general price level that does less

injustice to those with things to sell and debts to pay is a fixed
purpose, but no more so than our purpose to prevent prices running
beyond that point and thereby producing reverse but equal injustice.

This settled policy of the Government, its plenary powers, and its
vast resources stand as ample pledge and assurance that there will
be nothing remotely resembling "runaway" inflation.
We have been making steady progress toward attaining our ob-

jective as to prices. It is a goal that takes time to reach. Steps
forward have been taken as rapidly as conditions have permitted. It
is now possible to take another step.
Consideration of the substantial progress we have already made

toward restoration of prices and general recovery now makes it possible

-2- and prudent to state the approximate level of prices which we are
determined to reach and beyond which we are determined not to go.

The general price level which we purpose to attain and

maintain is that approximating the average for the last fifteen years.
Our concern is with the general level and balance of prices.
The prices of particular commodities may vary widely from time to time

with variations in their demand-supply situation. A proper balance

of prices does not call for a rise in those individual prices which
did not fall during the depression. Indeed, a decline in the prices
of some things would improve our price structure.

efforts

I have repeatedly mentioned the need for world-wide stabilization, and have been glad to note the growing appreciation in office

other nations of the desirability of arriving, as quickly as possible,
at a point where steadiness in prices and values may be maintained.
Because of the present disturbed conditions in the exchange markets

of the world, I am gratified that it is possible for this nation
at this time to indicate the domestic price level towards which it
is moving.

The hope for greater stability in exchange relations among
nations becomes more substantial with the spread of the conviction

that it would ultimately prove profitless for any nation to seek
unfair advantages through monetary measures which disregard the

legitimate interests of its neighbors. As we go forward on our
program for putting and keeping prices in this country where they

-3should be, we shall, of course, be constantly prepared to protect

our price structure in its relations to the markets of the world.
For reaching and maintaining the level of prices at which
we aim, we shall continue to use the various powers and agencies
of the Government as circumstances may dictate. Among other measures,

the Secretary of the Treasury will, under the powers conferred by
the Congress, buy and sell gold and silver separately or together,
in such quantities and at such prices as will advance us toward our
goal of higher and then more stable domestic prices.
That we may neglect no opportunity for cooperative efforts

in these matters of such moment to the well-being of the world, I
have requested the Treasury to confer with the corresponding office

of any country which expresses a desire to cooperate in world stabili-

zation on a basisconsistent with our price policy. I hope that such
consultation may be an important step toward a consensus of view and

common agreement which will be both a mighty stimulus to further

world recovery, and a lasting assurance of better things for the
world and of a better feeling among the nations of the world. When
such agreement is reached, we can turn to the task of embodying our

policy in permanent legislation.

Draft of Mas
141

The time has arrived for a further word on the phase of our
recovery program relating to prices. There should be no uncertainty
concerning the Government's position on this matter because I have

repeatedly stated that it has been, and is, one of the fixed and
definite policies of the Government to raise the general average of
commodity prices until, as a result of this and other measures,

agriculture and industry are able to give work to the unemployed; until
it is possible to pay public and private debts more nearly at the price
level at which they were incurred; and until a normal balance in the

price structure has been restored. With equal definiteness and certainty,
I have stated that, when such level and balance of prices have been

attained, we shall seek thereafter to maintain a dollar not subject to
disturbing changes in its purchasing and debt-paying power.

The purpose to attain a general price level that does less

injustice to those with things to sell and debts to pay is a fixed
purpose, but no more so than our purpose to prevent prices running

beyond that point and thereby producing reverse but equal injustice.

This settled policy of the Government, its plenary powers, and its
vast resources stand as ample pledge and assurance that there will
be nothing remotely resembling "runaway" inflation.
We have been making steady progress toward attaining our

objective as to prices. It is a goal that takes time to reach.
Steps forward have been taken as rapidly as conditions have permitted.

It is now possible to take another step.
Consideration of the substantial progress we have already made

toward restoration of prices and general recovery now makes it possible

-2and prudent to state the approximate level of prices which we are
determined to reach and beyond which we are determined not to go.

The general price level which we purpose to attain and maintain

is that approximating the average for the last fifteen years.
Our concern is with the general level and balance of prices.
The prices of particular commodities may vary widely from time to time

with variations in their demand-supply situation. A proper balance

of prices does not call for a rise in those individual prices which
did not fall during the depression. Indeed, a decline in the prices
of some things would improve our price structure.

I have repeatedly mentioned the need for world-wide stabilization, and have been glad to note the growing appreciation in

other nations of the desirability of arriving, as quickly as possible,
at a point where steadiness in prices and values may be maintained.
Because of the present disturbed conditions in the exchange markets

of the world, I am gratified that it is possible for this nation
at this time to indicate the domestic price level towards which it
is moving.

The hope for greater stability in exchange relations among
nations becomes more substantial with the spread of the conviction

that it would ultimately prove profitless for any nation to seek
unfair advantages through monetary measures which disregard the

legitimate interests of its neighbors. As we go forward on our
program for putting and keeping prices in this country where they

-should be, we shall, of course, be constantly prepared to protect

our price structure in its relations to the markets of the world.
For reaching and maintaining the level of prices at which
we aim, we shall continue to use the various powers and agencies
of the Government as circumstances may dictate. Among other meas-

ures, the Secretary of the Treasury will, under the powers conferred by the Congress, buy and sell gold and silver separately or
together, in such quantities and at such prices as will advance us
toward our goal of higher and then more stable domestic prices.

That we may neglect no opportunity for cooperative efforts
in these matters of such moment to the well-being of the world, I
have requested the Treasury to confer with the corresponding office

of any country which expresses a desire to cooperate in world stabili-

zation on a basis consistent with our price policy. I hope that such
consultation may be an important step toward a consensus of view and

common agreement which will be both a mighty stimulus to further

world recovery, and a lasting assurance of better things for the
world and of a better feeling among the nations of the world. When
such agreement is reached, we can turn to the task of embodying our

policy in permanent legislation.

his
very confidential
orgft by Ho
The time has arrived for a further word on money and prices. There
should be no uncertainty concerning the Government's position on this matter

because I have repeatedly stated that it has been, and is, the fixed and
definite policy of the Government to raise commodity price levels until
agriculture and industry are able to give work to the unemployed; until it
is possible to pay public and private debts more nearly at the price level
at which they were incurred; and until a normal balance in the price
structure has been restored. With equal definiteness and certainty, I have
stated that, when such level and balance of prices have been attained, we

shall seek thereafter to maintain a dollar not subject to disturbing
changes in its purchasing and debt-paying power.

The purpose to attain a price level that does less injustice to
those with things to sell and debts to pay is a fixed purpose, but no more
so than our purpose to prevent prices running beyond that point and there-

by producing reverse but equal injustice. This settled policy of the
Government, its plenary powers, and its vast resources stand as ample pledge

and assurance that there will be nothing remotely resembling "runaway" in-

flation.

to its relations

this

We have been making steady progress toward attaining our objective

as to prices. It is a goal that takes time to reach. Steps forward have
been taken as rapidly as conditions have permitted. It is now possible

to take another step. the of We
Consideration of the substantial progress we have already made
toward restoration of prices and general recovery now makes it possible

and prudent to state the approximate level of prices which we are determined to reach and beyond which we are determined not to go.

-2The general price level which we purpose to attain and maintain

is that approximating the average for the last fifteen years. For reaching and maintaining this level, all the appropriate powers of the Government will be used as occasion may require.

I have repeatedly mentioned the need for world-wide stabilization,
and have been glad to note the growing appreciation in other nations of

the desirability of arriving, as quickly as possible, at a point where
steadiness in prices and values may be maintained. Because of the

present disturbed conditions in the exchange markets of the world, I am

gratified that it is possible for this nation at this time to indicate
the domestic price level towards which it is moving.
The hope for greater stability in exchange relations among
nations becomes more substantial with the spread of the conviction that

it would ultimately prove profitless for any nation to seek unfair advantages through monetary measures which disregard the legitimate interests

of its neighbors. As we go forward on our program for putting and keeping
prices in this country where they should be, we shall, of course, be con-

stantly prepared to protect our price structure in its relations to the
markets of the world.

For reaching and maintaining the level of prices at which we aim,
we shall continue to use the various powers and agencies of the Government

as circumstances may dictate. Among other measures, the Secretary of the
Treasury will, under the powers conferred by the Congress, buy and sell

gold and silver separately or together, in such quantities and at such
prices as will advance us toward our goal of higher and then more stable
domestic prices.

-3That we may neglect no opportunity for cooperative efforts in
these matters of such moment to the well-being of the world, I have requested the Treasury to confer with the corresponding office of any
country which expresses a desire to cooperate in world stabilization on

a basis consistentwith our price policy. I hope that such consultation
may be an important step toward a consensus of view and common agreement,

will be both a might stimulus to further world recovery, and a lasting
assurance of better things for the world and of a better feeling among
the nations of the world. When such agreement is reached, we can turn

to the task of embodying our policy in permanent legislation.

7/35

March 22d

143

H.M.Jr. called McIntyre and asked if he would not
arrange an appointment for the President to see him and Bell.

H.M.Jr. feels that the four billion eight should not
be
allotted by the President but that the Director of the Budget
ought to approve the spending of this money. If anything goes
sour the first question that will be asked is who approved the
spending of this money for such and such a thing and of course
the pressure will be brought on the President but if the Director
of the Budget does it, then the pressure of course will be brought
on Bell just where it ought to be.
H.M.Jr. spoke to the President this morning and told
him about Eccles having 9% interest in Eccles Family Investment
Corporation. The President suggested that H.M.Jr. send for
Eccles and say: "I have heard that they have enough votes to
defeat your confirmation on the hill. I suggest that you (Eccles)
write to Senator Fletcher and say that this point has been raised
by Congress as to your investment in the Family Trust of about 9%
Then say it is true that there is this Family Trust and that
their holdings are 5% in lumber, 5% in cement, etc., etc., and
give them an actual breakdown and tell them that you personally
own 9% interest in this investment trust. Also tell them that
you have been advised by the General Counsel of the Federal
Reserve that it is perfectly proper for you to hold this stock
but if the Committee does not think it is wise for you to hold
this stock, then you would be glad to dispose of it."
H.M.Jr. thought that this was very clever and Eccles
is coming in to-day at 12:30 to see him.
The Vice-President said at Cabinet to-day: "Don't give
those people in New Orleans $1.00. Let them starve to death.
If they get rid of Huey Long we will give them some money otherwise we will not." The President agreed with the Vice-

President.

144
March 22, 1935.

Friday.
H.M.Jr:

Hello.

O'Connor:

Hello.

H.M.Jr:

Jefty?

O'C:

Yes, sir.

H.M.Jr:

Henry Morgenthau.

O'C:

Oh yes, how are you?

H.M.Jr:

Are you in the hotel?

O'C:

No, I'm over here in the Federal Reserve Board.

H.M.Jr:

Oh.

O'C:

We're having - we started a meeting about 2:30

H.M.Jr:

and we're still in it.

Oh. I wanted to talk to you about the Crowley

matter.

O'C:

oh yes. Anything happened recently?

H.M.Jr:

No, I've been talking it over. I - I've got

O'C:

Oliphant and Jefty here, Oliphant and Jeff
Coolidge in my room and we've been going over
things and I'm going away tomorrow night.
Yes. Going to be away long?

H.M.Jr:

No, for a week.

O'C:

on yes.

H.M.Jr:

- and I - I simply feel that this whole matter
is resting on receiving the report from you.
That's right.
- and I - I think we ought to close up the matter

O'C:

H.M.Jr:
O'C:

one way or the other.

Well - of course, the only danger of holding it
is if somebody up there, like our friend from
Louisiana or somebody should - if some busy
fellows out there should get busy and get him to
shoot off and make it embarrassing here. Now,

144A
-2that's the only chance we're taking, but I'm I'm sure - my best judgment is not to open this
thing until you get back. That'd be my best
judgment, then let's sit down with it, Henry.
H.M.Jr: Well, I haven't opened it. I feel that - you
see you started -

O'C:

H.M.Jr:

I know, I know and I'll - I'll open it and go
through, but I - I - and I feel that the responsibility is yours.

H.M.Jr:

That's right.
- and - I mean it so happened that I was down at

O'C:

That's right.

H.M.Jr:

- and you came to Coolidge and then Coolidge made
these analyses -

O'C:

That's right.
- and then you said you weren't satisfied That's right.
- and you said you'd make additional investi-

O'C:

H.M.Jr:
O'C:

H.M.Jr:

Sea Island Beach -

gations -

O'C:

That's right.

H.M.Jr:

Now -

O'C:

It's all correct.

H.M.Jr:

My position is I'm waiting for you to either clear

O'C:

Well, if - if - if - if the thing - if the thing -

the man or to bring charges

if he should fade out, do you think it's necessary
to injure anybody?

H.M.Jr:

Well, I've just simply got to take the position
that I'm waiting for a report from you.

O'C:

Well, that's all right, then. If you'll do that

H.M.Jr:
O'C:

until you get back I'll sit down and talk to you
about it.

All right.
All right.

144B
March 22, 1935.

Dear Jefty:
Confirming my telephone con-

versation of to-day, I am waiting for
your report on Mr. Crowley so that I
can close out this matter.
I think that the charges that
you originated against Mr. Crowley should
be substantiated or withdrawn.
Sincerely,

Mr. J. F. T. O'Connor,
Comptroller of the Currency,

Washington, D. C.

20

March 22, 1935.
Friday.
H.M.Jr:

Hello.

O'Connor:

Hello.

H.M.Jr:

Jefty?

O'C:

Yes sir.

H.M.Jr:

Henry Morgenthau.

O'C:

Oh yes, how are you?

H.M.Jr:

Are you in the hotel?

O'C:

No, I'm over here in the Federal Reserve Board.

H.M.Jr:

Oh.

O' C:

We're having - we started a meeting about 2:30

H.M.Jr:

Oh, I wanted to talk to you about the Crowley

O'C:

Oh yes. Anything happened recently?

H.M.Jr:

No, I've been talking it over. I - I've got

145

and we're still in it.

matter.

Oliphant and Jeft here, Oliphant and Jeff

Coolidge in my room and we've been going over
things and I'm going away tomorrow night.

O'C:

Yes. Going to be away long?

H.M.Jr:

No, for a week,

O'C:

Oh yes.

H.M.Jr:

- and I - I simply feel that this whole matter
is resting on receiving the report from you.
That's right.
- and I - I think we ought to close up the matter

O'C:

H.M.Jr:
O'C:

one way or the other.

Well - of course, the only danger of holding it
is if somebody up there, like our friend from
Louisiana or somebody should - if some busy
fellows out there should get busy and get him to
shoot off and make it embarrassing here. Now,

March 22, 1935.

146

Friday.
H.M.Jr:

Hello.

O'Connor:

Hello.

H.M.Jr:

Jefty?

OIC:

Yes sir.

H.M.Jr:

Henry Morgenthau.

O'C:

Oh yes, how are you?

H.M.Jr:

Are you in the hotel?

O'C:

No, I'm over here in the Federal Reserve Board.

H.M.Jr:

Oh. so Beach
happened that

or C:

We're having - we started a meeting about 2:30

H.M.Jrs

Oh, I wanted to talk to you about the Crowley

O'CE

on yes. Anything happened recently?

H.M.Jr:

No, I've been talking it over. I - I've got

and we're still in it.

matter.

O'C:

Oliphant and Jefty here, Oliphant and Jeff
Coolidge in my room and we've been going over
things and I'm going away tomorrow night.
Yes. Going to be away long?

H.M.Jr:

No, for a week,

O'C

on yes.

H.M.Jr:

- and I- I simply feel that this whole matter
is resting on receiving the report
from you. clear
you
charges
That's right.
- and I - I think we ought to close up the matter

O'C:

H.M.Jr:
O'C8

H.M.Jr:
O'C:

one way or the other.
to injure

Well - of course, the only danger of holding it
is if somebody up there, like our friend from
Louisiana or somebody should - if some busy
fellows out there should get busy and get him to
shoot off and make it embarrassing here. Now,
back
sit down and talk to you

-2-

146

that's the only chance we're taking, but I'm I'm sure - my best judgment is not to open this
thing until you get back. That'd be my best
judgment, then let's sit down with it, Henry.
H.M.Jr:

Well, I haven't opened it. I feel that - you

O'C:

O'C:

I know, I know and I'll - I'll open it and go
through, but I - I - and I feel that the responsibility is yours.
That's right.

H.M.Jr:

- and - I mean it so happened that I was down at

O'C:

That's right.

H.M.Jr:

- and you came to Coolidge and then Coolidge made
these analyses -

O'C:

H.M.Jr:

That's right.
- and then you said you weren't satisfied That's right.
- and you said you'd make additional investi-

OUC:

That's right.

H.M.Jr:

Now -

O'C:

It's all correct.

H.M.Jr:

My position is I'm waiting for you to either clear

O'C:

Well, if - if - if - if the thing - if the thing -

H.M.Jr:

H.M.Jr:
O'C:

see you started -

Sea Island Beach -

gations -

the man or to bring charges

if he should fade out, do you think it's necessary
to injure anybody?

H.M.Jr:

Well, I've just simply got to take the position
that I'm waiting for a report from you.

O'C:

Well, that's all right, then. If you'll do that

H.M.Jr:

CIC:

until you
about
it. get back I'11 sit down and talk to you
All right.
All right.

-2 that's the only chance we're taking, but I'm I'm sure - my best judgment is not to open this
thing until you get back. That'd be my best
judgment, then let's sit down with it, Henry.
H.M.Jr:

Well, I haven't opened it. I feel that - you

O'C:

I know, I know and I'll - I'll open it and go
through, but I - I - and I feel that the responsibility is yours.

H.M.Jr:

see you started -

H.M.Jr:

That's right.
- and - I mean it so happened that I was down at

O'C:

That's right.

H.M.Jr:

- and you came to Coolidge and then Coolidge made
these analyses -

of C:

H.M.Jri

That's right.
- and then you said you weren't satisfied That's right.
- and you said you'd make additional investi-

OEE:

That's right.

H.M.Jr:

Now -

O'Cs

It's all correct.

H.M.Jrs

My position is I'm waiting for you to either clear

O'C:

Well, if - if - if - if the thing - if the thing -

O'C:

H.M.Jr:
O'C:

Sea Island Beach -

gations -

the man or to bring charges

if he should fade out, do you think it's necessary
to injure anybody?

H.M.Jrs

Well, I've just simply got to take the position
that I'm waiting for a report from you.

O'C'

Well, that's all right, then. If you'll do that

until you get back I'11 sit down and talk to you
about it.
H.M.Jr:

oic:

All right.
All right.

March 23d

147

This is a case that Senator Glass was interested in
and wished H.M.Jr. to handle personally for him, which he did.
The order of disbarment on Clyde A. Brown was re-

scinded and the following memorandum from W. W. Cooke explains
it.

"On August 16, 1934, the respondent was disbarred.

The complaint contains several Counts all of which were dismissed with the exception of the Fifth Count, wherein the
respondent was charged with having prepared a false income

tax return for E. C. Tudor of Roanoke, Virginia, for the

year 1928.

"The evidence disclosed that all income was reported
except $30,000 which was perhaps constructively received in
the taxable year. The income which was, however, classified
erroneously and such classification resulted in reduced
taxation.
"The Committee on Enrollment and Disbarment was

requested by you to review the evidence and afford the respondent an opportunity to produce further evidence. This
has been done and it is now recommended that the Order of
Disbarment be rescinded. The errors in the return were
occasioned primarily by a severe illness from which he
suffered at the time he prepared the return."

I called up Senator Glass and told him about this

and he was very much pleased.

TREASURY DEPARTMENT

141A

Washington
RELEASE, MORNING NEWSPAPERS,

Monday, March 25, 1935.
3/23/35

Press Service

No. 4 62

Secretary of the Treasury Morgenthau announced today that up to this
time subscriptionb aggregating $1,332,000,000, have been received for the

current offering of 2-7/8 percent Treasury Bonds of 1955-60, which are
offered only in exchange for Fourth Liberty Loan Bonds called for redemption
on April 15, 1935.

As previously announced, the subscription books for this offering will
close at the close of business Wednesday, March 27, 1935.

-

u.s. COAST GUARD

18

THAN

March 28th

MAN me
TO

MISSENGERS TO

the

they han bought

and help millions
goen

with

Sock
the
frave
Stop we will buy fraued
559
they
day
557-top
Bane de France because
friend
buying
gold
Anio to hold dalan Stelling
ORIGINAL -

INTERNATIONAL OF

MAKE

REASURY DEPARTMENT
U.S. COART GUARD
Revised

U.S. COAST GUARD

149

OFFICIAL DISPATCH

TRANSMIT
DATE
FROM
CODE

CIPHER

TO (FOR ACTION)
ACKNOWLEDGE
PRIORITY

UNLESS DESIGNATED OTHERWISE TRANSMIT THIS DISPATCH AS NITE.
TO (FOR INFORMATION)

ROUTINE

ACKNOWLEDGE
PRIORITY
ROUTINE

MAIL TO
TELEPHONE TO
MESSENGER TO
OUTGOING HEADING

President Roosevelt
TEXT

guaranty Trust # new have york

informed
us
they
bought
three and half millions dollars

worth of gold for ship ment
to new york stop Francs
559 stop we will buy france
if
they
drof
to
557
stop
Bane de Franke worried because
British fund buying gold
in Paris to hold down Sterling

OPERATOR'S RECORD.

OFFICIAL BUSINESS.

INITIALS OF .. RELEASING . OFFICER.
B-1450

Form 9658
TREASURY DEPARTMENT
M.S. COAST GUARD
Covere
Revised

U. S. COAST GUARD
OFFICIAL DISPATCH

150

TRANSMIT
DATE
FROM
CODE

CIPHER

TO (FOR ACTION)

ACKNOWLEDGE
PRIORITY

UNLESS DESIGNATED OTHERWISE TRANSMIT THIS DISPATCH AS NITE.
TO (FOR INFORMATION)

ROUTINE

ACKNOWLEDGE
PRIORITY
ROUTINE

MAIL TO
TELEPHONE TO
MESSENGER TO
OUTGOING HEADING

TEXT

believe British have limited
amount
of
gold
stop
stocks
all
fonds and comm odities
up today stop Henry Best magintran veg ands W.

OPERATOR'S RECORD.

OFFICIAL BUSINESS.

INITIALS OF .. RELEASING" OFFICER.
1-1400

Form 9688

REASURY DEPARTMENT
U.S. COART GUARD
Revised

U.S. COAST GUARD
OFFICIAL DISPATCH

151

TRANSMIT
DATE
FROM
CODE

CIPHER

TO (FOR ACTION)
ACKNOWLEDGE
PRIORITY

UNLESS DESIGNATED OTHERWISE TRANSMIT THIS DISPATCH AS NITE.
TO (FOR INFORMATION)

ROUTINE

ACKNOWLEDGE
PRIORITY
ROUTINE

MAIL TO
TELEPHONE TO
MESSENGER TO
OUTGOING HEADING

XY

President Roosevelt

equals Present gold thirty TEXT movement seven million

dollars. SHOP Franc and pound
strong at six sixty and one half no
and four effective one stop this

gold coming but small from shipment France coming

work Holland stop Birth # Holland below
from and Switzerland week. curren cies Hot Run

gold both posit in and Ho Hand and Switzgland
stop M RECORD. Hasting OFFICIALINITIALS
grant
root Best
regards
OF "RELEASING"
OFFICER.
morganthan
as -

OPERATOR'S

BUSINESS.

Form 9468
RY DEPARTMENT
3. COART
RevisedGUARD

U.S. COAST GUARD
OFFICIAL DISPATCH

152

TRANSMIT
DATE
FROM
CODE

CIPHER

TO (FOR ACTION)

ACKNOWLEDGE
PRIORITY

UNLESS DESIGNATED OTHERWISE TRANSMIT THIS DISPATCH AS NITE.
TO (FOR INFORMATION)

ROUTINE

ACKNOWLEDGE
PRIORITY
ROUTINE

MAIL TO
TELEPHONE TO
MESSENGER TO
OUTGOING HEADING

President Rousevelt
TEXT

Forty six million dollars
in gold enroute. stoptwenty

million) from France and

twenty six million from

Holland stop Severs Blanks
in bad shape stop Leavin

Returning to Waolington

Thurs day night 13eat

regards
morgina
--- -

OPERATOR'S RECORD.

OFFICIAL BUSINESS.

INITIALS OF M RELEASING" OFFICER

27 March

5:00P.M.

Received on board Farragut via Navy-7,25 P.M.

153
28 March

6:20 P.M.

President Roosevelt:

Pleased to inform you that one billion five hundred and thirty
million called liberties converted into new issue stop This equals eighty
two percent of amount outstanding stop Average conversion has been eighty
percent stop How much foreign news do you wish me to transmit to you
stop Best regards
Morgenthau

Received aboard Farragut via Coast Guard- 7:24 P.M.
- 8:20 P.M.
via Navy

28 March

10:02 A.M.

President Roosevelt:
Belgium exchange and foreign exchange markets closed for
three days
Morgenthau

-10:50 A.M.
Received aboard Farragut via Navy
via Coast Guard-11:16 A.M.

30 March 10:30 A.M.
President Roosevelt:

Greatly worried and disturbed over difficulty Claxton and Farragut
Friday in handling your radio traffic stop Have advised Admiral Standley
Coast Guard will be glad to help out Navy as usual stop Offer you services
of Coast Guard radio stations
Morgenthau

Received aboard Farragut via Coast Guard 12,00 noon

Federal Reserve Bank
Of New York

154

To: CONFIDENTIAL FILES

March 28, 1935.
Telephone Conversation With

From: J. E. Crane

France.

Mr. Cariguel of the Bank of

I telephoned to Mr. Cariguel at the Bank of
France at about 9:45 a. m. today to inquire about the
situation in Belgium. He said that they had closed
the stock exchange and the foreign exchange market in
Belgium until Monday and that this step had been taken
because there had been a large export of capital from
Belgium in spite of the foreign exchange control. Mr.
Cariguel said that the National Bank of Belgium had
lost in the past two weeks about 1,250,000,000 French
francs ($85,000,000) of gold which had gone to the
Bank of France. Mr. Cariguel added that the Bank of
France had in turn lost about the same amount of gold
to London, the daily losses now being about 70,000,000

French francs ($4,500,000). He stated that the gold was
being bought in London by hoarders and that he did not
think the British Equalization Fund was doing anything
to keep down the sterling rate. So far as he knew, he
said, they were letting the rate go and in fact were
sending a large amount of gold to Paris to be earmarked
for their account and held there pending possible future
use in supporting the pound.

Mr. Cariguel said that the situation in Belgium was bad, that the new cabinet, which was decidedly

inexperienced and radical, had not been well received

and that he thought it was a foregone conclusion that

-2- -

155

there would be devaluation of the belga in the near
future. He added that he did not know just what form
devaluation would take but that the Belgians might
decide to follow an independent course rather than

join the sterling area. In fact, he said he understood the British did not want the Belgians to join
the sterling group. As to the position of the other
members of the gold bloc if Belgium devalued, Mr.
Cariguel said that there would be an adverse psycho-

logical effect which would result in speculation. He
explained that considerable speculation had already
taken place against the Swiss franc and that the Swiss
National Bank had sold about 200,000,000 French francs

($13,000,000) gold to the Bank of France and was shipping another 150,000,000 French francs ($10,000,000)

gold to Paris. As to the Dutch, Mr. Cariguel said he
felt much more confident about them because they had

had plenty of experience and were courageous. On the

whole, he said I could gather from his conversation that
he was sad.

I explained to him that we understood the private banks were buying francs at just under 6.59 for the
purpose of shipping gold from Paris to New York and that
it did not look at the moment as though it would be nec-

essary for us to intervene. I added, however, that if intervention should prove to be necessary the Treasury
would probably buy francs somewhere below 6.58. Mr.
Cariguel said he thought that wassatisfactory and added
that he hoped the gold bullion standard would continue

-3156
to function smoothly between Paris and New York because

if it did not it would, in his opinion, only add to the
confusion and make the whole position more difficult.
JEC:KMC

1561 A

TREASURY DEPARTMENT

Washington
FOR IMMEDIATE RELEASE,

Tuesday, April 2, 1935.

Press Service
No. 4-68

Secretary of the Treasury Morgenthau today announced that preliminary

reports indicate that $1,559,569,300 of Fourth Liberty Loan Bonds called
for redemption on April 15, 1935, have been exchanged for the 2-7/8 percent
Treasury Bonds of 1955-60.

Subscriptions were divided among the several Federal Reserve districts
and the Treasury as follows:
Federal Reserve District
Boston
New York

Philadelphia
Cleveland
Richmond

Atlanta
Chicago

St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
Total

Total Subscriptions
$ 57,941,300
868,337,700
82,256,700
105,492,300
38,681,100
18,476,250
177,486,150
46,601,700
21,227,550
38,815,450
16,245,900
49,259,350
38,747,850

$1,559,569,300

Federal Reserve Bank
of New York

157
April 4, 1935.

To: CONFIDENTIAL FILES

Telephone Conversation with

From: J. E. Crane

England.

Mr. Catterns of Bank of

I telephoned to Mr. Catterns at the Bank of
England at about 12:20 p. m. today to advise him that
we were selling today for the Treasury a moderate
amount of sterling and that we might continue to

liquidate the Treasury's sterling balance with them on
a gradual scale as and when the market for sterling
was strong. I added that we would keep the Bank of
England advised and Mr. Catterns thanked me for the

information. I asked him about the situation in
Belgium and he said that he understood there had been

a substantial return flow of capital, that a very sharp
rise in retail commodity prices had occurred following
devaluation, that the rush to buy commodities had not
yet been brought under control but that he thought it
would be since Van Zeeland was a stout fellow. Mr.
Catterns added that the pressure on the Swiss and
Dutch exchanges was very strong and said that both of

those countries were losing gold heavily to Paris. He
added that the Bank of France was also losing gold to
the extent of about 61,000,000 daily to the London
market where it was being bought by hoarders. Every
one over there was very nervous, he said.
JEC:KMC

Federal Reserve Bank
of New York
To: CONFIDENTIAL FILES

From: J. E. Crane

158
April 5, 1935.

Telephone conversation with
Mr. Cariguel of the Bank
of France.

I telephoned to Mr. Cariguel at the Bank of
France at about 11 a. m. today to ask him how things
were going in the exchange market. Mr. Cariguel said
that they were having a hectic day in Dutch and Swiss
currencies, that the pressure on those two exchanges
was very strong and likely to continue for the time
being and that he had just talked with Amsterdam and
Zurich on the telephone where he found them both con-

fident. He said that he thought it was a great mistake
for the Netherlands Bank to permit the guilder to go so
far below the gold point and that this seemed to be due
to the fact that there was considerable red tape at the
Netherlands Bank with respect to gold withdrawals.
I asked Mr. Cariguel whether he thought the

banks in Paris would continue to withdraw gold for
shipment to New York in order to prevent a drop in the
franc rate and he replied in the affirmative, adding,
however, that one could not be certain since the banks
were so busy handling gold from all directions that
they might not be able to take care of the Paris-New

York movement. He went on to say that if any difficulty
should develop he would immediately telephone to us.

JEC:KMC

April 5, 1935.

158A

Friday.

H.M.Jr:

Hello.

Wheeler:

Hello.

H.M.Jr:

Morgenthau talking.

W:

Oh yes.

H.M.Jr:

How are you?

W:

Henry -

H.M.Jr:

Yes.

Sen. B. K.

W:

- I wanted to talk to you about that Collector of

Internal Revenue out there.

H.M.Jr:

Oh yes.

W:

And I didn't know whether you'd want me to come down

and talk to you or whether I could talk to you over
the phone.

H.M.Jr:
W:

Well, I'm always glad to see you, but if you can do
it on the phone; maybe it would save you time.

Sure, fine. Why, the situation out there is this

- you know I spoke to you once before.
H.M.Jr:

Yes.

W:

Campbell of the Helena Independent - his paper is
owned by the Aniconda Company.

H.M.Jr:
W:

Yes.

Now, he's just a vicious - just between you and me

- it's a Democratic paper, but he's a vicious rat.

H.M.Jr:

Yes.

W:

He's always fought Senator Walsh and talked
against me and his paper really - he's a Republican,
as a matter of fact
and the only

paper out of every paper - daily paper out there is
owned by the company excepting the Great Falls Tribune
- that's the only really worthwhile paper in the State.
ever since this
Now, Penwell, he's been after

little paper started.

H.M.Jr:
W:

I see.

I told Penwell to get out of the papers - to get out

of the paper.

-

H.M.Jr:
W:

158B

Yes.

Now, Campbell came to him and they wanted to buy the

paper, see, the company did and of course, he could

have been out by selling the paper at that time to
that crowd, but he didn't want to do it H.M.Jr:

Yes.

W:

- and the question was as to who he could turn it over

to so
paper.
H.M.Jr:
W:

that it would be still a progressive liberal

I see.

And at the same time, he didn't want to accept and
turn it over to somebody that would use the paper for
the purpose of double-crossing the people and turn it
back into the hands of the company, but he told me he
was going to get out of it - he announced that he was
going to and he intended to, but I knew something
about the whole thing and there were several people
trying to get control of it, see, but I said to him on
some of them that you'd better not do it because if
you did it would simply go over to that other crowd.

H.M.Jr:

Yes.

W:

He tells me positively, definitely that he's out of
it and is going to get out of it and that whole thing
against him is simply because of the fact that he is

one of the leaders of the progressive crowd out there.

H.M.Jr:

I see.

W:

And Campbell - they did the same thing to me' when I

was United States Attorney. They'd write me editorials
in their papers, you see, then they'd send them down

here to Washington.
H.M.Jr:

Yes.

W:

Now, I talked with Gibbon, I think it was -

H.M.Jr:

Gibbons.

W:

- andwith
he you.
told me that he thought that I ought to
talk

H.M.Jr:

Fine.

W:

I think it was Gibbons. Yes, I told him that I'd

H.M.Jr:

Well, Bert, I'll look it up.

W:

Yes.

158C
-3H.M.Jr:

I haven't - I haven't heard anything about it in
a couple months.

W:

Yes. He's been writing editorials and I understand
he sent them down and the Collector and Penwell
have been down here, see, and he's down here, see,

and
if you
about
it - want to talk to him yourself personally

H.M.Jr:

Who, Penwell's here?

W:

Yes.

H.M.Jr:

Well, I'll be glad to see him.

W:

Yes.

H.M.Jr:

Yes.

W:

Well, now he and I could run down and see you.
All right. When do you want to come?

H.M.Jr:
W:

Well, we could come 'most any time to suit your convenience this afternoon.
1

H.M.Jr:

Well, what time -

W:

We could come right now if you wanted me to.

H.M.Jr:

Well, could you get here before one?

W:

H.M.Jr:
W:

H.M.Jr:
W:

H.M.Jr:

Yes. I can get in a taxicab and come right now.
Well, supposing you do that.

All right.
That'11 be fine.

All right.
Thank you.

158D
April 5, 1935.

Friday.

Frank

Altschul:
(?)

Good morning, Henry.

H.M.Jr:

Hello, Frank.

A:

How are you?

H.M.Jr:

Fine.

A:

Henry, I just had a chat with our friends in
Paris so I thought I'd tell you about it.

H.M.Jr:

Good.

A:

They seem - they seem to feel that Holland and
Switzerland are rather matters of weeks.

H.M.Jr:

Of weeks.

A:

Yes,
but they - but that they still are very confident as far as France is concerned
long drawn out thing

many months anyway.

matters of

H.M.Jr:

Yes.

A:

They say that on the sight of gold they're getting

more gold from Holland and Switzerland
H.M.Jr:

Gold is coming to them from Switzerland -

A:

The
gold that's coming to them from Switzerland and
Holland
their losing to England,
to United States and to Belgium.
They're losing a lot to Belgium.

H.M.Jr:
A:

H.M.Jr:

Yes.

situation is

A:

very much aggra-

vated because on account of the revaluation of the
belga. The Port of Antwerp is taking an enormous
amount of business away from Rotterdam.

H.M.Jr:

Oh.

A:

Of course -

158E

-2H.M.Jr:
A:

H.M.Jr:
A:

Has that increase come already?
What increase?
To Belgium.

Oh yes. I think with the cutting of the rate

Antwerp on account of the change had a competitive
advantage against Rotterdam.

H.M.Jr:

Yes.

A:

It began to be effective right away.

H.M.Jr:

Right away.

A:

And for that

In Switzerland they

tell me that of course that we've all known for a
long time
because
- the situation is complicated very much
H.M.Jr:

Because the banks are in bad shape.

A:

- as the banks are in bad shape

Every time I call up I

expect to hear no more wavering in their voice about

the bank, but even though
H.M.Jr:

And the three-months bank

A:

has sold this morning at 8.50
H.M.Jr:

Yes.

A:

So that

H.M.Jr:

Well, that's not bad.
So that all the other exchanges
So that's about the picture. There's nothing

A:

I'm sitting here with Bob Brandon, you may remember H.M.Jr:

Yes.

A:

- and we're talking about what the devil the world
looks like in which there's no country on the gold
standard and we just can't - we haven't got

imagination enough to see.
H.M.Jr:

Yes.

158F

-3A:

H.M.Jr:
A:

H.M.Jr:
A:

H.M.Jr:

And Brandon
Henry.

said he'd like to say "hello" to you,

Well, is he coming down here?

He's
to you.right here on the telephone. He'd like to speak

Well, I'll be glad
He'd like to say "hello" to you.
Thank you.

A:

Hello.

H.M.Jr:

Hello, Mr.

A:

Mr. Morgenthau. Thanks

telephoning to you

and
like to say "how de do" to you. I'm here for
a
fewI'd
days.
H.M.Jr:
A:

Are you coming down to Washington?

Well, I rather doubt whether I'll have time.

H.M.Jr:

I see.

A:

It's - I'm here until about Friday of next week.

H.M.Jr:

oh yes.

A:

It's rather difficult to get down and

H.M.Jr:
A:

Well,
if you should be coming down I'll be glad to
see you.

All right.

H.M.Jr:

If he comes down I'll be glad to see him.

A:

I see. Well, that's very kind of you.

H.M.Jr:

Yes.

A:

The situation over there looks - of course the

political situation extraordinary right now in the

whole of Europe.
H.M.Jr:
A:

Yes.

I should of thought - I - I saw a good deal about
the Swiss banking situation the other day I was in
Berlin
The banking situation was so
difficult then that I should think in Switzerland
it's very bad now and the probability will lead to

158G

-4H.M.Jr:

their going off Gold, I should think.
Well,
about we
all. just live here from day to day, that's

A:

Yes, that's it, yes.

H.M.Jr:

Well, I'm glad to have these few words, Mr.

A:

Thank you very much.

H.M.Jr:

Goodbye.

158#

April 5, 1935.
Friday.

H.M.Jr:

Hello.

Crane:

Good Morning. Hope you had a nice time.

H.M.Jr:

I had a fine time.

C:

Good.

H.M.Jr:

Crane, Lochhead just came in to tell me that
francs are 6.58

C:

Yes.

H.M.Jr:

- and he's a little fearful over the week-end
they may go lower. Hello.

C:

Yes, yes.

H.M.Jr:
C:

H.M.Jr:

Well, I don't care to see them go any lower.
Yes.

ing

I'm just think out loud. I wonder if this

wouldn't be a good opportunity to call up
Cariguel again, see?

C:

H.M.Jr:

Yes.

And ask him - tell him that we'd be glad to
help over the week-end, but we would like to
know
whether - what the British are going to
do, see?

C:

Yes. You mean about what?

H.M.Jr:

Well, about the franc; if they're going to do
anything, I mean, what are they doing.

C:

Yes.

H.M.Jr:

See?

C:

Yes.

H.M.Jr:

In other words, this - we're going to go in and
help them; if the British Fund working the same

way or would we be working at cross purposes.

- 2C:

Yes. Well, now I - I'll call him up

H.M.Jr:

Yes.

C:

- and just have a chat with him; ask him what
he thinks about the necessity of our coming in
Yes, do they want us to help over the week-end.
Yes, ask him whether he thinks there's any need.

H.M.Jr:
C:

H.M.Jr:
C:

158D

Yes.

I tell you, I have this general feeling about it,

Mr. Secretary
H.M.Jr:

Yes.

C:

- and that's this - things are getting pretty hot
over there and something's liable to break sometime,
and if the rate will take care of itself reasonably well, I think we ought to keep away from it,
because you know you got a two-day risk on francs.
For instance, if we should buy a lot of francs, you
got a two-day risk on it

H.M.Jr:
C:

H.M.Jr:
C:

What do you mean?

- before you get gold.
Well, ask them to give us gold at once.
Well, they won't do that.

H.M.Jr:

They won't?

C:

They won't do that and I wouldn't want to ask them.
I thought they said they would.

H.M.Jr:
C:

Oh no,will.
they wouldn't do that, Mr. Secretary. They
never

H.M.Jr:

Well, then let's

C:

They get very much offended when you

H.M.Jr:

All right, well then let's ask them to buy for our
account, instead of buying

-3 C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

I know, but you might get stuck even that way.

How? - if they bought it.
Yes. I- I - I'm sure they won't be willing to
protect you against that two-day risk.
Well, then - then let it go.
Well, that's why I say - I don't like to see it
go in there unless it's absolutely necessary.
Well, I wouldn't - I'd just put it up to them.
Do they want us to help over the week-end and if
they do, will they - will they take care of it.

C:

Yes.

H.M.Jr:

Irisk.
mean - other words, protect us against that

C:

Yes. I'm sure they won't
Well, then - then we'll stay out.
I'm - I'm positive because we've argued and battled with those fellows for weeks

H.M.Jr:
C:

H.M.Jr:

158K

I thought - I thought when we stepped in before
that they gave us that
I thought they

made some special arrangement.
C:

No,
they never have - they never will guarantee
thatno,
risk.

H.M.Jr:

Well, supposing you call them up, see?

C:

Yes.

H.M.Jr:

- have a talk with them and then call me back.

C:

Yes. All right, I'll do that.

H.M.Jr:

Will you?

C:

Yes.

H.M.Jr:

Thank you.

C:

I'll just have a general discussion with them.

1582

-4H.M.Jr:

I - I was under the impression we had some

C:

No, I'll talk with Lochhead about that, but I'm

H.M.Jr:

Yes. All right.

C:

Goodbye.

H.M.Jr:

He's here - I'll tell him to go back to his

C:

Yes, I'll call them up.

H.M.Jr:

O.K.

C:

Yes. All right.

H.M.Jr:

Thank you.

arrangement.

certain we never have.

room, but you call up the French, will you?

158M

April 5, 1935.
Friday.

H.M.Jr:

Hello.

Burgess:

Hello there. Welcome home.

H.M.Jr:

How're you?

B:

I'm fine. Have a good time?
Oh, I had a real rest.
That's fine.

H.M.Jr:
B:

H.M.Jr:

Yes.

B:

I'm glad to hear it.

H.M.Jr:

Burgess, I'm going to give - volunteer some information

B:

Yes.

H.M.Jr:

- to your open market committee.

B:

Yes.

H.M.Jr:

I feel that this is an excellent time - Coolidge'is

on the wire - for the open market committee to lighten
its burden of security.

B:

Yes.

H.M.Jr:

I - I feel that it's an excellent time if you people

want to sell a hundred million dollars or something
like that to establish the precedent that you can't
sell in good times so that everybody isn't going to
say "oh my, look, they're going to sell and this means
that government bonds aren't good and everybody should
get out." See?
B:

Yes.

H.M.Jr:

Now, I think sooner or later you've got to establish
the precedent that at times you may own two billion;
other times you may own three billion, see?

B:

Yes.

H.M.Jr:

But, the way it is now, you're absolutely frozen and
I don't think you get any better time for the open
market committee to break that precedent than right
now.

B:

Yes.

H.M.Jr:

And I'm volunteering that and I'd appreciate it if
you would pass it along.

10TN

2B:

All right. Have you talked to

H.M.Jr:

No.

about it?

H.M.Jr:

Of course, we've given a lot of thought to it.
I mean I wanted to talk to you - you're secretary

B:

Yes, exactly.

H.M.Jr:

And I'll be glad - I'll call him up now and tell

B:

All right.

B:

H.M.Jr:

of the open market committee, aren't you?

him the same thing.

I mean - by that, I don't mean that you sell something long and you buy it short. I'd like very
much to see you people break this jam that you
can't buy and sell and have your portfolio go up
and down without people getting terribly excited
about it.

B:

Now, here's the problem on that -

H.M.Jr:

Yes.

- if we started selling this week, it would come

B:

out next Thursday in the press statement and you may
want to be announcing a new issue.

H.M.Jr:

Well now, I'm willing to take that responsibility.

B:

What's that?

H.M.Jr:

I'm willing to take that responsibility.

B:

Yes.

H.M.Jr:

See?

B:

Well, one of our

H.M.Jr:
B:

H.M.Jr:

market situation in a case like that.

Well, I mean - the way I feel now, I don't want to
do anything before the first of May.
You don't?

No, because I've noticed it means - at least 2 and
7/8 haven't reached their level yet.

B:

I think they're still going up a little.

H.M.Jr:

And there's tremendous business in them and I'd

rather have time to see this thing sort of level
out.

B:

Yes, yes.

-3H.M.Jr:

:580

But, I also - I mean I'd like to see this open market
thing be - let's say when we went through this thing,
if we hadn't been able to buy some and so forth

B:

Yes.

H.M.Jr:

Now, three-four days is very difficult there

B:

Yes.

H.M.Jr:

- and - if for instance - I mean if you can handle
your fund the way we handle Stabilization that you can
get in and out as it leaves it. Now I have nothing in

the back of my mind that I'm going to come and say, now

you got to buy some day or something.
B:

H.M.Jr:

Yes.

Iquarter
simply feel - I've been in there about a year and a

B:

Yes, yes.

H.M.Jr:

- and I think this is the best time - I mean I think

everybody will agree if you could have the thing go
up and down
a - say within a couple hundred
million
that'dwithin
be useful.
B:

I don't agree with that at all.

H.M.Jr:

You don't?

B:

No, I don't think so.
Well, I do.
I've been operating with
years
for ten years and I really don't
feel that.

H.M.Jr:
B:

H.M.Jr:

Well, you kept building it until you reached two and
one-half billion and then you stopped.

B:

Yes, yes, yes. Well, I think that worked pretty well.
That's a long story

H.M.Jr:

Well, mind you, I'm not - purely a volunteer - this
isn't a request; I'm not going to put any pressure;
I'm only going to make the suggestion once.

B:

Yes.

H.M.Jr:

And it isn't something that's life and death.

B:

Yes.

158P
4H.M.Jr:

See?

B:

Yes, yes and

H.M.Jr:

Yes, and if you don't do it I'm not going to feel

we're both thinking
about the same thing, I mean, we're all interested
in the whole situation.

badly.

B:

Yes, yes.

H.M.Jr:

You see?

B:

Yes, yes.

H.M.Jr:

So I mean - so you think it over and I'll talk to

Eccles and after you consult it with your people,
will you call me back?
B:

All right, sir, yes.

H.M.Jr:

See?

B:

Yes, yes.

H.M.Jr:

All right. Thank you.

B:

All right, sir.

H.M.Jr:

Goodbye.

B:

Goodbye.

158 2
April 5, 1935.

Friday.
H.M.Jr:

Crane?

Crane:

Yes, sir.

H.M.Jr:

I don't know whether I should signify Rene Leon or

not, see?
C:

Yes.

H.M.Jr:

Hello.

C:

Yes.

H.M.Jr:

H.M.Jr:

But, if you want to you can tell anybody that asks
you that I do not ask Mr. Leon for his advice.
Entirely gratuitous.
Yes, exactly. See?

C:

Yes.

H.M.Jr:

Since I've been in the Treasury I've never asked him
for
his advice.

C:

Well, he's a difficult fellow to deal with.

H.M.Jr:

Well -

C:

He's in so damn much, you know.

H.M.Jr:

I know. Well, if you think it's necessary you can say

C:

that to anybody that you want to.

C:

He tries to give people around here the impression
that he's right in on the "know" and his plans are all
going to be adopted.

H.M.Jr:

Yes. Well, as I say, if you want to I'm perfectly
agreeable that you can say that.

C:

H.M.Jr:
C:

H.M.Jr:

Yes. All right, I'll Well, I'll leave it to you to use your discretion.
I'll keep it up my sleeve.
Yes,
if you want to - if you have to, you can use that
any time.

C:

Yes. All right.

H.M.Jr:

Thank you.

C:

Goodbye, thanks.

158R

April 8, 1935.
Monday.

Jesse
Jones:

Can I tell you a little story on the telephone
instead of coming over there. I'm a little under
the weather.

H.M.Jr:
J:

Sure. Is it funny?
No, it isn't funny.
(Laughter)

H.M.Jr:

All right. Well, then you'd better tell it to me

J:

You know the law gave us the right to buy and sell
P. W.A. securities -

H.M.Jr:

Yes.

J:

Well, now there's no reason why we can't, under
the law, buy them today and sell them tomorrow.

over the phone.

See?

H.M.Jr:

Buy them today.

J:

And sell them tomorrow.

H.M.Jr:

From P.W.A.

J:

Yes.

H.M.Jr:

Yes.

J:

As a matter of fact, in order to - I think I may
have told you - in order to keep in touch with
Harold, why, I told him we'd buy his stuff and
give him what we got for them.

H.M.Jr:

Yes.

J:

So, we've been doing that.

H.M.Jr:

Yes.

J:

Now, here's the point. They've got some, not a
great many, but occasionally - they got a maturity
the first year, you know -

H.M.Jr:

Yes.

J:

- and they'd like us to buy - today maybe -

H.M.Jr:

Yes.

J:

- a bond that they know is going to be paid tomorrow or next week.

1585

-2H.M.Jr:

Yes.

J:

Well, now I've been trying for two or three
months
to get them to sell them to us thirty days
in advance -

H.M.Jr:

Yes.

J:

- because it looks sort of phoney to - when they
know they're going to be paid to sell them to us
today and let us collect tomorrow.
Well - what's the game; what's the check?
Well you - I suppose they want to hold them to

H.M.Jr:
J:

get the benefit of the interest. I don't know

what else.
H.M.Jr:

Oh.

J:

To add the interest, you know, that they would collect.

H.M.Jr:

I see.

J:

- to their fund. Now, I've done it right along
with them, but I've been fussing with them
to try to get them to give us a list of the stuff
and let us buy them and let us take a little
chance on it if necessary.

H.M.Jr:

Yes.

J:

I don't like, for instance, to buy a note today

that I know is going to be paid tomorrow.
H.M.Jr:

Yes.

J:

And while it doesn't - it's all right according

to the law, but I don't think that's what Congress
meant,
on it. and I just wondered if you had any thoughts

H.M.Jr:

No, I should think they'd be so happy the way you'd

handle
want it. it, they'd give it to you anyway that you
J:

Well, it looks like they would and I've been telling
them that I'll do it this time and I'm not going to
do it anymore.

H.M.Jr:

Yes. Well, it's all right with me.

158T
J:

H.M.Jr:
J:

-3And well - all right, I just It's all right with me. I don't - they're not

the easiest people to get along with.
No, the trouble is there's three or four of them
and when you talk to one you don't talk to all
of them.

H.M.Jr:

No, well as far as we're concerned, we'll go
along with you.

J:

H.M.Jr:
J:

Well, then I'll use my best judgment.
Yes. Are you seriously ill?
I've been having some trouble, Henry, for about
three weeks. It's been pretty easy to mend

third of the time.

H.M.Jr:
J:

Oh, I'm sorry.
But, I'm

right along. Don't seem to

be making much progress.

H.M.Jr:

Well -

J:

I'll see you soon.

H.M.Jr:
J:

All right. I hope you take care of yourself.
All right. Thank you.

H.M.Jr:

Goodbye.

April 9, 1935.
Tuesday.

159

H.M.Jr: Hello.
Crane:

Hello.

H.M.Jr:

Hello, Crane.

C:

I just talked to Cariguel -

H.M.Jr:

Yes.

C:

- and gave him the message very much as we agreed

upon -

H.M.Jr: Yes.

- he said he was delighted to hear it and that he
would pass along the substance of what I told him
to Governor - his Governor - Governor Tannery, with
respect to the five million. He was also pleased;
he said there was no immediate need to use it, of
course, because the franc rate is up a little now,
but that he'd keep it in mind.
H.M.Jr: Yes.
C:
I asked him about the situation in Holland and
Switzerland. He said that the exchange market had
been a little quieter today, but that the Swiss
position was under a good deal of pressure; that
that appeared to be weaker than the Dutch and that
the Governor of the Central Bank in
Switzerland,didn't seem to have very good moral;
and seemed to be a little nervous and worried. With
respect to Holland, however, he said that Tripp, the
Governor of the Central Bank, seemed to be determined
to hold on and in fact, had made another increase in
his discount rate today by one percent C:

H.M.Jr:

In Holland?

C:

Yes, bringing it up to four and one-half -

H.M.Jr:

Gosh!

C:

- he increased it to three and one-half here last week.

H.M.Jr:

I see.

C:

This is another increase and it indicates that he's
still under a good deal of pressure, otherwise, I think
he would not have raised it. Cariguel says that he

-2doesn't know how long the Swiss will hold out. He160

rather thinks they'11 be the first to go, but that
it's very difficult to guess as to how long it will
last. He says he expects that for the time being,

we may see a little lull in the exchange market.
H.M.Jr:

Good.

C:

But, that's just a guess.

H.M.Jr:

Good.

C:

That's the substance of what he said.

H.M.Jr:

Well, could you get - write me that and get it off
tonight by special -

C:

H.M.Jr:

Yes, I'll write - dictate a memorandum right away.
And send it special delivery because the French
Ambassador is coming in tomorrow morning. I'd like
to have that before he comes.

C:

Yes.

H.M.Jr:

Please.

C:

Yes.

H.M.Jr:

Thank you.

C:

All right.

All right. Send it to Mrs. Klotz.

April 9, 1935.

Tuesday.

Crane: I had a call for Cariguel at twelve-thirty, but
I couldn't get him.
H.M.Jr: Yes.
C:

- and I've got the call in now, and I expect
to get it in two or three minutes.

H.M.Jr: Well, I'm here.
C:

Then, I'll call you.

H.M.Jr: Please.
C:

All right.

161

April 9, 1935.
Tuesday.

H.M.Jr: How are you, Mr. De Laboulaye?
de L:

162

H.M.Jr:

All right, thank you.
I want to tell you how delighted I am on the word I got
about St. Pierre.

de L:

Yes.

H.M.Jr:

Yes.

de L:
H.M.Jr:

- last night.
in the letter.
Well, I think that that's fine. It's really going to be

de L:

You think so?

H.M.Jr:

Yes.

de L:

I am glad because I was waiting for

H.M.Jr:

Well, that's - I - I'm very much pleased.

de L:
H.M.Jr:

You just received a word from your office yesterday.
No, your - your commercial attache called us up -

de L:

Oh, yes.

H.M.Jr:

- called up Mr. Graves -

de L:

All right.

H.M.Jr:
de L:

- and told him that this was in confidence - but He was a little ahead of me, but -

H.M.Jr:

Well, your commercial attache called up Mr. Graves -

de L:

All right. I will bring the form letter to

very helpful.

secretary or tonight or tomorrow morning, because I got in such a hurry now -

H.M.Jr:

Right.

de L:

- but, it is I will send the note and bring the note
myself secretary that I wanted to bring to Phillips

H.M. Jr:

but tomorrow morning or tonight I can do the thing
Well, Mr. Ambassador, sometime when your financial attache
is in town - I've never met him -

de L:

All right.

H.M.Jr:

- and I'll be delighted if you and he would call on me -

de L:

All right.

-

H.M.Jr:

163

- and we're working very close with the banks of France,

and I'd like to tell you what we're doing.
de L:

Oh, yes.

H.M.Jr:

Yes.

de L:

But, my financial attache is not here right now, but may I
call on you tomorrow or today?

H.M. Jr:

de L:

Well, it's of course,
one
month.

you know I am leaving on Friday for France for

H.M.J

Oh, for France.

de L:

Yes.

H.M.Jr:

Oh, I didn't know that.

de L:

H.M.Jr:

Then, I would like very much to have a talk with you before.
Yes, I would too. When are you leaving?

de L:

On Friday morning.

H.M.Jr:

Friday morning. Well, now, just a moment.
Will you let me know the day -

de L:

H.M.Jr:
de L:

No, I'll do it right now. I'm just looking at my calendar Yes, all right.

H.M.Jr:

I'm going down to meet the President when he comes in at

three-thirty.
I - I don't know just when I get back. Now,
just -

de L:

Today?

H.M.Jr:

Could I -

de L:

tomorrow morning

H.M.Jr:

Could
later? I call back your office - your secretary a little

de L:

Yes. All right. But, for me it would be good tonight.

H.M. Jr:

de L:

H.M.Jr:
de L:

Oh.

- between
five and seven because I have a reception in
music
at nine-thirty,
Oh, yes. Mrs. Morgenthau's going.

be sooner or tomorrow morning, if you like better.

163 A
3

H.M.Jr:

Well, is - is eleven-forty-five a good time?

de Lt

Eleven-forty-five?

H.M.Jr:

Yes.

de L:

Tomorrow morning?

H.M.Jr:

Yes.

de L:
H.M.Jr:

All right. oh yes, that'11 be all right.
That'll be fine.

de L:

At eleven-forty-five tomorrow.

H.M.Jr:

Yes.

de L:

Thank you very much.

H.M.Jr:

Thank you.

April 9, 1935.
Tuesday.

Crane:

Good morning, Mr. Secretary.

H.M.Jr:

How are you?

C:

H.M.Jr:

164

Fine.

Crane, the French just telephoned us that they

find a decree at last on St. Pierre.

C:

H.M.Jr:
C:

H.M.Jr:
C:

Oh,really? (Laughter)
I'm very much pleased.

What
about the vote? Do you have to send a vote
up there?
We didn't agree to anything.
Oh, I see.

H.M.Jr:

No.

C:

The last time you mentioned it -

H.M.Jr:

C:

H.M.Jr:

Well, they said the State Department handled it
very well. They said if a vote was going in that
neighborhood, they'd drop in.
Yes, I see.
But, if there wasn't some
that they
couldn't guarantee it,

C:

Yes.

H.M.Jr:

And that was a lot of political
They had difficulty with their own government. I
guess whoever's got the concession of St. Pierre
put up a hell of a fight.

C:

Yes.

H.M.Jr:

Now, what I'd like to do is this - I frankly - I

.

want to cultivate the French, see?

C:

H.M.Jr:

Yes.

I don't mind telling you that I've got the State

Department at last with me on it.
C:

H.M.Jr:
C:

Yes.

And I'd like you to call up the bank and tell them you can tell them how pleased I am over St. Pierre Yes.

H.M.Jr:
C:

H.M.Jr:

165
-2And sort of joke about it, you know Yes, I will.
- and then say this, we'd be very glad with exchange skidding along so close to the gold point,
that - to tell them that they could use for our
account any time they wanted to up to five million
dollars.

C:

Yes.

H.M.Jr:

See?

C:

Yes.

C:

So what do you think of that?
You want to indicate any rate?

H.M.Jr:

No, any time it goes below the gold point.

C:

Well, the gold point is about - effectively it's

H.M.Jr:

Is what?

C:

The gold point is about 658 and 7/8.

H.M.Jr:

Well, why not let's say - begin at 658.

C:

Yes.

H.M.Jr:

What?

C:

Yes.

H.M.Jr:

H.M.Jr:
C:

about 658 and 7/8.

I'd talk it over with them.
Indicate that - indicate that we're - that we're we're prepared to go in at any time to the extent
of five million dollars.

H.M.Jr:

Yes.

C:

- at 658.

H.M.Jr:
C:

H.M.Jr:

And then, we'll work it through them.
Yes, yes. Well, now You see, what I want to do, I want you
to have
the
about
this and
picture - I mean I'm taking a
I'm trying to work up a close record between the
French Government and ourselves, and I've got the
State Department around in thinking that's right.
Now, everybody always saying, let's do what the

-3-

166

English do. Well, the English don't want to do
it for them, so I say to hell with them, see?
C:

Yes.

H.M.Jr:

I want to work up
Now, the French suit me
closer feeling between the French and ourselves
a

C:

and the State Department is back of me on it, see?
Have you been thinking at all any more about a
joint approach to the British with them?

H.M.Jr:

No, I want - I want to forget about the British.

C:

You want to forget them.

H.M.Jr:

I want to forget them. Let the British come to us.

C:

Yes.

H.M.Jr:

Let's forget about the British - I mean, after all,

C:

Yes.

H.M.Jr:

See?

C:

Yes.

H.M.Jr:

I mean -

C:

I think you've got a - certainly as far as we and

H.M.Jr:

if we can stabilize our currency with the French,
the British will have to come to us.

the Bank of France are concerned, you have a closer

Right. Now, if we work very close together, the
British will have to come to us - it's a three-

H.M.Jr:

pointed triangle and if the French and ourselves
stick together, then the British have to come to us.
Yes. Well, you - you - in other words, you want to
stick pretty close to them for the time I want to stick very close to the French, and now I -

C:

I'll tell Cariguel that we want to stick very close

C:

H.M.Jr:

C:

to them.

Yes, and you can tell him that you've talked to me;
that I want to give them cooperation - any information - and you can sort of drop a hint, that if
there is somebody they'd like me to talk to over
here, I'd be glad to talk to them.
Yes.

-4H.M.Jr:

See?

C:

Yes.

H.M.Jr:

Will you drop that?

C:

Yes.

H.M.Jr:

If there's somebody they'd care to have come down

167

and see me.

C:

Well, they'll probably want the French Ambassador.

H.M.Jr:

Well, that's all right. I'd like - I mean - I - I
want to work up a close accord with them.

C:

Yes. Well, now I don't think - I don't think we

want to say too much right now.
H.M.Jr:

No, I'll leave it to -

C:

- for this reason, I think if we go - if we make
too much of a friendly gesture, they're going to
have the feeling that you want to reopen the
question of a joint approach to the British.

H.M.Jr:

No, no -

C:

H.M.Jr:

I don't want to give them that idea.
Well, why not simply say this - why not simply
say this, we're delighted about St. Pierre -

C:

Yes.

H.M.Jr:

- and that the gold seems to be skating along
very close to point and that we're ready to assist
with two and five million dollars, and we'd like
to let them handle the funds for us -

C:

Yes.

H.M.Jr:

- and that we'd like to work closer together with

them.

C:

Yes, I think that's enough.

H.M.Jr:

How's that?

C:

Yes, I think that's all right.

H.M.Jr:

All right. Supposing you have a talk with him and
then I'm going downstairs to lunch. I'll be up at two,

-5if you have a message, then I'll be glad to
talk to you.
C:

All right, I'll -

H.M.Jr: Don't you think this is good?

Yes, I - oh, I think - I'm all for cooperation.
H.M.Jr: All right, well let's try it - you see, we've
tried it all along - we've been waiting for the
British - they won't do anything - let's try it

C:

now with the French.

C:

H.M.Jr:
C:

Yes. All right.
All right?
I'll call them up.

H.M.Jr: Thank you.
C:

Goodbye.

168