Full text of Diaries of Henry Morgenthau, Jr. : Volume 4 : Part 3

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FEDERAL RESERVE BANK

169

Of New York

Date April 9, 1935.

OFFICE CORRESPONDENCE
To

From

CONFIDENTIAL FILES

J. E. Crane

Subject

Telephone Conversation with

Mr. Cariguel of the Bank of France.

In accordance with telephone request from Secretary

Morgenthau this morning I telephoned to Mr. Cariguel at the
Bank of France this afternoon to give him a message from
the Secretary, the substance of which was as follows:
"The Secretary has just heard that the situation at
St. Pierre has been attended to, he is delighted at the outcome and wants the French to know how he feels about it and
that he is anxious to cooperate closely with them. If he
can be helpful in any way the Secretary would like to know
about it and if the dollar rate in Paris should go too high
and the private banks not take gold fast enough, he is willing to have the Bank of France sell up to $5,000,000 at
6.58 or better."
Mr. Cariguel said that he was delighted to get Secretary
Morgenthau's message, that he would pass it along to the
Governor of the Banque de France and that, with respect to
the order to sell up to $5,000,000, he appreciated the offer
very much although he pointed out that there was no occasion
at the present time to make use of it since the dollar was
below gold export point in Paris.
I asked Mr. Cariguel about the exchange market and he
replied that it had been quieter today although both the
Swiss and Dutch exchanges were under pressure. He said that
Switzerland was the weaker of the two countries and that it
looked as though Governor Bachmann's morale was deteriorating.
On the other hand, he said that Governor Trip seemed to be
determined to hold on and had today made a further increase

of 1 per cent in his bank rate. Mr. Cariguel said he anticipated that the Swiss would be the first to go, that he did

not know how long they would be able to hold out and that
for the time being he expected a lull in the exchange

situation.

JEC:KMC

169A

April 9, 1935.
Tuesday.

H.M.Jr:

Morgenthau.

Mayor

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

How are you?

La G:

Fine.

H.M.Jr:

I think you got a good man in that man Arthur Couse.

LaG:

Yes, you know him?

H.M.Jr:

Yes.

LaG:

Yes, I think so and he's very excited about
taking a banker's job because, you know, all
this criticism is just - there's nothing real
or serious about the whole thing.
Well, that's good.
- and they haven't been able to discover one
penny that's been stolen or grafted.
Good. Mr. Mayor, I have the Consolidated Gas
contract before me -

H.M.Jr:
LaG:

H.M.Jr:
LaG:

Yes.

H.M.Jr:

Now, I want to tell you that three provisions
which are in it are very short, and I'll read
them over to you, I mean there's twelve,
thirteen and fourteen:
12. By entering into
a contract on the basis of this bid, the government shall in no way be deemed to agree to defer
temporarily or permanently the construction of
a governmental owned and operated plant in the
general ration of electric power. 13. The bidder
conceived at the rates herein specified are
reasonable they are adequate to cover the cost
of the service proposed to be rendered, plus a
reasonable profit. 14. The books of the bidder
shall be opened at all times for representatives
of the Federal government of the State of New
York of the City of New York to permit determination of relations of rates charged by the
government to rates charged by the bidder to its
other consumer.

LaG:

Yes.

H.M.Jr:

Now those are - that's all in the contract.

-2LaG:

169B

Yes, Now, Mr. Secretary, I tried to get you last

week, you know.
H.M.Jr:

Well, I was away.

LaG:

Yes. Now, I have in my pocket - I've been carrying
it in my pocket - what is tantamount to the city -

H.M.Jr:

Yes.

LaG:

- it's about the same rate that the government has

obtained.
H.M.Jr:

Yes.

LaG:

Now, we're negotiating - been trying to get some thing for the consumer,

H.M.Jr:

Yes.

LaG:

- because what I'm afraid of is that after the first
flush of victory is passed that the contention will

be made that because of concessions made to the
Federal and City Government, it will have to be taken
out of the consumer.
H.M.Jr:

Well, you see we've got that question in there about
reasonable profit.

LaG:

Yes.

H.M.Jr:

You see?

LaG:

Yes, well, that's good. Now I mean, that clause in there - reasonable profit.
Yes. Now, Mr. Morgenthau, I'll be in Washington

H.M.Jr:
LaG:

Thursday and Friday -

H.M.Jr:

Yes.

LaG:

- and I thought this - and I talked it over with
I should think that when
the
turns up with them, it ought to be in

H.M.Jr:

the President

Washington in order to give the company the feeling that
is keeping with the President's
policy of cheap power rates.
What is your idea - we sign up at the same time?

LaG:

Yes. I think it would be very helpful to -

H.M.Jr:

Well, will you be ready to talk by Thursday?

169C

-3LaG:

Oh, I'll be ready to talk by Thursday and I think
we ought to be able to do it early next week.

H.M.Jr: Well, will you come in and see me?

I'll come in and see you Thursday if that's convenient, or Friday morning.
H.M.Jr: Well - which - which -

LaG:

Well, you see my first meeting is with the Mayor)
and suppose I give you a phone call Thursday morning as soon as I know what their schedule is.
H.M.Jr: Well, why don't I say tentatively ten o'clock
LaG:

Friday.

LaG:

Ten o'clock Friday.

H.M.Jr: Yes.
LaG:

I think that would be absolutely all right. Of

course, unless we go to the White House, that's o.k.

H.M.Jr: Well, let's see, if I don't hear from you LaG:
That's right.
H.M.Jr: - again, it'11 be ten o'clock Friday.
LaG:

Ten o'clock Friday

H.M.Jr: All right, sir.
LaG:

All right. Thank you.

H.M.Jr: Goodbye.

169D

April 9, 1935.
Tuesday.

H.M.Jr:

Mr. Vice-President?

Garner:

Yes.

H.M.Jr:

Henry talking, Henry Morgenthau.

G:

Yes. How are you, Henry?

H.M.Jr:

I'm all right. I want a little advice.
All right.

G:

H.M.Jr:

We're working on our refunding of the Liberties
and I just wondered what the chances are on this
bonus coming up this month.

G:

This month?

H.M.Jr:

Yes.

G:

Let's see, what day of the month is this?
This is the ninth.

H.M.Jr:
G:

Well, it might do it, Henry. That damn thing's
got a lot of strength down in the Senate, and they
might do it to finance the committee to consider
it with the - promise that we made - made them
make was that they wouldn't report it until the
President got back.

H.M.Jr:
G:

Well, do you suppose the Senate is - will keep
the paper money feature in the House bill?

Well, now I don't know, Henry, about that. It's
pretty damn hard to tell what the Senate's going
to do with the rest of that bill. They never

have been checked yet and I don't believe anybody can give you a definite statement, though
H.M.Jr:

my impression is that they will defeat this.
Well, you see, I've got to make up my mind; I
don't know whether it's better to say go ahead
with it and have that thing in the progress or
to wait and see what happens. I don't know.

G:

H.M.Jr:

Well, dam if I can - it's a guess, Henry.
Of course, what I've done up to now is - I've
just gone ahead regardless.

G:

Well, I think I would - I - but, I say it's a

169E

-2-

H.M.Jr:
G:

guess. Now, there's no use - nobody can tell
you definitely, old top. My guess is that
they're going to fix that printed money
for the bankers and they're going to
pass some kind of a bonus bill.
Well, you think - and they have organized in the Senate for the
purpose of accepting the Patman amendment.

H.M.Jr:

G:

Do you suppose if there was a big refunding in
the progress from the fifteenth of April on
that would have any effect on the Hill?

No, I don't doubt it - I - dammit, I don't
think anything's happened

except those

soldiers and the cross currencies they've got.
H.M.Jr:

Yes. Well, I guess the best thing to do is to
do what I've always done and just go ahead -

G:

Yes, go ahead and don't you pay a damn bit
attention to what Congress is doing.

H.M.Jr:

Well, that's - that's what I'll do.

G:

That's about the size of it, Henry.

H.M.Jr:

Well, thanks.

G:

All right.

H.M.Jr:

Thank you.

G:

Goodbye.

170
April 9th
H. M. Jr. called Steve Early and told him that

on April 15th we will call the last of the Liberties, which
means that we will have called 8 billion dollars in a little

over a year. He told him that he wants to make a radio speech
and announce that we have passed a milestone in history.

H.M.Jr. called Secretary Hull and said that he
wanted to offer the Bank of France 5 million dollars in case
the Franc should drop at any time; that they could use it
for us in case it got below the gold point. H.M.Jr. wanted
to do this as a friendly gesture. He also told Mr. Hull that
when he thought it a good time to talk to the French Ambassador
he (H. M. Jr.) would do so.
H.M.Jr. called Joe Kennedy and asked him how many

more private flotations there were coming along, as we wanted
to figure out when we are going to do our next refunding.
H.M.Jr. wanted to take this into consideration because he
wanted to give private concerns consideration. He wanted to
know how much was actually going to be offered to the public
between the 15th of April and May 1st.

April 9th

171

H.M.Jr. called General MacArthur to-day and
reminded him that he had told H. M. Jr. that North Island was
going to be fixed up and that Admiral Peoples had just informed him that there was no place for Coast Guard on North
Island; that there seems to be some red tape and that the
Army was holding us up. He also told General MacArthur that
he was sending over correspondence between the Procurement
Division and Secretary Dern. The letters are attached here-

with.

172

April 2, 1935
The Honorable

The Secretary of War

Sir:

I have the honor to refer to letter addressed to you
dated March 6, 1935, signed by the Secretary of the Treasury,
requesting the transfer, to the Treasury Department, of certain land under the control of the War Department at North
Island, San Diego, California, reply to which has not been
received.

In letter dated March 19, 1935, the Director of Proshowing the physical conditions of the land in question in
order that plans for the proposed Coast Guard Air Station
may be completed without delay. No reply to this request
curement, Treasury Department, requested a contour plat

has been received to date.

In view of the urgency of the situation, may I inquire

as to when the Treasury Department may expect a reply to its
previous letters of March 6, and March 19.
Respectfully,

(Signed) T. J. Coolidge.
Acting Secretary of the Treasury

LCM:RMC

173

COPY
COAST GUARD STATION

SAN DIEGO, CALIF., COASTAL AIR
STATION

COPY

March 19, 1935
SA

The Honorable,

The Secretary of War,
Washington, D. C.
Sir:

Reference is made to the contemplated Coastal Air Station,
San Diego, California.
In connection with the above project, a request to you
from the Treasury Department dated March 6 asked that certain
land be transferred for use and occupancy of the Coast Guard.

It would be appreciated, pending action on this request, if
a map or contour plat showing physical conditions of the land in
question could be sent this Division for information.
By direction of the Secretary.
Respectfully,
(Signed) W. E. Reynolds
Acting Director of Procurement

Through Mr. Martin

COPY

CG-600

COPY

174

6 March, 1935.
The Honorable,

The Secretary of War.

Sir:I have the honor to refer to the land under the control of the War Department at North Island, San Diego,
California, known as Rockwell Field.
Application is hereby made for the transfer from the
War Department to the Treasury Department for use and
occupancy for Coast Guard purposes of that portion of the
aforesaid land described as follows:
Beginning at the extreme western boundary of the
Army and Navy reservations on North Island, a front-

age of 700 yards in a general southerly direction
along the westerly shore line, from that point to
extend inward 500 yards paralleling the boundary
line, from that point 700 yards in a general northerly direction approximately paralleling the shore
line, to a point on the boundary line, 500 yards
from the extreme western boundary.

Your prompt consideration of this application will

be very much appreciated by this Department.
Respectfully,

Secretary of the Treasury.

April 9, 1935.
Tuesday.

175

H.M.Jr:

How are you, Mr. de Laboulaye?

de L:

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:

in the letter.
Well, I think that that's fine. It's really going

de L:

You think so?

H.M.Jr:

Yes.

deL:

I am glad because I was waiting for

H.M.Jr:

Well, that's - I - I'm very much pleased.
You just received a word from your office yester-

de L:

- last night.

to be very helpful.

day.

H.M.Jr:

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

H.M.Jr:

Right.

de L:

I will send the note and bring the
- but, it is
note myself secretary that I wanted to

secretary or tonight or tomorrow morning, because I
got - in such a hurry now -

bring to Phillips, but tomorrow morning or tonight
I can do the thing

H.M.Jr:

Well, Mr. Ambassador, sometime when your financial

-2-

176

attache is in town - I've never met him de L:

All right.

H.M.Jr:

-onand
I'll be delighted if you and he would call
me -

de L:

All right.

H.M.Jr:

- 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:

Well, it's -

de L:

Of course, you know I am leaving on Friday for

France for one month.

H.M.Jr:

Oh, for France?

de L:

Yes.

H.M.Jr:

Oh, I didn't know that.
Then, I would like very much to have a talk with

de L:

you before.

H.M.Jr:

Yes, I would too. When are you leaving?

de L:

On Friday morning.

H.M.Jr:
de L:

Friday morning. Well, now, just a moment.
Will you let me know the day -

H.M.Jr:

No. I'll do it right now. I'm just looking at my

de L:

Yes. All right.

H.M.Jr:

calendar -

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

-3 -

177

H.M.Jr:

Could I call back your office - your secretary

de L:

Yes. All right. But, for me it would be good

a little later?
tonight,

H.M.Jr:

Oh.

de L:

- between five and seven because I have a

reception in music at nine-thirty.

H.M.Jr:

Oh, yes. Mrs. Morgenthau's going.

de L:

be sooner or tomorrow morning, if you like
better.

H.M.Jr:

Well, is - is eleven-forty-five a good time?

de L:

Eleven-forty-five?

H.M.Jr:

Yes.

de L:

Tomorrow morning?

H.M.Jr:

Yes.

de L:

All right. Oh yes, that'll be all right.

H.M.Jr:

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.

178
April 10th

At 4:45 I called the President. Holland wants

us to buy gold directly from them at $35 an ounce because

they cannot ship it over fast enough. I think every week-end
it would ease the situation considerably. I would offer them
10 million. They want 25 million.

Silver sold in New York at 634 It is over

your Proclamation and the mining companies are equalling up.
We can buy silver tomorrow at 65$ but they would have to pay
us 50$ tax - the mining companies.

Mr. Oliphant suggests that you go clear to $1.29
on newly mined silver.
I suggest that we raise it 1/8 of $1.29, which
would bring it to 70-5/8 When it goes to 72$ Mexico will
have to revise their monetary system.

The President said "raise it 1$ a day". I said
that would not do. I said, "bring it to a flat 70$ and have

the silver Senators come down to see you. We will send a
Proclamation for you to sign tonight making the statement

that newly mined silver will be 70."

I called Crane and said that the President had
said to give Holland for tonight ten million dollars worth
of business.

178 A

April 10, 1935.

Wednesday.

H.M.Jr:

The President said we give them - with the ninth,

Crane:

Yes.

H.M.Jr:

just ten million dollars.

I don't know whether that will satisfy them or

not.

C:

Yes.

H.M.Jr:

Hello.

C:

Yes.

H.M.Jr:

He said justget off the cable and tell them we'll
do ten million dollars worth of business.

C:

Yes.

H.M.Jr:

See?

C:

Yes.

H.M.Jr:

I don't - I don't follow you.

C:

Yes, I understand.

H.M.Jr:

Yes.

C:

Just tell them that you're prepared to buy up to
ten million dollars.

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

That's right.
In other words, you - you make a firm proposition
with them for ten million dollars.
That's right.
Yes.

I'll leave the rest to you.
And do you - at the moment, you 're not prepared
to go beyond that?

H.M.Jr:

No.

C:

Yes, all right. Well, I'll - I'll draft up a cable
on the basis of that -

-2H.M.Jr:

Yes. I'll leave it to you - you get it off and
send me down a copy of it by special delivery.

C:

All, all right.

H.M.Jr:

All right?

C:

Fine.

H.M.Jr:

Thank you.

C:

I'll go ahead with it.

178 B

179

MISC. 3.260M 1234

FEDERAL RESERVE BANK
OF NEW YORK

OFFICE CORRESPONDENCE
Secretary Morgenthau
To
J. E. Crane
FROM

DATE April 10, 1935.
SUBJECT:

Attached is copy of cable No. 33, dated April 10, from
the Netherlands Bank which was transmitted to you by telephone
this afternoon. I am also sending you herewith copy of the cable
which we sent to the Netherlands Bank today following our telephone
conversation with you when you authorized us to make a firm offer
to buy up to $10,000,000 gold delivered in Amsterdam for immediate
payment.

180

CABLE

Mr. Crane

April 10, 1935.

NETHERLANDS BANK
AMSTERDAM

Your No. 33. We are desirous of cooperating with you and
believe best method of procedure would be for one Treasury

to buy gold from you as you require dollars. We have accordingly discussed your cable with Secretary of the Treasury
and are for
authorised
by his to advise you that he will innedt#
immediate payment
shelz buy from you/up to $10,000,000 gold earmarked in your

vaults in our name, such gold to be guaranteed free for ezport under any circumstances and to be shipped to United
States Assay Office in New York at your risk and expense on

first available steamers and to be settled for with the
Treasury on the basis of the outturn at the United States
Assay Office at 885 per fine Troy ounce less customary mint
charges and usual 1/4 per cent handling charge.
FEDERAL RESERVE BANK OF NEW YORK

INFORMATION COPY FOR

COE 108 SM B-34

FEDERAL RESERVE BANK
OF NEW YORK

181
INCOMING CABLEGRAM-SERIAL NO. 788
RECEIVED ON April 10, 1935

Amsterdam, April 10, 1935.
CONFIDENTIAL

Federal Reserve Bank of New York
New York

No. 33

We are cabling to ask whether you would be willing to
make arrangements with us under which we could draw dollars on you

against earmarking gold in our vaults for your account. We do not
propose to make use of such arrangements under ordinary circumstances

but should like to have possibility of selling dollars in this market
in case of erratic exchange rate movements similar to what we do

with regard to French francs. Although actual situation of our
exchange market much more quiet than last week and at present no
reason to expect excessive movements we should like to be prepared

for all possibilities. Gladly prepared to let you have more details
by telephone if so desired.
De Nederlandsche Bank.

MY

GRAPH AND CODES DIVISION

151A

April 10, 1935.

Wednesday.

H.M.Jr:

How is this different in giving them a credit just
the way we did Belgium?

Crane:

Giving them a credit?

H.M.Jr:

Isn't that what it amounts to?

C:

Well, of course, in the case of Belgium, we offered
to make them advances against gold.

H.M.Jr:
C:

Yes.

And that meant that they had to pay interest, and
I think it would suit the Dutch very much better if
we would buy the gold from them and have them ship
it to us here.

H.M.Jr: Well, then what I didn't understand in the cable when it meant ear-marked - would that mean the gold
would stay there or would it come?

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Oh, no, no, no - they'd ship it - they'd ship it to

us. My idea would be that we would buy it from them
at $35 less 1/4, to be shipped to New York at their
risk and expense, and bought by us on the basis of
the out-turn at the assay office.

Well, that sounds all right, Henry. Well, I thought
that this was to be a dollar credit.
No, no, no, no They just want to ship us - I don't think they want to make a loan.
Oh, they just want to know whether we'll buy gold
over there and give them the credit immediately, is

that it?

C:

Yes.

H.M.Jr:

Well, now -

C:

Now -

C:

All right, now I've got a - just a short draft of a cable here that

H.M.Jr:

Well, now - all right.

H.M.Jr:

I've been working on -

-2C:

H.M.Jr:

ITIB

- that I'd like to read to you. It's the way I
think we ought to deal with it.
Just a minute. I want Mrs. Klotz to get on the

phone.
C:

Yes.

H.M.Jr:

Just a minute. Read it slowly.
All right now.

C:

Mrs. Klotz: Yes.
H.M. Jr:

Go ahead.

C:

Cable from Federal Reserve Bank at New York to
Netherlands Bank, Amsterdam -

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

Yes.

Your number 33. "We are desirous of cooperating with
you and believe best method of procedure would be for
our Treasury -

Little slower - "our Treasury".
- to buy gold from you as you require dollars. We

have accordingly discussed your cable with Treasury -

I'd say with the Secretary of the Treasury.
Right, - Secretary of the Treasury and are authorized
by him to advise you that he is in principle willing
to buy gold from you, delivered in Amsterdam, subject
to satisfactory arrangement of details." That's all
I'd say tonight.

H.M.Jr:

Yes.

C:

Now -

H.M.Jr:
C:

I'd like to put in - you most likely don't understand
it, but what I call a little smootch.
A what?

C:

Everybody here knows what it is. (Laughter)
I didn't hear you.

H.M.Jr:

A little - I don't know what it is in - you must know

C:

A little - (Laughter)

H.M.Jr:

Blarney, says Lochhead.

C:

What?

H.M.Jr:

what smootch is, don't you?

-3 -

ITIC

H.M.Jr: Lockie - Lochhead says Blarney, I say smootch.
C:

Oh, yes.

(Laughter)

H.M.Jr:

- about the cooperation and, you know, neighbor-

C:

Yes.

H.M.Jr:

Something a little bit about that, see?

C:

Yes.

liness -

H.M.Jr: Now, I've got to decide with Oliphant on silver and
then when I got that I want to call up the President about going ahead on this, and if you stick
around, I'll give you a yes or no within a very few
minutes.

C:

Yes. Well, now - if you want to give the details,
free for export -

we can do that. We can say that the gold must be
H.M.Jr:

Oh, yes. I'd put all that in. They're most likely -

C:

Well, let me - let me dictate the last part of that

they're most likely nervous about this.
over again.

H.M.Jr:

Yes.

C:

Hello.

Mrs.K:

"We have - " - the last paragraph?

C:

Now, Mrs. Klotz, I say to advise you that he is in

Mrs.K:

"Gold from you - "

C:

"Gold from you - "

Mrs.K:

Yes.

C:

- and then cross out from there on.

Mrs. K:

Yes.

C:

principle willing to buy -

"Gold from you" - comma - "such gold to be free for
export - "

Mrs.K:

Yes.

C:

risk - "

Mrs.K:

Yes.

" - and to be shipped to New York at your expense and

-4-

1810

C:

- and bought by the Treasury -

Mrs.K:

Yes.

C:

- on the basis of the out-turn at the United States
Assay Office at $35 per fine troy ounce, less t percent - period - that's all. Mrs. Klotz write the
cable up that way instead of the first way I dictated.

Mrs.K:

Yes, yes.

C:

See?

Mrs.K:

Yes.

C:

All right. Then, I'll stick around until I hear -

H.M.Jr:

Please stand by, will you please? Right.

April 10th

192

Mr. Morgenthau asked the French Ambassador,

Mr. Andre de Laboulaye, to come in to see him at 11:30
to-day because the Ambassador is leaving for France on
Friday. He wanted him to take back to his government
the thought that the United States wanted to co-operate

in every way possible with France. In order to bring
the French Ambassador up to date, Mr. Morgenthau read

a copy of the conversation which we had yesterday
(through the Federal Reserve of New York) with

Mr. Cariguel, of the Bank of France, which is as follows:
"In accordance with telephone request from
Secretary Morgenthau this morning I telephoned to
Mr. Cariguel at the Bank of France this afternoon to
give him a message from the Secretary, the substance
of which was as follows:
The Secretary has just heard that the situation
at St. Pierre has been attended to, he is delighted at the
outcome and wants the French to know how he feels about it
and that he is anxious to cooperate closely with them. If
he can be helpful in any way the Secretary would like to
know about it and if the dollar rate in Paris should go
too high and the private banks not take gold fast enough,
he is willing to have the Bank of France sell up to
$5,000,000 at 6.58 or better.
Mr. Cariguel said that he was delighted to get
Secretary Morgenthau's message, that he would pass it along
to the Governor of the Banque de France and that, with
respect to the order to sell up to $5,000,000, he appreciated
the offer very much although he pointed out that there was no
occasion at the present time to make use of it since the
dollar was below gold export point in Paris.
I asked Mr. Cariguel about the exchange market

and he replied that it had been quieter today although both
that Switzerland was the weaker of the two countries and
the Swiss and Dutch exchanges were under pressure. He said
that it looked as though Governor Bachmann's morale was

deteriorating. On the other hand, he said that Governor Trip
seemed to be determined to hold on and had today made a
further increase of 1 per cent in his bank rate. Mr. Cariguel
said he anticipated that the Swiss would be the first to go,
that he did not know how long they would be able to hold out
and that for the time being he expected a lull in the exchange
situation."

193
The French Ambassador was greatly impressed.
The Ambassador did not know that France had asked

us to join them in making a loan to England to bring about
stabilization and that we had refused.
Mr. Morgenthau explained very carefully that
this was a monetary matter and not a "diplomatic" one.
deL:

Are you satisfied working through the Bank of France?

H.M.Jr:

Up to now it has worked very easily. However,
if after you return from abroad and have any
suggestions which will improve our relations
with France, I would be glad to receive them.
The Bank of France is a private bank, an
independent organization, and is not under
the supervision of the French government.
I would be glad to receive any further suggestions
which would bring the United States and France
closer together.

deL:

H.M.Jr:

deL:

Are you in favor of stabilization?

H.M.Jr:

Yes. We have had stabilization for 15 months,

deL:

I agree to what you have just said.
I want to point out to you that between the
United States and France we own 70% of the gold
in the world and this is a very powerful weapon
and I believe we can accomplish a great deal if
we work closely together.
I believe that when the Franc and the dollar are
stabilized, England will be in a very strange
position and will have to do something. I will be
back in this country the end of May and I hope to
have some information for you at that time. The
fact that you have given us the 5 million dollars
is really a great gesture and I know that the
French government appreciates it.

H.M.Jr:

deL:

thanks to the Franc and the dollar. We are satisfied with the present rates but I do not know
whether the French are. Sterling is 4.85. I
expect it may go up 10 or down 10. However,
it is very steady and we are satisfied. The
English say that just as long as the Franc is
what it is and the dollar is what it is, they
cannot stabilize.

April 10, 1935.

183A

Wednesday.

H.M.Jr:

Who is this?

Coolidge: It's Jeff.
H.M.Jr:
Oh. Hello, Jeff.
C:

I find that these people are almost unanimous
in doing it promptly and along the lines that
I've talked about.

H.M.Jr:

Unanimous to do what?

C:

To do this conversion promptly.

H.M.Jr:

Oh, really?

C:

Yes. I should say I've seen seven or eight
people -

H.M.Jr:

Yes.

C:

H.M.Jr:

Five of them decided they wanted to do it.
I see.

C:

And three of them were indifferent.

H.M.Jr:

Yes. Well, is it time enough to make up our

C:

Yes. We can make up our minds Friday.

H.M.Jr:

You got any terms?

C:

On Friday.

H.M.Jr:

Have you got any terms, I say.

C:

I didn't hear, Henry.

H.M.Jr:

Terms, what yield, terms.

C:

minds tomorrow?

Oh, the terms. The terms, they think, is important.

They have the five-year - note,
H.M.Jr:

Yes.

C:

And a bond to give - to give an option on.

H.M.Jr:

I see.

C:

I think Randolph and myself - more or less an
agreement to give an option on the two securities

183B

-2we sold previously.
H.M.Jr:
C:

Yes. Well, we'll talk it over in the morning.
Yes. Now, do - did you want to do anything

about the bond market committee?
H.M.Jr:

Well, I don't that - no, I don't. The time is
too short this time. Let's talk it over - what?

C:

It suits me either way.

H.M.Jr:

Well, I'd want - I tell - could Burgess come down
tonight and be here tomorrow morning?

C:

Just a minute. He has a directors meeting tomorrow,
think he ought to be down tomorrow really.
Yes. Does he fly?

but he could do it - he'd prefer Friday. I - I

H.M.Jr:
C:

I don't hear very well, Henry.

H.M.Jr:

Does he go on an airplane?
Just a minute.

C:

April 10, 1935.
A group met in the office of the Secretary of the Treasury
at 10:30 A.M. to discuss the report made by Tom K. Smith on

184

Housing agencies.

Those present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
John H. Fahey, Chairman, Federal Home Loan Bank Board,
Preston Delano, General Manager, HOLC,

John G. Laylin, Assistant General Counsel, Treasury Department,

D.W. Bell, Acting Director of the Budget,
R.L. Hoguet, Jr., Banking Assistant, Treasury Department,
C.B. Upham.

The first thing brought up for discussion by the Secretary was
the delinquency record. Before there was any discussion of that,
however, Mr. Fahey outlined the situation of the corporation with
respect to legislation now pending in Congress. In his opinion the

greatest threat to the corporation is political, particularly the
proposed amendment which would abolish the regional offices and re-

quire employes in the State and divisional offices to be residents
of the respective states and districts. Mr. Fahey stated his belief
that if undesirable legislation of this type could be averted and if
the application lists were not reopened that the corporation could
keep within a $750,000,000 or $1,000,000,000 additional bond issue
in taking care of applications already filed.
Both he and Mr. Delano were of the opinion that the full

authorization of $1,750,000,000 additional carried in the bill would
not all be used.
There was some discussion of the different methods employed by

-2-

185

the HOLC and by the Treasury in figuring delinquencies.

The Secretary explained that his interest in the matter grew
out of the fact that he was acting as Chairman of the Interdepartmental Loan Committee and that the Treasury is responsible for the
guarantee of the bonds of the corporation.
It was agreed that a meeting be arranged between Treasury

people and HOLC people for a further discussion of the statistics
on delinquencies to report back at a later meeting.

Mr. Fahey said that if the interest rate of 5% could be maintained and if abnormal expenses could be avoided he thought that
the loss to the corporation on its loans would not be so great as
some people anticipated. There will be some losses, he said, and
of course if the interest rate is cut and if operations are hampered by political measures and otherwise, the corporation will
undoubtedly come out at the little end of the horn.
Mr. Delano made the point that a good many of the corporation's
loans were bad loans, that the Congress had authorized them to make

distress loans and that in his opinion the collections were coming
in pretty well.

Mr. Bell asked if the corporation is paying interest on its
bonds out of income or out of capital.
Mr. Delano replied that the corporation had run a deficit last
year and that meant that either interest or operating expenses have
been paid out of capital. He referred to the fact, however, that
substantial reserves had been set up by the corporation.
Mr. Bell pointed out that the Treasury had no appropriation
with which to pay interest on bonds which might be in default, and

-3-

Mr. Delano replied that the corporation had unlimited authority
to sell bonds for the purpose of paying interest.

186

It was agreed that charts would be drawn showing the trend
of HOLC delinquencies for as long a period extending backward

as is possible.
Mr. Fahey was not receptive to the idea advanced in the Smith

report that Titles 2 and 3 of the Federal Housing Act be transferred
to the jurisdiction of the Home Loan Bank System. He urged that they
be left where they are and the FHA would carry forward its activities
as far as it can and that we will have a much clearer picture of the

situation later. He considered it extremely doubtful to stir it up
now. He suggested that if the FHA was not getting anywhere in four
or five months, perhaps it might be well to cut off the whole activity.

With respect to appointing a liquidating Administrator for the
HOLC when applications have been cleaned up, Mr. Fahey said he did

not regard that proposal as sound. He suggested that they cross the
bridge when they come to it, particuarly in view of the fact that

the pending legislation may permit the filing of new applications.
It was agreed that a later conferance between the Treasury and
the legal staff of the Home Loan Bank System go into the matter

of subscriptions to the stock of FS&LA's to report back later.
It was agreed that Mr. Bell would look into the matter of the
Budget Bureau Control Clause in the pending HOLC bill.

186A

April 11, 1935.

Thursday.
Crane:

Good morning, Mr. Secretary.

H.M.Jr:

Hello, Crane. Have you heard from Amsterdam?

C:

No, I haven't had any reply yet. I - I sent off
the message last night. Did you get a copy?

H.M.Jr:
C:

Well, I imagine we did. I - I I - I sent it to you special delivery.

H.M.Jr:

Well, if - I'll ask for it.

C:

And -

H.M.Jr:

I think under the circumstances I'd call up -

what's the fellow's name there?
C:

Trip.

H.M.Jr:

Trip, and have a little talk with him, see?

C:

Right.

H.M.Jr:

I'd
like you to call up Trip and have a little
talk.

C:

Right.

H.M.Jr:

And I think it would be a good contact anyway.

C:

Yes.

H.M.Jr:

And see how he feels and ask him what he's done
and what he looks for over the week-end, see?

C:

Yes. Well, now, can I - can I - if he asks, intimate that we'll probably take some more?

H.M.Jr:

I think so.

C:

Yes.

H.M.Jr:

I think so.

C:

that this is all we'll do.
No, no, no. First - I had him last night. He

H.M.Jr:

I mean we don't want to give him the impression

had five or six Senators there when I called him.
He was talking about cotton, and I had him at a
bad time and what I'd like to know is how much gold
have they got left, see?

186B

-2C:

Yes.

H.M.Jr:

How much have they got left and - of course, we

must know how much is on the way.
C:

Yes.

H.M.Jr:

And Tripp's a good man and I think as long as he

C:

Yes. All right, I'll do that.

H.M.Jr:

And call me back?

C:

Yes, I will.

H.M.Jr:

Thank you.

C:

Goodbye.

has cabled I'd call him up.

187
Federal Reserve Bank
of New York

Received on April 11, 1935
Amsterdam April 11, 1935
Federal Reserve Bank of New York
New York

No. 34 CONFIDENTIAL

Thanks for your No. 18. We have discussed

matter with our government and they are giving required guarantee as to exporting the gold. We shall
let you have text of guarantee as soon as possible.

We shall gladly make use of facilities offered if
circumstances make it desirable to do so. We under-

stand that by first available steamers you mean first
available Dutch steamers in regular service with
United States.
De Nederlandsche Bank

187A
April 11, 1935.
Thursday.

Crane:

Mr. Secretary?

H.M.Jr:

Yes, Crane.

C:

I had a very satisfactory talk with Trip .

H.M.Jr:

Good.

C:

He was very nice -

H.M.Jr:

Yes.

C:

H.M.Jr:
C:

- and I told him that we were anxious to cooperate.
I said that you also were, and he thanked me very
much and said that was grand and he was very nice.
Good.

He says that the proposal that we had made to him
in our cable last night was entirely satisfactory
to him. He acted as though the amount was all

right H.M.Jr:
C:

Yes.

- although I intimated to him that if he needed
any more at any time, to let us know; to call me
on the phone and I'd try and take care of him.

H.M.Jr:

Yes.

C:

He said that he didn't expect to have to use it

right away; that the exchange situation was much
quieter;

H.M.Jr:

Good.

C:

that he hadn't lost much gold this week and that
his first gold holdings are about $450,000,000.

H.M.Jr:

$450,000,000.

C:

Yes.

H.M.Jr:

That's very good.

C:

And - yes, he's got a good - good stock there. He
said that he had discussed our cable with the
and that he had received from
minister of
the Dutch Government a guarantee that any gold that
we bought from them would be free for export.

117B

-2H.M.Jr:

Would be what?

C:

Would be free for export.
Free for export.
Yes, That's one of the points that we made in the

H.M.Jr:
C:

cable.

H.M.Jr:

Yes.

C:

See?

H.M.Jr:

Yes.

C:

and he said he was going to send me a cable this

afternoon,
H.M.Jr:
C:

Fine.

- about it. But, he - in general, he was very well
satisfied with our cable and quite pleased that I
called him.

H.M.Jr:

Well, you send me special delivery of that con-

C:

Yes, all right.

H.M.Jr:

Will you?

C:

Yes.

H.M.Jr:

Thank you.

C:

H.M.Jr:
C:

versation.

All right. Goodbye.
I think we're making a few friends, don't you?

Oh, yes, I think it's a good thing to - to - yes,
I think we're making some and it's a good thing to
do it.

H.M.Jr:

Right.

C:

Yes.

H.M.Jr:

Right.

C:

All right.

H.M.Jr:

Thank you.

Federal Reserve Bank

188

Of New York

April 11, 1935.
To: Secretary Morgenthau

From: J. E. Crane
Referring to my memorandum of yesterday regard-

ing cables exchanged with the Netherlands Bank concerning
the purchase of gold in Amsterdam, there is attached copy

of cable No. 34, dated today, received from the Netherlands Bank. You will observe that with reference to your
offer to buy up to $10,000,000 of gold from them, they

state "We shall gladly make use of facilities offered if
circumstances make it desirable to do so."

JEC:KMC

Federal Reserve Bank
Of New York

To: Secretary Morgenthau
From: J. E. Crane

189

April 11, 1935.
Telephone conversation with
President Trip of the Netherlands Bank.

In accordance with your suggestion this morning I
telephoned to President Trip of the Netherlands Bank in Amsterdam to inquire whether the proposal made in our cable of last
night was satisfactory and to assure him of our desire to cooperate. President Trip said that our proposal was entirely
satisfactory to them, that he greatly appreciated our willingness to cooperate with him and that in order to put himself in
position to take advantage of our offer to buy $10,000,000 of
gold from him he had already obtained from the Minister of
Finance a guarantee to the effect that gold bought by us in
Amsterdam would be free for export in any circumstances. I
asked President Trip whether the amount of $10,000,000 suggested in our cable was sufficient for his purpose and he replied

that it would be adequate as an initial transaction. I told
him that if and when the $10,000,000 were used up I would be

glad to take up with the Treasury the question of buying more
gold from him if he would communicate with me by telephone.
Governor Trip said that the guilder had been under much less
pressure this week, that the exchange market was now fairly

quiet and that he did not expect it would be necessary to sell
us gold at the present time.
In response to my inquiry about the present size of

his gold holdings, he said that there had been little change
since their last public statement of April 8 when their gold

-2-

190

reserves were given as 674,000,000 guilders and that the total
was now about 665,000,000 guilders or, say $450,000,000. I
assured President Trip of our desire to be helpful and he expressed their warm thanks. The conversation was very friendly
and cordial and he was apparently pleased that we had telephoned to him.
JEC:KMC

190A

April 11, 1935.
Grover
Whalen:
(?)

H.M.Jr:
W:

H.M.Jr:
W:

Thursday.

I was in Washington yesterday and I wanted to
drop in and see you for a moment.

Oh, I didn't know you were in Washington. I
thought you were in New York.

Oh, no, I was there yesterday and visited with
Jim and a few others around Oh.

- and everything went along in the manner that
you were interested in those men, Henry.

H.M.Jr:

So everything went fine?

W:

The-Beckenstein, you know, the glass people -

H.M.Jr:

Yes.

W:

- he's going to be in Washington tomorrow and
he's going to drop in and see you.

W:

Well, I don't - I'm coming up for Mr. Ochs'
funeral in the morning.
Oh, yes. That's right.

H.M.Jr:

Yes.

H.M.Jr:

W:

But, he - he wants to tell you about the situation
in the glass business. Of course, you'd be interested how the new law is working out.

H.M.Jr:
W:

H.M.Jr:
W:

I'd be very much interested, but I won't be able

to see him tomorrow.

Well, that's all right. I'll tell him here at

New York, then, that you won't be there. I also
wanted to talk to you about some of that institutional advertising.
All right. The first stuff they brought us down
was very poor.
Yes.

H.M.Jr:

I didn't like it at all.

W:

They came to me with some of the copy and I didn't

H.M.Jr:

No.

care for any either.

-2But, I wanted to get your reactions to some of
the suggestions that I made.
H.M.Jr: Well -

W:

W:

But, I'll probably drop in and see you next week.

H.M.Jr: Good.
W:

All right.

H.M.Jr: Give me a little notice, will you, Grover. We're
kind of pushed a little hard here.
W:

Yes.

H.M.Jr: I need about a day's notice.
W:

All right, fine.

H.M.Jr: All right.
W:

All right. Thanks very much. Goodbye.

190B

191

April 11th
H.M.Jr. called Speaker Byrnes this morning and told
him that we prepared a series of liquor bills which we gave
to Mr. Doughton. Attached herewith is their telephone conversation.

April 11, 1935.
Thursday.

192

Byrnes:

Hello, Mr. Secretary.

H.M.Jr:

Good morning.

B:

How're you this morning?

H.M.Jr:

Fine. I'm all full of silver, vim and vigor.

B:

I noticed that. I've been reading about you.

H.M.Jr:

How do you like that?

B:

Is it going to help?
I think so.

H.M.Jr:

H.M.Jr:

Well, I think it certainly ought to sort of relieve a little of the tension up here.
You think it will?

B:

I know so little about the finances, you under-

B:

stand?

H.M.Jr:
B:

Well -

I don't know - I don't know what its effect is
going to be either on them or on the country
generally, but I'm willing to bet for that, of
course. But, I think that is bound to lighten
the situation up here -

H.M.Jr:

Good.

B:

- to some extent, anyhow.

H.M.Jr:

Well, that's - that's fine.

B:

Of course, there are some who are never going to

H.M.Jr:
B:

be satisfied.
No.

You can't hope to please them, but I think this
will please those who look at - who try to look
on the matter in a reasonable way.

H.M.Jr:

Fine. Mr. Speaker, we're in a little jam.

B:

What's that?

H.M.Jr:

We prepared a series of liquor bills which we
gave to Mr. Doughton. Congressman Celler sort of
went along and had a lot of bills on liquor and as
I understand it, had himself appointed chairman of the

-2-

193

sub-committee under the judiciary committee, and

I'm told that he's going to start hearings tomor-

row. It makes it sort of difficult for us and
we'd like a little advice because - just to -

B:

H.M.Jr:

which committee you think should handle it. We've
given all of ours to Mr. Doughton; maybe we were
wrong, but we thought that that's where it belongs.
Well, I'm inclined to think so myself because they
were - they were responsible for the written legislation.
Yes.

Weren't they?
H.M.Jr:
B:

H.M.Jr:
B:

I - I believe that that legislation all went through

Mr. Doughton originally.

I say - originally. Now, that being so Oliphant is here and he said
said it belonged to Mr. Doughton.

Well, I was just going to say that - that since it

came from that committee and that was my understand-

H.M.Jr:

ing, why, that's where these bills belong undoubtedly.
And if I should say something to you absolutely

B:

Yes.

H.M.Jr:

I think Celler should be the last man to handle it.

B:

Yes.

H.M.Jr:

See?

B:

Yes.

H.M.Jr:
B:

That's justBut, I understand, that's between us.

H.M.Jr:

That's absolutely between us.

B:

H.M.Jr:

between us -

Well, I think - I think that ways and means committee has Bob Doughton introduced the bills?
I'll just ask - (Has Bob Doughton introduced the bills?)
No, he hasn't introduced them, but he's got them all.

-3B:

194

Well, have these bills that Celler's got they've been introduced, of course?

H.M.Jr:

No, I don't think Celler's introduced his bills.

B:

He has not. Well, why don't Bob Doughton drop

them in the basket this morning, and I'll refer

them to his committee, unless there are reasons
why they shouldn't be, but my H.M.Jr:

It's kind of delicate for me.

B:

Well, I'll talk to Bob.

H.M.Jr:

Would you? And would you mind calling me back,

B:

Yes, as soon as I can get a hold of him. Of
course, he's going to start his security bill

or should I call today -

H.M.Jr:

Yes, but - he could drop our bills in the basket,

B:

Wy, sure. Well, let me get a hold of
first, and then I want to look into the situation
a little more fully, and then I'll talk to Bob,
and I think what Bob should do if those other
bills haven't been introduced to drop his bills
in, and if we are correct in our assumption, you

couldn't he?

understand, why just let me send them to his
committee.

H.M.Jr:
B:

Right. Well, thank you. Well, then I'll hear
from you a little later?
Yes,
I'll do that as soon as I can contact those
two fellows.

H.M.Jr:

Well, I'm here - I'm here right along.

B:

All right.

H.M.Jr:

Thank you.

April 11th

195

H.M.Jr. talked to Bell and Coolidge and told them
that he wanted to wait until after Easter to announce his refinancing.
H.M.Jr. said to-day that inasmuch as Ickes was
appointed Chairman of the Allotment Board that Harry Hopkins
may quit.

1954

April 11, 1935.
Thursday.

Senator

Robinson: Good morning.
Senator Joe Robinson?
H.M.Jr:
R:

Yes.

H.M.Jr:

Henry.

R:

All right, Henry.

H.M.Jr:

How did you like what we did on silver?

R:

I think it's all right.

H.M.Jr:

All right. I'm sending - hello -

R:

Yes.

H.M.Jr:

R:

H.M.Jr:

R:

H.M.Jr:
R:

H.M.Jr:
R:

H.M.Jr:

I'm answering McCarran's letter today. You know,
he wrote me a letter denouncing publicly about the
silver tax and silver exchange.

No, I didn't know about that.
Well, I'm sending him a copy by hand, and I'm sending you a copy also. I thought it was a good day
to answer it.
You want to put it in the record?

Well, his - his letter to me is in the record.
It is in the record?
He put his in the record and then he announced it
publicly, you see?

All right, I'll put that in the record for you.
Right. I - I - I can't - confidently I had two

assistants go over the letter first and he made
a couple of changes in it and when it's through

he said it's all right.
R:

Yes.

R:

So I think the letter is all right.
All right.

H.M.Jr:

Thank you.

R:

All right, Henry. Thank you.

H.M.Jr:

Goodbye.

H.M.Jr:

April 11, 1935.

Thursday.

H.M.Jr: Hello.
Operator: He's on the floor.

H.M.Jr: Well, will you get him, please.
Operator: Yes, sir.
H.M.Jr: Send word.
Operator: Go ahead.

H.M.Jr: Hello.
Robinson:

Hello, Mr. Secretary.

H.M.Jr:

How are you?

R:

Mr. Secretary, I'm about to insert your reply -

H.M.Jr:

Yes.

R:

- in the Record -

H.M.Jr:
R:

H.M.Jr:

Yes.

It isn't dated. Should I date it?
Oh, I'm sorry. That's a mistake. It should have

been dated today.
R:

H.M.Jr:
R:

H.M.Jr:

Yes. Shall I insert the date?
I wish you would. I'd appreciate that.

I'll be glad to do it.
We took a little time, because that was quite a

difficult letter you gave us.

R:

H.M.Jr:
R:

H.M.Jr:

Yes.

And I wanted to be sure to have it right.

Well, of course, I - confidentially I don't think
you're
right
yet, but
that's all right,
that's just
between
you then,
and me.
Well, that's what makes horse races, isn't it?

195B

-2R:

That's it - exactly right.

H.M.Jr:

Yes.

R:

H.M.Jr:
R:

H.M.Jr:

But, anyway, I'll insert the date.
All right. Thank you.
All right, Mr. Secretary.
Goodbye.

196
April 11, 1935.
My dear Senator McCarran:

I have your letter of April 4, 1935 in which you discuss
the advisability of continuing the provisions of Sections 6,
7, and 8 of the Silver Purchase Act of 1934. After asking a number
of specific questions based upon certain assumptions as to the
facts, your letter concludes with a request for my comments
upon your thoughts; my correction of any false assumptions; and
my suggestions as to any proposed legislation.
I shall begin with the assumptions.
In the first place, the true purpose of the silver program
of the Government as set out in the President's message to the
Congress of May 22, 1934 and as embodied in the Silver Purchase

Act is to improve the monetary system of the country, and,
immediately and more specifically, to increase the proportion of

silver in the metallic reserves back of our paper currency. This
purpose is explicitly stated in the Presidential message just
mentioned and is formally declared in the following language of
the Silver Purchase Act of 1934:

"Sec. 2. It is hereby declared to be the policy of the
United States that the proportion of silver to gold in

the monetary stocks of the United States should be increased, with the ultimate objective of having and maintaining, one fourth of the monetary value of such stocks

in silver."

Moreover, the statute makes perfectly plain what the duty of
the Secretary of the Treasury is with reference to its purpose, and

-2 -

197

the Congress has left in no doubt how he should proceed in
carrying out that purpose, because the Act provides:
**** the Secretary of the Treasury is authorized and
directed to purchase silver *** at such rates, at such
times, and upon such terms and conditions as he may deem
reasonable and most advantageous to the public interest

In view of the foregoing, no responsible and just policy
could have disregarded the question as to who should reap the
advantage flowing from the Government's monetary action with

reference to silver. Such was the policy of the legislation
which provided that the increased value given to gold by reason
of our gold program should revert to the Government for the

benefit of all.
At the same time, persons who increase the world's stock

of silver as well as gold by mining or refining, may properly
be distinguished from people who merely hold or deal in a monetary
metal for the purpose of realizing profits from governmental
action. Accordingly, people such as the miners and refiners may,
on this basis, be accorded a treatment which it would be unfair
to accord to the hoarder or to the speculator.

Your first question, whether the authority granted by
Section 6 of the Silver Purchase Act is not "somewhat superfluous"
when read in the light of the foregoing, can lead to only one
answer. You ask whether the Congress in granting such authority

to investigate, regulate, or prohibit dealings in silver or the
importation or exportation thereof, "did not carry the theory
a step too far by selecting one commodity". Have you not over-

-3 -

198

looked the fact that the Congress has selected two commodities

which are subject to such regulation, that those two commodities
are the monetary metals underlying our currency system, and

that, in the language of the Supreme Court, "there attaches to
the ownership of gold and silver those limitations which public
policy may require by reason of their quality as legal tender and
as a medium of exchange"? To answer your question more specifically,
while the international monetary situation continues to be unstable
and while we are improving the monetary uses of silver and gold
and increasing our stocks of silver, the reserve executive power
in Section 6 of the Silver Purchase Act, Section 3 of the Gold
Reserve Act, and Section 2 of the Emergency Banking Act should

not be disturbed. To do so would paralyze action which the
Government may have to take in order to protect our monetary
system from possible crises in the international exchange markets
and from speculative dealings in the monetary metals and other
foreign exchange.

Your next question relates to Section 7 of the Silver
Purchase Act. You ask if the authority to "nationalize" silver
has not already accomplished the purposes for which it was

designed. My thoughts on Section 7 are again that the President's
authority to call in silver was properly made as broad as his
authority to call in gold. By reason of the more stringent
regulation of dealings in gold, unnecessary accumulations of
that metal in this country are no longer possible. Unless silver

-4-

199

were subjected to regulation equally stringent, the authority
should remain again to call in silver in the event that a
tendency should arise to withhold that metal for non-industrial
purposes. I assume, of course, that you have not overlooked
the fact that the order "nationalizing" silver operated only
on silver situated in this country on the date of its promulgation, August 9, 1934.

Your final question relates to the so-called silver tax.
You state that you have until recently been "unaware that

Section 8 levies this tax of fifty per cent on silver profits
on all transfers and thereby must practically preclude the
purchase and sale of this commodity within our jurisdiction".
This assumption is not entirely accurate. The tax applies to
all transfers but the statute makes adequate provision for
abatement or refund of the tax on profits arising from transfers
both for industrial purposes and also in hedging transactions

in silver foreign exchange. The result is that this tax is
payable only where it should be payable, that is, on silver
profits arising from an increase in the price of silver due to
the purchases which the Secretary of the Treasury is authorized
and directed to make.

In the administration of the silver tax, the Treasury has
succeeded, I believe, in maintaining this distinction. Opposition
to the silver tax can come only from a failure to recognize this

-5-

200

distinction. Surely, it is not unfair to those whose profits
are due to governmental action, that half of those profits
should revert to their Government. Failure to preserve at
least this much would be unfair to the great majority of our
citizens who contribute directly and indirectly to the payment
of Government expenditures but who do not deal in silver in
anticipation of profits due to governmental action.
The remaining half of your letter assumes that the United
States cannot buy silver through domestic brokers because of

the silver tax. I can assure you there is nothing in this. It
is a standard provision of all transfer taxes that when the
transferor fails to pay the tax the transferee shall be contingently liable, but that, where the transferee is the United
States, this contingent liability does not apply as it would
be useless for the Treasury to pay a tax to itself. The silver
tax expressly follows this practice. If the United States is
not contingently liable as transferee, brokers, acting on behalf
of the United States, need not pay on behalf of their principal
a tax which the principal does not have to pay. This is equally
true whether the agent is a domestic or foreign broker.
The Treasury makes purchases abroad as well as in the United

States to carry out the mandate of Congress to purchase silver
upon terms most advantageous to the public interest. Congress
in enacting the mandatory silver purchase program contemplated

-6-

201

purchases in such quantities as necessarily to involve purchases
abroad. Indeed the Act specifically refers to purchases "at

home and abroad". Foreign sellers prefer to offer their silver
in their own markets, which, of course, they have every right
to do. By doing this, their sales to the United States fall
outside the scope of this tax. In making purchases from them,
the United States obviously does not evade or connive in the

evasion of the tax, either in form or in spirit.
You ask 1f the repeal of Sections 6, 7, and 8 of the Silver
Purchase Act would interfere with operations contemplated under

the other provisions of this Act. I think those three sections
have contributed materially to the success of our Silver Purchase
program and believe that their repeal would jeopardize the true
purpose of the legislation of which they form a part.
Very truly yours,

HO:ew

201A

April 12, 1935.
Friday.

H.M.Jr:

What's new?

Knoke:

Silver's up.

H.M.Jr:

No1

K:

You've seen that?

H.M.Jr:

Yes.

K:

Why, the only thing of interest I have, I just

H.M.Jr:

Oh, yes.

K:

- on the phone -

H.M.Jr:

That's interesting.

K:

- and he gave me some pretty good dope. He said

L. W.

talked with Leon Fraser,

that the members of the gold bloc were still
feeling the pressure.

H.M.Jr:

Yes.

K:

But that it looked as though they were going to
be able to hold on for awhile;

H.M.Jr:
K:

Well, that's interesting.
- that the pressure was not as acute as it had
been. He still thinks that they won't be able to
see it all the way through -

H.M.Jr:

I see.

K:

- but he says it looks like a fairly quiet period

H.M.Jr:
K:

H.M.Jr:
K:

H.M.Jr:

unless something turns up.
I see.

He says that in Switzerland the - it's a most
troublesome place; that they wanted last week to
put foreign exchange restrictions into effect Yes.

- in Switzerland, and they were dissuaded from
doing that, although they now have a sort of
gentleman's agreement with the Swiss banks under
which they don't permit any speculative transactions,
I see.

-2K:

or any flight of capital.

H.M.Jr:

Yes.

K:

He says they're all watching the Belgian
experiment very closely and that if that turns
out well, they - other members may be inclined
to copy it.

H.M.Jr:

We've sent a man over there, you know.

K:

You what?

H.M.Jr:

We've sent a man over there. I said, I have

K:

Oh.

H.M.Jr:

An economist.

K:

What kind of a man?

sent a man over there,

H.M.Jr:

Well, I don't know whether you know Shepherd
who was here with us.

K:

No.

H.M.Jr:

Well -

K:

An economist?

H.M.Jr:

Economist. He took his D.H.C. with Kemper,
and then did a paper on Belgium.

K:

Yes.

H.M.Jr:

Speaks French fluently and as a matter of fact,
his paper was corrected by
Oh, really?
Yes, so we thought he was ideally suited to go
over there.

K:

H.M.Jr:

201B.

K:

Yes.

H.M.Jr:

So he's going to stay there.

K:

Yes, well, that's fine.

H.M.Jr:

Now, anymore from Holland

K:

No, I - I sent you down last night a copy of the

201c

-3 cable that we got from them.
H.M.Jr:

I didn't get that. I'll ask Mrs. Klotz.

K:

Yes, I sent it to Mrs. Klotz.

H.M.Jr:

Right.

K:

H.M.Jr:

But there wasn't anything much in that. I
just thought you wanted to look at it.
Well, there nothing - no reason to call them
up today.

K:

No, I don't think so.

H.M.Jr:

All right.

K:

Goodbye.

H.M.Jr:

Everything else all right?

K:

H.M.Jr:

Yes -

I think the week-end is going to be quiet, don't
you?

K:

H.M.Jr:
K:

H.M.Jr:
K:

Yes, I do too.
I think the week-end that may be mad will be
Easter.

Well, yes, it might. It has been before.
Yes. Well, thank you.
All right. Goodbye.

April 13, 1935.
Senator J. H.
Lewis: (?) Hello, Henry?

2010

Saturday.

H.M.Jr:

Hello,

L:

Sorry to bother you, but if you can just give
me a little information.

H.M.Jr:

You never can bother me.

L:

Senator Moore, last night came to my apartment

in the hotel

up at Camden, New Jersey they had

Republican District there; they have an election
form of
some day next week, I think it is

government and the Commissioner of Internal
Revenue had been to the Democratic meeting there,

and I think the lady who is the Postmistress,
and has been a very good Democrat is because the
Democrats have taken some interest in the election,
Morgenthau's
up there
evidently. They
representative to investigating these two Demothat they are going to
crats and
be given a lot of trouble because they are expressing their views too freely about the political
situation. Do you know anything about it at all?
H.M.Jr:
L:

H.M.Jr:

L:

No, I don't; I don't know a thing about it.
Well, I told him - I said I'm certain Henry Morgenthau don't know a damn thing about it.

You know, Lewis, during the last election, they
several times accused us of that and I'd always
run the thing down.
Well, what representative would you have doing
it?

H.M.Jr:

I - I never send anybody out. What happens is
this, sometimes after these things are over, we
get complaints -

L:

Yes.

H.M.Jr:

- and - but after this if the Collector wants to
take an interest, a not too active interest in

his own state campaign, on his own time, we never

interfere.

L:

H.M.Jr:

Well, I thought
We never interfered. We've got certain rules - if you've got a minI tell you what I do
ute, see?

L:

Yes.

201E

-2H.M.Jr:

I've appointed, what I call, my political committee
to
handle cases like this. I'll tell you who's
on it.

L:

Who's on it?

H.M.Jr:

The Chairman of it is Guy Helvering Yes, well I'd telephone him in order to save talk
with you.

L:

H.M.Jr:

Yes -

L:

H.M.Jr:

Yes, and I'll tell you who's on it. I put practical
fellows on it. I put on Guy Helvering; I put on
Julian: I put on Mrs. Ross and Steve Gibbons, and

there
was a fifth person, I forget who it was. Oh,
Jackson.
L:

Jackson.

H.M.Jr:

Now, there were five people, all that I call practical
politicians and all of these things are referred to
them -

L:

Well, let me -

H.M.Jr:

See?

L:

Suppose I take it up with Gibbons or Julian.
Sure, and those fellows are practical fellows -

H.M.Jr:
L:

H.M.Jr:

That's right.
- and I - we've got such a big department and all
this stuff that ever comes up I refer to them, and
I've taken their recommendation every time.

L:

H.M.Jr:

When the - I didn't think you had any
force up there.
Oh, no, oh, no. We don't -

H.M.Jr:

All right.
We don't - we don't - I don't - I mean, they tried

L:

Yes.

H.M.Jr:

- and I said, that's not our job; we don't have any
fellow who hasn't paid his income tax, or fellow
who's a bootlegger; we look into it.

L:

to drag - to drag us in on this Ohio thing -

201F

-3 L:

Well,
that's
all right; that's down your alley,
but
this
is not.

H.M.Jr:

No.

L:

Well,
I'll-straighten Moore out and I'll tell
him that

H.M.Jr:

I appreciate your calling me.

L:

- you didn't know anything about it. Somebody -

some very close friend of his had telephoned
him and he came to my apartment with it and was
so disturbed I wanted you to straighten him out.
H.M.Jr:

Icare
- I -ofif ityou
don't get satisfaction, I'll take
personally.

L:

Well, no, no, it isn't any use. I'll-suppose
Gibbons
isn't it? is the best man to take it up with,

H.M.Jr:

L:

Yes, I mean, he handles it and thats the group
that I got - all of this sort of complaint, I
shove everything over to them.

H.M.Jr:

Well, I'll get him right now.
All right.

L:

Goodbye.

202
April 15th
Mr. Janusz Zoltowski, Financial Counselor,
and Mr. Henryk Gruber, President of the Postal Savings Bank
of Poland, came in to see the Secretary to-day. The following

is their conversation:
I want you to know Mr. Secretary that the
J. Z:
New Deal is very popular in Poland. Mr. Gruber,
who is head of the most important bank in
Poland is very anxious to have a talk with you.
H.M.Jr:

Is yours a government bank?

Gruber:

Yes.

H.M.Jr:

Do you have control of exchange or is it free?

G:

Free.

G:

Are you tied to the pound or the Franc?
Our policy is independent. We belong to the
gold bloc but we are independent. We will
remain on the gold standard.

H.M.Jr:

Have you devalued since the war?

H.M.Jr:

G:

H.M.Jr:
G:

H.M.Jr:

Yes. 11 years ago.
In this movement of gold - does that affect you?
More or less no. We have no trouble with the
banks in our country.
Do you have a favorable or unfavorable balance
of trade?

G:

Favorable.

H.M.Jr:

Somebody told me the other day that you were

G:

contemplating changing the cotton mills in
Poland so that you could use Brazilian cotton
instead of American cotton.
No. I have not heard anything about this. We
have very nice relations with the United States.

203
H.M.Jr:

When Belgium devalued, did that have any effect
on you?

G:

No.

H.M.Jr:

At these meetings that take place at Basel,

G:

Yes.

H.M.Jr:

How long can Holland and Switzerland stay

is Poland represented?

on gold?

G:

H.M.Jr:
G:

It is very difficult to say.
Is your unemployment getting better or worse?
A little better. We now have about 360 thousand
unemployed. The largest number we ever had was
400 thousand.

H.M.Jr:
G:

G:

You do a very large business with Russia?

Yes, but our biggest business is with England.
We send sugar and bacon to England. We have a
favorable balance of trade with England and

they give us all facilities to export.
What is the policy about the dollar? Will the
dollar stay at this level or will it go down?
I hope you do not mind my asking you these
questions but if you feel you do not want to
answer them I will understand.

H.M.Jr:

We live from day to day and are on a 24 hour
basis. We do not know what the rest of the

world is going to do, but if things stay as
they are we are satisfied. We have had de facto
stabilization for 15 months. As I said, we are
satisfied with things the way they are to-day

but we are not going to permit ourselves to be
in the same position that we were in in 1932 when
England went off gold. We think it is England's
next move. Our business is good, we have a
tremendous export business but we cannot say

that this is the policy for the next year or two
as we do not know what Europe will do the very

next day. For the moment, I say we are perfectly
satisfied. After all, the dollar has been more
stable than any other currency for 15 months.
I believe that England is the stumbling block

to stabilization.

204
G:

On your four billion eight, how are you going

to raise the money?
H.M.Jr:

Through borrowing - interest bearing bonds.

G:

Your regular bonds or special bonds?

H.M.Jr:

Regular bonds.

H.M.Jr:

If you will read the speech I gave last night
I believe it will answer many questions for you

on our financing.
G:

Do you think it is possible to have an International Conference for stabilization of all
currencies?

H.M.Jr:
G:

H.M.Jr:

H.M.Jr:
G:

It is perfectly possible. and it is the sensible

thing to do.
You are right. I am also of the same opinion.
The Chancellor of the Exchequer constantly says
that England is not ready for stabilization.
What England would really like, I think, is for
all of us to stabilize and leave her out but
of course that would not be very practical.
We are ready at any time to talk co-operation
about money with any country.

My opinion is that there is only one way and
that is to have an International Conference.

April 15th

205

Last Tuesday, April 9th, I called on the
President just after Harold Ickes had left him. I told the

President that Ickes seemed pleased and while I was sitting
there Miss LeHand came in and said that Ickes had stopped on
his way out to see her and said "I went in to see the President
with a chip on my shoulder but I am entirely satisfied
Heavens only knows what the President promised him. His
decision would be in connection with the 4 billion 8.
The President asked me to become a member of the

Allotment Board and I told him that I would like to think it
over as I did not know whether I could serve him best there
or working on the following projects for him:
1.
2.

Overlapping federal, state and municipal taxes.
The American dollar bloc including North and South
America and China.

I told him I had sent a man to Belgium and England
and was sending one to Mexico. He said "Fine. We ought to go
ahead and try and get some of the South American countries,with
the exception of Brazil and Argentine who are feeling at present

unfriendly towards us, on a gold and silver basis." He said,
"you know I started that with the President of the Republic of
Columbia. You ought to send somebody as an unofficial ambassador
to these countries and tell them that we would lend them gold
against which they could issue paper money, "and then the President
said, winking one eye, "we will keep the gold here in this
country as collateral." I simply roared with delight at this
suggestion and I said, "certainly your Yankee-Dutch ancestry
knows how to make a good deal. The difficulty will be to find
somebody whom we could send."

I told him about the answer the British gave
Phillips on the question of stabilization and I furthermore
told him that I told Coolidge that I did not want him or anybody
from the State Department in the future to talk to the British
on stabilization, and that I would only talk to them myself when
I had definite instructions from the President.
I found the President in an excellent humor and
very friendly.
I showed the President the copy of the telephone
conversation that Crane had with Cariguel. When he looked at
it he roared with laughter, and he saw that I first thanked the
French for shutting down on St. Pierre and immediately in the
next sentence offered them a credit of 5 million dollars.

20S

He said "don't you think this is a little obvious Henry"and I
said "I never thought of it in that way but I think you are
right". I said "what harm does it do and he said "I guess none".
Thursday about 4:30 Herman Oliphant and Lochhead

both hitting me simultaneously - Coolidge was in New York checking up on the bond market - Oliphant brought to my attention the
fact that silver was selling above 6434 in New York and Lochhead
letting me know that Crane had been requested by the Central
Bank of Holland that we help them out by buying some gold. In
talking over the matter the three of us decided that on account
of the tax on silver we better increase the price. We agreed
that 70$ would be about right. Subsequently Oliphant thought

we ought to raise it 5% of $1.29 which is 71 plus. I told him
to draw up the order both ways and let the President choose.
I called the President on the phone about 4:30
and told him that I wanted to tell Holland that we would buy

10 million dollars worth of gold if necessary. He said "I hate
to see so much gold coming here" and reluctlantly he agreed.
I then told him about the silver and he was
quite jocose about it. He agreed that we would have to raise
the price. I told him that Oliphant said our troubles would
be over if we raised it to $1.29 and he said "what" so loudly
that the phone just crackled. He said "what has come over
Oliphant".
I then called up Crane and we fixed up a cable
to send to the Dutch. Oliphant took the papers over to the
President at about 7:30 and got the papers signed on silver.
The interesting thing on our offer to Holland has been that
they never made use of it and it seemed to have been a turning

point for the better for them.
We ought to be building up a very friendly feeling for the United States government in countries like Holland
and France.

Friday night I started to worry about the 4 billion

8 setup as the idea of Harold Ickes as Chairman of the Allotment
Board and Harry Hopkins in some nondescript job just made me

sick. I felt that nobody would have the responsibility and the

thing would fall between Hopkins and Ickes and would be a mess.
I racked my brain to try to think of somebody new who could

take hold and do the job and I decided that there was nobody in
Washington who could do it better than Joe Kennedy - outside of
myself. Of course I should not and could not do it because I
must not spread myself too thin on too many jobs. I called up
the President Saturday morning and told him that I was terribly
worried and wanted to talk to him about the 4 billion 8 setup.
I saw him Saturday a little after two and spent
an hour and a half with him only being disturbed once. Miss
LeHand came into the room with a small amateur moving picture

207
camera and one of those machines to test light. She stood in
front of the President, pointed the camera at him and fussed.
After a minute or two the President stopped talking and just
waited. Missy disagreeably said, "why don't you go ahead
with your work" and he said, "I can't work with that damn thing
pointed at me". She, like a spoiled child, said, "oh if that
is the way you feel about it" and walked out of the room.
After all WE were talking about fairly important things and
her behavior was childish. After she left the President said
something which he has never said to me before. He said, "I
stopped talking because I didn't want Missy to hear what we
were saying". I then said to the President, "I want to talk
to you as one Dutchess county neighbor to another". He said,
"fine".
I said, "Franklin, the way you have things
set up now with your 4 billion 8 you can't help but be a
failure. If that fails you can't be reelected". He said,
"you are right". I said, "I have a suggestion for a man to
head it up" so he said, quick as a flash, "I have a man also".
I said, "should I give you mine first". He said, "yes". I
said, "my man is Joe Kennedy" and he said, "mine is Frank
Walker". I said, "there is no question about Walker's integrity
and ability and I think he demonstrated that when he was here
before that he could not handle Cabinet Members - he is too
gentle. Kennedy has made an outstanding record and I feel he
can handle people. He is popular on the hill and with the
newspapermen."

I could see the President did not like my
suggestion. I said, "what is the matter" and he said, "the
trouble with Kennedy is you always have to hold his hand". You
know I told you that Ray Moley usually gets upset once a month
while Kennedy gets these notions at irregular intervals but he
calls up and says he is hurt because I have not seen him"and,
in other words, the President said Kennedy is too tempermental.

He said, "then I have another very difficult
problem. That is Louis Howe. About February 10th Louis gave
me a chart on how he proposed to set up the 4 billion 8. Louis
has it absolutely fixed in his mind that I promised him to carry
it out this way and, he said, I am afraid if I do not he will die."
I said, "well after all, Franklin, Louis' days are limited and
we have the whole welfare of the country at stake and I think
there is a limit that you can go to satisfy Louis." "Well, the
President said, "I have either to do it nt the way Louis wants
me or else camouflage it so Louis thinks I am doing it the way
he wants me to! He then brought out Louis' chart and he looked
at it and said, "it does not make head or tails" and I said,
"no it does not". He said, "I have an idea. I am going to
appoint a man whom I am going to call Assistant to the President
in charge of Public Works". I said, "that is grand" and the
President said, "this man will really run the show".

208
I then again went after him on Kennedy and

he sat back in his chair and did what he very rarely does "said
absolutely nothing" for a few minutes. He then turned to me
and said, "I think that is all right". I then said, "if you
have time I would like you to go over my radio speech and he
read it and kept saying "this is fine - this is grand" and then
took a pencil and started to copy out most of the figures to
use for his talk before the Gridiron Club. He said, "do you
mind if I use your speech" and I said, "Franklin, you can have
anything that I have except my wife". He laughed and seemed
pleased.

When I started talking to him about the setup
of the 4 billion 8 I introduced my remarks by saying "please
remember, Franklin, that I cannot get anything more out of
politics in this life so what I am going to say to you is
motivated by the desire to serve my country and you and nothing
else". He said he would call a meeting on the 4 billion 8 for
Sunday but which meeting never took place.

(As I remember it Bell, Upham and Gaston
helped Mr. Morgenthau write this speech - Mr. Morgenthau

supplying the ideas. Mr. Morgenthau left it entirely to
Bell to supply the correct figures and almost the very
last minute, that is, the day that Mr. Morgenthau gave
his speech he discovered that the figures did not look
right to him. Bell had made a mistake and Mr. Morgenthau

spent hours working on this speech on Sunday. The men really
had no speech for him even though he supplied the ideas until

he actually wrote it himself.)

To-day's lunch was spoiled by the fact that
Hugo Black was there for about half an hour discussing with
the President whether or not they should give out the information in regard to ship mail contracts. The President told
him that if Black would ask him for the information he would
see that he got it at once and that Black could give it out.
Knowing nothing about it I could not get the significance but
evidently there had been a big discussion previously.
I showed the President an abstract from the
Jim Watson case. He asked me to wait until the indictment on
Finkelstein was announced and immediately after this to file
the Watson case for criminal prosecution. This will make it
appear that we could not help ourselves and, therefore, will
not disturb Watson's friends so much. Personally I would much
rather file it at once but I didn't feel it made very much
difference if we had to wait a couple of weeks and I do not
like to fight over unimportant issues with the President.

209
I told him that we heard from the Bank of France
and they had again inquired about stabilization. He suggested
that I read the report on money at the Ottawa Conference and also
the monetary statement given out immediately after the London
Economic Conference at London by the English. He thought that
we could get the various countries in Europe to agree on stabiliza-

tion after they had declared and established their internal price
level and then eventually get England to join us. I told him that
I thought that we never could get stabilization in the world until
one of the important countries was flat on its back.
He asked me what I thought of Senator Couzens

to succeed Jim Moffett of the Housing Organization. I told him
that I did not like Couzens and I could not see how appointing
him would help the Administration. He said, "if we took care
of Couzens maybe we could elect Governor General Murphy of the
Phillipines as United States Senator from Michigan". I said,
"that is an idea". He asked me to find out how able Stuart

MacDonald, Moffett's first assistant, is. I told him that I

would. As I got up to leave I asked him if there is anything
new on the 4 billion 8 and he said "no, I was too busy yesterday
to do anything about it". He said, "I think that Joe Kennedy
is the man to be in charge and", he said, "I think that Ex-Con-

gressman West would be better at the Information Bureau than
Frank Walker and we could save Frank Walker for something else.

209 A
TREASURY DEPARTMENT

Washington

Release Upon Delivery,

7 P.M. Sunday, April 14, 1935.

Press Service
No. 4-76

A speech to be delivered Sunday, April 14, 1935, at 7:00 p.m. Eastern
Standard Time, by the Secretary of the Treasury, Henry Morgenthau, Jr.,
over n nation-wide joint hook-up of the National Broadcasting Company
and Columbin Broadcasting System.

You will soe in tomorrow morning's newspapers that the Treasury has called

for redemption on the 15th of next October all of the Fourth Liberty Loan Bonds
whose numbers end in three or four. The last of the Liberty Lonn Bonds have now

boon called. And SO in this seventeenth year after the Armisticc, these famous
securities move from the realm of Government finance to the pages of history.

This Administration hrs now called for redemption eight billion dollars
worth of Liberty Bonds. Wo did not have to call them; they vore not due; it was
good business sonso that prompted our action. The bonds called today bear four

and a quarter per cont interest while the average interest rate for all Government
securition now outstanding is only 2.86.

It is impossible to estimate accurately how much we will save in interest
on this now refunding because it has not yet been completed, but I can tell you
how much we are saving on our previ us $5,000,000,000 of refundings In round

numbers it amounts to $65,000,000 a year. If we do as woll on the remainder,

which seems t be a fair assumptism, there will be all additional saving of
$35,000,000 a year. That makes a total of $100,000,000 which will not have to be
raised next year from the taxpayers.

Refinancing on this scale has the quality of high adventure. In England,
when they undertook a similar operation to reduce debt charges, the Chancellor of

the Exchequer felt called upon t ask that no now capital issues be offered during
the period of the conversion; and that ben remained in offect six months. The

209B
-2-

operation was accompanied by appeals to patriotism; indcod it rosembled one of our
war time Liberty loan campaigns. Here we have handled this same transaction so
casily, and in such a commonplace manner, that many people have undoubtedly been

unaware of its nature or significance.
But the bonefits of this transaction do not end with the saving of
$100,000,000 a year.

When wo began our refinancing carly in 1934 we faced a poculiar situation;
there was plenty of money, and presumably it ought to have been cheap, but it
wasn't. The bond market was stagnant and prices were low. Scarcely any refunding
was going on. There was a log-jam in the capital market. The Federal Government

took the initiative by refunding the first five billions of high rate Liberty
bonds into lower rate and longer bonds. In the fifteen months between January 3rd,
1934, and April 3rd, 1935, the average price of representative municipal bonds

rose twonty-four per cent. High grade railraod bonds rose 14.4 per cent. Public
utilities bonds roso 12.1 per cent. Industrial bonds rose 14.7 per cent. These
increases in the market value of bonds reflect the decrease in the cost of money.
The great importance of cheap money to improvo business conditions is not

generally realized. The great corporations came into the market to attend to
their necessary financing. The financial pages of your newspapers reflect the
impressive change in the dimensions of their operations. Let mo give you the
figures. During March, 1934, the total volume of corporate refunding amounted to

only twelve and a half million dollars with no lowering in the interest rate. But
during March of this year, corporate refunding exceeded one hundred and twelve

million dollars - or nino times as much as during the previous March. And the
interest rate on the new issues this year shows an average decrease of almost one

and a half per cont which meant a saving of more than one and a half million

209C
-3-

dollars. That is real refunding. It shows conclusively that the financial
log-jam has been broken.

These developments have a very definite meaning in your every day life. They
affect not only the taxpayer but every stockholder, producer . consumer and
worker.

We are now just on the eve of seeing the substantial benefits of this
fundamental change.

There is no longer any reason why capital should not flow normally into the
artories of business. In fact, with the splendid cooperation and wise guidance
of the Federal Securities and Exchance Commission, it is doing so.

Although you may not have followed all this refinancing in detail, you have
undoubtedly read headlines referring to the Now Deal expenditures. Nobody denies

that there have been expenditures - and large ones - but let us go into that
subject realistically.
Soon after this Administration came into office, March 4, 1933, the President
submitted a comprehensive recovery program which the Congress approved. As the

Prosidont clearly pointed out in his first budget message in January, 1934, that
program called for an expenditure of $9,300,000,000 for the two year period ending
June 30, 1935, above the estimated income. The deficit at the and of twenty-one
months of that two year period was $6,300,000,000. With less than three months to

go to complete the two year period, we are certain that expenditures will be
$2,000,000,000 less than that original estiiate.
Naturally you want to know what the Government got for its money. Emergency

expenditures caused the deficit and here are the items: Loans made by the
Reconstruction Finance Corporation, Public Works Administration, and various other
Governmental agoncics, $1,700,000,000.

-

2090

Public Works under which hoad I include the Boulder Dam, rivors and harbors,
the Tennossco Valley Authority's projects, Subsistence Homesteads, and the vast
program of Federal aid for good roads, $1,200,000,000.
The romaining $3,400,000,000 WAS expended for relief of American citizons in

distress. This was the grand total for all forms of relief and includes even the
$600,000,000 for the Civilian Consorvation Corps, rhose splendid work is worth

every dollar of its cost.
In order to Ect the truc picture it is important to remember that those
oxpenditures are not loss or waste. We have acquired values for them. From the
loans of $1,700,000,000 we may expect repayments in substantial amount which will

su to reduce the public debt. The $1,200,000,000 for public works is invested in
dams, roads, buildings and other permenent improvements. These two itoms account.

for nearly half of the deficit.
The greatest single item of expenditure has been for relief. Wc have fur-

nished food, nhelter, clothing - and the solf-respect which comes of having a jobto millions who needed these things as never before. That item will continue to

be the bulk of the real doficit.
Now let's take up the Public dobt of the Foderal Government. Whon this

Administration crmo into office the gross public debt was a little less than twentyone billion dollars. Ac of March 31st this year it had increased in round numbers

to $28,800,000,000, the largost in our history. Although there is no doubt anywhere about our credit being good - if it voro not we could not have refunded

all of those Liberty bonds - some people raise a point about the cost for interest.
But let us see how this cost at the present timo compares with the cost in past
years. The annunl interest cost on today's debt amounts to eight hundred million

dollars. And you would naturally suppose, in vicv of the fact that the debt is

2091 E

-5-

the largest in our history, that the interest cost must also be the largest. But

it is not.
We are carrying the greatest National debt in our history for less money than
it cost back in 1925, when the National debt was smaller by eight billion dollars.

Now lot's look ahend and see, first of all, what certainties the future holds.
In July and August we know that we aro going to retire $674,000,000 of interest
bearing Government securities. They are the Panama Canal bonds and United Statos

C naols that have already beon called for redemption. The cash for that transacti n is now in the Tronsury.
Then we are going to finish the retirement of the Liberty bonds previously

montioned. For all practical purposes, this cigantic operation will be out of the
way when the time comes to raise the bulk of the money needed for the President's
now work-rolief program.

In his message submitting the Budget for 1936 to the present Congress, the
President said:

"If this Budget receives the approval of the Congress, the country will hanceforth have the assurance that, with the single exception of emergency relief,
every current expenditure of whatever nature, will be fully covered by our

estimates of current receipts. Such doficit as occurs will be due solely to
emergency relief, and it may be expected to decline as rapidly an private industry
is able to re-employ those who not are without work."
Since the President dolivered that message, new developments that would bear
upon his forecast have been mostly favorable.

In looking ahend we are choered by the fact that tax receipts for the first
ninc months of the present fiscal year are $145,000,000 above the ostimates.
On June 30, 1936, 170 should have, according to the budget estimates, a

209F
-6-

National debt of thirty-four billion dollars, but those estimates did not take
into account the retirement of the $674,000,000 of Government securities which I
mentioned a moment ago.

The work relief program, for which Congress recently appropriated four

billion, eight hundred and eighty millions of dollars, is scarcely started. In
vicu of these two facts and our present comfortable margin within the budget

estimates, it is entirely possible that we shall find on June 30, 1936, a National
debt of considerably loss than thirty-four billions.
In conclusion: Let us not forgot a fow central facts and figures. The New
Deal expenSitures are represented by money still right here at home. Some of it

has been used to than out the frozen assets of banks for the benefit of depositors.

Some of it is turning the wheels of industry. The greatest part of that portion
which 1/0 shall not recover, in a material way, has been used to save human life,
and to preserve the morale of our people.
Thank y.u and Good Night.

April 15, 1935.

209G

Monday.

H.M.Jr: Hello.
Fiorello

LaGuardia:Hello, Mr. Secretary?
H.M.Jr:

Yes.

LaG:

Good morning, how are you?

H.M.Jr:

Fine.

LaG:

H.M.Jr:

Well, first of all, congratulations on that speech
last night.
Did you like it?

LaG:

Well, I - I not only like it, but I think it's the

one - it's going in the right direction to permanently
reducing the interest charges on our permanent debt.
I think that
is the greatest - the greatest result of
the
in the whole service.
H.M.Jr:
LaG:

H.M.Jr:
LaG:

H.M.Jr:
LaG:

H.M.Jr:
LaG:

Well, that's nice of you to say Gosh,
you know that - it's a big item - it's an enormous
item.
People didn't realize it."
Why, they don't realize it, and to think, Mr. Secretary,
if we could do that with our railroads and industry,
every railroad in this country would be solvent.
You're right.
That's the one thing I've been driving at in Congress
for the last ten or twelve years - don't drop it;
I'd keep it right up.
Well, of course the point - not only do we benefit by
it, but every other unit of government benefits too.
Certainly,
certainly.
Now,
talked to and
I'm going
to Mr.
seeMorgenthau,
Carlyle and I - I just
tomorrow (what time is that, eleven o'clock?) at
eleven o'clock.

H.M.Jr:

Yes.

LaG:

Now, very confidentially, they're just balking a little
bit because I told them I would not say yes officially
until we met in Washington. They want to take the ball
awaythe
from
the President, and I want the President to
hold
ball.

H.M.Jr:

Sure.

209 H

-2LaG:

Now, it's the nicest thing that can happen if - to have
this thing settled in Washington where I can publicly
acknowledge the cooperation of the Federal Government
in keeping with the President's home power policy. So
tomorrow we're going to meet on the terms - as far as
concerned, and I don't think there's anything
left but the physical drafting of the contract.

H.M.Jr:

I see.

LaG:

- but I'm going to keep on dodging until we meet in
Washington. I told that to the President and it pleased
him very much -

H.M.Jr:

Fine.

LaG:

- and I think it's a nice thing to do.

H.M.Jr:
LaG:

Well, then going to just buck every

H.M.Jr:

Sure.

LaG:

-

H.M.Jr:
LaG:

future.

seemed to know that they have some hope for the

That's right.
So tomorrow right after the conference, I'll ring you up.

H.M.Jr:

Fine, and you know we were getting along splendidly on
that liquor checkup, you know.

LaG:

Oh, yes.

H.M.Jr:

You'll be interested in knowing that some of the people
who told me, who have no ax to grind, that New York City
today, as far as liquor is concerned is cleaner than it's

been in years.
LaG:

Well, that's - it's

H.M.Jr:
LaG:

They say that there's less bootlegging in New York today, and it's cleaner than it's been in years.
We're washing it, Mr. Secretary.

H.M.Jr:

Right.

LaG:

And you know we've thrown a lot of business to the hotels
and taken it away from those boats, too.

H.M.Jr:

Right.

LaG:

All right, then I'll phone you right after the meeting
tomorrow.

H.M.Jr:

Thank you.

they know it doesn't pay

Centrand
14135

m 209.0

ABSTRACT OF COMMENTS ON RADIO ADDRESS

Ben Talbot, National Stockholders Society, Incorporated. "The United
States Treasury, under your excellent management, is to be congratulated upon

its handling of national finances under great difficulties. We are in line
for an era of much better feeling".

Harry Freedman, Kingston, New York. "I want totell you I listened to your
radio address here in Kingston Sunday, and it was the finest and clearest
message you ever delivered over the radio. It was a pleasure to listen to you
and very glad to hear the Treasury Department is handling the financial policy
of the New Deal in a most efficient and successful way. Good luck to you
William M. Sporborg, Vanderbilt Hotel, New York City. "May I avail myself

of this opportunity to congratulate you upon splendid, enlightening talk

over the radio to-night? Your voice came over pleasantly, *****EX distinctly
and convincingly, and your remarks surely will make many new friends for you
and the Administration. Thousands of thinking people here are proud of the

record in the office you so ably fill, and I could not resist the opportunity
(and liberty) of writing you to-night after listening in. More power toyou

and best wishes for your good health and continued success."

Kenry

Heimann, Executive Manager, National Association of Credit Men.
"I thoroughly enjoyed your radio speech."

Morton Engel, Philadelphia, Pennsylvania. "Congratulations on both the
calling of 42% Liberty Bonds and your tone of voice on the radio, but the local
jam on real estate is on as ever, and unless all Exting United States bonds are

called and replaced by currency or credit, thrifty men will suffer. I hope you
will try beneficial measures for the many small investors."
Anonymous. "I hope you read this but doubt if you ever receives it. Your
radio talk was very clever in concealing what you do not care to have brought
into the open. Namely, the issuance of interest bearing bonds to the bankers

by the four billion, etc., thus tightening the iron slave sais collar upon the
necks of the American serfs. How alask about it? Can you make an address on

that question?

James L. Preston, Baltimore, requests a copy of the address. No comment.

Stephen Bell, Clifton, New York. "I have just listened to your

broadcast. I must confess that I cannot understand the persistence of the idea
that low interest rates are a good thing for the country. As unemployment of
labor increased, unemployment of capital has also increased and int erest rates
have fallen. When employemtn is general and wages are high, the same thing is

true of capital and interest. The theory that low interest rates are beneficial
implies that the same is true of wages which, of course, we don't believe. Yours

for straighter economic thinking."

George H. Rockwell, Cambridge, Massachusetts. "Your talk last evening over

the radio was not only very well delivered but also very interesting. The subject
* could not have been presented in a better way. I have heard this from two

different sources, and I was also impressed myself."

209J
Whitfield Tuck, President of National Franklin D. Roosevelt League for
President. "I would like to distribute in and stat about Boston, Massachusetts,

as many copies of your talk on radio last evening. It was fine and will help
much to win in 36 in this section. If some of same can be "franked" to mail
over the State it will be of much help."

David Vogel, New York City. "I listened attentively to you SEXER over the
radio on Sunday last, April 14. Very clear and distinct and very good".

209K

All

ABSTRACT OF COMMENTS ON RADIO SPEECH

April 22, 1935.
Letters and clippings from Dr. Myers of the Farm Credit Administration and the Publisher of the Alabama Journal have been acknowledged for the Secretary's signature and are not abstracted here.

Mr. I. T. Nakdimen, President of the City National Bank of

Fort Smith, Arkansas. "I have read with a great deal of interest

your speech of Sunday, April 14th. Every American citizen should congratulate you upon the able manner in which you are handling the

Treasury. You are saving the country millions upon millions of dollars.
If the European countries had paid the twelve billions they owe, our

debt would have been decreased four billions." Mr. Nakdimen "questions

the fact that the debt mentioned is the largest in our history and asks
for correct figures to set him right".
Mr. D. T. Bateman. "Your radio address Sunday on finances of the
Government was very interesting. Will you send me a copy of it as I

shall be glad to study it for points I did not get?".

State Senator William T. Byrne of New York has already written,
but says in another letter, "I know of nothing that has come to me
since President Roosevelt's inauguration that was so heartening and
stimulating as your address, and I sincerely hope that you will continue to deliver similar addresses when you feel that they are appropriate as to time, and will possess news of similar character to be passed
on to the people of our country who are waiting tidings of progress and
encouragement.

L. E. Hallsted, Albion, Nebraska. "I was very much interested in
your talk over the air last Sunday night on money. I am glad to know
that you are going to save money on interest, but would like to know

why you issue bonds and pay interest on what the Constitution gives
Congress the right to make".

209L

MA
ABSTRACT OF COMMENTS ON RADIO SPEECH

April 18, 1935.

Mr. M. M. Rose, Marietta, Ohio. "Your nationwide broadcast
address last evening clearly setting forth how the action of the Treasury
in calling in the Liberty Bonds and refinancing the same at a lower rate
of interest had broken the "financial log jam" meets the approval, I am

sure, of the great majority of the people. Permit me to state there is

another log jam that would help materially if broken. The banks in many

of the small cities in rural districts are charging 7% - national and state

banks as well. Only recently banks were ordered to reduce the interest

on savings to 2% 7% is out of line with present conditions." (Mr. Rose
signs himself a Roosevelt Republican)

Mr. Ed. R. Mayer, Amarillo, Texas. "That was an excellent and timely

radio speech. It will help more than anything said in a long time to recapture business confidence. The credit structure must be restored this
year -- or else! #

Mr. Charles M. Smith, Indianapolis, Indiana. "Your radio speech was interesting from one point of view, but to me it indicated how much the
United States Government is under the thumbs of a certain group of private
bankers
Why don't you issue non-interest-bearing United States
currency to retire all United States interest-bearing bonds, thus kicking
out the bankers."
Mr. M. E. Messer. College Park, Florida. "You made much of the sayin interest on the national debt what about the interest on
four billion, eight hundred million to be squandered by the New Dealers.
Moreover, by reducing the interest rate you also reduce the purchasing power of the investors class by a like amount at a time when purchasing

ing power is sorely needed to bolster up industry." Mr. Messer encloses
some clippings attacking the Administration.
Request for a copy of the speech from E. W. Morgan, Berrien Springs,

Michigan. No comment.

W. P. Oliver, Vice President of the Production Credit Corporation
St. Louis "It was indeed a pleasure to have heard you on the radio
Sunday afternoon. You are certainly rendering the people of the United
States real service".

of

209m

-2"Your radio release of Sunday afternoon was most enjoyably

received

permit me to say it was extremely helpful to
me in that it presented in an understandable way some portion of
the National Mdministration's problems and viewpoints. As State
Treasurer of the State of South Dakota, I would very much appreciate
the receipt of a copy of that address
G. F. Bagga, Manufacturer of Coin Operated Devices, The

writer was rather pleased to observe your statement that the financial log jam has been broken, that is good news. I hope that the
effect can be made available to people who have been handicapped

during the last few years, particularly in obtaining working
capital.

Everette C. McKeage. Attorney in San Francisco. Asks for a copy

"of your very interesting radio address of April 14th, I should
feel greatly honored to receive one from you".

Inspired by the Radio address, but not commenting upon it directly,
Mr. W. B. Wiegand, New York City, sends in a very critical editorial
from the Herald Tribune and says that he would honestly like to
have a well considered reply to the criticisms made by the editorial.
Referred to Mr. Gaston.

Also, two letters which spoke briefly of the address and say

that if Government finances are in such good shape, the Government

should certainly pay its own bills more quickly. One writer has
reference to a bill for 7 month's occupancy of his house by an agent

of the War Department, payment for which has been delayed in the

General Accounting Office. The other calls attention to the state-

ment of Mr. Sargeant, President of the Chicago and N. W. R R., saying
that the reason his R. R. cannot pay bondholders is that they have
been unable to collect a million dollars which the Treasury owes

against freight rates for cattle carried last year. The writer, a

New York business man, believes that this reflects upon the integrity
of the Administration.

209 n

ABSTRACT OF LETTERS COMMENTING UPON RADIO SPEECH

April 17, 1935.

AAA.

Fili

Four favorable comments and four criticisms or questions.
Also a letter from Raymond Moley acknowledged separately and not

included in this abstract.

David Cohen, West End Avenue. . Allow me to congratulate you
on your talk
telling us what our present Administration has
*

done. Your expression that the money spent for relief was well

spent, everyone felt it came from your heart. All I can add is

that our beloved President with the help of the Administration
saved our beloved country. In conclusion, the country is with you -keep up the good work! #

R. H. Tremaine, Ithaca Trust Company. "I listened carefully

and with pleasure to your radio talk last evening, giving as it did
a clear and impressive statement of the U. S. finances. Your talk

was informative and in my judgment tended to correct many of the incorrect statements which have been featured in some newspapers. I
want to congratulate you on your very successful and businesslike
conduct of your responsible position."
Edward Frenadorf. Hudson, Michigan. "Your radio address of

Sunday was indeed very effective. Permit me to suggest that the
Administration make more frequent use of you on the air. May I ask
that you mail me six copies of that talk as our newspapers today
abbreviated too severely to answer the purpose I wish to use it for.
In my opinion we sorely need frequent addresses from Secretaries
Roper and Hull - they are taken seriously by the public."

J. H. Gibbs, La Crosse, Wisconsin. "If it is possible will

you kindly send me a copy of the splendid speech you made today.

I want it entire if I can get it and its not likely that the papers
will print anything but short extracts of it. You see the Hearst
papers don't like you, and the Chicago Tribune is sometimes lacking

when it tries(?) to tell the truth, and we don't get lots of things
which the Administration is trying to do except criticism. With

best wishes,

- Critical A telegram from Portland, Oregon, calling attention to letter
written on February 28th about Treasury bond registration which is
necessary to pay judgment creditors. No acknowledgment to date.
"Here is a log jam in your own Department - please break it."
(Referred on with a very special red tag 1)

2090

-2April 17, 1935.

Frank Meisel of Pennsylvania. who is on the Relief, asks where
you got your figures as to the amount of money spent by the Relief
for rent. He is allowed $3.75 a month for rent on a house which
shelters two families. He wants to know if somebody else got his
share.

Donald W. Campbell, Worcester, Massachusetts, asks "Are the

savings in interest to the United States of America which you spoke
of in your radio address yesterday evening of a permanent nature?
What percentage of the national debt matures within five years time?
The tenor of your address indicates that the Government's position

is in a comfortable condition. Can any institution, public or private

be "comfortable" with a heavy debt of which more than 25% matures within

five years? Is it entirely fair to compare corporate refunding operations of one month last year with the same month this year without
comment upon intervening circumstances or future prospects?"

Rev. Daniel Woodward. Randolph. Wisconsin, quotes a great many

figures from the American magazine of January, etc., which are in
conflict with those quoted in the radio address. He asks the Secretary

to harmonize these two sets of figures. "I personally want to be fair

in judging officials for I know from years in official life how easily

it is to criticise, but the Administration must remember that keen
thinkers, writers and speakers are on the public official trail. Most

unbiased observers believe we are deeper in the mire of this disastrous

mess than ever before."

2099
TREASURY DEPARTMENT

FOR RELEASE, 7 P.M. SUNDAY,

Washington

April 14, 1935.
4-13-35.

Press Service
No. 4.75

Secretary of the Treasury Morgenthau today announced the call of the balance

of the Fourth Liberty Loan 4-1/4 percent bonds of 1933-38 for redemption on October

15, 1935. The Fourth Liberty Loan Bonds included in this fourth and final call for
redemption, amounting to about $1,250,000,000, are those bearing serial numbers

ending in the digit 3 or 4.

Bonds of the Fourth Liberty Loan were originally issued under date of October
24, 1918, in the amount of about $6,965,000,000. Subsequent to their issue, and

prior t the first call for partial redemption, which was made on October 12,1933,
noarly $700,000,000 of those bonds were retired. The first three calls for partial
redemption pavod the way for the retirement of about $5,000,000,000 more, loaving

about $1,250,000,000 outstanding. Of the $5,000,000,000 of bonds included in the

first three calls, about $4,315,000,000 wore exchanged for other interest-boaring
obligati ns, and about $320,000,000 more havo boon paid in cash. Most of the
remaining $365,000,000 will bc rodoomod on April 15 or shortly thercaftor.

Tnc Socrotary stated that it is probable that prior to October 15, 1935,
holders of the Fourth Liborty Loan bonds included in the fourth and final call for
redomption may be offered the privilogo of exchanging those bonds for other interost
boaring obligations of the Unitod Statos.

The toxt of the formal notice of call is as follows:

2090
-2FOURTH LIBERTY LOAN 4-1/4 PERCENT BONDS OF 1933-38
NOTICE OF FOURTH AND FINAL CALL FOR REDEMPTION BEFORE MATURITY

To Holdors of Fourth Liberty Loan 4-1/4 percent Bonds of 1933-38, and others

Concerned:

Public notice is hereby given:
1. All outstanding Fourth Liberty Loan 4-1/4 percent bonds of 1933-38

(Fourth 4-1/4's) boaring sorial numbers the final digit of which is 3 or 4 (such
serial numbers in the case of permanent coupon bonds being prefixod by the

corresponding distinguishing letter C or D, respectively), are hereby called for
redomption on October 15, 1935, on which date interest on such bonds called for
redemption will coase.

2. Full information regarding the presentation and surronder of Fourth
4-1/418 for redemption under this call will be given in a Treasury Department

Circular to be issued later.
3. Holders of Fourth 4-1/4's now called for redemption on October 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-bcaring obligations of the Thitod States,

in which ovont public notice will hereafter be given.

HENRY MORGENTHAU, JR.,

Secretary of the Treasury.
Treasury Department,

Washington, April 13, 1935.

April 15, 1935.

210

Monday.

Crane:

Mr. Secretary, I just talked with Cariguel.

H.M.Jr:

Oh, yes.

C:

As a matter of fact, he called me.

H.M.Jr:

Yes.

C:

I didn't call him.

H.M.Jr:

He must be getting extravagant.

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

Yes, yes, he talked with me for ten minutes.
My God, lot of francs!
He said that the Swiss and Dutch situations were
quieter today Yes.

- and there wasn't quite as much pressure, although
it would continue to be some.
Yes.

He said that the Bank of France was continuing to
lose gold every day to London.
Oh, really?
Yes. He said that strain was continuing and they're

also losing it to Belgium. Now, this was the signi-

ficant part of what he had to say. After a little

discussion about the exchanges he said to me - I was

really about ready to cut off.
H.M.Jr:

You were ready?

C:

Yes, I thought he was through.

H.M.Jr:

Yes.

C:

And he was quite anxious to hold me on and he said,
do you think we're getting any nearer to exchange

stabilization -

H.M.Jr:

Really?

C:

And I said, well, I don't know, Cariguel, about that,
but if you want my opinion, I think it's very important for us to keep in close touch.

-2H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

211

Yes.

I said, as you know, I told you the other day the
Secretary was very anxious to play ball closely
with the French, and I said my own personal view
is that that's a pretty important offer, and I
said I think you people on that side ought to take
advantage of it and try and keep in close touch
with us and with the Treasury, and he said, yes,
he agreed to that. I said you never know when
something may turn up and I said the disposition
here is to play very closely with Paris rather
than your friends across the channel That's right.
- therefore, I think it's important for you to take
advantage of that offer and keep in close touch with
us. He agreed to that, he said.
Well, that's very interesting.
He said that Governor Tannery was very much pleased

to get the message that you sent through me the
other day.

H.M.Jr:

Right.

C:

And then he went on and he asked me this question.

He said, how was the feeling about the francs over
in New York. He said, I understand there are a
good many rumors going around that there will be an
adjustment in the franc and in some, devaluation,
and I said, yes, there was a lot of talk about all
of the members in the gold bloc. Of course, that
sooner or later these gold currencies would have to

adjust their values, and I said, how is the feeling
on your side about that, and - oh, he said, I think
the public over here would probably not stand for

it -

H.M.Jr:
C:

H.M.Jr:

I see.

- at any time, and then I said, well, would - do
you think that the public would stand for it if devaluation were coupled with an assurance of exchange
stabilization all around? In other words, as a part
of a bargain, the franc might go down fifteen or
twenty per cent and you'd get the exchange stabilization all around, and he said, well, he didn't he
doubted that
whether
the public was yet in a position
to swallow
I see.

-3C:

Although he didn't know.

H.M.Jr:

Well, let me ask -

C:

212

It seemed to me that the significant part of his

remarks was the questions he asked me about

stabilization, and I'm not sure - rather I - I

rather think that they may have some connection
with recent conversations with the French.
H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Well, I think that's very interesting. You Maybe - maybe -

You
send
me -you?
you send me - you'll send me a copy
of that,
won't

Yes, I'll dictate something and send that down.
Yes. Now, look, when the gold goes from Paris to
London, that means they have to buy sterling,
doesn't
it?down?
Does that movement mean sterling goes
up
or goes
No, that - that movement means that you sell
sterling and buy francs to buy the gold with.

Oh, sell sterling.
Yes.

But, still sterling seems so fast - so strong.
Yes,
sterling is, I think, perhaps strong today onwell,
the Budget.
On the Budget.

C:

Yes.
know.
H.M.Jr:
C:

H.M.Jr:

Chamberlain is making his Budget speech, you

I see,

He's got a little surplus and he's going to reduce

Well, I think the conversation is very interesting
and if we keep on maybe we'll get somewhere.

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Yes, well,
I'llknow
just dictate
this. I thought you
might
want to
it right away.
Yes, I - I'm lunching with the President.
Well, that's why I called you because I appreciate that.

All right.

Thank you.

Federal Reserve Bank

213

Of New York

OFFICE CORRESPONDENCE

To: Secretary Morgenthau
From:
J. E. Crane

Date: April 15, 1935.
Subject: Telephone Conversation with
Mr. Cariguel of the Bank of France.

Mr. Cariguel of the Bank of France telephoned to me at
12:15 p.m. today. He said that there continued to be some pressure
on the Swiss and Dutch exchanges, particularly the former, although
the position was much less acute than last week and the week before. The Swiss were losing small amounts of gold each day to Paris,
he said, while the Bank of France was giving up gold daily to the
London market for hoarding and to Belgium. Mr. Cariguel added that
since devaluation in Belgium the Bank of France had lost 1,500,000,
000 French francs gold ($100,000,000) to the National Bank of
Belgium.
Mr. Cariguel asked me whether I thought we were getting
know about that although, as I had told him the other day, Washington was desirous of keeping in close touch with the French and
wanted to cooperate with them in every possible way. I added that
I thought Secretary Morgenthau's recent gesture in their direction
was a matter of importance which I thought they should not overlook
but should rather make every effort to take advantage of.Mr.

any nearer to exchange stabilization. I replied that I did not

Cariguel replied that he agreed with me on that point and that his
people in Paris had been grateful for the Secretary's recent
message. I told Mr. Cariguel that, as I understood Secretary
Morgenthau's position, he preferred to play ball with the French
and establish a close bond of sympathy with them rather than pay
any attention to their friends across the channel just now.

Mr. Cariguel said that he understood there were a good
many rumors over here about the necessity of some adjustment of the
French franc and inquired whether I had heard anything of such

rumors. I told him that there was a good deal of talk in our market
about the difficult position of the members of the gold bloc, particularly the Swiss and the Dutch, and that I thought there was a
rather general view over here that sooner or later the countries
of the gold bloc would be forced to devalue although it was appreciated that they could hold out for some time longer. Mr.
Cariguel said that in France the public was not prepared to make
any adjustment of the franc at this time, the majority opinion in
France being opposed to devaluation. I told him that there was
some talk in this market that the French public might stand for a
moderate devaluation of, say 15 or 20 per cent, provided they could
obtain a three-cornered stabilization arrangement between Great
Britain, France and the United States. Mr. Cariguel replied that
he did not think the French public was ready yet to accept moderate
devaluation
even if they
were assured of exchange stabilization between the principal
countries.
JEC: KMC

THE UNDER SECRETARY OF STATE
WASHINGTON

April 15, 1935

Dear Jeff:

As you know, we try to keep our diplomatic
and consular representatives abroad as fully
advised as possible of developments in this
country. We propose to send out the accompanying
memorandum on exchange stabilization, which has

been prepared by Mr. Hansen. Before doing 80,
however, I wonder whether you would be 80 good

as to look it over and tell me whether you have
any suggestions to make in this connection?
Sincerely yours,

The Honorable

T. Jefferson Coolidge,
Under Secretary of the Treasury.

Love

March 26, 1935.
EXCHANGE STABILIZATION

I. The Importance and Desirability of Early Stabilization.
1. Current monetary uncertainity and the disturbed
foreign exchange situation, and the international complications following therefrom, are powerful factors creating
business uncertainty and lack of confidence. In consequence

of this uncertainty, the vast quantity of funds available
throughout the world for investment are held idle, and in
important parts of the world gold is still being hoarded.
A substantial improvement in business conditions throughout
the world awaits a material expansion in investment in fixed

capital. To be sure, the revival of capital goods industries depends in part upon the progress of obsolescence and
depreciation of equipment and plant, and in part upon the
development of new opportunities for investment. It is,
however, highly probable that there exists at the present
moment a strong technological foundation for expansion in

fixed capital investment, and that this is being held back
by the business uncertainty caused by the monetary and

foreign exchange situation. Many corporations have at the
present moment a strong cash position, and are withholding
the use of these funds until they feel more assured of the

future. Others with strong credit position in the capital
market are ready to issue securities once the prospect for
reasonably safe investment appears. The banking situation

is extraordinarily strong, with over two billion dollars
of surplus reserves, and awaits only a revival of the spirit
of enterprise based upon the return of business confidence.
The expansion of capital investment is unquestionably
the most important means through which an increasing amount

-2-

of purchasing power may be poured into the community,

thereby increasing the stream of money income adding
/

stimulus to purchasing power and bringing about by
natural processes an expansion of demand and increase
in commodity prices.

2. The current foreign exchange situation and the
international disequilibrium which follows therefrom continues to be a potent cause for the progressive rise of
trade barriers and the imposition of trade restrictions,
notably in the form of quotas and exchange control. This
instability and lack of balance is exemplified, on the
one side, by the enormous importation of gold into the
United States amounting in 1934 to well over one billion

dollars, and continuing into 1935. On the other side, it
is revealed in the growing network of trade restrictions,
in some countries developing into monopolistic control of
foreign trade, as in Germany and Italy. It is revealed
also in the continued deflation in the gold standard countries and the close control and limitation of imports into
those countries. Thus, while our own trade with the sterling
area increased 47 percent from 1932 to 1934, our trade with
the gold bloc countries increased only 3 percent in this
period. Indeed, from 1933 to 1934, there was an actual
decrease of 5 percent in our trade with gold bloc countries,
while with the sterling area there was an increase in the
same period of 30 percent. The continued trade restrictions
in the countries suffering from overvalued currencies are

a potent factor militating against world industrial revival.
The growing trend toward the regimentation of foreign trade
and the diversion of trade wherever preferential advantages

-3-

can be obtained are seriously affecting many of our impor-

tant exports, notably raw cotton. This dangerous trend

in foreign trade is rapidly reaching a serious crisis.
There is no likelihood of any substantial reversal of this
trend by the mere making of trade agreements. The liberation of foreign trade awaits exchange stabilization.

3. The continued instability of foreign exchanges
and the prevailing uncertainty with respect to the domestic
monetary policies in the United States as well as in England and the gold bloc countries, is causing a nervous
movement of liquid capital, driven hither and yon under
the impact of speculative forces.

II. Objections to Early Stabilization.
1. The objection is sometimes raised that early
stabilization would cause a fresh deflation of prices in

the United States, particularly of raw material and agricultural commodities. In support of this view, the current
decline in cotton and grain prices incident to the recent

depreciation of sterling is cited. It is to be seriously
questioned, however, whether a good case can be made on

this basis. Even though exchange stabilization should

involve some appreciation of the dollar relative to the
pound, there is clearly an enormous difference between

the current situation involving an appreciation of the
dollar relative to the pound at a time when the whole future
of the monetary structure both at home and abroad is in
grave doubt, in contrast to a situation which would obtain
with a moderate appreciation of the dollar in conjunction
with a monetary and exchange stabilization program.

-7-

In reply to the fears raised, it may well be urged
that any incipient tendency toward deflation of raw
material prices incident to stabilization would promptly
be overpowered by an upward surge of confidence by a

stimulus to the investment of idle funds, and by the
rapid improvement in the securities market which is almost
certain to follow from exchange stabilization. These
favorable tendencies would inevitably have a sympathetic
effect on commodity prices, including raw materials and
agricultural commodities.

2. A more fundamental objection is frequently raised
to exchange stabilization. It is argued that exchange
stability limits national industry with respect to monetary
and price policy and may work counter to domestic price

stability.

With respect to this question, several points may be

noted. In the first place, it will be generally agreed
that what is immediately wanted is a rise in prices. As
indicated above, there is every reason to believe that the
means best calculated to produce this result would be the
stimulus to investment and the expansion of capital industries through exchange stabilization. Moreover, it will
also be generally agreed that while some further rise in
prices is important, it is equally important to check the
rise in prices once it begins to approach the pre-depression
level. With the present huge amount of bank reserves,

nearly 2-1/2 billion dollars, it is clear that sooner or
later we shall have to face the difficult problem of preventing an extreme inflation of prices. That this can
be more successfully achieved under the condition of sta-

bility of foreign exchanges and the free outflow of gold,

once our price level is in line with foreim ...

can scarcely be doubted.

From a long-run standpoint, the alleged conflict
between domestic price stability and exchange stability
loses much of its force when one considers the huge gold
reserves of some 8 billion dollars now held in the United

States. This vast quantity of gold will give this country
for many years to come unquestioned freedom of action with

respect to domestic monetary policy under a condition of

foreign exchange stability. Moreover, from the long-run
standpoint, a reasonable degree of cooperation with respect
to price policy between the United States and England
ought not to create any serious conflict between price
stability in the domestic market and the maintenance of
exchange stability.
While a free exchange system presents certain attractive features, one should not overlook the dangers which

such a system encounters. First and foremost is the danger
of competitive currency depreciation. Whenever a country
faces an increased business stagnation relative to the

world situation, it will always be tempted, SO long as
exchanges are free, to improve its export situation by
depreciating its currency. The adverse effect of such
action upon other countries is almost certain to result
either in counter currency depreciation or in the imposition
of quotas and other quantitative restrictions upon imports.
Thus, fresh uncertainties are created which only intensify
business stagnation and prevent the formation of solid
bases upon which business plans and industrial expansion
can proceed. Moreover, so long as countries are on a

free exchange basis, proposals to inflate directly the
t

currency are likely from time to time to gain ground, and
even though not actually enacted, add to the uncertainty
and tend to hold back the investment of funds available
in the capital and money market.

III. Current Factors Favorable to Stabilization.
1. The recent fall of sterling, while intensifying
/

the uncertainty, presses home the urgency of early stabilization, and, indeed, may prepare the conditions upon the
basis of which stabilization agreement can be achieved.

The causes of this recent decline are not altogether
clear, but they appear in part to be related to the special
effects of international capital movements upon the British
balance of payments.
The high financial prestige of London
three
during the last years of general monetary uncertainty
throughout the world has attracted capital to London for
A

safety or for speculative profit. These funds have been
placed on deposit with banks or have found temporary em-

ployment in the British investment market. According to
confidential estimates of the Bank for International
Settlements, the volume of foreign short-term funds in
3

2

London at the end of 1923 amounted to billion dollars.
During 1934, some of these funds originating from the continent were apparently withdrawn, such withdrawals amounting

perhaps to as much as half a billion dollars. In consequence,
the equalization account suffered large gold losses in its

effort to support sterling. This reversal of capital movements may well constitute an important explanation for the
recent weakness of the pound.

The question may well be raised why the British Govern-

ment should permit sterling to decline, on the assumption

that the stabilization fund is not exhausted and that the

decline could have been checked if the Government had

definitely wished to do so. There are various possible
reasons for the inaction. British industry was suffering
stagnation and a considerable section of the British
public doubtless welcomed any stimulus which might follow
from the depreciation of the pound. Moreover, a large
section of the British public has become convinced that

substantial worthwhile recovery is impossible so long as
deflationary pressure continues in the gold bloc countries.
This section of British opinion would doubtless favor the

deliberate hastening of the collapse of the gold bloc in
order to clear the ground for a rectification of international disequilibrium, which hitherto has caused the

continued deflation in the gold bloc countries. Finally,
the British would probably welcome a change in the dollar-

pound rate more nearly
in line with what the British regard
present
as in accord with the relation of costs and prices in the
United States and England. The current developments,

therefore, may well be creating a situation under which
the British would be more favorably inclined to enter a
stabilization agreement.

2. Current developments are also likely to bring
about a change in the attitude of the French Government
more favorable to exchange stabilization, the threatened
current break-up of the gold bloc, lead by Belgium, brings
ing home to the French people the seriousness of the

situation and the necessity for international cooperation.
While French sentiment has steadily been strongly opposed

to devaluation, the grave danger in the current situation
may well make it possible for the French Government to
effect a moderate devaluation as the French contribution to
an international stabilization program. There can he

little question that the unilateral devaluation by the
French is quite impossible, but as a part of a general
international program, the benefits to France may well

appear sufficiently great as to justify this action. The
loss of the French tourist trade and the recent movement

by French hotels to accept foreign currencies at a more

favorable rate indicate the realization by large sections

of public opinion of the difficulties incident to the overvaluation of the franc.
The present Flandin government, having reversed the

foreign policies of rigorous deflation, and having sponsored a program of credit expansion and easy money, is

set in a direction which favors deflation as a part of an
international agreement The current credit policy of
the Flandin government is clearly quite inconsistent with
its foreign exchange policy, and one or the other will
have to be abandoned. From this standpoint, the new

credit policy may be regarded as a first step looking

toward devaluation.

3. In the United States also there is ground for
believing that the attitude is becoming more favorable
to a program of exchange stabilization. Throughout the
country there is evidence of diminished faith in the merits
of monetary manipulation and the resistance which would be

mustered to further devaluation of the dollar would doubtless be very great. The continued stagnation of business

improvement, the fact that there are still 10 million people
enrolled with the Federal Employment Service, indicating
a volume of unemployment in excess of this figure, is
creating a new crisis which must somehow be met. The

-0-

choice is between a restoration of business confidence by

conservative monetary policies, or the deliberate stimulus
to a speculative upward movement incident to direct currency

inflation. This movement is receiving increasing support
in Congress. In consequence, all the elements in the community that are opposed to deliberate currency inflation
see more clearly than ever the urgency of a settled monetary
policy which, through International agreement, would yemovo

these disturbing proposals to tamper with the currency.

IV. A Program for Stabilization.

1. The first logical step toward general stabilization would appear very definitely to be the stabilization
of the dollar, the pound, and the franc. Considering the
importance of the sterling area and the importance of the
dollar in Central America, the West Indies, and Canada,

and the dominance of the franc in the gold bloc area, the
overwhelming importance of these three currencies in world
economy is apparent.

2. The current international disequilibrium can best
be corrected by (a) moderate devaluation of the gold bloc
and (b) possibly some moderate increase in the value of the
coller
pound
powed in relation to the dollar

3. With respect to the relation of the dollar and
the pound, fairly strong support can be found for the reestablishment of the old dollar-pound rate of $4.36. To
begin with, it appears evident that while the pound was

certainly overvalued in relation to the dollar prior to
the depression, during the depression years costs, par-

ticularly in the important constructional and heavy basic
industries, have been reduced more in England than in the

United States. Thus, it appears that the cost-price

relationship 18 mona nanning

LO-

pound parity than was the case in 1929.

It should, moreover, be noted that even though British
costs should, taking industry as a whole, be somewhat

this situation is likely

to once stabilization achieved.

In it is that we shall

have an In contrast to the pre-

which there was a downward trend,

new much easier for industry

The industrial structure

very to face a declining

makes & higher depression correct consequence greater it situation than upward itself situation rigidity in difficult of the trend will rapidly stabilization, United be of in in the for prices. States, her English economy likely English is

price level; because of this rigidity, however, the situation is quite different with an upward price trend, since
British costs are not likely to rise as rapidly with an
increase in prices as is likely to be the case in the
United States -- witness the development in this country
under the N. R. A. since 1933.
Another factor which minimizes the danger of a choice

of exchange rates somewhat out of line with the cost-price
relationship, and which, therefore, permits a somewhat
greater range of elasticity in the choice of the new

dollar-sterling rate, is the large amount of new gold
production. The current production of gold is running
somewhere around 900 million dollars a year (new dollars),
and there is, in addition, a new gold supply coming out
,

of the Indian hoards. This vast amount of gold supply
would be an important factor easing up any temporary

strains which may exist because of a failure to select
precisely correct exchange parities.
There is, of course, one powerful argument in favor
of the old dollar-pound rate, and that is the sentiment

-11-

and prejudices which are associated with a condition which

has long prevailed. Certainly in this country stabilization at the old rate would be welcomed by a very large
part of our community. This, to be sure, would be less
true in England where doubtless they would favor a return
perhaps to a rate of from $4.00 to $4.50.

4. It is suggested that the following might serve
as an appropriate basis for stabilization:
(a) Devaluation of the franc by 20 to 25 percent;
(b) Dollar-pound rate $4.50.
It would doubtless be well for the United States to

press first for the old parity of $4.86, with, however,
the willingness to proceed to $4.50 should this prove
helpful in furthering the stabilization agreement.

I.N. H.

224B
April 15, 1934.
Monday.

Hello.
H.M.Jr:

Yes.

Mr. Morgenthau?
H.M.Jr:

Talking.

Just a minute. I have Congressman May.
May:

Hello.

H.M.Jr:

Hello.

M:

Good morning, Mr. Secretary.

H.M.Jr:

Good morning.

M:

H.M.Jr:
M:

I'm mighty sorry to have had to bother you this morning, but -

That's all right.
- in this matter that I was down to see you about some
time ago. That fellow Centers, he's here in town and
in accordance with your sughis hearing has been
gestion, and I think Mr. McReynolds has read that

record. Now, in the record, Mr. Secretary, there isn't
a sign of evidence, as I can see it, to establish a

single charge they had against Centers and although
there were charges made, I think he has successfully
reputed and explained them. For instance, he has given
- he's got the testimony of United States Commissioners
and other officials of the government that testified to
his good conduct, and then, a girl who worked in the
Narcotic Office, or rather in another office adjoining
in the Commmissioner's office there, completely corroborates him with a number of other witnesses on every-

thing that he tells. Now, in view of his record as a

veteran in both the Spanish American War and World War

and his services with the government, I'd like to have
that matter disposed of as soon as I can get it done.
Of course, I don't ask you to take it up, but when you
can, I'd like for you to confer with Mr. McReynolds
about it.

H.M.Jr: Surely.
- and I'd like to call your attention further to the
M:

fact that he's gone up to the community where he was
born and reared and where he does most of his work in
that section. He's gotten indorsements, recommendations
of bankers and business men and -

H.M.Jr:

Well, I'll get at it in the next twenty-four hours.

224C
-2M:

Well, that's fine, Mr. Secretary, and I want to

thank you again for the courteous treatment you

gave me when I was down there.
H.M.Jr:

Well, we always try to be courteous.

M:

Yes, that's fine.

H.M.Jr:

Thank you.

M:

Yes, all right.

April 16th

225

The Mexican Ambassador came in to see the Secretary

to-day
silver. and complained about the advance in the price of
Mex. Amb.

The price of silver has reached the limit

we can stand. My government wants to know

whether the price of silver is going to
increase any more and, if so, can you do it
gradually?
H.M.Jr:

The Director of your Central Bank was here
about two months ago and he said at that

time "Can you tell us how high the price of
silver is going to go"? I said "I wish I
knew myself". Then he said "If the price
goes to 72$ we will have to take steps and
I am here to-day to ask if you will sell us
gold so that we can take care of our reserve"
and I told him at that time that we would let

him
have all the gold the Mexican government
wanted.
H.M.Jr:

For the last three weeks you have had all
the gold you want. Your people have had
more to do with the recent increase in the
price of silver than anybody else. You have
taken this completely out of our hands. The
situation really rests more in Mexico than it
does here. As near as we know you have accumulated between 20 to 22 million ounces of

silver. If you want to keep the price of

silver down why don't you sell some? Besides
that you have been buying silver in London.

The
combination
is what is putting the price
of silver
up.
Mex. Amb.

H.M.Jr:

The Minister of Finance told me that the rise
is entirely due to the doings here in the
United States. What is the remedy?

I think one of the remedies is the possibility
are going to take if silver should go above 72

of discussing with Mexico the move that you
What money are you going to have?
H.M.Jr:

When the Director of the Central Bank and I had
our discussion two months ago he said at that
time "I am going away feeling perfectly happy

to know that you are going to sell us this gold."

226
H.M.Jr:

H.M.Jr:

H.M.Jr:

When Mr. Hull told me of your visit this
morning I just could not believe it because
I knew what had been going on and it looked
to me that, for reasons I could not explain,
your government was trying to put us in a
false position.
I have been very frank with you. I have
been giving you licenses for gold. We paid
you a very generous price for silver and gave
you a better price than you would have received
had you shipped it to London. After all this
you come here to ask what we are going to do to
stop the rise of silver.
We want to keep our relations friendly. We
are one of your best customers and you are
one of ours. Tell your government what I
have told you and then come back to see me.
Frankly, they have not been giving you the
best information.

H.M.Jr:

H.M.Jr:

Since January we bought 9 million 400 thousand

ounces of silver. Altogether we bought 21
million ounces but our last purchase was made
on April 2d.
If your man from the Central Bank wants to
come here and discuss this situation further
I am perfectly satisfied.

226A

April 16th (1935)
H. M. Jr. spent several hours with Crowell
and told him he wanted to make his speech on the external
dollar. For two hours he dictated his ideas to Crowell. He
said:

He wanted to divide the talk into what has
happened in the last three decades of ten

years each.

He wants them to study the balance of payments between the United States and the

rest of the world. During the three decades
before the war, during the war and after the
war how did the United States get paid for
its favorable balance of merchandise.

I think what we will find out is that we

got paid through loaning money abroad South America and Europe - for which we
never got paid.

We find ourselves in the period where if
anybody wants to buy anything they have

to pay for it in merchandise, cash, gold

or silver.

We took this opiate and fooled ourselves

into thinking that we are going to get
paid. Would you rather have an accumulation of gold and silver or a bunch of
debts which during the last 30 years have

never been paid.

I want a timetable beginning when England

went off gold.
We started to buy gold.

The various Executive Orders subsequent

to England's going off gold before F.D.R.

came in.

Tremendous deflation.

226B
-2-

And when we started to buy gold.
How things went up.
Normal movements of gold.

The big movements of gold.

The world produces about a billion
dollars gold a year.
I know that what we are doing is right.

We have never explained and gotten credit

for it.

Our exports increased tremendously but
people say we are selling on a 60$

dollar so it means nothing.
Take 25 billion companies that manufacture
for export and analyze their sales on a
tonnage or physical basis. Did these
companies make money or lose money? How
much more employment did that mean to
these companies?

On the internal thing, let's take these

companies. Has devaluation been good
for the companies who are doing domestic

business?

Improvement of modern machinery.

This all has been correlated. Take in
the last 30 years. Take into consideration the foreign debts which have not
been paid.

What proportion of the world's business
we have picked up in the last 15 months
since we have devalued.

We want to prove that the dollar has
been more stable in the last 15 months

than it has in the last few years.

-3-

Looking towards the future as far
as world stabilization is concerned

that until we can see some advantage

to the United States citizen in
world stabilization it does not

interest us any more than it does

England and France.

We will never get stabilization until
it benefits the pocket-books of
European countries.

At the moment we are riding stronger

than anybody else. We are willing to
talk this question over but we are not
going to permit ourselves to be put in
the same position.

I want to talk about the American dollar
abroad and the American dollar here.

Perhaps I can do it in two nights - 15

minutes each.

The monetary policy of this Administration
has held the fort until we can recover
from the shock which we received over a
period of years.

What H.M.Jr. is trying to do is to put

down in black and white what the American
export policy is which has never been
expressed by the President or anybody

and see if the President will take it.
Unless I can give an intellectually
honest speech I will not give it at all.

Suspension of gold payments in the spring
of 1933 is the important date and not
that you devalued. Our method of suspension and devaluation is such that
the American citizen got the benefit
and not the banker.

We will not stabilize until we see the
whites of their eyes.

T

227
April 16th

I walked down with Henry Wallace this morning

and he told me that Mr. Alvin Hansen, the Economist at the
State Department, was over to see Ezekiel and talked about

plans for stabilization. Hansen's program is that we should
join with the French and urge them to devalue 15%

I got quite angry and told Wallace that the
trouble in this town is that certain people who have not
made a success of their own work try to mess into the
affairs of other people. I also told him that the President
had told Hull, in my presence, that I was to handle stabilization and that only this week Hull told me over the telephone
that the President had told him not to answer the British
note on stabilization. I let Wallace see just how I felt
about it so he said "Well I suppose Hansen was working on
a memorandum for Hull's information". I reminded Wallace
that up to the time I returned from Sea Island Beach the
State Department was hell bent for working with the British
on stabilization and that it was only after Hull spent an
evening with me that I was able to sell him the idea that
it would be more useful to work with France than it would
with Great Britain.
H.M.Jr. called the President at 9:30. He
told him that sterling seems to be a little stronger, that
the British for the first time seemed to have stepped in
and sold some sterling and bought 600 thousand
dollars
H.M.Jr.
said
worth of gold. Silver is down to 67.67.
to the President that if he approved we would let silver
drop to 65 and then buy some and spank some of the
speculators.

H.M.Jr; told Lochhead that he would like to

see silver drop to 65.
On receipt of the following letter from

Mr. Morgenthau, Senator Glass came in to see him this
morning * The Senator was quite upset over McKellar's
attack on Berney. Mr. Morgenthau told Senator Glass that

he would leave it entirely to him to advise him what to
do about Berney, that is whether to transfer him or keep
him. The Senator said he would let him know.
Senator Glass also told Mr. Morgenthau that
he is the only member of the Cabinet who is trying to do
an honest job.

228
Senator Glass asked Mr. Morgenthau whether he

was satisfied with the Open Market Committee and H. M. Jr.
told him that he was.

Senator Glass also told H.M.Jr. that Governor
Harrison is very fond of Mr. Morgenthau and, of course,
Mr. Morgenthau said he was very fond of Governor Harrison.

30.

229
April 13, 1935.
My dear Senator Glass:

Since the receipt of your letter of March 15th, we
have been making an honest effort to effect the transfer
of Mr. E. E. Berney from the Alcohol Tax Unit to either
the Veterans Administration or the Farm Credit Administration.
Due to the attack on Berney made by Senator McKellar on the

floor of the Senate, we now find that it is impossible to
secure a position for him except at a drastic reduction in
grade and salary.

I should like to ask you, who have had so many years
of experience in Government matters, whether you feel that

Senator McKellar has kept his part of our agreement with respect
to Berney in view of the attack he launched on him in the Senate.

I would greatly appreciate it if you would advise me what you
think I should do in this case under the circumstances. I value
your opinion very highly and I feel sure that you will not
suggest my doing anything that would be unfair. If, after
reading this letter, you would care to discuss the matter with
me, I should be glad to come to your hotel for that purpose
at any time you suggest.
Very sincerely yours,
(Signed) H. Morgenthau, Jr.
Hon. Carter Glass,
United States Senate.

Secretary.

230

April 16, 1935.

Members of the staff, who have constituted an informal com-

mittee to consider questions relating to political activity of
Treasury employees, met with the Secretary at 10:30 A.M. today

to consider the case of G. W. O'Malley, Collector of Internal Revenue at Omaha, Nebraska and James P. Boler, a Deputy Collector in

his office.
There were present Commissioner Helvering, Mr. Irey, Assistant
Secretary Gibbons, Mr. Oliphant, Mr. McReynolds and Mr. Gaston.

The Secretary had on his desk a summary of the case and a report of

the investigations by Ernie G. Carroll and Frank B. Seaton, Special

Agents of the Intelligence Unit, who had investigated reports that
O'Malley and Boler had received political contributions from em-

ployees in violation of the Secretary's order.
After some discussion of the case the Secretary caused Collector

O'Malley to be brought in. O'Malley stated that he had not inten-

tionally violated the Secretary's order. He admitted writing a
letter to a field employee named Goff, in reply to a letter from
Goff, telling him that he could make a political contribution by
sending the money in Boler's care. He said that he regarded Boler
as a mere messenger and had not thought this action was a violation

of law or the Secretary's order. He admitted that Boler had
similarly acted for other employees in taking political contributions
to campaign headquarters.

231

-2O'Malley was excused and Boler was called into the room. He

said he had taken the same view of the matter as the Collector and
had not thought he WELS violating the Secretary's order. He admitted
that he accepted for delivery to the campaign headquarters as many

as eight or ten political contributions, including one of $5.00
by the Collector's son, an employee of the office, which he had received from the Collector:
Boler was excused and there was further discussion of the case.
The Secretary asked the opinion of those present and it WELS the
unanimous agreement that while O'Malley and Boler had both acted

contrary to the plain intent of the Secretary's regulations on the

subject of political activity and political contributions, their
conduct did not warrant any more drastic discipline than a reprimand.
Messrs. McReynolds and Gaston withdrew their recommendation that the
men both be dismissed.

Messrs. O'Malley and Boler were then both, called back into the

room and the Secretary stated to them that their action was contrary

to his instructions but that he was willing to consider the case
closed if the Collector would give him his promise that nothing of
the kind would occur again. The Collector gave him that promise
without reservation and the meeting WELB dismissed.

BRIEF OF CASE OF JAMES P. BOLER
AND G. W. O'MALLEY

232

TESTIMONY OF BOLER. Boler admits receiving political campaign

contributions from those seven persons whose testimony is briefed

on the next page, and in addition alleges receipt of contributions
from J. A. O'Malley, son of G. W. O'Malley, the Collector, the
contributions being tendered him by G.W. O'Malley, and from Mrs.

Gertrude Fuchs, another employee.

Boler admits receiving and reading a copy of "Instructions
to Employees" when he first entered the service. He likewise
admits having read Treasury Department Circular of June 5, 1934,
and the supplement of September 10, 1934, to Department Circular

No. 518.

Boler states that on one occasion O'Malley advised him not
to accept any more contributions; that he was getting on "dangerous ground". The evidence shows, however, that on October 4, 1934,
O'Malley, in answer to a letter of inquiry from Goff, suggested
that any contribution which he might desire to make be forwarded

to Boler. (Exhibits 4-c, 4-D, and 12-D).

The defense offered by Boler is that there has been no

violation of the spirit of the circular of June 5, and the sup-

plement of September 10, 1934, and that there were no solicitations for contributions. Boler contends that he received the
contributions in question only in the capacity of a messenger and
for the purpose of depositing them at a designated place.
Boler testifies that during 1934 he was not connected in any
way with any committees, clubs, or other political organizations.
TESTIMONY OF O'MALLEY. O'Malley admits receiving circular

letters and bulletins from the Treasury Department relative to
political activity and alleges he informed the employees of his
office that if they wished to make any contribution, it was a
personal matter, but not to do it as a member of Internal Revenue.
O'Malley admits advising Goff, in answer to an inquiry, that
contributions could be sent to Boler.
O'Malley admits that during a discussion he advised certain
employees that he saw no objection to one employee taking the
voluntary contributions of others to wherever they wished it
delivered.

He states, that to his knowledge, no contributions were
made by employees prior to the receipt of the circular of
September 19, but that in view of the statement therein.
"The instructions contained in said Circular should
not be construed:
1.

2. To prevent any such employee from voluntarily contributing to the campaign fund of the party of his choice,
if such contribution is made freely and without coercion or

2-

233
improper solicitation, and is not made to a person in the
service of the United States."
he believed it permissible for one employee to deliver another's
voluntary contribution as a matter of accomodation.
01Malley further states that he refused permission to

political committees to solicit campaign contributions in the
office.
TESTIMONY OF EMPLOYEES. (A) Seven employees of the office

of the Collector of Internal Revenue admit giving campaign con-

tributions to Boler:

1. Martha Brinkerhoff Stanek, Deputy Collector, gave $5.00

cash to Boler in Federal Office Building. (Exhibit 6)
2. J. T. Sabata, gave $5.00 cash to Boler outside Federal

office building. (Exhibit 7).

3. Hubert Heckenlively, Deputy Collector, gave $5.00 cash
to Boler in Federal office building. When Heckenlively tendered
contribution, Boler advised him to make sure he wanted to do it.
(Exhibit 8)
4. Walter Weber, Deputy Collector, Hastings, Nebraska, wrote
Boler asking whether he would receive campaign contributions and
Boler replied that he would. Weber mailed check for $10.00, payable to Boler, dated October 15, 1934. This check was indorsed
by Boler and then indorsed by the Douglas County Democratic Committee. (Exhibits 9, 9-A, and 9-B)
5. Katherine T. Flynn, Listing Clerk, gave $5.00 cash con-

tribution to Boler in Federal building. (Exhibit 10)

6. Leo W. Manefeld, Deputy Collector, O'Neill, Nebraska,

gave $5.00 cash contribution to Boler in Federal building. He
states that when he inquired of O'Malley, subsequent to September
17, as to propriety of making contribution, O'Malley suggested

that he give it to Boler. (Exhibit 13)

7. George W. Goff, Deputy Collector, Scotts Bluff, Nebraska.
Check dated October 9, 1934, for $15.00, payable to Boler, mailed
by witness to Boler at Federal building. This was indorsed in
blank by Boler. (Exhibits 4-C, 4-D, 12-D, and 14)
(B) Four employees of the office of the Collector of
Internal Revenue, Omaha, Nebraska, allege that Boler never
approached them with regard to campaign contributions and that
no such contributions were made by them to Boler:
H. M. Sampson, Cashier. (Exhibit 1)
1.
2. Erwin E. Rohiff, Chief, Income Tax Department. (Exhibit 2)
3. C. M. Cornick Assistant to the Chief, Income Tax Department. (Exhibit 4)
4. Gertrude B. Fuchs, Billing Operator. (Exhibit 5)

3-

234

CONCLUSION. The evidence shows that:

(1) Boler received contributions for political purposes

from at least seven other employees of the United States.
(2) Boler received contributions of money from at least

five other employees of the United States, for political purposes, in a building occupied in the discharge of official
duties by employees of the United States.

(3) O'Malley was aware of the fact that Boler was receiving campaign contributions and gave his implied approval to the

procedure.

(4) The evidence fails to show any direct or indirect
solicitation of political campaign contributions by Boler or
O'Malley.

RECOMMENDATIONS. The Special Agents who investigated this

case recommend that Boler be summarily removed from the Internal
Revenue Service, and their recommendation is concurred in by the
Acting Special Agent in Charge.
The Commissioner of Internal Revenue recommends that both
Boler and O'Malley be severely reprimanded and cautioned that a

repetition of the offense will result in summary action.

Mr. McReynolds and Mr. Gaston recommend that both Boler and
O'Malley be removed from the Service.

INVESTIGATED BY. Ernie G. Carroll, Special Agent, Intelligence Unit.
Frank B. Seaton, Special Agent, Intelligence Unit.

April 17, 1935.

234A

Wednesday.

H.M.Jr: Hello.

Bulkley: Hello, Mr. Secretary.
H.M.Jr: Hello, Senator.
B:

How are you today?

H.M.Jr: I'm fine.
B:

Just had a little talk with

H.M.Jr: I know, he told me about it and he B:
And I think the best thing I can do H.M.Jr: Yes.

- is to talk further with Glass and see if we can't
get that whole thing accommodated without having a
fight.
H.M.Jr: Well, that'11 be fine. They tell me that you can
swing it if you want to.
B:
Well, I'm not quite 80 sure about that, but I will
tell you this, that - that I - I have come to the
conclusion that I do want to do that.

B:

H.M.Jr: You do want to?
B:

Yes.

H.M.Jr: You mean you - you will vote for Eccles?
B:

No, I - I said that I do want to adjust it 80 as to
get it confirmed without any scrap.

H.M.Jr: Fine.
B:

As far as voting is concerned, I don't think we're
going to be in need of votes -

H.M.Jr: I see.
B:

- and I think there're plenty of votes. The only question
18 whether it can be gotten through without a troublesome scrap over it.

H.M.Jr: Well, now, Senator, I was planning to leave tomorrow
night, if - do you think this thing will come up before tomorrow night?

Well, it might and it might not -

-2H.M.Jr: Well B:

- it might be a good thing to force it. I'd like I'd like to see an adjustment and the whole scrap

dropped, myself.

H.M.Jr: Yes, well, could I call you up again tomorrow?
B:

Yes, sure.

H.M.Jr: And you - know better whether to let it go over the
week-end or not?

on it yesterday because I - I
thought it would be better to try to work it out and
not bring it to an issue.
H.M.Jr: I see.
B:
And I haven't seen him today; I don't know how he's
feeling.
H.M.Jr: But - but you feel that his confirmation is - chances

B:

Well I - I

are good?

I don't think you have anything to worry about as far
as votes are concerned, but I think it would be better
for all concerned if it could be adjusted instead of
having a scrap over it.
H.M.Jr: I - I agree with you on that.

B:

B:

Yes.

H.M.Jr:

Well, I - I -

Well, I'm going to try to see what I can do along that
line.
H.M.Jr: Fine, and I'11 B:
I just want you to understand this -

B:

H.M.Jr: Yes.
B:

- that although I do want to do that and will earnestly
try to do it, I don't want you to understand that I can
make any promise about a vote because, after all, a man
can't in conscience - in good conscience vote on either
side of this question.

H.M.Jr: Yes.
B:

- and I am under a little personal pressure on account

2443

3-

of my friendship with Glass. I may decide that I ought
not to desert it.
H.M.Jr: I see.
B:

But, I - I will promise you now that I'll try to get

him to drop it.
H.M.Jr: Fine. Well, thank you very much.
B:
I want to ask you another question.
H.M.Jr: Yes, sir.
on the floor - a bill to increase the
Bankhead
B:
Farmers Loan Corporation -

H.M.Jr: Yes.
B:

And proposes to issue a billion dollars in guaranteed

bonds. Can you check that?

H.M.Jr: Well, I was told that it wasn't very serious.
Well, it looks pretty serious when Joe Robinson gets
up and makes a speech for it.
H.M.Jr: Well, we were up this morning on this thing of Marvin
Jones, who was proposing to take eight hundred million
dollars away from the Stabilization Fund to issue
currency against this for farmers to establish two
central banks, and I told Marvin that I had to speak
on that, I mean, I just couldn't keep quiet. Well,
he said he'd give me a ring when he - I should come
up; I haven't heard from him yet.
B:

B:

Well, I never did talk to you personally about the
Home Owners' Loan, but your representative

H.M.Jr: Yes.
B:

And in a general way, I have tried to keep it within
limits. I - I just save myself going a little bit
higher than you who are supposed to be in favor of it,
but I have on the whole tried to keep it down -

H.M.Jr: I know you have.

H.M.Jr: Well, the thing - the thing that worries me more than
the amount - I mean, the Home Owners' Loan 18 just
opening it up again for sixty days.
B:

That's BO darn hot that I doubt if you'll be able to
of course, I fought that on the floor and got

234C

234D

4-

licked, but now as a conferee I feel

you are.

the same as

H.M.Jr: Of course, I - I don't know how much you people know
about the position of the Home Owners' Loan B:
Quite a good deal.

H.M.Jr: - and - I mean, you know that for ninety days on their
interest, they're forty-two percent in arrears, and B:
Well,
now - wait a minute - forty-two percent in
arrears for ninety days?
H.M.Jr: Yes.
B:

Well, now that - 1f that's true they're absolutely
lying to us. Where did you get that?
H.M.Jr: Well, I tell you how - where the difference is, if
they send out on the first of April, let's say, twentyfive million dollars worth of bills, you see B:

Yes.

H.M.Jr: - they add what went out on the first of April to what
was standing for the previous ninety days. You see?
And
in that way
they arrive at a figure, say, of twentyone percent
in arrears.
B:

Yes.

H.M.Jr: But, if you take - if you - 1f I - I owe you some money
and you sent me the bill ninety days ago, I'd figure
that I'm ninety days in arrears and I don't take in
account what's due for the month of April, you see?
B:
Well, now let me get you on that. Suppose I didn't make
my payment in January and haven't paid it yet H.M.Jr; That's ninety days in arrears.
B:

Yes, well, now would they render me a new bill on April
1st and say that it was only fifteen days in arrears?

H.M.Jr: Well, they - they take that and they average it up and
they get a figure of twenty-two percent. But, actually
taking the money which wasn't paid since last January,
they're
forty-two percent in arrears. We've got all
those figures.
B:

Well, I want to get those.

H.M.Jr: Well, I can - I can send Upham, who is here with me,
and happens to be with me now; I can send him up to

234E

-5you. We've got B:
I wish you would. I think that's damned important.
H.M.Jr: And there's no question; they're forty-two percent in
arrears on their interest and on their amortization
B:

fifty-two.
Well, of course, their amortization is a little bit
loose, you know.

H.M.Jr: But, on the interest that - we had Fahey over here
last week and - after all, my responsibility is that
if we guarantee the bond, I say we, and if the thing
goes sour, they've got to make good.
B:
Why, certainly.
H.M.Jr: And, I - of course, I don't like to get my wires
crossed, but B:

No, but dammit, they've got to play fair on it. I

want to see that.

H.M.Jr: Well, supposing I let Upham come up and show it to you.
B:
I wish you would.

H.M.Jr: U - p - h - a - m. Maybe you know him.
B:

all afternoon.
Yes. Now, I - I will be with
I can't guarantee whether I'll be on the floor or my
office at any particular time, but he'll find me one

place or the other.
H.M.Jr: Well, he'll find you.
B:

Yes.

H.M.Jr: And I'll tell - I'll make no bones; I'll tell Fahey
that we're sending it up to you at your request.

B:

Yes, absolutely.

H.M.Jr: But, those are the facts B:
Absolutely, I certainly do request it.
H.M.Jr: What's that?

I certainly do request it.
H.M.Jr: Well, I'11 send it up to you.

B:

34F

-6B:-

All right, fine. Now, what do you say about that

Farmers Loan Corporation. Do you think there's any
danger in that?
H.M.Jr: Well B:-

I mean, would there be any danger if they don't go
ahead and make these loans and ask for a billion
dollars more to be guaranteed?

H.M.Jr: Senator, I don't want any more guaranteed bonds if
I can help it. It's - it's getting - piling up
pretty heavy.
Well, it seems to me H.M.Jr: I - I - who's chairman of that committee?
B:

B:

Smith.

H.M.Jr: Senator Smith?
B:

Yes.

H.M.Jr: Well, I don't know whether they've asked us for memoB:

randum, but if they do, we'll certainly Well, now, confidentially I don't know whether Smith's
going
tothat
make a speech on the floor or not, but Smith's
told me
says that he's absolutely against it.

H.M.Jr: Who, Smith?
B:

Yes.

H.M.Jr: He's against it?
B:

Yes, but he's with the Senator, but I don't know whether
he's saying that out or not.

H.M.Jr: Well, when is that going to come up for argument?
B:

It's up now; it's on

right this minute.

H.M.Jr: And Joe Robinson introduced it?
B:

No, but he's very

to it. Says that he was just on
the point of introducing a thing like that himself.
H.M.Jr:stuff
Well,islet
me send
forfast.
our boys; we'll look into it. I coming
pretty
B:

It
isfast.
coming fast. I - I sometimes fear it's coming
toosure
damn

284G
7

H.M.Jr: Yes, yes. Well, I'm awfully glad to have had this

chance to talk and I'11 have Upham come up with those

Home Owners' Loan figures.
B:

Yes.

H.M.Jr: And I'll look into this guarantee B:

And if you have anything to say about the Farmers Loan

B:

But, it will have to be pretty quick. It's going to

Corporation, I'11 be damn glad to hear it.
H.M.Jr: Well be voted on today.

H.M.Jr: I see. Well, now if we do anything, I can do it
within the next fifteen minutes.
B:

All right, fine.

H.M.Jr: Thank you.

235
April 17, 1935.

A group met in the office of the Secretary of the Treasury at
9:30 A.M.

Those present were:

Henry Morgenthau, Jr. Secretary of the Treasury,
T.J. Coolidge, Under Secretary of the Treasury,

Rexford G. Tugwell, Under Secretary of Agriculture,
Wm. I. Myers, Governor, Farm Credit Administration,
Scott W. Hovey, General Counsel, Farm Credit Administration,
Josephine Roche, Assistant Secretary.
Herman Oliphant, General Counsel, Treasury Department,

Herbert E. Gaston, Assistant to the Secretary,
George C. Haas, Director of Research and Statistics,
C.B. Upham.

Mr. Coolidge read a report on H.R. 6151, a bill introduced by
Marvin Jones of Texas, which would authorize the issuance of currency
by Federal Intermediate Credit Banks.
Mr. Myers said the real problem of the Intermediat te Credit Banks
was how to market their debentures in a monetary pinch.
Mr. Morgenthau asked how about letting them discont at Federal
Reserve Banks.

Mr. Coolidge commented that the Federal Reserve Banks might not

be willing to take their paper.
Mr. Morgenthau was of the opinion that it might be well if they
have a show down on this bill -- that the limit has been reached.
Mr. Oliphant thought there might be some advantage to giving

something more than a negative answer and referred to the bill for
Farmers Home Corporation introduced by Senator Smith.

-2-

236

Mr. Myers said Congressman Jones regards his bill as a sound
way of doing what Frazier-Lemke wanted to do and a method by which

the more radical Frazier-Lenke proposal can be defeated.

Mr. Coolidge was of the opinion that if the Intermediate Credit
Banks get money they should get it from the Treasury rather than from
the Federal Reserve System.

Mr. Morgenthau was of the opinion that the Government has gone

the limit on farm finance. The FCA has done a good job of taking
care of farmers.He would rather see some money secured for the
small business man.

Mr. Myers, who was due at 10 o'clock to testify before the
House Agricultural Committee on the Jones Bill, said that he will
tell the Committee what the FCA is doing now and cost of its funds.
He said that the ultimate cost to the consumer for sound farm

loans is now 5%, which is the lowest retail credit rate.
Mr. Morgenthau asked if the Treasury should go up and say it
needs the $800,000,000 which the bill would segregate from the

Stabilization Fund gold.
Mr. Coolidge said we should take the position that we shouldn't
have two banking systems.

Mr. Tugwell and Mr. Oliphant thought this would be a mistake --

that it is a good argument but that it would have no effect.
At this point Mr. Morgenthau called Mr. Jones on the telephone
and told him that the Treasury would have to oppose the segregation

of $800,000,000 from the Stabilization Fund. He said he couldn't sit
here as Secretary of the Treasury and see a bill passed to make use
of part of the gold profit. That can't be touched, he said.

-3-

237

Mr. Myers asked how about suggesting that the Treasury buy
debentures of the Intermediate Credit Banks when the Secretary thinks
that might be done.

Mr. Morgenthau said there was no necessity for it -- that the
FCA is the best organization for lending money in the United States.

The Social Security Bill was then brought forward for consideration.
Miss Roche referred to an amendment which had been tacked on the

bill under which people over 65 might go on working, pay no taxes,

but collect their pensions. She said there was a disposition to
accept the amendment and let it go to conference, but she was of the

opinion that it would increase considerably the cost to the Treasury,
and it was agreed that the Secretary would seek a conference with
Chairman Doughton of the Ways and Means Committee with respect to

the matter.

April 17, 1935.

238

The Open Market Committee of the Federal Reserve System met with

the Secretary of the Treasury in his office at 11:00 A.M. Those pre-

sent were:

Henry Morgenthau, Jr. Secretary of the Treasury,
T.J. Coolidge, Under Secretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
G.L. Harrison, Governor, Federal Reserve Bank of New York,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,
R.A. Young, Governor, Federal Reserve Bank of Boston,

G.J. Schaler, Governor, Federal Reserve Bank of Chicago,
G.J. Seay, Governor, Federal Reserve Bank of Richmond,

D.W. Bell, Acting Director, Bureau of the Budget,
G.C. Haas, Director, Research and Statistics,
C.B. Upham.

Prior to discussion of the refunding of the First Liberty Bonds
there was some discussion of the cash position of the Treasury.
Mr. Coolidge indicated that we were letting the Treasury bill
receipts slide off $25,000,000 a week because of big cash balances.
Reserve balances are now down, he reported, and raised the question

whether We should increase weekly bill offerings, and if so, whether
thay should be $75,000,000 9 months and $25,000,000 6 months or
1,000,000 of each.

Mist Bell estimated that the CCC would require $250,000,000

Juan 30th. He estimated that there would be an additional
of not over $800,000,000 to $1,000,000,000 between now and

of the fiscal year. We have $1,700,000,000 working capital
a balance of $800,000,000 or $900,000,000 on June

Little additional money may be needed to take care of the

April 17, 1935.

238

The Open Market Committee of the Federal Reserve System met with

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

Henry Morgenthau, Jr. Secretary of the Treasury,

T.J. Coolidge, Under Secretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
G.L. Harrison, Governor, Federal Reserve Bank of New York,
W.R. Burgess, Deputy Governor, Federal Reserve Bank of New York,

R.A. Young, Governor, Federal Reserve Bank of Boston,
G.J. Schaler, Governor, Federal Reserve Bank of Chicago,
G.J. Seay, Governor, Federal Reserve Bank of Richmond,

D.W. Bell, Acting Director, Bureau of the Budget,
G.C. Haas, Director, Research and Statistics,
C.B. Upham.

Prior to discussion of the refunding of the First Liberty Bonds
there was some discussion of the cash position of the Treasury.
Mr. Coolidge indicated that we were letting the Treasury bill
receipts slide off $25,000,000 a week because of big cash balances.
Reserve balances are now down, he reported, and raised the question

whether we should increase weekly bill offerings, and if so, whether
they should be $75,000,000 9 months and $25,000,000 6 months or
$50,000,000 of each.

Mr. Bell estimated that the COC would require $250,000,000

before June 30th. He estimated that there would be an additional
deficit of not over $800,000,000 to $1,000,000,000 between now and

the end of the fiscal year. We have $1,700,000,000 working capital
and should have a balance of $800,000,000 or $900,000,000 on June

30th. A little additional money may be needed to take care of the

239

-2Consols.

Mr. Morgenthau suggested that we run along as we are for a

while on the bills and then increase to $50,000,000 9 months and
$50,000,000 6 months.

Mr. Coolidge added that the gaps could then be filled in with
4 and 5 months bills.
Mr. Coolidge then read a memorandum which he had prepared on

refunding the First Libertys. It follows:
"April 17, 1935.
Memorandum re: FINANCING

"We have about $1,900,000,000 called First Libertys which need

to be paid on June 15th. $1,400,000,000 of these are tax-exempt.
of these tax-exempt bonds our estimates are that perhaps two-thirds
are held by people with incomes of over $20,000. My suggestion is
that we give them a choice of a long Government bond which is, of
course, taxable as far as surtaxes are concerned, or a five-year

note which is non-taxable. It would seem appropriate to give these
holders a choice of the last two issues, namely:
2-7/8% Bonds due 55-60

1-5/8% Notes due March 15/40.

"The simplest offer of conversion would be to adjust interest
as of June 15th. This would involve our paying the coupon in full
and charging the purchaser interest on the new security until June
15th. At the moment this would involve a conversion price of
100-1/2 on the bonds and about 100-3/8 on the Notes, this price

reaching par by June 15th. This would involve perhaps a point
profit on both of these issues based on immediate markets. I suspect

-3-

240

that the price of both of these issues would be forced down some-

what by the offer, other things being equal, and that the conversion
might be more or less equal into each of these issues. Should they
come in too rapidly on the notes, I would suggest closing the books
promptly. I have a feeling that a point profit seems rather large
in the markets to give for a conversion into the notes. However, I
have not got very great faith in these market prices being able to
absorb a large quantity, and to give a profitable conversion into a
note would insure a successful conversion. On the other hand, I
think it would be well to consider the advisability of charging
above par for the new note. This would have a tendency to force
more conversions into the bonds and force the price of the bonds
down where they might be better absorbed by the investment market.

However, should there be a general drop in the market, it might
prevent a successful conversion.

"I would be inclined to insertin the offering the right of the
Treasury to raise the price in order, first, to hasten conversion,
and second, should the market go up, not to extend the full benefits
of conversion to those who wait.

"It is always well to consider the possibility of selling the
shorter bond at a lower rate, and I feel it is healthier to increase
our long issue."
Discussion followed as to whether a replacement note should be

issued at 1-5/8 or 1-1/2.

.

Mr. Coolidge pointed out that, assuming an interest adjustment
as of June 15th the conversion price today of the notes is 100-3/8

If the note is sold at 100-1/2, he said, it would force holders into

241
the bonds and pull the bonds down. He said he would like to get
the best price possible and suggested starting with a good price
and then close the books or raise the price. He said that a price
of par for the bonds and par and a half for the notes would shove
the long market down.

Mr. Burgess said that unless the Treasury were a little
generous, the bond market would go up.

Mr. Eccles and Mr. Schaler were of the opinion that the holders
of the First Libertys would favor the new notes.
Mr. Burgess was not so sure but thought that would be satisfactory
and commented that we had just put out a lot of bonds.
Mr. Coolidge added that we have $1,200,000,000 to refund in
October for which long bonds should be offered as an exchange.
Mr. Burgess commented that 1-5/8 was pretty cheap money.

Mr. Morgenthau suggested the possibility of a note of something
less than 5 years maturity.
Mr. Burgess thought there was an advantage to building up the

5 year and more maturities into substantial blocks. He regards the
1-5/8 note as a nice issue to trade in because there is a very small
gap between the bid and asked prices. The market likes it.
Mr. Coolidge remarked that the present market is not so good to sell
as that which existed in December.

Mr. Burgess said the people are just beginning to analyze the
Social Security Bill. He remarked that it had been under discus sion
the night before at a meeting of the Academy of Political Science
and that the attendants were amazed. He thinks the market may get &

bad jolt when people realize what is in the bill.

-5-

Mr. Morgenthau said he thought the timing of our financing

242

was very important. He commented that Vice President Garner, in
a conference had recommended that the political factor be completely
disregarded and the Treasury follow out its usual orthodox procedure.
Mr. Morgenthau was of the opinion that a big conversion hanging
over Congress seems to have a wholesome effect. He said that he was
ready to go ahead with the refunding on Monday, to which there was
general agreement.

Mr. Coolidge thought that the note ought to be made attractive
to hold the bond market up.
Mr. Morgenthau said that he might have some trouble with the
President who has some cheap money ideas, partly as a result of Mr.
Morgenthau's radio speech.

By a round robin vote, the majority were in favor of a 1-5/8
rate for the note with Mr. Eccles favoring 1-1/2, and his opinion
being shared in part, at least, by Mr. Bell and Mr. Haas.
Mr. Bell raised the point about piling up maturities on one
date. He said he would like to see maturities of $500,000,000 to
$800,000,000 on tax dates.

Mr. Coolidge said he would like short term maturities on tax
dates.

Mr. Morgenthau asked an opinion asto how much premium we can
get.

Mr. Burgess said he wouldn't try for any.
Mr. Coolidge commented that we are starting with a premium on
the interest rate - have to pay interest to June 15th.
Mr. Coolidge thought that the 1/8% difference between 1-1/2 and

-6-

243

1-5/8 was to be regarded as insurance that the refunding would
go over.

Mr. Eccles remarked that 1-1/2 is pretty good for 5 years.
Mr. Seay replied that it is now, but may not be later.

Mr. Harrison thought 3-1/2 to 4 million pretty cheap protection.
Mr. Eccles asked where the holders of First Liberty Bonds
would put their money if they did not exchange.
Mr. Coolidge said they were the class of people who would

keep it in cash for 6 or 8 months waiting for an attractive offer.
yet.

Mr. Morgenthau said he regarded this as the toughest conversion

Mr. Coolidge said that if we announce at par and the market
goes well he would favor jumping the price and asked whether that
should be put in the circular.
Mr. Burgess said he did not think it had ever been done, that
he saw no reason that it should not.
Mr. Morgenthau asked if the banks would buy the 2-7/8 bonds.

Mr. Burgess said there would be limited buying at first but
the banks would absorb the issues over the years. He thought the
distribution would be pretty good.

April 17th

244

Mr. Dewell, of the New York Daily News, came

in to see the Secretary to-day. The request that Mr. Mor-

genthau see this man was made by Jim Farley.

The New York Daily News want to reopen the
Lindbergh case because they feel that while Hauptmann was

convicted the crime has not yet been solved. They have
information which they feel sure will lead to the solving
of this mystery and they do not want to work with the Department of Justice. They need the help of the Narcotic
Division and, therefore, came to see Mr. Morgenthau to find
out whether the Treasury will assist them.
Mr. Morgenthau said he would talk to the
President about it and give him an answer by tomorrow and
that inasmuch as the President had signed Executive Orders
this case was in the hands of the Department of Justice and

he had to get his approval first.

Mr. Morgenthau suggested to the President

to-day that he thought it would be a good idea if Winn
Reifler would make a study of Moffett's organization.
Things were in very bad shape and he feels he ought to be
able to do something in a week. The President approved and

Mr. Morgenthau made arrangements with Reifler to-day.
Mr. Morgenthau spoke to Colonel McIntyre about arranging for

Reifler to make the study and he was quite annoyed that
Moffett's organization should be investigated.
Mr. Morgenthau spoke to Hull to-day about
the ten page memorandum which Under Secretary Phillips sent
over to the Treasury to-day on stabilization. The President,
Mr. Hull and Mr. Morgenthau had agreed that no one would handle
stabilization except Mr. Morgenthau. Mr. Hull said that he
knew nothing about it, that he did not want Mr. Morgenthau
to make a formal answer to Mr. Phillips but he would dispose
of the matter himself.

1935.

245

The following cable telephoned to McHugh at 10:24 A.M. this
morning by Miss Willier of the State Department. April 18,1935.

Mexico City, April 17, 1935.
#63

CONFIDENTIAL FOR TREASURY
FROM: COMMERCIAL ATTACHE

Heavy purchases of silver in London have been

made by the Banco de Mexico during the past four days. The

balance of the bank is low. It is believed that the silver
purchases have been made to stimulate the market, or for

possible sale to the Federal Reserve of the United States.

(Signed) Norweb

up

April 17, 1935.

245A

Wednesday.

H.M.Jr:

Hello, Marvin?

Marvin
Jones:

Yes,

H.M.Jr:

Look, we've got some of our friends here in the room

J:

Yes.

H.M.Jr:

and there's one - I want to talk to you as one
friend to another, that is, just to what the Treasury
can - as to how far we can talk. Now, the easiest
thing for us to say is that we can't spare any of the
Stabilization Fund. We don't know when we're going
to get into currency war and two billion dollars
isn't so much. What?

J:

I wasn't expecting the Treasury boys to come up and

H.M.Jr:

You

talking about your bill -

-

testify particularly on the merits, but on the
mechanics of it. Some of the fellows didn't quite
understand some of the provisions and I wasn't - and
I asked Bill Myers to stop Bill's here- Bill's here in the room with me.

J:

Yes. What they wanted- they didn't intend to ask any
Treasury men to come up at all and then - one or two
provisions that they wondered why they should be inserted and - we'd like one of those boys to come up
and help make explanations about it - maybe Bill can
do it, but I wasn't asking you fellows to make a
commitment on the bill.

H.M.Jr:

Well,
I do
want
to get
that we
don't
want
- across that one fact, though,

J:

H.M.Jr:

What?

J:

You'd rather have the Frazier-Lemke bill

H.M.Jr:

Well, I don't care; it's - I'd go the limit on -

that the Stabilization Fund shouldn't be cut - I mean,
I can't compromise on that - the President can't compromise on that - I mean, you talk about your cotton
and your foreign trade and all that, I mean, if you
want - if you want that, why, then just

J:

H.M.Jr:

Lieten, Henry, we've got a practical situation up
here. These boys are going to hold out on

and thirty million dollars - it's a lot of money
Yes, well, I don't - they can go - they can go just

so far and then we can start printing greenbacks, see?

J:

Yes.

-2-

245B

H.M.Jr:

And then somebody else can run the Treasury.

J:

You couldn't even stand eight hundred million

H.M.Jr:

J:

Why, no, no, and I'd like - I don't want to have anybody misunderstand that, and I'm perfectly willing to
come up and say so myself. I don't, I mean Well, now listen, Henry, dammit the - you know, they're
going to put everybody on the Rules Committee on the
spot if I report out the Frazier-Lemke bill and don't
report out something else, see? Along with it -

H.M.Jr:

Yes.

J:

H.M.Jr:

- and they're going to vote the Frazier-Lemke bill out.
Well, why don't you and the Speaker and I get together?

J:

What?

H.M.Jr:

Why don't you and the Speaker and I have a talk?

J:

Well, that won't - that won't keep - from putting the
Rules Committee on the spot.

H.M.Jr:

J:

Well, of course I'm not going to vote to report this Frazier-Lemke
thing out.
Well, are you going to vote this bill out?
Yes, I'm - we've got to protect the Rules Committee.

H.M.Jr:

Well, then I think it -

J:

What I'm getting at is the - the technical position
of having a - it's a whole lot easier to fight when
you've got two bills to keep either one of them from

J:

H.M.Jr:

coming up to the Secretary.

H.M.Jr:

J:

H.M.Jr:

Well, of course, you know your end without - better
than I do and I've - I can't argue with you on tactics
in Congress, but all I can argue with you is the need

of the Stabilization Fund and that's all.
of
I know, I appreciate that fact.
to
And I don't feel we can let that come up -

J:

Well,
have them go around here and pass
a bill I'd
likehate
thattoFrazier-Lenke.

H.M.Jr:

Well, I - I - I -

3-

245C

H.M.Jr:

Well, it's just a question, I mean - if anybody comes
up from the Treasury, we've got to say that the
Stabilization Fund can't be cut.

J:

And what - what

H.M.Jr:

Well, maybe you'd rather not have anybody come up.

J:

Well, all I want

H.M.Jr:

Well, if anybody I'd rather nobody come up than to have them do that,
but, I didn't think they had to pass on that. I
didn't ask for you nor for anybody representing you
and I just asked Bill if he couldn't bring somebody
up because I think these other boys
Well, Henry Wallace feels on the Stabilization Fund
just as strongly as I do and I want to get this idea
over to Congress, that they can't eat in on that fund.
The Frazier-Lemke or no Frazier-Lemke, I mean, the
whole key to our international trade is tied up in
the Stabilization Fund.

J:

H.M.Jr:

J:

Well, it's just a matter of bookkeeping.

H.M.Jr:

What?

J:

It's just a matter of bookkeeping.

H.M.Jr:

What's that?

J:

And my bill just makes it.
Oh, no, no, no, it's a great deal more serious than

H.M.Jr:

that, and I can't as a public servant let that thing

pass without expressing myself.
J:

H.M.Jr:
J:

H.M.Jr:
J:

Well, I can - I can realize that and I mean, I've - I've got my responsibilities as a
public servant, and - I mean, I - I Well, do you want to be - do you want to be heard on

it before we act on it?

If - if that eight hundred millions of Stabilization's
stays in there - I mean, I would like to be heard on it.
Well, here's the thing, Henry, I - we've got - I've

H.M.Jr:

held this Frazier-Lemke for three years, and these boys
just won't let me hold it any longer.
Well, you've done a swell job.

J:

And I've got to vote on the damn thing and -

-4H.M.Jr:
J:

You've done a swell job.

Well, thank you. I don't want to - I tell you, I

may go ahead and report this other out and then before we take it up any way, why, I mean, before it
gets through, you can be heard all right. You don't
want to come up here and be hurt now.
H.M.Jr:

Well, I - that's the time, I leave myself entirely

in your hands.
J:

Well, now you - could you come up this morning if I
ask for you?

H.M.Jr:

Yes.

J:

What?

H.M.Jr:

I'll drop everything and come.

J:

Well, I may want you to do it. I won't say now, but
Bill's coming on up here, but - I'll - I'll talk with
him and then we'll talk with the committee; maybe
we can get along without him, but -

H.M.Jr:

If you call me, I'll be up there in fifteen minutes.

J:

All right, fine.
All right, sir.

H.M.Jr:

the

Revenue

April 18, 1935.

245E

Thursday.

H.M.Jr:

Higgins:

Hello. This is Henry Morgenthau, Jr.
Yes. How are you, Mr. Secretary?

H.M.Jr:

How are you?

H:

Good.

H.M.Jr:

Mr. Higgins, I'm calling you up about two jobs.

H:

Yes.

H.M.Jr:

Was Judge Rosenman's sister ever taken care of?

H;

Yes, I wrote to you, Mr. Secretary. Her name is down
in Washington now.

H.M.Jr:

Oh.

H:

The big fault I have here, of course, I have about
twenty vacancies now of men I let go with about a sixweeks notice, and, of course, those appointments haven't
come through here, and I'm getting pretty worried because these warrants are piling up, you know.

H.M.Jr:

Well, to whom did you send them?

H:

Well, they went right to the Internal Revenue Department

H.M.Jr:
H:

Well, of course -

H.M.Jr:

McReynolds is here with me now. You say you sent down

H:

Oh, yes, there must be at least twenty vacancies that

twenty appointments?

H.M.Jr:

I'm waiting now to fill.
Well, I'll have them looked up. Now -

H:

The Judge's sister is one.

H.M.Jr:

The only one that I - I told you - the only one that I

and

personally was interested was Miss Elizabeth Campbell.

H:

Yes, well, I've had her in two or three times, Mr.
Secretary. Did you get the letter I sent to you about
three days ago?

H.M.Jr:
H:

No.

Well, I wrote to you marked personal and explained to
you - I believe you sent me - was kind enough to send
me the letter that lawyer wrote saying that he was
satisfied with the treatment he got here -

245F

-2H.M.Jr:

Yes.

H:

- and you also, I think -

H.M.Jr:

Yes, that I know about.

H:

I think it was Judge Rosenman. I answered that letter
the next day that he had already sent down - a $1440
position, you see, to start with.

H.M.Jr:

A what?

H:

A $1440 job.

H.M.Jr:

$1440.

H:

$1440.

H.M.Jr:

But, McReynolds down here said that he spoke to you
about a $2400 job.

H:

Well, that's for Miss Campbell.

H.M.Jr:

For Miss Campbell.

H:

Miss Campbell. Rosenman's sister, of course, has had
no experience at all.

H.M.Jr:

No, no, but -

H:

H.M.Jr:
H:

I thought we might be able to raise it later if he's
perfectly satisfied now.
Yes. Well I had - in my letter to you I explained that I had
in here; we sent down and talked to Miss Campbell and
he said that he had it up before and that there was
difficulty in starting a woman in this place without
a - at that rate, you see? In other words, there was
no job for a woman at that rate, and I suggested to
Miss Campbell that I could start her in here at $1800,
do you see, as a Field Deputy and then work her into
some other place.

H.M.Jr:

As a' Field Deputy?

H:

Yes.

H.M.Jr:

Well, now, just a minute. Let me get Mac on the phone.

H:

Yes.

H.M.Jr:

McReynolds can go on the other phone.

H:

Yes, because he and I talked that over before.

245G

3-

McReynolds: Hello, Mr. Higgins.
H:

Hello, Mr. McReynolds.

McR:

Well, Field Deputies are the ones that go out, of
course.

H:

Well, of course, she wouldn't necessarily have to do
that.

McR:

Wouldn't necessarily have to go out, I understand.
But, of course, I realize that that is the standard
rate. I suppose your objection to anything else
would be a question of putting dissatisfaction on your
own force.

H:

Yes, I tell you, Mr. McReynolds, frankly between you
and myself, I've been trying to follow more or less not to - simply as a
suggestion of a sympathizer,
do you see?

McR:

Yes.

H:

He feels as though nobody should come into this office
unless experienced to - over $1800 - that would be in

the field. So far we haven't put anyone in there at
all, in the field. Of course, that
to the per-

son who is in here and lands a job where he could be
assigned to some place where eventually he could reach
this $2500 grade, you see?

McR:

Yes.

H:

And we couldn't drop somebody out who has probably had

four or five years experience in that particular grade

without filling it and fill it properly if you
McR:
H:

Well, I - I'm sure tary wants

Of course, I know if the Secre-

I'd do it if I thought I could do it

without injuring the office, you see? Naturally
seems to be very fair about it and

H.M.Jr:
H:

What kind of work would she do?

Well, she would - she'd probably have to wind up in
charge of some division here, Mr. Secretary.

H.M.Jr:

She would?

H:

For that reason, she probably couldn't walk into it

H.M.Jr:
H:

totally unexperienced.

Well, I'm going to call her up and I'm going to tell
her to take this job, see?
right
Makeymolda?
Yes.
be

245H
4H.M.Jr:

And then I'm going to ask you from time to time how
ahe's getting along, see?

H:

Yes.

H.M.Jr:

And if she gets along all right, I wish you would
promote her.

H:

H.M. Jr:
H:

H.M.Jr:
H:

Yes, well, I certainly would suggest it to her.
And if she - I mean, if you ever want a confidential
bookkeeper, anybody like that, you can absolutely
trust her.
Well, I know she's a fine girl.
She's absolutely trustworthy.

Well, in fact, I was waiting for her to decide on that
idea. My suggestion was, because of the fact that I

have a clerk here, and who apparently is a very sincere
letters that had to be done and
man,
he said he didn't see how it could be done immediately
but that was the suggestion - to start her out at the highest rate would be $1800 and move her along up,

you see?

H.M.Jr:

All right. Well, now I'll tell her to come down tomor-

H:

Yes.

H.M.Jr:

Should she come to your office?

H:

Yes, come right into the office. I've had her in once

H.M.Jr:

I'll tell her to come in and tell her that she should

row.

or twice, Mr. Morgenthau.

be ready to go to work.

H:

Yes.

H.M.Jr:

She can start in, what, Monday?

H.M.Jr:

Why, yes. Here's the trouble, you see, I can swear
all these people right in, but my - my orders here are
to wait until I get an o.k. from Washington.
Well, have you sent - have you sent her name -

H:

It is then

H:

H.M.Jr:

Commissioner of Internal Revenue -

checked by the - by Mr. McQuillan's office here, which
takes about ten days and then it goes back to Washington, then I get word from the Commissioner of Internal
Revenue, saying you may now appoint this party.
Well, will you send her name right to McReynolds?

2450

-5McR:
H:

Well, Higgins I'll send it right to McReynolds.

McR:

Higgins?

H:

Yes.

McR:

Suppose you go ahead and put her on.

H:

Put her right on?
Yes, and send the appointment to me and I'll clear it
through the Bureau afterwards.

McR:

H:

Well, that's all right. That's fine. I just want to

say if you could tell the Secretary if there's any way
possible that I could get a little more leeway on my
appointments here, I could have Mr. McQuillan of the
Secret Service check them up, and if he said o.k., I
could appoint them. That would help me an awful 1ot,
because I've delayed I've only got nine people in in
three months.

McR:

Well, I tell you, let me get a hold of Schoeneman, who
is
boss here and we'll clear that up for you.

McR:

That's fine, because I just had the new chief field men
come in and tell me that there's twenty vacancies out
there and that these wires are falling back, you see?
You want - you want to be careful who you get, of course.

H:

Absolutely.

McR:

But, if you get it cleared through McQuillan's office,
why, I think you're pretty safe.
I think so, yes, but, of course, I wouldn't do it without an o.k. on the thing. Now, on this other - one
thing about appointing this lady.

H:

H:

H.M.Jr:

Higgins?

H:

Yes.

H.M.Jr:

I appreciate McReynolds asking that, but I'd rather let
Miss Campbell go through the regular routine, so if
you'll send her name down to Mr. McReynolds, he'll get
her's through and he'll get your others through, and
you ought to be able to swear them all in within ten
days.

H:

H.M.Jr:

Well, that'11 be grand if I can do that.
I'd rather have her go right straight through with the

245J
-6others, and then I'll see that McReynolds finds
out where your names are being held up.

H:

H.M.Jr:

Well, that's great.
But, in this Campbell case, they don't have to
check her up, you can take my word for it.

H:

Oh, I know that. In fact, what I intend her to do
is to have her sign the
right now to
Washington, and I'll -

H.M.Jr:

Yes. Well, you send that down and you - they can
check it, but you can take my word for it that she's

all right.

H:

H.M.Jr:

Yes, well, that's fine
Let her go through and I'll tell her to come down to
see you tomorrow.

H:

That's fine.

H.M.Jr:

All right.

H:

Thank you very much.

246
April 18th
Mr. Jean Appert, the French Financial Attache, came

in to see the Secretary to-day. He said that the financial
situation in the United States has been improving for the
last year and that the lowering of interest rates is the
best thing that happened in the United States.

J. A:

We cannot finance at less than 51%.

H.M.Jr:

Have you heard what effect it has had getting out
these 100 Franc gold pieces?

J.A:

H.M.Jr:

Gold coins will not be taken into circulation.
It would be immediately hoarded. Our Parliament
is adjourned for two months. It will be opened
up at the end of May or the early part of June.
Are you in the Diplomatic Service or from the

Treasury?

J.A:

I am from the Treasury. I am here for study
and report and sometimes for negotiations.

H.M.Jr. was very pleased with Mr. Appert's last
remark. The interview only lasted a few minutes and nothing
of any importance was discussed.

247
April 18th
H. M. Jr. saw the President this morning and
the President wants him to make a statement on the bonus. He
does not want General Hines to do this. He wants him to say
that the administration is ready to give a man who has a thousand
dollar certificate coming to him, a Baby Bond or a $750 certificate

with interest. The same thing will hold true, that is, that he
cannot cash it for 60 days and can only cash it at the Post
Office. The President said that he would like to figure these
payments from Armistice Day plus interest. H. M. Jr. did not

quite understand what he meant and Mr. Coolidge believes that
what the President had in mind was the present cash value would
work out at 4%.
Grover Whalen came in to see Mr. Morgenthau

this morning and said that the Distilled Spirits Institute

want to do some positive advertising.

H. M. Jr. said that their distributors do not

seem to be aware of the federal and state laws. There are

many cases where we call upon a man and we find that he does

not know how to handle the strip stamp, licenses, etc. I

suggest that you go into a city where we are making our check up.
Take for instance New York City and run an advertising campaign

and say something like this: "These are the regulations and
we want the honest distributor to assist us by living up to the
federal and state regulations and this is what you should do".
Then point out to the consumer what he should look for in
honest distributors' stores.

H. M. Jr. pointed out to Mr. Whalen that this
sort of advertising would help their distributors live up to
the law, help to advertise the kind of places to go where they
sell liquor and also that this would not be an expensive campaign.
He pointed out that in New York City we have checked about 15,000
places and there are about 15,000 more to go. Whalen said he
would start the advertising campaign at once. H. M. Jr. also
suggested that they include the beer people.
Mr. Whalen also pointed out the fact that we
are hurting ourselves by selling at auction seized liquor.
He said what we are trying to do is to legalize something,
as he put it, "that was not born legally". H.M.Jr. agreed
that this was true but our people felt it was the only way
we could afford to pay informers. However, he suggested that
Mr. Doran check this up with Mr. Graves.

248
April 18th
Mr. Morgenthau was called on the Hill and
testified before the Ways and Means Committee in the House
at 8:30.
Mr. Morgenthau met with Chairman Doughton and

Messrs. Hill, Vinson and Cooper. With Mr. Morgenthau were
Miss Roche, Mr. Hester, Mr. Haas, Mr. Reagh, Mr. Erb and
Mr. Upham. Also present were Mr. Price, assistant clerk of
the Committee and Mr. Stamm, of the Joint Committee on
Internal Revenue.

The subject of the discussion was an amendment

to the Social Security bill which, in the opinion of Treasury

actuaries, would increase the cost to the Treasury by some
$250,000,000 annually. The amendment would permit annuitants
to receive at age 65 even though they continue to work.
The members of the Committee were of the

opinion that it would be a mistake politically to attempt

to make any change at this stage. They have had considerable

of a fight to keep Title II in the bill, but believe that

now they can put the bill through in satisfactory shape, and
revise it in future Congresses if experience shows the need.
To make the point raised by the Secretary on the floor of the
House at this time they thought would prejudice the chances
of the bill's smooth passage.
The Secretary explained that he thought it his
duty to bring the matter to their attention, but in view of
their attitude and opinion, he would not press the point.

248A

April 22, 1935.
Monday.

H.M.Jr: Hello,
Bulkley: Hello, Mr. Secretary.
H.M.Jr:

Bulkley?

B:

Yes.

H.M.Jr:

I want to talk to you, if I may, confidentially -

B:

Go ahead.

H.M.Jr:

- at lunch today I took up the question with the President about that-opening the thing up for sixty days -

B:

Yes.

H.M.Jr:

And he was perfectly amazed when I told him that Fahey
was advocating that.

B:

He's not advocating it, he just consented that he didn't

H.M.Jr:

Well, the President said that his understanding with
Fahey was that it - if possible, it should not be opened.

B:

Yes.

H.M.Jr:

Now, if - let's leave it - if you wish to you can quote
me as saying, let's leave the President out of it unless

think it would do much harm.

you have to.

B:

Yes.

H.M.Jr:

That if it is at all possible not to reopen it, we'd

B:

like not to have it reopened.
Well, now I'll tell you how I'm fixed about that -

H.M.Jr:

Yes.

B:

- I took that view and I battled for it in an open fight

on the Senate floor. We got licked.. Now you know there's
been some little oriticism about what conferees do and to
the effect that they ought to support the Senate view. Now,
of course, we can support the Senate view and with more
vigor - with less vigor, but I don't think
to oppose it.

H.M.Jr:

Well, I - I -

B:

So, I wish you'd put that up to Steagall and get him to
take the
of opposing that thing.

H.M.Jr:

Ithe
see.
Well, I'll talk to him. I'll - I'll get him on
wire and talk to him.

248B

-2B:

Now, I tell you frankly, though, I don't think it makes so

very much difference because they've pretty near got the
sixty days anyway in the House, so then if anybody made an
application before the bill is signed, and then they do
sixty days, well, that's pretty near as open as

it would be if you reopened for sixty days. But, I H.M.Jr: Well, if you think it's useless I - I - don't want to B:
Well, I tell you, I don't think it matters as much as you
think. I'd rather not have had it, but I think possibly
that if we strike out the whole darn sixty days and have it
wide open for thirty days it might be even better than to
have

stay open for sixty days.

H.M.Jr: Well, I - I - I It's just a misunderstanding.
H.M.Jr: Well, I'm going to leave it in your hands because I couldn'tin the Senate.
B:
Well, we got pretty badly licked
H.M.Jr: Well, you're chairman of that committee, and I'm - I'm not
going to go to anybody else, see?
B:
Unless you would go to Steagall, that would be very proper.

B:

H.M.Jr: Well, I'll talk to Steagall; I'll tell him the same thing.
B:

Yes. Say, we got along pretty fair about Eccles this morning.

H.M.Jr: Yes, grand.
B:
No, dammit, there was no vote elapsed and we voted not to
elapse any vote.
H.M.Jr: Oh, oh.
B:

I don't know who said sixty-two. That isn't right and we

especially voted that we would not announce any vote - emphasize any division.

H.M.Jr: Well, I think that's fine.
B:

Yes.

H.M.Jr: I think that's fine. I'm very much pleased.
B:
I'm still trying to get him to stop and not have any fight.
H.M.Jr: Well, to get it out of that sub-committee was the main
thing, wasn't it?
B:
Well, no I think the main thing is to avoid having the
man fight on the floor.

-3-

248C

H.M.Jr: Well, I appreciate what you've done very much.
B:
All right. Goodbye.
H.M.Jr:

And - we haven't made any move yet on Mrs. Pike.

B:

Well, -

H.M.Jr:
B:

And I'm not going to - I read her whole case.
All I'll ask you to do there is, let me know what you
have
furtherin- mind. I - I'd like to talk to you a little

H.M.Jr:

O.K.

B:

I didn't get a chance to tell you the whole story,
Well, I'd like to see you.
- because there's two sides to that little matter

H.M.Jr:
B:

there.

H.M.Jr:
B:

All right.
- It's right complicated.

H.M.Jr:

I think it is.

B:

Yes.

H.M.Jr:

All right, Senator.

B:

All right, sir.

H.M.Jr:

Thank you.

249
April 22d
The President said that he would announce

on Wednesday his program for the 4 billion 8. That it would
be a series of four announcements in four successive days.
That on Monday he would announce that Frank

Walker would take his old position as Secretary of the
National Emergency Council and that in addition he would
receive all applications for projects for the 4 billion 8
and also would give out the information as to which projects
had been approved and which disapproved.

On Thursday he would announce the formation

of the Allotment Board, of which Harold Ickes would be the
senior member. He stopped and said, "How do you like that
one?" I said, "Well that sounds like a go out" and he said,
"the President will be ex-officio member and between the
Allotment Board and the President will be a small unannounced
committee of 5 or 6 who would meet twice a week and then
the committee will really run the show.
He said, "You can be on that committee yourself
or have Bell or Peoples" and I said "No, that at the start I
would like to be on that committee myself as I have worked
with him for so many years on agriculture and conservation and
I felt that I understood this work and that, furthermore, his
whole future depended on the successful launching of the 4 billion
8".

He said in the committee will be himself, myself,
Ickes, Wallace, Hopkins and Joe Kennedy. He said that Joe Kennedy
is going to sit at my side and act as stenographer. He said,
"I can't yet tell either Hopkins or Ickes that Kennedy is going
to be over them". He said, "They will have to learn that gradually".
I said, "Has Joe Kennedy accepted"and he said "Yes" (but this
does not check with my telephone conversation before lunch with
Kennedy in which he said he was on his way to the White House
to tell the President that he would not accept.
The President said Hopkins would head up another

group which have to do with following up the projects (Hopkins'
job has been explained to me four times but I still cannot
understand it).
He said, "I am going to announce that there are
enough existing agencies in the government to handle all of
these projects, with the exception of rural housing and rural
electrification! He said, "I have got to get a new man to run

rural electrification".

250
When he got all through, I told him that I
thought it my work. I reminded him that I told him a month
ago that business had turned the corner and he said, "I will

never forget the way you announced that you were going to
make a prediction".

I suggested that he ought to go up to Dutchess
County. He said, "You know I really am feeling very fit", and
I must say that I have not seen him glow with health the way
he has now in months.

I showed him the memorandum by Hansen, which

Phillips sent over, in regard to stabilization and he got
terribly angry and said, "That man should absolutely be fired".
I told him that I did not want to leave the memorandum with
him but he said it was quite urgent and he wanted it to be
left with him and so I did. I told him that Cordell Hull had

not seen the memorandum before it left the State Department

Personally, I think it is one of the most
stupid and anti-New Deal memoranda that I have seen in a
long time and the thought that this was to be sent to the

various American Embassies abroad made my blood boil.

When I showed the President the Phillips'
memorandum he said, "J. P. Morgan has as much influence in
the State Department as he ever did".

H. M. Jr. called the President to-day and
told him that the foreign exchange markets were closed to-day;
that he was going to send for the Mexican Ambassador and see
if he could not arrange to have them sell us whatever silver
they bought in London; that this silver would take care of us
pending their Financial Agent coming here to discuss their
problems with us.

He also told the President that Mexico fired
the head of the Central Bank of Mexico, which is very gratifying.

The President also agreed to see Mr. Morgenthau
on the bonus question this afternoon.

Mr. Morgenthau also told the President that
Winn Reifler was coming over this morning and that he was
going to make definite arrangements with him in regard to
making the investigation of Moffett's organization.

251
General Hines, Mr. Bell and Mr. Morgenthau

discussed for several hours the bonus bill.

At 2 o'clock Mr. Morgenthau, General Hines,
Major Breining, Mr. Bell and Mr. Haas had a conference on

the bonus bill with the President. The following are the

President's comments:

1. The President is strongly opposed to compromising on

bonus legislation at this time, pointing out that in
the past when compromises were made, the Veterans'
bonus advocates always added to the compromise. He

added further that it would be fatal to approve any
bonus bill now, and that he did not approve Senator
Harrison's plan.
2. The President indicated that there is only one thing
to do at this time and it is the simplest solution.
That is, to discuss with The Congress a permanent policy
with relation to Veterans' legislation. The President
previously has indicated his willingness to discuss this
point. General Hines pointed out that a permanent
policy was included in the Harrison bill, but The President felt that the treatment there was inadequate.
3. After that, the President said that it comes down to
what the Treasury can do. The answer is that the
Veterans have a contract with the Government. The
original contract called for payment in 1945. The
Treasury must think about the payment of this money at
that time. The Treasury has arranged its financial
program with this obligation in mind. He pointed out
that the contract has a discount value and that the

discount or interest rate is 4 per cent. At the time

the 4 per cent rate on the contracts was fixed, The
President thought that the rate the Government was
paying for its money was somewhat higher. He pointed
out that the rate of interest now paid on Government
funds has been reduced considerably, and that the
Veterans' contracts might be re-examined from this
point of view. He then discussed the principle features
of the Baby Bonds indicating that the prime reason for
using bonds rather than cash was to keep the funds in the
hands of the Veterans. The Baby Bonds have certain features,
as he pointed out, which tend to encourage this. For
example, if they are cashed within a year only the face
amount is payable. At later dates interest accrues reaching a maximum rate if they are held for ten years.

April 22, 1935.

251A

Monday.

H.M.Jr:

Hello.

Harrison: Hello.
H.M.Jr:

Pat?

H:

Yes.

H.M.Jr:

Henry talking.

H:

Yes.

H.M.Jr:

We've just been over to the White House, General Hines,

H:

Yes.

H.M.Jr:

- on the question of the bonus. Now, what's your plea-

H:

Well, I thought somebody from Treasury ought to appear
before the committee, being as the discussion is bonds,
and so on. They may want to ask some questions. I

Bell and I -

sure as far as we're concerned?

don't think there's a long treatise on it or anything
like that because I want to wind up tomorrow, and I
want Hines there. I'm having a hearing now. I'm trying to get through this afternoon and have just a few
witnesses in the morning.

H.M.Jr:

H:

Well, if I come up, I mean, if anybody comes up, the
President wants me to go from the Treasury, and I'd
simply discuss the question of - not of any method, but
as to the financing That's right.

H.M.Jr:

- and that's all.

H.M.Jr:

That's right.
Now, I want to tell you beforehand-

H:

Yes.

H.M.Jr:

- that I - I'm going to say that any bill that doesn't

H:

H:

H.M.Jr:
H:

provide the money to taxes, that we've got to oppose be opposed to it because it isn't within the Budget.

Yes, Hines doesn't think that this is called for, but

he's going to hunt the $130,000,000 up there
Well, I wanted you to know what I was going to say because you might not want me.

Yes, well, that's all right. All I want to do is to

-2-

251B

know their proposition, and, of course, your estimate on
the cost on each one of these.
.M.Jr:

Well, I thought that Hines could go into the various
plans an analyze it.
Yes.

H.M.Jr:

I would simply state the position of the Treasury in
regard to any money that isn't provided for within the
Budget, see?

Yes.

H.M.Jr:

I can't take any other position.
Yes, well, you've got your latest receipts there that
shows that their returns have been coming in much better
lately.

H.M.Jr:

Yes.

All right, Henry. I'd come if I were you about eleven
o'clock.

H.M.Jr:

About eleven.

H:

I've got - we meet at ten, but I won't get to you until

H.M.Jr:

I see. Well, you don't want me first and get rid of me?
No, because I want to get through with the Legion first.

H:

about eleven.

H.M.Jr:

I see.

H:

And, so I believe if you get there by eleven, it's all
right.

H.M.Jr:

Get there at eleven.

H:

Yes.

H.M.Jr:

And - when you want General Hines, he's here.

H:

H.M.Jr:

Well, I think Hines ought to be here in the morning early.
He ought to be there early.

H:

Yes.

H.M.Jr:
H:

What do you call early?
Ten o'clock.

H.M.Jr:

Ten O'clock.

H:

Yes.

-3-

2516
252

H.M.Jr: All right.
Indicated that nothing should be done or
H:
All right. would in Any way conflict with The
H.M.Jr:

He says, yes.

statement.

that the Secretary of the Treasury
testify but that he should make no statement
any way confiliat with the budget prothe 33, to Smithst that Veterana bonis exc

Leores would have to be mer through additional

tax Levier, If the Secretary of the Treasury were
askad to suggest how funds night be raised through
tiration, the Secretary could hand there the inheritance
tax proposal wilder The President read at this 200forence.

AL Isnah to-day with the President he seld
at us would have been willing to predict that when
that to 4.70 it could come back and quickly to 4.85
stay there.

I asked him 11 an has Uned the article in
yesterday!a Times on "Silver and Indian (11 is attached
horewith and he anid he had 814 the had been tremondously
interested and in foot had sent it over 110 20.

He and was surprised to see

that the Pices printed 15, 43 1/t USS 50 controry to the
usual news that the Timus certify from England"

H.M.J. up Mr. Morrest and asked him

weether it would be satisfactory 10 Mrs Retries made in study
of the present condition of his organization in order to be
of assistance to 118 successor. Mr. Woffett was very agreeable
and this pleased Mr. Morgentbas,
Joe Kannedy called IT'S and told Mr. Morgenthan

that the President eme him the plan on the 4 billion 8 over
the week-end used offered the Sob to head it up; that has
was going to tozo the President down because the only way he
could take the 16b would be if the President fired Takes,
which ha lones the President would nut do.

7938.

252

4.

The President indicated that nothing should be done or
agreed to which would in any way conflict with The
President's budget statement.

5.

The President felt that the Secretary of the Treasury
should testify but that he should make no statement
which would, in any way conflict with the budget program. That is, to insist that Veterans' bonus expenditures would have to be met through additional
tax levies. If the Secretary of the Treasury were
asked to suggest how funds might be raised through
taxation, the Secretary could hand them the inheritance
tax proposal which The President read at this conference.

At lunch to-day with the President he said
none of us would have been willing to predict that when
Sterling went to 4.70 it could come back so quickly to 4.85
and stay there.
I asked him if he had read the article in
yesterday's Times on "Silver and India" (it is attached
herewith) and he said he had and he had been tremendously
interested and in fact had sent it over to me.

He said"I was particularly surprised to see
that the Times printed it, as it was so contrary to the

usual news that the Times carries from England".

H.M.Jr. called up Mr. Moffett and asked him
whether it would be satisfactory if Mr. Reifler made a study

of the present condition of his organization in order to be
of assistance to his successor. Mr. Moffett was very agreeable
and this pleased Mr. Morgenthau.

Joe Kennedy called up and told Mr. Morgenthau

that the President gave him the plan on the 4 billion 8 over
the week-end and offered him the job to head it up; that he

was going to turn the President down because the only way he
could take the job would be if the President fired Ickes,
which he knew the President would not do.

April 22, 1935.

252A

Monday.

H.M.Jr:

I'd like to make a move if it's agreeable to you I've been talking to the President about it - Hello.

Moffett:

Yes.

H.M.Jr:

He's been talking to me about your successor - And

M:

Yes, sir.
And what I'd like to do is - I understand that you

H.M.Jr:

naturally I'd like to talk to you about it get only but one more week?

M:

H.M.Jr:

I was planning to get away on next Sunday, yes.
Well, I wondered if you'd care to have lunch with me
on Wednesday.

M:

H.M.Jr:

I'd be delighted.

And - what I'd like to do is to sort of pick up the
ends - sort of carry it over for whoever is going to
succeed you.

M:

Yes.

H.M.Jr:

Winn Reifler is in town and he has nothing to do -

M:

Yes.

H.M.Jr:

- and I'd like to have him come over and see you and
he can spend a couple of weeks sort of carrying over
and then whoever the man is succeeded, he could sort
of hand it on to him, you see?

M:

Yes.

H.M.Jr:

Now, would that be agreeable to you?

M:

H.M.Jr:
M:

H.M.Jr:

I was going to talk to the President this morning, because naturally the organization is a little bit up
in the air, and one of these big operators, the insurance companies and all may start to hesitate a
little if they think there's going to be a decided
change in policies or anything.

Well, naturally, I mean - I - I And before I get away, I naturally like to keep it

upon an even keel as far as I can.
Well, would it be, I mean would it be agreeable if
Reifler called on you?

252B

-2You bet.

M:

H.M.Jr:
M:

And then he could sort of - you could He's in town, is he?

H.M.Jr:

Yes.

M:

Yes, I'd like him very much to come here.
Fine, then he could spend a little time there with
you and then picking up what's going on and then -

H.M.Jr:
M:

Anytime.

H.M.Jr:

Well, I - he's coming in to see me in a little while

M:

Fine.

H.M.Jr:

Now, I - I'm kind of fast, I mean, the - I didn't -

M:

Yes.

H.M.Jr:

And anything that I want to do, I want it to be agreeable to you because you've done a swell job and I'd

and I'll tell him to come over and see you.

this - but the President asked me to help him on it.

like -

M:

Well, I would - I'd be perfectly delighted to get Winn
over there and get him the picture for you because I
think that - I know some people think that maybe I'm

H.M.Jr:

exaggerating a little bit, and Well, let's leave it that way and then will you come
and have lunch here at the Treasury with me at one
o'clock Wednesday?

M:

I'd be delighted.

H.M.Jr:

Thank you very much.

M:

Thank you, Mr. Secretary.

253

PRIL 21, 1935.
NEW YORK TIMES

BRITISH POLICY AFFECTED
Pound Would Rise to High Gold

Parity if Silver Topped $1,
Says F. E. Holsinger.
By FREDERIC E. HOLSINGER.
Special Correspondation Tax New YORK TIMES

LONDON, April 12.-The an-

nouncement by Henry Morgenthau

Jr., Secretary of the United States
Treasury, that President Roosevelt

had decided that the Treasury
should buy silver at whatever
might be the world price of the
metal, following upon the recent
rapid rise of the price, insures the

implementing of my proposal, which

was published in THE New YORK
TIMES on March 5 last, that the
United States of America and the
countries of the gold bloc should
compel Great Britain to restabilize
the pound sterling at a high gold

parity through the forcing up of

the gold price of silver.
The refusal of the Government of
Great Britain to consider the restabilization of the pound sterling
is based upon the belief that the
country is completely free to regulate the parity of its currency unit
with gold. The facts are, however,
that Great Britain is the only country in the whole world that does not

enjoy that freedom and that the
parity of the pound sterling with
gold is dependent upon the gold
price of silver.

The interdependence of the gold

value of the pound sterling and the

gold price of silver lies in the fact
that sterling is linked with the Indian rupee, a silver coin. at 18
pence to the rupee. As sterling is.
ordinarily, linked with gold, the
sterling-rupee exchange constitutes

a form of bimetallism which has
brought upon India a series of ex-

change and currency crises.

Violent political reactions were

stability have been insured by the
device of Issuing a coin. which contains a quantity of fine silver that

produced. It was only the collapse
of the "boom" that terminated the

narily, at less than the nominal or
sterling value of the rupee. Thus,
the present bullion value of the

The total weight of the Indian
rupee is 180 grains, Troy. The
weight of the fine silver in the
rupee is 165 grains. In other words,
a little over a third of an ounce

is small enough to maintain the
bullion value of the rupee, ordi-

rupee in sterling is 10 pence,
while its nominal value la 18 pence.

The success of the device is. of
course, dependent upon a low ster
ling price for silver Whenever the
sterling value of the silver in the

rupee rises above the nominal
value of the rupee, India is caught
in the vise of a bimetalistic exchange and currency crisis.
While the pound sterling is at-

tached to gold at the statutory parIty of one soveregn (or 113 grains

fine gold), India is fairly safe

But while the pound sterling is detached from gold and consequently
depreciated in terms of gold. the
bullion value of the rupee automat
ically rises in terms of starling. the
margin between the bullion value
and the nominal value shrinks, and
India is brought perilously near an
exchange and currency orisis. The
steady rise of the gold price of allver during the past five weeks is

daily bringing India nearer and
nearer such a crists

What happens in India when the
bullion value of the rupee in sterling exceeds the nominal value of
the rupee in sterling was demon-

strated during the past-near
"boom." Although the pound ster-

ling was then less depreciated than

It is today. the sterling value of the
silver in the rupee rose to two shil-

lings and ten pence!

The storling-rupee exchange was

thrown into utter chaos. The ex.
port trade of India collapsed. The
traditional suspicion of the Indian
people that the Indian currency is

always manipulated in the interests

of Great Britain and against the
Interests of India was transformed

Into a bitter conviction that the

country was the helpless victim of
British financial policy.

crisis.

(480 grains) is the quantity of fine
silver in the rupee. At the present
moment, the sterling price of an

ounce of silver is over 30 pence.

If It advances by 25 pence, the
sterling-rupee exchange would be
smashed and, in order to restore it.

Great Britain would be forced to
raise the gold value of the pound
sterling.

Let us examine the proposition In

terms of the dollar price of silver.
The dollar price of an ounce of fine

silver today is over 68 cents. Upon
the basis of the present gold value
of the pound sterling. a rise of the
gold price of silver to $1.25 would
compel Great Britain at once sharp

ly to raise the gold value of the

pound sterling. If the gold value of
the pound sterling depreciates below the present level, the collapse

of the sterling-rupee exchange
would occur even before silver
touched $1.25.

Every advance of the price of allver beyond $1.25 would compel
Great Britain correspondingly to
raise the gold value of the pound
sterling.

Indeed It is possible that the
raising of the gold value of the
pound sterling would be forced upon
Great Britain immediately silver
reaches a price of $1 per fine ounce

Great Britain cannot take any risk
of the collapse of the sterling-rupee exchange, and long and bitter

experience has taught both the govContinued on Page Five.

t

of President to Buy Metal
at World Price.

Crisis Averted by Boom's Collapse

D

All Currencies to Feel Decision

Stability Method for Rupee.
Periods of exchange and currency

2

ENDING MONEY WAR

April 21, 1935.

I

SILVER RULING SEEN

tl

N

Times
1935.

BID AND ASKED QUOTATIONS

SILVER RULING SEEN
ENDING MONEY WAR
Continued From Page One,

ernment of Great Britain and the
government of India that, in order

to maintain stability in the ster-

ling-rupee exchange, it is indispensable that the gold value of the silver in the rupee should not exceed
half or, at worst, two-thirds of the
nominal gold (or sterling) value of
the rupee.

Therefore, if the price of silver
reaches even $1 per fine ounce,
Great Britain would be forced to
raise the gold value of the pound
sterling. Certainly Great Britain
would be forced to abandon all
hopes of the restabilization of the
pound sterling at a parity of less
than five U. S. A. dollars.
Plan to End Currency War.
But if a prompt termination of the
currency war which Great Britain
is waging against the United States
of America and the countries of the
gold bloc is wanted, it is necessary

that the price of silver be forced

up to $1.25 per fine ounce. There
must, moreover, be the determina-

tion to force up the price even

higher, If Great Britain persists in
her refusal to restabilize the pound
sterling at at least five American
dollars.

A price of $1.25 per fine ounce is

a commercial price, and the an-

nouncement that the President has

decided to buy silver at whatever
might be the world market price insures the early attainment of that

price. Such a price would, as I

have just explained, be the deathknell of the mischievous currency
policy that Great Britain has been
carrying out since September, 1931.
Business men throughout the world

should. therefore, take heart today
that the danger of the further de-

preciation of the pound sterling

and of the devaluation of the gold
currencies of Europe will promptly
be ended, in consequence of the
momentous decision of President

Roosevelt.

It is a remarkable coincidence

that the present depreciation of the
pound sterling. like the depreciation
of sterling between 1919 and 1925,
has been attended by a rise in the

gold price of silver. The rise in
the gold price of silver after the

war was the result of the vast ab-

sorption of the metal by India,
China and other eastern countries
in payment of exports of raw

produce.

The recent rise in the gold price
of silver, I need hardly point out,
is the result of the decision of the

United States of America to in-

crease its stock of monetary silver
to one-third of the value of its stock

of monetary gold.

Defense In Reserve by Britain.
Theoretically, It is open to Great

Britain to counter an attack upon
its monetary policy through the
raising of the gold price of silver
by either of two devices. One is

C

the raising of the sterling price of

the rupee from 18 pence to 24 pence.

The other is the reduction of the

quantity of fine silver in the rupee.
Those devices are, however, quite

impracticable. Incidentally, the

former was tried during the postwar "boom" and abandoned. The
latter was considered and rejected.

Thus the only course open to
Great Britain would be the rais-

ing of the gold value of the pound

sterling.

It is, accordingly, within the power
of the United States of America to.
day to put an end to the currency

war, which is retarding the economic recovery of the whole world,

by forcing up the gold price of

silver, as is advocated by me in the
Interview which was published on

March 5. I interpret the decision
of President Roosevelt to set no
limit to the price at which the gov-

ernment would buy silver as a

response to that suggestion. It now

remains only to await the imple-

menting of the President's decision
by the Treasury.

The British currency policy is

dead. Long live the Gold Standard!

Aprill 22, 1935.

253A

Monday.

H.M.Jr: Hello.
McAdoo: Hello.
H.M.Jr:

Senator McAdoo?

McA:

Yes.

H.M.Jr:

Henry Morgenthau -

McA:

Oh, hello, Mr. Secretary. How are you?

H.M.Jr:
McA:

H.M.Jr:

How are you? Jefty O'Connor just called me up on the
$2,000,000 trans-pacific Yes.

And I understand there's something of a jam.

McA:

There's
a little jam there, and here's all there is to
it

H.M.Jr:

Yes.

McA:

The Postmaster General now has the power to make these

foreign airmail contracts under the law, but the $7,000,000
which the appropriation bill carries - the Post Office
appropriation bill - was already absorbed by existing

foreign airmail contracts so we had no money to make any
new ones. Now, upon my motion - my method on the floor
of the Senate, they increased the $7,000,000 to $9,000,000,
which doesn't mean the Postmaster General has got to ex-

pend that much, but simply put this within his power to
advertise the bids and to contract within that limit.
You see?

H.M.Jr: I see.
McA:

Now, the Post Office Department will get back in return
all the mail revenue that comes from the operation of this
line. Now, this is one of the greatest things that can be
done for our Commerce in the Orient, because we have already under American corporation and with American Equipment and with American personnel three thousand miles of
fine airways in China, running from Canton on the south to
Peking on the north and from Shanghai up the Yangtze river
about a thousand miles into the interior. Now, that's the
Chinesè National Aviation Corporation, formed by the Chinese
Government and the Pan American, which, by the way, has
forty-nine per cent, I understand, and the Chinese Government has fifty-one, but under contract with the government,
our people, the American corporation, you see, will have
absolute control of the operations andmaintenancebut the
American equipment and everything else has such a first

class line, while this line across the Pacific will connect
with that line at Canton, which is the southern ex-

253B

-2tremity and is just west of the British possession at
Canton. The British won't let you come in there because it's a naval base.
H.M.Jr: Yes.
McA:

Now, it's a daring adventure - it's
the greatest adventure in the air that's ever been
attempted.

H.M.Jr: Yes.
McA:

It's a wonderful thing for our entire commerce because
it'11 bring New York within five days of Canton, China,
and it will - it's of great importance also to the whole
Pacific Coast.

H.M.Jr: But, Senator, the project interests me tremendously, see?
McA:

Yes. I've given you this little outline because I didn't
know how familiar you were with it.

H.M.Jr: Well, I - I understand it better now that you've outlined

it, and it's just a question where it's going to fit in
the Budget, you see?

Yes. Well, now that's the point I wanted to bring to
your attention. Of course, we - we up there in the Conin the Budget we don't like
gress from time to time
to do it, but something comes up like this, for instance,
which you can't get a Budget estimate in time for even if
you could get it at all. Now, all that's necessary here,
Mr. Secretary, is to have the Budget Bureau, if they would
do it, send up a little supplemental estimate covering the
$2,000,000, and I think the whole opposition will diswho is a good
appear and it's all centered in Mr.
fellow - I don't think he has any - I don't think he wants
to be small, but he's thinking on the technicality, you
see, and he's going to move in the House today, if possible,
to send the bill to disagree, don't you see H.M.Jr: Well, then -

McA:

McA:

Now, I'm one of the Senate Conferees and I'll
be there at the next conference. I've been on my neck over
two weeks here with this darn carbuncle. I've been trying
to get rid of it, and I'll be able to take a hand in the
fight, but if in the meantime, we can get that supplemental
estimate, it'11 be a great thing. Now, I'd like to make
this suggestion to you, aside from the fundamental merits
here, for $2,000,000 we couldn't do anything more on

foreign trade so great as this or for ten times that
sum, but in addition to that, politically it's one of the

wisest things we can do because we don't - the whole

aviation industry in California is tremendously powerful we built it up there, you know - very great proportion.

253C
-3-

is a little sore on this administration anyway, and
the whole State is for this thing, and if we were to be
identified with the defeat of it, it would be really

very bad,

H.M.Jr: Well, Senator McA:
That's only

H.M.Jr: Let me take this matter up with Bell McA:

Yes.

H.M.Jr: - and let me talk it over with him, see, and I'll see
if there's any out on it and either Bell or I will call
you back.

McA:

Thank you very much. Now, let me make this final suggestion to you because this part made me rave. They are
suggesting that the
suggest to the Senate con-

ferees that we might put this into the Deficiency Bill
which will come along before the end of the session.
Well, now I don't think it can legally go into the Deficiency Bill because it's n ot a deficiency. In addition,
to that, you got this to consider, they have got to do
the exploratory work - this is their line - establishing
stations, I mean, land stations that will accomodate
radio surfaces in these planes for safe navigation.
They've got to do all that exploratory work right now,
this summer, because the typoon season sets in about
October in the Phillipines and if you delayed them too
much, you practically put this thing off for a year,
that's about the size of it. Now, we've got such a
wonderful start, it does seem to me a pity that we have
to wrangle over a couple of million dollars to do this
great thing for the country.
H.M.Jr: Well, let me talk it over with Bell McA:

Yes.

H.M.Jr: - one or the other of us will give you a ring.
McA:
Thank you very much and I'll be right here at the Shoreham Hotel.
H.M.Jr: Tell me, have you heard anything new on Eccles?

Haven't heard a word on it because I haven't been there.
H.M.Jr: I see.
McA:

Well, what's your attitude about that?
H.M.Jr: Well, I - I think - I just think he must be confirmed and
that would be a great
administration and I think it
McA:

-4-

253 D

would give some of the big bankers up in New York a

great ha-ha if he could - if he'd be defeated.
McA:
Well, how do you feel about separating that title too.
I think that ought to be done.
H.M.Jr: Well, that - that Senator, when it gets between the
President and Carter Glass - I'm smart enough to keep
out.

McA:

Yes, but, I'm not talking about that, I'm talking about
getting your bill through.
(Laughter)

H.M.Jr: That's something between the President and Carter Glass.
I've been around here long enough to know I don't want
to get between those pistols.
McA:

Well, I should say not.

H.M.Jr: No.
McA:

But, aside from that I was just thinking on the merits
regardless of any

H.M.Jr: asks
Well,me
believe
me, I'm going to be out of town if anybody
about that.
(Laughter)
McA:

All right. Well, you call me back, and I'll - I'll con-

sider this Eccles thing; I want to say this to you that
when I was laid up here I left my vote with Carter because in the committee only because I couldn't be
there, but I think I'll be out on Wednesday, therefore,
I'll be able to act for myself.
H.M.Jr: Fine. Thank you.
McA:

All right, goodbye.

PAYMENT OF
DJUSTED-SERVICE CERTIFICATES

HEARINGS
BFFORE THE

COMMITTEE ON FINANCE
UNITED STATES SENATE
SEVENTY-FOURTH CONGRESS
FIRST SESSION
ON

H. R. 3896, S. 2605
AND OTHER BILLS RELATING TO PAYMENT OF
ADJUSTED-SERVICE CERTIFICATES

APRIL 22, 23, and 24, 1935

Printed for the use of the Committee on Finance

UNITED STATES

GOVERNMENT PRINTING OFFICE
130434

WASHINGTON:1985

PAYMENT OF ADJUSTED-SERVICE CERTIFICATES

132

STATEMENT OF HON. HENRY MORGENTHAU, JR., SECRETARY
OF THE TREASURY

The CHAIRMAN. You know the matter that is before us, Mr.
Secretary. Will you please proceed
Mr. MORGENTHAU, Your committee has under consideration a num-

NO

COMMITTEE ON FINANCE
WILLIAM H. KING, Utah

PAT HARRISON, Mississippi, Chairman
JAMES COUZENS, Michigan
HENRY W. KEYES, New Hampshire
ROBERT M. LA FOLLETTE, Jr., Wisessais
JESSE H METCALF. Rhode Island
DANIEL O. HASTINGS, Delaware
ARTHUR CAPPER, Kansas

WALTER F. GEORGE, Georgia
DAVID I. WALSH, Massachusetts

ALBEN W. BARKLEY, Kentucky
TOM CONNALLY Texas
THOMAS P. GORE. Oklahoma
EDWARD P. COSTIGAN, Colorado

JOSIAH W. BAILEY, North Carolina

BENNETT CHAMP CLARK. Missouri

over, the credit of the United States Government depends very
largely, in my opinion, upon scrupulous adherence to the President's
program.

Senator BAILEY. I dislike to interrupt you, but I feel that I must.

ing a billion dollars in bonds. That is outside of the Budget, is it

not
Senator KING. The so-called Bankhead bill."

AUGUSTINE LONERGAN, Connecticut

HUGO L. BLACK. Alsbams

II

All of the financial plans made by the Treasury for the coming

year have been based on adherence to the President's budget. More-

We have a bill now pending in the Congress, in the Senate, authoriz-

HARRY FLOOD BYRD, Virginia
PETER G. GERRY, Rhode Island
JOSEPH F. GUFFEY, Pennsylvania

ber of bills proposing plans for settlement of the World War veterans'
adjusted-service certificate claims. I shall not attempt to go into the
merits of any of these bills or to analyze them in detail, believing
that to be a service that can best be performed by other officers of the
Government. The Treasury is, however, deeply interested in any
problems which involve additional or earlier expenditure of public
funds than those for which careful preparation has already been
made in Budget and financing plans.
I believe it is true of all the so-called " bonus settlement plans
which you have had under consideration that each one of them calls
for greater or earlier payments from the Treasury than were contemplated in the original adjusted-service certificate plan and payments during the fiscal year 1986 for which no provision has been
made in the Budget of that year.

Mr. MORGANTHAU Are they guaranteed bonds?
Senator BAILEY. Issued by the United States Government.

TESTA
FELTON M. JOHNSTON, Clerk

Senator KING. And guaranteed by it.
Senator WALSH. Government loans, like the R. F.
Senator BAILEY. Issued by a corporation and fully guaranteed
as to principal and interest.
Mr. MORGANTHAU. That creates a contingent liability.
Senator BAILEY. Have you looked over that bill!
Mr. MORGANTHAU. I do not believe, sir, that it has been referred
to the Treasury, as far as I know.
Senator BAILEY. Would you prefer that it should be, before we
vote on it
Mr. MORGANTHAU. That is entirely up to you, but as far as I know
it has not been referred to the Treasury.

May I continue

The CHAIRMAN. Proceed.
Mr. MORGANTHAU. Moreover, the credit of the United States Gov-

ernment depends very largely, in my opinion, upon scrupulous adherence to the President's program. I don't think we can continue
enjoy the present favorable rates and favorable market for the
sale of Government securities if new expenditures are incurred which
go far beyond the limits of those which have already been outlined.
to

A material decline in the market price of Government securities,
which would be very likely to result from large expenditures outside

PAYMENT OF ADJUSTED-SERVICE CERTIFICATES
YEATHHOHO at UAH CASH BONUS HECD TISKY

HO

The payment of the bonus in cash might go too far Mr. Thomas continued
Likewise, the Frazier-Lemke proposal or the Wheeler Treasury note issue
proposal might reduce the value of the dollar far below the 1926 level, thereby
causing an undesirable increase in prices and living costs,
Now. when the distinguished Senator from Oklahoma, the chief stionsor of
inflation. advocates rantion when It comes to the proposed monetary chunges
and be saye we should go slow before we change the sinnetary system of this
country. I submit that the most rabid inflationist in this House should stop,
look, und listen.

The administration under the Dies ME. could expans! the currency by
ing silver certificates to the amount of about $1,800,000,000. They could de
that without additional legislation. They already have that power
If the administration so desired. they could use the $2,000,000,000 stabilization fund cold profit affocated for this specific purpose and issue $5,000,
000,000 of currency and pay off the soldiers certificates. In these list three
measures the administration now has the piewer to expand the currency
$9,800,000,000 or aus part of it. All these powers have been conferred since

the first Patman bill passed the House but the trouble is. so far as the
Parman proposal is concerned, that the adultistration does not eb one to

exercise Its powers of Initiation Parman's difficulty in that they do not choose
to pay these certificates through the initiation route
A short time ago we authorized the issue of baliy bonds. I suggest that
we can pay these certificates by sale of these bonds. and with their proceeds,
pay off certificates in the régular way. With the soldiers' organizations, the
auxiliaries the veterans and their families. and the people who would be glad

to see them paid in -perhaps same creditors you could. in my opinion,

put on a campaign and well $2,00,000,000 of baby bonds. or at least a large
proportion thereof.
IRIIII

and

Int

300

UOV

PAYMENT OF ADJUSTED-SERVICE CERTIFICATES

131

CONCLUSION

With our present policy of spending motiey. determined to Increase the price

level. and all that sort of thing. I believe the country wants these adjusted
certificates paid. I believe they recognize it is for personal services rendered.
I believe they want them paid. and paid now I believe they want them paid
in the same way that the war contractors were paid $3,000,000,000 in the
same way that the rafireads were paid $2,000,000,000 in the same way that all
current obligations of Unele Sam are paid
I submit in closing that the American people do not believe in repullation
the debts owing to us by foreign countries for money and supplies received
of

from us to save their native Ianus from destruction We generally talk in
angry tones about such répudiation yet we have repudiated n debt to our
very own. Practically everyone was employed during the war. Practically

every civilian employee, every corporation connected with and used by the
Federal Government in that war received adjusted pay in cash. except the
manpower that was called to the colors In that grave crisis. It our thought
that the adjusted-service certificate Is an acknowledged debt It is adjusted
pay for personal services rendered. We can't get If our of our mind that the
receive
men or women who rendered the service are the ones who should
the benefits of this adjustment In pay.
Alrendy 189,000 have passed to the great beyond On January 1, 1945, more
than 300,000 additional will have failed to receive adjustment in their service
pay. In other words, on the technical due date, January 1. 1945, more than of
500,000 World War veterans will have failed to get any personal benefit out
this adjusted-service plan. The services were rendered more than 16 years ago.
Using the accepted adjusted-service pay, computing the interest in the same due.
that Uncle Sam Insa computed It against the soldier, the debt Is now past
In TOY opinion, the American people do fiot want this debt repudiated
respectfully submit that the Members of this House who desire to do some
thing for the soldiers during their lifetime should take the strongest vehicle am to
pay that debt. It was for this purpose that Introduced H. R. 3896, and
happy to present it to you for your serious consideration. [Applause.]

to more Joshum add nailbab Inrestant
ehistuo sentibasque oneal mort Hirast of violit 7107 od bloow doit

133

he budget, would work a grave injustice upon all purchasers of

overnment securities, and would tend to slow up the whole recovery

Program.

The Treasury, therefore, would view with great concern the enetment of any bill which calls for large additional expenditures,
ithout compensating additional taxes. It seems to us of the uthost importance that if any adjusted-serv certificate settlement
alling for increased expenditures, or for earlier expenditures than
hose already taken into account, should be enacted, Congress should

bake provision for raising revenues sufficient to cover the addional expenditures in the year or years in which they are to be
curred.

If it should be thought desirable to seek new sources of revenue
or this purpose, the Treasury would be glad to offer its suggestions.
The CHAIRMAN. Thank you, Mr. Secretary.
Senator GONE. I want to ask one question of the Secretary, Mr.

Chairman. Sometime ago I introduced a resolution, S. 71. Later
introduced a revised edition of it, Senate bill 2365, the point in
which was authorizing the President to enter into agreements with
our debtors abroad, and to readjust the indebtedness, the first condi-

lion being that they pay in cash or provide in cash approximately

2,000,000,000, an amount sufficient to liquidate and retire these cer-

tificates, the money to be applied to that used for that purpose. If
you are prepared now, I would like to have your impression of it,
your views. If not, I would like to ask that you submit a report
to the committee on it.

Mr. MORGENTHAU. I will be glad to communicate in writing.
Senator GORE. Very well.
Senator LA FOLLETTE. Mr. Sécretary, has the Treasury given any

consideration to a program for raising additional revenue
Mr. MORGENTHAU. Yes, sir.

Senator LA FOLLETTE. Would you be willing to submit that for the
consideration of this committee?
Mr. MORGENTHAU. In coming up here we discussed in the Treasury
arious suggestions for increased revenue in case Congress did pass
bonus bill, and we feel that a method which would be absolutely
not inflationary and produce the revenue would be a Federal inherience tax, created on the same basis as the income tax, administered
he same way.

Senator LA FOLLETTE Is that in such shape that you could submit

just for the consideration of the committee

Mr. MORGENTHAU. We could get it up here within 24 hours

Senator CLARK. Do you mean a graduated inheritance tax with
urtaxes, the same as the income-tax structure
Mr. MORGENTHAU. Exactly. And we estimate that that would pro-

luce somewhere between. roughly, from 2 to 6 hundred million
ollars a year.

Senator CONNALLY. You mean for the executive use of the com-

aittee?

Senator LA FOLLETTE Yes.

Senator CONNALLY. You do not mean to give it out to the press?
The CHAIRMAN. Will you be ready to respond to the call of the
committee?

PAYMENT OF USTED-SERVICE CERTIFICATES

135

PAYMENT OF ADJUSTED-SERVICE CERTIFICATES

134

Mr. MORGENTHAU. Yes, sir,

Senator BLACK. Do you mean with reference to raising taxes, that
if we pass either one of these bonus bills, it will be necessary to raise
taxes!

Mr. MORGENTHAU, That is the position as Secretary of the Treasury that I have to take.
Senator BAILEY. Why do you have to take it, Mr. Morgenthauf
Mr. MORGENTHAU, Because the President set up a budget, he has
made very definite statements what he thinks the deficit will be, and

the requirements for additional capital. I worked with him on that

method, and, as a member of his Cabinet, I can only take that
position. Senator BAILEY. Is it your judgment that if we increase the na-

tional debt with bond issues, and with contingent liabilities, and
so forth, beyond the budget, we are likely to destroy the financial
structure, or seriously impair it?
Mr. MORGENTHAU. I simply feel that this Budget message went

in January. It is now the end of April. The public accepted

it up as the President's word. We have gone ahead and done our
refunding on that basis, people have bought Government bonds on
that basis. and while I realize that the President can only send that his

message and the final authority rests with Congress, still I feel
he and I both are definitely committed to his Budget methods.
Senator BAILEY. Let me call your attention to some very impress
ive words here from your statement:
Moreover, the credit of the United States Government depends very largely,
in my opinion, upon serupulous adherence to the President's program

Scrupulous adherence-that means absolute, does it not
Mr. MORGENTHAU. I wrote it, and I do not say something I do
believe.

Senator BAILEY. That was the strongest word you could use.

was it not

Mr. MORGENTHAU. I think so.
Senator BAILEY. You say further:

I don't think we can continue to enjoy the present favorable expenditures rates and

favorable market for the sale of Government securities If new bees
are incurred which go far beyond the limits of those which have alrends securities

outlined. A material decline in the market price of Government the Budget
which would be very likely to result from large expenditures outside securities
would work a grave injustice upon all purchasers of Government
and would tend to slow up the whole recovery program.

That is your considered opinion, given to us?
Mr. MORGENTHAU. Freely,
Senator CLARK Mr. Secretary, the necessity for additional revenue passed

would exist if Congress were to pass the Harrison bill as if it
the Vinson bill or the Patman billy
Mr. MORGENTHAU. If you do not mind, Senator, I would rather
not get into the different bills.
Senator CLARK (interrupting). I understand, but if I understood
your statement a moment ago. your position is that the passage
any of these bonus bills would require additional revenue
Mr. MORGENTHAU. That is correct.

Senator GORE, Your statement is that expenditures or disbursements ought to bear some sort of relationship to income and revenue!
Mr. MORGENTHAU. Yes, sir.

The CHAIRMAN. Thank you, Mr. Secretary
General Hines.

STATEMENT OF GEN. FRANK T. HINES. ADMINISTRATOR OF
VETERANS AFFAIRS, VETERANS ADMINISTRATION

The CHAIRMAN, You know what is before us. General Hines.
Will you please make your statement
General HINES. Mr. Chairman and gentlemen of the committee.
in appearing before you this morning, I believe that my testimony
can be probably of greater value to you by giving to the committee
information on these various bills and referring briefly to the past
history which has been taken up somewhat by Colonel Taylor and
preceding witnesses.

Senator KING. Before you do that, General. I should be very

glad if you could have someone in your office, before these hearings

are closed, submit to the secretary of the committee a statement
showing all of the money that has been paid to the veterans since the
war.

General Hines. I will refer to that as I go along
Twelve bills have been introduced in the Senate and 37 in the
House.

Senator CONNALLY. There are 435 Members of the House, are there
not!

General HINES. Correct. [Laughter.]
To review the bonus just briefly, you will all recall that at the
conclusion of the period of hostilities of the World War, the problem presented itself of the demobilization of those members of the
military forces whose services of a temporary character were intended to embrace only the period of duration of the war. At the
time of separation from the service only a few found themselves
with any appreciable amount of readily available funds which could
be used to defray expenses incident to the transition from a military
to a civil status. In order to meet the situation the Congress enacted
on February 24. 1919, a bill which provided that at the time of
discharge an additional payment in the amount of $60 would be made

to persons serving in the military or naval forces during the war.
who were separat. d from active duty under honorable conditions.
Senator BAILEY. General, I wish very much to hear you, and I
feel that I should apologize, but I have an amendment pending in
the Senate and I must go over, but I shall be very sure to read what
you have to say.

General HINES. During the year 1919 it would appear that several

more proposals were made for the granting of a consideration to
persons who had served in the military or naval forces during the
then recent conflict Many and various types of plans were suggested, the principal ones being (1) Cash bonus: (2) home and

farm aid; (3) land settlement aid (4) vocational training aid:
(5) issuance of service bonds, Later, a suggestion for the issuance
of a paid-up insurance policy seems to have come into prominence

PAYMENT OF ADJUSTED-SERVICE CERTIFICATES

136

and to have gained favor. A bill was finally passed in 1922 provid.
ing for the following different types of optional settlements which
persons entitled were allowed to elect:
1. Adjusted-service pay; but the veteran could not choose this plan
if the amount of adjusted-service settlement would
WELD exceed $50.
Paid-up endowment insurance.
2.

3. Vocational training aid.
4. Farm or home aid.

This proposed statute did not become a law because the President.
under date of September 19, 1922. vetoed the act of the Congress
and such veto was sustained.

In 1924 there passed both Houses of the Congress a bill which
had as its object the issuance to World War veterans as adjusted
compensation certain payments of cash to a restricted group and the

issuance of adjusted-servic certificates in the form of paid-up 20.
year endowment-insurance policies to those persons otherwise meeting the requirements of eligibility. The veto of the President of this
act of the Congress was not sustained and the law was placed upon
the statute books May 19, 1924. Provision was made for the grant

ing to persons serving in the military or naval forces, within a delimited period, of adjusted compensation at the rate of $1 per day

for services in the United States and $1.25 per day for services overseas. Sixty days of service were excluded for the purpose of computing the amount of adjusted compensation, as was also service in
a grade above that of captain in the Army or Marine Corps and
lieutenant, senior grade, in the Navy. Entitlement was not acquired
by service in certain specified organizational units nor under pre
scribed conditions stated in the act. For a service credit of $50
less payment was made in cash, but if the service eredit exceeded
850 an adjusted-service certificate was issued. A restricted class of
surviving dependents of eligible veterans were privileged to receive
benefits. If the amount of the credit was $50 or less a lump sum
cash settlement was authorized. If the credit exceeded $50 payments were made in 10 equal quarterly installments The amount
of the adjusted-service certificate was determined by taking the
net service credit and adding thereto 25 percent and the figure thus
arrived at was used as a net single premium according to the American Experience Table of Mortality with intérest at the rate of per
cent, compounded annually, to procure for the veteran a paid-up
20-year endowment policy of insurance.
The amount of insurance procurable by a fixed credit varied according to the age of the insured at the time of issuance. but in the
average case the amount stated on the face of the adjusted-service
certificate represents approximately two and one-half times the net
credit as computed by allowing the adjustment of 81 and $1.25 per
day, based upon the field of service.
The CHAIRMAN. What was that average? The basis?
General Hines. The average was approximately $400.
Senator CONNALLY. In other words, if the soldiers had been paid
as of 1918, they would have gotten only 40 percent of their present
face value of the certificates
General HINES. We calculate if they had paid them in 1924 the

total amount of cash-

FEDERAL RESERVE BANK

254

OF NEW YORK

OFFICE CORRESPONDENCE
To

Mr. Knoke

From H. D. Starr

Date

April 22, 1935

Subject

Silver Price and the Stabilization of Sterling.

The argument that a rise in the silver price to around
$1.25 an ounce would raise the intrinsic value of the rupee above
its monetary value and hence precipitate a monetary crisis in
India is mathematically correct. The conclusion that in such
crisis "the only course open to Great Britain would be the raising of the gold value of the pound sterling"# is, it seems to me,
quite mistaken. The author of the proposal states that there are
three ways in which the British authorities might deal with the
problem:
a

First, by raising the rate at which the rupee is pegged

to sterling.
This he
rejects
as a possibility, since it would be
ruinous
to India's
foreign
trade.
Comment: As a price of $1.25 an ounce for silver
would (at current L-$ exchange **) require the raising
of the rupee-sterling rate from 18 pence to 21.3 pence
at a time when certain circles in India are agitating
for a depreciated rupee, the rejection of such a proposal as a practical measure to save rupee coin from
the melting pot can not be disputed.
Second, the reduction of the silver content of the
rupee is rejected by the author as a possible means of combating
the
rising price of silver because it was once "considered and rejected.
Comment: There are certainly serious objections
to such a measure, the chief of which is that such

action would not of itself save the silver coin in
circulation-from the melting pot. Reducing the silver

content of the rupee would, however, preserve the
silver reserves of the Reserve Bank of India and the
Indian Government, which might otherwise be seriously
depleted by the presentation of notes for conversion

into coin for melting. If, without altering its gross

weight, the fineness of the rupee were reduced from

#Quoted from the article by F. E. Holsinger in the New York Times
of April 21, 1935.
** 1.0. $4.85.
-Estimates of which vary from 500 to 1,000 million ounces; around
600 million ounces is probably a fair estimate. The total amount
of whole rupees coined in India since 1835 is equivalent to 2,220

million ounces.

-2-

255

.916 2/3 to .500% (as in Great Britain), the silver
reserves of the Reserve Bank and the Government would
be sufficient to cover the note issue by about 95%,in-

stead of about 50% as at present. There would be no
demand for the conversion of notes into rupees, because
the melting point of the now coin would be a silver
price equivalent to about $1.90 an ounce. The new

coin, despite being virtually fiat currency (just as
the present coin is now), would circulate at its face
value
since itlegal
would
(as at present) enjoy the status
of unlimited
tender.

Third, raising the gold value of the b sterling, which
the author
as the
only remaining, and hence the necessary,
choice
of accepts
the British
authorities.
Comment: While the proposal appears logical, it
presupposes an extraordinarily naivete on the part of
the British authorities. For if the price of silver
were to be raised to $1.29tH an ounce, the L-$ rate
would have to be $5.93 to keep Indian coin out of the
melting pot (assuming the rupee remained pegged at
18 pence.) What British Government would consent to
stabilization at any such rate? And why should any
British Government be coerced into stabilizing at any
lower rate when such stabilization would not remove
the threat to Indian coinage?* The United States
Government, on the other hand, is in no position to
guarantee that if the pound were stabilized at, say,
$5.00, the price of silver would not be permitted to
exceed the then theoretical melting point of the rupee
($1.09). Even if the U.S. Government were willing to
bind itself to such an agreement, it could not be
certain that the "market" would not push the silver
price above the agreed level, for it could not sell
Treasury silver to combat such a rise without Congressional
authority.
One course open to the British authorities to which the
author of the proposal gives no consideration is the placing of a
duty or even an embargo on silver exports from India. While such
a measure might be difficult to make wholly effective, it would at

least retard the outflow of silver; coupled with a reduction in the
silver content of the rupee, it might go far towards solving India's

coinage problem. In any event, some such measure, which might not
completely prevent the melting of rupee coin, would undoubtedly be

more acceptable to Great Britain than stabilization of sterling at
a rate dictated by the United States.
*By the London Silver Agreement (July 1933) the Indian Government

undertook to "refrain from new legislative measures which would in-

-3volve further debasement
of their
coinage below a fineness
however,
to the

any
action
relative
to
coinage may necessary to prevent the flight or
"Governments 800/1000;" that they subject, may take deem general their exception silver that of

destruction of their silver coinage by reason of a rise in the
bullion price of the silver content of their coin above the
nominal or parity value of such silver coin."
**The
of 1934.limit at present established by the Silver Purchase Act
*With
the itpound
at $5.00 the rupee melting point is $1.09; and
at
$5.50
is $1.20.

256

April 22, 1935.
Monday.

H.M.Jr:

Hello.

Conboy:

Hello.

H.M.Jr:

Mr. Conboy?

C:

H.M.Jr:
C:

H.M.Jr:

Yes, sir.
Henry Morgenthau, Jr.

How do you do, sir?

How are you? I would like to put Mr. Oliphant on the
telephone here because he wants to tell you about this
Customs
case, which I personally have been interested
in for a year.

C:

What's that?

H.M.Jr:

A Customs case -

C:

Yes.

H.M.Jr:

256A

- and the thing has just broken and I personally have
been following it for about a year, and I would greatly

appreciate it if you could yourself take a little personal interest in it. It's very important for us and
has great ramifications, and if I felt that you personallyit.were interested, then I could stop worrying
about

C:

Well, I'll do anything I can.

H.M.Jr:

Well, now, Mr. Oliphant will explain it. We've got
two phones at the desk and he'll talk to you.

C:

All right.

Oliphant: Now, your man Mahoney of course, has been working along

with the boys - with Mr. Manning and Mr. Klaus - has
been working on the case and been very helpful.

C:

Yes.

O:

The thing has broken very rapidly in the last two or
three days. Saturday night at seven o'clock this man
Mullen, who was in the appraiser's store - he broke
down and confessed taking $75,000 in bribes over the
last two years from Goldberg, and then That's Mullen - Mullen confessed that?

C:
O:

Yes.

C:

Now, look here, just a minute. Suppose you get me on

-2-

April 22, 1938.
Monday.

Cortland 77296.
0:

256G

better

How's that?

bake

Get me on Cortland 7 - this is Oliphant, isn't it?
O:

Yes.

Call me on Cortland 77296.
O:

77 - call you back?
Yes, on Cortland 77296.

All right.
two
the

goldberg,
And

Homeyar,

Another 3.33 the
That's rights
Yes.

the boys

Now,

areast

called

an
will

you

All'sight
And
and
a

then,

it

of

statement but

puper

in

and

You don't?

No. 2.1
and

bays to was

Tell, you our any that -

it's

April 22, 1935.

256C

Monday.

Conboy:

Oliphant:

Hello. This is a private wire; you'd better take -

keep this number so that when you want to call - it's
better to call me on this phone.
That's 77 -

C:

Cortland 77296.

O:

Yes.

C:

All right -

O:

Now, that was our man Mullen who was in the appraiser's
store. He confessed Saturday night taking $75,000 in
bribes over the last two years from Goldberg, having
been paid by Goldberg's employee, Riley. Then Riley
came in this morning and he broke down and confessed to
having paid the money to Mullen, and the boys had the
two of them before the grand jury this morning, and
the grand jury voted indictment of Goldberg, Goldberg,

Inc., that's his firm, Mullen and that man Homeyer.

C:

Goldberg, Goldberg, Inc., Mullen and who?

O:

And Homeyer, another man there in Customs.
Another man in the Customs House.

C:

O:

That's right.

C:

Yes.

0:

Now, the boys called me back and said they wanted to
arrest this afternoon, and I asked them if they had had
an opportunity to discuss it with you and they said they
hadn't and seemed to be desirable that you check over

with them to be sure the thing is in shipshape the way
you want it before they make their arrest.
C:

O:

All right.
And then, of course, the newspaper men will be around,
and it occurred to us that when the arrests were made
a statement had to be made that you'd call the news-

paper men in and tell them about it.
C:

Well, I don't - I never tell them anything.

O:

You don't?

C:

No, I - I tell them

and that's all we have to say.

O:

Well, you can say that -

-2C:
O:

C:

We never make any statements here of any character.
Woll, then you can turn them down.

Yea, I'll - I'll - they're used to it by this time.

O:

Yes, you can turn them down.

C:

Yes.

O:

Well,
I'll - I'll call Manning and - can he come
right down and see you now?

C:

Sure.

0:

They wanted to arrest this afternoon.

C:

All right, tell them to come right along.
All right, very much obliged to you.

0:

Yes,

256D

256E
April 22, 1935.
Monday.

Crane: Personal matter, no business.
H.M.Jr: Yes.
Crane:

H.M.Jr:
C:

H.M.Jr:

Governor told you about my leaving?

Yes, I'm - I'm awfully sorry to hear it.
Well, I - I'm sorry to go myself, but I just wanted to

tell how much I've enjoyed my contact with you.
Well, that's mutual.

C:

And if I can ever do anything, I hope you'll let me know.

H.M.Jr:

Well, that goes both ways.

C:

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:
C:

Fine.

And - when do you think you're going to go?
oh, I don't know yet.
Well, you don't have to make it too soon, do you?

I don't know, Mr. Higgins was just in and they're very
anxious to get me, but I really haven't come to any
definite decision with the Governor yet.
What is it, a matter of a couple of weeks?
Oh, yes, I think so.

H.M.Jr:

Yes.

C:

Yes.

H.M.Jr:

Well, you've done a grand job for us.
Well, I've enjoyed every minute of it.
And I - I don't know - I'm only sorry - and I hope to

C:

H.M.Jr:

see you before you make the change .

C:

Well, I have enjoyed it very much and I hate to leave,
but it seems like a good opportunity, and I've been in
the bank twenty years and I think maybe I need a little
dusting off.

H.M.Jr:

Twenty years!

C:

Yes.

H.M.Jr:

I had no idea; you don't look old enough for that.

-2C:

I've never
bank.

had any business experience outside of the

H.M.Jr:

Is that right?

C:

No, and I-

H.M.Jr:
C:

H.M.Jr:
C:

H.M.Jr:

Well, the Governor said that you have - look forward
to being Treasurer of Standard 011.

Well, that - it's not definite, but Mr. Higgins
sayshe's
thatplanning
if everything
what
on. works out all right, that's
Well, that's worth shooting for, isn't it?

Yes, I think so. All right Well, I appreciate your calling me.

H.M.Jr:

All right, sir.
All right.

C:

Goodbye.

C:

Yea.

We

256F

Deposit

April 22, 1935.

266G

Monday.

H.M.Jr:

Hello.

McNary:

Mr. Secretary?

H.M.Jr:

Yes, Senator McNary.

McN:

I hate to bother you.

H.M.Jr:

You can't bother me.

McN:

I - I'm very much interested as most of - all Republicans are in Senator Goldsborough of Maryland.

H.M.Jr:

Oh, yes.

McN:

He, I think - I was down to talk to the President a
few days ago and he was very nice to me about it. I
think he has the assurance, but I know, spoke in behalf of all the Republicans and Senate and I think he
has indorsements of the National Committeemen and
Democratic National Committeemen and two Senators.

I just want to say we're awfully much interested.

H.M.Jr:

For the Federal Deposit Insurance?

McN:

Yes, that's it. He's awfully well qualified for that

H.M.Jr:
McN:

work, -of course, you probably know his qualifications.
What did the President say?
Well, he thought it was fine.

H.M.Jr:

He did?

McN:

I felt very much encouraged about asking him.

H.M.Jr:

Well, I'll speak to him about it today. I don't think

McN:

I see.

H.M.Jr:

Well, I'll be glad to talk to him about it.

McN:

That'11 be fine. I thank you very much.

H.M.Jr:

Thank you.

McN:

I - I'm sure his qualifications - we looked into them are splendid for that work.

H.M.Jr:

Yes.

McN:

And a Republican

H.M.Jr:

We have to have a Republican.

any decision has been reached.

256 H

-2McN:

You type. think - he's a mighty fine gentleman - unusual
H.M.Jr:
McN:

H.M.Jr:
McN:

Yes, I think he's a fine gentleman.
Yes.

Well, I appreciate your calling me.
Thank you very much, Mr. Secretary.

H.M.Jr:

Goodbye.

McN:

Goodbye.

$5,002,450

the

.

256D
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Monday, April 22, 1935.

4-20-35.

Press Service
No. 4-81

Secretary of the Treasury Morgenthau today announced the offering of

additional issues of 20-25 year 2-7/8 per cent Treasury bonds of 1955-60 and of
5 year 1-5/8 per cent Treasury notes of Series A-1940, both in exchange for First
Liberty Loan bonds of any series called for redemption on June 15, 1935. Each
issue will be limited to the amount of First Liberty Loan bonds tendered and
accepted in payment, and cash subscriptions will not be received.
About $1,933,000,000 of the First Liberty Loan bonds are now outstanding,

as follows: $1,392,226,250 of the original First 3-1/2's, $5,002,450 of the First
Convorted 41s, $532,489,100 of the First Converted 4-1/4's and $3,492,150 of the

First-Second Converted 4-1/4's - all of which are called for redomption on June
15, 1935, and are now exchangoable, at the option of holders, either for the
20-25 year Troasury bonds or for the 5 year Treasury notos.
The Treasury bonds now offered in exchange will be an addition to and will

form a part of the serios of 2-7/8 por cent Treasury bonds of 1955-60 issued
pursuant to Department Circular No. 531, dated March 4, 1935. They are identical

in all respects with such bonds, with which they will be freely interchangeable.
The bonds are datod March 15, 1935, and boar interest from that date at the rate
of 2-7/8 por cent per annum payable somi-annually. They will mature March 15,
1960, but may be redeemed at the option of the Unitod States on and after March
15, 1955.

The Treasury notes also offered in oxchange will be an addition to and will
form a part of Series A-1940 of 1-5/8 por cont Treasury notes issued pursuant to
Department Circular No. 532, dated March 4, 1935. They are identical in all

-2-

respects with such notes, with which they will be froely interchangeable. The
notes aro dated March 15, 1935, and bear interest from that date at the rate of
1-5/8 per cont per annum, payable somi-annually. They will maturç March 15, 1940,

and will not be subject to call for rodomption prior to that date.
The bonds and notes of this additional offering will carry the same tax
exemptions as the bonds and notes of the same scries of which they will form a
part.

The Treasury bonds will be issued in two forms, boaror bonds with interost
coupons attached, and bonds registered both as to principal and interest; both
forms will be issued in the denominations of $50, $100, $500, $1,000, $5,000,
$10,000 and $100,000. The Treasury notos will be issued in the same denominations

but only in bearer form with coupons attached.

First Liberty Loan bonds of any series will be received on exchange at par,
and both the 2-7/8 per cent Treasury bonds of 1955-60 and the 1-5/8 por cent

Treasury notes of Serios A-1940 will bo issued at par, with the right reserved
oy the Socretary of the Treasury to increase the issue price of eithor the bonds
or the notos, or both, by public announcement effectivo as to subscripti ons ten-

dered after the time fixod by the Socretary, which time will be. after the date
of the announcement and in no event carlior than April 29, 1935. On all exchanges,
interest adjustments will bo made as of June 15, 1935. The subscriber will be

credited with interest for the full six months' period ending June 15, on First
Liberty Loan bonds tondered in exchange, and will bo charged with accrued interest
from March 15 to Juno 15 on the 2-7/8 per cent Treasury bonds or the 1-5/8 por
cent Treasury notos issued on exchange. The difference (loss any premium by

reason of an increase in the issue prico) will be paid to subscribers following
acceptance of First Liborty Loan bonds on exchange.

Applications will be received at the Federal Reserve banks and branches and

at the Treasury Department, Washington. Banking instituti ms generally will
handlo applications for subscribers, but only the Federal Resorve Banks and the

Treasury Department are authorized to act as official agencies.
Applications for Treasury bonds of 1955-60 or Treasury notes of Series A-1940
should be accompanied by a like faco amount of First Liberty Loan bonds tendered
in payment. Coupon bonds so tendored should have the June 15, 1935, and all subsequent coupons attached, and registered bonds should be assigned as provided in

the official circulars. Subject to the reservations set forth in the official
circulars, all exchange subscriptions for Treasury bonds and Treasury notes in

payment of which First Liberty Loan bonds are tendored, will be allotted in full.
The present offerings of 2-7/8 per cont Treasury bonds of 1955-60 and of

1-5/8 por cont Treasury notes of Serios A-1940, afford the holders of First
Liberty Loan bonds called for redemption on June 15, 1935, an opportunity to

exchange their called bonds either for other long term bonds of the United States,
or for shorter torm Treasury notes, with interest adjustments as of June 15, 1935,

the date the First Liborty Loan bonds cease to bcar interest. The holders of the
called bonds who wish to tako advantage of either exchange offering, should act

promptly. No furthor exchange offoring will be made to the holders of the called
First Liberty Loan bonds, and if such bonds are not exchangod at this time, they
should bo presented for rodemption on Juno 15, 1935, in accordance with the pro-

visions of Department Circular No. 535, dated April 22, 1935.

The toxts of the official circulars for the exchange offerings follow:

UNITED STATES OF AMERICA

2-7/8 PERCENT TREASURY BONDS OF 1955-60

Dated and bearing interest from March 15, 1935

Due March 15, 1960

REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER MARCH 15, 1955

Interest payable March 15 and September 15
ADDITIONAL ISSUE

OFFERED ONLY IN EXCHANGE FOR FIRST LIBERTY LOAN BONDS CALLED
FOR REDEMPTION ON JUNE 15, 1935

1935

Department Circular No. 536

TREASURY DEPARTMENT,

Office of the Secretary,
Washington, April 22, 1935.

Public Debt Service
I. EXCHANGE OFFERING OF BONDS

1, The Secretary of the Treasury, pursuant to the authority of the Second

Liberty Bond Act, approved September 24, 1917, as amended, for refunding purposes,

invites subscriptions from the people of the United States for 2-7/8 percent bonds
of the United States, designated Treasury Bonds of 1955-60, in payment of which
only First Liberty Loan bonds, of any series, called for redemption on June 15,
1935, may be tendered. The amount of the additional issue of 2-7/8 percent
Treasury Bonds of 1955-60 under this circular will be limited to the amount of

First Liberty Loan bonds tendered and accepted.

2. First Liberty Loan bonds will be received on exchange at par, and 2-7/8
percent Treasury Bonds of 1955-60 will be issued at par, with the right reserved
by the Secretary of the Treasury to increase the issue price by public announcement effective as to subscriptions tendered after the time, not earlier than
April 29, 1935, fixed in the announcement. On all exchanges, interest adjust-

ments will be made as of June 15, 1935.

3. The outstanding bonds of the First Liberty Loan called for redemption on
June 15, 1935, and which, under the terms of this circular, may be exchanged for
2-7/8 percent Treasury Bonds of 1955-60, follow:
3-1/2 percent bonds of 1932-47 (First 3-1/2's) dated June 15, 1917
Converted 4 percent bonds of 1932-47 (First 4's) dated November 15, 1917
Converted 4-1/4 percent bonds of 1932-47 (First 4-1/4's) dated May 9, 1918
Second Converted 4-1/4 percent bonds of 1932-47 (First-Second 4-1/4's)
dated October 24, 1918

4. In addition to the exchange offering under this circular, holders of First
Liberty Loan bonds are offered the privilege of exchanging all or any part of such

-2called bonds for 5-year 1-5/8 percent Treasury Notes of Series A-1940, which offering is set forth in Department Circular No. 537, issued simultaneously with this
circular.
II. DESCRIPTION OF BONDS

1. The bonds now offered will be an addition to and will form a part of the

series of 2-7/8 percent Treasury Bonds of 1955-60 issued pursuant to Department

Circular No. 531, dated March 4, 1935, are identical in all respects therewith,
will be freely interchangeable, and are described in the following quotation
from said Circular No. 531:

"The bonds will be dated March 15, 1935, and will bear interest from
that date at the rate of two and seven-eighths percent per annum, payable

semiannually, on September 15, 1935, and thereafter on March 15 and Septem-

ber 15 in each year until the principal amount becomes payable. They will

mature March 15, 1950, but may be redeemed at the option of the United

States on and after March 15, 1955, in whole or in part, at par and accrued
interest, on any interest day or days, on 4 months' notice of redecration
given in such manner as the Secretary of the Treasury shall prescribe. In
case of partial redemption the bonds to be redeemed will be determined by
such method as may be prescribed by the Secretary of the Treasury. From
the date of redemption designated in any such notice, interest on the bonds
called for redemption shall cease.

"The bonds shall be exempt, both as to principal and interest, from
all taxation now or hereafter imposed by the United States, any State, or
any of the possessions of the United States, or by any local taxing authority,
except (a) estate or inheritance taxes, and (b) graduated additional income
taxes, commonly known as surtaxes, and excess-profits and war-profits taxes,
now or hereafter imposed by the United States, upon the income or profits of
individuals, partnerships, associations, or corporations. The interest on
an amount of bonds authorized by the Second Liberty Bond Act, approved
September 24, 1917, as amended, the principal of which does not exceed in
the aggregate $5,000, owned by any individual, partnership, association,

or corporation, shall be exempt from the taxes provided for in clause (b)
above.

"The bonds will be acceptable to secure deposits of public moneys, and

will bear the circulation privilege only to the extent provided in the act

approved July 22, 1932, as amended. They will not be entitled to any
privilege of conversion.

"Bearer bonds with interest coupons attached, and bonds registered as to
principal and interest, will be issued in denominations of $50, $100, $500,
$1,000, $5,000, $10,000, and $100,000. Provision will be made for the interchange of bonds of different denominations and of coupon and registered
bonds, and for the transfer of registered bonds under rules and regulations
prescribed by the Secretary of the Treasury.

"The bonds will be subject to the general regulations of the Treasury
Department, now or hereafter prescribed, governing United States bonds."

-3. III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Treasury Department, Washington. Banking institutions generally will
handle applications for subscribers, but only the Federal Reserve banks and the
Treasury Department are authorized to act as official agencies. The Secretary of

the Treasury reserves the right to close the books as to any or all subscriptions
or classes of subscriptions at any time without notice.

2. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in part, to allot less than the amount of bonds applied
for, to make allotments in full upon subscriptions for smaller amounts and to
make reduced allotments upon, or to reject, subscriptions for larger amounts, to
make classified allotments or to make allotments unon a graduated scale, or to
adopt any or all of said methods or such other methods of allotment and classification of allotments as shall be deemed by him to be in the public interest; and

his action in any or all of these respects shall be final. Subject to these
reservations, all subscriptions will be allotted in full. Allotment notices will
be sent out promptly upon allotment.

IV. TERMS OF PAYMENT AND ISSUE

1. Treasury bonds offered under this circular will be issued at par, or at

such increased issue price as may be fixed by public announcement in the case of
bonds issued upon subscriptions tendered to a Federal Resorve bank or branch or
to the Treasury Department after the time stated in the announcement. The

effective time for any increase which may be made in the issue price will be
after the date of the announcement and in no event earlier than April 29, 1935.
Any such announcement fixing an increase in the issue price and the time when
such increase becomes effective will be communicated promptly to the Federal Reserve banks. Payment for any bonds allotted under this circular may be made only
in First Liberty Loan bonds of any series, which will be accepted at par, provided
that payment of the premium by reason of any increase in the issue price shall be
made as provided in the next following paragraph. The bonds tendered in payment
should accompany the subscription.

2. Interest adjustment as of June 15, 1935. - Subscribers will be credited
with interest in full to June 15, 1935, on First Liberty Loan bonds tendered in

exchange, and will be charged with accrued interest from March 15 to June 15, 1935,
($7.1875 per $1,000), on 2-7/8 percent Treasury Bonds of 1955-60 issued on exchange.
The net interest adjustment per $1,000 principal amount on account of the various

issues of First Liberty Loan bonds follows: First 3-1/2's - $10.3125; First 4's -

$12.8125; First 4-1/4's and First-Second 4-1/4's - $14.0625. This net interest
adjustment (less any premium by reason of an increase in the issue price) will be
paid to subscribers following acceptance of First Liberty Loan bonds under this
circular.
V. SURRENDER OF FIRST LIBERTY LOAN BONDS ON! EXCHANGE

1. Coupon Bonds. - First Liberty Loan bonds in coupon form tendered in ex-

change for Treasury bonds offered hereunder, should be presented and surrendered

with the subscription to a Federal Reserve bank or to the Treasurer cf the United
States. Coupons dated June 15, 1935, and all coupons bearing dates subsequent to

-June 15, 1935, should be attached to such coupon bonds when surrendered, and if
any such coupons are missing, the subscription must be accompanied by cash payment equal to the face amount of the missing coupons.l The bonds must be de-

livered at the expense and risk of the holder. Facilities for transportation of

bonds by registered mail insured may be arranged between incorporated banks and
trust companies and the Federal Reserve banks, and holders may take advantage
of such arrangements when available, utilizing such incorporated banks and trust
companies as their agents. Incorporated banks and trust companies are not agents

of the United States under this circular.

2. Registered Bonds. - First Liberty Loan bonds in registered form tendered
in exchange for Treasury bonds offered hereunder should be assigned by the registered payee or the assignee thereof, in accordance with the general regulations
of the Treasury Department governing assignments for transfer or exchange, in one
of the forms hereafter set forth, and thereafter should be presented and surrendered with the subscription to a Federal Reserve bank or to the Treasury De-

partment, Division of Loans and Currency, Washington, D. C. The bonds must be

expense
andthe
risk of Treasury
the holder. If honds are desired
delivered
at
in
the same name as the First Loan bonds the

to Secretary of the for for

assignment
Bonds registered
shouldbonds
be "Theare
Liberty
Treasury
exchange
Treasury
of 1955-60"
: if Treasury
desired
registered
in surrendered,
another name,
the

assignment should be to "The Secretary of the Treasury for exchange for Treasury
Bonds of 1955-60 in the name of
if Treasury
bonds in coupon form are desired, the assignment should be to "The Secretary of
the Treasury
in coupon form to be
delivered
to for exchange for Treasury Bonds of 1955-60
".
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to receive subscriptions, to make allotments on the basis and
up to the amounts indicated by the Secretary of the Treasury to the Federal Reserve banks of the respective districts, to issue allotment notices, to receive
payment for bonds allotted, to make delivery of bonds on full-paid subscriptions
allotted,
and they may issue interim receipts pending delivery of the definitive
bonds.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering
which will be communicated promptly to the Federal Reserve banks.
HENRY MORGENTHAU, JR.,

Secretary of the Treasury
1

The final coupons attached to temporary coupon bonds of the First Liberty
Loan became due as follows: First 4's - December 15, 1919; First 4-1/4's June 15, 1920; First-Second 4-1/4's - December 15, 1920. The holders of any
such temporary bonds will receive the past due interest to June 15, 1935, if
such bonds are tendered for exchange under this circular.

UNITED STATES OF AMERICA

1-5/8 PERCENT TREASURY NOTES CF SERIES A-1940

Dated and bearing interest from March 15, 1935

Due March 15, 1940

Interest payable March 15 and September 15
ADDITIONAL ISSUE

OFFERED ONLY IN EXCHANGE FOR FIRST LIBERTY LOAN BONDS
CALLED FOR REDEMPTION ON JUNE 15, 1935
1935

Department Circular No. 537

TREASURY DEPARTMENT,

Office of the Secretary,
Washington, April 22, 1935.

Public Debt Service
I. EXCHANGE OFFERING OF NOTES

1. The Secretary of the Treasury, pursuant to the authority of the Second

Liberty Bond Act, approved September 24, 1917, as amended, invites subscriptions

from the people of the United States for 1-5/8 percent Treasury notes of the United
States, designated Treasury Notes of Series A-1940, in payment of which only First
Liberty Loan bonds, of any series, called for redemption on June 15, 1935, may be
tendered. The amount of the additional issue of 1-5/8 percent Treasury Notes of
Series A-1940 under this circular will be limited to the amount of First Liberty

Loan bonds tendered and accepted.

2. First Liberty Loan bonds will be received on exchange at par, and 1-5/8 percent Treasury Notes of Series A-1940 will be issued at par, with the right reserved by the Secretary of the Treasury to increase the issue price by public announcement effective as to subscriptions tendered after the time, not earlier than
April 29, 1935, fixed in the announcement. On all exchanges, interest adjustments

will be made as of June 15, 1935.

3. The outstanding bonds of the First Liberty Loan called for redemption on
June 15, 1935, and which, under the terms of this circular, may be exchanged for
1-5/8 percent Treasury Notes of Series A-1940, follow:
3-1/2 percent bonds of 1932-47 (First 3-1/2's) dated June 15, 1917

Converted 4 percent bonds of 1932-47 (First 4's) dated November 15, 1917
Converted 4-1/4 percent bonds of 1932-47 (First 4-1/4's) dated May 9, 1918
Second Converted 4-1/4 percent bonds of 1932-47 (First-Second 4-1/4's)
dated October 24, 1918

4. In addition to the exchange offering under this circular, holders of First
Liberty Loan bonds are offered the privilege of exchanging all or any part of such
called bonds for 2-7/8 percent Treasury Bonds of 1955-60, which offering is set
forth in Department Circular No. 536, issued simultaneously with this circular.

-2 II. DESCRIPTION OF NOTES

1. The notes now offered will be an addition to and will form a part of the

series of 1-5/8 percent Treasury Notes of Series A-1940, issued pursuant to Department Circular No. 532, dated March 4, 1935, are identical in all respects
therewith (except that the additional denomination of $50 will be made available),

will be freely interchangeable, and are described in the following quotation from
said Circular No. 532:

"The notes will be dated March 15, 1935, and will bear interest
from that date at the rate of one and five-eighths percent per annum,

payable semiannually, on September 15, 1935, and thereafter on March
15 and September 15 in each year. They will mature March 15, 1940,

and will not be subject to call for redecration prior to maturity.

"The notes shall be exempt, both as to principal and interest,
from all taxation (except estate or inheritance taxes) now or hereafter
imposed by the United States, any State, or any of the possessions of

the United States, or by any local taxing authority.

"The notes will be accepted at par during such time and under such
rules and regulations as shall be prescribed or approved by the Secretary
of the Treasury in payment of income and profits taxes payable at the
maturity of the notes.
"The notes will be acceptable to secure deposits of public moneys,

but will not bear the circulation privilege."

2. Bearer notes with interest coupons attached will be issued in denominations of $50, $100, $500, $1,000, $5,000, $10,000. and $100,000. The notes will
not be issued in registered form.
III. SUBSCRIPTION AND ALLOTMENT

1. Subscriptions will be received at the Federal Reserve banks and branches
and at the Treasury Department, Washington. Banking institutions generally will
handle applications for subscribers, but only the Federal Reserve banks and the
Treasury Department are authorized to act as official agencies. The Secretary

of the Treasury reserves the right to close the books as to any or all subscriptions or classes of subscriptions at any time without notice.
2. The Secretary of the Treasury reserves the right to reject any subscription, in whole or in part, to allot less than the amount of notes applied for,
to make allotments in full upon subscriptions for smaller amounts and to make reduced allotments upon, or to reject, subscriptions for larger amounts, to make

classified allotments or to maice allotments upon a graduated scale, or to adopt
any or all of said methods or such other methods of allotment and classification
of allotments as shall be deemed by him to be in the public interest; and his

action in any or all of these respects shall be final. Subject to these reserva-

tions, all subscriptions will be allotted in full. Allotment notices will be sent
out promptly upon allotment.

-

IV. TERMS OF PAYMENT AND ISSUE

1. Treasury notes offered under this circular will be issued at par, or at

such increased issue price as may be fixed by public announcement in the case of
notes issued upon subscriptions tendered to a Federal Reserve bank or branch or
to the Treasury Department after the time stated in the announcement. The

effective time for any increase which may be made in the issue price will be
after the date of the announcement and in no event earlier than April 29, 1935.
Any such announcement fixing an increase in the issue price and the time when
such increase becomes effective will be communicated promptly to the Federal
Reserve banks. Payment for any notes allotted under this circular may be made

only in First Liberty Loan bonds of any series, which will be accepted at par,

provided that payment of the premium by reason of any increase in the issue
price shall be made as provided in the next following paragraph. The bonds
tendered in payment should accompany the subscription.

2. Interest adjustment as of June 15, 1935. - Subscribers will be credited
with interest in full to June 15, 1935, on First Liberty Loan bonds tendered in
exchange, and will be charged with accrued interest from March 15 to June 15,
1935 ($4.0625 per $1,000), on 1-5/8 percent Treasury Notes of Series A-1940
issued on exchange. The net interest adjustment per $1,000 principal amount on

account of the various issues of First Liberty Loan bonds follows: First 3-1/2's $13.4375; First 4's -,$15.9375; First 4-1/4's and First-Second 4-1/4's - $17.1875.

This net interest adjustment (less any premium by reason of an increase in the

issue price) will be paid to subscribers following acceptance of First Liberty

Loan bonds under this circular.

V. SURRENDER OF FIRST LIBERTY LOAN BONDS ON EXCHANGE

1. Coupon Bonds. - First Liberty Loan bonds in coupon form tendered in
exchange for Treasury notes offered hereunder, should be presented and surrendered with the subscription to a Federal Reserve bank or to the Treasurer
of the United States. Coupons dated June 15, 1935, and all coupons bearing dates
subsequent to June 15, 1935, should be attached to such coupon bonds when surrendered, and if any such coupons are missing, the subscription must be accompanied by cash payment equal to the face amount of the missing coupons.1 The

bonds must be delivered at the expense and risk of the holder. Facilities for

transportation of bonds by registered mail insured may be arranged between incorporated banks and trust companies and the Federal Reserve banks, and holders
may take advantage of such arrangements when available, utilizing such incorporated banks and trust companies as their agents. Incorporated banks and trust

companies are not agents of the United States under this circular.

1

The final coupons attached to temporary counon bonds of the First Liberty Loan
became due as follows: First 4's - December 15, 1919; First 4-1/4's - June 15,
1920; First-Second 4-1/4's - December 15, 1920. The holders of any such temporary bonds will receive the past due interest to June 15, 1935, if such bonds
are tendered for exchange under this circular.

-42. Registered Bonds. - First Liberty Loan bonds in registered form tendered in exchange for Treasury notes offered hereunder should be assigned by the
registered payee or the assignee thereof, in accordance with the general regulations of the Treasury Department governing assignments for transfer or exchange,

Treasury for for

A-1940", to "The Secretary and
thereafter
of the exchange
Treasury with
Notesthe
of subscripSeries
should
be presented
and surrendered

tion to a Federal Reserve bank or to the Treasury Department, Division of Loans
and Currency, Washington, D. C. If the Treasury notes are to be delivered for
the account of other than the registered payee or the assignee thereof, the
assignment should be to "The Secretary of the Treasury for exchange for Treasury
Notes
of Series A-1940 to be delivered to
". The
bonds must be delivered at the expense and risk of the holder.
VI. GENERAL PROVISIONS

1. As fiscal agents of the United States, Federal Reserve banks are
authorized and requested to receive subscriptions, to make allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to the
Federal Reserve banks of the respective districts, to issue allotment notices,
to receive payment for notes allotted, to make delivery of notes on full-paid
subscriptions allotted, and they may issue interim receipts pending delivery

of the definitive notes.

2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offering which will be communicated promptly to the Federal Reserve banks.

HENRY MORGENTHAU, JR.,

Secretary of the Treasury

FOR RELEASE MORNING NEWSPAPERS, MONDAY, APRIL 22, 1935.
REDEMPTION OF FIRST LIBERTY LOAN BONDS

1935
TREASURY DEPARTMENT,

Department Circular No. 535

Office of the Secretary,

Washington, April 22, 1935.

Public Debt Service
To Holders of First Liberty Loan Bonds of 1932-47, and Others Concerned:
I. NOTICE OF CALL FOR REDEMPTION BEFORE MATURITY

given:

On March 14, 1935, the following public notice of call for redemption was
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 Liborty 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),
datod November 15, 1917;

First Liborty 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
coaso on said redomption date, June 15, 1935.

3. Full information regarding the presentation and surrender of First
Liborty Loan bonds for redomption under this call will be given in a Treasury
Department circular to be issuod lator.
4. Holders of First Liberty Loan bonds now called for redemption on
Juno 15, 1935, may, in advance of that date, be offored the priviloge of
exchanging all or any part of their called bonds for othor intcrost-bearing

obligations of tho United Statos, in which ovent public notico will horcafter

bc given.

HENRY MORGENTHAU, JR.,

Treasury Department,
Washington, March 14, 1935.

Secretary of the Treasury.

-3-20

II. OPTIONAL EXCHANGE OFFERING.

1. Holders of First Liberty Loan bonds, called for redomption on June 15,
1935, are offered the privilego, for a limited period beginning April 22, 1935,
of exchanging all or any part of their callod bonds, either (1) for 2-7/8

percent Treasury Bonds of 1955-60, or (2) for 5-your 1-5/8 percent Treasury Notes
of Serios A-1940, both bonds and notos boing datod and bearing intorest from March

15, 1935.

2. Full information concerning the optional exchange offering of Treasury
bonds is sot forth in Troasury Department Circular No. 536, and full information
concerning the optional exchange offering of Treasury notes is sot forth in
Treasury Department Circular No. 537, both circulars boing dated April 22, 1935.
As the privilego of exchanging First Liberty Loan bonds will be accorded for a
limited period only and may be torminated at any time without notice, holders
of First Liborty Loan bonds who dosire to take advantage of either offering
should act promptly, following the instructions given in the Treasury Department
circulars reforred to above, copies of which may be obtained from any Fedoral
Resorve bank or branch, or from the Treasury Department, Washington, D.C.
III. RULES AND REGULATIONS GOVERNING REDEMPTION OF FIRST LIBERTY LOAN BONDS

Pursuant to tho call for redemption, as set forth in Section I of this cir-

cular, the following rules and regulations are hereby prescribed to govern the
presentation and surrender of First Liberty Loan bonds for rodemption on June 15,
1935:

1. Paymont of called bonds on June 15, 1935. - Holders of any outstanding
First Liberty Loan bonds will bc ontitled to have such bonds redeemed and paid

at par on June 15, 1935, with intorest in full to that date. After June 15, 1935,
interest will not accrue on any First Liberty Loan bonds.

2. Presentation and surrender of coupon bonds. - First Liberty Loan bonds
in coupon form should be presented and surrondered to any Federal Roservo bank

or branch, or to the Treasuror of the United States, Washington, D.C., for redemption on June 15, 1935. The bonds must be delivered at the expense and risk
of holders (see par. 8 of this section) and should be accompanied by appropriate
written advice (see Form P.D. 1435 attached hereto). Chocks in payment of
principal will be mailed to the address givon in the form of advice accompanying
the bonds surrendered.

3. Coupons datod June 15, 1935, which become payable on that date, should
be detached from any First Liberty Loan bonds before such bonds are presented for
redemption on June 15, 1935, and such coupons should be collected in regular
course when due. All coupons pertaining to such bonds bearing dates subsequent
to June 15, 1935, must be attached to any such bonds when presented for redempion, provided, however, if any such coupons are missing from bonds so presented

for rodomption tho b nds novertheloss will bo redeemed, but the full face amount
of any such missing coupons will be deducted from the payment to bo made on ao
count of such rodomption, and any amounts so deducted will be hold in the Treasury

-3-

to
provide for adjustments or refunds on account of such missing coupons as may
subsequently be presented. 1

4. Presentation and surrender of registered bonds. - First Liberty Loan

bonds in registered form must be assigned by the registered payees or assigns

thereof, or by their duly constituted representatives, in accordance with the

general regulations of the Treasury Department governing assignments, in the
form indicated in the next paragraph hereof, and thorcafter should be presented
and surrendered to any Fodoral Reserve bank or branch, or to the Division of
Loans and Currency, Treasury Department, Washington, D.C., for redemption on
June 15, 1935. The bonds must be delivered at the exponso and risk of holders
(see par. 8 of this section) and should be accompaniod by appropriate written
advice (soo Form P.D. 1436 attached heroto). In all casos chocks in payment of

principal and final interest due will be mailod to the address givon in the form
of advice accompanying the bonds surrondered.

5. If the registered payec, or an assignoo holding under proper assignment
from the registered payce, desires that payment of the principal and final installment of interest be mado to him, the bonds should be assigned by such
payee or assignoe, or by a duly constituted representativo, to "The Secretary

of the Treasury for rodemption". If it is dosired, for any reason, that payment

bo mado to some other porson, without intermediate assignment, the bonds should
be assignod to "The Socretary of the Troasury for redemption for the account
of
inserting the name and address of the person
to whom payment is to be made. A representative or fiduciary should not assign
for payment to himself individually, unloss expressly authorized to do so by
the instrument under which he is acting; he may, however, assign for payment to

himself in his representativo or fiduciary capacity.

6. Assignment in blank or other assignment having similar effect, will be

recognizod, but in that ovont payment will be made to the person surrendering
the bond for rodemption, since under such assignment the bond becomes in effect
payable to bcaror. Assignments in blank or assignments having similar offect

should bo avoidod, if possible, in order not to lose the protection afforded by
registration.
7. Final interest duo on Junc 15, 1935, on registered bonds of the First
Liborty Loan will be paid with the principal in accordance with the assignments
on the bonds surrendored. Transfers and exchanges involving registered bonds

will bc permitted up to the close of business on May 31, 1935, but not after
that dato.

8. Transportation of bonds. - Bonds presented for redemption under this
circular must be delivered to a Foderal Reserve bank or branch, or to the
Treasury Department, Washington, D.C., at the expense and risk of the holder.
Coupon bonds should be forwarded by registered mail insured, or by express

1 First 4ls, First 4-1/41s, and First-Second 4-1/4's were originally issued

in temporary form. The final coupon attachod to such temporary bonds becamo due
on December 15, 1919, June 15, 1920, and December 15, 1920, respectively. The

holdors of any such tomporary bonds will receive all past due interest to June

15, 1935, whon such bonds are rodoomed pursuant to the call. Any coupons now
attachod to such temporary bonds should be detached and collected in regular
courso.

prepaid. Registered bonds bearing restricted assignments may be forwarded by
registered mail, but registered bonds bearing unrestricted assignments should

be forwarded by registered mail insured or by express. Facilities for trans-

portation of bonds by registered mail insured may be arranged between incor
poratod banks and trust companies and the Fedoral Reserve banks, and holders
may tako advantage of such arrangements when available, utilizing such incorporated banks and trust companies as their agents. Incorporated banks and trust
companios are not agents of the United States under this circular.
IV. TIME OF PRESENTATION OF CALLED BONDS FOR REDEMPTION

1. In order to facilitate the redomption of First Liberty Loan bonds on

Juno 15, 1935, any such bonds should be presented and surrendered in the manner

heroin prescribed well in advance of that date, but not before May 15, 1935.
Such oarly presentation by holders will assure prompt payment of principal when

duc. This is particularly important with respect to registered bonds, for pay-

mont
cannot be made until registration shall have boon discharged at the Treasury
Department.

2. It will oxpodite redemption if the bonds arc presented to Federal Reserve

banks, or branches, and not direct to the Treasury Department.

3. As hercinbofore provided: (1) coupons due June 15, 1935, should be
detached from any permanont coupon bonds when such bonds are presented for rodemp-

tion on that date, such coupons to be collected when due; and (2) final interest
duc on any registered bonds will bc paid with the principal amount.
4. IF FIRST LIBERTY LOAN BONDS CALLED FOR REDEMPTION ON JUNE 15, 1935, ARE
TO BE PRESENTED FOR EXCHANGE FOR 2-7/8 PERCENT TREASURY BONDS OF 1955-60, INSTRUCTIONS GIVEN IN TREASURY DEPARTMENT CIRCULAR NO. 536 SHOULD BE FOLLOWED; IF TO RE
PRESENTED FOR 1-5/8 PERCENT TREASURY NOTES OF SERIES A-1940, INSTRUCTIONS GIVEN
TREASURY DEPARTMENT CIRCULAR NO. 537 SHOULD BE FOLLOWED; IF TO BE PRESENTED FOR
REDEMPTION ON JUNE 15, INSTRUCTIONS GIVEN IN THIS CIRCULAR SHOULD BE FOLLOWED.

IN

V. GENERAL PROVISIONS

1. Any further information which may be dosired regarding the redomption of
First Liberty Loan bonds under this circular may be obtained from any Federal Roserve bank or branch, or from the Treasury Department, Washington, D.C., where
copies of the Treasury Department's regulations governing assignments also may be
obtained.

2. As fiscal agents of the United States, Federal Reserve banks are authorized and requested to perform any necessary acts undor this circular. The Secretary
of the Treasury may at any time, or from time to time, prescribe supplemental or
amendatory rulos and rogulations governing the matters covered by this circular,
which will be communicated promotly to Federal Reserve banks.

HENRY MORGENTHAU, JR.,

Secretary of the Treasury.

-5FOR COUPON BONDS

(For registered bonds use Form PD 1436)
TREASURY DEPARTMENT

Public Debt Service
Form PD 1435

Use separate form for each issue
FORM OF ADVICE TO ACCOMPANY FIRST LIBERTY LOAN BONDS IN COUPON FORM PRESENTED

FOR REDEMPTION ON JUNE 15, 1935

To the Federal Reserve Bank of
or

Treasurer of the United States, Washington, D.C.:
Pursuant to the provisions of Treasury Department Circular No. 535, dated
April 22, 1935, the undersigned presents and surrenders herewith for redemption
on Juno 15, 1935, $

, face amount of First Liberty Loan bonds in

coupon form, with coupon duc Decombor 15, 1935, and all subsequent coupons

attached, as follows:

Titlo of issuo:
(Usc short title - sec note)
Number of bonds : Denomination : Sorial numbers of bonds : Face amount
:

1,000 :
5,000 :
10,000 :
100,000 :
:

:
:
:
:

:
:
:

:

Total

$50 :
100 :
500 :

$

and requests that romittance covering paymont therefor be forwarded to the under
signed at the address indicated below.
Signature

Name (please print)

Address in full
Date

Note: The titles of the four issues of First Liberty Loan bondsShort
follow:
Title
Titlo
First 3s's
First Liborty Loan 31% bonds of 1932-47
First 4's
First Liborty Loan Converted 4% bonds of 1932-47
First Liberty Loah Convorted 42% bonds of 1932-47
First Liberty Loan Socund-Convorted 41% bonds of 1932-47

First 4218
First-Socond 42's

-6FOR REGISTERED BONDS

(For coupon bonds use Form PD 1435)
TREASURY DEPARTMENT

Public Debt Service
Form PD 1436

Use separate form for each issue
FORM OF ADVICE TO ACCOMPANY FIRST LIBERTY LOAN BONDS IN REGISTERED FORM PRESENTED
FOR REDEMPTION ON JUNE 15, 1935

To the Federal Reserve Bank of
or

Treasury Department, Division of Loans and Currency, Washington, D.C.:

Pursuant to the provisions of Treasury Department Circular No. 535, dated
April 22, 1935, the undersigned presents and surrenders herewith for redemption
on June 15, 1935, $

face amount of First Liberty Loan bonds in

,

registered form, inscribed in the name of
and duly assigned to "The Secretary of the Treasury for redemption", as follows:

Title of issue:

(Use short title - see note)

Number of bonds: Denomination Serial numbers of bonds : Face amount
$50
100
500

$

1,000
5,000
10,000
50,000
100,000
:

:

:

Total

$

and requests that remittance covering payment of principal and final interest be
forwarded to the undersigned at the address indicated below.
Signature

Name (please print)

Address in full

Date

Note: The titles of the four issues of First Liberty Loan bonds follows:
Title

First Liberty Loan 37% bonds of 1932-47
First Liberty Loan Converted 4% bonds of 1932-47
First Liberty Loan Converted 42% bonds of 1932-47
First Liberty Loan Second-Converted 41% bonds of 1932-47

Short Title
First 3g's
First 4's

First 4t's

First-Second 41's