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

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0942
THE WHITE HOUSE
WASHINGTON

July 9, 1941.
MEMORANDUM FOR

THE SECRETARY OF THE TREASURY

I cannot see Pleven. The
matter has been taken up before.

F. D. R.

:

0943

July 8, 1941

My dear Mr. President:
Mr. Rene Pleven, representing General de Gaulle,

is here in Washington. He dined with me last night.

He has the best knowledge of French Equatorial Africa
of anybody I have ever met. He gained this knowledge
first-hand as General de Gaulle's representative in
Africa and it was he and two other French officers who
took over French Equatorial Africa.
He has some very practical ideas on how Dakar

could be taken and I assure you that if you would see
him and give him half an hour, you would find your time
very well spent.
I know Mr. Pleven intimately from the time when

he was second in command of the French Purchasing Mission

here in Washington. He is a man of excellent character
and real ability.
Yours sincerely,

The President,
The White House.

0944
July 10, 1941

Telephone conversation between the President and
Mr. Morgenthau at 2:15 p. m.:

President: Hello, Heinie.

Hello. Did you get the cable I sent
over to you from Chiang Kai-shek? Isn't it highly
HM,Jr:

interesting?

President: In this statement there are three different conflicting things.
HM,Jr:

How do you want to answer Chiang Kai-

Shek? Do you want to see Soong or do you want me to
see him?

President: I have three avenues of communication:
(1) Soong, (2) Lauch Currie and (3) the State Depart-

ment. I think you had better talk to Lauch Currie
and see how it should be done. I never answer directly.
HM,Jr:

I will have Lauch Currie come over.

President: I see you are doing a financing.
HM,Jr:

What do you mean?

President: I was told to hold up my news because
you are going to do a financing.
HM,Jr:

Well, they did a beautiful job because

our financing was today and the news broke yesterday
afternoon and today, so you are a big help!

President: When I took Iceland the market went up

two points. There are a lot of places I can take.
I can take the Azores for you. Just let me know and
I will take them for you.
000-000

Cabinet July 11,19410945says
Pres.
"take the

dam things referring
to foreign shifs that
have been satitaged.

See that gaston and
John
+
Selewartz
doit
today.
Jase Junes saye he is .
buyding strategic

materials firm Ahexico.

/

0946
July 18, 1941
4:00 pm

(After Cabinet)
Present:

Mr. Bell
Mr. Foley

Mr. Cochran
Mr. Gaston

Miss Kistler

HM,Jr: No. 1. Mayor La Guardia cleared that
thing so If you would give it to Chic
Mr.

Bell:

Fine! Did you give him the letter?

HM,Jr: Yes, I gave him the letter and a copy of
the release. He said 0. K. He was delighted.
Mr. Bell: And you signed the letter?
HM,Jr: To him? Yes.

Now, if you people will listen closely, please.
This is in strict confidence. I would like you (Miss
Kistler) to tell Mr. White.
They brought up the question about Japan and

Sumner Welles said he thought in 2 or 3 days, most likely
by the 20th, the Japanese were going to move on Indo-China.
When it came to my turn, I said to the President, "I would
like to ask you a question which you may or may not want
to answer. What are you going to do on the economic
front against Japan if she makes this move?"

Well, to my surprise, the President gave us quite

a lecture why we should not make any move because if we

0947
-2-

did, if we stopped all oil, it would simply drive

the Japanese down to the Dutch East Indies, and it
would mean war in the Pacific.
As I remember it, Welles then spoke up and said
that they were prepared, though, to freeze Japanese

assets, SO I said, If you are willing to free Japanese

assets, why not Chinese assets because it was of very

little significance to freeze the Japanese, but by
freezing the Chinese we get the money in Shanghai."
And the President said that's all right with him; Welles
said that's all right with him, and the President said

"as long as we point out we are doing the Chinese end
at the request of General Chiang Kai-shek."

Ickes then said it was very embarrassing to him
that beginning with this Sunday he would have to begin

to put in rationing of gasoline in the East -- embarrassing that all this oil was going to Japan and we really
needed the gasoline here, so couldn't he, Ickes, say

that inasmuch as they were getting considerable more
gasoline now than they were a year ago that they prorate it and only give them an amount equal to what they
had been getting over a given period? And the President agreed to that.

So I said, "Well, in the name of conservation,
couldn't you drop gasoline from 87 octane to 67?" and
the President said, 'Why don't you do it?" and I said,
"Because the State Department won't let me." So Welles

said that was all right with him. So the understanding was that if -- oh, yes! and that we ought to get the

English to make certain moves at the same time, which I
can't remember now.

But the understanding is that if Japan moves in
the next couple of days on Indo-China, (1) we are to
freeze Japanese and Chinese assets; (2) we are to put

,
<

0948
-3-

them on the basis that they can only take the amount

of oil and gasoline out of the country equal to a

fixed period, which Ickes will fix, and (3) they can't
take any gasoline out of the country above 67 octane.

The part that pleases me is if I had not raised

the question, none of this would have happened because nobody else raised it.

And that's that!
Mr. Foley: Well, we had better have the papers
ready.

HM,Jr: That was the purport of this meeting.

Mr. Foley: If this happens before you get back

HM Jr: It won't, but I want to be phoned. The

number is Beacon 211.

00o-00o

After the group left, the Secretary asked Miss
Chauncey to find out from Mr. Foley if Siam and Indo-

China are already frozen. If not, they should be

when these other things happen.

0949
July 18, 1941

When the President read the attached note, which

I slipped to him at Cabinet, he wanted to tease me because I had spelled the word "new" with a "k". When
I begged him not to, he added his little note to mine,
spelling "knew" without the k.
11

- Cabinet July 18 , 1941 0950
THE WHITE HOUSE
WASHINGTON

Ilike
hope
you
will
the new radio

you will find

next to your hed
Very exciting -Inia you'd

do it!

-

/

951
.

August 4, 1941

At lunch with the President on Friday, August 1, I

spoke to him about the Russian situation and said that

Oumansky had been in with these two Russian generals to

see me and said that he was absolutely getting the runaround and not getting anywhere. It was very discouraging.

The President at first questioned it and I said
no, that it was a fact, and did he want me to bring it
up at Cabinet, and he said no, that he would.
I then asked him whether he wanted me-to bring up

the question at Cabinet in regard to the fact that the

Congress was about to pass legislation which would make

it impossible to sell Government-held cotton and wheat.
He said no, he no, he would do it.

In order to get him started talking, I told him

about the bet that Frank Knox and I had made the night
before whereby Frank Knox bet me ten dollars that on or
before the first of September Petrograd, Moscow, Kiev
and Odessa would all fall.
That got the President started on the Russian campaign. He said that he understood that an airplane engine
in a German plane could only run a hundred and twenty

hours before it wore out due to inferior lubricating oil
and that all the German tanks used the airplane engine.
He had talked this thing over with Marshall. He understood that if a tank ran two hundred hours it might last
them not more than forty days at the utmost and the tank
would be worn out, or at least the engine would be; that

even if they had twenty-five percent reserves, that they
would be using them up fairly rapidly. The President

said if his arguments were correct, then the German Panzer
units would shortly begin to wear themselves out.
On another occasion he told me that the Russian news

wasn't going well. The President gets all of his information from the Army through a Colonel Gunther, who is in

2-

0952

charge of the Russian desk in M.I.D. and he is very anti-

Russian
and anything that the President gets is alway's on
the bad side.

I then asked the President how would he lick Hitler,

so he said, "Well, the way to lick Hitler is the way I
have been telling the English, but they won't listen to
me. He said, "I know south Germany, because I have
bicycled over every foot of it when I was a child and
there is a town every ten miles. I have suggested to

the English again and again if they sent a hundred planes
over Germany for military objectives that ten of them

should bomb some of these smaller towns that have never
been bombed before." He said, "There must be some kind

of a factory in every town." He said, "That is the only

way to break the German morale.

(At least you have got to hand it to the British
that they stick by their ethical methods of warfare.)
There is no question in my mind that the President

has turned the road to better health. He is in much
better spirits. He is much more forceful and Admiral
McIntyre told me while I was waiting to see the President that the President had a lot of worries besides

his health and that evidently most of them have cleared

up.

At Cabinet the President opened the meeting and

talked for forty-five minutes along the following lines:
"The Russians have been given the run-around." And he

insists that the stuff must be under way. He said, "I
am sick and tired of hearing that they are going to get
this and they are going to get that, If and he said,
"Whatever we are going to give them, it has to be over

there by the first of October, and the only answer I
want to hear is that it is under way. "

He directed most of his fire at Stimson, who looked
thoroughly miserable. Never have I heard the President
more emphatic and insistent. He said, "Get the planes
right off with a bang next week."
He also said, "I want to send them some token planes,

0953

3

four-engine bombers." He said, "We ought to send them

five and the English ought to send them five. I want
to send them some Garand rifles. I want to do all of
this at once in order to help their morale.
And then he said, "I am going to --" he then turned
to me, after he had sort of run out of steam, and I>said,
"The trouble, Mr. President, is that with Harry Hopkins
"

away Oscar Cox tells me that he just hasn't got enough
authority to get anywhere or any place and that he does

get the run-around all the time. So the President said,

"Well, I am going to put one of the best administrators
in charge, Wayne Coy, and his job will be to see that the

Russians get what they need.

Cox told me that Coy got a telephone call to that

effect.

I hope as a result of the President's forty-five

minute lecture that the Russians do get promptly some

of the material that they need.

Out of a clear sky, the President indicated that the

Treasury should run the Alien Property Custodianship for

the time being. He said, "Is that all right, Biddle?"
Biddle said, "Yes, I have talked about it with Foley and
I have thought it over, and he said, "I guess I have
about come to the conclusion it is all right. So the
President said, "Well, let's leave it with the Treasury
for the time being."

(Evidently he didn't like the pressure which was
being put on him to put Leo Crowley in as Alien Property
Custodian.)

I then brought up the question of selling our cotton

now that we had a good market and the President certainly
went to town on this subject and told them how when I was

in Farm Credit I had sold all the wheat and said if I
could do it, why couldn't they do it now. He said, "We

must sell. To my surprise, Wickard agreed emphatically.
The President said Wickard and I should get together.
I gave the President the memorandum that I had furnished me by Harry White at my request on this matter and

4

0954

the President read it to himself. I also let Wickard

read it. From then on, I got a steady stream of notes
from Wickard. He said he would call me up, so I will
wait until I hear from him.

THE WHITE HOUSE
WASHINGTON

0955

Kenny M.

my
doint
is
to
leave this bill on
Juging
cotton
and
what in its most

obnoxian form
so that the President
will get his viets
sustained by a

large note at present
more of the farm

organzalins are

I

(v)

0956
THE WHITE HOUSE

0950

WASHINGTON

acline in their
su phirt because
of an am features

which I want to
leave in the Bell
(t they cant object

to a ants. I want
to but this a death
alow. I Dont commed
mind.
Do
you
Clande
ance

-

THE WHITE HOUSE

0957

WASHINGTON

I will call you
about it next
week so that
you may have

an ophar limit
to discuss it

we th 20 Bell.

THE WHITE HOUSE
WASHINGTON

-

0958

Henry M.
I wold W. Bell

about an idea
9 had to meet
with you and

thus in your Weft
concerning democracy

and good. Did he
mention L it to you?
clandi

0959

Secretary Morgenthau

July 30, 1941.

J. J. O'Connell, Jr.
For your information
The regular weekly meeting of the Price Administration Committee was held in Mr. Henderson's office this

morning at 11 o'clock. The matters of general interest
which were the subject of discussion follow:
1.

Silk. Representatives of OPAGS are discussing

the raw silk situation with representatives of the industry. Their primary purpose is to develop the facts
with regard to the existing supply of raw silk in this
country and the extent to which dislocation of industry
and isplacement of labor will result from a cessation of
the importation of raw silk from Japan. It is too early
to know with certainty what the facts are in this regard,
but I am advised by OPACS' representatives that the dislocation and displacement of labor will not be anything
like as great as interested groups would have us believe.
There are several factors which should tend to minimize

the dislocation. The mills will be able to some extent

to change over to a use of substitutes such as rayon, nylon
or cotton. Many of the mills have apparently been experimenting in this regard for sometime as the view has been
prevalent in the industry for several years that these
synthetic fibres will ultimately almost completely displace

Paw silk in this country. Admittedly, in the present state
of the art, no substitute is available which will be entirely

satisfactory from the point of view of the consumer or
entirely usable by the mills. However, in this respect
a complete cessation of the importation of raw silk

merely accelerates a change-over process which has been

going on for some years (now about 90 per cent of all raw

silk goes into women's hosiery). Another possibility

Secretary Morgenthau,

2.

to minimize the repercussions of cutting off the supply
of raw silk is the importation of a type of machine
which will process rayons and cotton to a much finer
state than can be done by machines presently available

in this country. Donald Nelson stated that there are
quantities of machines of this type available in Great
Britain which are not now being used at all. Another
factor which, of course, must not be forgotten, is the
possibility of transfer of skilled workers from the
silk mills to other types of work. This is difficult
to evaluate at this time but it is the fact that bottlenecks in skilled workers are appearing in any number of

industries at the present time. The picture I get

from OPACS is that with intelligent cooperation the
silk industry should be able to meet the problem created

by the complete cutting off of silk supplies without any
very great hardship either to labor employed in the

industry or to its capital. I expect to keep current

on the discussions between OPACS and the representatives

of the silk industry and to make periodic reports thereon
to you, and also to Mr. Foley and to Dr. White.
Automobiles. Mr. Henderson announced that
he had a meeting yesterday with Mr. Knudsen and Mr. Hillman
in connection with the problem of outting down the manu2.

facture of passenger cars and light trucks for the purpose of conserving scarce materials and for a better
utilization of skilled workers for defense. OPACS and
OPM have up until now been working very much at CROSS

purposes in this regard, but Mr. Henderson indicated
that he thought that as a result of the meeting yesterday
the two organizations would be able to come to an agreement
between themselves and with the industry as to the number
of passenger cars and light trucks that may be produced
during the coming year. He stated, however, that the
general question as to which organization has the ultimate

authority and responsibility in allocating civilian supply
remains undetermined, and he was unable to make any

definite assertion as to when or how that question will
be settled.

Secretary Morgenthau,

3.

It seens to me that the issue is much deeper than
merely a struggle between the two organizations for power,
inasmuch 83 on practically all questions the approach of

the two agencies is entirely different. As in the case
of silk, Interested parties tend to eyer-emphasize the
effect on labor and capital of a reduction In civilian

production or an allocation to them of smaller supplies
of raw materials. For example, both Mesars. Knudsen
and Hillman seem to believe that any reduction in production
of passenger cars and light trucks will automatically
result in an equivalent amount of displacement of labor and
of loss to capital. On the other hand, OPACS is inclined
to go a little deeper and to analyse the situation de novo.

As a result of their analysis of the automobile industry

OPACS representatives believe that a 50 per cont reduction

in the production of passenger cars and light trucks (or even
the complete elimination of their production during the
next year) can be had without the dire results forecast by

OPM. In support of this position they can point to the
fast that the industry now has over $2 billion in defense
orders, that the needed production of heavy trucks during
the next year will be more than 50 per sent in excess of
that produced during the past year (they are already

experiencing difficulties in getting steel and other
materials needed for truck production and that defense
orders still awaiting allocation which must be shouldered
by the automobile industry will give them a scale of operations in terms of dollar volume, in excess of anything
over experienced by the industry. of course this takes
little or no account of distributors and dealers, but most
of the OTN argument seems addressed to manufacturers and

factory workers.

Cotton. The rising price of cotton was the
subject of a substantial amount of discussion, largely
3.

between Secretary Wickard and Mr. Henderson and members

of his staff who have been dealing with the cotton textile
people. OPAGS staff members polated out that they are

0962
Secretary Morgenthau,

4.

being caught in a "aqucese" between the cotton textile
manufacturers and the cotton people. The recent revision
of the price schedule for cotton textiles was made in the

light of the then existing price of cotton, although with
some leesay. The prise of cotton has been steadily

advancing over since and is HOW above parity. The existing

level of textile prious can be malotained only if cotton

prices do not advance substantially above parity, and in
view of the fast that getton prices are already above
parity and are showing no signs of stopping it will be
neesseary to revise cotton textile prices upwards again
unless something is done about cotton prices.

At a meeting of the Committee held several weeks ago
Secretary Wickord stated that he and hr. Handerson had
Peached R general understanding that Agriculture would
sell Government onned cotton when, as and If the price

reached parity. The purpose of this, of coures, would
be to keep cotton prices from going substantially above
perity. Des its the fact that cotton prices have gone
above parity Agriculture has not yet sold any, and Secretary
Wickard was somewhat hard-put to explain why none has been

sold. His apparent Peason is fear of what the cotton block
in Congress will do to him if he sells any. He stated that
he didn't know what they would do, but that they might

restrict further his right to sell cotton. His reasoning

did not 8098 to me particularly persussive, at least in so
far as the results of his inactivity are concerned, insamuch
as the Senate tacked a rider on to an Agriculture bill
yesterday the effect of which is completely to freese all
Government stocks of cotton. The bill is now in conference
and may quite possibly go to the President in that form.

Secretary wickard indicated that he was undeelded 8.8 to
whether to go to the Senators responsible for the amendment
and suggest a compromise or whether it would be better

to let the bill take its course without any comment from
him with the thought that the President might vete the
bill if it becomes Law.

0963
Secretary Morgenthau,

5.

I ventured the suggestion that there is another

alternative which does not seem to have been considered

by him or anyone else opposed to the bill. That is
that if the bill is a bad bill, and everyone but the
cotton block seemed convinced of that, it might be a
good time for the Secretary of Agriculture and others
in the Administration to speak up and create a little
articulate opposition to the bill without waiting for
it to be sent to the President for his approval or veto.
I am not sure Secretary Wickard thought very highly
of my suggestion, although he stated that he has

indicated to Senator Barkley that he is not in favor of

the bill. It was my point and I believe it to be a

valid one, that it might be helpful for the Secretary
of Agriculture to take the lead in opposing legislation
of this character rather than to sit silently by and
expect the President to veto a bill as to which neither

he nor any members of his Administration have given

any affirmative indication of opposition. As is often
the case, the subject was left hanging in the air and
Mr. Henderson is to discuss it further with Secretary
Wickard with a view to taking it up with the President.
4.

Price Legislation. The message on the long-

awaited price legislation is to be sent to the Congress
today by the President and bills are to be introduced
in the Senate and the House today or tomorrow. Mr.

Henderson reported that general agreement has been

reached with the legislative leaders and with the
legislative counsel of both Houses as to the form and
content of the bill, and that there is general agreement
between his office and the legislative leaders as to the

necessity for it. The bill Is to be introduced in the
Senate by Senator Glass and in the House by Congressman
Steagall.
1API

JOL

The meeting adjourned at 12.45.
(Signed) Joseph J. O'Conneil. Jr.

JJO C.Jr/Low
CC

TO:

Mr. D.W.Bell
Mr. Foley
Mr. Mayl
Dr. White

Dr. Haas

Mr. Bernstein
Mr. Sullivan Mr. Pehle

964

Treasury Department

Division of Monetary Research

Date 8/1/41 19
To:

Secretary Morgenthau

If you are going to raise the matter

of cotton at the meeting you might
like to read Section 3 of O'Connell's
report of the meeting at OPACS.

It is appended

-

0964
MR. WHITE

Branch 2058 - Room 214}

0965
MEMORANDUM FOR THE PRESIDENT

1. Last Tuesday the Senate passed a bill prohibiting all sales of Government-held stocks of
cotton (amounting to 7 million bales), the prohibition
to continue until Congress should otherwise provide.
The bill is now in conference. The Conferees have not
met as yet and probably won't until the middle of next
week.

2. Cotton prices have risen in the spot market
from 9 1/2 cents per pound on August 1, 1939 to 15.79
cents per pound last night. (The parity price of cotton
on the farm is 16.49 cents per pound.) Had it not been
for the President's statement this week with respect to
price control, the price of cotton would probably now be
above parity.

3. If legislation is enacted freezing the Government supplies of cotton from the market, and if no price
ceiling on cotton is set, we have the basis for spectacular
speculative price boom in cotton. The unfavorable crop
situation and the possibility of restriction on silk imports
favor such a boom. (We have the smallest acreage since
1895, and possibility of unusually heavy boll weevil damage
threatens a smaller yield per acreage than was formerly
anticipated.)

4. In view of the danger of price inflation and in
view of the importance which cotton plays in the price
structure, it would seem that the time is inappropriate
to enact legislation of the character passed by the

Senate.

I understand the Secretary of Agriculture has indioated his informal opposition to the bill to Senator

Barkley. I am wondering whe ther the time is not opportune
for a more vigorous presentation to Congress of the danger

to the price structure involved in the passage of the bill.
Even if Government cotton is not placed on the market

the mere defeat of the bill freezing the cotton will of
itself constitute a desirable force tending to restrain
speculative rises in the price of cotton.

see

untim

this page

Wichard

0966

0

There are in my estemaline
serviced reasons why this is
the of her line time to have

a weto on this legislation.
9clean,
want saw this then 8 off

0967
September 2, 1941

At 11:50 a.m. today Grace Tully spoke to the
Secretary over the White House phone, and the following
is HM Jr's end of the conversation:

"Hello. How are you? I thought I would see
you.

minute?

"Well, that's something. Grace, have you got a
"Herbert Gaston was Acting Secretary of the

Treasury while I was gone, and I think the first time

there was a Cabinet meeting he was told not to come, and

the second time he didn't get any notice. Now he just
walked in with his resignation as Assistant Secretary of
the Treasury because he said he thought he was an em-

barrassment to me.

Well, that I don't know but somebody called him
from the White House, and he said the President must dis-

like him or distrust him. He is very insistent. He wants
to resign.

"Well, somebody did it and he is just - he is all
"Yes, he wants to resign because

"Would you do it because I know the President is
very fond of him, and he was with me at Albany and he used

to do a lot of speeches for the President? He's a lovely
person and he has been terribly loyal to the President.
"Well, I knew if I called General Watson nothing

would happen and he is

"Would you? I know the President is fond of him.

"All right. He will take care of it then.
(HM Jr said that Grace Tully was going to try to
get the President to call Mr. Gaston.)

0968
September 5, 1941

Saw the President at 9:30 this morning. When I

first came into the office, he said, "What do you think it
about the destroyer being torpedoed?" I asked him where
was and whether it was alone. He said that it was alone
and that it was about 180 miles southwest of Iceland,
and they attacked it three times. He told me they were

going to try to identify it, and I said, "Why identify it?"
It can only be German or Italian.

Then the President asked me what I thought about

the thing Baruch did after he left the White House yesterday?"
He said, "Henry, when he is with me he is all sugar and honey

and everything is lovely." He said, "Henry, I never said
one of the things he said to the press - not a thing." So
I said, "Did you see what he said to Krock?" The President
said he hadn't. "Well," I said, "What he didn't say to the
press he told to Krock.' The President said, "Well, I think

Baruch is getting a little senile."

Then as he was going over my speech and he came to

the prices which were paid for sugar and pork, etc., in
1917, the President said, "What did Baruch do about that?"
He said, "He was in charge of that. Why didn't he stop
that? Everything he did in 1917 and 1920 was supposed to

have been perfect, but he didn't stop that."

When the President came to the part of the speech
about letting wheat come in from Canada, he said, "I see
you have this wheat thing in," so he remembered that I talked

to him about it Monday night. Then he said, "Oh boy That's

going to start something. I asked him if it was all right
and he said, "Sure, it's all right." Then I said, "Now

wait a minute. You signed a proclamation on the 31st of May
only letting in 750,000,000 bushels, and you would have to

reverse yourself. He said, "That's all right. He asked

me if I thought Claude Wickard would be all right on it, and
I said that I guessed so. I asked him if he had spoken to

Wickard about it and he said, "No." I said that I hadn't
either. (I had Huntington Cairns in here this morning, and
I found that he wasn't entirely sure of himself as to what
the President could do under the Proclamation. He is going

to look into it for me this morning.)

--

0969

I called the President's particular attention to

the last paragraph of my speech which says: "I can give

you only this pledge - that this Administration will do
everything humanly possible to prevent inflation. But in
this fight, the Administration must have the firm support

and the clear understanding of 130,000,000 Americans behind

it. If we have that support and that understanding, I
know we shall not fail. The President said, "That's all
right,"
so it is all right for me to go up there and speak
for
the Administration.
-

I asked the President if he wanted me to check

this with anybody else, and he said, "It's not necessary."
The President liked the speech, and in the middle

of it he said, "I haven't heard anything about \financing
for a long time. " I told him that I had been working with the

Federal Reserve Board on it, and they want to raise excess

reserves. I told him that everything is running along

smoothly now between the Treasury and the Federal Reserve.

Then I said, "Before I make up my mind, I will talk to you."
I told him that if we are ever going to increase excess
reserves, we ought to do it now.
The President also asked me how the tax anticipation
certificates were going, and when I told him he seemed pleased.
The President gave me September 27th as a tentative
date for the Annual Clam Bake on our farm.

The destroyer being torpedoed and Baruch's talking
yesterday seemed to be the things which were disturbing the

President the most. I found him very friendly.

0970
September 24, 1941

(Dictated September 25, 1941 at 9 am)

The President called me at 10 minutes of 9 last

night. Very affable; voice dripping with honey.
Wanted to talk about the Russian situation. Could
we buy gold from them - $10,000,000 - $15,000,000?

I

said yes. I told him the Russians had paid over $5,000,000
on the $10,000,000 advanced to them. That surprised him.

I understood him to say that Jones had loaned
$25,000,000, but he would try to squeeze out another
$25,000,000 and I told him I thought Jones had only
given them $10,000,000.

I asked him who I should see and he said to send
for the Charge de 'Affaires of the Russian Embassy.

He said that Harriman, when he sees Stalin alone,
will ask him how much gold he had.
The President wanted to know how the gold arrived
and where it came from that we received, and I told him

it arrived at San Francisco and I did not know where it

came from.

Of course, this conversation was the result of my
letter I wrote him two days ago.
I asked him if he had seen my statement on taxes
and he said, in an emphatic voice and a pleasant voice,

"Yes. How is 6% Morgue?" I said, "Do you like it?'

He said, "Of course I do." He said, thought of it
two or three months ago. So I said, "Well, you can

get behind it now. He seemed very much pleased that
I had come out for this.
It has been a long time since the President called

me and evidently he must want something done for Russia

very badly, and I am glad I wrote my letter because it
got the desired results.

0971
-2-

I then told him about Bewley's visit to me and
how Bewley had been told by Jones what he should and
should not do in connection with Russia. The Presi-

dent said, "That's ridiciulous! Jones could not
have told him any such thing. So I said, "Well,

I have found Bewley very reliable over a number of
years. He has given me a written memorandum on it.
Would you like me to send it to you?" The President

said, "I would like very much to see it. I said,

"I will
send
do
about
it. it to you and you can advise me what to

0972

October 3, 1941

I brought up at Cabinet the shortage of food in

England and caused quite a discussion, quoting Coe as
my authority.
The President referred my memorandum on Italian

jewels to Cordell Hull as to whether we can examine the
diplomatic pouch. The President suggested that we X-Ray

all pouches. The matter is now in the hands of Cordell
Hull.

THE WHITE HOUSE
WASHINGTON

October 2, 1941.
MEMORANDUM FOR

THE SECRETARY OF THE TREASURY

I notice in a published item

that jewels soon are to be sent by
the Italian Government to Lisbon

and by clipper pouch for further
dispatch to the United States, in
order to finance Italian agents in
the Americas. It seems to me that
jewels would fall into the category
of frozen funds and are, therefore,
not deliverable by diplomatic pouch.
Also, even though the property of
the Italian Government, they should,
I think, pay duty.
Please do whatever is necessary

in this regard.

F. D. R.

0974

October 3, 1941
MEMORANDUM FOR THE PRESIDENT:

You are entirely correct in saying that freezing
control regulates the importation of jewels from Italy

whether owned by the Italian Government or by its

nationals. I have given instructions to do everything
possible to detect the entry of the jewels and bring
them under our controls.

Once the jewels have been brought under our freezing

controls, a license would be required for their sale.
Were we to permit the sale of the jewels, the proceeds,
of course, would be blocked.

You are also correct in saying that the Italian

Government has to pay a duty on the jewels. This duty
amounts to 10 per cent of the value.

If the jewels come through the diplomatic pouch, it
is up to the State Department to decide whether it will
forbid the use of the diplomatic pouch for this purpose
or require the Italian Government to place the jewels
in a blocked account.

I suggest that you ask Secretary Hull to pass on the
question involving the use of the diplomatic pouch.

EHF:s 10-3-41

0975
October 7, 1941

At ten minutes past ten this evening I called up
the President and told him what I was doing about the

Russians, and how we offered them $50,000,000 to be paid

back by gold delivered over a period of six months. The
President said, "Fine."
I told the President that the trouble seemed to be

that the Russians had been told there was only $11,000,000
worth of goods around, and my guess was that they were
wondering why they should hurry about furnishing a lot of

cash if they could get it all for nothing in a couple of

weeks through Lend-Lease. If we had $50,000,000 worth of
goods laying around, the way Hopkins said we had, why

didn't we tell them? The President said, "You' re right."

Then he asked me whether I had told this to Hopkins, and

I told him that I hadn't. Then he said, "Well", I guess
that Harry is asleep. Be sure to tell him about it in
11

the morning.

I then talked to the President about our financing,

and said that the argument was between the 2-3/88 and the

2-1/2s. He said that he personally preferred the 2-3/8s.
Then he asked me about my accident and he said,

"Did you do any damage to the trees?" I said, "I don't

know. It He said, "Well, remember that I am a forester
and I am very fond of trees, and I hope that you didn't
hurt them.' He seemed mildly interested in my accident,
but he evidently knew about it and read about it. He

also said, "I heard that you read a novel through it all."

He sounded very cheerful and very friendly, and I
got him immediately when I picked up the telephone.
##H####

0976
October 23, 1941

Called on the President this morning at 9:30. I
told him that I would like to talk to him as a neighbor
and a friend, and that I had come to talk about Henry

Morgenthau, Jr. Secretary of the Treasury. He was amused
at my introduction. He said, "Go ahead." Through the
whole interview, the President was relaxed and at no
time did he resent anything I said. He was most receptive.
I said, "You know, Mr. President, in 1933, when the
wheat situation kept getting worse, you asked me to take

hold, and I did. You threw me into the Treasury in

November, 1933, when things were at the worst, and I took

care of that. I took care of the French when they first

came here to buy planes, and then I looked after the

English." He said, "Yes, you have done all of that. In
fact, I just don't see how you get all the money that you
do. You seem to pick it out of the air."
I then said, "I am very much worried that when you
get down to considering your Victory Program that the socalled Detroit crowd, who are in charge of production for

you, will not be able to take care of the situation. If
that time should come, I want you to have it in the back

of your mind that I believe I could do this job for you."
The President said, "Well, somebody has to be over

the whole group," and I said, "Yes, I agree with you, and

as Secretary of the Treasury you could make me chairman

because I outrank all of the four present members."

The President said, "I haven't yet looked into the Victory
Program. I don't know just what I want. You and I will

have to sit down together and go over the whole matter.
Later on he said, "Of course, we would have to have Harry
because he looks after distribution under Lend-Lease."

Iintold
him that I was only interested in production, not
distribution.

-2-

0977

The President then said, "Well now we ought to get

together two, three or four times on that. I think Nelson
is a good man, don't you?" I said, "Yes, I do." He said

that he didn't want Stimson. Then he asked me what I

thought of Floyd Odlum and I told him that I thought it
would be a mistake. The President said, "Well, he is

not a member of the Detroit crowd." Then he said, "Somebody

will have to be in charge who knows all the facts. Whom
would you suggest?" I said, "Stacy May."
The President repeated again, "Well, we will have

to get together a number of times. I said, "Is it agreeable

to you that I come back and discuss it with you again on
the same basis as today," and he said, "Yes.

I was amazed at the reception the President gave me.

Of course, knowing the President as well as I do, there

may never be another meeting, but I am going to get my

facts. I have arranged for Stacy May to come to the house
tonight, and I have told him that I want to approach this
matter of just where the automobile manufacturers have
fallen down. I also asked him to refresh himself on the
Morris plan and the Reuter plan.
I have told Harry White that at the meeting on
Friday on production, he should not suggest or let anybody
else suggest that I am the man to do this job. He asked
me whether he could talk to Stacy May and try to pep him
up on this. I told him he could and he could drop the
hint to Stacy May that I am the man to do this job.

Certainly the President has not thought this thing
through, and if he has any conception of the magnitude
of the problem, he showed no inclination of it. He told
me that he had not yet seen the Victory Plan.

0978
October 28, 1941

Both before and after I saw the President this morning, Hopkins showed me a draft of a memorandum that he

had written for the President to send to Stalin. This was
to be the agreement under Lend-Lease. The memorandum

stated that the Russians were to pay us a monthly amount
of gold and pay us 1-7/8% interest on the Lend-Lease
material which we advanced to Russia, and also to pay us

back in raw materials. In other words, we would either
get paid back in gold or raw materials, and charge them

1-7/8% interest.

Hopkins asked me whether I could stay behind and

see the President and discuss this with him, but evidently
he decided it was a bad time to talk to the President,
so he asked me to stay behind with him, which I did.

I told him that I didn't like the memorandum and he
asked me what my objections were. I said, "This is not

the way to do the thing. I think it is a mistake at this

time to bother Stalin with any financial arrangements and
take his mind off the war. It would make him think we are
nothing but a bunch of Yankee traitors trying to squeeze

the last drop out of him." I said, "Do you feel or does

the President feel that because the English paid down so
much cash that we have to get so much gold from the
Russians?" Hopkins said, No."

I told Hopkins that I would simply send word to
Stalin that we are going to let him have so much material;
that the matter has been turned over to the State Depart-

ment to draft some kind of an arrangement (which means

it will take them a couple of years); that the material
will come to him, and he should not worry. Hopkins said,
"I absolutely agree with you. I am going to put on my
hat and go over to see Hull and try to sell him the idea.
Then Hull, you and I should see the President." In other
words, I got Hopkins to completely reverse himself. What
will happen, I don't know.

0979
2-

While we were waiting to see the President, I had

Stacy May go over some of the things with Hopkins.

Hopkins pointed out that the President had not yet decided on any program.

We were with the President a little over half an
hour - it may have been three quarters of an hour. Just
as soon as we started to talk about an over-all program,
the President backed away from it and said, "That isn't
the way to do it." He said, "How can anybody tell how
big the program should be?" May presented some of the

airplane figures, some of the automobile figures, some
of the tank figures, and some of the raw material figures.

The President said - and this is very enlightening " I don't want a program made from the top down. I asked
him, "If you do not have an over-all program, how do you
know what you could do?" He said, 'I want to start from
the bottom, and say I want twice as much of this and twice
as much of that, and then get as much as I can.

Of course, I think this is entirely wrong, and that
this is the whole trouble with the thing. If he asks for

twice as many tanks, this dislocates some other program,
and so first one program goes ahead and another one lags
behind, and as a result the whole armament program is

slowed down. I have heard him talk about the thing like

this before. Last night sitting next to General Marshall

at dinner he reminded me of this same fact. He said,

"First the President wants 500 bombers a month and that
dislocates the program. Then he says he wants so many

tanks and that dislocates the program. The President will

never sit down and talk about a complete program and
have the whole thing move forward at the same time.
"

3-

0980

Then the President said, "Well, what I am interested
in now is how many tanks and planes I am going to get in
the immediate future." I had Stacy May show him how in
the 4-engine bomber program the predictions for production
were adjusted on the downward side three different times.
If I had done this before he would have thrown me out
and told me to go and do my homework, but everything we
showed the President today - no matter how much the figures

were a criticism of his program - he took everything well
and showed no resentment.

Hopkins whispered to me, "This is fine." Then he
told me that every time I come into the picture something
happens. He said, "You are a fresh face and that is what
the President needs at this time."
When the thing seemed to be all at loose ends, I
said, "After all, Mr. President, what you have in mind are
really two things - one is an immediate program and the
other one is the long term program. Isn't that right?"

He said, "Yes." So I said, "Well, I don't think you can

solve either until you change your method of procurement. "

I said, "Of course, you realize that O.P.M. has no authority
to either buy or to follow up any purchases and see that

the manufacturer produces." He gave me no argument on that.

I then said, "There is always this conflict between O.P.M., the

Army and the Navy." The President said, "Well, give me some
good examples," and I said, "We will do that.'

I simply felt that in a rather disorganized way we did
bring to the attention of the President the various things

which he should know about. How much he got out of it I

don't know. He seemed particularly interested in the fact that

the automobile industry was only working 25 per cent on
national defense.

The President then went into a long winded story about

how Mr. Lumb of the woodworking concern in Poughkeepsie

came to him and said that they didn't have any business, and
how he organized all the woodworking concerns in the Hudson

Valley. He said, "That's the kind of thing we have to do.
Hopkins told me later that it was Floyd Odlum who put it
across.

0981

-4The President seems to have Floyd Odlum very much

in mind and I gather that he is Hopkins man. The President

asked Stacy May what he thought about Floyd Odlum. He

said, "Well, the trouble with him is that he is moving in
two directions. He doesn't want any industry to be hurt
because of this shutdown on their civilian activities, and
on the other hand he is trying to get industries to take on

defense work. He doesn't seem to have made up his mind in

which direction he is going.

Stacy May handled himself very well.
Afterwards we adjourned to Hopkins room, and I said,
"Of course, what we need is a Ministry of Supply." Hopkins

said, 'I disagree with you. I think we ought to place more
responsibility on the Army and Navy." After May left I
said to Hopkins in a very specific manner, "Harry, you are
absolutely wrong. Has Bob Patterson been able to get the

Generals to do what he wants in procurement?" He said,
"No." Then he added, "Patterson constantly complains about
getting a run-around." I said, "How in God's name do you
expect Patterson to be good enough to get the Generals to

handle this stuff promptly if you give him the entire responsibility, if he hasn't been able to do it under present
conditions?

The thing that bothersme is that if we get into a war

and any group of soldiers runs out of ammunition, whose

fault is it today? I said, "It is nobody but the President's
fault." Hopkins said, "You are right. I said, "I want
to get him out of that position so that he has somebody
who is willing to take the sole responsibility, and he
will make good or fail on the job, but at least there would

be somebody besides the President who had the responsibility
of seeing that the ammunitions are produced in quantity and

in time. I said, "Until you give somebody that responsibility, the President has got to take the blame and nobody
else. I think I opened Hopkins' eyes.

0982

-5-

Hopkins said that of course we would have to protect

Stacy May because if it got out it would hurt him terribly.
I stayed behind and told the President not to tell anybody
that Stacy May was over there. He said he wouldn't.
The interesting thing that happened to show that we
did have some effect on the President was that Steve Early
called up about what to tell the press on John L. Lewis.
The President said, "Tell them I am interested in production." Early said, "You mean production of coal?" and
the President said, "No, in production, and put some
emphasis on 'more production'.
Knowing the President, I am sure he didn't miss a

trick, and certainly he gave evidence of a keen interest
and no resentment. He didn't say, "Oh, I have seen this,"
or, "I know that, which he so often does. On that basis,
I am encouraged, and just as soon as Stacy May will come
through with some examples of conflict between the Army,

Navy and O.P.M., I will ask for another chance to see the
President.

There evidently is some new plan of ordnance coming

over from Army for 2 or 2 billion dollars, and Hopkins
asked me whether I would like to discuss it before it goes

to the President. I said that I would, but I am willing
to bet five to one that I never hear another thing about
that particular thing.
I also am afraid that now that I have given Stacy

May the contact with the President and Hopkins, he may

try to work directly with Hopkins.

Stacy May is also to write up this conference and
send it over.

983

The Secretary took the original copies of
these to the conference with the President
November 6, 1941, at 9:30 a.m. The

originals were left with the President.
0983

0984
AUTOMOBILE INDUSTRY

Although the automobile industry has about 16% of the durable goods

production capacity of the country not more than 10% of that capacity has
been mobilised up to the present time for defense purposes. Even with
heavy curtailment now threatening car production, no appreciative steps

have been taken to plan for conversion of present civilian facilities to
defense production. This means that the major producing power of the in-

dustry is still being held out of defense work.
As a specific example of the absence of correlation of facilities and
manpower to defense production is the fact that tool and die facilities in
Detroit are now being used at 35% of capacity as revealed by a recent United
Automobile Workers Union survey. The captive tool and die shops of Detroit
(owned by the automobile corporations) are working one shift four days a week.

As the result of absence of correlation within the industry we have the
following situations as examples:

(a) Ford, Chrysler, and General Motors are all receiving separate contracts for medium tanks. This means that each one of the companies will

establish a full cycle of production for tanks, ordering a few parts from
the outside. Through correlation of available machinery and technical capacity tank contracts could be broken down. For instance, Ford could make all

castings for all the tanks in the industry, or, more specifically, for the
production quota of Michigan. This is so because Ford can do the castings
best. Each company could thereby concentrate on the specific tasks that they

could do best. Thereafter all of the parts could be brought to a final assembly point.

--

0985

(b) The same principle applies to aircraft. Ford has developed a
technique for turning out cylinder sleeves or liners which could be used
to make all sleeves used by Curtise-Wright or Pratt Whitney. Today each
of the companies, Ford, General Motors, and Chrysler are working on that

problem in spite of the fact that Ford has already developed the process

to the highest degree of efficiency.
(c) The subcontracts system has broken down completely. The big
companies take all the plums and farm out the headaches. The smaller
shops are obviously least well-equipped to assume the headaches--their

technical staffs being smaller and their facilities of a character that
they can't accept this burden.
An official channel must be established for the expression of workers'

ideas and suggestions for the solution of the difficult production problem.
Countless reports from defense plants recently built and now operating in
the industry, demonstrate that this essential contribution is being made
but unofficially by union members at the present time.
Because of the absence of planning in the transformation of existing

automobile manufacturing facilities into defense facilities will mean the
idleness of approximately 215,000 men by the first month of 1942. This will

include skilled, semi-skilled, and unskilled men. Of course this will involve also a corresponding idleness of existing plant facilities that had
been attuned to civilian goods.

0986
PRODUCTION OF COPPER

One of the raw materials for which there is an alleged serious shortage
is copper. Recently the United States government increased the price which

it pays for copper imported from Chile in order to create an additional incentive for increased production in South America to make up for this shortage. While this step by the United States Government had to be taken because

of an alleged shortage, we find the following situation at home:
(1) Only recently the Anaconda Copper Mining Company closed down its
Walker mine in Cal ifornia where 500 men had been employed. The reason given

was that it was a mine that was losing money for the company. In spite of
all the subsidies that the Government has given to the Anaconda Copper Mining
Company in one form or another, the company has the absolute right to close

down a mine and stop production in the face of an alleged shortage.
(2) The Anaconda Copper Mining Company, at its Butte, Montana, mines

produces some 15% of the nation's copper. A recent survey disclosed that of
the 5000 regular employees at the ten mines in Butte, more than one-half of
the men worked less than one-half of the month.

The foregoing indicates that we are not using all of the available miners
nor all the available mines for the maximum production of copper. Furthermore,

even for those mines already in operation it is possible to increase production
considerably. The concrete proposal which the CIO union has offered in this
connection is as follows:

Improvement of the ventilating system through installation of air conditioning and fan systems; the poking of holes through the surface so as to
eliminate the "hot boxes" where miners cannot work at all or where their work
is handicapped by humidity and high temperatures; improvement of servicing as

in haulage or placing of supplies thereby making operations more efficient;

0987
-

abolition of the contract system which, as the labor turnover proves, instead
of acting as an incentive plan actually boomerangs by cutting production in
that men are encouraged to quit when working conditions are such as to decrease
earnings.

As an indication of the technical feasibility of the foregoing proposal,
we submit the program of the Magma Copper Company in Arizona which recently

installed 3 new 140-ton centrifugal machines to provide air conditioning down

to the 4,600 foot level of its mines at Superior, Arizona. As a result of
this installation, temperatures at the deepest workings will be cut from 150
degrees to 90 degrees, thereby increasing output.

The foregoing proposal of course means financial outlay. However, it
will permit the mines to be operated, not merely on the present 5-day work

shift basis but on the basis of unbroken continuity of production 7 days a
week for 24 hours a day with proper allowance for the minimum amount of time
required for clearing work places and general maintenance.

0988
November 4, 1941

MORE EFFICIENT STEEL OPERATION

The steel industry is still operating, for all practical purposes, as
seventy-five separate companies. The coordination of the industry's facilities
as a whole, with the over-all steel demands for armament and domestic purposes

is not being achieved, except in a few insignificant instances.
A typical example is the manner in which steel is being produced for
the restricted automobile output. For example, the Lackawanna, New York Strip
Mill of the Bethlehem Steel Corporation -- annual capacity seven hundred and

twenty gross tons -- is operating on a very limited schedule, going as low as

two and three days a week. This mill has an auxiliary fifty-four inch blooming
mill which is capable of producing large size slabs for conversion on the Strip

Mill into three-eighths inch to probably as thick as one inch plate. Yet, it
has not been converted for this purpose. The auxiliary equipment, such as runout tables and shears, needed for the production of plates could be achieved

with highest priority rating in a reasonable period of time. Instead, the company, through this mill, is hanging on to as much of its domestic auto business
as it can. As a consequence, the Defense Program is suffering of a shortage of

the type of steel plates as could be produced on this mill.
In the meanwhile, for example, the Otis Steel Company at Cleveland,

Ohio is compelled to divide the production of its Strip Mill -- which is running
at full capacity -- between heavy flat rolled products for defense purposes and

the lighter products for essential domestic purposes. As a result, its total

output of finished flat rolled steel products is less than it would be if it
were operating entirely upon lighter products. Thus, the maximum output of

which this mill is capable is not being achieved.

-2-

0989

This is a typical example of industry-wide inefficiency. It results
from the absence of any power, adequately informed or being capable of being

continually so informed. The obvious step that should be taken to achieve maxi-

mum efficiency is to place the Otis Steel Mill 100% on lighter products for which
it is especially adapted. The Lackawanna Plant of the Bethlehem Steel Corporation,
on the other hand, should be placed exclusively on the production of heavy products such as plates, and kept on these products for 168 hours a week, except for

such shifts as may have to be lost for maintenance. This is only one out of many

instances, and is cited to illustrate the fact that the steel industry is not
being operated as one unit.

Another illustration of this fact, which deals with the actual production of raw steel is the scrap iron situation. In the week of October 20th, the
Lackawanna Plant of the Bethlehem Steel Corporation had five of its thirty open

hearth furnaces idle because of lack of scrap iron. All of these furnaces have
over a hundred ton capacity, and these five being idle, amounted to a weekly loss
of 7500 ton of steel.

This gets to the problem of scrap supplies. The freezing of scrap
prices has made certain scrap piles unprofitable of collection and transportation
to consuming points. If the problem of scrap iron collection were tackled on an
industry wide and national basis, mobile scrap units could be organized for the
purpose of reducing these presently economically unmoveable scrap piles to transportable form and transported to consuming points. The cost, of course, would prob-

ably double the present top price of twenty dollars a ton but the scrap would get
to the open hearth furnaces and the output of steel would not be curtailed for

this purpose as it is at present and will be increasingly curtailed in the future.

-3-

0990

SPEEDY EXPANSION OF STEEL CAPACITY

The 10,000,000 ton of steel ingot capacity expansion program has been
turned over for execution and allotment among the several companies to the OPM.

At this point apparently the "big eight" steel companies dominate the program.

In the first instance they established a ruling that any open hearth capacity
would only be built with adjacent pig iron capacity. The technical arguments

that can be made in support of this ruling are impressive on first presentation.
The purpose and net effect of such a ruling is to remove all of the smaller com-

panies from eligibility in participation in the expansion program. The Apollo
Steel Company, which heretofore has never made any steel, has secured a quarter

of a million ingot steel capacity allotment without auxiliary pig iron manufactur-

ing facilities. This illustrates the untenability of the ruling, although the
ruling has considerably delayed expansion programs throughout the whole industry
and has definitely discouraged some smaller steel companies from even attempting

to participate in the program. A careful analysis of the allocation of steel
making capacity indicates a concerted effort, apparently successful, of the big

eight steel companies to continue their virtual monopolistic controls and in
the post-war period to literally wipe out of existence most of the smaller firms.
Just as the allocation of defense orders to a few large companies creates a
bottleneck. In brief, a new expanded capacity can be achieved in probably half
the time by spreading the capacity over most of the companies in the industry as

well as alloting a larger ratio of the new capacity to the smaller companies.
Forty managerial organizations at work in an expansion program will produce much

faster results than having the bulk of the program tied up in the hands of the
technical and managerial staffs of eight large, cumbersome corporations.

s

--

0991

There has been outright intimidation of smaller companies that has made them

fearful to press their cases for a larger ratio or for even some of the new
capacities. The courageous action of the Apollo Steel Company is the exception
that proves the rule.
The expansion of electric furnace steel capacity approaches a scandal.

None of the smaller specialty steel companies are participating in this program to
any degree. The Carpenter Iron and Steel Company has expanded its facilities to

some extent but this is part of the long range program that has been substantially
financed with the company's own funds. The other specialty steel producers like
this one, have not gone after any new electric steel furnace capacity nor has any
been allotted them.

The seriousness of this will become apparent sometime in the year 1942.

For example, one of the products of these specialty steel firms is welding rod

steel. There is already a shortage of this product at the present time. Each of
the companies in this group, such as Universal Cyclops Steel Corporation, Rust-

less Iron and Steel, etc., should receive from one to five 12 ton electric steel
furnaces with auxiliary equipment to meet the demands for this special ty steel
and others that are so vital to the defense program. Welding rod will become
particularly scarce when the tank production scandal breaks. The American Car and
Foundry Company at its Berwick, Pennsylvania, plant will soon produce its 2000th

12 ton tank. The Chrysler Corporation is producing its M-3 31 ton metal tank at

the rate of around ten a day. All of these tanks are riveted construction. The
marvel of Hitler's tanks has been that they could withstand 75 millimeter shells,
because they were welded. It has definitely been established by trials that even

a 37 millimeter shell will stop a riveted tank. The force of it, will, in most
instances, shear off the rivets and thereby kill everybody in the tank. The
shells that do not shear off the rivet heads knock it out of line, thereby slowing

0992
-5- it up and in most instances actually stopping it from further locomotion.
Of course, when this fact penetrates through the maze of the defense machinery

in Washington, D. c., there will be a speedy conversion to welded constructed

tanks. In fact, unless the electric steel furnace capacity of the industry is
expanded throughout all the companies experienced in operating steel furnaces

the turnover to welded tanks may be delayed if not completely thwarted by the
shortage of welding rod steel.

In most cases, the application of the simple idea of coordinating the
steel industry on an industry wide basis will produce very definite and tangible

results -> speedily. Unfortunately, the industry, acting by itself, is not disposed to so coordinate the industry. And equally unfortunately the federal government is neither adequately staffed nor effectively organized to make the

industry do this job by itself. But there is a way in which effective industry
wide coordination of the steel industry facilities and expansion program with
demands for steel products can be accomplished.

agb 11/5/41

0993

ELECTRICAL AND MACHINE INDUSTRY

As a few examples of non-use of facilities and men in the electrical
and machine industry there are the following:

(1) For the refrigerator industry: 15,000 men have already been laid off
and 10,000 more will be laid off in this industry by January 1, 1942. These
are skilled machine tool operators as well as both semi-skilled and unskilled
assembly workers. The equipment of the plants consist of excellent machine faci-

lities as well as conveyor machanisms for sundry work. Virtually nothing has
been done to bring defense either to these unemployed men or the unused plant
capacity.

(2) Westinghouse Electric Company: Westinghouse Company has a backlog of

400 million dollars in defense contracts, yet it is laying off workers. 2500
men have already been laid off and more are scheduled to lose their jobs. The

company is utilizing only one-half its capacity for defense work, the rest going
for consumer and industrial non-defense production. With all these contracts
Westinghouse isn't even allocating its work within itself so as to avoid unesployment.

In addition, Westinghouse has let subcontracts to 300 companies but

these subcontracts are very small. They total about 4,400,000 man hours of work.
This is equivalent to one year's work for each company if only 7 or 8 men are
employed on the job. Here is a beautiful example of inadequate subcontracting
and altogether inexcusable unemployment of workers and plant facilities.

(3) Zipper industry: About 12,000 persons are either now out of work or

will very soon be unemployed in the zipper industry. While their skills are
specialized and their machinery is similarly specialized, operators must exist

for utilising this capacity for defense work. No steps of any effective nature,
however, are being taken to bring these workers into this industry.
ne

-2-

0994

The United Electrical, Radio & Machine Workers Union is the CIO affiliate

having jurisdiction in this industry. The union initiated a program to facilitate full defense production through labor, management, and government coopera-

tion. The principal objectives of these efforts are the swift and essential
conversion of consumer goods facilities to the production of defense items,
the protection of union standards in this readjustment, and the development of
an adequate defense training program.

As part of this program, for instance, the union initiated a conference
in northern New Jersey of representatives of the union and 45 companies with

which the union had collective bargaining agreements. On another occasion the
union initiated and organized a Mid-West emergency conference. The first meeting was attended by 600 Mid-West Mayors and 700 labor and management represen-

tatives.
In both cases, the conferences set up a permanent organization with management and labor representation.
From these conferences, the following was obtained:

(a) Efforts to obtain a "shopping list" of defense needs proved to be
futile. In other words, it was impossible to obtain from the government any
idea as to what actually was needed for production needs. This almost makes

it impossible to estimate the actual defense usefulness of existing facilities.

(b) Efforts to get aid from the Contracts Distribution Division of the
OPM in making a survey of plant equipments in order to be in a position to deter-

mine what such equipment can be turned into failed. The union, as a result, is
making its own survey without any assistance from government engineers.

<

-3-

0995

(c) The washing machine industry was being turned into complete idleness.

As a result of joint representations made by the union and representatives of
the company in this industry contracts were finally wrenched out of Army and
Navy departments for the washing machine companies for the production of war

materials. This result was accomplished only after the most grave difficulties
in interesting the Contracts Distribution Division and the Army and Navy. The
joint efforts of the washing machine manufacturers and the union are also to
be devoted in this connection toward the arranging of subcontracts among all
the manufacturers in this industry so as to achieve the maximum production on

the basis of the available plant facilities.
(d) Insufficient effort has been addressed to the training program in
cases where the change over to defense production required different skills

than those formerly required. It is essential that the Training.Within Industry program be expanded and fully integrated with the plans to convert plants
from consumer goods to defense production. Further efforts are required in
this connection before the "training as usual" inclinations of the OPM can be
overcome.

0996
GENERAL DIFFICULTIES OF DEFENSE PROGRAM

The failures of the defense program highlight the necessity for a cen-

tralised authoritative agency to head up the task of production. The fact
that in some categories our armament output is now beginning to be substantial only emphasises how much greater actual output should be. The essen-

tials of an effective arms production program are simple:
1. Find out how much is wanted; how many tanks, planes, guns and ships.

2. Find out what the nation's facilities for manufacturing are, what
facilities need to be converted and what new plants must be built.
3. Engage the nation's industry in manufacturing the required goods at
maximum rate.

Within these simple propositions the failures of the present effort are
encompassed. The major failures may be summarized as follows:

I. The production program has never been bid out concretely. Those responsible for production in the nation have never known how many guns, tanks,

planes or ships they right be required to produce. The major part of the responsibility lies upon the Army and Navy whose responsibility it is to lay down
as concretely as possible the actual equipment needed for a maximum effort.

This responsibility has not been met. At no time has the nation been presented
with a clear, concrete emuneration of the articles necessary to a maximum effort.
The first few months of the defense program were marked by efforts

which adjusted production to levels necessary to a program of only 6 to 10
billion dollars. As appropriations mounted over the past 18 months, 80 did the

level of the total program. Periodically, therefore, production shhddules had
to be shifted and soon such schedules outgrew available production facilities.

This failure to set forth a maximum plan for production contributed to other
failures.

-2-

0997

II. No survey has been made to determine the ability of the nation's

industry to produce arms requirements. It is necessary to find out the total
amount of available capacity, what of this is available for armament manufac-

ture, what of it can be converted and what, in view of the total defense program, must be constructed.

No agency, in particular the procurement agencies, has any conception

of the possible productive capacity that can be used in this nation.
III. Perhaps the most serious operating failures of the defense program
has been the procurement job. Significant examples of this are the fact that

at present only about half of the $62 billion program is under contract. If
the program is doubled, then the lag will be more 8 erious. Six months after
the Lend-Lease appropriation was made, the President's Report showed that only

about half of that sum had been even let out to contract. After contracts are
let there is a substantial period before manufacture can begin in most cases.
The Procurement agencies of the armed services are uncoordinated.

They are manned by officers whose respect for business as usual exceeds their

determination to procure the materials. The most immediate effective measure
for speeding up the defense program would be to take procurement out of the
hands of the Army and Navy procurement offices.
British and Canadian governments long ago removed procurement and the

responsibility for speeding production out of the hands of the armed forces. One

of the great handicaps to production in this country is that full control of all
such policies still rests with the Army and Navy.
One result is that defense contracts are concentrated in the hands of

a few major industrial corporations. About 75 per cent of all the prime contracts
are in the hands of some 56 major corporations. A great majority of manufacturing establishments have no defense contracts at all, prime contracts or sub-

0998
- -3- -

contracts. Many of the major corporations have defense contracts far beyond

their ability to produce within the next two or three years.
Thus arms production is greatly hampered by high concentration in a
few companies while enormous facilities and manpower lie idle in the nation.
The United Automobile Workers, for example, has pointed out that machine tools
in 34 Detroit automobile plants are now being employed at no more than 35 per-

cent of full capacity.
A fair estimate of additional persons to be unemployed because of the

dislocations is between 2 and 2} millions. The Automobile Workers report that
the idkèness of the automobile manufacturing facilities will be matched by an
unemployment reaching 215,000 additional jobless by the first months of 1942.
The Steel Workers union has reported some 15 or 20 thousand already out of work

in basic steel with a total of 100,000 expected to be unemployed in the basic
steel fabrication within the next 8 months. Some 15 to 20 thousand have been
already unemployed in the manufacture of refrigerators, washing machines, radios

and other similar equipment. This is only the preliminary effect of curtailments in these consumer durable goods.

The picture is one of idle equipment and unemployed men on the one

hand with a growing backlog of unlet contracts for defense production on the
other.

gp 11/5/41

0999
SUGGESTED PROGRAM FOR PROSECUTION OF
NATIONAL DEFENSE PROGRAM

I. Introduction
The first task, and the one of greatest importance, is to produce the
necessary quantities of materials within the shortest period of time.

To

accomplish this goal it is essential that our existing plant facilities be
utilized to the full, with adequate provision for any increase in production facilities that may be necessary together with a maximum utilization
of the available labor supply of the nation. This program demands extremely
careful planning measures on a national scale, both for our present situation

and for the one to follow the termination of world hostilities.
II. Industry Council Program
Congress has appropriated specific swas of money for the national

defense program. Those appropriations call for the production and supply

of definite required materials. The problem now confronting the nation in
the problem of production-is how to produce the required quantities of
materials within the shortest period of time.
The administrative machinery contemplated under the Industry Council
Plan is simple:

(1) The President of the United States shall establish for each basic
defense industry an Industry Council. Each such council would be composed of
equal representation through management and the labor unions in the industry,

together with a government representative, the latter to serve as Chairman.

-2-

1000

(a) Each Council will be advised of the domestic and armament re-

quirements of its industry and the general price level that should prevail
for the industry.

(b) It will be the duty of each Council to coordinate the production facilities of that industry to meet these requirements. The Council
will allocate available raw materials within the industry, allocate outstanding contracts and new contracts among the available plant facilities, adjust

the labor supply to the plant facilities without compelling any forced labor,
arrange for housing facilities and make arrangements for necessary training
to meet the labor requirements.

(c) Each Council will engage in active planning to make certain

that it is achieving the greatest possible output within the industry for
present needs as well as planning for the post-war needs.

(d) The Industry Councils must be implemented with full executive
and administrative authority to carry out the program within each industry.

within the discretion of the Council there will be organized within each in-

dustry regional and local machinery to obtain the full participation of local
management, labor and others in the communities.

(2) The President of the United States shall establish a National Defense
Board consisting of an equal number of representatives for industry and labor
unions over which the President or his designee shall be the Chairman. The Nat-

ional Defense Board will establish rules and regulations for the operation of
the Industry Councils. The general policies of the national defense program
shall be promulgated by the National Defense Board. The domestic and armaments

requirements for each industry shall be determined by this National Defense

Board. The National Defense Board will operate as a general staff. The Indus-

try Councils will act as the generals in charge of their respective armies to

-3 -

1001

carry through the national defense program for their respective spheres of

activity. The Board will act as an appeals agency for the Industry Councils
and coordinate the work of the Councils by serving as a clearing house for
inter-industry matters.

(3) The Industry Councils will furnish an excellent basis for promulgating industrial peace through the perfection and extension of sound collective bargaining relations between management and organized labor. Collective
bargaining procedure between unions add management will not be superseded by

the Industry Council program. The Industry Councils will not supersode but

rather will secure the compliance of peaceful industrial relations established
through basic collective bargaining negotiations.

III. Conclusion
The essence of the Industry Council program is that the persons directly
involved in each industry, as management and labor, are the ones best equipped

and trained to attain the goal sot for each industry. The Industry Council
Plan contemplates direct and active participation within each industry on the
part of management and labor.

For labor' we seek such representation not merely to protect labor's inter-

ests, but of equal importance, to obtain the full benefit of the resourcefulness and technical skill of labor's representatives who are fully acquainted
with the problems and needs of the industry. For the national defense program

to be effective, it is necessary to unleash the energies and resources of all
our people and not merely of any one segment.

There is no monopoly of brains on the part of any one group. Our national

defense program demands the full participation of all the people. Labor is interested in maximum production. It has no other interests,

11/6/41

1002

This is HM,Jr's reading copy of his

statement before the House Ways and Means

Committee on 11/5/51, which he took to
the White house when he saw the President

this morning. The President read the

statement and approved it.

1003

November 5, 1941

MEMORANDUM REGARDING THE PROPOSED REVENUE PROGRAM

When I appeared before the Senate Finance Committee

on August 8, 1941, I pointed out that, in the light of
rapidly changing conditions, the all-out defense program would necessitate all-out taxation, that much
more revenue would be required not only to strengthen

the government's fiscal position but especially to
maintain economic stability and prevent "inflationary
price rises which threaten to increase the cost of the
defense program, unbalance family budgets, and seriously

disturb our economic life."

At that time it appeared that early in 1942
would be soon enough to pass the next major revenue

measure, but our study of the rapid developments of
the past few months has convinced me that immediate

passage of about $4.5 billion of additional taxes
whose collection would begin January 1, 1942 is imper-

ative if we are to avoid further inflationary price
rises.

1004

-2Prices have been rising rapidly. The cost of
living in the United States has risen over 5t percent
during the last five months. (See attached chart
"Cost of living and selected items.") The budgetary
and economic situations which face us during the next

few months threaten still higher and more rapidly
rising prices unless we take steps now to meet the
problem.

The Federal Government will spend about $20 billion
during the calendar year 1941. In October we were

spending at the rate of $26 billion. The present prospect is that in calendar 1942 we shall spend $37 billion
or nearly twice as much as in calendar 1941. The whole

of the increase will be in defense spending which is
expected to reach over $30 billion in calendar year
1942.

Some of the increased spending will be covered by

increased yield from the existing tax structure. In
calendar 1941 we shall collect approximately $9.5 billion and our collections in October were at about that

rate. In calendar 1942 we shall collect about $16 bil-

lion. That will leave us a deficit (before setting aside
old-age reserves) of $21 billion as compared with about

1005

-3$10.5 billion in calendar 1941, or twice as much. That
increased money is going out into the hands of people
who, for the most part, are going to try to buy goods
with it. They are not going to be able to get the
goods. We are not far from the top of our national
production for the next year or 80. We may be able to
expand at only about $5 billion more in the course of
a year. At the most, it looks as though we could expand
by only about $8 billion more. We shall need all of
this increase, and more, for defense. That means that
there will be less goods left than now for civilians
to buy with their greatly increased incomes.
If we do not do something decisive about this

promptly, the cost-of-living situation threatens to get
away from us as it did during the first World War.
It should not be necessary to mention the very

serious evils of inflation and the great importance of
preventing it. We are all familiar with the way in
which it burdens the great bulk of the population,
including the lowest income groups, financially
embarrasses State and local governments, increases the

cost of defense materials, gives opportunities for
profiteering and otherwise harms and demoralizes the

1006
4

people. What I would like to stress is that we have
reached the point where vigorous action is needed now -

without delay - if we are not to have an accelerated,

destructive inflationary price rise.
The money is being paid out now. If the taxes
are to help prevent price increases they must be imposed at once and collected currently.
After a great deal of study we have come to the
conclusion that the minimum of taxes that should be
imposed at once and collected currently beginning

January 1, 1942, to hold down the cost of living, is
$4.5 billion. If Congress reduces non-defense spending,
the minimum need for new taxes will be somewhat reduced.

The $4.5 billion is an amount which should be im-

posed at once to control inflation. Beyond this we
shall, of course, need a revenue program in 1942 for

fiscal purposes. Even with $4.5 billion more of taxes

the deficit in calendar 1942 will still be $16.5 billion,
an amount which we shall have to borrow. To keep my

financing problem at manageable levels and to avoid the

difficulties and dangers of high interest charges and
an overwhelming debt after the war, we should increase

taxes even more than is indicated to avoid inflation.

1007
-5--

For this reason I want to urge upon you the

desirability of a major revenue raising program to
be initiated this month. The program would consist
roughly of three parts: (1) Taxes to be imposed as
soon as possible and to be collected beginning
January 1, 1942; (2) other major tax increases and
changes to increase revenue and to balance the impact

of the anti-inflation program on small incomes; and
(3) changes to close important loopholes in the tax
system and to remove hardships which have developed

under the tax laws.

1. Ant1-inflation taxes which should be imposed
immediately.

The first recommendations relate to taxes which
should be imposed at once so that collection may begin
January 1, 1942. They are taxes which will withdraw
purchasing power from consumers before it is spent.

The first recommendation for ant1-inflationary
taxation is the imposition of a new supplementary tax
on net income to be withheld at the source on salaries,
wages, dividends, bond interest, and similar items and
collected quarterly throughout the year on other incomes.
These taxes would thus be collected insofar as possible
like the payroll taxes, They would, however, have

008

-6personal exemptions and credits for dependents. The
supplementary withholding tax would be deducted from

net income in computing the income tax. Because of
this deduction and because of the personal exemptions

the increase in effective rate of tax would never be

as high as the stated rate of tax. For example, if
the rate of this withholding tax were 15 percent and
the existing personal income tax exemptions of $750

for single persons and $1,500 for married couples, with
$400 credit for each dependent were allowed, a married
couple with no children and $2,000 of income would have

their combined withholding and income tax increased from

$42 to $110, or $68. more, which is only 3.4 percent of
the $2,000 income.

At the rates and with the exemptions indicated,

it is estimated that at present income levels, the
withholding tax would yield annually about

$2.8 billion

It is recommended, second, that the payroll taxes
for old-age and survivors' insurance be increased.
These taxes are at the present time imposed at a rate
of 1 percent on employers and 1 percent on employees

and are scheduled to rise on January 1, 1943 to 2 percent on employers and 2 percent on employees. The
recommendation is that this increase be made one year

1009

-7- sooner than was scheduled. It will be recalled
that no increase was made on January 1, 1940 when

it was originally scheduled.
The increase in tax would yield during 1942
increased revenue of approximately

$0.9 billion

I would like to stress the very great importance of considering and passing these two tax
increases at once in order that the money may be
taken out of the hands of consumers before it can

be spent by them, thus reducing the inflationary
pressure of the increased defense expenditures,
Further, it is recommended that as soon as

practicable, the Social Security Board's program

relating to the extension of coverage for old-age
and survivors' insurance and unemployment insurance
and the revision of the unemployment insurance

system should be enacted. The change with respect
to unemployment insurance involves an additional
1 percent tax on the employees.
The combined effect of these changes would be

to increase the revenue by approximately
$1.0 billion
The above anti-inflationary taxes recommended

for imposition as soon as possible would yield a
total increased revenue of
$4.7 billion

This is as for as I ment

1010

-82. Other changes to increase revenue and to balance

the impact of the anti-inflation tax program.
The additional social security payroll taxes and
the new supplementary individual income tax would fall
very largely on the low income classes. Substantial
increases in other taxes are necessary to balance the
burden of these taxes, to restore an equitable distribution of the total tax load and to raise the revenue
needed to finance the defense effort.
It is recommended that the surtax rates of the
individual income tax be increased; that the excess
profits tax be made more effective; that the corporation income tax be increased; that the estate and gift
tax rates be increased and the exemptions lowered;
and that the defense excise taxes be extended to

important items requiring diversion for defense
purposes.

These tax increases should be designed to

raise a total additional revenue of from

$1 to $3 billion

3. Changes to prevent avoidance and promote equity.

Finally, in an all-out tax program, it is extremely
important that all known avenues of tax avoidance be

closed. It 18 likewise important that hardships and

1011

-9 inequities to certain taxpayers under present law
be eliminated. The higher taxes of the defense
period make these hardships and inequities increasingly

burdensome and irritating. The elimination of both
tax avoidance and tax hardships is desirable not
only for fiscal reasons but for the promotion of
equity and the maintenance of morale.
It is my understanding that the House Ways and
Means Committee and the Senate Finance Committee are

planning to undertake revisions along these lines

in the very near future, in the so-called "administrative bill. N

1012
November 5, 1941
MEMORANDUM REGARDING THE PROPOSED REVENUE PROGRAM

Outline

A. Conclusion: Immediate passage of $4.5 billion of
additional taxes whose collection would begin
January 1, 1942 is imperative to avoid further
inflationary price rises.
B. Reasons for revenue program.

1. Cost of living up 5t % during last 5 months.
(See chart).

2. Threatening budgetary and economic situations.
a. Federal expenditures.

1941 calendar year - $20 billion
October 1941 rate - 26
1942 calendar year - 37
N

b. Defense spending.

1941 calendar year - $13.5 billion
October 1941 rate - 19.5
1942 calendar year - 30.5
C. Tax yields under existing law.
1941 calendar year - $ 9.5 billion
October 1941 rate - 9.5
1942 calendar year - 16.0

d. Deficit (before setting aside old-age
reserves).

1941 calendar year - $10.5 billion
1942 calendar year - 21.0

e. Possible increase in total 1942 national
production: $5 to $8 billion.
f. Summary: Less civilian goods to buy with
greatly increased incomes.
Result:
Threatening rise in cost of living.
Need:
Minimum $4.5 billion taxes to
fight inflation, plus more to
help financing.

1013
2-

C. Tax program.

1. Anti-inflation taxes to begin January 1, 1942.
a. New supplementary withholding tax on
net income to yield
$2.8 billion

b. Increased payroll taxes for old-

age and survivors' insurance (add

1% on employers and 1% on employees)

to yield

$2.9 billion

C. Extension of coverage for old-age
and survivors' insurance and unemployment insurance; revision of
unemployment insurance system;
increase unemployment tax 1% on

employees, to yield.

.

Total anti-inflationary taxes

$1.0 billion
$4.7 billion

2. / Other changes to increase revenue and
balance tax system.

Higher individual surtaxes, more

effective excess profits tax, higher
estate and gift tax rates, and

lower exemptions, greater use of
defense excise taxes

3. Changes
equity. to prevent avoidance and promote

$1 to $3

billion

1014

COST OF LIVING AND SELECTED ITEMS
1939

June 1939= 100
1940

1941

PERCENT

1942
PERCENT

112

112

108

108

Cost of Living
104

104

100

100

120

120

Food
116

116

112

112

108

108

Clothing
104

104

Rent, Light

and Heat

100

100

Household Furnishings

and Miscellaneous

96
J

S N J M M1940
JSNJMMJSNJMM
1939
19 41

96

1942

Source: B.L.S.
Office of the Secretary of the Treasury

Dividion and Statistics

C-413

1015
Comparison of present individual income tax and individual income tax giving
effect to proposed supplementary tax, for net incomes of selected sizes 1
Single person - No dependents

(Supplementary tax computed on basis of present exemptions)
Amount of tax
Present law
Proposal
:

700

-

800

-

$

11

0.4%

33

1.2

3.7

21

56

2.1

5.6

69

11.4
14.4
16.1
17.3
19.3
20.6
21.7
23.7
25.5
27.5
29.5
33.3
36.6

3

1,000
1,500
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
12,500
15,000
20,000
25,000
50,000
75,000
100,000
500,000

1,000,000
5,000,000

$

171

4.6

117

287

5.9

165

403

6.6

221

519

347

773

7.4
8.7

483

1,030
1,306
1,895
2,545
3,437
4,423
6,653
9,157
23,953
40,522

9.7
10.8
12.9
14.9
17.4
20.0
24.6
28.9
41.8
48.6

58,034
363,627
766,114
4,073,101

53.2
69.1
73.3
78.5

649

1,031
1,493
2,178
2,994
4,929
7,224
20,882
36,487
53,214
345,654
733,139

3,923,124

Treasury Department, Division of Tax Research

1

Proposal

11

$

900

Present law
-

dependents 2

Effective rate

-

exemption and credit for :

:

Net income before personal:

1.4%

47.9
54.0
58.0
72.7
76.6
81.5

November 4, 1941

Under the proposal a supplementary tax is imposed at the rate of 15 percent
of net income after the deduction of the personal exemptions. No earned
income credit is allowed under the supplementary tax.

2 Maximum earned income assumed.

1016

Comparison of present individual income tax and individual income tax
giving effect to proposed supplementary tax, for net incomes of
selected sizes 1
Married person - No dependents

(Supplementary tax computed on basis of present exemptions)
Amount of tax

exemption and credit for : Present law

8

1,500
1,800
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
12,500
15,000
20,000
25,000
50,000
75,000
100,000
500,000

1,000,000
5,000,000

Proposal

:

-

-

$

-

1.3%

23

63

42

110

2.1

90

226

138

342

3.6
4.6
6.2

249

576

375

834

521

1,091
1,666
2,297
3,165
4,121
6,300
8,759
23,477

873

1,305
1,960
2,739
4,614
6,864

20,439
35,999
52,704
345,084
732,554
3,922,524

40,008
57,495
363,030
765,505
4,072,479

Treasury Department, Division of Tax Research
1/

Effective rate
Present law

Proposal

dependents 2,

$

:

Net income before personal:

-

3.5%

7.5
8.7

5.5
9.0
11.4
14.4
16.7
18.2

10.9
13.1
15.7
18.3
23.1
27.5
40.9
48.0
52.7
69.0
73.3
78.5

20.8
23.0
25.3
27.5
31.5
35.0
47.0
53.3
57.5
72.6
76.6
81.4

November 4, 1941

Under the proposal a supplementary tax is imposed at the rate of 15. percent
of net income after the deduction of the personal exemptions. No earned
income credit is allowed under the supplementary tax.

2 Maximum earned income assumed.

1017
Comparison of present individual income tax and individual income tax giving
effect to proposed supplementary tax, for net incomes of selected sizes 1
Married person - Two dependents

(Supplementary tax computed on basis of present exemptions)
Amount of tax
Net income before personal :
exemption and credit for
Present law
Proposal

:

:

dependents 2/
$

1,200
1,500
1,800
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
12,500
15,000
20,000
25,000
50,000
75,000
100,000
500,000

1,000,000
5,000,000

2

Present law

Proposal

-

-

-

-

-

-

-

12

$

40

$

58

153

154

385

271

625

397

882

717

1,430
2,034
2,874
3,803
5,935
8,353
22,970
39,460
56,919
362,393
764,854

1,117
1,728
2,475
4,287
6,480
19,967
35,479
52,160
344,476
731,930
3,921,884

4,071,815

Treasury Department, Division of Tax Research

1

Effective rate

0.5%

1.6%

1.9
3.9

5.1

5.4
6.6
9.0

11.2
13.8
16.5
21.4
25.9
39.9

47.3
52.2
68.9

73.2
78.4

9.6
12.5
14.7
17.9
20.3
23.0
25.4
29.7
33.4
45.9
52.6
56.9
72.5
76.5
81.4

November 4, 1941

Under the proposal a supplementary tax is imposed at the rate of 15 percent
of net income after the deduction of the personal exemptions. No earned
income credit is allowed under the supplementary tax.
Maximum earned income assumed.

1018

November 10, 1941

Sunday night. Six fifteen.
Harry White came to see me and explained to me that
Philip Murray wanted to see me because he's very anxious to

place before the President what he considers the true facte

about this coal strike.

I said, "Before I see Philip Murray, I'd want to ask

the President whether it would be agreeable to him, because
I knew what White told me, that Philip Murray wanted to see

the President. I didn't want him to come here and then call

on the President and have the President turn Murray and me
down, which would be embarrassing for all concerned.

I called the President and got him immediately on the

telephone, and asked him whether he'd care to have me see
Murray and he said he would, and that what Murray really

wanted was to see the President, and the President said,

"I'd love to see him.' So I said that Murray felt that

the President hadn't got the entire story, that there was

a bitter feud between Davis, Chairman of the Mediation Board,
and Lewis, and that Davis was having his judgment colored
through this feud. The President said yes, there was such
a feud.

Then I went on to tell the President that Murray said
if he got an unfavorable ruling from the Mediation Board, he,
Murray, would have to resign from the Board and that he was
very much afraid that they would then call a strike of the
entire CIO and that this thing would build un Lewis tremendously.
The President said, "Murray is wrong, it will not build up
Lewis; but I want you to tell Murray that they can't have a
closed shop in this coal mine and that if he's going to call
out the entire CIO, it's the CIO against the Government; and

while I'd hate to get into a war with Japan, we'll lick them
in the long run, and the same thing holds true with CIO. If
we get into a fight with them, the Government will win. And
I want you to tell him that.
So I said to the President, "Well, I'll have him tonight
and listen to him. So the President said, "Well, I want you
to do more than that. Tell him some of these things that
I've been telling you. =

1019

I then called up General Watson and told him that the
President said to find out where he, the President, could
reach Murray at nine-thirty tomorrow morning and told Watson
that they could reach Murray at the Hotel Carlton. Then
Watson said, "You know you haven't had lunch with the President

in a long time. I'11 try to put you down for lunch tomorrow.
And I said, "Please note that I haven't hinted at being asked
to lunch, and it's been months." Then the General said, "I
know," he said, "it's time that you should be invited to lunch."
I'm curious to see what happens. I'm also curious to see

whether the President really sends for Murray and whether Watson
reminds him.

1020
November 26, 1941

I called on the President this morning and told him
that next week we would have to raise a billion and a half
dollars. He asked, "Long or short?" and I said, "Long."
He asked me at what interest rate and I told him 2-1/2%.

I then told him that I would like to talk to him as
one friend to another. I said that I felt when he brought up

at Cabinet two weeks ago the question of there being too
many Jews employed in Oregon that it could very well lead to
a misunderstanding on the part of the Cabinet, and leave them
with the impression that the President didn't want so many
Jews in the Government.

The President became quite excited - but not at all
personal - and said, "Well, you completely misunderstood

the thing." He said, "I think it is much better to discuss
this thing out in the open. The worst thing you can do is
to discuss it secretly. He said, "I heard from a number of
sources that there is considerable feeling there, and this
is the only way to handle it. You have to talk about it in
the open." I said, "Well, I don't know whether you are right
or not about doing it that way." He said, "Let me give you

an example. Some years ago a third of the entering class
at Harvard were Jews and the question came up as to how it

should be handled." The President said, "I talked it over
at that time with your father. I asked him whether we should
discuss it with the Board of Overseers and it was decided that
we should. After discussing it, it was decided that over a
period of years the number of Jews should be reduced one or

two per cent a year until it was down to 15%."

The President then said, "I treat the Catholic situation
just the same." He said, "I appointed three men in Nebraska all Catholics - and they wanted me to appoint another Catholic,
and I said that I wouldn't do it because I had appointed three
already, and that was enough." I think he said that Ed Flynn
had asked him to do it. He said, "I treat the Catholic
situation exactly the same as the Jews. You can't get a dis-

proportionate amount of any one religion."

1021

-2At least, that is the way the President feels on
the issue. I don't know whether he is right or wrong that
it is better discussed openly or not. While he talked
excitedly about it, at no time did he make it personal.
I then told the President that Mr. C. D. Howe, Minister
of Munitions and Supply, had left me a chart which I would
like to show him (chart showing setup of Ministry of Munitions

and Supply in Canada, dated November, 1941). I told the
President, "In Canada if they are not producing enough guns
or tanks, Mackenzie King can buzz for just one man and the

entire responsibility rests with him." To my great surprise,
the President was keenly interested.

I explained to the President how Howe said he wouldn't
dream of doing purchasing if he couldn't have the allocations.

The President said, "What do they do about priorities?" I

said, "Well, they don't have priorities. They tell the steel

mills how much they should produce, what to produce, and to

whom it should go. The thing is settled at the door of the
factory."

The President then said, "Well, I don't know whether
Nelson is unhappy or what, but he is coming in to see me today."
The President gave me the impression that he would take this
thing up with Nelson. The President certainly was keenly

interested. He said, "I hear there is a lot of grousing in
Canada." I said, "I think the chief explanation for that is
they have 500,000 men under arms in the Army alone. They

have been taking them in for 2-1/2 years; they haven't been

able to fight; and they are restless, dissatisfied and overtrained." I gave the President some additional explanations
which I can't go into here. The President said, "That's
pretty good because that's the same as having an Army of
5,000,000 in this country."

I gave the President the Russian memo, which is attached

hereto. He didn't want to take up the Russian matter. He said
he had lunch yesterday with Admiral Land and he wanted me to
have Admiral Land come in for a talk. I told him that I didn't
like to do that and that I would take it up with Hopkins but
he isn't well. The President shied away from the Russian matter.

1022
3-

The President said, "The trouble is they can't unload the
ships fast enough in Archangel," so I said, "They can
unload one a day, and we have only given Russia half a

dozen ships." It was finally left that the President

would take the matter up with Hopkins.

I don't want to convey the impression that the

President was annoyed about the Russian matter. He was

in a good humor but he just didn't want to go into the
thing, which makes me believe he knows the situation is
bad.

While I was with the President, Cordell Hull called

him up and evidently he discussed with him the same memo
which T. V. Soong gave me last night from Chiang Kai-shek.

The President said, "Well, send Hu Shih and Soong in to see
me today and I will quiet them down.' I read the memo from
Chiang Kai-shek and I think he has every reason to be disturbed. Soong told me that the agreement with the Japanese
provides for the withdrawal of all Japanese troops from
French Indo-China with the exception of 25,000. We, in turn,
are to unfreeze the Japanese assets and allow them to buy
as much oil as they need, based on their monthly quota, for

their industrial uses (which, of course, they can fake)
The Japanese are to be allowed to sell unlimited quantities

of goods to us, provided two-thirds of it is silk. The

Japanese are to agree not to attack Russia in Siberia. This
is lovely for us, but it leaves the poor Chinese holding
the bag with 25,000 Japariese troops right at their back
door. T. V. Soong told me that the only thing which has
helped so far is the freezing of the Japanese funds. This
is having a terrific economic effect internally on Japan.
He said something very interesting to the effect
that Hull called in the English, Australians, Chinese and
the Dutch, and Halifax evidently was upset by a suggestion

which was made and he said he would have to consult his
government. Hull became very annoyed and said that it was

up to the English to accept the proposal without any
comments, which seems to me rather high-handed.

1023

-4-

T. V. Soong, who seems to be very well informed,

told me, to my surprise, that the English have sent either
seven or eight capital war ships to Singapore.
I think the President will have more of a situation
on his hands than he realizes when he receives Hu Shih and

T. V. Soong, but I think they have every reason to be outraged.

Soong also told me that up to date the only planes
they have received are the one hundred P-40s which I got
for them. They hope to get some more soon but they haven't
received any as yet. Soong said they have over 300 American
pilots and mechanics flying these planes around Rangoon, but
they have not yet gone into action.
Eleanor Roosevelt called up while I was with the
President. I naturally only heard one end of the conversation, but evidently she said somebody had asked Miss Elliott

to resign. The President said, "That's ridiculous. I never

heard of it." Then he laughed. Then the President asked
Mrs. Roosevelt who had asked her to resign. Mrs. Roosevelt
evidently said somebody in OPM. The President giggled and
said, "She doesn't work there." The more Mrs. Roosevelt

said the funnier the President got. He didn't help her one
bit and he wouldn't volunteer to tell her where Miss Elliott

works. Finally Mrs. Roosevelt must have asked him where she
did work, and the President said, "She works under Henderson

and Nelson.' I think the President is wrong because I don't
think Henderson and Nelson have anything to do with it.

He finally said he would look into it, but Mrs. Roosevelt

must have pushed him very hard. Just as a reaction, she
asked him how things were going. He said, "Everything is

terrible. The Russian situation is awful. Moscow is
falling." Then he said, "I don't think the English are going
to, make it in Libya. It looks very bad." He also said, "I
don't know when the English will be able to make it in Libya."

I think this was just sort of a reaction to his being pushed.

1024

-5To show how things go, when I came in to see the

President, his breakfast had already been brought in.
He hadn't touched his coffee. He had some kippered herring
which he had just begun to eat when Cordell Hull called up.

He was talking to Hull and trying to eat his food at the
same time, but by the time he finished the conversation
his food was cold and he didn't touch it. I don't think

the President ought to see me or anybody else until he has
finished his breakfast.
I asked the President about Nan Honeyman for Col-

lector and evidently he wants her. He said, She is very
helpful." I told the President that it was okay with me,
so I have sent for her.

The most pleasing thing of the whole conference was

how the President grabbed at the chart on the Ministry of
Supply for Canada. If I only could see him more often I
think I could get somewhere with him on that question.

1025

MEMORANDOM

At the present time various cargoes which are to be
shipped to the Union of Soviet Socialist Republies from
the United States in accordance with the October program

of deliveries and requiring 15-17 vessels are lying in
United States ports. These cargoes consist of armanents
and items of military importance.
1

Among those cargoes are:

120 pursuit planes P-40
100 light bombers DB-7
8 medium tanks

2,456 trucks

176 scout care (Jeeps)
12 tons of chemicals
14 tons of army shoes
165 tons of bress
815 tons of aluminum

26 tons telephone wire

119 tons Ethyl (liquid)
459 tons presses, hanners and different machines
1,110 tons Isopentane

and other very important goods, the total weight of
which is 21,000 tons and which occupies a space of
4,180,056 cubic feet.
In addition to the aforementioned cargoes, there is
some merchandise which is ready to be delivered to ports,

but which has not been delivered due to lack of trens-

portation facilities.
In

-2-

1026

In connection with this absence of means of trans-

portation much cargo is now distributed at various reilroad stations. The condition of the freight has been
adversely affected by weather conditions, etc. This ap-

plies particularly to that freight now lying in the railroad yards twelve miles from Boston. No adequate provision

has been made for the protection of this freight not only
against the elements, but also against any harmful acts
such as theft, malicious mischief or other acts of damage.
The United States Maritime Commission promised us ten

vessels for shipment of cargo in October. Actually only
five ships were grented to us. of these five ships, the
S/S "Frier Rock" was not in seaworthy condition, as borne

out by the fact that within two or three days after sailing
it was necessary for this vensel to return to port due to
the bad condition of this ship, resulting in the unloading
of the cargo in port.
For delivery of cargo to the Soviet Union in November
the United States Maritime Commission had planned 31 ships.

Actually, by November 24th only 7 ships had been placed at
our disposal.
Thus for October and up to November 24th, there had been

granted to us a total of only twelve vessels instead of
forty-one as promised. It is understood that twelve ships
could not fulfill the requirements for delivery of cargo
from the United States to the Union of Soviet Socialist
Republics in accordance with the Ostober program.

We eite below an example to illustrate the serious situstion which exists with reference to deliveries of material and
other eargo from the United States to the Union of Soviet
Socialist Republics.

By November 24th only the following part of the quantity
planned

027

3-

planned for delivery in October had been actually shipped:
Trucks

Airplanes

Tanks

Seout cars

37.63%
30.07%
43.04%
27.02%

As to the November program for delivery of goods from

the United States to the Union of Soviet Socialist Republics,
it is necessary to state that delivery has not commenced as yet.

In order to facilitate the shipments of military supplies
and other cargoes which are urgently required by the U.S.S.R.
we are ready to deliver monthly some of the cargoes through the
Persian Gulf, such as airplanes DB7, 2,000 military trucks,
leather, shoes, part of sugar shipments, and other cargoes. We

are providing for shipment to Archangel of all kinds of armaments and other cargo of military importance, raw materials,
chemicals, tolmol, THT, and so forth.
In order to ship all the cargo which is in ports now and
which is to be transported to ports in accordance with the
October, November, and December schedules we need 98 ships by

January 1, 1942. 63 of these ships will go to Archangel, 21 to
the Persian Gulf, and 14 to Vladivostok. To relieve the tense
situation in shipping no less than 30 ships are needed by
December 1, 1941.

As can be observed from the foregoing, the situation
pertaining to shipments from the United States to the Union of

Soviet Socialist Republics is most critical. Therefore everything possible should be done to remedy this situation, so that
to ensure the fulfilment of the established program of monthly
deliveries of vital war materials and armanent from the United
States to the Soviet Union.

Embassy of the Union of Soviet Socialist Republics
November 25, 1941

Washington, D.C.

11-22-41
1028

Called F.M.R. lat. lip. M.
after hearing the coal miner were

going back to work. Idengratulated

him
most
warnly
on
his
great
victory He sounded very happy.

said the situation was
eming to a head and prospects
were
not
too
good
fa
favorably settlement Jasked
sent
him if the meno dad
him
on
I
afam
was
of
any
help
He
said
yes
that
Hall
had incorporated several of

the
suggestions
into
his
perforal
that the neat were not redable-

He said he hoped to get
to
Warm
springs
for
the
second

He sad is it not fine

that Bib got a destroyer and
me hiped he would be in the
same dividin as Franklin In

COPY

original in diary filed under
date

TELEGRAM FROM GENERAL CHIANG KAI SHEK TO DR. T. V. SOONG11/06/41
DATED CHUNGKING, NOVEMBER 25, 1941

1029
I presume Ambassador Hu Shih has given you a copy of my

telegram yesterday. Please convey contents of the message to

Secretaries Knox and Stimson immediately.

Please explain to them the gravity of the situation. If

America should relax the economic blockade and freezing of Japanese

assets, or even if reports that the United States is considering this

should gain currency, the morale of our troops will be sorely shaken.

During the past two months the Japanese propaganda have spread the

belief that in November an agreement will be successfully reached
with the United States. They have even come to a silent but none
the less definite understanding with the doubtful elements in our

country. If, therefore, there is any relaxation of the embargo or
freezing regulations, or if a belief of that gains ground, then the

Chinese people would consider that China has been completely

sacrificed by the United States. The morale of the entire people
will collapse and every Asiatic nation will lose faith, and indeed
suffer such a shock in their faith in democracy that a most tragic
epoch in the world will be opened. The Chinese army will collapse,
and the Japanese will be enabled to carry through their plans, so
that even if in the future America would come to our rescue the
situation would be already hopeless. Such a loss would not be to
China alone.
We could therefore only request the United States Government
to be uncompromising, and announce that if the withdrawal of

Japanese armies from China is not settled, the question of relaxing
of the embargo or freezing could not be considered. If, on the other

hand, the American attitude remains nebulous Japanese propaganda

will daily perform its fell purpose so that at no cost.to them
this propaganda will effect the breakdown of our resistance. Our
more than four years of struggle with the loss of countless lives
and sacrifices and devastation unparalleled in history would have

been in vain. The certain collapse of our resistance will be an

unparalleled catastrophe to the world, and I do not indeed know

how history in future will record this episode.

1031
November 27, 1941

T. V. Soong called on me this afternoon and

told me about his conversation with the President. It
is rather hard to dictate it because Soong didn't seem to
be too clear on it. Any way I didn't get too clear a

picture from what he told me. However, it seems the President presented the facts to him in the following manner.
The reason that they were giving to the Japanese

a memorandum which they called Modus Vivendi was because

of the United States' concern about the Burma Road, and
they were so anxious to keep that open. Furthermore, the
President said he thought Chiang Kai-shek was much too

excited. Furthermore, Hull said the Chief of Staff of the

Army and the Chief of Naval Operations said they desperately

needed three to six months to get ready in the Philippines.
Soong says he knows from a very reliable source that this
is not true.

Soong told the President that if it was left to

them as to whether the Japanese should get oil, embargo

lifted on other goods, and Japanese given the right to
export silk to the United States on the one hand as against
protecting the Burma Road on the other that they would be
in favor of not changing the economic status between the
United States and Japan, and they would take their chances
on the Burma Road.

The President at the meeting yesterday with Hu Shih
and Soong told them that he had information the Japanese
were moving thirty or forty thousand troops somewhere just

north of Shanghai. He said he didn't have the details but
the men are on the boats. The President said that to do
such a thing in the midst of the conference is a definite
breach.

Soong said he pressed the President pretty hard,
and the President may have become annoyed at him. I told him

not to worry, and that I was sure in his heart the President
knows Soong was right, and he wouldn't hold anything against

him.

1032

-To go back to last Saturday when Hull met with
the four countries known as A. B. C. and D. (Australia,
Britain, China, and Dutch), it seems that Hu Shih made
the tactical mistake of not turning down the Modus
Vivendi on the spot. He tried to bargain with them as to
how many troops should be left in Indo-China.

On Monday, I gather that at least Halifax saw
Hull again, and when he told Hull that he hadn't heard from
Churchill, Hull was very much annoyed and told him that it was
very embarrassing because this was a great crisis.
I understand that they heard from Churchill either
yesterday or today, and that Churchill was opposed to the
so-called Modus Vivendi, was absolutely opposed to giving

the Japanese any oil, and objected to other parts of the
arrangements. Most important of all, Churchill said that
he couldn't agree to this Modus Vivendi on account of what
it would do to the morale of the Chinese troops.
As near as I can make out three things happened
yesterday: (1) The President saw Chiang Kai-shek's memo

for the first time; (2) Information was received that the

Japanese were moving troops; and (3) Churchill objected to
the Modus Vivendi. Any way last night Soong had a call from
Stanley Hornbeck who told him they had not heard from the
A.B.C.D. powers, but they had presented a memo to the
Japanese. It was not the Modus Vivendi memo but one which
had been prepared some time ago in case the United States

was ready to break off with Japan, and they hadn't shown

it to to then because they felt confident that the A.B.C.D.

powers would agree to it. This memo contained no economic

factors but was more a question of 16 or 18 points.

The President also told the Chinese yesterday that
for the first time yesterday the Japanese learned about the
large number of four-engine bombers in the Philippines.
(I can't believe this because they have been there for a long
time and you can't bring in a four-engine bomber and not have
the Japanese in the Philippines know about it.)

1033

-3-

Soong feels that the matter is taking a definite
turn for the better as far as their country is concerned,

and maybe I was foolish but I told him I had prepared a
letter to send to the President on this question but now
that the thing seemed better I wouldn't send it.
I told
let
me Soong
know. that if things got worse, he should please

THE SECRETARY OF THE TREASURY

1034

WASHINGTON

not sentMy dear Mr. President:

The gravity of the situation is my only excuse
for writing to you on the subject uppermost in your
mind and mine. We are both of us keenly aware -as indeed the country and the world are -- that the
negotiations with the Japanese are of the most profound import and that the decisions reached, whatever their nature, will have world-shaking conse-

quences. I am convinced that your many times expressed stand against appeasement is as firm as ever

and that) it is far from your intent that there shall

be an Eastern Munich; yet I cannot but be deeply
alarmed by the hints that have come to me of the

direction of the negotiations.
These hints, for all the evasive language, give

what seems to me a dangerous picture -- a picture
the full significance of which the American people
are only beginning to grasp. I may be wholly wrong
in my deductions as to what is being contemplated,

but the situation is so crucial that I dare not refrain from speaking my mind.

It is because of your forthright and unyielding

stand, it is because you are the one statesman whose
record has never been besmirched by even a trace of
appeasement that the United States holds its unique

FORDEFENSE

BUY
UNITED
STATES

SWINGS

BONDS
ASSISTAMPS

and supreme position in world affairs today. Not
the potential power of our great country, but your
record, Mr. President, has placed the United States
and you, its titular head and spokesman, in a position to exercise the leading force which will bring
ultimate victory over aggression and fascism.
Mr. President, I want to explain in language
as strong as I can command, my feeling that the need
is for iron firmness. No settlement with Japan that
in any way seems to the American people, or to the
rest of the world, to be a retreat, no matter how
temporary, from our increasingly clear policy of
opposition to aggressors, will be viewed as consistent

1035
-2with the position of our Government or with the
leadership that you have established. Certainly
the independence of the millions of brave people
in China who have been carrying on their fight
for four long, hard years against Japanese aggression is of no less concern to us and to the world
than the independence of Thailand or French IndoChina. No matter what explanation is offered to
the public of a "truce" with Japan the American
people, the Chinese people, and the oppressed
peoples of Europe, as well as those forces in
Britain and in Russia who are with us in this fight,
will regard it as a confession of American weakness, and vacillation. How else can the world
possibly interpret a relaxation of the economic
pressure which you have so painstakingly built up
in order to force Japan to abandon her policy of
aggression when that relaxation is undertaken not

because Japan has actually abandoned it, but only
because she promises not to extend her aggressive
acts to other countries? The parallel with Munich
is inescapable.

The continuation and further intensification

of our economic pressure against Japan seems, in
the light of all the opinions I have sounded out,
to be the touchstone of our pledge to China and the
world that the United States will oppose Japanese

aggression in the Pacific.

The eyes of nations and their peoples are
centered on you as a promise of a better life.

There can be no diplomacy no matter how attractive
a promise of temporary peace may seem to some that

is worth the price of shaking the confidence of
those who turn to you for leadership, who turn to
you as the answer of the false and disastrous diplomacy followed abroad for so many years.

After our long association, I need not tell
you that this is not written in any doubt of your
objectives, but I feel and fear that if the people,

our people, and all the oppressed people of the
earth, interpret your move as an appeasement of repressive forces, as a move that savors strongly of

'selling out China" for a temporary respite, a ter-

rible blow will have been S truck against those very
objectives. You have a supreme part to play in
world affairs and you can play it, Mr. President,
with complete effectiveness only if you retain the
people's confidence in your courage and steadfastness in the face of aggression, and in the face of
the blandishments of temporary advantages.

1036
/

December 1, 1941

The Secretary called the President at 2:20 p.m.
The following is Mr. Morgenthau's end of the conversation:

"Hello! How are you? You had a short trip.
The reason I am bothering you is that I had an
appointment with Cordell hull, but he went home sick.
I wonder if you could give me a tip as to whether I
should go ahead with my $1à billion financing this

week. I am planning to raise $13 billion on Thursday.

You think it is all right?
You think it may be worse next week?
Could I check with you again on Wednesday?

How did you find Missy?

A little better."
The President said that I should go ahead. He

said "I cannot guarantee anything. It is all in the

laps of the Gods," but he said it is apt to be worse

next week than this week.

057
December 3, 1941

I saw the President of the United States at 2:35
this afternoon. I asked him whether he was satisfied
with Colonel Starling. He said, "Yes, as an advance

man but Mike Reilly has always been close to me."
However, he said that as an advance man Starling was

all right and he was satisfied with him on that job.

I showed the President the chart which George Haas
made up on the Navy (chart on Navy contracts dated

12/3/41). He was very much interested and when I left
the room I noticed he had put it back on his lap and
was studying it again. He asked me, "How much lag
is there in the checks which the Treasury pays? Let's
say, for example, a destroyer or battleship is being built.
Just how long a time elapses from the time the Yard certi-

fies that a certain amount of a ship is finished until

they get a check?"

On the Japanese question, the President said he
had the Japanese running around like a lot of wet hens
after he asked them the question as to why they were sending so many military, naval and air forces into Indo-China.
He said that Kurusu asked to see Barney Baruch and a number

of other people today to try to bring influence to bear on
the President. The President said, "I think the Japanese
are doing everything they can to stall until they are
ready." The most important thing is that the President said

he is talking with the English about war plans as to when
and where the U.S.A. and Great Britain should strike,
and that is what he is waiting for. I think the Japanese
here in Washington have the instructions to do everything
possible to keep the United States from getting in at this
time or at least until such time as the Japanese can get
their troops into whatever position they want.
I found the President in excellent shape. He told me
a story which is full of human interest. He said that
the destroyer which Franklin is on "rubbed noses" with
another destroyer at night and damaged each other. It
was somewhere in the South Atlantic. The President said

he was scared stiff for fear Franklin was deck officer
in charge when it happened. He said, "What a sigh of
relief I gave when I found out the both captains were

on the bridges when this happened, and so the responsi-

1038

-2-

bility could not be Franklin's even though he was on the
bridge at the time." In other words, the President is
a father first even though he is President of the United
States.

I brought Bob in to see the President, and he really

seemed more pleased to see him than I have seen the President
pleased over anybody in a long time.

1039
December 7, 1941

HM Jr spoke to the President at approximately,6:40

this evening and the following is their conversation:

The President: Hello, Henry. Cabinet at 8:30.
HM Jr: Yes, sir.
I have some orders which we are getting out. I
cleared all of them with Welles.
The President: Fine.
HM Jr: We are freezing all Japanese funds.
The President: Yes.
HM Jr: We are not going to let any Japanese leave the
country or to carry on any communications.

The President: I see.

HM Jr: Well, our responsibility is the border.
The President: Yes, yes. That's right.
HM Jr: And we're putting people into all the Japanese
banks and business houses tonight and we're not going to let
the 'Japanese get in there at all.
The President: That's good.

HM Jr: Now the other thing I would like - Chief Wilson

and Gaston are here.

The President: Yes.

HM Jr: We would like permission to put a detail of

soldiers on the White House grounds.

The President: Well, wait just a second. Steve Early
said something about that. (Slight pause while President talks

aside. )

1039-A
-2-

The President: Well, the thing has been suggested by
the War Department but I don't think - my idea is that.

Suppose you get some additional White House guards?

HM Jr: We've done that. We've already doubled the

guard force.

The President: You've doubled the guard. That's all

you need. As long as you have one about every hundred feet

around the fence, it's all right.

HM Jr: But you think that's enough?
The President: That's fine.
HM Jr: Well, the guards have already been doubled.

The President: What you could do is this: Block off

both Executive Avenues. In other words, the one on the East
and the one on the West. Put up barricades between the White

House and the Treasury and also on the one between the
White House and State Department.

HM Jr: We will do that tonight. All right, sir.
(End of conversation with the President.)
HM Jr: He said Steve Early had suggested it but he said
we should close the traffic on both Executive Avenues.
(Above conversation is included as part of the
meeting held in HM Jr's office at 6:35 on 12/7/41,

1040
December 11, 1941

HM Jr called Miss Tully at 10:30 this morning, and
the following is HM Jr's end of the conversation:

HM Jr: I would like very much to see the President

for a few minutes tomorrow morning. I do not know how
many are ahead of me, but I have Senator George and Rep.

Doughton for lunch, and I would like to see him before that.
Tell him there is nothing unplesant, but that I want a

little guidance, and I will not take very long.

Have you noticed how much better the White House

grounds are protected? I was sick about it on Monday,

but I feel better about it now.

f

12-12-42
1041

H.M.Jr:

I told the President about last night's

tax meeting, showed him the list of the
people that were there, and it is agreeable

to him that we postpone doing anything about

a tax bill until the middle of January.

The President said somebody had given him

an idea that when we pay contractors for

Government purchases, that possibly we pay

them part of the money in three, six and
twelve months Tax Anticipation Notes.

Please give this suggestion to Paul and
Sullivan as coming from the President to
be studied.

1042
December 12, 1941

with

I gave the President today the letter from
Lauch Currie. He said he knew about it and turned
it over to the Attorney General. The President said
the FBI was already investigating it, but the
Attorney General didn't seem to know anything about
it.

1043
COPY

December 11, 1941.

Dear Mr. Secretary:

You may be interested in the attached report

on a meeting I attended last night.
What I perhaps should have added is that too

many of the business men present are still fighting
the wrong enemy - the New Deal, labor, and, obliquely,
the President.

Sincerely yours,
(Signed) Lauchlin Currie

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

1044
COPY
December 11, 1941.
MEMORANDUM FOR THE PRESIDENT:

Re: Dissemination of war information by Louis Johnson.
Stacy May and I flew up to New York last evening to attend a
dinner meeting of some eighty or ninety important industrialists.
Louis Johnson was there. He told me he was going to give the
low-down on Hawaii. I advised him strongly not to. When it came
to his turn to speak he said that since it was an off-the-record

meeting he would communicate to them what he had learned in

Washington the day before. He made the following allegations:
1. Our losses were three battleships and seven cruisers.
2.

The fleet was bottled up by mines and the West Virginia was

lost by hitting a mine.

3. Out of sixty PBY's, only two were left.
4. The Japs came in after the completion of the dawn patrol.
5. Two German battleships were with the Japs.

6. American bombers flying to Hawaii were shot down over the field,
since they had grease in their guns instead of ammunition.
7. Naval supremacy had passed to the Japs.
He was followed immediately by a Dr. Stolper, former Budget
Director of the German Reichstag, who gave a completely defeatist
speech, predicting that both China and Russia would come to an
agreement with their Axis foes. He even suggested that we had backed

the wrong horse in the Far East and that we should have strung along

with Japan.

I got very hot under the collar and went after them both hard
for their defeatism, and reminded Johnson in particular of what
you had said about the dissemination of stories giving assistance
to the enemy. He retorted that this was a closed meeting and that
people had a right to know, and went on to intimate that an important portion of the German air fleet was now operating in Japan.
In view of this performance I feel that something should be
done to prevent Johnson's continued access to information at the

War Department.

(Signed) Lauchlin Currie

1045
December 12, 1941

I gave the President the list that Harold Graves

gave me showing how much each district had turned in
on Defense Savings Bonds, and he used it in his press
conference, as shown in the attached ticker item.

1046
SALE OF BONDS AND STAMPS

This is a preliminary report. It includes bank reports
from various cities, but does not include all banks in cities

listed.
Post Office reports do include all post offices in
cities mentioned.
BOND SALES (E, F AND G)
Banks

Last Week

Mon. Tues. Wed.

Boston, Mass.

$202,718

$480.425
80,725

Providence, R. I. 23,550
New York, N. Y.
461,697
Brooklyn, N. Y. 270,950
Newark, N. J.

New Orleans, La.
39,950
Cleveland, Ohio
264,375
Minneapolis, Minn. 56,300
Denver, Colorado
Seattle, Wash,
Houston, Texas

60,600
483,300
101,175
99,900
63,908

236

$5,592,759

$3,118,466

126

1,076,250

TOTAL BANKS $2,474,293

%

Increase

297,200
266,050
214,836

380,875
205,975
500,300
64,012
99,586
561,100
105,800
100,200

92,200

$

Increase
$277,707
57,175
697,728
109,925
113,775
278,400
32,242
59,636
296,725
49,500
39,600
592,950
196,025
166,150
150,928

1,159,425

Philadelphia, Pa. 221,900
Atlanta, Ga.
31,770

St. Paul, Minn.
Detroit, Mich.

This Week
Mon. Tues. Wed.

137
243
151
41

123
125
101
149
112
88
65

123
194
166

**These are totals for representative banks
Post Offices
Boston, Mass.
New York, N. Y.

$94,888.65
322,159.08
Philadelphia, Pas 135,651.69
Cincinnati, Ohio
35,795.46
Chicago, III.
264,330.00
TOTAL POST
OFFICES

$181,837.50
614,075.00
176,681.25
67,537.50
469,968.75

$86,948.85
291,915.92
41,029.56
31,742.04
205,638.75

78

$852,824.88

$1,510,100.00

$657,275.12

77

$3,327,117.88

$7,102,859.00

92
91
30
89

GRAND TOTAL BONDS

$3,775,741.12 113

1047

STAMP SALES

Post Offices
Last Week

This Week

$

%

Mon. Tues. Wed. Mon. Tues. Wed. Increase Increase
$37,999.80
81,718.68
Philadelphia, Pa. 45,619.02
Cineinnati, Ohio
8,210.07
54,008.55
Chicago, III.
TOTAL
$227,556.12

Boston, Mass.
New York, N. Y.

$45,675.40
82,901.05
85,111.95
10,647.80
57,726.40
$282,062.60

$7,675.60
1,182.37
39,492.93
2,437.73
3.717.0
$54,506.48

*This high percentage is result of newspaper carrier boy
campaign. Similar campaigns either started, or about to
start, in 489 cities with 678 newspapers participating.

20
1

87
30
7

24

1048

REMARKS

Chicago - Federal Reserve Bank wires as follows:

"Chicago, Detroit, Milwaukee and Indianapolis all report
substantial sales of Defense Bonds as compared with any

previous period. The increase in larger banks ranges from
seventy to five hundred per cent. We have been swamped with
requests of issuing agents for more bonds from all sections

of district, many telephoning us to rush shipment. First
National Bank, Chicago - this their record day. Terre Haute
reports post office entirely sold out.
Federal Reserve Bank of New York reports demands have

increased at least 800 or even 1000 per cent.
Administrator for Honolulu wires bond sales increased
ten times.
Pittsburgh Postmaster reports that on Monday newspapers
purchased 700,000 or $70,000 worth of Stamps. These are

for newspaper carrier boys for delivery to customers.
Retail stores pledge sale of $1,000,000,000 worth of
Bonds and Stamps for 1942. The larger stores will permit
customers to buy Bonds and Stamps on charge accounts. New

York department stores have already inaugurated plan.

1049
Sale of Bonds and Stamps increased slightly on Monday,
increased more on Tuesday, and much more on Wednesday.

Indications are that Thursday's figure will be still
greater. Continued increase is expected.
*******
It is reasonable to assume that the increase of 113
per cent on sale of Bonds (three days this week compared to
three days last week) will certainly prevail for many months.
A much greater increase can be anticipated as the planned
intensified sales campaign gets under way.
/

Applying this 113 per cent increase on a monthly basis,
it can be reasonably expected that Bond sales monthly (from
December on indefinitely) will reach $497,000,000.
This figure is arrived by taking the November sales
($233,000,000) as a basis, and applying percentage increase
of 113 per cent.

2
ADDRROSSEVELT

UNDER IMPETUS OF THIS COUNTRY'S ENTRANCE INTO THE WAR, SALES OF
GOVERNMENT DEFENSE SECURITIES, INCLUDING DONDS AND STAMPS, SKY-

1050

ROCKETED EARLY THIS WEEK, ACCORDING TO TREASURY REPORTS RELAYED TO
THE PRESS CONFERENCE BY MR. ROOSEVELT,

DEFENSE DONE SALES FOR THE FIRST THREE DAYS OF THIS WEEK THROUGH
COMMERCIAL BANKS AMOUNTED TO 85,592,000, COMPARED WITH SALES OF

$2,474,000 FOR THE CORRESPONDING THREE DAYS or THE PREVIOUS WEEK, AN
INCREASE OF 126 PER CENT.
DOND SALES AT POST OFFICES WERE UP 70 PER CENT FOR THE THREE DAYS
AND DEFENSE STAMP SALES FROM POST OFFICES WERE UP 25 PER CENT, ACCORDING

TO A SURVEY MADE IN THREE MAJOR METROPOLITAN POST OFFICES. 12/18/41 HOBAM-

1051

December 19, 1941

Present:
H.M.Jr:

Mr. Foley

Mrs. Klotz

The last thing that I said to the President

this morning was, "I thought you would be
interested to know that the Attorney General,
Crowley, Foley, and I had lunch together last
Saturday and we came to an agreement on the

alien property custodianship, so the President said, "Why, I thought there was an
Executive Order all ready for me to sign,"

and I said, "No, I don't think so." I said,
"We agreed that we would continue this com-

mittee with the exception that Crowley would
substitute for Shea, and then continue the
way they have and that if and when they felt
that a business should be taken over, that
it would then be turned over to Crowley," and

I said, "Everybody agreed to this last Satur-

day," and he said, "There is no Executive

Order?" I said, 'Not until we have tried
that out. Don't you think it is good?" He

said, "It sounds fine to me. I said, "Of

course a great deal of this work depends upon
working with the banks, and the Treasury organization has done a swell job, and we had the

connections." So the President said, "It

sounds all right." I said, "The trouble is,

this time it is some of the bright young men
in the Department of Justice that aren't satisfied, and they want more power, and he laughed
and he seemed to enjoy it. I went down the
elevator with the President, and Hopkins joined

us, and as the President left, I couldn't help
but overhear Hopkins say to the President,
"Jimmy Byrnes just called me up about the
alien property custodianship.

1052
December 26, 1941

The President evidently talked last night until

one o'clock with Beaverbrook going over production mat-

ters. The President said that quite frankly he was

ashamed that on certain of the items we were not

nearly producing, in proportion to our population,

what England is producing. He said he was going to approach

the subject this afternoon from the point of view of what
the country could produce rather than setting quotas.
The President said that at his meeting which would take
place immediately after Cabinet, he would like to have
Jessie Jones sit in with them as the question of expansion of plants would come up. For some reason or other,
he seemed to be courting Jessie Jones this afternoon.
I believe that Jones had lunch with Beaverbrook, and it
just occurred to me that possibly Beaverbrook is pushing
Jones into the picture.
The President went on to talk about the matter, and

he said he wasn't satisfied with the Army and Navy's approach,
which didn't seem to please Stimson, and I don't blame

him. After thinking about the matter while the President

was talking, I finally said, "Well, Mr. President, if you
really want to get production you will have to change
your setup with the authority divided between OPM, Army

and Navy. The President said, "Well, I think the thing
is working much better," but, to my surprise, he neither

jumped on me nor did he take the suggestion very seriously.

But at least I had the satisfaction of getting it off
my chest.

From the amount of time the President spent on it,

I gather it is worrying him considerably, and I think that
Beaverbrook must have given him the works last night.

######HHHH

1053
December 30, 1941

I saw the President this morning with Harold Smith.
Harold Smith, having been up to New York for three days,
was not prepared; neither was the President, and he was
only thinking in terms of his annual message rather than
his budget message. I made the suggestion that he try
to get the country on a calendar year basis rather than
a fiscal year, which would mean that he would only have to
estimate his expenditures for the last six months of 1942.
The President said he thought that putting a new wrinkle
in it would sort of upset the people, but he suggested
that as a compromise he make his estimate for the full

fiscal year but only ask for enough money for the first
six months. I said that would be all right.

While we were with him, the President received the
plans for a tentative victory program from Secretary
Stimson, in which Stimson said he could only give the
President the final figures about the first of March.

This annoyed the President very much. I remember that
Stimson told me he was supposed to give him this program
either on December 8th or 11th. Also while we were there,
Beaverbrook's memo came in, and it was quite evident from the
few figures the President read that in many instances England
is producing as many tanks and planes as we hoped to, notwithstanding the fact that we have 130,000,000 people against
their 40,000,000.

Harold Smith told the President that it was his opinion,

based on information from OPM, that the country could only
produce $55,000, 000, 000 of war supplies, and this is where

I began to butt in. I said, "You know, Mr. President" and I put it on the other people rather than on himself -

"OPM and the War Department have been giving you an upper

limit on what we can produce and, therefore, they have
gotten you in the position where you have to give an upper
limit rather than saying that you want so many tanks and

so many planes, etc. I think the figure the President

mentioned was 45,000 tanks and 75,000 airplanes a year.

I said, "It seems that you could set the figure and then I

am confident that the country will rise to it."

1054
2

I then gave the President the attached sheet on
War and Navy Department supply contracts, and I pointed
out to him that exclusive of motor trucks, the automotive
industry only had $218,000,000 of war orders in existing

plants, and that these existing plants were able to turn
out $3,500,000,000 worth of automobiles.

Then I told him the whole Dodge story, with numerous
breaks about the shop stewards coming in to me and, to my
amazement, he didn't know what they were; neither did I

until I went out to Detroit three months ago. I also got
over to him the fact that there are only 500 four-engine

bombers scheduled, and we can only reach that schedule in

June, 1943, and when I talked to Lovett he said they were
going to order another 500, making a total of a thousand,
and they would only reach that late in 1943. I showed him

how the schedule was constantly coming down on the fourengine bomber.

Then we came to the taxes, and Harold Smith said that
they wanted $10,000,000 taxes, and that the Budget was in
agreement with the Treasury on this plan which they have

for an "added value" tax on the increased oprice. I challenged him on that, and he said, "Oh, yes, your people
are in agreement with us on that." I checked afterwards
with Paul, and he said that Smith wasn't telling the
truth and that he (Paul) had definitely told the pepple
over in Budget that we were opposed to it.

There was a lot of talk, and then I said that exclusive
of social security and exclusive of the victory program,
and based on the information we now have, we have asked for

an additional $5,000,000,000 of taxes. I gave him this
note and told him that I didn't know whether he could read

my handwriting but I would like to have him look at it. He
said, "That's perfect. That puts it simply - the way the
people can understand it, and I want to do it exactly that
way. That's good.' Then from the figures on this slip,

he said that the increased deficit would be $18,000,000,000.

He said, "Taking a rule of thumb we will ask for half of
that in increased taxes, namely, $9,000,000,000. I asked,
"Does that include social security?" and the President said,
"Yes." I said, "Does that include what you expect to spend

-3

1055

during the fiscal year for your victory program?" and

he said, "Yes." I said, "All right. On that basis, I

will go along because it is half way between what we
wanted and what the Budget wanted. As a matter of fact,

I think it is a little more than that because my

$5,000,000,000 was exclusive of social security and the
victory program. I have asked Mr. Bell to check with the
Director of the Budget to find out how the President arrived at the $18,000,000,000 increase in the deficit.

Then the President said, I think the thing to say is that

we are going to spend half of our national income for
national defense, or $50,000,000,000.

The thing that pleases me is that in the afternoon
at his press conference the President practically repeated

the whole of our conversation. I feel that I got him to
change his attitude, namely, that he is going to set the

mark for national defense, and whoever is in charge of supply
is going to have to make good, rather than his former attitude
at the last Cabinet meeting that he would simply take the

maximum of tanks and guns which the Army and OPM thought

the US could produce. This is of tremendous importance,
and is a tremendously important change in the President's
attitude. This goes back to the conversations at Hyde

Park when Prime Minister Mackenzie King was there (see item

dated April 20, 1941 in President's book).

1056

WAR AND KAVY DEPARTMENT SUPPLY CONTRACTS * PLACED WITH

THIRTEEN MAJOR ** VEHICLE COMPANIES AND THEIR DIVISIONS

Value

Millions of Percent of

To Be Produced In -

Dollars

Total

All Contracts
Government-Financed New Plants

Government-Financed Modified Plants

Other Plants existing

1,189.5

54.7

235.1

10.8

751.7

34.5

2,176.3

TOTAL

100.0

All Contracts Except Motor Vehicles Other Than Tanks
!

Government-Financed New Plants

Government-Financed Modified Plants

1,189.5

73.1

219.7

13.5

218.0

13.4

1,627.2

100.0

Other Plants existing
TOTAL

Includes contracts of $50,000 and over awarded or approved by O.P.M. for
award, June 1, 1940 through October 15, 1941

Other motor vehicle companies held a total of about $70 million of supply
contracts awarded or approved as of October 15.

Heavy Bomber

Fillin Total

OPM 86
meyers

CON-

SCHED

PRO

1941

TRACT

ULED

DUCED

AUG.

1942
SEPT.

OCT.

NOV.

41

52

DEC.

8 frog
6310

12683

380

6699

?

?

68
go

JAN

FEB.

MAR.

APR.

MAY

70

93

110

123

54

137

107

130

134

148

4 Engine Bumbers

8B ( o t 23, 1940)

86
1941
8D (aprzi 1940
BE (mays, 1941)
8F
is 1941)
86 (July
b at 24
1941

-

98

105

98

100

96

50

57

66

50

64

75

75
72

88

51

60

74

89

42

61

41

52

68
68

83

Success
104

98

73

94

101

114

99

103

92

94
95

99

114

78

90

95

95

101

70

93

110

123

137

Bomber Schedule

1057

JUNE

after
June

485 502

ITTY

1943
R.

APR.

123

0

134

MAY

JUNE

137

149

148

165

Successive
y

98

73

JULY

165
171

SEPT.

OCT.

NOV.

82

206

232

260

186

213

245

AUG.

DEC.

JAN.

FEB.

MAR.

APR.

291

332

356

295

418

328

364

426

548

453
486

73

32

205

201

182

153

202
192

188

193

190

277

304

351

384

422

465

255

309

374

411

423

437

465

260

291

332

356

418

453

485

150

201

203

200

200

200

200

108

110

115

122

128

125

144

99

114

130

144

165

190

220

246

95

101

111

124

136

167

206

137

149

165

182

206

232

4

99

r
5

123

525

200
169

132

101

472

Randwation Schedule

114
103

4

MAY

500
500 x may

502

x

Q

11391

( 94 Budget 29.5 1058
11.9

receipts

17.6
2.0

defict
R.F.C extend

19.6 to forew

1943 expertatives 45.5

Receipts 16.4

dificit 29.1

R.7.C.

1.

30. borrow

[sr is believed President knew
1

that the total revenue, including social
/

security takes for 1943 would be about
$18 billion so he said raise revenue by 50%
or quillion you $2 believe social security and

other tapes www

no Han to convert

auto industry to

Was
time
Basis
200,000 - 300. 000 out of work

Earliest June n July

Viet

1059

Win the War Propram

state your needs

and that let us

aim
for
that
hells
eye
(The above is what HM Jr took to the
President to post himself)

I

1060
December 30, 1942

After the meeting on taxes, I said to the President, "My heart bleeds for you that you have to be fussing

with these production problems when you ought to be concen-

trating on how to win the war. If Then the President said,
"Let me tell you what I am going to do. I am going to
appoint Harry Hopkins to handle foreign affairs - the

distribution of it - Jimmy Byrnes to handle legislation
on the Hill, and now keep your shirt on on the next one Wendell Willkie, Bill Douglas and you as a trio to do
the production thing. I am not going to give it to one
man the way the newspapers want it. It is too big a job.
for one man. I would not let you give up the Treasury."
The President then said, "What do you think about it?
I replied, "I think the thing would work." He said,
"Give me a name for it."