The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
DIARY
Book 421
July 15 and 16, 1941
-ABook
Page
421
358
AUGUSTA, USS
Silver cup presented by HMJr - 7/16/41
a) Admiral King's letter of appreciation 7/18/41: See Book 422, page 203
-0
Canada
See War Conditions
China
See War Conditions
Colombia
See Latin America
Consumer Credit Restrictions
See Retail Credit Restrictions
Correspondence
Mrs. Forbush's recommendations for time check on
personal mail - 7/15/41
Mrs. Forbush's resume - 7/16/41
Coudenhove-Kalergi, Count R. N. (President of
231
384
Pan-Europa Union)
See War Conditions: Liberia
Credit Restrictions
See Retail Credit Restrictions
-DDefense Savings Bonds
See Financing, Government
Downes, Olin (Music Critic, New York Times)
See Financing, Government: Defense Savings Bonds
-EEconomic Defense Committee
See War Conditions
-FFederal Reserve Board
See Retail Credit Restrictions
Financing, Government
Defense Savings Bonds:
Sales, July 1-14, 1941
Downes, Olin (Music Critic, New York Times):
Will help on musical programs - 7/16/41
Conference - 7/16/41
Moore, Grace: Thanks HMJr for citation 7/16/41
214, 321
264
279
318
-G-
Gallatin Statue
Delay discussed at 9:30 meeting - 7/16/41
Book
Page
421
256
Germany
See War Conditions: U.S.S.R.
-LLatin America
Colombia:
Stabilization Fund: State Department transmits
certain documents - 7/16/41
430
Mexico:
Memorandum transmitted by State Department 7/16/41
438
a) Financial aspects of Mexican negotiations
b) Sale of silver
c) Stabilization credit
d) Construction of highways
e) Balance of payments considerations
439
443
445
447
448
Lead
See War Conditions: Lend-Lease
Liberia
See War Conditions
-MMail
See Correspondence
Mexico
See Latin America
Monetary Research, Division of
Report on projects during April, May, and June, 1941 218
7/15/41
Moore, Grace
See Financing, Government: Defense Savings Bonds
-R-
Retail Credit Restrictions
Federal Reserve: HMJr tells Bell if Federal Reserve
Board is to handle as agency of President, Treasury
should have veto power - 7/15/41
a) Eccles-HMJr conversation - 7/23/41:
See Book 424, page 1
b) Office of Price Administration and Civilian
Supply proposed Order - 7/25/41:
Book 425, page 103
c) FDR's letter to Eccles when Executive Order
is signed - 8/1/41: Book 427, page 86
d) Executive Order - 8/9/41: Book 430, page 228
e) Harriet Elliott's letter to Eccles
(August 27, 1941): Book 438, page 271
141
S
Book Page
Silver
See Latin America: Mexico
Spain
See War Conditions
U-
U.S.S.R.
See War Conditions
United Kingdom
See War Conditions: Military Planning
-VWar Conditions
Airplanes:
Shipments to the British - Kamarck report 421
7/16/41
367
Canada:
Purchase of certain supplies which Canada can
provide discussed in Cochran memorandum 133
7/15/41
Sales of lead - British Purchasing Commission
memorandum - 7/16/41
363
China:
Currie asks HMJr to check on authenticity of
War Department letter on reallocation of 300
P-40 airplanes: 100 to China, 200 to Great
Britain - British to supply guns and
ammunition for Chinese share - 7/16/41
365
Economic Defense Committee:
(See also Book 430)
Recommendation for signed by Hull, HMJr, and
Jackson; proposed Executive Order: FDR's letter
to Wallace: all sent to Wallace by HMJr in
anticipation of meeting to discuss - 7/15/41
144,173,330
a) "What should be done about economic
defense" Budget Bureau preliminary draft.
b) Discussion at 9:30 meeting - 7/16/41
155
and later discussed with Welles
c) Proposed Executive Order - 7/22/41
287
273
1) Jones' dissatisfaction referred to
See Book 423, page 333; Book 424, page 278
d) Executive Order - 7/31/41: Book 426, page 24;
Book 427, page 90
e) Harry White appointed alternate to HMJr 8/6/41: Book 429, page 180
Exchange market resume' - 7/15-16/41
Export Control:
See War Conditions: Foreign Funds Control
216,382
- W - (Continued)
War Conditions (Continued)
Foreign Funds Control:
See also Book 411: Administration of Executive
Book Page
Order 8389
Blocked Nationals: Proposed Executive Order
authorizing proclaimed list of certain blocked
nationals and controlling certain exports 7/16/41
421
280
(See also Book 422, pages 49 and 204)
a) Foley designated as Treasury representative
on Committee and State Department so
informed - 7/21/41: Book 423, page 192
Germany:
See War Conditions: U.S.S.R.
Japan:
Cabinet resignation: HMJr asks Welles to
interpret - 7/16/41
286
Lend-Lease:
Evaluation of defense articles - regulations and
memorandum from Phillips to Cochran - 7/15/41.
135.136.137
Keynes memorandum - 7/16/41
361
memorandum - 7/16/41
363
HMSr), leaves memorandum.
415
Value and volume of aggregate British exports Sales of lead - British Purchasing Commission
Liberia:
"Transformation of Liberia into an American
bridge-head in Africa" - Count Coudenhove-Kalergi,
President of Pan-Europa Union (introduced by
(See also Book 423, page 174)
a) Copy sent to FDR - 7/16/41
408
Military Planning:
Reports from London transmitted by Butler 7/15/41
War Department bulletin:
Balkan campaign - notes on - 7/16/41
Purchasing Mission:
See also War Conditions: Lend-Lease
British cessation of payments to France on account
245,248
454
of contracts taken over by British discussed in
Cochran memorandum - 7/15/41
134
Security Markets (High-Grade):
Current Developments: Haas memorandum - 7/16/41
371
Spain:
Sailings of Spanish vessels discussed in cable
from American Embassy, Madrid - 7/15/41
243
U.S.S.R.:
Soviet-German war: Soong sends message received by
him from Berlin stating "staunch resistance
of Soviet troops entirely unexpected by
General Staff"
a) HMJr sends copy to FDR - 7/16/41
b) Russian Ambassador asked to send to Treasury
also reports which he may now be supplying
to FDR, Army, and Navy
1) Agrees - 7/19/41: Book 422, page 267
390
395
398
1
TREASURY DEPARTMENT
Washington
Press Service
FOR RELEASE, MORNING NEWSPAPERS,
No. 26-54
Tuesday, July 15, 1941.
7/14/41
The Secretary of the Treasury announced last evening that
the tenders for $100,000,000, or thereabouts, of 91-day Treasury
bills, to be dated July 16 and to mature October 15, 1941, which
were offered on July 11, were opened at the Federal Reserve Banks
on July 14.
The details of this issue are as follows:
Total applied for - $306,089,000
Total accepted - 100,337,000
Range of accepted bids:
High - 99.990 Equ ivalent rate approximately 0.040
0.111
If
Low - 99.972
"
Average
"
price - 99,975
0.097
(68 percent of the amount bid for at the low price was accepted)
-000-
2
TREASURY DEPARTMENT
Washington
Press Service
FOR INIEDIATE RELEASE,
No. 26-56
Tuesday, July 15, 1941
Secretary of the Treasury Morgenthau today announced
the subscription figures and the basis of allotment for
the offering of 1-1/8 percent notes of Series G of the
Commodity Credit Corporation.
Reports received from the Federal Reserve Banks show
that subscriptions aggregate $5,357,000,000. Of this
total, about $201,000,000 were received from holders of
Series D notes of the Corporation who tendered a like par
amount of such notes to the Secretary for purchase. Such
subscriptions were allotted in full, and all other subscriptions were allotted 4 percent, but not less than
$1,000 on any one subscription.
Further details as to subscriptions and allotments
will be announced when final reports are received from
the Federal Reserve Banks.
-000-
3
July 15, 1941
8:30 a.m.
RE EXCESS PROFITS TAX
Present:
Mr. Bell
Mr. Gaston
Mr. Eccles
Mr. Sullivan
Mr. Currie
Mr. Foley
Mr. Decaux
Mr. Henderson
Mr. Lubin
Mr. Blough
Mr. Haas
Mr. Viner
Mr. White
Mr. Kuhn
H.M.Jr:
While we are waiting for Harry White, which
one of you gentlemen will give me your
criticisms first?
Henderson:
Well, I have got probably the fewest, since
I didn't get to see it. I was away, you see.
H.M.Jr:
Want to listen?
Henderson:
Well, I can give you my general criticism.
H.M.Jr:
All right. Anything specific?
Henderson:
Oh, I don't think the tax part is near tough
enough.
(Mr. Bell entered the conference). .
H.M.Jr:
I see.
4
-2Henderson:
Next year may be entirely too late. Talking about three and a half billion dollars I don't think we have gone - well -(Mr. Currie entered the conference).
I should have started out that I am greatly
in favor of it. I think it is high time to
do it and I am tickled to death with it.
I think it is a place for tightening up on
their spending. I don't think you have said
anything at all in here, for example, about
wages and agricultural commodities, and I
don't believe that there is going to be a
stop on those.
H.M.Jr:
Well, may I explain how this came about,
because some of you may understand and some
of you may not.
(Mr. Sullivan entered the conference).
H.M.Jr:
Hello, John, are you a little out of breath?
Sullivan:
No, sir, I didn't run more than half way.
(Mr. White entered the conference).
H.M.Jr:
The President wrote me a note in which he
said he wanted to say something about excess
profits, you see, and I wrote him back saying
I was delighted he wanted to say something
about the tax bill but made the suggestion
that he call in Doughton and Cooper. That
was after consulting in secret - I told the
President about it - with the Speaker, asking
him how to proceed. The Speaker said the
President had to call these people in. He
just couldn't pop something without first
talking it over. So they are coming at
eleven. This is Doughton and Cooper, and this
is a memorandum for the President to work on
5
-3with them at eleven. It is not a message
to Congress, so my only haste is to get some-
thing to him. I sent this rough draft over
to him last night and said that you gentle-
men would be here this morning and I would
give him a revised draft at eleven. The
only haste is to see that he has something
on his desk at eleven. What he is going to
do after he sees Doughton and Cooper I don't
know, but I want to explain. O.K.?
Lubin:
May I make one comment on the memorandum as
a whole? You deal with prices and you
suggest various things that should be done
and then you move into taxes and I don't
think you have tied your tax problem into
the tax picture at all, the way it is written
now.
White:
The modified draft is a little better. The
transition is better.
H.M.Jr:
Well, again our boys working under pressure,
the two drafts were done by two different
groups.
Lubin:
I see.
Viner:
There is a revised draft of that.
White:
Yes.
H.M.Jr:
Where is it, Harry?
White:
Well, the original should be on your desk.
H.M.Jr:
the copies -Well --
White:
There it is. That is the original and
are in somebody's office.
6
-4H.M.Jr:
Well now, how would people like me to work?
Do you want me to read this a page at a time
and stop, or have you people got some memor-
anda? I want to get the benefit of you
fellows' advice. How would you like me to
work? I will do it any way you say. How
would you like me to work, Marriner?
Eccles:
You haven't got much choice. Eleven o'clock
doesn't give you a lot of time. I think I
would take the latest draft that Harry says - he says
there has been some revision from this, as
I understand it, and undertake to make a min-
imum of change. I just don't think you have
got time by eleven o'clock to really do much
with it.
H.M.Jr:
Well, before we do that, let me just ask,
is there anything in what you gentlemen read
that you violently disagree with, that you
would like to leave out?
Eccles:
I think it is an excellent statement in general. It is certainly needed. I agree with
Leon fully on the tax thing. I don't think
the tax thing is hit nearly hard enough.
H.M.Jr:
May I explain that as you go along? I have
worked - this is all in the room. We are
all friends of the President and we are
working for him every day. I have, I don't
know how many times, I will never forget Roswell Magill took three months to prepare
a tax memorandum for the President. I want
to explain. He went up to spend a night with
him at Hyde Park and he had fifteen points.
He got as far as point one. My boys had a lot
of stuff in here, other things; joint returns,
inheritance taxes, all of this stuff. I said,
"Leave it out." The President asked me for
a memorandum on excess profits. If I can
7
-5get him to say something on that, then the
Congress and the people know he is interested
and then we can go up and fight for the rest,
but unless he says something, we won't get
anything and that is why I cut it down to
one thing. Maybe I am wrong, but I wanted
to explain.
Henderson:
You might put a catch-all in there.
H.M.Jr:
All right, but I wanted to explain as we
go along that the boys had all these other
things and I cut them out because I was
afraid when he sees all that stuff he would
lose interest again.
Eccles:
The first part of the memorandum, before you
get to taxes, as I understand it then, is
for the purpose of selling the President
and selling the Congress on the need of doing
something.
H.M.Jr:
That is right.
Eccles:
And it is an introduction, really, to the
tax program.
H.M.Jr:
Well, what we are trying to do here is to
get the President's mind on it. I know a
little bit of Leon's problem, and I thought
that this might be a stepping stone to what
Leon wants to follow and I had him very
much in mind.
Henderson:
Well, it is very much in our picture. We
have got a separate message drafted. I am
supposed to see the President today to discuss
it. It is on the matter of specific price
legislation and here is what I would suggest,
Henry. I would like to see you start out instead of just starting historically, since
the beginning, I would like to see one sentence say the present threat - down here
8
-6you have got, "Apparently we are on the
edge of inflation now." I mean that first
sentence I would like to see hit right at
that point. The jump-off, the very first sentence, and make it a full paragraph, so that
you know that this whole thing is addressed
to that question. Then you asked for specific
objections. On page five, Number three, "Extension of the present system of priorities
to include systematic rationing of scarce
supplies to consumers." Now, we are not
ready for the application of priorities to
consumers. Now, to civilian industries,
yes, and we are already doing that. I think
that number three, if it means to make sure
that the legal power is given to us to cut
down on the consumer durable goods - now,
we already have that but there is a bill,
the new Vinson Priority Bill, delegation of
authority has not been assigned yet. It is
on the President's desk. The minute we get
that, we will have the specific legal authority to make the cuts in the civilian indus-
tries that are making consumer goods or
competing with defense, and that includes
automobiles for the civilian account
and if we can make Number three read
that, but we are not ready yet for rationing
directly to consumers by way of bread tickets
or meat tickets or anything like that.
There is no need for it yet.
H.M.Jr:
We will give way on anything that you want
on that.
Henderson:
Well, I would like that clear as to what
H.M.Jr:
We will give way on anything.
White:
Do you want to discuss that first point
it meant.
9
-7that he has raised or leave that until later?
Viner:
I wouldn't support giving that up too easily
because I don see how they are going
to operate on rations to an industry and
let the industry decide who is going to get
these various scarce goods whose prices
are fixed. I don't see how you can let
the industry decide. The Government will
have to play some role in that.
White:
Except, Jake, I think that is a much later step
if the other measures are adopted, control
over consumer credit, excess profits tax,
specific taxes and others. It makes the prob-
lem you are raising a little less urgent at
the moment. It is a later step.
Viner:
Yes, but it is going to be a dirty phase
Henderson:
That is right. We are working on that, but
of it.
we are not going to be ready for six months,
really, for straightening out this mess
of scarcity that we are in right at the raw
material line.
Viner:
Well, would this suit? I think it is important to get into this document as much as
you can see ahead of what you have to do some-
time. At least you may say that at some
stage in the future it may be necessary to
do this also, but don't leave the idea out
altogether, as if we hadn't thought of it.
(Mr. Foley entered the conference).
H.M.Jrs
I just want to say where it is priorities or
something, I am willing to present what you
people have in mind, but if Henderson says
"No", I don't want it to go over with something
10
-8that he doesn't want in his business.
Henderson:
Well, I agree with Jake on that.
H.M.Jr:
Have you got it in mind so that you can
fix that up, Jake?
Viner:
We will fix it up.
H.M.Jr:
Are you satisfied on that?
Henderson:
Yes.
(Discussion off the record).
H.M.Jr:
Does that take care of your particular objec-
Henderson:
Yes.
White:
That is the second point. The first point,
about eliminating the first two paragraphs
tions?
I don't know whether you want to discuss that
now.
Lubin:
Not to eliminate them, just to put it forward.
Start out with that.
H.M.Jr:
Where is the sentence?
Henderson:
At the end of the - here it is. "Apparently
Henderson:
we are at the same point in price history
as in 1916 - on the edge of inflation."
H.M.Jr:
Henderson:
Start it up there.
I would put that right up there as Number
one.
H.M.Jr:
What is the matter with that?
11
-9Viner:
All right.
White:
I am wondering whether in a document for the
President it is wise to start with a spectacular statement of that character. I think
I should be inclined to think he would like
it on a little less, shall I say, emotional
tone, and a little easier. It is not a
matter of importance.
H.M.Jr:
I like it up at the top.
Lubin:
Especially at ten o'clock in the morning.
White:
You can judge the President's attitude better.
H.M.Jr:
Are you representing the President and OPM?
Lubin:
Hillman couldn't come.
H.M.Jr:
So are you representing Hillman?
Lubin:
Yes.
H.M.Jr:
Do you know what he has got in his mind on
Lubin:
Yes.
H.M.Jr:
Jake insisted that somebody represent OPM,
The afternoon would be different.
this?
so I tried to get Sidney Hillman and he said
if he couldn't come you would represent him.
Lubin:
Yes.
H.M.Jr:
I just want you (Henderson) to know that is
OPM sitting next to you.
Henderson:
They have been hiding their heads for months.
(Laughter)
12
- 10 H.M.Jr:
How would you like to proceed, gentlemen?
Bell?
How about reading each page and then stopping?
H.M.Jr:
Would you like me to read each page and then
stop?
Lubin:
You raised the question, "Does anybody have
any objection to anything in here," and nobody
made any - gave any evidences of having any
objection. I would like to know whether anybody would like anything added.
Eccles:
As I understand it, you don't want to add
anything on the tax front.
H.M.Jr:
No, no, we will go on this - I will listen
to everything up to the time that Kuhn can
take this and rewrite it, up to the last
Henderson:
minute, with the help of the other people.
On the matter of --
H.M.Jr:
But I just thought - the President in the first
place confined himself to the one thing.
If you have got some things you want to add,
Let's discuss it.
Eccles:
Well, you said that they had other items
on the tax picture and you had taken them
out, and I just assumed from that that the
President wanted to confine his discussion
to the excess profits tax and therefore
there was no need of confusing the thing
with bringing in the whole tax picture.
H.M.Jr:
Well, I may be wrong, Marriner, but I was
just going on the - if you people think we
should add a lot of things, all right. He
did write on the one subject. There are
a lot of other things we are interested in.
If he would make a public statement criticising
13
- 11 -
the present tax bill, that would open the
wedge and we would have a chance. I doubt
if we can get him interested in the other
things, but I may be wrong.
Currie:
I think, Mr. Secretary, if he meets with
these two people and talks about all the
other aspects of the tax bill except excess
profits, they will think he has no objections.
White:
Wouldn't Leon's basket clause take care of
that, of one paragraph in which you point
to the other tax changes you want without
going into a discussion. It would add about
three pages, I think, on to that if you did
more than that, and might detract his attention
from the other, but if he made a statement
which indicated his disapproval on the points
which we are interested in including, maybe
that would take care of that.
H.M.Jr:
One of the other things - are you through,
Harry?
White:
Yes.
H.M.Jr:
What other tax subject are you interested in
Eccles:
On the tax structure.
H.M.Jr:
Yes.
Eccles:
Well, I would like to see something said
about the individual income taxes. I would
like to see something said about inheritance
Marriner?
and gift taxes. I would like to see something said about joint returns. I think
those are all vital in this issue, just as -
maybe not as important as the excess profits
tax, but certainly they are very essential
to have a round tax picture here.
14
- 12 H.M.Jr:
They were all in the first statement.
Now, if you can work a statement up so that
it will leave the door open and show the
President's interest and catch all, I
would be glad to put it in.
Eccles:
I would be glad to put it in.
I would like to see the thing approached from
a standpoint of the taxation being the most
important single element in the - as a means
of dealing with an inflation problem. First
you show that the inflation is imminent here
if something isn't done, that taxation is the
keystone in dealing with an inflation problem, that with the increased appropriations
it is necessary, it seems to me, to raise
our sights on this whole tax picture, that
since the original tax bill was proposed the
economy has moved on to the point where three
and a half billion is entirely inadequate.
It isn't pumping back anywhere near enough
of the funds that the Government is disbursing and that the whole tax picture should
be again reviewed and get the door open,
get these people realizing, and then give us
a little time to let the President, instead
of discussing purely the excess profit end I think he has got to discuss with these
people the imminence of inflation and the
importance of a tax bill and the need of
greater revenue, and call for a reconsideration
of the whole thing in the light of the present
situation, and then let him tell them he expects
to send a special message on the tax program,
and give us a week or two here to prepare
a strong statement. Now, I mean that is
what I would like to see done.
H.M.Jr:
Well, I agree with you, but here is the sched-
ule. I don't think the President can get
15
- 13 -
to first base. They are going to report
this bill out a week from today be cause the
House wants to adjourn.
Eccles:
Why not let them report it and reserve the
thing for the Senate? They are going to
write the bill anyway, possibly, and take
two or three weeks and prepare a statement
to the Senate on the bill, indicating that
since the bill was considered by the House
all this thing has changed and happened
and therefore there is a revision necessary.
White:
Or he could take the position that "I have
already indicated my position in the House,
but they didn't have time to do anything,
and now we have more time." I think there
is some merit in that but I think there is
the danger of stressing the function of in-
creased taxes as a check to inflation so
much that he - it dwarfs some of the other
measures that he would like but I think that
can be handled in the statement along with the
thought that the more you increase taxation,
the less you have to resort to that type of
price fixing, price rationing, and others
which characterize an extreme totalitarian
Government.
Lubin:
I think that is highly important, if I might
interrupt at that point. The members of
Congress and business don't like this price
fixing business. Now, if we say to them,
"The more taxes you give us, the less we have
to use these others, I think that you may
have a selling point because they know you
are going to have to do something about
price fixing anyway. The question is, can
we keep that to the minimum and one way of
keeping to the minimum is through your tax
program.
16
- 14 Eccles:
As a part of the whole program.
H.M.Jr:
You most likely didn't notice it, but at
my Thursday press conference, last Thursday,
I said that the whole fiscal question would
have to be reviewed. I couldn't say whether
we did or didn't - but in view of these
eight billion dollars additional money plus
the Lend-Lease, the whole thing would have
to be reviewed, and the reason I know it
got in the press, John Sullivan got so excited
he called up that evening to find out whether
I really meant it, so the door is open.
Currie:
Did you see the President's remarks the next
day, Mr. Secretary, on that?
H.M.Jr:
Yes, it wasn't very helpful.
Sullivan:
I went back to play golf when I saw the
H.M.Jr:
Well, now what are we going to do, gentlemen?
Currie:
I just mentioned that because I think he
may be a little reluctant to propose reopening the whole tax bill for the sake of more
revenue at this point.
Sullivan:
May I suggest along that line, Lauch, that
President's remarks.
as a matter of strategy, if it appears
imminent that we must have a larger amount
of taxes collected on 1941 income, we might
be in a better strategic position to pass
this bill and get our three and a half, and
then anything we have to put on top if that
later on in the fall might be much easier
to obtain than if we tried to make this five
or five and a half now. If we button this
down, then any jump from then on is a minor
step, and we have to remember that it costs
17
- 15 -
us about two and a half million dollars for
every day we delay passing this bill.
White:
Well, doubtless that may emerge, but isn't
there something in the fact that the Secretary of the Treasury has a responsibility,
and I think that responsibility also is shared
by many of the people who are represented
here, to call to the President's attention
the urgency for re-examination of the tax
program. In his judgment he may decide
not to open it up or he may decide merely
to speak of it in passing, or he may decide
it as not politic to raise the issue at all,
but so far as a memorandum from this group
to the President is concerned, it seems to
me that the point ought to be stressed.
Sullivan:
I agree thoroughly.
H.M.Jr:
Shall I read the first page?
White:
There are now some copies.
Henderson:
Just one other thing. You have listed some
of the things which are going to add to the
fear of inflation but you have left out
three very important things which can be
dovered, it seems to me, in the fifth paragraph. One is the increasing amount of withdrawal by way of priorities for defense
account. Now, there is no shortage of
steel, as all you people know, but eighty
per cent of plates and sixty per cent of ships
for the next seven to eight months are to go
for defense. Well, that is a new figure and
a higher figure since about three weeks ago
and every time we turn around there is an
additional amount that has been claimed by
priorities, and as fast as they see things coming over the horizon, we not only find that
you can't have enough increased production
18
- 16 -
to be ready to put, say, a five-hundred
bomber program into effect next spring,
but you must start the stock pile now and
the only place that you can start the pile
is out of the consumer account. Now, in
other words, the increasing withdrawal by
priorities making a shortage - further
shortage of goods available for purchasing
power, then we are not at the end of the
rises in agricultural commodities, nor are
we at the end of wage increases, and I think
that some cover-all or catch-all as a paragraph
number five just to indicate that those
things are still very substantially at
work would be advisable.
H.M.Jr:
Do you understand what Leon has in mind,
because I don't quite get it, how you would
put it in English. DO you understand what
he means?
Viner:
Yes.
White:
It is implicit but could be spelled out.
Viner:
I think we could show a phrase or somewhere
what he is saying is implied. I am all for
saying those things frankly. Obviously,
in framing this we had in mind always what
we could put over as well as what we would
have said if we were speaking for ourselves,
and I personally would say certainly that
the most important stimulus to inflation that
we are likely to have is going to be the
free state of collective bargaining on wages.
White:
I certainly would be opposed to saying that.
Henderson:
I don't want to say them as such, necessarily,
but I want to point them out as being factors
in the picture.
19
- 17 White:
Well, it depends on how it is said.
Henderson:
I would merely list them. I would merely
as a paragraph Number five say "The increas-
ing use of priorities for defense account
is shriveling the amount available for
consumers and price rises due to agricultural
commodity adjustments and wage adjustments
have not been completed by any means." That
is all that is needed.
White:
True.
Viner:
If you say "have not been completed," that
means you are inviting completion.
White:
Exactly. You don't want to stop all wage
increases. You wouldn't come out with that
fact. Why put it implicitly? You wouldn't
come out with a statement that no further
wage increases should be tolerated, so why
make it implicit? I think the way Leon has
stated it is all right.
Henderson:
I was talking extemporaneously and put no
special emphasis on the word "completed",
but I do think they ought to be listed.
H.M.Jr:
Well, I think they have got your idea.
Now, what else before I start reading?
Would you like to start reading?
Blough:
Here are new copies, Mr. Secretary. I have
practically enough for everybody.
H.M.Jr:
Would you circulate them? I gather that on
the whole you people like the thing.
Henderson:
Yes.
H.M.Jr:
Marriner, do you like it on the whole?
20
- 18 Eccles:
I like it very much. I think it is the best
thing I have seen for a long while, dealing
with the functional ways of getting at this
problem.
Lubin:
As I look at your new draft, I think there
is still a fundamental weakness, looking
at it from the point of view of the Presi-
dent and Doughton and people of that sort.
I don't believe they understand what relationship a tax program has to inflation, and you
haven't told them here in this memorandum.
In other words, you have got a short transition paragraph and I think you have got
to hit that thing, that another way of keeping from inflation is by siphoning off some
of this income which otherwise would create
a greater demand for a limited supply of
products, and you do it by taxes.
White:
I think Lubin is right.
H.M.Jr:
You don't say that here.
White:
It can be said.
Gaston:
You say it twice, once in the introduction
that you are speaking about and again in the
transition.
H.M.Jr:
I think that is right. You could say right
White:
I am awfully sorry, Mr. Secretary. You are
after that sentence that Leon likes that this
relationship is so. "Since the beginning of
the war, September, 1939, the wholesale price
index has risen from 75 to 87 or about 16
per cent. The greater part of this rise has
occurred during the past five months.
reading the old copy. That is my fault, I
guess.
21
- 19 H.M.Jr:
No. How the hell do I know the difference?
White:
Just throw away which is the old one.
H.M.Jr:
I don't know which is the old one.
Viner:
Collect the old ones.
Blough:
This is the new one.
H.M.Jr:
That is what I was reading. This is the
one that was put on my desk. Harry doesn't
like this one. All right, everything is
settled now.
"Since the beginning of the war, September,
1939, the wholesale price index has risen
from 75 to 87 or about 16 per cent. The
greater part of this rise has occurred during
the past five months.
"The cost of living index has increased 5-1/2
per cent since September, 1940.
"The index of 28 basic commodities has increased 48 per cent during the same period.
This increase constitutes a major danger
signal of inflation which must not be ig-
nored. The wholesale price index always
lags greatly behind the index of basic com-
modities, while the cost of living index
does not show anything like the full effects
of inflation until long after the seeds of
inflation have taken deep root.
"The pattern of price rises summarized above
roughly resembles the price movements during
the first two years of World War I -- little
rise in the cost of living, a moderate rise
in the wholesale price index, and a sharp
rise in basic commodities. Apparently we
are at the same point in price history as in
1916 -- on the edge of inflation."
22
- 20 Henderson:
On that, the first two years of World War
I, it wasn't two years, as I recall it,
except for maybe the cost of living and so
forth. The wholesale prices started to
go up about eleven or twelve months before
and at the end of sixteen months you had
a line directly --
H.M.Jr:
George?
Viner:
We sat looking at charts as this was written.
Henderson:
Well, it is thirty-nine to --
Viner:
Let it go now, Leon.
Lubin:
But there is no contrediction here. We are
just getting into the second year of the
present war.
Henderson:
All right.
Viner:
He will bring the charts back.
H.M.Jr:
"The forces making for further price rise
are both potent and persistent.
Kuhn:
May I interrupt at the end of each page, Mr.
Secretary?
H.M.Jr:
That is the idea.
Kuhn:
Well, the only change here is that we take --
H.M.Jr:
Go ahead, that is the purpose.
Haas:
I am sending for a chart.
H.M.Jr:
Go ahead, Ferdie.
Kuhn:
The only change is to change that sentence,
23
- 21 "Apparently we are at the same point in price
history as in 1916 --" and start the whole page
with it.
H.M.Jr:
That is right.
Lubin:
May I make one further suggestion? I don't
know how you fellows feel about it. The second paragraph, "The cost of living index
has increased five and a half per cent since
September, 1940."
White:
That is thirty-nine.
Lubin:
For emphasis, would it not be well to add
another sentence, "Half this increase has
taken place in the last two months"?
White:
Yes.
Lubin:
That ties up with your first sentence, you see.
Almost half of that has occurred in the last
two months.
Eccles:
It ties it in with what comes after.
Lubin:
Yes. It is the recent aspect of the thing.
H.M.Jr:
Anything else?
Bell:
I wonder if that whole paragraph that you
are talking about on inflation couldn't be
moved up and say, "The pattern of prices summarized below roughly resembles" -- follows your
inflation.
White:
I prefer Dan's suggestion.
H.M.Jr:
I think it is a good suggestion. Did you get
it, Ferdie? Take the paragraph on price
rises and move it right up to the top one
and then say about the thing --
24
- 22 -
Bell:
I would be willing to switch it around so
as to bring Leon's sentence first, if you
wanted to.
Henderson:
I wish you would start and use the whole
paragraph, "Apparently we are at the same
point," and then say, "The pattern of prices
has risen" right below that.
H.M.Jr:
That is what Dan said.
Bell:
That is right.
H.M.Jr:
Any other suggestions? "The budget"- will
somebody read that next page? I will be back
in a minute. Go ahead, Blough, read page 2.
By the time you are finished I will be back.
(The Secretary left the room temporarily).
Blough:
Henderson:
"(1) The Budget estimates Defense spending
during the fiscal year 1942 will be fifteen
billion dollars, or two and a half times
as much as in the fiscal year 1941. This
estimate, moreover, does not take account of
such additional expenditures as will result
from extension of the Defense Program made
after June 1."
The whole significance of the paragraph is
that fifteen billion dollars is an inadequate
estimate. That sentence is just a - oh,
sort of one of these estoppel clauses. They
keep saying, "Well, we told you so." Why not
make that sentence read exactly - "does not
take account of such additional expenditures,"
and so forth, say, "This estimate is bound to
be increased, of course, because of the extension of the Defense Program since June 1, and
the prospect of Lend-Lease." The Lend-
Lease is going to be what, fourteen billion,
isn't it? It is useless to be talking about
a fifteen billion dollar amount of expenditure
with another fourteen billion coming in for
Lend-Lease.
25
- 23 Viner:
We discussed that and the question in our
humble minds was whether we have the right
to play with a Budget Bureau estimate.
Henderson:
Maybe the Treasury doesn't.
Kuhn:
Wouldn't the word "however" meet your point,
Mr. Henderson? You could say, "This estimate,
however, does not take account of the additional expenditures. "
White:
No, he is making it much stronger and I think
much more realistic, and if the Secretary is
willing to go that far, I think we ought to
do it.
H.M.Jr:
(Returning to conference) How far do I have
to go?
Henderson:
Number one at the top of page 2. I say
that the second sentence ought to be very
specific and say definitely, "This estimate
is highly" --
White:
"Underestimated."
Bell:
How about saying, "This estimate will no
doubt increase, due to the additional
appropriations asked for since June 1"?
Henderson:
"Plus the prospect of"--
Bell:
"additional Lend-Lease appropriations."
Viner:
"This estimate, moreover, will undoubtedly
prove too low because of the extensions
of the Defense Program and of Lease-Lend
which have occurred since June 1." Do you
like that?
Henderson:
I would rather say, "Undoubtedly ". I would
like to say, "This estimate will undoubtedly
prove too low."
26
- 24 Lubin:
As long as everybody is saying, let me say
this: "This estimate is a minimum," and then
go on to say why it is a minimum.
H.M.Jr:
Well, we have got the idea anyway. The boys
Gaston:
Or even, "This increased estimate does not
take account" --
H.M.Jr:
Henderson:
Something. They will fix it.
I like Herbert's better.
H.M.Jr:
Good. Where were you?
Blough:
At the beginning of Number 2.
H.M.Jr:
All right. Go on.
Blough:
You want me to read?
H.M.Jr:
If you don't mind.
Blough:
"(2) More important in its bearing on the
danger of inflation than the figures for expenditures of the coming year are the estimates
will put it into words.
of deficit spending. The net deficit for the
fiscal year 1942, as estimated by the Direc-
tor of the Budget, will be twelve point eight
billion dollars, compared with five point
one billion dollars for the previous fiscal
year. This assumes the present tax structure.
If the present tax bill is passed by Congress,
the deficit will be reduced by two and a half
billion dollars, (the revenue yield in fiscal
year 1942 of the three and a half billion dollar
tax bill) but it will still be over ten billion
dollars. Again this estimated deficit does
not take account of the expansion of the Defense
Program after June 1, 1941.
27
- 25 -
"(3) The inflationary force of the Federal
deficit has been supplemented during the past
year by an expansion of bank credit. Total
loans of all member banks expanded by an
estimated two point eight billion dollars,
or by twenty per cent during the fiscal year
just past. This rise, moreover, has been
proceeding at an accelerated pace."
Eccles:
There is a sug estion there on three that
during the fiscal year forty-one the inflationary forces of the Federal deficit to the
extent financed by banks. You are indicating
possibly that the entire deficit might have
been inflationary. I think to the extent
that the Savings Bonds have been taken, the
-- I think the emphasis should be placed
here on the part where new money is created,
H.M.Jr:
rather than that it is drawn into the baby
-- now, here is another thing.
10 the extent --
Eccles:
To the extent financed by the banks. Then,
has been supplemented by an increase in bank
loans. You say "member banks" there and I
think that you can put a round figure in
there. Maybe a little better than two
billion eight, has been supplemented by .an
increase in bank loans amounting to more
than three billion dollars, but if you include
all non-member bank-loans -H.M.Jr:
Are you fairly sure of that, Marriner?
Eccles:
Yes.
Viner:
And how would the percentage be, because
we thought that was very important?
Eccles:
We would say about twenty per cent. It is,
maybe, nineteen, but I mean for the purpose
of this memorandum you can say, "amounting to
about three billion dollars" --
28
- 26 H.M.Jr:
And later on could your man give us the
correct figures?
Eccles:
We checked this last night. That is right,
Decaux:
Yes, three billion.
Eccles:
You are apparently safe on three, and I think
isn't it?
on the twenty per cent. I think that looks
a little better than if you say "member banks"
and "two billion eight".
Sullivan:
Roy, in the parentheses in two, the revenue
White:
I think you can make that clear by putting
quotes around the three and a half billion
collected in fiscal forty-two.
tax bill.
H.M.Jr:
All right, gentlemen?
Bell:
Do you get the impression that the two billion
eight expanded bank credit is all due to deficit
financing? I take it that isn't true.
Eccles:
Well no, you have got loans. You don't say -
you say it is supplemented, you see, by an
expansion of bank credit. I have changed that
to "has been supplemented by an increase in
bank loans. "
H.M.Jr:
Ferdie, if you want to get this stuff started,
typing it, I will wait until you come back.
Henderson:
We can talk about the language. On this page
three, when you get into this, "Also making
for further price increases," that is where I
wanted to come in. This tends to emphasize
the import difficulties, whereas the real
price increase is going to come from the
29
- 27 increasing shortage of raw materials to
make civilian goods, plus the further
extension of agricultural price levels,
plus further wage increases, you see.
White:
That will go in there, as you said. That
was the same suggestion you had before. It
will go in this point here, five.
Viner:
Well, I suppose his point is that it is
in terms of relative importance - it
ought to come before the imports.
Henderson:
Yes.
White:
And just make the imports six.
Henderson:
I would make it one catch-all.
White:
Yes.
H.M.Jr:
Where are we, on three?
Blough:
At the top of three.
Henderson:
Where?
Blough:
Top of page three.
Henderson:
for my money, the things I have mentioned
are much more important than number four.
Viner:
I think the reason they are omitted, which is
not an adequate reason --
H.M.Jr:
"(4) To the fiscal and banking factors likely
to cause price increases during the next fiscal year must be added the increasing absorption of idle plant capacity in many lines of
industries.
"Also making for further price increases are
30
- 28 the heightened obstacles to imports, such as
reduced ship space, higher shipping costs,
and cutting off of normal foreign sources of
supplies.
"Though there are some factors in the situation operating to check inflationary trends,
such as surplus stocks of some agricultural
commodities, unemployed labor resources, and
partially employed production facilities,
most of these factors were present in the
fiscal year 1941 in greater degree and yet did
not serve to restrain price rises even though
the forces making for price rises were then
much weaker.
Bell:
Too long.
Henderson:
I haven't finished off on number four.
H.M.Jr:
I will just read down to the end and then
we will go back.
"Important steps have already been taken or are
being taken to check inflation. Congress has
made provision for the Treasury to sell defense
savings bonds and stamps and so to absorb,
for the Defense Program, funds which might
otherwise be used for civilian purchase of
goods. This program is well under way."
Now, we start with the top of page three.
Henderson:
At the top of page three, my feeling is that
we are going to have a selective absorption
of plant capacity. We will have an expansion
in the defense industry, where the orders
are increasing and under pressure, but because
of the diversion and scarcities of raw materials,
you will have an actual decline in some of
the consumer goods industries in this period
31
- 29 -
of transition. Now, the thing which will
occasion the price rise, to my mind, will
be the scramble for a large volume of
available consumer goods. Number four, it
doesn't seem to me to rank in importance with
the others. I would like to - I would suggest
you make number four a paragraph which would
take into account these direct additions
to cost that we are having which are real
when you come to making a price determination
such as the agricultural, wage and shipping
costs, plus the shortage of available goods.
I wouldn't mention that item, plant capacity,
as being of importance in this draft.
H.M.Jr:
Anybody agree or disagree with Henderson?
Eccles:
Your point, Leon, is that irrespective of the
supply of labor and some idle plant capacity
due to the shortage of basic materials,
that you simply can't utilize them, the plant
capacity and labor, that the question is
the shortage of materials.
But I think it is nonetheless true that the
White:
increased national income and the increased
program is absorbing idle plant capacity that
still exists and existed last year.
Sullivan:
Leon, would it help you if in the second
Henderson:
No, that sense there is all right, that is
adding to the price. I think we are going to
line of the second paragraph we said "obstacles
to imports of raw materials"?
be able to do something about it in about
three weeks, but I want -- the thing which
is going to occasion the pressure on prices
is going to be the reduced volume of automo-
biles or refrigerators, which are due to a
reduced amount of raw materials that are
available.
32
- 30 H.M.Jr:
You want to leave out the increase in ab-
Henderson:
Yes.
Viner:
Or put it down in a minor role?
Henderson:
Yes, put it down in a very minor role. I am
sorption of idle plants?
more scared today about what is going to happen
to employment than I am about anything else.
H.M.Jr:
How do you mean, employment?
Henderson:
I think we are going to have a considerable
amount of unemployment due to the fact that
there are going to be drastic cuts in the
consumer durable goods industry.
H.M.Jr:
I see.
White:
Don't you think we ought to recognize that
in that sentence we are speaking of, on the
situation operating to check inflationary
trends? We ought to at least indicate that
we are aware of it.
Henderson:
that isn't checking inflationary trends, that
is increasing them.
White:
Well, it works both ways. The net result may
Viner:
It is a sectional unemployment.
White:
Well, it extends over the whole country.
H.M.Jr:
Now, what do you want to do about that?
White:
Well, I heard Leon some time past make a
be an increase.
rough estimate of something, I think in the
category of seven billion dollars, as to
the value of -- of unemployed, in terms of
33
- 31 products. I don't know what that would mean
in terms of men, maybe a million men.
That is a very substantial amount but I think
some indication of that might go in here.
Henderson:
I think that is a little too much.
H.M.Jr:
You have got about another half hour. I would
Haas:
just rather drop that first paragraph out.
Oh, no, you can't do that.
Blough:
Oh, no.
White:
I think we can reach an agreement on it.
H.M.Jr:
It is a question of getting the right language.
Haas:
Could you let that paragraph, number four
start as it is, and get your thought in
following. Say, "This problem will be greatly
accentuated by priorities which will preempt
capacities of indústries producing civilian
goods," or something to that effect. In
other words, what you are saying is technically
how it will operate to increase taxes more
than is generally understood.
White:
Why don't you dictate the sentence you want?
Henderson:
You go on with this thing and I will see what
H.M.Jr:
All right. Leon says he will try to write
I can do with it.
something. Well now, is there anything
in the second paragraph of page three?
The third paragraph of page three? The
fourth paragraph of page three?
Viner:
I would like to see that paragraph, "Several
important steps have already been taken."
34
- 32 Henderson:
I wondered what we had done that had any
restraining
effect. I didn't see any mention
of
it.
White:
It was in one of the early drafts. (Laughter)
Henderson:
I would expect that from the people that believe in the functional monetary and fiscal
control.
Lubin:
The Office of Price Administration is making
every effort to obtain cooperation in these
measures to restrain prices. They have unquestionably been helpful, but are inadequate
to meet the situation.
H.M.Jr:
Thank you for saving my embarrassment.
Henderson:
I want to put in a footnote to the Ways and
Means Committee.
Blough:
It was a typographical error. It should have
H.M.Jr:
Well, of course we could put it up first, page
been a paragraph there.
one.
Eccles:
I think you might add, to recognize Leon on
page one, you have got despite the fact
you have got these increases - you could
say, "despite the fact that prices of some
basic commodities have been controlled".
We are talking about the inflation that has
taken pla ce and you haven't recognized that
that inflation is in spiet of the fact that
some basic commodities have been controlled.
H.M.Jr:
All right.
Eccles:
It would have been higher. Your inflation
that you indicate on your page one would
34
- 32 Henderson:
I wondered what we had done that had any
White:
It was in one of the early drafts. (Laughter)
Henderson:
I would expect that from the people that believe in the functional monetary and fiscal
restraining effect. I didn't see any mention
of
it.
control.
Lubin:
The Office of Price Administration is making
every effort to obtain cooperation in these
measures to restrain prices. They have unquestionably been helpful, but are inadequate
to meet the situation.
H.M.Jr:
Thank you for saving my embarrassment.
Henderson:
I want to put in a footnote to the Ways and
Means Committee.
Blough:
It was a typographical error. It should have
H.M.Jr:
Well, of course we could put it up first, page
been a paragraph there.
one.
Eccles:
I think you might add, to recognize Leon on
page one, you have got despite the fact
you have got these increases - you could
say, "despite the fact that prices of some
basic commodities have been controlled".
We are talking about the inflation that has
taken pla ce and you haven't recognized that
that inflation is in spiet of the fact that
some basic commodities have been controlled.
H.M.Jr:
All right.
Eccles:
It would have been higher. Your inflation
that you indicate on your page one would
35
- 33 have been greater than it is had it not
been for certain controlled prices.
Viner:
Yes, but Leon came in when lots of the dirty
work had already been done. He came in late
in the day. This is a two-year picture, you
see.
Eccles:
But you are talking about the increase but
steel and copper would have added to that con-
siderably here if you hadn't had the controlled
prices.
White:
Despite the effective action in keeping down
the prices on some basic commodities.
Henderson:
The President knows that. You don't have to
H.M.Jr:
tell him. I told him. (Laughter)
That is wonderful. I am delighted to put it
Bell:
I think it is all right.
H.M.Jr:
The way Eccles suggests. How did you put
Kuhn:
It would be on the first page. "The increase
on the front page. Can you put it in there?
it, Ferdie?
of twenty-eight basic commodities has increased
forty-eight per cent during the same period,
despite the fact that many basic raw materials
have been controlled by OPACS.
"
Gaston:
"Some", not "many".
Kuhn:
Blough:
All right.
You are willing to call it "controlled"?
H.M.Jr:
What is that laugh?
(Laughter)
36
- 34 Henderson:
Eccles says no, not him. Name an important
commodity outside the agricultural commodities.
H.M.Jr:
Ferdie, will you get your girl and get that
changed?
Kuhn:
She will have to do it over, but that is all
H.M.Jr:
When do you want to do that?
Kuhn:
Right now.
H.M.Jr:
Do you want to go ahead?
Kuhn:
I have two more pages to take out.
H.M.Jr:
I think you had better write it in ink rather
right.
than have her rewrite the whole page. Had
we cleared page three?
Bell:
You hadn't read the last paragraph at the bottom
of page three.
H.M.Jr:
"The Treasury Department has also launched a
plan for selling tax anticipation notes which
will facilitate the prepayment of income taxes
and will more promptly withdraw purchasing
power represented by such taxes. Anybody
want to argue about that? Well, that clears
page three, Ferdie.
Kuhn:
All right. No change at all?
Blough:
No, Mr. Henderson has a change.
Henderson:
I have got it. I would substitute for number
four this language, "Prices will be increasingly
stimulated by, A - The shortage of raw mater-
ials for civilian goods. B - Increased absorption of idle capacity in many industries.
C - Further increases in agriculturel prices
and wages.
- 35 H.M.Jr:
White:
What do you say, Harry?
H.M.Jr:
Jake?
Viner:
It is all right.
H.M.Jr:
George?
Haas:
H.M.Jr:
Henderson:
Eccles:
37
It is all right.
It is O.K.
All right. Those are the boys that worked on
that, anyway.
I would make that four.
You mean further increases if something isn't done
about it?
Henderson:
Even if there is something done about it.
H.M.Jr:
Now we are at the top of page four. All right to
proceed? All right, Dan? If anybody has got an
idea, you know, Professor Currie, if I haven't
heard from you, it is because you haven't shouted.
If I don't hear from you, I take it you are satisfied
Currie:
Yes.
H.M.Jr:
Lubin:
You are not in a modest crowd here, you know.
Just substitute Henderson's statement for paragraph
Kuhn:
I have got it.
H.M.Jr:
one on page three.
"The Ways and Means Committee is holding firmly to
the goal of three and a half billion dollars from
the tax bill.'
Viner:
That ought to be made "at least three and a half,"
H.M.Jr:
or else it doesn't -- at least three and a half".
All right.
Henderson:
The Ways and Means Committee is?
Viner:
Well --
Sullivan:
That is not so, Jake. This is reciting the
fact, and the fact is, they are at three
and a half.
38
- 36 Viner:
We are listing things now that are obstacles
Blough:
No, these are the things that have been done.
Henderson:
These are the things helping to restrain them.
You can just see it in every market, the fact
that they are holding firm to three and a
to inflation.
half billion. You can see how it is holding
prices back. (Laughter)
Viner:
Well, that was my point, Leon.
Henderson:
It says, "Important steps have already been taken
or are being taken to prevent inflation."
White:
Paragraph the next sentence.
H.M.Jr:
Why did you spell out the "Office of Price
Administration" in one place and call it
"OPACS" in another?
Viner:
We decided we wanted it spelled out at least
at one point.
H.M.Jr:
I see.
Haas:
It should have been spelled out the first time.
H.M.Jr:
"The Office of price Administration and Civilian
Supply is making every effort to obtain the
cooperation of producers and distributers in
limiting price rises. These measures to restrain price rises though they have unquestion-
ably been helpful are inadequate to meet the
situation confronting us. We have gone only
a small part of the way it will be necessary
to go. We must attack the problem on all
fronts if we are successfully to check inflation.
Certain tax matters relevant to the problem of
39
- 37 -
inflation are discussed later. The problem,
however, cannot be met by tax measures alone.
There should be additional action along the
following lines. If
White:
Paragraph that sentence, "These measures to
restrain price rises, as well, because it
applies to many measures.
H.M.Jr:
All right.
Now, "(1) OPACS should be given the power to
fix prices where necessary.'
Henderson:
"Given the statutory power." Then say, "Without effective power to impose price ceilings
with direct sanctions" - you see, we could
enforce - if the President would go along with
us and accept the drastic penalty of stopping
transportation, we could enforce every price
ceiling we have got. What you do, it is too
drastic and throws the burden on labor and
consumers also. Without effective power to
enforce price ceilings with direct sanctions.
H.M.Jr:
What does that mean, "direct sanctions"?
Henderson:
Punish a violator--
Viner:
By something that hurts.
Henderson:
No, by proceeding against him directly for
violation of that specific order in a court
of law.
H.M.Jr:
Is that legal language, "by direct sanction"?
Henderson: Yes.
Foley:
Yes.
Henderson:
We are using now an indirect pressure and the
40
- 38 group committee in the last war used entirely
indirect sanctions after the Labor Act was
thrown out.
Gaston:
Isn't penalties better than sanctions?
Henderson:
Yes.
H.M.Jr:
I like the word "penalties."
Eccles:
More generally understood.
H.M.Jr:
Penalty.
"The mere possession of such power tends to make
its exercise unnecessary. The attempt to prevent unwanted price increases by fiat, however,
is bound to break down here, as it has elsewhere, unless it is accompanied not only by
an adequate fiscal program to absorb buying
power, but also by the additional methods
listed below.' 11
Henderson:
Can you make a paragraph of the attempt?
White:
Yes, that should be paragraphed.
H.M.Jr:
Now, Ferdie, I will wait here a minute if your
young lady is out there.
Kuhn:
All right, I will be right back.
H.M.Jr:
We can keep talking.
Do you want something else on page four, Leon?
Henderson:
No, I am up on five trying to revise that.
H.M.Jr:
"(2) Increase the supplies of goods required
for military and civilian needs. Increased
output is in itself a major objective of our
Defense Program and the most effective and
41
- 39 desirable means of preventing inflation.
There should be further exploration of the
possibilities of inducing expansion of production facilities and labor supply where
such response could not be expected to occur
automatically."
That that?
is a good paragraph. Is everybody happy
with
Are you working on three?
Henderson:
Yes.
H.M.Jr:
Do you want us to skip it?
Henderson:
Yes.
H.M.Jr:
All right.
"(4) Extension of the general controls over
bank credit." "
Is that all right, Marriner?
Eccles:
Well, I think as a general statement, yes, that
H.M.Jr:
is all right. Of course, as I understand, this
is very general. That is all it can be.
Sure. If he asks me how, I will say, "I don't
know," but at least that brings it in.
Is that all right?
Eccles:
Yes.
H.M.Jr:
"(5) Establishment of controls over the
entire field of consumer credit."
Well, you have got that ready, haven't you?
Eccles:
We are just--
42
- 40 Bell:
Waiting for us.
H.M.Jr:
Well, and I didn't make good on my promise
Eccles:
I knew you had this.
Bell:
It is because of this.
H.M.Jr:
Only because of this, but I started in at
yesterday.
nine o'clock yesterday and canceled appoint-
ments and just stuck with this.
Eccles:
When this came up, I knew that other would be--
H.M.Jr:
I will try to get to it this afternoon. I am
sorry, but you understand.
Eccles:
Yes, I understand.
Bell:
We have got some work to do on it, Mr. Secretary, before you see us.
H.M.Jr:
All right.
Bell:
We want to have a conference with Marriner and
Leon's people.
H.M.Jr:
Couldn't you do that this afternoon?
Eccles:
That is scheduled for this afternoon, isn't it?
Bell:
There was no hour set. It was scheduled if we
could get to it.
Eccles:
I understood the boys figured on seeing you
this afternoon.
H.M.Jr:
Then you are not waiting on me?
Bell:
No, they are waiting on me.
43
- 41 Eccles:
Dan has to have a conference with our staffs.
H.M.Jr:
Then I withdraw my apologies.
White:
The British are supposed to be at three in
the Undersecretary's office. Do you want to
postpone that?
H.M.Jr:
Are you sitting in on that?
Bell:
Yes.
H.M.Jr:
Well, let Dan do his and you (White) do the
British.
Bell:
No, I want Harry and George and Jake Viner in
on my conference.
H.M.Jr:
Then I think we owe it to Marriner to give him
the precedence.
White:
Then
we will postpone the British until tomorrow.
Henderson:
On number three, I give in advance what the
idea is. Three, delegation to OPACS of
priority authority to provide systematic
rationing of scarce supplies to industries
making civilian goods. You see, the priority you are going to add a sentence, I understand,
which would take note of the necessity of
labor rationing of consumption goods.
Now, if you want to - I ought to put you on
notice as to what this means. This means
that you are endorsing the idea that we have
the direct authority to make this priority in
civilian goods. We are doing it now.
H.M.Jr:
Listen--
White:
Aren't you getting into a fight with--
44
- 42 Henderson:
No.
H.M.Jr:
Didn't I cross that bridge when I forwarded
that very thing to the President while you
were out of town, remember?
Henderson:
Yes. Well, as I say, I think it is fair to
put you on notice.
H.M.Jr:
No, but you remember I forwarded that thing.
Henderson:
That is right, and we are doing it now. That
is, we set up the first set of priorities
wherever the utilities and maintenance of the
services and then second for repairs--
H.M.Jr:
Does this mean I am going to get into a fight
with the OPM?
Lubin:
Yes.
White:
It may be a fight you may be willing to undertake,
because I think it will have a much better
effect--
H.M.Jr:
Leon - Leon, I crossed that bridge. What
month was that?
Henderson:
In February.
H.M.Jr:
So that is - I sink or swim with you. Just
as long as I don't have to give up my aluminum
to the junk dealers of America. (Facetiously)
Henderson:
We want to say in number five, "Establishment
of controls over the entire field of consumer
credit by a new Executive Order." Is that
all right, Marriner?
H.M.Jr:
Eccles:
That is in the President's hands.
I believe, inasmuch as we haven't discussed it
45
- 43 with him yet-H.M.Jr:
No, he would say, "Well--"
Eccles:
I think when he finds out it ought to be in a
conference, don't you think so?
H.M.Jr:
No, I think that would be wrong.
Now, Ferdie, are we going too fast?
Kuhn:
Not at all.
H.M.Jr:
How far are you?
Kuhn:
Item four of page 5.
H.M.Jr:
We are all right on five. We are all right-You have a little insert on page five, Mr.
Kuhn:
Henderson, as a substitute for paragraph three?
Viner:
That sentence that I gave you follows his.
Kuhn:
"Delegation to OPACS of priority authority to
provide systematic rationing of scarce supplies
to industries making civilian goods." In order
to obtain a fair distribution of supplies among
consumers, it may later prove necessary to
extend the rationing to consumers.
Lubin:
Public consumers?
Henderson:
All consumers.
Lubin:
Yes, ultimate consumers.
H.M.Jr:
All right?
Go ahead, Ferdie.
Kuhn:
O.K.
46
- 44 H.M.Jr:
"(6)." We all agreed on that a long time
ago and sent it over to the President and
nothing happened.
Eccles:
Listen, I would like to make a suggestion.
Wait until we get down to eight.
H.M.Jr:
You are all right on six, aren't you, Marriner?
Only partly. Let me suggest this, that instead of six and the last part of eight, consider the advisability of substituting under
Eccles:
one of them a permit system.
Now, merely to control capital issues doesn't
mean much, because your great business con-
cerns and individuals with cash don't have to
have capital issues.
White:
That is right, that shouldn't be issues.
Eccles:
Well, that is the difference. When you are
talking about control of capital--
White:
And we shifted. You are right.
Eccles:
That doesn't mean a thing.
White:
That is right.
Eccles:
White:
Eccles:
You have got capital issues, however.
That is right. Well, that should be changed.
Why not, instead of controlling of capital, why
not put it this way. Consider the advisability
of substituting a permit system.
Now, in the last war all capital construction,
a permit system was required before you could
undertake it.
47
- 45 White:
Except that I think that there has already
been a good deal of discussion with your
group and they have agreed on some kind of an
Executive Order which may not go so far as
statutory powers - as far as you might later
want to go, but certainly has in it all the
broad powers you are thinking of as a beginning
and this would relate back to that and without
introducing any new thought, I think you would
be satisfied if that other bill or Executive
Order could be issued.
Eccles:
Well, as I understand the proposed Executive
Order, all that does is give to a committee
the power over capital issues.
White:
No,
it wasn't only over capital issues. I
think it was some--
Eccles:
Which doesn't get at your problem.
White:
Itoo.
think it was so worded to meet your problem
Eccles:
I didn't - I wasn't favorable to it, because
I felt it was so thoroughly inadequate.
H.M.Jr:
Can I interrupt? All we are trying to do here
is just list it as a problem, that is all. I
mean, it is just a short sentence.
Eccles:
But I do think you have got a problem of
capital construction, but the capital issue
is the question of financing and that isn't
the problem, because most of this is done out
of cash and not by issuing security issues at
all.
White:
Either cash or extensions of bank credit.
Haas:
Call it, Marriner, the whole thing capital,
but substitute extensions for the word "issues",
48
- 46 and then you have got the broader term.
Eccles:
That may be.
Bell:
"Capital expenditures."
Viner:
That is right.
Eccles:
That is all right, Dan.
H.M.Jr:
All right? O.K.?
Eccles:
Yes.
H.M.Jr:
That would
wouldn't
it? go for municipalities also then,
Viner:
No.
H.M.Jr:
Wouldn't it?
White:
It is a question of legal powers.
H.M.Jr:
Well--
Bell:
Why not? You would have control over the
person who contracted for it.
White:
You could stop it at that.
Bell:
Sure.
H.M.Jr:
How would six read now, Ferdie?
Kuhn:
"Creation of controls over capital expenditures."
H.M.Jr:
Is that all right, Marriner?
Eccles:
Well, I think that is general enough that
you possibly could cover everything.
49
- 47 H.M.Jr:
Are you satisfied?
Eccles:
Yes.
H.M.Jr:
All right. How about seven?
Currie:
Mr. Secretary, I don't think I am quite prepared to go along with seven yet. I haven't
discussed this with Jake until today. This
is a possibility. Another possibility would
be a more generalized schem of deferred pay
or enforced savings. I am not sure that we
are prepared at this particular point to say
that this is the particular scheme to cut
down consuming purchaser power and pay them
back later because there are a lot of difficulties, administrative and others. It may
be inequitable in a way to utilize this means
of collecting people's incomes now with a
promise you are going to pay them back later
because these particular people may not
qualify later. There were a lot left out of
the present insurance schemes. You could have
more general words there which might cover
the other possibility when they get around
to studying it.
White:
Well, Lauch, if you just eliminated the word
"and contributions," just "which greater
coverage, wouldn't that meet your point?
Bell:
That might mean outgo.
White:
Bringing new people in under the Social
Security.
Eccles:
It seems to me this thing has more merit than
the British system. You have already got it
set up. You can expand it and increase the
rates, which would certainly have a - you
could build up a big fund now by increasing
the rates, and it would be deflationary.
50
- 48 Later on you could stop you
Currie:
Well, I didn't want to argue the merits of it
now, Marriner. I have not studied it enough
to make sure that this is the thing we are
going to propose rather than a more generalized,
deferred enforced savings.
Viner:
I am under the impression that even if you
decided to have another elaborate scheme of
the other sort, there still is a case for the
extension of our Social Security program, and
that, therefore, what you are saying is not
really hostile to this except as putting it
Currie:
here implies that that is the way we think.
As long as this is not exclusive.
Viner:
Yes.
Lubin:
There is one aspect of this thing that politi-
cally is significant. I don't think it is very
significant economically. Namely, the movement
in various states to cut down these contributions due to the large size of the fund
plus the application because of the legal
situation of your experience rating, which
means again smaller contributions. Do you
want to put the positive in as well as the
negative - or rather, the negative as well
as the positive, that there should be no
curtailment in these contributions at the
present time?
Eccles:
There should be no curtailment. But they
should be increased.
Viner:
The implication here is that we ought to move
in that other direction, but I don't believe
we need to spell it out here.
Eccles:
There is one thing in connection with seven
51
- 49 -
that I think you should put in if you are
going to leave that in and that is that the
extention of the program should call for increased benefit provisions that in justification for the maintenance of rates and also
increasing rates, that it is to increase benefits at such time as may be required, and you
could say that it would increase the outflow
of funds we needed in a post defense period.
Haas:
Bell:
We
could leave it out. I mean, it is just an
enumeration.
How about just a study of the Social Security
program?
Currie:
Or measures to reduce consumer purchasing now
to be compensated by increased buying power
at a later date, to cover this and other
schemes?
White:
I am surprised, Lauch, that you don't want
this in if it is not indicated as exclusive.
I think that this increased coverage would
be something that if it doesn't - and it
doesn't exclude any other method, would be
something that you would be glad to stick in
wherever you could.
Currie:
It is increased contributions.
White:
Delete the "contributions."
Eccles:
I think I would rank that as the best of the
whole bunch, as right near the very top in
importance, the mechanism to build up a real
fund as a backlog for expenditures later on.
Lubin:
I would like to substitute that last clause
for the present last clause, leave out "would
not involve" and substitute for it, "and would
provide a source of income when - in the post
defense period," something of that sort.
52
- 50 H.M.Jr:
There is so much disagreement here that I
would just as lief make it very concise and
simply say, "reexamination of the Social
Security Program." 11
Eccles:
For what purpose?
H.M.Jr:
Well, for the same purpose as everything else.
Eccles:
For the purpose of increasing coverage, increasing rates, increasing benefits?
H.M.Jr:
Why do you want to control capital issues?
Eccles:
White:
You don't explain why. It is the whole thing.
Capital expenditures. Well-Control of capital issues can only go in one
direction and that is a restriction.
H.M.Jr:
I am inclined to over simplify it. Marriner,
don't feel badly if we don't have enough time
when it comes to taxes. But I have got from
now until five minutes of eleven. How would
you like to leave it, gentlemen?
Eccles:
I think the statement - leave that up to
study with what idea in mind? With the idea
in mind that you increase coverage, increase
taxes, and increase benefits. That is the
purpose.
Now, you are going to study to see whether or
not it is feasible to increase taxes, benefits,
the idea being that if that could be done, it
would increase the outflow of funds when
needed in the post defense period.
Lubin:
May I suggest this?
"(7) Extension of Social Security program
along the lines which would increase the flow
53
- 51 funds to the Treasury from current income
during the emergency." If
Eccles:
"And later increase the - " we could add to
that, "and later would increase the outflow
H.M.Jr:
of funds when needed in the defense period."
That is good.
Henderson:
I like that.
Eccles:
That does it.
H.M.Jr:
Does that suit you, Lauch?
H.M.Jr:
No, that doesn't suit me, that last sentence.
I don't know what that means.
Eccles:
H.M.Jr:
What?
"And increase outflow of funds during the
defense period."
Eccles:
No, "post defense", after. It increases funds
to the Treasury now, and there will be an outflow of funds later when needed.
H.M.Jr:
I didn't hear the word "post."
Currie:
With convenient measures to accomplish that.
Eccles:
Yes. With the idea of making it accomplish
that.
H.M.Jr:
Have you got it, Ferdie?
Kuhn:
Yes, "An extension of the Social Security program along lines which would increase the flow
of funds to the Treasury from current income
during the emergency and would increase the
outflow of funds in the post defense period."
54
- 52 Foley:
That is right.
H.M.Jr:
All right?
Currie:
Can you say "Social Security and/or other
means"?
H.M.Jr:
What does that mean?
Henderson:
Social Security and other programs.
Currie:
And other measures.
H.M.Jr:
Such as what?
Viner:
Bearing on payrolls, you have got to bring
that in.
H.M.Jr:
Such as what?
Currie:
You may want to have a more generalized--
Bell:
Dismissal wage, you mean.
Currie:
than just the Social Security's deal. We
may, by next year, want to go something like
the British system, I don't know. I really
haven't canvassed that yet.
Lubin:
But there will be three more memos between
now and next year.
H.M.Jr:
I would like to leave it the way you have got
it now.
Read it, Ferdie.
Kuhn:
"An extension of the Social Security program
along the lines which would increase the flow
of funds to the Treasury from current income
during the emergency and would increase the
outflow of funds in the post defense period."
55
- 53 H.M.Jr:
Does that satisfy you, Jake?
Viner:
Yes.
Kuhn:
You could put in "would increase the outflow
of funds when needed in the post defense
period.'
Lubin:
If needed.
H.M.Jr:
Lubin?
Marriner?
Eccles:
I have got "increase the outflow of funds
when needed in the post defense." You
could say "if needed," 11 if there is any "if."
H.M.Jr:
If you don't mind, Lauch, as somebody said,
there will be three other memoranda.
Currie:
That is right.
H.M.Jr:
All right, can we go on to the next? Are
you all right, Ferdie?
Kuhn:
Yes, sir.
H.M.Jr:
What about eight?
Eccles:
It seems to me that your reduction of non-
Federal expenditures-H.M.Jr:
Eccles:
Non-essential.
belongs with nine, at least that part.
I would put "reduction of non-Federal expenditures" and "an appeal for economy to states
and local governments, If tie that together
under one heading. I think that the "Federal
underwriting, non-emergency housing expenditures,
56
- 54 mortgages," belong under the capital issues
thing. I think you might expand that because
a capital expenditure for a store building or
a house or a plant-H.M.Jr:
Take your suggestion, "reduction of non-essential expenditures and "an appeal for economy
to State and local governments, I think those
things could go together in nine.
Kuhn:
Want to leave out the last half of eight?
H.M.Jr:
No.
Henderson:
No. I could agree technically that it is a
capital issue, but in order to make sure that
the President sees it, I would like to make
it number eight.
Eccles:
That is all right, make it separate, then.
Henderson:
Because we have already been moving in that
field ourselves.
Eccles:
Well, the only question I rase, all you are
talking about is Federal lending and under-
writing. It isn't just the Federal thing that
you want here.
H.M.Jr:
Bell:
White:
Dan, is it all right to put that non-essential
Federal, state, and local thing in together?
I think so.
That would be taken care of in the earlier
part, whereas you would hardly be given control
over Federal, so that I think--
Eccles:
No, Well, all right.
White:
Privately taken care of.
57
- 55 H.M.Jr:
Having taken out "the non-essential Federal,"
what is left in eight?
Kuhn:
"Reduction of the Federal lending and underwriting program, such as non-emergency housing
expenditures and mortgage guarantees.
Nine would read, "Reduction of non-essential
Federal expenditures," semi-colon, "also an
appeal for economy to state and local governments."
Is that right?
Eccles:
H.M.Jr:
Henderson:
Yes, that is right.
Want
to step out a minute, Ferdie, and get that
started?
Before you go out, of course, as you say, there
are three more to come.
H.M.Jr:
Henderson:
Three more?
Somebody said there were three more memos to
come.
H.M.Jr:
You said that.
Henderson:
If we ever get it out publicly, instead of
curtailment of the borrowing for non-emergency
expenditures, I would make it a positive, the
building up of a back log for the post defense
area
tures.by postponement of non-emergency expendiH.M.Jr:
It is all right.
"Even with substantial action along all of
these lines it seems probable to us that some
undesirable price inflation will occur in this
fiscal year If our tax program is not carried
58
- 56 further than has as yet been proposed. We,
therefore, urge that the tax program now
under consideration by Congress be reexamined
in the light of the following considerations."
White:
That is where we need Lubin's paragraph. I
started writing it up.
H.M.Jr:
The catch-all?
White:
Well, a better tie-up on the problem of inflation with the tax program.
H.M.Jr:
Let's wait until Kuhn comes back.
White:
To save time, Roy might try to write that
basket paragraph on taxation. Lubin is writing
a different one. I mean, it might be acceptable. A paragraph which would direct the
President's attention to the other tax comments which were in the first draft, Roy, and
which were deleted in the subsequent draft.
Blough:
One of those was joint returns. I don't know
H.M.Jr:
Well, I have made up my mind, but there is
Blough:
And with respect to individual income taxes,
if you have made up your mind, Mr. Secretary,
on that subject.
so much difference of opinion here. I have
never discussed it with Sullivan.
I am not sure what the Chairman had in mind
about - or Mr. Currie had in mind about that.
H.M.Jr:
I think that--
White:
Or you could have one sentence saying that this
is the only tax. I think there is something
in the criticism that unless you mention something, it will seem that the President approves
of everything else.
- 57 H.M.Jr:
Well, Mr. Roosevelt has a mind of his own,
and when he gets this thing, he will say,
"Now what about these other things?"
Kuhn:
Are you all right, Ferdie?
Yes, sir.
H.M.Jr:
Let's go.
"It is important that the annual addition to
the Treasury revenues provided by the new
tax bill shall not fall below the $3.5 billion level. In fact, it is apparent from the
size of the appropriations and the pressures
of consumer purchasing power on prices that
further increases in rates or extensions of
taxes will be necessary not later than next
Spring."
Eccles:
We are talking about a three and a half billion tax bill. I am just wondering whether
we shouldn't say that taxes even beyond this
amount.
Foley:
That is there, isn't it, Marriner?
Eccles:
Should not fall below it, you see.
H.M.Jr:
Well, the next sentence, "further increases
in rates or extensions of taxes will be necessary not later than next Spring."
Eccles:
Yes, but the rates that you put in next spring
don't give you the revenue until the following
year.
H.M.Jr:
True.
Eccles:
Which isn't soon enough. It seems to me that
with a year's lag existing, that you have got
to get your tax bill in - passed this year so
59
60
- 58 that you begin getting your revenue next year.
If you wait until next spring to put it in,
in '42,
it is just too late to do any good on
this
front.
White:
Do you want to merely say, "are necessary,"
period.
Sullivan:
"Will be necessary."
Viner:
"Should likely be necessary before next spring."
H.M.Jr:
That is all right.
Eccles:
Well, I have got - I think they should be pro-
Viner:
The question is whether now or next month. It
may be good to get this bill out of the way.
Eccles:
"Should be provided for this year." That is
what your present tax bill does, provide for
taxes this year that you collect next year.
H.M.Jr:
How would this do, simply say, "increase in
rates or extension of taxes will be necessary,"
period. Then you have no time factor.
Eccles:
Well, that is better than putting "next spring."
Cut out, "not later than next spring."
I would cut that out.
H.M.Jr:
Eccles:
vided for now.
H.M.Jr:
We can do it this fall, next January, any time
we want. All right, Marriner?
Viner:
I would say, "are necessary."
Eccles:
It leaves the date open.
H.M.Jr:
"Taxes are necessary." I am satisfied with that.
61
- 59 Blough:
Someone brought up the point about a little
lesson to Doughton and Cooper on taxes and
inflation. Is this where you had in mind it
should go in?
White:
No, it was right before part two in the
transitional paragraph Lubin is drafting now.
H.M.Jr:
In form - it reads that they are necessary.
"In formulating the excise tax program an
important consideration should be to reduce
the demand of producers and consumers for
scarce commodities which compete with Defense
Program and to absorb windfall profits resulting from scarcity of supply relative to demand.
Thus the tax on passenger automobiles might
well be made much higher than the 7 percent
adopted by the Committee. The production of
passenger automobiles will undoubtedly have
to be greatly restricted. It would be extremely
difficult to prevent price rises on cars sold
by some retailers or the setting up of a
"black market" in new and slightly used cars.
It is probable that the excise tax will in
large part come out of windfall profits to
producers and dealers in automobiles, rather
than being passed on in full in higher prices."
Currie:
I think there, Mr. Secretary, that they will
be passed on in full. I wonder if it isn't
probable that the absence of a high tax will
result in windfall profits. Profiteers would
then be in a position to take advantage.
Viner:
That is right. You are right.
Eccles:
Here is a suggestion I would like to make on
it along that line. "It is probable that a
sufficiently high excise tax will prevent
increased prices from resulting in windfall
62
- 60 profits for dealers and middlemen and will
not increase prices of automobiles to con-
sumers beyond what they otherwise would be."
H.M.Jr:
Are you sure of that?
Sullivan:
That is good.
Eccles:
Beyond what they otherwise would be.
White:
The price would include the tax.
Eccles:
That is right, but the point is, if we didn't
put the tax on, the consumers would pay just
the same as they did otherwise. Therefore,
the tax amounts to, you see - did you get
that?
Kuhn:
I am going to get it from you, if I may.
Eccles:
All right.
"It is probable that 8 sufficiently high excise
tax will prevent increased prices from resulting in windfall profits--'
H.M.Jr:
Wait a minute, you know he writes longhand.
Eccles:
Oh!
Kuhn:
It is all right.
Eccles:
He is pretty good, then.
H.M.Jr:
He is if he got it.
Eccles:
"For dealers and middlemen and will not increase
prices of automobiles to consumers beyond what
they otherwise would be."
White:
Do you want to add a further thought, Leon, that
63
- 61 moreover it will also make the problem of
price control much easier?
Viner:
That was certainly in our minds.
Henderson:
Yes.
White:
Otherwise, it appears that price control
might replace that, when that isn't so.
Eccles:
Well, isn't this whole program to lessen
the problem of price control, and isn't Leon
in the beginning indicating that the whole
thing is really to supplement and reduce
what otherwise would be necessary by way of
White:
price control? Don't you think that is
implied in the first part, Harry?
Yes, it is.
Henderson:
We are going to try to control prices at the
second-hand level and the trading level.
H.M.Jr:
Is that wording agreeable to you?
Henderson:
Oh, yes.
H.M.Jr:
It is all right with me, then.
Now we go ahead.
Ferdie, you are waiting for six, aren't you,
to get something from Lubin?
Lubin:
Could we have a look at what I have got here?
H.M.Jr:
Please.
Lubin:
Second paragraph.
"Even with substantial action along all of these
lines it seems probable to us that some undesirable price inflation inflation will occur in this
64
- 62 fiscal year unless there be a radical change
in our attitude toward our tax structure.
If inflation is to be controlled, a tax program should be enacted which will increase
pressure on
the flow of funds into the
the - the
limited supply of goods
ciently the price to of level curtail the of consuming the pressure purchasing Treasury suffi- power upward
which will be available in certain lines.
Viner:
I think that is all right. I would find
another word for "radical," there.
White:
"Drastic."
Henderson:
These conservatives never let up, do they?
How is this on that?
Eccles:
"The principal mechanism for diverting the
rising stream of buying power from inflationary
outlets is taxation. It is the most effective
as well as the most equitable of all the broad
functional powers of the Government. The tax
system should be designed to recapture for
the Government a large part of defense expenditures and, so far as possible, to reduce consumer demand for goods, of which the supply is
inadequate, to tax back into the Treasury
currently an amount equal to that spent dur-
ing the - " well I have got here, "tax back
in the Treasury the amount spent during the
emergency program is not practical."
Lubin:
I would take what you have got there in preference to mine, if you leave out the equity
considerations.
Eccles:
It is the most effective--
Lubin:
We are talking now about only one thing, con-
troll of inflation, you see.
65
- 63 Viner:
An engineering job to be done.
Eccles:
"It is the most effective then of all the
broad functional powers at the command of the
Government.
Lubin:
And then leave out the question of taking back
and so forth. Leave in only the question of
consumer demand.
Eccles:
Well, it isn't as effective as direct price
Viner:
Oh, yes it is.
White:
Viner:
Well, we say "direct price control--"
"Effective without taxation."
H.M.Jr:
Do you mind reading that slowly, Marriner?
Eccles:
H.M.Jr:
I just say, "The principal--"
This is to come after nine, is it?
Eccles:
"The principal mechanism--"
Lubin:
We ought to have an introductory paragraph.
control.
"Even with a substantial action along all of
these lines, it seems probable to us that
some price inflation will occur in this fiscal
attitude toward our tax structure.
year unless we have a drastic change in our
Then go on.
"The principal mechanism for diverting this
rising scheme of buying power from inflation-
ary outlets is taxation.
Lubin:
Yes.
ff
Eccles:
66
- 64 -
It is the most effective of all the broad
powers - you cut out functional - "at the
Eccles:
"
command of the Government. The tax system
should be designed to recapture for the
Government--'
Lubin:
Leave that "recaptured" stuff out.
Viner:
You don't need any more on that, do you?
Eccles:
Just drop it then.
Lubin:
Explain how your tax--
Eccles:
Simply say, "The tax system should be designed
to reduce consumer demand--'
Lubin:
Eccles:
That is right.
"
".... for goods of which the supply is inade-
quate. If
Lubin:
And stop right there.
H.M.Jr:
Just do it again. There is one thing you
said that I wasn't quite sure about. Do you
mind?
"Even with substantial action along all of
these lines, it seems probable to us that some
undesirable price inflation will occur in this
fiscal year unless our-Lubin:
"Unless we have a drastic change in our present
attitude toward our tax structure."
Henderson:
"Tax policy." "
H.M.Jr:
Just a minute, aren't these fellows going to
say, "What the hell do you think we have been
doing?" Do you want to say that it has to
be drastic?
67
- 65 White:
"Unless there is a full realization of the
rule--"
H.M.Jr:
Can't you say, "more comprehensive"?
Lubin:
It is all right.
H.M.Jr:
I just thought "drastic" might be a little
offensive to them. "Comprehensive"?
Lubin:
It is all right.
H.M.Jr:
"Comprehensive" and "marked." You can use
both words.
Lubin:
The weakness of the whole program lies in the
fact that they haven't conceived of taxation
as a means of controlling inflation. They
are thinking of it only as a revenue measure.
H.M.Jr:
Would you read yours again slowly.
Eccles:
Right.
"The principal mechanism for diverting this
rising stream of buying power from inflationary
outlets is taxation. It is the most effective
of all the broad powers at the command of the
Government. The tax system should be designed,
so far as possible, to reduce consumer demand
for goods, of which the supply is inadequate."
H.M.Jr:
Sullivan:
Are you satisfied with that, John?
Yes, sir.
H.M.Jr:
Roy?
Blough:
I think so.
H.M.Jr:
What don't you like about it?
68
- 66 Blough:
Isentence.
am a little skittish about the last
H.M.Jr:
What is that? Speak up, Roy.
Blough:
Would you mind reading it again, Mr. Chairman.
Eccles:
"The tax system should be designed to reduce
consumer demand--"
Well, that is O.K.
Blough:
Eccles:
If
for goods - now you can stop there, if you
want to, but I would say for goods of which the
supply is inadequate. You don't want to reduce the consumer demand for goods if you
have got an excess supply. You want to reduce the demand for goods of which the supply
is inadequate.
Blough:
I guess that is general enough.
H.M.Jr:
Are you satisfied?
Bell:
Yes.
H.M.Jr:
Are you?
White:
That is all right.
Eccles:
I think you have got to add that part.
Yes, I think so.
Viner:
Gaston:
I have two objections to Lube's sentence.
The first is the word "unless," because I
think that we are not going to have any perfect controls, and you are going to have
undesirable price rises and then a radical
change in tax policy, I agree with the Sec-
retary that - or attitude toward tax policy,
that that is likely to be an affront to the
69
- 67 Committee. I would say something like this:
"There will be these undesirable price rises
except to the extent that they may be controlled through tax policy." "
Lubin:
Good. Sounds all right. You say in spite of
all these other activities, there will be
these other price rises except to the extent
they can be controlled by the tax policy.
Blough:
Isn't that saying the tax policy can control
Gaston:
No, except to the extent--
Viner:
You start it with "even if." You still re-
them-
tain, "even with substantial."
Blough:
This is the only other one, though. You are
saying we have these. Even if you do these--
Viner:
We still need more taxation.
Blough:
That isn't what it says. You are saying
except to the extent that you control it through
taxation. There may be some other thing that
you haven't put in here, which is logically
excluded.
White:
If you add "under other means," then it be-
comes meaningless.
Sullivan:
You proposed a tax on something all through
this bill, and they said, "Why, no. Henderson
will take care of that."
White:
If you say, "and other means," what you are
saying is that you are going to have price
rises unless you don't.
H.M.Jr:
Get together, boys, we have got to move. What
is it you are arguing about, Gaston's revised
70
- 68 statement?
Gaston:
Yes.
Blough:
I think one word in that statement - I don't
know what it goes like now.
Kuhn:
It is, "even with substantial action along
all of these lines, it seems probable to us
that some undesirable price inflation will
occur in this fiscal year except to the extent
that it can be controlled by a tax policy."
Viner:
"By national tax measures."
Eccles:
You can't control it this year.
I am inclined to think it was a little safer
as it was said before, if you water down
White:
the "drastic" to "comprehensive." Maybe
Herbert won't object to it.
Kuhn:
It seems probable to us that some undesirable
price inflation will occur this year unless
we have a marked and--"
Gaston:
You can correct the whole thing by a radical
change in your tax policy is what that implies.
Eccles:
Why don't you say, "taxation and other means."
Then you come to, "The principal mechanism for
averting this is taxes, ft but you don't say
White:
it is the only one.
Yes, I think that is safe enough.
H.M.Jr:
How is it now, Ferdie?
Kuhn:
"It seems probable to us that some undesirable
price inflation will occur in this fiscal
year except to the extent that it can be
71
- 69 controlled by taxation and other--"
Eccles:
"Other policies."
11
Kuhn:
Eccles:
and other policies."
That is right.
Now
is-- the principal mechanism for diverting it
White:
I don't like to be meticulous, but that state-
ment sounds - you are going to have price
rises unless you can control them by taxation and other means.
Eccles:
Viner:
That is right.
Which will not be sufficient.
Currie:
Back on page four you say, "The problem,
however, can not be met by tax measures alone."
Viner:
Now we are saying they can't be met by tax
measures plus everything else.
Lubin:
No, you are emphasizing your tax program now.
H.M.Jr:
Let me tell you what the Vice President,
according to Dow Jones, says: "Vice President Wallace strongly enforces a policy of
stiff taxation and Government bond buying by
individuals as means of holding down consumer purchasing power and checking possible
price inflation. The Vice President's position
on the controversial price control policy was
disclosed yesterday to Associated Press reporters. The problem has been under discussion for several weeks. The effective way
to check inflation is through measures which
would hold down through purchasing power
rather than by direct price control measures
72
- 70 as has been proposed by the Price Control
Administrator Henderson."
This is fairly hot.
Henderson:
Yes.
Kuhn:
I think this is logical, Mr. Secretary. You
say you can't achieve these things by taxation alone, but in this sentence you are say-
Lubin:
ing that you can't do it without taxation.
That is what I say.
Gaston:
Why don't you just say: "Even with all these
measures listed above, there will be some
undesirable price rises, and an important way
to accomplish further corrections is the
tax instrument.
White:
But in order to keep those price increases
down to a minimum, it is essential.
Henderson:
That is right.
H.M.Jr:
That is the way I liked it, but I am sorry I I don't get it now at all.
Blough:
What you are really saying is, unless taxation
is greatly increased, aren't you?
H.M.Jr:
Read it once more, will you.
Kuhn:
"Even with substantial action along all of
these lines, it seems probable to us that some
undesirable price inflation will occur in
this fiscal year except to the extent that it
can be controlled by taxation."
Viner:
I would say, "except to the extent that further
tax measures control it."
73
- 71 Lubin:
Viner:
That is all right.
That would fit in with the rest if that
is what you have in mind.
Kuhn:
That doesn't exclude other measures.
H.M.Jr:
I don't like it. It looks to me as though
you are really not saying anything.
Viner:
You are saying that you need further tax
measures.
H.M.Jr:
Why say it in a double negative form? On
one hand you say one thing and then you say
"Not matter what you do, you are going to
have inflation anyway. Try it once more.
Blough:
You might say, "Unless further tax measures
Eccles:
Why don't you say, "The principal means for
converting this rising stream of buying power
are taken to control it."
from inflationary outlets is taxation"?
Lubin:
That is an explanation of your first sentence.
It elaborates the first sentence as to why
you do it.
Gaston:
"Even with all that has been - all these
controls listed above, there will still be
undesirable changes. Other means must be
sought to control them. The most important
of these is tax policy." If
Kuhn:
H.M.Jr:
Kuhn:
That is good.
Now put that down and let's see how that sounds.
"Even with substantial action along all of
these lines, it seems probable to us that some
undesirable price inflation will occur in this
74
- 72 fiscal year." Stop. "Other means must be
sought to control it." And then go on to
Mr. Eccles', "The principal and most effective
weapon is taxation."
H.M.Jr:
Is that all right?
Gaston:
H.M.Jr:
O.K. That is what I was trying to get.
Let's go to press.
Kuhn:
May I ask one question before I take that out?
H.M.Jr:
Yes.
Kuhn:
At the very beginning of page six, it would
read, "Reduction _" number nine, "Reduction
of non-essential Federal expenditures. Thus
building a backlog for the post defense period.
Also in a field of economy for state and local
expenditures" and so on.
H.M.Jr:
"Building a backlog" applies to both.
Henderson:
It applies more in this period to the states.
H.M.Jr:
Ferdie, if you can get that in, I doubt if
we can get any more. Go ahead, will you,
Ferdie.
White:
If you like, you can skip to the last page,
because the others, the revision is merely a
smoothing and a clarifying of the illustrations. It doesn't raise any points.
H.M.Jr:
May I read it?
Roy, on page eight, isn't that practically
the same, eight?
Blough:
Yes, it is.
75
- 73 H.M.Jr:
Are there any changes on nine?
Blough:
No, no changes on nine.
H.M.Jr:
Ten?
Blough:
No changes on ten.
H.M.Jr:
Well, now, does anybody want to say whether
there is anything they could do at the bottom?
Marriner, did you write anything out at the
end? Isthere?
there anything that you have got
written
Eccles:
You mean on the tax picture?
H.M.Jr:
Yes, something that could go on at the end?
Do we have time to have it written?
Eccles:
No, I didn't fit in anything on the end. I
was thinking of the excess profit end. It
seemed to me that it possibly could be made
a little more effective, and I had here this
thought, that during the emergency we should
have to rely heavily upon the excess profits
tax, because, business units, are the greatest
beneficiaries directly and indirectly from
defense expenditures. The profits accruing
from the expanding national income tend to
become concentrated here in the first instance.
Consequently, one of the surest ways to insure
against price inflation is for the Government
to levy on such profits and divert them
directly into the defense program before
they are distributed into the general income
stream through higher wages and increased
defense dividends. If not so diverted at
one, they will swell the general level of
effective purchasing power in the country,
and the Government will be obliged to go
through the far more complicated operation
76
- 74 of checking more of them through personal
income, excise, and other forms of
taxation. You have to do that anyway. Tap-
ping these profits at their source is a logical procedure during this emergency. Perhaps
the most compelling reason for - perhaps the
most compelling reason of all for the imposition
of excess profits tax is that if not taken
by the Government, such profits will lead to
further demands for higher wages and properly
so. If wage increases continued to be
freely granted to those who have already
received substantial wage increases, they
will swell unduly the volume of consumer pur-
chasing power. There is one other point,
and then I am through.
"With the increased personal income tax that
will be required in any event, especially in
the brackets of from five to fifty thousand,
many corporations may be expected to leave
large portions of their profits undistributed.
In the absence of an undistributed profits
tax, therefore, these profits, unless taxed
through excess profits tax will be beyond the
reach of the Government.
White:
I think much of that is very good. I think
you can boil that down.
Eccles:
Yes.
Viner:
The only point that bothers me about that is
that excess profits tax is not an issue here,
as I gather it, but the form of the tax or the
extent of the tax.
Blough:
Well, the profits about which the Chairman
is speaking--
H.M.Jr:
Go ahead, Roy.
77
- 75 Blough:
The profits about which the Chairman is speaking are taxed seventy-two - percent under the
proposed Committee bill, and it is not that
aspect of the bill to which we have taken
objection.
Eccles:
Oh, no. The taxes I am speaking of are not
taxed seventy-two percent, because if you
exempt enough beforehand you don't get into
the excess profits tax. An excess profit
tax, it seems to me, is a question of definition. Anything above a certain fixed rate
on capital, I think most of us possibly consider it as an excess profit.
Blough:
The profits growing out of defense is what
you started out with. Those are the ones
that are taxed under this law.
Eccles:
How do you mean?
Blough:
Everything in addition to the previous income,
previous profits, above - rather a moderate
percentage, which has been lowered in this
bill, are subject to taxes of sixty percent
excess profits plus thirty percent normal
tax, or an effective rate of seventy-two per-
cent. It is the profits they earned before
the defense period which they may continue to
earn which are not taxable.
Eccles:
That doesn't mean that a corporation which
earned a profit before the defense period is
not making a profit now out of defense. That
doesn't mean that at all, that a corporation
may well - they may well have made their
profits out of selling something in 1936 and
'37 and '38 and '39, and they are now making
Blough:
their profit out of defense.
I see your point.
78
- 76 Eccles:
As a matter of fact, these huge expenditures
today are the thing that is creating the
profits for your corporations. The automobile
industry will be making profits out of
defense next year, not out of the production
of automobiles, if they make them.
Blough:
Having cut down the corporation's profits from
its normal sources and having substituted
profits from the defense sources, you want to
step in and tax those profits very heavily,
although you have really taken away their
normal source of living.
Eccles:
That may well be.
White:
Roy, I think that is the weakest part of the
statement. I think that - there is a small
part that might be rewritten without affecting
much - the force of much of his statement.
Blough:
I thought the present law was very fine, the
proposal, except with regard to that portion
of the profits which represents what they
earned before.
White:
That is why I think if you left that particu-
lar portion out and used much of the remainder,
I think you have got a very much stronger
statement which might go right to the end
without violating the thought that you have.
Blough:
I think the language is excellent about excess
profits. I would agree on that. We are very
close on time now.
H.M.Jr:
Can I say this, gentlemen, and that is this:
all that I am trying to do this morning, with
your help, is this, is forcibly to bring to
the President's attention the question of
inflation, prices, taxes, and the seriousness
of it which I have been unable to interest
79
- 77 -
him in, talking here, up to now.
Now, we really only started on this thing
yesterday, and I think considering everything
and considering the divergence of opinions that
are represented, personally I am delighted that
I have got even as much as I have. This cannot
cover the waterfront and doesn't but - and it
isn't the last word either, but I think that
with what we have, if the President would only
read the whole damn thing, it certainly would
forcibly and dramatically bring to his attention the thing that we want. If he will take
this and read it to these two men, I feel
that I, with the help of everybody here, have
accomplished a great deal. I don't think that
in the few minutes left we can begin to
interpret this thing, and I am not going to
say to the President that everybody has had
his last word or that this represent anybody's opinion. I don't think we can go
much further than what we have.
Eccles:
Can't you say to the President that this in
general - we haven't tried to get down to
detail, but in general it does represent
everybody's opinion?
H.M.Jr:
Ithat-was afraid to say that. If I could say
Henderson:
You can certainly say in general, as far as I
am concerned.
Lubin:
Nobody will take issue with any of the funda-
mentals in it. It is just a question of a
little detail here and there.
H.M.Jr:
How about you, Lauch?
Currie:
That is right, Mr. Secretary.
80
- 78 H.M.Jr:
I didn't want to go so far. Our people, we all
started with it yesterday morning and got
this thing through at five and got it over
there lat and it shows at least there is a
group in Washington that can work together,
which I think is very encouraging.
Henderson:
That is the most encouraging thing about it.
H.M.Jr:
There is a group that can work together and
eighty percent be in agreement.
Viner:
My guess is that eighty is low.
Lubin:
A hundred percent agreement on fundamentals.
Eccles:
I would think that it is important to - if
you are going to say that this group met and
we considered this, that that doesn't mean
anything unless along with that you can say
that this group is in unanimous agreement as
to the general program here.
H.M.Jr:
Well, can I say that?
Henderson:
Yes.
Eccles:
I think you ought to find out, because I
think it is terribly important if you can.
H.M.Jr:
Can I say that?
Henderson:
You can for me.
Lubin:
You can for me.
Eccles:
And for me.
H.M.Jr:
How about you, Lauch?
Currie:
Yes.
81
- 79 H.M.Jr:
Wonderful. That is the best - that is the
White:
Now, much of what Marriner says can be
most encouraging thing.
worked in later before the Senate or anything
subsequent.
H.M.Jr:
You are going to have several chances. The
chance that I hope you will have is that the
President will say, "Well, now, this is fine,
Henry, will you please, with the help of
these other gentlemen, draft a message for me
to Congress and take a week to pour the stuff
into it. Then, if on the other hand, he says,
"I don't want to go ahead," If then my next
chance will be when I appear before the
Senate Finance on the opening of the bill,
and I will certainly ask you gentlemen to help
me on that statement.
Eccles:
H.M.Jr:
If the President will open the door, it will
make a lot of difference.
In the room here, if the President doesn't
say something, we have got about as much
chance as a snowball in hell during the months
of July and August in the Senate. That
doesn't mean that I will pull my punches when
I go up there. I will just go down the line.
I can't tell you how much I have appreciated
it. It is the most encouraging thing that
has happened to me in months. If you will
leave these copies, we will send you each a
corrected copy just as soon as it is finished.
82
July 1941 15. 8.30 draft.
MEMORANDUM FOR THE PRESIDENT
I. The Present Price Situation
Since the beginning of the war, September, 1939,
the wholesale price index has risen from 75 to 87 or
about 16 percent. The greater part of this rise has
occurred during the past five months.
The cost of living index has increased 5-1/2 percent since September, 1940.
The index of 28 basic commodities has increased
48 percent during the same period. This increase
constitutes a major danger signal of inflation which
must not be ignored. The wholesale price index always
lags greatly behind the index of basic commodities,
while the cost of living index does not show anything
like the full effects of inflation until long after the
seeds of inflation have taken deep root.
The pattern of price rises summarized above roughly
resembles the price movements during the first two years
of World War I -- little rise in the cost of living, a
moderate rise in the wholesale price index, and a sharp
rise in basic commodities. Apparently we are at the
same point in price history as in 1916 -- on the edge of
inflation. I
The forces making for further price rise are both
potent and persistent:
-(1) The Budget estimates Defense spending during
the fiscal year 1942 will be $15 billion, or two and a
half times as much as in the fiscal year 1941. This
estimate, moreover, does not take account of such addi-
tional expenditures as will result from extension of the
Defense Program made after June 1.
(2) More important in its bearing on the danger
of inflation than the figures for expenditures of the
coming year are the estimates of deficit spending. The
net deficit for the fiscal year 1942, as estimated by
the Director of the Budget, will be $12.8 billions,
compared with $5.1 billions for the previous fiscal year.
This assumes the present tax structure. If the present
tax bill is passed by Congress, the deficit will be
reduced by $2-1/2 billions, (the revenue yield in fiscal
year 1942 of the $34 billion tax bill) but it will still
be over $10 billion. Again this estimated deficit does
not take account of the expansion of the Defense Program
after June 1, 1941.
(3) The inflationary force of the Federal deficit
has been supplemented during the past year by an expan-
sion of bank credit. Total loans of all member banks
expanded by an estimated $2.8 billions, or by 20 percent
during the fiscal year just past. This rise, moreover,
has been proceeding at an accelerated pace.
83
84
-3(4) To the fiscal and banking factors likely to
cause price increases during the next fiscal year must
be added the increasing absorption of idle plant capa-
city in many lines of industries.
Also making for further price increases are the
heightened obstacles to imports, such as reduced ship
space, higher shipping costs, and cutting off of normal
foreign sources of supplies.
Though there are some factors in the situation
operating to check inflationary trends, such as surplus
stocks of some agricultural commodities, unemployed
labor resources, and partially employed production facil=
ities, most of these factors were present in the fiscal
year 1941 in greater degree and yet did not serve to
restrain price rises even though the forces making for
price rises were then much weaker.
Important steps have already been taken or are being
taken to check inflation. Congress has made provision
for the Treasury to sell defense savings bonds and stamps
and so to absorb, for the Defense Program, funds which
might otherwise be used for civilian purchase of goods.
This program is well under way.
The Treasury Department has also launched a plan
for selling tax anticipation notes which will facilitate
-4-
85
the prepayment of income taxes and will more promptly
withdraw purchasing power represented by such taxes.
The Ways and Means Committee is holding firmly
to the goal of $3.5 billion from the tax bill. The
Office of Price Administration and Civilian Supply is
making every effort to obtain the cooperation of producers
and distributors in limiting price rises. These measures
to restrain price rises though they have unquestionably
been helpful are inadequate to meet the situation confronting us. We have gone only a small part of the way
it will be necessary to go. We must attack the problem
on all fronts if we are successfully to check inflation.
Certain tax matters relevant to the problem of
inflation are discussed later. The problem, however,
cannot be met by tax measures alone. There should be
additional action along the following lines:
(1) OPACS should be given the power to fix prices
where necessary. Price rises cannot be controlled when
inflationary forces are at work without effective power
to impose price ceilings. The mere possession of such
power tends to make its exercise unnecessary. The attempt
to prevent unwanted price increases by fiat, however,
is bound to break down here, as it has elsewhere, unless
it is accompanied not only by an adequate fiscal program
to absorb buying power, but also by the additional
methods listed below.
86
-5(2) Increase the supplies of goods required for
military and civilian needs. Increased output is in
itself a major objective of our Defense Program and the
most effective and desirable means of preventing in-
flation. There should be further exploration of the
possibilities of inducing expansion of production facilities and labor supply where such response could not be
expected to occur automatically.
(3) Extension of the present system of priorities
to include systematic rationing of scarce supplies to
consumers.
(4) Extension of the general controls over bank
credit.
(5) Establishment of controls over the entire field
of consumer credit.
(6) Creation of controls over capital issues.
(7) An extension of the Social Security program
along lines by which greater coverage and contributions
would increase the flow of funds to the Treasury from
current income during the emergency and would not involve
any substantial increase in the current outflow.
(8) A reduction of non-essential Federal expenditures and of the Federal lending and underwriting program,
such as non-emergency housing expenditures and mortgage
guarantees.
87
-6(9) Appeal for economy in State and local governmental expenditure and for curtailment of their borrowing for non-emergency expenditures.
Even with substantial action along all of these
lines it seems probable to us that some undesirable price
inflation will occur in this fiscal year if our tax
program 18 not carried further than has as yet been proposed. We, therefore, urge that the tax program now
under consideration by Congress be reexamined in the light
of the following considerations.
II. Comments On The Tax Bill
It is important that the annual addition to the
Treasury revenues provided by the new tax bill shall not
fall below the $3.5 billion level. In fact, it is apparent from the size of the appropriations and the pressures of consumer purchasing power on prices that further
are
increases in rates or extensions of taxes will be necessary.
not later than next Spring.
In formulating the exoise tax program an important
consideration should be to reduce the demand of producers
and consumers for scarce commodities which compete with
Defense Program and to absorb windfall profits resulting
from scarcity of supply relative to demand. Thus the tax
88
-7on passenger automobiles might well be made much higher
than the 7 percent adopted by the Committee. The production of passenger automobiles will undoubtedly have
to be greatly restricted. It would be extremely difficult
to prevent price rises on cars sold by some retailers
or the setting up of a "black market" in new and slightly
used cars. It is probable that the exoise tax will in
large part come out of windfall profits to producers and
dealers in automobiles, rather than being passed on in
full in higher prices.
Automobiles are mentioned because they are perhaps
the most important example. Other commodities which may
be in the same category should be examined to determine
whether an excise should be imposed and if so, whether
it should be on the final product or on a scarce material
entering into the product. Through such taxes the demands
for the most scarce commodities and the large windfall
profits which may be made by those escaping price control
would be reduced.
A basic revision of the excess profits tax plan is
urgently needed. The excess profits tax plan tentatively
adopted by the Committee is in some important respects an
improvement over the present excess profits tax. However,
it fails to correct one fundamental weakness of the present
law. It leaves exempt from the tax profits in excess of a
89
-8reasonable return on invested capital to the extent
that those profits are also in excess of the profits
of the base period years.
Substantial numbers of companies are in this category.
One out of five profit-making corporations with assets
of $1 million and over averaged more than 10 percent net
income on their reported equity capital during the years
1935 to 1938 and that one out of 25 companies averaged
more than 30 percent. These companies can continue to
earn profits at virtually these rates without paying excess profits tax under either the present law or the Committee's tentative plan.
The way in which the present law and the Committee's
tentative plan leave exempt large amounts of excess profits
is illustrated by the following actual examples.
A. After paying all taxes an automobile company
made during the base period years of 1936 through 1939
approximately 23 percent. Practically all (95 percent)
of this amount can be earned and yet be free from excess
profits tax under the present law and under the Committee
plan. In 1940 the earnings of this concern, after the payment of taxes, will be approximately 24 percent of its
invested capital, under the present law.
B. The earnings of a manufacturer of tractors with
nearly $50 million of invested capital averaged, after all
90
-9taxes, approximately 18 percent of invested capital
during 1936-1939, which amount will be free of excess
profits tax under the present law and the Committee's
tentative plan.
C. Similarly a company which has practically a
monopoly on one of the important Defense materials had
earnings after taxes during the base period years
averaging approximately 19 percent of its 1940 invested
capital, which it can continue to earn free of excess
profits tax.
D. A large manufacturer of beverages can continue
to earn free of excess profits tax over 25 percent of
its 1940 reported equity capital.
Thus, large amounts of the kind of profits which
are commonly defined as excess profits and were taxed
as such under the 1918 Act are free from excess profits
tax under the present law and the Committee plan.
Failure to apply excess profits taxation to such
profits is unfortunate for a number of reasons:
(1) The highly prosperous, well established corporation which has been making 30, 40, 50 percent or more
on its invested capital has a much larger ability to pay
taxes than a corporation which has been earning only 3,
4, or 5 percent on its invested capital, even though the
00.09
- 10 dollar incomes of the two companies are the same. Tax-
ation of corporations in accordance with ability to pay
calls for higher taxes on the profits of those corporations which have the higher rates of return.
(2) The corporation which has been making high
returns in the base period years is given a competitive
advantage over newly organized concerns or concerns
which have been struggling to establish themselves. The
latter types are limited to a much smaller rate of
return free of excess profits tax than are the former.
The effect is to confirm monopolies in their control and
to protect well established prosperous businesses against
competition.
(3) If we are to expect all classes of society,
including laborers and farmers, to accept the sacrifices
of the emergency period and not to press for every possible
dollar of advantage, they must be convinced that sacrifices are being distributed according to ability and that
no one is making unreasonably large profits. The prevention
of inflation is thus to a considerable extent dependent
on the imposition and enforcement of a true excess profits
tax.
92
MEMORANDUM
July 15, 1941.
TO:
The Secretary.
FROM:
Mr. Sullivan.
SUBJECT:
Conference with the President. Present: Secretary
Morgenthau, Director of the Budget Smith,
Representatives Doughton and Cooper, Assistant
Secretary Sullivan.
The President opened the conference with a discussion
of problems involved in the appointment of a Chairman of the
Senate Finance Committee. He then removed from the memorandum
the first five or six pages dealing with inflation and congratu-
lated the Chairman upon the general results achieved in the proposed tax bill. He said he was a bit disturbed at the excise
or "nuisance" taxes and appeared to be surprised when Mr.
Sullivan advised him that after enactment of this measure the
proportionate part of the total collections raised from excise
taxes would be very much lower than under the present law, at least 10 percent. The President then remarked that this took
care of the situation and Mr. Sullivan. advised him that he thought
it was a step in the right direction.
The President then went into the question of excess
profits and said that he thought that if the bill passed in
its present form the Congress and the Administration would be
open to serious criticism. Chairman Doughton stated that it was
apparent to him that someone in the Treasury had convinced the
President that the Committee had failed in its duty and that he
was sure if he had time to present the arguments on the other
side the President would be convinced the Committee had not made
a mistake. The Chairman offered to file a brief. The President
said it was not a question of a mistake but that he wanted to
bring to the Chairman's attention certain results in specific
cases inevitable under the present law and the proposed changes.
93
-2The President again referred to the political consequences of
such tax immunity for wealthy, prosperous concerns at a time
when the Administration is making greater demands upon individuals and corporations. Chairman Doughton stated that he was
perfectly willing to accept all of the political consequences
and that in handling the bill he was not permitting political
considerations to influence his decisions. He referred to the
length of time this bill had been pending and the ample opportunity that he had given to everybody to present their views
and stated that the Committee had listened to everybody and
had made its decision. At this point Congressman Cooper interrupted to say that all decisions thus far taken were tentative.
Chairman Doughton then inquired if it was the purpose of the
meeting to ask that the Hearings be reopened and this matter be
discussed again. The President stated that whatever technique
the Chairman wished to adopt would be satisfactory with him but
he suggested that the Chairman tell the members of the Committee
that the President had brought to his attention certain disadvantages in the proposed bill, and that the Chairman point out
to the Democratic members of the Committee the political con-
sequences of passing the bill in its present form.
There was then some discussion as to whether or not the
Secretary should make a statement before the Committee in
Executive Session or in Public Hearings: and this was followed
by a further discussion by the Secretary and Chairman Doughton
which revealed that Chairman Doughton not only was not changing
his views but was become resentful. The conference ended without
any clear cut understanding as to what should be done.
Immediately after this conference the Secretary, Congressmen
Doughton and Cooper and Mr. Sullivan met in the Cabinet Room where
Congressman Doughton spoke very frankly of his surprise and dis-
appointment about this meeting. He stated that if it was to be
the practice of the Treasury to keep opening up every issue upon
which there had been differences of opinion after decisive action
had been taken, he would not be able to work with them and he
twice almost stated that he would have to give up the bill and
let somebody else assume the responsibility. He stated that it
was obvious to him that the Treasury had originated this meeting.
The Secretary then informed him that someone else had originated
this recent discussion and that on last Thursday the Secretary
had received from the President a memorandum indicating the
President's interest in a revision of excess profits taxes.
94
-3-
The Secretary further stated that he was delighted to find that
the President had become interested in this suggestion and as a
result of the President's communication to him he transmitted
to the President a memorandum to which the President referred in
the conference this morning.
Chairman Doughton said that he did not know what to do but
he was sure he would not call a meeting of the Democratic members
alone. Secretary Morgenthau said that he regretted he was obliged
to excuse himself because people for whom he had sent were now
waiting for him and he offered to come to the Chairman's office
at any time the Chairman wished to see him. The Chairman said
that he didn't call the meeting and he would be very glad to come
down to see the Secretary any time the Secretary sent for him but
that he did not see any useful purpose of any future discussion.
As the meeting ended the Chairman said this was the most unpleasant
and unsatisfactory conference he had ever had.
This does not in clude
2'2 hillin of proposed taxes 95
CONFIDENTIAL BUDGET ESTIMATES
June 1st
Receipts
$ 9,402 M
22,169
Expenditures
Deficit
$12,767
Defense expenditures
$ 15,500 M
Harold Smith will be at the conference.
DWB
July 15, 1941
Present
$ 9,402 M
23,669
14,267 M
$ 17,000 M
Copy taken ta 74K 96
MEMORANDUM FOR THE PRESIDENT July Id, 1941
I. The Present Price Situation
Apparently we are at the same point in price history
as in 1916 - on the edge of inflation.
The pattern of price rises summarised below roughly
resembles the price movements during the first two years
of World War I - little rise in the cost of living, a
moderate rise in the wholesale price index, and a shary
rise in basic commodities.
Since the beginning of the war, September, 1939, the
wholesale price index has risea from 75 to 87, OF about
16 percent. The greater part of this rise has occurred
during the past five months.
The cost of living index has increased 5-1/2 percent
since September, 1940. Half of this increase has occurred
in the past two months.
The index of 28 basis commodities has increased 48
percent during the same period, despite the fast that the
prices of many basic Faw materials have been controlled
by the Office of Price Administration and Civilian Supply.
This increase constitutes a major danger signal of inflation
which must not be ignored. The wholesale price index
always lags greatly behind the indez of basic commodities,
-8
D
97
while the cost of living index does not show anything like
the full effects of inflation until long after the seeds
of inflation have taken deep reet.
The forces making for further price rise are both
potent and persistent;
(1) The Budget estimates Defense spending during
the fiscal year 1942 will be 815 billion, OF two and a
half times as much as in the fiscal year 1941. This
increased estimate does not take account of extension of
the Defense Program made after June 1, and of additional
sums needed for Lend-Lease.
(2) More important in its bearing on the danger of
inflation than the figures for expenditures of the coming
year are the estimates of deficit spending. The not deficit
for the fiscal year 1942, as estimated by the Director of
the Budget, will be $12.8 billions, compared with $5.1
billions for the previous fiscal year. This assumes the
present tax structure. If the present tax bill is passed
by Congress, the deficit will be reduced by 82-1/2 billions,
(the revenue yield in fiscal year 1942 of the 83-1/8
billion tax bill) but it will still be over $10 billion.
DZ 97
while the cost of living index does not show anything like
the full effects of inflation until long after the seeds
of inflation have taken deep reet.
The forces making for further price pise are both
potent and persistent;
(1) The Budget estimates Defense spending during
the fiscal year 1948 will be 815 billion, OF two and a
half times as much as in the fiscal year 1941. This
increased estimate does not take account of extension of
the Defense Program made after June 1, and of additional
sume needed for Lend-Lease.
(2) More important in its bearing on the danger of
inflation than the figures for expenditures of the eening
year are the estimates of deficit spending. The not deficit
for the fineal year 1948, as estimated by the Director of
the Budget, will be $12.8 billions, compared with $5.1
billions for the previous fiscal year. This assumes the
present tax structure. If the present tax bill is passed
by Congress, the defieit will be reduced by #2-1/2 billions,
(the revenue yield in fiscal year 1948 of the 83-1/2
billion tax bill) but it will still be over 810 billion.
-3.
Again this estimated defieit does not take account of
the expansion of the Defense Program after June 1, 1941.
(3) The inflationary force of the Federal deficit
has been supplemented during the past year by an expan-
sion of bank credit. Total bank loans expanded by an
estimated $3 billions, or about 20 percent during the
fiscal year just past. This rise, moreover, has been
proceeding at an accelerated pass.
(4) Prices will be increasingly stimulated by
(a) the shortage of raw materials for eivilian goods,
(b) increased absorption of idle capacity in many indus-
tries, (e) further increases in agricultural prices and
wages.
Also making for further price increases are the
heightened obstacles to imports, such as reduced ship
space, higher shipping costs, and cutting off of normal
foreign sources of supplies.
Though there are some factors in the situation opera-
ting to check inflationary trends, such as surplus stocks
of some agricultural commodities, unemployed labor re-
sources, and partially employed production facilities,
most of these factors were present in the fiscal year
98
.4.
1941 in greater degree and yet did not serve to restrain
price rises even though the forces making for price rises
were then much weaker.
Important steps have already been taken or are being
taken to check inflation. Congress has made provision
for the Treasury to sell defense savings bonds and stemps
and so to absorb, for the Defense Program, funds which
might otherwise be used for civilian purchase of goods.
This program is well under way.
The Treasury Department has also launched a plan for
selling tax anticipation notes which will facilitate the
prepayment of income taxes and will more promptly withdraw
purchasing power represented by such taxes.
The Ways and Means Committee is holding firmly to
the goal of $3.5 billion from the tax bill.
The Office of Price Administration and Civilian Supply
is making every effort to obtain the cooperation of pre-
ducers and distributors in limiting price rises.
These measures to restrain price rises though they
have unquestionably been helpful are inadequate to meet
the situation confronting us. We have gone only a small
99
100
-5part of the way it will be necessary to go. We must
attack the problem on all fronts if we are successfully
to check inflation.
Certain tax matters relevant to the problem of
inflation are discussed later. The problem, however,
cannot be net by tax measures alone. There should be
additional action along the following lines:
(1) OPACS should be given the statutory power to
fix prices where necessary. Price rises cannot be con-
trolled when inflationary forces are at work without
effective power to impose price ceilings with direct
penalties. The more possession of such power tends to
make its exercise unnecessary.
The attempt to prevent unwanted price increases by
fiat, however, is bound to break down here, as it has
elsewhere, unless it is accompanied not only by an adequate fiscal program to absorb buying power, but also by
the additional methods listed below.
(2) Increase the supplies of goods required for
military and civilian needs. Increased output is in
itself a major objective of our Defense Program and the
101
6
most effective and desirable means of preventing inflation.
There should be further exploration of the possibilities
of indusing expansion of production facilities and labor
supply where such response could not be expected to occup
automatically.
(8) Delegation to OPACS of priority authority to
provide systematic rationing of searee supplies to indus-
tries making civilian goods. In order to obtain a fair
distribution of searee supplies among consumers it may
later prove necessary to extend the rationing to ultimate
consumers.
(4) Extension of the general centrols ever bank
credit.
(5) Establishment of controls over the entire field
of consumer credit.
(6) Creation of controls over capital expenditures.
(7) An extension of the Social Security program
along lines which would increase the flow of funds to the
Treasury from current income during the emergency and would
increase the outflow of funds when needed in the postdefense period.
102
(8) A reduction of the Federal leading and underwriting program, such as non-emergency housing expenditures
and mortgage guarantees.
(9) Reduction of non-essential Federal expenditures,
also an appeal for economy in State and local governmental
expenditure and for outhailment of their borrowing for
non-emergency expenditures, thus building a bask-log for
the post-defense period.
Even with substantial action along all of these lines
it seems probable to us that some undesirable price infla-
tion will occur in this fiscal year. Other methods must
be sought to control it. The principal mechanism for
diverting this rising stream of buying power from inflation-
any outlets is taxation. It is the most effective of all
broad
the bought powers at the command of the government. The
tax system should be designed as far as possible to reduce
consumer domand for goods of which the supply is inadequate.
We, therefore, urge that the tax program new under considers-
tion by Congress be reexamined in the light of the following
considerations.
103
it .
II. Comments On The Tax Bill
It is important that the annual addition to the
Treasury revenues provided by the new tax bill shall
not fall below the $3.5 billion level. In fact, it is
apparent from the sise of the appropriations and the
pressures of consumer purchasing power on prices that
further increases in rates OF extensions of taxes are
necessary.
-8-
104
In formulating the excise tax program an important
consideration should be to reduce the demand of producers
and consumers for searee commodities which compete with the
Defense Program and to absorb windfall profits resulting
from searcity of supply relative to demand. Thus the tax
on passenger automobiles might well be made such higher
than the 7 percent adopted by the Committee. The preduetion of passenger automobiles will undoubtedly have to
be greatly restricted. It would be extremely difficult
to prevent price rises on ears sold by some retailers OF
the setting up of a "black market" in now and slightly
used cars. It is probable that a sufficiently high excise
tax will prevent increased prices from resulting is windfall profite for dealers and middlemen and will not increase
prices of automobiles to consumers byyond what they otherwise would be.
Automobiles are mentioned because they are perhaps
the most important example. Other commodities which my
be in the same category should be examined to determine
whether an excise should be imposed and if so, whether
it should be on the final product OF on a searee material
entering into the product. Through such taxes the demands
s
105
9- for the most searee commodities and the large windfall
profits which may be made by those escaping price control
would be reduced.
A basic revision of the excess profits tax plan is
urgently needed. The excess profits tax plan tentatively
adopted by the Committee is in some important respects an
improvement over the present excess profits tax. However,
it fails to correct one fundamental weakness of the present
law. It leaves exempt from the tax profits in excess of a
106
.18 .
reasonable return on invested capital to the extent
that those profits are also in emoses of the profits
of the base period years.
Substantial numbers of companies are in this category.
One out of five profit-making corporations with assets
of $1 million and over averaged more than 10 percent not
income on their reported equity capital during the years
1935 to 1936 and one out of 25 companies averaged more
than 30 percent. These companies can continue to care
profits at virtually these rates without paying excess
prefits tax under either the present law or the Committee's
tentative plan.
The way in which the present law and the Committee's
tentative plan leave exempt large amounts of excess prefite
is illustrated by the following actual examples.
A. After paying all taxes $ automobile company
made during the base period years of 1996 through 1939
approximately 25 percent. Practically all (95 percent)
of this amount can be earned and yet be free from excess
profits tax under the present law and under the Committee
plan. In 1940 the earnings of this concern, after the pay"
neat of taxes, will be approximately 26 percent of its
invested capital, under the present Isme
3. The earnings of a manufacturer of trusters with
nearly $80 million of invested capital averaged, after all
107
-11taxes, approximately 18 percent of invested capital
during 1936-1939, which amount will be free of excess
profits tax under the present law and the Committee's
tentative plan.
C. Similarly a company which has practically a
monopoly on one of the important Defense materials had
earnings after taxes during the base period years
averaging approximately 19 percent of its 1940 invested
capital, which it can continue to earn free of excess
profits tax.
D. A large manufacturer of beverages can continue
to earn free of excess profits tax over 25 percent of
its 1940 reported equity capital.
Thus, large amounts of the kind of profits which
are cormonly defined as excess profits and were taxed
as such under the 1918 Act are free from excess profits
tax under the present law and the Cosmittee plan.
Failure to apply excess profits taxation to such
profits is unfortunate for a number of reasons:
(1) The highly prosperous, well established corporation which has been making 30, 40, 50 percent or more
on its invested capital has a such larger ability to pay
taxes than a corporation which has been earning only 3,
4, or 5 percent on its invested capital, even though the
108
12
dollar incomes of the two companies are the same. Tax-
ation of corporations in accordance with ability to pay
calls for higher taxes on the profits of those corporations which have the higher rates of return.
(2) The corporation which has been making high
returns in the base period years is given a competitive
advantage over nowly organised concerns OF soncerns
which have been struggling to establish themselves. The
latter types are limited to a much smaller rate of
return free of excess profits tax than are the former.
The effect is to e onfirm monopolies in their control and
to protest well established prosperous businesses against
competition.
(s) If we are teement all classes of society,
including laborers and farmers, to accept the secrifiees
of the emergency priod and not to press for every possible
dollar of advantage, they must be convinced that seeri-
fices are being distributed according to ability and that
no one is making unreasonably large profits. The F evention
of inflation is thus to a considerable extent dependent
on t he imposition and enforcement of a true excess profits
tax.
109
July 15, 1941.
Dear Chairman Enclose:
In confidence I am enclosing a copy of the
assorandum which we discussed this morning and
which was submitted to the President today.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Henorable Marrinor 8. Reelee,
Chairman,
Board of Governors of the
Federal Reserve System,
Federal Reserve Building,
Washington, D. C.
By Messenger 7/15/41
+:30
File to Mr Thompaon
so in channey
110
July 15, 1941.
Dear Mr. Handersons
In confidence I - enclosing a copy of the
- which we discussed this morning and
which was submitted to the President today.
Sincerely years,
(Signed) E. Morgenthau, Jr.
Secretary of the Treasury.
Investible Loon Renderson,
Ministrator,
office of Price Administration
and Civilian Supplies,
Social Security Building,
Washington, D. C.
By Messenger 2/15/11
4:20
File to Mr. inompson
name
mm channely
111
July 15, 1941.
Dear Mr. Curries
In confidence X - enclosing a copy of the
menorandum which we discussed this morning and
which was submitted to the President today.
Sincerely yours,
(Signed) H. Morgenthan, The
Secretary of the Treasury.
Monerable Lauchiia Curric,
Administrative Assistant to the President,
The White Souse.
By Messenger 7/15/41
File w Mr. Thompson
First mas channing
4:30
112
July 25, 1941.
Dear Dr. Lubins
In confidence I - enclosing a copy of the
- which we discussed this morning and
which was submitted to the President today.
Sincerely yours,
(Signed) E. Morgenthau, Jr.
Secretary of the Treasury.
By Messenger 7/15/41
Dr. Leader Inhin,
Commissioner of Labor Statistics,
4:30
Department of Labor,
Washington, D.C.
File to Mr. Thompson
file : mind changery
113
July 16, 1941.
Dear Mr. Vice President:
In confidence I - sending to you a which was submitted to the President yesterday and
which I think my be of interest to you.
Sincerely yours,
(Signed) Henry
Secretary of the Treasury.
By Messenger
2:10pm
7/14/41
The Honorable,
The Vise President of the United States.
File to Mr. Thompson
114
CONFIDENTIAL
MEMORANDUM FOR THE PRESIDENT
JUL 15 1941
I. The Present Price Situation
Apparently we are at the same point in price history
as in 1916 -- on the edge of inflation.
The pattern of price rises summarized below roughly
resembles the price movements during the first two years
of World War I -- little rise in the cost of living, a
moderate rise in the wholesale price index, and a sharp
rise in basic commodities.
Since the beginning of the war, September, 1939, the
wholesale price index has risen from 75 to 87, or about
16 percent. The greater part of this rise has occurred
during the past five months.
The cost of living index has increased 5-1/2 percent
since September, 1940. Half of this increase has occurred
in the past two months.
The index of 28 basic commodities has increased 48
percent during the same period, despite the fact that the
prices of many basic raw materials have been controlled
by the Office of Price Administration and Civilian Supply.
This increase constitutes a major danger signal of inflation
which must not be ignored. The wholesale price index
-2-
115
always lags greatly behind the index of basic commodities,
while the cost of living index does not show anything like
the full effects of inflation until long after the seeds
of inflation have taken deep root.
The forces making for further price rise are both
potent and persistent:
(1) The Budget estimates Defense spending during
the fiscal year 1942 will be $15 billion, or two and a
half times as much as in the fiscal year 1941. This
increased estimate does not take account of extension of
the Defense Program made after June 1, and of additional
sums needed for Lend-Lease.
(2) More important in its bearing on the danger of
inflation than the figures for expenditures of the coming
year are the estimates of deficit spending. The net deficit
for the fiscal year 1942, as estimated by the Director of
the Budget, will be $12.8 billions, compared with $5.1
billions for the previous fiscal year. This assumes the
present tax structure. If the present tax bill is passed
by Congress, the deficit will be reduced by $2-1/2 billions,
(the revenue yield in fiscal year 1942 of the $3-1/2
billion tax bill) but it will still be over $10 billion.
-3Again this estimated deficit does not take account of
the expansion of the Defense Program after June 1, 1941.
(3) The inflationary force of the Federal deficit
has been supplemented during the past year by an expan-
sion of bank credit. Total bank loans expanded by an
estimated $3 billions, or about 20 percent during the
fiscal year just past. This rise, moreover, has been
proceeding at an accelerated pace.
(4) Prices will be increasingly stimulated by
(a) the shortage of raw materials for civilian goods,
(b) increased absorption of idle capacity in many indus-
tries, (c) further increases in agricultural prices and
wages.
Also making for further price increases are the
heightened obstacles to imports, such as reduced ship
space, higher shipping costs, and cutting off of normal
foreign sources of supplies.
Though there are some factors in the situation opera-
ting to check inflationary trends, such as surplus stocks
of some agricultural commodities, unemployed labor re-
sources, and partially employed production facilities,
most of these factors were present in the fiscal year
116
-41941 in greater degree and yet did not serve to restrain
price rises even though the forces making for price rises
were then much weaker.
Important steps have already been taken or are being
taken to check inflation. Congress has made provision
for the Treasury to sell defense savings bonds and stamps
and so to absorb, for the Defense Program, funds which
might otherwise be used for civilian purchase of goods.
This program is well under way.
The Treasury Department has also launched a plan for
selling tax anticipation notes which will facilitate the
prepayment of income taxes and will more promptly withdraw
purchasing power represented by such taxes.
The Ways and Means Committee is holding firmly to
the goal of $3.5 billion from the tax bill.
The Office of Price Administration and Civilian Supply
is making every effort to obtain the cooperation of pro-
ducers and distributors in limiting price rises.
These measures to restrain price rises though they
have unquestionably been helpful are inadequate to meet
the situation confronting us. We have gone only a small
117
-5part of the way it will be necessary to go. We must
attack the problem on all fronts if we are successfully
to check inflation.
Certain tax matters relevant to the problem of
inflation are discussed later. The problem, however,
cannot be met by tax measures alone. There should be
additional action along the following lines:
(1) OPACS should be given the statutory power to
fix prices where necessary. Price rises cannot be con-
trolled when inflationary forces are at work without
effective power to impose price ceilings with direct
penalties. The mere possession of such power tends to
make its exercise unnecessary.
The attempt to prevent unwanted price increases by
fiat, however, is bound to break down here, as it has
elsewhere, unless it is accompanied not only by an ade- -
quate fiscal program to absorb buying power, but also by
the additional methods listed below.
(2) Increase the supplies of goods required for
military and civilian needs. Increased output is in
itself a major objective of our Defense Program and the
118
-6most effective and desirable means of preventing inflation.
There should be further exploration of the possibilities
of inducing expansion of production facilities and labor
supply where such response could not be expected to occur
automatically.
(3) Delegation to OPACS of priority authority to
provide systematic rationing of scarce supplies to indus-
tries making civilian goods. In order to obtain a fair
distribution of scarce supplies among consumers it may
later prove necessary to extend the rationing to ultimate
consumers.
(4) Extension of the general controls over bank
credit.
(5) Establishment of controls over the entire field
of consumer credit.
(6) Creation of controls over capital expenditures.
(7) An extension of the Social Security program
along lines which would increase the flow of funds to the
Treasury from current income during the emergency and would
increase the outflow of funds when needed in the postdefense period.
119
7(8) A reduction of the Federal lending and underwriting program, such as non-emergency housing expenditures
and mortgage guarantees.
(9) Reduction of non-essential Federal expenditures,
also an appeal for economy in State and local governmental
expenditure and for curtailment of their borrowing for
non-emergency expenditures, thus building a back-log for
the post-defense period.
Even with substantial action along all of these lines
it seems probable to us that some undesirable price infla-
tion will occur in this fiscal year. Other methods must
be sought to control it. The principal mechanism for
diverting this rising stream of buying power from infla-
tionary outlets is taxation. It is the most effective
of all the broad powers at the command of the govern-
ment. The tax system should be designed as far as
possible to reduce consumer demand for goods of which
the supply is inadequate. We, therefore, urge that
the tax program now under consideration by Congress be
reexamined in the light of the following considerations.
120
121
-8II. Comments On The Tax Bill
It is important that the annual addition to the
Treasury revenues provided by the new tax bill shall not
fall below the $3.5 billion level. In fact, it is apparent from the size of the appropriations and the pressures of consumer purchasing power on prices that further
increases in rates or extensions of taxes are necessary.
In formulating the excise tax program an important
consideration should be to reduce the demand of producers
and consumers for scarce commodities which compete with
the Defense Program and to absorb windfall profits resulting
from scarcity of supply relative to demand. Thus the tax
on passenger automobiles might well be made much higher
than the 7 percent adopted by the Committee. The production of passenger automobiles will undoubtedly have
to be greatly restricted. It would be extremely difficult
to prevent price rises on cars sold by some retailers or
the setting up of a "block market" in new and slightly
used cars. It is probable that a sufficiently high excise
tax will prevent increased prices from resulting in windfall profits for dealers and middlemen and will not
122
-9increase prices of automobiles to consumers beyond what
they otherwise would be.
Automobiles are mentioned because they are perhaps
the most important example. Other commodities which may
be in the same category should be examined to determine
whether an excise should be imposed and if so, whether
it should be on the final product or on a scarce material
entering into the product. Through such taxes the demands
for the most scarce commodities and the large windfall
profits which may be made by those escaping price control
would be reduced.
A basic revision of the excess profits tax plan is
urgently needed. The excess profits tax plan tentatively
adopted by the Committee is in some important respects an
improvement over the present excess profits tax. However,
it fails to correct one fundamental weakness of the
present law. It leaves exempt from the tax profits in
excess of a reasonable return on invested capital to
the extent that those profits are also in excess of the
profits of the base period years.
- 10 -
:
Substantial numbers of companies are in this category.
One out of five profit-making corporations with assets
of $1 million and over averaged more than 10 percent net
income on their reported equity capital during the years
1935 to 1938 and one out of 25 companies averaged more
than 30 percent. These companies can continue to earn
profits at virtually these rates without paying excess
profits tax under either the present law or the Committee's
tentative plan.
The way in which the present law and the Committee's
tentative plan leave exempt large amounts of excess profits
is illustrated by the following actual examples.
A. After paying all taxes an automobile company
made during the base period years of 1936 through 1939
approximately 25 percent. Practically all (95 percent)
of this amount can be earned and yet be free from excess
profits tax under the present law and under the Committee
plan. In 1940 the earnings of this concern, after the payment of taxes, will be approximately 26 percent of its
invested capital, under the present law.
123
124
- 11 -
B. The earnings of a manufacturer of tractors with
nearly $50 million of invested capital averaged, after all
taxes, approximately 18 percent of invested capital
during 1936-1939, which amount will be free of excess
profits tax under the present law and the Committee's
tentative plan.
C. Similarly a company which has practically a
monopoly on one of the important Defense materials had
earnings after taxes during the base period years
averaging approximately 19 percent of its 1940 invested
capital, which it can continue to earn free of excess
profits tax.
D. A large manufacturer of beverages can continue
to earn free of excess profits tax over 25 percent of
its 1940 reported equity capital.
Thus, large amounts of the kind of profits which
are commonly defined as excess profits and were taxed
as such under the 1918 Act are free from excess profits
tax under the present law and the Committee plan.
Failure to apply excess profits taxation to such
profits is unfortunate for a number of reasons:
- 12 (1) The highly prosperous, well established corporation which has been making 30, 40, 50 percent or more
on its invested capital has a much larger ability to pay
taxes than a corporation which has been earning only 3,
4, or 5 percent on its invested capital, even though the
dollar incomes of the two companies are the same. Taxa-
tion of corporations in accordance with ability to pay
calls for higher taxes on the profits of those corporations which have the higher rates of return.
(2) The corporation which has been making high
returns in the base period years is given a competitive
advantage over newly organized concerns or concerns which
have been struggling to establish themselves. The latter
types are limited to a much smaller rate of return free
of excess profits tax than are the former. The effect
is to confirm monopolies in their control and to protect
well established prosperous businesses against competition.
(3) If we are to expect all classes of society,
including laborers and farmers, to accept the sacrifices
of the emergency period and not to press for every possible
dollar of advantage, they must be convinced that sacrifices
are being distributed according to ability and that no one
125
- 13 is making unreasonably large profits. The prevention
of inflation is thus to a considerable extent dependent
on the imposition and enforcement of a true excess
profits tax.
126
127
TO:
MISS CHAUNCEY
Mr. Foley carried this to the Secretary's
0:30 meeting on 7/16/41.
The Secretary initialed the memorandum.
GMB 7/18/41
I
0
MR. FOLEY
128
JUL 1 5 1941
Secretary Morgenthau
Mr. Foley
U. S. - U. K. Tax Convention
Attached is a letter for your signature addressed to the
secretary of State requesting him to communicate with the British
Labasay with a view to instituting negotiations for the formulation of a special tax convention between the United States and
Great Britain which would grant reciprocal immunity from taxation
of activities connected with waging war and providing for defense.
Last week Sir Frederick Phillips and Mr. Keynes requested the
Treasury Committee to give some thought to the question of State
taxation of British defense activities which, if was estimated,
would cost the British from 10 to 30 million dollars.
Apparently the States have proceeded to levy ad valorem property taxes as well as sales, use and other excises, netwithstanding representations made by the State Department to the Governors
that this action violates International conity.
As a result of the request of Sir Frederick, a conference was
held in the office of Assistant Attorney General Sam Clark on Thursday, July 10, at which an opinion of the Attorney General was requested by counsel to the British Air Commission for use in proceedinga pending before the Los Angeles County Board of Supervisors in
the California courts.
It is ay understanding from Sam Clark that the matter was
brought up at the Cabinet meeting on Friday and that it was decided
that the Attorney General should not issue an opinion and that the
Federal Government should not participate in litigation between the
British and the States.
The question of intergovernmental immunity is constantly causing irritation. Many complex tax problems are raised by the absence
of any tax convention. The Bureau of Internal Revenue would welcome
such a convention. And it seems the only solution for the present
problem.
The attached letter has been cleared by Assistant Secretary
Sullivan as well as Assistant Attorney General Clark, and also by
Mesers. white and Blough and Commissioner Helvering.
(Initialed) E. N. To, Jr.
CLK:t 7-15-41
129
C
0
P
My dear Mr. Secretary:
As you know, several States of the Union and their
political subdivisions are seeking to impose upon the
Government of the United Kingdom, their agencies and
instrumentalities, taxes of various types, including
personal property as well as sales, use and other excise
taxes. In addition, there are pending before the Bureau
of Internal Revenue several cases involving the applieability of stamp taxes to transactions under which the
burden of the tax will probably be shifted to the Government of the United Kingdom or an agency or instrumentality
thereof.
There seems to be no statute either Federal or State,
which provides an immunity for the Government of the
United Kingdom from the taxes which create the instant
problem. Nor is there any tax convention or any provision in any treaty with the British Government granting
such an immunity.
I am, of course, aware that there is said to be an
established principle of international comity which ex-
empts the property of a foreign sovereign from the taxing
jurisdiction of a State, at least 80 far as such property
is used for public purposes. French Republic V. Board of
Sup'rs. of Jefferson County, et al., (Ky. 1923) 252 S. W.
124, 26 Am. J. Int. Law (Supp. 1932) 193, 385; but see,
Republic of France et al V. City of New York, (N.Y.Sup.Crt.
1925) N.Y. Tax Sepv. (1925-25) at P. 8086.
The question is, however, unsettled. Moreover, the
State of California has already collected a tax assessed
in the name of the British Air Ministry upon personal
property owned by the Government of the United Kingdom
entrusted to the Lookheed Aircraft Corporation for installation in military aircraft manufactured for that Govern-
ment.
130
In view of the fast that the dollar exchange of the
Government of the United Kingdom will be depleted to the
extent that taxes are paid by that Government, OF on its
behalf, it is suggested that the Government of the United
Kingdom be requested to consider the execution of a special
tax convention with the Government of the United States.
In order to avoid protracted negotiations, such a canvention could be limited to provide In effect for reciprocal
immunity of the two Governments from taxes levied upon their
property or their transactions related to the prosecution of
the present war and national defense.
A tax convention of this character would be wholly con-
sistent with the Constitution and international law. Like
any other treaty, it would be binding upon the States. Ware
V. Hy'ton, (1798) 3 Dall. (U.S.) 199. Even if embodied in
an executive agreement, the same rule would result "from the
very fast that complete power over international affairs is
in the national government and is not and cannot be subject
to any curtailment or interference on the part of the several
states." United States V. Delmont, (1937) 801 U. S. 324, 331.
Such a tax convention should not be retroactive so as to
affect assessments already made or taxes hitherto collected
by any State or political subdivision. Provost To Grensoux,
(1858) 19 How. (U.S.) 1. Even though prospective in operation, the convention would express a national public policy
which night be deemed declaratory of & rule previously required by international cenity.
Unless there are paramount considerations of foreign
policy which lead to some other conclusion, I as inclined to
believe that any long-range solution of this constantly POcurring problem of intergovernmental taxation warrants OUR
taking steps to consummate, at least with the Government of
the United Kingdom, a special tax convention immediately.
Sincerely yours,
(Signed) H. Morgeather Jr.
Secretary of the Treasury.
The Honorable
The Secretary of State.
CLKit
7-12-41
131
July 15, 1941
Dear Mr. Purvis:
The Secretary asked me to
send you copies of the enclosed- - st from An arthur
letters for your information.
Yours sincerely,
palter dated 7/m
+ copy of Haye's
ack 7/17
(Signed) H S. NOW
H.S. Klots
Private Secretary
Mr.Arthur B. Purvis,
British Supply Council
in North America,
Willard Hotel,
Washington, D. C.
By messenger 7/15
9:40 am.
132
July 15. 1941
Files
Mr. Cochran
filed 7/03
1 o'cleck yesterday seen I received the file of correspondence originating
with Mr. Currie's letter of Jase 20 to the Secretary, and including Mr. White's
is
assersation of June 27 to the Secretary. as well as his draft of a reply to
Mr. Carrie. I had not been avare of this correspondence when Mr. White's draft of
a ablogram to Mr. Fox reached no.
I telephoned Mr. Geyse at the Canadian Legation yesterday afternoon to see if
had any word from Ottawa, but he was not is his office. He called as back at
10 e'slook this morning. Mr. Gegue said that he had speken es Saturday by telephone
he
with Mr. Bordan of the Bank of Ganada. Mr. Goyma had explained to Mr. Gerlos the
lines of the eablegram which we were considering sending to China, and also gave
his the data which I had supplied with respect to remittances to China through the
Task of China at New York. According to Mr. Gayne, Mr. Gerdes did not thisk that
the information requested is the draft cablegram was just what the Bank of Canada
desired. Mr. Gerlen would, therefore, write a note to Mr. Geyne setting out
exactly what the Bank of Ganada wishes to learn. Mr. Gayne suggested that no eablepm should be sent pending the receipt of Mr. Gerden's letter. especially since
he felt that part or perhaps all of the data desired could be obtained is this
country.
It is suggested. therefore, that both the cablegram to China and the reply to
Mr. Currie be held up pending the receipt of word from Mr. Gordon through Mr. Ooyae.
N.M.S.
DC:1ap-7/15/41
133
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE
TO
July 15, 1941
Files
FROM Mr. Cochran
At 10 a.m. this morning Mr. Coyne, Financial Attache of the Canadian Legation,
with me. He said that there is now in Washington a Canadian official to look
spoke
after sales of the Dominion to be made in the United States under the Hyde Park
Agreement. This gentleman is Mr. E. T. Taylor. Mr. Coyne said that Mr. Taylor
understood that the purchasing section of the United States Treasury Department was
interested in buying some supplies which Mr. Taylor thought Canada would be in the
position to provide. Mr. Coyne desired, therefore, that Mr. Taylor be placed in
touch with the appropriate official of the Treasury.
After talking with Mr. Coyne, and upon learning that Mr. Graves was absent
from the city for the day, I telephoned directly to the office of Mr. Mack, Director
of Procurement, and arranged for him to receive Mr. Taylor at 3 o'clock this afternoon.
Mr. Mack called me back at 11:15 and I gave him full background information
in regard to the Hyde Park Agreement and of our interest in American purchases of
certain materials being placed with Canadian plants which are in the position to
supply the orders.
134
July 15. 19th
Filee
Mr. Sechres
a 10:15 this surning I talked w telephone with Mr. Geour Gea. I restated
of the matter which I had brought to his attention previously, namely. the
his problem peeed w Sir Frederick Phillips with respect to the British coasing w
mass to France es account of contracts taken ever by the British free the Freach
Purchasing Commission.
Mr. Goz told no that his people were working on a reply to the British, bet
that this would require a 119020 time since Away authorities would have to be cansulted on the potate involved. Mr. Ges premised to keep me informed of progress
being sale. I told his that this question would probably be brought - by Mr
Proterials Phillips again on his next visit to the treasury.
MMR
135
0
THE BRITISH SUPPLY COUNCIL
IN NORTH AMERICA
0
P
Y
Box 680
Telephone: REpublic 7860
Benjamin Franklin Station,
Washington, D. C.
15th July, 1941
Dear Cochran,
I wonder if you remember a note you showed me a little
while back from Mr. Secretary Knox deprecating our taking any action
(we hadn't in fact taken such action) to set up a statistical record
of the value of defense information handed over? Does not the last
of the enclosed regulations conflict with the view you were then expressing?
Yours sincerely,
F. Phillips
Mr. H. Merle Cochran,
U. S. Treasury,
Washington,
D.C.
COPY:1ap-7/16/41
136
BRITISH SUPPLY COUNCIL IN NORTH AMERICA
TO:
All Recipients of Council Minutes
FROM:
Secretary
Copy for
Sir Frederick Phillips
Lend-Lease Evaluation of Defense Articles
Attached for your information is a copy of a paper
which has been received from the Legal Department and which gives
the contents of regulations promulgated by the President for the
evaluation of defense articles, services, and information transferred or received by the United States pursuant to the Lend-Lease
Act.
Leslie Chance
Washington, D. C.
12th, July, 1941.
COPY:1ap-7/16/41
137
COPY
EN:jm
Federal Register of July 8, 1941
Evaluation of Defense Articles
Regulations have been promulgated by the President for
the evaluation of defense articles, services and information
transferred or received by the United States pursuant to the LendLease Act.
Evaluation shall be made by the Executive Officer of the
Division of Defense Aid Reports after consultation with represent-
atives of the Treasury Department and the Bureau of the Budget.
Defense Articles - The Executive Officer shall give such
consideration as he deems necessary and proper to the cost, age,
character and condition of the defense articles, the degree of
depreciation or obsolescence, the use or uses to which the articles
are to be or can be put, and any other criteria which he deems
relevant to the proper valuation of such articles.
Defense Services - The Executive Officer shell give such
consideration as he deems necessary and proper to the character,
cost, and utility of such services, and to any other criteria which
he deems relevant to a proper valuation.
Defense Information - The Executive Officer shall give
such consideration as he deems necessary and proper to the cost
of developing such information, the use or uses to which the infornation is to be or can be put, and any plan, specification, design,
prototype or other data conveyed in connection with or as a part
of such information, and any other criteria which he deems relevant
to a proper valuation.
COPT:1ap-7/16/41
138
July 15, 1941
10:56 a.m.
HMJr:
William
Hello.
Green:
Hello.
HMJr:
Good morning, Mr. Green.
G:
Good morning, Mr. Secretary.
HMJr:
G:
HMJr:
G:
HMJr:
G:
I'm sorry they didn't give me your message
until two minutes ago.
Yes.
Otherwise I would have called you earlier.
That's
perfectly all right. I know you were
in a conference.
But
I called up to tell you that I am reluctantly
agreeing to participate in your radio broadcast.
HMJr:
Well, I'm simply delighted.
G:
I - it's a violation of the rule I've consistently
followed for about six years since the CIO was
formed.
HMJr:
Yes.
G:
It's only the national emergency and your program
for the sale of bonds that influences me in that
manner; but under ordinary circumstances, I just
couldn't do it, but I'll have to do it in your
case.
HMJr:
Well, I'm delighted and
G:
That's on the twenty-second?
HMJr:
That's right. And I'll have our people contact
your office; and just as soon as the script is
139
-2-
written, we'll submit it to you.
Yeah.
G:
HMJr:
I mean the whole script.
G:
That's the whole script?
HMJr:
The whole script.
G:
Uh huh.
HMJr:
G:
HMJr:
G:
HMJr:
In
plenty of time to get your suggestions and
criticisms.
Yes, all right. That'11 be for one half hour that ie, total time.
That's as I understand it.
All right, thank you; I'll await
Well, I'm simply delighted. And I - I've got
to do a lot of things these days that I wouldn't
do if there wasn't a national emergency, and I
grit my teeth and I do them.
G:
Yeah. Well, I guess we all have to do that
occasionally. But I - it's a tough thing for
me to do, but I'll have to do it.
HMJr:
Thank you ever so much.
G:
All right, sir.
HMJr:
Good-bye.
140
July 15, 1941
12:57 a.m.
Operator:
HMJr:
Daniel
Mr. Bell.
Hello.
Bell:
Yes.
HMJr:
Dan?
B:
HMJr:
Yeah.
Do it on the phone here, Lauchlin, will you
please?
Lauchlin
Currie:
B.
C:
Yes. We got the five billion one hundred
million, one hundred and fifty-six million.
Luck.
And four percent of that is two hundred and
six million.
B:
Yes.
C:
And you have to add about six million for
adjustments, to make about two hundred and
twelve.
B:
Yeah.
C:
Now to add another percentage, you go up
fifty million.
B:
Yeah.
C:
So they don't need the money and don't want
it. I'm inclined to put it on a four percent
basis.
HMJr:
Bell:
HMJr:
All right. Go ahead, Dan, handle it.
Okay. I'11 handle it.
Now wait a minute.
141
-2B:
HMJr:
Yeah.
There's one thing that I haven't had a chance I thought I would - I'm just back from the White
House, and I'm completely shot.
B:
HMJr:
I'll bet.
The President isn't going to send any message.
It got too hot, and he isn't going to do anything.
B:
HMJr:
B:
HMJr:
B:
You're in bad, huh? (Laughs) I thought that
was it.
Now, on this thing with Marriner Eccles and
the Federal Reserve taking over this business
of credits
Yeah.
the only thing that I'd like is, have
written in there that the Treasury should have
the veto power on that thing.
Well, something like that or - I understood
that they're operating as an agency of the
President and not an independent capacity as
the Federal Reserve Board.
HMJr:
Now, I'd like to have it out even before
Congress that in these times - I mean, you
can't - this is one of six or seven things.
And we've got to have the veto power. I
mean - by that I mean to say if they go
ahead, but if we say "No, it's not the general
interests of the public, I want that veto
power, Dan.
B:
Yeah. I'm not 80 sure that somebody from the
Treasury and somebody from Henderson's office
shouldn't sit in at the Board meetings when
they're discussing that thing.
HMJr:
Yeah, but - but would you mind putting it
that way, as the way I feel?
142
-3B:
HMJr:
Okay.
And now - I mean, it isn't enough just at the
Board meeting, but we have to have the veto
power.
B:
HMJr:
All right.
Now, they can write it, and all we can say
is "no".
B:
Uh huh.
HMJr:
You see?
B:
Uh huh.
HMJr:
We can't - we can't say, "Do it this way."
But we can say, "Don't do it this way, because
it's in conflict with the Treasury."
B:
Yeah.
HMJr:
See?
B:
Or, if you didn't want to run into that fight,
you might put it, "With the approval of the
President."
HMJr:
Ah
B:
That would give you a chance at it.
HMJr:
But Well
B:
You hope.
HMJr:
Don't joke with me today, please.
B:
HMJr:
B:
(Laughs) All right.
I can't take it.
You had a hard - you had a hard conference,
huh?
143
HMJr:
B:
HMJr:
Terrific. You - you fight for it on the
Treasury, will you, old man?
Okay.
Thank you, Dan.
144
July 15, 1 1941
the A
J,
Dear Henrys
"
So that you my have a chance to
glance at it before the moting in your
office this afternoon, I - enclosing a copy
of a proposed Executive Order which Cordell
Hull, Bob Jackson and I submitted to the
White House last May.
After months of effort and innamorable
drafts, the three Departments were finally
able to agree on this Order.
So far as I know nothing has been
done about our recommendation.
Sincerely yours,
(Signed) Henry
7/15/41
The Henorable
Heary A. Wallace
Vice President
Inclesure
KHF:5 7-15-41
By Messenger
9:45
Enclosures: Memo to President
dated 5/5/42 signed by Secy.
Hull, Secv. Morgenthau and
Attorney Gen. Jackson.
Executive.order/re: Economic
Pre
defense committee.
145
July 15, 1941
Dear Henry:
So that you may have a chance to
glance at it before the meeting in your
office this afternoon, I am enclosing a copy
of a proposed Executive Order which Cordell
Hull, Bob Jackson and I submitted to the
White House last May.
After months of effort and innumerable
drafts, the three Departments were finally
able to agree on this Order.
So far as I know nothing has been
done about our recommendation.
Sincerely yours,
(Signed) Henry
The Honorable
Henry A. Wallace
Vice President
Enclosure
KHF:5 7-15-41
By q:t5
Messenger
1/15/11
Enclosures: Memo to President
dated 5/5/41 signed by Seey.
Hull, Secv. Morgenthau and
Attorney Gen. Jackson.
Executive order re: Economic
defense committee.
146
July 15, 1941
Dear Henry:
So that you may have a chance to
glance at it before the meeting in your
office this afternoon, I am enclosing a copy
of a proposed Executive Order which Cordell
Hull, Bob Jackson and I submitted to the
White House last May.
After months of effort and innumerable
drafts, the three Departments were finally
able to agree on this Order.
So far as I know nothing has been
done about our recommendation.
Sincerely yours,
(Signod) Honry
The Honorable
By Messenger
Henry A. Wallace
Vice President
Enclosure
KHF18 7-15-41
9:45
7/15/44
Enclosures: Memo to President
dated 5/5/41, signed by Secy.
Hull, Secv. Morgenthan and
Attorney Gen. Jackson.
Executive order ret Economic
defense committee.
7-15-41
James
his is the memo and Executive Order
ich was enclosed in the letter to
the Vice President this morning.
Miss Shelley
Mr. Foley's office
147
148
MEMORANDUM FOR THE PRESIDENT
Ye submit for your consideration a proposed Executive Order establishing an Economic Defense Committee,
consisting of the Secretaries of State and Treasury and
the Attorney General for the purpose of making recommend-
ations to you concerning the control of foreign funds,
foreign trade and related matters, in the interest of
the national defense. The Order would give the Committee
authority to supervise the administration of such freezing
or export control orders as you have issued or may issue.
The purpose of the Order is to coordinate and further
economic defense.
If this proposal meets with your approval, we contemplate designating officers of our respective Departments to work continuously together, keeping in constant
familiarity with our respective views and submitting to
us all recommendations proposed to be submitted to you.
These officers would have sitting with them advisors
from other departments and agencies of the Government
where the matters under consideration are of interest
to such other departments or agencies. We recommend also
that the Committee be provided with sufficient funds to
employ a small staff to work with the foreign funds control and the Administrator of Excort Control in the preoperation of date for its consideration.
Forfeel
(Secretarythree
of State
(Secretary of the Treasury
You
(Attorney General)
-
149
EXECUTIVE ORDER
DEALING WITH THE ESTABLISIDENT OF AN ECONOMIC
DEFENSE COMMITTEE AND RELATED MATTERS
By virtue of and pursuant to the authority
vested in me by section 5(b) of the Act of October 6,
1917 (40 Stat. 415), as amended, by section 6 of the
Ast of July 2, 1940 (54 Stat. 714), by the Ast of
October 10, 1940 (54 Stat. 1090), by virtue of all
other authority vested in no, and by virtue of the
continued existence of a period of national emergeney, and finding that this Order is in the public
interest and is necessary in the interest of national defense and security, I, FRANKLIN D. ROOSEVELT,
PRESIDENT of the UNITED STATES OF AMERICA, do hereby
preseribe the following:
Section 1. There is hereby established an
Economic Defense Committee (hereinafter referred to
as the "Committee"). The Committee shall consist
of the Secretary of State, the Secretary of the
Treasury and the Attorney General. Each member of
the Committee may designate an alternate from among
the officials of his Department and such alternate
say set for such member in all matters relating to
the Committee. The Committee may, in carrying out
the previsions of this Order, act either directly
150
-2
or through such agencies OF personnel
as 18 may designate or employ, and, in respect of
satters involving other departments or agencies of
the government, call upon such departments or
agencies for advisers to sit with the Consistee and
for such information and assistance as may be needs
sary.
Section 2. All preslamations, orders and regulations issued under section 5(b) of the Ast of
October 6, 1917 (40 Stat. 415), as amended, OF under
section e of the Ast of July 2, 1940 (54 Stat. 726).
which are in effect as of the date hereef or are
hereafter issued thorounder, shall be administered
pursuant to the supervision and central of the Comsittee.
Section 3. The Committee shall engage is such
studies and shall make such recommendations to the
President and to the appropriate departments and
agencies of the Government as the Committee doess
in the interests of the economic defense of the
United States.
Section 4. Any regulation, license, ruling,
instructions or other action by the Secretary of
the Treasury or by the Secretary of State or the
Administrator of Expert Control, as the case may DO,
purporting to be under the provisions of any preelsnation, order or regulation heretefore OF hereafter
issued under section 5(b) of the Ast of October 6,
151
1917 (40 stat. 415), as amended, or under see-
tion 6 of the Act of July 2, 1940 (54 Stat. 714),
shall be conclusively processed to have been issued
or taken pursuant to the supervision and control
of the Committee.
Section 5. This Executive Order may be
amended, modified or revoked at any time.
e
THE WHITE HOUSE,
1941.
.
11mg.
A-A:DA:GMH
CH
7/16/41
Miss Chauncey
7-15-41
Nell, this is a
152
set of the documents which
Vice President Wallace
gave to Secretary Morgenthau.
today
yesterday at the meeting in
Wallace's office at 2:15. The
originals were returned to the
Vice President.
(There is to be another meeting
at the same time tomorrow at
same place.)
MR.
153
THE WHITE HOUSE
WASHINGTON
My dear Henry:
in
I have been giving a great deal of consideration
the last few weeks to the whole problem of our
economic defense.
As you know, several of the government departments
and independent agencies have important responsibilities
in this field which are fixed by statute.
I have given some consideration to appointing a
director of economic defense who would administer certain
phases of the program and act as coordinator. The more
I think of it, however, the more I believe there is much
to be said in favor of a committee giving broad consideration to the problem of our economic relationships
rather than an administrative unit. I had in mind
appointing five or six people from various departments
concerned, who would consider the broad implications of
our economic relationships in the light of what is going
on in the world today and would consider further the
potentialities of the future.
I realize the committee would have to give consideration to immediate problems and that at a later
date that committee might wish to recommend to me a
more definite administrative alignment within the
government.
I am quite sure I am right about not appointing
an administrator of economic defense at this time, but
I do want the advice of a competent group sitting
154
-2constantly in regard to these matters.
I have been wondering if you would take the
chairmanship of such a committee. I am sure that
you know more about this field than anybody in town
and it is essential that we have someone as chairman
in whom the various cabinet officers will have
confidence.
Will you let me know what you think about this.
Very sincerely yours,
finally Manuel
the Honorable
Henry A. Wallace,
Vice President of the United States.
BUREAU OF THE BUDGET. CONFIDENTIAL (Tret 155
(Preliminary) March 6, 1941
WHAT SHOULD BE DONE ABOUT ECONOMIC DEFENSE
In order to aid Britain effectively as well as to protect ourselves against a thoroughgoing, although undeclared, economic war, we
must develop a comprehensive program of economic defense. Economic
defense consists of those economic measures having international implications exercised for the purpose of protecting and conserving the
resources and the commerce of the Nation, aiding friendly neutrals and
belligerents, and impairing the resources and commerce of unfriendly
belligerents.
We should begin at once to plan the defense of our post-war
foreign trade, for irrespective of the outcome of the present war,
peace will be fraught with manifold economic problems, insoluble without a long period of study.
A number of instances, based on suggestions by various departments and agencies contacted during the course of the survey, illustrate
some of the ramifications of economic defense problems. Random in nature,
they reveal that the disposition of any particular problem may require
the choice of one of many potential measures or the decision to take
no action whatsoever.
Transit Trade to the "Axis"
The Japanese have been purchasing in Latin America raw materials
for munitions. They have negotiated a contract expiring November first
of this year to purchase the entire output of Peruvian molybdemum, and
156
-2they have been buying Bolivian tungsten at a price well above the
world market to assure preempting supplies. The Japanese are also
purchasing Bolivian antimony, Brazilian quarts crystals, rubber,
mica, castor seed, Mexican lead and mercury, Argentine quebracho and
hides, and Chilean copper.
Using Japanese bottoms to Vladivostok, quantities of these
materials it is charged are then shipped by rail to Germany. The
Italians transport by airline non-bulk items such as platinum and
industrial diamonds from Brazil to Europe.
Preclusive Purchasing versus Alternatives
Several Government agencies have recommended preclusive pur-
chasing by the United States of the Latin American raw materials to
preempt them from inimical interests. Before such a program is inaugurated, consideration should be given to the possible use of alternative measures: diplomatic pressure, lending power, managed exchange,
and others.
Under the urgency for a stockpiling program, we have made
purchases in Latin America with free and uncontrolled dollar exchange.
Should we not have used our bargaining position as a buyer either to
gain advantages for ourselves or to thwart unfriendly nations? Could
we not have restrained Bolivia from selling tungsten to Japan? The
latter could probably have been accomplished by diplomatic pressure
or as a condition for granting a loan, since Bolivian tungsten is sold
through only one outlet, Banco Minero.
-3-
157
Purchases in Latin America by Japan have been made largely
with American dollars. If compatible with State policy, the prompt
freezing of exchange here might have the effect of stripping unfriendly
powers of their means of payment. Moreover, influence could be exerted
through a series of special deals and barters; pressure could be applied
through private exporting and importing firms. The use of private firms
to regulate foreign trade would have the obvious advantage of being
*unofficial." Since many of the Latin American countries desperately
need shipping facilities and certain materials, e. go, aluminum, we
could furnish these on condition that they refrain from supplying stratagic materials to our potential enemies.
Loans and Subsidies
Loans made by the Export-Import Bank to South America might,
in many instances, be conditioned upon the United States being granted
reasonable considerations. Thus, the United States might have obtained
cabotage (internal air transport) rights for the American line "Panagra"
and cooperation in excluding German rights as consideration for a loan
recently made to Chile by the Export-Import Bank. Actually part of
the loan was used to finance the purchase of equipment for the Chilean
National Airline. Since German and Italian airlines to South America
are now encountering difficulties in obtaining new equipment, our loan
and air subsidy programs assume a new and vital importance.
-4-
158
Boycott and Embargo
Instances pertaining to Japan and the Philippines illustrate
the necessity for careful study of the economic as well as political
effects of proposed measures. Thus in contemplating a boycott of
Japanese silk, consideration must be given to the effect of such action
upon American silk-consuming industries, upon competing materials and
substitutes, and upon the price effects of the use of those materials
and substitutes viewed both from the Japanese and the American side
of the picture. In anticipation of such a boycott, Japan might increase
her shipments, thereby acquiring additional amounts of exchange. The
advantages and disadvantages of a boycott must thus be weighed against
those of a currency freezing or another kind of program.
The Philippines constitute an important link in an embargo
of materials to Japan, for the effect of such embargo is nullified
if materials received in the Philippines can be reshipped to Japan.
Control of Shipping
The Office of Production Management requested the power to
direct the requisitioning of ships in order to facilitate prompt shipment of strategic materials. Shipping has broader aspects. Control
over shipping should be exercised in the light of our foreign commercial policy. Attention might be given to the requisitioning and
directing of ships for the purpose of interfering simultaneously
with the commerce of unfriendly balligerents and aiding that of
friendly nations.
159
-5Shipping rates affect the types of cargoes carried. Unless
rates can be controlled, both the commodities carried and the ports
covered may be out of line with defense needs. Control of ship movements may be the key to control over rates.
Economic Strings on "Land-Lease" Program
Pending operations under the "Lend-Lease" program are tied
up with these economic questions. While time is of the essence in
aiding Britain to the fullest extent consistent with American defense,
a great opportunity may be lost if careful consideration is not given
to the many economic ramifications under that bill. Is the United
States once more to win a war only to lose the peace? Or will she
now, while still retaining her current bargaining position, take
advantage of the lessons of 1918-19?
Many courses are open under the Lend-Lease program. We could
merely give Britain armaments outright and forego the assurance of an
important position in the post-war settlement. Or we might offer to
exchange armaments for any one of a number of agreements relating to
the post-war period. For example, we might insist on the elimination
of the effects of the Ottawa Conference, whereby the colonies and
dominions receive preferential trade treatment within the Empire, and
in its place create a wide trading area, a kind of economic "Union Now"
of states recognising the writ of habeas corpus. Here might be the
opportunity to return to the objectives of the reciprocal trade program,
and to stimulate foreign trade and investment in order to cushion the
effect of post-war economic readjustments.
-6-
160
We might exchange weapons for Britain's South American hold-
ings and utilize these in a variety of ways to control trade (Britain
uses them for this purpose), to obtain military bases, to gain the
friendship of the Latin countries by returning the investments to
them and their nationals, or to obtain concessions from Great Britain
by returning these holdings to her after the war.
We might lend armaments to be repaid in kind, but before doing
so, we should give thought to the economic effects of the repayment
of such loans.
Deficiencies in Present Facilities
Many agencies of the Government have been thinking about iso-
lated segments of economic defense, but no single focal point exists
where all segments can be brought into proper relationship, coordinated,
and adjusted to the over-all defense policies of the President. For
example, one agency urges purchasing Mexican mercury in order to pre-
empt the supply from Japan; another agency states that there are ample
world supplies outside the United States and Mexico. Further, many
suggestions for action toward South America have been made, but no
agency appears to be relating these suggestions to a Far Eastern program
or to the Nation's plan in regard to Britain and the Dominions.
The difficulties of planning and directing a program of economic
defense lie in the number of the agencies involved and the variety of
controls in each as well as in the complexity of the economic problems.
The appended schedule of controls and devices and list of departments
161
-7 and agencies concerned with economic defense indicate the scope of the
problem.
The job of developing sound programs of action and the full
coordination of effort of the many agencies concerned with economic
defense cannot be accomplished by any existing department or agency for
the following reasons:
1. Individual agencies are preoccupied by daily routine
and with their main interests, which in every case
are far narrower than the conception of total economic
defense. For example, the Treasury Department con-
tributes appreciably in the fiscal role, which is,
however, only one segment of the problem.
2. Any existing agency because of jealousies and lack
of central position would find it difficult to se-
cure the thorough cooperation of other departments
and agencies.
3. Direction of the economic defense activities requires
someone of unusual qualifications and broad-gauged
experience; the director must of necessity devote his
full and undivided attention to this problem. He
would have knowledge of plans known only to a few.
Such a task precludes Cabinet members and agency
heads who are already overburdened; nor should
attention to pressing internal governmental problems be allowed to recede.
4. By nature, economic defense is an emergency function
which is to be liquidated when the emergency passes;
consequently, these activities should not be allowed
to become so intermeshed with permanent governmental
activities that they become a vested interest or
that their cessation would cause disturbance of
normal governmental functions.
5. The Department of State, probably the most eligible
agency, should it be decided to entrust economic
defense activities to an existing department, would
be placed at a disadvantage in carrying out its main
defense role as a buffer in our political relationships with other nations.
-8-
162
6. The Office of Administrator of Export Control seems
unfitted for this role because of its military approach.
The military mind is accustomed to dealing with concrete problems and obtaining direct results; whereas
the mind concerned with economic defense must deal
in abstractions and delayed or not easily controlled
results. Moreover, the chief officials of the Economic
Defense Unit of necessity must be experienced in
international finance and trade and possessed of
considerable analytical ability and imagination.
In addition to the hierarchal arrangement of the Export
Control Office, question is raised as to the ability
of a military organization to deal successfully with
and understand businessmen.
It is important to note that the Office of Export
Control Administrator is now expanding its program and
staff to cover the whole economic defense field.
What is the Solution?
The preceding random illustrations of economic defense activi-
ties reveal that the determination of any particular course of actionor inaction-may require the choice of one of many possible measures.
Economic controls should be exercised only after the most careful preliminary study. Here is indeed a case where haste makes waste, and
where partial measures may undo the desired total effect. International
trade and finance is a highly complicated field, with influencing factors comingling from every angle. In such a field there is danger
that any one agency, focusing upon some particular phase of defense,
may fail to see the alternatives or the full implications of a given
measure. It may want action of some nature, any nature, when action
is the most undesirable course in a particular set of circumstances.
The many officials contacted in the course of this survey
believe that the establishment of a coordinating center on economic
-9-
163
defense measures is exceedingly urgent. Except in the case of the
office of the Export Control Administrator and the Treasury, which
desire to be entrusted with these responsibilities, opinion was unanimous
that the job must be done by a new agency under the President. Only
in this fashion can the respective parts which several agencies may
play in a particular course of action be scheduled and unified. Only
through such an agency can that all-important, illusive factor of "timing"
be safely exercised. Only by the creation of a central unit can we
be assured that carefully planned, deliberate study is being given to
problems of economic defense in the proper order of importance and with
proper attention to the inherent ramifications of alternative measures
and policies.
This might be accomplished by the designation of someone with
outstanding ability and braod experience in this field to assist the
President and such Cabinet Committee as may be desirable in formulating
and ccordinating programs for economic defense. If necessary, this
could be done quite informally. However, the many agencies which deal
with particular segments of the problems would need to understand the
role of this advisor so that the necessary planning and unification of
actions could result.
Or preferably perhaps a Division of Economic Defense in the Office
for Emergency Management of the Executive Office of the President could
be established by Executive order.
Under either alternative, a major task for the economic defense
advisor or division would be to assist in a secretarial and advisory
- 10 -
164
way whatever Cabinet Committee the President might wish to designate
on economic defense. The same Cabinet Committee which is now helping
the President on Lend-Lease operations might appropriately cover this
related field. Such an arrangement could be accomplished informally
as a normal method of doing business.
In any event, intimate relationships would be necessary between
the Economic Defense Unit and the agencies administering the Lend-Lease
program and the Office of Production Management. Likewise, a close
relationship would necessarily exist between the Economic Defense Unit
and any price administration and consumer agency that might be established
as a successor to the Price Stabilization and Consumer Protection Divisions of the Advisory Commission on National Defense. The Coordinator of
Commercial and Cultural Relations between the American Republics would
have in the Economic Defense Unit a channel for securing more effective
action than he now possesses.
The Office of the Administrator of Export Control should also
come under the direction of this unit. While that office is not suited
to be the central economic defense agency, the fact that it has been
developing a program and specific projects which go far beyond export
control is fortunate. The location of that office in the proposed
Economic Defense Unit will capitalize on the various economic defense
activities already launched by that office.and on the experience of its
staff in dealing with such matters.
In ei ther plan a highly competent research man in the international economics field would be needed to assist the Advisor or
Director in carrying on the necessary studies and the many contacts with
- 11 -
165
the departments and agencies affected. The staff would appropriately
consist largely of persons borrowed from other departments and agencies
who have been actively engaged in working on the specific problems under
consideration. While there might be some type of actions which the
Economic Defense Advisor or Director would need to carry out through
his own facilities, most of the actions would be executed through the
normal facilities of existing departments and agencies. Clear-cut and
speedy channels of relationship with such departments and agencies would
need to be established.
Since the Economic Defense Unit would be dealing with matters
which require continuous decision by the President and the advice of
Cabinet members, its head would need ready access to the President and
his principal officers. The unit would need to work at all times in
close consultation with the Department of State, and any proposed action
should have the approval of that Department.
166
XHIBITA
MEASURES THAT MIGHT BE EXERCISED IN A
PROGRAM OF ECONOMIC DEFENSE
Exports
Embargo (by countries); "moral" embargo; licensing of exports
(special and general); favoring or hampering through United States
production priority regulations; requisitioning of goods under license;
licensing of exporters; quotas (rationing of neutrals to prevent reexport); subsidies (including subsidized export competition ("dumping") to drive out enemy goods from a neutral market); barter and
special trade deals; pressure on exporting firms, such as: Black
lists, bonuses and subsidies, pressure on producers, private monopolies.
Examination of foreign orders.
Imports
Boycott (by countries); licensing (special and general); licensing
of importers; quotas; barter and special trade deals; tariffs (special
increases and reductions); administrative discretion by customhouse;
pressure on importers such as: Black list, bonuses and subsidies,
private trade monopoly, indirect pressure by consumer boycotts.
Purchases of strategic materials to: Acquire needed materials,
help friendly countries, prevent acquisition by unfriendly countries,
pressure on private firms to purchase materials.
Foreign Exchange
Freezing of foreign assets as follows: Prohibiting transactions
in foreign exchange, transfers of credit, transfers of securities,
export or withdrawal of gold, silver, coin, and currency, and transfers
of other evidences of indebtedness, or of ownership involving property
of specific countries or nationals.
Licensing of foreign exchange transactions as follows: Clearing
agreements, use of blocked money units.
Manipulation of the value of currencies: Price at which bullion
is bought or sold; purchase by United States Treasury of gold or silver,
or refusal to purchase it when origin from accepted areas cannot be
proved; licensing of export of bullion; the purchase and/or sale of
foreign currencies through the stabilisation fund.
Foreign Investments
Direct loans to foreign governments (for roads, airports, etc.);
direct loans to foreign nationals (for trade monopolies, special
-2-
167
productive facilities, etc.); encouragement of private loans to foreign
governments or nationals; subsidies and loans to our nationals for the
benefit of foreign governments or foreign trade (as subsidization of
tin smelter in America for Bolivian are); gifts; paying civil servants
in orphaned colonies (e.g., in French colonies); calking of loans,
refusal to renew; assistance or threats through influential United
States companies (e.g., the United Fruit Company in Central America).
Special International Activities
Cooperative purchasing agreements for stockpiling: To attain
needed materials, to prevent purchase of materials by the enemy, to
maintain prices.
Cartels for marketing or regulating production; furnishing or
withdrawal of technical experts, including government and civilian
experts and military technicians, to develop resources, transportation
systems, etc.; training of experts (exchanges of students).
Furnishing of needed materials to friendly countries; support
of currencies of friendly nations; joint propaganda and cultural activities (promotion of travel); joint agreements to prohibit transactions
with unfriendly countries and their nationals; seisure of property of
unfriendly countries and their nationals; cooperative trade policies
(such as a joint program with Britain in regard to South American trade);
blacklisting of uncooperative neutral firms.
Shipping and Transportation
Acquisition by purchase or lease; requisition (ships of neutrals
and belligerents); determination of routes; control of anchorage; control of bunkers, harbor facilities, warehouse facilities; regulation
of marine insurance; regulation of overseas mail and parcel post; control of shipping in territorial waters (as through clearance papers,
inspections, etc.); favorable or unfavorable treatment in allocation
of shipping (assuming shipping control); offer of convoy protection
of ships of a neutral; blockade reinforced by navicert system; control
of overseas airlines.
Patents and Other Property
Restriction of international licensing under new patents; offering
to friendly nations of special patent rights; confiscation of enemy
patents; licensing of foreign firms doing business in the United States;
seizure of enemy property.
Communications
Prohibition of adverse commercial propaganda, broadcast and otherwise communicated; encouraging of commercial propaganda to friendly
- -3 &
168
nations; control over mail and parcel post (used for shipment of nonbulk articles, plans, and military secrets; examination of mails to
trace illegal transfers and obtain information on goods shipped to the
enery, etc.).
Political Instruments
Threats and pressures, or favors and concessions, in the political
(diplomatic) field, for which the country concerned might reciprocate
by economic measures that help our friends or harm our enemies.
Military and Naval Instruments
Bombing and other attacks on objectives picked for their key
importance in a campaign of economic attrition; blockade, perfected
by a navicert system.
EXHIBIT B
FEDERAL GOVERNMENT ESTABLISHMENTS CONCERNED WITH ECONOMIC DEFENSE
Executive Office of the President
Office for Emergency Management
Office of Production Management
Division of Priorities
Division of Purchases
Bureau of the Budget
National Resources Planning Board
Council of National Defense
Advisory Commission to the Council of National Defense
Price Stabilization Division
Defense Communications Board
Office for Coordination of Commercial and Cultural Relations
between the American Republics
Office of Export Control
Interdepartmental Committee for Coordination of Foreign and Domestic
Military Purchases
Permanent Joint Board on Defense
Interdepartmental Committees:
Joint Army and Navy Munitions Board
Executive Committee on Commercial Policy
National Munitions Control Board
Interdepartmental Committee on Inter-American Affairs
Department of State
Division of Controls
Division of International Communications
Special Division
Liaison Office
Division of European Affairs
Division of Near Eastern Affairs
Division of Far Eastern Affairs
Division of the American Republica
Office of Philippine Affairs
Division of Commercial Affairs
Division of International Conferences
Division of Commercial Treaties and Agreements
Consular Service
Passport Division
Office of the Advisor on International Economic Affairs
169
-2Department of the Treasury
Procurement Division
Bureau of Customs
U. S. Coast Guard
(Stabilization Fund)
Secretary, as personal representative of the President in
matters relating to formal purchasing of war materials
War Department
War Department General Staff
Department of Justice
Anti-Trust Division
Immigration and Naturalization Service
Federal Bureau of Investigation
Post Office Department
International Postal Service
Bureau of the Chief Inspector
Department of the Navy
Office of the Chief of Naval Operations
Bureau of Supplies and Accounts
Department of the Interior
Bureau of Mines
Geological Survey
Petroleum Conservation Division
Department of Agriculture
Bureau of Agricultural Chemistry and Engineering
Bureau of Agricultural Economics
Office of Foreign Agricultural Relations
Surplus Marketing Administration
Department of Commerce
Bureau of Foreign and Domestic Commerce
Patent Office
Bureau of Marine Inspection and Navigation
Civil Aeronautics Authority
170
v
-3Federal Loan Agency
Reconstruction Finance Corporation
Rubber Reserve Company
Vetals Reserve Company
Defense Supplies Corporation
Export-Import Bank of Washington
Federal Trade Commission
Federal Communications Commission
United States Maritime Commission
United States Tariff Commission
The Federal Reserve System
The Pan American Union
171
EXHIBIT C
172
AN EXAMPLE OF SUCCESSFUL ECONOMIC WARFARE
Back in 1918, acting under an agreement for joint intervention
in eastern Siberia by the United States and Japan, Japan violated the
terms of the agreement. Instead of sending 12,000 troops into Siberia,
as agreed, she dispatched a force of 72,500 fighting men and officers.
This was more than the combined forces of the Allied intervention in
both east and west Siberia.
President Wilson, disappointed and displeased with Japan's
failure to observe the agreement, made the most vigorous diplomatic
protest and authorized the strongest kind of economic pressure. On
November 18, the War Trade Board issued an order stopping the further
granting of all licenses for the export of cotton to Japan and the import
of silk from Japan to this country. Iron and steel and their products
were considered for similar action, but, as it seemed that Japan would
be able to obtain these products elsewhere, cotton and silk were chosen
as the commodities that would make the economic pressure most effective.
At that time we were buying from Japan about $15,000,000 worth
of silk per month and were selling that country roughly $13,000,000
worth of cotton per month. This trade was vital to Japan's economy.
The action taken by the United States, together with the effect of the
collapse of Germany, brought an immediate response from the Japanese.
By the end of December, 1918, they had removed over 50,000 troops from
Siberia. Having achieved the desired result, the United States restored
the granting of licenses, and trade in cotton and silk was resumed.
In this incident we have a concrete example of the effectiveness of American economic pressure. Thus in 1918 the United States was
not afraid to make its displeasure felt by measures which were easily
understood by the militarists of Japan. Diplomatic protests were backed
by economic pressure and the desired results immediately achieved.
Today the issues at stake are of even more vital importance to the
United States; the economic weapons at hand are of even greater effectiveness when war becomes a total effort.
EXECUTIVE ORDER
ESTABLISHING THE OFFICE OF ECONOMIC DEFENSE
IN THE EXECUTIVE OFFICE OF THE PRESIDENT
AND DEFINING ITS FUNCTIONS AND DUTIES
By virtue of the authority vested in me by the
Constitution and statutes of the United States, and
in order to define further the functions and duties
of the Office for Emergency Management of the Execu-
tive Office of the President in respect to the unlinited national emergency as declared by the President on
May 27, 1941, and for the purpose of developing, 00ordinating, and carrying out plans and programs designed
to protect and strengthen the international economic
relations of the United States in the interest of
national defense, it is hereby ordered as follows: :
1. The term "economic defense" as used in this
Order means the conduct, in the interest of defense,
of international economic activities relating to ports, imports, the acquisition and disposition of
materials and commodities from foreign countries,
foreign exchange, international investments, shipping
and transportation of goods among countries, the international aspects of patents, international communications pertaining to commerce, and other foreign economic
matters.
preclusive buyes in
from country
173
174
2
2. There shall be within the Office for Emergency
harry 9
Management of the Executive Office of the President an
Office of Economic Defense, consisting of a Director to
be appointed by the President, and a Committee on Economic
The v P the
Defense composed of the
Secretary of State, Secretary of
1
Mar, Secretary of the Navy, Secretary of the Treasury,
Secretary of Commerce, and such others as the President
- from time to time designate The Director shall serve
Chair An or the Committee on ECONOMIC Defense. Them
wh
shall
1
Director shall receive compensation at such rate as the
President shall approve and, in addition, shall be entitled to actual and necessary transportation, subsistence,
and other expenses incidental to the performance of his
duties.
3. Subject to such polidas regulations, and direc-
committe
tions as the - may from time to time prescribe,
the Office of Economic Defense shall:
a. Study and analyse problems and methods of economic
defense and formulate and palating
communication
thereto; and advise the President as to economic
defense measures to be taken or functions to be
performed essential to the effective defense of
the Nation.
b. Use all appropriate means to assure that policies
and measures relating to economic defense approved
by the President are carried into effect by the
departments and agencies concerned, and in the
case of policies and measures which are not appropriate for execution by other departments and
agencies, take all lawful steps necessary to carry
them into effect.
3
175
(c) Initiate plans and make arrangements for the
obordination of the work of agencies engaged
in the accumulation and assembly of information and data required for economic defense
in order to assure maximum availability and
utility of such information and data.
(d) Review proposed or existing legislation relating to or affecting economic defense and recommend such additional legislation as may be
necessary or desirable; and perform such other
functions relating to economic defense as the
under
The
and
4. The Director shall exercise and perform all powers
President may from time to time assign.
1
and functions heretofore vested by any Proclamation, Execu-
tive order, or regulation in any officer or agency of the
Government (1) under section 6 of the act of July 2, 1940,
entitled "An Act to expedite the strengthening of the
national defense" (Public, No. 703, 76th Cong.), as extended
by joint resolution of May 28, 1941 (Public, No. 75, 77th
Cong.), and (2) under the act of October 10, 1940, entitled
"An Act to authorise the President to requisition certain
articles and materials for the use of the United States,
and for other purposes" (Public, No. 829, 76th Cong.),
except the powers and functions vested in the Joint Army
and Navy Munitions Board by sections 1 and 2 of Executive
Order No. 8567 of October 15, 1940; and all such Proclama-
tions, Executive orders, and regulations are amended to
the extent necessary to make this paragraph effective,
but shall otherwise remain in full force and effect, and
176
4
any of the provisions thereof heretofore applicable to
any such officer or agency shall be applicable to the
Office of Economic Defense.
5. The Director, with the advice and assistance of
the Committee on Economic Defense, shall discharge and
perform the administrative responsibilities and duties
required to carry out the functions and authorities set
forth in this Order.
6. In the study of problems and in the execution
of programs, it shall be the policy of the Office of Economic
Defense to collaborate with existing departments and agencies
which perform functions and activities pertaining to economic
defense. Such departments and agencies are requested to
cooperate with the Office of Economic Defense in arranging
for appropriate clearance of proposed policies and measures
involving economic defense considerations. The Office of
with the approval
Economic Defense my arrange for the establishment of coma
mittess or groups of advisers, representing two or more
departments and agencies as the case may require, to study
Gay
and develop economic defense plans and programs in respect
to particular commodities or services, geographical areas,
types of measures that might be exercised, and other related
matters.
7. To facilitate unity of action and the maximum use
of existing services and facilities, each of the following
departments and agencies, in addition to the departments and
agencies represented on the Committee on Economic Defense,
shall designate a responsible officer or officers to represent the department or agency in its continuing relationships
with the Office of Economic Defense: The Departments of
Justice, Agriculture, and Labor,
ampefellon
177
5
Commerce, the Federal Loan Agency, the United States
Maritime Commission, the United States Tariff Commission,
the Federal Trade Commission, the Board of Governors
of the Federal Reserve System, the Office of Production
Management, the Office of Price Administration and
Civilian Supply, the Office for Coordination of Commercial
and Cultural Relations Between the American Republics,
the Permanent Joint Board on Defense, the Division of
Defense Aid Reports, and such additional departments and
agencies as the President may from time to time determine.
The Office of Economic Defense shall provide for the
systematic conduct of business with the foregoing departments and agencies.
7. The Director may provide for the internal
organization and management of the Office of Economic
Defense. He shall obtain the President's approval for
the establishment of the principal subdivisions of the
Office and the appointment of the heads thereof.
8. Within the limits of such funds as may be
appropriated to the Office of Economic Defense, or as
may be allocated to it by the President through the
Bureau of the Budget, the Director may employ necessary
personnel and make provision for the necessary supplies,
facilities, and services. However, the Office of Economic
Defense shall use such statistical, informational, fiscal,
personnel, and other general business services and facilities as may be made available through the Office for
Emergency Management.
178
6
9. This Order shall become effective immediately,
except that paragraph 4 shall become effective on June
1941.
THE WHITE HOUSE,
June
, 1941
179
July 15, 1941
MEMORANDUM FOR THE SECRETARY'S FILES:
A meeting relative to the administration of Executive
Order 8389, as amended, was held in Mr. Foley's office at
4:00 p.m., July 15, 1941, attended from time to time by the
following:
Messrs. Foley, Cochran, B. Bernstein, Pehle, E. M.
Bernstein, and Aikin for the Treasury, Messrs. Acheson and
Luthringer for State, Messrs. Shea, Kreeger, Rosenwald and
Jurenev for Justice.
Mr. Pehle mentioned briefly the Silesian-American case.
According to him, the problem resolves itself into the sale
of properties located in Poland and Germany by Americans to
Swiss interests, which sale may be for German account. The
transaction is so complex and of such importance that Mr.
Pehle suggested representatives from State and Justice communicate with Mr. Carre of Foreign Funds Control, who is
thoroughly familiar with it. Representatives of the company
and interested counsel, according to Mr. Pehle, are confer-
ring with Foreign Funds Control tomorrow at 10 a.m. and he
suggested that representatives of State and Justice might
wish to be present at the conference. Decision on the case
will be reached after it has been discussed at an interdepartmental meeting.
Mr. Pehle explained an application submitted by European
Gas and Electric (majority stock of which is owned by Standard
Oil of New Jersey) for a license to sell its wholly-owned
Hungarian subsidiary to German interests for $24,000,000,
$9,000,000 of which is to be paid in gold presently located
in Germany but to be sent to Lisbon if the transaction is
approved. After discussion, it was agreed that the application should be denied.
Mr. Bernstein mentioned that the portion of General
License 45 in relation to the payment of documentary drafts
drawn under confirmed irrevocable letters of credit issued
by American banks is being extended.
180
-2Mr. Shea distributed a memorandum on Sterling Products
prepared by Justice. As soon as the other departments have
had an opportunity to study it, representatives of the company will be asked to come to Washington for a conference
with the Inter-Departmental Committee.
Mr. Acheson stated that the British Embassy would be
interested to know this Government's policy with respect to
suits brought by British creditors who have claims on Germans
with dollar balances here. The present practice of Foreign
Funds Control in attachment cases was explained briefly. It
seemed to be the consensus that the British should be told we
would not favor such suits.
Mr. Shea distributed a memorandum which his Department
had prepared on patent cases. A committee composed of repre-
sentatives from Treasury, Justice, State, and other interested
departments is being set up for handling patent problems on
a coordinated policy basis.
Mr. Cochran said that he had talked with Leon Fraser,
former head of the B. I. S., concerning dividend payments by
that Bank. It was Mr. Fraser's understanding that the B. I. S.
had paid the July 1 dividend to Germany in reichsmarks and
Italy in lira, but with respect to the other countries, the
normal procedure was to pay in the currency in which most of
the Bank's funds were held. Mr. Fraser told Mr. Cochran that
the Bank only carried sufficient Swiss francs to meet normal
running expenses and that most of their funds were either in
dollars or gold located in this country. It was decided to
approve the applications to pay $271,433.74 to the British,
$49,120 to the Bank Nationale Suisse, Zurich, $6,189.12 to
the Guaranty Trust Company for account of the National Bank
of Egypt, and $49,120 to Sveriges Riksbank.
Mr. Acheson reported that the British had informed him
of a proposal made to Anderson and Clayton to buy up French
franc Brazilian bonds in France and with the proceeds purchase
Brazilian cotton for storage in that country. Mr. Pehle in-
dicated that a somewhat similar proposal had already come to
his attention.
181
-3Mr. Luthringer said that after careful consideration,
the State Department felt that approval should be given to
the application filed by General Motors Corporation for a
license to pay $300,000 to Amadeo Barletta, their Cuban
distributor, who is an Italian. It was agreed that the
application should be approved.
182
July
Sund 15, 1941
4:07 p.m.
Bob?
HMJr:
Robert
Doughton:
HMJr:
Hello, Mr. Secretary.
Henry talking.
All right, Henry. How're you feeling now?
D:
HMJr:
Oh, no better than I was this morning.
(Laughs)
D:
HMJr:
A little worse.
Yeah. Well, I guess I'm about to have the
D:
same experience.
HMJr:
Yeah.
I want to confer with you a little bit further
D:
about that meeting we had this morning.
HMJr:
D:
HMJr:
D:
Yeah.
about my duty in the premises under
present conditions.
Yeah.
It's - I've been talking to Mr. Cooper about
it since we returned - in fact, he's here now
hearing me talk.
HMJr:
D:
Yeah.
And we decided I'd call you, and what is my
duty in the circumstances. Should I call the
committee together, and seeing that the President
wanted these views that he expressed there this
morning, presented by someone - I suppose he
meant yourself or Mr. Sullivan or someone from
the Treasury - presented to the committee.
But
183
2
HMJr:
D:
I don't know that the President suggested
that. I don't know who suggested that. I
don't know whether it was the President or
Cooper. I thought it was Cooper that suggested that.
Well, what other purpose could you have - do
you think that the President had in mind?
Perhaps Mr. Cooper did suggest that, but, of
course, he suggested on the assumption that I suppose that's what the President wanted
done.
HMJr:
D:
HMJr:
D:
Uh huh.
What
was your - what is your interpretation
of what
Well, I.....
.....of what he wanted us to do, or what he
wanted done or how he wanted it handled?
HMJr:
D:
Well, Bob, could I kind of sleep on this
and couldn't we get together in the morning
at any place that you suggest?
Why, yes, we could do that. What - time is
the element that's very important now.
HMJr:
Uh huh.
D:
Our drafting service is going to have their
work done in two or three days, anyhow this
week, they hoped - they told me this morning
they hoped to have their draft ready to present
to us Friday.
HMJr:
Well, I've been up on the Hill with the VicePresident on the meeting that he called, all
afternoon.
D:
Yeah.
HMJr:
And I haven't had a chance to talk this over
with anybody in the Treasury. So - I just
got in this minute.
184
-3
Well, if you're going to do anything about it,
you know, we ought to do it soon, because and not let the draft - and the Legislative
Council go on and draft what we've done and
then have to go back, it's a very delicate
D:
thing to draft anyhow.
HMJr:
Of course
If there's going to be any changes in the
D:
position of the committee, why they - we
ought to know it soon and they ought to know
it before they go over it and then have it
all to do over. And the quicker we can get
at it, you know, the better. I don't know
what our committee will do. That vote before,
you know - I don't know whether anybody told
you or not - was a rather decisive vote on
the question of - that we had up about retaining
the two methods of computing excess profits
tax. And what our committee will do, I don't
know when they hear whoever presents the
President's views. I suppose he wanted his
views presented. If he does, why then I
want to consider whether - decide whether or
not I let them decide whether they hurt somebody, or whether I'll just call the committee
and invite somebody myself. That's the question
in
HMJr:
D:
HMJr:
Well
Mr. Cooper and I don't exactly see alike.
Well, when you put it up to the President,
you know, he said to you, "Bob, that's a
matter that you've got to decide," and you
tried to prese him but he wouldn't advise
you, you remember?
D:
Well, would you consider that the President
thinks that I had broken faith in so far as
our conference of this morning was concerned,
if I called the committee together and just
relate to the committee what occurred this
-4 -
185
morning, that the President wanted the
matter reconsidered or wanted to speak
No.
HMJr:
HMJr:
further on it.
No, I don't think - I don't think
HMJr:
I've got to have some reason for calling
the committee together and tell them what
the President - why I called them together.
Well, I don't see what else you could do
D:
HMJr:
D:
HMJr:
as long as you ask me.
Well, I hadn't seen anything else I could do,
but I tried to proceed cautiously because
But I don't see - after all, the Treasury's
presented its views in full. We had ample
time. There's nothing that we could add to
it. There's nothing new that we could say.
Well,
wasn'that's
it? about what I said this morning,
But the President expressed his view for the
first time, and I don't see why it isn't
perfectly proper that you pass this on to
the committee.
D:
HMJr:
Pass it on to the committee whether I open
it up at all, or not?
Yeah.
If so, would you - just like you say, we've
but if the President - would your - confidentially, if you want to - would your idea
be that we should let the President be heard
through a letter from him or through a state-
heard the same thing over and more than once,
ment from you.
186
-5HMJr:
Well now, will you wait a minute? I just
sent for Sullivan and he's just come in.
Would you mind if I spoke to him a minute?
Why, take all the time you wish, because we
want to get these matters as clear and as
straight and as satisfactory as we can.
D:
HMJr:
Well, let me just speak to him a minute. (Talks aside)
All right.
D:
HMJr:
D:
HMJr:
Hello.
All right.
I told very briefly to Sullivan what you
and I said.
Yeah.
D:
HMJr:
But mainly about your idea of calling the
committee together and advising the committee
of what - of your conversation with the
President this morning.
Yeah.
D:
HMJr:
And he agrees that under the circumstances
that your idea is a good one.
Well.
D:
And then let them decide whether they
want to go into the matter further?
HMJr:
D:
HM/rr:
D:
Yes.
Well, that's what I thought.
Yes.
And if the President wants to have a letter
there, when I call them together I'll have
the letter read. Otherwise, I'll just tell
them what - the committee - relate, Mr. Cooper
and I together will - I'm sure we'll agree, in
187
-6substance, what took place this morning.
HMJr:
Well I don't think it needs any letter. You
two gentlemen were there.
Yeah.
D:
HMJr:
D:
HMJr:
And you heard what the President said, and
iftoyou
waitwaited
a week.for a letter you might have
Well,
about all
it. right. I'm glad you feel that way
I mean until the President got around to it,
with all this war business; it might take him
several days.
D:
HMJr:
D:
HMJr:
D:
Well, I understand that.
But
Certainly can realize that.
But I think your idea of calling the committee
and informing them of what the President said
sounds all right.
Well all right. I'm glad that's the - was
exactly the decision I'd reached in my own
mind, but I wanted to check it with you and
with some members of our committee.
HMJr:
D:
HMJr:
Yeah.
Because I certainly want to proceed with all
the caution and courtesy I can in this matter.
Yeah. Sullivan is sitting here, and he agrees
with me.
D:
All right. I thank you very much, and I'll
call the committee either tomorrow or next day,
one.
188
-7HMJr:
All right.
And we'll relate to them just what took
D:
place this morning and then they can decide,
the committee itself. The Republicans have
gone along, and I don't feel like - the fact
is, I've stated that I wouldn't to them, in
the full committee, too, and the Democratic
members too, that I was not going to call
any conferences, party conferences, about
this tax matter.
HMJr:
D:
Yeah.
They have shown every disposition and
willingness to go along with us that we've
been - we could expect, and even more. And
if they were to find out that we were having
a secret conclave or conference about it, why
they might say we wasn't playing fair with
them, you know, wasn't keeping faith; and
80 I'11 just call the full committee together
then.
HMJr:
D:
All right.
The full committee took the action; and if
you want to talk to me any more about it
in the morning - you spoke about
HMJr:
D:
Yeah.
thinking it over. If you want to talk
to me any more about it in the morning, I'11
be glad to come anywhere you say and meet
you anywhere you suggest.
HMJr:
Well, I don't know what else I'd have to say;
but if I've got anything else, I'11 take the
liberty of calling you. I take it the committee will meet in Executive session.
D:
How's that?
HMJr:
The committee will meet in Executive session.
D:
Yeah, the committee will meet in Executive
session.
189
-8HMJr:
D:
Yeah, that's right.
That is, any meeting we have will be in
Executive session unless the committee
orders otherwise. Of course, we've closed
the open session, you know.
HMJr:
D:
HMJr:
D:
HMJr:
D:
Yeah.
And the committee would have to order,
of course, any public hearings or any
hearings other than Executive session.
All right, Bob, I appreciate your calling
me very much.
Well, I'm very glad to do it; and I'll keep
you advised of just what's going on.
Thank you 80 much.
All right, thank you. Good-bye.
190
July 15, 1941
4:19 p.m.
Robert
Doughton:
HMJr:
Henry?
Yes, Bob.
Doughton calling again.
D:
HMJr:
Yeah.
I mentioned to Sullivan, and - I suppose
D:
he's mentioned it to you - if not, I'11
mention it to you anyhow - Jere and
I have just discussed that. Would it be
proper andyou'd be willing to let me have
a copy of that memorandum the President
read this morning?
HMJr:
D:
HMJr:
D:
HMJr:
D:
HMJr:
You'd have to get it, Bob, from General
Watson. I couldn't give it to you.
You had - you couldn't give it to me?
No, I've given it to the President and it's
his property now.
Well, we - that is, it'd enable us to more
accurately lay the matter before our committee if we had that.
Well, I - I
Both Jere and I agree to that; but if there's
any reason that it ain't worth holding and
not let us have it, why, of course, that'11
be all right with us.
Well, anything that I've got is yours; but
if you didn't mind calling up General Watson
and asking him.
D:
HMJr:
I will. I'll call him.
Will you do that?
191
-2D:
HMJr:
D:
Yeah, I'll call him right now.
I'm save
sureme
he'll give it to you, and that
will
Well, that'11 help us, you know, in preparing the - in restating to the committee
what the President stated to us this morning.
HMJr:
D:
HMJr:
D:
HMJr:
D:
I'm sure it would.
'Cause we want to give it to them as accurate
as we possibly can.
I'm sure
Because memory is not always - it's not as
safe as a written word.
Well, you call up the General, and that'11
take me off the spot.
Thank you very kindly.
HMJr:
Thank you.
D:
Good-bye.
192
July 15, 1941
4:27 p.m.
HMJr:
Operator:
HMJr:
John
Sullivan:
HMJr:
Hello.
Mr. Sullivan. Go ahead.
John
Yes, Mr. Secretary.
Bob Doughton just called back and asked
me about the memorandum, and I told him
to call up General Watson and he said he
would. Hello?
S:
HMJr:
Yes, sir.
So you know that relieves you.
S:
Yee. That's that.
HMJr:
Yeah.
S:
Right.
HMJr:
Thank you.
S:
Thank you, sir.
193
July 15, 1941
4:30 p.m.
HMJr:
Operator:
Hello.
Mr. Secretary, General Watson.
HMJr:
Hello.
Operator:
Here you are.
General
Watson:
Hello.
HMJr:
Hello.
W:
Bob Doughton called up and wanted a copy
of that memo the President read on excess
profits tax.
HMJr:
W:
Yeah.
Is there any way we can get that without
bothering him? He's in there with the
press
HMJr:
Yeah.
and he' 8 got two people after that.
W:
HMJr:
Well, I - I wouldn't want to say whether
the President would want to release that
or not.
W:
Well, did - did they want it released
or did he
HMJr:
W:
HMJr:
Well
and Cooper just want to use it?
If you give it to them, you might just as
well make up your mind that
W:
..... that it's going to be released.
194
-2Yeah.
HMJr:
All right, I'll ask him.
W:
HMJr:
I wouldn't - I mean, he asked me and I said
W:
All right.
HMJr:
itcouldn't
was the tell
property
it. of the President and I
But if you give it to them, you might just
W:
as well make up your mind you'll
Well, what is - what is your recommendation?
HMJr:
My recommendation?
Yes, sir.
W:
HMJr:
Is no.
Your recommendation is that.
W:
HMJr:
W:
HMJr:
W:
HMJr:
W:
HMJr:
Yeah.
Well, that's about what it would be.
Yeah.
Well, I know damn well it is.
But don't tell that to Doughton.
(Laughs)
Hell, no. I'm not going to
You know I'm not that shrewd man they
picture me up as if I'm going to do that
kind of thing.
Yeah.
W:
They got me written up as a shrewd fellow.
HMJr:
Yeah.
W:
Yeah.
195
- -3 HMJr:
W:
HMJr:
W:
HMJr:
W:
HMJr:
W:
HMJr:
Well, my throat is very delicate, and I
don't want it cut.
Yeah, I see. All right. (Laughs.) All
right.
Okay.
You'll never get it cut by me.
All right.
Yes, sir. You'll get it protected by me.
All right.
All right, I'11 tell him then you said no.
All right.
W:
Good-bye.
HMJr:
Good-bye.
196
July 15, 1941
4:36 p.m.
HMJr:
Hello.
Operator:
Secretary Ickes. Go ahead.
Harold
Ickes:
Hello.
HMJr:
Hello, Harold.
I:
Say, Henry, I don't know whether you have
anything to do with it; but there's a
vacancy on the Federal Reserve Board,
isn't there?
HMJr:
Not that I know of, but there might be.
I:
Well, yes. I wondered if you could help
Do you want to have Charlie West go on?
him out any.
HMJr:
(Laughs) What's on your mind, Harold?
Oh, what is that damn thing that - oh,
fellow over here by the name of Julian
Terrett. Doesn't there have to be a farmer
representative on there, too? Chester Davis
a
I:
resigned.
HMJr:
Yeah, that's right. That's right.
I:
Is there a vacancy there?
I:
There - there might perfectly well be.
Well, the only thing I promised to call you
HMJr:
Who?
I:
Julian Terrett. T-e-r-r-e-t-t.
HMJr:
Okay.
HMJr:
and mention his name to you.
197
-2He's Assistant Director of Grazing over
I:
here.
HMJr:
All right.
He's from
I:
HMJr:
Anything else?
.....from Montana.
I:
HMJr:
Okey-doke.
I:
All right. That's enough said.
HMJr:
Thank you.
I:
Say
HMJr:
Yeah.
.....are we ever going to do any economic
I:
warfare business?
HMJr:
Well, the President's given the job to
I:
Christ!
HMJr:
And I was up there for two hours today.
I:
Have you really?
HMJr:
Yeah.
I:
Uh huh.
HMJr:
And I don't know what'11 come of it.
I:
That's a nice mess everything is here these
Wallace, to call up a committee and be
chairman of it.
days.
HMJr:
But, I was amazed to get a call from Wallace
to come up there. The President asked him
198
-3to become chairman and take it over.
He did? Well, he's a good executive.
I:
HMJr:
Well, you recommended him to head up the
whole morale thing.
I:
Well, you know why.
HMJr:
No, I never did know why.
I:
Well, I tell you. I saw that we were going
HMJr:
Yeah.
I:
So in desperation
HMJr:
Uh huh.
into a descending spiral again because nobody
suggested anybody with a national - that was
known nationally.
I suggested Henry to take it temporarily
I:
HMJr:
Yeah.
I:
thinking that way we could keep the
damn - its nose above water
HMJr:
Yeah.
I:
it.
until we could get a life raft out for
HMJr:
Yeah.
I:
But I guess the President just doesn't
HMJr:
(Laughs)
I:
I think it's - I think it's perfectly
HMJr:
intend to have any morale.
terrible.
Yeah. Well, there isn't - there's nothing
going on.
199
-4on no. And I went and made a speech last
I:
night, and I wasn't allowed to mention the
Vichy Government or Petain in disparaging
terms.
HMJr:
No.
No.
I:
HMJr:
Good heavens.
My God! Chamberlain at his best couldn't
I:
appease the way our State Department does.
HMJr:
I:
HMJr:
(Laughs) Well, I don't know.
You don't know. Well, I do.
Well, we still send out the list every week
of the gasoline that goes
I:
Say, isn't it - isn't it ghastly?
HMJr:
Terrible. It's getting worse.
I:
HMJr:
I:
Well, you know what they're doing? They're
building un a bigger supply 80 they'11 be
ready for us.
That's right.
We're just - we're just giving week by
week
HMJr:
I:
HMJr:
I:
I know.
hundreds of thousands of gallons to
put away so that when they're ready for
us they won't meet any trouble about their
oil supply.
That's right. They don't have to go down
to the Dutch East Indies.
That's right.
200
-5HMJr:
I:
HMJr:
I:
Yeah.
All right, Henry.
Thank you.
Good-bye.
201
July 15, 1941
4:51 p.m.
HMJr:
Operator:
HMJr:
Leon
Henderson:
HMJr:
Hello.
Leon Henderson.
Hello. Hello.
Hello.
Leon?
Yeah.
H:
HMJr:
How'd you make out?
H:
All right.
HMJr:
H:
HMJr:
H:
Did you?
Got the green light.
You did.
Yeah. And I'm arranging to see the folks
down on the Hill tomorrow.
HMJr:
Yeah.
H:
And I think we'11 move pretty fast.
HMJr:
Could you tell in any - well, I congratulate
you. Could you tell in any way whether -
what the President's reaction was to my memo?
H:
HMJr:
H:
HMJr:
He didn't say anything about the whole thing.
He was very much disturbed at Bob's attitude
toward that tax.
Yeah.
And he talked a little bit about that. Otherwise, he didn't mention it.
I see.
202
-2H:
HMJr:
But they did and it was helpful, I think,
in the decision about the green light.
Well, if he read it, he must have read it
last night.
Uh huh.
HMJr:
Hello.
Yes. He didn't get a chance to go over the
whole thing.
H:
HMJr:
No, he just confined himself to the tax
part this morning. But he had it all last
night, and he had last night's memo on top
of his desk with some pencil on it, 80 he
must have read it last night.
Yeah.
H:
HMJr:
At least that's what I think he did, but
What do you think will happen?
H:
HM(rr
What will happen?
Yes.
HMJr:
On the tax thing?
H:
Yeah.
HMJr:
Nothing.
H:
You don't think so?
HMJr:
No, because the President told Doughton it
was entirely up to him and that he wouldn't
make any suggestions.
H:
Oh my! Then it's going to be up to you when
you go down.
HMJr:
Well, when I go before the Senate.
203
-3Yeah.
H:
HMJr:
Doughton is going to report the conversation
to the committee as a whole.
Yeah.
H:
HMJr:
See?
Yeah.
H:
HMJr:
He's going to tell the committee what the
President told him. He just told me two
minutes ago.
Yeah.
H:
HMJr:
And said he was going to do that. But, the
chances are ninety - nine out of ten that
nothing will happen.
H:
HMJr:
Oh my!
Because, you see I - you know I said - I said
to you, "Unless the President takes this and
H:
does something dramatic, nothing will happen.
Not in that House Committee, certainly.
HMJr:
No, and the Senate Committee's worse.
H:
Well, I guess we'11 all have to get in and
pitch and try to convince him of the necessity
of it.
HMJr:
Yeah. Well, when we get down to writing my
statement, I'11 ask you to help collaborate.
H:
All right, Henry.
HMJr:
I'm delighted, though, that you got a green
H:
Thank you very much.
HMJr:
Good-bye.
H:
Good-bye.
light. I congratulate you.
204
All
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO Secretary Morgenthau
July 15, 1941.
FROM J. J. O'Connell, Jr.
For your information
The regular weekly meeting of the Price Administration
Committee was held in the conference room at the Federal
Trade Commission this morning at 11 o'clock. Mr. Henderson
was unexpectedly required to go to the White House so was
unable to be present. Mr. John Hamm, Deputy Administrator
of OPACS presided.
The meeting was relatively brief, the discussion
centering around the difficulties they have been having
with the cotton textile people as a result of the price
order issued by OPACS in connection with that industry.
The industry is, to all intents and purposes, on a strike
against the price ceiling and it is very difficult at this
point to see how it is all going to come out. Industry
representatives are to confer with some of Mr. Henderson's
people this afternoon and tomorrow and they have some slight
hope that the log-jam will be broken. What the industry
wants, of course, is higher prices, as well as relief from
the provision of the Order which makes the price ceiling
retroactive.
I told the group of the difficulties the Procurement
Division has been having in connection with purchase of
a substantial quantity of greige goods under lease-lend,
and a general discussion was had with respect to that
problem. No constructive suggestions were forthcoming,
although all seemed agreed that efforts should be made to
negotiate contracts for the materials we need with individual
suppliers. Mr. Stettinus suggested the possibility of
shutting off power or coal from any company which would
refuse to sell us what we want within the price ceiling
fixed by Mr. Henderson. He pointed out that this method
was used extensively during the World War. The difficulty
205
Secretary Morgenthau,
2.
with this weapon, as well as with others presently available,
is that it is too drastic. This portion of the discussion
pointed up pretty well the necessity for some price legislation which will give to Henderson's outfit the power it
needs to enforce its edicts.
One other subject was mentioned which was stated to
be highly confidential. OPACS' representatives have been
discussing the cotton situation with representatives of the
Department of Agriculture, in view of the rapid rise that
has recently taken place in the price of cotton. The price
is now substantially in excess of the 85 per cent of parity
which may be loaned on cotton, and the price may ultimately
go to or above parity, in spite of the tremendous stocks
of surplus cotton that exist. Although there are many
restrictions around a disposal by the Government on stocks
of cotton, an agreement has been reached by which the
Department of Agriculture will release some of its cotton
when, as and if the price reaches parity. OPACS officials
feel that this will operate effectively as a price control
device to keep the price of cotton from getting out of hand.
Before the OPACS Committee meeting I attended a
meeting of the motor truck subcommittee of the automotive
industry committee at OPM. Very little transpired which
was of more than general interest. However, the figures
which were developed as to the trucks that would be needed
during the next year were startling. From the figures
that were presented to the group, it sounded as though the
automotive truck industry is expecting an expansion of about
50 per cent in terms of the number of trucks that will be
needed during the next year. The figures were not very
intelligible, inasmuch as there had been no break-down as
to the number of trucks that will be needed in the different
size categories, but it was apparent that in the eyes of
that group at least, there is little hope for any curtailment
in the manufacture of trucks during the next year. It is
apparently possible to convert passenger car capacity to
the construction of small trucks, but any substantial expansion
in the capacity to produce large trucks can be as a result only
of re-tooling and the acquisition of a substantial quantity
of machine tools (as to which a real bottleneck exists).
206
Secretary Morgenthau,
3.
And this, of course, takes no account of the shortage
of materials. If the figures presented at the
meeting are realistic, , and if what we have been told
about the shortage of raw materials is true, it would
sound as though practically all of the passenger car
industry will either be making trucks or defense
articles or will be shut down next year.
207
July 15, 1941
Mr. Graves
Mr. Slown
This morning the Secretary asked Mrs. Klots to call you
with reference to certain statistical data which he desired. In
your absence I talked with Mrs. Klots and the following is what is wanted.
1. Every day a report of sales of bonds and stamps on
a daily basis brought forward from July 1.
2. Daily receipts from the sale of stamps at the
Treasury House.
3. A report on all orders received for the sheet
music of "Any Bonds Today This report is to
reflect the total number orders and also to
indicate any unusually large orders and the
purpose for which a quantity of sheet music is
to be used.
Mrs. Ready is getting together immediately each of these
reports and we will continue to function the three reports through
you until we hear from you to the contrary.
cet Mrs. Klots
Mr. Reagh
Mr. Buckley
Mr. Duffus
Mrs. Ready
Mr. Sloan
- Rest
208
WM.WRIGLEY JR COMPANY
WRIGLEY
BUILDING
400 NORTH MICHIGAN AVE
SAM.
CHICAGO
July 15th,
1941.
Mr. Harford Powel,
Defense Savings Staff,
Treasury Department,
Washington, D. C.
Dear Mr. Powel:
Am sorry to have been so long in
getting some material to you, but first we had to
wait until the art work was finished. This was
held up because we had to arrange the figures and
our copy on the size sheets which Gugler Lithograph
use on their presses, so we would only have to rerun
half of the poster sheets for the Defense Bond copy.
We are enclosing with this letter
photographs of our material, and photographs of the
material we propose to print for you. You will notice
that in addition to the posters we have included a
run of car cards. We mentioned what we were doing
in posters for you to the New York Subways Advertising
Company, because we do not have any poster covering
in New York City, and we thought you might like a
run of cards.
The New York Subways Advertising Company
said that they would be very glad to give you the
space, provided we were willing to print the cards,
and we have made arrangements to make new plates and
to furnish them 15,000 cards for New York City.
We, also, have a verbal promise from the
people running the Chicago car cards to duplicate
what is done in New York, and this would include
1,000 cards in Chicago. The above car cards are size
which
is our
size of car are
also
cannot
stretch
11x28, going to see if regular we these card. plates We
to include a 16x28 card, which is the size used in the
Chicago Elevated Lines, and if we can, this will give
you an additional 2500 cards. Undoubtedly once this
209
Second Page.
Mr. Harford Powel.
gets started other people in the car card business
will not want to be left out, and if they all come in
it will mean we may have to furnish for the entire
United States about 85,000 car cards.
In connection with the posters; the
design we are using and the one which we mentioned to
you is, of course, for September, but this happened
to be a short run, as the September poster only appears
in the Hard Coal Region in Pennsylvania in September,
with a total of 630 posters, and on the West Coast
in October with a total of 1,870 posters, and also
in October in three Southern States with a total of
970 posters.
We felt we could cover New York with the
car cards, and I am sure we can get other cities to
do the same thing, but we felt that we were not giving
you coverage in the Middle West where we imagine you
need the outdoor showing, so we put through an order
for a representative showing in Illinois, Indiana,
Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio
and Wisconsin, which will be a total of 6,670 boards.
This means that we have purchased for
September--October space for 10,140 - 24 sheet posters,
of which we propose to give you half, that is, in the
Mid-Western States, listed above, there will be 3,335
posters paid for by us and carrying your copy. In
Pennsylvania 315. Both of these showings to go up in
September. On the West Coast, which takes in the States
of Arizona, California, Idaho, Nevada, Oregon, Utah
and Washington you will have 935 posters, and in
South Carolina, North Carolina and Georgia 485. The
West Coast and South to be posted in October.
This is the space we are paying for, but
we are sure we can get you nearly double this amount.
In sending out our orders for the additional space in
the :id-Western States we mentioned in our letter to
the plant-owners that we were buying this space and
giving half of it to you to help sell U. 3. Defense
Bones and Postal Savings Stamps, and that if they cared
to cooperate with you and give you additional space
we would be willing and more than glad to furnish this
additional paper. The responses coming in to the
letter so far indicate that on the average plant-
owners are going to ask for double the amount of paper
210
Third Page.
Mr. Harford Powel.
carrying your copy and will double un your showing.
If this goes through at the rate it has started, it
will mean that in the Mid-Western States, for instance,
you will have 3,335 posters with your copy on, and
for which we are paying for the space, and approximately
3,000 additional posters, for which we will furnish
the paper and the plant-owners, themselves, will
furnish the space.
Realizing that the mediums we are furnishing you show to the masses of the people rather than
to the carriage trade, so to speak, and because we are
using our figures as a symbol on this material, we
have worded our copy to keep it in the 5 field. For
that reason we avoided any reference to investment,
because we firmly believe that investments are beyond
the reach of the majority of people, that is, the
younger people that our copy is generally addressed
to, and being of the younger generation and having
their lives ahead of them, they generally spend pretty
well up to their income, and investing is something
they leave for the future. Also, we believe that
the word "investment" means to the average person the
setting aside of a sizeable sum of money, and as we
understand your drive it is to get everybody to at
least
do a little.
It is the reason that we show the prices
on the car cards. This same reasoning is the reason
for not using the word "buy" but instead to use the
word "get". It has been our experience that if people
are sold on the idea of getting something you generally
get action, that is, when somebody goes out to get
something their mind has been made up beforehand to get
it as the word implies. On the other hand, when people
go out to buy, it generally indicates some indecision
and means shopping around.
I am afraid I am not explaining this very
well, and the point may be a little far fetched, but
there is some psychology to it. For instance, people
will come into a bank and say "where can I buy stamps
or Defense Bonds". Their whole attitude indicates a
certain amount of indecision and uncertainty. On
the other hand, if they come in and say "I want to
get some Defense Bonds" it pretty well indicates that
they have been presold.
211
Fourth Page.
Mr. Harford Powel.
Of course, you will undoubtedly have your
own viewpoint on this and we are, therefore, not going
ahead with the posters or cards until such time as we
get an okay from you, but we would like to have it
just as soon as possible, 8 it is going to take some
time to make the plates.
Another thing I might mention, and which
apparently I have overlooked, is that our experience
has been that the first law of nature and our strongest
instinct is a law and instinct of self-preservation,
which in simple language means that everyone at heart
is one hundred per cent selfish, and for that reason
we have made the entire appeal on an entirely selfish
basis and without any appeal whatsoever to patriotism.
This might be a mistake if the material we are furnishing
were the only material out on Defense Bonds and Savings
Stamps, but they are being hammered through every medium
and nearly all of them refer more or less to the
patriotic motive behind getting these bonds and stamps.
That being the case we thought we would limit our
appeal to the selfish angle, and we may pick you up
some buyers that have not been moved by the other
appeal, and also has the advantage of being a little
different.
I am also sending with the sketches a
drawing of the New York Sign, on which, if you care to
have us do so, we will put in the space that now carries
our copy, the same copy which appears on the posters
and car cards. This would come on in three flashes,
the same as our own copy at the present time, and as
is illustrated by pulling out the slide on the sketch.
We mention the price of Savings Stamps
from 10 to $5 as we believe the bulk of the people,
who see this sign on Broadway, will be your small buyers
and not your large buyers. Just what we can do with
the lettering, that is, whether it will be in bulbs
or Neon tubing, we do not know, but we are getting
figures and information from New York on this subject.
Also, please bear in mind that these
sketches showing your copy are only in black and white,
and the lettering on the car cards is very rough.
When finished it will have the same clear hand lettering
that appears on our own copy. Also, please remember
212
Fifth Page.
Mr. Harford Powel.
that in black and white it does not have the punch
that it does in color. The finished sketch is in
front of me now and it really is a dandy. The
girl's clothing is a bright plaid; the Marine, of
course, is in dress uniform, which is always
colorful, and the whole thing is on a powder blue
background. On the poster, both our own copy and
yours, appears in yellow lettering on a dark blue
panel, which makes it stand out to beat the band.
Yours very truly,
WM. WRIGLEY JR. COMPANY.
PKW-h
Enclosures
with youngly
213
July 15, 1941
"TREASURY HOUSE" Daily Report
New
Stamps Sold
Date
Albums Started
Total
Total Albums
To Date
Cash
To Date
$853.40
1573
495
975
257
752
331.75
$1,185.15
808
104
856
314.55
1,499.70
945
223
1079
229.45
1,729.15
2243
591
1670
830.15
2,559.30
860
117
1787
280.05
2,839.35
1091
118
1905
380.05
3,219.40
196
2101
302.75
3,522.15
967
199
2300
405.20
3,927.35
1344
2533
329.70
4,257.05
1066
233
10
206
261.00
4,518.05
758
2739
11
202
265.80
4,783.85
870
2941
12
160
303.60
5,087.45
967
3101
15
5,605.95
213
518.50
1295
3314
14
July 1
2
3
4
5
6
7
8
9
UNITED STATES SAVINGS BONDS
Daily Sales - July 1941
On Basis of Issue Price
(In thousands of dollars)
Post Office
All Bond Sales
Date
Series E
Series F
Series G
$ 9.505
$ 2,387
$
957
$ 6,160
11,612
15,045
4,066
4,903
22,900
Total
Bank Bond Sales
Bond Sales
Series E
Total
Series E
Series F
Series G
July 1941
$ 6,160
595
$ 8,910
$ 1,793
843
6,701
9,299
1,735
2,077
9,877
12,969
2,331
2,827
845
843
6,701
9,299
9,589
2,437
10,875
3,191
19,709
6,397
2,437
10,875
6,315
4,867
6,277
6,018
8,504
4,482
472
860
4,242
5,162
9,413
4,808
6,610
7,347
3,908
1,346
2,229
2,459
2,405
1,672
7,120
9,881
14,341
8,972
13,905
11,017
2,407
3,522
4,048
3,559
6,098
2,810
472
12
11,028
11,226
16,570
11,430
16,311
12,689
860
4,242
5,162
9,413
4,808
6,610
7,347
14
13,435
7,754
1,046
4,636
3,060
10,375
4,693
1,046
4,636
$ 151,752
$ 65,162
$ 11,338
$ 75,252
$ 24,677
$ 127,075
$ 40,485
11,338
75,252
1
2
3
5
7
8
9
10
11
Total
845
1,197
880
605
1,197
$
Office of the Secretary of the Treasury, Division of Research and Statistics.
$
957
1,197
880
605
1,197
July 15, 1941.
Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States Savings Bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Secretary Morgenthau
DEFENSE SAVINGS STAFF
ADVANCE NOTICE RADIO PROGRAMS
TUESDAY - JULY 15, 1941
Time:
3:15 - 3:30 P.M.
Program: Stella Dallas
Station:
WRC and National Broadcasting Red Network
Time:
7:00 - 7:30 P.M.
Program:
Johnny Presents
Station: WRC and National Broadcasting Network
Time:
9:30 - 10:00 P.M.
Program: College Humor
Station: WRC and National Broadcasting Red Network
THESE PROGRAMS PROMOTE THE SALE OF DEFENSE BONDS AND STAMPS.
215
216
TREASURY DEPARTMENT
Cochram
INTER-OFFICE COMMUNICATION
DATE July 15, 1941
Secretary Morgenthau
FROM Mr. Cochran
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
£65,000
Sold to commercial concerns
Purchased from commercial concerns £ 5,000
Open market sterling was again quoted at 4.03-1/2. The only reported transaction consisted of the selling of £5,000 to a commercial concern.
In New York, closing quotations for the foreign currencies listed below were
as follows:
Canadian dollar
Argentine peso (free)
Brazilian milreis (free)
Uruguayan peso (free)
Colombian peso
Mexican peso
Cuban peso
Japanese yen
11-3/4% discount
.2385
.0505
.4380
.5800
.2070
1-1/4% discount
.2358
In Shanghai, the yuan was unchanged at 5-5/16 Sterling rose 2-1/44 to
3.94-1/2.
In addition to accepting dollars representing the proceeds of Swiss exports
and income from Swiss investments in the United States, or in payment for Swiss
france to be used for living expenses in Switzerland, the Swiss National Bank cabled
a New York bank that it would also make available moderate amounts of Swiss francs
(against dollars) for payments to consular agents and legations outside Switzerland.
The current selling rate of the Swiss National Bank is .2322-7/8 per Swiss franc.
Ve also learned today that a few New York banks who have small balances in Switzerland are offering Swiss francs in the New York market at .2375.
We sold approximately $10,000,000 in gold to the Swiss National Bank, which
was added to its earmarked account.
The Federal Reserve Bank of New York reported that the Central Bank of China
shipped $709,000 in gold from Hong Kong through the Chase Bank, Hong Kong. Delivery
of this shipment is to be taken in San Francisco by the Federal Reserve Bank of that
city, under instructions from the New York Federal Reserve Bank. The gold will be
refined in San Francisco, and equivalent amount will be delivered in New York to
the Federal Reserve Bank of New York, which will earmark the gold for the account
of the Central Bank of China.
217
-2Ye were informed that the Bombay gold price on July 5 was equivalent to
or 15
above from
parity
athigher
was The
a inrise
stocks
(recently $34.19. placed $34.04) than the quotation attributed of to June depletion 28. resulting export
gold exports, accompanied by a speculative demand due to political
developments. The Bombay silver price on July 5 worked out to the equivalent of
44.764 or 1/16# under the quotation for June 28.
previous
In London, spot silver was fixed at 23-3/8d, up 1/16d. Forward silver was
also priced at 23-3/8d, unchanged. The U. S. equivalent of this price is 42.444.
The Treasury's purchase price for foreign silver was unchanged at 354. Handy
and Harman's settlement price for foreign silver was also unchanged at 34-3/44.
We made one purchase of silver amounting to 114,085 ounces under the Silver
Purchase Act. This silver represented new production from Java, and was bought
for spot delivery.
CONFIDENTIAL
218
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 15, 1941
Secretary Morgenthau
FROM
Mr. White
There is attached a list of memoranda and reports
prepared in the Division of Monetary Research during
April, May, and June, 1941.
219
Memoranda Prepared in the Division of Monetary Research
during April, May and June, 1941.
Japanese Gold Movements and Dollar Balances in the United States,
January to March, 1941. .
A new equation for estimating silver production in the United
States.
"Monetary Policy as it Affects Foreign Trade - Chamber of Commerce
pamphlet.
Canadian Foreign Exchange Position.
British Cash Position.
S.E.C. Study of British Insurance Direct Investments.
Special Reports to the Secretary from Mr. Kamarck.
Comments on Navy Report on Japan's 011 Situation.
Contemplated Control over Capital Markets.
British report on German aviation gasoline (attaching letter from
Mr. Marris, British Embassy).
Memoranda on: Axis influence in Colombia, Guatemala, Ecuador,
Peru, Costa Rica, Panama, Honduras, and Bolivia.
Comments on Dr. Lewis L. Lorwin's study of War Finance.
The German Invasion of Yugoslavia and Greece.
Material prepared in connection with Survey of Defense Expendi tures.
German Exploitation of Denmark.
German Exploitation of the Netherlands.
The Economic Situation in Belgium.
Export Control - Shipments to Japan.
Opinions of members of Economists National Committee on Monetary
Policy.
The British Budget, 1941-42.
Economic Situation in Germany.
(
Mr. A. Loveday's study of German war Finance.
220
-2-
Division
of Monetary
Research
Drafts or Secretary's statement before House Committee on Ways
and Means, regarding new Taxes.
Report on The Office of the Alien Property Custodian.
Recent economic developments in Germany.
Canadian Budget, 1941-42.
that raw materials will Germany gain from the Balkans and what may
she gain from a conquest of the Mediterranean?
History of Chinese Coin Collection received from Dr. H. H. Kung.
Licensed exports of copper since April 1.
British request for "relief" on outstanding obligations.
Expo t-Import Bank Consolidated Wheat and Cotton Loan to China.
Resume of negotiations respecting relief with British.
Liquidation of British assets in this country.
Hemingway's and Bond's comments on Chinese transportation.
U. S. Assets in Continental European Countries.
German assets available for expenditure in the United States.
British Thread Companies in the United States.
Revised Estimates of British Gold and U.S. Dollar Requirements
during 1941.
The Anglo-Palestine Bank.
Two States on H. R. 4646.
Imports into Madagascar and Reunion.
The French request for dollars to finance imports into French
North Africa.
Arbitrium, S.A.
Trade of the Philippines with the French East Indies.
U. S. Corporate Interests in Austria and Germany.
-3-
Division
of Monetary
Research
221
German, Austrian, and Czechoslovakian interests in U. S.
Corporations.
Investigation of the possible effects on the securities market of
the sales of securities under General License No. 4.
Ownership and control of the German Gold Discount Bank.
Japanese Yen Holdings of Paramount Pictures, Inc.
The course of British prices since August 1939.
Minerals in the Balkans.
U. S. Trade with French Indo-China, 1938-1940.
Plan for Tabulation of Property Reports.
U. S. Treasury Relations with Canada.
The proposal for allowing the British to borrow privately on their
direct investments.
Stabilization Fund.
Proposed Questions on Taxation for the Gallup Poll.
Official statements made before Congressional Committees with
respect to British payments in the United States.
Chinese Stabilization Agreement.
U. S. Foreign Policy.
Reported Sales of British-owned Domestic Securities.
The acquisition of newly-mined Domestic Silver.
A new silver policy for the United States.
F.B.I. Data and Capital Movements.
Criticism of Walter Lippmann's A B C of War Finance.
The Sales Tax as a Measure to Prevent Inflation.
Monetary Gold Stock of the World.
Capital Movements and Foreign Funds.
The half-cent piece.
The 2 Cent piece.
The prospective shortage of coin.
222
-4-
Division
of Monetary
Research
The New Caledonian Nickel Ore.
Currency Control and the General Freezing of Foreign Funds.
Revision of Country Study: Mexico.
Probable economic effects of a cessation of Treasury purchases of
foreign silver.
British Purchase of Cuban Sugar.
Investment of frozen funds in Government securities.
Review of comments on the Sixty Economists National Committee
Report.
Parity for the Canadian dollar.
Suggestions on Controlling price rises.
Governor Eccles' letter to Congressman Patman - Summary and comment.
Comment on Thomas G. Reid's report on TFR-132s.
Governor Eccles' memorandum on new taxes.
The Federal Reserve Board's comments on the bank holding company
bill.
Power to devalue the Dollar.
Excess Profits Tax Base.
Treasury attitude toward savings deposits in commercial banks.
Action by OPACS.
Agricultural Payments.
Inquiry on Money in Circulation.
Recommendation for a Labor and Profits Program.
Notes on proposed Treasury Financing.
Belgian Gold Holdings.
Germany's public debt.
The exploitation of Belgium under German occupation.
223
-5-
Division
of Monetary
Research
The significance of Capital Issues Control in the State-Directed
German Economy.
United States Assets in Germany, Austria, Czechoslovakia.
The new note in Nazi-propaganda; Nazi Europe will promote world-
trade and relax her internal authoritarian economic controls
after the war.
Digest of "Nazi Europe and World Trade", by Cleona Lewis, Brookings
Institution.
German retaliation to our Freezing Order.
A preliminary inquiry into the possible occurrence of speculation
by German agents on the New York stock market.
Axis-inspired revolt in Iraq.
The Belgian Embassy's statement on their national gold holdings.
Theses for a general appraisal of United States foreign funds control.
Germany engaging in economic relations with the United States.
Foreign Assets in the United States of various countries, by
types. Changes in Latin American Assets in the United States.
The Reemergence of W. V. Bigara and H. Kollmar as Agents for the
Repatriation of German Obligations.
Franco-German Collaboration.
Financial points from recent French consular reports.
How much gold will the U.S. Treasury acquire in 1941?
The Trend of Silver Imports.
Canadian Direct Investments in the United States.
Brown and Williamson Arrangements similar to Subrogated Securities.
Study of Sales under General License No. 4.
Preliminary estimate of Canadian Investments in Latin America.
Weekly reports on military situation.
Comments on the April 11 Statement of Sir Edward Peacock on the
Ownership of Lever Brothers Co., Boston.
Powers of the Treasury over Shipping.
224
Division of Monetary
-6-
Research
Comments on the difficulties of selling direct investments encountered by the British.
Outline for pamphlet on economic warfare.
Non-Reimbursement and the Defense Commission.
The Defense Commission, Contracts and Government Protection.
The Morgan-British Demand Loan.
Past and Proposed setups for Certifying Non-Reimbursements.
Treasury Policy on Non-Reimbursement.
The Treasury and Proposed Certification Unit for Non-Reimbursement.
Status of Applications for Certificates of Necessity as of
March 15, 1941.
The Treasury and Amortization.
Transactions in 3 percent mark funding bonds by American corporations.
British Direct Investments.
The Universal Corporation.
United States Employment Service.
Applications for Certificates of Non-Reimbursement submitted by
Pratt and Whitney.
Abstract of MacKenzie King's Speech of March 25 on Canada's War
Effort.
Canadian estimates of their gold and dollar balances.
British Treasury estimates of gold and other assets.
British-U.S. Dollar Requirements for 011 Imports.
British Estimates of Their Gold and U.S. Dollar Requirements
outside the United States and Canada.
Valuation of Expropriated Foreign oil Properties in Mexico.
Principal conclusions reached by Mr. B. Nititine in an article
entitled "The Kurd Element in the International Situation in the
Middle East".
225
-7-
Division
of Monetary
Research
Explanation of discrepancy between our previous estimates of total
Greek assets in this country and the figure reached from TFR-100
reports.
Chilean multiple exchange rates may be increasing the price of
strategic materials to the United Kingdom.
Notes on the operation of the coffee agreement.
British exchange clearing in Central America.
Trade Agreements Committee consideration of a request for a
modification of the Netherlands Trade Agreement.
Colombia's use of dollar exchange to settle compensation accounts.
Brazilian Decree Restricts Activities of Foreign Funds.
Reconsideration of the proposal for a quarterly Inter-American
Treasury Bulletin.
Action of Trade Agreements Committee with reference to concession
to Chile on copper and to a supplementary agreement with Cuba.
Treasury consideration of International Commodity Agreements.
Acting President of Argentina approving the stabilization credit
by decree.
Further developments in Latin American dollar deposits for accounts
ex-Hemisphere.
Argentine Trade Agreement.
Notes on Ecuador.
British Payment for Latin American Products.
Should the Treasury extend a Stabilization Fund credit to
Venezuela?
Proposed trade agreement with Peru.
Memo on Latin American debt defaults prepared by the Coordinator's
office.
Trade Agreement Negotiations with Argentina and Uruguay.
Inter-American Treasury Bulletin.
Trade Agreement with Chile.
Discussion with Foreign Funds Control officials concerning the
procedure in obtaining Import-Export information.
226
-8-
Division
of Monetary
Research
proposal for a small statistical unit in New York to obtain
foreign trade information for Foreign Funds Control.
Initiation of trade agreement negotiations with the United
Kingdom, Australia, South Africa and New Zealand.
Mexico: Stabilization Credit and Silver Purchase Agreement.
Current activity of the Interdepartmental Committee on InterAmerican Affairs.
Proposal for reorganization of the Foreign Bondholders' Protective Council and other steps furthering the settlement of Latin
American debt defaults.
Argentine credits.
Colombian application for $13 million Export-Import Bank loan.
Argentine abolishing prior-permit system.
Comments on Mr. Collado's memorandum of June 2 on the problem of
blocked sterling.
Hawkins and Keynes on the proposed British Empire trade agreements.
Consideration of a stabilization credit to Colombia.
Actions of Mexican Country Committee of interest to the Treasury.
Renewal of U.S.-Argentine Stabilization Agreement.
Philippines Export Control.
Preliminary memorandum on the wartime control of the capital market
in Japan.
Results of the President's message of November 30, 1940, on
financial aid to China.
U. S. Trade with French Indo-China, 1938-40.
Netherlands East Indies - Imports of Strategic and Critical
Commodities, Total and from U.S.
Chinese Yuan Exchange Rates.
Indo-China Foreign Funds: Rubber.
Puerto Rico Land Problem.
227
Division
of Monetary
Research
-9Exports to Japan of commodities under Export Control.
Gold from Spanish Jewelry.
Why do Axis-dominated Countries allow Remittances from the
United States to their Citizens?
"The Credit Requirements of Small Manufacturing Corporations",
by Charles L. Merwin, Jr.
Dollar Amounts Deposited in Free Dollar Accounts.
Tentative outline for a study of the problems of Securities in
Foreign Funds Control.
Suggested problems concerning business enterprises and Foreign
Funds Control.
Report on 12,597 TFR-132 Reports Reviewed for March.
Results of Tabulation of Stock Sales reported by "nationals"
under General License No. 4.
International Money Transactions.
Letters submitted by reporting parties subsequent to the filing
of TFR-100 Property Reports.
Freeing of Accounts of "Nationals" previously blocked.
Report on Statistical Uses of Form TFR-100.
Development of FFC Statistics.
Foreign Holdings of U.S. Property Subject to FFC Control.
Blocked Assets of Greek and of all other "nationals".
Comment on memorandum alleging the necessity of the continued
importation of essential oils and natural aromatics.
Bulletin Presentation of Capital-Movement Statistics.
Report of Foreign Property Control Department of the Federal
Reserve Bank of New York.
Report on Washington Operations of Foreign Funds Control.
Report on transactions effected under General License No. 11 or
licensed under General Authorization No. 46.
228
- 10 -
Division
of Monetary
Research
Dumping Cases completed:
Fresh tomatoes and cucumbers from Cuba and Mexico.
Antifriction bearings and parts from Switzerland.
Children's wool sweaters from England.
Mexican handicraft articles from Mexico.
Linoleum and felt-base floor covering from the United Kingdom.
Stearic acid from Belgium.
Oat mill feed from Canada.
Optical glass from France.
Clarinets and parts from France.
Lighting carbons from Germany.
Reeds for musical instruments from France.
Window cleaners from Japan.
Complete equipment for a gear-grinding machine factory, from
England.
Crude petroleum and petroleum products from Mexico.
Petition for revocation of anti-dumping finding on glass frostings.
Plywood from Japan.
Woven fabrics of wool from Japan.
Raincoats from England.
Electrical reproducer sets from Canada.
Casein fiber from Italy.
Yeast-leavened bread from Canada.
Amorphous graphite from Japan.
Correspondence:
259 Letters replied to.
229
- 11 -
Division
of Monetary
Research
current reports in addition to the above:
Daily report on transactions in domestic stocks (compiled from
S.E.C. figures).
Weekly table: "Balances and Earmarked Gold Held for Foreign
Account".
Weekly table "Net Capital and Gold Movements".
Material for monthly Treasury Bulletin.
In addition to the above, material falling into the following
categories is also prepared:
1. A large number of tables on various items.
2. Reports on conferences in which this Division
participates.
3. Participation in preparation of some of the statements
and speeches by the Secretary.
afternought:
230
m horman Thomp .
poin office has electric
time stamp + walker
Could stah in there
with mail on his way
to mrs. tabushis
meoffice
231
MEMORANDUM FOR MRS. KLOTZ.
In re: Delivery of Personal Mail.
July 15, 1941.
I am glad you are planning to get a more definite check on time of
arrival of the personal mail. As you know, I am strong for stamping
everything, and I have always known that by expediting the delivery of
these, we have also left a gap which made it impossible to, tell the time
of arrival.
I have talked with Walker about this, and have thought it over myself,
and I believe that your mail should be stamped on the envelope by an
electric clock, rather than a hand stamp. The reason for this is that the
hand stamp simply gives the date, no time, whereas the electric one is
attached to a clock which ticks along all the time and gives the exact
minute at which the letter is stamped in. No one can change it or has
to adjust it, whereas anyone operating a hand stamp has to set it each
day, and then write in the time. Thus, there is chance for error or to
forget to jot down time of arrival, which makes it useless.
To get an electric stamp on the letters there are three possibilities.
One is to put one in the mail room. As I told you, they are very expensive,
and the Secretary might not think it a justifiable expense to stamp 12 or
15 letters a day at the most. Lt. Stephens has a stamp and Walker could
use it, or one of your Messengers could, when the letters come upstairs
around 8:30. We have a stamp and since Walker brings the mail upstairs
direct from the mail room, it seems to me there would really be no loss
of time in stamping your mail here, and since the business of this office
232
-2Memorandum for Mrs. Klots.
July 15, 1941.
is to handle and expedite mail, there is always someone here to attend
to it, and someone who will put it first and not handle it as one of a
number of pressing duties. My recommendation would be (a) the use of
an electric clock, and (b) the use of the one in the Correspondence
Division. Those points, of course, are for you to decide.
Almost invariably the personal mail for which you are looking comes
in the first or second morning deliveries. Walker goes down for the
first one about 20 past 8. In the mail room he sorts what be has been
delivering to your office, and then brings everything upstairs.
Of course, there are many important and rush letters in the rest of
the mail which he at once opens and stamps for me to route, and some of
these must get down to you just as quickly as possible. I would suggest,
therefore, that if you use our time stamp, a Messenger from your office
be here at 25 past 8 to pick up your personal mail. Walker would have
it ready, sorted and stamped, so that it would be downstairs by 8:30.
(of course the mail is not always delivered exactly on the dot, but this
is a safe time schedule to use.)
Although practically all your letters come on this mail, sometimes,
especially Mondays or after a holiday, there are others that Walker brings
up at 9:10 or 9:15. I would suggest that when he brings the mail in here,
I call for a Messenger at once to come up if there are additional letters
for you. Or I could send one of the file-room girls on a rush trip, as
I often do with other mail.
233
-3Memorandus for Mrs. Klots.
July 15, 1941.
During the course of the day there are very few, if any, letters
of this type for you. For general information, I would like to make
a check of one full day. There are seven mails in the course of the
day -- 3 a.m., 4 p.m. -- and I would like to get an idea of how this
is divided, but for the moment, it is safe to say that this gives a
fair idea of the way it comes in.
get