Full text of Diaries of Henry Morgenthau, Jr. : Volume 429 : Part 2

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

PARAPHRASE OF TELEGRAN RECEIVED

FROM: American Enbassy, Panama, Panama.

DATE: August 6, 1941, 4 p.m.
NO.1 217.

Referring to telegram No. 171 sent by the Department 10 p.m. on the 5th of August.
Today the secretary of the Finance Ministry showed

to Kuccio a telegram received from the consular agent of
Panama in Port Arthur, Texas. This telegras requested
the confirmation of this instruction which was relayed
from Madrid which authorised the cancellation of the
Panamanian registry of the Santa Helena; and, further,

the telegram states that the old master of the vessel
declined to remain in charge since he had not received
instruction from the new or old owners, and until such
time as the claims against the ship have been cleared
the new master has declined to assume his responsibili-

ties. This confirmation has not yet been sent by the
Finance Kinistry. The Embassy is going to confer with
a local representative of the former owner and the

results of the conversation will be sent to the Department by telegraph.
M1

WILSON
TWC

819.852/48
EA:VOL

201

202
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE August 6, 1941.
TO

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns

£43,000
£ 6,000

Open market sterling was quoted at 4.03-3/4, and there were no reported transactions,

In a small market the discount for the Canadian dollar again improved. At the
opening today it was quoted at 11% discount, and at the close the rate was 10-7/8%
discount.

In New York, closing quotations for the foreign currencies listed below were
as follows:

Argentine peso (free)
Colombian peso
Mexican peso

.2385
.0505
.4380
.5800
.2070

Cuban peso

1-1/16% discount

Brazilian milreis (free)

Uruguayan peso (free)

In Shanghai, the yuan was off 1/16 at 5-3/32*. Sterling declined 3/4 to
4.01-1/4.

There were no gold transactions consummated by us today.
No new gold engagements were reported.

The London fixing prices for spot and forward silver were both up 1/16d at

23-7/16d. The U.S. equivalent of this price is 42.55

The Treasury's purchase price for foreign silver was unchanged at 35 Handy
and Harmen's settlement price for foreign silver was also unchanged at 34-3/44.
There were no purchases of silver under the Silver Purchase Act.

ame

203
RESTRICTED

WAR DEPARTMENT

TENTATIVE LESSONS BULLETIN
No. 141

Washington, August 6, 1941

G-2/2657-235

MILITARY INTELLIGENCE DIVISION

NOTICE

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative
and in no sense mature studies.

This document is being given an approved distribution,

and no additional copies are available in the Military Intelligence Division. For provisions governing its reproduction,
see Letter TAG 350.05 (9-19-40) M-B-M,

GERMAN MOUNTAIN TROOPS ATTACK

METAXAS LINE

SOURCE

This bulletin is based upon a report submitted on May 31, 1941,

by an American official observer in Berlin. Included in the report

was a translation of an article which appeared May 7, 1941, in Die Wehrmacht, an official German magazine.

Intended propagandistic effects should not be overlooked.
CONTENTS

1. GENERAL
2. THE ATTACK
3. COMMENT

RESTRICTED

-1-

204
RESTRICTED

GERMAN MOUNTAIN TROOPS ATTACK METAXAS LINE

1. GENERAL

It is thought that there are at least seven mountain divisions
in the German Army: some estimates go as high as twelve, but only seven
such divisions have been identified.

These divisions are organized, equipped, and trained for the
terrain in which they are to operate. For instance, the equipment,
training, and even the organization of the mountain divisions in Norway
differed in many respects from that of the divisions that operated
recently in the Balkans.

The personnel of all mountain divisions is recruited largely
from the mountainous districts of Germany. Occasionally entire divisions
are composed of men from one relatively small area. A sound heart and
lungs, and a knowledge of mountain climbing and skiing are among the
requirements for service in these divisions.
The details of training, organization, and equipment are unknown.

It is believed that the self-sustaining infantry combat unit
in the mountain division is the battalion rather than the regiment.
Since they are not likely to encounter tanks on the terrain over which the;
operate, mountain divisions have no antitank units. Ordinarily they are
provided with pack animals and equipment to carry their ammunition, food,
baggage, and heavy arms - mortars, light artillery, and machine guns.
However, it is known that some mountain divisions at least are provided

with a liberal amount of motor transportation, including wheel-track
carriers for light artillery, and possibly for mortars and ammunition

Photographs have been published of mountain divisions transporting their
pack animals by truck, but this may not have been organic transportation.
In addition to the normal means of communication, mountain units

still make liberal use of the signal lamp.
Individual equipment includes such special items as mountain
climbing shoes, snow shoes, pickaxes, climbing ropes, and white snow
shirts.

The training of these units is basically infantry, supplemented
by pioneer training in overcoming difficult mountainous terrain. The
troops must be prepared to fight in high altitudes, in deep valleys, in
narrow mountain passes, in snow or on glaciers; this is generally characterized as shock troop, close range, fighting.
RESTRICTED

-2-

205
RESTRICTED

2. THE ATTACK

Ropesco

Sultanitsa

Popot-Liwitsa

0

3
1

2

(Lt. W. Comdg)
N

The above sketch is drawn to illustrate the general action of
the battalion whose operations are outlined in the following paragraphs.

a. April 6
It was just past midnight. An icy wind swept over the bare beech
slopes and into our small hut. Despite the fire inside, with its dense
smoke, it was too cold to sleep. Outside, the hollow footsteps of the
sentinels resounded and then faded into deathly silence, only to return
a little later. Cautiously, we stepped from the hut into the derkness
of the night. The white crest of the Kongur stood out against the clear,

starlit sky. Across no-man's-land, where the Greek sentinels were posted,
we heard the furious barking of watch dogs.

A strange feeling came over us; in only five hours the roar of
our artillery would break the stillness of these mountains and we would
move out for the attack. Our mission was to open the Rupel Pass from

the flank and with it the main route to Saloniki. In order to accomplish

this mission, we had to break through the Metaxas Line, whose bunkers

in this area were as high as 6,500 feet above sea level. There are no
historical examples of combat at such altitudes against cunningly
RESTRICTED

-3-

206
RESTRICTED

installed fortifications.
With watch in hand, we awaited the daylight. At H-hour hell
broke loose; the valley was filled with smoke from the constant artillery
fire: the rocks trembled; hostile bunkers were obscured by gigentic
fountains of earth, stones and smoke. Just as abruptly as the jaws of
hell were opened, they were closed again. A deathly stillness fell over
the terrain; lonely blackbirds unconcernedly whistling their greetings
to the new day gave the only sound.

We held our breath and listened. Suddenly the songs of the
blackbirds were drowned by a strange buzzing undertone, as if countless
hornets were approaching in disorderly flight. The buzzing became a
metallic roar, an ominous rumble of motors - dive-bombing planes. While

the planes dived toward mountain sides studded with bunkers, we advanced
on narrow paths in the deep snow to the command post of the 1st Battalion
where telephone lines led out to the company command posts. Soon, the

first reports on the progress of the attack came in over the wires.

The 3rd Company had occupied a Greek frontier house after short
resistance and was advancing to Popot-Liwitse. The 1st Company had

penetrated into the Greek front line trench and had overpowered the resisting enemy - the artillery observer with this company was severely
wounded,

The steep, rocky crest which formed the frontier between Bulgari:
and Greece, towered over us. From that crest, the terrain sloped steepl;
to the south. The snow-covered saddle of Ropesco was on our right; the
summit of Popot-Livitsa was quite near at hand on our left. At the
designated hour, after artillery and dive-bombing attacks, the mountain
chasseurs climbed the steep slopes of the deep chasm in front of PopotLiwitsa, from whose sides infantry and machine gun fire resounded throug
out the mountains, filling them with a continual uproar.
The bunkers on the northwestern slope of Popot-Liwitea could be
seen clearly through the scissors telescope. The slope was covered with
numerous deep craters left by the dive-bombing and artillery attacks,
but the Greeks never wavered. Behind their thick concrete walls they

patiently withstood the devastating German fire and returned to their
guns at the bunker loopholes to repulse the attack of the chasseurs.
Our heavy antiaircraft or bunker guns would have smashed this resistance
quickly, but none of those weapons which had broken through the Maginot
Line, the Dyle and the Grebbe Lines, and the Weygend Line, could be
brought up here. Mortars and mountain guns, which had been carried up
by mules on paths dug out of the snow for this special purpose, were the
only heavy weapons assisting the mountain chasseurs; aside from these,
they had to rely on themselves.
Covered by the fire of many machine guns, we sprang across to
RESTRICTED

207
RESTRICTED

the Greek frontier guard.

At dusk there were serious faces at the battelion command post the enemy was resisting tenaciously.
The 1st Company reported that even in their trenches the
wounded Greeks, lying on the ground, still lunged with their bayonets.
The company had cleaned out the trench, but only at the cost of many

killed and wounded among its ranks.

The 3rd Company reported that one platoon was in contact with

the first bunker, but that the concrete in the bunker was so strong
that attempts to blow it up had not been successful.
Similar reports were received from the other elements of the
regiment.

The battalion adjutant remained constantly at the telephone
all through the night.

b. April 7
Stormy wind drove ragged clouds across the mountains. Rain,

mingled with snow, limited all visibility. Occasionally the glistening

wet rocks of Mount Ropesco could be seen through rents in the clouds.

We were all wet to the skin; shivering with cold and with chattering
teeth, we lay in the holes we had dug in the snow. The enemy was still
resisting. A Greek counterattack at Popot-Liwitsa against one of our
machine gun nests was repulsed. The Greeks rushed forward from the

right and left down the mountain toward one of our gunners. He fired
one belt of ammunition at them, but his gun jammed and he had to withdraw. A Greek soldier jumped at him and a wrestling match began. They
both tumbled and rolled down the mountainside before the machine gunner
finally broke loose and overcame the Greek.
Stretcher bearers, wading knee-deep in mud and snow, twice in
hours descended from the front line to Petrisch, carrying wounded.
Several of the bearers collapsed.

24

The ration details, under constant hostile fire, climbed through
a deep chasm to bring food to their comrades at the front.
From the battalion command post to the foremost platoon at
Popot-Liwitsa was a six-hour journey for the messengers.
The mile leaders tirelessly ascended and descended the mountain
with their columns in order to supply the excessive demands for ammuni-

tion. For two days they had no time out to eat and sleep.
RESTRICTED

-5-

208
RESTRICTED

About noon, a favorable message came through: the adjacent

battalion had captured Istibli, where all bunkers are connected by
underground tunnels, and where barracks, supply depots, and other

installations are built into the rocks.

The 2nd Company attacked the Sultanitsa range. After reaching
the summit it worked its way to the top of Popot-Liwitee, approaching

it from the rear. At the foot of the mountain Lieutenant W. with his
3rd Company, tenaciously continued his attempts to open the lowest

bunkers with explosives, or to force them to capitulate with flame
throwers. In this manner the bunkers along the western end of Popot-

Livitsa were approached from two sides, on the one side by the 2nd and
on the other by the 3rd Company.

c. Avril 8
Last night was unbearable; heavy snow turned into rain, and a
piercing wind blew incessently. Because the chasseurs had no opportunity
to change their water-soaked clothes, some cases of freezing occurred
in the 1st Company at Popesco.

Communication with Lieutenant W had been broken since last

night. I accompanied our signal troops, which had been sent out to
repair the lines. The wind drove scraps of clouds over the mountains,
a factor which was in our favor because the enemy generally was forced
to scatter his machine gun fire indiscriminately. The nearer we approached Poyot-Liwitsa, the more frequently the machine gun bursts
whistled over our heads. Our route led steeply upward. Every loose
stone was avoided, every noise shunned. The rocks were slippery from
rain; damp clouds silently passed by. We worked our way on all fours.
The wire man ith his spool on his back followed directly behind the
leader. Suddenly, the vertical side vall of a bunker loomed before
us in the mist. A Greek machine gun a few yards away fired constantly
on the assumed but invisible attacker. Yard by yerd, we pushed
forward from below, toward the bunker.
Just as we were crawling around the bunker, the cloud cover
disappeared, and we hed to hide under and behind the rocks. We feared
that our steel helmets, wet from the rain, would betrey our presence

and afford a target for the flanking bunker which was firing at
irregular intervals. But the cloud cover closed again as suddenly reached as

it had opened, and quickly we passed that dangerous place and
our comrades who had signaled the correct route to us.

Above us, on a nerrow rocky path about 100 yards long, from were above, 50

chasseurs who had been cowering there for 48 hours, exposed fire whenever

beneath, right and left, to furious close-range machine gun bare
a steel helmet appeared. They had spent two icy nights on the
RESTRICTED

-6-

209
RESTRICTED

rocks with only their shelter tents for cover and with no warm food
- only some bread and some canned meat. Shivering with cold, they lay
or stood with weapons ready to repulse an enemy counterattack, and
stared with sunken and burning eyes into the thick, rainladen mist.
While we were speaking to the company commander, we heard

something roll down the slope. Not until it was P. few yards away on
our path did we realize that what we heard was an egg-grenade. It
exploded before we had time even to take cover. The lieutenant heaved

a German hand grenade in return.

A new blasting operation had been planned to finish the bunker.
Under cover of fog. the explosive charge was instelled on the upper
side. The chasseurs, huddling close together, hugged the rocks. Even
the fuzes had to be withdrawn from their weapons during the explosion,
which shattered the rock, but did not break through the concrete. We
had to wait to see if the pioneers who were attacking from the top of
the mountain would be more successful with their heavier charges. En
route from the summit of Popot-Livitsa, they had already opened several
bunkers and had teken some prisoners. Reconnaissance patrols, starting
from this area, had crossed the Sultenitsa and reached the valley near
Neon-Patristsi without resistance. In the evening, the pioneer detachment under Sergeant Major K., coming down from the summit, joined with
the chasseurs at the base of Poyot-Livitsa, end short work was made of
the Greeks. The entrence tunnel to the bunker was blocked, and shortly
thereafter, at 7:00 P.M., the garrison hoisted a white flag and came
out trembling with fear.

d. April 9
Within the battalion's zone, the Ropesco alone WPS still
resisting. The battalion command most had been removed to Vironja in
The Struma Valley, where A soft spring rain was falling.

Word of the capitulation of the Saloniki army spread like
lightning in our ranks. Upon receipt of this news, officers with a

truce flag invited the Ropesco garrison to surrender under honorable

conditions, and the battalion commander immediately sent a messenger
detail to the 1st Company.

At first with mules, then on foot, we started up the 6600 foot
mountain again and continued until we reached its snow line.

e. April 10
When we brought the Saloniki victory message to the 1st Company,
the Ropesco was again covered with dense clouds which did not lift

until about noon. A snow shirt was hoisted as a flag of truce. Flare
RESTRICTED

-7-

210
RESTRICTED

after flare was sent up, but no enemy movement could be observed. A
reconnaissance patrol, preceded by the truce flag, marched straight
ahead to the Greek positions. Nobody fired, nobody came out of the
bunker; it was empty. The enemy had cleared out during the night,
leaving his dead in the trenches. We learned from papers found, that
the finest Greek regiment had been employed here and at Popot-Liwitsa.
It had been withdrawn from the Albanian front to meet the expected
German attack.

The 1st Company began to move down into the valley, forgetting

all hardships in singing and yodeling. For the first time in four days

they would be served a warm meal, and they probably would be given figs
and currants from the Greek food stores for dessert.

3. COMMENT

a. The second section of this bulletin was written by one of the
modern German war correspondents, a member of that group of German

newspaper, motion picture, and radio experts who are employed in the
Propaganda Companies. These men who report combat action have all

received basic military training to familiarize them with all arms.

They are organized into these companies under military control, and

they may be assigned to assailt units in the air or on the ground.

b. The attack described is characterized by a selection of points
of attack, and assignment of forces thereto; a plan for cooperation and

coordination between attacking elements; prior reconnaissance and
preparation of supply routes or paths; prior reconneissance and
preparation of contemplated routes forward toward the hostile position
as far as hostile fire and observation permit; installation of communication agencies and plane for their sustained operation during the attack.

According to the narrative, the sequence of action in the attack
against mountain bunkers is, in general, as follows:

(1) Intense artillery fire;
(2) Attack by dive-bombing planes, especially against those

positions defiladed from artillery fire;

(3) Attack by infantry - expecially on relatively unprotected
bunker-supporting troops - covered by all available machine guns, mule-

packed morters, and light mountpin artillery. No heavy antiaircraft or
other heavy guns for use against bunkers were transported up to these

heights over this terrain;

(4) Attack on bunkers by specially equipped and trained pioneer
groups, supported by fire from assaulting infantry. No mention is
RESTRICTED

-8-

211
RESTRICTED

made of any attempt to launch a mass attack against a fortified position
on the contrary, as one company reported, one platoon et a time was in
contact with a single bunker.

C. It should be noted that an artillery observer accompanied one
rifle company: the implication is that one such observer accompanied
each of the other rifle companies.
d. Each company was assigned to attack a separate defensive positio
and apparently each company was accompanied by a pioneer group equipped

with flame throwers and special explosive to deal with bunkers and other
prepared positions if necessary.
e. The rigorous climate and rugged terrain encountered by the Germa
mountain troops in this area indicate the necessity for specially

equipped organizations composed of hardy, selected personnel, accustomed
to mountain climbing and trained for combat under hardships imposed by
mountainous conditions. Small units or even individuals may become

isolated for days at a time, and they must be prepared by training and
equipment to defend themselves against hunger, thirst, and the elements,
as well as against the enemy.

f. Rapidly changing weather conditions, especially fog. snow, rain,

and ice, should be considered when planning combat operations, either
attack or defense, in mountainous terrain.

g. Communication is especially difficult in mountain fighting,
but it must be maintained to insure the success of the mission. The
Germans made no specific reference to radio communication between the
battalion and the companies. The use of wire for such communication

may have been due to lack of radio and other materiel, or to the technical inadequacy of the materiel on hand.

h. Supply is another difficult problem in mountain warfare where
rail and motor routes are usually inadequate or entirely lacking. Air
might be used to supplement, and at time replace, rail and motor supply
to battalion and higher units. The Germans in this operation used pack
transportation to supply units within the battalion. To insure any
supply method, control of the air is essential.
1. It must be remembered that the greatest success in the attack

on the bunkers was attained by that pioneer group which worked its way
to the summit of Poyot-Liwitsa from the rear and then operated against
the bunkers from the top side while the bunker garrisons were busy
engaging a company approaching them from a valley below.

RESTRICTED

-9-

212
RESTRICTED

M.I.D., W.D.

G-2/2657-220; No. 460

12:00 M., August 6, 1941

SITUATION REPORT

I. Eastern Theater.
Ground: The organization of the command of the Axis armies on
the eastern front on August 6th appears to be as follows:
1. Army Group, Finland: German Army Group, General
Oberst von Falkenhorst; Finnish Army, General Field Marshal Mannerheim,
"Leningrad" Army Group, General Field Marshal
Ritter von Leeb: 18th Army, General Oberst Kuchler: (Esthonia) 16th Army,
General Oberst Busch; (Luga Front) Panzer Group, General Hoeppner.
2.

3.

"Moscow" Army Group, General Field Marshal von

Bock: 9th Army, General Oberst Strause: 4th Army, General Field Marshal
Kluge: 13th Army (?) General Oberet von Weichs: Panzer Group, General
Oberst Hoth; Panzer Group, General Oberet Guderian.
"Ukraine" Army Group, General Field Marshal von
Rundstedt: 6th Army, General Field Marshal von Reichenau; 17th Army,
General of Infantry von Stulpnagel; Hungarian Army; Slovak Contingent;
Panzer Group, General Oberst von Kleist.
4.

5.

"Bessarabia" Army Group, Antonescu: German

Moldavia Army, General von Schobert (Middle Dniester); 3rd Roumanian
Army (1) (Lower Dniester).
German troops continue to advance southeastward in the
lower Ukraine in the regions of Kirovo and Perwomajsk.

Novo Ukrainka and Lisaja-Gora were taken by Axis troops
on August 2nd.

Air: Further bombing of Moscow was reported.

II. Western Theater.
Air: British night attacks were made on Mannheim, Frankfurt and
Karlsruhe with a loss of nine bombers.

III. Mediterranean Theater.
Ground: No activity.
Air: Bombings by the British of Derna and Benghazi and by the

Axis of Tobruk,

RESTRICTED

213

CONFIDENTIAL
Paraphrase of Code Oublegree

Received at the War Department
at 13107. August 6, 1941

London. filed 19:30. August 6. 1941.

1. British Mr Antivity - the Centiment.
a.

Day of Amount Membeis bembers were dispatched as followed

8 to attack shipping off the Fristan Islands, 6 to attack the st. Omer
airdrone and 6 to attack shipping is the Scholds. The results of these
raids were not reported. A total of STD fighters were employed as followst

108 on interception missions, 177 in the protection of shipping. 48 ea
special missions and 36 on offensive patrels.
D.

Birth of Amount M. A total of 384 bembers were dispatched

as follows! 99 to Karlarahe, 98 to Manhhois, 68 to Freakfart, 18 to
Aachen, and 8 to Bealegue. Industrial areas and Failury facilities were
the objectives is all of these Faids, which were considered meccasial,
primary objectives being attacked by a majority of the aircraft sent out.

3. German Air Activity ever Britain

a. Day of Amount 4. 18 aircraft and 15 long range
beabers were employed.

D. Eight of American 1.5. No activity.
e.

Pay of Ammat . Defense patrels were maintained and see

recommisment carried out. Your aircraft flow ever the coast near
Plymouth and over Yorkshire.

a Night of Amman M. Seattered activity es a small seale
occured off the Tyme, the Number and East Anglis.

CONFIDENTIAL

INFORMATION COPY

214

CONFIDENTIAL
s. Aircraft Lesses Repartal.
a. British lesses. During the day of August 5. one Spitfire and
pilot were lest. Dember lesses for the night of August 4-5 were as

follows: $ is the Manahois said, s is the Karlarabe said, 4 is the said
on Frankfort, and 2 in the Aashes said.

.

Axis lesses. On August 5. one June and & No-1007 were shot

does.

4. British Mr Activity. Other Theaters.
a.

Mediterreases Theater. Direct hite were elained on buildings

and two large meter vessels during the day of August s in an attack on

the barber at Tripeli by Reyal Air Force planes from Malta. Shipping
off Gape Ben was successfully attached on August s.
5.

Aria Air Antivity Other Theaters.

a. Middle Fasters Theater. During the night of August 3-3. Axis
aircraft attacked Sues. On Nerea Natrah 40 boube were dropped, causing

as casualties and only slight damage to property. An attack on Port

Said took place the night of August 3-4. About so sivilian casulties
occured, but no naval damage took place. Sens boube fell is Ismailia
and 20 Axis aircraft operated over the Delta area during the night of
August 4-5. The results of this activity have not been reported.
LEN

Distributions
State Department

Assistant Chief of Staff. as
War Plane Division

Office of Naval Intelligence
o. K. &
Chief of the Army Air Forese
Secretary of Treasury

Assistant Secretary of Mar for Air

CONFIDENTIAL

215

August 7, 1941
8:50 a.m.
Speaker
Rayburn:

Pretty good.

HMJr:

Is this a good or bad time to call you?

R:

Fine.

HMJr:

Sam, two things that I'm interested in and
I wondered how the situation stood. One is
I'm interested tremendously in seeing this
bill which is going to freeze the cotton and

wheat to be defeated.
R:

HMJr:

R:

Yeah.

Now, of course, it passed in the Senate yesterday is there any chance in the House?

Well, I don't know. We were discussing that
at our luncheon yesterday

HMJr:
R:

Yeah.

the Texas crowd, and I told them I thought

it was the most terrible bill - this thing of -

the worst thing that could happen to cotton
would be to freeze it.
HMJr:

That's right.

R:

But now one of these Farm Bureau fellows - this
fellow Ralph Moore

HMJr:

Ralph who?

R:

Moore - he's head of the grange in Texas, I
understand.

HMJr:

Yeah.

R:

He ain't around there, but he was talking to

me and he found out I wasn't agreeing with him
HMJr:

Yeah.

216

-2and then he said, well, he didn't want it

R:

left to you and your crowd, you know.

HMJr:

Left to who?

Well, to you.

R:

HMJr:
R:

HMJr:
R:

Me?

Yeah. As to whether they'd sell this cotton.
Oh.

He said it's in your hands now, is that right?

HMJr:

No. I got nothing to do with it.

R;

Well, now, that's exactly what he said.

HMJr:
R:

HMJr:

R:

I got nothing

I certainly didn't think you did.
I got no more to do with it than the cop on
the corner.

(Laughs) But I don't know what - I had to
position I did - that it would be the most
unfortunate thing in the world

leave and Hatton Sumners was taking the same

HMJr:

Yeah.

for the cotton business

R:

HMJr:

Oh yeah.

to freeze these six million bales on it.

R:

Why, you could get rid of probably a million
and a half of them a year
HMJr:
R:

HMJr:

Yeah.

and not just make the thing a bad market -

it'd still be a good market. You see?
on sure. Well, I don't know whether you saw

the suggestion I made. A couple of years make ago

we supplied manufacturers with cotton to
cotton goods for WPA.

217

-3R:

HMJr:
R:

HMJr:
R:

That's right.
So the cotton never went through the exchanges.

That's right. And on top of that, we're out of
litters for ammunition, you know.

Yeah.

And there might be a million or a million and a
half bales of this damn stuff that's untenderable
anyhow and they might take it and chop it up and
make it into powder.

HMJr:

Yeah.

R:

I don't know. Of course, there'd be a hell of

HMJr:
R:

HMJr:

R:

HMJr:

R:

a loss on that.
Yeah.

But, if you're going to manufacture that and
give it away to WPA, well it would be just as
well to make a little something useful out of
it along the powder line.
Well, I didn't mean WPA. I meant any Army or
Navy contract for cotton goods.

Yeah. Well, that's all right.
Make them specify they take the cotton from
this reserve.

That's right. That'd be all right. The same

thing as I suggested about this powder business.

HMJr:

Yeah.

R:

Yeah.

HMJr:

The other thing I want to ask you about was
how about this message that the President sent
up on highways?

R:

It's going to be overridden, I think, in the

House like it was in the Senate.

218

-4HMJr:
R:

HMJr:
R:

You mean that they'11 vote the President down?
Yeah.

I see.

I don't understand. Those committees, you know,

ought to get together with the President
HMJr:
R:

HMJr:

Yeah.

and I think they thought they had, but
there's one part of the President's message
there that nobody liked much
Yeah.

and that was that - of course, a lot of

R:

people among them think this bill is too big
HMJr:

Yeah.

but they don't think that they ought to be

R:

denied the right of saying how this money should
be allotted in some fashion
HMJr:
R:

HMJr:
R:

I see.

and just turn the whole thing over to the
President and say he shall allot a stated sum
or he shall allot none, as he pleases.
Yeah.

That part of his speech - you remember that
communities according to population and so
forth he was talking about?

HMJr:

Oh.

R:

Well, they didn't like that part of it a bit.

HMJr:

I see.

R:

HMJr:

I think it'11 pass over his veto, Henry
You're going to pass

219

-5R:

HMJr:
R:

because you've got every - it's going to

be passed on today.

Today in the House?

Yeah. Because it's highly privileged when it
comes to the Senate, you know. Anybody can

call it up. It'

HMJr:

I see.

a thing of the highest privilege, and, of

R:

course, every state commission in the country
and there are forty-eight - of them, and all the
county commissioners and there are thousands

of them, are on the telephone and on the telegraph
and I think it'11 - it'11 happen just the same
thing that happened in the Senate, too.
HMJr:

Well, of course, my interest 18, I don't want
to see the money wasted on non-defense

R:

Yeah.

purposes, that's it.

HMJr:
R:

Yeah.

HMJr:

And if we don't begin to stop it some day, why

R:

You're right. I think the bill's too big. A
lot of people thought that.

HMJr:

Yeah.

R:

But they kept putting in and in and in, and then

they got stuffing in this stuff for defense, you

know.
HMJr:
R:

Yeah.

Defense highway stuff and defense highway stuff

and 80 forth, and it just got up to be about
three hundred and twenty million, I think it
was.
HMJr:

Something like that.

220

-6R:

HMJr:
R:

But
I think they'11 pass it over the veto,
Henry.

Well, it's too bad.
I hope we can do something about that. of
course, now that cotton thing is tied in with
a very popular thing, you know, that wheat

business.
HMJr:
R:

Yeah.

And allowing these wheat fellows that weren't
in the quota this year to seed their wheat,
you see

HMJr:
R:

Yeah.

and if the thing stood alone, why we could
go around there and whisper to the fellows that

lived in the non-cotton sections to vote the
damn thing down.

HMJr:

Well, they oughtn't to freeze anything. They
ought to leave it free; 80 what I've thought
up on this, when there's a buyer, sell them
something.

R:

Yeah.

HMJr:

And store the stuff for the rest of the buyers.

R:

Yeah. Well the hell of this situation is,
that this is a conference report

HMJr:

Yeah.

R:

and the damn thing's been adopted by the no, it's been agreed on by the conferees.

HMJr:

Yeah.

R:

I talked with this fellow Fulmer the other
day, and he said he thought that Smith amendment was terrible, but hell, he agreed to it -

at least the conferees did and I assume he did,
along with old Smith, you see.

221

-7HMJr:
R:

Well

We're going to try and see if we can't do

something about it, because Hatton Summers

and I think it's the most unfortunate thing
that could happen to cotton, is to freeze
these six million bales there and leave that
HMJr:
R:

cloud hanging over the price of cotton permanently.
That's right.

I think it would be terrible. Now, what we can
work out about it, I don't know; but we're going
to try to do something about it, Henry.

HMJr:

Okay.

R:

Good-bye.

HMJr:

Thank you.

222
August 7, 1941
9:00 a.m.

RE TAX STATEMENT

Present:

Mr. Blough

Mr. Bell

Mr. Foley

Mr. Sullivan
Mr. Gaston
Mr. White

Mr. Riefler
Mr. Kuhn

Mrs. Klotz

Blough:

I have been in touch with Mr. Magill already

this morning on this. He got it last night

and his comments are being typed and will be

up here in a few minutes. I am short of copies
this morning. We will have to double up somehow.

H.M.Jr:

Will you go ahead and read?

Blough:

"Mr. Chairman and Members of the Senate Finance
Committee:"

H.M.Jr:

I would like to have it read through once without
any interruptions, please.

Blough:

"My purpose in being here today is to discuss

taxation as an essential part of national
defense. Our great problem in providing for the
defense of the nation is fundamentally the problem of production - of actually building planes
and tanks, ships and guns with the labor, management, machinery and raw materials which we

have in our country. To solve that problem,
while at the same time protecting our present
and future economic foundations, our fiscal

223

-2policy must be adapted to the needs of the times.
"On April 24, I discussed with the Ways and

Means Committee of the House, the need of

producing $3,500,000,000 annually in additional
revenue. The Treasury Department presented a
suggested program for raising that amount of

money. The Ways and Means Committee worked hard

on the tax bill. As it is before you, it will
produce approximately $3,200,000,000 annually

in additional revenue. In my opinion, it is

very important that the revenue yield be raised

to at least the original $3.5 billion level. It

is also important that the bill be passed as promptly as possible. Income taxpayers and excess
profits taxpayers should know as quickly as
possible what their taxes on 1941 income and
profits are going to be since over seven months
of the year have already elapsed. The excise
taxes and the estate tax cannot be imposed

retroactively and every day's delay in the passage of this tax bill costs the Treasury several million dollars in revenue from those
sources."

H.M.Jr:

I like the way it is going very well. It is

good stuff.
Blough:

"However, rapid developments of the last few
months have made this bill inadequate even before

it is passed. Since my statement before the

Ways and Means Committee, many things have hap-

pened. Two and one half months ago, the President proclaimed the e xistence of an unlimited

national emergency. He called upon 'all loyal
citizens to place the nation's needs first in

mind and in action to the end that we may mobilize and have ready for instant defensive use,

all of the natural resources of this nation.'
The people of this country have responded

224

-3splendidly in accordance with that proclamation.

"Since I appeared before the Ways and Means

Committee, the amount of appropriations over and

above the Budget have increased by about billion, thus completely changing the fiscal picture and greatly increasing the need for
revenue.

"Since I appeared before the Ways and Means
Committee, shortages in many materials necessary for defense production have become acute

and have necessitated the extension of priorities and the decrease of production of various
types of civilian goods.
"Since I appeared before the Ways and Means

Committee, prices and the cost of living have
increased at an accelerated rate.

"In the light of these developments in the direc-

tion of 'all out' defense, I should like to

point out what, in my opinion, will be necessary
in taxation to support such defense.
"First of all, we shall need more revenue, much

more revenue. The defense program is an abso-

lute necessity. It must be paid for. In so
far as possible, it should be finally paid for
now. Borrowing should be kept to a minimum
to maintain our fiscal strength. The rise in
the Federal debt merely means that the burden

is being postponed - that both interest and principal must be paid for later out of higher
taxes imposed at a time when they may be harder

to pay and less willingly paid than now.

"More revenue is needed also to maintain our

economic health. The pressure of a rising purchasing power on the prices of goods of which

225

-4the production will be increasingly limited by
the necessity of diverting our resources to

defense uses threatens to become inflationary.

Heavy taxation which takes that purchasing power

for the Government operates to relieve the inflationary pressure.
"This larger needed revenue should come from

all sources where there is ability to pay.

The people of this country have never been more
ready to make sacrifices for the common good.

I believe we have not kept pace with their

feelings in the matter - that we are still

thinking too much of allowing this group or
that to escape its share of the burden.
"An adequate tax program for defense should

reach ability to pay at several points not

now fully tapped.

"1. In my opinion, such a tax program will
involve a substantial lowering of personal
exemptions of the income tax. Under the Bill be-

fore you, the base has been broadened to add

about two million new taxpayers, but, even so,

only a relatively small proportion of the population will be directly affected by the income
tax. A further lowering of the exemptions would

produce some additional revenue. It would help
in cutting down the purchasing power of small
consumers of non-essential goods. It would give
millions of Americans an opportunity to make

a direct contribution through taxes to the
defense of their country. It would enable them
to feel that they were participating personally
and directly in the defense program.

"But, if we are to extend the income tax downward to include millions more of persons with
low incomes, we cannot fail, in a tax program

for defense, to reach in other places ability
to pay which is escaping its fair share of taxes."

226
-5-

H.M.Jr:

I have got to read this over. I don't know

what they keep sending to you. Just a minute.
O.K.

Blough:

"Among these are the following:

"2. The excess profits tax exempts profits of the

most prosperous corporations except to the extent

that those profits are more than the profits of
the years 1936 to 1939. We must not impose
taxes on millions more of our low income group

unless we also extend the excess profits tax
to these exempt profits.

"3. In at least 8 states of the Union, income

taxes are substantially lower than in the
remaining States because of the splitting of

incomes between husbands and wives. In other
States, the income taxes of many wealthy
people have been reduced by gifts between hus-

band and wife. Here are discriminations against
the rest of the taxpayers which certainly must
be eliminated if we are to extend the income
tax downward to include millions of new low
income taxpayers.

"4. For years, the concerns engaged in extracting certain of our natural resources, notably
oil, have been allowed far greater allowances
for depletion than can be justified on any
reasonable basis of tax equity. If the income
tax is to be extended to lower incomes, this
"

privilege of tax escape must be removed.
H.M.Jr:

This is swell.

Blough:

"5. A few months ago the Congress, on my recom-

mendation, eliminated the tax exemption privilege from new issues of Federal securities.
The purchasers of State and local securities
still enjoy this exemption. The exemption was
inequitable and expensive in more normal times.

It cannot be borne longer in a time like this,

227

-6and especially if we are to increase the direct
tax burdens of persons with small incomes.

"6. In its suggestions to the Ways and Means

Committee, the Treasury recommended substantial

increases in estate and gift taxes, and a lower
rate of exemptions. In part, this recommendation was followed, but, in my opinion, the
estate and gift taxes should reach more estates
and provide more revenue if we are going to tax
smaller incomes.

"Those are some of the things that I mean when
I say that a tax program for defense must go

far beyond the present Bill.

"There is another condition to lowering the

personal exemptions. We cannot continue to take
into the income tax system millions of new
taxpayers with small incomes without simplifying
the ways in which their tax is computed.

"Take, for example, a person with a $900 salary.

Under the present law, he first figures out
what deductions he has -- taxes paid, interest

paid, contributions and so on. Then he computes his earned income credit. Then he subtracts his personal exemptions from his income
after deductions. On the balance, under rates
of the Bill before you, he computes a surtax at
5 per cent. Then he goes back to the income
and deducts his earned income credit. On the
balance, he computes a normal tax at 4 per cent.
He then adds the normal tax and the surtax and

takes 10 per cent of the total for defense tax.

He adds the defense tax to the normal tax

and surtax and finally arrives at his income
tax."

H.M.Jr:

This can't be so.

228

-7Gaston:

It is a good explanation. Better than I have

seen on any of our returns, a guide for how to

make out your income tax.
H.M.Jr:

Isn't this swell?

Sullivan:

Swell.

H.M.Jr:

Aren't you jealous that I am going to give it?

Sullivan:

Except for one part I am. When he gets off that

H.M.Jr:

Who?

Sullivan:

The gentleman across the street.

H.M.Jr:

Well, why? He will like this.

Sullivan:

On joint returns he made it abundantly clear
that he wanted no part of it under any conditions.

H.M.Jr:

Well, I wasn't there.

Sullivan:

All right, just so long as it is on the record
that I told you so. (Laughter)
It is a correction by other methods. It doesn't
call for joint returns. It calls for something

Gaston:

boat --

we can hardly quarrel with, using straightforward methods to correct the situation.

H.M.Jr:

Well, John, all I can say, as far as we have gone,

Blough has in a better way expressed Henry Morgen-

thau, Jr. than I have ever had it expressed.

Sullivan:

Oh, I think this is swell. There is no two

ways about it.
Blough:

"When he started to fill out his return, he
may have been full of patriotic enthusiasm to

229

-8pay his share toward the defense program, but

by the time he has finished his last computation

he will quite possibly be very mich irritated."
H.M.Jr:

A punctured tire, or something. It is a little
bit flat right there.

Blough:

"It is difficult enough for persons with sub-

stantial incomes who are used to dealing with
financial papers and to making computations of

this kind to fill out their tax returns and com-

pute their taxes. The person with a small and
simple income should not be put to this necessity
when it is entirely unnecessary."

Magill has a correction there to fix that.
"Furthermore, the checking of these tax com-

putations by the administrative authorities
takes time. Frequent errors are found which

must be rectified requiring correspondence and
further annoyance of the taxpayer as well as
expense to the Government.

"For the large taxpayers, equity requires that

income computations be somewhat complicated,

but for small taxpayers, the result is merely

cumbersome and confusing. For such taxpayers,
a simple table could be provided showing the

taxes for various sizes of incomes. The table
could be available in every post office and public place. The taxpayer would merely add up his
income on a simple form, find the tax on the
table and pay that amount. The taxpayer would
be spared time, trouble and annoyance, and the
Government would be spared expense.

"To indicate more clearly what I have in mind,
I have had prepared a sample table showing how

this might be worked out in practice. This is

only a preliminary table, and improvements and

changes will no doubt be desirable, but it will

230

-9illustrate how the proposal can be applied in
practice."

And then that is as far as I got last night.

Magill suggests we might take the two pages

at the end of yesterday morning's draft on
"Taxes are onerous, but they are better than
rising prices," and so on, and tack that on

the end and let it go at that.

H.M.Jr:

I think you have done a perfectly grand job.

Have you got the table?
Blough:

Yes, that is one of the things that bothered

you when it came in in the course of the proceedings.
I haven't looked at this. One of the boys worked
this out, and I think there may be some changes
we may want to make. I don't think the word
"gross" probably ought to appear in there under
"income".

Gaston:

You are certainly going to make allowances
for expenditures against income, aren't you?

H.M.Jr:

No.

Blough:

The deductions --

Gaston:

Business deductions, you are not going to allow
that?

Blough:

I think there will have to be some arrangement
for the business man, either to have those
deducted before you call it income, or give him

the option of filing one of the other types

of returns.
Gaston:

You will have a lot of trouble if you don't have it.

White:

Do you feel you have to go up so high?

Blough:

How high does that go?

231

- 10 White:

It goes to three thousand dollars. I was wondering in the light of your general argument whether

it wouldn't be more effective if it stopped

around two thousand.
Bell:

The Secretary suggested three thousand yesterday.

H.M.Jr:

I suggested it because when you get above three
you get into other complications which he (Blough)

can tell you.

Blough:

You begin to get into complications around

twenty-five hundred, but it is fairly simple

up to three for most people except farmers and
so on. Farmers are going to have some trouble

with returns this time. This is for the working
man.

H.M.Jr:

Has Guy Helvering seen this?

Blough:

He has not seen this table. We have talked with
Mr. Helvering and Mr. Mooney, and they have discussed the problem. This table was just completed a moment ago. But they are fully - they
are working on this problem.

H.M.Jr:

I think this is grand. This is just what I

wanted.
Blough:

Now we have already given these people the equivalent their of gross deduction income. in We computing have deducted the tax ten on per

cent of the tax as an allowance.

H.M.Jr:

But you see, we do all this deduction and
all that, and there is no reason why we can't

just forget about all these things and simply

say that a fellow who has got seven hundred

fifty dollars pays a dollar, and never mind how

Blough:

you arrive at it.
That is right.

232

- 11 White:

It
is a very desirable form. I think it is an
excellent scheme.

H.M.Jr:

This happens to be mine, Harry, entirely.

White:

Well, it still is excellent. (Laughter)

H.M.Jr:
White:

Didn't you have any breakfast, Harry?
Yes, I had breakfast.

H.M.Jr:

Is your stomach a little sour?

Sullivan:

You have that in mind, don't you, Mr. Secretary,
that a fellow doesn't have to pay this amount,

that he can still fill out his ten forty A and
take his regular deductions?

H.M.Jr:

No.

White:

How can you arrive at this hundred and ninety-five?

H.M.Jr:

This is the tax he is going to pay. There are

no deductions.
Sullivan:

I think you are going to avoid a great deal of

H.M.Jr:

No, this is what the man pays.

White:

Suppose he has three or four children?

Blough:

That is taken care of.

Sullivan:

Children are taken care of, Harry, but the other

trouble if he has that right.

deductions -H.M.Jr:

No, you have missed the whole point.

Sullivan:

What I am getting at is this. These figures

here are the taxes that people in these income

233

- 12 brackets would pay if the deductions to which
the law entitles them are the average of all
the people in those brackets. That is how

this table was arrived at.

Now, a person may have some unusual deductions

to which the law entitles them.

H.M.Jr:

Then we are going to change the law. The law

is going to be written, if they listen to me,

that this is what a man pays and to hell with
all the deductions.
Gaston:

You mean regardless of whether it is a business
expense, whether it is money that he has to spend --

H.M.Jr:

Yes.

Gaston:

You could never get away with it.

White:

Providing it was a little lower - providing
you took that limit lower I think you could
get away with it. I think three thousand is a

little high for that.

Sullivan:

No, this doesn't detract from your plan one

H.M.Jr:

Well, if you don't mind I am going to present
it this way. I am not going to have any deductions or any figuring or anything else.

Blough:

May I suggest, Mr. Secretary --

H.M.Jr:

I am going to do it my way, if you don't mind.

Sullivan:

I still think you don't understand me, sir.

H.M.Jr:

I understand.

Sullivan:

I am entirely in favor of this poposal, but

bit, sir.

234

- 13 -

to make it constitutional it must me optional
and the taxpayer must elect to pay this way
rather than going through all the complications

H.M.Jr:

of figuring out his ten forty A form. Otherwise, it is a gross income tax, and we do not
believe it will be held to be constitutional.
Well, you can write it so it will be constitu-

Sullivan:

that is just what we do by saying --

H.M.Jr:

Well, anyway, John, I want to present this to

tional.

Congress this way and then everybody else can

pick at it. This carries out the President's

idea of a simple way, that a fellow can look
and see that if his income is a thousand dollars,
a single man, he pays seventeen dollars.

Sullivan:

Yes.

Gaston:

I think it is a swell thing to have a table of

rates for certain incomes but I think they have
got to be net incomes. I think you have got
constitutionally to distinguish between a man

who makes a seven hundred fifty dollar net

income and the man who makes - gets seven hundred

fifty but spends three hundred in making it.
White:

I think you have to take Mr. Sullivan's point
before you present it in that form, either in

the way you say it in your speech or something,

because if he is right, then I don't think you
can say what you said.

Blough:

May I make a suggestion? It seems to me the

thing to do is to present this without saying
anything about options and so on. If the question is raised, then, by the Committee, what
about options, well, that is something that
would have to be worked out. This is a plan
in general.

235

- 14 White:

That is right.

H.M.Jr:

Does that satisfy you, John?

Sullivan:

That is all right if I am given the authority

to protect the Treasury on this thing because
we don't want them saying, "Well, gee, it is

a swell plan, but it isn't constitutional."

H.M.Jr:

You have got that authority.

Sullivan:

All right, because I think this is perfectly
swell and I am all for it.

H.M.Jr:

But you take Gaston's idea. You begin to do

Gaston:

No, I think it is impossible to do it any other

this. Just as soon as you begin to do that
the plan is ruined.

way.

H.M.Jr:

All right, you deduct this and you deduct that

and then you are right back where you were before.

foley:

That isn't what he is saying, Mr. Secretary.

Gaston:

What he has to pay out to earn his income is
not income, and you can't tax him on it under

any system of laws. You just can't do it.

Foley:

What he is saying, Mr. Secretary, is that the
fellow goes into the post office and he looks

here and he says, "I make seven hundred seventy-

five dollars. Therefore, I pay a dollar tax.'

And he gets into - reaches into his pocket

and he hands the postmaster a dollar and he

signs this simple form. But he must have the
option to fill out the more complicated form,

take some kind of a business deduction, and not

pay the dollar if he wants to.

236

- 15 Caston:

I am not talking about any options. John spoke
about options. I am not talking about options.
I am saying that your tax has got to be figured
on net income, not on gross income.

White:

What would you do, for example --

Caston:

You have a simple table and that is all right,
but you have got to give them net, not gross.

White:

In the case of a peddler or some grocery man

who distributes fruit in a wagon, his gross
income may be twenty-five hundred dollars.

His net income may be fifteen hundred. Now -H.M.Jr:

You are talking about --

White:

Any small business man. His gross income --

H.M.Jr:

Well, let me talk it over afterward and get
one person instead of five people shooting

at me. I can't have five people -White:

Well, all I want to emphasize --

H.M.Jr:

Let me --

White:

It should be very tentative in your presentation.

H.M.Jr:

Let me get some one person to - Roy studied

this thing and let me see what his objections are
afterward. But I mean, you never can get a

new idea but what somebody wants to just begin

to tear it down by spoiling it. If I follow

what Gaston said, we would be right back where

we are. We will have twenty million people -Gaston:

No, not at all.

H.M.Jr:

I differ with you.
Not at all.

Gaston:

237
- 16 H.M.Jr:

All right. You have twenty million people file

White:

The gross income and net income of every wage
earner is the same.

Gaston:

and you have about five million pay.

That is right.

Sullivan:

This is taking care of the wage earners who
have a regular salary.

H.M.Jr:

Well, I will argue with Blough and Sullivan
and give Foley a chance to talk about it afterward on the legal side. Now, let's go to the
speech. Let's take it a paragraph at a time.
Go ahead, Roy.

Blough:

I now have the Magill comments and as we go along

and the others indicate, I will be glad to indicate
those.

H.M.Jr:

Or anybody else.

Blough:

The first paragraph?

H.M.Jr:

Please.

Dlough:

"Mr. Chairman and Members of the Senate Finance

Committee: My purpose in being here today is

to discuss taxation as an essential part of
national defense. Our great problem in providing for the defense of the nation is fundamentally
the problem of production - of actually building
planes and tanks, ships and guns with the labor,

management, machinery and raw materials which

we have in our country. To solve that problem,
while at the same time protecting our present
and future economic foundations, our fiscal policy must be adapted to the needs of the times.
I had thought "which we have in our country"

is a little flowery, and we will just change
that to "ships and guns with our labor and

management".

238
- 17 H.M.Jr:
Blough:

White:

How will it read?
"Our great problem in providing for the defense
of the nation is fundamentally the problem of
production, of actually building planes and
tanks, ships and guns, with our labor, management, machinery and raw materials."
Would you want to add the words "not only econ-

omic foundations but it is also a case of protecting democratic institutions," because you could
get money in many ways if you wanted to destroy
the democratic basis of your Government.

Then that would be, "protecting our economic

Blough:

foundations and our democratic institutions" --

White:

Or "economic and" - some phrase like that.

H.M.Jr:

Yes, that is good. Harry has got a good idea.
All right, just make a note. Anybody else got
a suggestion?

Sullivan:

Why not stop after "guns", Roy?

H.M.Jr:

You got a copy, Herbert?

Gaston:

No, I haven't. I don't think there are enough
copies here.

Blough:

Here is our file copy. If it isn't marked on it
is fine. John suggests, "Our great problem in
providing for the defense of the nation is
fundamentally the problem of production, of
actually building planes and tanks, ships and
guns.

Bell:

I like that.

H.M.Jr:

What is the matter with the labor and management? Why chop the sentence off?

239
- 18 Sullivan:

I wouldn't bother to debate that.

H.M.Jr:

O.K.

Bell:

And then cut out, "which we have in our country."

H.M.Jr:

I would just go through the "machinery and raw
materials.

Blough:

"On April 24, I discussed with the Ways and Means
Committee of the House the need of producing

three and a half billion dollars annually in

additional revenue. The Treasury Department
presented a suggested program for raising that

amount of money. The Ways and Means Committee

worked hard on the tax bill. As it is before
you, it will produce approximately three billion
two hundred million dollars annually in additional
revenue. In my opinion, it is very important
that the revenue yield be raised to at least
the original three and a half billion dollar
level. It is also important that the bill be
passed as promptly as possible.
H.M.Jr:

Now, wait a minute. Give anybody a chance.

Bell:

Do you want to say before the three billion two
that in view of the changes that have taken
place since we started consideration of this tax

bill that it is important that we at least get
the three billion five?

H.M.Jr:

Sullivan:
Blough:

Well, I think, Dan, that is covered when we say

by twenty billion extra.
I think so.

"Income taxpayers and excess profits taxpayers
should know as quickly as possible what their
taxes on 1941 income and profits are going
to be, since over seven months of the year have

240
- 19 already elapsed. The excise taxes and the
estate tax cannot be imposed retroactively
and every day's delay in the passage of this

tax bill costs the Treasury several million

dollars in revenue from those sources."
H.M.Jr:

O.K.

Blough:

Magill had a couple of word changes there, but

it is not important.

"However, rapid developments of the last few
months have made this bill inadequate even

before it is passed. Since my statement before
the Ways and Means Committee, many things have

happened. Two and one half months ago, the

President proclaimed the existence of an unlimited national emergency. He called upon

'all loyal citizens to place the nation's needs
first in mind and in action to the end that we
may :mobilize and have ready for instant defen-

sive use, all of the physical power, all of the

moral strength, and all of the natural resources

of this nation.' The people of this country

have responded splendidly in accordance with
that proclamation."
Kuhn:

I think that last sentence could either be

cut or lead on into one sentence saying that
the people of this country have responded
splendidly in accordance with that proclamation
and they are willing to meet these new burdens,
but unless you lead on to some point, the sen-

tence is unnecessary. It could just as well

be cut.
White:

In fact, it weakens your point, because it seems

as though they have already responded and now

you are asking them to do still more.
H.M.Jr:

I would cut it out.

241
- 20 Blough:

It is Ferdie's sentence. I was trying to
leave it in.

Kuhn:

It was put in to lead on to the point that
people are willing to pay these bills, but if

we don't make that point, let's cut the sentence,
Roy.
Blough:

Fine.

"Since I appeared before the Ways and Means
Committee, the amount of appropriations over and
above the Budget have increased by about twenty

billion dollars" --

Bell:

There it should be fourteen.

Gaston:

Roy, just a matter of grammar. The amount has

Blough:

Oh, yes, sure. I am sorry.

increased.

"Increased by about fourteen billion dollars,
thus completely changing the fiscal picture
and greatly increasing the need for revenue."
Bell:

I don't know whether you want to be particularly

accurate in a thing of that kind. They are

not appropriations, you know, they are contract
authorizations and recommendations by the

President. Roy has referred to them as approp-

riations.

Blough:

why don't you say "appropriations and authoriza-

Bell:

The Budget language is "authorizations and
appropriations and recommendations".

H.M.Jr:

Well, use the correct language.

Blough:

We will fix this up.

tions"?

242
- 21 "Since I appeared before the Ways and Means
Committee, shortages in many materials necessary for defense production have become acute

and have necessitated the extension of priorities
and the decrease of production of various types
of civilian goods. If
H.M.Jr:

Just a minute. Why that paragraph?

Blough:

The economic picture has changed materially.

White:

I don't see it.

Kuhn:

The justification for excise taxes avoiding
competition with defense goods has become

even greater -"hite:

If it has any relevance, it is not clear.

Kuhn:

That is the purpose of that sentence.

White:
Blough:

Well, it is certainly not clear.
Well, it is not followed up later with the

White:

I think the way it stands --

H.M.Jr:

I don't think it is necessary. I think the

recommendation. That is, I think, the principle --

next paragraph, perfectly adequate to - it
can lead into paragraph three. I think you
could leave out the first paragraph.
White:

First paragraph?

H.M.Jr:

First paragraph on page three.

White:

Yes, and the second, it seems to me.

H.M.Jr:

No, I like the second. "In the light of all these
developments, two things. In the light of the

243
- 22 -

increase of fourteen billion dollars and in

light of prices and the cost of living, in
light of these developments --

White:

I don't see how you tie it up - it is not made
clear to the listener, it seems to me. The

Budget picture, yes, the need for increased
expenditure, but how do you tie up the increased

cost of living to the fact in the light of

these developments? What has that got to do

with it?
Blough:

That is coming in later in inflation and the

H.M.Jr:

I tell you what let's do. For the time being,
let's cut out the first paragraph on page three

last two pages which aren't even on here yet.
and leave these others in and see how it looks.
What?

Bell:

I am wondering if you can't tie the one at the

bottom of page two and the next two together some
way, because you have got three paragraphs

starting out, "Since I appeared before the Ways

and Means Committee."
H.M.Jr:

I think you are right on that.

Blough:

I did that on purpose, but if it sounds too
theatrical, it can be easily fixed up.

Kuhn:

I think it strengthens it.

Bell:

You mean to say it over?

Kuhn:

To say it over.

H.M.Jr:

I think they are right.

Bell:

Do you?

H.M.Jr:

Yes, I do. What do you think, Herbert?

244
- 23 Gaston:

Well, it gives emphasis to your appearance
before the Ways and Means Committee. I think

it is all right.

H.M.Jrs

It also emphasizes that these things have

happened since I appeared. I think it is all
right. Go ahead, Roy.

Blough:

"In the light of these developments in the

direction of 'all out' defense, I should like
to point out what, in my opinion, will be
necessary in taxation to support such" --

H.M.Jr:

Now, wait a minute.

White:

Couldn't you use the phrase - excuse me.

H.M.Jr:

I am going to say what will be necessary

is an all out taxation. I want to bring
in "all out" again. Is that what you wanted

to say?
White:

Yes. I thought to meet this all out defense

H.M.Jr:

Yes.

White:

I think that phrase, "all out taxation" is

we must have an all out taxation.

very good.
H.M.Jr:

We had it in last night.

White:

Yes, I know.

H.M.Jr:

I like it and I want to repeat it again.

White:

I was surprised it wasn't in there, and I think

this is the place for it.

Blough:

That is Magill's comment also, that this should

read, "will be necessary in all out taxation
to support it.

245

- 24 White:

"To meet this all out defense, we must have an

H.M.Jr:

Or "all out tax program". Fix that up. But
I like the "all out defense" and the "all out

all out taxation," something like that.
tax program".

White:

Would you want to suggest one sentence after

that previous paragraph which will tie it in

more, Since I appeared before the Ways and
Means Committee, prices and cost of living

have increased at an accelerated rate," thereby accentuating the need for some fiscal program? We have got to tie it up in some way

with taxation at that point, even if it is just
a phrase.
Riefler:

argument is too far
Yes. The completionary
from the foundations you are laying there in
paragraphs one and two.

Gaston:

That is right.

H.M.Jr:

You are both right. You are right.

Riefler:

I mean just to withdraw excessive purchasing
power from America, something as simple as that.

H.M.Jr:

There has to be a transition. They are right.

Riefler:

Then you could leave in the first paragraph

if you have that transition. You could restore
it.

Kuhn:

That - makes it necessary to impose new excise
taxes on competing goods.

Riefler:

Any short one that does the trick.

H.M.Jr:

They can do it.

246
- 25 Blough:

We will fix it up.
"First of all, we shall need more revenue,

much more revenue. The defense program is an

absolute necessity. It must be paid for.

In so far as possible, it should be finally

paid for now. Borrowing should be kept to a
minimum to maintain our fiscal strength. The
rise in the Federal debt merely means that the
burden is being postponed" --

White:

"Burden to the taxpayer". You can't postpone

Blough:

Right.

a burden.

.... that both principal and interest" --

11

H.M.Jr:

Just a minute, "in order to maintain our present
fiscal strength."

White:

Could a little stronger sentence be made than,
"The defense program is an absolute necessity"?
"The defense program is vital," or something

like that. It seems a little weak.

H.M.Jr:

"Absolute necessity" is weak?

White:

It seems so.

H.M.Jr:

"Absolute vital necessity"?

Riefler:

"Fundamental"?

White:

Well, play with the idea.

H.M.Jr:

"Absolute necessity" sounds pretty strong to me,

but we will listen. Go ahead.
Blough:

both principal and interest must be paid
for later out of higher taxes imposed at a
time or collected at a time," I am not sure which,
"

247

- 26 "when they may be harder to pay and less

willingly paid than now."
Gaston:

I think "paid" instead of "paid for" is better.

Blough:

"The defense program must be paid"?

Gaston:

"Interest and principal must be paid," rather
than "paid for".

Blough:

Oh, sure. Now, Magill suggests either here or
at the end of the next paragraph to put

in your call for the reduction in ordinary
expenditures. I think probably - maybe

here or maybe a little bit later, I wondered if

you ...anted that in?
H.M.Jr:

Yes.

White:

Do you want it in?

H.M.Jr:

Yes, because I am going out on the end of a limb
on this highway business to support the Pres-

ident's message, this morning at ten thirty. I

am going out on that, even though I know it is
hopeless.
White:

But you are not going to express an amount?

H.M.Jr:

No, I am just going to support the President's

message, that any highways we build now should

be for strategic purposes, and not for log

White:

rolling.
But I mean in the statement it is not going to
be an amount, just a curtailment of non-defense?

H.M.Jr:

That is right.

Blough:

"More revenue is needed also to maintain our
economic health." 11

248
- 27 H.M.Jr:

What is our economic health? (Laughter)

Blough:

I didn't like it either. Is there a better

White:

"More revenue is needed to strengthen our

one? It means the normal functionings -economic" --

Sullivan: "Stability"?
Riefler:

Is stability the idea?

Foley:

"Vitality"?

Bell:

Couldn't you put it on the "economic stability"?

Riefler:

"Structure".

H.M.Jr:

I don't like "health", do you?

White:

It is a meaningful phrase, but --

H.M.Jr:

The next thing they say is, "Is the patient
sick?"

White:

Economically?

Foley:

He has been sick for a long time, hasn't he,
Harry? (Laughter)

H.M.Jr:

What is the answer to that, Harry?

White:

He isn't sick but he has quite a rash.

Riefler:

Why wouldn't it be well to help keep the price
structure as stable as possible?

H.M.Jr:

Something like that.

White:

I think a comment there is worth it, because
this is more or less of a strong argument.

H.M.Jr:

Something.

249

- 28 White:

Even
if you have to put two or three sentences
in.

H.M.Jr:

Write
it. a sentence and see whether Harry likes

Blough:

"The pressure of a rising purchasing power on
the prices of goods of which the production

will be increasingly limited by the necessity
of diverting our resources to defense uses
threatens to become inflationary."

Gaston:

That needs to be chopped up.

H.M.Jr:

How would you do it, Herbert?

Gaston:

Oh, it would take a little work. It is just a
little too difficult. The thought doesn't get
over.

Blough:

I agree with you.

H.M.Jr:

All right.

Blough:

"Heavy taxation which takes that purchasing
power for the Government operates to relieve

the inflationary pressure.

And Magill suggests -H.M.Jr:

I don't like that.

Blough:

Magill suggests, "Heavy taxation, which takes
for the Government the increased profits from
the sales of scarce goods and reduces somewhat

excessive civilian purchasing power, operates

to relieve the inflationary pressure.

White:

I think this whole paragraph needs to be expanded

because that is one of the important points
and I don't think it is treated anywhere else.

250
- 29 Blough:

Unless it may be treated a little at the

H.M.Jr:

Well, we agree that has to be fixed up.

Blough:

"This larger needed revenue should come from

end.

all sources where there is ability to pay.

The people of this country have never been
more ready to make sacrifices for the common

good. I believe we have not kept pace with

their feelings in the matter, that we are still

thinking too much of allowing this group or
that to escape its share of the burden.
Sullivan:

"Helping this group or that."

White:

You wouldn't want to say - do you want to

say, "The needed revenue should come from all

sources where there is ability to pay"? That
is what an all out tax program means.

Riefler:

Could you phrase it this way, "The revenue needed

is so large that we must go to all sources

where there is ability to pay"? Put it on that
basis.

Blough:

That is Mr. Magill's criticism. He says that

we should indicate here that the time has come
when you can't fiddle around with a bunch of
special exemptions and so on, that you will have

to go to all the places where there is ability
to pay.

H.M.Jr:

All right.

Blough:

"An adequate tax program for defense," or all

want to it that way, should

to at

out reach if ability you pay emphasize several points not now

fully tapped. One"

H.M.Jr:

Repeat that all out. I would like to repeat
that a couple of times.

251

- 30 In my opinion, such a program will
involve a substantial lowering of personal
exemptions of the income tax. Under the
Bill before you, the base has been broadened
to add about two million new taxpayers, but,
even so, only a relatively small proportion
If

Blough:

of the population will be directly affected
by the income tax. A further lowering of

the exemptions would produce some additional
revenue.
ft

Perhaps the "some" should be eliminated.

"....It would help in cutting down the purchasing
power of consumers. It would give millions of
Americans an opportunity to make a direct
contribution through taxes to the defense of

their country. It would enable them to feel
that they were participating personally and
directly in the defense program."

Bell:

Magill says eliminate that last sentence on
page four.

White:

Either that or put it differently. It would

help in cutting down the money in the hands in the pockets of the consumer which operates
to increase prices, but your argument later is

that, as a matter of fact, taxation might

save consuming power by preventing prices from

rising so that the dollar could buy more than

it otherwise would. I think that either has to

be cut out or rephrased.
Riefler:

I would cut it out because to explain the idea
requires a lot of elaboration.

H.M.Jr:

I would cut it out.

Blough:

The last sentence on page four?

Riefler:

Yes. You have it covered in your preceding

252
- 31 -

paragraph as a general idea.
H.M.Jr:

I would cut it out. It isn't - the fellow who

White:

In this further lowering of exemptions, does

gets seven hundred and fifty dollars, he isn't
going to increase -that mean below this new proposal of seven hundred

fifty?

H.M.Jr:

Yes.

White:

Then I should be inclined to cut out the word
"some".

Blough:

It depends on whether three hundred million is

White:

I would say it was some.

Kuhn:

Not what people would imagine.

White:

That is right. People have the notion you are
taxing a new source, the largest source --

H.M.Jr:

I think he is right.

Blough:

In the last sentence at the top of page five,

some or --

that first paragraph, Magill suggests more

important". It would give them a feeling --

Bell:

No.

Blough:

"More important", the very top of the page. "More
important". "It would give millions of Americans
an opportunity to make a great contribution."

Bell:

That is right.
You don't want to put in there a direct quotation

H.M.Jr:

from what the President said on that very thing?

253
- 32 -

Kuhn:

About
people being willing and proud to chip
in?

H.M.Jr:

Yes. I would put in a direct quotation of what

White:

Particularly in mind of what you say on joint
returns, I think it a good idea to quote him as

he said. It is right there.

much as possible. (Laughter).
H.M.Jr:

I would put directly what he said in there. I

am not worried about that. Go ahead. Ed is

not worried. How do we know what boat he is on?
Foley:

The Potomac or Tuscaloosa.

Sullivan:

I hope it doesn't have anything over a three inch
gun.

H.M.Jr:

Go ahead.

Blough:

"But, if we are to extend the income tax downward

to include millions more of persons with low
incomes, we cannot fail, in an all-out tax
program for defense, to reach in other places

ability to pay which is escaping its fair share
"

of taxes.

H.M.Jr:

Why not say, "We must not fail."

Kuhn:

Does that make the point strongly enough, that
if we do fail we are being unfair and that we
are hurting national morale?

Bell:

We cannot in fairness to others.

White:

I think it needs another paragraph.

Bell:

We cannot in fairness --

Gaston:

I am not well satisfied with the way this is
expressed. It seems to me it presents a program

254
- 33 -

primarily for broadening the base, lowering
exemptions, and without the necessary qualifications. Then the others are added more or
less as afterthoughts.
White:

H.M.Jr:

Kuhn:

I wonder whether you might help that possibly

by either changing the order. I mean put the
broadening of the tax base after excess profits.

No, I like it very much just in the order he
has got it. I don't want it changed.
Suppose it were made strictly conditional upon

other measures?

Gaston:

That is what I was thinking of.

White:

That is what I thought we decided yesterday.

H.M.Jr:

Could you take what Gaston suggested?

Blough:

In other words, make this paragraph read more
of a conditional paragraph?

Gaston:

I would like to work on that a little bit, with
just a suggestion.

H.M.Jr:

Well, Herbert will work on it and give you a
suggestion, but I don't want the order changed.

I like it.

Gaston:

It looks to me as if we were all hot and eager
now for broadening the base and that is our first
item. That is the thing that we are emphasizing.
And then we add --

White:

"Among these are the following."

Gaston:

"Among other things you might do are the following."

H.M.Jr:

Go ahead, Roy.

255
- 34 -

Blough:

"Two. The excess profits tax exempts profits of
the most prosperous corporations except to the

extent that those profits are more than the
profits of the years 1936 to 1939.
Sullivan:

"More than average."

Blough:

"Than the average. We must not impose taxes
on millions more of our low income group unless

we also extend the excess profits tax to these
exempt profits"
Sullivan:

"To the exempt profits of our most prosperous
corporations.

Gaston:

Yes.

H.M.Jr:

Yes.

Riefler:

"We must not impose new taxes on millions more

Kuhn:

Yes.

Sullivan:

He has a good one.

Blough:

New taxes, yes.

Bell:

He has got it.

Blough:

"....In at least eight States of the Union, income
taxes are substantially lower than in the remain-

of our low income" --

"

ing States because of the splitting of incomes
between husbands and wives. In other States,
the income taxes of many wealthy people have
been reduced by gifts between husband and wife.

Here are discriminations against the rest of
the taxpayers which certainly must be eliminated
if we are to extend the income tax downward to
include millions of new low income taxpayers.

256
- 35 -

H.M.Jr:

Gaston:

Now I don't understand this. Am I for one
return or two returns outside of the eight
States? I mean, in the community property,
eight States, but how about the other forty?
There is more than one way to do it. This
problem can be attacked instead of by the joint
return process - it can be attacked by forbidding
this division of property in returns as they have
in the community tax States, just forbidding
that in your Federal law and also taxing more

H.M.Jr:

heavily life-time gifts.
But it still doesn't leave it clear what we are

Gaston:

It won't specify the method but as it is here

for.

it just points to the evil. It doesn't point
out the method for correcting it.

White:

That is right. It doesn't come out flatly for
joint returns.

Gaston:

It isn't for joint returns. It could be done

by another method, which I think personally is
a better method.

White:

Well, the issue is joint returns. It is a

Gaston:

No, I don't think so.

Sullivan:

The evil that is complained of, Harry, allowing
a movie actor in Hollywood to divide his

little late --

hundred thousand a year so both he and his wife

report separately on fifty thousand a year, can

be corrected in the statute so that it is the

income earned by a person rather than the income

of - the decision held that the income of - depended
on who was entitled to that under the local
property owners laws and that can be corrected in

257

- 36 -

the statute so that that movie actor will have
to report himself the whole hundred thousand
dollars for Federal tax purposes.

White:

Why wasn't it corrected before?

Gaston:

You ask me.

H.M.Jr:

What about the other forty states? Supposing

Sullivan:
H.M.Jr:

In the other forty states you can't do it.
But this doesn't take care of them. This takes
care of the eight, but leaves the other forty
in the air. There is nothing in this paragraph
taking care of the other forty states.

Blough:

This paragraph states the evil. The two evils
which I think --

Foley:

No this paragraph is directed only to community

Gaston:

No, it is directed to community property and

that --

property. It has nothing to do with joint returns.

gifts during --

Blough:

In all the states the income taxes of many
wealthy people have been reduced by gifts

between husbands and wives. There are your two
evils.

H.M.Jr:

But that is the gifts. How about the incomes
in other states?

Gaston:

Well, but they can't in other states split

the income now. They can't do it now. They

have to return the income separately.
H.M.Jr:

But how about having them not do that, only
having one return?

Gaston:

They have to except in the community property -

states, they have to return the income as for

258
- 37 the person to whom it belongs. In the community
property states they take the man's income or

the wife's income together and split them fifty-

fifty, and the great evil of that is that they
take a large - a tremendous big income, such

as the man's income, and split it in two parts

and reduce the taxes in that way. You can only
do that in the community property states. You

can't do it in other states.

White:
H.M.Jr:

Gaston:

It isn't clear to me and I don't see how it

would be clear to the public.

You are talking about one thing and I am talking about another. In New York State you can

either file a joint return or two returns.
You can file two returns if you report only

your personal income.
Blough:

That is another evil which is left out.

H.M.Jr:

That is what I was trying to get at.

Blough:

I frankly was trying to avoid, although I am
in favor of joint returns, was trying to avoid
an open fight on that issue, not knowing how you
wanted to go on that.

H.M.Jr:

I want it in.

Blough:

I am sorry, I didn't understand it.
There is the evil Herbert is talking about and
there is the - which exists in eight states
and there is another evil which exists in forty

H.M.Jr:

states.

Gaston:

H.M.Jr:

If you regard it as an evil, yes.
I do. I consider that it is a loophole which

259

- 38 -

should be closed if we are going to tax the
fellow with seven hundred fifty dollars.
White:

Blough:

And I think the word "joint returns" ought to
be used so the public will recognize it.
Oh, yes, now, definitely.
"For years the concerns engaged in extracting

certain of our natural resources, notably oil,

have been allowed far greater allowances for
depletion than can be justified on any reason-

able basis of tax equity. If the income tax is
to be extended to lower incomes, this privilege

of tax escape must be removed."
White:

What happened to the idea that was suggested

H.M.Jr:

I put it out, Harry. This is just as effective.

White:

O.K.

H.M.Jr:

This is going to make them mad enough without

Kuhn:

yesterday, that for eight years --

my going up and saying, "Listen, you bloats,

for eight years I have been telling you so.
I am telling it to them without saying for
eight years I have told it to them.
is that strong enough, that last
"If the income tax is to be
Mr.
removed"?
extended
this sentence,
privilege ofSecretary,
escape must
be

Would a little fireworks like "wicked" or "terrible" or "intolerable" help on there?

H.M.Jr:

No, this is strong enough.

White:

But it mentions --

Gaston:

I have a slight objection to that. They may
interpret this whole thing to mean that, all

260
- 39 right, if you want to reduce exemptions, broaden
the base, then you ought to do these things,
as if we are not very serious about having
these things done on their own account.
White:

I thought you were going to take care of that
in that paragraph.

Gaston:

That can be done, but it seems to me these

other things ought to be insisted upon in any
event.

H.M.Jr:

Well, you are right, Herbert, a hundred per
cent. If I wasn't opposed to lowering the

exemptions and the President does it this way

without any notice to anybody. This is the only
way I know how to do it and it brings it to
the attention of the public. I am not going
to get any of this stuff. We are going to
get the lowering of the exemptions. I called
up the Speaker this morning on two things, one

on the freezing of the cotton and the other

- he thinks it is terrible, the freezing of the
cotton. When the representative of the Grange
Association comes he will say, "You don't want

to let Morgenthau sell it, do you? He is the

fellow that sells the cotton. I told the
Speaker he (Grange representative) was a damn
liar. I have got nothing to do with it. I said,
"What about the road business?" He says, "Well,

we are going to pass that over today. Well,
why?" Well, the President wants to take the

allotment of road money away from us Congressmen

and give it to himself." That is where he made
a mistake. If he had left that out maybe we

would have gone along with him. Now, I am not

going to get any of this, Herbert, but it gives

me for once a chance to go up there and say

what I feel in not too objectionable a manner,
and make the record and I can get some of the
labor unions to back me up.

261

- 40 Gaston:

I think there is something in what the Speaker
says. If the President had been more specific
in his bill they might have gone along with

him.
H.M.Jr:

But anyway, if you don't mind, Herbert, this
form suits me. Each person has to have it to

suit himself, but this does suit me. If the

President hadn't said anything, and I was

starting out before the Ways and Means two

and a half months ago, you would be right, but
in view of what has happened, I don't see how

otherwise I can do it.

Bell:

I have only one question, Mr. Secretary, on

H.M.Jr:

You are right.

Bell:

I would like to switch it and say, "I should

H.M.Jr:

the way it has been worded. You say we must
not and cannot do these things.

think that Congress could not do this in good
conscience unless they do these other things."

You are right, just as effective. In other

words, not lecturing them. You don't want me

to Fanny Perkins them. You are right, fix it

up.

Blough:

There is one question I would like to ask.
Now, I repeated this in every paragraph. If
those repetitions were taken out and put in
one paragraph, it would be the sort of thing
Herbert has in mind.

Riefler:

I think the repetition is a good idea.

H.M.Jr:

You have got to move a little fast now, because
I have got to school between now and ten thirty
on roads.

Blough:

"A few months ago, the Congress, on my recommendation,

262

- 41 eliminated the tax exemption privilege from new
issues of Federal securities. The purchasers

of State and local securities still enjoy this

exemption. The exemption was inequitable and" -H.M.Jr:

Excuse me. Following Bell's suggestion, I would

Blough:

Yes. "The exemption was inequitable and expensive
even in more normal times. It cannot be borne

leave out, "on my recommendation".

longer," and we changed this again to fit this "It cannot be borne longer at a time like this,
and especially if we are to increase the
direct tax burdens of persons with small incomes.
"In its suggestions to the Ways and Means

Committee, the Treasury recommended substan-

tial increases in estate and gift taxes and a

lower rate of exemptions, or lower exemptions.
In part, this recommendation was followed, but,

in my opinion the estate and gift taxes should
reach more estates and provide more revenue

if we are going to tax smaller incomes.
"Those are some of the things that I mean when

I say that a tax program for defense must go

far beyond the present Bill."

H.M.Jr:

Well, again, keep using that "all out tax program"
every time.

Blough:

Yes. "There is another condition to lowering

H.M.Jr:

That is all good. I don't think anybody can

personal exemptions. We cannot continue to take
into the income tax system millions of new taxpayers"-argue about that.

Blough:

All right.

White:

Very good.

263
- 42 H.M.Jr:
White:

It is very good.
Except at the end, your conclusion, I think, needs the end of that - your deduction - after you
have said all that. Excuse me. there was one
place you were going to change, you remember.

H.M.Jr:

Oh, we were going to say "depressed" or "flatter"
or "worn out".

Dlough:

We were going to put a couple of pages of kick

H.M.Jr:

Herbert, take another crack at me on why you

Gaston:

Well, I think this. I think it is an inequitable

on the end. Oh, yes, the fellow is worn out
after figuring his income tax.
don't think this table should be the way
it is now, will you please?

proposition and I think it is also an unconstitutional and illegal thing to do, to attempt

to tax anybody on the gross income, that is,
his gross intake of money. I think you have
got to allow for expenses he makes in earning
that income. I think even in the lowest income
groups you will find here and there people who
do have some legitimate charge-offs and I think

therefore that your simplified table of taxation
is grand. I think it ought to have been done
long ago, but I think it will have to be on

net income. A very simple calculation of your

amount of money that you have received and any
legitimate expenses that you have made - have

disbursed against it to earn that income. No

other deductions except what you have expended

to earn that income for business expenses and then

I think it is swell.
H.M.Jr:

Would you be satisfied if somebody - somebody

said have i optional. A fellow can take this

table or he can make out this form, ten forty A,

and take his deductions.

264
- 43 Gaston:

I just think that makes it a lot more complicated.

Blough:

Herbert, gross income does not mean gross receipts.

Gaston:

Well, if gross income really means net income --

Blough:

It is net income before such things as tax
deductions, interest.deductions contribution

deductions, capital losses, but it is after
business expenses.

Caston:

If it means gross income after business expenses --

White:

If that is --

H.M.Jr:

Harry, wait a minute, please.

Gaston:

If that is what you mean by gross income,

I have no further objection to make, if that
is what you mean by gross income.

Blough:

I don't think the word "gross" ought to be used
in the table. It seems to me if we said your
income is --

H.M.Jr:

Is it all right?

Gaston:

Yes.

H.M.Jr:

Otherwise you like it?

Gaston:

Yes, I think it is grand.

H.M.Jr:

All right. Now, Mr. White.

White:

Well, I too believed as he did and I was misinformed.
I thought you meant by gross income what we
call gross income.

Blough:

Gross receipts is the term commonly used there.

265

- 44 White:

Wouldn't it be possible to follow the Secretary's
idea then, and on some of these exemptions,

small exemptions like gifts and what-not, to

modify that on low income brackets or something?
Blough:

What we have done is to lower the tax ten per

cent in order to allow for the deductions we
don't give them.

White:

Blough:
White:

Then if the gross income is explained on that
sheet so that the man in the street --

A little sentence will explain that, of course.
Then I change my view as he does. How about the
gasoline tax, a man that uses gasoline?

Blough:

The tax in some states is deductible.

H.M.Jr:

Were you through, Harry?

White:

Yes. I think it needs some further explanation
to the layman.

H.M.Jr:

Well, what I am doing is this. I have told John
Sullivan to be back here at two thirty and to
have Helvering and Mooney here at two thirty,

Blough:

just on this thing, to get it straight.
I think that is excellent.

H.M.Jr:

Would you be here at two, Ed? And put somebody

Foley:

Yes.

H.M.Jr:

Now when am I going over this thing with you

in your own shop on it, will you?

again?
Blough:

It is now ten fifteen. I should think we could

have it drafted any time from noon on.
(Mrs. Klotz entered the conference).

266

- 45 H.M.Jr:

Well, here is my trouble. How are you fixed,

White:

You had a three o'clock meeting, didn't you?

H.M.Jr:

No, you are down at eleven. I haven't got
you at three.

white:

Oh, at eleven, that is right.

H.M.Jr:

Are you ready?

White:

H.M.Jr:

Harry?

We will have a draft at eleven. It will be a
first draft. The later you make it the more
we will improve it.
I can't, because I won't be ready for you

(Blough) until three forty-five. It is going

to have to be pretty near perfect then.
Blough:

I will do the very best I can. I will try

H.M.Jr:

Do that, will you?

Blough:

All right.

H.M.Jr:

And at that time let everybody wear you down and

it out on all the other people before then.

then just you and Ferdie come in at three fortyfive, which saves my - whatever is left of my
disposition.
White:

What would you think of the suggestion, Mr. Sec-

retary, of your not tackling the price statement

until after you come back from the tax hearing
on Friday afternoon, so as to leave your mind
clear for this. We still have Friday, Saturday, will
Sunday, and Monday, and in the meantime we

be working on it so it will be in better condition
by the time you get it, so as not to mix it up.
H.M.Jr:

Sold.

267

- 46 H.M.Jr:

If you are free at eleven, I could see you

about your own thing at eleven, you see, Win

and you, and I could bring the tax thing up
to three fifteen and then I am available for you
(White) at eleven. Is that agreeable to you,

Win?

Riefler:

Very good.

White:

I think this will be the most popular thing

Kuhn:

The table?

White:

That table.

the Treasury has ever done.

H.M.Jr:

Are we all right now? Now, Harry, that may mean
you may have to come up to the country, unless
you think you can do the whole thing Monday.

White:

Well, suit yourself, but I think we will have
a better draft for you, and I don't think you
need to shift from taxes to the other, and
since we will have several days to work on

H.M.Jr:

it, I think there will be adequate time.
It is easier on me by far, but it may be harder
on you over the weekend.

Bell:

Well, can't - what did you suggest, that the
Secretary see it after the hearing tomorrow?

H.M.Jr:

Yes.

Bell:

It is all right, that is fine.

white:

And we will have had a chance to go over this

first draft by then too, so that it will be
further advanced.

H.M.Jr:

Well, what I ought to do is, no matter what

268

- 47 happens, right after lunch tomorrow I ought

to look at the thing.

Bell:

And then we could have a copy sent up to the
farm and you could read it over the weekend
and we could be in pretty good shape to concen-

trate on it all together.

H.M.Jr:

I will be ready for you people tomorrow at two
o'clock, Friday.

White:

You don't anticipate the hearings will go over
the morning, do you?

H.M.Jr:

No. How is that?

Bell:

Fine.

269

4th droft DRAFT
August 7, 1941
9 A. M.
SUGGESTED STATEMENT OF THE SECRETARY OF THE TREASURY
BEFORE THE SENATE COMMITTEE ON FINANCE

Mr. Chairman and Members of the Senate Finance

Committee: My purpose in being here today is to discuss

texation as an essential part of national defense. Our
great problem in providing for the defense of the nation
is fundamentally the problem of production -- of actually
building planes and tanks, ships and guns with the labor,
management, machinery and raw materials which we have

in our country. To solve that problem, while at the
same time protecting our present and future economic

foundations, our fiscal policy must be adapted to the
needs of the times.
On April 24, I discussed with the Ways and Means
Committee of the House, the need of producing $3,500,000,000

annually in additional revenue. The Treasury Department
presented a suggested program for raising that amount of
money. The Ways and Means Committee worked hard on the tax

bill. As it is before you, it will produce approximately
$3,200,000,000 annually in additional revenue. In my opin-

ion, it is very important that the revenue yield be raised

to at least the original $3.5 billion level. It 18 also important that the bill be passed as promptly as possible.

270
-2Income taxpayers and excess profits taxpayers should

know as quickly as possible what their taxes on 1941 income and profits are going to be since over seven months

of the year have already elapsed. The excise taxes and
the estate tax cannot be imposed retroactively and every

day's delay in the passage of this tax bill costs the
Treasury several million dollars in revenue from those
sources.

However, rapid developments of the last few months

have made this bill inadequate even before it is passed.
Since my statement before the Ways and Means Committee,

many things have happened. Two and one half months ago,

the President proclaimed the existence of an unlimited

national emergency. He called upon "all loyal citizens

to place the nation's needs first in mind and in action
to the end that we may mobilize and have ready for instant

defensive use, all of the physical power, all of the
moral strength, and all of the natural resources of
this nation. . The people of this country have responded
splendidly in accordance with that proclamation.
Since I appeared before the Ways and Means Committee,

the amount of appropriations over and above the Budget
have increased by about $20,000,000,000, thus completely

changing the fiscal picture and greatly increasing the
need for revenue.

271

-3Since I appeared before the Ways and Means Committee,

shortages in many materials necessary for defense production have become acute and have necessitated the

extension of priorities and the decrease of production
of various types of civilian goods.
Since I appeared before the Ways and Means Committee,

prices and the cost of living have increased at an accelerated rate.

In the light of these developments in the direction

of "all out" defense, I should like to point out what, in
my opinion, will be necessary in taxation to support such
1

defense.

First of all, we shall need more revenue, much more
revenue. The defense program is an absolute necessity.

It must be paid for. Insofar as possible, it should be
finally paid for now. Borrowing should be kept to a minimum
present

to maintain our fiscal strength. The rise in the Federal
A

debt merely means that the burden is being postponed - that

both interest and principal must be paid for later out of
higher taxes imposed at a time when they may be harder to

pay and less willingly paid than now.
More revenue is needed also to maintain our economic

health. The pressure of a rising purchasing power on

272

-4the prices of goods of which the production will be increasingly limited by the necessity of diverting our
resources to defense uses threatens to become inflationary.
Heavy taxation which takes that purchasing power for the

Government operates to relieve the inflationary pressure.
This larger needed revenue should come from all

sources where there is ability to pay. The people of this
country have never been more ready to make sacrifices for
the common good. I believe we have not kept pace with

their feelings in the matter--that we are still thinking
too much of allowing this group or that to escape its
share of the burden.

An adequate tax program for defense should reach ability

to pay at several points not now fully tapped.
1. In my opinion, such a tax program will involve a
substantial lowering of personal exemptions of the income
tax. Under the Bill before you, the base has been broadened

to add about two million new taxpayers, but, even 80, only

a relatively small proportion of the population will be
directly affected by the income tax. A further lowering
of the exemptions would produce some additional revenue.

It would help in cutting down the purchasing power of

small consumers, of goods.

-5-

273

It would give millions of Americans an opportunity to
make a direct contribution through taxes to the defense

of their country. It would enable them to feel that they
were participating personally and directly in the defense
program.

But, 1f we are to extend the income tax downward to
include millions more of persons with low incomes, we can-

not fail, in a tax program for defense, to reach in other
places ability to pay which is escaping its fair share of
taxes.

Among these are the following:

2. The excess profits tax exempts profits of the
most prosperous corporations except to the extent that those

profits are more than the profits of the years 1936 to 1939.
We must not impose taxes on millions more of our low income group unless we also extend the excess profits tax
to these exempt profits.

3. In at least 8 States of the Union, income taxes
are substantially lower than in the remaining States because of the splitting of incomes between husbands and

wives. In other States, the income taxes of many wealthy
people have been reduced by gifts between husband and

wife. Here are discriminations against the rest of the
taxpayers which certainly must be eliminated if we are
to extend the income tax downward to include millions
of new low income taxpayers.

274

-64. For years, the concerns engaged in extracting
certain of our natural resources, notably oil, have been
allowed far greater allowances for depletion than can be

justified on any reasonable basis of tax equity. If the
income tax is to be extended to lower incomes, this
privilege of tax escape must be removed.
5. A few months ago, the Congress, on my recommendation,

eliminated the tax exemption privilege from new issues of

Federal securities. The purchasers of State and local

securities still enjoy this exemption. The exemption was
inequitable and expensive in more normal times. It cannot

be borne longer in a time like this, and especially if
we are to increase the direct tax burdens of persons with
small incomes.

6. In its suggestions to the Ways and Means Committee,
the Treasury recommended substantial increases in estate

and gift taxes, and a lower rate of exemptions. In part,
this recommendation was followed, but, in my opinion, the
estate and gift taxes should reach more estates and provide
more revenue if we are going to tax smaller incomes.
Those are some of the things that I mean when I say
that a tax program for defense must go far beyond the

present Bill.

275

-7There is another condition to lowering the personal
exemptions. We cannot continue to take into the income
tax system millions of new taxpayers with small incomes
without simplifying the ways in which their tax is computed.
Take, for example, a person with a $900 salary. Under
the present law, he first figures out what deductions he has-taxes paid, interest paid, contributions and 80 on. Then
he computes his earned income credit. Then he subtracts
his personal exemptions from his income after deductions.

On the balance, under rates of the Bill before you, he computes a surtax at 5 percent. Then he goes back to the income and deducts his earned income credit. On the balance,

he computes a normal tax at 4 percent. He then adds the

normal tax and the surtax and takes 10 percent of the total
for defense tax. He adds the defense tax to the normal tax

and surtax and finally arrives at his income tax.
When he started to fill out his return, he may have
been full of patriotic enthusiasm to pay his share toward
the defense program, but by the time he has finished his

last computation he will quite possibly be very much irri-

tated. It is difficult enough for persons with substantial
incomes who are used to dealing with financial papers and to

making computations of this kind to fill out their tax

276

-8returns and compute their taxes. The person with a small
and simple income should not be put to this necessity when

it is entirely unnecessary.
Furthermore, the checking of these tax computations

by the administrative authorities takes time. Frequent
errors are found which must be rectified requiring correspondence and further annoyance of the taxpayer as well as
expense to the Government.

For the large taxpayers, equity requires that income
computations be somewhat complicated, but for small taxpayers, the result is merely cumbersome and confusing.

For such taxpayers, a simple table could be provided show-

ing the taxes for various sizes of incomes. The table could
be available in every post office and public place. The
taxpayer would merely add up his income on a simple form,

find the tax on the table and pay that amount. The taxpayer would be spared time, trouble and annoyance, and
the Government would be spared expense.

To indicate more clearly what I have in mind, I have
had prepared a sample table showing how this might be worked

out in practice. This is only a preliminary table, and
improvements and changes will no doubt be desirable, but

it will illustrate how the proposal can be applied in
practice.

277

PROPOSED SCHEDULE OF FEDERAL INCOME TAXES
For Individuals with Gross Incomes of Less Than $3,000 1/

Know Your Taxes 1
If your gross
income 18:
From

To less
than

$0

$750

750

775

775

800

800

825

825

850

850

875

875

900

Single
person
-

$1

-

5

7

9

13

950

975

15

975

1,000

17

1,125
1,150
1,175
1,200
1,225
1,250
1,275

1,125
1,150
1,175
1,200
1,225
1,250
1,275
1,300

1,325
1,350
1,375

1,325
1,350
1,375
1,400

1,400
1,425
1,450
1,475

1,425
1,450
1,475
1,500

1,300

than

Single
person

Married

person

$1,500
1,525
1,550
1,575

$1,525
1,550
1,575
1,600

$62

1,600
1,625
1,650
1,675

1,625
1,650
1,675
1,700

70

6

73

7

75

8

77

10

1,700
1,725
1,750
1,775

1,725
1,750
1,775
1,800

79

12

81

14

83

16

85

19

1,800
1,825
1,850
1,875

1,825

88

21

1,850
1,875
1,900

90

23

92

25

94

27

1,900
1,925
1,950
1,975

1,925
1,950
1,975
2,000

96

29

98

31

2,000
2,025
2,050
2,075

2,025
2,050
2,075
2,100

64
66
68

$1
2

4

19
22

24
26

28
30
32

34

36
39
41

43

-

-

-

-

-

-

-

-

-

-

-

-

-

-

45

-

47

-

49

-

51

53

56

100

33

102

36

105

38

107

40

109

42

111

44

-

-

-

-

2,100
2,125
2,150
2,175

2,125
2,150
2,175
2,200

113

46

115

48

117

50

119

53

2,200
2,225

2,225
2,250

122

55

124

57

-

58

-

60

-

If your gross
income 18:

Your tax 18:
Single

Married

than

person

person*

$2,250
2,275

$2,275

$126

$59

2,300

128

61

2,300
2,325

2,325
2,350

130

63

132

65

2,350
2,375

2,375
2,400

134

68

136

70

2,400
2,425
2,450
2,475

2,425
2,450
2,475
2,500

139

72

141

74

143

76

145

78

2,500
2,525
2,550
2,575

2,525
2,550
2,575
2,600

147

80

149

82

151

85

153

87

2,600
2,625
2,650
2,675

2,625
2,650
2,675
2,700

156

89

158

91

160

93

162

95

2,700
2,725
2,750
2,775

2,725
2,750

164

97

166

99

2,775
2,800

169

102

172

104

2,800
2,825
2,850
2,875

2,825

174

106

2,850
2,875
2,900

177

108

180

110

183

112

2,900
2,925
2,950
2,975

2,925
2,950
2,975
3,000

186

114

189

116

192

119
121

From

To less

3

-

950

1,100

To less

Your tax is:

3

925

1,075

From

2

11

1,025
1,050

Married
person*

-

925

1,025
1,050
1,075
1,100

income 18:

-

900

1,000

If your gross

Your tax is:

195

For each dependent, subtract $400 from your gross income and use the balance to determine your tax.

1/ At the option of the taxpayer. his income tax liability shall be either the amount indicated in this
table or the amount computed under the Internal Revenue Code as amended by H. R. 5417.

278 -

August 7, 1941
10:29 a.m.
HMJr:

Edward

Ed.

Foley:

Yes, Mr. Secretary.

HMJr:

What have we done about the credits for
Thailand? Are they frozen or not? The
ticker says

F:

They're not frozen, Mr. Secretary. The

State Department expressly said they didn't

want them frozen.
HMJr:

They're not frozen?

F:

They are not.

HMJr:

All right.

F:

Yeah.

HMJr:

Thank you.

279
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE

TO

August 7. 1941

Secretary Morgenthau

FROM Mr. Cochran

STRICTLY CONFIDENTIAL

You will find of interest the paragraphs marked with a red pencil in the
attached enclosure to Mr. Bewley's note which I received this morning, concerning
Thailand.

When I telephoned Mr. Bewley to thank him for the information, he told me
it was his impression that the British Embassy had made, or would make, this

material available directly to the Department of State.
I am distributing this message to the usual group in the Treasury.

280

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA

Box 680

Benjamin Franklin Station
Washington, D. C.

6th August, 1941.
Dear Cochran,

I enclose for your information the
gist of two interesting telegrams about Thailand.
They are copies of telegrams from Doll (the Financial
Adviser in Thailand) to the London Treasury.
Yours sincerely,
(Signed) T. K. Bewley.
(T. K. Bewley)

Mr. H. Merle Cochran,

United States Treasury,
Washington, D. C.

COPY FOR SECRETARY

281

Begins.

Very Secret.

Thailand anxiously desires to maintain her

complete neutrality; she has treaty obligations of

friendship with Japan and she is above all compelled
to prevent hostile action by the Japanese armed forces
now gathering on her Eastern Frontier. In consequence
Thailand in face of American and British and Dutch
freezing of Japanese assets had in my opinion no choice
but to make a financial gesture to Japan in order to
maintain trade and particularly to secure completion

of large rice contracts outstanding with Japan. But
the Minister of Finance is also mindful of Thailand's
obligations and traditional economic ties with the

British Empire, and therefore on my advice and on

assurances to me by the manager of the Yokohama Specie

Bank that Japan needed Thai exports 80 much that there

would be no difficulty even about gold transfers,
following Credit Agreement, based on our /sic/ national
tical and neutral gold, was proposed to Yokohama Specie
Bank here.

Articles 1 and 2. A consortium of the three
Thai commercial banks namely Thai Commercial Bank, Bank

of Asia, and National and City Bank of Thailand agreed
to grant Yokohama Specie Bank three months credit of
ten million ticals at 5% where clean and 4% where against

documents. (Note: this difference in rates was to force
them to use the credit only for genuine trade transactions).

Article 3. Credit was to be repaid in ticals
as far as possible, but any amount for which ticals could
not be found was to be repaid in gold, such gold to be
freely transferable to Thailand or to remain earmarked
in Japan. (Note: Insistence on ticals and gold was
based on a determination to avoid having anything to do
with the yen).
Article 4. Credit once repaid could be renewed
on similar terms.

282
-2- 2.

You will notice Thai Government enters nowhere

into the agreement, this was intentional so as to avoid
wounding British susceptibilities even in the smallest
way.
3.

The agreement was presented yesterday to the

Yokohama Specie Bank which has been in great diffi-

culties to keep its doors open during the last few

days. Agreement was declared over the telephone to
be unacceptable three hours later. Japanese are now
preparing counter proposals, but as I am now sure that
the maintenance of trade is not the main consideration

with them, I have no faith in the possibility of our

arriving at any reasonable credit agreement. This lack
of faith is based on the following reasons:

I have just learned so confidentially that no
action in Thailand must be based on this information,
that the Japanese Minister wrote last evening to the

Prime Minister to say that Yokohama Specie Bank would

have to close its doors in Bangkok and trade / activities
of/ Thailand and Japan cease if proposed credit agreement
were insisted upon, that Luang Pradist (Thai Minister of
Finance) was a partisan of gold and hard currencies and
old fashioned conservative financie and was "an" intransigeant Minister" (textually) with whom it would be quite
impossible to harmonise Japanese ideas and finally that
Japan could not compromise on Mr. Ono's plan for reconstruction of the Thai finance, whereby Yen and Tical
would be freely interchangeable and
Yen admitted to currency reserve. Mr. Ono. I learn,
is not only Financial Adviser to the Japanese Government
but also Financial Adviser designate, which would he
tantamount to future de facto Finance Minister, of
Thailand.

Lunng Pradist told me this morning that if the
Government did not support him in resisting all attempt
to soil the tical with yen he would immediately resign.

4.

He also esked me what help Thailand could expect from

Democracies in foiling /?economic/ and financial invasion of Thailand which is already taking place. I
warned him that I was not in a position to speak on
political matters but that my own feeling was that the

283
-3- Democracies would not withhold help, also that any
yielding by Thais on this yen question would give
Japan means of getting round British freezing order

and would involve almost certainly /iisstant/ freezing
of Thai assets in the Democracies, repeal of the
present oil fuel memorandum and off cutting of Thai

British trade.
5.

I firmly believe the Thais want to resist Japan.

They are proud of their currency and their independence.
But Britain, Netherlands East Indies and United States
should already begin to prepare measures to back up
Thailand economically and financially and must be ready

to give /?in advance/ guarantee of such backing. It

may even be necessary to prepare for a guarantee of
Armed help if Thailand would not be engulfed in CO-

prosperity space. With the full support of democracies
I think there is good chance of Thailand resisting
Japanese demands, but that support is indispensable, as
Japanese troops at Siemreap are now within four miles

of our very frontier.
Ends.
6.

*I endorse entirely remarks of Mr. Doll.

- *I think "I" is the British Minister in Thailand. -

(Init.) T.B.
6/8

Copytalm 8-7-41

284
C

Begins.

After Minister of Finance had refused
twice to 1 see/ Mr. Ono and after the Manager of the
Yokohema Specie Bank had represented that if financial
assistance was not forthcoming immediately, he must

close his doors, Mr. Ono finally agreed to the con-

clusion by the Yokohama Specie Bank of an arrangement

between itself and consortium of three Thai commercial
banks along the lines indicated in my telegram, with

the following points of difference: (A) Agreement
takes the form of an exchange of letters whilst credit
is termed "overdraft": (B) There is no arrangement
for renewal: (c) Gold will be earmarked in Japan but
transfer will be subject to permission of the Japanese
Government and the cost of transportation if transferred

will be borne by the Yokahama Specie Bank.

Theiland has thus won the first round but Mr.
Ono insists on seeing the Minister of Finance in order
to discuss "fundamentals". He endeavored to force
interview 1 with 7 the Minister of Finance by appealing
2.

to the Prime Minister but the latter declined to inter-

vene.
Ends.

285

August 7, 1941
10:30 a.m.

Merle
Cochran:
HMJr:

Yes, sir.
I wish you'd get word to whoever is over
there - Sumner Welles - that I'd like to
give the Russians this note on gold, today,
and I'm sick and tired of waiting to hear
from them.

C:

This morning I was talking with one of the

men, Page, who's in Loy Henderson's place
HMJr:
C:

Yeah.

and I asked him what had happened on that,
and he said that the whole correspondence had
been transferred to Dean Acheson yesterday
evening. And I told him that Dean had been
over here at a meeting and that he had asked
me the day before about it, and I asked him
yesterday and he had nothing on it and they
said it just went down late yesterday. Dean
was here until seven. I can phone him and

find out.

HMJr:

C:

Call him up and say I want the thing cleaned
up either today or tomorrow.
Fine. That you want to go ahead with the
exchange of notes.

HMJr:

Yes.

C:

I'11 get in touch with him right away.

HMJr:

Thank you.

C:

All right, sir.

286
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE August 7. 1941

TO Secretary Morgenthau
FROM Mr. Cochran

At 9:15 this morning I spoke with Mr. Page, in the absence of Mr. Henderson,
in the Russian Section of the Department of State. In answer to my inquiry as to

how the matter stood on the exchange of notes with respect to Russian gold,
Mr. Page told me that the file of correspondence on this case had been sent to

Assistant Secretary of State Acheson yesterday afternoon. I told Mr. Page that I

had mentioned this matter to Mr. Acheson yesterday afternoon when the latter was

in the Treasury, but that it was my impression that up to that time Mr. Acheson

had not seen the correspondence.

Shortly after talking with Mr. Page, Secretary Morgenthau telephoned me,
stating that he desired to consummate the proposed exchange of notes with the
Soviet Ambassador today or tomorrow. I told the Secretary of my conversation with
Mr. Page and the Secretary approved my suggestion that I phone Assistant Secretary
Acheson end let the latter know of Mr. Morgenthau's urgent desire to have the exchange of notes completed today or tomorrow. Mr. Acheson was in a conference, but
called me back at 12:15.

To Mr. Acheson I gave a summary of the Russian gold situation. He found the
Russian file on his desk. He said he would study it immediately. Furthermore, he
has a 2:30 appointment this afternoon with Under Secretary Welles and will bring up
the question at that time. I requested that either Mr. Acheson or Mr. Welles telephone Secretary Morgenthau directly after their meeting.

BMS

287

August 7. 1941.

Dear Oscar:

Thank you for your note of August 5th. I was
sorry not to see you at the meeting, but I understand
the pressure under which you have been working the

last few days.

Indeed, I shall be delighted to have any reports
you may send no as to the progress of the matters with

which you are particularly concerned. I am, as you know,

deeply interested is what you are doing, and I shall look
forward to receiving a nemorandus whonever you have any-

thing you wish to present to no.
Sincerely,

(Signed) 1. Borgenthan, St.

Mr. Osear Dex.

Executive Office of the President,

Office for Amorgency Management,
Washington, D. 0.

288
EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE FOR EMERGENCY MANAGEMENT
WASHINGTON, D. c.

5 August 1941
Secretary Morgentha an:

l am sorry that l did not
atten d the meeting in your office this
after noon.

you, I am sure, would be the first

to say that the Russian and is the first

order of business. Wayne of I were at it

steadely all day long at least l think
we have it off the ground - -thanks tr
your help

If l may, I would like to bother
you with brief reports, from time to time, on

what progress is made. you were largely
respon sible for the birth ofthe effort so

you have to suffer the off spring.
Oscar Cox

289

August 7, 1941

Present:

Mr. White

H.M.Jr:

Lunch at Claude Wickard's, to which I took Professor Noel Hall with me: They had McDougall there
from Australia, who has some idea about nutrition

Mrs. Klotz

after the war, but he never started talking until
two, and I didn't have a chance to stay, so I
don't know what his idea is. He is going to send
me a written report, which will go to Harry White.
Then night before last the British Ambassador
told me that he had had lunch with Noel Hall,
and Noel Hall said that the Germans are very short

of fats and will get much shorter, that the only
place that they can go to is Africa. I got him
started talking on the subject today, and there
are some five hundred thousand tons of fat,
largely under control of Weygand, and I asked

him could we buy them and he said we could buy
them and he doesn't know anything which would be

more important, first, to keep the fats from

getting to Germany and second, to buck up the

Weygand people, so that they realize it is another
market for their oils from nuts besides Germany.

He says it is a very delicate matter, but I

gather nobody is doing it, and much to my amazement, Noel Hall had never met Wickard, and Wickard didn't even know who he was.
Under Mr. Murphy of the State Department there

are thirty-three observers all along Northern

Africa who are supposed to watch what is happening

with food. This is all news to me, and I take
it it is news to Harry White, by the expression
on his face. Right?

White:

Yes, it is right.

290

-2H.M.Jr:

Now, Noel Hall, who is smart as hell, realized I didn't know anything about it, and he said,
"Would you like to know what these observers are

saying?" And I said, "Sure." He said, "I will

send you some of the intercepts." I said, "How

do you send them?" And he said, "Through the
usual channels," meaning through Merle Cochran,

and I said, "No, send them to Harry White. They

are not financial. We will get them that way."
In other words, they are the intercepts of the

messages our consuls are sending home about what

they see in Africa.

The other thing is, I picked up from Dr. Parran
that there is a Mr. Allen, second in command of
the Red Cross in France who has just returned

White:

with a whale of a story on nutrition conditions
in France, and I want Harry White to get in touch
with Mr. Hall and see if he has got a written
report and get it.
Mr. Hall or Mr. Allen?

H.M.Jr:

Mr. Allen.

The other thing is, I want Mr. White to think

about getting somebody on nutrition connected

with us, and if we can't get somebody, the best
person in town is Dr. Stanley, who never gets
a chance over at Agriculture, and she wouldn't
have been there today if I hadn't asked for her,
but she is tops.
White:

We will do both. If we get anybody --

H.M.Jr:

Dr. Stanley is tops and she never gets a chance

over there. There is also a school of nutrition

that has just been set up at Cornell with a
Dr. Maynard at the head of it. This is both
animal and human. It is very well organized,

and they would let us have anybody that we wanted

291

-3to advise with us. This is just a brand new thing
that has been set pu, both animal and human.

White:

I should think the thing to do would be to get
somebody whose chief business it would be to
contact the people who know most about it.

H.M.Jr:

That is right, but I think from what Noel Hall
tells me - I also gather that at last Harry White

got in touch with him.
White:

The next day after you spoke.

H.M.Jr:

After the third time I talked to you.

White:

No, after the second, I think.

H.M.Jr:

Isn't he smart?

White:

Very.

H.M.Jr:

But here is a man like Noel Hall who knows more
about food conditions in Germany than anybody
else in the world outside of Germany, and Claude
Wickard has never met him, and didn't know who

he was. It is unbelieveable. But the thing that

I want to get over, I want you (White) to give me
another summary like you did months ago, what can

we get in the way of foods out of Africa, and then
please as soon as we get this thing out of the way

Tuesday, get in touch with Pleven, General deGaulle's
representative, and ask him what could be done in

the way of buying it.

There are two kinds of things. There are peanuts
and some kind of other nut which I gather grows

on a tree, and they are the only two kinds of a
supply of oil that they can get. But Hall says,
if the Germans caught on they would immediately

rush in there. There are also some in the islands
off there, the Cape Verde Islands have some fats

292

-4-

but to me it is just the height of stupidity
that we don't go in and buy them up. O.K.,

Harry?
White:

Right. Did Hall mention to you what I asked of

him?

H.M.Jr:

No, he just said he was preparing something for

White:

Well, the arrangement I had with him, and I told
him so long as it would be on a very informal
and confidential basis, the only person that I
would tell would be yourself, keep you completely

you, and I didn't ask what it was.

informed, that it was for you, and that he, I
hoped, would find it necessary to tell only his

own chiefs, because we didn't want to get any
wires crossed around here. I asked him to give

me a memorandum and keep giving them to me of

any ideas that he has, any criticisms that he has,

any suggestions with respect to economic warfare
whatsoever, which would not preclude his giving
them to anybody else he wanted, but that we would
examine them and if we felt they had merit and
were sound we would push them from this end,
but we wanted to make sure there was no idea in
his head going unexplored, and he was very happy

to do that.

H.M.Jr:

I told him the same thing because I didn't know
that you had seen him. All right Harry, my boy.

White:

All right.

293

August 7, 1941
2:40 p.m.
HMJr:
Judge

Hello.

Rosenman:

Hello.

HMJr:

Hello, Sam.

R:

Henry, how are you?

HMJr:

I'm alive. How are you?

R:

All right. Look, Henry, Dorothy and I -

we're in town. We're going to be next week we're going down to Louis' for the week-end
and weld like to have Elinor and you have
dinner with us some place.

HMJr:

Well, Elinor's not here, Sam.

R:

Well, would you do it?

HMJr:

When?

R:

Well, either Monday or Tuesday. Some night
next week. We're going away tomorrow down

to Louis' for the week-end.

HMJr:

Well, why don't you have dinner with me Monday
night?

R:

Well, we'd rather have you have dinner with
us.

HMJr:

Well, I've got a house here. You and Dorothy

R:

Well, we'd like to very much. I wanted to

have dinner with me.

talk to you also about priorities. They

HMJr:

You come - you and Dorothy come and have

supper with me Monday night. Do you want
anybody else there?

R:

No.

294

-2HMJr:

Okay. You know where we live?

R:

Would you rather come with us to the Shoreham
or some place?

HMJr:

No, no.

R:

Huh?

HMJr:
R:

HMJr:

We'd be much more comfortable at my place.

Well, I know we'd enjoy it, but I'd like
Well, I'm not pleading before you. You'll
have to come to me.

R:

Well, let's make the date and

HMJr:

Monday.

and Monday night

R:

HMJr:
R:

Yeah.

and we'll see whether we come to your
house or you come out with us.

HMJr:

That's silly, now. I'll give you a good meal.

R:

What have you got?

HMJr:

Anything that you want.

R:

(Laughs) Okay. All right. Well, we'll make
it Monday night.

HMJr:
R:

HMJr:

What?

I don't have any tails in Washington.
No. You don't even have to wear a coat.

R:

(Laughs) Okay.

HMJr:

I'11 look forward to you and Dorothy Monday

295

-3 -

R:

night. Love it.
All right, fine.

HMJr:

Good-bye.

R:

All right. Good-bye.

296

August 7, 1941
2:35 p.m.

RE TAX STATEMENT

Present:

Mr. Helvering

Mr. Sullivan
Mr. Blough
Mr. Wenchel

Mr. Kades

Mr. Foley

Mr. Atkeson
Mr. White
Mr. Mooney

H.M.Jr:

All right, John, where are we on this thing,
this table?

Blough:

Here is the new draft. It is not much different.

H.M.Jr:

Passed by you (Helvering) and your people?

Helvering:

Well, not entirely.

H.M.Jr:

What is the trouble?

Helvering:

Well, the thing that strikes me, I just wonder
how it is going to apply, Mr. Secretary, to

small individual businesses and things like that

that are down in the small brackets, the little
fellows who have individual businesses with
incomes of twenty-five hundred dollars.

Foley:

Well, it is not intended to apply to businesses.
It is only intended to apply to individuals,
wage earners. Isn't that right, Mr. Secretary?

Helvering:

Well, there are thousands of individual businesses
that are run by an individual.

H.M.Jr:

Well, would it help any to - not to go up so high?

297

-2Helvering: Yes, to that degree.
H.M.Jr:

What? Would it help any to keep it, say,
up to fifteen hundred? Would that help any?

Sullivan:

It wouldn't help at all with your married people
then, sir.

H.M.Jr:

Well, you have got to find the answer, Guy, how

to do it. This is the thing to do. Now, how
to do the thing I don't know. That is up to

you fellows.

Helvering: Well, you see, what I am getting at, Mr. Secretary, is, here is a man who owns, just for

an illustration, a little restaurant himself.
It is his individual business He makes two

thousand dollars a year. Now, how are we going

to compute his gross and so forth? Is it the
total amount he takes in or is it after - we
would have to get to his net income, really, to

get a tax that he is entitled to pay. That is
the question I ask.

H.M.Jr:

The married fellow at fifteen hundred under this

thing, up to two thousand dollars, thirty-eight
dollars. Would that help any, if you kept it
down to two thousand dollars?

Sullivan:

I think you would have the same problem. In

Helvering:

Well yes, if we make this optional.

H.M.Jr:

Well, how would that be, he can take his
choice? What is the matter with that? He
can either pay this or he can pay the other.

Mooney:

either event I think it is cured with the option
of figuring a regular ten forty A.

To make it optional and then only applicable to
wage earners as well as wage earners that might

298

-3have some investment income, it might bring it

up to this level, and it may not be applicable
to those who engage in business that requires

capital. In other words, if it was restricted
solely to your wage earners as well as those

wage earners which might have a small investment

income, it might bring it up to this ceiling.
I think it would be a swell idea if there is

no objection to the elimination from this schedule, if those people who are engaged in business
and use capital as material income producing

factors and then it would still be optional

with the wage earner.
H.M.Jr:

Now say that over again.

Mooney:

It would be optional, in the first place, and

then the option only limited to the wage earners

and even those wage earners who might have some

investment income which would make their total

income not in excess of this limit of three thousand, which is to be your ceiling, but your
individuals who are engaged in business as

distinguished from your individuals who are
working for a wage, for a salary, wouldn't have

the option to file on this basis. They would
have to file a ten forty A return.

Foley:

It is all right.

H.M.Jr:

Something like that.

Foley:

You will get what you have got in mind, cutting

out of it these tax difficulties that Tim is
suggesting.

H.M.Jr:

That is all right.

Foley:

But you are not trying to extend this to that

class of people anyway, because they have got

299

-4the same kind of computation problems as the
fellow with the bigger income. What you want

to reach is the little fellow that earns wages

and doesn't know much about what he has to pay,

never has paid an income tax before. He goes
in to the Post Office and he sees the chart there
and he sees if he has earned income of seven
hundred seventy-five dollars that he has to pay
his Government a dollar and a quarter. He reaches
in his pocket and pays and gets a receipt for

it from the postmaster. That is the kind of
fellow that the Secretary wants to get to.

H.M.Jr:

That is the kind that the President mentioned
in his statement.

Foley:

Yes.

H.M.Jr:

Give me some figures that I can use. If this
thing was made a law, how many people do you

suppose in the United States would be affected
who have to pay an income tax?
Helvering:

By this broadening the base?

H.M.Jr:

Yes. Give me a guess.

Helvering:

Six million six hundred thousand.

H.M.Jr:

Altogether? What is the total?

Helvering:

About twenty-three million.

H.M.Jr:

There is about twenty-three million people.

Helvering:

Twenty-one to twenty-three.

H.M.Jr:

And you have added about seven million to this,
roughly.

Helvering: Yes.

300

-H.M.Jr:

Nobody can check it. You are taking what, about
fourteen million now and you are adding another
seven?

Sullivan:

Sixteen now.

Blough:

Those are return filers.

H.M.Jr:

Sixteen and you are adding seven, is that about
right?

Holvering: Yes.
H.M.Jr:

Now, of the sixteen million, if the thing

became law, how many would pay tax - how many would

Sullivan:

pay tax under the present law?
Just under eight.

H.M.Jr:

About half?

Sullivan:

A little less than half.

H.M.Jr:

Well --

Sullivan:

Not quite half.

H.M.Jr:

I am doing it in round figures. Now, if this thing

was applicable to twenty-three million, everybody
would have to pay something. I mean, beginning
with seven seventy-five, the fellow would pay a
dollar. Everybody would have to pay something.

Foley:

No, not necessarily. If the fellow had losses,
Mr. Secretary, he might offset his --

H.M.Jr:

Well, with that exception.

Blough:

Well, married persons with dependents would have

to file under this if they made more than fif-

teen hundred, but their dependents would leave
them out of paying any tax until they got maybe

301

-6nineteen hundred or twenty-three - hundred.

Those people would file and not pay.
H.M.Jr:

Well, let me put it this way, John. If you

follow me, or if I am up there and they say,

"Mr. Morgenthau, what about this, what about that,"
the very question of - who is going to answer
those for me? Who will be there to answer that
for me?

Sullivan:

I will.

H.M.Jr:

Will you be?

Sullivan:

Yes.

H.M.Jr:

And will you have some of this gang here? But
you are ready to answer it?

Sullivan:

Yes.

H.M.Jr:

Do you like it with that - the way it is now?

Helvering:

Well, of course I think there is a simpler way
to do it.

H.M.Jr:

How?

Helvering:

By just having the return filed.

H.M.Jr:

How do you mean?

Helvering:

Well, take our present ten forty A and leave
off - just put here, "Salary received and other
income," and have this table right on the back

of it.

H.M.Jr:

This table?

Helvering: Yes.

302

-7H.M.Jr:

Well, for my purposes for tomorrow, this is
so novel that this hits them. Now, you may
get to the point that you will have form which
will have the ten forty and this on the back
and you will say, "You can take either one or

you can have two separate forms." Those are all

things which you will have plenty of time to

work out.
Helvering:

Of course this will require legislation.

H.M.Jr:

Oh, sure. But I think that this will catch the

imagination of the people. After they read that

paragraph of Roy Blough's, what you have got to

go through to figure the damn thing out - incidentally, I wish you would put something in
there, just make a note - if you have this,
this means that the fellow with this income
doesn't have to - who can't afford to hire
either a high-priced lawyer or an accountant
to figure the damn thing out for him, he can do

it himself.

Helvering:

You will find too, it will help --

H.M.Jr:

Excuse me. Just leave out - I mean, where the
rich man, the man with the big income, can afford
to hire a lawyer and an accountant to figure

the thing out for him, the little fellow can't,

and it is almost as complicated, you see, Roy.

A little sentence on that. You neither being a
lawyer nor an accountant, you and I, we can put

that in. I didn't get any echoes, you see. Roy,
I meant to whisper it to you. (Laughter)

Blough:

It will be there.

H.M.Jr:

All right. Don't expect any lawyer to help

you write it, either.
Helvering:

The great majority of these people are people
that never keep any books anyhow.

303

-8H.M.Jr:

Sure.

Helvering:

And I think this will catch their imagination.
Rather than to try to keep count all through

the year when they have to make a return on
one day, they can go and see, if I make so much,

I pay just so much. It relieves them of all the
responsibility of keeping books.

H.M.Jr:

The other thing is this, Roy. If your figure
is right, that is about half of the wage earners
of the United States today. Miss Perkins said
there are thirty-nine million people at work
right now. I think those are her latest figures.

Now, when I talk about saving a billion dollars
of non-defense expenditures, these fellows don't
think it means anything to them, but if they
realize it means something to them and we don't
say they have got to increase their taxes,

maybe they will begin to get interested. That
is what I am really thinking about. Maybe I
can get twenty-three million people interested

in saving some money so I can say, "Look at this
thing. Now, of course, we are maybe going to

have to increase your taxes by fifty per cent
but if we could save some of this non-defense
stuff, maybe we wouldn't."

Sullivan:

Along the line of simplicity, Mr. Secretary,

the Committee this morning, a very large number

of them, strongly urged us to eliminate the
Defense Tax and put it into the personal rates

and save computations.
H.M.Jr:

It is all right.

Sullivan:

And I think either you or I ought to recommend
that in our statement.

H.M.Jr:

I don't care, either way.

304

-9Sullivan:

I think it would be a very popular thing to do,
and
the sensible thing to do, don't you, Mr.
Commissioner?

H.M.Jr:

Do you think it would come in to my statement?

Blough:

You could put in one short sentence in passing

in there, while you are at it, why not take this

Defense Tax out and consolidate it with the other?

Aside from that, it would sort of break in to
things if we take too much time for it.
H.M.Jr:

Try putting it in in one sentence.

Blough:

All right.

H.M.Jr:

Well, that is all I want. Are you going to be
up there tomorrow? I would like you to.

Helvering:

Yes.

H.M.Jr:

Bring some of your fellows with you.

Helvering: Yes.
H.M.Jr:

O.K.

305

ILLUSTRATIVE SCHEDULE OF FEDERAL INCOME TAXES
For Individuals with Total Incomes of Less than $3,000

Know Your Taxes -

875

876

900

7

9

901

925

11

926

950

13

951

975

15

976

1,000

17

1,001

1,025

19

1,026

22

1,076

1,050
1,075
1,100

1,101
1,126
1,151
1,176

1,125
1,150
1,175
1,200

28

1,201
1,226
1,251
1,276

1,225
1,250
1,275
1,300

24
26

30

36
39
41

43

1,326

1,350
1,375
1,400

47

1,451
1,476

$62
64

$1
2

income is:

From

49
51

53
56
58

60

-

-

-

-

-

Single
person

Married

person

$2,251
2,276

$2,275

$126

$59

2,300

128

61

2,301
2,326

2,325

130

63

2,350

132

65

2,351

2,375
2,400

134

68

136

70

3

68

4

1,601
1,626
1,651
1,676

1,625
1,650
1,675
1,700

70

77

10

,701
1,726
1,751
1,776

1,725
1,750
1,775
1,800

79

12

81

14

83

16

85

19

1,801
1,826
1,851
1,876

1,825
1,850
1,875
1,900

88

21

.90

23

92

25

94

27

1,901
1,926
1,951
1,976

1,925
1,950
1,975
2,000

96

29

98

31

100

33

102

36

2,001
2,026
2,051
2,076

2,025
2,050
2,075
2,100

105

38

107

40

109

42

111

44

2,101
2,126
2,151
2,176

2,125
2,150
2,175
2,200

113

46

115

48

117

50

119

53

2,201
2,226

2,225
2,250

122

55

73
75

6

2,376
7

8

-

-

To

Your tax 18:

66

-

34

45

1,425
1,450
1,475
1,500

-

-

1,325

1,401
1,426

-

32

1,301

1,351
1,376

person

-

-

1,051

person

-

851

-

5

-

850

Married

If your total

3

-

826

$1,525
1,550
1,575
1,600

Single

-

825

2

-

801

-

-

800

$1

-

-

776

$1,501
1,526
1,551
1,576

-

-

775

person"

To

Your tax is:

-

751

person

From

-

$750

Married

-

$1

Single

-

To

income is:

-

From

If your total

Your tax 18:

-

income 18:

-

If your total

124

57

2,401
2,426
2,451
2,476

2,425
2,450
2,475

139

72

141

74

143

76

2,500

145

78

2,501
2,526
2,551
2,576

2,525
2,550
2,575
2,600

147

80

149

82

151

85

153

87

2,601
2,626
2,651
2,676

2,625
2,650
2,675
2,700

156

89

158

91

160

93

162

95

2,701
2,726
2,751
2,776

2,725
2,750

164

97

166

99

2,775
2,800

169

102

172

104

2,801
2,826
2,851
2,876

2,825

174

106

2,850
2,875
2,900

177

108

180

110

183

112

2,901
2,926
2,951
2,976

2,925
2,950
2,975
3,000

186

114

189

116

192

119

195

121

For each dependent, subtract $400 from your total income and use the balance to
determine your tax.
Note: The taxes in the above schedule, which is purely illustrative, were calculated on the following
assumptions: personal exemption for single person, $750 and for married persons, $1,500; rates the same
as in H. R. 5417; tax for each income block is the average of the tax on the lower and upper limit of
the block, reduced by 10 percent as a rough equivalent for deductions from income; and the tax is shown
to the nearest dollar.

306
August 7, 1941
3:30 p.m.

RE TAX STATEMENT

Present:

Mr. Blough

Mrs. Klotz

Mr. Kuhn

H.M.Jr:

Let's get going, boys.

Blough:

I have written in suggestions from some other
people besides Ferdie, and I haven't gotten his

yet and I have tried to put on yours the suggestions I have gotten, if you can read my handwriting.
H.M.Jr:

You read out loud, please.

Blough:

"Mr. Chairman and members of the Senate Finance

Committee: My purpose in being here today is

to discuss taxation as an essential part of
national defense. Our great problem in providing
for the defense of the nation is fundamentally
the problem of production - of actually building

planes and tanks, ships and guns with labor,
management, machinery and raw materials. To

solve that problem, while at the same time pro-

tecting our economic foundations and democratic

institutions, our fiscal policy must be adapted
to the needs of the times."

H.M.Jr:

I will have him stop at each paragraph. If
anything doesn't ring right, you (Mrs. Klotz)
speak up.

Blough:

"On April 24, I discussed with the Ways and
Means Committee of the House, the need of producing $3,500,000,000 annually in additional

307

-2revenue. The Treasury Department presented a
suggested program for raising that amount of

money. The Ways and Means Committee worked

hard on the tax bill. As it is before you, it

will produce approximately $3,200,000,000" -H.M.Jr:

Wait a minute. Don't you think you could say,

"The Ways and Means Committee" - wait a minute,

don't write it out - "and Chairman Doughton,

would you pay him a little compliment?
Blough:

"Chairman Doughton and the Ways and Means
Committee."

H.M.Jr:

Don't you (Klotz) think it would be nice?

Maybe not, maybe the President wouldn't like

that. I would leave it out. Right? He might
not like it. Why go out of your way to say
something nice?

Kuhn:

He wasn't so sweet to you the other day.

Blough:

While we are at that point, Mr. Bell suggested
we might want to say that the Ways and Means
Committee worked hard and reported a bill which

raised that amount and then as it is before you

it is down to three, two. In other words,
I thought it complicated itself.

H.M.Jr:

Why don't you say it all in that sentence, "The
Ways and Means Committee worked hard on this

bill.'

Blough:

11

Well, originally we did more with it than that.
Maybe as it stands now it isn't worth much.

H.M.Jr:

I don't see why you say it at all.

Klotz:

I agree with you.

H.M.Jr:

You sort of drag it in by the tail. I would
leave it out. And another thing, appearing

308

-3before the Senate Finance, you say, "Well,

the Ways and Means Committee worked so hard,"

and they say, "Well, what do you think we do?"

I would cut it out.

Blough:

All right.

Klotz:

Definitely.

Kuhn:

John is going to throw some bouquets to them

H.M.Jr:

He would.

Kuhn:

Well, he should.

H.M.Jr:

It is all right. "But why come up and tell us

in his statement.

how hard the Ways and Means Committee worked?"
Blough:

I think you are right.
"As it is before you" --

H.M.Jr:

Henry would say, "Why should I worry about the

Ways and Means Committee?"
Blough:

Perhaps we should say, "As it passed the House,"

H.M.Jr:

That is all right, "As it passed the House."

Blough:

"This bill will produce approximately three
billion two hundred million annually in addi-

rather than, "As it is before you. "As it passed
the House, this bill will produce"

tional revenue. In my opinion, it is very im-

portant that the revenue yield be raised to at

least the original $3.5 billion level. It is
also important that the bill be passed as

promptly as possible. Income taxpayers and excess profits taxpayers should know as quickly

309

-4as possible what their taxes on 1941 income
and profits are going to be since over seven
months of the year have already elapsed. The
excise taxes and the estate tax cannot be imposed

retroactively and every day's delay in the passage of this tax bill costs the Treasury several million dollars in revenue from those
sources."

H.M.Jr:

That is a new sentence, isn't it?

Blough:

No, that has been in for some time.

H.M.Jr:

All right, go ahead. You (Klotz) speak up any
time.

Blough:

"The rapid developments of the last few months
have made this bill inadequate even before it
is passed. Since my statement before the Ways

and Means Committee, many things have happened.

Two and one half months ago, the President pro-

claimed the existence of an unlimited national
emergency. He called upon 'all loyal citizens

to place the nation's needs first in mind and in

action to the end that we may mobilize and have

ready for instant defensive use, all of the
physical power, all of the moral strength,
and all of the natural resources of this nation'".
H.M.Jr:

Is that new?

Blough:

No, but that doesn't necessarily make it good.
I will indicate when we come to the new things.

H.M.Jr:

It is all right.
I think it is all right.
It is true. All right.

Klotz:
H.M.Jr:
Kuhn:

There is only one other thing, you might put it

in later.

310

-H.M.Jr:

Oh, no, unless it is something major, I am not

Blough:

"Since I appeared before the Ways and Means

going to fuss with it.

Committee" -- you will notice this is repeated.

"Since I appeared before the Ways and Means

Committee, the amount of appropriations, authorizations and recommendations over and above the
Budget has increased by about $14,000,000,000,

thus completely changing the fiscal picture and
greatly increasing the need for revenue."

H.M.Jr:

Just make a note to yourself, "Mr. Morgenthau
supposing you applied for two thirds and one
third, how much taxes would you have to raise?"

Just have it there for me.

Blough:

The next sentence Harry White doesn't like very

well.

"Since I appeared before the Ways and Means

Committee, prices and cost of living have increased at an accelerated rate, thereby accentuating the need for a strong fiscal program."

H.M.Jr:

He doesn't like that?

Blough:

He didn't think it tied in with the next sentence,

which is, "In the light of these developments

in the direction of 'all out' defense,"

Kuhn:

Suppose you said, "These and other developments"?

Blough:

His idea was that the cost of living wasn't in
the direction of all out defense.

Flotz:

That is true.

Blough:

It is really developments of an all out defense.

Kuhn:

Resulting from an all out defense.

311

-6Blough:

Maybe that would cure it.

H.M.Jr:

Well, "Since I appeared before the Ways and

Blough:

I like it. I wish it would stay.

H.M.Jr:

"In the light of these developments" --

Blough:

Means Committee, prices" - that is all right.

What I would like to say in the next sentence,
change it this way - as Mrs. Klotz suggested,
"In the light of these and other developments
of an all out defense program," something like

that. "I should like to point out" --

Klotz:

"Resulting from" --

H.M.Jr:

You (Blough) and Ferdie can fix that up. I
think you are perfectly right. You see, we cut
out practically everything about inflation and
so forth and so on. I go up there and I am
talking about taxes. I don't say a thing about

the cost of living.

Klotz:

Well, I agree on this sense, though. It is
really dragged in there.

H.M.Jr:

Well, what has happened, it is a condensation

of about five pages on inflation. They have
got it down to one paragraph. That is the
trouble.

Blough:

I stuck some more on the end, Mr. Secretary.

H.M.Jr:

I am willing to say it. I think it is important.

Blough:

"In the light of these and other developments in

the direction of all out defense, I should like
to point out what, in my opinion, will be necessary in all out taxation to support such a
program.

"First of all, we shall need more revenue," --

312

-7H.M.Jr:

That is a new phrase.
much more revenue. The defense program

11

Blough:

is an absolute necessity. It must be paid for.
Insofar as possible, it should be finally paid
for now."

H.M.Jr:

That is new.

Blough:

No.

H.M.Jr:

"Should be finally paid for now"? I would leave
out the word "finally".

Kuhn:

Meaning, we shouldn't pass it on to future
generations.

H.M.Jr:

Why not, "Insofar as possible it should be paid

Blough:

That gives the sense. The idea was, you pay for
it in money and then you have to go back later

for now"? I don't like the "finally"

and get it in taxes.
"Insofar as possible, it should be paid for now.

Borrowing should be kept to a minimum to maintain

our present fiscal strength. The rise in the

Federal debt merely means that the taxpayer's
burden is being postponed - that both principal

and interest must be paid later out of higher

taxes collected at a time when they may be harder

to pay and less willingly paid than now.
Klotz:

Very good.

Blough:

"Along with increased taxation should go the
maximum reduction in the ordinary non-defense
expenditures of Government. The burden of paying

for defense is so heavy that it should be relieved
at every possible point.'

313

- -8 Kuhn:

I only wondered if it was strong enough in view
of the way you have gone at it before.

H.M.Jr:

I think so. I think it is all right.

Klotz:

I think so.

Blough:

"Increased taxation is needed also to maintain
economic stability."

H.M.Jr:

One moment, please. All right. "Increased

Blough:

"......is needed also to maintain economic

taxation," what?

stability. Rising purchasing power is exerting
increasing pressure on the prices of many kinds
of goods, while at the same time production of
these goods is being increasingly curtailed

by the necessity of diverting our resources to
defense uses. This complication of increased

demand and restricted output threatens to cause

inflationary price rises."

That is new and Herbert Gaston thought something

was needed there and that seems to do it.
Kuhn:

H.M.Jr:

It is wise, Roy.
There is just one thing here. "Increased taxa- "
tion is needed to maintain economic stability.
Well, haven't we talked about economic stability
earlier?

Blough:

It was fiscal strength before.

H.W.Jr:

Oh, all right.

Blough:

"This larger needed revenue should come from all

sources where there is ability to pay - that's

what an "all out" tax program means.

Do you want to contract that "that" to "that's

what it means"?

314

-9H.M.Jr:
Blough:

It is all right.
"The people of this country have never been
more ready to make sacrifices for the common
good. Our tax program has not kept pace with

the defense program - we are still thinking too
much of helping this group or that to escape its
share of the burden. We have now come to the

point where it is a matter not merely of fundamental equity, but of the utmost necessity that
all exemptions from taxation be reduced to the
absolute minimum."

Kuhn:

Blough:

I like that. It is good and strong.
"An 'all out' tax program for defense should
reach ability to pay at several points not now
fully tapped.
"1. In my opinion such a tax program might well
involve a substantial lowering of personal exemptions and a consequent broadening of the base

of the income tax, if at the same time we take
immediate steps to remedy defects in the applica-

tion of the principle of ability to pay in other
parts of the tax structure."
"

H.M.Jr:

Blough:
Kuhn:

Do you mind, instead of saying "at the same time,"
say "simultaneously"?

Not a bit.
You might want to shorten that. "If at the same
time we apply the principle of ability to pay

to all parts of the tax structure." It just
cuts out a couple of lines.

H.M.Jr:

It is all right the way it is.

Blough:

"In my opinion such a tax program might well
involve a substantial lowering of personal exemptions and a consequent broadening of the base

315
- 10 of the income tax if simultaneously we take
immediate steps to remedy defects in the

application of the principle of ability to pay
in other parts of the tax structure. Under the

bill before you the base has been broadened to add
about two million new taxpayers, but even so there

will remain a relatively large proportion of

the population in the lower income groups which

will not be directly affected by the income
tax. A further lowering of the exemptions would
produce some additional revenue and in addition

it would give millions of Americans an opportunity a welcome opportunity, I believe - to make a direct
contribution through taxes to the defense of
their country." 11

H.M.Jr:

Cut out the word "I believe". "A welcome oppor-

Blough:

That is Gaston.

tunity."

"It would enable them to feel that they were

participating" - he fixed this paragraph up.
"It would enable them to feel that they were

participating personally directly in the defense program.

H.M.Jr:

Let me see. "Further lowering of the exemptions
additional revenue and in addiAmericans a welcome
would
tion
would
givethrough
opportunity taxes
to make a direct produce
contribution

for the defense of their country. It would

enable them to feel that they were participating
personally and directly in the defense program.
Klotz:

That is very good.

H.M.Jr:

It is all right.

Blough:

"But I believe this Committee will agree with

316

- 11-

me that we ought not to accept such sacrifices,
even though willing sacrifices, from millions
more of persons with low incomes on whom the

burden of other types of taxes falls" --

H.M.Jr:

"Millions more," no. "From millions of additional
persons," if you want to say it, but not
"millions more of persons". "Millions of additional persons.

Klotz:

No, I don't like that.

H.M.Jr:

You don't like that?

Klotz:

Not "additional persons".

H.M.Jr:

Then just say, "From millions of persons".

Kuhn:

"Millions with low incomes."

H.M.Jr:

"Millions of persons with low incomes." Leave

out "more".

Klotz:

What do you mean, persons?

H.M.Jr:

The people.

Klotz:

I don't think you need anything.

Kuhn:

"From millions with low incomes.

Klotz:

That is right. It has got to be persons.

Kuhn:

It can't be anything else.

H.M.Jr:

No, I think you have got to have to put it in.

Blough:

We might get a little mixed up with millions
of dollars and incomes and that sort of thing.
"Millions of people."

H.M.Jr:

Yes.

317

-12-

Blough:

with low incomes on whom the burden of

other types of taxes falls most heavily,

unless through proper tax reforms we reach

in other places ability to pay which is escap-

ing its fair share of taxes.

Now, we are saying that for the second time,
but you wanted to say it several times.
H.M.Jr:

Did Gaston write that?

Blough:

Yes.

Kuhn:

Do you need "through proper tax reforms," Roy?

"Unless we reach" - if it is escaping, obviously

we have to reform.
Blough:

No, I don't think we need that.

Kuhn:

It shortens it just a shade.

H.M.Jr:

All right.

Blough:

"Among these are the following:"
Now, Foley suggested maybe the numbers ought

to start here, but I don't know.

H.M.Jr:

I don't care.

Blough:

I have no opinion myself.

H.M.Jr:

No. Well, you fellows decide it.

Blough:
Kuhn:

All right.
It is O.K. this way.

H.M.Jr:

I don't care.

Blough:

And also on the next paragraph on excess profits,
he thought we ought to have an example.

I

318

- 13 didn't put an example in. You asked to have

it short.

H.M.Jr:
Blough:

I don't want an example.

"2. The excess profits tax exempts profits of

even the most prosperous corporation, except

to the extent that such profits are in excess
of its average profits for the years 1936-1939." If
Does that make sense?

H.M.Jr:

Yes.

Blough:

"Surely Congress will not wish to impose additional
taxes on millions more of our low income group,
unless we also impose the excess profits tax
on the exempt excess profits of such corporations."

Kuhn:

"Unless it also imposes." We aren't imposing.
Congress is imposing.

Blough:

"3. Families. "-Now this one is that joint return. "Families
pay lower Federal income taxes when both husband and wife receive income than when income is

received by only one of them."

H.M.Jr:

Now, wait a minute.

Klotz:
H.M.Jr:

I don't get that.
I don't either.

Blough:

Then I didn't get it right. Let me read the

rest of the paragraph and we will come back.

H.M.Jr:

All right.

Blough:

"This is a discrimination of which many wealthy
people have taken advantage by large gifts of

319

- 14 income producing property between husband and

wife. Furthermore, in at least eight states

of the Union, the Federal income taxes are
made substantially lower than in the remaining

states because the local law permits the split-

ting of incomes between husbands and wives.

Here are discriminations against the rest of the
taxpayers which I believe your Committee will
agree must be eliminated if we are to extend
the income tax downward to include millions of
new persons with low incomes. The discriminations
can be eliminated by requiring husbands and wives

to file a single joint return with appropriate

relief granted only where both husband and
wife work outside the home.

The first sentence, though, doesn't click.
Klotz:

I had to wait until the very end to get the full

meaning of it.
H.M.Jr:

Take your time and fix up that first sentence,
but you have got the idea. You see what they

had before, he left it just with the eight

community property states, he didn't do the

other thing, but I am more than willing to leave

it to the two of you.

Blough:

It is a matter of clarifying that idea, but

you do believe, as I understand it, that

where husband and wife both receive income,

that it is a discrimination if their tax isn't

the same as where one of them alone receives it,
except where they are working?

H.M.Jr:

Yes, to the extent of three hundred million
dollars.

Blough:

Well, it is a question of fundamental view,
and we wouldn't want to misinterpret you.

320
- 15 H.M.Jr:

Wait a minute, that is just what the President

said in his letter and that is what Sullivan
said on the Hill representing me.

Blough:

That is right.

H.M.Jr:

They went over there and the President said,
"Where did you stand?" And they said, "This

is where we stood." And he put that in his letter.

Blough:

There is this difference, that some people are
in favor of joint returns because of community
property and one or two other things and in

spite of the fact that it will mean other joint

incomes, but as I understand it, you are in
favor of it primarily because of the main thing,

which is that husband and wife both receive
income and that income ought to be joint?
H.M.Jr:

No, I am only in favor of it because this is

something which under the present law I benefit

Klotz:

by. Therefore, I have got to be against it.
That isn't so.

H.M.Jr:

Sure. The way it is now, I benefit.

Klotz:

But that is not why you are against it.

H.M.Jr:

That is why I have got to say - because I bene-

fit by this loophole I have got to be for

closing the loophole. Don't you follow me?

Klotz:

Yes, I follow you but that is not the basic
reason for it.

H.M.Jr:

Isn't it?

Klotz:

Sure, it isn't.

H.M.Jr:

It is a very important one. In other words, I
have got a rule of thumb. If I benefit by any
particular provision of the tax, I have got to
be against it.

321

- 16 Klotz:

That is right.

Kuhn:

Put it the other way. If a lot of rich people

get away with murder, then you are against it,

aren't you?
Klotz:

That is right.

H.M.Jr:

Well now, I am having my little fun, but the
only - I will be very serious. The only way

you can keep this kind of - form of Government

is that you make it more and more difficult for
the very rich people to escape their share of
taxes while they live, and their inheritance
taxes when they die. You have got to eliminate
at the top these people and if you do that, then
you can keep a happy nation. If you don't do
it, you are not going to keep a happy nation.
The most striking example I have ever seen of

the thing and it seemed to work, but I don't

know how long, was in Sweden where you have your

Countesses and your Barons living on their estates,
and at the same time you have got the strongest
cooperative movement in the country who dominate
the Parliament.

Kuhn:

H.M.Jr:

There are no extremes of riches or poverty there.

True, but they had three billionaires there,
I think. They had three people with several
hundred million dollars. Then you have got
these Barons living on their land. Then you

have got the lower strata which as Kuhn said,

where there is no poverty. It is an amazing

situation, but there is only six million people,
that is the answer.

Elough:

.Jr:

Well, I think I can get it now.

I have got to be a little facetious. You can't

be so serious all the time. But when you get

322
- 17 -

right down to the thing, you have got to gradually remove the people at the top through
democratic processes. Now, if you do that
and don't do it the way they do it in Germany,
through capital levies, then this kind of Government can continue to live. We can approach in
some respects Sweden where we have - take it

off the top and put it on the bottom. That
is my rule of thumb.

Kuhn:

Better still, if the people at the top understand
the need of it better than they do in other
countries.

H.M.Jr:

They will in the next life. (Laughter)

Kuhn:

Maybe.

Blough:

Sometime I would like to follow that statement
up, Mr. Secretary, by pointing out how the estate
and gift taxes need serious patching un in order

to prevent a terrifically big loophole that
is now present.

H.M.Jr:

Not this statement, but this is the place to

Blough:

Thank you.

do it. I invite it.

"4. For years, the concerns engaged in extracting

certain of our natural resources, notably oil,

have been granted far greater allowances for
depletion than can be justified on any reasonable

basis of tax equity. If the income tax is to be
extended to lower incomes, this privilege of
tax escape should first be removed.

Kuhn:

The word "first" is new, isn't it?

Blough:

Maybe simultaneously we moved once before.

323
- 18 H.M.Jr:

Keep using the word "simultaneously".

Kuhn:

"First" means that you can't put on a lower
exemption.

H.M.Jr:
Blough:

No.

"5. A few months ago, the Congress eliminated
the tax exemption privilege from new issues of
Federal securities. The purchasers of new state

and local securities still enjoy this exemption.
The exemption was inequitable and expensive in

more normal times. It cannot be borne longer

in a time like this, and especially if we are

to increase the direct tax burdens of persons
with small incomes."
We will keep harping on that.
H.M.Jr:

That is right.

Blough:

"6. In its suggestions to the Ways and Means

Committee, the Treasury recommended substantial

increases in estate and gift taxes, and lower
exemptions. In part, this recommendation was
followed, but, in my opinion, the estate and
gift taxes should reach more estates and provide
more revenue if we are going to tax smaller
incomes.

"Those are some of the things that I mean when

I say that an 'all out' tax program for defense
must go far beyond the present bill."
H.M.Jr:

Now, you left out the President of the United
States at the proper place on this business.

Blough:

I did?

H.M.Jr:

On purpose?

324

- 19 Blough:

No, indeed, I did not. It is purely an over-

H.M.Jr:

Well, please bring it in right at the beginning

sight, Mr. Secretary.

where we first talk about it. I think it is
under number one. Wherever it is. "As the
President said" --

Kuhn:

And then you want to quote him again on the

H.M.Jr:

That is right, we will do it twice. You say
it is an oversight?

Blough:

H.M.Jr:

Kuhn:

simpler form, don't you, later on?

It was a pure oversight, and I would have
undoubtedly caught it before it was final, but
I should have caught it this time.
You are excused. Do it twice, the second time
where you say a person ought to be able to do
it in a simple way. Do you agree, Ferdie?

Yes. I wouldn't do both Presidential quotations
at the beginning or you give away your simple
form.

H.M.Jr:
Blough:

One applies to one and the other applies to

the other. Divide it in half.
I think it is a very good thin to do, and I
certainly didn't leave it out just to get it
out.

H.M.Jr:
Blough:

H.M.Jr:

Granted.

You don't want to go beyond this estate and gift
tax statement here? I mean, this is no time
to go into any further elaboration.
This is enough.

325
- 20 Blough:

"There is another condition which I would attach
to lowering the personal exemptions."

This is Gaston's addition and I think it is
good.

"I think we ought not to take into the income

tax system millions of new taxpayers with small
incomes without simplifying the ways in which
their tax is computed.
"Take, for example, a person with a $900 salary."

H.M.Jr:

This is the most amazing thing. You would think

he had faked it. You don't think it could be
so.

Blough:

"Under the present law he first figures out what
deductions he has" - you see, I started --

H.M.Jr:

May I interrupt you? There was this paragraph

with no explanation, so I invited him to the
house and said "I want to go to school. Will you
please explain to me how this is done?" After
he gave me the explanation which he is going to

read now, I said, "This just can't be. We

have got to do it some other way," and it was
that explanation which he gave me at breakfast
and I said, "It can't be done this way, we have

got to do it some simpler way," " which gave me the

idea of the table, you see. Go ahead.

Blough:

I don't mention the income to begin with because

that is what you want to begin with. I simply

begin where you are going to stop.
H.M.Jr:

That is right.

Blough:

"Under the present law he first figures out
what deductions he has - taxes paid, interest
paid, contributions and so on. Then he computes

326

- 21 his earned income credit. Then he subtracts
his personal exemptions from his income after
deductions. On the balance, under rates of
the bill before you, he computes a surtax at
5 per cent. Then he goes back to the income
and deducts his earned income credit. On the
balance, he computes a normal tax at 4 per cent.
He then adds the normal tax and the surtax and

takes 10 per cent of the total for defense tax.

He adds the defense tax to the normal tax and

surtax and finally arrives at his income tax.'

Klotz:

That is marvelous. That is wonderful.

H.M.Jr:

When he did that to me at breakfast, I said,
"It just can't be so. How can you expect
anybody to figure a thing like that, a working
man or a postmaster?"

Klotz:

That is marvelous.

Blough:

I don't know how you will like this next.
"When he started to fill out his return, he
may have been full of patriotic enthusiasm

to pay his share toward the defense program,

but by the time he has finished his last computation he may well be in a towering rage or
a state of mental collapse.

Is it too strong?
Kuhn:

A little bit.

Blough:

What would you do with it?

Kuhn:

"By the time he has finished his return, much
of his patriotic enthusiasm may have evaporated

under the strain," or something like that.

327

- 22 H.M.Jr:

"By the time he has finished his computation,
he may well be in a state of both mental and
physical exhaustion." "

Kuhn:

It is more than that. You destroy his willingness
and his cheerfulness by imposing this additional

fussing on him. He starts out with perfectly

good cheerful emotions, and by the time he has
gone through this -H.M.Jr:

He says, "To hell with the Government." Deems

Taylor last night said to us, "It is the Govern-

ment who is against us on the tax thing," you
see. I mean, when you get through, he says,
"Oh, to hell with the Government."
Kuhn:

That is right, and that is what this schedule

H.M.Jr:

You fix those things up.

Klotz:

I don't agree, but it is all right.

Kuhn:

You don't agree?

Klotz:

No, because I don't think he becomes unpatriotic

is --

because he has to do all that figuring. He

becomes unpatriotic when he gets through and
finds out how much he has to pay.

Kuhn:

I think it exasperates him.

Klotz:

Yes.

Kuhn:

But he starts without being exasperated.

Klotz:

Well, I don't know.

Kuhn:

All right, I am going to do my share.

Klotz:

It may be a good point.

328

- 23 H.M.Jr:

I think for this purpose it is a good point to

Kuhn:

All right.

Blough:

"It is difficult enough for persons with substan-

say how he is willing to do his share but, by
the time he gets through with the thing, his
enthusiasm is gone, something like that. I
am willing to leave it to you fellows.

tial incomes who are used to dealing with financial papers and to making computations of this

kind to fill out their tax returns and compute

their taxes. The person with a small and simple
income should not be put to this necessity of

making elaborate computations.
H.M.Jr:

You didn't put in what I told you.

Blough:

That was at two thirty.

H.M.Jr:

Tell Mrs. Klotz about it.

Blough:

To the effect --

H.M.Jr:

I will put it in. "It is difficult enough for

persons with substantial incomes who are used
to dealing with financial papers and who can

afford to hire lawyers and accountants.

Klotz:

That is right, I agree with you.

H.M.Jr:

"Who can afford to hire high priced lawyers and

accountants.

Blough:

"To make his computations for him."

H.M.Jr:

"Who can afford to pay high priced lawyers and
accountants to make his computations for him."

Klotz:

You will have them all down on you.

Blough:

Oh, no, they like to be told that.

329

- 24 Kuhn:

Not the lawyers and accountants, do they?

Blough:

Oh, sure, they want people to think you need
lawyers and accountants to fill in your income
tax blanks. Every night when they go to bed

they pray for the Federal income. May it be

more difficult. (Laughter)
H.M.Jr:

"The person with the small income" - leave out

"simple" - "should not be put to this necessity

and expense, of making elaborate computations.
Kuhn:

We don't need "elaborate computations". Just
"necessity and expense".

H.M.Jr:

Just "necessity and expense" - and "undue expense".

Klotz:

No. It is under --

H.M.Jr:

Just "necessity and expense".

Blough:

That is a little bit stronger.

H.M.Jr:

Simpler is always stronger.

Blough:

I am trying to think at what point we had better

get the President in here. A little later,
I believe.

H.M.Jr:

Well, you can work that in.

Blough:

"Furthermore, the checking of these tax compu-

tations by the administrative authorities takes

time. Frequent errors are found which must be
rectified requiring correspondence and further
annoyance of the taxpayer as well as expense to
the Government.

"For taxpayers with relatively large incomes,

refinements in determining income and computing

taxes" --

330
- 25 H.M.Jr:

Excuse me. Couldn't you say right after that,
"We in the Treasury don't enjoy heckling the

taxpayer any more than he enjous being heckled."

Kuhn:

That is good. That is good will.

H.M.Jr:

"We in the Treasury don't enjoy heckling the

Klotz:

You know what the comment will be. "You may

taxpaper any more than he enjoys being heckled."

feel that way, Mr. Secretary, but I have dealt

with Internal Revenue. "
H.M.Jr:

Well, again, it pays me much more to spank my

Kuhn:

Hectoring. Heckling is oratorical. Hectoring

H.M.Jr:

Pestering?

Kuhn:

Blough:

H.M.Jr:

child --

is bothering, pestering.

Pestering is all right.
It is good in the Middle West. I don't know
how it is here.
That is a good word, pestering.

Blough:

pestering the taxpayer any more than he
enjoys being pestered."

H.M.Jr:

Pester.

Klotz:

I like the word "annoy".

Blough:

"Pestering" means keeping at it like henpecking.

H.M.Jr:

Yes, I like it.

Blough:

There are all kinds of ways of annoying people,

"

ft

but pestering is the thing we do.

I

331

- 26 H.M.Jr:

If you get a better word before we get through --

Klotz:

It is all right.

H.M.Jr:

You don't like it?

Klotz:

No, but that is all right, it is not important.

Kuhn:

Fussing at a taxpayer?

H.M.Jr:

No, I like the word "pestering".

Blough:

Henpecking?

H.M.Jr:

That is another kind of thing.

Blough:

"For taxpayers with relatively large incomes,

refinements in determining income and computing

taxes are troublesome but are necessary in the

interest of equity."

We may be able to smooth that a little bit.
"For small taxpayers, however, especially those

now taxed for the first time, these refinements
are cumbersome and confusing without serving

any important purpose. The income taxes of
millions of people can be determined with
acceptable accuracy by less involved methods."
Kuhn:

This is where I would put in the President.
"As the President said, it should be possible
to compute these taxes on a simple form by
simple methods."

H.M.Jr:

A direct quote?

Kuhn:

Yes.

Blough:

"For such taxpayers, a simple table could be
provided with the aid of which the small taxpayer

332
- 27 could compute his tax bill in a very few moments.

He would be spared time, trouble and annoyance
and the Government would be spared expense.

"To indicate more clearly what I have in mind,

I have had prepared a sample table showing how

this might be worked out in practice. This is

only a preliminary table, and improvements and

changes will no doubt be desirable, but it will
illustrate how the proposal can be applied."

Now I go in to the end of it.
"The taxes imposed by the bill before you are
very heavy; the taxes of an all-out program

would be even heavier. 11
Kuhn:

At that point, you have had prepared a table

and it will illustrate. will you then go to
the table and produce it --

I.M.Jr:
Kuhn:

I will distribute it.
And there will be a big one up there that you
can point to, because there are people in the
Committee room --

H.M.Jr:

We can have enough to give everybody in the room
a copy.

Blough:

H.M.Jr:

That Committee room is a little hard to use a

wall chart with.

You can have enough copies to distribute them
around.

Kuhn:

I see,

H.M.Jr:

You can distribute them around, have Chick Schwarz
go around and hand them out.

333

- 28 Blough:

Now, it is your intention to withhold those?

H.M.Jr:

Until I reach this point.

Kuhn:

And then you distribute them and ad lib?

H.M.Jr:

Sure.

Blough:

"The taxes imposed by the bill before you are
very heavy; the taxes of an all out program would
be even heavier. I am convinced that the people
are not opposed to heavy taxes, that in fact they
favor heavy taxes because they know that the
alternatives are much more onerous. At a time
when expanding incomes are operating to force
prices upward, all kinds of measures must be
employed if prices are to be kept under control.
Without heavy taxation the other measures have
little chance to succeed.
"Rising prices would take much more" --

H.M.Jr:

Wait a minute. Go ahead.

Blough:

"Rising prices would take much more away from

our people now and in the future than higher
taxes now will take."
"

H.M.Jr:
Blough:

Wait a minute. All right.
"Under the tax bill in its present form, a

married couple with no dependents, having a net

income of $5,000 a year will have its Federal
income tax increased by $198, or 4 per cent of

its income. If two-thirds of the family's income is spent on items affected by a changing

cost of living, an increase in the cost of
living of per cent would impose as great

an additional burden on this family as would
the proposed income tax."

334
- 29 There Roy, would it be better to say, "Assuming
that two-thirds - of the family's income would be

Kuhn:

spent"?

H.M.Jr:

Just let me get the drift. You can fix it up.

Blough:

"The cost of living index has increased 53
per cent in less than a year, since September

1940. It is clear from this simple illustration
that rising prices tax the family income just
as surely" --

H.M.Jr:

Excuse me. The cost of living index has increased
53 per cent since September, 1940?

Blough:

Yes.

"It is clear from this simple illustration that

rising prices tax the family income just as
"

surely as do income taxes.

H.M.Jr:

You see, this is new.

Klotz:

Yes.

Blough:

It is taken out of that material yesterday.
"Although as prices rise, the incomes of some
families will increase, many incomes will not

increase and most incomes will not increase as
fast or as much as prices.

"If in an attempt to protect the incomes of
our people we hold down taxes and as a result

Jr:

the cost of living rises, we shall have taxed them
just as surely as if we had levied on them directly,
- and we shall still have the costs of defense
to pay later from taxes."
I want to get over that the costs of defense
will go up too.

335
- 30 Kuhn:

You have that in, don't you?

H.M.Jr:

But right here. We will still have the increased

Kuhn:

"Swollen costs."

H.M.Jr:

"The inflated costs."

Kuhn:

That is right.

Blough:

That ties it right in.

cost of defense."

H.M.Jr:

"The inflated costs of defense." That is good.
"The inflated costs of defense."

Blough:

Now to try to put in a peroration.
"An all-out tax program will foster public morale in an all-out defense program. By reducing
the necessity for borrowing it will strengthen
confidence in the impregnable fiscal position
of the Government. By contributing to the con-

trol of prices it will help prevent the demoralization which would result from inflation. By

distributing the defense burden equitably it
will help avoid the bitterness and dissatisfaction
that raises when the many must carry as extra

burdens the taxes which the few escape. It will
make all the people equal partners in the
defense of our country.
"

H.M.Jr:
Blough:
H.M.Jr:

I had a little in the other.
I think -That I don't like as well.
"By contributing to the control of prices it
will help prevent demoralization as a result
of inflation." That is truly a defense burden --

336

- 31 Kuhn:

I like it very much.

Klotz:

So do I.

H.M.Jr:

It is very good. That is the fifth draft.

Blough:

You have been very patient, Mr. Secretary.

H.M.Jr:

No, it is the other way around. You have been

very industrious in your work. "It will make
all the people equal partners" - I want to put
in, "in sharing the costs of the defense of our
country."

Kuhn:

"Paying for the defense."

H.M.Jr:

Just think of that. We are talking about the
taxes. Wouldn't that be the thing? Now how is
the last sentence?

Blough:

The last sentence is, "It will make all the people
equal partners in paying for the defense of our
country, 11 or if you prefer, "in sharing the costs
of the defense of our country.

H.M.Jr:

Read it both ways again.

Blough:

"It will make all the people equal partners in

H.M.Jr:

And the other way.

Blough:

"It will make all the people equal partners in

sharing the costs of the defense of our country."

paying for the defense of our country."

H.M.Jr:

Which way do you like?

Klotz:

I think I like yours.

Kuhn:

"Paying" is an unpleasant word, and "sharing"

is a pleasant, positive one. That is right.

337
- 32 H.M.Jr:

I think it is fine.

Blough:

Are you willing to give it?

H.M.Jr:

One little thing. Were you going to put in
this thing that I suggest we drop the ten per
cent or let Mr. Sullivan do that?

Kuhn:

They will ask you questions about that table,

won't they?
Blouch:

Why don't you let that be taken care of otherwise?

H.M.Jr:

I think so, too.

Blough:

You are making your contribution to simplicity.

H.M.Jr:

Isn't this the - this is the fifth draft, isn't

Blough:

I think it is the fifth one you have seen.

H.M.Jr:

Yes.

Blouch:

I will never forget the one in the spring of

it?

1939.
Kuhn:

I have been hearing about that.

H.M.Jr:

What was that?

Blough:

That was Johnnie Haines' article.

H.M.Jr:

I think you have done a swell job.

Blough:

Ne will fix this up then. Are you going to
see it again before it is typed up?

K.M.Jr:

No, just this. Have it typed on the kind of

type that I can read, and see that it is on my
desk - well, how can I get it so if I come down

338
- 33 -

here the first thing in the morning? Does anybody go home my way tonight?

Kuhn:

I do.

H.M.Jr:

Well, you are not going to be here while the

Kuhn:

Well, I will be here for certainly a couple or

H.M.Jr:

I will tell you what I would like. I would like

Klotz:

You are going to do it on the very large type.

girl types it?

two and a half hours.

it just put on my desk so when I walk in here
tomorrow morning it is here.
Do you know the difference?

Kuhn:

Yes, I know.

H.M.Jr:

And just see that it is left on my desk. I don't
want it sent to the house. Put it here so that
when I come in tomorrow morning it will be here.

Klotz:

Supposing you want to read it the first thing
in the morning?

H.M.Jr:

I am coming down here to read it. I will get

down here - I will come down here and I will be

Klotz:

here in plenty of time to read it. It doesn't
take long, you see. Do you like it?
I think it is a swell statement.

Kuhn:

Nobody can be in doubt what you want.

Klotz:

No.

Kuhn:

You want --

H.M.Jr:

If I am down here at eight thirty and I read

339
- 34 -

it once
to
do.
Klotz:

in fifteen minutes, that is all I have

You sometimes wake up very early and there may

be something in it you don't like.

H.M.Jr:

No, I don't want to wake up early.

Blough:

We can get it out to you tonight, Mr. Secretary,

H.M.Jr:

I would like to have it on my desk.

Blough:

Yes, sir.

if you want it.

a

340

Statement of Secretary Morgenthau before the Senate
Committee on Finance, Friday, August 8, 1941.

3:15PM
8-7-41
Mr. Chairman and members of the Senate Finance
Committee: My purpose in being here today is to discuss

taxation as an essential part of national defense. Our
great problem in providing for the defense of the nation

is fundamentally the problem of production - of actually
building planes and tanks, ships and guns with labor,
management, machinery and raw materials. To solve that
problem, while at the same time protecting our economic

foundations and democratic institutions, our fiscal
policy must be adapted to the needs of the times.
On April 24, I discussed with the Ways and Means
Committee of the House, the need of producing $3,500,000,000

annually in additional revenue. The Treasury Department
presented a suggested program for raising that amount of
money. The Ways and Means Committee worked hard on the

tax bill. As it is before you, it will produce approximately $3,200,000,000 annually in additional revenue. In

my opinion, it is very important that the revenue yield

be raised to at least the original $3.5 billion level.
It is also important that the bill be passed as promptly
as possible. Income taxpayers and excess profits taxpayers should know as quickly as possible what their taxes

potat of at noc. - 17/41
subrence.

like

341

-2-

a

on 1941 income and profits are going to be since over
seven months of the year have already elapsed. The ex-

cise taxes and the estate tax cannet be imposed retroactively

and every day's delay in the passage of this tax bill costs
the Treasury several million dollars in revenue from those
sources.

The rapid developments of the last few months have

made this bill inadequate even before it is passed. Since
my statement before the Ways and Means Committee, many

things have happened. Two and one half months ago, the

President proclaimed the existence of an unlimited

national emergency. He called upon "all loyal citizens
to place the nation's needs first in mind and in action
to the end that we may mobilize and have ready for instant

defensive use, all of the physical power, all of the moral
strength, and all of the natural resources of this nation."
Since I appeared before the Ways and Means Committee,

the amount of appropriations, authorizations and recommendations over and above the Budget has increased by
about $14,000,000,000, thus completely changing the fis-

cal picture and greatly increasing the need for revenue.
Since I appeared before the Ways and Means Committee,

prices and the cost of living have increased at an aocelerated rate, thereby accentuating the need for a strong

342

-3fiscal program.

In the light of these developments in the direction

of "all out" defense, I should like to point out what,
in my opinion, will be necessary in "all out" taxation
to support such a program.

First of all, we shall need more revenue, much more
revenue. The defense program is an absolute necessity.

It must be paid for. Insofar as possible, it should be
finally paid for now. Borrowing should be kept to a
minimum to maintain our present fiscal strength. The
rise in the Federal debt merely means that the taxpayer's
burden is being postponed--that both principal and inter-

est must be paid later out of higher taxes collected at
a time when they may be harder to pay and less willingly
paid than now.

Along with increased taxation should go the maximum

reduction in the ordinary non-defense expenditures of
Government. The burden of paying for defense is so heavy

that it should be relieved at every possible point.
Increased taxation is needed also to maintain 000-

nomic stability. Rising purchasing power is exerting
increasing pressure on the prices of many kinds of goods,
while at the same time production of these goods is being

increasingly ourtailed by the necessity of diverting our

343

-4-

a

our resources to defense uses. This complication of increased demand and restricted output threatens to cause

inflationary price rises.
This larger needed revenue should come from all

sources where there is ability to pay -- that's what an
"all out" tax program means. The people of this country
have never been more ready to make sacrifices for the
common good. Our tax program has not kept pace with

the defense program -- we are still thinking too much

of helping this group or that to escape its share of
the burden. We have now come to the point where it is

a matter not merely of fundamental equity, but of the
utmost necessity that all exemptions from taxation be
reduced to the absolute minimum.

An "all out tax program for defense should reach

ability to pay at several points not now fully tapped.
1. In my opinion such a tax program might well involve a substantial lowering of personal exemptions and
a consequent broadening of the base of the income tax,
if at the same time we take immediate steps to remedy

defects in the application of the principle of ability
to pay in other parts of the tax structure. Under the
bill before you the base has been broadened to add about

two million new taxpayers, but even so there will remain

344

-5-

a

a relatively large proportion of the population in the
lower income groups which will not be directly affected
by the income tax. A further lowering of the exemptions
would produce some additional revenue and in addition it
would give millions of Americans an opportunity -- a wel-

come oppertunity, I believe -- to make a direct contribution
through taxes to the defense of their country. \ It would
enable them to feel that they were participating personally
and directly in the defense program.
But I believe this Committee will agree with me that

we ought not to accept such sacrifices, even though willing sacrifices, from millions more of persons with low
incomes on whom the burden of other types of taxes falls
most heavily, unless through proper tax reforms we reach

in other places ability to pay which is escaping its fair
share of taxes. Among these are the following:
2. The excess profits tax exempts profits of even
the most prosperous corporation, except to the extent

that such prefits are in excess of its average profits
for the years 1936-1939. Surely Congress will not wish
to impose additional taxes on millions more of our low
income group, unless we also impose the excess profits
tax on the exempt excess profits of such corporations.
3. Families pay lower Federal income taxes when
both husband and wife receive income than when it is

345

-6-

a

received by only one of them. This is a discrimination
of which many wealthy people have taken advantage by

large gifts of income producing property between husband

and wife. In at least eight States of the Union, Federal
income taxes are made substantially lower than in the

remaining States because the local law permits the splitting of income between husbands and wives, Here are

discriminations against the rest of the taxpayers which,
I believe your Committee will agree, must be eliminated
if we are to extend the income tax downward to include

millions of new persons with low incomes. The discriminations can be eliminated by requiring husbands and wives

to file a single joint return with appropriate relief
granted only where both husband and wife work outside
the home.

4. For years, the concerns engaged in extracting
certain of our natural resources, notably oil, have been
granted far greater allowances for depletion than can be

justified on any reasonable basis of tax equity. If the
income tax is to be extended to lower incomes, this

privilege of tax escape should first be removed.
5. A few months ago, the Congress eliminated the
tax exemption privilege from new issues of Federal se-

curities. The purchasers of new State and local securities

346
- -7 -

a

still enjoy this exemption. The exemption was inequitable and expensive in more normal times. It cannot be

borne longer in a time like this, and especially if we are
to increase the direct tax burdens of persons with small
incomes.

6. In its suggestions to the Ways and Means Committee,
the Treasury recommended substantial increases in estate

and gift taxes, and lower exemptions. In part, this recommendation was followed, but, in my opinion, the estate
and gift taxes should reach more estates and provide more

revenue if we are going to tax smaller incomes.
Those are some of the things that I means when I say

that an "all out" tax program for defense must go far
beyond the present bill.
There is another condition to lowering the personal
)

exemptions. We cannot continue to take into the income
tax system millions of new taxpayers with small incomes

without simplifying the ways in which their tax is computed.

Take, for example, a person with a $900 salary.

Under the present law, he first figures out what deduc-

tions he has -- taxes paid, interest paid, contributions
and so on. Then he computes his earned income credit.

Then he subtracts his personal exemptions from his in-

347

-8-

a

come after deductions. On the balance, under rates of

the bill before you, he computes a surtax at 5 percent.
Then he goes back to the income and deducts his earned

income credit. On the balance, he computes a normal

tax at 4 percent. He then adds the normal tax and the
surtax and takes 10 percent of the total for defense tax.
He adds the defense tax to the normal tax and surtax

and finally arrives at his income tax.
When he started to fill out his return, he may have
been full of patriotic enthusiasm to pay his share toward
the defense program, but by the time he has finished his
last computation he may well be in a towering rage or a

state of mental collapse. It is difficult enough for
persons with substantial incomes who are used to deal-

ing with financial papers and to making computations of

this kind to fill out their tax returns and compute their
taxes. The person with a small and simple income should

not be put to this necessity of making elaborate computations.

Furthermore, the checking of these tax computations

by the administrative authorities takes time. Frequent
errors are found which must be rectified requiring correspondence and further annoyance of the taxpayer as well
as expense to the Government.

348

-9For taxpayers with relatively large incomes, refinements in determining income and computing taxes are

troublesome but are necessary in the interest of equity.
For small taxpayers, however, especially those now taxes
for the first time, these refinements are cumbersome
and confusing without serving any important purpose.
The income taxes of millions of people can be determined
with acceptable accuracy by less involved methods. For
such taxpayers a simple table could be provided with the
aid of which the small taxpayer could compute his tax

bill in a very few moments. He would be spared time,
trouble and annoyance and the Government would be spared
expense.

To indicate more clearly what I have in mind, I
have had prepared a sample table showing how this might

be worked out in practice. This is only a preliminary
table, and improvements and changes will no doubt be

desirable, but it will illustrate how the proposal can
be applied.

The taxes imposed by the bill before you are very
heavy; the taxes of an all-out program would be even
eavier. I am convinced that the people are not opposed

to heavy taxes, that in fact they favor heavy taxes because they know that the alternatives are much more onerous.

349

- 10 -

a

At a time when expanding incomes are operating to force

prices upward of the limited available supply of commodition,
all kinds of measures must be employed if prices are to
be kept under control. Without heavy taxation the other
measures have little chance to succeed.
Rising prices would take much more away from our

people now and in the future than higher taxes now will

take. Under the tax bill in its present form, a married
couple with no dependents, having a net income of $5,000

a year will have its Federal income tax increased by $198,

or 4 percent of its income. If two-thirds of the family's
income 18 spent on items affected by a changing cost of

living, an increase in the cost of living of 5% percent
would impose as great an additional burden on this family

as would the proposed income tax. The cost of living index has
increased 5 percent in less than a year, since September

1940. It is clear from this simple illustration that
rising prices tax the family income just as surely as
do income taxes, Although as prices rise, the incomes
increase
of some families will increase, many incomes will not
and most incomes will not increase as fast or as much
8 8 prices.

If in an attempt to protect the incomes of our people
we hold down taxes and as a result the cost of living

350

- 11 -

a

rises, we shall have taxed them just as surely as if we
had levied on them directly, -- and we shall still have
the costs of defense to pay later from taxes.
An all-out tax program will foster public morale in
an all-out - defense program. By reducing the necessity for

borrowing it will strengthen confidence in the impregnable
fiscal position of the Government. By contributing to

the control of prices it will help prevent the demoralization which would result from inflation. By distributing
the defense burden equitably it will help avoid the
bitterness and dissatisfaction that arises when the many
must carry as extra burdens the taxes which the few escape.

It will make all the people equal partners in the defense
of our country.

5th Draft 4.00 P.M
ang? 1941.

Statement of Secretary Morgenthau before the Senate
Committee on Finance, Friday, August 8, 1941.
Mr. Chairman and members of the Senate Finance

Committee: My purpose in being here today is to discuss

taxation as an essential part of national defense. Our
great problem in providing for the defense of the nation
is fundamentally the problem of production -- of actually
building planes and tanks, ships and guns with labor,
management, machinery and raw materials. To solve that

our protecting
economyour
or weakening
problem,without
while at impairing
the same/time
economic

the
structure
ofdemocratic
democracy
foundations
and
institutions, our fiscal
policy must be adapted to the needs of the times.

On April 24. I discussed with the Ways and Means
Committee of the House the need of producing $3,500,000,000

annually in additional revenue. The Treasury Department
presented a suggested program for raising that amount of
money. The Ways and Means Committee worked hard on the

this bill

tax bill. As it is before you, 40 will produce approximately $3,200,000,000 annually in additional revenue. In

my opinion, it is very important that the revenue yield

be raised to at least the original $3.5 billion level.
It is also important that the bill be passed as promptly
as possible. Income taxpayers and excess profits taxpayers should know as quickly as possible what their taxes

351

352

-2on 1941 income and profits are going to be since over
seven months of the year have already elapsed. The ex-

cise taxes and the estate tax cannot be imposed retroactively
and every day's delay in the passage of this tax bill costs
the Treasury several million dollars in revenue from those
sources.

The rapid developments of the last few months have

made this bill inadequate even before it is passed. Since
my statement before the Ways and Means Committee, many

things have happened. Two and one half months ago the

President proclaimed the existence of an unlimited

national emergency. He called upon "all loyal citizens

to place the nation's needs first in mind and in action
to the end that we may mobilize and have ready for instant

defensive use, all of the physical power, all of the moral
strength, and all of the natural resources of this nation."
Since I appeared before the Ways and Means Committee,

the amount of appropriations, authorizations and recommendations over and above the Budget has increased by

about $14,000,000,000, thus completely changing the fis-

cal picture and greatly increasing the need for revenue.
Since I appeared before the Ways and Means Committee,

prices and the cost of living have increased at an accelerated rate, thereby accentuating the need for a strong

353

-fiscal program.

In the light of these developments in the direction

of "all out" defense, I should like to point out what,
in my opinion, will be necessary in "all out" taxation
to support such a program.

-

First of all, we shall need more revenue x much more
revenue. The defense program is an absolute necessity.

It must be paid for. Insofar as possible, it should be
finally paid for now. Borrowing should be kept to a
minimum to maintain our present fiscal strength. The
rise in the Federal debt merely means that the taxpayer's

burden is being postponed--that both principal and interest must be paid later out of higher taxes collected at
a time when they may be harder to pay and less willingly
paid than now.

Along with increased taxation should go the maximum

reduction in the ordinary non-defense expenditures of
Government. The burden of paying for defense is 80 heavy

that it should be relieved at every possible point.
Increased taxation is needed also to maintain eco-

nomic stability. Rising purchasing power is exerting
increasing pressure on the prices of many kinds of goods,
while at the same time production of these goods 16 being

increasingly curtailed by the necessity of diverting our

354
-4- -

our resources to defense uses. This complication of increased demand and restricted output threatens to cause

inflationary price rises, which would increase the cost
our
of theThis
defense
program,
family budgets,
andall
disturb servicesly
larger
neededunbalance
revenue should
come from

economic

sources where there is ability to pay -- that's what an
"all out" tax program means. The people of this country
have never been more ready to make sacrifices for the
common good. Our tax program has not kept pace with

the defense program -- we are still thinking too much

of helping this group or that to escape its share of
the burden. We have now come to the point where it is

a matter not merely of fundamental equity, but of the
utmost necessity that all exemptions from taxation be
reduced to the absolute minimum.

An "all out tax program for defense should reach

ability to pay at several points not now fully tapped.
1. In my opinion such a tax program might well involve a substantial lowering of personal exemptions and
a consequent broadening of the base of the income tax,
if at the same time we take immediate steps to remedy

defects in the application of the principle of ability
to pay in other parts of the tax structure. Under the
bill before you the base has been broadened to add about

two million new taxpayers, but even 80 there will remain

life

355

-5a relatively large proportion of the population in the
lower income groups which will not be directly affected

by the income tax. A further lowering of the exemptions
would produce some additional revenue and in addition it

would give millions of Americans an opportunity -- a wel-

come opportunity, I believe -- to make a direct contribution
through taxes to the defense of their country. It would
enable them to feel that they were participating personally
and directly in the defense program.
But I believe this Committee will agree with me that
we ought not to accept such sacrifices, even though will-

ing sacrifices, from millions more of persons with low
incomes on whom the burden of other types of taxes falls
most heavily, unless through proper tax reforms we reach

in other places ability to pay which 18 escaping its fair
share of taxes. Among these are the following:

2. The excess profits tax exempts profits of even
the most prosperous corporation, except to the extent

that such profits are in excess of its average profits
for the years 1936-1939. Surely Congress will not wish
to impose additional taxes on millions more of our low
income group, unless we also impose the excess profits

tax on the exempt excess profits of such corporations.
3. Families pay lower Federal income taxes when
both husbanc. and wife receive income than when it is

356

-received by only one of them. This is a discrimination
of which many wealthy people have taken advantage by

large gifts of income producing property between husband

Furthermore,

and wife. In at least eight States of the Union, Federal
^

income taxes are made substantially lower than in the

remaining States because the local law permits the splitting of income between husbands and wives. Here are

discriminations against the rest of the taxpayers which,
I believe your Committee will agree, must be eliminated
if we are to extend the income tax downward to include

millions of new persons with low incomes. The discriminations can be eliminated by requiring husbands and wives

to file a single joint return with appropriate relief
granted only where both husband and wife work outside
the home.

4. For years, the concerns engaged in extracting
certain of our natural resources, notably oil, have been
granted far greater allowances for depletion than can be

justified on any reasonable basis of tax equity. If the
income tax is to be extended to lower incomes, this

privilege of tax escape should first be removed.
5. A few months ago, the Congress eliminated the

tax exemption privilege from new issues of Federal securities. The purchasers of new State and local securities

357
-7- - -

still enjoy this exemption. The exemption was inequitable and expensive in more normal times. It cannot be

borne longer in a time like this, and especially if we are
to increase the direct tax burdens of persons with small
incomes.

6. In its suggestions to the Ways and Means Committee,
the Treasury recommended substantial increases in estate

and gift taxes, and lower exemptions. In part, this recommendation was followed, but, in my opinion, the estate
and gift taxes should reach more estates and provide more

revenue if we are going to tax smaller incomes.
Those are some of the things that I means when I say

that an "all out" tax program for defense must go far

beyondpresent
the bill.which I would attach

There is another condition to lowering the personal

I think we ought not

exemptions. We cannot contique to take into the income
tax system millions of new taxpayers with small incomes

without simplifying the way in which their tax is computed.

Take, for example, a person with a $900 salary.

Under the present law, he first figures out what deductions he has -- taxes paid, interest paid, contributions
and so on. Then he computes his earned income credit.

Then he subtracts his personal exemptions from his in-

358

-8come after deductions. On the balance, under rates of

the bill before you, he computes a surtax at 5 percent.
Then he goes back to the income and deducts his earned

income credit. On the balance, he computes a normal

tax at 4 percent. He then adds the normal tax and the

surtax and takes 10 percent of the total for defense tax.
He adds the defense tax to the normal tax and surtax

and finally arrives at his income tax.
When he started to fill out his return, he may have
been full of patriotic enthusiasm to pay his share toward
the defense program, but by the time he has finished his
last computation he may well be in a towering rage or a

state of mental collapse. It is difficult enough for
persons with substantial incomes who are used to deal-

ing with financial papers and to making computations of

this kind to fill out their tax returns and compute their
taxes. The person with a small and simple income should

not be put to this necessity of making elaborate computations.

Furthermore, the checking of these tax computations

by the administrative authorities takes time. Frequent
errors are found which must be rectified requiring correspondence and further annoyance of the taxpayer as well
as expense to the Government.

359

-9For taxpayers with relatively large incomes, refinements in determining income and computing taxes are

troublesome but are necessary in the interest of equity.
For small taxpayers, however, especially those now taxed

for the first time, these refinements are cumbersome
and confusing without serving any important purpose.
The income taxes of millions of people can be determined

with acceptable accuracy by less involved methods. For
such taxpayers a simple table could be provided with the
aid of which the small taxpayer could compute his tax
bill in a very few moments. He would be spared time,
trouble and annoyance and the Government would be spared
expense.

To indicate more clearly what I have in mind, I
have had prepared a sample table showing how this might
for incomes
up atopreliminary
3000.
This
18
only
be worked out in practice A
table, and improvements and changes will no doubt be

desirable, but it will illustrate how the proposal can
be applied.

The taxes imposed by the bill before you are very
heavy; the taxes of an all-out program would be even

heavier. I am convinced that the people are not opposed

to heavy taxes, that in fact they favor heavy taxes because they know that the alternatives are much more onerous.

360
- 10 At a time when expanding incomes are operating to force

prices upward of the limited available supply of commodities,
all kinds of measures must be employed if prices are to
be kept under control. Without heavy taxation the other
measures have little chance to succeed.

many
^

Rising prices would take much more away from our

people now and in the future than higher taxes now will

take. Under the tax bill in its present form, a married
couple with no dependents, having a net income of $5,000

a year will have its Federal income tax increased by $198,

or 4 percent of its income. If two-thirds of the family's
income is spent on items affected by a changing cost of

living, an increase in the cost of living of 5 percent
would impose as great an additional burden on this family
as would the proposed income tax. The cost of living index has
increased 5 percent in less than a year, since September

1940. It is clear from this simple illustration that
rising prices tax the family income just as surely as
do income taxes. Although as prices rise, the incomes
of some families will increase, many incomes will not

increase

and most incomes will not increase as fast or as much
as prices.

If in an attempt to protect the incomes of our people
we hold down taxes and as a result the cost of living

361

- 11 rises, we shall have taxed them just as surely as if we
had levied on them directly, -- and we shall still have
the costs of defense to pay later from taxes.
An all-out tax program will foster public morale in
an all-out defense program. By reducing the necessity for
borrowing it will strengthen confidence in the impregnable

fiscal position of the Government. By contributing to
the control of prices it will help prevent the demoralization which would result from inflation.
By distributing
unite
the nation.
the defense burden equitably it will help avoid the
bitterness and dissatisfaction that arises when the many
must carry as extra burdens the taxes which the few escape. .]

It will make all the people equal partners in the defense
of our country.

362

PROPOSED SCHEDULE OF FEDERAL INCOME TAXES

For Individuals with Gross Incomes of Less Than $3,000

Know Your Taxes 1
If your gross
income 18:
From

To less
than

$0

$750

750

775

775

800

800

825

825

850

850

875

875

900

Single
person

-

$1

-

2

$1,500
1,525
1,550
1,575

-

5

7

9

925

950

13

950

975

15

975

1,000

17

-

-

-

19

-

22

-

1,075
1,100
1,125
1,150
1,175

1,125
1,150
1,175
1,200

28

1,225
1,250
1,275
1,300

1,325
1,350
1,375
1,400

1,425
1,450
1,475

1,225
1,250
1,275
1,300
1,325
1,350
1,375
1,400
1,425
1,450
1,475
1,500

than

$1,525
1,550
1,575
1,600

Single
person

Married
person

$62

$1

64

2

66
68

24
26

-

-

-

30

-

32

-

34

-

36

-

39

-

41

43

1,600
1,625
1,650
1,675

1,625
1,650
1,675
1,700

4

1,700
1,725
1,750
1,775

1,725
1,750
1,775
1,800

1,800
1,825
1,850
1,875

1,825
1,850
1,875
1,900

70

6

73

7

75

8

77

-

-

45

-

47

-

49

-

51

-

53

-

56

-

58

-

60

-

1,900
1,925
1,950
1,975

1,925
1,950
1,975
2,000

2,000
2,025
2,050
2,075

2,025
2,050
2,075
2,100

If your gross
income is:

From

To less
than

Your tax 18:
Single
person

Married
person

$2,250
2,275

$2,275

$126

$59

2,300

128

61

2,300
2,325

2,325
2,350

130

63

132

65

2,350
2,375

2,375

134

68

2,400

136

70

2,400
2,425
2,450
2,475

2,425
2,450
2,475
2,500

139

72

141

74

143

76

145

78

2,500
2,525
2,550
2,575

2,525
2,550
2,575
2,600

147

80

149

82

151

85

153

87

2,600
2,625
2,650
2,675

2,625
2,650
2,675
2,700

156

89

158

91

160

93

162

95

2,700
2,725
2,750
2,775

2,725
2,750

164

97

166

99

2,775
2,800

169

102

172

104

2,800
2,825
2,850
2,875

2,825

174

106

2,850
2,875
2,900

177
180

110

183

112

2,900
2,925
2,950
2,975

2,925
2,950
2,975
3,000

186

114

189

116

192

119

195

121

3

10

-

1,025
1,050
1,075
1,100

1,200

To less

3

11

1,050

From

Your tax is:

-

925

1,025

income 18:

Married
person'

-

900

1,000

If your gross

Your tax 18:

79

12

81

14

83

16

85

19

88

21

90

23

92

25

94

27

96

29

98

31

100

33

102

36

105

38

107

40

109

42

111

44

2,100
2,125
2,150
2,175

2,125
2,150
2,175
2,200

113

46

115

48

117

50

119

53

2,200
2,225

2,225
2,250

122

55

124

57

108

For each dependent. subtract $400 from your gross income and use the balance to determine your tax.

1 At the option of the taxpayer. his income tax liability shall be either the amount indicated in this
table or the amount computed under the Internal Revenue Code as amended by H. R. 5417.

363

August 7, 1941

My dear Mr. Ambassador:

It might be a friendly Anglo-American gesture in
both directions if British army and navy bands were to
play the two new songs which Irving Berlin has contributed to our government for use in the defense program.

Accordingly I am sending you twenty-five band arrangements of each of these songs in the hope that you
may find a way to place them in the hands of the best
British bandmasters. As you may remember, one of these
songs is being used in the Defense Savings program; the
other was written for the Ordnance Division of the War

Department, and is intended to build morale in the industrial areas.
As both these songs are the property of the government, British bands are perfectly free to play them at
any time without charge. The songs themselves are so
good that I think British bandmasters and the British
public will be glad to have them.

I shall be very grateful to you if you can distrib-

ute the scores for me.

Sincerely yours,
(Signed) Henry Morgenthau, Jr.

The Honorable
John G. Winant,
American Ambassador,
London, England.
FK/hkb

8/7/41

Letter sent out by Mr.

364

August 7, 1941

Dear Mr. Gershwin:

I wonder if you would have time to write
the lyrics of a song which we could use to help
with our Defense Savings program. I have just
written to Mr. Jerome Kern asking him whether he
would do the music for such a song, and he may get
in touch with you in Hollywood so that you could

discuss it together.

As you know, Irving Berlin wrote such a
song for us, and it has not only been a great success as a song but has been of invaluable help to
the Treasury.

I can think of nothing which could be of
greater assistance to us at this time than to have
a song from you and Mr. Kern. All of us here will
be deeply grateful to you if you can undertake the
lyrics. will you let me know soon?
Sincerely yours,
(Signed) R. Morgenthan, 32.

Mr. Ira Gershwin,
Warner Brothers Studios,
Hollywood, California.
FK/hkb

8/7/41
Copie to Mr. Thompso

365

August 7, 1941

Dear Mr. Kern:

I wonder if you would have time to
compose a song which we could use to help with
our Defense Savings program.

As you know, Irving Berlin wrote such
a song for us and it has not only been a great
success as a song but has been of invaluable help
to the Treasury.

I have just written to Mr. Ira Gershwin

in Hollywood to ask whether he could undertake the
lyrics, and you might wish to communicate with him

80 that you could discuss the project together. As
I wrote to Mr. Gershwin, I can think of nothing
which could be of greater assistance to us at this
time than a Kern-Gershwin song. All of us here
will be deeply grateful to you if you can undertake
it. Will you let me know soon?
Sincerely yours,
(Signed) E. Morgenthan, So.

Mr. Jerome Kern,

917 Whittier Drive,
Beverly Hills,
California.

Copie to Mr. Thompson
FK/hkb

8/7/41

Henry Morgenthan, Jr.
Ext. 332
ANDARD FORM NO. 14A

TREASURY DEPARTMENT

APPROVED BY THE PRESIDENT
MARCH 10 1926

TELEGRAM
OFFICIAL BUSINESS-GOVERNMENT RATES

3664

WASHINGTON

CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR

Official
(The appropriation from which payable stated above line)

Baby Snooks

care Miss Fanny Brice

August 7, 1941

112 North Faring Road

Delair, West Los Angeles, Calif.

You were wonderful last night

I enjoyed every minute of your

performance and hope you will find it possible to go on the air for us
Sincere thanks for your help and all good
again later in the year
wishes

Henry Morgenthau, Jr.
FK/hkb 8/7/41

Secretary of the Treasury.

367
CONFIDENTIAL
POSTAL SAVINGS STAMPS

Estimated Total Value and Number of Units Sold,
by Denominations, During May, June, and July, 1941

(All figures in thousands)

:

Number of Units by Denominations
July

Total

:

June

:
:

:

:

:
:

May

:

Denomination

:

.10

2,536

1,594

1,625

5.754

.25

5,364

5,728

7,341

18,433

.50

1,213

875

1,038

3,126

1.00

698

468

533

1,699

5.00

115

61

48

224

Total

9,926

8,725

10,584

29,236

Total Value

$3,475

$2,802

$3,288

$

Office of the Secretary of the Treasury,
Division of Research and Statistics.

$9,566

August 7. 1941.

Source: Division of Postal Savings, Post Office Department.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. For the same reason, the sum of units with
times denominations does not necessarily agree exactly
total value.

Junch with
OFFICE OF CIVILIAN DEFENSE

Miamin
Lolmard
SIS/H-

WASHINGTON D.C.

August 7, 1941

Honorable Henry Morgenthau, Jr.
Treasury Department
Washington, D.C.

My dear Mr. Secretary:

Under date of July 14, 1941, the President approved the

setting up, in the Office of Civilian Defense, the Bureau of Facts

and Figures. The plan submitted was based on the instructions
contained in the Executive Order of May 20, 1941, as follows:
With the assistance of the Volunteer
Participation Connittee, described in paragraph
5 of this Order, consider proposals, suggest
plans, and promote activities designed to sustain the national morale and to provide oppor-

tunities for constructive civilian participation

in the defense program

I have approached the plan very cautiously because I do

not want to duplicate any existing effort or overlap the activities
of other Departments. As I understand the assignment to this Office,
we should utilize all existing agencies and coordinate efforts. The
task is for more difficult than it might appear. For instance, I
find that the following departments and agencies of government have

a set-up on morale, or public relations, or intelligence, or for
collecting information, etc.:
1. War Department: A Bureau of Public Relations:
Burenu of Morale; Military Intelligence
2. Navy Department: Bureau of Public Relations;
Naval Intelligence
3. Office of Government Reports, headed by Lowell
Mellett

4. Office of Information of the Office of Emergency
Management

5. Justice Department: FBI; Analysis Division for
studies of foreign language press in this country;
Alien Division, radio programs

ble Henry Morgenthau, Jr.
7, 1941

6. Treasury Department: Secret Service; has an excellent
publicity organization, promoting the sale of defense
bonds through use of radio and other mediums

7. Federal Communications Commission: Foreign shortwave monitoring service

8. The newly-created Office of Coordinator of Information

9. The Office of Coordination and Cultural Relations
Between the American Republics

The above are in addition to many agencies and bureaus.
Practically every agency in the city of Washington is doing some
work of this kind.
May I call to see you sometime Tuesday? In the meantime,

you may be thinking the matter over. I want to get your frank reaction
to what this Office should or should not do. Ve want to be helpful
and do a good job. At the present time, it is & considerable mess and
say this without any reflection on any one of the activities but

because of the duplication and the enormous amount of information sent
and effort employed.

I would also greatly appreciate it if, after we have talked

the matter over, some one in your Department might be designated by

with full authority to help us work out a plan.
With kind personal regards, I am

Usaado
Sincerely yours,

F. H. LaGuardia

-

U. S. Director of Civilian Defense

370

8/7/41

owed this correspondence to Mr. Morgenthau
day. He read Chief Wilson's memo and

also the letter from LaGuardia. He said
that inasmuch as Wilson had handled the

matter verbally it would not be necessary
to write a letter to Mayor LaGuardia.
Mrs. McHugh

REFER TO FILE No

TREASURY DEPARTMENT
WASHINGTON D.C.
OFFICE OF THE CHIEF

August 5, 1941

U.S. SECRET SERVICE

Memorandum for Administrative Assistant to the Secretary

From: Chief, U. 3. Secret Service
Referring to the attached copy of letter from the
U. 3. Director of Civilian Defense addressed to the
Secretary of the Treasury under date of August 4, 1941:
We have been negotiating with the Office of Civilian
Defense in this matter and have arranged to send two men
to the Civilian Fire Defense school at Edgwood Arsenal,

Maryland, to take this course of training.

We have chosen these two men from the Uniformed

Force of the Secret Service, the Assistant Superintendent
of that Force and one of the Captains.

We have orally advised the Director of Civilian
Defense that these two trainees will be sent to attend
the school.

We are sending this to you tonight for the Secretary's information.

you
E

NOW

A

YOUR ENDORSERS
Checks for Strangers

cash

8/1/1;

371

372
original. in
original documents
August the 1941

feb-

Mr. Henry Morgenthau Jr.
Secretary of the Treasury
Washington, D. C.
My dear Mr. Morgenthaus

You are hereby invited to send the two non that you
designated to attend the civilian fire defense school at Edgewood
Arsenal, Maryland, for the third session which extends from August 11
to August 23.

This school was established by the Mar Department under the

jurisdiction of the Chemical Warfare Service at the request of the
Office of civilian Defense. The course of instruction is designed
to train civilian firemon and policemen in certain highly specialized
problems occasioned by war or sabotage, and includes the following
subjects:

a. Incendiaries

b. Gas defense
O. Protection against high explosive bombs
d. Training methods

All expenses incidental to the operation of the school itself

are borne by the War Department. The various fire and police services
designating trainees to attend the school bear the individual expenses
of their representatives These expenses include such items as laundry,
meals, room service, and transportation to and from the school. Reals
will cost $23, and room service 83 for the two weeks' period. Rooms for
the students will be provided without charge.
Trainees, on completing these courses and returning home, will
instruct the regular members of their own and neighboring departments.
Accordingly, the selection of your designee should be made with the

following qualifications in minds

age--young enough to withstand the physical demands

of training in the field and later instruction
work, but old enough to be thoroughly experienced;

aptitude--alertness in grasping completely and accurately
the subjects taught at the school and teaching

ability to transfer the information received clearly
and forcefully.

373

Mr. Henry Morgenthau Jr.

--

August 4. 1941

secure enrollment of your designees, the following steps
mpat beTo
taken:
I. The enclosed application blanks must be executed
by your designees, Approved by you, and forwarded
to the Commanding General, Third Corps Area, Washington

D. C., who has authority to give final approval
of the applications.

II. The executed applications must be accompanied by a

letter from you which includes (a) a statement that
the applicants are loyal citizons of the United

States and are reconsended by you, (b) a statement
of the manner in which the expenses of the individuals

will be paid.

III. This Office must be advised whether or not you desire
to send some one to the August 11-August 23 session

in order that none of the places available for the
quota of 50 students shall remain unfilled.

Persons accepted for this course should report at the Edgewood

Arsonal, Maryland, not earlier than August 9, and not later than

August 10.

Sincerely yours,

F. H. LaGuardia,

U. S. Director Civilian Defense

Enclosures
WPB/apn

374

MEMORANDUM FOR THE SECRETARY'S FILES:

A meeting relative to the administration of Executive Order
8389 was held in Mr. Foley's office at 4 o'clock on August 7, 1941,
attended from time to time by the following:
Messrs. Foley (Chairman), Pehle, Cochran, E. M. Bernstein,

DuBois, Gass and Timmons for the Treasury; Messrs. Acheson,

Luthringer, Miller and Fisher for the State Department; Mr. Shea

for the Justice Department; Messrs. Goldenweiser and Knapp for
the Board of Governors of the Federal Reserve System.

Mr. Pehle distributed to the Committee copies of a memorandum
prepared on trade with Japan and Manchuria. This memorandum

summarizes the action that is presently being taken by the Foreign
Funds Control with respect to applications involving the export to
Japan (a) of merchandise which is subject to export controls; (b)
of certain other merchandise whether or not subject to export

controls, such as wood pulp, metals and manufactures, machinery
and vehicles, rubber and rubber products, and chemicals and related
products (except pharmaceuticals); (c) petroleum products and

(

tetraethyl lead; (d) cotton; (e) and all other merchandise. Three

additional memoranda are in the process of preparation by the
Treasury Department, discussing respectively the use of cash funds
held in the United States or in South America for purchases of
petroleum products and cotton in the United States by Japan; the
problem of cotton exports to Japan; and the policies that should
be followed with respect to the exportation of merchandise not

subject to export controls.

Mr. Pehle also reported that the first application to release

raw silk from Customs custody had been approved after clearance

with the Office of Production Management. The firm involved was
Cheney Brothers, New York, who had received a general preference
order from OPM. A procedure is being worked out whereby all such

applications will be cleared with a designated person in the Office

of Production Management.

Mr. Pehle referred to two related applications which have

been filed with respect to the German Standstill claims. One such in
application proposed to utilize approximately $1,500,000 held
banks in the United States for payment

Standstill claims.

involved the acceptance

blocked transaction of interest accounts would on the of have German German The by other such banks proposed claims. of

registered marks as a capital reduction of the Standstill

375

-2While considering these two applications, the Treasury Department
was informed that if the first was not approved, consideration need

not be given to the second. The first application was denied as
it involved the use of approximately one quarter of the blocked
German assets in the United States to accord preferential treatment
to a group of favored creditors. Mr. Harvey D. Gibson of the

Manufacturers Trust Company has recently addressed two telegrams

to the Treasury Department requesting reconsideration of the

denial of the application. The denial of such application was
unanimously approved by the Committee.

Mr. Acheson referred to a group of applications involving

the financing of shipment of merchandise from South America to
Japan by debit to blocked Japanese accounts in the United States.
It was agreed that such applications should be denied.
Mr. Acheson also reported that the State Department had been
advised by the Japanese Government that in view of existing
conditions the Japanese merchant marine was to be withdrawn from

(

American trade. It would thus appear that until boats are
available to carry merchandise to Japan, the use of free funds
for the purchase of petroleum products and cotton for export to
Japan will not be a real problem.

It was agreed that a telegram should be despatched to the
Governor of Honolulu outlining present policy with respect to
exports to Japan from the United States and suggesting that exports
to Japan from Hawaii be handled in a similar manner.
Mr. Goldenweiser offered to the Treasury the use of Room 1202
in the Federal Reserve Building for the forthcoming meeting with
representatives of the various Federal Reserve Banks on the use of
Form TFR-300. The Committee expressed its appreciation.

Mr. Acheson announced that all inquiries received by the
State Department relative to transactions involving persons on the
"Proclaimed List of Certain Blocked Nationals" should be referred
to the Treasury Department for reply. It was agreed, however,
that inquiries as to why certain firms are on the Proclaimed List,
or letters suggesting that firms be added to the Proclaimed List,
should continue to be referred to Mr. Raymond Geist.

576
August 7, 1941.

MEMORANDUM

TO:

Secretary Morgenthau

FROM:

Mr. Schwarz

@

I have culled out some of the forecasts on

aircraft production in the United States and,
in response to your memorandum of August 7, am

attaching them herewith.

I call your especial attention to the story
from the New York Times of September 11, 1940,
and the one from the New York Sun of September 10,

1940, which contain a prediction for July, 1941,
made by Mr. Knudsen after he had toured aircraft
plants late last summer with General Arnold.

377
THE WALL STREET JOURNAL
AUG 6 1941

OPM Wants Plane Output Speeded;
Sets Goal of 2,700 for December
WASHINGTON - Aircraft

manufacturers

will have to increase their output sharply during

the remaining months of this year in order to
meet the production schedule set up by the
Office of Production Management.

Preliminary figures for July indicate that
output last month was approximately equal to
that for June when 1,476 units. more than in
any previous month on record, were delivered
In July last year deliveries totaled 577.
Since April, when deliveries increased by
more than 200 units to cross the 1,400 mark

for the first time, production has held fairly
steady. Starting with August deliveries must
expand at the rate of approximately 250 units

to be reflected in monthly output figures. A
further sharp upturn in output should develop
as still newer plants, principally the large as
sembly plants to be supplied with parts and
sub-assemblies by the automobile industry.
come into use early in 1942

The aircraft industry now has ample business on its books. Available figures indicate
that roughly 65,000 airplanes are on order for
delivery to the Army, Navy. and the British
What this means to the industry can be appreciated from the fact that in the year ended
July 1 this year its total deliveries were less
than 12,000 units.

Schedule May Have To Be Revised

per month in order to meet the latest OMP
schedule which is understood to call for an

Some defense officials believe that the goal
set for the industry is somewhat too ambitious

output of about 2,000 units in September and

Others, however, express the belief that the
aircraft manufacturers will succeed in meeting
the latest schedule although they point out
that there is always the possibility that the
schedule will have to be revised again in order
to provide for changes in requirements either

of better than 2,700 in December.

Goal Centers on Combat Ships
The goal set by the OPM is even more difficult of accomplishment than the base figures
indicate as the expansion will have to be at
tained principally on combat ships. Last month
more than 55% of the total production is estimated to have consisted of trainer types By
December combat ships are scheduled to be
accounting for close to 60% of the total production.

craft
its been
next
few tofaces
date the
Some defense officials state that the air-

devoting toolmonths industry a major Up part of crucial its Industry activities test in has the to

ing up for so-called "mas" production. New

facilities constructed during the past year. are
now coming into production and should begin

on the part of the Army, the Navy or the
British

The most recent revision in the production
schedule was necessitated by the heavy bomber

program which calls for the output of 500 fourengine bombers per month This goal, on the
basis of present plans, is not scheduled for attainment until early 1943. The output of these
large bombers probably will rise relatively
slowly during the balance of the year. but
after attaining a figure of about 100 monthly in
the early part of next year. should expand
rapidly.

NEW YORK (N.Y.) HERALD TRIBUNE - May 22, 1941

Bomber Output
a Month

In Sight for '42
N Y Herald In hune

Ford's Offer to Build Craft

the government "the power to set

up Passist state in America

Ford Motor Company's offer to
build complete four-engined consolidated B-24 bombardment planes

000.000 to expand the country's

Capt. Marc A Mitscher assistant

gram, Mr. Jones said that the O. P

tions on some parts of the report

approved a projected grant of $250.-

be put together in government
plants now being constructed in the

mid-West Mr. Knudsen added that

contracts were being awarded to
three aircraft manufacturers-

heed. Douglas and Boeing the

chief of the Bureau of Aeronautic<
who attended the press conferener
Capt. Mitscher explained that the

while $50,000,000 had been ear-

marked for a similar increase in the
output of magnesium, another stra-

Navy had received about 600 com
bat planes since July 1. and, as the

legic defense material

Secretary explained later that the

United States and Great Britain
had shared on a fifty-fifty basis in

pose, he said would be owned by

the government but operated under
lease by private concerns He esti-

these deliveries it was understood

mated present production of alu.

the
British had received an equal
number

that the $250,000,000 loan should in-

The Secretary also stated that
thirty-six Consolidated PBY longrange four-engined bombers had

minum In the United States as 800
000,000 pounds annually and said

crease this by 600,000,000 pounds
The contemplated magnesium loan

been produced during April and that

he added would almost double present production of 80,000,000 pounds

the same

the May production rate was about

The Navy has been able to get

year.

planes quicker than it has been able

Under the augmented heavy
bomber production program the

in addition to its original program

of manufacturing wing and fuselage
assemblies for ships of this

Although he was unwilling to dis

M had recommended and he had

Proposed new plants for this pur-

the government has accepted the

months of 1940

cuss the number of the variou
types of planes received by th
Navy Mr Knox referred to ques

WASHINGTON May 21-President Roosevelt's recent call for a
substantial increase" in the production of heavy bombers had its
first tangible results today in the

of Production Management that

pired with 464 in the last (d)

In addition to the R F.C.'s con.
templated loans to the aircraft industry in the heavy bomber pro-

aluminum production facilities

announcement by William 8. Knudsen. associate director of the Office

Te last four months totaled 12
planes including trainers as cola

don't line up with n competing gov.
ernment industry

CompleteAccepted,Other
Plants To Be in Program
MAY 22 1941
By C.B. Alien

1172 last July 1. Deliveries durie

its threat to "all Industries that

to train the pilots to man them

and the Navy air force will have a

Lockheed company will undertake
the production of modernized Boe
Ing Flying Fortresses at its Burbank

shortage of pilots at the present

schedule until January of next year.

Mr Knox continued when the

Calif.. plants while the Dougla
company is expected to product
bo Boeings and Consolidated

training program will catch up

Mr. Knox said that. while there

had been talk of the Navy training

new plants in Long Beach Call

its

British pilots and he believed it was

production of four-engined bomber
under the "elaborated" program for

and Fort Worth Tex Boeing will
expand production at its plant A

It was learned simultaneously
from other sources that defense

building project 4: its StearmUn being trained at present and there
were no plans yet for any such protrefaft division in Wichita Kans

such craft

officials are negotiating for the con-

struction of four-engined bombers

at a total of ten plants in various
parts of the country Their objective is a production rate of 500
heavy bombers a month by the
latter part of 1942 the goal set by

the President as necessary to give
the Democracies aerial supremacy

over the Axis powers.
Fleet of 6,000 Planned

The new program visualizes a fleet

perfectly possible under the terms

Spattle and launch a new bombe of the lend-lease bill. no pilots were
despate in the communal output

gram.

of

Bleing and Consolidated four-engine The students who enter the naval
bombers include North American air stations are selected at sixteen
Glenn naval reserve aviation bases which
the
and
Inc.
Aviation
conduct elimination flight training
Baltimore
Martin
Company
the report stated The successful
as well as two plants operated by
candidates are appointed aviation
of

L

the Consolidated Aircraft Company

adets and sent to Pensacola Jalik
onville or Corpus Christi

itself. The Ford Motor Company
in addition to building complete
bombers in the new plant it is now
building near Ypsilanti Mich will

By July the Navy expects that

he rate of student entrances will
6. 800 a month with an ultimake

fabricate sub-assemblies of Consoli

goal of 5,100 students

dated bombers there to be put to

gether as finished airplanes in govof 6.000 long-range. four-engine
bombers of the Consolidated B-24 ernment built but rooperated
plants at Tulsa and Fort Worth
and Boeing B-17 "flying fortress
type. in addition to 1,100 such ships

which are already on order for the
air forces of the United States and

Although no announcement to this

effect has been made by defense
officials It is believed in the indus-

Great Britain Industry estimates try that such companies as Lock

indicate that such a complement of heed Douglas North American and
heavy bombers costing well over a Martin all of which are now engaged

quarter of a million dollars each in turning out medium or light

cannot be completed before the sum- bembers of the twin-engine class for

mer of 1943. at the earliest. Slightly this country or Great Britain will
more than a hundred of them are be forced to curtail or postpone their
now in Army service. though these production in this field in order to
are of an early and now obsolete meet the sudden demand for fourvintage

engined bombers

Bv way of implementing the new

program Jesse Jones. Federal Loan

Output Is Doubled

Administrator announced during

Navy received nearly 1000
planes of all types during the first
than

the

day

that

the

Reconstruction

The

four

months

of

this

year.

more

Finance Corporation on request of double the number delivered during

the O.P. M will allocate $350,000,000 the last four months of 1940, Frank

for expansion purposes to the air- Knox Secretary of the Navy. re
raft industry if Congress approves realed today at his press conference
repor
public
made
Knox
bill now pending which would in- Mr
rease the R F C.'s lending power from the Bureau of Aeronautics or
by a billion dollars The Rules Com progress in the Navy Air Force
mittee of the House of Representa which showed that the Navy had
a

a

measure after its Republican or May 1. as compared with a total
ponents charged that it would give

or

U

lives deferred today action on this planes 90 hand

378

NEW YORK (N.Y. HERALD TRIBUNE - May 6, 1941 379
President Orders Army,

Navy, O. M. to Give
Raid Planes Priority

Early Superiority
Is Declared Vital
MAY 6 1941
U. S. and Britain Agree

War in Air Soon Must
Be Carried to Enemy
By Joseph Driscoll

WASHINGTON May 5.-President

Roosevelt. asserting tonight that
"the effective defense of this coun-

try and the vital defense of other
democratic nations require that
there be a substantial increase in
heavy bomber production, directed

the War Department the Navy Department and the Office of Producion Management to co-operate to

step up bomber production sub-

stantially.

"Command of the air by the democracies must and can be achieved."

the President said. "Every month
the democracies are gaining in the

relative strength of the air forces.
We must see to it that the process

is hastened and that the democratic
superiority in the air be made absolute.'

The President's Letter

Text of the letter follows:
'My Dear Mr. Secretary

Secretary Stimson is an official
The effective defense of this coun.
secret which cannot be guessed, but
try and the vital defense of other
the President is already on record
democratic nations require that as favoring an American all force
there be a substantial increase in of 50,000 planes, including many
bombers It is no secret that realiza.
heavy bomber production. To this
of this dream of 50,000 planes is
end will you take whatever action
still many years away at the presis needed, including the procure.
cnt rate of production If he can
ment of aircraft, to obtain sub. achieve
the substantial increase
stantially the production rate which
which he desires the President
I am indicating to you in a private
should be able to build up the
memorandum?
American force and supply the
"I am advising the Office of ProE simultaneously
President Roosevelt's assertion
duction Management to take the
that "every month the democracies
necessary steps to provide approare gaining in the relative strength
priate priority ratings applicable to
of
the air forces would seem to
this increased bomber program Will
contradict the thesis of Charles A
you in co-operation with the SecreLindbergh that Germany, by years
tary of the Navy and the Office of
of intensive preparation gained
Production Management work out
such a head start over the British
air force that it will be impossible
the proper procedure to accomplish
for Britain, even with American
this very important task with all
assistance to regain air supremacy

possible speed?

"I am fully aware of the fact that

Earlier today the O. P. M. announced that the United States air-

craft industry had turned out 1,427

military planes in April, setting a

monthly record. There was no break-

down in the brief O.P.M. announce.

ment to reveal how many of these
planes were bombers and how many

were fighters, pursuit and training

bombers will mean a great strain
upon our production effort It will
mean a large expansion of plant
facilities and the utilization of ex.

son Field Dayton Ohio,

democracies are gaining in the rela.

tive strength of the air forces. We

must see to it that the process is
hastened and that the democratic
lute.

"Very sincerely yours.

"FRANKLIN D ROOSEVELT
"The Honorable

The Secretary of War.

night by the War Department.
Armed with cannon and machine

zuns, the new model develops more
horsepower than the old it was said,

and has been tested under 'simulated combat conditions."

President Roosevelt's declaration

for heavy bomber production was
contained in a letter to his Secretary
of War, Henry L. Stimson. copies of
which were sent to the Secretary of

he Navy, Frank Knox, and to William S. Knudsen and Sidney Hill-

man Director General and Associate

Director General of the Office of
Production Management

flying under "simulated combat con-

ditions, were conducted at Patter
The new pursuit plane is a singleengined, single seater, armed with

cannon and machine guns. It is an

improvement on the Airacobra

P-39), but is virtually the same in

external appearance It is powered

with an Allison V-1710-35 liquid-

cooled engine which develops more

horsepower than the Allison engine

used in the P-39.

In the P-39 series, the engine 1

on heavy bomber production to the

mounted amidship behind the pilot
and the cannon and machine guns

fighters and pursuit planes as well

stant-speed type. The landing gear

By virtue of the stress it places
exclusion of lighter craft such as
as medium bombers President Roose.

with any static defense of the West.

Airacobra one of the world's fastest
pursuit planes, was announced to.

by the Bell Aircraft Company. of

can be achieved Every month the

velt's words, the most urgent need
now is for heavy bombers to carry
the war to the enemy by pounding

An improved model of the Bell

that the Air Corps has completed

intensive service testing of the YP.
39C. a pursuit plane manufactured

Buffalo The tests. which included

velt's letter was generally interpreted

vital spots

New Fighter Tested

The War Department announced

isting factories not now engaged in
making munitions, But command of
the air by the democracies must and

planes. To judge by President Roose.

Berlin, Hamburg Bremen and other

ever Europe.

Increasing the number of our heavy

superiority in the air be made abso.
1,427 Planes in Month

bombers President Roosevelt valided

for in his private memorandum to

as meaning that he is not satisfied

are installed in the nose. The three.
bladed metal propeller is of the con-

is the tricycle type. retractable in

flight.

United States exports of aero-

nautical products during the first

ern Hemisphere and the Monroe
Doctrine and is resolved to carry
the war to the Germans: and that
he and Prime Minister Winston
Churchill are in agreement that it

quarter of 1941 reached an all-time

is not enough merely to defend the

received 414 planes valued at $25.241.303: 983 engines valued at $13.

British Isles from invasion and that
the European continent itself must

be recovered from Nazi domination.

Officials here recall that Prime
Minister Churchill's predecessors,
Neville Chamberlain and Stanley
galdwin-concentrated on
and Hurricane fighters and refire frained from building up a large

high at a value of $124,363,803. the

Department of Commerce reported
today.

Principal markets for March were
the British Empire and Egypt which
589,030: engine parts and accessories
valued at $2,670,969 and other aero-

nautical equipment amounting to

$4,932,847. February shipments to
those areas included 258 planes. val-

ued at $16,726,284 632 engines to-

taling $8,190,014: engine parts and

accessories valued at $1,567,198 and

other aeronautical products amount

bomber force for fear of irritating
Hitler. Mr. Churchill of course. en
tertains no such fear. and neither

ing to $4,106,269

for that matter, does Mr. Roosevelt would

the value of thirty-five planes ex-

indications are that they

like all to bomb Berlin again and again ex-

For such long-range
bombing Flying
American
the

peditions Fortress and similar types should suf- be

if produced in

ficient numbers. Exactly -

Shipments to the Dutch East In-

dies

in March totaled $1,444,709

practically al of which represented
ported

In addition there were exported in

March ten engines to China valued
$101,450 and eight engines to
Brazu

"wathed

at

$27,885.

380
WASHINGTON TIMES-HERALD - April 30, 1941

Plane Output

Colonel Jouett. president of
the Aeronautical Chamber of

Commerce told the session that
German and Italian aviation ac
tivities in South America at the

Of U.S. Put on

present moment may pave the way

Par With Reich

out of 42 Latin-American airlines

for a future axis invasion of the
Western Hemisphere. He said
Germany and Italy control nine

operating in Brazil, Argentina

Times-Herald 10*

Chile. Peru, Ecuador, Uruguay,

Commerce Body

familiarizing themselves with ter-

Col. Jouett Warns

APR 1941

Nazi Latin Invasion
By SANDOR S. KLEIN
Col. John H. Jouett. spokesman
for the aircraft industry. told the
Chamber of Commerce of the U. S.
today American plane production
now almost equals Germany's
Combined United States-British
production he said. substantially
exceeds that of the Germans He
added that American planes equal
or surpass the performance of warplanes made anywhere else.
He tempered his optimistic re
port on American plane producing accomplishments with a warn-

ing that axis influence in South
America "bodes ill for the future
of the Americas. That influence

he said must be uprooted and the

only way to do that is "to apply
the old slogan that "fire must be
bought with fire.'
German and Italian commercial
pilots are familiarizing themselves

with terrain and flight conditions
in South America, he said, and
this is "valuable experience should

the axis powers attempt military
invasion of the Southern conti-

nent.

OPM Production Director John

D. Biggers told the delegates that

present American plane produc
tion "must and WIII be doubled
by the end of-1941 Biggers also
said that output or some items
would have to be increased five
fold and that the defense program

is going to interfere with normal
business "more than we thought
would be necessary.
Production Increases

Disclosing that nearly 7,000
fighting planes have been built
since last July. Jouett declared

that the United States is very near

the British and German monthly
production rates, which he estimated at about 1,500 a month
each.

Jouett said that he has been
told by Government sources' that
requirements under consideration
for the defense and air-to-democra
cies program will bring the total
of planes on order from the present 44,000 to 80,000.

Biggers gave an optimistic re

port of progress so far in rearming

America, but said that the effort
was not enough. He presented a

tabloid prediction of require
inferied

and Bolivia

"German and Italian pilots are

rain and flight conditions valuable experience should the axis
powers attempt military invasion
of South America." he asserted.
Axis airlines in South America
move over routes totalling more
than 21,000 miles, or 22 per cent
of the total aviation routes flown
over that continent, Jouett added,
Italian Flight Cited

"Just a month ago, a plane of

the Italian trans-Atlantic line
Lati took off on several over-water

flights. returning to its base at

Natal, Brazil, each time.' he con-

tinued, The crew claimed that
the purpose for these flights were

merely to test the engines. Was
it a coincidence that two heavily
laden Italian freighters, knowing
the coast was clear. made a dash
from Brazilian ports, headed for
Europe?"

An earlier speaker. W. C. Mul

lendore, Los Angeles utility execu

tive and vice president of the

chamber of commerce said that
the extent of aid this country is
promising embattled democracies
is "perilously close to being fool
hardy." He said that America is
doing such nations no kindness in

leading them to rely on aid which
we cannot furnish."

Mullendore served with the

American relief expedition in Lon

don and Berlin after the World
War. He once served a year as an
assistant to Herbert Hoover, when

the former president was Secre
tary of Commerce in the Harding

CHRISTIAN SCIENCE MONITOR - March 5, 1941

U. S. Aircraft
ScienceProductionUP Sharply SinceMAR
December
5 1941
By Staf Correspondent of The Christian Science Monitor

WASHINGTON, March 5
Latest reports on America's air-

craft industry are increasingly encouraging Two hundred more airplane engines were produced during the short month of February
than in the long month of January
Aircraft exports in January were
$8,800,000 higher than in December.

Although the White House, the
Office of Production Management,

and the public have made it clear
that still greater efforts are needed
to spur production, America's plane
output apparently is rising at an
accelerated pace. The same seems

to be true of deliveries to the

British.

According to the Department of
Commerce. American exports of
aircraft and parts rose by 27.4 per
cent between December and January. Whereas the United States
exported $32,100,000 dollars worth

of aircraft and equipment in December, it sent out $40,900,000
worth in the first month of this

year.

This news is coupled with a re-

port, carried by the Wall Street

Journal, that despite the fact that
February was a short month approximately 2,600 airplane engines

were manufactured during that
month as compared with 2,400 dur-

ing January Computing February's

production rate on the basis of a
31-day month. the jump from January to February would be closer
to 500 engines than it would be to
200.

Substantial Increase

While the January export figures
are given in dollars rather than in
number of planes, they are being

delivery at the same rate would
have given them approximately
400 American planes during January.

This latter figure receives corroboration from the recent OPM
announcement that 957 planes were

delivered to the United States

Army and Navy and to the British
during January as compared with

799 the previous month. Since
Britain's share of the 799 was 308,

its share of the 957 would be
approximately 400.

Since the principal "bottleneck"
in plane production to date has
been a shortage of engines, the
February jump tends to confirm
word that plane production also

rose substantially during las

month. It is reliably reported that
plane production during February
was at the rate of 1,200 for a 31.
day month as compared with the
1,036 announced for January by

William S. Knudsen, OPM Di-

rector-General

18,000 Planes in 1941

Experts here are sanguine that

the period of great expansion in

plane and engine production is at

hand, pointing out that a great

amount of additional floor space,

whose construction was started
last fall, will be coming into use
during March and April.
Mr. Knudsen recently estimated
that the United States would produce at least 18,000 military planes

of all types during the current
year. this being an average monthly
production of 1,500.

Others in close Touch with the
aviation industry believe that perheps as many as 20,000 military
planes can be looked for this year.

interpreted as indicating a substan-

giving a monthly average of more

planes sent to Britain. During December. Britain and Canada recelved 368 American planes and

half of 1941.

tial rise in the number of American

than 1,650. This estimate is based
on the belief that plane production

will rise rapidly during the last

WASHINGTON TIMES-HERALD

January 28, 1941

Air Production
Czar Urged by

War Department
to
Plea Expected for

Increase of 17,000
In Plane Program
JAN 28,1941LETN
War Department officials have

urged the new super defense
agency-the Office of Production
Management-to appoint an aircraft production "czar," it was
learned today.

The names of several prominent industrialists were said to
have been suggested for the post,

which would be similar to that
of Britain's Lord Beaverbrook. of.
ficials declined to say whether

Wendell L Willkie was among
them. Willkie revealed in London yesterday that he was there
t study aircraft production.
Increase in Program

At the same time informed

sources said Congress probably
would be asked to increase the
present military airplane construction program. which includes both
American and British orders, from
33,000 to 50.000 planes. The pro-

posal probably will not be pre-

sented until action has been com-

rleted on President Roosevelt's

British-aid bill.

Both revelations came as Gov.
ernment officials made every effort to speed plane production.

At present there is an aircraft

section in the production division of

the OPM. headed by Merrill Meigs,

Chicago publisher-flyer That

set-up, which deals with engineer-

ing. production planning. and
manufacturing problems. would
not be disturbed. The proposed
plane production dictator would
be charged with. among other
things. seeing that recommendations by Meigs section are carried
out.

Present Program

of the 33,000 planes now on
order. 14,000 are for the British
and 19,000 for the U. S. Army
and Navy. Production Chief WII
liam S. Knudsen expects that pro-

gram to be completed by July.
1942.

Knudsen it was learned. told
congressional friends last month
that he expected plane production. which now is approximately
800 a month. to reach the 1,500

mark by next mid-year and increase steadily thereafter. But
now. according to associates. be

-decreased his estimate

382

NEW YORK TIMES

January 23, 1941

Mr. Knudsen said that the note-

PREDICTS INCREASE
IN PLANE OUTPUT

Knudsen ith in a
Production of 33,000 Total
Before July 1, 1942
JAN 8 3 1941
PART WOULD GO TO BRITAIN

worthy-work of the OPM CONSTATED

In response to questions about

in trying "to get hold of shortages

the possible effect of the arms pro-

as they appear.

gram on automobile production.
Mr. Knudsen indicated that there

Then we try to spread the tools
as they are available he went on.

would be fewer changes in design,
since these required machine tools

'We are now a sort of follow-up

agency.

needed for defense program. but

The director said that there was

he thought that there would be an

no steel shortage and that he would
SOOD have a report on specific re-

ample production of automobiles.

He remarked that manufacturers
were cooperating to cut down the
use of chromium for decoration on
cars, since this material involves a

quirements.

He said that there would probably

be expansion of facilities for various types of steel as well as new
operations for increasing the pro-

heavy use of zinc.

How do you like your new job

duction of aluminum.

herwas asked

that stop orders issued by the Army

plfed with a shrug. "I have learned

It's the only job I got," he re-

Mr. Knudsen minimized criticism

Special to THE New YORK TIMES.

and Navy Department, because of
new designs, had interrupted the
flow of defense material.
Calls Army, Navy Cooperative

"I have had every cooperation

from the Army and Navy. he said.
"Sometimes something has to be

fixed. That's all. When some.

WASHINGTON, Jan. 22-William
S. Knudsen, Director of the Office

thing bursts, we have to fix it. It's

of Production Management, said to-

will burst.

no good making a lot of others that

"Do these changes mean that

day that he had not given up the
goal of producing by July 1, 1942,

he was asked.

divided between this country and
Great Britain. In a first press con-

He replied that he did not think
that change in design of an Item
necessarily interfered with

33,000 military airplanes to be
ference he remarked:

"I have not given up yet, although we have been slowed down
due to the enormous expansion.

He repeated the figure already
made public, showing production of

799 such craft in December, and
said that the makers would do "a
little better" in the current month.
Mr. Knudsen estimated that milltary aircraft production was divided
by categories into about 40 per cent

training planes and 60 per cent
combat planes of all types.

The four large plants, which are
being constructed for assembly of
bombers by automobile manufacturers, should be in operation by
the last quarter of this year, Mr.
Knudsen added. He expects one
plant at Kansas City to start op
eration first and to be followed by
others at Omaha, Fort Worth and
Tulsa.

Mr. Knudsen talked for forty-five

minutes of airplanes, raw materials, general manufacturing prob-

lems and labor in a press confer-

ence. Hereafter, it was stated,
there will be a conference every

two weeks, with Mr. Knudsen and
Sidney Hillman, co-director, alter-

(Jot.

plants have to stop all operations?

a

Four Bomber Plants Expected
to Go Into Operation by the
Last Quarter of This Year

plant's full operation.
Mr. Knudsen said that he saw no
present need for invoking priorities

in transportation, since the rail-

roads had been well able to handle

all defense transportation requirements.

When an Inquirer asked about the

status of the Reuther plan, submitted with a view to adapting automobile factories to mass production of airplanes, Mr. Knudsen said

that he had made no decision

He said he wishes to discuss this

plane with Sidney Hillman, co-di-

rector of the OPM. who is still con-

fined to Johns Hopkins Hospital

When Mr. Hillman leaves the hos

pital next week, Mr Knudsen will
talk over the plan with him and
with Philip Murray, chairman of
the Congress of Industrial Organizations.

Calls Tank Shutdown Temporary

Mr. Knudsen said that although

there was a temporary shutdown in

the making of light tanks. due

to necessary changes, production
would be resumed in a couple of

weeks. A total of thirty eight was
produced in December. He added
that the plant being constructed by

the Chrysler Corporation would
produce ten medium tanks a day.
working two shifts.

He declined to discuss thhe lease.

nating in holding them.
Bars Ald-to-England Questions

lend bill. but answered emphatical-

Mr. Knudsen answered all questions except those concerning the
number of airplanes actually being

actment The rôle of the OPM. his
said, would be to fill orders when

delivered to England. Asked for
hishis view as to the status of de-

fense operations, he said:

"We have got part of the toolingP job done and the biggest part
will be practically over the hill 1
ipril or May. I asked the mapufeturers for a three-months' speed-

up. and I think the program is getting ahead. As fact as we can put
people on, we are doing it.

ly "Yes" when asked If he thought

that Congress should speed its ed-

they placed under the pro
gram contemplated in the bill.

383

NEW YORK (N.Y.) HEPALD TRIBUNE - January 1, 1941

Herald ibune

17,000 Planes Forecast in 1941
As U.
S. Aviation Doubles Speed
JAN to 1 1941
By Ansel E. Talbert
The American aircraft industry

now producing at a rate which
would give an annual total of slightly

better than 8,000 planes, will turn
out more than 17,000 military aircraft during 1941, according to informed sources in the industry

In January about 750 planes are
expected to come off factory assem-

biy times throughout the Unit
States and within six months the
monthly output is expected to reach
1:600: More than 9,000 planes will be
produced after next Aug. 1, when the

industry Is really In stride. Virtu.
ally the entire 1941 plane output
will be a result of the training and
expansion programs of the regular
aircraft industry, for the automobile manufacturers' efforts at plane
building are not expected to turn
out finished products until very late
in the year.

Most of the aircraft manufac-

essentially a year of planning and
transing asserted that the industry

was ready to make the coming
twelve months ones in which mass
production was attained to the lim-

its of its abilities
A round-up of the leading aireraft manufacturers of the East
showed the following expansions

durnig 1940:

Bell Aircraft Corporation Buffalo:
floor space increased from 210,000

to 435,000 square feet; workers

from 1,160 to 4,300

Brewster Aeronautical Corporation

Long Island City, Queens, and
Newark N. J.: floor space increased from 170,000 to 850,000

square feet, personnel from 960 to
6,700

Curtiss-Wright Corporation Buffalo

and St. Louis: Floor space in-

creased from 799,000 to 949,000
square feet, workers from 4,981 to
11,600

Fairchild Engine and Airplane Cor-

poration New York: Floor space
increased from 84,000 to 105,000

turers emphasized that the present

square feet. working personnel

plane production figures of 700 a
month revealed in Washington by

Martin Aircraft Corporation Middle

the National Defense Admisory Com-

mission were not characteristic of

the real state of the industry
During 1940. they pointed out

large amount of the industry's
efforts had been directed toward explansion of plant facilities

Now, they added, the foundations

had been built and the industry
could concentrate on the real job
ahead of It-the mass production of

military airplanes. How well the

industry.had done its job, the manufacturers said, was shown in a sur-

vey completed yesterday by the
aviation news committee of the
Aeronautical Chamber of Commerce, of which most of the manufacturers are members The committee, of which Howard Mingos is
secretary, found that at the start of
1940 the industry had 11,983,896
square feet of working space and
that last night this had been expanded to more than 22,500,000
square feet.

About 165,000 aircraft production
workers will go back to their factory
jobs tomorrow after New Year cele-

brations according to the committee's survey. One year ago there
were only about 60,000 workers
employed on production lines and
assembly in the factories
Col. John H. Jouett. former Army
Air corps Officer, who is president of

the Aeronautical Chamber or Com-

merce, emphasizing that 1940 was

from 485 to 1.210.

River, Md.: Floor space increased

from 1,103,070 to 1,663,000 square

feet. personnel from 13,000 to

17,509

Republic Aviation Corporation Far-

mingdale. L I.: Floor space in.

creased from 200,000 to 230,000
square fet, personnel from 1,350
to 200
Vought-Sikorsky Division of United

Aircraft Corporation East Hart.

ford. Coan.: Floor space increased
from 300 0.000 to 370,000 square feet

personnel from 1,600 to 4.500

In the West, comparable expansions were made by Boeing Consoli-

dated. Douglas. Lockheed, North
American Aviation Northron Ryan

and Veilee

384

385
CHRISTIAN SCIENCE MONTTOR December 31. 1940

U.S. Plane Outlook for 194L:

1700 Christian
Monthly
Before August
Science
Monitor
the company's Buffalo plant is now

delivering eight pursuit planes a

power. are being dispatched to

the Middle East in increasing

numbers and have proved
their effectiveness there al-

ready. a Royal Air Force

day to Great Britain Several
months ago it was learned that
this same plant was turning out

from five to six P-40 pursuit planes

a day for Great Britain and to-

day's production is understood to

spokesman said today.

The disclosure indicated the
American-made planes might

be in use against Italians in
Africa or Albania or both.
The spokesman character-

Ixed as "entirely incorrect"

be of the same type.

Included in the current 700

planes a month production figure

cited yesterday by the National

Defense Advisory Commission are
bombers, pursuit ships, transports,

and trainers. Although no official

British press statements that
the American craft had proven
inferior to British planes.
"I prefer to take reports of
the Minister of Aircraft Pro.
duction based on official reports of test pilots, which say
American planes are very satIsfactory and of the utmost

figures are released on the percentage in each category. it is
reliably reported that trainers now

comprise approximately 50 per cent

of all military aircraft built in
this country.
Frankness Desirable

Satisfaction is being expresse
in aviation circles here today ove

value," he said.

the Commission's now formal ad

American aircraft will prove
a decisive factor in the air war

building but 700 military plane

in 1941. the RAF official also
told United States correspondents.

By Joseph G. Harrison
Staff Correspondent of

The Christian Science Monitor

WASHINGTON Dec. 31-Aviation experts here are still optimistic
over the 1941 plane production out-

look despite the fact that America
is ending this year with an output
of but 700 military planes a month
With more and more additional
floor space due for production during the coming months, industry
officials predicted today that the

United States will be building
mintary aircraft at the rate of
1,700 a month by next August and

that the year's total output may
reach 16,000.

mission that this country wa

and 2,400 airplane engines a month

It is felt that a frank admission o
production status is healthier that
vague rumors and "big talk con-

cerning 950 to 1,000 planes

,

LONDON. Dec. 31 (AP)American aircraft, flown to
England under their own

month heard so frequently early in
the fall.

Since the Commission's latest
figures are held to be the correct
ones and since they are far short

of earlier predictions, they will
give the public a clearer view of
the country's defense position as
well as impressing it with the need

of stepping up production as
quickly as posible, it is believed
While aviation circles in Wash-

ington maintain that the aircraft
industry is now working at the
fullest capacity permitted by the
availability of raw material. they
report that the industry is gradu-

a recognition that certain bottlenecks cannot be eliminated over-

ally increasing the number of
hours a week its plants are in
production as bottlenecks are

night and are tempered by an
admission that unforeseen ob-

tracted equipment regulated.

These predictions are based upon

stacles of a major nature may be
in the offing. Nevertheless, these
estimates are drawn from an analy-

sis of the industry's present productive capacity. its expansion

program. and from the current

rate of bottleneck elimination.
Example of Expansion

In discussing new production
facilities, an official for the aircraft industry pointed out today
that approximately 22,000,000
square feet of factory space are
now being devoted to building
planes and that additional space
of nearly the same size will be
finished. equipped with machine
tools and in production by next
August.

An example of the way in which
output is rising slowly but surely of

is furnished by the statement
Vaughan, President
Curtiss Wright Corporation, that

broken and the flow of sub-con-

386
WASHINGTON STAR - October 3, 1940
This level of 20,000 airplanes a

Air Plants Expected
To Finish Expansion

Programs in Spring
OCTLevel
3 1940
20,000-1
Due to Be Reached
Soon After March 1
Believing that quantity produc-

tion of combat airplanes at the

earliest possible moment is the

key to American security. as well

as the greatest contribution this

Nation can make to Great

Britain, under our policy of "all
aid short of war. The Star has
undertaken a survey to determine

the state of affairs in the Amer-

the final based
on
thes ican aircraft industry. This is

By JOSEPH S. EDGERTON.

Aviation plant expansion pro-

grams totaling approximately $200.-

000,000, which have been initiated
since President Roosevelt's declara-

tion of limited national emergency
on September 8. 1939, will be com-

pleted by late spring of 1941, according to a survey just completed
by the Aeronautical Chamber of

Commerce.

year CHIT be attained /
very great increase in the present
aeronautical manufacturing indus-

try pay roll of about 125,000. it is

estimated The lack of supervisory
officials is one of the most serious
personnel bottlenecks acting to slow
down expansion.

As has been pointed out earlier in
this series, the training of employes

for the aviation manufacturing in-

dustry is one of the great problems

of the defense program and one

which can only be solved by the

most thorough co-operation of in-

dustry and Government Vocational
schools, as well as factory schools,
now are training thousands of work.

ers for the industry. It is esti-

mated that 31,000 of the 125,000

workers in the industry now are

in training many of them for supervisory and administrative positions

in which their experience can be
used to best advatage.
Not Yet at Capacity.

The industry has not attained full

productive capacity with the plant
facilities now available. but is not

expected to change materially the
time spent in production now esti-

mated at 65 per cent of the total

working time, computed on a basis

of 24 hours a day. 7 days a week

as additional plant space becomes

available On the other hand, as
additional employes leave the
schools the amount of time the
factories remain in operation is
expected to increase

The power of regulating the time
actually worked by the factories is
possessed by the Army and Navy

All this expansion is within the
aircraft and aircraft engine industries and does not include expansion programs undertaken by subcontractors, who today have taken
over 15 to 20 per cent of the air

sion in arranging contract delivery

of plant expansion may be still

nearing the signature stage.

defense construction load.
The $200,000,000 total is greater
by approximately $50,000,000 than
previous estimates, and the amount
further increased during the winter.

According to the best available
estimates. the American aircraft
factories now are turning out about

1,000 airplanes a month, of which
about half are going to Great Brit-

and the National Defense Commis-

dates for airplanes and engines
These dates are determined by ne-

gotiation. It is considered probable
the Federal Government could further speed up the delivery of warplanes today if it chose by shorten-

ing the time limit in contracts now

As a general rule the industry is
not operating more than two full
shifts daily. Part-time third shifts
are employed chiefly to equalize
production of parts which cannot
be turned out with sufficient rapidi-

ain. This production level is ex-

ty during the two-shift period to

pected to remain constant through-

keep pace with general production

out the year. but the effects of

current plant expansion programs
will begin to show about January 1.

During January, February and

because of lack of tools. skilled labor
or supervision.

It is the consensus of officials

March production Is expected to
increase gradually to a level of

that the expansion program is proceeding along sound lines without
development of bottlenecks which

about 1,500 airplanes per month.
20,000 Level After March 1.

production schedules are attemed

Soon after March 1, 1941. accord-

ing to Aeronautical Chamber of

Commerce estimates, total production will reach a level of 20,000 airplanes a year. or about 40 per cent

of the 50,000 production total set
is as a goal by President Roosevelt a year ago.

cannot be opened by the time full
during 1941.

387
WASHINGTON STAR - September 26, 1940

U.5.10 Have 25,000
Planes by July, 1942,
Defense Aide state Savs

Program Will Create
3 1/2 to 5 Million Jobs,
Ad Club Is Told
The entire SEP.2.6 1940
program being undertaken by the
National Defense Commission about 25,000 plans- is either under

contract or embodied in letters of
intention filed with manufacturers
Robert W. Horton, director of information for the commission, said

yesterday.

Mr. Horton. speaking before the
Advertising Club of Washington at
the Raleigh Hotel said this number
of planes will be delivered by July
1. 1942

The speaker estimated that the
defense program will create from
3,500,000 to 5,000,000 jobs in industry. Thus far the Defense Commission has authorized contracts totaling $7,500,000,000 for everything

from "safety pins to battleships,

he said

Mr. Horton said the question is
frequently asked of members of the

commission as to why they do not
have more power in facilitating the

program One answer. given by
William S. Knudsen. in charge of
production, to a questioner on one

occasion, was. according to Mr.
Horton: "If I had any more power

I wouldn't know what to do with

it."

As to charges that the Government has neglected the defenses of

the Nation Mr. Horton said: "We

haven't neglected our defenses as
much as some people would have
you believe. It depends on whose
paper you read
The speaker said the commission has found co-operation "strong

and willing" in the main from

every ana.called on to aid#

388
NEW YORK (N.Y.) TIMES - September 11, 1940

PLANE PRODUCTION

Knudsen said the Allison company
gradually-was stepping up-produce
tion and soon would reach an output of 400 enginee a month

HAILED BY KNUDSEN
York Times
He Says in Buffalo Interview
We Will Have 11,000 Combat
Planes by April, 1942

Mr Knudaen estimated the total
United States engine production at
from 2,200 to 2,400 a month of all
horsepowers. and said that by July

1941, production would be up to

3,500 to 3,600 engines a month He

predicted that airplane production,

including military and large com-

mercial planes in the United States.

would
be 3,000 a month by July,
1941

Confirming that a trend toward
construction
of aircraft plants inBy The Associated Press
land for better protection against
BUFFALO, Sept. 10-In nineteen any bombing raids had been estab-

SEP 11 1940

months the Army and Navy will lished, Mr. Knudsen commented or

have about 11,000 combat airplanes the forthcoming location of new

Curtiss-Wright plant at Columbus,

fighters and bombers William 8 Ohio: and extensions to the comKnudsen of the National Defense pany's Buffalo and St. Louis plants
Workmen for the new factories
Commission said today as he ap
proached the and of a nation-wide will be supplied, he said, through
vocational schools running twentytour of aircraft plants with Major
four hours a day.
Gen. H. H. Arnold chief of the
North American Aviation, Inc.,
Army Air Corps.

whose plant is in the Los Angeles

planes.

was July 1, Mr. Knudsen said.

"We know the United States is area will establish another factory
making the best airplanes, he as Dallas
Texas,feet
containing
1.000
OCD square
of floor space
The
said, and added:
new plant extension will increase
"I believe that presently we can American Aircraft plants fluor
say we are making the most air- space by 250 per cent from what it
The figure of 11,000 was based on

a total production by April 1, 1942,
of 33,000 planes. 14,000 destined for

Great Britain and 19,000 for the
armed services of the United States.

General Arnold said that of those

to be delivered to the Army and
Navy, about 60 per cent would be
so-called combat types.

Mr. Knudsen said the current
American airplane production of
900 a month. Including both military and Targe commercial types,
would be doubled in twelve months

Seated In the office of Burdette S.

Wright, president of the Curtiss
Aeroplane Division of the Curtiss-

Wright Corporation he fixed at
three & day the delivery of new Cur-

tisa P-40 fighter planes to the Air
Corps.

General Arnold added that 524 P.

40's. one of the newest types of
American fighters, were on order
for the Air Corps, and that 140 had
been delivered

The visitors saw two of these
fighter planes. the American coun-

terpart of British and German pursuit craft. streak at 320 miles an
hour across Buffalo's Municipal
Airport in a rare public demonstra
tion of the progress of the nation's
air rearmament drive.

Delivery of P-40's to both the Air
Corps and to Great Britain's Royal
Air Force has been alowed down
by the limited manufacture of en-

gines by the Allison Engineering
Corporation a General Motors sub-

sidiary at Indianapoli out Mr.

NEW YORK (N.Y.) SUN

389

September 10, 1940

-

Admitting that some trouble had
in the production

of the Allison In-line liquid-combat
engines which power the P-40, and

U.S. ON WAY TO

AIR SUPREMACY
New York Sun

Says We Make the Best

which came from an Indianapolis
subsidiary of the General Motors

Corporation Mr Knudsen estimated that the Curtiss company
would receive 150 engines this
month

About eighty engines were deliv-

ered in August, he said, "and production will be up to 400 engines
month by the end of the year

He estimated the total United

Planes Now and Soon

States production at from 2,200 to
2,400 engines a month of all horse

Will Make Most.

production would be up to 3,500 to

SEP 10 1940
HE CONTINUES FACTORY TOUR

a

KNUDSEN FINI

powers. and said that by July. 1941

3,600 engines a month He said that

he could not answer a question as
to the sizes of the engines to be pro-

duced by that time in terms of
horse power

He aded that airplane production

Have 11,000 Combat Craft
19 Months Hence.
BUFFALO Sept. 10 (A. P.).-In
nineteen months the army and

mercial planes in the United States

would be 3,000 a month by July,
1941.

New Plant Sites.

Confirming the existence of
trend toward construction of aircraft plants inland for better pro-

a

Predicts Army and Navy Will

including military and large com-

navy will have approximately

tection against raids. Mr. Knudsen
commented on the forthcoming lo-

11,000 combat airplanes-fighters
and bombers- William 8. Knudsen.
chairman of the National Defense

cation of a new Curtiss-Wrig

plant at Columbus Ohio. and extensions to the company's Buffalo

Commission said today.

Workmen for the new factories
will be supplied. he said. through

Almost through with A nationwide

tour of aircraft plants in the com
pany of Gen. H. H. Arnold Chief
of the Army Air Corps. Mr. Knud
sen said, We know the United
States is making the best air-

and St. Louis plants

vocational schools running twentyfour hours a day.

North American Aviation, Inc.
with a plant in the Los Angeles
area. will establish another factory

planes, and added

at Dallas Tex.. containing 1,000,000

planes.

Knudsen declined to answer question as to other prospective factory

T believe that presently we can
say we are making the most airThe figure of 11,000 was based on

a total production by April 1. 1942.
of 33,000 planes, 14,000 destined for

square feet of floor space. Mr
developments inland. but it was un-

derstood unofficially that several
more such plants are in contem-

Great Britain and 19,000 for the

plation.

States.

and immediately contemplated will

armed services of the United

The expansion now under way

Gen. Arnold said that of those to
be delivered to the army and navy

increase American aircraft plants
floor space by 250 per cent over
what it was last July 1. Mr. Knud-

slightly more than 11,000 would be

sen said

approximately 60 per cent. or
so-called combat types.

He and Gen. Arnold. leaving for

Double in a Year.

Maryland by plane today will complete visits over A period of weeks

Repeating A statement made yes
terday. that the current American
airplane production, including both

out the United States Last on their

types, was 900 a month. Mr. Knud- be

at Baltimore.

military and large commercial

sen said that the figure would
doubled in the next twelve months
With frequent reference to data in

a brief case the chairman of the
Defense Commission seated in the

office of Burdette 8. Wright. presi-

dent of the Curtis aeroplane divis
ion of the Curtise-Wright Corporar
tion, fixed at three A day the fighter de

livery of new Curtisa P-40
planes to the Air Corps.

Gen. Arnold said that 524 P-40's
among the newest types of Amer
ican fighters were on order for the
Air Corps, and that 140 had been
delivered

to sixteen aircraft plants through

list this afternoon will be the Fair

child plant at Hagerstown Md.
- the Gilenn L Marten-tectory

390
NEW YORK (N.Y.) TIMES - September 3, 1940
And when it comes to equip

ent automobile factories 1

PLANE PRODUCTION

eed the new machine tools they
ave. By and large. they are set

p to handle automobile size units.

NOW 1,000 A MONTH

Early in New Year, Defense
Commission Reveals

hey would have to wait for the

becoming defense-minded is liable
to jump one of two ways. the com-

ower, while airplane plants turn
ut 1,000 horsepower Therefore

But the automobile Industry is

Swinging Nation Over to New
Industrial Basis Cited

SEP 1940

Special to THE NEW YORK

WASHINGTON Sept. 2-Present

airplane production of "roughly
1,000 airplanes a month' will be
increased to 2,000 a month early
next year, and to 3,000 by the end
of 1941, the National Defense Advisory Commission revealed today.

No information was given as to
how many of the planes currently
being produced and those to be
turned out under expanded schedules later are bombers fighters and
rainers.

The report asserted that by next
Spring mass production of defense
materials generally will be develop-

stance. can turn out airplane valves

1940, the report said. But

the beginning of next year. ma-

rial should begin to roll into the
senals. By the Spring of 1941

oduction should be rising

pidly.

jumps to the other extreme He
feels that it taken forever to build

go blind if he tried to see all the

Jars before this country can begin
16 have a proper defense machine &

to see from one end to another
the report says 'One man would

way himself.

Speaking of aircraft production

the document asserts that "the
whole process still starts as a pa
ternal gleam in a man's eye. add
ing significantly that "these days
that eye belongs to some Army or

Navy officer

Explaining the reasons for mak.

ing wooden models of planes. it

says that "this is done so that

machine gun won't turn out to be
firing through the middle of a gas
tank. or the wheels won' fold up
into the space where the pilot is
supposed to ply his trade

"A plane has more trick metal

alloys tucked away inside it than
you could ever learn to identify.

the report remarks. Take these

few hundred thousand rivets. They

all look just like the stuff that
of. Hardened metal rivets are

your aluminum saucepan is made

needed If the soft units are used,
when the 10-ton plane kisses the
"Under the policy of building a
two-ocean Navy we will have to

fleet ** the report stated "But it

is planned to double that size in
about half the time.

Tools Not the Only Problem
Explaining that machine tools are

only a potential hottleneck in

production of defense materials the

report said that. after materials

have been obtained for defense implements

The next thing for the manu-

facturer to do is reach for the near-

est catalogue and start ordering

machine tools Naturally they want

the machines delivered early that
afternoon so that they can go to

planning that goes into producing
. battleship a tank or some other

11 needs automobiles for private

e. and in the second place. we
e going, to need plenty of autoobiles and truck units
onal defense program

His neighbor. across the street

grown so big that it takes two men

d. "There are a couple of rea.
18 why this would not work so

In the first place the country

the highways rumbling with new

"A modern aircraft factory has

work turning out raw materials

11.

ing week he looks out the window
and is disappointed not to see the
sky darkened by new planes and
armored divisions

mission are noted

Why Auto Plants Will Wait
There has been quite a bit of
cussion as to why not turn over
, automobile factories to manu-

sturing airplanes, the report

gress for $10,000,000,000 to build up

Difficulties confronting the com-

about double the size of our present

Tooling up will take all the Fall

"He reads." it explains "that

our national defense The follow-

acturing airplanes

. necessary.

mission remarked

try. mandfacture
The companies
the
of specializing in

small pieces for the aircraft indus

ground at a hundred miles an hour
it will be the kiss of death

The Advisory Commission was
laced on record as favoring "volntary cooperation of government
id industry" with regard to airaft production until "It appears
at more authoritative measures

The American citizen. suddenly

President Roosevelt has asked Con-

ng rapidly and revealed that auto
nobile factories will not be "turned

ver." for the present. to manu-

takes more

turning out a great number of

mobile VRIVES

Difficulties Encountered in

ank Or rather It takes that mail

40 build a light tank. A heavy talk

in addition to their present auto

3,000 BY THE END OF 1941
New York Times

drawing exactly to scale. to build a

nd automobiles turn out 100 horse

machinery
before they really could
start production

ToBeIncreased to 2,000 Month

Some think a tank is a simple

Mille item to produce It takes
500 individual drawings each

into defense materials When hun-

dreds of manufacturers all start
doing the same thing it is obvious
the machine-tool industry can't de-

liver.

Vividly outlining the amount of

item. the report said

"It takes thirty tons of blueprints
for the design of a battleship The
gun carriage alone for a 155 mm

gun requires a thousand separate

drawings and 500 more are required

for the recoil mechanism Specificattons not contracts) often take

un full-size book

battleship-that it will be ten
The truth of course lies

sween these two

The latter statement is the thesis

of the report

391
NEW YORK (N.Y.) JOURNAL OF COMMERCE - September 3, 1940
In addition to increased employ-

SEES PLANE OUTPUT

The commission reaffirmed the

meal due is manufacturing activity
directly responsible to the defense
program. such as uniform factories

principles enunciated by the chiefult
ordnance of the United States Ange

plants manufacturing equipment for

be November 15. 1917, relative to the

the military services. and those en.

during the World War. in his order
relation of labor standards to etc.

gaged in the production of muni-

tent production:

UP50%BYYEAREND

tions tanks and other articles of

war, there will be Increased activities not directly concerned with the

In view of urgent necessity for
prompt increase in the volume of
manded of all those in any way M-

Prediction Made by Defense

defense program, it was pointed out
Many restaurants, stores and tober
businesses having no direct connec.
tion with the program, will be forced
to employ additional help to care for

Board-Predict More Jobs
on Production and Draft

the new business emnating from

workers in defense Industries.
Outlines Labor Policies

Outlining its labor policies, the De.

(Bureau of Journal of Commerce)

production vigilance is de-

sociated with industry test safe.

guards with which the people of this

country have sought to protect la.
gor should be unwisely and unneces.

earily broken down It is a fair assumption that for the most part

these safeguards are the mechanisms

of efficiency. Industrial history

fense Commission issued a statement

proves that reasonable hours, fair

WASHINGTON, Sept. 2.-An in.
crease of 50 per cent in plane production by the end of the year was
forecast today by the National De.

declaring that among its primary ob.
jectives is an increase in production

working conditions and . proper
wage scale are essential to high pro-

of materials required by our armed

be made to conserve in every way

ministrators leaders predicted that

future supply of such materials with

forces and assurance of an adequate

fense Advisory Commission, as Ad.

the national defense program in conjunction with the proposed conscription of 900,000 men for Army training

duction of supplies for the civilian

present emergency is that they
rually contribute to efficiency.'

the commission asserted, "entails

activity" in Industrial production,

bringing into production many of our

liam S. Knudaen, in charge of the

manufacturing and man power.

unused resources of agriculture,

the com mission revealed that Wil-

production division, after completion
of a two-week inspection trip of ma.

for plane factories and facilities, re.
ported that "aircraft manufacturers
are showing progress"
Sees 50 P. c. Production Rise

"New plants are under construction

and employment in industry rising
rapidly the commission reported.
"There la tremendous activity Plane

production should increase 50 per
cent by the end of 1940. Right now

work is under way to co-ordinate
demands of the Army and Navy to

avoid confusion and speed up produc-

tion.

The commission pointed out that
during the past week reserve supplies of raw materials necessary to
the defense program has been ma.
terially increased

Arrangements were made to in-

crease the stock pile of rubber by
180,000 tons. bringing reserves arranged for In this particular commodity 416,000 tons, the report con-

tinued.

"Over three quarters of the stock

pile of manganese has already been
arranged for Various other strategic

"This program can be used in the

public Interest as a vehicle to re-

duce unemployment and otherwise

strengthen the human fiber of our

nation. In the selection of plant 10.

cations for new production, in the
interest of national defense. great
weight must be given to this factor.
In order the tsurplus and unem-

ployed labor may be absorbed in the
defense program. all reasonable efforts should be made to avoid hours

in exceas of forty per week How-

ever in emergencies or where needs

of national defense cannot other-

wise be met. exceptions to this

standard should be permitted. When
the requirements of the defense pro-

gram make It necessary to work in

excess of these hours, or where work

is required on Saturdays. Sundays
or

holidays .overtime should be paid

in accordance with local practices
All work carried on as part of the
defense program should comply with

Federal statutory provisions affect-

ing labor whereve such provisions
are applicable This applies to the
Walsh-Healy Act. Fair Labor Stand.
ards Act. the National Labor Rela.

materials are flowing into the coun-

tions Act. etc.
Urges Compliance With Law

against shortages in case of emer-

There should also be compliance
with State and local statutes affect-

try every day. Insuring the nation

gency.'

Meanwhile, It was predicted in Ad.
ministration circles by the middle of
1941, when the defense program is

ing labor relations hours of work

3,000,000 additional men. now unem-

Adequate provision should be
made for the health and safety of

fully under way. approximately

ployed, will be required by Industry
for production of additional supplies

required by the augmented Army
and Navy An additional 1,000,000
men will be accounted for by the
mobilization of the National Guard
and inauguration of conscription. it

was estimated

The unemployment totals might be

workmen's compensation safe-

ty. sanitation etc.
employes:

"As far as possible the local employment or other agencies designated by the United States employment service should be utilized;
Workers should not be discriminated against because of age, sex.
race or color;

decreased both by conscription of
housing facilities should
unemployed workers and by hiring be made available for employees.

new workers to take the place.
those
into the Army for
training.

the pressing argument for maintain

Ing industrial safeguards in

"The scope of our present program

by one-half by next July.
Declaring that there la tremendour

possible all of our achievements
the way of social betterment

the least possible disturbance to propopulation.

would reduce unemployment ranks

duction . Every attempt should

JOURNAL OF COMMERCE

4,700 WAR AIRCRAFT
PLEDGED BY JULY,4

was explained The major part of
hermitary airplane program is
tained in the supplemental defense
appropriation bill which has passed
the House but is still pending before

the Senate. It was indicated ID

Journal of General

White House circles that this latter

Defense Commission Also
Sees 18,000 Yearly Output
AUG
By CLARENCE L. LINZ
WASHINGTON, Aug. 26.-Military
forces of the United States will be
equipped with 4,700 new type air.
planes by July 1. 1941. President

a

Production of military planes is now

duction. contemplating a rate of 18.000 planes annually, will be reached
by January 1. 1941, and that by the

The defense program may be near-

time. but contracts then in the works
had to be rewritten and to date only

thirty-three have been so revised and
signed

Letter of Intention Given
In order to save time. it was added.

the contractors were given a "letter
of

intention" by the Secretary of

War pending the tender of formal

contracts. The schedule of production worked out by the Defense Ad-

visory Commission contemplates 25.
000 completed planes ready for mill

tary service on July 1, 1942 the ful
number of planes that can be user

in view of the need for training so

members "annoyed' by suggestions

panded national airport program,

bill is holding back armament contracts because new rules are necessary respecting amortization and de

preciation, these sections of the
measure should be separated from

the rest of the bill and promptly
passed. It is maintained that it is

impossible to rush the excess profits

Preliminary studies for an ex-

now in progress. were discussed with

President Roosevelt today by Assistant Secretary of Commerce Rob-

ert H Hinckley Mr Hinckley, who
is in charge of civil aeronautics told

newspaper correspondents he was in

agreement with the President that

civil aviation is the backbone of na.

tional defense. adding that "what
ever is done should be on a long.
range program. That he suggested

should cover period of six years

There should be expansion of ex.
listing airportsand establishment of

new ones. of which there is "set
rious' need. Private air fields are

Gap Held Too Wide

inadequate to handle requirements
for military planes. it was indicated:
and the need is for expansion of municipal airports

It is argued that there is too wide

time. both for the growth of national

tax provisions because they are 40
highly technical and complicated.

"It is very important that this

a gap between 50,000 planes a year

aviation and for national defense

(Rep., Mich.) declared

purposes. Mr. Hinckley said
Federal funds for the proposed expanded program will have to be ap

contracts covered 753 bombers, 824

ley stated. adding. however, that
studies are now the preliminary

and the pitifully small number com.
ing into use, Senator Vandenburg

The report is said to show that on
June 1 unfilled orders under Army
pursuit ships and 364 observation
planes In addition there were 1.1a
other types of planes, primarily for

/

propriated by Congress Mr Hinck

stage and therefore. it is too early
to make figures public

The Bureau of Ordinance Navy

training. On August 17. latert date

Department announced today award

delivered for bombers numbered 2,029
while other types, primarily training air-

Illinois Steel Corporation Pittaburgh

which statistics are available un-

airships. approximated 1,867

planes. Navy figures of unfilled orders 149 as

June 2 showed 524 bembers.
of purruit planes and 154 observation
yet to be delivered, in addition
plance to T67 other types. primarily for train-

purposes On August 17 these
ing had increased to 1.221 combat

of negotiated contract to Carnegiefor increased facilities at a cost of
$2,275,000

The War Department made known

the placing of a contract with the
Hercules Powder Co. Wilmington
Del., for powder in the amount of
$16,075,000 Among other large con- &

tracts listed by it were Brown

Sharpe Manufacturing Co., Provi-

dence. R L. milling machines. $134.

figures and observation planes and 6.0 oth

200: Cincinnati Milling Machine &

poses.

chines. 3148,090

er types, primarily for training purlast

July

1

to

funds already made available was
about to be put under way at that

many additional pilots.

bill. 9F39 defined that of the tax

To man the planes now on contract

erable delay in getting contracts
placed Army procurement with

ing a showdown in Congress with

has not been sufficient haste in pass.
ing the rending supplemental defense

To Train 1,000 Monthly

the Army contemplates taking

can go ahead in the procurement of
materials for the building of a given

bill is being held up and that there

creased to 36,000 planes

It was revealed also that the ac.

8 per cent was the cause of consid-

that the defense program is being delayed because the excess profits tax

end of next year # will have in-

bill which the Senate will be called

that the defense program had bogged

down and to head off the demand for
Congressional investigation

tracted for.

member of the commission for pro-

ed in the $4,800,000,000 appropriation

lowable profits to airplane builders
from 12 per cent to a maximum of

number of planes later to be con-

the schedule of William S. Knudsen,

the Navy requires 4,028 for its purposes. This money would be provid-

futet charges by New Deal critica

ment to contractors that the latter

progressing at the rate of 10,000 a
year. but hope was expressed that

ships to complete its program. and

tion of Congress in reducing the al.

and giving assurances by the Govern-

gust 7.

mer still needs money for 14,394 air-

commitments for additional planes

contracts for definite performance

sion presented to him today. which
showed 6,749 planes on order Au-

and 3,006 for the Navy and the for-

upon to pass.

It was insisted that orders for 343
combat planes in the last 100 days
for all branches of the military servIce is no progress at all. It also was
declared that there is marked difference between the signing of actual

Rooselevt was told in & report of the
National Defense Advisory Commis-

only for 4,247 airplanes for the Army

fact is looked upon as a cause for
delay in making contracts or even
The report was seen designed to re-

by January 1944

1,000 men a month for training. A

August 27, 1940

provided

Cincinnati Grinders. Inc., milling ma

392

WASHINGTON TIMES-HERALD

August 9, 1940

Ready for Emergency

1,500-a-Month

Karl W. Fischer, speaking for
Transportation Commissi oner
Ralph Budd, said he was confident

Plane Output
Seen by Jan. 1

that rail, waterway, and air trans
portation necessary to keep de
fense materials moving. "are cap
able of meeting any emergency
which we may foresee
Sidney Hillman labor supply co

ordinator, reported that his di
vision had "helped to avert stop

Defense Board

pages in the automobile shipping

Reports Strides

tries' in carrying out the defense
program. Approximately 80.000

In All Divisions
Chairman William S. Knudsen
of the National Defense Advisory
Commission predicted last night
that "substantial deliveries" of na
tional defense materials, including
aircraft, tanks and guns, would be
obtained by January 1.

"I expect that the tooling up

shipbuilding and copper indus

persons. he added, are being
trained in vocational schools

Leon Henderson, in charge of

price stabilization said his di

vision was working on plans to
"help keep prices down and tan
bank and private funds for plant
expansion." He said there would
be no need for Government price

fixing "if supplies are kept adequate and new facilities are built
when needed."

process will more or less take up
the balance of this fall," he said.
"By spring 1941 production should
be going at a good rate."
Production Stepped Up

RFC to Loan Plants

Knudsen, in charge of production, and the other six members of
the defense commission were interviewed by radio commentators
in a broadcast carried on nationwide hookups by the three major

poration has made informal com-

The present plane production
of 900 a month. or 10.800 year.

were the results of recent discus

networks

he said. should be hoosted to 1,500

or 18,000 by January and "in
creased steadily thereafter,

Edward R. Stettius Jr. in

charge of raw materials reported
that synthetic rubber, now being
produced in limited uantities for
commercial use, "can ultimately
be used effectively in an emergency' as a substitute for crude
rubber.

150 Millions for Planes
Rv JOHN M. FISHER
The Reconstruction Finance Cor-

mitments for loans of 150 to 200

million dollars for new airplane

factories. Federal Loan Adminis
trator Jesan Jones disclosed yes

terday before the House banking

and currency committee
Jones said these commitments

sions with William S. Knudsen
production co-ordinator for the

National Defense Commission The

money would be used for con

struction of six plants. Jones said

He explained that 7 or 8 million
dollars has been earmarked for the

Packard Motor Car Company to
enable it to expand facilities for

handling a contract for 9.000 Rolls

Royce engines of which the Brit

ish are to get 6.000 and the United

States 3,000. The balance of the
money will be loaned to leading
airplane companies

He told the committee of the
RFC's lending activities. while
irguing in support of a provision

n the 500 million dollar bill for
oans to Latin American countries

through the Export Import Bank

393

WASHINGTON NEWS

July 27, 1940

394

Knudsen Predicts
1000-Plane Output
By United Press

JUL 27 1940

Government officials today predicted American military
plane
production will reach 1000 planes a month by
the end
of 1940.
Their forecast coincided with reports then only If Britain band 38 new
that Congress
soon
be asked to factories in this country, he reported
modify
provisions
of may
the Vinson-Tram
He emphasize that he has made no
mel law, which limits plane manufaccommitment
to the British purchasing
turers to an 8 per cent profit on Govmission the proposed orders,
ernment contracts

x

plaining he has been asked merely to

Members of arevealed
House Appropriations
up cost estimates for new plants
sub-committee
that two de- work
and equipment.
fense commission members-Production

Co-ordinator William 8. Knudsen and
Edward R Stettinius, in charge of faw

materials-hav reported that because
of the provision some sub-contractors

have refused to handle Government

orders

The 1000-plane-a-month forecast was

based on Mr. Kaudsen's progress report, which disclosed that the schedule for August calls for completion of

895 planes. Changes in type of pro-

duction may cause a slightly lower rate

In September, he said, but November
output is expected to top August.

Great Britain's request for 3000

American-built planes a month can
not be fulfilled before mid-1942 and

395

TIMES-HERALD - April 20, 1940

25,000 Planes a Year

Predicted for U. S.
Production Rate Expected by End of 1940,
Admiral Towers Tells Senate Group
By DORIS FLEESON

America's air defense program is over the top with our aircraft manufacturers producing sensational fighting planes at a
swift and constantly increasing rate, the Senate Naval Affairs
Committee was assured yesterdays

by Rear Admiral John H. Towers,

chief of the Navy's Bureau of
Aeronautics

type planes originated in the
White House.

The naval chief replied that the
program was drafted in the War

Since the outbreak of the war.
Towers said, American capacity

Department and the Navy was di-

to produce warplanes has in

rected to follow suit by the Presj.

creased from about 4,000 to 17,000

dent.

units annually and the end of this
expansion is not yet

been reported in American air

Startling Advances

Great as this achievement is
he went on. further startling ad
vances may be expected soon
Calmly the veteran pilot. whose
distinguished career in aviation
goes back to its earliest days, told

No instances of sabotage have

craft factories. the Rear Admiral
testified. Workers there. he ex.
plained, must be American citizens and are closely watched by
Government inspectors

To bulwark Towers' defense of
the practice of permitting foreign

governments to buy late model

U. S planes. Maj. Gen. H. H.
Arnold, chief of the Army Air

the Senators that:

Corps, will probably be called be

By the end of 1940, the U. S
will probably be producing first

David I. Walsh (D.), of Massachu-

class airplanes at the rate of
25,000 annually. Ultimate speeds,

he said, may reach 750 miles an
hour or 12 1/2 miles per minutewhich equals the speed of sound.

It is estimated by naval experts

here that Air Marshal Goering
whose Nazi air armada has ter

rorized Europe for two years had
at the beginning of the war about
10,000 warplanes.

fore the committee. Chairman
setts, announced

Aircraft Carriers Needed

The Navy's fight for additional
tonnage was renewed before the

committee yesterday by Rear Ad-

miral Samuel Robinson chief of
the Engineering Bureau. He de
clared that existing shipyards can
handle the proposed 11 per cent
expansion of combat strength and

that in two years enlarged facil.
ities will enable them to handle
another 14 per cent increase

Sales to Allies Aid U.S.
Sales of warplanes to the Allies
made possible the expansion of
aviation manufacture here and
the subsequent healthy state of
our air defenses. Towers declared
in stanch support of the Roosevelt
policy. The Army and Navy. he
went on. can buy planes at mass
production costs because of foreign purchases.

Since the war began, Towers
that foreign
have bought

Robinson declared that more
aircraft carriers are needed and
suggested that the Navy be al.
lowed to make contract authorizations for new vessels without
congressional authority.
Backbone of Defense

Striking statistics supporting
the Navy's contention that "ships

and more ships' are the backbone

of this nation's national defense,
were placed before the committee
by Senator Gerry, of Rhode Island,

aircraft here

They showed that aircraft has

3,000 have been

tons of merchant shipping since

succeeded in sinking only 38,270

estimated ments about fighting about of shipped govern- which 7,000

The bulk of this trade. he said

the European conflict began.
was with Great Britain and Losses
due to aircraft, Gerry said,

France No planes, he said. had been sold

Italy which is competing with

American to industry for dominance

comprised 6 per cent of all mercantile shipping sent to the bot
tom. contrasted with 592,000 tons,
or 30 per cent. by submarines. sank

of South American markets.

Mines. his figures showed,

War Department Policy

123 ships, or 25 per cent. show

Veteran

isolationist

California

Senator
asked

Tow

"I

the

the
think
campaign

ers eign Johnson If governments the of policy to of buy allowing our latest for- Gerry Britain commented has not

to

figures
starve
been

out

that
Great

successful."

396
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE August 7, 1941

Secretary Morgenthau

TO

Mr. Kamarck

FROM

Subject:

Airplane Deliveries

Summary

1. A total of 56 planes shipped is reported in the latest

statement received. Except for the delivery of five Tomahawks
to the Middle East, all the planes were shipped to England.
2. There has been practically no shipment of planes

reported to the Far East in the last six weeks. In this period,

only six planes were sent to the Far East.

397

-2-

Division of Monetary
Research

Airplane Shipments to the British

(From February 1 to August 3 by air
January 11 to July 12 by sea)

Table A. - Shipments by Area
Total

Latest

Reported

Week

To Date

45

652

To the United Kingdom
Light and medium bombers
Heavy bombers

Naval patrol bombers
Pursuit

41

0

o

72

6

23

Total to United Kingdom

788

51

To the Middle East
Light and medium bombers
Pursuit

150
486

0

5

Total to Middle East

636

5

To the Far East
Light and medium bombers

Naval patrol bombers
Pursuit
Trainers

6

0

0

9

0

145

0

55

Total to Far East

215

0

Totals
Light and medium bombers
Heavy bombers

Naval patrol bombers
Pursuit
Trainers
Grand Total

808

45

41

0

81

0

654

11

55

0

56

1,639

398

-3-

Table B.

Division of Monetary
Research

Shipments by Types

-

Total
Reported

Latest

To Date

Week

Bell Airacobra (P-39)
Boeing B-17

Brewster Buffalo
Consolidated Catalina
Liberator
Curtiss Tomahawk

Douglas Boston I

Boston II

Boston III

Glenn Martin Maryland
Grumman Martlet II
Lockheed Hudson I

Hudson III
Hudson IV
Hudson V

North American Harvard II

14

6

21

0

145

0

0

81

0

20

486

5

1

0

72

o

6

113

0

150

0

9

1

O

76

19
0

18

16

340

0

55

4

37

United Chesapeake

Grand Total - All Types

56

1,639

399
4-

Division of Monetary
Research

Table C. - Plane Deliveries to the British by Weeks
Light

and Medium

Week

Bombers

Ended

Feb. 8
Feb.
Feb.

22

15
22

Mar. 1
Mar. 8
Mar. 15
Mar. 22
Mar. 29

*

35

-

-

26

*

*

*

*
*

*

21
21

2

23

May 10 *
May 17 *
*

Aug. 3

*

*

*

2

3

3

2

139

27

-

62

25
10

-

37

-

29

-

-

31

22

-

41

18

-

46
52

-

32

-

28

56

15
10

27

106

19

-

100

25

-

65

21

-

59

-

-

46

20

-

51

52

-

50

-

84
96

-

42

3

20
48

-

3

85
74

4

3

8

5

2

1

-

45

-

19
34

-

101

-

2

30
28

28

-

73

1

13

26

25

100

27

2

1

10

Total

-

7

61

37

*

4

1

-

36

*

3

-

-

61

July 13
July 20
July 27

5

17
25

20

Trainers
-

-

39

16

Pursuit

3

-

May 3

July 6

-

7

Apr. 19
Apr. 26

June 1
June 8
June 15
June 22
June 29

Patrol
Bombers

-

12

May 25

Heavy

Bombers

-

*

Apr. 5
Apr.

*

Naval

7

-

5

-

55

5

7

4

4

1

41

-

1

32

-

45

-

-

24

-

69

-

56

45

-

-

11

808

41

81

654

55

The date given 18 for shipments by air. Shipments by

water start three weeks earlier. That is, the statement

reporting the shipment of planes by air for the week ending August 3 would report the shipment of planes by water
for the week ending July 12.

1,639

400
EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE FOR EMERGENCY MANAGEMENT
WASHINGTON, D.C.

August 7, 1941.

Dear Secretary Morgenthau:

I wish to thank you for your letter of
August 5th, designating Mr. Harry White as the
Treasury representative of the Committee to deal
with the use of Lend-Lease funds to carry out the
Hyde Park agreement with Canada.

Sincerely yours,

Oscar S lot
Oscar S. Cox

Hon. Henry Morganthau, Jr.,

Secretary of the Treasury,

United States Treasury Department,
Washington, D. C.

401

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate General, Shanghai, China,
via N.R.

DATE: August 7, 1941, 3 P.S.

NO.: 1034
1. The report ands by American bankers is that the

local export business has practically reached a standstill
so far as it concerns new business. At least for the
present such business has been paralyzed by the freezing
order since the banks are (8) to offer accommodations due

to the difficulty of determing what constitutes business

that is legitimate.
Likevise, the traders are confused by the complexities

of the regulations. For the most part, the smaller traders
are not trying to go ahead. Little exchange business is
being done by the banks. without doubt, discouragement
is in evidence everywhere.
There has not been such a despondency in regard to

the economic future of Shanghai since the beginning of

hostilities in 1937. The Americans pessimistic outlook
extends beyond business matters.

It is freely predicted that there will be an economic
struggle for a bare existence this winter by many thousands

of Chinese workers. This will be due to the fact that
many of the workers will probably not have employment because

of a general (8) depression and also because there is a lack
of imported raw materials for manufacturing purposes.
340.00

402
-2-

The problem of fuel is gradually becoming worse in

spite of the fact that most diligent efforts have been
made to improve the situation. The possibility of political
agitation, leading to unrest, is another potential factor.
2. Apparently, the full import of the freezing order
has not yet fully been realized by the Chinese except in
banking circles and among the leading businessmen.

The order directly affects the war effort of Japan,
and the Japanese are somewhat concerned. There is some

doubt as to whether the Japanese have a proper conception

of the ultimate effect which the freezing order will have
on their war effort as we as on the Japanese economy in
Shanghai and other places in the Far East.

3. It will probably no longer be profitable for
American businessmen in Shanghai to engage in trade,

since the freezing rules as they are now applied by the
bankers and the difficulties which are experienced by
the traders under these rules restrict the American
businessmen's activities in Shanghai.

This pietare of the state of mind which prevails in
Shanghai at the present time is presented in the knowledge
that the situation may be eased by some unforeseen circumstance

at or that - on the other hand--it may further deteriorate
to the point where there may be a general exodus, in the
not distant future, of American businessmen from the port.
This message was sent to the Department; the text of
the

403

the message code was sent to Tokyo by air mail. It was
repeated to Peiping and Chungking.
LOCKHART

EA:PAK

LECHINICV
71

840.51 Frozen Credit#/2940

the

13

bW

S

28

404
TELEGRAM SENT
PM

GRAY

August 7, 1941.
6 p.m.
AMEMBASSY,

TOKYO (JAPAN) .
RUSH

478.

The Department desires that you call at the
Japanese Foreign Office and leave an aide-memoire

reading substantially as follows:
QUOTE With reference to Executive Order 8389,

as amended, which, among other things, prohibits

banks and banking institutions from making transfers

of credits or permitting withdrawals from accounts in
which Japan or nationals thereof have an interest,
except under licenses and regulations issued by the

Secretary of the Treasury, the following procedure is
provided in order that appropriate consideration may

be given for the issuance of requisite licenses permitting the Japanese Government to withdraw funds for

the maintenance of its diplomatic, consular, and other
official establishments in the United States and permitting the official personnel of such ostablishments
to withdraw funds for living and traveling expenses
in

405

-2- #478, August 7, 1941., 6 p.m., to Tokyo.
in the United States. The procedure outlined below
is conditioned upon the Japanese Government according

reciprocal treatment.
A. In order that appropriate consideration may
be given to the issuance of the aforemontioned licenses,
the Japanose Government is requested to furnish this

Government with a list of the various official accounts
of the official Japanese representation in Washington,
whother in the name of the representation, any indiv-

idual. or otherwise, indicating the name of the
account, the namo and address of the bank in which
each such account is maintained, the namos, addresses,

and official positions and the nature of the payments
customarily made from the account, and the natur e,
purposo, and amount of the monthly payments which it
is desired to make from each account. The Japanese

Government is also requested to furnish this Govern-

ment with information as to how it is proposed to
replonish such accounts, indicating the source of the
funds to bo used in replonishing such accounts, and

the amount of funds which it is dosired to transfor
to oach such account monthly. The Japanese Govern-

mont is requested, moreovor, to furnish assurances to
this

406

-3- #478, August 7, 1941, 6 p.m., to Tokyo.
this Government that any payments which may be licensed

from such accounts will be made solely for the official
expenditures of the Japanese representation in the
United States. Banks maintaining these accounts will
be required to make appropriate reports to the Treasury
Department.

B. Information and a ssurances similar to those
requested in Paragraph A above should be furnished
by the Japanese Government with respect to each
account maintained by the Japanese Consulates and

Consulates General in the United States, as well as

by all other official establishments maintained by
the Japanese Government in the United States.

C. The Japanese Government is requested to furnish

this Government with a list of the personnel of the
official Japanese representation in Washington, as

well as a list of the personnel of the Japanese
Consulates, Consulates General, and other official

establishments in the United States, indicating in
each case the name of the personal account or accounts
maintained by each such person and the name and

address of the bank in which each such account is

maintained. At present, undor General License No. 11,
$500

407

-4- #478, August 7, 1941, 6 p.m., to Tokyo.
$500 per month may bo paid out without any further

license for living and traveling expenses in the
United States of the person in whose name the account

is maintained and his family. Accordingly, it is
not anticipated that licenses will be issued in those
casos in which the accounts can oporate within the
provisions of General License No. 11. Should additional
amounts be required, consideration will be given to
the issuance of licenses allowing withdrawal of such
additional amounts. The Japanoso Government is

requested at the time of furnishing the list, to
furnish assurances that such accounts contain only

personal funds, that such funds will be usod only for
the personal exponsos of the account holder and his

family within the United States, and that this
Government will promptly be advised in the ovont

that the account holder leavos the United Statos or
coasos to be connected with the Mission. UNQUOTE.

At the same timo that you leave the forogoing
aido-memoiro the Department dosiros that you make an

oral statement, loaving a copy thoroof wi th the

Foreign Office, reading substantially as follows:
QUOTE

408

-5- #478, August 7, 1941, 6 p.m., to Tokyo.
QUOTE This Government wishos it understood that
by SUBQUOTE reciprocal treatmont END SUBQUOTE thore is

moant rociprocal treatmont in all arcas undor the
control of the Japaneso Government so as to permit
this Government to withdraw funds for the maintenance

of its diplomatic, consular and other official
establishments in Japan, Manchuria and all areas

occupied by Japanoso forces, and to pormit the official
personnol of such ostablishmonts to withdraw funds

for living and travoling expenses in Japan, Manchuria
and othor aroas undor Japanese control. UNQUOTE
HULL.
(DA)

FE:JMJ:MHP
AA:DH

FE

PA/H

A-A

COPY

409
(Copy of memorandum received from Mr. Knoke of the Federal Reserve
Bank at New York by Mr. Cochran in the Treasury at 10 a.m., August 7. 1941.
Legation.) copying message received by Financial Attache Havas from the Hungarian

Pursuant to the German Hungarian economic negotiations

terminated a few days ago we have decided to unify the exchange

premium on all foreign exchange with the exception of the Leu
whereon we have no premium at all.

The unified premium is identical with the eristing
premium of the Reichamark.

Regarding the Swiss Franc and the Swedish Krona the

above-stated decision will be carried through in the nearest
future.

As far as the Italian Lire is concerned negotiations
are in progress with the Italian exchange authorities as according
to the existing understanding between Hungary and Italy the
premium on the Lire can only be modified in common agreement.

The unification of the premia does not apply to the USA
Dollar and the Pound Sterling.
The quotation of these foreign exchanges and currencies

has been suspended considering the fact that in present circum-

stances we have no trading possibilities with the British Empire
and the United States and in consequence of measures applied

towards our balances in those countries we have no possibility
of making or receiving payments in either of them save for
sporadic small licenses obtained in the United States.

This implies that the National Bank will neither buy
nor sell Pound Sterling or Dollars.
As regards our debt service the last quotation will be
applied.

Cable received in Washington, August 2, 1941.

COPY: 8/7/41

410

COPY

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Managua, Micaragua

DATE: August 7, 1941

NO.: 129
STRICTLY CONFIDENTIAL.

The following questions were asked me yesterday by

the Niearaguan Minister for Foreign Affairs with respect to
what the policy of his Government should be toward firms
on The Proclaimed List of Certain Blooked Nationals:
(1) What should be the policy of the Agencia Terminal

toward old clients with respect to merchandise in port, in
transit, or on order? Such merchandise originates in the
United States, Japan and other countries and the Agencia
Terminal is owned by the National Bank of Nicaragua.
(2) The Bank has cotton worth $90,000 ready to ship
from Corinto for which merchandise from Japan has not yet
been received. When such merchandise from Japan is in

transit or under contract as a part of the compensation
agreement between Japan and Nicaragua, should Nicaragua

accept such merchandise when it is consigned to firms in
Niearagua whose names appear on the Listi

(3) Are funds covered by an irrevocable letter of
credit from a Japanese firm drawn to the credit of the
National Bank of Niearagua and held in New York by the

National

411

National City Bank regarded as Nicaraguan and no longer as

Japanese in character, or is such letter subject to the
United States decree freezing Japanese funds?
(4) The National Bank of Niearagua owns the Compania

Mercantile de Ultramar. Should the latter firm deoline to
buy coffee from black listed firms or individuals?
(5) Should the National Bank of Nicaragua's banking

operations be discontinued in so far as black listed firms
are concerned?

It was emphasized by the Minister that the Nicaraguan
Government in its endeavors to completely cooperate with the

United States is anxious to go to extremes. The Department's

reply through this Legation will be considered definitive
by the Niearaguan Government, though the Niearaguan Minister

in Washington will be available for the purpose of discussing
these questions with the Department.
BOAL

412
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
Miss

DATE August 7. 1941.

For
TO

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns

£13,000
£53,000

Federal Reserve Bank of New York sold £20,000 registered sterling to American

Express Company.

Open market sterling was quoted at 4.03-3/4, unchanged, and there were no
reported transactions.

In New York, closing quotations for the foreign currencies listed below were

as follows:

Canadian dollar
Argentine peso (free)

10-7/8% discount

Colombian peso
Mexican peso

.2385
.0505
.4380
.5800
.2070

Cuban peso

1-1/16% discount

Brazilian milreis (free)

Uruguayan peso (free)

Venezuelan peso

.2675 (off .0050 on thin market)

In Shanghai, the yuan rate was off 1/16 at 5-1/324. This is the lowest since
May 14, 1940, when the rate was 4-15/16 Sterling declined 3/4 to 4.00-1/2
There were no gold transactions consummated by us today.
No new gold engagements were reported.

The London fixing prices for spot and forward silver were unchanged at 23-7/16d.

The U. S. equivalent of this price is 42.55.
The Treasury's purchase price for foreign silver was unchanged at 35 Handy
and Harman's settlement price for foreign silver was also unchanged at 34-3/44.
We made two purchases of silver amounting to 150,000 ounces under the Silver for
Purchase Act. Of this amount, 100,000 ounces represented domestic inventory
spot delivery and 50,000 ounces consisted of new production for future delivery.

HMV.

413
BRITISH EMBASSY,
WASHINGTON

PERSONAL AND SECRET.

August 7th, 1941.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a copy

of the latest report received from London

on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Halifax
The Honourable

Henry Morgenthau, Jr. ,

United States Treasury,
Washington, D.C.

414

T&L GRAN FROM LONDON DATAD AUGUST 5th, 1941.

German ship "Frankfurt" 5522 tons,
intercepted 600 miles southweat Azores by ocean boarding

vessel, was scuttled, 26 prisoners taken remaining twenty
of crew missing. early on 5th S L convoy attacked
west of Ireland, 5 ships torpedoed. U-boat was sighted
and bombed by escort vessels.
2.

Benghazi was bombed night of 2nd/3rd by

thirteen ellingtons, who started fires. Port Said and
Suez attacked night of 3rd/4th by small force of enemy
bombers. No serious damage but canal is closed.
3.

Abyssinia,

August 2nd, we repulsed Italian attack in
Wolchefit area and counterattacked, killing 26 Italians

and taking 13 prisoners. Our casualties slight.
4.

Russia.

Some German progress south east Porkhov

and also north and south Kieff. Indications of temporary
deadlock at Smolensk. German casualties to end of July
estimated one million.

415
RESTRICTED

G-2/2657-220;

No. 461 M.I.D., W.D. 12:00 M., August 7, 1941.

SITUATION REPORT

I.

Eastern Theater.

Ground: The Russian communique of August 7 reports

fighting in a new area: "In the direction of Kakisalmi", a

town in former Finnish territory on the northwest shore of Lake
Ladoga.

Very little information has been received from
the rest of the front. The encircled Russian group near Uman, in
the lower Ukraine, continues to maintain a strong defensive.
Air: The Soviet reported action against German ground
units and advance air bases.

II. Western Theater.

Air: Minor activity.
III. Mediterranean Theater.
Air: British planes continued night attacks on Sicily.

RESTRICTED