Full text of Diaries of Henry Morgenthau, Jr. : Volume 432 : Part 1

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DIARY

Book 432

August 12 and 13, 1941

.

-

Book Page

Agriculture
See Financing, Government

-B Budget, Bureau of

Continued expansion of program, even to the point
of tax program, discussed at 9:30 meeting 8/12/41

432

18

-cCanada

See War Conditions
China

See War Conditions

-DDefense Savings Bonds
See Financing, Government

-3Economic Warfare
See War Conditions

-FFinancing, Government

Agriculture: Verification of $2 billion expenditure
for - Eddy memorandum for White - 8/13/41

368

Defense Savings Bonds:

Retail Advisory Committee meeting - 8/12/41
"Any Bonds Today?" - Kuhn report - 8/13/41
France
See War Conditions: Lend-Lease (Free French)

Free French

See War Conditions: Lend-Lease

French, Free

See War Conditions: Lend-Lease

-N-

Northrop Aircraft, Incorporated

See War Conditions: Airplanes

150
357

-UBook Page

United Kingdom

See War Conditions: Military Planning
W-

War Conditions

Airplanes:

Deliveries by months, July 1940--July 1941 copy sent to FDR (August 14, 1941)

432

365

Northrop Aircraft, Incorporated: Memorandum
on request to Reconstruction Finance

Corporation for loan - 8/13/41

377

(See also Book 433, page 183; Book 435,
pages 32 and 33)

Canada:

"Requisition or re-registration of Canadian
holdings of United States securities and
China:

other investments" - Coyne memorandum given
to Cochran - 8/12/41

Fox reports - 8/12/41
Burma Road report by three American motor

transport men (Arnstein, Hellman, and Davis)
reported ready - 8/12/41
(See also Book 433, pages 286, 288,

168

181,184

191

and 291)

Economic Warfare:
Kamarck-Ullman memorandum - 8/12/41

144

Exchange market resume' - 8/12-13/41

197,392

Lend-Lease:

Free French: Status of lend-leasing defense

articles to French Equatorial Africa and

obstacles placed in the way by State

Department discussed in Cox memorandum 8/12/41

Military Planning:
Report from London transmitted by Halifax 8/12/41

148

199

War Department bulletin:

German pioneer technical electrical unit in
war - experience of - 8/13/41

393

1

TREASURY DEPARTMENT

Washington

Press Service
No. 27-0

FOR RELEASE, MORNING NEWSPAPERS,

Tuesday, August 12, 1941.
8/11/41

The Secretary of the Treasury announced last evening that
the tenders for $100,000,000, or thereabouts, of 91-day Treasury
bills, to be dated August 13 and to mature November 12, 1941,
which were offered on August 8, were opened at the Federal
Reserve Banks on August 11.

The details of this issue are as follows:
Total applied for - $288,823,000

Total accepted - 100,118,000
Range of accepted bids:
- 100.
High

price - 99.971

If

If

Average

- 99.969 Equivalent rate approximately 0.123 percent.
II

Low

0.114

(98 percent of the amount bid for at the low price was
accepted)

-00o-

2

August 12, 1941
9:30 a.m.
GROUP MEETING

Present:

Mr. Gaston

Mr. Sullivan
Mr. Haas

Mr. Foley
Mr. Thompson

Mr. Cochran

Mr. Bell

Mr. Schwarz
Mr. Blough

Mrs. Klotz

H.M.Jr:
Gaston:

All right, Herbert.
Metro-Goldwyn-Mayer News has some films that you

might like to see. They are films of the a ction
in Crete and in Russia, news films. They came
in under rather peculiar circumstances. M.G.M.

has an arrangement with the Army by which they
pick up films of Germany made in Europe and

turn them over to the military attache in Lis-

bon, and the military attache sends them over
in the pouch and the Army makes copies of them
and then turns them over to Metro-Goldwyn-

Mayer, all of which is strictly illegal, but
since the Army wants it that way, I imagine

it is all right.
H.M.Jr:

What is M.G.M. - they pick them up in the first
instance?

Gaston:

They buy them in the first place from some
source in Eurpoe. Then they turn them over
to the military attache in Lisbon and he
sends them over in the pouch - over by

3

-2courier over here. They make copies of them
here and then turn the film back to MetroGoldwyn-Mayer, so Brown here, the M.G.M.

agent, was a little worried about it. He came
in to ask us what they should do about duties,

since they are original negatives. I think
the best thing to do is probably nothing.
H.M.Jr:

Well, don't ask me.

Gaston:

They may be interesting. One they have now

is Crete, and the other is on the Eastern

Front.
H.M.Jr:

How long do they take?

Gaston:

I don't know. They are newsreels. They are
probably not very long. I will ask Brown today

how long they are.
H.M.Jr:

When would be a good time to see them?

Gaston:

We can have them any time. We can bring them

over any time. They are not going to release
them. It probably would take not more than
fifteen minutes apiece.

H.M.Jr:

Well, why not have them and if I am not busy
around four o'clock, I will come down and see
them.

Gaston:

All right. Nothing else.

Foley:

Joe says --

H.M.Jr:

Excuse me. We will set it tentatively for four

o'clock.
Gaston:

Yes, I will have the films here.

H.M.Jr:

In the room here, anybody is invited.

4

-3Foley:

Joe says it looks as though the Banking and
Currency Committee is conducting a filibuster

with Leon, and they want to string him out until
Friday and then adjourn until the Republicans
agree on some kind of a substitute program.

However, they have agreed no matter what the

situation is to break on Thursday morning and
let you testify and then they go back with Hen-

derson.

H.M.Jr:

Tell Joe as soon as you see him after this
meeting that I want him to be thinking of questions to ask me.

Foley:

I did, and he has got a list.

H.M.Jr:

Good.

Foley:

I spoke to John Pehle yesterday about the Swiss
situation in New York, and he sent Towson up to

New York last night. He will be back tomorrow
and give us a report.
H.M.Jr:

I would like to get it.

Foley:

Yes On the question of fees to procurers of
contracts, so far as the Procurement Division
is concerned, they have got two forms of contract,
a long form and a short form. The short form
doesn't have anything in it. The long form does
say, "Covenant against contingent fees. The
contractor warrants that he has not employed

any person to solicit or secure this contract

upon any agreement for a commission, percentage,

brokerage, or contingent fee. Breach of this
warranty shall give the Government the right to

annul the contract, or, in its discretion, to

deduct from the contract price or consideration

the amount of such commission, percentage, broker-

age, or contingent fees. This warranty shall

not apply to commissions payable by contractors
upon contracts or sales secured or made through

bona fide, established commercial or selling

5

-4agencies maintained by the contractor for the

purpose of securing business." "
H.M.Jr:

When it is all lined up, can you or can you not
get a commission?

Foley:

Well, the kind of a commission that we are
aware of, that is being paid by some fellows
here to get contracts from the Army, can't be

paid if you take this kind of a contract with
the Procurement Division. Now, I would like

to see the thing fixed up with a little more
teeth in it, and I would like to see it tied
in to Section thirty-five of the Criminal Code,
which provides for a fine and a jail sentence
for misrepresentation in so far as giving
facts to the Government is concerned.

H.M.Jr:

Well, go to it.

Foley:

We are working on that now.

H.M.Jr:

You see, there is some - look up this case.

Do you remember, Mrs. Klotz, the time that somebody came in and tried to give McReynolds something for a hundred second-hand typewriters

Klotz:

or something, and there is some law that affects
the general Treasury. That wasn't Procurement.
That was over in Farm Credit.

H.M.Jr:

Was it?

Klotz:

I think so.

H.M.Jr:

There was something, and the man went to jail.

Foley:

Well, of course there is a bribery statute, but
that is different. There is a difference be-

tween a commission and a bribe. A commissi on is
for services rendered.

6

-5H.M.Jr:

Well, you can't make it too tough to suit me.

Foley:

All right. Mr. Oliphant went into this situation
some time ago and I think this clause in here is
a result of the studies that were made at that

time, but I would like to see it a little tougher
than it is now. We issued a general license
last night for Portugal. That is the last of
the neutral countries in Europe.

H.M.Jr:

Now they issue a general license to Portugal?

Foley:

Yes.

H.M.Jr:

It is crazy.

Foley:

Well, it is the State Department.
It is the height of stupidity.

H.M.Jr:
Foley:

Well, they have been negotiating with the Minister
and the license runs to the Central Bank and to
the Government. It is the same as the Swiss
license.

H.M.Jr:

Well, now, going back to Switzerland or Spain,
has Spain got a general license?

Foley:

Yes.

H.M.Jr:

Supposing I get a transaction through to Switzer-

land. I get the license. Then is the thing

examined with a fine tooth comb afterward, the
transaction following?
Foley:

Well, I wouldn't say it is exactly with a fine

tooth comb, Mr. Secretary, but if there is evidence

that those Governments are taking advantage of the
general license, we have assurances from them,

of course, that they won't do that, then that is
ground for --

7

-6H.M.Jr:
Foley:

I know, that is eyewash.

I think so, too. That is ground for revoking

the general license.

H.M.Jr:

Let me repeat my question.

Foley:

I understand your question.

H.M.Jr:

Then let me put it again. These countries
which we are suspicious of, is there a regular,
systematic follow-up on each transaction to see

that they live up to their word?

Foley:

The ones we are suspicious of, yes.

Bell:

But you do get a monthly report on those general licenses.

Foley:

Oh, yes, sure, and they watch the ones where

there is any reason for us to be suspicious.
If somebody has told us that these fellows are
acting for or on behalf of the Germans or something of that kind, they watch every one of
their transactions.
H.M.Jr:

Who does the watching?

Foley:

The people in Pehle's office.

H.M.Jr:

Or the people in the Federal in New York.

Foley:

The people in the Federal?

H.M.Jr:

Who does the watching?

Foley:

Well, it is the whole system, Mr. Secretary.

Bell:

The reports come through the Federal, as I
recall, and then they come down here and are analyzed.
Now, maybe there could be a little more inten-

sive analysis of them, but as I recall, they

were analyzed very carefully.

8

-7H.M.Jr:

I would like to consider setting up a little
section. I keep trying to think of something

good for Sammy Klaus to do. After these things
go through, that they would be examined. Now,
if Sammy was put on that kind of thing, it would

be good. A little section, you see, that would

be under Pehle, but it would be separate from
his regular machinery. They would take these
things and keep going over them and following
them up.

Foley:

Well, Mr. Secretary, when Pehle gets the reports
from Towson, suppose you give us a little
time, tomorrow, if you can, conveniently, and

let us come in and talk to you about it.

H.M.Jr:

But you get that?

Foley:

Yes.

H.M.Jr:

And then a separate section responsible to the
head of the organization who would - let the
regular crowd do it, but here would be a group

that would be doing it entirely separately,
checking every transaction.

Cochran:

I think you will find, Mr. Secretary, that

in each geographic division they do that. They
know the suspicious accounts, like the general
license in favor of the Bank of Indo-China.
They follow that very carefully. They get
reports of every transaction and follow them
up.

H.M.Jr:

Well, I would like to put a fellow like Sammy on
it so that he could go in and take any
report and recheck it, and just see how good the
checking is. That would be a swell job.

foley:

I think we can satisfy you all right. We will
talk to you about it tomorrow.

9

-8H.M.Jr:

O.K.

Sullivan:

The public hearings started yesterday in the
Senate. They disposed of quite a large number
of witnesses. Not many members of the Senate

were there, and I thought it was a rather
apathetic performance.

Bell:

I understand your friend Elijah Friedman is

going to be on today. You remember his name came
up not so long ago for employment in the Foreign
Funds, I think, when Jake Viner remarked that

you didn't want - he is going to be on today,

I think.

Sullivan:

He is the fellow who wrote that long letter on
the capital gains tax in the Times on Sunday.
He is coming in to see me, too.

H.M.Jr:

Are you all right, John?

Sullivan:

Oh, yes.

H.M.Jr:

Good.

Cochran:

On Saturday the State Department let me know

that the consul at Casablanca had been in touch
with your friends, the Oppenheimers and yesterday I got them to send an instruction okaying
the visas and they are to send us word when

they are ready to leave for "Portugal, so we will
follow that right up now.

H.M.Jr:

Good. Could you send a progress report through

Mrs. Klotz to Mrs. --

Cochran:

I have a memo here.

H.M.Jr:

And she could forward it to Mrs. Lehman. That

is fine because that is one of the most difficult

ones we have had for a long time.

10

-9Cochran:

The only chance is that there might be some

physical disability or something like that
where they could turn it down on a technical

ground, and I presume there is no such chance.

You asked me to bring up again the request of the
Ecuadorian Minister of Finance for an appointment. He is going away the end of the week or
Monday, and they hoped you could see him and

then turn him over to the rest of us for a meet-

ing.

H.M.Jr:

I will tell you what we will do. On the theory
that I am only going to testify for one day,
we will give him ten thirty Friday.

Cochran:

Ten thirty Friday?

H.M.Jr:

Ecuadorian Minister.

Cochran:

Mr. Illingworth is the name. It is an English
name.

Bewley phoned me last night that Sir Otto Niemeyer
had arrived in New York today and he is going

to try to get down before you leave. He said
Sir Frederick is up in Ottawa right now on the
matter of a price agreement on bacon and cheese
with Great Britain. I asked him if he had

anything to bring up before he got away and he
said he had one thing. He came over this morning
and left me this memorandum with regard to the

Northrop Aircraft Company. I can tell you
in two words what it is.
H.M.Jr:

Please.

Cochran:

They are hard up and want to get a loan from
the RFC, and one of the conditions which the

11

- 10 -

RFC makes for a loan is that they advance

their payments on aircraft.

Instead of the British paying fifty per cent

now, they would have to pay seventy-five
per cent.

That would mean that they would speed up

two hundred million dollars' worth of
payments by the British over the next year

and they have had it up with Brown down at
the Lend-Lease, and they can't do anything
there.

They thought that we might want to speak to
Jesse Jones to see if he could help them
out any.
H.M.Jr:

If you could prepare a letter for me, you

and White, on that, and have Bewley Bewley and you and White prepare a letter

for me to Jones and I will sign it.

Cochran:

All right. Fine.

H.M.Jr:

White, you and Bewley prepare a letter and

I will sign it.

Cochran:

All right.

H.M.Jr:

To Jones. And I want Oscar Cox to initial

it.
Cochran:

All right.

H.M.Jr:

I want Oscar Cox to initial it before it goes.

12

- 11 Cochran:

Then I spoke to the Assistant Secretary of

State last night on Howland Shaw, Cassidy,
and he said he would have to send a cablegram

to Winant on that and he was getting it off

today.
H.M.Jr:

That is all right.

Cochran:

I think I ought to let you know at the same
time that one of Jake Viner's star students

is going to London in about a month, Ware
Adams. He was down in Brazil for a couple of
years. He is going to be in the Embassy

there. He is really an awfully good man.
He called the other day and left his card. He
is going to be on duty in the Department of

H.M.Jr:

State for a month or so. If you did want to
meet him, I think it is worth keeping in mind.
If I could work it in, you see. I don't know

what I am going - when I am going to have this
talk ready for Thursday.
Cochran:

Well, if you are not going to use him soon, it
wouldn't be a lot of purpose, but if I may
speak frankly, he is a man with much more
experience, I think, than the man you had me

see last night. This man has been with us
only one month and it is quite a bit to ask

them to name him as a successor to Coe
without any experience.
H.M.Jr:

Well, maybe I can see Adams Friday.

Cochran:

All right. He is a fine boy and Viner spoke
of him when he was here before. But I shall
go ahead with this other just the same.

H.M.Jr:

Good. George, did you get my message?

Haas:

Yes, sir. I got that.

H.M.Jr:

Is the cost of living chart the same as the

13

- 12 -

parity payment thing? I saw, for instance,
in Standard Statistics, they ran a thing on
parity payments, a line. They didn't explain
what it was. I didn't know there was a line
for parity payments.

Haas:

I have never noticed those - I don't remember

seeing a chart on parity payments. It is
possible to construct one, I think, but it is
not the same as the cost of living.
H.M.Jr:

Well, I don't mean - the farmers' purchasing
power is the one I asked for.

Haas:

Yes, sir, and we will--

H.M.Jr:

Isn't there one also for factory workers, what
their purchasing dollar will buy?

Haas:

Well, that usually - we usually take the cost

of living for that.

H.M.Jr:

Take the cost of living for that?

Haas:

Or you can take the wages and divide it by

the cost of living and get a similar thing as
the purchasing power of agriculture.

H.M.Jr:

You get the same result?

Haas:

That is right, it is similar. In other words,
in one case the farm price is divided by the
things the farmers buy and in this case the

wages would be divided by the things which the
wage earners have to purchase.
H.M.Jr:

But supposing you do that and then also supposing

you find out from O'Connell - I understand
that Henderson used thirty-two different
charts the first day he went up there.

14

- 13 Haas:

He had a truckload of them.

H.M.Jr:

Well, let's find out. If he used a different
one on the cost of living, I wouldn't want to

use a different one, you see.
Haas:

Well, he used your chart on the cost of living.

H.M.Jr:

Did he?

Haas:

He sent over here and got a big one on it.

H.M.Jr:

Did he?

Haas:

And one other chart. I have forgotten. It

was one that he had seen in your office.
H.M.Jr:

He used the one on commodity prices.

Haas:

That is right.

H.M.Jr:

The weekly one. Has Miss Elliott sent you
over anything?

Haas:

I haven't seen anything. In fact, she said
yesterday it wouldn't be until today. Do you
want us to make up a series of big ones? I

made - Ed Daggett told me that you are interested
in seeing commodity prices starting at about
1910 and run through and we have had a chart

made on that. I will show you that this
morning when I come in.

H.M.Jr:

Bring it in. I will want some but I don't know

yet which ones. What is today, Tuesday? We
will have to make up our minds today.
Schwarz:

The Under-Secretary came over well on the radio

last night.

Bell:

It wasn't so good, I didn't think.

15

- 14 H.M.Jr:

Why didn't somebody tell me and I would have
listened.

Bell:

You didn't miss much.

H.M.Jr:

I wish somebody had told me. I would have
listened.

Schwarz:

It was listed on the Defense Savings Program.
Don't they send those to you?

H.M.Jr:

Yes, but I never look at them. They go in my

waste basket. I can't read all the stuff they
send me. It is impossible. Any more than I

can read all these clippings. Somebody has got

to pick out the important stuff. I have said
it again and again. They send in twenty-five

sheets like that and I am supposed to read
them. No one takes the trouble to pick out
what is important. That is what happens to
them.

Schwarz:

You should see what we put aside.

H.M.Jr:

Certainly I have read the first page.

Schwarz:

We worked from the top down.

H.M.Jr:

Certainly I have read the first pages of the
newspapers. It is the unusual thing that is
the stuff to catch.

Schwarz:

I go from the top down on that basis. That is
all.

H.M.Jr:

If somebody had told me that Bell would be

Bell:

on the air last night I would have listened.
It really wasn't anything.

H.M.Jr:

I am sorry I missed it but I can't unless

16

- 15 somebody tells me. Here is a page that - there

are ten different things. I can't read them
all.
If I were only told the important things
I would read them.
Bell:

You noticed, I suppose, that the market has gone

off a point and a half in the last ten days?

H.M.Jr:

Yes.

Bell:

A great deal of that has been due, I think, to
Henderson's testimony and the Federal Reserve

requirements and the hiking of interest rates.

I suppose you saw the statement on that. He
thought interest rates were too low and they
ought to be much higher. He has gotten every-

body just sitting on the sidelines wondering
what is coming next. There hasn't been any
volume of sales or anything. It has kind of
drifted down from lack of interest.
H.M.Jr:

They were too high.

Bell:

They were too high and this does no harm. I

hate to see this talk keep up, though. By the

time we do some financing in September we
may have a bad bond market.
H.M.Jr:

Maybe Henderson and I will be talked out by then.

Haas:

I think, Mr. Secretary, you could have handled
that in your speech. Every time these excess
reserves were mentioned it tightened the

market like Eccles' statement. I think it
is going to be one of the questions that will
come up, what your position with regard to
that matter is, and I think if you take the
position you are going to have selective
controls rather than over-all blanket controls,
it will improve the market, help the market
tone. I noticed in Moody's review of the bond

17

- 16 -

market,
it pointed out the different types
of controls.
Bell:

I am wondering if the Secretary hasn't got to
take the position that possibly the Federal

Reserve should have more authority over reserve
requirements, but he would be more interested

in how they use it, that authority.
Haas:

I think he almost has to say he is interested if he wants to improve the situation - interested
in selective controls. Otherwise you are

going to run interest rates up and make the

government pay more, which is unnecessary, I
think.

Bell:

I do too.

H.M.Jr:

On that question, in my own mind I know how I
want to answer it.

Bell:

The other thing is that I understand as soon
as the President comes back there is going to

be a request for six or seven billion dollars

of additional Lend-Lease appropriations and the
budget, I think, is requiring each department
to make up a justification, and they are going

to testify on that part like the Treasury
would testify in the Procurement end. They

wondered if there should be another financial
statement on Great Britain.
H.M.Jr:

The answer is no.

Bell:

They probably will ask for it, don't you think?

H.M.Jr:

Well, when they ask for it we will get it out.

Bell:

I am wondering who will be here at that time.

H.M.Jr:

Well, if nobody is here they can't get it.

Bell:

You wouldn't want one made up in advance and

give it to Smith?

18

- 17 H.M.Jr:

No, he would most likely abuse it.

Bell:

He would use it, there is no question about

H.M.Jr:

Yes. Well, Smith is Director of the Budget.
He thinks he is Vice-President of the United

that.

States. He gets more so every day.
Bell:

Well, he asked the question as to whether we
should put in any statement. It may come up
and they may have hearings while you are
away and White is away.

H.M.Jr:

The pipeline told me that he is working on
a system of a committee which he will be on

whereby when he makes up the budget, by God

he is going to have in it what the taxes
should be.

Sullivan:

Who is this?

H.M.Jr:

A man by the name of Harold Smith.

Sullivan:

He is going to make out the tax program?

H.M.Jr:

Well, when the President makes up the budget,

he is going to include what the tax program
should be. A scientific government and

scientific planning, and so forth.

Bell:

Scientific management.

H.M.Jr:

Scientific management should also have the

receipts as well as the expenditures.
Bell:

I think that is inevitable that that will come
out sooner or later with the type of people
they are getting in the Budget. They are

getting a number of economists working on
taxes and expenditures and it sooner or later

19

- 18 is bound to develop into that very thing.
Gaston:

It shows how illogical this set-up is. It
just shows that the Budget belongs in the

Treasury.
H.M.Jr:

They had better make up their mind that either

the Budget is the chief fiscal officer or the

Secretary of the Treasury is. You can't have

two.

Bell:

I agree.

H.M.Jr:

Somebody has to carry the responsibility.

Bell:

That is all.

H.M.Jr:

That is some more of the Merriam stuff.

Bell:

Yes.

Gaston:

The more the Merriam stuff.

H.M.Jr:
Thompson:

That is right.
Mr. Flynn has given political clearance to the

H.M.Jr:

It is no worse than I said at press. They asked

appointment of Mr. Cann as Assistant Commissioner
of Internal Revenue.

me why I didn't do something about silver and
I said I held my nose and dove into the water
and I didn't even make a splash.
Klotz:

And then they said, "I knows it."

H.M.Jr:

This is one of the Gaston-Flynn appointments?

Thompson:

Yes.

H.M.Jr:

Has the Governor of Georgia approved this?

20

- 19 Gaston:

Senator George has approved it.

H.M.Jr:

How about the Governor?

Gaston:

George is more important.

Cochran:

Speaking of silver, we have a telegram from the

Colorado Mining Association.
H.M.Jr:

I get that through my mail.

Cochran:

You get that?

H.M.Jr:

Yes. The altitude is too high up there. They
don't think very well.

Bell:

You really ought to read the statement that
the Mexican representative put in on silver.

That is rather interesting.

Thompson:

That is a very nice volume. (Handing book to

Secretary). It doesn't include all the buildings,
but they have a map and a listing of the build-

ings.
H.M.Jr:

Is that all of them? It was arranged by Morris.

Klotz:

Whose idea was this?

Thompson:

Well, Miss Chauncey told me the Secretary would

H.M.Jr:

Lovely.

Klotz:

Isn't that lovely.

H.M.Jr:

Yes.

Gaston:

Chicago or Los Angeles?

H.M.Jr:

This is grand.

like to have it done.

21

- 20 -

Klotz:

Beautiful.

Thompson:

Each dot on this map is a building.

H.M.Jr:

It looks as though the United States is broken

out with measles.

Klotz:

It does.

Thompson:

These are supposed to be representative buildings.

Klotz:

All photographs?

Bell:

What was the last building, Thompson? What

was the last building that represented a hundred
and three years of Treasury control?

H.M.Jr:

Here is a list of buildings.

Thompson:

They had thought of putting in a photograph of
each building but they thought it would be so

much material.
Gaston:

Want anybody to check up on them? (Laughter).

H.M.Jr:

You say I asked for this?

Klotz:

Well, it was your idea a long time ago.

H.M.Jr:

That is very nice. All right, everybody, we
can go to the speech at 10:30.

22

August 12, 1941
10:10 a.m.
HMJr:

Hello. Hello.

Operator:

They said they'd put him right on.

HMJr:

That's all right.

Henry

Wallace:

Hello.

HMJr:

Henry Wallace?

W:

Yes. Good morning.

HMJr:

Good morning. Henry. Hello.

W:

Yes.

HMJr:

On this question of alternate to me

W:

Yeah.

HMJr:

I don't know whether I wrote you or

not; but now that the legal phase of it 18

over, would Harry White be agreeable to you?

W:

Why, he'd be fine, of course.

HMJr:

What's that?

W:

Yes. Yes.

HMJr:

Well, then I think if it's agreeable to you,
why I'11 have him on the days that I can't

come or at least have him come with me when

I do come.
W:

Yes. He's fine, of course.

HMJr:

All right.

W:

You bet.

HMJr:

Thank you, Henry.

23

-2W:

That's all right.

HMJr:

Good-bye.

W:

Good-bye.

24

August 12, 1941
10:30 a.m.

RE PRICE CONTROL

Present:

Mr. Bell
Mr. Gaston
Mr. Haas

Miss Elliott
Miss Ware

Mrs. Klotz

Mr. White

Mr. O'Connell
Mr. Kuhn

White:

The three men from Agriculture were here and
they read this statement and they had some comments to make. Whether you wish to hear them

now or later I don't know.
H.M.Jr:

Make them now.

White:

They made several points. The most serious
criticism which they felt might be made against

it is that there is not any recognition in the
statement of the parity principle. They say

that they would like to see accepted the parity

principle and have your comments directed

against increases beyond the parity principle.

H.M.Jr:

Well, that is out.

White:

That was criticism number one.

H.M.Jr:

Well, I can't do it.

White:

If present - present prices are on the average
below parity farm prices. Some are below, but

25

-2on the average they are eight per cent below.

That was one point.

The second one was that British purchasing,

in their opinion, has been an important factor

in the increase in prices. It is not the amount

which has been sent, but the amount of buying
which the Government is doing and which the

British are doing. They feel that is an impor-

tant factor as against the sentence which we had

in which we said it is not responsible.

H.M.Jr:

Well, we will leave it out. I would leave it

out, because if it had any effect it is because
they have done their buying badly. I would

just leave it out.

White:

They claim the British want much more, and they
could buy much more, but they don't want to

cause prices to rise further, and so they are

not buying.
H.M.Jr:

If Miss Elliott and I have our way, we will
produce more.

White:

That is the third point. They feel that

not enough recognition is made of the fact that
the Department of Agriculture has made more

effort and has been more successful in increasing
production of agricultural commodities than
certainly any one has in industrial commodities.
They knew a year ago that hogs were going to

be short, so they guaranteed a higher price to
the farmer in order to encourage them to produce

more. The results of that program will be
evident soon. It is not evident yet because

the hogs have not yet been produced, but they
would very much like some statement to the effect
that the Department of Agriculture has done much
toward increasing commodities, the demand for

which increased.

26

-3H.M.Jr:

I am glad you have got the Iowa way of pronounc-

ing h-o-g-s. It is all right. In New York

State we call it "hog" but in Iowa it is "hawg".
Gaston:

This is the dirt farmers' pronunciation (Laughter)

White:

They also said the Department of Agriculture
is doing a great deal to stimulate the expansion
of plants to produce dried milk, evaporated milk,

and are having some -H.M.Jr:

Well, do you know what they are doing? Have
you heard about their doing anything?

Elliott:

Not anything on an extended scale.

Ware:

I understood that they were intending to launch
a purely educational campaign for the increase
in dairy products this summer and fall.

H.M.Jr:

Well, Harry, if they can give us facts and

figures on what they have done - I remember now

about the hog campaign. If they can give us
the cts and figures of what they have done,
and it stands up under examination, I am willing

to give it.

White:

I think we can probably some way here distinguish
between the work the Department of Agriculture

is doing without interfering with the criticism

of general farm prices.
H.M.Jr:

Well, I think if they have done these various

things - you call them up and say send them on
over and we will say, "Well, the Department of

Agriculture has made a start along the following
lines. They have made a start in the right
direction.
White:

Yes. Two more points.

27

-4H.M.Jr:

Wait a minute.

Elliott:

I was going to say, Mr. Secretary, if they
wanted to simply say they are in this and
you recognize the fact that they have done this,
we in December went to them and asked them

to call in this group of farm people for

that increased production of hogs and poultry

and eggs and they did start that. It is true
that that part of it, after much probing, was

put on, that campaign on increased production,
in January.

White:

I think we can give them credit in some general

statement without interfering with the --

Elliott:

But it hasn't been enough, is the difficulty.

Increased production hasn't been enough.
H.M.Jr:

Then let's ask them just what they did do,

you see.
White:

All right.

H.M.Jr:

Harry, please.

White:

There are two other points which they made.
One is that there is a great over-emphasis

on the role which farm prices are playing
in the general price rise, that not enough
attention is paid to other prices increasing,
that our illustrations are in the main those
of foodstuffs.

H.M.Jr:

How about that, Miss Elliott?

Elliott:

Of course you have rents in here and clothing.
Your figures show rents and clothing, of course.

And of course if you are trying to call attention
to the fact that the hundred and ten will bring

28

-5increased prices in foods, it is very natural
to use a good many illustrations on food.

That is going to be the thing that is going
to push harder on it than anything else.
White:

Yes. I think it is true that there is purely
from the point of view of measuring the number
of lines, if for no other criterion, that there
is an overwhelming emphasis on foodstuffs.

We may be able to partly correct that by an
additional paragraph on the price of shoes and -H.M.Jr:

Well, Harry, if there is, then you are carrying
out what I wanted, because what we decided

last night was that we would lay down in the

first part of the statement the thing which

we gave the President several seeks ago, the
general economic basis for this, and then we

would branch off in to the stuff, as I would say,
the stuff which is closest to my heart.
Now, what I want to do is to appeal to the house-

wife. If I am going to appeal to the housewife
I have got to talk about food and I can't talk
about the prices of cotton.
(Mr. Foley entered the conference).

Elliott:

Mr. Secretary, I think there is another answer
to that in the hundreds of complaint letters
that we are getting over our desk now. Prac-

tically all of them are food.

White:

We might say "We are informed by the Consumers'

Division that they are receiving hundreds of
letters hourly, or daily, complaining about

the rising costs of foodstuffs," that the house-

wife is already aware.
H.M.Jr:

If I may be pardoned to reminisce a little bit,
I go back to the very early days - what was the

name of the gentleman who had the Consumers'

Division in Agriculture?

29

-6-

Elliott:

Mr. Montgomery?

Haas:

Howe?

H.M.Jr:

From the very days that Mr. Howe came down

here, they have never had the chance. It has
always been on the production and - I mean

not the production. It has always been on this
whole soil conservation and all this business,
but the consumer, I don't think, has ever
gotten a break, starting with Mr. Howe. Were

you (Ware) under Mr. Howe?
Ware:

No, I was over in the NRA Consumers' Division.

H.M.Jr:

Well, so far there is nothing that bothers
me.

White:

Then there is one remaining point. They felt

that the farm bloc would be considerably exercised

over the tone of this statement. They felt
that it might be possible to get across most of
this and either avoid that opposition and possibly
even win their sympathy if, A, a clear statement of the recognition of the principle of parity were made, and B, if there were some occasion

that you are directing your criticism more against
future rises or rises above parity, rather
than the present level.

H.M.Jr:

I can't do it. George, have somebody --

White:

That is the sum total of their comments.

H.M.Jr:

George, have somebody in your staff go all through
the President's statements and see whether he
has ever recognized parity payments, publicly.
Has he?

Elliott:

In the speech which Mr. Wickard made in Kansas -

When was that?

30

-7Ware:

About three months ago.

Elliott:

About three months ago. He had a conference

with the President before he left and in that
speech you will find him saying - he quoted the
President. I don't remember his exact words
but as I remember it now the meaning was that

we will reach parity - we were going to parity.
Ware:

It was at the time when the question of whether
the President would veto the eighty-five per
cer was still open.

H.M.Jr:

At that time the President was thinking in
terms of seventy-five per cent.

Eiliott:

No, seventy-five per cent came in when we asked

Mr. Wickard to increase the production of hogs,
poultry and eggs. That went seventy-five
per cent then. The farm bloc - the farm leaders
came in then and fought that vigorously and tried
to get Mr. Wickard then to go to the parity,

or certainly to eighty-five. Then they went

right into Congress on top of that and pushed

through the eighty-five per cent. If I am not

mistaken, the President supported that.
H.M.Jr:

Can I interrupt you just a minute? Bell, you

were with me, weren't you, when we went over

secretly to meet the farm group in the House
with Wickard, you and I?

Bell:

Yes.

H.M.Jr:

And at that time didn't the President say he
wanted seventy-five per cent?

Bell:

That is my recollection, but I - we have got a
record of that meeting, I think, but I am not
sure.

H.M.Jr:

I will tell you why it stands out, because

31

-8somebody, Wickard or somebody, said if I hadn't

fought for seventy-five per cent so hard,
they never would have got eighty-five per cent,
and they blamed me for it. But anyway --

Elliott:

I think you need to read Mr. Wickard's speech
that he made in Kansas right on the heels of

that eighty-five per cent.

H.M.Jr:

Well, get that.

Elliott:

Because I was so startled when I saw it.

H.M.Jr:

I just can't come out on this thing because I

have always said, and Herbert, you check me,

there is just as much reason that we figure on
parity for the gasoline station and the drug
store keeper and everybody else.

Gaston:

Right as to what you said and right as to principle.

White:

Except that the farmer is the backbone of the

nation.
Heas:

Well, I don't see on the principle --

H.M.Jr:

Well, when it gets to be all backbone and no
meat --

Haas:

The difficulty about the parity principle, Mr.
Secretary, one of the difficulties is that - what
is parity? It is a moving, changing term.

H.M.Jr:

Well, they change it on us all the time.

Gaston:

You are not dealing with incomes when you talk

about parity. You are dealing with unit prices
for products, and that denies every principle
of progress and production.

32

-9White:

It denies every element of technological advance. They want a bushel of wheat to buy
the same amount of shoes, irrespective of the
fact that they may be able to produce a bushel

of wheat - as they did thirty years ago.

Gaston:

That is like taking a pound of rayon and saying
that the price relations must stay the same

when the cost isn't a tenth of what it was.
H.M.Jr:

If you will get, Harry, the statement - I hate

to go to them - of the Economy League and their
economists - they have just done a paper in the

last week on parity, and the thing that he points
out - we had it and you might read it. He points
out that in parity they take no account of the

difference between the two cylinder opposed

tractor weighing twenty-five tons and the light
high-speed tractor that hoes six rows with an
automobile engine.

White:

Wheat is the same.

H.M.Jr:

One of these tractors can take care - does take care
of six hundred acres in Texas, of cotton.
That is one of the reasons why they have so
much migratory labor. They have forced the
people off the farms. One tractor and one man

can take care of the thing. That is all in
that thing. In other words, a technological

advance since 1910. They give no credit for that.
White:

Well, they get some, because it is in the general

purchasing power, but they also take no cognizance

of possibly a more important fact, and that is

the stuff they sell in the main is not - does

not improve in quality except as it means more
poundage, more bushels, whereas the stuff they

buy, an automobile that they buy, for a thousand

dollars is infinitely better, but if you take the

33

- 10 price index of that, it doesn't show the manufactured goods and textiles and it doesn't show
in what they buy and therefore they are always

biased in their own favor by the use of this
parity principle.
H.M.Jr:
White:

Well, after ten years I can't suddenly change

my spots. I just can't do it.

But I think in the light of what they said and

how it has been written here, you may want to

pull the punches a bit.

H.M.Jr:

I doubt it.

White:

But this thing needs to be rewritten in any
case, because we spent until the very last

minute in a - sort of organizing it, so I
take it there will be another draft which will
include this much.

H.M.Jr:

Oh, yes. Ferdie, do you want to read?
Have these ladies had a chance to see it?

White:

No, it was just finished.

Kuhn:

Do you want me to read the whole thing or skip
what is the same as yesterday?

H.M.Jr:

I would skip what is the same.

Kuhn:

Well, the beginning is the same, the first page

is all the same as yesterday. It starts at the

middle of page two.

"I welcome the bill before you because, despite

one serious shortcoming which I sha 11 mention

later, I believe it is a step forward. I

believe the bill provides another important
weapon to use in the fight against inflation.

34

- 11 "We cannot wait any longer to add that weapon

to our arsenal. The time left us in which to
act is short.
"We are at the same point in price history as
in 1916 - on the edge of inflation.
"Memories are so short that I suppose many of
us have forgotten what happened the last time

inflation struck us - 25 years ago. In 1916,
the cost of living began to rise sharply, but

there were few who saw its significance and
nothing was done about it.

"It was not until April 1917 that the first real
alarm was sounded against inflation. It was not
until prices had risen by over 70 per cent that
the President Wilson recommended any steps to

prevent inflation. In fact, so little aware

were they of the dangers of inflation that in

June 1917 Congress actually encouraged inflation
by reducing the reserve requirements for member
banks of the Federal Reserve System."

H.M.Jr:

That is old.

Kuhn:

The next paragraph is the same.

"By 1918 price increases were in full swing."
H.M.Jr:

I don't want that. I hope the ladies, are going
to give me something else. I don't want that.

Kuhn:

You don't want that?

H.M.Jr:

No. I want something from the ladies.

Ware:

Did you get our material?

Kuhn:

Yes, we used it.

"The pattern of price rises in the past two

years is frightening in its similarity to the

35

- 12 price movements during the first two years of

World War No. 1.

"As the President said in his message to Congreas a few weeks ago: 'Today we stand, as we

did in the closing months of 1915, at the
beginning of an upward sweep of the whole price
structure.'

H.M.Jr:

In connection with what are you saying that?

Kuhn:

In the price message.

"Then as now, there was a little rise in the
cost of living. Then as now, there was a
greater rise in wholesale prices. Then as
now, there was a still greater rise in the price
of basic commodities.

"Since the beginning of the present war, the
wholesale prices have risen about eighteen per
cent - the greater part taking place during the
past five months.

"True to the usual pattern, the cost of living
did not rise till later. During the past year,

however, it has increased four per cent - half
of it in the past three months.

"During the past 12 months the average price of
28 basic commodities has increased 37 per cent,

despite the fact that the prices of many basic
raw materials have been kept partly in check
through the efforts of the Office of Price
Administration and Civlian Supply.

"It is the rise in the prices of basic commodities that constitutes our danger signal today.
They rise first, general wholesale prices always
lag behind, while the cost of living does not show

anything like the full effects of inflation until

long after the seeds of inflation have taken deep

root.

36

- 13 "Moreover, the forces now in existence making

for further price rise are both potent and persistent:"
H.M.Jr:

Is this from the statement we handed the President?

White:

This with some modifications is taken from the
price statement.

H.M.Jr:

Do you mind - I would go back. There is some

of this I am not crazy about. I will let you

read through it.
Kuhn:

"(1) Our defense expenditures are increasing rapidly. The Budget estimates Defense spending" -- that

is --

H.M.Jr:
Kuhn:

Well, the ladies haven't seen it, so let's read
it through.
"The Budget estimates Defense spending during the

fiscal year 1942 will be $15 billion, or two
and a half times as much as in the fiscal year

1941. Even this increased estimate does
not include additions to the Defense Program
made after June 1, and greater sums needed
for Lend-Lease.

"(2) More important as an inflationary force" -H.M.Jr:

Excuse me. When we are repetitious of what you

heard up on the Hill, please just raise your

hand, will you?
O'Connell:

Yes, I will. There isn't a great deal here that
is said in the way it was said up there. A great
deal of it has been demonstrated in charts and
said in different ways but I haven't seen anything in this statement which I would change

because it has been said. I will keep it in mind,

though.

37

- 14 H.M.Jr:

You are invited principally - first for your

charming personality and second to see if there

is anything repetitious. (Laughter)

Go ahead.
Kuhn:

"(2) More important as an inflationary force is

the fact that the Government is borrowing
from banks much of the money it is spending.

When the Government borrows from banks it is

for the most part creating new purchasing power.

It is adding to the total stream of money spent

on goods. The net deficit for the fiscal year
1942, as estimated by the Director of the Budget
will be $12.8 billions, compared with $5.1
billions for the previous fiscal year. If the
present tax bill is passed by Congress so that

it will yield $3-1/2 billion, the deficit will
be reduced by $2-1/2 billions, but it will still

be over $10 billion. Again this estimated

deficit does not take account of the expansion
of the Defense Program after June 1, 1941.

"(3) Supplementing the inflationary force of

the Federal deficit has been the expansion of
bank credit by increased loans to business.

Bank loans expanded by approximately $3 billions,

or about 20 per cent during the past twelve
months. And, as in the case of the other forces
making for inflation, the expansion of bank loans
has been proceeding at a quickening pace.

"(4) Pressing upward on prices is the fact

that more and more plants are reaching maximum
capacity and more and more shortages in basic

materials for civilian use are appearing.
Prices of imports are daily rising due to reducing shipping space, higher shipping costs, and

disappearance of normal foreign sources of supply.

"(5) Finally, we have increasing agricultural

income, and fatter pay envelopes and many more
of them.

38

- 15 -

"It is not easy for us to visualize where these
forces will take us if permitted to operate un-

checked. They were unchecked in the World
War and all we have to do to see what is ahead

of us is to look into the purse of the average
family of those times - to see it, not in terms
of percentages and indexes, but in terms

of the prices of every day needs of food,
clothing and shelter.

H.M.Jr:

Just one second. You say that during the World

War they were unchecked. What about the great
Mr. Baruch? What was he doing all the time?
White:

O'Connell:

Nothing then and very little later.
I think the explanation of that, Mr. Secretary,
is that by the time Mr. Baruch got into the picture the prices had increased something over

seventy per cent, I believe, and that has already
been brought out. We are now maybe a year ahead,
or at least months ahead of the time that we
made any move at the time of the World War.
H.M.Jr:

Wait a minute, George has got something. What

is this chart, George?

Haas:

That is the price level from 1910 on. If they
were checking they weren't working very hard on
it.

H.M.Jr:

We want to go over very carefully these charts.

Kuhn:

They were unchecked in the World War until it
was too late to stop them.

H.M.Jr:

Well, according to this thing here they went up
like a skyrocket and came down like a bomb.

White:

When - but they didn't come down during this

period.

39

- 16 Haas:

H.M.Jr:
White:

Take a look at it, Harry.
That is the thing I want to emphasize. Go

ahead.

It sounds like a good phrase. "Went up like a
skyrocket and came down like a bomb.'

H.M.Jr:

I will lend it to you. (Laughter)

White:

If it is Lend-Leased we don't have to give it
back to you.

Foley:

What did it come down like, Harry?

White:

A bomb. You heard me the first time.

Kuhn:

"The money the housewife paid for one loaf of

bread in 1914 bought only half a loaf in 1920.

The money she paid for a pound of bacon in 1914,
bought only a half a pound in 1920. The money

that she paid for a yard of cotton cloth in 1914,

was only enough to buy one-third of a yard in
1920."

H.M.Jr:

That is new. Is that you ladies? Good.

Kuhn:

"The family with no increase in income found

its purchasing power cut in half. It found
that food, fuel, shelter and clothing that cost
$1.00 in April, 1915, had risen to $1.08 in
April, 1916. By 1920, after four years of rising
prices, the cost of these goods and services
had risen to $2.03. In August 1940 this same

food, fuel, shelter and clothing cost $1.37. The
cost of these goods and services has already

risen to $1.42 during the past year. But if
prices continue to rise in the same pattern as
during 1916 to 1920, these goods and services

will soon cost $2.67."

40

- 17 H.M.Jr:

That is exactly what I asked for, Miss Elliott,
Sunday night. I want a chart to support this
and I would like to have two kinds. If you

would give him the basis, George will make them.

I want one the size that can go right into the
statement I give to Congress so they can look

at it, you see, and then a big one, George, so
that everybody can see, but - in other words,
I want to illustrate my talk. Please make suggestions, too.

Elliott:

We brought the material this morning for the

H.M.Jr:

If you would just turn it over to Haas, but I
thought this, if the thing would run - this
statement, and then the next page or somehow
or other have it so it would be - run nicely
with the chart. They could just see the thing

chart.

on a chart, you see.

White:

You mean a mimeographed chart?

H.M.Jr:

I want a mimeographed chart and then a big one.

I will read this and I will say, "Now, if you
will turn to the next page you will see the chart
illustrating this thing, If and I can say to the
audience - George will be there - "There is
the chart to show this thing," you see.

White:

And projected in red. Have the anticipated

increase in red so they can see what you can

expect if you don't do anything.
H.M.Jr:

Well, if you don't mind, George's crowd on that

is so much better than I am, I will leave it
to them to give me a pretty picture.

Elliott:

Mr. Secretary, in condensing that, I believe
that there is some advantage in the way this
was stated here in the other draft, in changing
that.

41

- 18 H.M.Jr:

Do you think they spoiled it?

Ware:

Well, the question, Mr. Secretary --

White:

We didn't state it the way you did. If you
think the way you did is better --

H.M.Jr:

Let's listen to what they have.

Ware:

The question is whether it is more effective to

state it in the increase in the price of the

same things or the decrease in terms of cuts
or in terms of increased price.
H.M.Jr:

Say it again, Miss Ware, a little slower.

Remember you are dealing with an eighth

grade pupil, so do it a little slowly.

Ware:

Whether to state the increase in the price of
food, clothing, and shelter or the decreased
amount which can be bought.

H.M.Jr:

I personally like the idea - well, if you

can get seven loaves today and two years from

now you are only going to be able to buy five

loaves or four loaves rather than - is that

what you mean?
Ware:

Yes.

H.M.Jr:

Which do you prefer?

Klotz:

Well, that is the way it is.

White:

It is both ways, Mr. Secretary, and I will tell
you what the difficulty is. When you are talking

about a loaf of bread you can say that and we
do say it. When you are talking about the cost
of living which includes rent and other services,
you either have got to use a percentage decrease,
and we wanted to get away from percentages -

you would have to say that the cost of living has

42

- 19 -

risen by ten per cent or so, or you have to
say the same things you could buy for a dollar
now cost you two dollars. You can't say that
you get half as much rent and half as much for
a dollar.
Bell:

You had your difficulty when you lumped food,

H.M.Jr:

Let me hear how you had it.

Ware:

With my eye on the labor listeners, I suggested

fuel, shelter and clothing.

saying something like this. "A family earning
thirty to thirty-five dollars a week in 1940
took in effect a cut in income of more than

twelve per cent a year for more than five years.
That is the kind of thing which the workers can

hear.
White:

Providing they got the same income, which they

Ware:

Yes, a family having the same income.

H.M.Jr:

didn't. That is the difficulty.

Well, my suggestion, Miss Ware is, if you could
stay afterward, you see, and go into a huddle
with White after the meeting and then just see
whether you can't get a meeting of the minds.

Is that agreeable to you, Miss Elliott?

Elliott:

Yes indeed.

H.M.Jr:

If you could stay behind, Miss Ware, and go in

with White and just thrash it out. I think you
can hold up your own.

Ware:

This is quite O.K.

H.M.Jr:

No, but I mean - I would very much like it if
you could stay behind. But let me say this.

This is the first time I have seen this thing this

way, you see, and this does what I want to do.

43

- 20 It says if the thing continues the same way,

that what cost a dollar thirty-seven, a dollar
forty-two today, in two years from now will cost
two dollars sixty-seven cents. I have never
heard that said before. Has that been said
on the Hill, Joe?
O'Connell: No.
H.M.Jr:

That is new, isn't it?

O'Connell:

That is right.

H.M.Jr:

Well, that is the key to my whole story.

Haas:

The figures would be a little more dramatic
if you took August, 1939, the beginning of the

war. Is that just as easy to get?
Ware:

Yes.

H.M.Jr:

Again, that is a technical thing. If you think
that is so - if Miss Ware would take a look at
August. I know the figures. I think George is
right.

White:

Well, they will say you picked the low month.

It is all right, we can.

H.M.Jr:

Well, you start with the war.

Haas:

It is the beginning of the war. You have got
that reason.

H.M.Jr:

All of our charts start with August, '39 here.

Elliott:

We have those figures here.

H.M.Jr:

What would it be in August, '39? You have got
August, '40.

Haas:

Well, the cost of living up in the front of the

44

- 21 -

statement, Mr. Secretary, it is five point
eight per cent and I think in the statement it
is four per cent. You see, it is a difference

between four per cent and nearly six per cent,

H.M.Jr:

which is nearly a fifty per cent difference.
I would like to use the figure August, unless
these economists overrule me, which is easy.

What was it in August, '39? August, '40 was
a dollar thirty-seven. How much was it in
August, '39?

Elliott:

Sorry, I don't have that exact figure here.

H.M.Jr:

I should guess it would be pretty close to a
dollar.

Kuhn:

What would this be in August, '39?

White:

In August, '40 this same food and shelter, I

think, cost a dollar thirty-five. A very small
change. The rise in the cost of living in

August, '39, I think, was something - my recollection, if it serves me correct, brings much
less than two per cent.

Elliott:

Oh, much less than two per cent, it must have
been.

H.M.Jr:

Well, again, if Miss Ware could stay and with
George and Harry get together and settle the

figures, I will be glad to use them, but it is

the idea.
White:

We will take the one that looks most dramatic.

H.M.Jr:

They will say, "Well, Mr. Morgenthau, when do

you think we will reach the two point sixtyseven, in how many years?" You don't say.

White:

We say in four years, but I think we will change

45

- 22 -

that. I think the thing to do is to say that

by the time the war lasts much longer, we will
be close to that.
H.M.Jr:

Well, why not say we are headed right toward

White:

That is what we reached in the last war. How

H.M.Jr:

What do you say, Miss Elliott?

Elliott:

We are moving in that direction rapidly.

H.M.Jr:

We are moving rapidly in that direction.

Bell:

Well, one year of the war has already gone by.

Kuhn:

You say in the next sentence, "If the same rate
of increase takes place in the United States in
the next two years as during the last war,
a basket of groceries which now cost $1.00

that?

rapidly we will get to that point this time is
difficult to say, but we are --

will cost $1.75. That is where the inflationary
forces of today will lead us unless we take
positive steps to prevent it."

H.M.Jr:

Just wait a minute, please. Now, what I would

like to say is this. This still doesn't - isn't
convincing enough. I would like to after this
thing here say, "Now, I want to translate that

into terms that the housewife and I can under-

stand," and then I would like to, Miss Elliott,
right in there put in a paragraph. I would like

to take a few items like porkchops today cost

thirty cents a pound. If this thing continues
they are going to cost so much. If bread costs
so much today, following the same pattern -

I would like four or five things, I mean what

you think are good, porkchops, bread, eggs.
I mean, I would like another paragraph to

illustrate the thing.

46

- 23 -

Elliott:

We have figures here on corn meal, pork, flour,
bread, eggs, beans and rice.

H.M.Jr:

Forecasting it?

Elliott:

Yes.

H.M.Jr:

What is the list again?

Ware:

This was a list, as a matter of fact, for the
translating a hundred and ten per cent of parity
into likely price increases.
Is that the same as from a dollar to a dollar

H.M.Jr:

seventy-five?
Ware:

No.

H.M.Jr:

No, it isn't.

Ware:

No.

White:

We can break that basket of groceries down to

H.M.Jr:

Take the dollar to a dollar seventy-five and

that.

give me a half dozen good items.

Elliott:

We can do that. We can get that right out of
this percentage here.

H.M.Jr:

Yes, from a dollar to a dollar seventy-five, and
each one of these things here which are new,

like this is, I would like a chart to back it

up with, George.
Haas:

All right.

H.M.Jr:

Even if we get too many charts we can always

throw some out, but at least let's have them.
But I simply want to say now a dollar and a

47

- 24 -

dollar seventy-five. Let's take a half dozen

items in that market basket and what would they

be if they went from a dollar to a dollar seventyfive?

Elliott:

Well, these would cover meal and pork and flour

H.M.Jr:

Wonderful.

and bread and eggs and beans and rice.

Isn't that as good as any? That is on the poor
man's table, isn't it?

Elliott:

I think that is a good assortment.

Ware:

We can get a good assortment from that.

H.M.Jr:

Go ahead, Ferdie.

Kuhn:

"The rise in prices is not confined to foodstuffs
and clothing. I have before me the actual figures
on the cost of constructing a standard six-room

frame house in one of our typical cities. This

home that could have been built a year ago for
$6,000 now costs $7,140 to build. Here we have
an increase in prices of nearly 20 per cent and

if it goes along the 1916 pattern, we are only
at the beginning of the story.

H.M.Jr:

I certainly want that chart.

Haas:

I have got a chart.

H.M.Jr:
Kuhn:

I know, I saw it just last night. I certainly

want that in a chart.

"There is however one great difference between
conditions today and 1916. We at least know

what is going on. We are aware of the dangers

that lie ahead of us."

Klotz:

It says "that" here. It should be "what".

48

- 25 Kuhn:

It is a misprint.
"We now know or ought to know that the time

to do something about inflation is before it

occurs, not after it has gathered momentum.
We should profit by our greater knowledge and
take prompt and effective action now."
Bell:

Do you intend to leave out the details of the

house? We had them in yesterday, broken down.
H.M.Jr:

You mean in the chart? They will be in the chart.
That saves another thing. You can have less

details in the statement and all the details in
the chart. If you don't mind, Ferdie, I think

that last paragraph could even be made stronger,

on page eight. I don't think I am beating my
breast hard enough.

Kuhn:

You are only beginning to beat your breast
there.

"Our economy today resembles an over-loaded

steam boiler."

H.M.Jr:

Now we are getting somewhere.

Kuhn:

"The fire under the boiler is being fed by
billions of additional purchasing power in
the hands of the public. The fire is growing

better and is generating more steam than the

boiler can safely hold. If we are to prevent

the boiler from bursting, we must damp down
the fires by withdrawing some purchasing power,
and we must also strengthen the boiler by

increasing the supplies of goods available to

the consumer.

"It is true that some important steps are being

taken to withdraw purchasing power that competes
with defense goods. Congress has now before it

49

- 26 -

a huge tax bill destined to raise from $3 $3-1/2 billion in additional revenue. The

Treasury in its borrowing program is attempting

to obtain as large a portion of its funds as

possible from current consumer income. To do

this it has initiated a program of selling

defense savings bonds and stamps to people of
moderate and low income, and has also embarked

upon the sale of a new form of note - the Tax
Anticipation Note - which will operate to reduce
the lag between the time of accrual and the time
of payment of income tax, thus"--

H.M.Jr:

May I interrupt you? Go back to page nine at
the end of the paragraph where you say, "We

must also strengthen the boiler by increasing
supplies of goods available to consumers."

I would like to follow the technique of the

fellow in his prime who was tops, a man by the
name of Alfred E. Smith, who used to use this

expression, "Now let's look at the record.'

At this point I would like to say, "Now, let's
take a look, what can we do?"

White:

"What have we already done and what can we do?"

H.M.Jr:

"What have we done and what can we do about it?"
"What have we done and what can" --

White:

"And what more can we do?"

H.M.Jr:

"And what more can we do," you see?

Kuhn:

It is good to break it up that way.

H.M.Jr:

Do you remember Al Smith? He would say, "Now

White:

He has stopped looking at his record now.

H.M.Jr:

He has stopped thinking, poor man.

let's take a look at the record."

50

- 27 -

Elliptt:

May I interrupt at this point? In this dis-

cussion of the production of purchasing power,
wouldn't it be desirable to have a sentence say-

ing that the reduction in purchasing power is
not aimed at the lowest or the very low incomes

which are needed to provide minimum essentials

for health and welfare? It sounds as if there

was a slight inconsistency between this state-

ment here and cutting down consumer purchases

and the statement later on.

H.M.Jr:

About morale and health?

Ware:

Yes.

White:

Cutting purchasing power where it can be most
afforded or something, where it can most be
afforded.

Ware:

Yes, just a little sentence there.

H.M.Jr:

And do the least damage.

White:

To our standard of living.

H.M.Jr:

Something like that. I think that is a good point.

Kuhn:

We are on the Tax Anticipation Note, which will
reduce the lag between the time of accrual and
the time of payment of income taxes, "thus increasing
the effectiveness of that tax as a means of
curtailing current purchasing power for consumer goods.

"These measures to restrain price rises, though
they have unquestionably been helpful, are inade-

quate to meet the situation confronting us. All

of them attack the problem by attempting to

reduce expendable consumer incomes. Fortunately,

however, there is available an additional method
that attacks the problem from the opposite

51

- 28 direction. Because of our accumulations of

agricultural surpluses we are in a position to
provide increased quantities of almost all
agricultural goods and thereby both curtail
prices and increase the standard of life.
H.M.Jr:

Right there, what I want to say is that this

was done during times of depression and the

time to rid one's self of surpluses are
in boom times.

Kuhn:

We have got that in the next paragraph.

H.M.Jr:

All right.

Kuhn:

"Indeed, my suggestion that the granary doors
should now be opened agrees with our established

agricultural policy - the ever normal granary.
Having been accumulated in time of surplus, the
stocks should be distributed in time of shortage. To do so is the natural complement of

our previous policy and the necessary preparation for reaccumulation when and if surpluses

again develop." "
H.M.Jr:
White:

That sentence is a little highbrow.
I got your note this morning, and we added that

paragraph.
H.M.Jr:

This first paragraph, at the top of eleven, is
a little highbrow. That is me?

White:

I say we got your note this morning, and we wrote
that paragraph this morning.

H.M.Jr:

This one?

Kuhn:

And the next one.

H.M.Jr:

I say it is a little highbrow. Never take anything seriously that I dictate before six in the

morning.

52

- 29 White:

I don't think the time was on it.

H.M.Jr:

Well, it was. I have one of these Ediphones at
home. All right, go ahead.

Kuhn:

"Now is the time to empty our shelves, both for
present advantage and so that if necessary we

H.M.Jr:

can later fill them again."
That is what I said.

Kuhn:

The concept of the ever normal granary calls

Elliott:

for a floor to be built under falling farm
prices and, it seems to me, for a ceiling to
be built over rising farm prices."
Wouldn't it be better to say, "Now is the time
to empty our bins and our shelves"?

Haas:

It is more farmlike.

H.M.Jr:

All right.

Kuhn:

"And that brings me, gentlemen, to what I consider the major defect of the bill now before you.

It is a defect which I consider so great that
it will undermine the effectiveness of the bill

unless it is repaired. This is the failure of
the bill to provide for effective control of
farm prices. And without a check upon farm
prices, it is useless to look for a check
upon inflation."

H.M.Jr:

Hear, hear, did Miss Elliott write those two
sentences?

Elliott:

Not guilty.

H.M.Jr:

They are good.

O'Connell:

Mr. Secretary, I would like to point out that

53

- 30 I am not sure that sentence about control of
farm prices is absolutely accurate because
once you get to a hundred and ten per cent,
the bill contains the same power to control

farm prices that it does all other types

of prices. That is, the effectiveness at

that level is the same as regards farm products as the bill supplies for other commodities
at whatever level the Administrator determines

to be fair. Now, I don't know that that means
that this is absolutely incorrect, but I am
not sure of it.
Haas:

Unless they changed the definition of parity,
Joe.

O'Connell:

Bell:

Well, I am assuming that there is an existing

definition of parity. I don't know.
In other words, there is a ceiling but the ceiling has been fixed high.

Ware:

No, but it is a escalator ceiling.

White:

There is no ceiling. They can't do it lower.
Because by definition the parity doesn't - yes,
that is right.

Haas:

Kuhn:

You have the word "effective" as a hedge, Joe,

"effective control".

H.M.Jr:

If I understand correctly, what you mean by

"escalator ceiling" is that as the articles
the farmers buy go up, that is one of the factors
going into farm parity, so his prices go up, is
that right? What he buys rises and what he
sells rises, so therefore the thing goes up goes right on up. Is that right, Miss Ware?

54

- 31 Ware:

Yes.

H.M.Jr:

Well, Joe O'Connell made a comment. Give it
careful consideration.

White:

Look what they have done with cotton. The
minute they have reached the parity they have

given every indication of no willingness to
release supplies, even after it reaches parity.

O'Connell:

Well, that is another point. That is entirely
different.

H.M.Jr:

Well, Joe, go after these boys afterward and
see who gets licked. You know, go after them.
It is a point and see whether you can argue it
among yourselves.

White:

Yes.

H.M.Jr:

Go ahead.

Kuhn:

"The problem of farm prices is close to my
heart, not only because I have a farm of my
own, but also because I was the first Governor
of the newly organized Farm Credit Administration
in 1933. With memories of those days in my mind,"

H.M.Jr:

Wait a minute. Aren't you going to say for a

few weeks I was the Governor or Chairman of Herbert Hoover's Farm Board?

Kuhn:

H.M.Jr:

If you want it in.
Sure. So I had a taste of that, and it has been

a bad taste ever since. "With the memories of
the few weeks that I was Chairman of Herbert

Hoover's Farm Board still clear in my memory," "

and then the other thing. What was that,
three weeks, Herbert?

Gaston:

Two months.

--

55

- 32 Bell:

May.

Gaston:

A little over two months, March 3 to May 12.

Bell:

Yes.

H.M.Jr:

All right.

Kuhn:

"With memories of those days in my mind, it
seems to me that too many people are now look-

ing at farm prices purely from a short-run
point of view without any apparent regard for

the inevitable after-effects of inflation.

Have they forgotten the experience of 1920 and
1921 when farm prices dropped more than 50

per cent within twelve months? Have the people
back on the farms forgotten the whole heartbreaking period from 1921 to 1933 when American farm-

ers fought for relief with no result? Surely

millions of our farmers can remember the bottom
of the pit in 1933, when they organized "holiday"
movements to protect their farms from foreclosure."
H.M.Jr:

Now you have got to put one thing in. "Have

the people back on the farms, havethe Republican

Party, forgotten the period?" Just put that in,

will you please?
Haas:

What was the little result, the Farm Board?

H.M.Jr:

Well, believe me, when Mr. Crawford - this is
a good point, Joe. When Mr. Crawford goes after
me, I can say, "Has the Republican Party forgotten the period from 1921 to 1933?"

White:

You wouldn't blame them if they did.

O'Connell:

They never will forget it.

H.M.Jr:

Well, isn't this the place to chuck it in? Where
is my farm prices, George, that I asked for last
night, where is my chart?

56

- 33 Haas:

They didn't work out exactly what you wanted,

I don't think. That is farm income. It is an
interesting thing, but it is not farm prices,

you see.
H.M.Jr:

No good.

Haas:

H.M.Jr:

It shows all right.
No, it doesn't.

Haas:

It shows it way up, you see.

H.M.Jr:

I want farm prices.

Elliott:

Mr. Secretary, it is probable - there are some
Southern Democrats, you see, who are leading

the fight for this higher parity, and it might
throw that back.

O'Connell:

Of course you will get more Republicans on this
Banking and Currency Committee than you will

Democrats.
H.M.Jr:

I went through the campaign in 1932 preparing

this thing, and the whole thing we had to keep

throwing in Hoover's teeth was the Farm Board

and that was one of the principal things we

threw in his teeth and into the teeth of the
Republican Party. Now, if they get nasty with
me, I am going to simply say - and if I remind

the Democrats of this they may pipe down and say,

"Well, Morgenthau is right. We had better make

this a Party matter. They will say, "We don't
want to repeat." It is my only chance, you see,

to remind them that it was the Republicans who
had made the mistake and it was the farmers who
had suffered for thirteen years. We Democrats

pulled them out of that hole. We don't want

to make the same mistake as the Republican Party

did. I - unless these people --

57

- 34 Foley:

I don't quite see the relevancy, Mr. Secretary --

White:

It would come better in the questioning, Mr.
Secretary.

H.M.Jr:

Oh, absolutely. I don't want it in the statement.
But in the questioning. No, I wouldn't put it
in the statement. I was only kidding. But in
the questioning. I am perfectly consistent on
Mr. Roosevelt's agricultural speeches of '32, what
he said. I am only repeating what he said in
'32.

O'Connell:

Well, Mr. Secretary, I have been listening to
that cross examination of Mr. Henderson for the

past five or six days, and I really think that

you are not apt to have much trouble with Wolcott,
Gifford, and Crawford, who are the three Republican members who have been examining Mr. Hen-

derson so far. I think that you will get,

frankly, more sympathy with this sort of state-

ment from them than you will a number of Democratic

members.

H.M.Jr:

But Joe, certainly I am on very safe ground if
I go back to Mr. Roosevelt's campaign of '32
and what he did for the farmers to pull them
out of the hole and keep their farms for them.

O'Connell: That is right.
H.M.Jr:

I would just as soon say that maybe some Democrats have forgotten what Mr. Roosevelt stands
for, including Cotton Ed Smith. Maybe some Dem-

ocrats have forgotten what the principles of
the Democratic Party are. What is the matter

with that?
Foley:

Well, Mr. Secretary, the result, in so far as the
farmer is concerned, may be the same, but the
logic of this and the way it is said in here

58

- 35 -

bothers me a little bit. I don't quite see

the relevancy between inflation and depression
and your comparing - I mean, you go from in-

flation and the effects of inflation right back

to the depression period.
H.M.Jr:

I can answer that for you. You weren't here

yesterday when we heard the statement. They

didn't use it. The illustration I used was

this: If you want to keep Humpty Dumpty from

falling off the wall and you don't want to
let him get up on this high wall -Kuhn:

We did use it, Mr. Secretary. It is on the next
page.

H.M.Jr:

Let me just go with Ed on the farm prices. He

comes from Fourteenth Street in New York, is it?

Foley:

I come from up-State New York.

H.M.Jr:

You don't vote there, anyway. (Laughter)

Foley:

Besides, if you want to be accurate, it is Twentythird Street.

H.M.Jr:

O.K. You win. Well, anyway, the connection
between the two is that we don't want inflation
now, so we don't have that horrible

deflation afterward. That is the point. Does
that satisfy you?

Foley:

Yes, that satisfies me.

White:

His point is, it may be - may not be made clear
in the statement.

Foley:

It is not clear.

H.M.Jr:

He is most likely right, but you don't want

the cruel inflation now and the even more devastating deflation which comes as a result.

59

- 36 That is my whole thesis. That is my whole thesis.

If that is wrong, then we had better start all

over again.
Foley:

I don't think the thesis is wrong. I was merely
saying that it is kind of hard here to follow
the logic.

Kuhn:

It comes. We might point it out sooner.

"I lived with the tragedies of the farmers in

1933. I remember the day when seventy-five
farmers with shotguns" -- I am going to revise

this -- "stood on the steps of the Illinois

Court House." (Laughter)
White:

Foley:

"I remember when farmers with seventy-five shotguns came to my office."

It sounds like a marital proposition to me,

Harry.
Kuhn:

"They came to my office to tell me they were
about to be turned out of their homes and their

lands."
H.M.Jr:
Kuhn:

H.M.Jr:
Kuhn:

That is wonderful.
"I remember the case" --

Is this the part that Herbert Gaston wrote?
Not guilty.

Gaston:

I am not guilty.

H.M.Jr:

All right, go ahead.

Kuhn:

"I remember the case of one farmer, a college
graduate, who had been worth fifty thousand

dollars a few years earlier, and who was being
threatened with foreclosure although he had

25,000 bushels of corn in his bins. It was

60

- 37 my job then to halp extricate our farmers from
a price and speculation wreckage which had its

origins in the price boom of the last World

War.

White:

I don't think that expression is good. I think
we ought to cut it out. They will begin talking about the men who had millions in 1928 and
lost them in '30.

H.M.Jr:

Well, Herbert can fix that stuff up.

White:

Who cries over anybody who is worth fifty
thousand dollars anyway?

Foley:

Especially if he went to college. (Laughter)

White:

He should have known better.

Foley:

Sure, what has he got education for?

Haas:

Put the corn in the crib, too.

Kuhn:

Instead of a bin?

Haas:

Yes.

Kuhn:

All right.

H.M.Jr:

Go ahead.

Kuhn:

"But it was hard for me then and it has been
hard for the Administration since then to put
Humpty Dumpty together again. And it has been
hard to persuade the present-day descendants
of Humpty Dumpty not to go climbing up that wall

of high prices again.

"I want to see a healthy development of farm

prosperity, and with that objective I helped to
initiate our agricultural pro ram and have

61

- 38 -

continued to support it. Holding fast to

that objective, I am convinced that we must
not ignore the danger signals ahead.
"Now what are those danger signals as they

apply to our farms? The most serious of them is
a rapid rise in prices which is hastened

to a large extent by the artificial withholding
of huge supplies from the market. It is hastened
also, to some extent, by the continuance of
unreasonably high tariff rates that keep foreign
supplies from our shores. Yet if we were intelligent in seeking to prevent further price rises,

we should be making every attempt to bring in

supplies from other countries, particularly

those supplies in which shortages are already

operating. We should not hesitate to cut tariff

rates wherever such rates operate to keep
prices unduly high or the goods unduly scarce.
Above all, we should be making full use of those

supplies that are available here in the United

States.

Elliott:

In this here, wouldn't they come back there at
you on shipping, the fact they would do

this if they could, it is a shipping shortage
that is keeping them from bringing them in?

White:

Not from Canada.

H.M.Jr:

I was thinking of wheat from Canada and sugar

from Cuba. There is no trouble in bringing it

over in barges.
White:

And vegetables from Mexico.

Elliott:

Well, I think, though --

H.M.Jr:

Cocoa, coffee, yes, but sugar and vegetables
and wheat - I hope you have got the right figures
for the wheat in Canada now.

62

- 39 White:

We will check on that.

H.M.Jr:

I have got to get a lot of this stuff primed

into me. I think it is all right, Miss Elliott.
Kuhn:

"It is sheer folly from the farmer's point of

view, to be pushing prices up by creating

scarcities in times like these. It is folly,

because it will end in the same heartbreak and
misery that came in 1921 and lasted for twelve
long years.

"I hope the farmer will see where all this is

heading; I know the housewife does. For she

is feeling the effects already, every time she
goes to the market to buy food for her family.

"I wonder if the housewife knows, when she pays
20 per cent more than she did a year ago for

a bag of flour, that our supply of wheat is the

largest on record, and that 450,000,000 bushels
of two years' crops are stored in Canada and
could be imported easily. I wonder if she knows,
when she pays 15 per cent more for a pound of
sugar than a year ago, that there are huge
untouched reserves of sugar in Cuba. I wonder
if she knows, when she pays 25 per cent more

for butter, that we have forty million more

pounds of butter in storage than a year ago.
We have in our own country large reserve stocks
of farm products of all kinds which should be
released for consumption as rapidly as is
necessary to prevent unreasonable price rises."
The cotton business here is as it was yesterday.

Elliott:
Kuhn:

Isn't "of all kinds," a slight overstatement?
Probably it had better be "many kinds."

Page seventeen. "Millions of our people" --

63

- 40 -

Elliott:

There is a statement that has just been prepared
and is on my desk on the sugar situation, which
I think can make this even stronger, the amount

of sugar that is now in this country. I was

amazed to see that this statement - they are
calling in the sugar people now because on the price ceilings discussion and that there
is more sugar now, according to this statement,
in this country than at any other time.
Kuhn:

Being withheld from the market?

Elliott:

Yes.

H.M.Jr:

Can we get that list?

Elliott:

Yes. Well, I don't know whether that statement

is being held for the price ceiling thing. He

got up this statement because they are calling

in the sugar people to fix a price ceiling.

H.M.Jr:

Well, if I could use this. You see, the point
that I would like to get over is this --

Elliott:

When I go over to the office I will send that
sugar statement back.

H.M.Jr:

The thing I would like to get over, so you get
it once more, is on this whole question of food,

the thing that burns me up so, I happen to have
been partly responsible when the President
released the seven hundred thousand tons of
sugar two years ago when the thing went up to

twenty-five cents in the fall of 139, and I felt

that when he did that - I mean, as I remember

it I brought it to his attention - that if all

of this had been turned over steadily every

time there was a surplus, you would have knocked

the price on the head, and every time that one

of these things grows you just hit it on the head.

Well, gradually you would keep this thing down.

64

- 41 -

But that isn't done, and that is the thing that
I want to get over, and if it is sugar or wheat and that is the way, after all, if you could
keep the price of bread at what it was - but
the selfishness of the people, for instance,
on - they know that this thing is coming for

England so there is so many million pounds gone

up. Then they hold the price there, they freeze
it. Now, they have done it in the House. The

price in the House went up when they were building Army cantonment's and there was a temporary
shortage of lumber. Now, the lumber is there,

but do they let the lumber price drop? Oh, no,

they freeze it right at that price, and that is

true in every one of these cases, and the only
way that you can break it is the way the President

broke the price of sugar in the fall of '39, by

releasing seven hundred thousand tons. Now, if
they thought we were going to release any one

of these particular items - I would do it judiciously. I mean, not to have too sharp a break.

A lot of these prices could go down.
Kuhn:

"Millions of our people still go" --

White:

I think when we were talking about sugar we should

say, "large supplies in Cuba and possibly here,"

and at the same time we have a quota which prevents that sugar from coming in.
H.M.Jr:

Yes.

White:

I think it would please Agriculture, because

we are not accepting a single recommendation

they made, if you are willing to make a state-

ment along the lines that you have just made,
that what you are concerned about, what bothers
you is not the price rises which have already

taken place, but rather the price rises which

will take place unless they are checked. It is
the further price rises.

65

-42H.M.Jr:

Well, that is true, on the whole.

White:

I think if we have a sentence of that kind in

H.M.Jr:

As long as you say where there is something
particular out of line - you can bring that down.
I mean, take --

White:

There
are
-- are things out of line. Feed products

H.M.Jr:

there they will like it.

Tallow, a hundred and twenty per cent up.

I remember that figure. There is no excuse.
I mean, if tallow is a hundred and twenty per
cent and there is some way of bringing tallow
and - cottonseed oil, the things that go into

shortening, isn't that what you call it? Those

things, for some reason or other, are completely

out of line. Just keep that in mind. Go ahead.

And, gosh, the peanut oil in the country must
be tremendous. There must be huge quantities

of peanut oil. It is the thing from the Philippines, isn't it, that has driven the price up,
the lack of that, isn't it?

Gaston:
Kuhn:

Yes, they can't move copra.

"Millions of our people still go without milk,

butter and eggs which nutrition experts have

found necessary to good health and good morale.
The effect of good food on national defense has

been stated so well in the August issue of
Fortune magazine that I should like to read one

paragraph to you."

Shall I read it?
H.M.Jr:
Kuhn:

Yes, I would like to hear it.
"It says:
'This is a war in which every man, woman and

child must be alert, physically tough, strong in

66

- 43 -

character. Planes, battleships, natural resources,
industrial plants mean little without human
fitness to match - superb health, geared up to

its highest potential by the right food. Courage and the cool head in battle, efficiency on
the production line, civilian morale - all

hinge on food; not on just eating enough, but
on eating enough of the best life-giving foods.

The Nazis have even demonstrated that right and
wrong diet can be used as a double-edged weapon,

both to sustain the will to victory of their

own people and to paralyze the will of the conquered. Never has it been so clear that food
is power.

"One would imagine that every effort would be
made to put more dairy products on the market;
yet we are withholding the largest reserves

and the largest production of milk, butter, eggs
and cheese in our history. We could easily
expand our production of dairy products for our
own use, and yet leave ample amounts to be sent
overseas.

Elliott:

We were just questioning this, "yet we are

White:

I think on this whole thing George ought to
take the statement and wherever there is any

withholding the largest reserves --

reference at all either to agricultural prices
or agricultural stocks or surpluses, that he
ought to have somebody in his staff check
it because we haven't checked them carefully.

H.M.Jr:

Will you take that responsibility, George?

Haas:

Yes.

H.M.Jr:

You see, before Haas was with me in the Farm

Credit he was in the Foreign Service in the
Department of Agriculture. He went from there
to Farm Credit to here. We are all farmers here.

67

- 44 -

Elliott:

She (Ware) is a good farmer, you know.

H.M.Jr:

Where is your farm?

Ware:

Virginia.

H.M.Jr:

Don't you have one up in Dutchess County?

Ware:

No.

H.M.Jr:

Do you still teach at Vassar?

Ware:

No, I keep only my voting residence in Dutchess
County.

H.M.Jr:

Good. We need you up there, especially next
fall when we go after Ham Fish.

Ware:

Again?

H.M.Jr:

Again. (Laughter)

Kuhn:

Shall I read this business about England which
we are going to cut?

H.M.Jr:

No.

"The prices of these products need not rise at
all if we use our surpluses for supplying our

own market and if we began expanding our food

processing plants. It requires only elementary

foresight. It was lack of such foresight that

brought us to our present shortage of plant
capacity for the manufacture of steel and

aluminum. A similar failure to act in the field

of food products is leading us to the same

outcome, and to the same conditions of shortage

which have operated in other fields.

"I know from experience on my own farm that within
two months we could increase our supply of milk
by feeding some of our huge surpluses of corn

68

- 45 -

to the cows. That is the practical way of getting

more milk for our people. I know that we could
use some of our surplus grains as feed for
chickens, and get more eggs. Yet the price
of a standard poultry ration has increased 60
per cent since the war began. We could feed our
surplus grain to hogs and get more pork at prices

which the American housewife could pay. Yet
the government is withholding 200 million bushels
of wheat and 300 million bushels of corn.

"This has been historically a land of milk and
honey. There is still plenty of milk and honey,
but too much of it is in the warehouses. Let's

make it flow. If we were to let it flow to the
public" -H.M.Jr:

What is the hymn, "The land of milk and honey"?

Elliott:

"Jerusalem the Golden".

Kuhn:

"With Milk and Honey Blessed."

H.M.Jr:

You might look it up to see if there is something

you can quote directly from the hymn.
Kuhn:

That is all there is about milk and honey.

White:

I will let you know in a half hour.

H.M.Jr:

Until you call up your wife?

Klotz:

Yes.

H.M.Jr:

All right. You know, Mrs. White has the children's
Book of the Month - for children, this month.
Her book was selected as the best book.

White:

My wife thanks you for that little publicity.
(Laughter)

Kuhn:

.....We should not only help in keeping prices
stable, but we should be doing something even

69

- 46 more important; we should be helping to make our
people healthier and happier.

power its toand
do be"The Treasury proposes to do everything in its

cause on one hand, has a responsibility
financing will be definitely more difficult if
borrowing to prevent the policies. inflation, It it proposes through this tax

to the public, and on the other hand, its own

inflation develops."

The rest of that about the nation's largest

purchaser and the nation's largest employer
is old, and also keeping faith with the people
who have bought defense bonds to prevent in-

flation.

Then, on page 22: "For these reasons, we are

determined to fight inflation wherever it
appears. I hope that every citizen, every housewife, will fight it at the same time, because
of the dangers of inflation to every individual.
What the public can do in the fight against
inflation immediately is to insist upon the
passage of this Bill and upon the adoption of
a policy of increasing the supply of food and
other civilian goods which do not compete with

defense production.

"Some of our people think that they will benefit
from rising prices. They are wrong. No group
in a community profits from inflation except the

Three Horsemen - the speculator, the profiteer
and the hoarder."
Then comes the morale passage which we had

yesterday. The ending is old until we get to
this:

"The responsibility is ours. The time to give
our people that assurance is before the inflationary

70

- 47 process has gripped them. We have it in our
power, in this year of great decisions, to show
courage for which the American people will
thank us in years to come."
H.M.Jr:

Elliott:

Well, I think we are getting somewhere now.
Now, Miss Elliott, please? Additions or subtractions?

No, I think not. There are one or two things
in going over that will catch them.

we marked along here, but I think Miss Ware
H.M.Jr:

Can she go over it with the men later on?

Eiliott:

Yes, just minor things there. I still think that I just asked Miss Ware if she doesn't agree with

me there in the end where you say you support

this bill. You don't support the bill in its
entirety. You support it with reservations.

Kuhn:

Insist on the gap in this bill being repaired?

Elliott:

Couldn't you say - I mean, if you say you sup-

port this bill, that contradicts, it seems to

me, the criticisms, you see.
H.M.Jr:

I think she is right.

Elliott:

.... which he has made. You support price
control.

White:

You support this bill provided such change is

made?

H.M.Jr:

That would hurt. I wouldn't say anything.

Bell:

You say that, don't you, in the first paragraph?

Elliott:

But I think if you come out at the end and say,

it"Now,
is --gentlemen, I support this bill," I think

71

- 48 White:

Well,
it appears
to me
that
this bill
forward,
and the one
item
in there
-- is a step

Elliott:

The principle of this bill you support, and
price control, but you don't support the bill
as it is written. Maybe I am wrong.

White:

The bill itself - as I say, I don't know
whether the Secretary is ready to go further than
this bill, excluding the question of the floor
of agricultural commodities, because if that is

excluded, I take it that you do support the bill.
H.M.Jr:

Harry, on page two, I say, "I welcome the
bill before you because, despite one serious

shortcoming, which I find, I believe it is a
step forward." I think that is enough.

Elliott:
Ware:

I think you shouldn't give that general state-

ment at the end.

Except that here you are calling on the public

to act, and if you want this to constitute a
call on the public, there is a slight difference
in the way in which -White:

You are asking the public to support this bill.

We will have to change that.
Kuhn:

You can ask the public to support a policy of
using agricultural surpluses.

H.M.Jr:

I can't say here, "Write to your Congressman.
You will have to change it because I think Miss

Elliott is right. That is enough to say on page

two, and then I don't want to come on again after

all the criticisms and say, "I am for this bill."
Gaston:

You could say, "This legislation to control

prices is most urgently necessary and therefore

consideration of this bill at this moment by the
Committee is very timely."

72

- 49 -

Elliott:

That modifies it.

H.M.Jr:

Will you write it, Herbert?

Gaston:

Yes.

H.M.Jr:

Mrs. Klotz, have you got any suggestions?

Klotz:

That is a very good suggestion. I like the state-

ment very much.
Kuhn:

Mr. Secretary, there is one omission I would
like to ask you about while we are here.
In the memorandum to the President, it included
an extension of Social Security contributions
and benefits. You say nothing in this statement

about wages. Isn't that the way to say it, as

another one of the anti-inflationary measures?

H.M.Jr:

I would like to say it.

Kuhn:

I have a paragraph which I would like to read and

see if it is O.K. with you. It can be fitted

in in the early part of the statement.

"As another means of withdrawing purchasing
power, many people concerned with the rise in
incomes have suggested that wages be frozen.

Our wage bill in the first six months of this
year was forty-one and a half billion, or fourteen per cent more than for the corresponding

period last year. I believe that we can prevent

this increase from having inflationary consequences

by a substantial increase at once in the Social
Security contributions and benefits. This would
serve the double purpose of drawing off a very

large amount of excess purchasing power and

providing a source of increased purchasing
power in the years of readjustment that will
follow the war."
O' Connell:

That assumes that the increase in wages is inflationary.

73

- 50 Kuhn:

No.

White:

No, it doesn't.

O'Connell:

Well, read what you said.

Kuhn:

"We can prevent this from having inflationary

consequences.
O'Connell:

But you have got to take some of it away from

them in order to prevent it.

H.M.Jr:

Let's put it this way, Joe. Let me say something
about the increase in Social Security, you see.
I would let Altmeyer take a look at that sentence,

but I think it is a good thing to throw in.

White:

Why don't we duplicate what was said in the
President's statement on Social Security?

H.M.Jr:

That is what I thought you were going to do.
I don't know why you have left it out.

White:

I didn't know it was left out.

Kuhn:

Yes, there was a whole list of things that advocated greater powers for OPACS and so on,

some of which are in this bill, and one of the
things on that list was the extension of Social

Security.
White:

I didn't know it was left out.

H.M.Jr:

Well, just repeat what we had in the statement
for the President. You don't have to bother
showing that to anybody.

O'Connell:

Mr. Secretary, Leon mentioned just in passing
in answer to a general question yesterday that
he thought consideration ought to be given to

an increase in Social Security taxes, but he

didn't dwell on it. He just said that.

74

- 51 H.M.Jr:

O'Connell:

Well, that kind of thing I could repeat.
Sure, that is right.

H.M.Jr:

Now,
Herbert, please, any suggestions? Any
criticisms?

Gaston:

No, I think not.

H.M.Jr:

Something
you want to go over with the boys
afterward
on?

Gaston:

I think
over.

H.M.Jr:

Will you do that, please?

Gaston:

Yes.

H.M.Jr:

there may be points I would like to go

Ferdie, Herbert will go over some things with

you. Dan?
Bell:
H.M.Jr:

No, I think they have met your wishes very well.
Can your people check the figures as to income

and all of that?
Bell:

Only as to the Budget end.

H.M.Jr:

But you do --

Bell:

They look right to me, without checking them
again.

H.M.Jr:

Ed?

Foley:

I think it is all right.

H.M.Jr:

How does it look on Twenty-third Street?

Foley:

Pretty good.

75

- 52 H.M.Jr:

Joe?

O'Connell:

There is one thing I would like to suggest, and
that is on about page ten of the statement - I
have an old copy, and I am not quite sure of

the exact page, but after referring it to the -

attacking the problem by attempting to reduce
the expendable consumers' income, we say that

there is an additional method that attacks the
problem in an opposite direction, which I take
it to mean the expansion of production, but you
don't say that. You go immediately - the state-

ment goes immediately from reduction of consumers'
income and then a reference to the opposite

direction and immediately to the accumulation of
agricultural surpluses. And I wondered if the
transition wouldn't be smoother if we talked
about the necessity for the expansion of produc-

tion in all lines and then used the agricultural
surpluses and the agricultural situation to

demonstrate one particular way in which that
general problem may best be approached.

H.M.Jr:

Joe, you ought to spend the rest of the day

with the boys on this thing. I wish you would,

please.

O'Connell: Sure.
H.M.Jr:

You can get a leave of absence from Mr. Foley

for the rest of the day.

Foley:

Granted. (Laughter)

Kuhn:

Mr. Secretary, you said that you didn't like

the first part.

H.M.Jr:

Well --

White:

There is one paragraph you didn't like that I
think can be cut out, that one about --

XX
- 53 H.M.Jr:

I just wondered, , Ferdie, whether you are not

saying too much - I guess it is all right.

White:

It goes kind of slow on pages three and four.

H.M.Jr:

On page three do you want to talk about a ten
pound bag of flour at that place?

White:

No, I think not, because we can take that out that is what you wanted to say later.

H.M.Jr:

Later, yes.

Klotz:

Yes.

White:

Something of that character, and I think that

can come out there and merely say - you can

either delete the whole paragraph or say, "By

1918 prices were doubled," or something.
H.M.Jr:

The other thing is, I like this three horsemen
business. Couldn't you bring that right up

to the beginning somewhere, so they know what -

Klotz:

It fits in right where that --

Kuhn:

You have got to have something at the end,

a flourish at the end.

H.M.Jr:

Elliott:
H.M.Jr:

Elliott:
H.M.Jr:

Now, Miss Elliott, can Miss Ware stay behind?
Yes.

Can we have here as long as necessary today?
Yes, indeed.

That is fine. And then when could I show this
to you again? Would it be asking too much if

you came back at eleven tomorrow?

Elliott:

Not at all. I will be delighted to.

76

77

- 54 H.M.Jr:

Would that be asking too much?

Elliott:

Not at all. I will be glad to do it.
There are two or three sentences here on produc-

tion that were in the old draft that we think were

awfully important, but Miss Ware can talk that
over with you.

H.M.Jr:

Now, just one minute, George. I want you to put
yourself and somebody else on it, to go all
through this thing where you think there could
be a good chart. You will have too many, but

I can eliminate them. I can look at those this
afternoon with you. I thought Miss Elliott was
going to give us some pictures of a market basket or something.

Elliott:

We have the material here.

H.M.Jr:

If you could give it to George and then if

George - when would you be ready, George, this

afternoon, to submit charts? Three thirty?

Haas:

Such charts as we have now available.

H.M.Jr:

At least describe them.

Haas:

Any time you say.

H.M.Jr:

Well, Harry, if you and George and O'Connell
and Ferdie could come back at three thirty and
George will - Miss Ware could be here too. You
could give me a sample of the charts.

Kuhn:

You don't want a new draft at three thirty?

H.M.Jr:

No.

White:

We can have another draft.

H.M.Jr:

I don't want a new draft, but I would like to be

able to say, "I like this chart and I don't like

this one, and I need another one." In other words,

IF

78

- 55 -

to illustrate. We need the kind of charts,
Miss Elliott, you would like to see in the statement - I mean, if I just have description of
one. I think we ought to have a chart of this
at this place. And Haas will say, "I think we
have to have a chart of this kind," and I can
go over this at three thirty because he will have
to have the people work all night to get the
thing out.

Elliott:

When do you testify, Mr. Secretary?

H.M.Jr:

Thur sday morning, but in order to make these
big charts and have the thing mimeographed,

it takes a lot of time. I will do charts at

three thirty. I am ever so much obliged.

79

PRELIMINARY DRAFT

I as glad that you have asked me to testify today,
because you and I are faced with serious decisions of policy,

very serious decisions, if we are to avoid bringing the
calamity of inflation upon the American people.

The word "inflation" is cold and lifeless. But the thing
it describes is treacherous and cruel. We have been talking

about inflation for a long time as if it were a threat remote

from our daily lives. It is a distant threat no longer. We
are faced with the urgent, practical necessity of grappling
with 11 now.

If we are timid--we in the Executive departments and you
in the halls of Congress--the consequence may haunt us and our

children for years. But if we are courageous, we can beat

this thing. If we keep always in mind the best interests

D-5

80
2-

of our country as a whole, and forget about special interests,
we can prevent inflation from fastening its grip upon us.
That is the choice that confronts us. The outcome
depends upon the abortness and courage and mental toughness

of every one of us here today.

/ I welcome the bill before you because, despite one

serious shortcoming which I shall mention later, I believe 18

is a step forward. I believe the bill provides another
important weapon to use in the fight against inflation.
We cannot wait any longer to add that weapon to our

arsenal. The time left us in which to act is short.
We are at the same point in price history as in 1916
on the edge of inflation.
Memories are so short that I suppose many of us have

forgotten what happened the last time inflation struck us -25 years ago. In 1916, the cost of living began to rise
sharply, but there were few who saw its significance and
nothing was done about 18.

It was not until April 1917 that the first real alara
was sounded against inflation. It was not until
D-5

-3prices had risen by over TO per . ent that the President Wilson

recommended any steps to prevent inflation. In fast, w little sware were
they of the dangers of infiction that in June 1917 Congress estually
encouraged inflation by reducing the reserve requirements for number
banks of the Federal Reserve System.

By 1918 price increases were in full swing. In 1920, a pound of
sugar cost 26 cente, a donor eggs cost 92 easte, a tea-gound bag of

four cost 88 eants, a pound of butter cost 76 cents, - a pound of

park chaps dest so smits. Then - the reaction-tumbling prices,
bankrupt farms, millions of people out of work.

The pattern of price rises in the past two years is frightening in
its similarity to the price movements during the first two years of
World War No. 1.

As the President said in his message to Congress a few weeks ages

"Today we stand, as we did in the closing months of 1915, at the

beginning of - upuard stoop of the shale price structure."

Then as now, there was a little rise in the cost of living. Then
as - there was a greater rise in whelesale prices. Then as new there
was a still gra e ter rise in the price of basis commedities.

81

82
4-

Since the beginning of the present war, the wholesale

prices have risen about 16 percent the greater part taking
place during the past five months.

True to the usual pattern, the cost of living did not

rise till later. During the past year, however, it has inthere

creased percent-- half of it in the past two months.
E

During the past 12 months the average price of 28
37

basic commodities has increased 48 percent, despite the fact

that the prices of many basic raw materials have been kept

partly in check through the efforts of the Office of Price
Administration and Civilian Supply.

It is the rise in the prices of basic commodities that
constitutes our danger signal today. They rise first,
general wholesale prices always lag behind, while the cost

of living does not show anything like the full effects of

inflation until long after the seeds of inflation have

D-5

-5taken deep reet.

Moreover, the forces now in existence making for further

price rise are both potent and persistent:
(1) Our defense expenditures are increasing rapidly. The
Budget estimates Defense spending during the fiscal year 1942

will be 815 billion, OF two and a half times as such as in the
fiscal year 1941. Even this increased estimate does not include
additions to the Defense Progres made after June 1, and greater
suns needed for Lend-Lease.

(2) More important as an inflationary force is the fast
that the Government is borrowing from banks such of the money

11 is spending. When the Government borrows from banks it is

for the most part creating new purchasing power. It is adding
to the total stream of money spend on goods. The not defieit

for the fiscal year 1942, as estimated by the Director of
the Budget, will be $12.8 billions, compared with $5.1

billions for the previous fiscal year. If the present tax bill
is passed by Congress se that it will yield 83-1/2 billion, the

deficit will be reduced by R2-1/2 billions, but it will still
D-5

83

84

-6be over $10 billion. Again this estimated deficit does not
take account of the expansion of the Defense Program after
June 1, 1941.

(3) Supplementing the inflationary force of the Federal
defieit has been the expansion of bank credit by increased
loans to business. Bank loans expanded by approximately

$3 billions, or about 20 percent during the past twelve
months. And, as in the case of the other forees making for
inflation, the expansion of bank loans has been proceeding
at a quickening pace.

(4) Pressing upward on prices is the fact that more and
more plants are reaching maximum capacity and more and more

shortages in basic materials for civilian use are appearing.

Prices of imports are daily rising due to reducing shipping
space, higher shipping costs, and disappearance of normal
foreign sources of supply.

(5) Finally, we have increasing agricultural income, and
fatter pay envelopes and many more of them.
D-5

85

-7IS is not easy for us to visualise where these forces will
take us if permitted to operate unchecked. They were unchecked

in the World War and all we have to do to see what is ahead of us

is to look into the purse of the average family of those times -to see it, not in terms of percentages and indexes, but in terms
of the prices of every day needs of food, elothing and shelter.
The money the housewife paid for one leaf of bread in 1914,

bought only a half a loaf in 1920. The money she paid for a
pound of bacon in 1914, bought only a half a pound in 1920. The
money that she paid for a yard of cotton eloth in 1914, was only
enough to buy one-third of a yard in 1920.

The family with no increase in income found its purchasing

power out in half. It found that food, fuel, sholter and elothing
that cost $1.00 in April, 1915, had rison to $1.08 in April, 1916.

By 1920, after four years of rising prices, the cost of these
goods and services had rises to $2.03. In August 1940 this same

food, fuel, shelter and elothing cost $1.37. The cost of these
goods and services has already risen to $1.42 during the past

year. But if prices continue to rise in the same pattern as
during 1916 to 1920, these goods and services will seen cost $2.67.
D-6

86

If the same rate of increase takes place is the United States
in the next two years as during the last war, a basket of
groceries which now cost $1.00 will cost $1.75. That is where

the inflationary forces of today will lead us unless we take
positive steps to prevent it.
The rise in prices is not confined to foodstuffs and

clothing. I have before ae the actual figures on the cost of
constructing a standard six-room frane house in one of our

typical cities. This home that could have been built a year
ago for $6,000 now costs $7,140 to build. Here we have

an increase in prices of nearly 20 percent and if it goes
along the 1916 pattern, we are only at the beginning of the
story.

There is however one great difference between conditions

today and 1916. We at least know that is going on. We are
sware of the dangers that lie ahead of us. We now know or
ought to know that the time to do something about inflation

is before it occurs not after it has gathered momentum. We
should profit by our greater knowledge and take prompt and
effective action now.
D-5

87

-9Our economy today resembles an over-loaded steam boiler.

The fire under the boiler is being fed by billions of additional purchasing power in the hands of the public. The fire
is growing better and is generating more steam than the boiler

can safely hold. If we are to prevent the boiler from bursting,
we must damp down the fires by withdrawing some purchasing

power, and we must also strengthen the boiler by increasing
the supplies of goods available to the consumer.

It 18 true that some important steps are being taken to
withdraw purchasing power that competes with defense goods.

Congress has now before it a huge tax bill destined to raise

fres 83 - 03-1/2 billion in additional revenue. The Treasury
in its borrowing program is attempting to obtain as large a
portion of its funds as possible from current consumer income.

To do this it has initiated a program of selling defense savings

bonds and stamps to people of a and low income, and
has also embarked upon the sale of a new form of note :- the Tax

D-5

88

- 10 Anticipation Note -- which will operate to reduce the lag
between the time of accrual and the time of payment of income

tax, thus increasing the effectiveness of that tax as a means
of ourtailing current purchasing power for consumers goods.

These measures to restrain price rises, though they
have unquestionably been helpful, are inadequate to meet the

situation confronting us. All of them attack the problem by
attempting to reduce expendable consumer incomes. Fortunately,

however, there is available an additional method that attacks
the problem from the opposite direction. Because of our

accumulations of agricultural surpluses we are in a position

to provide increased quantities of almost all agricultural
goods and thereby both ourtail prices and increase the
standard of life.
Indeed, my suggestion that the granary doors should new

be opened agrees with our established agricultural policy -the over normal granary. Having been accumulated in time of

surplus, the stocks should be distributed in time of shortage.
D-6

89

- 11 To do se is the natural complement of our previous policy and
the necessary preparation for reaccumulation when and if
surpluses again develop.

New is the time to empty our sholves, both for present

advantage, and se that if necessary we eas later fill then
again. The concept of the ever normal granary calls for a

floor to be built under falling farm prices and, 18 seems to

me, for a ceiling to be built over rising fare prices.
And that brings me, gentlemen, to what I consider the

major defect of the bill now before you. It is a defect
which I consider se great that 18 will undermine the

effectiveness of the bill unless 18 is repaired. This is the

failure of the bill to provide for effective control of farm
prices. And without a check upon fare prices, it is useless
to look for a check upon inflation.
The problem of farm prices is close to my heart, not only
because I have a farm of my own, but also because I was the

first Governor of the nowly organized Farm Credit Maintenation
D-6

90

- 12 -

in 1933. with memories of those days in ay mind, / it
seems to me that too many people are now looking at farm

prices purely from a short-rus point of view without any

apparent regard for the inovitable after-effects of
inflation. Have they forgotten the experience of 1920
and 1921 when fare prices dropped more than 50 percent

within tellive months? Have the people back on the farms

forgotten the whole heartbreaking period free 1921 to 1933
when American farmers fought for relief with no result?
Surely millions of our farmers can remember the bottom
of the pit in 1933, when they organised "holiday" movements

to protect their farms from foreclosure.

D-6

91

- 13 I lived with the tragodies of the farmers in 1933. I
remember the day when seventy-five forware with shotguns stood

on the steps of - Illinois Court House. They camete my office
to tell - they were about to be turned out of their house
and their lands. I remember the ease of one farmer, a college
graduate, - had been worth $50,000 a few years earlier, and
who was being threatened with foreclesure although he had

25,000 bushels of corn in his bine. It was my job then to
help extricate our formore from a price and speculation

weekage which had its origine in the price boen of the last
World War. V But is was hard for - then and 10 has been hard for
the administration since them to put Hampty Dempty together
again. And 18 has been hard to persuade the present-day

descendants of Heapty Dempty not to go elishing up that wall
of high prices again.
D-5

92

- 14 I want to see a healthy development of form prosperity,

and with that objective I helped to initiate our agricultural
program and have continued to support it. Holding fast to

that objective, I - convinced that we met not ignore the
danger signals ahood.

New what are those danger signals as they apply to our

farmer The most serious of than is a rapid rise is prices which

is hastened to a large extent by the artificial withholding of
huge supplies from the market It is hastened also, to some

extent, by the continuance of unreasonably high twiff rates that
have foreign supplies from our shores. Yet 1f we were intelligent
in seeking to prevent further price rises, we should be making

every attempt to bring in supplies from other countries, partieularly those supplies in which shortages are already operating.
We should not hesitate to out tariff rates wherever

D-S

93

- 15 such rates operate to keep prices undelly high OF the goods

undelly searee. Above all, we should be making full use of these
supplies that are available how in the United States.

It is sheer felly from the farmer's point of view, to be
pushing prices up by creating searcities in times like these.
It is felly, because 18 will end in the same heartbreak and sisery
that came in 1921 and lasted for twelve long years.

I hope the farmer will see shere all this is heading; I
know the housewife does. For she is feeling the effects already,
every time she goes to the market to buy food for her family.
I wonder if the housewife knows, when she pays 20 per cent

more than she did a year age for a bag of flour, that our supply
of wheat is the largest on record, and that 450,000,000 bushels
of two years' erope are stored is Ganada and could be

imported easily. I wonder if she knows, when she pays 15 per

D-6

94

- 16 cont more for a pound of sugar than a year age, that there are
huge untouched reserves of sugar in Cuba. I wonder if she
knows, when she pays 25 per cent more for butter, that we have

forty million more pounds of butter in storage than a year ago.
We have in our own country large reserve stocks of fare products
of all kinds which should be released for consumption as rapidly
as is necessary to prevent unreasonable price rises.
The Government, for example, now holds seven million bales

of cotton. Gotton prices hgve risen from 9t cents a pound on
August 1, 1939, to over 16 cents a pound at the present time.

Yet the Senate has passed a bill indefinitely prohibiting all
sales of Government-held stocks of cotton. We ought not to

withhold surpluses free the market in this sanner. In times
like those, the housewife ought not to be made to pay tribute
to profiteers and speculators when she buye a cotton dress for

D-6

-17herself or a skirt for her husband or a sait for her child.

Millions of our people still . without the milk, butter
and eggs which minition exports have found members to good
health and good morale. The effect of good food on national

defense has been stated se well in the August is of Fortune

sagasine that I should 1the to read - perograph to you sayes

"This is a war in which every mm, - - child
must be alert, physically tough, strong in character. Planse,

bettleships, natural researces, industrial plants - little
without I fitness to match - export health, goared up to
its highest potential by the right food. Courage and the cool

head in battle, efficiency - the production line, civilian
marale - all hingo - feeds not - just eating enough, but
on eating enough of the best life-giving foods. The Masis
have even demonstrated that right and wrong dies - be used
as a double-edged waspen, both to sustain the will to vistory

of their - people and to paralyse the will of the compared.
Never has as been se clear that feed is passe."

D-6

95

96

- 18 One would imagine that every effort would be made to

put more dairy products on the market; yet we are withholding

the largest reserves and the largest production of milk,
butter, eggs and cheese in our history. We could easily
expand our production of dairy products for our own use,
and yet leave ample amounts to be sent overseas.

The Treasury receives weekly reports of food shipments
to England, and I on assure you that these shipments are not

the cause of any shortage of dairy products or any rise in

prices. The prices of these products need not rise at all
if we use our surpluses for supplying our own market and

if we began expanding our food processing plants. It requires

only elementary foresight. It was lack of such foresight
that brought us to our present shortage of plant capacity

for the manufacture of steel and aluminus. Asimilar failure
to act in the field of food products is leading us to the same
outcome, and to the same conditions of shortage which have

operated in other fields.
D-6

97

- 19 I know from experience on my own fare that within two
months we could increase our supply of silk by feeding some of

our huge surpluses of corn to the cows. That is the practical
way of getting more milk for our people. I know that we could
use some of our surplus grains as feed for chickens, and get .

more eggs. Yet the price of a standard poultry ration has increased 60 per cent since the war began. We could feed our

surplus grain to hogs and get more pork at prices which the
American housewife could pay. Yet the government is w1 thhold-

ing 200 million bushels of wheat and 300 million bushels of
corn.

This has been historically a land of milk and honey. There

is still plenty of milk and honey, but too such of it is in the
warkhouses. Let's make it flow. If we were to let it flow to

D-6

- 20 the public we should not only help in keeping prices stable,
but we should be doing something even more important; we

should be helping to make our people healthier and happier.

The Treasury proposes to do everything in its power to

prevent inflation, through its tax and borrowing policies.
It proposes to do this because on the one hand, it has a

responsibility to the public, and on the other hand, its our

financing will be definitely more difficult if inflation
develops.

As the nation's largest purchase, the Government is
concerned with the problem in a very direct way. We have

a $50 billion defense program, the bulk of which is to be
spent on purchases of materials. If prices behave as they did
during the World War, we will find that our defense program

will cost us double without giving us a single additional
gun or plane for that extra expenditure. If that happens,
not only will we have to double taxes, but our outstanding
debt, already high, will reach dangerous proportions.
D-6

98

99

- 21 Furthermore, as the nation's largest employer we are also
concerned. Apart free the armed forces, the government employe

sore than one million people with a payrell now running at the

rate of #2-1/2 billion a year. A substantial rise in the cost
of living will raise for us as an employer a choice of evile:
to permit the real income of our employees to be unjustly
reduced, OF to increase still further the payroll that we must
meet.

Moreover, millions of people who are now responding to

our pleas for cooperation in financing our defense effort have
the right to domand that we prevent inflation. These people
were asked to invest in defense savings bonds partly as a

means of preventing inflation. They are entitled to the
assurance that they will not now be sufferers fres inflation.

D-6

100

-22Bow, I ask you, can we give them that assurance in good faith,

knowing the danger of inflation that confronte us, unless - take
positive steps now to prevent that inflation from cocauring? We
must keep faith with those who have shown their patriotism and
their faith in democracy.

inflation
For these reasons, we are determined to fight/wherever is

appears. I hope that every citizen, every housewife, will fight
11 at the same time, because of the dangers of infisition to every

individual. What the public can do in the fight against inflation
immdistely is to insist upon the passage of this Bill and upon
the adoption of a policy of increasing the supply of food and other
civilian goods which do not compete with defense production.

Some of our people think that they will benefit from rising
prices. They are wrong. No group in a community profite from

inflation except the Three Harmon - the specialer, the prefiteer
and t he hearder. I Inflation does more them morely to reb the -

earner of a parties of his earnings. IS is more destructive of
marals than my other single force. Inflation divides the country.
D-5

101
- 23 IS sets up preducres against commune, workers against employers,
the people who one money against the people to when the money is

and
There is no better single way of building American morals
in the present emergency than to assure our people that the money

they earn and the money they save will retain its full value
in buying goods and services a month from now, a year from -

and ten years from now. The responsibility is ours. The time to

give our people that - is before the inflationary process
has gripped them. We have is in our pours, in this year of great
decisions, to above courage for which the American people will
thank us in years to come.

D-5

Third Straft 102
PRELIMINARY DRAFT

discussed at meeting
10: 30 - ang. 13, 1941

I am glad that you have asked me to testify today,
because you and I are faced with serious decisions of policy,

very serious decisions, if we are to avoid bringing the
calamity of inflation upon the American people.

The word "inflation" is cold and lifeless. But the thing
it describes 18 treacherous and cruel. We have been talking

about inflation for a long time as if it were a threat remote

from our daily lives. It is a distant threat no longer. We
are faced with the urgent, practical necessity of grappling
with it now.

If we are timid--we in the Executive departments and you
in the halls of Congress--the consequence may haunt us and our

children for years. But if we are courageous, we can beat

this thing. If we keep always in mind the best interests

D-6

-2-

103

of our country as a whole, and forget about special interests,
we can prevent inflation from fastening its grip upon us.
That is the choice that confronts us. The outcome
depends upon the alertness and courage and mental toughness

of every one of us here today.

I welcome the bill before you because, despite one

serious shortcoming which I shall mention later, I believe it

is a step forward. I believe the bill provides another
important weapon to use in the fight against inflation.
We cannot wait any longer to add that weapon to our

arsenal. The time left us in which to act is short.
We are at the same point in price history as in 1916
on the edge of inflation.
Memories are so short that I suppose many of us have

forgotten what happened the last time inflation struck us -25 years ago. In 1916, the cost of living began to rise
sharply, but there were few who saw its significance and
nothing was done about it.

It was not until April 1917 that the first real alarm
was sounded against inflation. It was not until
D-6

-3prices had risen by over 70 per c ent that the President Wilson

recommended any steps to prevent inflation. In fact, so little aware were
they of the dangers of inflation that in June 1917 Congress actually
encouraged inflation by reducing the reserve requirements for member
banks of the Federal Reserve System.

By 1918 price increases were in full swing. In 1920, a pound of
sugar cost 26 cents, a dozen eggs cost 92 cents, a ten-pound bag of

four cost 88 cents, a pound of butter cost 76 cents, and a pound of
pork chops cost 50 cents. Then came the reaction-tumbling prices,
bankrupt farms, millions of people out of work.

The pattern of price rises in the past two years is frightening in
its similarity to the price movements during the first two years of
World War No. 1.

As the President said in his message to Congress a few weeks ago:

"Today we stand, as we did in the closing months of 1915, at the
beginning of an upward sweep of the whole price structure."

Then as now, there was a little rise in the cost of living. Then
as now, there was a greater rise in wholesale prices. Then as now there

was a still gre a ter rise in the price of basic commodities.

104

105

-4Since the beginning of the present war, the wholesale
18

prices have risen about 16 percent- -- the greater part taking
place during the past five months.

True to the usual pattern, the cost of living did not

rise till later. During the past year, however, it has inthree
creased & percent-- half of it in the past two months.
4

During the past 12 months the average price of 28
37

basic commodities has increased # percent, despite the fact
that the prices of many basic raw materials have been kept

partly in check through the efforts of the Office of Price
Administration and Civilian Supply.

It is the rise in the prices of basic commodities that
constitutes our danger signal today. They rise first,
general wholesale prices always lag behind, while the cost

of living does not show anything like the full effects of

inflation until long after the seeds of inflation have

D-5

-5-

106

taken deep root.

Moreover, the forces now in existence making for further

price rise are both potent and persistent:
(1) Our defense expenditures are increasing rapidly. The
Budget estimates Defense spending during the fiscal year 1942

will be $15 billion, or two and a half times as much as in the
fiscal year 1941. Even this increased estimate does not include
additions to the Defense Program made after June 1, and greater
sums needed for Lend-Lease.

(2) More important as an inflationary force is the fact
that the Government is borrowing from banks much of the money

it is spending. When the Government borrows from banks it is

for the most part creating new purchasing power. It is adding
to the total stream of money spend on goods. The net deficit

for the fiscal year 1942, as estimated by the Director of
the Budget, will be $12.8 billions, compared with $5.1

billions for the previous fiscal year. If the present tax bill
18 passed by Congress so that it will yield $3-1/2 billion, the

deficit will be reduced by $2-1/2 billions, but it will still
D-5

107

-6be over $10 billion. Again this estimated deficit does not
take account of the expansion of the Defense Program after
June 1, 1941.

(3) Supplementing the inflationary force of the Federal
deficit has been the expansion of bank credit by increased
loans to business. Bank loans expanded by approximately

$3 billions, or about 20 percent during the past twelve
months. And, as in the case of the other forces making for
inflation, the expansion of bank loans has been proceeding
at a quickening pace.

(4) Pressing upward on prices is the fact that more and
more plants are reaching maximum capacity and more and more

shortages in basic materials for civilian use are appearing.
Prices of imports are daily rising due to reducing shipping
space, higher shipping costs, and disappearance of normal
foreign sources of supply.

(5) Finally, we have increasing agricultural income, and
fatter pay envelopes and many more of them.
D-5

108

-7It is not easy for us to visualize where these forces will
take us if permitted to operate unchecked. They were unchecked
in the World War and all we have to do to see what is ahead of us

is to look into the purse of the average family of those times -to see it, not in terms of percentages and indexes, but in terms
of the prices of every day needs of food, clothing and shelter.
The money the housewife paid for one loaf of bread in 1914,

bought only a half a loaf in 1920. The money she paid for a
pound of bacon in 1914, bought only a half a pound in 1920. The

money that she paid for a yard of cotton cloth in 1914, was only
enough to buy one-third of a yard in 1920.

The family with no increase in income found its purchasing

power cut in half. It found that food, fuel, shelter and clothing
that cost $1.00 in April, 1915, had risen to $1.08 in April, 1916.

By 1920, after four years of rising prices, the cost of these
goods and services had risen to $2.03. In August 1940 this same

food, fuel, shelter and clothing cost $1.37. The cost of these
goods and services has already risen to $1.42 during the past

year. But if prices continue to rise in the same pattern as
during 1916 to 1920, these goods and services will soon cost $2.67.
D-6

-8If the same rate of increase takes place in the United States
in the next two years as during the last war, a basket of
groceries which now cost $1.00 will cost $1.75. That 18 where

the inflationary forces of today will lead us unless we take
positive steps to prevent it.
The rise in prices 18 not confined to foodstuffs and

clothing. I have before me the actual figures on the cost of
constructing a standard six-room frame house in one of our

typical cities. This home that could have been built a year
ago for $6,000 now costs $7,140 to build. Here we have

an increase in prices of nearly 20 percent and if it goes
along the 1916 pattern, we are only at the beginning of the
story.

There is however one great difference between conditions

today and 1916. We at least know that 18 going on. We are
aware of the dangers that lie ahead of us. We now know or
ought to know that the time to do something about inflation
is before it occurs not after it has gathered momentum. We
should profit by our greater knowledge and take prompt and
effective action now.
D-5

109

-9-

110

Our economy today resembles an over-loaded steam boiler.

The fire under the boiler is being fed by billions of addi- tional purchasing power in the hands of the public. The fire
is growing better and is generating more steam than the boiler

can safely hold. If we are to prevent the boiler from bursting,
we must damp down the fires by withdrawing some purchasing

power, and we must also strengthen the boiler by increasing
the supplies of goods available to the consumer.

It is true that some important steps are being taken to
withdraw purchasing power that competes with defense goods.

Congress has now before it a huge tax bill destined to raise

from $3 - $3-1/2 billion in additional revenue. The Treasury
in its borrowing program is attempting to obtain as large a
portion of its funds as possible from current consumer income.

To do this it has initiated a program of selling defense savings
bonds and stamps to people of moderate and low income, and

has also embarked upon the sale of a new form of note -- the Tax

D-5

111

- 10 -

Anticipation Note -- which will operate to reduce the lag
between the time of accrual and the time of payment of income

tax, thus increasing the effectiveness of that tax as a means
of curtailing current purchasing power for consumers goods.

These measures to restrain price rises, though they
have unquestionably been helpful, are inadequate to meet the

situation confronting us. All of them attack the problem by
attempting to reduce expendable consumer incomes. Fortunately,

however, there is available an additional method that attacks
the problem from the opposite direction. Because of our

accumulations of agricultural surpluses we are in a position

to provide increased quantities of almost all agricultural
goods and thereby both curtail prices and increase the
standard of life.
Indeed, my suggestion that the granary doors should now

be opened agrees with our established agricultural policy -the ever normal granary. Having been accumulated in time of

surplus, the stocks should be distributed in time of shortage.
D-6

112
- 11 To do so is the natural complement of our previous policy and
the necessary preparation for reaccumulation when and if
surpluses again develop.

Now is the time to empty our shelves, both for present
advantage, and so that 1f necessary we can later fill them

again. The concept of the ever normal granary calls for a

floor to be built under falling farm prices and, it seems to
me, for a ceiling to be built over rising farm prices.
And that brings me, gentlemen, to what I consider the

major defect of the bill now before you. It is a defect
which I consider 80 great that it will undermine the

effectiveness of the bill unless it is repaired. This is the
failure of the bill to provide for effective control of farm
prices. And without a check upon farm prices, it is useless
to look for a check upon inflation.
The problem of farm prices is close to my heart, not only
because I have a farm of my own, but also because I was the

first Governor of the newly organized Farm Credit Administration
D-6

113

- 12 -

in 1933. With memories of those days in my mind, it
seems to me that too many people are now looking at farm

prices purely from a short-run point of view without any

apparent regard for the inevitable after-effects of
inflation. Have they forgotten the experience of 1920
and 1921 when farm prices dropped more than 50 percent

within twelve months? Have the people back on the farms
forgotten the whole heartbreaking period from 1921 to 1933

when American farmers fought for relief with no result?
Surely millions of our farmers can remember the bottom
of the pit in 1933, when they organized "holiday" movements

to protect their farms from foreclosure.

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114
- 13 -

I lived with the tragedies of the farmers in 1933. I
remember the day when seventy-five farmers with shotguns stood

on the steps of an Illinois Court House. They came to my office
to tell me they were about to be turned out of their homes

and their lands. I remember the case of one farmer, a college
graduate, who had been worth $50,000 a few years earlier, and
who was being threatened with foreclosure although he had

25,000 bushels of corn in his bins. It was my job then to
help extricate our farmers from a price and speculation

wreckage which had its origins in the price boom of the last
World War. But it was hard for me then and it has been hard for
the administration since then to put Humpty Dumpty together

again. And it has been hard to persuade the present-day
descendants of Humpty Dumpty not to go climbing up that wall

of high prices again.
06

115

- 14 I want to see a healthy development of farm prosperity,

and with that objective I helped to initiate our agricultural
program and have continued to support it. Holding fast to
that objective, I am convinced that we must not ignore the
danger signals ahead.

Now what are those danger signals as they apply to our

farms? The most serious of them is a rapid rise in prices which

is hastened to a large extent by the artificial withholding of
huge supplies from the market. It is hastened also, to some
extent, by the continuance of unreasonably high tariff rates that

keep foreign supplies from our shores. Yet if we were intelligent
in seeking to prevent further price rises, we should be making

every attempt to bring in supplies from other countries, particularly those supplies in which shortages are already operating.
We should not hesitate to cut tariff rates wherever

D-6

116

- 15 such rates operate to keep prices unduly high or the goods

unduly scarce. Above all, we should be making full use of those
supplies that are available here in the United States.

It is sheer folly from the farmer's point of view, to be
pushing prices up by creating scarcities in times like these.
It 18 folly, because it will end in the same heartbreak and misery
that came in 1921 and lasted for twelve long years.

I hope the farmer will see where all this is heading; I
know the housewife does. For she is feeling the effects already,
.

every time she goes to the market to buy food for her family.

I wonder 1f the housewife knows, when she pays 20 per cent

more than she did a year ago for a bag of flour, that our supply
of wheat is the largest on record, and that 450,000,000 bushels
of two years' crops are stored in Canada and could be

imported easily. I wonder if she knows, when she pays 15 per

D-6

117

- 16 cent more for a pound of sugar than a year ago, that there are
huge untouched reserves of sugar in Cuba. I wonder if she
knows, when she pays 25 per cent more for butter, that we have

forty million more pounds of butter in storage than a year ago.
We have in our own country large reserve stocks of farm products

of all kinds which should be released for consumption as rapidly
as is necessary to prevent unreasonable price rises.
The Government, for example, now holds seven million bales

of cotton. Cotton prices have risen from 9t cents a pound on
August 1, 1939, to over 16 cents a pound at the present time.

Yet the Senate has passed a bill indefinitely prohibiting all
sales of Government-held stocks of cotton. We ought not to

withhold surpluses from the market in this manner. In times
like these, the housewife ought not to be made to pay tribute
to profiteers and speculators when she buys a cotton dress for

D-6

-17herself or a shirt for her husband or a suit for her child.
Millions of our people still go without the milk, butter
and eggs which nutrition experts have found necessary to good

health and good morale. The effect of good food on national
defense has been stated so well in the August issue of Fortune
magazine that I should like to read one paragraph to you. It says:
"This is a war in which every man, woman, and child

must be alert, physically tough, strong in character. Planes,

battleships, natural resources, industrial plants mean little
without human fitness to match - superb health, geared up to

its highest potential by the right food. Courage and the cool

head in battle, efficiency on the production line, civilian
morale - all hinge on food; not on just eating enough, but
on eating enough of the best life-giving foods. The Nasis
have even demonstrated that right and wrong diet can be used

as a double-edged weapon, both to sustain the will to victory
of their own people and to paralyze the will of the conquered.

Never has it been so clear that food is power."
D-5

118

119
- 18 One would imagine that every effort would be made to

put more dairy products on the market; yet we are withholding

the largest reserves and the largest production of milk,
butter, eggs and cheese in our history. We could easily
expand our production of dairy products for our own use,
and yet leave ample amounts to be sent overseas.

The Treasury receives weekly reports of food shipments
to England, and I an assure you that these shipments are not

the cause of any shortage of dairy products or any rise in

prices. The prices of these products need not rise at all
if we use our surpluses for supplying our own market and

if we began expending our food processing plants. It requires

only elementary foresight. It was lack of such foresight
that brought us to our present shortage of plant capacity
for the manufacture of steel and aluminum. Asimilar failure

to act in the field of food products 18 leading us to the same
outcome, and to the same conditions of shortage which have

operated in other fields.
D-6

120

- 19 I know from experience on my own farm that within two
months we could increase our supply of milk by feeding some of

our huge surpluses of corn to the COWS. That is the practical

way of getting more milk for our people. I know that we could
use some of our surplus grains as feed for chickens, and get x

more eggs. Yet the price of a standard poultry ration has increased 60 per cent since the war began. We could feed our
surplus grain to hogs and get more pork at prices which the
American housewife could pay. Yet the government 18 wi thhold -

ing 200 million bushels of wheat and 300 million bushels of
corn.

This has been historically a land of milk and honey. There

18 still plenty of milk and honey, but too much of it is in the
warihhouses. Let's make it flow. If we were to let it flow to

D-6

- 20 -

121

the public we should not only help in keeping prices stable,
but we should be doing something even more important; we

should be helping to make our people healthier and happier.

The Treasury proposes to do everything in its power to

prevent inflation, through its tax and borrowing policies.
It proposes to do this because on the one hand, it has a

responsibility to the public, and on the other hand, its own

financing will be definitely more difficult 1f inflation
develops.

As the nation's largest purchases the Government is
concerned with the problem in a very direct way. We have

a $50 billion defense program, the bulk of which 18 to be

spent on purchases of materials. If prices behave as they did
during the World War, we will find that our defense program

will cost us double without giving us a single additional
gun or plane for that extra expenditure. If that happens,
not only will we have to double taxes, but our outstanding
debt, already high, will reach dangerous proportions.
D-6

122
- 21 Furthermore, as the nation's largest employer we are also
concerned. Apart from the armed forces, the government employs

more than one million people with a payroll now running at the

rate of $2-1/2 billion a year. A substantial rise in the cost
of living will raise for us as an employer a choice of evils:
to permit the real incomes of our employees to be unjustly

reduced, or to increase still further the payroll that we must
meet.

Moreover, millions of people who are now responding to

our pleas for cooperation in financing our defense effort have
the right to demand that we prevent inflation. These people
were asked to invest in defense savings bonds partly as a

means of preventing inflation. They are entitled to the
assurance that they will not now be sufferers from inflation.

D-6

123

- 22 How, I ask you, can we give them that assurance in good faith,
knowing the danger of inflation that confronts us, unless we take

positive steps now to prevent that inflation from occurring? We
must keep faith with those who have shown their patriotism and
their faith in democracy.

inflation
For these reasons, we are determined to fight/wherever it

appears. I hope that every citizen, every housewife, will fight
it at the same time, because of the dangers of inflation to every

individual. What the public can do in the fight against inflation
immediately is to insist upon the passage of this Bill and upon
the adoption of a policy of increasing the supply of food and other
civilian goods which do not compete with defense production.

Some of our people think that they will benefit from rising
prices. They are wrong. No group in a community profits from
inflation except the Three Horseman - the speculator, the profiteer
and the hoarder. Inflation does more than merely to rob the wage

earner of a portion of his earnings. It is more destructive of
morale than any other single force. Inflation divides the country.
D-5

124
- 23 It sets up producres against consumers, workers against employers,
the people who owe money against the people to whom the money is
owed.

There is no better single way of building American morale
in the present emergency than to assure our people that the money

they earn and the money they save will retain its full value
in buying goods and services a month from now, a year from now,

and ten years from now. The responsibility is ours. The time to
give our people that assurance is before the inflationary process

has gripped them. We have it in our power, in this year of great
decisions, to show courage for which the American people will
thank us in years to come.

D-5

125

August 12, 1941
3:30 p.m.

RE PRICE CONTROL

Present:

Miss Ware

Mr. Viner
Mr. O'Connell
Mr. Haas

Mr. White
Mr. Kuhn

Mrs. Klotz

H.M.Jr:

Hello, how are your parents?

Viner:

They are fine. One is 85 and the other is 83.
I haven't seen them for an interval of a year,
and you notice aging, but they are pretty good.

H.M.Jr:

But comfortable?

Viner:

Yes.

White:

Before you begin on that, Mr. Bledsoe, who is

the Assistant to the Secretary of Agriculture,
sent me a letter confirming what he said.
He is just going on record. We are going to
try to take care of as many of the things that

he complains about and still be in harmony

with your position.
H.M.Jr:

Who put this on my desk?

Kuhn:

That is what the President said about farm
products.

H.M.Jr:

"President Roosevelt urged the nation's farmers
today to produce abundant crops because food is
a weapon against Hitlerism just as much as is
munitions. We need reserves to meet emergencies
which can as yet be only dimly forseen."

126

-2-

White:

Well, that is a letter that Wickard wrote which
he signed, which I don't think helps much.
We are trying to find the letter but haven't
been able to locate it yet. Here is Secretary

Wickard's speech.
H.M.Jr:

What is that? I don't like this. He (White)

said after "with milk and honey" they should
have eaten and filled themselves and waxed fat.
(Laughter).

I don't like that. Now, this is the plea for
parity, isn't it, in Wickard's speech? I won't
take up the time of you people reading this.

White:

I have that statement on farm parity fallacy
from them, but two of my boys independently
have made studies of the technical errors in
the policy of farm parity. Independently, they
both severely criticize it, and I am sure
without reading any of these three that these
two are a much better job, because I know

this fellow isn't so good, and I know these
other two fellows are. I haven't read those
two others yet.
H.M.Jr:

Now, I am glad you are here, Jake.

Viner:

Thank you.

White:

We have been rewriting a statement. We are not
quite through, but by tomorrow morning we will

have a redrafted statement, or tonight, if you
shake your head.

H.M.Jr:

No. What I do want is charts.

White:

Yes, but I was just giving you a progress
report. We don't have that ready now.

127

-3H.M.Jr:

Charts?

White:

The redraft.

H.M.Jr:

I didn't expect it.

White:

Now, charts, I take it that Miss Ware and George

have got something.
Haas:

I have got something and I have talked to Miss
Ware, and I have talked about setting up those

cost of living charts.

H.M.Jr:

Haas:

Talk so everybody can hear you. What are the
charts you suggest, George?

Well, I think you can do better if you look at
them. Many of them are small ones.

H.M.Jr:

Has anybody else seen them?

Haas:

No, sir, not in this group. I went through the
statement and each place indicated where a chart
could be used. It is a question of whether it
should be used, and that is another problem.

There is a chart which you might make up and have

on hand which shows the costs of living and

also mentions that this was one of our first
indicating signals and followed by this.

H.M.Jr:

I think it is good. I would use it, and these
people can look at it. It can always be lifted
out. I think that is good.

Haas:

Would you think in terms of putting that in your
statement?

H.M.Jr:

Yes. We are thinking of illustrating this, Jake.

I think that is all right.

Viner:

I wouldn't use more than three or four.

H.M.Jr:

Well, that one certainly ought to go in. You
are going to blow it up so the audience can see it?

128

-4Haas:

Yes, sir. They may have some question about
that, but here is the chart which shows some
of the components.

H.M.Jr:

No.

Heas:

Now, here is one showing we are about in the same

position as we were at a certain time during
the World War, and here is the World War picture, and then the present we will put on top,

following it right around. That is for all

commodities. This is for food products. As
food is going now faster.
H.M.Jr:

Haas:

Good, but have it in different colors. Don't

have both --

That is right. We can use different colors on

the wall chart but in the small edition it is
going to be --

H.M.Jr:

Can't they use red in mimeographing? I think
they can use one color.

Klotz:

Not on the mimeograph. They can with that.

Haas:

They can do a print job, but that is going to
take too long. We would have to go up to the
Printing Office.

H.M.Jr:

Then I would take what you have here.

Haas:

H.M.Jr:

There is a chart which shows it - you saw that
this morning. You might have that up there
even though you don't want to put it in the text.

Couldn't you take that and leave off industrial
production?

Haas:

Sure.

H.M.Jr:

Just so that the commodity thing sticks out.

129

- 5Haas:

That is right.

H.M.Jr:

My suggestion is, because I like this so much,

Haas:

All right.

H.M.Jr:

Leaving off the industrial production.

Haas:

Would you want something like that? We might

I would leave this off (referring to the bottom
line of the chart). That one I very much want.

have it in reserve. It shows National Defense
expenditures.

H.M.Jr:

No.

Haas:

Do you want anything on commercial loans?

H.M.Jr:

No.

Haas:

Bank deposits?

H.M.Jr:

No.

Haas:

Here is import of commodities and domestic
commodities.

H.M.Jr:

O'Connell:

He used that, I think, didn't he?
I think so.

Haas:

He didn't have a big one. He had small ones.

0' Connell:

Well, I was going to suggest that when we leave
here I ought to get the charts that Leon has
introduced. He has introduced about thirty.
I see one of them over there.

Haas:

One of them he did use, because he got it from
us.

H.M.Jr:

I like that chart.

130

-6Haas:

White:

We have got two versions of that. One is import
and domestic, and the other is the food and
industrial.

Mr. Secretary, I gather that one of your objectives is to send this statement to a great many
places, in which case the mere fact that you

may be duplicating one or two or three charts
oughtn't to be of decisive enough consideration
to include them here.
H.M.Jr:

It is a good point.

Haas:

You see, Mr. Secretary, in your statement we

could reproduce this in color. In a wall chart

we could have it very easily.
H.M.Jr:
Haas:

That is right. But I like that one.
All right.
Here is a chart. We can make a different one if
you want a chart. It shows farm income and the
purchasing power of farm income.

H.M.Jr:

No.

Haas:

Here is the St. Louis house.

H.M.Jr:

That I want definitely.

Haas:

I just experimented here. This shows the wheat
supply from the Department of Agriculture.

H.M.Jr:

No, I don't need that.

Haas:

These are some prices of specific commodities.

H.M.Jr:

No, I think you have got enough.

Haas:

All right.

131

-7White:

Have you decided on the four you are going to

H.M.Jr:

George knows the four.

White:

So we can refer to them in the statement.

have in?

H.M.Jr:

All right. Then in addition to that, Mr.
Secretary, there is going to be a chart showing
the loaf of bread cut in half and a slice of
bacon cut in half and that sort of thing.
I am not familiar with that.

Ware:

What we were suggesting doing was taking the

H.M.Jr:

dollar in '14 and the clothing dollar in 20.
I think that would be swell. You mean it

Haas:

1914 and 1920 food dollars and the clothing
shrinks?

Ware:

Yes. The question was whether to do it in
three charts or two. Probably two would be clearer.

H.M.Jr:

Now, wait a minute. What happens in the year

Ware:

All right. Now, this one would do it for 1939

after the war? I would do it in three.

to 1941. It is pretty risky to forget.

H.M.Jr:

Well, I think you have got to. You don't have
to put a year. You can just put an "X" year.

Ware:

Would you put a dollar sign there?

H.M.Jr:

I think it is pretty risky. I wouldn't do that.
There is a possibility of doing this for indi-

Ware:

vidual items, that is, a dollar in 1940 bought
three and a half pounds of lard and it will now
buy two and a quarter pounds of lard, and it
bought three pounds of butter, and so forth.

132

-8H.M.Jr:

I would like that very much. Don't let them
argue you out of it.

Ware:

All right.

H.M.Jr:

Are they treating you all right?

Ware:

Very nicely.

H.M.Jr:
White:

H.M.Jr:

All right. What else, Harry?
That is all. You have decided on five charts
and we will refer -No, no, Miss Ware has got three or four I have
okayed.

White:

Four, and several more --

H.M.Jr:

Whatever she has.

Haas:

Three of mine.

White:

All right, that is all.

H.M.Jr:

Now, wait a minute. How do you like my statement
so far, Jake?

Viner:

I like it in general. I have no serious criticism. I would like to work on it a little.

H.M.Jr:

My God, Jake, I never heard you so complimentary.

Viner:

Well, I will get over that. (Laughter)

H.M.Jr:

How well do you know Dr. Viner? Do you know him?

Ware:

Not very well.

H.M.Jr:

Well, he is worth cultivating. When Dr. Viner

133

-9-

says "I think it is pretty good, I don't think
there is anything particular wrong with it," that
is like getting the highest decoration that you
would get as - that you could get from an economist. Will you kindly go over it with your
usual eagle eye?

Viner:

Sure. I would like a chance at the charts

before they are finally --

H.M.Jr:

Well, I think that George ought to concentrate
on those awfully hard.

Haas:

We haven't got much time.

H.M.Jr:

Let this group see them, but just go to work.

White:

Herbert Gaston has some serious reservations,

but he will speak for himself.

H.M.Jr:

On what?

White:

On the emphasis in this statement on agricultural
prices, but I am sure he will speak for himself.
In our attempt to go through it again we will

H.M.Jr:

try to, in so far as we can, without violating
your views, modify it.
I don't want it modified.

White:

Well, we have put in a few things there that I

H.M.Jr:

Viner:

don't think you will object to, stressing the
fact that though you are talking only about agricultural prices, the same thing goes for industrial commodities that have risen out of line,
and things of that sort.
I don't want to -But you do want to make it clear that you haven't
got any special bias against agricultural prices,

that any other prices behaving the same way you
would say the same thing about.

134

- 10 H.M.Jr:

That is all right.

Viner:

I think that note is needed in the statement.

H.M.Jr:

And I don't want to say that the rise so far is
particularly bad, but it is the trend which is

moving so fast, and the selfishness of the small

handful of people who - I read this thing. I

read this discussion of Ex-Governor Landon of

- Langer, that is it, and Cotton Ed Smith.

They introduced this resolution and they were
voting on it and Senator Barkley got up and said,
"Now, wait a minute, gentlemen. I don't think
any of us know what we are voting on," and nobody knew what they were voting on.

White:

Well, the best thing that can be said about
Cotton Ed Smith is that he hasn't got too long

to live.

Viner:

He has?

White:

No.

Viner:

Yes, he has.

Haas:

You can't judge by the age.

White:

Did you ever see his nose?

Viner:

Well, whether it is a month or a year, it is too
long. (Laughter)

H.M.Jr:

No, I don't know what Gaston has in mind. This
may not be a very fair audience but I had at
lunch today the representative of the Retail
Trade of the United States in toto on our

Defense Stamps. I tried it out on a few of them,
prices and retail and chain stores and food
stores. It is time somebody said something.
The interesting thing is, you see, when I came

135
- 11 out against freezing the seven million bales
of cotton, then Wickard took courage and

followed me, and if I say this, then Wickard
will take courage and follow me, too. I am
not
What is Herbert worrying about?
I willworried.
ask him.
White:

Well, I think that he feels, and I think probably the earlier draft certainly gave him some
basis for it, that it seems like an all out
attack on our agricultural policy and against
the farm bloc. I think that is his view, but
he hasn't expressed it in detail to me, so I

would rather he would speak for himself.
H.M.Jr:

Well, I think what Viner says is true. If
any other prices or group of prices --

Viner:

I want them to find at least one other commodity
that isn't an agricultural commodity of which
you can say the same thing, and I have suggested
lumber, and apparently that works.

H.M.Jr:

Good.

White:

Of course there is nothing else the Government

is withholding stocks of.

Viner:

No.

H.M.Jr:

But - wait a minute, on the lumber thing,
George and I went into that. The stocks of
lumber exist too.

White:

Government stocks?

Viner:

That doesn't matter.

H.M.Jr:

No, but the stocks exist. It is a question of
the location, but the stocks that - we found
stocks of lumber existed. We did all the

work. We every-

original
He the took figures, everything
thing,
togave
Leonall
Henderson.
that we had and went and addressed the Lumber

136

- 12 Association based on what we gave him. That was

one of the real fights I had with Leon. He
first said lumber wasn't too high, but the stocks
of lumber exist. I will give Wickard's speech
back to you to see if there is something in

here that we can say, as the President says,
and sort of make it - you know.
White:

We will find something.

Kuhn:

That is the President's letter to Wickard?

H.M.Jr:

Yes. We are quoting Fortune Magazine and we can

also quote the President. Now, as I understand

it, I am going to get a pretty good draft tomor-

row morning at eleven.
White:

At eleven, yes, I think so. We will have that
done definitely.

H.M.Jr:

Jake, if you could spend the rest of the day on
this I would appreciate it. And you (Ware)
are staying with my people?

Ware:

Yes.

H.M.Jr:

Are you going to work with Haas?

Ware:

As long as necessary.

H.M.Jr:

And you and Miss Elliott will be back again at
eleven?

Ware:

Yes.

H.M.Jr:

Fine. Thank you all.

WHOLESALE PRICES

IT

-- --

- - - TOTAL-00

so

so

as
as

ALL COMMODITIES

so

so

75

75

70

70

60
40

55

COMMODITIES OTHER THAN
FARM PRODUCTS AND F0008

55

so

50

45
40

20

20

LIVESTOCK AND PRODUCTS

15
15

10

10

20

or FARM PRODUCTS
- FOODS

20

18

15

10

10

1934

1935

1934

1937

1934

1939

1940

1941

Bureau of Labor Statistics data, with Federal Reserve classifi.

ration of livestock and products and other farm products and
foods. July 1941 estimated.

138
PRICES. 1939-41 COMPARED WITH 1914-16
July 1914-100 World War Period: Aug. 1939-100 Present Period

PER

PER

CENT

All Commodities

CENT

145

145

140

140

135

135

130

130

125

1916

125

120

120

115

115

1941

First Month

110

110

of War

1939

1940

105

105

1914

1915

100

100

95

95

M

M

J

J

S

N

$

J

M

M

N

M

S

N

J

J

M

J

PER

PER

CENT

CENT

Foods
135

135

-

130

125

130

125

120

120

1941
115

115

First Month
of War

1916
110

110

1940
105

105

1939

1915

100

100

1914
95

95

90

90

J

N

S

J

M

M

M

M

J

N

S

M

N

M

source B.L.S.
P 222

J

S

J

as 139

WHOLESALE PRICES AND INDUSTRIAL PRODUCTION
1910

16

'14

'12

'26

'24

'22

'20

'18

'30

'28

-

'42

40

'38

'36

'34

'32

1910 TO DATE
PERCENT

Production

PERCENT
Prices

260

170

240
160

220
150

200
140

All Commodity Price Index

180

Bur. Labor Stat. 1926 100

130

160

120

140

110

120

100

100

90

80

80

60

Industrial Production

Fed. Reserve Bd. 1935-39-100 Adj.

70

40

Industrial Production

Standard Stat. 1926-100 Adj.

60

20

50

1910

'12

--

Office the Secretary of the Transary

'14

'16

'18

'20

'22

'24

'26

'28

'30

'32

'34

'36

'38

'40

42

P-226

To Seay 8-6-41

140

MOVEMENT OF BASIC COMMODITY PRICES
AUGUST 1939-100
PER

CENT

PER

Weekly Average

CENT

PER

PER

CENT

CENT

Daily

165

165

150
150

12 Foodstuffs

160

160

140
140

16 Row Industrial
Materials

155

155

130
130

150

150

120
120

16 Raw Industrial
Materials

145

12 Foodstuffs

145

110

140

140

o

J

F

J

N

M

A

S

MAY

J

o

A

S

J

1941

J

A

1940

.

D

A

M

M

135

135

100
100

JUNE

16

23

AUG

JULY

6

110

30

SEPT.

1941

Percentage Change for Individual Commodities. August 1940 Low to July 18 and to August I, 1941
-Tellow 135.7X
PER

PER

16 Raw Industrial Materials

CENT

12 Foodstuffs

CENT

*120

+120

Cottonseed Oil 1178X

+100

Lord 95.3X

Burlap 113.5%

Coffee 98.2%

Shellee 96.6%

+100

Cocoo 874%

Print Cloth 693%
Cotton 66.72

+80

+80

Hogs 78.2X

+60

Wheat 493X

AResin 583%

Hides 53.8X
Wool 47.8%

.60

Silk 41.3%

Flaxseed 33.IX
+40

Sugar 398X

+40

Lead 232X
Rubber 20.8%

Butter 283X

Zinc 15.1%

Copper 11.8%

Steel Scrap.dom
Tin 4.5%
Steel Screp.exp 2.7X
0

Aug.1940

July 18

Aug. I

+20

*Steers 18.8%

8.7%

Corn 15.7%
0

.20

Barley 20.0%

Aug. 1940

July 18

Aug. I

Low

Low

P-107-3-3

141

CHANGES IN COST OF CONSTRUCTION OF STANDARD
6-ROOM FRAME HOUSE. ST. LOUIS
Percentage Change, December 1940 and July 1941 over July 1940

PER

ITEM AND PERCENT CHANGE
CENT

JULY 1940 TO JULY 1941

Materials

COST
JULY
1941

50

UNFINISHED LUMBER 49.1%

$553

40

FINISHED LUMBER 23.4%

803

PAINT. HARDWARE AND

ELECTRIC MATERIALS 14.8%.

30

INDOWS, DOORS, ETC. 12.2%.

443

635

20

MASONRY AND TILE

MATERIALS 9.1%

669

10

THEATING AND PLUMBING 0.6%.

MATERIALS

0
-10

Dcc. 1940

JULY 1940

524

$3,627

JULY 1941

50

UNFINISHED LUMBER 39.20

$220

Labor
FINISHED LUMBER 29.8%

279

WINDOWS DOORS, CTC. 29.2%..

252

40

30

PAINT. HARDWARE AND

ELECTRIC MATERIALS 27.5%

292

MASONRY AND TILE

20

MATERIALS 20.2%

737

HEATING AND PLUMBING 13.1%

329

10

$2,109

LABOR

0

DEC. 1940

JULY 1940

JULY 1941

30

INSURANCE

.

SALES TAX, erc." 21.4%

$397

General
GENERAL CONTRACTORS

PROFIT 18.8%

20

SUBCONTRACTORS' OVERHEAD

AND PROFITS 12.9%

613

396

10

GENERAL

TOTAL Cost. JULY 1941.

0

Dcc. 1940

JULY 1940

JULY 1941

TOTAL COST. JULY 1940.
INCREASE

$1,406

$7,142
$6,004
$1,138
19.0

MISSOURI SALES TAX (NOW 2 PER CENT ON MATERIALS), OLD AGE AND UNEMPLOYMENT

PERCENT

TAX (FEDERAL AND STATE), LIABILITY AND DMPLOYEES COMPENSATION INSURANCE,
FIRE AND TORNADO INSURANCE, COMPLETION BOND.
SOURCE: REAL ESTATE ANALYST.

-/--

- of the Increase the Treasury

C 368 A

142

Treasury Department

Division of Monetary Research

Date aug. 12/94/19
To:

The land of Canaan had been promised to the

Israelites, the descendants of Abraham, by God,

and there is a reference to the land "flowing with
milk and honey" in Deuteronomy 31:20:

"For when I shall have brought them into the

land which I swear unto their fathers flowing
with milk and honey and they shall have eaten

and filled themselves and waxed fat", etc.

MR. WHITE

Branch 2058 - 214}

I

143
Treasury Department

Division of Monetary Research
Date

To:

8/13/41

19

Mrs. McHugh

For the Secretary. I understand he gave the original to the
Vice President this morning.

MR. WHITE

Branch 2058 - Room 214}

144

August 12, 1941
Mr. White

Messre. Ullmann and Kamarek
Subject: Economic Warfare

Economic defense and warfare differ from military measures only in the
wasons and techniques employed. Any attempt to conduct economic defense

is halfbearted fashion or at no expense to the nation would prove to be
relatively ineffective and, probably, would be false commany.
Below are outlined some of the objectives and methods of economic
varfare.

A. Objectives

1. Deprive "ensay" countries and nationals of the goods and facilities
(a) of the United States and (b) of third countries.
2. Render additional economic aid to friendly nations.

3. Induce third countries to cooperate fully with the United States
on economic, political and military problems.
4. Prevent and reduce economic, social and political disruption in
the United States (and third countries) by "enery" nations.
5. Weaken the ties between "enery" nations and third countries
friendly to them.
B. Methods

1. Use of cemercial powers
a. Prevent shipment to the "enday" of American goods and forbid
trans-shipment of other goods.

b. Prevent re-export by third countries to the "enery" of goods
in whole or in part of U.S. origin.
c. Prevent the importation (for free dollars) of commodities
having their origin in "enery" countries, shipped through
"ensay" countries or otherwise benefiting nationals of
"ensury" countries.

145

-2-

Division of Monstary
Research

d. Throw all our weight into stopping any trade which would be
advantageous to any "eneay" national or sympathiser (including
the "Proclaimed List"). (For example, the Germans filled
orders in Latin America from U.S. sources last autumn - having
made commitments earlier in the year which they were unable to
fulfill from Germany.)
e. Purchase any exportable surpluses in third countries that would
be of value to the "eneay" - thus precluding these products'
and materials' falling into the hands of the enemy.

f. Engage in "preclusive selling* by subsidising U.S. competition
with "enemy" products in third countries - thus eliminating or
reducing the foreign exchange secured from such sales by the

"enemy".

g. Facilitate the importation of goods (for blocked dollars) from
"eneay" occupied or dominated countries, thus procluding the
use of these goods by the "eneay" and also providing a way of

"saving" for the occupied countries - with a view toward the
post-war period - as well as obtaining goods for our own use.

h. Make use of our Trade Agreement authority
1. Assume control over "eneay" owned and controlled patents and
designs in order (a) to preclade disruption of our defense

effort if patent rights should be withheld by the "enemy" and
(b) to insure that all possible technical knowledge is made
available to donestic producers.

j. Prevent inter-company relationships between U.S. firms and
"eneay" firms which are detrimental to our interests. (For
example, Bausch & Lomb did contract to provide Carl Zeiss
of Germany with details of all formulas for U.S. military
lenses.)

k. Prohibit the use by the "enemy" of American controlled
facilities for the dissemination of "enemy" propaganda.

1. Make full use of the compercial policy powers (pertaining to
discrimination, countervailing duties, anti-dumping, selection
of a rate for customs valuation, etc.) to influence the poliey
of third countries.

M. Control the use of U.S. port facilities, bunkering privileges,
ship clearance powers, and the Panama Canal, in such a way as

to obtain our objectives. (For example, we can exercise a
strong influence over Danish ships that enter our ports.)

146

- -3-

Division of Menstary
Research

n. Confiscate "ensay" ships in our waters.

O. withhold, if desirable, the use of U.S. vessels by third

countries which could readily confiscate "enemy" ships in
their ports.

P. Charter, or otherwise make available, U.S. ships to friendly
nations and allies.
q. Deny the use of U.S. insurance facilities to eneay" countries.
r. Render productive and technical assistance to friendly nations
and allies.

S. Discontinue the flow of U.S. industrial and technical publications and other information to "enemy" countries.
2. Use of financial powers

a. Prevent the "enemy" from using dollar assets in the United
States to purchase our products and materials, or the products
and materials of third countries, or to finance disruptive

activities in the United States and in third countries.

b. Deprive the "enewy" of the use of dollar assets held by third
countries. (For example, Bresil holds dollars for Sapanese
account. Should Japan be allowed to use these dollars to
purchase Colombian platinum?

C. Facilitate the use of dollar assets, here or elsewhere, by
friendly countries.
d. If necessary or desirable, use the power of control over
dollar assets to influence neutral nations to cooperate with us.

0. Control U.S.-- assets located abroad to influence their use
and disposition to further our objectives. (For example, have already prevented the sale of American foreign properties
where such sales would have benefited the Germane.)

f. Use our gold and silver purchase powers to aid our allies, to
win friends, and to handicap our "enemies".

g. Use the loaning authority of the Stabilisation Fund and the
Export-Import Bank to strengthen our friends, to win cooperation, to gain military bases and collaboration, and to injure
our "enemies" by obtaining favorable "quid pro quos" from

third countries.

147

-4-

Division of Monotary
Research

b. Employ Lead-Lease to render our economic recourees most

useful to our allies.

WLU:AMK

8/12/41

148
OFFICE FOR EMERGENCY MANAGEMENT

DIVISION OF DEFENSE AID REPORTS
WASHINGTON, D.C.

MEMORANDUM

TO:

8/18/41?

Honorable Henry J. Morgenthau

Secretary of the Treasury
FROM:

Oscar S. Cox

SUBJECT:

The Free French

(1) Mr. Rene Pleven has been in touch with us about direct
lend-lease aid to the Free French. This could be accomplished by
lend-leasing defense articles to French Equatorial Africa which is

clearly a country whose defense is vital to the defense of the United
States.

(2) Pleven has also had conversations with the State Department. Because of his doubtful status, he has not been formally received
there and has had to operate through the British. Last week Mr. Welles

told the British Ambassador that it was too early for the Free French to
requisition lend-lease defense articles directly and that Pleven should

have the British requisition defense articles for retransfer to the Free
French. Pleven is acquiescing in this view and the British are going to
do the requisitioning.

(3) This procedure fails to give the Free French the morale
support that direct lend-lease aid would give them. Direct aid would

149
-2-

strengthen the Free French throughout the world by making it clear that
the United States was supporting them in their resistance to aggression;
it would also strengthen the anti-Vichy forces within France and thus

make it more difficult for Vichy to yield to German demands for all-out
collaboration.

(4) Pleven feels that he cannot go contrary to Mr. Welles'

views and is, therefore, not going to file lend-lease requisitions.
Since this will prevent the matter from coming directly to the attention
of the President, I thought you might want to consider other ways of
obtaining a Presidential decision.

CC: Mr. Wayne Coy

150

at lunch aug 12,1941
U. S. TREASURY
DEFENSE SAVINGS STAFF
RETAILERS ADVISORY COMMITTEE MEETING

August 12, 1941

Honorable Henry Morgenthau, Jr., Secretary of the Treasury
Lewis W. Cole, National Association of Food Chains
Tyre Taylor, National Association of Retail Grocers
Robert J. Wilson, National Restaurant Association
Franklin Moore, American Hotel Association.

John B. Fitch, Institute of Distribution

Louis Kirstein, American Retail Federation.
Major B. H. Namm, National Retail Dry Goods Association
Thomas K. Ruff, National Association Hardware Dealers

J. Hudson Hufford, National Association Retail Furniture
Roland Jones, National Association Retail Druggists.
F.W. Griffiths, National Association of Chain Drug Stores
E. C. Mauchly, Limited Price Variety Stores Association.
Robert W. Lyons, Special Advisor.
TREASURY and DEFENSE SAVINGS STAFF

Harold N. Graves, Assistant to the Secretary
Eugene W. Sloan, Executive Director
Sydney D. Mahan, Associate Information Director

F. Edward Pulte, Jr., Chief, Retail Stores Division,
Robert W. Sparks, Associate Field Director
Vincent Callahan, Chief, Radio and Press Section
Millburn McCarty, Assistant Chief, Press Section
Charles Gilchrist, Assistant Chief, Radio Section.

C. J. Judkins, Chief, Trade Associations, Dept. of Commerce.

A. A. Imus, Director, Postal Field Activities, Post Office Dept.
F. A. Ironside, Confidential Legal Aide, Postmaster General,
Post Office Dept.

151
SUGGESTED REMARKS TO

RETAILERS' ADVISORY COMMITTEE

MR. MORGENTHAU.

and
us
I
have
been In

I have been looking forward to this meeting very much,
gentlemen. Since June 24, when I was sdvised of the meeting
in Detroit, where many of your representatives were present
helped following to this work activity out the with test great plan interest. for Michigan, my

weekly meetings with the Defense Savings Staff, the first
thing I have called for was the report on Michigan.

The fact that three great national retail associations,

thirteen strong State associations, and Chambers of Commerce,

threw their full support behind the Stamp sale in Michigan
is a remarkable record of cooperation. I do want you to
know that we here at the Treasury are very appreciative of
this 100 per cent support of the Defense Savings Program.

In planning to extend this Stamp-selling activity to

all other States, I feel you are making a great and permanent
contribution to our program. You are giving us access to
that great throng of traffic that crowds your stores every

week in the year. You are exposing Defense Savings Stamps
to countless people who otherwise might not have an opportunity

to buy them if our distribution were confined to banks and
post offices.

I might mention right here that sales of stamps to
millions of people in America will help accomplish the
first objective of our Defense Savings Program--that
objective being to interest the greatest possible number
of people in our program and secure their active
participation.
Your presence at this meeting today certainly indicates

your interest in this program. I hesitated to call you down

for this meeting because I am fully conscious of the problems
you are facing these days in your own business. I, personally,
very much appreciate the fact that you have taken time out"

to give us the benefit of your advice and suggestions. I

hope the program that has been laid out for your discussion
and action will appear worthwhile and important enough to

have justified your trip.

152

LONDON, August 12, 1941.

No: 1207

Subject: Copyright Release on Kipling's "The Islanders".

The Honorable

The Secretary of State,
Washington.
Sir:

with reference to the Department's telegraphic
instruction No. 2965, of August 5, 11 a.m., I have
the honor to confirm the Embassy's telegram No.3558,

of August 11, 6 p.m., stating that the Embassy had

obtained copyright permission for the use of the
late Rudyard Kipling's poem. "The Islanders", on the
"Treasury Hous" radio program.
There are enclosed copies of an exchange of
correspondence/

153
-2-

correspondence on this subject consisting of the Embassy's
letter of August 7, 1941, to Messrs. A.P. Watt & Son,

and the firm's reply, dated August 11, confirming the
fact that Mrs. Bambridge, Mr. Kipling's daughter and
owner of the copyright, has agreed to the broadcasting
of the poem.

Respectfully yours,
For the Ambassador:

Herschel V. Johnson,
Counselor of Embassy.

Enclosures:

1. Copy of letter to A.P. Watt & Son,
dated August 7, 1941.
2. Copy of letter from A.P. Watt & Son,
dated August 11, 1941.

DGF:IW

154
Enclosure No. 1 to Despatch No. 1207, dated August 12,
1941, from the Embassy at London, England.

COPY

London, August 7, 1941.

PRIVATE AND CONFIDENTIAL.

Dear Birs:

with reference to the telephone conversation this
morning between one of the partners of your firm and

Mr. Fisher of this Embassy, I should like to make
application on behalf of the Treasury Department of my
Government for permission to use Mr. Rudyard Kipling's
poem "The Islanders" on a radio program in the United
States.

I am instructed by my Government that the Treasury
Department desires to have Mr. Alfred Lunt, or some
other outstanding actor, recite the poem this month on
the "Treasury Hour" program, in connection with pro-

noting the sale of American Defense Bonds. For your
information, the program in question is broadcast every
Wednesday evening, from 8 to 9 p.m. Eastern Standard

Time, on a nationwide hook-up of the Columbia Broadcast-

ing System, and it is listened to by the third largest
radio audience in the United States.
The Embassy has been asked to cable a prompt reply
to Washington.

I shall greatly appreciate being informed whether
the desired copyright clearance may be granted.
Very truly yours,
Herschel V. Johnson
Counselor of Embassy.

Mesers. A.P. Watt & Son,
Hastings House,

10 Norfolk Street, W.C.2.

155
Enclosure No. 2 to Despatch No. 1207, dated August 12,
1941, from the Embassy at London, England.

COPY

A.P. WATT & SON

Hastings House,

10 Norfolk Street, Strand,
London, W.C.2.

11th August 1941.

B.45.

Herschel V. Johnson, Eaq.,
Counselor of Embassy,
The American Embassy,
1, Grosvenor Square,

W.1.

Dear Sir,

Confirming my message of this morning per the

telephone, I now write formally to put on record that

I am authorised by Mrs. Bambridge, Mr. Rudyard Kipling's
daughter, to agree to your proposal to broadcast THE
ISLANDERS in the U.S.A. in the programme to which you

referred in your letter to me of the 7th of August.
Yours sincerely,
(Signed) A.S. WATT

156

Sent to Mr. Forster's office at 9:40 on
August 12, 1941, by Secret Service man.

Forster will transmit it by wire to

O:
one President.

157

August 12, 1941

WIRE TO THE PRESIDENT

At your suggestion I have arranged that Maurice
Evans will read Rudyard Kipling's poem, "The Islanders",
,

Wednesday night on the Treasury Hour over the Columbia
Broadcasting System, between eight and nine Eastern

Standard Time. I hope you will enjoy it. Best regards.
Henry Morgenthau, Jr.

158

August 12, 1941

WIRE TO THE PRESIDENT

At your suggestion I have arranged that Maurice
Evans will read Rudyard Kipling's poem, The Islanders",
Wednesday night on the Treasury Hour over the Columbia
Broadcasting System, between eight and nine Eastern

Standard Time. I hope you will enjoy it. Best regards.
Henry Morgenthau, Jr.

159

August 12, 1941

WIRE TO THE PRESIDENT

At your suggestion I have arranged that Maurice
Evans will read Rudyard Kipling's poem, "The Islanders", ,
Wednesday night on the Treasury Hour over the Columbia
Broadcasting System, between eight and nine Eastern

Standard Time. I hope you will enjoy it. Beat regards.
Henry Morgenthau, Jr.

160

file 8/12/41
THE SECRETARY OF THE TREASURY

(Lat received)

WASHINGTON

July 31, 1941

Dear Eleanor:

We are going to take care of
Mrs. McAdoo as soon as we establish

the Los Angeles headquarters of the
Defense Savings Staff, which I hope

will be within the next few weeks.

Affectionately,

Hanny
Mrs. Franklin D. Roosevelt,
The White House.

161
TREASURY DEPARTMENT
WASHINGTON

August 12, 1941

Memorandum for THE SECRETARY:

The following report is made of Stamp sales
at "Treasury House":
July 1-August 10

$29,120.65
904.90

August 11

Total

$30,025.55

GRAVES

162
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE August 12, 1941
TO

FROM

Secretary Morgenthau
Mr. Kuhn

Mr. Callahan is anxious to have someone who will get

our publicity into trade papers in a big way. He says that
Mr. van Wiseman knows the field and is well equipped for

this job.

163
AUG 12 1941

Dear Mr. Bennett:

Please express to the National Association
of Insurance Agents the thanks of the Treasury Department for the loan of the services of your Mr. Jerome
van Wiseman, Director of Publications and Public
Relations.

In our plan to publicize the National Defense
Savings Program through the trade publications throughout the United States the personal services of Mr.
van Wiseman will be of great value to us.
Your government sincerely believes that
through such cooperation and helpfulness as your organi-

sation is contributing, the plan of savings for defense
will become a reality to all Americans.
Sincerely yours,
(Signed) H. Morgenthan, Jr.

Secretary of the Treasury.

Mr. Walter H. Bennett
General Counsel

National Association of
Insurance Agents

80 Maiden Lane
New York, New York

164
AUG 12 1941

Dear Mr. Bennett:

Please express to the National Association
of Insurance Agents the thanks of the Treasury Department for the loan of the services of your Mr. Jerome
van Wiseman, Director of Publications and Public
Relations.

In our plan to publicize the National Defense

Savings Program through the trade publications throughout the United States the personal services of Mr.
van Wiseman will be of great value to us.
Your government sincerely believes that
through such cooperation and helpfulness as your organisation is contributing, the plan of savings for defense
will become a reality to all Americans.
Sincerely yours,
(Signed) H. Morganthan, Ja.

Secretary of the Treasury.

Mr. Walter H. Bennett
General Counsel

National Association of
Insurance Agents

80 Maiden Lane
New York, New York

165

August 12, 1941

Dear Mrs. Clayton:

I want you to know how delighted I am to learn

of your interest and participation in the Treasury's

Defense Savings Program. Dick Jenkins, who is here
with us this summer as a volunteer, told me a few days
ago of the substantial purchase of Defense Savings
Bonds that you arranged through him.

This program is as important as any the Treasury
has ever undertaken and the unsolicited support of our

friends is a great encouragement to us in our efforts
to finance the building of the National Defense.
With warmest regards, I am
Sincerely,
(Signed) S. Morganthan. in

Mrs. William Clayton,
2839 Woodland Drive,
Washington, D.C.

167

August 6, 1941

Mrs. William Clayton
Lookout Mountain
Chattanooga, Tennessee

Dear Mrs. Claytons

I want you to know how delighted I am to learn

of your interest and participation in the Treasury's

Defense Savings Program. Dick Jenkins, who is here with
us this summer as a volunteer, told me a few days ago of
the substantial purchase of Defense Savings Bonds that
you arranged through him.
This program is as important as any the Treasury
has ever undertaken and the unsolicited support of our
friends is a great encouragement to us in our efforts to
finance the building of the National Defense.
With warmest regards, I am
Sincerely,

Henry Morgenthan, Jr.

Secretary of the Treasury
KDJ/mbb

168
Noted

CONFIDENTIAL

August 12, 1941.

Memorandum M. Cochran

Requisition or Re-registration of

Canadian Holdings of U.S. Securities and other Investments
1. Previous discussions

In the spring of 1941 the prospects for Canada's
exchange position were unfavourable. It appeared that it might
become necessary for Canada to requisition U.S. securities held by

its citizens and sell the securities in order to obtain U.S. dollars.
This would have been an emergency action, pending more substantial

arrangements by Canada or the United States, or both, to rectify the
Canadian-American exchange position.

The subject was studied and discussed in March and

April by officials of the United States and Canadian Governments.
In order to be prepared for any eventuality, Canada made the
necessary arrangements, which were completed in May, for re-register-

ing Canadian holdings of U.S. securities. Such action is a necessary
preliminary to requisition and sale. Actual re-registration was
postponed, however, so as to avoid creating an unsettling influence
at the time of the Victory Loan campaign in June.
In the meantime, a broad-visioned and comprehensive

plan for oversoming the exchange difficulties was discussed in
Washington and approved by the President and the Prime Minister in

the Hyde Park Declaration of April 20. It soon became apparent that

the arrangements therein contemplated, if put into effect promptly,
would postpone for a considerable period, even possibly for the
duration of the war, the need for drastic emergency action with
respect to Canada's U.S. securities.
2. The present position
Canada's exchange position is now in a much more

favourable condition than was contemplated earlier in the year.

Capital receipts of U.S. dollars which could not be forecast in
advance, and the cooperation of American officials in giving
effect/

169

-2effect to the Hyde Park agreement, have been responsible for this

change. The figures, which have been analysed in detail in
previous memoranda submitted to the United States Treasury, are
summarized in Section 7 below.

Canada is ready and willing to take any action deemed

necessary or advisable in the light of the best interests of the
two countries. The Canadian Government considers, however, that

it is not necessary in the next six to twelve months at least, for
Canada to requisition its citizens! holdings of U.S. securities and
other U.S. investments with a view to forced sale or collateralization.
The Canadian Government is also of the opinion that such action is

most undesirable from the long-term point of view. In any case, it
is felt that there should be full discussion of the issues involved
before definite action is decided upon. with a view to such
discussion the case for retention of securities is summarized in
section 4 and outlined in more detail in sections 5 to 10 of this
memorandum.

3. Re-registration of holdings of U.S. securities
Circumstances have so changed that it does not appear

to be either necessary or desirable at the present time to call for
the re-registration of Canadian holdings of U.S. securities. Here,
too, it is desired to outline the reasons for our views to the
Secretary of the Treasury of the United States, so that a common
understanding may be reached as to what is the best course in the
present circumstances.

To call for such a re-registration too far in advance
of any need for requisition and sale, would be of little value.
On the other hand, such action would undoubtedly create the
impression that requisition and sale were imminent, and would be
taken as an indication that our exchange problem was aoute and

urgent. All the unsettling effects, which would of course have to
be/

170

-3be accepted in case of real necessity, would be anticipated in
point of time, and perhaps borne unnecessarily if, as now appears
possible, eventual requisition and sale can be avoided.

For example, the beneficial influence of the Hyde
Park Agreement on general opinion might be nullified; certainly
U.S. confidence in Canadian conditions would be shaken. The present
moderate but helpful flow of new U.S. investment in Canada would
probably cease. The value of the Canadian dollar in the free
market would almost certainly fall, and fluctuate considerably.
Some U.S. holdings of Canadian dollars would seek an outlet, and
would be sold at a discount to prospective tourists who would otherwise bring U.S. dollars to Canada.

Perhaps this is too gloomy a forecast, but it is clear
there is a risk of undesirable consequences which should be avoided

in the absence of any urgent necessity for incurring them.
4. Summary of major considerations regarding the requisition
and sale of securities.
(a)

Such action could only be an emergency measure,

enabling Canada to meet its commitments while a more substantial
remedy for a chronic exchange deficit was being sought and adopted.

Canadian holdings of U.S. securities represent a total value which
would only be sufficient to cover our wartime exchange deficit
with the United States for about seven or eight months (ex Hyde
Park Agreement).
(b)

A moderate but reasonably steady volume of voluntary

liquidation of U.S. assets by Canadians has already appreciably decreased the total value of our holdings and continues to do so.
(c)

There is no present emergency. The Hyde Park agreement

has not yet completely overcome Canada's wartime exchange deficit,

but may possibly do so in the course of time) sufficient progress
has already been made, in any event, to remove any immediate
danger/

171

-4danger of a sort requiring sale of securities.
(d)

Unlike the United Kingdom, Canada is a debtor nation,

heavily indebted to foreign countries, especially the United
states. We should on general principles endeavour to maintain a
reserve of foreign assets, and this is the more necessary because
of the fluctuating nature of the Canadian economy and its high
degree of vulnerability to changing international conditions.
(o)

Unlike the United Kingdom, Canada always has an exchange

deficit with the United States, historically balanced by the
exchange surplus with the sterling area. This normal method of
settlement has been disrupted, but fortunately other methods
were found. These methods are applicable to a wartime situation.

A new but equally grave situation will arise after the war if the
normal method of settlement cannot be resumed. The course of

post-war events cannot now be predicted, but at that time the
possession of an emergency reserve of foreign assets may be of

the utmost importance for Canada both domestically and in its

financial and trade relations with the United States.
Even if some kind of eventual "return to normaloy" is
(f)
possible after the war, there will be an intermediate period of
great stress and uncertainty. Post-war economic problems will be

difficult enough for Canada, domestically and internationally,
without adding to them by removing the potential cushion provided
by our foreign investments. Neither Canada nor the United States
would wish to see any action taken now which would aggravate post-

war pressures for trade restrictions, exchange depreciation, etc.

The requisitioning of U.S. securities for sale or
collateral would involve political difficulties in Canada, in the
broad sense of that term, with unsettling effects which ought to
(g)

be avoided if possible. On the other hand, such action does not
seem to be required (in contrast with the case of the United
Kingdom) by political considerations in the United States.
5. Canadian,

172

-55. Canadian holdings of U.S. securities
Canadian holdings of U.S. securities amount to about

$265 million as of July 31st, 1941, according to the records of
the Foreign Exchange Control Board. This valuation, which is
based on market values as of December 31, 1940, less sales since
that date, was described in Memorandum F dated March 31, 1941.

This capital sum - the readily disposable part of
Canada's investment in the United States - is not much greater
than the annual investment income which Canada pays to the United

States every year. It is about 60% of the total exchange deficit
which Canada would have with the United States in the next twelve
months in the absence of the Hyde Park agreement.

6. Past liquidation of Canada's U.S. dollar assets
Net sales and maturities of U.S. securities amounted
to $40 million from the beginning of the war to December 31, 1940.
This process continued during the seven months ending July 31, 1941

when realisations on U.S. securities amounted to $14 million.
Other liquidations of U.S. assets amounted to about
$20 million up to December 31, 1940, and a further $11 million in
the past seven months.

In 1940 Canada requisitioned all liquid reserves of
U.S. dollars, except commercial working balances. Some $90 million
was used up in the period from the beginning of the war to
December 31, 1940, and a further $82 million in the past seven
months.

In addition, the entire $227 million in gold received
from the United Kingdom (all in the period ending December 1940)
was paid to the United States.

7. The present exchange situation
At the end of 1940, Canada's reserves of gold and U.S.

dollars (excluding $20 million of working balances held by
corporations) amounted to $328 million. In March it was estimated
that/

173

-6that these reserves would decline to $138 million by the end of
June, and would be completely exhausted in December.

In fact, the reserves at the end of June were $254
million and it is now forecast they will amount to $227 million
at the end of September and $209 million at the end of December.

The assumptions underlying this forecast are discussed in a
separate memorandum dated July 7.

It is true that $254 million represents the very
minimum liquid reserves which Canada needs, in view of its heavy

debtor position, its normal deficit with the United States, and
its extreme vulnerability to changes in international economic
conditions. It is hoped, however, that the ultimate effect of
the Hyde Park agreement will be to bring Canada's wartime exchange

position vis-&-vis the United States more or less into balance,
and that possibly the drain during say, the next twelve months,
will be made good during the following twelve months.
on the basis of the immediate position, therefore,

and prospects for the future so far as they can be seen, it is not
necessary to take immediate Government action with respect to

U.S. securities. The Canadian exchange position will, of course,
continue to be discussed at frequent intervals with the Secretary

of the Treasury and his officials.
8. Canada's position as a debtor nation.
Unlike the United Kingdom, Canada is heavily indebted

to private investors in other countries. Foreign capital invested
in Canada is 4 to 5 times as great as Canadian capital invested
abroad. The foreign investment in Canada is greater than the
federal government's national debt, greater even than one year's
national income of the Canadian people. Canada is not only a

debtor nation, it is a mature debtor nation, that is, its period
of large capital imports is over, and it is now both servicing
its/

174

-7its debt and making capital payments abroad as its debts fall
due.

The United States investment in Canada, estimated in

1937 at about 4 billion dollars, is alone greater than the direct
net debt of the Dominion Government, and is from 6 to 10 times as
great as the Canadian investment in the United States, depending
on the value assigned to Canadian-owned railway subsidiaries in
the United States. Canadian interest payments to the United
States represent 25% of all bond interest paid by Canadian
governments and corporations. United States investors receive
over 40% of all dividends paid by Canadian corporations (excluding
inter-corporate dividends in Canada).
The Canadian investment abroad represents a small

offset to the foreign investment in Canada, but it is more
important as an element in the underlying security of that
investment, along with Canada's foreign trade and domestic resources

and the character of its people.
This general principle of the relationship of Canada's
foreign investments to its foreign debt even has specific
application in individual industries and corporations. Many
companies in Canada with American shareholders own businesses in

the United States, or have U.S. securities in their portfolio.
Conversely, Canadians hold securities of U.S. companies which own

subsidiaries in Canada or invest in Canadian securities. For a
Canadian to be a shareholder in the Canadian automobile industry,

for example, it is necessary for him to buy U.S. securities, 1.0.,
the shares of the parent companies in the United States (except
that Ford of Canada has a domestic share issue carrying no voting
rights).

The disruption of this relationship, changing the
situation from inter-dependence to unilateral dependence, not to
say subservience, is not something to be lightly entered upon, if
there is any reasonable alternative.

It/

175

-8-

It should be noted also that the sale of U.S. securities
and investments by Canada would not only increase Canada's net

debtor position (1.0. it is no better, in the long run, than the
incurring of further debt to the United States by Canada) but
would tend to turn the net debt into gross debt, removing the
factor which, if necessary, might serve as an offset, or backlog,
or margin. It would be similar to spending away a sinking fund

instead of holding it as security, however indirectly, for the
gross debt.

To maintain not only essential imports but also
payments on the foreign debt has already required substantial
sacrifices on the part of the Canadian people in other uses of

foreign exchange. Further proposed restrictions (with respect
to imports) were dropped as being clearly unacceptable to the
United States Government. If other methods of meeting Canada's

deficit with the United States could not be found and Canada's

holdings of U.S. securities had to be liquidated, which would only

temporarily relieve the situation, the pressure thereafter might
readily develop towards the apparently "easy" method of blooking
interest and dividend payments to non-residents. The effect upon
Canada's international standing would be disastrous. It would
fall into the same class as certain European and Latin American

countries, and such a step, once taken, will not be forgotten
even if payments are later resumed.

This argument may appeal much less to the United States other than the investors directly concerned - than to Canada. In

our view, it would damage forever, if not destroy, our existing
and wholly justified position in the eyes of American individuals
and corporations as a preferred field for investment and enterprise
with assurance of fair treatment and reasonable rewards. It would
injure the future of Canada and perhaps destroy much of the value
of the present U.S. investment in Canada.
9. Economic

176

-99. Economic nationalism after the war.

Canada was built upon multilateral international trade.
The essential features of its position have been the creation of

a surplus of sterling from exports, and a deficit of U.S. dollars
to pay for imports; the free conversion of sterling into dollars
served to balance the exchange. The war not only greatly

increased both the surplus of sterling and the deficit of dollars,
but destroyed the convertibility of the one into the other.
Until December 1940 the United Kingdom Government to some extent

performed the function of a free exchange market for Canada, by

providing gold (about 60% of Canada's deficit with the United
States up to that time) in settlement of part (41%) of the United
Kingdom deficit with Canada. This process ceased in December
because the United Kingdom needed its remaining reserves to meet

its own commitments in the United States and its current receipts
of gold and U.S. dollars have also been used, since December, for
that purpose.

Canada was this forced to attempt to balance its

accounts bilaterally, and the cooperation of the United States
as expressed in the Hyde Park agreement and in other ways is

tremendously appreciated. Neither country, however, desires to
see a continuance of bilateral trade, exchange restrictions and
depreciation, Government control of commerce, the freezing of
foreign investment, and other features of a Reich economy,
continued and aggravated after the war. In the case of Canada

bilateralism, if necessary, would mean not only the continuation
of exchange control but the most drastic reduction in expenditures

in the United States, resulting in disruption of trade, of
interrelation of industry, even of social and family ties.
Possibly during or after the war the United Kingdom
position will once more be such that the Canadian-Anglo-American

triangle in international trade and finance can be re-established.
No one responsible for national policy can act as if that
assumption/

177.

- 10 assumption were a certainty at the best, before complete restoration
of the normal situation, there will be a period of re-adjustment
after the war, during which there must be some bulwark against a
resurgence of economic nationalism and the building up of new
vested interests; against demands for extreme measures of currency

depreciation and other nostrums. In the case of Canada, the keystone in the process of re-adjustment in international economic

matters will he her U.S. dollar position. Liquid reserves may,
despite efforts to prevent it, have to be used up before the
war is over. The last margin of safety lies in our holdings of
U.S. securities and investments. If they can be retained, there
will be an opportunity for elasticity and gradual adjustment even
to unfavourable conditions.

10. The political problem
As might be expected from the foregoing considerations,

if they have the validity which we attach to them, there is a
political problem involved in the question of sales of U.S.
securities and other investments by Canada, both a domestic problem

in Canada and in the United States and a problem affecting the

international relations of the two countries.
Anything which disturbs the public or any substantial
portion of industry or finance in Canada is to be avoided if at
all possible in view of the compelling need for unified concentra-

tion on the prosecution of the war. The financial situation in
Canada, with the emphasis upon voluntary rather than forced
borrowing by the Government to meet financial requirements six
times as great as in any peacetime year, depends upon a feeling of
confidence and security on the part of those to whom an appeal must
be made. What would be regarded as essentially confiscatory

action, at prices which those affected would regard as unduly low
because of present conditions in New York security markets, would
undoubtedly have unsettling effects and breed resentment against
the/

178

- 11 the failure to find some other method of meeting the exchange
problem. similarly Canadian businesses with holdings of U.S.
securities, which they regard under present conditions as a
valuable nest egg, would be disturbed and their managers

distracted from their primary-duty, in the national view, of
accelerating war production.
on the other hand, there does not appear to Canadian

eyes to be the same political requirement in the United States to
divest Canada of its U.S. investments as there might be with
relation to the U.S. investments of the United Kingdom.
Canadians have always felt that there exists in the United States
as well as in Canada a keen sense of the mutuality of interests
of our two countries. The people of the United States, we think,
would not oppose a course of action with reference to Canada

quite different from that which might seen necessary in dealing
with a similar problem between themselves and the United Kingdom.

It is also evident that the needs of the United
Kingdom, expressed in many billions of dollars, were far greater
than those of Canada. The provision of sums reaching upwards

from 7 billion dollars is a tremendous undertaking even for the
United States. Dealing with a situation which invol ves a few
hundred million dollars a year, most if not all of which may
ultimately be met under the Hyde Park agreement, is in a different
category and may well be susceptible of different treatment.
There is in both countries, we feel sure, a strong
desire to maintain their unparalleled history of meeting mutual
problems by measures which strengthen the bonds between them

rather than severing them.

bit 2 25

179

august 12. 19th
Files
Mr.

48 3 e'slook yesterlay afternoon I telephoned Mr. See is the Chinese F
chasing Meston to inquire conserving the employment of Mr. Seviett. Hr. See cold
that se reply had yes been received from Choughing. No recalled that M. Seeng
had seat a cabiogram to Chungking . week age. after be had interviewed Hr. Hewlett
as Member, august 4. requesting authority to employ Hr. Bowless for m. Fex's

secretary es the stabilitation Board is Miss. $ told No. Use that we were sesions

to

have as answer since m. Fee was again sabling so. and wanted certain documents

my

seat to his by Mr. Reviett. After this conversation line. Health informed No. Bevines
that I had spokes with Dr. See has that there to stall as reply from

18/10p-8/12/41

180

GRAY

TK

Chungking via N. R.
Dated August 12, 1941
Rec'd 5:40 p.m.

Secretary of State
Washington

343, August 12, 7 p.m.
FROM FOX FOR SECRETARY OF THE TREASURY.

Please notify Federal (#) that when its sealed
letter of May 24th to ME wastopened on August 9th

in presence of all members of Stabilization Board of
China last paragraph of page two read, "Please

acknowledge receipt of this letter and of the Enclosed sealed package by (?) and returning to us
the Enclosed copy of this letter". No copy of
letter was enclosed. I have had duplicate made,

am signing and returning that via sir mail. If
this is not satisfactory wire me other instructions.
GAUSS
EMB

(*) Apparent omission.

1814

CORRECTED COPI

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Endassy, Chungking, China, via N.R.

DATE: August 12, 1941, 11 a.m.

NO.: 348

STRIGTLY
THE FOLLOWING IS FOR THE SECRETARY OF THE TREASURY FROM
FOX.

The Ministry of Finance has requested that the Treasury

Department furnish the Government of China with a list of
depositors of Chinese notes in the U.S. which are credited

to securities and other assets of Chinese nationals. In
regard to this request, they would like for the Treasury

to furnish as complete statistics as possible. I informal
them that details could not be furnished, but I am submitting

this question to you for a decision at this time.
The Ministry of Finance also asks how it could requisition
such funds. I said that this could not be done. It is my
understanding that a similar position in regard to these
questions has been taken by Hall-Fatch,

Hall-Patch is in Chungking for a few days. The Board

is taking steps at once to carry through the requisite
procedure for its official organization.. Within a few
weeks, Hall-Patch is expected to return to Chungking.
The American banks are peeling information which they
have received OR unfreesing. However, they still seem to

be receiving instructions from their home offices which are
conflicting.

182

enflicting. Would 18 be possible for these instructions

to be coordinated a little bettert This would help to
relieve the confusion in Shanghai and in Hong Kong.

At the request of Dr. King, the Board conferred with
him on Sunday evening. In particular, he seemed to be

interested in learning of the Japanese situation from HallPatch. Dr. Kung was advised of the steps which are necessary

in order to establish the stabilization operations. Immediate
action was promised.

The Statement was made by Dr. Kung that he and the

Chinese Government expect to receive better cooperation
from the British and American banks than was received in

connection with Fund A, Dr. Kung asked that Regers be
requested to use the balance of Fund A to support Ransdell.
He also ordered the Bank of China and the Central Bank to

offer U.S. dollars at little above the Shanghai rates of
Saturday in order that the Market might be bolstered.
In Chungking, operating conditions for exchange

purposes are extremely difficult at this time. The Board
will try to establish headquarters in Chungking in order
to meet the insistance of the administration walk and an
exchange division in Hong Kong.

As to the plans for exchange control, Dr. Kung is not

very communicative, A visit by the principal Vice Ministers
of Finance and Central Bank officials with the Board was

prevented because of air raids this morning. It is expected
that they will reveal something on exchange control. Later
on,

183

on, I will telegraph the Department in regard to this
matter.

Pei and Hsi will go to Hong Kong as soon as the

organization of the Board is completed in order that
the tension might be relieved and in order that a number
of the Board's problems might be attended to by them.

I will remain in Chungking and se will K. P. Chea while
Hall-Patch and Taylor are in Shanghai.
GAUSS

EA:FL:PAK

EA!PAK

184

PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Embassy, Chungking, China, via N.R.

DATE: August 12, 1941, 11 a.m.

NO.: 342

STRICTLY CONFIDENTIAL
THE FOLLOWING IS FOR THE SECRETARY OF THE TREASURY FROM
FOX,

The Ministry of Finance has requested that the Treasury

Department furnish the Government of China with a list of
the Chinese nationals who are depositors in the U.S. together

with their securities and other holdings. In regard to this
request, they would like for the Treasury to furnish as
complete statistics as possible. I informed them that details
could not be furnished, but as they have requested, this
uestion is submitted to you for a decision.
The Ministry of Finance nice asks how it could requisition

such funds. I said that this could not be done. It is my
understanding that these questions are also being taken up
by Hall-Patch.

Hall-Patch is in (8) for a few days. The Board is
taking steps at once to earry through the requisite

procedure for its official organization. within a few weeks,
Hall-Patch is expected to return to Chungking.
The American banks are pooling information which they

have received on unfreezing. However, they still seem to

be receiving instructions from their home offices which are

conflicting. Would it be possible for these (8) to be

ocordinated

185

coordinated a little betterf This would help to relieve
the confusion in Shanghai and in Hong Kong.

At the request of Dr. Kung, the Board conferred with

his on (9) evening. In particular, he seemed to be
interested in knowing all that Hall-Patch (8) (7). Dr.
Kung was advised of the steps which are necessary in order

to establish the stabilization operations (9) promised (9).
The statement was made by Dr. Kung that he and the
Chinese Government expect to receive better cooperation
from the British and American banks than was received in

connection with Fund A. Dr. Kung asked that Regers be
requested to use Fund A so that the market might be supported
and also that the Bank of China and the Central Bank be requested

to offer (8) (9) at little above the Shanghai rates of
Saturday in order that the market might be bolstered.
In Chungking, operating conditions for exchange purposes

are extremely difficult at this time. The Board will try
to establish headquarters in Chungking in order to meet
the administration authorities (9) and an exchange division
in Hong Kong.

As to the plans for exchange control, Dr. Kung is not
very communicative. A visit by the Minister of Finance and
Central Bank officials with the Board was prevented because

of air raids this morning. It is expected (9) that they
will reveal something on exchange control. (7) (9) although
somehow this later aspired to relieve tension and to attend
to (9) Board.

(9) and

(9) and Hst will 8 to Hong Keng as SOOR as the

organization of theiReard is completed. I will remain
in Chungking and se will K. P. Ohen while Hall-Patch and
Taylor are in Shanghai.
GAUSS

|
EAI FL:PAK

10 THE
OLFICE OF THE

V bW IS 18

.:

ABEVAR
RECEIVED

:

187

GRAY

LET

Hong Kong via N. R.
Dated August 12, 1941

Rec'd. 10:40 a.m., 13th.
Secretary of State,
Washington.

304, August 12, 4 p.m.
FOR TREASURY FROM FRESE.

"Advise by cable clarification on following points
refers to freezing orders, licenses, et cetera.
(1) Our cabled copy general license No. 61 reads

in part: 'any such transaction might be useful by
any such office of any such bank pursuant to the
order of any person not within any blocked country

is also hereby authorized, et cetera.' This apparently
precludes the licensed Chinese banks from engaging in

transactions under paragraph (one) for account of any

and all persons living within China including citizens
of unblocked country except in 80 far as such transactions may otherwise be licensed by paragraph (two)

and by other general licenses. Please verify.
Following questions relate to deposits of blocked
nationals in terms of United States currency with
generally licensed Chinese banks in Shanghai: (1) is

there anything in the United States. orders regulations,
et cetera,

188

-2- 304, August 12, 4 p.m., From Hong Kong.
et cetera, which would preclude payment of such deposits
by such banks in Chinese currency? (2) Can payment be

made with drafts drawn by such generally licensed
banks on their accounts in New York and can such

drafts be credited in the United States to blocked
accounts of the original payee; (3) can such drafts
be paid and upon blocked accounts of other than

original depositor with generally licensed Chinese
bank if made payable to bearer or endorsed by original
payee; (4) can such drafts be purchased with Chinese
currency by Shanghai offices American generally licensed banks and credited to their accounts irrespective

of whether such drafts relate to licensed import and
export transactions?

Is there any general license authorizing use of
blocked accounts in the United States for purchase of
securities?"
Sent to the Department, repeated to Chungking,
Shanghai.
SOUTHARD
CSB

189

PARAPHRASE OF TELEGRAM SENT

TO: American Gonsul, Kunning (Yunnan) China, via
Hong Kong & MR

DATE: August 12, 1941, 8 P.E.
NO.: 17

First. Up to the and of last month, the U.S. balances
of the Yunnanfu branch of the Banque de 1'Indeshine were

partially free, in accordance with certain licenses which
were issued under the order which from their funds.
It was necessary for the Bank to obtain renewal of these
licenses each month. However, the Treasury has net renewed
them. An approach was made to the Department by the Financial

Attaché of the French Embassy here, asking that the licenses
be renewed since banking functions which are useful to
free China are performed by the Bank's branch at Yunnanfu.
Second. The Financial Attaché advanced the following
arguments:

(1)aThe Yunnanfu branch of the Banque de l'Indochine

is the only foreign bank there, and the clientele
will not be able to find elsewhere the advantages which
a foreign bank offers.

(2) Import and export transactions for shipments
over the Burna Read or through the Japanese lines to
the southern coast of China are financed by the branch
bank.

(3) In general, exchange transactions in U.S.
dollars are earried out OR the Shanghai market. The
funds

190

-2.
funds are then transferred from Shanghai, through
Chinese Government banks, to the Yunnanfu branch.

Third. You are requested to transmit a cable report
on any information you may have as to the validity of the
statements made by the Financial Attaché (second part of
this telegram), and as to the economic importance to
Yunnan's economy of the functions performed by the branch
bank.
HULL

(DA)
EA:GL:VGL

FE

EU

Amh

ie

EAILNY

(CONFIDENTIAL)

STRICTLY CONFIDENTIAL
C

0

P

Y

PRAPHRASE

A strictly confidential telegram of August 12, 1941, from the
American Consul at Rangoon reads substantially as follows:
On August 11 three American motor transport men (Arnstein,

Hellman and Davis), who went recently to China at the Chinese

Government's invitation to look into the matter of ways and
means of increasing traffic on the Burma Road, left for Chungking
having arrived in Rangoon on July 29 after making a trip over the
road. They carried with them a report prepared while in Rangoon for
submission to the head of the Chinese Government. These men planned

to stay in Chungking until a decision is reached in regard to their
recommendations and then to return to the United States. Included

in the recommendations are the following: Full authority to be
delegated to one person as managing director of the Burma Road

with the commission formed recently to act in a supervisory capacity
only for coordination of the Burma Road and other highways in China;
a terminal plan and preventative maintenance plan such as trucking
companies in the United States use is to be adopted, the adoption
contemplating the employment of Americans consisting of a maintenance

supervisor, six assistants to act as terminal managers and fifteen
mechanics; tax collections along the Burma Road, which are said

to seriously delay traffic, are to be simplified and centralized;
the road is to be policed and a system of radio communication set
up. Arnstein and his party expressed the opinion that if unnecessary

191

192
-2delays were eliminated the tonnage now carried with the present
equipment would be more than double. They say also that the road

is capable of taking care of many times as much traffic as is
moving over it at the present time.

COPY: mew 8/15/41

193

GRAY

RS

(Paris)
Vichy

Dated August 12, 1941
REC'D 1:45 p.m.

Secretary of State,
Washington.

1014, August 12, 1 p.m.
Fuad Hamza, the Saudi Arabian Minister, has been

informed by his agent in the United States, Kamel
Hamady, 421 WElch Boulevard, Flint, Michigan that his
dollar account with the Guaranty Trust Company in NEW
York has been blocked. HE has requested my assistance

in unblocking his account inasmuch as there is no
Saudi Arabian Minister at Washington. I shall appreciate any information the Department is able to
send ME related to the unblocking of his account so
that I may KEEP him informed.
LEAHY

CSB

PARAPHRASE OF TELEGRAN RECEIVED

194

FROM: American Babasey, Panami, Panasa.

DATE: August 19, 1941, 9 a.m.

NO.: 993.
RETORTEY... - is made to the Department(s telegras

No. 177, 7 p.m., dated August 8, 1941.
Telegraphic instruction on May 8, 1941 from

Barcelona to obtain cancellation of registry of Panama
of SANEA HELENA was appropriately signed "Companie

Prinimers Navegasion Limitada care Josif Oglurits otel,"

(0glu, Josif, care of the Rits Hotel), according to infernation received by the Enbassy from a. local representative.

This representative has no reason, therefore, to doubt its
authenticity.
WILSON

OLLICE OE THE

SI bW IS 50

IBE DEBYBIMENT
RECEIVED

195
PARAPHRASE OF TELEGRAM SENT
TO:

American Embassy, Panama, Panama, via N.R.

DATE: August 12, 1941, 7 p.m.

NO.: 186
Reference is made to telegram No. 221, dated August 9,
noon, from the Enliancy.

The following is submitted for the Embassy's information:
According to a report from the American Embassy at Madrid,

Jossifogla was released from jail on the twenty-seventh of

July and the twenty-ninth is the date that the sale contract
was signed. The Department, on the basis of this report
from the Embassy at Madrid, is unable to establish that
the sale was not a bona fide transaction.
The Department, novertheless, hopes that if it is at
all possible to do so that confirmation of cancellation
of registry can be delayed until the end of the week.
of course, the vessel will not be allowed to leave
until this Government's action is decided upon-regardless
of what may eventually be done by the authorities of
Panama.

LECHHICV 21
OLEICE OE THE

RA:JOC:LM EA
819.852/42

18th 3Eb SJ bM IS 50
DEBYBINCHI
DECEIVED

196
PARAPHRASE OF TELEGRAN SENT

TO: American Legation, Budapest, Hingary
DATE: August 12, 1941, noon
NO.1 440

Reference is made to telegram of August 5, 2 p.m.,
no. 479 from the Legation.
Several approaches have been made to the Treasury with

regard to the proposed transactions for disposal of the
properties of the subsidiary of the Standard 011 Company
of New Jersey in Hungary. No favorable action has been
taken up to the present.
The Government found your information timely, and

the Department would be glad to have you transmit to it

any additional information in this regard that may come
before you.
HULL

(FL)

864.6363/47

EA:GLINCE

EA:LWW

197
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE August 12, 1941.
Secretary Morgenthau

TO

FROM Mr. Cochran

CONFIDENTIAL

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

£71,000

£ 1,000

Open market sterling remained unchanged at 4.03-1/2. The reporting banks
purchased £1,000.

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

Canadian dollar

11-3/8% discount

Argentine peso (free)

.2390
.0505
.5800
.2070
.4380
.2650

Brazilian milreis (free)
Colombian peso
Mexican peso

Uruguayan peso (free)
Venezuelan bolivar
Cuban peso

1-3/32% discount

In Shanghai, the yuan improved to 4-31/32#. up 3/16 Sterling was also
higher at 4.03-3/4, up 1/4
There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported the following gold shipments:

$3,400,000 from Vladivostok, shipped by the State Bank of the U.S.S.R. to the
Chase National Bank, San Francisco, for sale to the U. S. Mint.
This shipment arrived in San Francisco today.
596,000 from Chile, shipped by the Central Bank of Chile to the Federal
Reserve Bank of New York, disposition unknown.

$

$3,996,000 Total

The London fixing prices for spot and forward silver were 23-1/2d, up

1/16d. The U. S. equivalent of this price is 42.67

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

198
-2-

The report of August 6, received from the Federal Reserve Bank of New

York, giving the foreign exchange positions of banks and bankers in its district,
showed that the total position of all countries was short the equivalent of
$5,269,000, a decrease of $25,000 in the short position since July 30. Net
changes were as follows:
Country
England**
Europe
Canada

Latin America

Short Position

Short Position

July 30

August 6

$ 377,000
2,885,000
351,000 (Long)
262,000
50,000

Japan

Other Asia

All others
Total

2,083,000
12,000 (Long)
$5,294,000

Change in

Short Position*

$ 235,000
2,873,000
298,000 (Long)
203,000
59,000

- $142,000

- 12,000

+ 53,000

- 59,000

+ 9,000

84,000

+ 30,000
+ 96,000

$5,269,000

- $ 25,000

2,113,000

*Plus sign (+) indicates increase in short position, or decrease in long
position.

Minus sign (-) indicates decrease in short position, or increase in long
position.

**Combined position in registered and open market sterling.

199
BRITISH EMBASSY,
WASHINGTON, D.C.

August 12th, 1941

PERSONAL AND
SECRET

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.

200

TELEGRAN RECEIVED FROM LONDON

DATED ADDUST 10th.1941

Bases attacked at Bardia,

Benghasi, Capusso and Tripoli (Libya) night

7th/8th and Tripoli again night 8th/9th.
Night 8th/9th enemy aircraft
attacked Alexandria and the Canel Zone. Slight
damage caused at Sues and Ismailia.
9th, Five assorted Blenheims bombed

target near Gravelines. During this and other
offensive operations 18 enery fighters were
destroyed and others damaged. We lost 10

spitfires.
Libya. Jarabub now occupied by

our troops.

Russia. Finnish and Baltie fronts
no change. White Rus is. German southeastward

thrust making progress towards Bryansk, Southern
Ukraine. Germans have captured Koresten and are

immediately threatening Kiev. Further South
German thrusts along Dnieper and Astride Bug
making headway. Some substance in German claims

regarding captures in this sector.

201
BRITISH EMBASSY,
WASHINGTON D.C.

August 12th, 1941.
PERSONAL
AND SECRET

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,

Halifas
The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

202

TELEGRAM FROM LONDON DATED AUGUST 11th, 1941

Naval. Night of 10th/11th. Three attacks
by ==boats on coastal convey. British ship 1,548 tons
torpedoed and sunk off Dungeness.
2.

His Najesty's Trawler "Withernson" attacked

by Heinkel 111, P.M. 9th, shot it down and picked up pilot.
Two air attacks on the Suez Canal on night of
3.
9th/10th. Ismailia, Port said, Sues area bombed from high
level. slight damage round dooks at Sues, no casualties
reported.
4.

Royal Air Force. on 10th by daylight three

lenheims scored two hits on merchant vessels off Gravelines.
Two Blenheima shot down one ME 109 destroyed.
5.

Night of 6th/9th, 33 Wellingtons attacked

Corinth Canal with boube and mines.
6.

Military,
Russia. Murmansk front stabilized. No reports

of eneary progress on Finnish front or North East Ladoga.
Ukraine. German advance continues. Annoured
7.
units operating near Cremenching on the river Dinieper. Advance
elements in southwards thrust on Nikelaev have reached
Voenessensk. German casualties heavy.

203
RESTRICTED

M.I.D., W.D.

G-2/2657-220; No. 465

12:00 M., August 12, 1941.

SITUATION REPORT

I.

Eastern Theater.

Ground: Finnish troops are advancing down the western shore
of Lake Ladoga in the direction of Leningrad. On August 10, advanced
Finnish detachments had reached points about 20 miles west and northwest of Kakisalmi.

Heavy fighting is proceeding along the Luga River

southwest of Leningrad.

To the south of Lake Ilmen, German forces have established two bridgeheads east of the Pola River, near Demyansk and to
the east of Staraya Russa.

German troops hold the town of Bely, to the north-

east of Smolensk and 50 miles southwest of Rzhev.
The German pursuit on the southern Ukraine continues.
To the southeast of Kremenchug German troops are advancing along the southern bank of the Dnepr, and have reached a point
70 miles northwest of Dnepropetrovsk.
German columns advancing southward along both banks

of the Bug River are approaching Nikolaev.
To the west and northwest of Nikolaev, large portions of the Russian armies defeated near Uman are swung to escape complete German envelopment by withdrawing to the Crimea via Nikolaev and
Kherson.

Air: Germany reported night bombing of Moscow and both sides

reported air activity in the Kiev sector. Russian planes bombed Berlin
during the night.
II.

Western Theater.

Air: No German bombing activity reported over the British

Isles. Normal British night activity over northwest industrial objec-

tives.

III.

Mediterranean Theater.

Ground: Continued lull.
Air:

zro, Italy.

British attacks were reported on Crotone and CocatanAxis planes bombed Tobruk and Marsa Matruh.

RESTRICTED

204

August 13, 1941
MEMORANDUM FOR THE SECRETARY'S FILES:

A meeting relative to the administration of

Executive Order No. 8389 was held in Mr. Foley's office
at 4 p.m. on August 12, 1941, attended from time to time
by the following:
Messrs. Foley (Chairman), Pehle, Cochran, Lux-

ford, E. M. Bernstein, Viner, and Timmons for the
Treasury; Messrs. Acheson, Fisher, Luthringer, and
Miller for the State Department; Messrs. Shea, Rosenwald,
and Jurenev for Justice; Mr. Knapp for the Board of Governors of the Federal Reserve System.

Reference was made to an application filed by
the States Trustee Company (which holds the stock of the

subsidiaries in the United States of the Society for
Chemical Industry, (Ciba), Basel, Switzerland) which proposes to purchase all of the common stock and 2,225

shares of the preferred stock of the Schering Corporation
for $850,000. The stock of the Schering Corporation is
at present held by the Swiss Banking Corporation, New

York, for the Swiss Bank Corporation, Basel, for account

of Chemical and Pharmaceutical Enterprises Limited (Chepha).
Chepha is owned 51% by Palladium A.G., a Swiss holding company which is in turn owned by the Swiss Bank Corporation,
Basel; and 49% by Paciba A.G., a Panama holding company,
said to be owned by certain Swiss nationals who also have

interests in the Society for Chemical Industry (Ciba).
After careful consideration of all of the facts involved
in this application, it was unanimously agreed by the
Committee that the application should be denied.

Mr. Pehle referred to a memorandum recently received from Mr. L. W. Knoke, Vice President of the Federal
Reserve Bank of New York, stating that several economists from
South American central banks, who are working at the Federal
Reserve Bank for experience, had expressed an interest in the
Foreign Property Control Department, and desired to become

acquainted with its operations. It was agreed that Mr. Knoke

205

-2should be informed that in view of all the circumstances thetoCommittee
not feel that it would be appropriate
grant this did
request.

Mr. Pehle also referred to an application filed
by the Gillette Safety Razor Company to send a power of
attorney to two of its employees in Germany to conduct

the business of the Gillette subsidiary there as they see
fit in case of an emergency. This application will be
approved and the relative license will contain a stipulation that the power of attorney will not allow any sale
of the stock of the subsidiary or its property.
The Finnish Minister, in a recent conversation

with Messrs. Foley and Pehle, requested reconsideration
of the decision taken by the Committee with respect to

the transfer of funds from private Finnish accounts to the

Bank of Finland. Such applications have been denied and
the Minister contends that unless the pulp mills and other

enterprises are able to obtain local currency from the
Bank of Finland, their operations will be seriously hampered. The output of such pulp mills is at t he present time
being sold chiefly to Germany. The Committee reaffirmed
its previous decision.
The Joint Distribution Committee has advanced a

proposal whereby it would be allowed to accept local currency in France, Italy, and Rumania, and to pay dollars,
either to persons who have surrendered local currency and
then emigrated to the United States, or to friends and relatives of persons remaining in the occupied areas. It was
agreed that applications of this type could not be approved,
but it is to be suggested to the Joint Distribution Committee
that the dollars be placed in special blocked accounts not to
be drawn against until after the war.

A letter is to be addressed to the Standard Oil
Company of New Jersey stating that such Company may not, ex-

cept pursuant to license, sell through its Latin American

subsidiaries petroleum products to persons whose names appear

on the "Proclaimed List of Certain Blocked Nationals". Copies
of such letter will also be forwarded to the Texas Corpora-

206
-3tions; Socony Vacuum Oil Company, Inc., Atlantic Refining

Company, Gulf Oil Company and Asiatic Petroleum Corpora-

tion. It was also noted that we should secure the co-

operation of the British, Canadian and Dutch Oil Companies

in cutting off supplies of oil to Proclaimed List firms in

South America.

Mr. Acheson reported that three Japanese tankers

are now in San Pedro, California, and that nine applications for export licenses covering shipments of oil to Japan have been filed. Of these, Export Control has approved
three covering shipments of crude oil. Mr. Iguchi of the
Japanese Embassy was informed by Mr. Acheson that payment

for such oil should be made out of the cash funds in possession of the Japanese Government in the United States. Mr.
Iguchi later saw Mr. Pehle and received the same information.
Mr. Iguchi said that he would further consider the matter and
advise us thereon. It was agreed by the Committee that no
action with respect to the issuance of freezing control
licenses should be taken until we have heard further from the
Japanese Embassy. With further reference to oil shipments to
Japan, Mr. Acheson indicated that the Government of the

Netherlands East Indies has taken a firm stand and is prepared to follow our lead.
An application has been filed by Norwegian Relief,
Inc. to transfer $200,000 to Stockholm for the purchase of
canned foods to be shipped to Norway. The Treasury Department has been informed that the British Government has

raised no objection to this transaction but has said that it

will not authorize the importation into Sweden through the
blockade of any goods that may be sent to Norway. In view
of all t he circumstances it was agreed that this application
should not be approved.