Full text of Diaries of Henry Morgenthau, Jr. : Volume 432 : Part 2

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207

August 13, 1941
10:30 a.m.
RE PRICE CONTROL

Present:

Mr. Kuhn

Mr. O'Connell
Mr. Haas

Miss Elliott
Miss Ware

Mr. Bell
Mrs. Klotz
Mr. White
Mr. Viner

H.M.Jr:

Harry, the memorandum which you gave me on

economic warfare I left with the Vice-President (8-12-41)

because they had nothing, so will you give me
another one? The only thing that was done

was the thing that I brought up - you ladies
may be interested - of buying all available
fats in North Africa, and they appointed a

committee of four, State, Commerce, Treasury

and Agriculture, to look into the matter.
White:

We have got a - you asked for a memo on it.

H.M.Jr:

It was the only thing that was brought up.
Mr. Wallace was thirty minutes late. We
spent forty-five minutes having our picture
taken and fifteen minutes discussing ground

nuts and tree nuts in Africa.
White:

Nuts. (Laughter)
(Mr. Viner entered the conference).

H.M.Jr:

He was thirty minutes late so I have had a
beautiful morning and I am in a fine humor.

208

-2Klotz:

Are you waiting for Mr. Foley?

Elliott:

I hope you enjoyed it.

H.M.Jr:

The only good time I had was I fed four of
these gentlemen this morning and while they
ate I asked them questions. They were
supposed to ask me questions. Now, I hope we
have got something that is finished.

White:

Do you want to see the copy or was it for
some other purpose?

H.M.Jr:

I would like now the copy and the charts and

whatever is new; I wish somebody would

read it, whatever is new in the statement.

White:

H.M.Jr:

White:

Well, I have -We will read what is new and let's take a look
at the charts. This ought to be the last run.
Here is the draft that was finished last night.
Mr. Kuhn and others may have suggestions which

we will incorporate right after this meeting.

Here is a statement following the thought that
you had this morning that might be incorporated
and we haven't polished that up, on the dismissal
wage.

H.M.Jr:

Well, now, have they got a copy?

White:

I will give them a copy.

H.M.Jr:

Have you got another copy here?

White:

I distributed them all to the various people.
Here is a copy, --

H.M.Jr:

What is that?

209

-3-

White:

H.M.Jr:
White:

H.M.Jr:

White:

...of that.
This? Let me have it. Have you got a copy?
I only have one.
Well, will somebody read who knows it and
then read the things which are new.

Well, I think Jake and I are the only ones

who know it.

H.M.Jr:

I hear they took three hours to do two pages.

Elliott:

It surely ought to be convincing.
Let's have it.

H.M.Jr:
White:

There are minor changes but I take it that
you don't want those mentioned. The major
change is toward the end. One change is, we
refer to the fact that "the President has
just issued an order giving the Board of
Governors and the Federal Reserve System

authority to control consumers installment
credit, thus making it possible to supplement
the restrictions on spending of current
income by restraint on spending of anticipated
incomes.

That is in the list of things which have been
changed. Now, this is new on page eighteen,

Mr. Secretary, and it is a substitute for

the discussion on farm prices and some comments
to the farmer and some comments on the farm

board. Shall I read that part?

H.M.Jr:

Please.

White:

Would you like the old one before you?

210

-4-

H.M.Jr:
Kuhn:

H.M.Jr:

No.

It is only a substitute for that section.
Have they forgotten what happened before, don't
they remember the consequences? It is just

said in a different way.

White:

"The memory of our sufferings from a remorseless
deflation that began a dozen years ago and from

which we are just now fully recovering has, I
think, blinded many of us to the fact that an
inflation can be equally remorseless and

tragic in its results. Because the farmer

has suffered longer than any of us from price

deflation -- it began with him 'way back in
1920 -- we need not be surprised if he particularly, in his struggles against the effects of
deflation, fails to see the dangers on the
other side. But for him those dangers are
very real. Just how real they are he can

measure -- not by recalling what happened to
him in the era of boom prices -- but by remember-

ing what happened to him later; for it is
especially notable and plain that in his case
his troubles in very large part were the aftereffects of war-time price inflation.
"That inflation __"

H.M.Jr:

Wait a minute. That sentence, "fails to see
the dangers on the other side." I think they
might resent that.

White:

H.M.Jr:

"Less apt to see"?

No, I think they might resent that. "Fail to
see the dangers on the other side."

Viner:

"He may fail"

211

-5-

White:

"May be less apt" would weaken it greatly,

I think. "May be less apt to see the
dangers."

H.M.Jr:

That
is all right. Well, something like
that.

Viner:

I think you are perfectly right there. You

shouldn't attribute ignorance to somebody else.

That inflation established extravagantly
high prices for land; it brought hundreds of
thousands of acres of new land into cultivation
for the standard crops; it stimulated excessive
"

White:

investment; it loaded upon many farmers a
tremendous burden of debt __"

Viner:

"Excessive farm investment", I would put in.

H.M.Jr:

Excessive investment in what?

Viner:

In agriculture, fencing, building, machinery --

H.M.Jr:

They paid all these high prices for land.

Viner:

He already has the land but they also over-built
their - bought too much agricultural machinery.

H.M.Jr:

It ought to be defined.

Viner:

Yes, make it "farm investments".

White:

I think we had better cut out, "It brought

hundreds of thousands of acres into cultivation
for standard crops", because that is very
true but it is exactly what we are asking them

to do now. I think that might be eliminated
and nobody will miss it, although it was an
important factor in the down turn.
"...It loaded upon many farmers a tremendous

212

-6burden of debt __"
H.M.Jr:

If you want to put the right thing in and talk
about the plow that broke the prairie, talk
about
the grass lands which were brought into
cultivation.

Viner:

Prepared the way for --

White:

I don't know enough about it to phrase it.

H.M.Jr:

Well, they do. It was the grass lands of the

Dakotas and so forth which were brought into --

Heas:

I would be inclined to leave it out. It is
true, but the Government, you know, put on a
campaign --

Viner:

The Government begged them to do it.

Haas:

I would sort of skip through and leave it out.

White:

Well, it was a different Government. (Laughter).
"

It loaded upon many farmers a tremendous

burden of debt which they were asked to pay a

year later in dollars that were worth -Viner:

"Years later".

White:

"...in dollars that were worth twice as much
in terms of purchasing power as the dollars in
which the debts were contracted. It is highly
significant that the farmers themselves have
not sought to be restored to the condition of
the boom times, whose essential unsoundness

they recognized, but in the campaign for parity
prices have been struggling to regain an

economic position from which they were dislodged

H.M.Jr:

initially by price inflation."
That has got to be fixed up. It is terrifically

213
7-

involved. Looks as though it was written

about one a.m. this morning.
White:

Most of this, in fact, all of this page, was
written by Gaston and we incorporated these
sentences.

H.M.Jr:

It is terribly involved.

Kuhn:

Some of it can be fixed by splitting up a
long sentence into two.

White:

" "...I could not fail to see the peril to

agriculture in the present situation because

I happened to be in position as Chairman of
the Federal Farm Board in the last two months
of its unhappy existence and as Governor of
the Farm Credit Administration in the period
when the Government quite properly shouldered
the burden of refinancing most of the farm

debt of the Nation to get an intimate view of

tragedy as black and menacing as ever affected

the farmers of this country.

In reading it over, I am inclined to think to leave out the "last two months of its
unhappy existence".
H.M.Jr:

White:

I don't like any of it. This thing has to be
cut. I don't - I mean, I don't like any of it.
11

Through the decisions I had to make as

Chairman of the Farm Board I saw how the

inflation of farm prices followed by a
deflation that struck like a mid-western

down in scattered ruins almost
structure

cyclone the whole brought promising and of farmers' left

cooperatives in this country a

painful and difficult job of rebuilding to be
done. As Governor of the Farm Credit
Administration I had to put into effect a

214

-8policy that would relieve conditions which
caused American farmers to gather with
shotguns on the steps of courthouses to

prevent foreclosure on their farms. This

was inflation on the other side of the hill.
It was a case of Humpty Dumpty toppling

because he had climbed too high. It should
not be hard to persuade the present-day
descendants of Humpty Dumpty not to go

climbing too far up that wall of high prices

again.

Here is something new.
H.M.Jr:

I don't like any of it.

White:

We will compromise between that and what we
have.

H.M.Jr:

I will give you - I am not going to take the
time of these ladies up.

White:

"...I don't wish __" here is a new paragraph

on page twenty-two, after you have been speaking

about the danger signals of the cost of rising
agricultural prices.

" "...I don't wish to be misunderstood in my comments

on agricultural prices. I am glad that some
of the agricultural prices that had been too
low have attained a reasonable level. I am
not disturbed by the general level of agricultural prices now prevailing, but what I am
deeply concerned about is the danger that

agricultural prices in general will continue
to rise until they are out of hand. As the

Secretary of Agriculture stated only a few days
ago: 'There are some who think agriculture

should charge all that the traffic will bear,

to get while the getting is good, with the hope

that somehow the aftermath can be avoided.' For

his part he warned his audience that 'to tie up

215

-9stocks in an effort to create an artificial
scarcity and unreasonable prices is not in
the interests of the farmer, the consumer
or the general welfare.

There are no other significant changes. There
are some deletions. We have shortened it a
bit but no more important changes, though

I think you will want to read it over again
because there have been some word changes.

H.M.Jr:

Now I have asked four times, has that four
hundred fifty thousand bushels of wheat been
checked?

Haas:

We are in the process of checking everything

H.M.Jr:

When is it going to be done, George?

Haas:

We just had the copy this morning. Four

in it.

hundred ninety-five is O.K. - ninety-eight,
is that what is there?

H.M.Jr:

It says four fifty.

Haas:

Four hundred ninety-eight, I think.

White:

Now, there are two paragraphs that you asked
for, one on dismissal wages. You have a

tentative draft before you of that and we
will polish that up. The second related to

a comment on what the Secretary of Agriculture
had done. I called up his man and asked him
to send me a paragraph of what he has accomplished

and they are very eager to do so and it will
be here by messenger within the half hour.

H.M.Jr:

The other thing I wanted was to use the figures
of yesterday to show the amount of stuff in
storage.

216
- 10 -

White:

H.M.Jr:

You mean those slips that you gave us?
Yes, I mean --

Haas:

Oh, we are working on that now.

H.M.Jr:

It is time to move on this stuff.

Haas:

I didn't know that you wanted it in here.

H.M.Jr:

Yes.

Viner:

Do you feel very strongly for retaining that
quotation from Fortune?

H.M.Jr:

Yes. It is the only reference we make to

Viner:

Yes, but why quote Fortune?

H.M.Jr:

Because they have said it better than anybody

nutrition.

else.

White:

Do we know the author? Is there a writer?

H.M.Jr:

They don't give him in there. What don't you
like about it?

White:

I have a paragraph here about agriculture.

H.M.Jr:

Is there - are there any changes on the
consumer end? I don't want to tie up Miss
Elliott any more.

Ware:

There was just one question that Mr. Viner
raised yesterday and that was with reference

to all kinds of agricultural surpluses;

that you are going to get out, aren't you?
Viner:
Ware:

Is that still in? What page is that?
On page twenty-four and it is in on page sixteen.

217
- 11 -

"Almost all agricultural goods" on page sixteen

and it is "all kinds" on page twenty-four.
White:

Viner:

Ware:

"Of many kinds".

I would challenge that. I don't believe that
is true, but that is George's responsibility,
to see that that is a statement of fact.
From the consumer point of view it certainly

isn't true. That is, from the point of view
which is implied in the Fortune article.

Viner:

I would use those --

H.M.Jr:

What do you want left out?

Viner:

To qualify that, to say, "many kinds".

White:

We made the change. I have just made it.

Viner:

What is there on sixteen?

Ware:

Then the third from the last line on the
first paragraph, we are --

Viner:

I would say, "of many".

White:

What page?

Viner:

On page sixteen.

Ware:

And you had some question about using the

Viner:

butter illustrations, Mr. Viner.
I would want to look into the facts pretty
carefully there.

Ware:

I share your doubt on that.

Viner:

I don't think there is a surplus of butter in

terms of what we need and what the English needs

218
- 12 -

H.M.Jr:

I told George this morning, those statistics,
I took them out of the paper and I said I
wanted them incorporated in this statement,
the holdings in cold storage.

Viner:

You have to watch for seasonals and you have

H.M.Jr:

This compared with five years' average.

Viner:

And then to see how much butter was stored,
what percentage of it is annual consumption?

to see what last year's --

It might just look like a big figure.

H.M.Jr:

You have had since nine o'clock this morning.

Viner:

Because the minute you go into details and
agricultural commodities, the minute you
go into details and agricultural commodities
you are going to face some wise Congressman

who will get tense and if they can pick you

up on that they will sort of throw discredit
on your whole statement, so you have to be
very cautious the minute you name a specific

commodity. It has got to be water tight
from the point of view of the situation as a

whole and the prospects, and so on.
H.M.Jr:

Well, that is George's job to see that it is

correct, plus the help we get from the Depart-

ment of Agriculture. Now, Miss Elliott, is
there anything else?

Elliott:

No, that was the only thing unless Miss Ware

has something else.
H.M.Jr:

Before we use those charts, George, that Miss
Ware suggested, I want her to O.K. them.

Haas:

Fine.

H.M.Jr:

Before they are printed I want her to O.K. them.

219
- 13 -

Will you get them over to her?
Haas:

Yes, they are not made yet.

H.M.Jr:

Well, when they are.

Haas:

I had previously made that arrangement with

her to show them to her before they are finally
completed.

H.M.Jr:

Well, thank you very much, Miss Elliott.
(Miss Elliott and Miss Ware left the
conference).

Now look, gentlemen, I can't fool around with
this statement any more. Some of the people
see it and some people don't see it. I am
going through each word and this is the last

time. I don't want any changes after this.
I have got to get this thing off to Mrs.
Roosevelt. I can't tell her again that we
are not ready at eleven-twenty. I don't know

why Kuhn hasn't had a chance to see the thing.
Kuhn:

Well, I have got some --

White:

Why he hasn't had a chance?

H.M.Jr:

Yes.

Kuhn:

...changes which --

White:

Well, he can speak for himself.

Kuhn:

I have got some smoothing changes, verbal

changes, but nothing in the way of content.

H.M.Jr:

Now George, what about the charts? Did the
people work last night on them?

Haas:

Yes, sir, and they will have to work all night and --

220
- 14 -

H.M.Jr:

Haas:

Well, can I count on the charts? Can I count
on the thing being in there?

The only question is, and I don't think - the
only really tight place, working all night,

is this chart - this pictorial chart of Miss

Ware's, but I will know by noon whether it

will be through. I think it can go through,

working all night, because at the end, when
it is completed, we have to make multilith

copies of it, you see, to put in your state-

ment, and we planned on having the people who

do that come in at three o'clock in the morning

H.M.Jr:

or whenever it is and start on it to get it
out. I am willing to underwrite it now, that
we will get it out.
Well, you have got to. I am going to start
in and do this thing word for word and this
is the last time we will go over it, you see.

"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."

If anybody has anything, don't be bashful, just
sing out, will you please?

"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 facing it now and we must

deal with it at once.

"If we are timid -- we in the Executive Depart- the

ments and you in the halls of Congress --

consequences may haunt us and our children

for years. But if we are courageous, we can

221

- 15 -

beat this thing. If we keep always in mind
the best interests of our country as a whole;
if we provide promptly the appropriate means

and use them vigorously when and as necessary,

we can prevent inflation from fastening its
grip upon us.

Kuhn:

May I suggest to change "when and as" to

H.M.Jr:

Where is that?

Kuhn:

'whenever"?

"If we can provide promptly the appropriate

means and use them vigorously whenever

necessary." It is like "and/or".

H.M.Jr:

"Whenever necessary"?

Kuhn:

"Whenever necessary".

H.M.Jr:

"...That task calls for alertness, courage and

mental toughness on the part of every one of
us here today.

"I welcome the bill before you."
What about that?
Viner:

I think you ought to mention the name of the
bill. This goes out to the press and nowhere
in the text is there any mention of what the

bill is about.

Kuhn:

The Price Control Bill.

Viner:

All right, if that is what it is.

White:

Or, "I am glad that the Price Control Bill is
before your committee".

Viner:

In fact, I have been in a little doubt as to
what the bill is.

222
- 16 -

H.M.Jr:

I don't like "I welcome the bill before you".

White:

Would you be willing to say, "I am glad this
bill is before you for consideration now"?

H.M.Jr:

Yes, that is right. Or put it the other way
around, "I am glad that the committee is
considering this bill.' "I am glad that the
committee is considering this bill" -- name
the bill.

Klotz:

"That your committee".

H.M.Jr:

11 "...and is giving so much time and consideration"

or something like that.

White:

"And is giving it such careful consideration."

Bell:

Could you say that you are glad the committee

is covering the subject covered by this bill?

Viner:

Yes. "I am glad that the committee is
considering the adoption of measures for
Price Control."

Bell:

"Covered by this bill".

Viner:

11

covered by this bill".

H.M.Jr:

I believe it is - have you fellows got that?

Viner:

We have got it.

H.M.Jr:

"...I believe it is a necessary step in the
fight against inflation. But it has one
serious shortcoming to which I shall refer

later.' "
White:

That is --

Kuhn:

I have a suggestion there, Mr. Secretary, to

223
- 17 -

smooth it. "The bill before you has one
serious shortcoming to which I shall refer

later, but I believe the bill is a necessary
step in the fight against inflation." And

then it leads you on into the broader subject
rather than leaving you dangling.

H.M.Jr:

O'Connell:

All right, that is good.
I just went through this last draft rather

hurriedly but do you mention the hundred and

ten percent in the bill, later?

White:

Not specifically.

O'Connell:

We discussed the undesirability of putting a
high price on farm products but we don't
anywhere say that --

White:

That is true. I think it is probably better --

O'Connell:

Then why isn't it better not to mention
specifically the specific shortcoming and
have this paragraph endorse the objectives of
the bill?

Bell:

That was in the last draft.

White:

That was in one of the earlier drafts and

there was an objection here that he doesn't
approve of the bill, even though he does have

the objective. I think it is better. I

approve of the general objectives of the bill.
H.M.Jr:

And not mention the hundred and ten percent?

'Connell:

Well, we don't mention it anywhere later and

if we don't mention it later we certainly

shouldn't point out here one serious shortcoming.
H.M.Jr:

Is your advice we should or shouldn't mention it?

224
- 18 -

O'Connell:

I say we should not mention it here. Inferentially all through the bill you condemn it.

H.M.Jr:

You think we should spell it out?

O'Connell:

No, leave out the sentence about the serious
shortcoming and only endorse the objectives of

the legislation. The rest of the statement is

consistent with that.
Kuhn:

I don't agree, Joe, because if you don't

mention that you are for this bill in general

but it has one serious objection, then you are

going to leave everybody confused as to whether

you are for it or against it, because so much
of the statement consists in opposition to
farm --

H.M.Jr:

I agree with Kuhn and I think that the courageous

thing is to say this and later come out flatfooted against the hundred and ten percent.

H.M.Jr:

You practically do that later on.
I would like to do it to the committee, no "if"

Bell:

I thought that was what you wanted and it was

H.M.Jr:

I do. Gentlemen, if you don't mind, I have
thought enough about it now. I know what I
want to do. I would like to leave this thing
in and I would like to flatfootedly some

Kuhn:

and "and".

in the draft.

place come out against a hundred and ten
percent.
'Connell:

You see, my point was that it doesn't make
sense to say there is one serious shortcoming
and not refer to the shortcoming.

H.M.Jr:

Joe, you are right, but it brings us to the

225
- 19 -

point that I either shouldn't refer to it at
all or I should refer to it here and then spell

out the hundred and ten. I don't want to be
mealy mouthed about this thing. It doesn't
hurt any more to get hung for - what is it a lamb as a sheep?

White:

You are not mealy mouthed about it. May I

just quote the first sentence later on?

"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 to provide for effective control of farm

prices."
H.M.Jr:

What is the defect?

White:

Well, we don't specify the hundred and ten

percent, but we talk about it - you would

H.M.Jr:

like to specify it?
I would specify it.

White:

But you weren't mealy mouthed in any case there.

H.M.Jr:

I would specify it. Because then they will
say, "What is the defect?" It is the hundred

and ten percent. O.K.?
White:

H.M.Jr:

Yes.
"

We must attack the problem on three differ-

ent fronts if we are to succeed in controlling
inflation; non-defense expenditure must be
curtailed, production must be expanded, and

prices must be subject to control. 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

226
- 20 -

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 __"
Here is the point. We say it here. I am
saying "all of us". There is no sense in doing

what Gaston does later on, saying to the
farmer, "You don't even know what is going on."

"...It was not until April, 1917 that the first

"

real alarm was sounded against inflation. It

was only when prices had risen by 70 per cent

that President Wilson recommended any steps to

prevent inflation. In fact, there was such

blindness to the dangers of inflation that as
late as June, 1917 Congress actually facilitated
inflation by reducing the reserve requirements
for member banks of the Federal Reserve System.

"By 1920, prices skyrocketed to double __"
Kuhn:

"Had skyrocketed".

H.M.Jr:

Yes, "...had skyrocketed to double the level
of 1915."

I don't like that "double the level".
Kuhn:

"To a height twice as great as in 19 __"

H.M.Jr:

"Had skyrocketed to twice the level."

White:

"Twice the 1915 level", if that makes it easier.

H.M.Jr:

"Prices had skyrocketed - had skyrocketed a
hundred percent"?

White:

Yes. "By 1920 prices had skyrocketed a hundred

227
- 21 -

percent."
Viner:
H.M.Jr:

No, no. We will -Well, put it the other way around. Say, "from
1915 to 1920 prices doubled." Well, fix it up
for me, gentlemen. I will put it back to

"double". I won't try to fuss with it now for
this purpose. Can you give it to me a little
bit simpler and more straightforward?

If "...The pattern of price rises in the past two

years is frighteningly similar 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 greater rise in the price of basic
commodities.

"Since the beginning of the present war, the
wholesale prices have risen about 18 percent --"
Now, since the beginning of the present war,
is that August, 1939?
Haas:

Yes.

H.M.Jr:

Is that what you are going to do, George? I

am accustomed to working with that August.
Haas:

Yes.

228
- 22 -

"

H.M.Jr:

True to the usual pattern, the cost of
living was slow to rise. During the past year,
however, it has increased 4 percent -- but
the important thing to note is that nearly
all of this rise has taken place since March."

Kuhn:

"True
to the
usual
pattern, the cost of living
has
been
slow
to rise."

H.M.Jr:

"True to the usual pattern the cost of living
has been slow to rise. During the past year,
however it has increased 4 percent -- but
the important thing to note is that nearly all
of this rise has taken place since March, -

of this year.

Bell:

Yes.

Haas:

I was going to suggest, in going over this,
Mr. Secretary, instead of saying "the past
year" say "since the beginning of the war"
and instead of using four, then, you can
use nearly six percent. It makes a bigger

figure. But that is a minor thing. Do you

mind if we make changes like that?
H.M.Jr:

No, I don't mind. I just want to get the

thing reading it once together and then this
crowd - I mean, as long as there is nothing

basic, you know what I mean. You people have
worked with me long enough now. I am more

than willing to leave it in your hands as long

as I get the thing in time. I mean, I don't

mind words within a sentence, but if you are
going to leave out a thought, please see me;

but If it is just structural, It is all right.

During the past 12 months" - and again,
anybody please stop me any place that something
doesn't sound right - "During the past 12
months the average price of 28 basic commodities

229
- 23 -

has increased 37 percent __"

Now, George, is there a chart on this?
Haas:

Yes, sir.

despite the fact that the prices __"

"

H.M.Jr:

now, where we have charts - "during the
past 12 months the average price of 28
basic commodities has increased 37 percent" -

you don't want to put in --

Haas:

That is fifty-two from the beginning of the

war.
H.M.Jr:

... little bracket and "see chart"?

Kuhn:

We have it at the end of this paragraph.

H.M.Jr:

Oh, you have it. I see it here.

Haas:

There is a chart previous to that that should

White:

be --

No, we had a lot of difficulty with fitting
that chart in. We had to save that for later
when we point to the fact that prices were
going the same way they did later.

H.M.Jr:

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

percent, despite the fact that the prices of
a number of basic raw materials have been

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

White:

We didn't know and we were going to ask you

this question. If you say 'see chart one" that
breaks - they all begin looking. If you begin
reading, it is disturbing. Would you prefer

230
- 24 -

either to when you get through say, "I have
some charts which we will distribute which
give these points" or would you prefer to

stop at that point and let them look at it?

H.M.Jr:

Well, here is the thing. This is one way of
doing it. "See chart one". I then would turn
the page and have chart one and then the
next sentence would come on the following
page, do you see what I mean?

Klotz:

But you break the trend, you see.

White:

But they would all begin looking at the
chart and while you are talking they would
not hear you. Do you plan on having a big
chart there?

H.M.Jr:

Yes.

White:

Then, if you have a big chart, you don't need
this "see chart one" and you can ad lib for a
moment and say, "here is a chart that points
that out, and you have a copy of it, gentlemen,
on the next page." Give them a chance to
look at it and say, "Now, may I return to my
discussion."

H.M.Jr:

"

The only trouble on that is that they may begin

to ask me a lot of questions. I will never

get through my statement.
Klotz:

Then you would lose the points.

H.M.Jr:

I'll tell you what we will do. You could
simply put "see chart one" in an appendix

and have all the charts at the back.
White:

Or a chart depicting this in the appendix.

H.M.Jr:

Yes, see appendix.

231

- 25 -

White:

Or better still, "I have some charts which I

will show you after the statement for these
charts, these large charts." Then when you

show these large charts you can say, "Gentlemen,
you have got some copies in the appendix."

H.M.Jr:

I think that is right. I think I would have
it in the appendix. Otherwise, we may get on
this thing and we might get as far as chart
one and I might be there for two hours.

White:

Couldn't you stop at any point along here and
say, "Gentlemen, I have some charts that I
will show you after the statement," and then

they won't - they will wait until then.

Klotz:

Why not distribute them after?

H.M.Jr:

I think Mrs. Klotz has an idea.

White:

Yes, that is right.

H.M.Jr:

Have them all together --

Klotz:

Because they are going to turn to them.

White:

Then you won't have to indicate here when and
you can --

Klotz:

That is right.

White:

Then they can be looking at them while you are

sitting down and it will give you a rest.

H.M.Jr:

For my own reading copy, though, have - not

here but when I make this thing, have it right
in the margin. If you want to you can do it

in ink afterward. Chart one, so I will just

know, so when I leaf through for my reading

copy, if it is in ink, you see--

White:

"Illustrated in chart one".

232
- 26 -

H.M.Jr:

Just the word "chart one". Where I begin

talking about thirty-seven percent, just for
me, right here in ink, have "chart one" on
the margin.

White:

That will also give George a little more time
in case he absolutely has to have it.

H.M.Jr:

That is all right.

White:

Because the charts won't have to be there

until you distribute them.

Haas:

They don't have to be stapled with the stapler.
You are a help, Harry.

Bell:

Think it would be right if he said, on the
twenty-eight basic commodities, this particular
chart was submitted by Henderson?

H.M.Jr:

Well, Dan, what we agreed was that even though
some of these were, it doesn't do any harm to
do them over again.

Bell:

I see. I thought your first decision was that

you wouldn't do that.
H.M.Jr:

On second thought, a lot of these things aren't

new and I am making these points and the thought

was, well, even if he has used them, we will
use them over again.

White:

We can do this, Mr. Secretary. In the copies
that we send out, we can remimeograph these

pages and say, 'see chart one, see chart two",
and so on. And append them -- see chart one
in appendix.
H.M.Jr:

Well, what they could do is, for instance, Chick
Schwarz' man in half an hour can go through each

thing in ink that they give the newspaper men,
see chart one, so they will know where the chart

233
- 27 -

fits in.
White:

Haas:

Then they will begin asking, "Where is chart
one", the press men.

Here is another thing. You can write on the
chart, the page, you see, on the chart, at
the top, page eight, page ten, and so on, so a
newspaper man will know that that chart goes
there.

H.M.Jr:

It has to be fixed up so they will know where
it goes.

Bell:

Let me suggest that you attach the charts to
your mimeograph and release them to the

press and the statements that you give to the

members of the committee you don't have any

charts attached until after the Secretary
finishes his statement.

H.M.Jr:

That is better yet.

Bell:

The press ought to have them, since it is a
matter of record.

H.M.Jr:

And I hope they will print some of them in the
newspapers. They ought to know where it fits

in. Well, Ferdie, that is definitely newspaper

work. I will leave it to you to see that

the newspaper men get their charts so they will
know which chart goes in which spot.
Klotz:

I have another suggestion. You can have two
sets. Have one complete set marked for the

press. After all, there aren't so many. And
then after the thing is over just replace
it and give it to them with the marking of

where the charts are so there will be nobody
fussing while you are reading, because that will
be very disconcerting.

234
- 28 -

Kuhn:

I wouldn't send them the charts while you
are reading the statement.

H.M.Jr:

All right.

Kuhn:

I would even avoid putting it in the margin.

H.M.Jr:

All right, have it for me in the margin, please.

Kuhn:

Yes, sir.

H.M.Jr:

"...It is the rise in the prices of basic

commodities that constitutes our most obvious

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.

Moreover, the forces now in existence making

for further price rise are both potent and

persistent:

(1) Our defense expenditures -- the
primary inflationary force -- are increasing
rapidly."
Instead of saying, "defense expenditures" I

would like to say "our defense program". It
isn't only the expenditures.
White:

It is all right.

H.M.Jr:

What? What else? Or don't you agree?

Haas:

It is expenditures which are really putting
the pressure on.

H.M.Jr:

All right, I will leave it that way.
" ...The Bureau of Budget estimates that defense

spending during the fiscal year 1942 will be

235
- 29 -

fifteen 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."

O'Connell: Mr. Secretary, for your information, Henderson
testified the other day that he estimated they
might spend as much as twenty billion during
this current fiscal year, although he admitted
that was substantially in excess of the budget

estimates. I thought it was partially a hope
but they might ask you.

H.M.Jr:

My answer is that I have got to stick by the
budget figures, which are twenty-two billion.

Bell:

I would change this language to say "more than

fifteen billion" because the estimate is
fifteen, five and then if it goes seventeen,

you are still right.

H.M.Jr:

Would you say "more than"?

Bell:

"More than fifteen billion".

H.M.Jr:

All right.

White:

Would you also say "more than two and a half
times as large"?

Bell:

Yes.

H.M.Jr:

All right.
"...Also important as an inflationary force is

the fact that the Government is borrowing
from banks and from the idbe balances --

Also important as an inflationary force?
White:

As a force making for higher prices?

236
- 30 -

You are listing here all the influences
making for inflation.

Kuhn:

11

H.M.Jr:

"...The Government is borrowing from banks
the idle balance -- If

Why is that inflationary?
White:

Well, because that is what is inflationary.
If it is idle balances that you are borrowing,
you are putting them to work. It is just
as though you were adding money to the income

stream. You are making idle money active,
which is the same as adding to the money in
existence.

Kuhn:

It is not the same as borrowing from current
earnings.

White:

That would be spent anyhow, presumably.

H.M.Jr:

What is the matter, Jake?

Viner:

I think you have got something there.

H.M.Jr:

Who has?

Viner:

You have. One covers two, you know.

H.M.Jr:

I think it is a silly thing to say.

White:

Depends on where you get the money you spend.

Viner:

There is overlapping between one and two. One

If you get it from money that would otherwise
be spent --

or the other is the correct one or the two
combined. There aren't two separate sums. It
isn't the fifteen billion and the borrowing of
ten billion in addition. These are not additive,
put it this way.

237
- 31 -

White:

That is right.

H.M.Jr:

Again --

White:

We could argue about it but I still think

despite what he says that you should mention them
both.

H.M.Jr:

Let me say this, Jake. Would you listen a
minute, if you don't mind? The thing that
strikes me wrong is, "All right, Mr. Morgenthau,
well, why do you borrow from the banks?" Then

I get in the whole business. "Why don't you
borrow from the savings and this thing and

that thing?" I think it is just making
trouble for myself. I think you are spelling
it out too much.

White:

Well, cut it out. They will never miss it.

Kuhn:

You can go right on into the estimated deficit.

H.M.Jr:

When I think you say paragraph one you have
said enough. You say our defense expenditures

are the primary inflationary force. Now,

why spell the whole thing out?
White:

Technically it is not accurate, but it is

all right. Then why do you go out for a program
of increased taxes? That doesn't make you
spend any less.

Viner:

I think that first on your defense expendi tures the primary inflation force in so far as they
are not made from current tax revenues.

Haas:

Then later on --

Viner:

Then you can go on.

Haas:

The Secretary tells later on how he is handling

238

- 32 -

his financing.
H.M.Jr:

I would start - I couldn't hear Jake - the
estimated net deficit. I would start there
and leave the rest out.

White:

The reason we included that is that people
deficit unless you made clear to them that that

won't understand why you mentioned the net

net deficit is the borrowing and that this

paves the way for the explanation as to why
you are trying to issue savings stamps and
borrow from people out of their current
income, because that kind of borrowing is

not inflationary. The kind of borrowing
that is inflationary is the kind of borrowing
which results in your taking away - sums
that would have been idle because if they
would have been idle they might as well never
have existed.

Bell:

Jake's suggestion cures that, doesn't it,
Harry, to the extent that you are not taking
these funds in taxes, the expenditures are

inflationary.

Viner:

Take them in taxes or otherwise out of

White:

Then that takes the place of the whole second

current income.

part, but I do think that there are millions of
people who just don't understand that.

H.M.Jr:

Well, I am more than willing to leave it in the
hands of you people, if you are willing to fight

it out.

White:

Let's see what agreement we come to.

H.M.Jr:

I am not going to change it, but I am leaving

239
- 33 -

it this way. The only point I am making is
this. You start off on the borrowing program

and the first thing you say we are borrowing
from the banks and they will say, "Why do you
borrow from the banks?

White:

Well, you can't borrow short term money from --

H.M.Jr:

If you insist on saying - I first talk about

the things that we are doing which are not how we are getting our money in a non-inflationary
manner, and then say the money - we can only
get so much and what we can't get we have to

go to the banks for.

White:

That is right.

H.M.Jr:

Harry, --

White:

You can do that, yes, say these sources do not

supply at this time all that we need and
therefore we have to turn to banks for short
term funds.

H.M.Jr:

Well, if I could even spell it out a little

more. In order to raise this money the Government's borrowing program is the following.
First, we get everything that we can through
Defense Savings Bonds and Stamps. Second, we

Viner:
H.M.Jr:

get all we can through the tax and so forth
and so on. Now, the public is responding
wonderfully. What we can't get, we have got
to go to the banks for.
I would leave that out and you can say, we
come to it later on.

Anyway, I am not satisfied with it the way it is,

but I will be satisfied with whatever you
people write. Could anything be fairer?

240
- 34 -

White:

Yes. We will see what we can do with it in

H.M.Jr:

And if you would remember, anything that you

White:

Yes, that is true. It is too long but it is --

H.M.Jr:

So if you lift a whole paragraph out --

the line of what you said and whatever we
agree on --

can leave out is gain because I think the
statement is too long.

With the increasing flow of spendable

"

funds the upward pressure on prices becomes

greater more and more plants attain their

maximum output, I don't get it.

"With the increased load of spendable funds
the increased pressure on prices becomes
Kuhn:

"Greater".

H.M.Jr:

I see. Greater.
....more and more plants attain their maximum
output, and more and more shortages in raw

materials for civilian use appear." Do you
mind - just put a question mark there. It

isn't very clear to me. I think again it is

kind of an involved sentence.
White:

The thought is simple.

H.M.Jr:

The thought is simple but I don't think it is

expressed simply but I am not going to take the

time to correct it. Will you put a mark after
it?
"

Prices of imports are also rising daily due

to diminishing shipping space, higher shipping
costs, and di sappearance of normal foreign
sources of supply.

241

- 35 -

"(5) Finally, and of fundamental importance
as an inflationary force we have growing
profits, increasing agricultural income, and
fatter pay envelopes and many more of them.

"Let us see where these forces will take us if
permitted to operate unchecked, as they were
unchecked in the World War. All we have to do
to see what may be ahead of us is to look

into the purse of the average family of those
times

"Look into the purse"? "Examine the budget."
Kuhn:

Isn't it more direct and vivid if you look

into the purse and see what they had to spend,

not in terms of percentages but in terms of
the prices of foods, clothing, and shelter?
H.M.Jr:

I don't like to look into a purse. It looks

White:

"Examine the budget".

H.M.Jr:

Doesn't the woman talk in terms of her household

like snooping.

budget?
Klotz:

Certainly not about a purse.

White:

"Let us examine the budget of the average
family." Of course we don't, we only examine
the food costs.

Bell:

You could say household expenses.

White:

Yes, we do, we examine the budget.

H.M.Jr:

All right?

White:

Yes.

Kuhn:

Would you change that one sentence the other way

242
- 36 -

H.M.Jr:

around, "To see what we have ahead of us, all
we have to do is to examine the budget."
What did I say?

Kuhn:

We are finished with that.
"

H.M.Jr:

The money the housewife paid for one loaf
of bread in 1914 bought only --" Could you say
"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 enough to buy only one-third

of a yard in 1920."

White:

You can read it better if we put the word "only"
sooner? It wouldn't be grammatical.

H.M.Jr:

Keep it grammatical. It is grammatical and

White:

Now that is where, if you have some kind of a

dramatical. I think that is convincing.

picture chart, it might be the place for it,

I don't know.
Haas:

The chart is not on this. It shows the items
of the budget, shelter, food and clothing and
so on.

White:

Then that comes later.

H.M.Jr:

11 '...The family with no increase in income found

Haas:

its purchasing power cut in half."
That is in the chart.

H.M.Jr:

You don't want to go back to the old wartime

term of the white collar family?

243
- 37 -

White:

Well, why limit it?

H.M.Jr:

All right.

"...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 --

"

Do you mind saying, "these very same goods and

services", Ferdie?

Kuhn:

"These" implies the ones you are talking about.

H.M.Jr:

All right.
"

these goods and services had risen to $2.03.

The pattern of rising prices for food, fuel,
shelter in the past five months is startlingly
similar to that of 1915 and 1916. If these

prices continue to rise as they did from 1916 to
1920, we shall find that food, fuel, shelter
and clothing that now cost $1.00 will once more
cost $2.00.

Over two dollars? Two dollars is so flat.
White:

Over two dollars. It is sort of a digression
but I think it might be made at this point.
In the questioning - it is true that a dollar
bought less, but isn't it true, Mr. Secretary,

that a great many had much higher incomes, wages

were higher, and so forth. I suppose the

appropriate answer to that was that in many
cases they did get higher wages but rarely
did they get as much and in any case, that is

the very thing we want to prevent. These rising

prices force higher wages and higher wages force
higher prices and so on.
H.M.Jr:

Joe, now this stuff is new, isn't it, what I am

giving here?

244
- 38 -

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

This hasn't been given to the public by anybody?

O'Connell:

No. I have read the hearings very carefully.

H.M.Jr:

This is the stuff that I called up for Sunday
night
it. and I was groping for. I personally like
"...The rise in prices is by no means confined
to foodstuffs and clothing. I have before me,
for instance, the actual figures on the cost

of constructing a standard six-room frame house

in one of our typical cities."

Why not say in the St. Louis area?
White:

I think it is stronger. St. Louis implies
special conditions.

.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
"

H.M.Jr:

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

White:

I don't know whether you can say, "I have
before me" because have you got it before you?

We had it enumerated in the first draft.
Viner:

There is a chart.

H.M.Jr:

Yes, we have a chart.

"...Not only is the cost of building homes
rising but even for the millions who do not
"

own their homes higher rentals are on the way.
We find already in scores of areas where

industrial expansion has first taken hold,
rents rising 10, 20, 30 and even 100 percent."

Have you got the facts to back that up?

245
- 39 -

White:

Well, I asked Miss Elliott's woman whether it

H.M.Jr:

The name is Miss Ware.

is true that --

White:

and she said yes. I am sorry - Miss Ware she said yes. I asked her twice. Now, I can
ask her --

H.M.Jr:

Well, George, as long as you are doing charts,
check that hundred percent.

White:

You could say "in some cases".

H.M.Jr:

Well, George, are you going to take the

Haas:

Well, as a matter of fact, I am checking everything in the thing.

H.M.Jr:
Haas:

All right.
I don't think it will do any harm.

White:

If you do not find that, Miss Ware says she has

H.M.Jr:

responsibility for all the statistics?

some instances.
"

There is, however, one great difference

between conditions today and 1916. We now know

what is going on."
White:

Going back to that, it would be stronger to say
rents are rising ten, twenty, thirty and more --

Viner:

And even higher.

Kuhn:

Ten, twenty, thirty percent and even higher.

Bell:

I wonder if you want to say, "We now know what

is going on"? Does that indicate our statistics

are better than in the World War?

246
- 40 -

Kuhn:

No, it is our awareness.

White:

We have the experience of not only that war but

H.M.Jr:

Could you say now to emphasize it, "We now

thirty years of --

know what is going on. Our eyes are open." Do
you think it helps?

White:

"Our eyes are open to the price situation."

Kuhn:

Or, "Our eyes are open to the dangers that

lie ahead of us", which is the next sentence.

H.M.Jr:

Something like that.

Viner:

That is really the great difference, if it is
true. Our eyes are open to the dangers that
lie ahead of us.

White:

Well, that is what we say. It may be more
graphic to say "our eyes are open" instead of
we are aware of". Do you prefer that?

H.M.Jr:

I do.

White:

"Our eyes are open to the danger." "This time
our eyes are open", you will have to say. "This
time our eyes are open".

H.M.Jr:

Do we have to say that?

White:

We can't say, "Our eyes are now open".

Kuhn:

I think "this time" is good, Harry.

H.M.Jr:

"This time our eyes are open to the dangers that
lie ahead of us. We now know or ought to know
that the time __"

White:

I don't like that, "we now know or ought to know."

H.M.Jr:

No.

247
- 41 -

White:

It is a little bit the teacher talking to the

student.
the time""We
-- now fully realize or appreciate that

H.M.Jr:

Wait a minute, Dan had something. Simply say,
"Now is the time to do something about inflation."

That makes it positive. "Now is the time to
do something about inflation, not after it is
here.'

White:

I am afraid that conflicts with a later sentence.
Let us fix that up.

H.M.Jr:

Granted.
"

'...Our 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 hotter 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.

Now, by withdrawing some, that is too mild.
Haas:

Leave "some" out.

White:

I lost some hair last night in keeping that in.

White:

Do you still feel that way?
Jake didn't like that paragraph.

Haas:

When you leave the "some" out, it doesn't mean

White:

No, I mean he didn't like the paragraph. He

H.M.Jr:

you are taking it all off.

248
- 42 -

said he was going to suggest taking it out.

Maybe he has lost his nerve.
Viner:

I don't mind it seriously until we come to the

end but I don't know what increasing the supplies
of goods available to the consumer has to do

with a boiler.
White:

We have been over this so many times I would

suggest we pass it, Mr. Secretary. (Laughter).

He is covering the same ground we went over

and we have agreed it is all right, haven't

we?

H.M.Jr:

Can I, as the person that has got to give it,

White:

We cut out "some".

H.M.Jr:

leave out "withdrawing some purchasing power"?
"Some" is too moderate.

"We must damp down the fires by withdrawing
purchasing power"?

White:

Yes.

Kuhn:

That is all right.

H.M.Jr:

Oh, the argument wasn't about "some", it was
about the whole thing?

White:

About the whole paragraph.
"

H.M.Jr:

and we must also strenghten the boiler by
increasing the supplies of goods available to
the consumer."

I will tell you, instead of that, "we must also
strengthen the boiler" - how about "we must

also build additional boilers"?

O'Connell: "Enlarge the boiler" is what you mean.

249
- 43 -

H.M.Jr:

That is the answer.

White:

Well, we had that. We can't enlarge a boiler
while the hot fire is under it, but it is all
right.

O'Connell:

Well, you can try it.

White:

If you like it better.

H.M.Jr:

Well, I said build another boiler.

White:

And another fire?

O'Connell:

You couldn't get a priority for the steel.

White:

We are just covering, Mr. Secretary, almost not almost - every suggestion that was made
here we wrestled with.

H.M.Jr:

Well, I don't like the words "strengthen the
boiler".

Viner:

You can't enlarge a boiler.

White:

Enlarge the boiler, I think, is the least enlarge the boiler - it is all right. No metaphor

can be pushed very far. If you examine any
metaphor you will find that it has its weaknesses,
but It is graphic in its presentation, and most
people who will listen to it won't subject it
to an economic analyzation of the quality that
Viner is able to apply.

H.M.Jr:

He is trying to flatter you into silence. (Laughter).

Viner:

I say still it is spinach.

White:

Well, you don't have to eat it any more.
All right. "...Let us examine the record to see

H.M.Jr:

250
- 44 -

what is being done and what needs to be done in

order to stop prices from rising."

Kuhn:

"From rising further"?

H.M.Jr:

Yes, please. "From rising further".
Congress now has before it a huge tax bill

"

designed to raise from 3 - 3g billion in

additional revenue." 11 Would you say three and a

half? I would say three and a half.

Viner:

That is what it is designed to do, isn't it?

H.M.Jr:

Yes.

,designed to raise --"

Haas:

At least.

H.M.Jr:

Well, I think they said that before, what?

O'Connell:

Oh, just "designed to raise three and a half

Would you say, "designed to raise at least"?

billion."

additional revenue. This increase in taxes
will withdraw from the public purchasing power
that competes with the defense effort. But we need
to raise still more taxes as our defense effort
"

H.M.Jr:

grows."
Viner:

"We will need".

O'Connell:

I don't understand that sentence or its relevancy
to the part before. Do you mean we need to
raise more taxes in order to take away purchasing
power or do you mean we need to raise more taxes

to pay for the program?

White:

Both.

O'Connell:

But the first part of it refers to taking away

251
- 45 -

purchasing power.
White:

In
its present context it refers to taking
away purchasing power.

Viner:

No, you will have to take away still more

purchasing power as the government needs more

of it itself.

White:

"As our defense effort puts more pressure on

prices." How is that?

Viner:

I think it is all right as it is.
As it is. It is all right.

H.M.Jr:

Well, again you can argue about it.

White:

This next paragraph is new.

H.M.Jr:

"I want to emphasize, however, --"

White:

That was the point Miss Ware raised.

H.M.Jr:

" "...I want to emphasize, however, that we are
not seeking to cut down the purchases of families
whose incomes can barely meet their needs. The
health and vigor of our people must not be
undermined. Measures to cut consumption, whether
by taxation or borrowing, should be aimed at
families with something to spend above their

Haas:

basic needs."

"Well, then, Mr. Secretary, why are you in favor
of lowering the base?"

Kuhn:

Mr. Secretary, I suggest that that could be cut.
I think as it stands it weakens your argument

and it is repetitious. "I want to emphasize,

however, that measures to cut consumption,
whether by taxation or borrowing, should be
aimed at families with something to spend above

252
- 46 -

their basic needs."
Viner:

"Should be aimed only .."

Kuhn:

"Should be aimed only

White:

Would you say then that a family of seven hundred

Kuhn:

That is the assumption under --

Viner:

A family with seven hundred fifty dollars isn't

White:

Well, eight hundred. I think you can say that

Viner:

Not taxed.

White:

fifty dollars a year has spare money in addition
to its basic needs? That is the question the
Secretary is asking.

taxed.

he has --

... little to spare. He certainly spends on

things that he could sacrifice without under-

mining his health. In fact, if he spent less
on some things his health would be better.

Kuhn:

I would express it in that way.

H.M.Jr:

I am not impressed with the whole thing. I think
you are just raising an issue that will draw a
lot of questions.
You raise it later on when you say millions of
our people still lack the milk and butter and

Kuhn:

eggs that they need for good health.

White:

Would you want to stop at -- leave the last
sentence out? "The health and vigor of our
people must not be undermined". Would that be
as bad?

H.M.Jr:

Just leave that one sentence out?

253
- 47 -

White:

Just leave it, "I want to emphasize, however,

that we are not seeking to cut down the purchases
of a family whose income can barely meet their
needs. The health and vigor of our people must
not be undermined."
H.M.Jr:

If I was going to say it, I would say it this

way. It goes without saying that we are not
seeking to cut down. I mean, take it perfectly
for granted.

O'Connell:

I think that is good and I think it would be

better to leave the paragraph out because it

H.M.Jr:

really -I think it just raises a question.

O'Connell:

I think the paragraph is better left out.

H.M.Jr:

I do too.

Haas:

It weakens it.

White:

Nobody will ever miss it.

H.M.Jr:

Let's leave it out.

Viner:

Except Miss Ware. (Laughter).

White:

Well, I will explain to her.
That your heart is in the right place.

Haas:

H.M.Jr:
White:

Harry will explain to Miss Elliott's woman.
Wasn't that a terrible expression? (Laughter).
I was thinking, you see, of - you usually speak
of Eccles' man and so forth. I apologize to

her and to Mrs. Klotz and the assembled gathering.

Viner:

Don't carry it any further, Harry.

254
- 48 -

H.M.Jr:

Now, boys.

White:

I should apologize to Miss Elliott, I suppose,

H.M.Jr:

Now in a minute, Harry, you will think of
something dirty. (Laughter).

White:

Well, the paragraph is out.

Klotz:

He is really blushing.

H.M.Jr:

Who?

Klotz:

Harry.

H.M.Jr:

That is something. Then you leave out the
"secondly", don't you?

Kuhn:

but she may not be that sophisticated.

The "secondly" is in.
Secondly, the Treasury in its
All right.
"

H.M.Jr:

borrowing program is attempting to obtain as

large a portion of its funds as possible from
current consumer income, and through a new form
of note -If

Kuhn:

H.M.Jr:

I would stop the sentence there, Mr. Secretary.
Put a period after "income" and start the new
sentence with "through".

You will have to say it to me again. The point
that I am making, where I was arguing about
where they say how we are borrowing from the

banks and so forth and so on, and I said that bring in the whole borrowing program at one

time. I think that is the place to do it, isn't
it?

White:

This may be a substitute for the other. It
may be. Let's consider that. It may be.

255
- 49 -

H.M.Jr:

Do you get the point that I am making?

White:

It may be that this is enough and we can leave

Viner:

It is all right now with the other one taken

H.M.Jr:

You start off by saying, "Here I am borrowing
from the banks and it is due to my methods of
borrowing from the banks that you have all this
inflation. "We have always said Morgenthau was

it out of there. We will discuss it.
out.

responsible. If you would only let Eccles

increase Reserve requirements, everything would
be lovely.

Viner:
H.M.Jr:

It is all here that needs to be said.
'...Secondly, the Treasury in its borrowing
program is attempting to obtain as large a
portion of its funds as possible from current
consumer income, and through a new form of

note, the Bell Tax Anticipation Note -- is
endeavoring 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.

I sold this morning between half a million and
three quarters of a million to the Chicago
Daily News.
Bell:

Oh, really?

H.M.Jr:

He says he carries a balance of a half to three
quarters of a million and why shouldn't he do
this, and I said he should.

Bell:

For taxes? You mean he carries that balance for
taxes?

H.M.Jr:

His taxes run, he said, about three hundred forty

256
- 50 -

thousand dollars a year.
Viner:

That is the only part of that --

H.M.Jr:

It makes about a million and a quarter.

Bell:

You can buy two years worth at a time.

Viner:

Oh, you can?

H.M.Jr:

....But we need also to get a still larger

proportion of our borrowing from the wage-earner

If

and the farmer. "

How are you going to borrow from the farmer?
Kuhn:

Sell him Defense Bonds.

White:

But we are trying - but our program is designed

H.M.Jr:

to get - aw, leave it out.
I would leave that sentence out. I don't like
it. But we need to get still larger proportions
from the wage-earner and the farmer.

White:
Haas:

H.M.Jr:

That justifies your -Isn't it better to put the Savings Bond thing
before the Tax Anticipation note?

That I am not going to argue about here, but I
don't like that sentence. You can argue with
them, George. You love to argue.
"

"...To do this the Treasury initiated a program

of selling defense savings bonds and stamps to
people of moderate and low income."

You don't have to specify the farmer. Just
cut out that one sentence.

Klotz:

"Has initiated"?

257
- 51 -

Kuhn:

"The Treasury has also initiated a program of
selling Defense Savings Bonds and stamps.

H.M.Jr:

" "...The President has just issued __"

Bell:

Moderately low income? I suppose that is all

right. Fifty thousand dollars is not so

moderate.
Kuhn:

But you are not emphasizing - you. are not making

a drive at those people.

H.M.Jr:

I suppose that is all right.

White:

They come without driving.

The President has just issued an order giving

"

H.M.Jr:

the Board of Governors of the Federal Reserve
System authority to control consumer installment

credit, thus making it possible to supplement
the restrictions on spending of current income
by restraints on the spending of anticipated
income."

That is a novel way of putting it.
...The Office of Price Administration and
Civilian Supply is making every effort to
"

obtain the cooperation of producers and

distributors in limiting price rises.

"These are some of the steps which have already

been taken. But there are additional methods
to which we may find it necessary to resort in

our efforts effectively to prevent inflation,
such as: __"

Kuhn:

We should stop that after inflation, and say

H.M.Jr:

When I read "these are some of the steps" I wonder

"Some of these are."

258
- 52 -

if"inOPACS
is taking these steps. Why not say
addition"?
White:

Oh, these are some of the steps which have already -

these refer to the five or six. We might fix

that by numbering them, if you like.
H.M.Jr:

Something, please.

White:

I also think as we read this we don't say, as
we said in an earlier draft - there is nothing

here to indicate that OPACS needs any more
authority and we have got to say somewhere that
moral suasion and voluntary cooperation has

failed.

H.M.Jr:

It isn't enough. I don't see why you can't

White:

Leave the first sentence out.

H.M.Jr:

Yes.

Viner:

This is the OPACS bill, really, isn't it?

H.M.Jr:

Yes.

Viner:

Then you ought to say something. That paragraph
has to be strengthened so that you say they need
more powers to operate effectively.

White:

But experience has shown that voluntary cooperation and moral suasion --

Viner:

You can say this bill is necessary to give them

leave out this sentence, "these are some of the
steps which have already been taken." But there
are additional methods which we may find necessary.

the powers if they are to be at all effective.

H.M.Jr:

I would like to say it differently. I would

like to say in many cases it has been perfectly

259
- 53 -

amazing what wonderful cooperation the public
has given but unfortunately, there are some

situations where voluntary cooperation isn't
enough, and therefore this bill is necessary,
because I think, for instance - for example,
what the copper people have done, I think isI mean, they have got cooperation.

White:

There is no harm in saying that.

H.M.Jr:

I think I would say something like, "In many
instances it has been highly" --

Viner:

Henderson would say that.

White:

Henderson has said it several times.

Bell:

He said it before the Committee.

H.M.Jr:

What I would like to say. But in addition,

there are these many unusual or unique
situations where you have to have this special

kind of legislation. I mean, I think - I can't
think of all of them, but I can think of one,
copper.
O'Connell:

Steel, too.

Bell:

Steel scrap. Henderson said he had had complete
cooperation.

O'Connell:

Copper and some other non-ferrous metals.

H.M.Jr:

I wouldn't just leave the impression that
nobody is cooperating. Well, you get the idea.

White:

Yes.

H.M.Jr:

Do you agree?

O'Connell:

Sure. Less than a hundred percent cooperation

260
- 54 -

means he has got to have a bill.
White:

We can phrase that to carry out your thought.
But there are additional methods to which
"

H.M.Jr:

we may find it necessary to resort in our

efforts effectively to prevent inflation, such

as:

"(1) Extension of the general controls over

bank credit.

"(2) Creation of controls over capital

expenditures.
Haas:

That first one is excess reserves. That would
come under that.

White:

Where? Extension of Government control over

bank credit? No, that may be selected credit.

White:

Let's leave out the word "general". That would
include anything. Specialized and general.
Extension of controls over credit.

Bell:

It is consumer credit, or some of that.

White:

Some of it, yes. We can say --

H.M.Jr:

Well, you can fix it up. " .Creation of
controls over capital expenditures. I would
like to bring in that idea of selective controls

Haas:

so they don't think you are going to - I mean,
you will select the things.

White:

Controls over selected capital expenditures.

H.M.Jr:

That is all right.
Well, we will fix that up.

White:

261
- 55 -

H.M.Jr:

"...(3) An extension of the Social Security

program along lines which would increase the

flow of funds to the Treasury from current

income during the emergency and would increase

the outflow of funds when needed in the

post -- "
White:

Now, is this where this thing comes in?
Yes, that should come in there.

Viner:

Dismissal wage?

H.M.Jr:

Yes. Oh, I mentioned it to Frank Knox. He
said, "For God's sake, don't call it dismissal
wage.

White:

That is what it is called everywhere.

H.M.Jr:

Well, he says don't do it. Call it lay-off, he
suggested, or depression.

White:

Lay-off wage?

O'Connell:

That is worse.

H.M.Jr:

But as a newspaper publisher, I would take his
reaction.

White:

Under the assumption that workers aren't dismissed,

Viner:

It is separation wages.

White:

They might think you are talking of married
families.

Bell:

You can use a bonus.

Viner:

I don't know. That is a standard term, dismissal

they are just laid off.

wage.
Kuhn:

What is the matter with lay-off wage?

- 56 H.M.Jr:

He says don't give the people the idea they are
just going to be dismissed.

White:

You will notice I got that reaction and changed

H.M.Jr:

Well, fix that up, will you please?

White:

the word "dismissed" to "lay-off", but not in the
title.

That is a little more of a major decision. Do
you want to call it lay-off wages?

H.M.Jr:

I would take Frank Knox' word.

Haas:

You can call it lay-off bonus.

White:

262

We can call it something instead of describing
it. A wage to which the worker attains when he

is laid off.

Viner:

I would ask somebody at Social Security who has

been working on it to see if they can suggest
another term. They might have been playing with
other terms.

H.M.Jr:

As long as he is so emphatic - he is very good at
those things.

"I am cognizant of the fact that this bill contains
no provisions with reference to wages. With this
I am in full accord. I am fully aware that unjustifiable wage increases have the same inflationary

effect that the rises in the prices of other in-

creases in other costs of production have. However,
in my judgment, the best way to avoid widespread

wage increases is to keep the cost of living from

rising and to tax excess profits. The tax bill
tax excess profits. One purpose of this bill is to

which the Treasury has recommended is designed to

keep the cost of living from rising and in that way

to lessen the pressure for increases in wages.
Obviously should this and other measures be ineffective to keep any one of the major elements of

cost in line, additional steps will be called for.

At the present time, however, I see no necessity
for legislation directed at wages."

263

- 57 -

In first draft this is good, but I would like

one sentence in here, please. Simply say where

deflationary decline - "and that this would
again be the process of leveling the peaks and
the valleys.
White:

This would contribute to the process, because
we speak of the peaks and valleys later.

H.M.Jr:

Would you please put that in, leveling the
peaks and valleys?

Kuhn:

Isn't that the same as a big extension of
Social Security?

H.M.Jr:

It is.

Kuhn:

And this is only supplementary, not additional,
not a new proposal.

H.M.Jr:

That is right, and they haven't brought in

the thing here which we spoke of at breakfast,
Harry, of bringing new people into Social Security.

White:

I have that here. I have got the figures and
the data but I haven't had a chance to --

H.M.Jr:

Put it in, please. Household servants, farmers,
are all exempt.

Kuhn:

As it read there, though, it sounded as though
you were talking about two different schemes,
and you are not.

H.M.Jr:

Well, an extension of Social Security.

White:

It is a different scheme. It is part of a

Social Security program but we can tie them

up, I think, in the way in which you want.

Professional, self-employed, domestic, farm,
etc.

264
- 58 -

"

H.M.Jr:

(4) A reduction of the Federal lending

and underwriting program, such as non-emergency
housing expenditures and mortgage guarantees.

That is all right.

"(5) Reduction of non-essential Federal
expenditures, an appeal for economy in State
and local governmental expenditure and for

curtailment of their borrowing for non-

emergency expenditures, thus building a back-log

for the post-defense period.

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

Viner:

equate to meet the situation -That doesn't follow.

H.M.Jr:

No, that doesn't belong there. That is a mistake.

Kuhn:

You should say all of these measures would attack
the problem by attempting to reduce the demand

for goods. We should, however, also attack the
problem from the opposite direction.

Viner:

That will be fixed up.

H.M.Jr:

"...We should also attack the problem from the

opposite direction, by making every effort to
increase the supply of goods available to the
consumer wherever this can be done without

encroaching upon our defense program. I believe
that we have failed to push our production of
goods to the full capacity of our enormous

productive resources. Millions are still unemployed,

and there are also many millions who, though
not classified as unemployed, could be added to

the working force if jobs were easily available.

Because of our accumulations of agricultural
surpluses we are in a position to provide
increased quantities of almost __"
Kuhn:

"Of many agricultural goods".

265
- 59 -

White:

I think what we need there, before "because of
our accumulation of agricultural goods" we
ought to say, "not only can the supply of many

manufactured commodities be increased, but

because of our accumulation" and so forth.

H.M.Jr:

Well, you people can fix that up.
11 "...and thereby both prevent the cost of food

from rising and prevent the standard of living
from being impaired.

"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.

Now, you don't want to say here about the cold

storage figures that we ran off? This would be

the place to put it.
White:

How are you going to force a farmer to - who

has stuff in cold storage - to relinquish his
goods any more than you can force a man who

has a large inventory of textiles or any other
item to sell them? All you can do is say he
can't get more than this and the lower you put
the price ceiling - if he expects he will never
get lower - never get more, it is an inducement
for him not to withhold supplies.
H.M.Jr:

Then let me just give you this thought. Ferdie,
write this down. If you put in here something
along these lines, the Department of Agriculture
has just released the prices of lard, butter,
cheese and eggs. The prices in these particular
commodities have gone up "X" percent. I would

like to point out in passing that the reason
for these increases in - these price rises in
these particular commodities is not due to

266
- 60 -

shortages but is due to speculation. On the
part of the middleman let's call a spade a
spade.

Haas:

Well, the middleman, Mr. Secretary, wouldn't
speculate unless he anticipated a shortage.
Otherwise he would lose.

White:

No, he might anticipate higher prices.

Haas:

And what makes higher prices? The demand is

going to be higher.

Kuhn:

Mr. Secretary, I think that as you are dealing
later with the whole question of surpluses of
butter, sugar, wheat, and so on and doing it
in pretty hard hitting fashion, you are going
to weaken your whole statement by putting it
in here.

H.M.Jr:

All right.

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

"Now is the time to empty our bins, both for
present advantage, and so that if 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."

O'Connell:

I don't get that.
That is Leon's bill, the ceiling.

H.M.Jr:

It says the concept of the ever normal granary

Viner:

Yes, the ceiling is in the form of the release

is for a floor to be built under farm prices --

267
- 61 -

of these stored up stocks so as to prevent

the prices from rising. In other words, the
ever normal granary idea calls for a stabilized

price.
White:

Why not say a ceiling to prevent unduly rising
prices?

H.M.Jr:

What did you say, Harry?

White:

You night want to say instead of saying "to

be built over rising prices", "to prevent farm
prices from rising funduly." It is a weasel
phrase.

H.M.Jr:

Well, would you just put a question after that
sentence? I think it could be fixed up a

little bit. I am fighting time here terribly

and I am running down hill myself.

"...If we permit price peaks to develop, price
valleys are inevitable.
"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 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."

That is a strong statement.
Kuhn:

That is where you wanted to bring in the hundred
and ten percent.

H.M.Jr:

That would be the place. Name it.

Viner:

Well, just say - how would you refer to it, as

a hundred and ten percent parity?

268
- 62 -

H.M.Jr:

Quote the section and verse in the bill.

White:

Section such and such, which prohibits any action

taken controlling prices until parity prices
reach a hundred and ten and is a violation of
this principle.

Kuhn:

You could say, the defect is to be found in

O'Connell:

This last sentence, Harry, is not accurate.

H.M.Jr:

Gentlemen, may I have your attention a minute?

White:

Yes. And if you do that, don't you think you

H.M.Jr:

What?

White:

section so and so.

It is true, but the bill doesn't check it.

What I would like to say is simply this. Section
three-a, whatever the darn thing is, I think,
should be stricken out of the bill or something
like that.
can leave out that last sentence?

"And without a check upon farm prices, it is
useless to look for a check upon inflation."

Viner:

"For a complete check".

O'Connell:

You see, the bill hasn't checked farm prices.

H. M. Jr:

"Adequate" is all right.

Bell:

Inadequate.

White:

Well, you see there is - Joe is right. That
isn't strictly true. They don't say you shall
not control farm prices. All they say is that
you shan't begin to control them until they have
reached a hundred and ten percent.

0 Connell:

It is the level that is important.

269
- 63 -

White:

A hundred and ten percent, you can treat it as
any other.

Viner:

If you think that they can be granted a hundred
and ten percent parity and then others won't
begin citing the hundred and ten percent --

O'Connell:

That is not my point.

White:

But supposing somebody picks the Secretary up

and says, "Mr. Secretary, you said that without
a check upon farm prices it is useless to look
for a check upon inflation."
H.M.Jr:

I will answer it and say here, "The President
has got a gentleman's agreement with Congress

dated May thirty-first on eighty-five percent

and now you boost it to a hundred and ten and
how do I know that next week it won't be a
hundred and fifty?"
White:

That is a good answer.

H.M.Jr:

How do I know it won't be a hundred and fifty.
But I do think - without a check upon farm prices why not let's be personal? Without a check
upon farm prices, it just makes Mr. Henderson's
job that much more difficult.

White:

O'Connell:

It is perfectly all right.
That is all right.

Viner:

No, that is too weak.

H.M.Jr:

Well, fix it up again. But that is the idea,

White:

If we decide on something, it will be all right

isn't it?

with you?
H.M.Jr:

Yes.

270
- 64 -

White:

By majority vote?

H.M.Jr:

No, but by knockout and drag out vote. (Laughter).
The memory of our suffering" --

11

White:

That is what you said you didn't like. Would
you like to see what you had before and see
whether we can't get something in between?

H.M.Jr:

No, I will tell you. You don't have to do all
these things. We talk about the beginning,
about 1920, and I just think that this is too
much.

Kuhn:

Mr. Secretary, I think this can be improved a

lot just by simple cutting. The thing that

contributes that we didn't have last time is a

sympathetic note on your part toward the farmer
and his troubles which you want to put in.
H.M.Jr:

I would leave all reference out to the Federal

Farm Board and Farm Credit.

Klotz:

I would be relieved if you left that out.

White:

What you are doing is stating your record and
what pertinence does it have to show that you

are a friend of the farmer?

O'Connell:

And leave out pages eighteen and nineteen and
twenty.

Kuhn:

But keep Humpty Dumpty in.

White:

Humpty Dumpty is not so hot.

Bell:

You can also bring that in in the questioning.

H.M.Jr:

Yes.

White:

You are calling the farmer a Humpty Dumpty.

271
- 65 -

Haas:

Yes, or a descendant.

H.M.Jr:

All right. Let's take him out.

White:

How could you descend from a Humpty Dumpty that

Viner:

You could put it in the boiler. (Laughter).

H.M.Jr:

Well, I have got twenty-two minutes more.

White:

I think that will help a lot. We can salvage

had fallen off the wall and crashed?

maybe a paragraph.
H.M.Jr:

Well, let Ferdie do one.

Klotz:

Does it fit together that way?

H.M.Jr:

Yes. It works beautifully, from the bottom of

page seventeen to the bottom of page twenty-one.

It works beautifully. You wouldn't know anything

was taken out.

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."

I think that is adequate.
White:

H.M.Jr:

The way to handle troubles with things is to

kick them out. They will never miss it.

I think it is adequate.
...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

272
- 66 -

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."

I think that tariff thing, Jake, is awfully
good. I hope you like it.
Viner:

I am glad you are saying that, except that one
thing here where I think you --

H.M.Jr:

It is new, isn't it?

Viner:

If you carry it - you do carry it just a stage
further than I think is - that sentence, "we

should be making every attempt to bring in from
other countri es such supplies of such commodi-

ties as are short in this country." In other

words, you wouldn't want to bring in more wheat,
you see.
H.M.Jr:

Of which we have a shortage.

White:

If necessary to keep the price down to present
levels.

H.M.Jr:

Well, this covers it, "of which we have a shortage.

Kuhn:

Particularly those of which we have a shortage.

Viner:

No, not particularly those. If we have reserves--

273
- 67 -

H.M.Jr:

Well, we have done it in lumber, haven't we?
Aren't we bringing in lumber from the Canadian
Northwest?

Haas:

That is normal.

H.M.Jr:

I would say "of those of which we have shortages."

White:

Then we will change something later, because we
speak of what would the housewife do if she knew

there were four hundred million bushels in Can-

ada.

H.M.Jr:

Keep that in, even if it doesn't make four, Harry,
I want a reference to Canada. I told MacKenzie
King I was going to do that.

White:

I see.

H.M.Jr:

"I don't wish to be misunderstood." Attention

please. "I don't wish to be" -- That fellow

Viner is the most loquacious fellow I ever saw.

I would like to take a course with him. "I don't

wish to be misunderstood" -- (Laughter) Look at
his innocence.

Viner:

I guess I had a narrow escape. I didn't hear

what you said.
H.M.Jr:

"I don't wish to be misunderstood in my comments

on agricultural prices. I am glad that some
of the agricultural prices that had been too
low have attained a reasonable level. I am not
disturbed by the general level of agricultural

prices now prevailing, but what I am deeply
concerned about is the danger that agricultural

prices in general will continue to rise until

they are out of hand. As the Secretary of Agriculture stated only a few days ago: 'There are
some who think Agriculture should charge all

that the traffic will bear, to get while the

274
- 68 getting is good, with the hope that somehow

the aftermath can be avoided.' For his part
he warned his audience that 'to tie up stocks in

an effort to create an artificial scarcity and

unreasonable prices is not in the interests of
the farmer, the consumer or the general welfare.'

"At this time when agricultural prices are in the
main at or near a satisfactory level, when the
country is facing a major threat of inflation,
and when it is more important than ever that

there should be no undernourishment, we should

not increase still further our reserves of

agricultural commodities in the warehouses for

the purpose of raising prices."

That takes care of that thing that we cut out
of Miss Ware's.

"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."

Viner:

I would take out that "and could be imported

easily." There is no shortage in the world.
Haas:

And you notice that 20 comes to 2 per cent and

takes a lot of the kick out of that. It is

2 per cent up instead of 20.
White:

No, not on the figures we got from Daggett. We
will check on that, but we went over that three
times.

H.M.Jr:

May I please continue?
"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."

275
- 69 -

White:

And you wanted to add, "and in" --

Kuhn:

"And unusually large sugar stocks in this country."

H.M.Jr:

Well, put it in. We keep going over and over

it and it is not in.

"I wonder if she knows when she pays 25 per cent

more for butter" --

If you are going to say "in this country," why
don't you say, There are three hundred million
bushels of wheat in storage in this country"?
White:

That our supply of wheat is the largest on record.

H.M.Jr:

All right.
"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."
Bring that up to yesterday, George, yesterday's
figures, which were released. "We have in our
country large reserve stocks of farm products

of all kinds."

Viner:

"Many kinds."

H.M.Jr:

All right. "All of which" --

White:

If they asked you to enumerate them I think
you could have that clipping handy.

Haas:

Well, you have to look out for that.

H.M.Jr:

"The Government now hold's seven million bales

of cotton. Cotton prices have risen from 92
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.

276
- 70 -

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 herself or a shirt for her
husband or a suit for her child.'

I love that. Don't anybody take that out.
"Millions of our people still go without the

milk, butter and eggs which nutrition experts

have found necessary to good health and good

morale."
Viner:

It will make trouble with that passage if we

start sending more milk and butter and eggs to
England, as may be necessary.

H.M.Jr:

Well, they could increase the stuff. Are you
going to pay a tribute to the Secretary of
Agriculture and what he has done?

Kuhn:

It is in the two pages --

White:

I have asked them to write the paragraph them-

H.M.Jr:

Jake, if they will take this stuff and put it

selves.

into the chickens and feed it to the COWS and
hogs, we can increase production so we can

take care of this in any way - anything within

sight.
Viner:

Well then, tie up the surplus stocks with the milk,
butter and eggs, because the point is that there
are not huge stocks of milk, butter and eggs
in terms of the program of needs. There may be
huge stocks of corn. It may be that you could
produce these.

H.M.Jr:

will you argue that with the boys afterward,
please?

277
- 71 -

Viner:

Yes.

H.M.Jr:

"Millions of our people still go without milk,

butter and eggs" -- now why do you bring that
in?

White:

Merely to introduce --

H.M.Jr:

Why do you bring that in?

Kuhn:

The value of food and the need of increasing
production.

H.M.Jr:

I don't get that paragraph the way it is. It

White:

No transition there.

H.M.Jr:

It sticks out like a sore thumb.

White:

Well, if you want it in we will get a transition.

H.M.Jr:

I think it is bringing in another argument which
I don't think is necessary. We are not talking

stands out like S sore thumb.

If you don't want it in we won't need one.

about ill-housed, ill-fed -Kuhn:

Yes, the whole Fortune passage depends on that
and what the Department of A-riculture has done

to increase processing plants.

H.M.Jr:

Well, the way it is here it is - there is something wrong.

Kuhn:

There has to be a bridge there.

H.M.Jr:

All right.
"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" -- I don't see why you have got to

278
- 72 -

talk about this - "still go without milk and
butter".
Kuhn:

We are talking in the previous paragraph about

H.M.Jr:

Well, why can't you - -

Bell:

You are talking about surpluses all the way
through and then you jump to nutrition.

H.M.Jr:

I don't understand. You say, "in times like
this, the housewife ought to be" -- and so forth

the cotton surplus, which isn't food.

and so on. Then if you went on and said, "The
effect of good food on national defense has
been stated so well in the August issue of
Fortune magazine" -- I would leave that paragraph out.

White:

Fine. It is better out anyway. It is trouble some.

H.M.Jr:

Now, somebody has questioned this thing of Fortune
magazine's

White:

Jake thought - I don't know how he feels about it.

Viner:

I don't quite see that - you see, you have got
two things here. You may say that the release

of these surpluses will improve nutrition or you

may say a campaign of increased production will

improve nutrition but you don't have to cite
Fortune in order to tell people. Our Government
experts have been angling the nutrition angle.

White:

These two pages are out of place, Mr. Secretary.

If you will just go on reading you will see

whether you want to cut them out or not.
H.M.Jr:

No, I like that Fortune thing.

White:

If you don't want it there, it can go later

279
- 73 -

very appropriately if you think it is out of
place.

H.M.Jr:

I want it in somewhere.

White:

If you will just go on to page twenty-six.

Kuhn:

Twenty-six follows right along.

H.M.Jr:

"I think that our Department of Agriculture

has reason to be proud of the progress that

it has made in foreseeing the scarcity of

some of the agricultural commodities and in

taking effective steps to increase their

production. They are also undertaking a
program of encouraging powder milk and cheese
factories so that there shall be more of those
products available to the consumer.

"But still more effort should be made to put

more dairy products on the market. We are
withholding probably the largest reserves

and the largest production of milk, butter,
eggs and cheese in our history."

Well, this doesn't check up with the other,

this thing here. This is repetitious here.

White:

Yes.

Kuhn:

I would cut out the sentence about "we are

withholding". "But still more effort should

be made to put more dairy products on the
market. We could easily expand our production
of these products on the market for our own
use and yet leave ample amounts. I know from
my experience on my own farm __"

H.M.Jr:

I think that is all right. There is something

wrong there, gents, this part is awfully rough.

280
- 74 -

There is something wrong. I like the part

tremendously where - does the farm wife know

that with the increased price of a sack of
flour, there are large surpluses of wheat here,
four hundred fifty million bushels. I want
that in, you see; then I would like to say
something about the importance of nutrition,
and I don't know how to say it any better than
Fortune has said it.

White:

You are right. The organization isn't so

H.M.Jr:

I want to say, does the housewife know when
she is paying more on the one hand that there
is more wheat and there is sugar that can be
gotten, and so forth and so on. Then some

smooth.

place I want to say, in connection with increased

production, the question of nutrition is just
as important as guns.

Kuhn:

You have it in your passage about milk and honey.

"Let's make it flow to make a healthier and
happier people. Then if you wanted to quote

the Fortune passage you could do it immediately

after that.
H.M.Jr:

It is such a beautiful thing I would like to
bring it in. I have no reluctance to quoting
Fortune. It may not be the right spot there.
From here on it is kind of rough.

"...I know from experience on my own farm that
within two months we could substantially 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

more eggs. Yet the price of a standard poultry
ration has increased 60 per cent __"

281
- 75 -

I don't know whether that is accurate or not.
Well, I think in here when you get what he has
done, maybe his own program - Department of

Agriculture's program - they have instituted
the following program to increase production.
We still could go further and do these things.
White:

I should be inclined to delete this paragraph.

H.M.Jr:

It is all right with me.

White:

If we decide to delete it, will it be all right?
That is all right.

H.M.Jr:
White:

H.M.Jr:

Because in this reorganization it would help if
we could delete this.

It is all right.
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.
11

Let's make it flow. If we were to let it flow

to 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.
Kuhn:

The effect of good food on morale, and so forth,
has been stated in Fortune.

H.M.Jr:

Healthier and happier?

White:

Healthier.

Viner:

Healthier and stronger.

Klotz:

I don't like the word "happier."

H.M.Jr:

No, I don't like the word, "happier". "Make our

282
- 76 -

people fit." Make them tough, something.
"

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 if inflation develops."
White:

Could we say fiscal program instead of borrowing
policy, because the borrowing policy in
general --

H.M.Jr:

All right.

Viner:

This is a very sudden turn here. We will have
to find some connecting sentence.

H.M.Jr:

You are right. I have got six minutes to go.
All of this end here --

Viner:

Those two are of altogether disproportionate
significance and ought to be restated there.
We propose to do this primarily because it has

a responsibility to the public but incidentally,

because its own financing will be definitely more

difficult if inflation develops. In other words,

the interest in national economy is so much more
important than the Treasury budget situation.

H.M.Jr:

You are right. May I proceed?

"....As the nation's largest purchaser" -- Well,
I know this. "Furthermore, the employer" -"

I know that.
Kuhn:

How about the Defense Bonds, Mr. Secretary? Is
that statement necessary at the end about the
people who buy Defense Bonds having a right to

expect that we prevent inflation?

283
- 77 -

White:

We changed that.

Kuhn:

Do you thereby set up a moral commitment which

we would have difficulty in meeting if Congress
turned you down?

White:

Look at the way it is stated.

H.M.Jr:

How is it stated?

Viner:

Have you got it differently from what it is here?

White:

We did change that last night. If you would
like
me to compare it with what it was the night
before --

H.M.Jr:

No, no.

Viner:

But this changed part is still --

Kuhn:

It is what you have, Mr. Secretary.

H.M.Jr:

Where is it?

Kuhn:

"Moreover millions of people" --

H.M.Jr:

...Moreover, millions of people who are now
responding to our pleas for cooperating in

financing our defense effort have the right to
expect that we prevent inflation. These people

were asked to invest in defense savings bonds

partly as a means of preventing inflation.
They have a right to ask that the government do
everything in its power to prevent inflation."

Viner:

"That we make every endeavor to prevent inflation."

White:

We say that in the next sentence.

H.M.Jr:

I suggested this myself. I think it is

dangerous. I would leave it out.

284
- 78 -

Kuhn:

I.M.Jr:

Right. That is what I wanted to check on.
It is not necessary to your argument.

I would leave it out. It will come back and hit

me in the face.

"...We are determined to battle against every
threat of inflation. Every citizen, every wage
earner, and every housewife has a vital interest
in seeing that this bill passes and in seeing
that a program be pressed of increasing the
supply of food and other civilian goods whose
production does not interfere with our defense
program.

"Some of our people think that they will benefit
from rising prices. They are wrong."

Well, that is all the same, isn't it?
White:

Just one change. I don't know whether you

H.M.Jr:

Where is that?

White:

We changed the three horsemen to four horsemen
and added a fourth horseman.

H.M.Jr:

"...No group in a community profits from
inflation except the Four Horsemen - the
Speculator, the Profiteer, the Hoarder, the

like it.

Fifth Column."

No. We will shoot the fourth horseman.
Haas:

The three horsemen are really one man. In other
words, it says the same thing.

H.M.Jr:

No, I don't like that other one.
"

Inflation does more than merely to rob the

wage earner of a portion of his earnings. It is

285
- 79 -

more destructive of morale than any other

single force. Inflation divides the country."

Is that all right?
"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 __"

Gee, boys, that is awfully difficult, "retain ten years from now"?

Kuhn:

H.M.Jr:

"Retain something like its full value."
That throws a whole doubt on the thing. I

don't like that. I don't like this thing of
retaining it.

Haas:

That was taken out of the President's message

White:

Was it your thought, Mr. Secretary, that the

to the Economic Conference.

of American
building
morale is it- puts it

on too low a plane if you say it can be built

merely by a promise of stable prices?
H.M.Jr:

No, we can't do it. It is hooey. I don't

Haas:

want to say it.
There is also a hole in the thought.

H.M.Jr:

I don't want to say it. You will have to end

Kuhn:

Suppose you said, "There is no better way of
building American morale in the present emergency than to convince them that they will not
have to go through what they went through the

on another note.

last time."

286
- 80 -

H.M.Jr:

We will say it something like this. "There is

Kuhn:

That is the thought.

H.M.Jr:

But without saying this other thing.

Haas:

How about the closing sentence you had last

no better way to build morale than to convince
the people we are not going to have inflation."

night? That was all right, Ferdie.

Kuhn:

It is the same closing sentence here.

H.M.Jr:

I agree with you. You have got to sum up and
say something about the bill. Now look, gents,
on the time schedule, when will I see you people

again? I don't think I want to see you again.
I am a wreck now and I have got to go to Hull

this afternoon at three-thirty. I just think
I will have to trust you people.

White:

I can send it to your house.

H.M.Jr:

Before I go home I will ask for you, but I think
you will be at it all night because the last

part of it isn't polished and I will just have
to leave it with you people and I am more than
willing to leave it if you are willing to take
the responsibility.
White:

Well, there are no further questions of policy.
Those are all settled, so I don't think we should
have difficulty in agreeing on the best presentation.

H.M.Jr:

Well, here is the point. Before I go home, or
any time this afternoon, if anybody wants to

see me, let me know, if you are stumped, you see.

Kuhn:

May I see you five minutes after lunch sometime
on another thing?

287
- 81 -

H.M.Jr:

On what, this?

Kuhn:

Any time this afternoon. I have three state-

ments to be cleared with you.

H.M.Jr:

Don't do that to me, Ferdie, please. I haven't
done my mail and I am just in the most terrible
jam. I won't look at a statement.

Kuhn:

O.K., we will do it in the morning.

Fainth Draft

288

Discussed at 10'80

PRELIMINARY DRAFT

meeting on 8/13/41

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 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 facing it now and we must deal with it
at once.

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

us and our children for years. But if we are courageous,

wecan
thing,
If we keep always in mind the
beat this

D-7

289

-2best interests of our country as a whole; if we provide
promptly the appropriate means and use them vigorously when

even
and as necessary, we can prevent inflation from fastening
A

its grip apt upon us.
That task calls for alertness, courage and mental
toughness at on the part of every one of US here today.

I welcome the bill before you. I believe it is a
necessary step in the fight against inflation. But it
has one serious shortcoming to which I shall refer later.
We must attack the problem on three different fronte

if we are to succeed in controlling inflation: Non-defense
expenditure must be ourtailed, production must be expanded,

and prices must be subject to control. The time left
us in which to act is short.

D-7

290

-3We are at the same point in price history as in

1916 -- on the edge of inflation.
Memories are 80 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 only when

D-7

291
4-

prices had risen by 70 per cent that President Wilson recommended

any steps to prevent inflation. In fact, there was such blindness
to the dangers of inflation that as late as June 1917 Congress

actually facilitated inflation by reducing the reserve requirements for member banks of the Federal Reserve System.
double
had

By 1920, prices skyrocketed to double. the level of 1915.
1

The pattern of price rises in the past two years is
frighteningly similar 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 greater rise in the price of basic
commodities.
D-7

292
-5Since the beginning of the present war, the wholesale

prices have risen about 18 percent - most of it during the
past five months.

has been

True to the usual pattern, the cost of living was slow
to rise. During the past year, however, it has increased 4
percent -- but the important thing to note 1s that nearly all

of this rise has taken place since March of this year
During the past 12 months the average price of 28 basic
commodities has increased 37 percent, despite the fact that
the prices of a number of basic raw materials have been kept

partly in check through the efforts of the Office of Price
Administration and Civilian Supply. (See chart 1.)

It is the rise in the prices of basic commodities that
constituties our most obvious 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-7

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-6taken deep root.

Moreover, the forces now in existence making for

further price rise are both potent and persistent:
(1) Our defense expenditures - the primary infla-

tionary force - are increasing rapidly. The Bureau of
Budget estimates that defense spending during the fiscal

more than
year 1942 will be $15 billion, or two and a half times
1

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) Also important as * an inflationary force is
the fact that the Government is borrowing from banks

and from this the idle balances of the public much of
the money it is spending. When the Government borrows

D-7

294

-7from banks or from private balances that otherwise would re-

main idle it is adding to the total stream of money spent
on goods and therefore adding to the upward pressure on

prices. The estimated net deficit for the fiscal year 1942,
which of course must be met by borrowing -- will be $12.8

billions, compared with $5.1 billions for the previous

fiscal year. If the present tax bill is passed by Congress

80 that it will yield $3-1/2 billion in additional revenue,
the deficit will be reduced by $2-12 billions, but it will
still be over $10 billion. Again this estimated deficit -which, of course 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. ***** During the past twelve months

D-7

295

-8bank loans expanded by approximately $3 billions, or about

20 percent. As in the case of the other forces making
for inflation, the expansion of bank loans has been proceeding at a quickening pace.

(4) with the increasing flow of spendable funds
the upward pressure on prices becomes greater. more and

more plants attain their maximum output, and more and

more shortages in raw materials for civilian use appear.

Prices of imports are also rising daily due to diminishing
shipping space, higher shipping costs, and disappearance

of normal foreign sources of supply.

(5) Finally, and of fundamental importance as an
inflationary force we have growing profits, increasing
agricultural income, and fatter pay envelopes and many
more of them.

D-7

296

-9Let us see where these forces will take us if permitted
to operate unchecked, as they were unchecked in the World War.

All we have to do to see what may be ahead of us is to look

into the purse of the average family of those times -- not in
percentages and indexes, but the prices of essential 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 ayard
yeard of cotton
cloth in 1914, was enough to buy only one-third of a yard
in 1920.

D-7

297

- 10 The family with no increase in income found its pur-

chasing 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. The pattern of rising prices for food, fuel, shelter

in the past five months is startlingly similar to that of
1915 and 1916. If these prices continue to rise as they

did from 1916 to 1920, we shall find that food, fuel, shelter,
over

and clothing that now cost $1.00 will once more cost $2.00.

The rise in prices is by no means confined to food-

atuffs and clothing. I have before me, for instance, the
actual figures on the cost of constructing a standard sixroom ku 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.
D-7

298

"
Not only is the cost of building homes rising but
even for the millions who do not own their homes higher

rentals are on the way. We find already in scores of areas
where industrial expansion has first taken hold, rents

higher

rising 10, 20, 30/ and even 100 percent.
There is, however, one great difference between conditions today and 1916. We now know what is going on. We

time our eyes are open to
are awarex 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.

Dx-7

299
- 12 Our 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 hotter 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.
Let us examine record to see what is being done and

further

what needs to be done in order to stop prices from rising:

Congress now has before it E. huge tax bill designed to
raise

$3-1/2 billion in additional revenue. This

increase in taxes will withdraw from the public purchasing
power that competes with the defense effort. But we need to

raise still more taxes as our defense effort grows.

D-7

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- 13 I want to emphasize, however, that we are not seeking
to out down the purchases of families whose incomes can

barely meet the ir needs. The health and vigor of our people
must not be undermined. Measures to cut consumption, whether

by taxation or borrowing should be aimed at families wi th
something to spend above their basic needs.

Secondly, the Treasury in its borrowing program is

attempting to obtain as large a portion of its funds as
possible from current consumer income, and through a new

form of note -- the Tax Anticipation Note -- is endeavoring
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. But we need also to get a still
larger proportion of our borrowing from the wage-earner and
has also

the Garmer ) To do this the Treasury initiated a program of
selling defense savings bonds and stamps to people of
moderate and low income.
D-7

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- 14 The President has just issued an order giving the
Board of Governors of the Federal Reserve System authority

to control consumer installment credit, thus making it possible to supplement the restrictions on spending of current
income by restraints on the spending of NEE anticipated income.

The Office of Price Administration and Civilian Supply
is making every effort to obtain the cooperation of pro-

ducers and distributors in limiting price rises.

These come of the steps have already been
taken, But there are additional methods to which we may

find it necessary to resort in our efforts effectively to
prevent inflation, such as:
(1) Extension of the general controls over bank credit.
(2) Creation of controls over capital expenditures.
(3) An extension of the Social Security program along
lines which would increase the flow of funds to the

D-7

- 15 Treasury from current income during the emergency
and would increase the outflow of funds when needed

in the post-defense period.

(4) A reduction of the Federal lending and underwriting
program, such as non-emergency housing expenditures
and mortgage guarantees.

(5) Reduction of non-essential Federal expenditures, an
appeal for economy in State and local governmental

expenditure and for curtailment of their borrowing
for non-emergency expenditures, thus building a

back-log for the post-defense period.
These measures to restrain price rises, though they have
unquestionably been helpful, are inadequate to meet the itua-

tion confronting us. A11 of them attack the problem by attempting to reduce the demand for goods.

D-7

302

- 16 -

303

We should also attack the problem from the opposite direction,
by making every effort to increase the supply of goods available
to the consumer wherever this can be done without encroaching

upon our defense program. I believe that we have failed to

push our production of goods to the full capacity of our
enormous productive resources. Millions are still unemployed,
and there are also many millions who, though not classified as
unemployed, could be added to the working force if jobs were

easily available. Because of our accumulations of agricultural
surpluses we are in a position to provide increased quantities

almost

of almot all agricultural goods and thereby both prevent the
cost of food from rising and prevent the standard of living
from being impaired.

Indeed, my suggestion that the granary doors should now

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

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

D-7

304
- 17 To do so 18 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 bins, both for present
advantage, and so that if 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. If
we permit price peaks to develop, price valleys N* are
inevitable.

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 effective-

ness 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.

D-7

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- 18-

The memory of our sufferings from a remorseless deflation
that began a dozen years ago and from which we are just now fully

recovering has, I think, blinded many of us to the fact that
an inflation can be equally remorseless and tragic in its
results. Because the farmer has suffered longer than any

of us from price deflation -- it began with him 'way back in
1920 -- we need not be surprised if he particularly, in his

struggles against the effects of deflation, fails to see the
dangers on the other side. But for him those dangers are

very real. Just how real they are he can measure - not by
recalling what happened to him in the era of boom prices but by remembering what happened to him later; for it is

especially notable and plain that in his case his troubles
in very large part were the after-effects of war-time price
inflation.
That inflation established extravagantly high prices
for land; it brought hundreds of thousands of aores of new
D-7

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- 19 -

land into cultivation for the standard crops; it stimulated
excessive investment; it loaded upon many farmers a tremendous bur-

den of debt which they were asked to pay year later in dollars
that were worth twice as much in terms of purchasing power as

the dollars in which the debts were contracted. It is highly
significant that the farmers themselves have not sought to be
restored to the condition of the boom times, whose essential
unsoundness they recognized, but in the campaign for parity

prices have been struggling to regain an economic position from

which they were dislodged initially by price inflation.

I could not fail to see the peril to agriculture in the
present situation because I happened to be in position as Chairman of the Federal Farm Board in the last two months of its
unhappy existence and as Governor of the Farm Credit Adminis-

tration in the period when the Government quite properly shouldered

the burden of refinancing most of the farm debt of the Nation
to get an intimate view of tragedy as black and menacing as

ever affected the farmers of this country.
D-7

307
- 20 Through the decisions I had to make as Chairman of the Farm

Board I saw how the inflation of farm prices followed by a
deflation that struck like a mid-western cyclone brought down
in scattered ruins almost the whole promising structure of

farmers' cooperatives in this country and left a painful

and difficult job of rebuilding to be done. As Governor of
the Farm Credit Administration I had to put into effect a
policy that would relieve conditions which caused American
7 farmers to gather with shotguns on the steps of courthouses

to prevent foreclosure on their farms. This was inflation
on the other side of the hill. It was a case of Humpty Dumpty
toppling because he had climbed too high. It should not be
hard to persudde the present-day descendants of Humpty Dumpty

not to go climbing too far up that wall of high prices again.

D-7

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- 31 -

There 18 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 vabue in buying goods and services a month from
now, a year from now, and ten years from now. The respon-

sibility is ours. The time to give our people that assurance
is before the inflationary process has gripped them. It is
our duty, in this year of great decisions, to show the
courage which the American people expect of us.

D-7

309
- 21 I want very much 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 such rates operate to keep prices unduly
high or the goods unduly scarce. Above all, we should be making

D-7

310
- 22 -

full use of those supplies that are available here in the
United States.

I don't wish to be misunderstood in my comments on

agricultural prices. I am glad that some of the agricultural
prices that had been too low have attained a reasonable level.

I am not disturbed by the general level of agricultural
prices now prevailing, but what I am deeply concerned about

is the danger that agricultural prices in general will con-

tinue to rise until **** they are out of hand. As the
Secretary of Agriculture stated only a few days ago: "There
are some who think agriculture should charge all that the

traffic will bear, to get while the getting is good, with
the hope that somehow the aftermath can be avoided." For

his part he warned his audience that "to tie up stooks in

an effort to create an ******** artificial scarcity and unreasonable prices is not in the interests of the farmer, the
consumer, or the general welfare."
D-7

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- 23 -

At this time when agricultural prices are in the main
at or near a satisfactory level, when the country is facing
a major threat of inflation, and when it is more important
than ever that there should be no undernourishment, we should

not increase still further our reserves of agricultural
commodities in the warehouses for the purpose of raising
prices.

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 I wonder if she knows, when
she pays 15 per cent 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

D-7

312

- 24 storage than a year ago. We have in our own country large

many

reserve stocks of farm products of arl kinds which should be
released for consumption as rapidly as is necessary to prevent unreasonable price rises.
The Government now holds seven million bales of cotton.
Cotton prices have risen from 91 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 is to be made to pay tribute
to profiteers and speculators when she buys a cotton dress

for herself or a shirt for her husband or a suit for her child.
Millions of our people still go without the milk, butter

nutrition
experts
to
and eggs which
have found
necessary
good health and good morale.
D-7

313

- 25 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 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." .

D-7

314
- 26 I think that our Department of Agriculture has reason
to be proud of the progress that it has made in foreseeing

the scarcity of some of the agricultural commodities and in

taking effective steps to increase their production. They
are also undertaking a program of encouraging powder milk

and cheese factories so that there shall be more of those
products available to the consumer.

But still more effort should be made to put more
dairy products on the market. ( We are withholding probably

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.

D-7

315

- 27 I know from experience on my own farm that within two

months we could substantially 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

88 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 18 in the
warehouses. Let's make it flow. If we were to let it flow to
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.
D-7

316

- 28 The Treasury proposes to do every thing 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 if inflation
develops.

As the nation's largest purchaser, 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 proportion.
D-7

317
- 29 -

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 expect that we prevent inflation. These
people were asked to invest in defense savings bonds partly as

means of preventing inflation. They have a right to ask that
the government do everything in its power to prevent inflation.

D-7

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- 30- -

We are determined to battle against every threat

of inflation. Every citizen, every wage earner, and every

housewife has a vital interest in seeing that this bill
passes and in seeing that a program be pressed of in-

creasing the supply of food and other civilian goods whose
production does not interfere with our defense program.

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

and
Speculator, the Profiteer, and the Hoarder. th with deturn.
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.
It sets up producers against consumers, workers against
employers, the people who owe money against the people to
whom the money is owed.
D-7

6

of

Teachs

319

beast Discussed
much miss 20hott

and missware
PRELIMINARY DRAFT

at meeting

Dempion 8/13/41

I am glad that you have asked me to testify today, 030 am
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 facing it now and we must deal with it
at once.

If we are timid -- we in the Executive departments and
you in the halls of Congress -- the consequences 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

320

-2-

best interests of our country as a whole; if we provide
promptly the appropriate means and use them vigorously when

and as necessary, we can prevent inflation from fastening
its grip upon us.
That task calls for alertness, courage and mental
toughness on the part of every one of us here today.

I welcome the bill before you I believe it is a
necessary step in the fi ht against inflation. But it
has one serious shortcoming to which I shall refer later.
We must attach the problem on three different fronts

if we are to succeed in controlling inflation; Non-defense
expenditure must be curtailed, production must be expanded,

and prices must be subject to control. The time left
us in which to act is short.

321

-3-

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 only when

322
-4prices had risen by 70 per cent that President Wilson recommended

any steps to prevent inflation. In fact, there was such blindness
to the dangers of inflation that as late as June 1917 Congress

actually facilitated inflation by reducing the reserve requirements for member banks of the Federal Reserve System.

By 1920, prices skyrocketed to double the level of 1915. /

The pattern of price rises in the past two years is
frignteningly similar 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 greatter rise in the price of basic
commodities.

323

-5Since the beginning of the present war, the wholesale

prices have risen about 18 percent - most of it during the
past five months.

True to the usual pattern, the cost of living was slow
to rise. During the past year, however, it has increased 4

percent -- but the important thing to note is that nearly all
of this rise has taken place since March.
During the past 12 months the average price of 28 basic
commodities has increased 37 percent / despite the fact that
the prices of a number of basic rew materials have been kept

partly in check through the efforts of the Office of Price
Administration and Civilian Supply. (See chart 1.)

It is the rise in the prices of basic commodities that
constitutes our most obvious 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

324

-6-

taken deep root.

Moreover, the forces now in existence making for

further price rise are both potent and persistent:
(1) 0,,r defense expenditures -- the primary inflationary force -- are increasing rapidly. The Bureau of
Budget estimates that 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) Also important as an inflationary force is
the fact that the Government is borrowing from banks

and from the idle balances of the public much of
the money it is spending. When the Government borrows

325

-7-

frombanks or from private balances that otherwise would

remain idle it is adding to the total stream of money spent
on goods and therefore adding to the upward pressure on

prices. The estimated net deficit for the fiacal year 1942,
which of course must be met by borrowing -- will be $12.8

billions, compared with $5.1 billions or the previous
fiscal year. If the present tax bill is passed by Congress

SO that it will yield $3-1/2 billion in additional revenue,

the deficit will be reduced by $2-1/2 billions but it will
still be over $10 billion. Again this estimated deficit -which, of course 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. During the past twelve months

326

-8-

bank loans expanded by approximately $3 billions, or about

20 per cent. As in the case of the other forces making
for inflation, the expansion of bank loans has been proceeding at a quickening pace.

(4) With the increasing flow of spendable funds
the upward pressure on prices becomes greater more and more

plants attain their maximum output, and more and more short-

ages in raw materials for civilian use appear. Prices of
imports are also rising daily due to diminishing shipping
space, higher shipping costs, and disappearance of normal

foreign sources of supply.

(5) Finally, and of fundamental importance as an
inflationary force we have growing profits, increasing
agriculturel income, and fatter pay envelopes and many
more of them.

327

-9-

Let us see where these forces will take us if permitted
to operate unchecked, as they were unchecked in the World War.

All we have to do to see what may be ahead of us is to look

into the purse of the average family of those times/-- not
in percentages and indexes, but the prices of essential 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 enough to boy only one-third of a yard
in 1920.

328
- 10 -

The family with no increase in income found its pur-

chasing power cut in half. It found that food, fuel, shelter
an: 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. The pattern of rising prices for food, fuel, shelter
in the past five months is startingly similar to that of
1915 and 1916. If these prices continue to rise as they

did from 1916 to 1920, we shall find that food, fuel, shelter,
and clothing that now cost $1.00 will once more cost $2.00%
The rise in prices is by no means confined to food-

stuffs and clothing. I have before me, for instance, the
actual figures on the cost of constructing a standard sixroom 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 S tory. /

329

- 11 -

Not only is the cost of building homes rising but
even for the millions who do not own their homes higher
rentals are on the way. We find already in scores of areas

where industrial expansion has first taken hold, rents
rising 10, 20, 30 and even 100 per cent.
There is, however, one great difference between conditions today and 1916. We now know what is going on. We

are aware of the dangers that lie ahead of us. We now know
or ought to know that the time do to 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.

330

- 12 -

Our 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 hotter 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.
Let us examine record to see what is being done and

what needs to be done in order to stop prices from rising:
Congress now has before it a huge tax bill designed to

raise from $3 - $3-1/2 billion in additional revenue. This
increase in taxes will withdraw from the public purchasing
power that competes with the defense effort. But we need to

raise still more taxes as our defense effort grows.

331

- 13 I want to emphasize, however, that we are not seeking
to cut down the purchases of families whose incomes can

barely meet their needs. The health and vigor of our people
must not be undermined. Measures to cut comsumption, whether

by taxation or borrowing, should be aimed at families with
something to spend above their basic needs

Secondly, the Treasury in its borrowing program is

attempting to obtain as large a portion of its funds as
possible from current consumer income, and through a new

form of note - the Tax Anticipation Note -- is endeavoring
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./But we need also to get a still
larger proportion of our borrowing from the wage-earner and

the farmer. To do this the Treasury initiated a program of
selling defense savings bonds and stamps to people of
moderate and low income.

332
- 14 -

The President has just issued an order giving the
Board of Governors of the Federal Reserve System authority

to control consumer installment credit, thus making it possible to supplement the restrictions on spending of current
income by restraints on the spending of anticipated income.

The Office of Price Administration and Civilian Supply
is making every effort to obtain the cooperation of pro-

ducers and distributors in limiting price rises.
These are some of the steps which have already been

taken. But there are additional methods to which we may

find it necessary to resort in our efforts effectively to
prevent inflation, such as:
(1) Extension of the general controls over bank credit.
(2) Creation of controls over capital expenditures.
(3) An extension of the Social Security program along
lines which would increase the flow of funds to the

333

- 15 -

Treasury from current income during the emergency
and would increase the outflow of funds when needed

in the post-defense period.

(4) A reduction of the Federal lending and underwriting
program, such as non-erergency housing expenditures
and mortgage guarantees.

(5) Reduction of non-essential Federal expenditures, an
appeal for economy in State and local governental

expenditure and for curtailment of their borrowing
for non-emergency expenditures, thus building a

back-log for the post-defense period.
These measures to restrain price rises, though they have

unquestionably been helpful, are inadequate to meet the situa-

tion confronting us. All of them attack the problem by attempting to reduce the demand for goods.

334

- 16 -

We should also attack the problem from the opposite direction,
by making every effort to increase the supply of goods available
to the consumer wherever this can be done without encroaching

upon our defense program. I believe that we have failed to

push our production of goods to the full capacity of our
enormous productive resources. Millions are still unemployed,
and there are also many millions who, though not classified as
unemployed, could be added to the working force if jobs were

easily available. Be cause of our accumulations of agricultural
surpluses we are in a position to provide increased quantities
of almost/all agricultural goods and thereby both prevent the
cost of food from rising and prevent the standard of living
from being impaired.

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.

335
- 17 -

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 bins, both for present
advantage, and so that if 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./If
we permit price peaks to develop, price valleys are
inevitable.

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 effective-

ness 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.

D-7

336
- 18 The memory of our sufferings from a remorseless deflation
that began a dozen years ago and from which we are just

now fully recovering has, I think, blinded many of us to
the fact that an inflation can be equally remorseless and

tragic in its results. Because the farmer has suffered
longer than any of us from price deflation -- it began with
him 'way back in 1920 -- we need not be surprised if he

particularly, in his struggles against the effects of
deflation, fails to see the dangers on the other side. But
for him those dangers are very real. Just how real they are he
can measure -- not by recalling what happened to him in the
era of boom prices -- but by remembering what happened to

him later; for it is especially notable and plain that in
his case his troubles in very large part were the after-effects
of war-time price inflation.
That inflation/established extravagantly high prices
for land; it brought hundreds of thousands of acres of new

D-7

337
- 19 -

land into cultivation for the standard crops; it stimulated
excessive investment; it loaded upon many farmers a tremendous

burden of debt/which they were asked to pay year later in dollars
that were worth/twice as much in terms of purchasing power as

the dollars in which the debts were contracted. It is highly
significant that the farmers themselves have not sought to be
restored to the condition of the boom times, whose essential
unsoundness they recognized, but in the campaign for parity
prices have been struggling to regain an economic position

from which they were dislodged initially by price inflation.

I could not fail to see the peril to agriculture in the
present situation because I happened to be in position as
Chairman of the Federal Farm Board in the last two months of
its unhappy existence and as Governor of the Farm Credit

Administration in the period when the Government quite

properly shouldered the burden of refinancing most of the
farm debt of the Nation to get an intimate view of tragedy
as black and menacing as ever affected the farmers of this
country.

D-7

338
- 20 -

Through the decisions I had to make as Chairman of the Farm

Board I saw how the inflation of farm prices followed by a
deflation that struck like a mid-western cyclone brought down
in scattered ruins almost the whole promising structure of

farmers' cooperatives in this country and left a painful

and difficult job of rebuilding to be done. As Governor
of the Farm Credit Administration I had to put into effect
a policy that would relieve conditions which caused American
farmers to gather with shotguns on the steps of courthouses

to prevent foreclosure on their farms. This was inflation
on the other side of the hill. It was a case of Humpty
Dumpty toppling because he had climbed too high. It should
not be hard to persuade the present-day descendants of

Humpty Dumpty not to go climbing too far up that wall of
high prices again.

D-7

339
- 21 -

I want very much 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 such rates operate to keep prices unduly
high or the goods unduly scarce. Above all, we should be making

D-7

340
- 22 -

full use of those supplies that are available here in the
United States.

I don't wish to be misunderstood in my comments on

agricultural prices. I am glad that some of the agricultural
prices that had been too low have attained a reasonable level.

I am not disturbed by the general level of agricultural
prices now prevailing, but what I am deeply concerned about

is the danger that agricultural prices in general will con-

tinue to rise until they are out of hand. As the
Secretary of Agriculture stated only a few days ago: "There
are some who think agriculture should charge all that the

traffic will bear, to get while the getting is good, with
the hope that somehow the aftermath can be avoided." For

his part he warned his audience that "to tie up stocks in

an effort to create an artificial scarcity and unreasonable prices is not in the interests of the farmer, the
consumer or the general welfare.

341

- 23 -

At this time when agricultural prices are in the main
at or near a satisfactory level, when the country is facing
a major threat of inflation, and when it is more important
than ever that there should be no undernourishment, we should

not increase still further our reserves of agricultural
commodities in the warehouses for the purpose of raising
prices.

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 I wonder if she knows, when
more

she pays 15 per cent for a pound of sugar than a year ago,
that there are huge untouched reserves of sugar in Cuba. 1
I wonder if she knows, when she pays 25 per cent more for

butter, that we have forty million more pounds of butter in

342 .

- 24 -

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 now holds seven million bales of cotton.
Cotton prices have risen from 91 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 herself or a shirt for her husband or a suit for her child.
Millions of our people still gowithout the milk, butter
and eggs which nutrition experts have found necessary to
good health and good morale.

343

- 25 -

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 Nazis have even demonstrated that right and wrong diet can be used as a doubleedged 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."

344

- 26 -

I think that our Department of Agriculture has reason
to be proud of the progress that it has made in foreseeing
the scarcity of some of the agricultural commodities and in

taking effective steps to increase their production. They
are also undertaking a program of encouraging powder milk

and cheese factories so that there shall be more of those
products available to the consumer.

But still more effort should be made to put more
dairy products on the market. We are witholding probably

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.

345

- 27 -

I know from experience on my own farm that within two

months we could substantially 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 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 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.

346

- 28 -

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 if inflation
develops. /

As the nation's largest purchaser, 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 proportion.

347

- 29 -

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 expect that we prevent inflation. These
people were asked to invest in defense savings bonds partly as

a means of preventing inflation. They have a right to ask that
the government do everything in its power to prevent inflation.

348
- 30 -

We are determined to battle against every threat

of inflation. Every citizen, every wage earner, and every

housewife has a vital interest in seeing that this bill
passes and in seeing that a program be pressed of increasing the supply of food and other civilian goods whose
production does not interfere with our defense program.

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 Four Horsemen - the
Speculator, the Profiteer, the Hoarder, the Fifth Column.
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. /
It sets up producers against consumers, workers against
employers, the people who owe money against the people to
whom the money is owed.

D-7

349
- 31-

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 respon-

sibility is ours. The time to give our people that assurance
is before the inflationary process has gripped them. It is
our duty, in this year of great decisions, to show the
courage which the American people expect of us.

D-7

=

August 13, 1941

350

Secret Service transmitted this message by
teletype to New York, and a Secret Service
man in N.Y. then took it by automobile
and delivered it to Miss Thompson for
Mrs. Roosevelt.

35

951

August 13, 1941 Completed anoding
at 1:45 P.M.

M

OPR
NY

N 1-2139

1-2139 GOVT V

OK
OK

SECRET SERVICE NYTORINA CCC
SECRET SERVICE WASH WILSON

THE FOLLOWING
COTTAGE.

MESSAGE IS TO BE DELIVERED TO MRS. ROOSEVELT AT HER

I AM GLAD THAT YOU HAVE ASKED ME TO TESTUXXXXXX TESTIFY TODAY,
BECAUSE YOU AND I ARE FACED WITH SERIOUS DECISIONS OF POLICE,

VERY SERIOUS DECISIONS, IF WE ARE TO AVOID BRINGING THE CALAMITY
OF INFLATION UPON THE AMERICAN PEOPLE.

TEXXX 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 FACING IT NOW
AND WE MUST DEAL WITH IT AT ONCE.

IF WE ARE TIMID -- WE IN THE EXECUTIVE DEPARTMENTS AND YOU IN THE
HALLS OF CONGRESS -- THE CONSEQUENCES MAY HAUNT US AND OUR CHILDREN FOR

YEARS. BUT IF WE ARE COURAGEOUS, WE CAN BEAT THIS THING. IF WE ALWAYS

XXXXXXXXXX IF WE KEEP ALWAYS IN MIND THE BEST INTERESTS OF OUR
COUNTRY AS A WHOLE, IF WE PROVIDE PROMPTLY THE APPROPRIATE MEANS AND
USE
THEM VIGOROUSLY
WHEN
EVER NECESSARY, WE CAN PREVENT INFLATION FROM
FASTENING
ITS GRIP UPON
US.
TAXXX THAT TASK CALLS FOR ALERTMVXXXXXX ALERTNESS, COURAGE AND MENTAL

TOUGHNESS ON THE PART OF EVERY ONE OF US HERE TDXXX TODAY.

I WELSOME THE BILL BEFORE YOU. I BELIEVE IT IS A NECESSARY STEIXXXX
STEP IN THE FIGHT AGAINST INFLATION. BUT IT HAS ONE SERIOUS SHORT-

COMING TO WHICH I SHALL REFER LATER.

WE MUST ATTACK THE PROBLEM ON THREE DIFFERENT FRONTS IF WE ARE TO
SUCCEED IN CONTROLLING INFLATION. NON-DEFENSE EXPENDITURES MUST BE
CURTAILED, ORXXX PRODUCTION MUST BE EXPANDED. AND PRICES MUST BE

SUBJECT TO CONTROL. 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

AXXX HAPPENED THE LST TIME INFLATION STRUCK US 25 YEARS AGO. IN
1916, THE COST OF LIVING BEGAN TO RISE SHARPLY, BUT TERE WERE GXXX
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 ONLY WHEN PRICES HAD RISEN BY 70 PER CENT
THAT PRESIDENT WILSON RECOMMENDED ANY STEPS TO PREVENT INFLATION.
IN FACT, THERE WAS SUCH BLINDNESS TO THE DANGERS OF INFLATION THAT

AS LAST AS JUNE 1917 CONGRESS ACTUALLY FACILITATED INFLATION BY
REDUCING
THE RESERVE REQUIREMENTS FOR MEMBER BANKS OF THE FEDERAL
RESERVE SYSTEM.

BY 1920 PRICES HAD SKYROCKETED TO DOUBLE THE LEVEL OF 1915.

THE PATTERN OF PRICE RISES IN THE PAST TWO YEARS IS FRIGHTENINGLY
SIMILAR
WAR
NO. TO
1. TE PRICE MOVEMENTS DURING THE FIRST TWO YEARS OF WORLD
- AS THE PRWXXXPRESIDENT SAID IN HIS MESSAGE TO CONGRESS A FEW WEEKS AGOM

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 WHOLESOMEXXXXXX WHOLESALE PRICES.

THEN AS NOW THERE WAS A STILL GREATER RISE IN THE PRICE OF VXX BASIC
COMMODITIES.
SINCE THE BEGINNING OF THE PRESENT WAR, THE WHOLESALE PRICES HAVE RISEN

ABOUT 18 PERCENT - MOST OF IT DURING THE PAST FIVE MONTHS.

TRUE TO THE USUAL PATTERN, THE COST OF LIVING HAS BEEN SLOW TO RISE.
DURING THE PAST YEAR, HOWEVER, IT HAS INCREASED 4 PERCENT -- BUT THE
IMPORTANT THING TO NOTE IS THAT NEARLY ALL OF THIS RISE HAS TAKEN

PLACE SINCE MARCH OF THIS YEAR.
DURING THE

DURING THE PAST 12 MONTHS THE AVERAGE PRICE OF 28 BASIC COMMODITIES

HAS INCREASED 37 PERCENT, DESPITE THE FACT THAT THE PRICES OF A
NUMBER OF BASIC RAW MATERIALS HAVE BEEN KEPT PARTLY IN CHECK THROUGH

THE EFFORTS OF THE OFFICE OF PRICE ADMINISTRATION AND CIVILIAN
SUPPLY. SEE CHART 1.
IT IS THE RISE IN THE PRICES OF BASIC COMMODITIES THAT CONSTITUTES
T XXX OUR MOST OBVIOUS 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.

,

MOREOVER, THE FORCES NOW IN EXISTENCE MAKING FOR FURTHER PRICE RISE
ARE BOTH POTENT AND PERSISTENTM

1. OUR DEFENSE EXPENDITURES -- THE PRIMARY INFLATIONARY FORCE
ARE INCREASING RAPIDLY. THE BUREAU OF BUDGET ESTIMATES THAT DEFENSE

SPENDING DURING THE FISCAL YEAR 1942 WILL BE MORE THAN $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 XXXX DEFENSE
PROGRAM MADE AFTER JUNE 1 AND CREATER SUMS NEEDED FOR LEND-LEASE.

2. ALSO IMPORTANT AS AN INFLATIONARY FORCE IS THE FACT THAT THE
GOVERNMENT IS BORROWING FROM BANKS AND FROM THE IDLE BALANCES OF THE PXX
PUBLIC MUCH OF THE MONEY IT IS SPENDING. WHEN THE GOVERNMENT BORROWS
FROM BANKS OR FROM PRIVATE BALANCES THAT OTHERWISE WOULD REMAIN IDLE

IT IS ADDING TO THE TOTAL STREAM OF MONEY SPENT ON GOODS AND THEREI

FORE ADDING TO THE UPWARD PRESSURE ON PRICES. THE ESTIMATED NET

DEFICIT FOR THE FISCAL YEAR 1943, WHICH OF COURSE MUST BE MET BY

BORROWING -- 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 $3-2 BILLION IN ADDITIONAL REVENUE,
THE DEFICIT WILL BE REDUCED BY $2-2 BILLIONS, BUT IT WILL STILL BE
OVER $10 BILLION. AGAIN THIS ESTIMATED FXXX DEFICIT -- WHICH, OF
COURSE DOES NOT TAKE ACCOUNT OF THE EXPANSION OF THE DEFENSE PROGRAM

AFTER JUNE 1, 19419
WA OPR

H THIS IS NOT ALL PLS

GA WITH MSG

1

3. SUPPLEMEINTINXXXXXX SUPPLEMENTING THE INFLATIONARY FORCE OF THE
FEDERAL DEFICIT HAS BEEN THE XXX EXPANSION OF BANK CREDIT BY INCREASED
LOANS TO BUSINESS. DURING THE PST XXX PAST TWELVE MONTHS BANK LOANS

EXPANDED BY APPROXIMATELY 3 BILLIONS, OR ABOUT 20 PE XXX PERCENT.
AS IN THE CASE OF THE OTHER FORCES MAKING FOR INFLATION, THE EXPANSION
OF BANK LOANS HAS BEEN PROCEEDING AS A QUICKENING PACE.
RXX

4. WITH THE INCREASING FLOW OF SPENDABLE FUNDS THE UPWARD PRESSURE
ON PRICES BECOMES GREATER MORE AND MORE PLANTS ATTAIN THEIR
MAXIMUM OUTPUT. AND MORE AND MORE SHORTAGES IN RAW MATERIALS FOR CIVILIN

USE APPEAR. PRICES OF IMPORTS ARE ALSO RISING DAILY DUE TO DIMINISHING SHIPPING SPACE, HIGHER SHIPPING COSTS, AND DISAPPEARANCE OF NORMAL
FOREIGN SU XXX SOURCES OF SUPPLY.

5. FINALLY, AND OF FUNDAMENTAL IMPORTANCE AS AN INFLATIONARY FORCE
WE HAVE GROWING PROFITS, INCREASING AGRICULTURAL INCOME, AND FATTER PAY
ENVELOPES AND MANY MORE OF THEM.

LET US SEE WHERE THESE FORCES WILL TAKE US IF PERMITTED TO OPERATE
IXX UNCHECKED, AS THEY AXX WERE UNCHECKED IN THE WORLD WAR. ALL WE

HAVE TO DO TO SEE WHAT MAY BE AHEAD OF US IS TO LOOK INTO THE PURSE
OF THE AVERAGE FAMILY OF THOSE TIMES -- NOT IN PERCENTAGES AND
INDEXES, BUT THE PRICES OF ESSENTIAL FOOD, CLOTHING AND SHELTER.
THE MONEY THE HOUSEWIFE PIXX 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 YEAR OF COTTON CLOTH IN 1914, WAS ENOUGH TO BUY ONLY ONE-

THIRD OF A YEAR 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 P

RISEN TO $2.03. THE PATTERN OF RISING PRICES FOR FOOD, FUEL, SHELTER
IN THE PAST FIVE MONTHS IS STARTLINGLY SIMILAR TO THAT OF 1915 AND
1916. IF THESE PRICES CONTINUE TO RISE AS THEY DID FROM 1916 TO 1920
WE SHALL FIND THTXXX THAT FOOD, FUEL, SHELTER, AND CLOTHING THAT NOW
COST $1.00 WILL ONCE MORE COST OVER $2.00.
THE RISE IN PRICES IS BY NO MEANS CONFINED TO FOODSTUFFS AND CLOTHING.
I HAVE BEFORE ME, FOR INSTANCE 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.

NOT ONLY IS THE COST OF BUKLDING HOMES RISING BUT EVEN FOR THE MILLIONS
WHO SXXX DO NOT OWN THEIR HOMES HIGHER RENTAL S ARE ON THE WAY. WE
FUXXX FIND ALREADY IN SCORES OF AREAS WHERE INDUSTRIAL EXPANSION HAS FIE

FIRST TAKEN HOLD, RENTS RISING 10, 20, 30 AND EVEN HIGHER
TODAY

TEXXX THERE IS, HOWEVER, ONE GREAT DIFFERENCE BETWEEN CONDITIONS TODAY

AND 1916. WE NOW KNOW WHAT IS GOING ON. THIS TIME OUR EYES ARE
OPEN TO 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
KNOWLEGXXX KNOWLEFXXXXX KNOWLEDGE AND TAKE PROMPT AND EFFECTIVE ACTION
NOW.

OUR 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 HOTTER 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 PURCHASING POWER, AND WE MUST ALSO STRENGTHEN THE BOILER

BY INCREASING THE SUPPLIES OF GOODS AVAILABEL TO THE CONCUMER.
LET US EXAMINE RECORD TO SE XXX SEE WHAT IS BEING DONE AND WHAT NEEDS
TO BE DONE IN ORDER TO STOP PRICES FROM RISING FURTHERM.
CONGREASXXXXX CONGREAXXXXX CONGRESS NOW HAS BEFORE IT A HUGE TAX BILL

DESIGNED TO REAXXXX RAISE $32 BILLION IN ADDITIONAL REVENUE. THIS
INCREASE IN TEAXXX TACESXXX TAXES WILL WITHDRAW FROM THE PUBLIC
PURCHASING POWER THAT COMPETES WITH THE DEFENE EFFORT. BUT WE NEED TO
RAISE STILL MORE TAXES AS OUR DEFENSE EFFORT GROWS.
SECONDLY, THE TREASURY IN ITS BORROWING PROGRAM IS ATTEMPTING TO
OBTAIN AS LARGE A PORTION OF ITS FUNDS AS POSSIBLE FROM CURRENT CONSUMER

INCOME, AND THROUGH A NEW FORM OF NOTW -- THE TAX ANTICIPATION NOTE -IS ENDEAVORING TO REDUCE THE LAG BETWEEN THE TIME OF ACCCRUAL AND THE

TIME OF PAYMENT OF INCOME TAX, THUS INCREASING PXX THE EDXX EFFECTIVENESS OF THAT TAX AS A MEANS OF CURTAILING CURRENT PURCHASING POWER

FOR CONSUMERS GOODS. TO DO THIS THE TREASURY HAS ALSO INITIATED A
PROGRAM OF SELLING DEFENSE SAVINGS BONDS AND STAMPS TO PEOPLE OF
MODERATE AND LOW INCOME.

THE PRESIDENT HAS JUST ISSUED AN ORDER GIVING THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM SXX AUTHORITY TO CONTROL CONSUMER

INSTALLMENT CREDIT, THUS MAKING IT POSSIBLE TO SUPPLEMENT THE RESTRICTIONS ON SPENDING OVXXX OF CURRENT INCOME BY RESTRAINTS ON THE
SPENDING OF ANTICIPATED INCOME.

THE OFICE OF PRICE ADMINISTRATION AND CIVILIAN SUPPLY IS MAKING EVERY
EFFORT TO OBTAIN THE COOPERATION OF PRODUCERS AND SIXX DISTRIBUTORS IN

LIMITING PRICE RISES.
BUT THERE ARE ADDITIONAL METHODS TO WHICH WE MAY FIND IT NECESSARY TO

RESORT TXX IN OUR EFFORTS EFFECTIVELY TO PREVENT INFLATION, SUCH AS.
1. EXTENSION OF THE GENERAL CONTROLS OVER BANK CREDIT.
2. CREATION OF CONTROLS OVER CAPITAL EXPENDITURES.
3. AN EXPAXXX EXTENSION OF THE SOCIAL SECURITY PROGRAM ALONG LINES P
WHICH WOULD INCREASE THE FLOW OF FUNDS TO THE TREASURY FROM CURRENT
INCOME DURING THE EMERGENCY AND WOULD INCREASE THE OUTFLOW OF FUNDS

WHEN NEEDED IN THE POST-DEFENSE PERIOD.
4. A REDUCTION OF THE FEDERAL LENDING AND UNDERWRITING PROGRAM, SUCH
AS NON-EMERGENCY HOUSING EXPENDITURES AND MORTGAGE GUARANTEWS.

5. REDUCTION OF NON-ESSENTIAL FEDERAL EXPENDITURES, AN APPEAL FOR
ECONOMY IN STATE AND LOCAL GOVERNMENTAL EXPENDITURES AND FOR CURTAILMENT OF THEIR BORROWING FOR NON-EMERGENCY EXPENDITURES, THUS

BUILDING A BACK-LOG FOR THE POST-DEFENSE PERIOD.
WE SHOULD WLXXX ALSO ATTACK THE PROBLEM FROM THE OPPOSITE DIRECTION,
BY MAKING EVERY EFFORT TO INCREASE THE SUPPLY OF GOODS ABXX AVAILABLE
TO

THE

CONCUMER

WHEREVER

THIS

CAN

BE

DONE

WIHXXX

WITHOUT

ENCROACHING

UPON OUR DEFENSE PROGRAM. I BELIEVE THAT WE HAVE FAILED TO PUCH OUR
PRODUCTION OF GOODS TO THE ULL CAPACITY OF OUR ENORMOUS RESOURCES.

MILLIONS ARE STILL UNEMPLOYED, AND THERE ARE ALSO MANY MILLIONS WHO,
THOUGH NOT CLASSIFIED AS UNEMPLOYED, COULD BE ADDED TO THE WORKING

FORCE IF HXX MOXXX JOBS WERE EASILY AVAILABLE. BECAUSE OF OUR
1

ACCUMULATIONS OF AGRICULTURAL SURPLUSES WE ARE IN A POSITION TO
PROVIDE INCREASED QUANTITIES OF ALMOST ALL AGRICULTURAL GOODS AND
THEREBY BOTH PREVENT THE COST OF FOOD FROM RISING AND PREVENT THE STAN-

DARD OF LIBXXX LIVING VXX FROM BEING IMPAIRED.
INDEED, MY SUGGESTION THAT THE GRANARY DOORS SHOULD NO CXXX NOW BE

PXX 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
DEBXXX DEVELOP.

NOW IS THE TIME TO EMPTY OUR BINS, BOTH FOR PRESENT ADVANTAGE, AND so
THAT IF NECESSARY WE CAN LATER FULL 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. IF WE PERMITÉ PRICE PEAKS TO DEVELOP, PRICE VALLEYS ARE
INEVITABLE.

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 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.
I WANT VERY MUCH 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 TOAXXX TO THAT OBJECTIVE,
I AM CONVINCED THAT WE MUST NOT IGNORE THE DANGER SIGNALS AHEAD.
NOW WHAT ARE THOSE DANGER SIGNALS AS THEY APLY TO OUR FARMS. THE MOST

WXX SERIOUS OF THEM IS A RAPID RISE IN PRICES WHICH IS HASTENED TO A
LARGE EXTENT BY THE ARTIFICIAL WITHOLDING 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
WXX 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 AVAILABÉL HERE IN THE UNITED STATES.
I DONT WISH TO BE MISUNDERSTOOD UXX IN MY COMMENTS ON AGRICULTURAL

PRICES. I AM GLAD THAT SOME OF THE AGRICULTURAL PRICES THAT HASXXX HAD
BEEN TOO LOW HAVE ATTAINED A REASONABLE LEVEL. I AM NOT DISTURBED
BY THE GENERAL LEVEL OF AGRICULTURAL PRICES NOW PREVAILING, BUT WHAT

I AM DEEPLY CONCERNED ABOUT IS THE DANGER THA T AGRICULTURAL PRICES IN
GENERAL WILL CONTINUE TO RISE UNTIL THEY ARE OUT OF HAND. AS THE
SECRETARY OF AGRICULTURE STATED ONLY A FEW DAYS AGO. "THERE ARE SOME
WHO THINK AGRICULTURE SHOULD CHARGE ALL THAT THE TRAFFIC WILL BEAR,
TO GET WHILE THE GETTING IS GOOD. WITH THE HOPE THAT SOMEHOW THE

AFTERMATH CAN BE AVOIDED. FOR HIS PART HE WARNED HIS AUDIENCE THAT

"TO TIE UP STOCKS IN AN EFFORT TO CREATE AN ARTIFICIAL SCARCITY AND
UNREASONABLE PRICES IS NOT IN THE INTEREST OF THE FARNXXX FARMER, THE
CONCXXX CONSUMER, OR THE GENERAL WELFARE.

AT THIS TIEXX TIME WHEN AGRICULTURAL PRICES ARE IN THE MAIN AT OR NEAR
A SATISFACTORY LEVEL, WHEN THE COUNTRY IS FACING A MAJOR THREAT OF
INFLATION, AND WHEN IS MORE IMPORTANT THAN EVER THAT THERE SHOULD
BE NO UNDERNOURISHMENT WE SHOULD NOT INCREASE STILL FURTHER OUR
RESERVES OF AGRICULTURAL COMMODITIES IN THE WAREHOUSES OXX FOR THE PUR-

POSE OF RAISING PRICES.

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 150,000,000 BUSHELS OF TWO YEARS CROPS ARE
STORED IN CANADA. I WONDER IF SHE KNOWS, WHEN SHE PAYS 15 PER CENT
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 SXX PAYS
25 PER CENT MORE FOR BUTTER, THAT WE HAVE FORTY MILLION POUNDS OF BUTTER

IN TAT WE HAVE FORTY MILLIONS

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 MANY KINDS WHICH SHOULD BE RELEASED FOR CONSUMPTION AS
RAPIDLY AS IS NECESSARY TO PREVENT UNREASONABLE PRICE RISES.
THE GOVERNMENT NOW HOLDS SEVEN MILLION BALES OF COTTON.

COTTON PIXXX PRICES HAVE RISEN FROM 92 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 TIS

MANNER. IN TIMES LIKE THESE, THE HOUSEWIFE OUGHT NOT TO BE MADE TO PAY
TIXX TRIBUTE TO PROFITEERS AND SPECULATORS WHEN SHE BUYS A COTTON DRESS

FOR HERSELF OR A SHIRT FOR HER HUSBAND OR A SUIT FOR HER CHILD.
THE EFFECT OF GOOD GOOXXX FOOD ON NATIONAL DEFENSE HAS BEEN STATED ASXX

so WELL IN THE AUGUST ISSUE OF FORTUNE MAGAZINE THAT I SHOULD LIKE TO
READ ONE PARAGRAPH TO YOU. IT SAYS,

"TIX 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 HAD IN BATTLE, EFFICIENCY ON THE PRODUCTION
CIVILIAN MORALE -- ALL HINGE
NOT
LINE,
JUST
FOOD,
EATING
ENOUGH,
BUT ON EATING ENOUGH OF THE BEST LIFE-GIVING FOODS. THE NAZIS HAVE EVEN
ON

ON

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 TOP
PARALYZE THE WILL OF THE CONQUERED. NEVER HAS IT BEEN so CLEAR THAT
FOOD IS POWER.

I THINK THAT OUR DEPARTMENT OF AGRICULTURE HAS REASON TO BE PROUD

OF THE PROGRESS THAT IT HAS MADE IN FORESEEING THE SCARCITY OF SOME OF
THE AGRICULTURAL COMMODITIES AND IN TAKING EFFECTIVE STEPS TO INCREASE
THEIR PRODUCTION. THEY ARE ALSO UNDERTAKING A PROGRAM OF ENCOURAGING
POWDER MILK AND CHEESE FACTOIXXX FACTORIES so THAT THERE SHALL BE MORE
OF THOSE PRODUCTS AVAILABEL TO THE CONSUMER.
BUT STILL MORE EFFORT SHOULD BE MADE TO PUT MORE DAIRY PRODUCTS ON THE
MARKET. WE COULD EASILY EXPAND OUR PRODUCTION OF DAIRY PROCXXX
PRODUCTS FOR OUR OWN USE, AND YET LEAVE AMPLE AMOUNTS TO BE SENT
OVERSEAS.

I KNOW FROM EXPERIENCE ON MY OWN FARM WXX THAT WITHIN TWO MONTHS WE
COULD SUBSTANTIALLY 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 MORE EGGS. YET THE PRICE
OF A STANDARD PULTXXX POULTRY RATION HAS INCREASED 60 PER CENT SINEXX
SINCE THE WAR BEGAN. WE COULD FEED OUR SURPLUS GRAIN TO HOGS AND GET
MORE PORK AT PRICES WHICH THE MCCXXX AMERICAN HOUSEWIFE COULD PAY.
YET THE GOVERNMENT IS WITHHOLDING 200 MILLION BUSHELS OF WHEAT AND
300 MILLION BUSHELS OF CORN.

THIS HS XXX 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.
LETS MAKE IT FLOW. IF WE WERE TO LET IF XXX IT FLOW TO 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.
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 HSXXX HAS A RESPONSIBILITY TO THE PUBLIC,
AND ON THE OTHER HAND, ITS OWN FINANCING WILL BE DEFINITELY MORE
DIFFICULT IF INFLATION DEVELOPS.
AS THE NATIONS LARGEST PURCHASER, THE GOVERNMENT IS CONCERNED WITH THE

PROBLEM IN A VERY DIRECT WAY. WE HAVE A &111 $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 WITOXXXX 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 PROPORTION.
FURTHERMORE, AS THE NATIONS LARGEST EMPLOYER WE ARE ALSO CONCERNED.
APART FROM THE ARMED FORCES, THE GOVERNMENT EMPLOYES MORE THAN ONE
MIKXXX MILLION PEOPLE WITH A PAYROLL NOW RUNNING AT THE RATE OF

$22 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.
WE ARE DETERMINED TO BATTLE AGAINST WXX EVERY THREAT OF INFLATION.
EVERY CITIZEN, EVERY WAGE EARNER, AND EVERY HOUSEWIFE HAS A VITAL INTEREST IN SEEING THAT THIS BILL PASSES AND IN SEEING THAT A PROGRAM
BE PRESSED OF INCREASING THE SUPPLY OF FOOD AND OTHER CIVILIAN GOODS
WHOSE PRODUCTION DOES NOT ITERFERE WITH OUR DEFENSE PROGRAM.

SOME OF OUR PEOPLE TIXX 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 PROFITTXXXX 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 EXX ANY OTHER SINGLE FORCE. INFLATION DIVIDES THE COUNTRY.
IT SETS UP PRODUCERS AGAINST CONSUMERS, WORKERS AGAINST EMPLOYERS, THE
PEOPLE WHO OWE MONEY AGAINST THE PEOPLE TO WHOM THE MONEY IS OWED.

NOTE. WE DOUNXXXX DOUBT IF IT WILL BE NECESSARY FOR AGENT TO WAIT
FOR ANSWER IF HE SHOULD INQUIRE.
WILSON END
MOM PLS

DO WE UNDERSTAND CORRECTLY THAT INSTRUCTIONS ISSUED BY MR MURPHY

T TO THE EFFECT THAT THE ABOVE IS TO BE RETURNED TO YOUR OFFICE BY
TT AT 7 AM, EST, TOMMOROW AFTER CORRECTIONS BY MRS ROOSEVELT IS TO BE
DISREGARXXXX DISREFARDED

DISREGARDED
GA

MOM PLS

WHEN MESSAGE IS DELIVERED TO HYDE PARK THE AGENT SHOULD
INQUIRE FOR FURTHER INSTRUCTIONS.

GA

REFER TO FILE No.

TREASURY DEPARTMENT
WASHINGTON D. C.
OFFICE OF THE CHIEF

August 13, 1941

U.S. SECRET SERVICE

Memorandum for Mrs. Klots
From:

Assistant Chief Murphy

This is to advise that the teletype
message was delivered to Miss Thompson, Mrs.

Roosevelt's Secretary, at 5:15 P.M., Eastern
Daylight Saving Time.

go

KNOW YOUR ENDORSERS
not cash Checks for Strangers

352

353
ANDARD FORM No. 14 A
APPROVED BY THE PRESIDENT
MARCH 10, 1926

TELEGRAM
OFFICIAL BUSINESS-GOVERNMENT RATES

TREASURY DEPARTMENT
WASHINGTON

CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR

Official

H. Morgenthau, Jr. (The appropriation from which payable must be stated on above line)
2-1411

AUGUST 18 1941
MRS FRANKLIN D ROOSEVELT
HYDE PARK NEW YORK

THIS DRAFT WHICH I HAVE SENT YOU IS STILL NOT IN ITS FINAL
FORM PLEASE KEEP THIS IN MIND WHEN YOU READ IT I WILL
TELEPHONE YOU TONIGHT ABOUT EIGHT DAYLIGHT SAVING TIME
HENRY MORGENTHAU JR

354

Treasury Department
TELEGRAPH OFFICE

$9

Y85 PX 17

1941 AUG 13 PM 2 32

POUGHKEEPSIE NY 159p AUG 13 1941
ENRY MORGENTHAU JR
TREASURY DEPT

YOUR WIRE MRS ROOSEVELT JUST RECEIVED I DO NOT EXPECT HER TO ARRIVE
HOME TONIGHT UNTIL LATE
MALVINA THOMPSON
229p

STANDARD FORM No. 14 A
AMMOVED BY THE PRESIDENT
MARCH 10. 1926

TREASURY DEPARTMENT
WASHINGTON

TELEGRAM
OFFICIAL BUSINESS-GOVERNMENT RATES

CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR

H.
Morgenthan Jr - Official
(The appropriation from which payable must be stated on above line)
-1411

AUGUST 18 1941
MRS FRANKLIN D ROOSEVELT
HYDE PARK NEW YORK

JUST RECEIVED WORD THAT I WILL NOT HAVE TO TESTIFY UNTIL
SEPTEMBER FIFTEENTH SO PLEASE DO NOT BOTHER TO READ MY
STATEMENT AS BETWEEN NOW AND THE FIFTEENTH I HOPE TO
GREATLY IMPROVE IT, AND THEN HAVE A CHANCE TO GO OVER IT

WITH YOU IN PERSON STOP THIS TELEGRAM IS IN LIEU OF
TELEPHONING YOU TONIGHT BEST REGARDS

HENRY MORGENTHAU JR

355

356

THE UNDER SECRETARY OF THE NAVY
WASHINGTON

August 13, 1941

Dear Henry:

I thought your statement before
the Senate Finance Committee was excellent.

Don't bother to acknowledge this
note.

Sincerely yours,

give

James Forrestal

The Honorable

The Secretary of the Treasury
Washington, D.C.

357
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE August 13, 1941

Secretary Morgenthau

TO

FROM

Mr. Kuhn

This is in answer to your inquiry of this morning about
the Irving Berlin song.
The song with colored cover is already out, and 250,000

copies have been printed. I attach a copy, and also a copy of
the band arrangement and the orchestra arrangement.

Our two million post cards started moving on the first
of August and will all be out by the 25th of this month. Through

yesterday 1,099,000 have been mailed. Each of our State Administrators has received 50 of the band arrangements and 50 of the
orchestral arrangements, and has been told that he can requisition as many as he needs for high school bands and orchestras in

his State. Texas has already asked for 300.

Every American Legion band is receiving a copy of the
band arrangement so that it can be played on Baseball Defense
Bond Day in 142 baseball parks on August 28.
Every dance band in the United States has already received a band arrangement. Eight hundred radio stations are
using the record on an average of four times a day.

Mr. Berlin himself has written to me and to Mr. Duffus to
say that he is just delighted with the way we are exploiting his
song. He told me so personally when he came into the office the
other day.

F.K.

ANY BONDS TODAY?
words and music by IRVING BERLIN

THEME SONG OF THE
NATIONAL DEFENSE SAVINGS PROGRAM

U. S. Defense Savings Bonds
and Stamps
RY MORGENTHAU, Jr.
TREASURY WASHINGTON D.C.

2

ANY BONDS TODAY?
Words and Music by

IRVING BERLIN

Moderato

VOICE

The tall man with the high hat and the whiskers on his chin

be knock-ing at your door

Will soon_

and you ought to be in

The

Road
tall man with the high hat will be com-ing down your way

Copyright 1941 HENRY MORGENTHAU Jr., Secretary of the Treasury, Washington, D.C.
All Rights Reserved Including the Right of Public Performance for Profit.
International Copyright Secured.
Made in U.S.A.

Get your

3

sav-ings out_ when you hear him shout "an-y

bonds

to- day?"

CHORUS

Day
AN- Y

BONDS

Bonds of free - dom that's

TO- DAY?

"
what I'm sell-ing AN-Y BONDS TO-DAY?

Scrape up the most you can

of
Here comes the free- dom man Ask- ing you to buy a share of free-dom to-day

Any Bonds Today ? - 4

DDP

An-y stamps to day

We'll be blest. if we all in-vest in the

Bonds to- day2

U.

S.

Yan

All you give will be spent to live. in the

Here comes the free-dom
Scrape up the most you

A

kee way

man
can

-

Can't
make
mor
Here comes
theto
free.
domrow's plan Not un less you buy a share of free-dom to-day

man Ask-ing you to buy a share of free-dom to-day

2.

AN-Y

4

Any Bonds Today

To Interlude

Interlude

First came the Czechs and then came the Poles And then the Nor-we-gians withthree mil-lion sould

Then came the Dutch the Bel gians and FranceThe all of the Bal- ly a chance.It

all in the Book if

BBY

as

on- ly you look It's there if you read the text.

fell ev-'ry one at the point of a gun A - mer-i - ca must nt be next. An- y

D.S. al Fine

Any Bonds Today?

They

359
TREASURY DEPARTMENT
WASHINGTON

August 13, 1941

Memorandum for THE SECRETARY:

The following report is made of Stamp sales
at "Treasury House":
$30,025.55

July 1-August 11

522.15

August 12
Total

$30,547.70

GRAVES

UNITED STATES SAVINGS BONDS

CONFIDENTIAL

Comparative Statement of Sales During
First Ten Business Days of June, July, and August, 1941
(June 1-12, July 1-12, August 1-12)

(Amounts in thousands of dollars)

:

:

:

:

$126,064

$138,317

:

:

42,669
15,368
101,484

June

:

:

57,408
10,293
70,617

August
over

July

- 2,367

-$ 3,306

$ 4,123
10,617

- 5,673

14,739

-

145

- 6,436

$159,521 -$12,253

July
over

:

:

51,735
10,148
64,181

:

Total

$ 17,494
25,175

:

Series G - Banks

35,792

over

:

Series F - Banks

$ 21,617

33,425

:

:

Series E - Total

$ 18,311

July

:

July

June

Percentage of Increase
or Decrease (-)
:

:

:

Series E - Banks

July

:

August

or Decrease (-)
August
over

:

:

Series E - Post Offices

:

Item

Amount of Increase

:

Sales

June

- 15.3%

23.6%
42.2

- 6.6

- 5,075
- 30,867

- 9.9
- 1.4
- 9.1

- 33.0

-$21,204

- 8.9%

- 13.39

Office of the Secretary of the Treasury, Division of Research and Statistics.

34.5

- 30.4

August 13, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

CONFIDENTIAL

UNITED STATES SAVINGS BONDS

Daily Sales - August 1941
On Basis of Issue Price

(In thousands of dollars)
Post Office

All Bond Sales

Bank Bond Sales

Bond Sales

Date

Series E

Series E

Series F

Series G

Total

Series E

Series F

Series G

$ 1,467

$ 3,296

$ 1,163

$ 7,586

$ 12,045

$ 4,763

$ 1,163

$ 7,586

$ 13,512

1,500

3,030

726

6,101

9,857

4,530

726

6,101

11,357

3,606
1,278
1,810
1,789
1,812
1,492

4,376
2,822
4,195
3,475
3,069
3,195

1,892

10,092
7,334
10,752
5,636
3,362
4,101

16,361
11,084
16,103
9,763
7,430
8,255

7,983
4,099
6,005
5,264
4,881
4,688

1,892

10,092
7,334
10,752
5,636
3,362
4,101

19,967
12,362
17,912
11,552
9,242
9,747

11

2,683

9,181
7,676

6,370
3,153

4,308

488

4,308
4,908

1,187

873

3,686
2,281

1,187

12

488

4,908

11,865
8,549

$ 18,311

$ 33,425

$ 10,148

$ 64,181

$107,753

$ 51,735

$ 10,148

$ 64,181

$126,064

Total

August 1941
1

2

4

5

2
6

7

8

9

Total

928

1,156
652
999
958

928

1,156
652

999
958

Office of the Secretary of the Treasury, Division of Research and Statistics.

August 13, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

CONFIDENT'AL
UNITED STATES SAVINGS BONDS

Comparative Statement of Sales During

First Nine Business Days of June, July, and August, 1941
(June 1-11, July 1-11, August 1-11)
(Amounts in thousands of dollars)

:

:

:
:

:

:

39,102
14,577
95,948

- 4,344

$117,515

$125,629

227

- 3,997

$149,627 -$8,114

$ 3,805

:

:

52,926
9,433
63,270

Series E - Total

- 1,837

:

48,582
9,660
59,273

31,144

:

32,981

Series E - Banks

: June

: August

:

- $ 2,506

$ 19,944

Total

July

$ 16,139
22,964

$ 17,438

Series F - Banks
Series G - Banks

June

over

over

July

July

:

July

July

Percentage of Increase
or Decrease (-)
:

:

Series E - Post Offices

:

: August

or Decrease (-)
August
over

:

Item

Amount of Increase

:

Sales

over

: June

- 12.6%

23.6%

10,017

- 5.6

13,824

- 8.2

- 32,678

- 6.3

- 35.3
- 34.1

-$23,998

- 6.5%

- 16.0%

- 5,144

Office of the Secretary of the Treasury, Division of Research and Statistics.

2.4

43.6

35.4

August 12, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

CONFIDENTIA
UNITED STATES SAVINGS BONDS

Daily Sales - August 1941
On Basis of Issue Price

(In thousands of dollars)
Post Office

All Bond Sales

Bank Bond Sales

Bond Sales

Date

Total

Series E

Series E

Series F

Series G

Total

Series E

Series F

Series G

$ 1,467

$ 3,296

$ 1,163

$ 7,586

$ 12,045

$ 4,763

$ 1,163

$ 7,586

1,500

3,030

726

6,101

9,857

4,530

726

6,101

11,357

3,606
1,278
1,810
1,789
1,812
1,492

4,376
2,822
4,195
3,475
3,069
3,195

1,892

16,361
11,084
16,103
9,763
7,430
8,255

7,983
4,099
6,005
5,264
4,881
4,688

1,892

958

10,092
7,334
10,752
5,636
3,362
4,101

10,092
7,334
10,752
5,636
3,362
4,101

19,967
12,362
17,912
11,552
9,242
9.747

2,683

3,686

1,187

4,308

9,181

6,370

1,187

4,308

11,865

$ 17,438

$ 31,144

$ 9,660

$ 59,273

$100,077

$ 48,582

$ 9,660

$ 59,273

$117,515

August 1941
1

2

4

5
6

7

8

9

11

Total

928

1,156
652
999

928

1,156
652
999

958

Office of the Secretary of the Treasury, Division of Research and Statistics.

August 12, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

$ 13,512

DEFENSE SAVINGS STAFF
ADVANCE NOTICE RADIO PROGRAM

WEDNESDAY - AUGUST 13, 1941

Time:

4:45 - 5:00 P.M.

Program: "Treasury House" Quiz

Station: WRC - Washington, D. C.

Time:

6:15 - 6:30 P.M.

Program: Mr. Keen, Tracer of Lost Persons
Station: WMAL and NBC Blue Network

Time:

7:05 - 7:15 P.M.

Program: Commissioner Guy T. Helvering
Speake on Tax Savings Plan.

Station: WINK - Washington, D. C.

Time:

8:00 - 9:00 P.M.

Program: TREASURY HOUR - "MILLIONS FOR DEFENSE"

Starring, Al Jolson, Bidu Sayao, Martha

Scott, Henry Fonda, Maurice Evans, Barry
Wood, Ray Block's Choir and A1 Goodman's
Orchestra.
Station: WJSV and CBS Network

THESE PROGRAMS PROMOTE THE SALE OF DEFENSE BONDS AND STAMPS.

364

365

August 14, 1941

My dear Mr. President:
I am sending you herewith a statement show-

ing the most recent figures on delivery of air-

planes, on the chance that they may not have been

brought to your attention.

I would like to point out to you that in

June there were 775 trainers delivered, leaving
only 699 military planes. This compares with July
when there were 829 trainers delivered, leaving
only 626 military planes.
Sincerely yours,
(Signed) Henry

The President,
The White House.

Copies to:

Enclosure

Secretary of State,
Secretary of War,
Secretary of Navy.

B Messanger Steen

5:05

hubin by OPM after

Dr. beried classification - figure given 50
Source: Office of Production Management, Aircraft Section.
August 12, 1941
1,473

*

18
16

Office of the Secretary of the Treasury, Division of Research and Statistics.
829
1455
134113
+
July
202
248
852
41
1,457
1

1,490

16

1,474

775

190

226

249

9

25

June

1,342

22

1,320

703

78

253

255

12

19

May

1,406

31

1,375

696

110

286

244

27

12

Apr.

1,161

42

1,119

575

85

232

205

10

12

Mar.

972

24

948

452

103

203

165

13

12

Feb.

1,028

27

1,001

520

78

261

122

20

Jan. 1941

885

21

864

421

28

262

132

10

Dec.

808

39

769

349

92

250

66

7

5

761

43

718

411

65

192

29

17

4

672

75

597

367

54

152

13

9

2

582

23

559

276

55

149

70

9

Aug.

25

569

251

42

162

112

2

594

July 1940

Total

transports
Commercial

STRICTLY CONFIDENTIAL

military
Total

airplanes
Trainers

tactical
military
Other

Nov.

Oct.

Sept.

bombers : bombers

boats
Pursuits :4-engine:2-engine:
Flying
Other
Other
:

delivered
airplanes

delivered
airplanes

11

Military

Deliveries of Airplanes, Monthly only 1940 to date

Bombers

Month

367

STRICTLY CONFIDENTIAL

Deliveries of Airplanes, Monthly, July 1940 to date

Military
Bombers

Flying

:

Month

boats

:

July 1940

Sept.

2

Oct.

4

: Other

4-engine :2-engine
bombers : bombers :

Pursuits

military
tactical

Trainers

airplanes

military

airplanes
delivered :

Commercial

transports

Total

airplanes
delivered

112

162

42

251

569

25

594

9

70

149

55

276

559

23

582

9

13

152

54

367

597

75

672

17

29

192

65

411

718

43

761

66

250

92

349

769

39

808

132

262

28

421

864

21

885

122

261

78

520

1,001

27

1,028

2

Aug.

Nov.

Other

Total

Other

5

7

Dec.

10

11

Jan. 1941

20

Feb.

12

13

165

203

103

452

948

24

972

Mar.

12

10

205

232

85

575

1,119

42

1,161

Apr.

12

27

244

286

110

696

1,375

31

1,406

May

19

12

255

253

78

703

1,320

22

1,342

June

25

249

226

190

775

1,474

16

9

1,490

July

41

1

248

202

134

829

1,455

18

1,473

Office of the Secretary of the Treasury, Division of Research and Statistics.
Source: Office of Production Management, Aircraft Section.

August 14, 1941.

368
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

August 13, 1941

Mr. White

TO

G. A. Eddy

FROM

gae

Subject: Verification of $2 billion expenditure for agriculture
(Millions)
Appropriation for the Commodity Credit Corporation
Increase in lending power of Commodity Credit

Corporation in conjunction with order to lend up
to 85 percent of parity of five basic commodities
(and other amounts on other commodities). (The
amount that will actually be used during the

1941-42 crop year is, of course, as yet unknown,
but this provision of funds may be taken as a
conservative estimate.)

$1,250

Appropriation for the Department of Agriculture
for 1942

Conservation payments
Sugar payments

Parity payments
Surplus commodity disposal
Permanent annual appropriation of 30 percent

of customs receipts (figure given here is the

1941 appropriation)
Total

499
48

212
100

100

$2,209

369
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
Miss chemisey

DATE August 13, 1941

For
TO

Secretary Morgenthau

FROM

Mr. Cochran

Mr. Bewley telephoned me yesterday evening that Sir Otto Niemeyer will
arrive in Washington this evening, Wednesday, and would like to come in to pay

his respects to Secretary Morgenthan on Thursday or Friday. Will the Secretary

indicate to me an hour, if possible. It is probable that Sir Otto would be departing for China before Secretary Morgenthau returns from his holiday.

MMP
The Secretary will see Sir Atto

at 3:30 today. Thursday
Fig

370

Ice letter sent

to Hmjr it
Mentral filed

in allies under
date 08/03/41
see also 9:30 meeting
8/15/41

C

371

0

P

Y

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680

Benjamin Franklin Station
Washington, D. C.

13th August, 1941.

Dear Cochran,

I enclose copies of a memorandum which

we should have liked submitted to the Treasury Committee

if it had been possible to hold a meeting.

The difficulty, as you will see, is that
the Ordnance Department is reluctant to make payment for

the parts in question at rates more than 5% in excess of
price list values, although those values are, as I understand it, now really out of date, being substantially
below replacement values.

The memorandum, drawn up by the British

Purchasing Commission requests authority to make payment
of $494,424 and perhaps of an additional $165,089 out

of British funds. I am sure, however, that you will
agree that it would be very difficult for us to accept

the view that because the prices asked for are in excess

of certain list prices, British funds should bear the
charge. We have, of course, no responsibility regarding the prices paid for articles delivered to us under
Lend-Lease, and for us to accept liability in this case,

for the reasons given, would, it seems to me, be contrary
to the basic principles of the Lend-Lease procedure.
Moreover, for all I know, there may be many other instances
in which the same sort of point may arise, so that we
cannot treat this as an isolated case.

I shall be most grateful for anything you

can do to help in this case. You will see that it is a

matter of considerable urgency.

Yours sincerely,

/s/ T. K. Bewley
Mr. H. Merle Cochran,
United States Treasury,
Washington,
D. C.
Copy:mew 8/13/41

372
C

0

P

Y

NUFFIELD LIBERTY ENGINE

Parts held by The Vimalert Company Ltd.
(1)

For some time past, the British have been endeavouring to
increase their output of Cruiser Tanks, which are equipped with the

Nuffield Liberty Engine; this is a revised type of the Liberty engine which at one time was built in quantities in the United
States.

In December 1940, the British Purchasing Commission pur-

chased a quantity of parts (value $153,797.50) for the Nuffield

Liberty Engine from The Vimalert Company Ltd., of Jersey City, and

these parts were shipped to England. In addition, under authority

from London, arrangements were made with The Vimalert Company for

the manufacture of 1,000 complete Nuffield engines. The contract
in respect of these engines was being drawn up when, owing to the
general financial position, signature of such a United Kingdom
contract became impossible. Ultimately it was agreed that these

arrangements for the manufacture of the engines should be abandoned,

and that, instead, the parts held in stock by Vimalert (which would
have been used for the manufacture of the engines) should be sold.
Some five requisitions have been lodged under Lend Lease, as and

when Vimalert sorted out its stock. All the parts covered by these
requisitions are mostly urgently required in England for the construction of engines, and the delay which has arisen in the procurement of these parts is having a serious effect on the cruiser tank
program.

Apart from the above, the British Iron and Steel Corporation has ordered various forgings (some machined) in the U.S. in
respect of parts for the Nuffield engine. These orders have been
placed partly out of British funds and partly under the Lend Lease
mechanism.
(2)

In connection with this matter, it will be appreciated
that:-

(a) There are considerable differences in design between the Liberty engine and the Nuffield engine.
Only certain of the parts for the Liberty engine
can be used in the Nuffield variation.
(b) Worn parts are of no use.

373
-2- - -

It should also be pointed out that Vimalert have been engaged

in the Liberty engine business for some twenty years. It is understood
that their stocks originated in purchases of engines and parts, effected
mostly fifteen or twenty years ago, probably at very low prices. Obviously these engines, etc. have been dismantled and the parts sorted out and
stored over a long period.
The prices submitted by Vimalert in respect of the items covered
by the Requisitions have been examined by the Ordnance Department. It
is understood that the Ordnance Department is prepared to purchase parts
for which the Vimalert price does not exceed the prices quoted in one
of the Ordnance Price Handbooks (S.N.L. G.13 March 30. 1928). plus 5%
However, it appears that the Ordnance Department is not prepared to purchase items at higher prices than the S.N.L. figures plus 5% and it has
been suggested that, as a way out of the difficulty, the British Purchase
ing Commission should carry out the purchase of these latter items. A
revised offer has therefore been made by Vimalert to the effect that the
whole of the stocks which it has available should be purchased either by
the Ordnance Department or the British Purchasing Commission. The figures
involved may be summarised as follows:-

New Offer.

Original Requisition New Offer. Ordnance
Date

Total

Number

Total

B.P.C.

Total
119,795.00

Apr.11/41

B.S.C. No. 195

406,150.00

193,560.00

July 2/41

2975

140,000.00

96,780.00

-

.

881

188,265.00

5,240.00

202,302.60

.

2973

100,000.00

109,500.00

2974

235,535.00

110,682.89

172,326.92

$1,069,950.00

$515,762.89

$494,424.52

3,360.50

165,089.00

$519,123.39

$659,513.52

July 2/41

.

July 2/41

.

May 1/41

If

(3)

Additional Items, not covered
by Requisitions already lodged

--

374
-3- -

It is thought that the additional items, not covered by
Requisitions already lodged, are suitable for the Nuffield engine,
but their acquisition (either by a Lend Lease requisition or a
British Purchasing Commission purchase) is subject to confirmation
from England. Authority is therefore sought for the expenditure
of British funds to the extent of $494, 124.5 and, contingent on
approval from England, for the expenditure of a further sum of
$165,089.00, also from British funds.
Detailed Schedules are available in respect of the above.
(4)

It seems necessary to give some explanation as to why the
purchase of certain parts out of British funds is recommended when
the Ordnance Department has refused to effect the purchase of such

parts at the prices offered; the reasons are as follows:-

(a) The S.N.L. prices (taken as a basis by the Ordnance
Department) do not appear to correspond at all to
current replacement costs. Page 87 of the S.N.L.
gives the value of the Liberty engine as $3,128.99.
as against estimates of cost obtained from several
sources of $6,500 to $7,000.

(b) There are no other considerable stocks of parts

which can be purchased. One source (a Mr. H.M. Grant
of Detroit) has been discovered, but an examination
carried out by our Inspection Department shews that

most of the parts submitted for examination by
Mr. Grant are either not suitable for use in the
Nuffield engine or are in a used condition.

(c) The prices at which the British Purchasing Commission
purchase of parts was put through in December 1940

(with the approval of London) are higher than those

now offered.

(d) In those instances where machined parts are being
procured in the U.S., a comparison of the prices
with those asked by Vimalert shews that the latter
are lower than current replacement costs: details
are as follows:-

375
-

Crankshafts

S.N.L. Price

$ 345.58

Current Replacement cost

$ 409.50

Vimalert offer

$ 250.00

In this case, as the Vimalert price is lower than
S.N.L., the Ordnance Department is prepared to effect
the purchase.
Cam shafts

S.N.L. Price

$ 25.93

Current Replacement cost

$ 102.00

Vimalert Offer

$ 35.00

In this instance the Vimalert price exceeds the
S.N.L. price and consequently the Ordnence Department

refuses to effect the purchase, in spite of the fact
that the Vimalert price is only a third of replacement

cost. In this connection, it should be noted that
the price of $102, given as replacement cost, represents that of a Lend Lease contract which is being

placed by the U.S. Treasury as a result of e requisition
lodged by the British Purchasing Commission.

A calculation of the value of all the parts at S.N. L. prices,
plus 5% gives a total of $1,084,852.49. as against $1,178,636.91
($519,123.39 and $659,513.52) asked by Vimalert.

In conclusion:-

(a) The parts are most urgently required.
Washington, D.C.
9 August, 1941.

9::

(b)

6:alm - 8/13/41

We consider that the prices asked by Vimalert are fair
and reasonable, being less than replacement values.

376
EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE FOR EMERGENCY MANAGEMENT
WASHINGTON, D.C.

August 13, 1941.

Dear Secretary Morgenthau:

Here's the proposed letter which we discussed yesterday morning.
Sincerely,

ose

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

Attachment

377

August 13. 19th
Secretary Neogeather
Mr. Cochase

Necetes. Devine and les have approved the attached letter as drafted and read

to them w no. Mr. Gabe, General Manager of Northrep Aircraft Incorporated take-

phosed - last sight and celled this forenson. No said the situation of his party is se serious that they will not to able to meet their payroll wills arrangement with the - to sade within - week.
I have to Mr. white of this eace. but be did not have time to canoult
with - thereon. I have sent his a copy of this draft.
In my opinion this letter should be cleared urgently.

This must have O.K. of White and Feloy before it goes.
4 e'slook
(Letter)

Ree'd. from Mr. Feloy. duly initialed

by his and Mr. White at 3:05 p.n. and
sent by me to Mr. Jones 3:15 p.m.
E.N.C.-8/13/41

378

AUG

194

Dear Mr. Jones:

The British Purchasing Commission has presented to me a
memorandus concerning the Northrep Aircraft Incorporated, of which

I have pleasure in attaching a photostat copy. From this a

11 appears that Northrop Aircraft Incorporated, with which the
British have a contract for 200 "Vengennee" Dive Member airplanes.
plus 20 percent spares, is urgently is need of cash and that the
R. F. C. has been approached for a less. Mr. Cohr. General Manager
of Northrop Aircraft Incorporated, telephoned the Treasury Department confirming the difficult position in which his company finds
itself, and requesting the Treasury's cooperation.
As you are aware, it has been the Treasury's constant

desire and effort to assist is improving the dollar exchange position
of the British Treasury. The changes contemplated in the proposal
outlined is the attached memorandus would impose increased payments

upon the British at a time when their dollar resources will be under
considerable streis. According to the calculations of the British
Purchasing Commission, such a proposal would mean that over the
period from November 1941 to May 1942 their each outpayments would

be greater by approximately $2,000,000 than they would be if the
terms of the original contract were followed.

Appreciating the importance of insuring delivery of the
planes under reference, as well as continued operations of the
Northrep Aircraft Incorporated on other Governmental contracts, it
is agreeable to the Treasury that the British should meet the requiremeats of the R. F. C. for the 25 percent "overpayment" described is

the attached a in case the R. F. C. may not see its way

clear to preceed with the loan in the absence of such an arrangement.
On the other hand, if some other arrangement can be made, the Treasury
would naturally desire to see the dollar exchange resources of the
British conserved.
Very sincerely yours,

Secretary of the Treasury.
The Henorable
Jesse Jones,

Federal Loss deteistrator.

HMC:dm:8/13/41

(init.) H. M. C.

EHF Jr HDW

inded by Mr. Bewley of the British Treasury to Mr. Cochran in the U. S. Treasury
9:30 a.m., August 12, 1941.)
MEMORANDUM RE NORTHROP AIRCRAFT INC.

The Northrop Aircraft, Inc., has approached the

R.F.C. in connection with a loan to carry them over a period
of shortage of working capital which cannot apparently be
met by any other means. The R.F.C. have approved the loan

but only on the understanding that the firm takes certain
measures to restore their cash position as soon as possible.
One of these measures is that the payments arrangements on

B.A.C. contract A-1555 (for 200 "Vengeance" Dive Bomber air-

planes plus 20 per cent spares) be modified on the following
lines:

(a) The existing contract provisions are that 50 per
cent of the total contract price has been paid
(approximately $8,500,000). As each airplane or

lot of spare parts is delivered, the balance of
50 percent of the contract price of such airplane
or lot of spare parts is paid.
(b) The R.F.C. in effect propose that instead of paying
the balance of 50 percent against each delivery,
we should in respect of the first 100 airplanes
(or equivalent in airplanes and spares) pay 75

per cent of the contract price, i.e., as compared
with (a) above, an "overpayment" of 25 per cent.
This overpayment would be adjusted by paying only

25 percent of the contract on deliveries after the
first 100 airplanes.

(c) The effect of the proposal at (b) is that over the
period November 1941 to May 1942 our cash outgoings

would be greater by approximately $2,000,000 than
they would be otherwise. The spread is roughly as
follows:

-21

Nov. 1941

Dec. 1941

95,000

nil

March 1942
400,000

Jan. 1942

Feb. 1942

250,000

305,000

April 1942
600,000

May 1942

350,000

Adjustment of the "overpayment" would be spread

over the period May 1942 - August 1942 in approximately equal proportions.

We should not normally be willing to agree to a

modification of the contract on the lines proposed. On the
other hand, we are advised that Northrop's position is desperate, and if they cannot obtain R.F.C. ts approval for the
loan, they will be unable to carry on - a contingency which
must obviously be avoided at all costs. R.F.C. is understood to be obligated to take all possible steps to safeguard
any loans that they approve, and the conditions they have
imposed in this case represent the only solution they and

the firm have been able to arrive at.
Advice is sought (a) Whether other arrangements could be made by the
U.S. Government which would provide the temporary

safeguard needed by the R.F.C. without calling
for increased payments by H.M.G. in the earlier
months; and

(b) Whether, if such different arrangements cannot be
made, any steps can be taken to ensure that the
Northrop Company will be able to carry on after

the first 100 airplanes, on which the heavier
payments would be made, have been delivered, at

least up to the final completion of the contract.
TKB:KF

Washington, D.C.,
August 11, 1941.

381

C

0

PLAIN

P

Y

PEIPING VIA N.R.
DES

Dated August 13, 1941
Rec'd 4 p.m.

Secretary of State,
Washington.

Circular August 13, 1 p.m.
Reference Embassy's circular today repeating

Department's 139, August 11 in regard to freezing

regulations. As it will doubtless be of timely
interest, please radio in plain language to the
Department a report on the regulations and restrictions imposed by the Japanese and their sponsored

authorities on Americans residing in your respective

districts along the lines of the Department's report
on regulations applicable to Japanese nationals in
the United States. In stating sums of money give both
local currency and equivalent in United States currency.
In a separate paragraph report any additional
restrictions on Americans beyond those applied to
Japanese nationals in the United States.
Sent to all consuls except Kunming, repeated to
Department and Chungking for the Ambassador.
BUTRICK

CSB

Copy: hbr: 8-27-41.

382

TK

GRAY

Swatow via N. R.
Dated August 3. 1941
Rec'd 3:10 p.m.

Secretary of State
Washington

August 3. 3 p.m.

The local vernacular press reports regulations
made by the Japanese military effective August 1st
summarized as follows:

(1) Movement of all goods, currency persons between the occupied and unoccupied areas is prohibited.

(2) Permits issued prior to July 31 are cancelled.
(3) Regulations are applicable to all persons
regardless of nationality.
(4) Violators shall be executed.
The paper states that the regulations were made

to strengthen the blockade. No information on the
subject has been received.
Sent to Peiping, repeated to Chungking, Department.
YEARNS

KLP

Copy: hbr: 8-27-41.

383

TELEGRAM SENT

PLAIN

August 11, 1941.
AMEMBASSY

PEIPING (CHINA) VIA N.R.
INFO: AMEMBASSY, CHUNGKING
AMERICAN CONSUL, SHANGHAI

139, Eleventh.

For your information following is text of
Department's 487. August 9. 1 p.m., to Tokyo:

(Please see full text of Department's 487.
August 9. 1 p.m., to Tokyo.)
Inform Consuls.

Sent to Peiping. Repeated to Chungking, Shanghai.
Hull
(MMH)

FE:GA:FRE FE PA/H

384

TELEGRAM SENT

KD

PLAIN

August 9. 1941
1 p.m.
AMEMBASSY,
TOKYO.

RUSH.

487.

Any Japanese national, including members of the

consular and diplomatic corps, may under a general
license issued by the Treasury Department, but without

specific license or application, withdraw $500 in any
one month from banking institutions in the United

States if such is needed for living, traveling, and similar personal expenses in the United States. Specific

permit is required for withdrawals in excess of this
amount.

Japanese nationals are not repeat not at present

required to obtain a permit to leave this country.
Japanese nationals are not repeat not required to

obtain a permit to purchase tickets either for travel
within the United States or for travel abroad. Upon
specific application the Treasury is granting specific
licenses

385
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licenses for the withdrawal of funds sufficient for
travel to Japan.
Customs formalities in connection with the departure
of Japanese nationals are similar to those which have been
and are customarily employed with incoming travelers,
except that customs authorities, due to complicated
problems involved, have often required interviews one

or two days prior to sailing. Customs authorities are
empowered to make reasonable search of persons and

effects of departing travelers not possessing diplomatic
status and to act upon their own discretion. The baggage
and persons of Japanese nationals possessing diplomatic
status who departed on the Tatuta Maru and the Heian Maru
were not made subject to inspection and you may inform the
Japanese Government that exemption from inspection will

continue to be granted to persons possessing diplomatic
status.

Japanese nationals are not required to obtain per-

mits in order to send their ordinary personal effects
out of the United States.
Departing Japanese nationals generally may take out

of the country up to $200 United States currency without
license or other formality and members of the Japanese
diplomatic

386

diplomatic or consular corps may take out of the country

up to $1,000 without license. Specific license required
for any larger sum or for any securities or for any
other things of abnormal value, exclusive of reasonable
personal effects. This procedure was followed in the
case of travelers departing on the Tatuta Maru and the
Heian Maru,

HULT.

(DA)

FE:JMJ:MJK/HES

Copy: hbr: 8-27-41.

FE

PA/H

387
PARAPHRASE OF TELEGRAN RECEIVED

FROM: American Babasay, Rio do Janeiro

DATE: August 13, 1 p.m.

NO.: 1069
The Ambassador informs the Department that word has

reached him from a reliable source that a Foreign Service
secretary of the Vichy Government left Vichy on July 9.
On August 8 this secretary arrived in Rio de Janeiro on
the s.s. Serpapiate. According to information received
by the Ambassador, this man, who will later be transferred
to the French Embassy at Garacas, had with him when he

arrived in Rio de Janeiro a package containing 1,000,000

dollars in United States bank notes. The notes were mostly
$1,000 notes and there were also $5,000 and $10,000 notes.

He has, it is said, turned over the package of notes to
the French Enbassy in Rio de Janeiro, so that French Missions
in Latin America may have it as an emergency fund.
The Ambassador states that the person who gave him this

information is extremely nervous about having given such

information to the Enbassy, and he must be fully protected.

The informant suggested that (one) if it is decided to
take steps to prevent the sale of these bank notes, at
least 45 days should elapse before any announcement is made.

Secondly, the informant suggested that, should the Treasury
Department wish to out down the monthly allowances for
maintaining the Missions of Franch in South America, the

statement

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statement that French dollar assets are available in Montevidee
should be offered as the excuse for such action. The Ambassador

is told that there is no fear of the notes being used during
the 45 day interval suggested. Finally, the informant urged
that, if the package of bank notes has to be mentioned, the
Department should state that the Portugal was the source of
the information received by the Department in this case.
CAFFERY

EA:00

by

18t

11

31

389

PARAPHRASE OF TELEGRAN RECEIVED

FROM: American Enbassy, Rio de Janeiro, Brasil
DATE: August 13, 1941, 2 P.M.

NO.: 1000
Reference is made to the Embassy's telegram No. 1000,

9 p.m., of August 9, 1941.
As stated in the Enbassy's previous telegram, the
Bank of Brasil was persuaded to rejeet future use by the

Japanese of dellar credits for the purpose of purchasing
strategic materials in the American republies. The Bank
of Brasil holds a small dollar balance for the Mitsui Bank.
Therefore, the Bank of Brazil sent a telegram to the

Mitsui Bank which is along the lines of the letter that
was sent to the Yokohama Specie Bank by the Director of

Exchange. (The letter referred to was to have been delivered
on August 11, 1943 to the Rio de Janeive branch of the
Yokohama Specie Bank.)
CAFFEEX

VHI

EAI PAK
VN

640.51 Frozen Credits/2982

31

390
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Legation, Bucharest, Rumania

DATE: August 13, 1941, noon.

NO.: 743
This telegram is for the Undersocretary's attention.
Letters dated May 10 and July 2, initialed F. T. have
been written by the National City Bank, addressing the
Argentine Minister in Bucharest as Mr. Enrique J. Amaya,
concerning payments from his account with that bank to be made
in New York City, Rochester, New York, Buenos Aires, one

Isekial in Switzerland, and the Credit Suisse. The letters
state that, before the Bank can charge his account, they 3
must have information as to the nature of each payment - this
being necessary on account of his Rumanian "domiciliation".

According to these letters, the Bank has written to the payees
asking the purpose and nature of these "underlying transactions",

besides writing to the Minister himself. The Argentine Minister
telegraphed the Bank and received the reply, dated July 30, that
the Treasury Department required information as to the purpose
and nature of the payments to Switzerland mentioned in the

bank's first letter.
The American Minister states that only the good neighbor

policy has kept the Argentine Minister from losing his faith
entirely. However, his patience is wearing thin on account of
the

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continued delays in telegrams and letters. As is natural under
present conditions, some of the letters, at least, have been
lost. Apparently the Argentine Minister ought never to have
been included under the order, any more than the American

Minister himself. The American Minister states that this is
only one of many cases among his colleagues, many of whom have

been irritated by the bureaucracy's invasion of their bank
accounts. He has received frequent complaints from both the
Iranian and Swiss Ministers, but he has urged them to take
the matter up in accordance with procedure through their own

legations in Washington. In the case of the Argentine Minister,
therefore, the American Minister is making an indicated exception.
GUNTHER

RR

EA:CD

BY

25

BECEMED

392

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

For Miss
DATE August 13, 1941
TO

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Cochran

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

£43,000
£34,000

Open market sterling was steady at 4.03-1/2. The reporting banks sold
a total of £5,000.
Due to a lessened tourist demand for Canadian dollars that currency
weakened from a discount of 11-1/8% at yesterday's opening to 11-1/2% discount

at today's close.

The Federal Reserve Bank of New York received an order from the Bank

of Sweden to sell 500,000 Argentine pesos at best. The Federal disposed of
the pesos at rates from .2385-1/2 down to .2382. As a result of this order
the peso declined from .2390 to .2382.

In New York, closing quotations for the foreign currencies listed below

were as follows:

Brazilian milreis (free)
Veneguelan bolivar

.0505
.5800
.2070
.4380
.2700

Cuban peso

1-7/32% discount

Colombian peso
Mexican peso

Uruguayan peso (free)

In Shanghai, the yuan was slightly lower at 4-29/324. Sterling WB B

off 3/4 at 4.03.

There were no gold transactions consummated by us today.

The fixing prices in London for spot and forward silver were 23-7/16d,

off 1/16d. The U. S. equivalent of this price is 42.55

The Treasury's purchase price for foreign silver was unchanged at 35$.
Handy and Harman settlement price for foreign silver was also unchanged at 34-3/44.
Under the Silver Purchase Act we made three purchases of silver totalling
175,000 ounces, all of which were new production for forward delivery.

AMR

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MILITARY INTELLIGENCE DIVISION

TENTATIVE LESSONS BULLETIN
No. 144

WAR DEPARTMENT

Washington, August 13, 1941

G-2/2657-235

NOTICE

The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative

and in no sense mature studies.
This document is being given an approved distribution,

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

EXPERIENCE OF GERMAN PIONEER
TECHNICAL ELECTRICAL UNIT IN WAR
SOURCE

This bulletin is based largely upon a translation of an
article which appeared December 12, 1940, in Electrotechnische

Zeitschrift, a German technical magazine. The translation was incorporated in a report submitted on March 26, 1941, by an American

official observer in Berlin.

The article describes the experiences of a special electrical company which was organized, trained, and equipped to perform tasks in connection with the supply and maintenance of electrical powers.
CONTENTS

1. GENERAL
2. DEVELOPMENT AND TASKS OF THE TECHNICAL COMMANDS
3. METHODS OF THE ELECTRIC COMPANIES AND TROOPS
4. RESTORATION OF POWER NETS
5. SUMMARY

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--

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EXPERIENCE OF GERMAN PIONEER TECHNICAL
ELECTRICAL UNIT IN WAR

1. GENERAL

On order of the Oberkommando of the Wehrmrcht, specialized
technical commands were organized by the Technische Nothilfe - Emergency

Technical Assistance Organization - in cooperation with the district
offices for technical matters and for armament inspection, and with similar industries. This new type of specialized troops found many kinds
of important service during the advance in the West, and it performed
tasks of great value to the armed forces.
Specialists from all branches of electrical engineering are
at present serving the country in the army, navy, and air force. Their
comrades in civilian life work with doubled zeal in electric companies,

in distributing installations, in electro-technical industries, and in
other branches of business. Still other electricians are wearing the
field grey uniforms in enemy territory, serving in the technical commands.
In this newest technical army unit, these men can make use of their
entire specialized knowledge, their experience of many years, and

their organizational and technical ability.

2. DEVELOPMENT AND TASKS OF THE TECHNICAL COMMANDS

While to all outward appearances the organization into companies,

platoons, and divisions is purely military, the specialized organization
of the battalion, as well as the coordination of personnel in companies,
is accomplished according to the experience and recommendation of the
Technische Nothilfe. Construction, coordination, and equipment are such
that a technical command can supply the widely different demands of all

military services. It is immeterial whether employment takes place in
an industrial section or in a section devoid of any industries; whether
modern water of steam power stations are to be put in operation, or
only small, old, village power stations. The organization of the technical commands is so elastic that up to the present time there has been no
failure to perform any service required in Sudetenland, Poland, Holland,
Belgium, or France.

The sphere of duty of the technical commands is that of technical assistance to the troops. For the reconnaissance staffs, that means
that the technical commands must obtain, as soon as possible, all
economic and technical information concerning newly occupied territories in order to prevent sabotage and damage to industries of military value and must seize and store raw materials important to the troops or the
homeland. It is the task of the companies to occupy, continue management, and restore to working order all technical installations which the
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troops desire to use. First of all in this category are electric, gas,

and water works, which are of vital importance to life and to opportunities for labor. It would take too much time, even if it were desirable,
to list all industries restored to working conditions by the various
specialists through the delivery of gas, electricity, and water: but
these men, among others, have been responsible for the reopening of

bakeries, slaughter houses, mills, cotton spinning factories, textile
factories, tanneries, light bulb factories, chemical works, paper
factories, machine tool industries, auto repair shops, and oil wells.
The supervisory and repair troops have made countless repairs on high,
medium, and low tension nets, on cables, and gas and water mains, and

on sewer pipes. In order to accomplish this, poles had to be erected,
emergency crossings made, and ditches and trenches filled in. The
demands of the present military posts were, however, not limited to
purely specialized work. Heating installations, and transport and
shipping facilities had to be put in working order: all kinds of motors
and machines had to be repaired; Diesel motors and locomotives for
emergency use had to be constructed. Wherever technical commands were
employed under the leadership of specialists, they made themselves

useful in every way possible as assistants to the armed forces in the
field and the troops of occupation.
3. METHODS OF THE ELECTRIC COMPANIES AND TROOPS

In Poland, the electric companies, with a few exceptions, were
given smaller assignments. Each technical command could work on its

own initiative in its designated sector, since associations of labor
organizations assigned to various technical commands were unusual.

In the West, however, quite different circumstances prevailed. The

advanced development of associated labor organizations prevented the
various companies from working completely independently of each other.
since they were dependent upon one another for information concerning

the completion of repairs on certain installations and for keeping
the installations constantly in operation. The sphere of action of
the technical commands was by no means limited to definite localities;

when necessary, it was extended to the high tension system of modern
long distance service. Often enough an equalization of power became

necessary in order to reach army units across a border. If electrical

power was originally received from Germany, it was returned later on.

After reconditioning the large storage plants, steam powerstations were harnessed to save coal, or were stopped, and the large
water power plants in the mountainous regions were enlarged for producing electricity. To accomplish plans of such magnitude, a very
close cooperation was necessary, over and above all political, mili-

tary, and economic differences. In this way, in addition to its local

and military importance, the activity of the electric companies took
on great importance for European electrical economy. In this
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connection, if the work of the gas and water companies in Holland, Belgium

and France is considered thoughtfully, it will be realized that the

technical commands have been pacemakers for a total European power organization.
4. RESTORATION OF POWER NETS

Those who saw the destruction in Belgium can well imagine how
comprehensive was the work which was demanded of the troops who were

charged with the duty of restoring the high and low tension wires. Many

hundred kilometers of wiring had to be broken off and sometimes removed.

Cable testing was particularly difficult because of a lack of charts

showing the wiring system. Usually, the long distance telephone wires,
which had been laid parallel to the high tension cables, were destroyed
in the same places in which the latter were destroyed. While this

was solely a result of the direct effects of the war - of actual military
engagements, or the demolitions carried out by retreating troops - in
the case of damages to the open air high tension wires, to the 200-volt
high tension net covering all of France, and to the cables, an indirect,
unpleasant effect often appeared. For example, it was found repeatedly
that broken water pipes and sewers had caused breaks in cables which

could not be discovered until the cables were again contracted. It is
impossible to cover here the many sides of the different kinds of work
performed by the electrical troops, so a few illustrations must serve
for all. These show how the technical commands brought about repairs
and restoration, both temporary and permanent, through rapid and determined cooperation, and thereby neutralized the efforts of our enemy.

a. Current Supply of a Damaged Air Field
An air field was to be taken over by German combat squadrons

by evening of the next day. The safety instellations at the air field

had been badly damaged, however, by countless direct hits of our dive
bombers, and the entire air field was without power. The aviation
unit commander ordered the special staff of a front construction organiza-

tion to restore these installations. Since this staff had no specially
trained men at its disposal, it requested assistance from the technical

electricity company of a technical command which was working in the
vicinity. The company commander realized the necessity for immediate
assistance and sent several of his men to obtain information about the

the air field. On the way to the field these men found the torn ends

of a cable in a shell hole. At the air field itself they discovered
that several cables had been broken in numerous places by bomb hits,
and that one of the two transformers had been razed to the ground.
The men returned to their company commander with that information;
whereupon a unit with all the necessary specialists and equipment was

sent to the air field. The main cable and the distributing cable were

repaired in the damaged places, and new pieces of cable were spliced
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in. Necessary ground work was being accomplished at the same time by

order of the front construction organization. Temporary wiring was
laid to avoid the necessity of using the destroyed transformer. No
work in the open could be performed during the night because of the

danger from air raids; but, in spite of that, after fourteen hours of
work, the provisional restoration of all security installations at

the air field had been completed by noon of the next day. The men of
the special staff and of the technical detachment were pleased, the
former because they were assisted at the proper time, the latter,
because they were able to assist. Due to the timely assistance of the
technical company, the urgent order of the air force could be carried
out promptly, and the air field could be occupied by combat squadrons.
b. Removal of a Dud from a Power Station

In blowing up a bridge of no military value, the English, at
the same time, tore up three cables for 70-volt current. This cut

off all electricity in the central district of a large city in Holland.
Important German military headquarters had been established in this

very section of the city, and because of this and of the large number
of civilians, great stress was laid on the importance of repairing the
damage as quickly as possible. The power plant itself was only slightly
damaged and was still able to do business, but the available employees,
and natives with specialized training, together formed too small a
group even to attempt repairs. Accordingly, a technical command got
busy. A bridge was quickly built across the canal, at the side of
the destroyed bridge, to act as a conductor for the three cables.
During the construction of the bridge the cables were laid bare on
either side of the canal, and new conduits were laid. Because of the
new pieces of cable, two new cable muffs had to be added to each
piece in the system. The six 70-volt cable muffs needed were
fortunately found in the electric works, and by dusk the cables had
been mended and were again in order. Meanwhile, specialists of the
same unit worked with employees of the plant to repair the damage to
the command headquarters of the control room. On the other side of

the canal, repairs had been made in the 6.6 kilovolt distributing installations by replacement or restoration of oil switches and alterna-

tors. But still the electric works could not be started. Close to

the large generator an aerial bomb had dropped and stuck, without
exploding. The fireman who had been called in from the technical command to remove the bomb had not appeared, 60 the engineer of the tech-

nical company was afraid to start the turbines for fear that the

vibration of the starting machinery would cause the bomb to explode.
One of the men, who had worked in the Technische Nothilfe in
Poland removing duds, volunteered to remove the bomb. Other volunteers

offered to assist, and after taking the necessary safety precautions,

the dangerous dud was removed and taken away. The following night the
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the German staffs were again able to work by electric light, and the
Dutch families were happy to have the darkness driven out of their
homes so quickly: only a few of them even now realize that German
technicians in field grey uniforms had done their duty with speed,
determination, and silence.
C. Demolitions Preceding the Entry of German Troops
The retreating troops of the western powers caused serious

damages not only to the distribution wires, but also to the power plants.

Whole power companies were put out of action by the removal of important

pieces of machinery. Such was the case with three central stations of a
large city in northern France. Fortunately, in one, German turbines
were used exclusively and spare parts could be easily obtained. In the
other two, the task was more difficult, since they were equipped with
French machines.

It might be mentioned here that these acts of sabotage were
done by military units, the so-called Sections d'Electriciens de Campagne,

an organization similar to our technical companies. At the very beginning of the war certain native members of the labor organizations of
important electrical companies were supplanted by members of this or-

ganization; in event of a retreat of the French armies they had been
ordered to remove important parts of the steering and machinery installa-

tions according to a definite plan.

Often the men of the technical commands could detect the work

of the specialist by the way in which the plans had been carried out:
but sometimes that information was obtained in other ways. The control
of a large electrical plant in a Belgian city had been destroyed by
the British before their retreat. According to several members of the
labor organization who remained behind, an officer and 32 men appeared

in the plant, just before the departure of the English. The machines
had to be stopped at once, and the workers had to step aside. Then the
soldiers began a systematic destruction of the plant. Everything that

could be destroyed by hammers and rifle-butts was smashed, not even excluding the window panes. The switch room presented a particularly
hopeless picture since all measuring, signal, switch, and registering
instruments had been completely demolished. Also destroyed were rapid

adjustors, automatic parallel switch installations, et cetera, the
initial construction cost of which in itself is large. Even porcelain
insulators and conductors had been smashed to small bits.

d. Current Supply with the Aid of an Old Steam Engine
A higher military headquarters, and a large prisoner-of-war camp
were in urgent need of electricity. In the town where they were located
there was no electric company, since the current had been formerly
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supplied by a 70-volt wiring system from abroad - Ueberlandleitung.
Numerous insulators in this system had been destroyed and four poles
had been chopped off or torn down. The wire lay on the ground in 38
fields. After reconnaissance, it was estimated that the restorati on
of the wiring system would take from six to eight days. The staff
and prisoner-of-war camp could not wait 60 long. The company commander

of the electricity company, one of the technical commands, told his
men and platoon leaders of the situation, reminded them that that they
were old Technische Nothilfe members, and asked that they rise to the
emergency and give their aid. Soon afterwards, an 880 horsepower steam
engine was discovered in an abandoned spinning mill, with a dynamo for
producing 350 KVA, 550 volts. There was enough coal at hand, and the
two double-burner boilers, of approximately 120 square meters heating
surface each, were in order. The work was commenced at once. The
current produced was directed to the city distributing station, where
it was changed by the transformer there to 12,000 volts. This distributing station, which functioned as if under normal conditions, took
the place of the only city transformer station, so necessary for the
armed forces. In this way not only was current provided, but desperately
needed water was also supplied to the prisoner-of-war camp.
5. SUMMARY

A long chain of these stories could be recounted, but they would
all go to prove only one thing - the technical commands are an organization of men selected according to plan and led by specialized engineers;
they employ their strength and entire specialized knowledge and professional experience of years duration for strengthening Germany's

position in the neighboring countries, and for reinforcing the military
security of the occupied territories.

Those few examples of the work of the technical electricity
company show the many-sided employment possibilities of this latest
pioneer unit. Small in number, but great in accomplishment in dangerous

spots, these units work to assure the supply of current not only to our
armed forces, but also to the native inhabitants.

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G-2/2657-220; No. 466

M.I.D., W.D.

12:00 M., August 13, 1941.

SITUATION REPORT

I.

Eastern Theater.

Ground: German troops continue their pursuit operations in
the southern Ukraine. Their armored columns are continuing to advance
in the direction of Dneprpetrovsk Nikolaov and towards the coast of
the Black Sea at a point between Nikolaev and Odessa. The exact points
reached by these German columns are not known at this time.
No new information has been received from other

sectors of the front.

Air: Berlin reported German night bombing of railway centers
west of Moscow. Both British and Russian night bombings of Berlin were
claimed. Ladoga was the scene of combat activity.
II.

Western Theater.

Air: British. Heavy night attacks on Berlin and other
cities. Daylight raids on Kiel, Bremen, Osnabruk, Stetlin, Duisburg,
and Cologne.

German. Small scale activity both daylight and night.

III.

Mediterranean Theater.

No further activity.

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