Full text of Diaries of Henry Morgenthau, Jr. : Volume 438 : Part 1

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

DIARY

Book 438

September 4 - 6, 1941

-Book Page

China

See War Conditions

Coe, V. Frank
See War Conditions: United Kingdom

-DDefense Savings Bonds
See Financing, Government

-7Financing, Government

Federal Reserve discount rates during war and
immediate post-war period: Digest of policy
letters on (Haas memorandum) - 9/5/41

438

280

Defense Savings Bonds:

Treasury Employees: Record of pledges and
purchases - 9/5/41
New York State: Memorandum on organization
by Duncan, of John Price Jones Corporation,

done at Patterson's request - 9/5/41
Field Organization News Letter, No. 16 9/6/41

300

304
393

-Gold

See War Conditions: Gold; U.S.S.R.
Grossman, Mark

Possibility of judgeship in Cleveland discussed
by HMJr and Biddle at instigation of
Henry III - 9/4/41

-(von) Lewinski, Emma

See War Conditions: Foreign Funds Control

-MMedallions

See War Conditions: Gold

89

-0Book Page
Odlum, Floyd B.

See Office of Production Management
Office of Production Management

Division of Contract Distribution established
with Floyd B. Odlum as director - 9/4/41

438

164

-PPoland

See War Conditions: Lend-Lease

-RRevenue Revision

Tax Amortisation Legislation:
White House conference; present: Judge Rosenman,
Cohen, Rowe, Gladeox, Crane, Coy, Cox,

Greenbaum, Schieffelin, Hensel, Kyle, Sullivan,
and Eichhols - 9/4/41

Second White House conference - 9/5/41

1

199

-SSwitzerland
See War Conditions: Foreign Funds Control

-TTaxation
See Revenue Revision

-U
U.S.S.R

See War Conditions
United Kingdom

See War Conditions: Military Planning: United Kingdom

--War Conditions

Airplanes:

Shipments to the British, by air and sea Kamarck
report - 9/4/41

156

- W - (Continued)
Book

Page

438

171

War Conditions (Continued)
China:

Fox gives over-all picture of Stabilization

Board operations to date - 9/4/41
Stabilization and Exchange Control: Conference
of representatives of Treasury, State,
together with Phillips, Niemeyer, Stopford,
and Ritchie - 9/5/41
Treasury instructions - 9/6/41
Exchange market resume' - 9/4/41, etc

208,209

410,412,420
177,347,437

Foreign Funds Control:
von Lewinski, Emma (wife of former German
Consul General in New York City): Separated

from service in spite of references from

Chief Justice Stone and Senators Barkley,
Adams, and Wagner - 9/4/41

Switzerland: Effect of blocking of European
credits in United States on working of gold
standard in Switzerland - 9/5/41

141

338

Gold:

Navy thanked for services in transportation of
gold from Africa to United States: medallions
for commanding officers forwarded - 9/5/41
a) Nelson thanks HMJr for medallion 9/19/41: See Book 442, page 240

298

Lend-Lease:

Aid to Britain:
Conference of Treasury group and Phillips,
Childs, Bewley, Keyes, Chance, Robinson.
Brown, Mack, and Ladick - 9/4/41

37

a) Australian situation explained

b) Present status of possibilities for
dollar relief (British document)

Second conference; present: HMJr, Graves,
Mack, Stettinius, Nelson, MacKeachie, Cox,
White, and Young - 9/4/41
a) Memorandum showing steps taken with
respect to Lend-Lease purchases,
together with the average time

54

57

required for each step - Mack

memorandum

1) Memorandum sent to FDR

Poland: Authorization of transfer of verious
defense articles - 9/4/41
Purchases - weekly report - 9/5/41
Military Planning:

Reports from London transmitted by Campbell 9/4/41, 9/5/41
War Department bulletin:
German armored divisions - organization of 9/5/41

86

198
163
210

179,349

351

Security Markets (High-Grade):
Current Developments: Haas memorandum - 9/5/43

286

- W - (Continued)
War Conditions (Continued)

Book Page

U.S.S.R. :

Possible aid discussed by Hopkins and HMJr 9/5/41

438

190

a) Amount of gold estimated; possibility
of payment for goods in cash
discussed

1) Arrival in San Francisco of
$5,600,000 in gold destined for
Mint discussed in Cochran

memorandum - 9/18/41: See Book 442,

pages 59, 60, 62, and 218

a) Instructions to Mint - 9/19/41:
Book 442, page 222

United Kingdom:
Coe reports

a) British morale
b) Food situation - British press clippings
on

160
161

c) United States exports under Lend-Lease
1) Re-export of American steel not

162

permitted

British Embassy, Information Bureau, Air Mission.
and Purchasing Mission: Cost of upkeep

discussed by HMJr and Phillips - 9/5/41

191

1

MEMORANDUM

To:

Secretary Morgenthau
September 4, 1941

From: Mr. Sullivan
Re: White House Conference Wednesday

evening, September 3. 1941, on

Tax Amortization Legislation

Ihs

Present for the White House: Judge Samuel Rosenman, Mr. Ben Cohen,
and Mr. James Rowe; for the Bureau of the Budget: Mr. Gladeox and
Mr. Crane; for OPM: Mr. Wayne Coy and Mr. Oscar Cox; for the War
Department: Lt. Col. Edward S. Greenbaum and Mr. Bayard Schieffelin;

for the Navy Department: Mr. H. Struve Hensel and Mr. Richard Kyle;
for the Treasury Department: Mr. John L. Sullivan and Mr. Robert B.

Eichholz.

The conference was called for 9:00 P. M., in order to attempt to

arrive at an agreement between the various agencies concerned on the
best means for speeding up certifications under Section 124 of the

Internal Revenue Code, particularly with reference to certificates

of nonreimbursement. Under Section 124 of the Internal Revenue Code,

every corporation which desires to secure the benefits of five-year
amortization for tax purposes in lieu of the depreciation deduction

must secure from the War and Navy Departments and the Advisory Com-

mission to the Council of National Defense, a certificate that the
facilities which are sought to be amortized are necessary in the

interests of national defense during the emergency period. Such certificates are commonly known as necessity certificates. In addition,
if the taxpayer has a contract with the United States which reimburses
it for the cost of any such emergency facility "because the price paid

by the United States (insofar as return of cost of the facility is used
as a factor in the fixing of such price) is recognized by the contract

as including a return of cost greater than the normal exhaustion,
wear and tear,' no amortization will be allowed with respect to such
facility. A certificate by the War or Navy Departments and the Advisory
Commission that there is no such reimbursement in a particular contract
is conclusive upon the Commissioner of the Internal Revenue for the
purposes of this statute. Such certificates are commonly known as nonreimbursement certificates.

-2Judge Rosenman suggested that the statute be amended to give

authority for issuance of certificates of necessity to OPM only and
to give authority for issuance of certificates of nonreimbursement
to the Treasury Department only. In view of the necessity for speedy
action he inquired as to the possibilities of securing such an amendment as part of the pending tax bill.
Mr. Sullivan explained that the bill had already passed the House,

had been reported out by the Finance Committee of the Senate and was

now being debated on the floor of the Senate with good prospects for
passage by the end of the week. He expressed his fears that the

interjection of so controversial an issue as amortization at this late
stage would result either in greatly delaying passage of the bill or
in securing no legislation whatsoever with respect to amortization.
He explained that so-called isolationist senators, such as Senators

LaFollette, Walsh, and Clark (of Missouri), all members of the Finance
Committee, would wish to make full inquiry into the reasons for the
transfer of authority from the defense agencies to the Treasury Department. Even assuming that an amendment were secured on the floor of
the Senate, the House conferees might well reject it on the ground
that they had been given no opportunity to study the matter.
Other alternative solutions were then discussed and Colonel
Greenbaum suggested renewing a request for legislation to eliminate
the duties of the Advisory Commission and to eliminate the necessity
for certifying contracts other than with the War and Navy Departments
and contracts for less than $15,000. Mr. Sullivan stated that he was

very much afraid that even this legislation would be difficult to
secure in connection with the pending tax bill. He thought that the

maximum that could be secured from the Congress at this time would be
an amendment merely eliminating the functions of the Advisory Commission, on the ground that the Commission was all but formally a
dead agency. The War and Navy Departments were inclined to favor
this suggestion but Mr. Coy and Mr. Cohen feared that, since it appeared to have been the purpose of Congress to use the Commission as
a check on the Service Departments, the Congress would wish to replace
the Commission with some other agency. Mr. Cohen felt that the same
objective could be accomplished without the legislation by securing
the resignations of the members of the Commission and replacing them

by a board of three men familiar with amortization problems. Colonel
Greenbaum felt that this was no solution at all since the chief difficulty from the point of view of the Service Departments was dual
authority to certify conferred by the present statute. He stated
that he would be very glad to use the advice and experience of the
Commission in certification matters but he felt that there should be

one final authority to resolve conflicts of opinion and that that
authority should be the War and Navy Departments. Mr. Hensel ex-

pressed the opinion that in most cases involving specialized military

2

-3and naval equipment only the Army and Navy Procurement Officers were

competent to form a judgment as to whether a particular price included reimbursement or not. Mr. Cox, on the other hand, felt that
the Bureau of Internal Revenue was best equipped to handle such
questions. Mr. Sullivan and Mr. Eichholz explained that the Bureau

had a great deal of data relating to normal depreciation, built up
on the basis of past experience, but that they were not presently

equipped to handle factors of economic obsolescence relating to items
as to which there is no past experience. They said that if nonreimbursement certificates were issued by the Bureau, the Bureau would

have to build up almost from scratch a technical staff to handle them.
Mr. Coy stated that if the suggestion of Colonel Greenbaum were
followed and the authority of the Advisory Commission eliminated, the

Commission would not wish to participate in decisions of particular
cases. Mr. Gladeox stated that the Bureau of the Budget would have
serious reservations respecting legislation which merely eliminated
the Commission from the certification field. The representatives of
the OEM and the War and Navy Departments then stated that they were

inclined to look favorably upon the proposal to transfer nonreimbursement certificates to the Treasury and necessity certificates to
OPM. Mr. Sullivan pointed out that this would create triple authority
rather than the present dual authority which Colonel Greenbaum found
so objectionable. The War and Navy Departments would be making the
contracts, but the taxpayer would be forced to secure agreement as
to the OPM, their terms from the Service Department, and the Treasury.
He also pointed out that the Chairmen of the Congressional Committees
would not consider any legislation upon which all the agencies concerned were not in complete agreement. As to the suggestion to transfor nonreimbursement certificates to the Treasury, he would not wish
to give an immediate opinion. He asked time to consider the matter.

Judge Rosenman stated that in order to give the Treasury this
time, and because complete agreement had not been reached, the meet-

ing might well adjourn until the following evening. Accordingly, the

meeting adjourned at 11:40 P. M.

3

4

September 4, 1941
11:00 a.m.

RE EXCESS RESERVES

Present:

Mr. Currie
Mr. Bernstein
Mr. Ransom

Mr. Goldenweiser
Mr. Stewart
Mr. Viner
Mr. Haas

Mr. Murphy

Mr. Bell

Mr. White
H.M.Jr:

We have taken your request seriously.

Ransom:

Thank you.

H.M.Jr:

We were working on it yesterday, and I got

the message from Mr. Gaston that Eccles was

interested in this thing and we put our boys
to work right away. As soon as the rest of

the people come, I would like, if it is agree-

able to you, to ask the Federal Reserve Board

to state its case. Is that agreeable?

Ransom:

Entirely.
(Mr. Currie entered the conference).

(Mr. Bell entered the conference).
H.M.Jr:

Well, that is where we are now.

Ransom:

Mr. Secretary, the purpose in asking for

a conference wi th you this morning was to
make two requests on behalf of the Board

of Governors, first that if possible any

long-term financing or any announcement of
any long-term financing that the Treasury may

5

-2want to do be deferred until, say, the
fifteenth of October.
The reason for the request is that we would

like in the intervening time to be given an
opportunity to thoroughly explore with all of

you people the question as to what should be
done about raising reserve requirements and
also what, if anything, should be done regarding
the question of such additional powers as

may be needed, in the opinion of all of us,
to prevent an infla tionary rise.

Starting from the assumption, first, that
the first objective is the early and complete
defeat of Hitler, secondly, that in the process
of doing that we are all interested in keeping
the country from getting into more inflation

than is absolutely necessary; now, you suggested
a moment ago that you would like at this time

to have the case stated for the Federal.

It had been my thought - I am perfectly willing

to give it in that direction, but it had been

my thought that if the Treasury could defer

any announcement in the matter until the
time stated, we would have considerable time
in which we could go over the whole thing

and find out what, if any, points of differ-

ence there may be between the Treasury and

ourselves, if any, and secondly, what sugges-

tions as to the operation of this thing,
the timing of this thing, would be appropriate.

I will be very glad at this time to ask Mr.

Goldenweiser to state the whole background

of the thing for your record, if you would

like that done.
H.M.Jr:

Now, let me just ask a question.
(Mr. White entered the conference).

6

-3Ransom:

Yes.

H.M.Jr:

Dan, could we go along as is until the fifteenth
of October?

Bell:

Yes, sir.

H.M.Jr:

We could?

Bell:

Yes, sir.

H.M.Jr:

What, roughly, would our balance be, dropping
those notes to a hundred million a week?

Bell:

I will have to get my figures, but roughly, we
ought to have a billion seven hundred million,

I should think, a billion and a half to a
billion seven hundred million going out of
September, and we might lose as much as
seven or eight hundred million dollars in the

first fifteen days of October, so we would

still have close to a billion going in to
October fifteenth, or at least seven hundred
fifty million, I should think.
H.M.Jr:

Well, I had a preliminary meeting. This is
the way I feel. If Mr. Roosevelt's administration is going to do something about reserve
requirements, as far as the Treasury is
concerned, I doubt whether during the balance

of his term we will have a better time to do it

than right now.
Ransom:

That is our feeling, Mr. Secretary.

H.M.Jr:

Because we are in nice shape financially, and

if we are going to do something after careful

consideration - well, I would like to do it

now.

(Mr. E. M. Bernstein entered the conference).

7

-4(Mr. White left the conference).
Therefore, we in the Treasury are willing
to sit around and discuss it until we have a meet-

ing of the minds on whatever it is. I don't
want to set the fifteenth of October. We

might get together next week or we might

not get together until the twentieth of October,
but I am willing to postpone the thing until

we can get together, provided that both agencies

sort of concentrate on this thing.

I started it, and I would kind of like to get

it out of my system one way or the other. As
you know, I pride myself that I have no monetary

hobbies, so you don't have to dynamite me one

way or the other. I am ready to listen, and
that is why - you (Bell) feel that way, don't
you?

Bell:
H.M.Jr:

Yes, I do.

That if we are going to do the thing, it is

now or never? Now is the time if ever.

Bell:

Let's see what we can do, what we ought to
do now, while we have got the chance.

H.M.Jr:

Now?

Bell:

That is right, yes, sir, and I think you might
announce that there will be no financing in

September. I wouldn't want to put it off further than that.
H.M.Jr:

Well, I told the men this morning that we are
studying this whole question of financing, I

put it, in conjunction with the Federal

Reserve Board. I don't see them until Monday,

and if they ask me again, we are still studying

it.

8

-5Bell:

I see. But that might mean you are studying
financing with a view to having an issue here

within the next week or so. That sort of

keeps the market -H.M.Jr:

Let's see what happens. I won't see them again
until Monday afternoon.

Bell:

All right.

Ransom:

There are two things I think ought to be said

at that point, first, that it is the unanimous
opinion of all the present members of the

Board that something should be done.
Secondly -H.M.Jr:

Is that unanimous?

Ransom:

Unanimous.

Secondly, that if it is to be done, as you
suggest, this is the time when it should be
done.

And thirdly, that it should not and must not
be done, of course, without the fullest

consultation with the Treasury, cooperation
with the Treasury. That would seem to me to
be required in any event, and under existing

conditions, to be imperative, so that there
is no difference of - there can be no difference of opinion about that. However firm our
present convictions may be, it has to be related
to the over-all problem of the policy of the
Administration in relation to the emergencies
which they face. I think it might be a very

good time to have Mr. Gold enweiser state the

position of the Board, with which he is fully
conversant and which has been gone over any
number of times by all the Board members and

Mr. Goldenweiser. Now, if that --

9

-6H.M.Jr:

That is what I would like.

Ransom:

I would be glad to have him do that right now.

H.M.Jr:

Do you mind being interrupted or would you

like to go through the whole statement first?

Goldenweiser: I would just as soon be interrupted, Mr.
Secretary. I haven't any prepared statement

of any kind. The facts of the situation, I

suppose, are familiar to everybody in this
ro om. he situation has changed from the
way it has been in the past because of the

fact that we have got a very strong demand

for goods, arising from the very large

expenditures for Defense.

We have shortages in a great many lines and

I don't want to elaborate on this, because

that is all too familiar to you, to make it

worth your time. As a consequence, there
is a very clear case of price advances on

a rapid scale in a lot of fields, and this

Administration, as I understand it, is commit-

ted to try to limit that as far as it can.

A number of things, as you know, are done

about it. The tax bill is one thing.
The attempt of the Treasury to sell as many
of its securities to private owners rather

than to banks and creating additional deposits is another. The proposal for price
control is another. The recently inaugurated

regulation of installment buying is still
another. It is the Board's view, I take it,
that all these things are important and
necessary in this situation, but that in
addition to that, it would be supplemented
very effectively if the very large amount of
funds available to the banks for all kinds
of expansion were reduced in some way.

10

-7
The amount of excess reserves at this time

is five billion dollars. The limit of legal

authority for increasing requirements is

about one seventh of the present reserve

requirements, or something like a billion
point two. If the Board should raise reserve
requirements to the limit authorized by law,

there would still be three billion eight

left, which of course means that the problem

cannot be solved or even approached - an approach

to the solution reached by that method alone.
But it would nevertheless have two effects.

It would indicate a willingness to act
on all fronts, and it would reduce the inducement to the banks for buying securities.
Issuing a large number of securities that
are not available for banks is a good thing,
and I take it the Board has been very much
pleased and very much in favor of this policy

of the Treasury in their Tax Anticipation

Certificates and Savings Bonds, and all those

things. But at the same time, so long as the

banks have this very large volume of funds at

their disposal, they will be in a position to

buy such securities as are already outstanding
from present holders and have the present
holders buy the new securities.
In other words, bank expansion through the

purchase of Government securities is not likely
to be stopped so long as the amount of funds

at the disposal of the banks is as large

as it is at the present time.

For these reasons, the Board would like to

exercise its present power for raising
reserve requirements to the limit, and it

would also like to have considered the question as to when and by what method, if any,

the authority for additional control of reserves

11

-8should be acquired from, either under
Executive Order or under legislation.
Those are the fields that the Board would

like to explore. It raises the question
as to whether there would be any possibility
of that in any way interfering with the
possibility - or with the Treasury's financing

of its program. The best judgment that we
have been able to form on that is that it

would not, because the amount of funds

available for investment in the hands of
investors is very large.

The banks as a possible buffer in case any

security shouldn't go will still have a very
large amount of funds at their disposal
and I take it that the Board which constitutes
the majority of the Open Market Committee

is prepared to take a position definitely
that by raising reserve requirements at this
time it takes a responsibility which - that

nothing unforseen nor untoward should ever
be permitted to happen in the Government
security market.

I think, Mr. Secretary, that perhaps it is just
as well if I would stop right there and then
we can answer any questions that would work
that out in more detail. Does that statement
correspond to your ideas?
Ransom:

The statement is correct and expresses my

own views, and I believe the views of the
entire Board, Mr. Secretary.

Bell:

You don't think that the using of this
authority that you have will materially
affect the bond market? Or the interest
rates?

12

9-

Goldenweiser: The existing authority? I should say
very slightly. It might conceivably have
some effect on the very short term rates,

but I doubt whether it would have any mater-

ial effect on long term rates.

Bell:

Then from that standpoint it would not be
a deterrent to the banks to loan money?
I mean the increase in interest rates would
not be a deterrent? It would lessen the
supply of funds, but would that be much of a
factor?

Goldenweiser: Well, it would be some factor. I think
that there is the point of an important
distinction, that between t he cost of money
and the availability of money. I think that
the cost is not going to be materially
affected and I don't think that the cost,
aside from the Treasury cost, is an important
deterrent for anything, that the Treasury is
a separate problem. I mean I don't think that
whether the borrower for non-defense purposes

has to pay four per cent or four and a half
percent or five percent is going to make very
much difference to the extent to which he is
going to borrow. When he forsees the

possibility of a large profit, that is.
But the extent to which banks are willing to
lend indiscriminately does depend somewhat

on what they have in the way of idle funds,
and that is a much more important factor in
the situation, in my judgment, Mr. Secretary,
than interest rates. Now, the absorption

of a billion and a quarter, a billion two

of excess reserves, is not going to hamstring
the banks materially but a considerable part

of that, perhaps half of that, will be in

New York, and New York is the place where
excess reserves have been diminishing some-

what, owing to currency withdrawals, and

the banks in New York will be definitely

13

- 10 -

less inclined to shop for all kinds of outlets for their funds if as much as a half
a billion was moved out of their excess
reserves picture.

Ransom:

I would like to make clear, Mr. Secretary,
speaking for myself, and I again think I

speak for the Board, that it isn't with the
idea that this action will raise interest
rates, but that it will stabilize interest

rates. I think our concern goes more to the
question whether or not we may not see a

more rapidly diminishing interest rate than

we have even had in the past, and I think
our concern, certainly my own concern, is not

with the question of raising the whole interest
rate structure, but the effect on the whole
economy of an interest rate which may, due
to all these circumstances, be pressed down

further and further until it in itself becomes

a very serious problem with which we will
have to deal. There is some point along
the line at which I think we should pause

and see if we can't check it.

H.M.Jr:

Well, the thing that isn't quite clear in my
mind - it most likely is in Goldenweiser's
mind - you talk about interest rates and

inflation. Then you talk about banks making
too many loans because interest rates are

low. It doesn't seem quite consistent to
me. Leti's just take one segment of this
thing. If you don't think interest rates are
going to go up, how are you going to stop
the banks from seeking loans by Increasing
your excess reserve requirements?

Goldenweiser: That, I think, is the exact point on which

I --

H.M.Jr:

Just let's take the one thing. If you are

worrying about unsound banking practices,
now on the one hand you say you don't think

interest rates are going up. On the other

14

- 11 hand, you say you think because interest
rates are so low the banks are making too
many loans.

Goldenweiser: My answer to that, Mr. Secretary, is that

it isn't the interest rate I am concerned
about. I think the availability of funds,
a very large supply of funds, quite independent of the interest rate, is making the
banks very anxious to find outlets for it.
It isn't that the rate would go up, but that
they would be less willing to consider all
kinds of propositions if they haven't as
much cash in their tills or on deposit
with the Federal.

Bell:
H.M.Jr:

You cut down the supply of funds.

I appreciate that. How about the - what effect

will it have on the business man who has a
defense contract and wants to get a loan?

Goldenweiser: Well, I think that that is the important
question to be sure of. Our judgment on that
is that such loans as are needed for defense

will be made, that there is not in contemplation cutting down the supply of bank funds to
the point where they will have none. It is
a question of making them somewhat more mod-

erate so they would be more willing - or less
willing to consider speculative loans and
unnecessary non-defense loans. When anybody

comes with an authentic defense requirement,

the banks will have ample funds for it and
I don't believe that anyone has any contem-

plation to cut it down to the point where
they wouldn't.

Ransom:

Certainly that isn't the position of the Board,
Mr. Secretary, and I think most obviously
that if the evidence would support the view
that even increasing reserve requirements

within our present statutory limits would interfere with business financing the defense

15

- 12 program, that that is the strongest argument
which could be made against action at this
time, but it is our judgment, as Mr. Golden-

weiser says, that that isn't the situation
and wouldn't be the situation. Now, I think
that is one of the things that we should
explore most carefully.

H.M.Jr:

He doesn't know.

Ransom:

No, you can't know. You can only reach
a conclusion on your best judgment, weighed
against his best and the present situation.

H.M.Jr:

vonfining ourselves again to a weak bank

structure, have you considered the possibility,

if that is one of your worries, of changing
the bank examination rules, do it through

bank examination?

Goldenweiser: I don't know that that has been considered
in this connection. You mean tighten the
requirements?
H.M.Jr:

I mean, if you are worried about a week banking structure, how about taking a new look
at what our bank examiners are doing?

Ransom:

I am not personally disturbed about a weak
bank position because it seems to me our

banking position is stronger than it has
been at any time within my recollection. I

see no danger on the front there. There may

be isolated instances, but the over-all
picture of banking today in this country
seems to me to be particularly strong.

Goldenweiser: What we are concerned about, Mr. Secretary,

is the constant increase in the funds

available to private individuals for

spending. They already have the largest

16

- 13 amount that there has been in the history
of the country.
H.M.Jr:

No argument about that.

Goldenweiser: The amount of goods is diminished and we don't
want to further increase the buying power.
H.M.Jr:

I agree with you a hundred per cent, but what

hasn't been able to filter through my brain

yet is that the price of sugar or the price

of wheat or the price of cotton goods or

the lack of steel or the la ck of ships or
the slowness of our guns - I mean that by

locking up additional - a billion or two
billion dollars, is going to help. That
is the thing that hasn't been able to filter
through.

Goldenweiser: That isn't going to solve the problem, Mr.
Secretary. Now, all these are such controversial subjects that you can't ever be sure
you speak for anyone but yourself, but I

don't believe there is any very great difference of opinion in the Board. My opinion
is that it cannot anywhere near solve the
problem you are talking about, but it can
contribute its share toward diminishing
the amount of money that the people have to

bid those goods out. If the banks should buy
six more billions of Government securities
as they bought something in that general
neighborhood during the past year and

if they should make another three or four
billions of loans of non-defense nature,
that would add another ten billions of
deposits in the hands of all the people who
get the proceeds of that money, and that
additional ten billions would, added to

the existing seventy billions or so, or
whatever the figures are, be a further

17

- 14 -

Ransom:

invitation for bidding up prices. That is
the way I figure it.
I think, Mr. Secretary, that there is one
thing that I would like to see very thoroughly
examined by the Treasury and ourselves. It
seems to me we have a choice of using one

or the other of two mechanisms for controlling
credit or perhaps, and this is my own opinion,
we are going to have to use both. That is,

the over-all control of the total volume of
available credit which is affected by the
control of excess reserves or the selective
credit control such as this consumer credit

thing which we are now trying to operate.
The further we get into that, the more I am
impressed with the fact that you are getting
further and further involved in tremendous

administrative difficulties, in questions

of discrimination between the various trades

involved, to say nothing of the rights of

consumers which come up to perplex you every

day. While I think that is necessary, and
I think under existing conditions we have got

to experiment with it, got to try it out,
I think we ought not to forget that as part
of the whole program we should give very

serious consideration to whether or not the
most effective method is not to control
the total available credit through your banking system. It seems to me that we are in
a somewhat awkward situation, having stepped

out to regulate consumer credit and having
authority to do something on the over-all
side of the picture, and not doing anything,
so that I think we have got to balance those
two things out and decide whether we are

going to direct most of our attention to
selective credit controls or whether we are

going back to the more well established method
of an over-all control, about which we know

18

- 15 a great deal more than we can know at the

present time about this other.

Goldenweiser: You don't mean that they are alternatives,
exactly. They supplement each other.
Ransom:

I said I thought we had to use both, Mr.
Goldenweiser, and I don't think we can avoid,
under existing conditions, the use of both
of them. Actually, the Board has used up
to a percentage of all of its power to control excess reserves. Now, there is a
remaining balance there that we can use and

it at once raises the question as to whether
or not we should stop at that point if we

now go that far or whether we should consider

perhaps, the psychological effect, a united

front, asking the Congress or perhaps asking

the President in an Executive Order if it can
be done that way, to give us authority to

move further if it should develop that it is
necessary to move further. I don't want to
give you the impression for a moment that
I have anything like a dogmatic conclusion

on any of these questions. They are contro-

versial. There isn't any doubt about that.
But the best judgment that I can give you at
the present time is that it seems to me we

should be doing both at the present time.
As against that, we are tremendously interested
in the views of the Treasury, of course.

Goldenweiser: I would like to add one more word if I may

right there, and that is that as far as I

am concerned, I wouldn't recommend action on

the reserve requirements if I couldn't have
the assurance on the part of the Board that,
along with taking some action, they would take
the responsibility of a -- a double kind of
a responsibility.

19

- 16 -

In the first place, to step in firmly

and courageously in the market if there

is anything unforseen, if our analysis
is all wrong and we find that things do
happen, that we won't hesitate to step in.
In the S econd place, that the whole thing

has got to be flexible and it has got to be
reviewed so that if it is a mistake we
would have the courage to correct it.
H.M.Jr:

The last statement was the most important
one, but to go back to your other one

about the stepping in and one of the parts,

if you don't mind, that I liked the least
of your memorandum was this idea. You

say, what you are practically saying
is, you think the two and a half per cent
rate for the long-term bonds is too

little, but the Federal Reserve is
going to step in and at a defini te rate
"We are going to fix it at that. "
I mean, for you people to assume the

responsibility that you are going to say,
"Well, the two and a half is too cheap,
we will put it three per cent. Why,
we will buy two billion dollars' worth
of bonds if necessary to stabilize

it at that."

20

- 17 -

Ransom:

Let me say that I don't like the way you
state that and I don't think it is wholly
fair to us. I don't have the memorandum

you referred to at the moment. It isn't

mine. But can I express my own view about
that?

H.M.Jr:

Sure, but that is the interpretation I put
on it.

Ransom:

I couldn't tell you what is a fair rate for

the Treasury to finance itself in the present
market. I thought last December that two

and a half seemed to be about the rate where it
could be done throughout the period of this

emergency. I would have said that in the light

of developments since then that that rate
would seem to be above the figure at which it
seems to me the Treasury can finance for a
considerable period.

Now, I don't know whether that rate is going

to firm up by letting it alone and doing
nothing, or whether it is going to continually
decline. It is my own view that it will
continually decline. That is a thing about
which I am personally concerned. Now, I
think that the Treasury would have to have
some feeling of assurance that if such
action as we are suggesting is taken, that we
must stand ready, as Goldenweiser says, to
come in at the appropriate time and protect
the situation that may develop either as a

result of what we do - I don't think so - or

from other causes now beyond our control.

And if that means that - I think under the
existing emergency that there is an obligation
on the Government, including us, to see that

this financing is done at a fair and reasonable
rate. I say yes, I think that is an obligation
on all of us.

21

- 18 Now, the effect, I don't think, has been

emphasized in what either Goldenweiser or

I have said of a situation which might
develop from a continually declining interest
rate which might very well be offset on
the other side by such inflationary rise
in prices as would in the end cost the
Government, as the largest individual buyer
of the things which would be affected.
That is why at the present time it seems to

me that we are all looking at inflation
not only for the effect on the whole

economy and all the people of this country,
but the effect directly on Government
faced with its present dilemmas. Now, you

get an offsetting of your declining interest
rate, undoubtedly.

H.M.Jr:

Well, Ronald, let me make two statements so
that at least you know where I stand. When
it comes to keeping prices down, increasing

production, I won't take second place with

anybody. I mean, we are as much interested
and we have done as much work on it as

anybody and we think it is terribly important.

I am going to be rash enough to make a
speech about it on Tuesday night. The

other thing, so that we can have a clean cut
understanding about the question of financing
and raising the money, I feel that as
Secretary of the Treasury it is my responsib-

ility to raise the money. If I fail in it

I can't say it is because the Federal Reserve
didn't support my bond market, so I take

that responsibility and - I am being a little

bit blunt but I think it is a little bit

better to be blunt now and have a good
feeling afterward - you people, whatever we
do, you have got to support the Treasury
bond market when it is necessary.
Ransom:

I agree fully.

22

- 19 -

H.M.Jr:

Because I can't have any alibis. I can't
say --

Ransom:

H.M.Jr:

Neither can we.

That the Board didn't support me, and so

forth and so on. The stock ticker tells the

public every day whether I have or have not
made a success of my financing and I have
got to assume that responsibility and when

I can't do it, I go home. So when it gets
to final analysis, as far as the bond market
is concerned, you people have just got to
support it when it is necessary.

Ransom:

I don't know any alibi we could have for
not supporting it.

Goldenweiser: I think that is a unanimous agreement.
H.M.Jr:

If we have that --

Goldenweiser: Absolutely.
H.M.Jr:

Then I am sure we can arrive at what

is best for this hundred and thirty million

people.
Ransom:

I feel quite sure that the principal

objectives of both the Treasury and ourselves
of what must be done to arrive at the best

are not different. Now, it is a question
possible solution of a very difficult
situation.

H.M.Jr:

I would just like to ask - if he doesn't

want to answer he doesn't have to, if he
would rather not get in on it - Lauch,
whether you think the statement I just made
is proper or not.
Currie:

I agree heartily and absolutely on that

23

- 20 -

statement, Mr. Secretary. It seems to
me you have put your finger on two rather
important points in the consideration of

this whole matter. One is, arriving at

some agreement, as far as we can, on the

interest rate policy through the emergency.
financial authorities have taken as a

As you know, the British Government

conscious, deliberate policy the policy of

keeping interest rates down, financing a

little bit lower in successive issues.

The Canadians are trying to do the same
thing.

I don't think we have ever had a full
discussion of the long range interest
policy through the emergency. It is

one point. The second point which you
mentioned which clicked with me was that

I take it this move on the part of the

Federal Reserve now is really in the
nature of a precautionary move. You don't

expect it to have any effect on interest

rates or on buying power at the present
time.

Ransom:

I don't personally think what we can do
within the statute would produce an
appreciable effect. You can't be dogmatic

about it, Lauch, but I would like to say
that I agree so fully with your first
point that there is an obligation on Government during the existing emergency to finance
itself at a reasonable rate and that to me

is a low rate. I start from that point.

Currie:

Then I was leading up to the point that if
this is a precautionary measure, as I think
it is, that eventually through the emergency
you will probably feel it necessary to

mop up substantial parts of the excess

reserves. I think this, as the Secretary

24

- 21 -

says, is as good a time as we probably

will get.
Ransom:

Frankly, it looks to us as though it is

going to be about the only time for some
time to come.

Goldenweiser: Mr. Secretary, may I say another word

about this interest rate? I think you

were referring to the memorandum which I
sent George Haas day before yesterday.

I would like to - if I gave you the
impression that you got out of it, it is
a fault of my expression rather than my
intention. I did not intend at all to

indicate that the Federal Reserve System

certainly would fix a rate and that at
that rate it would support the bond
market and at another rate it would not.
If any such impression got out of that
memo, it was a poor use of language on
my part.

What I meant to say is that the Treasury
and the Federal Reserve together - when

they get together, and the Treasury taking
the leadership, because it is the Treasury's

responsibility, decide that for the time
being this is the rate, that for the time
being that is the rate that the Federal

Reserve is under obligation to support and

that if the situation changes and the

Treasury and the System decide that the
rate should be lower or should be higher,

then that re-opens the question. I haven't

any intention to indicate that, in the
first place; very distinctly I want to

disavow any intention of the System's having

the responsibility of fixing it. That is

not in my mind at all.
H.M.Jr:

You missed the point, Goldenweiser. What I

25

- 22 -

was trying to say is, the impression
I got from your memorandum was that

if we do this the interest rates will

have to rise but when they reach a
certain point, then the Federal Reserve

is going to step in and we will hold
it there.

Goldenweiser: At any point that you - that we make.

It may be that all that we wish to do
is to see that the rate doesn't go
down any lower. It may be that we what we wish to do is to see that

if the rate is to go up, if you

wish it - to have the adjustment natural adjustment take it up, that
we see to it that the rise is gradual
and orderly. Whatever decision is
made about the rate, I maintain that
you and the System together are in

a position to make it effective.
That is all I intended to say.

Ransom:

It certainly is not the duty of

the Federal Reserve to fix a rate.
Its obligation is more complex
than that, but I think you have
stated it and that I would agree

with your statement of it, with
which Lauch agrees, so I don't
believe there is an issue on that
front.

Now, I think this is quite possible,
that if we use the existing authority
and we should get additional authority and we should use some of that,
a point might be reached where a

26

- 23 -

reversal of that action might be
obviously to the public interest and

if I didn't believe - I don't

anticipate it under existing circumstances, but I don't think we can see
too far these days, but I would like
to make it clear, speaking for myself,
that if at such a point a reversal
of policy was necessary, I would be

greatly distressed if we wouldn't

reverse that policy because the primary
objective is to accomplish certain
things to get the Treasury financed

through a terribly trying period, and
secondly not to permit the existing
situation to produce an inflationary

rise over which we may be able to
exercise some control.

I have tried to state that in a
very cautious manner because I must
have some reservations all along

the line of that view, Mr. Secretary,
but I think that we obviously face
two dangers, one of which I don't

think is acute. I don't see why it

should be acute. That is that the
Treasury must finance a tremendous

debt through a great and trying
period. Secondly - that through -

for entirely different reasons, we
may find that there is an inflationary rise here over which we should

be exercising some control beyond
those we are now using.

27

- 24 Viner:

There are a few points I would like to
bring into the discussion that I think have
not been brought in or not emphasized enough.
My own opinion - my thinking hasn't been as

intense on this as it deserves, but my own
opinion is that the new requirements, new
problems, are more significant than the use
of the present powers. That the executive

in a situation like this ought to have all
the powers it has any conceivable use for

any time and ought to get them when the

getting is good and that in general it ought
to be the policy to gather into the executive

now all the emergency powers which under

any conceivable circumstances it might have to

use and use quick, so that I would be certainly
for an increase in the powers of the Federal
Reserve Board over reserve requirements, even

though I might be strongly against the use

of their full present powers at this present

moment, but I would get those powers in where

they are available and do it quick. Secondly,
I think that the Federal Reserve ought to study
the question that was already touched on by

you, I think, as to alternative means of handling the reserve requirement problem through

banking devices and particularly the capital

ratio phase and the use of the FDIC because
there you may simultaneously get a sort of
happy compromise between the difficulties of

selective control and quantative control and
get them both at the same time. Third, I
think it is a serious mistake to count on
the selective controls as being genuinely

available quickly enough to meet an emergency
which may develop rapidly. My own guess is

that the consumers' control that has already

been installed is not yet a real control and
that if the volume of installment credit
shrinks in the next six months or a year I am not sure it will shrink - it will be due
to priorities and the lack of automobiles and

28

- 25 -

not to the control, that the change in the
income situation has made the new terms
already terms more generous than lots of

installment people would voluntarily give to
their customers. They are already beginning

to move on to more severe terms and they are

not real restrictions at the present time.

You may ask, "Why don't they impose real

restrictions?" When you start imposing a
selective control on any sector you soon

find it is a delicate matter. You run into

all kinds of business competition and rivalries

and prior interests and groups and you have
to move carefully and cautiously. Then on
the housing control, are you sure - I mean,
before we say we needn't - we don't need to
increase powers over reserve requirements, are

you sure that the Treasury will be able to
get the restrictions of the housing credit
If it wants to? There are strong powers on
the other side. I would say don't count on

that until you have it in your hands. So
far they are advertising now on a big scale,
trying to extend their field of credit. Can
you stop it? Maybe you can, but I bet it will
take a major wrangling here to get any re-

strictions on that, so that you will find
that in every step of selective control. It
is difficult to administer. It is delicate

and tough to administer, and the powers of
resistance on every sector are very great.

Goldenweiser: It always leaves an uncovered territory.
Viner:

And it leaves an uncovered territory and the
problems of equity arise there in a very
acute fashion and it is very hard to handle.

Now, the nut of this is that I think that
certainly one thing that I hope you can -

everybody concerned can agree is that there is
no objection to having on the statute books more

29

- 26 powers than you have now over reserve requirements.

Secondly, I think that whole question of
bank capital ratios to shrinkable assets
ought to be looked into and see whether

moves can't be made on that line. There is
another item that I wanted to bring up, and it
has slipped my mind, although I know I think
it is important, so maybe if it comes up

later I will come back with it.

Ransom:

I find it myself impossible this morning to

take issue with anything you have said because you have pictured the problem of trying to regulate consumer credit quite mildly.

I would say that it is even more difficult
than you would suggest.

H.M.Jr:

Walter, do you want to say something?

Stewart:

I have a little to add to what I said yesterday. I regard the threat of inflation as
sufficiently serious to justify taking precautionary steps. We have taken some. I
think we will have to take more. I agree
with Mr. Ransom that the probability is that
you need more control on general funds than
the specific selective control, and I think
my chief concern is that in the talk upon

alternative methods the action be postponed
to the point where it either becomes more and
more embarrassing or doesn't take place at

all.

Viner:

I have thought of my forgotten point and that

is on the interest rate, that I think once

you have gotten for a time on a particular

level for the long-term rate, it is very
embarrassing to have that rate rise. It
creates all sorts of difficulties and yet it

30

- 27 -

may be that in order to stop inflation you
need a rise in the interest rate structure,
and I just want to bring to your attention
the fact that you can raise the level of

interest rates without raising the level of
the long-term rate and that you can starve
the market with long-term securities and

shift into the short-term and let that

rate go up and that what happens to the short-

term rate within requirements is really of

not very much importance; and when it goes

up, it eases lots of situations, but it does
not create collapses of capital values. It

doesn't create a new problem of bank solvency. The rate now is abnormally and inconveniently low on the short terms, and you

can't keep the long-term rate at approxi-

mately its present level within limits

with a big expansion of Treasury financing by
moving out of the long-term market and staying

out of it, and if you can rely on the Federal

Reserve's open market operations to come in
to help you whenever you need that, then you
know that you can support your short-term

market if necessary and that at any time if
there are any difficulties there you can be
tided over on them, so that the short-term
rates - the rates may have to rise, but they
can rise on that level. I mean on the shortterm from bills to two- or three or even fouryear notes. It doesn't much matter within
limits what happens to those rates from the
point of view of the effect on the economy,
whereas the long-term rates you have got--

Bell:

That wouldn't hurt our feelings any if they
rose in that area.

Viner:

That is what I am arguing, and yet it may be
important to keep the long term rate from
rising because of what it does to all the
previous structure of long-term securities

31

- 28 you have outstanding where capital values are
so important.
H.M.Jr:

There are two things that Stewart stated
yesterday. One was, he raised the question,
is the present Government bond market inflated?
That was one question he raised, and then the
other one was the question of the soundness of
the bank structure when this was over, how

could it take the shock when this thing is

over? I mean, avoiding the 1920 episode.
Those were two things you raised yesterday
which haven't been touched on here. What I

would like to do, Dan, is this. I don't see
why this thing has to go on until the fifteenth
of October. I couldn't stand it. I wondered
if, as long as these people are here - are

you busy for the next hour?
Bell:

I have an appointment at twelve fifteen, but
I can postpone it.

H.M.Jr:

If they wanted to continue and then set up a

Bell:

That is what I would like to do.

H.M.Jr:

And then I would like to sit in again next

little committee.

Wednesday and then talk the thing over just
as long as it is necessary. We can decide.

This isn't going to take until the fifteenth
of October. I mean, we ought to be able to
settle this, with the talent in this room--

Bell:

I just wondered, Mr. Secretary, if - say

George and I, if we couldn't work with Ronald

and the doctor, if they want to represent the
Board, with their various staffs, the two
staffs, and then-H.M.Jr:

I would like somebody from White's shop also.

32

- 29 Bell:

Well, that would be part of the staff I was
thinking of. Do you want White on the
committee?

H.M.Jr:

No.

Bell:

I was using Bernstein.

H.M.Jr:

That is all right.

Bell:

And maybe from time to time we could agree
on points, and then we could come to you
and - or anybody else in the Board and say
we have agreed on these steps.

Now, whether the action should be taken at
that time on those steps would be a matter for

decision at that meeting. We certainly are

agreed on the objectives here, and I think we
are all agreed on the housing thing, and maybe
that is one thing that action should be taken
on pretty promptly.

Ransom:

I would like to say that I think the consumer

control thing doesn't make the sense it should
make, leaving housing out of it. Now what

heroic process we get it in, I don't know, and
I am not at all afraid to undertake it because

I think it is so important it ought not to

be overlooked, and I really don't anticipate

quite the opposition in Government that we
might have found at one time.
H.M.Jr:

I mentioned two months ago to Jones--

Bell:

It was longer than that, Mr. Secretary. It

was way back in either March or April that
you told Jones that the limit ought to be
reduced substantially, and I thought he agreed.
H.M.Jr:

I thought he agreed.

33

- 30 Bell:

He said, "I am going to take it up right away.

Ransom:

At our suggestion you gentlemen and Mr. Jones
and the OPACS people are on a sort of advisory

committee for us, and I can go direct to Mr.
Jones and tell him what the problem is and

get his immediate reaction to it and try to get
that thing. I think that no program is complete without that.
H.M.Jr:

That is right.

Currie:

Of course, what you really need there, Ronald,

is over-all powers. If you just do FHA, you

will only throw more business to the non-FHA.
H.M.Jr:

You can't just limit it to them. It will

break out somewhere else. That is the trouble

with the selective credit thing. You stop
it here and it will break out somewhere else.
Bell:

Certainly the banks are not loaning up to
eighty or ninety percent on a piece of property.

Ransom:

Some of these small financing companies and
loan companies and what-not are doing some

H.M.Jr:

very fancy financing. If you stop it one
place and don't stop it at the other -Well, and as you go along I think you will

Viner:

New issues.

H.M.Jr:

You see, at the suggestion of Jerome Frank, I

have to talk to SEC about selective loans.

recommended - you ought to get that out and

show it to the people - a committee to do just
this sort of thing, and Jerome Frank is very
much interested in it. It was pigeon-holed
in the Budget, and we might dust that off,
and we can do it informally, and then maybe
some day the President may formalize it, and
if he doesn't, we will go ahead anyway.

- 31 Bell:

I think that is a subject for discussion in

H.M.Jr:

But there is that thing, you know, that

34

this committee.

Jerome Frank was so interested in and the

President - I mentioned it to him and he
was interested. And then the Bureau of the
Budget wasn't because it didn't originate
there, I guess.
Viner:

Mr. Secretary, I think that if the Treasury
and the Federal Reserve can work together,

there is something to be said for having it

between those two agencies and calling in

any special agency that is affected rather than
setting up another committee.

H.M.Jr:

I am sorry, Jake, but I didn't hear what you

Viner:

I said that if the Treasury and the Federal

said.

Reserve can work together satisfactorily

on this, I think there are substantial

advantages in their working together on that

and calling in representatives of other
agencies where the problem touches them

particularly, but not taking them into the
over-all problem which isn't really their
business.

Bell:

You couldn't do that on a control of capital
issues.

Viner:

On the control of capital issues you would
call in SEC and on that thing you would have

them participate to the full, but you wouldn't

call them in on housing or reserve requirements.
Bell:

I agree with that.

Currie:

Mr. Secretary, following up the point that you

- 32 -

made about October 15, I should think it

awfully desirable to come to a fairly early
decision on this. I don't know if you
would agree with me, Ronald, but I think one
of the criticisms we could make of the
'37 action was that it was much too late.

We discussed it a long time and then we set

the date way in the future when it would
take effect.

Ransom:

We have no objection at all, Mr. Secretary,
to disposing of it early. I just want to be
sure --

H.M.Jr:

No, it has all been out in the press, how you
people feel about it.

Ransom:

Yes, everything is in the press.

H.M.Jr:

But I mean this whole thing of how you

Bell:

Goldsmith?

H.M.Jr:

Goldsmith and Miss Sylvia Porter in the New
York Evening Post had the whole story, so

people feel - what is that fellow's bond
letter?

somebody had a loose tongue.

Ransom:

I don't take them quite that seriously. But
the reason I suggested October 15 was not
the idea that that - that the issue couldn't
be disposed of sooner, but that I wanted to
be sure this time we had enough elbow room
between us to be reasonably sure our con-

clusions were sound and not rush into a

situation. But when all of us have given so
much thought to it, I don't see why it can't
be brought to an end much sooner, and the

sooner the better from our point of view.

H.M.Jr:

I have set aside Wednesday afternoon at three

35

- 33 -

36

o'clock, and if you fellows can make some

progress - just a minute, please, I have a
call.
(The Secretary left the conference temporarily

and returned.)
H.M.Jr:

Well, are you satisfied?

Ransom:

Entirely. I thank you very much and appreciate
your interest.

H.M.Jr:

Are you going to continue talking with them
now, Dan?

Ransom:

We can continue, Dan, at any time that suits
you.

H.M.Jr:

Don't you want to make use of this talent now?
I don't know whether Lauch is free now or not.

CONFIDENTIAL
(This is not strictly a verbatim report).

37
September 4, 1941
11:00 A.M.

RE AID TO BRITAIN

(Conference held in Mr. White's office).
Present:

Sir Frederick Phillips

Mr. Childs

Mr. Bewley
Mr. Keyes
Mr. Chance
Mr. Robinson
Mr. Brown
Mr. Kades
Mr. White

Miss Kistler

Mr. Hicks

Mr. Mack
Mr. Ladick

Mr. Cochran

Phillips:

I was going to bring one of the Australian men with me.
Australia has a hard core, as we do, miscellaneous
machinery, etc. Main point which arose in discussion

about Australia was this: they find it extraordinarily
difficult to get any clear or general decision out of
the Lease-Lend. They are always told that the way to

get the decision is to put in a specific requisition.

They are asked to answer a great number of questions

and give a lot of statistical information about how
much for civilians, how much for the Army, for civilian
work, etc. They have to set up complicated trade

controls in Australia, collect a mass of information

if they hadn't it already, bring it over here, fill
out the requisition, and get turned down.

Brown:

Have they been turned down?

Phillips:

Not exactly, but they feel very strongly that they will.

Before they started some of these controls, they would
like very much to have some kind of idea about refusal.
Brown:

I would like very much to see them and find out the type

of thing that they will ask about. They will find that
there is a certain general pattern - type of information we would need to have. As you will appreciate,
this Lend-Lease has been expanding and expanding.

-2-

Phillips:

For instance the problem with South African mining

White:

Try to get them to develop the defense aspects of the

machinery.
case.

Phillips:

They find it very difficult to concentrate on that
aspect of the case. We would be very pleased to give
them the background and as much of the picture as we
can.

White:

Would it serve your purpose best if some of the gentlemen had a meeting?

Phillips:

Might have a few minutes talk with Brown which would

Browns

This would apply to others besides Australians. Use

clear up difficulties.
them as a guinea pig.

White:

Have you reference to gold mining machinery in South
Africa?

Brown:

No, steel will equipment.

White:

First item here is by Mr. Brown on the progress of
the transfer of plant and supply contracts.

Brown:

It was brought out in a meeting with the Maritime

Commission on that the ships involved in the Todd Ship-

building contract, though the hulls were the same,

the power plants were different. British ships are
coal burners and our ships are oil burners. The

Maritime Commission says it cannot use coal burning

ships. It is impossible, therefore, for us to work

out a plan of taking over British orders and having

the British defer their orders to a later date. If

they were the same kind of ship, it would not present
any problem - the Maritime Commission could lease them

to the British under terms of the appropriation act.
But being different kinds of ships, if and when they
get them back they would have the difficulty that
they could not take coal burners which they do not

want to use.
White:

Might they consider having the British changing their
ships to oil burning ships?

38

-3 -

39

Gend-Lease could not do anything You
Brown:

It is too late for that. The first have already been

launched and they have ordered the equipment for these
and most of the subsequent ships. The sum involved

for the remaining ships is so small that Powell does

not feel it is worth while.
Whites

Should mean a very substantial sum.

Phillips:

When the Maritime Commission put in their appropriation

bill, they had planned to transfer ships as ships
Committee
the British or release to the British
ammended this clause and left it in a form that the

only way ships could be used was that they remained
U.S. property and were leased for the time being.
The original idea was that they should be handed
over. Consequence is that ships must now remain
definitely U.S. property and only be leased to Britain.

On top of this was the coal-burning difficulty.

Whites

Does the Maritime Commission feel that it could not
use coal-burning ships after the emergency is over?

Brown:

They feel they could not use coal-burning ships.

White:

Insofar as the ships are being leased to the British,
it would be preferable in the point of view that coal

is less scarce than oil for the British. Is there

any possibility of working out an arrangement that
they could lease these with the understanding that
upon cessation of the emergency the British might
buy the ships at the then prevailing value? The

Maritime Commission would not then be confronted

with the need for taking back coal-burning ships.

Browns

They have not the authority to sell them.

White:

I don't know whether this would fit in. If you think
of some other suggestion which might be worth exploring.

Phillips:
White:

It might be well worth trying. There is $87 million
involved.

of

Would the ships be worthless? The depreciation from the
point of view of supply and demand for ships in the warthe market value will be substantially less and the
net loss would seem to me to be similar to the net loss
on other arnament equipment which would be absorbed by
Lend-Lease.

-

Brown:

Lend-Lease could not do anything about it at all. You
can only transfer according to specific Congressional
authority. The Maritime Commission has only the

authority to lease.

White:

Let me ask two questions: (1) Is there any law which
prohibits the Maritime Commission from using coal
burners?

Brown:

No.

White:

Therefore they could use coal burners. However, if they
couldn't see fit to use them (a) Is there any reason
to believe that if they possessed coal burners they
didn't want, they couldn't get authority to sell them?

Brown:

They couldn't use the appropriation for the specific
program to buy the specific ships of the kind they
didn't want.

White:

There should be some flexibility in the arrangement.
They could say that if it could be worked out this way,
the ships could be purchased at the end of the warwhat they would in effect be doing would be providing
ships for the emergency and not being saddled with a
lot of ships that would rot in the waterways.

Brown:

Only the Maritime Commission could decide this. I
would be glad to ask Mr. Scull if this could be worked
out.

White:

I think it should be explored.

Brown:

Prices are all different - Maritime Commission has not
raised any administrative difficulties about taking it
over. I will take that point up with them today.

Phillips:

I will get Mr. Scull to ring you up during the day.

White:

It is so large a sum that if we think it could be worked
out, it would be to the interest of the British Treasury
for releasing dollars now - and at the same time

desirable from the point of view of American taxpayers
at the end of the war.
Brown:

To the extent that they take over the British contracts
it means less ships for the Maritime Commission than
they want.

40

-White:

I find difficulty in accepting that theory. The objective

Brown:

It would be. You have an appropriation which would have
to be spent.

Whites

I am pursuing this as a suggestion. The difficulties
are apt to be insurmountable. The objective is the

is the same. The ships are going to be made full use
of. They are going to be used in a way which would be
in harmony with the wishes of both Governments. It is
not a question of depriving ourselves of ships.

same and ways and means are to be sought of introducing

flexibility. The technical difficulties can easily

be insurmountable. I am setting forth my point of
view. Unless there is disagreement around this table I would be glad to talk with the Commission if you
think it would be of any help.
Brown:

White:

I will find out what the reaction is.
Naturally the agency which has the work and which is
in a sense being worried about the criticism would be

more meticulous. But, we all have to be careful that
statements do not underestimate or lose sight of the
general objective.

Phillips:

We should get out a statement of various questions.

Brown:

On the question of plant contracts, the Defense
Plant Corporation is now ready to go ahead and take

Status of possibilities.

over these $79 million worth of facilities which would

net about $52-$55 million.
Robinson:

The program is going along all right. Probably will be
completed in less than four months -- whole $79 million.
Judging by past experience, this first group will
yield $55 million when it is completed.

Browns

The principle was that they would take them over and

charge a rental so long as the British supply contract
ran. They charge the same rental that they would to
anyone in this country, a rental that is based on a
depreciation figure - 5% for building, 10% for tools,
etc., depending upon what is in the factory. Most of

the British contracts are fairly short-lived. One is

about ten years.

41

-6Phillips:

We have no objection to the rental, but in the case of
the Tennessee Powder Plant the first year's rental
was payable on the first day.

White:

I suppose there will be a reimbursal to the extent

that the full year is not up. You feel that it

would be four months before you have actually been

paid for the cost of these facilities?

Robinson:

Machine gun contracts are in the process of being
wound up. Engineers have to go over the plans,
decisions have to be made. Engineers get out and

check over the facilities - somebody else doing cost
accounting - normal inertia. We are doing two at
a time and there are 11 of them altogether. If we
can get the first two moving, we can suggest they
get starte on the next two, but some of the accounts
are enormously complicated, especially aircraft.

Phillips:

We hope that in four months the program will be
completed. We have discovered other plums

amounting to theoretically $31 million... shipbuilding yards, etc.
(Passed around printed lists).

The fourth item on first page.
White:

Why are these in a different category?

Robinson:

Because the 11 have been under discussion since the

beginning of the year. A good many others hadn't
come into line. Todd Shipbuilding wasn't thought
available. Crucible and others were not committed
until after January 1 and the other two didn't seem
big enough to worry about.
White:

Is there any reason to believe that if the 11 go
through that the others won't go through?

Robinson:

The War Department has agreed on the clearance of

the first 11. It is a matter of time. The first 11

were the biggest and were the least complicated.
White:

Well, the $31 million may be regarded as potential
source of revenue during the coming year.

42

-7Phillips:

You must not take the figure of $31 million. That is

Robinson:

If we got into small amounts we could dig up considerably more. The individual items are so small that
it hasn't been thought wise to tabulate them yet.

White:

This will be brought to our attention on your schedule
when you get around to it - but about the $31 million.

the most that could be obtained.

Who should first suggest that these be acquired?

Childs:

On the first program, the initial suggestion came from
the Secretary.

Brown:

Wouldn't it be just as well to concentrate on the program
we now have?

Robinson:

It wouldn't be bad to start these others and get
at least a general agreement.

Brown:

I will ask the Maritime Commission whether they are
interested in these shipyards.

Robinson:

Todd is very reluctant to have anything to do with
Government facilities and if it were confronted with
the possibility of Government ownerhip, it might be

willing to buy the British facilities itself.
White:

Well the alternative would be selling to Todd.

Phillips:

Do we first approach the Defense Plant group or do we
go to the Maritime Commission and the Navy Department?

We will raise the question - get it in the mill.
White:

I take it there are several stages to be reached
before the accountants begin to operate. Do you have
anything special in mind that this would delay now?

Brown:

There has been so much reluctance it might be just as
well not to raise this with the Defense Plant Corporation now.

Childs:

We could let them know there is a backlog.

Brown:

But the other contracts are larger.

43

-8Phillips:

There is a danger, isn't there, that if the four

months elapse they will say that we have done a

terrific job of work for you and you should have

told us about these others?
White:

They will say, what is the end of this process?
There is something to be said on both sides.

Robinson:

In starting the $31 million program you will be dealing
with only the top-flight people. Does McCloy's commitment really cover anything except the first group?
I will have to check.

Browns

Whites

I see the justification of your comments, Mr. Brown,

but in line of the general si tuation it might be
better to get the other program started.
Brown:

White:

If it were done from Sir Frederick to Mr. Jones it

would be more effective.

Is it understood Sir Frederick that you will present
this?

Phillips:

Yes.

White:

This next item, would you want this raised?

Childs:

I have discussed the matter with Mr. Kades. The
action now lies in the State Department.

White:

No, it lies with the Secretary. It was on the agenda

last time but he passed it by. Nobody seemed to object
so it was passed by.

Phillips:

Well, we are not paying them. The problem is that
they could get nasy ith the contractors.

White:

It can well rest in abeyance for the time being.

Childs:

The older it gets the less urgent it is.

Kades:

The only question concerning the Secretary is that of

revoking the British license if they are forced to ask
for a license.

44

9White:

We are not likely to be confronted with that problem,
particularly since everything has gone along this far.

The decision one way or another would be easy when the

time comes. All the preliminary work has been done.

I think that if it is agreeable to you, Sir Frederick,

we will leave it off the agenda.
Phillips:

What I would like to have gotten from the Secretary was
a statement that, were the proposal put up to him, he

would act. Alternatively, we would be perfectly satis-

fied with a general assurance that if the French were
to create disturbances resulting in the holding up of
important contracts that the U.S. Government departments

will deal with the situation by requisitioning, etc.
Childs:

I always felt that we had that assurance. If any

difficulty arose that the U.S. will assist in the
situation.

White:

Mr. Kades is there any indication that the Government
would not be of assistance?

Kades:

... The only thing on the Secretary's desk was about
the license. The assurance rests with the Lend-Lease

department. It is a question of requisitioning the
plants. It would simply be a question of whether the
President would requisition the plants by executive

order. I feel personally that it isn't going to get to
that point. I think that Mr. Childs agrees with me
that no court would issue an injunction to restrict
the deliveries.

Childs:

June 17 of last year I was very much worried. Now I
am less worried. They might attack us about paying
them. We haven't the license to pay them. We can

always say that we won't go to jail for ten years in

order to pay them. Secondly, they might go to the
manufacturers and stop delivery. They could say that
we have fallen down on our payments and have no right

to these planes. You might then requisition this stuff
and get it to us on Lend-Lease. Those problems

diminish from day to day. I do not feel concerned about
it now, Sir Frederick.
White:

If you would like, we will put it on the agenda and
would raise it. I would suspect that the Secretary's
reply would be that if you are not paying on the

contracts we might as well wait. Whatever your choice
in the matter is. When did you stop paying on those?

45

10 -

Childs:

April or May.

Kades:

About $20 million of it is not a case of French contracts
any longer. Your contract is direct with the manufacturer
so that the French would simply have a cause of action

against you instead of the manufacturer. $55 million
left - may be even less. As the deliveries are made,
their ability to stop production lessens.
White:

This third item -- gold mining machinery for the Belgian
Congo.

Phillips:

Someone called on me from the Belgian Embassy and said

that they had an output of gold from the Belgian Congo
of approximately one-quarter million a month. The
Belgian Congo is part of the sterling area. They
put in a requisition for needed machinery to continue
operation.

Brown:

We have no record of such a requisition for machinery.

Phillips:

It wasn't a big order. They were met by the reply
that gold was not essential for continuing the war
and that no steel would be made available for this
machinery.

Brown:

Phillips:

I understand that it is the OPM that raised the
priorities question.
The Belgians have bought most of their mining equipment

here, and so have the South Africans. My question is,
what if the same decision should be made on a South
African request for mining machinery?

White:

Let us wait until the question comes up to us as

it probably will. In an item of that kind it probably

would come to us, and I am not sure what our position
would be. The amount of gold production involved in
the present case is small. But the statement that
machinery is being sent to the Belgian Congo with
which to produce gold which comes to us can be made

the subject of discussio which I should think
we would like to avoid if possible until there was

something more at stake. In other words, we wouldn't
want to be confronted with the necessity to defend our
position that we are either encouraging gold production

46

47
- 11 or discouraging gold production. The Treasury would

like to avoid this. I am afraid that is what would
happen here. Export control, priorities, lend-lease...
Brown:

They were trying to buy it. It is OPM's problem.

White:

I think that it does raise an issue.

Brown:

Sir Frederick is asking the Treasury to bring influence.

Phillips:

In view of our production of gold, the purchase would

involve finances of the sterling area - mining

machinery must be kept up. We would like to refer them
to the U.S. Treasury.
White:

I don't know that our answer would be any different,

but OPM should have referred to us. It affects sterling
assets. It doesn't come under Lend-Lease anyway.

Phillips:

You are probably quite right. But if South Africa

requests such machinery it will come up later under

Lend-Lease.
Mack:

Your man Grey would be able to help on that. Isn't he
on the Army-Navy Priorities Board?

Phillips:

Yes, I will have him find out. It looks like the fore-

runner of a serious problem. That is why we brought it
up.

Brown:

Has your reply gone back to OPM?

Phillips:

The Belgian's has, I believe.

White:

The next question has pertinence aside from the general
problem in anticipation of the Secretary's appearance

on the appropriations for the Lend-Lease bill. I feel

almost certain that somebody will ask him for a duplicate
of the statement which he submitted in the first Lend-

Lease bill. The Secretary will probably want this. It
was my thought that we might anticipate that and work
out something and assemble the list. Then we would
get together with you men and work out a statement that

would report the situation to your satisfaction.

Phillips:

Go over a few points.

-12-

White:

48

I can't say whether there will be more interest in some
details or less. One or two will be more interested.
The remainder will be less. It may be that one or two
may push the Secretary around a bit and the quickest
way to handle that situation would be to be possessed

of all the facts.

Phillips: August 30, balance of gold was $195 million. If deliveries
on our contracts hold up for the next six months, we
shouldn't have any cash at all. There is the question
of the trust funds. We haven't made any progress on this.
The lawyers advise us to do nothing about it $300

million out of the old estimate ... I don't think that
direct investments show any enormous divergence.

White:

The question of $300 million would have to be gone through
thoroughly because someone at the hearings may ask why
it was not foreseen on January 1, and why it was ascertained

later that it wasn't legally possible. Those arguments will
arise from those who are not in sympathy. I think that on

that point we had better prepare as much material in answer

as we can in anticipation. Would it be all right if we

went ahead with the preparation of a balance sheet and

if you will appoint someone to act -

Phillips:

I would suggest that you get hold of the press notice that
Jesse Jones issued at that time. Came up to well over
But value on some other direct invest$400 million.
ments which he made very high would amount up to $500

million. Add Viscose and Brown and Williamson - some

quote about trust funds - and it wouldn't be far off
at $900 million.

White:

We will try to work that out. Would it be possible

for someone on your staff to prepare a memorandum dealing

with trust funds, setting forth the salient points?
Bewley:

We have a great deal of material on this.

White:

Since it is American law that causes the difficulty, the
problem of defending it before the Committee is simpler.

Bewley:

We will prepare a memorandum, certainly.

White:

We will go over it with you boys to make it acceptable.
That takes care of item 4.

- 13 -

49

Phillips: What is basis of forecast for six months?
White:

We have to make forecast that these are your cash assets
and these are your needs for the coming six months, and

these are your resources. The first thing they are going
to ask for is how much you are going to need, and don't
you have any resources? I think we would sooner or later
have to present that to them. We would prefer to present,
as formerly, your estimates representing your statement
of your cash position and of your needs and resources,

and the only thing that we will do is put it in a form

which would most easily be followed by the Committee.
But there may be closer questioning on some items than
there was last time by virtue of some discussions.
There may be none at all. They may not be interested
any longer.

Phillips:

Six months is about right?

White:

It would seem that six months would be the logical period
that we could presumably estimate head. Certainly the
British Treasury must look six months ahead on the picture.

Kistler: They might like to compare the cash position during this
year with the forecast that was made of it on January 1.

White:

Had deliveries been as rapid as anticipated, etc? I
believe that is what Sir Frederick had in mind. The
more information we can give them and the more informa-

tion we have, the easier will be the appropriation.

Brown:

White:

Very much so.

It probably will be a duplication of the questioning

based on such statement as would be available so that
we should get at least as much as we can in anticipation.

This fifth item, coal for bunkers at West Indian ports.
It was mentioned in the last meeting.

Brown:

We are taking care of it. Strike it out.

White:

How much does it amount to - less than a million?

Bewley:

It depends upon how long a period you are considering.

- 14 White:

In the next six months?

Bewley:

Considerably less than a million.

White:

Are there any other points?

50

Phillips: To return to the first item on the agenda, we didn't

say much about the War Department, but you will see on

our paper that there was very little good news about
important items. I did have a word with Mr. McCloy
and he said that approximately $100 million of the War
Department appropriation was available for this job.
Certainly no real progress has been made since the
Secretary saw the figures last.
White:

There has been no progress?

Phillips: No.
White:

With whom is it awaiting a decision? Is there some
investigation being made?

Brown:

I talked with Mr. McCloy before our last meeting and he
said he was going to see the Secretary that afternoon.

It was a very delicate situation. He feels it is up
to him to see that something is accomplished. He was
to see Secretary Stimson. I haven't heard that any
answer was given. I am absolutely convinced that he

feels it is on his shoulders.

Robinson:

As recently as yesterday there was nothing.

White:

The money they were to have spent for that was what they
missed in the appropriation.

Robinson:

I don't know that that $40 million is still there. It is

the first item on page 2 - contracts placed since March 11.

Four months ago apparently General Burns arranged to have

$40 million which represented allocations in excess of
requirements to take over British contracts and advised

Army Ordnance. If that $40 million is still there, we don't

know that it is, it could reasonably be applied to March 11
contracts which are now reduced to $30 million. That item
as well as these other items all seem to be very black as
far as any progress is concerned. Not in principle, but

in practice. Cutting appropriations has contributed to ...
if they can possibly avoid.

- 15 -

Browns

White:

51

Under Lease-Lend it can't be done.

I don't want to appear obtuse, but I know the Secretary
would ask, where is the block? Who does the decision

rest with and what is that person waiting for? Does
the decision rest with Secretary Stimson?

Phillips: Yes, it does.
Robinson:
White:

Certainly the Army has it.
It would appear that reasonable time has elapsed that such
information should have been gathered. No uncertain

elements are in the picture. Then do you think it would
be appropriate at this time, or at the next meeting,
that the Secretary take up the matter with Secretary

Stimson? In the light of the history of this, it would
appear to me that none of us can do anything.

Brown:

McCloy says he is working hard. That is as far as he can
go.

Robinson: It has been two months or six weeks with the Ordnance and
$44 million and as much aircraft as we
air people.
can get.
Brown:

Around $35 million

Phillips: I have $40 - $44 - $30
Whi te:

Over $100 million. Unless there is some view to the
contrary, when it comes up at the next meeting with the
Secretary, we will indicate as far as possible that no
progress has been made and that commitments give no
promise of being handled soon.

Brown:

He should make inquiry of McCloy.

White

I will speak to the Secretary about calling him before
the meeting. It is a very good suggestion. As far as
this committee is concerned, the ball is in his lap.

Bewley:

Mr. Keyes has some white sheets and these are the things
that have been done by the missions themselves ...
$500 to $5,000

...

- 16 -

White:

52

We would like a copy. I will look it over later. Is
there anything on these that you would want to bring up?

Bewley:

Childs:

Nothing that I know of.

Simply as a forewarning, I should like to say that a telegram
came in before this meeting there there is going to be a
crop shortage in the Near East. We are going to be faced
with the posel bility of supplying the entire Near East.
Because of shipping and other considerations, we will have

to ask for some help here. It covers several countries -

Turkey, Iran, Sudan, Abyssinia.
Brown:

What would be the basis for supplying Turkey? How is the
U.K. concerned?

Childs:

Iran and Turkey because they need grain. Turkey is pro-

Ally. ..rr has a different political situation.

Brown:

Doesn't it mean much as to the why and how of getting
supplies to Turkey?

Childs:

There is a Middle Eastern Supply Center which handles

civilian population demands. Perhaps through the Turkish
Government. Whole supply system has not been clearly defined.
Phillips:

What has happened to Turkey under Lend-Lease?

Childs:

We have requisitioned for it - handled it straight.

Brown:

Defense of Turkey has not yet been found essential

to our protection.

White:

This problem will be a part of Lend-Lease judgment ...
would in part be political as well as monetary consideration.

It is a matter which would play a role in your valuation.

Brown:

Yes. It seems to boil down to purely a shipping problem.
The supplies are in India and Australia but are not available
as ships are on the Atlantic route.

Childs:

Shipping was a consideration. I didn't know it was the sole.

Brown:

Let us say transportation. I don't see any difference in
taking it from Australia and taking it from the U.S.

53
- 17 -

Childs:

It is not an immediate problem. Will be most urgent
though when it comes.

(Mr. Cochran came in as the group was breaking up. White assured
him they had discussed the question of gold-mining machinery in
the Belgian Congo.)

Handled tc Mr. White at Meeting

in his office, Sept. 4, 1941,

Pritish Document
PRESENT STATUS OF POSSIBILITIES FOR DOLLAR RELIEF

(Figures are in millions of dollars)
August 29, 1941.
CAPITAL FACILITIES

Tennessee Powder 21 already paid.

Machine Gun Plants 24 total, of which about 3 paid-Rest progressing satisfactorily,
Plants discussed with DPC on which War Department has certified

necessity for national defense and agreed on take out.
Total cost -- 79

Estimated recovery -- 55
Approximate annual rental while

British contracts continue -- 5.5

Discussions held and take-over agreed in principal -Going ahead with 2 plants with aggregate cost of about
23 (based on 79). Others to follow.
Plants
over not yet discussed with DPC but proper subjects for takeTotal

cost -- 31. Recovery probably somewhat less. Rental
would be
aboutof:
10% during contracts.
These
consist
Todd Shipbuilding -- 9

Crucible Steel -- 6.6

Savage Arms -- 7.5

Oerlikon
(including 5 recently authorized)6.6
American Type Founders -- .6
National Pneumatic -- .7

There are probably many others not involving large amounts
CONTRACTS

4 Machine Gun Contracts--Total Dollar Relief subject only to

working out details -- 28. of this 6.6 will be repayment of

advances and balance relief from commitment.

Paid
to date 5.4 No difficulty is expected in recovering the
balance.
Contracts prior to March 11.
Matched orders or Deferred deliveries

Ships--Todd contracts 87. The power to lend-lease

vessels under the new Maritime Commission Appropriation
was limited by Congress to powers to lease vessels which must

remain United States property. The effect is that if the

Maritime Commission take over the Todd ships they can lease

them to the U.K. under lend-lease but cannot deliver them as
defense articles. The Maritime Commission now say that they

cannot
agree
own
account.

to the purchase of this type of ship for their

Tanks and Tank Engines--Continental and Baldwin 44.
War Ordnance was to place orders for same products out of
non-Lend-Lease funds. British would cancel contracts and
similar products would be Lease-Lent from pre March 11 Army
contracts and charged to billion three fund. War Department
has done nothing about this for about two months although
repeatedly urged and agreeable in principal. Does not want

2to use its own funds for this purpose and cut in appropriations
tributed to reluctance.
Airplane Engines--These amount in total to about 250.

Same theory as tanks and tank engines. Army Air and BAC have

conferred but unable to discover any funds for the purpose,

Subsequently it was thought 40 might be found in non-Lend-Lease
funds but Army Air has done nothing for about two months

although repeatedly urged. It is now stated that the 40 is not

available.

Contracts placed since March 11 for ordnance items (including
letters of intention not considered commitments
It was understood that 40 of Lend-Lease funds was
earmarked from Ordnance allocations for take-outs of British

contracts. This represented over-allocations on certain LendLease Ordnance items. It is not known whether this is still

available since it was set aside more than two months ago and at
that time War Department agreed in principal to take-out. No
action has been taken since in spite of repeated efforts.
Reluctance probably due partly to cut in appropriations.
British Ordnance contracts since March 11 consist
principally of three large tank contracts on which the recoverable
amounts, after agreement with Lend-Lease representatives, may not
total more than 30.

Contracts placed since March 11 for Naval Bureau of Ships items.

There is only one substantial item in this class

I

(Sterling Admiral Engines) which amounts to 1.25. Although a
Lend-Lease requisition has been filed it is understood that there
are no Lend-Lease funds available for the purpose in the Navy
allocations,

Contracts and amendments since March 11 for Aircraft items

One large contract amounting to 2 and four large
amendments aggregating 7 fall into this category. It is
understood that Lend-Lease funds are available for the take-over

of the contract although no action has been taken by the Army as
yet. As to the amendments there has been an unwillingness to
consider take-over of these because of the stringency of funds

and the administrative difficulties involved.

Cancellation of Vultee Contract

This will involve dollar relief of about 11 and it is

understood that the Army contract has now been signed.

Cancellation of Remington rifle contract

This "ill provide dollar relief of about 32. Funds

have been allocated and directives given but little progress has
been made due to the company's failure to quote prices. It is
expected that this will work out, however.
Cancellation of Savage rifle contract

This will provide dollar relief of about 24. It is in

the same position as Remington but seems to be considerably

further advanced and the Army contract should be let in due course.
Machine Tools

There are various contracts for machine tools which have

been made since Merch 11 and, since Lend-Lease funds seem to be

available in the categories within which these fall investigation

is proceeding to determine whether any of these contracts can
profitably be taken over under Lend-Lease.

DOLLAR RELIEF TO THE BRITISH TREASURY

Plants and Supplies Contracts taken over and to be taken over (amounts
are in millions of dollars and represent approximate aggregate amounts
of cash refunds and relief from commitments),

Certain or

Possible or

almost Certain Probable Unlikely
Plants taken over or to be
taken over:

Tennessee Powder

21

4 Machine Gun Plants

24

Other Plants discussed
with D.P.C.

55*

Other Plants not discussed with D.P.C.

31

4 Machine Gun Contracts

transferred (product)

28

Contracts placed prior to
March 11th:
Ships

87

Airplane Engines
Tanks & Tank Engines

40
44

Contracts placed since March
11th for Naval items

1

Contracts placed since March

11th for ordnance items (in-

cluding letters of intention

not considered commitments)

30

Contracts and amendments since

March 11th for aircraft items

9

Cancellation of Vultee contract

11

Cancellation of Remington Rifle
contract

32

Cancellation of Savage Rifle
contract

24

Total

140

Certain or almost certain 140
Probable

55

Possible or Unlikely
Total

242
437

Provisional estimate of recovery out
of total cost of $79,000,000
3rd September, 1941

55

242

I

57

September 4, 1941
2:45 p.m.

RE AID TO BRITAIN

Present:

Mr. Graves
Mr. Mack

Mr. Stettinius

Mr. Nelson
Mr. MacKeachie
Mr. Cox

Mr. White
Mr. Young
H.M.Jr:

I had a chance to show this to Hopkins, and
he is up now so high he can't be bothered

with these details, but he thinks it is all
right. I mean, that you (Mack) should have
the fifty million dollars. You haven't got
any copies of this?

Graves:

I have a copy here.

H.M.Jr:

That is all right.
Now shoot at me on the other thing, will you.
It is a good memorandum. And when you get

out of this meeting, will you take a look

at that clipping. Don't bother with it now.

You might give Chick Schwarz an answer later
in the day or tomorrow morning.
Mack:

All right.
Well now, this memorandum has to do with the

frozen funds. That is where the priorities
comes in.

58

-2H.M.Jr:

Hopkins never left here until two-thirty.

Mack:

And this has to do primarily - well, exclusively with metals, that is, steel, zinc,
copper, pig iron, and so on. We have

requisitions from the British that specify
deliveries over a period of several months.
We get the - the money is allocated for the
entire purchase. OPM has followed the

policy of making an allotment in - an allotment or priority rating, in most cases, on
a monthly basis. Therefore, we have these
lags of the balance of each requisition
beyond one month. As you will notice from
some of these instances I have here, the

first one, eighteen million dollars is the

amount that is required to cover the entire
purchase for all the deliveries, but the

amount allocated, which is the amount that
has been purchased, is about three million

nine, or a balance of fourteen million odd

that runs into that frozen fund total.

The same way on zinc. Now, we have requi-

sitions for zinc that call for deliveries

over a period of a year and we had a
clearance from OPM. For example on zinc,

the orders call for deliveries for twelve

months. We get allocations by the month.

We accordingly may purchase three and a half

millions. We have sixteen and a half millions that go into that frozen fund total.

Now, the suggestion I have in mind is this:
that first we get straightened out with

these requisitions that are on the fire,
that is, that need to be straightened out
on an allocation basis, and I am sure that
that falls within the picture that Nelson
is now trying to work out to make immediate

allocations of everything they have over
there.

59

-3The second thing that I think is - provides
a control as to - and we can do this in

Procurement if you want us to. We asked
the British Purchasing Commission in charge

of defense supplies to tell us before they
submit a requisition, or tell Lend-Lease,
what their requirements for metals will be
for the next three, six, and nine months.

Then we will take that schedule, go to OPM
and say, "Now, here is what they want. How

about the priority ratings or the allocation?"
and they say, "Well, we can give them fifty
percent of this, seventy-five percent of
that, and so on." If Then the requisitions can

be made out by the British Purchasing Commission or the China Defense people only for
what has already been cleared by OPM.

Therefore, we don't have any loose ends hang-

ing. We get the money for that amount. We

buy that amount because it has been cleared.
H.M.Jr:

I think it would be much better.

Mack:

That is the suggestion I have in a nutshell.

H.M.Jr:

That would be much better.

Mack:

And I think Nelson would be tickled to death

H.M.Jr:

In other words, they would let you know
informally what their needs are?

Mack:

Yes.

Graves:

May I put in two cents worth on this?

H.M.Jr:

I wish you would.

Graves:

I did not understand from Mr. Gaston's memo

to do it.

60

4-

to me that there had been any criticism of

Procurement on anybody's part. The sta-

tistics looked bad, and it was Mr. Gaston
who noticed that and called Mr. Mack in,

and said he had better make an explanation
of those low percentages.

H.M.Jr:

I told Gaston to do that.

Graves:

Yes. I simply wanted you to know that according to Mr. Mack none of the people that are
present at this meeting have pointed any

finger of criticism--

H.M.Jr:

You want me to be a softie, do you?

Graves:

I don't think it would be wise to give them

the impression that we have been criticised,
because I don't believe we have been.
(Mr. White entered the conference.)
Mack:

Nelson has been very cooperative. Of course

Stettinius is new over there.

H.M.Jr:

But by going into this thing, I have got something to complain about.

Graves:

That is different.

H.M.Jr:

I have got something to complain about, and

I am going to say, Now there is a new deal
and new people and I want to - I don't want
to be mixed up in something that takes fortytwo days to clear from the day they give us
the order until the day we buy it.
Mack:

Yes.

H.M.Jr:

I am sick and tired of going around and do-

ing every job four times. They had better

do something about it.

-5We find, Harry, that from the day the English

placed an order until it reaches us, it is
thirty days.

White:

Between the time they place it and the time

H.M.Jr:

From the time the requisition comes out until

White:

Where is that delay due?

H.M.Jr:

Well, we have got a memorandum here. I will

White:

Maybe they will do better. I should give them
a chance before the new group. I don't think

it reaches you?

it gets to Mack is thirty days.

read it out loud.

they will, but I say--

H.M.Jr:

Well, the whole new group is going to be here.
The whole new group is coming here.

White:

I saw a couple of them outside. I mean rather
than laying down the law--

H.M.Jr:

Oh, you fellows are a lot of sissies. Good

God! Everybody around here wants me to be--

Graves:

I don't think there is anything wrong with
your laying down the law with respect to this

new routine. I think that is swell. All I

say is that I don't think we ought to let them
believe that we have found them critical.

H.M.Jr:

No, I am taking the offensive.

White:

All right. Before we had a half dozen and

now we have got six.
H.M.Jr:

Six what?

White:

I say before the new set-up there was a half

61

-6dozen and now there is six.
H.M.Jr:

Well, this man Stettinius is in charge of
Lend-Lease and MacKeachie does the buying,

and Nelson does the priorities.

Mack:

That is right. It is thirty days from the

White:

Have you got a constructive suggestion as to
how it should be done?

H.M.Jr:

Sure, he is in the Treasury, isn't he?

White:

Oh, yes. There is nothing like giving them
a good start. If you have got a way to
shorten it--

H.M.Jr:

We have. He is going to take ten from now

time the requisition is issued by the
British until we get authorization to buy
it, funds allocated.

Mack:

on. He ought to be able to do it in ten.
I don't think from that record that we have

H.M.Jr:

No, I don't either. I think you could do

Mack:

Yes.

done as well as we should.
better.

Now, four days in getting these forms
through - of course we have to get estimates

and all that, but that should be shorter.

H.M.Jr:

Was the four days on us?

Mack:

Four days on us.

H.M.Jr:

No, I think a week - you ought to be able to
clear an order in a week.

62

-7White:

63

This average that you have arrived at, is it
fairly representative or is it some kind of

a-Mack:

We got it as quickly as we could. We had
our fellows take a spot, nineteen requisitions,
and follow them through.

White:

Out of how many?

Mack:

Out of a whole case full.

White:

What does that mean, a thousand?

Mack:

Oh, it would be several hundred, yes. But
otherwise it would take weeks to get tabulations on them.

White:

I would be inclined to say that you took a

test sample rather than the average time

required.
H.M.Jr:

It says so.

Mack:

In the next to the last paragraph, I say it.

H.M.Jr:

It is a good memo. You can't find anything

the matter with it.

(Mr. Stettinius, Mr. Nelson, Mr. MacKeachie,
and Mr. Cox entered the conference.)
H.M.Jr:

Well, gentlemen, the reason I asked you to
come over here was this: You may know we do
a certain amount of buying under Lend-Lease,

and I took a - had Mack take a look at it,
and I think the quickest way to do it is to
read you a page and a quarter. It says:
"As requested, the following are the steps

taken with respect to Lend-Lease purchases,

-8-

64

together with the average time required
for each step:

"(1) Requisitions are written and dated by

the British or China Defense Supplies and submitted to Defense Aid Reports; thence copies
are sent to Procurement Division and O.P.M.

From date of requisition to receipt in Procurement average lapse of time is two days.

"(2) O.P.M. examines for availability of com-

modity, method of purchase, and whether

supplying will interfere with our own

defense program; then clears to Procurement,
four and one-half days.

"(Note: This average time will probably be
extended by three days when priority ratings

are to be indicated by O.P.M.)
"(3) Form LLA-3--"
Mack:

That is the request for the allocation of
funds.

H.M.Jr:

"....is prepared by Procurement for submission to Defense Aid Reports. From date of
clearance by O.P.M. to date of submission of
11

Form LLA-3, four days" - which Mr. Mack says

is two days too long.

"(4) Letter is prepared by Defense Aid
Reports for signature of the President, apof
to the
date of submission by

proving commodity allocation foreign of funds Procurement government. and transfer of Form From

LLA-3 to date of letter to be signed by the
President, twelve days.

"(5) After signature by the President, trans-

fer directive submitted to Procurement eight
days.

65

-9-

"(6) On receipt of transfer-directive which totals up to this point, it totals

11

thirty days. At that point, on receipt of

the transfer-directive Procurement proceeds
to make purchase." It takes them an average -

we just picked out nineteen different requi-

sitions and the average of those nineteen was
thirty days from the time the thing was dated

at the British Purchasing Mission until it
reached us. "On receipt of transfer-directive,
Procurement proceeds to make purchase. From
receipt of transfer-directive to date of contract, twelve days," and Mr. Mack says that

that is too long. The figures above showing

average time required were arrived at by taking
the records on nineteen requisitions which
are believed to be representative of the
usual requisitions received in Procurement.
This procedure requires an average of thirty
days from the date of the requisition before
we are authorized to make the purchase, of
which total twenty days is taken up with

routine having to do with allocations for
each requisition."

This is what we would like to do, if you

gentlemen would approve. It is suggested

that the present revolving fund of ten million
be increased to fifty and authority granted
to use this fund in order that immediate
purchase may be made or that such other steps

be taken to reduce the time now required for
obtaining allotments.

We felt that if, after considering, you would
give us that kind of a thing, and I take it
this goes to you (Stettinius) doesn't it? that
we could do business and cut the thing at

least by two thirds.

Now, Hopkins was here for lunch today, and he

- 10 -

66

read the thing, and he said he liked it.
Nelson:

Well, we can get the priority at the same
time that they are clearing. That was the
procedure we have been setting out to try to
do, you know.

Mack:

That is right.

Nelson:

So at the time of getting the priority, when

it comes into OPM, we would be working on

the priority at the same time they are clearing for the other things, so that that would
eliminate that three and a half days.

H.M.Jr:
Nelson:

H.M.Jr:

Could you get rid of it that quickly.
That would eliminate that three and a half
days for priority.
But, Don, if, while you are doing all this
thing, twelve days at the White House and
so forth and so on, if you would give us the
fifty million dollars to operate, somebody,
then we will just go to town, and we will
let the red tape catch up with us a couple
of months later on.

Nelson:

I have always felt that that should be done,
Mr. Secretary. I have talked about that consistently. That takes too much time.

H.M.Jr:

Harry Hopkins said he thought if you did it
for us, you should do it for the Army and

Navy too.
MacKeachie:

I think the procedure is even slower when it
goes through the Army and Navy.

Nelson:

Much slower. It goes through seventeen other
steps when it goes through Army and Navy.

- 11 MacKeachie:

Ninety days.

Cox:

That is right.

White:

Mack says only about five percent of those

67

were eventually turned down.

(Mr. Young entered the conference.)
Mack:

We now use a ten million dollar supply fund
for purchases that are to be put through in

a hurry, and it is working very well, and that
is the reason for suggesting the same thought

but at an increased amount of fifty million
because now, of course, that ten million is
out of commission when we put through nine

and a half or nine and three-quarters million
dollars worth of requisitions. We are stopped
until we can replenish the fund, but with a
larger fund we can keep it rotating constantly. That is the whole thought.
White:

Supposing you go ahead and order these

requisitions and the requisition is not

finally approved. What machinery would you
have for - how would you handle it?
Mack:

We have a control in this sense, that we
wouldn't ask approval to use the rotating
fund until we have an approval from OPM.

White:

Which is up to what period?

H.M.Jr:

The first four days.

White:

Then you save twenty-five days.

H.M.Jr:

What is the matter with it?

Nelson:

I am all for it. I believe it is the only
thing to do.

- 12 -

H.M.Jr:

What do you think, Ed?

Stettinius:

It sounds all right to me. Oscar says it is
all right. Phil of course is the one that--

Young:

I missed the first part of it, for which I

68

am sorry. Is this the same idea you were
talking to me about last night?
Mack:

Yes.

Young:

On blanket requisitions or on--

Mack:

On all requisitions. I think with the full

work we now have, fifty million dollars would
be enough to take care of all requisitions,
because we would have to figure only for a

sufficient length of time in order to replenish

the fund, you see, which would be a matter of well, two or three weeks.
Young:

Using the revolving fund for all requisitions?

Mack:

Yes, and the routine that is now being followed to be used for replenishing the fund

and crediting the allocations to bookkeeping
and accounting.

Young:

Why don't you use the revolving fund now in

every case where it is required within the
two weeks' period or whatever time it takes?

Mack:

Well, we use it now. We use it now for transactions that are hurry-up transactions, but

I am speaking in terms of using it for all

requisitions.
Young:

Well, it - you are using it now for all requisitions in which you have to place an order
before the time you get an allocation made,
ordinarily.

- 13 Mack:

69

Well, I think it is this, that we use it now
for all requisitions that the British Purchasing Commission say they want expedited.

They want them handled immediately. But I
am thinking in terms of stepping up the whole

procedure, you see.
Young:

Yes.

Mack:

That is the thought I had in mind.

H.M.Jr:

I always go on the theory if Sears-Roebuck

can get an order in the morning and fill it
and get it out every day-Nelson:

H.M.Jr:

Ninety-five percent of them.

....We ought to be able to do it within a

week.

Nelson:

Yes, sir.

H.M.Jr:

That is what I would like to do and, of course,
holding the thing at the White House twelve
days, sending it back to Budget and all the

rest of it, is ridiculous, and if you fellows
will give us this thing and then - I don't
care about the red tape. You can work it
out afterward. It comes over, we send it to

OPM, and somebody says, "O.K.", , go ahead and

buy it, we will buy it and we will do it within

a week.
MacKeachie:

Mr. Secretary, we are going to put a man over
with Mr. Mack who will clear those on the

spot, a very large part of them, and I think-Mack:

To take the place of John Sanger? Fine.

MacKeachie:

We will put him right over there.

Stettinius:

What do you think, Phil?

- 14& 15 Young:

H.M.Jr:

Well, I don't think we ought to settle the
fact now that we are going to do that particular thing. I think that we can work it
out so the thing will go through speedily
as possible to put it through.
Phil, if you people can't give us the orders

quicker than you have been doing, you are
going to have to get somebody else to do your
buying.

Young:

H.M.Jr:

Can't do what, sir?

If you can't do it better than you have by
far, I am not going to be mixed up with this

thing, because I don't want to be mixed up
with something that fools around for thirty

days to get the thing cleared. There is

no reason in the world why we shouldn't
have this revolving fund.
Young:

No, you have it.

70

- 16 H.M.Jr:

71

No, I want it so we can go ahead and
operate. Everything has to be done four

or five times and if the British want something, they ought to be able to get it
and the day they sign the requisition they
ought to have it within a week. I don't

want to be mixed up with something that
is done so badly.
Young:

We are quite in agreement on that, on this
twenty-day lag between the time Cliff sends
the form back to us and the time he gets

the allocation funds. That is a situation

which is done with the full knowledge and
approval of you (Mack) and the various other
departments.
Mack:

That is right.

H.M.Jr:

It was?

Young:

Yes.

H.M.Jr:

But it isn't any more.

Young:

No, we aren't doing it any more. It was originally decided we would hold those requisitions
on a cumulative weekly basis, which was
agreed to by everybody.

White:

Do you have some other suggested way which

would eliminate the twenty-five days delay
without the use of a larger revolving fund,
Phil?

Cox:

There is a way, and that --

Young:

We have spent four solid weeks working on this.
We have had a man out in the field, as you
know. We also have additional authority from

the President to Burns, Mr. Stettinius now,
I imagine, to make necessary adjustments,

- 17 -

72

switch allocations, increase or decrease

quantities, substitute articles, in other
words, to give it flexibility which cuts

out the White House lag of a week in there.

H.M.Jr:

But that doesn't interest me. What is the
matter with the idea of giving us enough

money so we can go ahead and do business?

You fellows can fool around with the red
tape while we do the buying.
Young:

I have no objection to giving you enough

money to go ahead and buy it as long as

the thing can be handled so that it makes
sense on the records, which I think it can.

H.M.Jr:

What I would suggest, give us the money and

we will do the buying and then you try to
keep pace with us on your records.

Young:

On this revolving fund business, it was

designed to be used for any purchase which
you wanted to make which in the normal course
of events had to be or should have been placed

before the time to get an allocation.

H.M.Jr:
Young:

Well, it doesn't work to my satisfaction.
Then there is some reason for it. Either
it isn't large enough or else it is not
being used for those purchases.

H.M.Jr:

It is not large enough. We want to use it

all. I am sure that when these gentlemen get

into this thing they are going to change this
thing. Nobody can run a business. When
a man is at war he certainly needs a thing
a damn sight quicker than when a fellow is
in a peacetime business, and these people
are at war.

- 18 Cox:

Well, I think, Mr. Secretary, the two

practical ways to cut down the time are,
one, to have the allocation of funds, the
directives, made at one time, and not by

the President, but by Mr. Stettinius, so
that you don't get the pile-up of requisitions and the delays --

H.M.Jr:

I mentioned that to Hopkins at lunch, and
he thinks that is good.

Cox:

That is one thing.
The second thing, it seems to me, is to
increase the revolving fund but at the same
time keep sufficient checks SQ that in terms
of policy, not red tape, you are buying the

kind of things that you won't regret later

on. Now, for example, all those questions
of re-export and - such as cotton for example,
you have policy questions involved which
Cliff might or might not know about.

H.M.Jr:

Well, Oscar, we can't go ahead and don't
want to go ahead until somebody, and I
take it when it goes over to the OPM somebody
over there says O.K. go ahead and buy it."

Cox:

But OPM doesn't determine that, you see.

They don't test the policy. They cover
availability of supplies and how it will
measure with our own program, but the policy
as to whether it should be bought will be
Mr. Stettinius' job. Now, I would say as
a purely practical matter in ninety-five
per cent of the cases the policy has been
revolved and you can probably map it out so
that revolving fund can be used for those
purposes.

As to the policy questions, you just handle
them in the regular way, except it doesn't

go to the White House.

73

- 19 H.M.Jr:

74

Well, Oscar, why isn't the practical thing I me an for the policy to be settled in the
first instance?

Cox:

I agree. I think it ought to be. That is

Nelson:

That is the way I have always felt about it,
that when that requisition issues from

the way to do it.

Lend-Lease, policy should have been settled
so that everybody goes on it. Sometimes we
have worked on these things two or three
times.

H.M.Jr:

That is my complaint. We go over and over
the same ground.

White:

I still don't see the objection to the larger
revolving fund in the light of - Mack says
that he doesn't begin to operate until
the end of the six and a half days, when he
gets your requisition.

Cox:

No, but you see the present procedure now,

there isn't necessarily a final policy
decision on the requisition by the time it

goes to OPM and by the time Mack would want

to operate. If you decide the policy in

advance through the Lend-Lease organization

before it goes out to OPM or other agencies
for other kinds of determination, then Mack

as a practical matter, can operate.
White:

Isn't it possible to have somebody during that
six-day period flag those things about which
there may be a doubt? You say it constitutes

five per cent. Those things about which

there may be a doubt, Mack can just wait

until it is resolved, but the ninety-five
per cent of the cases can be taken care of.
Cox:

I should think so, and either they ought
to be flagged or the policy determined.

- 20 White:

Yes.

H.M.Jr:

When I come back to what I said, it seems

to me that Mr. Stettinius in the first

instance should say we do or don't want

to buy the thing. It would save a lot of
trouble. If he says it is O.K. and OPM says

it is O.K. --

Stettinius:

Of course in many instances, Don, we have to

Nelson:

No, what happens there Ed - I mean, if you
decide them for policy, then of course
we send them back in case there is any
question about availability. Now, however,

check with you for release.

you have got - I won't institute an entirely
new procedure with the appointment of this
Board. What has happened, of course, when

we can't supply it or we have to take it

away from our own military services, then
it goes back and then it takes a long time to
resolve. Probably some of these nineteen
requisitions were some that we had difficulty

on. That really takes time, Mr. Secretary.

Now, I have been thinking that that ought to
come right up to SPAB if it is turned down
by OPM. Then instead of going through
all that cumbersome procedure, going back

to you (Cox) and back and forth, it ought

to come right up to SPAB and be decided.
H.M.Jr:

What is that?

Nelson:

That is this new agency. I haven't learned

yet.
Cox:

Supply, Priorities and Allocations Board.
(Laughter).

H.M.Jr:

Society for the Prevention of Cruelty to
Animals?

75

- 21 Nelson:

76

I will be invoking that, I'am afraid. But

you see then, Mr. Secretary, if it came
right up then we could get those resolved in

much less time than it has been taking now,

Phil. It just takes you months on some of

these where the Army objects.
H.M.Jr:

Well, do you think you gentlemen, as far as
we are concerned, could put the thing in

Mack's hands so when it comes to Mack, the
policy has been settled and he can go ahead
and do his buying, and then give him enough
money that he can have a revolving fund?

Stettinius:
Young:

We can agree on that in principle, can't we,
Phil?

Yes, as far as the Lend-Leaseability of the
requisitions is concerned, we are doing that
now. On the money end of it, I am perfectly

sure we can work out the revolving fund opera-

tion so that it can move as fast as it is

possible to do so.
H.M.Jr:

How long will it take you to make up your
mind, Phil?

Young:

I think I am about ready to jell. (Laughter).

H.M.Jr:

Well, I didn't expect you to crystallize that
quickly. But you are in the process of jelling?

Young:

Yes.

H.M.Jr:

Well, who do I get an answer from, from you?

Nelson:

He is the man to give it to you.

Stettinius:

Sure. Oscar and Phil and General Burns and

I will discuss it and give you an answer

when?

77

- 22 H.M.Jr:

Monday morning?

Cox:

Yes.

Stettinius:

Monday morning all right, Phil?

Young:

Yes.

H.M.Jr:

Now we have got one other thing, if I may,
please. I will read this. This is on some
of the future orders.
"The allocation of lend-lease funds as of
July 31, 1941, included "frozen" funds to
the extent of $98,930,860.72. As of
August 31, 1941, the total of "frozen" funds

was $101,886,225.33. "Frozen" funds
represent allocated money to cover lend-

lease requisitions specifying future deliv-

eries of from three months to longer periods

up to twelve months for which we can make
purchases only on a month-to-month basis
because OPM priority ratings or material

allotments are, as a rule, for but one
month. The following requisitions are illustrative:"
Then it goes into steel, zinc, copper, and
so forth. Allocated a hundred million dollars
to be purchased, and thirty or forty million
dollars is the balance.
"In order to overcome the duplication of work
necessitated by monthly allocations and monthly
purchases against requisitions for deliveries
extended over a period of several months,

the following recommendations are made.

"1. That allocations be made, to the extent
possible, to cover these requisitions for which
we now have only partial allocations and that
the unrequired balances of funds be cancelled.

78

- 23 "2. It is also recommended that the British

Purchasing Commission and China Defense

Supplies, Inc., be requested to provide a
forecast of their future metal requirements

for supply allocation or priority rating

determination and that requisitions then be

submitted for the quantity approved by OPM.
Such a procedure would avoid the necessity
for repeating allocations month by month and
the repetition of making purchases month
by month against long-term requisitions and
one allocation and one purchase would be the

result."

You see, on the books it looks as though we

had a lot of orders which we weren't filling
and I would just like to have enough orders

to do business, but if informally the English

say, "Over six months we need so much steel,"
then we would have something to gauge it
by.

Nelson:

That is right, and that is the way it should
be, Mr. Secretary.

H.M.Jr:

You like that?

Nelson:

Yes, sir.

H.M.Jr:

And then it doesn't look as though we had

a lot of orders on our books that we weren't
executing.

MacKeachie:

Nelson:

It would make the allocation easier, as a mat-

ter of fact.

It would make it much easier. The thing
would be much easier for us to allocate if
it were done that way.

Mack:

As a matter of fact, I think that in that

memorandum that I probably plagiarized your

- 24 -

79

own idea because this is something you
have talked about a good deal.
Nelson:

That is right. I have taken it up with

Stettinius:

May we analyze this, and Phil, can we come
back Monday with the answer on this one?

Young:

Yes, surely.

H.M.Jr:

Well, I will tell you what you do. I may

others, too.

not be here Monday, so if one of you gentlemen
will call a meeting and then Graves and my
people will come to you, because I am not

sure I will be here. They will come over
to see you.

Stettinius:

Why don't we set a definite time in your office,
Phil, on Monday and then we can have a roundup

in this whole business. Is that all right,

Oscar?
Cox:

Yes.

Stettinius:

What time, Phil, Monday afternoon?

H.M.Jr:

Any time you say.

Young:

Yes, I think Monday after lunch will be a
good time.

Stettinius:

How about two thirty in Phil's office Monday
afternoon?

Mack:

Fine.

H.M.Jr:

Have you got anything you would like us to
do that we are not doing?

Nels on:

As far as the end of it that I am connected
with, I think it has been working very satisfactorily. Mr. Mack has worked cooperatively

- 25 -

80

a hundred per cent, and things have been going

back and forth. I think we have had very

little waste of time.

H.M.Jr:

If anybody has any complaints or suggestions,
I would like to have them.

Stettinius:

I am pretty green, I think, but in ten days

H.M.Jr:

Quick cured, is it? Ten days, that is pretty
good. They will have to apply the heat.

I might want to knock on your door.
(Laughter).

MacKeachie:

Mr. Mack, you have authority now to go out and

negotiate when it is necessary, is that true?

Mack:

We don't have, no.

MacKeachie:

That is one thing, Mr. Secretary, that is

becoming more and more necessary. As these

things get tighter, sending out regular invi-

tations to bid will really do a lot of harm.
H.M.Jr:

Didn't you try to get a bill on that, Oscar?

Cox:

We tried to get some language in the next
appropriation act.

H.M.Jr:

What happened?

Cox:

Well, the next appropriation request hasn't
gone up yet.

H.M.Jr:

Is that being taken care of?

Cox:

Budget thinks it ought not to go in, and
Foley talked to their lawyer over there.
My own personal feeling is it is not necessary,

but if the Treasury feels it is, it ought to

go in.

- 26 -

H.M.Jr:

Does Ed think it is necessary?

Cox:

Yes.

H.M.Jr:

You might speak to Foley, Mack.

Young:

Budget said this morning they didn't feel
it necessary and they are, I gather,

81

planning on getting a written memorandum from

the Comptroller General on it saying that it
is not necessary.

Nelson:

That is very important, Mr. Secretary.

H.M.Jr:

I know it is.

Nelson:

Many of these things where they are very
scarce, we have to really tell Mr. Mack from
now on you can buy it from so-and-so, because

he has it --

Mack:

Don't have the justification.

H.M.Jr:

Well, the General Counsel holds we haven't

Mack:

Well, we can buy outside of statutory authority
provided we have sufficient justification
and Mr. Nelson has given us justification

been able to do that, isn't that right?

in those cases where it should be done, but
that means a special job in each case.

Nelson:

Each case.

Mack:

In other words, you build a case for the
Comptroller General.

Nels on:

You have to build a case.

H.M.Jr:

Anything else we can do that we are not?
Philip? Have you got any suggestions?

- 27 Young:

82

We still get repercussions from the British

which I just pass on for what it is worth,
because I don't know anything about it, to
the effect that the personnel organization
of Treasury Procurement is still not spread

far enough so that they can handle requisitions
concurrently instead of consecutively.

H.M.Jr:

Those are two dollar words.

Young:

That is exactly what they told me. I am

White:

They can't handle more than one requisition
at a time?

Young:

They say the Treasury Procurement keeps

quoting them.

building up a backlog of requisitions for
future attention, because they are forced to
take the most urgent items as they come
along. Therefore you are accumulating more

and more of a backlog all the time, which
ought to be handled concurrently.
Nelson:

I think it is your bidding that does that.

If you were negotiating, most of that would
disappear, because you have to handle each

one now and negotiate a bid. Naturally, you
have to make out your papers and file them
and so forth, and give them a number. That
is what happens, why they have to go con-

secutively, rather than being able to negotiate. You can negotiate a dozen at a time,
and he would rather do it.
Young:

I think they were speaking of the angle of
just not having sufficient personnel of the
proper caliber to handle all the requisitions
on a smooth flow through. I pass it along

for what it is worth, Cliff. I don't know
what there is to it.

- 28 Mack:

We have heard more or less along the same

lines from this source. There is a group

with the British Purchasing Commission that
handles chemicals and acids, for example.
They have been contacting our sources, that
is, going to our sources on these chemical

acid requisitions. Now, their suggestion

has been that we take over the personnel
in the British Purchasing Commission, that
is, certain ones from each of the groups,
and we are reluctant to do that because
we feel that we should use American personnel

within our own organization. That is about
what it boils down to.
White:

Well, don't you have enough personnel to
prevent an accumulation of a backlog?

Mack:

We are increasing personnel all the time.

As the work increases, we increase personnel.

White:

Is this charge correct, that you are building up a backlog because of personnel?

Mack:

I wouldn't think so, no. Of course, our

backlog is increasing with our work load,
of course. The more requisitions we get,
the more our total is and negotiations would

help, there is no doubt about that. But I
don't think that - I don't think it would

serve any good purpose to take on a number
of these commodity men that are now with

the British to spread them in our organization because they merely tell us what they

think we should do and then we do the work.
I would rather get Americans to supplement
our force as we need them. Of course, we

are putting them on all the time.
Nelson:

Do you think it would help any, Mack, if
Mr. MacKeachie took a few of those into
the Division of Purchases? I have had that

83

- 29 -

84

in mind for some time, that as the work of the
Commission died down, we might take them into

the Division of Purchases and have a closer
relationship with them.

One of your difficulties now is that they go
out and do a lot of preliminary work. Then
you have to come in and duplicate all that

work.
Mack:

That is right.

Nels on:

You may not agree with them.

Stettinius:

That is, the British, Don?

Nelson:

The British do a lot of preliminary work.

H.M.Jr:

I think Morris Wilson is going to lay a lot
of those people off.

Nelson:

There are a few of them that are good people.

H.M.Jr:

I think he is going to do that, particularly
in New York.

Stettinius:

Yes, I heard that too.

H.M.Jr:

I spoke to him in Montreal, you see, when

I was up there. His payroll is too big.

They are using too many dollars. He has

got, I think, an eleven or twelve million
dollar payroll, and they are not doing
any purchasing to speak of. It is too

big. And he agrees with me. So maybe some

of this is people, you know, trying to get
jobs.

Mack:

Well, we have one man from the British
Purchasing Commission on steel. He is a very
good man. He is an American fellow, formerly

- 30 -

85

with Jones and Laughlin, and he is an excellent
man. There is a man that you took over with
your organization, I believe, on chemicals
and acids. He is an American and he is
a very capable fellow. And there is one
man on machinery that we are thinking of

getting into our organization, and he is
an American.

Nelson:
Mack:

Yes, he is a good man.

But we are trying to keep it within those

lines.

H.M.Jr:

You can't employ anything except American
citizens, anyway.

Mack:

Well, that is so.

White:

H.M.Jr:

It would seem very peculiar for the Procurement Division to have British employees
buying goods for Britain.
It wouldn't do.

Nelson:

Yes.

H.M.Jr:

Anything else, Phil?

Young:

Not a thing, except Cliff has done a grand
job.

H.M.Jr:

I am glad to hear it. Well, I appr eciate

very much your coming over and if you will
give us an answer Monday we will try to do
better.

86

September 4, 1941
MEMORANDUM TO THE SECRETARY:

As requested the following are the steps taken with respect

to Lend-Lease purchases, together with the average time required

for each step:

Av. Time Required

(1) Requisitions are written and dated by the

British or China Defense Supplies and submitted to Defense Aid Reports; thence copies
are sent to Procurement Division and O.P.M.

From date of requisition to receipt in
Procurement average lapse of time is

2 days

(2) O.P.M. examines for availability of commodity, method of purchase, and whether

supplying will interfere with our own

defense program; then clears to Procurement

41 days

(Note: This average time will probably

be extended by 3 days when priority ratings
are to be indicated by O.P.M.)

(3) Form LLA-3 (Request for allocation of funds)

is prepared by Procurement for submission
to Defense Aid Reports. From date of clearance
by O.P.M. to date of submission of Form LLA-3 4 days

(4) Letter is prepared (based on LLA-3) by Defense

Aid Reports for signature of the President,
approving allocation of funds and transfer
of commodity to the foreign government. From
date of submission by Procurement of Form

LLA-3 to date of letter to be signed by the
President

(5) After signature by the President, transferdirective submitted to Procurement

12 days
8 days

87
MEMORANDUM TO THE SECRETARY

9-4-41

-2Av. Time Required

(6) On receipt of transfer-directive Procurement proceeds to make purchase. From

receipt of transfer-direetive to date of
contract

12 days

x

The figures above showing the average time required were

arrived at by taking the records on 19 requisitions which are
believed to be representative of the usual requisitions received

in Procurement.

This procedure requires an average of 30 days from the date
of the requisition before we are authorised to make a purchase,

of which total 20 days is taken up with the routine having to do
with the allocations for each requisition.
It is suggested that the present Revolving Fund of $10,000,000
be increased to $50,000,000 and authority granted to use this fund
in order that immediate purchase may be made or that such other

steps be taken to reduce the time now required for obtaining

allotments.

Director of Procurement
you Clifton E. Mack

my

88

September 4, 1941
Memorandum to the Secretary:

The allocation of lend-lease funds as of July 31, 1941, included
'frozen" funds to the extent of $98, 930, 860.72 As of August 31, 1941,
the total of "frozen" funds was $101, 886, 225.33. "Frozen funds represent allocated money to cover lend-lease requisitions specifying
future deliveries of from three months to longer periods up to twelve
months for which we can make purchases only on a month-to-month basis

because OPM priority ratings or material allotments are, as a rule, for
but one month. The following requisitions are illustrative:
Allocated

No.

Purchased

Balance

489-Alloys & Special $18,000,000.00

$3,990,551.76

$14,009,448.24

421-Zinc

20,000,000.00

3,558,460.60

16,446,539.40

1157-Copper

13,720,000.00

2,142,250.00

11,577,750.00

33-Plain Carbon
Steels
487-Pig Iron

40,000,000.00

31,302,376.28

8,697,623.72

7,680,000.00

1,352,715.00

6,327,285.00

Steels

In order to overcome the duplication of work each month necessitated
by monthly allocations and monthly purchases against requisitions for deliveries extended over a period of several months, the following recom-

mendations are made.

1. That allocations be made, to the extent possible, to cover these
requisitions for which we now have only partial allocations and that the
unrequired balances of funds be cancelled.

2. It is also recommended that the British Purchasing Commission
and China Defense Supplies, Inc., be requested to provide a forecast of

their future metal requirements for supply allocation or priority rating
determination and that requisitions then be submitted for the quantity

approved by OPM. Such a procedure would avoid the necessity for repeating
allocations month by month and the repetition of making purchases month
by month against long-term requisitions and one allocation and one purchase would be the result.

SIGNATURE
Clifton
E. Mack,
Director of Procurement

September 4, 1941
4:20 p.m.
HMJr:

Oh, back in March I wrote you a letter about
a Mark Grossman of Cleveland, as a possible
judge for the vacancy out there.

Francis
Biddle:

Uh huh.

HMJr:

And I'd just like to bring it to your

B:

attention again, if you don't mind.
Yes. I think we had rather in mind a man
called Freed in Cleveland.

HMJr:

Freed.

B:

But - do you know Grossman well, personally?

HMJr:

Well, I don't, but my son is out there

B:

Yeah.

HMJr:
B:

HMJr:
B:

HMJr:

and he knows him - Henry.
Uh huh.

And Henry knows both Freed and Grossman.
Uh huh.

And he talked to me several times about
Grossman, and he thinks Grossman

B:

HMJr:
B:

HMJr:
B:

Would he have political Senatorial backing?
I believe so.
You think he would?

But I don't want you to take it on my say-80.
I know. I understand. Oh, we've got the
idea.

HMJr:

But between Grossman and Freed, I think

you'll find - just as to their qualities

89

-2Yeah.

B:

that Grossman's a better man.

HMJr:

Yeah.

B:

HMJr:

But

Well, I'11 look into it.

B:

HMJr:

But, Henry's out there. He's been interested

B:

Yeah.

in it

and he knows both the people, and

HMJr:
B:

Yeah.

HMJr:

.....I

B:

Well, that's just the kind of thing I want

HMJr:

B:

wouldn't

to know in case there's some choice.

Well, I gather that between the two men,
Grossman has a better civice record.

I see. I see. Well, that's very important.

What's his age, do you know that?
HMJr:

Well, my guess

B:

Is he reasonably young?

HMJr:

My guess is he's around forty.

B:

Well, that's good, too. All right, Henry,
I'll look at that. I'm not going to speak
to the President about those vacancies until
I get back. I'm going off for about ten
days.

HMJr:

Good for you.

B:

Next week.

90

91
-

3

HMJr:

All right.

B:

Thank you, Henry.

HMJr:

Good-bye.

B:

Good-bye.

-

4

Draft of Secretary Morgenthau's Speech
to the Advertising Club of Boston, September 9, 1941.
92

A few hours ago it was my privilege to stand at the wooden
bridge at Lexington where the men of New England first proved that
Americans could defend their homes and their freedom. Today, the

people of these States are proving that they are still New
Englanders. In hundreds of factories and shipyards from Connecticut
to Maine, the men and women of New England are responding magnifi-

cently to their country's needs. I am glad to be here tonight to
pay my tribute, on behalf of the entire Administration in Washington,
to the great work that New England labor and industry are doing to
arm America.

I am glad also that my host tonight is the Advertising Club

of Boston, for the advertising profession is a mighty force in
creating public understanding. We cannot make ourselves the
arsenal of democracy and the defender of freedom unless our people

understand the tremendous issues involved in this Battle for the

-293

World. In the same way, we at the Treasury shall find it more
difficult to accomplish our task of financing the defense program
unless the public sees clearly the need for greater sacrifice and
for greater effort.

In particular, I think that clear understanding is needed
if we are to avoid the economic evils that might otherwise spring
from a defense program as great as ours. The worst of those
economic evils has been constantly uppermost in my mind as

Secretary of the Treasury. This is the evil of inflation and
this is the subject which I should like to discuss with you
tonight.

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.

3-

94

If we are selfish or shortsighted in facing this issue,
the consequences may haunt us and our children for years. But

if we look at the problem with clear vision and firm resolve, we

can beat this thing. If we keep always in mind the interests of
our country as a whole, if we provide promptly the appropriate
means and use them vigorously whenever necessary, we can prevent

inflation from fastening its grip upon us.
That task calls for alertness and mental toughness on the
part of everyone in the executive departments of the Government,

everyone in the halls of Congress and every one of us here tonight.

The word "inflation" is cold and lifeless, so cold that
even you advertising men here tonight might have difficulty in

making it real, but the thing it describes is treacherous and
cruel. Memories are so short that I suppose many of us have

forgotten what happened the last time inflation struck us 25 years

ago, but the effects of that inflation lasted for many years and
B

-4-

95

brought untold heartbreak and misery in their train.
We are now just where we were in 1916 - on the very edge

of inflation.
Let us look at the record to see what happened a genera-

tion ago. In 1916 the cost of living began to rise sharply but
there were few who saw its significance. It was only when prices
had risen by 70 per cent that President Wilson recommended any

steps to prevent inflation. In fact, the country was 80 blind to
its dangers that as late as June, 1917, Congress actually hastened

the miscin price

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

The consequences to every American were so serious that
there must be many housewives even today who can remember them.

By 1920, a ten-pound bag of sugar cost $2.67, a dozen eggs cost

92 cents, a ten-pound bag of flour cost 88 cents, a pound of butter
cost 76 cents and a pound of pork chops cost 50 cents. By that

-5-

96

year prices had skyrocketed to twice the level of five years earlier.
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 half a pound in 1920. The money she paid for a

yard of cotton cloth was only enough to buy only 1/3 of a yard in
1920. The consumer found that food, fuel, shelter and clothing

which cost a dollar in April, 1916, had risen to almost two dollars
by 1920. The family with no increase in income found its purchasing
power cut in half.

We have now, as we had then, a moderate rise in the cost of

living, a great rise in wholesale prices, and a still greater rise
in the prices of basic commodities like wheat, hogs, cotton and

lumber. It is the rise in the prices of basic commodities that
constitutes our red light, our warning signal, today, for such a
rise is always the advance guard of an increase in the cost of
living.

-6-

97

If we fail to use the controls at our disposal, if we fail
to do the specific things which are in our power now to control

inflation, if we allow prices to go on rising as they did from
1916 to 1920, we may find that food, fuel, shelter and clothing
which now cost a dollar will once more cost almost twice as much
before the process is ended.

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

Not only is the cost of building homes rising, but higher
rentals are also on the way for the millions who do not own their
homes. In scores of areas where industrial expansion has first

-7-

98

taken hold, rents have already risen 10, 20, 30 per cent, and even
higher.

I have brought with me tonight a pictorial chart which I
wish the radio audience could see because it shows 80 plainly the
road we traveled once, and the road which we must not travel again.
The chart shows how the buying power of your dollar shrank from

1914 to 1920, how your dollar bought less food, less clothing,

less shelter, less heat and light because prices were allowed to
run away. It shows how your dollar is already buying less in 1941
than in 1939, and it leaves a big question mark for the space
showing what your dollar may buy in 1942. The answer to that

question is in our keeping as Americans, whether we are officials

of the Government or private citizens. And I have written on the
chart, around the question mark, the words "The answer depends

on us". We can determine now, this year, we in Washington and
you in the country at large, whether we shall have the common sense

-8-

99

determination

and self-control to avoid what we went through twenty-five years
ago.

said Every George

Let it not be said of us, as a great British statesman said
of his people in 1915, that we were "too late in moving here, too

late in arriving there, too late in coming to this decision, too
late in starting with enterprises, too late in preparing." "There
is no excuse for us to be too late in meeting this threat of inflation that faces us.

We now know, or ought to know, what is going on; that is
the greatest difference between conditions today and in 1916. This
time our eyes are open to the dangers that lie ahead of us. We now

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.

There is no need for me to remind this audience in detail
of the reasons why prices have already risen. The reasons are plain

-9-

100

for everyone to see. Our economy today resembles an overloaded

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 enlarge the boiler by increasing the supplies of goods
available to the consumer.

In speaking of these things I am not being an alarmist or

defeatist. We can, as I have said before, defeat this threat,
just as we can turn back the forces of evil that have been let
loose upon this earth. But we need to understand the issues and

we need to see clearly the consequences of inaction or delay. I

should like, therefore, to look at the problem quite coolly for a
few minutes, to see first what we have done and then what we need

to do in order to stop prices from rising further.
D-B

*

- 10 -

101

In the first place, Congress is on the point of passing a
huge tax bill designed to raise almost four billion dollars in
additional revenue, thus withdrawing a great amount of purchasing
power that competes with the defense effort.

Secondly, the Treasury in its borrowing program is trying to
obtain as large a portion of its funds as possible from current
consumers' income. Through a new form of note - the tax anticipa-

tion note - it is seeking to increase the effectiveness of the
income tax as a check on current purchasing power, and I am happy

to report to you that more than a billion dollars' worth of these
notes were sold in the month of August.
The Treasury has also begun a program of selling Defense
Savings Bonds and Stamps to people of moderate and low incomes. The

people have responded to a tune of a billion and a quarter dollars
in four months, without coercion of any kind; and in making that
response possible the advertising profession has been of truly

- 11 -

102

invaluable help.

The President has recently issued an order authorizing
the Board of Governors of the Federal Reserve System to control

consumers installment credit. The Congress is considering, and

I hope will pass without undue delay, a bill to limit price rises
and to supplement the efforts of the Office of Price Administra-

tion, to limit price rises by voluntary cooperation.
All these are useful steps to a necessary end, but they
are not enough.

We shall have to tax ourselves much more heavily next

year than this year, great and far-reaching as the present tax

bill will be.
We may have to extend general controls over bank credit

and create controls over selected capital expenditures.
I hope that we may extend the social security program

so as to increase the flow of funds to the Treasury from current
D-B
0

- 12 -

103

income during the emergency and increase the outflow of funds when

needed in the post defense period. In addition, I have already
suggested the creation of what I have called a "separation wage" --

that is, an entirely new form of contribution out of which a worker
may draw a regular wage in case he loses his job.

We shall have to reduce the Federal lending and underwriting
program such as non-emergency housing expenditures and mortgage
guarantees.

We must, as I have said many times, reduce nonessential
Federal expenditures. We must also appeal for economy in state and

local government expenditure and a curtailment of their borrowing
for nondefense purposes. As the President showed clearly a month

ago when he vetoed a bill calling for 320 million dollars worth of
highway construction, there is a clear distinction nowadays between
the spending that is necessary for defense and the spending that

can be postponed until a later day. I think the country can

104
- 13 congratulate itself on the President's veto of this measure, and
also upon the action of the Senate only last week in approving

the creation of a joint committee of the taxing and the appropriating agencies of Congress to study the possibilities of

economy all along the line in nondefense activities. I have
several times suggested the creation of such a committee and I
am very happy that my suggestion has been adopted by the Senate

at last. I hope now that the House will also approve the idea,
because it seems to me that such joint action is the only sensible
way to proceed if we are to cut the costs of government and clear
the road for defense spending.

All of the measures I have so far suggested for combatting
inflation would attack the problem by reducing the demand for
goods now and by helping to build up a backlog for the post war

world. But we should also attack the problem from the opposite

- 14 -

105

direction by making every effort to increase the supply of goods
available to the consumer wherever this can be done without encroaching upon the defense program. Above all, we must make full

use of those supplies that are available not only in defense production but in the civilian goods which do not compete with defense
output.

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 498 million bushels of
two years' crops are stored in our neighbor democracy of Canada.

It is true that there is a tariff on the importation of Canadian
wheat, a rate of 42c a bushel on milling wheat and 5 per cent on

feed wheat; but it is also true and not generally realized that the
President has authority under the Tariff Act of 1930 to reduce the
import duty on wheat for emergency relief purposes whenever he

declares an emergency to exist. The emergency now exists, the

- 15 -

106

President has declared it by proclamation, and the reduction of
these tariffs would seem to be both practicable and necessary.

The same situation exists in other fields. I wonder if
the housewife knows when she pays 15 per cent more for a pound of

sugar, that there are unusually large sugar stocks in this country
and also stocks in Cuba which could be admitted speedily by a
the

reduction of tariff or by the enlargement of the import quota.
wonder if the housewife knows when she pays 25 per cent more for

butter that we have great stocks of butter in storage, and large
reserve stocks of farm products of many kinds which should be
released for consumption as fast as necessary to prevent unreasonable price rises.

The Government now holds 7 million bales of cotton in
reserve, and cotton prices have risen from 91 cents a pound on

August 1, 1939 to over 16 cents a pound at the present time. In
spite of this rise of almost 100 per cent in two years, Congress

I

- 16 -

107

recently sent to the President a bill to freeze government stocks
of cotton and wheat for the duration of the war, and thus to
prevent the government from disposing of any of the surplus wheat

and cotton it had acquired. The President promptly vetoed the bill
and I am delighted, because this measure, which I called "wicked",
would have aggravated the danger of inflation and would have

frustrated all our efforts to fight it. We ought not to withhold
surpluses from the market in times like these. The housewife ought
not to be made to pay a tribute to profiteers and speculators when
she buys a cotton sheet for her home or a shirt for her husband or

a suit for her child.

Millions of people still go without the milk, butter and
eggs which, according to the testimony of food experts and the
dictates of plain common sense, are necessary to good health and

good morale. Yet we are withholding the largest reserve of milk,
butter, eggs and cheese in our history. I know from experience on

- 17 -

108

my own farm that within two months we could increase our supply of

milk by feeding some of our huge surplus of corn to the COWS. 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.

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 would not only help in keeping prices stable but we would
be doing something even more important; we would be helping to make
our people healthier and happier.

It is sheer folly from the farmer's point of view to push
prices up by creating scarcities in times like these. The farmers
suffered cruelly for twelve long years after the collapse of the
inflation of 1920 and 1921; they should not be made to suffer again.

It is sheer folly in the same way for labor leaders to seek continual

- 18 -

109

increases in wages which in turn produce higher manufacturing costs,

higher prices, and a higher cost of living. It is shortsighted for
landlords to charge all that the traffic will bear in cities where
housing space is at a premium because of defense needs.

There are always selfish groups in any country which think

they can profit from inflation. They are wrong.
Inflation does more than merely to rob the wage earner of

a portion of his earnings. It does more than saddle the farmer
with a load of debt which he cannot repay. 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. No group in a community profits from inflation in
the long run except the Three Horsemen - the Speculator, the
Profiteer and the Hoarder.

- 19 -

110

These are truths that should be self-evident. They should

be especially so now, in view of the fact that rising prices will
only add to the cost of our defense program and make the arming of

our country steadily more difficult. They should be self-evident
now in the light of the experience that we suffered only 25 years ago.
We Americans have more than 150 years of self-government

behind us. We are not children any longer. We are a mature nation,
and we should be able to face up to our responsibilities as mature
men and women. My plea to you tonight is that we should learn from

bitter experience. My hope and my belief is that no group among us whether farmers, working men or business men - shall be tempted by

the illusion of selfish gain into allowing prices to rise unchecked.
The cost of inflation is too ruinous to producer and consumer alike

for anyone in authority to tolerate it now.
I can give you only this pledge - that we at the Treasury
will do everything humanly possible to check the rise in prices
B

- 20 -

111

before it will do any lasting damage to our economy. But we at
the Treasury must have the firm support and the clear understanding

of 130 million Americans behind us. If we have that support and

that understanding, I know that we shall not fail.

9-4 41
Draft of Secretary Morgenthau's Speech

to the Advertising Club of Boston

112

September 9, 1941

in front of The famous statue of the minute man by Daniel Chester thench

A few hours ago it was my privilege to stand at the woodon
at the very place
the green
bridge at Lexington, where the men of New England first proved that
A

Americans could defend their homes and their freedom. Today, the

people of these States are proving that they are still New Englanders. In army camps and naval stations, in hundreds of
factories and shipyards from Connecticut to Maine, the men and
women of New England are responding magnificently to their

country's needs. I am glad to be here tonight to pay my tribute
to the great work that New England is doing, like all other sections of the country, to arm America.

I am glad also that my host tonight is the Advertising Club

of Boston, for the advertising profession is a mighty force in
creating public understanding. We cannot make ourselves the
arsenal of democracy and the defender of freedom unless our people

understand the tremendous issues involved in this Battle for the

-2-

113

World. In the same way, we at the Treasury shall find it more
difficult to accomplish our task of financing the defense program
unless the public sees clearly the need for greater sacrifice and
for greater effort.

In particular, I think that clear understanding is needed
if we are to avoid the economic evils that might otherwise spring
from a defense program as great as ours, a program that is making
such enormous demands upon our productive resources. The worst

of those economic evils has been constantly uppermost in my mind

as Secretary of the Treasury. That is the evil of inflation and
that is the subject which I should like to discuss with you tonight.
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.
D-C

-3-

114

If we are selfish or shortsighted in facing this issue,
the consequences may haunt us and our children for years. But

if we look at the problem with clear vision and firm resolve, we

can beat this thing. If we keep always in mind the interests of
our country as a whole, if we provide promptly the appropriate
means and use them vigorously whenever necessary, we can prevent

inflation from fastening its grip upon us.
That task calls for alertness and mental toughness on the
part of everyone in the executive departments of the Government,

everyone in the halls of Congress, everyone of us here in this
room and everyone that may be listening to me tonight.

The word "inflation" is cold and lifeless, so cold that
even you advertising men here tonight might have difficulty in

making it real, but the thing it describes is treacherous and
cruel. Memories are 80 short that I suppose many of us have

forgotten what happened the last time a price inflation struck us
D-C

-4-

115

25 years ago. The effects of that inflation, however, lasted for
many years and brought untold heartbreak and misery in their train.
Let us look at the record to see what happened a genera-

tion ago. In 1916 the cost of living began to rise sharply but
there were few who saw its significance. It was only when prices
had risen by 70 per cent that President Wilson recommended any

steps to prevent inflation. In fact, the country was so blind to
its dangers that as late as June, 1917, Congress actually hastened
the rise in prices by reducing the reserve requirements for member
banks of the Federal Reserve System.

The consequences were so serious for every American that
there must be many housewives even today who can remember them.

By 1920, a ten-pound bag of sugar cost $2.67, a dozen eggs cost

92 cents, a ten-pound bag of flour cost 88 cents, a pound of butter
cost 76 cents and a pound of pork chops cost 50 cents. By that

D-C

-5-

116

year prices had skyrocketed to twice the level of five years earlier.
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 half a pound in 1920. The money she paid for a

yard of cotton cloth was only enough to buy only 1/3 of a yard in
1920. The consumer found that food, fuel, shelter and clothing

which cost a dollar in April, 1916, had risen to almost two dollars
by 1920. The family with no increase in income found its purchasing
power cut in half.

We have now, as we had then in 1916, a moderate rise in the cost

of living, a great rise in wholesale prices, and a still greater
rise in the prices of basic commodities like wheat, hogs, cotton and

lumber. It is the rise in the prices of basic commodities that
constitutes our red light, our warning signal, today, for such a
rise is always the advance guard of an increase in the cost of
living.
D-C

-6-

117

If we fail to use the controls at our disposal now, if we
fail to do the specific things which are in our power to check

inflation now, if we allow prices to go on rising as they did from
1916 to 1920, we may find that food, fuel, shelter and clothing
which now cost a dollar will once more cost almost twice as much
before the process has ended.

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

Not only is the cost of building homes rising, but higher
rentals are also on the way for the millions who do not own their
homes. In scores of areas where industrial expansion has first
D-C

-7-

118

taken hold, rents have already risen 10, 20, 30 per cent, and even
higher.

I have brought with me tonight a pictorial chart which I
wish the radio audience could see because it shows so plainly the
road we traveled once, and the road which we must not travel again.
The chart shows how the buying power of your dollar shrank from

1914 to 1920, how your dollar bought less food, less clothing,
less shelter, less heat and light because prices were allowed to
run away. It shows how your dollar is already buying less in 1941

than in 1939, and it leaves a big question mark for the space
showing what your dollar may buy in 1942. The answer to that

question is in our keeping as Americans, whether we are officials

of the Government or private citizens. And I have written on the
chart, around the question mark, the words "The answer depends

must

on us". We sen
decide now, this year, we in Washington and you
A
in the country at large, whether we shall have the common sense
D-C

-8-

119

and determination to avoid what we went through twenty-five years
ago.

Let it not be said of us, as David Lloyd George said of his
people in 1915, that we were "too late in moving here, too late

in arriving there, too late in coming to this decision, too late
in starting with enterprises, too late in preparing."
There is no. excuse for us to be too late in meeting this threat
of inflation that faces us. We now know, or ought to know, what is
going on; that is perhaps the greatest difference between conditions
today and in 1916. This time our eyes are open to the dangers that
lie ahead of us. We now 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.

There is no need for me to remind this audience in detail
of the reasons why prices have already risen. The reasons are plain
D-C

-9-

120

for everyone to see. Our economy today resembles an overloaded

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

also by increasing the flow of supplies of goods available to the
.

consumer.

We can, as I have said before, defeat this threat of

inflation, just as we can defeat and destroy the forces of evil
that have been let loose upon this earth. But we need to understand
the issues and we need to see clearly the consequences of inaction

or delay. I should like, therefore, to point out, first, what
we have done, and then what we need to do in order to stop prices

from rising further.

D-C

- 10 -

121

In the first place, Congress is on the point of passing a

huge tax bill designed to raise almost four billion dollars in
additional revenue, thus withdrawing a great amount of purchasing
power that competes with the defense effort.

Secondly, the Treasury in its borrowing program is trying

to obtain as large a portion of its funds as possible from current
consumers' income.

Through a new form of note - the tax anticipation note it is seeking to increase the effectiveness of the income tax as
a check on current purchasing power, and I am happy to report to

you that more than a billion dollars' worth of these notes were
sold in the month of August.

The Treasury has also begun a program of selling Defense
Savings Bonds and Stamps to people of moderate and low incomes. The

people have responded to a tune of a billion and a quarter dollars
in four months, without coercion of any kind; and in making that
response possible the advertising profession has been of truly

- 11 -

122

invaluable help.

The President has recently issued an order authorizing
the Board of Governors of the Federal Reserve System to control
consumers installment credit.

The Congress is considering, and I hope will pass without

undue delay, a bill to limit price rises and to supplement the

efforts of the Office of Price Administration to limit those
rises by voluntary cooperation.

All these are useful steps to a necessary end, but they
are not enough.

We shall have to tax ourselves much more heavily next year

than this year, great and far-reaching as the present tax bill
will be.

We shall have to invest much more widely and systematically

in Defense Savings Bonds and Stamps. In particular, the rising

- 12 -

123

payrolls of the past year have been a clear call to the wage
earners of America to set aside a portion of their earnings each
week for their own good and their country's good.
We may have to extend general controls over bank credit and

create controls over selected capital expenditures.
I hope that we may extend the social security program so

as to increase the flow of funds to the Treasury from current
income during the emergency and increase the outflow of funds

when needed in the post defense period. In addition, I have
already suggested the creation of what I have called a "separa-

tion wage" -- that is, an entirely new form of contribution out
of which a worker may draw a regular wage for a stated period in
case he loses his job. These measures would be good and desirable

in themselves, but they are especially necessary at this time,
for they should help us to decrease purchasing power now and in-

crease it in the future when it may be needed.

- 13 -

124

We shall have to reduce the Federal lending and underwriting
program in such fields as non-emergency housing expenditures and
mortgage guarantees.

We must, as I have said many times, reduce nonessential
Federal expenditures. We must also appeal for economy in state
and local government expenditure and a curtailment of their borrowing for nondefense purposes. The President pointed the way a

month ago when he vetoed a bill calling for 320 million dollars
worth of highway construction. By this action he demonstrated that
there is a clear distinction nowadays between the spending that is
necessary for defense and the spending that can be postponed

until a later day.
The country should congratulate itself on the President's
veto of this measure, and also upon the Senate's action only

last week in approving the creation of a joing committee of the
taxing and the appropriating agencies of Congress to study

the possibilities of economy all along the line in

- 14 -

125

nondefense activities. I have several times suggested the creation of such a committee, and I am very happy that my suggestion
has been adopted by the Senate at last. I hope now that the House

will also approve the idea, because it seems to me that such joint

action is the only sensible way to proceed if we are to cut the
costs of government and clear the decks for defense spending.

All of the measures I have so far suggested for combatting
inflation would attack the problem by reducing the demand for goods
now and by helping to build up a backlog of purchasing power for the

post war world. But we should also attack the problem from the
opposite direction. We must make every effort to increase the supply
of goods available to the consumer wherever this can be done without
encroaching upon the defense program. Above all, we must make full

use of those supplies that are available, not only in defensez production, but in the provision of civilian goods which do not compete
with defense output. This is a time when we must flatten the peaks
D-C

- 15 -

126

and fill up the valleys in our economic picture. If we reduce
purchasing power now and keep prices down now, we shall be helping

to provide for the day when these vast defense expenditures will
end and when our defense workers will take up the work of peace again.

The most effective way to prevent a damaging rise in prices
is, quite simply, to release surpluses from storage.
15

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 498 million bushels of
several years' crops are available in our neighbor democracy of

Canada. It is true that only three months ago a rigid quota was
applied to the importation of wheat from Canada so as to keep up

the price of wheat in this country. But it is also true that only
the other day the quota on sugar from Cuba was enlarged 80 sub-

stantially as to absorb most of the reserve stocks in that country.

- 16 -

127

It seems to me desirable and necessary that we now follow the
example set in the case of Cuban sugar and permit the entry of
Canadian wheat in larger volume.

Here in this country we have large reserve stocks of farm
products of many kinds which should be released for sonsumption

as fast as necessary to prevent unreasonable price rises.
The Government now holds 7 million bales of cotton in reserve,
and cotton prices have risen from 91 cents a pound on August 1, 1939

to over 16 cents a pound at the present time. In spite of this rise
of not far from 100 per cent in two years, Congress recently sent to
the President a bill to freeze government stocks of cotton and wheat
for the duration of the war, and thus to prevent the government from
disposing of any of the surplus wheat and cotton it had acquired.
The President promptly vetoed the bill because this measure would

have aggravated the danger of inflation and might have frustrated our

- 17 -

128

efforts to fight it.
We ought not to withhold cotton surpluses, or any surpluses,
from the market in times like these. The housewife ought not to
be made to pay a tribute to profiteers and speculators when she

buys a cotton sheet for her home or a shirt for her husband or a
suit for her child.

Millions of people still go without the milk, butter and
eggs which, according to the testimony of food experts and the
dictates of plain common sense, are necessary to good health and

good morale. Yet the reserve stocks of butter, cheese, beef and
pork now held in this country are far higher than they were a year
ago and far higher than the average of the past five years.

- 18 -

129

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 would not only help in keeping prices stable but we would
be doing something even more important; we would be helping to make

our people healthier and happier.

It is sheer folly from the farmer's point of view to push
prices up by creating scarcities in times like these. The farmers
suffered cruelly for twelve long years after the collapse of the
inflation of 1920 and 1921; they should not be made to suffer again.

It is sheer folly in the same way for labor leaders to seek
new

every few months - new increases

continual increases in wages which in turn produce higher manufactur-

ing costs, higher prices, and a higher cost of living.4 It is short-

sighted for a landlord to charge all that the traffic will bear in
defense centres where housing space is at a premium 4 It is poor

- 19 -

130

business, in the long run, for any businessman to seek exorbitant

profits in this period of defense spending. # It is bad banking,
in the long run, for any banker to exploit the present demand for
funds by seeking to charge unreasonable interest rates.

There are always selfish groups in any country which think

they can profit from inflation. They are wrong.
c

Inflation does more than merely to rob the wage earner of a

portion of his earnings. It does more than saddle the farmer with
a load of debt which he cannot repay. 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. # No group in a community profits from inflation in the long
run except the Three Horsemen - the Speculator, the Profiteer and
the Hoarder.

- 20 -

131

These are truths that should be self-evident. They should

be especially 80 now, in view of the fact that rising prices will
only add to the cost of our defense program and make the arming of

our country steadily more difficult. They should be self-evident
now in the light of the experience that we suffered only 25 years
ago.

We Americans have more than 150 years of self-government

behind us. We are a mature nation, and we should be able to face
up to our responsibilities as mature men and women. My plea to

you tonight is that we should learn from bitter experience. My
hope and my belief is that no group among us - whether farmers,

working men or business men - shall be tempted by the illusion of

selfish gain into allowing prices to rise unchecked.
The cost of inflation is too ruinous to producer and consumer

alike for anyone in authority to tolerate it now.

- 21 -

132

I can give you only this pledge - that this Administration
will do everything humanly possible to prevent inflation. But
in this fight the Administration must have the firm support
and the clear understanding of 130 million Americans behind it.
If we have that support and that understanding, I know that

we shall not fail.

9-

Thursday septkat
Deey's home, 8:45 pm.
133

for everyone to see. Our economy today resembles an overloaded

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

also by increasing the flow of supplies of goods available to the
consumer.

We can, as I have said before, defeat this threat of

inflation, just as we can defeat and destroy the forces of evil
that have been let loose upon this earth. But we need to understand
the issues and we need to see clearly the consequences of inaction

to point out,

or delay. I should like, therefore,Ato look at the problem for
& few minutes, to see first, what we have done, and then what we

need to do in order to stop prices from rising further.

D-C

- 13 -

134

We shall have to reduce the Federal lending and underwriting
program in such fields as non-emergency housing expenditures and
mortgage guarantees.

We must, as I have said many times, reduce nonessential
Federal expenditures. We must also appeal for economy in state
and local government expenditure and a curtailment of their borrow-

pointed the way
ing for nondefense purposes. As the President showed clearly a

month ago when he vetoed a bill calling for 320 million dollars
this action he demonstrated That

worth of highway construction,
there is a nowBy clear distinction
adays between the spending that is necessary for defense and the

spending that can be postponed until a later day.
should

F think the country can congratulate itself on the PresiSenate's

dent's veto of this measure, and also upon the action of the
A

Senate only last week in approving the creation of a joint committee of the taxing and the appropriating agencies of Congress

to study the possibilities of economy all along the line in

-14 -

135

nondefense activities. I have several times suggested the creation of such a committee, and I am very happy that my suggestion
has been adopted by the Senate at last. I hope now that the House

will also approve the idea, because it seems to me that such joint

action is the only sensible way to proceed if we are to out the

decks
costs of government and clear the way A for defense spending.

All of the measures I have so far suggested for combatting
inflation would attack the problem by reducing the demand for goods

of purchasing power
now and by helping to build up a backlog for the post war world.
But we should also attack the problem from the opposite direction.

must
We should make every effort to increase the supply of goods avail1

able to the consumer wherever this can be done without encroaching

upon the defense program. Above all, we must make full use of

those supplies that are available, not only in defense production,
but in the provision of civilian goods which do not compete with
defense output. This is a time when we must flatten the peaks

- 15 -

136

andfill up the valleys in our economic picture. If we shave-off

a

the peak by reducing purchasing power now and by keeping prices

down now, we shall be helping to provide for the day when these
vast defense expenditures will end and when our defense workers

will take up the work of peace again.

The most effective way to prevent a damaging rise in prices

release expluses from storage.

is, quite simply, to bring prices down

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 498 million bushels of
several years' crops are available in our neighbor democracy of

Canada. It is true that only three months ago a rigid quota was
applied to the importation of wheat from Canada so as to keep up

the price of wheat in this country. But it is also true that only
the other day the quota on sugar from Cuba was enlarged so sub-

stantially as to absorb most of the reserve stocks in that country.

- 16 -

137

It seems to me desirable and necessary that we now follow the
example set in the case of Cuban sugar and permit the entry of
Canadian wheat in larger volume.

Here in this country we have large reserve stocks of farm
products of many kinds which should be released for consumption

as fast as necessary to prevent unreasonable price rises.
The Government now holds 7 million bales of cotton in
reserve, and cotton prices have risen from 91 cents a pound on

August 1, 1939 to over 16 cents a pound at the present time. In

spite of this rise of not far from 100 per cent in two years,
Congress recently sent to the President a bill to freeze government stocks of cotton and wheat for the duration of the war, and
thus to prevent the government from disposing of any of the surplus
wheat and cotton it had acquired. The President promptly vetoed
the bill and anadalighted, because this measure would have
aggravated the danger of inflation and might have frustrated our
D-C

- 17 -

efforts to fight it.

138

cotton many surfluses,

We ought not to withhold surpluses
11 from the market in times
like these. The housewife ought not to be made to pay a tribute
to profiteers and speculators when she buys a cotton sheet for her

home or a shirt for her husband or a suit for her child.

Millions of people still go without the milk, butter and
eggs which, according to the testimony of food experts and the
dictates of plain common sense, are necessary to good health and

good morale. Yet the reserve stocks of butter, cheese, beef and
pork now held in this country are far higher than they were a year
ago and far higher than the average of the past five years.
know from experience on my own farm that within two months we bould

increase our supply of milk by feeding some of our huge surplus of
corn to the cows. I know that we could use some of our surplus

grains as feed for chickens and get more eggs, yet the price of *
standard poultry ration has increased 60 per cent since the war began.

- 20 -

139

These are truths that should be self-evident. They should

be especially so now, in view of the fact that rising prices will
only add to the cost of our defense program and make the arming of

our country steadily more difficult. They should be self-evident
now in the light of the experience that we suffered only 25 years
ago.

We Americans have more than 150 years of self-government

behind us. We-are-not children any longer, We are a mature nation,
and we should be able to face up to our responsibilities as mature
men and women. My plea to you tonight is that we should learn from

bitter experience. My hope and my belief is that no group among
us - whether farmers, working men or business men - shall be tempted

by the illusion of selfish gain into allowing prices to rise unchecked # The cost of inflation is too ruinous to producer and
consumer alike for anyone in authority to tolerate it now.

140

- 21 -

this administration
I can give you only this pledge - that we at the Treasury

humanly prevent inflation

will do everything possible to cheek the rise in prices
in this fight the
^ we at
before it will do any lasting damage to our economy. But

adminis wann
the Treasury must have the firm support and the clear understand-

it.
ing of 130 million Americans behind us. If we have that support
and that understanding, I know that we shall not fail.

141

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 4, 1941
TO

Secretary Morgenthau

FROM Messrs. Foley and Pehle

A character investigation of Emma von Lewinski,
a report on which was received today, indicated that Mrs.
von Lewinski, who had since July 1, 1941, been employed by

the Foreign Funds Control, is the wife of Karl von Lewinski,

former German agent before the Mixed Claims Commission and
German Consul General in New York City for many years prior

to 1930. The report indicated that Mr. and Mrs. von Lewinski
are separated and that Karl von Lewinski is now in Germany,
as is their daughter. Mrs. von Lewinski was immediately
separated from the Foreign Funds Control.

In June, 1941, when she was interviewed prior to
her employment, she gave among her references, Chief Justice
Stone and Senators Barkley, Adams, and Wagner. She also ex-

hibited letters from Senator Barkley which indicated that he
was a close friend and fully endorsed her as to character.
The Secret Service report indicates that Senator Barkley stated
he had known the subject for many years and considered her to
be reliable and a loyal American citizen and could be trusted

in every way. It is not unlikely that Senator Barkley will

request the Treasury to reconsider its action in severing Mrs.

von Lewinski from the Foreign Funds Control.

approved

im/i.

S.N.Foly h.
copy

CONFIDENTIAL

142
UNITED STATES SAVINGS BONDS

Comparative Statement of Sales During
First Two Business Days of July, August, and September, 1941
(July 1-2, August 1-2, September 1-3)
On Basis of Issue Price

(Amounts in thousands of dollars)

:

:

:

:

:

:

:

$ 2,967

Series E - Banks

5.318

6,325

2,330
4,124

Series E - Total
Series G - Banks

9,311
1,767
11,300

9,293
1,889
13,687

6,454
1,802
12,862

Total

$22,378

$24,869

$21,117

:

:

:

$ 3,993

Series F - Banks

over
August

:

:

: July

:

I

Series E - Post Offices

August

September :

August
over

July

: September : August

: over

1 August

:

:

: September

or Decrease (-)

$ Percentage of Increase
or Decrease (-)
1

:

Item

Amount of Increase

:

Sales

over

July

$1,026

$ 637

- 1,007

2,201

- 15.9

53.4

18

2,839

0.2

122

87

- 6.5

- 17.4

44.0
4.8
6.4

- 10.0%

17.8%

-

- 2,387
-$2,491

825

$3,752

Office of the Secretary of the Treasury, Division of Research and Statistics.

34.6%

27.3%

September 4, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States Savings Boads.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

CONFIDENTIAL

143
UNITED STATES SAVINGS BONDS

Daily Sales - September 1941
On Basis of Issue Price

(In thousands of dollars)
Post Office
Date

All Bend Sales

Bank Bend Sales

Bend Sales

Series F

Series G

Total

$ 6,406

$ 1,182

$ 5,510

$ 13,098

8,308

2,905

585

5.790

9,280

$ 18,384

$ 9.311

$ 1,767

$ 11,300

$ 22,378

Series 1

Series 3

Series F

Series 6

Total

$ 3,021

$ 3.385

$ 1,182

$ 5,510

$ 10,077

972

1,933

585

5,790

$ 1,767

$ 11,300

Series 3

September 1941
2

3

Total

$ 3.993

$ 5,318

Office of the Secretary of the Treasury, Division of Research and Statistics.

September 4, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of preceeds of sales of
United States Savings Bends.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

DEFENSE SAVINGS STAFF

144

ADVANCE SCHEDULE OF RADIO PROGRAMS

THURSDAY - SEPTEMBER 4. 1941

Time:

9:00 - 9:15 A.M.

Program:

The Story of Bess Johnson

Station:

WRC and NBC Red Network

Time:

1:00 - 1:15 P.M.

Program:

Young Dr. Malone

Station:

WJSV and CBS Network

Time:

9:30 - 10:00 P.M.

Program:

"Great Gunne"

Station:

WOL and MBS Network

Time:

9:30 - 10:00 P.M.

Program:

Quiz of Two Cities

Station:

WRC - Washington
and

WFBR - Baltimore

THESE PROGRAMS PROMOTE THE SALE OF DEFENSE BONDS AND STAMPS.

145

SEP 4 1941

Dear Mr. Kuhas

A Bureau of Fasts and Figures is being established

in the Office of Civilian Defense to which will be

attached an Advisory Interdepartmental Committee. You
are hereby designated as the Treasury Department member
of this Advisery Committee.

Attached are copies of files on the subject which
set forth in detail the functionief the Bureen of Fasts
and Figures - of the Advisory Committee.
Sincerely,
(Signed) H. Morgenthau, Jr.

Mr. Fordinand Sthm, Jr.,
Assistant to the Secretary,
Treasury Department.

Enclosures: LaGuardia' a 1tr. of Aug. 25, 1941
Gaston's 8 ltr. of Aug. 21, 1941
LaQuardia's 1tr. of Aug. 14, 1941
, page memo from Mayor LaGuardia

to Secretary, dated Aug. 14, 1941

WHITE

Cities to Mr. Thompson

cc Mis channery

146

SEP 4 1941

Dear Mr. Schwores

You are hereby designated as the Treasury Department

lisison representative with whom direct contacts may be
made by representatives of the Bureau of Faste and Figures
which is being established in the Office of Civilian Defence.

Attached are copies of files on the subject which see
forth in detail the functions of the Bareau of Fasts and
Figures and of the Advisory Committee which is being estab
lished as an adjunct of the Sareau.
Sincerely,
(Signed) H. Morgenthau, Jr.

Mr. Charles Schware,

Director of Press Relations,

Treasury Department LaGuardia's
1tr.ofof
Aug.
1941
Gaston's 1tr.
Aug.
21,25,
1941
LaGuardia's 1tr. of Aug. 14, 1941

# page memo from Mayor LaGuardia

to Secretary, dated Aug. 1b, 1941

WRITING

Coyanow Mr. Thompson

ce- Min channing

OFFICE OF CIVILIAN DEFENSE
WASHINGTON, I

August 25, 1941
Honorable Henry Morganthau

Secretary of the Treasury
Washington, D. C.

Dear Mr. Secretary:

I am writing you in reference to the plan for a
Bureau of Facts end Figures. which I submitted to you under
the date of August 14. for your recommendations. After receiving your comment, and the comments of other interested

parties, I submitted the plan to the President. and he has

directed me to proceed.

You will remember that the plan for the Bureau
called for an Advisory Inter-Departmental Committee, to meet
regularly with the Bureau. Would you please. therefore, desig-

nate someone from your Department to serve on this Committee?

I would like to have a person of sufficient position within

your Department. to meke decisions on policy. At the same
time would you also designate a liaison representative within
your Department, with whom the Board could maintain a direct
contact. As soon es you, and the other Departments have designated your representatives for the Advisory Committee, I shell

call a meeting of it, to begin operations.

I want to thank you for your kindness in making suggestions concerning the Bureau of Facts and Figures. I was
particularly pleased that, except for some differences as to
methods of procedure, the recommendetions on the plan were
generally favorable. I should like once more to repeat that
the Bureau of Facts and Figures will cooperate with the other
Departments, and not attempt to supersede any of their activities.
It will have only one basic objective, to improve national unity.
A8 you know, the President is extremely anxious to get started

in this field, so that I would appreciate it if you could desig-

nate your representstive for the Advisory Committee and the liaison within your Department as quickly as possible.
Sincerely yours,

F. H. LeGuardia

U. S. Director of Civilian Defense

August 21, 1941.

Honorable F. H. LaGuardia,

U. S. Director of Civilian Defense,
Washington, D.C.

Dear Sir:

By direction of Secretary Morzenthan, and in his absence,
I am replying to your letter of August 14, with which you enclosed a memorandum as to the proposed office of Facts and Minires,

together with a questionnaire. The original of the questionnaire,
with replies on behalf of the Secretary 01 the Treasury, is being

returned herewith as you requested.

In addition LO the three specific inquiries in the questionnaire you state in your letter that you would like a frank expression
as to whether the job of civilian morale properly helon B to the
Office of Civilian befonse. It would seem that tide question is
adequately answored by the terms of Executive Order of May 20, 1941,
which you cite, containing the words "consider proposals, surpest
plans, and pronote activities desi need to sustain the national

morale." In addition it seems to un that the work of cultivating
and sustaining & satisfactory state of civilian morale is an
essential part of the work of An office of civilian defense.
Secretary horgonthan expressed to re the tellef that meat

betternent of pablic opale ni is e Love .out A: the OF ice of
Civilian Defense sould undertake to encourare will Lane x sneaking
carpaigns coch to 200 onerel public and in Army CARR.
Very truly yours,

Herbert E. Gaston

Assistant Secretary of the Treasury.

Enclosure.

OFFICE OF CIVILIAN DEFENSE
WASHINGTON, D.C.

August 14, 1941
The Honorable

The Secretary of the Treasury
Washington, D.C.

by dear Mr. Secretary:

By an Executive Order of May 20, 1941, the President instructed
the Office of Civilian Defense to "consider proposals, suggest plans, and
promote activities designed to sustain the national morale." Following
these instructions 1 have been studying the field intensively, and in order
to carry them out 1 am considering the establishment of an Office of Facts
and Figures, within the Office of Civilian Defense.

Before proceeding further, however, it is IV desire to obtain
general agreement as to operation, and general ai.ns. Clearly, the value
of such an Office must lie in the assistance it can render to departments
and existing agencies of the Government. I am, therefore, submitting with
this letter the general idea of an Office of Facts and Figures, as suggested
by our studies. You will find at the bottom of the attached memorandum
a simple form, set up for the expression of your approval, your disapproval,
your comments, and so forth. I would appreciate it if you would fill out
this form, stating your frank opinion of the idea as presented here, and
adding any suggestions you may have. If this project is to be undertaken,
it is of fundamental importance that it have the approval of all. I enclose
two copies of the memorandum, so that you may retain one in your files.
Desides your approval, disapproval, or comments, concerning this

plan, I should like a frank expression fros you as to whether you believe
that the job of civilian morale properly belongs to the Office of Civilian
Defense, or whether you believe that it should be placed somewhere else

or whether you believe that there is no need or desirability for a coordina-

ting office of this kind.

Since 1 an anxious to act as soon as possible, i would appreciate
your reply at your earliest convenience. 1 shall be out of town during the
coming week on speaking engagements. if there are any questions or amplifications that you would like in the meantime, 1 wish you would feel free
to call upon Rus sell Davenport or Captain Robert Kintner, who have undertaken to help me in developing this plan, and who can be reached through
my Office. They are familiar with all the details as we have discussed them.
Sincerely yours,

F. H. LaGuardia

U. S. Director of Civilian Defense
Enclosures

AMORAN.UJ

August 14, 1941
10:

The Secretary of the Treasury

FROM: Mayor r. H. L Crus rdis

SUBJECT: Office of I cts and Figure.

The functions of an Office of CLS and Figures are extresely
important to the defense progr. Yet the ru juirements are extremely
simple.

First, in order to make itself conversant with the entire
field, the Office would re juire copias of .11 the relouses sent out
by every department and agency in the Government. These copies should

be received when released.

Second, the Office would require access to every department
and agency for the purpose of Eithering further information concerning

their activities. Naturally, in eeking this information, the Office

would conform to special regulations regarding the release of military,
diplomitic, and other departmental socrets. This can very easily be
worked out with each depart ent, providing the general principle is
agreed upon by al that, with special exceptions, the Office of Facts
and Figures is entitled to ask for in:ornation to supplement the
standard releases, whenever the Office deems that such added informa-

tion would be of benefit to public morale.

Third, to be effective, the Office should have the authority

to make suggestions to depart: ent heads and to their public relations

offices, concerning their information stivities.

These, I elieve, are the only requirements for the successful
establishment of what we have in and. I do not feel that it would be
proper for our Office to supplant the present publicity or information
services. That work is now being done by each department and it should

remain with the departments. Our simple function is to clarify, and,
we would hope, take more effective, the efforts of agencies already in

the field. It is essentially L job of coordination and not of control

or regulation.

To this general principle there is only one exception, and that
has to do with radio time. At present the radio companies are being
delaged with request for time fro .11 the departments. All these
Lests are made with the 3.000 incention, namely, to help public

let yet I am ssured that they are having quite the op osite ef-

and that the pu lic is not reacting well to .11 the Government
time now being taken on the Air. In order to make these efforts effective it will e necessary to coordinate and channel all Government
radio programs in one office, nd this Job should belong to an office
of facts and figures.

-2-

On the subject of radio, we have been considering a program
called "took Your Government," in which the Office of rets and
Figures 1d undertako to answer any question that any citizen
night ask concerning defense and the national exergency. The information to answer these questions would have to be supplied to us by
the departments (subject always to the special restriction already
mentioned). Basically, this would be H large mailing operation, but
once & weak the questions would be sifted nd the best ones asked,
and answered, on the air. Such A prograp would Serve two purposes:

(1) It would inform us in detail concerning the confusion and porplexities of the average citizen, and (2) would enable us, with the
cooperation of the departments, to ;resent an informed nd coherent

picture of the national effort. The ide. of this program is .9 yet
tentative, but it seens to us, and to the redio people consulted, to

hold a great deal of Dromise.

The Office of Facts and Figures would consist of & small group
of men and women carefully selected fro different occupations having

to do with public informtion--that is, news, features, magizines, radio,
movies, clubs, etc. These aen, thoroughly Grillar with the operation
of government, would study the departmental releases and would thus be

thoroughly familiar with what the Government is anying about itself at
all times. These specialist would be in touch with .11 parts of the
country through their professional contacts. The comunictionswould be
two-way: That is, each mm would uniertake to distribute facts and
figures in his field. And would 6.4 the 3.00 time gather ideas, analyze
situations where morale is Dad, ni determine what night be done to
improve morale. In short, these en would be concerne., in short, with

facts, figures, and ideas, and with their distribution, in the interest

of national unity.

A detaile: discussion of the ethods of distribution would be
too involved for this Motor niu... I can su abrize the by skying
that they will be natural, not forced; they will employ news, not
ballyhoo. Our studies show that the first meal of the U.S. today
La

for information, in the moltively liter 1 sense of that wor .

111 be the duty o!' the of 1003 nd Figure .0 help in-

fornistion to flow freel. nd rapidly through it natur 1 channels.

In this connection, with the porov 1 of the President, wa

have

Aready taken stops to bill.h spoker's bureau to assist

who are nxious to cooperate with the nation a defense program.

Possible other or extende: functions for the Offic. of Facts
woul grow out of this work. But for the tine being in

is that the Office should be eat up on is sound base, with the

t possible als, namely, to f cilitate ni mike effective what

bady in existence.

In addition to the half Jozen an constituting the Office of
and Figures, L very uch desirs to have Govern ent Advisory

What is proposed soons to be in effect the creation of a
lising or coordinating office for Government public

1 and information. It is our understanding that such an
already exists in the Office of Government Reports and
Care the creation of a new office on the lines indicated would

to be an unnecessary duplication. If in his studies of
tian merale the Director of Civilian Defense should find that

equay or oonfliet in the announcements of governmental agencies

to defense programs is contributing to an unsatisfactory state
sorale, it would seem whally proper for the Director to report
situation to the agencies concerned, or to the Office of
Reports. It is our view that too much centralisation
is likely to be harmful by obstructing the free flow of information
to the press and other agencies of dissemination.

The Treasury is also opposed to the creation of any new
agency to control the allocation of radio time to Government Depart
mate and agencies. Bo far as Treasury programs are concerned
the reports of the principal radio analysts, independent polls

and the record of result in the sale of securities seen to us
to furnish convincing evidence that these program are helping
nather than hurting public morale.

Do you think that these functions properly portain to the office
of Givilian Defense, or should they be lodged elsewhere?
A.

See above.

Do you believe that there should be any such set-up?
A.

See above.

Committee, composed of one representative fro each key department,
or agency, including Govern .cn1. Report a (Lowell Mellett) and Defense

Information (Colore) Willi Donovan), pointed by the head of the

department or Energy. This Advisory Committee should meet with the

members of the Office of Fact. nd Figure it least once J wack for

the purpose of discussing the nee.ru and probless of the department.

I feel that this would coordin te Covern ent policy nd take the Office
both practical nd helpful.
I would Approel 1.- it if you would express you approval or
disapproval of this lan in this special or make whatever suggestions
you may have.

Do you think Limit the i's un LOC.. properly per' in to the Office of
Civilian Defense, or should they ledge elsewhere?

believe thit ther hould b. n...uch ct-up?

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA 154
Box 680
BENJAMIN FRANKLIN STATION

TELEPHONE: REPUBLIC 7860

WASHINGTON. D. c.

September 4, 1941

The Honourable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Morgenthau:

Many thanks for your kind note of yesterday

regarding my new appointment.

I do not need to tell you that Arthur Purvis
is a hard man to follow. I do not expect to fill his
shoes, but I can at least hope to follow in the path
that he blazed.

He often spoke feelingly of the assistance
you had been to him at all times, and stated that

your wise counsel and advice enabled him to avoid

many pitfalls. I hope you will not mind if from
time to time I also seek your counsel and advice in
attempting to deal with the difficult problems with
which we are often confronted.

Again thanking you for your kind letter, I
am

now

Yours sincerely,

Morris W. Wilson.

T

155

September 3. 1941.

Dear Mr. Vilsens

It was with a great deal of pleasure
that I heard of your appointment to carry
on the work which our good friend, Arthur

Parvis, so ably initiated. I know that this
responsibility is a heavy one, but I feel

also that 11 is is good hands.

AS you take up the new duties, I send my

congratulations and best wishes. I shall look

forward to our association during the easing
months.

Sincerely,
(Signed) R. Morgenthan, Ss.

Mr. Morris Wilson,
Chairman

British Supply Council,
C/o Willard Hotel,
Washington, D. C.

GEF/cgk

By Messenger 10:30 am

M

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

156

DATE September 4, 1941

Secretary Morgenthau

TO

Mr. Kamarck

FROM

Subject: Airplane Deliveries to the British
Summary

1. A total of 49 planes is reported as shipped in the

last statement received, 40 going to England and 9 to the

Middle East.

2. We have now received data on shipments to the British
for the last 30 weeks. From the following table giving shipments
by ten week periods, it is evident that deliveries to the
British have slightly decreased in the last ten weeks compared
to the preceding period.

Total Deliveries to the British
Number of Planes

First ten weeks

563

Last ten weeks

649

Second ten weeks

654

157

--

Division of Monetary
Research

Airplane Shipments to the British
(From
February
to August
August 30
by sea) air
January
111to
9 by

Table A. - Shipments by Area

Total

Latest
Week

Reported
To Date

35

809

0

43

0

72

5

36

To the United Kingdom
Light and medium bombers

Heavy bombers

Naval patrol bombers
Pursuit

40

Total to United Kingdom

960

To the Middle East
Light and medium bombers
Pursuit

175
516

9
o

Total to Middle East

691

9

To the Far East
Light and medium bombers
Naval patrol bombers
Pursuit
Trainers

6

0
o

9

o

145

0

55

Total to Far East

215

0

Totals
44

990

Heavy bombers

o

43

Naval patrol bombers

0

81

Light and medium bombers
Pursuit
Trainers

Grand Total

697
55

so

49

1,866

158

-3-

Division of Monetary
Research

Table B. - Shipments by Types
Total

Latest

Reported
To Date

Week

Bell Airacobra (P-39)

5

27

0

21

Brewster Buffalo

o

145

Consolidated Catalina

0

81

0

22

Boeing B-17

Liberator

Curtiss Tomahawk

Douglas Boston I

Boston II

0

516

0

1

o

72

16

189

0

150

Grumman Martlet II

0

9

Lockheed Hudson I

0

1

Boston III

Glenn Martin Maryland

22

166

Hudson IV

o

18

Hudson V

o

344

0

55

6

49

Hudson III

North American Harvard II
United Chesapeake

Grand Total - All Types

49

1,866

159
Division of Monetary
Research

Table C. - Plane Deliveries to the British by Weeks
Light

and Medium

Week

Bombers

Ended

Naval
Heavy
Bombers

22

Mar.

26

Pursuit

Trainers

Total

-

-

25

-

139
62

3

39

-

-

100

-

-

27

-

5

25

-

3

10

35
-

37

7

16

15

Mar. 22
Mar. 29

-

-

25

-

2

May 3
May 10
May 17

61

1

.

May 25 *

30

June 1
June 8
June 15
June 22
June 29

28

73

7

23
36
61

18

3

-

21

.

22

2

Apr. 12
Apr. 19
Apr. 26

20

27

2

2

*

26

July 6
July 13
July 20
July 27

8

1

13
10

7

-

5

56

15

27

106

10

-

19

-

25

-

21

-

46

1

-

51
84

-

-

52

4

50

-

96

20

-

42

48

-

3

3

-

32

1

-

15

-

69

-

12

-

61

11

-

48

-

49

1

-

43

69

56

-

1

-

74

-

11

-

85
-

24

-

49

990

65

59

-

20

4

1

45

44

#

55

100

7

-

Aug. 30

32

28

5

41

36

52

2

-

Aug. 24 *

101

3

34

*

-

5

2

45

53

46

3

-

45

41

-

-

4

28
19

-

-

-

37

31

-

-

4

29

-

1

17

21

Apr. 5

.

Bombers

-

Feb. 8
Feb. 15
Feb. 22
Mar. 1
Mar. 8

Aug. 3
Aug. 10
Aug. 17

Patrol

81

5

697

55

1,866

The date given is for shipments by air. Shipments by water

start three weeks earlier. That is, the statement reporting

the shipment of planes by air for the week ending August 30
would report the shipment of planes by water for the week ending August 9.

160
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 4, 1941

Secretary Morgenthau
TO

H. D. White
FROM

Subject: British Morale
Impressions gained by Coe on a recent motor trip to Birmingham and Coventry:
1.

The "morale of the British people is magnificant".

The only soft spot hit upon is among some Birming-

ham business men who were supporters of Chamberlain.

The Birmingham clubs are reputedly the only places
in the country where you can still hear appeasement
talk.

2, There still exists an important, though not well

recognized, cleavage of opinion as to what would consatisfied to have the German army remove Hitler and
assume control in Germany, while others demand that
the German military machine be defeated, the Nazi
party uprooted, and a genuinely democratic Government

stitute a "defeat of Hitler". Some people would be

in Germany be established.

3. Some workers seem over optimistic about the duration

of the war and the prospects of invasion of the continent.

4. Among the more educated people, doubts are expressed

as to how the war is going to end, because of the fear

that invasion of the continent will not be practical
for a long time to come. In these circles, however,
the more dominant view seems to be that the Russian

campaign has made it clear that Hitler will be defeated.
Coe has obtained the permission from Winant to travel as

you requested. Prior to his trip to Birmingham, he made two trips
by train and expects to spend about ten days or two weeks later
in August travelling by car.
(Coe to Secretary, August 11)

161

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

September 4, 1941

Secretary Morgenthau
TO

H. D. White
FROM

Subject: British press clippings on U.K. food situation
1. Harvest prospects good, with the exception of potatoes.
Early potato yields were disappointing and later crop
may suffer from "potato plight". Emphasis this year was
placed on production of fodder to maintain milk yields.
Number of pigs and sheep on farms have been reduced.

2. The Black Market feeds on bombed food supplies.

The Ministry of Food is accused of being the biggest
supplier to the Black Market of bombed food. Recent order
places more foods under license, both for wholesale and
retail trade.
3. Eggs, Milk and Meat

Bad eggs are being received by retailers and distributors. No machinery to make good spoiled eggs received by
customers. August allotment is 3 eggs per regular customer.

4.

Bad distributive system blamed. Milk rationing system to
be introduced October 1; some diluting of milk reported.
Fatter bacon from less choice cuts is expected. Meat rations
for miners and heavy industrial workers to be increased.
Hot meals for air-raid victims.
Plans are now completed for distribution of complete hot
meals to homes in bombed areas. Meals will be paid for as
they are at communal feeding centers at prices fixed by local

authorities supplying the food. Meals will be cooked at

emergency kitchens and distributed in Ford-donated, specially

designed food vans.

162

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 4, 1941

TO

FROM

Secretary Morgenthau

H. D. White

Subject: U. K. Exports under Lend-Lease

1. Re-exports from U.K. of American steel is not to be permitted.

Sir Duncan, President of the Board of Trade, in reply to

a question asked in the House of Commons as to what steps British exporters should take to enable them to export American

steel, said: "No steel sheets, bars, plates, etc., of Ameri-

can origin may be re-exported from this country".

2. Lend-Lease removes raison d'etre of British export drive.
The Banker in a recent issue reviews the British export

policy since the beginning of the war and examines the reasons
for the changes which have taken place. The points made by
the writer:

a. Lend-Lease, by insuring receipt of essential supplies
from the U.K., irrespective of Britain's means of pay-

ment, has removed the raison d'etre even for some exports

which bring in dollars.
b. The export drive which was formerly desirable in order to
maximize war production is now an impediment to the greatest possible war effort.
C. Many English exporters believe that British exports are
being hampered by inefficiency or lack of cooperation between Government departments, or by an exaggerated deference to the susceptibilities of American trade interests.
Some recent newspaper articles have reflected bewilderment

of the British exporter concerning the change in official policy.
They said that more care should be paid to the exporters and to
the markets which they have built up over many years.
(Coe to Secretary, August 12)

163

FOR THE PRESS

IMMEDIATE RELEASE

FOR THE PRESS

SEPTEMBER 4, 1941

The President today announced that he had

authorized the transfer of various defense articles to
the Government of Poland under the Lend-Lease Act and

declared that the gallant resistance of the forces of the
Government of Poland is "vital to the defense of the United
States."

This action, the President said, demonstrates

our intention to give material support to "the fighting
determination of the Polish people to establish once again
the independence of which they were so inhumanly deprived."

Polish troops are now training in Canada for action
overseas. Under the President's order, machine guns, sub-

machine guns, rifles, artillery equipment, trucks and other

supplies will be sent to these troops in the near future.
The President stressed the importance of this new
aid to the Government of Poland as a continuing expression

of "the policy of the United States to extend aid to all
who resist aggression."
-

-

164
HOLD FOR RELEASE

SEPTEMBER 4, 1941

HOLD FOR RELEASE

The following statement and the Executive Order accompanying it
are for release in papers appearing on the street not earlier than
8:00 P.M., E.S.T., September 4, 1941.

The same restriction applies to its use over the radio
STEPHEN EARLY

Secretary to the President

The President today, after conferring with Under Secretary of
War Patterson, Under Secretary of the Navy Forrestal, Mr. William S.
Knudsen and Mr. Sidney Hillman, acting an the Council of the OPM, and
with Rear Admiral Emory S. Land, Chairman of the United States Maritime
Commission, issued an Executive Order establishing a new division in the

office of Production Management.

This division is to be known as the Division of Contract
Distribution and is to be coordinate with the existing divisions -- Procurement, Production, Priorities, Labor and Civilian Supply.
Floyd B. Odlum, of NOW York, has been appointed Director of

the new division.

The conference was held and the Executive Order was issued in
furtherance of a determined move on the part of the Administration to
help the smaller business units of the country obtain a fair share of
the defense orders, and to prevent, 30 far as possible, dislocation of
industry and unomployment of workers in plants where production has been
curtailed by priorities and material shortages.

The program devised was arrived at in consultation with
representatives of the Army, Navy, Maritime Commission, and OPN and has

the full support of these agencies.
The Labor Division and the Defense contract Service of OPM
have already done a great deal in starting the machinory of sub-contracting and in retraining and obtaining reemployment for discharged workers.
The program is now to be greatly expanded throughout each part of the
United States, as one of the most important functions of OPM. The
present personnol, records, etc., of the Defense Contract Service of

OPM will be transferred to this now division.

Through this Division, the Office of Production Management will
be enabled more effectively to adjust the dislocations and alloviate
unemployment resulting from priorities and material shortages, and bring
about maximum usu of the nation's factories and industrial plants,
especially the smaller ones throughout the nation. This will be done
through four major steps:
1.

The breaking down of largo orders of supplies into smaller
units, and spreading the purchases anong more firms and in

all localities possible.

2.

Providing assistance through the Labor Division of OPM in
retraining and obtaining reomployment for workers who are
unomployed as a result of the shutting down of some plants

or reduction of their output.

3.

The effective distribution of defense contracts to the
smaller business enterprises, as yet largely unused, through an
expanded use of sub-contracting, contract distribution, and

the pooling of plant facilition.

4.

By providing a staff of industrial and production engineers
to formulate and execute specific plans for the conversion of
non-defense industries and plants to defense production.

The Division of Contract Distribution will have branch offices
located in the various States.

-2-

165

The Division will formulate and promote plans and programs for
purchase of supplies for the Army and Havy in smaller units, but
among a greater number of firms and in as many different localities as
possible. It will also formulate and develop programs for the conversion
the

of plants and industries from civilian to defense production - with

the assistance of the government wherevor necessary. It will formulate
the organization and use of local industrial defense production associations, and will promote and stimulate farming out of defense work and
sub-contracting, wherever feasible.

Tho Division of Contract Distribution will provide an industrial
engineering staff whose responsibility it will be to obtain.the maximum
uso of existing facilities and tools by assisting manufacturers and
business enterprises in making the necessary changes in their tools and
equipment for effectivo use in defenso production.

The field offices of the Division of Contract Distribution will
be adequately staffed to rendor needed assistance to businessmon. Procuroment agencies of the Government will assign representatives to the

main office and field offices, as required, for purposes of liaison.

In the various cities will be established exhibits or "market
places" where thore will bo displayed spocific parts - "bits and pieces"

- the components needed for defense production. Those may be parts of
a machine gun or an airplane or tank, or any one of a thousand other items
which are needed. These "bits and pieces" will be labeled as to the
quantitios nooded and the machine tools and operations required for their
production so that any machine shop owner or manufacturer can determino
whother his facilities are capable of producing such items.
Sub-contracting arrangements can then be entered into on the
basis of what an individual sees he is capable of doing, receiving then
and there the export industrial and engineering judgment of those whose
assistance he may desire.

The Division of Contract Distribution will also provide through
the regular commercial banking channels, the Reconstruction Finance
Corporation, including the Defense Supplies Corporation and the Defense
Plant Corporation, and the Federal Reserve Banks and thoir branchos,

the necessary financing facilities for local industrial production

associations, primo contractors and subcontractors, and will recommend
whenever necessary such additional financial procedures and machinery

as may be required to obtain the maximum utilization of existing plant
and tool facilitios for defense purposes.
The Director of the Division is to appoint two advisory
committees, one to consist of representatives of small business organizations; the other, to consist of industrial, management and production
ongineers.

It is intended, on the one hand, to face the responsibility of
alloviating the hardships which have resulted from the defense program
and, on the other, to marshal our productivo capacitios to the objective to
that
no plant or tool which can be used for defense shall be allowed
remain idlo.

The text of the Executivo Order follows:

166

EXECUTIVE ORDER

ESTABLISHING THE DIVISION OF CONTRACT DISTRIBUTION
IN THE OFFICE OF PRODUCTION MANAGEMENT AND DEFINING
ITS FUNCTIONS AND DUTIES

By virtue of the authority vested in me by the Constitution and the statutes of the United States, and in order to define
further the functions and duties of the Office of Production Management with respect to the unlimited national emergency as declared
by the President on May 27, 1941, and to provide for the more effec-

tive utilization of existing plant facilities for defense purposes;
the conversion into defense production of civilian industries affected by priorities and raw material shortages; the alleviation of
unemployment caused by the effects of such priorities and shortages;
the local pooling of facilities and equipment; subcontracting; and
the vider diffusion of defense contracts among the smaller business
enterprises in every part of the nation, it is hereby ordered as
follows:

1. There shall be within the Office of Production
Management a Division of Contract Distribution at the head
of which shall be a Director appointed by the Office of
Production Management with the approval of the Prosident.
The Director shall discharge and perform the following responsibilities and dutice undor the direction and super-

vision of the Director General acting in association with the
Associate Director General:

a. Formulate and promote specific programs for the
purchase of supplies for the Army and Navy in
smaller units but among a greater number of firms
and in as many different localities as possible.

b. Formulate and promote modifications in foderal procurement practices and procodures relating to nogotiating contracts, bidding practice, performance
and bid bonds, and other practices and procedures,

to the end that there shall be a wider distribution
of defense contracts and purchases.

c. Develop programs for the conversion of plants and
industries from civilian to defense production, with
the assistance of the government if necessary.

d. Stimulate the organization and use of local industrial defense production associations.
e. Promote and stimulate subcontracting wherever feasible.

f. In order to obtain maximum use of existing productive
facilities and tools, advise manufacturers and business enterprises the specific ways in which their
facilities and tools may be utilized in defense production; adviso such manufacturers and businessmen

with respect to the procodures and practices of the
several federal procurement agencies.

6. Facilitate through the regular commercial banking
channels, the Reconstruction Finance Corporation,
and the Federal Reserve Banks and their branches,

the necessary financing facilities for primo contractors, subcontractors and local industrial defenso
production associations, and recommond from time

to time to the Director General and Associate Director
General such additional financial procedures or machinery as shall be required to ensure maximum utiliza-

tion of existing plant and tool facilities for defense
purposes.

167
h. Provide engineering and technical assistance to such
prime contractors, subcontractors, and local industrial
defense production associations as may require such
assistance in order to participate in defense production.

1. Perform such other duties and responsibilities as the

Office of Production Management may from time to time
determine.

2. To ensure unity of policy and coordinated consideration
all relevant factors involved in the formulation and execution
of industry conversion programs, and contract distribution and subcontracting procedures, all such programs or procedures shall clear
through the Division of Contract Distribution.

of

3. To aid the Director in carrying out the aforesaid responsibilities, there shall be assigned to the Division one or more
officers of the Departments of War and the Navy, respectively, and
one or more representatives of the Karitime Commission, whose duty

shall be to assist as liaison in the speedy and successful carrying out of the aforesaid program.

4. There shall be in the Division of Contract Distribution
two Advisory Committees consisting of representatives to be designated

by the Director of the Division with the approval of the Office of

Production Mena gement. One shall be representative of small business
organizations; and the other of industrial, management, and production engineers. The Committees shall, from time to time, upon request
by the Director, make findings and submit recommendations to the
Director with respect to procurement practices and procedures; contract
placements and distribution; industry conversion problems; formation
of local production associations; subcontracting; and for such other
ratters PS the Director may require advice and assistance.

5. Within the limits of such funds as may be made available
to the Division of Contract Distribution, the Director may appoint
industrial and production engineers, economists, statisticians, and

such technical and other personnel as he shall deem necessary to
carry out the duties assigned to the Division herein.

6. The Director may establish branch offices throughout the

United States and its territories to carry out his duties. There
shall be assi gned to such branch of ices such officer personnel or
other representatives of the Army, Navy, United States Meritime
Commission and other federal procurement agencies as may be required
by the Director for liaison purposes.

7. There shall be assigned to the main office and to each
field of fice of the Division a representative of the Labor Division

of the Office of Production Management to cooperate with such offices in the Labor Division's efforts toward reemployment of employees of plants whose production has been curtailed by priorities
and material shortages.

8. In the execution of the foregoing duties, the Director of

the Division of Contract Distribution shall consult and collaborate

with the War Department, the Navy Department, the United States Yaritime Commission, and other government procurement agencies, which are

hereb directed to cooperate with and establish close lisison with
such Division to accomplish the purposes of this order.

9. The Defense Contract Service, established pursuent to Regulation No. 9, July 29, 1941, of the office of Production Management,
is hereby abolished. The duties and responsibilities of said Defense
Contract Service are hereb; assigned to the Division of Contract
Distribution. All records, files, and equipment of the Defense Con-

tract Service shall be transferred to the Division of Contract Distri-

bution.

FRANKLIN D. ROOSEVELT
THE WHITE HOUSE,

September 4, 1941.

168
PLAIN
TEM

Shanghai via N. R,
Dated September 4, 1941
REC'D 8:29 a.m.

Secretary of State,
Washington.

1221, Fourth.

The following Army, Navy and Marine officers

have arrived in Shenghai with drafts issued at Tokyo
on the National City Bank in NEW York, in the amounts
named: Major Stuart Wood, U.S.Army $1400, Captain
Bankson T. Holcomb, U.S.Marine Corps $1400, Lieutenant

William R. Wilson, U.S.Navy $1900, Ligutenant Rufus
L. Taylor $1900, Lieutenant John R. Bromley, U.S.Navy

$900, Lieutenant Forrest R. Biard, U.S.Navy $2260.67,
Lieutenant Ferdinand Bishop, U.S.Marine Corps $1900,
Ligutenant Thomas R. Mackie, U.S.Navy $1900 and

Lieutenant Gilven M. Slonim, U.S.Navy $2200. These

officers are unable to cash these drafts in Shanghai

and since they are in need of local currency for
current EXPENSES and travelers checks for travel

purposes out of Shanghai, they request that the
National City

169

-2-

1221, fourth, from Shanghai via N. R.

National City Bank at Shanghai be authorized, by whatEVER means the freezing regulations will permit to cash
the above mentioned drafts. Inasmuch as SOME of the

officers are leaving Shanghai on September 8, an urgent
reply is requested.
LOCKHART

DD

170

PARAPHRASE OF TELEGRAM RECEIVED

FROM: via
American
N.R. Consulate General, Hong,Kong, China,

DATE: September 4, 1941, 5 p.m.
NO.1

343

FOR THE SECRETARY OF THE TREASURY FROM THE STABILIZATION

BOARD OF CHINA. (This message has not been paraphrased
before sending.)

"At the request of Mr. Fox, the Stabilization Board of
China is sending the following information:
"The Board, as of the close of business on September 3,
has approved sales for imports into Shanghai of
US$ 3,937,737.46. Actual payments made consisted of

3,782,786 U.S. dollars.
"Sterling, September 3, approved for exchange
L 3,780,651; actual payments made & 774,000.
SOUTHARD

EA:PAK

893.51/7285

0

171

DEPARTMENT OF STATE

Washington

In reply refer to

September 4. . 1941.

EA

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses

five copies of a paraphrase of telegram No. 447. dated
September 3. 1941. 8 p.m., from the American Consulate,

Manila, Philippine Islands, transmitting a message from
Mr. A. Manuel Fox for the Secretary of the Treasury.

Enclosure:

From Consulate, Manila,
No. 447. September 3.

1941. (5 copies of

peraphrase.)

172
PARAPHRASE OF TELEGRAM RECEIVED

FROM: American Consulate, Manila, Philippine Islands
DATE: September 3, 1941, 8 p.m.

NO.: 447

STRICTLY CONFIDENTIAL
THE FOLLOWING IS FOR THE TREASURY DEPARTMENT FROM FOX.

FOR THE ATTENTION OF MR. BERNARD BERNSTEIN.

An over-all picture of the proposals seen to be favorable
for a new set up which would (1) involve least modification

of the Agency, created by the letters of April 25, and thus
avoid embarrasement which is occasioned by extreme changes,

and (2) ties the operations of the Board and the Agency more

directly with freezing control than would exist otherwise.
The three major centers in which I work are: Shanghai,
Hong Kong, and Chungking. Because of the possibility of

influencing financial and economic actions, I should spend
most of my time in Chungking. Since Hong Kong is in the

sterling area, it presents a special problem. Shanghai
has a sensitive and difficult market to observe and work in.
Taylor should immediately devote more time to economic

studies and the operations of the Board, and Frese should

begin immediately to devote full time to accounting. Mr.
Ader is needed for problems dealing with freezing control
and for economic studies. Therefore, I should have at
least one competent and effective person for Shanghai and
one for Hong Kong.
The

173

The Board is looking for a thoroughly reliable and
experienced financial man to take charge of its office
in Hong Kong. It can pay a good salary for such a person,
Do you know of someone you can recommend? It is requested

that particulars be sent to me at Hong Kong at the earliest
opportunity.

There is need for formalising the freesing control in
China as it apparently has been in the Philippine Islands.
If I were furnished with competent assistants for Shanghai
and Hong Kong, I could handle the matter from Chungking.

In regard to the Department's specific proposals-my immediate and hurried reactions are as follows:

1. (a) This is satisfactory. It will unquestionably
please the Chinese Government and Dr. Kung. (b) This

continues to provide for two parallel exchange agencies
which may confliet. This may work out satisfactorily, how-

ever, if control over the acquisition of foreign exchange
by the Central Bank is not given to the Agency. Repeated
assurances have been given us that the Central Bank would

turn over to the Board the exchange acquired. (e) This

is satisfactory. (d) This improvisation is attractive.
A drawback (especially if Dr. Kung is one of the three
members of the Agency) is that Chen, who, as I have previously

mentioned, is already in a difficult position might
be embarrassed further should it be necessary
to

174

to submit to a vote some of the important actions. The
situation, however, can be managed except where a firm

position is taken by Dr. Kung. If Chen could be made
joint policy committee chairman, many problems could be
solved. A satisfactory arrangement has been adopted in
the Board whereby an understanding is reached in advance

by Chen, Pei, and myself. This is excellent.
2. (a) The idea is good but the strengthening of the
personnel of the Central Bank is easier said than done. (b)
Your difficulty is recognized. The new proposal is definitely
worth a trial. As indicated in my last cable, the new deeree

for the Board is feasible. (o) It is agreed that the
appropriate steps by the U.S. freezing control in having
exchange funnel through the Central Bank eliminate the

need for the licensing of Central Bank acquisitions by the
Agency.

3. (a) This is all right. (b) This is satisfactory.
(c) The suggested plan seems to be better than the two
alternatives which were suggestein a. recent telegram of mine.
Am I correct in assuming that you propose to amend General

License No. 64 along the same linest (a) Your reasons are

valid. Either alternative is satisfactory.
4. There is agreement in regard to this; the Board
has already tackled the problem by having Pei work closely

with Rogers in regard to this matter. Thus far, there has
been an assurance of cooperation and some progress was made

by the end of last week.

5. In

175

5. In effect, your proposal coincides with the
recommendation that I made on the same. I regretfully
re ort that the Hong Kong & Shanghai Bank is the only
bank that is consistently cooperating with the Board.
The Board has just advised me that the National City
Bank of New York, on instructions of the head office, has
again entered the open market. I have no information in
regard to the Chase Bank at this time. Should the banks
disregard the warming, it may be desirable to withdraw
the generally licensed status from confirmed offenders.
This is the end of the message.
MICKOK
SAYRE

EA:PAK

176

C

0

P

Y

PLAIN

KD

Tsingtao via N.R.
Dated September 4, 1941

Rec'd. 8:34 a.m.

Secretary of State,
Washington.

62, Fourth.
BRISTLE REPORT.

The freezing procedure adopted by Japanese

authorities in North China reported a complete cessation

of bristle shipments to all countries from Tsingtao
during August. Exporters have small stocks on hand

bought for British and American importers but military
permits to ship have been refused.

Local price quotations for bristles were purely
nominal and there were no transactions so far as is
known. Dressing stations in interior have ceased

operations pending clarification of situation.
Sent to the Department, repeated to Shanghai by

mail to Tientsin.
MEYER.

DD

Copy:bj:9-5-41

177

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE September 4, 1941.
TO

Secretary Morgenthau

FROM Mr. Cochran

CONFIDENTIAL

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

£47,000
£24,000

The Federal Reserve Bank of New York sold £20,000 in registered sterling to
the American Express Company.

Open market sterling was again quoted at 4.03-1/2, and there were no reported
transactions.

The Uruguayan free peso, which has been quoted at .4425 for more than a week,
moved off to a closing quotation of .4400 today.

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

Canadian dollar

10-1/2% discount

Argentine peso (free)

Venezuelan bolivar

.2372
.0505
.5800
.2070
.2745

Cuban peso

1/2% discount

Brazilian milreis (free)

Colombian peso
Mexican peso

In the unofficial exchange market in Shenghai, the yuan held steady at 4-13/16
The sterling-dollar cross rate again worked out to 4.04.
There were no gold transactions consummated by us today.

The State Department forwarded a cable to us reporting that the following gold
shipments had been made from Australia, for sale to the San Francisco Mint upon
arrival:

$2,092,000 shipped by the Commonweelth Bank of Australia, Sydney, to the Federal
Reserve Bank of San Francisco.

155,000 shipped by the Bank of New South Wales, Sydney, to the American Trust
Company, San Francisco.
$2,247,000 Total

178

In London, spot and forward silver were again fixed at 23-1/24 and 23-7/16₫
respectively. The U.S. equivalents were 42.674 and 42.55
The Treasury's purchase price for foreign silver was unchanged at 35 Handy
and Harman's settlement price for foreign silver was also unchanged at 34-3/44.
We made no purchases of silver today.

MM.

CONFIDENTIAL

179
THE BRITISH EMBASSY,
WASHINGTON, D.C.

PERSONAL
AND

September 4th, 1941.

SECRET.

Dear Mr. Secretary,

I enclose herein for your
personal and secret information a

copy of the latest report received
from London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

R.I. Campbell
The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

180

TELEGRAM FROM LONDON DATED SEPTEMBER 2nd, 1941.

Another Canadian Military convoy has arrived
in home waters. His Majesty's Submarine reports possible
hit on merchant vessel approaching Benghasi on August 19th

and sinking two out of convoy of five large schooners and
steamer between Tripoli and Benghazi on August 23rd and

24th. Night of August 30th/31st five Swordfish attacked
merchant vessel of 1,000 tons with torpedos. One hit
observed causing large explosion.
2.

Photographic reconnaissance September 1st

showed Scharnhorst, Gneisenau and Prince Eugen at Breat.

Tirpitz steaming towards Kiel. Scheer Hipper and Lutsiw
at Kiel. Koln at Travemundo.
3.

Royal Air Force August 31st - September 1st.

Cologne. 93 tons of high explosive 7,000 incendiaries
dropped. Essen 28 tons of high explosive 8,000 incendiaries.
4.

September 1st/2nd. Nearly 60 bombers sent

mainly to Cologne. One missing.
5.

August 30th/31st. Rhineland. 18 tons dropped

on two enemy aerodromes. Hangars hit at one and numerous

fires started at both.
6.

German Air Force. September 1st/2nd. About

thirty enemy bombers flew over land: chief objective
Tyneside. Two destroyed by night fighters.
Newcastle. Sharp attack on town and surrounding

districts. Two railway stations hit and main LondonSootland traffic temporarily diverted. Damage caused to
two factories.

181

RESTRICTED

M.I.D., W.D.

0-2/2657-220; No. 484

11:00 A.M., September 4, 1941

SITUATION REPORT
I.

Eastern Theater.

Ground: A group of German infantry divisions advancing northeastward from Kingisepp towards Leningrad has captured the villages of
Rapsha and Vysotskoye, a few miles to the south of Krasnoye Selo.
Other German forces advancing up the railroad from
Luga towards Leningrad have reached a line marked by the villages of
Vyritsa and Kaushta to the south of Krasnogvardeisk.
Behind this front, in an area to the north and northeast
of Luga, strong Russian forces which have been encircled for some days
continue to offer determined resistance.
To the east and southeast of Leningrad, the situation
remains unchanged with German spearheads holding their advanced positions

near Ivanovakoye on the Neva river. The town of Shlisselburg is in

Russian hands.

Russian counter attacks continue on the central front
along the line: Yartsevo - Roslavl - Bryansk.
The German drive from Gomel southeastward made no
appreciable gains on September 1st. However, new German bridgeheads were

erected on the southeast bank of the Desna river.

On the lower Dnepr river indication of the approaching
renewal of the German offensive is indicated by recent reports from this
front: viz,
(1) A new German bridgehead has been established to the
east of Kremenchug.

(2) The German bridgehead to the east of Dnepropetrovals
was considerably enlarged on September 1st.

Air: Russia claims effective air action against German tanks
and planes by the Black Sea Air Fleet.
Germany reports heavy air activity along the lower Dnepr,
the Crimean Peninsula and Bryansk.

II. Western Theater.
Air: Brest was the only Axis continental territory attacked by
the R.A.F. during last night.
German night attacks included British east coast harbors.

III. Middle Eastern Theater.
Air: The Suez Canal area was subjected to a bombing attack.
RESTRICTED

[OOPY]

GRAY

182

London
BS

Dated September 4, 1941

Rec'd. 12:15 p.m., 5th.

Secretary of State,
Washington.

4087, September 4, midnight (SECTION ONE)

The following is the text of the Anglo-Russian Payments Agreement the outlines of which were given in my

telegram no. 3894 of August 22, midnight.

British Treasury states that this agreement only
covers the broad outlines and its execution is being reserved for an inter-bank agreement which is now being

negotiated. We have been promised a copy of this latter
agreement and will forward it when it is received:
"Agreement between the Government of the United

Kingdom of Great Britain and Northern Ireland and the
Government of the Union of Soviet Socialist Republics
concerning mutual deliveries, credit and methods of payment.
The United Kingdom of Great Britain and Northern

Ireland (hereinafter referred to as 'the Government of the
United Kingdom') and the Government of the Union of Soviet

Socialist Republics, desiring to arrange for mutual deliveries
and to provide for the associated payments, have agreed as
follows:

Article One.
(A) The Governments of the United Kingdom and of
the

183
-8- No. 4087 September 4. aidnight from London (SECTION ONE)

the Union of Soviet Socialist Republics have agreed to
deliver goods to one another. Such actual deliveries of
goods shall be regulated by special lists to be agreed upon
between the two contracting parties. Such lists may be
supplemented or modified by agreement between the two con-

tracting parties.
(B) In the event of either contracting party requesting
the other to act as its agent in the purchase of any goods

in third countries such transaction shall not fall within
the ecope of this agreement.
Article Two.

Unless otherwise agreed in writing delivery of goods
in accordance with Article one of this agreement shall be
taken:

(A) In cases where shipment is made in vessels other
than those of the seller at the port of shipment; and (B)
in cases where shipment is made in the vessels of the seller,

at the port of discharge.
Article Three.

(A) The prices to be charged by the seller to the
purchaser for the goods to be delivered in accordance with
Article one of this agreement shall be based on world prices.
However, in regard to the price of any commodity in respect
of which the Government of the United Kingdom have or shall
have an agreement with the Government of any foreign
country
Union
of
concluded after the second September, 1939, the
Soviet

184
-3- No. 4087 September 4, midnight from London. (SECTION ONE)

Soviet Socialist Republics shall receive treatment at least
as favorable as that country.
(B) Prices shall in every case be calculated f.o.b.
port of shipment and the buyer shall pay the freight from
such port onward and shall bear the risks of maritime transportation.

(c) All contracts shall be concluded in sterling and
prices which are normally quoted in United States dollars

shall be converted into sterling at the official middle
rate of exchange for United States dollars in London on the
day on which the contract is concluded.
WINANT

HP D

185

GRAY

COPY

FROM: LONDON
TELEGRAM RECEIVED

DATED SEPTEMBER 5, 1941

Secretary of State,
Washington.

4087, September 4, midnight, (SECTION TWO).
ARTICLE IV.

The British Government War Risks Insurance Office

and the Trade Delegation of the Union of Soviet Socialist
Republics in the United Kingdom shall negotiate the
insurance against marine and war risks of the goods
purchased by Soviet organizations under the present

agreement, of the Soviet ships effecting the transportation of such goods, and also of gold and of such
other cargoes and ships effecting the transportation of
these cargoes belonging to the Union of Soviet Socialist
Republics as may from time to time be agreed upon be-

tween the two contracting parties.
ARTICLE V.

(A) All payments between the United Kingdom and

the Union of Soviet Socialist Republica for the doliveries provided for in this agreement shall be made,
upon receipt of advice that the delivery of the goods
has been

186

has been taken, in sterling through an account in the
name of the State Bank of the Union of Soviet Socialist
Republics to be established at the Bank of England

(hereinafter referred to as 'the account'). For this
purpose, the Bank of England and the State Bank of the

Union of Soviet Socialist Republics shall agree together
upon the necessary technical measures for effecting
payments hereunder.

(B) Repayment by the Government of the Union

of Soviet Socialist Republics of existing indebtedness
under the 1936 export credit guarantee agreement may

also be made in each three monthly period through the

account, up to the value of their deliveries of goods
hereunder during that period.
(c) Such other payments may also be made through

the account as the two banks, with the approval of
their respective governments may from time to time
agree.

ARTICLE VI.

The account shall be balanced on the 31st October
1941 and at the end of every three months thereafter.

Any debit balance shall be discharged as follows:
(A)

187

(A) As to 40% by sterling received by the State
Bank of the Union of Seviet Socialistic Republics from
the sale to the Bank of England of United States dollars
or of gold to be delivered at centers agreed upon between
the Bank of England and the State Bank of the Union of

Soviet Socialistic Republies; or by delivery of platinum
up to such amounts as the Government of the United Kingdom

may from time to time specify, the sterling value of such
platinum to be agreed between the two governments.

Sales of United States dollars to the Bank of England
shall be made at the official middle rate of exchange for
United States dollars in London on the day of sale.
Unless otherwise agreed between the Bank of England

and the State Bank of the Union of Seviet Socialistic
Republics sales of gold to the Bank of England shall be

made at the official price of gold in the United States
of America on the day of sale and United States dollars

shall be converted into sterling at the official middle
rate of exchange for United States dollars in London on
the day of sale.

(B) As to 60% in sterling to be paid to the account
by the Government of the United Kingdom by way of advance

to the Government of the Union of Soviet Socialist Republics.

Any credit balance shall be at the free disposal of
the State Bank of the Union of Soviet Socialist Republics.
ARTICLE VII

188

ARTICLE VII.

(A) The total of the advances outstanding made
hereunder by the Government of the United Kingdom to

the Government of the Union of Soviet Socialist
Republics shall not exceed the sum of 10,000,000

pounds. When the total of the advances outstanding
approaches to said 10,000,000 pounds the contracting

parties shall enter into negotiations for a further
credit to be greated on the same terms and to be used

for the same purposes as are laid down in this agreement.

(B) The amount of each advance so made shall

be repayable in sterling or United States dollars,
at the option of the Government of the Union of
Soviet Socialist Republics, in five equal yearly in-

stallments, of which the first shall be paid at the
end of the third year and the last at the end of
the seventh year, reckoned in every case from the
date on which the advance was made.

(a) Interest, reckoned in every case from the
date on which the advance was made, shall be payable

on the amount of the advances outstanding, half
yearly

189

yearly on the 15th of April and on to 31st of
October, at the rate of 3% per annual in sterling or
United States dollars at the option of the Government of the Union of Soviet Socialist Republics.

(D) The conversion of sterling into United
States dollars for the purpose of calculating payments under this article shall be effect at the
official middle rate for the United States dollars
in London on the day on which payment falls due.
FINAL ARTICLE.

This agreement shall come into force on the

date of signature, and shall remain in force for the
whole period of the utilization of the credits and of
the effecting of deliveries under this agreement.
In witness whereof the undersigned, duly

authorised by their respective governments for that
purpose, have signed the present agreement and have

affixed thereto their seals.
Done at Moseow in duplicate, the sixteenth day

of August, 1941, in English and Russian, both texts
having equal force.
On behalf of the government of the United Kingdom

of Great Britain and NortheryIreland. (SIGNED) R. Stafford
Cripps.

On behalf of the Government of the Union of Soviet
Socialist Republics (SIGNED) A. Mikoyan".
PLEASE INFORM TREASURY.
WINANT

190

September 5, 1941

Hopkins called me at 7 o'clock last night and

said he had meant to talk to me at lunch about Russian
gold. "How much did they have? Did they have onehalf a billion?"
I said nobody knew, but I would not

be surprised if they had a billion. He wanted to know

did I know any reason why they should not pay for their

goods in cash. He said, "After all, England did for a
long time. So I said, I don't know what commitments
the President and you have made to Russia and unless I

did I can't advise you. He said, "Well, we have made
plenty, but" he said "I doubt if we will be able to make
them
a straight loan on account of the opposition from
the Hill."

191

September 5, 1941

Sir Frederick Phillips came in to call on me and
asked if I had any suggestions and I told him that I
thought they ought to check up on the expense of the

Purchasing Mission; that I thought it was running too

high, and it was my understanding that they have not
laid off any of their employees since they stopped do-

ing the buying. He said, well, they were still buying

$70,000,000 worth and I said, well, I understood their
payroll was $12,000,000 and it seemed high. He said

Lord Beaverbrook had the same impression that I did and
one of the things he was going to recommend was that they
send somebody out to look over not only the Purchasing

Mission, but the Air Mission, their Information Bureau
and the British Embassy.

192
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 5, 1941

Secretary Morgenthau
TO

H. D. White
FROM

Subject: British press clippings on U. S.
Economic Defense. The U.S. export licensing system "is strictly
enforced", in the opinion of the British Minister of Economic
Warfare, Mr. Dalton. He made this statement in reply to a que stion in the House of Commons. He also listed as helping the
British tighten their blockade of Germany, the purchase of
strategic materials in Latin America, the freezing of Axis
funds, and proclamation of a black list. He said discussions

are
being held in an effort to coordinate the black list of the
two countries.

U.S. Silver Policy. The Secretary's statement on the abandonment of the U.S. Silver Purcha se Program aroused some interest

in London silver circles, but little apprehension. The general
belief is that such a policy would have little or no effect on

the London and Bombay markets, that in both the se centers, shipping and trade restrictions would continue to isolate prices
from outside events. The Financial News states, however, that
abandonment of the silver purchase program "would certainly
aggravate post-war problems".
Distribution of Lend-Lease Goods. A new department to be

called the Sundry Materials Branch, to handle distribution of

Lend-Lease goods, has been set up in the Ministry of Supply.

The Ministry will work largely through existing organizations,
which, in distributing the goods to consumers, will act as
agents of the Ministry and not as principals buying for re-sale.

Other topics on which clippings have been received include the
Roosevelt-Churchill conversations, the probable diversion of

war supplies intended for Britain to Russia, Russia's future
position as a European power, American war relief, the American
labor situation, U.S. foreign trade policies, Defense Production, U.S. banking situation, and the threat of rising prices
here.

193
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 5, 1941

Secretary Morgenthau
H. D. White

TO

FROM

Subject: etc.
British press clippings on labor, working conditions,
Britain's male labor reserve has been virtually exhausted.
14 and of these, almost one-third were unsuitable for industrial
Only 102,000 men were registered as wholly unemployed on July

employment, and the remainder were thought to be in the midst

of transferring from one job to another. Registered wholly unemployed women total 88,000 on the same date.

American "pep" methods being introduced to Government fac-

tories include poster and radio campaigns, pep talks by service

people, departmental competition, and music-while-you-work concerts.

A regular mobile force of dock workers to keep the ports
clear is to be formed. A National Dock Labor Corporation 18
being set up to control all men working in the big ports outside
the Mersey and Clyde. The men will receive appropriate rates

when on the job, almost $3 per week between jobs and a week's
vacation with pay. They must be prepared to do any work necessary

to clear the port and to travel to other ports, if they are wanted.

The scheme is to be financed by a 25 percent levy on employers on
their weekly wage bill.

Labor cooperation to aid production. Miners of South Wales
recently reversed their previous decision and agreed to work a
special Sunday night shift. Five hundred Liverpool dock workers,
involved in the dispute, offered to work a day without pay in
order to prove their anxiety not to cause a hold-up.
Contractors must be registered to carry on business after
October 1. Registration of building trades' workers and a system
of regional grouping of firms are the next steps contemplated.
Control of Government departments' building program is also in
the offing.

American ferry pilots receive the equivalent of $7,700 a year
free of U. K. income tax, according to a statement of a Minister
of Aircraft Production.

194
September 5, 1941
9:05 a.m.
HMJr:

I did as far as the Treasury was concerned,
and I found out what ours was, and - I mean

where they deal with us, it takes thirty

days from the time the British give us an

order until we get it, and I just

Colonel
Greenbaum:

Well, what do you mean, until you get it?
Until you get the

HMJr:

Until I get - until we get an order to buy.
We picked nineteen requisitions at random,
and it took thirty days from the time the

British say they want something until we got
the green light to go ahead.

G:

Well, that's - let's see - that's forty-five

days quicker than my check 18. I just took
nineteen cases, too. I don't know why nineteen, but that's the way I've been working
on the thing.

HMJr:

Well, it took thirty and then it took us twelve
days to buy; but we're going to cut that down
to a week, but

G:

Well, now, what I'd like to

HMJr:

but I understand it takes the Army
ninety days to buy after they get a clearance.

G:

Well, you can't have an average

HMJr:

Yeah.

some things much longer, and some take

G:

twenty-four hours, and there's a very good

reason, obviously.
HMJr:

Well, did you know who I had all here yesterday?

G:

No.

195

-2HMJr:

d:

HMJr:

Well, I had Stettinius, and Nelson, and

MacKeachie, and Cox, and Young.
Yeah.

Those are the fellows that are handling
this thing, and they're going to meet
Monday over in Young's office and they're
going to give me an answer. What I asked

for was a revolving fund of fifty million
dollars

G:

HMJr:

Yeah.

.....80 we could go ahead and do business;
and I said, "You fellows can go ahead and

fool around with your red tape." It takes
twelve days to get out of the White House.

G:

Yeah. And then it goes back - then when you
have to transfer from the White House, that's
another round trip
which takes maybe twelve days or more.

HMJr:
G:

HMJr:

Yeah. Well, now, would it be possible for
me to look at the way you've got that
Sure.

G:

that?

routing sheet. Whom should I see on

HMJr:

Cliff Mack.

G:

Cliff Mack.

HMJr:

Yeah.

G:

Yeah.

HMJr:

He's the fellow that has it.

G:

Well, would you have someone tell him I'll

be in touch with him, because I'd like to

come over and see that because we're doing

196
-3- - -

the same thing and had another session
with Judge Patterson yesterday afternoon

HMJr:

and I got Oscar over for that.
Oh. That's where you heard about it.

G:

Yeah. So we're doing the same thing.

HMJr:

Well, then, it must be good - I must be
good.

G:

HMJr:
G:

And then an Executive Order

I said I must be good if you're doing it.
I heard you the first time.

HMJr:

Well, God damn it, laugh.

G:

You must be marvelous. (Laughs)

HMJr:

Yeah.

G:

HMJr:
G:

HMJr:

All right.
All right.
Henry, one other thing - did Oscar talk
to you about the Executive Order giving
Stettinius these powers, not only for the
revolving fund, but passing on requisitions?
Well, I suggested that.

G:

And did - well, did you see what he drew up?

HMJr:

No.

G:

HMJr:
G:

I guess he didn't have it by then.
No, he didn't have it.
Well, he's drawn that up, and then he is
supposed to draft with me, kibitzing on it,
a little memo in support of that for Harry
Hopkins for Monday or Tuesday.

-4HMJr:
G:

HMJr:

G:

HMJr:

G:

HMJr:

197

Good.

Would you like to see it, or don't you
care?

I tell you, Eddie, if - Cliff Mack is

awfully able
Yeah.

and if you'd work with him and show it

to him, I'd appreciate it.
Okay.

I'11 get word to Cliff Mack that he should
talk to you.

G:

Fine, Henry.

HMJr:

Okay.

G:

Your friend Jim Landis is here.

HMJr:

Give my regards.

G:

Okay.

HMJr:

Thank you.

G:

Thanks.

198
September 5, 1941

bly dear Mr. President:

I am enclasing herewith a copy
of a memorandum prepared for me by Mr.

Mack, Director of Procurement.
This memo gives you a breakdown

of the 30 days' delay of an order from
the British Purchasing Commission.

Yours sincerely,

The President,
The White House.

m macks memo of

9/4 attachet to
meeting held in
peins office at
2:45 pm 9/4/41

199
MEMORANDUM

To:

Secretary Morgenthau
September 5, 1941

From: Mr. Sullivan
Re: White House Conference Thursday

evening, September 4. 1941, on
Tax Amortization Legislation

ThS

Present for the White House: Judge Samuel Rosenman, Mr. Ben
Cohen; for the Bureau of the Budget: Mr. Gladeox and Mr. Crane;
for OEM: Mr. Wayne Coy and Mr. Sidney Sherwood; for OPM: Mr. John

Lord O'Brian; for the War Department: Lt. Col. Edward S. Greenbaum,
Dean James M. Landis, Mr. James P. Baxter, and Mr. Bayard Schieffelin;
for the Navy Department: Mr. H. Struve Hensel and Mr. Richard Kyle;
for the Treasury Department: Mr. John L. Sullivan and Mr. Robert B.

Eichholz.

Mr. Sullivan explained that unless there should be a filibuster
on the issue of the taxation of income from community property, it
seemed reasonable to expect that the pending tax bill would pass the
Senate on the evening of September 5, 1941. Therefore, it would be

impossible to incorporate in this bill any legislative solution

which might be agreed upon with respect to amortization.

Mr. Hensel stated that the Navy Department did not feel there
was very much to be gained by substituting for the Advisory Commission in the statute either the Treasury Department or a new three-

man board, such as had been suggested by Mr. Cohen the previous even-

ing. The Department felt that the best solution under all circum-

stances was the proposed joint resolution which had cleared the
Budget Bureau in July but had later been disapproved by the Budget

Bureau at the instance of Mr. Coy. The purpose of this joint resolution was fourfold: (1) To eliminate the necessity for any certification by the Advisory Commission, (2) to provide for nonreim-

bursement regulations to be issued jointly by the War and Navy
Departments with the concurrence of OEM, (3) to eliminate the necessity of certifying as to nonreimbursement with respect to contracts
under $15,000 in amount, and (4) to eliminate the necessity of certifying as to nonreimbursement with respect to contracts other than
with the War and Navy Departments, the Maritime Commission, and such
other agencies as the President may designate. Mr. Hensel stated

-2 -

200

that the War and Navy Departments had never been given any explana-

tion for the reasons which had prompted Mr. Coy to withdraw his
approval from this proposed legislation. Colonel Greenbaum stated
that he was in accord with the views expressed by the Navy Departnent.

Mr. Coy stated that, from a desk survey he had had made of
necessity certificate cases which had cleared the War Department
and were pending action by the Advisory Commission, he had been
driven to the conclusion that it was vital that some independent
agency check the conclusions of the Service Departments. He felt

this to be particularly important because of conflict between the

Service Departments' desire to procure supplies only from those
companies with whom they had dealt in the past, regardless of how
much expansion would thereby be necessitated, and OPM's desire to
promote subcontracting.

Dean Landis felt it to be essential that the system of dual
responsibility with respect to certification be done away with, so

that the contractor would be able to know how he stood at the time
his contract was negotiated with the Army or Navy Procurement Officer.
Under the present system no assurances could be given at the time of
negotiation of the contract, with the result that many contracts were
being materially delayed.
Upon being asked by Judge Rosenman how the Treasury Department

felt about assuming responsibility for certificates of nonreimbursement, Mr. Sullivan stated that the Department felt that the nonreimbursement requirements of the statute were unworkable and illogical,
and should be repealed. He suggested the substitution of a scheme
similar to that which was incorporated in the Second Revenue Bill of
1940 as it passed the House. This involved an agreement by every taxpayer seeking amortization that it would not destroy, demolish, alter,
or impair the facilities sought to be amortized without the consent
of the Secretary of War or Navy. If the taxpayer violated this agreement he would forfeit the tax saving which he had secured during the
amortization period.

Mr. O'Brian stated that he was in full accord with these views,
that the present statute was unworkable, and that it was the better
part of wisdom to admit it now rather than when it became too late.
Mr. Coy and Mr. Hensel stated that they were inclined to look very
favorably upon Mr. Sullivan's suggestion. Mr. Cohen stated his belief that this objective could be accomplished without amendment of

the statute by an announcement by all agencies concerned that hereafter no necessity certificates would be granted without an agreement

by the applicant not to demolish, alter, impair, etc. Considerable

--

201

disagreement was expressed with this view and Mr. Sullivan stated
that if Mr. Cohen's purpose was thereby to avoid a Congressional
investigation he feared that such purpose would not be accomplished.
Dean Landis felt that the nonreimbursement requirement should

be retained in the statute if possible, since he feared that its
removal would be an invitation to load contract prices. Mr. Sullivan
and Mr. Eichholz stated their feeling that the present statute is an
open invitation to load prices, because, (1) the contractor is un-

certain whether he will get the requisite nonreimbursement certificate and therefore hedges against possible denial of the amortization
tax saving by increasing his price, and (2) a subcontractor is not
required to secure a nonreimbursement certificate before being granted
amortization and can therefore be reimbursed for his facilities several
times over and pass the increased cost to the Government through the

prime contract. Colonel Greenbaum stated that if Mr. Sullivan's suggestion had been adopted last year he would have been heartily in
favor of it, but that it might be more confusing and unsettling at
this stage.

There followed extended discussion of the various solutions
which had so far been proposed. Judge Rosenman asked Mr. Sullivan
what he thought of requiring nonreimbursement regulations to be issued by the War and Navy Departments with the concurrence of the

Treasury. Mr. Sullivan stated that he could not see what was to be
gained by this suggestion, since the chief difficulty of the present
system was fundamental policy disagreements between the various

agencies concerned and that the interjection of the Treasury would
merely involve one more policy viewpoint to reconcile. Furthermore,
since the Treasury felt that the statute made no sense he did not see
how the Department could be expected to write any regulations under it
which made sense.

Mr. Coy finally suggested that all certificates for amortization
purposes be issued by the War and Navy Departments under the super-

vision and direction of OEM, or such other agency as the President
might designate. Thus, the Service Departments would have complete

responsibility for administration but broad policy and the application
of that policy to particular cases could be controlled by OEM. This
suggestion was finally agreed to (although Mr. O'Brian did not feel

OPM equipped to handle nonreimbursement certification) and it was determined to modify the joint resolution which had been proposed by
the War and Navy Departments in such manner that the following objec-

tives would be accomplished: (1) All certificates, whether necessity,

Government protection. or nonreimbursement, would be issued either by

the War or Navy Departments and the necessity for joint certification

by one of the Service Departments and the Advisory Commission would

be eliminated; (2) such certification would be under the supervision

-4-

202

and direction of the OEM, or such other agency as the President
might designate, it being understood that the President would
designate the Office for Production Management; and (3) the nonreimbursement requirement would be eliminated with respect to contracts under $15,000 in amount and with respect to contracts other
than with the War and Navy Departments, the Maritime Commission,
and such other agencies as the President might designate.

Mr. Sullivan inquired whether it was clearly understood that
OPM and not the Treasury would be the agency designated by the
President to supervise certification. Judge Rosenman and Mr. Gladeox
stated that such was their understanding.
Thereupon the meeting adjourned at 12:00 midnight.

203
September 5, 1941
10:50 a.m.
John

Sullivan:

I've talked with Senator George and
Senator Barkley, and Senator George is
losing his courage on community property.

HMJr:

Senator what?

S:

Senator George is losing his courage on
community property, I think. He said that
he didn't know but what because of the fact

there weren't hearings, that we might let it
go over to the next bill; and I told him I
thought that we'd have a hard time in the
House if we did that. I then talked with
Senator Barkley, and he's really going to
battle. I asked him if he thought it would
be helpful if the White House called any of
the fellows up there

HMJr:

Uh huh.

and he said to wait until we'd had an

S:

hour or 80 of debate.
HMJr:

Well, he wouldn'

S:

What?

HMJr:

The President won't do anything. He's got
his mind on other places. You can't count
on him. He's too busy with

S:

HMJr:

Well, in any events, I'm going up and..:
I mean, the President's got all this
destroyer and everything else on his
mind. He isn't interested in community
property.

S:

Well, what occurred to me was this, that
as the debate develops, if it seems
necessary

HMJr:

Yeah.

204

-2S:

HMJr:

.....I'11
call you and then you can decide
whether you

That's all right.
whether you want

S:

HMJr:

Well, forget about the President. I'm not
even going to ask him to do it.

S:

Well, you know best.

HMJr:

Well, I'm not going to ask the President

S:

Un huh.

HMJr:

Don't count on him.

S:

All right.

HMJr:

Okay.

S:

Right.

to get in on it, John.

205

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE September 5, 1941
TO

FROM

Ferdinand Kuhn, Jr.

Herbert Merillat
PRESS COMMENT ON TAXES:

SATISFACTION WITH SENATE BILL

Having won its major fights for changes in the current

tax bill, the press has subsided into a satisfied silence.
Editorial comment now consists largely of generalities, pointing out the urgent need of the revenue to be raised by the
tax bill and looking ahead to even greater tax burdens which

will be necessary in the near future.
The broader tax base continues to be the feature of

the bill receiving most editorial attention. As if to serve
notice that greater demands are soon to be made of low income
groups, many commentators have pointed out that even under

the exemptions adopted by the Senate, the vast majority of

citizens will pay no income tax. Furthermore, it is pointed
out that only $50 millions will be paid by new taxpayers
brought in by the reduced exemptions. The Senate action is

therefore regarded as a step in the right direction, not a
final answer to the problem of tapping small incomes in order
to raise revenue and check inflationary tendencies.

-2-

206

Community Property

The Senate's last-minute rejection of the communityproperty amendment was not in line with the press attitude on
the question. Scattered comment indicated general approval
(outside community-property States) of the amendment. Many

writers have pointed out the tax savings now enjoyed by residents
of community-property States and hailed the Committee proposal

as a proper measure to end the discrimination against taxpayers
in other States.
Non-defense Expenditures

The press barrage against high non-defense expenditures

has continued throughout the course of the current tax legislation. Every announcement of an increase in the public debt,
every statement by a political leader urging reduction in nondefense spending, has been a signal for intensification of the
campaign. Mr. George Benson, president of a small Arkansas Col-

lege, has become something of an editorial writer's hero for his
appearance before the Ways and Means Committee with a specific

list of possible cuts in appropriations.
The press has expressed great satisfaction over the Byrd
amendment calling for creation of a committee to investigate non-

essential Federal expenditures. It expresses the hope that more

-3-

207

will come of this Congressional action than has come of the

activities of citizens' committees and college presidents.

(

208

September 5. 1941
Files
Mr. Cochras

is , o'cleek last night a meeting was held is Under Secretary Bell's office
respect to Chinese Stabilisation and Exchange Central. these present were
with Frederiek Phillips, Sir Otte Hiemeyer, Mr. Stepford and Mr. Ritchie for Great
Iritains Sir Assistant Secretary Achosen and Mr. Jenes for the Department of States
and Nessre. Bell, Feloy, White, Derastein, Pehle and Cechras for the Treasury
Department.

AS the conference hold late yesterday afternoon the British efficials had been
copies of the message which we had seat to Mr. Fex. AS the dinner hour
given they had had opportunity to bring this document to the attention of Sir otto Hemover,
who had arrived from New York on the 7 o'cleek train. The meeting was limited

principally to a discussion of the document under reference, Sir Frederiek Phillips

and Sir Otto Hiemeyer raising questions with respect to OF commenting upes the points

of particular interest to them.
After the meeting adjourned at 11:15. Nessrs. Dernstein and Cochran telephoned
Fox at Mamila, establishing communication about 12:15 midnight. They reported
Mr. the day's meetings to Mr. Fes. The report which Mr. Bernstein is making of this
conversation summarises the discussions had at last sight's conference with the
British

HMC:lap-9/5/41

209

September 5. 1941
Files
Mr. Cechras

At 10 o'clock this morning Sir 0000 Hieweyer telephoned no. He said 11 was his
understanding that Under Secretary Bell would be phoning the American banks in
New York this morning, seeking their cooperation with the Stabilisation Board in
China through their branch banks. Hieneyer thought 11 important to let the American
banks know. as the British officials intended to let the British banks operating
is China know, that the important phase of complete cooperation is to restrict their

transactions solely to operations at the official rates fixed by the Stabilisation
Board. I told Hieneyer that our plan had been to seek an undertaking for full
cooperation with the Board and leave the details to be worked out in Chima. Niemayer
feared that there might be some misunderstanding or evasion unless we made this point
specific in our conversations with the banks.

After speaking with Sir otto, I went immediately to the office of Mr. Bell who
was then talking by telephone with the Chase Bank. Mr. Bell added a few words to
the Chase Bank after I let his know of my conversation with Sir otto. Mr. Bargese
of the National City Bank, with when Mr. Bell had speken first, called Mr. Bell back

while I vas still in his office. Mr. Bell put up the suggestion advanced by Sir Otto

Hismoyer. letting Burgese know that the British were going to request cooperation
from the British banks on the specific point of staying out of the black market.
After a long conversation with Mr. Burgess, 11 was agreed that the eablegram should
give instructions for cooperation, but that the National City management is the Far
East would discuss with Fox at the coming Sunday conference various technical ques-

tions involved in the limitation of all operations to official rates.

Upon returning to my own office I telephoned Sir Otto. I reported that we had

let the two important American banks know that the phase of cooperation which was

importantly sought was that of limiting transactions to the official dellar-year

rates. The banks were issuing instructions to their Chinese branches, we understeed, their

to cooperate fully. The National City insisted, however, upon the privilege of

representative at the ooming Sunday's conference discussing with Mr. Fox and the
other Board members the technical questions involved is the rates. Heneyer reminded

me that our reports indicate that the National City is the outstanding defender of
operations on the black market and that we may have difficulty is getting the other
banks to stay is line if we de not handle the National City firmly. I told his that should
we understood this and that we would be is touch with Fox and see what steps we

take if the National City does not follow a practice similar to that which we hope
the other banks will adopt. It was my understanding that Hieneyer would definitely
let the British banks know that operations at the official rate are requested.

mm

HMC:1ap-9/5/41

210
TREASURY DEPARTMENT
PROCUREMENT DIVISION
WASHINGTON

OFFICE OF THE DIRECTOR

September 5, 1941
VEMORANDUM TO THE SECRETARY:

Weekly Report - Lease-Lend Purchases

(8/29 - 9/5/41)

Estimated Cost

Requisitions

$ 200,704, 364.48
25,273,843.75

Cleared by O.P.M

Awaiting clearance by O.P.M.

$ 225,978,208.23

Total Pending Requisitions

Less Requisitions for metals and textiles,
here contracts will be made for term periods
and allocations required from O.P.M

$ 124,215,216.32

Total Pending Requisitions for Spot Purchases

$ 101,762,991.91

Purchases to 8/29/41
Purchases 8/29 to 9/5/41

$ 121, 939, 791.32
10, 156, 975.46

Total to 9/5/41

$ 132, 096, 766.78

During the past week the B.P.C. requested purchase of 1085 crawler

tractors for delivery this month. Purchases were immediately effected
and high priority ratings furnished through the cooperation of O.P.M.
and the Priorities Board whereby the delivery schedule will be met.
We are currently purchasing against requisitions for approximately 4500
tractors which are in addition to 4500 heretofore purchased.

S
Director of Procurement
Attachments-4

yesher Clifton E. Mack

P

CONTRACT
NUMBER

REQUISI-

CONTRACTOR'S NAME

DA-TPS-1056

S.R. Dresser Mfg. Co.

DA-TPS-1057

Palnut Co.

DA-TPS-1058

The Blake & Johnson Co.

DA-TPS-1060

Jones & Laughlin Steel Corp.

DA-TPS-1030

Kennecott Sales Corp.

DA-TPS-1062

Brass Goods Mfg. Co.

DA-TPS-984

Granite City Steel Co.

DA-TPS-985

COM ODITY

TIONER

U.K.
11

Lock washers

Sheets

"

"

If

Copper

China Steel Cups

TOTAL VALUE

$ 110,503.50

Couplings

Special Screws

11

QUANTITY

10 GT

421.14

7 GT

3,420.00

991,460#

2,100,060

29,049.78
66,199.38

5,000,000#

590,000.00

2,700 N.T.

1,890,775.00

U.K. Tinplate

108,949.71

U.S. Steel Export Co.

" Tinplate

482,665.08

DA-TPS-986

Follansbeg Steel Corp.

11 Tinplate

82,163.42

DA-TPS-987

Jones & Laughlin Steel Corp.

Tinplate

281,288.20

DA-TPS-988

Youngstown Sheet & Tube Co.

Inplate

317,796.78

DA-TPS-1063

The Titanium Alloy Mfg. Co.

DA-TPS-1064

Inland Steel Co.

DA-TPS-980

Weirton Steel Co.

DA-TPS-981

Wheeling Steel Corp.

"

11

"

"

"

"

"

DA-TPS-982

Republic Steel Corp.
11

DA-TPS-983

Bethlehem Steel Export Corp.

Titanium Carbide

10,080#

Circles

4,653,345#

8,164.80
180,997.56

Tinplate

531,323.65

Tinplate

132,101.50

Tinplate

183,670.08

inplate

371,095.30

MEMORA TO THE SECRETARY:
REQUISICONTRACTOR'S NAME

DA-TPS-1070

Youngstown Sheet & Tube Co.

DA-TPS-1072

Otis Steel Co.

DA-TPS-1075

National Steel Corp.

DA-TPS-1076

Spang-Chalfant, Inc.

DA-TPS-1077

U.S. Steel Export Co.

U.K.

If

Empire Sheet & Tinplate Co.

DA-TPS-1080

Bethlehem Steel Export Co.

DA-TPS-1081

Wheeling Steel Corp.

DA-IPS-1083

Granite City Steel Co.

DA-TPS-1084

Anaconda Wire & Cable Co.

DA-TPS-1087

Newport Rolling Mill Co.

DA-TPS-974

R.T. Greer & Co.

DA-TPS-977

R. J. Prentiss & Co. Inc.

DA-TPS-975

R. J. Prentiss & Co. Inc.

DA-TPS-996

J. H. Williams & Co.

DA-TPS-1034

The Goodyear TireCo.Inc.
& Rubber

Drum Sheets

21,431.20

50.8 mi.

338,015.88

50.8 mi.

328,413.47

17.6 mi.

115,721.76
24,883.00

Drum Sheets

"

DA-TPS-1079

$ 52,520.00
152,842.90

Pipe

Youngstown Sheet & Tube Co.

Wire Rope

If

67,616#

Drum Sheets

"

If

"

11

11

986,959#

1,460,000#

255,920.00

Drum Sheets

1,023,000#

31,713.00

Lobelia Herb

6,000#

2,100.00

Lobelia Herb

10,000#

3,950.00

1,000#

1,050.00
2,430.00

"

Wrenches
"

51,815.35

Copper Conductor

Digitalis Seed
"

15,324.85
55,013.67

Sheets

"

TOTAL VALUE

Drum Sheets

"

"

QUANTITY

Drum Sheets

Pipe

11

If

DA-TPS-1078

CO ODITY

TIONER

"

CONTRACT
NUMBER

SEPTEMBER 5,

Rubber reclaimed

1,500 L.T.

226,800.00

CONTRACT
NUMBER

EQUISICONTRACTOR'S NAME

TIONER

COMMODITY

QUANTITY

TOTAL VALUE

$ 17,550.00

DA-TPS-1007

The Mansfield Tire & Rubber Co. U.K.

Tires and Tubes

300

DA-TPS-1003

The Goodyear Tire & Rubber Co.Inc.

Tires

200

21,144.00

DA-TPS-927

Locomotive Firebox Co.

Thermic Syphons

20

14,800.00

DA-TPS-1006

The Firestone Tire & Rubber Co.

Tires and Tubes

30

1,721.40

DA-TP>-1008

U.S. Rubber Export Co. Ltd.

150

1,248.00

DA-TPS-887

Ingersoll-Rand Co.

DA-TPS-909

A. B. Farquhar Co. Ltd.

DA-TPS-979

H. F. Ritter & Co. Inc.

DA-TPS-942

Caterpillar Tractor Co.

DA-TP

J. I. Case Co.

DA-TPS-1021

The Cleveland Tractor Co.

DA-TPS-1032

Botwinik Bros. Inc.

DA-TPS-1005

International Harvester Export Co

DA-TPS-1004

Allis-Chalmers Mfg. Co.

DA-TPS-771

International Harvester Export Co

DA-TPS-1028

Brookville Locomotive Co.

DA-TP>-1029

The Fate-Roat-Heath Co.

Tubes

11

If

"

Air Compressors etc

6

Potato Diggers

2

Drills, Breast

If

"

11

"

1500

"
11
11

"

"

26,365.50
1,416.24
4,650.00

Tractors

1,089,170.00

Tractors

290,346.64

Tractors

172,266.08

Lathe Turret

11

"

American Car & Foundry Co.

"

11

DA-TPS-636

It

1,375.00

Tractors

537,139.50

Tractors

242,053.20

Spare parts for tractors

24,109.60

Locomotives

36

90,900.00

Locomotives

30

112,500.00
13,500.00

Shear, gate

MEMORANT

REQUISI-

CONTRACT
NUMBER

CONTRACTOR'S AME

TIONER

DA-TPS-1038

Dayton Stencil Works Co.

DA-TPS-855

Deere & Co.

DA-TPS-1052

The Upson-Walton Co.

DA-TPS-1010

Caterpillar Tractor Co.

DA-TP>-1055

Masonite Corp.

DA-TPS-1011

Caterpillar Tractor Co.

DA-TPS-991

Armstrong Bros. Tool Co.

DA-TPS-1059

The Abbott Ball Co.

DA-TPS-976

The Mineralite Sales Corp.

DA-TPS-1027

Linde Air Products Co.

DA-TPS-1039

Maurcie S. Dessau

DA-TPS-998

Franklin Railway Supply Co. Inc

DA-TPS-1066

Hoover Ball & Bearing Co.

DA-TPS-1031

Blaw-Knox Co.

DA-TPS-1026

National Cylinder Gas Co.

U.K.

COMMODITY

TOTAL VALUE

QUANTITY

Stamps, Steel

500

$

Harrows, Plows, Drills and Spreader

"

Clips, Wire Rope

"

Oil Cooler Groups

"

Wallboard

"

If

"

4,392.00

30

232,580.00

3,220.80

22

Wrenches

5,361.00

Balls, Bearing

3,760.92

Mica, white

If

100 L.T.

Cutters

If

1,430.00

200

Equipment to be installed in 10

"

locomotives

"

"

7,000.00

3,500.00

Acetylene

"

54,014.02

1,821.00

18,000

6,000,000 Sq.Ft.

Oil Cooler Groups

11

295.00

76,250.00

Balls, Bearing

37,165.60

Ammonia Cylinders

11,000.00

"

2,400.00

Oxygen

Total Purchases 8/29 to 9/5/41

$

10,156,975.46