Full text of Diaries of Henry Morgenthau, Jr. : Volume 453 : Part 2

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173

October 22, 1941
10:00 a.m.

RE TREASURY EFFICIENCY

Present:

Mr. Bell
Mr. Thompson

Mrs. Klotz

N.M.Jr:

What I want to say to you people is this. I
don't want to scold in front of anybody else
because it is largely getting down to Civil

Service. It is largely Norman that I want to
talk to. I got this idea coming down this
morning. We are on the verge of a war. It
is only a matter, I think, of days or weeks.
Frankly, I am not satisfied with the way the
Treasury is being run. Let me give you an
example. I asked months ago - I used these

little things as illustrations, because they

have got to be changed - I asked you to look
into Chick Schwarz' office. Months have passed.

I will bet you it was three months ago, at
least. Suddenly I am told that you are thinking
of putting an office manager in Chick's office.
But it takes - well, I may be wrong. It may be

two or three or four months. It is a thing that

could be done in a week.

I asked several weeks ago to find out how long

it is taking to answer my mail, and so forth. I

174

-2don't get an answer. That is important. Now,
what I think, there are too many things that
take too long. My suggestion that I want to
make is, I think that you should have in your
office, Norman, a little bureau of efficiency
experts or trouble shooters that you can send
continuously everywhere in the Treasury and
not wait until somebody writes me that our

lists are duplicated or that I get dissatisfied

because my mail - I get a complaint.

In other words, I don't want to wait always

until I get a complaint, but if you had a little
group of really efficient people who would drop
in to Customs, is their work being done, is
Coast Guard up to date, is this thing being done

up to date and then when they are not, see

that the thing is being done, but I have got to
rely on you Civil Service fellows to see that
they get into this thing.

Thompson:

We are thinking exactly alike, because I had a

meeting with Charlie Bell and Charlie Schoeneman

yesterday and talked that very thing.

H.M.Jr:

You and Roosevelt. You dreamed about it.

Klotz:

It is not such an easy thing, Mr. Morgenthau, as

Thompson:

We have a Budget Improvement Conmittee and

it sounds. I wasn't asked for my opinion, but --

Charles Schoeneman is chairman of it, and I said,
"I think we have either got to take your committee
and have sub-committees and trouble shooters there
who can go out or we have got to get more men

who will just be assigned to that. I think the
best idea is to get more men, because those
committee members don't have time.

H.M.Jr:

Look, I would much rather have you say, "Well,
Mr. Morgenthau, I have got a couple of fellows

175

-3-

sitting around that I am just training, not

doing anything, but I am just training them," "
than
to have
you or me come in both looking
tired and
overworked.

Klotz:
H.M.Jr:

He is.

I know it. Let me give you another story. I
am sorry Harold Graves isn't here because it
is also a criticism of him. Now, there isn't

a finer man in the service than Cliff Mack, but
through the set-up that he has got I am
beginning to gather that the thing is run too

economically and they haven't got enough people

and they are not getting the orders out. Up to
now everybody says they are wonderful, they

get out their orders. Now suddenly they give

me a shock, comparing them with other departments,

and I find we are not so wonderful. But now

somebody has got to come and give me a complaint.

I don't want it.

Now, we went all through this originally. Mack
used to do quite a lot of it and I would be
pushing Mack and he would go to one place after

another. We would pick up this and that. I

have been here eight years and it is time for
everybody to go to seed again. The Bureau of
the Budget doesn't do it.

Bell:

You don't want them to do it either.

H.M.Jr:

All right.

Bell:

You don't want them to do it.

H.M.Jr:

All right. You are feeding right into my hands.
And you don't want the Comptroller General's

office to do it. But if we stay, Dan, this way

and we don't, somebody will do it. They will set
up some organization to do it.

176

-4Bell:

Well, you probably can't prevent them. They

will be along pretty soon doing it but really,

it is very expensive and they set up an organization and nobody can keep track of it and it

is terrible.

H.M.Jr:

Then it is all the more reason that we should
have a Section of Efficiency who would take the
initiative under Norman Thompson and would be
constantly checking.

Klotz:

Well, that is what you had when you had that
Ballinger man here and you know what - that was
a terrible mess.

Thompson:

I do have one man left.

H.M.Jr:

No, wait a minute. It wasn't a mess as long as

he was doing one bureau at a time and he did a
good job over at the Coast Guard, but when he
came and set up as the head of Personnel, then
it became a mess, when he became the boss over
the whole thing. But when he was doing one

bureau at a time, Mrs. Klotz, with a definite

assignment, he did a good job.
Thompson:

I have one man left of his committee who is a
very good man, Mr. Lawson, and I can use him

in that connection.

H.M.Jr:

But Norman, if you don't mind, I think you ought

to get people with a fresh viewpoint. I don't

think that you should use your regular people.

Now, you mentioned Schoeneman. Well, nobody can

be in the Treasury twenty-five years and not

have all of these fellows as his friends. It
is the same complaint that I have. It is unfair
to ask Mr. Knudsen to tell all his friends that
he has grown up with all his life, "If you don't

make good on this order, I am going to take it
away from you." It is unfair to ask Schoeneman

177
5-

to go up against the fellow that he plays cards
with and plays golf with weekends, that he is
not doing a good job, he is behind on some mail
or he is behind on this or he is behind on that,
and you have got to have some new blood and

this thing is going to get - God, if I had the

time I could dig up plenty myself, but that
isn't my job.
Thompson:

No, and it is going to get worse.

H.M.Jr:

I don't want it to get worse. I mean, the

load is going to get worse, but I want you fellows
to think about this a couple of days and I want
you to come back and make a recommendation to
me, you see.

Bell:

It is awfully hard.

Klotz:

Mr. Thompson and I were talking about this yesterday,

H.M.Jr:

Not about this?

Klotz:

Well, we were. I said that I don't, I mean, I
just get a small feeling of it, you see, and I

not about this, but --

said that I don't know how he and Charlie Bell
carry this load, because from my work I can

tell how heavy theirs has gotten. It has gotten
terrific and they are here until all hours
and they work very hard, and I said, "You are
going to break down, the two of you."

H.M.Jr:

Well, I foresee that.

Klotz:

Yes.

H.M.Jr:

I foresee that. I sense this thing. Just take

Klotz:

That is what we were talking about.

the mail alone.

178

-6-

Thompson:

H.M.Jr:

Yes.

Because we happen to be an old department there
is no reason why we shouldn't take on a couple
of hundred people or a couple of thousand people,

if it is necessary, to do whatever is necessary.

I want you people to get in to this thing. I

don't want the regular fellows that have always
been doing this thing to go around because it is
unfair to ask them. You have got to have -

well, the kind of fellows McReynolds and Graves
were twenty years ago.
Thompson:

That is the kind of men we want. I have one or

H.M.Jr:

Well now, what do you think, Norman?

Thompson:

I think it is a very good plan.

H.M.Jr:

There is no such section, is there?

Thompson:

No, sir, there isn't.

H.M.Jr:

What do you think, Dan?

Bell:

Well, I wouldn't have somebody to go around and

two lined up.

tell other people how to do their work. I don't
think it can be done, only on a theoretical
basis, and it is always bad. I think it might
be well to have somebody in Thompson's office

to check what the man responsible for the job
is doing.

Now, take Loans and Currency. Thompson knows

that we have been looking at that set-up now

for six months. I haven't been satisfied with
it. I haven't been satisfied with the mail and
I haven't been satisfied with the personnel
handling it. We have set up a new Personnel
Division. We have transferred the Assistant
Chief of the Division, who was lax, to another

-7-

179

job. We are putting in a new Assistant Chief
of the Division, who we think is going to be

good. We are reorganizing Loans and Currency
and I think Thompson, if he had a man who knows

the general department pretty well to see whether

we have got the right set-up, it is all right
for him to check up. The man responsible for
the job knows more about the work and the

channels than anybody else. If he is a little

dead on the job we have got to stimulate him.
H.M.Jr:

There is no difference. The point I am making
is this: Let me go over it once more.

Bell:

Let me finish. Take the Treasurer's office.
think it has been dead for fifty years. What

I

I would like to do, and I would like for Thompson

to be in on that thing, I would like to
decentralize the Treasurer's office and put it
in the twelve Federal Reserve Banks. But I

don't think any employee or any man coming in

with a theoretical knowledge of our organization
can do that job.
H.M.Jr:

But Dan, the thing is not being done. We have
no group under Thompson who goes out and foresees

bottlenecks and finds the thing and brings it
to the head of the Division or the Bureau. Your

division is behind. You are not handling it.
Either you are going to do this thing or we will
get somebody else that will. Norman doesn't do
that.

Thompson:

The two men I have had in mind --

H.M.Jr:

Norman doesn't do it.

Thompson:

H.M.Jr:

...for the last couple of weeks are John Fox and
Shane McCarthy. I think John Fox would be an
excellent man to do that.
Well, John Fox upsets too many people.

8-

180

Klotz:

Don't
in it. look to me, I am biased. I don't want to get

H.M.Jr:

He upsets too many people.

Bell:

That is another thing you have got to be careful

of, is the fellow's tact. They don't get their
education in tact. They are born that way.

Klotz:

That is the first requisite and it is a hard
type of person to find. You take a fellow like
Charlie Bell, for instance. He has got just
that. He is the man for that kind of a job.

Bell:

There is no one mad when he goes into their
office. He can get anything they have and come

out and be still friends with them.

Klotz:
H.M.Jr:

That is right.
Let's agree on this. We all agree that the

thing I am asking should be done and isn't done.

That is the first thing. We all agree that it
should be under you.

Thompson:

Yes.

H.M.Jr:

And we all agree you need more help.

Thompson:

That is right.

H.M.Jr:

And we all agree we have got to move a little

faster. I think also that if we don't do it

somebody will come in and do it for us, which

we don't want.
Bell:

I think we can take another step, that the heads
of these offices need a little more help. They
are snowed under with detail.

H.M.Jr:

Dan, the point is, those are things which, as this

-9- -

181

work gets tied up - I mean, I am going to get

a little less tolerant. When I ask for

something I am going to insist on quicker
pick-up, you see. I mean, I want more snap

to the organization. This is a challenge to

the regular Civil Service employees, and I am

putting it up to them. I am putting it up to
you people as the top men. This is a challenge
to the Civil Service.
Now, can you satisfy me and give me what I want?

I know you can, but it is a challenge to the
Civil Service organization of the Treasury to

give me what I need and so I don't have to go
outside or the President doesn't have to go

outside to bring somebody in. That is what it

gets down to. I am going to be a little bit

more demanding, a little bit more demanding,

and you will have to be a little tough here and
there. Maybe it will be with somebody you grew
up with.

Thompson:

H.M.Jr:

That is all right.
But I don't want to always wait until I get a
complaint in a letter or get it from outside

sources, and I wi sh that within a couple of days

you would come back and we will have another

talk. But this is purely my own idea. You
didn't have the faintest idea of this.

Klotz:

I didn't know what you were going to say, but

you know how I feel about it. I didn't know

whether you wanted me to express it, but I did.
H.M.Jr:

I didn't want you to sit here just to be
ornamental.

Bell:

She is very good for that purpose, though.

Klotz:

Thank you, Mr. Bell.

182
- 10 -

H.M.Jr:

Do you disagree in any way?

Klotz:

I agree fully, but if there is anything that

I think is terrible, I think it is an efficiency
expert, because I have been here long enough

to know that that is terrible. Eight years

ago I would have said yes.
Thompson:

We could have it more in the nature, as the
Secretary said, of a trouble shooter to send

out and see if a man is in trouble.

H.M.Jr:

It is the kind of work that Harold Graves
did for me. He did that kind of work for me.
He is all bogged down now. He can't do it. But
there must be a young Harold Graves or young

McReynolds.

Klotz:

Yes, there are, but they can't come in and do

H.M.Jr:

Well, who is going to tell the head of the

it. The heads of the bureaus will not take it.
bureau, "You have either got to turn over a new

leaf or get out"? Who is going to tell them
that?

Klotz:

These boys.

H.M.Jr:

Who is going to get the information it is based
on? He has got to have his facts.

Klotz:

Yes, but these young fellows, Mr. Morgenthau, I
don't care how able they are, when they go in
they cannot see what really exists.

H.M.Jr:

But how is Norman Thompson going to. get his
facts?

Klotz:

That is why it is so hard to answer.

H.M.Jr:

Well, that is what I am putting up to him.

183
- 11 -

Bell:

That is the reason I say that you have got to
have somebody from Norman's office go with
somebody from the division who can explain

each step of the work, the chief or the assistant chief or somebody like that.

H.M.Jr:

Where we find somebody doing some good work,

there is no reason why somebody shouldn't go
down and give a talk to the group and say, "We

are pleased with what you are doing, or go

down to another group and say, "This group just

isn't working, and you have just got to turn
over a new leaf or else."

Klotz:

I don't think that has ever been done and I
think it would be a wonderful thing if they had
closer touch with the people on top.

H.M.Jr:

I would be willing to do it. Now, you people

are functioning fine and I want to compliment

you. I am delighted. I went over that day to
the Foreign Funds after they were up Saturday
and Sunday. I went over and thanked them for

what they did. They slept in the rooms there
during the night. I thanked them. I would be
just as willing to go down and tell a group
they are lousy. "Now, either you people get
together and make good or else there is going
to be a complete change.

Klotz:

But with what you have got facing you, you
can't take those things on.

H.M.Jr:

Well anyway, you know how I feel.

Thompson:

We are a little stymied on --

H.M.Jr:

My criticism isn't unfair, is it?

Thompson:

No, sir.

H.M.Jr:

It is justified?

- 12 -

Thompson:

H.M.Jr:

184

It is all right, and I will get some men
lined up.

And for God's sake, Norman, get yourself some

help. Start right in your own shop. I will
hire an efficiency expert to do you over.

Klotz:

May I have the job?

H.M.Jr:

Yes.

Klotz:

I would like to help him.

185
October 22, 1941
10:23 a.m.
HMJr:

Norman

Thompson:
HMJr:

What
I've been trying to do for one year hello
Yes.

.....18 to get somebody in Gaston's office
when he's not there that I can talk to and
more assistance in there. Hello.
Yes.

T:

HMJr:

So that's one thing that you can be thinking

T:

All right, sir.

HMJr:

T:

HMJr:

about.

So that when Gaston goes away for a week to
make a speech, there's somebody in town that
knows what's going on with the various bureaus
that he has under him.

Yes. Well, Frank Rose is supposed to be
there.

I know, but he's never there when I want

him and he never seems to know anything

anyway. I've said that a dozen times.

T:

HMJr:

Yeah.

I've said that Frank Rose doesn't satisfy
me.

T:

Yeah. Okay.

HMJr:

And when it comes up and I ask him and things

get hot - we've got Coast Guard on the firing
line and I want something - I've yet to find
that Frank Rose ever knows anything.

T:

Yeah.

HMJr:

At least he doesn't when I want it.

-2T:

Yeah. Well, all right, I'll go into that.

HMJr:

I wish you would.

T:

Okay, sir.

186

OFFICE FOR EMERGENCY MANAGEMENT

DIVISION OF DEFENSE AID REPORTS
WASHINGTON, D.C.

October 22, 1941.

Dear Secretary Morgenthau:

Ferdie has just told me about your
leaving the decision on Alan Barth up to
him.

Again, I am impressed by how broadgaged you are. I know of enough cases
around town where persons in positions
comparable to yours do not leave the de-

cision up to the man sought after. So
that is another reason why I particularly
appreciate your generosity.
Sincerely,

Oscar lot

The Honorable

The Secretary of the Treasury

187

188
October 22, 1941
10:31 a.m.
Archibald
MacLeish:

Good morning, Henry.

HMJr:

How are you?

Fine, thank you.

M:

HMJr:

I understand - I may be wrong, but if I'm
wrong, you set me right - that you're going
to take over this facts and figures business.
Well, Henry, it's one of those very complicated things that seems to get more complicated the farther it goes.

M:

HMJr:

Well, isn't it
They seem to be fairly clear about it, but
it's hung uo in the Budget twisted fifty

M:

different ways.

HMJr:

Well, may I explain my interest?

M:

Of course.

HMJr:

We have a man working for us - I mean, I'm

not trying to pry into your personal business
I ought to tell you why I'm calling you and

then you - I don't want to pry into it.

We have a man by the name of Allan Barth,
who works for us.
M:

Yes.

HMJr:

I think you see his weekly letter.
Yeah, I do.

HMJr:

Yesterday Stettinius came over to see me.
Uh huh.

HMJr:

Could he have Allan Barth?

M:

Uh huh.

-

189

-2HMJr:

Well, I told Allan Barth 1f you were going
to go into this thing and if he wants to
leave the Treasury - which I hope he won't
Yeah.

M:

HMJr:

I thought that he could do a far better job
for you than he could for Stettinius.

M:

Well, that's very generous of you, Henry.

HMJr:

And that's the reason I'm calling you.

M:

HMJr:

M:

HMJr:

M:

I appreciate that a lot.
I hope he won't go. I'm urging him not to
go, but the decision is his, you see.
I see.

But he'd be - that letter and everything
the kind of work, than it would out of

would come far better from your office and

Stettinius'.
Uh huh. I appreciate your thought of that

very much, indeed; because if the thing does
clear through the Budget, we're going to be

in desperate need of exactly that kind of

person.

By the way, do you suppose you would have

HMJr:
M:

HMJr:

a little time anywhere in the near future
to let me talk to you about this whole thing?
Any time. Just give me a half a day's notice.

All right, Henry. I want very much to tell

you what the situation is and get your advice.
Just give me a half a day's notice.

M:

All right, Henry. I will.

HMJr:

Now - then, I take it, at the moment you
don't want to see Allan

-3M:

At the moment, I just have no status.

HMJr:

I'll tell him that.

M:

Right. Thank you.

HMJr:

And any time you give me a call.

M:

All right, swell.

HMJr:

Thank you.

M:

Thank you.

190

191
October 22, 1941
10:49 a.m.

HMJr:

Hello.

Robert
Doughton:

Hello, Mr. Secretary.

HMJr:

Hello, Bob, how are you?

D:

All right, Henry, how are you?

HMJr:

Fine.

I'm reliably informed that you've received
an invitation - one extended to you yesterday - by the Southern States Industrial
Council, to deliver an address on the seventh

D:

at their annual meeting, on Friday, November
the seventh, at New Orleans. What about it?

HMJr:
D:

Well, it hasn't got to me yet, Bob.
I understood that it was delivered to your
secretary yesterday. A friend of mine, who's
counsel for this Industrial Council - the
Southern States Industrial Council, Tyre

Taylor, is in my office now

HMJr:
D:

Oh.

and he said he had delivered this

invitation yesterday - I think he said to your secretary.

HMJr:
D:

Well.....
Well, you'll get it. of course, I don't know
what your plans are.

HMJr:

Well, I didn't do any mail yesterday. I

was working on financing, 80 I didn't see
my mail yesterday.

D:

I see. Well, I just wanted to say that I
would want to join in the invitation - it's
not in my state, but it's from the South and if you could go, I think it would be

192

-2very helpful. We'd all appreciate it very
greatly if you could arrange your affairs
80 you could go. I just wanted to let you
HMJr:

know that I have my interest in it and how
much I'd appreciate if you could go.
Well, I feel highly complimented that you

want me to go, and I'll give it very serious
consideration.

D:

Thank you, and let us know as soon as you
can.

HMJr:

I will.

D:

Thank you very kindly.

193

TREASURY DEPARTMENT

Washington

Press Service

FOR IMMEDIATE RELEASE.

No. 28-14

Wednesday, October 22, 1941.

Secretary of the Treasury Morgenthau today announced the final subscription

and allotment figures with respect to the current offering of 2-1/2 percent
Treasury Bonds of 1967-72. In addition to the amount allotted on public subscriptions, $93,256,950 of the bonds have been allotted to Government investment
accounts. within the $100,000,000 reservation.
Subscriptions and allotments were divided among the several Federal Reserve

Districts and the Treasury as follows:
Total Cash
Subscriptions

Federal Reserve

District

Received

Boston
New York

$ 951,726,650
4,921,587,550
616,842,550
691,193,300
418,370,400
535,350,350
1,091,686,900
255,191,450

Philadelphia
Cleveland
Richmond

Atlanta
Chicago

St. Louis
Minneapolis
Kansas City

163,917,350
137,529,200
193,407,050
446,072,050
22,466,300

Dallas

Snn Francisco
Tronsury

Total Cash

Total Exchange

Subscriptions

Subscriptions

Allotted

$ 119,071,100
615,575,950
77,328,350
86,556,300
52,392,900
67,069,950
136,678,450
32,022,100
20,541,900
17,275,800
24,267,600
55,826,900
2,812,100

Received

(Allotted in full)
$ 12,907,700
127,640,100
7,763,300
3,294,700
2,562,900

93,256,950

TOTAL

$10,445,341,100

$1,400,676,350

-000-

Subscriptions

Allotted

$ 131,978,800

513,600

743,216,050
85,091,650
89,851,000
54,955,800
67,579,150
150,312,750
35,356,900
29,656,500
18,622,800
26,619,100
59,824,400
3,325,700

$188,971,200

93,256,950
$1,589,647,550

509,200

13,634,300
3,334,800
9,114,600
1,347,000
2,351,500
3,997,500

Government Investment Accounts

Total

194
October 22, 1941
10:57 a.m.
HMJr:

Allan
Sproul:

How's things look this morning?

They look all right. The maturing notes are
f1fteen-seventeen in the market, and there's

been some strengthening of the March Treasury
two or three thirty-seconds. The market seems
to have taken the announcement without any -

without a quiver.

HMJr:

You say the rights are up to what?

S:

The rights are up to fifteen-seventeen, that

HMJr:

Well, what do you think we can do now?

is, the RFC's and the CCC's.

Well, after we talked to principal banks that
have rights or interest in the short-term

S:

market and to some of the dealers and based
on what we got from them and our own views

of it, we think that the best issue would be

a March 15 forty-six one.
HMJr:

The one we spoke about yesterday?

S:

Yes.

HMJr:

March 15.

S:

HMJr:

March 15, forty-six, one per cent.
Yeah. Now what do you think that'11 sell
at?

S:

We think about a half premium roundly - a

HMJr:

From sixteen thirty-seconds up to.....

S:

Up to eighteen or twenty.

HMJr:

Well, that's about where we had it. Piser

half to five-eighths, say.

doesn't agree, you know.

S:

He does not?

-2HMJr:
S:

HMJr:

195

No, he thought yesterday to sell at par.
Well, I must disagree with him, then.
Yeah, but our boys are right in the same
level that you are.

S:

Yeah.

HMJr:

But there'11 be no trouble with it up
there.

HMJr:

Not that we can see, no; and that was the
attitude reflected by the market yesterday
and there's no change this morning.
I see. Well, Ecoles is coming over at eleven-

S:

We'11 be here.

HMJr:

Now, I'm sending Dave Morris up to New York

S:

thirty and then right after that I'11 give you
a ring if you'll be around.

again to be with you for a couple of days,
because I want him to learn the business.

S:

Fine.

HMJr:

So will you take care of him?

S:

HMJr:

S:

HMJr:

We'11 be glad to.

And give him a chance to - it's the Government
financing that I want him to watch.
Well, we'll show him everything we have.
He seems like a very good man to me.

S:

Well, he looks that way to us, too.

HMJr:

As I say, I think it's a good idea, don't you,
that after we have somebody - somebody from

Treasury comes up and sits a couple of days.
S:

Yes, I do. I think it's good for you and good
for us, too.

196

-3HMJr:

Robert

Good.

Rouse:

He took hold very quickly, those two or three
days
he spent with us on the occasion of the
two and a halfs.

HMJr:

Who's this, Rouse?

R:

Yeah.

S:

Yeah.

HMJr:

He does - does he seem to have a feel for

S:

Yes, I think he does. I was quite surprised

it?

at the quickness with which he picked it up.

HMJr:

Good. Good. Well, I've got to have somebody
here besides Bell that will devote himself
exclusively to that, you see; and that's
what I have in mind.

S:

Yeah. Well, we'll work with him and give him
everything we have; and I think he has the flair

for it.

HMJr:

Good. Tell me, weren't the people pleased

S:

Very much so.

HMJr:

Yeah. Well, the way I feel is this: after

that they're going to get the rights?

all, the people that bought these things -

I have no complaint. They've always been very
fair with me; and why do something to punish
them unnecessarily?

S:

Well, I don't think you would punish them
unnecessarily if you gave them a little notice
on any change in

HMJr:
S:

Well, I may do that after this is over.....
Well, that's perfectly

4HMJr:

197

but I don't feel that I gave them
enough notice; and after all, I want them
to make money out of it.

S:

HMJr:

S:

Well, I think that's a perfectly reasonable
point of view, and I think that there's been
some question as to whether they had enough
notice on this issue.
I mean, I definitely want them to make money

out of it. I want them to be happy.

Well, I think they ought to make some money

out of it. I don't think it's immoral for
them to make money out of

HMJr:

Well, I've never said so and I've never felt

S:

No.

HMJr:

S:

that way.

Righto. I'll be calling you in about a half
or three-quarters of an hour.

All right, fine. Good-bye.

198
October 22, 1941
11:02 a.m.
Nathan

Straus:

Am
I interrupting you in a very busy day,
as usual?

HMJr:

No, you never interrupt me.

S:

(Laughs) Well, I'd like very much if I

HMJr:

could come over and have a little chat with
you some time, just to suit your convenience.

It won't take very long.
Now let me just look, Nathan. Nathan, if I'd
put you off until tomorrow, is that too far
off?

S:

HMJr:
S:

No, I wouldn't say that it's too far off
at all, if you could make it in the morning.
No, I can't, I'm all tied up in the morning.
Because I've got to go up to New York and
see Senator Wagner about the same thing in
the afternoon.

HMJr:

Oh.

S:

And today's bad for you, you mean?

HMJr:

Yeah, I'm financing today.

S:

Oh, I thought you were financing yesterday.

HMJr:

No, today and tomorrow - I mean, yesterday

and today - I mean I've got to price it.
haven't priced it yet. Let me just see a

We

minute. Hello. Hello. Well, let's say
four o'clock today?

S:

HMJr:

I'll be over then. It won't take very long.
All right, Nathan.

S:

Good-bye.

HMJr:

Thank you.

199
October 22, 1941
11:10 a.m.
HMJr:

John

Chester Barnard is here with me now, and

Randolph Paul.

Sullivan:

Oh, I've been waiting for Randolph here.

HMJr:

No, no. What I can say I can tell you on

S:

Righto.

HMJr:

Do you wish me to come in?

the phone. (Laughs)

What Barnard says is, he can't go any further
until you tell him what your tax program 18,

in writing.

S:

HMJr:
S:

HMJr:
S:

HMJr:

Yes.

So when are you going to have a tax program?

Well, that never takes more than five or six
minutes. We have a general outline ready now,
sir; we'11 give that to him.
In writing?

Yes. I had it for you the other day.
Well, he hasn't seen it.

S:

No, I don't think he has.

HMJr:

Well, he's waiting on you.

S:

All right, I'11 give it to him.

HMJr:

When?

S:

HMJr:

Just as soon as he leaves your office.
Just as soon as he leaves my office. All
right, he can drop by and knock on your door

for it.

S:

What time this afternoon do you think I'11

200

-2have an opportunity to go over that talk
with you?

HMJr:

Oh, with me?

S:

Yes, sir.

HMJr:

Has Kuhn got it?

S:

Ferdie has it now.

HMJr:

I'11 try to do it before lunch if I can.

S:

All right, sir. Thank you very much.

HMJr:

Before lunch.

S:

Right.

201

October 22, 1941
11:20 a.m.

RE FINANCING

Present:

Mr. Hadley

Mr. Bell

Mr. Murphy
Mr. Haas

Mr. Morris
Mr. Eccles
Mr. Piser

H.M.Jr:

I thought we could have a little meeting
before Eccles comes over. Did you give
copies to anybody else?

Hadley:

Yes, they have copies.

H.M.Jr:

This is you independently of those fellows?

Hadley:

That is right. We reached the same esti-

mate, though, working independently.
H.M.Jr:

What has happened to the market this morning, Hadley, do you know?

Hadley:

There has been nothing taking place in the

issues that we are interested in. Last night

the rights moved from five thirty-seconds up
to sixteen thirty-seconds, and they have stayed

-2-

202

at about that point today.
H.M.Jr:

That
book only takes it to yesterday, doesn't
it?

Haas:

Last night's close.

H.M.Jr:

Let me have it, George. This is up to last

night?
Haas:

Yes, sir.

H.M.Jr:

The damn things have been going down, haven't
they?

Bell:

They went down after the rights announce-

ment.

H.M.Jr:

Have we got any notes here that are taxable?
It doesn't show on here.

Bell:

Three quarters.

Haas:

It shows out in front. Then you can look
them up.

H.M.Jr:

Oh!

Bell:

It doesn't show what they are. They are
three quarters December and three quarters

March.

H.M.Jr:

Well, George, another time, put "T" in.
Even I can read it.

Haas:

Yes.

H.M.Jr:

Is that the only other one?

Murphy:

The last one.

H.M.Jr:

Will knocking off those rights knock the

203

-3whole thing off?
Hadley:

It knocked everything in the short market

H.M.Jr:

How much?

Hadley:

In the shorter Treasury notes as much as

down.

ten or twelve thirty-seconds. They are
starting to gain it back now. You see,

they are going to get full rights on this

one.

H.M.Jr:

Short bonds, for instance, the '44-'46,
they haven't--

Hadley:

Well, they are not quite short enough.

H.M.Jr:

None of these have turned the corner. They

are all going down. I didn't realize that
they had gone off as much as they had.

Hadley:

Of course, some of those short ones, even
though the price was going down, they are

still giving the same yield because they

are cutting it off - cutting the premium
off to maturity.
H.M.Jr:

The long fellows, though, haven't gone up
as much.

Murphy:

They are not affected by this discussion at

Bell:

You mean long bonds or long notes.

H.M.Jr:

Long bonds.

Bell:

Long bonds are not much interested in this

all. The price doesn't matter.

discussion of rights at this point. They

may be later.

204

-4Haas:

Fifteen years from now.

H.M.Jr:

'47-'52 is where they begin to go down.
Isn't
chart?that funny? Does that show up on your

Murphy:

'47-'52's would have a tendency to go down
because they are very high coupon.

H.M.Jr:

But I mean that is the dividing line. Now,
the two percent, '47's, that is where they

divide, isn't it?

Bell:

Well, that is where your banks hold.

H.M.Jr:

What?

Bell:

In that area from there down.

H.M.Jr:

Were you fellows conscious of that?

Hadley:

Yes. In your shorter issues, if the price

did the same, it would be equivalent to the
price going up as time moves along.

H.M.Jr:

But not within the last--

Hadley:

If they have a high coupon.

H.M.Jr:

This is just this month. Anyway, that is
the dividing line.

Morris:

Well, they were all hit on that rights business.

H.M.Jr:

Well, they reached a high on--

Bell:

Your banks - the people that were thinking
about the rights were the banks and if there

was any selling or offering, it was in
the bank field.

H.M.Jr:

Is everybody settled on March 15, '46?

205

-5Morris:

I stillto.
think you can do September if you
want

Haas:

Too exciting.

Bell:

I would like to see a September. I am a
little afraid of November 1 reserve date,

but the premium on a September, as Hadley

figures, is just right, eight to twelve

thirty-seconds.
Hadley:

That is a good enough premium if you get

support in the market. If they just ex-

change their RFC and CCC notes for the new
one and then don't buy any on the market
that might not beenough.
H.M.Jr:

Well, what about June?

Hadley:

June has very heavy maturity of bonds amount-

ing to about a billion nine hundred million,

call dates.
Bell:

Callable bonds.

H.M.Jr:

How much?

Hadley:

A billion nine hundred.

Morris:

That is one advantage for September.

H.M.Jr:

George, what do we usually allow?

Haas:

About sixteen thirty-seconds.

Bell:

We have cut it a little fine on a few

occasions when it is straight exchange,

haven't we?
Haas:

Yes. I looked it up Saturday and about a
half is an average.

-6Bell:

206

We have usually missed it. We have always

said that is about what we would like to

give, and then the market has gone up

right afterward;we have given them a little

more.
Haas:

The thing about this, Mr. Secretary, is that
we figured, and it will probably work out

that you will have a bunch of higher premiums

and you won't like it, but, on the other

hand, you take September, there is definite

risk in it.

Bell:

Yes, I have to admit that.

H.M.Jr:

You do?

Bell:

I have to admit there is some risk in
September.

H.M.Jr:

Well, what about June?

Bell:

June is all right except that you are heavy.

H.M.Jr:

Well, there is no fixed obligation.

Bell:

No, they are callable and if your interest

rates stay where they are you wouldn't be

justified in passing over them. But, again,

you say you won't be here. Maybe the rest
of us will, anyway. We will take the blame.
H.M.Jr:

Hadley:

If you fellows think September is risky, I
don't want to do it. Do you think September
is risky?
I think it is unless you can get some information from the market that they are going to
support a one percent. Devine is the only
one that says you can do a one percent, but
even he is wondering whether the market would

support it.

-7H.M.Jr:
Hadley:

207

He is the only one who says I can do a
one percent?

Yes. All the others have said a one percent

March or a one and one eighth September. I think it might be interesting to
talk to Mr. Devine and find out how he feels
about it.

H.M.Jr:

I don't want to talk to him.

Hadley:

You might get the Federal to buy some of
them and get rid of some of their longer

bonds. I don't think you ought to start

out on the assumption you are going to have

to support it. You have got to put out something that won't need support at least when

we start.
H.M.Jr:

Did anybody say June?

Bell:

No, you have got a June here. It is twelve

to sixteen thirty-seconds, and that is all
right. If you leave March with less than
five hundred million, when you come around

to that period, you can always get rid of
half of your June by refunding in March,
so that you can rele ve that load there.
H.M.Jr:

What is the matter with June?

Bell:

June is all right.

Hadley:

Too heavy a maturity.

H.M.Jr:

But forgetting about that.

Hadley:

The bond issues in that area have been a

H.M.Jr:

What do you think, Dave?

little easy because it is rather loaded.

-8Morris:

208

I can't deny there certainly is some risk.

H.M.Jr:

I don't think the risk is nearly as great
as the others do, but it is there definitely.
How would you feel if I put it into June?

Morris:

Well, I think it is all right. It is a

little safer, but just on the question of

maturities, there is something to be said
for having it in September because there

isn't anything there. People looking to
spread the maturities have an advantage in
having it there.
H.M.Jr:

Well, there is nothing in March, either.

Morris:

Well, March is absolutely - well, there is
a little something.

Bell:

Four hundred eighty-nine million.

H.M.Jr:

How about letting them put up fifty cents or
something? That is not so dumb.

Bell:

Well, put out one and an eighth September.

H.M.Jr:

No, I won't do that.

Bell:

You couldn't ask for a half point. You

(Mr. Eccles and Mr. Piser entered the conference.)

would have to ask for a quarter.

H.M.Jr:

This is where we are, to tell you where

we are. We are down now - New York wants

a one at March 15, '46.
Eccles:

One percent? One percent coupon?

H.M.Jr:

Yes.

And they say from sixteen to eighteenthirtyseconds would be the low.

209

-9Eccles:

They say from what?

H.M.Jr:

The low would be sixteen to eighteen thirty-

seconds. They think it will sell at about

a half, from there up.
Bell:

Well, it is up. Eighteen to twenty-one,

Hadley has got. What have you got, George?

Haas:

Sixteen to twenty-two.

Eccles:

So it is above the half.

H.M.Jr:

Has Piser got to go with these fellows or

Eccles:

I will speak for Piser. In his figure,

is he still the lone wolf?

estimates, it was based upon what he under-

stood in talking to Dan was going to be four
hundred thousand cash. He was figuring that
you were going to get a million dollars here,
five hundred thousand refunding and - or

six hundred thousand and four hundred thousand
of money, which of course would have made

some difference if you were putting out that

much more.

Bell:

Sure. I am sorry he misunderstood me.

Eccles:

Knocking out that cash end of it, I couldn't

understand just what the difference was, but

that is--

H.M.Jr:

Well, now we are talking about the same thing,
and where is he?

Eccles:

Speak for yourself.

Piser:

Well, I have a rather wide range for the
March '46 from a premium of six thirtyseconds to thirty thirty-seconds.

- 10 -

210

H.M.Jr:

Gee!

Piser:

And my best guess on it would be about a

half point, which is the same as New York.
Eccles:

Well, that is your average of what you have
got.

Piser:

It is on the low side of the average.

H.M.Jr:

Well, some of the boys here think that is

a little rich, Marriner, and we were just--

Eccles:

I was just talking to Piser coming over in
the car, and he said that he thought that

the March would be the safe one. There would

be no question about March because even at

the most pessimistic approach, it is still
a little above par, and if you are optimistic
it is nearly a one point premium. I said
if you put out March, I wouldn't be - I
would think that June would be all right,
that the idea was to price this issue
rather closely. It is a short issue, and
you didn't want to put it out and then find
immediately there was a three-quarters or

one point premium on it. It is pretty difficult to see how at this time a one percent
issue is going to go below par. It may some

time a little later on, I don't know, but

certainly right now the way this market

looks, I wouldn't be afraid of an issue -

it is all refunding. It isn't like you are

getting new money.
H.M.Jr:

That is right.

Eccles:

And I wouldn't be a bit afraid of a June.
My preference would be June.

H.M.Jr:

Well, the trouble is, they point out there

will be two big issues which have a call date

- 11 -

211

on them. I talked the say way you did

when these boys brought to my attention

that in June we have got a billion thirtysix in '46-'47's and eight hundred nineteen million of '46-'49's.

Eccles:

I wouldn't worry about that because you have

got a different problem. You have got a
five hundred thousand note issue here.

Those are bonds you are talking about. It is

in entirely different hands, different holders.

H.M.Jr:

Well, you just came in, and I was at the
same point. I made a suggestion that I
would like to make to you on account of this
stuff, that we make them pay us a little
premium.

Eccles:

I don't like the premium idea.

H.M.Jr:

Just add a little cash so when they refund

Eccles:

they will give us a little cash.
That is the way to equalize it, but I think
the reaction wouldn't be very good on it

and it is another change. It is something

that we haven't done.
H.M.Jr:

No, we did it.

Bell:

We have done it, but we haven't done very

Eccles:

And they didn't like it when you did it.

Bell:

Oh, I don't know.

Eccles:

Did they?

Bell:

I don't know.

much of it, and we haven't done it for
quite a while.

- 12 Eccles:

212

I tell you, if you were putting out an
existing issue and it was selling at a

premium and the premium was fairly sub-

stantial, 1 think there might be some

justification. I have thought in times past

instead of issuing new issues, it would be
better to open up existing issues and sell
them at a premium. This is a small issue,
and the premium would certainly be awfully
small, wouldn't it?
H.M.Jr:
Hadley:

You said a quarter, didn't you?

About a quarter, yes. A quarter of a point

would out the premium down to about ten

thirty-seconds, something like that.

Eccles:

Well, that is shaving it - it may be shav-

H.M.Jr:

Do you mind if I just ask the boys in New

ing it fairly close on that.

York to think this over for a minute?

Eccles:

No, I think it is a good thing.

H.M.Jr:

Let me just ask them to think it over and
get their reaction and then I would like
to know.

Eccles:
H.M.Jr:
Eccles:

I don't personally like it offhand.
You think it is shaving it too close?
I think so. I would sooner take the June
issue. I wouldn't be afraid of the refunding
five years hence on that. I wouldn't walk
away from that at all because you have got

bonds coming due. They are entirely a different type of investment. This is a note
that is coming due.

H.M.Jr:

It is piling an awful lot in on one date.

- 13 -

213

Piser:

Well, part of it could be anticipated, say

Eccles:

It is awfully hard to see five years hence.
What might look big now as a maturity might
look awfully small then.

H.M.Jr:

How many thirty-seconds would it lop off if
we did it in june?

three months in advance, and the rest of it
allowed to run to June '46.

Haas:

About six, I think.

H.M.Jr:

Six?

Haas:

That is the way I figured.

Hadley:

About six off, five or six lower.

H.M.Jr:

If you put a quarter premium on it, how many

would it lop off?

Hadley:

It would lop off eight.

Eccles:

You put the quarter premium on and it
would be just about the equivalent of
the June issue. My preference would be

June in spite of your maturity.

H.M.Jr:

How do you feel, Piser?

Piser:

Well, I think my first preference would be
March with no premium.

H.M.Jr:

That would be your first?

Piser:

My second would be June with no premium,

and the third would be March with a
premium.

- 14 -

214

Bell:

You could knock off a few thirty-seconds
by making it May, not very much but three or
four thirty-seconds.

H.M.Jr:

Put that in your pocket.

Eccles:

Is this a new one?

Fell:

If you make it August 1, it is just the equivalent of twenty-five cents.

H.M.Jr:

Oh, I don't want to do that.

Eccles:

Dan, really what you say here, you say here

is a four and a half year borrowing at one
per cent and the Treasury isn't satisfied to
give the market four and a half years at one

per cent. They want to give them a premium.

(The Secretary held a telephone conversation
with Mr. Sproul and Mr. Rouse as follows):

215
October 22, 1941
11:43 a.m.
HMJr:

Hello.

Operator:

Sproul and Rouse.

HMJr:

Hello.

Allan
Soroul:

Yes, sir.

HMJr:

You're on the loudspeaker, and Chairman

S:

Yes.

HMJr:

Eccles is here. We're having a very friendly
discussion and we're down to this. Hello.
Some of our boys in the Treasury think that
the March 15 might be a little rich; SO there's
two alternatives. Mr. Eccles suggests that
we go to June and some of our boys say make
it March 15 and charge a quarter premium.

S:

At March 15 what?

HMJr:

With a quarter premium.

S:

Oh, yes.

HMJr:

S:

And we just wondered how you people would
feel down there.

Well, I myself don't think the March '46 will

be too rich. There's that possibility, but

I think coming un to November 1st with the
change in reserve requirements going into
effect with the New York City banks excess
reserves being down substantially - although
still ample in any ordinary situation - still
in relation to what they have been, down
substantially; and that there has been some

firming of short-term interest rates and there
may be a little more, although I don't think
the March '46 on balance is likely to prove
too rich.

HMJr:

I see. You don't really think so?

-2- S:

HMJr:

216

No.

How do the people feel that you've been
talking to - I mean, anybody want to go
out beyond March?

S:

No, I should say that most of them said that
you might go out to September 46, but it would
be thin.

HMJr:

Yeah.

S:

One, the Chase Bank, thought that a March '46

one was perhaps a little thin, but they've

been playing very close to the marke t there,
and their ideas on short rates perhaps are a

HMJr:

S:

little high at the moment.
Well, do you think that with November let

so close, some of the banks may let some of
these run off?

No, I don't, because I don't think there's
going to be a great deal of trading in these.
I think that most of them are going into banks
and atay there. But I don t think they'11 be
out buying them in the market in addition to
what they get on allotments

HMJr:

I see.

or on exchange. I don't think there'11

S:

be much buying in the market by the banks here.
HMJr:
S:

I see.

And if you're dependent for some buying on the
banks out around the country, it, I think,
would look better on a March '46 one than on
a September one.

HMJr:

I see. Well, what about June, Mr. Eccles wants
to know.

S:

Well, I think that would be better than

September; but my own mind - in my own view -

217

-3the March 18 close enough to the market,

and gives you a little better protection
on the issue.

HMJr:

Now, if you'll just mind standing by a

S:

And furthermore in June, you have a billion

minute we

eight, I think, of other securities maturing.

HMJr:

That's right. Now would you mind just holding

S:

Not a bit.

HMJr:

We'11 try to settle it.

the wire a minute or two?

(Secretary talks aside)
HMJr:

Hello. If you'll wait a minute, I'll call
you back 80 you won't have to be standing

there. It'11 be two or three minutes.

S:

All right. We'll be here.

HMJr:

I'll call you back in two or three minutes.

S:

Right.
11:55 a.m.

HMJr:

Hello.

Operator:

Go ahead.

HMJr:

Hello.

Allan
Sproul:

Hello.

HMJr:

S:

Washington is going to be big hearted and
generous. March 15, 46.

Well, I think you'll get an adequate response

-4-

218

for that generosity.
HMJr:

Well, Dan says it's getting close to
Christmas.

S:

(Laughs)

Rouse:

(Laughs)

S:

Santa Claus is just around the corner.

HMJr:

Well, we know we're being big hearted.

S:

Yeah.

HMJr:
S:

So the boys will go to work.
Well, it'11 leave a much better taste than
the other.

HMJr:

What?

S:

It'11 leave a much better taste than the

HMJr:

Oh, yeah. Eight thirty-seconds better taste.

S:

HMJr:
S:

other.

(Laughs)

All right.
All right. Thank you.

HMJr:

Thank you.

R:

Good-bye.

HMJr:

Good-bye.

S:

Good-bye.

- 15 -

219

H.M.Jr:

What do you think, Dan?

Bell:

Well, Certainly the March 15 is the safest
issue and it will probably make us feel good

if it does go up. But the only thing that
will worry me is the statement on rights,

and have them get a great deal more than we

anticipated them getting.

In view of all that has been said, I expect
March is the safest. I certainly wouldn't
go beyond June.

H.M.Jr:

Hadley?

Hadley:

I would prefer March to June. I think the

premium in June is enough, but I don't like

that having the maturity of two billion and
a half on one date when you can avoid it.

H.M.Jr:

Henry?

Murphy:

I prefer March.

H.M.Jr:

George?

Haas:

Same, March.

H.M.Jr:

Dave?

Morris:

I take March and a premium, and it TO uld have
the added advantage of getting them used to

that kind of a thing, which may give you a

little greater flexibility later on, and I

also think there is a lot in what Dan said

about not giving it too big a premium when
you have been trying to cut down the rights,
and you are going to try to cut down in them

in the future on the refunding of these guaranteed issues.

Bell:

I think we have to do this, Mr. Secretary,
too, when we have got some markers out

- 16 -

220

there. We haven't got the markers on these

taxable securities. This is sort of a void

place, and the boys are guessing on the prices.
We are in the same position here as we were on

the two and a halves. It is a little bit

uncharted territory.
Piser:

March with no premium.

H.M.Jr:

Marriner, you have the last say.

Eccles:

Well, I think the difference is a small item.

I don't feel like Allan does. If this wasn't

a refunding issue - now, these banks that hold
these securities haven't got another place

in the world to put their securities, and
they can't sell them. They can't sell them
and buy anything else.

What is happening today, FHA loans through-

out the country, instalment credit loans
are diminishing rapidly and I have talked to
enough bankers to know that they are going

to be strictly up against it for earnings,

for a place to put the money, and I am not
a bit concerned about - wouldn't be a bit
concerned about that June issue. I wouldn't

be concerned, because you have got that maturity.
I think that another five hundred thousand
maturing, being a note issue - and you have
got bonds, you have got two different classes

of investors. It is a question of refunding

at that time so as to meet the demand of the
investors. You have got two different types

holding these securities that will mature.
At the same time, if the Treasury feels, as

apparently some of the boys do, that the fact
you have got that big maturity in June takes
June out of the picture, I would say March.

I am not in favor of the premium at this time.

- 17 -

221

I wouldn't put the premium on.
H.M.Jr:

March?

Eccles:

I would put March without the premium.

My first choice would still be June, because
I am sure that that doesn't give you too
much of a premium, and I fear March is going

to give you a fair - a premium that is possibly
more than expected or justified, but I wouldn't

object to taking that chance. It is a small

matter.
H.M.Jr:

Well, I think we would be criticized for doing
June.

Eccles:

On account of the maturities?

H.M.Jr:

Yes.

Eccles:

I think you may be, but that is --

Murphy:

Mr. Secretary, if the --

H.M.Jr:

Louder, Henry.

Murphy:

If the issue were to be thinned down, I think
there is something to be said for June as a
date in the abstract, as opposed to March.

The things which fall in June will not be
urgent. There is a three and a three and an
eighth. They are both the first call date.
You have two years in one case, and three

years in the other. On the other hand,
March is no bed of roses. You have a three
and three quarter that is callable then,
and because of the higher coupon, it is
more urgent. In the second place, on
April 15 you have a final maturity of the
three and a quarter. Now, as the Chairman

has said, five years is quite a time in

advance, and possibly that three and a quarter

will be running to maturity, and if so, it

- 18 -

222

is a must, whereas the call dates aren't,

so I think between March and June it is more

or less of a toss-up. I just wanted to

put that thought in.
H.M.Jr:

Well, I feel this way. Normally those men
down there - Sproul has been very good,

you know.
Eccles:
H.M.Jr:

Oh, yes. Sproul is working for the Govern-

ment.

And he is a little bit worried and a little

bit cautious, and so I would rather do the

March, and if they get eight or ten thirtyseconds too much, what the hell. You never
know tomorrow what the war news will be,
and they can say what they want, but the
market does react.

Eccles:

I feel that the banks and credit institutions,
if you give them a little better earning, I
feel that it takes the pressure off from
them trying to expand. Whatwe are trying to

say to the institutions is, "Don't go

out and loan a lot of money, and don't go
out and bid up the price of bonds, and don't

try to get this stuff in the hands of savers.

Now, if we want them to do that, then we can'
cut them so damn close that they can't exist,
and they have got to go out. So from that
standpoint -H.M.Jr:

You are satisfied?

Eccles:

I am perfectly satisfied to give the banks

this extra profit if you want to call it that.

That is what it is. We will ask them therefore to cooperate otherwise, I think, even

though it gives them the premium.
H.M.Jr:

Then let's say March 15. It has only got to

- 19 -

223

be open two days, but you can get an awful
lot of bad war news in two days.
Piser:

This issue is pretty highly concentrated in
a number of institutions. I think one day
is enough.

Eccles:

Oh, I think two.

Bell:

I would make it two days. Every time we have

Eccles:

Thursday and Friday?

Bell:

Close it Friday night.

Eccles:

You would announce it today to the market?

H.M.Jr:

No, tomorrow morning. Notices go out at

closed it in one day we have had a lot of
criticism.

noon for tomorrow morning's papers.

Eccles:

All right, Marriner?
I wouldn't be afraid of leaving it open, from
the standpoint of whatever the news may be.

H.M.Jr:

It is a little rich, and I don't like it

particularly, but I am between the devil and
the blue sea.

Bell:

Some of these times on these issues, we will
probably want to give consideration to the
possibility of charging a premium for exchanges

on the second day, so It will force the big
fellows in New York in on the first day and
then these country stragglers who miss out

because they forget it, penalize them a little

bit. When you have to give three days on an

issue that is pretty widely held, the big
fellows hold right to the last day and they

- 20 -

224

have
got you in a pocket if you have got
bad news.
H.M.Jr:

That is right. It is a good idea.

Eccles:

I am glad that we did one thing yesterday,

and that is that we didn't decide to eliminate
rights.

H.M.Jr:

You are?

Eccles:

Yes, I am, and I am glad we decided not to go

fifty per cent. Now, I think this whole question of rights needs a lot of thought and
consideration.

H.M.Jr:

I agree wi th you.

Eccles:

And that before we just arbitrarily decide to

cut out - go ahead on your telephone conversa-

tion, and I will talk later.

(The Secretary held a telephone conversation
with Mr. Sproul and Mr. Rouse as follows):
have ne
record

- 21 -

Eccles:

225

I was saying that this question of rights,
I think, is a very, very important issue,
and there is a lot of - there are a lot of
arguments, it seems to me, for continuing
rights.

H.M.Jr:

You know, I didn't say anything.

Eccles:

No, I know you didn't, and I think we may have
made a great mistake if we had decided to do

what Sproul indicated, give them fifty, or
to discontinue them altogether. I would like
to have a discussion of this whole question
from every point of view before that issue
is decided as a matter of policy.

H.M.Jr:

Let's do this, Marriner. Let's have another

Treasury - Federal Reserve meeting say next
Wednesday for lunch.
Eccles:

And discuss --

H.M.Jr:

This or anything else. Rights and so forth.

Eccles:

I think the question of rights is a matter
that --

H.M.Jr:

Excuse me a minute.

(The Secretary left the conference).
Eccles:

I would like to see Allan and Rouse consider
this whole thing and have them come down and

then I would like for our fellows here to have

a chance to discuss it, and then come over
and meet with you people here. The sole
purpose would be merely the discussion of

this question of rights, what should be the
future policy.

Bell:

I am not in favor of --

- 22 Eccles:

226

I don't think you can lay out any long term
financing program without crossing that

bridge, considering that. I think it is an

integral part of your whole future financing,
and I think it is awfully important right now,
awfully important.

Bell:

I am not in favor of eliminating, but I am
in favor of cutting them down a little in

price and making it a little closer. I

think this half on a one per cent March
will just about give them what they thought
they were going to get in the first place.

That is the way I think it will pan out.

Eccles:

I have also been in favor, Dan, of pricing.
As long as you are doing your open market

financing it is good business to price your
stuff just as nearly as you can to the market
and don't give any more than is absolutely
necessary. That is good financing.
Bell:

But damn it, we are always up against some
emergency. Every time we do any financing

something just around the corner is liable to

happen.
Eccles:

That has made all the difference in the world.
That is what you have been up against,

two things. Now, I have always figured that

we have been too generous in our pricing,
and you will find that I have always been

on the closer pricing side, all the way along.

Bell:

Yes, but you have got to bear in mind that
this fellow here has the burden on his shoulders

that if this damn thing fails just because
of a few thirty-seconds, it is always best
to take those few thirty-seconds, better than
to go back the other way and have it fail.

We have always been up against that.

227
23 -

Eccles:

I think normally that has been true. You

are in an emergency today, you are in a war
economy, and I think we more and more have

got to look to Federal Reserve and Treasury

controlling the market, and less and less to

what we speak of as the "natural" market.

That is the way I feel about it. We have

been in the past, and I suppose properly so,

depending upon open market financing, looking
at what we termed a "natural" market, although

it wasn't natural, as gold, silver, excess
reserve picture was the thing that made

the

at
all,
are
a
war
economy
of tremendous we got to

but
and
the and a other

not in requirements,

be prepared to exercise more more controls,

I think we have to a at

cerned
we
will
it
from
that
I
can that the Reserve

countries are and I am conmarket, only in British assure look the about but that at field you you and picture, the financing proportions, doing, not field of going any defense got of in natural defense into standpoint, the and look take financing, and much future condition at System have what look less if and is

clear over now. I mean, they were open market,
natural market, but they have come an awful

long way on the other side of the picture, an
awful long way in the field of completely
and fully cooperating with the Treasury
in the matter of a long range pattern, using
the full power that they have in conjunction

with what the Treasury has, and I am sure that
we can do anything that is necessary to be
done. We don't need to be afraid.
Bell:

What are you going to do after the war is
over and we have ten billion dollars of
Savings Bonds out, and they all come in to
cash them?

Eccles:

I wouldn't worry about it.

- 24 Bell:

Wouldn't you?

Eccles:

No, for this reason. Let me tell you why.

228

People that are going to cash Savings Bonds

are going to have - they want to spend that
money and that is what you want. Now, the

Government will have to refund - it is a process of refunding. If you didn't have the
refunding, you would have new financing to

do, see, to supply - to provide expenditures
to take care of, possibly unemployment.

Bell:

I think that is fine, if they don't come too fast.

Eccles:

Well, I hope they will come fast enough to
provide spending power. I would sooner see

the Treasury refund Savings Bonds because
the savers are spending the money than to
have the Treasury go out and have to borrow
new money to provide for public expenditures

Bell:

We will probably have to do both.
(The Secretary returned to the conference).

Eccles:

Well, some of both, but the faster the savers
will come the less you will have to do the
other way, Dan.

H.M.Jr:

Well, Marriner, thanks for your time. I feel
the way you do. It isn't something you just
pass off lightly, and I am glad that you are

satisfied that we didn't do half. I just

didn't want to to it. It is all very nice.

There are two sides to this story about rights.

Eccles:

I will say there are.

H.M.Jr:

There are two sides to this thing and we have
been pretty successful, and before we change

the system I want to consider it pretty
carefully.

229
- 25 Eccles:

You have got less reason to change it now
than you have had before.

H.M.Jr:

That is right, and if you would come over

Wednesday, and if you would let me know who

you would like to bring with you.

Eccles:

What I was going to suggest is that I would
like to have Sproul and Rouse study this thing
and I would like to have them come down and
have our Executive Committee, the Open

Market, take the responsibility for this
along with Rouse. of course, Allan is on

the Committee. And then I would like to have
that committee meet with whoever you want, and

I think we should possibly better have a meeting
instead of a luncheon on that.
H.M.Jr:

Well, it is this group in the room here.

Eccles:

Well, let's meet whenever you want to.

Bell:

When will you have them coming to town?

If you will let me know when they are

coming to town, I will make arrangements
to meet them after you have your meeting.

Eccles:

Mhy don't we say next Wednesday?

Bell:

That is fine.

Eccles:

For discussing this whole question of rights.

H.M.Jr:

Then you will get in touch with Dan?

Eccles:

Yes.

H.M.Jr:

All right, thank you very much.

C

230

0
P
Y

October 22, 1941
Secretary Morgenthau
W. H. Hadley
NEW TREASURY NOTES
Coupon

Maturity

Yield

Probable
Price

1%

Mar. 15, 1946

0.85
0.87

100.21
100.18

21/32nds
18/32nds

May 1, 1946

0.87
0.90

100.18

18/32nds
14/32nds

June 15, 1946

0.89
0.92

100.16
100.12

16/32nds

Aug. 1, 1946

0.90
0.93

100.14
100.10

14/32nds
10/32nds

Sept. 15, 1946

0.92
0.95

100.12

12/32nds

100.8

8/32nds

Sept. 15, 1946
(4 yrs.-10 1/2 mos.)

0.92
0.95

100.31
100.27

31/32nds

27/32nds

Nov. 1, 1946
(5 years)

0.95
1.00

100.27
100.20

27/32nds
20/32nds

(4 yrs.-4 1/2 mos.)

(4 1/2 yrs.)
(4 yrs.-7 1/2 mos.)
(4 yrs.-9 mos.)
(4 yrs -10 1/2 mos.)

1-1/8%

100.14

Premiums

12/32nds

REOPEN OLD NOTE ISSUE

Issue

Outstag.

Present
Price

3/4% 3/15/43

66 mil.

100.22

(1 yr.-4 1/2 mos.)

Probable Reopen
at
Price

Premium

18/32nds
100.18 100
100-1/8 10/32nds

231

October 22, 1941

Secretary Morgenthau

Mr. Morris

Subject: Advance information on industrial and municipal
financing.
After discussion with Messrs. Bell and Haas, we all agree

that the information currently available from regular sources is
of almost no value with respect to keeping track of "timing."
It is suggested that, subject to your approval, I explore with
the New York Federal Reserve Bank only (but NOT talking, at this

time, to anyone else) the matter of their talking to dealers in
their district, purely on the basis of obtaining information as
to timing, and discuss arrangements for a weekly report plus

special daily reports if an important change occurs. If this
test case were satisfactory, it could be expanded to the other
Federal Reserve Districts.

It is also suggested that, in order to keep informed on
the collateral problem of capital expenditures, you designate
someone to discuss this with Donald Nelson's organisation.

expert

232

UNITED STATES SAVINGS BONDS

CONFIDENTIAL

Comparative Statement of Sales During
First Eighteen Business Days of August, September, and October, 1941
(August 1-21, September 1-22, October 1-21)
On Basis of Issue Price

(Amounts in thousands of dollars)

$ 28,720

$ 28,534

$ 29,527

$ 186

Series E - Banks

53,532

48,700

55,703

4,832

Series I - Total

82,252
15,136
81,783

77,233
12,280
76,913

85,230
15,180
93,698

5,019
2,856
4,870

$179,171

$166,427

$194,108

$12,744

Series F - Banks
Series G - Banks
Total

:

Series E - Post Offices

: September

:

August

-$ 993

:

September

: October
over

:

over

October

over
August

Percentage of Increase
or Decrease (-)

: September
0.7%

- 7,003

9.9

- 7,997
- 2,900

6.5
23.3
6.3

- 16,785
-$27,681

Office of the Secretary of the Treasury, Division of Research and Statistics.

:

:

:

Item

or Decrease (-)
: October
: September

:

Amount of Increase

:

Sales

7.7%

September
over

: August

- 3.4%
- 12.6

- 9.4

- 19.1
- 17.9
- 14.3%

October 22, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.

233

CONFIDENTIAL

UNITED STATES SAVINGS BONDS

Daily Sales - October 1941
On Basis of Issue Price

(In thousands of dollars)
Post Office
Date

All Bond Sales

Bank Bond Sales

Bond Sales

Series E

Series E

Series F

Series G

Total

Series E

Series F

Series G

Total

$ 1,450

$ 3,029

$ 1,286

$ 8,271

$ 12,587

$ 4,479

$ 1,286

$ 8,271

$ 14,036

1,870
2,150
1,270

2,786
3,299
1,696

867

4,324
6,323
6,400

7.977
10,687
8,707

4,656
5,449
2,966

867

1,065

4,324
6,323
6,400

9,847
12,837
9,978

4,778
2,595
3,674
4,270
3,672
2,400

1,444

632

9,286
2,913
3,611
3,654
5,272
4,098

15.508
6,080
8,106
8,827
9,933
7,129

8,226
3,802
5,037
5.923
5,167
3,690

1,444

11

3,449
1,207
1,363
1,652
1,495
1,291

632

9,286
2,913
3,611
3,654
5,272
4,098

18,956
7,287
9,469
10,479
11,428
8,420

13

2,515

1,164

4,989

261

511

261

511

879

759

16

18

1,376
1,422
1,180

3,482
3.908
4,969
3,013

759

15

6,139
1,459
3,055
4,429
5,031
3,604

4,989

437

9,778
1,794
6,417
7,685
9,438
6,283

1,164

14

3,624
1,022
2,175
3,054
3,609
2,424

3,482
3,908
4,969
3,013

12,293
2,231
7,296
9,060
10,861
7,463

20

2,827

895

887

436

3,800
2,959

8,091
5,425

6,222
2,917

895

21

3,395
2,029

436

3,800
2,959

10,918
6,312

$ 28,720

$ 53,532

$ 15,136

$ 81,783

$150,451

$ 82,252

$ 15,136

$ 81,783

$179,171

October 1941
1

2

3

4

6

7

8

9

10

17

Total

1,065
612

572
821
903
989

724
860
846

612

572
821

903
989

724
860
846

Office of the Secretary of the Treasury, Division of Research and Statistics.

October 22, 1941.

Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States Savings Bonds.

Note: Figures have been rounded to nearest thousand and will not necessarily rdd to totals.

2

w

234
October 22, 1941
4:05 p.m.
HMJr:

Hello.

Operator:

Go ahead.

HMJr:

Hello.

Admiral
Waesche:

Waesche, Mr. Secretary.

HMJr:

Yes, Admiral.

W:

Mr. Secretary, I'm over here in the State

Department now with Captain Thomas of the
Navy

HMJr:
W:

HMJr:

Yes.

who was over in Russia with this

Harriman mission
Wonderful.

W:

and he has a mass of data on that with
the names of all the ships.

HMJr:

Yes.

W:

HMJr:
W:

Rather than my copying all this data, I
would suggest that - and he's willing to
come over to your office with me tomorrow
morning at nine o'clock. Is that agreeable?
Perfect.

All right, sir. Then we'll be there tomorrow
morning at nine o'clock with practically all the
data you want.

HMJr:

Will we have somebody who knows those con-

W:

Yes, sir.

HMJr:

Perfect.

W:

Yes, sir.

HMJr:

Thank you.

ditions?

235
October 22, 1941
4:24 p.m.
HMJr:

Hello.

Morris
Wilson:

Hello. Morris Wilson speaking.

HMJr:

How do you do?

W:

Good afternoon. That Russian list - if

you're still interested in it, the copy
is on my desk and I'11 send it over by
safe hand.

HMJr:

Yes.

W:

I'll send it over right away.

HMJr:

Right.

W:

No covering letter; and when you're through

HMJr:

Thank you.

W:

Thank you. Good-bye.

with it, please tear it up.

236
October 22, 1941
4:50 p.m.
HMJr:

Admiral Waesche has discovered a man in

the Navy - a Captain - who has all the
information at his fintertips on Russian

ports.

Averill

Harriman:

Is that the man that went with me?

HMJr:

I imagine so. If you'll name him, I'11

H:

Ah

HMJr:

Some Captain in the Navy.

H:

Captain Braine?

HMJr:

That sounds right.

H:

Or Captain Thomas.

HMJr:

Thomas.

H:

Captain Thomas and Captain Braine went
with

HMJr:

Well, I think it was Thomas. Well, anyway,

tell you whether it sounds

he's coming to my office with Waesche tomorrow

morning, at nine.

H:

Fine. I asked him to give me a memorandum

for you and so I thought I'd have him come

and see you.
HMJr:

They're coming at nine tomorrow. And then I just wanted to let you know I discovered

that there is

H:

Oh, no. I see it's Captain Braine has been
asked - I've just got a note here - by the

Coast Guard Admiral to meet with you tomorrow

HMJr:

morning at nine o'clock.
Which one is it?

-2-

237

H:

Braine.

HMJr:

Braine.

H:

B-r-a-1-n-e.

HMJr:

Is he good?

H:

He went - oh, yes. He's fine. He went with

Admiral Stanley on our part of the mission.

HMJr:

Well, I understand that he has the things

H:

Would you want me to be there?

that

H:

I'd love to have you.
I'11 come and listen.

HMJr:

Would you like to?

HMJr:

H:

Sure.

HMJr:

We'11 settle it on the spot.

H:

Sure.

HMJr:

At nine o' clock.

H:

All right, I'll be at your office at nine
o'clock. I'll try to pull myself out of
bed that early.

HMJr:

Do you want me to send a Coast Guard man

H:

What?

HMJr:

Want me to send a Coast Guard man around?

H:

HMJr:

around?

Oh, you'll send a Coast Guard man around
to wake me up, huh? (Laughs) All right,
fine.
Good-bye.

10/22

TO:

- Mrs. Klutz 238
one securiting asked

the to get for him,
is soon as possible, a

cgy of wickands
stemony yesterday before
the Banking and Cumusey

Committee. willyou see

that he gets it Thanks

Docor

From: MR. O'CONNELL

239

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

October 22, 1941

FROM Mr. O'Connell

Attached is an unrevised copy of the testimony given
by Secretary Wickard yesterday before the House Banking
and Currency Committee. His prepared statement occupies

the first three and one-half pages of the pamphlet and

the portion which relates to parity prices for farm pro-

ducts appears on pages1879 and 1880.

His defense of the 110 percent of parity provision
of the bill is contained in the marked portion on page

1880. The amendment which he suggests to clarify section

3(a) of the bill does not, as I see it, change its substance at all. The first three lines of his suggested
amendment contain merely a shorthand expression of his

defense of the 110 percent of parity provision in the

bill.

I have not examined in detail all of the discussion
included in the attached committee print as I understood
you wished to obtain an accurate statement of what
Secretary Wickard said before the Committee as soon as
possible.

240

The New York Times.
OCT 22 1941
Sees Objective Realized

BACKS BACKS FARM PRICE

AT PARITY PLUS 10%
No Lower Legislative Curb
Would Be Fair, Wickard Says
at Control Bill Hearing
Special to THE New YORK TIMES

WASHINGTON Oct. 21-Secretary Wickard told the House Banking and Currency Committee today
that he approved price-control leg-

islation, but that no ceiling should
be put on farm prices at less than
110 per cent of parity. or the aver-

age price of farm commodities in
the base period before the World
War.

To put the ceiling at parity, the

Secretary of Agriculture said,
would mean that prices would fluc-

tuate between parity and some
lower point, with the result that

the farmer, after twenty lean

years, would still not receive what

Congress in several enactments
since 1933 had decreed as a fair

price.

The witness said he desired with

the farmers generally to avoid a

ruinous inflation such as that

which accompanied the World War.

Despite accusations of "greediness" on the part of the farmers
he said, agricultural prices. which
had risen rapidly recently, were
still not out of line.
Says Price and Cost Rises Differ
"I can testify from my own expe-

rience of the past thirty years,"
Mr. Wickard added, "that whenever farmers get a price rise, It is
usually swift but brief: whereas
when a farmer's costs rise, they
may not go up as swiftly, but once
they get up, they stay there.

The recent increases in farm

prices have been unusually rapid,

but I want to make it plain that
in my opinion they are not yet out

of line, for the reason that these
are increases from levels which
were abnormally low.

"In 1939, before the war broke
out, prices'of farm products were
so low that the farmer's purchasing power was only about three-

fourths of what It had been in
1910-14 Only within the past

month or two has the purchasing
power approached the parity level.

This is the first time in two dec-

farmer's purchasing
power has reached parity.

"Inasmuch as the attainment of
parity has been the objective declared by Congress in our agricul-

tural legislation ever since 1933
the realization of this objective. it
seems to me, ought to be cause
for general satisfaction."
Price control alone, Mr. Wickard

said, could not prevent inflation
Aside from increased taxation
controlled installment buying and
savings by individuals he said
that greater production was needed to curb inflation.

"We are expecting and working
for a total agricultural production
in 1942 that will be the greatest in

our history," he observed This
will be true despite reduced plantings of wheat and cotton, of which

we have large surpluses. The in
crease will come in meat and milk

and eggs, the foods we need most.'

UNREVISED COMMITTEE PRINT

241

PRICE-CONTROL - BILL
HEARINGS
BEFORE THE

COMMITTEE ON BANKING AND CURRENCY
HOUSE OF REPRESENTATIVES
SEVENTY-SEVENTH CONGRESS
FIRST SESSION
ON

H. R. 5479
A BILL TO FURTHER THE NATIONAL DEFENSE AND SECURITY
BY CHECKING SPECULATIVE AND EXCESSIVE PRICE
RISES PRICE DISLOCATIONS AND INFLATIONARY
TENDENCIES, AND FOR OTHER PURPOSES

PART 32
OCTOBER 21, 1941

Printed for the use of the Committee on Banking and Currency

UNITED STATES
61493

GOVERNMENT PRINTING OFFICE
WASHINGTON 1941

CONTENTS
COMMITTEE ON BANKING AND CURRENCY
Page

HENRY B. STEAGALL Alabama, Chairman
JESSE P WOLCOTT. Michigan
CHARLES L. GIFFORD Massactusetts

CLYDE WILLIAMS Missouri
BRENT SPENCE. Kentucky
THOMAS F. FORD California

FRED L. CRAWFORD Michigan
RALPH A. GAMBLE New York

PAUL BROWN. Georgia

ROBERT W. KEAN. New Jersey

WRIGHT PATMAN. Texas

JESSIE SUMNER Illinois
FREDERICK c. SMITH. Ohio

WILLIAM B. BARRY, New York
LEON BACKS Pennsylvania

JOHN c. KUNKEL, Pennsylvania
THOMAS ROLPH. California

ALBERT GORE, Tennessee

WILBUR D. MILLS, Arkansas

A.S. MIKE MONRONEY. Oklahoma
WALTER A. LYNCH. New York
HERMAN P. KOPPLEMANN Connecticut

CHARLES 8. DEWEY, Illinois

HALE BOGGS Louisiana

MERLIN HULL, Wisconsin
JAMES DOUGLAS BROWN, Clerk
11

1877

Statement of Hon. Claude Wickard, Secretarv of Agriculture
III

PRICE-CONTROL BILL

TUESDAY, OCTOBER 21, 1941
HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D. C.

The committee met at 10:30 a. m., Hon. Henry B. Steagall (chairman) presiding.

Members present were as follows: Messrs. Steagall. Williams,

Spence, Ford, Brown. Patman, Gore, Mills, Monroney, Koppleman,
Boggs, Wolcott, Gifford, Crawford, Kean, Miss Sumner, Messrs.
Rolph. Dewey, and Hull.
The CHAIRMAN. The committee will come to order. We have with
us the Secretary of Agriculture, Mr. Wickard. Mr. Secretary, I am
sure the committee will be glad to hear you discuss this bill. If you
desire to submit a prepared statement, I am sure the committee will
be glad to hear you without interruption. You may proceed.
STATEMENTS OF HON. CLAUDE R. WICKARD, SECRETARY OF AGRI.

CULTURE: DR. KENNETH GALBRAITH, DIRECTOR OF PRICE
OPERATION. OFFICE OF PRICE ADMINISTRATION: AND DR. H. H.
TOLLEY, BUREAU OF AGRICULTURAL ECONOMICS, DEPARTMENT
OF AGRICULTURE

Secretary WICKARD. Mr. Chairman and members of the committee,
I agree thoroughly with the objectives of the pending bill.
Price control alone cannot, of course, prevent inflation. The Congress and the administration have already recognized this by steps
taken to dampen the tremendous increase in consumer purchasing
power, by increased taxation. by increased savings by individuals,

and by checking uncontrolled installment selling. But beyond all
these, important as they are, is the necessity for increased production. That is the surest preventive of inflation.
Farmers of the United States have a right to be proud of their record

of production. Total agricultural production in 1941 will probably
be 113 percent of the 1924-29 level, as compared with 105 percent of
that level in 1936-40. We are expecting and working for a total agricultural production in 1942 that will be the greatest in our history.
This will be true despite reduced plantings of wheat and cotton, of
which we have large surpluses. The increase will come in meat and
milk and eggs, the foods we most need.

I know from personal experience what inflation does to agriculture.

I was farming before the World War, during it, and after it. I saw

prices double in 3 or 4 years, and along with a lot of other
1877

PRICE-CONTROL BILL

PRICE-CONTROL BILL

1878

1379

farmers got quite excited about it. Then I saw the bottom drop
of prices, and that memory has stayed with me. Inflation feels out
while you are in the midst of it. It is the deflationary bump that fine

and early thirties these young men in too many cases lost all the
property they had and the labor from their most productive period

Like other farmers, I have watched with mingled pleasure and fear
these recent price increases for farm products. I think the pleasure
is understandable enough after 20 years of unfairly low farm prices.
Even greater than the pleasure, though, is the fear of what happens
when prices get too high. They are certainly not there now. But
speaking as a one farmer, I hope they never do get there. I want to
make that clear. I do not think they are too high now,
The thing about farm prices is that in a period like this they always go up earlier and faster than other prices. Farm costs, meanwhile. Ing behind. That was true the last time. It wasn't until early
in 1920 that some farm costs had caught up with or passed prices.

lasted. The country over, the value of an acre of plowed land went
from $58 in 1916 to $90 in 1920. In Iowa improved land that WHY
valued at $134 an acre in 1915 reached $255 by 1920. We all remember what happened since then. In the years after 1920, farm
land values not only dropped as much as they had risen during the
war: they dropped on the average 27 percent below the modest
pre-war values. Yet farmers had to pay debts and taxes, and interest, and other charges on the basis of land values nearly double the
pre-war level. Of course. you can't do that and stay in business,
In short, I can testify from my own experience of the past 30 years
that whenever farmers get a price rise, it is usually swift but brief;

of life.

The rise in land values was exciting and pleasurable while it

hurts.

And it was even later than 1920 before such other costs as taxes stopped
rising

whereas when a farmer's costs rise, they may not go up as swiftly, but
they get up, they stay there.

Then when that first deflationary bump came in 1920. farm prices
led the procession downward just as they had led it up, and again

as far as farm prices and costs are concerned. is too close for comfort.

Thus far, the parallel between World War I and World War II,

they went faster and farther. But this time farm costs never did

drop as far as prices. This downward spiral of farm prices,
furthermore, was not only weeks and months ahead, it was years

ahead of the decline in farm costs. In fact. some farm costs,
such as farm taxes, farm mortgage debt, and interest payments,
kept on increasing for several years after the 1921 break in prices.
Not until the depression of 1929 did some of these costs really

last war.

begin to drop. During the twenties farm taxes got as high as
two and a half times pre-war; city wage rates two and a quarter
times; freight rates and farm machinery charges two-thirds above
pre-war. When these costs did finally level off, they stayed significantly above the pre-war level.
The long deflation really got in its worst licks on land values,
tax deliquencies, foreclosures, and bank failures Between 1f23 and
1932 at least one farm in every five involuntarily changed hands, It
is true that between 1934 and 1926 the total farm mortgage debt was
reduced by some 3 000,000 00 but it was reduced largely through
foreclesures. The effects of this deflation in form prices and farm

them.

The recent increases in farm prices have been unusually rapid, but

I want to make it plain that in my opinion they are not yet out of

between 1921 and 1934 nearly 14.000 banks failed, and 80 percent

of these were country banks. I do not believe that the American
economy can stand a repetition of anything like that.
Net merely hundreds, not merely thousands, but hundreds of
thousands of hard-working American farmers between 1920 and 1933

of

inflation.

Perhaps, to my mind, the most unfortunate group of all was that in

of the young men who were released from the Army and Navy

1918 and 1919 and who started farming immediately after they what were

No farmer who remembers the bitter experiences of the last post-war
period wants to see this kind of inflation again. He knows that prices

pushed up by speculative influences or other distortions cannot be
sustained. No farmer wants another 1921, nor 1932. I don't believe
that major economic depressions are inevitable, but I am sure that
the only way to prevent them is to prevent the inflation which breeds

land values did not stop with the farm. You will recall that

lost their land and their homes. A farmer who lost his farm as a
result of deflation doesn't need iny sermons on the dangers

I am sure that this committee has already studied charts of price
behavior during the two wars and has noticed that priced during
1914-16 and again during 1939-41 seemed to be following an almost
identical course. These price charts, together with other things we
see happening daily, make it appear that we may be starting on the
same ruinous inflation we set out upon at about the same time in the

ushered out of service. Many of them put their savings and and
money they could borrow in the purchase of farm equipment
sometimes farm lands, at the inflated price levels existing during
1918-1919. During the deflation which took place in the twenties

line, for the simple reason that these are increases from levels which
were abnormally low. In 1939, before the war broke out, prices of
farm products were so low that the farmer's purchasing power was
only about three-fourths of what it had been in 1910-14. Only within
the past month or two has the purchasing power approached the parity
level. This is the first time in two decades that the farmer's purchasing power has reached parity. Inasmuch as the attainment of parity
has been the objective declared by Congress in our agricultural legislation ever since 1933, the realization of this objective, it seems to me,
ought to be cause for general satisfaction.
One of the merits of the pending bill is its acceptance of the parity

principle. I assume that the bill uses the parity principle for farm
prices because it is fair to both farmers and consumers It asks no
more of consumers than that they should pay prices sufficient to keep

farmers producing under conditions which will permit a decent
standard of living. Fair-minded consumers will admit that farmproduct prices have been bargain prices during most of the last 20
years. While the price increases have been relatively sharp in some

1880

PRICE-CONTROL BILL

PRICE-CONTROL BILL

language also uses the term "market price equivalent." Since
vised parity price is a farm or local market price, it is necessary, for

commodities, as recently as September food was still the cheapest
component of the cost of living, standing at 84.4 percent of the 1924-29
average as compared with 86.5 percent for all living costs combined

a of administration, to determine at regular and frequent

As I understand the purpose of the pending bill. it is to

purposes intervals the market-price equivalent of parity at the major terminal

markets for any commodity. It is also necessary, as the new lansuggests, to take into account. in the administration of this

off the inflationary spiral before it really gets started. The adminis- cut

trative effort will necessarily be to maintain a fair relationship

section, guage necessary adjustments for differences in the grade of a com-

among prices, and a practical margin between prices and costs, If
producer's prices are fixed at a given level, obviously his costs
cannot be permitted to rise so high as to wipe out his net income.
One advantage of the parity formula is that it reflects changes in
the costs of production. The prices of industrial goods bought by
farmers include the wages paid by industry, and a change in wage
rates sufficient to change the price of the item will change the index
of prices paid by farmers.
Section 3 of the bill provides that no price ceiling shall be estab-

modity, location, and for seasonal factors.
That concludes my statement, Mr. Chairman.
The CHAIRMAN. Mr. Secretary, do you think that the mere writing
the bill whatever figure might be agreed upon by the committee
into
the parity basis, would be of itself a sufficient protection incoras porated into the bill to insure the object we have in mind? What I
have in mind is this: Is the mere provision of a ceiling at parity. or
at parity plus 10 percent, a sufficient protection to hold the benefits
of the parity legislation passed by Congress
Secretary WICKARD Well, there must be a lot of other things.
The CHAIRMAN. What I had in mind was this: I did not mean to

a

lished on any agricultural commodity below 110 percent of the
parity price or comparable price for such commodity, or the market
price prevailing for such commodity on July 29. 1941. There has
been a good deal of discussion of this 110 percent figure.
Farmers have been accused of greediness; of not being content

that whoever might be in charge of the administration of this

say law would not respect and carry out the purposes that Congress had

indicated by the provisions now in the law, but since all legislation
rests, more or less, upon a mistrust, in any event legislation should
carry the necessary provisions and language to insure its fulfillment,
and. in view of that, should not there be in the bill some provision
that would prevent the possibility of the nullification of the purposes
of the bill by a ceiling that might be based on the finished goods or
the processed article made from agricultural commodities?
Secretary WICKARD. I have in the revised language that I have
suggested tried to cover that. I suggest there that there ought to be
an established price for agricultural commodities which would bear
the relationship to the commodities that 110 percent of parity would
bear to the raw material, such as cotton. If you established a ceiling
on cotton goods which would not permit paying the parity price,
or 110 percent of the parity price of cotton, of course that would
nullify the parity price objective, as I see it. I do not know whether
that is what you refer to, or not, but I think there should be some
way of securing a price basis for processed agricultural commodities

with parity. Let me say here and now that accusations of that
sort are, in my opinion, unjustified and unfair. The farm priceceiling provision of this bill is certainly no basis for such a conclusion
There is a perfectly practical and obvious reason for stipulating

that no ceiling should be imposed on farm products at less than
110 percent of parity, rather than exactly at parity. As every farmer
knows, farm products prices fluctuate every day. The supply of a
commodity coming on the market changes from day to dav. and
the demand changes from day to day. Prices fluctuate accordingly.
Price fluctuations may be desirable to stop the flooding of markets
at certain periods. As a rule, daily price fluctuations are relatively
small, but they ought to be allowed for, in order to keep to a minimum the amount of administrative supervision necessary. If ceilings were placed exactly at parity, the daily fluctuations in the market
would necessarily all be between parity and some lower figure, and

as a result. farmers could not possibly average parity. The real
purpose of restricting ceilings to a point somewhat above parity
is to make it reasonably sure that all farmers will have an opportunity to get parity. After all, it happens to be the expressed
policy of Congress and the administration to achieve and maintain
farm prices at parity.
In order that the intent of section 3 shall be clear. and in order
that the instructions for administration of the section may be as

that would be in line with the objective stated in the bill.

The CHAIRMAN. Would this be true-and I am not speaking of

cotton alone, but of other commodities-that it would not be necessary

to fix a ceiling at parity to beat down the price of the commodity
below parity, or could that be done by discriminatory ceilings places
upon the processed goods?

Secretary WICKARD I think, of course, that you could nullify it in

specific as feasible, I should like to suggest to the committee certain
clarifying changes in the language, as follows:
SEC. 3. (a) So as not to prevent the season's average prices for any agricultural commodity from averaging 100 per centum of parity. no ceiling shall
established for any agricultural commodity below (1) the market price equivalent to 110 per centum of the parity price or comparable price for such com
mod't adjusted for grade, location. and seasonal differentials as determined
and published by the Secretary of Agriculture: or (2) the market price prevail'ng for such commodity on July 29, 1941.

These changes in language are designed to leave no doubt of the

intention of Congress to obtain parity for farm products. The re-

1881

that way.
be

The CHAIRMAN. So that, if we want to make sure that the parity provision in this bill is carried out, we will have to put some provision in
the bill that will insure it
Secretary WICKARD Yes, sir; and I tried to suggest something that
would do that.

The CHAIRMAN. I was listening with great interest to your statement. but I was not quite sure about it.

61493-pt.82-2

1882

PRICE-CONTROL BILL

Secretary WICKARD. That is what I had in mind. I was trying to

accomplish that.

The CHAIRMAN. I was not quite sure whether the language you
suggested would quite reach the situation.

Secretary WICKARD. I agree with you on the objective, and it

should be carried in the law.
The CHAIRMAN. That is what you had in mind in submitting the
suggested language?
Secretary WICKARD. Yes, sir.

The CHAIRMAN. I did not want to find fault with the language
you suggested, because I have not had an opportunity to study it
from the technical standpoint.
Mr. GIFFORD. Mr. Secretary, you are familiar with what has been

done in the matter of cotton goods during the last day or two, are

you not
Secretary WICKARD. I did not know any new rules were put out
I know that some were put out sometime ago.
Mr. GIFFORD. Who authorized the putting of a ceiling on cotton

goods prices, such as has been put on in the last day or two! Do

you know how that affects spot cotton prices?
Secretary WICKARD. I am not familiar with what has happened
in the last day or two. I did not know there were some new ceilings,
Mr. GIFFORD. This committee should be made more familiar with

it. I would like to tell you what happened yesterday. Cotton went
down. There has been no cotton goods sold, and they could not buy
them for several weeks until the ceiling was determined. On yesterday, of course, the order went out that the ceiling could be raised or
brought down. The order was that it would be raised up or brought

down according to the price of raw cotton. Did you know about
that
Secretary WICKARD. No, sir; I did not know that.
Mr. GIFFORD. So that people today are buying cotton for half a
cent a pound, or buying cotton goods for a half cent a pound less

than they had to pay yesterday. Tomorrow if the price of cotton
changes a little, the ceiling will change. Now, I do not see where
you put any ceiling whatever on spot cotton or raw cotton in that

respect, if that has to prevail in every operation, such as Mr.

Henderson indicated the other day. I know of one buyer of cotton
who could not buy. Up to yesterday they said they would not sell.

They said, "We will sell it to you tomorrow, and you can take it
or leave it." Now, that cotton cost this buyer $50,000 yesterday,
because he had to pay $50,000 more for cotton yesterday. He had

to pay that much more than he could have bought for today. If
he could have bought it today, he could have saved $50,000. He
has to go along with that situation, because there is no ceiling
on the product in the end. Mr. Henderson, or any administrator,
would take the article from the starting point, and I do not see
any limitation there on your price of spot cotton. I want to ask

you about parity: You have talked about parity, and I want to

know whether that parity has any relation to any other products,
as in the case of cotton, or is that parity on the basis of a fixed
parity period

PRICE CONTROL BILL

1883

Secretary WICKARD. We are adjusting the prices about once each
month Mr. GIFFORD. It is based on a certain definite period
Secretary WICKARD. It is based on the 1910-14 period.
Mr. GIFFORD. If it is based on a certain period, it would bear no rela-

tionship to the prices of other products. Of course, prices are changing constantly.

Secretary WICKARD. That is done each month. There is issued each
month what we call the price index which shows the prices of products,
and the relationship between farm prices now as compared with the
farm prices in the 1910-14 period.
Mr. GIFFORD. You have worked it out on the basis of the 1910-14
period

Secretary WICKARD. That is the starting place.

Mr. GIFFORD. That is all the authority you have so far as parity

goes under this bill?

Secretary WICKARD. We establish parity prices monthly.
Mr. GIFFORD. But based on that period

Secretary WICKARD. Yes, sir.

Mr. GIFFORD. There are many elements of cost. There are other
things to consider, including the wages you pay.
Secretary WICKARD. The parity index gives that.
Mr. GIFFORD. The parity covers all that!
Secretary WICKARD. Yes, sir.

Mr. GIFFORD. I do not see how you can control the spiral in that

WAV.

Secretary WICKARD. That is what parity means-maintaining a
proper relationship between farm costs and farm prices.
Mr. GIFFORD. You say you did not know of what was done in the
last few days
Secretary WICKARD. No, sir.

Mr. GIFFORD. Do you have any comment to make on that

Secretary WICKARD. I cannot tell you, because I am not familiar

with what was done.

Mr. GIFFORD. You cannot tell us about that

Secretary WICKARD. I cannot tell you about something I am not

familiar with.

Mr. GIFFORD. I was in very much the attitude of the newspapers
when they say that we have no courage, and are playinug politics with

this bill. I resent that, because we are not doing that. I resent very
much this atitude on the part of some people who are telling us what
we ought to do, when they are advocating their own interests. Certainly we have all of the industries to look after. Labor has been
represented before this committee, and they have contended that the
labor costs are so low that they do not affect price. Then the farmers
come in, and I want it made perfectly plain to my mind what they
mean by parity. Does parity mean that the price may go up every
day, on the basis of the farm products taken in relation to other things?
Now, you have this cotton business before you, but you do not want to
express an opinion on what was done in the last few days with reference to cotton

Secretary WICKARD. No, sir; I do not know anything about that.

1884

PRICE-CONTROL BILL

PRICE-CONTROL BILLS

Mr. GIFFORD. Is cotton of no particular interest to the Secretary of
Agriculture
Secretary WICKARD. Cotton prices are one of our chief interesta.
Mr. GIFFORD. You like to see cotton prices go up!
Secretary WICKARD. Yes, sir.

Mr. GIFFORD. I think that a great many people would be nervous
about that. If this committee acts, I for one want it understood that
I want to do something that will let every man in the Nation know
where he stands day by day. How will they know how to buy spot
cotton, or how will they be able to figure ahead? You say you have
no opinion about that
Secretary WICKARD. I am not quite clear as to what Mr. Henderson did or intends to do in the future.
Mr. GIFFORD. Suppose he did what I said he did, and that the price

of cotton goods will be fixed day by day, according as spot cotton
goes up or down
Secretary WICKARD. I do not see anything wrong about that.

Mr. GIFFORD. Do you approve that?
Secretary WICKARD. It seems to me that that has always happened,
because there has been a direct relationship between the price of the

raw material and the price of the finished cotton product.
Mr. GIFFORD. But do you appreciate the buyers' seat in the cotton
market, where the people in the cotton industry do not know what
will be the price of raw cotton? If you did not know what it would
be the next day, because of these ceilings, I think you would be a
very nervous individual if you occupied the buyer's seat.
Miss SUMNER. I do not understand just what Mr. Henderson did.
Did he attempt to control the price of cotton
Mr. GIFFORD He was trying to protect it.
Miss SUMNER. Exactly what did he do? Did he increase the
natural flactuation in the cotton market
Mr. GIFFORD. The cotton goods market dropped yesterday, and cot-

ton prices were going down. Because the buyer could not buy it to
day, they waited until they could buy it, and this man I referred to
paid $50,000 more than he would otherwise have paid. He wants to
know what about tomorrow. I am asking the Secretary about that,
and it appears that what they did is news to him, and he cannot
discuss it.

Mr. PATMAN It is not the same way with everything else!
Mr. GIFFORD. If so, I do not know what people can do about buying
futures contracts.

Mr. PATMAN. They cannot know what the future price will be.
Mr. ROLPIL. Why did not the fellow in that case sell yesterday

Mr. G'FFORD. He tried to sell.
Mr. ROLPH. It seems to me that was a question between the buyer
and the seller.

Mr. GIFFORD. The buyer will not sell today, and cotton goes off
tomorrow. You may be able to do business that way. and I do not
say it is wrong, but I want your opinion about that. Mr. Secretary.
Secretary WICKARD. I do not know about that. What I had in
mind was that it would be wise to nermit the natural market price
fluctuations in agricultural commodities.
Mr. GIFFORD. Have you been in the buver's seat?
Secretary WICKARD. I never sat in the buyer's seat.

1885

GIFFORD. You should sit in the buyer's seat before you discuss

Mr. before you tell us what to do. You have an inventory of
it, cotton or goods, and you are buying cotton. You buy cotton, and there

is aslump
in your inventory.
WICKARD.
It is all

at the risk of the buyer I never

Secretary of any insurance against that kind of thing.

knew The CHAILM N. I do not know whether I can help you, or not,

this question here, but from the short statement I read in the
on I do not understand that there would necessarily be a reissue

of press, price orders or ceilings every day, but if I understand what was

and I am not sure I do-there would be a scale of fluctuation
established so that as the price of the raw material advanced a
certain number of points, half a cent or three-quarters of a cent,
there would be an adjustment. I read it hastily, and I am not sure
that I understand it.
But it would be based on a scale which, when the fluctuation in the
market price of the raw material advances a certain amount, that the
price of the finished product shall be readjusted proportionately, but
that would not by any means result in a daily change of the price
ceiling.

Mr. GIFFORD. I think I should make this plain. The seller
keeps the buyer waiting for weeks, and the buyer needs
it for business purposes. The seller says, "I will sell you a million

yards of cotton this afternoon at 5 o'clock," but when the news came out
the buyer says he does not want it today, but he says, "We will buy it
tomorrow; there has been a statement put out in print, and we might

buy it cheaper tomorrow." The seller says, "We are not going to
sell you tomorrow. You wil take it today or not at all." And he
took it.

The CHAIRMAN. This might be said in this connection. There is
not any question about this. If we are going to accomplish the desired
relationship of parity in the price level, it is absolutely necessary that
there be frequency in the adjustments.

Take the case of cotton. That is one of the things I am a little

bit familiar with.

If you had only a 80-day period for readjustment of that relationship cotton might go up 5 cents a pound, or it might go down 5 cents
a pound during the 90 days, and you can see that if the relationship
is to be kept as contemplated by the proposal, it is absolutely necessary
or indispensable that there be frequent adjustment of prices.
Mr. GIFFORD. I am ashamed of myself, and I am scared. I know
something should be done. But I am worried and others are worried.
Secretary WICKARD. We have always had day-by-day fluctuations in
market prices.

Mr. GIFFORD. I am worried lest I approve something that I may not
want to approve, and I want to know what you think about it, whether
you approve of that.

Secretary WICKARD I think if you are going to maintain the prices
of finished products they ought to be maintained somewhat in relation
to the raw products.

Mr. GIFFORD. Something must be done, because once before they

would not sell anything for 3 weeks, waiting for the adjustment.

You could not buy cotton on the market for 3 weeks, waiting for that
adjustment. The sellers would not sell and the buyers could not buy.

1885

PRICE-CONTROL BILL

PRICE-CONTROL BILL

TheisCHAIRMAN.
I amorder
sure now
the committee
would like to understand
what
involved in the
under discussion.

Dr. Galbraith is here. He is associated with Mr. Henderson in
the stabilization organization, and I am sure he can tell us what
done in reference to this matter we have been discussing. I was
sure the committee would like to have you do that, Dr. Galbraith am
Dr. GALBRAITH. Mr. Chairman, I think, if I may say so, that there
is a misunderstanding that needs to be cleared up.
The original ceilings placed on cotton goods and yarns and sub-

sequently on cotton gray goods and a fixed price. We took the

price of cotton as it stood at that time and allowed for a little
leeway,
a little movement in the price of cotton before establishing
the
fixed price.
The result was cotton fluctuated; when it moved up it pinched the
mills,
and when it moved down the margin was larger than it should
have been.
When it moved up the mills approached us to change the ceiling,
to raise it, to give them a more adequate margin. That was something that, for reasons of fairness, had to be discussed and examined,

and it took time and trading was at a standstill while that was

going on.

Mr. GIFFORD. How long was it at a standstill?
Dr. GALBRAITH. It was known in Worth Street that discussions
were going on in Washington.
Mr. GIFFCRD. About how long
Dr. GALBRAITH. There was one period of 2 or 3 weeks.
Mr. GIFFORD. I wrote Mr. Henderson a letter approving that, and

congratulating him for doing it.
Will you tell us why that did not succeed

Dr. GALBRAITH. As early as 3 months ago the buyers of cotton
approached us and asked us to consider this arrangement which
was put into effect on Saturday, to give them an automatic adjustment upward or downward as the cotton fluctuated or moved, so
there would not be these delays in trading while adjustments were
under consideration.
Mr. GIFFORD. Was I correct in what I said about this last 3 weeks!
Dr. GAI BRAITH. The last 3 weeks have been slow weeks in Worth
Street, but that does not mean that production has been handicapped.

There is a distinction between production and sales. The mills are
sold out for months ahead, and the sales that are taking place on

Worth Street at the present time are for deliveries next spring.
So the mills are going in production at full blast today.
Mr. GIFFORD. Do you mean to say that with the Government ordering millions of sand bags. and wanting them quickly, that production
was not delayed on those?
Dr. GALBRAITH. No, production was not delayed.
Mr. GIFFORD. I mean on the sand bags.

Dr. GALERAITH. I do not know about the particular case of sand
bags. I assume we are making a great many of them out of burlap.
Mr. GIFFORD. Why were they so terribly anxious to buy yester-

day?

Dr. GALBRAITH. I will come to that in a minute.

I do not think I am letting out any secrets when I say that the
office was originally reluctant to accept this automatic adjustment

1887

it looked like an escalator clause, and we have been rather
because unhappy about escalator clauses, because there is no firm basis for

the pricing, and there is a tendency for a soft sort of price which
is rather easy to slip up.

But after lengthy discussions with the trade, discussions that ran
a period of several weeks, we worked out the formula that was
over announced on Saturday for doing what we had always promised

the trade we would do, adjust prices when the basic situation
changed. So, what we did on Saturday was to make that adjustment automatic and prompt, rather than something that had to be
talked over at length in the office.
Mr. GIFFORD. You think it would be an advantage to make that
over a certain period rather than day by day!
Dr. GALBRAITH. It is not expected, and it will not come about, that
those prices will change every day. There will be weeks when the
price of cotton will not change, that is, the price of gray goods, and
finished and semifinished products will not change. The base price,
let us say, is 15.99. and the price of print cloth will stay at 421/2 or 43
cents a pound until that price of cotton moves up a whole 50 points,
or 50 cents, and then the price of gray goods will move up. That is, if
the price of cotton moves up another 50 cents, then there will be another readjustment.

Mr. GIFFORD. Will you tell the committee what you would say or
do if there was a demand for increase in wages Was that matter

brought into your considerations?
Dr. GALPRAITH. That question does not come in here. We are not
faced with the problem of constant, or relatively frequent upward or
downward adjustments in wages or costs.
Mr. GIFFORD. This is wholly in relation to the supply of cotton?
Dr. GALPRAITH It is on the average price of the 10 spot markets.

If I may explain, let me say this: Tonight, at the close of the spot
markets, the Agricultural Marketing Service takes the closing price
on the 10 spot markets. That price will establish the price on gray
goods for tomorrow's trading. If it has moved half a cent in this
scale-I will be glad to give you copies of the whole plan-if it moves
half a cent upward or downward, then the finished goods will increase
or drop half a cent.

Coming to the volume of trading yesterday, there was something
that happened yesterday, one of the things we recognized would happen. The 10 spot markets closed yesterday below the trip point, below
15.99, closing at 15.81. That meant that on today's trading the price
on print cloth, sheetings, and so forth, would drop.
The buyers and millmen are shrewd businessmen, and recognizing
that they got as many sales under the wire yesterday as they could,

we expect that today's selling will be considerably lighter, and if
cotton drops again today, if it should happen to drop below the next
trip point, I would not be surprised if, late this afternoon, there would
be another volume of trading.
Mr. GIFFORD. Late yesterday afternoon, for instance, the seller would
make a telephone call to the buyer and say, "Will you take this or
not The buyer says he will wait until tomorrow, but the seller says
he will not sell it tomorrow, so the buyer takes it and pays.

PRICE-CONTROL BILL
1888

1889

PRICE-CONTROL BILL

Dr. GALPRAITH. I do not think that is a particularly serious situa.

tion, do you?

Mr. FFORD. I am glad you think it is not. It worried me.
Dr. GALBRAITH. This was worked out with the buyers of cotton. It
was something that had been considered for months.
Mr. GIFFORD. That is as to the large buyers; how about the small

WILLIAMS. Do you think that those individual prices are too
Mr. where they have gone up, as you say, to approximately 150
high. of parity, for instance?
percent WICKARD. Well, there always has been some question, I
Secretary about beef and wool prices. There has been some debate as

think. they are out of line with the so-called basic commodities
to whether sometimes think there might be some readjustment of those pari-

I Wool seems to be one that perhaps might be nearest out of line,

buyers!

gone over the thing with all of them, with the larger converters, the
large retail houses-all of them.
They are not worried about it.
Mr. GIFFORD. I suppose they all approved of it, but I am afraid
of it. Is this illustrative of other things as to which they would have
done likewise?

Dr. GALBRANTH No. I would like to emphasize for the record
what I said. that we came to this after a great deal of hesitation. and
in the press announcement accompanying the order for the selling.
and in the previous press announcement of several weeks ago an-

nouncing that we were going to do it-about a month ago-we announced that this was going to be worked out. and we stated that
this was a specific measure to meet a specific situation. and we did
not expect and did not propose that it should become a precedent

for any other action we were taking. It was designed to meet a
situation where there is an industry that has an important raw
material enst. and I might say that in all of the important raw material costs, that is still subject to some degree of market fluctuation,
Mr. GIFFORD. Let me ask you this question, which I think is an

important point today. You said, as I understood you, that there
could be a low market because the prices have gone down. and the
buyer will have trouble in getting the product, and perhaps they have

ties. as far as parity is concerned.

Mr. WILLIAMS. At least under this bill the Administrator would
jurisdiction to reduce the price

have Secretary WICKARD. He would have authority, as now stated:
that is right.

Mr. WILLIAMS. I understand you are in favor of this bill.

Secretary WICKARD. Yes, sir.

Mr. WILLIAMS. You are in favor of the selective method of price
fixing rather than an over-all ceiling?
Secretary WICKARD Yes: I think I would say that I was, perhaps,
if for no other reason than that I think that the over-all type would
be very difficult of administration.

It seems to me if I were given this job of administering the bill
would want to go slowly and try to administer it only on those
commodities which I thought were basic rather than to go into

I

Dr. GALBRAITH We worked that out with both of them, and We have

commodity, because of the administrative difficulties that might
every be involved. Experience might tell us later about the desirability

of each one of the approaches. But I prefer the selective type to
start with.

Mr. WILLIAMS. This bill. as I understand it. would give the economic
forces of supply and demand some play in determining prices.
Secretary WICKARD. It would on farm prices, that is right.
Mr. WILLIAMS And any other prices.
Secretary WICKARD. That is right. These are only ceilings.

on a low market.

Mr. WILLIAMS. You mentioned something about a market price
equivalent. I am not sure that I understand that expression. Will

Dr. GALBRAITH. But they will sell for March. April, May. and even
June delivery next vear. These are not spot sales of textiles.

you explain that?

to wait weeks until the cotton price changes. So they will not sell

Mr. WILLIAMS. Mr. Secretary, there are a number of individual farm
commodities now. as I understand it, considerably above parity.
Secretary WICKARD. I do not know what they are.

Mr. WILLIAMS. We had a record of them. I think, introduced by
one of the previous witnesses, For instance, as I recall. wool is one

of them.
Secretary WICKARD. And beef.

Mr. WILLIAMS. And cottonseed oil.
Sceretary WICKARD Cottonseed oil: yes.
Mr. WILLIAMS. And cottonseed oil. as I recall. I do not recall the

individual commodities, but there were quite a number of them,
and some of them. as I remember, were something like 50 percent
above parity.
Dr. TOLLEY. Very few as high as 50 percent.
Secretary W CKARD. I believe cottonseed is about 25 percent.

Mr. WILLIAMS. What is wool, approximately 150?

Secretary WICKARD 145.

Secretary WICKARD. What I am advocating there is that there not
be a market price equivalent on finished goods which would prevent
the raw-material price from reaching a desired parity level.
Mr. WILLIAMS. As I understand it, you mean by that that the Administrator should not fix a price on the processed articleSecretary WICKARD. That is right.
Mr. WILLIAMS Which would prevent raw material from reaching
parity.

Secretary WICKARD. That is right: that is what I mean.
Mr. WILLIAMS What is your opinion about including some kind
of wage scale in this legislation?
Secretary WICKARD. The provision for the parity principle takes
care of the farm prices very well because, as I explained a while ago.
the farm price that we take into consideration goes to the things the
farmers have to buy and includes the cost of wages, so it seems to me
when we think about that. as far as the relationship is concerned. the
parity principle comes into play and takes care of that situation.
61403-pt.32-

1890

PRICE-CONTROL BILL

You
ceiling.

are asking, I suspect, whether I should be in favor of a wage
Mr. WILLIAMS. Of a wage-fixing principle in this bill.
Secretary WICKARD. I do not think I would advocate that in
bill. I think there are at the present time certain acts of Congress this
and administrative bodies which accomplish the purpose of
wages and fair prices, and I think they do it as they meet fixing
situation, difficulty if and we fixed I suspect all wages we for might all industries. get into a tremendous lot each of

I think we might again find that it would be difficult for us
supply the labor needs in this one particular industry or some other to
industry. I do not think at the present time there is need for putting
on an absolute wage ceiling, although, of course, subsequent conditions may make it necessary for Congress to examine that matter at
a later time. At the present time it seems to me that the Mediation
Board as well as the National Labor Relations Board have authority
and have been effective in working out average wage prices.
Mr. WILLIAMS You have not any suggestion to this committee with
reference to any kind of a wage policy to be placed in this bill-or h

you! If you have, we would like to have it.

Secretary WICKARD. No: I do not think I would have any suggestion
to place on this bill at the present time.
Mr. WILLIAMS. You feel like our present legislation concerning labor
difficulties or the settlement of labor disputes is sufficient to meet the
present sufficient
Secretary WICKARD. It does as well as any method we could try.

I do not think the establishment of wage ceilings by law or any administrative body will necessarily prevent strikes because, after all,
it is one thing to name a wage and another thing to get men to work
at it.

Mr. WILLIAMS. In the establishment of the parity relation, the prices
which a farmer receives for his commodities necessarily include the
wage element?

Secretary WICKARD. The wages paid for the articles he purchases, or

in producing those articles; that is right.
Mr. WILLIAMS. And in the articles he sells, the price he receives for
his commodity necessarily includes that element of cost, too, does it

not

Secretary WICKARD Yes: but in the farm-labor cost we do not take
into consideration in fixing parity prices which the farmer pays for
labor on his own farm.
Mr. WILLIAMS. Do you mean you deduct that from the price he
receives?

Secretary WICKARD. It is not taken into consideration. Congress
did not include that as one of the things to be taken into consid-

eration.

Mr. WILLIAMS. Here is an industrial product, such as steel, or anything else that is manufactured The producer sells it to the farmer
in the shape of a plow or a harrow.
Secretary WICKARD The labor cost is included in that price.
Mr. WILLIAMS. The labor it costs to produce that is in the price!
Secretary WICKARD. That is right.

PRICE-CONTROL BILL

1891

WILLIAMS. By the same token, is not the labor cost which it
Mr. to produce a farm commodity in the price which a farmer
takes receives for his wheat and cotton

Secretary WICKARD. When it is included in the cost of the thing

be buys, that is right.

Maybe I should not have mentioned it, but if you hire a man by
month on your farm, the farm-labor scale throughout the counthe is not included in the establishment of parity, but all the prices
try the farmers pay are included in establishing a parity-price relation-

ship, and the prices he pays are governed by the labor cost of the
manufacturer or producer of the things he buys. That is what I
am trying to make clear.

Mr. WILLIAMS. Then parity is a question of price; is it not
Secretary WICKARD. Yes.

Mr. WILLIAMS. It is a parity price; it is not a parity price of

production.

Secretary WICKARD. It is the relationship between what the farmer
sells and what he buys.

Mr. WILLIAMS It is a relationship of prices.
Secretary WICKARD. That is right.

Mr. WILLIAMS. I cannot conceive of a price the farmer receives
for a commodity which will not include the labor element as a part
of the cost of production. I do not see how it can be otherwise.
Dr. TOLLEY. You are thinking of the price of labor, the cost of
the labor that it takes at the elevator for the wheat, or the cost
involved in plowing the land for the wheat. and your question is if
that is reflected back in the farmer's price of the wheat. That is
certainly correct in figuring the cost of producing the wheat.
Mr. WILLIAMS. I am talking about the labor that is used on the
farm in producing the bushel of wheat, bale of cotton, and so on.
It makes no difference, it seems to me, whether the farmer pays a
uan a dollar a day or whether he does the work himself, the element of the labor cost is in the price which he receives for the commodity when he sells the commodity. Is that not right
Dr. TOLLEY. That is correct. The point that the Secretary made
is that in computing parity price the index of the price, that is, the
farmer's share, for what he buys, plus interest and taxes, on September 15. stood at 139 over what it was in 1910-14. But wages of
farm labor are not included, because Congress has legislated that
it not be included.

Mr. WILLIAMS. Why should it be?
Dr. TOLLEY. Why should it be!
Mr. WILLIAMS Or why should it not be?

Dr. TOLLEY. Why should it not be! Of course. definitely, it is
one of the elements of a farmer's cost; I agree with you; but it is
not included because the Congress has legislated that it shall not

be included.

Mr. WILLIAMS. His interest and taxes, as a matter of fact, were
included twice.

Dr. TOLLEY. I do not get that.
Mr. WILLIAMS. Simply because Congress said the farmer would
be given credit for the change in the interest rate and the tax rate.
Dr. TOLLEY. Yes: but that was only included once.

PRICE-CONTROL BILL

Mr. WILLIAMS.
They
are included when he pays the tax and the
interest
as an element
of cost.
Secretary WICKARD. That is right.

PRICE-CONTROL BILL

Mr. TOLLEY.
WILLIAMS.
it is reflected
the price which he receives.
Dr.
It And
is reflected;
that isinright.

1893

Mr. WILLIAMS. Exactly.

Mr. WILLIAMS. Then, what is the difference: what is the difference
between that and the interest and taxes which the industrialist
Dr. TOLLEY. All right: the interest and taxes are reflected in pays! the
price; they are reflected in the parity-price index.

TOLLEY. And parity price would be the base price times 133,
which Dr. would be somewhat lower than the parity price as computed
according to the formula provided by Congress.
Mr. WILLIAMS. In other words, computing it with interest and taxes

WILLIAMS.
the
interest
and taxes which the farmer pays
areMr.
reflected
in theAnd
price
which
he receives.
Dr. TOLLEY. In his parity price; that is right.

in there-

Dr. TOLLEY (interposing). Increases the parity price.
Mr. WILLIAMS. Increase parity price.
Dr. TOLLEY. Increases parity some 4 or 5 points.
Mr. FORD. Why would it not 1

Mr. WILLIAMS. Then I come back to the proposition that the
farmer is permitted to include his taxes and interest twice. while
the producer, the industrialist, is not.
Dr. TOLLEY. No: I do not see that: I am sorry.

Mr. WILLIAMS. Why should it not Now, I come back to the
original proposition which I made, and that is that it is included

Mr. WILLIAMS. Let us suppose now we did not have this interest
and tax provision in the law.

in the price.

Dr. TOLLEY. In the parity price.

Dr. TOLLEY. Yes.

Mr. WILLIAMS. Yes.

Mr. WILLIAMS. What would be the parity relationship now? It

justments?

Mr. WILLIAMS That is in the parity statute itself.
Mr. PATMAN. Could you put that statute in the record!
Mr. WILLIAMS. That is in the 1939 statute.
Dr. TOLLEY. With permission to correct the record if this figure is
wrong: On September 15 the farmer's parity prices were 101 percent
of parity, computing interest and taxes as provided in the act: if you
compute it every way parity would have been about 105 percent.
Mr. WILLIAMS. The relationship, as I remember the figures which

you yourself gave us, is that the industrial price level was 133, and for
agricultural commodities it was 139, on September 15.
Dr. TOLLEY. 137 rather than 139.
Mr. WILLIAMS. That included taxes and interest.
Dr. TOLLEY. Yes,

Mr. WILLIAMS. Which the farmer got in order to raise the price.
commodity price, to 137. and if there was no such provision, the

commodity level would be 133.
Dr. TOLLEY. I think you and I are perhaps at a little cross purpose.

Dr. TOLLEY. Not necessarily in the price that the farmer gets for
bushel of wheat or for his hogs when he gets to town and actually
sells the commodity.

Mr. WILLIAMS. Why is not that included?
Dr. TOLLEY. Because there are some fluctuations entering into the
price.

Mr. WILLIAMS. But every element of cost in the production of farm
commodities is reflected in the price which the farmer receives, is it
not!

Secretary WICKARD. I wish it were, as a farmer. but as a technical
matter it is not.

Mr. WILLIAMS. Why is it not? I cannot see any reason why you
can say it is not, and I am not saying anything about whether it is
just compensation or whether the price is as much as it ought to be
or not: that is not the question, but the fact is that it is a fact, is
it not? I cannot see it otherwise.
Secretary WICKARD. Well, I do not know how it could be done. I
remember in 1932 as a farmer I had to sell some of the farm to pay
taxes.

Mr. WILLIAMS. Well, I am not discussing or talking about the
equity, or whether enough is received: whether the farmer's labor
is paid enough. or whether he has sufficient income to represent
fair return on his investment; I am talking about the fact that the
price which the farmer receives for his commodity includes in it all
of the elements of cost.

Secretary WICKARD. I do not know whether you can go that far.
Mr. WILLIAMS. But they are included. Suppose the industrialist

I am wondering whether you are talking about parity price or the

operates at a loss what would you say about it then?
Secretary WICKARD. Well, he would shut down.

Mr. WILLIAMS. I am talking about parity price.
Dr. TOLLEY. Well, let me try again, if you will.
Farm prices, prices paid by farmers, figuring interest and taxes, ou
September 15. were 137. and in order to get parity you multiply the
base price 1910-14 by 137. If interest and taxes were not included.

Mr. WILLIAMS. But the same thing is true in arriving at the cost.
Secretary WICKARD. The farmer does not shut down: he goes on
working: that is the reason. perhaps, why it is not reflected.
Mr. WILLIAMS. Even at a loss,

that 137 figure would be 133.

Mr. WILLIAMS. Well, that might be true of the industrialist.
Secretary WICKARD. I think you understand mv point. however.
Mr. WILLIAMS. But what I am interested in is that the cost is in the
price. whether a sufficient amount is received to pay for the operating
cost or not. You might have one businesslike farmer. for example,

prevailing price.

Secretary WICKARD. Yes.

1

Mr. WILLIAMS. What would it be if there was no consideration
given to the fact that Congress wrote into the law a permission to
adjust the interest and taxes in favor of the farmer?
Dr. TOLLEY. I think I can figure that out.
Mr. PATMAN. What law are you talking about permitting ad.

a

would be 133 to 139?
Dr. TOLLEY. The relationship on September 15-the price average
was 139-133 to 139: yes.

a

1892

1894

PRICE-CONTROL BILL

whose tax is so much, his interest is so much and his labor is so
or you may have a manufacturer who has so much for interest, much

and labor, and so much for his raw material who may not taxes,
enough income to cover all the costs, and who may be running at receive loss

But am not talking about that question; I am discussing the a

of whether or not the farmer, in the price he receives, has to consider question

all of those elements of cost. In other words, why single out interest
and taxes? They are only one element in the cost,
Mr. FCRD. They put in fertilizer.

Mr. WILLIAMS. Why talk about fertilizer; why put that in!

Mr. PATMAN. Could I ask you a question, Mr. Williams?
Mr. WILLIAMS. Yes.
Mr. PATMAN. Suppose it costs the farmer as much in farm labor
he receives for the commodity he produces; would you then say that as
all these elements have been added in
Mr. WILLIAMS. Just as much as in industry itself; because industry,
as say, may operate at a loss.
Mr. PATMAN. I know of cases where farmers have paid as much for
farm labor as they have received for cotton.
Mr. WILLIAMS. All right.
Mr. PATMAN. That being true, would you still say that all of the
other items of cost were included in that bale of cotton?
Mr. WILLIAMS. Yes: proportionately, just exactly the same as in

industry. Industry may pay out in wages every dollar that it gets

for its product without considering at all the cost of the raw material.
That could happen as applied to industry just as much as if applied
to agriculture, but when it comes to the farmer is it not a fact that
those elements of cost are included in that price? Now, as I say, the
price may not equal the entire cost.
Secretary WICKARD. When you say proportionately I think probably that would be correct.
Mr. BROWN. But if you do not figure in the interest and taxes the
farmer could not figure in the cost for labor.
Secretary WICK/RD. That is right.

Mr. WILLIAMS. But it is all included in the price just the same.
And as I say, I am not discussing whether the compensation he receives is enough, adequate or not, but if there is any difference in principle between agriculture and industry I would like to have someone
enlighten me along that line.
Secretary WICKARD. You might consider this in the operation, that

whenever industry cannot meet what it has to pay out in the way of
paying salaries and costs of raw materials and wages and other costs
it closes down. Men are thrown out of work, where in the agricultural

field the farmer starts out at the beginning of the year and when he
plants his crop he does not know what he is going to get but he goes
ahead just the same because, as I pointed out before, he has no way to

close down.

Mr. WILLIAMS. But that does not explain the difference in principle-

Secretary WICKARD (interposing). I was just pointing out the difference in the manner of operation.
Mr. WILLIAMS. Can you explain the difference in the principle in-

volved here?

PRICE-CONTROL BILL
Secretary

1895

WICKARD. Well, I think that costs of what industry pro-

duces as well as what the farmer produces include interest and taxes;
that is right.

Mr. PATMAN. If the product sells for as much as it costs.
Secretary WICKARD. Congressman Williams' point was would he not
also have to include in the cost interest as well as industry
Mr. WILLIAMS. The thing that has been in my mind all of the time
is that there seems to have been a lot of talk about the difference in
principle involved and I cannot see it, and nobody has as yet explained
it to my satisfaction.
Now. the compensation, the income which industry receives, may
be larger than that of the farmer in some cases and in some cases it

not be. You may take a farmer who operates temporarily at a
loss and you may find the same thing is true in industry. Neither one
of them, of course, could continue to operate indefinitely at a loss.
On the other hand, industry or the farmer, farming activities or industrial activities, among the low-cost producers, run on with their
may

operations and make a profit; they have enough to pay their overhead,
their labor, and every other element of cost, raw material, and so on,
that go into the cost of producing and selling the article on which they

make a profit. That is true of industry or agriculture. Now, if

there is any difference as a business proposition in principle between
these operations, I would like for somebody to point that out.
Mr. SPENCE. If you took into consideration the element of labor,
would that add to the parity price?
Secretary WICKARD. You are talking about the farmer's labor?
Mr. SPENCE What he does himself.
Secretary WICKARD. I think the inclusion of that at the present

time would raise the parity price two or three points.
Mr. WILLIAMS Right on that same point: What difference does
make whether he owns his own farm and does his own work,
his own labor, perhaps because he cannot afford to do otherwise,
or whether he is a farmer who is able, by reason of other income,
perhaps, to pay for the labor to do the work: what difference
should that make in labor costs in the product be produces?
Secretary WICKARD. One should be considered as much as the
it

other.

Mr. WILLIAMS. Yes. Then why should you consider leaving the
one out

Secretary WICKARD. Well, the thing we were talking about was
figuring parity price and we did not include the average farm labor
costs in arriving at the relationship between parity price of farm
commodities and industrial prices.
Mr. SPENCE As a matter of policy do you not think it should be
included? Why should it be left out!
Secretary WICKARD. At the time that it was provided or put in by
Congress it resulted in a price which might lower the price index.

Mr. SPENCE. I would like to know how the inclusion of labor

costs on the farm would lower the parity price of the product.
Secretary WICKARD. It would raise it now.
Mr. SPENCE. How would it lower it under the other conditions!
Secretary WICKARD. In considering parity the labor cost at some

time is below the 1910-14 figure, and at other times it is above.
Now it happens to be above.

1896

PRICE-CONTROL BILL

Dr. TOLLEY. That is farm labor. We are talking about 165 percent of what it was in 1910-14, but when you go back to the 110
percent of what it was in 1910-14 you would have secured an index
which would result in lowering the parity price.
Secretary WICKARD. Using 110 as against 165.

Mr. WILLIAMS. If you applied the adjustment to industry what
effect would that have on parity price for industry! Your industrial
labor costs are involved just as much as they are on the farm. and
why should the adjustment be made only with regard to farm
costs?
Mr. SPENCE. You are talking about the relationship in one case and

price in the other!
Mr. WILLIAMS. I am talking about the relationship in both cases
Secretary WICKARD. Your suggestion is that suppose we had a par-

ity relationship for industry It might be a good thing; I do not

know.

Mr. WILLIAMS. There would be no objection to adjusting the labor
costs in industry to the 1910-14 base period cost

Secretary WICKARD. I did not say anything about that: I understood you to say something about why not include those things in

arriving at a fair price for industry. A parity price for industry

might be all right, and if you did that I suppose you would have to
include, if you arrive at a parity price for industry, you would have
to include wages as well as raw materials, salaries, and things of that
kind.

Mr. WILLIAMS There is not any question but what this provision
in the law, which permits the adjustment of taxes and interest, has
been in the interest of the farmer, is there
Secretary WICKARD That is right; it has been in the interest of the
farmer.

Mr. WILLIAMS. And if labor cost was also adjusted at least now, as
you say, it would be in his interest.
Secretary WICKARD. Yes.

Mr. WILLIAMS. But the thing that I am talking about is why not
make the same adjustment as to industry I

Secretary WICKARD I do not think you have a parity law for industry, have you?
Mr. WILLIAMS. It is reflected in the price which the farmer gets.
Secretary WICKARD. Yes,

Mr. WILLIAMS. In the relationship between the price for the agricultural and industrial products.
Secretary WICKARD. Yes: for agriculture.
Mr. WILLIAMS. In the relationship.
Secretary WICKARD. Yes.

Mr. WILLIAMS Having then figured that in one case I cannot see
why it should not be done in the other if you are going to maintain
parity as it existed in 1910-14.

Secretary WICKARD What you are saying is that you think you
ought to figure parity for industrial labor cost: is that what you are

saying!

Mr. WILLIAMS. If you are going to have it for agricultural labor,
why not apply the same principle to industrial labor; that is what

I am saying.

PRICE-CONTROL BILL

1897

WICKARD. I have not given that matter any thought; I do
Of
course, want about the

Secretary
there
going
not
the costknow.
of labor
that
is tolabor be would established. to know cost,
Mr. WILLIAMS. In that very case, as the law has it now, there is an
adjustment of taxes and interest in favor of the farmer; there is an
adjustment provided in the law.
Secretary WICKARD. That is right.
Mr. WILLIAMS. I mean with reference to the base period.
Secretary WICKARD. Yes; we have an index of the relationship of
present prices to costs for the base period.

Mr. WILLIAMS. And the relationship between the rate of interest

and taxes is figured in under the provisions of the law now.
Secretary WICKARD. That is right.
Mr. WILLIAMS. As applied to agriculture.
Secretary WICKARD. Yes.

Mr. WILLIAMS. Now, why not apply that principle to industry!
Secretary WICKARD. You mean in fixing industrial prices
Mr. WILLIAMS. In fixing prices, yes, or in determining the difference

in the rate of interest and taxes which industry pays as well as the
farmers. In other words, adjust the taxes and the interest which
industry pays to the base period just like you adjust the taxes and

interest which the farmer pays.
Secretary WICKARD. In what operation would you do that; where
would you propose that be done?
Mr. WILLIAMS. How do you apply it now, as applied to agriculture?

Secretary WICKARD. In figuring out the price index there is included the cost for wages in trying to establish parity price for agricultural commodities.

Mr. WILLIAMS. And my question was, Why not do the same thing
as to industry
Secretary WICKARD. For industry!
Mr. WILLIAMS. Yes.

Secretary WICKARD. I do not know; that might be done. It is a
new thought to me. But parity, to me, is a fair principle because it
tries to produce fairness for all parties that are concerned in establishing that price; for agriculture it is a fair principle just as well as it
is for industry.

Mr. WILLIAMS. The base period relationship you mean was the fair
one.

Secretary WICKARD. Yes.

Mr. FORD. Mr. Secretary, you talked about a price established on a
selective system.

Secretary WICKARD. Yes.

Mr. FORD. As I understand this bill, as it is drawn, if you were
to provide in the bill for a selective system, there is nothing in the
bill that would prevent the Administrator from extending the price
ceiling to any commodity that might get out of line. There is nothing in the bill that would prevent that.
Secretary WICKARD. I think that is correct, Congressman Ford.
Mr. FORD. Then undoubtedly this is an all-inclusive ceiling bill
if the Administrator desires to take that step.
Secretary WICKARD. I do not think it refers to wages, or rents, or
certain other items.

61493- 32-1

1898

PRICE-CONTROL BILL

PRICE-CONTROL BILL

1899

WICKARD. I believe that would go a long ways toward

Mr. FORD. But whenever you fix the price on a commodity, a ceil.
ing, you automatically fix the wages, because suppose the wage earn.
ers come in and want an increase in pay in the production of

checking Secretary inflation, the mere fact that the authority existed to fix a

commodity that has a ceiling price established for it, if you are going some

ceiling. FORD. In other words, act as a kind of traffic cop on the corner.

on the principle of including wages, and there is no margin between
what they are getting for the commodity and what it costs to produce it, why, then they would have to resist the effort to raise wages.
Secretary WICKARD I think that would be one effect of this bill.
Mr. FORD. Then in effect a ceiling on commodities is a ceiling on
wages.

Secretary WICKARD It would tend to have that effect.
Mr. FORD. An indirect way of doing it.
Secretary WICKARD. Yes.
Mr. FORD. Now, under this bill there are two philosophies: One for

those who want to fix a ceiling on everything, all inclusive; the other
who want a selective system, such that will give discretion to the Administrator as he goes along; but there is nothing to prevent him from
putting a ceiling on any commodity, outside of wages, that gets out
of line, is there?
Secretary WICKARD. No: I think not; I do not think there is any
restriction, as far as commodities are concerned.
Mr. FORD. Any commodity, like copper-of course, copper has been
preempted for defense-but assuming you had a good supply of the
amount that could be used for commercial purposes, or of some other
commodity that got out of line, then the Administrator can step in
and put a ceiling on the price of that commodity just the same, and
this bill does not limit the number of commodities on which he could
put a ceiling price. In other words, it is as broad as the number of
commodities, so the bill would accomplish, in my judgment, exactly
what an all-ceiling system would.
Secretary WICKARD. But I think it gives discretionMr. FORD (interposing). Yes: with less confusion in it.
Secretary WICKARD. It does; but there is not a mandate to establish prices on all commodities.
Mr. FORD. No: the Administrator has the discretion, instead of
placing a ceiling on all commodities, to put a ceiling on a commodity
only when the commodity gets out of line.
Secretary WICKARD. That is right.
Mr. FORD. And whenever a commodity gets out of line he could put
a ceiling on its price.
Secretary WICKARD. Yes.

Mr. FORD. That is the purpose of it, and an over-all or all-out ceiling

on all prices would of necessity, in my judgment, create a lot of
injustices at this time, whereas if he is given discretion he will act with
respect to commodities that get out of line, with the injustices that it
might create, and therefore tend to check inflation that the getting out
of line might cause.
Secretary WICKARD. It seems to me, Mr. Ford, that there is another

benefit that might result, and that is the prevention of speculation.
In other words, those who wish to speculate, if they knew the price
could be fixed it would have a tendence to deter their speculative
activities.
Mr. FORD. Yes.

Mr. Secretary WICKARD. That is right.

FORD. That is one of the things we are trying to correct.
Mr. WICKARD. That is my thought, Congressman.
Secretary SPENCE. How closely do prices of raw agricultural products

Mr. to the price of the manufactured, processed article?
respond Secretary WICKARD. You mean what is the relationship, or how
rapidly does it respond

SPENCE I mean by the regulation of prices, of manufactured
Mr. could you increase the price of raw commodities. You notice
prices, regulation of raw materials is very narrow, providing for 10
the above parity. What effect would regulation of prices of manupercent factured products have; would extending the powers of the Admin-

istrator effect a greater influence over the price of agricultural products
as written in the bill?
Secretary WICKARD. Well, I think the power to regulate the price
the processed commodity would, without question, affect the price
of of the raw material: that is, you could just as effectively, perhaps,
control the price of the raw material.

Mr. SPENCE To what extent would you say that would do it
How quickly does it respond and how accurately does it respond

to the price of the manufactured product

Secretary WICKARD. Pretty quickly, I think: pretty accurately. I
think, for instance, in the case of bread, the recent rise in the price
of wheat would only justify an increase of about one-quarter of a
cent in the price of a loaf of bread, because there are so many other
things involved in the price of a loaf of bread.
The same way with a cotton shirt. At the present time. say, there
is an increase in the price of a cotton shirt of 25 cents. Perhaps the
producer would get one-fifth of that, or 5 cents out of that.
Mr. BROWN. I would like the record to show what the price should
be of raw wheat or cotton to sustain the prices they are getting now,
that the consumer is paying.
Secretary WICKARD. You would like what?

Mr. BROWN. What should be the ceiling on wheat to sustain the
price that the consumer pays; what should be the ceiling on cotton to
sustain the price that the consumer is paying for cotton goods today.
Secretary WICKARD. Well, I do not know.

Mr. BROWN. If you can figure that out, put it in the record for
those specific things.

Secretary WICKARD. Of course, retail prices tend to lag behind
wholesale prices and wholesale prices somewhat behind raw-material
prices.

Mr. BROWN. I know but the consumer buys from the retailer.
Secretary WICKARD Yes. At the present time there has been some
lag. I think at the present time, just offhand, perhaps the relationship
may not be out of line.
Mr. SPENCE. Indirectly, he can control the price of the raw material by controlling the price of the manufactured product?
Secretary WICKARD. That can be done, without question.

1900

PRICE-CONTROL BILL

Mr. SPENCE. Cotton has held the spotlight so much I have
mentioned
the cash
ence
to parity
now?crop of my people, but how is tobacco with hardly refer-

PRICE-CONTROL BILL

1901

Secretary WICKARD. Well, the percentage of difference between

total cost of the finished product as compared with the raw the
going into that product is very wide; there is an extremely wide material dif.
ference because of the high taxes on cigarettes or other tobaccos, and

also because of the packaging and distribution and all that sort
thing. There I suspect that regulating the price of the finished of
uct would only have a remote effect upon the raw product, but eventu. prod-

ally would if you fixed a low enough level.
Mr. SPENCE. Has tobacco reached parity now?

Secretary
WICKARD. Most of the grades have, I think. Are you
interested
in burley

Mr. SPENCE. Do you think there will be any fluctuation of agricultural products to meet the established ceiling, or do you think the fixing of a ceiling will freeze the price at that point
Secretary WICKARD. No, sir. For most commodities I think there
will be a fluctuation below the established ceiling.
Mr. SPENCE. What effect do you think the fixing of a ceiling will
have on price?

Secretary WICKARD. It will just cut off a few high points at the
time the ceiling is fixed.

Mr. SPENCE. Do you think there would also be a fluctuation of

Mr. KOPPLEMANN. Leaf as well.

Secretary WICKARD. We will give you the prices in just a minute.
These are as of September 15.
Dr. TOLLEY. Flue-cured was 108 percent of parity on September
15 and Maryland was 168 percent. Those were the only markets open
on September 15.
Mr. SPENCE. Have you burley
Dr. TOLLEY. Not as of September 15, because the market was not
open at that time.
Mr. SPENCE What is the latest you have?

Dr. TOLLEY. I have not the figures for this year. Last year the
prices of burley were below parity.
Mr KOPPLEMANN. Dr. Tolley, in connection with that same question. have you any information as to the prices of the various grades
we have, and tobacco that is sun grown and shade!
Dr. TOLLEY. Cigar leaf is the only one I have here in front of me,
and those markets were not open September 15, and all I have is in
connection with last year.
Mr. KOPPLEMANN. Can you put that in the record
Dr. TOLLEY. Last year the prices of cigar leaf were below parity.
Mr. MILLS. What is the base period for tobacco?
Mr. SPENCE For burley, it is 1934 to 1939, I believe.
Dr. TOLLEY. Burley is 1934 to 1938,

Mr. BROWN. Was not that originally 1909 to 1914
Dr. TOLLEY. No: originally it was 1919 to 1929: that was the
original period.
Mr. BROWN. Why did they change it
Dr. TOLLEY. Congress changed it.

Mr. SPENCE. All of these farm journals are writing of parity as a
price. Parity is purely a relationship, is it not?
Secretary WICKARD That is right.
Mr. SPENCE It is the relationship existing now as compared to the
relationship that existed in the base period
Secretary WICKARD That is right.
Mr. SPENCE And that relationship fluctuates all the time?
Secretary WICKARD. Yes: it does,
Mr. SPENCE. And probably fluctuates from day to day
Secretary WICKARD Yes. We compute it once a month, but it has

changed very rapidly during recent months. It has gone from 131
to 139 in 6 months; it has gone up 8 or 10 points.

price beneath the ceiling?

Secretary WICKARD. Yes: unless we happened to have a drought
some unusual circumstance. I think for most agricultural commodities you are going to see a fluctuation below the ceiling.
Mr. SPENCE. Congressman Williams brought up wool and cattle
awhile ago, and cottonseed and beef. That would not be true there,

or

would it

Secretary WICKARD. I am not sure what would happen: but, according to the present law. the administrator of the bill would have
the right to lower the wool and beef prices. Whether he would do
it. or not. I do not know, because this does not put a mandate on the
administrator to put a ceiling on: it merely gives authority to the
administrator to put a ceiling on when the price reaches 110 percent
of parity.

Mr. SPENCE. Do you think farm labor should be included, or

should be excluded as it is at present
Secretary WICKARD. Well, I think, to be quite honest about it. it

should be included. But whenever you would start, as I see it. to
open up this question of parities and try to raise them all a little, as
our natural tendency would be, we might get into a lot of difficuty,
and I am a little doubtful at the present time whether we should
open it up, although you could argue on one commodity, for one
reason or another, it should be opened up. But I think we have an
established relationship here which is, for the most part, pretty fair,
and I have an idea that maybe it might be just as fair, or even more

so, as any new attempt to carry out the legislation. That is my
personal opinion.

Mr. SPENCE There may be an effort to put it back in, after your
testimony this morning.
Secretary WICKARD. I think this question has been raised before,
The Senate has a committee studying parity prices at the present time,
as you know, I think you appeared before that committee.
Dr. TOLLEY. That is right.
Miss SUMNER. And he appeared in this record, too.
Mr. BROWN. Under this section 3, the parity section providing for

110 and fixing the ceiling price as of SeptemberSecretary WICKARD. July, was it not

Mr. BROWN. All right, July-why was that section put in?
Secretary WICKARD. You are asking why July 29 was put in rather
than just leaving it at 110 percent of parity?
Mr. BROWN. That is right.
Secretary WICKARD The bill was introduced on the 28th
The CHAIRMAN. Let me explain; I had a little to do with that.

1902

PRICE-CONTROL BILL

PRICE-CONTROL BILL

WICKARD.
wondering if somebody would volunteer
to Secretary
help me out
on that.I was
[Laughter.]

Mr. BROWN. I think I have an idea, but I just want to know the
reason.
The CHAIRMAN. Well, it does not seem to be without good
Such a plan as the Canadian plan was based somewhat on that grounds.

idea, if I understand it. But here is what was in my mind about very
There were suggestions about a base period to be considered in estab. it:

lishing a ceiling, and the bill has such a reference, so this thought
occurred to me, that the day prior to the time that the legislative
posal was made would be a date uninfluenced by congressional action pro-

and administrative action, and would be a fair time to consider. And
as the 29th was the day before the President's message was sent to
Congress, which was the first official recommendation for legislation to
control prices, that date was selected.
Mr. BROWN. Now, Mr. Chairman, in connection with that, I am not

kicking: I am just pointing out this thought, that if you fix the price
as of the 29th of July, you will be fixing the price of some commodities
around 150.

Secretary WICKARD. That is right.
Mr. BROWN. Now, what I am coming to is this: These other commodities are going to have equality, and I am asking this question
for this reason solely; I want to put in another proviso "but not over
the prevailing average price from 1919 to 1929. I want to add that,
because a great many of these commodities will not come up to some
other commodities on July 29, 1941, and I want to add another section
because I know some other commodities will not be treated fairly
unless we have one of three periods, taking whichever is the highest.
That is the only way you are going to get equality for all classes of
agricultural producers. I have one or two major crops that will not
get equality unless that provision is put in there, compared with the
prices on the 29th of July for some agricultural products.
Secretary WICKARD. May I correct my testimony on that I think
this July 29 provision would make it impossible to put a ceiling on

the price of wool at 110 percent of parity, because at that time it
was above 110 percent of parity.

I want to correct my testimony, as I see I am in error. I forgot
about the July 29 price provision, and he would not have authority
to reduce the price of wool.
Mr. WILLIAMS. That is what I want to ask-if that would be fair

to freeze farm commodities as of the July 29 price if it was un-

reasonably high on that date?
Secretary WICKARD. Well, it does not necessarily freeze it. We
cannot put a ceiling below that.

Mr. WILLIAMS. Well, it permits it to go there, but the Administrator cannot monkey with it.
Secretary WICKARD He cannot fix the price below that.
Mr. WILLIAMS. That is right; notwithstanding the fact it might
be out of all reason on that date, he cannot touch that price.
Mr. KOPPLEMANN. It still is not clear to me from your answer.
Let us take something specific, something that is in my district-leaf
tobacco. Supposing leaf tobacco is not at parity on July 29. supposing it has not reached parity; under your interpretation of this
bill could a price be set by the Administrator on leaf tobacco which

1903

would make that price less than parity, or does he wait until it
reaches parity before he sets the price
Secretary WICKARD. It must reach 110 percent of parity before he

set the price, as I understand it. In other words, if the

could of leaf tobacco was still, say, 90 percent of parity on July 29,
price it would not be possible for the Administrator to put a ceiling
then the price of leaf tobacco at less than 110 percent of parity,
on because then the 110-percent limitation would govern, rather
than the July 29.

Mr. KOPPLEMANN. I see. Then the July 29 provision does not
affect either tobacco or any farm product
Secretary WICKARD. Other than those that are above 110 percent
of parity, such as wool, beef, and cottonseed.
Mr. KOPPLEMANN. That clears it up in my mind.
Mr. BCGGS. Mr. Secretary, has the Administrator already set ceilings on various agricultural products?
Secretary WICKAED. Yes, sir.
Mr. BoGGS. Which ones?
Secretary WICKARD. Upon processed commodities, such as cotton.

I do not know of any other right now.
Mr. Bodus. What about sugar?
Secretary WICKARD. Oh, excuse me.

Mr. Boges. Is that 110 percent of parity
Senretary WICKARD. I believe the sugar price is at parity, or
parity income, is it not
Dr. GALBRAITH. Taking the national average, sugar is a little
above parity with the payments.
Secretary WICKARD. With the payments included, he says sugar
is a little above parity.
Mr. Boggs, You said taking the national average: What do you
mean by "national average"
Dr. TOLLEY. You are thinking about these parity prices?
Mr. Boogs. Yes, sir.
Dr. TOLLEY. The average farm prices of wheat, cotton, and sugarsugar is not good on this, because it is processed before it has a price;
but the average farm price on wheat. I will say, is the average of all
the prices that the farmers get for selling wheat on the day on which

the price is reported for all grades and all varieties-and in all places
in the country. The price is what the farmer actually gets who takes
his wheat to the elevator in the State of Washington, the State of
Louisiana, the State of New York, the State of Kansas, or any other
place; it is the price at which he happens to be selling that day in the
various markets, and they are all averaged up.
Mr. Boggs. In connection with that, do you take a national average
on tobacco; that is, on all of the grades of tobacco-leaf tobacco, Mary-

land tobacco, Virginia tobacco, Connecticut tobacco-and average
them, or do you take the average on each separate type of tobacco?

Dr. TOLLEY. That is right-on each separate type of tobacco.
Mr. BOGGS. Now, should not there be a national average on beet
sugar and a national average on cane sugar
Dr. TOLLEY. Sugar has been defined as "sugar" by the Congress, and
no differentiations have ever been applied on sugar. I do not know
whether this is the point you are getting at, or not, but the average
farm prices, you see, when we are thinking about controlling the price

PRICE-CONTROL BILL
1904

PRICE-CONTROL BILL

of pork, you could not quite separate those average farm prices all
over. and what it seems to us is needed. and it is in the
testimony, is that there should be determined the market place Secretary's

lent of these parity farm prices, instead of trying to control the equiva-

1903

CHAIRMAN. I wanted the record to disclose that we just reThe found out what cottonseed was. In 1909 we were feeding

cently and utilizing it for fertilizer.

COWS Mr. FORD. We import commodities such as wool and cotton: We

have imports of cottonseed.

Dr. no TOLLEY. No: but we have imports of oil to help make up the
supply of the country.

price of wheat at $1.21 cents, we will say. What does that parity

oil FORD. Would the imports of beef and wool be sufficient to

No. 1 Hard Northern wheat in Minneapolis; what does it mean mean for for

Mr. the price down to something reasonable?
being Dr. TOLLEY. No. We have been importing wool. about all we
could get. for some time.
Mr. FORD. We always imported about one-half of it

No. 2 winter wheat in Chicago: what does it mean for white Pacific
coast wheat at Portland, which would be different from that
average for all of them? And it seems to us. for the purposes in mind $1.21

in this bill, that figures such as those, allowing for the difference be-

tween the average farm prices and the price at the market place, must

TOLLEY. Yes.

Dr. Mr. FORD. And as far as cattle are concerned. this new treaty with

be determined and that would be the price that the Administrator of
the price-control bill would fix.
Mr. FORD. What date would you take for those three things to call

Argentina-would not that control the situation to some extent
Secretary WICKARD. Not much. At the present time the new
with Argentina does not permit the bringing in of fresh beef.

Secretary WICKARD I did not get that.
Mr. FORD. You say July 29 would leave cattle and cottonseed and
some other commodity above parity.

because treaty of sanitary provisions. and I think the British are buying

parity?

Secretary WICKARD. Wool.

Mr. FORD What date would you take them at
Secretary WICKARD. How far would you have to go back?

Mr. FORD. Yes.

Secretary WICKARD. You have to go back not very far on cotton, and
you would have to go back a pretty good piece on cattle and wool.
Dr. TOLLEY. Wool has been more than 110 percent of parity since

early in 1940. I think. Beef cattle has been more than 110 percent
parity since early in 1940. Cottonseed has been above 110 percent
parity only since July 15 of this year.
Mr. FORD. Let me ask you this question: When you say "cottonseed," you do not mean the cottonseed that they plant. you mean the

cottonseed that they process?
Dr. TOLLEY. Yes: the cottonseed that comes out of the gin and goes
into processed commodities.
Mr. FORD. The seed that you process?
Secretary WICKARD. Right.

The CHAIRMAN. What about the price of cottonseed right now?

There has been a slump. has there not!

Secretary WICKARD. That is right. I do not have that before me.
All) have is September 15.
The CHAIRMAN. As of what date are your figures?
Secretary WICKARD. September 15. The price of cottonseed was
161 percent of parity on September 15. There has been some change
since that time. I do not have it exactly.
The CHAIRMAN. I am sure this has already been brought out. but
of course the 1909-14 basis for cottonseed would not be a fair base
period on which to figure parity?
Secretary WICKARD. That is right.
The CHAIRMAN. That has already been made clear, has it not?
Secretary WICKARD. I think when I was up here before I talked to
some member of the committee about that. and we pointed out the
present provision of law for establishing comparable prices. and cottonseed was one of the things to which we needed to give attention.

it

about all of their canned beef and other beef that the Argentine
people Mr. FORD. have to Then sell. as this bill is written at the present time. it would

leave cottonseed. wool. and beef out of the picture: they would be
as they were!

Secretary WICKARD They could not go any higher than they were
on July 29. You see what I mean: they could go higher than they
are now.

(The committee thereupon took a recess until 2:30 p. m.)
AFTER RECESS

The committee resumed its session at 2:30 P m., Hon. Henry B.
Steagall (chairman) presiding.
The CHAIRMAN. The committee will be in order. We have with
us again this afternoon Secretary Wickard. Will you proceed with
your examination. Mr. Crawford?
Mr. CRAWFORD. Mr. Secretary. since the morning session I have had

an opportunity to look over your formal statement. and I wish to ask
a few questions about some of your observations. Then I will have a
few others in connection with the bill generally.
Frm the statement made by Mr. Henderson. I get the impression
that his conception of this bill is to the effect that it is a measure to

move in the direction of preventing inflation. From Dr. Lubin's

testimony I get the impression that he believes that the approach to in
the objective. practically speaking. is to have a material increase the
production. It is Mr. Henderson's idea to use a price ceiling as
mechanism. and Dr. Lubin's idea is to materially increase production,

so that the increased production will have a tendency to operate
against the forces of inflation.
Now. in your opening statement, or. I should say. in the opening the

sentence of your statement. you say. "I agree thoroughly with
objectives of the pending bill." Would you mind stating. as briefly
as you care to. what. in your opinion, are the objectives of this bill?
61493-pt.32-

1906

PRICE-CONTROL BILL

Secretary is to WICKARD. I think, stating it very briefly, that the

War went on for some

tive prevent inflationary spirals, such as we had during the objec.

you say that primarily we
this price ceilings
or prevent

other
Mr. inflationary No. things? CRAWFORD. 1, and which spiral Would by fixing time. by could doing World some

Secretary WICKARD. I think that is one of the things that
be used in preventing price spirals. My opinion is that the best should

and, perhaps, the most powerful deterrent of inflationary way,
would not
be sufficient
productionsituation.
to prevent that sort of thing, spirals, soyou
would
have a speculative

Mr. CRAWFORD. Going over your statement, I gathered that
pression from what you had to say. That is the reason I raised im.
question as to what in your conception are the objectives of this

bill. Now, as I read this bill and think about the bill, there is this

little, if anything, in it which, in my opinion, would tend to increase very

production. I think that the fixing of price ceilings would

tend to decrease or hold back or prevent production. That materially is

reason I want to have just a little discussion with you so I could the
get
clear inofmy
mind,be.
if possible, what your conception of the
objectives
thisown
bill may

PRICE-CONTROL BILL

1907

is still left several billion dollars which can be used specifically
there the purpose of building up prices. So we will call that the inflationary for gap. Now, referring to that last statement of yours, which I
will read:

beyond all these, important as they are, is the necessity for Increased production; But that is the surest preventive of inflation-

The observation I would like to make is this: The inflationary gap
has not been closed, not even nearly so, nor can present laws be used

to do so, as Governor Eccles testified. Now, what do you think this
committee should do, with your statement before us with reference
to the increase of production and with the observation of Governor

Eccles with reference to the inflationary gap not being closed,
and with reference to the present laws not giving authority to
in and close it, by reason of the lack of power to assess greater

go taxes, bring about enforced savings, and so forth, in order to draw off

increased purchasing power. Furthermore, with Mr. Henderson's
observation before us, that this bill will not prevent inflation. do you
have any other suggestion to give us along that line as to what you
think we should do
Secretary WICKARD. I do not know whether you are referring to
what should be in bill or what we should adopt as a national policy, but

Secretary WICKARD. I think that it may be necessary to have price
control, such as this bill provides. However, when it is not possible
to produce as much as the market will take, or when there is some

I do think that increased savings and some method of reaching the

sort of a manipulation or speculation, then I think that to supplement it, some other measures can be used and should be used to
prevent inflationary spirals.

vent inflation and bring about more stable production in business
activities which, because of the defense, have run down. I would say
that is one thing that should be done. I want to go back, also, to what
I said in my testimony about the necessity for increased production.

bill? Mr. CRAWFORD. But, which would you say are not included in the

Secretary WICKARD. Do you mean the other measures?

Mr. CRAWFORD. Yes.

bill. Secretary WICKARD. I hardly think they should be included in the
CRAWFORD. Then they are measures which are not included in
theMr.
bill?
Secretary WICKARD. Yes, sir.
Mr. CRAWFORD. In other words, you agree thoroughly with the price

ceiling objective as set forth in this pending bill?

Secretary WICKARD. Yes, sir.
Mr. CRAWFORD. Now, as to those other factors that are not in the

bill, you have not discussed them. They were not discussed this
morning. Do you have a copy of your statement with you
Secretary WICKARD. Yes, sir,

Mr. CRAWFORD. Going down right to the last part of the second
paragraph, you say, "That is the surest preventive of inflation." You
are referring there to increased production. Now, Mr. Henderson
had considerable to say about the inflationary gap. Do you know
what I mean by that language, "inflationary gap
Secretary WICKARD. I am not positive about that. am not familiar
with that,
Mr. CRAWFORD. It means that he takes the position, generally, that
some of this increased purchasing power which is put into the stream
of trade is pulled off, say, by increased taxes and other operations, but

place where some of the increased purchasing power could be held in
reserve and not used now might accomplish two things: It might pre-

If you have enough of these commodities, of course, some of the purchasing power will go into them probably; but, because of the defense
demands, we do not have enough of steel, copper, fertilizer. or things
like that to go around. So there is an inflationary gap, which means
that there is no place for funds to go except to bid for the amount of

materials which are not plentiful. So, again, increased production, I
think, is the best thing to do. It is not possible in the war game, however, to always have increased production, or as much as you would
like to have. You must set up production facilities, and there may not
be enough raw materials to go around.
Mr. CRAWFORD. Would it be fair for me to put it this way: I will ask
you, as a member of the Cabinet, if you feel that this committee would
be doing a constructive thing, or would be taking a constructive step in

dealing with this particular problem if, in addition to the provisions
set forth in this bill, we should go further, for instance, and try to deal
with the question of drawing off the additional buying power from this
inflation gap in the way of enforced savings or the control of commercial credit, and even going into the monetary powers? Would you
care to express yourself on that

Secretary WICKARD I think I said I thought it would be a very
good thing to provide for increased savings. Whether it should be

done in this bill is a question in my mind. I am not sure that it

should be done in this bill. I think, however, that it would be a good

national policy.

1908

PRICE-CONTROL BILL

Mr. CRAWFORD. That is far enough. I wanted a general

PRICE-CONTROL BILL

from inflation
you on that,
Youcause
agree with
the general
that
is the
of deflation,
dostatement
you not to expression the effect

Secretary
whatever
goes up has to come down.
It would
not WICKARD.
come downOfifcourse,
it had not
gone up.

Mr. that
CRAWFORD.
Do you agree
with the general statement to the
effect
inflation precedes
deflation

WICKARD.
Yes, we
sir: had
I think
that is true, I do not think
weSecretary
would have
deflation unless
inflation.
Mr. CRAWFORD. Turning to page 2 of your statement, I read from
the last sentence at the bottom of the page where you say
In the years after 1920, farm-land values not only dropped as much
had risen during the war: they dropped on the average 27 percent as they
modest pre-war values. Yet farmers had to pay debts and taxes and below the
and other charges on the basis of land values nearly double the pre-war level. Interest,

Will you state briefly. why that was the situation!
Secretary WICKARD. Well, during the first World War period there

was. as I state here. a very rapid rise in the price of farm

modities and other commodities There was a rapid increase comthe value of farm commodities, and a rapid increase in all kinds of in
values, With it there was an increase in taxes and an increase in
charges of all kinds, Then, when the prices went down, those values
did not go down. but the farmers had to assume an indebtedness
based upon the high values. They had to pay off the indebtedness
on the basis of low values and prices, and that is where the trouble
arose. What really happened was that the farmers, or hundreds or
thousands of farmers. tried to keep in the farming game under those
conditions. and hundreds of thousands of them did not succeed.

Therefore, we had foreclosures We had a formal writing off of
indebtedness, with failures of one kind or another, That was simply
due to the fact that the indebtedness was based on a high scale of
values, and that was the reason they could not stay in business.
They had to go out of business.
Mr. CRAWFORD. Mr. Secretary, are you familiar enough with current statistics to tell us whether. or not. the farm mortgage debt is
now declining at a fairly rapid rate. or is it rising
Secretary WICKARD. I cannot give you the most recent figures. For
months back the farmers were paying off their indebtedness. and we
found that to be particularly true in connection with the Farm Security
Administration's activities. Someone told me the other day that those
people. or the clients who owe the rehabilitation loans, are paying them

off faster than ever before. I believe that the collections are running
three or four times higher than they were 2 or 3 years ago. However.
there is some evidence of inquiries being made for the purchase of
farms. People are asking if this is a good time to come into the farm
business. They are asking. "Do you think this would be a good time
to buy a piece of land? Then the prices of land go up. When they
bid on the land the value of the land goes up, the assessed valuation

goes up. and you make a mortgage on the basis of that high valuation.

That is where the trouble begins. That is the way trouble began the
last time; and if that keeps up, it will develop sooner or later.
Mr. CRAWFORD. Within the last 10 days or 2 weeks some New York
papers, the Wall Street Journal in particular, have been running some

1909

interesting front-page or second-page columns of matter on this
very question. I think you will find that they have sent inquiries out
very throughout the country, particularly in the Central West, to bankers
and businessmen generally, asking what is taking place on the current
market. or what the current market quotations on farmlands are. In

connection with this subject I want to ask this question: In your
opinion, what are farmers likely to do during the next 6 or 12 months?
Will they use their increased income to materially reduce their mortgage debt, or are they likely to buy more land because of the advance
in

prices, or are they likely to consider selling their lands that they

have carried for years for the purpose of liquidating all of their present
indebtedness of every kind, and going out of business

Secretary WICKARD. I think there would be a little of selling.

That is my own personal opinion. As you know, generally speaking,
they have farms not only as a business, but as homes, and they do not
like to sell their farms any more than other people like to sell their
homes, even though they wish to liquidate their indebtedness. As to
whether they are going to use their increased income in buying more
land or will use it to pay off their indebtedness, perhaps will depend

upon how things go. If this inflational spiral gets going, I suspect
that they will do what they did during the last World War period,
when one raised the other in bidding on pieces of land. They bid it
up and bought it. in the hope of selling it when the price went up.
I suspect that may happen again when the inflationary spiral takes
place, if it does. I might add that I do not know what the papers
show.

Mr. CRAWFORD. They show this, that there is a tremendously increased interest in the acquisition of land. with the prices moving upward. Of course, there would be an increase in the prices of farm
products, and land prices will be much higher. I am told by one group

that they have sent men to the Central West with authority to

purchase $500,000 worth of farms. They do not tell them to refer the
matter back to them, but to go ahead and buy the farms with as much
care and consideration as possible. They are told to get the land.
Secretary WICKARD. We have run into some evidence that that
happening, and that is why the Government Farm Credit called a
meeting of the people in the country to talk things over. I am of the
opinion that it would be a good thing for us to get together and talk

is

things over in order to prevent this sort of thing occurring. There

has been some evidence that the movement was starting, and it could
go rapidly. Those movements gather momentum unless there is some-

thing to check them. I am concerned about it. I have had meetings
with farm leaders from every State, and have suggested that this
would be a good time to pay off farm indebtedness rather than to

expand, and not to get into the place where they were before.
Mr. DEWEY. Is the Federal Land Bank system still operating?
Secretary WICKARD. Yes, sir.
Mr. DEWEY. Are they increasing their loans?
Secretary WICKARD. Do you mean the valuations?
Mr. DEWEY. I mean the loans through the Federal land-bank system.
Secretary WICKARD. I do not know that there has been an increase

in their activities, and I do not know that there has been any par-

ticular decrease.

1910

PRICE-CONTROL BILL

Mr. DEWEY. That is where I think a great deal of the credit
purchase
of farms
comes
from.
was the last time, and for I
was
wondering
whether
they
wereI know
still in itoperation.

PRICE-CONTROL BILL

1911

the farmers would have liked to see the prices stay up until
Of they course, could get through the difficulty.

Mr. BROWN. The farmers were called on to pay their debts all at

section. Mr. BROWN. The land banks are practically out of business in our

Mr. DEWEY. In 1926, when there was a big spiral upwards, it
forth.the intermediate credit banks, joint-stock land banks, and started so
with

Secretary WICKARD. I am sure that so far as the governor of the
Farm Credit Administration is able to do so, they want such tend.
ency as that to be checked. I know that there is a lot of a
tion among the lenders of money, and that the borrowers are competi- finding

it easier to get interest rates reduced. If we do not watch out, this
same thing will happen again. A man will say, "I want to borrow
$50
buy
a piece of land," and he will find somebody who will
lend to
it to
him.
Mr. DEWEY.
therelike
anythat!
coordination or cooperation with you in
connection
with Is
things
Secretary WICKARD. Yes, sir.

Mr. DEWEY. The chairman of the Federal Farm Loan Board does
that!

Secretary WICKARD. Yes, sir: he is in charge of the meetings I
spoke of. Most of the people seem to think that if we have a better
understanding of it, we can work it out together and prevent another

situation like that we had before from arising, with competition

among the people in the purchase of land.
Mr. DEWEY. Of course, every time you sell a farm somebody must
buy it. It would be better if they paid off the mortgages.
Secretary WICKARD. I think so. I think they would be in a better
position to stand the shock that will come later. I hope there will
not be any shocks if we can prevent inflation. If we can prevent
inflation. I think it will be very small, It seems to me that it would
be good business sense to get their financial houses in order now.
Mr. GIFFORD. Mr. Secretary, I think Mr. Crawford's questions went

a little further than that. I think he had in mind that monetary

control would be necessary. I want to remind you that in the other
inflationary period prices were not mentioned as the cause of the distress. When I first came to Congress, in 1921, when the trouble came,
prices were not even mentioned as causing it, but it was the matter
of money control. It was due to a lack of money. Now, if we have
so much money, is this not also a matter of monetary control, and is it
not as important as price fixing or anything else that is suggested,
or even more so After the other inflationary period, nothing else
was mentioned The farmer did not complain that it was on account
of prices, but on account of the lack of money.
Secretary WICKARD. I remember it very well. I was a farmer myself, and as an individual farmer, if I had livestock and other things
on hand when the bottom started to drop out, I would be in serious
difficulty. There was complaint that it was because of a too rapid
deflation. I do not know whether the difficulty of the farmers was
entirely due to that, The policy of the Federal Reserve Board at
that time had nothing to do with putting them in a bad predicament.

once. Secretary WICKARD. I agree that there was a too drastic descent.

Mr. GIFFORD. It was the complaint that that was the reason. They
did not say that the prices did it.
Secretary WICKARD. The Federal Reserve Board would not be in a
position to drive prices down if they had not been so high.
Mr. GIFFORD. With the action of the Federal Reserve Board, the
prices necessarily fell. They were forced to do it.
Secretary WICKARD. It was a combination of the two.
Mr. GIFFORD. What we are getting at is the necessity for monetary
control.

Mr. CRAWFORD. On that same point, some figures came to my atten-

tion this morning from the Comptroller of the Currency which show
demand deposits, deposits of corporations, individuals, and so forth,
as of the latest determination date for all the banks in the country.
believe that was June 30, 1941, and the figures showed a little over
$35,000,000,000.

Secretary WICKARD. How much was that
Mr. CRAWFORD. $35,000,000,000. The circulation statement shows a
little over $9,000,000,000 in currency and coin, making a total in excess
of $44,000,000,000, representing the monetary stock at the moment.

On page 1838 of these hearings you will find this statement by Dr.

Fisher:

Income velocity expresses this process, being the ratio of money Income to
money volume, and is almost always about 3.1 to 1. This implies that if we fix
the volume of money at $30,000,000,000 we thereby fix the money Income at about

3.1 times that, or $93,000,000,000.

Then, at the bottom of the page, he shows the ratios from 1909
through to 1939, where it is shown to be at almost the exact average
of about 3 to 1. Then, beginning in 1931, and running through 1932
and up to 1941, inclusive, it is from 2.1 up to 2.7, or an average of

about 2.5. Now, our present national income is running between

$95,000,000,000 and $100 000,000,000. I am particular interested in
this because the $44,000,000,000 now available will move rapidly towards $60,000,000,000 or $70,000,000,000. Then, if we proceed with
the sale of these new securities which the Treasury will have to dispose
of for the purpose of financing the defense program, you can see where
it will reach. Personally, I do not see any way or how we can stagger
the inflationary movement, unless we move into a broader field. I do
not want to take up the time of the committee to discuss that now.
At this point, I think Miss Sumner wants to ask you a question.
Miss SUMNER. On the point about the comparison with the situation in the World War, the statement has been made several times
in this committee that you did not want to have the farmers have the
same thing happen as happened after the last war. You attributed
the distress to the high prices.

Why is that singularly the cause of the farmers' distress! The
other industries have high prices. Is it affecting them similarly

I

PRICE-CONTROL BILL

1913

taxes and brought ruination of the farmer, we are getting
1912

PRICE-CONTROL BILL

Secretary WICKARD. I shall try to explain that, I testified this
morning that what usually happens when industry starts to lose money
is that they shut their doors, whereas farmers have to keep on going.
Miss SUMNER. Would you say that in the situation of the World
War, that that was caused by the high prices? In other words, was
it not because the farmers were expanded Is not that the real cause
Secretary WICKARD. Then there was encouragement, just as there
is encouragement now. that Mr. Crawford told us about, to acquire
more land. There was encouragement to incur indebtedness, and it
was incurred at a high valuation.
Miss SUMNER. Would you say that at that time they had inflation,
in the 1920 period
Secretary WICKARD. Yes.
Miss SUMNER. Did city money go into farms as much then, as com-

pared with today

Secretary WICKARD. It was added to the competitive field.
Miss SUMNER. Have you any figures showing the extent of that!
Secretary WICKARD. The extent to which the money went in-no, I

do not. In Indiana we did not have the extreme inflation in land
values which we had in Iowa or some of the other States. So my observation would be that there was some tendency on the part of the city
people to invest funds in land values.
Miss SUMNER You have no Government survey showing that
Secretary WICKARD. No: we have not. heard that question asked
during the conference I referred to awhile ago, where sales are taking
place because the city people have invested money.
Miss SUMNER. Have you made a Government survey to determine
how much of the situation is based on that
Secretary WICKARD. There seems to be a disagreement on that.
Miss SUMNER. You do not have any investigation made on that
Secretary WICKARD. No.

Miss SUMNER. We all have different views on that, depending on
the locality from which we come.
Secretary WICKARD. Certainly.
Miss SUMNER. In my State all of our banks have a place for city
money. They can get all the money they need to buy as many farms
as are available. In other words, they have a surplus of city money
to be used in buying farms. But the farmers are not buying the land.
Those prices are going up to even a greater extent than in the World
War, causing the same situation you described, but there are no high
prices on products. What are we going to do about that
In other words, you have the thing that has caused higher prices,
and that is causing high taxes, but we do not have high prices for

farm products. We have high prices for land, causing high prices
which will cause the economic ruin of the farmer, if those are the
things that cause economic ruin, but without the concurrent circumstance of high prices for farm commodities.
Secretary WICKARD. Is your question why city people want to buy
that land? Are you asking me why city people want to buy farm land
Miss SUMNER. No: I know that, They have been buying it for someall

years, in anticipation of the inflation caused by spending. We

know that.

I am saying that whereas you said that in the last war high prices
of commodities started high prices of farm land and, therefore, caused

high today which causes high land values and high taxes, and we
inflation will have the same ruin today, but we do not have the same high farm
prices for commodities.

Secretary WICKARD. I do not think you will have a great increase
land values until you have prices going up. I think what you are
in talking about is the competitive situation for money. But I do not
think you can run prices up much higher without some more increases
in farm prices.

Miss SUMNER. I only know my own district very well, and I am
familiar with that district because I was a county judge there, and
before that I did a lot of inheritance and estate-tax work, so I had to
keep statistics in my office about land sales.
In 1936 you could get your land appraised for inheritance-tax pur-

for $60. But within a couple of years after that you could not

poses get it for less than $100. Today there are sales all around there where

it would cost $200, and the general price is around $150. In other
words, there has been a rise of $100 an acre in some places. At the
same time the banks tell me they have plenty of city money available
without anybody who will sell at a price.
Secretary WICKARD. I will say this, that if it is good Illinois landthe
it is in that district, $50 or $60 was too low. It reflected some of
disaster in the twenties and early thirties.
as

Miss SUMNER. It reflected foreclosures in 1932, 1933, and 1934.
Secretary WICKARD. There has been a world-wide improvement in

the agricultural situation, in prices and in farm income during the
last 3 or 4 years, and I suppose it is possible that people have a little
more confidence than they had 5, 6, or 7 years ago in the abilities of
the farms to pay their own way, and a lot of people are putting
money into them with the hope that they will pay their own way.
Miss SUMNER. So far as that situation is concerned, in the last
World War people felt that now we are going to have high prices
from now on. They had no experience. They expanded and expected that the war would be quite long.
Now, they do not have what they had in the World War, and they
have the lenders' pressure to pay their debts.

Also, they have this feeling about inflation. saying that they are
going to hold on to their land: and also they feel that, due to the
statements they have read in the papers, that there will not be any
undersupply of grain and that, therefore, prices will not go up very
much. Is that general
it

Secretary WICKARD. I think it is pretty much among farmers, but
may not be among uninformed city people.
Miss SUMNER. I do not see any tendency among farmers to buy

more land, but I see a tendency to land. Is not that true?
Secretary WICKARD. I do not think there is, comparatively speaking,

much of a tendency for farmers to reach out after land at this time
as there was during the World War. I think the factors you have
listed account for that. I would agree with that.
Miss SUMNER. Have you the figures of the farm debt in the World
War as compared with the figures of the farm debt today

Secretary WICKARD. I do not have them at hand, but I will be

glad to put them in the record.
Miss SUMNER. I will be glad to have you do that.

gier
1914

PRICE-CONTROL BILL

Mr. CRAWFORD. Mr. Secretary, you dropped one remark that I
cannot agree with. Here is what it deals with
As we proceed to fix prices and ceilings on commodities, I
of the firm opinion that we will drive the so-called speculators am
first to corporate securities and then to land, or to those two assets
simultaneously.

1.118

BIRT

PRICE-CONTROL BILL

1915

not feel they have been out of line as they are described, insofar
do as the problem of inflation is concerned

Secretary WICKARD. No: I think I intended to say primarily out
line with other commodities, but I think on the other hand the
of price levels do not tend toward unwarranted inflation if they
present do not keep on going up. It is the tendency which gives me some

Secretary WICKARD. If we fix prices?

Mr. CRAWFORD. If we fix a ceiling on prices. In other words, I
think we are considering a matter that ultimately will bring about
one of the wildest inflationary movements in corporate and equity
securities and lands that we have ever seen in this country.
Secretary WICKARD. Why
Mr. CRAWFORD. Because we are going to limit the field of operations, restrict the field.
Secretary WICKARD. I see.
Mr. CRAWFORD. That is No. 1. No. 2 is that we have such an un-

believeable source of liquid funds in the form of currency and

demand deposits that we have to operate immediately. No. 3: We
are going to increase those funds just as sure as we live out of this
bill, without the immediate enactment of something to exercise control over these monetary and credit forces which add so materially
to inflation.
I believe, as Secretary of Agriculture, you are going to find a surge
on the part of nonfarmer individuals or the speculating public, whatfast
ever you want to cell it, moving into the ownership C
as they can shake the actual farm operator from ownership.
I feel it very keenly because I have had reliable information showing
that things are moving in that direction.
Going to the top of page 4 of your statement, you make an observation with reference to the swift and brief price rise and the lingering
as

rise in costs.

Roughly what is the advance in the price of farm commodities as
compared to the low point of 1932 and 1933, whichever was the lowest!

Do you recall that, roughly

Secretary WICKARD. Not quite double.
Mr. CRAWFORD Two hundred percent
Secretary WICKARD. Yes; a 100-percent increase, or not quite that:
some place near that.
Mr. BROWN. Was that on farm products or farm prices?
Secretary WICKARD. Farm prices.
Mr. CRAWFORD. You have not any opposition whatsoever to the
increase in farm prices which have occurred up to date, insofar as an
inflationary movement is concerned

Secretary WICKARD. No, sir. I think the prices of nearly all of
these commodities are now about on a parity level, a level we have

been trying to achieve for quite a long while. I do not think they

are out of line. There might be a very few, but I do not think

that situation should last so long.
Mr. CRAWFORD. Going to the fourth paragraph on page 4 of your
statement you say that, "The recent increases in farm prices have
been unusually rapid, but I want to make it plain that in my opinion
they are not yet out of line."

When you say "not yet out of line," do you mean to gear that to
the proposition of the inflationary movement! In other words, you

concern. At present values it seems to me they are pretty decent
sort of values, from that standpoint.
Mr. CRAWFORD. I emphasize these questions because of the Brookings report and the many comments and editorials that have been
released in connection therewith. Incidentally, I disagree with the
Brookings report.

Mr. DEWEY. May I ask a question at this point
Mr. CRAWFORD. Certainly.

Mr. DEWEY. Do you still adhere to the 1926 averages as representing
100 as being pretty sound for this situation, because we seem to have

thrown them out of the window and only are thinking of the August
1939 figure as being the level at which we must figure everything.
Secretary WICKARD I would rather make use of the 1910-14 level,
because that level is the level set up by law. I think if you get too many
levels you get too much confusion.

Mr. DEWEY. We have tied parity itself to the 1926 averages with

which we have worked for 8 years, and we are jumping to August 1939.

Secretary WICKARD. I am talking about farm prices, and I would
like to make my comparisons from there.

Mr. BROWN. Mr. Dewey asked you about 1926, and that is with
reference to the four basic crops, and if you take cotton and wheat
for those 10 years from 1919 to 1929, the average of 1926 would be

$1.32 a bushel for wheat and the average for cotton would be 21.6, and
for corn about the same thing. You refer to all agricultural commodities, and the three basic commodities are cotton, corn, and wheat.
Secretary WICKARD. Yes.

Mr. BROWN. I think the question Mr. Dewey asked you was, Is it
fair to take parity fixed in 1939
Secretary WICKARD. What I was trying to say was this, that I want
to stay with one comparison, and since 1910-14 is in the law for most
of these commodities, I want to use that as a period on which to make
my comparison.

Mr. WILLIAMS. It seems to me you are talking about two different things. You are talking about the parity base period, and the
1926 level is the last commodity price level which has been taken
as the base. That is an entirely different thing.
Mr. CRAWFORD. I want to ask this question, for the benefit of my
friend, Mr. Brown.

In the October 1 issue of the Agricultural Situation, on page 8 it
shows the parity price for September 1937 on cotton, 16.7.
Now, the August 1941 Agricultural Situation, on page 3. shows
the cotton parity price of July 1941, as 16.49. As to the relative
prices on manufactured things which the farmers buy, taking the
figure on the last date as compared with what they were in 1937,

that would bring the parity price on cotton to almost that exact
figure. Is that the situation
Secretary WICKARD. Yes: that must be true.

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PRICE-CONTROL BILL

Mr. CRAWFORD. That seems to me to be absolutely true. If there
has not been any real material advance in the price of manufactured
articles which a farmer buys, which enters into these computations
between 1937 and 1941, it seems to me we have certainly stirred
a tremendous commotion here about inflation when, in 1937, we up
said nothing about it whatsoever.
If the calculations are correct, and I do not question them, I can.
not understand why those two parities come so closely together unless we are concerned about a price advance now much more than
we were in 1936 and 1937.

Secretary WICKARD. Of course. I think it is the tendency to go up,
and the factors are here now that we did not have in 1937 for a price
rise, and they all went down after 1937. Now they are coming up again,
and there certain things which were referred to awhile ago which may
keep prices going up, such as the increased pay rolls and the increased
amount of funds available.
Mr. CRAWFORD. In 1937 we did become so much disturbed, at least
the administration did, that they ordered an increase in excess reserves, a very drastic increase. They put the brakes on Government
spending, and they took so many steps that Mr. Henderson began to
predict a great slump, which incidentally occurred.
But in this case, instead of doing those very things, people come down
here and ask for a sweeping control to be given to an administrator
over the industry of this country.

I simply bring that out because to me it is very pertinent to this
bill. and to what we are leaving out of the bill and the forces we are
entirely overlooking, the tools in this arsenal for the prevention of
inflation that we used before and which we are not now apparently
willing to use. I do not quite get the approach.
Miss SUMNER. I think I know a way by which you could prevent a
lot of inflation. It is not only from the point of view of my district,
but I think it must be general.
When I was home recently I talked with a person who had a mortgage on his farm, and he said he had some Federal land-bank mortgages and he also had some insurance-company mortgages, and he
said, "If prices rise the thing for me to do is to pay off the principal."
And I gather from his statement that that feeling is general, that the
farmers would like to pay off their debts. He says, "I would like to
pay off my debts, but I am prevented by the people to whom I owe
money, because of the provision in the mortgage, my insurance-company mortgage, by which I can pay so much a year on my principal.'
Have you given any consideration to that? It seems to me one of
the most important things we can do if prices do rise-and they have
not yet risen in my part of the country on basic commodities-b if
they do rise to that point, do you not think it would be well for Congress to pass some kind of a law permitting contracts to be set aside
if men can pay the principal on their debts?
Secretary WICKARD. I do not want to bring up again a constitutional
question.

Miss SUMNER. That is not a constitutional question, because that
only applies to contract laws in the States.
There is nothing to prevent Congress from passing legislation of
that type.

PRICE-CONTROL BILL

1917

Secretary WICKARD. The objective is all right. We are doing everywe can to encourage farmers to pay off indebtedness, and I wish
everybody thing who held such mortgages were giving the farmers that
opportunity. We are encouraging the people under the Farm Security

Administration to pay off their indebtedness as far as we can.

We have direct control there.
Miss SUMNER. There are certain big insurance companies that have
tremendous volume of mortgages throughout the United States which
a do not permit you to pay more than a certain amount on the prin-

cipal in any given year. If a farmer is able to pay off his mortgages
it seems to me it is very important that he should be given that right.
Do you not agree with that!
Secretary WICKARD. Yes: I think so.
Miss SUMNER. Do you not think the policy should be to make them
operate to take what steps they can to help the farmer?
Secretary WICKARD. I think that would be a laudable step.
Miss SUMNER. Have you given that any consideration in your Department

Secretary WICKARD. No: except we had this conference in which we
talked to those people about paying it off.
Miss SUMNER. Did they bring up the point about some farmers not
being able to pay off their indebtedness
Secretary WICKARD. No: I had not heard that. A lot of these mortgages are written so you can pay at any interest date.
Miss SUMNER. On one side you have a group of farmers who are

very much alive to what happened in the last war, and they do not
want that to happen again. They do not want to be in any postwar depression and be in the same situation they were in before.
You also have these insurance companies who do not want inflation, and they are trying to prevent the farmers who are able to do
so to pay off their debts.
Mr. DEWEY. Why not let them buy defense bonds and have their
savings at the same time?
Miss SUMNER. They get 1 or 2 percent on defense bonds, and on
their mortgages they have to pay 5 or 6 percent.
Secretary WICKARD. I think this tendency you speak about is more

due to the high rate of interest which they want to keep in effect
as long as possible.

Miss SUMNER. If I have a farm and want to change my mortgage
to the Federal land bank, having gotten my loan from an insurance
company, and want to change the mortgage to the land bank that
does business in my community, I cannot transfer to a Federal land
bank and have the advantage of a low rate of interest.
Secretary WICKARD. I expect if that is the provision in the mortgage contract, you will have to abide by the contract.
Mr. CRAWFORD Mr. Secretary, going back to your statement on page
4. you say that "Only within the past month or two has the purchasing power approached the parity level."
I want to ask you this question: Do you mean to say by that that
these prices standing at parity are not a part of an inflationary spiral?
You take that position. do you not
Secretary WICKARD. What I was saying there-

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PRICE-CONTROL BILL

Mr. CRAWFORD. Let me tell you why I ask this question. I think
are going to have quite a fight on this bill as between agriculture we
labor, and if you can, I would like you to say to me very emphatically and
what your position is, as to whether or not that statement means
so long as prices are no higher than parity they do not contribute that to
an inflationary spiral.

Do make myself clear

Secretary WICKARD. The statement is made there to indicate that
at the present time farm prices are about on a level with what farmers
have to pay as the prices for their products, and they have reached that
point so we are only at about the same relationship as in 1910 to 1914.
Mr. CRAWFORD. Will you go so far as to say in addition to what
have said that, therefore, you do not believe that so long as they you are

within that range they contribute to an inflationary spirali

Secretary WICKARD. No: I think you may have everything going up
to where you would get into inflation even though they might remain
the same relationship.
Mr. CRAWFORD. So long as farm prices remain at parity do you
take the position that so far as farm prices are concerned inflation
is obviated
Secretary WICKARD. No: farm prices might double what they are
and still be at parity or they might go to half what they are and still
be at parity.
Mr. CRAWFORD. In other words, we cannot take the position that

vastly increasing of farm prices do not contribute to inflation as

organized labor has taken the position, as I believe their records will
show, that the increase in wages has not contributed to inflation.
Miss SUMNER. He is right, but they are wrong, because if you in.
crease the purchasing power through increasing wages obviously that
is going to have a tendency to cause inflation.
Secretary WICKARD. Unless some other factors are considered. If
you have the products they want to buy available for them to buy,
without some artificial reason, prices may not be inflated.
Mr. CRAWFORD. May I ask the question in this way to get it clear in

my mind. Would you say that if farm prices go up 25, 50, or 100
percent above the price level, but at the same time remain at parity,

that that will be a contributing factor to the inflationary spiral
Secretary WICKARD. I think that there would be a tendency in that
way.

Miss SUMNER. There are two ways in which you can have a contribution to inflation: A rise in wages may contribute to inflation, or a
decrease in the production in that particular industry, which would
give rise to an increased demand: that might contribute to inflation
So there are two ways in which that can contribute to inflation, and
labor recently undertook to show that recent wages did not raise the
price of automobiles.
Mr. CRAWFORD. At the top of page 4, Mr. Secretary, you make this
observation:

Inasmuch as attaining parity has been the objective declared by Congress In
agricultural legislation ever since 1933, the realization of this objective, It seems
to me, ought to be the cause for general satisfaction.

Now after what you have already indicated above as the rise in
price level of farm commodities does contribute to the inflationary

1919

spiral, do you feel that we should desert that program in our effort
to prevent or to detract from or subtract from the forces which bring
that about

Secretary WICKARD. You mean the parity program
Mr. CRAWFORD. Yes.

Secretary WICKARD. No; I do not think we should, and I do not
think we need to.

Mr. CRAWFORD. Well, if we stick to the statement that parity is
going to add to the inflationary spiral, as you have stated before
Secretary WICKARD (interposing). I did not necessarily say that
depends upon where the price level goes, and that is what this bill
is dealing with, one of the things it is supposed to deal with.
Mr. CRAWFORD. Yes: but if we stick to that statementSecretary WICKARD (interposing). We can have a price level for
farm commodities, and prices continue to remain at parity without
it

necessarily having inflation.
Mr. CRAWFORD. I am trying to pin this down to agriculture.
Secretary WICKARD. Yes.

Mr. CRAWFORD. If by sticking to parity, the parity principle, the
parity formula, we move the price of agricultural products up 25, 50,
or 100 percent, along with other prices, thereby contributing to the
inflationary spiral, should we, as the representatives of agriculture
forces propose to forfeit the principle that contributes to an inflationary spiral, if it does that
Secretary WICKARD. I do not think that would be fair; I do not
think so. I think it would nut the farmers to an immediate disadvantage in comparison with others.
Mr. CRAWFORD. I do not think so, but unless somebody else is willing

to take the step I do not know how you can yet away from it, unless
somebody is willing to take the step first.
Mr. MILLS. May I interpose this question
Mr. CRAWFORD. Yes.

Mr. MILLS I wonder, Mr. Secretary, if in this discussion we are
not failing to distinguish between normalcy and inflation! You say
that possibly agricultural products, even at parity, might contribute,
under certain circumstances, to the inflationary spiral, and I am wondering if agricultural commodities always remain at parity, with that
relationship continuing, if we would not have a normal period rather
than an inflationary period.
Secretary WICKARD. You would have a normal relationship, but 1
am not sure that there might not be an inflationary period or a deflationary period.

Mr. MILLS. That brings me to this point: The question of inflation
or deflation or normalcy does not depend upon the price of commodities at all; that relationship depends upon other factors in the economy,
purchasing power in relation to the productive capacity.
Secretary WICKARD. And the amount of products available, the
savings, and all of those things.

Mr. MILLS. But you could not say that agricultural products at
parity, above parity, or below parity would be a contributing factor
to inflation, just as a concrete matter?
Secretary WICKARD. Not as a definite flat statement.

Mr. MILLS. In other words, you could not give a flat answer to Mr.

PRICE-CONTROL BILL

1921

that it does not recognize the parity principle as one of the things
now which will prevent the inflationary spiral!
1920

PRICE-CONTROL BILL

Secretary WICKARD. I do not think the attainment of parity necessarily will prevent the inflationary spiral.
Mr. CRAWFORD. I do not want to press you for an answer to this

Crawford's statement or question?

question, but if granting parity will contribute to the inflationary
spiral why should this bill carry it!
Secretary WICKARD. I did not say that it would necessarily do

Secretary WICKARD. I may have misunderstood his question
statement. As I understood the question, Mr. Crawford, you say or
that if farm prices went up 25, 50, or 100 percent above what

that.

are now, but still were at parity that might have some indication of they an

Mr. CRAWFORD. No: I did not say it would, or that you said it

inflationary tendency, and I said that it might have.
Mr. MILLS. It might have or it might not

would. But if the granting of the principle of parity will con-

Secretary
other
factors. WICKARD. Or it might not. It would depend upon many

tribute or does contribute to the inflationary spiral why should this
bill recognize it at all!

Mr. MILLS. Such as whether or not you have excess purchasing
power in relation to productive capacity.
Secretary WICKARD. That is one of the contributing causes
Mr. MILLS. No: that is not one of the contributing causes, if you
will permit me to say so, because if that situation exists you have
got inflation. Deflation is the reverse,
Secretary WICKARD. Yes. I think perhaps that it usually takes
place in a price rise when you have more money available than you

Mr. CRAWFORD. No: if the acceptance of the principle of parity
does contribute to the inflationary spiral why should it recognize it!
Secretary WICKARD. I did not say it did.
Mr. CRAWFORD. I know but why should the bill, designed to prevent inflation. recognize the principle of parity if it does contribute
to the inflationary spiral.
Secretary WICKARD. What I am trying to say is that I am happy
that we do have legislation that recognizes the parity principle

Secretary WICKARD. Recognize parity?

and uses it as one of the standards for legislation; that is the

have products to purchase.

Mr. MILLS. That is the point I am talking about.
Mr. CRAWFORD. In you speaking of this objective having been

purport of my statement.
Mr. CRAWFORD. Well, let me go back to my previous statement,
and to the earlier comment that it might contribute to the inflationary

realized and that it ought to be the cause of general satisfaction, I wish
to bring out this point: It seems to me that we are about to get tangled

spiral. I am submitting the question so that if the recognition
of the parity principle does contribute to the inflationary spiral-

Secretary WICKARD. Not necessarily.

up here in the bulrushes, in bringing this thought to the people,
to the effect that farm parity prices result from war emergency, or
I

came about only because of a war inflationary spiral operating.
would not want to see the record left that way.
Secretary WICKARD. That is right. I do not think that that has
been the case.

Mr. CRAWFORD. Neither do I, but I am afraid the statement you
made would enable somebody to point to some agricultural people that

parity is due primarily to the effect of war inflationary price spiral in
operation, that they are getting something simply as a result of an
emergency proposition and that when the emergency passes they do
not get it.

Secretary WICKARD. I think that much of the farm price increase,
farm prices, has been due to acts of Congress, the price-supporting
laws that have been put into effect, 85 percent of parity loans; and I
think quite a lot of the price increase has been due to that in getting
farm prices up from the extremely low level.
Mr. CRAWFORD. Going to the top of page 5 of your statement, you

say this:

One of the merits of the pending bill is its acceptance of the parity principle.

You mean to say that the bill accepts the parity principle as a means
to control inflation. or to offer a shock to inflation, or to prevent inflation. Is that the reason this bill accepts the principle of parity!
Secretary WICKARD. No: it recognizes parity as a thing that is desirable, to keep a normal relationship, a fair relationship between
prices of things that the farmers have to buy and the things they have
to sell.

Mr. CRAWFORD. Recognizing the parity principle from the standpoint of, say, relativity or relationship, but do I understand you to say

and I am not saying that it does, and I am not saying that anybody
said so-but if it does contribute to the inflationary spiral why should

a bill designed to prevent inflation recognize that principle? I
think there is only one answer to that.
Secretary WCKARD. Well I do not know, Congressman. What I

am saying is that I am happy, first, that we attained parity and
I am glad that it is being recognized as a fair principle. I recog-

nize that parity may mean either inflation or deflation and I cannot
go further than that statement.
Mr. CRAWFORD. Let me call attention to this further statement,

where you say:
I assume that the bill uses the parity principle for farm prices because It is
fair to both farmers and consumers.

Now, I would like to ask you this question: Does fairness assure

inflation control?
Secretary WICKARD. No.
Mr. CRAWFORD. In other words, fairness should not be a wartime
objective, should it Y
Secretary WICKARD. I think it is a good wartime, peacetime, or inbetween-time objective.
Mr. CRAWFORD. I agree with you.
Continuing down you make the statement on page 5:
The administrative efforts will necessarily be in maintaining a fair relationship among the prices and a practical margin between prices and costs.

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PRICE-CONTROL BILL

1922

In your opinion would that insure inflation control
Secretary WICKARD. Where are you reading from
Mr. CRAWFORD. I am reading the second sentence in the second
paragraph on page 5:
The administrative efforts will necessarily be to maintain a fair relation
ship among the prices and a practical margin between prices and costs

1923

Mr. CRAWFORD. Well, can we not go so far as to say it was an objec-

during a time of deflation, at the time we started talking about

tive, principle! I am trying to get clear the general purpose of
parity We had a deflationary condition in agriculture when we
parity. started promoting the philosophy of parity prices, did we not

Secretary WICKARD. Had a deflationary condition
Mr. CRAWFORD. Yes.

My question was would that effort, carried to consummation, assure inflationary control so far as agriculture is concerned, in your

Secretary WICKARD. I thought we were trying to get farm prices
up; I think we were.

Secretary WICKARD. Well, I think it all depends upon the general
price level, outside of agricultural products.
Mr. CRAWFORD. Going on a little further you use language, "as
to wipe out his net income.

out advocating the parity principle for farm prices did we not have
a deflationary condition in this country so far as agricultural products

opinion?

Do you have any definition, any practical definition of net in.

come that you can give us
Secretary WICKARD. Do I have a definition of net income
Mr. CRAWFORD. A practical definition of net income as used in this
connection
Secretary WICKARD. Well, I think in determining his net income

you would have to consider cost and depreciation. It would be his
cost and depreciation, difference between that and what he received:
that would be his net income.
Mr. CRAWFORD. On page 6 of your statement, at the close of the
middle paragraph you state:
It happens to be the expressed policy of Congress and the administra-

tion to achieve and maintain farm prices at parity

Would you go so far as to say also, to control inflation and defla-

tion

Secretary WICKARD. Well, I do not know
Mr. CRAWFORD (continuing). In other words, that the parity principle is at least partially to prevent the undue deflation of farm prices.
Secretary WICKARD. I do not think that parity was a principle established for that purpose; no.
Mr. CRAWFORD. You do not think the parity principle was established for what
Secretary WICKARD It was established because it recognized a fair

relationship between farm prices and the cost of the things that

the farmer buys.
Mr. CRAWFORD. Well, to prevent undue inflation

Secretary WICKARD Deflation
Mr. CRAWFORD. Deflation in the price of farm commodities.
Secretary WICKARD. Yes; to prevent prices going down faster than
prices of things he had to buy.
Mr. CRAWFORD. Yes, Was it not a parity floor rather than a ceiling!
Secretary WICKARD. Was it what
Mr. CRAWFORD. Is not parity a floor rather than a ceiling!
Secretary WICKARD. Well, parity is an objective.
Mr. CRAWFORD. I was going to add, "as an objective." Now, here is

my question. Was not parity a floor rather than a ceiling as an
objective Do you agree with that
Secretary WICKARD. Well, parity, as I said, was an objective; it is
neither a floor- all depends upon the kind of legislation; the parity

level is a standard,

Mr. CRAWFORD. Yes: but when the people and the Congress started

were concerned

Secretary WICKARD. Did we not have a deflationary condition
Mr. CRAWFORD. Well, were not farm prices extremely low at that
time

Secretary WICKARD. 1910 to 19141

Mr. CRAWFORD. No; when we started to advocate the parity prin-

ciple.

Secretary WICKARD. Yes: I think the parity legislation came about
because of the extreme low price of farm commodities.
Mr. CRAWFORD. Yes. In other words, it was a floor rather than a

ceiling as an objective in the deflationary condition at the time.
Secretary WICKARD It was an effort to try to raise farm prices up

to a fair level in relation with other commodities. And do not
think it was necessarily a floor or a ceiling when we first started
considering it: it was an objective to try to get farm prices at a
fair relationship with other prices.
Mr. CRAWFORD. When actually applied, to serve as a floor.
Secretary WICKARD. When you have proper legislation and funds,
and so on.

Mr. CRAWFORD. Yes.

Secretary WICKARD. And a program which tended to raise farm
prices to a proper relationship with other prices, I suppose in that
sense you could call it a floor.
Mr. CRAWFORD. I am just trying to get some enlightenment as to

what is involved in this parity principle, and my distinction is and if
I am not correct, I want you to correct me-when the parity principle
is fully applied, through the application of loans, commodity credit,
surplus, control, legislative implementation appropriations, and so on,
it does have as one of the objectives to serve as a floor.
Secretary WICKARD. Not simply as the objective, because we have

only recently been able to get prices up to something near parity level
although we started back some 8 years ago.
Mr. CRAWFORD. Yes: but not until just recently had the objective
been obtained or put into operation, and when it is in operation
is the point I was making-when it is in operation it does put a floor
under prices.

Secretary WICKARD. It does tend to do that.
Mr. CRAWFORD. Does it just tend to do that, and, if so, why do you

as Secretary of Agriculture then advocate it as the salvation for the
economic welfare of the American farmer? I do not believe that it
just tends to do so; I think it does, and I wanted to see if you agreed
with that.

1924

PRICE-CONTROL BILL
PRICE-CONTROL BILL

1925

WICKARD. No: I do not think actually does it every day
forSecretary
every commodity.
Mr. CRAWFORD. Well, I am not süggesting that you say that it does
for every commodity, every day, but on the things on which it is

ating, does it not do so? If not, should you not be asking for oper.
thing more than parity, because if it does not do 80 I think we some- are
entitled to have at least what parity is supposed to give us.
Secretary WICKARD. There are a few commodities at the present
time that are reaching parity, as stated this morning.

I do not know just what your judgment may be, but I cannot
what apparently you think you should say, that parity is an absolute say
floor to prices, as it has operated thus far.

Mr. CRAWFORD. No: I am not trying to get you to say that,
Secretary WICKARD. It does tend to support prices.
Mr. CRAWFORD. Now let me ask you this question: With these infla.

tionary spirals in operation, and if we are to stand on the parity
principle in our general approach, should that, in your opinion, operate as a ceiling objective?
Secretary WICKARD. Parity
Mr. CRAWFORD. Yes.

Secretary WICKARD. I said this morning in my testimony that I do
not think you should have 8 ceiling put into effect, except when prices
got up to 110 percent of parity so their might be an opportunity for
prices to reach an average of parity.
Mr. CRAWFORD. You think we should contend for more than parity!
Secretary WICKARD. No: I do not think we should try to get prices
to average more than parity because that would be unfair just the
same.

Mr. CRAWFORD. If we permit some deviation in order to make up
for the failure of deflation control will that not somewhat assure the
failure to prevent inflation?
Secretary WICKARD I do not know that I get what you mean by
deflation control. What do you mean by that!
Mr. CRAWFORD. Well, I do not know that I can make it much clearer
than have already stated. Suppose we are headed for a deflationary

storm! Personally, I can separate these two, that deflation follows
inflation, and sooner or later you may be up here advocating before the

Agriculture Committee or this committee that we should do certain
thigs to prevent deflation. Now you are advoating it to prevent inflation. Now my question was this: If we permit a deviation to make
up-that is from parity-to make up for the failure of deflationary
control will that not assure a similar failure in handling an inflationary

control? I do not wish to press that question, but just throw it out.
Secretary WICKARD. You are talking about 110 percent of parity!
Mr. CRAWFORD. Yes: there is a deviation in this bill of 10 percent.
Secretary WICKARD. Yes: as have said, I think we should have tha
range.

Mr. CRAWFORD. Well, I will not press that question further.
Now, would it be fair for me to take the position that farm prices
tend to rise out of line with other prices in a period of inflation
Secretary WICKARD. That has been the history.

Mr. CRAWFORD. Now, in that case it seems to me that, if that is
absolutely true-and I am not arguing it one way or the other-that

110 percent of parity in the bill will serve to somewhat assure
putting guarantee a faster rise than would occur otherwise, Now, if 1ctuations and are sure to follow, what purpose can there be in setting a
ceiling at all
Secretary WICKARD. Well, I think ceilings are necessary, as I said,
take care of the inflationary price tendencies which arise out of
less to production, or less commodities, than there is purchasing power.

And I am of the opinion it should be used when necessary to prevent
speculation and things of that kind occurring, under those conditions,
Mr. CRAWFORD. Just one other remark. Mv remarks with reference
your advocacy I want to clear up in this way: know that you have
agriculture at heart very greatly and you have somewhat led me to
believe that you do not feel the parity principle will actually do the
to

job.

Secretary WICK RD. Of what
Mr. CRAWFORD. Of giving the farmer a fair price for his labor in
the form of the products which he sells.

Secretary WICKAED. Oh, yes; I think I cannot agree that I said
that. If did, I made a mistake; I did not intend to say that.
Mr. CRAWFORD. I do not say you said that, but you led me to believe
you did not feel it would be absolutely efficacious.
Secretary WICK RD. I am sorry I misled you.

Mr. HUIL May I ask a question there? D3 you feel, Mr. Secretary,
that the farmer will get the cost of production by having 110 percent
of parity?

Secretary WICKARD. Well, I do not know. You and I might not
agree upon what cost of production was. I think that we have established here by law the parity principle and I believe that, with other
parts of the agricultural program that is being put into effect, cffers
an opportunity to get some place near parity prices for farmers, in-

cluding the payments that are given to them under the various
appropriations.

Mr. HULL But that would not take into consideration the farm

labor cost of the product. would it!
Secretary WICKARD No: this parity index does not take into consideration the farm labor cost.
Mr. HULL It will not take into consideration the relationship between farm income and national income. will it
Secretary WICKARD. No: this is entirely a price parity.
Mr. HULL It will not be parity between farm income and the income
of industry, for instance, will it 1
Secretary WICKARD. No, because income for either industry or farming is made up of two things-volume sold times price. We have been
talking here about price; I understand this is price control.

Mr. HULL It is hardly a matter of fixing what might be called a

parity price of industry as compared with the price of what the farmer
buys. It depends on what the farmer is supposed to buy: is not that

true!

Secretary WICKARD Yes.

Mr. HULL And when that basis was established, the farm income
was at that time approximately 14 percent of the national income and
now it is down to about 7 percent or 8 percent and will not be increased
because of the increased prices he is getting nowadays; the percentage

1926

PRICE-CONTROL BILL

PRICE-CONTROL BILL

1927

HULL Is it fair to base the income of agriculture on any plan of
Mr. or otherwise, where it does not figure in the cost of production
parity there any other line of industry in the world, where you put the

of the national income will remain just about the same if you get the

parity price, at whatever percent

Secretary WICKARD. The way the national farm income is growing
it may be much more than what is indicated, because we are selling

Is on the market and do not fix the price at cost of production,
1

a
greater volume of products, as well as getting better prices for
them.

that product won't drive that industry into bankruptcy

Secretary WICKARD. Well, I do not think any other industry would
undertake it unless it thought it could get the cost of production-

Mr. HULL Yes; on the other hand, your Department has esti.
mated that about a billion and a half dollars will be added to the

would undertake to manufacture the product unless they thought they
would at least break even on it.

farm income this year by these increases in prices.
Secretary WICKARD. For 1941; yes, sir,
Mr. HULL. Now, then, you have estimated at the same time you are
going to have about a $24,000,000,000 increase in the national income
So, relatively, the farm income will be lower with higher prices than
it has been with lower prices; is not that true?
Secretary WICKARD. I do not know. Is there going to be a $94,
000,000,000 increase in the national income this year
Mr. HULL I am just taking the newspaper reports that come out

Mr. HULL Surely, or they would go into bankruptcy

Secretary WICKARD. Yes.

Mr. HULL Well, is the rule any different as to the farm income
Secretary WICKARD No: it depends somewhat on other things,
Congressman. I mean why do farmers stay in production, stay in
farming year after year, as you say-1
Mr. HULL You know why they stay in production-because that is
about all they can do.

from your Department; that is all I am giving you. I do not know

Secretary WICKARD. That may be on thing; another thing is it

myself.

offers security.

Mr. HULL Is it fair to base agricultural income on a parity scheme
or any other scheme that does not involve cost of production, when all
other lines of industry and commerce do figure their price on cost of
production You have one system for the farmers and another for

Secretary WICKARD. I do not know. I am not going to speak to
the figures you just gave, but it is my opinion that the farm income
this year is the best it has been for several years.
Mr. HULL The general farm income?
Secretary WICKAED The general farm income: that is right.
Mr. HULL. Of course the farm income embraces a lot of things, but
it does not embrace the farmer's labor and, for instance-I mentioned
this once before-you grow corn on your farm
Secretary WICKARD. Yes, sir: among other things.
Mr. HULL That is income, is it not

the others.

Secretary WICKARD. Yes: but they have some things for the farmer
that you do not have for industry.
Mr. HULL. What
Secretary WICKARD. Ability of the people who live on farms to have
a

Secretary WICKARD. Yes, sir.

Mr. HULL You feed it to hogs, and you sell the hogs; that is in-

come
Secretary WICKARD. Yes, sir.
Mr. HULL And even if you eat the hogs, that is income, according

home as long as it is not taken away from them; to produce the
things they need for their own protection. The factory door does
not close; the war effort does not come along and put them completely out of business as it does when the Priorities Commission or
Board suddenly annuls any order they might have had for commodi-

ties which they needed in their production. Now, I thinkMr. HULL I do not want you to go into that too fully

to your Department

Secretary WICKARD. Let me finish my statement. My opinion is,
Congressman, if we can obtain parity for the farmers, I think we

Secretary WICKARD. Yes.

Mr. HULL Now, then, there are three incomes on one crop, so that
when you get right down to the actual cash obtained by the farmer,
it is far below the corn fed to stock, the amount of hay fed to stock,
and all of the rest of the feedstuff marked off, when they go into meat
products, dairy products, or poultry: but they are all figured in there
as part of the national income and are figured three times in many

will go a long, long way toward solving the farmer's income as well.
Mr. HULL Yes; for some farmers; but when we had Dr. Robins
here a few weeks ago, he said the farmers might receive parity and
still go into bankruptcy.
Secretary WICKARD. I think that is true: I think it is possible. As
I say, we have an objective put out here by the Congress, and I am
very happy to see us come as near reaching parity as we have during

cases,

Secretary WICKARD. Is that true! I do not know.
Mr. HULL All I know is from the agricultural statistics of the
Department of Agriculture.

the last few months.

Now, as to the cost of production, I think it is pretty difficult for

you and I to agree upon an answer to that question when we cannot
perhaps agree on what rate ought to be taken into consideration to
determine the cost of production; because the cost of production for

Secretary WICKARD. Here is Dr. Tolley, who gets out the statistics
I would like you to ask him.
Mr. HULL. I asked the same question of Dr. Tolley the other day,
and I just want to get your thought.
Secretary WICKARD You just want to see what the discrepancy is
between the two? [Laughter.]

one farmer will not be the cost of production for another farmer
even though they live in the same neighborhood.

Mr. HULL Now, we appreciate that all farmers may not live in
Georgia or Alabama, and the purchases they make do not compare
with what they make in your State or mine.

ut

PRICE-CONTROL BILL

PRICE-CONTROL BILL

1928

Secretary WREAM That is right.
Mr. Heir Now. as a matter of fact. Mr. Secretary. since 1998 the
political parties have been meeting and have been resulving to place
agriculture on a parity with industry. Did they ever. in any platform
plank. pledge that they were going to base farm prices or party-with
industry prices?

Secretary WITH Well, trying to achieve parity is what I though

that would mean.
Mr. Hraa. No: that IDPRESS parity as to purchasing power. The
farmer has to pay certain prices for these goods which be buys, but to
port agriculture on $ party with industry. I think 28 percent is what
they will have to get in order to have a proportionate share of the

national income That is the kind of party I am talking about
Semary WICKAED I have Inver seen aux political plation that
did ins what von SET: INC sir. did THE see II stated: BILL SIT.

Mr H:12 1 have taken more time than I intended Thank you

Mr. Secretary

Mr. Mr. Secretary. relative to the parity section of this

hill 110 percent of the party price or comparable price for such
commodity as determined and published in the Secretary of Agricul
turn. or (2) the market new prevailing for such commodity or Juit

99,794 You realize that the Administrator. if this bill does per

will not being down these prices to anything like parity, that is the
products that are gwat above marity now.
What I WATE In - is equality for the farmer with labor and will
industry. Now. in strikes me you have to have another section a
there to take care of some agricultural products, because the be

period of 19/9-19 IS not fair to some of the major agricultural

rendants

Do TOE have any objection to that Nov. THE are not fixing the

mere BY ST fixing the ceiling. It is not = parity bill: the
price-fising bill

Sentent WE A prin-centrol hill

Mr. Reser Price control And for that TEAM - just mist

= well that = the thing to accomplish fast THE You know the
Administrator # ave more to bring beef cattle down TO 110 percent d

marity: TVE I in S THAT gome to irring www GOWT to that: VIE

- the I to bring = in of other things down Therefor
think TO the fair then should in another section added effé M
WTW might SET - The average price 1919-26

Secretary Time 1919-291

Mr. Rears Yes That might bring m all of the -

when the womic be - - essality- of the TATE products You

month THE have - obsertive to that work WE

SUPPORT WERE 2 do THE DATE any objective to keeping be

revidents = # - relationship to each other. as well - to abe

Mr. Renew The - what 3 am talking shout The - . in

the TIME to each other?

SIGNATURE But 1 - INC - who VER will de the

A less 3 have THE education ass matter of disjective
Mr Renew 3 have the figures here from THE Department

Security WEEK That . will de that

1929

Mr. BROWN. I have the figures here from your Department from
to 1929. Now, that was the year after the war, and besides, that
1919 came up to the year 1929 when we had the worst deflation we ever

had in history. That was during peacetimes. Nobody ever quarreled
about the prices of farm commodities between those years.
Secretary WICKARD. 1919-29?
Mr. BROWN. Yes.

Secretary WICKARD. I did, and aplenty. I sold hogs for $6 during
that period, and at the prices I had to pay I was losing money pretty
rapidly.

Mr. BROWN. All right; what was the average price of hogs at that
time as compared to parity now!
Secretary WICKARD. You are talking about the average price during
1919-29?

Mr. BROWN. Yes.

Secretary WICK ARD. I do not think the average price during 1919-29
very good as compared to the price today.
Mr. BROWN. Now, some of you fellows think more of hogs than you
do about wheat and cotton.

Secretary WICKARD. You naturally think of the things out of which
you make a living.

Mr. BROWN. I know that is natural, but the three main commodities,
Mr. Secretary. are wheat. corn, and cotton.
Secretary WICKARD. Well, hogs bring the farmer a lot more money.
Mr. BROWN. I know that, but hogs are corn.
Sceretary WICKARD. That is right.
Mr. BROWN. And cattle is corn in your section.
Secretary WICKARD. To quite an extent.
Mr. BROWN. And when you get it down, you cannot get away from
the three main basic commodities-corn wheat, and cotton. Now, the
average price of wheat in those years was $1.32 a bushel; your parity
price fixes it at about $1 20. The average price of cotton was 21.41
cents; your parity price is fixed at 16.99 cents. Corn stood at about
the same relationship. Now, those were years when nobody thought

of cotton. and in that section I want to put in there the three main

commodities, because you have beef cattle and you have hogs growing
out of feeding corn; you have wheat bought for bread; you have cotton

and wool that goes into clothing. And, for that reason, to take care
of some of the main basic commodities, we ought to have some other
section.

Now, I know this section will take care of beef cattle at around 150,
which was the price around about the 29th of July; something like
that. But it does not take care of a lot of other things.

Another thing, Mr. Secretary, I want to ask you about is, Why
should there be anything put in this bill where there is a surplus,
where there is any surplus commodity That would not have anything to do with inflation, would it 1
Secretary WICKARD. You mean if there was a surplus?

Mr. BROWN. Any commodity where there is a surplus does not
affect inflation. does not bring about inflation?
Secretary WICKARD If you have free market forces, no. I think

the surplus would tend to keep down inflation, if it was given its

full market effect.

1928

PRICE-CONTROL BILL

Secretary WICKARD. That is right.

Mr. HULL Now, as a matter of fact, Mr. Secretary, since 1928 the
political parties have been meeting and have been resolving to place
agriculture on a parity with industry. Did they ever, in any platform
plank, pledge that they were going to base farm prices on parity-with
industry
prices
Secretary
WICKARD. Well, trying to achieve parity is what I thought
that
would mean.

Mr. HULL. No: that means parity as to purchasing power. The

farmer has to pay certain prices for those goods which he buys, but to
put agriculture on a parity with industry, I think 23 percent is what
they will have to get in order to have a proportionate share of the
national income. That is the kind of parity I am talking about,
Secretary WICKARD. I have never seen any political platform that
did just what you say; no, sir. I did not see it stated: no, sir,
Mr. HULL I have taken more time than I intended Thank you,

Mr. Secretary.

Mr. BROWN. Mr. Secretary, relative to the parity section of this
bill "110 percent of the parity price or comparable price for such
commodity as determined and published by the Secretary of Agricul
ture, or (2) the market price prevailing for such commodity on July
29, 1941, You realize that the Administrator, if this bill does pass,
will not bring down those prices to anything like parity, that is, the
products that are away above parity now.
What I want to see is equality for the farmer with labor and with
industry. Now, it strikes me you have to have another section in
there to take care of some agricultural products, because the base

period of 1909-19 is not fair to some of the major agricultural
products.

Do you have any objection to that? Now, we are not fixing the
price we get we are fixing the ceiling. It is not a parity bill; this
is a price-fixing bill.
Secretary WICKAFD. A price-control bill.

Mr. BROWN. Price control. And, for that reason. we just might
as well look at the thing to accomplish that view. You know the
Administrator is not going to bring beef cattle down to 110 percent of

parity: you know he is not going to bring wool down to that: you
know he is not going to bring a lot of other things down. Therefore
I think. to be fair. there should be another section added to this bill
and you might say "or the average price, 1919-29."
Secretary WICKARD. 1919-29?

Mr. BROWN. Yes, That might bring in all of the commodities
where they would be on an equality-all of the farm products. You
would not have any objection to that, would you?
Secretary WICKARD I do not have any objection to keeping farm
products in a proper relationship to each other, as well as to other

commodities

Mr. BROWN. That is what I am talking about. We want to keep
the proper relationship to each other?
Secretary WICKARD. But I am not sure what you said will do that.
As say, I have no objection, as a matter of objective.
Mr. BROWN. I have the figures here from your Department.
Secretary WICKARD That it will do that, you say?

PRICE-CONTROL BILL

1929

BEOWN. I have the figures here from your Department from

Mr.

1919 to 1929. Now, that was the year after the war. and besides, that

up to the year 1929 when we had the worst deflation we ever

had came in history. That was during peacetimes. Nobody ever quarreled
about the prices of farm commodities between those years.
Secretary WICKARD. 1919-29?
Mr. BROWN. Yes.

Secretary WICKARD. I did, and aplenty. I sold hogs for $6 during
that period, and at the prices I had to pay I was losing money pretty
rapidly.

Mr. BROWN. All right: what was the average price of hogs at that
time as compared to parity now?
Secretary WICKARD. You are talking about the average price during
1919-29

Mr. BROWN. Yes.

Secretary WICK ARD. I do not think the average price during 1919-29
was very good as compared to the price today.
Mr. BROWN. Now, some of you fellows think more of hogs than you
do about wheat and cotton.
Secretary WICKARD. You naturally think of the things out of which
you make a living.

Mr. BROWN. I know that is natural. but the three main commodities,
Mr. Secretary. are wheat. corn. and cotton,
Secretary WICKARD. Well, hogs bring the farmer a lot more money.
Mr. BROWN. I know that, but hogs are corn.
Secretary WICKARD. That is right.
Mr. BROWN. And cattle is corn in your section.
Secretary WICKARD. To quite an extent.
Mr. BROWN. And when you get it down, you cannot get away from
the three main basic commodities-corn, wheat, and cotton. Now, the
average price of wheat in those years was $1.32 a bushel; your parity
price fixes it at about $1 20. The average price of cotton was 21.41
cents: your parity price is fixed at 16.99 cents. Corn stood at about
the same relationship. Now. those were years when nobody thought

of cotton. and in that section I want to put in there the three main

commodities, because you have beef cattle and you have hogs growing
out of feeding corn: you have wheat bought for bread: you have cotton

and wool that goes into clothing. And, for that reason, to take care

of some of the main basic commodities, we ought to have some other
section.

Now, I know this section will take care of beef cattle at around 150,
which was the price around about the 29th of July: something like
that. But it does not take care of a lot of other things.

Another thing, Mr. Secretary, I want to ask you about is, Why
should there be anything put in this bill where there is a surplus,
where there is any surplus commodity? That would not have any-

thing to do with inflation. would it ?
Secretary WICKARD. You mean if there was a surplus?
Mr. BEOWN. Any commodity where there is a surplus does not
affect inflation. does not bring about inflation?
Secretary WICKARD If you have free market forces, no. I think

the surplus would tend to keep down inflation. if it was given its
full market effect.

1930

PRICE-CONTROL BILL

Mr. BROWN. All right; we will come back to the three basic
modities
Whythey
should
there
by any in
ceiling
wheat, cotton, comand
corn,again.
because
have
a surplus
all ofon
those

Secretary WICKARD. I think there are two things. Crop failure
might wipe out the surplus of corn, for instance, within a very few
months, or there might be some speculative manipulation of one kind

or another trying to drive the price up. If there was no method of
controlling the price, if the surplus is allowed to play its full market
force, then any control would not hurt -would not affect the market.
Mr. BROWN. Let us do not look at minor things that might take
place, but suppose you needed more wheat, more corn, and more
cotton, would you want to put a ceiling there You would want to
encourage people to go into those lines of production, would you not,
because all of those things are part of the national defense?
Secretary WICKARD. That is right. Of course, Congressman, I do
not think you can ever have any control of inflation by everybody say.

ing "I want the other fellow to do all the control, while mine goes

scot free."

Mr. BROWN. All right, sir. I want to ask you, Do you think a ceiling price in this bill, fixing the farm commodity price on the 1919-29
average, according to the figures furnished me by your Departmentdo you think that would bring about that condition
Secretary WICKARD I have not studied that average. The only
thing I have are the prices you read me, and there are a lot of other
commodities involved in this whole thing.
Mr. BROWN. I know, but I am talking about the basic commodities
I am trying to get something, Mr. Secretary, besides hogs to put

ceiling prices on.
Secretary WICKARD. I think, at the present time, cotton is about as
near parity as corn.
Mr. BROWN. That is true, but not with hogs and cattle.
Secretary WICK RD. Hogs are very near parity now; they have gone
down $2 a hundred recently.
Mr. BROWN. And cattle is above?
Secretary WICKARD Somewhat above.
Mr. BROWN. And you are satisfied with those prices?
Secretary WICKATD. There has been a lot of complaint on the part
of consumers about cattle prices.
Mr. BROWN. Are you satisfied now with cotton prices-I mean as a

ceiling-cotton prices and wheat prices, if you would put a ceiling on
them around parity?
S-cretary WICKARD 110 percent is what we suggest here; yes.
Mr. BROWN. Are you for this 110 percent I thought you were for
parity. T cannot understand your position.
Secretary WICKARD. I tried to state in my testimony that it was necessary not to have a ceiling below 110 percent of parity, so that we
could have an average of parity.
Mr. BROWN I see. You believe in the 110 percent as in this bill!
Secretary WICKARD. Yes; I think we should have that.
Mr. BROWN. Now, I know you believe in equality for the farmers
to industry and labor. I was very much impressed by the statement
of Mr. Hull that you are going to fix a ceiling. Of course. in industrial
products, labor, all wages, and the wages of managers of the corpora-

PRICE-CONTROL BILL

1931

tion are all figured in the price. Then, of course, the Administrator
want this industrial corporation to make a profit. Now, when
would figure on agricultural products and put a ceiling on them, we do
we not figure in the labor costs!

Secretary WICKARD. The farm labor cost.
Mr. BROWN. Well, as far as cotton is concerned, that is half of the
cost of production. Do not you realize that
Secretary WICKARD. I suspect it is.
Mr. BROWN. Of course, for wheat not, and for corn not: but when you

to cotton, that is half of the cost of producing cotton. Nobody

come knows that any more than I do, because I come from a cotton section.
Secretary WICKARD. There is quite a lot of labor.

Mr. BROWN. Now, are we going to sit by and have the price-fixing

bill pass so as to give a profit in the industrial price, to figure in all

of the costs of production plus a profit, and then set a ceiling on cotton
that none of the cost of production is figured in
Secretary WICKARD. Well, I do not know but what the parity price
for cotton would not cover most of the cost of production. Apparently,
when we framed the agricultural legislation we thought it would or we
would not have said parity was a worthy objective.
Mr. BROWN. You stated this morning that the labor cost was not
figured in.

Secretary WICKARD. The farm labor cost was not figured in in com-

puting the index; but there may have been a lot of it in the price
itself.

Mr. BROWN. How could it be figured in there? You did not figure
anything except labor in the price of the things the farmer buys. I

am talking about fixing prices in this bill. This is not a parity bill;
this is a price-fixing bill.

Secretary WICKARD. Yes, sir. I simply want to try to make plain
what I am saying, and that is this: That when prices were at a certain
level in 1910-14 they may have covered-and perhaps did, as it was a

fair period-all costs of production, including that of farm labor.

Now, we do not make the adjustments in the index for farm labor: that
is my point this morning; yet it may include some, or may cover it; I

do not know.

Mr. BROWN. Well, what does it cover That is what I want to
know. You say it may cover some. What part of the cost is covered
Secretary WICKARD. Parity is trying to establish a fair relationship
between what the farmers have to buy and what they have to sell.
Mr. BROWN. I know: that is the relationship: ves.

Secretary WICKARD. And it goes back to 1909-14 and they said
the relationship at that time was fair and reasonable, and it says
we should try to maintain that relationship at the present time.
Mr. BROWN. Why do you want to take those dates; why do not

you take a later date?
Secretary WICKARD. Because Congress was the one to set that in

the first place, and it was the opinion of Congress and the people
who advocated the legislation that was about the best period we

could find for all agricultural commodities. I take it for granted
that is what they were saying.

1932

PRICE-CONTROL BILL

Mr. PATMAN. If I may interrupt there, I have always been told
that if you selected the period from 1909 to 1929, on an average
you would arrive at the same figures as to take 1909 to 1914, inclusive.
Secretary
WICKARD.
I dobe
nota think
and
I am sure
there would
lot ofnecessarily
variations that would be true,

I want to go back to the farm wage thing. I am sorry I brought
that up if it did tend to confuse you this morning. It would only
increase the index by about 3 points which, in itself, shows that
including farm labor would not account for the whole value of

farm labor. It would tend to give a little more weight, or give

more weight, according to the cost of farm labor, but it would not
either
it in. eliminate by keeping it out, or would not cover it by putting
Mr. BROWN. You are talking about the national figure?
Secretary WICKARD. I am talking about farm parity.
Mr. BROWN. Do you know, when you are talking about parity,
that half of the cost of producing cotton is labor, and that that cannot be correct I am not taiking about corn and wheat; I am talking
about the labor in producing cotton.
Secretary WICKARD. Yes. Now, if we went back a few years, of
course, when farm wages all over the country were comparatively less
than they are now, of course that would tend to lower the parity index;

but it would not tend, as I say, to eliminate all that would come to in
agricultural commodities as far as labor is concerned.
Mr. BROWN. Do you think the same rule would apply, then, as to a
product where half of the cost is labor, as would apply to an agricultural product where practically none of it is labor?
Secretary WICKARD Well, there are other things that perhaps have
almost as much farm labor cost in them as cotton.
Mr. BROWN. Well, what are they
Secretary WICKARD. Oh, the vegetable crops; tobacco, I think, is one
of them. That has a very high cost.
Mr. BROWN. Well, we have a different period for tobacco.
Secretary WICKARD. I do not think that arose out of the farm labor
thing; it was because of the great difference in consumption and the
use of tobacco between 1909 and 1914.

Mr. BROWN. You know the average price of cotton in 1909-1914
was around 12 cents, and you know that between 1919 and 1929 it is

around 21 cents-21.6 cents. Of course that has something to do
with it, as to why the average prices in those years were picked out.
Secretary WICKARD. Any period will give you a different price;
that is right.
Mr. WILLIAMS. While you are doing that, why select especially
cotton and say 1919-1920, when it was 40 cents a pound? That would

suit Mr. Brown. But why select a period of 1920 when that is the
very thing we are trying to avoid now, when those prices were abso-

lutely unreasonable, as everybody knows? Why include that in a
period in trying to fix prices here
If you talk about parity and select that period as the basis for
the parity price from 1919-1929. there may be something in that: but
then to pick out a certain period here and fix that as the price in this
bill for one or two or three commodities, as he suggests, I think
would be absolutely out of the question, according to my mind.

PRICE-CONTROL BILL

1933

Mr. BROWN. Well, I have just as much right to my opinion to pick
10 years as anybody else has to pick out 5 years, and I am going
the idea, too, that the main commodities are wheat, corn, and cotton,
and on I am going on to leave out parity as far as I am concerned. I am
trying to get a fair price fixed in this bill, so that these people on the
farms can make a living, and I propose to offer an amendment. It is
not necessary to discuss it. I do not propose to offer an amendment to
do away with parity laws, but I am going to try to get fair prices, a
fair ceiling price for agriculture.
out

Mr. WILLIAMS. Will you let me ask you a question to see if I
understood your question? Do I understand you want to take the
year 1999 and take that as the base period for Darity!
Mr. BROWN. 1919-1920. That is, the year after the war, just before

they had the greatest inflation they ever had. Why would not that
be all right? That is peacetime.
Mr. WILLIAMS. That is not the question. I am asking von whether
you want to take that period as the base period to establish parity,
or whether you want to take the average price of those basic commodities for that period and write it into this bill?
Mr. BROWN. This is a price bill, not a parity bill. I am not trying

to change the parity law. I would be glad to have the parity provision stay in there, whether 1909 or what it is, just so the average

price goes in.

Mr. WILLIAMS. Well, you could not have them both in this bill.

Mr. BROWN. Well, you have two in there now: von have two prices
in there-110 percent of parity, or the price the commodity was selling
for on the 29th of July. That 18 two.
Mr. WILLIAMS. Is your proposition there to put in 10 percent above
parity. or the average price from 1919 to 1929
Mr. BROWN. Just like you have there-110 percent of parity, or the
29th of July 1941. You have two in there now.

Mr. WILLIAMS You are going to take, then, the average price of
those basic commodities that you have named, and put the ceiling on
them?

Mr. BROWN. At the average price.
Mr. WILLIAMS. At the average price, or 10 percent above parity,
whichever is higher; is that it
Mr. WILLIAMS. At the average price, or 10 percent above parity,
And. of course, you have in there the other provision to take care of

certain agricultural commodity producers, that is, the price on the
29th of July 1941.

Mr. WILLIAMS I did not understand your position.
Mr. BROWN. My idea is that I want to see all of the agricultural producers treated alike. and unless there is some provision like that, I do
not see how it can be done.

Mr. GORE. Mr. Chairman. I have a copy of the address of Prime
Minister W. L. Mackenzie King. Several members of the committee
have requested other copies of the address, but I am unable to secure
any more, Therefore, I ask unanimous consent to put this copy in the
record.

The CHAIRMAN. The address may be inserted at this point.
(The matter referred to is as follows:)

1934

PRICE-CONTROL BILL

PRICE-CONTROL BILL

CONTROLLING THE COST OF LIVING

are rising again because the public has more money to spend
generally. prices less of the things people wish to buy. For 2 years the Government

and there is with the Individual consumer for almost every commodity

(Broadcast by Right Hon.
W. L.October
Mackenzie
King, Prime Minister
Canada,
18, 1941)
The the thoughts of us threats all tonight are turned, I am sure, toward the Russian
and
gathering in the Far East. What has happened front

threatened to make clear that now, more than ever, Canada must and what la
power
within
herself to
herstrong
strength.
If we are
to be strong rally all the
enough
to do our
duty abroad,
wefortify
must be
and united
at home.

T am, therefore, going to speak to you tonight about an action
Government proposes to take in connection with conditions within which the
I believe
thatman,
what woman,
is proposed
vitally
affect
our war effort. because Canada it
affect
every
andwill
child
within
Canada.

will

The action which I am about to explain represents an experiment hitherto
untried
this continent.
to itsanywhere.
breadth and variety,
bitherto on
untried
by the willand
andperhaps
consent having
of any regard
free people
hns to do with the price of goods and services, and the price of the
of land and sea. It has to do with wages. It is of the greatest importance products

every citizen in Canada, and of partienlar importance to every housewife. to
worker, and every farmer. It will affect the daily lives of each one of every
will require the cooperation and support of all. It will help to Intensify us It
effort
of thisafter
country
in war. It will help to prevent a repetition of distress and the
epression
the war.
We have heard much in recent weeks about rising prices. They have affected
the budget of every family in Canada. We have heard and seen something
the Gangers of Inflation. But comparatively few of us, I imagine. understand of
those dangers fully. and what their effect may_be_upon our lives and our labors
By inflation we mean a rise in prices and brought about by abnormal condi
tions whereby our money Is able to buy less of the things we need.

Rising prices unless controlled will make it more costly, and, therefore, more
difficult. to finance the war. Rising prices, unchecked, will spread confusion and
uncertainty In Industry and trade. They will hinder production and the
distribution of supplies. They will make the cost of living rise more rapidly proper
than wages and salaries. The value of savings will be materially lessened The
measure. result would be hardship to nearly everyone, and hardship in very unequal

It Is scareely necessary for me to say that n rising cost of living is a source
of acute personal arx'ety to all and, particularly. to those with small incomes
And It is this very anxiety which is the danger to our war effort. For in
making of war no weapon is more powerful than peace of mind. We all know
that we cannot do our best work and nut forth our utmost effort if we are beset
by personal fears and arx'eties. And we know that a asx'mum war effort for
Canada depends uron each and all working together in conditions that are just
to all. That is why the Government. which is responsible for the direction of
Canada's war effort, is deeply concerned about the effect of rapidly rising prices
pren the presention of the war. That is why the Government has decided that
hereafter prices must be controlled more rigorously than they have been during
fl st 2 years of war. The need's of today demand it.
Tt hne been the experience of countries at war. in modern times at least, that
at a certain stage in the corfl'et prices begin to rise rapidly. Many of us recall
the experience in the last war. Dering the first 2 years there was only a modest
increase in prices. but In 1916 prices began to rise suddenly and the rise continned with Ircreasing rapidity until 1020. Much hardship resulted because the
Incomes of the mass of the people did not keep pace with prices. Unfortunately,
in a period of rapidly rising prices they never do a few made large fortunes:

the

the

they were the people to whom the Secretary of the Treasury of the United States

referred recently in reminding his fellow citizens that only the profiteer,

1935

the

speculator. and the hoarder gain from inflation.
Many of us recall, too, the sudden dron in prices In 1920 which brought In its
train depression and unemployment, No one wants to see those expreises
repeated-much less the far worse experience of many European countries with
their disastrous sequence of uncontrolled inflation. sudden deflation, prolonged
depression and misery. Fascist or Nazi dictatorship, and finally war.
After 2 years of the present war, we have reached the same stage we bad
reached after 2 years of the last war. Prices are again rising rapidly. To speak

has been competing or imports. The Government must have the goods to build and
Canada produces war machine: to clothe, feed, and equip our fighting men: and to aid

maintain our other allies with arms and with food. We sometimes forget that
Britain and of aluminum cannot be used to make a plane and to make pots
the same sheet The same gallon of gasoline cannot be used in any army tank and a

and pans. car. The same pound of cheese cannot be eaten in Britain and
pleasure motor And most important of all, the same men cannot make machine
in Canada. washing machines at the same time.

guns and weck that has passed since the outbreak of war, the services of
With every men have been required to meet the needs of war. Today. more
more and more Canadians are engaged in war service in the forces, in the facthan a million in the fields. The stage of taking up the slack of partial employment
now and passed and the need for more men for the armed forces and for war
tories,
has
industry is still face growing. the fact that there are not enough men: there are not enough

We must there are not enough materials to meet the demands of consumers and

machires; of war. Since the Government, with the full support of the Canadian
the needs is determined to maintain and to intensify the war effort, We have no
people, choice but to reduce our consumption of goods. To us, too, has come the choice

guns and butter.
between problem we face today Is more acute than the corresponding problem was

The It is estimated that at no stage in the last war was more than 10 per-

In 1916. of our national income devoted to war purposes. In the present struggle
cent we expect, this year, to be devoting some 40 percent of the national income to the

of the war. Translated into everyday language this means that, in

presecution war, only one-tenth of our economic energies were consumed In waging
the war. last while today. we are approaching the point where nearly one-half of our
energies are being used for war.

It stands to reason that all the goods and services we are accustomed to
enjoy In reacetime canrot be provided when only a little more than half our

energies can be spared to provide them. nst goods and services are becoming
increasingly scarce and will become searcer still. We must face the prob'em
of sharing what is scaree. If we let prices rise unduly. we know what will
happen. Ask any housewife. For no one feels the effect of rising prices more
than the housewife.
Rising

prices- rising cost of living-do not have the same off et on all house-

holds The smaller the family income and the larger the family. the more
serious the hardship Imposed. For those with small Incomes, rising prices of
clothing. ford. and other necessaries may mean serious hardship. while for be
those with larger incomes only luxuries and small comforts may have to
given up.

Rising prices thus serve to aggravate the Inequalities in society, and to throw
the beaviest burdens on those least able to bear them. Wartime experience has
shown that prives rise faster than wages or salaries, and bear more heavily still
on those who live on small pensions or life savings.
Nor is the position of the farmer any hanpler than that of the ware earner. The

present war is a war of machines. Because of the heavy remands of war on
Industry, the reareity of manufactured goods is l'kely to be greater than the If
careity of farm products. The rire in prices will consequently be unequal,
prices are left to themselves, The things farmers have to buy tend to go up
price. more than the things they have to sell.
Moreover. some form prices left to themselves would not rise at all under
present circumstarces. This is notably true of the price of wheat. although
there are other products in the same class It Is recognized. however. that
whent and other ronpe isheble products. held in reserve. constitute an invaluable
war asset. Agriculture Itself la a national asset which must be preserved. The
uncontrolled rise of prices would throw an intolerable burden upon whent

farmers end others simila situated. Their situation differs from what in it
was in the last war. At that time we had fewer acres, by mary millions,
production. We produced much less wheat. There were more allies to feed.
The truth is that all but an insigrificant minority of the ropulation would be
worse off as a result of rising notees, If prices were permitted to rise unchecked,

and in general, the relatively poor would suffer more than the relatively

well-to-do.

in

1936

PRICE-CONTROL BILL

PRICE-CONTROL BILL

1937

GOVERNMENT TO HALT RISE OF PRICES

11 of the present year. In other words, prices are to be halted at a
15 to October have already reached. Except in cases where minimum prices are

as a means of reducing consumption, to allow prices to rise unwilling

would be the easy way out of the immediate difficulty. But it unchecked. That
and unjust now, and perlious for the future. Therefore. the would be unfair
decided to halt the rise of prices: to undertake the control of Government all has

equitable
ways. to take other steps to control civilian consumption prices: in fair and
where necessary,

and

Let me pause to interject a word of warning. There is no panacea or
for the evil of rising prices. The Government does not pretend to have cure-all
formula which can be applied. We are well aware that the task of a magie
prices is very difficult. It has not been easy to control prices even in controlling
countries which can enforce their controls by brutal methods which no totalitarian
try would contemplate. In a democratic country, price control cannot free coun
succeed
without the active support and cooperation of the mass of the people.
From the outset of the war, the Government has been aware that the

of a general rise in prices would ultimately have to be faced We problem
advisable, however, to postpone the control of all prices, until it was felt It
necessary. Complete control involves many complications and restrictions: really
over, it requires a large staff to administer the machinery of enforcement. more
was clearly
underisable
before
they were
needed. to take men's services from other tasks one moment It

It is only in recent months that the necessity for the control of prices
has become clearly apparent. In the summer of 1939 prices were abnormally generally

low. This was particularly true of many agricultural products. The price

creases of the early months of the war were, in most cases, little more than inhealthy recovery from the low levels obtaining when war broke out. This recorery of prices had the effect of stimulating the employment of labor and capital
During the next 12 months prices were relatively stable. The price increases
which did occur resulted, in most cases, from one or other of the following causes:
The premium on United States' funds the rapid Increase in ocean freight rates:
war taxa's on a wide range of commodities and the normal recovery of excess
sively low agricultural prices. During this period a control of the prices of Indi.
vidual commodities worked satisfactorily All price changes were, of course,
carefully watched by the wartime prices and trade board. When the prices of
Individual commodities or groups of commodities threatened to rise unduly or
suddenly the board acted promptly. For example, at the beginning of the war
the panie buying of sugar was quickly checked. Speculating was stopped: hoard
ing was stopped; profiteering was stopped. In regions where there an acute
shortage of housing. rent control was applied. This piecement method could be
used when the problems arose piecement Today we face a different situation
We have entered the period of full employment. The upward trend of prices
has become too widesprend and powerful to be checked adequately by controlling
the prices of a few commodities. To continue to attempt to control the rise in
prices, plecement might only serve to augment the very evil it is desired to avoid
by occasioning through fear of the future a precipitate rise in the prices of those
commodities which are not already controlled. The problem is a general problem
and it calls for general treatment. It has spread just as the war has spread
The Government has, therefore. decided to half the rise in the prices of all
goods or services sold In Canada by imposing a general celling on prices. By
celling Is meant an upper limit above which prices will not be allowed to rise
Theoretically, this is a simple policy. but the Government realizes fully how great
the practical administrative diffenities are It will call for new and complicated
administrative machinery, It will Interfere with established methods of running business: It will Impose Irksome restrictions: and Its success will depend
not alone upon the Government, but equally upon the willingness of all who are
affected to accept. and to accept cheerfully, the limitations imposed upon them as
a necessary contribution to Canada's maximum war effort.
METHOD OF STABILIZING

This is what we propose to do. It is simple to understand. It will be more
difficult to perform. On and after November 17. 1911, no person may sell any
goods or supply any services at a price or rate higher than the maximum price or
rate charged by him for such goods or services during the 4 weeks from September

level they will be free to fall below the ceiling.
fixed. prices of the policy will be made public later, but I can say now that the
Full details ceiling on prices will apply to all goods, except sales for export. It will
limit or to all rentals. The limit will also apply to the rates charged for elecalso apply steam heat, and water telegraph, wireless, and telephone services:
tricity. transportation gas, of goods and persons and the provision of dock. harbor, and

the facilities warehousing and storage: undertaking and embalming: launderpier cleaning. tailoring and dressmaking: hairdressing and related services:
ing: and heating painting and decorating: repairing of all kinds the supply.
plumbing refreshments, and beverages Power is given to the wartime prices
ing of meals, board to add to this list. In the case of most agricultural products
and fish trade the maximum prices will be based upon market prices during the weeks

and
prior to October 11. rather than upon the actual selling prices of individual
fishermen.

farmers imposition or of a price ceiling will insure that the hardships and scarcities
resulting The from the steadily increasing requirements of war will be more equitably

spread among the whole people.

CONTROL OF PRODUCTION COSTS: STABILIZATION OF WAGES
I

I think I have said enough to make it clear why the Government is

come now to the next feature of the policy of controlling the cost of
It is obvious that the prices of finished goods cannot be controlled

living. successfully unless the cost of production is also controlled. Wages are .

large element in the cost of producing the manufactured goods required by
consumers. That is why the cost of living cannot be controlled unless wages
are

also stabilized. The policy of limiting the rise of wages is. in other

words a vital part of the policy of safeguarding the ware earners, as con.
sumers, from the evil effects of a rising cost of living. With the policy of
stabilising wages the Government is extending its policy of safeguarding the

earnings of the wage earners.

A beginning was made in working out a wage policy at the end of last

year when what is called Order-In-Council P. C. 7440 was enacted. This order
which was for the guidance of boards of concillation, fixed basic wage rates

in general at the relatively high level then existing It provided that subnormal wages could br. adjusted upward and that any further upward adjustment in wages should be by way of a cost-of-living bonus. While this
experiment has been widely accepted by employers and employees in war Industry. certain defects in the procedure must now be remedled. Industries
not engaged In war production have not been subject to this control. Wage
rates of many of these industries have continued to rise. In others there

has been no rise to offset the increased cost of living Even In the war
Industries, because of the increasing scarcity of labor and the absence of
penalties for violation, the policy was not completely successful. This has
been unfair to those employers and employees in Industry. who loyally accepted

the policy.

After consultation with representatives of the provinces, of employers and em-

ployees, the Government has found general agreement with Its view that its
wartime wages policy could succeed only If It were broadened and strengthened
and if machinery were established for its enforcement

The Government has, therefore, decided to extend Its wartime-wage policy
to cover all Industry The only exception will be certain smaller employers
who are excluded solely for administrative reasons. Henceforward no employer in Canadian Industry or commerce may. without permission, increase his
present basic-wage rates.

After November 15 every employer will be obliged to pay a bonus in accordance with the terms specified by Government order. and to adjust the bonus
regularly every 3 months in accordance with a definite formula. The bonuses
now being paid will require to be adjusted to the cost of living Index as of the
effective date, In future all employers will pay a bonus on the same basis.
Penalties will be Imposed for failure to comply with the order.

The administrative machinery will consist of a national war labor board

and several regional war labor boards. Each will be equally representative of
employers and employees. They will supervise a cooperative inspection and

1938

PRICE-CONTROL BILL

PRICE-CONTROL BILL

enforcement service by the Joint staffs of the Dominion Provincial
partments of Labor. One of the primary functions of the boards Do
observe how the policy works in practice and to recommend its will be to
modification in the light of experience. The boards will also be revision or
matters
relating
to of
labor
andabout
industrial
relations.
advise the
Minister
Labor
the further
development of policy expected to
Despite the careful thou ht given to the plan, it will no doubt have to
in

all

proved in detail from time to time. It is a step forward into new be im

cessleast
will depend
the cooperation
accorded
by employers and territory workers, sue
not
by the upon
support
of the consuming
public.

and

1939

stoves, washing machines, refrigerators, radios: on the sale of gasoautomobiles, and cheere. Restrictions have also been placed on new construction

IDE bacon, other than war and on the production of capital goods. These

for purposes have been directed against the use of scarce commodities 15 civilian

restrictions More recently there has been a significant broadening of this policy
consumers. restriction through the order of the wartime prices and trade board relating

of

to installment restrictions buying. will have to be imposed from time to time. These direct

Further of production and consumption aie essential to the development of war

centrols They have, however, contributed to the scarcity of civilian goods
production therefore, been one of the factors contributing to the rise In prices

THE POSITION OF ACRICULTURE

and have, the Government is now undertaking to control. Steps may have to be
which see that the necessities of life are fairly distributed.
taken embarking to upon the policy of price control by means of a general celling

In undertaking to control the cost of living, particular attention has been
by the Government to the effect of its policy on the position of agriculture given
policy touches the farmer in two ways. The principle of the price ceiling The
applied to agricultural prices, while, at the same time, total agricultural will be

In the Government realizes that it will not be possible to maintain the

will be supported, where necessary, by Government action. In other words, income while

wages
and the prices
farm products will be stabilized, the Income of both labor
and
agriculture
will beofsafeguarded.

on prices. structure, in every particular, as It exists at the date on which the
exact price are to be fixed. The ceiling will not be absolutely rigid and entirely
unchangeable. prices The control and stabilization of the general price level is the
considered policy, but the detail will be a matter of administration In the hands

Agricultural prices, with a few conspicuous exceptions, especially wheat, are
higher today tha they have been at any time during the past 10 years In

of the wart me prices and trade board.

where agricultural prices have not kept pace with increases in costs of produc- cases

culture. take been quite unaccustomed. It will demand qualities of self-discipline and

Let me repeat The policy of control as It affects industry, commerce, agriand labor. demands a degree of restriction to wh'ch Canadians, hitherto,

tion, measures are being taken to bring about a more satisfactory relationship
without significantly affectin the general level of retail prices to the consumer.
The major problem of maintaining incomes in western Canada, where
growing is the largest source of income, is closely related to the problem grain in
eastern Canada, where feed supplies are not suffl tent to enable farmers to

self-control. It will nced. as It deserves, the hole-hearted support of everyone
who has the well-being of his fellow citizens at heart. In these perilous times
we must not shrink from any course of action which will help to preserve and

stree gthen the morale of our country.

Government to make supplementary payments to farmers In the spring wheat

By its policy the Government hopes to avoid the fears. the sense of insecurity.
the suffering and the profiteering which the Inflation of prices inevitably brings
in Its train. The measures now being announced should help in the winning
the war. and, after the war, facilitate recovery and reconstruction.

price cannot be based upon the Individual selling prices of Individual farmers,

to express our thanks for your statement.
(Thereupon, the committee adjourned to meet tomorrow, Wednesday, October 22, 1941, at 10 a. m.)

produce the bacon and dairy products required for Britain and ourselves
Both these situations need adjustment. It is therefore the Intention of the

of

area, on the basis of their cultivated acreage as defined under the Prairie
Farm Assistance Act. For farmers in eastern Canada. the Government will
provide the transportation costs on feed grain and other feed from Fort Will
llam or Port Arthur to points in eastern Canada.
In determining the price of farm products, It is obvious that the maximum

which is the method applied to factories and stores. Instead, the Wartime
Prices and Trade Board will determine maximum prices for certain farm
products
on the basis of maximum market prices during the 4-week period
ending on October 11, last.
Other special adaptations may be found necessary. Thus, In the case of
farm products whose prices rise and fall seasonally, the setting of maximum
prices may also require the setting of minimum prices, or action to remove
temporary surpluses from the market. In most cases, however, the demand
for food products, especially the export demand. is so great as to assure that
prices will not fall much, if at all, below the maximum. For example, in the
cases of bacon and cheese, reasonably stable prices have been or will
assured under large-scale agreements with the United Kingdom.
The wartime prices and trade board will. before November 17, take the neces
sary action, or advise the Government as to the steps which should be taken, to
achieve these objectives without violating the basic principle of the general price
celling.

be

AN ESSENTIAL FACTOR IN WAR POLICY

The comprehensive measures which I have just outlined constitute a logical
development of the economic and financial policy initiated by the Government
at the outset of the war. But we must bear in mind that the control of prices,
by Itself, will not insure the cutting down of consumption, and It will only Indirectly affect the direction of private spending. Other measures are required
safeguard adequate supplies of commodities needed by the Government for war
purposes. To give direction to private spending, definite restrictions have already
been impoired on both production and consumption.
Restrictions have already been placed on the purchase of machine tools. aluminum, and other metals, iron and steel, foreign exchange: on the production of
to

The CHAIRM/N. Mr. Secretary, on behalf of the committee, I wish

x

242
001 62 1841

by dear Senator Herring:

This will acknowledge receipt of your letter of October 13,
1941 relative to contracts recently let in the Procurement
Division for the conversion of a quantity of molasses into
industrial alcohol under the lend-lease program.

1 agree with you that, to the extent legally possible,
every effort should be made to place orders, both defense and

non-defense, in such a manner as to utilize to the fullest
possible extent all of the productive facilities of the country.
or need I tell you of my long-standing and continuing interest
in the smaller units in industry which would, without unceasing

efforts to help them, find it increasingly difficult if not

impossible to participate in the National Defense program. In
this connection you are of course aware of the fact that Floyd
Odlum was designated recently to give this problem his attention

and is presently working to that end. a have been in touch
with him and expect to cooperate fully with his office in this
regard.

I wish to thank you again for bringing this matter to my
attention and to assure you of my desire to be acquainted with
any situation of concern to the Department in which you have
any reason to believe complete justice is not being done.
Sincerely yours,
(Signed) 1. Morgenthau, Jr.

Secretary of the Treasury.

Non. Clyde L. Herring,
United States Senate.
By Messenger

JJO'C.Jr/ml
10/14/41

1.30

19/23/

HERRING

243

United States Senate
WASHINGTON, D.C.

October 13, 1941

Honorable Henry Morgenthau

Secretary of the Treasury
Washington, D. C.

My dear Mr. Secretary:

I appreciate very much the consideration you gave

to my protest in connection with the last British application
for alcohol. To make certain that you know that I was justified in my protest, I am reporting that, in spite of the
assurances given you that the OPM had approved the outright

allocation of this alcohol to Great Britain without compelling

-

Great Britain to give up from its immense storage of molasses

in Florida enough of this material to permit conversion of
Great Britain's molasses into alcohol, the facts are that when
this was called to the attention of the OPM, they immediately
directed that no alcohol be allocated to Great Britain unless
this "dog in the manger" attitude was changed to provide from
its immense stores the raw material for conversion.
Had I not come directly to you, the Lend-Lease fund
would have provided this alcohol from our own scant supplies,
and England would have been permitted to retain its millions
of gallons of molasses now in storage in Florida.

While I succeeded, with your assistance, to this
extent, the alcohol trust in Philadelphia succeeded, through
connivance and collusion, in obtaining the contract for con-

version of this alcohol, and this in spite of the fact that

these companies had notified the OPM that their stills were
operating at capacity and they could not increase production,

which increased production the OPM needed to keep thousands

of little industries throughout the United States in operation.
The alcohol trust succeeded, by bidding three-eighths
of a cent less than the independent plant bid, in keeping

this independent plant, with a capacity of forty-five thousand
gallons a day, out of production; this due to the fact that
all available molasses is under option or contract to the big
concerns, and only by obtaining this conversion contract could
this independent plant be put in operation.

244
Honorable Heary Morganthan
Page Two

October 13, 1941

I presented this matter to Mr. Foley, and I think parkage
he was correct in stating that be could not prevent the closing
of the contract. Nevertheless, it seems to me that we have a
duty beyond the mere technical fulfilling of regulations in these
matters, and unless we do prevent these abuses, we will have iscreasing difficulty in convincing the Congress and the people

that the Land-Lease Bill is being administered in the interests
of those who are paying the bill.
Again assuring you of my appreciation of your

assistance, I -

Yours very truly,

Heaving
H2W

245
October 22, 1941

Dear Eleanor:

Here is some up-to-date in-

formation on the cost of living
which you may want to use in your
broadcast.

Affectionately,
(Signed) Heary

Mrs. Franklin D. Roosevelt,
The White House.

Delivered by Surver Service 5:00
n.m.c.

246

BLS cost-of-living index
The cost-of-living index computed by the Bureau of
Labor Statistics is designed to measure changes in living
costs of wage earners and lover-salaried workers in the large
cities. Food costs are based on monthly quotations for 51
large cities. Other costs are based on quarterly quotations
for 33 large cities, supplemented by monthly quotations for a

limited list of items in 20 cities. Prices are taken as of
the middle of the month.

The various cost groups are combined on the basis of
quantities provided in the so-called "maintenance" budget.
The food group is computed in terms of the "adequate diet at
minimum cost" of the Bureau of Home Economics.

on this basis, the following weights are assigned to

the various items making up the average worker's budget:
Percent of total
Food

Clothing

Rent

Fuel, electricity, 100

House furnishings
Miscellaneous
Total

33.9
10.5
18.1
6.4
4.2
26.9

100.0

Indexes are computed by cities, and the individual city

indexes are then combined on the basis of 1930 population
data.

The Bureau of Labor Statistics cost-of-living index for

September shows an increase of 1.8 percent in the single
month between August 15 and September 15. This is the sharpest

gain in any month since the beginning of the war. It means
that the average worker in the large cities must pay 9.6 persent more for his family's maintenance than he did in the
ore-war month of June 1939. Two-thirds of this increase has
occurred since last March.

--

247

The major increase has been in the cost of food, which
makes up about one-third of the average worker's budget.
Retail food prices rose 2.6 percent between August 15 and
September 15. On the latter date they were 12.6 percent
higher than last March, and 18.4 percent higher than in the
pre-var month of June 1939. The largest advance during
September was in olothing costs, which increased 3.7 percent
over the August index.

office of the Secretary of the Treasury, October 20, 1941
Division of Research and Statistics.

248
Whether the housewife buys cotton sheets for her home,

shirts for her husband, or house dresses for herself, she
must pay much higher prices for cotton goods than she aid
before the war. Since June 1939, the average retail price

in New York City for a - work shirt (as of September 15)

had increased 24 percent, for a woman's pareale wash freek

18 percent, and for a cotton malia sheet 20 percent. Meet
of the increase has occurred in the past year.
At wholesale, the price increases have been even
steeper. Men's work shirts in September at shalesale were
30 percent higher than in June 1939, persale dress material
was 67 percent higher. and auslin sheets were 29 percent
higher. Average whelesale prices of gotten goods as a
group in September were 63 percent higher than in June 1939.

249

Whelesale prices of typical wetter goods,

and - inten

Percentage

Cotton shoote, plain
68x72 count, per dos.

increase since

June
1939

Sept.

Sept.

1940

19.11

June 1999

$10.00

$11.39

$13.97

29

7.25

8.00

9.45

30

Men's work shirts,
sodium weight, Mas
chambray. per dos.

Persale, 30) in.
64260 count, per yard

Cotton mode - index
1926 - 100

.083

a.

.006

@.2

.139

104.2

67

63

Sources Durean of Labor Statistics

Office of the Secretary of the Treasury
Division of Research and Statistics

October 20, 194

250

Average retail price of typical ootten make
in New York City

J

1939

Purcentage
Sept.
19th

Sept.

increase stace

1931

June 1999

Nen's work shire,

cotton covert

8 .80

1.92

.99

*

2.04

1.07

1.23

is

.98

1.05

1.18

20

Yours's wash freek,

printed persole
Cotton muslin sheet,

64 count

Source: Bareau of Labor Statistics

Office of the Secretary of the Treasury

Division of Research - Statistics

October 20, 1942

251
COST OF LIVING AND SELECTED ITEMS
JUNE 1939 = 100

940

1939

194
PER

PER

CENT

CENT

112
112

108
108

COST OF LIVING

104
104

100
100

120
120

FOOD

116
116

112
112

108
106

CLOTHING

104
104

100
100

RENT. LIGHT
HOUSEHOLD FURNISHINGS
AND MISCELLANEOUS

AND HEAT

96
96
D

$

J

1939

1941

1940

1942

SOURCE: B.L.S.
Office of the Secretary of the Treasury

- - - States

c 413

252
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 22, 1941

TO

Secretary Morgenthau

FROM

H. D. White

A memorandum dated October 9, 1941, was received

from Mr. Close, the Minister from South Africa, concerning the South African request for (1) steel plates for
maintenance use in the South African gold mines, and (2)

steel and steel plate mills for the South African steel
industry. The following should be of interest:
1. With respect to the need for steel plates in
the gold mining industry, no further specific evidence
is presented. It is stated simply that gold production
must be maintained because it is "one of the vital
sinews of war" and "supplies the life blood for all our
material war effort".

2. Steel industry. It is claimed that South Africa

has not only equipped her own army of more than 100,000,
but has become a most important source of supplies and
equipment for the Empire forces in Egypt, Palestine and

the Near and Middle East. The importance of her steel
industry is indicated by the production of such equipment
as guns, gun sights, shells, bombs, tanks and armored
cars. It is emphasized also that South Africa has become
an important repair and replacement base for tanks and
aircraft, and the mercantile marine and naval forces.

253

GRAY

NWN

HP

Hong Kong via N. R.
Dated October 22, 1941

Rec'd. 5:40 p.m. 23rd.
Secretary of State,
Washington.

436, October 22, 9 a.m.

For Treasury from Cochran: "Arrived Hong
Kong 9 o' clock last night from Chung King and
leaving 10 a.m. today 21st for Shanghai.
Plan to return to Hong Kong first WEEK
November and take clipper from Manila 14th."
SOUTHARD

CSB

0

254

P

Y

DEPARTMENT OF STATE

Washington

October 22, 1941

reply refer to

Ky dear Mr. Bell:

Mr. Vilhajalmur Thor, Chairman of the Icelandic
Government Trade Delegation, has expressed the hope

of his Government that the United States Government

has no desire to exercise any influence over the rate
of exchange between the Icelandic kronur and the

United States dollar.

An indication of the nature of the reply which
may be made to Mr. Thor's inquiry would be appreciated.
Sincerely yours,

For the Secretary of State:

(Signed) A. A. Berle. Jr.
Adolf A. Berle, Jr.
Assistant Secretary

The Honorable

Daniel W. Bell
Under Secretary of the Treasury.

Copy:ec:10-27-41

C

0

P

255

Y

DEPARTMENT OF STATE

Washington

In reply refer to

October 22, 1941

YF851.51/2913

The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and transmits

herewith a copy of strictly confidential despatch no. 3272,
dated October 10, 1941, from the American Embassy at

Buenos Aires, transmitting confidential memoranda

regarding stocks of gold at Dakar and purchase of gold
by Portugal.

Enclosure:

Despatch no. 3272 from Buenos Aires,
October 10, 1941.

Copy:ec:10-25-41

Triplicate

256
Buenos Aires, October 10, 1941
No. 3272
SUBJECT: STOCKS OF GOLD AT DAKAR AND PURCHASE
OF GOLD BY PORTUGAL
TRANSMITTING CONFIDENTIAL MEMORANDA

Strictly Confidential

The Honorable

The Secretary of State,
Washington.
Sir:

I have the honor to transmit herewith two copies
of two highly confidential memoranda prepared by the

British Ministry of Economic Warfare on stocks of French
gold at Dakar, and on purchases of gold since the beginning of the war by Portugal. The se memoranda, the former

of which is dated January 16, 1941, and the letter of
which is undated, were brought to the British Embassy
from London about four months ago by Mr. Walter Simon
of the aforementioned Ministry (who was recently named

First Secretary and Financial Counselor of the Embassy).
It is understood that Mr. Simon showed them to Mr. H.
Merle Cochran in the Treasury Department at Washington

last April or May, but it is believed that the Departments of State and the Treasury might wish to have

0
0

--

P

Y

copies. Mr. Simon permitted these copies to be made
on the understanding that they would be considered

strictly confidential and would be carefully protected.
Respectfully yours,

Enclosures as stated
File No. 851
Qr.
JWG:mc

A true copy
of the signed

original MC

Copy:ec:10-25-41

257

C

MOST SECRET
0

P

258

Y

GOLD AT DAKAR.

At the time of the Armistice the gold under the control

of the French Government is reported to have been:
Bank of France holding
Belgian Gold held by

U.S. $ million
2,000

Bank of France as

cover for Belgian

notes in France

20

2,020

In addition there was an unknown amount held in the Exchange

Stabilisation Fund. In March 1940, $ 709 million was transferred

to the Fund, but there is no information as to how much remained unspent

at the date of the Armistice.

2. There was also a considerable amount of gold, estimated at some
$220 million, hoarded in France but this, being scattered in private
accounts, was outside government control and only part of it may have
been got away by refugees either to unoccupied France or abroad. What

was left will fall into the hands of the Germans.

3. Of the above $2,020 (plus any gold in the Fund) the following

amounts were already held abroad:-

$ million
In London

280

In Canada

376

In U.S.A.

507
245

In Martinique

1,408

4. This leaves some $612 million (plus gold in the Fund) in the
process of removal into safe keeping at the time of the collapse.
Gold on board ship at that time, instead of being sent to England or
the United States, was diverted to Dakar.
5. In addition to any French gold we have satisfactory evidence

that some $184 million Belgian and some $80 million Polish gold was
also sent to Dakar.

6. Reports of gold arriving in Dakar refer to 900 tons (one report
says 1,000 tone) and to 250 tons. It is not clear whether the 250 tons was
additional or alternative to, or part of the 900 tons. But the probability
is that the 250 tons was part of the 900 tone and refers to the Belgian
and Polish gold (which actually would weigh about 234 tons.)

7. Ag the $612 million referred to in paragraph 4 above amounts to
about 545 tons, a further 121 tons (making with the 234 tons Belgian

C

-2-

0

P

Y

259

and Polish gold a total of 900 tons) or about $136 million may perhaps
reasonably be taken as representing the balance of the Exchange
Stabilisation, 80 that the total French gold going to Dakar may be,
very tentatively, estimated at some 666 tons or $ 748 million.

8. The gold which arrived at Dakar is reported to have been taken
inland and stored variously, along the railway, at Thies and Kayes,
or at the railhead at Bamako.

9. Reports, of varying reliability, refer to the subsequent move-

ments of the gold as follows:-

(1) Oct. 4th-5th

2.4 tons arrived in Lisbon from the Banque
de 1'Etat du Maroc. Said to have come from
Dakar.

(2) Nov. 10th

10 tons sent from Dakar to the Bank of

France.

(3) Abt. Nov. 30th

1 ton take by plane from Kayes northward,

(4) Dec. 4th

50 tons loaded at Dakar on to the cruiser
"Primaguet" which left next day for an

(reported to be Belgian gold).

unknown destination.

(5) Dec. 5th

About 7 tons arrived at Banque de 1'Etat
du Maroc, Tangier, and was to be sent to
Lisbon by air as soon as possible. Further
reports leave it uncertain whether or not
this has been actually flown to Lisbon.

(6) Dec. 10th

1/2 ton arrived in Santos, Brazil, from

Casablanca consigned to the French Embassy,

Rio de Janeiro.

(7) Dec. 14th

as. "President Dalpias" was due to leave

Oran for Marseilles with 6 freight cars

gold (estimated at 32-56 tons) from Casa-

blanca, said to have come from Dakar. It

is possible that this is the 50 tons
referred to under Dec. 4th above).

(8) Dec. 24th

Reported that gold was being transported
regularly by train from Casablanca to Oran
for France.

10. It is clear from the summary in paragraph 9 above that we have
not sufficient information to decide whether there has been any considerable return of gold from West Africa to Europe or elsewhere.

11. The suggestion of a change of ownership of the gold still

in West Africa only was a report (dated 16th Nov.) that 700 million gold

C

-3 -

260

Y

france worth (? what francs) of the Belgian gold at Dakar had been sold
to Germmany by the Bank of Belgium. Some slight confirmation of such
a transaction came (in December) from the report of a conversation with
a French representative in Washington.
In paragraph 9 (1) we have confirmatory evidence from an intercept of negotiations between the Bank of France and the Bank of Portugal

for the sale of Escudos 60 million (2.34 tons) of gold, similarly

paragraph 9 (5) is confirmed by intercept in October showing negotiations
between the same two banks for the sale of a further Escudos 171 million
(6.40 tons).

16th January, 1941.

Copy:ec:10=25-41

SECRET

261

NOTES ON PORTUGUESE GOLD.

The flow of gold from Portugal to U. S. A. began in
June 1940, exports January-May 1940 being negligible. From
June-October 9th shipments amounting to $58,754,000 were

reported (in a letter dated October 10th) by the British
Embassy, Lisbon, and confirmed from censorship sources.

Since this date the following shipments have been noted:-

DATE OF

1. Oct.

VALUE IN

SHIP

SATTING

REMARKS

$

16th

..

Exochordia

2,683,000

2. Oct. 17th Pero d'Alenquer 1,114,000
3. Oct. 20th .. Excalibur

..

2,713,000

..

Reported by Stopford
29.10.40 as consigned
to F.R.B.
Reported by Lisbon.
Consigned to F.R.B.

(intercept).

4. Oct. 27th
5. Oct. 28th

..

Excambion

..

3,170,000

Consigned to F.R.B.

San Miguel

..

1,440,000

Intercept. This is
ance cover which is

:

$1,465,750, the net
value of gold being

..
..

slightly less.

:

..

Exeter

7. Nov. 7th

..

Extavia

..

estimated from the

amount of the insur-

..

6. Nov. 3rd

(intercept).

3,279,000

Reported by Lisbon.

1,458,000

Reported by Lisbon.
Consigned to F.R.B.

(intercept).

TOTAL

2.

15,657,000

Since November 7th, the only further shipment of which
there is any trace is one of 500 kilograms (value $563,000)
belonging to the B.I.S. which they exported through the Bank

-2-

of Portugal on December 27th, and which the Bank bought from

them immediately on its arrival in U.S.A. There is no mention in our information from any source of any other shipments. The total amount of gold exported from Portugal to
U.S.A. during June-December 1940 was therefore $75,174,000.

Messrs. Morice, Tozer & Beck handle all the insurance

placed in London of gold shipments on behalf of the Bank of

Portugal. They have given us, in confidence, a list of all
the shipments on which they have placed insurance, and this

includes all shipments on our complete list from June to
November with the exception c. six. These six, which amount
to a total of $3,490,000 were smaller consignments than
the rest, and were shipped on Portugese or Greek steamers,

and Morice, Tozer & Beck have stated that, in view of this,
it may have proved possible to place the insurance on these
in Portugal, so that it must not be assumed that these were
not on account of the Bank of Portugal.
To summarise, $71,121,000 was known to have. been con-

signed by the Bank of Portugal, while a further $3,490,000
was exported probably also on account of the Bank, and
$563.000 were exported by the B. I. S. through the Bank,

Since before the war until October 1940 the published
gold reserve of the Bank of Portugal remained at about

920 million escudos or $69 million. In addition, acout
$22 million were held by the Bank on account of the Por-

tugese Treasury, making a total of $91 million.

262

263
On May 31st 1940 the amount of gold held by the
Federal Reserve Bank for the Bank of Portugal was $23,139,000

(Intercepted letter from Bank of Portugal to Federal Reserve
Bank).
5.

During the week ending October 16th, the gold reserve
was increased by 272.5 million escudos or $20 million,

without any corresponding fall in foreign balances; a

fortnight later there was another rise of $2 million, so
that on October 30th, the latest date for which the figures
have been published, the gold reserve stood at the

equivalent of $91.4 million (See Appendix 11). It is
possible that the $22 million increase represents the
Treasury gold, which may have been sold to the Bank, If

this is the case, the total gold in official Portuguese
possession is unchanged at $91 million. On the other hand,
gold under earmark on May 31st plus gold known to have

been exported since by the Bank amounts to $94.3 millions.

(If the doubtful shipments are included the total is
$97.7 millions). This indicates that some gold must have
been acquired from outside.
6.

We have been informed that about $2.4 million French

gold, which the Bank Portugal had agreed to buy, arrived in
Lisbon on October 4th-5th. Further French gold, to the
amount of about $7 million, to be bought by the Bank, did

not arrive until the end of the year. But there may have
been other earlier transactions of this nature which have

264
escaped our notice. Other reported consignments of French

gold which possibly went to Lisbon all took place at a
later date than November 7th, e.g. ten tons from Dakar to
Banque de France on November 10th.
7.

DESTINATION OF THE GOLD EXPORTED TO U.S.A.

The ultimate destination of the gold shipped to
U.S.A. might bei(a) to be held under earmark by the Federal Reserve
Bank,

(b) to be sold, the proceeds being held as dollars.
(c) to be used to liquidate the Portuguese heavy
adverse trade balance in U.S.A.
(a) Of only one shipment, No. 7 in foregoing table,
do we know definitely that it was destined to
be held under earmark; but there are indications
from censorship information that part of certain

other consignments were to be held under earmark.

(b) The published figures of the Bank of Portugal's

balances abroad show an increase from August 7th

(the lowest point) to October 31st of 176 million

escudos, or about $6 millions (see Appendix 1).

These balances are not, of course, all held in
dollars, though probably a large part of them
are, and the increase may be partly attributed to
the sale of gold for dollars in New York,
(c) The Portuguese visible adverse balance of trade
with U.S.A. for January-October 1940 was $7 million
for Portugal alone; if the Empire is included,
this is increased by another $8 millions; so that
it is probable that some of the gold has been

used in liquidation of the trade deficit.

8.

The implication of (b) and (c) is that some of the gold has
been sold, and the proceeds either going to swell Portuguese

dollar balances, or pay off trade debts. But since October
there has been a reverse movement. The Bank of Portugal has
requested the Federal Reserve Bank to buy and hold as Portu-

265
guese reserves a total of $11 millions worth of gold, the
dollars being drawn from balances with various banks, and
has also, on or about February 8th, bought $2,250,000 gold

in United States from the B.I.S. (See Appendix 111). This
last amount includes the shipments of $563,000 already noted,

another similar one worth $338,000 which is still in transit;
the balance ($1,351,000) comes from Danish gold held in

U.S.A., which the Danes are selling. Subject to license,
to the B.I.S. who are re-selling to the Bank of Portugal.
A possible conclusion to be drawn from these purchases

9.

of gold is that the transactions fall into two categories,
namely, the export of gold for immediate realization and

use, possibly undertaken on behalf of third parties, and
export for eventual earmark in order to safeguard the Bank's
gold.
10.

During recent discussions in Lisbon on the Portuguese balance on the Special Account in U.K. Dr. Salasar is
said to have welcomed the gold guarantee because it allowed

him to deplete his gold reserves to acquire dollars. At
the moment he is doing just the opposite.

GOLD SHIPMENTS PORTUCAL TO J.S.A. 1940

266

U.S.
U.S.

Excalibur

1,656,625
1,799,640
2,361,043
2,376,248
624,403

9th

Quanza

Port

15th

Exetes

22nd

Exochorda
Exmmelia

U.S.
U.S.
U.S.
U.S.
U.S.

#

23rd

28th
50th

ept. 3rd

Excalibur
Extavia
Nea Hellas

Greek
U.S.
U.S.
U.S.

11th

Excembion
Exeter

25th
28th

Excalibur
Hakosaki Maru Jap.

30th

Sao Thome

Port

2nd

Excambion

U.S.

2nd

Magallanes
Nea Hellas

3pan.
Greek

Loveen

Yugos.
U.S.
U.S.

5th

4th
8th

9th
16th
17th

Exilin
Exochordia
Pero de
Alenquer

Port

20th

Excalibur

U.S.

27th

Excambion

U.S.

28th

San Miguel

Polish

Exeter
Extevia

U.S.

3rd

7th

U.S.

:
Dec.

27th

Exteter

U.S.

Not insured in London

Not insured in London

573,145
3,019,964
3,033,373

3,136,006
3,136,113
1,332,499
3,110,968
2,550,544

Not insured in London

559.286
605,629

3,260,288
2,683,000 approx) Known as consigned
to F.R.B.
1,114,000
2,713,000
3,170,000
1,440,000
3,279,000
1,458,000

Consigned F.R.B.

II

Excambion

"

#

8th

507,296
2,315,093
2,535,931
620,393
2,890,213
2,964,350
2,821,588
2,860,723
2,951,246

If

.

1st

Excalibur

"

Nea Helles

Greek
U.S.
U.S.

1st

Allig.

Not insured in London

)

Port

IS

Pero de
Alenquer

25th

"

27th

13th

403,439

=

Exilona

6th

Excambion
Exeter
Exochorda

2,048,410
1,370,157
1,329,452

"

26th

U.S.
U.S.
U.S.
U.S.
U.S.

2nd

July

Oct.

Port.

II

24th

Sao Thome

Examiner
Tacosta

REMARKS

"

22nd

VALUE $

11

8th

June

NAME AND FLAG
OF SHIP

#

PPRX. DATE

Consigned F.R.B.

74,611,000
563,000

75,174,000

Property of B.I.S.

APPENDIX 11
BANK OF PORTUGAL RETURNS

BALANCES ABROAD

GOLD
DATE

MILLION ESC.

MILLION ESC.

MILLION $

$ MILLION

May 1st

920.6

68.8

786.0

28.8

May 29th

920.6

68.8

745.8

27.3

June 26th

920.7

68.8

678.0

24.8

Aug. 7th

921.1

68.9

612.6

22.4

Aug.28th

921.6

68.9

648.7

23.4

Sept.25th

922.9

69.0

704.9

25.8

Oct. 9th

923.7

69.1

754.7

27.6

Oct.16th

1196.2

89.5

748.3

27.4

Oct.23rd

1196.4

89.5

783.9

28.7

Oct.30th

1221.6

91.4

788.2

28.8

The value of the gold escudo - $ .0748
NOTE: It is not clear at what rate of exchange the foreign balances are now converted into escudos. Before
the war the rate used was 110 escudos to £, and this has been used above.

267

APPENDIX 11

Table showing dollars converted into gold under earmark for the Bank of Portugal, and
the Banks from which they were drawn.

DRAWN

DATE

AMOUNT TO BE HELD
UNIER EARWARK

CHASE NATIONAL
BANK

BANK OF
MANHATTAN

FROM

IRVING

NATIONAL

TRUST

CITY BANK

Oct. 24th

4,000,000

2,000,000

2,000,000

Oct. 30th

2,000,000

200.000

900,000

Dec. 23rd

1,000,000

..

300,000

-

Jan. 3rd

1,000,000

..

500,000

-

Jan. 14th

1,000,000

..

400,000

-

Jan. 21st

2,000,000

..

1,000,000

500,000

-

Feb. 8th

2,250,000

..

1,350,000

-

-

13,250,000

..

5,750,000

TOTAL

Copythr:10-25:41. eh

3,400,000

-

300,000

FEDERAL RESERVE
BANK

-

-

600,000

-

-

700,000

-

-

500,000

-

600,000

900,000

-

500,000
-

2,300,000

-

-

900,000
900,000

268

269

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

For Miss Chauncoy

DATE October 22, 1941
chaunooy,

TO

Secretary Morgenthau

CONFIDENTIAL

FROM Mr. Dietrich

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

244,000
£13,000

Open market sterling held steady at 4.03-1/2, and there were no reported

transactions.

The Argentine free peso, which has shown a somewhat firm tendency this
week, continued to improve today. The closing quotation was .2375 as compared
with .2360 at the end of last week.

The Uruguayan free peso advanced twenty-five points (1/4#) to close at
.4675.

In New York, closing quotations for the foreign currencies listed below

were as follows:

Canadian dollar

11-1/8% discount

Colombian peso
Mexican peso

.0505
.5775
.2070

Brazilian milreis (free)
Venezuelan bolivar

.2650

Cuban peso

1/8% discount

There were no gold transactions consummated by us today.
The Federal Reserve Bank of New York reported that the Bank of Canada
shipped $2,719,000 in gold from Canada to the Federal for account of the
Government of Canada, for sale to the New York Assay Office.

In London, both spot and forward silver remained at 23-1/2d, equivalent
to 42.67
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
34-3/4*.

We made no silver purchases today. In fact, no silver has been offered

to us since October 2. 4

20

270
RESTRICTED

G-2/2657-220; No. 525 M.I.D., W.D. 11:00 A.M., October 22, 1941

SITUATION REPORT

I. Eastern Theater.
Ground: The German High Command states that, with the

capture of Dagoe, the last of the former Esthonian islands covering the approaches to the Gulf of Riga is now in German hands.
West of Moscow, the Germans claim to have broken

through Russian fortifications in the vicinity of Borosvk and to

have established a bridgehead over the Nara River at Naro-Fominsk.
The German infantry has not yet closed up on the armored divisions.
North and south of Kharkov the German advance

is gathering momentum. The drive southeast of Kharkov endangers

the whole industrial area of the Donets Basin.

Air: Moscow underwent a heavy continuous bombing all day
yesterday and last night.

II. Western Theater.
Air: R.A.F. raids were widespread, including Bremen,
Brest and Lorient docks, Aarhus in Denmark, and the Lorient sub-

marine base.

Newcastle and Dover were Germany's principal ob-

jectives in England last night.

III. Middle Eastern Theater.
Air: Naples received the heaviest pounding of the war
from the R.A.F. last night. Benghazi, in Libya, and Catania and
Acireole, in Sicily, were other objectives of British planes.

RESTRICTED

271
TREASURY DEPARTMENT

Washington

Press Service

FOR IMMEDIATE RELEASE,

No. 28-19

Thursday, October 23, 1941.

Secretary of the Treasury Morgenthau announced today that

the subscription books for the current offering of 1 percent
Treasury Notes of Series A-1946 will close at the close of busi-

ness Friday, October 24. This offering is open only to the
holders of Reconstruction Finance Corporation Notes of Series P,
maturing November 1, 1941, and of Commodity Credit Corporation

Notes of Series E, maturing November 15, 1941. The offer to apply
the proceeds of payment of the Series P notes and the offer to
purchase Series E notes, in either case the principal proceeds of
payment to be applied to payment for a like par amount of the new

Treasury notes, will also terminate at the close of business
Friday, October 24.
Subscriptions addressed to a Federal Reserve Bank or Branch,

or to the Treasury Department, and placed in the mail before 12

o'clock midnight, Friday, October 24, will be considered as having
been entered before the close of the subscription books.
Announcement of the amount of subscriptions and their

division among the several Federal Reserve Districts will be made
later.
-000-

272
October 23, 1941
12:05 p.m.

Allan
Sproul:
HMJr:
S:

Good morning.

Hello, Allan. How's she going?

Well, she's going very well. It's another
one of those cases where for the moment it's
going perhaps a little too well, but I think
that we'll be glad to have a little cushion
there.

HMJr:

Well, they tell me it's quoted par eighteen.
What?

HMJr:

Par eighteen, they say.

S:

Well, it's quoted twenty - bid twenty at
twenty-three here.

Oh, really?
Yeah.

S:

HMJr:

Well, that's better than what I understood.
Yeah. It's bid twenty at twenty-three; and
there hasn't been much doing, out there's
been one particular buyer - that's the Central
Hanover - in the market willing to pay twenty,

and that's kept it there.
I see. Well

S:

And there haven't been many sellers.

HMJr:

There has not. I'm perfectly satisfied.

S:

Well, so am I. I think we'll be all right
on it.

Good.

And the market is delighted with it

273

-2HMJr:
S:

They are?

and with the whole operation.

HMJr:

I guess they were pleasantly surprised.

S:

I think they were on the full rights value.

They'd pretty well decided they were going
to be cut down somewhat there, but that won't
do them any harm even though it's decided

later to modify that situation.

HMJr:
S:

HMJr:

Thank you.

All right, sir.
Good-bye.

274

October 23, 1941
11 a.m.

RE SOCIAL SECURITY (COMPULSORY SAVINGS)

Present:

Mr. Magill

Mr. Barnard
Mr. Blough
Mr. Shoup

Mr. Shere
Mr. Groves
Mr. Odegard

Mr. Bell

Mr. Kades
Mr. Kuhn

Mr. Foley
Mr. White

H.M.Jr:

In the first place, may I thank the visiting
firemen for coming down and giving us their
time. I take it that you people know what
we are trying to do. If not, for a moment
I will try to explain to you myself. It
may not be necessary.

I feel that certainly the first responsibility

that I have as Secretary of the Treasury is
not to leave a stone unturned to make sure
that in this defense program we do our part,
and that is, that we do everything possible to
mop up the extra money which is put in the
hands of the workers and business people
through this defense program, and that we

keep, if possible, from adding to this inflation spiral.
Now, I just feel we have a responsibility.

That doesn't mean that we are not going to have

275

-2-

inflation. If we don't do it we are certainly
adding a lot of fuel to the fire, if we let

these extra millions go, and I see Mr. Shoup

says there is five billion dollars to mop

up.

Bell:

That is a minimum.

H.M.Jr:

A minimum? You gave me only credit for one
billion of Defense Savings Bonds?

Shoup:

No, sir, I think I gave you credit for half

a billion of Defense Savings Bonds that came
out of money that would otherwise have been

spent. I gave you credit for four billions

increase in total sales.
H.M.Jr:

But the one billion was next year over this,
was that it?

Shoup:

Yes, comparison of increase in June sales over --

H.M.Jr:

You gave me an increase of one, but you
gave me credit altogether of how much?

Shoup:

I believe, sir, it was an increase of four
actually, but of that only a small part came
out of money that otherwise would have been

spent. Not much of it, in other words,
really checked consumption, in my view.

H.M.Jr:

How many months ago was it that we talked about
it?

Shoup:

It must have been four or five months ago.

H.M.Jr:

At least I had it in mind then. Now, Mr.

Barnard is conducting this seminar for me
and if he would tell me where we are today,
where we stand right now.

Barnard:

Where we stand right now is that the team

that I set up to start this seminar has been

276

-3considered by all except the visiting firemen.
They haven't yet caught up with this thing,
and on the whole I would say there was
pretty nearly unanimous, not quite unanimous,

dislike for it, and objection to it (laughter).

H.M.Jr:

Does that include the visiting firemen?

Barnard:

Well, Mr. Paul is kind of leaning a bit my
way. The objections are, I think, reasonably

valid, although I don't accept them all because
I think they are looking at the problem a

little too narrowly, and it is a question of
judgment.

The objections are of two main classes. I am

keeping off mechanical details. I want to
keep our minds on the whole broad problem

and general questions before we get into the
questions of mechanics. The three objections
are, that to go ahead on any savings plan,
compulsory savings plan scheme of any kind,

will restrict the capacity of the Treasury
to collect additional money by taxes. It

will also very much interfere with a general
tax program. The third type of objection is
one that relates to philosophy of equity, and
there is no particular agreement in philosophy
around here, I find. The only thing I would
say about that, we have got a very practical
job on our hands, and we should do all the

equities we can, but I am first strong for

carrying this country through with a program

it has got to go through with, and that is

the only emphasis I make on that. Now,
I am ready to talk with the gentlemen about
the whole broad situation, which is Social
Security, compulsory savings and the tax
program. The Tax Department has what in

effect is a list of tax sources that could

be tapped, worked out in some detail, and I

277

-4think those have to be considered not merely
from the standpoint of what is conceivably
an economic treatment, but to avoid the

word "political", I would say "public relations"
with which I have had some experience.
I suspect that when we examine it with a little
more care, some of these things, we would

possibly conclude that at the present time

the country hasn't the morale nor is it in

a state of mind nor has it an understanding

of this situation sufficient to permit putting

a very great increase in tax burden on the
people, especially in the lower brackets,
at the present time.

The kind of burden we are talking about is
in the order of seventeen or twenty per cent
supplementary income tax with reductions in
the exemptions, the little men as well as

the big men being hit very hard. I think

that is perhaps in a few words about where we

stand. The thing hasn't been talked out, and

I am still boring in on my idea in order to

get the whole thing developed. There doesn't
seem to be a great deal of enthusiasm for
compulsory savings.
H.M.Jr:

Well, let me ask this. I would like to ask
this group this question, and that is, are

there any other people that aren't here
who are working on this thing, that we ought

to get in on it?

White:

I know a few, myself.

H.M.Jr:

You do? Who, Harry?

White:

Well, I think we ought to get in people from
the defense agencies who have been working

on this for at least two years, to my knowledge. I think we ought to get Hansen, who

278

-5did a great deal of work on this six months
to ait.year ago. I think Currie ought to be in
on
H.M.Jr:

Hansen and Currie?

White:

Hansen, Currie and somebody from Defense. I

don't know just who it should be. I can find
out. But I know that they have been making
studies and some of their conclusions differ.
I think Crouse has been making some studies.
He used to be with the Federal Reserve Board,
and he is now with Defense. They have been

at this thing for a long time, and I think

they have some different points of view. I
think that there is so much work to be done

to thresh this thing out in a few days, that
I think it would be very helpful to get the

benefit of work that they have already done,
some-what along the lines of which Carl has
done, but from a different angle. There may
be others, but those are three that I know.
Parnard:

I would like very much if you could get Leon

Henderson over here to lunch with me.

H.M.Jr:

I can next week.

Barnard:

Yes, I mean next week. They have done some-

thing that they are not revealing on this.

White:

well, that is this group that I am talking
about.

Barnard:

Have they done it for them?

White:

Yes, it is not Henderson's outfit.

H.M.Jr:

Well, the Vice-President told me about it,

and he said Henderson is going to present it,

and as soon as he presents it he will send it
over here. I just wondered if you could handle

279

-6any more people right now.
Parnard:

Well, I wonder if we can't get this group

together and talking about it and see what more
we ought to do. I have no doubt others ought

to be brought in, but I don't know. If we get

in town meeting, we will never get anywhere
on this. We have got to break it down in some
practical way, and I don't see why some of
the others here can't handle some of those

people that we ought to bring in. If we get
twenty or twenty-five people around here

trying to discuss a thing as technical and
as subject to differences of opinion as this

is, I don't think we are going to get very
far.

H.M.Jr:

Then let's just leave it the way it is for
today. I think if they could adjourn now
to your office and go to it, then I am avail-

able at any time during the day that you want

to see me.
Barnard:

All right.

H.V.Jr:

How is that?

Barnard:

That is all right.

TREASURY DEPARTMENT

280

INTER-OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

FROM

Mr. Paul

10-23-41

I am, of course, in thorough agreement with the purposes

reflected in Mr. Barnard's plan. Time has not permitted the

painstaking analysis the plan deserves, but tentative comments

will be ventured in this brief memorandum. It should be stated
in advance of these comments -- some of which are adversely

critical -- that a constructive plan with the twin objectives
of raising increased revenues and controlling inflation is a
first order of business. If Mr. Barnard's plan starts us on
this journey, it has served a highly valuable purpose.
I

The first item in the plan calls for a contribution of

5 percent of all salaries and wages in excess of $1,000 to a
family reserve to be held by the Social Security Administration
and released after the termination of the emergency, and previously under certain conditions.

This part of the plan amounts to a forced loan of a flat

percentage of compensation above the low amount of $1,000. No

differentiation is made according to the economic status of the
wage-earner. I should think any compulsory savings plan should
take into more account the ability of the forced lender to make
the loan, should insist upon loans from other types of income -such as dividends, bond interest, and rents, and should be resorted to only after capacity to pay taxes has been exhausted.
I should, therefore, recommend that this contribution be extended to other types of income, be graduated with increasing upper
brackets, and that repayment be contemplated only in inverse pro-

portion to size of income. Such a reservation would tend to

exhaust taxpaying capacity in upper brackets, and would recognize

the inability of the lower brackets to make an additional permanent
contribution to defense. At the same time low bracket purchasing

power would be suspended.

II

The second item of the plan calls for a contribution varying
from 25 percent to 50 percent of increase in spendable income from

281
2-

all sources in any year over that of the previous year. This
contribution will be reserved and repaid as in connection with
item No. I.

This proposal has the virtue of applying to all types of

income, though the third item below, by preventing dividend
distributions, precludes any inclusion of dividends in spendable
income. I am concerned, however, about the practical operation

of the plan. Its theory is no doubt to force a loan to the

government of all income increases created by the emergency. I
am certainly in accord with this theory, but an undiscriminating
exaction of a part of increased income may take not only income
arising out of the emergency, but also income having nothing to

do with the emergency. For instance, it may take a part of in-

come ascribable to ordinary development of earning power associated

with increased skill, age and experience. The contribution would,
therefore, hit non-windfall increases.
(

Moreover, this contribution fails to take account of varying
economic status, as, for instance, marriage, the birth of children,

the support of dependents, and misfortunes such as family illness.
It seems to have the same vices as the income credit (the average
earnings credit) for purposes of invested capital to which the
Treasury has several times objected.

My final fear, in connection with this item, is that it

freezes exemption from contribution at high levels in the case of

persons having a high income in the previous year.

III
The third item of the plan calls for a business stabilization

reserve of varying percentages of distributable net income of
corporations over 6 percent to 15 percent of invested capital.

The percentages range from 25 percent to 100 percent. The exacted

percentages are invested in business reserve certificates, bearing
2-1/2 percent interest, and are redeemable at specified times after
the emergency.

I question whether this program would have much effect upon

inflation. It does not exact a forced loan from spendable income.
It would come from corporate surpluses. If these surpluses are
not distributed, they do not affect purchasing power; if they are
distributed, they go in large part to persons who spend only a
relatively small proportion of their income.

282

-3My more basic doubt about this proposal is that it resorts to
enforced saving before we have absorbed corporate capacity to pay

taxes without impairment of the profit motive. The exaction of

enforced savings which have to be repaid, should come at the point
at which corporations can no longer afford to pay taxes, which do
not have to be repaid.

If this part of the program should be adopted, it would seem
desirable to impose conditions upon which the savings will be
refunded. If this is not done, there is no assurance that the
released funds will be used to stabilize business, as by use for

replacement of obsolete machinery, conversion of plant equipment,
and readjustment to post-emergency conditions.

This item in the program seems to legitimatize the accumulation of corporate surpluses to the extent that the surpluses are
invested in business reserve certificates. We should probably
investigate the effect upon income tax revenues by reason of the
diminution of taxable dividends. At the least there would seem
to be a considerable postponement of revenue arising out of

dividend payments.

Finally, I question in regard to this item, the flat interest

rate of 2-1/2 percent. This percentage might be appropriate for
small loans, but it would seem better to scale the rate down for

high loans, as in the case of Defense Savings bonds and Tax Antici-

pation notes.

IV

The additional item of the plan is a program for voluntary
and part time compensation. In general, this item is an adoption
of the present pension plan system except that the government becomes the trustee.

Every one in the practice knows how the pension plan provisions

of the statute are being abused by the adoption of tax-avoiding
plans in favor of key employees and stockholders. These provisions
need to be tightened to prevent avoidance. Certainly private

pension systems should not be extended; their purpose could be
better accomplished by broadening the Social Security Program.

Under such a program benefits are scientifically distributed, and
are not subject to the whim and caprice of individual employers.
It seems fair that the government should control benefits, since
it pays a substantial part of the cost by reduced taxes.

283
-

Conclusion

Some of the plan may be adapted to function as part of a broad

affirmative program for raising revenue and controlling inflation.
I would doubt whether it would absorb a very great proportion of

excess spendable income, which may reach the figure of $8,000,000,000

or more. In any event, it should be coupled with a revenue-raising
and inflation control program along the following lines:

1. A broad extension and liberalization of the Social
Security Program in both old-age and unemployment insurance
aspects.

2. An increase of the excess-profits tax with modification of the income or average earnings credit. (Perhaps the

tax could be an average of the tax computed by the income
method and the invested capital method.)

3. Increases of the middle income tax brackets.

4. Increases of the estate and gift tax rates.
5. Increased manufacturers' excise taxes on goods which
compete with defense industries.

6. Forced savings to the extent necessary to absorb
any remaining excess spending power in respect of goods in
short supply.

7. In levels of income above a reasonable subsistence
level enforced savings should supplement taxation; in low
levels of income enforced savings are preferable to increased taxation.

284
October 23, 1941.
MEMORANDUM FOR THE SECRETARY'S FILES

A meeting relative to the administration of Executive
Order 8389 was held in Mr. Foley's office at 3:00 P. M. on
October 22, 1941, attended from time to time by the following:
Messrs. Foley (Chairman), Pehle, B. Bernstein, White,
Dietrich, and Timmons for the Treasury; Messrs. Acheson, Miller,
Fisher, and Luthringer for State; Messrs. Shea, Kreeger, Jurenev,
and Swidler for Justice; and Mr. Knapp for the Board of Governors
of the Federal Reserve System.
Mr. Pehle reported to the committee that Mr. Nishiyama
had called this morning to inquire whether a decision had been
reached with respect to the use of Japanese dollar balances in

South America for the purchase of oil to be sent to Japan. After
discussion, it was agreed that Mr. Nishiyama should be told on

the occasion of his next visit that this question was still under
consideration by this committee, inasmuch as it is tied in with
the whole problem of the Yokohama Specie Bank. This problem

involves the position not only of the New York branch but also
the branches on the West Coast, and it is a problem which is
engaging the attention not only of the State and Treasury Departments
but also the Superintendent of Banks of the State of New York.
Mr. Bernstein reported on the recent conference held
with respect to the position of the San Francisco branch of the
Yokohama Specie Bank. It appears that there are enough liquid
assets available to the West Coast branches to enable them to pay
off all depositors. The National Bank Examiner stationed in the
San Francisco branch became worried over the possibility that the
position of the New York branch of the Yokohama Specie Bank would

require that funds be transferred from the West Coast to New York.
So long as this is not necessary, it does not appear that because
of fiscal considerations any action need be taken to close the
San Francisco branch. Accordingly, no action is to be taken for
the time being.

285

-2Mr. Pehle also reported that he had raised with
Mr. Nishiyama the question of remittances to American missionaries
in Japan. Thus far the Japanese have refused to allow such

remittances against blocked dollars, but have insisted on credit
to a free dollar account. Mr. Nishiyama stated that the North

American Mission Board had discussed with him the possibility
of establishing a clearing account. Mr. Nishiyama suggested

that it might be possible to allow remittances to American
missionaries in Japan against blocked dollars if in return we
release funds for the support of the Japanese Commercial Institute
which is, he stated, an organization interested solely in
promoting trade between the United States and Japan. Mr. Pehle
stated that he had told Mr. Nishiyama that he was not in a

position to indicate that this could be approved by the Treasury
Department. It was unanimously agreed by the committee that
this proposal should not be accepted.

Mr. Fisher read to the committee a telegram from

Ambassador Grew in Tokio which requested the State Department

to provide him with a definition of the term "free dollar account"
It was agreed that a reply should be despatched stating that
the requirement of this Government that the free dollars accruing
to Japan be transferred to the Yokohama Specie Bank as a partial
offset to the withdrawals from such bank to pay Japanese
diplomatic expenses in this country is not inconsistent with a
previous circular telegram to all diplomatic missions which
stated that the proceeds of State Department drafts would be

paid into a free dollar account. In this instance the with-

drawals for Japanese interests in the United States far exceed
similar American expenses in Japan, and further, the withdrawals
by the Japanese in the United States will result in serious
depletion of the assets of the Yokohama Specie Bank. Therefore,

this Government is requiring that the free dollars accruing to

Japan be utilized first before any blocked funds are drawn on.
Should any balance remain in the free dollar account after the
payment of the Japanese diplomatic expenses, such dollars may

be converted into the currencies of non-blocked countries.

286
3-

A telegram has been received from Governor Poindexter

of Hawaii stating that an application has been made by the

Yokohama Specie Bank there to disburse approximately $24,000

in payment for the fueling and provisioning of the boats
arriving there from Japan. A telegram is to be despatched to
Governor Poindexter stating that he is authorized to license
this withdrawal. Mr. Pehle said that he understood that the

Japanese returning to Japan from the United States are to pay
for their passage in yen in Japan. Admiral Nomura has told
Secretary Hull that the payment for such passages is to be made
in yen and Mr. Acheson stated that it does not appear that
anything can be done to alter this arrangement.

Mr. Bernstein pointed out that the missions in Latin

America should be sending to the Department of State the names

of Japanese firms to be eventually placed on the Proclaimed List.

Should it become necessary immediately to add Japanese names to

the List, there are at present only about thirty-five names

available. Mr. Acheson stated that the missions had been
requested to do this.

Reference was made to an application filed by Edward
L. Murphy, an assignee of Kleinworts & Company, an English
banking house, with respect to a claim by Kleinworts against
I. G. Farben. The claim amounts to approximately $254,000. A
judgment has been obtained by the plaintiff and an application
has been made to transfer the funds. The British Government

has stated that it needs these dollar funds for the payment of
salaries and other similar expenses, and that the bringing of
this suit had been cleared with Assistant Attorney General Shea.
Mr. Pehle pointed out that at the time the British had approached
Mr. Shea on the bringing of this suit it was obviously in our
interest to tie up I. G. Farben's funds through attachment,
inasmuch as the freezing control had not then been extended to
Germany. Now, however, this application represents the transfer
of a substantial amount of German assets out of a blocked account

to the British Exchange Control. Inasmuch as applications to
effect transfers to American creditors are being denied, it
would not be consistent with policy to approve this application.
It was unanimously agreed the application should be denied.

4-

287

Mr. Pehle reported that Mr. Lincoln Johnson, Vice

President of Manufacturers Trust Company, had called on him

today. Mr. Johnson said that he was disturbed by the refusal
of Foreign Funds Control to license the payment of interest on
the German standstill obligations. Mr. Johnson stated that
bank-to-bank obligations historically had always been given

preference, although this was by custom and not by law, and
that in almost no case had there been a default in bank-to-bank

transactions except in the rare case where the individual debtor
bank had become insolvent. Mr. Johnson also referred to the
credit extended by New York banks to Latin America and said
that the present attitude of this Government might necessitate

reconsideration of the position of the banks concerned. Mr. Pehle

pointed out to Mr. Johnson that the Foreign Funds Control problem
in Latin America has largely been one of deal ing with persons
on the Proclaimed List, a problem which would not entail the
settlement of claims against Latin America in a general way.
Mr. Pehle told Mr. Johnson that he might wish to discuss the
question of Latin American credit with Mr. Warren Pierson of
the Export-Import Bank.

Mr. Pehle referred to an application filed by the

American Brake Shoe and Foundry Company. In 1936 such company

formed a French subsidiary to manufacture equipment for railroaa

cars under American patents. The American company has now

received an offer from a French firm to purchase the entire stock
of the French subsidiary, payment for such purchase to be made out
of the account of the Banque of France with J. P. Morgan and

Company. It was pointed out that this sale might possibly be

under direct German pressure, or afford Germany an opportunity to
purchase another French industry, as recent despatches from France
have indicated that the Germans are doing. Mr. White and
Mr. Acheson pointed out that the consummation of this transaction

would result in an export of capital from France, a transaction
which probably is not in the interest of France. Mr. Acheson felt
that this was very likely a case of duress by Germany on the
Banque of France to use its dollar funds to buy out American interests in France in accordance with a German program for economic
domination in Europe and that Foreign Funds Control was designed

to prevent such transactions. After discussion, it was agreed
that the application should be denied.

288

-5In connection with the filing of reports on Form

TFR-300, Mr. B. Bernstein stated that it had been decided to
grant no further general extension of time. However, in view
of certain special problems raised in connection with the
reporting by import and export firms and insurance companies,
a circular is to be despatched to all Federal Reserve Banks
granting an extension of time until November 29, 1941 to import
and export firms and insurance companies. The trade groups

will be informed of this extension at the time the circular is
sent out.

Mr. Molekamp of the Netherlands Legation in a recent
discussion with Mr. B. Bernstein asked what support the Treasury
Department is prepared to give to the request that the Dutch
Government mi, ht make of banks and brokers in this country to
furnish the Dutch Government with information as to the Dutchowned property in this country which information the Dutch
Government would need in order to file with us reports on
Form TFR-300. Mr. Bernstein added he had not encouraged Mr.

Molekamp in this matter but had told him that he would raise it

with this committee. Mr. Bernstein stated that he felt it

would be very unwise for the Dutch to make this request at the
present time. To this the committee agreed. Mr. Bernstein
also added that Mr. Molekamp had said that the Dutch were not
interested in taking over frozen assets to spend but that they
were taking up with London the question of investing cash
balances in defense bonds.

Mr. B. Bernstein also referred to the proposed circular
stating that American foreign service officers' property is not
to be reported on Form TFR-300. After discussion, it was agreed
that such circular should be despatched.

Mr. White referred to a letter received from the Office

of Production Management relative to a shipment of sugar by a
Proclaimed List firm in the Dominican Republic to the United States.

Mr. Pehle said that it is stated in the letter from the Office

of Production Management that the sugar will be used to produce

ethyl alcohol, which is needed in defense uses. Mr. Pehle

289

-6-

pointed out that there is no shortage of sugar and that this
matter is presently receiving the attention of the Proclaimed
List clearance sub-committee.

Officers of the Standard Oil Company have discussed
with the State Department sales of petroleum products by

Standard's Brazilian subsidiary to Condor, the German airline.

Standard oil claims that they will be sued unless they fulfill

their contract to furnish gasoline to Condor. The committee
agreed that the Standard oil Company should be told that licenses
are necessary for such transactions, that such licenses if
applied for will not be granted and that unless full cooperation
is secured, the Brazilian subsidiary will be placed on the
Proclaimed List.

290
October 23, 1941
3:10 p.m.

Harry
White:
HMJr:

V:

Yes, sir.
You're
on the loudspeaker, and only Foley's
in the room.

All right, then I'11 be careful what I say.
(Laughs)

HMJr:

Yeah. Listen, I've just been talking - I
don't know whether this has gotten to you
yet - but I got terribly excited yesterday

when I found out that Foreign Funds issued

a general license. Let's say a man has ten
thousand dollars that's frozen. He can take

that money and go out and speculate in food,
and has been doing it and a great many of
the people have been doing that. Did you

know that?
W:

No, I wasn't aware of it. Now that doesn't

mean that I may not have heard of it at the
time it was put, but I know this is the first
intimation that I've had that they could buy

that much - spend that much money for commodities.
HMJr:
W:

HMJr:

Well, it - I mean, we - well, also stocks.
Well, they - I did know that they were permitted to buy and sell stocks.
Yeah, but did you know that they could buy for instance, they're buying potatoes, soybeans, corn and wool and

W:

I did not know that, but my not knowing it -

it may be my fault. It's doubtless my fault.
No, I did not know that. I was under the
impression that it was only securities.
HMJr:

Because I was terribly shocked, and I jumped

all over Ed. Ed wants some partners in his
misery, and he said, "White sits in on those
meetings. #

291

-2W:

That's very true. I would very definitely
have every responsibility in it - just as
much as his. But I didn't know that there
was any of that being done. All the discussion that I was ever present at was in
terms of securities.

HMJr:

Well, the point is this. I discovered this
myself.

W:

HMJr:

Yeah.

Because I took it up with the Department of
Agriculture and they know who's speculating
in foods.

W:

HMJr:

W:

HMJr:
W:

Yeah.

And they, in a very nice way, let me know
that we let people take money out of frozen
funds and speculate in foods.

Yeah. Well, the responsibility certainly is
as much mine as his in that, because

Now that I tell you, what's the reaction?
Well, I'm surprised that we didn't - weren't

aware of it. I didn't focus on that portion

of the problem.
HMJr:
W:

Don't you think it's terrible?
Well, I think it was a definite justifiable
criticism that we didn't.

HMJr:

No, but I mean, imagine if Senator Smith

W:

Yeah.

HMJr:

W:

found out

that the Secretary of the Treasury was
encouraging people using frozen funds to
speculate in foods.

Yes. I would say that it's a definite lack,

292

-3although I would like to add to that that
without any knowledge, I would be very surprised if it amounted to much; but even if
it doesn't amount to much, I don't see any

justification for permitting it.

HMJr:

Listen, one contract in potatoes, which I
saw, would be enough to damn me.

That's right. I agree with you.

W:

HMJr:
W:

HMJr:
W:

HMJr:
W:

One contract - one fellow in potatoes.
I agree.
What?

I said, I agree.
And lard was another contract.

I agree with that.

HMJr:

Yeah. Well

W:

As a matter of fact, I would make inquiry;

but I think the possibility of that and the

question of that has completely escaped us, and
I don't remember any discussion of the purchase of commodities. I may be mistaken.
And I'm wondering whether the terms of the
general license are such as would permit that.

HMJr:

Oh, yes.

W:

It does?

HMJr:

Well, anyway, I had Pehle in and I'm going
to town on it tomorrow.

Yeah. Well, it's a responsibility that nobody could
check, because we were all there.

HMJr:
W:

Well, the point is - I mean, I'm
I think you're right that it ought to be

stopped. There's no question about that.

-HMJr:

W:

HMJr:
W:

HMJr:
W:

HMJr:

W:

293

Why, it's crazy. And then I'm going after

the whole question of speculation in foods,
but I want to first clean out my own house.
That's true.

What?

I think you're right.
Don't you think I'm right?

I think you're entirely right.
My Boston speech - I mean, they say, "Secretary
of Treasury gives sanction to the speculation
of foods and here he's complaining about the
high cost of foods. "

Yes. Well, I would stop it on the one hand,
and then I would also have - attempt some
inquiry and investigation on how much of it
has been done.

HMJr:
W:

HMJr:
W:

Oh, they're bringing in the reports tomorrow.

Yes. Yes. Well, I think you're right.
Okay.

All right, sir.

TREASURY DEPARTMENT

294

INTER OFFICE COMMUNICATION

DATE October 23, 1941.
TO

FROM

Secretary Morgenthau

E. H. Foley, Jr.
We have amended General License No. 32 so as to eliminate

the possibility of free dollars being made available to the
Axis powers by reason of the limited remittances ($100-$200 a
month per family) that we have been pe rmitting during the

past year to non-Americans in the blocked countries. Under
the new general license, remittances will be permitted only

against blocked dollars credited to a bank of the country to
which the remittance is made. This will not only have the

effect of curtailing the amount of free dollars that the Axis
will get but will also prevent Germany from acquiring Swiss

francs by having remittances to all of Europe go through
Switzerland.

We realize that in view of the fact that Germany has
eliminated all of the banks in Poland and Greece, for example,

it may be very difficult to effect remittances even against
blocked dollars to Poland or Greece. We feel, however, that

it is very important for us not to recognize the de facto

-2-

295

situation of Germany being the financial clearing house for
many of the overrun countries.

As far as remittances to American citizens abroad are
concerned, we are not making any substantial change in the

existing general license relating to remittances to American
citizens. Under that general license $500.00 a month can be
sent to an American citizen, and a single remittance of $1000.00

to permit travel to the United States. The general license
also authorizes free dollar accounts to be credited by these

remittances if it is impossible to effect the remittances
against blocked dollars. We are, however, announcing in the

press release that we are going to drastically curtail the
amount of money that may be remitted to American citizens abroad

under a special license. The amount of free dollars that will
become available to the Axis in this way is fairly limited and
we feel that for the time being we should permit these free

dollars to accrue to the Axis rather than face the outcry of
cutting off these limited remittances to American citizens abroad.
The foregoing has been cleared with the Inter-Departmental
Foreign Funds Control Committee.

7h

THE AMERICAN BANKERS ASSOCIATION

-

296

OFFICE OF THE PRESIDENT

THE SECURITY BANK
OF PONCA CITY

PONCA CITY OKLAHOMA

October 23, 1941

H W KOENEKE
PRESIDENT

Mr. H. Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.

Dear Mr. Morgenthau:

On behalf of the American Bankers

Association I wish to express our appreciation for
you taking the time from your busy life to attend
our annuel convention, thus making it possible for
those in attendance to hear directly from the
Secretary of the Treasury. Your sincere and frank
discussion of the problems which confront the
Treasury Department of our nation was well received.
May I assure you of the continued
cooperation on the part of the Association, and I
wish you to feel free to call upon our organization
for any assistance we can render. It goes without
saying that any member of our staff is desirous of

being helpful. We shall lend every effort within

our power to assist in informing the bankers
throughout the nation on the subject of freezing
control.
I am personally grateful for your
best wishes for e successful year in office.
Sincerely yours,

fathering
H. W. Koeneke.

HKKmm

TREASURY DEPARTMENT

297

INTER OFFICE COMMUNICATION

DATE October 23, 1941
TO

Secretary Morgenthau

FROM

George Buffington

Messrs. Kuhn, Schwarz, and I suggest you might

like to distribute the attached folders at your Press
Conference this morning. During the day we will prepare

a little story to accompany the folders which we will
mail out air mail today to the newspapers. I have also
discussed this subject with Mr. Norman Thompson and he

agrees that it might be well to accompany the folder with
some kind of a short release.

G.B.

298

You will see from the tables that if your net income

for 1941 is $5,000 and you are single person with no
dependents, you must save at the rate of $40 every

A Message to Taxpayers
from the Secretary
of the Treasury
Through our representatives in Congress we have

month or $483 a year for your Federal taxes.
If you are married but have DO dependents, your

decided defense program. We have

savings for taxes should amount to $31 per month or

also expressed our preference for paying as much as

If you are married and have two dependents, you
must save $23 per month or $271 year. If you are

therefore, is anxious that each
as promptly as possible what his in-

$18 per month or $219 a year for the payment of Fed-

CONSULT YOUR BANK
about Tax Savings Notes

15

YOUR

should

sold

being

citizens

of

purpose.

only when used to pay income taxes up to and includ-

ing the month when the tax payment is made. The

plan

bank

will

glad

be

meet

you

start

such

savings program. you additional information,

shall

be

glad

to

write

to

me

Treasury Department,

taxpayer always purchase Notes during the entire
which

he

receiving

his

income

for

use

in

year

The attached tables show how much you will

payment of taxes due the following year. Plan now
some part of your income during the remainof this calendar year to be used for pay-

have to pay in individual income taxes on 1941

salary and wage incomes of selected and

of Federal income taxes.

the savings needed to meet these

The Treasury urges that you go immediately to

If your gross income is not more than $3,000

and consists wholly of salaries, wages, other

your neighborhood bank to secure detailed information about the Tax Savings Plan and how you per-

compensation for personal services, dividends,

interest, rent, annuities, or royalties, you may
make your tax payments in accordance with

sonally can best take advantage of it Treasury
Department Circular No. 667 describing the Tax
Savings Notes in detail has been sent all banks,
where you will find someone who will be glad to

the instructions contained in Form 1040-A.
In this case your tax will be slightly different

from that shown in the following tables, but

any questions.

the monthly savings necessary will be approxi-

It is extremely important that the increased Federal

income taxes vitally necessary for National Defense
be provided for in your budget as you would provide
for other expenses

TAX SAVINGS PLAN

mately the same.

$1,000
$1,100
$1,200
$1,300

40

$1,500

$2,000

117

10

165

14

neigh-

your

October 20, 1941.

two series of Notes will be provided so that

$800

$1,400
of

own

your

Huny

that On January 1 of each year hereafter,

the

usefulness

the

to

con-

and

CANDOT be presented for payment of income taxes

before January 1, 1942, and must be held by the purchaser at least three months if they are to be used for

$750

to

examine

you

that

borhood

Treas-

the

for

systematically
this

Veniently

to

TAXES

and maturing August 1, 1943. They bear interest

aside

set

by

asked

see

being issued in two series, both dated August 1, 1941,

need

$900

The Tax Savings Notes being offered by the Treasury

to make it easier for taxpayers to plan ahead are

how

and

year,

you

will

what

showing
coming

Yeg

taxpayers,

the

to

married and have three dependents, you must save
eral income taxes.

wage incomes of selected sises and the monthly
savings needed to meet these 1941 income
payments.

the cost of defense out of current earnings.

a

pendent, you must save $27 per month or $323 year.

Table showing how much you will have to
pay in individual income taxes on salary and

If

KNOW

$375 year. If you are married and have one de-

00

at

the

$2,500
$3,000
$3,500
$4,000
$5,000

221

284
347
483

40

$6,000
$7,000

649

$8,000

1,031

86

$9,000

1,247

104

493

124

1,749

146

825

$10,000

54

69

$11,000
$12,000
$13,000
$14,000
$15,000

2,657
2,994

221

$16,000
$17,000
$18,000
$19,000
$20,000

3,354
3,722
4,112
4,509
4,929

280

$21,000
$22,000
$23,000
$24,000
$25,000
the
to

UNITED STATES TREASURY

to make tax payments easier

3

START SAVING NOW

2,035

170

2,331

194

250

310
343

376
411

357

446

5,807

484

6,264

522

6,744

562

7,224

602

Married person living with husband or wife-No

Table showing how much you will have to
pay in individual income taxes on salary and

Table showing how much you will have to
pay in individual Income taxes on salary and

wage incomes of selected sizes and the monthly

wage incomes of selected sizes and the monthly
savings needed to meet these 1941 income tax

wage incomes of selected sizes and the monthly

savings needed to meet these 1941 income tax
payments.

payments.

payments.

Married person living with husband or wife-One

dependents

from salary or
wages

pay ments-

5
6

8

138

12

$4,000

249

21

312

26

$5,000
$6,000
$7,000
$8,000
$9,000

375

31

521

43

687

57

873

73

1,079

90

1,305

109

1,551
1,817

129

2,103
2,409

151

175
201

228

$17,000
$18,000
$19,000

2,739
3,084
3.444

3,819

318

4,209

351

$20,000

4,614

385

5,034
5,469
5.919
6,384
6,864

420

$15,000
$16,000

$21,000
$22,000
$23,000
$24,000
$25,000

Computed to the nearest dollar.

257
287

456
493
532
572

21

31

40

$2,500

50

$3,000

98

I

146

12

197

16

260

22

pay
the
1941 Act-

You will need to

If your net Income

- salary or

to meet Iss tax

wages

payments-

$6

$2,500
$3,000
$3,500
$4,000
$4,500

106
154

208

13

17

52

66

$8,000

717

60

$9,000

911

76

619
789

995

83

1,205

100

1,451

121

1,701

142

1,987

166

2,277

190

$15,000
$16,000
$17,000
$18,000
$19,000

2,607
2,940
3,300

245

3,663

305

4,053

$20,000
$21,000
$22,000
$23,000
$24,000
$25,000

$10,000
$11,000
$12,000
$13,000
$14,000

551

1,117

46

93

1,351
1,597

113

1,871
2,157

156

133

180

2,475

206

2,805
3,156
3,516
3,897

234

338

$15,000
$16,000
$17,000
$18,000
$19,000

4,446
4,866
5,289

371

$20,000

4,287

357

$21,000

4,698
5,118

392

5,739
6,192

478

516

6,672

556

1 Computed to the DESCRIBE dollar.

217

275

406
441

$22,000
$23,000
$24,000
$25,000

$2,500
$3,000

$3,500

12

58

23

$8,000
$9,000

to move 1945 tax
payments-

$2,200
$2,300
$2,400

$1

33

38

1943 Act.

You will and to

$2,000
$2,100

$2,100
$2,200
$2,300
$2,400

397

27

453

the

$1,600
$1,700
$1,800
$1,900

271

323

You with have to

$1,500

$5,000
$6,000
$7,000

$5,000
$6,000
$7,000

$10,000
$11,000
$12,000
$13,000
$14,000

You will have to

$2,000

$1

12

$3,500
$4,000
$4,500

16

$4,500

86

$2,300
$2,400

7

90

186

$10,000
$11,000
$12,000
$13,000
$14,000

$2,000
82,100
$2,200

8

4
4

61

dependents

$1,500
$1,600

4

42

$3,000
$3,500

wages

payments-

$1,900

71

$2,500

to meet for tax

$1,800

52

80

- ralary or

$1,900

23

$2,000
$2,100
$2,200
$2,300
$2,400

IS your net income

$1,800

13

32

You will need to

$1,700

$

$1,900

pay under the
194 Act-

$1,500
$1,600
$1,700

$6

$1,800

You will have to

3

$1,500
$1,600
$1,700

If your net Income

to meet 1941 tax

2

1941 Act-

You will need to

2

wages

the

Married person living with husband or life-Three

dependents

3

You will have to

salary

Married person living with husband or wife-Two

dependent

a

If net

savings needed to meet these 1941 income tax

9

wage incomes of selected sizes and the monthly
savings needed to meet these 1941 income tax
payments.

Table showing how much you will have to
pay in individual income taxes on salary and

5

Table showing how much you will have to
pay in individual income taxes on salary and

5,559
6,009
6,480

Computed to the prement dollar

263
293
325

427
463
501

540

$4,000
$4,500
$5,000
$6,000
$7,000
$8,000
$9,000

$18

114

10

162

14

219

29

483

40

649

54

827

69

1,033

1,755
2,041

$15,000
$16,000
$17,000
$18,000
$19,000

2,343
2,673
3,012
3,372
3,741

$20,000
$21,000
$22,000
$23,000

4,131
4,530
4,950
5,379
5,829
6,288

Computer to the DOMENT dollar

18

345

$10,000
$11,000
$12,000
$13,000
$14,000

$24,000
$25,000

$2

66

86

1.251

104

1,497

125
146

170

195

223
251
281

312

344

-

378
413
448
486
524

299
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Sunday October 26, 1941.

10/23/41

Press Service
No. 28-20

As a convenience to taxpayers, Secretary Morgenthau made

public today a folder, "Know Your Taxes, which shows at a glance
the approximate amount of individual income taxes due next year

on 1941 salary and wage incomes of selected sizes and the amount
of monthly savings needed to meet these payments.

Arrangements have been made with the Federal Reserve banks

to furnish each commercial bank in their district an ample
supply of these folders for enclosure in the next statement of

accounts mailed to depositors. In addition, it is planned to

include the folder in the December "reminder" to taxpayers
mailed out by their local Collectors of Internal Revenue.

By using this simple guide, the Secretary explained, a
taxpayer may ascertain with a minimum of effort the portion of
his monthly income he must set aside regularly to meet next

year's tax payments.

The new tax tables augment the easy savings plan inaugu-

rated lest August 1. At that time the Treasury placed on sale

a new type of security known AS Tax Savings Notes which enables

taxpayers to save systematically and conveniently to meet next
year's higher texes. These notes bear interest when used in
payment of Federal income taxes end provide the purchaser with
an investment in advance to meet future taxes.
In making the announcement, Secretary Morgenthau

reiterated his belief that it is extremely important for tax-

payers to budget their taxes in view of the greatly increased
levies, and expressed the hope that this new plan would be

helpful.

The new tables disclose, for instance, that if your net

income for 1941 is $5,000 and you are a single person with no
dependents, you must save at the rate of $40 every month, or

$483 A year, for your Federal income taxes. If you are married
to $31 per month, or 8375 a year. If you are married and have
If

but have no dependents, your savings for taxes should amount
one dependent, you must save $27 a month, or $323 a year.
you are married and have two dependents, you must save $23

month, or $271 a year. If you are married and have three

a

dependents, you must save $18 per month, or $219 a year, for
the payment of Federal income taxes.

300
-2-

These tables begin at the lowest taxable amount and
include income tax classifications up to net incomes of $25,000
a year. The Tax Savings Notes being offered by the Treasury
are issued in two series, both dated August 1, 1941, and
maturing August 1, 1943. They cannot be presented in payment
of income taxes before January 1, 1942, and must be held by
the purchaser at least three months if they are to be used for
that purpose. On January 1 of each year hereafter, two new

series of notes will be provided so that a taxpayer can
always purchase notes during the entire year in which he is
receiving his income for use in payment of taxes due the
following year.

(A copy of the "Know Your Taxes" pamphlet is enclosed)

-000-

Treasury Department301
Division of Monetary Research

Date 10/23/41 19
To: Secretary Morgenthau
From:Mr. White

This is the cable you
wanted sent to London.

Please initial.

string

302
FOR CASADAY, AMERICAN EMBASSY, LONDON.
FROM THE SECRETARY OF THE TREASURY.

Address by John L. Sullivan, Assistant Secretary of the Treasury,
before annual meeting of Associated Industries of Massachusetts, Boston,
October 23, 1941, contained following answer to United States Chamber of
Commerce statement comparing British and American taxation per capita

and as percentage of national income:
"Recently the Chamber of Commerce of the United States issued a

statement purporting to show that per capita taxes are higher today in

America than they are in Great Britain, and that a larger proportion of
our national income goes to the Federal Treasury in the form of taxes

than in the case of Great Britain. I do not know the motive or the purpose of this statement. From my acquaintance with the officers and mem-

bers of that association I am led to attribute to that statement no
ulterior motive or unworthy purpose. However, I feel obliged to state to
you and to the country that the information contained in that statement

is at great variance with all of the information at the disposal of the
United States Treasury Department.

Perhaps one reason for this difference is that the figures in the
statement appeared to include Social Security taxes in the United States
while excluding them and similar tax charges from the British estimate.

Similarly, as a result of using as a figure for the British national
income 36 billions of dollars rather than 24 billions of dollars (which
we believe is the correct figure) the estimates were thrown far out of

focus. The correction made in the figures as a result of our information

--

303

establishes that, whereas the Chamber of Commerce states that the per

capita tax in America is $168 per year as against a similar per capita
tax paid in Great Britain of $165, this latter figure should be changed
to $200 per year.

Similarly I wish to correct the statement about the proportion of
national income being collected in taxes in the two countries. In the
current fiscal year approximately 22 percent of the national income of

the United States is being collected in taxes by national, state and
municipal governments. In Great Britain approximately 40 percent of

the national income is going this year for taxes. Since the per capita
income in the United States is much higher than in Great Britain, the
actual burden of current taxation upon the British people is very much
greater than that upon the American people."

Please inform the Ambassador and distribute to British Treasury
and others interested.

HH:bvl

10/23/41

304
October 23. 1942

Dr. Fets

Mr. District

will you please send the attached cable to the American Senion,
"For Casaday free Secretary of the Treasury".
See attached meeeage.

FD:lap-10/23/41

305

TELEGRAM SENT
GRAY

PD

October 23, 1941
10 p.m.
AMEMBASSY,
LONDON.

4670.
FOR CASADAY FROM SECRETARY OF THE TREASURY.

QUOTE Address by John L. Sullivan, Assistant

Secretary of the Treasury, before annual meeting
of Associated Industries of Messachusetts, Boston,
October 23, 1941, contained following answer to
United States Chamber of Commerce statement

comparing British and American taxtion per capita
and ES percentage of national income:
SUBQUOTE Recently the Chamber of COMME CC of

the United States issued E statement purporting to
show that per capita taxes are higher today in America

than they are in Great Britein, and that C larger
proportion of our national income goes to the
Federal Treasury in the form of trxes thr n in the
CESE of Great Britain. I do not know the motive
or the purpose of this statement. From my ECquaintence with the officers and members of that

association I or led to attribute to that statement
no ulterior

306
-2- #4670, October 23, 1941 10 p.m. to London

no ulterior motive or unworthy purpose. However,

I feel obliged to state to you and to the country
that the information contained in that statement

is at great variance with all of the information
at the disposal of the United States Treasury DEpartment.

Perhaps one reason for this difference is that
the figures in the statement appeared to include
Social Security taxes in the United States while

excluding ther and sirilar tax charges from the
British estimate. Similarly, C.S & result of using
CS C. figure for the British national income 36

billions of dollars rather then 24 billions of dollars
(which WE bEliEVE is the correct figure) the Estimates
WERE thrown for out of focus. The correction made

in the figures US C. result of our information
establishes that, whereas the Chamber of Commerce

states that the per copita tax in America is

168 per year ES grinst a similar per capita
tax paid in Great Britain of $165, this latter
figure should be changed to $200 per year.

Similarly I wish to correct the statement
about the

307
-3- #4670, October 23, 1941, 10 p.m. to London

about the proportion of national incore being

collected in trxes in the two countries. In the
current fiscal year approxime tely 22 percent of the
national incore of the UnitEd States is being ccllected in taxes by national, state end municipal
governments. In Great Britain approximo tely 40

per cent of the national income is going this
year for taxes. Since the per capita income in
the United States is much higher than that in
Great Britain, the actual burden of current
taxation upon the British people is very much
greater than the t upon the American people. END
SUBQUOTE.

Please inform the Ambressedor rnd distribute
to British Treasury and others interested. END QUOTE
HULL

(HF)

EA:HF:PAK

308
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 23, 1941

TO

Mr. White

FROM

Mr. Hoflich
Subject: British Expenditures Compared to National Income,
1940-41 and 1941-42

British Government expenditures are now consuming 70 per cent

of the national income. Both total and war expenditures are expected to be higher for the fiscal year 1941-42 than in 1940-41,
and will represent a somewhat greater proportion of the national
income. The figures are given below:

Expenditures:

Amount (1)

Per cent of

million)

national income

1940-41

Defense and war
Total

3,220
3,884

57.6
69.5

3,500
4,207

58.3
70.1

1941-42 (April, 1941 budget)
Defense and war
Total

National income estimates: 1940 - to 5,586 million (2)
(3)
1941 - 6,000
"

(1) British Treasury confidential memorandum, "United Kingdom
Financial Policy," not dated, sent by Casaday from London with
letter dated September 26, 1941.
(2) For the calendar year 1940. British White Paper, "An Analysis
of the Sources of War Finance and an Estimate of the National
Income and Expenditures in 1938 and 1940," April, 1941.
(3)
For the calendar year 1941. British Treasury estimate (unofficial). Cable No. 4863 from Casaday, London, Oct. 12, 1941.

October 23, 1941

My dear Mr. Stoessel:

After telephoning you, the other
day, I thought the matter over and it
seemed to me unwise to follow the sug-

gestion which I made for fear that I
might hurt the feelings of some friends
who have been very generous in giving

of their time and services to the Treas-

ury.

I hope at a later date I will be

able to get your assistance on some of

our Treasury programs.

Thanking you for your offer of
cooperation, I remain
Yours sincerely,
(Signed) B. Morgenthan, Ja.

Mr. Albert Stoessel,
Juillard School of Music,
130 Claremont Avenue,
New York, N. Y.

n.m.c.

309

310

October 23, 1941

Dear Mr. President:
Last Tuesday evening we broadcast a

balled of the shipyards on our Treasury
Hour. It was written by Herman Wouk, the

same boy whose Balled of the Leathernecks

I played for you on a record a few weeks
ago.

This now one seemed to me to be so

good that I thought you would like to
have the attached copy. You will notice
that the poem is dedleated to you as
Commander-In-Chief of the Navy.

Sincerely,
(Signed) 2.

Borgeathes. Jan

The President,
The Thite House,
Washington, D. C.

FK/cgk

By Message 9:25 Blacker

n.m. c. n
ec Thompson

TREASURY DEPARTMENT
311

INTER-OFFICE COMMUNICATION
DATE

TO

Secretary Morgenthau

FROM

Mr. Foley

OCT 23 1941

The authority of the Attorney General to
investigate subversive activities of Federal employees

is contained in the Act of June 28, 1941, Public No. 135,

77th Congress. The full text of the provision is as
follows:

"Federal Bureau of Investigation

$8,750,000, of which at least $100,000 shall
be available exclusively to investigate the
employees of every department, agency, and
independent establishment of the Federal
Government who are members of subversive

organizations or advocate the overthrow
of the Federal Government, and report its
findings to Congress".

iNth.

TREASURY DEPARTMENT

312

INTER OFFICE COMMUNICATION

DATE October 23, 1941
TO

Secretary Morgenthau

FROM Mr. Thompson

At the time we took over the personnel investigations of
defense employees at the request of the President, Mr. McReynolds

stated that in only 73 of the 469 cases referred to the F.B.I.
had completed reports been received from the F.B.I.

Mr. Irey advises that approximately 2,000 requests have

gone to F.B.I. for information on pending cases and that but
132 replies have been received, of which number 128 were received

during the period from June 28 to July 17, 1941.
Attached is a memorandum from Mr. Irey in more detail.

Am

Wy

TREASURY DEPARTMENT

313

WASHINGTON
OFFICE OF

October 23, 1941.

CHIEF. INTELLIGENCE UNIT
BUREAU OF INTERNAL REVENUE

TO:

Mr. Thompson

FROM:

Elmer Irey
Since the Treasury enforcement agencies began making

character investigations of persons proposed for employment in the national defense agencies, we have received a
total of 7634 cases. of this number we have disposed of
3813, and at the close of business October 21, we had on
hand 3821 in process of investigation. We are now receiv-

ing these cases at a greater rate than at any time. There

are coming to us an average of 400 per week, there having
been received during the past six weeks 2436. We are

disposing of these cases at the average rate of 125 per

week.

In May, 1941, I discussed with Mr. McGuire our in-

ability to secure information from the files of the FBI
relating to the persons under investigation. He suggested that we forward to him every third day a letter

containing thirty names and he would arrange for the
information to be furnished. Commencing May 3, 1941, we
followed this procedure, and have sent to Mr. McGuire
lists with a total of 2,070 names included. These lists
were delivered at Mr. McGuire's office personally by
Special Agent Gaston, who on each visit made request for
information concerning the names in previous lists. We
have received replies with respect to only 132 names, of
which number 128 were received during the period from
June 28 to July 17, 1941.
In his memorandum to the President in February,
1941, Mr. McReynolds stated that the Federal Bureau of
Investigation had at that time disposed of 73 cases out

of 469 referred to them for attention.

m

W

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

314
DATE October 23, 1941

TO

Secretary Morgenthau

FROM

Mr. Thompson

For your information, I am submitting the following report
with respect to additional personnel:
Following receipt of your memorandum of October 6, placing

upon me the responsibility for the efficient operation of Chick
Schwarz' office, a study was made of his operations and the efficiency of his personnel. One employee--a stenographer assigned
to newspaper work-was transferred out as she was not adaptable

to the work to which assigned. It was apparent that there was
need for an administrative man in the unit. Contacts have been
made with several prospects and I had made a final selection to

report to you this morning only to find at the last minute that
the man did not stand up under investigation. I am having one or
two other prospects checked and will keep back of this until it

is cleared up. When this man is placed in the unit I will have
him report on other possible changes to improve the office operations.

I have negotiations under way with four men, all experienced

in office organization and procedures, for assignment to look into

our various Treasury offices from time to time. I think that the
Foreign Funds Unit which has grown like a mushroom is the first
place to have its organization checked.

315

-2 -

I have discussed with Mr. Gaston the question of an assistant

in his office. He feels very strongly that Mr. Rose is fulfilling
his every need, but after discussing the possibilities of the heavy
load ahead, I think he would not look with disfavor on having
another man around. Since in the event of war Coast Guard would

go to the Navy leaving Customs as Mr. Gaston's principal assign-

ment, I have suggested that perhaps the detail of one of the
Treasury Customs Attaches might be the solution. Mr. Gaston is
considering that but he also has in mind another man that he would

like to think about. We will get together on the matter until it
is settled.
For my immediate office, I am having checks made on several

prospects, one a girl, so that Charlie Bell and I may have some

direct relief shortly.
In this respect I might point out that with the appointment
of the four experts proposed for organizational work, considerable

relief will be felt in my immediate office.

you

315-A

October 6, 1941
Norman Thompson

Secretary Morgenthau

I have told Ferdinand Kuhn that after he has written
a speech or done anything else for me that has to be
gotten out by Chick Schwarz or his office that Kuhn
should go to Norman Thompson, tell him what it is he
wants done for me, and let Norman Thompson see that it
is done. This does not mean that I want Norman Thompson
or his own office to do it, but I want Norman Thompson
to see that Chick Schwarz's office does it, which means
that it is up to Norman Thompson to see that Chick

Schwarz's office operates efficiently. I question that
it has been doing this in the past.
Please, Norman Thompson, take a look at Chick

Schwarz's office. Until further notice, I would like
you to personally feel that you are responsible for
the efficiency of Chick Schwarz's office. Thank you.

316

October 23, 1941

Dear Ed:

Thank you for your prompt com-

pliance with my request for a copy

of the scoreboard". I appreciated
your sending this to me very much.
Yours sincerely,
(Signed) Henry

Mr. E. R. Stettinius, Jr.,

Lend-Lease Administrator,
Office for Emergency Management,
Washington, D. C.

turned to

note : he p' penelound over

was Barnard
m to into seen
about
n.m.c.

I.

G

317)

\)

OFFICE FOR EMERGENCY MANAGEMENT

DIVISION OF DEFENSE AID REPORTS
WASHINGTON. D.C.

Barman
October 22, 1941

The Honorable Henry Morgenthau, Jr.

Secretary of the Treasury
Washington, D. C.
Dear Henry,

As promised in my conversation

=

yesterday afternoon, I send you,
herewith, copy of the"scoreboard"
I showed you in your office.
Sincerely yours,

John

E. R. Stetelnius, Jr.

Lend-Lease Administrator

ALLOCATIONS AND OBLIGATIONS
ECRE

318
TOTAL

WAR DEPARTMENT

(Millions)

(Millions)
$

$

14,000

7,000

12,000

6,000

10,000

5,000

8,000

PROGRAM LIMITATION
4,000

APPROPRIATIONS

6,000

ALLOCATIONS

3,000

ALLOCATIONS

4,000

2,000
OBLIGATIONS

2,000

OBLIGATIONS

1,000

1111
0

o

Mor Apr May Jun Jul Aug Sep Oct Nov Dec Jon Feb

Mor Apr Moy Jun Jul Aug Sep Oct Nov Dec Jon Feb
1942

1941

1942

MARITIME COMMISSION

NAVY DEPARTMENT

(Millions)

(Millions)

$

1941

2,800

1,200

2,400

1,000

$

2,000

800

PROGRAM LIMITATION
1,600

600

ALLOCATIONS

PROGRAM LIMITATION

1,200

OBLIGATIONS
ALLOCATIONS

400

800
200

400

OBI IGATIONS

Mor Apr Moy Jun Jul Aug Sep Oct Nov Dec Jon Feb

o

Mor Apr May Jun Jul Aug Sep Oct Nov Dec Jon Feb

1942

1941

1942

1941

TREASURY DEPARTMENT

DEPT. OF AGRICULTURE

(Millions)

(Millions)
1,000

1.500

800

1,250

1,000

750

PROGRAM LIMITATION

500

600

PROGRAM LIMITATION

400

ALLOCATIONS
200

ALLOCATIONS

250

OBLIGATIONS
OBL IGATIONS

o

assi

0

Mor Apr May Jun Jul Aug Sep Oct Now Dec Jon Feb
1941

Lend-Lease Administration - October 20, 1941

1942

Mon Apr May Jun Jul Aug Sep Oct Now Dec Jon Feb
1941

1942

For Miss Chauncey

319
0

0

P

FEDERAL RESERVE BANK

Y

OF NEW YORK

October 23. 1941

CONFIDENTIAL

Dear Mr. Secretary: Attention: Mr. H. Merle Cochran
I as enclosing our compilation for the week
ended October 15. 1941, showing dollar disbursements out

of the British Empire and French accounts at this bank
and the means by which these expenditures were financed.

Faithfully yours,
/s/ L. W. Knoke
L. W. Knoke,

Vice President.

Honorable Henry Morgenthau, Jr..

Secretary of the Treasury,
Washington, D. C.
Enclosure

Copytime 10/24/41

STATE

CREDITS

DEBITS
Gov't
Expenditures(a)

Total
Debits

PERIOD

1971 year of war
0/29/99-8/28/40)
for period through

1,793.2

605.6

December,1940

22.792.3

1.425,6

User:

3,203.0

1,792.2

140.9

105.9

www.of.war

Proceeds of
Sales of
Total
Credits

Other

Debits

Securities Other
Gold

Dear.(-)
(Official)(b) Credit (s) in Balance

DEBITS
Total
Debita

Gov't
Expendi-

Other

Total

of Gold

Other

tures (d)

Debits

Credits

Sales

Credits

Proceeds

()

Dear. (-)
in Balance

828.2

1,356.1

52.0

420.1

35.0

866.3(e)

416.6(e)

449.7

1,095.3(e)

900.2

195.1(e)

+229.0

1.356.72.793.1

2,109.5

108.0

575.6

10.8

878.3

421.4

456.9

1,098.4

900.2

198.2

+220.1

2,189.8

1,193.7

274.0

722.1

- 13.2

38.9

4.8

34.1

8.8

8.8

- 30.1

176.2

20.1

2.0

154.1

35.3

0.3

0.3

0.5

0.5

0.2

1,187.61

410.

1941

Aug. 28 - Oct. 1

set Inar.
(+) or

35.0

-

-

-

Oet. 2. Oct. 29
Oct. 30 Dec. 3
Deg. D-Dea T
1912

Oct.

1

8

15

R

Instand

-

21.0
27.2
34.3
23.9

Sant. 24

a

(through
(since

-

June

15.2
22.8
26.2

5.8
4.4
8.1

3.6

20.3

10.1940)

USA

30.0
93.5
14.7
20.3

0.2
0.3

0.8

-

-

car
.....

27.6 illino
43.9 million

plan to April 23 1942.

prior to October 8, 194.
(See attached sheet for other footnotes)

29.8
93.2
13.9
20.3(1)

-

THE

+ 9.0
+66.3

19.6

3.6

-

0.2

0.2

-

0.2

-

0.2

0.1

0.1

0.2

0.2

-

HER

for Arena - Account
of
Back ended October 15. 1941

to

-

Cumulation from July by 1940 162.7

dillie

111

+0.1

0.2

(a) Includes
payments
for and
account
of British
Purchasing Commission, British Air Ministry, British Supply Boardy Ministry
Supply Timber
Control,
Ministry
of Shipping.
(b) Estimated figures based on transfers from the New York Agency of the Bank of Montreal, which apparently represent the

proceeds of official British sales of American securities, including those effected through direct negutiation. In addition
to the official selling, substantial liquidation of securities for private British account occurred, particularly during the

early months of the war, although the receipt of the proceeds at this Bank cannot be ident ified with any accuracy. According
to our
data
supplied
by theDecember,
British Treasury
and released
Secretary Morgenthau, total official and private British liquidation
of
securities
through
1940 amounted
to $334by
million.
(a)

Includes about $85 million received during October, 1939 from the accounts of British authorized banks with Now York banks,

presumably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October,
1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently acoruing dollar
receipts.
(d) Includes payments for account of French Air Commission and French Purchasing Commission.

(o) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day.
(f) Includes $8.0 million received from accounts of British authorized banks and $3.0 million from Commonwealth Bank of Australia.

Canadian Government

OF

Transfers
Proceeds

to

Official
Total
Debite

PERIOD

Net year of war
0/29/39-6/28/40)
or period through
December. 1940

- year of was

British
A/C

1

of

For French

Other
Debits

Total
Credits

Sales

A/O

A/C

Gold

Transfers

Transfers from official
British A/C
For Own

Other

Net Incr.
(+) or
Decr. (-)

Credit te

in Balance

Prooeeds
of

to

Official
Total
Debits

British
A/C

Other

Debits

Total

Credits

Gold

Other

Sales

Credits

Net Incr.
(+) or
Dear. (-)
in Balanoe

323.0

16.6

306.4

504.7

412.7

20.9

38.7

32.4

+181.7

31.2

3.9

27.3

36.1

30.0

6.1

4.9

477.2

16.6

460.6

707.4

534.8

20.9

110.7

41.0

+230.2

57.9

14.5

43.4

62.4

50.1

12.3

4.5

460.4
23.1

462.0
52.2

246.2
21.2

3.4

123.9

88.5
31.0

1,6
+ 29.1

72.2

16.7r
0.5r

55.5

81.2

10.2r

2.8

62.9
2.1

18.3
0.7

9.0
7.9

0.1
0.3

-

460.4

AUTH Oct,

DEBIT

CREDITS

-

23.1

-

-

10.7

1941

Oct.29

Oct.

1942

-

Sant. 24

Oct.

8

15

3.7

18.2
5.6
4.5

-

-

9.6

-

-

1.1

20

6.8

2.1

2.0

7.0

5.3

-

-

12

11.2

0.5

0.1

04

0.1

7.1

2.6

-

-

L.5

0.6
1.6

0.5

1.1

0.2

-

3.2

-

1.1

3.0

3.0

-

4.3

6.8

5.8

-

3.7
18.2
5.6

10.2

4.5

looking Average of Total Debits Since Outbreak of War
.

nution
753
YOU October 15, IgZ
For monthly breakdown see tabulations prior to April 23, 1941.
For monthly breakdown see tabulations prior to October 8, 1941.

Revised

1.5

0.2

6.8

-.4.7

0.2

-0.2
-1.4

1.0

+3.8

323
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE October 23, 1941
TO

Mr. Thompso

FROM Mr. Haas

In further response to your request of December 26,
1939, there is submitted herewith for the Division of
Research and Statistics a memorandum listing, with brief
descriptions, the studies or projects completed or under
way, and the names of persons working on each, for the
month of August 1941.

DIVISION OF RESEARCH AND STATISTICS

324

Report of Studies or Projects Completed or Under
Way, and the Names of Persons Working on Each,

for the month of August 1941

For convenience of reference, the studies listed are

grouped under general subject heads.

The names shown for persons working on each project

include only those who participated fairly directly, as
explained in the introductory note to the corresponding

report submitted on December 28, 1939. No attempt has
been made to cover also persons whose responsibility in
each particular case was mainly in planning, supervising,
or consulting.
Financial Analysis

I. Projects or studies completed
1. A review of current developments in the high-grade
securities markets was prepared, and a memorandum

was transmitted to the Secretary on August 5. Mr. Haas, Mr. Murphy, Mr. Foy, Mr. Barnett

This review contained, in addition to analysis of
the current situation, the following special study,

on page 4:

Comparison of the yields of short- and longterm Government securities during the past
22 years. - Mr. Barnett

2. A maturity calendar for each issue of direct and

guaranteed bonds and notes of the United States was

prepared, showing by year, month, and day, with calendar year totals, the amounts outstanding, clas-

sified by fixed maturity issues and by callable issues, according to the maturity, first, and final

callable dates. The calendar was prepared as of
August 2. - Miss Lagos

3. Yield rates on United States securities, direct and

guaranteed, on the basis of over-the-counter closing
quotations were calculated daily. These were summarized
each day in a table showing for each issue the closing

price and yield that day, the changes in price and yield
from the preceding day, and the price range since the

325

2-

date on which first traded and also for the year 1941
to date. A chart for each issue was kept up to date
showing recent daily price and yield figures, together
with comparative monthly data since 1934, since the

date of issue, or since the date first traded. Similar

calculations are made daily on the basis of New York
Stock Exchange closing quotations on direct and guaranteed bonds of the United States, for use in preparation of the publication "Market Prices and Yields of
Outstanding Bonds, Notes, and Bills of the United States",
described
under
in this report. - Mr. Moody,
Miss McCoy,
Mr. Publications
Kroll
4. At the request of the Secretary, arrangements have been
made to secure periodically from the British Empire
purchasing missions certain information regarding purchases in the United States by the British Empire.
Various reports and tables are prepared from this in-

formation, and all are transmitted according to instruc-

tions by the Secretary. - Mr. Haas, Mr. Lindow, Mr. Wagner,

Mr. March, Mr. Mayo, Mr. Marcus

(a) Weekly statements are received covering the

itemized purchases by British Empire Governments

through the various missions, the itemized pur-

chases made by these Governments with the knowl-

edge of the missions but not through their
facilities, and inquiries made through the missions for future purchases. Similar statements
are received showing, by itemized contracts,
deliveries made with respect to orders placed

by the United Kingdom through the missions.

The

details with respect to orders and deliveries

are classified by some twenty-five commodity
groups designed especially for the purpose.
These data are reviewed and edited in the Division each week and a report is then prepared
summarizing in dollar volume the information
on orders and deliveries, by commodity groups.

This report consists of eight statements: the

first three summarize orders placed by the
individual governments of the British Empire
for the current week and the totals to date;
the next three statements summarize total

orders of the British Empire on an historical

basis; the last two statements present data on

-3 -

326

deliveries with respect to orders placed by
the United Kingdom through the British missions.
These weekly commodity statements were prepared,

and were transmitted on August 2, 8, 15, 22,

and 29.

(b) The Division also receives each week the data
required to prepare statements giving the details concerning the physical volume of airplane
and airplane engine orders in the United States
by the British Empire. The material for these

statements 18 contained in a group of work sheets
prepared by the British Purchasing Commission,

but it 18 necessary for the Division to consoli-

date and coordinate the information contained in
the Commission's statements. The finished tables
show, by company and by type of plane or engine,

the following information: (1) summary of orders,

deliveries, and exports; (2) history of orders;
(3) history of deliveries; (4) history of exports;
(5) scheduled deliveries of unfilled orders;
(6) options: scheduled deliveries; (7) spare
parts: orders, deliveries, unfilled orders, and
options; and (8) secondhand units: orders, deliveries, and scheduled deliveries of unfilled
orders. These aircraft reports were prepared,
and were transmitted on August 2, 8, 15, 22, and
29.

(c) A series of six tables has been developed to show
each week the disposition of airframes and airplane
engines inspected in the United States by the
British purchasing missions, and the status of
airframes and airplane engines on hand in the
United States. Separate tables for airframes and
airplane engines show, by company and by model:

(1) the disposition of units inspected; (2) the
status of these units; and (3) the physical location of the units awaiting export. These tables

were prepared, and were transmitted on August 4,
11, 18, and 25.
(d) Reports are prepared each week showing commitments by the British Empire Governments for

capital expenditures in the United States and
for extraordinary charges designed to expedite

deliveries. The data for these statements are

-4-

327

provided by the British Purchasing Commission

but the tables actually are prepared in the

Division. Tables showing capital commitments
were
prepared,
and were transmitted on August 2,
22, and
29.

(e) A group of seven analytical tables on British

Empire orders of iron and steel is prepared
monthly. Four of these cover commercial iron
and steel, excluding ferro-alloys and drop
forgings, and are classified by product. One
table covers ferro-alloys and silicon metals,

and also is classified by product. The last two
tables cover drop forgings and are classified by
manufacturer. Statements showing British Empire
orders of iron and steel as of June 30, were prepared, and were transmitted on August 15.

(f) Arrangements have been made to receive informa-

tion on a physical volume basis for the orders,
deliveries, and dates of scheduled deliveries
on unfilled orders, with respect to several other

important commodities. For each of these commodities the following tables are being prepared:

(1) current delivery status of orders; (2) history
of orders; (3) history of deliveries; and (4) scheduled deliveries of unfilled orders. The data in
these tables are broken down by particular products,

particular models in each case, and particular

manufacturers.

Statements covering various commodity groups were

prepared, and were transmitted as follows:
Explosives and propellants, on August 4
Ships, small boats, and marine engines, on
August 4

Small arms ammunition, on August 8

Airplane propellers, on August 8 and 15
Chemicals, on August 11 and 29

Motor vehicles, on August 15
Nonferrous metals, on August 18
Sub-machine guns, revolvers, and rifles, on
August 25

Small arms (fully automatic), on August 29

Tanks and tank equipment, on August 29

-5- -

328

In addition tables are being prepared on the
following commodity groups:
Ordnance

Shells and bombs

(g) Certain financial information concerning the
orders placed in the United States by the
British Empire is presented in a monthly report. This report consists of three tables,

showing by commodity groups a summary of the

status of payments on dollar orders placed;
the history of payments made; and a forecast of

future payments on unpaid commitments. The report was prepared, and was transmitted on
August 22.

(h) Arrangements have been made with the Citadel

Merchandising Company, Ltd., a Canadian Govern-

ment corporation, to receive regular reports
showing orders placed for machine tools in the
United States, and deliveries on these orders.
From this information the Division prepares a
report consisting of three tables showing the
current status of orders; the history of orders;

and the history of deliveries. This report was

prepared, and was transmitted on August 15.

5. At the request of the Secretary, arrangements have been
made to secure periodically certain information regarding purchases in the United States by the Netherlands
Purchasing Commission, and by Lindeteves, Inc. Mr. Haas, Mr. Lindow, Mr. Wagner, Mr. March, Mr. Mayo,

Mr. Marcus

Statements are received covering the itemized purchases
by the Netherlands Purchasing Commission in the United
States, and the volume of deliveries made thereon.
Similar statements are received concerning the activ-

ities of Lindeteves, Inc., a large private commercial
organization operating in the Dutch East Indies. The
details with respect to orders and deliveries for these
purchasing agencies are classified by the same twentyfive commodity groups used for reporting orders placed

in the United States by the British Empire.

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329

These data are reviewed and edited in the Division.
Reports are then prepared for each of these agencies
summarizing the information on orders and deliveries,
classified by commodi ty groups. These reports con-

sist of three statements: the first shows the history

of orders placed; the second shows the history of deliveries made on these orders; and the third shows
the current delivery status of orders. These commodity statements covering orders of the Netherlands

Purchasing Commission were prepared, and were trans-

mitted on August 2, 8, 22, and 29. Similar statements
for Lindeteves, Inc., were prepared, and were transmitted on August 2, 8, and 22. Both groups were transmitted according to instructions by the Secretary.
6.

In response to a request by the Secretary on January 21,
that measures be taken to obtain information to assist
in carrying through the defense financing program,
arrangements have been made to obtain the necessary

detailed statistics on the holdings of each issue of
the public debt and of guaranteed securities by the
various classes of holders. - Mr. Haas, Mr. Tickton,
Mrs. Wolkind, Mr. D. J. Leahy, Mr. Blitman, Mrs. Barnes,
Mr. Alter, Mr. Robbins
A summary was prepared of the data received as of

June 30, consisting of brief explanatory text and six
tables for publication in the Bulletin of the Treasury
Department for August.

The information as of July 31 received in response to
our letter of July 29, from 7,000 banks and insurance
companies was coded, tabulated, and analyzed. A com-

prehensive analysis was prepared, consisting of 100

tables, showing this information, classified by type
of institution, by issue, by geographic area, by call

classes, and by tax-exemption provisions.
New letters were sent out to the banks and insurance

companies on August 29, requesting comparable data as
of August 31.

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330

7. At the request of the Secretary, arrangements have
been made to prepare current statistical reports on
the sales of United States Defense savings bonds,
series E, F, and G, and Defense Postal savings stamps,
on the basis of reports by the Treasurer of the United
States, the Federal Reserve Banks, and the Post Office
Department. The reports prepared during August were
transmitted according to instructions by Mr. Graves.
Mr.
Haas,
Mr. Reagh, Mr. Brown, Mr. Tickton, Mr. Kroll,
Mr.D.
J. Leahy
-

(a) A table was prepared on August 1, comparing

sales in dollar volume, on the basis of the
issue price, in July and in June, of savings

bonds, series E, F, and G. The table showed
the monthly and daily average sales by Post
Offices and by banks, with totals, together
with the absolute and percentage changes in
July, for the month and for the daily average.
(b) Daily tables were prepared, showing the dollar
volume, on the basis of the issue price, of
sales of savings bonds, series E, F, and G,
by Post Offices and by banks, with totals.
The table prepared on August 1 presented these

data for each day of July, with totals for the

month. The next table, prepared on August 2,
showed these data for August 1, with totals.
Succeeding tables showed the data for each addi-

tional day of August, with cumulative totals.

The table prepared on August 30 covered the
period from August 1 through August 29.

(c) Three tables were prepared, showing the amount

and percent of change in the dollar volume, on

the basis of the issue price, of sales in August
compared with the sales in July, of each of the
three series of bonds, by Post Offices and by
banks, with totals. The table of August 2
compared the sales for the first day of July and
of August. The table of August 4 compared the
sales for the first two days of each month. The
table of August 5 compared the sales for the first
three days of each month.

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331

(d) Daily tables were prepared, beginning on August 6,
containing a comparative statement of sales in
August, in July, and in June, for each of the
three series of bonds. The dollar volume of
sales was shown on the basis of the issue price,
together with the absolute and percentage changes
in August from July, and in July from June. The

first table showed the data for the first four

business days of each month, with totals. Succeeding tables showed the data for each additional
business day, with cumulative totals. The table

prepared on August 30 covered the first 25 business
days of the month, representing the periods of
June 1-30, July 1-30, and August 1-29.

(e) A table was prepared on August 7, showing sales
of savings bonds, series E, F, and G, in dollar

volume, on the basis of the issue price, in the
months of May, June, and July, with totals.
(f) A table was prepared on August 1, showing sales
of savings bonds, series E, F, and G, by Post
Offices and by banks, in dollar volume, on the
basis of the issue price, in the months of May,
June, and July, with totals.
(g) A table was prepared on August 7, showing the
estimated number of units of Defense savings
stamps, classified by denominations, sold in
May, in June, and in July, with totals.
(h) A table was prepared on August 20, showing the
estimated number of units of savings bonds,
series E, F, and G, sold by Post Offices and by
banks, in May, in June, and in July, with totals.
(1) A table was prepared on August 21, showing the
estimated number of units sold of savings bonds,
series E, classified by denominations, by Post

Offices, and by banks, in May, in June, and in

July, with totals.

(1) Two tables were prepared on August 20, one for
savings bonds, series F, the other for series G,
showing the estimated number of units sold, classified by denominations, in May, in June, and in

July, with totals.

9(k)

332

A table was prepared on August 8, reporting sales
of savings bonds, series E, F, and G, in May, in
June, and in July, with totals, by Post Offices
and by banks, by the number of bond units; the

dollar volume, on the basis of the issue price;
and
the number of purchasers, excluding second
co-owners.

(1) Four tables were prepared, showing sales of savings bonds, series E, by Post Offices, and by
banks, in dollar volume, on the basis of the

issue price, classified by States. Three tables
showed these data for the months of May, June,

and July, respectively. The fourth table showed
the totals for the three-month period, This
table was prepared on August 21. The tables for
May, and for June were prepared on August 22, and
the table for July on August 18.
(m) A report consisting of 150 pages, was completed
on August 30, showing sales of savings bonds,

series E, for the month of July, in dollar volume,
districts, by States, by cities, and by counties,

on the basis of the issue price, by Federal Reserve

all classified by sales agents and denominations.

(n) A table was prepared on August 1, comparing sales

in dollar volume, on the basis of the issue price,

of Defense savings bonds, series E, in May, in
June, and in July 1941, and sales of savings bonds,
series D, in the corresponding months of 1940.
The absolute and percentage changes were shown.

(o) Lists of qualified sales agents for savings bonds,
series E, by Federal Reserve districts, were prepared, and were sent to the Federal Reserve Banks
on August 15 for revision.
(p) In cooperation with Mr. Kilby, a machine procedure
was devised and accepted by the Federal Reserve

Bank of New York as a substitute for the system
previously used for reporting sales of savings
bands, series E.

- 10 8.

333

At the request of Under Secretary Bell and Assistant
Secretary Sullivan on August 7, a memorandum was pre-

pared on the additional cost of borrowing by means of
the issuance of taxable securities. Copies were
transmitted to the Under Secretary and to the Assistant
Secretary on that date. - Mr. Murphy, Mr. Conrad
9.

A revision was completed on August 29, of the Treasury
publication "Market Prices and Yields of Outstanding

Bonds, Notes, and Bills of the United States". The
revision included an expansion to include securities
guaranteed by the United States and securities of
Federal agencies not guaranteed by the United States;
substitution of prices and yields on an over-thecounter basis for the Stock Exchange basis; certain
changes in yield computations; and some changes in

form. - Mr. Murphy, Mr. Reagh Mr. Lindow, Mr. Tickton,
Mr. Lynch, Mr. Barnett, Mr. Rosen
10.

At the request of Under Secretary Bell on July 28,
a draft was completed of a speech on the financing

of the Defense program broadcast by him on August 11
in the Washington Star Radio Forum. - Mr. Murphy,

Mr. Villard
11.

At the request of Mr. Sloan on August 19, a review

12.

ing certain revisions was transmitted to Mr. Sloan on
August 21. - Mr. Murphy, Mr. Villard
At the request of Under Secretary Bell on August 11,

was made of a number of Defense bond quizzes prepared
by the Defense Savings Staff, and a memorandum suggest-

a memorandum was prepared, and was transmitted to him

on August 13, on the regulation of consumer credit. -

Mr. Haas, Mr. Murphy, Mr. Sandelin
13.

At the request of the Secretary, cooperation was given
the Division of Monetary Research and the Division of
Tax Research in the preparation of a report for the
Secretary on "Dismissal Compensation". - Mr. Murphy,

Mr. Breithut
14.

At the request of the Secretary on August 4, a study
was made of the price movements of selected "war" and
"peace" stocks, in relation to important news events,

- 11 -

334

weekly from August 1939 to date, and daily from
May 1941 to date. Indexes were constructed, and
a chart was prepared which was transmitted to the
Secretary on August 4. - Mr.Daggit, Mr. Colelough,
Mr. Smith, Miss Hagedorn

15.

A study was completed of the "United Kingdom:

16.

A study was completed of the Canadian excise taxes

17.

An analysis of a study of savings bond mortality

Treasury Deposit System" - Mr. Matlock
on automobiles. - Mr. Matlock

by Miss Hilda Hoffman, Bowery Savings Bank, transmitted by Mr. Theodore R. Goldsmith on March 13,
has been abandoned. - Mr. Murphy

18.

In response to an invitation in a letter of July 25,

from Mr. C. C. Fichtner, Chief, Division of Regional
Economy, the Division was represented at a training
conference for the regional business consultants of
the United States Department of Commerce, on

August 1. An outline of the work of the Division

having to do with financing operations was presented
and a description was given of Treasury publications
providing certain basic information regarding Treasury
operations. - Mr. Murphy, Mr. Lindow

II. Projects or studies under way
1.

A study is being made of the relative interest costs
of short- and long-term borrowing. - Mr. Foy,

Mr. Barnett, Mr.Rosen
2.

A study is being made of the available sources of

funds for Treasury financing. - Mr. Villard

3.

A memorandum 18 being prepared on a negotiable "tap"

security.- Mr. Sandelin, Mr. Murphy

4.

5.

A study 18 being made of the probable excess reserves

in 1941-42. - Mr. Barnett

Tables are being prepared which will present various
new issues. - Mr. Conrad, Mr. Rosen

data on new Treasury notes and bonds and on guaranteed

- 12 6.

335

A memorandum is being prepared on the advantages and

disadvantag es of increasing the short-term debt. -

Mr. Foy
7.

A revision is being made as of June 30, 1941, of the
estimates of the ultimate increase in interest costs
which would result from removal of the tax-exemption

privilege from all public securities. - Mr. Conrad

8.

A memorandum is being prepared recommending legisla-

tion terminating miscellaneous types of tax exemption
analagous to the exemption of interest on Federal

securities, but unaffected by the Public Debt Act of

1941. - Mr. Foy
9.

A study is being made of war-financing measures in

belligerent countries in the present war. - Mr. Matlock

10.

A comparison is being made of the British Fiscal

11.

to Pay for the War", by Mr. J. M. Keynes. - Mr. Katlock
At the request of Under Secretary Bell on October 14,

Program 1941-42 with the Keynes plan proposed in "How
a memorandum is being prepared on a memorandum sub-

mitted by Mr. John Evans, President of the First
National Bank of Denver, Colorado, in reference to

United States Government bonds now owned by the Federal
Reserve System and its member banks, and suggestions

concerning a refunding and change in form which would
appear to be in interest of the Treasury Department,
the Federal Reserve System, the member banks, the
Federal Deposit Insurance Corporation, and the public
generally whose money is deposited in member banks. -

Mr. Murphy
12.

In response to a request by Under Secretary Bell on

January 27, comments are being prepared on a memorandum

by Mr. George Eddy to Mr. White, in regard to a plan of
Mr. N. E. Peterson, entitled, "A Keans of Financing the
Defense Program". - Mr. Murphy

13.

At the request of Under Secretary Bell on February 5,

an analysis is being made of his plan for investing
savings banks' and insurance companies funds in special
2 percent Treasury certificates. - Mr. Tickton

- 13 -

14.

336

At the request of Under Secretary Bell on February 11,
a memorandum is being prepared to the Secretary regarding a letter from Mrs. Sylvia F. Porter, New York Post,
dated January 22, suggesting a plan for the distribution
of United States Government securities. - Mr. Haas,
Mr. Murphy

15.

At the request of Under Secretary Bell on April 21,

a memorandum is being prepared on Mr. Salant's memorandum

on "Limitation on Purchases of Defense Savings Bonds". -

Mr. Murphy
16.

At the request of Assistant Secretary Gaston on
August 29, a memorandum for the Secretary is being
prepared on "Excess Reserves, Credit Controls, and
Treasury Financing" - Mr. Haas, Mr. Murphy, Mr. Foy,
Mr. Barnett

17.

In connection with the sale of Defense savings bonds,

18.

interviews for use in radio programs, and manuscripts
being prepared by the Defense Savings Staff - Mr. Villard
At the request of the office of the General Counsel

reviews are being made of various announcements and

on August 14, a reply is being prepared to a letter
from the Senate Committee on Banking and Currency,

requesting the opinion of the Secretary on S. 1797,
the Farm Credit Act of 1941. - Mr. Foy
19.

At the request of Under Secretary Bell replies are
being prepared to certain questions asked by the Wagner
Committee preparatory to its investigation of banking
and monetary conditions pursuant to Senate Resolution
125. - Mr. Haas, Mr. Murphy, Mr. Foy

20.

At the request of Under Secretary Bell on May 24, cooperation is being given Mr. Bartelt and Mr. Blough in
preparing replies to the list of questions accompanying
The replies
a letter from Senator Tydings of May 5.
are for use by the Senate Committee created to find
ways and means of automatically balancing the Federal
Budget in times of peace. - Mr. Murphy, Mr. Foy

- 14 -

337

Revenue Estimates

I. Projects or studies completed
1.

The regular monthly statement was prepared, showing

the latest revised estimates of receipts, by months
and by principal sources of revenue, for the period
August 1941-June 1942, and actual receipts for the
fiscal year 1941. The statement was transmitted to
the Bureau of Accounts on August 3. - Mr. Delcher
2.

The regular monthly summary comparison was prepared

showing estimated receipts and actual receipts in
July 1941 on the daily Treasury statement basis. Mr. Delcher

3.

The regular monthly detailed comparison was prepared
showing estimated and actual receipts in July 1941,

and for the fiscal year 1941, based on the collections
classification. - Mr. Delcher
4.

5.

Revised estimates of the population of the Continental
United States were prepared as of the end of each
month from June 30, 1940 through June 30, 1942, to
take account of additional data released on August 2
by the Bureau of the Census. The estimates were
transmitted in memoranda to Miss Barr, and to Mr.
Weber on August 22. A tabular presentation of the
population estimate as of June 30, 1941, by States,
was transmitted under cover of a memorandum to
Mr. Mulroney on August 22. - Mr. Butters
At the request of the Secretary on August 5, revenue
figures for 1920, 1921, and 1922 were obtained and
were telephoned to Dr. Lubin on that date. Miss Michener

6.

In connection with the hearings on H.R.5417, the
Revenue Bill of 1941, a number of revenue estimates,

listed below, were prepared for use of Assistant
Secretary Sullivan and the Division of Tax Research. Mr. O'Donnell, Mr. Leahey, Kr. Bronfenbrenner,
Mr. Butters, Mr. T. L. Smith

- 15 -

338

(a) A table was prepared, and was transmitted to
Assistant Secretary Sullivan on August 1, showing the estimated revenue increase, at income

levels forecast for the calendar year 1941, of

income tax revisions incorporating the Treasury
excess-profits tax plan and the increase under
H.R. 5417; and a comparison of the estimated
yield from theTreasury plan with that from
H.R. 5417 as introduced by Representative
Doughton on July 24.

(b) Estimates were prepared, and were transmitted
to Assistant Secretary Sullivan in a memorandum
on August 5, of the number of individual income
tax returns and of the number of taxable individual
income tax returns which will be filed on calendar
year 1941 incomes. Of the estimated increase in
net incomes over those filed for the preceding year
there were shown the respective portions attributable to the increase in incomes and to the provisions
of H.R. 5417.

(c)

An estimate was prepared, and was transmitted to
Assistant Secretary Sullivan in a memorandum on

August 6, of the additional number of individual

income tax returns which would be made taxable by
reducing the exemptions for married persons and

single heads of families to $1,500 and the exemption for single persons to $750.

(d) Revised estimates were prepared, to take account

of the elimination of the provision for mandatory

joint returns, in accordance with the Revenue
Bill of 1941, as passed by the House of Representatives on August 4, of the number of individual
income tax returns and of the number of taxable

individual income tax returns which will be filed
on calendar year 1941 incomes. Of the estimated
increase in returns over those filed for the preceding year there were shown the respective portions attributable to increased incomes and to the
provisions of H.R. 5417. The estimates were transmitted to Assistant Secretary Sullivan and to Mr.
Blough in memoranda on August 6 and August 7,

respectively.

- 16 -

339

(e) An estimate was prepared, and was transmitted
to Assistant Secretary Sullivan in a memorandum
on August 2, of the gross individual income tax

liabilities, at income levels forecast for the

calendar year 1941, if the exemptions for married
persons and single heads of families were reduced to $1 500 and the exemption for single
persons to $750. Accompanying this estimate

was an estimate of the net yield from the individual income tax levied under H.R. 5417
modified by this substitution.
(f) Five excess-profits tax schedules with revenue
estimates were transmitted in a table under

cover of a memorandum to Assistant Secretary

Sullivan on August 2. The estimates were prepared on the basis of income levels forecast
for the calendar year 1941, on the adjusted
excess-profits net income tax brackets as contained in H.R. 5417, which would raise an
amount of revenue equivalent to that raised by

the provision for mandatory joint returns.

(g) Estimates were prepared, and were transmitted
to Assistant Secretary Sullivan on August 4,

of the total increase in yield in the calendar

year 1941 from the provision for mandatory

joint returns. Of this increase there were
estimated the gross and net amounts which

would be received from the States of Arizona,
California, Idaho, Louisiana, Nevada, New

Mexico, Texas, and Washington combined.

(h) Art estimate was prepared of the percentage in-

crease in the corporation surtax rate in

H.R. 5417 necessary to offset, at income levels
forecast for the calendar year 1941, the net loss
in revenue from corporations which would be

caused by repealing the capital stock tax and

the declared value excess-profits tax. An
estimate of the effect of an alternative per-

centage increase in the corporation surtax rate
also was prepared. These estimates were trans-

mitted to Assistant Secretary Sullivan in a
memorandum on August 5.

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340

(1) A tabular presentation was made of the percentage distribution, by broad categories of

revenue, of receipts forecast in the latest

revised Budget estimates for the fiscal year
1942, and similar estimates from the increases
in taxes from the provisions of H.R. 5417 as
it passed the House of Representatives on

August 4. The table was transmitted to
Assistant Secretary Sullivan under cover of
a memorandum on August 5.

(j) A table was prepared showing the preliminary

estimated increase or decrease in revenue
from tax changes as incorporated in H.R.5417
as it passed the House of Representatives on

August 4. The table showed a detailed classification under income, capital stock, estate,
and gift_taxes, excise taxes, and miscellaneous
taxes, with totals. The table was transmitted
to Assistant Secretary Sullivan on August 5.

(k) An estimate was made of the revenue effect of
extending to married taxpayers throughout the
United States the privilege of filing community
property returns on their 1941 income tax liabilities under H.R. 5417. The estimate was
transmitted to Mr. Blough in a memorandum on

August 7.

(1) An estimate was made of the proportion of the
collections from the capital stock tax under
the rates contained in H.R. 5417 which would

be collected in the fiscal year 1942 from
corporations with net deficit. The estimate
was transmitted to Assistant Secretary Sullivan
in a memorandum on August 7.

(m) Highly tentative estimates were prepared of
the effect on revenue yield as compared with

the revenue estimated from H.R. 5417 from the

elimination of percentage depletion and of the
tax-exemption privilege on interest from future
issues of State and local governmental securities.
The estimates were transmitted to Assistant Secretary Sullivan in a memorandum on August 7.

- 18 -

341

(n) For the use of the Secretary in connection

with his statement before the Senate Finance
Committee on August 8, a table was prepared
and was transmitted to Assistant Secretary

Sullivan on that date. The table contained
estimates of the increase in revenue yield
at forecast income levels used in estimates
of revenue effects of H.R.5417, from the
following Treasury proposals:
1.

Under the Treasury excess-profits tax
plan, modified by reversing the precedence
of deduction of the income and excess-

profits taxes, to decrease the effective
rate of the excess-profits tax to the

adjusted excess-profits net income, in
order to secure the same increase in the

yield from the excess-profits tax as
raised by I.R.5417.

2.

3.

Reduction of the present exemptions
of $2,000 and $800 to $1,500 and $750,
respectively.

Requiring of mandatory joint returns
and allowing preferential treatment
of earned income.

4.

5.

6.

Abolishment of the method of computing
depletion based on statutory percentages
of gross income.

Making subject to all Federal income taxes

the interest on all future issues of State
and local securities.

Reduction of the specific exemption under
both the estate and gift taxes from $40,000
to $25,000 and the insurance exclusion
under the estate tax from $40,000 to $25,000
(a) under the Treasury rate schedules and
(b) under the schedules in H.R.5417.

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342

(o) Three tables were prepared, awere transmitted
to Assistant Secretary Sullivan on August 11,

for inclusion in the record of the hearings be-

fore the Senate Finance Committee on H.R. 5417,

on August 8, as follows:

1. Yield under Treasury excess-profite plan,
with proposed brackets and rates compared
with yield from H.R. 5417.

2. Detailed estimates of fiscal year 1942 re-

ceipts from miscellaneous internal revenue
under the present law and estimated full
year effect of H.R. 5417 at levels of income

forecast for the fiscal year 1942.

3. Estimated increase or decrease in revenue
yield due to H.R. 5417, as described in
item (j) above.
(p) A memorandum was prepared, and was transmitted

to Assistant Secretary Sullivan on August 13, for
use in connection with an inquiry by Senator
George. Estimates were given of the income tax
liabilities for the calendar year 1941 under the
present law and under H.R. 5417, and an explana-

tion was made of the difficulties involved in

estimating tax liabilities at this time for the
calendar year 1942.

(g) An estimate was made, and was transmitted to
Assistant Secretary Sullivan in a memorandum on

August 15, of the revenue effect, at income levels
forecast for the fiscal year 1942, of exempting
men in military uniform from the tax on admissions
to theatres, as compared with the yield from the
admissions tax under H.R. 5417.

(r) An estimate was made, and was transmitted to

Assistant Secretary Sullivan in a memorandum on

August 21, of the revenue effect, if under the
proposed floor stocks tax on distilled spirits
an exemption of 100 gallons were allowed.

(s) Estimates were prepared, and were transmitted to
Mr. Blough in a memorandum with table, on August 25,
of the gross and net revenue increase in individual
income tax liabilities for the calendar year 1941
from the following proposals:

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343

1. Substitution of a specified individual

income tax surtax rate schedule, with
the modified earned income credit described
below, for the surtax rate schedule and the
defense tax of the individual income tax in

H.R. 5417.

The earned income credit is modified in the

following respects: (1) the upper limit of

$14,000 in the present law is reduced to
$10,000, and (2) the credit is allowed as
a credit against tax at the rate of 1 percent of earned net income but not in excess
of 1 percent of net income. No change is
made in the definition of earned income, the
first $3,000 of net income being treated as
earned whether earned or not.

2. Same as 1, except that the present limit
of $14,000 with respect to the earned income
is retained.
3. Same as 1 and 2 above, but with the assumption that joint returns (with the Treasury
relief for earned income) were required,
both under the rates in H.R. 5417 and the
suggested substitutes.
4. Same as 1 and 2 above, with personal exemptions reduced to $750 for a single person
and 1,500 for married couples under both
H.R. 5417 and the suggested substitutes.

(t) Estimates were prepared, and were transmitted to
Mr. Blough in a memorandum on August 26, of the
revenue effect of limiting the earned income
credit as outlined in (s) above, to 50 percent

of the total tax.

(u) Three schedules were prepared, and were distributed

to the Senate Finance Committee on August 25, show-

ing proposed estate, gift, and individual income
taxes, designed to yield the same revenue as the

schedules contained in H.R. 5417 plus the defense
tax.

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344

(v) An estimate was prepared of the gross and net
revenue, with personal exemptions of $1,500 and
$750, if a proposed surtax schedule were substituted for that adopted by the Senate Finance Committee.
The estimate was transmitted to Mr. Blough in a
memorandum on August 29.

(w) A table was prepared, and was transmitted on

August 29, for insertion in the record of the
Senate Finance Committee, showing estimated
calendar year 1941 income tax liabilities under

the present law and estimated increased income tax

liabilities under a full year's effect of the income

tax provisions of H.R. 5417, at levels of income forecast for the calendar year 1941.

(x) A mimeographed table was prepared, and was transmitted to Assistant Secretary Sullivan on August 29,
showing excess-profits tax schedules, with tax
brackets based on percentages of excess-profits
credit designed to yield the same revenue as the

excess-profits tax provisions of H.R. 5417.

(y) A mimeographed table was prepared, and was transmitted to Assistant Secretary Sullivan on August 29,
showing the estimated increase in income taxes
over the present law, at levels of income forecast
for the calendar year 1941 from (1) the increase
under H.R.5417 and (2) income tax revisions incorporat-

ing the Treasury excess-profits plan.

(z) A mimeographed table was prepared, and was transmitted on August 29, for use by the Senate Finance
Committee, showing the estimated revenue effect of
R.5417 as passed by the House of Representatives

on August 4, 1941, and as tentatively agreed to by
the Senate Finance Committee on August 29, 1941.

(a') Preliminary and tentative estimates were prepared,
and were transmitted to Mr. Blough in a memorandum
on August 30, assuming that the coverage for dis-

missal compensation corresponds to (1) the coverage
under the employment taxes imposed by Sections 1400

and 1410 of the Internal Revenue Code, plus (2) the
coverage under the employment taxes imposed under

Sections 1500, 1510, and 1520 of the Internal Revenue

Code, plus (3) all Federal employees, not including
those in the armed services.

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345

(b') Estimates were prepared, and were transmitted to
Mr. Blough in a memorandum with table, on
August 27, of the revenue effect of Senator Lonergan's proposed estate tax amendment with respect
to insurance debentures (s.4791, 74th Congress,
2d Session, June 15, 1936). Most probable and
maximum estimates, at income levels forecast for

the fiscal year 1942, were shown for the first
full year of operation and the eventual annual
effect under the present law and under the revised basis proposed by the Treasury during the

hearings by the Committee on Ways and Means on

the Revenue Bill of 1941.

(c') Estimates were prepared, and were transmitted
to Mr. Blough in a memorandum with table, on
August 27, of the revenue effect of Representative Dewey's proposal to allow as a deduction
from the gross estate, estate tax prepayments
made in the form of Federal estate tax anticipation notes. Most probable and maximum estimates,

at income levels forecast for the fiscal year
1942, were shown for the first full year of operation and the eventual annual effect under the

present law and under the revised basis proposed
by the Treasury during the hearings by the Committee on Ways and Means on the Revenue Bill of
1941.
7.

At the request of Assistant Secretary Sullivan, a reply
was prepared for his signature to a letter from Mr. F.
Awalt, dated August 6, in connection with the estimate of
revenue from the tax on soft drinks in H.R. 5417 as it
passed the House of Representatives. The letter was
mailed on August 14. - Mr. O'Donnell.

8.

At the request of Assistant Secretary Sullivan on
August 28, a letter was prepared for his signature
to Senator La Follette, giving the details of the
estimated receipts of income taxes for the fiscal year

1942, which were released in summary form by the Bureau

of the Budget on June 1, 1942. The letter was mailed
on August 28. - Mr. Leahey

- 23 -

346

II. Projects or studies under way
1.

At the request of the Division of Tax Research on
July 12, 1940, an estimate is being made of the additional revenue which would be derived if mutual insurance companies other than life insurance companies
taxable under Section 207 of the Internal Revenue Code

were made taxable in the same manner as stock insurance
companies other than life insurance companies taxable
under Section 204. and at the same time the exemption

under Section 101(11) were restricted to local mutual

2.

companies of the assessment type. - Mr. Leahey
A review has been begun of the revenue revisions made

so far by the Congress, in order to prepare studies
for the next revenue estimate. Changes in rates have

been analyzed, testimony given before the House Ways
and Means Committee has been studied, and material for

certain taxes has been gathered. - Miss Spiegel, Miss

Hagedorn, Mr. Colclough
3.

Further progress was made on the following projects
for revising and improving methods of estimating
revenues from the taxes listed below: - Mr. Daggit,
Miss Spiegel, Mr. R. R. Smith, Mr. Colclough

(a) Admissions to theatres, concerts, cabarets, etc.
(b) Passenger automobiles and motorcycles

(c) Distilled spirits, domestic and imported combined
(d) Fermented malt liquors

(e) Electrical energy
(f) Cigarettes (small)
4.

New studies were begun of the following projects for
revising and improving methods of estimating revenues
from the taxes listed below: - Mr. Daggit, Miss Spiegel,
Mr. R. R. Smith

(a) Automobile trucks

(b) Tires and inner tubes

- 24 -

347

(c) Firearms and shells
(d) Wines, domestic and imported

(e) Mechanical refrigerators
(f) Automobile parts and accessories

(g) Radio sets

(h) Cigars (large)

(1) Lubricating oil
Economic Conditions Related to Fiscal
and Revenue Matters

1. Projects or studies completed
1. Memoranda on the business and price situation were
prepared, and were transmitted to the Secretary on
August 5, 11, 18, and 25. - Mr. Haas, Mr. Daggit,
Mr. Murphy, Mr. Chevraux, Miss Michener

These memoranda contained in addition to analysis

of the current situation the following special
studies:

(a) Industrial production monthly from 1939 to date
compared with that from 1914 to 1917. (Chart
in memorandum of August 5. Also described
below under Economic Conditions, I, as item 12). Mr. Daggit

(b) Construction costs of a standard 6-room frame
house in St. Louis monthly from July 1940 to
date. (Chart in memorandum of August 11. Also
described below under Economic Conditions, I,
as item 8). - Mr. Daggit, Miss Hagedorn

2. Monthly or weekly reports are received from 25 individual companies, in response to the Secretary's requests, giving confidential data on new orders and
sales. The data in these reports are tabulated and
charted currently for the Secretary's information,
and are also combined into an index of new orders,

which accompanies the weekly memorandum on the business situation. - Miss Washabaugh

- 25 -

3.

348

Memoranda on employment under the Work Projects Adminis-

tration were prepared on August 4, 11, and 13. -

Miss Hagedorn
4.

5.

At the request of the Secretary, a table is prepared
each week summarizing exports of petroleum products,
scrap iron, and scrap steel, from the United States
to Japan, the U.S.S.R., Spain, and Great Britain, as
indicated by departure permits reported daily by the
Office of Merchant Ship Control. The tables were prepared for the weeks ending August 2, 9, 16, and 23.
On August 4, 11, 18, and 25 the original and 13 photostate were transmitted to Assistant Secretary Gaston. Mr. Tickton, Mr. D. J. Leahy
Compilations were made of daily quotations on selected
commodities, and daily and weekly figures on selected
business indexes, foreign and domestic security trans-

actions, security prices, exchange rates, as well as
other data for the Secretary's chart book. - Mr. Chevraux

6.

At the request of Mr. Leon Henderson on July 19, copies
of eight charts on commodity prices and the cost of

living were transmitted to him.

The monthly movements of the NICB cost-of-living index
compared with the BLS index of 889 commodities were
shown from 1935 to date. On the same chart were shown
the weekly movements of the BLS index of 889 commodities
compared with the BLS index of 28 basic commodities from
August 1939 to date. Both comparisons were on the basis

that 1926 = 100. Four charts, as of July 26, August 2,

9, and 16, were transmitted on August 4, 11, 18, and 26,
respectively.
The fifth and sixth charts showed weekly and daily movements of the indexes of 11 basic imported commodities
and 17 basic domestic commodities from April 1940 to
date, on the basis that August 1939 = 100. On the
same charts were shown percentages for each of theshowed
28
commodities from the August 1940 low. Oneother
chartthe
the changes to August 1 and 15, 1941; the
changes to August 15 and 22, 1941. These charts were
transmitted on August 18 and 26, respectively.

- 26 -

349

The seventh and eight charts showed the movement of

28 basic commodity prices, consisting of 16 industrial
raw materials and 12 foodstuffs, on the basis that
August 1939=100. For the indexes of 16 industrial

raw materials and 12 foodstuffs, weekly average movements were shown from August 1940 to date, daily
changes were shown from May 1941 to date. One chart
showed the percentage changes for the individual
commodities from the August 1940 low to July 18 and
to August 1, 1941; and the other from the August 1940
low to August 1 and to August 8, 1941. These charts
were transmitted on August 4 and 11, respectively. Mr. Daggit

7.

At the request of the Secretary on August 6, a study
was made of wholesale prices and industrial production
from 1910 to date. A chart was prepared showing the
BLS all-commodity index (1926=100) ; the Standard
Statistics index of industrial production (1926=100),
adjusted, 1910 through 1919; and the FRB index of
industrial production (1935-39=100), adjusted, 1919

to date. This was transmitted to the Secretary on

August 12. - Mr. Daggit, Miss Hagedorn
8.

An analysis was made of the construction costs of a
standard 6-room frame house in St. Louis. Total costs,
and the cost of labor, materials, and such items as
contractors' profits and overhead, insurance, and
taxes were shown in a chart, monthly from July 1940
to date, on the basis that July 1940=100. - Mr. Daggit,

Miss Hagedorn

9. At the request of the Secretary on August 7, a review
was made of recent changes in the basis for calculating
parity prices of farm products, and was incorporated in
a memorandum transmitted to the Secretary on August 8.
Mr. Daggit, Miss Hagedorn

-

10. At the request of the Secretary on August 11, an analysis was made of the "wheat and cotton freezing" bill,

H. R. 5300, and was completed on August 16. - Mr. Daggit

11.

At the request of the Secretary on August 2, a detailed
analysis of the silk situation was made in cooperation
with the Division of Monetary Research, with reference

to the effect of the current shortage in the silk textile
industry. The availability of silk substitutes and the

- 27 -

350

problems of adjustment were discussed and suggestions

for alleviating the situation were made. A memorandum
was transmitted to Mr. White on August 7. - Mr. Haas,

Mr. Daggit, Miss Hagedorn
12.

A comparison was made of industrial production from
1939 to date as indicated by the FRB index, on the

basis that the first 6 months of 1939 = 100, adjusted,
compared with production from 1914 to 1917, as shown
by the Standard Statistics index, on the basis that the
first 6 months of 1914 = 100, adjusted. - Mr. Daggit

13. A letter was received on July 28 from Mr. Leon E.
Truesdell, Bureau of the Census, requesting comments
on proposed table forms showing data obtainable from
proposed labor force tabulations for States and large

cities. The forms were reviewed, and a reply indicating that no comments would be made was mailed on

August 7, confirming telephone report on August 5. -

Mr. O'Donnell, Mr. Villard
14.

At the request of the Secretary on August 11, an

analysis was made of H.R. 5300, to amend Public Law
numbered 74 of the Seventy-Seventh Congress, relating

15.

to wheat-marketing quotas under the Agricultural Adjustment Act of 1938. - Mr. Daggit
At the request of Under Secretary Bell on August 15,
a letter was prepared for signature of the Administrative Assistant to the Secretary, in reply to a letter
from the Director of the Bureau of the Budget, dated
August 14, requesting a report on H.R. 5300. The
proposed reply, recommending that the President veto
the bill, was transmitted to the Under Secretary on
August 15, together with a suggested draft of a message
to the House of Representatives from the President. Mr. Haas, Mr. Daggit

II. Projects or studies under way
1.

With respect to the "Index of consumer expenditures,
in dollar value", progress has been made in developIng

individual series, in determining their suitability for
inclusion and the necessary adjustments. These series

have been classified in two The
broad
groups:ofdurable
goods
purpose
the index
is to
and non-durable goods.

- 28 -

351

cover as large as possible a proportion of the

purchases of ultimate consumers. During the month
further progress was made in selecting appropriate
series with a view to making this index more useful
in connection with defense studies. - Mr. Colclough
2.

A study of the volume of installment buying and consumer credit has been nearly completed. This study
is designed eventually to provide a monthly index of
the volume of buying on deferred payments, which at

times is an important business factor. Newly-published

data from the Department of Commerce and the National
Bureau of Economic Research have been assembled. A

preliminary study is under way to determine how they
may be used in a combined index. Further work is
awaiting additional data to be released by the Department of Commerce. - Mr. Daggit

3.

A project in process 16 designed to developan index of
industrial production that will indicate week by week

the approximate level of the FRB index. It will include

4.

a larger number of weekly series than are included in
any current business indices, with weightings and seasonal
adjustments approximating those in the FRB index. Mr. Daggit, Mr. Smith
Further progress was made on a study of the selling
prices of commodities on which taxes are imposed, in
order to determine the percentage which the tax represents of the actual price. - Miss Spiegel, Mr. Colclough,
Mr. Smith, Miss Hagedorn

5.

6.

A revision is in progress of our method of forecasting
the BLS index of factory payrolls on the basis of the
January 1941 revision. - Mr. Daggit, Miss Spiegel
For use in revenue estimating, progress was made on

a study to be used as a basis for forecasting salaries
and wages of the United States Department of Commerce

Beries on a quarterly basis, the July 1941 revision, of
from the United States Department of Labor index

factory payrolls, the January 1941 revision. - Mr. Daggit,
Miss Spiegel

7.

An analysis is being made of the State distribution of
United States Defense savings bonds series E, during
relation to payrolls, and to national income, by

July, States. in - Mr.Haas, Mr. Daggit, Mr. Colclough, Mr. R.R. Smith

- 29 8.

352

At the request of Under Secretary Bell on January 29,
a memorandum for the Secretary is being prepared,

illustrated by five charts, on the possibility of a

freight car shortage in October 1941, when car loadings
are at their seasonal peak, and containing a forecast

of freight car loadings for October, a forecast of

the number of freight cars that may be required, and
outlining steps which would alleviate or prevent such
a shortage. - Mr. Daggit, Mr. Chevraux

9. For use in revenue estimating a revision has been
begun of our method of forecasting the BLS index of

factory payrolls on the basis of the revision of

January 1941. - Mr. Daggit, Miss Spiegel

10. At the request of the Secretary on August 6, preliminary drafts were prepared of a proposed state-

ment to be made by the Secretary before the House
Committee on Banking and Currency on H. R. 5479, a

bill to further the national defense and security by
checking speculative and excessive price rises, price
dislocations, and inflationary tendencies, and for
other purposes. - Mr. Haas, Mr. Murphy, Mr. Daggit,

Miss Michener

Actuarial Problems

I. Projects or studies completed
No projects were completed during this month.

II. Projects or studies under way
1. The Board of Actuaries of the Civil Service Retirement
and Disability Fund is laying out detailed plans for
tabulating and processing data for use in preparing
the regular five-year valuation of the Civil Service
Retirement Fund for the purpose of determining the
liabilities of the Government under the Civil Service
Retirement law. Under the law, such a valuation must
be prepared as of July 1, 1940. - Mr. Reagh, Mr. Brown

2.

The Foreign Service Retirement Law, as approved April 24,
1939, Section 26(m), provides that the "Treasury Department shall prepare the estimates of the annual appropria-

tions required to be made to the Foreign Service Retirement and Disability Fund and shall make actuarial valua-

tion at intervals of five years, or oftener if deemed

- 30 -

353

necessary by the Secretary of the Treasury". The
State Department has requested an estimate of the

appropriation required for the fiscal year 1943.
An outline of the data required for making an actuarial valuation has been submitted to the State Department. The data are now in process of preparation. Mr. Reagh, Mr. Brown

3. At the request of Mr. A. R. Pilkerton, Auditor of the
District of Columbia, actuarial valuations are being
made of the Policemen's and Firemen's Pension Fund,

and Teachers' Retirement Fund of the District of
Columbia. These valuations will be made by the
Treasury Department in accordance with the 1942 District
of Columbia Appropriations Act, approved July 1, 1941. -

Mr. Reagh
4.

At the request of Under Secretary Bell on July 10, a
memorandum is being prepared in regard to the 1941
legislative program of the Social Security Board. Mr. Reagh

5.

A letter has been received under date of August 14,
from the office of the General Counsel, transmitting

a copy of S. 1800, a bill to amend further the Civil
Service Retirement Act, as amended, for a voluntary
report if desired. - Mr. Reagh
Other Projects or Studies

1. At the request of the Legal Division on July 1, in
response to a request from Senator Elbert D. Thomas
in a letter of June 27, a report is being prepared on
S. 1666, a bill to coordinate Federal reporting services,
to eliminate duplication and reduce the cost of such
services, and to minimize the burdens of furnishing re-

ports and information to governmental agencies.
Memoranda requesting comments on the bill were prepared

for signature of the Administrative Assistant to the
Secretary, and were forwarded to the various bureaus and
divisions of the Department on July 16. Replies have
been received and a report is in preparation. -

Miss Michener

- 31 -

354

2. At the request of Mr. C. S. Bell on August 8, a

tabulation was made of the data on the questionnaires
regarding the mode of travel of Treasury Department
employees to and from work. The results were incorporated in a memorandum transmitted to Mr. Bell on
August 19. - Mr. Reagh, Mr. Larson

3. Publications
(a) For the August issue of the Treasury Bulletin
data were prepared on average yields of longterm Treasury bonds and high-grade corporate

bonds. - Mr. Barnett

All the material submitted for the August issue

was reviewed and edited.

Revisions are being considered for future issues. -

Mr. Lindow, Mr. Lynch

(b) For the publication Market Prices and Yields of

Outstanding Bonds, Notes, and Bills of the United
States computations were made and copy was prepared for the issue covering the month of July.
This publication shows by securities the rates of
interest, maturities, interest payment dates, and
amounts outstanding; and for each day of the month,
together with a monthly average, closing market
quotations (accrued interest to be added), and
yields. - Mr. Moody, Miss McCoy

(c) Manuscript for the Annual Report of the Secretary
of the Treasury for the fiscal year 1941 is being
given an editorial review as received. The usual
handling of the material is going forward. Miss Westerman, Mr. Tickton

(d) At the request of Assistant Secretary Gaston on
July 17, an article is being prepared on the operations of the Treasury Department during the year

1941 to be incorporated in the 1942 Americana Annual. Mr. Barnett

- 32 -

355

4. Correspondence

Replies were prepared to letters received on subjects
relating to the work of the Division, and letters
drafted elsewhere and submitted to the Division for
that purpose were reviewed. - Miss Michener, Mr. Lindow,
Miss Ziegler, and other members of the staff in

appropriate fields of work.

During August 280 letters were received in the Division and 298 were handled as required.

5. Charts
Charts are prepared and continually brought un to date
for use in memoranda and in chart books on special subjects, and corresponding photographic, photostatic,
and multilith work is carried on. This is done in the
Graphic Section under the supervision of Mr. Banyas.

A statistical report on the work of the Grachic Section
for the month of August is attached.

Work completed in the Graphic Section, Division of
Research and Statistics, during August 1941
Type of work

356

For Division
of R & S

For

Others

Total

Graphic:

New charts:

Total charts completed

29

Bond book charts completed

58

All other charts brought up to date

Miscellaneous:
Total jobs

43
-

58

26 (times)

-

Charts brought up to date:
3 bond chart books brought up to date

14

26 (t)

701

26

19

12

46

13

59

151

22

173

119

535

654

271

64

335

188

14

202

1,119
4,623

168

1,287
5,276

727

31

Photographic:
Photographs:

Total jobs
Number ofNegatives

Contact prints
Enlargements

Photostate:

Total jobs
Number of-

Lettersise copies

All other copies

653

Multilith:
Total jobs

4

Number of-

Zinc plates
Miscellaneous:
Total jobs

LB:wlt
9-10-41

10

6

112

54

21

16

166

37

Statistical Report on Work Completed by the
Graphic Section, Division of Research and Statistics, by months,
beginning July 1941.
July

Aug.

:
:

Charts brought up to date

34

43

721

727

Bond book charts completed
Bond books brought up to date

26(times)

26 (t)

Miscellaneous

27

31

91

59

Contact prints

193
254

654

Enlargements

141

335

169

202

2,802
7,519

1,287
5,276

22

22

153

166

34

37

2

58

B. Photographic:
Photographs:

Total jobs

Number ofNegatives

Photostate:
Total jobs
Number of-

Lettersize copies
All other copies

173

Multilith:
Total jobs

Number of-

Sinc plates
Miscellaneous:

Total jobs

LB:wit
8-1-41

9-18-41

Oct.

:

A. Graphic:
New charts completed

Sept.

:

Type of work

Nov.

Dec.

Total

358

ASSISTANT SECRETARY OF THE TREASURY

October 23, 1941.
MEMORANDUM

TO:

Secretary Morgenthau

FROM: Mr. Gaston

Admiral Waesche has received

from Admiral Stark a letter of commendation of Commander E. H. (Iceberg) Smith
as follows:
"The Chief of Naval Operations

desires to bring to the attention of
the Commandant, U. S. Coast Guard,

his gratification at the manner in

which Commander E. H. Smith, U. S.
Coast Guard, has performed his duties
as the Commander, Northeast Green-

land Patrol during the summer of

1941. His energy, his initiative,

and accurate estimate of the probable
action of Axis-controlled agencies

have contributed materially to the
success of the operations of his
command in performing a difficult
task under arduous conditions.

HES

COPY

359
DEPARTMENT OF STATE
WASHINGTON

In reply rofer to
FF 893.51/7329
October 23, 1941

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury and

transmits herewith for his information a copy of a
telegram dated October 23, 1941, 4 p.m., from the
American Consulate General at Shanghai to the American Consulate General at Hong Kong for Mr. A. Manuel

Fox, relating to the allocation of exchange for the
importation of flour or wheat into Shanghai.

Enclosure:
From Consulate General, Shanghai,

October 23, 1941, 4 p.m.
(5 copies).

360
GRAY

GS

Shanghai via N.R.
Dated October 23, 1941

Rec'd 9:20 p.m., 22nd

Secretary of State,
Washington.

October 23, 4 p.m.
FOR FOX

In connection with the Shenghai Municipal Council's

telegraph request of October 20 for the allocation of
Exchange covering 900,000 begs of flour to take care of
the one month's requirements and cover a reserve of

controlled flour or wheat and for a further allotment
covering 300,000 bags (or ten thousand tons of wheat)
each month beginning in November, the approximate value

of 300,000 bags being United States dollars 325,000, I
desire to edd my endorsement to the Council's request.
The municipal Council is making an earnest and determined

Effort to put into force e rigid control of certain
Essential foods and the above mentioned over Exchange

is a part of that plan which contemplates the prevention
of profiteering and hoarding. The question of food supplies
and reserves is becoming acute and the Council in my
judgment should be encouraged to provide adequate supplies
at

361
-2-

October 23, 4 p.m. from Shanghai via N.R.

at reasonable prices. It has been successful in regulating the supply of rice and there is no reason to suppose

that it will not be Equally successful in regulating the
supply and price of flour and wheat. Any assistance which
the Board may be able to render the council in the future
will be greatly apprecisted by the foreign and Chinese
communities resident in the settlement.
Sent to Hong Kong, repeated to the Department and
Chungking.
LOCKHART

WWC

0

0

362

P

DEPARTMENT OF STATE

Y

WASHINGTON

In reply refer to
FF 641.6131/231
October 23, 1941

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury and

encloses herewith a cony of strictly confidential
despatch No. 1717, and its enclosure, dated October 3,
1941, from the American Embassy, London, England, trans-

mitting the text of the Anglo-Russian Inter-Bank Agreement of September 4, 1941, implementing the Anglo-Russian
Inter-Governmental Agreement of August 16, 1941.

Enclosure:
From Embassy, London,

No. 1717, October 3, 1941,
With enclosure.

Duplicate

1

LONDON, October 3, 1941.

363

No. 1717

SUBJECT: Transmission of text of Anglo-Russian
Inter-Bank Agreement of September 4,
1941, implementing the Anglo-Russian
Inter-Governmental Agreement of August
16, 1941.

STRICTLY CONFIDENTIAL

The Honorable,

The Secretary of State,
Washington.

Sir:

I have the honor to refer to this Embassy's telegrams
No. 4155, September 8, 1941, and No. 4087, September 4, 1941,

in which it was stated that the text of the agreement between
the Bank of England and the State Bank of the U.S.S.R., implementing the Anglo-Russian Inter-Governmental Agreement of August

16, 1941, would be forwarded when available. Reference is also
respectfully made to the Embassy's telegram No. 4695, October

3, 5 p.m., announcing the forwarding of the enclosed text by
air. The text of the Inter-Bank Agreement was made available to
1/

the Embassy yesterday and three copies are forwarded herewith, one
of which should go to the Treasury Department.

The British Government officials who furnished the text urge

364

-2-

that it be held strictly confidential as it is an Inter-Bank
Agreement and not a government document. These officials would

not like to be held responsible for giving the agreement circulation without the knowledge of the Bank of England.
Respectfully yours,
For the Ambassador

Herschel V. Johnson
Counselor of Embassy

Enclosure:

1. Copy of Agreement between
the Bank of England and the

State Bank of the U.S.S.R.,

in triplicate.

Enclosure No. 1 to despatch No. 1717 of October 3, 1941 from the Embassy
at London, England.

COPY

STRICTLY CONFIDENTIAL

365

AGREEMENT

BETWEEN THE BANK OF ENGLAND AND THE STATE BANK
OF THE UNION OF SOVIET SOCIALIST REPUBLICS

In order to implement the Agreement of the 16th August 1941
between the Government of the United Kingdom of Great Britain and Northern
Ireland and the Government of the Union of Soviet Socialist Republics con-

cerning mutual deliveries, credit and methods of payment (hereinafter reforred to as the Inter-Governmental Agreement) the Bank of England and
the State Bank of the Union of Soviet Socialist Republics have agreed as
follows:ARTICLE I.

The Bank of England shell open in its books a separate account

in sterling in the name of the State Bank of the Union of Soviet Socialist
Republics designated the "No. 1 Account" to which may be credited:-

(a) Sterling arising from deliveries of goods by the Government
of the Union of Soviet Socialist Republics and Soviet organizations to
the Government of the United Kingdom or to any department, organisation or
persons under the terms of the Inter-Governmental Agreement.

(b) Sterling arising from the sale to the Bank of England, acting
as agents for His Majesty's Treasury, of U.S. dollars or gold in accordance
with the provisions of Article 6 (a) of the Inter-Governmental Agreement
and with Article 4 of the present Agreement.
(c) Sterling arising from advances made by the Government of the
United Kingdom in accordance with the provisions of Article 6(b) of the

Inter-Governmental Agreement, or under the Supplementary Agreement thereto dated 1st September 1941.

(d) Sterling arising from other sources as may be agreed from time
time between the Bank of England and the State Bank of the Union of
Soviet to Socialist Republics with the approval of their respective Governments.
The No. 1 Account may be debited as follows:(e) For payments due under the terms of the relevant contracts the Union in

of the value of goods delivered to the Government of of of the

respect Soviet Socialist Republics and Soviet organisations under the teros
Inter-Governmental Agreement.
(f) For repayment of sums due by the Government of the Agreement Union of Soviet in

Republics under the 1936 Export Credits Guarantee
Socialist accordance with the provisions of Article 5 (b) of the Inter-Governmental
Agreement.

-2-

366

(g) For such other sterling payments as may be agreed from time
to time between the Bank of England and the State Bank of the Union of
Soviet Socialist Republics with the approval of their respective Governments.
ARTICLE II

The Bank of England shall advise the State Bank of the Union

of Soviet Socialist Republics by cable of amounts received for the credit
of the No. 1 Account.

Payments under the provisions of Article 1 (e), (f) and (g) of

the present Agreement shall be effected by the Bank of England upon receipt
of telegraphic instructions from the State Bank of the Union of Soviet
Socialist Republics.
All transactions passing through the No. 1 Account shall be
effected free of commission.
ARTICLE III.

The Bank of England shall open in its books a "State Bank of
the Union of Soviet Socialist Republics Suspense Account" to which shall
be credited the sterling proceeds of sales of platinum to the Government
of the United Kingdom and of dollars or gold to the Bank of England, acting

as agents for His Majesty's Treasury, in anticipation of the quarterly

settlements. However, during the period between settlement dates, balances

on this account shall be at the free disposal of the State Bank of the
Union of Soviet Socialist Republics and in particular may be transferred to
the ordinary account of the State Bank at the Bank of England.
ARTICLE IV.

The No. 1 Account shall be balanced on the 31st October 1941

and at the end of every three calendar months thereafter. Any debit balance
thereon which is a multiple of £250.000 shall be settled in accordance with
the provisions of Article 6 of the Inter-Governmental Agreement. For the
purpose of implementing the provisions of Article 6 (a) of the Inter-Governmental Agreement the Bank of England is authorised by the State Bank of the
Union of Soviet Socialist Republics to transfer, at the end of any accounting
period, the necessary amounts from the "State Bank of the Union of Soviet
Socialist Republics Suspense Account" to the No. 1 Account. At the same
time the Bank of England shall advise the State Bank of the Union of Soviet
Socialist Republics by cable of the amounts so transferred and in the event
of the balance on the "State Bank of the Union of Soviet Socialist Republics
Suspense Account" not being sufficient to meet the payments due, the State
Bank shall sell to the Bank of England U.S. dollars, or gold delivered in
such places as shall be agreed between the two Banks.

Any credit balance remaining on the No. 1 Account at the end of
any accounting veriod shall be placed in multiples of £250,000 at the free
disposal of the State Bank of the Union of Soviet Socialist Republics and
in marticular may be transferred to the ordinary account of the State Bank
at the Bank of England.

-3-

367

ARTICLE V.

With regard to the sales of U.S. dollars or gold referred to in
Article 1 (b) of the present Agreement, the Bank of England will purchase:-

(a) U.S. dollars at the London middle official rate for U.S. dollars
( at present U.S. dollars 4.03 - £1).
(b) Gold, delivered in North America, at the official price of gold

in New York on the day of sale, in which case U.S. dollars will be converted into Pounds Sterling at the middle official rate for U.S. dollars
in London on the day of sale.

Gold, delivered elsewhere, at prices agreed between the Bank
of England and the State Bank of the Union of Soviet Socialist Republics,

but not lower than the official buying price of the Bank of England (at
present 168/- per fine ounce) or, at the option of the State Bank of the
Union of Soviet Socialist Republics, at the official price of gold in New
York on the day of sale adjusted to allow for the cost of freight and
insurance of gold from the place of delivery to the U.S.A.
ARTICLE VI.

On the termination of the present Agreement, the No. 1 Account

shall be balanced at the next following quarterly settlement date, or on
such other date as may be agreed between the Bank of England and the State

Bank of the Union of Soviet Socialist Republics with the approval of their
respective Governments, and settlement shall effected in accordance with
the provisions of Article 6 of the Inter-Governmental Agreement and Article
4 of the present Agreement. Any credit balance thereafter remaining on the
No. 1 Account or on the "State Bank of the Union of Soviet Socialist
Republics Suspense Account" shall be dealt with in accordance with the
second paragraph of Article 4 of the present Agreement.

For the purpose of the final closing of the accounts, the stipulation
regarding settlement in multiples of £250,000 provided for in Article 4 of
the present Agreement shall not apply.
FINAL ARTICLE

This Agreement shall come into force on the date of signature and
shall remain in force until the termination of the Inter-Gavernmental Agreement.
Done in duplicate the

day of

nineteen hundred and forty-one, in English and
Russian, both texts having equal force.
For and on behalf of the State
For and on behalf of
Bank of the Union of Soviet
the Bank of England.
Socialist Republics
Copy:bj:10-24-41

(sd.) A.I. Mikoyan.

368

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE October 23, 1941.

Chauncey

Morgenthau

TO

FROM Mr. Dietrich

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
40,000
Purchased from commercial concerns £12,000

Open market sterling remained at 4.03-1/2. and there were no reported
transactions.
The Canadian dollar discount narrowed to 11% as compared with 11-1/2%

yesterday.

In New York, closing quotations for the foreign currencies listed below

were as follows:

Argentine peso (free)

Venezuelan bolivar

.2373
.0505
.5775
.2070
.4675
.2640

Cuban peso

1/8% discount

Brazilian milreis (free)

Colombian peso
Mexican peso

Uruguayan peso (free)

The Federal Reserve Bank reported that it purchased 200,000 Swiss francs
and 80,000 Swedish kronor in New York yesterday by order and for account of the
Central Bank of the Uruguayan Republic. According to the Central Bank, the
foreign exchange was needed to meet overdrafts arising from commercial trans-

actions. The Swiss france were bought at .2333 and the kronor at .2385-1/2.
There were no gold transactions consummated by us today.
No new gold engagements were reported.

In London, both spot and forward silver remained at 23-1/2d, equivalent

to 42.67

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
34-3/4#.

We made no silver purchases today.

D