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DIARY Book 456 October 30 and 31, 1941 Book Page Airport - New Hackensack See New Hackensack Airport American Friends Service Committee See War Conditions: Foreign Funds Control -c Censorship of International Communications See Navy Department China See War Conditions Coast Guard Immediate transfer of part arranged by Knox and HMJr - Gaston memorandum - 10/31/41. a) Knox-HMJr conversations - 10/31/41 b) Proposed Executive Order c) Executive Order - 11/1/41: Book 457, 456 197 122,137 200 pages 27 and 48 Cochran, Mrs. Merle Health considered by HMJr, Wilson, Dietrich, Thompson, and Foley - 10/30/41 a) Cable b) Taken to Sheppard Pratt - Dr. Klein informs HMJr 2 14 220 c) Resume' of case: Book 457, page 2 d) Cochran's Clipper delayed until November 12: Book 458, page 278 e) Cochran flies via Clipper on November 12; priority assured to San Francisco: Book 461, page 322 Contracts, Defense See War Conditions: Lend-Lease Curtiss-Wright Corporation See War Conditions: Lend-Lease (Delays) -DDefense Contracts See War Conditions: Lend-Lease Defense Savings Bonds See Financing, Government Dollar-a-year Men Indicated defense agencies delegated authority by FDR to select and employ certain individuals, terms and conditions prescribed - 10/30/41. -EEgypt See War Conditions: Lend-Lease 47 -FBook Page Financing, Government Defense Savings Bonds: Comparative statement of sales during first 25 business days of August, September, and October, 1941 - 10/30/41 Progress report - 10/31/41 456 72 287 Fox, A. Manuel See War Conditions: China -GGeneral Counsel, Office of Report on projects during September 1941 Foreign Funds Control - 10/31/41 252 268 . # -HHousing Changes in cost of construction of standard six-room house in St. Louis, July 1940-September 1941 79 -IIceland See War Conditions -LLend-Lease Administration, Office of See War Conditions: Lend-Lease -NNavy Department Censorship of International Communications: Treasury's reaction to proposed bill - 10/30/41.. 53 New Hackensack Airport Report prepared by HMJr's pilot on improvements to field - 10/30/41 a) Watson sends preliminary report from Civil Aeronautics - 11/12/41: Book 460, page 152 b) Hinckley report to HMJr sent on to FDR 12/2/41: Book 467, page 276 c) Connolly (Civil Aeronautics) report 12/2/41: Book 467, page 282 75 -Book Page 456 232 Office of Lend-Lease Administration See War Conditions: Lend-Lease -Persia See War Conditions: Lend-Lease Pressman, Lee See War Conditions: Lend-Lease (Delays) Procurement Division Consolidation of purchasing activities of entire Government - memorandum concerning - 10/31/41.. - - aQuakers See War Conditions: Foreign Funds Control -RRabon, Hampton A., Jr. See Revenue Revision Revenue Revision Excess Profits Tax base - Morris memorandum on problem - 10/31/41 Comparative data on taxes in United States, Great Britain, and Canada: (1) death and gift; (2) general sales; (3) selective excise - Blough memorandum - 10/31/41 "Know Your Taxes": Hampton A. Rabon, Jr., to obtain banks' reaction - 10/31/41 -Saint Louis See Housing Steel See War Conditions: Lend-Lease Stettinius, Edward, Jr. See War Conditions: Lend-Lease -TTaxation See Revenue Revision 202 214 219 WBook Page War Conditions Airplanes: Shipments to United Kingdom and overseas commands - British Air Commission report 10/30/41 456 36 China: Japanese attack on Yunnan threatened Chiang Kai-shek message - 10/30/41 16 Fox, A. Manuel: Adviser to Ministry of Finance Treasury will interpose no objections 10/30/41 21 (See also Book 457, page 351) a) Hu Shih's appreciation - 10/31/41 Exchange market resume' - 10/31/41. Foreign Funds Control: Office of General Counsel report - 10/31/41 American Friends Service Committee: Transfer of funds from French Government for purchase of food discussed in Foley memorandum 10/31/41 325 333 268 277,278 Iceland: Economic relations of United States and Great Britain with Iceland - State Department memorandum - 10/31/41 326 Currency - adequacy of discussed in cable from American Minister, Reykjavik - 11/17/41: Book 462, page 410 Lend-Lease: Persia-Egypt: Transfer of locomotives and rolling stock discussed in British Purchasing Commission letter - 10/30/41 Steel: Resume of purchases and shipments to date - 10/30/41 Allocations and contracts executed from inception of program to October 23, 1941 - 10/30/41 a) Charts: Days elapsed between date of clearance by Office of Production 38 40 42 Management and Lend-Lease, and date order was placed (all orders, May 1 to date) - 11/13/41: Book 461, page 293 Office of Lend-Lease Administration, with Stettinius as Administrator, in office of Office for Emergency Management - 10/30/41 48 Delays: Defense Contracts: Difficulties with various departments - Burgess (Randolph) and Vaughan (Guy). of Curtise-Wright, to work up examples for HMJr for FDR - 10/31/41 a) Answer - 11/3/41: Book 458, page 193 b) See report - 11/13/41: Book 461, page 168 Pressman, Lee: "Some aspects of delays in bomber production in the Detroit area: Book 461, page 260 Triangular transactions - Coe memorandum - 10/31/41.. 225,240 244 - V - (Continued) Book Page War Conditions (Continued) Military Planning: Reports from London transmitted by Halifax 10/30-31/41 War Department bulletin: Training Responsibilities of Young German Officers - 10/31/41 Purchasing Mission: Federal Reserve Bank of New York statement showing dollar disbursements, week ending October 22, 1941 456 99,335 338 32 Security Markets (High-Grade): Current Developments: Haas memorandum 10/30/41 80 1 TREASURY DEPARTMENT Washington Press Service No. 28-25 FOR IMMEDIATE RELEASE, Thursday, October 30, 1941. Secretary of the Treasury Morgenthau today announced the final subscription and allotment figures with respect to the current offering of 1 percent Treasury Notes of Series A-1946. Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows: Federal Reserve District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Treasury TOTAL Total Subscriptions Received from Holders of Reconstruction Finance Corporation Notes of Series P Total Subscriptions Received from Holders of Commodity Credit Corporation Notes of Total Subscriptions Received (Allotted in full) Series E $ 1,020,000 $ 5,887,000 $ 6,907,000 227,076,000 1,512,000 4,712,000 3,848,000 250,000 51,712,000 2,010,000 2,170,000 2,731,000 1,920,000 590,000 10,000 132,088,000 5,741,000 8,267,000 2,647,000 1,450,000 29,091,000 3,755,000 3,250,000 3,401,000 6,041,000 1,504,000 359,164,000 7,253,000 12,979,000 6,495,000 1,700,000 80,803,000 5,765,000 5,420,000 6,132,000 7,961,000 2,094,000 300,000 310,000 $299,561,000 $203,422,000 $502,983,000 -000- 2 October 30, 1941 9:20 a.m. RE MRS. MERLE COCHRAN Present: Mr. Wilson Mr. Dietrich Mr. Thompson Mr. Foley Mrs. Klotz H.M.Jr: Have you written a cable? Foley: No, do you want me to do it? H.M.Jr: Well, we can do it right now. Dietrich: I have got something here. I don't know whether it is exactly what you want me to say. H.M.Jr: No, I would simply say something along the lines, "Please return immediately to the United States. Your wife is ill." Foley: That is right, "Your wife is ill and needs you. Suggest you return on first Clipper." H.M.Jr: Just like that. Now, what we have done, Norman, you don't know about this case, but you can pick it up. Merle Cochran's wife is a paranolac and they have been trying to get her out of the apartment and last night the apartment people had a nurse up there, see, and she refused to have a nurse and she has closed all plugs to the telephone and wires and everything else, and while the doctors were there last night she says, "Now listen, do you hear the voices?" 3 -2Her other troubles are secondary. The normal thing they would do is have her committed to Gallinger and then take her from Gallinger over to Johns Hopkins, but I am not going to take that responsib bility. It isn't my responsibility. So Mr. Foley and I made the suggestion that we send up there at 10:30 to the lobby this morning one of our nurses, possibly if she has a psychiatric experience, and a Secret Service operator and keep these two people there continuously. We will have to change them. The nurse can't stand more than eight hours. Now, that I am doing on the advice of Mr. Foley to protect this woman against herself and make it possible that the apartment house people will keep her in the apartment, you see. Now, if this fails, then we will just keep her there as long as the apartment house people will let her stay, trying to hold her there in the apartment until Merle Cochran can come back and take charge. Is that right, Ed? Foley: That is right. And then if she disturbs the peace or if she becomes a public menace or threatens people there and the apartment authorities feel that it isn't safe for her to be there under those circumstances, then the certifications and the admission to Gallinger will have to come from them as the moving authority rather than from Mr. Morgenthau, but it seems to me that if we do that, we have done all we can do to preserve the situation until Merle can get back here. H.M.Jr: Her doctor says that Merle definitely knew about this, that this has been going on for at least five months, and that he would come and ask for this special medicine and plead with -3- 4 him to give it to her, so he definitely knew about it, so I think it is absolutely outrageous that he left without saying to anybody, leaving this woman on my hands. Thompson: She has no friends or relatives here? H.M.Jr: No. I mean, it is at least five months old and as I say, the apartment house - who came down to see the Chief Clerk? Dietrich: It was Phillips, the owner of the apartment house. H.M.Jr: He came down to see the Chief Clerk. Dietrich: After I wouldn't see him day before yesterday. H.M.Jr: But what I am very anxious to do is to keep the woman in the apartment and keep her quiet until we can get Merle Cochran back. Klotz: Mr. Wilson made a suggestion to me this morning. I don't know how good it is. He said - you speak for yourself. Wilson: We have a woman guard at the Bureau of Engraving and Printing, a woman forty-seven years old that is a well educated woman and I asked Mr. White last night, who is the superintendent of the guards, if possibly she might be able to help out in the event that we needed somebody for the wife of one of our key men. I didn't say anything further and he said that this woman was a very level headed woman and that perhaps she would be available and that perhaps she could help, and I said, "Well, now, you go down to talk to her, " last night, which he did, to see if she would be willing to help us out along that line in the event of an emergency. He talked to her and he said that she would be glad to do it, that she had never had any -4- 5 nursing experience but her husband had been mentally ill and had died and she had to take care of him for a while, so t hat in an emergency I could get her on short notice. Foley: Well, that is a good thing to know about, but Wilson: You should have trained nurses. Foley: The thought was to have the nurse inside and the Secret Service man available outside so that if there was some disturbance and the nurse couldn't control the situation she always could summon the Secret Service man and he could come in and help. Klotz: I think that they ought to have a trained nurse H.M.Jr: She refused to have a trained nurse. She wouldn't and not these nurses. let a trained nurse in. They wouldn't do it. Now, when they go in the doctor is going to be there. The point is, we are going to try to do everything to keep the thing - they say the woman isn't in a frame of mind to injure herself or anybody else at this moment. Klotz: But she will be. H.M.Jr: Well, the doctor, at the moment, doesn't see any signs of that, you see. He went there and they couldn't get in. He spent all day yesterday. They couldn't get in. They never got in until last night and then they waited two hours. They couldn't get in. Klotz: Well, she is afraid of being arrested. Foley: Well, Dr. Levitt is going to go there and he is going to explain to her that these people are there to observe to see whether or not there are people listening - to protect her and observe -5- 6 the actions of the people above and below and on both sides of her to see whether or not they are trying to hear everything she says and trying to disturb her and all that. H.M.Jr: She threatened the proprietor of the hotel with a whip yesterday. Dietrich: She despises him. H.M.Jr: Well, anyway, I don't see what else I can do than to try to keep the thing the way it is. Can we order these nurses up there, do you think? Thompson: Well, we don't have any nurses on the Treasury H.M.Jr: Well, I have asked Mr. Foley to take this over for me. I mean, he has agreed to do it. Thompson: Well, we will work it out. H.M.Jr: If you will work it out, and I think you had better tell Dr. Levitt that 10:30 is too payroll. They are all on the Public Health roll. It might be that we would have to put them on our own roll just for this assignment. I doubt if the Public Health Service will do it. early, we can't move that fast, you see, but Mr. Foley has kindly consented to take this over. I mean, it is a great responsibility and after all, we don't want to - the last thing in the world I would want to do would be to put this woman in to an institution through the law. Klotz: Oh, that would be terrible. H.M.Jr: Well, we are not going to do it, Mrs. Klotz, but what are you going to do if the apartment house puts her out? Are you going to let her walk the streets? -6Klotz: 7 Well, isn't there a private institution you can put her in? Foley: Not in the District of Columbia. If she would only go willingly, there would be no problem. We could take her over to Baltimore to this private institution. We discussed that with the doctors this morning. But she absolutely refuses to do that and you would have to use force and if you have to use force, then you have to use public authorities and you have to have proper certification that she is mentally incompetent and that she is violent and she disturbs the peace and security and safety of others in the neighborhood. Then the policemen come there and take her to Gallinger. Once she is in Gallinger then they say that they could get her to go voluntarily to a private institution and get her out of the public institution, they hope. Klotz: I am familiar with that sort of thing. H.M.Jr: But if the woman this morning would agree to go up to Johns Hopkins we would put her in an automobile and send her over there. Klotz: I know, but she is beyond that stage. H.M.Jr: And you can't just take her, you can't just take her by force, or could we? Klotz: Yes, you can. Foley: No. Thompson: No, not to Johns Hopkins you couldn't. H.M.Jr: That is why I have got Foley here. Klotz: Oh, I mean by force legally. That is another -6Klotz: 7 Well, isn't there a private institution you can put her in? Foley: Not in the District of Columbia. If she would only go willingly, there would be no problem. We could take her over to Baltimore to this private institution. We discussed that with the doctors this morning. But she absolutely refuses to do that and you would have to use force and if you have to use force, then you have to use public authorities and you have to have proper certification that she is mentally incompetent and that she is violent and she disturbs the peace and security and safety of others in the neighborhood. Then the policemen come there and take her to Gallinger. Once she is in Gallinger then they say that they could get her to go voluntarily to a private institution and get her out of the public institution, they hope. Klotz: I am familiar with that sort of thing. H.M.Jr: But if the woman this morning would agree to go up to Johns Hopkins we would put her in an automobile and send her over there. Klotz: I know, but she is beyond that stage. H.M.Jr: And you can't just take her, you can't just Klotz: Yes, you can. Foley: No. Thompson: No, not to Johns Hopkins you couldn't. H.M.Jr: That is why I have got Foley here. Klotz: Oh, I mean by force legally. That is another take her by force, or could we? -7- 8 thing. Oh well, I am not looking at it from the legal point of view. Foley: That is what I meant when I said no, when the Secretary asks me if he can and I always think of what you can do under the law. (Discussion off the record). H.M.Jr: Klotz: Mrs. Klotz, I am not going to do it. Have you any other suggestion? Well, it is very difficult for me to express myself because I am not sympathetic with the doctors point of view and I am not sympathetic with the legal point of view. I have got the human side at heart, and I think that there must be another way of handling it. H.M.Jr: Thompson: H.M.Jr: Well, we were there for three quarters of an hour, three people. I don't think there is any way you can handle it except-With three doctors there, everybody thinking, and certainly I am taking the human standpoint. Klotz: I am sure of it. Foley: Mrs. Klotz, the doctors didn't want to do this temporary thing that the Secretary suggested. They wanted to commit her right then and there. Klotz: They would. Foley: Call the authorities in and take her to Gallinger and get her off their hands, and it was the Secretary who interceded with this -8- 9 scheme of trying to keep the situation as it is until Merle can get back here and do what he thinks is best. H.M.Jr: Klotz: Foley: If I had left the thing alone, that woman today would be going to Gallinger. She knew it too. They said it was a matter of hours. They said it wouldn't make any difference, an hour or two or three hours, but beyond that they did think it would be important if she wasn't in Gallinger Hospital. H.M.Jr: Well, I will tell you what you had better do, Ed. You had better call up Dr. Levitt and give us time to turn around, see, and if these men would go back into your room and I would say twelve-thirty instead of ten-thirty and you have got to find out now if we haven't got the authority to put Public Health Service nurses in there, then we will have to just hire private nurses and put a Treasury operator in there to protect the nurse and see that the nurse isn't thrown out. That is the purpose of the Secret Service man, to see that the nurse stays in there and that this woman stays in there. Klotz: You see, the nurses with psychiatric training would know how to handle the woman. These Public Healthnurses don't even know how to handle you when you are well. (Laughter) H.M.Jr: I greatly question the authority of where we can get three nurses to go up there. I don't see why we couldn't get nurses with psychiatric training and put them in there. There is all the difference in the world. And I greatly question that we can take a nurse from downstairs. -9- 10 Thompson: I don't believe we can either. Klotz: If she was in the Government, it would be H.M.Jr: another thing, but it is his wife. I think she is right. I think what we ought to try to do is to get psychiatric trained nurses. The way to do that is to get well, it is up to Levitt. Don't let's get away from Levitt's responsibility in this thing, and tell Levitt it is up to him to employ the nurses with this training and we will simply put a Treasury representative up there to see that nothing happens to the nurse. Foley: That is right. Wilson: I can put Mr. Stringfellow up there, one of our agents, who is a graduate nurse and spent considerable time down at St. Elizabeth's before he was in our service. He was a nurse down there. H.M.Jr: Stringfellow? Wilson: Yes, sir. H.M.Jr: Well, let's start with him. Wilson: He is a very level headed fellow and has handled many cases like this. H.M.Jr: That is wonderful because we may never get beyond the first case. I think if he and a trained nurse - I think Mrs. Klotz is right, and if we start this thing and try to make a hospital of her apartment-- Klotz: Well, St. Elizabeth's is Public Health and maybe we could get nurses from there. 11 - 10 Foley: Well, that was - we might look into that. That was mentioned over there this morning too, but one of the doctors said that they are so short-handed over there now that they wouldn't have nurses available, but St. Elizabeth's, I should think, would know nurses with psychiatric training, nurses that could be retained for this week. H.M.Jr: Wilson: I think that is the thing to do, and if he has had that training, that is wonderful. Yes, sir, he was down there for several years as a young man, and he has handled lots of cases like this during the last few years. H.M.Jr: And I think when these people go up, Frank, you had better go up with them in the first instance. Dietrich: All right, sir. H.M.Jr: Don't you think so, or would you rather have an attorney go up, one of your attorneys? Foley: You know her, do you Frank? Dietrich: Yes. Foley: I should think it would be better-- Klotz: I think she would feel kindlier to him. H.M.Jr: And the doctors kept saying, "Explain to her that this is to protect her.. I think you had better give yourself plenty of time. I think if you get around to it at two-thirty you can clean it up by then. Well, I will leave it to you, but certainly - 11 - 12 get that cable off tomorrow. Dietrich: Mr. Secretary, Mrs. Cochran took very kindly to the chief, too. I wondered if he would have any more availing-H.M.Jr: No, he has got a lot of - no, I think if you go up there. She did take kindly to him? Dietrich: She took very kindly to the chief. Klotz: I would be glad to go up there. H.M.Jr: No, I don't want you to. Wilson: Yes, she did, but still maybe the Secretary or the Treasury Department might be criticized for sending the chief of the Secret Service or an investigator un to handle a medical case. You must think of that end of it. This is not an investigative case. She was friendly to me, but still somebody on the outside might say, "Why, the Treasury Department sent the Secret Service instead of sending doctors up there." H.M.Jr: I think if her own doctor goes this afternoon and Frank will go up as a friend and try to get nurses from St. Elizabeth's or some other place with psychiatric training and we will start off with Stringfellow and we will try to keep somebody there so that there are two people on duty, somebody from the Treasury and the nurse trained in this kind of case. Foley: I think maybe in that telegram we ought to say Foley: Immediately, too. that we will endeavor to secure the priority for him on the first Clipper and -- - 12 - 13 Dietrich: There was another question I had on that cable, as to whether we wanted to send it through the State Department or send it through Nicholson, the Treasury attache. H.M.Jr: I would send it to Nicholson and tell Nicholson to get it to Cochran, it is terrifically important, see? Dietrich: On the priority, do we have to go to the State Department to get priority coming back? H.M.Jr: No. We have this woman here who has the agency for Pan-American. What is her name? Klotz: I have forgotten, but we have her. H.M.Jr: There is this woman here who represents PanAmerican in Washington. Wilson: Do you want to say anything on that cable do you want to ask him if he has any close relatives or if she has any relatives or friends that he would want to have you contact in connection with it? H.M.Jr: It is a good suggestion, but I would send it to Nicholson and tell him that this he has got to get to Cochran and then get Cochran the first plane out of Hong Kong. Dietrich: Well -- H.M.Jr: And Ed, if sometime this afternoon something comes up which makes you want to change the plans in an important way, let me know. I am available. Foley: All right. H.M.Jr: Thank you all very much. 14 October 30, 1941 Mrs. Friedman, Coast Guard Frank F. Dietrich, Secretary's Office Secretary Morgenthau desires following cable sent with utmost dispatch to Spagent, Shanghai: "It is of the utmost urgency that this message be handed immediately to H. Merle Cochran. 'Suggest you return on first clipper Your wife ill and needs you stop will arrange for priority with Pan American stop Doctor Levitt in attendance stop Have you names of relatives or friends who can assume responsibility. Morgenthau. IN EHFImp 10/30/41 v October 30, 1941 soong Kai 15 phek Chang My dear Mr. President: The enclosed message from General Chiang Kai-Shek has just been handed to me at 11:15 o'clock this morning by Mr. T. V. Soong. Yours sincerely, The President, The White House. 16 MESSAGE FROM GENERAL CHIANG KAI-SHEK RECEIVED TODAY, OCTOBER 30. DEFINITE INFORMATION REACHED ME JAPANESE DESIGN ATTACK YUNNAN IN NOVEMBER (STOP) THIS MOVE MAY POSSIBLY BE AVERTED IF AMERICA TAKES IMMEDIATE ACTION BY INFORMING JAPAN THAT ATTACK YUNNAN THROUGH INDO-CHINA WOULD BE VIEWED BY AMERICA AS DEFINITE STEP IN SOUTHWARD EXPANSION AND THAT AMERICA CANNOT REMAIN INDIFFERENT (STOP) SIMULTANEOUSLY MILITARY PREPARATIONS SHOULD BE MADE TO MEET THIS EVENTUALITY (STOP) I MUST EMPHASISE THE CRITICAL NATURE OF THE YUNNAN SITUATION SINCE IF YUNNAN IS LOST AND LAST LIFE LINE FOR MATERIALS FROM THE OUTSIDE WORLD SEVERED THE CHINESE PEOPLE AND ARMY MATERIALLY AND MORALLY WOULD BE UNABLE TO OFFER FURTHER ARMED RESISTANCE (STOP) I AM CONFIDENT WITH FORCES IN YUNNAN AND AVAILABLE NEARBY CHINESE ABLE TO HOLD THEIR OWN LAND FIGHTING IF REINFORCED AIRWARD (STOP) COLONEL CHENNAULT HAS ONLY 49 PILOTS CONSEQUENTLY STRONG AIR REINFORCEMENT ESSENTIAL (STOP) URGE AMERICA USE STRONG PRESSURE ON BRITAIN TO SEND SINGAPORE AIR FORCE TO CO-OPERATE WITH COLONEL CHENNAULT IN ORDER SAVE DEMOCRATIC POSITION IN FAR EAST (STOP) BRITAIN AND AMERICA EQUALLY CONCERNED TO PREVENT LOSS OF YUNNAN AS CHINESE BECAUSE IF JAPANESE OCCUPY YUNNAN THEIR NEXT STOP WOULD INVOLVE ATTACK ON BRITISH FAR EAST COLONIAL POSSESSIONS AND PRECIPITATE WAR IN THE PACIFIC (STOP) IF IMMEDIATE ACTION TAKEN BY BRITAIN IN SENDING AIR REINFORCEMENT THESE POSSESSIONS WOULD BE SAVED AT A FRACTION OF THE COST THAT THEIR DEFENCE WOULD INVOLVE LATER ON AND PACIFIC PROBLEM WOULD THUS BE SOLVED (STOP) JAPANESE WILL CONCENTRATE LARGEST AIR FORCE IN INDO-CHINA AND IF DESTROYED COMBINED AIR FORCES THREAT TO FAR EAST FINALLY REMOVED. 17 October 30, 1941 11:28 a.m. HMJr: Grace Good morning. Tully: Hello, Mr. Secretary. HMJr: T. V. Soong just left my office. T: Yes, sir. HMJr: I think the President definitely should see him before he leaves town. T: You do. HMJr: Definitely. T: HMJr: Right, sir. And I'm sending you over in the next fifteen minutes a message which came in the morning from Chiang Kai-shek T: HMJr: T: Yes. which I think the President should have. Right, sir. And then I'll ask the President what time, and then do we make it through you do I call you back and let you get in touch with him? HMJr: T: Yee, that's right. Right, sir. All right, I will. Thank you, Mr. Secretary. HMJr: And let me know whether the President wants T: Uh huh. All right, fine, sir. I'll let you know. HMJr: It's - I don't care. T: Uh huh. me to come over or not. That's uo to the President. Or whether he wants to see him alone. that too. 18 -2HMJr: See? T: Yes. All right, fine, Mr. Secretary. I will. HMJr: T: HMJr: And then you might do something else for me. Yes, sir. I would like to have an appointment with the President again along the same lines as the last two, you know? Yes. T: HMJr: T: Just as soon as he comes back. I don't imagine he wants to be disturbed in Hyde Park. Uh huh. Right, sir. I'll make a note of it for next week. I don't think he'll be back before Wednesday. I'm sure he won't, but HMJr: Well, put me down for a morning. T: Right, sir. HMJr: And I'd put it the second morning after he gets here. T: Yeah. Thursday that would be. HMJr: Well T: All right. I'll make the suggestion, "Is it HMJr: If you please. T: Right, sir. I'll let you know. HMJr: Thank you. T: All right, Mr. Secretary. Good-bye. all right for Thursday at nine-thirty?" 19 October 30, 1941 3:09 p.m. Gen. E. M. Watson: Hello. HMJr: W: H. M., Jr. Yeah. Look here, the President just sent out HMJr: Yes. a memo that he wanted to see Mr. Soong tomorrow morning W: HMJr: Yes, sir. and wanted to see him alone. W: HMJr: All right. W: Now, he said to make it through you. W: That's all right. What time, and I'll At eleven-thirty to twelve-thirty. HMJr: What's that? W: Eleven-thirty to twelve-thirty. HMJr: You going to give him an hour? HMJr: W: Well, the President said, "I want to see him for an hour." I don't know why. HMJr: I see. W: This came out while I was at lunch. I don't know. HMJr: W: Well, anyway, would you like me to notify him? Well, he said, "You can notify him through the Secretary of the Treasury." " HMJr: Very fine. -2W: And Soong is to come alone. HMJr: Come alone. W: Yeah. I guess he didn't want to see you. HMJr: Well, I didn't ask to. 20 (Laughs) HMJr: HMJr: W: So you needn't be so snooty. (Laughs) All right. (Laughs) Well, I'11 get him there. All right. Get him to come to my office at eleven-thirty, and he's got him for an hour. I guess he's got something pretty hot to talk about. HMJr: All right. W: That's the only one I'm going to make after press. HMJr: All right. When is he going to leave? W: He's going to leave tomorrow about one o'clock, HMJr: Good. W: All right, sir. HMJr: I'11 get word. W: Good. Thank you. HMJr: Thank you. I think. 21 OCT 30 1941 My dear Mr. Ambassador: This note is is response to the informal memorandum you left with me on October 13th. I have given consideration to the two requests from the Government of China set out therein. The Department appreciates the action of the Government of China in proposing to ask Mr. A. Manuel Fox to become Adviser to the Ministry of Finance. We have no objection to this appointment, providing Mr. Fox does not feel that the duties of the new position will in any way conflict with his duties as Member of the Stabilisation Board. with reference to the possibility of the Federal Reserve Bank appointing a person to assist the Central Bank of China, the matter has been discussed with the Honorable Marrinor S. Ecoles, Chairman of the Board of Governors of the Federal Reserve System. Mr. Mecles advises that he will be giad to discuss the matter with you at your convenience. It is therefore suggested that you communicate directly with him for an appointment. Very truly yours, Secretary of the Treasury His Excellency, The Ambassador of the Republic of China, Washington, D. c. By Message Sturges VFC:DSF:meh:DWB:ce 10-27-41 nmc 3:20 offer 22 OCT 30 1941 To: Dr. Feis From: Mr. Bell (Initialed) D.W.B: will you please send the following cable to the American Consul at Hong Kong: "For Fax from the Secretary of the Treasury. The following letter has today been sent to the Chinese Ambassador in Washington: 'This note is in response to the informal memorandum you left with me on October 13th. I have given consideration to the two requests from the Government of China set out therein. The Department appreciates the action of the Government of China in proposing to ask Mr. A. Manuel Fax to become Adviser to the Ministry of Finance. We have no objection to this appointment, providing Mr. Fox does not feel that the duties of the new position will in any way conflict with his duties as Member of the Stabilisation Board. With reference to the possibility of the Federal Reserve Bank appointing a person to assist the Central Bank of China, the matter has been discussed with the Honorable Marriner S. Eccles, Chairman of the Board of Governors of the Federal Reserve System. Mr. Keeles advises that he will be glad to discuss the matter with you at your convenience. It is therefore suggested that you communicate directly with him for an appointment." I understand that Mr. Hamilton may want to send a telegram to Mr. Fox setting forth the Department of State's views on the appointment of Mr. Fox as Adviser to the Ministry of Finance. DWB:VFC:rel origito District to transmit to 10/30/41 State Dept 23 October 14, 1941 TO: Mr. Bell Dr. White FROM: The Secretary Please talk to each other about this and then talk to me. THE UNDER SECRETARY OF THE TREASURY 24 October 20, 1941 MEMORANDUM FOR MISS CHAUNCEY: Re: Note handed to the Secretary by the Chinese Ambassador on 10-14-41 relative to the increasing duties of the Central Bank of China. A cable was sent to Fox on Friday of last week, asking his advice. I also talked with Eccles regarding the matter and he is to let me have an answer today or tomorrow morning. After these answers are received, a letter will be prepared for the Secretary's signature. D.W.B. 25 10/14/41 handed to the Secretary today by the Chinese Ambassador. . 26 Since the establishment by the Chinese Government of the Foreign Exchange Control Commission, the Central Bank of China has found itself confronted with new duties of an increasing magnitude. The Chinese Ambassador is instructed to inquire of the Secretary of the Treasury as to the possibility of the Federal Reserve Bank appointing a suitable person to assist the Central Bank in its work. At some appropriate time the Central Bank hopes also to be able to send one of its officials to be attached to the Federal Reserve Bank for study and liaison purposes. The Ambassador is further instructed to inform the Secretary of the Treasury that the Chinese Government, in appreciation of Mr. A. Manuel Fox's services as a member of the Stabilization Board, and in view of his special knowledge in tariff matters, is desirous of inviting him to serve as Adviser to the Ministry of Finance. The Chinese Government wishes to know whether the Secre- tary of the Treasury has any objection to the appointment of Mr. Fox in the above-mentioned capacity. October 13, 1941. 27 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 30, 1941 TO FROM Secretary Morgenthau Mr. White The appended digest of opinion in the London press, pre- pared by Mr. Hoflich, I believe will interest you because it refers to pertinent matters now being discussed in the Treasury. The following brief summary will indicate its importance: Subject: British Production - "Restoration of Incentives" 1. 2. An interesting and significant controversy has developed in the English press over the question of increasing profit and wage incentives to achieve maximum productive efficiency, and preventing inflation by more extensive rationing. The campaign for higher profit and wage incentives is led by the Financial News, which claims that the present 80% excess profits tax (plus the 20% to be returned after the war) does not allow a sufficient profit incentive, that the promise of a 20% post-war rebate is too vaguely worded and carries no statutory right to repayment. The Financial News calls for the following positive measures: (a) Reduction of the excess profits tax to 60% or 70% (b) More generous allowances for depreciation. (c) Higher wages in essential war industries. (a) Greater allowances of rationed goods for workers in war industries. The Financial News believes that the Treasury has an exagger- ated fear of the post-war debt burden. A higher post-war price level, brought about by a release of deferred purchasing power, will provide the additional tax revenue to pay off the larger debt. 3. The demand for higher profits and wages has aroused consider- able opposition. The opposition point of review is led by The Economist, Finance and Commerce, and the News Chronicle, which point out that: (a) Higher incomes alone would have an inflationary effect. Increased incomes which cannot be spent (due to the extension of rationing) will provide no additional incentive. If the reduction of the EPT rate 28 -2to 80% (subject to the deferred return of the 20%) is not a sufficient incentive, why should 30% or 40% do the trick? The Economist says it must be the aim now "not to titillate peacetime incentives. but to remove them from the path". (b) Preferential rationing for workers in war industries would prove disrupting to national unity. 29 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 27, 1941 TO Mr. White FROM Mr. Hoflich Subject: British Production - Incentives and Treasury Control (From the London press, Sept. 22 - Oct. 10, 1941 - clippings received from Casaday) The present controls of profits and wages do not allow sufficient incentive to achieve the maximum productive efficiency. This feeling is reflected in certain sectors of the British press during recent weeks. The most insistent demand for the relaxation of profits and wage controls is found in the Financial News, which has been carrying on a persistent campaign, briefly summarized as follows: 1. The government must restore monetary productive incentives. This calls for a number of positive measures: a. Restore the profit incentive, by (1) reduction of the 100% EPT rate to 60% or 70%. This should be accompanied by reimposition of the Limitation of Dividends Bill, to give the increased incentive to small companies where it will be particularly effective, and to insure that monies released will be used to strengthen the war machine. (2) more generous allowances for depreciation. (3) efficiency bonuses to firms. b. C. Increase workers' incentives by (1) higher wages in essential war industries and more generous overtime and piece rates. (2) differential allowances of rationed goods, favoring workers in war industries. Tackle inflation by direct means, notably by (1) rationing expenditure on unrationed food. The Financial News offers the following arguments for "restoration of incentives": 1. Arguments for higher profits. a. This would give an incentive to management for maximum productive efficiency. Falling profits are cited in 1940 and 1941 of 31 small and medium sized engineering concerns, in spite of greater productive efforts. 30 -2b. The possibility of more profits will furnish an incentive to keep costs down and eliminate waste. C. It will overcome the reluctance to expand plant facilities. The fear of post-war surplus capacity will be at least partially offset by increased profits. d. It will permit the accumulation of reserves for post-war use. e. It may help to overcome the alleged injustice of EPT based on profits earned in an arbitrarily chosen period of time, which bears unevenly on different industries and different companies in the same industry. 2. Arguments for higher wages in war industries. a. This would increase workers' efficiency and would cost nothing insofar as it leads to higher output. b. It would help overcome the reluctance of workers to transfer to war industries, which reluctance is alleged to be due in part to higher wages elsewhere and in part to fear of post-war unemployment. The Financial News articles have called forth considerable protest. The following points have been made: 1. Incentives are not now lacking in the major part of the British industries. 2. Higher incomes would have an inflationary effect. 3. Differential rationing will not prove an incentive, but might well be disrupting to national unity. "Let us not deceive our- selves that more output will be achieved in the long run by 'hustling someone else out of the queue'. As Mr. Keynes put it in his 'How to Pay for the War', this is a 'mug's game to play!". (Finance and Commerce) 4. The Finance Act has already reduced the EPT to 80%, subject to the blocking of the 20% "If this deferred 20% is not a suffi- cient incentive, why should one assume that 30% or 40% will do the trick". (News Chronicle) 5. Increased incomes which cannot be spent (due to extension of rationing) will not give an increased incentive. The News Chron- icle calls this "bogus incentives", "ersatz incentives", "little better than a swindle" and says it would prove a dangerous boomerang and breed class hatred. -3- 31 The Economist says the proposal is to pay for increased war production by the distribution of I.O.U's. Its shortcoming is in sowing the seeds of unbridled inflation, thus increasing the cost of the war, and at the same time multiplying antiinflation controls to neutralize the dangers created. "It is a weird exercise in well-intentioned ingenuity that would sim- ultanously pump in social poisons and their antidotes at an ever-increasing rate". Further, the Economist doubts that this "open-handed courting of grave inflationary dangers" can "deliver the goods". It must be the aim now "not to titillate peacetime incentives. but to remove them from the path". In answer to these criticisms the Financial News says that the inflationary effects can be offset by the proposed extension of rationing. As to wages, it says they are rising anyway, in a haphazard way. It wants to correct the disparity between alleged low wages in essential industries and high wages elsewhere. The Financial News says further that the promise of a 20% post-war rebate is too vaguely worded to have any balance sheet value, and carries no statutory right to epayment. It believes furthermore that its plan would prove a real incentive. It admits that the national debt would have to be increased, and that there would be a higher volume of purchasing power after the war, but it says that the Treasury policy seems to have as its chief objective the minimizing of the post-war debt problem rather than devising the most efficient system of war finance. The Treasury fears a post-war debt burden, but paying off the debt involves only an internal redistribution of goods. As to the interest charges, these are rising much less rapidly than the debt. And a higher post-war price level, brought about by a release of deferred purchasing power, will provide additional tax revenue to pay off the larger debt. The Financial News is still hammering on the idea that peacetime concepts of the role of finance are hampering the drive for maximum war production. To the demand for restoration of incentives the Financial News adds the complaint that too much delay is being caused by a close holding of the purse strings by the Treasury in sanctioning expenditures. It calls for less centralized control of expenditures and delegating more power to regional boards. In his letter of October 11, 1941, Casaday says that the Financial News campaign regarding "Incentive", the EPT and the "dead hand of Treasury control" has "decreased somewhat in intensity and in some respects assumed a more subtle form, since the Chancellor of the Exchequer's speech in which he stood firm on the established policy followed thus far". 32 Y FEDERAL RESERVE BANK OF NEW YORK October 30, 1941 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. Merle Cochran I am enclosing our compilation for the week ended October 22, 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, /8/ L. W. Knoke, L. W. Knoke, Vice President. Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy: ww: 10-31-41 Strictly NALYSIS OF BRITISH AND FRENCH ACCOUNTS (In Millions of Dollard DEBITS Total Debits PERIOD List year of war (8/29/39-8/28/40)* War period through December 1940 Second year of war Gov't Expenditures(a) 1,793.2 605.6 2.792,3 1.425,6 2,203.0 1,792.2 140.9 105.9 CREDITS Total Credits Other Debita 1,187.6 Securities Other (Official)(b) Credita(c in Balance CREDITS Total Debits Gov't Expendi- Prooeeds tures (d) Debits Total Credits Other Net Incr. (+) or Decr. (-) of Gold Other Sales Credits in Balance 1.356.1 52.0 420.1 35.0 866.3(e) 416.6(e) 449.7 (L095.3(e) 900.2 195.1(e) +229.0 12,109.5 108.0 575.6 10.8 878.3 421.4 456.9 1,098.4 900.2 198.2 +220.1 12,189.8 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 0.2 - 0.1 0.1 7.2(f) Transfers from Brittah Purchasing Commission to 0.1 - 828.2 1.356, 72,793.1 410. Gold (+) or Decr.(-) FRANCE OF DEBITS lat Inor. Proceeds of Sales of 1941 Aug. 28 Oct. 1 BANK BANK OF ENGLAND (BRITISH 35.0 - 0.2 Oct. 2 - Oct. 29 Oct, 30 - Dec. 3 Deca 4 Dec. 31 1942 week ENDED: Oct. 1 8 27.2 34.3 15 23.9 22 27.0 22.8 26.2 20.3 15.4 4.4 93.5 0.3 8.1 14.7 0.8 3.6 20.3 1.6(g) 7.2 AVENUES Teskly Expenditures Since Outbreak of War JUNE 19,1949) 19.6 Button England (through June 19.1940) 27.6 million England (since June 19.1940) 43.7 million *For monthly breakdown see tabulations prior to April 23 1941. **For monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footnotes) - 93.2 13.9 - 20.3 - - 66.3 0.2 - 19.6 0.2 - 3.6 19.8 0.2 0.2 - - - Bank of Canada for French Account Week ended October 22. 1941 Cumulation from July 6, 1940 -0.2 - 162.7 million million 0.1 - (a) Includes payments for account of British Purchasing Commission, Brit ish Air Ministry, British Supply Board, Ministry of Supply Timber Control, and 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 Brit ish sales of American securities, including those effected through direct negitiation. 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 identified with any accuracy. According to data supplied by the British Treasury and released by Seoretary Morgenthau, total official and private Britiah liquidation of our securities through December, 1940 amounted to $334 million. (a) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New 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 accruing dollar receipt (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day. (f) Includes an additional $2 million received from Commonwealth Bank of Australia. (g) $9 million paid to the De Javasche Bank account here. ANALESTS OF GANADICAN AND AUSTRALIAN ACCOUNTS (In Millions of Dollars) Proceeds to PERIOD Official British A/C British A/C of Debits Sales A/6 A/C Gold For Own For French Other Net Incr. (+) or Decr. (-) Credits in Balance Total Debits A/C of Other Debits Total Credits Gold Sales Other Credits Net Incr. (+) or Decr. (-) in Balance 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 23.1 462.0 246.2 3.4 123.9 88.5 1.6 72.2 16.7 55.5 X 52.2 31.0 29.1 10.7 0.5 r 18.3 0.7 9.0 21.2 2.0 7.1 5.3 far period through December. 1940 Proceeds to Official British First year of war 1/29/39-8/28/40)* CREDITS Transfers Transfers from official Total Credits Other DEBITS CREDITS Transfers Total Debits COMMONEELTH BANK OF AUSTRALIA and Australian Government) CANADA (and Canadian Government) OF BANK DEBITS Strictly Confidential Week Ended October 22. 1941 Second year of war 8/29/40-8/27/01 460.4 23.1 Aug. 28 - Oct, 1 - - - 81.2 62.9 10.2 2.8 2.1 0.1 1.1 0.4 7.9 1941 Oct. Oct. 29 Oct. 30 - Dec. 3 Dec. A Dec. 31 1942 WEST ENDED: Oct. 1 8 15 22 18.2 5.6 4.5 10.5 = - - - 18.2 5.6 4.5 10.5 4.3 Led lookly Average of Total Debits Since Outbreak of War 2.6 3.2 3.4 - - 4.5 1.1 - - 1.0 - Action 7.3 more October 22, 1941 For monthly breakdown see tabulations prior to April 23, 1941. oo For monthly breakdom see tabulations prior to October 8, 1941. r Revised 11.2 1.7 = + 1.5 - a. 6. 0.6 0.5 1.6 3.0 3.4 0.5 3.0 2.0 1.4 -0.2 0.1 0.2 - 0.3 0.2 6.8 5.8 1.0 -1.4 +3.8 07 0.1 0.6 -2.7 36 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON D. C. TELEPHONE HOBART 9000 LEASE QUOTE REFERENCE NO With the compliments of British Air Commission, who enclose statement No. 4, covering aircraft shipped, for week ending October 28, 1941 The Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. October 30, 1941 nurt Duiet 37 STATEMENT No. 4. AIRCRAFT DESPATCHED FROM THE UNITED STATES WEEK ENDED OCTOBER 28, 1941. TYPE DESTINATION ASSEMBLY POINT BY SEA BY AIR FLIGHT DELIVERED FOR USE IN CANADA. ELL Airacobra ESSNA U. K. U. K. Canada T-50 ONSOLIDATED Catalina LiberatorII CURTISS Kittyhawk U. K. U. K. Middle East Port Sudan Canada U. K. DOUGLAS Boston III AIRCHILD 24R9 GLENN MARTIN Baltimore NORTH AMERICAN Harvard II Mustang U. K. U. K. U. K. Middle East Port Sudan U. K. U. K. Middle East Port Sudan Middle East Port Sudan U. K. TOTAL British Air Commission, October 30, 1941. U. K. 1 -- -- -- --- 15 3 -- 12 -- 2 ---- -- 8 -- -- 4 -- -- 2 -- 29 4 1 51 5 --- -- 15 20 -- TREASURY DEPARTMENT 38 INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau Mr. Barnard I attach a letter from Sir Clive Baillieu answering my inquiry as to locomotives and rolling stock for the Middle East, about which you wished information. I find that as yet the Procurement Division has received only orders for ten light Diesels, probably for dock unloading and similar purposes, but that the War Department is buying fifty locomotives which are probably a part of those referred to by Sir Clive Baillieu. CUB 39 1518 K STREET N. W., WASHINGTON D.C. TELEPHONE REPUBLIC 7860 BRITISH PURCHASING COMMISSION October 29, 1941 Dear Mr. Barnard: In reply to your letter of October 28th, we have not seen the newspaper reports referred to regarding the transfer of locomotives and rolling stock from Egypt to Persia, and in fact any proposals there may be in this connection would be strictly secret. We are not fully informed as to what are the detailed intentions but the facts so far as we know them are as follows. There is at present, a most urgent need for increasing the capacity of the TransPersian Railway in order to carry aid to Russia, and in order to meet this need in the quickest way possible, locomotives and rolling stock are being despatched from U.K. to Persia which had been destined to relieve the railway congestion in Egypt. This congestion has arisen as a result of the increasing flow of supplies from America, combined with the periodical closing of the Suez Canal due to enemy action. In addition, locomotives and rolling stock actually in transit at sea have very probably been diverted. Of the 200 locomotives which it is desired to order in this country, any that can be delivered by February, 1942, will be consigned directly to Persia, but deliveries subsequent to that date will be too late to arrive in Persia in time to meet the present situation. In consequence the major part of subsequent deliveries will go to the Middle East (i.e., Egypt, Sudan, Western Desert, Palestine, Syria and Iraq) where they will replace locomotives and rolling stock which would otherwise have been supplied from U.K. and will relieve the existing pressure on railways in connection with the transportation of military supplies and equipment. Yours very truly, (Clive Baillieu) Director-General The Hon. Chester I. Barnard Treasury Department Washington, D.C. OCT 30 1941 mlt a TREASURY DEPARTMENT 40 INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Barnard You may be interested in the attached from Mr. Mack. CUB 41 TREASURY DEPARTMENT PROCUREMENT DIVISION OFFICE OF THE DIRECTOR st WASHINGTON October 27, 1941 MEMORAN DUM TO MR. BARNARD: You will be interested to know that the OPM has allocated thus far 1,280,000 tons of semi-finished steel, representing all British requirements to December 31, 1941; that all has been purchased; and that shipment against contracts up to October 23rd totaled 811, 326 tons, the balance to be delivered as scheduled. Further, the shortages in deliveries from the steel mills against October shipments has been brought to the attention of the mills and they have stated that they will meet their de- livery quotas by the end of the month with but one exception of 3,000 tons in the case of the Bethlehem Steel Corporation which we are checking further. I have sent inspectors to the principal mills with instruc- tions to give me daily reports of steel shipments to make sure that the deficit will be made up as the mills have promised in order to make our quota of 270,000 tons this month. Director of Procurement give Clifton E. Mack OCT 27 1941 a 42 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 30, 1941 TO Secretary Morgenthau FROM Mr. Barnard I don't know whether you care to see the attached statement. What I am particularly watching is deliveries which from now on ought to have increasing emphasis. I note that the actual expenditures as of October 23rd were only $45.6 millions out of allocations of $367 millions. The ,expenditures from now on ought to increase rapidly. OAB Page 1 of 2 43 Treasury Department, Procurement Division STATEMENT OF LEASE-LEND ALLOCATION Made Since Inception of Program As of October 23, 1941 Allocations Purpose Classification Contracts Executed Unliquidated Obligations (Trans. Directive) Balance Total Unobligated $ 3,271,956.20 $ 4,230,630.02 $ 2,284,369.98 $ 3,243,043.80 185,840.00 19,572.76 19,065.00 185,840.00 4,160.00 583,527.62 115,838.38 164,811.74 4,160.00 679,793.24 430,351.00 989,000.00 56,234.16 Expenditures Unexpended United Kingdom 643 Aluninum 644 Zinc 648 Other Metals and Alloys 649 Non-Metallic Minerals 651 Nitrates 652 Phosphates 659 Other Chemicals 660 Petroleum & Coal Products 670 Textile and Clothing 680 Timber Products 686 Civilian Medical Supplies 690 Commodities not Otherwise Class. Total - United Kingdom 563,954.36 145,746.74 26,402.51 16,897.40 6,290,301.85 3,585,402.56 1,069,960.27 564,273.52 4,665.34 21,563.24 284,604.26 962,597.49 39,336.76 1,708,154.31 1,600,200.79 7,998,456.66 5,185,603.35 1,218,247.68 4,235,342.34 4,101,820.65 3,800,079.32 940,911.71 2,251,461.39 671,702.29 - 148,287.41 376,638.19 26,402.51 2,251,461.39 6,854,938.56 51,140,261.08 2,006,046.45 234,198.72 23,461,391.60 74,601,652.68 2,112,546.34 4,118,592.79 43,034.79 39,563.66 1,358,573.54 8,378,167.98 2,901,878.74 82,598.45 4,260,452.28 2,121,600.92 10,499,768.90 7,000.00 - 635 Fire Fighting Equipment 636 Hailroad Equipment 639 Machinery, Equipment & Supplies 641 Iron and Steel 642 Copper and Brass 12,233,799.00 9,287,424.00 5,018,327.00 1,612,614.00 3,453,500.00 17,514,732.10 125,574,568.90 14,065,541.00 1,145,462.00 8,021,400.00 13,843,896.00 8,586,500.00 958,673.82 7,089,137.28 7,000.00 1,202,038.61 10,525,644.19 7,687,223.21 4,870,039.59 1,235,975.81 3,453,500.00 17,280,533.38 10,425,594.82 50,972,916.22 102,113,177.30 9,946,948.21 1,062,863.55 3,760,947.72 3,344,127.10 8,579,500.00 11,952,994.66 1,105,898.34 5,119,521.26 11,722,295.08 8,586,500.00 17,877,630.53 2,093,314.69 - 634 Elec. Equip., Materials & Sup. 190,000.00 699,366.00 449,416.00 989,000.00 60,900.00 - 244 Misc.Auto.Parts & Access. 540 Machinery & Equipment 629 Other Agric. Products 631 Machine Tools 632 Agricultural Implements 633 Road Eldg. Equip. Mat'ls.& Sup. $ 6,515,000.00 $ 114 Transport, Utility & Other Aircraft 115 Training, Aircraft 6,583,800.57 2,374,282.11 2,214,199.43 7,223,505.08 1,221,462.47 4,588,481.54 8,444,967.55 447,685.31 885,176.34 24,000.00 437,491.53 18,000.00 4,209,518.46 10,654,125.45 1,655,823.16 24,000.00 5,468,701.65 1,045,143.74 18,965,390.21 261,658.66 226,594.41 502,551.92 58,000.00 5,730,360.31 6,000.00 15,436,878.00 1,587,540.00 35,683,312.50 9,706,517.69 1,271,738.15 19,467,942.13 16,215,370.37 15,175,219.34 1,360,945.59 35,180,760.58 $312,431,269.50 $120,793,611.64 $43,079,713.18 $163,873,324.82 $148,557,944.68 $269,351,556.32 8,798,000.00 19,099,093.00 2,541,000.00 315,801.35 Page 2 of 2 44 Treasury Department, Procurement Division STATEMENT OF LEASE-LEND ALLOCATIONS Made Since Inception of Program As of October 23, 1941 Allocations (Trans. Directive) $ 50,000.00 232,559.75 3,725,000.00 3,054,781.52 797,500.00 1,625.00 3,016,982.30 3,028,434.41 1,635,655.09 4,652,637.39 707,009.03 72,549.04 497,990.97 497,990.97 -6,399.04 -6,399.04 82,500.00 263,547.32 11,452.11 707,009.03 72,549.04 206,251.66 425,463.82 288,751.66 701,248.34 510,536.18 -- -- -- 29,400.00 -- 29,400.00 618,748.34 246,988.86 136,453.00 71,500.00 304,000.00 7,063,504.00 2,823,012.00 1,994,851.80 1,576,631.10 290,124.46 286,215.88 2,284,976.26 1,862,846.98 4,778,527.74 960,165.02 6,773,379.54 2,536,796.12 $24,135,533.50 $10,916,072.66 $2,457,377.84 $13,373,450.50 $10,762,083.00 $21,678,155.66 $10,000,000.00 70,142.21 - 70,142.21 $ 9,929,857.79 $10,000,000.00 689,011.14 - - - 136,453.00 71,500.00 333,400.00 -- - $21,102,679.00 $21,102,679.00 $367,669,482.00 $131,779,826.51 $45,537,091.02 $177,316,917.53 $190,352,564.47 $322,132,390.98 5,000.00 24,269.00 275,000.00 -- - - 5,000.00 11,047.37 113,821.20 161,178.80 5,000.00 14,239.07 202,220.10 42,058.74 82,809.83 $ 124,868.57 $ 179,400.43 221,459.17 $177,441,786.10 $190,531,964.90 $ $131,821,885.25 $45,619,900.85 13,221.63 $ $ $ $367,973,751.00 10,029.93 72,779.90 $ 304,269.00 1,017.44 41,041.30 $ Total Allocations for Purchase $ $21,102,679.00 $ Grand Totals - 665,728.74 1,625.00 130,800.00 - Allocation Adjustment Reserves Total - Administrative - -- $ 695 Working Fund for Emergency - - 3,462,041.21 8 Total - Republic of China 270,000.00 890,418.21 200.00 $ 690 Commodities not Otherwise Classified $ 50,000.00 270,000.00 657,858.46 407,259.69 52,934.87 1,425.00 130,800.00 -- 744,565.13 $ 659 Other Chemicals 660 Petroleum & Coal Products $ -1,825.00 200.00 $ 645 Lead 648 Other Metals & Alloys 651 Nitrates - 612,793.87 66,150.00 907,500.00 936,000.00 136,453.00 71,500.00 333,400.00 644 Zinc $ 51,825.00 296,141.54 3,317,740.31 4,664,089.50 1,205,000.00 643 Aluminum -- Unexpended 63,581.79 262,958.79 131,771.26 130,800.00 642 Copper and Brass Administrative 830 Misc. & Contingent Expenses 900 Administrative Expenses, 1941 900 Administrative Expenses, 1942 - Unobligated $ 244 Misc. Auto. Parts & Accessories 419 Misc. Quartermaster Supplies 633 Road Bldg. Equip., Mat'ls & Supplies 634 Elec. Equip., Mat'ls & Supplies 639 Other Mach., Equip., Mat'ls & Supplies 641 Iron & Steel $ 51,825.00 270,000.00 954,000.00 $ 114 Transport, Utility & Other, Aircraft Total $ Republic of China 016 Explosive Propellant Powders & Miscellaneous Ammunition Balance Expenditures $ Purpose Classification Contracts Executed Unliquidated Obligations $322,353,850.15 Certified Correct R. J. Queenin Chief Finance Division 45 October 30, 1941 My dear Mr. May: I read in yesterday's papers that Mr. Taub testified, before a Committee, on contracting. If Mr. Taub has written out his statement, with suggestions and criticisms as to how a contract should be let, I would be glad to receive it before noon, Friday, as I would like to take it up to the country to read. Yours sincerely, (Sed) H. Morgenthau Jr Mr. Stacy May, Chief Bureau of Research and Statistics, Office of Production Management, Room 2700 Social Security Building, Washington, D. C. By 46 FOR THE PRESS IMMEDIATE RELEASE OCTOBER 30, 1941 The President today signed the tax amortization bill and issued the following statement: This bill amends the Tax Amortization Law by requiring only the certification of the Secretary of War or the Secretary of the Navy, extending the time for filing applications to December 1, 1941, and otherwi se simplifying procedure for tax amortization. Last year Congress passed the law which permits defense manufacturers to amortize over a five-year period emergency facilities, certified as necessary in the interest of National Defense during the emergency period. The amended statute eliminates the joint certification formerly required by the War and Navy Departments and the Advisory Commission, and places the certification solely in the Service Departments. The amended law puts into immediate effect other changes, based on actual experience, which will simplify the procedure and save time for both Defense manufacturers and the Government. The time for filing applications has been extended. Defense manufacturers, who were unable to file applications within the short period of 60 days provided by the old law, are given until December 1, 1941, to file new applications. Thereafter, the time for filing applications for certificates has been extended from 60 days to 6 months. The new law also simplifies procedure regarding Certificates of Non-reimbursement by limiting the contracts to be certi- fied to those which are more than $15,000 in amount and which were made with the lar Department, the Navy Department, or the United States Maritime Commission after December 31, 1939. Under the former law many manufacturers filed applications for certification of contracts of small amount, and contracts made with other departments, such as the Department of the Interior, Post Office Department, Department of Agriculture and others. Under the new law such applications are unnecessary for any contract with any of these departments, regardless of amount and for any contract if it is under $15,000, with the Far Department, the Navy Department, the United States Maritime Commission. Certificates which have already been issued are not affected by the amendment and the rights of manufacturers who have already filed applications are not prejudiced. New forms of applications and instructions are being prepared and may be obtained from the Office of the Under Secretary of War, Tax Amortization Section, and from the Office of the Under Secretary of the Navy, Washington, D. C. copt 47 THE WHITE HOUSE WASHINGTON diam October 30, 1941 The Secretary of the Treasury MEMORANDUM FOR: The Secretary of War The Director General and the Associate Director General of the Office of Production Management The Administrator of the Office of Price Alainistration The Coordinator of Information The Coordinator of Inter-Aurican Affairs The Lisison Officer for the Office of Emergency Management The First Supplemental National Defense Appropriation Act, 1941, provides that: the nead of any department or independent establishment of the Government, notwithstanding the provisi ns of existing law, may employ, with the approval of the President, any person of outstanding experience and ability at a compensation of 31 per annum." In accordance with the language of this Act, it has been my prectice to approve in writing the employment of each in (vidual ollara-year san in the defense protes. In an informal opinion, the Atlorney General has cold me that a general approval iven by me to the heads of the det's se agencies allowin then to select and employ individuals upon terms and onditions prescribed by me is within the language of the Appropriations Act. I hereby ive such accroval to the officers to whom this mecor- andum is addressed. The requirement "of outstandin experience and ability" is of course a necessary condition by reason of the Act itself. My approval is also conditioned by the requirement that each individual dollar-a-year man be thoroughly investigated by an investigntive agency of the Government. Since all national defense employees are so investigated, it would be bad practice to create an excepted class. I suggest you use the F.E.I., which hrs conducted the investigations for me, because of its experience in handlin these lists. This, however, is an administrative matter solely for your own discretion. F.D.R. AR OFFICE FOR EMERGENCY MANAGEMENT DIVISION OF DEFENSE AID REPORTS WASHINGTON, D. c. October 30, 1941. Dear Secretary Morgenthau: I am sending you herewith, for your information and use, photostatic copies of the Executive Order of October 28, 1941, setting up the Office of Lend-Lease Adminis- tration, and the President's letter of the same date designating Mr. Stettinius as Administrator. Sincerely yours, Oscar Gx Oscar S. Cox. Hon. Henry Morgenthau, Jr., Secretary of the Treasury, Treasury Department, Washington, D. C. Enclosures 48 49 THE WHITE HOUSE WASHINGTON OCT 28 1941 My dear Mr. Stettinius: I hereby redesignate you as Lend-Lease Administrator to exercise the power and authority provided in the Executive Order "Establishing the Office of Lend-Lease Administration in the Office for Emergency Management of the Executive Office of the President". As such Lend-Lease Administrator, you will continue to receive compensation at an annual rate of $10,000. Very sincerely yours, Honorable Edward R. Stettinius, Jr. Washington, D. C. EXECUTIVE ORDER ESTABLISHING THE OFFICE OF LEND-LEASE ADMINISTRATION IN THE OFFICE FOR EMERGENCY MANAGEIGNE OF THE EXECUTIVE OFFICE OF THE PRESIDENT By virtue of the authority vested in me by the Constit- tution and statutes of the United States, and particul rly by the act of March 11, 1941, entitled "An Act Further to promote the defense of the United States, and 'or other purposes" (hereafter referred to ns the net), an by the Defense Aid Supplemental Appropriation Act, 1941, approved March 27, 1941, and acts amendatory or supplemental therebo, in order to define further the functions and duties of the Office for Emergency Management of the Executive Office of the President in respect to the national emergency NET ie- clared by the President on May 27, 1941, and in order to provide for the more effective administration of those acts in the interests of national defense, it is hereby ordered as follows: 1. There shall be in the Office or Emergency Manage- ment of the Executive Office of the President an Office of Lend-Lease Administration, at the head of which shall be an Administrator, appointed by the President, who shall rec ive compensation at such rate as the President shall approve and, in addition, shall be entitled to actual nd necessary transportation, subsistence, and other expenses incidental to the performance of his dutics. 2. Subject to such policies as the President may from time to time prescribe, the Administrator is hereby authorised and directed, pursuant to section 9 of the act, Lo exercise any power or authority conferred upon the President by the act 50 2 and by the Defense Aid Supplemental Appropriation Act, 1941, and any acts amendatory or supplemental thereto, with respect to any nation whose defense the President shall have found to be vital to the defense of the United States: Provided, That the master agreement with each nation receiving lend-lease aid, setting forth the general terms and conditions under which such nation is to receive such aid, shall be negotiated by the State Department, with the advice of the Economic Defense Board and the Office of Lend-Lease Administration. 3. The Administrator shall make appropriate arrangements with the Economic Defense Board for the review and clearance of lend-lease transactions which affect the economic defense of the United States as defined in Executive Order No. 8839 of July 30, 1941. 4. Within the limitation of such funds as may be made available for that purpose, the Administrator may appoint one or more Deputy or Assistant Administrators and other personnel, delegate to such Deputy or Assistant Administrators any power or authority conferred by these orders, and make provision for such supplies, facilities, and services as shall be necessary to carry out the provisions of this Order. Insofar as practicable, the Office of Lend-Lease Administration shall use such general business services and facilities as may be made available to it through the Office for Emergency Management. 5. Executive Order No. 8751 of May 2, 1941, establishing the Division of Defense Aid Reports and defining its functions and duties, is hereby revoked. THE WHITE HOUSE October28,1941 8926 51 October 30, 1941 Dear Archie: Thank you very much for your letter of October 28th. I think I understood perfectly what you had in mind. Had there been any doubt, your letter would have cleared it up. Your s sincerely, (Signed) Henry Mr. Archibald MacLeish, The Librarian of Congress, Washington, D. C. By Messenger lits Blackwell n.m. C THE LIBRARIAN OF CONGRESS b 52 Washington, D.C. October 28, 1941 Dear Henry: Thanks again for seeing me this afternoon. It was kind of you and I got a very great deal out of our brief talk. It is good of you to say that I can come to see you again as our plans develop. I want to be sure that I didn't leave you with the feeling that the Office of Facts and Figures thought of itself as having any control over information issued by the various departments and agencies. Our job, as I see it, is X simply one of working with the departments to try to make the information they issue as effective as possible and to give the people of the country as full an explanation as possible of the government's activities and the situation facing the government. I write you this because I think some people have gotten the idea from conversations with the Mayor and elsewhere that the purpose was to exercise some kind of control over the dissemination of information by government agencies. The Ex- ecutive Order makes it very clear that this is not the fact and certainly I have no such thought in mind. Thanks again for seeing me. Faithfully yours, encline Archibald MacLeish The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. 53 OC: 30 1941 Xy dear Mr. Secretary: Reference is made to your letter enclosing a copy of a proposed bill, "To establish national consorship of international communications and for other purposes", and requesting an expression of the views of this Department thereon. This bill and the proposed plan for dealing with censorship problems has been the subject of a number of conferences between officers of the Navy and Treasury Departments. The bill and the proposed plan for dealing with censorship provides for the appointment of a civilian as the Director of Censorship and for the Navy to administer the radio and cable censorship and the Army to administer the postal and wire censorship. The proposed bill authorizes the `eeretary of the Treasury, on request of the Director of Censorship, to detail from the Coast Guard, or any reserve component thereof, such officers and enlisted men on active duty as may be necessary to effectuate the provisions of the proposed bill. The bill also designates the Fiscal Service of the Treasury Department to perform the fiscal, disbursing, and accounting functions of the Director of Censorship. I have read the report on this proposed bill written to you by the Attorney General on optember 5, 1941, and I am generally in agreement with the views expressed therein by the Attorney General. It is therefore unnecessary for me to repeat here any of the observations made in the Attorney General's report. desire, however, to stress one aspect of the problem of I censorship. 54 -2-- At the outbreak of the present war, England's censorship was set up as a part of its War Department. Soon thereafter and at the risk of temporary dislocation, censorship was taken out of the War Department and placed on a civilian basis. The current British experience is that not much more than ten per cent of the information obtained through censorship is made available to the military departments; that over fifty per cent of the information obtained is made available to the Ministry of Economic Warfare; and that the Board of Trade, the British Treasury, and Post Office Department are also among the important clients of the censorship. I am informed that the Directors of the British Censorship act under the guidance of interdepartmental committees which meet periodically and advise the censorship of the kind of information to be sought out and the uses to be made of the information obtained by the censorship. I see no reason to doubt that information obtained by censorship in this country would similarly have a far greater economic than military value. Accordingly, I believe that the whole problem of the administration of any program of censorship in this country should be reconsidered by the President, the Vice President as Chairman of the Economic Defense Board, and by the Cabinet. Very truly yours, (Signed) E. Morgeather. m Secretary of the Treasury. The Honorable, The Secretary of the Navy. By Messenger 9:15 1/21/41 BB:nrd - 10/27/41. n.m.e. TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE SEP 23 1941 Secretary Morgenthau E. H. Foley, Jr. ..e: Censorship During the last few weeks Navy Department officials to us about the proposed plan for censorship of communiby mail, cable, etc., between the United States and gn countries. The plan, which the Navy says was approved President sometime ago, envisages that a civilian will be tor of censorship but that the Navy will administer the radio ble censorship and the Army will administer the postal and censorship. Both the Army and Navy are already setting up ive organizations to carry on this activity. Legislation been drafted to carry out this program but has not as yet submitted to Congress. The Navy submitted the legislation this Department for approval, in view of the fact that the Coast Guard is to be used in some incidental capacity. Legislahas also been submitted to the Attorney General. Neither asury nor Justice has reported to Navy on the legislation. I believe that it would be a great mistake to allow and Navy to run the censorship because of their training ir narrow point of view and because the vast bulk of in- Lon which would be obtained under a censorship would have c and other non-military uses. I believe that you might iately bring this matter up with the President or with onomic Defense Board. In this connection you may be interested in the followinformation which we obtained from the British censorship ities. At the outbreak of the present war, England's insorship was set up as a part of the War Department. very quickly became clear that the censorship buld never fulfill its proper functions with real ficiency under Army control and at the risk of emporary dislocation, censorship was taken out of the War Department and placed on a civilian basis. -In the first ..orld ..ar, military espionage played a relatively more important role and therefore censorship was more appropriately a matter for the military services than is true in the present war when Germany relies far more on provaganda and economic transactions than on espiona-e. British experience is that not more than 10 per cent of the information obtained through censors:in is made available to the military departments; that over 50 per cent of the information obtained is made available to the inistry of economic Warfare: and that the Board of Crade, the Gritish .reasury and Post Office Departments are also among the important clients of the censorship. The directors of British censorship act under the guidance of interdepartmental committees which meet periodically ANG advise the censorship of the kind of information to be sought out and the uses to be made of the information obtained by censorship. In view of the fact that we have not as vet replied to the Navy Department's request for our views on the proposed legislation, appreciate your lettine me know what action you desire Itoshould take in connection with this matter. ENTL August 29, 1941. MEMORANDUM TO: FROM: Secretary Morgenthau Mr. Gaston Lieutenant Commander Padgett (reserve officer on active duty) of the Navy has held several conferences with Mr. Bell and others in the Treasury on the draft of a bill and regulations for mail, radio and cable censorship in case of or in anticipation of war in which the United States is engaged. Under a draft bill prepared by the Navy Department the President may put censorship into effect at any time during the unlimited emergency. The bill provides for the appointment of a Director of Censorship, presumably a civilian, and for the detail from the Army of a Chief Postal and Wire Censor and from the Navy of a Chief Radio and Cable Censor. We have been informally advised that the President authorized the Navy Department to prepare such a bill, but the only formal submission of the bill to the Treasury Department for approval is contained in the attached letter, dated August 19, from the Secretary of the Navy to the Secretary of the Treasury. This letter asks your advice, not as to the general advisability or propriety of the bill, or the plan of censorship which it provides, but merely for your views on those provisions of the bill which would permit the Secretary of the Treasury, on request of the Director of Censorship, to detail officers and enlisted men of the Coast Guard to serve on the staff of the censor. While there is provision for the employment of civilian personnel, the terms of the bill, plus indications given by Lieutenant Commander Padgett, indicate plainly that the censorship is to be operated on a military basis and the censors are to be Army, Navy and Coast Guard officers detailed for that purpose. Lieutenant Commander Padgett has stated that, so far as the Navy personnel is concerned, it is their intention that the censors will be in the main civilians drawn into service as reserve officers and he has added that the advantage of using a military form of organization is that discipline and obedience may best be obtained in this way. 2- I have discussed the matter with Mr. Cairns and Mr. Bernstein and I am firmly as of services are, a censorship by and that the not be these military others of that convinced, personnel ought I think ought both operated not bemade upthemilitary officers. Mr. Pehle and Mr. Bernstein have talked with representatives of the British censorship, who say that a military form of organization was tried in Great Britain and was a lamentable failure. Apparently the preconception upon which the decision for a military censorship has been based is that the principal object is to protect military information and to obtain information of military value. Mr. Bernstein's memorandum explains that the British experience has been that this phase of censorship is relative- ly unimportant, being far outweighed by economic and propa- ganda considerations. This seems to me a very forcible ob- jection to the military organization. A further strong objection is that a censorship to be reasonably successful in accomplishing its objectives with a minimum of friction and public inconvenience must have great diversity of practical knowledge and some imagination. a I don't think you are at all likely to get this from military men, operating under military discipline and regulations. My own opinion is that the military man is least fitted of any class of educated men to administer a censorship successfully. It occurs to Mr. Cairns, Mr. Bernstein and myself that you may wish to ask reconsideration, or further consideration, of the form of censorship before it has crystallized into definite action. I have rewritten the reply to Secretary Knox to admit of this possibility. NET MEMORANIUM FOR THE FILE On the morning of August 28, 1941, Mr. Reeves and Mr. Feidler discussed with Mr. Edward Bartelt, Commissioner of Accounts, a copy of & confidential bill titled "A bill to establish a national censorship of international communications, and for other purposes". This bill was referred to the Department of the Treasury by the Secretary of the Navy for an expression of views so far b.B the bill relates to the Coast Guard. Mr. Bartelt stated that he had no objection to the bill. Mr. Feidler and Mr. Reeves pointed out to him the wording of section 5 of the proposed bill which reads "the Fiscal Service of the Treasury Department is hereby designated, empowered and directed to perform the fiscal, disbursing and accounting functions of the Director of Censorship in carrying out the provisions of this Act." Mr. Bartelt stated that he WES highly desirous of having that phraseology in the bill and stated that he had personally suggested that wording. Mr. Bartelt further stated that if Mr. Bell raised any question about section 5, Mr. Reeves and Mr. Feidler should inform him that the language was Mr. Bartelt's. g.7.R. ERF (SC)/A16/EN3-10 Serial 069712 DEPARTMENT OF THE NAVY OFFICE OF THE SECRETARY WASHINGTON CONFIDENTIAL AUG 19 1941 Sir: There is forwarded herewith a copy of a proposed bill "To establish national censorship of international oomaunications, and for other purposes", which has been forwarded to the Attorney General for his approval prior to its submission to the Bureau of the Budget. An expression of your views in connection with this bill as it relates to the Coast Guard is requested in order that any desired change may be submitted to the Attorney General as a joint reoom- mendation of the Treasury and Navy Depart- ments. Respectfully, 4 The Honorable The Secretary of the Treasury Washington, D. C. Enclosure. Frank Knox September 5, 1941 Confidential The Honorable The Secretary of the Navy. By dear Mr. Secretary This sakmouledges your letter of August 15 (your file (83)/416/1993-10, Serial 069712, L EP.) enclosing a dreft of a proposed bill to establish national censorship of international communications, prepared by the Navy Department in collaboration with the Bar Department. It is noted that, in accordance with the President's direction, the proposed draft is subsitted to this Department for approval prior to its submission to the Surees of the Budget, The proposed bill would authorize the President to establish and maintain during the present national emergency or during e state of war a omeorship of communications by wil, abble, radio, telephone, telegraph, teletype, visual means, could, bowing pigeons, or any other means whatsoever, between the United States and any foreign country; between the United States and its Twriterice or possessions; between the United States and any vessel; between any Territory or possession and any other Territory or and possession, It is further proposed to authorise the President to appeint, by and with the advice and concent of the Senate, an official to be known as the Director of Censorship and to detail from the Army and Blvvy a *Chief Postal and Wire Consor" and a "thief Badio and Cable Censor" to perform duties as /xocutive Annietente to the Director of Canoorship. A few general consents Day be of some value. It apreara that the President - now by rules and regulations proclained by his under section 606(e) of the Communications Act of 1934 -2- control radio unications so E.S to revent the transmission from the United States of radio peesages intrical to the national security; althou h the Commission itself by section 326 of the sane act is rohibited from SO doing. During the war of 1917-18 the President by Executive Order (No. 2604 of April 28, 1917) established consorchip of cable, telegraph and tele hone lines, reciting as authority the Constitution and the Joint Resolution of April 6, 1917, which declared the existence of & state of WIF. The validity of the consorshi so inaugurated was never judicially established. Legislative authority came into existence with the Trading with the Enery Act of October 6, 1917, which supported consorship of cable, telegraph and telechone during the existence of that war; and under the sane legislation censorship of the mails was first established on October 12, 1917, under authority which expired with the war. In view o the above, and notwithstanding the authority over radio above referred to and the authority exercised by Executive Order during the last war over cable, telegraph and telephone lines, and certain controls now possible over the use of the mail, especially second, third an fourth class mail, it neverthe- less snapers advisable to obtain legislation If censorship is now doemed wise. Cf course, whether or not such legislation should be sought is primarily & question of policy. In determining the question of olicy consideration should be given (1) to the traditional attitude of the United States with reenect particularly to the inviolability of first class mail except in time of war, and (2) to censorship of telephones, which seems necessarily to involve . wire-th ing. Congress has recently refused to enact legislation authorizing wire-tapping even in a restricted manner and for rest icted purposes. (Hobbs Hill, H.R. 4228). Because of this recent attitude of Congress, it would I believe be preferable, if censorshi legislation is sought to face the Prohlem of wire-tapping frankly and not in the guise of censorship of telephones as in the proposed draft. The dr ft of bill, in view of its emphasis on military participation, raises the question whether sufficient study has been made of the relative importance of consorship 08 between military on the one hand and economic and other civilian information on the other. I believe it will be found that the experience of the British Juring the present war shows that a relatively small percentage of the fruits of censorship has related to military AS distinot from economic and other civilian matters. This suggests the advisability, if it has not already been done, of consultation with and working out of the principles of the draft with those conearned with economic non-military activities.defense, civilian intelligence, and similar -3The United States has never inaugurated a system of convership except in time of actual war. Mile I believe that the existing national emergency and the relationship of our over to existing mro would support the validity of consership legislation such as contemplated by the proposed draft of bill, I feel that the need for such censorship, to- gether with the procise nature of the need should be first care- fully examined and determined, In any event, however, and whatever cay be finally decided as to the matter of policy, I believe that it in very leadrebie that the problem be pursued to the end that the best poesible draft be available in case it is decided that legie- lation should be sought. This department would be glad to GOoperate and make such detailed suggestions as ocour to it, B member of which I AR prepare: to submit in conference between representatives of the departments or in writing if you prefer. Respectfully, (s) Francis Diddie Acting Attorney Geheral (BO)/A16/EN3-10 Serial 069712 DEPARTMENT OF THE NAVY WASHINGTON Sir: There is forwarded herewith A draft of a proposed till, "To establish national consorship of international oommunications, and for other purposes" prepared by the Navy with the war directive of the Joint Board, No. laboration suant to the Department Department, in eol- pur- 325(681) approved by the President on June 4, 1941. The President, in approving this legislative project, directed that it be cleared through the Attorney General "as to legislation". recordingly, the pro- posed druft is submitted for your approval prior to its submission to the Bureau of the Budget. Respectfully, The Attorney General of the United States Washington, D. 0. Copy to: Secretary of War. Enclosure. Secretary of the Treasury. CONFIDENTIAL A. BILL To establish national consorship of international communications, and for other purposes. Be it enacted by the Senate and House of Represen- tatives of the United States of America in Congress assembled, That during a state of war, or the national energency declared by the President on May 27, 1941, I to exist, with the object of preventing the treasmission of information detrimental to the national interest, the President is hereby authorised to 66tablish and maintain, under such rules and regulations as he may from time to time prescribe, a consership of communications by mail, cable, radio, telephone, telegraph, saletype, visual means, sound, homing pigeons, or any other means whatever, between the United States, its territories and possessions, and any foreign country between the United States and its territories or possessions; between the United States, its territories and possessions, and any veseal, regardless of the location of such vesself and between such territories or possessions and other such territories OF possessions: Provided, That such -2- censorship shall be applicable to foreign communion- tions touching at any point in the United States, its territories and possessions, regardless of origin or destination: Provided further, That any radio broadcast or any other communication the receipt of which cannot be confined to specified domestic addresses shall be subject to suo! censorship. SEC. 2. The President is further authorized to appoint, by and with the advice and consent of the Senate, an official to be known as the Director of Censorship, whose duties he shall presoribe, and whose salary he shall fix at a rate not in excess of $10,000 per annum. The President is also authorized to detail from the Army and Navy, respectively, a "Chief Postal and wire Censor", and a "Chief Radio and Cable Censor", who shall perform duties as Exeou- tive Assistants to the Director of Censorship in oonnection with the sensorship provided for herein. SEC. 3. The Secretary of ber, the Secretary of the Navy, and the Secretary of the Treasury are authorized, on request of the Director of Consorship to de- -3tail from the Army, Nevy, and Marine Corps, and Goast O Guard, respectively, or any reserve component thereof, such officers and enlisted mon on active duty as may be necessary to effectuate the provisions of this Act; Provided, That any officer or enlisted man of the Army, Navy, Marine Corps or Coc at Guard, or any reserve ponent thereof, who may be so detailed shall not be prejudiced in regard to pay, alloweneen, promotion, advancement, appointment, or other rights, benefits, privileges, and gratuities, now or hereafter provided by the laws relating to the regular Army, Navy, Marine Corps or of or Coast or any That personnel reserve with and the Section Act ordered the Director of to means of transcomponent Sensorship the this / rmy, 4(a) component Coast Section thereof! of Navy, Guard, this perform thereof, Marine Provided respectively, ray travel, em;loyees Corps detailed be further, by any authorized in or any nooordence by Guard, reserve by portation, in connection with their official duties relatine to consorship, and sha? reasive the transportation end subsistence allowance specified by the Standard- CONFIDENTIAL -4ised Travel Regulations, as now and hereafter amended, for the civilian employees of the Government, and na other. SEC. 4. The Director of Censorship is authorized: (a) To employ the necessary civilian personmel with or without regard to Civil Service laws and the Classification Act of 1923, as amended, assign the same such duties as he may doom appropriate, and provide such office space, services, facilities, supplies and equipment, including motor-propelled vehicles and maintenance and exchange thereof, as may be required for the organization, training and maintesamee of the consorship establishment, without regard to Section 3709 of the Revised Statutes of the United States. (b) To purchase such printing, binding and blank book work from public, commercial, or private printing establishments or binderies upon orders placed by the Public Printer who is hereby authorized to extreise, for the purpose of this Aot, the discreMea vested in the Joint Committee on Printing by Section 12 of the Aot approved January 12, 1895, as amended by the Let approved July s, 1935 (49 Stat, 475). CONFIDENTIAL -5(a) To require the registration and licens. ing of all persons, agencies, and organizations other than agencies of the United States Government, owning, pos- sessing, maintaining, or transporting homing pigeons, and to requisition all homing pigeons so owned, possessed, or maintained, upon the payment of fair and just compensation in the manner provided for by the Aot of October 10, 1940 (Public Numbered 829, Seventy- sixth Congress, Third Session). (d) To require the registration and licensing of those agencies to be permitted to transmit to foreign countries newspapers, periodicals, books, and other printed matter or other authorised material, free of consorship. SEC. 5. The Fiscal Service of the Treasury Department is hereby designated, empowered and di- reeted to perform the fiscal, disbursing and account- ing functions of the Director of Censorship in earrying out the provisions of this Act. -6-- SEC. 6. The Chairman of the Federal Communications Commission is hereby directed to place at the disposal or the Cirector of Censorship such monitoring service end equipment as may be required to exercise radio purveillance over minor commerbial radio circuiss of the United States which, in the opinion of the Disector, cannot be economically censored. ST.C. 7. There is hereby authorized to be approprinted, out of any money in the Treasury not otherwise appropriated, not to oxoeed $10,000,000 to erfectuate the purposes of this Aot. SLC. 8. hoever stall wilfully violate any of the provisions of this not or of any license, rulo, or regulation issued thereunder, and wheever shall wil- fully viclate, regleat, or refuse to comply with any order of the President issued in compliance with the provisions of this Aot shall, ujon conviction, be fined not more than $10,000, or, if 6 natural person, imprisoned for not more than ten years, or both; and any officer, director, or gent or any corporation -7knowingly participates in such violation shall be punished by a like fine, imprisonment, or both, and say property, funds, securities, papers, or other articles or documents, or any vessel, Begether with her tackle, apparel, furniture, and equipment, oom earned in such violation shall be forfeited to the United States. CONFIDENTIAL 72 UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Twenty-five Business Days of August, September, and October, 1941 (August 1- , September 1-30, October 1-29) On Basis of Issue Price (Amounts in thousands of dollars) : : : : $ 38,117 75,095 67,123 74,721 7,972 114,070 21,370 115,402 105,241 18,099 108,987 114,275 19,616 121,932 8,829 3,271 6,415 $250,842 $232,327 $255,822 $18,515 : : : Series F - Banks Series G - Banks Total : Series E - Total : Series E - Banks : $ 38,976 $ 39,554 : : September : August September : August $ 859 -$ 1,437 : : October over Percentage of Increase or Decrease (-) October over September 11.9 - 9,034 - 1,517 8.4 18.1 5.9 -$23,495 over : August - 3.6% 2.3% - 7,598 - 12,945 : September : : Series E - Post Offices over : Item or Decrease (-) October : September : Sales Amount of Increase - 10.2 - 7.9 - 7.7 - 10.6 - 9.2% 8.0% October 30, 1941. Office of the Secretary of the Treasury, Division of Research and Statistics. 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. UNITED STATES SAVINGS BONDS Daily Sales - October 1941 On Basis of Issue Price (In thousands of dollars) Post Office Bond Sales Date Series E October 1941 1 $ 1,450 1,870 2,150 1,270 2 3 4 3,449 1,207 1,363 1,652 1,495 1,291 6 7 8 9 10 11 13 2,515 14 437 15 16 17 18 879 1,376 1,422 1,180 20 2,827 21 887 22 23 24 25 27 28 29 Total 1,284 1,496 1,364 1,341 2,224 1,213 1,333 $ 38,976 All Bond Sales Bank Bond Sales Series F Series G Total Series E Series F Series G Total Series E $ 8,271 $ 12,587 $ 4,479 $ 1,286 $ 8,271 $ 14,036 $ 3,029 $ 1,286 867 2,786 3,299 1,696 867 4,324 6,323 6,400 9,847 12,837 9,978 18,956 7,287 9,469 10,479 11,428 8,420 1,065 612 4,324 6,323 6,400 7,977 10,687 8,707 4,656 5,449 2,966 15,508 6,080 8,106 8,827 9,933 7,129 8,226 3,802 5,037 5,923 5,167 3,690 1,444 632 9,286 2,913 3,611 3,654 5,272 4,098 9,778 1,794 6,417 7,685 9,438 6,283 6,139 1,459 3,055 4,429 5,031 3,604 1,164 4,989 261 511 759 724 860 3,482 3,908 4,969 3,013 12,293 2,231 7,296 9,060 10,861 7,463 6,222 2,917 4,600 4,697 4,684 3,735 895 3,800 2,959 5,880 5,322 2,963 4,798 10,918 6,312 11,316 10,901 8,365 9,491 11,354 9,880 10,364 $250,842 1,065 612 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 3,624 1,022 2,175 3,054 3,609 2,424 1,164 4,989 261 511 846 3,482 3,908 4,969 3,013 3,395 2,029 3,316 3,201 3,320 2,393 895 ,800 436 2,959 5,880 5,322 2,963 4,798 8,091 5,425 10,032 9,406 7,001 8,150 9,131 8,666 9,031 6,078 3,377 4,647 1,120 877 4,156 5,660 4,839 877 4,156 5,660 4,839 $211,866 $114,070 $ 21,370 $115,402 $ 21,370 $115,402 3,854 2,164 3,314 $ 75,095 572 821 903 989 759 724 860 835 882 718 959 1,120 842 572 821 903 989 846 436 835 882 718 959 842 October 30, 1941. Office of the Secretary of the Treasury, Division of Research and Statistics. 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. 74 Treasury Department TELEGRAPH OFFICE w9 MA WUWD9 50 NT TDS BEVERLYHILLS CALIF OCT 29 1941 1941 OCT 30 PM 8 19 HENRY MORGENTHAU JR SECY OF TREAS SONG RECORDED BY TONY MARTIN AND DAVID ROSE ORCHESTRA THIS AFTERNOON. RECORD FOR YOU TO HEAR BEING PROCESSED SHOULD REACH YOU END OF WEEK. SONG IS CALLED "ABE LINCOLN HAD JUST ONE COUNTRY If AND JUDGING FROM ENTHUSIASTIC ACCLAIM AT RECORDING STUDIO THINK YOU WILL BE PLEASED. CERTAINLY HOPE so. REGARDS JEROME KERN 747AM OCT 30 75 October 30, 1941 My dear General Watson: As you undoubtedly know, the airfield at New Hackensack is frequently used by visitors to the President. I asked my pilot to write out for me the various steps that might be taken to im- prove the field and I am enclosing his recom- mendations herewith. If you concur and feel that the field should be put in first-class condition, I would appreciate it if you would bring this matter to the attention of the Civil Aero- nautics Administration with a recommendation that these steps be taken. Yours sincerely, (Signed) R. Morgenthan, in. General Edwin M. Watson, The White House. By hand n.m.c. 1:45 Benhwell 76 27 October, 1941. ADMIRAL WAESCHE: This memorandum is submitted as a result of a conversation I had with the Secretary on the return flight from New Hackensack last night. The Secretary directed that a memorandum be submitted to him which he would take up with the White House. lossiution W.E.Sinton, Lieutenant, U.S.C.G. 27 October, 1941. MEMORANDUM FOR - The Secretary of the Treasury Subject: Civil Aeronautics Administration field at New Hackensack, New York. 1. The Civil Aeronautics Administration field at New Hackensack, N. Y., is frequently used by government aircraft on special missions of importance. It is the nearest field of any size to the President's Hyde Park estate and is used to expedite the delivery of official correspondence to the President. 2. The present field 18 satisfactory for daytime operations of single engine planes but is not considered adequate for operations of large twin engine aircraft nor for night time operations of military aircraft. 3. It is recommended that this Civil Aeronautics Administration intermediate field be improved as follows: (a) Remove trees from the southwest end of the northeastsouthwest runway. These trees rise to a height of ap- proximately 60 feet constituting a distinct hazard to planes using this runway. (b) Continue the hard surfacing of the southeast end of the northwest-southeast runway and the northeast end of the hortheast-southwest runway. The field has recently been enlarged but the runways have not been extended by hard surfacing. (c) install flood lights for night landings. The field at present has boundary, approach and obstruction lights. Some of the obstruction lights should be replaced as they are lower than the obstructions. (d) Restore the teletype circuit which contains airway terminal forecasts and upper airs. Until recently this circuit was available but has been terminated. 77 27 October, 1941. MEMORANDUM FOR - The Secretary of the Treasury Subject: Civil Aeronautics Administration field at New Hackensack, New York. 1. The Civil Aeronautics Administration field at New Hackensack, N. Y., is frequently used by government aircraft on special missions of importance. It is the nearest field of any size to the President's Hyde Park estate and is used to expedite the delivery of official correspondence to the President. 2. The present field 16 satisfactory for daytime operations of single engine planes but is not considered adequate for operations of large twin engine aircraft nor for night time operations of military aircraft. 3. It is recommended that this Civil Aeronautics Administration intermediate field be improved as follows: (a) Remove trees from the southwest end of the northeastsouthwest runway. These trees rise to a height of ap- proximately 60 feet constituting a distinct hazard to planes using this runway. (b) Continue the hard surfacing of the southeast end of the northwest-southeast runway and the northeast end of the hortheast-southwest runway. The field has recently been enlarged but the runways have not been extended by hard surfacing. (c) install flood lights for night landings. The field at present has boundary, approach and obstruction lights. Some of the obstruction lights should be replaced as they are lower than the obstructions. (d) Restore the teletype circuit which contains airway terminal forecasts and upper airs. Until recently this circuit was available but has been terminated. 78 MEMORANDUM FOR - The Secretary of the Treasury 27 October, 1941. (e) Make available a rotary snow plow to keep the field open for winter operations. Last winter the County authorities supplied a road SROW plow to keep the runways open but raised high drifts on each side of the runways which constituted a hazard to aircraft opera ti one. R. R. WAESCHE, Rear Admiral, U.S.Coast Guard, Commandant. -2 - 10-30 - 41 79 CHANGES IN COST OF CONSTRUCTION OF STANDARD 6-ROOM FRAME HOUSE, ST. LOUIS Percentage Change July 1940 to Sept. 1941 PERCENT Percent Cost increase Sept.1941 Unfinished Lumber 51.8 $563 Finished Lumber 32.9 865 22.8 474 21.7 689 9.8 673 5.8 551 Item Material Costs Material Costs 50 40 Paint. Hardware and Electric Materials 30 Windows. Doors, etc. Masonry and Tile Materials 20 Heating and Plumbing 10 3,815 Total 0 Sept.1941 July 1940 Labor Costs 40 Labor Costs Total. 33.1 2,265 30 20 10 0 Sept.1941 July 1940 General Costs 30 Insurance Sale Tax. etc. General Costs General Contractors 20 Profit Subcontractors Overhead and Profits 10 Total. Total Costs. Sept. 1941 Sept.1941 422 25.8 649 23.0 433 1.504 7,584 Total Costs. July 1940 6,004 Increase 1,580 Percent 26.3 0 July 1940 29.1 Source Real Estate Analyst C-368-1 Prepared by: Mr. Foy Mr. Murphy Mr. Hear 80 DEPARTMENT COMMUNICATION DATE October 30, 1941 Secretary Morgenthau TO FROM Mr. Haas, GH Subject: Current Developments in the High-grade Security Markets; Bank and Insurance Company Absorption of Government Securities SUMMARY (1) During the past two weeks Treasury bonds advanced about one-half of a point, while Treasury notes declined about one-quarter of a point (Chart I) The average yield of long-term partially tax-exempt Treasury bonds reached an all-time low of 1.82 percent yesterday (Chart II). (2) The new 1 percent Treasury note closed last night to yield 0.91 percent. This compares with a yield of 0.77 percent on the 3/4 percent note maturing three months earlier (Chart III). Several factors appear to account for the rather wide spread of 0.14 percent for only three months. (3) The Treasury average yield of high-grade corporate bonds was 2.58 percent at last night's close, the lowest yield since January of this year (Chart II). In the two weeks ending October 25, the Dow-Jones weekly average yield of municipal bonds, moving contrary to the trend of both Treasury and corporate bonds, rose five basis points to 1.93 percent (Chart IV). (4) During the six months from March 31 to September 30, commercial banks absorbed more than the entire increase in the privately-held marketable supply of Government securities. Mutual savings banks and life insurance companies each showed a small increase, in the case of mutual savings banks such increase being the net resul- tant of a large turn-over of tax-exempt into taxable securities. All other holders" decreased their holdings of marketable securities during this period. This may be due in part to shifts by individuals and trusts out of marketable securities into savings bonds. (5) The Commonwealth of Australia is offering a loan of L100 millions. The loan consists of two issues -2-1/2's of 1945-46 and 3-1/4's of 1950-57. 81 Secretary Morgenthau - 2 I. United States Government Securities The past two weeks saw a continuation of the price trends in Treasury bonds and notes begun about a month ago. Since October 14 prices of bonds have advanced about one-half of a point and prices a point (Chart I).of notes have declined about one-quarter of The following table presents price changes of Treasury bonds and notes by maturity classes from September 30 to last night's close: Average price change Oct. 14 : Oct. 14 : Sept. 30- Oct. 29 Sept. 30- Oct. 29 : (Decimals are thirty-seconds) Notes 1 to 3 years 3 to 5 years -.06 -.08 -.10 -.04 -.16 -.12 +.04 +.07 +.14 +.27 +.18 Bonds 5 to 15 years to call 15 years and over to call +1.02 The average yield of long-term partially tax-exempt Treasury bonds, moving inversely to prices, achieved a record low of 1.82 percent yesterday (Chart II). Prior to last week, the record low yield had been 1.86 percent reached on December 28, 1940. Last night's low of 1.82 percent is the lowest yield since the inception of the long-term partially taxexempt Treasury bond average in 1919. 82 Secretary Morgenthau - 3 II. The New Treasury Note On last Thursday, the day of announcement of the offer to exchange new 1 percent Treasury notes due in 1946 for the maturing RFC and CCC notes, bid prices of "rights" opened at 100-21/32 and closed at 100-17/32. Since then "rights" and when-issued quotations have settled slightly, and at last night's close the when-issued bid quotation was 100-13/32. Chart III presents a comparison of the bid yield of the new Treasury notes with the bid yields of outstanding taxable Treasury notes. It will be noted that the yields of 0.77 percent on the 1945 notes and 0.91 percent on the new notes are farther apart than the difference in maturity of only three months would seem to justify. One explanation may be the fact that the 1945 notes are already selling slightly below par, and resistance to further declines (which would cause the yield to rise into line with that of the new notes) results from reluctance to suffer a capital loss on the part of commercial banks which acquired the 1945 notes at par. Another reason for the divergence in yields between the two note issues may be the unequal effect of the corporate income tax on the different sized coupons. By deducting from the yield of each issue a 31 percent tax on the respective coupons, it is found that the difference in the net yields to a holder subject to corporate tax is relatively small -- a 0.60 percent yield after taxes on the 1946 notes compared to a 0.54 percent yield after taxes on the 1945 notes. III. Other Domestic High-grade Securities New public offerings of bonds in the New York market have sharply declined the past half month, totaling only $5.4 mil- lions for the two weeks ending October 24 as compared with $56.3 millions the previous two weeks. High-grade corporate securities have had only very minor price movements during this period. The Treasury's average yield of five high-grade corporate bonds was 2.58 percent at last night's close, a decline of two basis points since October 14 Chart II). This is the lowest yield the average has reached since January of this year. 83 Secretary Morgenthau - 4 For the two weeks ended October 25, the Dow-Jones weekly average yield of twenty 20-year municipal bonds, moving in- versely to prices, rose to 1.93 percent, an increase of five basis points from its all-time low yield attained October 11 (Chart IV). Since the average yield of long-term partially tax-exempt Treasury bonds was 1.83 percent on October 25, the spread between these two averages at the end of last week was once more a positive value, + 0.10 percent, as compared to - 01 percent on October 11. IV. Bank and Insurance Company Absorption of Government Securities It has been pointed out in previous memoranda that life insurance companies and mutual savings banks, particularly the latter, have a very limited net absorptive capacity for Government securities. It has also been emphasized that most of the purchases of taxable securities made by mutual savings banks during the past year have been financed by sales of taxexempt securities to commercial banks. These facts are brought out sharply in the following table and in Chart V. Net Changes in Holdings of Marketable Government Securities by Selected Classes of Investors March 31 to September 30 (Millions of dollars) Taxable Tax-exempt securities* securities* Treasury bills Total Commercial banks +1,425 74 +222 +1,573 Mutual savings banks + 545 -424 -5 + 116 Insurance companies + 515 -222 - 29 + 264 446 -643 -488 +2,931 -1,363 -300 All other private investors All private holders + * Except Treasury bills. - 685 +1,268 Secretary Morgenthau - 5 84 The above table shows that, during the first six-month period covered by the Treasury Survey of the Ownership of Government Securities, commercial banks increased their holdings of marketable securities by a greater amount than the increase in the total privately-held supply. This is true even if the increase during this period in commercial bank holdings of Treasury bills (due principally to seasonal influences) is disregarded. Chart V casts further light on how these changes came about. Commercial banks, it will be noted, managed to keep the reduction in their holdings of tax-exempt securities under $100 millions despite a reduction of $1.4 billions in the total privately-held supply of such securities. They accom- plished this by purchasing from other classes of holders almost enough tax-exempt securities to offset their entire maturities. Mutual savings banks show a large turn-over of securi- ties with a rather small net increase. It will be noted that these banks were especially partial to the 2-1/2's of 195658. Insurance companies remained true to their tradition that they "buy to hold" and sold very few tax-exempt securities, A much larger proportion of their purchases of new taxable securities, therefore, represented bona fide new savings. "All other investors" showed a net decrease of about $700 millions in their holdings of marketable Government se- curities. About $500 millions of this was in Treasury bills and is probably largely seasonal in character. The remaining $200 millions is a real decline, however, and perhaps represents, in large part, a liquidation of marketable securities by individuals and trusts in order to purchase savings bonds. V. New Australian Loan Announced The largest single loan ever offered by the Commonwealth of Australia was announced October 7 by the Commonwealth Treasury. It comprises two new securities totaling L100 mil- lions. Of this amount, L70 millions is to be applied to the conversion of securities maturing November 15, 1941 and L30 millions is new money for current expenditures. The new borrowing is the equivalent on a per capita basis of about $1.8 billions in the United States. Secretary Morgenthau - 6 85 As the estimated government expenditures for the year ending June 30, 1942 amount to about L320 millions, the new money obtained from the issues will cover nearly one-tenth of the total expenditures. The new loan is to be issued at par with a choice of two maturities. One issue bearing interest at the rate of 2-1/2 percent is callable November 1945 and matures November 1946. The other issue bearing interest at the rate of 3-1/4 percent is callable November 1950 and matures November 1957. According to a report appearing in the London Financial Times, the subscription books were to have opened on October 7 and were to close not later than November 15, 1941. Press reports immediately following opening of the books stated that the new money required was already in sight from 15,000 subscribers including institutional and corporate lenders. Attachments 86 Chart I CHANGES IN THE PRICES OF U.S. SECURITIES Points Plotted Represent the Difference from December 28, 1940 Price of Each Maturity Class 1941 1942 JULY SEPT. NOV. SEPTEMBER OCTOBER NOVEMBER JAN. TT POINTS POINTS (NET ORANGE) Daily Saturday Quotations (NET CHANGE) .1 +16 +3 +1 +2 +1 NOTES 3-5 Yes. NOTES -3 Yas. 0 0 NOTES 1-3 Tas .1 NOTES 3-5 Yrs -2 BONDS Over 15 Yes To CALL -1 14 BONDS. " 5-15 Yes. CALL -14 BONDS. 5-15 11 -11 TO CALL BONDS. -2 OVER Yes -s -s TO CALL 24 -24 24 -24 24 -24 -7 -3 -8 - H H ->> * -9 -34 -4 -10 -10 4 4 NOV. 1942 4) 11111 29 18 20 27 13 6 SEPT. -4 4 - - - Relative JULY 1941 -11 " Office of the Secretary of the Treasury MAY JAN. SEPTEMBER OCTOBER 25 , MAR. + 15 22 . JNB. ... NOVEMBER 1941 F.13.0.2 87 Chart II AVERAGE YIELDS OF LONG-TERM TREASURY AND CORPORATE BONDS 1940 194 MAY AUG SEPT OCT 4'n NOV 11 DEC JAN FEB MAR APR MAY JUNE 1941 JULY AUG SEPT OCT. NOV SEPT DEC NOV " - Inverted Scele PER CENT PER CENT PER CENT WEEKLY. Saturday Quotations 1.8 1.8 LA 20 20 20 Long Term Treasury 22 22 2.2 Partially tax-exempt Treasury Bonds * oz years or more egrient cell date) 24 24 24 2.6 26 26 Corporate 28 2.8 30 10 32 32 28 High-Grade Corporate Bonds 10 32 3.4 3.4 3.6 34 34 36 PER PER PER 238 CENT CENT 100 100 80 80 CENT My 100 Spread between Treasury and Coporate Bonds 80 Spread 60 60 60 40 40 40 0 0 1940 . 1941 - MAY and int AUG SEPT OCT Nov DEC JAN FOR MAR APR MAY - JUNE JULY AUG SEPT OCT NOV DEC SEPT . . 11 - its . MAR . " FEB OCT .- . 16 AN 20 20 NOV 1941 Change in composition of Long Term Treasury average F-58-6-4 0 =-:- 20 Chart III 88 YIELDS OF TAXABLE TREASURY NOTES Based on Closing Bid Prices, Oct. 29, 1941 1942 1943 1944 1945 1946 PERCENT PERCENT 1.1 1.1 1.0 1.0 NEW NOTE .9 .9 .8 .8 .7 .7 .6 .6 .5 .5 .4 .4 .3 .3 .2 .2 .1 0 0 1942 - . - and - . the Secretary of the Treasury 1943 1944 1945 1946 F 216 Chart IV AVERAGE YIELDS OF LONG-TERM TREASURY AND MUNICIPAL BONDS Yields Based on Saturday Quotations 1940 JAN MAR APR NOV DEC JAN FEB. MAY MAY Inverted Scale 1941 AUG SEPT oct NOV DEC Inverted State PER CENT PER CENT Partially tax-exempt Treasury Bonds 1.8 (if years or more to confrest call date) 1.8 2.0 2.0 2.2 2.2 2.4 2.4 2.6 2.6 Dow-Jones Average Twenty 20-Year Municipal Bonds 2.0 2.8 3.0 3.0 3.2 3.2 PER CENT PER CENT Spread between Treasury .40 and Municipal Bonds .40 20 .20 0 o -.20 the 1 JAN FEB *** 111 MAR APR MAY - the 11 JAY 11 AUG. SEPT OCL NOV 11. DEC and FEB MAR 1940 Non JUNE JUDY 1041 Long 1111.20 AUS SEPT OCE NOV " MAY Term 8 9 dithe Treasury F-134-B Chart V NET PURCHASES AND SALES OF MARKETABLE SECURITIES BY SELECTED CLASSES OF INVESTORS March 31 to September 30, 1941 DOLLARS DOLLARS MILLIONS MILLIONS Commercial Banks 24% 1956-158 Mutual Savings Banks 200 1800 TOTAL NET INCREASE 24% 1952-154 a 1948-'50 TAXABLE 0 1600 UNDER 5 YEARS** TOTAL NET INCREASE BILLS MATURED SECURITIES" -200 1400 TAXABLE UNDER 5 YEARS TAX-EXEMPT .. -400 1200 MAR.31 SEPT.30 1941 1941 600 Insurance Companies 1000 24% 1956-'58 400 TOTAL NET INCREASE 800 TAX EXEMPT .. TAXABLE UNDER 5 YEARS 200 2% 1948-50 on 1952-154 600 TAX-EXEMPT 0 BILLS 400 MATURED SECURITIES 24% 1956-'58 -200 BILLS MAR.31 SEPT.30 1941 1941 400 200 All Other Private Investors 24% 1956-'58 200 TAXABLE 0 UNDER 5 YEARS 2% 1948-150 -21% 1952-154 21% 1952-'54 0 -200 2% 1948-'50 -200 -400 MATURED SECURITIES" TAX-EXEMPT -400 -600 BILLS MATURED -800 SECURITIES -600 .. TOTAL NET DECREASE -800 -1000 MAR.31 1941 SEPT.30 MAR.31 SEPT.30 1941 1941 1941 INCLUDES GUARANTEED SECURITIES "EXCLUDING BILLS Office of the Secretary of the Treasury Dividen of Research and Statistics F 217 9 91 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE OCT 30 Secretary Morgenthau. TO FROM Mr. Foley. Josiah E. DuBois, Jr., of my office and John S. Hooker of the State Department have recently returned from a five-weeks trip during which they visited the following countries: Haiti, Dominican Republic, Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. They worked with our diplomatic and consular officers in such countries and consulted with representatives of the local governments with respect to problems arising in connection with our black list. As I previously advised you, this trip was occasioned by the fact that in certain of these countries it appeared that the business activities of certain firms on the black list were important in the economic life of such countries and that it was necessary to work out programs with the local governments so that the economy of such countries would not be harmfully affected and, at the same time, the objectives of the black list would not be de- feated. As a result of this visit it was found that it was necessary to work out programs along these lines in Haiti, the Dominican Republic, Guatemala and Costa Rica. Such programs 92 -2have already been worked out in Haiti, the Dominican Republic and Costa Rica and it is hoped that a program will shortly be worked out in Guatemala. You will also be interested in the fact that Mr. DuBois and Mr. Hooker report that the black list has, on the whole, been very effective in these countries, destroying in some cases, and drastically curtailing in many others, the business activities of firms on the black list. Sizth 93 DEPARTMENT OF STATE WASHINGTON October 30. 1941 In reply refer to FF 893.51/7333 the Secretary of State presents his compliments to the Honorable the of the Treasury and encloses copies of telegram No. 453, dated October 28, 1941, from the American Consulate General, Hong Kong, China, transmitting a message from A. Manuel Fox for the Secretary of the Treasury Enclosure: From Consulate General, Hong Kong, No. 453, October 28, 1941. 94 GRAY TEM Hong Kong via N. R. Dated October 28, 1941 Rec'd 12:20 p.m. 29th Secretary of State, Washington. 453. October 28, 9 a.m. FROM FOX FOR SECRETARY OF THE TREASURY. "Tf-J. Re your 246 of October 21st received on 25th. Have discussed Frese's return to Treasury with him. In view of the fact that board started operations late and found it necessary to undertake exchange control program there remains many difficult and important accounting procedures and problems to be developed. Frese is anxious to return to regular work with Treasury but is desirous of staying here until some of more pressing of these can be worked out. This will take at least another month. Understand from Frese that before leaving for Shanghai Cochran discussed this matter with him and that Frese consented to stay until Cochran could get back to Washington to send some one out to replace him. In view of 95 -2- In view of constantly changing natureof the problem and the fact that the board's organization is still somewhat in developmental stage, it seems essential to have some one assigned from Treasury to continue Frese's they contemplate and for Frese to spend some time with him before he leaves. Know of no place where one could get as rich ex- perience as is here available. Qualifications desired young man with training in economics and accounting and some experience in latter field, some familiarity with banking also desirable, must have analytical mind and stable habits, salary need not be as high as Frese is receiving. Frese should remain here at least until first and second monthly reports and first quarterly reports are completed. Could you have some one here to replace Frese within next few weeks and arrange plane reservation for Frese early December as all plane reservations must be made in States." SOUTHARD WSB Copy:hr: 10-31-41. 96 CRAY KD London Dated October 30, 1941 Rec'd. 9:22 n. m. Secretary of State, Washington. 5158, October 30, 11 R. M. Department's 4670, 4685 and Embaaay's 4863. FOR THE SECRETARY OF THE TREASURY FROM CASADAY. British Treasury and Ministry of Information WERE pleased to learn of the statement on the relative British and American tax burdens made by Assistant Secretary of State of the Treasury Solliven in Boston October 23. The Ministry of Information states that it is planning in connection with other agencies n "rether thorough" comparative survey of var time finance actiods and burdens in the United Kingdom the Empire countries, Germony, the United States, and possibly other countries. In general, therefore, my authentic data on United States ver time finance and taxation not readily available here in published form would be welcomed by them. Specifically at the time the Ministry expressed curiosity 97 -2- #5158, October 30, 11 a.m., from London. curisoity regarding the figure of 22% in the SECOND SENTENCE of the fourth paragraph of the State Department's 4670. This figure is at variance with the figure of 25% given by the United States Chamber of COMMERCE as the percentage of the United States national income tax collected in taxes. 22% was the Chamber's figure for Britain, not for the Unit Ed States. In view of the contemplated survey the Ministry is anxious that the data it gathers be authentic and wonders whEthEr the United States Treasury has made an independent Estimate of United States tax collections or of United States national income materially different from the Chamber of Commerce Estimates. WINANT. WSB TREASURY DEPARTMENT 98 INTER-OFFICE COMMUNICATION DATE October 30, 1941. TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £78,000 £6,000 Open market sterling was quoted at 4.03-1/2, and there were no reported transactions. The Canadian dollar, which has shown a somewhat firm tendency in the past few days, reacted to close at a discount of 10-7/80 today. Last night's final quotation was 10-5/8%. In New York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) Brazilian milreis (free) Colombian peso Mexican peso Uruguayan peso (free) Venezuelan bolivar Cuban peso .2377 .0505 .5775 .2070 .4625 .2620 1/8% discount We purchased $500,000 in gold from the earmarked account of the Central Bank of Peru. The Federal Reserve Bank of New York reported the following gold engagements, both of which are for sale to the New York Assay Office: $3,267,000 from Canada, shipped by the Bank of Canada to the Federal for account of the Government of Canada. 168,000 from Venezuela, shipped by the Royal Bank of Canada, Caracas, to the Royal Bank's New York agency. $3,435,000 Total A price of 23-1/2d was again fixed in London for both spot and forward silver, equivalent to 42.67. The Treasury's purchase price for foreign silver was unchanged at 35$. Handy and Harman's settlement price for foreign silver was also unchanged at 34-3/4*. We made no silver purchases today. D 99 BRITISH EMBASSY, WASHINGTON D.C. October 30, 1941 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, Hahpax Honourable Benry Morgenthau, Jr., United States Treasury, Washington, D.C. 100 M T.LHORAM FROM LONDON DATAD OCTOBER 29th. 1941, A mixed eruiser and destroyer force bombarded the Bardia area on the night of 25th/26th. 2 F.A.A. Albacores dropped flaree illuminating the harbour for this bombardment and also bombed the entrance to the harbour. The M/V Georgie 87,759 tone bombed and sunk off Sues on the 11th July has been salvaged. On the night of 26th/27th and on the following day, 4 wellingtons and 9 Marylands attacked the docks at Dunkirk. During operations over Northern France in daylight on the 28th our fighters attacked barges and factories near unkirk. 2 M.S. 109's were destroyed and 1 was destroyed on the ground. A Hudson Aircraft hit a medium sized merchant ship off Terschelling on the 28th. On the night of the 28th/29th the Royal Air Force raided Cherbourg and the Skoca works. All aircraft returned. 35 enemy aircraft operated against the United Kingdom during the night of the 28th/29th dropping some bombs in Souerset, Levon and Cornwall. No important damage was done. One enemy bomber was destroyed by night fighters. USGIA: Kalimin jector: Russian counter attacks are preventing Germane from consolidating their positions. Moscow actor: The Germans have made slight progress North of Aubinsk on the Moshaisk-Noscow Road and East of Harofominak. the Russians are counter-attacking in the direction of Hoshaisk. Donets Basin: The Russians are resisting strongly and the Germane have made little progress. OBLOV Sector: No change is reported. 101 RESTRICTED M.I.D., W.D. G-2/2657-220; No. 532 11:00 A.M., October 30, 1941 SITUATION REPORT I. Eastern Theater. Ground: Fighting continues on the Moscow front, especially along the Nara river for control of bridgeheads. On the southern front, the German High Command claims to have reached the upper Donets river on a broad front. Further successes are claimed on the mainland of the Crimea. Air: The Finns claim that their planes have set fire to a Russian troop ship and have made direct bomb hits on a troop train on the Murmansk railroad. Leningrad and Moscow suffered raids. II. Western Theater. Air: This morning British raiders bombed Brest, France, and German air bases in the occupied Low Countries. According to London, a single Nazi raider dropped bombs on southwest Britain last night, but caused no casualties or damage. American-built Hudson bombers were used by the British in an attack on Alesund, Norway, last night. III. Middle Eastern Theater. Air: Italians made another of the frequent raids on Malta. Italy reports British raids which were centered on Reggio Calabria and Catanzaro. RESTRICTED