The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
205
November 17, 1941
2:30 p.m.
HMJr:
Hello.
Operator:
Senator Byrd.
HMJr:
Hello. Hello.
Operator:
Just a minute.
Senator
Byrd:
Hello.
HMJr:
Hello, Harry?
B:
Yeah. Henry, I'm glad you called me. Cannon
and those fellows can't come over tomorrow.
They've got a very important meeting with
General Marshall.
HMJr:
8:
I see.
And Senator George is away. All that I thought
we would do would be to try to arrange the
hearings for the following week. We went to
start on Tuesday and go through it, and then
ask the committee members whether they want
any further information that they haven't got.
HMJr:
Oh.
B:
So if it isn't convenient for you to come, I'11
assure you that nothing will be done except
that.
HMJr:
No, I guess they didn't - you didn't get my
message straight. I can come.
B:
HMJr:
B:
Uh huh.
But I said did you want me to bring Bell and
Heffelfinger with me.
Well, it's always a pleasure to have them. It
would be just 9 cuestion whether it would be
worth their while.
206
-2HMJr:
B:
Well, do you need me?
Yeah. Well, we'd be glad to have you; or if
you're too busy, if you would just say that it
would be all right to start the meeting next
Tuesday - that's Tuesday week - and that's about
all that we can do tomorrow; and then I want to
ask the other members whether they need any
further information from any source that they
we're not going to have a quorum. Senator Glass
haven't already got. But I'm confident that
is away and Senator George is away.
HMJr:
How do you feel, for instance, on a thing like
that. tomorrow, having Bell come as my alternate?
Or wouldn't you?
B:
If Bell what?
HMJr:
If Bell came as my alternate.
B:
HMJr:
B:
That would be all right. Of course, he couldn't
do that on the voting part of it.
No.
Be very glad for you to do that. I know how
busy you are, and I'll guarantee that nothing no action will be taken and no statements made
or anything.
HMJr:
B:
Well, I could come. I mean
Yeah. Well, I know you're terribly busy, and I
really don't think it will be
HMJr:
Well, would it be agreeable tomorrow if I let
Bell come?
B:
Sure, you bet. Absolutely.
HMJr:
In my place.
B:
Yeah. At any of these meetings, Henry, that you
want him to come, we'd be delighted to have him,
or anybody else you want to bring.
207
-3HMJr:
B:
HMJr:
B:
HMJr:
B:
HMJr:
Well, if that's the case, then tomorrow I think
I'll let him go in my place.
All right.
But I just want you to know whenever there'e a
meeting
that
you're going to do something, I
want
to be
there.
That's right. Well, we'll start next week.
I thought your statement got off fine.
I thought it did. I thought
Got
a lot of good publicity. I noticed
editorials.
Icriticism.
read the editorials. I didn't see any
B:
Not a bit.
HMJr:
No.
B:
I've gotten some letters criticizing it this
morning.
HMJr:
You have.
B:
They're just from these special groups you see.
HMJr:
B:
HMJr:
Criticizing it, yes.
Criticizing these reductions, yes. But they're
from special groups that were affected by it.
I don't think that the people understood also
what Senator McKellar said. I think that that
was
B:
No, he - don't you know, the funniest thing he called me on the phone, Henry, and read me
HMJr:
B:
a statement in which he approved it.
I'll be damned.
And asked me whether or not he should give it
out. And I said, "Fine, Mac, go ahead and give
it out."
208
4-
HMJr:
B:
Yeah.
And then it came out in the paper entirely
differently.
I tried to see him today and
ask him
HMJr:
B:
HMJr:
B:
Well, as far as I'm concerned, I want to come
any
to do anything or any
timetime
I canyou're
be of going
service.
I'11and
keep you posted, but I know how busy you
are
Well,
thisBell
justcome.
sort of organi zation, I
think for
I'll let
Yeah. That'11 be find. It may be that we won't
have enough there to do anything at all; but in
any event, we'11 just be there and consider the
procedure for next week.
HMJr:
Thank you.
B:
All right, Henry.
HMJr:
Good - bye.
B:
Good-bye.
209
November 17, 1941.
My dear Mr. President:
On November 14th you sent me a memorandus asking
me to study certain Supreme Court decisions which bear
upon the Government's long term tax immunity program.
I was very glad to look into this and believe that
you will be interested in seeing the enclosed memorandum
prepared for me by the General Counsel of the Treasury.
Faithfully yours,
(Signed) E. Morgenthan, In
The President,
The White House.
By level Service
Enclosure.
n.m.c.
GEF/dbs
210
November 17. 1941.
My dear Mr. Attorney General:
It occurs to me that you will be interested to
see a copy of a memorandum which the President sent
me on November 14th, together with a memorandum
prepared by the General Counsel of the Treasury,
which I as transmitting to the President today.
Photostats of both these documents are enclosed.
Sincerely,
(Mignet) R. Morgenthan, Jr.
cc-n.m.c.
Honorable Francis Biddle,
Attorney General of the United States,
Washington, D. 0.
Enclosures.
OZF/dbs
Do
9:05
Messenger
they
211
November 17, 1941.
My dear Mr. Secretary:
It occurs to me that you will be interested to
see a copy of a memorandum which the President sent
me on November 14th, together with a memorandum
prepared by the General Counsel of the Treasury,
which I am transmitting to the President today.
Photostats of both these documents are enclosed.
Sincerely,
(Signed) 3. Morgenthas. Joe
Honorable Frank Knox,
Secretary of the Navy,
co.m.m.c.
Washington, D. C.
Enclosure.
GEF/
By
Messenger 11/18/41 they 9:05
212
215
November 17, 1941.
My dear Mr. Secretary:
It occurs to me that you will be interested to
see a copy of a memorandus which the President sent
no on November 14th, together with a memorandus
prepared by the General Counsel of the Treasury,
which I am transmitting to the President today.
Photostate of both these documents are enclosed.
Sincerely,
(Signed) 5. Morgeather, in.
Honorable Heary L. Stimson,
Secretary of Var,
Washington, D. 0.
u.m.m.c.
Enclosures.
By Messenger 9:05 they
GEF/dbs
11/18/41
213
Nov. 14, 1941
Copies to:
Mr. Foley
Mr. Sullivan
Mr. Morris
From the Secretary
THE WHITE HOUSE
214
WASHINGTON
November 14, 1941.
NEMORANDUM FOR
THE SECRETARY OF THE TREASURY
Please study the Supreme Court
decisions just handed down in
Alabama V. King and Boozer, and
Panhandle 011 Co. V. Knox, 277 U.S.
218, and related cases. The
Attorney General writes me that
the Alabame case represents a
major victory in the Government's
Long term tax immunity program,
and a defeat with respect to the
particular immunity of the costplus contractor. He adds "the
question may now appropriately
be placed before Congress".
See also Federal Land Bank
V. Bismarck Lumber Company, and
Curry V. United States, decided
last Monday.
F. D. R.
fth
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE NOV 17 1941
Secretary Morgenthau
TO
FROM
Mr. Foley
State Taxation of Defense Activities
The Supreme Court has vindicated the position which you took
last spring at several Cabinet meetings on state taxation of defense
contractors.
You will recall that Secretary Stimson was going to issue a
press release to the effect that War Department contractors working
on a cost-plus-a-fixed-fee basis should not have to pay state sales
taxes and urging legislation forbidding state taxation.
On March 17, 1941 you wrote a letter to the President in which
you strongly recommended against legislation immunizing cost-plus
contractors from state taxation and called attention to the close
analogy between the taxability of state and municipal bondholders
upon the interest they receive and the taxability of articles purchased by a federal contractor. You said:
"In both cases the expenses of the Government might be
lessened if an exemption were granted, but this is not
an adequate basis for asserting immunity. The sound
test is whether the taxing statute discriminates against
the Federal Government or against a Federal contractor
in favor of other taxpayers.
Subsequently, the War Department tried unsuccessfully to get
Congress to enact the immunizing legislation but did prevail on
Jackson to institute litigation with a view to invalidating the
te taxes. This was all over the protests of the Treasury, as
as the Tax Division of the Department of Justice.
Last Monday, November 10, the Supreme Court unanimously decided
the Alabama sales tax applied to lumber sold to cost-plus-ad-fee contractors for use in building an Army camp, and that the
did not infringe the constitutional immunity of the Federal
rnment from state taxation, even though economic burden of the
would have to be borne by the Government. Speaking for the
t, Chief Justice Stone said:
-
"# # # So far as such a nondiscriminatory state tax upon
the contractor enters into the cost of the materials to
the Government, that is but a normal incident of the
organization within the same territory of two independent
taxing sovereignties. The asserted right of the one to
be free of taxation by the other does not spell immunity
from paying the added costs, attributable to the taxation
of those who furnish supplies to the Government and NHO
have been granted no tax immunity.
The decision is no doubt something of a shock to Col. Greenbaum
and the War Department officials since the language of the opinion
is SO similar to that in your letter.
It is important to note, moreover, that the reasoning of the
Court applies equally to federal taxes imposed upon persons dealing
with state or municipal governments, such as state and municipal
bondholders. In this way, the Court has strengthened so far as
the constitutional aspects are concerned) the Treasury's income tax
cases against bondholders of the Port of New York Authority and the
Triborough Bridge Authority now pending before the Board of Tax Ap-
peals.
Total
TO:
MISS CHAUNCEY
217
Mr. Foley will carry the original
to Secy's 2:30 group meeting today.
11/17/41.
1
MR. FOLEY
218
Secretary Morgenthau
NOV 17 1941
Mr. Foley
State Taxation of Defense Activities
The Supreme Court has vindicated the position which you took
last spring at several Cabinet meetings on state taxation of defense
contractors.
You will recall that Secretary Stimson was going to issue a
press release to the effect that war Department contractors working
on a cost-plus-a-fixed-fee basis should not have to pay state sales
taxes and urging legislation forbidding state taxation.
On March 17, 1941 you wrote a letter to the President in which
you strongly recommended against legislation immunizing cost-plus
contractors from state taxation and called attention to the close
analogy between the taxability of state and municipal bondholders
upon the interest they receive and the taxability of articles purchased by a federal contractor. You said:
"In both cases the expenses of the Government might be
lessened if an exemption were granted, but this is not
an adequate basis for asserting immunity. The sound
test is whether the taxing statute discriminates against
the Federal Government or against a Federal contractor
in favor of other taxpayers.
Subsequently, the war Department tried unsuccessfully to get
Congress to enact the immunizing legislation but did prevail on
Bob Jackson to institute litigation with a view to invalidating the
state taxes. This was all over the protests of the Treasury, as
well as the Tax Division of the Department of Justice.
Last Monday, November 10, the Supreme Court unanimously decided
that the Alabama sales tax applied to lumber sold to cost-plus-afixed-fee contractors for use in building an Army camp, and that the
tax did not infringe the constitutional immunity of the Federal
Government from state taxation, even though economic burden of the
tax would have to be borne by the Government. Speaking for the
Court, Chief Justice Stone said:
219
-"a @ o So far as such a nondiscriminatory state tax upon
the contractor enters into the cost of the materials to
the Government, that is but a normal Incident of the
organization within the same territory of two independent
taxing sovereignties. The asserted right of the one to
be free of taxation by the other does not spell immunity
from paying the added costs, attributable to the taxation
of those who furnish supplies to the Government and who
have been granted no tax immunity.
The decision is no doubt something of a shock to Col. Greenbaum
and the ar Department officials since the language of the opinion
is 80 similar to that in your letter.
It is important to note, moreover, that the reasoning of the
Court applies equally to federal taxes imposed upon persons dealing
with state or municipal governments, such as state and municipal
bondholders. In this way, the Court has strengtheund (so far as
the constitutional aspects are concerned) the Treasury's income tax
cases against bondholders of the Port of New York Authority and the
Triborough Bridge Authority now pending before the Board of Tax Appeals.
(Initialed) E. H. F., Jr.
CLK:t
11-14-41
220
November 17. 1941
2:30 p.m.
GROUP MEETING
Present:
Mr. Schwarz
Mr. White
Mr. Viner
Mr. Gaston
Mrs. Klotz
Mr. Sullivan
Mr. Barnard
Mr. Buffington
Mr. Morris
Mr. Blough
Mr. Thompson
Mr. Graves
Mr. Kuhn
Mr. Bell
Mr. Foley
H.M.Jr:
Graves:
Has Graves got his meat butchers lined up?
Three o'clock.
H.M.Jr:
Do I get a steak out of it?
Sullivan and Schwarz, I am terribly worried
that somewhere in the Treasury, somebody,
Schwarz:
particularly the Wall Street Journal, has got
a pipeline into the Treasury.
I can tell one Administration source that has
been talking a lot, which is Lauch Currie.
Whether in the Treasury or not there is anything
beyond that I haven't been able to pin it down.
221
-2H.M.Jr:
Can you prove that?
Schwarz:
The boys have told me.
H.M.Jr:
Hello, Dr. Viner.
Schwarz:
They have told me things which they have attri-
H.M.Jr:
Well, there is definitely - now, for instance
buted to Currie directly.
this thing in the Philadelphia Ledger, hundreds
of letters pouring into the Treasury Department
on mop-up fifteen per cent tax. Now, how does
anybody know that?
Schwarz:
That obviously came from within the Treasury.
H.M.Jr:
I mean, how does anybody know I am getting
Schwarz:
There is somebody right in the Treasury that
is seeing those things.
H.M.Jr:
Well, you know to say a thing like "Lauch
Schwarz:
The proof is the citation from three or four
hundreds of letters on that?
Currie is doing it," without proof, is --
of the boys who have quoted him as talking.
H.M.Jr:
Well, that is unpleasant. And then the other
thing is, Gaston and White and Schwarz on your
Spanish oil.
Gaston:
Yes.
H.M.Jr:
What do I say at four o'clock?
Gaston:
Well, this --
H.M.Jr*
I know my Spanish onions, but I don't know
my Spanish oil.
Gaston:
This thing is very simple about this one particular report he talks about of aviation
222
-3lubricating oil shipped on - in the week ending
November 8th. It was not aviation ubricating
oil. It was the lowest grade of lubricating oil
and he did see our weekly report, and our
weekly report did say aviation lubricating oil --
H.M.Jr:
Excuse me, who saw it?
Gaston:
Stone of PM.
H.M.Jr:
How did he see it?
Gaston:
He won't tell me, but I think he saw it over
in Interior, because he made some statement
about the things he learned in Interior. I
think that is where he saw it. Our report
was in error. The Collector at our - the
Collector at Port Arthur simply telegraphed
the wrong information. He said that it was
classification A, which is the classification
we had used, our own designation, for the
highest grade of lubricating oil. Instead
of that, it was Export Control classification
R, which is the lowest grade. I have the
telegram from the Collector at Port Arthur
in which he says, "Re your teletype today.
Luboil taken Campero and Campeche covered by
classification R. Regret error.
H.M.Jr:
I have got Friday's. In Sunday's PM they
quote Assistant Secretary Herbert Gaston as
saying that it is high-grade.
Gaston:
No, pardon me, that isn't exactly what he
says. He says that I confirmed that our
record showed that. What I told him was
that I was looking up to see what the discrepancy was. He had seen our report. He
knew what it said and told me what it said,
correctly, and he had been over at the State
Department and they had showed him the
223
-4licenses and showed him those licenses
covered the low-grade stuff. I said,
"I can't tell you anything more about it until
I check back with Port Arthur and find out
what those licenses actually show. When I
got the report back I let him know just as
soon as I could, but that was after he had
written his Sunday story on this. It was
late Saturday afternoon, before I got that
report.
H.M.Jr:
Well, certainly reading the Sunday story,
you would think that you were confirming
his Friday story.
Gaston:
That is the impression he gave.
H.M.Jr:
I wonder what he did today, do you know?
Gaston:
I don't know what he did say.
H.M.Jr:
Schwarz, look it up.
Schwarz:
I can send for it now.
H.M.Jr:
No, but I want it before four 'clock.
Schwarz:
Right.
Gaston:
I had told him around noon. He promised
to call me back before noon. I got him a
little after noon on Saturday and said that
I had checked back on the license numbers
and that those license numbers were for
low-grade lubricating oil. They were not
for aviation lubricating oil. He knew that
around noon on Saturday. I said I hadn't
yet heard from Port Arthur as to what actual
material was shipped.
224
-5H.M.Jr:
The fellow that ought to be sore is the
Gaston:
The State Department, and I wouldn't blame
them for being.
H.M.Jr:
Is it correct to say that we haven't given out
any figures? Can I say that at four o'clock?
Gaston:
We haven't given out any figures. We haven't
given out anything. He told me he had seen our
State Department.
report. I didn't show him a thing. He told
me he had seen our report that said aviation
gasoline. I didn't deny that our report showed
aviation gasoline. I told him I was trying to
find out what was the discrepancy and I was
wiring Port Arthur, but then I called him
later and told him that I had looked up the
export control license numbers as shown on
the telegram to Coast Guard, and that those
numbers had been compared to the application
numbers over in the State Department, and those
were for low-grade oil only.
H.M.Jr:
Well now, I asked White to speak to Miss Chauncey.
These reports I get, do they come from you or
do they come from --
White:
Mr. Gaston was able to answer that question,
so I didn't speak to Miss Chauncey.
Gaston:
Well, you remember a year ago last July you
instituted this system. It is this, that the that George Haas's division, Research and Sta-
tistics, gets these daily reports which I also
get from Merchant Ship Control, showing
shipments, departures and vessels carrying
steel, scrap Iron, steel and petroleum to
various countries, and the information on
those daily reports is taken exclusively from
the telegraphic requests for departure permits
225
-6and George's office compiles the information
on those daily reports into a weekly report,
which my office has been mailing out to a
number of people, including the President,
the Secretaries of State, War and Navy, and
Leon Henderson. But the thing is, in its
present form, I think, next door to valueless.
We should either consider dropping it or revising
the form.
H.M.Jr:
For the time being, I would drop it until we
Gaston:
Another thing is, I think we can get a more
error-proof system for handling it.
H.M.Jr:
What are we going to do for Ickes? He is out on
the end of a limb. He called me up Thursday
forenoon and said, "Send me over a list," and
catch our breath.
I told White to send it over to him. He got it
about one o'clock Thursday.
Gaston:
Is that so?
H.M.Jr:
Sure.
White:
Didn't Ickes get one of those weekly statements?
Gaston:
Yes.
H.M.Jr:
But whenever he wants it he calls me on the phone.
I sent it to him, and it got over there about
one o'clock Thursday.
Gaston:
Well, he gets this thing regularly.
H.M.Jr:
And Friday the story came out.
Well, he never gets it, because whenever he
wants to know he always calls me. I never
argue and say, "Harold, you know you get it."
226
7Gaston:
That is pretty good circumstantial evidence
that is where Stone got his story.
H.M.Jr:
Don't you think we owe an explanation that
Customs is wrong?
Gaston:
To him?
H.M.Jr:
Yes. Oughtn't we to send him a corrected
Gaston:
Oh, yes, I think we have got to get out a
correction statement, both for this
November 8th report and for -- I think there
was an error in another report, or at least
list?
this man Stone says that aviation gasoline was
shown in another report, and I don't think
there was any aviation gasoline.
H.M.Jr:
Would you mind seeing that before sunset
Gaston:
I will see that the letter is gotten out to
today that a letter be gotten out and sent
to everybody who gets this other list?
send to all those, but I don't think they can
check back on all the reports in time to get it
out today.
H.M.Jr:
On the November 8th they can.
Gaston:
On November 8th they can, yes.
H.M.Jr:
Will you please, and say that Customs was
in error and made a mistake.
Gaston:
Yes.
H.M.Jr:
And will you please send a telegram to this
Collector, wherever he was, that gave the mistake
and give him - call him down?
227
-8Gaston:
Yes. He is the man we commended for his
promptness in getting this information about
Spanish shipments of oil once before.
H.M.Jr:
Well, if I was Ickes I would be pretty sore,
but I think we ought to get it over to him.
Gaston:
There are two sides to that Ickes. He has been
giving out information that he has no business
to be giving out.
H.M.Jr:
Well, I wouldn't send out any more information,
Gaston:
I don't think that report ought to be sent out.
H.M.Jr:
Well, why not simply send out a letter and simply
say that we want to correct this report, but
Herbert.
from now on we are not going to send out any
more?
Gaston:
Yes.
H.M.Jr:
Sign it "Assistant Secretary Herbert Gaston."
will you do it before you go home?
Gaston:
Yes, I will do that.
H.M.Jr:
Please.
Gaston:
Yes.
H.M.Jr:
One other thing that I have got here. I get
a very nice cable from Winant, "Thank you for
the forward-looking and constructive address
you made at Worcester, Massachusetts today.'
Did we mail it to him or send it to him? Did
you (White) send it to your man?
White:
I think so. Was that the farm speech?
Kuhn:
It was picked up in the British press, Mr.
Secretary.
228
-9White:
I don't think we did.
Kuhn:
It may have been cabled over.
White:
I will investigate, but I don't think so.
Kuhn:
It was certainly sent out by radio through
Sherwood.
H.M.Jr:
Was it?
Kuhn:
Well, that was the arrangement.
H.M.Jr:
Will you check it? Check it, will you?
Kuhn:
And I will also see whether it was picked up by
the British cables.
H.M.Jr:
Evidently it hit a bullseye over there.
Kuhn:
It got front-page publicity in the west, Detroit,
Cincinnati, a column in St. Louis, the front
page in Baltimore.
Schwarz:
The farmer is given a lot of attention.
H.M.Jr:
Herbert?
Gaston:
I wrote a memorandum on that oil thing. It
is substantially what I have told you.
H.M.Jr:
All right.
Gaston:
Here is the final report on the Jeidels investigation.
H.M.Jr:
Yes.
Gaston:
You asked about this matter of military aircraft
coming in with passengers.
H.M.Jr:
Yes.
229
- 10 Gaston:
Well, Customs has had an arrangement with the
Army as to arrivals here and as to arrivals
in Florida, Maine, Montana, where the local
Army command undertakes to notify Customs when
one of these planes is coming in, and a Customs
man goes to make the inspections, even if they
have free entry.
H.M.Jr:
What happened about it?
Gaston:
Did he come here?
H.M.Jr:
Gaston:
I don't know. I told Chauncey to send you the
letter.
I haven't seen the letter. We have a record
of Averill Harriman arriving here on an Army
bomber on August 1st, which of course was not
his latest trip, wherein he declared souvenirs
valued at eighty dollars, but no furs. We
have no record of his arrival more recently here.
H.M.Jr:
That proves my point.
Gaston:
It proves if he arrived here in Washington
that the Army didn't keep their word to let
us know when those bombers were coming in.
H.M.Jr:
Well, Herbert, will you take care of it?
Gaston:
You bet.
H.M.Jr:
And so nobody misunderstands, Mr. Harriman
writes me a letter that he brought in several
hundred dollars' worth of furs, and if he is
not entitled to free entry, he wants to pay
the duty. I don't want any misunderstanding.
He wrote to me. So I say, "Well, why don't we
have somebody to examine him when he comes in?"
Gaston:
Well, we have such an arrangement and they
just didn't --
230
- 11 H.M.Jr:
Well, maybe they did and maybe Customs wasn't
Gaston:
Well, I will find out about that. I don't
there.
know - this thing here, I don't know whether you
want to say anything on that.
H.M.Jr:
And I will give you this follow-up on Peter
Josten:
Gaston:
Do you want anything on this subject now?
H.M.Jr:
No, just as long as it is in hand, and if you
Gaston:
Well, I have made an arrangement with Harry
will let me know.
Durning.
H.M.Jr:
Could you give me a little something in writing
Gaston:
I gave Mrs. Klotz a little memorandum on it.
H.V.Jr:
Yes, but have you written Peter Josten?
Gaston:
I haven't,no.
H.M.Jr:
Will you?
Gaston:
Yes, I will do that.
H.M.Jr:
I saw the memo you gave Mrs. Klotz.
Gaston:
You saw that memo?
H.V.Jr:
Yes. Would you write to Peter Josten?
Gaston:
Yes.
H.M.Jr:
I have taken up more than my share of the time
of myself and others - I mean, I have done
on it?
230
- 11 H.M.Jr:
Well, maybe they did and maybe Customs wasn't
Gaston:
Well, I will find out about that. I don't
H.V.Jr:
there.
know - this thing here, I don't know whether you
want to say anything on that.
And I will give you this follow-up on Peter
Josten:
Gaston:
Do you want anything on this subject now?
H.V.Jr:
No, just as long as it is in hand, and if you
Gaston:
Well, I have made an arrangement with Harry
will let me know.
Durning.
H.M.Jr:
Could you give me a little something in writing
Gaston:
I gave Mrs. Klotz a little memorandum on it.
H.V.Jr:
Yes, but have you written Peter Josten?
Gaston:
I haven't, no.
H.M.Jr:
Will you?
Gaston:
Yes, I will do that.
H.M.Jr:
I saw the memo you gave Mrs. Klotz.
Gaston:
You saw that memo?
H.V.Jr:
Yes. Would you write to Peter Josten?
Gaston:
Yes.
H.M.Jr:
I have taken up more than my share of the time
of myself and others - I me an, I have done
on it?
231
- 12 more talking than anybody else.
Gaston:
All right.
H.M.Jr:
We will have to just do the important things.
Foley:
The Swedish Minister called on Dean Acheson last
Thursday and Dean put in my hands on Friday
a note that the Swedish Minister left with him.
He told Dean that he wanted to talk to you about
the matter, although Dean put before him the
Foreign Funds -H.M.Jr:
Ed, be here and I will listen.
Foley:
All right.
H.M.Jr:
Three fifteen.
Foley:
Right.
H.M.Jr:
We can't keep those meat choppers waiting.
Foley:
All right. I have got some other things.
H.M.Jr:
Foley will be here. We will have more time
than I figured on tomorrow. I talked to
one Harry Byrd and tomorrow's meeting, he
doesn't even know whether he is going to
have a quorum. He is just arranging for
hearings, so he said it would be entirely
agreeable for you (Bell) to come up as my
alternate. There may not be any business
so would you please go, just you?
Bell:
You are not going to go?
H.M.Jr:
I am not going to go.
Bell:
Ten '' clock?
H.M.Jr:
Ten o'clock. That leaves me free to go
on with my taxes tomorrow.
232
- 13 Bell:
Where do they meet, in the Finance?
H.M.Jr:
Finance.
Bell:
All right.
H.M.Jr:
He said it was entirely agreeable to him.
Bell:
All right.
H.M.Jr:
Please.
Foley:
I have got a couple of memos here I would like
to give you.
H.M.Jr:
So I will start at ten tomorrow on taxes.
Foley:
The President said that the Attorney General had
told him they had a great win in the Supreme
Court on that Alabama sales tax case. Well,
he lost the case in the Court and the Court
agreed with the Treasury. We objected to his
proceeding that way, but Bob Jackson, when he
was Attorney General, wouldn't agree with me,
and the Court unanimously held that where a
cost plus a fixed fee contractor had to pay
a sales tax on lumber, that he purchased to
construct an Army camp, that that was not a
burden on the Federal Government within the
constitutional sense, and it strengthens our
case, in so far as the elimination of exemptions
of interest on future issues.
H.M.Jr:
Well now, could you write on --
Foley:
For him to claim credit I think is --
H.M.Jr:
For who?
Foley:
For the Attorney General to say it was a
great win.
233
- 14 H.M.Jr:
When did you come to Washington, Ed?
Foley:
I know (laughter). I had the memorandum written
before I got this note from the President,
which made me laugh.
H.M.Jr:
Can I send it like this?
Foley:
Yes.
H.M.Jr:
Is that in form for the President?
Foley:
Sure. It wasn't written in the light of this.
H.M.Jr:
I had this written before I told you about it.
but like this?
Foley:
Sure, if you want to. You had better read it
first. He says Justice's face is pretty red
and so is Mr. Stimson's.
H.M.Jr:
When we send it, a copy will go to the Attorney
General and Mr. Stimson. That is right to
the President, and a copy to Stimson and Knox
(speaking to Mrs. Klotz).
Foley:
There is a memorandum on this informal meeting
that was held in Frank Walker's office last
Friday. Herbert and Huntington Cairns were
there.
H.M.Jr:
You gave me a memo.
Foley:
Well, this is a memorandum as a result of that
meeting. That was before the meeting. This
is after.
H.M.Jr:
Oh, all right.
Foley:
When do you want me to tell you about Mrs. Geux?
H.M.Jr:
Ask Fitz, will you please?
John?
234
- 15 -
Sullivan:
Last Tuesday night you asked for a comparison
of the two versions of the "My dear Bob" letter.
H.M.Jr:
Yes.
Sullivan:
I telephoned him Friday and again Saturday, and
it got over early Saturday afternoon.
H.M.Jr:
Oh. Well, let me do it this way, if you
don't mind, in order to same time. Anybody
who wants a copy of Leon Henderson's memo,
"How fiscal policy can aid the work of SPAB,"
ask Sullivan, and he will furnish him with
a copy, and you will also furnish me with
a copy.
Sullivan:
You may have that. I have already had it
photostated.
H.M.Jr:
Anybody that wants one, ask Sullivan.
Sullivan:
We are in trouble with the Army.
They are having Pan American Airways, through
a subsidiary corporation, develop airports
in South America.
They have asked for a closing agreement based
on a contract the War Department has executed
with Pan American Airways, in which the War
Department agrees to indemnify the Airlines
company, in the event there is any increase in
corporation taxes due from Pan American
Airways eas a result of this activity, and we
can't do that, sir.
In 1938, when you were granted the authority
to execute closing agreements --
235
- 16 H.M.Jr:
I know enough about it. He can't guarantee
anybody.
Sullivan:
That is right.
Foley:
Well, one agency of the Government ought not
to guarantee a private corporati ion against
indemnity in the event they have to pay more
taxes to the Treasury.
H.M.Jr:
You can write just as stiff a letter to Mr.
Stimson as you want to and I will sign it.
Itodon't
care how stiff it is because he ought
know better.
Sullivan:
There is no necessity of having a letter
unless you want it as a matter of record.
H.M.Jr:
I would like to have it as a matter of record
because Stimson is always fighting us on this
stuff and talks about it, and he goes ahead
and spends three hundred million dollars more
than estimated on his cantonments and - well,
I don't want to get started. I am talking
too much. But I would like to make it a
matter of record.
Sullivan:
Yes, sir.
Now, the State Department has requested that
it be done this way, and I don't know whether
you want to - I have got a copy of a secret
letter from Summer Welles to the Secretary of
War, in case you wanted to read that.
H.M.Jr:
I will leave it to you. You read it, and if
you want the General Counsel to look it over
as General Counsel of the Treasury.
Foley:
We are in on it. We raised it with them.
H.M.Jr:
All right then, let the firm of Sullivan and
- 17 -
236
Foley and-Foley:
Kades is in on this one.
H.M.Jr:
... and Kades.
All right. And Gebrilovitz. You have got to
have a Gebrilovitz in there somewhere to make
it good.
Sullivan:
H.M.Jr:
This meeting tonight is on taxes, I suppose?
This meeting tonight is on taxes.
Sullivan:
The whole general problem?
H.M.Jr:
The whole general problem.
Gaston:
Here?
H.M.Jr:
No, at the house at eight-thirty.
Gaston:
Can I come?
H.M.Jr:
You are invited. You are on the list.
Klotz:
I was a little delayed in getting to you, Mr.
Gaston.
H.M.Jr:
So is Viner on the list.
Klotz:
Tonight at eight-thirty at the Secretary's
house.
Viner:
Will you tell me the address?
H.M.Jr:
2434 Belmont Avenue.
Klotz:
Road.
H.M.Jr:
Road.
All right?
-18 Sullivan:
Yes, sir.
Morris:
You wanted a schedule of maturities.
H.M.Jr:
I just want to say that I am pleased to
237
announce that Dave Morris is going to be with
us on a permanent basis, so from now on he is
really going to work. (Laughter)
Viner:
We won't have to be polite to him any more?
H.M.Jr:
What did you say, Jake?
Viner:
I didn't say anything.
Klotz:
Yes you did.
H.M.Jr:
What did he say?
Gaston:
He said we don't have to be polite to him
any more.
H.M.Jr:
There is a lot of truth in that, Jake. You
ought to know.
Sullivan:
Is that why he comes in and gets out? (Laughter)
Viner:
It took you a long time to find that out, too.
Foley:
Immunity.
H.M.Jr:
Well, I don't happen to have a guilty conscience,
so I can laugh with you.
Viner:
That is right.
H.M.Jr:
I hope the laugh isn't on Dave.
What else, Dave?
Morris:
That is all,sir.
238
- 19 Blough:
You wanted me to read an article in Aviation
and report to you.
H.M.Jr:
Yes.
Blough:
I don't know if you want to bother about
that now or not.
H.M.Jr:
Not today. I just wondered if somebody wasn't
Blough:
I think so.
H.M.Jr:
Harold?
Graves:
a little foolish in writing that.
George being ill, I am giving you the report
on the sales of bonds.
H.M.Jr:
I had a cartoon out of the Philadelphia Ledger
on my taxes. Ferdie, there is a cartoon - I
have lost it - in the Philadelphia Ledger -
oh, here it is. Give it to Ferdie. That is
along the lines you and I were talking about.
Kuhn:
George Buffington and I had a long talk about
it this morning.
H.M.Jr:
That is part of the thing tonight that I am
going to talk about.
Schwarz:
The Record, Mr. Secretary. It is Dave Stern's
paper.
H.M.Jr:
Is that the Record?
Schwarz:
That is the Record. The editorial was in the
Ledger.
Graves:
You will recall our meeting tomorrow with the
newspaper people.
H.M.Jr:
Yes, what time?
239
- 20 Graves:
One-thirty. You are scheduled to come in at
three. That is the broadside that has gone
out from this Department on that plan. We
have about a hundred acceptances of your
telegraphic invitation to come to this meet-
ing. It will be a very representative meeting, as well as a very important one.
H.M.Jr:
Graves:
Righto.
I find that the man who did your little play
is B. H. Johnson, and we have asked him to
come down on Wednesday.
H.M.Jr:
If I understand, there are three men that
work for us. What are their names? Johnson,
Wouk, and a third man.
Kuhn:
Writing this?
H.M.Jr:
Yes. Dietz said there were three.
Schwarz:
Al Block was one.
Kuhn:
Oh, Al Block is the comic writer.
H.M.Jr:
Al Block, he said, and Johnson and Wouk, "Well,
listen, fellow, Thursday may not be Thanks-
giving to you but it is to me."
Graves:
Yes, he is coming Wednesday.
H.M.Jr:
You said--
Graves:
Wednesday. I said that you asked me last
Thursday to see that he came some day this week.
H.M.Jr:
Oh, let's put it off until next week, what?
Graves:
Very good.
H.M.Jr:
It is an awfully tight week.
240
- 21 -
Graves:
Yes, sir.
H.M.Jr:
Jake, if you are not too busy this afternoon
with Bell and David Morris, take a look at
what is the matter with the short-term money,
the excess increased
or are we doing
you?
take a
Will will borrowing, you? Will Is it you look something reserves, at it wrong? and
give
me a little memo on it, on five years
or
less?
Viner:
Right.
H.M.Jr:
I mean, I am just curious. I don't know.
You might talk to Murphy about it, too. You
can present a paper on it. Five years or
less, what is the matter with it.
Bell:
You have seen Haas' memorandum on the money
market in New York.
H.M.Jr:
Yes.
Bell:
That is partly responsible.
Viner:
I will have to get up on that. I don't know
anything about it now.
H.M.Jr:
Well, I think Henry Murphy can bring you up
as fast as anybody, or Haas. I don't see Haas.
Bell:
Haas is sick. Murphy will be in my conference
with the Federal Reserve people for about an
hour. Maybe an hour and a half beginning at
three.
Barnard:
This is last week's report.
H.M.Jr:
I wrote you another memo. I have got an idea.
I may not need you as one telephone president,
but I used your name yesterday.
- 22 -
241
Barnard:
I found out about that.
H.M.Jr:
Had you heard about it?
Barnard:
Oh, yes, I got all the dope.
H.M.Jr:
Did they get in touch with you?
Barnard:
Oh, yes, before they got in touch with Thompson.
I have a memo on it, and I haven't been able
Klotz:
to get to you. Thompson wants to talk to you.
H.M.Jr:
You haven't been able to get to me? (Laughter)
Barnard:
He said we were to meet personally the first
thing this morning.
H.M.Jr:
There is something wrong up there.
Barnard:
Nothing wrong except a haman error. They shift-
ed operators in the middle of your talk and
the second one made a mistake. A social error,
if nothing else.
H.M.Jr:
There was no social error.
Barnard:
No, they tell me there was no tap on that line.
H.M.Jr:
Anyway, if I can go through Beacon to Poughkeepsie,
I have got a wonderful service. That went
into Beacon. The operator is a nice girl.
Then I get hooked on directly to New York.
You didn't mind my bringing you into it?
Barnard:
H.M.Jr:
No.
I really worried. I was talking to White.
You heard that woman on that wire when you
were talking.
White:
Yes, I heard her.
242
- 23 H.M.Jr:
She was no telephone operator, was she?
White:
No, no, she wasn't. (Laughter) She didn't
have a voice with a smile.
Barnard:
I know exactly what happened, and there was
no tap on it. It was an operator's error.
They switched operators while you were talking and the new girl made a mistake and pulled
out a plug and put the wrong one back. There
was no conversation on it.
H.M.Jr:
Well, the week before somebody got in on a
Barnard:
There is no guarantee that somebody isn't in.
You know the tricks of that trade are very
numerous. In the good old days of prohibition,
West Point call.
I used to have taps taken off the prohibition
agents' line in Newark every single day. We
never could catch who was doing it.
H.M.Jr:
Taps on the--
Barnard:
On the line.
H.M.Jr:
"On" or "by"?
Barnard:
On the lines.
Viner:
Taps on the tappers.
H.M.Jr:
Well, of course, my line is checked regularly
once a month from my home to Beacon, but it
is absolutely useless.
Klotz:
H.M.Jr:
That is a waste of effort.
If those two gentlemen - let them read Hoover's
report on it.
Klotz:
Hoover's report on it?
- 24 -
243
H.M.Jr:
Which I brought back from the farm, on
Newburgh. I would like them both to read it.
Klotz:
Oh!
H.M.Jr:
Hoover has been on that now for about two
weeks on another situation. Did they tell
you about that?
Barnard:
No. But Hoover has got some people that know
the technique, too. There are plenty of them.
The New York Police Department will get you
a line without disturbing anybody else in a
thousand-wire cable.
H.M.Jr:
Do what?
Barnard:
Take a cable with a thousand pairs of circuits
in it and get the particular one you want.
If somebody knows the technique, there is
more than one, always. You have just-H.M.Jr:
Once upon a time we used to do that too.
Barnard:
I am surprised. (Laughter)
H.M.Jr:
I once had twenty-five taps coming into an
office in San Francisco on dope runners,
Japanese dope peddlers. Remember, Harold?
Graves:
Yes, sir.
H.M.Jr:
In the good old days.
Graves:
Yes, sir.
H.M.Jr:
Well, anyway, between you and Norman I ought
to get a little service. We haven't put up
any wires for over three years, I guess.
Schwarz:
I talked to Nick Gregory before receiving
your memorandum and pointed out to him the
244
- 25 -
defense bonds and tax notes and the increase
in appropriations, and he said that he thought
he had alluded to that, that he would try to
straighten out the record, that he was disturbed after the last tax discussion, and he
thought it was pretty late.
H.M.Jr:
Yes, but those two things that I asked you--
Schwarz:
I have here the appropriations, and I have
gone all through the things he said and he
never makes any recommendations. As a matter
of fact, he quotes you on several things.
H.M.Jr:
Bring this in again at four o'clock, Chick.
Schwarz:
I think you might want to see what the
National Economy League has to say on inflation. They recommend the purchase of
defense bonds and higher taxes, both.
H.M.Jr:
Bring that into the press conference.
Schwarz:
O.K. I would like permission to refuse a
request from Mr. Annenberg's Click magazine.
They want to make a picture of the Debt
Funding Commission's table downstairs.
H.M.Jr:
Moe getting out this winter?
Foley:
I was afraid he was, but you advised me to
the contrary.
H.M.Jr:
I just gave you the information. I would
like to take credit, but I can't.
Schwarz:
They saw Pearson and Allen's piece in Look
magazine.
H.M.Jr:
I don't know why I should do Moe any favors.
Schwarz:
He didn't do us any.
- 26 -
245
H.M.Jr:
He never held up the racing returns for me
for a minute. I think he did for Sammy
Klaus, but not for me. (Laughter)
Schwarz:
That is all.
H.M.Jr:
Harry?
I got your memorandum on that thing, and I
want to read it. I read it carefully, and I
am going to read it once more. Just for your
own piece of mind, it isn't a matter of hours,
take my word for it. I mean, the crisis was
passed ten or fifteen days ago.
White:
The crisis has passed, you say?
H.M.Jr:
The particular crisis that you think - the
information was passed ten or fifteen days
ago. If you don't understand, Mrs. Klotz
will explain to you. If you don't understand, she will explain it to you.
White:
You asked to - you asked me to speak about
the weekly reports on exports to certain
blocked countries.
H.M.Jr:
Yes.
White:
Do you want them to go to anybody or don't
you?
H.M.Jr:
I would like them to go to the President.
White:
They should go to Economic Defense and State
Department, if they go to anybody.
White:
All right. Well, I would send them.
That is all I have.
Buffington:
I have nothing.
H.M.Jr:
246
- 27 H.M.Jr:
You want to see me before when - well, I
will
try to work you - when are you going
home?
Buffington:
Wednesday evening.
H.M.Jr:
Well, I will try. If no other way you could
ride with me from here to the Naval hospital.
Can you do it in ten minutes?
Buffington: Yes, sir.
H.M.Jr:
All right. I have got to be over there at
five o'clock. Tell Fitz that you are going
to ride with me from here to the Naval hospital
so he will let you know.
Bell:
The Agriculture Committee are considering the
Fulmer bill. That is the bill that revamps
the whole lending program of the Farm Credit
Administration. They asked us for a report.
We submitted a draft of a report to the
Bureau of the Budget and that Bureau sent a
copy of it to the Farm Credit Administration
for its comments. They called up this morning and said that they had a few questions
about some of our statements and asked for a
conference. He came over and conferred with
Dave Morris and Haas and his people about
our report. We hadn't definitely recommended
against the bill, but we had criticized certain sections, certain parts of it. We
recommended, or suggested, that the Federal
Land Bank bonds all be guaranteed and then
the bill only provides for a guarantee of the
outstanding. Out of this conference grew
two suggestions. When we suggested a guarantee,
one was that the Treasury treat these organizations the same as we are now treating all of
the organizations that issue guarantees,
borrowing the money directly from the Treasury.
H.M.Jr:
I am not getting it, Dan.
247
- 28 Bell:
Aren't you?
H.M.Jr:
No.
Bell:
H.M.Jr:
Bell:
Morris:
Then maybe we had better take more time.
Please.
Is there any deadline as to when they wanted
a
decision on it?
They would like it fairly soon, because they
are
sure.working on it under a good deal of pres-
Bell:
They are working on a bill.
H.M.Jr:
All right, take another crack at me.
Bell:
You want me to do it now?
H.M.Jr:
Not now.
Bell:
O.K.
H.M.Jr:
Let's see how we get along tomorrow, will you?
I have got no appointments tomorrow morning
except for this tax thing. I don't know how
long it will run.
Bell:
All right. That is all I have.
H.M.Jr:
But anything we do now, please make sure that
it isn't on these reports, that will conflict
with my statement before the Byrd committee
you see. You know, any report that goes out.
I think I sent you (Foley) one. Was that all
right? I asked Miss Chauncey to speak to you
about it on Friday.
Foley:
Yes.
-29 -
Bell:
248
There is nothing in conflict here. I think
it carries out the policy you have adopted
in connection with the other organizations
that are issuing guaranteed securities,
except
we are going a little higher on the
rate.
H.M.Jr:
Bell:
Well, look, so that I don't hold you up,
if you and Dave Morris and anybody else are
satisfied, go to town on it and leave me
out. Keep it moving, will you?
All right. I think it is all right the way
we agreed upon it.
H.M.Jr:
If you and Dave agree on it or anybody else
that is interested, but keep it moving and
leave me out of it.
Bell:
All right, we will make the decision.
H.M.Jr:
You make the decision and I will be satisfied.
Bell:
All right.
H.M.Jr:
And Byrd told me that McKellar read his statement to him over the telephone. He said he
came out in favor of my testimony.
Schwarz:
That was Saturday.
H.M.Jr:
Now the newspapers printed it as though it was
Barnard:
The one I read wasn't critical.
Schwarz:
I sent Chester a copy. It came out on the
criticism.
UP wires Saturday as very favorable.
Bell:
William said he was very favorable. Said he
really went to town on it.
249
- 30 H.M.Jr:
William.?
Bell:
William Heffelfinger.
H.M.Jr:
I thought you meant Aubry Williams. Harry
is
looking after him.
White:
That is why he is in the soup.
H.M.Jr:
There are all kinds of soups. (Laughter)
All right, Dan?
Bell:
All right.
H.M.Jr:
You and Dave Morris take care of that.
Thompson:
I just want to report on your telephone.
H.M.Jr:
Do you want to stay a minute? Would you and
Mr. Barnard stay a minute. And Harold, if
you get your meat butchers lined up, I will
come right downstairs. I will be there in
two minutes.
Graves:
Yes, sir.
H.M.Jr:
Do you (Foley) want to entertain the Swedish
Minister while I have my picture taken?
Foley:
H.M.Jr:
Sure. Why don't you see him and turn him
over to me and I will talk to him.
I have got to do the meat butchers. They are
more important than the Swedes.
Foley:
We are not going to do what he wants, so why
don't you shake hands with him and shoo him
down the hall?
- 31 -
250
(Mr. Gaston remained after the conference to
tell the Secretary he had been in error when
he said he had called the Collector of Customs
at Port Arthur Saturday afternoon to tell
him the oil designations had been checked,
and the oil in question was found to be low
grade. Mr. Gaston had actually telephoned
that information earlier in the day.)
251
November 17, 1941.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
Stories in the newspaper P.M. on Friday and Sunday
purport to reveal that shipments of aviation gasoline and
aviation lubricating oil have been going to Spain and contain the intimation that the State Department has been con-
cealing the facts. The stories are based on copies of the
weekly Treasury summary of exports of petroleum products,
scrap iron and scrap steel from the United States to Japan,
Russia, Spain and Great Britain as shown by departure permits
granted. Our report for the week ended November 8, 1941,
shows aviation lubricating oil in the amount of 40,520 barrels
The
as having been shipped to Spain. This is an error.
material actually shipped, which went on two vessels, the
CAMPERO and the CAMPECHE, both of which obtained departure
permits on November 3, was 40,520 barrels of lubricating oil
of Export Control classification "R", which is the very lowest
grade of lubricant. The error was made by the office of the
Collector of Customs at Port Arthur, Texas, which in its wire
to Merchant Ship Control requesting the departure permit classi-
fied these shipments as lubricating oil "A". The "A" classification is not used by Export Control, but this designation
originated in Treasury Research and Statistics at the time we
started this system of reports to designate the highest grade
of lubricating oil, that is, aviation lubricating oil and
aviation gasoline.
Stone of the Nation and P.M., who wrote the stories, got
in contact with me on the telephone last Friday evening. He
had already written his first story. He had endeavored to
see me Friday morning but I had been unable to keep the engagement having been detained at the Department of Justice. He
told me over the telephone that he had written the story, based
on one of our reports which he had seen. He would not tell me
where he had seen it. I was unable at that time to give him
any information about the discrepancy, telling him merely that
our reports were based on information received from the Collectors of Customs. He saw me Saturday morning and informed
252
-2me that he had been shown the export licenses at the Department of State and that none of them showed any aviation lubri-
cating oil. All I could tell him at that time was that we
were Investigating the matter and were telegraphing Port
Arthur to check on the information we had received. I called
him shortly after noon to say that we had checked the export
license numbers given us by Port Arthur at the time the departure permits were granted against the actual licenses at
the Department of State and found that the numbers covered
only low grade lubricating oil. Late that afternoon Pollio
read me a telegram from Port Arthur in which the Assistant
Collector (Gunter) admitted that his dispatches had been
erroneous and I gave that information to Stone. This, however,
was too late to catch his Sunday story.
At the time he was in my office on Friday waiting for
me Stone made several telephone calls, one of which was to
Dean Acheson in the Department of State. He told Acheson
that he had seen a Treasury report listing aviation lubricating oil shipments. In a telephone call to his own office
he said that while he did not actually have the Treasury report he would get a copy if he had to steal it.
The Division of Research and Statistics has been com-
piling these weekly reports since July 29, 1940. They are
based on daily reports supplied by the Office of Merchant Ship
Control, which in turn are based on the telegraphic applications from Collectors of Customs for departure permits, which
in the case of petroleum and steel list the quantities contained in the cargoes and the export license numbers.
Stone admitted to me that he knew that our reports were
confidential, that they were not prepared for public circulation and that he was not entitled to see them. He refused to
tell me where he had seen this particular report. He said,
however, that our reports showed other quantities of aviation
gasoline and lubricating oil going to Spain and that after I
had told him that this particular information from Port Arthur
was manifestly erroneous he wanted to know whether the other
instances were also due to error. This I was unable to tell
him.
253
3--
On Saturday morning I called in Mr. Ticton, who is in
charge of preparing these reports, and asked him to check
back on our reports and suggested that our system should be
revised to prevent errors of this kind. There is an opportunity for error in the fact that we are not using the
present Export Control classifications.
Outside the Treasury these weekly reports are going to
The President, the Secretaries of State, War, Navy and Interior,
Admiral Stark and Leon Henderson. Within the Treasury they
have been going to you, Mr. White, Mr. Cairns and to the
Office of Merchant Ship Control, in addition to my office
which has been sending them out. This list is the same as
the original list which you gave to me on July 27, 1940, with
the addition of The President and Leon Henderson. Those
sent outside the Treasury are all delivered by special messenger.
Article 1275 of the Act of August 23, 1912, provides
that statistics of imports and exports are to be compiled and
published by the Bureau of Foreign and Domestic Commerce of the
Department of Commerce from data supplied by the Collectors of
Customs.
Article 1278 of the same statute permits Collectors to
supply to trade papers, trade organizations and commercial con-
cerns such statistical information regarding the foreign trade
as may be available from the records kept for the purpose of
making reports to the Department of Commerce, but prohibits
them disclosing individual transactions, or names of importers
or exporters. Customs regulations prohibit the Collectors from
disclosing for publication details of their official activities
except under special authority from the Bureau.
An amendment to Customs regulations, put into effect
since the start of the war, forbids the disclosure of any information at all for publication during the effective period
of any proclamation of the President that a state of war
exists between foreign nations.
W
Treasury Department
254
Division of Monetary Research
Date
To:
Nov. 19, 194119
Secretary Morgenthau
Even if Treasury classifications
of oil to Spain may be in error here
and there, the appended memorandum sug-
gests that there may be something
"rotten in Denmark".
H.D.W.
MR. WHITE
Branch 2058 - Room 214
255
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 17, 1941
TO
FROM
Subject:
1.
2.
Mr. White
Mr. Ullmann
U. S. petroleum exports to Spain
In August, Mr. Gaston was informed from Port Arthur, Texas, that
there were strong indications that our oil shipments to Spain were
being transshipped to the Germans via railroad, German tankers, and
tanker trucks. The State Department received similar information.
(See attached exhibit, with excerpts of messages.)
In September, the Treasury Department offered to have one of its
employees (of Spanish descent) secretly signed on as a crew member of
a Spanish tanker. The State Department did not accept this offer --
stating that it was assured by its representatives in Spain that this
oil was not transshipped, and that it believed no further investigation
necessary.
3.
4.
In September, the U. S. Government consented to the transfer of
the tanker "Santa Helena" from Panamanian to Spanish registry -- despite
the strong appearance of duress by the Spanish Government (which had
jailed the boat's owner).
In 1941, up to November 8, the United States exported 220,000
barrels of lubricating oil to Spain.
The Garfias estimate of lubricating oil consumption in Spain in
the years 1936, 1937, and 1938 was 100,000 barrels per year -- at a
time when mechanized warfare was going on. In other words, we have
shipped oil this year at a rate more than two and a half times the
estimated consumption in civil war years. This could be related to
the notable German deficiency in lubricating oils.
5.
We have exported to Spain this year, 878,000 barrels of fuel and
gas oil -- or at the rate of a million barrels per year.
This is below the 13 million barrels estimated consumption in
1938 (Garfias estimate) -- but this year has seen severe rationing while
1938 was a war period.
256
-2-
6.
Division of Monetary
Research
We have exported 481,000 barrels of gasoline - or at the rate
of 570,000 barrels per year. This is substantially below the 2.3
million barrels estimated Spanish consumption in 1938.
Again, however, all information indicates that rationing has
been severe and may have curtailed gasoline consumption substantially
more than one-fourth.
257
United States Exports of Petroleum Products to
Spain, January 1, 1941 - November 8, 1941
(Thousands of Barrels)
Period
January
February
arch
Fuel and
Gas Oil
178.8
30
Lubricating
Gasoline
Oil
12.9
22.0
-
8.0
-
5
pril
39
101.5
ay
132
nine
uly
ugust
61
127.7
67.6
ov.1- Nov. 8
143.1
15.5
44.8
127.7
otal - 44 Weeks
878.4
481.7 2
september
ctober
3.4
20.5
42.8
24.7
49.8
2.0
67.0
11.0
64.0
136.4
-
3
-
41.7
-
219.8
(
/
Includes 1,600 bbls. aviation gasoline.
69 percent (427,100 bbls.) reported as high octane gasoline.
Includes 1,845 bbls. aviation lubricating oil.
Includes 750 bbls. of transformer lubricating oil.
Aviation lubricating oil
Source: U. S. Treasury Department, office of Merchant Ship Control
Treasury Department, Division of Monetary Research
November 17, 1941
258
Excerpts From Messages Received From Port Arthur, Texas
Excerpt from letter of August 23, to the Department of State from the
Assistant Collector of Customs.
A.
Department of State,
Export Control Division,
Washington, D. C.
Attention: Mr. Cooper.
Sir:
I refer to our conversation over the telephone this morning wherein
I referred to the widespread local opinion that the ever-increasing
Spanish fleet of tank vessels are delivering to Germany much of the
petroleum products being licensed by the State Department for export
to Spain.
In compliance with your request that I furnish you with a memorandum
of the information within my knowledge touching upon the possibility that
the petroleum products licensed and cleared from this port on board Spanish vessels bound for Spanish ports, I am inclosing a copy of a written
memorandum made by the Immigration Officer in Charge at this port upon
conversations held by him with several of the officers and crew of the
Panamanian Steamship ST HELENA now in the process of being taken over
by the Spanish Government and made a unit in the growing Spanish fleet
of tank vessels operating between here and Spain. This memorandum was
made in the presence of a number of interested local government officials,
including a Naval Intelligence officer. I hand you this memorandum for
whatever it is worth.
In paragraph No. 9 of the memor andum, where 38 German vessels are
said to have been seen in the port of Vigo, Spain, let me add that this
occurred in August, 1940.
One of the officers said he had observed French vessels operating
between ports in Spain and in German occupied France. We take this to be
equivalent to trade between Spain and Germany.
It is the opinion of the retiring Panamanian master of the ST HELENA
that petroleum products and other military supplies are being supplied to
Germany by Spain.
The new master of the ST HELENA taking over under the Spanish flag
appears to be a brilliant and trusted Spanish naval officer. It is said
that he has been met by German military officers on his arrival in Spain.
This Captain Pedrez says he does not know what is done with the oil after
it is delivered in Spain.
259
-2-
Division of Monetary
Research
Our information is that Mr. T. Reiber, recently ousted Chairman
of the Board of Directors of The Texas Company, is retained by that company
as a good-will agent at a salary of $20,000.00 per annum, and that he is
the exclusive American purchasing agent for the C. A. M. P.S.A. line
of Spain, an agency of the Spanish Government and operator of the
oil tanker fleet carrying oil from here to Spain. I am sure that the
Department is familiary with the facts and circumstances which lead to
his retirement from The Texas Company a year or so ago, such as his
confidential dealings with a German agent in New York, and his connection with his causing The Texas Company's tankers to deliver oil
to the Franco Government in Spain during the Spanish Civil War but
on clearances and manifests falsely showing the vessels to have been
destined to France or some other country, for which violations this
office assessed and collected $22,000.00 in fines from The Texas Company.
It appeared that these oil shipments to Spain were in collaboration with
the German aid to Spain.
There are eight Spanish vessels in port and anchored off shore
today awaiting cargoes from The Texas Company on export licenses,
sailing permits and navicerts; and other vessels of this line are
enroute here for the same purpose. This Spanish trade is becoming
the largest part of petroleum exports from this port. If these exports
are going into the German military operations, this is a serious matter,
as I see it.
Whether there is a reason for it or not, the operators of these
vessels hesitate to bring their vessels into port until the export licenses,
and sailing permits have been granted for the cargo and vessel to depart.
Could this mean that the operators know that there is good reason on the
part of this Government to refuse the licenses and sailing permits and
fear that such reason will become known and be acted upon by this Government
and t hat the operator is playing as safe as possible by keeping his vessels
outside until each case has been acted upon favorably?
B.
Excerpt from interview (August 26) of Inspector in Charge with Master
and Engineer of the Spanish vessel.
5. Since June 1, 1940, the following tankers have arrived in this port
from Spain or Spanish Canary Islands and departed for Spain or Canary
Islands, all of which, to the best information available, are owned or
chartered by the C.A.M.P.S.A. line:
5. CAMPILO
1. CAMPAS
2. CAMPERO
3. CAMPECHE
6. CAMPOAMOR
7. CAMPUZANO
9. GOBEO
10. ZORROSA
11. REMEDIOS
8. CASTILLO CAMPAMARIO 12. PAN AM
4. CAMPOMANEZ
13.
BADALONA
14. SANTA HELENA (CAMPECHANO)
-3-
Division of Monetary
Research
260
A report has been received that another vessel, the CASTILLO
has just been chartered by the company and is due to arrive here shortly,
while still another vessel is under construction in Spain.
6. This number of vessels is in excess of those operated by the C.A.M.P.S.A.
line prior to the revolution in Spain. There are several Spanish tankers
waiting off the bar at Sabine at the present time for export licenses;
and, according to available information, there will be ten C.A.M.P.S.A.
owned or chartered tankers anchored off Sabine by September 1941.
7. Although more tankers are operating than during normal times prior to
the revolution, gasoline was plentiful then in Spain and is rationed now.
In fact, practically no more vehicles operated except those in the service
of the Spanish Government or officials of other governments located in the
country. Although there are more petroleum products, more wheat, tobacco,
and other commodities in Spain than ever before, yet there is no bread to
be had other than a small supply of black bread, and no tobacco at all.
8. Continuous rail traffic from Spanish ports through France to Germany
carries these products from the seaboard.
9. At one time during the present war, 38 German vessels were tied up in
the harbor of Vigo, Spain, 12 of which were tankers. It was stated that
these vessels were moved from Bilbao, Barcelona, and other ports to Vigo
because Vigo was a greater distance from the French frontier.
10. The cargo vessels anchored at Vigo move outside the territorial waters,
usually at night, to furnish provisions to service vessels of Germany; and
German barges carry fuel oil from the Tankers to submarines. Although the
German tankers have long since been emptied by the barges, the barges still
continue to move out at night, loaded. C.A.M.P.S.A. line vessels still
unload at Vigo, as well as other Spanish ports.
11. In August 1940, four Italian tankers were seen at La Palma, Canary
Islands.
12. C.A.M.P.S.A. line tankers discharge part cargoes at La Palma and then
proceed to continental ports.
13. The C.A.M.P.S.A. line master mentioned heretofore is a graduate of the
Spanish Naval Academy, was head of the naval intelligence service for the
republican government during the revolution, fled to Spanish Morocco when
the republic cause was lost, returned to Spain after the revolution, was
imprisoned for a time and released without trial. He was not only restored
to his master's position on a vessel operated by the new government, but is
a special representative of the C.A.M.P.S.A. line. This master declines to
say positively that C.A.M.P.S.A. is supplying German and Italian land and
naval forces, but says he has reason to believe such to be the case. He
states further that he does not know what becomes of the cargoes after the
vessels discharge. The engineer was more communicative than the master,
and gave more inf ormation.
261
-4-
Division of Monetary
Research
14. That part of the above data which was not stated by the two officers
mentioned is supplied from files of this office; and, in addition thereto,
it is found that certain vessels of the Standard Oil Company have carried
oil to Spain during the past twelve months, specifically the SYLVAN ARROW,
which arrived from Bilbao, Spain, on November 18, 1940, and sailed for
Spanish ports on November 20, 1940. Furthermore, the New York Maritime
Register shows that The Texas Company's Panamanian tanker "NEW YORK" has
made several trips between Covinas and Teneriffe, Canary Islands. Unquestionably the Spanish mainland and the Canary Islands have received
more oil during the past year than can possibly be consumed by the industries of that nation.
C. Excerpt from teletype message of August 26. 1941
Information from rumor and COIN ersations picked up from crew members
of these vessels indicate that while probably all of these cargoes are
actually unloaded in the ports of destination as shown by clearance papers,
there are both German and Italian vessels in the ports which are loaded
from the shore storage and that probably all of it finds its way to
Germany and Italy. Some reports are that there are regular tank car
railroad departures from Vigo to Germany through unoccupied France taking
these products to Germany. Also, Italian tankers depart for ports in
occupied France. There are some reports that even tank trucks lines
operate from the Spanish ports to Germany through unoccupied France. An
engineer on one of the Campsa tankers is alleged to have stated that during last August he saw 38 German vessels in Vigo, twelve of which were
tankers. It is also rumored that it is not uncommon for Italian vessels
to obtain oil in La Palma and teneriffe Canary Islands. Mr. Pedraz,
new master of the former Panamanian Santa Helena now Spanish Campechano,
sale of which was completed yesterday, said to agent Simpson and Asst.
Collector Gunter that he is an officer in the Spanish navy, that all of
the masters of these vessels are such officers, that the cargoes of these
vessels are taken into the ports to which cleared, but that in view of
the heavy obligations of the present Franco government of Spain to Germany,
when German vessels call for cargoes of oil it is nevery refused as there
is little else that can be done. He also pointed out that while there is
now much more petroleum products being imported by Spain than ever before,
there are practically none to be had by the populace and the general
supposition is that it goes to Germany and Italy with strong indications
that it is due to pressure by Germany that it is being imported. There
are also reports that Reiber formerly with Texas Company is now good-will
and purchasing agent for the Campsa line in the United States at a salary
of twenty thousand per annum.
262
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 17, , 1941
TO
FROM
Secretary Morgenthau
Mr. Kuhn
Reuters, the chief British news agency, had a
text of your speech in its New York office and
cabled all the salient points to England. This
probably explains Ambassador Winant's cable.
Robert Sherwood tells me that long extracts
from your speech were broadcast all over the world
by short wave radio. He says he has written you
a letter showing exactly which passages were
emphasized for short wave purposes.
F. KC.
263
November 17, 1941
TO:
Mr. Thompson
FROM:
The Secretary
On my Beacon 211 telephone yesterday, in a
conversation with Harry White, a Newburgh subscriber
came in on my conversation. I was very much upset
and angry and the Chief Operator there, who was
handling the call for me, insisted it was Newark,
but I insisted she was wrong.
They sent two men over to see me and they
agreed it was a Newburgh subscriber. I had a similar
experience the week before.
I then suggested they route me via Beacon to
Poughkeepsie where they have a direct wire to Washington.
I used that once and got an excellent connection. The
Poughkeepsie Chief Operator was delighted; said she
had not handled my long distance calls in years, and
the reason I am telling you this is because the tele-
phone company, at my suggestion, is going to contact
you. If you don't hear from them by this afternoon,
please get word to the New York Telephone Company
that until further notice all long distance outgoing
and incoming cells for me should be routed through
Beacon and Poughkeepsie and if you have any trouble
please contact the President of the New York Telephone
Company, as I told them if I could not get service
I was going to insist on putting my own operator at
their switchboard while I was at the Farm.
264
November 17, 1941
8:30 P.M.
RE TAXES
(Meeting held at Secretary's home.)
Present:
Mr. Kuhn
Mr. Barnard
Mr. Foley
Mr. Buffington
Mr. Viner
Mr. Tarleau
Mr. Foley
Mr. Morris
Mr. Sullivan
Mr. Kades
Mr. Gaston
Mr. Bell
Mr. White
Mr. Blough
H.M.Jr:
The reason I asked you gentlemen out to
spoil your evening by coming here, I had two
things in mind. The first thing is, as
long as I have been here in the Treasury we
have never gone out to try to sell a tax
program to the public. I mean, really sell
it. I suppose we have had what, four million
people who used to pay taxes, Tarleau?
Tarleau:
That is right.
H.M.Jr:
And now supposedly on the books there are
nineteen million. Right?
Tarleau:
It is getting up that way, yes.
265
-2H.M. Jr:
And we have more than doubled the amount of
revenue we want to get. I think we have to
go out and really do a selling job to the
public to get them to receive this thing
in good humor. I think we have to, through
Internal Revenue, have ambassadors of good
will, just as many of them as possible, and
I think it is just as important that the
taxpayers should be happy, within the realms
of possibility, and that we should be just
as aggressive as the financial page of the
New York Times is on the other side.
We have never done this and I think in a
very short period Buffington has been able to
catch hold of what I wanted on the tax notes
and he has gotten out thirty million of these
circulars, something like that.
Buffington:
Thirty-three million are out and thirty-six in the
process.
H.M.Jr:
When I get up that high a couple of million
doesn't count. We got the banks to put them
in their statements. So far as I know we
haven't had a complaint. It is absolutely a
unique undertaking, to get thirty million
copies of Treasury literature put in the banks
to go out on a given date, and I think it is
going to do a lot of good. I think we in the
Treasury have just got to do the way we have
in Defense Savings Bonds, I mean build up a
staff to do this thing. We have got to have
speakers. One of the particular things I have
been thinking of is the possibility of having
a radio forum. I mentioned this before, where
once a week - it might start with half an hour
and if it is worthy let it grow, where we would
put on - what I was thinking of particularly
was this. Unless we go on the air - go to the
people and explain to them what the loopholes
are and stop up the loopholes first, I don't
266
-3believe that we can expect to increase our
taxes by fifty percent more but if the
people feel, the masses feel that - ell, if
everybody is paying, then I am willing to pay,
but if somebody escapes, well, if they escape
why should I have to pay more, and particularly
the little fellow.
Now, we have gotten licked every year on our
community property and our tax exempts, on our
depletion and so forth and so on, and I think
we have got to go to the public and explain
it to them and say quite frankly, "If you agree
with us get in touch with your Senator and
Congressman," and so forth and so on. If we
don't we will be just going around and you
will have a sore spot in the body of this
republic which will get worse instead of better
as you have to get more money. What I would
like to see is for us to go on and attempt,
say, one e a week, to devote one hour to
explaining community property, what it means
to a person who lives in California and one
in New York, and then invite questions and
answers. Then the following week take a half
dozen questions and answers and answer them.
Then invite other people to come on the program
and state their case and we will answer them,
just the way this Washington Forum of the Air
is run. They have different cases and they
discuss them and have a moderator and so forth
and so on.
That is just one idea. I think we have got
to have people thinking about it, I mean having
dozens of ideas, so that between now and the
first of January we acquaint the public
certainly with the more important loopholes
and it is an entirely new kind of thing. I
think the most important of all is through
Internal Revenue, John; we ought to have enough
people trained in a school so that if the
267
-4taxpayer wants to go over any time and tell
his troubles, there is somebody there whose
exclusive job it is to get this person the
answer that he wants, even if it is only a
matter of a dollar and fifty cents, but we
would run that school so that these people could
come. We will tell them that they can go to
a certain place, not on the thirteenth of
March but any time, three hundred sixty-five
days a year, and there is somebody there to
sit down with you and explain this thing.
Now, we can't win this war unless the people
that are going to pay the bill at least know
what it is all about, and it is our job in the
Treasury to do an educational job, to let
them know what it is all about. I am not
blaming anybody, I am not criticizing anybody;
we have just never done it. We make an
occasional speech when Mr. Blough is fifteen
minutes late and it makes it that much more
difficult.
(Mr. Blough entered the conference.)
But as I say, there are two things. The first
thing, I wanted to start this thing and then
the second phase tonight is, I wanted to talk
about how we are going to organize the Treasury
to get out the tax bill. I would like first
to hear from anybody that has any ideas. You
can agree with me or disagree with me on how to do
this thing, Roy, of going to the public and
acquainting them with - selling the taxes, you
see.
I have talked to Buffington about it. He made
a swell start on the tax notes but the meeting
is open now. I have talked longer than I
usually talk. Anybody can talk who wants to.
Sullivan:
Well, I have felt lately that the policy we have
268
-5-
adopted in the Treasury of not talking
publicly about any tax measure until we
have presented it to the House Ways and
Means is a policy which we should re-exam ine.
We have gotten stung on every tax bill that
I have had anything to do with and I can understand the reason for that practice and the
desire on the part of Treasury not to offend
the prima donnas on the Hill, but we got
stung so very badly on this last one that I
am almost of a mind to recommend that you
have Mr. Doughton and Senator George in and
say, "Now we can't do it this way anymore.
There is no such thing as an executive session
where confidences are kept and hereafter we
think we will have to tell the country at the
same time we tell you.
So far as taking the fight on loopholes to
the country is concerned, I am very much in
favor of that, but I think that that practice
of weekly radios should not start while the
with-holding tax is pending. Now, if it is
still possible for us to put that part of our
bill in and hope for early enactment, I would
then recommend deferring your public discussion
of the loophole thing until after the with-holding
tax had been passed.
H.M.Jr:
Sullivan:
Well, after my experience on the Hill, I have
got to re-examine the whole question of with-
holding taxes. I am not sure that it is right.
Well, I think that is something else, but I
don't think you should --
H.M.Jr:
I have got to go through that whole thing again.
Sullivan:
That is what I understood we were going to do
tomorrow and the next day.
H.M.Jr:
Yes, but just let's talk for a moment about the
-6-
269
present tax bill, the bill which is on the
books now. I mean, letting the public know.
Let me ask you, John, how are your Internal
Revenue officers equipped? I mean, if I
dropped in to Internal Revenue and said I
wanted this thing explained, is there somebody there to explain that?
Sullivan:
Any day of the year in any office.
Tarleau:
Yes, that is right, but there is another
point, you know, John, that I think you might
mention to the Secretary and that we might
have to re-examine. There have been complaints
that at times when they have dropped in the
man comes in with a return of himself and his
wife and says, "What should I do about this?
Should I file a joint return or should I file
a separate return? What is the right thing
for me to do under the circumstances?" And the
man gets advice.
Well, eventually it turns out that the advice
isn't good. The man tells him to file a
joint return or file a separate return or
the Revenue Agent tells him something on which
he relies but he is all the way down in the
hierarchy, you see, of the Internal Revenue
Bureau and the man up on the top says the
Internal Revenue Agent is wrong and that
causes a certain amount of resentment. You
know some of the letters we have gotten in
about that, John. It may be we ought to do
more than just continue the present practice
and that is to stick by and stand by anything
that is told to the taxpayer by the man down
below. Give him the feeling not only that he
can come in and get advice but that we will
stand by it.
H.M.Jr:
Idon't want to get into that much detail
270
-7 -
tonight because this meeting is only to run
until ten and I don't want to get as technical
as all that. You are getting too technical
for me.
Sullivan:
I think you are quite right in what you are
heading at, Mr. Secretary. Friday afternoon,
wasn't it Friday?
Gaston:
It was Friday, I think, Thursday or Friday.
Sullivan:
Fri day morning Herb and I had a talk along
this same line and I had Commissioner Helvering
and Tim Mooney and Norman Cann and Victor
Self, who is the assistant to George Schoeneman,
and we went through the whole thing.
There is now being prepared - and it may be
ready in the morning - a memorandum from them
as to just what they do on public relations
work, particularly as the time for filing draws
near; and in that memorandum will be a list of
the radio broadcasts and the number of men from
the local collector's office who are available
to go out speaking to labor unions and Kiwanis
and the rest of the service clubs, and a list
of the newspapers in which the running story
is carried.
H.M.Jr:
I have seen that stuff in the past and it is --
Viner:
Each year, at least recently --
Sullivan:
It has been quite good the last year or two.
Viner:
In the early spring somebody comes out from
the Internal Revenue Bureau to the University
and is available for two weeks, I think, certain
hours in the morning, for anybody who has any
tax problems and the University circularizes
all its employees and the faculty and they know.
I have never gone but I knew I could.
271
-8-
H.M.J1:
Didn't you file a return?
Viner:
Well, I --
Bell:
The salary isn't big enough.
Viner:
They would gyp me.
Sullivan:
Herb suggested that these stories should be
carried in the trade journals and I called
Chick Schwarz Friday afternoon and he is
getting a complete list of all the family
weeklies and the trade journals and we are
going to try to get in touch wi th all of them.
Bell:
Jake just says that you send out people to
the University --
Viner:
And the banks, I think, too.
Sullivan:
They go to the banks, the manufacturing
companies.
Bell:
That is what I was going to ask, do you send
them other places?
Sullivan:
Yes, we do.
Gaston:
Mr. Secretary, you suggested two different
things, that is, one relates to public statebefore Congress. The other thing is in relation
ment S on policy, even though it is pending
to publicity, educational campaigns on the
existing tax bill.
H.M.Jr:
Excuse me, Herbert, I talked about it first.
John brought in the other.
Sullivan:
I thought you brought in the second one.
H.M.Jr:
No, the first one is how to sell the existing
tax bill.
-9 Gaston:
272
All right, that is the very thing we
talked about the other day, and it has seemed
to me for some time past that we need this
year on this tax bill, not only in view of
the changes in this tax bill itself, but what
is probably facing us, that we need a far
more intensive educational campaign than
we have ever had before.
H.M.Jr:
That is what I think.
Gaston:
And I suggested some strengthening up of the
campaign here, the utilization of more media,
the cultivation of the radio to a greater
extent, the use of a wider field of publications,
use of additional speaking. Then in addition
to that, it might be found feasible - and I
thought it would be - to stimulate much more
active work in the field by the collectors and
probably the creation in each collector's office
or the designation of somebody, at least, as
a public relations man, taking one man
particularly, with the responsibility of carry-
ing on an educational canpaign in that district.
And that would be by the stimulation of radio
programs in the district, local radio programs;
by seeing that newspaper publicity got into
the papers; by holding meetings, especially
on the lower ranks of income, where you might
expect the new taxpayers to come from; and also
to be ready to answer questions and use every
opportunity to educate people on the existing
bill.
H.M.Jr:
Well, that is what I had in mind.
Gaston:
I do think on the other subject you spoke of
that we have been too backward, or at least
that we are in a situation now where we will
probably want to go out and defend more
vigorously the ideas that the Treasury stands
for in the line of tax policy.
- 10 -
Bell:
273
Your collectors' offices are not prepared,
are they, John, to carry on that campaign
of education?
Sullivan:
No, and they couldn't.
Bell:
That would mean new personnel.
Sullivan:
That campaign has got to be carried on from
here, Dan.
Viner:
I think it would be a mistake to mix up too
much the policy making and the administration.
Their business is to administer a law and
not to appraise it.
Sullivan:
And a half hour before you go on the air
something can happen on the Hill that completely
changes it.
Gaston:
What you are saying is, John, that the
collectors couldn't have anything to do with
the question of policy. You are not saying
that the collectors couldn't do anything to
educate the people on the provisions of the
existing law which they have to administer,
were you?
Bell:
That is what I was talking about.
Sullivan:
No, we are in entire accord, Herb, on the
idea of educating the public on existing law.
What I am saying is that you can't use the
collectors' offices or its representatives in
trying to sell a tax bill to the country.
Gaston:
Oh, I agree with that, wholly.
Kuhn:
But you can use the collectors' offices to
tell people, for example, how to pay your
taxes, where to pay your taxes, when to pay
your taxes.
- 11 -
Sullivan:
274
That is right, and that is what I first
started to talk about. The reason I spoke about
it was your remark that there should be
somebody in every office so that a taxpayer
could come in and ask a question.
Kuhn:
How about "Why Pay Taxes?" I mean, what you
get in return for them. Would that be
something fit for the collectors?
Sullivan:
I have never heard that asked anywhere except
in "You Can't Take it With you.
Gaston:
I think if that is handled, Ferdie, it will
have to be done in literature made here to be
distributed through the collectors. I don't
think they can handle that on their own. I
think we ought to do a little on that line.
H.M.Jr:
All you have got to do is to pick up the
financial page of the New York Times any time
and read this fellow Nelson. There isn't a
day that he doesn't write, "Why pay the tax?"
Sullivan:
You mean that there is some chance of avoiding
H.M.Jr:
I mean he is challenging every day some phase
it?
of the existing taxes.
Sullivan:
On technical grounds, that is right.
Kuhn:
Mr. Secretary, I meant it affirmatively, that
people should be reminded of the values and
services that they receive for their taxes.
H.M.Jr:
Well, I go even a step further. I know
this sounds very Pollyanna and so forth and
so on, but the thing that I would like to
aim for as a goal is that the business man
would beat his breast and say, "Isn't it
wonderful, I earned more money in '41 than I
- 12 -
275
did in '40 and I made a bigger contribution
to my Government to help win this war
through taxes." That is the goal I would
like to work for. I know I am a long way
from that.
Sullivan:
Well, I --
H.M.Jr:
But what I am thinking of is this, just the
way we have forty-eight committees in states
on the Defense Savings Bonds, with some
central brain here in Washington thinking up
the ideas and then distributing them, these
:
ideas, preparing the fellow to pay the tax,
to be distributed to these collectors' offices
where there would be somebody in that office
who would be a public relations man.
H.M.Jr:
Well, I think -But I think it has got to be an entirely
Sullivan:
Well, I don't think it has to be fresh,
Sullivan:
fresh set of ideas.
because so far as the collectors' offices
are concerned and so far as the Bureau here
is concerned, I have never seen any evidence
of any public relations work.
H.M.Jr:
Well, then it has to be de novo.
Sullivan:
That is right.
Gaston:
Well, that isn't quite the whole story, John.
H.M.Jr:
It must be de novo.
Gaston:
That isn't quite the whole story. They have
been every year beginning in 1935 - they have
been increasing their public relations activities
in connecti on with the tax bill - they have
been issuing every year clip sheets for news-
276
- 13 -
papers describing the tax bill and they have
had weekly and daily stories and little short
boxes on your income tax. In the last two
or three years they have been going into radio
a little more. They have had questions and
answers. They have had "Mister Income Tax"on
the radio last year, on local hookups, you
know, not on national networks but on local
hookups. They prepared a canned script of
questions and answers. They have done a little
in that line but I don't think it is enough.
I think it needs to be intensified. I think
you need to build a real staff here and I
think you need to have these contact people
in the field.
H.M Jr:
Well, you and John ought to get together.
Sullivan:
We are not talking about the same thing now.
Everything Herb says is entirely true, --
H.M.Jr:
Good.
Sullivan:
about how a fellow should pay his taxes
and when and where. What you were talking
about when I made my remark was the idea of
having a public relations fellow in each
collector's office who would be able to
demonstrate to them why they should be glad
to pay taxes and what they were getting for
their money.
H.M.Jr:
Well, that, and then invite them to come in
and then when they do come in see that they
are properly taken care of.
Sullivan:
The latter part of that is being done and I
think being done very well, Mr. Secretary.
H.M.Jr:
What I am thinking of is that supposedly we
have some - I don't know, nine or ten million
new taxpayers. It is just like an organization
14 -
277
of first voters.
Sullivan:
H.M.Jr:
We had that this year. We had seven million
new ones this March.
You get these people to try to turn this
terrific tide of criticism, I mean this
constant jokes in the variety show and the
cartoons and everywhere making fun of the
Treasury and the taxes and all that, to
try to turn that thing around.
Viner:
I think you can take a hint from what they
do in Illinois. When you get your tax bill
you also get a little propaganda about what
it goes for and why it is necessary. There
is a little pamphlet that comes with it.
H.M.Jr:
Is that Professor what's-his-name?
Viner:
No, it is local. It is in Cook County, I
mean. I may say one of the reasons why they
do it, they stick their own name very prominently
on it. They are building up political good
will for themselves and sometimes the propa-
ganda is that "I am forced to do it as the
collector; I didn't frame this tax.
Kuhn:
New York City does it.
Viner:
But nevertheless, put a folder in with your
Sullivan:
Well, that is under discussion now and I think
Blough:
Mr. A. H. Stone of the Mississippi Tax Commission,
makes a specialty of trying to make his
form.
it is a pretty good idea.
taxpayers like it. You come in to the tax
commission door, that is, seven or eight years
ago, and there is a big copper plaque on the
table which I don't think is in very good taste,
- 15 -
278
which says, "Mississippi Tax Commission,
dedicated to the service of the people of
Mississippi.
But their general reaction is, "I know you
want to pay taxes. You may be in a jam.
If you are in a spot we will help you out,
and make it as easy for you to pay as
possible. There is a good deal of romanticism
in that but there is some real realism.
Viner:
You could get some hints, too, from the
techniques of the dentist and the undertaker.
(Laughter)
Blough:
I have felt this ever since I have been here.
We have had numerous requests for information
about the Federal taxes, why we pay taxes,
where the money goes to, and 80 on. We have
had a little mimeographed material, very little,
available, and we have been sending them stuff
that the Department of Agriculture worked up,
stuff that private organizations worked up,
and referring them to private stuff, just
because the Treasury didn't have --
Sullivan:
There isn't any excuse for that now.
Blough:
didn't have any little brochures and
things like that. It seems to me one thing
we certainly could do, it wouldn't cost very
much money, would be to have a series - I don't
know how many it would take, maybe half a
dozen - of little pamphlets covering various
aspects of the taxes which --
Tarleau:
Well, what are the aspects? You mean first,
do you want a brochure on the ordinary questions
that you would ask in relation to the tax
itself and how it affects you?
Blough:
I assume that would be one.
- 16 -
Viner:
279
One thing that I think it would be a good
thing to do is to give them as simple an
explanation as you can work out why the
income tax can't be simpler. That is the
thing that hits lots of these people. They
think the complexities are there to get
them, whereas you can explain to them that
most of the complexities are a result of a
struggle for equity and not for getting them
and that is one thing that -Sullivan:
Most of the people who make those inquiries
will now be able to use the simplified form,
Jake.
Viner:
Then say that you have tried to simplify the
form.
Kuhn:
Even that isn't so wonderfully simple that
it doesn't need to be explained.
Gaston:
We are going to get into a lot of trouble on
that unless - there is room for a whole
educational campaign all by itself because on
this simplified form there are just a lot of
people who lose money if they pay on the
simplified form, and we have got to be frank
and honest. We don't want people using the
regular form when they could save money on the
simplified form and then coming back with a
kick later and also we don't want people using
the simplified form when they lose money by
Viner:
using it and come back on it later.
Is there any way of listing the important
cases and warning people in that regard?
Gaston:
The important thing is this. If you are
paying a lot of interest or a lot of expense
money, proportionately large expense money,
if you are a little rural salesman who works
on a salary and has to maintain his car --
280
- 17 -
Viner:
Well, a little booklet ought to be given out.
Gaston:
You don't want the simplified form. If you
have bought a home which is pretty expensive
in relation to your income and are paying a
heavy interest payment on that home, you
probably don't want the simplified form either,
because you will probably save more than you have probably got more than ten percent
in interest.
Tarleau:
Of course that is true, but we have to be
careful that we don't make, because of the
simplified form, the thing even more complicated
than it was before you had the simplified form
because they have got to go through making out
the old form and then they have got to make
out the simplified form and see whether they
are better under one than the other, Herbert,
and that was one of the points we have always
been worried about in the simplified form.
Gaston:
I think you may well worry about it, because
a lot of people are going to lose money out of
it.
Sullivan:
What?
Gaston:
I think a lot of people are going to lose
money on it.
Sullivan:
They are not going to lose very much, Herb.
Gaston:
Of course, the Government is going to lose a
lot of money, net.
Tarleau:
Are we, Roy, going to lose a lot of money?
Blough:
We will lose a little money. It depends on
what you mean by a lot of money. We might
lose as much as ten or twenty million dollars.
- 18 Tarleau:
281
How much do we get out of those people with
grosses of
Sullivan:
Two.
Tarleau:
around two thousand dollars. What is the
amount of collections, would you say, just
roughly?
Blough:
Well, I think maybe fifteen or twenty is high.
I don't know how much comes out of those
people.
Tarleau:
I thought if anything we were not too generous
with those people down below.
Blough:
We aren't too generous with them.
Viner:
But Roy, to some extent there would be an
adverse selection.
Blough:
There is no doubt that there is an adverse
selection.
Gaston:
You are generous to the man who doesn't have
business expense and is not paying heavy
interest on a home. You are generous to him
because he hasn't got ten percent deductions.
Blough:
Well, our purpose is to say to a man, "Now
here is an easy way to do this, and you can
get it over with in five minutes. Now, if you
really want to go into this and study it and
work it out, and so on, you may figure out a
way to save yourself a dollar or two.
Sullivan:
"And it may cost you more."
Tarleau:
Of course there is a real problem there if some
of them do find out in comparing with their
neighbors, by golly they have got to use the
simplified form, but that is the risk we took
- 19 -
282
when we put the thing in.
Blough:
That was the risk we took when we made it
optional.
Sullivan:
And on the form, on the very top of it, it
Viner:
What is the maximum saving that can be made?
Sullivan:
A hundred and ninety-three dollars.
Viner:
As much as that?
Blough:
You might save the whole works.
Sullivan:
That is what I mean.
Viner:
says "optional.
That is what I want to know, what is the
maximum?
Sullivan:
A hundred and ninety-three dollars.
Viner:
On that basis, my guess is there will spring
up tax experts who, for a five dollar fee or
something like that, will offer to tell you --
Blough:
I think that is quite clear and we have seen
that from the very beginning. I don't know
whether it is particularly reprehensible, but
certainly it is going to happen. I am not
sure that it is reprehensible because it will
mean a great deal of public education in the
income class.
Tarleau:
Certainly for a while it may even be a good
thing but the point is, we knew about that.
We even were worried about that.
Viner:
Of course when you made the simple form, I
didn't know anything about it, but I wondered
if you canvassed the desirability of making the
- 20 -
283
simple tax up to a gross income of so much.
Blough:
We canvassed that idea but we decided on the
one hand you had Mr. Salary Man with no
deductions of any kind to amount to anything.
On the other hand you had Mr. Home Owner,
with very heavy taxes, very heavy interest,
Mr. Farmer, and you just couldn't set - well,
the farmer would be excluded there, but the
home owner, you couldn't set up a gross tax
which would be very equitable and certainly
to start in with it seemed necessary to make
it optional. I don't know, it might - I
assume that it wouldn't have had to be made
optional.
Tarleau:
This one?
Blough:
But then above three thousand you would have
a sudden --
Tarleau:
Yes, we would have to have a notch of some
kind; in other words, a dollar of income
would suddenly - would cost you more than
five or six or seven dollars of tax.
Blough:
A dollar of income would make you money.
Viner:
Make this tax up to the first three thousand
Blough:
For everybody.
Viner:
Same for everybody.
Tarleau:
Then we would really have a complication.
Blough:
Then your justification would be on the
of income and make it the same --
higher incomes and you would gain nothing
by that.
Tarleau:
Then it wouldn't be ten or twenty million
dollars.
- 21-
Viner:
284
You fix the rates. You see, what I had
in mind was whether you had canvassed the
possibility of making the income tax simple
on the first three thousand and then as
complicated as you wanted above that, and
fix your whole rate structure so you would
get the same amount of revenue.
Blough:
But the difficulty of that is that deductions
have always come off the top and not off
the first three thousand.
Viner:
Yes, but you can fix the rates then.
Morris:
Well, Roy, from the point of view of pure
equity, this business of crediting interest
on a home and not crediting apartment rent
is thoroughly inequitable.
Blough:
Absolutely, I agree with you.
Viner:
Always permitting the deduction of local real
Morris:
Well, that is in the same class.
Viner:
estate taxes has no justification, -.on an owned house.
H.M.Jr:
Can I get in on this again?
Sullivan:
We have an entirely new code if you want to
get in.
Gaston:
We worked up a petty argument about something
H.M.Jr:
else.
I will tell you what I would like you to do.
When the March of Time decides they are going
to put on a program, they must have at least
three or four programs as tests.
Kuhn:
You mean radio programs?
- 22 -
H.M.Jr:
285
Yes. Now, what I would like you to do
with the existing staff and everybody that
we have, is to work out for me two or three
programs, you see, with this idea, laying
down the thing that we have got to raise so
much more money, and tell the people why
and go into this whole business of this
testimony which I gave you, see. It is going
to be so much and the national income is
so much, and there is so much goods and there
is a shortage of whatever it is, from five
to ten billion dollars, and we are going to
have to get more money. Before we get more
money we feel that everybody should pay their
proper portion and therefore we think the
first thing to do is to plug up a loophole.
My first thought would be, and you could talk
this over with anybody here in the room, would
be to lay down a foundation, why we need more
taxes, and then the second would be to adjust
one inequity like community property or some-
thing like that, you see, and work out two or
three programs, you see, with technicians
and people in defense savings bonds and so
on and so forth, and let's take a look at it.
Kuhn:
You mean dramatizations or speeches?
H.M.Jr:
I don't know.
Kuhn:
I have some feelings about the radio that may
not be --
H.M.Jr:
Just before you say that, because - may I
just say one other thing. I am convinced
after the experience I have had, you cannot
get the daily newspapers to print the stuff.
That has been my experience.
Sullivan:
Amen.
Kuhn:
I agree with you there.
- 23 -
286
H.M.Jr:
Ithe
just
wanted to say that is why I harp on
radio.
Kuhn:
I am all for the use of the radio. For
example, in the local stations, to spread a
knowledge of the broad principles of taxation,
the reasons for it, the method of paying and
so on, but I am not strong for the radio
if you are going into details, if you are
going into figures, technicalities. I don't
believe that people absorb and keep it. I
believe it goes into one ear and goes out
the other. I believe that most of the speeches
that have been made on the radio from the
Treasury on tax subjects have had very little
effect.
H.M.Jr:
Oomph?
Kuhn:
No, it isn't that, Mr. Secretary. They have
got the oomph, but they haven't had the
effect. They haven't stuck in peoples'
minds.
H.M.Jr:
If you have the oomph it has the effect.
Kuhn:
I think we have to know exactly how the
radio can be used and not try to do something
(Facetiously)
for which the radio isn't fitted. I think --
Sullivan:
To what extent has the radio been used in
Kuhn:
The radio can create an atmosphere. The
taxes?
patriotic stuff goes over beautifully on the
radio. In the Defense Bond business where
we have used the radio more than it has ever
been used before by any single Government
campaign - I don't believe that it sold a
lot of bonds. I think it has created a lot of
food feeling and good morale. It is a prestige
- 24 -
287
builder and all that. I don't believe
that it has actually sold bonds or given
people a knowledge of the technical nature
of the bonds. The denominations, the
reasons for limiting purchases to a certain
amount, I think on all that the radio has
been ineffective. I think on that you have
got to rely on pamphlets, on forums, question
and answer sessions in public meetings, the
use of community organizations like Rotary
and so on. That is where those arguments
stick. Maybe somebody disagrees with me.
Bell:
How about the movie shorts?
Kuhn:
No.
Bell:
Certainly that gets a lot of people.
Viner:
I would certainly say in my own opinion you
should not use the radio except for a formal,
carefully prepared speech by somebody high
up in the Treasury on the controversial
issues that are not yet in effect. In other
words, you should not use the radio on
community property unless you make a speech
or someone makes a speech and has a good
argument, because you mustn't mix in the type
of radio material which no loyal citizen
has a right to protest against with the
type that does raise a legitimate argument.
Gaston:
I think you need strictly to separate the
two different things, one an educational
campaign on the existing tax bill and the
other promotion for general tax ideas of the
Treasury and I think that promotion of
controversial or novel tax ideas on the part
of the Treasury has got to be done in a
rather conservative way, through conservative
channels. I don't think you can do it by
entertainment and ballyhoo and so on. I think
- 25 -
288
that has to be done by sober policy
speeches which may either be on the radio
or may be delivered before audiences.
If it is controversial, if you are at
issue with Congress, for instance, or if
you are promoting something novel in the
way of tax ideas, explaining something new,
I think our experience amply justifies the
statement that we will get newspaper
publicity on that sort of thing.
Kuhn:
The newspapers will cover things delivered
before an audience, won't they?
Gaston:
Yes, they will, not so well as they do -
where it is broadcast on the national network,
as you do yourself, they play it down. It
has got to have a lot of news in it before
they look at it.
Kuhn:
It has got to be delivered to a real audience.
H.M.Jr:
Ferdie, I am talking about two distinct
things. The first thing that I would like to
get is - there are two separate things. I
don't care whether the radio or what it is,
but I would like two t hings worked out. One
is the selling to every town and village and
so forth and so on of the present program,
the present tax program, you see, because I
just don't believe the people know what it
is going to do to them, and then the other
thing is the question, which is entirely
different, of the things we would like to get
in a tax bill. They are two separate
things.
Gaston:
That is right.
- 26 -
289
Kuhn:
Completely.
H.M.Jr:
Will you think about those things?
Kuhn:
Yes. I think the first can be done at once
and the second will depend for its effectiveness
upon other things being done in advance.
H.M.Jr:
Don't you think that is all right, Herbert,
to stop there?
Gaston:
Absolutely. I would like to see--
H.M.Jr:
Herbert, will you think about it too?
Gaston:
Yes, I think we can get together and map out
a plan, a public relations plan for educational work on this tax bill. Then we
could also work out some ideas on the promotion of general Treasury ideas on the tax
policy.
Foley:
Well, it seems to me that one is centralized
Gaston:
That is right.
Foley:
By the people who are thinking the way the
and the other is a decentralized program.
The development of a future program is something that can be done here and only here.
Administration has to be projecting itself.
The other one, it seems to me, is the job
that we best can do, not through our own
people in the field or collectors, our people
in the offices, but perhaps the same way the
defense bond campaign has been carried on,
by getting in public-spirited, high-minded
people in each little community, such as a
school superintendent or principal, pay him
on a per diem basis, get him to read the
things that Treasury sends out and get him
projecting the Treasury point of view to
the others in the community, and I think if
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290
you do that you get people listening to him
and you get a better understanding of why
taxes are necessary and why it is patriotic
in these times to do it willingly and not
begrudgingly.
Morris:
I think there is one pitfall that is very
hard to avoid. I think you have got to do
it in spite of this pitfall, but it has got to
be kept in mind, and that is that even in
the present tax bill or in any tax bill there
are going to be certain things that are controversial, and when you go out and start
telling people about what is in the bill,
they will say, "Well, why do you do it that
way? Why don't you do it some way," and
they will tend to throw you back into the
controversial era and also there is a great
feeling, incorrect as it is in many aspects,
but nevertheless it has got to be allowed
for, that they think that these things are
just what the Treasury wants.
Now, we know that isn't the case, but they
will say, "Well, you explain this to me.
You want me to do this. This is inequitable.
Now if you want to change it, why don't you
change it?" We have got to be very careful
not to get involved in this explanation and
back into the controversial side.
Kuhn:
Morris:
Because the Treasury, you mean, isn't responsi-
ble for a lot of things in the tax bill?
Yes, but if they start selling it - and people
more or less think they are responsible for
it anyway.
Sullivan:
It will be a use tax.
Viner:
I don't think you ought to defend the tax act.
- 28 -
291
You ought to defend the act of demanding
tax payments in general terms.
Sullivan:
Entirely a general basis.
Kuhn:
Mr. Secretary, I think there are some things
to do right away that can be done at once.
Number 1, I think we ought to make every
effort to get a swell staff of letter writers
because they are our best pretext for getting
our general line and philosophy over, replies
to squawks. We ought to pay an awful lot
of attention to that, and I don't know how
it is being done, John, but I just suspect
that we could do a lot better if we got some
experts in from outside who - some mail order
people to write letters in response to squawks.
Sullivan:
I don't doubt, Ferdie, that it can be done
better, but you must remember that however
facile an outside fellow is, he can't answer
one letter until he knows the tax business.
Kuhn:
Well, that is true, but some of these letters
are just general complaints. There are people
who say they don't want to pay any taxes because of this decision of the Administration
or that decision.
H.M.Jr:
Or on account of the labor situation.
Kuhn:
Or on account of the labor situation and
somebody certainly can compose a reply that
will not only rebut their argument but give
positively the Treasury's philosophy in these
things.
H.M.Jr:
Buffington, where do those letters go now?
Buffington:
I was just going to say I get a good many
that are not highly technical, but I don't
like to answer them because they should be
- 29 -
292
answered by someone who knows all about the
tax bill, and I have been sending them to
Shere.
Blough:
Well, here is the situation. A lot of letters have been coming to us. We are not
happy about it because we don't want to be
a letter writing organization. Recently--
Kuhn:
You haven't got the time anyway.
Blough:
Recently the number of letter has gotten so
tremendous that Charles Bell has set up two
people - I don't know how competent they are to answer letters, and we have agreed, and
I think you (Gaston) have agreed that where
technical points come up we will be very glad
to consult with them.
Now, as it happens, it is taking a good deal
of time to do that consulting just now. We
hope a little later it may not take so much
time.
Viner:
What do you do when you agree with a squawk?
Blough:
Let the letter writer figure that out. (Laugh-
Tarleau:
We do have some of those cases.
Viner:
What can you do?
Foley:
The two people that Charlie Bell has got
are my people, and I think that Ferdie is
ter)
right. I think we can do a much better job
replying to these letters, and John says -
when John says that a fellow can't write
anything until he knows the tax laws, I
think that a fellow can know the tax laws
and still not be able to write the letters.
- 30 -
293
Sullivan:
That is right.
Foley:
He may never be able to write the letters,
because it requires a certain kind of
technique, and I do think we ought to get
those people, and we ought to take them,
not from the people that are over-worked
from the staff at the present time, but
get them from the outside.
H.M.Jr:
Check.
Kuhn:
I think every letter is an ambassador of the
Treasury's policy and it is read by far more
people than just the recipient of the letter.
It is shown around, especially if it is a
good letter. That is one thing.
The second thing is my pet that I have
talked about with you (Secretary) and Buffington and Odegard and that is this business
of cartoons. I have talked to John about it.
There have been two particularly nasty ones
within the week showing the poor taxpayer
with welts on his head and standing in a
barrel and Mr. Morgenthau sharpening his
knife and the various devils behind him
ready to smash at him, and I think they are
more damaging to Treasury good will in the
country than any other single kind of
publicity, and I think they are very easy
to crack. I think it is going to be com-
paratively easy to start right now on these
people to--
H.M.Jr:
Kuhn:
Well, we talked about it on the plane.
... replace that conception with a different
one, show the taxpayer as a kind of upstanding citizen who is doing something that may
hurt, but he is proud to be doing it, because
he knows why he is doing it.
- 31 H.M.Jr:
294
Well, I think that this thing is worthy of
just as many people and just as much brains
and thought as defense savings bonds.
Sullivan:
Correct.
Kuhn:
That is right. Certainly things to create
the atmosphere--
H.M.Jr:
I think that should be a whole section.
Foley:
And a whole section whose job is nothing
else but this, Mr. Secretary, and not
the people that are drawn upon from the
rest of the Treasury that are already over-
worked and that would rather be doing their
regular work.
Blough:
Whose capacities are along other lines.
Foley:
Than spend their time on this thing, and
are obviously treating it as a part-time
job or as a temporary thing. You don't
want to do it, and my people don't want to
do it, and Tommy's people don't want to do
it.
Tarleau:
Yes, I lost Herbert Merillat that way. He
was writing letters and writing letters,
and that was the last I saw him.
Sullivan:
Ferdie got him, and now Ed has got him.
Foley:
I haven't. Now you see him and now you don't.
H.M.Jr:
Ed threw him back at me. (Laughter)
Kuhn:
May I raise another thing that I think is
damaging to popular psychology on taxes and
that is the kind of thing that happened last
spring, when various people around the
Administration began sniping at the Treasury
- 32 -
295
right after the Treasury put up its tax
bill. I think that is awfully important
for us if we are going to do this educational
job that people around town talk with the
same voice. I wondered if there was anybody
that had any suggestions.
H.M.Jr:
I didn't read the whole story, but this is -
there will be no leaks about this meeting
tonight, because this is the Treasury crowd.
There are never any leaks. I didn't read it
all. I will read it tomorrow. I heard
there is a whole account in the Wall Street
Journal of the meeting that took place in
your (Sullivan's) office.
Blough:
That is quite inaccurate, Mr. Secretary.
H.M.Jr:
But at least they knew the meeting took place
in your office. There were two outsiders
in it, and I would put my money on which one
talked, too.
Sullivan:
I don't know whether either of them talked,
but I will tell you what happened. While you
were in there George Bryant came in and asked
Mrs. Brennan if there was any chance of seeing
me if he waited a little while. She said, "I
don't think so. I think he is going to be
busy all afternoon." He said, Thank you very
much, and I will see him in the morning.
George started out and went over to the hat
rack and said, "Marriner Eccles' hat. I would
recognize that anywhere." She told me that
after the meeting ended.
Foley:
It has been done before.
Gaston:
It is an old device.
Kuhn:
Isn't that a real obstacle, though, to putting
this over?
- 33 -
H.M.Jr:
296
Well, that is the most difficult thing of
all, and that is the thing - it is almost
impossible. These people swear on the
family Bible they will never do it again,
until the next time.
Kuhn:
I don't mean leaks, I mean disagreements,
public disagreements.
H.M.Jr:
Well, at my press conference today, the AP
man said, Now, Mr. Morgenthau, what about
the people in the Administration that don't
agree with you?"
Viner:
That is the way he talked to me today.
H.M.Jr:
Maybe that is where he got this. (Laughter)
Viner:
I was very much interested. He told me that
Shoup had presented an elaborate report and
that lots of the economists around Washington
didn't like it and it was a terrific thing
and so on, and I said, "Where can I see the
report?" He said, "Oh, some of the Treasury
people have it.
H.M.Jr:
That is the way they do it. They go around
and visit - you drop an eyebrow or from and
somebody else does something else.
Viner:
I was just ignorant. I didn't know anything
about it.
Gaston:
Smart people these newspaper people, Ferdie.
Kuhn:
Yes, they are smart fellows.
H.M.Jr:
I think you will agree, John, that this is
something a little bit different than the
regular run of Internal Revenue.
- 34 -
297
Sullivan:
Entirely.
H.M.Jr:
What I would like to do to start the thing,
I would like Buffington who has done a swell
job on the tax thing to start this and branch
out a little bit and work with Kuhn and with
Gaston and anybody else who wants to feed
ideas to them, you see. You have done a
swell job in a very short time on the tax
bill, and now let's branch out a little bit
and see how much help you would have to get
to do the thing which you are doing now.
I mean, you are doing it now through this
distribution of this "Know Your Taxes.
Well, now, let's go a step further. It needs
somebody to give it all of his time, and I
think that Buffington--
Sullivan:
I think that is a very good idea.
H.M.Jr:
Has demonstrated that he can do this one
thing. Let's see if he can't take on some
more.
Kuhn:
We have to create an atmosphere right now.
H.M.Jr:
But I think we should feed the ideas in there
and they can check very carefully, and I
think we ought to let Helvering know right
away.
Sullivan:
I think he ought to be in on the whole business.
H.M.Jr:
I think Helvering ought to know.
Sullivan:
I will send you a copy of this memo he is
sending over, George, on what is being done
now and that is a good jumping off point
for you, I should think.
- 35 -
298
H.M.Jr:
Is that all right with you?
Buffington:
Fine.
H.M.Jr:
Kuhn? And Herbert, will you think about
this?
It is all right, yes.
Now, let's just talk a minute. I mean, we
are going to start this thing and try to
build it around Buffington. It is a selling
job. I want to bring in - well, just the
way you are, business groups and so forth
and so on, you see. I am not giving up my
tax forum of the air.
Kuhn:
No, that is a different thing.
H.M.Jr:
Now, John, just take a couple - where are we
now - where do we stand right now on next
year's tax program.
Sullivan:
Well, until I heard your remarks tonight,
I thought we were still going to go ahead and
get our withholding tax;at the time we presented that, present the entire program and
tell them that we wanted immediate action on
the withholding part and tell them why we
wanted that and that the day that was passed
we would come in with parts two and three.
that is where I thought we were.
H.M.Jr:
Well, we are not because - well, I am just
not sold. I have got to start all over
again.
Sullivan:
You mean you have given up any hope of doing
anything before Christmas?
H.M.Jr:
No, I mean I am just starting with myself.
I mean, from the arguments in the mail and
- 36 -
299
and so forth and so on, my mind is still
open and I have got grave doubts about the
withholding tax.
Sullivan:
You mean as to its wisdom or our ability to
get it through?
H.M.Jr:
No, as to its wisdom. I first want to be
sold on its wisdom. Then if I think it is
all right, we will go to town on it.
Sullivan:
Well--
H.M.Jr:
I want that and what method we are going to
Sullivan:
use to get increased taxation of corporations
and individuals and the whole business. As
far as I am concerned, the whole question is
an open book, nothing is settled.
I have always felt that before we start on
any part we should have the entire program
ready so that when we present anything we can
present the whole business.
H.M.Jr:
Well, at least in my own mind I would like
to have a complete program.
Sullivan:
Well--
H.M.Jr:
Well now, let me ask you this: How are we
Sullivan:
Well--
H.M.Jr:
Who have we got in?
Sullivan:
Well, we have Mr. Blough's shop and Mr.
Tarleau's shop, and they are expanding Mr.
Tarleau's shop to take on four new men.
We also have Mr. Gulick's people.
fixed in the Treasury right now as to people
to work on the thing, as to a new program?
300
- 37 H.M.Jr:
Well, and then what about Shoup and Paul?
Sullivan:
Randolph will be here all day tomorrow and
Wednesday.
H.M.Jr:
Can he stay?
Sullivan:
I don't know how long.
H.M.Jr:
Well, what I am--
Sullivan:
He has never turned us down on anything,
any request you have ever made.
H.M.Jr:
What I am groping for is this. Just the way
we have got Buffington set up to try to do
this thing with the help of Kuhn and Gaston
and everybody else that has any ideas, the
question of just working out a new bill that
is separate from all your other administrative duties, you see what I mean? I just
wondered how that is going to work.
Sullivan:
That is about all I have worked on since I
have been there. We have had five, you see.
H.M.Jr:
How much time do you give to Internal Revenue,
the organization?
Sullivan:
Very, very little.
Bell:
How about the Social Security taxes, Mr.
Secretary? Is that still open, along with
these others.
H.M.Jr:
What voice is that?
Blough:
Dan Bell.
H.M.Jr:
Yes.
Bell:
You wouldn't feel like going ahead with that
301
- 38 program first?
H.M.Jr:
First?
Bell:
Yes.
H.M.Jr:
No, I will tell you, Dan, there is the
question you asked me whether I was sold on
this question of efficacy or whether it was
the Congress of the United States - they
definitely don't want to take it up until
after the first of January.
Bell:
I didn't know.
H.M.Jr:
No, there is no question about the Speaker
and Doughton and all of them. None of them
want to take it up before the first of
January.
Sullivan:
Of course your revenue bill gets postponed
six months the minute your Social Security
bill gets in there, Dan.
Bell:
You mean just the items that you had? Not
the whole Social Security program?
H.M.Jr:
General Watson called me up tonight at half
past five and said the President was ready
to see George and Doughton, but George was
out of town and was there anybody else, and
I said, no, not to have the meeting. The
President was ready Wednesday morning. I
asked him Friday whether he would do it. He
said, "No, unless it is a favor to you," and
I said, "Well, it is a favor to me," and he
said, Well, then, I will do it," but he
was ready to do it Wednesday, but George was
out of town, so that means it goes over, I
guess, until next week, and then maybe the
President will be in Warm Springs. But he
was - to give the President full credit, he
was ready to do it Wednesday.
- 39 Sullivan:
302
I think if your mind is made up, it is just
as well if it went over, because we ought
to know what we want to do.
H.M.Jr:
I have got grave doubts.
Sullivan:
May I ask what part of it it is you have
doubt about? Is it the amount of money we
need or whether or not it is a pressing
need?
H.M.Jr:
No. I haven't changed a bit as to the amount
of money and as to the great need of it, but
I have got grave doubts about this tremendous
increase on the little fellow. I have got
grave doubts about it.
Morris:
Isn't that partly due to the mechanics? We
didn't sell the thing correctly, and they
are all talking fifteen percent and forgetting
all the exemptions and forgetting that it
doesn't hit a man until he gets twenty-one
hundred dollars.
H.M.Jr:
I have got the table, Dave, and I know it
works out an average of eleven and all that,
but I mean that is what I want to start in on
tomorrow morning. I don't know who wants to
be an advocate for it. I still think from
the mail that the white-collar worker who
has had no increase and to treat him just the
same as the fellow that is getting two or
three times as much isn't fair.
Kuhn:
Mr. Secretary, is that reaction in the mail
a direct reaction to the taxes or to other
things such as the rising cost of living and
so. on? If a real attempt were begun, through
the passage of a decent price control bill
and other things, wouldn't the letter writer
feel a little differently about it?
- 40 -
H.M.Jr:
303
I think you have got to get your price
control bill through. I think the strike
situation has got to be settled. I think
those two things have got to be settled first.
But I still think what I would like to see is
a table of taxes, and let's just say, for
Kuhn:
example, we are going to take a third of
everybody's net, just for example, you see,
and see that thing work right through, the
whole thing. You will find great discrepancies.
I don't think that this reaction comes from
H.M.Jr:
There are certain groups with great discrepancies.
Blough:
You mean between those that have got more and
H.M.Jr:
No, just disregard that. Starting at two
taxes.
those that haven't got more?
thousand dollars and running up to a hundred
thousand or five hundred. You say, "Well,
we are going to take a third right straight
through."
Blough:
Those two charts, I think, indicate that any
way you do it you are going to have discrepancies
of a pretty serious character.
H.M.Jr:
It is awfully hard to explain those discrepancies
and it hasn't been explained to my satisfaction.
Sullivan:
Well, Mr. Secretary, you are forgetting that
H.M.Jr:
in part two of this bill you are revising
your surtax rates to try to correct that.
I would like to see a table that - applying
whatever the percentage is to the person
who pays on his net, beginning from where
he pays taxes right up to five hundred million
dollars' income. Now, here comes another tax
bill and you run a line, just what does that
304
- 41 -
superimpose? Now is that a curve which will
follow a natural course or is it a curve that
will go up and down?
Morris:
Well, I am talking against myself, but I think
that on this question of the white collar class
that if there is any justice in their having
stable income, that then while they may kick
at present, they have no right to kick, because
the other people have not had any decent income
for the last five years, and they are coming
up and having it now. The white collar group
has to look at its average income over a period
as compared with this other group's average
income. That is a question that is very
delicate politically and very full of necessary
education, but I think that side has been completely
neglected in all discussions of the relative
cases.
H.M.Jr:
You may be right, but isn't it possible, Roy,
to take a chart and show the percentages and
run a line -Blough:
You saw the charts I sent up today, didn't you?
H.M.Jr:
I told Miss Chauncey to give them to you to
bring here tonight.
Blough:
I have them.
H.M.Jr:
I haven't looked at them, no.
Blough:
I have them here.
H.M.Jr:
Does that give that?
Blough:
I think it does that.
H.M.Jr:
I haven't looked at them because they came in
Maybe Miss Chauncey didn't give them to you.
late. Do you think that is possible?
- 42 -
305
Viner:
I am not sure I have it clearly in mind, but
if it is possible, Roy can do it.
H.M.Jr:
What I am saying is --
Viner:
To show first what the whole schedule is,
net, the effective rates now, and what it
will be as related to what it is now on
the new tax.
H.M.Jr:
Blough:
On any new tax, any additional tax. But is it
a - no, I didn't see these, Roy.
I think everyone here except Mr. Barnard has
Buffington:
been given a copy of this.
I haven't.
Gaston:
I haven't seen it, Roy.
H.M.Jr:
Isn't that funny, that I should ask for that?
Viner:
What is this, Roy? This isn't it, this is
something else.
Blough:
Well, here is one.
H.M.Jr:
That is a strange coincidence, isn't it?
Sullivan:
They didn't get around until about half past
Rlough:
What I passed around was the Henderson material,
Foley:
Yes.
Blough:
I don't have enough of this to go entirely around.
H.M.Jr:
five, Roy.
and I thought we had gotten this out. I sent
you (Foley) a copy of this.
Here is one more.
Now, there are two tables and two charts.
The purpose of the first --
- 43 -
306
That is amazing, Roy, that I should ask for
this. You thought I had looked at it, did
You?
Blough:
No, I thought you had seen it.
H.M.Jr:
No.
Blough:
The purpose of the first table is to show
what happens to the effective rate of tax.
The first chart and the first table show what
happens to the effective rate of tax.
Now, the bottom black line is the present law,
1941 act, and you go along the bottom with
the size of the income, and up the side you
have the percentages which the income tax
constitute of the total income. Now, the
dash line marked "A" is the plan which
we have talked about in which the supplementary
tax of fifteen per cent with present exemptions
is allowed as a deduction for income tax
computation, and if you observe how that
line starts at the bottom and then rapidly to
about - up to about eight or ten thousand
dollars increases the effective rate, and
then above that the influence of the deduction
decreases it so that when you get clear up to
the top it increases the effective rate only
about three per cent.
Now, if you did not allow the supplementary taxes
deduction, you would get the dotted line "B",
in which the combined tax, supplementary
and present income tax run up to about ninety-
three per cent at five million dollars and less
in smaller amounts.
Now, line "C" hitched on to line "B" assumes
that you decide, "Well, we can't go up above
- 44 -
307
ninety per cent. Maybe we had better stop at
eighty-five per cent combined rate." Then
you just draw a line from there on over and
say, "Well, at eighty-five per cent we stop."
That might be ninety, it might be eighty, it
might be anything you want. So that the
chart shows the effect on the effective
rate of the supplementary tax.
Now, the second chart, chart two, has a slightly
different purpose. Its purpose is to show
what this withholding tax takes away, combining
the withholding and income tax, what it takes
away out of the income the taxpayer has left
after the present tax is deducted.
In other words, the taxpayer doesn't start from
scratch. He starts with the present law.
Now, of the income he has left after the present
law, what does this supplementary tax do?
The bottom dashed line shows what the supplement-
ary tax does to the income remaining to the taxpayer if you allow the supplementary tax as a
deduction in computing income tax. It goes
up to about ten thousand dollars and then
because of the progressive certain things about
the income tax rate which I will explain if
you wish, it sort of sags off there to about
a hundred thousand and then goes on up again
from there on up.
Line "B", dotted line, shows what happens to
what the man has left if you don't allow
the supplementary tax as a deduction in computing
the income tax. You take seventy per cent of
what is left, for example, of five million
dollars. Line "C" shows what happens to the
income that is left if you flatten the thing
off at eighty-five per cent and don't take
in any more.
- 45 -
308
H.M.Jr:
If you were working for Mr. Mellon, he would
put in line "C", because nothing ever happened
above seven hundred fifty thousand dollars
as long as Mr. Mellon was there (laughter).
Sullivan
If you don't put something --
H.M.Jr:
As long as he was there - what was it, seven
hundred or seven fifty? They never advanced the
tax rate beyond that.
Buffington:
Another way of putting it is that it was his
bracket.
H.M.Jr:
That is right (laughter).
Sullivan:
Well, there is a little limit on you, Mr. Secretary, what you can do to those fellows, or
they will end up owing the Federal and state
taxes a hundred and fifteen per cent of their
income.
H.M.Jr:
Now Johnnie, you will have me crying and I won't
Sullivan:
At least you know I am not talking of my own
be able to sleep all night (laughter).
predicament.
H.M.Jr:
I have got to take your word for that.
Well, Roy, this is what I want and I don't see
how we happened to be of the same mind yet.
I think this is an excellent place to start
tomorrow morning at ten o'clock.
Blough:
We shall have additional copies of this for
H.M.Jr:
Maybe you can sell it to me, I don't know.
First you have got to sell Viner.
Viner:
Well, I am troubled on the technical point on
everybody. These are all I have this evening.
- 46 -
309
these charts. You had a problem to get in
from one thousand to six million and you used
semi-logarithmic sideways.
Blough:
Yes, we have been obliged to do that for years.
Viner:
I don't know what that does to your curve.
Bell:
I will say that is technical.
Blough:
Well, it gives you a nicer looking curve.
Viner:
But ninety-five persons out of a hundred
misread that. You see, what it doesn't show
is how gradual the gradation is at the start.
Blough:
Well, that is quite right but otherwise --
Viner:
I would say I would do this over for, say up
to fifty thousand dollars, which affects the
great bulk of the persons, on a natural scale
and see what that looks like. We will get
another picture of how it rises. I don't
know how many here know this, that this was
a doped chart.
Blough:
I beg your pardon (laughter). I think, however,
Viner:
Up to fifty thousand.
I don't know whether we can go as high as fifty
and still show the thing at the bottom, but as
high as we can and still have the detail at
Blough:
your suggestion is a good one.
the bottom show. I think you are right. It
would be very well to do that. What time is
our meeting tomorrow?
Sullivan:
Ten o'clock.
Blough:
We won't have it by ten, but we may have one
copy at ten.
310
- 47 H.M.Jr:
That chart, as I understand it, only includes
the fifteen.
Blough:
Chart one or chart two?
H.M.Jr:
Chart one.
Blough:
Chart one includes the fifteen plus the present
H.M.Jr:
Yes. But go the whole way. Give me a new tax
tax.
bill. I mean, the new tax bill with the
new surtaxes and everything else.
Sullivan:
He means combining the surtax rates we are going
H.M.Jr:
Or anything else, and give it to me.
Blough:
Well, I think, Mr. Secretary, what I personally
had in mind was this, that after you see this
chart we will be in a somewhat better position
to consider what sort of rates the surtaxes
to propose and the fifteen per cent.
should have.
H.M.Jr:
Granted. If this chart is correct - now, that
Blough:
I think the first question is how high are you
willing to go, and at what level are you willing
"A" line is an amazing line. Then following
the same method, I would like to build a tax
bill based on your 1941 act.
to go there. I am not sure there is much econom-
ics in it, to be perfectly frank, in a time
like this.
H.M.Jr:
Blough:
What do you mean?
Whether it makes much difference from the
economic point of view whether you take eightyone per cent or ninety-one per cent.
311
- 48 -
H.M.Jr:
Well, I think that --
Viner:
There is no money up there and they can modify
there to some extent their behaviour in
accordance with the rates, so they don't
give you any more now.
H.M.Jr:
Well, if we decide we are going to raise so
many billion from individuals and so many
billion from corporations, this is to me that I happened to get to the thing this way -
I mean, if it isn't a doped chart, if it isn't
too dopay, I would like to see the same thing
on corporations, on their net.
Blough:
The corporation tax when you get above twenty-
five thousand dollars is fairly flat from
there on up. We could do it up to twentyfive thousand.
H.M.Jr:
Could you illustrate the difference between taxing the corporations on their average earnings
and on their invested capital?
Blough:
We could for any specific corporation.
H.M.Jr:
Well, I would like to see some.
Plough:
It would be something of a problem to try to
H.M.Jr:
Well, take some, because I think that would
be - I have never seen it presented this way
generalize it. I will see what we can do.
before.
Blough:
We can easily do it with the standard corporate
rate. Let me see if we can do something with
the excess profits. It is going to be much
harder, I will say that.
H.M.Jr:
Well, there are a lot of other things that go
into this whole business. I don't want to
- 49 -
312
start another discussion, but this whole question
of the attitude of the management as to the
economy in their own management and production
and all the rest of that. That whole thing
comes in, and I still haven't thrown aside
your (Barnard's) idea of the surpluses and
what to do with them. In other words, as far
as I am concerned, the whole thing is still an
open book.
Jake, you will be here tomorrow, won't you?
Viner:
And Wednesday.
H.M.Jr:
Well, I think we have made a little start
Blough:
Mr. Shoup wasn't planning to come down tomorrow.
tonight.
H.M.Jr:
If you really want him, he will come.
That is one idea I had to throw out, that Ferdi-
Kuhn:
I am still hoping, Mr. Secretary.
H.M.Jr:
I mean, just the way this fellow does with
Kuhn:
Baby Snooks and -- (laughter).
Foley:
I am afraid they would cut you off in Califor-
Barnard:
I wouldn't do that. I have had about thirty
years' experience in this kind of public rela-
nand Kuhn had. He wanted to take fifteen
minutes right in the middle of the Treasury
Hour and have me go on and talk about depletion
of community property tax.
the Ford Hour.
nia.
tions. The technical question you never can
properly handle in the mass. You are sunk if
you do it. You won't get anywhere but into
trouble, but you have got to handle it by
313
- 50 -
another method which is a constant readiness
to answer the individual and a proof to
the public that you are always ready to do it.
You know what you doing, you know why you are
doing it, and you will go just as far as
anybody wants you to go, but not with the
general public. You will just get yourself,
I am sure, into a mess if you try to handle
that kind of a question in the mass.
Viner:
I think the way to handle those things is to
wait until some Senator or Congressman writes
to you, and then write a carefully framed
letter and give it out.
Kuhn:
Do you agree with what we were saying
Barnard:
Yes, unsuitable, but I don't think it is unsuit-
saying earlier, about the unsuitability
of doing technical things in the -able to have every revenue officer in a position
to answer those questions.
Blough:
It wouldn't be unsuitable to have the women
voters make it their study topic for the year,
either.
Barnard:
And it is very important to answer any letter
that comes in, and it is important to have that
kind of people that are interested in the question and have a discussion with them. But
they are a limited group. The rest of the
crowd merely want to know that you know what
you are talking about, or think you do, and
that you treat them nice when you ask them a
question the answer to which they can't understand because they won't understand it. There
isn't one person in a thousand that will
understand any one of these technical questions.
- 51 -
Kuhn:
314
They appreciate your letters. They write
back and thank you, tell you that they feel
a lot better about it. It happens again and
again.
H.M.Jr:
Well, it isn't easy. I appreciate it isn't
easy. We certainly ought to make the effort.
Barnard:
I don't think you ought to make the effort on
the line of attack that has been tried again
and again by many people, and it doesn't work.
That I don't think you ought to do. You can't
make too many mistakes here, and you are talking
here tonight about changing the program that
you have already been accused of putting up,
and it doesn't help your program --
H.M.Jr:
I didn't say that, excuse me. What I said
was that I wasn't sold on the thing.
Barnard:
Assuming that you are not sold tomorrow or the
next day, then you are going to change and --
H.M.Jr:
Well, you wouldn't want me to go ahead if I
wasn't sold, would you?
Barnard:
No, what I am saying is please don't go ahead
until you really know what you want to do. You
jumped pretty fast this last time, and you
had to to get things moving, but it won't
do to jump this way and jump the other if you
are going to try to keep the public sold. It
will look as though you didn't know what you
were doing and every wind that blew changed
your mind. I don't think you can do that.
H.M.Jr:
Well, I would rather be accused of not knowing
my own mind but changing if I had doubts, if
I thought I was wrong. I would rather change
and take the criticism.
- 52 -
315
Barnard:
Well, I think you are right about that.
H.M.Jr:
Than not change and just bull it through.
Barnard:
All I am saying is if it takes an extra week
to be sure you know what you are doing it is
well worth doing.
H.M.Jr:
No, I think we may be at this thing from not
until the first of January because I don't
think we are going to get any tax hearing.
You see, normally what we do is, we prepare
in three to six months for a tax bill. That
is what we take normally. We were trying
to do it the other day in two weeks.
Gaston:
In addition to deciding what you want, there
is also the question of strategy involved,
because you won't get what you want from Cong-
ress. In other words, if you decide on a with-
holding rate, and go to Congress and ask them
for fifteen per cent in this situation, you
probably won't get more than ten, if you get
that.
H.M.Jr:
That is why, Herbert, if we once decide
definitely we want a withholding tax,
we ought to go to the public first before
we go to Congress.
Gaston:
I think we should go to the public.
Blough:
Your point is, we don't necessarily go to
Gaston:
Well, I think that is a question of strategy to
Congress with just the rate we want?
be decided. We ought to be conscious in advance
that we will probably not get as much as we
asked for.
Sullivan:
I don't think you can make a horse trade more
than once, Herbert. We went in the last time.
- 53 -
316
The Secretary decided he wanted three and a half
billion dollars and we fought it out along that
line all summer, and we got three and a half
billion dollars, and I think that once you go
in with something more than you think you need
and get less, everything you say from that time
on is going to be discounted.
Barnard:
Well, John, you can't possibly go in for more
than you need in this situation. You could in
a normal time.
Sullivan:
You are right.
Barnard:
It is politically impossible to get as much as
you need.
Sullivan:
H.M.Jr:
If it is the judgment of everybody in the Treasury who is working on it that fifteen per cent
is what we need, let's go in and face the brickbats and fight and get it.
Well, John, I think the thing to agree on is how
much we want in dollars and then fight for that
just the way we did last time. We had success
then. Now, we want five billion dollars --
Viner:
The point is five billion dollars in one way
will not do this job as well as three billion
gotten in some other way.
Sullivan:
that is right. You are disturbed about the
equity and the wisdom of getting it in this
particular way. I think in the present situation
the manner in which you are going to collect the
amount is fully as important as the amount you
are going to collect.
H.M.Jr:
Granted. It is awfully hard to get a fight with
me tonight.
Viner:
And of course the tax structure is so high
that you do have to consider very carefully
- 54 -
317
how you get in your additional sum, because
there can be very serious equities. You
have to be very careful tonight.
H.M.Jr:
Well, gentlemen, thank you all for coming out
in the middle of the winter.
318
November 17, 1941
ELEMENTS OF A TAX PROGRAM
I. Taxes intended especially to combat inflation.
1. A new supplementary tax on net income might
be imposed to be withheld at the source on salaries,
wages, dividends, bond interest, and similar items,
and to be collected on other incomes quarterly
throughout the year. These taxes would thus be
collected insofar as possible like the payroll taxes.
They would, however, have personal exemptions and
credits for dependents. The supplementary tax
would be deducted from net income in computing the
income tax. Because of this deduction and because
of the personal exemptions the increase in effective
rate of tax would never be as high as the stated rate
of tax. If the rate of this supplementary tax were
15 percent and the existing personal income tax
exemptions of $750 for single persons and $1,500
for married couples, with a dependent credit of $400
were allowed, it is estimated that at present income
levels the net increase in tax revenue would be
about
$2.8 billion
2. Payroll taxes for old-age and survivors'
in the present law. These taxes are at the present
insurance might be increased sooner than provided
time imposed at a rate of 1 percent on employers
and 1 percent on employees and are scheduled to
rise on January 1, 1943 to 2 percent on employers
and 2 percent on employees. This increase might be
made one year sooner than was scheduled. It will be
recalled that no increase was made on January 1, 1940
when it was originally scheduled. The increase in
tax would yield during 1942 increased revenue of
approximately
$0.9 billion
3. The Social Security Board's program relating to the expansion of the old-age and survivors'
insurance and unemployment insurance systems might
be enacted as soon as practicable. The change with
respect to unemployment insurance involves an additional 1 percent tax on employees. The combined
effect of these changes would be to increase the
$1.0 billion
revenue by approximately
319
2-
The above taxes would all be ant1-inflationary
and would yield a total increased revenue estimated
at approximately
$4.7 billion
II. Rate and other changes to balance the impact
of the anti-inflation taxes and to raise add1tional revenue.
1. Individual income tax: Increase surtax rates
of individual income tax to yield at
least.
$0.2 billion
2. Corporation taxes
(a) Excess profits tax: Revise basis
and possibly increase rates. For
example, if the tax were computed
using an average of the income
credit and the invested capital
credit, the revenue would be increased substantially
(b) Surtax: Increase rates 2 percent
from 6 and 7 to 8 and 9, respec-
$0.5 billion
tively
3. Estate and gift taxes: Increase rates
and lower exemptions.
$0.2 billion
$0.2 billion
4. Defense excise taxes: Special excise taxes
on commodities competing with the defense
program can serve a function in the present situation. In general, the Treasury
would support such an excise tax; it should
have been requested by SPAB and should
apply to those durable consumers goods,
maximum prices for which have been set by
the Office of Price Administration, and the
distribution of which among consumers 18
expected to be 80 inequitable as to
necessitate some governmental action to
assist in allocation.
In determining the consumers' goods to be
taxed and the determination of tax rates
and bases, etc., the facilities of the
-3- -
320
Office of Production Management and the
Office of Price Administration and their
respective industry advisory committees
should be fully available to the Treasury
Department. The Treasury would reserve
the right to determine where, in its
judgment, the effective administration
of such taxes would be feasible. Revenues would depend entirely on the goods
taxed and the rates. It would not be
unreasonable to expect from this source. $0.4 billion
III. Changes to close loopholes.
1. Mandatory joint returns: If mandatory joint
returns cannot be enacted then at least a change
relating to community property income 18 recommended.
2. Insurance taxation:
(a) Align the treatment for stock and
mutual insurance companies other
than life.
(b) Revise basis for taxation of life
insurance companies to provide more
adequate taxation.
3. Eliminate percentage depletion or otherwise
revise the present scale of excessive allowances.
4. Tax-exempt securities:
(a) Eliminate the exemption with respect
to future issues of State and local
obligations.
(b) Restrict the exemption on outstanding
issues to the taxes now prevailing.
5. Capital gains and losses: Align alternative
tax on capital gains and losses to allow for rate
increases under the 1940 and 1941 Acts.
321
Taxes and Tax Changes not Included
in the Tax Program
1. General sales taxation.
2. A progressive tax on spending (Professor
Fisher's plan).
3. Excise taxes on luxury articles not
competing with the defense program.
4. Compulsory saving.
322
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 17, 1941
TO
Secretary Morgenthau
FROM
Mr. Buffington
I discussed with John Sullivan your
memorandum dated November 17, regarding provisions
in the field offices of Internal Revenue to take
care of taxpayers. He stated that he had the matter
under consideration and would report to you direct.
GIS.
Nature
wing
TREASURY DEPARTMENT
323
-WASHINGTON
SECRETARY
A MESSAGE TO TAXPAYERS
FROM THE SECRETARY
OF THE TREASURY
The folder, "Know Your Taxes", which is
being distributed by the Treasury, shows at a glance
what you will have to pay in the coming year and how
much of your monthly income you should set aside
regularly for tax payments.
The purchase of Tax Savings Notes, now on
sale by the Treasury, is one way to save systematically and conveniently for this purpose--but the
important thing 16 to save.
I suggest you consult your local bank,
savings and loan association, or employer. They
will, I am sure, assist you in arranging now a
savings plan to provide the money for income tax
payments next year.
Financial institutions are now making,
and I know will continue to make, a real contribution to the defense program by educating the public
to save. Only through saving and thrift will we be
able to eliminate the threat of inflation which
endangers us all.
Secretary of the Treasury.
November
19, 1941.
FORDEFENSE
BUY
UNITED
STATES
WINGS
BONDS
DOSTAMPS
changes letter
830
2
324
November 17, 1941
MEMORANDUM
To:
The Secretary
From:
Mr. Blough
Subject: Burden distribution of a 15 percent supplementary withholding tax.
The supplementary (withholding) income tax has
been considered in the Treasury as part of a larger
program which would involve increases in income surtax rates, to be imposed in such a manner as to
achieve the most desirable effective rate curve.
Without reference to such increases in surtax rates,
the effect on tax burdens of a 15 percent supplementary
tax with present personal exemptions is indicated for
various income levels in the attached Charts I and II
and the accompanying tables, for a married person with
no dependents.
Chart I
Chart I shows effective income tax rates at
various levels of income, under the 1941 Act and with
the supplementary income tax.
1941 Act
The solid black line labeled "1941 Act" shows the
effective rates under existing law. Thus the effective
rate at $10,000 is about 13 percent and at $600,000 is
about 70 percent.
Line A
Line A showe the combined effective rates of the
supplementary tax and the regular income tax if the
supplementary tax is allowed as a deduction in com-
puting the regular income tax, The increase in effective rate over the present law is greatest at around
$10,000, being about 10 percent at that income, and
gradually declines as the size of the income increases.
-2-
325
Line B
Line B shows the combined effective rates of the
two taxes if the supplementary tax is not allowed as
a deduction for income tax computation. The increase
in effective rate gradually rises to 15 percent of
income, bringing the combined effective rate of both
taxes to over 90 percent at $2,000,000 income.
Line C
Line C is the same as Line B except that a maximum
combined effective rate of 85 percent has been introduced. Similar lines could be drawn for other maximum
effective rates.
Chart II
Chart II shows for different alternatives the per-
cent which the increase in tax due to the supplementary
tax bears to the net income remaining after the 1941 income tax. Any additional taxes must be drawn from this
income.
Line A
Line A shows the percent when the supplementary tax
is allowed as a deduction for income tax computation.
The 15 percent supplementary tax increases from zero to
nearly a maximum at around $10,000 and remains relatively
unchanged throughout the higher income levels. Due to
the nature of the rate scale of the income tax the percent of remaining net income taken due to the supple-
mentary tax is slightly lower in the brackets between
about $25,000 and $100,000 than at $10,000.
Line B
Line B shows the percent of remaining income taken
as a result of the supplementary tax when the supplementary tax is not allowed as a deduction for income
tax computation. The 15 percent withholding tax results
in an effective rate on remaining income rising as high
as nearly 70 percent for a $5,000,000 income.
326
-3Line C
Line C is the same as Line B except that the
are limited to 85 percent of net income. Due to
this limit, the percent of remaining income taken
as a result of the supplementary tax declines from
50 percent at $600,000 to about 30 percent at
combined individual income and supplementary taxes
$5,000,000.
RB
Attachments
EFFECTIVE INDIVIDUAL INCOME TAX RATES
Married Person, No Dependents
PERCENT
PERCENT
90
90
80
80
70
70
60
60
1941 Act
50
50
Income
Tax Combined with Supplementary Tax
40
40
A- Supplementary tax allowed as deduction
for income tax computation.
B
C
Decentary tax not loved as deduction
for income tax computation.
except combined taxes limited
not
30
30
Income.
20
20
10
10
0
10
2
I
Office of the Secretary of the Treasury
- for Research
6
4
20
40
60
100
200
400
600
1000
2000
4000 6000
NET INCOME IN THOUSANDS OF DOLLARS
a 241
0
CHA
II
INDIVIDUAL INCOME TAX
Married Person. No Dependents
Increase of Combined Individual Income and Supplementary Taxes over 1941 Tax
As Percent of Net Income Remaining After 1941 Income Tax
PERCENT
PERCENT
80
80
70
70
B
60
60
Income Tax Combined with Supplementary Tax
A-Supplementary tax allowed as deduction
for income tax computation.
polementary tax not allowed as deduction
50
B
for
50
income tax computation.
not Income.
C THE to or except
combined taxes limited
40
40
C
30
30
20
20
A
10
10
0
10
I
2
Office of the Secretary of the Treasury
- for Research
6
4
20
40
60
100
200
400
600
1000
2000
4000 6000
NET INCOME IN THOUSANDS OF DOLLARS
B-242
0
Comparison of present individual .acome tax and individual income
tax combined with a supplementary tax, for net incomes
of selected sizes 1/
Married person - No dependents
Effective rates
exemption
for
Present
law
dependents
(Revenue
Act of
2/
1941)
the supple- : Not allowing
Allowing
mentary
tax : the supplethe supple
as
a
deduction:
mentary tax
mentary tax
for
income
taxias
a deduction:
as a deduc
computetion
and:for
income tax:
tion for
limiting
the
:
commutation
income tax
computation
:combined taxes :anc with no
to 85 percent : limitation
Not allowing
Allowing
the supplementary tax
as a deduc-
tion for
income tax
computation
:of not income.
1,500
1,800
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
12,500
15,000
20,000
the supple- : Not alloving
mentary tax : the supple-
as a deduction: mentary tax
for income taxing a deduction
:computation and.fo: income
limiting the : COE
:combined taxes : and W
to 85 percent
:of not income
no
11
-
1.3%
2.1
3.6
4.6
6.2
7.5
8.7
10.9
13.1
15.7
18.3
23.1
27.5
25,000
50,000
40.9
75,000
48.0
$
100,000 52.7
500,000 69.0
1,000,000 73.3
5,000,000 78.5
3.5%
5.5
9.0
11.4
14.4
16.7
18.2
20.8
23.0
25.3
27.5
31.5
35.0
47.0
53.3
57.5
72.6
76.6
81.4
3.8%
3.8%
2.2%
2.5%
2.5%
5.9
5.9
9.6
12.1
9.6
3.4
5.4
3.8
6.0
3.8
6.0
12.1
6.8
7.5
7.5
15.6
15.6
8.2
9.4
9.4
18.0
19.9
23.1
25.8
28.9
18.0
19.9
9.2
9.5
7.6
10.5
11.3
12.2
12.8
13.2
13.5
13.9
14.1
10.5
11.3
12.2
12.8
13.2
13.5
13.9
14.1
6.1
14.6
14.6
5.3
14.7
14.7
4.8
3.3
14.8
15.0
11.7
3.0
6.5
14.8
15.0
15.0
15.0
31.8
23.1
25.8
28.9
31.8
36.9
41.6
55.4
62.7
67.5
84.0
85.0
41.6
55.4
62.7
67.5
84.0
88.2
85.0
93.4
Treasury Department, Division of Tax Research
36.9
9.9
9.9
9.6
9.2
8.4
3.6
November 12, 1941
Under the proposal a supplementary tax is is osed at the rate of 15 percent of not income after the
deduction of the personal exemption. No earned income credit is allowed under the supplementary tax.
2/
tax
A
n
before
personal
combined tax over present law
:
Net income
and credit:
Increase in effective rates of
Combined individual income tax
and supplementary tax
Not allowing
Maximum earned income assumed.
The limitation of the combined tax to 85 percent of not income before personal exemption and credit
for dependents becomes effective at $573,657.
330
Table 2
Increase in combined individual income tax and supplementary tax
over present income tax (Revenue Act of 1941) as a percent of balance of
net income remaining after income taxes under the present law 1/
Married person - No dependents
Not allowing
:
Net income
before
personal
tax as a
supplementary
deduction for
deduction for
income tax
computation
tax as a
and credit for
:
exemption
:
dependents 2
supplementary
Allowing
income tax
computation
and limiting
the combined
:
:
:
:
$
1,500
1,800
2,000
2,500
3,000
4,000
5,000
6,000
8,000
10,000
12,500
15,000
20,000
25,000
50,000
75,000
100,000
500,000
1,000,000
5,000,000
tax to 85 percent of net
Not allowing
supplementary
tax as a
deduction for
income tax
computation
and with
no limitation
income 31
-
2.3%
3.5
2.5%
2.5%
3.8
6.2
3.8
6.2
7.1
7.9
7.9
8.7
9.9
10.4
11.1
11.4
11.4
11.3
11.0
10.4
10.3
10.3
10.1
11.6
12.3
13.9
10.0
11.4
12.3
13.7
14.7
15.7
16.5
18.0
19.4
24.6
28.3
10.0
11.4
12.3
13.7
14.7
15.7
16.5
18.0
19.4
24.6
28.3
31.2
48.3
56.0
69.6
5.6
31.2
48.3
43.9
30.4
Treasury Department, Division of Tax Research November 12, 1941
1
Under the proposal a supplementary tax is imposed at the rate
of 15 percent of net income after the deduction of the personal
exemption. No earned income credit is allowed under the
supplementary tax.
2 Maximum earned income assumed.
3
The limitation of the combined taxes to 85 percent of the net
income before personal exemption and credit for dependents
becomes effective at $573,657.
331
Schedule of Fixed Maturities and First Call
Dates During Period December 17, 1941 December 30. 1942
Fixed
:
Issue
Date
First Call
Date
Maturities :
(in millions)
1941
Dec. 15
U.S.A. - 120 note
$ 15
1942
Jan. 15
R.F.C. - 7/8%
Jan. 15
F.F.M.C. - 3. (1942-47)
March 1
F.F.M.C. - 2-3/4% (1942-47)
310
$236
103
March 15 U.S.A. - 1-3/4 note
426
July 1
R.F.C. - 1%
276
July 1
H.O.L.C. - 24 (1942-44)
Sept. 15 U.S.A. - 2. note
875
342
Oct. 15
R.F.C. - 7/8
320 (taxable)
Dec. 15
U.S.A. - 1-3/4% note
232
Totals
$1,921
$1,214
Nov. 17. 1941.
TREASURY DEPARTMENT
332
WASHINGTON
November 17, 1941.
MEMORANDUM FOR THE SECRETARY:
Last Thursday, you asked me to arrange to
have the people who did the little plays which
were included in our last two Treasury Hour
programs ("Statue of Liberty"; "Abraham Lincoln")
in Washington to see you this week.
I find that both of these plays were done
by Mr. D. H. Johnson.
Mr. Johnson has been asked to come to Wash-
ington on Wednesday. If this date is not suitable, we will change it to suit your convenience.
GRAVES.
46
333
TREASURY DEPARTMENT
WASHINGTON
November 17, 1941.
MEMORANDUM FOR THE SECRETARY:
Herewith I hand you recordings by Igor
Gorin of "The Pledge of Allegiance to the Flag,"
and a selection from "The Barber of Seville,"
as sung on the Treasury Hour program last
Tuesday, November 11.
This record may be played on any Victrola.
GRAVES.
CARD
334
November 17, 1941.
Dear Mr. Taylor:
Arturo Toscanini has volunteered to conduct
the N.B.C. Symphony Orchestra in a special concert
of one hour on December 6, from 9:30 to 10:30 P.M.,
on behalf of the Treasury's Defense Savings program.
In accordance with Mr. Toscanini's wishes there
will be no studio audience on this occasion, but it
will be possible for me to bring a few personal
guests to the studio.
It would give Mrs. Morgenthau and me great
pleasure if you and a friend would be our guests at
this concert.
Could you let me know immediately, by telegram,
whether you will be able to come? Because of the
very limited number of admissions, these invitations
will not be transferable. A card of admission will
be sent to you, with full directions, soon after I
hear from you.
I hope very much that you may be able to attend
the concert.
Sincerely,
(Signed) N. Morganthas, JR.
Mr. Deems Taylor,
2 East 60th Street,
New York, New York.
335
Random House
THE MODERN LIBRARY
20 EAST FIFTY. SEVENTH STREET . NEW YORK
ROBERT K. HAAS, VICE PRESIDENT
11/19/21
Dear Henry Heris the lecture leaflet of the
man I referred do yesterday
of you do anything with him, s'll
m interested in hearing about it.
With best regards + remeved
thanks for a very physicanant day,
Cordially,
Bot
"COMING
C T ST THETR
25 YEARS OF
IN PEACE & WAR
WORLD WIDE
OVER
TRAVELS
OCEANS & SEAS
*
22 TIMES
*
6 TIMES ACROSS
ACROSS THE ATLANTIC
(3 TIMES BY AIR)
*
SOUTH ATLANTIC
General
Reilly
*
CARIBBEAN SEA
*
GULF OF MEXICO
*
NORTH SEA
*
BALTIC SEA
4 TIMES ACROSS
*
SOUTH PACIFIC
*
YELLOW SEA
*
THE EQUATOR
*
2 TIMES AROUND
CHINA SEA
*
INDIAN OCEAN
*
THE WORLD
RED SEA
*
*
BLACK SEA
THE PACIFIC
MEDITERRANEAN SEA
CELEBES SEA
PRICTIONS
EVENTS!
General Reillu's RECORD
OF ON WORLD
going on in the world today
BEFORE
necessary to have background of politics
knowledge
WARNED
and
the
in
It
is
also
Germans
the
OF
BLITZKRIEG.
of
contacts
1938,
and military affairs.
EUROPE-ASIA-LATIN AMERICA-NORTH AFRICA
of
cases in which General Reilly has
coming events are proof that he
from the viewpoint of International Affairs
and
experience
these
contacts.
from the viewpoint of Military Affairs
opinions
and
views
Reilly's
General
have
observation of world
the
During
one
and
Asia
last
years,
36
in
via
once
and
Trans-Siberian
the
He
latin-America.
the
Clipper three times.
Europe
Suez
Africa,
eight
world
the
the
flown
American
ish,
Later,
in
12
once
by
Atlantic
by
Out
London
Trimi-
Brazil,
Africa,
West
Portuguese
via
has
He
sea.
by
around
twice
been
has
close
of
years
36
North
and
Europe
in
twelve
spent
he
through
gained
been
History
He
to Miami, inFlorida.
there.
dad has and recently thence along flown the from islands of the Caribbean
Instructor
is
West
of
graduate
a
He
Point
and
later
Point,
the
the
the
China,
the
an
was
Great
War
from
(am-
1918
to
1914
Virginia
and
InstiSecretary
General
bulance Reilly driver, saw var war correspondent in Mexico, and soldier) Poland and Spain.
He was in all the battles of the 42d Rainbow Division.
the
in
the
was
He
Infantry
youngest
Brigade
the
Commander
battlefield.
was
He
American
the
only
in
Army
Colonel
France.
of
POLAND.
1920.
Field
LONDON
1913.
fore
the
directly
FRANCE
mission,
He Artillery was given to this be promoted command to on the Command of a Brigade
of Infantry. reportingWashington
special
in
included
Army
Asia
U.S.
the
Eastern
made
a
His
experience
person
in
He
in
has
to
General
written
for
then
Wood,
many
of
the
Chief
of
Staff
of
of
leading
broadcasted
magazines
once
and
from
newspapers
Paris,
France,
the
limited
In
after
that
the
States. outbreak of He the has present frequently war. He has frequently spoken publicly.
French
He
Four years editor of the Army & Navy Journal established him
national defense.
that
part
FRANCE
of
France.
of
General Reilly HAS FOR YEARS BEEN AN
IMPORTANT WRITER AND SPEAKER ON
INTERNATIONAL AFFAIRS.
His wide experience in writing for leading Magazines and Newspapers has been a
vital factor in making him an important
personage in public speaking.
General Reilly began writing regularly
for newspapers in 1912 when an instruc-
He has had articles published in the
Chicago Tribune, the New York Daily News
and their nation-wide syndicate, the New
York Herald, New York Times, the Herald
Tribune, the Hearst chain of newspapers,
the Washington Post and the Washington
Times Herald, and a number of others.
tor at West Point. This led to the Chicago Tribune offering him an excellent
position, which he resigned from the
magazines: The American, Cosmopolitan,
He has recommendations for his newspaper
Nation's Business, Literary Digest,
World's Work, Outlook, Century, St.
regular army to take.
work from James Gordon Bennett, Mr.
James Keeley, Mr. Edward Beck and Mr.
Bradford Merrill.
He has had articles in the following
Fortune, Liberty, Foreign Affairs, The
Nicholas, New McClure's, World Today,
the Year Book of the Encyclopedia Brittanica, and the Encyclopedia Brittanica
itself.
IMPORTANT BOOKS ON
AMERICAN DEFENSE
He has written three books *Why Preparedness 1916, "America's Part's 1926,
and "Americans All-History of the
Rainbow Division* 1936. These books
He has had articles in the Illustrated
London News, The Airplane (British) and
Illustracion (France).
He has had articles in the Infantry
Journal, Cavalry Journal, Coast Artillery
Journal, Ordnance Journal and Military
Service Institution Journal.
contain specially gotten quotations
from General Leonard Wood, General
Charles P. Summerall, General Douglas
McArthur, General Harbors, General
Tasker Bliss, General John J. Pershing
and Marshall Foch.
General Reilly was editor of the Army
and Navy Journal for four years - 1921
to 1925. This made him thoroughly acquainted with all phases of NATIONAL
DEFENSE. He has recently returned from
France with voluminous details on the
When Captain Liddell-Hart attacked Gen-
causes of the French defeat. Flying
eral Pershing in the New York Times,
back, he visited our new Army and Navy
General Pershing cabled the Times from
Paris that he wanted General Reilly to
write the answer. He did so. General
Reilly was one of the officers to whom
General Pershing submitted the manu-
script of his memoirs for suggested
changes.
bases around the Carribbean. He is in
constant touch today with NATIONAL DEFENSE.
General Reilly has frequently spoken
over the radio - one address being &
broadcast from Paris to the United States
shortly after the declaration of war.
For complete information and available dates write to
GENERAL REILLY
FOREST HILLS INN
FOREST HILLS GARDENS, LONG ISLAND
NEW YORK
338
THE SECRETARY OF THE TREASURY
WASHINGTON
NOV 17 1941
Memorandum for the Secretary
There are three possible plans of censorship (each
requiring legislation) which have been suggested for the
consideration of the Walker Committee (appointed by the
President at the November 14 Cabinet meeting).
1. Complete censorship after declaration of war.
2. Complete censorship now.
3. Censorship now to the extent of examination
and inspection, but not to the extent of
deletion of objectionable material when it
is found.
The first possibility does not meet the present need,
but the subordinates of all the Departments considering the
matter agree that it is desirable.
The second possibility is considered desirable, but it
is alleged by Justice that it is not politically feasible at
the present time.
The third possibility, says Justice, is politically
feasible, and a bill has been drafted combining the first and
third possibilities. If Justice is correct in its estimation
of the political situation, the bill drafted by Justice should
be approved.
It is felt, however, that when the censorship system
envisaged by the draft bill is set into operation, care should
be exercised to see that it is staffed and controlled chiefly
by the civilian rather than the military service. That is the
position you have taken in your letter to Secretary Knox under
date of October 30, 1941. That position is sound as evidenced
by the British experience with censorship during the present war.
That experience has been fully explained to representatives of
this Department by representatives of the British Censorship.
-2-
339
The British started with a censorship controlled by the
military and were forced to change to a civilian basis. Only
a very small part of the information secured by censorship
is of interest to the military service. Most of the information
secured is valuable for combating propaganda and for waging
economic warfare.
It is felt that no compromise of the position you have
taken on this matter should be admitted.
G.W.7
340
November 17, 1941
MEMORANDUM
To:
The Secretary
From:
Mr. Blough
Subject: Article, "Aviation's Tax Hurdle," by
Selig Altschul, in Aviation, November 1941.
Following are the principal points made in the
article:
A. Aircraft construction industry
1. Aviation companies use the average earnings
method for excess profits taxation.
2. To limit profits to 6 percent of invested
capital would reduce earnings available for stockholders "to minuscule proportions."
3. It is realized that excess profits taxes will
be higher and this is responsible for aircraft equities
being in "strange disrepute among investors."
4. "The ever-present fear of post-war adjustments
to the industry receives attention in virtually every
discussion on the industry."
B. Air transportation industry
1. The air transportation industry 18 exempt
from the payment of excess profits taxes by the
exclusion of airmail revenues from such taxation.
2. Post-war prospects for the air transport
industry are excellent.
3. For these and other reasons, the air transport securities are very favorably viewed.
RB
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
M
341
DATENovember 17,1941
Secretary Morgenthau
TO
Mr. Kamarok
FROM
Subject: Plane Shipments to British Forces
1. In the week ending November 11, a total of 94 planes of all
types (52 combat planes), and in the week ending November 4,
100 planes of all types (69 combat planes) were shipped to
British forces.
2. For the first time, we have data on the shipment of planes
to Canada prior to October 7. From February 1 to November
11, 1,071 planes were delivered to Canadian forces. 995
of these were trainers, while the rest, or 76, were combat
planes.
3. Army cooperation planes form a new category now included
in our tables. These are liaison and short-range observation aircraft which perform tactical missions for the army
directly. The Fairchild-24 18 a four-place single-motor
monoplane, probably used for army liaison work. The Vultee
Stinson 0-49 is a two-place observation plane, which is also
used by our army. The Pitcairn Autogiro 18, of course, an
aircraft having rotor blades instead of the conventional
wings.
Division of Monetary
-2-
Research
342
Table A - Shipments by Area
(From February 1,1941)
Week
Total
Reported
Week
ending
ending
November 11
November 4
To Date
To the United Kingdom
Light and medium bombers
Heavy bombers
Neval patrol bombers
Pursuit
Army Cooperation
6
1,021
6
80
1
2
81
2
3
189
10
O
2
12
O
Total to the United Kingdom
11
1,383
21
To the Middle East
Light and medium bombers
Pursuit
Trainers
7
30
254
31
643
59
4
6
Total to Middle East
13
48
43
956
the British Pacific Forces
Light and medium bombers
Naval patrol bombers
Pursuit
Trainers
36
o
0
12
0
0
Total to Pacific Forces
118
O
0
55
0
0
221
0
0
To the Canadian Forces
Light and medium bombers
Navel patrol bombers
Pursuit
Trainers
38
0
0
12
0
0
26
4
4
995
27
36
Total to Canadian Forces
40
1,071
31
Totals
Heavy bombers
Total
80
2
Naval patrol bombers
Pursuit
Army Cooperation
Trainers
1,349
19
13
1
Light and medium bombers
105
976
3
2
45
34
12
O
2
42
1,109
31
94
100
3,631
Division of Monetary 343
-3-
Research
Table B - Shipments by Types
Week
Week
ending
ending
November 11
Bell Airacobra
November 4
O
Boeing B-17
Cessne T-50
o
21
o
0
24
O
24
Consolidated Catalina
Curtiss Kittyhawk
O
O
1
2
34
Douglas Boston I
Grumman Martlet II
Lockheed Hudson II
Hudson III
Hudson IV
Hudson V
North American Harvard II
Mustang
22
37
261
416
o
0
0
o
29
11
2
14
415
0
6
5
0
o
O
O
0
o
o
O
27
114
1
9
1
297
0
o
o
O
9
0
O
380
18
0
2
United Chesspeake
0
Grand Total - All Types
105
0
Pitcairn Autogiro
Vultee Stinson-049
465
0
0
Glenn Martin Baltimore
Maryland I
Maryland II
35
118
O
Boston II
Fairchild-24
19
3
Tomahawk
Boston III
O
2
Liberator I
Liberator II
154
0
Boston III
Brewster Buffalo
o
Total
Reported
To Date
0
94
12
644
10
18
0
2
0
52
4
O
100
3,631
Week
ended
TOTAL
October 7)
October 7)
TOTAL
November 11,1941
November 4, 1941
October 28, 1941
October 21, 1941
October 14, 1941
WEEKLY AVERAGE
35 Weeks (February 1-
35 Weeks (February 1-
February 1-November 11,
1,349
13
19
10
21
45
35
1,241
medium
bombers
Light and
80
1
2
12
9
9
1
47
4-
Heavy
Bombers
105
2me
3
1
1
3
95
Naval
Patrol
Bombers
(From February 1, 1941)
976
34
45
38
50
68
21
741
Pursuit
Table C - Plane Shipments to the British by Weeks
Army
12
2
0
4
o
6
0
*
Research
0.2
Cooperation
Division of Monetary
1,109
42
31
19
57
44
26
916
Trainers
October, no statement of deliveries by weeks is given for this period.
Since we do not have a break-down by weeks of the deliveries to Canadian forces prior to
3,631
94
100
86
138
167
87
Total
3,046
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
345
CONFIDENTIAL
DATE November 17, 1941
Secretary Morgenthau
TO
FROM
Mr. Haae
Subject: The Business Situation,
Week ending November 15, 1941.
Summary
(1) While aggregate industrial production has been maintained around peak levels, the impetus of the defense program
is being counterbalanced to a noticeable extent by various
maladjustments and uncertainties largely incident to the shift
from civilian to defense production. Weekly business indexes
have been moving in a narrow range out recently have shown a
slight rising tendency.
(2) National income payments in September rose more than
seasonally and attained an annual rate of 392.2 billions.
This contrasts with an annual rate of only $73.5 billions orevailing in April 1940 at the beginning of the defense program.
The purchasing power of the national income in September,
however, declined to approximately the July level due to the
rise in the cost of living.
(3) The index of basic commodity prices last week (ended
November 14) was fractionally lower due to some weakness in
prices of domestic commodities. The BLS all-commodity index
in the week ended November 8 rose 0.1 point to 91.7, equalling
the recent high reached in mid-October.
(4) The shortage of iron and steel scrap is curtailing
steel operations, and is reported to have been largely
responsible for last week's decline of 1.7 points in the operating rate to 96.6 percent of capacity. Finished steel ship-
ments of the U. S. Steel Corporation in October rose about
6 percent above the highest previous month on record.
(5) As a result of heavy shipments of agricultural
products under lend-lease arrangements, agricultural exports
in September reached the highest level since February 1940.
Exports of foodstuffs rose to the highest point since August
1930.
-2-
346
The general business situation
The long upswing in industrial production, accompanied
by expanding consumer income and a rising price level,
began to run into strong cross-currents by late summer. In
recent months industrial production has been maintained near
peak levels, but the excited consumer buying of August and
September has subsided, basic commodity prices have declined
somewhat, and the general price trend has temporarily
flattened out.
Business in general is going through a transitional
period incident to an accelerating shift from the production
of civilian goods to an increasing absorption of industrial
capacity for defense production. The maladjustments arising
from this shift, together with uncertainties connected with
pending price-control legislation, labor controversies, tax
proposals and international developments, have been restraining influences, temporarily tending to offset the dynamic
effects of the defense program.
Fears of serious employment dislocation during the
changeover to defense production have not, as yet, been
realized. Despite priorities unemployment in various industries, factory employment in the nation reached a record
high in September, and on the basis of data now available
for New York state, probably showed little further change
in October. National income payments are continuing to increase, but the rapid rise in living costs has kept real incomes
practically unchanged for three months in succession.
In the last several weeks, weekly business indexes have
shown slightly greater strength, basic commodity prices
have firmed somewhat, and department store sales again show
some evidence of more active consumer buying.
National income higher, but real income reduced
National income payments rose more than seasonally in
September, and reached an annual rate of $92.2 billions.
(See Chart 1, solid line.) This compares with $90.8
billions in the previous month and with only $73.5 billions
in April 1940, at the beginning of the defense program.
In recent months, however, the increase in national income has been largely nullified, in terms of its purchasing
power for actual goods and services, by the rapid rise in
living costs. The purchasing power of the national income,
347
-3in fact, declined in September to approximately the July
level, measured in terms of the BLS cost-of-living index.
This cost-of-living index is designed to measure changes
in living costs of moderate income families in 51 large
cities, and 18 a reasonably satisfactory index for determining real incomes or purchasing power for the majority
of the population.
In other words, the more recent rise in national in-
come has been almost wholly due to increased prices. In
Chart 1 (dotted line) the trend of purchasing power, or real
national income, is shown by months since August 1939. It
will be noted that national income payments increased 29 percent between August 1939 and September 1941, but the rise
in living costs has cut the increase in purchasing power to
only 17 percent. If the purchasing power of national income were measured in terms of commodities alone (using the
BLS all-commodity wholesale price index) the increase in
purchasing power since August 1939 would be only 5 percent.
Cost of living higher in October
The Conference Board cost-of-living index in October
rose 1.2 percent above the September level, marking an unbroken 11-month rise. The increase was somewhat less than
in September but was one of the largest of the past year.
Chart 2 shows estimates of the BLS cost-of-living indexes for October based on the Conference Board figures,
with an actual figure for food costs. (The other actual
BLS figures are expected to be released this week.) It
will be noted that clothing prices, for the fourth month in
succession, rose faster than food prices. Since the beginning of the war, however, food prices have risen much more
than clothing prices. The Conference Board index for sundries showed an increase of 1.4 percent in October, which
was attributed chiefly to the new Federal excise taxes.
Basic commodity index practically unchanged
The recent upward movement of the price index of 28
basic commodities was halted in the week ended November 14,
and a fractional decline occurred. The index of 12 foodstuffs declined slightly (see Chart 3), while the index of
16 industrial raw materials was slightly raised by an increase in rosin prices. Among the domestic commodities,
noticeable declines occurred in the grains, and in cottonseed oil, hogs and steers.
348
4-
A drop in the price of soy bean futures amounting to
the new permi seible limit of 6 cents led a general decline
in the grain markets on Wednesday, November 12. The drop
in soy bean prices occurred after issuance of the November
Government crop report. The report forecast the 1941 soy
bean production at more than three times the 1930-39 production average, which was much greater than expected. The corn
crop forecast also was very high, substantially above the
1930-39 average.
Cottonseed oil production higher; consumption lower
Although cottonseed oil prices are 132 percent above
the August 1940 low, it is of interest that mill stocks of
cottonseed, and the production of cottonseed oil, are substantially higher than last year, while the domestic consumption of cottonseed oil is lower. Latest Census Bureau reports show mill stocks of cottonseed on October 31 at 29 per-
cent higher than on that date last year with production of
crude cottonseed oil in October nearly 4 percent higher.
The domestic consumption of refined oil in the three-month
period, August through October, in contrast, was 61 percent
below that in 1940.
All-commodity index shows little change
The BLS all-commodity index rose 0,1 point to 91.7 in
the week ended November 8, equalling the weekly high for
this period reached in the week ended October 18. Foods
again showed some rise, but remained lower than a month
earlier. The largest increases among subgroups occurred in
cattle feed and in grains, while moderate decreases occurred
in livestock and poultry, and in petroleum products.
Cotton goods shortage
A scarcity of cotton print cloth, which caused the closing of some printing plants last week and threatens further
closings, according to press reports, is attributed in the
trade to several factors: (1) Heavy Government buying of
textile materials, superimposed on large civilian demand;
(2) the switching of looms to other fabrics by a number of
mills to circumvent greater ceiling limitations on print
cloths; (3) heavier export sales of cotton goods, in which
shipments to Morocco and French West Africa for the account
of the Vichy government (approved by our State Department)
the
has played an important part; (4) power shortages in
South, and growing labor shortages in some areas.
349
-5
Domestic consumption of raw cotton in October amounted
to 953,600 bales, a new record high for any month. On the
basis of the average consumption in the first quarter of
the 1941-42 season, an annual rate of more than 10,750,000
bales is indicated,
11,000,000
bales. against a crop forecast at approximately
Weekly business indexes slightly higher
Weekly business indexes continue to move within a narrow
range, but recently they have shown a tendency to edge slightly
higher. Barron's index of business activity rose 0.9 point
in the week ended November 8, after standing at 139.5 in the
3 previous weeks. During the same week the New York Times
index also rose moderately and advanced 0.6 point to 128.2.
This was the third consecutive fractional gain in the Times
index.
Moderate gain in department store sales
Department store sales in the week ended November 8
showed a further slight recovery from the slump which followed
the heavy tax-anticipation buying at the end of September, but
the gain over year-earlier levels narrowed to 14 percent from
18 percent in the previous week. (See Chart 4.) In view of
the rise in prices during the past year, the actual volume
of goods sold in the first week in November probably was
about the same as in the corresponding period of 1940. The
St. Louis district, with a gain of 25 percent, showed the biggest
improvement over year-earlier levels, while the New York district
with an increase of only 6 percent made the poorest showing.
Actual figures covering last week's sales are not yet
available, but a leading trade source reports that good
weather produced the best volume of retail trade since the
sharp rise at the end of September. It was also stated
that the recent slackness in clothing sales, such as topcoats and women's furs and fur-trimmed coats, has been reflected in earlier than usual fall clearance sales in some
cities.
Steel operations cut by scrap shortage
Steel operations last week declined 1.7 points to 96.6
percent of capacity, and duringof
thecapacity.
current week
The operations
decline in
last week is reported to
are the operating scheduled at rate 97.0 percent of steel have scrap. been due It
principally to the continuing shortage
is said that the OPM has been juggling available scrap supplies to keep hard-pressed plants from closing, but that in
most leading districts the supply situation has become tighter.
350
-6The outlook for steel operations is further beclouded
by the renewed strike in the company-owned coal mines. On
October 1, aggregate stocks of coal at steel mills and byproduct plants were equivalent to 31 and 32 days supply,
respectively. Steel operations will be curtailed much
sooner, however, due to the uneven distribution of coal
stocks, and to the almost immediate repercussions which
the coal strike is likely to have on beehive coke production.
diate curtailment of operations at some plants in the
The strike at these mines last month caused an almost immePittsburgh and Youngstown districts, where 15 to 20 percent
of the coke used by the mills, according to trade reports,
is produced by beehive coke ovens. The operation of these
ovens is dependent on a constant supply of coal, since they
usually do not have facilities for carrying stocks of coal.
Finished steel shipments of the U. S. Steel Corporation
last month rose about 6 percent above the highest previous
month on record, which was August of this year. (See Chart 5,
upper section.) It will be noted that while expansion in
finished steel shipments was very rapid from April to October
1940, subsequent increases have been at a much slower pace as
virtual capacity was reached. Shipments last month, in fact,
are reported to have been around 108 or 109 percent of
capacity. For the second consecutive month, new orders received by the corporation fell moderately below shipments,
with a consequent further small reduction in the backlog
of unfilled orders. (Refer to Chart 5, lower section.)
New orders lower
Our index of new orders continues to run substantially
below the very high levels reached last spring and early
summer. Due to declines in new orders for steel and textiles the combined index declined 7 percent in the week
ended November 8. (See Chart 6.) New orders for steel
fell to 95 percent of capacity as compared with 107 percent
in the previous week. Orders for products other than steel
and textiles in the aggregate were almost unchanged.
Agricultural exports show further rise
Shipments of agricultural products under lend-lease
arrangements showed further gains in September As a
result, agricultural exports reached the highest levels
since February 1940, when cotton was still being exported
in very heavy volume. (See Chart 7.) Exports of food-
stuffs rose above $50,000,000 and reached the highest point
351
-7- - -
since August 1930. Shipments of foodstuffs to the British
Empire have been rising steadily since the enactment of the
Lend-Lease Act last March, and during the past week the
Secretary of Agriculture stated that American foodstuffs
had been going to England recently at a rate of about 250,000
tons per month. The volume of agricultural exports in
September also was swelled by an upswing in raw cotton exports
to the best levels in a year and a half, although still rela-
tively small as compared with earlier years.
Despite the gains shown by agricultural products, total
exports of United States merchandise in September dropped
7 percent below the previous month's high figure. Reference
to Chart 7 will disclose that non-agricultural exports showed
declines from the previous month, although petroleum products
rose noticeably and coal and copper scored slight gains.
The volume and value of aircraft shipments were not publicly
disclosed but confidential figures from the Department of
Commerce (shown on the chart) indicate a slight further increase to $53,000,000.
A continued heavy movement of freight for export last
month is indicated by a recent report of the Association of
American Railroads, covering cars of export freight unloaded
at Atlantic, Gulf and Pacific ports. Exclusive of grain and
coal, more than 63,000 cars of export freight were unloaded
in October. This is more than 7,000 cars above the September
total, which was the highest for any month since compilation
of these figures began in November 1939. Receipts at New
York continued to run ahead of actual shipments, and the
amount of lighterage freight in storage showed a further increase. The amount of storage space still available, however,
1s twice as large as the space now occupied.
84
88
92
96
80
68
72
76
DOLLARS
C - 415
T
1942
1942
.
1941
1941
NATIONAL INCOME
PURCHASING POWER OF
NATIONAL INCOME
Monthly
1940
940
"BASED ON COST OF LIVING INDEX OF B.L.S. Aus. 1939 = 100
Office of the Secretary of the Treasury
1939
NATIONAL INCOME AND ITS BQUIVALENT PURCHASING POWER
A
1939
J
- of Research and States
68
72
76
80
84
88
92
96
BILLIONS
DOLLARS
BILLIONS
Chart 2
COST OF LIVING AND SELECTED ITEMS
353
JUNE 1939 100
1939
1 940
194
PER
I 942
PER
CENT
CENT
112
112
Est
108
108
COST OF LIVING
104
104
100
100
120
120
FOOD
116
116
for
112
112
108
108
1st
CLOTHING
104
104
E.
100
100
HOUSEHOLD FURNISHINGS
AND MISCELLANEOUS
RENT. LIGHT
AND HEAT
96
96
J
D
$
J
1939
1941
1940
19 42
SOURCE: B.L.S.
Office of the Secretary of the Treasury
- / - Streetle
c 413
MOVEMENT OF BASIC COMMODITY PRICES
AUGUST 1939-100
PER
Weekly Average
CENT
PER
PER
PER
CENT
CENT
170
170
CENT
Daily
170
170
160
160
12 Foodstuffs
165
165
12 Foodstuffs
150
150
160
160
140
140
16 Row Industrial
155
155
Materials
130
130
150
150
16 Raw Industrial
120
Materials
120
145
145
110
110
140
"
.
SEPT
#7
.
.
D
N
$
A
J
J
1942
1941
10
24
OCT.
.
140
100
.
A
JF
"
M
o
24
F
J
D
o
N
$
1940
M
a
100
NOV
DEC
1941
Percentage Change for Individual Commodities. August 1940 Low to November 7, and to November 14. 1941
CENT
12 Foodstuffs
-Follow 1571%
16 Raw Industrial Materials
PER
PER
CENT
*150
*Cottonseed Oil 131.8%
450
*125
Shellac 110.3%
+125
Cocoa 106.9%
*Lard 99/X
Burlap 7292
Cotton 7142
-100
Coffee 94.5%
Rosin 702%
.100
Print Cloth 693X
Hides 590%
Wool 50/%
+75
*Barley 76.5%
Wheat 66.5%
+75
Hogs SBAX
Zine 30/2
Flaxseed 268X
"Butter 396X
+50
Lead 23.2%
.50
Sugar 14/X
Silk 210%
Rubber 16.9%
Copper 11.8%
Steel Scrap.dom
+25
Corn 12.9%
+25
87%
Steers 125%
aTin 3.0%
Nov
0
Aug 1940
Low
New
Nov
14
14
7
0
Aug.1940
Nov
7
Steel Screp.exp 2.7%
Low
P-187-5-10
A
MOVEMENT OF BASIC COMMODITY PRICES
AUGUST 1939 100
PER
CENT
Weekly Average
PER
PER
PER
CENT
CENT
170
170
CENT
Daily
170
170
160
160
12 Foodstuffs
165
165
12 Foodstuffs
150
150
160
160
140
140
16 Row Industrial
155
155
Materials
130
130
150
150
16 Row Industrial
Materials
120
120
145
145
110
110
140
.
F
D
N
o
1942
SEPT
.
$
J
J
A
M
A
26
=
J.
M
F
J
D
N
$
o
1941
1940
29
22
"
10
.
100
a
140
100
IS
NOV
OCT.
DEC
1941
Percentage Change for Individual Commodities. August 1940 Low to November 7, and to November 4.1941
PER
PER
16 Raw Industrial Materials
CENT
12 Foodstuffs
CENT
-Tellow 1571%
+150
Cottonseed Oil 131.8X
450
+125
Shellac 110.3%
+125
Cocoo 106.9%
alord 991%
Burlap 7292
Cotton 714X
100
Coffee 94.5%
Rosin 702%
*100
Print Cloth 693X
Hides 590%
*Barley 76.5%
Wool 50/X
.75
Wheat 66.5%
+75
*Hogs 584X
Zinc 30/X
Flaxseed 26.8X
.50
Butter 396X
.50
Lead 23.2X
Sugar 34/X
Silk 210%
Rubber 16.9%
Copper 11.8%
Steel Scrap.dom
+25
Corn 12.9%
+25
8.7%
Steers 12.5%
eTin 3.0%
New
Nov
o
Aud 1940
Nov
14
Low
14
7
0
Aud 1940
New
7
Steel Scrap exp 271
Low
P-107-5-10
A
Chart 4
355
DEPARTMENT STORE SALES
1935 - 39 - 100, UNADJUSTED
MAR.
JAN.
MAY
JULY
SEPT.
NOV.
PER
PER
CENT
CENT
Weekly
240
240
220
220
200
200
180
180
160
160
40
140
140
'41
120
100
80
60
JAN.
Office of the Secretary of the Treasury
- of - - Statehen
MAR.
MAY
JULY
SEPT.
I
120
100
80
60
NOV.
c 390
REPORTED NEW ORDERS, SHIPMENTS, AND INDICATED
UNFILLED ORDERS OF THE U.S. STEEL CORPORATION
NET TONS
NET TONS
THOUSANDS
THOUSANDS
2800
2800
2400
2400
2000
2000
REPORTED NEW ORDERS
1600
1600
1200
1200
800
800
REPORTED SHIPMENTS
400
400
0
1938
1939
1940
1941
0
NET TONS
NET TONS
MILLIONS
MILLIONS
10
10
8
8
6
6
4
4
INDICATED UNFILLED ORDERS
2
0
0
1 938
Office of the Secretary of the Treasury
Dividios of Research and Statistics
1939
1940
2
1941
356
I 133 - B
Chart 5
CONFIDENTIAL
INDEXES OF NEW ORDERS
Combined Index of New Orders and Selected Components
PERCENTAGE
POINTS
POINTS
290
290
280
280
270
270
260
260
250
250
240
240
230
230
N
220
220
210
210
Total (combined Index
1936 100
w
200
200
190
190
180
180
170
170
160
160
150
150
NW
140
140
130
130
120
120
110
110
W
100
90
N
100
A
N
Total excluding Steel and Textiles
80
80
MNM
70
60
70
M
VV,
50
so
40
Steel Orders
30
20
Textil 10 Orders
10
0
1939
1940
357
Chart 6
CONFIDENTIAL
U.S. TOTAL TRADE AND EXPORTS BY COMMODITIES
1929
1930
1932
1931
1933
1935
1934
1937
1936
1940
1934
938
1941
DOLLARS
TOTAL TRADE
500
450
400
150
Imports
Exports
300
250
250
200
200
150
150
100
100
150
150
Trade Balance
100
100
so
-100
1930
1929
1934
1933
1933
1934
1935
1934
1940
1939
1938
1937
1941
EXPORTS OF U.S. MERCHANDISE
Total Nonagricultural
DOLLARS
Selected Nonagricultural Commodities
DOLLARS
DOLLARS
DOLLARS
Millions
325
300
275
250
225
200
175
38
150
125
100
75
50
25
0
JAN
MAR MAY JULY SEPT NOV
-
Selected Agricultural Commodities
Total Agricultural
Cotton
Millions
40
DOLLARS
DOLLARS
DOLLARS
DOLLARS
What and
Tobacco
150
125
100
75
50
Lard
29.
25
JAN MAR MAY JULY SEPT NOV
&
o
TREASURY DEPARTMENT
359
INTER OFFICE COMMUNICATION
DATE November 17, , 1941
TO
Secretary Morgenthau
FROM
Messrs. Foley and Pehle
As of the opening of business November 17, 1941, there
were 2298 pending applications in the Foreign Funds Control.
Joseph
1.11th
Draft. see final copy
ascent
to Pres sain
Huce 11/18/41
November 17, 1941
TO
Secretary Morgenthau
FROM
H. D. White
SUBJECT
Suggested Approach for Elimination of United
States-Japanese Tension
I.
It is becoming increasingly evident that diplomatic
preparedness is as important an instrument of defense as is
military preparedness. Military activity may win battles,
diplomatic activity can make the fighting of these battles
unnecessary; military victories can gain raw material,
equipment and can weaken the enemy, diplomatic victories
can achieve similar gains. Without major diplomatic
victories Germany could not have attained her spectacular
success. Had they not suffered major diplomatic defeats
neither England nor France would be in their present predicaments.
But to be effective, diplomacy, like an Army, must
use modern equipment and employ modern strategy. An "all
out" effort involves in diplomacy as in military strategy
the fullest use of every economic and political advantage.
Just as our military forces in preparation for an "all out"
defense or in actual warfare must make intelligent use
of our geographical position, our rich resources, our vast
labor power, technical equipment and democratic traditions,
so must diplomacy utilize those advantages to the full if
it is to have any chance of success.
In the light of requirements and possibilities of
modern diplomacy, the manoeuvers of American diplomacy
360
361
-2during this grave crisis in the world's history have been
pathetic.
Virtually surrounded by a world ablaze, and with the
fire growing hotter, and nearer and more dangerous, our
diplomatic machinery concerns itself chiefly with maintaining a facade of important goings-on, an appearance
of assured and effective functioning, whereas behind that
front is largely hesitation, bewilderment, inaction, petty
maneuvering, sterile conversations, and diverse objectives.
Here and there, now and then, progress is made but
on a scale that is completely inadequate to the task in
hand. Where modern diplomacy calls for swift and bold
action, we engage in long drawn out cautious negotiation;
where we should talk in terms of billions of dollars, we
think in terms of millions; where we should measure
success by the generosity of the government that can best
afford it, we measure it by the sharpness of the bargain
driven; where we should be dealing with all-embracing
economic, political and social problems, we discuss minor
trade ob jectives, or small national advantages; instead
of squarely facing realities, we persistin enjoying
costly prejudices; where we should speak openly and clearly,
we engage in protocol, in secret schemes and subtleties.
We must cut loose from that outmoded and decayed
pattern of diplomacy. We must substitute, before it is
too late, imagination for tradition; generosity for
shrewdness; understanding for bargaining; toughness for
caution, wisdom for prejudice, and strategy for tactics.
-3 -
362
We are rich -- we should use more of our wealth in
the interests of peace and victory. We are powerful -- we
should be willing to use our power before our backs are
to the wall. We need no nation's lands -- we should make
full use of that fact. We keep our national pledges -now is the time that record of integrity should stand us
in good stead. We are protected by two oceans -- let us
exploit that protection while distance is still a potent
barrier. We are a democracy -- let us take full advantage
of the strength just covenants openly arrived at.
If ever there was a time when diplomacy could secure
its most brilliant victories for the United States, now
is that timel The longer we wait the less chance will we
have to use diplomacy as an aid to our defense. The pat-
terns of relationship jell; plans become irrevocable;
opportunities lost are gone forever. A nation committed
irrevocably to a course of action loses the power to exercise choice, to accept offers and make conditions.
The proposed program of diplomatic effort given below
will be called naive and visionary. It may be laughed at
by the professional diplomats, but their ridicule will not
alleviate the danger that confronts us, nor will their
traditional method of handling the situation lead to any
better results than have the efforts of their colleagues
in England and France.
I am convinced the proposal is workable and could
be spectacularly successful.
-4-
363
The proposal is given below only in bare outline and
in only enough detail to indicate the essential point.
Obviously, if and when the proposal is given serious consideration each of the enumerated points must be elaborated
carefully, with appropriate conditions spelt out, loopholes or evasion blocked, and adequate protective clauses
added.
The important thing right now is not a carefully
worked-out proposal, but is rather the acceptance by the
President and Secretary Hull of the worthwhileness of a
different approach to the problem so that in the preliminary
discussions with the Japanese emissary the negotiations can
begin on a very different level than that likely to be the
case if traditional methods are pursued.
If the President were to propose something like the
appended agreement and the Japanese accept, the whole world
would be electrified by the successful transformation of
a threatening and belligerent powerful enemy into a
peaceful and prosperous neighbor. The prestige and the
leadership of the President both at home and abroad would
skyrocket by so brilliant and momentous a diplomatic
victory -- a victory that requires no vanquished, a victory
that immediately would bring peace, happiness and prosperity
to hundreds of millions of Eastern peoples, and assure the
subsequent defeat of Germany
I fully appreciate the difficulty and possible resultant
unpleasantness involved in your getting the President and
to
Secretary Hull/give the proposal serious consideration -- but
isn't the goal worth the risk of being turned down?
5-
364
United States and Japan
A.
War between the United States and Japan would
1.
cost thousands of lives, billions of dollars;
would leave the vanquished country bitter and
desirous of revenge; would foster social disruption, and would not insure peace during
our children's lives, nor permanently solve
troublesome probl ems now standing between the
two countries, and
2.
The United States is eager to avoid war, and
is willing to go more than half way to settle
peaceably the issues that stand in the way of
more friendly intercourse between the two countries, and
3.
The United States recognizes that Japan, be-
cause of the special nature of its economy,
is greatly in need of opportunities for increased foreign trade, and in need of capital
to repair the ravages of four years of warfare, and
4.
The United States recognizes that injustice
has been done to the Japanese people by our
immigration laws, and
-65.
365
The United States believes that in the long
run the interests of both the Japanese people
and the American people can best be served by
establishing fair and peaceful conditions under
which Japan and her neighbors can prosper, and
6.
The United States is rich enough in funds, raw
material, equipment, and technical skill to
build, if necessary, a Navy and air force ten
times as strong as that which Japan can build,
and
7.
The United States is, because of numerous circumstances, powerful enough to destroy Japan
should the United States be forced against her
will to take up arms against Japan, and
8.
The United States wishes so much to avoid un-
necessary bloodshed and destruction that it
will pay well to help Japan's economy back
to a peaceful and healthy basis, and
9.
The United States wishes to help China maintain her independence and attain peace so that
she may go forward in her political and economic development, so unfortunately interrupted
in 1937, and
366
-710.
The United States believes there is no basic
obstacle to permanent and more friendly relations between the United States and Japan and
believes that the Japanese people will welcome
an opportunity to restore peace, to reconstruct
Japan's industry and trade, and to promote
friendly relations with her neighbors on a
basis fair both to Japan's needs and the needs
of her neighbors.
And finally -- and of most immediate
importance -11.
The United States wishes to concentrate as soon
as possible her naval force in the Atlantic so as to
be prepared for any emergency against a potential
enemy with whom there is no current basis for
friendship.
B.
Because of the foregoing facts, the United States
proposes to enter into an Agreement with Japan at once
under which the United States and Japan will agree to do
certain things, as follows:
On her part, the United States Government proposes to
do the following:
1. To withdraw the bulk of the American Naval forces
from the Pacific.
2. To sign a 20-year non-aggression pact wi th Japan.
3. To promote a final settlement of the Manchurian
question.
-8 -
367
4. To place Indo-China under the Government of a
joint British, French, Japanese, Chinese and American
Commission, which will insure most-favored-nation treat-
ment for those five countries until the European War is
ended, and which will govern the country primarily in
the interests of the Indo-Chinese people.
5. To give up all extra-territorial rights in China,
and to obtain England's agreement to give up her extra-
territorial rights in China, and give Hong Kong back to
China.
6. To present to Congress and push for enactment a
bill to repeal the Immigration Act of 1917 which prohibits
immigration into the United States of Japanese, and place
the Japanese and the Chinese on the same basis as other
peoples.
7. To negotiate a trade agreement with Japan, giving
her (a) most-favored-nation treatment and (b) such concessions
on imports as can be mutually satisfactorily arranged,
including an agreement to keep raw silk on the free list
for 20 years.
8. To extend a $2 billion 20-year credit at 2 per
cent interest, to be drawn upon at the rate not to exceed
$200 million a year except with approval of the President
of the United States.
9. To set up a $500 million stabilization fund half
supplied by Japan and half by the United States, to be
used for the stabilization of the dollar-yen rate.
10. To remove at once restrictions on Japanese funds
in the United States.
-9 -
368
11. To use its influence to the full to attempt
to eliminate sources of potential friction between Japan
and her neighbors.
C.
On its part, the Japanese Government proposes to do
the following:
1. Withdraw all military, naval, air police forces
from China (boundaries as of 1931) from Indo-China and
from Thailand.
2. Withdraw all support -- military, political, or
economic -- from any government in China other than that
of the national government.
3. Replace with yen currency at a rate agreed upon
among the Treasuries of China, Japan, England and United
States all military scrip, yen and puppet notes circulating
in China.
4. Give up all extra-territorial rights in China.
5. Extend to China a billion yen loan at 2 per cent
to aid in reconstructing China (at rate of 100 million
yen a year). .
6. Withdraw all Japanese troops from Manchuria
except for a few divisions necessary as a police force,
provided U.S.S.R. withdraws all her troops from the Far
Eastern front except for an equivalent remainder.
7. Sell to the United States up to three-fourths
of her current output of war material -- including naval,
air, ordnance and commercial ships on a cost-plus 20 per
cent basis as the United States may select.
- 10 -
369
8. Accord the United States and China most-favorednation treatment in the whole Japanese Empire.
9. Negotiate a 10-year non-aggression pact with
United States, China, British Empire, Dutch Indies (and
Philippines).
D.
Inasmuch as the United States cannot permit the
present uncertain status between the United States and
Japan to continue in view of world developments, and feels
that decisive action is called for now, the United States
should extend the above offer of a generous and peaceful
solution of the difficulties between the two countries
for only a limited time. If the Japanese Government does
not indicate its acceptance in principle at least of the
proffered terms before the expiration of that time, it
can mean only that the present Japanese Government prefers
other and less peaceful ways of solving those difficulties,
and is possibly awaiting the propitious moment to carry
out further a plan of conquest.
In the event that Japan elected to reject the offer
of peaceful solution under terms herein indicated, the
United States would have a clearer idea of what to expect
and would therefore know better how to shape her own policy.
III.
The advantages of terms indicated above to the two
countries are so great, and the disadvantages so small,
that it is difficult to believe that the Japanese Government
would hesitate to accept the offers. Certainly the bulk
of the Japanese people would be enthusiastic about the
offer.
370
- 11 The advantages accruing to each government are listed
below:
A.
To the United States
1. Our naval power will be greatly increased at
once by the freeing of our Pacific fleet for duty elsewhere.
2. We would be able to send more of our equipment
to England and Russia without increasing our vulnerability
to an attack from the East.
3. We will have stopped the war in China and have
regained for her her freedom.
4. We will have paved the way for a substantial
increase in post-war trade.
5. We would greatly strengthen the Allied position
vis-a-vis Germany.
6. We will have saved ourselves from a war with
Japan.
7. The money it would cost us would be a very small
part of what we would save by not having to fight Japan,
or by not having to be prepared for a two-ocean war.
8. A prosperous Japan and China can greatly help
to restore our normal trade, and thus make easier our own
transition to a peace time economy.
9. Insure for ourselves an increased supply of tin,
antimony and wood oil and rubber from the Far East.
10. Handicap Germany in its present military campaign
and at the same time give great moral encouragement to the
British and Russian people.
11. Finally, military and naval experts who now fear
a "two front" naval threat will be more enthusiastic about
all out help to England and Russia. There will be much
less cause to oppose the administration's foreign policy.
- 12 -
371
B. To Japan
1. Instead of being confronted with prospect of a
more serious war and certain defeat in the end, she can
have peace at once.
2. She can proceed at once to shift from a war economy
to peace economy and at the same time experience prosperity
rather than a serious depression.
3. She can withdraw from the China incident without
loss of "face".
4. She can strengthen her currency and reduce her
public debt.
5. Her foreign trade will greatly increase.
6. She can devote her energies and capital to reconstructing Japan, building up Manchuria, and developing
new trade possibilities at a time when other countries are
engaged in war or preparation for war.
7. She will at one stroke have solved some of her
thorniest problems in her international relations.
8. She will avoid the social disruption that
is bound tc take place in Japan after an expanded and
prolonged war effort.
IV.
It would, of course, be necessary to obtain
Congressional approval before making definite offers, but
through preliminary confidential conferences with leaders
of both parties and with appropriate committees, the ground
could be quickly prepared so that negotiations could go
forward.
A completed document could in a week or two be
372
offered to the Japanese Government. The world, including
the Japanese people, would know the motives and the con-
tents of our offer. If the Japanese Government would not
accept, it would have at least the great advantages of
(1) clarifying our own policy and rallying support behind the
President, (2) create serious division in Japan.
If the Japanese Government were to indicate its
tentative acceptance in principle, the President could at
once call a conference in Washington to be attended by
Chinese, British, Russian, and possibly Dutch East Indian
and Philippine representatives. Inasmuch as all the
important concessions are to be made by United States and
Japan, the participation of other governments in the
conference need not complicate negotiations.
The one danger inherent in the proposed concessions
is that if accepted by Japan it would provide her with a
breathing space during which she could greatly strengthen
her military and economic potential. She might then be a
greater threat to us a year or two hence than she is now.
Against that possibility are the following factors:
1.
Owing to the scarcity of many raw materials she will
not be able to expand her navy and air force during
the next year nearly as much as we can -- particularly
in view of the provision in the agreement that we can
buy 80 percent of her current output of armaments.
2.
The next two years are crucial for us. If we can
obtain the release of the Russian, British and
American forces now being tied up in the Far East
by Japan's continuous threatening, we will have done
- 14 -
373
more to strengthen United Kingdom and Russia
vis-a-vis Germany than we could with a whole year's
output of planes and tanks and ships.
3.
The Japanese people would be so relieved by the settle-
ment of the China "incident", and the end of the
threat of war with major powers, and would be so
happy at the cessation of economic strangulation and
the emergence of real prosperity, that it is hardly
likely that any military clique could stir up
4.
significant trouble for years to come.
Finally, there would be nothing important left for
Japan to threaten to fight for that she could hope to
get if Germany were defeated. Japan would hardly
dare invade China again soon -- so long as the Chinese
did not have civil war. Japan would certainly not
wish to threaten the United States, the United Kingdom,
or the U.S.S.R. if Germany were defeated. She also
would not wish to interrupt the annual increments of
loan to Japan, nor again jeopardize her markets and
sources of raw materials.
Altogether, the likelihood of Japan's strengthening her position and re-entering the world scene as
a belligerent aggressor in the next few years seems
very slim -- provided Germany is defeated.
For Miss Chauncey
TREASURY DEPARTMENT
374
INTER-OFFICE COMMUNICATION
DATE November 17. . 1941
Secretary Morgenthau
TO
FROM Mr. Bell
STRICTLY CONFIDENT
Official sales of British-owned dollar securities under the vesting order
effective February 19. 1940:
No. of Shares
Sold
Nov. 10
11
12
13
14
15
Sales from
Feb.22,1940 to
Nov. 8,1941
Nominal Value
of Bonds Sold
$ Proceeds of
Bonds Sold
620
24,816
15,000
10,043
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
10,220
620
10,000
Nil
Nil
Nil
NiT
24,816
25,000
20,263
9,828,356-1/2
281,070,558
45,423,016
37,309,201
9.829.476-1/2
281,095,374
45,448,016
37,329,464
Sales from
Feb.22,1940 to
Nov.15,1941
$ Proceeds of
Shares Sold
Nil
Nil
not Miss Chauncey
375
November 17, 1941
CONFIDENTIAL
Dear Mr. Knoke:
Permit me to acknowledge. on behalf of the
Secretary, the receipt of your letter dated November 6.
1941. enclosing your compilation for the week ended
October 29. 1941. shoving dollar disbursements out of
the British Supire and French accounts at the Federal
Reserve Beak of New York and the means by which those
expenditures were financed.
Faithfully yours.
(Signed) D. W. BELL
Under Secretary of the Treasury.
Mr. L. v. Knoke.
Vice President,
Federal Reserve Bank of New York,
New York, New York.
FD:ec:11-10-41
For Miss Chauncey
376
November 17. 1942
CONFIDENTIAL
Dear Mr. Enoko:
Permit me to acknovledge, on behalf of the
Secretary, the receipt of your letter dated November 13.
1941. enclosing your compilation for the week ended
November 5. 1941. aboving dollar disbursements out of
the British Supire and French accounts as the Federal
Reserve Beak of New York and the mesns by which those
expenditures were financed.
Faithfully years,
(Signed) D. W. BELL
Under Secretary of the Pressury.
Mr. L. w. Encite,
Vice President,
Federal Reserve Bask of New York,
New York, New York.
(Init.) F. D.
0
377
0
P
Y
FEDERAL RESERVE BANK
OF NEW YORK
November 13. 1941
CONFIDENTIAL
Dear Mr. Secretary:
Attention: Mr. H. Merle Cochran
I am enclosing our compilation for the week
ended November 5. 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,
/a/ L. W. Knoke,
L. W. Knoke,
Vice President.
Honorable Henry Morgenthan, Jr.,
Secretary of the Treasury,
Washington, D. O.
Enclosure
Copy:vv:11-17-41
EHGLAND
DEBITS
Total
Debits
PERIOD
Gov't
Expenditures(a)
CREDITS
Proceeds of
Other
Debits
year of war
(029/39-8/28/40)
Total
Credits
1,793.2
605.6
2,792.3
1,425.6
1.356.
2,793.1
2,203.0
1,792.2
410.6
2,189.8
1,187.6
828.2
period through
December,1940
year of war
(BRITTS)
Sales of
Securities
Gold
(Official)(b)
Other
140.9
109.0
Oct, 30 - Dec. 3
Dec. A Dec. 37.
(+) or
Creditz(c)
Dear. (-)
in Balance
Total
Debita
Gov't
Expendi-
CREDITS
Proceeds
Total
Credits
of Gold
Other
tures (d)
Other
Debits
Sales
Credits
Net-Incr.
(+) or
Dear. (-)
in Balance
1,356.1
52.0
420.1
+ 35.0
866.3(e)
416.6(e)
449.7
1,095.3(e)
900.2
195.1(e)
+229.0
2,109.5
108.0
575.6
+ 10.8
878.3
421.4
456.9
1.098,4
900.2
198.2
+220.1
1,193.7
274.0
722.1
- 13.2
38.9
4.8
34.1
8.8
8.8
-30.1
154.1
+35.3
+41.9
0.3
0.3
0.3
0.5
0.5
0.2
0.3
0.3
1941
Aug, 28 - Oct. 1
Oct. 2 - Oct. 29
DEBITS
Not Thar.
105.9
35.0
176.2
7.3
20.1
31.7
150.9
0.8
2.0
150.1
-
-
-
0.3
-
1942
ENDED:
Nov.
5
23.8
46.5
3.6
15.4
15.4
11.6
29.2
8.4
17.3
20.3
7.2
108.7
16.2
-
-
-
20.3
3.6
-
7.2
19.8
84.9
-30.3
-
-
Weekly spenditures Since Outbreak of War
TECHOO (through June 19,1949 19.6 BILLION
England (through June 19.1940) 27.6 million
England (since June 19,1940) 43.5 million
*For monthly breakdown see tabulations prior to April 23 1941.
eeFor monthly breakdown see tabulations prior to October 8, 1941.
(See attached sheet for other footnotes)
-
29
20.3
108.2
16.2(f)
-
-
-
0.1
-
0.1
-
-
-
-
0.1
-
0.1
0.1
-
0.1
-
-
-
Transfers from Britten Purchasing Commission to
Bank of Canada for French Account
Week ended November 5 1941
Cumulation from July 6, 1940
162.7
million
million
0.1
-
-
23.9
27.0
22
-
Oct. 15
0.1
(a) Includes payments for account of British Purchasing Commission, British 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
prodoeds 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 ident ified with any accuracy. According
to data supplied by the British Treasury and released by Secretary 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 balames. Other large transfers from such accounts since October,
1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently acoruing dollar
receipts.
(d) Includes payments for account of French Air Commission and French Purchasing Commission.
(o) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day,
(f) Includes $8.5 million received from New York accounts of British authorized banks.
BIR
DEBITS
Transfers
Proceeds
of
to
Official
Total
British
Debits
PERTOD
A/C
Debite
Total
Credits
Other
Pirots of mar
/29/39-3/28/40)
through
1940
Oat
(c) or
Sales
A
For Propab
A/G
Other
Credite in
NOVA 5
,
r Revised
Gold
Sales
Other
Credits
in Balance
20.9
38.7
32.4
0181.7
31.2
3.9
27.3
36.1
30.0
6a1
. 4.9
20.9
110.7
410
4230.2
no
16.5
43.4
12.3
65
460.6
534.8
50 I
16.6
707.4
62.6
477.2
462.0
246.2
3rd
123.9
on
18.2(r)
0.5(r)
81.2
2.8
62.9
2.1
90
-
72.3
104
59.56
-
88.5
33.0
18.3
460ml
7.8
-17.7
8.2
5.5
8.0
5.9
3.0
1.0
2.0
-
23-1
-
-
AS
10.5
-
-
516W
-
9.0
For
⑉ For
A/C
Total
Debite Credite
Other
412.7
37th
19.7
23
11.9
be
29
Brittah
Net Incr.
(+) or
Door, (-)
506-7
-
.
22
official
Total
of
306ml
37.4
Oct 15
(-)
Proceeds
to
Net Increas
16.6
460 23.1
- Det.
Transfers
transfers from official
For Onto
THEIR
323.0
year e
(8)
Gold
FOR
breakdown
0.1
45
10.
16.
8.3
2-3
3.2
3.2
59
2
6.1
3.2
2004
14
State Since Ou
1941
- tabulation prior to A 23a -
⑉ Sabulations prior to October
174
+ 16
0.2
WAS
29
3W
202
24
10.2GD
2.7
0.2
2.1
-7.9
2.1
+ 0.2
02
0.1
1.0
0.61
OX
0.5
-
0-5
6.8
1.4
07
S.R
OK
FIRE
FOR
23.6
PART
381
NOV 17 1941
My dear Mr. Berles
The President has sent us a copy of the
letter addressed to his by Dr. Alvin H. Hansen,
U.S. Chairman of the Joint Economic Committees
of the United States and Canada, transmitting
a resolution of the Joint Economic Committee which
recommends that travel between the two countries
should be liberalised. He has asked this Department, along with your Department and the Department
of Justice, to explore this matter and he has told
me that he has asked you to keep in touch with us on
this subject.
I shall be glad to see you now or later and
to help in every way possible. I have asked
Mr. H. D. White, who is a member of the Joint Economic
Committee, to investigate what steps the Treasury
can take and he will be available for any conferences
or discussions which you may deem necessary.
Sincerely yours,
(Signed) B. Morgenthas. Jr.
Secretary of the Treasury.
The Honorable
Adolf A. Berle,
Assistant Secretary of State,
State Department,
Washington, D.C.
c
n.
File
VFCsien
11/13/41
m.
hill
382
NOV 17 1941
My dear Mr. President:
In accordance with the request in
your letter of November 7, 1941, and the
of the Joint Economic
Committees of the United States and Canada,
the Treasury Department will be very glad
to cooperate with the Departments of State
and Justice to explore the possibility of
liberalizing the regulations concerning
travel between the United States and Canada.
I have written to Mr. A.A. Berle, Jr.,
Assistant Secretary of State, to inform him
that we are ready to consult with him upon
this matter.
Sincerely yours,
(Signed) K. Morgenthan, sit
Seers tary of the Treasury.
The President,
The White House,
Washington, D.C.
n.m.c.
VPC.ten
11/13/41.
By Messenger Sturges
P personal sent on. White office
4: 50
383
copy furnished to Dr. White per Secretary's
instructions 11/10/41
384
THE WHITE HOUSE
WASHINGTON
November 7, 1941
My dear Mr. Secretary:
I enclose herewith a copy of a letter,
dated October 22, 1941, addressed to me by
Dr. Alvin H. Hansen, United States Chairman
of the Joint Economic Committees of the
United States and Canada, transmitting a
resolution of the Joint Economic Committees,
recommending that the Governments of Canada
and the United States undertake, so far as
consistent with national safety and the
necessity of Canada to conserve her supplies
of foreign exchange, to liberalize the regulations now limiting the traditional freedom
of travel across the common boundary.
I believe that the objectives embodied
in these recommendations are desirable, and
I am therefore requesting your Department
and the Departments of State and Justice to
explore what steps can effectively be taken
to accomplish the desired ends. In order
385
o
-2-
that there may be some unity in this work,
I am asking Assistant Secretary of State,
Adolf A. Berle, Jr. . , who is also an OC-
casional member of the Joint Economic Com-
mittees, to keep in touch with your Depart-
ment on these matters.
Very sincerely yours,
trunkfus
Enclosure:
From Dr. Alvin H.
Hansen, October 22,
1941.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
20.01
COPY
386
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Washington
Address official correspondence
to the Board
October 22, 1941
Dear Mr. President:
I enclose a resolution of the Joint Economic Committees of Canada and the United States, signed by the
respective chairmen of the national committees, recommending that the Governments of the United States and
Canada undertake, so far AS consistent with national
safety and the necessity of Canada to conserve her
supplies of foreign exchange, to liberalize the regulations now limiting the traditional freedom of travel
across the common boundary.
The Joint Economic Committees feel that while this
problem in the United States is primarily an administrative one concerning the passport and visa requirements
of the Department of State and the immigration regulations of the Department of Justice, it has economic
ramifications of importance. Their principal concern,
however, is to remedy the anomalous situation in which
the two countries are moving toward closer collaboration
in economic questions but pulling apart in personal
contacts between their peoples.
The Committees further recognize that the restrictions on pleasure travel in the United St. tes imposed
by Canada have been required by the exigencies of
conservation of United States dollar exchange. They
raise the question, however, whether the United States
might not be prepared to make some financial arrange-
ment or concession which would enable the Canadian
Government, if it is agreed upon the desirability of
such action, to liberalize these restrictions in some
degree. In the United States, this question presumably
falls within the competence of the Department of State
and the Treasury Department.
The Joint Economic Committees would appreciate, in
the event you conour in the wisdom of the proposals
indicated
387
-2-
indicated, that you direct the Department of State,
the Department of Justice, and the Treasury Department to explore what steps can effectively be taken
to accomplish the desired ends.
Faithfully yours,
ALVIN H. HANSEN, CHAIRMAN
United States Committee
The President
The White House
Washington, D. C.
COPY
388
COPY
RESOLUTION OF THE JOINT ECONOMIC COMMITTEES
OF CANADA AND THE UNITED STATES
The Joint Economic Committees
(1) Having viewed with regret the evident diminution in the intimacy between the
peoples of Canada and the United States
which has resulted from the imposition
of restrictions on the traditional freedom
of travel across the common boundary, and
(2) Having recognized that these restrictions
have numerous economic aspects, particularly
as they relate to mobility of labor between
the two countries and to the control of
foreign exchange, and
(3) Having recognized that this is likely to
add to the difficulty of establishing
that unity of feeling which is essential
for the full collaboration of the govern-
ments and peoples in the national defense
efforts of the two countries, and
(4) Having recognized the basic inconsistency
between these developments and other offorts of the two governments directed
toward increasing cooperation between
Canada and the United States;
Recommend:
(1) That the Government of the United States
study anew its passport and visa requirements for Canadians crossing the CanadianAmerican border, with a view to liberalizing the regime as far 88 consistent with
national safety, and
(2) That
389
-2-
(2) That the Canadian Government give periodic
study to the degree to which it is in a
position to liberalize its exchange regula
tione so as to permit a greater travel of
Canadians in the United States, and that
the appropriate officials of Canada and
the United States discuss these matters from
time to time in their administrative and fi-
nancial aspects.
Signed:
W. A. MACKINTOSH
Canadian Chairman
ALVIN H. HANSEN
United States Chairman
Date: October 11, 1941.
HE WHITE HOUSE
November 7, 1941
My dear Mr. Secretary:
I enclose herewith a copy of a letter,
dated October 22, 1941, addressed to me by
Dr. Alvin H. Hansen, United States Chairman
of the Joint Economic Committees of the
United States and Canada, transmitting a
resolution of the Joint Economic Committees,
recommending that the Governments of Canada
and the United States undertake, so fer a8
consistent with national safety and the
necessity of Canada to conserve her supplies
of foreign exchange, to liberalize the regulations now limiting the traditional freedom
of travel across the common boundary.
I believe that the objectives embodied
in these recommendations are desirable, and
I am therefore requesting your Department
and the Departments of State and Justice to
explore what steps can effectively be taken
to accomplish the desired ends. In order
-2-
that there may be BOME unity in this work,
I am asking Assistant Secretary of State,
Adolf A. Berle, Jr , who 18 also an OC-
casional member of the Joint Economic Com-
mittees, to keep in touch with your Department on these matters.
Very sincerely yours,
Insured
Enclosure:
From Dr. Alvin H.
Hansen, October 22,
1941.
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury,
Washington, D. C.
Address officirl COPIC condence
to the Board
Dear Hr. President:
October 22, 1941
I enclose'n resolution n of the Joint Economic Committees of Canada and the United States, signed by the
respective ch irmen of the national committees, recommending th t the Governments of the United States and
Canada undertake, so far RB consistent with national
safety and the necessity of Canada to conserve her
supplies of foreign exchange, to liberalize the regulations now limiting the traditional freedom of travel
acrose the common boundary.
The Joint Economic Committees feel that while this
problem in the United States in primarily AN administrative one concerning the passport and visa requirements
of the Department of State and the immigration regu-
lations of the Department of Justice, it has economic
ramifications of importance. Their principal concern,
however, is to remedy the anomalous situation in which
the two countries are moving toward closer collaboration
in economic questions but pulling apart in personal
contacts between their peoples.
The Committees further recognise that the restr.
ctions on pleasure travel in the United States imposed
by Canada have been required by the exigencies of
conservation of United States dollar exchange, ThaT
raise the question, however, whether the United States
might not be prepared to make some financial arrange
ment or concession which would enable the Ganadian
Government, if it is agreed upon the destrability of
such action, to liberalize those restrictions in some
degree. In the United States, this question presenably
falls within the competence of the Department of State
and the Treasury Department,
The Joint Economic Committees would appreciate, in
the event you conour in the visdom of the proposals
indicated
-2-
indicated, that you direct the Department of State,
the Department of Justice, and the Treasury Department to explore what stops ean effectively be taken
to accomplish the desired ends.
Faithfully yours,
ALVIN H. HANSEN, CHAIRMAN
United States Committee
The President
The White House
Washington, D. G.
coll
COPY
RESOLUTION OF THE JOINT EOONOMIC COMMITTEES
OF CANADA AND THE UNITED STATES
The Joint Economic Committees
(1) Having viewed with regret the evident diminution in the intimacy between the
peoples of Canada and the United States
which has resulted from the imposition
of restrictions on the traditional freedom
of travel across the common boundary, and
(2) Having recognized that these restrictions
have numerous economic aspects, particularly
BB they relate to mobility of labor between
the two countries and to the control of
foreign exchange, and
(3) Having recognized that this is likely to
add to the difficulty of establishing
that unity of feeling which is essential
for the full coll bornti.n of the govern-
ments and peoples in the national defense
efforts of the two countries, and
(4) Having recognized the basic inconsistency
between these developments and other efforts of the two governments directed
toward increasing cooperation between
Canada and the United States;
Recommend:
(1) That the Government of the United States
study anew its passport and visa requirements for Canadians crossing the CanadianAmerican border, with a view to liberalizing the regime AB far 88 consistent with
national safety, and
(2) That
395
(2) That the Canadian Government give periodic
study to the degree to which r is in a
position to liberalise sea exchange remis
tions so as to permit a greator travel of
Ganadians in the United States, and that
the appropriate officials of Gatada and
the United States discuss these matters from
time to time in their administrative and fl-
naneial aspects,
Agents
Chair
ALTIN HAW MARATH
United units chairman
Date: October 11, 1941,
396
NOV 17 1941 I
Dear Dr. Clark:
Thank you very much for the copies of your
memorandum on "Forecast of Canada's Foreign Exchange
Position" dated November 5 which you have sent to no.
I was very pleased to notice that on the side of
exports from Canada the Hyde Park Agreement seems
to be having a very important effect.
I hope that your health is continuing good despite
the strain you are under.
Sincerely yours,
(Signed) E. Morgenthan, and
Secretary of the Treasury.
Dr. W. c. Clark,
Deputy Minister of Finance,
Ministry of Finance,
Ottawn, Canada
File n.m.c.
Copies a Dr white's office
VFCsicn
11/13/41.
TREASURY DEPARTMENT
397
INTER-OFFICE COMMUNICATION
DATE November 13, 1941
Secretary Morgenthau
TO
FROM
H. D. White
Enclosed is a new forecast of Canada's gold and dollar
exchange position for the coming year which has been prepared by the Canadians. Dr. Clark, Deputy Minister of
Finance, gave this to Mr. Coe in Ottawa the other day and
asked him to transmit it to you.
There is also prepared a letter of acknowledgement
for your signature.
1. It appears that in three months July-September, 1941,
the situation was a little better than that which had been
forecast.
2. The forecast for 1942 indicates that the loss of
reserves in 1942 will be small whereas previously a large
dollar deficit had been expected.
3. The big factor in changing the situation has been
the war purchases by the United States. This part of the
Hyde Park agreement is working very well, though it is
impossible to assign particular sales to the agreement.
Lend-leasing by Britain for Canadian fabrication is proving
to be a comparatively small affair -- only $11 million
forecast for 1941 and only $44 million forecast for 1942.
Attachments 2
398
Nov. 5, 1941.
STRICTLY
CONFIDENTIAL
Forecast of Canada's Foreign Exchange Position
Notes on revised estimates dated Nov. 1941
During the three months July to September Canada had not
1.
cash receipts of U.S. dollars to the amount of 33 million, as com-
pared with a forecast (in July) of is net cash devicit of 327 million.
The improvement of 30 million is attributable chiefly to increased
exports (323 million above forecast) and capital receipts (313
million above forecast); there were also other offsetting increases
and decreases.
The change in the forecast for colondar years 1941 and
2.
1942 is shown below:
(3 millions U.S.)
Reserves of gold and U.S.
dollars at Jan.1
U.S.-dollar position
Previous estimate New estimote
Doc.31
1942
209
330
221
-138
-109
16
71
221
205
1942
328
Cash surplus or deficit -119
Forecast reserves at
1941
1941
209
The estimates this time have been extended to March 31,
1943, the end of the next fiscal year. They show a forecast net
deficit in the first quarter of 1943 of 352 million, reducing
reserves as of March 31, 1943, to 3153 million.
Those calculations involve certain assumptions, the chief
3.
of which aro:
(a) That salos of munitions and ships under the Hydo Park
agreement will be consummated in accordance with the program
as of September 30, 1941. The contracts for ships (3150
million) have not yot been signed.
(b) That down-payments and progress-payments will be
received in accordance with presont expectations, namely,
320 million on ordnance and 48 million on ships, total 368
million to bo received in the 4th quarter of 1941 (332 million)
and the 1st quarter of 1942 (136 million).
399
-2
(c) That pricos in the United States will not increase
significantly. If such an increase doos occur, it would have
a very advorse effect on Canada's U.S. dollar position -- it
might affect almost all imports from the United States (except
thoso contracted for in advance) but would be unlikely to
affect much of our exports to the United Statos (c.g., gold,
nowsprint, lumber, munitions and ships sold by War Supplies
Limited, etc.)
(a) On the other hand, allowance has not been mado for
probable and possible renowal sales by Bar Supplies Limited --
a possible not total of 3120 million; offsctting this in
part, the estimate of Canadian war imports shows some taporing
off which may woll not occur -- it is very difficult to
project this itom into the future,
(o) Thore is also the possibility of shortago of supplies
rostricting imports from the Unitod States, or exports to
the United States.
4.
The chief rovisions in the ostimates are shown below
(a negative sign indicates a decrease in estimated receipts or an
increase in estimated expondituros) :
400
-
3
Nov. 1 ostimates compared with
July 7 ostimatos
Total for
2 yours
1941
1942
Exports to U.S.A. (ox Hyde Park)
37
45
82
Imports from U.S.A. (ox Hydo Park)
15
23
38
Nowly minod gold
-4
-15
-19
Tourist travel reccipts (a)
-36
-36
-72
Nowfoundland (b)
13
10
23
Servicos: recoipts (c)
22
20
42
-12
-16
-28
--
16
23
24
47
-66
32
-34
All other (not)
19
17
36
Total
27
104
Capital: recoipts
16
exponditures (a)
Hyde Park (d)
Lag in cash paymonts, etc.
-17
131
18
1
expondituros
Not change in forocast of not
10
122
132
Not cash receipts:
10
122
132
-138
-257
cash receipts
change (as above)
provious forocast
-119
-109
now forocast
16
-125
Footnotes to the abovo tablo:
(a) Tourist recoipts and capital oxpondituros have the formor both
roduced by $23 million, representing
of tourist receipts which did not
bocause they wore financod In
dollars
inroducod
the unofficial
U.S. boon ostimato Canadian dollars
market. by produco purchases by 013
of tourist reccipts have boon records do
addition, Foreign Exchange Control Board estimate)
million. oven 391 million (the now and a further as
actually received in U.S. dollars, ostimatos; if
to bc rado
in lator
roduction boinghavo
not identify
may corresponding
increase
however, there would bo a miscollanoous
so, amount shown for "Other sorvicos, dividonds".
in incomo, the etc. or for "Interest and
401
4
(b) Nowfoundland's not receipts or deficit was formorly
thought to bo innaterial, ov.r a full your, but recent
developments indicate there will be annual not receipts
in the amounts shown,
(c) Those miscollanoous income receipts, according to
Foreign Exchange Control Board records, are substantially
groater than previous estim.tos. Sou also the concluding sontence in not. (a) above.
(d) This is almost entirely a question of timing. The total
to March 51, 1943, is oxactly the santa ns the total to
December 31, 1942, in the previous ostimatos.
Tablo Ia shows the not offect of the Hydo Park Agreement.
5.
Probablo exports to March 31, 1913 (total value in U.S. dollars
exclusive of Canadian freight to border) are estinated as follows:
War Supplies Limited
Universal carriors
Guns
Annunition
Radio apparatus
Aircraft, parts, otc.
Ships
Textilos and miscollanoous
China (ordnanco and aircraft)
Aluminum
Add: Canadian froight to bordor
Deduct: U.S. content of such exports
Not exports
Adjust for advance payments
Not recoipts during period
Saving on other war imports through U.K.
obtaining components under Lond-Louse
Not effect in U.S. dollars
14
61
84
33
24
160
4
35
415
35
450
15
-81
384
36
420
64
484
DATE
402
STRICTLY
CONFIDENTIAL
Revised
NOVEMBER 1, 1941
Forecast of Canada's Foreign Exchange Position
TABLE I: COLD AND U. S. DOLLARS
(In millions of U. S. dollars)
Sept 15,
1959 to
1939 to
Mar. 31,
Dec. 31.
Jan.
1941 and 1942 by quarters
Mar
1941
1942
1943
1940
1
Depletion of liquid reserves
238
61
109
16
2
Liquidation of other U.S. assets by Canada
146
81
40
20
3
Reduction in Canada's U.S. dollar assets
384
142
1943
1942
1941
II
III
53
22
-3
11
14
10
64
36
IV
III
II
I
Item
Sept. 15,
Item
IV
I
FINANCING CANADA'S DEFICIENCY OF U. S. DOLLARS
45
5
5
5
-5
50
7
13
68
55
20
nil
nil
nil
24
25
44
97
99
85
76
4
6
5
19
3
5
5
5
5
5
5
5
4
20
-15
42
-10
2
41
5
27
1
93
57
36
-20
37
1
New investment in Canada
149
52
Sub-total: factors increasing Canada's net U.S.dollar
34
-
?
?
357
55
7
?
-
1,188
396
283
413
96
68
79
45
91
87
110
85
151
136
156
156
136
136
156
136
136
136
205
136
136
205
194
141
105
104
114
10
69
85
05
122
56
194
119
56
330
277
255
258
11
205
250
221
240
530
241
261
221
261
--
-
12
--
-
--
--
-
--
--
130
--
--
130
277
255
258
250
13
330
240
330
205
241
391
221
221
391
-53
-22
-37
20
-45
14
-52
10
-16
-1
-109
277
255
221
240
100
15
153
250
205
241
221
8
Total (equals total cash deficiency)
93
?
484
?
Net effect of Hyde Park agreement
11
?
227
-10
47
?
227
62
56
?
Gold and U.S. dollars bought from the United Kingdom
190
6
169
-
477
5
OFFICIAL AND PRIVATE LIQUID RESERVES
Held at beginning of period:
U.S.dollar balances
Total (a)
Private (b)
Total liquid reserves
Net increase or decrease during period
Held at end of period
(a) Total "official" holdings - Foreign Exchange Cont rol
Board, Minister of Finance and Bank of Canada.
-238
153
-61
330
3
Official: gold
258
(b) Total holdings of U.S. dollars by all other residents of Canada,
excluding Canadian banks an insurance companies whose holdings
of U.S. ollars are required for the purposes of their U.S. business.
The totals shown are exclusive of 320 million in minimum working
balances.
205
9
5
debt
6
7
8
403
STRICTLY
CONFIDENTIAL
Revised
Forecast of Canada's Foreign Exchange Position
Nov. 1, 1941
TABLE Ia: EFFECT OF HYDE PARK AGREEMENT
(In millions of U.S. dollars)
16
- 53
- 22
12
12
14
14
53
104
97
85
46
24
- 22
- 16
21
36
87
86
73
63
30
10
13
12
13
97
99
85
76
- 100
- 75
- 121
- 86
1
10
45
- 52
25
44
22
3
109
14
9
- 88
60
18
-
36
99
8
-
46
109
81
37
- 77
20
34
7
-
- 53
116
34
-
- 373
67
32
4
202
Item
25
8
- 382
IV
4
226
1943
III
6
-
Including U. S. freight to border.
24
II
5
3
4
5
6
7
8
9
exchange for Canada.
(b)
-
Including Canadian freight to border; no metals other
than aluminum have been included here, as it is not
possible to ascertain what proportion, if any, of
other metal exports should be designated as "Hyde
Park" in the sense of creating additional foreign
357
-
2
(a)
93
48
24
4
1
Net cash receipts or outgo including Hyde Park
294
12
309
-1
25
10
4
Net cash receipts or outgo (-) excluding Hyde Park
190
42
81
30
-
Net effect on Canada's U.S.-dollar balances
22
252
82
339
14
1
Defence articles imported from U.S.A. by U.K. under
Lend-Lease (in re Canadian war production for U.K.)(b)
168
80
-1
52
IV
4
Net cash receipts of U.S. dollars from such exports
116
332
15
391
-
Adjustment for down payments and progress payments
52
52
14
1942
III
II
-
Net exports
29
384
1942
-
Deduct: U.S.-dollar content of such exports(b)
81
1941
I
Exports of defence articles and aluminum (a)
1942-43
I
1941-42
Calender Years by Quarters
1941
4
Years
3
Years (Apr.-Mar.)
2
Calendar
1
Canadian Fiscal
I
Item
404
STRICTLY
CONFIDENTIAL
Revised
Forecast of Canada's Foreign Exchange Position
NOVEMBER 1, 1941
TABLE II: IMPORTS FROM U.S.A. OF MUNITIONS AND MATERIALS FOR CANADIAN WAR PRODUCTION
(In millions of U. S. dollars)
Calendar Years by Quarters
Years
1941
1042
228
207
242
1942
1943
I
1941
II
III
IV
38
51
56
62
62
61
61
58
48
20
25
29
33
39
50
50
54
50
13
11
11
13
13
104
114
122
122
125
111
-4
-7
-9
-12
-11
-12
+
77
85
97
105
110
111
113
107
I
1941-42 1942-45
Item
Calendar
III
II
IV
I
Canadian Fiscal
years (Apr-Mar
Item
SUMMARY
48
Total
384
480
328
483
-20
-39
-11
-44
Net expenditures of U.S. dollars by Canada
364
441
317
439
58
Memo: Imports for non-war purposes
492
485
499
485
122
127
128
122
115
125
125
120
115
856
926
816
924
180
204
213
219
220
235
236
233
222
115
130
87
12
19
23
33
38
35
54
32
29
20
25
16
113
184
91
176
6
-
-
Total imports (as in Table III)
89
4
Deduct: Imports to Canada obtained by U.K. under
Lend-Lease (in re Canadian war production for U.K.)
77
58
8
14
7
48
5
27
Expenditures by War Supplies Limited (re: sales to U.S.A.)
-
193
1
107
4
204
9
126
3
Expenditures for Canada's own war requirements
2
231
1
Expenditures of U.S. dollars by Canada for the U.K.(a)
1
2
3
4
5
6
7
8
TOTAL EXPENDITURES BY CATEGORIES (b)
2
11
12
15
18
20
21
22
22
12
22
16
16
16
13
10
12
13
13
14
16
14
14
14
15
14
526
91
115
134
131
129
129
15
84
132
68
-43
-10
-9
-8
-11
-14
-8
16
-7
-10
-4
-2
-12
-10
17
2
104
114
122
111
18
Miscellaneous
56
57
52
58
14
424
521
358
Deduct freight
-34
-43
-30
Adjust for seasonal character of coal and oil imports
-6
-
-
2
and fuel.
-
(b) The categories are the end products in Canada, for which
various imports are required, including raw materials
483
4
(a) Includes $15 million in 1941 and $16 million in 1942
for British Empire other than the United Kingdom.
328
-6
58
77
8
20
89
7
74
3
40
9
70
122
125
8
Machine tools, machinery, factory equipment
48
13
7
9
81
480
4
48
38
384
5
49
85
Total as in item 4
5
44
52
18
6
43
Guns and ammunition
17
6
40
12
16
6
32
Tanks, universal carriers, mechanical transport
Total including U.S. freight to border
10
22
19
18
11
15
6
24
7
Ships
139
9
10
Aircraft
13
405
TRICTLY
INSIDENTIAL
Revised
Forescast of Canada's Foreign Exchange Position
Nov. 1, 1941
TABLE III: RECEIPTS AND EXPENDITURES OF COLD AND U.S. DOLLARS
(In millions of U. S. dollars)
Calendar
Calendar Years by Quarters
1,278
1,308
1,160
1,370
1,314
1,396
1,266
36
88
106
1942
II
III
IV
215
309
334
302
1,390
269
333
320
20
-54
-24
14
1943
II
III
333
356
360
321
271
344
317
357
350
366
323
-42
16
10
-45
-52
-
1942
-
1941
10
-45
-52
IV
I
SUMMARY
-
3
4
1
2
Actual and forecast not cash receipts or outgo (b)
-
-11
5
Lag or acceleration in cash payments (a)
-1
4
Estimated surplus or deficit
-
Total estimated expenditures
-
Total estimated receipts
Item
4
1942-43
3
1941-42
2
1941
1
Years
I
Canadian Fiscal
Years (Apr.-Mari)
I
tem
- 36
- 88
- 109
16
Exports(c)
589
866
501
873
97
122
Newly-mined gold
185
177
187
181
49
45
27
24
28
24
91
91
91
91
10
20
45
16
10
20
45
16
10
Freight
55
67
52
67
11
13
14
14
14
18
18
17
14
10
Other services, miscellaneous income, etc. (d)
47
43
45
43
16
10
10
11
12
10
10
11
11
Sales of U.S. securities and other U.S. assets (e)
34
20
40
20
14
10
Sales of Canadian securities and other investment in Canada (e)
42
20
41
20
19
13
116
- 80
82
30
25
25
32
34
1,186
1,228
1,067
1,289
282
312
276
316
13
10
-22
-37
20
143
139
185
237
235
216
178
46
47
47
45
45
44
43
5
-
1
3
-53
RECEIPTS: Receipts by Canada from U. S. A.
9
5
12
5
5
5
5
5
5
5
5
13
-24
-22
-16
14
331
344
298
255
15
2
2
16
17
?
3
?
?
5
5
-18
2
6
8
5
3
4
?
?
5
?
6
8
2
9
4
2
nil
5
?
9
?
?
?
Total receipts by Canada of gold and U.S. dollars
nil
7
Receipts from other countries(8)
nil
5
Receipts from U.K. and other sterling-area countries
14
7
Newfoundland's net receipts of U.S. dollars
197
5
Total receipts from U. S. A.
8
Advance payments on certain exports (f)
11
7
Tourist travel
6
Interest and dividends
78
71
80
71
16
25
17
22
14
22
14
21
14
18
1,278
1,308
1,160
1,370
215
309
334
302
333
356
360
321
271
19
This is a balancing item, the difference between net receipts as estimated on an accrual basis and as realized on a cash basis. Besides errors and omissions, it reflects the
-16:
various lage and accelerations in cash payments.
4(est.):
-25(E):
Monthly figures for 1941: J: -18: F: -19: M: -16: Total: -53: A: -3: M: -24: J: 5: Total: -22: J: -8: A: -9: S: 20: Total: 3:
0:
Assumes that the sale of shipe ($160 million) arranged under Hyde Park agreement will be consummated; formal contract not yet signed.
Includes business and professional services, rents, royalties, insurance transactions (including profits of insurance companies), current expenditures
N:
D:
of
foreign
Total:-37
diplomatic
representatives, profits of all kinds (if not paid as interest or dividends), family and church remittances, etc.
Forecasts of future receipts are purely provisional, and probably on the conservative side.
Assumes
or progreas-payments
of $20
million on ordnance
of 1942 isdown-payments
net after deducting
$2 million applicable
to aluminum
exports. and $48 million on ships, in addition to $50 million already received on aluminum; figure for first quarter
In 1941, exports 50, other 30 (chiefly dividends from oil companies and electric utilities).
406
Revised
Forecast of Canada's Foreign Exchange Position
Nov. 1, 1941
TABLE III (CONT'D): RECEIPTS AND EXPENDITURES OF GOLD AND U.S. DOLLARS
(In millions of U.S. dollars)
Calendar
1948-43
1941
1941
1942
I
1941-42
Calender Years by Quarters
Years
1942
II
III
IV
I
Years (Apr.-Mar.)
1943
TI
III
IV
Item
I
Canadian Fiscal
EXPENDITURES: Expenditures by Canada in U. S. A.
856
926
816
924
180
204
813
219
220
235
236
833
###
20
85
83
86
83
19
25
17
25
18
24
17
24
18
21
111
107
112
107
21
34
23
34
20
32
22
33
20
22
20
20
20
20
6
Importa (h)
as
75
83
72
82
12
18
24
18
15
21
27
19
16
24
55
56
52
56
11
14
13
14
14
14
14
14
14
25
32
45
27
42
10
18
10
26
Interest
1
1
7
7
1
1
1
3
9
2
-
2
1
6
5
3
4
4
6
4
Total expenditures in U. s. A.
3
Other debt repayments
13
6
Bond maturities
6
Other services, miscellaneous income, etc. (1)
5
Freight
3
Tourist travel
6
Dividends
27
1,238
1,324
1,191
1,318
254
313
298
326
301
339
330
348
307
28
Expenditures in other countries outside sterling area(1)
76
72
75
72
15
20
22
18
16
18
20
18
16
29
Total expenditures by Canada of gold and U.S. dollars
1,314
1,266
1,390
269
333
320
344
317
357
350
323
30
Trade returns adjusted for overvaluation, imports not paid for by Canada, etc.
(e.g. imports on U.K., Norwegian, Belgian, Dutch or Polish account, paid
for by the country concerned or obtained by it under the Lend-Lease Act.)
Includes business and professional services, rents, royalties, insurance
transactions (including profits of insurance companies) current expenditures
of Canadian diplomatic representatives, profits of all kinds (if not paid
as interest or dividends), family and church remittances, etc.
In 1941, imports 70, other 5 (chiefly Chinese remittances).
1,396
366
407
TREASURY DEPARTMENT
UNITED STATES MINT SERVICE
San Francisco, Calif.
November 17, 1941
Secretary of the Treasury,
Treasury Department,
Washington, D.C.
Attention Frank Dietrich
Dear Sir:
I am enclosing copy of a letter which I have
today handed to the Federal Reserve Bank with check also six copies of memorandum form 42-R.
Hoping you will find everything in order, and
assuring you that I am glad of the opportunity of serving
you at any time, I am
Respectfully,
(signed)
P. Haggerty
Superintendent
Copy:ec:11-21-41
408
0
0
P
Y
November 17, 1941
Federal Reserve Bank,
San Francisco, California.
Gentlemen;
There was on November 6, 1941, delivered to the
U. S. Mint, San Francisco 160,428.51 ounces of gold which
arrived in San Francisco on the SS "Azerbaidjan" for the
account of the State Bank of the U.S.S.R., Moscow. We were
instructed by telegram from D. W. Bell, Acting Secretary of
the Treasury (copy of which is attached) to instruct the
Federal Reserve Bank of San Francisco to transfer by telegram to the Federal Reserve Bank of New York, for credit of
the Secretary of the Treasury, Special Account, and to include in the telegram the number of Fine ounces
Dollar value
Mint charges
Net amount
160.399.616
$ 5,613,986.56
$
160.50
$ 5,613,826.06
for which latter amount we are delivering you our check.
The amount of one-fourth of one per-cent (1/4%)
handling charge is $14,034.97
Yours very truly,
Superintendent
Copy:vw: 11-21-41
409
c
0
P
Y
San Francisco, Calif.
1:30 p.m., Nov. 17, 1941
D. W. Bell
Washington
I have today delivered to Federal Reserve Bank, San
Francisco, check for five million six hundred thirteen
thousand eight hundred twenty six dollars six cents for
credit of the Secretary's Special Account.
Haggerty
Supt.
COPY - dm - 11/18/41
410
DEPARTMENT OF STATE
Washington
In reply refer to
Eu 859A.5151/5
November 17. 1941
My dear Mr. Secretary:
With reference to a telephone conversation of
November 13. 1941 between Mr. Dietrich of the Treasury
Department and an officer of the Division of European
Affairs, There is quoted for your information the following self-explanatory paraphrase of a telegram no. 111,
dated November 12, 7 p.m., from the American Minister
at Reykjavik, Iceland:
"I have now been assured by the Foreign
Office that the inadequacy of Icelandic currency
has only existed with respect to coins of small
denomination and that an adequate supply of
Icelandic currency is now available. I doubt,
however, whether in giving me these assurances,
the Icelandic officials have given adequate weight
to the fact that the increase in the numbers of
American troops here will occasion an increasing
need for Icelandic currency. They probably also
have not given sufficient consideration to the
factor of nonrecovery of coins of such small
value as to be of no use to our soldiers. Since
General
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
411
-2-
General Bonesteel has taken precautions to prevent
dollar currency from falling into the hands of
Icelanders contrary to Icelandic law, I recommend
that serious consideration be given by the State,
War and Treasury Departments to the contents of
a telegram which the General is today sending to
the Chief of Staff, setting forth the many valid
in kronur."
reasons against payments to the United States forces
S incerely yours,
For the Secretary of State:
(signed) A. A. Berle, Jr.
Assistant Secretary
Copy:ec:11-18-41
DEPARTMENT OF STATE
412
Washington
In reply refer to
FF
November 17, 1941
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and
encloses copies of the paraphrase of a circular telegram sent
to Diplomatic Missions in Central and South America, November 14,
1941, regarding gold shipments from Japan.
Enclosure:
To the Diplomatic Missions
in Central and South America,
November 14, 1941.
eh:copy
11-17-41
0
413
0
P
Y
PARAPHRASE OF TELEGRAM SENT
TO:
The Diplomatic Missions in Central and South America.
DATE:
November 14, 1941, 6 p.m.
NO. :
(CIRCULAR)
For transmittal to the Treasury, it is requested that
the Department be informed with regard to all future shipments,
and any recent shipments, of gold from Japan. It is desirable
to know if the shipments in question are in payment for goods
delivered or for the establishment of exchange assets for pur-
chases in the future. This information is needed immediately.
HULL
(FL)
eh:copy
11-17-41
C
414
0
P
Y
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FF
November 17, 1941
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses copies of the paraphrase of telegram no. 1747,
dated November 15, 1941, from the American Embassy,
Rio de Janeiro, Brazil, concerning the transfer of
funds by the Vichy Government to the Empresas
Brasilero de Aguas and to the Banco Portuguese.
Enclosure:
Copies of paraphrase of
telegram no. 1747 from
Rio de Janeiro, dated
November 15, 1941.
415
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PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Rio de Janeiro, Brazil.
DATE: November 15, 1941, 4 p.m.
NO. : 1747
This is in further reference to my telegram of the
8th of November, 4 p.m., no. 1693.
Information has now been received that Combescot,
who is now in Vichy, has advised the Banco Espirito Santo
of Portugal that 65,000,000 escudos for the account of
Empresas Brasilero de Aguas will be transferred to said
bank by the Vichy Government. Instructions will also be
given to the bank to transfer to Banco Portuguese in Rio
de Janeiro for the water works program 10,000 contos, and
upon the consumation of the contract. the balance will
be transferred.
CAFFERY
Copy:bj:11-18-41
416
DEPARTMENT OF STATE
Washington
In reply refer to
FF
November 17, 1941
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses copies
of the paraphrase of telegram no. 1150, dated November 15, 1941.
to the American Embassy, Rio de Janeiro, Brasil, concerning the
present status of certain vessels to be transferred to Panamanian
registry by the American Baltic Chartering and Shipping Company, Inc.
Enclosure:
To Ric de Janeiro,
no. 1150, November 15,
1941.
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417
P
PARAPHRASE OF TELEGRAM SENT
TO:
American Embasey, Rio de Janeiro, Brazil.
DATE:
November 15, 1941.
NO.:
1150
This is in reply to your despatch of October 8,
1941, No. 5543.
It is requested that you telegraph the present
status of the CALIFORNIA, NEVADA AND ARIZONA, in view
of the applications made to the United States Department
of Treasury for the unblocking of funds for the transfer
of these vessels to registry in Panama which has been
contemplated by the American Beltic Chartering and
Shipping Company, Inc.
HULL
(TB)
eh:copy
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COPY
418
PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Rio de Janeiro
TO :
Secretary of State, Washington
DATED:
November 17, 1941, 8 p.m.
NUMBER:
1759
Referring to Department's telegram no. 1150 of November 15.
The Embassy has been informed that the Director of the
Brazilian Maritime is not aware of any negotiations contemplating
the transfer of the California, Arizona, and Nevada to Panamanian
registry. Negotiations for the vessels referred to were temporarily
suspended by the Commission pending the conclusion of negotiations
for the Italian ships. When this latter deal is concluded it is
expected that an offer will be made for the Danish ships calling
for (1) their transfer to Brazilian flag with provision for resale
after the war, (2) form of payment will be a non-negotiable credit
in the Bank of Brazil, no transfer of cash involved, and (3) after
the war is over an equitable share of the profits will be given to
the Denish interests.
The Embassy assumes that the block funds referred to in the
Department's telegram are needed in connection with expenditures
for repairs made on these vessels in Brazilian shipyards.
CAFFERY
Copy:bJ:12-12-41
419
DEPARTMENT OF STATE
Washington
In reply refer to
FF
November 17. 1941
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses herewith
copies of the paraphrase of telegram no. 178 from the American
Embassy, Habana, Cuba, dated November 15, 1941, in reply to a
circular instruction of November 14, 1941 regarding gold imports
from Japan.
Enclosure:
From Embassy, Habana
no. 178, November 15, 1941.
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PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Embassy, Haban . Cuba
DATE:
November 15, 1941, 1 p.m.
NO. :
178
This is in reply to the circular telegram of the
Department sent at 1 p.m. on the 14th of November.
There have not been any gold imports from Japan into
Cuba during the past few years according to information
which WAS supplied by sources in the Treasury Department
and which were confirmed by leading bank officials.
MESSERSMITH
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421
DEPARTMENT OF STATE
Washington
In reply refer to
FF
November 17. 1941
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
herewith copies of the paraphrase of telegram no. 217, dated
November 15, 1941, from the American Legation, Ciudad Trujillo,
Dominican Republic, in reply to a circular instruction of
November 14, 1941 regarding gold imports from Japan.
Enclosure:
From Legation, Ciudad
Trujillo, no. 217,
November 15. 1941.
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PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Ciudad Trujillo, Dominican Republic
DATE:
November 15, 1941, noon.
NO. : 217
This is in reply to the circular telegram of the Department
sent at 1 p.m. on the 14th of November.
Recently there have been no shipments of gold imported from
any source into the Dominican Republic. No imports of gold in
the near future are anticipated.
LAWTON
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423
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FF
November 17, 1941
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
copies of the paraphrase of telegram no. 92, dated November 15.
1941, from the American Legation, San Salvador, E1 Salvador,
in reply to a circular telegram of November 14, 1941 regarding
gold imports from Japan.
Enclosure:
From Legation, San
Salvador, no. 92,
November 15, 1941.
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PARAPHRASE OF TELEGRAM RECEIVED
FROM:
American Legation, San Salvador, E1 Salvador
DATE:
November 15, 1941, 11 a.m.
NO. :
92
This is in reply to the circular telegram of the
Department received at 6 p.m. on the 14th of November 1941.
There have not been any such shipments here and
there are none expected.
FRAZER.
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DEPARTMENT OF STATE
WASHINGTON
November 17, 1941
In reply refer to
FF 894.515/77
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses copies of an undated telegram no. 189, received
November 15, 1941, from the American Legation, Asuncion,
Paraguay, in reply to a circular instruction of
November 14, 1941 regarding gold imports from Japan.
Enclosure:
From Asuncion, no. 189,
undated.
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PLAIN
Asuncion
Undated
Rec'd. November 15, 1941
10:44 p.m.
Secretary of State,
Washington.
189.
Reference Department Circular November 14,
6 p.m.
Officials state no such shipments received
or contemplated.
FROST
WWC
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DEPARTMENT OF STATE
WASHINGTON
In reply refer to
November 17. 1941
FF 894/515/78
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses copies of the paraphrase of telegram no. 616,
dated November 15. 1941, , from the American Embassy,
Lima, Peru, in reply to a circular instruction of
November 14, 1941 regarding gold imports from Japan.
Enclosure:
From Embassy, Lima,
No. 616, dated
November 15, 1941.
COPY
428
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Lima, Peru
DATE: November 15. 1941, 4 p.m.
NO.:
616
This is in reply to the circular telegram of the
Department dated 5 p.m. November 14, 1941.
According to the Central Reserve Bank, two shipments
of gold have been received from Japan during the present
year. A detailed description of the first shipment was
given in despatches dated September 26 and October 3 and
numbered 1819 and 1892 respectively. The other shipment
to which reference was made in despatch of October 3. 1941,
no. 1892, arrived on October 20 on the steamship TERUKAWA
MARU in the amount of 557.7317 kilograms, in 38 bars.
These shipments were both to pay for goods which were
partly delivered and to be delivered in the future, in
connection with purchases which were being and are to be
made. Your strictly confidential instruction of the
5th of November, no. 712, is also answered by this
telegram.
NORWEB
Copy:1c: 11/17/41
TREASURY DEPARTMENT
429
INTER-OFFICE COMMUNICATION
For
TO
Miss
DATE November 17, 1941
Chauncey
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Dietrich
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns
£124,000
& 53,000
Open market sterling closed at 4.03-1/2. The only reported transaction
consisted of £4,000 sold to a commercial concern.
The Canadian dollar discount widened to 11-3/46 at the close. A week ago,
that currency was quoted at 11-3/16%.
Continuing its improvement, the Uruguayan free peso rose 50 points (1/2)
to reach a now high of .4850. The current upward movement began October 1, at
which time the peso was quoted in the neighborhood of .4425.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Argentine peso (free)
Colombian peso
Mexican peso
.2388
.0515
.5775
.2070
Venezuelan bolivar
.2550
Cuban peso
1/8% discount
Brazilian milreis (free)
We sold $19,950,000 in gold to the Swiss National Bank, which was added to
its earmarked account.
The State Department forwarded a cable to us reporting the following gold
shipments from Australia, both of which are for sale to the San Francisco Mint:
$3,588,000 Shipped by the Commonwealth Bank of Australia, Sydney, to the
Federal Reserve Bank of San Francisco.
145,000 Shipped by the Bank of New South Vales, Sydney, to the
American Trust Company, San Francisco.
$3,733,000 Total
In London, spot and forward silver remained at 23-1/2a, equivalent to 42.67
430
-2- The Treasury's purchase price for foreign silver was unchanged at 35$.
Handy
and
Harman's settlement price for foreign silver was also unchanged at
34-3/44.
We purchased 200,000 ounces of silver from the Bank of Canada. Today's
was the first purchase from that source during November under our regular monthly
agreement to buy up to 1,200,000 ounces.
CONFIDENTIAL
431
RESTRICTED
G-2/2657-220; No. 546 M.I.D., W.D. 11:00 A.M., November 17, 1941
SITUATION REPORT
I.
Eastern Theater.
Ground: Local Russian counterattacks continue along
the Moscow front from Tula to Kalinin.
There is no information covering military operations in the Donets Basin.
In the Crimea the German High Command claims
to have entered Kerch. The siege of Sevastopol continues.
Air: Germany reports heavy activity in the Crimea and
the bombing of both Leningrad and Moscow.
II.
Western Theater.
Air: No reports have been received of activity in this
theater.
III.
Middle Eastern Theater.
Ground: Nothing of importance.
RESTRICTED