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170 January 17. 1942. My dear Mr. Secretary: In the absence of Secretary Morgenthau I have your letter of January 16 in regard to the meeting in your office at 2:00 p.m. on Monday, January 19 to discuss problems relating to the food situation in California. I am planning to attend the meeting and shall bring with me one or two associates who have been working on this problem. Sincerely yours, (Signed) E. H. Foley, Jr. Acting Secretary of the Treasury The Honorable The Secretary of Agriculture. EHF :mp 1/17/42 171 DEPARTMENT OF AGRICULTURE (Seal) Washington January 16, 1942. The Honorable The Secretary of Treasury Dear Mr. Secretary: In view of the important place that Japanese-Americans and JapaneseNationals have in California vegetable production, represents tives of the Treasury Department and this Department made a rapid but comprehensive survey of the factors that might affect the 1942 Je anose vegetable production in California. This survey consisted largely of obtaining information from officials of Federal Reserve Banks, the California USDA Mar Board, Chairmen of USDA County AT Boards, local bankers, business non and other interested individuals in areas with large Japanese farming populations. On the basis of the information obtained from this investigation, I urge the necessity of immediate action by the appropriate agencies of the Federal Government so that the supply of vegetables for the military forces and the civilian population will not be needlessly curtailed. It is also evident that the general public is not completely confi- dent that the Federal and local governments have provided sufficient supervision over the activities of Japanese-Nationals and JapaneseAmericans to prevent them from possible acts that will be determental to the military efforte of our armed forces or to the Nation's food upply. Isolated incidents and rumors of incidents may have created more concern among the general public than is justified. However, if this public confidence is not obtained, individual ersons or groups in local communities may soon attempt to arrange their own and perhaps improper methods of obtaining this supervision. In arranging this prot ction for surselves from possible subversive Japanese activities, ve can at the same time furnish certain limited protection to all Japanese whome conduct is above suspicion, so that we will more likely void incidents that might provide an excuse for cruel treatment of our people in Jayeness occupied territory. Also, with this limited protection the Japanese in California will be in a better position to cer 7 on their normal farming operations. In order to provide the proper Federal action for this problem as speedily as possible, I suggest that representative of your Department arrange to confer in the very near future with represent tives of the 172 -2Departments of State, War, Navy, Justice, Labor, and Agriculture. This conference should consider the possibility of immediately removing Japanese from all strategic military areas so that this land which is suitable for farming can be operated by proper individuals before it is too late to obtain a 1942 crop. The question has also been raised of bringing in Mexican labor to assist in meeting the California vegetable and fruit labor needs at harvest time. particularly on Japanese operated farms, inasmuch as the usual supply of Filipino labor will not be available to the Japanese. Finally, this conference should attempt to arrange supervision of all Japanese farming operations in such a way that the general public will have confidence in this supervision, and the 1942 production of vegetables will not be too seriously decreased. A similar letter is being addressed to other agencies involved in the control of this situation. will you please have & representative at my office to discuss this matter at 2:00 p.m., Monday, January 19. Sincerely yours, /s/ CLAUDE R. WICKARD Secretary 173 JAN 17 1942 J BEP T. Attorney General: In the absence of Secretary Morgenthau, I an replying to your letter of January 15, 1942, enclosing a copy of a telexram which you received from the United States Attorney at Los Angeles with respect to discrimination against Japanese comission merchants and produce dealers. I a.m enclosing a copy of General License No. GBA, as amended. This General License unblocks the accounts of Japanese nationals who have resided continuously within the continental nited States since June 17, 1940, and permits business enterprises within the continental United States owned ENC controlled by such Japanese nationals to continue to operate, except in those cases in which Treasury representatives are maintained on the pre ises or an official Tressary notice is posted indicating that such premises are under Government control. It is believed that, SO far as freezing control is concerned, all of the Japanese Commission merchants and produce dealers are licensed to conduct their donestic business. In cases not comprehended by this General License, applications for business operating licenses may be filed with the Federal Reserve ank of San Francisco. I am also enclosing & copy of General License No. 77. As you know, representatives of this Department have recently concluded E series of conferences in California with representatives of the Department of Agriculture with regard to this situation. Representatives of the Department of Priculture of the State of California and other interested persons were also present at these conferences. Very truly yours, (Signed) H. Voley, in Acting Secretary of the Treasury. The Honorable The Attorney General of the United States. Enclosures FR:EHF/ap 1/17/42 174 THE ATTORNEY GENERAL Washington (Seal) January 15, 1942 Dear Henry: Enclosed is a copy of is telegram from the United States Attorney in Los Angeles with respect to discrimin tion against Japanese commission merchants and produce dealers. I understand that the Treasury has issued is license ermitting them to do business and I shall appreciato your 60 advising me so thst I may uso my efforts to see the t there is as little of this confusion and discrimination as possible. I have sent a copy of the telegram to Cleade Tickurd, who will also use his effort to work out the situation. Sincerely your /s/ FRANCIS BIDDLE The Honorable Henry Morgenthau Secretary of the Treasury. Copied 1/19/42 - mp 1°5 LOS ANGELES, CALIFORNIA January 12, 1942 Honorable Francis Biddle The Attorney General THE BUREAU OF MARKET ENFORCEMENT DEPARTMENT OF AGRICULTURE OF CALIFORNIA IS REPORTED TO BE DENYING LICENSES TO JAPANESE ALIEN COMMISSION MERCHANTS AND PRODUCE DEALERS STOP THESE DEALERS HAVE BEEN CARRYING ON THIS BUSINESS FOR FIFTEEN OR TWENTY YEARS. THEY ADVANCE FUNDS TO TRUCK FARMERS WHICH ENABLES THEM TO MAKE THE CROP AND A REFUSAL OF RENEWAL OF THEIR LICENSES WILL STOP THE PRODUCTION AND MARKETING OF NECESSARY FOOD STUFFS. THIS WILL PUT APPROXIMATELY TWO THOUSAND JAPANESE GROWERS AND EMPLOYEES OUT OF BUSINESS AND CAUSE GREAT HARDSHIP TO SUCH PRODUCERS AND THE CONSUMING PUBLIC CAN YOU HELP? UNITED STATES ATTORNEY . Copied 1/19/42 - mp 176 TREASURY DEPARTMENT 1.59 TANDARD FORM NO 14 A APPROVED BY THE PRESIDENT WASHINGTON MARCH 10. 1926 CHARGE TREASURY DEPARTMENT. APPROPRIATION FOR TELEGRAM -- Official-Expenses of Loans (The appropriation from which payable must be stated on above line) OFFICIAL BUSINESS-GOVERNMENT RATES 2-14117 January 17, 1942 Clark Gable .re Metro-Goldwyn-Mayer Studios Culver City California by deepest sympathy goes to you today. Your wife died in the service of her country. Her brilliant work for the Treasury this week in selling Defense Bonds in Indianapolis will be long remembered and honored by us all. Henry Morgenthau, Jr. Secretary of the Treasury. Miss MacDonald, Mr. Shaeffer and Room 463 FK/hkb 177 m TREASURY DEPARTMENT PROCUREMENT DIVISION WASHINGTON OFFICE OF THE DIRECTOR January 17, 1942 ORANDUM TO THE SECRETARY There is submitted herewith the operating report as of Lend-Lease purchases for the week ended January 17, 1842. At the request of the Office of Lend-Lease Administration, conferences will be had Monday with representa- tives of that office in an effort to avoid duplication In the purchasing of the same commodities by the procurement agencies participating in the Lend-Lease program. It was indicated that we may be called upon to handle the procurement of all machine tools, involving 8 program of about $135,000,000, and certain other com- modities which are not of a strictly military nature which have heretofore been purchased by the military services. Clifton E. ack Director of Procurement FORDEFENSE BUY UNITED STATES SAVINGS BONDS LANDSTAMPS Spear 178 OPERATING REPORT - LEND-LEASE PURCHASES WEEK ENDED JANUARY 17, 1942 $817,021,188.00 TOTAL ALLOCATIONS LESS: FUNDS AWAITING CLEARANCE BY O.P.M. 8,719,375.00 $808,301,813.00 NET ALLOCATIONS #REQUISITIONS APPROVED FOR $533,663,380.09 PURCHASE PURCHASES PREVIOUSLY REPORTED PURCHASES THIS WEEK TOTAL PURCHASES $380,749,989.76 28,367,633.73 409,117,623.49 REQUISITIONS IN PROCESS INCLUDING THOSE AWAITING SPECIFICATIONS $124,545,756.60 *THE DIFFERENCE BETWEEN NET ALLOCATIONS AND REQUISITIONS APPROVED FOR PURCHASE REPRESENTS ALLOCATIONS IN EXCESS OF COMMITMENTS, REQUISITIONS TRANSFERRED TO OTHER AGENCIES, AND CANCELLED REQUISITIONS. PARAPHRASE OF TELEGRAM RECEIVED 179 FROM: AMDELGAT, Rio de Janeiro, Brazil. DATE: January 17, 1942, 10 a.m. NO.: 19. SECTION ONE. The following is confidential from Welles for the Secretary of the Treasury. Reference is made to telegram No. 9, 5 p.m., dated the 15th of January. I appreciate fully that it is difficult to clear the resolution in a time so brief as was indicated in my earlier telegram. However, I have succeeded in having the deadline for the presentation of the resolution extended to Monday. Personally I do not feel that a clearance on this matter with the British or any prior other Government is necessary. It would be most helpful, in view of developments at the conference, if the resolution could be presented by the United States and I hope that you can find it possible to give your approval to it. Following is a redraft of the resolution on simpler lines: WELLES 180 Rio de Janeiro ALH This telegram must be being paraphrased communicated before to anyone other than a Governmental Dated January 17, 1942 Rec'd 10:15 a.m. as Ency (BR) Secretary of State, Washington. TRIPLE PRIORITY 19, January 17, 10 a.m. (SECTION TWO) Resolution on the stabilization fund of the united and associated nations. WHEREAS: OnE. In the attainment of the Economic objectives of the Atlantic Charter a more Effective mobilization of foreign Exchange resources is of indisputable importance, and would be of assistance in the struggle against oppression; Two. The nations which are combined in a common Effort to maintain their political and Economic independence can cooperate in creating an organization to promote stability in foreign Exchange rates, Encourage the international movement of productive capital, facilitate the reduction of artificial and discriminatory barriers to the movement of goods, help correct the maldistribution of gold, strengthm monstary systems, and facilitate the settlement of public and 181 #19, January 17, 10 c.m. (SECTION TWO) , from Rio de Janeiro public and private international GEDUS the maintenance of monetary policies that avoid serious in- flation or deflation; Three. Participation by the American Republics in the common Effort more effectively to mobilize and USE their foreign Exchange resources would contribute to the realization of the Economic objectives set forth at the first and SECOND meetings of the Ministers of ForEign Affairs of the American Republics at Panama and Habana. WELLES NPL 182 Rio de Janeiro KD This telegram must be paraphrased before being communicated to anyone other than a Governmental agency. (3R) Dated January 17, 1942 Rec'd. 10:41 a. m. Secretary of State, Washington. TRIPLE PRIORITY. 19, January 17, 10 E. Lile (SECTION THREE) The Third Meeting of Consultation of the Ministers of Foreign Affairs of the American Republics. RESOLVES: One. To recommend that the Governments of the united nations in a special conference of Ministers of Finance or their representatives to be called for the purpose of considering the Establishment of a stabilization fund of the united and associated nations; Two. To recommend that participation in the conference shall be open to all nations that sub- scribe to the objectives to the Atlantic Charter; Three. To recommend that the conference in considering the establishment of such a fund shall formulate the plan of organization, powers and resources 183 -2- #19, January 17, 10 a.m. (SECTION THREE),from Rio de Janeiro. resources necessary to the proper functioning of the fund, and shall determine the conditions requisite to participation in the fund, and shall propose principles to guide the fund in its operation. (END OF MESSAGE). WELLES NPL 184 January 17. 1943 Mr. Livesey Mr. Bell will you please send the following cable to the American Delegation, Rio de Janeiro. "Confidential for Under Secretary Welles from Secretary Forgenthan Reference to your No. 19. January 17. I still feel that idea of stabilization fund should not be formally presented at Rio. I have been thinking about this matter since your eable of January 15 and believe this more strongly than before. In addition to the desirability of giving the British and other United Nations an opportunity to react, 18 may be designable, in order to assure success, to confer with the appropriate Congressional committees." FD:eh:1/17/48 185 Following is a paraphrase of section one of telegram no. 22, January 10, 7 p.m., from the UnderSecretary of State for the Secretary of the Treasury, in reply to the Department's telegram no. 24, January 17, 10 D.M.: Appended is a new draft of the resolution which, I believe, may satisfactorily cover the points mentioned in your cables to me regarding the wording to the earlier draft. In this new draft you will note that no reference is made to nations other than the American Republics. There is nothing in the resolution committing the United States to a meeting which need necessarily include the Finance Ministers of nations other than the American Republics although it is to be hoped that, when called, the meeting referred to in the new draft would include representatives of other countries and may be so interpreted by some. Before the calling of the conference there will of course be emple time for sounding out other governments and their participation therein assured beforehand. I would appreciate it if you could have your reply and any possible suggestions regarding further changes telephoned rather than cabled in view of the fact that Monday noon Rio time (which is two hours earlier than Washington time) January 19 is the absolute deedline. Monday morning White will stand by in his room at the Copacabana Palace to receive any telephone messages from Washington. Cory:bj:1-19-42 0 186 0 P Y Rio de Janeiro NMC This telegram must be paraphrased before being Dated January 18, 1942 other than a Governmental Rec'd 10:50 p.m. communicated to anyone agency. (BR) Secretary of State Washington. TRIPLE PRIORITY 22, January 18, 7 p.m. (SECTION TWO) Resolution on the stabilisation fund of the united and associated nations. Whereas One. A more effective mobilization and utilization of foreign exchange resources of would be of assistance in the struggle against aggression and would contribute to the realisation of the economic objectives set forth at the first and second meetings of the Ministers of Foreign Affairs of the American Republics at Panama and Habana; and - Two. The American Republica which are combined in a common effort to maintain their political and economic independence can cooperate in the creation of an organization to promote stability in foreign exchange rates, encourage the international movement of productive capital, facilitate the reduction of artificial and discriminatory barriers to the movement of goods, help correct the maldistribution of gold, strengthen monetary systems, and facilitate the settlement 187 of public and private international debts of public and private international debts and the maintenance of monetary policies that avoid serious inflation or deflation; Resolves One. To recommend that the Governments of the American Republics participate in a special conference of Ministers of Finance or their representatives to be called for the purpose of considering the establishment of an international stabilisation fund; Two. To recommend that the conference in considering the establishment of such a fund shall formulate the plan of organisation, powers and resources necessary to the proper functioning of the fund, and shall determine the conditions requisite to participation in the fund, and shall propose principles to guide the fund in its operation. (END OF MESSAGE) VELLES JRL Copy:1c:1/19/42 188 Rio de Jeneiro KD This telegram must be paraphrosed before being communicated to anyone other than a Governmental agency. (BR) Dated January 17, 1942 Rec'd. 12:34 P. T1. Secretary of State, Washington. 162, January 17, 1 p. M. FOR E. M. BERNSTEIN DIVISION HOMITARY RESEARCH TREASURY DEPARTMENT FROM WHITE. Send air ucil to Enbessy two complete sets census report and public circular number four. CAFFERY BB NOTE: Mr. E. M. Bernstein advised Mr. F. Dietrich that he had already taken care of this matter. Init.: R.H. 1/19/42 189 C 0 P Y DEPARTMENT CF STATE WASHINGTON January 17, 1942 In reply refer to FD 860H.51/1050 The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury and encloses a copy of despatch No. 6237, dated January 10, 1942, from the American Embassy, Rio de Janeiro, Brazil, concerning dollar deposits of the National Bank of Yugoslavia with the Bank of Brazil. Despatch No. 6237 refers to the Embassy's telegram No. 1224, dated September 5, 1941, which was transmitted to the Secretary of the Treasury in the Department's letter of September 8, 1941. Enclosure: From Embassy, Rio de Janeiro, Despatch No. 6237, dated January 10, 1942. 190 Rio de Janeiro, Brazil, January 10, 1942 No. 6237 Subject: Dollar Deposits Of The National Bank Of Yugoslavia With The Bank Of Brasil. The Honorable The Secretary of State, Washington. Sir: With reference to my telegram No. 1224 of September 5, 1941, 2 p.m., I sent a letter on December 30, 1941 to the Minister of Foreign Affairs stating that "my Government would be interested to know whether there are any recent developments in this matter". I am now in receipt of the following letter dated January 5, 1942, from the Minister of Foreign Affairs: I acknowledge the receipt of your letter of December 30, 1941, regarding the transfer to the Federal Reserve Bank of New York, of the amount of $11,225,000 deposited with the Bank of Brazil by the National Bank of the Kingdom a of Yugoslavia. In reply, I wish to inform Your Excellency that the # Bank of Brazil, wishing to fulfil its obligations as trustces, will oppose no difficulty in effecting the transfer of funds mentioned, so long as the United States Government, or the Federal Reserve Bank shall give the Bank of Brazil a complete release, exempting it from all future responsibility in the matter. If Respectfully yours, For the Ambassador: John F. Simmons, Counselor of Embassy. File 701 WJD:KF. Copy:bj:1-19-42 191 ARAFHHASE OF TELEGRAM RECEIVED FROM: United States High Commissioner to the Philippines, (Hanila), Fort Mille via N. R. DATE: January 17, 1948, 9 D.M. NO.: 23 The following 1. for the Treasury from the United tates High Commissioner to the Philippines. Light. In accordance with Interior's telegram No . 700, V18 radio, dated the 00th of December, . Committee consisting of the following members on January 14 burned 15 boxes of U.S. surrency vett D. Heater, My economic Adviser; Lieutenant Colonel sidney L. Huff, U.S. Army; Colonel H. 7. Smith, U.S. Army: Lieutenant Colonel Nieto, hilippine Army; and James Baxon, Head Commercial Specialist, Treasury Department. These 00008 contained a total sum of 12,430,300 being the property of the Treasury of the Philippines, and are the cases referred to in my redio of January 7, 3 p.m. SAYRE 192 PARAPHRASE OF TELEGRAM SENT TO: AMLEGATION, Bern DATED: January 17, 1942, 9 p.m. NUMBER: 139 Reference is made to Department's 113, January 12, 9 p.m. AE 8 reply to the Political Department's note, you should state that E credit for an amount approximating the counter-value of one million dollars will be established by the United States with the Swiss National Bank in favor of the American Legation at Berne. Such credit will be covered with Swiss france 88 suggested by the Political Department. In e few days the counter-value of $360,000 will be remitted, the remainder following at & later date. Confidentially, for the Legation's information the necesBary Swiss francs to cover this credit, the United States plans to acquire by purchase from Portugal via earmarking gold for the Portuguese in New York in an equivalent amount as the Banco di Portugal has indicated its willing- ness to sell Swiss francs on this basis. Point out, however, that while this Government intende to use such credit for funds to be transmitted to enemy territory for expenditures made on its behalf and on behalf of other American republics, it proposes the creation of a series of clearing accounts for the purpose of remittances between 193 between various eneay countries and the United States. When such accounts are established 11 is contemplated that this credit in favor of the American Legation with the Swiss National Bank primarily will be utilized for the purpose of covering the excess of the amounts remitted from the United States to enemy territories over the amounts remitted to the United States from enemy countries. The Swiss Government will be consulted in working out the details, as yet unsettled, of these accounts. You should indicate, however, that these accounts will merely be a means for providing the Swien Government necessary funds for the representation of American interests without the Swiss having to take substantial dollar credits and thus will not impose any additional burdens on the Swiss in providing the United States with currencies of a third country in any way inconsistent with the statements by the Department in its 558. 194 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 17, 1942. TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £34,000 £ 1,000 Open market sterling held at 4.03-3/4. with no reported transactions. In New York, closing quotations for the foreign currencies listed below were as follows: Canadian dollar Argentine peso (free) 12% discount Uruguayan peso (free) Venezuelan bolivar .2370 .0516 .5775 .2065 .5250 .2675 Cuban peso Par Brazilian milreis (free) Colombian peso Mexican peso We sold $8,000,000 in gold to the Central Bank of Venezuela, which Was added to its earmarked account. No new gold engagements were reported. The report of January 7, 1942, received from the Federal Reserve Bank of New York, giving foreign exchange positions of banks and bankers in its district, revealed that the total position of All countries was short the equivalent of $4,190,000. an increase of $194,000 in the short position since December 31, 1941. Net changes were as follows: Short Position Short Position Change in Short Position* Country December 31, 1941 January 7, 1942 England $ 152,000 (Long) $ 132,000 (Long) +S 20,000 2,626,000 641,000 (Long) 19,000 (Long) + 221,000 2,593,000 862,000 (Long) Europe Canada Latin America 43,000 (Long) Other Asia All others 159,000 2,286,000 15,000 Total 3,996,000 Japan 159,000 2,298,000 101,000 (Long) $4,190,000 + 33,000 + 24,000 --- + 12,000 - 116,000 +$194,000 Plus sign (+) indicates increase in short position, or decrease in long position. kinus sign (-) indicates decrease in short position, or increase in long position. . 195 RESTRICTED G-2/2657-220; M.I.D., W.D. No. 603 11:00 A.M., January 17, 1942 SITUATION REPORT I. Pacific Theater. Powerful Philippines: Enemy activity continues with varying intensity. Japanese thrusts have been made and repulsed. Hostile air activity continues. Hawaii No further verified reports. Malaya: Press reports indicate Australian units have made contact in successful small scale counter-attacks. Air raids on Singapore continue. Burna: Linor Japanese penetrations into southern Burma have been reported. Air action on both sides continues. Sumatra: According to the press, the military airdrome at Medan on the east coast of Sumatra has been bombed twice by Japanese planes within the last 24 hours. Caroline Islands: An Australic communique states that Australian planes raided the Japanese mandated Caroline Islands last night. West Coast: No further reports. II. Eastern Theater. Ground: Fighting continues along the general front. The German report hard defensive fighting on the central front. (No situation map issued this date.) Air: The German High Command reported that air attacks had been made on Russian shipping off the Crinea. It was claimed that a 1500-ton Russian transport was sunk, and a destroyer and a larger transport were damaged. The Russians allege that 45 German planes were shot down yesterday. III. Western Theater. A German communique admitted that British bombers had attacked Emden and other points on the north German coast last night, causing civilian casualties and damage to civilian property. The communique state that German bombers had attacked British coastal harbor installations. IV. Middle Eastern Theater. Ground: The press reports that the British captured Halfaya Pass on the morning of January 17. British possession of this pass will shorten by almost 100 niles their line of supplies to the forward areas in Tripolitania. No major actions have been reported in the Agedabia sector. Air: The Axis air forces continue their aerial bombardment of Malta unabated. Both day and night bombing raids are now being made. Air activity in the Tripolitania-Cyrenaics sector continues to be confined largely to raids on supply bases and routes. RESTRICTED U.S. COAST GUARD 9619 196 TREASURY DEPT. HEADING WU B19 55 NT GOVT COLLECT-HB HOLLYWOODBBACH FLO JAN 18 1942 HENRY MORGENTHAU JR COMDT TEXT FOR EUGENE SLOAN TREASURE AND COPY TO MRS KLOTZ. PLEASE ADVISE ME HOW MANY NEWSPAPERS AND OTHER PUBLICATIONS AND RADIO STATIONS HAVE INSTALLED PAYROLL DEDUCTION PLAN AS OF CLOSE OF BUSINESS ON JANUARY 17TH. PLEASE MAKE SPECIAL DRIVE ON THESE PUBLICITY AGENCIES AND GIVE ME A REPORT WEEKLY THROUGH GEORGE HABS FROM NOW ON TOR: 1231 19 JAN 1942 WU #1 RECD/TH/RB 3 OFFICIAL INITIALS OPERATOR'S RECORD AND DATE TOYS HK 197 1/20 X Haven't with by letter the x f Explanating my untr joy 6 my From Mr. Nack 198 Washington, D. C. January 18, 1942. Dear Mr. Morgenthau: Attached is a memorandum relative to my discussions with Mr. Nelson and others relative to the procurement program. Please excuse the typing but I thought it best to do it myself. While I feel pleased at the comments made it has been your interest in procurement and anticipating the next move that has placed us ina favorable position. For example, about a month ago you approved the consolidated purchase program to be undertaken by Treasury Procurement in conjunction with OPM. Since that time Mr. MacKeachie and I have made good progress and he has assigned about ten or twelve commodity it, thatand purchasing specialists to work with me. As I get plan of assigning men from MacKeachie's group to the procurement agencies is to be extended and in effect, decentSalize MacKeachie's organization. I have an idea that MacKeachie may be selected assistant on procurement matters. My infor- mation MacKeachie's men is that has but that the military have been a bit stiff although the present indications are as Mr. cooperated Nelson's from Mr. procurement Treasury services Procurement that the civilian purchasing men from OPM will be infiltrated in the military purchasing organizations in an advisory sapacity. I am glad that you are taking a few days rest as your responsibilities are great and it is vital that you be physically ready for the greater tasks ahead. With all good wishes, I am Very truly yours, Clifton E. Mack. 199 Washington, D. C. January 18, 1942. MEMORANDUM TO THE SECRETARY OF THE TREASURY: Immediately following your call I 'phoned Mr. Nelson's office but there was no response and I then called his apartment receiving word that he would return during the afternoon and would call me. Not having heard yet I am preparing this memo to avoid delay in forwarding as other information received today will be of interest to you. Talked with Mr. MacKeachie about the progress of the consolidated purchasing program we are working on and asked him if there is further to be done to cooperate with any plans Mr. Nelson may have in mind as your instructions are to do all possible as quickly as can be done to help in the war effort. Mr. MacKeachie stated that he "spent the last two days and until midnight last night" with Mr. Nelson and that the procurement program will call for a "general tightening up" but as far as Treasury Procurement is concerned they (MacKeachie and Nelson) feel that there must be more centralization along the lines of the present program we are working on in conjunction with OPM. Mr. MacKeachie volunteered the comment that "others backed up" while we "stepped in", which I interpreted to mean that certain of the other procurement agencies have not been 88 cooperative as Treasury Procurement. He added that it is the intention to utilize existing procurement facilities but to "speed up" as much as possible also to place more emphasis on the consolidation of purchases. The present plan we have been working on with OPM is to consolidate in Treasury Procurement those commercial items of a non-military nature. Discussed with Mr. James MacPherson, Deputy Director of Purchases (OPM), the matter of automotive equipment purchases and during the conversation asked him if there had been any developments since Mr. Nelson's appointment which indicated the advisability of amending our consolidated purchasing program to work more closely with the War Production Board. His response was, in substance, that the program will call for more of the work now being done by Treasury Procurement and said, "You fellows are ahead of the parade because you are already working in conjunction with the OPM Purchase Division", indicating that it is proposed to assign certain of OPM commodity specialists from the Purchase Division to Army and Navy procurement agencies as is being done in Treasury Page 2 - Memorandum to the Secretary 200 Procurement. Illustrating his point he mentioned that he has just returned from Wright Field (Akron) where he has been for the past few days surveying procurement practices there. He explained that Mr. MacKeachie assigned two of his pur chase men to Wright Field, both outstanding men, but indicated that the cooperation on the part of the procurement group had not been good. He said that the two men had been assigned an office in the basement of one of the buildings, the procurement group was in another place and the officers in charge were on another floor, also that there was not good coordination in getting things done. Mr. MacPherson told me that he had outlined the Treasury Procurement procedure to the officers in charge at Wright Field as a means of doing a better job and commented several times that now the military procurement groups must "groove-in" with OPM Purchase Division to make for better results. I mentioned again that Treasury Procurement is endeavoring to coordinate and speed up to the utmost and his response was that "Treasury Procurement has come the nearest to doing a job" and that "we are on the right track". Also talked with Mr. Guy Tompson of Mr. MacKeachie's staff, who is assigned to work with me on Lend Lease matters and his reaction was that the development insofar as procurement is concerned would be the assignment of OPM purchasing men to the procurement agencies of the Army and Navy. This has already been done in the case of Treasury Procurement as we have about ten or twelve of Mr. MacKeachie's commodity men working with us on the consolidated pur chasing program discussed with you about a month ago. In fact, Tompson has been asked by Mr. MacKeachie if he would accept an assignment as a procurement advisor to the Army. Mr. Tompson expressed the opinion that the OPM Purchase Division will decentralize and its personnel will be assigned to the Army, Navy and Treasury Procurement groups which might mean a few more men being assigned with us. He said that this subject had been discussed at the MacKeachie staff meetings since Mr. Nelson's appointment and it had been concluded that this would be more effective than the independent operations as heretofore and mentionshad been made that the plan is working well in Treasury Procurement therefore will be extend- ed to the military services. Mr. Tompson is to participate in the conference at Lend Lease headquarters tomorrow relative to the routing of Lend Lease requisitions to avoid duplication. I have been keeping in touch with Mr. Swope and he plans to make inquiry relative to the shipping situation at New York City next Tuesday. This memorandum will be supplemented if I am able to reach Mr. Nelson before mailing time. 201 Page 3 - Memorandum to the Secretary me do to is of your good wishes asa being is concerned he feels that Just now talked wi th Mr. Nelson (4.45 p.m.) and conveyed your best wishes for his success and added that you had asked Procurement to appreciative everything possible help and him. insofar "100% He said job" Treasury that is he done also that he has no desire nor any intention to change anything as we are working closely with OPM right now. I extended your invitation to have him for lunch next Friday (1/23) and he said he would be delighted also asked me to drop a note to his secretary to remind him which I will do. Your nort Eliften E. Mack. 202 Washington, D. C. January 18, 1942. Dear Mr. Morgenthau: Attached is a memorandum relative to my discussions with Mr. Nelson and others relative to the procurement program. Please excuse the typing but I thought it best to do it myself. While T feel pleased at the comments made it has been your interest in procurement and anticipating the next move that has placed us ina favorable position. For example, about a month ago you approved the consolidated purchase program to be undertaken by Treasury Procurement in conjunction with OPM. Since that time Mr. MacKeachie and I have made good progress and he has assigned about ten or twelve commodity and purchasing specialists to work with me. As I get it, that plan of assigning men from MacKeachie's group to the procurement agencies is to be extended and in effect, decentbalize MacKeachie's organization. I have an idea that MacKeachie may be selected as Mr. Nelson's assistant on rocurement matters. My information from Mr. MacKeachie's men is that Treasury Procurement has cooperated but that the military procurement services have been a bit stiff although the present indications are that the civilian purchasing men from OPM will be infiltrated in the military purchasing organizations in an advisory sapacity. I am glad that you are taking a few days rest as your responsibilities are great and it is vital that you be physically ready for the greater tasks ahead. With all good wishes, I am Very truly yours, Clifton E. Mack. 203 Washington, D. C. January 18, 1942. MEMORANDUM TO THE SECRETARY OF THE TREASURY: Immediately following your call I 'phoned Mr. Nelson's office but there was no response and I then called his apartment receiving word that he would return during the afternoon and would call me. Not having heard yet I am preparing this memo to avoid delay in forwarding as other information received today will be of interest to you. Talked with Mr. MacKeachie about the progress of the consolidated purchasing program we are working on and asked him if there is further to be done to cooperate with any plans Mr. Nelson may have in mind as your instructions are to do all possible as quickly as can be done to help in the war effort. Mr. MacKeachie stated that he "spent the last two days and until midnight last night" with Mr. Nelson and that the procurement program will call for a "general tightening up' but as far as Treasury Procurement is concerned they (MacKeachie and Nelson) feel that there must be more centralization along the lines of the present program we are working on in conjunction with OPM. Mr. Mackeachie volunteered the comment that "others backed up" while we "stepped in", which I interpreted to mean that certain of the other procurement agencies have not been as cooperative as Treasury Procurement. He added that it is the intention to utilize existing procurement facilities but to "speed up" as much as possible also to place more emphasis on the consolidation of purchases. The present plan we have been working on with OPM is to consolidate in Treasury Procurement those commercial items of a non-military nature. Discussed with Mr. James MacPherson, Deputy Director of Purchases (OPM), the matter of automotive equipment purchases and during the conversation asked him if there had been any developments since Mr. Nelson's appointment which indicated the advisability of amending our consolidated purchasing program to ork more closely with the War Production Board. His response was, in substance, that the program will call for more of the work now being done by Treasury Procurement and said, "You fellows are ahead of the parade because you are already working in conjunction with the OPM Purchase Division", indicating that it is proposed to assign certain of OPM commodity specialists from the Purchase Division to Army and Navy procurement agencies as is being done in Treasury Page 2 - Memorandum to the Secretary 204 Procurement. Illustrating his point he mentioned that he has just returned from Wright Field (Akron) where he has been for the past few days surveying procurement practices there. He explained that Mr. MacKeachie assigned two of his purchase men to Wright Field, both outstanding men, but indicated that the cooperation on the part of the procurement group had not been good. He said that the two men had been assigned an office in the basement of one of the buildings, the procurement group was in another place and the officers in charge were on another floor, also that there was not good coordination in getting things done. Mr. MacPherson told me that he had outlined the Treasury Procurement procedure to the officers in charge at Wright Field as a means of doing a better job and commented several times that now the military procurement groups must "groove-in" with OPM Purchase Division to make for better results. I menti oned again that Treasury Procurement is endeavoring to coordinate and speed up to the utmost and his response was that "Treasury Procurement has come the nearest to doing a job" and that we are on the right track" Also talked ith Mr. Guy Tompson of Mr. MacKeachie's staff, who is assigned to work with me on Lend Lease matters and his reaction was that the development insofar as procurement is concerned would be the assignment of OPM purchasing men to the procurement agencies of the Army and Navy. This has already been done in the case of Treasury Procurement as we have about ten or twelve of Mr. MacKeachie's commodity men working with us on the consolidated purchasing program discussed with you about a month ago. In fact, Tompson has been asked by Mr. MacKeachie if he would accept an assignment as a procurement advisor to the Army. Mr. Tompson expressed the opinion that the OPM Purchase Division will decentralize and its personnel will be assigned to the Army, Navy and Treasury Procurement groups which might mean a few more men being assigned with us. He said that this subject had been discussed at the MacKeachie staff meetings since Mr. Nelson's appointment and it had been concluded that this would be more effective than the independent operations as heretofore and mentionshad been made that the plan is working well in Treasury Procurement therefore will be extend- ed to the military services. Mr. Tompson is to participate in the conference at Lend Lease headquarters tomorrow relative to the routing of Lend Lease requisitions to avoid duplication. I have been keeping in touch with Mr. Swope and he plans to make inquiry relative to the shipping situation at New York if City next Tuesday. This memorandum will be supplemented I am able to reach Mr. Nelson before mailing time. 205 Page 3 - Memorandum to the Secretary Just now talked wi th Mr. Nelson (4.45 p.m.) and conveyed your best wishes for his success and added that you had asked me to do everything possible to help him. He said that he is appreciative of your good wishes and insofar as Treasury Procurement is concerned he feels that a "100% job" is being done also that he has no desire nor any intention to change anything as we are working closely with OPM right now. I extended your invitation to have him for lunch next Friday (1/23) and he said he would be delighted also asked me to drop a note to his secretary to remind him which I will do. Eliften E. Mack. 206 RESTRICTED C-2/2657-220: No. 604 K.I.D., W.D. 11:00 A.M., January 18g 1942. SITUATION REPORT 1. Pacific Thenter. Philinpinen: Fighting was less severe yesterday along our front. Several sharp skirmishes were successful in reestablishing our lines. Our Air Corps and Antiaircraft accounted for four onemy planos. Havaii: There are no further reports of hostile activity. Lelava: Japanese continue to threaten British loft flank on the vest const. Patrol action reported in all sectors, with sharn fighting around Gemas. Aerial activity intensified on both sides. Juna Increasing Japanese pressure on Surna is indicated, particularly in the southern and central regions. Hostile air activity continues throughout the Indies with bombings at Habaul and Amboina. China: 110 further reports have been received. West Coast: There have been no further reports. II. Mastern Theater. The Russians continue on the offensive and claim advances on the Nescot front. The Germans report heavy defensive fighting on the central and northern sectors of the Eastern Front. In the Crinea, the Germana claim that Russian attachs on the Sevastopol front were repulsed. III. Western Theater. The German communique announces this morning that the R.A.F. bombed various places in northwest Germany last night. No results vere riven. IV. iddle Bastern Theater. Ground: Aris position defenses soon for the time being to have stonead further Fritish advance into Trivolitania. The Aria line defense is generally north-south, approximately 15 miles east of EL of AGHEILA. The southern flank of this line nov lies along the EL AGED ILA- MARADA trail. Art HALTA is still under aerinl bombardment by Axis planes, nad n a finite increase in Axis aerial action is noted in the AGHEDA sector. 30th forces are continuing the usual bonbing of supplies in rear areas. RESTRICTED 207 TREASURY DEPARTMENT Washington Press Service No. 29-72 FOR IMMEDIATE RELEASE, Monday, January 19, 1942. The Secretary of the Treasury today announced the final sub- scription and allotment figures with respect to the current offering of 2 percent Treasury Bonds of 1949-51. Subscriptions and allotments were divided among the several Federal Reserve Districts and the Treasury as follows: Federal Reserve District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Treasury Total Treasury Notes Series A-1942 $ 29,451,500 272,205,600 10,500,500 13,900,400 7,121,500 1,595,300 38,172,800 7,917,200 1,337,000 11,553,600 2,079,900 9,038,600 2-3/4 Percent FFMC Bonds FFMC Bonds Series R $ 2,135,800 64,021,000 $ 3,410,000 $ 6,159,900 783,900 $405,657,800 RFC Notes 3 Percent 106,143,000 21,766,600 7,118,700 6,931,900 512,800 32,839,800 3,556,000 4,084,900 6,389,600 932,400 7,775,300 448,200 $204,659,100 6,417,700 1,452,600 2,863,400 733,400 6,398,300 1,293,100 2,009,600 2,388,700 524,100 5,537,100 158,500 $95,933,400 Total Subscrip- Federal Reserve tions Received District (Allotted in full) $ 41,157,200 Boston New York 683,918,700 43,873,800 30,327,700 19,741,800 4,971,500 109,849,900 15,300,300 10,237,500 25,000,900 4,287,400 23,772,000 1,400,600 $1,013,839,300 Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Treasury Total -000- 241,549,000 5,189,000 7,856,000 2,825,000 2,130,000 32,439,000 2,534,000 2,806,000 4,669,000 751,000 1,421,000 10,000 $307,589,000 208 THE UNDER SECRETARY OF THE TREASURY WASHINGTON January 19, 1942 MEMORANDUM FOR THE SECRETARY'S FILES At 6:45 Saturday evening the Secretary called me at home to say that he had been thinking about the cable that we had sent to White disapproving the resolution on an international exchange fund. He said that he thought probably he was leaving White out on a limb by giving him this cable, so he had decided to talk to him on the phone. He asked Harry if he was pushing this resolution or if Welles really wanted it. White said Welles really wanted this resolution and he thought it would help a great deal in the conference if some such resolution could be put through. The Secretary then told Harry that he would be willing to approve the resolution if it were confined to this hemisphere alone, then when they all get back to Washington we can discuss the question of inviting the other united and associated nations to join the conference. The Secretary said White thought that Mr. Welles might like to have this form of a resolution even better than the other one. The Secretary told White to send us another cable along these lines and we would get him a return cable approving this resolution. The cable from Welles, No. 22 of January 18, 1942, came in about eleven o'clock last evening. In view of the fact that it would not be available until after one, I did not pick it up until 8:15 this morning. Mr. Foley, Mr. Coe, Mr. Bernstein, Mr. Southard and I studied the resolution referred to con- and could see no objection to it except the title. It still the stabilization fund of the united and associated nations, which White said later in a telephone versation was an error and one which they failed to catch in the pressure of getting the cable off. I talked over the telephone to the Secretary at Hollywood, Florida, at 9:15 and read Welles' message and the form of the resolution to him. He insisted that the reference to "the settlement of public and private inter- national debts" in Number Two of the preamble be eliminated. FORDEFENSE BUY UNITED STATES SWINGS BONDS POSTAMPS 208 THE UNDER SECRETARY OF THE TREASURY WASHINGTON January 19. 1942 MEMORANDUM FOR THE SECRETARY'S FILES At 6:45 Saturday evening the Secretary called me at home to say that he had been thinking about the cable that we had sent to White disapproving the resolution on an international exchange fund. He said that he thought probably he was leaving White out on a limb by giving him this cable, so he had decided to talk to him on the phone. He asked Harry if he was pushing this resolution or if Welles really wanted it. White said Welles really wanted this resolution and he thought it would help a great deal in the conference if some such resolution could be put through. The Secretary then told Harry that he would be willing to approve the resolution if it were confined to this hemisphere alone, then when they all get back to Washington we can discuss the question of inviting the other united and associated nations to join the conference. The Secretary said White thought that Mr. Welles might like to have this form of a resolution even better than the other one. The Secretary told White to send us another cable along these lines and we would get him a return cable approving this resolution. The cable from Welles, No. 22 of January 18, 1942, came in about eleven o'clock last evening. In view of the fact that it would not be available until after one, I did not pick it up until 8:15 this morning. Mr. Foley, Mr. Coe, Mr. Bernstein, Mr. Southard and I studied the resolution and could see no objection to it except the title. It still referred to the stabilization fund of the united and associated nations, which White said later in 8 telephone conversation was an error and one which they failed to catch in the pressure of getting the cable off. I talked over the telephone to the Secretary at Hollywood, Florida, at 9:15 and read Welles' message and the form of the resolution to him. He insisted that the reference to "the settlement of public and private international debts" in Number Two of the preamble be eliminated. BUY UNITED STATES WINGS /BONDS 209 -2I then tried to get Secretary Hull, but he was out of his office and I could not get hold of him as the time for me to get Harry on the telephone was fast approach- ing. I then called Dr. Feis, who had Livesey in the room, and we discussed the cable and changes suggested by the Secretary. They said that they had not talked to Secretary Hull but they did not see any objection to the resolution. I told them I had Harry White on the telephone at the time and was clearing it by telephone so far as the Treasury was concerned, that if Secretary Hull had any objections whatever to the resolution he should call Welles directly by telephone. I told Dr. Feis and Livesey that Welles had said in his cable that twelve o'clock noon Rio time, which is ten o'clock Washington time, was the absolute deadline and this was the reason for my pressing them for an answer. At ten o'clock the Secretary called me back and asked me if White had objection to the changes and I told him that he had none, that we had approved it and Harry was on his way to the meeting. I then told him of my attempt to get Secretary Hull and my conversations with Feis and Livesey. He asked me to send a letter to Secretary Hull telling him that I had tried to reach him but could not. DWB 210 TREASURY DEPARTMENT Washington, January 19, 1942 Dear Mr. Secretary: Here is another copy of the first draft of your Cleveland speech. I am very unhappy to hear that the first one did not reach you, after all the efforts that were made to get it to you on time. This first draft has been approved by Randolph Paul, who helped greatly on it, and by Roy Blough, whose office checked the figures carefully. I have sent copies today to Messrs. Gaston, Sullivan, Foley, Haas and Roswell Magill, as you suggested. There are 3,073 words in it, or about twenty- five and one-half - minutes. Sincerely, Frain keekn Hon. Henry Morgenthau, Jr., Hollywood Beach Hotel, Hollywood, Florida. Enclosure. 211 DRAFT OF SEGRETARY MORGENTHAU'S ADDRESS TO THE CITY CLUB OF CLEVELAND JANUARY 24, 1942 I am very happy to be with you in Cleveland this afternoon, because it gives me an opportunity to pay my tribute to the wonderful response that your community is giving to the country's call. Here in the Cleveland area you have a great concentration of the forges and assembly lines which are America's front lines at this moment; day and night your industrial wheels are turning, your hanners are pounding, your fires are burning and your workers are toiling to win the wer. Here in Cleveland you have great numbers of foreign-born neighbors who value our precious freedoms and who have pooled their skills with ours in this mighty production effort in which we are engaged. D-A -2- 212 Here in Olevelani you have responded to every call the Government has made upon you, and I take off my hat to you. This war will bring us many tests of our spirit and our stamina. IS has brought us some severe tests already. Our national will-power has been tested and proved by our ability to take the shoek of Pearl Harbor, and to take it without flinching. Our willingness to take marching orders has been tested and proved by the nation-wide acceptance of the great task the President set for us the other day, the task of making such an overwhelming number of planes, tanks and other weapons of war that the Nasis and the Japanese will be utterly unable to match us. Ye have set our minds to accomplish that task, and we are going to do it. Our patriotism D-A 213 -3has had still another test, and another proof, in the sale of Defense Bonds and Stamps, which doubled in December and which, I an glad to tell you, will reach new records in January, both in the amount of money subscribed and in the number of individuals who are buying their share in America. But we shall have, in the very near future, still another test of a kind which I think too few of us have planned for or even considered. That test will come on March 16th, when fifteen million Americans will be called upon to pay their income-taxes for war and victory. It will give fifteen million men and women an opportunity to contribute directly to the war machine that will smash the Axis and set the whole world free. D-A -4- 214 Never before have so many Americans been asked to pay direct taxes at one time. There will be millions who have never had to pay on such a scale, and there will be seven and one-half million who have never had to pay a penny of direct taxes before. The taxes payable on March 16th will not reach the level of those now being paid by our Allies in Great Britain, Canada or Australia; they will be slight compared to the huge taxes the Nasis and the Japanese have exacted from their people for years; they will be slight, also, compared to the war taxes we shall have to impose upon ourselves in the new financial year. Yet the present taxes will be severe, and they will involve a good deal of scrimping and saving on the part D-A -5- 215 of those who pay them. 11 is high time, therefore, that all of those fifteen million taxpayers should think and plan and save, now, se that they can pay the bill when it becomes due six weeks from now. I am disturbed at times--and I am bound to be disturbed, as Secretary of the Treasury--when I hear that so many taxpayers wait until the very last moment before putting aside the money that will be needed on March 16th. It is not too early for every taxpayer to find out how much he will have to pay, and how and where to pay 18. If every taxpayer takes a few elementary precautions like this, instead of waiting until the last day, it will not only make the Treasury's task much easier but it will be a most useful contribution to the financing and the winning of the var. D-A -6- 216 This Administration has tried hard for years to spread the tax load more fairly among our people. The President has spoken again and again of the need of saking our taxes effective and equitable as well. Only the other day, in his Budget Message, the President repeated that "a fair distribution of the var burden is necessary for national unity." Yet I am sorry to say that the tax structure as it now stands does not confora in many respects, in the Administration's opinion, either to the requirements of equity or to the insistent needs of a nation at war. In spite of all our efforts of recent years--and we have made BORS headway every year, especially in 1937--our tax structure is still weakened by inequality and unfairness, still riddled with loopholes through which a small and favored group can escape its fair share of the common contribution. 217 -7Perhaps the American public is inclined to thrug its shoulders at the defects in our tax laws; perhaps these bluis Oil our tax system have been with us for so long that we regard then as natural and indelible. Yet they are not a small matter, either morally or materially. It is not a small matter in wartine to see a few thousand men and women escape almost scot-free from the payment of taxes, although they are well able to pay. Every time one of our citisens manages to take advantage of loopholes in the tax laws, it means that the rest of us must shoulder the load which he has escaped carrying. I just cannot believe that the war efforts of our people can reach their peak level 11 most of our citizens feel that a few are being allowed to escape their fair share. D-A 218 sVar knows no avoidance; the Nasis and the Japanese do not pick and choose among us. As the President said, "When our enemies challenged our country to stand up and fight they challenged each and every one of us." Each and every one of us has a direct stake in the outcome of this var. Each and every one of us, therefore, must pay his fair share of the cost. Just to satisfy my own curiosity, I asked our Treasury tax experts the other day to compute the total amount of revenue that had to be passed onto the shoulders of other taxpayers because of the existence of loopheles in the law. The answer was a billion dollars, about one-seventh of the entire D-A 219 income-tex reseipts in the fiscal year that code in June. That is, for every dollar you as an unprivileged taxpayer will have to pay on March 16th you would have paid only 86 cents if these evils had been stricken from the statute books. It is not very difficult to slip through existing loopholes, so long as a taxpayer can afford to split his income into parts and to pay the fees of a tax lawyer. Tax avoidance in most cases is perfectly legal-I could call it by other names that would not be half so evest, so I had better stick to me word "legal." Tax avoidance is made possible by faulty statutes which have been exploited, quite legally, by thousands of wealthy taxpayers. The philosophy - 10 - 220 of habitual tax aveiders 16 all right if you can get away with it. You may have heard the remark attributed to one of our leading financiers: "If the Government doesn't know enough to collect its taxes, a man is a fool to pay them." Yet this is not a competition between the Government and the citisens. It is a never-ending attempt by a few citisens to make many citizens pay more than their share. In peacetime it is haraful enough; in wartine, when we are drafting young men to fight and give their lives for their country. it becomes inexcusable and intolerable. D-A - 11 - 221 So that you may know exactly what I have in sind, I should like to turn now to three specific examples of inequalities--and I could name a great many more than three--which have been allowed to remain on the statute books at the expense of the majority of our taxpayers. The first of the leopholes which this Administration regards as inexcusable on material and moral grounds is the continued existence of tax-exempt securities. At present, as you know, the interest from State and municipal bonds is exempt from Federal income tax. This provision gives many wealthy taxpayers a delightful refuge, not from some income tax, but from all income taxes. The dice are loaded in favor of the wealthy. No matter how such money may be needed for D-A 222 - 12 the var. no matter how high tax rates may go, no aniter how pressing and urgent the need may be, a taxpayer may laugh at our tax laws and contribute nothing in this hour of his country's peril, if only he can afford to lay his hands upon a sufficient amount of tax-exempt securities. Wealthy individuals are not the only taxpayers who are in a position to take advantage of this glaring inequity. Insurance companies control a large part of the wealth of this country, yet because they have invested a large part of their capital in tax-exempt bonds, and because of other favoring provisions in the law, they pay almost nothing to the Federal Government in income taxes. Most large corporations pay taxes D-A - 13 - 223 at rates ranging from 21 to 72 per cent upon their incomes, yet in 1939 our 26 largest life insurance companies, controlling over $24 billion worth of assets, paid not one cent in income taxes. I wonder how the seven million new taxpayers will like these figures when they pay their taxes on March 16th. I wonder what will be in the minds of many of those hard-pressed taxpayers if they realise that a few wealthy individuals and a few great corporations are allowed to escape in this way. A second loophole, a second widespread method of avoidance, is the splitting of taxable income between husband and wife, in such a manner that two families having virtually the same economic position pay vastly different taxes. Under the present law, D-A - 14 - 224 if a husband has income and his wife has income, each pays a tax on the separate income. Because the income- - tax rates are progressive--that is, because the higher the income the greater is the rate of tax--2 family in which both husband and wife have income pays less tax, in many instances, than a family having the same amount of income all of which is received either by the husband or the wife. For example, a family in which the husband earns $10,000 pays $300 more tax than a family in which the husband earns $7,000 and the wife $3,000. The higher the income, the greater this discrepancy becomes; and it will become still greater under the higher rates that are bound to COME in the near future. D-A - 15 - 225 If we turn from the salary-earners to those who live on dividends, we find even more striking ways in which the separate taxation of husbands and wives can be exploited for tax purposes. Let us take the case of a taxpayer in the upper brackets having a $100,000 income from securities. Under the present law he would pay a tax of $52,704. But if he turns over half of these securities to his wife, he will pay a tax of $20,881 on $50,000 income and his wife will pay a tax of the same amount. This couple, at the cost of a moderate gift tax, has thus secured a perpetual reduction of $10,941 in its income tax liability. The loophole could be closed and the unfairness to the great mass of taxpayers removed by taxing each family as a unit. The family is the economic unit, and a realistic tax would treat it as such. D-A - 16 - 226 If families were taxed in this rair and sensible way we would remove still another source of tax discrimination. A husband who earns a $10,000 salary must, in the great majority of our States, report that salary as his income and pay a tax of $1,305 on it. If, however, he is fortunate enough to live in one of the eight States having what is called the community property system, he is allowed to report only $5,000 of that salary as his income and his wife may report the other $5,000 as hers. The two of then together will pay a total tax of only $965. Thus, the married citizens of nine out of forty-eight States are able, because of a legal technicality, to escape their fair share of the load at the expense of our married citizens in the rest of the country. D-A 227 - 17 AS the time the last tax bill was being enacted, Congress considered a provision requiring husbands and vives ta report and pay tax on their combined incomes. When this provision was in the bill before Congress, a married couple in which the husband earned $4,000 would have had to pay a tax on March 16th of this year amounting to $180. When this so-called mandatory joint return provision was stricken from the bill, Congress made up the revenue which was thereby lost by increasing the tax on this family to $249. I can think of no more graphic illustration of what happens when we perpetuate provisions in our laws which unduly favor special classes of our citizens. The final loophole which I shall mention this afternoon is a bit more technical. If you use a machine D-A - 18 - 228 in you. business and was machine can DO expected so last for ten years, you are permitted to deduct each year for ten years one-tenth of the cost of that machine. Because you will probably have to buy a new machine at the end of ten years, this deduction is a fair and reasonable method of allowing you to recover your capital tax free. Needless to say, you are never permitted to deduct more than the cost of the machine. There are SOME types of business, however, which are permitted over the years to deduct far a than the amount of money which they have put into the property with which they conduct their business. A mine or an oil well wears out eventually. just as the machine does, and companies in the mining and oil D-A - 19 - 229 business must asquire new mines or wells in order to continue their business. They must fairly be allowed, therefore, to deduct each year a portion of the original cost of the mines and wells which they have acquired. However, we let them do much more than that in certain instances. The so-called percentage depletion provision of the income-tax law allows these companies to deduct an arbitrary percentage of their income indefinitely, instead of deducting a percentage of the cost of their wells and mines each year until the entire cost has been made good. An oil company which may long age have recovered tax free many times the cost of the wells which it is operating is still permitted a deduction of 27 per cent of the gross income from those very same vells. D-A - 20 - 230 I wish ini I sould ask every one of the sixteen million taxpayers on March 16th, "Well, how do you like 187 How do you like this kind of subsidy to a fev oil companies, or a few insurance companies, or a few thousand wealthy individuals?" The question would be quite appropriate, since, after all, the great majority of taxpayers have to pay more because the few are allowed to escape. What is more, the renedy for this state of affairs lies in the taxpayers' hands. It has been difficult until now to change the tax laws because the majority of taxpayers have been indifferent. It will be easy to change the tax laws as soon as the great body of American taxpayers become aroused to the evils been and the abuses which have/left on the statute books year after year. D-A - 21 - 231 This is not the sine for me to discuss the new tax program. The President has said that we must have $9 billion in SEX referre. We have ne more right to question that estimate, or to fall short of that goal, than we would have to fall short of the President's announced goal of sixty thousand planes and forty-five thousand tanks in 1942. It will produce hardship: of course it will. We might as well start from the assumption that the coming taxes will be hard for everybody, just as we must realise that our huge production program will involve sweat and sacrifice for everybody. How can you divest half of our national income to var production without "dislocating" our economy? How can you spend $40 billion in this year 1942 without "disturbing" ordinary business D-A - 22 - 232 and ordinary living? How, for that matter, can you fight and win a life-and-death struggle, a war that encircles the whole planet, without discarding old habits, old fears, the dead old notions of business-asusual? We are entitled to lay down just this one premise: that the streat and sacrifice be distributed fairly and borne by all in their fair proportion. We shall be failing in our duty if we ask millions upon millions of our people to contribute heavily while a few thousand are allowed to escape. I believe in all earnestness that the existence of abuses in our tax system represents a real threat to our national unity and our national morale. D-A - 23 - 233 National unity is a precious thing: it will be subjected to many strains in the months and years of trial ahead. Special privilege and national unity do not go hand in hand. Tax favoritism and national morale cannot survive together; one or the other must go. I have so much confidence in the American people that I think I know in advance what their choice will be, D-A 234 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 19, 1942 TO FROM Mrs. Klotz Ferdinand Kuhn, Jr. The Secretary telephoned me from Florida on the morning of January 18 with the following suggestions: 1. He would like to use cash register companies to help us with Defense Stamps; specifically, he suggested that the repairmen who make the rounds for cash register companies should see that stamps are sold wherever there is a cash register and that a poster is also displayed alongside every cash register. He has already mentioned this to Mr. Eugene Sloan. 2. The Secretary suggested that the coming annual award by the motion picture industry be turned somehow into a tribute to Carole Lombard and that it should take the form of Defense Bonds. Postmaster General Walker is bringing someone to the Treasury Thursday to discuss this matter, and the Secretary wanted to offer his suggestion at that time. 3. He wanted a first draft of his Cleveland speech sent to Roswell Magill for his comments and suggestions. 4. The Secretary thought that we should do something about Carole Lombard. I told him that telegrams had been written in his name and sent to Will Hays and to Clark Gable, and he was pleased. 235 Secretary Morgenthan JAN 1 9 1942 E. H. Foley, Jr. My advice has been requested on the question whether a *Pledge for Regular Investment in Defense Savings Bonds" is enforce- able by the United States. A copy of the form of *Pledge" is attached. It will be noted that the signer agrees to purchase in the future a specific amount of Defense Savings Bonds (or Stamps) at regular intervals through various agencies OF plans. The promise by the signer is for the duration of the war or as long as the premisor is "financially able to do so. . It is my opinion that the aforementioned "Pledge" is not enforceable by the United States against the signer for the amount of the pledge. It does not appear that the United States promises to sell the aforementioned Bonds or Stamps to the person executing the "Pledge". In fact, 11 is doubtful whether any officer of the United States has authority to promise to a private individual that the Government will afford his an investment as long as the individual is financially able to make the investment. The authority of the Secretary of the Treasury to issue savings bonds is derived from section 3 of Public Debt Act of 1941 (Public, No. 7. 77th Congress). Under that statute, the Secretary 236 of the Treasury ean not issue such savings bonds Deyeard the debt limitation provided in section 2 of the same Act. It is also doubtful that any officer of the United States has authority to agree that the United States will sell a particular form of bond for the duration of the war. The Congress may possibly decide to caase financing by the sale of defense savings bends. The *Pledge" is, therefore, nothing but a mere promise by the signer with no obligation on the part of the United States. Union those circumstances, 11 is difficult to see how the United States could enforce the signer's premise. An analogene situation exists with respect to subscriptions to the capital stock of a corporation. In 2 Flotcher, Cyclopodia of the Law of Private Corporations (1917) see. 526, 11 is stated: #In the ablence of provision to the contrary in the charter of a corporation or the general law, a subscription to its capital stock is not binding unless there is a consideration. In this respect, 11 is like any other contract. Obviously there must be suitality of obligation, as in other bilateral contracts. If for any reason the corporation is not bound, the subscriber is not bound, and vice versa. In The Masades and Bristel Plank Bead COMPARE V (N.T. 1884) 18 Barb. 517, the defendant signed his name to the fellow ing instruments #Provided the Macedon and Victor plank road crosses at Dromaville and passes through by Gonever's, we agree to take stock to the amount set opposite our several names." .3- 237 The amount set opposite the name of the defendant was $300. The plaintiff was the plank read corporation and sund to recover the our of $800. The court saids "The agreement of the defendant, upon which the plaintiffs rely, created no liability on the part of the former. for the reason that, at the time it was made, there was no consideration to support it. It was nothing more than a proposition on the part of the defendant and others to take certain amounts of stock, provided the road should cross at Browsville, and pass through by Conover's. At the time this paper was executed by the defendant, there was no valuable consideration given by the company. and no agreement entered into by them, as a consideration for the agreement by the defentant. There was an entire want of mutuality-nothing was given by the company and nothing binding on their part. The fast that the company afterwards located and built the read agreeably to the conditions of the subscription, of itself. amounts to nothing, as 11 does not appear that at the time the defendant executed the agreement, the company agreed. as the consideration therefor, thus to locate and build the real. In case of mutual premises, shere the premise of one party is the consideration of that of the other, they must be concurrent and obligatory upon each .. at the same time. in order to render either binding. The instant "Pledge" is. of course, more analogous to a premise to subscribe for stock in the future than to a subscription. It is settled that where even a good agreement to enbscribe is made. the only remedy of the corporation, is case a party refuses to subscribe in accordance with his agreement, is an action against his for damages for breach of the agreement. In such an action. the measure of damages is the actual loss sustained by the corpora- tion. which is ordinarily the difference between the par value and 238 the actual value of the stock. 2 Fletcher, Cyclopedia of the Law of Private Corporations (1919) P. 1164: Ballentine, Manual or Corporation Law and Practice (1980) a 111; I 1912) 83 A91. 947, 948. Assuming, ancesia. that the *Pledge" is a valid agreement, 11 is obvious that the application of that rule of damages would bring the United States in a suit exactly sere. It is clear, of course, that an agreement to subscribe for shares can not be enforced by a bill in equity for specific performance. Strasburg Railread Germany x Zehternachi. (1853) 21 Pa. St. 220. 222. It should be noted that the #Pledge is not signed, as are many charity subscriptions, is consideration of similar *Plelges' by other individuals. In some jurisdictions, charitable subscriptions are sestained es the theory that the promise of each subscriber is consideration for the promises of the others. 1 Williston on Contracts (Rev. ed. 1936) D. 406. Furthermore, the *Pledge" is not open to the construction that it is a continuing offer for a unilateral contract. An individual could offer the United States to purchase all bonds - to a certain amount per specific period which the United States would deliver. If. acting upon such an offer. the United States delivered bonds, 11 could undoubtedly sue for their purchase price. The form of the 239 .5. attached "Fledge", however, indicates that the next step to to be takes by the signer. rather than by the United States. that 10, the "Fledge" indicates that the signer will apply for the purchase of bonds through a post office, a bank, the Treasurer of the United States, or etherwise. (Signed) E. H. Foley, Jr. General Counsel. Attachment. ERFIFE 1/17/42 OF. NO. 504 240 January 19, 1942 Secretary Morgenthau E. H. Foley, Jr. My advice has been requested on the question whether a "Pledge for Regular Investment in Defense Savings Bonds" is enforce- able by the United States. A copy of the form of #Pledge" is attached. It will be noted that the signer agroos to purchaso in the future a specific amount of Defense Savings Bonds (or Stamps) at regular intervals through various agencies or plans. The promise by the signer is for the duration of the war or as long as the promisor is "financially able to do so." It is my opinion that the aforementioned "Pledge" is not enforceable by the United States against the signer for the amount of the pledge. It does not appear that the United States promises to sell the nforementioned Bonds or Stamps to the person executing the "Pledge." In fact, it is doubtful whether any officer of the United States has authority to promise to a private individual that the Government will nfford him nn investment as long as the individual is financially able to make the investment. The authority of the Secretary of the Treasury to issue savings bonds is derived from section 3 of Public Debt Act of 1941 (Public, No. 7. 77th Congress). Under that statute, the Secretary of the Treasury can not issue such savings bonds beyond the debt limitation provided in section 2 of the same Act. It is also doubtful that any officer of the United States has authority to agree that the United States will sell a particular form of bond for the duration of the war. The Congress may possibly decide to cense financing by the sale of defense savings bonds. The "Pledge" is, therefore, nothing but a more promise by the signer with no obligation on the part of the United States. Under those circumstances, it is difficult to see how the United States could enforce the signer's promise. An analogous situation exists with respect to subscriptions to the capital stock of a corporation. In 2 Fletcher, Cyclopedia of the Law of Private Corporations (1917) sec. 526, it is stated: "In the absence of provision to the contrary in the charter of a corporation or the general law, a subscription to its capital stock is not binding unless there is a consideration. In this respect, it is like any other contract. Obviously there must be mutuality of obligation, as in other bilateral contracts. If for any reason the corporation is not bound, the subscriber is not bound, and vice versa. If In The Macedon and Bristol Plank Road Company V. Snediker, (N.Y. 1854) 18 Barb. 317, the defendant signed his name to the following instrument: -2- 241 "Provided the Macedon and Victor plank road crosses at Brownsville and passes through by Conover's, we agree to take stock to the amount set opposite our several names." The amount set opposite the name of the defendant was $300. The plaintiff was the plank road corporation and sued to recover the sum of $300. The court said: "The agreement of the defendant, upon which the plaintiffs rely, created no liability on the part of the former, for the reason that, at the time it was made, there was no consideration to support it. It was nothing more than a proposition on the part of the defendant and others to take certain amounts of stock, provided the road should cross at Brownsville, and pass through by Conover's. At the time this paper was executed by the defendant, there WRS no valuable consideration given by the company, and no agreement entered into by them, ns a consideration for the agreement by the defendant. There was an entire want of mutuality-nothing was given by the company and nothing binding on their part. The fact that the company afterwards located and built the road agreeably to the conditions of the subscription, of itself, amounts to nothing, as it does not appear that at the time the defendant executed the agreement, the company agreed, as the consideration therefor, thus to locate and build the road. In case of mutual promises, where the promise of one party is the considoration of that of the other, they must be concurrent And obligatory upon each at the same time, in order to render either binding. The instant "Pledge" is, of course, more analogous to a promise to subscribe for stock in the future than to a subscription. It is settled that where even a good agreement to subscribe is made, the only remedy of the corporation, in case a party refuses to subscribe in accordance with his agreement, is an action against him for damages for brench of the agreement. In such an action, the measure of damages is the actual loss sustained by the corporation, which is ordinarily the difference between the par value and the actual value of the stock. 2 Fletcher, Cyclopedia of the Law of Private Corporations (1917) p. 1164; Ballantine, Manual of Corporation Law and Practice (1930) p. 111; Bole V. Fulton. (Pa. 1912) 82 Atl. 947, 948. Assuming, arguendo, that the "Pledge" is a valid agreement, it is obvious that the application of the rule of damages would bring the United States in a suit exactly zero. It is clear, of course, that an agreement to subscribe for shares can not be enforced by a bill in equity for specific performance. Strasburg Railroad Company V. Echternecht. (1853) 21 PR. St. 220, 222. -3- 242 It should be noted that the "Pledge" is not signed, as are many charity subscriptions, in consideration of similar "Pledges" by other individuals. In some jurisdictions, charitable subscriptions are sustained on the theory that the promise of each subscriber is consideration for the promises of the others. 1 Williston on Contracts (Rev. ed. 1936) p. 406. Furthermore, the "Pledge" is not open to the construction that it is a continuing offer for a unilateral contract. An individual could offer the United States to purchase All bonds up to a certain amount per specific period which the United States would deliver. If, ncting upon such an offer, the United States delivered bonds, it could undoubtedly sue for their purchase price. The form of the attached "Pledge", however, indicates that the next step is to be taken by the signer, rather than by the United States. That is, the "Pledge" indicates that the signer will apply for the purchase of bonds through a post office, a bank, the Treasurer of the United States, or otherwise. (Signed) E. H. Foley, Jr. General Counsel Attachment. 243 COPY TELEGRAM CONFIRMATION January 17, 1942 10:45 a.m. RAY CONWAY State Administrator Defense Savings Staff Portland, Oregon In reply to your inquiry concerning form of pledge for regular investment in defense savings bonds it is my opinion that such form is not E pledge enforceable 08 a contract or otherwise by the United States against the pledgor for the amount of the pledge indicated by him thereon but is merely A promise without legal consideration to purchase periodically defense bonds so long as the pledgor is financially able to do so. I have given A formal opinion to the Secretary of the Trepsury to this effect. E. H. FOLEY GENERAL COUNSEL TREASURY DEPARTMENT This Cable- WESTERN its de character in dicated by : suitable above or predifferent R. WHITE PRESIDENT UNION NEWCOMB CARLTON OF THE BOARD 244 SYMBOLS DL-Day Letter NT-Overnight Telego LC-Delerred Cable NLI -Cable Night Letter J.C. WILLEVER FIRST PRESIDENT Ship Radiogram date line on telegrama and day letters STANDARD TIME at point of origin. Time of receipt is STANDAR TIME at point of destination MZQ42 120 GOVT=WASHINGTON DC 19 600P HONORABLE HENRY MORGENTHAU JR HOLLYWOOD BEACH HOTEL HOLLYWOOD FLO= ACCORDING TO INFORMATION AS OF JANUARY 10 FROM DEFENSE SAVINGS STAFF STATE ADMINISTRATORS 165 OF LARGE NEWSPAPERS AND OTHER PUBLICATIONS HAVE INSTALLED PAYROLL SAVINGS PLAN. THE NUMBER :OF EMPLOYEES COVERED IS ABOUT 81000. THESE FIGURES ARE KNOWN TO EXCLUDE A GREAT MANY OF THE SMALLER PUBLICATIONS THAT THE DEFENSE SAVINGS STAFF IS SURE HAD INSTALLED THE PLAN. WITH RESPECT TO RADIO STATIONS LAST WEEK DEFENSE SAVINGS STAFF SENT TELEGRAMS TO EACH OF THE 868 STATIONS IN THE COUNTRY ASKING THEM IF THEY HAD INSTALLED A PAYROLL SAVING PLAN BY JANUARY 17TH THE INSTALLATION OF SUCH PLANS HAD BEEN REPORTED BY 194 OF THE STATIONS. THE NUMBER OF EMPLOYEES COVERED WAS NOT STATED BUT IS PROBABLY IN THE NEIGHBORHOOD OF 5000= EUGENE W SLOANE EXECUTIVE DIRECTOR DEFENSE SAVINGS STAFF 0 165 81000 868 17 194 5000. THE COMPANY WILL APPRECIATE SUGGESTIONS FROM ITS PATRONS CONCERNING ITS SERVICE 245 Jan. 20, 1941 Coast Guard - Room 322 Defense Savings Staff Below is copy of the telegram which I phoned to you at 5:55 P.M. yesterday, January 19th, to be sent to the Secretary. NON. HENRY morgenthau, JR., HOLLYWOOD BEACH HOTEL, HOLLYWOOD, FLORIDA. According to information as of January 10, from Defense Savings Staff State Administrators, 165 of larger newspapers and other publications have installed Payroll Savings Plans. The number of em loyees covered is about 81,000. These figures are known to exclude 8 great many of the smaller publications that the Defense Savings Staff is sure had installed the plan. With respect to redio stations, last week Defense Savings Staff sent telegrams to each of the 868 stations in the country asking them if they hed installed a Payroll Savings Plan. By January 17th the installation of such lans had been reported by 194 of the stations. The number of ero loyees covered was not stated, but is probably in the neighborhood of 5000. EUGENE W. SLOAN EXECUTIVE DIRECTOR DEFENSE SAVI GS STAFF SGT:EWS:fgt Copies to Mr. Tickton Miss Finucane Miss Chauncey Division of Research and Statistics. Office of the Secretary of the Treasury, January 19, 1942 298 18 672 426 17 775 773 455 16 750 660 550 15 455 670 622 14 550 598 236 423 805 650 598 630 13 236 859 541 625 805 595 12 236 600 236 541 560 575 236 1,101 525 550 236 1,471 450 511 800 20+ 298 none-closed 1,000 20 298 800 750 20% 426 1,000 231 685 none - no mail 1,101 11 155 1,471 10 500 649 1,597 9 1,597 460 1,597 8 460 525 511 1,597 450 639 1,408 511 1,408 450 425 1,255 520 333 1,255 445 257 1,171 310 Unfilled Bonds : Stock O manufactured : "B" tyr , close of orders at today : : IBM bonds business : this day deliveries on hand none - no mail today received New orders : business : :opening of : :orders at : Unfilled (In thousands of pieces) January 5 to date Federal Reserve Banks and the Post Office Department Unfilled Orders for Savings Bonds at the 7 6 5 Jan. CONFIDENTIAL UNITED STATES SAVINGS BONDS Comparative Statement of Sales During First Fifteen Business Days of January 1942 and December and November 1941 (November 1-19, December 1-17. January 1-17) On Basis of Issue Price (Amounts in thousands of dollars) 72,761 351,936 38,409 155,101 $545,446 $ : Series E - Banks Series E - Total Series F - Banks Series a - Banks Total : : Series B - Post Offices : $ 25,055 : November $ 13,760 46,025 $ 55,013 185,347 111,577 12,519 74,340 71,080 11,858 72,484 240,359 25,890 80.761 40,497 $198,435 $155,421 $347,011 $ 43,014 26,736 661 1,856 1 $ 93,828 258,108 $ 38,815 over December December over Percentage of Increase or De crease (-) : December January over 1 : 1941 January 1 : 1942 November 1941 : : January December : Item or Decrease (-) : Sales Amount of Increase : December over : November 54.9% 141.78 254.7 58.1 215.4 206.8 105.6 57.0 5.6 2,6 174.9% 27.7% January 19, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. 248 CONFIDEN UNITED STATES SAVINGS BONDS Daily Sales - January, 1942 On Basis of Issue Price (In thousands of dollars) Post Office Date January 1942 1 Bond Sales Series 3 Series E Series , Series G Total Series E Series F Series 1 Total $ 3,982 $ 10,229 10,736 $ 1,964 $ 7,605 $ 19.798 $ 1,964 $ 7,605 $ 23,780 9.557 2,056 1,278 7.779 5,453 20,571 16,289 $ 14,211 15,538 14,015 2,056 1,278 7.779 5,453 25,373 20,747 9,684 6,711 6,748 7,509 5.746 4,398 26,724 7,659 21,267 21,297 12,359 16,031 3,240 1,341 3,692 3,821 1,798 1,858 13,704 6,778 18,832 12,871 4,765 6,355 43,668 15,778 43.790 37,989 18,923 24,244 36,408 14,369 28,015 28,806 18,105 20,429 3,240 1,341 3,692 3,821 1,798 1,858 13,704 6,778 18,832 12,871 4,765 6,355 53,352 22,489 50,539 45,498 24,669 28,641 10,187 7,902 4,706 6,444 5,721 4,830 37,483 15,059 19,939 16,597 26,239 6,933 3,830 2,507 3,701 2,243 4,319 55,666 29,510 37,933 32,123 44,637 10,700 47,670 22,961 24,645 23,041 31,960 11,763 3,830 2,507 3,701 2,243 4,319 759 14,353 11,944 14,293 13,283 14,078 3,008 759 14,353 11,944 14,293 13,283 14,075 3,005 65,853 37,412 42,639 38,567 50,358 15,530 $ 38,409 $155,101 $451,618 $351,936 $ 58,409 $155,101 $545,446 $ 93,828 $258,108 4,802 4,457 2 3 5 6 7 8 9 10 12 13 14 15 16 17 Total All Bend Sales Bank Bond Sales January 19, 1942. Office of the Secretary of the Treasury Division of Research and Statistics. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. made 249 TREASURY DEPARTMENT INTER OFFICE COMMIINICATION DATE January 19, 1942 TO Secretary Morgenthan FROM George Buffington Would the President permit his picture to be taken making out his income tax? It would be helpful in our tax publicity for two reasons: (1) Many people do not know the President pays income tax, (2) it would be helpful in stimulating people to make out their own income tax promptly. G.T.S. 250 HOLLYWOOD BEACH HOTEL HOLLYWOOD FLORIDA 251 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE JAN 19 1942 TO FROM Secretary Morgenthau Mr. Foley Re: American Bosch Corporation, Springfield, Massachusetts. We are contemplating making an investigation of American Bosch Corporation, beginning next Wednesday, if it meets with your approval. Although American Bosch Corporation contends that it is no longer connected with, or controlled by, Robert Bosch A.G. of Germany, it is questioned that this is true. Approximately 75% of the stock is at present alleged to be owned by certain Swedish interests, which ownership is asserted to have been acquired in the liquidation of a Dutch banking house in 1939. This stock is held in a voting trust, the trustee of which is George Murnane, one of the partners of the New York firm of Monnet, Murnane & Co. The American Bosch Corporation has a German background, much personnel of German ancestry, and a long history of relationships with Robert Bosch A.G. of Germany, including impor- tant patent connections. The Corporation is at present engaged in vital defense work especially in the construction of magnetos for airplanes and tanks, and fuel injection devices 252 -2- for Diesel engines. Approximately 75% of its products go directly into military uses. It is obvious that such activities furnish an excellent opportunity for doing great harm to the defense program, if the management and personnel of this plant is not entirely independent of unfriendly foreign connections. It will he. necessary not only to investigate the Corporation but also to examine George Murnane, a partner of Monnet, Murnane & Co. Eventually it may even be necessary to investigate some aspects of the activities of Monnet, Murnane & Co. It is contemplated that the investigating group will be headed by Thurman Hill, Chief of the Reorganization Division of the Bureau of Internal Revenue. Among those associated with him will be the following persons from the Treasury staff: Quint, Edelman, Feigenbaum, and Morrison, all attorneys; Mangam, from Pehle's administrative staff; McEacherin, electri- cal engineer; Wallerstedt and Harrill, accountants; and Thompson, Internal Revenue agent. Thurman Hill and Quint will go to New York on Monday for a discussion with Joe O'Connell as to the procedure which has been used in General Aniline & Film Corporation. 253 - -3 - The entire group to be sent into American Bosch Corporation will then meet in Washington on Tuesday for a conference and proceed to New York and Springfield that night with the intention of beginning the investigation on Wednesday. I am clearing this investigation with War and Navy and arranging to coordinate our activities with them. S.N.7h. 254 January 19, 1942. Mr. Byron Price, Director, The office of Consorship, Washington, D.C. Ny dear Mr. Price: This will acknowledge receipt of your letter of January 13 to Secretary Morgenthau asking advice as to the classes of information the to be gleaned from an examination of international communications during consorship process which may be of interest to the Treasury Department and asking also to whom in the Treasury Department such information should be sent. General classes of information in which the Treasury is interested are as follows: (1) Safety of the President - Any threats against the President of the United States or members of his family, or high officers of foreign governments who are visiting or expected to visit the United States, lives and any indications of plots or suspected plots against him or their or safety. (2) Credit of the United Statos - Any communications disparaging the credit of the United States, impugning the value of its money or obligations, securities or advising against investment in Defense Savings Bonds or other offered for sale to the public, and especially any communications giving evidence of concerted attempts to danage the National credit. of (3) Foreign Funds - Any and all information bearing on the movements between funds whether batwoon the United States and foreign countries, the United or States, foreign countries, or relating to foreign owned property in or possible and especially information which may indicate or suggest attempted Department evasions of the laws and regulations administered by the Treasury memorandum with respect to the control of foreign funds. (Enclosed is a Funds briefly outlining the type of censorship material which Foreign briefly Control de- is interested in receiving and also a neuorandum Control.) scribing particularly the more important work performed by Foreign Funds Shipments of Merchandise - Any and all information with indicat- respect (4) and exports of merchandise and especially information control or to imports evasions or attempts to evade foreign funds Customs ing or suggesting laws and regulations, or other import and export control Treasury laws and regulations with respect to which the Bureau of Customs of the Department has enforcement responsibility. 255 -(5) Communications - Any and all information which would indicate or suggest attempts to evade those provisions of Section 3(c) of the Trading with the Enemy Act for whose administration the Treasury Department is responsible; that is, provisions forbidding, except under license, carrying into or out of the United States any form of tangible communications other than in the course of the mails. (6) Foreign travel - Any and all information bearing on evasion or attempted evasion of laws and regulations of the United States with respect to the entry of persons into the United States or the exit of persons from the United States, in view of the joint responsibility of the Treasury Department along with other agencies of the United States Government to prevent illegal exit or entry. (7) Shipping - Information as to ship movements which might indicate efforts to violate Customs statutes and regulations or navigation laws as to the enforcement of which the Treasury Department (Bureau of Customs and/or Collectors of Customs) has specific or joint responsibility. (8) Internal Taxation - Any information which would indicate schemes or efforts to avoid or escape income, profits or other internal taxes of the United States, including taxes on alcoholic liquors. (9) Narcotics Traffic - Any information with respect to traffic in narcotics, whether internally in the United States, between the United States and foreign countries or between foreign countries. (10) Counterfeiting - Information bearing on counterfeiting or plans to counterfeit any currency or other obligations of the United States, or to introduce into the United States, or to produce in the United States, counterfeits of the currency or other obligations of any foreign country. (11) General information on foreign trade and monetary transactions. Representatives of various branches of the Treasury Department have discussed with the Army and Navy censors some particulars of the information desired by the Treasury Department. It is our hope that we may continue to have direct contact with those in charge of censorship operations with respect to particular cases and particular information desired by such agencies of the Treasury Department as the Foreign Funds Control and the Bureau of Customs, and also with respect to information which these and other agencies may supply to the censors. For purposes of coordination within the Treasury Department it is desired that the information supplied by the censorship to the Treasury 256 -3 Department be addressed to me at Room 272, Treasury Department. By direction of the Secretary: Very truly yours, (Signed) Herbert K. Gaston Herbert E. Gaston Assistant Secretary of the Treasury. HEG/mah 257 Brief outline of the type of censorship material which Foreign Funds Control is particularly interested in receiving. This brief outline will be supplemented from time to time with detailed statements as to the material in which Foreign Funds Control is particularly interested. The Foreign Funds Control Division of the Treasury Department is charged with the duty of administering Executive Order No. 8389, as amended. This Order prohibits, except as specifically authorised or licensed, transactions involving any country designated therein or national of such countries. At present the control covers all the countries of continental Europe (except Turkey), China, Japan, Thailand, Hongkong and the Philippine Islands, as well as all colonies and possessions of such countries and any territory overrun by the Axis powers. Persons both in and outside the United States attempting to evade or avoid the prohibitions of the Executive Order and to consummate directly or indirectly the transactions which it prohibits, are constantly developing new techniques, which must be promptly detected. It will be of great assistance to us in carrying out the purposes of the Foreign Funds Control, if censorship stations would make available to Foreign Funds Control any information having to do in general with the following: Any significant transaction involving persons (a) in Europe, or the Far East, excluding unoccupied British and Netherlands Possessions; (b) whose names appear on the Proclaimed List of Certain Blooked Nationals or whom the communication suggests may be acting as cloaks for such Proclaimed List nationals, or 258 -2(c) in any countries of the Western Hemisphere, whom the communication suggests may be acting for the benefit of persons referred to in (a) or (b) above. The term "transaction" as used above, included not only commercial and financial transactions, but also transactions involving property in which any of the persons listed in (a), (b) or (c) above appears to have an interest. The definition of "property" as used in the Executive Order is exceedingly broad and may be helpful in indicating the various types of transactions in which the Foreign Funds Control has a direct interest. As defined, the term includes the following: "ase money, checks, drafts, bullion, bank deposits, savings accounts, any debts, indebtedness or obligations, financial securities commonly dealt in by bankers, brokers, and investment houses, notes, debentures, stocks, bonds, coupons, bankers' acceptances, mortgages, pledges, liens or other right in the nature of security, warehouse receipts, bills of lading, trust receipts, bills of sale, any other evidences of title, ownership or indebtedness, goods, wares, merchandise, chattels, stocks on hand, ships, goods on ships, real estate mortgages, vendors' sales agreements, land contracts, real estate and any interest therein, leaseholds, ground rents, options, negotiable instruments, trade acceptances, royalties, book accounts, accounts payable, judgments, patents, trademarks, copyrights, contracts or licenses affecting or involving patents, trademarks or copy- rights, insurance policies, safe deposit boxes and their contents, -3 - 259 annuities, pooling agreements, contracts of any nature whatsoever, etc." There is also enclosed as background material for your confidential information, a memorandum describing in a general way the more important work being performed by the Foreign Funds Control. 1-14-42 4: 35P. M. Brought in by 260 Miss Chauncey. FROM: MR. GASTON BYRON OF 261 PRICE CENSORSHIP DIRECTOR THE OFFICE OF CENSORSHIP J WASHINGTON January 13, 1942. The Honorable Henry Morgenthau, Secretary of the Treasury, Washington, D. C. My dear Mr. Secretary: The censorship of communications between the United States and foreign countries results in the interception of much information of value to various agencies of the government concerned with the conduct of the war. So that this data may be utilized to the best advantage, the Office of Censorship plans to establish in its headquarters here a special unit charged with the responsibility of forwarding the intercepted information to the departments and agencies interested. This method of procedure has been found highly beneficial in the censorship experience of other countries. I am writing to ask that you advise me as soon as convenient what particular class or classes of information, gleaned from the examination of international communica- tion during the censorship process, would be of interest to your Department. Will you please let me know also to whom in your Department such information should be sent? Sincerely yours, in him Byron Price, Director. 262 January 19. 1943. Dear Nr. Eecles: On behalf of the Secretary I went to thank you for sending a copy of your address before the annual conference of Mayors. Mr. Morgenthes appreciated your thought in sending this. Sincerely yours, ignod H. S. Notz H. S. nots, Private Secretary. Honorable Marriaor S. Beelee, Chairman of the Board of Governors of the Federal Reserve System, Washington, D. C. GEF/dbs 263 2-643 ADDRESS BEFORE THE ANNUAL CONFERENCE OF MAYORS AT WASHINGTON, D. C. TUESDAY, JANUARY 13, 1942 BY MARRINER S. ECCLES CHAIRMAN OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FOR RELEASE UPON DELIVERY AT 2:30 P.M. TUESDAY, JANUARY 13, 1942 264 2-643 Your distinguished President, Mayor LaGuardia, invited me to address this Conference on the subject of "Post-War Programs and the Cities". His invitation came to me three weeks before Pearl Harbor. Post-war programs now seem less significant and more remote than ever. The country has only faintly begun to grasp the immensity of the effort we must make to win the war. Whatever illusions we have held about our geographic aloofness from the conflict or about the possibilities of an early peace are swept away. As Mr. Walter Lippmann pointed out the other day, by cutting us off from our supply of rubber, the enemy has as effectively paralyzed our great auto- mobile industry and all that implies in the transport and daily lives of our people as if it had been captured in an invasion. We are committed to destrey completely the barbario forces let loose beyond the two oceans that we foolishly supposed to guarantee our defense. There is no more talk of a negotiated poace. There is too much wishful thinking about an internal collapse in Germany or Japan. We cannot base our plans on any such vague hopes. The possibility of collapse of our enemies depends upon the speed and effectiveness of our war effort. We cannot today estimate how long it will take or how much of our men and resources must be devoted to winning the victory. The cost we cannot count, for, as the President has said, the victory is worth whatever it may cost. I had first hoped that this Conference would be called off, as others have been in the face of the emergency. For one thing, I feel reluctant to stand here dealing in words when what we so critically need is action. Yet, on reflection, I think this is one group that should continue 265 Z-643 -to meet, both now and in the future, for it is a medium by which the 00ordinated action by States and municipalities with the Federal Government can be promoted. It is vitally important now, as it will be later, to have that coordination. Without it, the necessary concerted action by the nation, both during the war period and thereafter, is impossible. With it, we can move in the same general directions without abandoning our traditions of local governmental responsibility. It is of the highest importance that you who are the chief executives of your respective cities and that the governors of your States take counsel with the Federal Government in the prosecution of war as well as in the plans of peace. The day is gone -- if it ever existed -when we can have economic health in this great nation unless the body politic functions as a united organism rather than a vast collection of separate units. The great depression should have taught our local governments as well as our business and financial leaders that they cannot provide for their own security. Only by joint action, through Government leadership and assistance can we achieve economic and political security. You who are in this room today have certain great responsibilities and powers within your own sovereignties, but you are not independent sovereigns. We all accept without question the necessity for united action in timo of war. Wo are not so ready to accept in times of poace the necessity for united action against economic evils that are the breaders of war and can be quite as destructive. You would agree, probably, that our economic ob- jootive is the fullost possible employment of our productive facilities at all times. Z-643 266 -3In war time we propose to employ these productive facilities to the maximum in the shortest possible space of time. Except for such human failures of organization as are more or less inevitable. we succeed fairly well on the whole. We grasp the fact that the quicker we turn out planes, tanks, battleships, munitions, and all the other necessities of the hour, the sooner the victory will be achieved. We do not count the financial cost but wo are prepared to manage the economic front in a way that will safe- guard us from dangerous inflation. This latter is not altogether an easy task, but it is one we should be able to understand and accomplish. We do not propose, however, to fall into the error of setting up the avoidance of inflation, rather than the maximization of defense output, as the supreme aim. The financing of this great effort is and should be secondary. As the President so well stated in his Budget Message, "There need be no fiscal barriers to our war effort and to victory." Yet, in peace times, we lose sight of the objective of full production and employment and see only the fiscal barriers. That has been the grout mistake that the demooracies have made in the past. It is the great lesson they are beginning to learn today. The truth is that there are never any fiscal barriers to full production and employment, and there could be no greater tragedy for the free peoples of the world than to fail to learn this lesson. Indeed, there could be no groater tragedy for the world than to assume that mankind can only mobilize for united action in war and in the building of instruments of destruction, The world would be freed from the devastation of war and it would be an immeasurably better place in which to 267 Z-643 -4 live if we could learn to turn all our productive powers to the making of things of peace as effectively as we fabricate the things of war -- recognizing always that there are no insurmountable fiscal barriers. There are only the limitations of our economic understanding and management. You, as executives of your cities, have a responsibility not merely to your own communities but to the nation at large. By clearly understanding the economic forces and problems of the country, you can contribute immensely to their management and solution. You will agree no doubt that poverty and distress are the breeders of crime and disease in your cities, that the goal of democracy is the steady improvement in the standard of living of your people and of all of our follow citizens. Your energies and best thought must be bent upon progressive improvement, for certainly no informed man will say that our civilization has reached the peak, that our economy has oomo to a stagnation point, or that the future does not hold infinitely greater potentialities of human happiness than the past. It is only the blind mon through history who have thought of their day as the goldon ago and failed to understand that we have only begun to make progress along the road of human betterment. But while we all accept readily enough these philosophic con- ceptions of a better future, we fall out among ourselves when it comes to intelligent action and planning to make the dreams of a better day a reality. And we disagree mainly because we fail to understand the economy in which we live and the way it can be made to function. We can budget our economy to produce fully for war. There is no earthly reason why we cannot do the same in peace and with infinitely fewer complications and dislocations. Z-643 268 - I am not for a moment proposing, and I never have proposed, that public budgets should be a substitute for private activity and enterprise. I have contended for a good many years that the and institable magnitude of Federal, State and local budgets imposes now problems of 00- ordination, of timing and management, and that these public budgets should be so timed and used as to supplement the budget of all private enterprise. Thus, in deflation, deliberate expansion of public budgets is a stimulating and reviving force. Conversely, in a period of rapidly expanding private employment and production, contraction of these budgets tends to prevent inflationary dangers. I am speaking of normal, not war, times. Unfortunately, under boom conditions brought about by war expenditures, the Federal Govern- ment cannot contract, but must continue to expand its budget -- and this makes all the more imperative the need for contracting so far as possible all other budgets, both public and private. It is clear that this compensatory management of the Federal budget must be coordinated with budgetary management in your cities and States in order to achieve the objective of stable economic progress upon which full production and employment depend. The basic problem, therefore, is one of intelligent management. That moans balancing the Federal budget on a basis of business accounting or reducing public debt when we are at full production. In war times, as we have seen, the Federal budget cannot be balanced, which makes it all the more necessary that all other public budgets be balanced as one offset against the inflationary effects of Federal expenditures, Those of us who 269 2-643 -6have long advocated compensatory management of public budgets as a means to stable economic progress and, indeed, the very preservation of our demo- cratic institutions, come in for a variety of reproaches. A favorite one is to the effect that we regard public debt as a blessing. And such superficial criticism would scarcely deserve notice were it not that so many people fail to understand the functioning of the debtor-creditor system under which we live. They fail to see the potentialities of national economic welfare in wise budgetary management and fail to realize that debt is a relative thing. The British public debt, for instance, has continued to rise for the past three centuries, but at the same time the wealth, incomes, and standard of living of the British people have risen far more. While our own debt is by no means a blessing, our national income and living standards have risen much faster than the debt in the last decade. The prospect of the enormous war debt need not alarm us so long as we have the wisdom and the will to off- set its inflationary effects. Moreover, so long as our debt is owed to our own people and the income from it is not tax free, our problem is mainly one of servicing the debt. The President stated the matter very simply in his Budget Message. The Federal debt, he pointed out, will increase to at least $110 billions within the next three years. This means that the servicing of that debt at approximately the present levels of interest rates will require $2.5 billions a year. As the President said, "Paying 2.5 billion dollars out of an extromely low national income would imposo an excessive burden on taxpayers while the same payment out of a 100-billion-dollar national income, after 270 z-643 -7"reduction of armament expenditures, may still permit substantial tax reductions in the post-war period." And he added significantly, "Our capacity to carry a large dobt in a post-war period without undue hardship depends mainly on our ability to maintain a high level of employment and income." The very large Federal debt that will be incurred as a result of the war, and even the war itself, will only have been in vain if we fail to learn the losson that we did not understand after the first World War. For not only did we fail then to join other nations in organizing for lasting peace, but we failed to establish the very foundations of that peace by pro- viding economic security and stability for ourselves and indirectly for other nations. On the whole, the rost of the world also failed miserably to achieve the full and efficient use of its productivo resources in the two decades between the two world wars. The great industrial nations which command control of the bulk of the world's resources failed to make adequate use of these resources and hence were plagued by vast unemployment. This failure is the basic cause of the present world chaos and conflict. It is well to remember that between the two wars we SWW the destruction of free enterprise and free political institutions in approximately half of the western world. We are fortunate, as are the British, that so far, even though with difficulty, we have been able to adupt through evolutionary process rather than by revolution. I have ventured to say before, and I want to repeat again, that we are not proposing to save democratic institutions and free enterprise in order to produce another era of economic misery and general unemployment. We are 2-643 271 .8- fighting to preserve our institutions because we believe them to be the best adapted for producing the greatest good for the greatest number. That means not simply spiritual values -- vitally important as they are -- but material well-being. That, in turn, means full production of all the necessary, useful and good things of life that our inventive genius and our mechanical capacity are capable of turning out, not for a privileged few but for the masses of mankind. We have made some progress toward minimum standards of consumption. We must make much more after peace is restored. We must enable all members of the community to have the minimum food requirements necessary for an adequate nutrition standard. Our entire population should be supplied with public health services and with hospital and medical care sufficient to overcome preventable disease. Likewise, decent housing must be provided for the entire population on a basis adequate to insure modern sanitation and health conditions and to afford living quarters commensurate with modern standards. Similarly, we should provide minimum educational standards for our entire population, whether they happen to live in poor backward communities or in the richer advanced States, and in addition we should provide advanced educational opportunities for the gifted members of the community without regard to the income class in which they happen to be born. By the same token the replanning of our cities, the reclamation of slum areas, the extension of super-highways, the development of recreational facilities aro all part of the better future which we can and must provide. Not only are all these things possible within the framework of our insti- -- Z-643 272 tutions, both political and economic, but they are essential to preserve and vindicate all that we are fighting for. You will understand, of course, that what I am saying applies to the post-defense period. In the interim, as long as we must make the supreme war effort, the standard of living of all of our people, except those already at the subsistence level, must gradually decline. I have mentioned briefly various post-defense projects, but I should like to discuss a little more fully with you the necessity for urban redevelopment and housing, because it is possibly of greater economic and social importance to the country and especially to this group than any other post-defense subject. The story is much the same in all of our large citios -- many decados of unplanned, haphazard growth, beginning with the development of a downtown business center surrounded by good residential neighborhoods; then expansion of the business area and removal of the residential districts farthor out; infiltration of industrios; the resort to zoning; the advent of rapid transit and the further shifting of the population to the suburbs; then the spreading of zones of blighted areas around the business centers and sub- centers, with all that has meant in tax delinquencies and stagnation of improvements. Meanwhile, as so many of you know, the cities have faced an in- creasingly acute financial problem in providing municipal services, including streets, police and fire protection, water supply, etc., for the expanding suburban areas, which sometimes have become separate municipalities with the 273 z-643 - 10 - resultant loss of tax revenues to the parent city. I mention this familiar picture only because it opens up an enormous avenue for a well-planned future improvement program that must be undertaken primarily with Federal help in the post-war era. The two chief obstacles that must be overcome involve, first, the granting to the cities of increased powers from the State to assure permanent control over their metropolitan areas, and, secondly, the cities must obtain adequate legal powers of condemnation to take over the blighted areas. This latter task can only be financed with the sid of the Federal Government. It is something that we must plan for even while we are at war if an intelligent attack on the problem is to be made after peace comes. Let us suppose that the various cities and towns have obtained from their States the legal powers I have referred to: that they have thon procooded, with such help from the Federal Government as was necessary, to draw up long-range plans, each for the entire metropolitan area; that these overall plans, one by one, have been examined and found satisfactory by an appropriate agency of the Federal Government. The local government would then be- gin by defining the worst of its slum and blight areas with a view to acquiring all the real property theroin, either by purchase or through condomnation. It would apply to the Federal agoney for a loan, if need be, large enough to cover part or all of the acquisition cost. Such cities as could afford it should groatly lessen the amount of Federal participation by making larger contributions thomsolves. Z-643 274 - 11 The Federal loan would be granted on three main conditions. First, the acquired properties should be used or leased (not resold) only in accordance with the approved plan as from time to time developed. Second, the ground rents for the leaseholds should be based reasonably on the future use-value in accordance with the plan, irrespective of what it has cost to acquire the land. Finally, the local government should repay the Federal advances out of their own subsequent receipts from leasing such of the land as is not used for public purposes. It is quite clear to students of the problem of blight that the areas involved are for the most part suitable only for residential purposes. Somo of the land, of course, would be used for public purposes, such as new stroot layouts, parks, playgrounds, and the like. Some might very woll be nooded for reorganizod and relocated transportation terminal facilities. Probably a small portion might be required for incidental business structures. But mainly the land should be used for residential purposes -- for everything from high-priced apartments to low-cost housing. Generally speaking, the goographical locations are idoal for the purpose. This is immodiately ovident if we can forgot the present dismal surroundings. Whether on the whole the effect might be to arrest the flight of population to the suburbs, it is a certainty that there are large numbers of people who would profer to live within walking distance of their work if they could do so in pleasant surroundings, rather than to travol for an hour or so every day to and from their dwellings. Subsidiary to the ontire program of roplanning and rebuilding, all 2-643 275 - 12 - the activities of the Federal Government with respect to urban housing should be reorganized and rationalized. Among other things, an extensive program of research and experiment should be inaugurated to tackle the entire problem of producing a good low-cost dwelling unit -- low-cost in terms of what the occupant has to pay to live in it. This would require a thorough overhauling and reorganization of the residential construction industry, to bring its level of efficiency up to something comparable to that reached in other countries and by our other great basic industries. You, as mayors of the cities, are all concerned in what can be done, primarily for the cities and towns in the period after the war. Equally desirable and valuable programs should be undertaken for the rural areas as well. Although all of this looks to the future, preparation must begin now. Nor do I think it wholly inappropriate, even in these grim days, to keep before us G vision of the future as an inspiration and a symbol of what it is we are fighting for. Let's keep this vision of the future -- but at the momont there are urgent problems of civilian defense before you that are all-important, as the President of this Conference so well knows. In addition, there are two particularly timely subjects that I should like to mention, though I suspect they will not be popular with many of you. Specifically, you can oppose tax reductions in your cities and you can exort all your influence to put an end to the issuance of tax-exompt securities. As to the latter, the Federal Government has led the way. Your States and oitios should follow. Let me toll you why those two linos of action are so necessary and important. z-643 276 - 13 As you all know, the enormous military demands for materials and man power have mado it necessary for the President to call upon the public to reduce its expenditures and thus to release resources urgently needed for war purposes. The same considerations should load government at every level, Federal, State and local, to reduce or postpone all expendituros that are not essential for the war effort and maintenance of civilian morale. Public works, all plans for capital improvements, should be deferred so far as possible until after the war, when such expenditures can be timod to stimulate production and maintain employment. There is one exception to this rule so far as your cities are concorned. In those communities experiencing rapid expansion because of defonse activities and the influx of population, it is manifestly impossible to ourtail -- for you must extend police and fire protection and all the other essential public services nooded to tako care of this sudden but probably temporary growth. Because, in all probability, this growth is not permanent, part, if not all, of the costs of extending public services should be treated as defense work and thus should be financed with Fedoral help. Otherwise, it is urgently necessary that you practice every economy consistent with the maintenance of essential services. This does not mean that you should reduce local taxation, however plausible that may soon at first. For to the extent that you reduce local taxation, you negative what the Federal Government is seeking to accomplish in controlling inflation through increasing Foderal taxation. The taxpayer's contribution to the war effort is made by reducing his personal exponditures for goods and services, 277 Z-643 - 14 - thus aiding in the shift of economic resources to military purposes. To the extent that the Federal tax pressure upon the taxpayor is offset by reduction of State and local taxes, the economic purpose of the Federal tax program is defeated. Accordingly, instead of reducing local taxes, you should maintain them, thereby enabling you to pay off your public debts. If you have no such obligations, then invest the funds in Government securities, thus helping to finance the war. This is the time to pay off or reduce local public debts as well as private debts, thereby helping to offset the inflationary factors arising from expension of the Federal debt, while at the same time building up a credit reserve for use in the post-war era. Repayment of your securities would make available to those who hold them funds which they could invest in Government securities. Indeed, you have I a rare opportunity for a major achievement in financial statesmanship. hope that opportunity will be grasped. You can make another real contribution to financial statesmanship by opposing any further issuance of tax-exempt securities by your States and cities. In these critical times it is more important than ever that our tax structure be as fair and equitable as we can make it. There is no more glaring loophole in the tax picture than that afforded to the wealthy by reason of tax-exempt securities. They are a hide-out and a haven where the man of means can put his money and insulate himself from paying the in- creased taxes that must be exacted today all down the line, extending to small groups that have not been subjected herotofore to income taxes. While I do not see how taxation can be lovied in good faith on the tax-exempts 2-643 278 - 15 already issued, there should be a discontinuance of this inequitable practice so far as all future refunding or new issues are concerned. How can anybody justify raising tax rates all down the line, even to the low income groups as is necessary both to war-financing and to the control of inflation, while allowing those of large means to escape by in- vesting in tax-exempts? It is indefensible. And bear in mind that the more taxes have to be increased, the more valuable the tax-exempt privilege becomes. For example, by putting his money into tax-exempts, even under the present income tax, the man with a million-dollar income saves $79 for every $100 of income derived from tax-exempts. The man with an income of $100,000 thus saves $69 on every $100 of income from tax-exempts -- and so on. The tax-exempt privilege is worth the most to the wealthy and the least to those of small means -- quite the opposite of democratic conceptions of justice. To the man with the million-dollar income, the tax-exemption privilege afforded by a municipal bond yielding 2 per cent is worth as much as a tax- able security that yields 9-1/2 per cent. All other types of incomes -- salaries, wages, dividends -- are subject to the rising rates of taxation, to say nothing of business and other risks. It is only the recipient of the tax-exempt income who is free of all risks. Taxes that compel all other groups to curtail their living standards as a necessary contribution to the winning of the war do not touch him. As for the comparatively small saving in the amount of interest paid by the public bodies which issue tax-exempts, far more is lost to the economy by allowing the wealthy to escape through this loophole than is saved in interest. 2-643 279 - 16 - Remember also that your local citizens pay Federal taxes -- and the bulk of them pay heavily for the exemptions thus afforded to the wealthy. You, as mayors of the cities, have a real responsibility in these matters, just as you are vitally concerned in post-war possibilities of local reconstruction not merely because of the betterments in your own communities but, indirectly, because of the effects upon the national economy. For surely you recognize today that you are no more isolated from the general welfare than the nation is from events across the seas. You cannot prosper when the rest of the nation, or any major part of it, is in severe economic distross. Your tax receipts rise and fall as national income goes up or down. You could not, even if you would, separate yourselves from a direct concern in means and measures designed to assure national economic stability and progress. The cities were bankrupt in the early 30's because the nation was in the dopths of deflation and no community, however foresighted and prudent, was able to immunize itself from the devastation. You are relatively prosperous today because we have had a war boom -- incidentally one that does little credit to us as a nation. For we soo now that while wo sought to make our defense efforts a more supplement to a business boom, we should have discarded long ago all business-as-usual day-dronming and made much soonor the sacrifices we talked about and did not make, but must perforce make now or perish. No, there may have been a day whon you were so self-centered and self-contained that you could get along by yoursolves, but that day has long since gone -- your wolfare and your public lives are bound up with the 2-643 280 - 17 - national well-being. You must know and understand what will help or hurt the national economy. You must be prepared to shape your policies and actions in accordance with national objectives, programs and policies. You must more than ever before take care that the taxpayer's dollar is efficiently used. You must have a responsible civil service -- you must have, in short, the confidence of your citizens that the affairs of the city are run as efficiently and intelligently as is required for the survival of competitive private business. That is certainly not only possible but essential -- and it happens to be the best politics as well. In the brief time here this afternoon, I have tried to touch on a fow of the fundamental principles that I feel should be of interest to you and hence of importance for you to consider. Since Pearl Harbor, the subject assigned to me to discuss post-war programs fades out bofore the grim nocessity for concentrating all our enorgies upon the winning of this war. Yet wo can and we neod to keep before us always that vision of the kind of world we mean to have when we have won through again to peace -- a world in which the four freedoms are not empty phrases, but in which mankind will have the security from hunger and want, the assurance of economic well- being, that is the best guarantee of lasting peace and the justification for all the blood, sweat and tears we must devote to the success of our cause. TREASURY DEPARTMENT 281 INTER OFFICE COMMUNICATION CONFIDENTIAL DATE January 19, 1942 TO FROM Secretary Morgenthau Mr. Haas Subject: The Business Situation, Week ending January 17, 1942. Summary (1) Industrial production showed a less than seasonal decline last month, according to preliminary figures, and the adjusted FRB index is estimated to have risen 2 points to a new record high at 168. The index averaged 156 in 1941, as compared with 123 in 1940 and 110 in 1929. (2) To meet the war emergency, numerous steps have been taken recently to expand raw materials output. In an attempt to relieve the shortages in nonferrous metals, the price ceiling for lead has been raised, and substantial premiums will be paid for lead, zinc and copper produced in excess of 1941 production. Plans are under way to step up the production of aluminum, magnesium and synthetic rubber, while the tin smelter now under construction in Texas will be enlarged. (3) To meet increased food requirements, the Department of Agriculture has announced a program for expanded agricultural production, substantially above the record goals requested last September. Special emphasis is placed on increased production of fats and oils, livestock products, and feedstuffs. A shortage of farm labor, however, may prevent full attainment of these goals. (4) The general price level continues to move higher. BLS all-commodity index in the week ended January 10 above rose 0.7 The point to a new high at 95.0, which is 26.7 percent the August 1939 pre-war level. Basic commodity prices rose in again last week, foreshadowing a probable further rise the general price index. (5) A renewed upswing in consumer retail buying appears shortto be under way, prompted in part at least by fears Department of in such items as rubber and woolen goods. ages store sales in the week ended January 10 widened their gain in over year-earlier levels to 32 percent from 26 percent the previous week. -2- 282 Industrial production index at new high Preliminary figures show that industrial production in December declined less than the usual seasonal amount, and the adjusted FRB index for the month is estimated to have risen 2 points to a new peak at 168. (See Chart 1.) Aggregate industrial output actually has receded slightly from the peak levels attained in September and October, but seasonal adjustments have raised the index. The upward adjustment for seasonal factors will be somewhat greater in January, but thereafter actual production will have to gain steadily until summer to forestall a drop in the adjusted index. On the basis of last month's preliminary figures, the index of industrial production for 1941 averaged 156, which compares with 123 in 1940. The index averaged 113 in 1937 and only 110 in 1929. The rise in the adjusted index since the beginning of the defense program, starting with an index of 112 in April 1940, has been 56 points or exactly 50 percent. Steps taken to expand raw materials output Further expansion in industrial output from present high levels will be determined in large part by the rapidity with which supplies of important raw materials can be increased. During the past week a number of noteworthy steps were taken to stimulate raw materials output, particularly of the non-ferrous metals, of which shortages have been keenly felt. In addition to OPA action raising the price ceiling on lead, it was announced that the Metals Reserve Company would pay substantially higher than ceiling prices for copper, lead and zinc produced in excess of the 1941 production rate. Inasmuch as the price increases for the excess production are as much as 42 percent for copper and lead and 33 percent for zinc, it is felt that production will be stimulated considerably. The OPM estimates that the production of lead and zinc will be 30 percent above current levels by the end of the year as a result of the steps taken to stimulate output. It has also been announced that plans are being developed rapidly for a further expansion in the output of aluminum and magnesium. Location of the projected plants will be determined as soon as the OPM is successful in finding areas where adequate electric power can be provided. Other expansion programs under way include plans for increasing -3- 283 synthetic rubbor production to 400,000 tons annually, and the enlargement of the tin smelter now under construction at Texas City to a probable annual capacity of 30,000 tons, from 18,000 tons as originally planned. No improvement appears to have occurred thus far in the supply situation for steel seren. However, the recent moderation in weather conditions is likely to be followed by at least some temporary improvement in scrap collections. Among other steps being taken to cope with the problem, the OPM is taking a census of so-called graveyard scrap, and about 35,000 owners of such scrap are being asked for reports on their inventories. Despite the scrap shortage, steel operations last week rose 1.4 points to 97.8 percent of capacity. During the current week operations are scheduled at 97.7 percent of capacity. New agricultural program to aid the war effort A revised agricultural production program to fill the war-time needs of this country and of the United Nations, with goals far in excess of those set last September, was announced Thursday by the Department of Agriculture. Production goals were expanded sharply for hogs, corn, oil-bearing rice, eggs, milk, dry beans, dried peas, and vegetables and crops, fruits for canning. To supplement feed supplies required for greater output of livestock and livestock products, and to release storage space for 1942 crops, the program provides for releasing some Government-owned wheat for livestock and poultry feed, at prices comparable with those for corn. Although crop control restrictions are to be retained on wheat and cotton, the acreage goal for cotton was raised somewhat from that announced in September, and special premiums will be offered on long staple cotton. To provide the necessary production incentives, the of Agriculture has announced that prices levels. for a Department number of products will be supported at specified The chief obstacle to full attainment of the stated will goals is likely to be the shortage of farm labor, which undoubtedly be more serious this year than it was in 1941. Government-owned corn to be sold for alcohol production Government-owned stocks of corn have been offered for through the Commodity Credit Corporation to producers of sale ethyl and butyl alcohol and acetone. If 60,000,000 bushels will be converted under this program, disposed as hoped, of. This one-half of the Government stocks will be alcohol program will also further the OPM plan to increase -4- 284 production, and conserve sugar and molasses heretofore used in producing ethyl alcohol. The use of corn by distilleries will provide valuable by-products for livestock feeding. Sugar supplies inadequate That sugar supplies are insufficient to meet the increased demand from consumers was asserted by OPM representatives last Friday at a conference with representatives of the cane sugar trade and the Department of Agriculture. A program for allocation of 1942 raw sugar supplies to refiners, and through them to manufacturers and wholesalers, was announced. The allocation will be under supervision of the OPM rather than the Department of Agriculture, apparently because of the more effective legal powers vested in the OPM. All-commodity index continues to rise The BLS all-commodity index rose 0.7 percent in the week ended January 10 to a new 12-year high at 95.0 percent of the 1926 average. This 18 an increase of 3.0 percent since our entrance into the war, and the index has risen 26.7 percent from the August 1939 pre-war level. (See Chart 2, upper line.) The advance, reflecting increases in most of the major commodity groups, was led by an upward movement in prices for farm products, textiles, and foods. Building material prices continued to move higher, with a sharp rise of 5.9 percent for plumbing and heating supplies. It is likely that the all-commodity index continued its rise in the following week (ended January 17), since the sensitive index of 28 basic commodity prices in that week continued to advance. (Refer to Chart 2.) Price trend compared with that in first World War A comparison of price movements in the first World War with those in the present war is shown in Chart 3. A noticeable difference is the levelling off of the allcommodity index in the last four months of 1941, in contrast to the steep rise in 1916. On the other hand, it will be noted that food prices are continuing to rise as rapidly as during the first World War. Price controls in that period were not imposed until after the middle of 1917. -5- 285 Price movements for basic commodities in recent days Government price policies and price control legislation were interpreted bullishly, and the BLS index of basic material prices advanced for the third week in succession. The higher level last week reflected a substantial increase in prices of industrial raw materials and some further rise in prices for farm products. (See Chart 4.) The President's stand against inflationary provisions of the price control bill doubtless prevented a sharper rise, but reports that the Conference Committee had no immediate plans to change these provisions tended to sustain prices. dominated commodity markets last week. On the whole they Among the raw industrial materials, the price of lead advanced 11 percent due to an increase in the ceiling price. Rosin prices continued to rise, and prices of flaxseed and tallow were noticeably higher. Cotton prices made a new 12year high and wheat also advanced. Cost of living higher in December Living costs rose again in December, but the advance in the BLS cost-of-living index was less than in any other month since last February. (See Chart 5.) The index for December was 0.3 percent higher than in November, and 12.1 percent above the pre-war level of June 1939. For the first time since November 1940, the cost-of-food index did not advance, but all other components rose moderately. Private residential construction declines The impact of materials shortages on the volume of new home construction became more pronounced in the closing months of 1941. Residential construction awards in December, as reported by the F. W. Dodge Corporation, showed a decline of fully 50 percent since the peak reached last August. (See Chart 6, upper section.) This trend was accentuated by the drastic limitations imposed on non-defense construction in October by SPAB, and in the following month residential construction contracts fell below year-earlier levels for the first time since March 1940. Last month the decline continued, and contract awards fell 35 percent below the corresponding month in 1940. Mortgages selected for appraisal by FHA, exclusive of those under Title VI (defense housing), dipped under year- earlier levels as early as last August. Last month's total -6- 286 ran 11 percent under December 1940, and the recent weekly figures show a sharper decline. (Refer to Chart 6.) Since Title VI was added to the National Housing Act last March, the FHA has financed a substantial amount of defense housing in addition to that financed under Title II. II this special type of defense housing is included, aggregate home mortgages selected for appraisal by the FHA in December were still 7 percent above year-earlier levels. Although a heavy volume of defense housing 18 likely to be maintained, the chief of housing priorities of the OPM recently stated that orders would probably be issued shortly halting new home construction by private citizens for the war's duration. Department store sales higher Department store sales showed further improvement during the week ended January 10 and widened their gain over year- earlier levels to 32 percent, as compared with 26 percent in the previous week. Since retail prices at the beginning of the month were about 15 percent higher than at the beginning of 1941, it is obvious that the volume of goods sold is again well above year-earlier levels, thus reversing the slight lag noted last month. Trade sources report that clearance sales since the first of the year have met with good response, and that consumer buying is again in an upswing, due in part to fears of shortages in such items as woolen and rubber goods. 95 140 150 135 145 155 125 130 120 100 105 110 115 160 165 C 349-2 1942 1941 1940 Seasonally Adjusted 1939 1939 1942 194 1940 F MAM JJJASONDJFMAMJJASONDJFMAM J JASONDJF MAM PERCENT J JFMAMJJASONDJFMAMSONDJFMASOND J 95 100 105 110 115 120 FEDERAL RESERVE BOARD INDEX OF INDUSTRIAL PRODUCTION 1935-39=100 125 130 140 145 165 PERCENT 160 155 150 135 Office da Sanders the Treasury COMMODITY PRICES 1926=100 PER CENT PER Weekly CENT 104 104 100 100 96 96 889 Commodities, B.L.S. 92 92 88 88 84 84 80 80 76 76 72 72 68 68 28 Basic Commodities, B.L.S. 64 64 60 A o . A N 1940 - of the Burden of de Transity D 60 1941 . N D o 1942 P-194-C - o PRICES, 1939 TO DATE COMPARED WITH 1914 TO 1918 July 1914-100 World War Period; Aug. 1939-100 Present Period PERCENT PERCENT All Commodities 200 200 1918 180 180 1917 160 160 140 140 1916 - English 120 First Month 120 of Wer 1915 1941 1940 1939 100 100 1914 60 80 PERCI NT PERCENT Foods 200 200 1918 180 180 1917 160 160 140 140 1941 120 First Month 120 of War 1916 1940 1939 DO 1915 100 1914 80 80 J Source: B.L.S. Office of the Secretary of the Treasury - - - Studies Chart 4 290 MOVEMENT OF BASIC COMMODITY PRICES AUGUST 1939-100 PER PER Weekly Average CENT CENT PER PER CENT CENT 170 175 160 170 150 165 140 160 130 155 120 150 110 145 100 140 Daily 175 170 170 12 Foodstuffs 160 165 12 Foodstuffs 150 160 140 16 Row Industrial 155 Materials 130 16 Row Industrial Materials 120 150 145 110 140 14 $ A o D J J J F M . A N 1942 F D $ 1941 . M NOV . N 27 $ J o 1940 24 . 100 24 17 10 18 " 10 FEB. JAN. DEC 1942 1941 *Tellow 1774X Percentage Change for Individual Commodities. AugustPER1940 Low to January 9. and to January 16. 1942 PER 12 Foodstuffs CENT 16 Raw Industrial Materials CENT Cottonseed Oil 1579% +150 +150 Cocoo 125.7% Shellac 124/X +125 "Lard 112.3X +125 *Rosin 113.9X Barley 101.2X Cotton 96.8X Coffee 98.2X Wheat 85.4X 400 Print Cloth 81.1% .100 Hogs 784X Burlap 654X Hides 590x +75 Flaxseed 56.3% Wool 50.0x +75 Lead 36.8X Sugar 433X +50 Zinc Jaix +50 "Butter 34.9X Steers 28.8% Silk 210% Rubber 16.9% Copper 11.8% +25 Steel Scrap.dom. Corn 24.0X +25 8.7X Jin 3.0% o Aug.1940 Jan.9 0 "Steel Screp exp 2.7X Jan.16 Aug. 1940 Jan. 9 Jan.16 Low Low P-107-5-17 A Chart 5 291 COST OF LIVING AND SELECTED ITEMS = 1039 100 94 1940 1939 1942 PER PER CENT CENT 112 112 108 108 COST OF LIVING 104 104 100 100 120 120 FOOD 116 116 112 112 108 108 CLOTHING 104 104 100 100 RENT. LIGHT HOUSEHOLD FURNISHINGS AND MISCELLANEOUS AND HEAT 96 I M D $ J 1 939 1941 J 96 1940 1942 SOURCE: B.L.S. c 413 Office of the Secretary of the Treasury - / - Statistics RESIDENTIAL CONTRACT AWARDS AND F.H.A. MORTGAGES Mor gages 1942 1941 1940 Awards DO LARS Millions DOLLARS Millions 225 Mortgages Selected for Approisal and F.W. Dodge Awards 200 Monthly 180 200 F.W. Dodge Awards 160 175 140 150 120 125 100 100 80 75 Mortgages Selected for Appraisal, F.H.A. 60 50 40 A S A J 1942 M A 0 1941 A 1940 DOLLARS DOLLARS MiLions Milliess Mortguges Selected for Appraisal, F.H.A." 40 0 M H M A M .. 0 o Weekly 5 35 1941 30 30 25 25 1940 10 20 5 15 0 10 5 5 O 0 25 JAN. MAR MAY JULY SEPT. NOV Extrading Title VF Morigages (Defense Housing) --- Office of the Secretary of the Treasury C-260-C 293 kiss Chauncoy 1 TREASURY DEPARTMENT OFFICE OF THE SECRETARY January 19. 1942. CONFIDENTIAL Received this date from the Federal Reserve Bank of New York, for the confidential informstion of the Secretary of the Treasury. compila- tion for the week ended January 7. 1942, showing dollar disbursements out of the British Repire and French accounts at the Federal Reserve Bank of New York, and the means by which these expendi- tures were financed. dm/1/19/42 294 0 FEDERAL RESERVE BANK OF NEW YORK January 15. 1942 CONFIDENTIAL Dear Mr. Secretary: Attention: Mr. H. D. White I am enclosing our compilation for the week ended January 7. 1942, 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. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D. C. Enclosure Copy:vw:1-19-42 Book Maded BANK CANADA (and Canadian Government OF DEBITS CREDITS Transfers Total Debits First year of war (8/29/39-8/28/40) Proceeds Official British A/C Total of Gold Debits Credits Sales A/O A/C Other Transfers Transfers from Official British L/C For Own For French Other Credits Net Incr. (+) or Decr. (-) Total in Balance Debits A/C in Balance 412.7 20.9 38.7 32.4 +181.7 31.2 3.9 27.3 36.1 30.0 6.1 477.2 16.6 460.6 707.4 534,8 20.9 110.7 41,0 +230,2 57.9 14.5 43.4 62.4 DOLI 12.3 462.0 52.2 246.2 3.4 123.9 88.5 16.7 55.5 81.2 6219 18.3 - - 31.0 + 1.6 29,1 72.2 21.2 10.7 0.5 10.2 28 2.1 0.7 7.9 - - 7.8 - 17.7 549 -20.3 6.9 2.7 3.4 8.0 13.2 8.2 10.3 5.5 - 11.6 25.5 9,0 2.1 2.0 13 3.9 1.8 2.1 2.8 012 2.6 1.1 460,4 23.1 - 37.4 52.7 19.7 11.9 32.5 19.3 47.2 47.7 22.2 17.3 4.9 17.8 400 2.6 7.4 0.5 Jan. 2 2.0 7.0 5.5 2.9 1.4 1.4 1.0 - 13,8 14.2 31 17.8 14.2 11.3 0.1 1.3 3.4 5.6 460.4 23.1 1941 Dec. A- Dec. 31 Other Credit 504.7 - Oct. 30 - Dec. Gold Sales 306.4 - Oct. 2-2 Oct. 29 Total Credits 16.6 Second year of was (0/29/19-8/27/01) Aug. 28 - Oct. Other Debits Net Incr. (+) or Dear. (-) 323.0 War period through December. 1940 Prooneds of to Official British 37.4 52.8 0.1 1942 + 4.9 + + PERIOD to LS 90 0.2 WEEK ENDED: Dec. 17 24 11.31 Weekly Average of Total Debits Since Outbreak of War Million 7.7 Through January 7, 1942 IS * For monthly breakdown see tabulations prior to April 23, 1941. # For monthly breakdown see tabulations prior to October 8, 1941. 9.2 1.3 - 0.2 1,3 0.5 1.8 1.8 0.7 - 0.7 02 - 0.7 0.3 0.1 1.6 - 1.6 0.2 - 0.2 -0.8 -0.6 -0.2 -05 AND DEBITS Total Debits PERIOD Gov't Expendi- tures(a) TATE year of war (8/29/39-8/28/40) Lap period through 1,793.2 December 1940 2.792.311.425.6 1,792.2 Second year of war GILLS 2,203.0 605.6 ACCOUNTS CREDITS Proceeds of Other Debits Total Credits Sales of Securities Gold (Official)(b) DEBITE Net Thar: (+) or Other Credit Dear.(-) Jin Balance CREDITS Gov't Proceeds Total Debita Expendi- Other Total tures (d) Debits Credits 866.3(e) 416.6(e) 449.7 Other Sales Credits (L095.3(e) 900.2 195.1(e) +229.0 900.2 198.2 +220.1 8.8 - 30.1 0.5 0.2 0.2 -15.7 Oal 0.4 52.0 1,356,72,793.16 2,109.5 108.0 575.6 + 10.8 878.3 421.4 456,9 1,098.4 410.82.189.8 1,193.7 274.0 722.1 - 13.2 38.9 4.8 34.1 8.8 154.1 + 35.3 0.3 0.3 35.0 - 1941 Aug. 28 Oct. 1 Oct. 2 Oct. 29 Oct. 30 - Dec. 3 Deg. L- Dec. 31 140.9 109.0 105.9 77.3 31.7 176.2 150.9 156.1 111.6 44.5 134.6 88.4 69.6 18.8. 51.5. 35.0 20.1 0.8 - 1942 2.0 150.1 1.0 133.6 51.5 41.9 - 21.5 =36.9 - 16.1 - 0.8 (+) or Decr. (-) of Gold 1,187.61,828.2 1,356.1 420.1 Strictly Ended January 1942 0.3 0.5 OF 0.3 0.3 16.1 0.4 0.8 d4 in Balance - - << ENDED: Dog. 17 17.8 24 18.7 31 Jan. 7 22.4 26.4 13.2 14.2 17.6 17.7 4.6 18.7 18.2 4.5 6.8 4.8 18.0 11.5 6.8 18.0 8.7 Topily Acenditures Sino Outbreak of War UNITED June 19,1949) 129.6 England (through June 19.1940) 27.6 million England (since June 19.1940 41.4 million #For monthly breakdown see tabulations prior to April 23 1941. ooFor monthly breakdown see tabulations prior to October 8, 1941. (See attached sheet for other footnotes) 11.5(d) + 0.9 - - 11.9 = 0.1 - 0.1 Let 0.5 0.1 - 0.5 0.2 0.1 0.1 14.9 0.1 - Transfers from Broth Purchasing Commission to Bank of Canada for French Account Week ended January 7. 1942 162.7 Cumulation from July 6, 1940 - = - Million million 0.1 0.2 0.1 - 0.3 (a) Includes payments for account of British Purchasing Commission, Britash Air Ministry, British Supply Board, Ministry Supply Timber Control, and Ministry of Shipping. (b) Retimated figures based on transfere from the New York Agency of the Bank of Montreal, which apparently represent the prooneds of official British sales of American securities, including those effected through direct negotiation. In addition the to the official selling, substantial liquidation of securities for private British account occurred, particularly during early months of the war, although the receipt of the proceeds at this Bank cannot be identified with any accuracy. According to data supplied by the British Treasury and released by Secretary Morgenthau, total official and private British liquidation of our securities through December, 1940 amounted to 8334 million. (a) Includes about $85 million received during October, 1939 from the accounts of British authorized banks with New York banks, presunably reflecting the requisitioning of private dollar balances. Other large transfers from such accounts since October, 1939 apparently represent the acquisition of proceeds of exports from the sterling area and other currently accruing dollar receipts. (d) Includes payments for account of French Air Commission and French Purchasing Commission. (e) Adjusted to eliminate the effect of $20 million paid out on June 26, 1940 and returned the following day. (f) Includes: $2.1 million of Australian wool transfers; $4.0 million/from British authorized banks $1.0 million for account of U. S. Army at Northern Ireland. 298 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 19, 1942 TO FROM Mr. Coe H. J. Hoflich Subject: British Opinion on Post-War Problems. Summary The following points summarize briefly the appended digest of British Ministry of Information Press Surveys covering the period September 29 - November 21, 1941, on the subject of post-war planning and reconstruction: 1. There is widespread agreement that post-war planning and reconstruction can be accomplished only by close international cooperation. The greatest emphasis is placed on the necessity of close Anglo-American collaboration, but heavy stress is placed also on the desirability of cooperation between the United States, Great Britain and Russia in the peace settlement and post-war reconstruction. However, there is in England a school of thought which is fearful and suspicious of Russia, and reluctant to accept her as an. ally except for the immediate task of defeating the Nazis. 2. There are two lines of opinion with respect to post-war arrangements for the small countries of Europe: (a) restore their pre-war status of complete independence, (b) arrange Europe into a few large federations of states. 3. The Atlantic charter is widely accepted as the logical basis for post-war reconstruction. 299 TREASURY DEPARTMENT DATE January 19, 1942 TO FROM Mr. Coe H. J. Hoflich Subject: British Opinion on Post-War Problems, as Reflected in the British Press. The following highlights are taken from Home Press Surveys of the British Ministry of Information, covering the period September 29 November 21, 1941, on the subject of post-war planning and reconstruction: 1. There is virtually unanimous agreement that post-war planning and reconstruction can be accomplished only by close international cooperation. But there can be discerned a difference of emphasis as to which nations are to do the cooperating: a. Probably the greatest emphasis is placed on the necessity of collaboration among the English speaking peoples after the war. b. Heavy stress is laid also on the desirability of close AngloAmerican-Russian cooperation in building a new world when the war is over. C. There is still a school of thought which fears the influence of Russia in the post-war European reconstruction. G. D. H. Cole has said that there is still great reluctance to face the conclusion that if Russia is treated as an ally during the war she must be treated as an ally in peace. Mr. Cole sees a conflict in Great Britain between (1) those who look to a close British alliance with the United States to maintain an "anti-Nazi capitalism" after the war, and (2) those who look to unity between Britain and the U.S.S.R. in rebuilding Europe. As indicative of the fear of Russia, the Catholic Herald has published a number of articles, making the following points, among others: (1) We admire in Russia much the same qualities we loath in Germany, (2) Commun- ism as well as Nazism wants to destroy religion, (3) The Pope has implicitly condemned Axis policy, but this does not imply support of Allied as a means of opposing Nazism. "The for doubts about the ultimate results of the policy example, except conceivably believe Pope close might alliance well, that between London and have Moscow, or he might the evils of protracted war are such that a negotiated peace might be preferable even for the oppressed victims of Nazism." 300 -2The London Times appears to have taken the lead in opposing this line of thought. This paper has stated, "The Russian system, based as it is upon planned production and controlled prices, will fit easily enough into a world system if there is a real spirit of accomodation on all sides". Russia, the Times says, must be a full partner in peace as well as war. The voice of Russia must be heard in the post-war settlement. The consequences of its not being heard at Versailles were disastrous. England and the U.S.S.R. have a large field of common ideals and ob- jectives, e.g., an ordered and peaceful international life, achieved not through military domination of a particular nation or race, but through the recognition of a common interest and common loyalty capable of turning to the best use the diversity of peoples. The Times says further that while the English people treasure individual freedom, they have in recent years come to understand that the freedom of the individual can be made secure only by a measure of that collective planning, for social ends, which has been the proclaimed ideal of the Soviet order. The war is bound to bring about widespread social changes in both countries, inducing increased sympathy and cooperation between two countries "already united in the defense of common human ideals against the threatened domination of a narrow and cynical racialist creed". 2. There are clearly two lines of opinion regarding the post-war arrangements to be made for the conquered countries of Europe. a. It seems to be generally taken for granted that all the occupied countries will be liberated and returned to their pre-war national status. b. There is some opinion favoring a political realignment for Europe after the war. Dr. Benes advocates four confederations of states between Russia and Western Europe, and indicates that Czechoslovakia would make a "partial surrender" of its sovereignty in the interests of such plans. G. D. H. Cole thinks that the small European nations will be replaced by large national groupings. He envisages a Soviet Germany, and says it might be better for Europe, or the larger parts of it, to be "ruled by Stalin than by the restrictive and monopolistic cliques which dominate western capitalism". 3. A number of editorials refer to the Atlantic Charter, all accepting it as the logical basis for post-war planning. 301 P FEDERAL RESERVE BANK OF NEW YORK January 19, 1942 Dear Mr. Secretary: Receipt is acknowledged of your letter of January 16, 1942, authorizing us, as fiscal agent of the United States, to advise the Banco Central de Chile that the Treasury Department does not deem it advisable to depart from its policy of not purchasing gold for delivery outside the United States. We are pleased to enclose a copy of our letter of today written to the Banco Central de Chile, Santiago, Chile, in accordance with your authorization. Very truly yours, (Signed) L. W. Knoke L. W. Knoke, Vice President. Enc. The Honorable D. W. Bell, Under Secretary of the Treasury, Washington, D. C. Copy:1c:1/22/42 0 0 P Y ORIGINAL FORWARDED BY AIR MAIL DUPLICATE FORWARDED BY ORDINARY MAIL FEDERAL RESERVE BANK OF NEW YORK January 19, 1942 Banco Central de Chile, Santiago, Chile. Dear Sirs: Reference is made to your letter of December 20, 1941, relative to your periodical shipments to New York of gold produced in Chile and the difficulties in connection therewith brought about by recent increases in freight and marine insurance rates. In our letter of January 3, 1942, we advised you that we would discuss your suggestion with the Treasury Department in Washington as soon as we had finished our preliminary study of the problem involved. The United States Treasury Department has now authorized us, as fiscal agent of the United States, to advise you that it has given careful consideration to the suggestion contained in your letter of December 20 but does not deem it advisable to depart from its policy of not purchasing gold for delivery outside of the United States. Yours faithfully, L. W. Knoke, Vice President. Copy:ec:1-22=42 302 303 January 19, 1942 To: Mr. Livesey From: Mr. Bell Will you please send the following cable to the American Delegation, Rio de Janeiro: "Confidential for Under Secretary Wellee from Secretary Morgenthau Reference your No. 22, January 18. In confirmation of telephone conversation with Mr. White, the new resolution is satisfactory, with the following two changes: 1. The title to read "Resolution on an international stabilization fund." 2. The phrase in section two "the settlement of public and private international debts" should be deleted. I hope the resolution will prove helpful. Treasury work makes it desirable that Mr. White should return to Washington as soon as possible and not proceed to Buenos Aires." 304 PARAPHRASE OF TELECRAM SENT TO: DATE: NO.: American Delegation, Rio de Janeiro, Brazil January 19, 1942, 2 p.m. 30 This message is in strict confidence from the Secre- tary of the Treasury for the Under Secretary of State. Reference is made to telegram no. 22, sent by the Delegation at 7 p.m. on the 18th of January, 1942. The new resolution with the two changes as follows is found satisfactory, in confirmation of a conversation on the telephone with Mr. White: First. "Resolution on an international stabilization fund" is the way the title is to read. Second. "The settlement of public and private international debts", a phrase in section two, should be crossed out. It is hoped that the resolution will prove to be of assistance. The work of the Department of the Treasury makes it desirable that Mr. white come back to Washington as quickly as possible and not go on to Buenos Aires, Argentina. HULL (AWB) Treasury Department 3.5 Division of Monetary Research Date 1/22/42 19 To: Miss Chauncey From: Mr. Southard This of course need not be called to the Secretary's attention. 306 PARAPHRASE OF TELEGRAM SENT TO: United States High Commissioner, Manila, (Fort Mills) via N.R. DATE: January 19, 1942, 5 D.M. NO. 11. Reference is made to the U.S. High Commissioner's telegram No. 15, 11 am. , dated January 10, 1942. It will be appreciated if the Commissioner will repeat the items and total in the above referenced telegram. The figures as received do not produce the total as received in his telegram. HULL (FL) 307 BRITISH EMBASSY, WASHINGTON, D.C. January 19th, 1942 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambassador) R.I. Campbell The Honourable, Henry Morgenthau, Jr. United States Treasury, Washington, D. C. 308 Copy No. 13 BRITISH MOST SECRET (U.S. SECRET) OPTRL No. 21 Information received up to 7 a.m., 18th January, 1942. 1. NAVAL H.M. anti-aircraft cruiser CARLISLE shot down one Junkers 88 off CYRENAICA. A small Dutch vossel was sunk by nine off SINGAPORE on the 16th. 2. MILITARY LIBYA. The garrison of HALFAYA surrendered unconditionally at 9 a.m. on the 17th. About 5,500 prisoners very weak from lack of food and water vero taken together with guns and stores which had not been destroyed. 76 of our troops were rescued. In the forward area sandstorns and rain interfered with operations but extensive clearing of enemy land mines continues. HALAYA. East. A Jananese landing su ported by naval aircraft and divo bombers took place at S'DAU early on 16th. West. In the HUAR area the Japanese crossed the KUAR River and during the 16th reached a point ten miles to the South. A small enemy landing also took place on the 16th near BATU PAHAT, BURNA. 15th/16th. Contact was made with a Japanese force of about 100 at NYITTA ten miles into BURHA near TAVOY. RAJIGOON. A reinForcement arrived safely on the 16th much nativo labour has left the city. RUSSIA. The Germans are continuing their attack in the area south-south-east of KURSK and have made some progress in their attack on FEODOSIA in the CRIMEA. 3. AIR OPERATIONS Western Front. 17th, Three Beauforts attacked ST. PETER PORT GUERNSEY and hit sheds on the jetty, silenced an anti-aircraft gun and machinegunned troops. 17th/18th. Total bombers sent out 119. BREHEN 83, EDDEN 24, C. few others sea-mining. Two are missing and two came down in the SOB. About 22 enemy aircraft were operating against shipping off the East coast and were sea. mining in the Western Approaches. One Dornier was damaged by C Havoc. HEDITERR FAN. 15th/16th. Six Tellingtons bombed mechanical transport in the AGECILA-SIRIE area. HALTA. Small attacks between 16th and 17th inclusive caused only slight damage, two aerodrones are still unserviceable. 309 -2FAR EAST MALAYA. 16th. Titre on attacks were made against enemy mechanical transport tanks and rolling stock in the GEMAS area. Hits were scored on tanks and mechanical transport and fires were caused at the station and assembly yard. Off NUAR barges were bombed and heavy casualties caused among enemy troops. SINGAPORE. Two attacks by a total of 21 enemy bombers took place but no damage has been reported. One bomber was shot down and one Buffalo was lost. NETHERLANDS EAST INDIES. SUNATRA. A United States Military report states that the Japanese attacked LAHAT aerodrome early on the 15th with 26 bombers escorted by about 12 naval fighters. Aerodrome temporarily unserviceable. Two Catalina, two Buffalo and one Hudson aircraft and petrol dumps destroyed. 4. There are indications that the Japanese are preparing to use airwborne troops in or from HALAYA. 310 BRITISM EMPANY WASHINGTON, D.C. January 19th, 1942 PERSONAL AND SECRET Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest reports received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambassador) R.I. Campbell The Honourable Henry Morgenthau, Jr. , United States Treasury, Washington, D. C. 312 -2- 14th. Blenheims continued their attack on HALFAYA. Fighters destroyed two enemy aircraft and damaged one losing 6 Hurricanes; 4 pilots probably safe. HALTA. 14th and 15th, Total of 24 enemy aircraft came over but no serious damage is reported. FAR EAST. MALAYA. 14th. 9 enemy aircraft attacked BATU PAHAT and aerodrome which remained serviceable despite slight damage. One enemy aircraft was destroyed and two damaged by A.A. 12 enemy bombers escorted by fighters flow over SINGAPORE without dropping bembs. Our fighters damaged one of them. Enemy aircraft attacked SEGANAT, damaged buildings and causing some service casualties. SINGAPORE. Civilian air raid casualties 13th reported 31 killed, 45 seriously wounded. Bombing occurred through thick lon clouds. Copy No. 13 313 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 20. Information received up to 7 a.m., 17th January, 1942. 1. NAVAL 16th. A 12,000 ton liner in outward-bound troop convoy was torpedoed about 600 miles west of BORDEAUX and subsequently bombed by Focke Fulf aircraft. Her steering gear was disabled but she is proceeding at reduced speed, A naval trawler was bombed and sunk off YARMOUTH, and a small naval auxiliary vessel sank off south-west SCOTLAND after colliding with one of H.M. submarines, which was undamaged. Icebreaker STALIN reported not seriously damaged. 16th. A British 8,600 ton tanker, bound for HALIFAX, was torpedoed off ST. JOHN'S, NEWFOUNDLAND, but is still afloat, 2. MILITARY LIBYE. A Free French Force has joined our troops in the HALFAYA area, HALAYA. EAST. An enemy patrol was encountered on the 15th north of the river ENDAU, WEST. Early on the 15th, an advanced Australian battalion ambushed an enemy column, including some tanks, west of GEMAS, destroying six tanks and inflicting heavy casualties with small losses. Later, the enemy attacked in force and heavy fighting took place, our troops being subjected to constant dive-bombing throughout the day. Enemy strength reported one brigade with medium and light tanks. Our forward elements have now been withdraim east of GEMAS. BORNEO. The Japanese have attacked some of our Indian troops at SILOES in DUTCH BORNEO near the SARAWAK frontier. RUSSIA. In the central sector, the Russians are maintaining their pressure. In the CRINEA, the Germans (?are) attacking FEODOSIA. 3. AIR OPERATIONS TESTERN FRONT. 15th/16th. HAMBURG. Thirty tons high explosive and nearly 23,000 incendiaries. EMDEN. 51 tons high explosive and 4,400 incendiaries. Large fires were left burning at both ports, Fourteen R.C.A.F., six R.A.A.F. and two R.N.Z.A.F. aircraft took part. One Canadian Hampden crashed. 16th and 16th/17th. No offensive operations by us and no activity by enemy reported. -2- 314 MEDITERRANEAN. LIBYA. 15th. Blenheime bombed HALFAYA at intervals. Gun ei-placements and mechanical transport were hit. 15th/16th. A naval aircraft obtained two probable hits on a vessel off the KERKENNAH ISLANDS. HALTA. 16th. Nine enemy aircraft bombed the Island, slightly damaging a wharf in the Grand Harbour. FAR EAST BURMA. 15th. Our fighters attacked an aerodrome south of BANGKOK and severely damaged seven enemy aircraft. They also attacked an armoured train. MALAYA. 15th. Our bombers attacked PORT SWETTENHAM, causing considerable damage to oil cisterns, and sank two barges containing troops off the river mouth thirty miles north-west of MALACCA. SINGAPORE. Fifty enemy bombers escorted by fighters, caused slight damage to the naval base. One enemy aircraft was shot down and another probably destroyed by our fighters, one of which is missing. ENDAU and MUAR were also heavily bombed. 315 Channeey TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE January 19. 1942 TO Secretary Morgenthau CONFIDENTIAL FROM Mr. Dietrich Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £37.000 £30,000 Open market sterling was again quoted at 4.03-3/4. and there were no reported transactions. The Canadian dollar. which closed at a discount of 12 on Saturday. improved to 11-3/4 today. In New York, closing quotations for the foreign currencies listed below were as follows: Argentine peso (free) Brazilian milreis (free) .2375 Uruguayan peso (free) Venezuelan bolivar .0516 .5775 .2065 .5250 .2675 Cuban peso Par Colombian peso Mexican peso The Federal Reserve Bank of New York reported that the Bank of Canada shipped $4,043,000 in gold from Canada to the Federal for account of the Government of Cenada, for sale to the New York Assay Office. In London, spot and forward silver were again fixed at 23-1/2d and 23-9/16d, respectively, equivalent to 42.67 ₫ and 42.78 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 35-1/84. We made no purchases of silver today. 316 RESTRICTED G-2/2657-220: No. 605 M.I.D., W.D. 11:00 A.M., January 19, 1942 SITUATION REPORT I. Pacific Theater. Philippines: There is intermittent fighting along our entire front. No decisive engagements are taking place. Enemy air operations are comparatively light. Hawaii: No further reports of hostile activity. Malaya: The press reports that the Japanese advance has been slowed down by fresh British troops. Strong Japanese pressure continues in the west, however. Heavy aerial bombardment of Singapore continues. Australasia: Slight enemy aerial reconnaissance is reported over the New Guinea region. China: According to the press, an American volunteer squadron shot down three Japanese bombers not far from the French Indo-China border. West Coast: No further reports. II. Eastern Theater. Russian pressure continues along the general line from Rzhev to the Donets Basin. The Russians claim to be in the suburbs of Mozhaisk. The German High Command reports the repulse of attacks in the Donets Basi: at Sevastopol and the recapture of Feodosiya (on southeastern coast of the Crimea). III. Western Theater. The Air Ministry announced today that British bombers attacked Bremen, Emden, and other places last night in continued raids over northwest Germany. IV. Middle Eastern Theater. The situation is unchanged. RESTRICTED 317 TREASURY DEPARTMENT Washington FOR RELEASE, MORNING NEWSPAPERS, Press Service Tuesday, January 20, 1942. No. 29-74 1/19/42 The Secretary of the Treasury announced last evening that the tenders for $150, 000, 000, or thereabouts, of 91-day Treasury bills, to be dated January 21 and to mature April 22, 1942, which were offered on January 16, were opened at the Federal Reserve Banka on January 19. The details of this issue are as follows: Total applied for - $351,585,000 Total accepted - 150,330,000 Range of accepted bids: (Excepting one tender of $200,000) High - 99.980 Equivalent rate approximately 0.079 percent Low - 99.942 0.229 Price - 99.950 0.196 Average " -oco- 318 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 20, 1942 TO FROM Secretary Morgenthau Mr. Haes 1. Attached to this memorandum are tables showing (1) the number of arents cuplified to issue Defense Savings Bonds, Series E, at the close of business on January 17, classified by type of agent, and (2) the number of such agents on selected dates since last May. 2. Or January 17 there were 18,118 agents other than most offices qualified to issue Series E savings bonds, an increase of 542 since January 10. 3. On January 17 there were 110 corporations qualified to issue Series E sevinus bonds on payroll ellotment plans in accordance with the instructions contained in your telegram of December 27 to the Federal Reserve Banks. There were only 12 corporatione SO qualified on January 10. Attachments 30 118 17 Jan 2,268 1,736 13,966 : 18,118 12 2,144 1942 17,140 35,258 16,883 34,459 16,883 34,031 16,614 31,847 16,429 29,897 59 1,529 13,832 17,576 : 10 - 3 28 Jan. : Jan. 2,064 1,368 January 20, 1942 13,688 17,148 35 723 30 1,729 12,746 15,233 : 27 389 1941 1,481 11,571 13,468 : 30 8 - 7 7 739 May Sept. : Nov. 7,676 8,430 15,812 24,242 to date Savings Bonds, May 7, 1941 Number of agents cunlified to issue Series E Type of agent Division of Research and Statistics. Grand total Total other than post offices 1 In accordance with telegram of December 27, 1941. Office of the Secretary of the Treasury, Post offices Credit unions Commercial and savings banks Building and loan associations All others Other corporations 1 Classification of the number or agents qualified to issue Series E Savings Bonds, on January 17, 1942 corpora- unions tions 1 : : : Banks Other Credit : : Building : and : loan :associa: tions All others Total 2 : : Corporations and Associations Federal Reserve District of Boston New York Philadelphia 831 198 162 1,171 241 336 826 99 67 Cleveland 1,161 339 245 Richmond 1,015 169 Atlanta 981 Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Sub-total Post Offices Grand Total 4 - 65 - 1 98 8 1 126 137 12 2,298 422 126 27 1,308 1,279 1,723 132 44 53 41 164 119 825 103 157 548 222 20 13,966 2,268 756 - - - 13,966 2,268 1,736 In accordance with telegram of December 27, 1941. 2 Except post offices. 12 - Office of the Secretary of the Treasury, Division of Research and Statistics. 1 - 1 - - - 4 1 2 6 1 3 118 30 1,203 1,752 1,057 1,746 1,291 1,256 2,877 1,486 1,375 2,012 1,086 977 18,118 17,140 118 30 35,258 January 20, 1942 U TREASURY DEPARTMENT 321 INTER OFFICE COMMUNICATION DATE JAN 20 1942 TO Secretary Morgenthau FROM Mr. Foley The following is typical of the way Foreign Funds Control is using censorship material: 1. Naval Censorship intercepted a cable from the French representative of Columbia Pictures to the New York offices of Columbia Pictures outlining a proposal to sell distribution rights for motion picture films to Italian distributors against payment of French francs. Censorship held the cable and sent a copy to Foreign Funds Control. 2. At the request of Foreign Funds Control the cable was released to Columbia Pictures Corporation and at the same time a Treasury representative was sent to investigate the transaction. 3. The investigator reported that he had discussed the matter with the foreign manager of Columbia Pictures. Columbia Pictures stated they would not consider any proposition to permit distribution of their pictures in Italy. 4. Naval Censorship intercepted and sent to Foreign Funds Control the following outgoing cable from Columbia Pictures to their French representative: "Not interested in this or any other proposition for sale of pictures in Italy. 9.17 399 UNITED STATES DEPARTMENT OF THE INTERIOR OFFICE OF THE SECRETARY WASHINGTON January 20, 1942 My dear Mr. Secretary: The following radio message for you, from the Honorable Joseph B. Poindexter, Governor of Hawaii, was received by this Department. The message was transmitted in code. Honolulu, 17th January, Nite. Regarding liquidation banks. question. Is it your policy in administering Sec. 5(b) of the Trading with The Enemy Act, as amended by the first Nar Powers Act, to seize (a) assets of Yokohama Specie Bank, which is a Japanese corporation, (b) assets of Sumitoto Bank Hawaiian corporation controlling stock owned by a Japanese cor- poration, or in the alternative, the sharee of stock owned by (1) the Japanese corporation, (2) resident aliens, (3) non-resident aliens, (c) assets of Pacific Bank Howalien corporation, controlling stock owned by alien residents of Hawaii, or alternative, the shares of stock owned (2) non-resident aliens by (1) resident aliens (3) Japanese domiciliories. question two. Are reasininc sections of Trading with The Enemy Act other than Sec. 5(b) to be put into effect, or will all action be Laken under Sec. 5(b) as amended. Request early reply. (Signed) Poindexter. 83 11 Sincerely yours, (a) John J. Dempsey S S . Henry Morgenthau, Jr., Secretary of the Treasury. Under Secretary 323 Receipt aug to prope photosted to Reference: Defense Aid Allocation No. 529 OFFICE OF LEND-LEASE ADMINISTRATION FIVE.FIETEEN 22d. STREET NW. WASHINGTON, D. C. My dear Mr. Secretary: Reference is made to my letter dated December 27th, 1941, in which it is provided that funds authorized in Defense Aid Allocation No. 529 may be used for requisitions filed by the Union of Soviet Socialist Republics only after the following condition is met: "Consultation shall have been had with the Division for Soviet Supply of this office as to the cost of supplying the requested item." Representatives of the Government of the Union of Soviet Socialist Republics have indicated that it will no longer be necessary to consult with this office before commitments under requisitions are made. Accordingly, it will not be necessary to adhere to the above provision in the future. Sincerely yours, Deputy Lend-Lease Administrator The Honorable The Secretary of the Treasury 325 BY Safe Hand BRITISH EMBASSY, WASHINGTON, D.C., No. BIN 63181 January 20th, 1942. SECRET Dear Dietrich, I an enclosing 0 photostatic copy of a communication dated November 18th, 1941 from the Assistant Manager of the Allgemeine Finenzierungs-Gesellscheft M.B.H. of Russelsheim A.K., Germany (a subsidiary of General Motors) to Mr. C.G. Stradella, Vice President of General Motors Acceptance Corporation, New York City. This deals with the debt-clearing trend in Germany since 1930 and will probably be of interest to you. I am sending two copies to Mr. Pehle direct. The document was condemned by our censorship, 80 that it will not have reached the addressee unless a separate example went by another route. Yours sincerely, /s/ H. W. Auburn Mr. Frank Dietrich, U.S. Treasury Department, Stabilization office, Room 279, Washington, D.C. Copy:vw:1-21-42 ALLGEMEINE CINANZIERUNGS. GESELLSCHAFT M.B.H. RUSSELSHEIM A.M. A 5110 FINANZALCO INTER-ORGANIZATION MEMORANDUM No. 159 TO: ST. C. C. Straielle, Vice President FROM A- Heren't, Asst. Manager Trend since 1930. SUBJECT ADDRESS Executive offset ADDRESS Russelsgeis a/m DATE November 18, 1941. debt repayments 1412 in he period of stagnation the clearing process both ustry and general economy had up to 1932-33 already led to is halt of incurring new indebtedness and a reduction of O. indectedness. This general redemption of debto oontine afterwards, but no longer because of stagnation or H. NON of turnovers, but because the revival of production was initiated by the State respectively by its orders and credits. In some instances helped also currency depreciations, if exterior loans were concerned. Business required, true enough, more funds again, but it could be taken from existing own means or out of newly built up money capital derived from growing business results. The picture corresponded entirely to expectation: an upward trend sustained by public orders and accompanied by a growing public indebted- ness necessarily entailed in the rest of industry a liquidiantion and with it a remission or abatement of credit and capital requirements by the industry. with the beginning of full occup ation towards the end of 1937 and middle of 1938, that is to say, with the increasing share of public orders and with & further recession of other investment problems and of consumption, liquidity was increasing still further and debt-clearing tendencies became still more pronounced. A certain revival of private capital flotation after relaxation of issue blooking in 1939 showed, how easily the capital market was now able to carry or absorb beside the Reich's issues also the increased offers of other securities. However, the industrial capital issues did not develop into a great movement, however appreciable the age regate amounts were. On balance P however, the tendency to clear debts in industry and other provinces of economy con- tinued even at that time. According to industrial balance-sheeta loan debts receded from 1932 to 1939 by almost one-third of the level then reached. This picture is being confirmed by the official statistics, which showed for end of 1939 & circulation of BOOO ALLGEMEINE FINANZIERUNGS.G RUSSELSHEIM 5110 industrial and similar loans amounting to KM 3.2 billion at compared billion 11 end of 1932 and almost 5 billion end of 1930. The short-term debts show according to these industrial balance-sheeta referred to above, in the same period, somewhat more than double the amount, though in small amounts, but more characteristic may be considered that the bank and bill debts among them were 1939 still a little lower than in 1932. This general liquidity increased with the beginning and continu- ation of the war still further. Still more than formerly re- ceded opposite urgend war requirements the application of freed or newly built up money capital in the entire national economy. The amounts remarkable if measured by the annual national income. which in the course of development are being released by the renunciation of consumers, by consumption of property and the omission of new investments did by no means appear now to their full ex- tent as liquidity, since loans and taxes (also tax transfers to municipalities) skimmed off means reaching a considerable amount in favor of the treasury. It may, however, he supposed that the additions of money capital have always exceeded the skimmings-off. Releases from working and investment capital may at first have been larger than later on, whereas the money-capital formation flowing from new business results continued and perhaps even increased in many a quarter. It appears, on the whole, certain that the liquidity of single industrial lines, of undertakings and corporations, but also of individual investors, accrued up to date, has in the aggregate reached a very considerable volume, which is increasing still. A growing and in the end extremely strong investment trend made itself felt whereby the desire to keep the acquired readiness to pay by the selection of liquid but withal interest-bearing investments, may frequently have turned the scales. This was especially felt on the security markets which, so far as securities of the Reich were concerned, corresponded to the financial requirements of the Reich, but for the rest it led to steadily increasing tensions between the available material of securities and the investment-seeking money cap- ital. In proportion, however, as one investment sector after another was subject to restriction, control and price stop, in which, therefore, the investment possibilities dwindled away, the inolin- ation to use idle money capital for the redemption of debts was bound to grow stronger. One may at present speak of a growing capacity and inclination spread over the whole economic field to redeem debts. The institutions granting credit on real estate, but other institutions, too, notice this trend very plainly with their private but perhaps also with their public loan debtors. The investors MEINE FINANZIERUNGS-G.M.BH RUSSELSHEIM A5110 learn of it by the notices not coupled with offers of new securities given by investment bankers, industries and, also, towns. But the same may be observed in private money circulation,-too. To such open manifestations of the repayment trend of many debtora comes frequently a hidden but presumably also very significant one : some issuers have repurchased their own certificates of indebtedness and as a consequence, certain circulating figures appearing in balance-sheeta and statistics may to a certain de- gree at present just have a formal importance only. The inclination to reduce debts or to redeem them entirely will in all those cases be particularly strong in which the debt does no longer appear economically practical. causing but interest burdens, or in which the imagination works that big cash holdings might attract the treasury or other quarters. Debtors counting on the other hand on a quick reapplication of accumulated money capital, will be more reserved and desirous of maintaining their liquidity to that extent. The thought may also play a part here that on a controlled capital market there night possibly not as a matter of course be new money available and that it is preferable to maintain a high readiness to pay: some stress had been placed on such preparations now and then. Practically speaking, therefore, it may be anid that the capacity to redeem debts is on the whole very much greater than this seems to be the case at present. Oftentizes the endeavours of the creditors to maintain the interest-bearing indebtedness will becontributive to the continuation of the debt contracted which, judged by the paying ability of the debtors, did not need to be continued: a new accommodation as to the interest rate will in most cases be required, though. The impression is no doubt correct that in spite of continued and reinforced repayments of debts the liquidity has in general not suffered in any way. In former economic cycles the readiness of undertakings to pay had, above all, the aim and objective to BAKE quick engagements possible as soon as new promising investment possibilities opened up, In B controled and fully working economy the application of ready means does not depend an the changing possibilities of capital markets and the cyclical fluctuations of the aggregate investment, but on the objectives the State aims at, and on their magnitude. Capital other than cash is the first prerequisite, the money capital is being directed to the place where it is needed most. About B year ago some remarks of the Minister of Economy shed some light on the conditions under such economic system. He said that in shifting over to peace economy there will not fitfully occur a great money and credit requirement, the less so as stocks of goods which have to be filled up, will be available by and by only. Besides, the stream of money and capital -3- A5110 would even after the war be directed into those productive channels which are considered most important, for after the war, too, problems will rank in order of priority and sagnitude. It is quite clear that under such conditions neither existing nor wanting liquidity gives advantages or disadvantages to enterprises. There is, moreover, A shortage of money capital hardly to be expected, which was experienced in the last post-war period and hence still in the memory of some people. The capital requirement of industry and of all other economic sectors, which ranked second in this respect during the war, will, true enough, be great. Such require- ments can, however, only be realised in proportion as public claims respectively requirements rank behind the provision or supply of real capital. All experiences made with monetary policies have, besides, revealed that there is no reason for a shortage of money capital. Even in countries upholding the liberal trend of thought it is considered possible to main- tain the phase of plenty and cheap money, how such more will a country like Germany with a public, economic control know how to manage the monetary instrument in the direction of adequate provision with money capital. In such an economic system the individual-economie readiness to pay diminishes in importance, taking of course, as herotofore, other standards for banks than for industrial undertaking. Remark R. A. Berendt Aest. Manager 00 M.O. 330 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 20, 1942 TO Mr. Coe FROM Mr. Hoflich Subject: British Government Finance. #Mon Some of the interesting points made by the Chancellor of the Exchequer in the House of Commons, December 16, 1942, on the occasion of the fourth $4,000 million vote of credit for 1941-42: 1. The expenditures on war services during the present fiscal year probably will reach $16,000 million, as compared with the Budget estimate of $15,200 million. 2. Recent war expenditures have been at the rate of nearly $332 million a week, or 847 million a day. 3. Tax revenues for the year will substantially exceed the Budget estimates. 4. Proof of the success of the Government in stabilizing the British economy is found in (a) the low interest rate on Government borrowing, (b) the steadiness of living costs, and (c) the maintenance of peace-time social services. 5. The details of the tax anticipation bona scheme will be announced soon. (Embassy Despatch No. 2407, London, December 23, 1942.) 331Duplicate (For Treasury) TREASURY LONDON, ENGLAND, December 23, 1941 No. 2407 SUBJECT: Fourth £1,000 Million Vote of Credit and the Chancellor of the Exchequer's Statement on Expenditure, Revenue, Savings and the Danger of Inflation AIR POUCH The Honorable The Secretary of State, Washington. Sir: I have the honor to refer to the Embassy's despatch No. 1716, dated October 3, 1941, which dealt fiscal with the third £1,000 million Vote of Credit for the 1941-42, and the statement made by the Chancellor to of year the Exchequer on the financing of the war up Spetember 30, 1941. On December 16 the Chancellor of the Exchequer a statement in the House of Commons on the made Vote of Credit for £1,000 million, which was on that day. A clipping from comprising the statement debated 1849-1880) Fourth and Hansard subsequent (Cols. debate, is enclosed. Sir Kingsley Wood stated that £252 million million on December 13 out of the 23,000 voted and that this sum would already until theextension end of the financial year, though of remained probably suffice that "with the considerable the he added the Far East it is obviously less practicable war to advise into just how long the new Vote will last. In accordance with the usual practice when rea Vote of Credit, Sir Kingsley Wood gave questing on the current rate of expenditure the present out some figures Vote, though his information in of instance this was not as full as on former occasions. at the "We have recently been spending He said: rate -2- rate of nearly £83 million per week, or £11.75 milthe Fighting Services and £2.75 million to Miscellaneous War Services" lion a day. Of that £9 million was attributable to These figures may be compared with those con- tained in Table No. 1 in the despatch above referred to on page 4 of which were tabulated the Chancellor of the Exchequer's previous figures with earlier comparisons. The rate of expenditure from the Vote of Credit for the first five weeks ended September 27 was £11 million, as compared with £11.75 million which he stated was the rate at which we have recently been spending. The figure attributable to the Fighting Services remained at £9 million, the increase over the September figure being apparently due to expenditure on "Miscellaneous War Services" Since Sir Kingsley Wood did not specify the period during which this rate of expenditure was being met and gave no figure of total expenditure (that 18 including non-war Civil Services, and Debt Charges) the comparison with previous figures can be carried no further. with regard to the expenditure in the United States on the purchase of goods not covered by the Lease-Lend arrangements, the Chancellor of the Exchequer stated that his Budget-speech figure of £3,500 million excluded such payments but that this exclusion was made because he was then "concerned primarily with such of our expenditure as would require domestic finance. He stated, however, that this expenditure must be charged to the Vote of Credit and he estimated it tentatively at about £300 million for the whole fiscal year, adding that the £4,000 million expenditure on war services during the year, as compared with the £3,800 million estimated at the time of the Budget, should not be assumed as increasing the so-called "gap" by the same amount, because other factors, such as expenditure out of overseas resources, domestic capital resources and extra-budgetary funds, as well as the apparent under-estimate of revenue receipts, must be taken into account. "It would appear likely that the final balance to be met from new savings may be somewhat greater than I estimated at the time of the Budget, but it seems unlikely that the difference will be much in relation to the dimensions of the figures involved." The Chancellor of the Exchequer devoted the remainder of his statement to a discussion of the importance of savings and the necessity of avoiding inflation, which he said is not "an economists' bogey" but 'a danger which if allowed to develop may threaten the very basis of the material welfare and the peace of mind of us all. If it does that it will also threaten the effectiveness of the war effort. with -3- with regard to savings, he said that he would not quote figures because there are as yet no statistics availableeffort which show the whole of the present great in all published figures of "small savings' on the one hand, and of the sale of National War Bonds and Savings Bonds on the other hand, giving not a true picture of the whole of savings, since the former figures do not represent all of the individual saving which has been made, while the latter figure includes much that does not represent savings out of current income. He said, "We cannot today publish figures of all the forms of saving, although I hope later it will be possible to furnish some estimate. Here the Chancellor of the Exchequer was doubtless referring to an investiga- tion recently undertaken by the Central Statistical Office with a view to obtaining data for calculating how much of the increase in bank deposits is a counter-part of genuine savings. This investigation is being made through a sample analysis of the deposits of the Clearing Banks to ascertain the changes in personal deposits over the twelve months ending June 30, 1941. It will be remembered that the figure for personal savings contained in the "Analysis of the Sources of War Finance" published in the White Paper at the time of the Budget (Cmd. 6261, forwarded with the Embassy's despatch No. 390, dated April 30, 1941) was calculated by deduction. Sir Kingsley Wood went on to say that he was sure everyone would agree that the total amount of savings so far achieved, particularly in small sums, has been impressive and has exceeded what most people thought possible, but he added that a ventur- greater and more intensive effort is necessary. He ed a rough estimate that about one third of the population are saving on a scale fully adequate, another third saving on a moderately reasonable scale which might be increased, and a third saving that either nothing or very small sums. He urged all should increase their efforts so that the workers' standard of living "will not be filched away from them by rising prices. with regard to revenue, the Chancellor of the said that, thanks mainly to the buoyancy (chiefly of Exchequer Customs (chiefly on tobacco) and Excise that income the Purchase Tax), and also to the fact in surtax and Excess Profits Tax are exceed coming the tax, the revenue would substantially the Budget well, estimate, but he could not forecast time. magnitude of the excess at the present Sir Kingsley Wood then went on to outline at a security which can be times taken up by newspecial amounts and convenient tax- convenient which can be tendered for certain income tax payers and namely, Income Tax (other than taken payments, salaries and wages, which 18 now salary at tax source on from weekly wage and monthly payments 334 payments), Surtax, Excess Profits Tax and National Defence Contribution, Land Tax and War Damage Con- tributions. The security is to be issued in units of 25 and multiples thereof. Full details of this Sir the issue were published on December 23rd and are being formariou cover a shortage to inflation, the only on relies for this system of controls at reasonable measures would excess were not restricted. success of the various of interest at borrow, Kingsley Emphasizing purpose. instrument fail which of unies prices, if goods and measures Wood He the the He rationing cited the Government noted in mentioned but which necessity war-time adopted, of as added that purchasing a the of separate proof had the Government taxation that essential leading the of been elaborate of preventing low these despatch. power the able is rate goods not to the maintenance of peace-time social services and the steadiness of the cost of living. Though thus emphasizing the importance of the stability of the cost of living index, it is notable that the Chancellor of the Exchequer made no refer- ence in his speech to the question of wages. It will be remembered that in his Budget speech he stated that he was setting aside an increased sum for subsidizing the prices of essential consumption goods in order to stabilize the cost of living with the hope that this would make it possible to hold the wages position about where it is". Though so far this policy has been successful in holding the cost of living index steady, the hopes that this would result in stability of wages have not been fulfilled. Since Sir Kingsley Wood's Budget speech in April, wage increases have been granted adding some £80 millions to the annual national wages bill (not taking into account overtime and the absorption of new workers into industry). Moreover, some £50 million of these increases have taken place since the issuance of the Government's White Paper on Price Stabilization in July, (forwarded with the Embassy's despatch No. 1077 dated July 30, 1941). The most recent increases of importance, namely those to agricultural workers (increase of 12s per week from 48a to 60s) and to engineering and shipbuilders (5s per week) are estimated as raising the national wages bill by some £40 million per the increase in agricultura wages having, annum, a direct effect on the food price situa- of moreover, These two particular increases, and some tion. earlier ones, are widely regarded as justified in the view of the numerous anomalies in wage rates different in industries. Nevertheless, the inevitability of repercussions from each wage rise are again giving rise to anxiety in many quarters. Though 335 -5- Though the Chancellor of the Exchequer omitted to mention the wage problem when discussing the dangers of inflation, speakers in the subsequent debate did not fail to point out the relation of wages to the problem. For example, Mr. Graham White (Liberal) referred to the many directions where increases in reluneration are being demanded which he considered very important, and said: (Col. 1864 in enclosed extract from Hansard) "These great matters which will effect the whole financial policy of this country in the midst of this war are not determined by the Government, but are left to tribunals, outside bodies, which are set up for other purposes. It is not right that these matters, which might carry us, if the circum- stances were such that they got out of control, into a state of financial uncertainty, with the possibilities of trouble and disaster, should be left to these bodies The question I want to ask is whether it is not about time that steps were taken to reach an agreement on what is necessary to prevent inflation. Dr. Russell Thomas (Liberal National) after the usefulness of direct controls limiting noting the quantities of consumption goods, said: (Cols. 1869-70) "Although the right hon. Gentleman de- plored the fact that people had too much purchasing power, there are increases of wages going on almost weekly. I stated in a supplementary question the other day that the bodies which get these increased wages are those belonging to powerful interests, are able to get more of goods limited and they quantity available. of of the But there are also large numbers people who cannot save at all, who are the existence line and no more. on They have no one whatever to look after in interests and they cannot come their and get hold of more of these very these limit- ed goods. It is high time that were considered with greater matters severity and sternness. The Government of to consider whether some sort which wage has could not be hammered conditions out policy would help Ittowould stabilise the we through. present are enormous going difficulties, but I think it should be borne in mind." Mr. -6- Mr. Henderson Stewart (National Liberal) also expressed anxiety as to the "111 balance in wages which 18 now appearing* and asserted that the problem must be dealt with by the Government (Col. 1874 - Hansard) while Mr. Loftus (Conservative) advocated a system along the lines of that recently adopted in Canada (Cole. 1670-72). Though such statements on the wages problem have been frequent since the outbreak of war, they are quoted here because for a time after the introduction of the Budget last April, they were less frequent, while of late there has been a recrudescense of such expressions of anxiety not only in Parliament, but in the press. It 18 notable that in replying to the debate, the Financial Secretary to the Treasury, like the Chancellor of the Exchequer in opening it, made no reference to the wages problem. However, on the following day, when the pay of the fighting services was debated in the House of Commons, such emphasis was placed on the growing discrepancy between soldiers' pay and the wages of civilian workers, that the Lord Privy Seal stated that "The Government have this matter under their consideration", and promised that the Government "will go very carefully through this Debate, and every suggestion will be examined, including the other suggestion which has been put forward, one which has already been put forward by other people and been examined, and will be examined again, namely, the question of the equality of the man who has served in the Fighting Forces and the man who has served in some other form of National Service at the end of the war in respect of their savings. It is a point well worth looking into. (The debate of December 17th is being forwarded under cover of a separate despatch in which the various views are summarized.) This statement, though perhaps mistakenly, has been taken by the financial press as a promise that a general wages policy is to receive the Government's consideration in the near future. Respectfully yours, For the Ambassador: Harold Shantz First Secretary of Embassy Enclosures: No. 1. Clipping from Hansard of December 16, 1941, Columns 1849-1880. KAHE/EWH COPY 74 MED Enclosure No 1 to despatch No 2407of Dec. 23,1941 from the Embassy at London, England 337 SOURCE: PARLIAMENTARY DEBATES. House US Commons, 16 December 1941. London. Cols. 1849-1880. 1849 Supply: Committee- 16 DECEMBER 1941 Vote of Credit 1850 of Credit expenditure and the figure of ORDERS OF THE DAY. £3,500,000,000 which I assumed for the purposes of my Budget speech. The 1 Budget figure of £3,500,000,000 excluded SUPPLY. whatever might have to be spent in the United States on the purchase of goods Considered in Committee not covered by the Lease-Lend Act [Colonel CLIFTON BROWN in the Chair.] SUPPLEMENTARY VOTE OF CREDIT, 1941 arrangements. This exclusion was made, as the Committee will appreciate, because I was then concerned primarily with such of our expenditure as would require EXPENDITURE ARISING OUT OF THE WAR. domestic finance. The expenditure in the United States must, however, be charged to the Vote of Credit, and may be estied-though the estimate must necessarily be very tentative at this time of the year- at about £300,000,000 for the whole year. If therefore we seem likely to spend about £4,000,000,000 on war services during the year, that figure must be compared with an estimate of something like £3,800,000,000 at the time of the Budget. In other words, our total expenditure may be some £200,000,000 greater than was anticipated at the time of the Budget. It should not, however, be assumed that the so-called gap has necessarily been increased by £200,000,000. We have to take into account a number of other important factors before the balance to be met out of new savings can be calculated, in particular the amount of our expenditure financed overseas, the amount provided from domestic capital sources, from extra-Budgetary sources and the out-turn Motion made, and Question pr That a Supplementary sum, not exceeding £1,000,000,000, be granted to His Majurcy towards defraying the expenses which may be incurred during the year ending on the 31st day of March. 1942. for general Navy, Army and Air Services and for the Ministry of Supply in so far as specific provision is not made therefor by Parliament for securing the public safety, the defence of the realm the maintenance of public order and the efficient prosecution of the war, for maintaining supplies and services essential to the life of the community and generally for all expenses, beyond those provided for in the ordinary Grants of Parliament, arising out of the existence of a state of war. The Chancellor of the Exchequer (Sir Kingsley Wood): This is the fourth occasion on which I have had to ask the Committee to approve a Vote of Credit of £1,000,000,000 for the financial year. Out of the £3,000,000,000 already voted, we had about £252,000,000 left on 13th December and if expenditure continues at the same rate as in recent weeks, that balance, together with the Vote now asked for, will suffice until approximately the of the Revenue compared with the Budgetary estimates. It would appear likely that the final balance to be met from new savings may be somewhat end of the financial year. Even in the circumstances of, say, a fortnight ago, greater than I estimated at the time of the however, it would not have been possible Budget, but it seems unlikely that the differen will be large in relation to the for me to estimate fully the rate of expenditure likely to obtain in the next three and a half months With the considerable dimensions of the figures involved On the domestic side of our finance, namely, revenue and savings, I would first like to say a few words on the vital ques- the Committee just how long the new Vote tion of savings. On this occasion I will not quote figures to the Committee; will last If further sums are required I shall have to come to the Committee again in March, and I know that such have done it so frequently before. In the first place, no figures are yet available which show the whole of our present great demands will be readily granted The Committee will no doubt desire to be informed of the analysis of our current war expenditure We have recently been spending at the rate of nearly a £83,000,000 a week, or £11,750,000 day. Of that, £0,000,000 was attributable to the Fighting Services and £2,750,000 to miscellaneous war services. When the last Vote of Credit was before the House, I explained the relation between our Vote savings effort-because that is how we must regard it-in all its forms. It is perfectly true that we have figures which show the rate at which the smaller savings of individuals are being put, for instance, into Savings Certificates and the savings banks. We have also figures for investments in the larger securities, National War Bonds and Savings Bonds, not all of 1 extension of the war into the Far East. it is obviously less practicable to advise 1851 Supply: Committee- HOUSE U- [Sir K. Wood.] which, of course, will represent savings out of current income. On the other hand, it is important to note that much individual saving goes on which is not necessarily lent to the Government CUSISIONS Vote of Credit 1852 Sir K. Wood: I do not wish to particu- larise. I would appeal to all who in- fluence public opinion-Members of this Committee, leaders in our local life, employers and trade union representatives- to continue to do their utmost to drive through any of these securities, large or small. Some takes the form of regular home this paramount need for saving and payments to insurance companies or build- our war effort to be the effort of a people united in the firm will to work and produce to their utmost, secure in the knowledge that while they do so their standard ing societies, and may be lent to the Government by those institutions. Other savings accumulate in the banks, and help the banks to lend to the Government. lending to our country. We all want as I have already said, I wish they did of living will not be filched away from them by rising prices. Inflation is not an economists bogy; it is a danger which, if not, as notes in tea-pots, under mattresses, allowed to develop, may threaten the very Still other savings may remain, although, and in all other kinds of receptacles. We cannot to-day, put figures of all these forms of saving, though I hope later it will be possible to furnish the Committee with some estimate. But I think everyone will agree that the total amount of savings which has so far been achieved, and particularly in small sums, has been very impressive, and far greater than many at one time thought likely or possi- ble. But it holds good of savings, as it does for the battlefield and the factory, that the only thing we can foretell with certainty is that still greater and more in- tensive effort will be necessary before victory is achieved, and that the effort will not be the country's best until every- one-I emphasise that, until everyonepulls his or her weight. And we have not yet reached that high objective. Out of many present incomes, and particularly out of the greatly increased incomes which are now being enjoyed by large numbers of our people, a great deal more can undoubtedly be saved and lent to the State. I have heard it said, for example, that perhaps a third of our are on a that another are on people adequate, saving third scale scale that but saving is might fully a moderately reasonable well save more. and that a third are either not saving at all or saving very small sums indeed. Whether these precise proportions are correct is, no doubt, a matter of opinion, but the direct evidence of observers does confirm that there are still large numbers who are not sharing in, or who are taking an inadequate share in, the great savings effort which their fellow citizens are making. Mr. Cove (Aberavon): What sections of the community? basis of the material welfare and the peace of mind of all of us. If it does that, it will also threaten the effectiveness of the war effort. To help to keep such consequences at bay is surely worth the really small effort, but a really important and a vital one, involved in refraining from spending what it is not absolutely necessary to spend. In this connection. I would again venture to refer the Committee to two matters I have so often emphasised. Our total expenditure during this war has now reached the colossal figure of some £8,300,000,000. We have a long and a hard war before us. It is more imperative than ever. first, that all waste and extravagance should be avoided, and, secondly, that all plans and projects not directly connected with the war effort. but involving appreciable extension of Government expenditure, should be considered in relation to the vital necessity of husbanding our re- sources and maintaining our financial strength. As regards revenue. I cannot forecast the year's out-turn, but it is clear that, thanks mainly to the buoyancy of the Customs and Excise, the Budget Estimates will be appreciably exceeded. On the Customs side, the bulk of the increase so far has been provided by the Tobacco Duties, while as regards Excise Duties, the increase is due mainly to the Purchase Tax and to the Beer Duties, though the Spirit Duties and Entertainments Tax have also helped that increase over the estimate. I am glad to inform the Committee that the main Inland Revenue taxes are also doing well, but as the bulk of Income Tax and Surtax is payable later in the year, it is too early for me to venture on a prophecy under those Samily CountRies 1853 16 DECEMBER heads, or in relation to Excess Profits Tax. In connection with direct taxation, I have an announcement to make which I think will interest the Committee. High taxation means that extra care has to be exercised in making provision against the time when it falls due. It also means that in so far as such provision is made gradually in advance, large sums of money accumulate in the banks and are in due course paid to the Treasury, much of them in the last quarter of the finan- 1054 again to speak of the vital part which taxation plays in our war economy. Taxation to-day is such as to demand many sacrifices, but I know thai these will be willingly borne. From the highest to the lowest incomes, we shall be taking those contributions which will certainly bring home to our people more than ever the financial implications of our stupendous whether I could not offer some machinery which would help taxpayers who have material sums to meet by direct payment to set aside those sums as their profits or income accrue. Some such assistance would be specially helpful, I think. to companies liable to Excess Profits Tax. It is, at the same time, desirable. if possible, to avoid the piling up of tax moneys in the banks, and to encourage their more even flow into the Exchequer. With this triple object in view, I have decided to issue a new special security which can be taken up for such amounts and at such times as any taxpayer finds most con- venient. He will be able to tender i during a limited period in payment of certain taxes, and if it is so tendered, it will earn interest The taxes in question will be Income Tax (other than Schedule E). Surtax. National Defence Contributions. Excess Profits Tax, Land Tax and War Damage Contributions. Mr. Graham White (Birkenhead, East): Will this security be issued at a discount? Sir K. Wood: I will say a word about that later. Schedule E tax will not enter into the scheme in view of the existing arrangements for deduction of Income Tax at the source from salaries and wages. The security will be issued in units of £25 and multiples thereof. The scheme is practically complete and I hope to announce full details before the end of the month. This will answer the query of my hon. Friend the Member for East Birkenhead (Mr. Graham White). From the many requests which I have had and the communications which I have re- I have confidence that the for a ease viding for the taxation now have to bear and will also be of considerable advantage to the State. Foin of Credit As we are approaching the period when the major part of the Income Tax will be collected, it is perhaps appropriate for me cial year. I have been considering ceived, scheme payers, will, definitely every large the which body task they of of pro- tax- 1941 war effort. Some millions of wageearners will soon be paying Income Tax for the first time. Others of them will, like all other Income-Tax payers, be paying more this year than last. The neces- sity is plain. Our war taxation has not been imposed for its own sake. It is an integral part of the whole plan by which the country has been put on a war footing. War conditions necessarily mean that the money incomes of the community largely exceed the supply of goods and services on which those incomes can be spent. The greater our success in directing an ever-increasing proportion of our produc- tive power to the war effort, the greater does that excess become, or, more accur- ately, the greater it would become if it were not corrected by, among other things, increased taxation. High taxation is indispensable in order to prevent the shortage of goods in war time leading to inflation. It is not the only instrument on which we rely for this purpose. As the Committee is aware, we continue to take many steps through an elaborate system of controls and rationing to see that the limited supplies of essential goods are distributed fairly and made available at reasonable prices. But I would remind my hon. Friends that these measures will all fail to achieve their purpose if we neglect, on the financial side, to correct the excess of purchasing power. That we do, first by severe taxation, and, secondly, by the savings movement, and as the momentum of war production has increased, we have been bound to inten- sify our efforts in both those directions. Each of them has greatly contributed to the fact that in the midst of all our difficulties, we have been able, so far, to keep our finances and general economy on an even keel. The most striking proofs of this are to be seen in the low rate of interest at which we have borrowed, in our 1855 Supply: Committee- HOUSE OF COMMONS [Sir K. Wood.] maintenance of peace-time social services and in the steadiness of the cost of living. Everyone in the country has benefited from these achievements, but just as the price of our liberty is eternal vigilance, so the price of our economic security is unrelenting sacrifice. There can be no faltering, either in our ready acceptance of taxation or in our firm determination to save. We may have little choice in the payment of our taxes, but the decision whether to save or spend is mainly ours alone, and in our private lives there is probably no daily question in which the taking of the right decision means so much for the welfare of our fellowcitizens, the maintenance of our firm financial front and the ultimate triumph of our cause. Mr. Pethick-Lawrence (Edinburgh, East): The Chancellor of the Exchequer has, with lucidity and comprehensiveness, put before us the financial position of the country to-day, and in the brief remarks which I propose to address to the Committee I should like, in the first place, to welcome most heartily the new scheme which the right hon. Gentleman has adumbrated. I think that when and on amounts have to be paid, in taxation, of such dimensions as those now being demanded, both in the figures themselves which are system great in of they their payment proportion imposed, may to the the present existing incomes difficulties, and a scheme of the kind which the Chancellor of the Exchequer is now proposing, by which these amounts will, in effect, be payable in instalments should be a relief and should prove of great advantage both to the taxpayer and the Revenue. Of course, we shall await the details and in particular the rate of discount if there to to be any, to before we can express final approval, but it to me that the scheme is one be welcome and I almost say, am which might seems will overdue, Gentleman which and I is, has glad that the right hon. taken a step in that direction. There is no doubt whatever that these decisions which the House of Commons makes from time to time to put another to the for the war are of supreme importance, take them now so much for granted that it is not necessary to go into great detail Government £1,000,000,000 prosecution credit of but of the the we Vote of Credit 1846 in Debate in this Chamber. There are, however, one or two things which may be said with advantage. In the first place, with regard to the prospects for the future and the question of how much the Chancellor will be called on to pay out during the remainder of the financial year, I notice that the right hon. Gentleman was somewhat cautious. I do not wonder that that should be so, in view of what is happening not only in those Continents where war had already been raging, but in those in which it has now started to rage and may rage in the future. We now see nearly the whole world brought into the conflict. The areas which are still outside it are so small that we may speak of the war to-day as a world war in the literal sense. The public, I think, want to know how far the new developments are likely to increase the actual war costs. It seems to me that there are three possible directions in which the actual cost of war might be increased. We might be involved in additional direct expenditure. We might be compelled to make good a certain withdrawal of help from the United States. We might be compelled to in- crease our aid to Russia, to make up for help which in other ways might be with- drawn. I gather from what the Chancellor of the Exchequer has said, that although in one or in all of these elements the cost might be augmented, he does not seriously expect that it will be on a very large scale, comparatively to the vast expenditure to which we are are already committed That may seem strange to some people, and I think to the country generally, because this war in the East is not a little matter-it may be a very large matter. I suppose that the real answer is that when you are engaged in total war, the fact that your total war is obliged to take place in more than two continents does not necessarily, and, indeed, cannot, add very much to your total war effort or your total war expenditure. I suppose we may take it as more or less true, therefore, that our war expenditure, short of any inflationary process, if it has not exactly reached what you might call a peak, has, at any rate, reached nearly the maximum which it will reach during the remaining period. We have to face the fact that, for whatever time the war continues, somewhat in excess of £4,000,000,000 a year is the sum that the country will have to face. Supply: Committee- 1857 16 DECEMBER I had already looked at the progress of Revenue; and my impression was confirmed by what the Chancellor has said, that we may certainly hope to reach the estimated Revenue and probably some quite useful and substantial additions thereto. But that will not take away in any degree the tremendous importance of saving, because, if once saving were inade- quate to fill the gap between taxation and Revenue, inflation would begin, with disastrous consequences. I would like to join my voice with that of the Chancellor of the Exchequer in urging that everything possible be done to avoid inflation. The Chancellor of the Exchequer made some interesting observations with regard to the fact that the public as a whole were divided between those who were doing their best and really saving manfully, those who were saving half-heartedly, and those who were not doing it at all. My hon. Friend the Member for Aberavon (Mr. Cove) asked how that was divided up between the different sections of the community. I have been thinking about that, not only while the Chancellor was speak- ing, even my classes very conclusion but of the before I community think he that began. except it affects This the is all poor, who cannot in any circumstances save with advantage either to themselves or to the community, because if they were to try to do so, on their very meagre incomes, they would fall so far below the poverty line that not only would they suffer themselves, but the community would suffer through their malnutrition. Let me begin with the well-to-do. When the war began, and Lord Simon, who was then Chancellor of the Exchequer, brought in his first Budget, I was of opinion that the taxation which he imposed was as much as could be borne in the earlier stages, because I knew quite well that, particularly among the very well-to-do, if there were to be any very large burden of new taxes imposed, they could not in a short period so readjust their living economy as to pay those taxes out of income. Since then, two and a quarter years have gone by, the now very of expenses the well-to-do to and different. I think Many consisted position the in is payments of or have very been their called staffs. up Many of those gone staffs into muni- have tions work, and the cost of paying their 1941 Vote of Credit 1858 wages has been relieved In the second place, it has been possible to cut down commitments in various other ways. Many of the well-to-do who at the beginning of the war could not pay their way except by withdrawing capital- which is, of course, negative ought now to have so far pulled in their method of life that they can not only meet the whole of their out after the save. not save pay the expenditure whole of the of very but their have heavy income, taxation and to imposed paying Some upon may all them, that, have but money just money to to extent that they are able, if not to save, at any rate to live within their income, they are making a considerable contri- bution to the war. If they sell their capital to pay their outgoings, thinking that it does not matter, they are doing a serious injury to the war effort, because not only are they not saving, but they are increasing the gap by the negative saving which comes from expenditure on current necessities out of capital. When we come to what are called the middle income class, there it must be, I think, largely a matter of one individual against another. There are some individuals in that section of income range who have had their incomes very seriously diminished, quite apart from the effect of taxation, and when increased rates of taxation have fallen upon them as well it has become impossible for them to save. On the other hand, some members of that class may be retaining their full income, or even increasing it. They can meet their taxes, and they have been able very be considerably; to cut down therefore, their expenditure they ought to able to hand over substantial sums to the Chancellor of the Exchequer. Then we come to the manual working class-those above the poverty line, whom I have already written out of the picture. Here again, there are great differences between one family and another. I would say of these, as of the poorest section, that to sacrifice the stan- dard of life which makes for the full health and efficiency of themselves and their families would be a grave blunder, which would injure not only them but the country which they have to serve, If they took it from their children, again, they would be injuring the future of the country for which this war, above every- thing, is being conducted But, on the 1859 Supply: Committee- HOUSE OF COMMONS [Mr. Pethick-Lawrence.] there well families other hand,who those may be in certain not in most beneficial that income will which be they get regard to the the the State. extra way and therefore, in that class, as well as in the others, this admonition to save all that is possible over and above what is really needed for efficient and healthy life is applicable. That is my answer to my hon. Friend the Member for Aberavon (Mr. Cove). It depends upon circumstances. I think that in every class of the community there are many people who do not save but who answer the What the would remains could be to the and addition shouldto save. question, savings It totals only if all those who could save did so on the scale that the most worthy are already moment like doing? As far as I can see the are double the there savings would which be something being at put aside at the present time, and that would be amply sufficient to make sure of non- inflation. I do not think that we ought to rest content until every individual who can save to his own advantage and that of the community comes into line with those who are so faithfully bearing the burden at the present time. I think that the Chancellor of the Exchequer has helped in this respect, and I want him to continue to help by keeping down the cost of living and preventing any inflationary tendencies from letting the cost of living up. As long as he can do that, and do it successfully, then the appeal to save can be made and should be made to every section of the community. It should be brought home to the people that, if want to war, to those are a financial position than they want to win most protect they it who win rapidly themselves the in and weaker and want from if suffering privation as a result of financing the war, they should spare no effort and consider no sacrifice not involving their own health and efficiency too great, to achieve these ends. Mr. Graham White (Birkenhead, East): The Chancellor of the Exchequer has brought us up to and beyond the normal milestone of our financial year, and in his survey to-day he has been fortunate in that he has been able too recall, since he addressed the House on this subject in September, that there has been no substantial adverse circumstance develop in Vote of Credit -04- our national finances. In fact, the position, has been, in the main, favourable and encouraging. If we look into the road ahead the green light is showing, but in the distance there is one red ligh beginning to gleam, and there are many matters perhaps to which we shall have to give very close attention. His statement to-day has been reassuring. The so-called gap. why it is always referred to like that do not know because it is very genuine thing- when he last addressed us, seemed likely to be of the order of £400,000,000 greater than the Budget estimate. To-day he tells us that it is likely to be in the order of £200,000,000. I hope that that may be correct. The right hon. Gentleman devoted most of his remarks to the matter of saving, and I propose to make one or two observations in that direction myself. I would like, however, to refer to the new proposal that he has made for facilitating the collection of taxes. I think that that proposal is well conceived. It is, in the amounts involved, rather a technical matter than a matter of the greatest financial scope. If it facilitates-and I think it willthe even flow of revenue it will be a great convenience, but whether it will actually save any money to the State, I am not quite convinced I thought that if these things were accumulating in the bank they would be available to the State indirectly, but I do see the convenience of the suggested arrangement. I asked my right hon. Friend whether the security which is to be issued in relation to the taxation to be paid would be issued at a discount. He said that this might be of particular help to companies liable to Excess Profits Duty. Therefore, I presume that the security to be issued will be issued at a discount. If it were to receive direct interest payment that would in time become subject to Excess Profits Duty, it might be a great help to the company at that time. Otherwise I am not convinced of the advantage to the company of this arrangement, although I regard it as one making for convenience and the easy control of finance. I turn now to the vital matter of War field rate, into Savings. play of now savings, Some which influence and may the alter way, is coming the the general and also the volume in which they will accrue to the State. Does my right hon. 1861 Supply: Committee- 16 DECEMBER Friend seek to foretell what effect the spread of the war in the East may have upon the course of economy in this country? It is a fairly safe prediction to say that it will not increase the amount of consumable goods in this country, and to that extent may help the War Savings 1941 Vote of Credit 1862 reading a display of that kind. Again, there is the slogan, You can't lose if you lend. That perhaps may touch an answering cord in the minds of some individuals because it is contrary to all human Movement On the other hand, the general tightening-up in the great experience. It suggests the possibility that State security is of such a character that it requires to be reinforced by insurance. It rather recalls the criticism of a demands upon man-power and the calling young lady who, speaking with great up of large numbers of individuals throughout the country are going to have an effect upon War Savings. What that may be I find it very difficult to forecast. If individuals are withdrawn exclusively from the class who up to the present have not been doing their duty in saving, it will not make much difference. If, on the other hand, it falls upon those who are making the maximum effort in that connection, War Savings will not be very temerity of the Ten Commandments said, They are not a constructive policy: they only put ideas into your head. I am by no means sure that a slogan of that kind does not put the idea into the mind of would-be investors that there is a certain amount of insecurity. Maybe the ingenious exhortations which bespatter our walls bring some return, but I wonder whether they do. I think there are other aspects of the much stimulated. I am inclined to take the view that the time has come when. having had a review of the man-power resources of this country and having tightened up the machine and made it war effort which might well be advertised to bring a greater sense of responsibility, in relation to those matters, into the mind of the individual who reads them. I think a review there might not be helpful in bringing about a change of emphasis this country has had impressed upon him, as never before, that he is tremendously important for what he can do. The War Savings Department must say, You are more effective, we ought to look into the financial aspect of affairs and see whether which may be desirable to help the effort in the War Savings Campaign, which has already been so extraordinarily successful. My right hon. Friend the Chancellor if I remember rightly, said that the amount of small savings in this country would shortly reach the £1,000,000,000 mark Sir K. Wood: It has passed that. Mr. White: It has also passed that figure in Germany. There has been no savings movement and no expenditure of money on a great advertising campaign. I feel effort up should now look at our War whether or not some that Savings our minds we Campaign in and be make changed, direc- tions the emphasis should not with, perhaps, even greater success to the effort. I am very doubtful about the effect of some of our War Savings Cam- paign methods. As I went through Piccadilly Circus to-day I saw from a bus, in an inverted pyramid, the lettersand U.S.' U.S.S.R. U.S.A. on the bottom the letter and I wondered whether there was any individual, of the thousands passing through there, whose patriotic duty was stimulated or whose purse-strings were loosened by the note in our War Savings Campaign henceforth should be this: The citizen of tremendously important to this country and to the needs of Russia, not only for what you can do but also for what you can do without.' That is a slogan which I should suggest might be developed. Wherever we look, we have the need for decreased consumption. Whether it comes from the new threat in the Far East or from the needs of Russia, it is clearly the case that the citizens of this country are very important for what they can do without. I would like if I may to draw attention for a moment or two to a very remarkable change that has been made quite recently in regard to savings in Germany. The German method of saving money has been the inverse one to that adopted in this country. They have had a great war savings campaign without expensive ad- vertising, and they have said that the German citizen knows his duty so clearly that he does not need to be hustled into it by methods of that kind. In fact, however, the Germans have arranged to stop expenditure by complete rationing, by price fixing and by wage stoppage over the whole field from the very outset. From their last figures it appears HOUSE OF COMMONS [Mr. White.] Is there any lesson for us in this, or is there not? Is there any danger in approximately the same amount as we have achieved in this country by efforts of this country that we may, with increasing earnings and incomes, reach a point when there will be set in motion such a rise in costs and prices that we shall find a different kind. It is a remarkable in that way and should have carried on without such a drastic increase in taxa- ourselves suddenly in the midst of an inflation which will seriously disturb the tion as we have had in this country. Admirable though this scheme and these methods have been to carry Germany whole course of our war finance? It may well be that these things are a mirage through two years of very costly war, they have within the last three months had to make special concessions and arrangements which seem to indicate before my eyes and not before those of other people; if so, I shall be very pleased I notice that my right hon. Friend the Minister of Agriculture has opportunely arrived in the Chamber to lend point to my argument, for my right apprehensions of something they were not quite so happy about as they appeared a to be at a particular time. Now scheme has been brought in whereby wage and salary earners can contribute a cer- tain amount every month, for a period of not less than three months, which should be free of taxation. It is estimated that by that means £600,000,000 per annum will be accumulated, in addition to the efforts already made, and that it will cost them something like why this to mense amount in £120,000,000 I want to draw attention to the reason the rising has discrepancy been of unspendable done. between It income is the due im- the pockets of those in Germany and the decreasing amount of consumable goods. It is clear that the stage has been reached where, in spite of all control, there is great danger of that mass of spending money breaking through all obstacles and being thrown into speculation, black markets and practices of one kind or another, to the great danger of Germany's war finances. In passing, I would like to refer to the fact that this new inducement of saving is free of taxation, not only in capital amount which is saved but also in the interest. That is a matter of great consequence. It is open to several members in one family to open one of these iron savings accounts. As the interest is not taxable, there is great inducement to the married woman to take up work. I am not so sure that there ought not to be something like it to the Of great advantage of this country. course, the merging of the incomes of man and wife is an old complaint in this country, from which there is no escape except divorce. That is still a matter which we might well consider in order to 1864 induce and encourage married women to take up work. that their small savings groups have reached a total of $1,100,100,000 using that they snows that Vote of Credit hon. Friend has said that we must expect dearer food in this country. I notice that in many directions there are increasing demands for increased remuneration Those demands are very important. do not want to discuss them; I merely state that they exist. These great matters which will affect the whole financial policy of this country in the midst of this war are not determined by the Government, but are left to tribunals, outside bodies, which are set up for other purposes. It is not right that these matters, which might carry us, if the circumstances were such that they got out of control, into a state of financial uncertainty, with the possibilities of trouble and disaster, should be left to these bodies. If there is anything in the House of Commons on which we are unanimous, it is upon the dangers of inflation and the necessity of avoiding it. There is no set of people of which I know who are not in agreement about that. The question I want to ask is whether it is not about time that steps were taken to reach an agreement on what is necessary to prevent inflation. I ask hon. Members to direct their minds to that question, because although it may be that I am taking a pessimistic view- so, I shall be glad to be told of the possibilities of the situation, it seems to me that there are tendencies on foot to which we should give very careful attention, not in any spirit of controversy, but with a desire to stop this process at the outset. Our situation is better than anybody could have anticipated it would be when we were thrust into this great war. agree that there are many who do their I Committee- I Supply: 1863 Supply: Committee- 16 DECEMBER utmost to help on the financial side, but there are others who, up to now, have not realised what is possible. It does not occur to many people that if they re- frained from listening to one news bulletin in the course of the day, they would make a saving in their demands upon electricity supply. I think that now the and col- You are for leagues slogan what of should Lord be, Kindersley important his you can do; you are just as important for what you can do without People should remember that they must make no demand upon public services of any kind-travel, heat, light, or what- ever it may be if they can avoid it: that they must not buy anything they can do without, that they must review the whole course of all their transactions, large and small, and make sure that they are not making a demand for something that is needed in Russia or somewhere else. I think at-rather than the literary eccentricities which bespatter our hoardings should be the note which the War Savings Campaign should take. Sir Adam Maitland (Faversham) The hon. Member for East Birkenhead (Mr. Graham White) referred, in complimentary terms, to the manner in which Germany has raised war savings from her workpeople. The hon Member's observations reminded me of an opportunity I had, about six months before the outbreak of the war, of inspecting the wages books of a very large industrial concern in Ger- many I found that, in accordance with the usual practice in Germany, the workpeople had been induced or coerced to accept many things, both in regard to wages and other matters, which would not have been accepted in this country The hon. Member will be aware, I am sure, that long before the war there were many stoppages from wages in Germany that would not have been tolerated here. Mr. White: And in Russia. Sir A. Maitland: The hon. Member referred to Germany, and as I happen to have had an opportunity of seeing something of this matter in Germany before the war, I will confine my observations to Germany. The hon. Member's remarks also reminded me that in pre-war days the Germans accepted another thing which certainly would not have been considered as a matter of practical politics in this Vote of Credit 1941 1866 country. The policy of fixed wages for all workers in all industries was instituted in Germany long before the war. It was done by the central authority. The fixing of wages was a meant down costs. fixed found as first because the leaders basis it of of Germany getting very Having right important that, wages, matter to the time went on, prices of goods tended to increase, and it was impossible, with the wages that had been fixed, for the wage earners to buy the things they desired to buy. A second step was then taken, and quite consistently and sensibly, selling prices were fixed It seems to me that in this country we have done things in the inverse order. We talk about the control of prices and have indeed intro- duced a certain degree of control, but there has certainly not been so far any very serious attempt to control wages. May I say in this connection that some of the most important steps, and some which have been most harmful, have unfortunately been instituted by Govern- ment Departments of one kind and another? I commend that to the notice of my right hon. Friend the Chancellor of the Exchequer. No Member would for one moment think of opposing this Vote of Credit which the Committee are asked to pass, but perhaps this is not an inopportune moment to emphasise once more how important it is, in giving extensions of credit for such huge sums, for the Chancellor of the Exchequer to see that money is wisely expended In spite of the enormous demands which are being made upon all sections of the community, and in spite of the colossal financial burdens falling upon this country, there is one thing which is outstanding; I would ask those who at times are tempted to condemn our present economic and financial structure to dwell upon this point. Other countries which have experienced financial and in- dustrial crises, and difficulties arising internally and externally, have had a run on the banks, and chaotic confusion has resulted. On the other hand, we have had our ups and downs, and our problems during the last 10 years, but no Member has had suggested to him the slightest shadow of doubt in regard to the stability of our banking institutions. That is tribute to our financial and economic struc- ture, however much we may criticise it. I do not, of course, suggest for one a 1865 1867 Supply: Committee- HOUSE OF COMMONS Vote of Credit 1868 [Sir A. Maitland.] moment that no improvements could be made to our existing system of finance with due regard to the needs of the nation. I know this is difficult, especially in Ser- and industry. strategy may be in the offing which would upset calc are many other Departments which are not affected I think that the Chancellor of the Exchequer and perhaps this is the only bouquet I shall give him-i to be con- money of the war. to a the gratulated upon the in which the of British stability has and been It solidarity is raised great way meet tribute our the cost to institutions, and to the common sense of our people, that in such a tremendous war, involving such astronomical figures, my right hon. Friend is able to come to the Committee and report that it is possible for him to continue to borrow money at such cheap rates. My hon, Friend the vice Departments, when some new by strategy and the variations of war where such a scheme could be adopted. If this suggestion cannot be adopted in the case of the Fighting Services, I suggest that it might be applicable in the case of the other Departments which are also spending considerable sums of money. To see that expenditure is wisely administered, some departmental body, charged with the specific responsibility of administering the expenditure of the funds of that Department, should be set up. Hon. to the to the Savings Movement would be the wasteful Member greatest War impetus for expenditure. East which Birkenhead I could believe be referred given that conviction that the House of Commons is determined to stamp out and eradicate anything in the nature of wasteful expenditure In this connection I wish to make a suggestion to my right hon. Friend. I do not believe that Ministers, either during war or in peace, have sufficient time to devote to the question of expenditure-they are so busy with high policy and with other matters that it is impossible for them to get down to questions affecting the administration of ex- penditure. suggest that in every Government Department someone should be specifically charged with the duty to examine details of administration and to see that expenditure incurred by the Department concerned is wisely and efficiently made. In the case of a small local authority, a county authority, and a national authority there is a definite and practicable limit to the amount of money which in any given period can be wisely spent. That is specially true during a war. Then there is an expansion of organisation, and people are brought in who have not the knowledge and experience-I am not criticising their willingness or their desire to help- to see that a Department's duties are performed in the most economical, efficient and effective way. At a time when rationing is regarded with favour, and when we have had two and a half years' experience of war, I suggest that a review should be made of the amount of money which a Department can spend with real efficiency and Members may suggest that we already have the Select Committee on National Expenditure, but that Committee is limited in its scope and is limited in the kind of work it can do. It is not an executive body, but in reporting to the House completes one of its main func. tions. The sort of body I am suggesting would be charged with the specific duty and would be capable of exercising some authority in regard to departmental ex- penditure. I hope that my right hon Friend will be good enough to consider that suggestion. None of us would wish to say anything to destroy confidence in our national financial arrangements, but I must point out that I cannot for one moment accept the suggestion that borrowing and taxa- tion can be put in the same category Borrowing is something the State undertakes to repay to the lender, be it soon or late. Taxation is imposed by the State with no hope of repayment to the taxpayer. There is some suggestion with regard to discount for taxes paid in advance. This is perhaps the first official recognition of the anxiety that is felt in regard to the practicability of collecting taxation at the very high existing rates. It is a warning to the right hon. Gentleman that he is getting to the limit in the practicality of raising and collecting taxa- tion at the present high rates. It is further evidence that the never-ceasing need of greater vigilance in regard to the expenditure of the money is of vital importance Dr. Russell Thomas (Southampton) I should like to say a few words arising out of the Chancellor's reference to 1869 Supply: Committee- 16 DECEMBER National Savings. He was careful was not but that there savings made, for instance, by insurance companies. He expressed him- to siderable explain small that savings he merely are referring con- to self on the whole-or that is the impression he gave me as pretty satisfied that National Saving. How going on just as they should and that, as way up we all in as when a force, to they fill would the gap probably that they go gathered have long am are as believe mind. is imagined that But National I not Savings so you sure. take I certain do great not consideration were Have rate that should when the factors National into Savings Movement Even national before we savings risen consider at the the considerable general they expansion they of employment? This has increased enormously. Have National Savings gone up pro rata? Also are are more Not rising only and have there increased wages people enormously constantly employed but a great many are getting extra wages Is the Chancellor extracting sufficient of these in National Savings? Are National Savings growing pro rata with the increased wages? I am not so sure about it. There is also a lack of outlets for investment Before the war people had considerable scope. There were building societies and that kind of thing but I do not believe that building societies are taking people's money to-day to any extent. Is the Chancellor extracting the money that would have been invested in building societies and so on, for his own use? I very much doubt whether he is extracting as much as he should I doubt very much whether people are making greater savings in the direction of insurance policies than before the war. I think they are probably less. People are not able to spend so much to-day on their food and clothes as they used to on account of rationing. Is the Chancellor getting in sufficient in that direction? He referred rightly to the fact of limitation of goods available, indeed regarding a limitation of goods and increased purchasing power as inevit- able during a great war. Although the right hon. Gentleman deplored the fact that people had too much purchasing power, there are increases of wages going on almost weekly. I stated in a supplementary question the other day that the bodies No 16 '91' Vote of Credit to and which get these increased wages are those tity But also ofare whoon cannot save line are get more the limited belonging able to powerful of interests, quan they large of at all, goods numbers who available. people the existence there are and no more They have no one whatever to look after their interests and they cannot come in and get hold of more of these very limited goods. It is high time that these marters were considered with greater severity and sternness. The Government has to consider whether some sort of wage policy could not be hammered out which would help to stabilise the conditions we are going through It would present enormous difficulties. but I think it should be borne in mind. These are just points that occurred to me while the Chancellor was speaking. I am sure we all wish him weil in the great difficulties that lie ahead. which to Mr. Loftus (Lowestoft): I congratulate on new on to their the securities Chancellor people wherewith will the later be enabled proposals pay buy by taxes. I think it will be an immense convenience, and I look forward to study- ing the details with great interest. I do not know whether these securities will bear a very small rate of interest or will be issued at a discount. If either of these things was to happen, it would, of course, amount to giving a slight discount for payment of taxes in advance. I take it that the rate would vary from month to month as the time for paying the tax got nearer. We have listened in a remarkably thin House to some very interesting speeches, which I should like to comment upon. My hon. Friend the Mem- ber for Faversham (Sir A. Maitland) pointed out that examples of waste of Government money have a deterrent effect on the whole Savings Movement I was reading in a local paper the other day about a rural district council which with great enthusiasm was working up a warship week, and several members pointed out really bad cases of Government extravagance in the near neighbourhood which might have a great effect on the willingness of people to subscribe as they hoped. My hon. Friend the Member for East Birkenhead (Mr. Graham White), speaking for the Liberal party, said that if we are to avoid inflation he felt it would be necessary to have a wages and prices Committee DONOR OF [Mr. Loftus.] COMMONS Vote of Credit 1872 policy. I think that everybody in all the cost of living every employer has to pay 25 cents a week extra for every one parts of the Committee who has thought over the problem of inflation are in general agreement that it is desirable if it can be done to have a policy which would more every three months. I commend that to my hon. Friend because I feel that we could work on those lines in this country point rise. This takes place to it. Ithat a about it and have and stabilise the prices of goods and ser- or vices so that no one in any shop could sell at a greater price than, say, in the first week of November, and so that the charges of rents, railways, water and difficulty have less has thought stabilise been has been the wages great difficulty know deal and how which prices. to I do The had to face. I am glad to say that the similar companies could not be more than difficulty is solved for me by the example given to us by the Governme.." of the Dominion of Canada. I do not know whether hon. Members know what has in November, subject, however, to an appeal to a Government tribunal which could allow an exceptional increase in charges. I appeal to my right hon. Friend been done in Canada. to issue a White Paper showing what the Canadian Government have done. The Temporary Chairman (Mr. Charles Williams): This Debate does not include anything that has been done in Canada Mr. Loftus: Can the Debate include the question which has been referred to by My hon. Friend the Member for Faversham congratulated my right hon. Friend on raising these vast amounts of money at a low rate of interest. I cannot support those congratulations with quite nearly every speaker-the danger of inflation? as much enthusiasm because I realise that The Temporary Chairman: I am not quite sure what the hon. Member means. Dr. Peters (Huntingdon): We have had references to what has been done in Ger- many. Cannot we have references to what has been done in Canada? The Temporary Chairman: Only as an example, but we cannot go into anything that has to do with Canadian policy. Mr. Loftus: I submit that when another whether a or an country, passed legislation which Dominion would not, give has indication of the way to solve a problem which we are facing, I might be allowed to mention it. the Treasury has complete control over the rates of interest to-day, that a considerable proportion of the money raised is created by the banking system at a cost not exceeding I per cent., and that, therefore, when we pay 2f per cent. on that money we are paying far too much. Looking at this huge amount of £1,000,000,000, I again, for the fourth or fifth time, urge my right hon. Friend to follow the warning and advice given him by the .. Economist " two or three years ago that for all these moneys created to fill the gap at a cost of about I per cent. the State should pay not more than I per cent. We are passing a vote of credit for £1,000,000,000. The Chancellor has told us that the total war expenditure is The Temporary Chairman: Only if the hon. Gentleman mentions it as a short illustration and not as involving a separate Debate. It is not my intention to begin ahon. Debate. was to Mr. Loftus: Friend I the Chancellor going ask rightseparate to a White so that hon. been issue my done Paper showing Members what could been has The general I advocate is to fix prices a cer- see detail the legislation passed. in to-day, principle, that at has which tain level as were, say, week inNovember. The they remain prices in the at of that first all and services have to are to the condition that if a goods level. Then wages there stabilised is subject rise in (8,100,000,000. Let us look ahead. The total National Debt left after the last war was in the nature of £7,000,000,000. We all know the immense burden that that was on the nation and how it hindered desirable national expenditure in many ways. The money was raised at an average of 5 per cent. It was a crushing burden on the nation. We have already spent (8,100,000,000-not all, of course, from loans, but partly from taxation Surely it is not pessimistic to suggest that we may end this war with an additional National Debt of probably well over £10,000,000,000 and possibly £14,000,000,000 at an average rate of 2) to 3 per cent. Then the burden of this 1873 Supply: Committee- 16 DECEMBER war will be the same as the terrible burden of 5 per cent. on £7,000,000,000 after the last war. I must confess that I view with apprehension this colossal piling up of debt. I agree that it is necessary under the orthodox financial system Whether that system is necessary, whether it can continue under the strain of the war, is another question. After all, we are passing a vote of credit for £1,000,000,000 What is credit? Credit is the capacity 1941 Vote of Credit 1874 of the Bank of England, but he is a ianatical adherent of the old orthodox system. He is the stern undeviating Calvin of the dogma of deflation, prepared to condemn the great majority of mankind to the hell of economic depres- sion for the sake of the small body of the elect, the rentiers and the moneylenders. I feel that we must break down all those ideas of the past, as we are facing to-day conditions which the men who created the old financial system of the last century viduals, or a nation to supply goods and services, and that capacity to supply is could not possibly imagine and could not possibly face to-day, and which we cannot face in the future if we adhere rigidly to an outworn financial method financed by the creation of monetary means. Therefore, this (1,000,000,000 is a draft, as it were. on the national Mr. Henderson Stewart (Fife, East): 1 have not long in which to speak, and I of an individual or a group of indi- capacity to supply goods and services for war use. and in due course that national credit will be converted into the monetary means to produce the goods by the various methods of taxation war savings, and filling the gap by created money It is almost a tragic paradox that, drawing as we are on our national credit, the nation should not create its own national credit practically without cost, and I feel that is we go on spending these vast and yet vaster sums we shall have so to adapt our technique as to avoid piling up this colossal burden of debt at comparatively high rates of interest. I am not going to deal with the actual technique by which this 1,000,000,000 will be converted into purchasing power for the Government I know there are great difficulties in modifying the technique, because the machinery by which the technique is worked consists of the Bank of England working in co-operation with the Treasury. My right hon. Friend, when we ask him about the Bank of England, always informs us that it is a private and turns in that but in actual we that company, way. aside fact questions know and the Chancellor of the Exchequer the Governor of the Bank of England are would summarise my ideas in two or three short questions to the right hon. and gal- lant Gentleman who is to reply to the Debate I will say no more about the been Ex- need for economy, because that has been as has in sufficiently chequer observed did dealt not the say with. Chancellor anything Although, about of the it his speech I think my right hon. and gallant Friend will appreciate that the country attaches great importance to this question and realise how much the prevalent waste is undermining the War Sav- ings movement If my right hon. and gallant Friend will deal with that I think he will be satisfying a demand which is heard throughout the country. Secondly, I think he must deal with the problem of wages and prices. I do not agree with my hon. Friend the Member for Lowestoft (Mr. Loftus) that any one period should be fixed, and prices and wages determined at that point. There is in to-day's Times an interesting letter dealing with farm servants. It is written by a farmer who points out the disparity between the wages of farm servants even to-day and those of road men and other people working in the same neighbour hoods He says, referring to farm workers: There are men in this neighbourhood who really in partnership, though we are never certain which until now have been working to the old 488. the various authorities, Governor of the Bank and others, to con- work out of farming. driving a lorry or doing We that he partner. quite hope of them the Treasury will is the persuade senior the sider with an unprejudiced mind a new technique for reducing this appalling burden of debt interest. I make no attack on the integrity of those who direct the Bank of England and the Treasury. above all not on the Governor maximum They would be worth anything they like to ask if they thought they could mechanical work. Therefore, on the question of wages, in addition to preventing a rise in costs we have got somehow to readjust the ill balance which is now appearing Thirdly, I invite my right hon. and gallant Friend 1875 Supply: Committee- HOUSE OF COMMONS [Ms Siewart.] to say something about War Savings Certificates I think the whole country had rather looked forward to a statement by the Citanceiion of the Exchequer to the effect that the limit of 500 certificates per holder would be extended The Chancellor did mention the desirability of increasing savings on the part of wage earners and one way by which a great increase could be brought about would be by extending that limit. This may not be the occasion for my right hon. and gallant Friend to deal with the fourth point which I make, but he knows that throughout the country there is the Vote of Credit 1876 what he has already said, but I will comment on one or two of the remarks which have been made in the Debate When these Vote of Credit papers come along I always feel a paternal interest in them, because they are over my signature. That piece of calligraphy is now attached to Votes of Credit for £7,800,000,000 which have been presented in my name in this House. I think that the right hon. Mem- ber for East Edinburgh (Mr. PethickLawrence) must have been extremely pleased that the hon Member for Aber avon (Mr. Cove) should have interrupted him, because it enabled him to give us a most interesting analysis of what he con strongest possible objection, based upon the strongest case, to the present system siders the way in which savings are coming would be interesting to hear that the said, but it was a very brilliant, and I think, it must have been impromptu, of levying the Excess Profit Tax Something must be done about that, and it Treasury are considering the matter. My last point refers to the banks. My hon Friend the Member for Faversham (Sir A. Maitland) paid a well deserved tribute to the banks and my hon. Friend the Member for Lowestoft (Mr. Loftus) has just spoken of the great increase in the National Debt. The Chancellor of the Exchequer must know that in the City to-day there are many people, including some of the wisest heads in the City, who believe that we ought to revert to the system of a Sinking Fund, even in the middle of war and even with the great increase in expenditure. It is the view of the wisest people in the City that a Sinking Fund ought to be re-established If that were done it would have a considerable psychological effect, and would give a certain in. On reflection, I am not at all sure that most of us would agree with what he description of what is going on Perhaps a little more emphasis might be put, in the savings talk that goes on. upon the non-spending aspect of it, because that is fundamentally the most important. I hope that hon Gentlemen who are helping the various campaigns will make a special point of that aspect in their speeches, and will try to encourage people to refrain from spending the money which is in their pockets. It may truly be said that the very rich find it difficult to do much direct saving in these days, and that some are fortunate if they can meet their tax obligations without having to liquidate any of their capital. The hon. Gentleman suggested that the campaign as a whole would be helped very much if the limita- tion of 500 on holdings of National the points put by the for Savings Certificates were removed My right hon. Friend answered a Question on that point in the House recently and stated that he had no evidence of any real necessity for such a step. Such analyses as can be made of the figures show that the number of people who actually hold 500 certificates is not very great War Savings Certificates are in- one of which would provide adequate tended largely for the small saver among material for a long speech, I am afraid we should not get on with the other business on which he also wants to speak. I should like to thank the hon. Members who have spoken for their reception of this Vote oi can take out 500, or double that number, of these certificates, which happen to be anticipatory welcome which they have given to the new certificates to which my right hon. Friend the Chancellor made reference. I have not much to add to certificates is to encourage small savings, feeling of confidence I have promised not to speak longer, and I invite my right hon. and gallant Friend to deal with the points 1 have made. The Financial Seeretary to the Treasury I am to and were answer (Captain speak long, Crookshank): if I hon. not to Member intending all East Fife (Mr. Henderson Stewart), each Credit, and more particularly for the the poorer sections of the community, although it is true that the Surtax payer exceedingly profitable from the point of view of interest, compared with other securities which are available However, the primary object of the and there is no evidence as yet of 1877 Supply: Committee- 16 DECEMBER 1941 Vote of Credit 1878 appreciable holdings of over 500 certi- carried out. It is of vital importance to reason why every member of a family are wisely spent. and it in in any of all of us to ensure that the maximum ficates by individuals. There is no in the section of the community for which these certificates are intended should not have certificates, and the average family might hold quite a lot of them in that way. The hon. Member for East Birkenhead (Mr. G. White) he is not here at the moment-referred to the national expenditure. I would remind him, in case he reads what ! sav. that the Chancellor of the Exchequer did not specifically say in his sneech that expenditure being up by £200,000,000 over his Budget esti- mate necessarily meant that the gap would be increased by that amount My right hon. Friend gave as his reason the fact that the size of the gap depends not only upon expenditure but also upon revenue and other factors No doubt Lord Kindersley and the organisation which he directs will take note of the criticisms made by the hon. Member about War Savings posters, but as the hon. Gentleman himself has noticed the posters of which he complained. it is evident that those posters have had some make sure that these vast sums of money economy is achieved, but we are always fortified in that regard by the reports of the Select Committee of this House, which makes such valuable directions to that end. My hon. Friend overlooked the fact that it is already the function of a special financial officer in the Departments to examine what my hon. Friend has in mind. The business of these officers is to criticise proposals for new expenditure and to watch expenditure made on behalf of the heads of the Departments My hon. Friend can rest assured that we shall try our very best to see that expenditure is kept under constant review. Another thing he said was in relation to what my right hon. Friend said about tax collection My hon. Friend thought that doubts were being expressed by my right hon. Friend as to the practicability of collecting taxes at the present high rate, but I must repudiate that interpretation There are no doubts of the practicability of collecting taxes. What my right hon. effect. If posters are noticed 1 imagine Friend has in mind is to devise some object for which they are put up. taxes to be paid. The prudent man is that they have already achieved one The hon. Member said something which was countered by the hon. Member for Faversham (Sir A. Maitland). about what was going on in Germany in regard to methods of saving. I say instinctively that I wonder whether what one gets out of Germany to-day in any direction has any relation to the facts. Probably even in the field of savings that is true. After all. the greatest swindle ever perpetrated on a nation was a scheme of saving, invented by the Germans the buying by instalments of the people's car. It may be that there are other snags of that kind about schemes which are now going on. and I think I should treat them with some reserve. My hon. Friend the Member for Faversham also said that my right hon. Friend should be very careful to see that Departmental control was instituted over expenditure within the Departments. He suggested, as I understood it. the appointment inside the Departments of someone, not being the permanent head of the Department, to control such expenditure and to see that it was wisely way of making it more convenient for the supposed to be he who puts aside week by week and month by month during the year something towards what he knows he will have to pay next year or, in the case of the Surtax payer, the year after: but such persons are all too few. Usually taxpayers are somewhat hard pressed when the demands come in and they see exactly what they have to pay. My right hon. Friend has come to the con- clusion that some inducement in the way of a certificate which could be bought, and which would have a certain apparent value later on, might be helpful to taxpayers. we the the Mr. Pethwiek-Lawrence: May I ask the hon. and scheme before the House the right are to have gallant Gentleman particulars rises whether for of Recess, or before the end of the year? Captain Crookshank: I do not think they will be forthcoming before the end of the year. On the other matters raised, my hon. Friend the Member for Lowestoft (Mr. Loftus) as usual told us that we were too orthodox. but on the whole we have Supply. Committee 1879 HOUSE OF COMMONS Captain Crookshank.] not done too badly out of our orthodoxy in our war finance so far. We have raised these vast sums, we have collected large sums in taxation, and I am afraid the fact remains that, from the very Ways and Meass 1880 ance of public order and the efficient prosecu- tion of the war, for maintaining supplies and services essential to the life of the community and generally for all expenses, beyond those provided for in the ordinary Grants of Parlia ment, arising out of the existence of a state of war.' glib way in which we MAC now used to put, and agreed to. this sums report Progresss, and ask leave to sit again."-[Captain Crookshank.] Resolution to be reported upon the talk of millions, tens of millions and hundreds of millions and in these Votes, thousands of millions very few people in are. to find wayam can it tosome country in I which always realise I trying how put big these people. One very vivid form is this: If we cast our minds back over the Great War, the Napoleonic wars, Marlborough's wars, the Elizabethan wars, the Wars of the Roses, the Crusades, if in fact we take a review of the andto the Punic Ordered, That the Chairman do next Sitting Day: Committee to sit again upon the next Sitting Day. WAYS AND MEANS Considered in Committee wars have Chair.] skip back to the reputed date of King granted to His Majesty for the service of the year ending on the 31st day of March, 1942. the sum of 1,000,000,000 be granted out of military beyond and the history to Julius Persian back Ceasar, wars, Conquest we covered the whole field of recorded European warfare, and even then we have to Solomon, somewhere about 700 B.C., be- [Colonel CLIFTON BROWN in the Resolved, That towards making good the Supply the Consolidated Fund of the United King- fore reaching a stage in human history from which we can count 1,000,000 days up to the present. If you like to imagine that King Solomon were still alive, and that every day of his life he had spent Resolution to be reported upon the next Sitting Day: Committee to sit again upon the next Sitting Day. [I providing sweets for some of his ladies, he still would not have spent £1,000,000. even though he had spent a pound a day EDUCATION (SCOTLAND) BILL. from the time of his birth. That is the meaning of £1,000,000. Here we are talking about £1,000,000,000, and it is the fourth time this year that we have asked for that sum. So we really are dealing with a financial problem of the greatest magnitude. With the present demeanour of the people, the way in which they are paying their taxes and the enthusiasm they have shown in refraining from spending their higher incomes and are investing them in one form or another of Government security, we have every hope that in the future we shall surmount our difficulties as we have been able to up to now, and do the best we can on the financial front towards winning the war. -[Captain Crookshank.) Order for Second Reading read. The Secretary of State for Scotland (Mr. T. Johnston) I beg to move, That the Bill be now read a Second time." There are few immediate and practical measures in public health which I could commend to the House with better heart and greater enthusiasm than this little Measure which is now before the House. I have long been interested in the issue of school feeding for children, and my first recollectable conference on the subject was at our school board many years ago. I can recollect the efforts made by the great Conservative Minister for Education, Sir John Ross, and my friend Mr. Martin arouseenas to the waste Question, deavouring Haddow, and to folly of of public attempting Glasgow, opinion to in teach That a Supplementary sum. not exceeding £1,000,000,000, be granted to His Majesty, to- wards defraying the expenses which may be the year on for in as therefor by Parliament. for securing public and for the day and incurred so Air of far March, Services during specific 1942, provision general ending Ministry is Navy, not the of the Supply Army made 31st safety. the defence of the realm, the mainten children who, while they were sitting on the school benches, were under-nourished Then in 1930 I and some others obtained a grant from the Empire Marketing Board of £5,000, and we received also £2,000 from the Miners' Distress Fund in Scotland. We added those two sums together PAPER: FINANCIAL TIMLS NUMBER: CITY: DATE: LONDON RISING CURVE OF WAGES This week the House of Commons has listened to two contradictory expositions. The Chancellor of the Exchequer uttered one more warning designed to secure, after the war, the restoration of pre-war trade practices -duffned so broadly as to cover all workers' and trade union rights-may facilitate a rapprochement. Whether that is brought about or not, such measures as an extension of rationing and price control, together with the of inflation as a danger which, if allowed to develop, might threaten the very basis of the material welfare of in would sterner black be markets action of value against now in being so operators as far initiate they all of us. He was adjured by other members to keep down the cost of living and to prevent inflationary tendencies from causing it to advance On the following day, there was wide- spread support for a demand that more generous allowances should be made to the dependants of men in the Services. There can be no quarrel with a desire to see that in these cases financial hardship shall be eliminated, but the question assumes a broader importance on account of the fre- queney with which the demand was supported by reference to the disparity between pay in the Services and wages to those outside. Up to a point. therefore, the proposals for better treatment for men in the Ser- vices and their families are the outcome of a far wider movement which all the time is tending to raise prices against the Government and the country. In July last, a Ministry of Labour census showed that wages of some 6,000,000 workers had been raised by about 42 per cent. since October 1938 In the last few weeks, the agricultural minimum has been advanced to £3 per week, shipbuilders and engineers have been given an extra 5s per week. involving some £26,000,000 per annum, and a railway claim for more pay has still to go through the final stages of the negotiating machinery before its fate is settled Successes in such cases spread contagion, and whatever solid grounds in their favour may be adduced the result is a heavier bill to be met. This may mean larger sums as subsidies to keep down the cost of living, or higher prices to be paid for munitions and for the goods still available to the public uncontrolled as to price. If industry bears the higher charges in the first place. it will be ultimately at the expense of a smaller E.P.T. contribution to the revenue. So far the Government has failed to face the issue squarely (although it is again under consideration) and the Trades Union Congress has viewed it only from the sectional standpoint. The pronouncement of the latter against the White Paper of last July left a small loophole for accommodation. It is true. Perhaps the new Bill cause of would saving. taxation it tend Stiffening would would to bring react be of less about existing least effective addition severely form be- upon those benefiting from increased Incomes. There can be no question now of retracing the ground already covered by wage adjustments but the Government and Parliament should so2 forward with determination to secure that wage stability (with due regard to real hardships) which it hoped. in July, would accompany the pegging of the cost of living. PAPER: CITY: FINANCIAL NEWS NUMBER: LONDON DATE: 1941 WAGES ADRIFT From to-day two million workers in the engineering and shipbuilding industries will be drawing an extra five shillings a week, representing an addition of £26,000,000 a year to the national wages bill. 14 in tome that the men had asked for anything up to four times as much. Even so, this decision of the National Arbitration Tribunal is a forcible reminder to the Government that prices subsidisation is not the same thing as a wages policy and cannot be made to serve as a substitute for one. It can now be taken as proven that the policy of subsidising the cost-of-living index, in the hope of creating the conditions which would make possible a stabilisation of wage rates," has completely failed to justify the great hopes that were placed in it. No doubt the rising trend of wages would have been still steeper had the upward movement in prices been allowed to continue. But the subsidisation has certainly failed to flatten out the trend to any sufficient extent. As early as July, the Government itself was tacitly admitting this by the publication of the plaintive White Paper, with its deprecatory reminder to wage-fixing bodies that the whole policy of stabilisation, as well as the object of the wage increases themselves, would be vitiated by an allround advance in rates. The stabilisation attempt was doomed as soon as the T.U.C. refused to recognise rising wages as a prime cause of inflation and flatly rejected the White Paper arguments. The increase now granted to the engineering trades merely confirms that in face of this attitude the wages-stop idea has never had any practical reality. In other words, we are as much without a wages policy as we have always been and it is high time to look round for one. In previous cases, such as the recent increases to agricultural workers and to women in engineering, there has always been some special consideration to justify a concession. It would be difficult to find any special factor in the latest case, and it is for this reason that it is so certain to produce a fresh crop of applications which it will be equally difficult to refuse. It certainly cannot be justified on the grounds of a rising cost of living, though this was one of the reasons given for the demands. In reality the cost of living has been stabilised for a year past. For food alone the index in October was some points lower on the year at 107.1, against 111.6. The general index stood at 122.0, a rise of only 5 points in twelve months. Nor can it be argued that wages have lagged behind the cost of living and have still some leeway to make up. The Ministry of Labour investigation, covering some 6,000,000 workers, showed that by July this year there had already been an average wartime rise in earnings of 43 per cent., compared with a rise of only 29 per cent. in the cost of living. In the engineering group itself the rise was as much as 48.7 per cent. This is hardly a case of a specially depressed industry rightly claiming some adjustment in order to mitigate hardships or bring wages up to levels paid in other industries for work of a similar grade. On the contrary, the engineering group stands easily first among the major industries with an average wage at July last of £5 11s. 5d., against an average of £4 19s. 3d. But the most significant reason given for the demand was the claim that payment of income-tax was causing hardships which should be rectified by an increase in wages. It is not necessary to discuss the rights and wrongs of this contention, week, it may be pointed out that the demands ranged up to £1 a £10 tax whereas though married man with two children still pays less than income a of £300. The important point is the question of principle on an Once Parliament has decided upon a carefully graduated if the involved. taxation, it would clearly create an intolerable position increase in were to be defeated and the resulting revenue deprived this whole value intention increase in wages to pay the tax. In most of cases E.P.T. of its be merely by an an addition to income-tax at the expense it would would If the rise in wages were passed on to the consumer object revenue. increase in food subsidies. In any case, the only order to of necessitate raising taxes an is to curtail aggregate purchasing power in restrain prices. If rising taxes, as well as rising prices, are to set up & wages spiral, the problem of war finance becomes insoluble. To point out yet again the futility of an all-round advance in wages from the economic point of view is probably mere waste of breath. It is easy to show that the working class as a whole must accept a curtailment of consumption in some form or other, that any temporary advantage to one section is mainly at the expense of the remaining workers, that a general rise in wages will render even harder the uphill fight which our export industries must in any case face after the war. The trouble is, as everybody knows, that this question of wages policy is primarily one of politics, not economics. The whole issue is clouded by memories of past grievances and the desire to jockey for future position. It is futile to complain of the attitude of the Unions. By definition, their whole function is to press the claims of a particular group of workers: a body so constituted can hardly be expected voluntarily to renounce any bargaining power it possesses. It is the responsibility of the Government to reconcile sectional interests. If agreement with Labour is really impossible, then the Government must ultimately face up to the question how far the community is to be held to ransom for the sake of industrial. peace. But even at this stage hope of an agreement should not be abandoned, for the T.U.C. has expressed its readiness to accept widespread rationing. From their point of view, this is probably a necessary guarantee that no class was getting more than its due share of the limited supply of consumption goods. If point-rationing were extended over-a sufficiently wide field this would not only pave the way for an agreement, but also make it safe to pay out additional wages where these would help to increase war output. Under the present position, every addition to the wages bill justified by nothing save superior bargaining power must increase the reluctance of the Treasury to pay out additional money where it would really do good. It is this, rather than inflation in the abstract, which is the true cost of the failure to produce a real wages policy after more than two years of war. 340 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON D.C. TELEPHONE HOBART 0000 PLEASE QUOTE REFERENCE NO With the compliments o. British Air Commission, who enclose Statement No. 16 covering Aircraft Despatched for the week ended January 13, 1942 The Hon. Henry Morgenthau, Jr. Secretary of the Treasury Washingt ton, D. C. January 20, 1942 STATEMENT NO. 16 Mind Secret 341 AIRCRAFT DESPATCHED FROM THE UNITED STATES DURING WEEK ENDED JANUARY 13. 1942 TYPE DESTINATION ASSEMBLY POINT RYSSEA av ATR FLIGHT DELIVERED FOR USE IN CANADA CESSNA T 50 Canada 19 CONSOIDATED Catalina Canala 2 CURTISS Kittyhawks Middle East Port Sudan 45 GLENN MARTIN Baltimore Middle East Port Sudan 3 NORTH AMERICAN Harvard II Cardia Canada Mustang U. K. U. K. TOTAL British Air Commission January 19, 1942 23 13 61 44 Chauncey Miss TREASURY DEPARTMENT 342 INTER-OFFICE COMMLINICATION DATE January 20, 1942 Secretary Morgenthan TO Mr. Dietrich FROM CONFIDENTIAL STRICTLY Official sales of British-owned dollar securities under the vesting order effective February 19, 1940: $ Proceeds of Shares Sold Jan. 12 13 14 15 16 17 $ Proceeds of Total Bonds Sold Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 1,310 Nil 1,310 281,856,920 37,437,648 319,294,568 281,858,230 37,437,648 319,295,878 Nil Nil Nil 1,310 1,310 Nil Nil Sales from Feb. 22, 1940 to Jan. 10, 1942 Sales from Feb. 22, 1940 to Jan. 17, 1942 3 proceeds of non-vested securities sold Jan. 5. 1942 - January 10. 1942 proceeds of non-vested securities sold 1, 1939 - Jan. 3. 1942 $ for 319,295,878 300,000 241,000,000 Sept. securities $ proceeds of non-vested sold 241,300,000 Sept. 1, 1939 - Jan. 10. 1942 GRAND TOTAL 241,300,000 560.595.878 61 $ Jan. 7. 1942 - Cash Dividend on 156 Shares 125 Jan. 9, 1942 - Partial Licuidating Dividend 9 Units sold from Aug. 18, 1941 - Jan. 17. 1942 for 42 123 11 Shares Stock Dividend sold Aug. 18, 1941 - Jan. for 17, 1942 for 56,007 Rights sold from July 24. 1941 - Jan. 17. 1942 D 102,938 For Miss Chauncey 343 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION January 20, 1942 DATE Secretary Morgenthau TO FROM Mr. Dietrich STRICTLY Official sales of British CONFIDENTIAL Collar securities under the vesting order effective February 19, 1940: Sold Jan. 12 13 14 15 16 17 ; No. of Shares ceeds of 08 Sold Nominal Value of Bonds Sold $ Proceeds of Bonds Sold Nil Nil Nil Nil Nil 1,310 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil 12 1,310 Nil Nil 9.847.583-3/18 281,856,920 45,610,016 37,437,648 9,847,595-3/18 281,858,230 45,610,016 37,437,648 Nil Nil Nil 12 Sales from Feb. 22, 1940 to Jan. 3. 1942 Sales from Feb. 22, 1940 to Jan. 17, 1942 D 344 CABLE From: Buenos Aires Dated: January 20, 1942 Rec'd: January 21, 1942 Federal Reserve Bank of New York, New York, #18 In order to increase our gold reserves please buy for our account gold bars for the equivalent of U. S. $5,000,000 keeping the gold bars earmarked for our account. Cable execution. (Signed) Banco Central de la Republica Argentine (Received by telephone from Federal Reserve Bank, New York, 12:45 p.m., 1-28-42) ec 345 PARAPHRASE OF TELEGRAM RECEIVED FROM: United States High Commissioner, (Manila) Fort Mills Philippine Islands DATE: January 20, 1942, 9 a.m. NO.: 24 This telegram contains a message for the Secretary of the Treasury. Twelve. will you please make a record of the deposit of 39,800 certificates of the Philippine Treasury of 500peso denomination the total of which is valued at 19,900,000 pesos in my dustody at Corregidor. Acting Secretary of Finance Jose Abad Santos and Robert J. Huffout of my staff verified the count. These certificates were in one of the twenty-five boxes which were referred to in our telegram sent on the 7th of January, 1942. After my departure from Manila my agent Cecilio Adeguzman signed an undated receipt which indicates that this money was sent on for the accounts of members banks of the Manila Clearing Association by the Philippine National Bank. Evidently this deposit makes up the bank reserves mentioned in first. Referring to your telegram of December 26 which was transmitted through the Department of the Interior, I do not have any record of ownership of the reserves referred to by the banks individually. SAYRE 346 TREASURY DEPARTMENT INTER-OFFICE COMMUNICALTION DATE January 20, 1942 TO Secretary Morgenthau FROM Mr. Dietrich CONFIDENTIAL Registered sterling transactions of the reporting banks were as follows: Sold to commercial concerns Purchased from commercial concerns £24,000 £16,000 Open market sterling was again quoted at 4.03-3/4, and there were no reported transactions. In a dull market, the Canadian dollar discount narrowed to a final quotation of 11-5/8%, as compared with 11-3/4% last night. In New York, closing quotations for the foreign currencies listed below were RB follows: Argentine peso (free) Brazilian milreis (free) Colombian peso Mexican peso Uruguayan peso (free) Venezuelan bolivar Cuban peso .2375 .0516 .5775 .2065 .5250 .2675 Par Swiss francs to meet commercial and certain other requirements within Switzerland are still obtainable from Swiss banks in exchange for dollars at .2331. In New York, the "free" quotation for Swiss francs has advanced steadily from .2375 as of January 7 to the present figure of .2525 bid, with little busi- ness being transacted. In contrast to the New York rates, we understand that "free" Swiss francs were recently obtained in Portugal by a New York bank at .2323. We purchased $585,000 in gold from the earmarked account of the Bank of Mexico, and $350,000 in gold from the account of the Central Bank of Chile. No new gold engagements were reported. In London, spot and forward silver were again fixed at 23-1/2d and 23-9/16d, respectively, equivalent to 42.67$ and 42.78. 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 35-1/8 We made no purchases of silver today. 4 347 BRITISH EMBASSY, WASHINGTON, D.C. January 20th, 1942. Personal and Secret. Dear Mr. Secretary, I enclose herein for your personal and secret information a copy of the latest report received from London on the military situation. Believe me, Dear Mr. Secretary, Very sincerely yours, (For the Ambessador) R.I. Campbell The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D.C. 348 Copy No. 18 BRITISH NOST SECRET (U.S. SECRET) OPTEL No. 22 Information received up to 7 a.m., 19th January, 1942. 1. NAVAL One of H.M. destroyers escorting a convoy was torpedoed and sunk during the night 17th/18th off the North HURMANSK Coast. Six motor torpedo boats and motor gunboats engaged two enemy trawlers off CALATS on 17th/18th. One motor torpedo boat is presumed lost and another suffered datas and casualties, A H.M. destroyer escorting a coastal convoy shot dorm a Dorr... Bomber at dusk on the 18th, One naval trawler sank at GIBRALTAR yesterday and two others were damaged following an explosion. A naval Corvette intercepted an 8,000 ton Italian vessel yesterday 230 miles southwest of LAGOS and is opcorting her into port. A medium sized British vessel in convoy from the U.K. was torpedoed late on the 17th off the MURMANSK Coast and taken in tow. 2. MILITARY LIBYA. There is little further news from the AGHEILA Aroa but our forward columns are in touch with enemy defensive positions between HARSA BREGA and MARADA. MALAYA. 18th. Now reported that no enemy landing took place in the ENDAU Area where there is still an Australian infantry detachment. There ha been much patrol activity North of the river ENDAU accompanied by heavy Japanese dive bombing attacks. In the GENAS area our patrols were active throughout the 17th and in the afternoon, after artillery preparation an enemy attack developed in some strength. This is still in progress. In the river ITUAR area our situr ion improved during the 17th. BORNEO. A strong Japanese attack has been made on the British tachment in Dutch BORNEO southwest of KUCHING. Our forces are withdrawing, The Japanese are suspected to be approaching (?SANDAKAN). BURMA. A Japanese force, in contact with our troops, is reported to have penetrated beyond MYITTA towards TAVOY, > AIR OPERATIONS Western Front, 17th/18th. BRIEN, 63 tons and 2,500 incondiar ENDEN, 27 tons and nearly 2,000 incendiaries. Visibility was poor but bursts were seen in both ports and fires were started. 13 R.C.A.F. and two R.A.A.F. bombers took part. 18th and 18th/19th. Nothing of interest. 349 -2MEDITERRANEAN. MALTA. During 17th/18th and 18th a total of 25 aircraft attacked causing only slight damage. 17th/18th. Four naval Swordfish attacked an 8,000 ton tanker and two destroyers off LAMPEDUSA, The tanker and one des- troyer were hit by torpedo. FAR EAST. MALAYA. On the 17th and 18th our bombers successfully attacked launches, sampane and barges in the MUAR-MALACCA area, also bombed the railway centre at GEMAS. One enemy aircraft was shot down and one Blenheim loat. SINGAPORE. During same period the Island was attacked three times by a total of 249 aircraft. Four oil cisterns at the Naval Base were set on fire and the dockyard was slightly damaged. At one aerodrome a hangar was demolished and at another buildings were burnt. Five of our aircraft were destroyed, eight probably destroyed and five damaged. We lost four Buffalo Fighters but two pilots are safe. 4. There are indications that a third Squadron of Japanese heavy bombers has moved to the CAROLINE, MARSHALL and adjacent Islands in which there are many bases. 350 RESTRICTED No. 606 M.I.D., W.D. 11:00 A.M., January 20, 1942 SITUATION REPORT I. Paciric Theater. Philippines: Hostile pressure increased yesterday with brisk fighting near the center of our line. There was some artillery and air activity with our air force and antiaircraft destroying four enemy planes. Hawaii: Negative reports. Malaya: The situation is becoming more stabilized as British reinforcements meet Japanese infiltrations. The threat to the British left continues. According to the press, enemy air activity continues over Singapore, with large formations of Japanese bombers over that city today. No results have been announced. Burma: British withdraw from Tavoy, in the Kra peninsula. Sharp air action is reported. Australasia: The press reports that Rabaul, Australian air base in New Britain, was subjected to a heavy Japanese air attack, probably from carrier-based planes. West Coast: No further reports of hostile activity. II. Eastern Theater. Fighting continues along the entire Russian front from the Crimea to Leningrad. The Russians are attacking at Leningrad and Schluesselburg and claim the capture of Keneya and Kondrovo (south of Mozhaisk). Heavy fighting has developed at Orel. The German High Command claims the interruption of the Murmansk railway by air. III. Western Theater. No further reports. IV. Middle Eastern Theater. Ground: The situation remains the same. Air: The Italian High Command announced today that British bombers started fires in Augusta and Syracuse on the east coast of Sicily last night. The Italian Air Force is said to be active in bombing and machine-gunning British motorized columns and supply centers, while German planes continue their bombardment of the ports and airdromes of Malta. RESTRICTED