Full text of Diaries of Henry Morgenthau, Jr. : Volume 492 : Part 2

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Treasury Departmen236
Division of Monetary Research
Date Feb. 6,
To:

Miss Chauncey

From:

Mr. Southard

19 42

Mr. White is calling this
especially to the attention of
Under Secretary Bell and assumes

that he is taking care of it. I
therefore don't think # need be

called to the attention of the
Secretary.

237
DEPARTMENT OF STATE

Washington

In reply refer to
FD s11.51/4125

February 4, 1942

The Secretary of State resents his compliments to
the Honorable the Secretary of the Treasury and encloses
copies of telegram no. 64, dated February 3. 1942, from
the American Embassy, Panama, Peneme, concerning orders

for defense bonds taken from American citizens residing
in Panema. The Secretary of State would appreciate the

advice of the Secretary of the Treasury as to the reply
to be made.

Enclosure:
From Embassy, Panama,

no. 64, February 3, 1942.

eh:copy
2-4-42

COPY

Panama

PD

This telegram must be
paraphrased before being communicated to
anyone other than a

238

Dated February 3. 1942
Rec'd 5:32 p.m.

Governmental agency. (BR)

Secretary of State,
Washington.

64, February 3. 3 p.m.
Chase National Bank, Panama branch, informs the Embassy

that order for defense bonds taken from American citizen residing in Panama has been turned down by its New York office acting

under instructions from the Federal Reserve Bank under its in-

terpretation of the term "American citizens temporarily residing
abroad," appearing in section 315.5 (B), as quoted in Treasury
Department circular 530 fourth revision. The bank states that
American Society of Panama plans launching bond selling campaign
among its members who are established in business in Panama but

campaign will fail unless such citizens are considered to be
temporarily residing abroad. They are engaged in business and in

professions and are residing here indefinitely although not

necessarily permanently. Clarification of restrictions would be
appreciated in the hope that these citizens may be permitted to

invest in the securities of their government.
WILSON

JRL

Copy:ec:2-4-42

239
P

DEPARTMENT OF STATE
WASHINGTON

February 4, 1942

In reply refer to
FD

The Secretary of State presents his compliments to the Honorable the Secretary of the
Treasury and encloses copies of telegram no. 24,
dated February 3, 1942, to the American Legation,
Baghdad, Iraq, regarding an inquiry concerning

assets in the United States of residents of Iraq.

Enclosure:

To Legation, Baghdad,

no. 24, February 3, 1942.

Copy: VW: 2-5-42

240
TELEGRAM SENT

February 3. 1942
6 p.m.

AMERICAN LEGATION,

BAGHDAD, (IRAQ).

24

Your 18, January 23, 10 a.m.
Treasury requests you inform the Exchange

Control Committee that the requested information

is not available.
HULL

(FL)

FD:GL:ME

Copy: vw:2-5-42

241
BRITISH EMBASSY
WASHINGTON, D.C.

February 4th, 1942
PERSONAL AND SECRET

Dear Mr. Secretary,

I enclose herein for your
personal and secret information copies

of the latest reports received from
London on the military situation.
Believe me,

Dear Mr. Secretary,

Very sincerely yours,

Halifax

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

242
Copy No.

3

BRITISH LOST SECRET

(U.S. SECRET)
PTEL No. 40

Information received up to 7 A.M., 3 February, 1942.
La NAVAL

Two of H.M. trawlers were sunk by bombs yesterday off the East

cast. One of H.M. submarines scored a hit on a merchant ship off SICILY on
25/1. A Dutch tanker was torpedoed east of HALIFAX on the 1st/2nd.
2. MILITARY

LIBYA. Situation to morning of 2nd showed the 4th Indian Division,
less the 7th Brigade, had successfully withdrawn east of the line CYRENE - EL
FAIDIA. The remainder of our forward troops are disposed south of this line,
Enemy mobile forces closely followed up the 4th Indian Division, but further
south have not repeat not attempted to advance beyond the MSUS and CHARRUBA areas,

where our mobile patrols have been in contact. Most of the 7th Indian Brigade and
attached artillery have rejoined although much of this brigade's equipment had to
be destroyed. It is thought that not more than 1,000 of our troops have been captured in the operations around BENGHAZI,

SINGAPORE. No enemy ground activity. Air raid casualties 30th

sixty-five killed,
BURNA. The Japanese are building rafts near MOULMEIN for crossing
the river SALINEEN,

RUSSIA. The spearhead of the Russian drive in the DONETS sector has
now advanced to within less than fifty miles of DNEIPROPETROVSK,
3. AIR OPERATIONS

WESTERN FRONT. 2nd, Two Spitfires sent to nor threst FRANCE met six

Me. 109's. One enemy aircraft was destroyed and two damaged. One Spitfire was

lost, Four Beauforts attacked a 5,000 ton tanker off BREST and estimated at least

one hit, Two of them crashed into the sea,
LIBYA. 31st/lst. Wellingtons dropped twenty tons of bombs on enemy
mechanical transport in the AGHEILA and JEDABYA areas. Two Fortresses dropped
two tons on MISURATA, Nine enemy aircraft bombed EL ADEM aerodrome destroying

one of our aircraft severely damaging four and slightly damaging twelve.
SINGAPORE. 31st/lst. 1st and 2nd. Enemy aircraft attacked our
aerodromes and the Naval base. Slight damage was caused at KALPANG aerodrome and

SELETAR remains unserviceable. Our troops and anti-aircraft guns were divebembed without damage or casualties.

Copy No. 13

243

BRITISH HOST SECRET

(U.S. SECRET)
OPTEL No. 11

Following is supplementary resumt of operational events covering the
period 22nd=29th January, 1942.
1, NAVAL

Casualties reported in the loss of H.I.S. BARHAM were 56 officers and
808 ratings. 717 ratings are missing from H.M.S. NEPTUNE, All ships were successfully evacuated from BENGHAZI, Over forty U-boats were operating in the North

Atlantic, a large number of them being concentrated off the North American Coast,
Others have been reported off BERNIDA, AZORES, Test of IRELAND, and near GIBRALTAR,

The estimated strength of the German submarine fleet on 3rd January was 230, of

which about sixty had been commissioned in the last three months, Shipping casualties were heavier than in recent weeks largely due to submarine attacks off the
East coast of North America where 17 ships were torpedood. In Eastern waters two

ships were stink by submarine, two by aircraft and one by mine, Late notification
of losses sustained in the previous week also contributed to the increased total,
Imports in convoy into the United Kingdom during the week ending 24th were 1,014,

000 tens including 367,000 tons of oil, Estimated Japanese losses which at present
can only be approximate are as follows: (First figure sunk, second figure damaged.)
Battleships

Cruisers
Destroyers

one

two

Three

eight

seven

Aircraft Carriers nil

Submarines

four

four
one

nil

Merchant Vessels Thirty-two no estimate
2, MILITARY

GERMANY. While the fighting on the Russian front continues at its
present intensity, no large transfers of German divisions are possible but some
minor tendencies are observable, The number of German divisions in the Balkans has
probably been reduced and it is even possible that none remain in RUMANIA and BUL-

GARIA, Every available division has been sent to the Russian front including probably at least one from YUGOSLAVIA, its place being taken there by Bulgarian troops.
About seven low category divisions in FRANCE appear to have changed places with an

equal number of tired divisions from the Russian front, There has been some
slight movement of troops from Western France to the stretch of coast between
DUNKIRK and HAVRE which serves to confirm the absence of any intention in the near

future against SPAIN, Lastly but possibly of considerable importance, one German

division together with G.H.Q. troops, anti-aircraft regiments, etc., may perhaps
have arrived in ITALY from GERMANY. Reports of one or two new German armoured

divisions being created in FRANCE probably refer merely to tank training schools.
The German army remains stretched to the utmost in coping with its tasks,

-2

244

LIBYA. Ronnel's force, advancing rapidly through JEDABYA, soored a

tactical victory over the armoured troops which we had available in the forward
area.

His tank units showed as markedly as ever their high training in mechanised

open warfare, and on this occasion particularly the accuracy of their shooting.

He inflicted on us heavy tank casualties, so that he has not only seised the initiative but has placed himself at a considerable advantage and can hope for the
moment to retain it, This does not necessarily imply a further continued eastuards
advance by the enemy but that with our temporarily reduced tank strength we cannot
now hope to resume the offensive as early as we had intended, The enemy also will

have his transport and supply problems to solve as he thus extends his line of com-

munication, be is likely to renew his efforts to transport supplies from ITALY,
and an unconfirmed report indicates the possible future despatch to TRIPOLI of
another Italian armoured division,
FAR EAST. In the PHILIPPINES, the enemy seems to be preparing to attempt a final assault on the positions of the UNITED STATES troops in the BATAAN
PENINSULA, In MALAYA though he has reached the JOHORE STRAIT, it is not certain

that be will proceed to storm SINGAPORE, Both here and at MANTIA there is a pos-

sibility of his resorting to siege tactics, rather than aiming AT the immediate
capture of these two points which would be costly for him, towards BURNA, the

enemy seems likely to intensify his attack (already another Japanese division is
probably on the way towards MOUTMEIN from SOUTH INDO CHINA) in the hope of capturing RANGOON and blocking the BURMA ROAD

RUSSIA. The Russian advance on a wide front from the DONETS BASIN is

progressing well and may prove at least as important as the twin thrusts in the
north (west of RZHEV and west of KALUGA) between the 110ZHAISK saliont is diminish.
ing as the Germans withdraw towards VYASMA, for on the KHARKOV - ST/LINO front,

the enemy was entrenched on a strong line, which he had evidently intended to hold

throughout the winter, His dislodgement from this line, which is now taxing place
threatens his whole position in the triangle DNIRPROPETROVSK=TAGANROG-JELITOPO

The Russian advance in this sector 10 the more creditable insamuch as it has to
be made for the most part through industrial country. As the enemy retired towards
the DNIEFER, his lateral supply difficulties in the centre, between SHOLENSK and
DNIEPROPETROVSK, must increase with the cutting of the relatively fow north-

south railways. In general the Russian offensive continues, and there are as yet
no indications as to where and when the Germans will be able to stabilise the line,
BALKANS. Reports of severe weather conditions arrive from all parts
of south-east EUROPE. The DANURE is closed to all shipping, and 1se-floos have

formed on the BLACK SEA for the first time since 1929. Serious dislocation of rail=
BAZ traffic in RUMANIA,

-3-

245

SINGAPORE. Japanese combined operations tacties. The landing at
KOTA BHARU on 8th December was made from three transports between midnight and 2

A.M. at high tide. The 668 was very rough and Japanese losses from drowning were

heavy. Prior to the operations, two boats landed small parties of engineers to
fix two guiding lights. These craft were not heard owing to the noise of the

surf. There was no supporting fire during the initial landing. Japanese aircraft
arrived about 5 A.M. The first main landings were made up-creek, Supporting fire
from ships was directed against pill boxes which were situated near the top of
the beach. The M.O. fire from these pill boxes, combined with the barbed wire defences caused heavy casualties among the Japanese. Before the KOTA BHARU landing,

practice landings had been carried out off HAINAN, The landing party carried rice
for five days and emergency rations for one day.
3. AIR OPERATIONS

WESTERN FRONT. Our night bombers met with better weather and some

attacks took place in excellent visibility, a total of 530 tons of high explosive
bombs were released, in the principal operations, 228 tons were dropped on ocou-

pied territory and 192 tons on GERMANY. Enemy activity insignificant.
MEDITERRANEAN.

LIBYA. Our bombers and fighters carried out a series of continuous

and highly successful operations, inflicting heavy casualties on troops and vehicles. Shipping in TRIPOLI HARBOUR was heavily attacked by Wellingtons. Much acti-

vity by enemy fighters in form of sweeps over the battle area and dive bomber
escorts, the majority of German long range bombers operated from GREECE against
our coastal sea and land communications.

MALTA. Heavy raids continued, in three days, 165 aircraft attacked
the island particularly the aerodromes. Our fighters were hampered by weather and
water-logged aerodromes but made some interceptions.
BURNA

Japanese aircraft attempting to bomb the RANJOOM

were severely dealt with by our fighters and those of the American Volunteer Group,
MALAYA. Our air operations were directed chiefly against Japanese
troops, their communications, concentration areas and bases, A landing force oncarted by naval units was attacked off ENDAU, The Jepanese heavily bombad our
aerodromes on SINGAPORE ISLAND, putting two of them temporarily out of action,

destroying 13 aircraft on the ground and damaging 38, Our fighters intercepted
and on some occasions forced the enemy to jettison their bombs, But on the whole,
Japanese air losses in these raids were not heavy.

246
4

4.

Extracts from photographic and intelligence reports on results of

air attacks on enemy territory in EUROPE.
COLOGNE. 116h/12th December, Bombs fell on the BERLIN-COLOGNE ex-

press as it was entering the main station and also on one of the big (* 8 groups
missing).

Called for,

247

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE February 4, 1942

Secretary Morgenthau
Mr. Kamarck

FROM

Subject:

Summary of Military Reports

Russo-German War

The British feel that the continuing Russian advance

in the Ukraine towards the Dnieper River may have important strategic results. If German counter-attacks do not
succeed in forcing the Russians back, the Germans will

have to give up all territory east of the Dnieper, even,
perhaps, including the Crimea.

(U.K. Operations Report, February 2, 1942)
German Navy

During the night of January 29-30, the R.A.F. sent

out 16 heavy bombers to attack the German battleship,

"Tirpitz", at Trondheim, but failed to locate her, due to

thick clouds and severe icing. One Halifax 4-motor bomber
came down in the sea, but its crew was rescued. The next
day, on the 31st, photographic reconnaissance located the

"Tirpitz" and a tanker still at Trondheim. The two battle

cruisers at Brest, the "Scharnhorst" and the "Gneisenau"
are out of dry-dock, while the "Prince Eugen" (10,000 ton

heavy cruiser) is at the coaling wharf. (This accounts
for the location of all the heavy units of the German
navy, outside of the two pocket battleships. It is possible
that another 35,000 ton battleship may have been completed

recently.)

(U.K. Operations Reports, January 30,31; February 1,1942)

Battle of the Atlantic
A former American coast-guard cutter has been torpedoed

and sunk in the Atlantic. It was lost while escorting a

convoy to England.

(U.K. Operations Report, January 31, 1942)

-2248
Far East

The Japanese have used mild tear gas on two occasions,

both times when they were forced to retreat from a position.
Prior to the evacuation of the mainland of Malaya, on January

28, an Australian company made a bayonet counter-attack against
the Japanese. The Australians caused about 200 enemy casualties

without loss. To repel the attack, the Japanese used tear gas.
on the afternoon of January 29, an Australian brigade
beat off an enemy attack. The Japanese again used tear gas to
cover their withdrawal.
(U.K. Operations Report, January 30, 1942)

The reports on the action against the enemy convoy in the
Macassar Straits have been compiled. The convoy is believed

to have consisted of 3 cruisers, 12 destroyers and 30 transports. All 3 cruisers were hit by bombs. A Dutch submarine
hit one of the cruisers and an American submarine sank a large
cruiser. One or two destroyers were hit by bombs and one
destroyer was sunk. Ten transports were sunk and several more
damaged.

(U.K. Operations Report, January 29, 1942)
New Italian Plane

(Some time ago, there was a report that the Italians had

demonstrated a new type of plane over Rome which did not have

a propeller. The following account is based on details given
in the British air magazine, the Aeroplane, of December 26,1941.)
The Italians have developed an airplane operated on the
principal of jet propulsion. The airplane has what appear to
be conventional wings, but no propeller. Air enters a large
circular duct in the nose and passes through a compressor run

by a motor. It is then ejected through a smaller duct outlet
behind the tail. By this means, the machine is propelled for-

ward. The Italians developed this plane arguing that the speed
of the conventional air-screw propelled airplane is reaching
its upper limit. To get faster speed, fundamentally new designs
are needed and this airplane is one attempt in this direction.

-3-

249

The first test flights of the new plane model were
made in August, 1940. The latest model began undergoing

extended trials around December 1. It was flown from Milan
to Rome at an average flying speed of 130 miles per hour.
It is stated that no efforts were made to attain high speed
as the cross-country journey was merely a delivery flight.
(The two great technical surprises of the last war,
poison gas and tanks, were not fully exploited since they
were first used in driblets. If the Axis does develop an
effective new type of plane, a similar mistake may not be
made.)

250
FED 4 1942

My dear Crown Princess Martha:

I am enclosing the reports on the broadcasts

by the "Voice of the Chief", which I mentioned to

you the other day. I think that you will find
them quite interesting.
Sincerely yours,
(Signed) a. Morganthan, J2.

Secretary of the Treasury

Her Royal Highness,
Crown Princess of Norway,

Pook's Hill,

Bethesda, Maryland
Enclosures

Wirl
3/4/42

FILE COPY

GERMAN ARMY FACTION BROADCASTS

251

:

TO GERMAN ARMY

:
:

This station, apparently maintained by a faction in
the German Army, constantly attacks corruption
among Nazi Party functionaries, but never
the Hitler Regime.

HUNGARIANS CALLED WORST SOLDIERS

"The Voice of the Chief," in a lengthy attack on the cowardice and
corruption rife among the Hungarian auxiliary corps in Russia,
reports that during the storming of certain heights, Germans held
the center while Rumanians were on the right flank, with the Hungariana on the left. The latter immediately fled and caused such

heavy losses among the Rumanians that these began sheeting on the
"Bardossy lice-covered gangsters."
ANTI-FATIQUE DRUGS USED ON NAZIS

"The Voice of the Chief" hits experiments by Dr. Bockhacker, leading

Nazi pathologist, with "Emphydrine." It says, "This stuff is given
with bread, wi thout anybody noticing it. It peps you up but when
you take it constantly it can be very dangerous, even mortal.
'Emphydrine' is a hormone preparation, which if used daily, strains
the glands. First, you are subject to headaches, then you feel
faint; you are sleepy, yet you cannot sleep; it excites you and at
the same time puts you in a depressive mood. If you don't give it

up at once you become insane. Such experiments can be made with
foreign workmen because they are not worth anything, but under no
condition with the good German workmen."

Worker's Fatigue-- "And when such a workman after a shift of 11 hours
returns home, sits on a kitchen stool, and his soup becomes cold be-

cause he has no desire to eat, he is sleepy and deadly tired. He
wants to sleep and isn't able to sleep, so he returns to the factory,
goes to his machine, stamps and stamps, and suddenly he throws and his

tools away because he is unable to work anymore. Another day
the same thing happens.

Health Poisoned "It can no longer go on in such a manner. We do not
need pulverized medical corpses, but healthy workmen and, thank God, and

among the German men there are plenty of them. Production can,

must be increased without any 'Emphydrine.' It is not . to be tolerated

that healthy workmen should be systematically poisoned.
(Source: Federal Communications Commission, Foreign Broadcast Monitoring Service, January 16, 1942)

GERMAN ARMY FACTION BROADCASTS

252

TO GERMAN ARMY
$

This station, apparently maintained by a faction in
The German Army, constantly attacks corruption
among Nasi Party functionaries, but never

the Hitler regime.

TYPHUS ATTACKS NAZIS IN FRANCE

"The Voice of the Chief" complains bitterly about the spreading

typhus epidemic which now has attacked the German occupation

forces housed in the "terrible casemates" of the French forts.

The Nasi Party is hit seathingly for failing to adopt in time

protective measures against typhus.
GESTAPO FAILS TO STEM NORSE TERROR

Complaining about ever increasing sabotage on the part of the

Norwegians, the Voice of the Chief points out: "In every city,

hick town, and lousy Fjord the Norwegians have their sabotage
clubs, their Vendetta societies; by nightfall they are the
masters of the land and not even once were the stinking Gestapos
able to locate any one of these murder and espionage gangs.
They possess guns, machine guns, ammunition and hand grenades.

They have everything, these dogs. They are financed by the enemy
and they are organized so well that the shock-troops are always

late in coming to the scone of action.

Nazia Kidnaped--"The traceless disappearance of soldiers has

taken on such proportions that the secret military police are
at a loss to know who ther the case in hand is a murder or the
missing person just went 'south' across the border to Sweden.
The only thing which this misfit Redes can undertake is to select
a few Norwegians wildly at random and to shoot them down, For which
although it may not do much harm, can help very little.
the actual perpetrators, the man behind the scene, the whole
mess, rooking with opposition, crime and betrayal is not affected

by it all."

(Source: Federal Communications Commission, Foreign Broadcast
Monitoring Service, January 17. 1942)

'VOICE OF THE CHIEF' BROADCASTS

253

$

:

$

TO EUROPE

$

$

#

REICHENAU DEATH HELD HIMMLER INTRI QUE

"The Voice of the Chief," speaking as "Gustav Siegfried Heins,"
dwelling upon the mysterious death of Field Marshal General Walter
von Reichenau, states (Jan.18, 2:53-3:00 p.m. EST): "What actually

did occur during the night of the January 16 to the 17 is briefly
as follows:

Nightly Visitors--" the 16th at 8 p.m., three gentlemen appeared
at Reichenau's headquarters. They were from the staff of the S.S.

Obergruppenfuehrer, Wols, namely: The S.S. Storm Detachment
Leaders Leiner and Radundsky, and the S.S. Chief Storm Leader Earl

Pilke, and had come for an interview with the Field Marshal General.
This interview lasted for a few hours. Shortly after 11 p.m. von
Reichenau's adjutant was called in. He found von Reichenau sunk
down in his chair with the symptoms of a serious apoplectic stroke.
Radundsky informed the adjutant that the interview had taken place
on the best of terms and that von Reichenau was suddenly stricken
without any previous evidence of illness. The gentlemen of the
S.S. expressed extraordinary regret, since Obergruppenfuehrer Wols
and his Chief, Himmler had been looking forward to so much from
the interview.

Hystory Death--"Von Reichenau was t aken to Kolmark at once, from

where a special hospital train was to take him back home. He
passed away, however, during the trip without regaining consciousness. Just how the apoplectic stroke of Reichenau came about,
only the three emissaries of Obergruppenfuehrer Wols could tell.
A post-mortem of the body was asked for, but was denied by the
security authorities.

Reichenau's Intrigues "The fact is that Reichenau played a risky
game, not only as a strategist, but also as a politician. I have
not penetrated into the secrets of his politics. But we did know
all about the various secret meetings which took place between
Reichenau and Herr Himmer, the Reich Leader of the S.S. prior to
the dismissal of Field Marshall General von Brauchitsch. It may
be that the filthy dog, Himmler who already falt like a victor, had
made himself at home in the Fuehrer's headquarters and gave the
army orders, instead of paying attention to his own filthy organi- he
zation. It may be that Reichenau promised Himmer more than
could get the army to do.

-2-

254

Reichenau's Merits "It may be that he made demands on Field
Marshall General von Reichenau which were even too crazy for
this diplomat. Whatever one may think of the political conduct of Field Marshal General von Reichenau, in him we are

losing a first class specialist in modern warfare, a loss which
is doubly serious in view of the difficult strategic and tagtical tasks which confront our army leadership. Bad enough
that special measures must be taken at such a moment for the
security of officers of the General Staff: Fahren and
Feahtersheim."

(Source: Federal Communications Commission, Foreign Broadcast

Monitoring Service, January 19, 1942)

'VOICE OF THE CHIEF' BROADCASTS

255

:

TO EUROPE

:
#

FAULTY STAFF WORK BALES WEHRMACHT

The "Voice of the Chief," speaking as Gustav Siegfried Heins,"
graphically describes how faulty staff work resulting in the
failure of supply lines, caused the annihilation of German units
on the Eastern Front.

Typhus Epidemic--"On January 9, 1st Lieut. Karl Meyer received

the command over his battalion," the "Chief" relates. His major
and his captain had been seriously wounded during the preceding
night. Other officers were confined to the typhus barracks or
hospitals. On the afternoon of January 9, Lieut. Meyer's battalion received orders to proceed southward.

Attack Halted--"Lieut. Meyer, himself, led half his company in
the attack supported by the few tanks which could be spared. The
attack came to a halt. For two days and two nights Lieut. Meyer
and his men held their sector of the front. There was no access
to food. The only road open was under constant fire. The sector
of the third company was lost almost without battle. The Bolsheviks were inside before a shot was fired. A single soldier
with his machine gun defended that position, firing until his
last shell gave out. He did not notice the hot gun barrel singeing the flesh off his bones. The cold made him insensitive.
Meyer's Plight- "Despite a wound in the upper arm, Meyer was always

on his feet, constantly encouraging his men. He stuck his last
cigarette into a comrade's mouth dying from a headwound. The
seriously injured men could not be moved because all who were

still on their feet, had to keep on firing. Typhus was so bad
among the men that several died without being hit.

No Relief--"Eight times, Lieut. Meyer asked for reinforcements
and air-protection. No reinforcements came. All machines had
been sent back to the base. Besides, all the fuel had given out
because, the motors, to be kept from freezing, had to be warmed
up every hour, thus consuming precious gasoline.
Ambulances, Food. "At last, a fieldkitchen got through, as well
as an ambulance. But there were over 200 either seriously wounded
or in the grip of typhus. On the way back the ambulance got
stuck and froze in. The 15 who survived were too weak to run.
They managed to stagger along, the snow making them plainly

visible to the Bolsheviks.

-2-

256

Meyer's Death "with two men and a machine gun, Neyer attempted

to cover the retreat. As he, being the last one, jumped, he
was hit in the head. Thus, Karl Meyer laid down his life for
his country and the few remaining friends in his battalion.

(Source: Federal Communications Commission, Foreign Broadcast
Monitoring Service, January 21,1942)

VOICE OF THE CHIEF' BROADCASTS

257

:

$

:

TO EUROPE

$
:

TYPHUS, OTHER EPIDEMICS STRIKE REICH

The "Voice of the Chief," broadcasting as "Gustav Siegfried Heins,"
warns that due to corruption on the part of high Nazi Party
functionaries, typhus and other epidemics have begun to hit the

German hinterland.

Typhus in Reich-- The following new information has reached the
German Department of Health," the "Chief" states. "In Koenigsberg,
spotted typhus broke out again due to the presence of Russian
war prisoners from the camp at Thorn. So far 74 new cases have

been reported. In Leipsig the curve of typhus is increasing very

much. 200 employees of the Leipsig tranway system have been isolated because of suspected typhus. The barrack camp of Junkers
near Aschersleben is under observation. The closing of parts

of the plant is being considered. The last typhus figures from

Nurenberg are 69 sick, 7 dead.

Typhus in Paris. "In the West, typhus has already advanced to
Paris. There, among other places, the military cinema in the
Avenue La Roche Fouquet had to be closed, because out of a total
of 40 employees 11 are stricken wi th spotted typhus. These are
the last reports from the German Department of Health, which I

have been able to obtain. And that is but a small part of the
epidemic cases reported there.

Secrecy futile- "Now we are definitely over the secrecy and hushhush silence with which the party idiots were fighting the danger.
If they do not immediately take measures to fight the spread of

spotted typhus and give it all publicity, then, Good Night. It

will then soon be just as bad at home as with the troops behind
the Eastern front, where typhus barracks cannot be built as fast

as they are filled.

Necessary Measures- "professor Dr. Ricke of the Medisininische

Institute in Hamburg, one of our first typhus specialists who
has recently been sent to fight typhus in Africa, was asked be-

fore
his
his
on
the
home. Soap, fats,

He departure stressed three for things: opinion fighting coal. of Professor typhus at

Dr. Ricke said: 'To keep spotted typhus successfully under control and fight it, there must be cleanliness, above all, and
warmth, warmth from within and from without. Ricke suggested
to the Public Health Service under Director Dr. Fritsch an
immediate special allotment of soap, fats, and coal to the entire
population. Quarantine measures, Dr. Ricke asserts, are

2-

258

insufficient, as they cannot be successfully and practically

enforced. The body of each German, Ricke says, must be transformed into a dam against the Eastern plagues. Only then, the

would a summer,
as a can

people population voluntarily whole do muster with sufficient little less resistance. in The if

they could get the necessary resistance materials now when the

plagues of winter knock on each door. That the supplies for a

special distribution of coal, fats and soap are available, is
known. But, what is not available, is a little pioneer courage,
to break down the door to the warm Commune stable of these oxen.

other Epidemics--' "Not only spotted typhus attacks the homeland,
but also Paratyphus, diarrhea, and the many intestinal and stomach diseases which people contact by bad food varieties, canned

food, low grade meats and in air raid chelters. The grippe is

again raging and there are frightfully numerous cases of pneumonia occurring this winter. There are numerous cases of German
measles affecting especially the troops and producing a terrible
itch which is traced by several doctors to the use of low type

dyes: A sort of skin poisoning, which if not treated at once,
penetrates into the throat tissues and disables the people for
service.

Losses are Losses. "The Health of the fighting front as well as
that of the home front is of decisive importance. Losses are
losses, irrespective whether they originate from cranks, from
tanks, or from carriers of disease. And against such there is
but one secure armoring: coal, fats, soap."
(Source: Federal Communications Commission, Foreign Broadcast

Monitoring Service, January 24, 1942)

'VOICE OF THE CHIEF' BROADCASTS

259

$

TO EUROPE

$

:

REICHENAU DIED AFTER BALKING HIMMLER

The "Voice of the Chief," elaborates on a previous account of Field
Marshal von Reichenau's death by asserting the latter died suddenly
after balking demands made by Gestapo Chief Himmler.

Reichenau's ascension--" 'In my first report about the happenings,
which preceded the death of Field Marshal von Reichenau, I mentioned the secret meetings between von Reichenau and the Reichs-

fuehrer of the S.S., Himmler," the "Chief" declares. "I can be
more explicit today. After the dismisaal of Field Marshal von

Brauchitach, two other secret meetings took place between Reichenau
and Himmler. The first on December 23, in Voltawa, the second on

January 11. Object of these meetings, as well as of several others
held prior to the dismisal of von Brauchitsch, was the succession
of von Reichenau to the supreme command of the army.

Himmler's Demands--The Reichafuehrer of the S.S. made the appoint-

ment of von Reichenau subject to the following conditions: 1.Allotment of a greater number of leading positions in the supreme
command of the army to officers of the army's S.S. units. 2.-Control of the news service of the Wehrmacht by the Gestapo and
the security service under the leadership of General Karl Schols
of the S.S. regiments. 3.--Subordination of the whole reserve army
under the S.S.: Colonel General Roth to be relieved by the Chief of
the headquarter division of the S.S., Groupleader Justler. 4.
The Army S.S. regiments to be augmented by men from other forma-

tions of the army in any strength desired.

The Showdown--"Von Reichenau expressed the hope that he would be

able to fulfill these demands. On January 11 he declined abruptly.

on January15 there appeared in his General Headquarters three plenipotentiaries: S.S. Storm troop Leader Welde, S.S. Storm troop
Leader Radunsky and S.S. Chief Storm troop leader Pelke, who had a
long discussion with the Field Marshal himself. These were the

last that saw Field Marshal von Reichenau alive. Their deadly
attack caught him during the discussion.

S.S. Condolence- "About all these happenings the S.S. Chief Group had

Leader Fritschmann is fully informed. In spite of all this he
the audacity to press the hand of the widow of Walther von Reichenau
during the state funeral."
(Source: Federal Communications Commission: Foreign Broadcast

Monitoring Service, January 26, 1942)

'VOICE OF THE CHIEF' BROADCASTS

260

$

TO EUROPE
$

NAZI OFFICIALS IN MOROCCO ARE BAD LOT

The "Voice of the Chief," speaking as Gustav Siegfried Heins,"
complains that officials on the various Nazi commissions in
Morocco are almost exclusively of a character to undermine
Germany's prestige. "The representatives of Germanism in
Casablanca and other Moroccan cities are not simple soldiers

on the way to the ordeal of the front," the "Chief" points
out. Instead, they are the gang of the Party bureaucracy in

uniform. Economic Commission, Armistice Commission, and Lord

knows how many more commissions!

Dr. Auer's Recall-- "And these cadeta manage to make even the
Arabs. blush. I do not happen to know whether a brainstorm

happened to grip the Foreign Office A certain Dr. Theodor
Auer from Cologne serves simultaneously as German consul general
as well as King of the 'Darlings' in Casablanca. In October,
1941, still serving as a specialist on the Economic Commission,
Auer was suddenly recalled. Auer flow straight to Wiesbaden
and Berlin and there swung his influential friends of the 'commune' into action. Four weeks later he was back in Casablancaas consul general.

Germans in Ridicule- "The consul general is spending the greater
part of his day with 'work' in the Bodega Bar th are he is surrounded by Commander Voll, Captain Hardy, the passionate boypainter Strecker from Paris, and similar rabble. Or they lie
on the beach with their Arabian, French and Mosaic (friends)
behaving without restraint, so that the French 8 seretly laugh
themselves to death over the gentlemen from Germany.

Germany's Disgrace--"It is a shame and a disgrace. The German
Nation works and sweats and bleeds to death. Millions bring

untold sacrifices and live in propriety and discipline. And

out there where we must build up German prestige, win now land
and show the world what we are able to achieve-- there the lowest

soum is sent: lust lissards, sybarites and depraved characters

chartered by the Party 'Commune' for the purpose of debauchery
and crime."

(Source: Federal Communications Commission; Foreign Broadcast

Monitoring Service, January 26, 1942)

:

TREATMENT OF VETERANS FROM EAST HIT

261

The "Voice of the Chief," broadcasting as "Gustav Siegfried Heins,"
or "Eins," recommends more discipline for the Nazi occupation forces
in Belgium, but deplores the treatment meted out to veterans sent
there from the East on furlough.
Sloppy Nasis. "By God, there is no reason to raise objections against
the idea of getting more discipline into our troops in Belgium, who
have lost all discipline thanks to the war profiteer system and general sloppiness of the occupational troop administration," the
"Chief" says. If these people, as now happens, are ferried out of

their cozy Belgian private quarters and are given a little whiff
of discipline in special drill camps, this is a perfectly sound
measure and wholly to be approved. And if some one objects: 'These
people are all oldsters, above 40, of little use even in anti-aircraft
batteries; this does not excuse them for forgetting that they are
soldiers to the point that they sell illegally gasoline to the civilian population and wallow in the gutter with the Belgian women. It
will be a good thing to give them a little discipline, and we approve
heartily. Nevertheless, we don't approve by ace them guarded in
the drill camps by S.S. troops, surrounded by a double barbed wire
fence, with a sentinel with a machine gun at distances of every 400
meters, as I have seen.

Veterans' Treatment-- "But it is a dirty shame to put in these same
camps comrades who have returned from a ampaign of six months in
the East, men whose nerves have been shattered, who still feel the

ice in their bones. They are now dumped into these Belgian drill
camps. In such an atmosphere their army spirit is to be polished
up under the tender care of the S.S. Their discipline and fighting
spirit are to be improved there. For you must know that the Chief
Group Leader Raeder is of the opinion that the fighting spirit of
our front fighters leaves very much to be desired.
Nazi Chief's Policy-- "Herr Raeder, chief of the military administration, in his neat bureau at Brussels does not think that these mon,

after having lain in the dirt for six months, are in need of clean

white beds, that after six months of hunger and privations they
need a little food, that after six months of complete isolation but
they are not satisfied wi th old Belgian brothel automations,
are anxious to see again their wives and children at home in

Germany But how is the chief of the military administration, men Herr
Raeder, to know these things. How is he to know the needs of

-2-

262

who have fought on the Eastern front.

Short Rations "For him they are simply used-up material which,
as he puts it, must be put through the mill and reformed. These

men, of whom every one has shown his bravery a hundred times,
these men are now put behind a barbed w iref once and under the

control of an S.S. chief, they are deprived of their leave, and
they are put on short rations just because they are not in active
service, and they are put together with old garrison fogies, to
ber epolished by non-commissioned officers of the garrison type
until they no longer can see straight. Well, this is a crasy
idea of the type that can occur only to the brazen brains of the
nincompoops of the S.S. commune.

S.S. Privileges- "One can understand very well that many a front

soldier asks: 'Why don't they at least send to the front the

lazy S.S. rustics, and those who keep cautiously in the back-

ground and the rest of that outfit? It is high time that they

take over the shift.' But Herr Raeder, Chief Cheat of the Military Administration, has not yet succeeded in driving such questions out of their brains. Nor will he succeed in doing so by

putting these soldiers behind a barbed wire fence, while his own

dirty outfit of S.S. men are given private quarters with clean

beds."

Source: Federal Communications Commission: Foreign Broadcast

Monitoring Service, February 2, 1942)

263
RESTRICTED

G-2/2657-220:

No. 621

M.I.D., W.D.

11:00 A.M., February 4, 1942.

SITUATION REPORT

I. Pacific Theater.
Philippines: During the night, on the west coast, the enemy
staged a limited attack which was sharply repulsed. Hostile air activity
continues. Tattered remnants of Japanese landing forces are being
steadily eliminated in the west. No reinforcements have been able to
reach them. Most of the enemy parachutes which are being dropped intermittently with food and ammunition have fallen into our hands. There

was little activity on our right flank. Hawaii: No further reports of

enemy action. Singapore: The Japanese are moving up troops for an
anticipated assault, while Singapore is being subjected to heavy aerial
bombing. Minor skirmishes are reported across Johore Strait. Burma:
The press reports that small Japanese patrols have been repulsed in an
attempt to cross the Salween River. Australasia: According to the press,
Dutch and Japanese troops are engaged in heavy fighting at Amboina.

Elsewhere in this area both sides are active in the air, with the Dutch
admitting that the enemy air raid of February 3 caused considerable
damage at Surabaya. West Coast: No further reports.

II. Eastern Theater.
The German High Command reports lively fighting on the Russian

front. The Russians claim successful attacks at various points along

the front. (No situation map will be issued today.)

III. Western Theater.
No further reports of important activity.
IV.

Middle Eastern Theater.

Ground: British Headquarters, Cairo, announce that the
activity in northern Cyrenaica is characterized by slow withdrawnl be- of
British forces in the vicinity of Derna and that there is fighting are
tween mobile columns north and east of Msus, where the British
apparently striking at Romnel's forces south of the Jebel Akhdar

Mountains.

Air: Axis air forces and R.A.F. are active against rear areas
and supply routes.
RESTRICTED

264

February 5, 1942

9:10 a.m.

AID TO CHINA

Present: Mr. Kuhn

Mr. Southard

Mr. Viner

Mr. Friedman
Mr. White

Mr. Bell

Mr. Foley
Mr. Bernstein
Miss Chauncey

H.M.JR: Dan and white, Viner and Foley, I sent notices

to, I think, all of you. I am starting Lend-Lease in

a

reverse at ten thirty tomorrow morning. I have called
big meeting. I have asked for you (Foley) to send a
representative, because you will be on the other thing.
I think, Bell, if you could have a meeting or get the stuff

organized for me, maybe I could meet with you people a half
hour beforehand.

MR. BELL: We had a meeting late last night.
H.M.JR: Did you?
(Mr. Kuhn entered the conference). .

H.M.JR: Put it down, my own group at ten o'clock
tomorrow.

MR. WHITE: You haven't asked Mr. Swope --

MR. BELL: Yes, he is down.

265
2-

H.M.JR: He is down. +hat is my own group. He
will know outside, but that is Bell, White, somebody
representing Foley, Mr. Viner, and Mr. Swope at ten
o'clock.

it.

MR. WHITE: I would like to have my man who follows
H.M.JR: To come in with you?
MR. WHITE: Yes.

H.M.JR: Who is that?
MR. WHITE: Hicks.

MR. FOLEY: Swope is going to sit in with me.

H.M.JR: What time is that?
MR. FOLEY: Ten thirty.
H.M.JR: Well, he can make a bigger contribution

in your office on that than he can on this. I said
in my notice to him that if it conflicted with the

Aniline and Dye, he had better take the Aniline and

Dye.

MR. WHITE: He expressed some general views which he

may want to provide, but we will transmit them to you.
H.M.JR: I was delighted with the Post this morning.

MR. KUHN: It was good. All except the last line.

The last line said, "Your purchase of Defense Stamps will
win the war," " and they know better than that. Otherwise
they were very nice.

H.M.JR: I thought it was so good that you had
written the statement yourself.
MR. BELL: They probably just left out "help". "Help
win the war."

266

-3MISS CHAUNCEY: You are missing your chronology.

H.M.JR: Have you got it, Harry?
MR. WHITE: Yes.

MR. SOUTHARD: It is up to yesterday.

H.M.JR: That was a nice job. I am calling him up
today.

MR. KUHN: It couldn't be better.
H.M.JR: It leaves a good taste in my mouth.
MR. KUHN: Even with the sarcasm the ordinary
reader wouldn't have gotten it. "The Treasury Department,
that magnificent Department."

H.M.JR: I took it seriously.
MR. KUHN:: It was written by the managing editor, and
he had his own opinions after yesterday.

H.M.JR: I took it as a compliment.
MR. KUHN: You go ahead and take it as a compliment.

It was very nice.

H.M.JR: Is that sarcastic?
MR. KUHN: It was very nice.

H.M.JR: I took that as a compliment. Now, after

it is over --

MR. KUHN: It is fine.
MR. BELL: The only sour note in it was that the state-

ment - was that the Treasury had approved it before they
started.

MR. KUHN: That seems to be true.

267

-4MR. BELL: They had to say that.
MR. KUHN: That was true.

H.M.JR: I had to take the entire blame for the

damn thing. It was entirely our fault.

MR. KUHN: They didn't want to bring in General

Arnold.

H.M.JR: We are entirely at fault.
MR. BELL: I assume at least they had had the go sign.
H.M.JR: We had three men on it, didn't we?
MR. KUHN: Two.

H.M.JR: But I mean we - I don't know whether we
generated the "Bomber for MacArthur," that was our title

or not, but I gather that anyway, it was our fault.
MR. KUHN: It looked very nice this morning.

H.M.JR: Yes. All right. Is this the same thing,

or has Viner extracted Mr. Bloom from this?

MR. VINER: They didn't extract it.
MISS CHAUNCEY: There is one slight change.

H.M.JR: And that is all?
MR. SOUTHARD: At the top of page eleven.

H.M.JR: They did not extract Mr. Bloom?
MR. SOUTHARD: At the top of page eleven we inserted
the approximate sentence that you gave us on the side.

MR. WHITE: You couldn't take that sentence out of

Bloom's because that is a very critical sentence. It is
a comparison with the Lend-Lease.

268

-5H.M.JR: What has happened that I ought to know?
Has anything happened since that I ought to know?

MR. WHITE: Well, we got a cable from Adler
saying that there was a request by the Stabilization
Board to use the remaining portion of the Chinese contri-

bution in dollars, but that can await consideration until

later, but if that is granted, it will use up all their
dollars, all their twenty million.
H.M.JR: Where is Adler?
MR. WHITE: Adler is in Chungking.

MR. BELL: He took Fox's place.
MR. WHITE: He was in the Philippines, and then he
went to-H.M.JR: How many men have we got stuck in Hongkong?

MR. WHITE: Two is all we have.
MISS CHAUNCEY: Frese and Taylor.

MR. WHITE: Frese and Taylor in Hongkong. We have
got some of the legal men in Manila.

H.M.JR: Well, Corregidor?
MR. SOUTHARD: No, in the north.

MR. FOLEY: I think only one or two got over to

Corregidor. The rest of them got over to the city. They

were captured.

H.M.JR: Really? How many Treasury men?

MR. FOLEY: Five, I think, Mr. Secretary. A couple
of bank examiners, and there are two lawyers, and a
couple of John Pehle's people.
MR. SOUTHARD: And one of our economists.

269

-6MR. FOLEY: Two of them got over to Corregidor.

H.M.JR: Will you (Miss Chauncey) get the list of
the people that were in Manila and Corregidor and Hongkong, and let me have it, and I want to ask Thompson to

find out what their families are. I want to contact
their families and see if they are all right. But

I mean, just how many men there are.

MR. WHITE: The man we sent to the Philippines,

a human interest story - the man we sent to the Philippines,
was to be married the day after he left here, and his
bride was coming here from the West and arrived the day
after he left, but he didn't tell us about it for fear that
we wouldn't send him.

H.M.JR: He didn't tell us about it?
MR. WHITE: He didn't tell me about it. Had he told
me, I would have kept him.
H.M.JR: Then the other thing, do these men who are

in Manila, will they be treated with diplomatic status?
MR. FOLEY: No, just ordinary passports.
MR. BELL: Probably not.

MR. WHITE: We have had some negotiations with the
men in Hongkong, and I imagine the same thing applies.

H.M.JR: Has anybody taken it up with the State
Department?

MR. BELL: The State Department said they would try

to take it up for Frese and Taylor.
H.M.JR: How about Manila?

MR. BERNSTEIN: I think the only thing so far is
asking them to find out how the boys are.

270

-7H.M.JR: Why not give them diplomatic status?
MR. WHITE: They won't give the boys in Hongkong

diplomatic status. They said they can't, but they
assure us --

H.M.JR: Who are you contacting in the State Department?

MR. FOLEY: Shaw is in charge of that work.
MR. WHITE: I spoke to Shaw once, but there was some

man under him. I have forgotten his name.

H.M.JR: Well, you (Miss Chauncey) get Norman to

take up this whole thing and let me write a letter directly
to Mr. Hull, you see, on our men in Hongkong and the men
in Manila and say can't the State Department get them
included with the diplomats.

MR. WHITE: You wrote one letter. Let me get that
out.

H.M.JR: She would have it if I wrote it.
MISS CHAUNCEY: I have that. We got an answer from
the State Department.

H.M.JR: Ask Norman to work with you.

MR. WHITE: That is the only thing except you see
in the press notices they have received favorable treat-

ment.

H.M.JR: Anybody got any suggestions for me?

MR. WHITE: One thing that I would like to

comment on. I think it is a little unfair to the

Chinese to say that - or to imply that we have got to
give them this to keep them fighting. If you can skirt
around that - you did make one such statement.

H.M.JR: Well, if they don't push me too hard.

-8-

271

MR, VINER: You could say, "to keep up their fighting

morale, and that is all right, but not to make the
suggestion that either this or they quit.

H.M.JR: Well, you don't have to say it today because
the effect has been so wonderful. Certainly that is what

State and War had in mind. I don't have to say it today.
MR. WHITE: You will notice that they didn't say
it.
H.M.JR: I know.

MR. BELL: I think it was stated on the floor, wasn't

it, in debate? Barkley stated it on the floor.

MR. WHITE: Was it? I didn't know there was any

debate. I thought it passed without debate.
MR. BELL: Oh, no, I think there was.
H.M.JR: There was debate.

MR. FOLEY: Well, there were a few little speeches.
MR. VINER: It passed in seven minutes. There

couldn't have been much debate.

MR. FOLEY: Voorhis made a nice statement. I didn't

know that he taught in China. It says 80.
MR. BELL: I thought Fish made a good speech.
MR. BERNSTEIN: He spoke for ten minutes. The whole

group spoke for ten minutes.

H.M.JR: All right, I think we will go up again - I
think we will go with a few less people this time,
if you don't mind, and I think, White, if you would

limit it to one person, take one person with you, and
Foley, if you would take one. Do you care, Jack, about
going?

272

-9MR. VINER: No.

H.M.JR: Do you?
MR. KUHN: No.

MR. BELL: I don't need to go.

H.M.JR: Well, I never know, Dan, if you don't mind -MR. BELL: I don't mind. I just thought if you wanted

less people --

H.M.JR: No, I never know when they are going to ask
me about the debt and something or silver, and you can
come to the defense of silver (facetiously).

MR. BELL: I would love to.

H.M.JR: All right. About a quarter of, gentlemen.

273
Copy of Secretary's stmt before Sen Com

oneon For Affairs on 2/5/42. (Secy left
original reading copy with the Com.)

2/5/49

274
STATEMENT FOR SECRETARY OF THE TREASURY
ON THE JOINT RESOLUTION TO AUTHORIZE THE
SECRETARY OF THE TREASURY WITH THE APPROVAL
OF THE PRESIDENT OF THE UNITED STATES TO RENDER

FINANCIAL AID TO CHINA AND FOR OTHER PURPOSES

The purpose of my appearance before this

committee is to recommend favorable consideration

of the Joint Resolution to authorize the extension
of financial assistance to China up to the amount

of $500 million.
This proposal is a war measure. The

effective continuance of the Chinese military

effort -- so invaluable in our fight against
the Axis powers - depends largely upon the

strength of the economic structure of Free
China.

-2-

275

The financing of the war effort is a major war
task of the Chinese Government and the efficient

performance of this task requires that the
Chinese financial and monetary system should

be made as strong as possible.

In the United Nations Declaration to which
China and the United States are signatories,
each of the United Nations solemnly pledged

itself to use its full resources in the common
war. we have large financial resources. China's

financial resources are very limited in relation
to the tasks which it has undertaken. If any
part of our financial resources can be of
asistance to China in the war against our common

enemy, I am sure that our people will went those

resources put to that use.

-3-

276

The Chinese have been fighting against the

Japanese for four and one-half years. They have

not spared their lives, their homes, their farms,

their factories, or their financial resources in
this struggle. They have remained free because

they were milling to make these sacrifices. The
people of China are carrying on unceasing war

against the Japanese in front of and behind the
Japanese lines. The Chinese Armies are not only

holding their lines, but on widely separated
fronts they are gathering their men and supplies

to intensify their offensive. The Chinese people
have demonstrated to the whole world that a
people who will not be conquered cannot be
conquered.

-4-

277

In waging this war China has performed

economic and military miracles. At the beginning
of the war the Chinese people were engaged in

creating a modern economic, financial and
currency system. The Japanese occupation

stripped the National Government of the sources

which had accounted for 80 percent of her
revenues. To make matters worse the apparatus

of the financial and money markets in the coastal

cities fell into the hands of the Japanese.
Since December 7, the fall of Hong Kong and the

complete loss of the International Settlement

have still further impaired the financial
structure of the Free Government of China.

-5-

278

In these circumstances the Chinese Government

had to bear a double financial burden. It not
only had to expand its expenditures, but it also
had to create a new financial and banking system

in the unoccupied area. It is not easy even in
peace-time to carry out such changes. Considering

the terrific obstacles with which the Chinese
Government has been and still is confronted,
it has succeeded amazingly well in continuing

its resistance to the enemy.
We must face the fact, however, that the
Chinese financial and monetary system has been

severely strained in the process. The budget

is desperately unbalanced. Prices are rising
rapidly and at an accelerated rate.

-6-

279

The accompanying economic and social dislocations

are serious threats to the Chinese war effort.
It would be unwise for the United States to
ignore these weaknesses or to withhold any aid

within its power.
on several occasions in the past the United
States Government has rendered financial

assistance to China. In general, that assistance
was designed to finance the import of goods and

to help stabilize the exchange position of
China's currency. In these financial arrangements
China has made payments on schedule and even

ahead of schedule. Under the most difficult
circumstances, China has maintained the export to

the United States of commodities vital to our

war effort.

-.-

280

Indeed, the Government of China has carried out

to the letter every obligation to us which it
has assumed.

The Chinese Government has now urgently

requested that we come to its financial support

so as to enable it more effectively to carry on
its war effort. We have been constantly informed

as to the financial and economic situation within
China. That information makes clear that the
granting of the financial assistance now being
requested would make a substantial contribution
toward strengthening the domestic economy of
China.

-8-

281

The Chinese Government has informed us

that the financial aid which the proposed Joint
Resolution would make available could be used

by it in a variety of ways to improve the
financial and economic situation within China.

without attempting at this time to specify
the particular arrangements which would be
entered into with China and which would most

effectively carry out the common objectives

of China and ourselves, we are fully satisfied
that arrangements can be worked out which will

be of great financial and economic help to the
internal economy of China and will enable China

more effectively to carry on its war effort.

-9 -

282

I think that you will be particularly
interested in the splendid record that the
Government of China has maintained in the
repayments of the loans we have already made,

notwithstanding the extremely difficult
circumstances under which it has been operating.

Mr. Jesse Jones, no doubt, can describe to you
the gratifying way in which China has handled
the loans which the Export-Import Bank has
made to China.

You will recall that in December 1940,
with the approval of the Congressional committees,

the Treasury made a $50 million stabilization
arrangement with China.

- 10 -

283

A similar arrangement was made with China by

the British. Under these arrangements, the
Chinese governmental banks put up $20 million,

the British Government put up 15 million, and

the U. S. Treasury $50 million. So far, the
Chinese stabilization Board has not called on

the United States for any portion of the United
States participation and has used its own share

for the management of its foreign exchange. I
may say here, too, that the joint management of
that Fund gives us every hope that future sums

made available to them will be used judiciously

and effectively.
AB you know, this Government is committed

to give very substantial Lend-Lease aid to China.

- 11 -

284

I am authorized by Mr. Stettinius to inform
you that the Lend-Lease commitment to China

is $620 million. of course, because of the
tremendous transportation difficulties, as
well as the many-fold demands on American war

production, it will take time before the bulk
of this Lend-Lease commitment can be delivered
to China.

These arrangements are proving in practice

to have been well-designed for their specific
purposes and to be to the nutual advantage of
both countries. They are designed, however, to

meet the specific problems involved in the flow

of goods to and from China, the stabilizing of
the foreign exchange value of the yuan, and the

supplying of war material.

- 12 -

285

The additional assistance now proposed is
much more comprehensive in scope and is designed

especially to make possible a strengthening of
the internal economic and financial structure

of China. Furthermore, this financial aid is
of a different character from the stabilization
loans and Export-Import Bank loans referred to.
The proposed aid contemplated here should be

regarded as the financial counterpart of
lend-leasing war materials. It 18 designed to
the same end - namely, the successful
prosecution of the war, and should be evaluated
in the same terms.

- 13 -

286

The passage of the Joint Resolution

authorizing the President to render financial
aid to China, will be an outstanding contribution

to the common war effort. It will be a
demonstration to our friends and a warning to
our enemies that the United States stands ready

with every weapon at its disposal to assist all
who are joined with us in this fight for freedom.

I hope, therefore, that you will give this
Joint Resolution your prompt and wholehearted
support.

- 000 -

CONGRESSIONAL RECORD FOR FEBRUARY 5, 1942.
Navy, and State, and from Mr. Jones,
the Federal Loan Administrator and
Secretary of Commerce. After full and
frank hearings, the committee reports
to the Senate unanimously in favor of
the passage of the joint resolution I
ask unanimous consent for its present
consideration.

The VICE PRESIDENT. The joint

resolution will be read for the information of the Senate.
The joint resolution (H. J. Res. 276)
to authorize the President of the United
States to render financial aid to China,

and for other purposes, was read the
first time by its title and the second time
at length. as follows:
Whereas China has for more than 4 years

valiantly resisted the forces of Japanese

Resolved etc., That the Secretary of the

Treasury. with the approval of the President,
is hereby authorized, on behalf of the United

States. to loan or extend credit or give other

financial aid to China in an amount not to

SEC 2. The authority herein granted shall

vided by law
Sec. 3. There is hereby authorized to be

appropriated out of any money in the

Senator. Let me say to him that the

Act, which was restricted to supplies,
munitions, and material equipment. has
been endangered of course. by the threat

to the Burma Road, over which most
of the supplies heretofore have gone. I
desire to suggest to him. however, that
China herself internally produces large

factures rifles, machine guns, and articles
the credit proposed to be authorized un-

der the joint resolution will stiffen
China's internal economy and probably
will make it possible for her to establish

within her own borders plants for the

maintenance of her ,national economy

going to ship silver bullion of which we

Mr. CONNALLY No: that is unlikely

Mr. TAFT. Is it proposed to set up
in this country credits against which
currency will be issued? How is it pro-

posed to give this assistance? The
Chinese will have to pay out something in

Mr. CONNALLY. Mr. President I do
not care to discuss the joint resolution
at any length. It speaks for itself. In

in order to build munition plants

short, the measure simply provides that

the Secretary of the Treasury with the
approval of the President, may loan or

money with which to pay for these

extend credit or other financial assist-

things? Mr. CONNALLY Let me say to the

Since the 7th of December when we

were plunged into the World War, it has

been of the highest importance that
China be aided in carrying on resistance
against Japan, our common enemy. For

more than 4 years China's armies, with
courage rarely equalled in history. and

with unmatched fortitude. in spite of

from the Secretaries of War,

Mr. CONNALLY Insofar as I can

have a large amount

ance to the Chinese Republic.

The Committee on Foreign Relations
considered the measure and had

used to give such aid

may be necessary to carry out the provisions of this joint resolution

tion.

to exceed in the aggregate

addition to the help we are already giving. and how the money proposed to be
loaned under the joint resolution can be

Mr. TAFT I wonder how we can get
the money there. Surely we are not

The VICE PRESIDENT Is there objection to the present consideration of
the joint resolution?
There being no objection the Senate
proceeded to consider the joint resolu-

loan to extend credit, or to give

tion to the unlimited amount of money
which may be loaned under the LendLease Act: how we can help China in

sum or sums not to exceed $500,000,000 as

Treasury not otherwise appropriated such

financial aid to China in an

know why this loan is required in addi-

of that character. So the extension of

be in addition to any other authority pro-

her

Mr. TAFT I intend to support the
joint resolution: but I am curious to

conditions as the Secretary of the Treas-

deem in the interest of the United States.

2 report No. 1016) thereon.

Mr. CONNALLY. I yield to the Sen-

ator from Ohio.

amounts of war materials She manu-

ury with the approval of the President shall

The joint resolution proposes to authe Secretary of the Treasury.
with the approval of the President, to

Mr. TAFT Mr. President will the
Senator yield?

exceed in the aggregate $500,000,000 at such

time or times and upon such terms and

House Joint Resolution 276. and to

tion.

extension of aid through the Lend-Lease

greatest possible importance Therefore be

consent to report favor-

able to do so. I hope the Senate will

with promptness pass the joint resolu-

China will increase her ability to oppose
Whereas the defente of China is of the

unanimous

I shall be glad to respond so far as am

do so, I shall undertake to answer the

the forces of aggression; and

M: CONNALLY Mr. President from
on Foreign Relations I

287

aggresation; and

Whereas financial and economic aid to

FINANCIAL AID TO CHINA

Page 1075

great difficulties in the production and
accumulation of supplies, have carried

on a gallant struggle against an unwar- the

ranted invasion and conquest by
Japanese Now that Japan is our comenemy. it is to the interest of our
mon country and our Government to give the

possible assistance and aid to

Chinese every in order to enable them to con-

tinue their resistance and we hope. to
become aggressive against the Japforces by keeping them busy them on
anese their present fronts and keeping

away from other military fronts.
With that statement. I conclude my If

brief explanation of the measure.

any Senator desires to ask any questions,

China

Mr. CONNALLY Certainly
Mr. TAFT. How will we get to them

Senator that that aspect of the matter

been considered by the committee

has all. getting money to the Chinese
After a matter of mechanics which the
is Treasury and the financial experts no

will be able to devise. I will say

doubt the Senator, however that the mere
extension to of credit to the Bank of China the

the Government of China will have to

or of enabling them at home

effect finance their operations because a back- the

log of $500,000,000 in the Treasury of Gov-

United States will enable their own

ernment either to issue currency arrangements or to

adopt other financial

necessary to meet the situation.

Mr. BARKLEY Mr. President. will

the Senator yield?

Mr. CONNALLY I yield to the Sen-

ator from Kentucky

Mr. BARKLEY Commenting under upon

Senator's inquiry about aid for

the the Lend-Lease Act and the necessity be au-

additional credit proposed to

the thorized under the pending joint resolu-

Page 1076

CONGRESSIONAL RECORD FOR FEBRUARY 5, 1942

tion. materials to China from the outgetting contemplated largely in the lend-

side, program is one which in view of

lease may offer difficulties.

the situation loan proposed to be made under

The joint resolution is for the purpose of

the China internally to enable her, as
aiding Senator says, to stiffen her Internal
economy. the regardless of whatever supplies

be sent into China from the outside.

mas might enable China to buy from con-

It territories materials which could

tiguous

not be obtained under the lend-lease program however willing we are to send aid
to the Chinese. The proposed loan is for

the purpose of supplementing any possible lend-lease aid, and not for the purpose of being a substitute for it.

Mr. TAFT. Mr. President

Mr. CONNALLY I will yield in a moment. I thank the Senator from Kentucky for those suggestions I may say

that operations under the lend-lease bill
are not only dependent upon the Burma
Road and other avenues being kept open,

but we are always confronted with diff-

culty in shipping. As the Senator from

Ohio no doubt knows. the world is short

of shipping: and with operations 7,000

miles away, the transportation problem

is a very vital one, and we may have

difficulty in getting to China the volume of lend-lease material we would de-

sire send even though highways might
remain open I now yield to the Senator
from Ohio

Mr. TAFT. Mr. President, what occurred to me was that we cannot assist
China unless somehow they issue currency to pay for these guns and factories

and soldiers I suppose such payments
must be made in Chinese currency to

their own citizens. It occurred to me

Mr. BARKLEY. I ask for the yeas
and nays on the passage of the joint

Mr. BARKLEY. The knowledge on
the part of the Chinese Government that

they have. either in money or in credits,

resolution

purchase wherever they can in continguous territory in the Far East any supplies

the legislative clerk proceeded to call the

The yeas and nays were ordered and

this backlog against which they may

roll.

Mr. THOMAS of Utah (when his name

they may need will certainly be of great
military, physical, and moral assistance

was called) I have a general pair with
the senior Senator from New Hampshire
Mr. BRIDGES), who is detained from the

to that Government in keeping up the
fight.

Senate by illness Not knowing how he

Mr. CONNALLY. I thank the Senator from Kentucky for his pertinent remark I assume in the case of China the
check of the Treasury of the United

would vote upon this question I transfer

my pair with him to the Senator from

New Mexico (Mr. HATCH and will vote.

I vote "yea."

States would be just as acceptable to the

seller as currency which might not be
worth a hundred cents on the dollar.
see no difficulty. Mr. President, in that
respect, because the mere existence of
that much money to the credit of the
Chinese Government would be tanta.

The roll call was concluded

I

it may be stated that the process of

mount almost to that much cash in
China

Mr. TYDINGS. Mr. President, will the

Senator yield?

Mr. CONNALLY I yield to the Senator from Maryland
Mr. TYDINGS. Do I understand correctly that it is the Senator's idea that
practically all. or at least a large part, of
this money will be spent internally in

that If there is a new currency issued

by somebody against this reserve, It will
be so handled that the $500,000,000 will

not be practically thrown away. do not
know about the details, but It seems a

as have voted. SoI will permit my vote

to stand.

Mr. AUSTIN. The Senator from New
Jersey (Mr. BARBOUR) is absent on official

business. If present. he would vote "yea."
The Senator from New Hampshire (Mr.
BRIDGES is absent in a hospital because

of hip injury.

The Senator from Pennsylvania (Mr.

SHIPSTEAD is unavoidably detained If

Mr. CONNALLY. Whatever amount is

have in view.

Mr. TYDINGS. I was wondering

whether it was the thought of the com-

mittee that it would be used primarily
for credit on the outside or for credit on
the inside.

Mr. CONNALLY Both. if necessary.

Mr. TYDINGS. Which is predomi-

nant?

Mr. CONNALLY I would say, very

wish to say a few words before the vote is

sume the experts of the Treasury will see

[Mr. DAVIS) who is unavoidably detained

from the Senate. I have been informed
that, if he were present. he would vote

necessary to accomplish the purposes we

be a very dangerous thing to do I as-

be done. but it seems to me that it may

with the Senator from Pennsylvania

China?

nese currency. It may be that that can

be kept here to serve as a base for Chi-

Mr. CHANDLER (after having voted
in the affirmative). I I have a general pair

DAVIS is absent on business of the Senate. If present he would vote "yea."

frankly, along the line suggested by the
Senator from Kentucky, that one of the
primary purposes of this particular loan
is for use internally in China

that this $500,000,000 fund perhaps is to

288

Mr. LA FOLLETTE Mr. President, I
taken. I shall not oppose the joint resolution, but, because of the fact that the
testimony was taken in executive ses-

The Senator from Minnesota (Mr.

present. he would vote "yea.

Mr. McNARY. The Senator from

Michigan (Mr. VANDENBERG is necessari-

ly absent. I understand that, if present,
he would vote "yea."

Mr. BARKLEY Mr. President I an-

nounce that the Senator from Georgia

Mr. GEORGE and the Senator from New
Mexico (Mr. HATCH are absent from the
Senate because of illness. I am informed

that, if present, both Senators would
vote "yea

The Senator from Arkansas (Mrs.

CARAWAY the Senator from Idaho (Mr.
CLARK). the Senator from Louisiana (Mr.
ELLENDER). and the Senator from Utah
(Mr. MURDOCK are unavoidably detained

If present, they would vote "yea.

sion, and because of certain military im-

The Senator from Maryland (Mr. RADCLIFFE). the Senator from West Virginia

whole situation I find myself in a post-

Georgia (Mr. RUSSELL are absent on of-

plications which are involved in this

(Mr. ROSTER] and the Senator from

tion where I cannot make a full and

ficial and important business. If present,

for his inquiry, but let me say to the Sen-

but I desire merely to observe that to the

DREWS). the Senator from Michigan (Mr.
BROWN). the Senator from Nevada (Mr.

money in its own vaults; it does not keep
cash: it keeps credits in the central bank
in New York and in the Federal Reserve

utilized for the purpose of strengthening

O'DANIEL). and the Senator from Arkan-

rather difficult thing to get $500,000.000
to China under present conditions.

Mr. CONNALLY. I thank the Senator

ator that a bank does not keep all its

banks The existence of this credit to
the Bank of China or to the Chinese

Government will serve the same purpose
as a bankable reserve would in this coun-

try. How the Chinese may handle the

matter will, I am sure, be under the
general supervision of the Treasury and

own authorities, and their aid and

advice will be given. We have missions
in China, and will continue to have mis-

sions there am satisfied that the most

affacticuble way to handle the financial
end of will be adopted.

Mr. BARKLEY Mr. President, will

the Senator yield?

Mr. CONNALLY I yield.

frank statement for the RECORD I am
not complaining about that, I may say.

extent the moneys or the credits to be
provided under the joint resolution are

the internal economy of China, I see no
objection to it: to the extent that they
may be used for some other purposes,
I think there is grave doubt about the
wisdom of it. and it will prove. in my
opinion, ultimately to be a great disappointment.

The VICE PRESIDENT If there be
amendment to be proposed, the ques-

no tion is on the third reading of the joint
resolution. The joint resolution (H. J. Res. 276)

was ordered to a third reading and read
the third time.
The VICE PRESIDENT The question now is on the passage of the joint
resolution.

I am informed that they would vote "yea.

The Senator from Florida (Mr. AN.

McCARRAN). the Senator from Texas (Mr.
sas (Mr. SPENCER are necessarily absent.

I am advised that, If present, they would
vote "yea.

The result was announced-year 74,
nays 0. as follows:
Alken

Austin
Balley

Ball

Bankhead
Barkley
Blibo
Bone

Brooks

Bulow

Bunker
Burton
Butler

YEAS-74

Byrd

Capper

Chandler
Chaven

Clark. Mo.
Connally
Danahet
Downey
Doxey

Gerry

Oillette
Class
Green

Guffey

Gurney
Hayden
Herring
Hill

Holman
Hughes

Johnson Colo
LA Pollette
Lee

Lodge

Lucas

Page 1076

CONGRESSIONAL RECORD FOR FEBRUARY 5, 1942
may be stated that the process of

Mr. BARKLEY. The knowledge on
the part of the Chinese Government that

288

Mr. BARKLEY I ask for the yeas
and nays on the passage of the joint

they have, either in money or in credits,

resolution

getting contemplated largely in the lend- of

this backlog against which they may

side. program. is one which in view

purchase wherever they can in continguous territory in the Far East any supplies

the legislative clerk proceeded to call the

tion. materials to China from the outlease situation may offer difficulties.

the loan proposed to be made under
The joint resolution is for the purpose of

the China internally: to enable her, as
aiding Senator says. to stiffen her internal

they may need will certainly be of great
military. physical, and moral assistance

The yeas and nays were ordered and
roll.

Mr THOMAS of Utah (when his name

was called) I have a general pair with

fight.

the senior Senator from New Hampshire
(Mr. BRIDGES). who is detained from the

mark. I assume in the case of China the

my pair with him to the Senator from
I vote "yea.

to that Government in keeping up the

Mr. CONNALLY I thank the Senator from Kentucky for his pertinent re-

Senate by illness Not knowing how he

tiguous territories materials which could

check of the Treasury of the United

New Mexico (Mr. HATCH and will vote.

not be obtained under the lend-lease pro-

States would be just as acceptable to the

economy the regardless of whatever supplies

be sent into China from the outside
may It might enable China to buy from con-

however willing we are to send aid

gram to the Chinese. The proposed loan is for

the purpose of supplementing any possible lend-lease aid and not for the purpose of being a substitute for it.

Mr. TAFT Mr. President

Mr CONNALLY I will yield in a moment. I thank the Senator from Kentucky for those suggestions I may say

that operations under the lend-lease bill
are not only dependent upon the Burma
Road and other avenues being kept open,

but we are always confronted with diff-

culty in shipping. As the Senator from
Ohio no doubt knows, the world is short

of shipping: and with operations 7,000
miles away. the transportation problem

is very vital one, and we may have
difficulty in getting to China the vol-

ume of lend-lease material we would desire to send even though highways might

remain open. I now yield to the Senator
from Ohio

Mr TAFT Mr. President, what occurred to me was that we cannot assist
China unless somehow they issue currency to pay for these guns and factories

seller as currency which might not be
worth a hundred cents on the dollar. I
see no difficulty. Mr. President, in that
respect, because the mere existence of
that much money to the credit of the
Chinese Government would be tanta-

mount almost to that much cash in

Mr. CONNALLY I yield to the Senator from Maryland
Mr. TYDINGS. Do I understand correctly that it is the Senator's idea that
practically all. or at least a large part, of
this money will be spent internally in
China?

Mr. CONNALLY. Whatever amount is

business. If present he would vote "yea.
The Senator from New Hampshire (Mr.
BRIDGES is absent in a hospital because

of hip injury.

The Senator from Pennsylvania (Mr.

DAVIS is absent on business of the Senate If present, he would vote "yea."

The Senator from Minnesota (Mr.

whether it was the thought of the com-

Michigan (Mr. VANDENBERG) is necessari-

mittee that it would be used primarily
for credit on the outside or for credit on
the inside.

Mr. CONNALLY Both, if necessary.

Mr. TYDINGS. Which is predomi-

wish to say a few words before the vote

be so handled that the $500,000,000 will

Mr. AUSTIN The Senator from New

present he would vote yea.

Mr. TYDINGS I was wondering

be very dangerous thing to do. I asby somebody against this reserve. it will

as have voted. So will permit my vote

necessary to accomplish the purposes we
have in view.

nese currency. It may be that that can

that if there is a new currency issued

(Mr. DAVIS] who is unavoidably detained

from the Senate. I have been informed
that, if he were present. he would vote

Jersey (Mr. BARBOUR is absent on official

Mr TYDINGS. Mr. President will the

frankly. along the line suggested by the
Senator from Kentucky, that one of the
primary purposes of this particular loan
is for use internally in China

sume the experts of the Treasury will see

with the Senator from Pennsylvania

Senator yield?

their own citizens. It occurred to me

be done, but it seems to me that it may

Mr. CHANDLER (after having voted

in the affirmative). I have a general pair

to stand

nant?

that this $500,000,000 fund perhaps is to
be kept here to serve as a base for Chi-

The roll call was concluded

China

and soldiers I suppose such payments

must be made in Chinese currency to

would vote upon this question, I transfer

Mr. CONNALLY. I would say. very

Mr. LA FOLLETTE. Mr. President. I
taken. I shall not oppose the joint resolution but, because of the fact that the
testimony was taken in executive ses-

SHIPSTEAD is unavoidably detained If

Mr. McNARY. The Senator from

ly absent. I understand that, If present.
he would vote "yea."

Mr. BARKLEY Mr. President. I an-

nounce that the Senator from Georgia
Mr. GEORGE and the Senator from New
Mexico (Mr. HATCH are absent from the

Senate because of illness. am informed

that. if present, both Senators would

vote "yea.

The Senator from Arkansas (Mrs

CARAWAY] the Senator from Idaho (Mr.
CLARK the Senator from Louisiana (Mr.
ELLENDER]. and the Senator from Utah
MURDOCK are unavoidably detained

If present, they would vote "yea."

sion, and because of certain military im-

The Senator from Maryland (Mr. RADCLIFFE). the Senator from West Virginia

whole situation I find myself in a post-

Georgia (Mr. RUSSELL are absent on of-

frank statement for the RECORD I am
not complaining about that, I may say.

I am informed that they would vote "yea."

Mr. ROSTER] and the Senator from

not be practically thrown away. Ido not

plications which are involved in this

rather difficult thing to get $500,000.000

tion where I cannot make a full and

ficial and important business. If present,

Mr. CONNALLY I thank the Senator
for inquiry but let me say to the Senator that a bank does not keep all its

but I desire merely to observe that to the

DREWS). the Senator from Michigan (Mr.
BROWN). the Senator from Nevada (Mr.

money in its own vaults; it does not keep
cash: it keeps credits in the central bank
in New York and in the Federal Reserve

utilized for the purpose of strengthening

O'DANIEL]. and the Senator from Arkan-

objection to it: to the extent that they

I am advised that, if present. they would

the Bank of China or to the Chinese

may be used for some other purposes, the

know about the details, but it seems a
to China under present conditions.

banks. The existence of this credit to

Government will serve the same purpose
bankable reserve would in this coun-

try How the Chinese may handle the

matter will, I am sure, be under the

general supervision of the Treasury and

our own authorities, and their aid and

advice will be given. We have missions
in China and will continue to have missions there. I am satisfied that the most
affacticable way to handle the financial

end it will be adopted

Mr. BARKLEY Mr. President, will
the Senator yield?

Mr CONNALLY I yield.

extent the moneys or the credits to be
provided under the joint resolution are
the internal economy of China I see no

The Senator from Florida (Mr. AN-

MCCARRAN] the Senator from Texas (Mr.
sas (Mr. SPENCER are necessarily absent.

vote "yea.

The result was announced-year 74,

think there is grave doubt about
I wisdom of it, and it will prove. in my
opinion. ultimately to be a great disap-

nays 0. as follows:

pointment.

Alken

The VICE PRESIDENT If there be
amendment to be proposed, the ques-

no tion is on the third reading of the joint
resolution. The joint resolution (H. J. Res. 276)

was ordered to a third reading and read

the third time.
The VICE PRESIDENT The question now is on the passage of the joint
resolution.

Austin
Balley
Ball

Bankhead

Barkley
Blibo
Bone

Brooks

Bulow
Bunker
Burton

Butler

YEAS-74

Byrd

Capper
Chandler
Chavez

Clark. Mo.
Connally
Dansher

Downer
Doxey
Gerry

Gillette
Class
Green

Guffey

Gurney
Hxyden
Herring
Hill

Holman
Hughes

Johnson Colo

Kilgora

La Pollette
Lee

Lodge

Lucas

289
CONGRESSIONAL RECORD FOR FEBRUARY 5, 1942

McFarland
McKellar

Pepper

McNary

Reynolds

Maloney
Maybank
Mead

Millikin
Murray
Norris
Nye

O'Mahoney
Overton

Reed

Truman

Tunnell

Schwartz
Smothers

Tydings
Van Nuys
Wagner

Smith
Stewart

Walsh

Wallgren

Thomas Idaho

Wheeler
White

Thomas Utah

Willis

Taft

Thomas Okia

Wiley

Tobey

NAYS-0
NOT VOTING-22
Andrews

Ellender

Barbour

George

Brewster
Bridges

Brown
Caraway

Clark Idaho
Davis

Hatch

Radcliffe
Roster
Russell

Johnson Callf Shipstead
Langer

McCarran
Murdock
O'Daniel

Spencer

Vandenberg

So the joint resolution (H.J. Res. 276)
was passed.

The preamble was agreed to.

Page 1077

THE CHINESE LOAN

Mr. BURGIN Mr. Speaker, in the

year of 1880 a Chinese boy came to the
city of Wilmington, N. C. as a cabin boy

on a vessel. The people he met there
and the events that transpired, I am persuaded to believe, changed the course of

his whole life. This Chinese boy was the

founder of the Soong Dynasty which

has been such a far-reaching influence
in China, and still has its repercussions

throughout the world. In after years he

was the right-hand man of Sun-Yat-Sen
in the establishment of the

public, that the and religious I like and to think cultural Chinese and contacts believe Re-

that he made in North Carolina largely
shaped the course of his life, and has
contributed and is still contributing in a
great measure to the courage and determination of the great Chinese people
to overcome the unprovoked assaults
made on their way of life by the Japanese. The courageous night that they
have made for almost 5 years now has
challenged the admiration of the world.
I supported wholeheartedly the passage of the resolution which provided for
a loan of $500,000,000 to China, and believe it will have the unanimous approval

of the people of America, I am sure this
will be the case of the people of North

Carolina.

I ask unanimous consent to include in
the Appendix of the RECORD an article
from the January 1942 issue of the Duke

Divinity School Bulletin entitled "The
Romance of Charlie Soong." This article was furnished me by the Honorable

Daniel C. Roper. former Secretary of
Commerce, and an alumnus of Trinity

College. now Duke University.

The SPEAKER Is there objection to

the request of the gentleman from North
Carolina (Mr. BERGINS!
There was no objection.

291

China Loan
THE SENATE COMMITTEE ON FOREIGN RELATIONS APPROVED UNANIMOUSLY

AUTHORIZATION FOR A $500,000,000 GRANT IN AID TO CHINA, AFTER HEARING

TESTIMONY FROM SECRETARIES STIMSON, KNOX, MORGENTHAU AND JONES.

2/5--S1239P
ADD CHINA LOAN, SENATE

ONE COMMITTEE MEMBER, WHO ASKED THAT HIS NAME BE WITHHELD, TOLD
REPORTERS THAT THE SECRETARIES OF WAR AND NAVY GAVE THE COMMITTEE A

FULL REPORT ON THE STRATEGIC SITUATION IN THE FAR EAST IN ASKING IMMED
IATE ACTION ON THE RESOLUTION.
THE SENATOR SAID THE SECRETARIES PRESENTED AN "ENCOURAGING PICTURE

INSOFAR AS LONG TERM ACTIVITIES ARE CONCERNED."
KNOX DECLINED COMMENT ON AN ANNOUNCEMENT MADE YESTERDAY BY GENERAL

ARCHIBALD WAVELL, IN CHARGE OF UNITED NATION FORCES IN THE FAR EAST,

THAT AMERICAN AND BRITISH AID IS BEING HURRIED TO SINGAPORE.
"I HONESTLY DON'T KNOW THE ANSWER TO THAT ONE," KNOX SAID AS ME
LEFT THE COMMITTEE ROOM.

STIMSON AND MORGENTHAU BOTH DECLINED COMMENT ON THE AID TO CHINA
MEASURE AFTER TESTIFYING BEFORE THE COMMITTEE.

2/5--S1251P B-0

292

ADD CHINA LOAN APPROVED, SENATE

THE VOTE WAS 12 TO O.

2/5--GE120P
ADD CHINA LOAN APPROVED, SENATE
CONNALLY TOLD THE SENATE THAT TRANSPORT OF ACTUAL MATERIALS OF WAR

TO CHINA UNDER THE LEND LEASE PROGRAM IS THREATENED BY POSSIBLE

DISRUPTION OF THE BURMA ROAD TRAFFIC AND A "CRITICAL" SHORTAGE IN
SHIPPING.

THE FUNDS, CONNALLY SAID, WOULD ENABLE THE CHINESE GOVERNMENT TO
INCREASE PRODUCTION OF ARMS FOR ITS OWN USE.

"WE HOPE THAT THESE FUNDS WILL ENABLE CHINA TO CONTINUE HER RESISTANCE WHICH KEEPS JAP FORCES BUSY AND KEEPS THEM OFF OTHER FRONTS,
CONNALLY SAID.

HE ADDED THAT EVENTUALLY CHINA MAY BE ABLE TO TAKE THE INITIATIVE
IN FAR EASTERN ACTION.
CONNALLY TERMED CHINA'S STAND AGAINST JAPAN AN EXAMPLE OF "UNMATCHED

FORTITUDE NOTHWITHSTANDING GREAT DIFFICULTIES.*

2/5--GE125P B-0

STRICTLY CONFIDENTIAL

293
February 5, 1942

MINUTES OF MEETING OF SENATE COMMITTEE ON FOREIGN

AFFAIRS, FEBRUARY 5, 1942, TO CONSIDER THE JOINT
RESOLUTION AUTHORIZING A LOAN TO CHINA

The following minutes are based on rough notes taken during the
Executive Session of the Senate Committee on February 5.
Secretary of Commerce Jones was first introduced to the Committee
by Chairman Connally. Secretary Jones referred to the testimony of
Secretary Morgenthau before the House Committee, which Secretary

Korgenthau had told him would be substantially similar to his testimony

today. Mr. Jones said that he subscribed heartily to all that the

Secretary had said before the House Committee. He then referred to
Export-Import Bank loans to China but before he could go into detail
the Chairma interrupted to ask why there was a switch to the Treasury

in the present Joint Resolution. Mr. Jones replied that the present
loan was not a "business" loan but a war loan. He said that he himself
had suggested that the Treasury handle the proposed loan. He then
surarized Export-Import Bank experience with China and at the end of
the meeting handed to the Chairman a letter embodying the statistical
information on these loans. He concluded by saying that he was impressed
with the integrity of the Chinese and felt that China should be given

all possible support. He said that he felt further that assistance
to the Chinese would be an excellent investment.

Senator LaFollette pointed out that China had credit at the
Export-Import Bank and asked why it was necessary to extend any more

credit. Secretary Jones replied that it was because the credit ts extended by the Export-Import Bank were sharply restricted in use.

Senator Thomas asked Secretary Jones who the Chinese debtors were made under

Export-Import loans. Mr. Jones replied that the loans had been

to various Chinese institutional borrowers, usually under guarantees the
of the Bank of China or to the Bank of China with a guarantee by the
Republic of China. Senator Thomas said that he understood that Jones
be made to the Government of China. Secretary
Senator Thomas then inquired

this Mr. Jones replied

comment on that matter but that available

new would might said loan that stay wish would was to in correct. country. he that would Secretary the whether say funds that the Morgenthau China money

needed funds and that it might be necessary to make the purpose

in China. Thomas asked if stabilization would be comment
of the loan Senator but Secretary Jones said that he was reluctant to

on that aspect of the loan.

Preparal by F. a. Southard

294

-2A Committee member asked the Secretary of Commerce why it was
that China had made some repayments on all the Export-Import loans

but that none of them had been repaid entirely. Mr. Jones replied
that the payments were according to schedules and there were no
delays on any of them.
Secretary Morgenthau was then introduced to the Committee and

read his prepared statement after which he gave the reading copy to
the Chairman of the Committee.

Senator Johnson asked Secretary Morgenthau what the aggregate

amount of loans to China was. The Secretary replied that Secretary
Jones had given it but he then repeated the figures. Senator Johnson
remarked that it apparently ran over $1 billion. The Secretary
replied that that was correct (including the Lend-Lease commitment).
Senator Johnson asked if it was anticipated that all of these loans
would be repaid. Secretary Morgenthau replied that he did not
anticipate it. Senator Johnson thanked the Secretary for his frankness.
Senator Barkley outlined what he considered the limitations on the
use of stabilization fund credits. Secretary Morgenthau said that the
Senator's statement was correct.
Senator LaFollette asked what was going to be done with the new
loan. Secretary Morgenthau reminded the Senators that he was speaking

before an executive session and repeated that the Departments of
State, War and Navy had urged the loan upon him for military and

political purposes. Senator LaFollette said this was very well but
that the loan was under Treasury jurisdiction. He said he didn't
share the confidence the others seemed to have in the Government of

China, we could be fairly sure that material delivered under LendLease would be used against the Japanese but we couldn't be sure that
the new loan would be used effectively for that purpose. He said he
was being quite frank about the matter. Secretary Morgenthau replied
that he didn't blame Senator LaFollette about being somewhat disturbed

since the loan was unusual; that it was the first one of its sort in

which the Secretary had participated. However, Chiang Kai-shek had

requested the loan and other Departments of the Government were urging

it strongly in view of the war situation: It was necessary to bolster

up the morale of the people around Chiang and to show our support.
Senator LaFollette then asked whether we would have control of disbursements under the loan. Secretary Morgenthau said that he would
say yes but he wanted to qualify that answer. Chairman Connally
pointed out that the language of the Resolution gives the President
and the Secretary control over disbursements under the loan. LaFollette
agreed that that was the sense of the language of the Resolution but
he asked whether the actual situation was going to permit control.
Secretary Morgenthau admitted that it might not be possible to control
the actual use of the funds in China but he said that he had considerable
confidence in the Chinese.

295
-3- Chairman Connally remarked that there were possibly several

phases to the loan: Initially it might bolster the morale of the

Chinese; subsequently the funds themselves could be used for several
purposes even including, for example, the purchase of arms from

Russia. Secretary Morgenthau followed this up by stating the several
ways in which China might use the loan, including the shipment of
some silver bullion, or as backing against a large internal loan
in China. Chairman Connally said he supposed the loan might even be
used to buy up a few Japanese generals. Secretary Morgenthau said

that it might be so used.

Senator Thomas asked if the loan was just to be used to attempt
to out-bid the Japanese in China. Secretary Morgenthau said he

wouldn't want to put the loan on that level and referred again to

the urgence of the Departments of State, War and Navy, who felt
strongly that a friendly gesture should be made to the Chinese
Government. He referred again to the past integrity of the Chinese
but said that the present loan was not to be regarded as a banking
proposition.

Senator LaFollette repeated that he did not share the faith that

the others seemed to have in the Chinese Government and that he did

not have any illusions as to what China would do if it won the war.
He further stated that apparently our failure to make adequate

deliveries under Lend-Lease was what was making the present loan
necessary. Secretary Morgenthau told Senator LaFollette that he
thought possibly the testimony of the Secretaries of War and Navy
and of the Assistant Secretary of State would clear up some of the
matters bothering the Senator but that he himself would be available

after their testimony, should the Senator wish to ask further questions.
Senator Barkley inquired whether the loan could be used to pay
the Chinese army. Secretary Morgenthau said that if Chiang wanted
to use it for this purpose he could. Senator Barkley asked whether

it wouldn't be worth it. Secretary Morgenthau replied in the affirmative.
One of the Committee members asked again whether it was expected

to get any of the money back. Secretary Morgenthau said that we must
face the possibility that we might not, but on the other hand we might
get a considerable amount back. The question was asked whether the
proposed transaction was to be regarded as a loan or a gift. Secretary

Morgenthau said that it was financial aid, dictated by political and
military necessity and should not be regarded simply as a loan.

Senator Lee asked Secretary Morgenthau whether Government receipts

were keeping pace with Government expenditures. The Secretary replied

that so far the Treasury had a good working balance. Senator Lee
inquired as to defense bond sales. Secretary Morgenthau gave him
the January figure and said that he could not be sure whether people
were buying up to their limit. Senator Lee then inquired whether the

-4-

296

Secretary had anything in mind to raise new funds, for example,
mandatory savings. The Secretary replied that we were studying
everything but were not yet worried about the relation between
income and outgo. Senator Lee then said he hoped it would be
possible to avoid World War high pressure in the sale of bonds.
Senator Pepper said that as he understood the situation the past
loans to China were sound according to the Secretary of Commerce;
that the $50 million made available to China by the Stabilization
Fund had not yet been used; and that not very much of the Lend-Lease
commitment had been used. Secretary Morgenthau agreed that this was

the situation. Senator Pepper said that in this case it appeared

that we had not extended much actual aid to China - possibly
$130 million - that is the record doesn't show we have done very
much. Secretary Morgenthau said that we had done very little.
Senator Pepper concluded that the new loan might therefore simply

approach a just level of aid to China. Secretary Morgenthau said
he thought the Senator had put the matter very well.
Senator Gillette inquired what was meant by the terms "loan or
extend credit". He wondered whether it should be interpreted as
"loan credit and extend credit". Secretary Morgenthau explained to
the Senator's satisfaction that what was meant was that we might

loan to China or extend credit to China. Senator Gillette asked if

he was correct in understanding that the total advancements to China
under the Resolution could not exceed $500 million. Secretary Morgenthau
said that this was correct. Senator Gillette wanted to know why we
should limit the amount if the objective was to bolster morale in
China. Secretary Morgenthau said that one reason at least was that
Generalissimo Chiang Kai-shek had not asked for more than $500 million.
Senator Johnson inquired whether he was right in understanding

that this was a military loan and that we didn't expect any return.

Secretary Morgenthau said that was correct. Senator Johnson then
said that he further understood that the loan would permit us to give
aid to Chiang Kai-shek as we wished, regardless of repayment prospects.
Secretary Morgenthau said that that also was correct. Senator Johnson
said that that was all that he wanted to ask and he appeared to be
satisfied.
At this point Secretary of War Stimson was introduced and before
he began his statement he said that he wished to reserve the right

to edit his remarks in view of the fact that some of the matters that

he night discuss were confidential. Secretary Stimson then gave
approximately the same statement as he had given before the House
Committee although he was speaking from notes and therefore introduced
some modifications as he went along.
Senator Johnson asked whether the loan would assist the War

Department's military effort. Secretary Stimson replied that it would
possibly prevent the Chinese Government from being overthrown, and

that even if never a cent was repaid this was the most valuable opportunity

-5 -

297

we have yet had offered to us. Senator Johnson asked why we hadn't

extended the loan earlier. Secretary Stimson replied that we had only
been eight weeks at war. Senator Johnson then suggested that there
had been eight weeks wasted in that case. Secretary Stimson replied
that in those eight weeks we had been laying the foundation for the
loan. Senator Johnson said he was in favor of the loan but that he
still didn't understand why it had been delayed so long. Secretary
Stimson said the President had arranged a conference in Chungking
in December at which the Chinese, British and Americans were represented. Senator Johnson asked whether the Joint Resolution providing
for a loan was the result of that conference. Secretary Stimson said
it would be better to say it was an important adjunct to that conference.
Senator LaFollette asked why Lend-Lease was not used for the proposed

credit. Secretary Stimson said that Lend-Lease supplies were likely
to be cut off in large part, whereas the proposed loan could be used

to meet China's domestic needs. He then asked whether Senator
LaFollette was proposing to put strings on the proposed loan. Senator

LaFollette said that he was not but that if a gift is needed in order
to keep Chiang in line that that was one thing; but that if the proposed aid is to be regarded as a loan that was another thing. He

wanted to know what it was. Secretary Stimson said that he was not a
Treasury or Commerce official and therefore would not undertake to
discuss the economics of the matter but that he considered the loan
as subsidy to keep China in the war. He referred to past war loans
where we had lost both the money and our friends. He now wanted to
give China generous and dignified aid which would "save face" for China.
He stated with emphasis that if the Senator wanted to make the loan

ineffective he should put a lot of strings on it and then see what
would happen in the Far East. Senator LaFollette replied that

Secretary of Stimson had satisfied him by saying that the proposed
financial aid was to be regarded as a subsidy. Secretary Stimson
said he hoped he had.

Senator Thomas asked whether the proposed credit was big enough.

Chairman Connally interjected that if it was not that the Committee
would still be there. Secretary Stimson said that in any case the
proposed credit would be big enough to impress the Japanese.
Secretary of the Navy Knox was then introduced to the Committee
and made approximately the same statement as before the House although

he was speaking informally and largely without notes. He emphasized
our need for time in order to get fighter planes to the Far East and
stated that China has vast man power which should save us from needing

to send a great expeditionary force to that area. At one time or

another during his testimony he was drawn into a considerable discussion

of the current military situation with reference to China, Malaya,
the Philippines and the west coast. The most relevant of his statements

was that he regarded the proposed loan as frank economic warfare -- as

"silver bullets". At this point Senator LaFollette asked if this meant

298
-6- that he did not regard the proposed loan as a loan. Secretary Knox

said that that was right; he didn't regard it as a loan but as a
frank attempt to bolster morale. Secretary Knox further said that

we would be negligent of our own interests if we did not aid China.

At this point - about 11:55 a.m. - Senator Barkley said that

he had to go up on the floor of the Senate but before he left he

wanted to say he proposed taking action today and that when he got
to the Senate the Joint Resolution, as passed by the House, would be

waiting at the door and that he would like to refer it to the

Committee at once with the hope that it could get back to the Senate
during the afternoon. It was informally agreed by the Committee that
this should be done.

Senator Thomas inquired of Secretary Knox whether this proposed

aid would not make China our full ally. Secretary Knox replied that

it would. Senator Thomas then said he hoped that we would then be

in a position to stick with China to the final end which would be
complete victory over all China's enemies. Secretary Knox said that
that was right. Senator Thomas then went on to say that he thought

it would be excellent to tell the American people that. Secretary

Knox asked if they had not already been told. Senator Thomas said
he was afraid they hadn't. Senator LaFollette asked whether our
inability to deliver Lend-Lease aid to China had made this loan
necessary and that, if so, what assurances would we have that

mere money would do the job. Secretary Knox said that of course mere
money would not do the job and that what was needed by China is

artillery and planes which we are now getting there. Senator LaFollette

persisted, asking whether we should expect that money would make up for

lack of weapons. Secretary Knox again agreed that it would not.

Senator LaFollette then wanted to know what good the money would do he said that he would not oppose trying to out-bid the Japanese but
that he had no faith in any such process. Secretary Knox repeated

that the loan should be regarded as military aid in the financial
field. Senator LaFollette indicated that he was not satisfied.

At 12:13 Pem., the Joint Resolution was brought to the Committee.
At 12:20 Senator Lee moved that the Resolution be reported favorably
to the Senate and there was no dissent from this motion.
Assistant Secretary of State Breckenridge Long was then introduced to the Committee and read Secretary Hull's statement.
Senator LaFollette asked what would happen if this loan was made.
Mr. Long replied that Chiang was facing appeasers and the loan would

aid in reducing their influence. Senator Nye asked whether these
appeasers were economic or political groups. Mr. Long replied that they

299
7-

were both. Senator Clark interjected that recently Sun Yat-sen's
son had accused us of being more interested in beating Hitler than
in helping China to beat Japan. Chairman Connally suggested that this
loan should counteract such an idea and Mr. Long agreed that it should.
Senator LaFollette against argued that mere dollars would not make up

for Lend-Lease failure. Mr. Long replied that the loan would serve
to bolster up China's credit.

300
February 5, 1942
9:37 a.m.
Operator:

Mr. Graves.

HMJr:

Harold.

Harold
Graves:

Yes, sir.

HMJr:

Good morning.

G:

Good morning.

HMJr:

I'm delighted with that article in the Post
this morning.

I thought that was pretty good.

G:

HMJr:

I thought it was very good. Now, Kuhn is here
and you're on the air and nobody else is in the
room.

G:

Yes.

HMJr:

He says that the preliminary stages of this "Life

G:

Yes.

HMJr:

Now, I told him that I thought it was all right

G:

Oh, yes.

HMJr:

What?

G:

Oh, yes, indeed.

HMJr:

Will you make a note of that?

G:

Yes, indeed. I told Ferdie that I thought and that see

in Germany" would cost up to six thousand dollars.

to make a commitment up to that.

we could certainly proceed on this thing case.

what one picture would look like in any

HMJr:

G:

Well, they're working now on Nelson Rockefeller
and Bill Donovan to share the expense.
Yes.

301

-2HMJr:

I suppose three ways.

G:

Yee, I knew that.

HMJr:

So - but we might have to stand the cost of the

G:

first six.

Well, we can do that. I think so. So does

Mr. Kuhn.

HMJr:

Okay.

G:

Fine.

HMJr:

Thank you.

G:

You're welcome.

302
February 5, 1942
9:42 a.m.
HMJr:
Dean

Hello.

Acheson:

Henry.

HMJr:

What do you want me to do? Sign another cable?

(Laughs) No. No, I just wanted to mention two
things to you.

A:

HMJr:

Yeah.

A:

One of them is that in this draft of the agree-

HMJr:

Yeah.

ment which you have

that was drafted last October
HMJr:

Yeah.

and there'11 have to be some language

A:

changes to bring it into accord with the state

of war if the British will take it at all.
HMJr:
A:

HMJr:

I see.

Now, the second one is, on the meeting which
you are going to hold tomorrow on Lease-Lend
in reverse
Yeah.

my senior partner, Judge Covington, died

A:

yesterday and I'm going to his funeral at ten
O clock tomorrow.

HMJr:

Oh.

So I can come after that at any time.
HMJr:
A:

Well, how much after?

Well, I should suppose that I'd be available any
time from, say, quarter past eleven on.

- -2 HMJr:
A:

HMJr:
A:

303

Oh.

I don't think it will be very long.
Well

It will be here in Washington.

HMJr:

Should I make it eleven-fifteen, then?

A:

I'm sure I could make that. I'm quite certain
I could make eleven-thirty.

HMJr:
A:

Well, I'11 call it for eleven-thirty.
All right.

HMJr:

What?

A:

Fine.

HMJr:

Because you're one of the main reverses in Lend-

Lease.
A:

HMJr:
A:

HMJr:

(Laughs)

I'11 change it.
Well, that's a field in which you fellows have
got to lead us.

Well, I think we'd better have you here. I'11
change the appointment to eleven-thirty.

A:

Is that satisfactory?

HMJr:

We'll make it that way.

A:

Thank you.

HMJr:

Okay. I'll make it eleven-thirty.

A:

Thank you, Henry.

HMJr:

I'd like very much to have you here.

A:

Thank you, sir.

HMJr:

Okay.

A:

Good-bye.

304
February 5, 1942
12:05 p.m.
HMJr:

Eugene

Hello.

Meyer:

Hello.

HMJr:

Henry talking.

M:

Good morning.

HMJr:

I just want to tell you I'm delighted with the

M:

HMJr:
M:

story and the way you handled it.

Oh, I'm glad to hear that.
It was beautifully handled.

Well, I'm glad that you liked it. I think that
we sat around worrying about it quite a little
for the afternoon, and I'm glad it was satisfactory.

HMJr:
M:

Couldn't have been - and I hope you're satisfied.

Oh, entirely. You were nice.
Henry, there's a matter that I want to talk to
you about a moment.

HMJr:

Yes.

M:

Have you got a moment?

HMJr:
M:

All the time you want.
Some of these foreign properties trusteed over
here - you know what I mean?

HMJr:
M:

I know what you mean.

.....are sending back reports to their home
offices.

HMJr:

Yes.

M:

Now, that trusteeship means to divorce those

operations - industrial operations I'm talking

-2-

305

about particularly - from the home office.
HMJr:

Yeah.

Because you wouldn't have allowed them unless

M:

they were.

HMJr:

Yeah.

I claim that those companies that are operated
under a trusteeship of that type have no right
to furnish any kind of information or reports

M:

to the owners abroad.

HMJr:
M:

HMJr:

You're right.
That's information - military information in the
hands of the enemy potentially.
That's right.

M:

Now I think - I don't want to name any names

HMJr:

Well, it's no use unless you do.

M:

Well, all right, I will.

HMJr:

Yes.

M:

You know this S.K.F.

HMJr:

Yes.

M:

And that is here in the Government.

HMJr:

Yeah.

M:

Now, I asked-one of our smart reporters wrote a
a smear story on him which I've stopped.

HMJr:

Yeah.

M:

And I went down and talked to him about it.

HMJr:

You did?

M:

Yeah. And I told him about his trusteeship.

HMJr:

Yeah.

306
-3He
told me about it, and I said, "Well, do
you make reports?"

M:

HMJr:

Yeah.

M:

He said he did. Then I said, "That makes your

HMJr:

You mean you're talking of S.K.F. now?

M:

Yeah.

HMJr:

Yeah.

trusteeship a fiction."

M:

To Sweden

HMJr:

Yeah.

which is under the guns...

M:

HMJr:

Yeah.

of Germany. Now, I'm raising the question,
not on account of the one, and I hope you won't

M:

raise it with any one company or raise it in

your department with respect to that, you see?

HMJr:

Yeah.

M:

Because he told me that in confidence.

HMJr:

Well, there's something, Eugene, going on about

M:

HMJr:

this Batt business, I don't understand.

Well, I'11 come and talk to you about it, because

I'm trying to help him.
Well, I tell you, I wish you would; or - because

there's some smoke somewhere. I don't understand

it, so if you had time I would like to talk to
you.
M:

Yes, I'll do it. I've got - I'm tied up and
I'm going out to Warrenton to see my English

children this afternoon.

HMJr:

Well, any time.

307
4

I'11 come in tomorrow. I think - I'm perfectly
sure it's all right as far as he's concerned;

M:

but I don't think any of those companies - now

I'm talking - I didn't ring up to tell you about
any particular situation.

HMJr:

Well, I've heard about this.
No, but I'm talking on the general proposition
that these trusteed operations should be instructed
that no reports about the industrial operations of

M:

the trustees to the owners abroad should be

allowed.
HMJr:
M:

I think you're right.
Well, I'm sure of it.

HMJr:

Yeah.

M:

Okay. Well, I'11 come in - well, listen.

HMJr:

Yeah.

M:

Tomorrow - no, I've got to go to the - let me

HMJr:
M:

see - how about twelve o'clock tomorrow?

Well, that's a bad time.for me.
All right. Tomorrow afternoon?

HMJr:

No, I can't. But I tell you what we'll do.

M:

Yeah.

HMJr:

Would you just as lief tell it to Gerard Swope?

M:

Gerard Swope?

HMJr:

Yes. With me, or would you rather tell it to me?

M:

Well, I'm not

HMJr:

You can't come in in the morning?

M:

What?

Hello

-5HMJr:

You couldn't come in earlier?

M:

How much? What time?

HMJr:

Well, you couldn't make it ten o'clock?

308

I think I could make it a quarter to ten.

Quarter of ten. It's a date.
Yeah. What?
HMJr:

It's a date.

HMJr:

All right. Quarter to ten - nine forty-five.
It's a date.

M:

Thank you.

HMJr:

Okay.

309
February 5, 1942
2:27 p.m.

Operator: Mr. Childs.
HMJr:

Operator:
HMJr:

William T.

Thank you.
Go ahead.

Mr. Childs.

Childs:

Hello, Mr. Secretary.

HMJr:

How are you?

C:

Fine.

HMJr:

Mr. Childs, I wanted to ask you a question.

C:

Yes.

HMJr:
C:

I'm looking forward to coming.
Yes. You know, I almost had a heart stroke.
I thought when you called me you were going

to say you couldn't come. (Laughs)

HMJr:

Yeah. Well, now wait a minute. Don't have a
heart stroke. But what I wanted to ask you would it be a tremendous inconvenience 1f it
was postponed one week?

C:

Oh, we couldn't do that. We've got everything
set up, Mr. Secretary.

HMJr:

You have.

C:

And engaged - the tickets and all have been

printed and it's set forward and - no, we just
could not postpone it, Mr. Secretary.

HMJr:
C:

HMJr:

Well, I didn't know how far you'd gone.

Oh, we've gone all to the limit.
You have.

-2C:

HMJr:
C:

310

And indeed in getting the promise of people
like Irving Berlin and Ed Wynn and John Charles
Thomas, probably, Lucy Monroe and others.
Good heavens! Well

We're really going to have a great show, and
we've set our standard, you know, to tell you.
We're going to have it and more, of a million
dollars for defense stamps - we're passed six
hundred and fifty thousand now, and we're really

going to town on it.

HMJr:
C:

HMJr:

C:

Well, I'll be there.
That's fine.
But I didn't know whether you could postpone it
or not.

Why I'd love to do it, but you can see that we
couldn't possibly do it now, couldn't you,
Mr. Secretary.

HMJr:
C:

HMJr:
C:

I can see it.
Well, now, tell me. How about your arrangements
of coming over and so on.

Well, I'11 most likely come by train, I think.
Uh huh. Mr. Radcliff's secretary said he'd be
only too glad to be of any assistance to you.

HMJr:

Well, we've got - I think that time of night
the safest way is the train.

C:

I agree.

HMJr:

What's the deadline that you want me there?

C:

Well, now, if you - well, we'll not - of course,
we'd like for you to meet - in fact, we'd like
the people to meet you when we have our formal

get-together about seven o'clock.
HMJr:

And you sit down?

-3 -

311

And then we go - then we have the cocktail party,

C:

which only lasts - we're going to make it very,
very short; and then we go down into the dining
room about seven-thirty.

HMJr:

About seven-thirty.

C:

Then we have some sort of a show and then we

probably - it just depends upon the arrangement
we make with the network - we may not put you

on until about ten.

HMJr:

C:

HMJr:

I see. Well, I'll make every effort to be there
by seven-thirty.
Well, that'll be grand. Now, do you want me to
do anything for you at all, or are you going to
find your way right to the Emerson? I've got
a room reserved there for you
Oh, I know where the Emerson is, and I'll get
there.

Well, we have a suite prepared for you. Are
you going to bring anyone with you, Mr. Secretary?

C:

HMJr:

Well, yes, I'd like to bring - I haven't spoken
to him - but I'd like to bring Mr. Kuhn.

C:

K-u-h-n?

HMJr:

K-u-h-n.

C:

Yes. All right.

HMJr:

And - his name is Ferdinand.

C:

Ferdinand Kuhn.

HMJr:

Kuhn, Jr.

C:

I see.

HMJr:

And I'd like to bring Harold Graves.

C:

I expected Harold.

HMJr:

You did?

312
4Yes.

C:

HMJr:
C:

Well, those two.
Who is Ferdinand Kuhn? Is he the old Kuhn-Lowe
people?

HMJr:

No, no, no. About a million miles - he was
for twelve years in charge of the London office
of the New York Times.

C:

Oh, yes.

HMJr:

And he's one of my main assistants.

C:

That's swell. We'11 be delighted to have

Mr. Ferdinand Kuhn and also Harold Graves.

HMJr:

Yeah.

C:

All right. Then you find your way, and we'll

have a suite for you at the Emerson, and that's
grand.

HMJr:

Do I wear a tuxedo, or.....

C:

Yes.

HMJr:

I wear a tuxedo.

C:

Yes.

HMJr:

And is it all males?

C:

All males.

HMJr:

All males. Okay.

C:

Well, that's grand.

HMJr:

I'm looking forward to it, but I didn't know

C:

Well, we've got the whole town looking forward

how far you had gone.

to you, Mr. Secretary. We really have. It's

going to be the biggest thing we've had, and
we're going to - oh, I've got your people here

313

-5on the Defense Committee - Rollison, and Ruth,

and all - everybody's working on it.

HMJr:
C:

Good.

Really, it - we were going to postpone the
thing altogether until we hit upon this idea
of making it a defense banquet.

HMJr:

Good.

C:

And we're going right over the top.

HMJr:

Wonderful. Thank you.

C:

Thank you 80 much.

HMJr:

Thank you.

C:

Good-bye.

314
February 6, 1942

MEMORANDUM FOR THE SECRETARY'S FILES

Conference in Mr. White's Office
February 5, 1942
3:30 P. M.
Present:

Mr. White

Sir Frederick Phillips
(Pursuant to a request of Secretary Morgenthau in his memorandum

of February 4 that Mr. White get in touch with Sir Frederick Phillips
to read a paraphrase of Secretary Morgenthau's message to Sir Kingsley
Good.)

Sir Frederick Phillips called at 3:30 P.M. at Mr. White's request.

Mr. White read a paraphrase of the paraphrased message to Sir Frederick
(received from the State Department) and explained that Secretary
Morgenthau had asked him to do it because Secretary Morgenthau wanted

Sir Frederick kept informed.

Sir Frederick then saic so long as he was here, there were two
questions he would like to raise.
1. He wished to know whether any decision had been made by the

President as yet on the takeovers of the British commitments. Mr. White
replied that to his knowledge the matter had not yet been definitely
settled. Sir Frederick then said he would like to call on Secretary
Morgenthau and make further inquiry about the matter, inasmuch as the

time was getting short for the Lend-Lease Bill to pass. Mr. White told

Sir Frederick that he would transmit his message to the Secretary.

2. The second point Sir Frederick wished to raise was with respect
to plans for utilization of the funds which were going to be loaned to

China. He wanted to know whether we were prepared to adopt the Niemeyer

plan. He said he thought his Government would be willing to allocate
610 million of the amount of credit that they were going to extend toward
fulfilling the plan. Mr. White told him that we had not come to any con- the
clusions as yet but that we had expected to go into the matter during
coming week. Mr. White further told him that if we had arrived at any
plan that we thought merited serious consideration he presuned Sir Frederick
would be kept informed.

Mr. White asked Sir Frederick whether the terms and conditions of the
to the Chinese Government to be extended by the British Government as
announced had yet been formulated. Sir Frederick thought they had not yet

aid

315
-2-

Division of Monetary
Research

come to terms. Mr. White said Secretary Morgenthau would naturally
be interested in hearing about the terms when they were set.

Sir Frederick then mentioned again the difficulty of getting

estimates for the next three months on their balance of payments and

the undesirability of making such figures public. Mr. White told him
that he fully appreciated the difficulty but felt that the Treasury
could hardly go before a Committee without pertinent data and could

not refrain from informing the Committee of the pertinent facts. Mr.

White further expressed the view that much more difficulty might be
raised if the Committee felt we were withholding pertinent information
from them than would be the case if we were able to tell them that we
were able to make the information available to them. Sir Frederick

said they were doing their best to get the figures ready.

OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON D.C.
E.R. Stettinius. Jr.
Administrator

February 5, 1942

The Honorable Henry Morgenthau

The Secretary of the Treasury
Treasury Department
Washington, D. C.
Dest Henry,

I received a message from your office this
morning relative to the meeting to be held
tomorrow morning on Lend-Lease in Reverse.

Upon calling you back, I found you on
the Hill, but as you requested, I have given
my thoughts on those I felt it would be
desirable for you to have present to Lieutenant
Stephens.

I greatly regret that I shall be denied

the pleasure of being there tomorrow, but I
have an unpleasant bit of dentistry to go
through with in New York, that I have already
postponed too long. However, I an aure that
Oscar Cox will be prepared to anke a valuable
contribution from the standpoint of the
Lend-Lease operation.
:

With best wishes,

Sincerely yours,

Ea.

E. R. Stettinius, Jr.
his

POPDEFENSE

BUY
UNITED
STATES

SAVINGS

BONDS

316

317

Don
discover

greening golden year we old by I

manyoro
is
home of Take can
Bengnets?

ic and
ida you Midows

for
mans son When
may

A-housing-spocialist - it is to laugh!
He's 25 and fit for the draft,

But
on
staff
Of an
the Morgenthau O.E.M., 3rd easy is graft. the

The stuffed shirts practice politics
To get their sons the gravy:
AS patriots they are heretics

To our sons in the Army and savy.
Lam Brooks.

318

)

:

319

you certainly got your son in a

yardon job in that housing authority.
you has done a lot of talking about

people for the country but
that all your family is going to

lo? Hope he donent get arounded

an american
(Christian)

320

February 5, 1942
My dear Senator:

I have your letter of February 3, with which you enclose
a letter from Mr. Kenneth M. Alcott of New Jersey, in regard to
my son Henry. I am very glad of this opportunity to give you
the facts.

Ever since my son was seventeen, his greatest interest

has been in the field of public housing, and is work at

Princeton and subsequently has been directed toward a career

in this field. His first work after graduating from college

was with the National Association of Housing officials, whose

purpose it is to train young men to go into the field of public
housing. Next he was called to Cleveland by Mr. Ernest Bohn
of the Municipal Housing Authority as a research assistant,

and served in that capacity until January of this year. In

December 1941 he received several offers as the result of his

special training, and the position which he finally accepted

was the one for which he was best qualified.

On accepting it, he explained that his draft number had

not yet been drawn, and that when it came up he would claim
no exemption and would not allow exemption to be claimed for
him because he was working in defense housing. My son is
doing exactly what General Hershey is advising, namely that
men of draft age who are doing a useful job should remain in

that job until they are called into active service.

Your constituent may wish to know that my son Henry has
been volunteering his time at night to help on the Cleveland He
Defense Council In connection with the housing situation. Robert,

might also be interested to know that my younger son
who is twenty-two years old, is now on active duty aboard a
destroyer.
Hon. W. Warren Barbour,
United States Senate,
Washington, D. C.
fK/hkb

Sincerely yours,
(Signed) 1. Margeather, It.

By Messenger

321

key dear Senator,

9 lattie

in Regard to my Sole Hzure

and am any glad togin
you the facts
my sou graduated from
Trivation in 1939 and Dau
Recourd all intarusture in Clucago

at The national corsocration of

Howing officials a Rockenfollen
Sudnesed organization white

purpose it is to Than young

mgy to go into the told?
Public

Honor, and an untarest
had

Weide us Son had
he was
since and fw which beligine filtery

ASR by tups a broad is
hermany autras and by special

crusos at Presistar . from

chicago he was calla to
darland G the ERGENT Bohu

The new. Hanny author x
as a Resource cost. He had a
number of other ofters at the

same time, of his
special trauns, He sandJuly
in1940
that capacity sucie
to Jan. 1942 th also volunts

his time at ught to help
ou the Clevland Deferr
comail in conviction with
the houses situation, which
Iu Decruik 1941 he RECORD
SquaRal offers due to lus special

SSP

training bauter in different
w the Field of Honora this
postion was The valuele he
accepted Assured The one
for which ha was last qualified
bu accepture it he explained

that lus DRaft wunkr had
not yet knee dRawa.

if cause up ha would claim
ho ayeur ption and would

not allow GX amptans to
k claimed for lum because
ha was worker in DEF Honsied

I think you aught sdu at
Ar your constituents who

rotad for you that what

me, sou is docus is exactly

322

Owhat Gau Harshay is advisure,

homely For were of draftage
are doing o usafal sot,

to Remain m That sot until
they are called into active
SERVICE Strught also

intaret your constituent
to know that us 227 r old
sou is ou active duty on

w Distrusia and that us

for Hand was thot ft

physically Fit fa Daliancy

For :the havys Marius

that be wzare glarges fortung

and Raflan Trau vot.

iit the arm or hang and

hawa adesh Jok he

323

pictars to tah gouto
the wait For the Draft
I4lan the Requirements For

vision are or Such a nature
that he has good Reason
to blim that hawill haunthe

sincing Mrs

0

,

324
The Secretary would like to have you talk
to him about this letter this evening.

by hand

325
COMMITTEES

WARREN BARBOUR
NEW

COMMERCE

JERSEY

MANUFACTURES

United States Senate

NAVAL AFFAIRS
PUBLIC BUILDINGS AND GROUNDS
RULES

WASHINGTON D.C.

February 3, 1942

Denr Secretary Morgenthau :

Enclosed you will find a letter which I have
just received from Mr. Kenneth 1. Alcott of New Jerney which

is self-circlenatory.
I would appreciate your advising no no that I

it turn. may write to Mr. Alcott.

Sincerely yours,

Non. Henry Norgenthau, Jr.
Scoretary of the Trensury
Licehington, D.C.

WB

abhts

Wann Barbour

4

Jan. 31st- 42
2 Mashington ave
Rutherford- n .g
How W. Waren Barbour

Dear Senator:

agroup of my friends (all
oftherevoted for you hand requested me to

write whom and with ask foreinformation

are allover
of the
saw service
seaplast war and
Now in this was, our sous and
the nephews are enlisting (not drafted) States in

g armed forces of the United
myself, have a myphone informantly

I

urigered N frim position and inlisted and
we uring would like to know Sinator

25ymal figural

is
why Henry Morganthau 3rd to a January
man,

and called a Hanning &
n.y. Sun of Jan. 80
Com

Sundy older men

be found for thus job IL from need and

LOmen
till us
everyinLow,
that the to
is great
all branches
my armed forem Wi will appreciate
prompt
Kerneth truly M. alcott

327

February 5, 1942

y dear Mr. President:
I am pleased to send you herewith a
memorandum as a result of a week's work to at-

tain uniform regulations by all Departments in

regard to deferment of officers and employees

from military training and service on occupational grounds.

This memorandum is signed by the Secre-

tary of Mar, the Secretary of the Navy, the

Director of the Selective Service System, Wm. H.
McReynolds and myself.

If you approve this recommendation, we
suggest that you send a copy of it to each member

of the Cabinet and the heads of all Independent
Agencies.

Yours sincerely,
(Signed) N. Mergenthaw. Jr.

The President,
The White House.

fell m.m.C.

328
THE WHITE HOUSE
WASHINGTON

February 5. 1942

MEMBRANDUM FOR THE PRESIDENT:

We recommend that you issue to the heads of all departments
and establishments the following regulations to covern their actions
on all requests for deferment of officers and employees from military
training and service on occupational grounds:

1. Request for the deferment from service under the
Selective Training and Service Act. approved September 16.
1940. as asended. of any officer or employee of the United
States government shall be made only by the head of the
appropriate department. indenendent establishment or other
agency. or by e person designated by such head to take such
action. Such request must be cade on the form or forms
prescribed by the Selective Service system.
2. No such request for deferment shall be made except
when the head of the appropriate agency, or a person desig-

nated by him. shall certify that

(a) The officer or employee is in a position.
the duties of which are clearly related to the war
effort or to essential supporting activities. and
that

(b) The officer or employee is in n type of

position listed by the Selective Service system AS

one in which it is difficult to obtain replacements.
or a tyme of position in which he can not be readily
reblaced except by the training of 1+ successor
through work experience for A period of At least
six months.

3. The initial request for deferment will. in Accordance with
Selective Service regulations, be for n period of not to exceed
six months. If the duties of the position occupied by the officer
or employee are of A tyme which remire work excerience of less
then two years to attain A reasonable competence in their performance. the appropriate agency will take immediate steps to
train e successor.

329
-2- 4. Request for deferment beyond the initial six month
period will not be made except when the head of the department shall certify that one of the following conditions
exists:

(a) That to attain reasonable competence in the
performance of the duties of the position occupied
by the officer or employee requires work experience
of two years or more.
(b) That a replacement has been secured but that

a further period of training is required before the
trainee is qualified to assume the responsibilities
of the position.

(c) That the Selective Service system has found
that a shortage of persons with the qualifications
required in the position exists and it has been impossible to secure a replacement.
5. The heads of all departments, independent establishments
and other Federal agencies will immediately make an inventory

of officers and employees who, in all probability, will be

placed in class I-A and, where necessary. recruit and begin
the training of persons who, when the officers or employees
now holding the positions are inducted into the military
service will be ready to assume the duties and responsi-

bilities of the positions thus made vacent.

Secretary of Treasury

Anney
L Thisson
Secretary of War

Transaction
Secretary of Navy

Lewis
B Herskey
Director. Selective Service System

Institutes

Administrative Assistant to the President

330

February 5, 1942

by dear Mr. Nelson:

I thought that this would be of
interest to you.
Yours sincerely,
(Signed) E. Morgentham. is.

ar. Donald Nelson,

Chairman, lar Production Board,

5044 Social Security Building,

Washington, D. C.

Filenme
By Messenger Givens 4:55

331

February 5, 1942
secretary Morgenthau
Gerard Swope

supplementing the memorandum of January 31,

for the Procurement Division of the Treasury in

connection with Lend-Lease purchases, I thought

the attached figures would be of interest to you.
You will notice that approximately one-third

of the purchases have already been delivered and

the balance are at the factories in process, on
a definite schedule of deliveries. Approximately
40% of the obligations for United Kingdom have
been delivered, a little less than 10% for Russia,
and 33% for China.

You will also notice that the administrative

expenses of the Procurement Division for making
these purchases are approximately one-third of
the allocation for such expenses, and approximately
.073% of the purchases made.

GS:BLB

Attachment

TREASURY DEPARTMENT PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS

AS OF JANUARY 31, 1942

(In millions of dollars)

Allocations
Obligations (Purchases)

Russia

Administrative Undistributed &

Total

U.K.

$826

$580

$77

$60

$.9

462

387

46

27

.3

163

149

4

9

China

Deliveries to Foreign
Governments at U. S.
Ports

Expenses

Miscellaneous
$108.1

333
WAR PRODUCTION BOARD
WASHINGTON D.C.
OFFICE OF

DONALD M. NELSON
CHAIRMAN

February 6, 1942

My dear Mr. Secretary:
Thank you very much for your note
of February 5 and the enclosure from Mr. .

Gerard Swope regarding the activities of
the Procurement Division in connection with
Lend-Lease Purchases.

Sincerely yours,

Donald M. Nelson

Mr. Henry Morgenthau, Jr.
The Secretary of the Treasury
Washington, D. C.

334
TREASURY DEPARTMENT
WASHINGTON

February 5, 1942

DEFENSE SAVINGS STAFF

MEMORANDUM FOR THE SECRETARY

The following is a description of the plan of war finance
proposed by Mr. John T. Flyan in 1935, testifying before the Nye
Committee, which I referred to in our conversation today,
The Senate committee investigating the munitions

industry devoted considerable time to the study of war-

time taxation and price control, with John T. Flynn,
noted publicist and authority on finance, as consultant
to the committee. He is largely responsible for a plan
which seeks to defray the cost of war on a pay-as-you-go

basis, thereby removing the forces which cause inflation

and its evils.
Senator Arthur Vandenberg, member of the committee,

stated Flynn's fundamental thesis succinctly as follows:

It is proposed to strike at the economic
heart of the war profit by the simple fundamental device of requiring that no future war be
fought on borrowed money, but should be paid for

substantially by current taxes. It is the process
of making war on borrowed money which primarily

creates the simister inflation out of which grows:

335
-20

1. The opportunity for swollen profits.
2. The economic dislocation of the war era.

3. The post-war calamity of deflation.
The Flynn plan consists primarily of dependence on drastically
revised corporate and personal income taxes. The former provides

that corporation profits up to 6 percent of the capital value of such
corporations will bear a 50-percent tax. An excess-profits tax of

100 percent will be levied on all profits above 6 percent. To eite
Flymm's example, a corporation with an adjusted declared value of

$100,000,000 mikes $50,000,000 in a war year. Profits of 6 percent
of the declared value, or $6,000,000, would be taxed at 50 percent, or
$3,000,000. The remaining profits of $44,000,000 would be taxed at

100 percent. Thus this corporation would pay a total tax of $47,000,000,

leaving it with a net profit after taxes during that war year of $3,000,000.
The personal income-tax changes proposed are also very drastic. The
elaborate mechanism of normal and surtaxes is to be eliminated, and a
rate structure imposed which does not permit even the topmost tax-free
income to exceed $10,000. As Flynn says:
That may look very drastic to the man who is
making $50,000 now and who made $100,000 a year in

the last war, but it ought not to be so bad, because
after all, you ought not to be accused of unreason=

-30

ableness when you ask a man to run a factory for
the same sum that you pay a general commanding in

the field.
In order to speed up the collections from these taxes, Flyan proposed that they be collected on a quarterly basis. He also advised

requiring corporations to file with the Government a list of officers'
salaries which could be published in case of any attempt to raise them
unduly during the war period.
Several objections have been offered to Flymm's paywas-youege plan.
One is that the enermous amounts immediately necessary for war expenditures cannot be made available through a tax program dependent or earnings

and profits. Borrowings alone can provide such sums with dispatch. It
may well be that in-armohair contemplation of preparedness and war, the

Flyan plan seens to possess unusual merits of controlling inflation and
post-war deflation, but in such an emergency as now confronts us, we case

not wait for the slow accumulation of income-tax receipts. The realities
of the situation oblige the Government tomise immediately many billions
of dollars to capitalise and conduct a war economy. Flynn attempted to
meet this need by suggesting short-term Government leans to anticipate

tax collections. But there is no evidence to support the view that even
when the tax system is bringing in revenue, the returns will be at all
sufficient to meet the requirements of preparedness and war, even though

prices are controlled and war oests rigorously held down. Germany's .

-

336

perience, while not entirely clear, indicates that taxation even of
the most oppressive kind was insufficient to equip a modern war machine,

and entirely too meager to defray the costs of actual war operations.
The sums used are so vast, and the war emergencies develop so rapidly,
that money becomes immediately necessary if the outcome is to be succes-

sful. In these situations, the long view is usually and necessarily over
looked, and the emergencies are met as realistically as possible.
The corperation income taxes proposed by Flyan are much more severe

than present rates. While he argues that they do not limit profit, but
merely appropriate a very substantial part of the profits made, still they
may well restrict incentive and make it necessary either to depend upon the
most ardent patrietian of management and owners, or to establish some system

of governmental control ever operations which will raise production to the
required wartime level in the time available. To take such chances is most
hasardous. The War Department states:

The attitude of the War Department with regard to war-

profits taxation should be clearly understood by all those
engaged in business in this country. The War Department

does not look with disfavor upon war taxation to ourb exces-

sive profits, but merely akes the viewpoint that excess
profits must not be ourbed beyond a point where incentive to

production will be removed. It has always maintained
that a war-tax measure must not impose so much of a burden on

industry that the production of war mumitions and materials

337
-5-

might thereby be hampered, crippled, or even de-

stroyed. It has recognised that excessive taxes

might well result in a failure to produce sufficient
munitions when needed and this would be paid for not

in dollars and cents but in lives and the consequences
of possible defeat.

Peter H. Odegard

338

FEB : 104

by dear Mr. Secretary:

Reference is made to your letter of January 23, 1942,
transmitting a copy of your instructions of January 20, 1942,
to all naval air stations, which were issued at the request
of this Department, for the purpose of assuring appropriate
customs treatment of merchandise and baggage brought into

the United States in naval airpraft of this country.

The Department believes that the instructions which you
have issued will be conducive to a proper enforcement of those
laws which this Department is charged to administer. Your
wholehearted cooperation in this satter is greatly appreciated.
Concerning your request for any compilation of regulations

pertaining to naval aircraft which may be available in this

office, you are advised that the Department has not pronulgated
regulations applicable to public sircraft and does not deem
it advisable to do so at this time, as the matter now may be
handled on a more flexible basis than it could be under spe-

cific regulations. The local customs officers will be glad

to advise and furnish any necessary customs forms in con-

nection with particular transactions.

Very truly yours,

Acting Secretary of the Treasury.

The Honorable

The Secretary of the Navy.
LPJ:mc

1/31/42

339

Address reply to
The Secretary of the Navy

and refer to initials
and No.

Y

NAVY DEPARTMENT
WASHINGTON

Serial No. 18313
A4-5(2) (411127)

23 January 1942

Sir:

In a letter dated November 27, 1941, the Secretary
of the Treasury requested that appropriate instructions be issued

to naval aviation activities in order to insure compliance with

customs regulations. Enclosure was prepared in response to that

letter and it is believed will cover the requirements for customs
inspection of naval aviation personnel.

If there is available in your office any compilation
of regulations pertaining to naval aircraft it is requested that
the Navy Department be furnished a copy so that this information
may be disseminated to aviation activities.
Respectfully,
/s/ Frank Knox

The Honorable,

The Secretary of the Treasury.

Encl.

*Enclosure quoted in Bureau Circular Letter (Unnumbered), dated
February 6, 1942, copy attached.

REFER TO

340

TREASURY DEPARTMENT
BUREAU OF CUSTOMS

234.2

OFFICE OF THE COMMISSIONER

WASHINGTON

ADDRESS REPLY TO

SEONER OF CUSTOMS

February 6, 1942.
BUREAU OF CUSTOMS

CIRCULAR LETTER

TO COLLECTORS OF CUSTOMS:

Re: Merchandise and baggage imported on naval aircraft.

At the request of the Treasury Department, the Secretary
of the Navy on January 20, 1942, issued the following in-

structions to all Naval Air Stations:
"Subject:

Customs Examination at Naval Air Stations.

"1.

The following standard procedure is hereby
prescribed regarding customs examinations of naval

aircraft entering the United States:

"(a) - Commanding officers of Naval Air
Stations within the continental limits of

the United States will make such local ar-

rangements with Treasury Department rep-

resentatives as will ensure availability

of customs inspectors at short notice.

"(b) - Bagrage and merchandise transported
by naval aircraft which have been in foreign
ports, or duty-free ports under United States
jurisdiction, will be inspected and cleared

at the first naval air station visited by

such aircraft upon reentry to this country.

"(c) - Personnel will not be detained for

customs examination in cases where such

examination would delay military operations."

W R Johnson
Commissioner of Customs.

TREASURY DEPARTMENT

341

INTER OFFICE COMMUNICATION

DATE February 5,1942

Secretary Morgonthau

TO

FROM

Mr. White

Subject: Change Of Room Space - Stabilization Staff.
1.

It would be desirable, for several reasons, to transfer the
Stabilization Fund staff from its present space, rooms 275,

277, 279, 281-283 to rooms 215, 217, 219 and 223. We would
retain room 221, already occupied by five members of my staff.
The two persons working on ticker service and Mr. Hedley

would be left in a room near your office.

2. In addition to freeing highly useful space near your office,
the suggested transfer would:

(a) Enable me more efficiently to integrate the Stabilization
staff with the other sections of my office. The group
would be near me, and its services more readily available.

(b) Avoid considerable duplication of filing and distribution
of material that now exists. This would facilitate more
adecuate use of the efficient filing system that has been
developed by the Stabilization office.

(Copy sent to Mr. W. N. Thompson)

342
The Coca-Cola Export Sales Company
515 MADISON AVENUE
NEW YORK N. Y
JAMES FARLEY
CHAIRMAN OF THE BOARD

February 5, 1942

Honorable Henry Morgenthau

The Secretary of the Treasury
Washington, D. C.
Dear Henry:

I was very happy to read a copy of your

letter of February 2nd to Dick Patterson. I am
delighted that he has made good. I was sure he

would if given the opportunity. It pleases me

more than you will ever know.

Very sincerely yours,

Jim
JAF LF

343
February 2, 1942

Dear Dick:

Herold Graves has given me a good
report about the New York organization of
the Defense Savings Staff.

It is probably unnecessary for me

to tell you how pleased I air. In fairness,

I think you should know that there was a
time when I had some doubt whether or not
you would succeed in the post of Chairman
for New York.

It is a pleasure to say to

you that I was wrong about this and that I
an now entirely confident that a fine job
will be done in New York under your leadership.

With best wishes, I am
Yours sincerely,
(Signed) Henry

Col. Richard C. Patterson, Jr.,
Chairman, New York State Committee,
Defense Savings Staff,
1270 Sixth Avenue,
NEW York, N. Y.

344
THE SECRETARY OF THE TREASURY
WASHINGTON

Dear Dick:

Harold Graves has given me a good report
about the New York organization of the Defense
Savings Staff.

It is probably unnecessary for me to tell
you how pleased I am. In fairness, I think
you should know that there was a time when I
had reached the conclusion that you were not

oin to succeed in the post of Chairman for
New York. It is a pleasure to say to you
that I was wrong about this and that I are

now entirely confident that a fine job will
be done in New York under your leadership.

With best wishes, I am
Sincerely,

Col. Richard C. Patterson, Jr.
Chairman, New York State Committee,
Defense Savings Staff,
1270 Sixth Avenue,
New York City.

345

TREASURY DEPARTMENT
DEFENSE SAVINGS STAFF
NEW YORK

HEADQUARTERS-1270 SIXTH AVENUE. NEW YORK, N. Y.-CIRCLE 6-3100
BUFFALO

ALBANY

ROCHESTER

MARINE TRUST BUILDING

STATE BANK BUILDING

LINCOLN ALLIANCE BUILDING

February 5, 1942
NEW YORK STATE COMMITTEE
HERRERT H. LEHMAN
HONORARY CHAIRMAN

My dear Henry:

CHARD c PATTERSON Jr.
STATE CHAIRMAN

Thank you for your February 2nd letter with

LYTLE HULL
VICE CHAIRMAN

NY FORD
STATE ADMINISTRATOR

reference to the job we are trying to do for you
in New York State.

RUCE SMITH
ASSOCIATE STATE ADMINISTRATOR

DOUGLAS

CHAIRMAN GREATER NEW YORK
COURTLANDT D. BARNES
SCHAIRMAN

90 H LETCHWORTH
AMAN UPSTATE NEW York
OSCAR SOLDERT
VICE-CHAIRMAN

EXECUTIVE COMMITTEE
by EMERSON
CHARMAN

We have a fine loyal group of people here
working for your department, and I feel sure the
results will warrant your expression of confidence
in us.

Your letter strengthens my determination to
do the best job possible.
Always with kind personal regards,

HYARD POPE

VICE CHAIRMAN

Sincerely,

ENRY BRUERE

BANK COLUMBUS

Dich

USENE C DONOVAN
ARTHUR GETMAN
ALTERS GIFFORD
ENTY H. HEIMANN

Richard C. Patterson, Jr.

RTHUR KUDNER

Chairman.

HOMAS J. LYONS

ILLIAM MYERS
ANUEL W. REYBURN
COURT G. ROUSE

SCHNEIDERMAN
STREBEL

Honorable Henry Morgenthau

Secretary of the Treasury
Washington, D. C.

hasted

G

FORDEFENSE

BUY
UNITED
STATES

346

February 5, 1942
Dear Sam:

Thank you very much for your letter of

February 3rd. We have had many suggestions

that we distribute buttons or other identifying

emblems to those who buy Defense Bonds, but
none of these suggestions has appealed to US.

The reason is that the identification of bondholders will tend to label the non-buyers, and

this, in turn, might easily lead to the talk

of "slacker" and other excesses of the kind we
had during the Liberty Loan drives.
My own feeling about this sort of pressure
was stated in the speech I delivered to the United
Automobile Workers in Detroit on January 25th.
I think you may be interested in the passages
I have marked on page four.

Thank you all the same for sending me your
suggestion.

Sincerely,

Justice Samuel I. Rosenman,
Justices Chambers,
New York County Court House,
New York, N. Y.
FK/egk

condempson

n.m c

347

Supreme Court
of the

State of New York
in
JUSTICES CHAMBERS
NEW YORK COUNTY COURT HOUSE
NEW YORK N.Y

SAMUEL 1. ROSENMAN
JUSTICE

February 3, 1942.

Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,

Treasury Department,
Washington, D. C.
Dear Henry:

I have received a letter from a

friend of mine who has suggested the idea
that the Treasury might give to each person
buying one or more defense bonds a suitable
emblem to wear. The purpose would naturally
be to induce people to buy bonds because
those who do not buy bonds would not have
the emblem to display.

It is similar to the button of
the Red Cross drive and the emblem formerly in
use for contributions to British relief.
I suppose others have made similar

suggestions to you, but I thought I would pass

it on for what it is worth.

Yours very sincerely,

Sam

348
TREASURY DEPARTMENT
WASHINGTON

February 5, 1942.

MEMORANDUM FOR THE SECRETARY:

You asked me the other day for a report
on the progress being made to have newspapers

and other publications install the pay-roll
savings plan.

I hand you herewith a report on this
subject given me yesterday by Mr. Mahan, which

encloses a list of publications which have so

far (as of January 24) installed the plan.
GRAVES.

TREASURY DEPARTMENT

349

INTER OFFICE COMMUNICATION

DATE 2/4/42
TO

Mr. Graves

FROM Mr. Mahan

As of January 24th, 238 newspapers and other publications were

reported by the State Organizations as having established payroll
savings plans. The list of 238 papers represents, in the main,
the largest and most important newspapers and publishing enterprises in the country.

The question of approaching newspapers from Washington on the pay-

roll savings plan was discussed with Howard Stodghill. He has
reservations about making a direct approach from here with which
Callahan and I conour. As a matter of fact, Callahan considered sending out 8 telegram to all newspapers but decided against it for policy reasons.

Newspaper employees, by and large, are not making the additional

money that is being made today by industrial employees. As a result,
meny newspapers have difficult labor relations problems with the
several unions with whom they are obliged to deal.

We are asking newspapers to make many contributions to our program

in the way of publicity material, advertisements, cartoons, editorial
ears, etc., etc. We definitely feel that any pressure which might be

brought to bear upon them from Washington to install payroll savings
plans would have a tendency to disturb our relations with them.
It would seem that the results achieved to date by our State Organizations in lining up newspapers on the payroll savings plan confirms our opinion that the job can best be done locally taking into
account local conditions. We feel that an excellent job has been
done by following the same method that is being employed in handling
other industries. As long as we seem to be getting the results we
are in this manner, we would not recommend a direct approach from

Washington.

In the meantime Stodghill will approach state and regional newspaper
publishers associations and personally request that they help our
State Organizations with newspapers which have not adopted the plan
as yet.

SDM/hr

TOTAL 238

350
Newspapers and other publications reported as having established
pay roll savings plans January 24, 1942
Number of
employees
ALABAMA

Birmingham Post, Birmingham

Mobile Daily Newspapers, Inc., Mobile

210

85

ARKANSAS

Canden News Publishing Co., Camden

14

CALIFORNIA

Progress Journal, San Diego

20

Pasadena Star News Publishing Co., Pasadena

450

The Exeminer, San Francisco

700

Tribune Publishing Company, Oakland

568

Peninsula Newspapers, Pala Alto

298

San Frencisco Chronicle, San Francisco

700

S. F. Daily News, San Francisco

450

The Citizen-News, Los Angeles

Times-Mirror, Los Angeles
John P. Scripps Newspapers, Sen Diego

Southern California Newspapers, Los Angeles
Los Angeles Examiner, Los Angeles
Los Angeles Evening Herald and Express, Los Angelee

240

1,500
50

400

1,300
1,100
150

Sunset News Company, Los Angeles

Beverly Hills Citizen News, Beverly Hills

70

470

Union Tribune Publishing Company, San Diego
112

Pacific Press and Publication Assn., Sunnyvele
130

Riverside Daily Press, Riverside

-2-

351
Number of
employees

(Centional)
and MaDonald Publishers, Inc., Los Angeles
Company, Santa Monica

260

100

Thirty News of See Angeles, Los Angeles

350

Steakillan Becord Stookton

115

Berkeley Genetic Publishing Co., Berkeley

90

COLORADO

The Denver Post, Denver

500

Colorado Serial Ballishing Co., Denver

150

Star-Journal Publishing Company, Pueblo

105

Deaver Note Company Denver

Rookg Neva, Deaver
Disbury Two-Since Company. Danbury

65

200

59

Hartfor& - Hartford

378

Sartford Times, Hartford

414

Republican, Inc., Waterbury
Vaterswiz Disporat, Waterbury

Donda Mail Publications, Inc., Greenwich

225
100

1,943

DISERIOR OF COMMIZA

Evening Star Nevipaper Co., D.C.

1,424
650

Mashington Post, D. 0.
FLORIDA

Bay Country Publishers, Inc. (The Panama City Herald),

17

OFFICE Star, Orlando
109

Franklin Press, Kismi
120

Miami Herald Publishing Co., Miami

- -3 -

352
Number of
employees

GEORGIA

Atlanta Journal, Atlanta

550

Herald Publishing Company, Augusta

110

Union, Macon

157

Capital News Publishing Company, Boise

100

IDAHO

Daily Bulletin, Blackfoot

11

ILLINOIS

Chicago Daily News, Inc., Chicago
Chicago Times, Inc., Chicago

1,529
875

INDIANA

Journal Gazette Co., Ft. Wayne

175

Indianapolis News, Indianapolis

544

Despatch Publishing Co., Inc., Michigan City

42

Tribune-Ster Publishing Co., Terre Heute

70

IOWA

Register and Tribune, Des Moines
Meredith Publishing Company, Des Moines

940

1,000

KANSAS

The Topeka State Journal, Inc., Topeka

30

106

Hutchinson Publishing Company, Hutchinson

Capper Publications, Inc., Topeka

730

300

Beacon Publishing Company, Wichita
35

Coffeyville Journal, Coffeyville
Kentucky

Courier Journal and Louisville Times, Louisville

1,200

353
Number of
employees
MAINE

Gannet Publishing Company, Portland

540

Lewiston Daily Sun Journal Co., Lowiston

182

MASSACHUSETTS

Globe Newspaper Company, Boston

1,084

Courier Citizen, Lowell

750

Fall River Herald, Fall River

172

Hotel and Railroad News Co., Boston

150

Hastings & Sons Publ., Co., Lynn

100

New England Newspaper Publ. Co., Boston
Court Square Press, Boston

Enterprise Publishing Company, Brockton
Plympton Press, Norwood

1,000
161

143
650

MICHIGAN

Booth Newspapers Inc., Detroit:

1,224

Ann Arbor News

Bay City Times

Flint Journal

Grand Rapids Press

Jackson Citizen Patriot
Kalamazoo Gazette
Muskegon Chronicle
Saginaw News
1,116

Detroit Free Press, Inc., Detroit
1,896

Evening News Association, Detroit
1,000

Knight Newspapers, Detroit
Times Publishing Company, Detroit

Battle Creek Inquirer-News, Battle Creek

Federated Publications, Inc., Battle Creek

1,119
80

548
624

W. B. Farrell Associates, Inc., Wayne
42

Dana Printing Company, Muskegon

Evening News, St. Ste Marie

45

-5-

354
Number of
employees

MINNESOTA

Faribault Daily News, Faribault

29

Minnesota Union Advocate, St. Paul

20

Free Press Co., Mankato

96

The Journal Co., Faribault
Minnesota News Co., St. Paul

5

33

Star Journal and Tribune Co., Minneapolis

700

Duluth Herald-News Tribune, Duluth

300

Minneapolis Daily Times, Minneapolis

257

Northwest Publications, Inc., St. Paul

565

West Publishing Company, St. Paul

600

Hart Publishing Company, Minneapolis

108

Webb Publishing Company, St. Paul

320

The Colwell Press, Minneapolis

35

Curtis Companies, Inc., Minneapolis

70

Minneapolis Shopping News Co., Minneapolis
Augeburg Publishing House, Minneapolis

75

150

60

Miller Publishing Co., Minneapolis
MISSISSIPPI
150

Meridian Star, Meridian
52

Hattiesburg American, Hattiesburg
MONTANA
108

Post Publishing Company, Butte
150

Great Falls Tribune, Great Falls
15

Montana Newspaper Association, Great Falls
60

Independent Publishing Co., Helena

-6-

355
Number of
employees

MISSOURI

Star Times Publishing Co., St. Louis

599

Star Journal Publishing Co., Warrensburg

140

Eden Publishing House, St. Louis

Barrick Publishing Co., Kansas City

69

101

NEBRASKA

World Publishing Company, Omaha

500

NEVADA

Neyada State Journal, Reno

50

NEW JERSEY

Courier-Post Co., Camden

Elizabeth Daily Journal, Elizabeth

333

1,012

Hudson Dispatch, Union City

256

Perth Amboy Evening News, Perth Amboy

120

Call Printing Publishing Company, Patterson

124

72

Princeton University, Press, Princeton
NEW MEXICO

86

Albuquerque Publishing Company, Albuquerque
NEW YORK

Daily Mirror, Inc., New York
New York Times Co., New York

1,341
-3,200
1,226

New York World-Telegraph Corp., New York

New York Herald Tribune, Inc., New York

1,710

New York Journal American, New York
1,288

New York Post, Inc., New York
165

Elmira Star Gazette, Inc., Elmira
1,000

P M. Inc., New York

-7-

356
Number of
employees

NEW YORK (Continued)

Polish Everybody's Daily, Buffalo
Tribune Press, Ogdensburg

1,400
15

Corriere d'America, Inc., New York

141

Journal of Commerce Corp., New York

161

Brooklyn Daily Eagle, Brooklyn

800

Dell Publishing Co., Inc., New York

182

Fairchild Publishing Company, New York
Country Life Press Corp., New York (Doubleday Doran)

The Crowell Collier Publishing Co., New York

4,000
800

3,835

MacFaddin Publications, Inc., New York

700

The MacMillan Company, New York

450

Magazine of Wall Street, New York

McGraw-Hill Publishing Co., Inc., New York
Time Inc., New York
Newsweek, New York

1,200
900

185

Charles Scribner's & Sons, New York
200

S.M. News Co., Inc., New York

Popular Science Publishing Co., Inc., New York

270

85

New York Law Publishing Co., New York
110

Thomas Publishing Company, New York
600

Street & Smith Publications, Inc., New York
300

The American Home Magazine Corp., New York

The Hopp Press, Inc., New York
300

Harper & Brothers, New York
150

The Lawyers Co-operative Publishing Co., Rochester

-8NEW YORK (Continued)

Hearst Magazine, Inc., New York

357
Number of
employees
1,302

The New Yorker, New York

160

The Gregg Publishing Co., New York

108

The Associated Press, New York

Ahrens Publishing Co., Inc., New York

The Fitch Publishing Co., Inc., New York

J. J. Little & Ives, New York

350

Publishers Association of NYC, New York
Scribner Press, New York

300
100

Scripps Howard Co., . New York
NORTH CAROLINA

News and Observer Publishing Co., Inc., Raleigh

138

185

Piedmont Publishing Company, Winston Salem

P. D. Gold Publishing Co., Wilson

15

NORTH DAKOTA
40

Biemarck Tribune Company, Bismarck
40

Minot Daily News, Minot
OHIO

150

Herald-Star, Steubenville
Portsmouth Times, Portemouth

Marion Star, Marion
Salem News, Salem

East Liverpool Review, East Liverpool
Cleveland News, Cleveland

Cleveland Press, Cleveland

Cincinnati Post Publishing Co., Cincinnati

200

150

100

150

-9-

358
Number of
employees

OHIO (Continued)

Dayton Shopping News, Dayton

15

Sealfield Publishing Co., Akron

150

billboard Publishing Co., Cincinneti

150

Standard Publishing Co., Cincinnati

191

OKLAHOMA

Lawton Constitution, Lawton

27

Blackwell Daily Journal Publishing Co., Blackwell

42

Muskegee Phoenix and Times-Democrat, Muskegee

News Publishing & Printing Co., Ada

181

32

OREGON

Journal Publishing Co., Portland

575

Oregonian Publishing Co., Portland

700

PENNSYLVANIA

Bulletin Company, Philadelphia

Philadelphia Daily News, Inc., Philadelphis

Philadelphia Inquirer Co., Philadelphia

2,037
336

2,441
257

United News Company

The Curtis Publishing Co. of Delaware, Philadelphia

The Curtis Publishing Co. of Penn., Philadelphia

1,902
3.939
447

Farm Journal, Philadelphia
310

National Publishing Co., Philadelphia
549

P-G Publishing Co., Philadelphis
RHODE ISLAND
750

Providence Journal Co., Providence

- 10 -

359
Number of
employees

SOUTH DAKOTA

Sioux Valley News, Canton
Watertown Public Opinion, Watertown
Mobridge Tribune, Mobridge

6

30

6

Rapid City Daily Journal, Rapid City

44

Mitchell Publishing Co., Mitchell

18

Northwestern Publishing Co., Mitchell

80

TENNESSEE

Memphis Publishing Co., Memphis

149

TEXAS

Nixon News, Nixon

Herald-Post Publishing Co., E1 Paso
Newspaper Printing Corp., E1 Paso

Stephenville Empire-Tribune, Stephenville

1

16

150

5

9

Gonzales Inquirer, Gongales
600

A. H. Belo Corporation, Dalle
20

E1 Paso Times, Inc., E1 Paso
San Antonio Light, San Antonio
6

Mission Times, Mission

Gatesville Messenger, Gatesville
25

E1 Continental, E1 Paso
6

Ceckoslovak Publishing Co., West
4

Western American, E1 Paso
96

Texas Farm & Ranch Pub. Co., Dallae
24

The Ginner & Miller Publishing Co., Dallas
Gulf Publishing Co., Houston

- 11 -

360
Number of
employees

TEXAS (Continued)

The Houston Chronicle Publishing Co., Houstin

500

Carter Publications, Inc., Fort Worth

450

Periodical Publishers Service Bureau, Inc., Dallas
Newspaper Printing Corp., E1 Paso

60

175

VIRGINIA

Daily Press, Inc., Newport News

120

The Lynchburg News & Advance, Lynchburg

80

Waynesboro-News-Virginian, Waynesboro

25

Winchester Evening Star, Winchester

15

WASHINGTON

Seattle Times Co., Seattle

525

Republic Publishing Co., Seattle

100

Cowles Publishing Company, Spokane

850

WISCONSIN

The Journal Company, Milwaukee

1,244

WYOMING
78

Cheyeane Newspaper, Inc., Cheyenne

361

Newspapers and other publications reported

as having established payroll savings plans, January
24, 1942:

238 firms
95,691 employees

CONT

Unfilled Orders for Savings Bonds at the

Federal Reserve Banks and the Post Office Department
January 20 to date
(In thousands of pieces)

Unfilled
orders at

received

this day

Bonds

manufactured

this day

:

:opening of
: business

New orders

Unfilled
orders at
close of
business

Stock of
bonds

on hand*

IBM

deliveries
this day

Jan.
20

202

204

800

86

21

86

411

800

59

22

59

697

800

86

23

86

569

800

50

24

50

727

800

28

25

28

none-no mail

26

28

490

27

7

434

28

7

none-closed
1,000 1
1,000 1
1,000 2
1,000 2

474

29

6

30

8

31

6

407

426

404

Feb.
1

none-no mail

9

2

3

4

9

402

11

428

6

441

Office of the Secretary of the Treasury,
Division of Research and Statistics.
Bonds in Washington vaults only.

800 2
800 1

none-closed
800 2
800 2
800 2

1,184
1,546
1,676
1,871
1,922
1,922

28

2,011

7

7

6

8

6

9

9

11

875

1,000
1,000
1,000
-

2,000

2,177
2,102
2,097

2,000

1,869

2,000

-

-

1,868

-

1,868

-

1,668

-

6

1,435

0

1,188

February 5, 1942

Includes 400 thousand pieces manufactured for inventory in the field.
Includes 600 thousand pieces manufactured for inventory in the field.

1,000

-

2,500

CONFIDENTIAL

Stock of Series E Savings Bonds on Hand 1
January 20, 1942 to date

(In thousands of pieces)
Stock on hand
beginning
of day

Sales

this day

Jan.
21

22
23

24
25
26
27

28
29

30
31

2

3

4

this day

close of

265
283

800

139

800

14,514
14,514

none-closed

none-closed

14,514

505

800

14,809

158

800

14,809
15,451

800

15,989

15,451

218

800

337

800

381

800

377

800

263

800

none-closed

none-closed

487

186
251

262

IBM

deliveries

day

1,000
1,000
1,000
1,000

Feb.
1

manufactured

Stock on hand

8,683
9,146
9,565
9,988
10,525
10,525
11,038
11,852
12,601
13,336
13,853
14,514

8,101
8,683
9,146
9,565
9,988
10,525
10,525
11,038
11,852
12,601
13,336
13,853

20

Bonds

this day
1,000
875

1,000
1,000
1,000
-

2,000
-

2,000
-

2,000
-

-

-

-

2,500

February 5, 1942
Office of the Secretary of the Treasury,
Division of Research and Statistics.
Includes stock in hands of (1) Federal Reserve Banks and branches, (2) Post offices,
1

(3) Federal Reserve Bank issuing agents, and (4) Treasury vaults in Washington.

364

CONFIDENTIAL

UNITED STATES SAVINGS BONDS

Comparative Statement of Sales During
First Three Business Days of February and January 1942 and December 1941
(February 1-4, January 1-3, December 1-3)
On Basis of Issue Price

(Amounts in thousands of dollars)
Amount of Increase

$ 5,715

:

$ 13,242

over

January

: January

: over

: December

February
over

:

1942

1941

February

January
27.6%

131.7%

91.9

230.7
192.8
87.5
14.1

:

58,575

30,522

9,230

Series E - Total

75,474
12,921
57,828

43,764
5,299
20,837

14,945
2,826
18,259

31,710
7,622
36,991

28,819
2,473
2,578

72.5
143.8
177.5

$146,223

$ 69,900

$ 36,030

$76,323

$33,870

109.2%

Series G - Banks
Total

over
December

21,292

Series E - Banks

Series F - Banks

January

$ 7,527

3,657
28,053

$ 16,899

:

Series E - Post Offices

December

:

:

1942

January

:

:

February

:

Item

Percentage of Increase
:

:

Sales

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

94.0%

February 5, 1942

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.

365

CONFIDE

UNITED STATES SAVINGS BONDS

Daily Sales - February 1942
On Basis of Issue Price

(In thousands of dollars)
Post Office
Date

All Bond Sales

Bank Bond Sales

Bond Sales

Series E

Series E

Series F

Series G

Total

Series E

Series F

Series G

Total

$ 8,435

$ 34,150

$ 6,191

$ 19,795

$ 60,136

$ 42,585

$ 6,191

$ 19,795

3,572
4,893

7,887
16,537

2,793
3,937

19,518
18,515

30,199
38,989

11,459
21,430

2,793
3,937

19,518
18,515

$ 68,571
33,770
43,882

$ 16,899

$ 58,575

$ 12,921

$ 57,828

$129,323

$ 75,474

$ 12,921

$ 57,828

$146,223

February 1942
2

3

Total

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.

February 5. 1942.

366
THE SECRETARY OF THE NAVY
WASHINGTON
(SC)P1-7/QM
February 4, 1942
(06500A)

CONFIDENTIAL

CONFIDENTIAL

My dear Henry :

Thanks for your note of February 2, advising
me of the action you have taken with respect to the
Luscombe Airplane Corporation of Trenton, New Jersey.

I am making an investigation to see whether the
Nevy in any way is interested in this Concern. Thanks
for advising me.
Yours sincerely

Honorable Henry Morgenthau, Jr.

Secretary of the Treasury
Washington, D. C.

TREASURY DEPARTMENT

367

BUREAU OF NARCOTICS

WASHINGTON
OFFICE OF

February 5, 1942.

COMMISSIONER OF NARCOTICS

MEMORANDUM
(1) EXCHANGE OF AMERICAN WHEAT FOR TURKISH OPIUM:

In October, 1941, the Turkish-Yugoslav Opium
Monopoly cabled American manufacturers inquiring

as to the possibility of obtaining wheat for Turkey
in exchange for opium. This was referred to the
State Department where the barter proposal was
disapproved because Turkey has been a wheat ex-

porter in recent years.
Upon being informed that a wheat exchange was

impossible, the Monopoly cabled: "Turkey cannot
be considered a wheat exporter, besides presently
buying wheat from England." # (Secret: Through

authoritative sources I learned from the British
Embassy that England was exchanging "corn" for
opium. )

This information was communicated to the State
Department on December 4, 1941, which replied that

it perceived no objection from either a political

-2-

368

or economic point of view to the exchange of American
wheat for Turkish opium, provided arrangements were
conducted privately.
At the time American importers were ascertain-

ing if shipping space would be available for wheat,
Mr. John Goodloe, of the Defense Supplies Corporation,
reported that he had been instructed by Mr. Rosenthal,
of the Board of Economic Warfare, to buy all opium
stocks in Turkey.
A meeting was held January 22, 1942, in the
office of the Defense Supplies Corporation which
was attended by representatives of the Treasury
Department, State Department, Office of Production
Management, Mr. Hazen of the Board of Economic

Warfare, and American importers. It was obvious
that the Board of Economic Warfare had made no

searching inquiry as to the status of our opium
reserves and of our medical needs, and had only
meager information concerning the world opium

situation in general. After considerable discussion, it was agreed to limit the purchase of
opium to 1500 cases; 1000 Turkish and 500 Iranian,

or 1500 Turkish; instead of up to 500 tons, as we
could produce sufficient morphine from poppy straw

-3-

369

for our entire needs if the war lasted longer than
three years. Mr. Hazen agreed and stated that pur- chase must be on a cash basis as they would not
permit wheat barter and would refuse to issue wheat
export licenses. The purchase of 500 cases of
Iranian opium was considered advisable by the State

Department for political reasons. (We have just
received a firm offer from Teheran to buy 500 cases
of Iranian opium. )
Mr. John D. Goodloe, Defense Supplies Corporation,
(Reconstruction Finance Corporation) telephoned on

January 27, 1942, that Mr. Rosenthal of the Board of
Economic Warfare had directed his office to buy all
stocks of opium in Turkey and that he wished our
manufacturers to negotiate for the purchase of this
opium for the Reconstruction Finance Corporation.
I told Mr. Goodloe that we disapproved of this
purchase as it was contrary to the plan agreed upon

in his office the previous week. He was informed
that cables had been sent to Istanbul and Teheran
to determine stocks on hand; the market price,
recent sales, etc., and that Mr. Kerrigan, of Merck
and Company, had also sent a cable to the Monopoly

at Istanbul asking for a firm offer for the sale of

-4-

370

1000 cases.

In his telegram, following instructions of the
Board of Economic Warfare, Mr. Kerrigan stated that
the wheat barter deal was not permitted. The censor
would not pass his cable, so we asked the State

Department to send it for him. The State Department insisted that wheat barter was permitted.
The cable was changed to read "No bottoms available

for wheat shipments", in order to reconcile the
divergent views of the State Department and of the
Board of Economic Warfare.

Later, Mr. Rosenthal of the Board of Economic
Warfare called and stated that his Board wished to

buy all available opium stocks in Turkey to keep
it from falling into German hands and that their
policy had no relation to the reserve stock pile
or to the medical needs of the United States. I
pointed out to him that we could not recommend the
purchase of approximately 500 tons of opium for our
needs because we now have a three years' reserve

supply; that an additional 500 tons would create
an eight years' reserve; that after the war we
would be faced with the task of working off a
several years' stock pile which would seriously

-5-

371

upset the economy of Turkey and Yugoslavia. Mr.

Rosenthal stated that their policy was to purchase
this opium to keep it out of German hands. I
pointed out that this could hardly be considered
a strategic move for the reason that the Germans
had seized all of Yugoslavia's stock of opium and
also had available the morphine production from
poppy straw in Hungary, Poland, and Germany.
I also informed Mr. Goodloe and Mr. Rosenthal

that they could anticipate losing about half the
purchase price of this opium; that following the
cessation of hostilities, the price would drop at
least 50% and that this would in all probability
involve a loss to the Government of approximately
$12,000,000.

I stated that at the request of the Board of
Economic Warfare we would issue import authoriza-

tion for all the opium that could be obtained,
with the reservation that the Treasury Department
was acting only as an agent for the Board as we
believed that we had a sufficient reserve stock of
opium.

Mr. Morlock of the State Department stated

that they did not approve of the action of the

-6-

372

Board of Economic Warfare and approved the policy
of the Treasury Department.
(2) LEND-LEASE TO ENGLAND - NARCOTIC DRUGS:

All narcotic drugs ordered by Army, Navy, and
War Production Board have cleared through the Bureau

of Narcotics. In agreement with the War Production
Board we have refused to authorize Lend-Lease orders
for narcotic drugs to be sent to England because
that country has been a heavy exporter of narcotics
to Latin American countries.
Two weeks ago the Supplies Division of the Office
of the Surgeon General, War Department, reported
that it had refused to approve a Lend-Lease order of
narcotic drugs for England in keeping with our policy,
and that representatives of the British Purchasing
Commission would call at this office to discuss the
matter.

Dr. Mote and a colleague from the British Purchasing Commission called at this office and explained
that they had need for 100,000 syrettes to be used
in tanks. These syrettes are individual morphine

373
-7-

injection units which were found to be of exceedingly
great value in controlling pain of the wounded at
Pearl Harbor. They are particularly valuable in tank
warfare where a tank is likely to become detached
from a corps and may suffer damage and casualties.
The self-administration of morphine is very desirable in such a case because the casualty is SO far
removed from a hospital unit. Only one firm makes

these syrettes in the United States. After the
Pearl Harbor attack, the Navy ordered 2,000,000 of

these units, and the Army and the Office of Civilian
Defense have likewise ordered a large number. They

have been found to be the most practical and effec-

tive instrument for the control of pain during
disasters or in the course of battle. Dr. Mote
stated that they did not have a firm in England
which could manufacture these syrettes. I agreed
to authorize the exportation of 100,000 of these
units for England, each containing 1/2-grain of
morphine solution, after our Army and Navy orders
were filled. The amount of narcotic drugs involved
is not large.
I informed Dr. Mote that they should not order

straight narcotic drugs; that we had in the past

374

-8-

refused to approve Lend-Lease shipments because
we understood England had a larger opium reserve

than we had, and that according to offical figures
England was still shipping more narcotic drugs to
Latin America than this country and was, therefore,
in a better position to supply their own needs
than the United States.
Dr. Mote confirmed the fact that they had
large opium reserves; that large stocks had recently been acquired by England from Turkey; that they
would not order narcotic drugs from us, except in
the case of syrettes which they could not produce,
and that they were willing if necessary to furnish
the equivalent of opium required to manufacture
these units.

J. Anslinger

Comm. ssioner of Narcotics.

Treasury Department

Division of Monetary Research
Date
To:

From:

375

2/5/42

19

Secretary Morgenthau
Mr. White

Subject: Mexico

1. You may be interested in the attached
cable about the shipment of gold from
Mexico to the United States to meet the
$9 million payment due on oil properties.
2. We have not yet received notice from

Mexico of ratification of the Stabilization Agreement.

MR. WHITE

Branch 2058 - Room 214

376

LM

This telegram must be

being
paraphrased
before
to
communicated anyone

other than a Governmental
agency. (BR)

Mexico City
Dated February 4, 1942
Rec'd 4:33 p.m.

Secretary of State,
Washington.
TRIPLE PRIORITY.

150. February 4, noon.

Special Pan-American airplane left at 10:30 a.m.
today via Eastern Air Lines for NEW York carrying
approximately $2,000,000 of gold for Federal RESERVE.

About two tons of gold left Mexico City via rail last
night for NEW York and same quantity leaving tonight

via rail. Banco de Mexico plans to forward additional
two tons on special plane February 6. On instruction
from Finance Minister Suarez, the gold will be sold to
Federal RESERVE in order to liquidate the nine million
dollar payment due under recent agreements with our
Government.
MCGURK

LMS

376

LM

This telegram must be
paraphrased before being
communicated to anyone
other than a Governmental
agency. (BR)

Mexico City
Dated February 4, 1942
Rec'd 4:33 p.m.

Secretary of State,
Washington.
TRIPLE PRIORITY.

150, FEbruary 4, noon.

Special Pan-American airplane left at 10:30 a.m.
today via Eastern Air Lines for NEW York carrying
approximately $2,000,000 of gold for Federal RESERVE.

About two tons of gold left Mexico City via rail last
night for NEW York and same quantity leaving tonight

via rail. Banco de Mexico plans to forward additional
two tons on special plane February 6. On instruction
from Finance Minister Suarez, the gold will be sold to
Federal RESERVE in order to liquidate the nine million
dollar payment due under recent agreements with our
Government.
MCGURK

LMS

TREASURY DEPARTMENT

377

INTER OFFICE COMMUNICATION

DATE February 5, 1942
TO

Mr. White

FROM

Miss Kistler

Subject:

Canadian Labor Problems

A memorandum recently submitted to the Coordinator of Information
on Canadian Labor Problems brings out the following facts:
1. The Canadian labor movement is about 30 years behind that in
the United States and has been largely influenced by American labor
developments.

2. Canadian unionism is scattered, weak and divided. The unions

affiliated with the A. F. of L. are the oldest and largest bloc. The

Catholic Confederation of workers, centered chiefly in Quebec, is
opposed to affiliation with American unions and sponsors "corporatism"
on European models. Radicalism has centered in the West, especially
after the first World War when there was a tie-up with the I.W.W.'s.
The Canadian C.I.O. has alarmed conservative management by inroads made

in the mass production industries.

3. Sectionalism, aggressive policies of the Catholic church, the
inability of the Trades and Labor Congress to maintain conformity, the
instability and insecurity of the wage-earning group, and the slight
degree of industrialization, are the principal reasons for the weakness
of the Canadian labor movement.

4. War-time labor policy of Canada has been chiefly promulgated
by Orders-in-Council. Labor has objected both to the results of the

Orders and to the placing of leading anti-labor industrialists in key
positions as industry controllers.

5. There have been a number of important strikes, in spite of
their having been declared illegal, due in large degree to the maddeningly slow tempo of the conciliation machinery.
6. Full union recognition and mandatory collective bargaining is

bound soon to become burning issues in Canada. Recognition of unions
will doubtless come reasonably soon and will be speeded up by the in-

creased industrialization involved in the war effort.

C

378

0

P

Y

DEPARTMENT OF STATE
WASHINGTON

In reply refer to
FF 840.51 Frozen Credits/5215
February 5, 1942

The Secretary of State presents his compliments to

the Honorable the Secretary of the Treasury and transmits herewith copies of telegram no. 274, January 29,
1942, from Rio de Janeiro, concerning the control of

Axis funds in Brazil.

Enclosure:

From Rio de Janeiro,
no. 274, January 29,
1942.

379

0

NMC

Rio de Janeiro

This telegram must be
paraphrased before being

Dated January 29, 1942

communicated to anyone

other than a Governmental

Rec'd 5:10 p.m.

agency. (BR)

Secretary of State
Washington.

274, January 29, 3 p.m.

Bank of Brasil today issued instructions to discontinue collections for account of German, Italian
and Japanese forms. Bank has also prohibited all transactions in German compensation marks.

Minister of Finance and Director of Exchange inform

no that official funds of Axis countries are under strict
control, and that the control of funds of enemy nationals

is operating satisfactorily.
The Minister of Finance and Director of Exchange

will meet with President Vargas and Minister of Foreign
Affairs on Saturday to discuss additional control measures.

CAFFERY

JRL

Copyives 2-5-42

Treasury Department

Division of Monetary Research
Date

To:

rom:

380

2/5/42

Miss Chauncey

Mr. White

I doubt that the Secretary will be
interested in the attached cable.

MR. WHITE

Branch 2058 - Room 214}

19

C

0

381

P

Y

DEPARTMENT OF STATE
WASHINGTON

In reply refer to
FD 835.5151/1322

February 5. 1942

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury and
encloses copies of telegram no. 309, dated January 31,
1942, from the American Embassy, Rio de Jeneiro, Brazil,

concerning the sale of Argentine pesos by the Bank of
Brazil.

Enclosure:

From Embassy, Rio de Janeiro,

no. 309, January 31, 1942.

C

0

382

P

Y

LM

Rio de Janeiro

This telegram must be
paraphrased before being

Dated January 31, 1942

other than a Governmental

Rec'd 7:33 p.m.

communicated to anyone

agency. (BR)

Secretary of State,
Washington.

309, January 31, 5 p.m.

Believing that the exchange value of the Argentine

peso will decline, Bank of Bragil has decided to sell
of its bought position of approximately two million
Argentine pesos.
CAFFERY
GW

Copy:ec:2-5-42

C

383

Y

DEPARTMENT OF STATE
WASHINGTON

February 5. 1942

In reply refer to
FD

The Secretary of State presents his compliments

to the Honorable the Secretary of the Treasury and
encloses copies of telegram no. 23. dated February 4,
1942, to the American Consul, Bombay, India, concerning

the replacement of financial cables by mail reports.

Enclosure:
To Consul, Bombay,

no. 23. February 4, 1942.

Copysec:2-5-42

384
P

TELEGRAM SENT

ALH

PLAIN

February 4, 1942

AMERICAN CONSUL,

BOMBAY (INDIA)

23, fourth.
The Treasury advises that the type of
information given in your 59. January 31, need

no longer be sent by cable as mail advice will

be sufficient.
HULL

(FL)

ED:FL:BMcB

Copy: VW: 2-5-42

385
February 5. 1948

Mr. Manage

3. W. Bell

Referring to telephonic conversation, will you please send the following
cable to the American Commissioner, New Dolhi, India, as reply to his No. 25.

February 2, 2 p.m.

*Yes Specialty for Consectioner.
the following procedure to suggested with respect to excess v. s.
paper COMPANY.

(Gas) Advise Recerve Beak of India, Sombor, to list total amount

v. s. paper w kinds and demonisations, also by bank of issue
is case of Federal Reserve notes, out currency is half vertically and
stamp or wite same of beak es each half in taki them deliver both
halves and 1100 in gondreplicate to American Geneul, Benbay.
(900) Americas Consul, Donbay, will verify amount of currency

desivered to his against 11st propered w bask and then he will wire

- of United States (through State Department) the amount of

- delivered to Mia. the treasury receives this advice carrospeaking dollar crosss is New York will be effected is accordance

with Instructions of Receive Beak of India. Upon recetys and emains

Nea I - right to sists reimbursement for my currency
which to and - Bash w of holves should be forested w
coparate currier communicate w a copy of the 11st. the third oogy

of 11st should be forested w still another carrier. American General

will retain fourth cope of 11st.

386
(three) Because of the fast that shipments will be covered w
Government 100000 is shipment set, the American Geneal will nature so
arrangements for incurrence.

(Four) The Reserve Bank of India, Bonbay, is hereby designated a

depositary of public moneys of the United States in order to carry

out the proceture outlined is this telegram.
(Five) Please advice Reserve Beak of India and Consular officer
at Bonbay appropriate parts horest as treasury's reply to Beak.

(six) The United States has noted proposed regulation
of Government of India relative to United States surresey."
The Department approves the foregoing. Any expense insured is earnying out the instructions contained is this telegram should be included is regular
accounts as separate item for balling treasury is accordance See. V-45, Foreign
Service Regulations.

FD-dm*2/5/42-2

387

TELEGRAM SENT
PH

This telegram must bE
paraphrased before being
communicated to anyone
other than a Governmental
agency. (BR)

February 5, 1942
8 p.m.

AMERICAN COMISSIONER,

NEW DELHI (INDIA)
27

Your 25, February 2, 2 p.m.
FROM TREASURY FOR COMISSIONER

QUOTE. The following procedure is suggested
with respect to EXCESS U. S. paper currency.
(One) Advise RESERVE Bank of India, Bombay,

to list total amount U. S. paper currency by kinds
and denominations, also by bank of issue in case
of Federal RESERVE notes, cut currency in half

vertically and stamp or write name of bank on
each half in ink; then deliver both halves and
list in quadruplicate to American Consul, Bombay.
(Two) American Consul, Bombay, will verify

amount of currency delivered to him against list
prepared by bank and then he will. wire Treasurer
of United States (through State Department) the amount

of currency delivered to him. When Treasury receives

this advice

388

-2-727, February 5, S p.m., to NEW Delhi (India)
this advice corresponding dollar crEdit in NEW

York will be Effected in accordance with instructions
of RESERVE Bank of India. Upon receipt and Examin-

ation Treasury reserves right to claim rEinburse=
ment for any currency which is not GEnuine. Each
set of halves should be forwarded by separate

carrier accompanied by C. copy of the list. The

third copy of list should be forwarded by still
another carrier. American Consul will retain fourth
copy of list.
(Three) Because of the fact that shipments
will be covered by Government losses in shipment
act, the American Consul will moke no arrangements for insurance.
(Four) The RESERVE Bank of India, Bombay, is

hereby designated a depositary of public moneys of

the United States in order to carry out the procedure
outlined in this telegrom.
(Five) Please advise RESERVE Bonk of India and

Consular Officer at Bombay appropriate parts hereof

as Treasury's reply to Bank.
(Six) The United States Treasury has noted
proposed

389

-3-27, February 5, 8 p.m., to NEW DElhi (India)
proposed regulation of Government of India relative
to United States currency. UNQUOTE

The Department approves the foregoing. Any
EXPENSE incurred in carrying out the instructions

contained in this telegram should be included in

regular accounts as separate item for billing
Treasury in accordance SEC. V-45, ForEign SERVICE
Regulations.
HULL

(FL)

FD:FL:BMcB FA

390

TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION

DATE February 5. 1942.
TO

FROM

Secretary Morgenthau

Mr. Dietrich

CONFIDENTIAL

Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
Purchased from commercial concerns

£73,000
£30,000

Open market sterling held steady at 4.03-3/4, with no reported trans-

actions.

The Cuban peso improved slightly to reach a new current high of about

3/4% premium.

In New York, closing quotations for the foreign currencies listed below

were as follows:

Canadian dollar

Argentine peso (free)

Brazilian milreis (free)

Colombian peso
Mexican peso

Uruguayan peso (free)
Venezuelan bolivar

11-5/8 discount
.2362
.0516

.5775
.2065
.5250
.2770

We purchased $2,251,000 in gold from the earmarked account of the Bank

of Mexico,

The State Department forwarded a cable to us stating that the Bank of
Mexico was making 4 shipments of gold with a total value of approximately
$9,000,000 from Mexico to the Federal Reserve Bank of New York, According

to the cable, this gold will be sold on instruction from Finance Minister

Suarez, and the proceeds used to liquidate the $9,000,000 payment due under
agreements with the United States Government.

In London, spot and forward silver remained 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
35-1/86

We made 30 purchases of silver today.

20

391
BRITISH EMBASSY
WASHINGTON, D.C.

February 5th, 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,

Halifex

The Honourable

Henry Morgenthau, Jr.,

United States Treasury,
Washington, D. C.

Copy No. 13 392
BRITISH MOST SECRET

(U.S. SECRET)
OPTEL No. 42

Information received up to 7 A.M., 4th February, 1942.
1, NAVAL

One of H.M. submarines attacked a convoy of three merchant ves-

sels escorted by three destroyers south of MESSINA. A ship of 3,500 tons was
hit and probably sunk. A Swedish 15,000 ton vessel was torpedoed on the 3rd
off CAPE HATTERAS, and a small British merchant ship was torpedced off HALIFAX

on the 4th. No further details,
2. MILITARY

LIBYA. The withdrawal of our forces pivoting on MEKILI con-

tinued during the night 2/3rd, and our line now runs north east to south west
from TMIMI in direction of TENGEDER, There is no sign that this withdrawal
has been followed up, and it would appear that the enemy are still in the MSUS
area and east of CYRENE. Our mobile columns and fighting patrols are acting
west and southwest of MEKILL. Air reported 2nd, Area MSUS - EL ABIAR and all
western CYRENAICA water-logged. A South African detachment has returned from
a raid near BUERAT EL HSUN. 21 enemy mechanical transport, including two

largest type tank lorries with trailer, were destroyed, communications were cut

and some casualties inflicted. No publicity given,
3. AIR OPERATIONS

LIBYA. 1st. 4 Beaufighters attacked mechanical transport and
petrol lorries in the SIRTE area. Blenheims also bombed mechanical transport
west of BUERAT EL HSUN, no large convoys were seen. Fighters patrolled over

our troops but no enemy aircraft were seen,
1st/2nd. Four Wellingtons attacked mechanical transport in the
area south west of JEDABYA.

MEDITERRANEAN 2nd/3rd, Four Naval aircraft registered one and

possibly two hits on a merchant vessel. Five Wellingtons attacked NAPLES and
hits were seen on the docks, railway marshalling yards and the repair base.
Another Tellington hit the quay at PALERMO with a four thousand pound bomb,

Hurricanes patrolled over Sicilian aerodrome and destroyed one bomber on the
ground,

MALTA. 2nd/3rd. 3rd. A total of 30 aircraft attacked. Serious
damage to the slipway and to a Sunderland was caused at KALAFRANA, One Junkers

88 was probably destroyed by anti-aircraft fire,

2-

393

BURMA. 3rd. 20 bombers and 9 Fighters carried out a raid on
TOUNGOO. No damage is reported.

MALAYA. 2nd/3rd. 47 heavy bombers attacked SINGAPORE, ware-

houses at the docks and an oil cistern were set on fire. Considerable
material damage was caused and there were some military casualties. Civilian
labour has disappeared. One bomber was shot down by anti-aircraft guns. Attacks were also made on shipping south of SINGAPORE ISLAND.

4.

Reference my OPTEL No. 34, paragraph 4.
The abnormal movements of oil from GERMANY to ITALY through

BASLE have evidently been less than was stated. It is now reliably estimated
that the total transported by this route between December 12th and January 18th
was 50-80,000 tons.

TREASURY DEPARTMENT

394

INTER OFFICE COMMUNICATION
DATE

February 5,1942

Secretary Morgenthau

TO

Mr. Kamarck

FROM

Subject:

Summary of Military Reports

German Submarine Strength

The British estimate that the strength of the

German submarine fleet on Jenuary 3 totaled 230.
Of these, about 60 had been commissioned in the preceding three months. Over 40 submarines have been

operating in recent weeks off the North American

coast. (According to the usual calculations, onethird of the submarine fleet is operating at any
one time. Another third is on its way to and from
its base, while the last third is in base being
over-hauled while the crew is resting. According
to this, the Germans would have 75 submarines operating at any one time. The 40 off the North American
coast would then be more than half of the entire submarine fleet in action. In the last war, when Germany began her unrestricted submarine program, she

had 134 submarines. This is believed to be the
largest number that she had in operation at any one
time during the last World War. )
(U.K. Operations Report, January 22-29,1942)
Far East

The estimated Japanese losses to January 29,

1942 are as follows:

Damaged

Sunk

Battleships

2

1

Cruisers
Destroyers

8

3

4

7

Submarines

o

1

Aircraft Carriers

4

o

Total Naval Vessels

15

15

Total Merchant Vessels

32

No estimate

-2-

395

The Japanese are building rafts for crossing the Salween River into Burma. Another Japanese division 18 moving
up to the front lines from Indo-China. (According to
Colonel Smith, Secretary of the General Staff, the United
States is putting pressure on General Wavell to make use
of Chinese troops. The British finally agreed to allow
two divisions to enter Burma. While it cannot be stated
that the British have obstructed their passage into Burma,

they have done nothing to facilitate it.)

(U.K. Operations Report, February 3, 1942)
Germany

Aerial reconnaissance has disclosed that the British

raid of December 11-12 on Cologne was quite successful.

Bombs fell on the Berlin-Cologne Express, just as it was
entering the main station.
(U.K. Operations Report, January 22-29, 1942)

European Weather

Southeastern Europe is experiencing severe weather

conditions. The Danube is closed to all shipping. Ice
flows have formed on the Black Sea for the first time since

1929. Transportation in Romania has been crippled.
(U.K. Operations Report, January 22-29, 1942)

396
NUMBER 18

SECRET

COORDINATOR OF INFORMATION

THE WAR

THIS WEEK
February 5-12,1942

A .0
Printed for the Board of Analysts

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Copy No. 3

history of the Treasury

FEBRUARY 5-12, 1942

SECRET

Coordinator of Information

THE WAR THIS WEEK
February 5-12, 1942

With the fall of Singapore anticipated hourly, the Japanese
have removed the most significant remaining obstacle to the
realization of their grandiose dream of a Greater East Asia.

This stunning defeat for the United Nations lays bare the

western flank of Java, final bulwark of the Netherlands
Indies, and opens to the Japanese the broad strategic vistas

of the Indian Ocean. Meanwhile, the threat to Rangoon is
steadily heightening, the Russian counter-offensive has once
again slackened, and there are ominous new signs of increasing

collaboration of Vichy with the Axis. Only in Libya has the
Axis faltered, and there the interruption of Rommel's forward

movement is in all probability a pause preliminary to a
renewed drive to the east.

The End of the Siege of Singapore

The siege of Singapore, which began January 30, came to
an abrupt end on the night of February 8-9, when Japanese
landing parties succeeded in breaching the defenses of the
northwest coast of the island under what observers claimed

to be the heaviest artillery barrage of the Pacific war. The
Japanese announced that during this operation their engineers had repaired the broken causeway over Johore Strait.
With overwhelming air support, the Japanese poured on to
the island and converged toward the city of Singapore itself.
The fate of the defenders, reliably reported to number 50,000

first line British, Australian, and Indian troops, and some
30,000 irregulars, now hangs in the balance.
Important and immediate repercussions of the "premature"
fall of Singapore are to be anticipated, according to some close
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observers, in the psychological reaction of national groups
everywhere east of Suez. Broadcasters at Chungking appear

to have been clinging strongly to the hope that Singapore
could hold the Japanese in Malaya at least as long as the
Americans and Filipinos have held them in the Philippines.
The fall of this key fortress after a longer siege could have
been more comfortably discounted.

Japanese Strategy

Japanese bombing attacks give us the picture of a program

for the early strangulation of Java. This strategy would be
consistent with previous Japanese operations, which both in
the Philippines and in Malaya have been aimed not SO much
at immediate territorial aggrandizement as at the destruction
of the main enemy forces. On Java are concentrated most

of the land forces of the Netherlands East Indies, and at
Air Offensive Against Java

With the loss of Singapore imminent, the threat to Java
becomes crucial. Japanese plans obviously call for flanking
movements from northwest and northeast, aiming to engulf
this strategic center of the Netherlands Indies. Recent
Japanese air raids reveal clearly the design of this new
offensive.

To the northwest of Java, bases at Muntak on Banka
Island and at Palembang in southeastern Sumatra have been
bombed. To the east and northeast, attacks have been made

on airfields at Sjimbarau in Bali and on Koepang (Timor).
Simultaneously land forces have been put ashore in the

Soerabaja is an important base for the Allied naval forces.
The Japanese apparently plan a decisive attack on Java
and on the Dutch Army there before adequate reinforcements

can arrive from the United Nations. Japanese troops are
being rushed to the scene of action, with one convoy of 28

transport and supply ships and 41 warships sighted off
Formosa Strait on February 3, moving south, apparently
toward a rendezvous off Anambas Island, northeast of Singapore. Later it was reported that four convoys, carrying three
or four divisions of troops about equally divided among them,
had been located; one was still concentrated near Anambas
Island, another off Banka Island, a third at Balikpapan, and

southwest Celebes for an attack directed against Makassar,

the fourth in the Java Sea south of the Celebes. The two

which guards the southern entrance to the strait of that

latter have apparently already debarked some of their troops
for the attacks on Makassar and Banjermassin.

name. The Japanese are also reported to be advancing on
Banjermassin, in southern Borneo, an air base which commands the Java Sea and which would notably facilitate the
bombing of Java. Finally, Java itself has been attacked,
with four raids on Soerabaja in six days, and an initial raid
on Batavia. Malang has been bombed and Bandoeng has
been reconnoitered by enemy planes and will probably not
long escape attack. Bandoeng is the headquarters of the
Dutch Army and Air Forces, communications center for the
whole of the Netherlands Indies, and center as well of the
munitions industry in the Indies.

The Defenses of Java

Should Java fall, the conquest of the rest of the Nether-

lands Indies would be little more than a mopping up
operation. But victory in Java should not be too easily won.

The Dutch Army on the island numbers about a hundred
thousand white troops, and some native troops as well.
The army is well equipped and adequately trained, and its
members will be fighting for their homes.
Plans for the defense of Java by these land forces have taken

full advantage of the island's communications network (see
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the accompanying map). With the exception of garrisons

long tons of oil, which was slightly more than ten percent of

at Batavia and Soerabaja, Dutch troops in the past have been

the output of the East Indies.

concentrated largely at three inland points, Bandoeng,
Magelang, and Malang. These points are connected with

The long range of volcanic mountains which traverses the
entire length of the island is of some strategic importance, for

each other and with coastal centers by excellent motor roads

here are located most of the hydroelectric plants, which
furnish seventy-five percent of the island's electric power.
Such facilities are particularly vulnerable to air attack, and

and railroads, enabling the defenders readily to reinforce
threatened coastal areas. A fast trans-insular railway line
connects Batavia and Soerabaja. These opportunities for
mobility should enable the Dutch to make the most of their
land forces, providing some degree of air defense can be

their maintenance would become of added importance if Java
were cut off from its remaining source of coal in Sumatra.

maintained.

The Current Menace to Rangoon

The northern coast of Java is low and comparatively
sheltered, with many bays. It offers numerous inviting spots

for landing parties. One of the best is at Bantam Bay, to
the west of Batavia, and another is at Maoek. Nearly all
the harbors of Java are on this coast, facing the invader. In
addition to Soerabaja, the chief of these are at Cheribon,
Semarang, and at Tandjoengpriok, which serves Batavia.

Tjilatjap is the only harbor of importance on the south
coast, and although not considered one of the best, it has
recently assumed considerable strategic significance as a
"back-door" to Java. The remainder of the southern coast,
with the exception of Segro Wedi Bay, is bold, precipitous,
and exposed to a heavy surf at all seasons.
Economic Aspects of the Defense of Java

Java is the most densely populated land mass in the
world, with more than 900 persons per square mile, or a
total of 48 million. This is more than half the population of
Japan itself. Nearly all of what industry there is in the East

Indies is centered in Java. The island produces about

ninety percent of the world's quinine, about five percent of
the world output of sugar, and considerable quantities of
rubber, tea, and coffee. In 1939, Java produced 841,000

On the extreme right flank the Japanese continue to push

forward toward strategic Rangoon. At several points they
have crossed the Salween River and they have apparently
taken Martaban, thus securing a bridgehead west of the
river. The position of Rangoon is becoming increasingly precarious, especially since the fall of Singapore would probably
release a substantial number of troops to be sent to this area.

The present situation in Rangoon itself is also critical.
The initial Japanese bombings late in December caused more

than half of the population of 500,000 to leave the city.
The Indians, who constitute the bulk of Rangoon's labor
force, fled to the northwest, in the hope of returning to India

by marching across the formidable mountains and jungles
of Arakan. They were stopped at Prome, 150 miles northwest of Rangoon, however, and persuaded to remain in
Burma. Some of the Indians have since returned to Rangoon, but there is still a severe labor shortage in the port,
and it has been necessary to import Chinese from Yunnan
to work as stevedores.

Despite the repeated bombings, ships still enter the port
and "turn around" with all possible speed. In view of the
Japanese land menace to Rangoon, however, efforts are now
being made to move vital lease-lend materials to Upper Burma.
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The Burmese Nationalist Factor

Allied control of Burma is also threatened from within by
the unsatisfied aspirations for independence of the Burmese

nationalists. Since Burma has no internal problem comparable to the Hindu-Moslem issue in India-which the
British term the chief obstacle to Dominion Status for Indiathe Burmese say there is no reason for refusing an immediate

grant of independence. Burma has also been handicapped

India, which has been given scant notice in the American
press, must have followed an air-route within range of Japanese planes. No gesture could be better calculated to bring

China into the picture of Indian defense, at a time when
both China and India are being taken into the Pacific War
Council in London (an early press despatch of Thursday
notes that India has been offered membership in Britain's
War Cabinet as well as in the Pacific War Council).

China is obviously taking the initiative in building a

by a lack of experienced and disinterested leadership.
The British, moreover, have never had Burma under com-

Chinese-Indian front. And Chiang has not limited himself
to conferences with British authorities alone. His interview

pletely comfortable control. Armed revolt took place last in
1930-32, and was crushed only with the use of imported

with Pandit Jawaharlal Nehru, successor to Gandhi as leader
of the All-India Congress party, has apparently been followed

Indian troops. The radical nationalist, Dr. Ba Maw, who
was premier before the outbreak of war in September, 1939,

is now in jail for opposing the war effort. His less radical
successor, U Saw, who became premier in September, 1940,
was arrested on January 18 last for treason committed since

by conferences with other party chiefs. And there is some

indication that the Generalissimo is trying to create an
understanding between the British and Indian nationalist
leaders in order to bring about more thorough Indian col-

December 7, 1941; he had secretly been in contact with

laboration in the war.
The press further suggests that Chiang, in his capacity as

Japanese agents, it was alleged.
U Saw's arrest was only the most dramatic incident in the

United Nations military chief for China, Indo-China, and
Thailand, is dissatisfied with the tardiness of the British

Japanese propaganda drive for influence in Burma. That
drive has undoubtedly made considerable progress. As
recently as the first half of last month the British governor
of Burma himself confidentially described the situation as
"fairly lousy." And the latest intelligence from Rangoon
indicates that none of the foreigners there think there is
any likelihood of the Burmese actually fighting against the

Burmese command in taking advantage of Chinese army units

Japanese invaders.

sent there to resist the Japanese. The Generalissimo is
doubtless also preoccupied with the alternative road from
Chungking to Sadiya, the northeast terminus of the Indian
railway system, on which, it is reported, work is now being
rushed. Such a road would replace the Burma route as
China's lifeline, in the event that Japanese pressure should
close the latter to supplies from the Anglo-Saxon powers.
Meanwhile it has been announced, again with scant atten-

New Links With China

tion from the American press, that Major General Joseph

In the face of the continued threat to Rangoon and the
Burma supply route, several steps have been taken to tie
China more closely into the united war effort. The secret
and daring trip of Chiang Kai-shek and Mme. Chiang to

Stillwell will soon depart on a mission to China, where
Brigadier General John Magruder now heads the military
mission announced last August. This step will apparently
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entail a considerable addition to the group of some thirty

United States Army officers already in China. It is also
significant that in response to a frankly political request,
the American and British governments have granted to

China loans of 500 million dollars and 50 million pounds,

German defensive system on the eastern front, and military
advisers to the Swedish government believe that the Soviets
have made no genuine advance in the past ten days. The key

points in the Nazi system-Novgorod, Rzhev, Vyazma,

Bryansk, Orel, and Kharkov-are still held by strong

respectively.

German forces. The sole north-south railroad recently cut

American aid to China, as indicated in a recent report
to the Coordinator, has now taken a variety of forms. A

by the Russians was the Bryansk-Vyazma line, and previous
claims of severing the Leningrad-Vitebsk railway have proved

contingent of 14 of the 46 American road and transportation
experts who left Manila just before December 7 has safely
arrived in Rangoon for service on the Burma Road. Meanwhile a dozen members of the United States Public Health
Service medical commission to the Burma-Yunnan railway
are continuing their work against malaria along the route of

unfounded.

construction.

The American Volunteer Group

Most spectacular of all American representatives in this
area, the American Volunteer Group has accounted for at
least 136 Japanese planes, 101 of which it has destroyed in

the defense of Rangoon, although the Group was originally

recruited to protect the Burma Road in China under the
orders of Chiang Kai-shek. More than 60 of the pilots in
the A. V. G. came from the Navy. The majority of the

There are, however, developments which may soon emerge
as new Russian successes. The Soviets are beseiging Rzhev
from three sides, and the fall of this salient head would pave
the way for an accelerated drive on Vyazma and Smolensk.

There is some indication, moreover, that on the southern
front the new Russian salient reaching out toward Dnepropetrovsk is imperiling the entire Nazi communication system

linking Orel, Kursk, Kharkov and Stalino.
Soviet Pressure in the South

Fierce fighting appears to be raging in the region east of
Dnepropetrovsk, where Timoshenko's advance is threatening

two key railroad junctions-which must be held by the

ever, recruited from the Army. With a minimum of crew

Germans at all costs if they are to maintain rail communications with their forces in the Donets Basin. Lozavaya, south
of Kharkov, is, however, the one concrete gain that American

members, spare parts, and repair facilities, these latter have

military observers have so far conceded to the Russian armies.

enlisted personnel, who form the ground crews, was, how-

had remarkable success in keeping the Group's P-40's in
the air. The A. V. G. has thus shown that American personnel can rival the Germans in servicing combat aircraft
under the most trying circumstances.
The Russian Counter-Offensive Slows

After two weeks of "victory by communiqué," the Russians still appear to have breached no essential part of the

Meanwhile another Soviet attack is under way north of
Kharkov, and even German reports acknowledge heavy
fighting in the outskirts of Belgorod, on the road to Kursk.
It is perfectly credible that this steady Russian pressure
has induced the Germans to throw into the struggle in the
east divisions which they intended to keep in reserve until
the spring offensive. The fifth and twenty-eighth divisions,
for example, have been reported as leaving France for the
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Russian battleground, and another report notes the withdrawal of a number of divisions from Belgium during the
past six weeks. It is unlikely, however, that this process
has been extensive enough to cause any real weakening of

At Soroka, the railroad running south from Murmansk
bifurcates, the western branch going to Petrozavodsk and

German offensive strength next spring.

Leningrad, the eastern skirting the south shore of the White

The Nature of Winter Warfare in Russia

The report of a British observer just returned from the
Mozhaisk front gives a clue to the nature of Russian winter
warfare. The Russian soldiers, he states, are well equipped
and in excellent shape-a self-reliant and seasoned army.
They can work under all conditions, except that they need
shelter for sleeping. Hence the Russians keep each shift of

however, want to launch an offensive against Soroka, strategic railway junction on the White Sea.

Sea and then running southeast to Obozernaya and there
joining the railway from Archangel to Moscow. The Finns
have already cut the former line in the Lake Onega region.
The latter road, however, must be cut at or north of Soroka,
if the Germans are to prevent whatever supplies the Russians
are receiving at Murmansk from reaching Moscow.
To take Soroka the Germans need Finnish help. This the

latter are loath to give, although theoretically the arrival of
Nazi reinforcements has made it possible for the allies to take

troops at the front just so long as they can stay awake. When
replaced at the front, the troops sleep in houses in villages, if
these are available. If not, they use snow to build shelters in

the offensive. The Finnish strategy, however, appears for
the present to be purely defensive. Reports from Helsinki
indicate that their army is entrenching along the Svir River

the woods, which they warm with portable stoves, and line
inside and cover outside with boughs. They also make dug-

and is constructing what can be described as permanent fortifications on the isthmus between Seesjarvi and Lake Onega.

outs where the earth has been sufficiently softened by structures that have been burned.

They also appear to be fortifying the present front on the
Karelian Isthmus, and to be preparing another fortified line

The report would indicate, moreover, that most of the
fighting is by comparatively small bodies of troops. Severe
encounters, it appears, take place only along the railroads
and highways. A characteristic Russian tactic is to infiltrate
after dark so as to overpower the Germans before they can
demolish the villages where they are quartered.

near Summa.

An artillery bombardment of Leningrad from the Karelian

isthmus may be a compromise acceptable to both sides.
According to a report from Helsinki, the Germans have completely taken over Hango, which they will develop into their

chief Finnish base. Its advantages include nearness to
Tallinn (capital of former Esthonia), excellent railroad connections, comparative freedom from ice, and a position con-

Discord in Finland

On the Finnish front, there appears to be a definite clash
of wills between the invading allies. The Finns, disillusioned
and war weary, seem to have given up any thought of further
advances and to be digging in for the winter. The Germans,
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trolling the entrance to the Gulf of Finland. From Hango,
presumably, the Germans are preparing the reinforcement
of their lines around Leningrad. There are some indications
that they are already moving heavy artillery into the Karelian

area. But even for an eventual assault on Leningrad, the
Finns might be unwilling to give any aid.
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Although the full meaning of the promotion of Quisling as

I

The Nazis Promote Quisling

outskirts of Gazala, the British now find that their reconnaissance raids sweep far to the west of that point without

Minister-President will not be clear until it is learned whether

encountering any Axis concentrations.

the Nazis entrust him with any substantial fresh powers, his
new status may reflect the desire of the Germans to relieve
themselves of local governmental duties in order to concen-

The threat to the British in Libya and the Levant generally has of course by no means been lifted. The present
phase of the Axis drive is to be viewed merely as a pause,

trate on larger military objectives, either offensive or defensive in character, according to a current analysis by the

Coordinator of Information. Available evidence is inconclusive, but some reports indicate that the number of Nazi
soldiers in Norway has begun to rise again, and General
Falkenhorst, after six months on the Finnish front, is now
back in command in Norway. Quisling, when promoted,
reminded his listeners that Norway is "the strategic center

of the North."

It is also to be noted that Stockholm has increasingly
clashed with Berlin on the ideological front, and that if

and there are ample evidences of intense preparations for a

strong Axis move in the eastern Mediterranean. Admiral
Raeder's visit to Bordeaux and the arrival there of numerous
naval personnel are said to be connected with an early inten-

sification of the Battle of the Atlantic, one of whose objects
would be to divert British naval strength from the Mediterranean. Likewise the visit of Goering to Italy is presumed

to reflect plans for intensified air activity in the Mediterranean area, where large numbers of German planes have
already been concentrated. Rommel has now regained tank

Quisling's regime can now make peace with Germany, the

superiority over the British in Libya, and the Italian navy
in the eastern Mediterranean is reported to be superior to

Nazis may be enabled further to embarrass the Swedes, who

the British in ships, though not in personnel.

would probably be faced with a demand to discontinue
relations with King Haakon's government-in-exile. The

Cabinet Crisis in Egypt

Swedish press writes disparagingly of Quisling's elevation.

Norway's future status, says one Swedish writer, will be
determined, not by a ceremonial attempt at a fait accompli,
but on the battlefields of Europe.
Pause in Libya

In spite of the notable reinforcements which have reached

the Axis forces in Libya, Rommel's blitz to the east has
now bogged down, temporarily at least. Lengthening com-

The Axis drive in Libya is not unconnected with the current cabinet crisis in Egypt-a confused tangle of intrigue,
with tragi-comic overtones. It started with a demonstration
by Egyptian university students, as a result of which the
coalition cabinet fell. Then the British Ambassador brought
pressure to bear upon King Faruq to accept a cabinet headed
by Nahas Pasha, leader of the traditionally anti-British Wafd
party.

Egyptian cabinets have always shown themselves extra-

centration of British land forces for a determined defense of

ordinarily sensitive to student demonstrations. But the
origin of the current crisis lies somewhat deeper. The

Tobruk are all undoubtedly contributory causes. In any
event, after an almost unimpeded Axis advance to the

students were merely reflecting a view already suggested by
Axis agents that Britain had been too high-handed in pressing

munications, British superiority in the air, and the con-

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for the recent rupture of Egyptian relations with Vichy.
Such a suspicion was enough to undermine the prestige of the
coalition cabinet.

The personality of King Faruq, an intelligent, but wilful
and personally ambitious young man, has also proved of
critical importance. The balance of parties in the coalition
cabinet had well served his desire for personal power. Com-

ing as it did at the time of Rommel's Libyan successes, the
British pressure for a break with Vichy aroused his indignation. Perhaps as a result, he was quick to assert his independence and his latent sympathies for Italy.
In this crisis, Britain had to act quickly to secure a strong
and efficient Egyptian government. Despite its anti-British

reported to have met Admiral Darlan and to have supported
his old arguments for naval collaboration with the assertion
that with Japan now in the war, Axis naval supremacy is no

longer beyond the realm of possibility. The French Admiral, after a telephone conversation with Marshal Pétain,
appears to have refused.

Meanwhile in Indo-China, the Vichy representative,
Admiral Decoux, whom the Emperor of Japan has already
decorated, is reported to have been pursuing negotiations with
the Japanese with a view to transferring to them French naval

bias, the unified power and large backing of the Wafd recom-

and merchant tonnage in the Far East-including at least
one cruiser. The Vichy radio confirmed these fears when it
asserted that the economic future of Indo-China was intimately connected with that of Japan, and that the French

mended it to the British authorities. At least its nationalist
program coincided with British desires for a more positive
Egyptian stand. And Britain knows where the Wafd stands

possessions in the Far East should not be allowed to suffer
the fate that has befallen Syria. The British radio countered
with an effort to discredit the Vichy government in the minds

or may be expected to stand.

of the French people and with an implied criticism of the
American State Department's qualified support of the

Collaboration Negotiations on Three Fronts

Concurrently with the drive of Rommel in Libya, the
Axis has been putting pressure on the Vichy government in
at least three separate negotiations, and to only one of these

do the French authorities appear to have offered any strong

resistance. British radio efforts to discredit the Vichy
regime and official expressions of alarm on the part of the
United States government bear witness to the seriousness
of the threat to the Allied cause.

In an effort to secure once and for all the cooperation of
the French fleet, Admiral Raeder and his staff descended on

Bordeaux, in occupied France. Their visit included an inspection of the Scharnhorst and Gneisenau, at Brest, the two

German battleships that have been repeatedly bombed by
the RAF. Now, however, they are said to be seaworthy and
preparing to steam home for final repairs. Later Raeder is

Pétain regime.

Finally, a third and more serious collaborationist threat
was aired in the press when Hugh Dalton, British Minister of
Economic Warfare, officially charged the Vichy government
with permitting deliveries of food and gasoline to reach Axis

troops in Libya from Tunisia. It is known from other and
reliable sources that at least three ships loaded with trucks

and other supplies for Libya have arrived in Tunis from
Marseille, and other shipments are forecast under the terms
of a regular French ferry service agreement for the forwarding

of military materials to Tunis from French Mediterranean
ports.

Chile Hesitates

As Japanese successes continue in the Pacific area, their
emissaries have adopted a threatening attitude toward Chile,
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and reliable reports are circulating of Axis nuisance demonstrations and of the existence of Axis bases on the Chilean
coast. As a result, Chilean advocates of a breach with the
Axis find themselves in a very difficult position; for various
strong elements still believe that the Axis will win the war,
that Japan will not attack Chile unless provoked, or that the
political objectives of the United States menace the power of

and Ascension are British. Four others, Rochedos Sao Paul,
Fernando Noronha, Rocas, and Ihla da Trinidade are Brazil-

ian, lying from 150 to 1100 miles off the coast. All of these
Brazilian Islands are potential, if limited, submarine and
seaplane bases. Of the Brazilian group all but Fernando
Noronha are uninhabited and undefended.
On the same day as its breach with the Axis, January 29,

the Chilean ruling classes. President-elect Rios, far from

Brazil declared Fernando Noronha a military zone. A

offering leadership on the question of a diplomatic breach, has
been in his recent utterances safely equivocal.

further declaration, February 9, removed the island from the
jurisdiction of the State of Pernambuco to that of a dependency

The Chilean Congress, meanwhile, has been dissolved
until February 20, causing Foreign Minister Rossetti to alter
his plan, expressed soon after the election of February 1,

of the Federal Government. Brazil announced at the same

to submit the Rio resolutions to the Chilean legislature
immediately. He is publicly and privately committed to

garrison.

recommending a breach to the Congress; but he now speaks

of the value of taking the matter up when passions have
cooled. To a special press conference of United States
newspapermen on February 7 he disclosed that he would
submit the Rio agreements, including the recommended
break with the Axis, to the Congress late in February or

time the intention of making it a key defense post, with
General Francisco Gil Castello Blanco in command of the
Fernando Noronha, about 51/2 by 1% miles in area, is some
250 miles from Natal and 1400 from Dakar. Its penal settle-

ment, commercial airport, and garrison give it a population
upward of 1500. The airport, developed as an emergency
field in the transatlantic service of Alla Littoria, comprises
a large field with personnel and supplies to cover all but major

contingencies. The island would undoubtedly be useful,

early in March.

particularly for land-based planes. It is, in addition, a

Brazil Turns to Offshore Defense

cable station of some importance with connections to Recife,
the Cape Verde Islands, and Dakar.

A reliable report that an organization to assist the Axis
exists on the inshore islands southwest of Rio de Janeiro,
and the recently announced plans of the Brazilian Government to fortify the offshore island of Fernando Noronha,
serve to emphasize somewhat belatedly that the defense of
Brazil is not confined to the mainland. An assault upon the
Brazilian coast from an African base, such as Dakar, would
have both in its face and on its flanks the little-known islands

of the South Atlantic. Of these remote island-groups, St.
Helena, South Georgia, the Falklands, Tristan da Cunha,
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G-2/2657-220:

No. 622

M.I.D., W.D.

11:00 A.M., February 5, 1942.

SITUATION REPORT
I.

Pacific Theater.

Philippines: The savage fighting of the last two weeks has

subsided, and there has been little activity on either of our flanks.
Hawaii No further reports. Malaya: According to the press, the

enemy intensified his aerial bombardment of Singapore on the 4th, mean-

while continuing to bring up reinforcements for his land forces. Land
operations Wednesday were characterized by artillery duels. Burma:
The ground situation is unchanged. Toungao (north of Rangoon) was

raided by enemy planes during the night of the 2d. Sumatra: Banka
Island (off southeast Sumatra) received an air raid on Tednesday.
Australasia: Fighting continues at Ambon. The general situation appears to be unchanged, but the press reports that both sides are active
in the air, the enemy having raided various places yesterday, including
new attacks on Port Moresby (southern New Guinea) and Surabaya (Java).
II.
Eastern Theater.

Russian pressure continues northeast of Smolensk and in the

Donets Basin. (No situation map will be issued this date.)
III.
Western Theater.
No further reports of major activity.
IV.

Middle Eastern Theater.

Ground: British forces have retired to positions south and
east of Derna, in coastal Cyrenaica. In central Cyrenaica, British

mobile columns have made contact with Axis mobile columns north and
east of Msus.

Air: Axis air forces continue the bombing of Malta, while
R.A.F. air activity is now being directed at Sicilian airdromes and
embarkation ports in Italy.

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