Full text of Diaries of Henry Morgenthau, Jr. : Volume 5 : Part 1

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Book 5 - Part 1 and with Roy
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April 23 - May 30, 1935
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American Bankers' Association
See Lending Agencies, Interdepartmental Committee of

Page

-B Banking Bill, 1935
See also Congress, Statements before

91+

Bulkley asks HMJr about Title II - does Treasury want it
dropped? HMJr says "no" - shows him new draft very

confidentially - 5/28/35

183

Bonus (arranged chronologically)
At FDR's press conference his proposed veto is discussed
5/17/35

HMJr talks to newspaper men, asking for their assistance
to FDR in connection with bonus veto - 5/20/35
a) HMJr and Aylsworth confer concerning radio talk
by Young

b) Asks Gibbons to check on New York delegation vote
in House

c) Transcript of typical conversations with Roy Howard,
et cetera, attached
At lunch 5/20 HMJr finds a coolness on part of FDR to what

109

109 At
109 H
110+

he's doing; FDR says, "We may have to compromise" tells

HMJr, "Never let your left hand know what your right is

116

doing"

Veto message 5/22/35

a) HMJr asks J. Edgar Hoover about Justice men protecting
FDR

119

121 A
128+

Resume'

At lunch - probably May 6 - FDR told HMJr Garner advised
acquiescing in having bonus veto overridden and so not

having it a political issue in 1936; on 5/16 FDR and

HMJr go over suggestions by Ray Moley, Hines, and
C. B. Upham (see page 120); FDR then dictates to "Missy"
HMJr then urges him not to acquiesce in having veto

overridden - finally FDR agrees to fight; HMJr wants
speech given over radio Sunday evening, not to the

unsympathetic Congress FDR is bound to find
5/17 HMJr goes to White House FDR, McIntyre, Early, and
Moley present

a) Early advises against going on air - insulting to
Congress

b) McIntyre implied Garner was right and HMJr was
giving wrong advice

c) Moley said very little; HMJr finally agrees to

speech before Congress Moley has a headache and

withdraws; later tells FDR he is going back to

New York since HMJr's speech is to be used FDR
urges him to stay and promises HMJr will not be
present

FDR, "two Elinors," HMJr, Rosenmans, and "Missy" go on
board "S/S Potomac"; HMJr tells FDR there must be

follow-up work after veto is given; FDR agrees

B - (Continued)
Book

Page

Bonus (Continued)

HMJr sees FDR early day after veto message - FDR very

calm; tells HMJr if bonus veto is overridden it can
be financed - 1. greenbacks 2. bonds 3. $4.8 billion,
which Glass and Byrd prefer; FDR will tell country
every man on relief projects who loses his job can
thank veterans' lobby in Washington

133

Walsh (Massachusetts) asks HMJr to ask White House to

hold up name of Collector of Internal Revenue at Boston
for another ten days so that it won't seem he (Walsh)
is "being paid for vote on bonus" 5/27/35

182

-CCanada

See Customs, Bureau of

54,56,
62,186

Columbia Distillery Company, Limited (Canada)

See Customs, Bureau of
Congress, Statements before, by HMJr
Senator Nye's Committee on Munitions and Armament does

not agree with Mills that "nothing can be done to take

profit out of war until we are actually at war" -

Appeared at 10 A.M. 4/23/35
Senate Finance Committee on bonus bill at 11:30 A.M. 4/23/35
Revenue measure to provide funds for bonus transmitted

by letter

Banking Act of 1935 (Senate) 5/17/35
At FDR's press conference HMJr's statement that
Government should own stock in Federal Reserve Banks
is discussed 5/17/35
Present at hearings before Senate Finance Committee were:
Rudolph Hecht (President, American Bankers' Association),
Francis M. Law, et cetera

HMJr asked to define inflation; bega to be excused

Consolidated Gas Company

See LaGuardia, Fiorello

Coolidge, Thomas J.
See Silver

3,9

4,6,8
11,14
91+

92+
92+

81,87

28,61,
62,63

Coughlin, Father

FDR irked at constant attacks; will use "file" and talk
to Apostolic delegate, et cetera, if they continue 5/23/35

133

Customs, Bureau of

Goldberg case: Waite (Paris) refused access to records of
Goldberg shipments by French customs; Straus asked for
assistance 4/25/35
HMJr talks to Conboy, who is leaving Justice Department
4/8/35

Goldberg case: Merle Cochran tells HMJr he has necessary

information and has turned it over to Waite 5/29/35

80 A-B
173

- C - (Continued)
Book Page
Customs, Bureau of (Continued)
Memorandum to Oliphant from Frank, itemizing documents
formally requested through State Department from
Canadian Government - 4/29/35

(1) Certified photostatic copies of Excise Form B54 -

Columbia Distillery Company, Limited,
New Westminster, British Columbia
(2) Certified photostatic copies of Customs Form B9 Joseph Kennedy, Limited - Vancouver, British Columbia
(3) Certified photostatic copies of Customs and Excise
entries filed by Joseph Kennedy, Limited
(4) Certified photostatic copies of Marine documents
(5) Certified photostatic copies of Customs Form A7
Report Outwards and A6 Report Inwards filed at
Newminster, Vancouver, and Victoria
Outline of Canadian claims
Canadian Minister confers with HMJr, Oliphant, and Frank
5/1/35

Canadian Minister confers with HMJr 5/29/35

186

Daniels, Josephus (Ambassador to Mexico)
See Silver

-EEmergency Relief Appropriation
See Unemployment Relief
-F

Federal Reserve Bank, New York

Crane, J. E., Deputy Governor in charge of Foreign Department,
resigns (See also Book IV, page 256 E)
a)
Hansen consults HMAr about successor; Earl Bailie
mentioned - 4/23/35

12 A-C

Federal Reserve System

HMJr tells FDR he is to testify on Banking Act, 1935,
before Carter Glass and wishes to recommend that
Government buy stock in Federal Reserve System;
FDR agrees - 5/16/35

129

Financing, Government
See also Open Market Committee

Home Owners' Loan Corporation offering of 4-year 13% bonds of
Series F, 1939, in payment for which only Home Owners' Loan
Corporation bonds of Series 1933-51 called for redemption
7/1/35 may be tendered - 5/20/35

a) Subscriptions will close 5/29/35

116 A
173 B

- F - (Continued)
Book

Page

Financing, Government (Continued)

5/27/35 - Additional issue of 3% Treasury bonds of
1946-48 in the amount of approximately $100 million.
a) Results - 5/31/35
$4 Billion 8 Fund

173 A
191

See Unemployment Relief

France, Negotiations with

See Customs, Bureau of

18,173

See Stabilization

135+

-GGold

See Stabilization

Goldberg, Isadore, and Company
or

Goldberg, I., and Sons, Incorporated

See Customs, Bureau of
Goldsborough, Thomas Alan (former Congressman, Maryland)

HMJr interviews concerning membership of Federal Deposit
Insurance Corporation - 4/23/35

18,173

Guaranty Trust Company

See Stabilization for arrangement with Bank of France
concerning shipment of earmarked gold

141

-HHome Owners' Loan Corporation
HMJr 'phones Steagall about opening Home Owners' Loan

Corporation for another 60 days - 4/24/35

See Financing, Government - 5/20/35

14 A-C
116 A

-I- Indo-China (French)
See Silver

90,117

-J. Jackson, Robert

Says "Government is my client"; brings Court to senses by
offering to withdraw; HMJr tells FDR Jackson is doing
grand job - 5/1/35

-KKennedy, Joseph, Limited (Canada)
See Customs, Bureau of

Book

LaGuardia, Fiorello (Mayor, New York City)
HMJr conference with - 5/8/35
a) Consolidated Gas Company contracts with United States
and New York City discussed from point of view of

Page

municipal plant built with Public Works Administration

allotment
Press release concerning

Leith-Ross, Sir Frederick William
See Stabilization
Lending Agencies, Interdepartmental Committee of
Report of Banking subcommittee 4/29/35
a) Eccles says American Bankers' Association would
reduce Federal Reserve Board from 8 to 5 by

187,189
46

removal of Secretary of Treasury, Comptroller of

Currency, and one appointive member House of
Representatives is opposed to Reserve Bank Governors
on Open Market Committee

b) HMJr repeats Open Market Committee should consist
of 3 members of Federal Reserve Board and 2 Reserve
Bank Governors

c) Eccles wants Comptroller of Currency to unite with

Federal Deposit Insurance Corporation and Federal
Reserve Board for bank examinations
d) HMJr says he and Eccles are still 100% apart

e) Eccles says ideal set-up is: eliminate Secretary of
Treasury and Comptroller of Currency from Board
put Federal Deposit Insurance Corporation chairman
on; let Federal Reserve System charter banks and
Federal Deposit Insurance Corporation examine them

f) Coolidge says ideal set-up would be large Board with

Secretary of Treasury, Secretary of Commerce, and
2 or 3 others, plus 4 Federal Reserve Bank Governors

serving seriatim for short periods or a Washington

Board made up of a Governor and 2 Deputies with
Governor of Federal Reserve Board sitting occasionally
with them

Meeting of Committee on Recapitalization of Banks - 5/3/35.
a) Discuss slow progress of Banking Bill
b) Coolidge says HMJr wants whole recapitalization program

completed by August 1
Leon, Rene

HMJr and Irey confer concerning - 4/30/35

Liquor

HMJr talks to Speaker Byrnes about "the Mrs. McClary bill"
husband (a policeman) killed in Virginia rounding up
moonshiners - 5/7/35
HMJr talks to Congressman Truax - 5/7/35

78 A-C,H
78 D-G

-MBook

Page

Mellon, Andrew W.

HMJr tells Jackson he can "go the limit" in tax trial
5/8/35

Mexico

Ambassador Najera calls on HMJr:

Rodriquez to be removed HMJr states United States
wishes to buy silver which was purchased in London
without knowledge of President or Secretary of
Treasury in Mexico - 4/23/35

-NNew York City

Municipal Power Plant discussed by LaGuardia and HMJr
5/2/35
5/8/35

63 A-B
81,87

-0Open Market Committee

See also Lending Agencies, Interdepertmental Committee of
HMJr tells Eccles, so far as he can see, Open Market
Committee does not help Government in any way: no increase

in holdings since HMJr came to Treasury to date only
various Trust Funds have kept market where it is doesn't
want Treasury to have anything to do with it; so far as
HMJr is concerned, Federal Reserve doesn't exist - 5/15/35

See also Congress, Statements before (Banking Act, 1935)

Meeting 5/22/35

91+
122

a) Coolidge suggests selling bonds on a bid basis

(approximately $100,000,000) each two weeks
b) Haas shows chart: 30 bonds from Moody's broken down
and 9 which were uncallable taken Governments had

gone parallel to these 9
c) HMJr says: maturities in 1939 of only $1,250,000,000;
therefore he feels sure $700,000,000 or $800,000,000
could be added and still have a reasonable maturity
of $2,000,000,000 then: he wants to sell $100,000,000

at auction, stay out of market until after Labor Day,

and then offer conversion of the called Fourths
d) New method agreed to: offer of 3's 1946-48 to be
made with expectation of having bids around 103

-P
Parker, Clark V.
Editor-in-chief of Scripps-Howard papers; Howard says he
will send him to see HMJr concerning bonus veto

112

- P - (Continued)
Book

Page

Peek, George N. (Special Adviser to President on Foreign
Trade)

"Letter to President on Foreign Trade and International
Investment Position of United States as of 12/31/34"
discussed by Treasury, State, Agriculture, and

Commerce representatives - 5/6/35
Press release by Commerce concerning this letter 5/8/35
Jesse Jones and HMJr confer on FDR's wishes as to

financing of Peek's organization after 6/30 - 5/23/35

121 C-F

Peru

HMJr tells Hull Peru is in same trouble as Mexico;
suggests ascertaining whether United States can help
5/7/35

Pittman, Key
See Silver

Public Buildings - Treasury Activities

Buchanan asks HMJr whether he needs Annex or new Bureau

of Engraving and Printing building more - 5/15/35

89 A-D

-RRandolph, Congressman

Asks HMJr to make commencement address at Potomac State
College 5/20/35

107 A-B

Recovery Agencies

HMJr conceives idea of check-up by intensive study in a
medium-sized city - 4/23/35

Roosevelt, Franklin Delano
See Bonus (revelation of character to HMJr)

116

S-

Silver (arranged chronologically)

HMJr tells Mexican Ambassador United States wants to
buy silver purchased in London without knowledge

of President or Secretary of Treasury in Mexico

4/23/35

Daniels' statement concerning Mexican gratitude to

United States for silver policy

Mexican Ambassador transmits proposal to Secretary of
Mexican Treasury, who will transmit to Bank of Mexico

Press representatives resent being told "nothing on
silver" and about two hours later an important release;
HMJr explains - 4/25/35
HMJr tells FDR Coolidge's fears if silver goes to $1.29;
FDR promises HMJr "no more silver legislation this
year"; FDR hopes price will stay approximately 75$
"into 1936" - 4/26/35

S - (Continued)
Book Page
Silver (Continued)

HMJr confers with "silver"Senators; one of three things
can be done:

(1) Recommend FDR issue another proclamation

(2) Put domestic mined silver at $1.29
(3) Put domestic mined silver at $1.00
Tells Senators of Mexican situation - says Mexican
representative is on way for discussion with him:
accordingly, Senators agree to do nothing just now
V

4/26/35

a) McCarran regrets he was not asked; sees HMJr
at 8.30 A.M. 4/27/35
Assistant Secretary of Mexican Treasury (Robert Lopez)
and HMJr confer 4/28/35
(1) Mexico asks that present price be maintained
for 30 days

32 C-D
33

(2) Can United States mint rapidly for Mexico?
HMJr says "yes"

(3) Can United States help print bank notes?
HMJr says "yes"

(4) HMJr says ncthing United States can do to stop
price of silver from going up; suggests Mexicans
sell in London and New York
(5) HMJr promises to see FDR about holding price

stable until May 27
Lopez calls at HMJr's home at 11 o'clock 4/29 (Sunday) ;
Mrs. Morgenthau present as witness:

(1) Mexico thinks crisis is past - no longer fears
rise in price
(2) Mexico will give United States first option on

any silver sold in New York and London; HMJr says

"nothing new - United States pays best price

mutually advantageous"

HMJr tells Lochhead to buy 1/2 million ounces at 74 and

to million at every # down to 72$; thinks only explanation

for Mexican reaction is, they are under terrific political

pressure not to sell

HMJr explains entire Mexican situation to FDR
Lopez asks HMJr to tell press Mexico did not come to
protest price - HMJr promises to "handle press situation".
HMJr gives Hull resume'
Lopez statement to press

New York Times: "Mexico satisfied over silver price" 4/30/35
Coolidge asks HMJr to promise he will not raise price of
silver to 75$ as long as he is Under Secretary; HMJr
refuses; tells Coolidge he is constantly upsetting him
(HMJr) 4/30/35

Coolidge again says, "I can't go along"; HMJr tells him he
must stop threatening to resign; Coolidge promises to stop
5/1/35

HMJr asks FDR to see Coolidge - 5/1/35

38
39

40
41

62
63

S - (Continued)
Book

Silver (Continued)
King George V's birthday - London silver market closed

Page

HMJr offers Mexico at trifle over 73$ FDR pleased;
HMJr plans to keep a million ounces always in London for
sale purposes - 5/6/35
Jumps from 73.60 to 76.31; HMJr sells 250,000 ounces in

London 5/14/35

HMJr tells Pittman vote of confidence brings silver down
and United States "picks up" 10 million ounces at less
than 72$; Pittman tells HMJr one can never tell what

Wheeler, McCarran, and Thomas will do - 5/15/35
French Indo-China sells 4,500,000 ounces to United States
5/21/35

Walsh (Massachusetts) tells HMJr present silver buying
policy is hurting manufacturers HMJr says the law was
started by the Senate and not the Administration - 5/29/35

90,117

185

Speeches, by HMJr

HMJr shows FDR copy FDR pleased except with end - thinks

stabilization may be overstressed. Tells FDR Early told

Gaston he thought speech should not be given by radio -

only FDR should "talk to the people" asks Gaston to try

to arrange for radio time on Monday, May 13
"The American Dollar" delivered by radio 5/13/35
a) Burgess has no reactions to speech as yet - 5/14
b) Robinson congratulates HMJr
c) Comment on

d) List of those present at broadcast
e) See Book V, Part 2, for Chester T. Crowell's complete
description of various steps
Stabilization (arranged chronologically)

88 B+
88 C

88 D-E
89 E-S
89 T

150

French Negotiations: Conversations between Cariguel

(Banque de France) and L. W. Knoke (Federal Reserve
Bank, New York) 5/17/35

135

a) Cariguel Will United States buy francs against
dollars and take gold?

b) Knoke tells Cariguel Societe Generale is principal
seller of francs

c) New uneasiness on Cariguel's part noted
d) HMJr says Banque de France may sell dollars as
offered by him through Crane on 4/8 (1.e.,
$5,000,000 at 658 or better)
See also Book V, page 144, again confirming this
Knoke reports that member of French Parliamentary Budget
Committee states Flandin resignation is foregone conclusion;
Laval will form new government, retaining Germain-Martin
as Minister of Finance, public will be more amenable to
Government's wishes - nothing unfavorable will happen to
franc - 5/24/35
HMJr tells Federal Reserve Bank, New York, "all francs
purchased on our behalf by Bank of France must be
immediately converted into gold and shipped to Federal
Reserve Bank of New York" - 5/24/35

138

139

- S - (Continued)
Book

Stabilization (Continued)
French Negotiations (Continued)
Cariguel assures Knoke gold earmarked by them for us
would be absolutely free for export 5/23/35
Cariguel calls attention to agreement with Guaranty
Trust Company concerning shipment of earmarked gold,
Knoke and Cariguel discuss operations in New York after
close of market in Paris; Governor of Bank of France

consulted 5/24/35
Cariguel again confirms agreement

Cariguel reports discount rate raised "to make a good
impression" 5/25/35

Cariguel refers to $5,000,000 worth of gold sold to
United States 5/25 to be sent to United States by first

available steamer: asks about another order
Knoke tells Cariguel HMJr has authorized further purchase
of $25,000,000 of gold in Paris at $35 - to be regarded

Page

140
141

142
143

145

as a reserve offer - 5/27/35

146,148

5/27/35 Cariguel telephones Knoke "bad time again"; he
gladly accepts second $5,000,000 against gold in Paris
as offered 5/25, total of $27,000,000 today Guaranty

Trust Company $22,000,000 and Bank of France $5,000,000

147

5/28/35 Cariguel telephones Knoke: total dollar amount is
$32,500,000, of which $7,500,000 is against our
$25,000,000 offer

149

5/29/35 Cariguel another bad day $17,500,000 offered
by HMJr taken; through Cochran he is going to ask for
something like $200,000,000; Cariguel confirms Knoke's
understanding that insurance for gold shipped to

United States will be for dollars

150

Loree (Guaranty Trust Company) recapitulates $68,000,000

151

in gold now in transit

5/29/35 From American Embassy in Paris Cariguel discusses

with Knoke Washington offer of $150,000,000 if British
will advance $50,000,000; Cariguel states (1) if Flandin
resigns, Laval, Marques, or Mandel will succeed him
(2) Great Britain has not less than £40,000,000 worth of
gold earmarked in Paris; (3) no United States gold to be
kept in Paris - to be shipped as fast as space on ships
is available

152

Governor Harrison to see FDR; HMJr asks Harrison to
explain Bank of France request for $200,000,000 which
is to be made by Cochran. Harrison approves of this

plan - thinks Stabilization Fund should handle it

Oliphant thinks United States and England should handle
this

153

- S - (Continued)
Book

Page

Stabilization (Continued)

French Negotiations (Continued)

Cochran calls HMJr - explains reasons for request of

$200,000,000; HMJr asks Cochran to ascertain amount

of gold the British Equalisation Fund has earmarked
with Bank of France, later Cochran and Cariguel call;
Cariguel states British Equalisation Fund has a
minimum of £30,000,000 of gold earmarked with Bank

of France, HMJr suggests to Cariguel that he ask

British to take $50,000,000 if United States takes
$150,000,000; Cariguel agrees - states they are

mainly interested in dollars

Telephone conversation, Cochran-HMJr - 5/29/35
a) 40 members of French Finance Committee went to

154
155

Flandin's house; turned down Flandin's and
Germain-Martin's proposals, 25-15 rumored Flandin
will now resign
b) Cochran says Tannery has assured Cariguel, in
event of gold embargo, United States gold will not

be interfered with: if necessary, it will be

shipped to England, HMJr does not want this
c) Cariguel says Bank of England is not helping them

just at this time; Guaranty Trust Company, operating
in London, is bearing the brunt there: Cariguel

wants answer on $200,000,000 request Friday, May 31

(Paris time) at latest

d) HMJr asks Cochran if Bank of France wants this amount
even though Government falls Cariguel says "yes,
absolutely"
e) HMJr asks amount of gold earmarked for Bank of England;
Cariguel says "£30,000,000, roughly speaking"

f) HMJr says again, "United States will enter a joint

account with Bank of England: 150 million to 50 million",

tells Cariguel himself this in Cochran's office

g) Cariguel says France needs only dollars
h) HMJr reiterates Bank of France must ask Bank of England
before United States gives answer
i) HMJr says technical and legal foreign exchange
questions should be taken up with Federal Reserve

169

Bank, New York

j) HMJr also says if Bank of England doesn't want to use
pounds in this transaction, United States will lend

them dollars
Cochran again telephones to HMJr 5/30/35

a) Cariguel says Bank of France does not think they

should approach Bank of England, who have already

cooperated fully
b) This information transmitted to FDR
c) Cariguel informed Treasury will purchase up to

$150,000,000 of gold in Paris against dollars to

be made available in New York

172
174

- S - (Continued)
Book

Stabilization (Continued)
French Negotiations (Continued)
Cochran again telephones to HMJr 5/30/35 (Continued)
d) HMJr instructs Harrison to tell Bank of France

Page

174

no publicity will be given this transaction here,
but they may in Paris if they wish
e) Treasury will also purchase, in London, from
Guaranty Trust Company, gold at $35 an ounce

up to $50,000,000 - this permitting Guaranty

Trust Company to operate in French market to
a greater extent (Guaranty Trust Company has

legal limit of $65,000,000 outstanding at any
one time)

f) HMJr thinks any acquisition of gold in London
by Treasury may be profitable within course of
next few days

Straus tells HMJr conditions are fairly critical in
France, advises credit limit of $25 million.

HMJr tells FDR 6/3/35
HMJr talks to Cochran at 4:30 Flandin had appeared
in Chamber - fainted - made bad impression. HMJr

tells FDR and asks for OK on plan to give credit
of $150 million and revolving fund of $50 million
to Guaranty Trust Company FDR OK's plan. HMJr tells
Straus - no release to newspapers; only Bank of France
to be notified

176

Leith-Ross tells Bingham (American Ambassador at Court

of St. James) no ground for belief on part of Treasury

that activities were being made known to Bank of England
or British Treasury; Bingham asks Leith-Ross to take
under advisement plan for reciprocal exchange of
information - 5/30/35
Leith-Ross reports Chancellor of the Exchequer considers

this exchange not possible at this time - 6/6/35

187
189

Stewart and Company contract

Senator Robinson asks about W. E. Reynolds a) How long

in Treasury? HMJr tells him "Chip" Robert brought him
to Treasury 5/14/35

88 D-F

Taxation

Senator King tells HMJr he has been concerned about

overlapping Federal and State taxation for over 8 years

60 A-B

4/30/35

Oliphant advises HMJr against sending tax message to FDR;
FDR does not agree - wonders what is in back of

Oliphant's mind - 5/27/35

182

Thompson, Beriah M. (Commander)

Ships flying American flag to be given preference in
entrance to Port of New York
a) Telephone conversation with HMJr 4/25/35

14 D-F

UBook

Page

Unemployment Relief

$4 Billion 8 Fund
HMJr tells Bell, Oliphant, and McReynolds to prepare
an Executive Order - one good for the President
disregarding what Hopkins, Walker, and Ickes each
wanted - 5/3/35
Allotment Committee meets; LaGuardia asks about

United States policy with regard to loans to
municipalities; resolution before Committee authorized
loans and grants on 50-50 basis, interest at 3.8% thereby enabling municipalities to sell their bonds
privately; HMJr prefers grant of not more than 50and possibly 40% plus loan of 50- to 60% at 3% 5/23/35

133 A

HMJr tells FDR 5/24/35 he advises Government granting

40% plus loan of 60% at 3%; final decision: grant to
be 45%; rate of interest to be 3%

Release covering above decision - 5/24/35

133 B
180

-W-

Walsh, David I. (Senator, Massachusetts)
See Bonus

See Silver
White, Harry

Representative of Treasury Department in Europe; Phillips
of State Department calls HMJr concerning mission HMJr
says any time a Treasury Department representative
clashes with a State Department representative abroad,

Treasury representative will be recalled - 4/23/35

182
185

12 D-E

April 23d

H. M. Jr. sent for the Mexican Ambassador,

Dr. Don Francisco Castillo Najera, this morning. The following is their conversation.
H.M.Jr: I hear that Rodriguez is going to be removed.
N:

H.M.Jr:

Yes and the new appointee will be appointed to come

here to discuss matters with you.
You know the pressure that I am under to buy silver
and we have not been buying in London for some time.
You have this silver in London which evidently was
bought without the knowledge of the President and
the Secretary of the Treasury in Mexico. I would
like to buy this silver which you accumulated in
London, four or five million ounces, and bring it
over here. If I can do this the pressure will be
less upon me and I will not have to go on buying
much more here and silver will not go up so much.
Silver closed in London on Thursday at 31 pence,
there being no silver market since then. I want
to make your government an offer to buy to-day
whatever silver they have accumulated in London at
31 pence an ounce. I would like you to communicate
with your government and let me know before 9 o'clock
tonight.

As soon as I leave here, I will call them on the
telephone, give them your message and have the answer
for you by this evening.
H.M.Jr: We have to buy silver until we have one third silver
in relation to gold. That policy is going to be
vigorously pursued. We have a mandate from Congress
to carry out that policy and we have to go ahead with

it.

The Ambassador called Mr. Morgenthau's attention

to the statement made by Ambassador Daniels on silver. It is
attached herewith.

H. M. Jr. then called Secretary Hull and gave
him the gist of his conversation with the Mexican Ambassador.

The Mexican Ambassador telephoned the Secretary at 8 o'clock
and
read
of Mexico: the following statement which he received from the bank
Agreeable to the request of Mr. Morgenthau, communicated by
his Secretary over the telephone, the Ambassador of Mexico will
endeavor to make an informal resume of his telephone conversations
rith the Secretary of the Treasury of his country, held yesterday.
The Secretary of the Treasury of Mexico was greatly interested
in the proposal made by Mr. Morgenthau to the Ambassador of Mexico.
He was prompt to state that he would acquaint the Bank of Mexico
with such
proposal, since it was the Bank itself that had to decide
upon
it.

The newly appointed Director of the Bank of Mexico informed

the Secretary of the Treasury that he was not in a position to
give a definite answer due both to the briefness of the time fixed
by Mr. Morgenthau as well as to the fact that as yet he is still
taking charge of the Bank and acquainting himself with its functions.
The Director expressed regret in being unable to avail himself of
this opportunity to establish at once contact with the Department
of the Treasury of the United States. It is his belief, however,
that once this initial stage of his work has passed, he will
establish such contact with all pleasure and interest.
The Secretary of the Treasury of Mexico asked the Ambassador
of Mexico that he convey to Mr. Morgenthau his earnest hope that
the purposes the Department of the Treasury of the United States
has
and those of Mexico itself, be attained through a true
spiritinofview,
cooperation.

nyme
Times
MONDAY, APRIL 22,

The total population of Mexico 1s
14,000,000 the Ambassador said,
and 14,000,000 of that number are

either full-blooded or part Indians
The President of the country half
Indian and no are most of the people in his Cabinet, he declared.

Mr. Daniels said conditions

DANIELS ARRIVES:

Mexico were generally quiet when

he left. Mexico is comparatively
prosperous. due. in part, be said, to

the increase in the price of aliver.

DENIES HE'LL OUIT

with little unempl yment and an

economic situation the best is its
history.

There was more building going on

Envoy Intends to Return to
Mexico in June -Problems

in Mexico. D. F., in his opinion.

There Held Purely Local.

the problems in the country at the

INTERPRETS CHURCH ROW

than in any other city in the world.
"The Government of Mexico, the
Ambassador explained, "claims that
present time are purely local. which
is hard for Americans to understand

because they have no clashes be
tween church and State and these

have been going on in Mexico since

Believes Religious Controversy
Has Reached Impasse. With

Aid to Indiana Factor.
Josephus Daniels, United States
Ambassador to Mexico and former
Secretary of the Navy, arrived yes

terday from Vera Crus on the Ort

tabs of the Ward Line accompanied by Mrs Daniela

The Ambassador, who is is his
eventy-third year. said he had no
Intention of resigning and would

return to Mexico June 12. He

will remain in New York several
days. he said, then go to his home

1857 when the Constitution which

was put into power decreed that
the property of the churches become national It was not enforced
until 1917.

"The government claims the

church has been against the revolo
tion movement which began in 1910

to Improve the condition of the In

dians and provide schools Ac., and

is still going on. The church has

shown no sympathy with the move
ment and is still working against
and is active is politics. The church

denies this and says the govern

ment made of agnostics who

want to crush all religion. The religious situatio now in Mexico
complete

impasse

The Mexican Government to
state there has been no persecution

of Catholica and that all religions

at Raleigh, N. c., for . rest and

are treated alike in the republic

call later at the State Department
is Washington before leaving for

been no complaint made the

his post.

Mr. Daniela, when questioned

about the alleged oppression
Catholice in Mexico, asked to

excused
from length
on the round that the Borah reso
lution to investigate religious in
tolerands is Mexico still before
the Senate
Committee on Foreign
tions.
He said the most significant thing

is Mexico today was that the In-

alan had at last come into his own

and had vote and voice in the
government for the first time since

Hernando Cortes conquered the

country in 1521.

To my own knowledge, there has

United States Embassy in Mexico
City of any American being denied

religious freedom. The Mexican
people have sovereign pride any
their

country

and

would

Interference from an outside nation

in any of Its problems, which they
consider they should be allowed to
settle by themselves.

The Ambassador added that the

Mexican people felt greatly indebted

the

Roosevelt

adminis

tration because of its silver policy.

- Mexico is one of the chief silver
producing countries of the world

April 23d
H. M. Jr. appeared before Senator Nye's
Committee at 10:00 A.M. this morning on munitions and
armament.

Mr. Morgenthau was accompanied by
Mr. Oliphant and Mr. Upham.

The members of the Committee present were

Senators Nye, Vandenberg and Barbour. Representatives of
the War Department and the Navy Department were also present.
Mr. Morgenthau told the Committee that he was

enthusiastically in favor of the objectives sought to be reached
by the bill in preparation.
Asked specifically if he shared the opinion
formerly voiced by Ogden L. Mills, that nothing can be done
by legislation along the lines of taking the profit out of
war until we are actually in the war, he replied that he did
not share that view, but on the contrary was of the opinion
that such action must be taken during peace time or likely
would not be taken at all. He voiced the opinion that if the
United Stated had had a proper and adequate taxing system
during the World War, we would have escaped many of the

difficulties that have beset us since.

The Secretary said that he had not gone over
the details of the tax proposals in the bill but that he would
be glad to have the experts in the Bureau of Internal Revenue
do that and give to the Committee the benefit of their opinion.
He said that the matter would be handled through the legis-

lative section of the Office of the General Counsel, Mr. 011phant.

Mr. Morgenthau was asked if, in his opinion,
there was any real difference between the wholly guaranteed
bonds which are a contingent liability on the Treasury and
the direct obligations of the United States so far as practical effect on the debt is concerned.
His reply was that he looked upon them as

very much the same - that there was little real practical
difference.

Before leaving the Committee, Mr. Morgenthau

agreed that if they wish him to return after they had considered the technical suggestions of Treasury tax experts,

he would be glad to appear again.

April 23, 1935.

Mr. Morgenthau appeared before the Senate Finance Committee

at 11:30 A.M. to testify on the Bonus Bill.
He read a prepared statement, copy of which is attached.
The members of the Committee asked the Secretary only a few
questions.

During the reading of his statement, Mr. Morgent hau was interrupted by Senator Bailey who asked if the Bankhead Bill for loans to
farm tenants had been referred to the Treasury.
Mr. Morgenthau said he did not believe it had.
Semi tor Gore asked Mr. Morgenthau for a comment on his resolution

S.71 which would authorize the President to enter into agreements with
our debtors abroad upon condition that they pay enough to take care
of the bonus certificates, and the money be applied to that use.
Mr. Morgenthau assured Senator Gore that he would be glad to

communicate with him in writing with respect to that matter.
Senator LaFollette asked if the Treasury had given any consideration to a program for raising additional revenue to meet the cost
of the bonds.

Mr. Morgenthau replied that he would recommend a Federal inheri-

tance tax on the same basis as the income tax and administred in the
same way. He agreed to give to the Committee, for Executive use, an
outline of the proposal within 24 hours.
Mr. Morgenthau said that as Secretary of the Treasury he had to

take the position that if a Bonus Bill were passed it would be necessary
to raise taxes to meet the cost.
The Secretary reaffirmed his stand for a scrupulous adherence to
the President's budget.

-2-

Asked specifically if taxes would be necessary in the case
of the passage of the Harrison Bonus Bill as well as the Patman

or the Vinson Bills, the Secretary replied in the affirmative.

glad to

offin

SEA

April 23d

At 11:30 o'clock H. M. Jr. testified before the Senate

Finance Committee on the Bonus Bill.

The following is the statement which Mr. Morgenthau made
before Senator Harrison's Committee:
"Your Committee has under consideration a number of bills
proposing plans for settlement of the World War veterans adjusted

service certificate claims. I shall not attempt to go into the
merits of any of these bills or to analyze them in detail, be-

lieving that to be a service that can best be performed by other
officers of the Government. The Treasury is, however, deeply
interested in any problems which involve additional or earlier
expenditure of public funds than those for which careful preparation has already been made in budget and financing plans.

I believe it is true of all the so-called bonus settlement

plans which you have had under consideration that each one of them

calls for greater or earlier payments from the Treasury than were
contemplated in the original adjusted service certificate plan
and payments during the fiscal year 1936 for which no provision
has been made in the budget of that year.
All of the financial plans made by the Treasury for the
coming year have been based on adherence to the President's budget. Moreover, the credit of the United States Government depends
very largely, in my opinion, upon scrupulous adherence to the
President's program. I don't think we can continue to enjoy the
present favorable rates and favorable market for the sale of
Government securities if new expenditures are incurred which go
far beyond the limits of those which have already been outlined.
A material decline in the market price of Government securities,
which would be very likely to result from large expenditures outside the budget, would work a grave injustice upon all purchasers
of Government securities, and would tend to slow up the whole recovery program.

The Treasury, therefore, would view with great concern the
enactment of any bill which calls for large additional expenditures, without compensating additional taxes. It seems to us of
the utmost importance that if any adjusted service certificate
settlement calling for increased expenditures, or for earlier expenditures than those already taken into account, should be
enacted, Congress should make provision for raising revenues sufficient to cover the additional expenditures in the year or years
in which they are to be incurred.
If it should be thought desirable to seek new sources of
revenue for this purpose, the Treasury would be glad to offer its
suggestions."

April 23d

At 11:30 o'clock H. M. Jr. testified before the Senate

Finance Committee on the Bonus Bill.

service certificate claims. I shall not attempt to go into the
merits of any of these bills or to analyze them in detail, believing that to be a service that can best be performed by other
officers of the Government. The Treasury is, however, deeply
interested in any problems which involve additional or earlier
expenditure of public funds than those for which careful preparation has already been made in budget and financing plans.

I believe it is true of all the so-called bonus settlement

plans which you have had under consideration that each one of them

The members of the Committee asked the Secretary only a

few questions.

During the reading of his statement, Mr. Morgenthau was
interrupted by Senator Bailey who asked if the Bankhead Bill

for loans to farm tenants had been referred to the Treasury.
Mr. Morgenthau said he did not believe it had.

Senator Gore asked Mr. Morgenthau for a comment on his

resolution S.71 which would authorize the President to enter
into agreements with our debtors abroad upon condition that
they pay enough to take care of the bonus certificates, and
the money be applied to that use.
Mr. Morgenthau assured Senator Gore that he would be

glad to communicate with him in writing with respect to that

matter.

Senator LaFollette asked if the Treasury had given any
consideration to a program for raising additional revenue to
meet the cost of the bonds.
Mr. Morgenthau replied that he would recommend a Federal

inheritance tax on the same basis as the income tax and administered in the same way. He agreed to give to the Committee, for
Executive use, an outline of the proposal within 24 hours.
Mr. Morgenthau said that as Secretary of the Treasury he
had to take the position that if a Bonus Bill were passed it
would be necessary to raise taxes to meet the cost.
The Secretary reaffirmed his stand for a scrupulous adherence to the President's budget.

Asked specifically if taxes would be necessary in the case
of the passage of the Harrison Bonus Bill as well as the Patman

or the Vinson Bills, the Secretary replied in the affirmative.

STATEMENT OF SECRETARY MORGENTHAU

Before the Senate Finance Committee, April 23, 1935.
Your Committee has under c msideration a number of bills proposing plans for

ettlement of the World War veterans adjusted service certificate claims. I shall

ot attempt to go into the merits of any of those bills or to analyze them in detail,
elieving that to be a service that can best be performed by other officers of the
overnment. The Trensury is, however, deeply interested in any problems which in-

clvo additional or oarlier expenditure of priblic funds than those for which careful
preparation has already been made in budget and financing plans.

I believe it is true of all the so-called bonus settlement plans which you have
ad under consideration that each one of them calls for greater or earlier payments
rum the Treasury than were contemplated in the original n I justed service certifiento plan and payments during the fiscal year 1936 for which no provision has been

ado in the budget of that year.
All of the financial plans made by the Treasury for the coming year have been
based on adherence to the President's budget. Moreover, the credit of the United
States Government depends very largely, in my opinion, upon scrupulous adherence

to the President's program. I d.n't think we can continue to enjoy the present
favorable rates and favorable market for the sale of Government securities if new
expenditures are incurred which : for beyond tne limits of those which have already

been outlined. A material decline in the market price of Government securities,
which would be very likely to result from large expenditures outside the budget,
would work a grave injustice upon all purchasers of Government securities, and would
tend to slow up the whole recovery program.

The Treasury, therefore, would view with great concern the enactment of any

bill which calls for large additional expenditures, without compensating additional

taxes. It seems to us of the utnost importance that if any adjusted service certificate settlement calling for increased expenditures, or for earlier expenditures than
those alrondy taken into Account, sh nild be enacted, Congress should make provision

for raising revenuos suificient to cover the additional expenditures in the year or

yours in which they are to be incurred.
If it should be thought dosirable to sook new sources of revenue for this purpose, the Treasury would b. Clad to offer its suggestions.

- oc 0 00 -

April 23, 1935.

Mr. Morgenthau, accompanied by Mr. Oliphant and Mr. Upham

met at 10:00 A.M. with the Sub-committee, of which Senator Nye is
Chairman, to investigate munitions and armament.
The members of the Committee present were Senators Nye,

Vandenberg and Barbour. Represenatives of the War Department and
the Navy Department were also present.

Mr. Morgenthau told the Committee that he was enthusiastically

in favor of the objectives sought to be reached by the bill in
preparation.

Asked specifically if he shared the opinion formerly voiced by
Ogden L. Mills, that nothing can be done by legislation along the

lines of taking the profit out of war until we are actually in the
war, he replied that he did not share that view, but on the contrary
was of the opinion that such action must be taken during peace time

or likely would not be taken at all. He voiced the opinion that if
the United States had had a proper and adequate taxing system during
the World War, we would have escaped many of the difficulties that
have beset us since.

The Secretary said that he had not gone over the details of the
tax proposals in the bill but that he would be glad to have the
experts in the Bureau of Internal Revenue do that and give to the
Committee the benefit of their opinion. He said that the matter would
be handled through the legislative section of the Office of the General
Counsel, Mr. Oliphant.

Mr. Morgenthau was asked if, in his opinion, there was any real
difference between the wholly guaranteed bonds which are a contingent

liability on the Treasury and the direct obligations of the United
States so far as practical effect on the debt is concerned.

-2-

His reply was that he looked upon them as very much the same --

that there was little real practical difference.
Before leaving the Committee, Mr. Morgenthau agreed that if
they wish him to return after they had considered the technical
suggestions of Treasury tax experts, he would be glad to appear
again.

April 24, 1935.
Dear Senator:

In accordance with the Committee's request during yesterday's
hearing, I am glad to outline below a revenue measure which would

provide funds for the payment of the soldiers' bonus.

1. From the standpoint of immediate feasibility no less than that

of our fundamental objectives, the best source of additional revenue at
this juncture would be a system of taxes on the receipt of inheritances
and gifts.
Such a system. supplementing our present estate and gift taxes,

would fit in well with the rest of our Federal tax structure; would
add to its balance and strength; and would not materially interfere
with the present estate and gift taxes.
2. The program that is here suggested would be relatively

simple to formulate and to administer; yet it would be effective. In

brief, it is, with certain qualifications, to subject all inheritances
and gifts to a system of rates similar to that of the Federal incore
tax law.

3. The result of this proposal would be that gifts and inheritances

would be taxed at progressive rates, and, under it, the Congress could

provide for the effective rates to vary with the tax-paying capacity of
the recipients of bequests and gifts. On very large bequests or gifts
during a single year - one million dollars or more - if the existing

income tax rates are applied, the total tax would approximate 60 percent.

4. To prevent the necessity for hasty liquidation of large properties, in order to pay the tax, it might be provided that inheritance
taxes be payable in a convenient number of installments.

5. The preliminary estimate is that such a tax would yield in

1936 approximately $300 millions and might range upward to $600 millions

annually. Our present estate tax is estimated to yield some 190
millions in 1936. It may be observed that, from estate and inheritance
taxes, England, with a population of approximately one-third that of the
United States, and a smaller per capita wealth and income, collected
more than $400 millions in death duties in the fiscal year ended March
31, 1935.

Sincerely yours,
Honorable Pat Harrison, Chairman,
Senate Finance Committee,

United States Senate,
Washington, D.C.

12
April 23d

The following idea occurred to Mr. Morgenthau to-day
and he had hoped to present it to the President after the
Executive Council this afternoon. However, he did not get
an opportunity and planned to do it when he saw the Presi-

dent Wednesday morning.

In order to check up on the various recovery agencies,
I suggest that we carefully select a medium-size city in
which to make an intensive study as to the activities of the
various recovery agencies.
After this study has been made, my suggestion is that
you appoint one representative from each agency to go down
to this city and put on a recovery drive. Out of this drive
we will find which agencies are doing their work well, which
are competing with each other and which have fallen down on
their job. Every large manufacturing company before it puts
a new product on the market first tests it out in a locality.
You did not have time to do this. I am, therefore, suggesting that we now make this test announcing that whatever
mistakes are uncovered will be corrected. I think that we

would learn a lot and that a test of this kind would give
the public confidence in your sincere effort to not leave

a stone unturned to re-establish good business conditions.

12A

April 23, 1935.
Tuesday.

H.M.Jr: Hello.
George

Harrison:Hello, Henry.

H.M.Jr:

Hello, George?

Yes, sir. How are you?
Fine. They say you called me.
Well, I called up just to have a chat with you.

H.M.Jr:

I see.

Now that I'm running the Foreign Department.

H.M.Jr:

Now that you're what?

Running the Foreign Department.

H.M.Jr:

Are you?

H.M.Jr:

Well, now, I'm sitting here with - chatting with Crane
and
now, how we're going to handle it all.
I see. What did Earle Bailey say?

He' S coming around to see me this afternoon at three

H.M.Jr:

I see.

o'clock, I don't know.

I don't know whether it's final one way or another. He
wanted yesterday to talk with some of his partners, I
think.

H.M.Jr:
H:

I see.

What's happened, I don't know. Have you got any plans
on him yourself?
I spoke to him over the week-end and he didn't seem very

enthusiastic, but Well, he's very enthusiastic when he talked to me as far
as he personally was concerned.

H.M.Jr:

Oh. Yes, but I mean, enthusiastic as to the possibilities

Yes, yes.

H.M.Jr:

Taking it.
Yes, well, that's what I thought.

of his getting it.

12B

-2H.M.Jr:

Well, we haven't heard anything from abroad of any
interest, have you?

No, not a word. We've had no calls, nothing. It's

H.M.Jr:

What ever happened to the bond man, J. P. Morgan, who

very quiet.

left them; that you once spoke to me about?
Oh, he's gone into some private concern.

H.M.Jr:

I see.

I forget the name of it now. He left them about a
couple of months ago, but I checked on him; he wasn't
quite what we wanted anyway.

H.M.Jr:

Well, in the meantime, I think we're in another lull.

We're what?

H.M.Jr:

We're in another lull, I think.

Yes.

H.M.Jr:

I made quite a statement on the bonus today.

You did make a statement?

H.M.Jr:

Oh, yes.

Public hearing?

H.M.Jr:

Yes. It'll all be in the paper tonight.

I see.

H.M.Jr:

Quite.

Well, did you scratch it?

H.M.Jr:

What?

Did you scratch it?

H.M.Jr:

Well, you'll see. You see,-I don't know how you'll like

Yes.

H.M.Jr:

But -

Henry, did you get a chance to talk across the street
about that matter of -

H.M.Jr:

No, I didn it.

it.

12C

-3H:

What?

H.M.Jr: No, I didn't - I didn't know that you wanted me to.
Well, I suggested that you would do it if you got a

chance.

Oh, I - no, I didn't think you really wanted to go.
It's not a question of my going,

H.M.Jr:

Oh.

- to this particular meeting. It's a question whether

H.M.Jr:

Well, I'll take it up with them now and I'll -

- my taking - my next official membership on the Board.

H.M.Jr:

I see.

Then, having done that, what meeting I'll go to.

H.M.Jr:

I see.

H.M.Jr:

H.M.Jr:
H:

H.M.Jr:

or not I should again reign at the Federal Reserve Board.

Now, if you and the President feel as you did last year,
my thought was I'd take it up with Eccles again.
O,k.

being the one that was

about it before

Black and Miller -

All right. Thank you.

H.M.Jr:

If you will find out whether he has not changed his mind.
That gives me a basis upon which to approach Eccles again.
All right, George.

All right. Thank you, sir.

Mr.

Siles

April 23, 1935.

IZD

Tuesday.

William

Phillips: Mr. Secretary, we had a telegram from the Hague H.M.Jr:

Why so formal?

This is Phillips speaking.

H.M.Jr:

Yes.

We had a telegram from the Hague -

H.M.Jr:

I said, why are you so formal?

What?

H.M.Jr:

Why are you so formal?

H.M.Jr:

(Laughing) I don't know, why?
Henry still goes.

H.M.Jr:

It's a mistake; I take it all back.
All right.

- which reads as follows: Has Dr. White special

H.M.Jr:

Pardon me, I have it right here now.

All right. Now, here's the draft which I want to

H.M.Jr:

Please.

Draft reply. Feis is one of the Treasury's techni-

official -

read to you before we send it.
while

cal men in touch with their operations, who has been

sent to Europe to study the actual exchange situation
in various markets and the method of operation of
these markets. He is not in any way authorized to

H.M.Jr:
P:

H.M.Jr:

negotiate on military matters or enter into discussions of policy. The Department hopes you will
facilitate his work. The Treasury has every reason
to believe Fois understands nature of his mission,
but if you believe incorrect impression is being
created, within your discretion, talk the matter
over with him in friendly and cooperative spirit.
Entirely satisfactory.

All right.
Entirely - I told Herbert Feis when he was here,
and I guess he repeated this to you, any time a
Treasury representative in a foreign country interferes with a diplomatic representative our
fellow leave the country.

12E

-2P:

Well -

H.M.Jr:

So there can't be any conflict.

Yes.

H.M.Jr:

I mean any -

Yes.

H.M.Jr:

- time any follow I send over in any way disobeys
orders or is embarrassing to the State Department's
representative,our fellow is withdrawn, see?
Very well. Thanks very much, Henry.
Well, I mean, then they - they never find the Treasury
- there never can be any misunderstanding - your man
will always be right and our fellows will always will have to abide by the decision of the State
Department's representative.

H.M.Jr:

Yes. Well, I have no doubt that this telegram will
make it all right.
So on that basis, the cooperation will be a hundred

Yes. Goodbye. Thank you very much.

H.M.Jr:

Thank you.

per cent.

April 23d

H.M.Jr. sent for Ex-Senator Goldsborough at the request
of the President.

H.M.Jr: I am seeing you at the request of the President.
He sent up your name last night as a member of
the FDIC. He does not expect you to vote the
Democratic ticket but he would like towask you
not to play Republican politics.
G:

I will be loyal.If you will follow my career in

the Senate you will see that I never made a criticism
of the Administration.

H.M.Jr. He is putting you on as a Republican and he simply
wants me to ask you for your personal loyalty.
G:

I would not take the position if I could not do that.

H.M.Jr: The President wants to make a success of Federal
Deposit Insurance.

Mr. Bell made an investigation for the President and found
that their overhead is in pretty good shape.

Jr: We do not want to run it on a partisan basis.
G:

I think I can cooperate with you 100%.

I am the Republican National Committeeman from my state

and I will hand in my resignation.

TREASURY DEPARTMENT

Washington

April 24, 1935.

ear Senator:

In accordance with the Committee's request during yesterday's hearing,
am glad to utline bolow a revenue measure which would provide funds for
no payment of the soldiers' bonus.

1. From the standpoint of immediate feasibility no less than that of

fundamental objectives, the best source of additional revenue at this
uncture ur would bo a systom of taxes on the receipt of inheritances and gifts.
Such a system, supplementing our present ostato and gift taxes, would

it in well with the rost of our Federal tax structure; would add to its

alanco and strength; and would not materially interfore with the present
state. and gift taxes.
2. The program that is here suggested would be relatively simple to

formulate and to administer; yet it would be effective. In briof, it is,
with certain qualifications, to subject all inheritances and gifts to a

system of ratos similar to that of the Fedoral income tax law.

3. The result of this proposal would be that gifts and inheritances

would be taxod at progressive ratos, and, under it, the Congress could

provide for the effective rates to vary with the tax-paying capacity of the
recipients of boquests and gifts. On very largo boquests or gifts during a
single year - one million dollars or more - if the existing income tax
ratos are applied, the total tax would approximate 60 percent.

4. To provont the nocossity for hasty liquidation of large properties,
in order to pay the tax, it might be provided that inheritance taxes be

payable in a convenient number of installments.

5. The proliminary ostimate is that such a tax would yield in 1936

approximately $300 millions and might rango upward to $600 millions annually.
Our present ostato tax is estimated to yield some $190 millions in 1936.
It may bo obsorvod that, from ostato and inheritance taxos, England, with a
population of approximately ono-third that of the United States, and a
smallor per capita. woulth and income, collected more than $400 millions
in donth dutios in the fiscal your ended March 31, 1935.
Sincerely yours,

Honry Morgenthau, Jr.

Secretary of the Treasury.

Honorable Pat Harrison, Chairman,
Sonato Finance Committoo,

United Statos Sonato,
Washington D.C.

April 24, 1935.

14A

Wednesday.

H.M.Jr: Hello.

Steagall: All right H.M.Jr:

How are you?

H.M.Jr:

Mr. Steagall. How are you?
Have a good trip?

Very nice little trip. I didn't have any time, but

I got a chance to run down home and spend one night

and day, and then I took a sun bath at the Gulf, and
talked with Louisiana bankers and had a pretty nice

trip. Feel a little better; I'm in a good humor with

H.M.Jr:

the world and I hope you're all right.
Well, I'm the same. Mr. Steagall, I'm just sort of
talking to you kind of off the record, as the boys say -

Yes, yes.

H.M.Jr:

On this Home Owners' Loan Bill -

Yes.

H.M.Jr:

I talked to Senator Bulkley and he asked me whether I
would call you up. He's been talking to me about this opening up this thing for sixty days again, see?

Yes.

H.M.Jr:

Well, from the standpoint of the Treasury, frankly it

Yes.

H.M.Jr:

And, but - it may be too late -

kind of worries us, see?

Well, I'll tell you what the situation is. I - I made
a devil of a fight in the House to fix - to shut off those
loans. I worked at it like the dickens; I finally, as a

sort of compromise, agreed to raise the amount available
because I knew doggone well the amount wasn't the thing
that counted anyhow, and then I didn't want them to come
back here next year and say they couldn't get the loan because they didn't have money enough. That would mean a
billion dollars, you know, on a campaign here.

H.M.Jr:
S:

Yes.

So, I made a hard fight and held it down, and it's my
thought to stand by what the House did as far as I can.

14B

-2-

I'm glad to know that you all feel that way about it.

I think they ought to be shut off, I - I -

H.M.Jr:
S:

H.M.Jr

Well, now -

There ought to be something. We ought not just be runing that business.

That's the thing. And - and the delinquencies are terrible.
Well, here's the thing about it. We know and don't
but, we know doggone well that when we get through we've
got a bunch of losses or that we bought a lot of real
estate before we get through with that thing, and when
we - we begin to take over that real estate it's going as we're supposed to do ultimately. By Gad, then you've
got another accumulation of real estate on the market.
Well, it's going to be another farm board, but it's
going to be real estate instead of a lot of commodities.

Well, it will be all that kind of stuff. That's where

we're driving up to. If we overdo it, and we can't help
overdoing it with the tax situation, and of course, they're
going to make loans that they can't collect, and
loan companies and mortgage lending companies have gotten
enough out of this thing, doggone it, to eat them up.
Well, I just want to let you know, if you wanted any
assistance from this end, and I can talk also for the
White House -

H.M.Jr:
S:

H.M.Jr:

I know the President feels that way That - that He thought that I ought to have held down that amount, but

I - I gradually can shut off the loans Well, I'm not compromising.

Yes, well, I think you'll find Bulkley sympathetic and

he asked me whether I would call you.
S:

H.M.Jr:
S:

Well, I'm glad you did.
And if you need - if you need us down there I

Well, that's very fine. I'll let you know what we do.
I don't think we'll confer until tomorrow and we won't we'll go - we'll hold a preliminary conference and think
a little before we act finally. That's the way

-3we'll handle it.
H.M.Jr:

Thank you very much.

I'll talk to you again.

H.M.Jr: Fine.
S:

Goodbye.

April 25, 1935.

14W

Thursday.

H.M.Jr:

- how when boats come into the New York Harbor, flying
the United States flag, whether Customs and the Health
people give them the preference or whether they go ahead

and look after the foreign boats first, see?

B. M.

Thompson: Yes, sir.
H.M.Jr:
T:

H.M.Jr:

Now, what he wants done - because I'm only telling you
and nobody else that it's from the President, see?

Yes, sir.
Nobody else knows. If, for instance, a French boat and
a United States boat comes in within ten or fifteen minutes of each other, we want to give the boat flying the
United States flag the break.
Yes, sir.
Now, he's been told that when a United States steamer
goes into Liverpool or Cherbourg, and as an English or
French, each country takes care of their own boats and
let ours stand around, and he said he's fed up on it and
he wants to clear the American boats first.

Yes, sir.
H.M.Jr:

Now, I'd like you to - I want action on this thing - I'd
like you to get down to New York tonight, see?

Yes, sir, I'll do that.
H.M.Jr:

And get out there- I'd get out in the harbor tomorrow
morning.

H.M.Jr:

Yes, sir.
If you need any more authority from me, I'll give it to
you.

H.M.Jr:

Yes, sir.
But, I'd like you to watch that. I imagine there's quite
a lot of boats come in on Saturdays.
I can - I can catch some - I can watch tomorrow. You see,
it's Friday, Mr. Secretary.
Well, I'd like you to be down there Friday and Saturday

Yes, sir.

H.M.Jr:

See?

H.M.Jr:
T:

and watch.

-2-

14E

Yes, sir, I'll do that.
H.M.Jr:

H.M.Jr:

H.M.Jr:
T:

H.M.Jr:

Now, watch that Friday and Saturday and then if there's
three or four boats standing around let them clear the
American - the United States steamer first.

Yes, sir.
And, as a matter of ten or fifteen minutes, why - in
other words, we want to give the preference, but we
don't want to be too obvious about it. See?
Yes, sir.
But, if these boats come in and - come in as the President said - eight or ten minutes of each other, give
the United States flag the preference.
Yes, sir.

But, you can't get anything in writing on it.
Would you like me to have that initiated as a - that'll
be - what's to be done in the future.
Is that - yes, but I'd like to have you watch Friday
and Saturday how they handle it.

To see what - to see how it is down there.
To see how it is done.

Yes, and then I'll let you know.

H.M.Jr:

And then let me know, and I think you ought to be down
here Monday anyway and let's have a talk.

I'd counted on being down, Mr. Secretary.

H.M.Jr:

Well, I'd like you to watch this Friday and Saturday.

I'll do that, sir.

H.M.Jr:

And see how they are handling it, and then come down and

Yes, sir.

H.M.Jr:

Well, I - I don't see - if - I don't see why we don't

tell me about it and then we'll do it.

do it right away.
If I find that we're not getting what we should I can
initiate it there in New York without it coming to any-

body but me.
H.M.Jr:

Yes, I mean if - if - I'd go down - I'd go down the

-3 harbor tomorrow morning.
H.M.Jr:

Yes, sir.
And see how they co-ordinate that thing Friday.

Yes, sir, I'll get -

H.M.Jr:

And if you find - and then by Saturday have the thing
working, will you?

Yes, sir, I'll do that.

H.M.Jr:

And then be in here Monday to see me.

I'll do that, sir.

H.M.Jr:

Thank you.

Goodbye, sir.

H.M.Jr:

Goodbye.

IFF

April 25, 1935.
Thursday.

H.M.Jr: Hello.
Dr. Feis:
H.M.Jr:

Yes.

I just had a visitor whose knowledge of European

monetary affairs I rate very highly.

H.M.Jr: Yes.
F:
He's just come from London. I didn't put the question

to him, he talked on his own. Here's his picture; I
give it to you for what it's worth.

H.M.Jr:

Yes.

I can't - he says the strength of sterling is - owing
to the situation on the continent that no one knows
exactly how much foreign money there is in London,

but it's very great.

H.M.Jr: Yes.
The estimates are between two hundred and five hundred
F:

billion pounds. He's much more - he's inclined to put
it in the middle of the two.

H.M.Jr: Yes.
The Stabilization Fund has made a profit. There's only
F:
very limited holdings of foreign currencies and gold at
the present time.

H.M.Jr: I see.
F:
Certainly at least three-quarters of it, he says, is in
sterling.
H.M.Jr:

I see.

Therefore, that the only other added source of strength
is a certain secret reserve of the Bank of England - gold
reserve which is built up by buying half of the gold
from South Africa every week, irrespective of price.
H.M.Jr: I see.

He said that within the last four weeks for the first
time there is half the that the fund could not control if any very large movement of that capital came
out - began to leave London.

H.M.Jr:

I see.

It hasn't the present foreign resources and that that

-2-

would bring the pound down; that that's - that situation
is naturally known to a certain number of people.
.M.Jr:

I see.

And that is his account. Whether it'11 come off or not
will depend on .M.Jr:

Could you tell me who this person was?

Well, yes, but don't - I'll tell you; don't you pass it
on.

H.M.Jr:

No, No.

It's Gustave Souperre. There used to be an Eng -

German weekly H.M.Jr:

A German what?

There used to be a German weekly called The Deutchdam Shop,
H.M.Jr:

Oh, yes, oh, yes.

- which is like the Economist -

H.M.Jr:

Oh, yes,

He was its editor and he was also chairman of the Finance
Committee at the Reichstag.

H.M.Jr:
F:

Oh, yes.

He is now in the employ of a small group of large banks,
including, I think, the Westminster.

H.M.Jr:

I see.

That may be wrong; somebody's bank.

H.M.Jr:

I see.

He served three or four banks.

H.M.Jr:

I see.

He has just been to London; I know he knows the Economist
and -

H.M.Jr;

He's been in to see me once.

What?

H.M.Jr:

He's been in to see me.

Yes.

-3-

H.M.Jr: Not this time, but a couple of months ago.
F:

Right.

H.M.Jr:

Now, Herbert -

That's his picture -

H.M.Jr:

Thanks very much. Herbert, are you free tonight?

Where am I - Thursday?

H.M.Jr:

Yes.

H.M.Jr:

Yes. As a matter of fact, I was going to try to finish
an article.
Well, would you keep it free until I - we think we want

We haven't given them any answer, have we?

H.M.Jr:

They haven't asked for any.

What?

H.M.Jr:

They haven't - there's no answer coming to them.
Oh, the Mexican Ambassador - Well, I - you saw them,

to work on this Mexican monetary thing tonight.

did you?

H.M.Jr:

Yes.

H.M.Jr:

Well, I don't know how you left it Well, there is no answer. I just want to get it clear
in our own minds and three or four of us will most likely
sit down tonight and work on it.

All right.

H.M.Jr:

And if you wouldn't mind keeping yourself open.

All right.

H.M.Jr:

Will you?

Right.

H.M.Jr:

Thank you.

So long.

April 25th

I called the President at 3:15 to-day and said that I
needed a little help; that silver has gone to 77.25. I told
the boys that I would tell them definitely at 4:30 whether
we are going to do anything. They are trying to buy another
100,000 ounces in New York. I bought for Stabilization
1,300,000 ounces. We do not think that we ought to sell any
but I just raised the point. The President said he would do
nothing.

Oliphant handed H.M.Jr. the following memorandum:

In connection with the special Customs investigation being conducted in New York City, Manning reports that
Treasury Attache Wait, now located at Paris, has been refused
access to the records of Goldberg shipments by the French
Customs. When Goldberg was arrested he had a letter from his
brother in Paris, stating that they were using every pressure
possible to prevent Wait from obtaining information from
French Customs. Goldberg's brother sent Goldberg a copy of
the memorandum Wait had left with the French Customs stating
the information which Wait wanted from them. I have had Harlan
contact the Division of Western European Affairs in the State
Department and request them to cable Ambassador Straus to
intercede and to expedite the securing of this information.
Quick action would be most helpful. Do you know of any more
direct and effective method of getting the cooperation of
French Customs?

H.M.Jr. immediately called Ambassador Straus in Paris and
asked for his assistance which he promised to give. He said he
would take care of the matter at once.
The minutes of the Press Conference this afternoon are

attached herewith as they are very interesting.

April 25, 1935

PRESS CONFERENCE - MR. MORGENTHAU

Q. We are looking for Mr. Gaston and he isn't here1
A. I will say for Mr. Gaston he arranged a week ago to go away

last night.

Q. It is a good thing he did. You remember in the early days
of the Administration we used to come in and squawk? Well, we
have a squawk this morning.

A. Go ahead.

Q. Several of us were told, last evening, between five and six,
that there would be absolutely nothing on silver and a lot of
people went home and some sent messages to their New York offices

that they were informed reliably that there would be nothing and

then, about eight, here it came. It was embarrassing, to say the
least.
Tell them where you were, Bob.

A. I was in the middle of a steak out in Rockville.
A.

Was it good?

Q. Excellent
The first half was swell.

A. This is all off the record. When I go on the record, I will
say so. It was a chain of circumstances and I think that you

follows have to take part of the responsibility for the news that

went out over the ticker between five and six. Let's be - I
mean, I don't think this is all a one-sided thing. I wasn't here

20
-2-

and I only heard about it, to be perfectly frank, about seven

o'olock, last night, but the stories that went out, as I understand it, gave a wrong impression of what Gaston told you
fellows.

Q. What was on the ticker was based on the fact that we didn't
know what was happening; that there was apparently some misin-

formation given out. Here it is. We are ready to play ball with
the Treasury, of course, and have done the best we can, but
sometimes we would like to know what's ooming, don't you know?

A. I am being perfectly frank. I either can't answer or I
do, but I have never given you a bum steer and it was after that

stuff game out -- let's call a spade a spade -- on the U.P.

ticker that ...
Q. It was entirely unjustified.
A.

... I can't say where they got the information, but as a

result there were four stories in an hour that came out and
when those were read to me at seven o'clook I went through the

ceiling, because whether that is a correct interpretation of
what you were told or were not, it was incorrect as far as my
position was concerned. So when I heard that, there was only

one thing for me to do and that was to call up the President and
recommend he raise the price of silver and on the strength of

that, he did. That's the whole story. As things were read to
me, I called him up and made the recommendation and he said all

right and at seven-thirty it was over there and he signed it and

at a quarter of eight, Hull signed it.

21
-3-

Q. I was told that everybody who brought silver in would be
treated as an individual private deal and so on, which certainly
indicated that they would pay the world price.

A. Look, Gridley! I don't know what conversation took place.
Let's say there was a misunderstanding on both sides and call
it "washed up".

A. Swelli
Q. There was no intention to mislead you. I am telling you
what time I came in the picture, what time I heard about the
stories and what happened after seven o'clock. Let's say both
of you misunderstood.

Mr. Gridley: Anyway, you raised the price.

A. You can take the credit for raising the price. That's the
whole story. I am giving you the exact time. And Gridley takes

credit for raising the price. It's true it's his story.
Q. Find out what Gridley's position is.
It may have been premeditated. Gridley, do we have to
divide?

Mr. Morgenthaus I think so. Everybody still all satisfied?

Q. I think it would help, off the record or on, if you would
tell us what is your attitude on this.
A. Now I will go on the record.
Q. One more, off the record. I just want to be sure there
would not have been an advance in silver price except for that
story.

A. I think that's correct. Let's put it this way. If that
story had not come out on the ticker, I would not have raised

the price of silver last night. I think there were four different stories between five-thirty and six-thirty. About

four different stories. Every one a little bit different. The
answer is that if it had not, no one would have called me up
and ...

Q. Do you always raise the price of silver when you get mad?
A. If they knew that they would know how to raise the price

of silver. As a matter of fact, I don't get angry often.
Q. The price was up four cents this morning in London and if
we had not raised it last night, would the price have gone up
four cents today?

A. Do you want me to go on the record?

Q. I just wanted to know what your attitude was on this thing.
A. I am operating under direct mandate from Congress.

Q. But not as to that bonus you pay.
A. We are operating here that we should buy silver until it
either reaches $1.29 or equals one-third of the monetary stocks.
We are operating under that and we are carrying out that mandate.

Q. Is there any limit within which you can build up your onethird? Any time limit?
A. No. We are operating under that mandate from Congress and
further, verbal agreement with the people on the Hill, between

myself and them, that I would carry this out.

23
-5-

Q. Has either you or the President authority by Executive
Order to raise the price of silver above $1.29?

A. You have got me on that. If you want the answer, I will

try to get it.
Q. I have a suspicion that you can raise it to 16-to-1 to
gold.

You can devalue to the same extent as gold?

A. I think you can by the Gold Reserve Act of 1934.
The fact that you had not raised the price -- which was off

the record -- but the knowledge that we had that you were not

going to raise the price indicated your policy that you would

always follow the world price is not correct.

A. That's not correct. The price yesterday was 71.41 in
London and our price was 71.11. It was so close to the thing

Q. An international situation resulted with the newspaper stories?

A. I can't say anything more than I have. I am repeating that I
am operating under a mandate from Bongress and I am carrying that

mandate out to the best of my ability. I can't enlarge upon it.
I am operating under that mandate and I am doing the best I know
how.

Q. That mandate does not go to the premium price paid for
domestic silver? There is nothing in the Silver Purchase Aot where
it says anything about the policy of giving to domestic producers
a premium over the prevailing world price?

A. No.

24
-B-

That is a matter of your own option and one of the questions

we are most interested in is whether that premium will be continued or whether there will come a time when domestic producers

will have to take the world price and do nothing about it?
A. That question never game up until yesterday and I think the
best way to answer it is our actions will have to speak for
themselves.

Q. Past actions?

A. Actions up to and including last night.
Q. Last night there came a question of whether you were going to
give them that premium?

A. I think that question was answered last night at 7:30 when the
President signed the Proclamation. I think actions speak better
than words.

Q. Is there any disposition to declare your silver price increase
in the morning rather than in the evening so the London people
don't have a big jump on you.

A. Why don't you say so, the morning papers can get a break.

Q. The gold price used to be set in the morning after things
were open.

A. These things happen so fast I can't lay down a rule that we
are going to do it in the morning or afternoon. The only thing
you can say is you would rather have it after all the markets are
closed. If you can do it on Saturday afternoon that would be the

ideal time to do it, but naturally what we are trying to do here
is that everybody gets an even break.

25
-7-

Q. Because they are open they get a preliminary break.
of course our people are operating in London just as well

as anybody else.

There is no disadvantage. Foreign exchange men go on the

job at 4 in the morning. We try to do it at a time when everybody will be given an advantage.

Q. This is a purely speculative market now?
A. I had rather not answer that. Everybody happy now?

Q. I was before.
A. Oh, yes, what organization are you connected with. Look
at the U.P. give him a dirty look.
Q. Anything on the Consolidated Gas situation yet?
A. No, when Mayor LaGuardia returns from his boyhood haunts

he.....
Q. He is back?
A. We are just waiting to give the city as good a break as we
got.

a. On that bonus testimony. Did they ask you to present a tax
plan?
A.

They did.

Q. You are working on that now?
A. That went up to Senator Harrison and Mr. Doughton.

Q. Can you tell us about it?
A.

Senator Harrison said they would receive this in executive

session.

-8-

Q. You said up there the other day that inheritance taxes would
soon be on a graduated scale like the income taxes. You will

have to raise the gift taxes?
A.

The thought was we would treat inheritance taxes just like

income taxes.

Q. Can you explain this? You said on the same basis as income

taxes. Do you mean that if this plan were adopted inheritanoes
would be taxed at the same rate as income?

A. Yes.
Q. So that rates that now apply to income would apply to inheritanoe?

A. That is the way we based our figures.
Q. A man would be paying a higher surtax on the inheritance than
he would on income in view of the extremely large total, would he
not?

A. Yes. They both go in together. I asked somebody in New York
how he like it. He said those who have no grandpas or grandmoms

and have gotten theirs think it is a swell idea but those who think
they are going to get something they don't think it's so hot.
Q. If you had really wanted to kill the bonus it would have been
better to hit everybody, each taxpayer.
(No answer)

If you follows want advice on the technical side of it we
could have someone in Internal Revenue sit down with you and

you can ask him any technical questions. We will bring somebody
over who can answer.

27
-9-

Q. Senator Harrison said you were nou referring to his bill
and Patman said that they were just going to bring this money.
A. Well, what do you expect me to say?

Q. Do you distinguish between the primary objectives on this
silver program? Do you think there is any preference in getting
silver up to $1.29 or to 1 to 3 ratio of the monetary stooks?

It really makes a difference. You can put up the price if that
was your primary objective. Timmie is looking out the window.

A. Me too. I refer you all to Will Rogers who certainly hit
the bulls eye today. No, I cannot answer. I just have to go
back to that mandate of Congress.

000-000

April 26th
I went to see the President this morning at 9:15.
told the President about silver going to $1.29 and perhaps
ving me the right to sell if necessary. The President said
you do that you might find that silver might settle at 75
d stay there indefinitely. I then told him of Coolidge's
ars that if we continue the way we are that silver would get
$1.29, we would get our one third in monetary stocks and
en we would be out of the market and there would be a collapse
the silver market because we would no longer be a buyer.
President said If silver did go to $1.29 we could greatly
rengthen the London agreement and if necessary agree to buy

3,000,000 ounces that India has the right to sell each year;
at the South American countries would back us up especially
ose who are producers of silver. He was not greatly interested
Mexico's predicament. He said "It is just too bad". I exained to him that they had two months to get ready and had not
ken advantage of the time - that we had two propositions
putting silver up to $1.29 or <continuing raising the price
proclamation above the world price. I said "don't you think
ought to drive a bargain with the Senators and tell them that
we put the price to $1.29 that they would agree to no more
lver legislation this session". He then took me completely
surprise by saying "don't worry about any more silver legis-

tion this session. I have at least 65 votes. I can positively
feat any silver legislation, so the question of more silver

egislation does not need to be considered". He was most em-

hatic.

He then suggested that we compromise by putting

ilver up to $1.00 and then come out with the statement that the
reasury would buy no more silver until the speculative interests
ere shaken out. I pointed out to him that we could not do this
ecause both he and I had given our word that we would buy until
ilver reached $1.29 or one third of the monetary stocks. He
aid "well you can at least make a statement that we do not like
the speculative interests in silver, that the American mining
Interests are not speculating and that we realize that the Silver
Purchase Program of the United States Government had lent itself
to the support of speculation."
He then suggested that his statement laid a good
foundation to doing nothing until Saturday afternoon. I told him
that I had the same idea and then asked him if I could talk this
over with the Senators and he said "fine".
He also said he was afraid that if we put the newly
mined silver to $1.29 and the world price stayed around 75$ that
the Administration would be criticized for giving the minning
interests too bid a subsidy. Personally I would be glad to see

the price of silver stay around 75 for a few months as I think
that the advance has been entirely too rapid. The President
said "if the price of silver stayed around 75 I think it would
stay there the balance of this year and in to 1936" and he

raised his eyebrows when he said "1936" - that he had the election
in mind.

H.M. Jr. called Senator Key Pittman at 10:30
and told him that he wanted to see him if he could come over

right away and talk silver. They decided also to invite
Senator Adams, Senator Wheeler, Senator King and Senator Borah.
The Senators all came at 11 o'clock. H.M.Jr. told them that
silver opened this morning in London at 78.53 and the last
proclamation price was 77.57 and that the Chase National Bank

sold silver this morning at 81.25. He told them the President
could announce another proclamation but before doing anything
he wanted to tell them some of the things that were worrying
him and get their advice. He said "In the first place the
speculators have this thing on the run. The American Mining
Companies are not speculating so most of this speculation is
in London, China and India. I think up to about ten days ago
it had been moving just right. Silver mining stocks are going
up five points to-day. This speculation in silver has me
worried. We can do three things:
1.

Recommend to the President that he issue another
proclamation.

We could put domestic mined silver to $1.29.

Or do the thing in between and put it to $1.00.

"I talked to the President this morning and he
thinks that whatever we do we ought not to do anything until
tomorrow afternoon. The markets will be closed and we can
take enough time to do it. Nothing has been settled and I
called you here to ask your advice.
The Mexicans are sending their financial man
here and he ought to arrive tomorrow or Sunday.
(Mr. Morgenthau then told the Senators about his conversation
with the Mexican Ambassador on April 16th. This interview
is in the diary)

April 26, 1935.

29A

Friday.

H.M.Jr: Senator Key

Pittman: Yes.

H.M.Jr: I'd like very much to have a talk with you this morning.
P:

I can come down now if you want me to.

H.M.Jr:

Well, now just - I have a

Yes.

ute before you do.

well, now just a min-

H.M.Jr: Who do you think wants the other Senators who are interested in silver who are sympathetic that we might ask to
come down with you?

I see. All right.

H.M.Jr:

Now, who would you suggest?

Well, I think you ought to have Adams for one.

H.M.Jr:

Adams.

And I think probably you should have - you'd better
have Wheeler down there too if you're going to do anything peculiar.

H.M.Jr:

Wheeler; how about King?

What?

H.M.Jr:

How about King?

I think King ought to come.

H.M.Jr:

Yes. Well, now which is the most tactful way to do it,

to have you ask them to come with you or to have me call
them direct?

I'd call them direct.

H.M.Jr:

Have them - call them direct?

Yes.

H.M.Jr:

Now, you suggested Adams, Wheeler, King and - well, that
would be enough, wouldn't it?

I think so. You get the

H.M.Jr: Pardon me?

right there.

-2-

29B

Who?

H.M.Jr:
P:

H.M.Jr:

I didn't hear what you said.

I say that will be a representative part of that group.
Well, supposing I call each one up and ask them if they
could be down here, say, at eleven o'clock.

I think that's a good idea.

H.M.Jr:

How would that be?

That's all right.

H.M.Jr:

You don't think of anybody else?

No, but -

H.M.Jr:

Borah?
Who?

H.M.Jr:

Borah?
Borah?

H.M.Jr:
P:

H.M.Jr:

Yes.

I would, yes.
Borah?
Yes.

All right.
All right, yes.
And then I'll see you at eleven.

All right.
Thank you.

30
Senator King:

As far as I am concerned I would squeeze

H.M.Jr:

The speculators have taken this thing away

the Mexicans.

from us and the market is going up too fast.
There will be a sudden drop and this will
hurt the whole Recovery Program. We have
the Mexican situation on our hands. Their
problem is that silver in pesos is worth 72.
They have been speculating themselves in silver
in London and as a result of this they fired
the head of their Central Bank of Mexico.

Senator

Has Mexico got silver bullion?
Yes. About 25,000,000 ounces of newly mined
silver.

Pittman:
H.M.Jr:
Senator

Why doesn't she sell some silver?
I suggested that to them but they are

Pittman:
H.M.Jr:

withholding it.

Senator
Wheeler:

If you raise the price of silver and got the

H.M.Jr:

out of this? Putting the price to $1.00 or $1.29?

proper ratio to gold you would stop speculation.
Which do you think would take the speculation

Senator

Pittman:

The only thing that will stop speculation is to
give the speculators a loss.

The Senators talked back and forth and got nowhere.

Finally Mr. Morgenthau again said "there are four things we
can do:
1.

Do nothing.

Raise the price 5% again.

Put the price to $1.00.
Put the price to $1.29.

Senator

Pittman:

It would be a mistake to put it to $1.29 because
I want this government to get all of the silver

into its vaults.

31
H.M.Jr:

If we put silver to $1.29 we will get more silver

H.M.Jr:

Up to ten days ago I kept my word 100% with you

than the way we are doing it now.

gentlemen and feel that I did as good a job as I
could but now I have lost control of this situation.
I was able to control the silver market but now
the control has been taken away from me.

H.M.Jr:

We are not getting any silver in the Treasury and
will not if we raise it 5% at a time. These people
who have accumulated it are holding it but if it
went to $1.29 they would give it up.

Senator
Borah:

I think that is true. I would like to see it go

H.M.Jr:

If we did this thing I think during the excitement
of the first week if legitimate users wanted silver
out of our Stabilization Fund I would let them have
it. Legitimate users just can't buy silver.

H.M.Jr:

Senator Borah supposing we go to $1.29 how would

Senator

to $1.29.

you feel if we sold some in New York?

Pittman:

The government should not sell and speculate in

H.M.Jr:

If on Monday the Gorham Company for instance wanted

silver.

to buy 100,000 ounces of silver in New York should

I sell?

Senator
Borah:

I am satisfied with what you are doing up to date.
I accept your judgment and would go to $1.29. I
do not see how we can take speculation out of it
unless we go to $1.29.

Senator

Pittman:
Senator
Adams:

Senator

Pittman:

I do not see how we can get any more silver by
going to $1.29.

I don't think you ought to jump 5% at a time.

It is not dignified.

I think you ought to sit tight and do nothing and
wait four or five days.

32
Senator
Wheeler:

I think we ought to wait.

Senator
Borah:

I have no objection to it.

H.M.Jr:

Very well then since the Mexican man is on his way
I think it would be courteous to wait and hear what
he has to say and in the meantime letts see what
happens.

32A
April 26, 1935.
Friday.

H.M.Jr:

Herbert
Feis:
H.M.Jr:

Morgenthau speaking.

Good afternoon, Mr. Secretary.

Now, what I don't understand - are you people waiting
for an answer from us to let you know whether we can
or cannot mint pesos for Mexico.

H.M.Jr:

Well, don't you think, Mr. Secretary, we can wait until Mr. Lopez gets here?
Well, none of the dispatches came in.

I beg pardon?

H.M.Jr:

Well, I just - I - I don't want to have - my own con-

Yes.

H.M.Jr:

Now, if you think you can wait until Lopez gets in,
that's that much better. Now, he ought - he'll be in

science - we're holding you up.

here Sunday, won't he?

H.M.Jr:

He'll be in here - he ought to arrive tomorrow, yes sir.
Well, -

Because he arrives, yes, Sunday. Sunday's right.

H.M.Jr:

Sunday.

He left - we just had a wire from Lockett -

H.M.Jr:

Yes.

H.M.Jr:
F:

H.M.Jr:

- rather from the embassy down there, saying that Lockett
was leaving with Lopez this morning by plane.
Well, you know I got him last night.
Yes. Did you have to wait a long time?
No, but he - he argued with me - he couldn't get the
money and I said, don't be silly, you can get the money,
and I said you be on that plane with Lopez tomorrow
morning -

Yes.

H.M.Jr:

I said, you've simply got to make it.
Yes, well, he's done it all right.

-2H.M.Jr:

32B

Well, what I would suggest, if you think it's all

right, that you call up the Mexican Embassy here
and ask them whether they could wait until Lopez
comes back or whether they want to announce it
sooner.

All right, I'll be very glad to do that.

H.M.Jr:

And then would you call me back?

Yes, sir.

H.M.Jr:
F:

H.M.Jr:

I'll be - I'll wait for another fifteen minutes.
All right, I'll call you back.
I mean I'd like - I don't want to feel that we

might be forcing them into something by not answering them.

Yes, surely.

H.M.Jr:

See?

Well, I'll call them up right away and then - then

H.M.Jr:

Thank you.

All right, Mr. Secretary.

I'll call you back.

April 26, 1935.

326

Friday.
H.M.Jr:

Hello.

cCarran:

Hello, Mr. Secretary.

H.M.Jr:

How are you?

H.M.Jr:

I'm still alive.

H.M.Jr:

I'm very sorry that I didn't have the advantage of your
invitation to come down to your office today on the
silver matter.

Well, I just called up two or three, four people and I
did the thing so hurriedly. I wish I could have gotten
you.

H.M.Jr:
M:

Yes, I know you could have.

I didn't - I didn't - I said I wish I had thought of
it.
I'm very sorry you didn't.
Well, I am sorry.
I'd like to have conferred with you.

H.M.Jr:

Well -

I should have liked very much to express my views.

H.M.Jr:

Well, how - how can I get the advantage of your views?

I'd like to have a conference with you tomorrow.

H.M.Jr:

Well -

If there's to be a change in the market between now and
tomorrow, why, my conference will mean nothing.

H.M.Jr:

Pardon me?

I say, if there's to be a change in the American price

between now and tomorrow my - our conference will mean
nothing.
H.M.Jr:

Well, where are you now?

In my office.

H.M.Jr:

Are you - do you go home now?

I'll go home in probably an hour.

32P
-2M.Jr:

Well, could I - could I get together with you early
tomorrow morning?

I'll be very glad to - any hour you make.
M.Jr:

Well,

You make the hour, Mr. Secretary, and I'll be glad
to be with you.
M.Jr:

Well, would you mind stopping at my home in the morning?

M.Jr:

No, I'll be glad to. Where is it?
Is eight-thirty all right?
Oh, surely.

H.M.Jr:

Well, let's say eight-thirty; I live at 2447 -

2447 -

H.M.Jr:

Kalorama Road,

H.M.Jr:

Yes.

That'11 be eight-thirty in the morning?

H.M.Jr:

Yes, I'd be - I'd appreciate it.
I'll be very glad to be with you.

H.M.Jr:
M:

H.M.Jr:

Thank you.

Thank you very much for the courtesy.

Well, I - thank you for calling me.

32 E

April 26, 1935.

Friday.
H.M.Jr:
Senator

Hello.

Adams:

Hello.

H.M.Jr:

Senator Adams?

Yes, good morning.

H.M.Jr:

Morgenthau.

H.M.Jr:

Yes, sir.
I'm asking a few of you gentlemen who are interested
in silver if you could come down at eleven o'clock
and see me. I'd like to get your advice and go over
the situation.

All right, sir. I'll try to make it, I've got a com-

mittee meeting, but I think I can break away.

H.M.Jr:
A:

Well, it's got - it's pretty important.
All right. I'll be down.

H.M.Jr:

Thank you.

All right.

Sunday - April 28th
Interview between H.M.Jr. and the Assistant
Secretary of the Mexican Treasury
H.M.Jr:

Will you tell us what you have in mind?

Mexicans:

Events have happened in Mexico to make it
necessary for the Mexican Government to take

steps to protect its monetary system, and the
Mexican Secretary of the Treasury has delegated
me to come here to have conversation with the
Secretary of the Treasury of the United States
to arrive at new things to correct the problem.

H.M.Jr:
Mexicans:

Have you any suggestions as to how we could help?
From the Mexican Government viewpoint after
measures that have been taken in Mexico it would

be desirable that the price of silver should not
go higher than at present.

H.M.Jr:

As far as the price of silver is concerned that
was taken out of our hands about two weeks ago..
We had control of the world price until about
two weeks ago and the action that touched off the
fire was the withholding of Mexico of all newly
mined silver combined with the purchasing of the
silver in London. In the Mexican Embassy there

is the understanding that in this situation the

government of Mexico had no connection but the
Bank of Mexico.

H.M.Jr:
Mexicans:

H.M.Jr:

It was done by Mexico and it is unimportant who

did it.
The new situation is that if the price of silver

continues rising Mexico runs the risk of having
its monetary silver leave the country and create
a very serious situation.
May I go back - the Ex-President of Mexico was
here three months ago and visited the President
of the United States and at luncheon I brought up
this question and asked, as I remember it, what
the government of Mexico was going to do. Then
Rodriquez, the President and I discussed this
thing when he was here. I feel that your government
has had two or three months to get ready and the
fact that it has not gotten ready rests with you.

34
Mexicans:

Now as a matter of fact after this situation has

arisen some ten days ago the Secretary of the
Treasury of the United States suggested the
possibility of having further conversation.
From the Mexican standpoint it would be highly

desirable to maintain the present price of silver.

H.M.Jr:

For how long?

Mexicans:

30 days as a minimum for the provision of circulation

H.M.Jr:

You issued certain decrees yesterday.

Mexicans:

Two have been issued. One modifying the monetary

of silver.

laws and two modifying the laws of the Bank of

Mexico.
H.M.Jr:

If that is possible if we were able to hold up
the price of silver what other steps are there
in which we could help?

Mexicans:

It would be perhaps desirable to have the Secretary
of the Treasury of the United States to connect us
with the Mint at Philadelphia to see if rapid minting
of silver could be done.

H.M.Jr:

I can tell you right now. By putting aside our own
currency and making way for yours, and to show our
friendship and spirit of cooperation, and by working
three shifts of eight hours each we could produce
20 million 50 centavos a month at Denver and San
Francisco. The Mexican government would have to

furnish the dies.
H.M.Jr:

We would just keep Philadelphia to finish up the
order for Cuba. We would turn over the entire
production of Denver and San Francisco to the
Mexican government. What else can the United
States government do to help?

Mexicans:

There is also the point connected with the printing
of bills and bank notes. We had a contract with

American Bank Note Company whereby on the 15th of
May we would get 500 thousand and every week there-

after, namely, the 22d and 29th etc. 2 million a

week for Mexico needs about 80 million in paper
money as soon as possible. Could the United States
government help us print these bank notes?
H.M.Jr:

We can. I was not prepared to answer that but it
would be just a question of your having the engravings. We could do it very rapidly.

35
Mexicans:

The plates could be made by the American Bank
Note Company and I would have to find out.

H.M.Jr:

You would have to provide the paper.

H.M.Jr:

What else is there for the time being?

H.M.Jr:

You will call in all the silver money that

Mexicans:

Yes.

H.M.Jr:

Will the 50 centavos be the highest price

is out now?

silver coins that you get out? Will there

be smaller coins?
Mexicans:

There will have to be smaller ones.

H.M.Jr:

Will they be based on $1.29 because Mr. Oliphant

Mexicans:

The pesos are going to be substituted by bank
notes and silver money will be 50 centavos and

points out that our coins 25$, 10 and 50 our
silver is based on $1.38? Our $1.00 is $1.29.
It is of no importance - just information.

smaller. For the time being there will be small

coins of bronze due to the convenience of handling
such coins.

H.M.Jr:

How many pesos will there be to the American dollar?

Mexicans:

3.60.

H.M.Jr:

Now we get down to the price of silver. I am not
very diplomatic. I just want to talk Treasury to
Treasury on this price of silver.

Mexicans:

That would be agreeable to us.

H.M.Jr:

The silver market opens tomorrow in London and

there is nothing that we can do to stop the price
of silver going up. If you want me to make a
suggestion I will be glad to do so. We can't sell

silver on account of the political situation. It
is impossible for us to sell silver. Therefore,

if you have silver in London and some of your newly
mined silver I suggest that you sell some of your
silver in London tomorrow either in bullion or
future also that through whichever bank you use
that you offer to sell some silver in New York.

36
Mexicans:

I have been very grateful to hear your suggestion
and I will transmit it to my government immediately
and I am sure it will be well received. However,
my own personal opinion is that if the Mexican
government would offer some silver for sale after
these drastic statements I think it would have a
bad effect.

H.M.Jr:

I have gone so far for Monday. I have done nothing The Federal Beserve Bank of New York is open. We
have waited and done nothing until this meeting.
The only way you can stop this is to throw some
silver on the market.

Mexicans:

With equal frankness assuming that the Mexican
Treasury acts upon this suggestion and we do sell
some silver what assurance have we got that you

H.M.Jr:

Mexicans:

would not raise the price of silver anyway?
I am not a diplomat. You must know that the year
I have been here I have been able to get the confidence of the people of the United States. I do
not want anything wrong about this. If you will
let me know and work with us so that we know just
what your orders are, and you say you need two
weeks before you sell one ounce of silver I will
give you my word and the President's if you will
let us know before you sell an ounce of silver.
About how many million ounces would be necessary

to dispose of between now and May 15th in order
to maintain the price?

H.M.Jr:

I think it would take very little. I think if we

hit the market hard tomorrow and you sold two to
five million ounces in London and maybe one million
in New York you might not have to sell any more. It
is just a guess. It is very hard to tell. On
200,000 or 300,000 ounces the price in New York may
go up 5.
Mexicans:

H.M.Jr:

Mexicans:

This sale of 5 million in London and 1 million in

New York would it be necessary to make it all at once?
You would have to get some very clever market

operator to do it for you. I have seen silver go
up 5 on 100,000 ounces. It takes somebody who knows
this business to manipulate it for you.
I am going immediately to get in touch with the
Secretary of the Treasury of Mexico and shall let
you know as soon as I receive a reply.

37
H.M.Jr:

You will have to do this by telephone.

Mexicans:

I will do it immediately.
Fine. We have put in no orders of any kind

H.M.Jr:
H.M.Jr:
Mexicans:

H.M.Jr:

in London waiting to hear from you.

I said until May 15th. Will that be time enough?
Silver in Mexico will have to continue its circulation until May 27th.
If you will talk to your government I will talk
to the President of the United States and I will
then tell you whether I can wait that long. As I
understand it, we will be glad to be of assistance
on the coining and printing of money and if you do
go into the operating of silver you will let us
know from day to day what you do on silver and we
will let you know. The price of silver broke 5
on Saturday and in order to make this thing
effective it should be done tomorrow. When the
price is dropping it is much easer to push it down
and hold it below 772. You want to keep silver
below our proclamation price of 77.50 for the
month of May.

H.M.Jr:

It boils it down to this. They want us to hold
the price of silver where it is until May 27th
but they want us to give our promise that we will
keep the price down until then and then they will
be out of the woods. I will see the President of
the United States and if he does this I think their
troubles will be over.

April 29th
Lopez called up the White House at 10:10 last night and
said that he would have an answer for me in 30 minutes. I
left the White House at 20 minutes to eleven telling them to
call Lopez and say that he could reach me at home. However
he called me on his own at the White House and they told him
I could be reached at 11 o'clock. He phoned and said he had
to see me. He came over with his interpreter and I asked
Mrs. Morgenthau to be present as I wanted a witness.

He said he had difficulty in getting the Secretary of

the Treasury in Mexico and thanked me for the offer of
cooperation and said that the Mexican monetary policy had
been a great success; that they no longer feared a rise in

the price of silver; that their edict for bringing in the

money were working very well and that the crisis had passed.
I told him I was delighted. He then said that they would
give the United States government first option on any silver

that they sold in New York or London. I said @that is very
nice but it is nothing new". You have been doing this for
months. You have been selling to us because we paid you a
better price than anybody else would.' I then smiled and
said "this has been mutually advantageous". He said "we
wish to assure you that we will postively not speculate any
more in silver in New York or London and that we would like
to sell you our silver in London". I said "how much have
you got" and he replied "two and one half million ounces".
Last time the Ambassador told us 2,800,000 ounces. I told
them I could not give them an answer until 10 o'clock next
morning. Just before he left he again said "how about buying
our silver in London" and I said that I could not give him
an anszer.

I said "how about minting or printing money for you" and
he said "we would first have to check up our production in
Mexico City.

I then called up Lochhead on the telephone and gave him

orders to buy a half million ounces of silver at 744 and to
buy a half million every 14 down until it reached 72t. This
policy evidently kept silver from dropping because Monday
morning they fixed the price in London at 74.15. Evidently
the Mexicans are under as much political pressure as we are

not to sell silver. That is the only explanation that I can
give for their action.
H.M.Jr. called the President at 9:20. He said to the

President "I received the Mexican delegation at my home last
night and fortunately for me your diplomatic buccaneer kept
his mouth shut and didn't talk and the Mexicans turned us down.

I am going to pull my peg out and put it in at 72." The
President said "in regard to buying your silver in London
just wait for a couple of days".

******

I saw the President last night at 7:15 and told him that
the Mexicans wanted us to agree not to raise the price of
silver for the month of May as it would take them untill
May 27th to call in their silver money and replace it with
new paper money and new 50 centavos. I asked the President
how he felt about it and he said "that is an awfully long
time and I doubt if we can get away with it". I said "don't
you think you could sell the idea to the Silver Senators to
hold off on the price of silver in order to keep Mexico in
the dollar bloc" and he said "I doubt it". He said "I told
you what you can do. You can tell them that we will not
pay above 74$ for silver for the month of May and that we
will operate between 72$ and 74. He said this certainly
ought to give them an opportunity, but tell them if the
world price goes above 77.51 I will have to raise the price
for newly mined silver," Fortunately for me I did not have
to tell this to the Mexican Mission. I will however tell
it to Cordell Hull in order to keep him advised and posted.
H.M.Jr. phoned Secretary Hull at about 9:30 and told him
about the Mexican conference. He also said to Hull "we are

beginning to think that this is a "phoney mission" and that

somebody in the government are long on silver and what they

are trying to do is to sell us this silver in London".

Silver dropped another 2$ to-day and it is down to 74.

Lopez called at 11 o'clock to-day and H. M. Jr. told him
that we wanted to wait one or two days until the market
became more steady. He told Lopez to call him again on

Wednesday.

3 P.M. Lopez came in to see the Secretary again. He said
"I have come to express appreciation for your kind offer
of cooperation".

H.M.Jr: I appreciate getting to know Mr. Lopez and hope
to return the call in Mexico City. (As regards
the possible purchase of English silver)
Mexicans: As regards the possible purchase of English
silver the Mexican Ambassador will keep in
touch pending any decision of the American
government. Have you any comment to make on
our statement to the press.
H.M.Jr:

It is very friendly and excellent.

40
Mexicans:

In some of the dispatches there seems to be a
shadow cast that the Mexican government came

here to protest on the rise of silver.
H.M.Jr:

I have given no interviews to the press on your
mission and I see the press to-day at 4 o'clock.
I was not going to say anything but if you have
any suggestions to make I would be glad to receive
them.

Mexicans:

Nothing special. It might be desirable to say that
the Mexican government did not come here to protest
against the rise in silver.

H.M.Jr:

The press manufactured those stories. The State

Department gives out communiques but we do not

do that here. I was going to say "our conversations
were mutually agreeable and helpful. The Lopez
mission was ended and we feel that the objectives

of Mexico and the United States in regard to silver
are the same".

Mexicans:

H.M.Jr:

That would be very desirable if the impression was
created that Mexico did not come here to protest.
Newspapermen are the same wherever you go and if

I say that Mexico did not come here to protest they
will say ah ha they did and the story will be
repeated. I think it would simply emphasize this
morning's story. I think I ought to say Lopez and
I have met and we have had mutually satisfactory
conversation.

Mexicans:

That is satisfactory.
You are big miners of silver and we mine a lot of
silver. If the world got the idea that you no
longer were going to use the peso I am afraid they
would say the use of silver is decreasing for money.
For this reason Mexico wants to have in its reserves

H.M.Jr:

Are you going to continue to have a one peso silver?

Mexicans:

The new law does not provide for a one peso.

H.M.Jr:

I want to draw your attention if this is so that
Mexico is withdrawing from its use of silver as

Mexicans:

H.M.Jr:

a considerable amount.

money.

Mexicans:

the

The government at/present moment will have to adhere

to the new law and will have to maintain a high silver
reserve. This will tend to counteract this impression.

41
H.M.Jr:

If you find that it has an unfavorable effect you
can
always change it and begin to use the one peso
silver.

H.M.Jr:

There are a great many people in the United States

who want to see our silver policy fail and their
argument against our silver program is that as the
price of silver goes up the countries that use silver
will have to use it less and, therefore, I am afraid
that just as soon as they learn that Mexico no longer
uses the peso they will say that the American policy
made Mexico use less silver for money.

Mexicans: of course the measures of the program of the Mexican
government is not of a permanent nature. Future
circumstances may make us change our policy.
H.M.Jr:

I am sure you will see in the papers that the American
silver policy has driven Mexico on a paper basis.

We get it all the time. We get it about China that
our silver policy is ruining China.
Mexicans: Taking this into consideration we have endeavored

to give the impression to the public that we are in

good shape.
H.M.Jr:

H.M.Jr:
Mexicans:

The fact that you only closed your banks one day

gave a very good impression. It is the impression
of your long-term policy. I want to congratulate
Mexico on how quickly she has called in her money.
This has been done very cleverly.
This is not a suggestion. I am simply calling this
to your attention as a long-term policy.

It is a very important viewpoint and I will take it
back to my country.

H.M.Jr:

I am awfully glad Lopez came and I think we understand

each other better. I wish to say that if you decide

to use our Mints or the Bureau of Engraving they are
at your service.
Mexicans: I want to again express our appreciation and we hope
you will come to see us soon.

H.M.Jr. called Hull and gave him a summary of his interview
with Lopez. Lockett who is
came in and congratulated H.M.Jr. on the way he handled the whole
thing from the Mexican standpoint. He said that they were very

42
Lockett told H.M.Jr. that the State Department pumped
him and he got the impression that the State Department resent
H.M.Jr's handling these things and taking them out of their hands.
They hoped that H.M.Jr. would not make a commitment without consulting them.

At the request of Mexico the United States will be willing
to cooperate in carrying out the Mexican program as follows:
1.

Regulate imports of silver 80 as to prevent the importation
of Mexican silver coins or Mexican silver known to have been
meltedfrom Mexican silvercoins.

Mint Mexican pesos and 50 centavo pieces as rapidly as
possible, provided:

a) A formal authorization is given through the State Dept.
b) Master dies are sent from Mexico.
ounces of silver owned by the Banco de

c) The

Mexico is turned over to the United States for this
purpose.

d) Sufficient additional silver is furnished to coin amounts
in excess of that which can be struck from the English
silver.
3. Endeavor during a reasonable period while Mexico is calling

in its silver coins to maintain the price of silver within
a range of

an ounce. P rovided that during this

period no silver will be bought or sold for the account of the Banco
de Mexico or the Mexican government except in agreement with the

United States Treasury. (The quata withdrawals under the London
Agreement would of course be agreed to.)

1.
2.

Mexico will call in all silver coins (20 and 10 centavoe?)
Mexico will prohibit export of silver coins; and regulate
export of other silver 80 as to prevent export of melted
silver coins.
Mexico will cause
and

pesos of one peso denomination

pesos of 50 centavo denomination to be

struck; the former to contain 103.1 grains of pure silver
and the latter 51.55 grains.
4. The new pesos will be put in circulation as rapidly as
possible and held as a reserve for one peso and other notes.

oed Peso now 12 grams fine silvery
=.72
360 Pesos = $100,00

Pession worth

new Pear 6.6 grams
fine
siter
$ 1.29

with face value when silver 1.29
keep exchange value same.
our M.S.A. $ silver 3714 grains
our # because worth / $ as bullion
1
when silver reaches 1.29

April 29th
LOPEZ ON SILVER SITUATION

11,46

WASHN - ROBERT LOPEZ ASST SECY OF THE
MEXICAN TREASURY HAS ISSUED THE FOLLOWING STATE
-MENT REGARDING HIS CONFERENCE SUNDAY WITH SECY
OF THE TREASURY MORMENTHAU-

-THE CONVERSATION I HAD WITH MR MORGENTHAU

WAS MOST CORDIAL- I FEEL INDEBTED TO HIM FOR
THE FRIENDLY RECEPTION HE HAS ACCORDED ME- WE
HAVE EXCHANGED VERY USEFUL INFORMATION REGARD-

ING THE SILVER SITUATION - EVEN THOUGH MEXICO-S
MONETARY DIFFICULTIES ARE OVER MUCH GOOD WIB
ACCOMPLISHED THRU OUR COLLABORATION-

April 29, 1935.

The sub-committee on Banking of the Interdepartmental Loan

mmittee met at 11 o'clock in the office of the Secretary of the
easury. Those present were:
Henry Morgenthau, Jr. Secretary of the Treasury,

T.J. Coolidge, Undersecretary of the Treasury,
Marriner S. Eccles, Governor, Federal Reserve Board,
Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation,
Herman Oliphant, General Counsel, Treasury Department,

George C. Haas, Director Research & Statistics,
C. B. Upham.

Mr. Eccles said that the matter of most importance in the Banking Act of 1935 has to do with who will exercise monetary control in
the United States. He said that the American Bankers Associa tion is

in agreement with the control set up in the bill with the exception
of the open market committee arrangement. The ABA would reduce the
Federal Reserve Board from 8 to 5 by the removal of the Secretary of

the Treasury, the Comptroller of Currency and one appointive member
and have the open market committee consist of the 5 members of the
Board and 4 Reserve Bank Governors. The House of Representatives,
he said, is opposed to Reserve Bank Governors being a part of the
open market committee.

Mr. Morgenthau reiterated his position that the open market
committee consist of 3 members of the Federal Reserve Board and 2

Reserve Bank Governors as provided for in the original bill.
Mr. Eccles was of the opinion that power over Gpen market
operations should be with the Federal Reserve Board if we had the
Board we ought to have. He said he would like to have the office

-2-

of the Comptroller of Currency combined with the FDIC (for examination of banks) and with the Federal Reserve Board, put the FDIC
Chairman on the Federal Reserve Board in lieu of the Comptroller
and the Governor of the Federal Reserve Board on the FDIC Board.

Mr. Morgenthau said that he did not think the President would
give up examination by the Comptroller to examination by a private
system. He questioned that we could go that far unless we took
over the stock of the Federal Reserve Banks.
Mr. Coolidge and Mr. Eccles were in agreement that stock owner-

ship was not important and that it is too late in the session to
raise that question.

Mr. Morgenthau said that if we go to the Hill now and suggest
that the office of the Comptroller be combined with the FDIC,
Senator Glass will ask why it was not recommended sooner and our
reply will have to be that we were afraid it would interfere with
Mr. Eccles confirmation. He added that the fact that he and Mr.
Eccles and Mr. Crowley are going to the White House today is notice
of a fight on O*Connor.

Mr. Coolidge said that if there is a combination at this time
he would suggest having 1:2 chief bank examiners responsible to both
the FDIC and the Comptroller.

Mr. Crowley advenced the idea that both bills should be passed
as they are and then adjustments made in conference.
Mr. Eccles suggested that there should be some determination
of how strong a case to make in the Senate on the proposal suggested
by the ABA for a Board of 5 and an open market committee of 9.
Mr. Morgenthau suggested that the committee is where it was

months ago - that he and Mr. Eccles are 100% apart. He suggested

-3-

that the committee let the President decide. He said that he prefers
an open market committee of 3 Board members and 2 Governors; that

he will not fight the proposal for an open market committee of 5
Board members and 4 Governors; but he does object to Governors as

advisors only (with the present Federal Reserve Board).

Mr. Coolidge said that we stick to the original bill (3 Board
members and 2 Governors) or accept the ABA proposal for 5 and 4.

Mr. Morgenthau said that when he last had been visited by
Senator Glass, the Senator asked him if he were satisfied with the
present open market committee and that he told the Senator he

had been able to work very well with the present committe. He told
the Senator further that in his opinion the Government should control
National credit and that the Government should own the stock of
Federal Reserve Banks. With respect to stock ownership, he said

the Senator shot back at him "that is not in the bill, why do you
bring it up". He said Senator Glass is opposed to putting the Board
over the open market committee.

Mr. Eccles said there is a big difference between an open market
committee of 5 Board members and 4 Governors and one composed of 3

Board members and 2 Governors because, while in either case one

Board member siding with the Governors can outvote all the other
members of the Board on matters of open market policy, the fact that
5 of them are on the open market committee will be greater assurance

that that will not happen.
Mr. Morgenthau said he was willing to wager that Senator Glass
would not propose that the Secretary of the Treasury be removed from
the Board.

49
Mr. Eccles interposed to say that he did not want the Secretary
removed.

Mr. Morgenthau said that since he had made known that he wanted

off the Board there was no fun in putting him off. He said that
Mr. Coolidge was carrying the ball for him on this committee and
that he. would like to let the President settle the differences of
opinion when the committee goes to the White House this afternoon.

He added that he does not think it is time to talk about abolishing
the office of the Comptroller of Currency.
Mr. Crowley suggested that a committee be appointed later to

look into the matter of overlapping examinations and the like.
Mr. Morgenthau suggested that it might be well for Congress to
make such a study.

Mr. Oliphant was of the opinion that a basic matter was being
overlooked. "Suppose", he said, "when the gold cases were about to
come up that the whole Supreme Court had died over night, would the

President have picked a 5 and 4 setup with the chance that one man

might shift either way? I disagree with all 5 and 4 or 3 and 2 proposals. The Administration should have control. We don't know what

the situation calls for until there is a vote on the Senate floor.
I suggest that we keep the idea of a Governor and 2 Deputies in the
back of our heads as a proposal to bring forward later and to put in

the bill."
Mr. Coolidge said that he was somewhat on the other side, that
he would like to cooperate with the banks and he added that we do
not get the same diversity of types on Federal Reserve Boards that we
do on the Supreme Court.

50
-5-

Mr. Morgenthau said that he would like to avoid testifying

on the bill but that if he goes up to the Hill he will tell them
just exactly what he thinks.
Mr. Eccles said that if the Secretary testifies that the
present setup is O.K. there would appear to be no need for the

bill.
Mr. Morgenthau said that his statement that he has been able
to work with the present open market committee doesn't mean that

he is not in favor of a change. He added that he must say in all
honesty that the whole Federal Reserve System hasn't figured in the

monetary situation the last year and a half.
Mr. Eccles replied that there had been no occasion for it to.
He said the trouble withthe Board is personnel. O*Connor, Miller,
James and Thomas cannot be counted on, he said. One never knows

where they will be. This leaves Hamlin, Szymczak, Morgenthau and

Eccles to work together.
Mr. Oliphant suggested that two things were being confused.

One question was the position of the Administration at the time of
consideration of the bill by the Glass sub-committee. Another is
what We will trade for on the floor.
Mr. Morgenthau said the third thing was an ideal setup.
Mr. Coolidge suggested a commission to study the whole banking
laws.

Mr. Morgenthau expressed the view that we are not yet ready for
a permanent Federal monetary authority and that he would recommend
another Aldrich monetary commission.

Mr. Crowley said that a proposal was under consideration to let
the House pass the bill, send it over to the Senate where it would be

-6-

referred to the full Banking and Currency Committee and the full
committee could them consider the House bill, effectually shutting
off consideration of the Senate bill by the Glass sub-committee.

He thought the committee ought to stand by the original bill or
it would be open to the charge of "making changes already" and
not knowing what we want.

Mr. Oliphant stated his recollection that at the appropriate
time Mr. Morgenthau would recommend a Federal Reserve Board made

up of a Governor and 2 Deputy Governors, to which Mr. Morgent hau

rejoined that that was what Mr. Eccles wanted him to do but he
certainly had not agreed to do it.
Mr. Coolidge said that if the Board was made up of 3 members
certainly 2 Governors should be put on the open market committee,

to which Mr. Eccles dissented, advancing the idea that final
authority for open market operations should be with the Federal
Reserve Board.

between

Mr. Morgenthau suggested that a statement of propositions
upon which there is a difference of opinion should be drawn up on a

single sheet of paper to be placed on the President's desk this
afternoon.

Mr. Coolidge, Mr. Eccles, Mr. Crowley and Mr. Upham adjourned

to Mr. Coolidge's office where some further discussion took place.
Mr. Crowley said that there would be criticism of suggested
changes advanced by the Administration. He proposed standing by

the original bill, having Mr. Eccles agree if he wished to an open
market committee composed of the Board with Governors as advisors,

and then let the matter be fought out in conference.

-7-

Mr. Eccles aaid that the issue is control by the Government
or control by the banks.
Mr. Coolidge said that he did not think people spending their
lives in Washington should exercise monetary control.
Mr. Eccles said then the alternative was to let the banks

exercise it. That is the issue. No central banks have bankers in
control. The Federal Reserve Board should be an independent body.
There are no railroad men on the Interstate Commerce Commission.
Mr. Crowley said he thought an open market committee made up
of the 8 members of the Federal Reserve Board and 5 Governors was
as good as a 5 and 4 combination.

Mr. Ecoles said he thinks the Secretary of the Treasury would
have more influence off the Board than on, but thinks the Secretary
and the Comptroller should be off.
Mr. Coolidge said he favors the 5-4 proposal and he thinks that
lines up with the President's suggestion of cooperation between
the Government and the bankers.

Mr. Crowley advanced the idea that the FDIC should have control
over chartering banks.

Mr. Coolidge and Mr. Eccles agreed that the Treasury should be
kept separate from the Federal Reserve System.

Mr. Eccles said. the ideal arrangement would be to eliminate the
Secretary and the Comptroller from the Board, put the Chairman of the
FDIC on, let the Federal Reserve System charter banks and the FDIC
examine them. We would then have a Board of 7, 2 of whom are

Administration appointments and 5 long term members. Under that arrangement at present, Eccles, Crowley, Hamlin and Szymezak would be a

majority in a Board of 7.

Mr. Coolidge said that in his opinion the Governor of the
Federal Reserve Board should always be on the open market committee.

Mr. Ecoles replied that the House would not like this and

the Nation would not like it.
Mr. Coolidge said that what he would like to see would be
either a large Board made up of the Secretary of the Treasury,
the Secretary of Commerce and 2 or 3 others with 4 Federal Reserve
Bank Governors serving seriatim for reasonably short periods or
a Washington Board made up of a Governor and 2 Deputies with a

Federal Reserve Bank Governor coming in occasionally to sit with
them.

The meeting adjourned without having drawn up any proposals

to present at the White House this afternoon, that presumably to
be taken care of by Mr. Eccles in the interim.

April 29, 1935.

TO MR. OLIPHANT,
FROM MR. FRANK.

The following is an itemized list of documents formally
requested through the Department of State from the Canadian

Government:
1.

Certified photostatic copies of Excise Form B54 Entry for Export - which were executed by the British
Columbia Distillery Co., Ltd., New Westminster, B. C.,
and filed at the office of the Collector of Customs
and Excise, New Westminster, covering the exportation
of liquors for the period July 6th, 1929 to December
6th, 1933, not including shipments of 24 cases or less
or 4 casks or less. The phostatic coties supplied to
also show the completed foreign landing certificate on
the back of the form or in whatever form the landing

certificate is.

2. Certified photostatic copies of Customs Form B9 entry for Export Ex-Warehouse, which were executed by
Joseph Kennedy Ltd., Vancouver, B. C., and filed at
the office of the Collector of Customs and Excise at
Vancouver, covering the exportation of liquors from
their bonded warehouse for the period July 6th,1929
to December 6th, 1933, not including entries of 24
cases or less or 4 casks or less. The photostatic
copies to show the completed foreign landing certificate printed on the back of the form or in whatever
form such landing certificate was received.
3. Certified photostatic copies of Customs and Excise
entries filed at the office of the Collector of Customs

and Excise, Vancouver, B. C., by Joseph Kennedy Ltd.,
covering payments of duties and excise taxes on liquors

during the period July 6th, 1929, to the date of the
closing of the export houses in Canada, which date was
on or about July 31, 1930, with the exception of entries
covering 24 cases or less or 4 casks or less.
4. Certified photostatic copies of Marine documents
filed at the office of the Collector of Customs and
Exoise at Vancouver, B. C., covering the registration or
licensing of the following vessels during the five year
period immediately preceding July 6th, 1934:
Prince Albert
Lillehorn
Ououkinish
Odeon
Playa Isla
Seal Cove (now Sea Gypsy)
Northern Exchange
Skeezix

Ryuo II

Kitnayakawa

Amigo (now Carry Bell)

Ragna

Zip
Ruth B
Hurry Home

-25.

Certified photostatic copies of Customs Form A 7
Report Outwards and A 6 Report Inwards filed at the
offices of the Collectors of Customs and Excise at
the Ports of Newminster, Vancouver and Victoria, B. C.,
covering movements of the vessels mentioned in the
preceding paragraph during the five year period immediately preceding July 6th, 1934."

There seems no reason why the Canadian Government should

not give us this information in accordance with its obligations
under the Treaty of June 6, 1924.

We are also anxious to get other information for other
cases not yet filed in court.

If it is possible at the interview between the Secretary

of the Treasury and the Canadian Minister to touch upon this

information it will be sufficient to refer to it as the B13's

which Customs Agents were copying in Ottawa for one day prior

to permission being refused. It had been decided by the State
Department not to press this request until the request for the
information in the Reifel case, itemized above, was disposed of.
The proposed amendment to the Federal Alcohol Control

Administration regulations, or to the Code of Fair Competition
for the Alcoholic Beverages Importing Industry, to which the
Federal Alcohol Control Administration had tentatively agreed
prior to objection thereto by the State Department, is as follows:

"No importer shall import or bring into the territorial limits of the United States a product of any
foreign manufacturer from and after the time that he
shall be notified that the Director of the Federal
Alcohol Control Administration has certified that
civil proceedings have been institutedagainst such
manufacturer on a claim under the customs laws in
connection with articles illegally imported or
brought into the United States by or for such manufacturer, and that such manufacturer has refused
and continues to refuse to submit himself to the
jurisdiction of the courts of the United States for
an adjudication of such proceedings. Such restriction shall continue so long as such foreign manufacturer refuses to submit himself to the jurisdiction
of the United States courts; and shall apply whether
such product has been obtained by the importer from
the manufacturer direct or from some other person."

(Signed) Eli Frank Jr.

Outline re: Canadian Claims

Introductory

Our claims against Canadians are civil and criminal.
The individual Canadian citizens against whom the claims would be
asserted would probably in no event total much more than a dozen.
The companies against whom the claims would be brought would not

exceed eight; of these eight, in fact, one (Brewers and Distillers
of Vancouver, Ltd.) is already being sued (this is the Reifel case).
Practically speaking, those against whom we would proceed are:
Distillers Corporation-Seagrams (the Bronfman
company).

Hiram Walker-Gooderham and Worts

Canadian Industrial Alcohol.

United Distillers, Ltd.

There is also a possible claim against Melchers Distilleries, Ltd.,
a comparatively small outfit.

1. Civil Claims. Our civil cases comprise claims
(a) For $6.40 per proof gallon of distilled
spirits imported (title 26, U. S. C. A.
sec. 245);

(b) For $5.00 per proof gallon of distilled
spirits as import duties (title 19, U. S.

C. A., sec. 121, para. 502, continued in
the Tariff Act of 1930 as sec. 1001, para.

802)--there is also a possibility, con-

sidered legally doubtful by the Bureau of
Customs, that we are entitled in addition
to the forfeiture value of the merchandise;

we would contend that all of the business
was transacted in the United States, for
the purpose of income taxes.

The amount of claims is, at the outside, determined by
the amount of production and exportation of American type whiskey
from Canada by each of the distilleries involved during the Prohibition period. The exact figures are known by the Canadian

-2Government, being contained in the records at Ottawa. It is possible to arrive at an approximate figure for each operating distillery based on evidence as to the size of the plant as well as

upon the direct testimony of friendly, or hostile, individuals subject to our subpoena. From the point of view of proof available in

the United States, the committee of Treasury investigators under
Mr. Green, the Supervising Customs Agent from Seattle, has been
able (through bank accounts, records of transmissions of funds, conversations with and records of agents in the United States, etc.)
to compute liability against the Bronfman interests alone on 835,101
proof gallons for the period between 1930 and 1933 with the possi-

bility of largely increasing this figure by additional investigation.
II. Criminal Claims. A case for conspiracy to defraud the United
States of revenue (the revenue being that provided by the internal
revenue, customs, and income tax laws) and to violate the specific
customs laws with regard to entry of merchandise into the United
States could be definitely proved against each of the Canadian defendants. Charges would be based not on transactions in Canada,

as such, but on personal activity in the territorial jurisdiction
of the United States in the form of drumming up business, long
distance telephone conversation, appointment and supervision of

salesmen and agents, taking of orders, etc. It is simply not true

that these Canadians, and more particularly the Bronfman and Hiram
Walker groups, remained on the Canadian side and sold their merchandise C. O. D. in Canada. Our evidence shows - and additional

investigation will undoubtedly unearth very large amounts of corro-

borative and supplemental evidence - that these Canadians worked
with racketeers, rumrunners, bootleggers, and other lawless elements in
the United States, and themselves snuggled or facilitated the smuggling of merchandise. Bank accounts which we have discovered show
activity in the United States under assumed names. Competent witnesses have shown and continue to show readiness, willingness, and
ability to prove the Government's case.

It is not necessary for us to prove, or indeed to indict
on the ground of, a smuggling case (which is usually difficult to

prove inasmuch as specific articles must be identified). Nor would
it be a defense to any of our prosecutions that the Eighteenth Amendment has been repealed, for the prosecutions would be based on

statutes that do not derive their validity from the Eighteenth Amendment - income tax, internal revenue, and customs.

III. The Canadian Picture. It should be kept in mind that while

the Canadians are said to have about 20,000,000 gallons of American

58
-3-

type whiskey in warehouse which they want imported into the United
States, the advantages to Canada in the premises are not particular-

ly great. The Canadian distilling industry was built up during

prohibition as an industry for snuggling purposes. Canada does not
offer and never has offered a market for American type whiskey,
which was practically the sole product distilled in Canada in any
appreciable quantity. Nor are the individual Canadian citizens
who are involved concerned with continuing any distilling industry
in Canada. Each of them has either built one or more distilleries
in the United States or has made arrangements to dispose of its
entire stock to United States interests. These Canadians are simply
anxious to get their whole business out of Canada into the United
States in the cheapest possible way. Under the Canadian laws, as
I understand them, no duty is payable upon merchandise shown to be
exported from Canada; on the other hand, duties, as in the United
States, become payable to the Canadian Government after the goods

have been in warehouse for a certain number of years. In such instances, apparently, a drawback is obtainable upon proof of export.
It would seem, therefore, that the interest evinced by
the Canadian Government is for the protection of a few persons whose

sole claim to protection is merely their citizenship and not any particular economic benefit to Canada as such.

IV. What We Want. To facilitate our cases we want records of exportation and production by companies, available in the files of the
Canadian Government; and we want a certain amount of cooperation in

permitting us to examine and to interview persons resident in Canada.
We have not yet attempted to make any investigations of moment in
Canada. We have, however, been thwarted by the Canadian Government

in seeking certain statistical data and records.

V. What We May Do. If we must proceed as we are now going, we can

commence civil and criminal actions. This would involve indictment
and arrest of defendants if found in the United States and the holding of others as material witnesses. Being foreigners their bail
would be high.

In civil actions, we could probably proceed by attachment, and, in income tax cases, in any event, we could proceed by
jeopardy assessments, all involving the seizure in this country of
distilleries, bank accounts, stock interests in American companies,
specific merchandise, accounts receivable, and the like. This would
undoubtedly result in serious injury to the companies and individuals

59
-4- -

concerned. We would be justified in such procedure not only legally,
but morally, in the eyes of the American public.
It has already been demonstrated that the snugglers into
the United States are also snugglers into Canada. Effective cooperation with us would undoubtedly prove advantageous to both sides.
Furthermore, while we are anxious to clean the slate, we
are also anxious to do nothing that would leave us open to criticism.
The American people have a right to demand that foreigners who come
into this country to compete with Americans should at least pay the

taxes they owe to the extent of their ability to pay.

NEW YORK TIMES

4-30-35
THE LOPEZ STATEMENT.
Mr. Lopez's statement read as fol-

MEXICO SATISFIED

lows:

My conversations with Mr. Morgenthau came today to a most sat-

OVER SILVER PRICE
Looks 'Favorably on Revalorization of Metal," Says Lopez
After Morgenthau Talks.

infactory end. Contrary to current comments, my mission to this
country was of a friendly nature.
As it is well known, Mexico had
to adopt certain measures in or
der to meet the situation arising
from the increase in silver prices.
The laws enacted while I was flying to Washington had been carefully planned before my departure

from Mexico City. On that ac-

THE TREASURY MARKS TIME

Secretary's Only Remark Is on

'Mutually Satisfactory' Nature of Conversations.

count I was able to express to Mr.

Morgenthau in our first conversation that those measures had
been most timely and successful,

that banks would not be closed
for more than one day and that
the Bank of Mexico was ready to
meet any demands of foreign currencies.

Special to Tax New YORK TIMES

WASHINGTON. April 29.-The
Treasury and the Mexican Government came to a "mutually satisfac

tory understanding today on

Washington's diver-purchasing pro-

gram, with Mexico favoring a
policy, it is understood, which

would increase the price, but ask.
ing that it receive a breathing spell
to complete a readjustment of its
internal monetary affairs.
Except to say that there would be
no further increase today in the do
mestic price for the metal, Secretary Morgenthau restricted comment to a statement that the con-

versations which he had been
carrying on with Roberto Lopez,

Assistant Secretary of the Mexican
Treasury. had been "satisfactory."

Mr. Lopez supplemented this
with a more comprehensive an-

nouncement, however, the signifi-

cant part of which was that as a
large silver producer, his country
"cannot but look favorably on revalorization of the metal," and expressing readiness to cooperate toward that end.

I was pleased to learn that Mr.
Morgenthau was favorably impressed as to the rapidity and offectiveness of the steps taken by
the Mexican Government,
Our conversations covered other

aspects of the silver situation.
As a silver producing and using
nation Mexico cannot but look
favorably upon the revalorization
of the metal. For this reason she
will always be ready to cooperate

toward the attainment of that
end.

On leaving Washington I want
to express my deep obligation to

Mr. Morgenthau for the cour-

tesics he extended to me and the

friendly cooperation he has of
fered my government,

There was the intimation also in
Mexican circles that that government would seek to acquire more
Continued on Page Thirty-one

at prices fixed by Presidential pree
nation.

MEXICO SATISFIED

Mexican Banks Are Reopened

OVER SILVER PRICE

The Associated Press

MEXICO. D. F. April 29 -Hundreds of persons today formed .

queue, two abreast. which encircled

the Bank of Mexico as they sought

Continued From Page One

and obtained bronse change for

American gold in exchange for all

money.

paper

of building up its monetary re

The crowd. which was calm and
cheerful was kept is line by police
men and admitted. one-by-one, to

Silver, is was said. now forms

was becoming acute as allver WM

ver so as to continue the process

serves on basis which would as
the bank
sure the stability of its currency The abortage of small eliver notes
about 60 per cent of the monetary
base.

withdrawn into .he vaults of the
Bank of Mexico but official said
the new 20-centevo brease

The exact course that the Treas

ury will pursue was difficult to as

seas because of Mr. Morgenthau's
refusal to discuss policy beyond to
day. or comment upon any further
talks he may have had with Sens

tors of the silver bloc
The Indications however. were
that no sharp increase in the do
meetle price was being considered

were being put into

diy and the situation would
allend within few days.
Banks in general resumed

DATE usual

hall-

States

United

The

day

hursd

Saturday's

after

dollar

was again quoted at 3.60 pesce and

other foreign currencies returned

to the rate at which they were

fixed before the rise is the world

price

allver

peso

the

MAT

and forced the gover take

at this time Monetarily, also, the

miasures to defend the country's

Treasury's hand is not being forced
by speculative advances, the world
price remaining well below the do

currency

meetle price of 77.57 cents fixed
by Presidential proclamation on

Small Declines Again Follow Us.

April 24.

changed Position by Treasury.

Quiet was restored to the silver

There appeared to be the greatest
satisfaction in Mexican circles here

arkets on this cost Linent yesterday

as result of the turn taken by the

genthau Lopes con rereations. It

was pointed out in one quarter that

once Mexico had in get

ting her currency safely on man

aged basis, with substantial metal
Be reserves locked up in the Treas

ary. that country would profit as
by

QUIET IN SILVER MARKETS.

as the Treasury maintained -

changed at 77.57 cents an ounce its

price for newly mined domestic ver.

and

serves also would Increase

cent lower at 75% ents for for-

sign and unchange at TT cents for

The Bank of Mexico was estab

eliver

Late in the day bids at 76 cents
an ounce were recorded. with no
business

Paper Circulation Increases

spot

later than the general custom was
domestic

price

the value of the silver In its re

Harman

Handy

The

price posted at P. M.. two hours

done.

Montreal

prices

were 40 to 110 lower. with May allver ending at 75.90 cents bid after
touching

cents

The

DOOD

lished in 1925. and until about three

turnove there was

circulation

American Interests yesterday was

years ago the paper currency in
not

much

than from 5,000.0 to 6,000.00

Most of the trading conducted

done in Montreal

peace In 1931, however, its use

London price for silver was

- medium Increased and there 1/166 down 1/164 The mar-

is circulation around 110,000,000

after the posting of the price. and

peace

The Mexicans feel that It will

activity

readily accepted and used
people, and that no depreciation
its value will occur no long

Mexican

national

Treasury

stood to be its present program
The indications here today

that the different

ed Mexico. China and India

would be considered separately
they present different aspects
Secretary Morgenthau at his
ference with the
today. put aside all
Mexico with the statement
"Mr. Lopes . represent

the Mexican Treasury. and had
disfactory

today I just have to stand on
that statement."

Asked if aliver could be sold as

well as bought through the use
the liabilization fund of #2 000 000.000 which WM eet up by the Gold

Reserve Act. Mr. Morgenthau re

piled in the affirmative was
pointed

out,

however,

that

scale

was

behalf
was

metallic reserve which is

mutually

ket there was somewhat firmer

the

Silver Purchase Act of 1934 forbade

the Treasury from selling any of

the silver acquired under it unless

the value went above $1.29. the

statutory monstary value of the

metal.

Whether any silver has been so

quired by the stabilization fund

which could be sold in an effort to

prevent runaway peculative

market has never been revealed
but the supposition has been that
that acquired has been restricted

to buying under the authority of

the Silver Purchase Act and by the

taking over of newly-mined meta.

markets

the
any

Treasury
the

inter-

NEW YORK HERALD TRIBUNE

3-30-35

U. S. Pledges

Aid to Mexico
In Silver Crisis
Complete Accord Indicated

as Morgenthau, Lopez

Terminate Conferences

Details of Talks Guarded
Washington Offers Mints
to Speed Coinage Change

WALL STREET JOURNAL

4-30-35
Silver Advance
Held Favorable
By Mexico
Markets Steadier After Further

Decline in Price Here and
Abroad

Treasury Continues Silence
BY CLINTON R HARROWER

New encouragement to bulls on aliver came

from Washington last night when Roberte LA
pes. assistant secretary of the Mexicas Treas

vry, announced that Mexico is interested is

higher prices for aliver He said also be had ob

tained proffers of aid from Secretary of the
Treasury Morgenthau designed to minimize the

effect of higher silver on the Mexican Internal
economy.

Benor Lopez has been in Washington confer-

ring with Secretary Morgenthau regarding the

American eliver program and its effect upon
Mexico Last Saturday the Mexican govern
ment was forced to declare . bank holiday
withdraw all silver coin from circulation and
to prohibit the export of allver coins because
the high price of silver had made the coins
more valuable as bullion than currency and had

resulted in an actual currency abortage as the
coins were hoarded

In view of the difficulties in which Mexico
had found Itself. there was some selled that
the flying visit of the Mexican official would be

devoted to protesting against the American

aim of higher aliver On the contrary is a

statement Issued on his departure from Wash

ington, Lopes declared that " silver producing nation Mexico cannot but look favorably
upon the revalorization of the metal For this
reason the will always be ready to cooperate
toward the attainment of that end".
Sentiment Changes

This was the first definite statement to come

out of the week end conference Whether or
not the speculative market had Intimation of
the postition taken by the Mexican delegate the
statement confirmed a sudden change which
took place in spegulative sentiment in the allver

market yeaterday and brought new buying
orders to check the decline which had been
continuous since Friday afternoon

The aid which Mr. Morgenthau promised
was to offer the use of the Denyer and Ban
Francisco mists for minting.net Mexican calee
Mr. Lopes expects to reply within the next two

weeks Mr. Morgenthau also offered to assist
Mexico In provesting smuggling of silver onins

out of Mexico but Mexican officials declared

that the possibility of any large volume of

enoughing has passed

The statement gave DO Inkling or what the

American Treasury would do next Secretary

Margenthau earlier in the day announced that
there would be se announcement on the silver

price during the evening to the market is still
in doubt regarding the next official move
One idea advanced last night was that

though Mexico favore the higher aliver price
the Treasury may continue its policy of silence

for the time being in order to give Mexico .

breathing space until the new coins can be put
into circulation This would at in with what the

Treasury obviously is attempting. namely to
create such an atmosphere of uncertainty as to
make speculation on last week's scale undeair
able. In this aim, the Treasury must depend en

tirely on the paychological reaction to its at
Please Turn to Page Two

Silver Market Steadies

It of
(Continued from First Page)

lence,
Inasmuch as it cannot sell any of the allver # holds,

In some quarters, the opinion is growing

that a powerful speculative group is determined

the

points, force speculative the is said, Treasury's buying to the entering hand. belief the that All market evidence most is

not coming
dividuals.

from small but from powerful in-

The action of the silver markets yesterday

ounce 34 & d
at

for cents
indicated After sand official the London complete for quotations spot change silver in came and mentiment. in
a

for forward spot Both per silver cases, dropped drop Handy from only & Saturday Harman's 1 cent to of 75% quotation 1 1-16d

per ounce On Saturday London's decline of
14d had
break
here. been the forerunner of a 416 cent
In London speculative buying came in after

the fixing
counter

and in the afternoon over-the-

in foreign
of

the was a forward
move afternoon

exceptionally aliver, close, up trading there 9-16d prices from bid the moved of fixing. 34% up sharply. for This trading. is By

London good exchange volume reported wide circles in the private attributed afternoon. for American the Local rise buying

nearly one cent in sterling to $4.84 % partly to
demand for sterling from New York in order to
pay for silver acquired in London.
Today's Indication Hasy
Ordinarily, the rise in late London dealings

is and

would as an advance
the

there more
lack of
Treasury
now,

Speculative following be interpreted opinion day in the indicating however, official posted apparently price.

hanging is always action on advices would the possibility bring from Washington that selling.

The Montreal market, in the second biggest
day of trading which the Canadian Commodity
Exchange has had in silver, opened lower and

various months in later trading loat 200 to 250
points. Strength came into the market in late
trading and while the market closed down 40
to 100 points, some options had gained 155
points
from the lows of the day. Total sales
were 1,620,000 ounces.

was a

and It was difficult the

complete In the standstill New York market trading to fix at

"official"
price for foreign silver because of the
lack
of business.

an the

Bliver shares were quick to reflect the im-

and stocks
on Cerro
de

proved staged were-up tone sharply outstanding in the the metal, day. performance many on Pasco

Stock Exchange closing at 62% up 4% after
having been as high as 62% American Smelt.

ing gained. 2% points to 4416 while U. S.

Smelting was up 21/6 at 119.

The situation in Mexico is quieting down,
according to advices received during the day.
and the banks have reopened after the enforced bank holiday. The government has reimposed the peso-dollar peg at its former level
and the peso dropped in New York to 27.88
cents on
compared
30.40
Friday. with 80.25 on Saturday and

WASHINGTON of silver by the

Treasury under the nationalisation order
amounted to 80,359 ounces during the week
ended April 36, the Treasury announced Mon.

day. This hrings total receipts of silver under
the order since August P. 1934, to 112,719,940
ounces.

60 A

April 30, 1935.
Tuesday.

King:

Mr. Secretary?

H.M.Jr:

Yes.

Mr. King.

H.M.Jr:

Hello, Senator.

How are you this morning, my dear fellow?

H.M.Jr:

Fine.

Say, several years ago, I, appreciating the dangers
we were going to encounter and the difficulties and
complexes by reason of each state having - most of
the states having very heavy laws dealing with the
estates of deceased persons and each state trying
to grab more of the estate, then the Federal Government grabbing part of it, it did seem to me that there
ought to be some cooperation between the Federal Government and the states in dealing with income taxes and
certainly with the state taxes.

Well, I think you're perfectly right And I offered - wait - I offered a resolution over

H.M.Jr:

Well, I think you're perfectly right. I'd like some-

H.M.Jr:

H.M.Jr:
K:

eight years ago in the Senate auth - asking the
President of the United States or authorizing him
to call a conference of the several states and the
Federal Government so as to take up that question to
see if we could work out something.

time to talk to you about it because it's something
which I personally have been very much interested in.
Well, that's mighty nice and I anticipated it eight
years ago, but I couldn't get any support.
Well, you'll get support from this end.
Well, I know that; you've got more sense than most
Secretaries of the Treasury and most Senators and
Congressmen. (Laughter)

H.M.Jr:

Well, well, I'm full of mistakes, but I'll do the

Well, I'll - I'll take an opportunity to talk to you

H.M.Jr:

I wish you would.

best I can.

about it.

How did we get - how did we get along with our
matters the other day?

6.B
-2H.M.Jr:
K:

I thought very well.

I thought so. I - my view was the correct one. I think
- still
but
- think - I didn't ask you to express any opinion,

H.M.Jr:

No, well I thought (Coughing) -

Beg your pardon.

H.M.Jr:

For a day or two I've had a cough.
Yes, sir.

H.M.Jr:

It seems a little quieter, but I thought that, oh, may-

be in another few days I'd ask - have a chance to confer with you gentlemen again.

Yes. Well, I didn't have any doubt in the world that but that we ought to get - hold up for a little while,
as I said on that very hurried little - three or four
lines that I wrote.
But everybody, I think, for the moment is satisfied,
don't you?

Yes, I think so. Well, the Lord be with you.

H.M.Jr:

Thank you.

April 30th
Had Irey at the house last night and gave him absolute
secret instructions to tap all the wires of Rene Leon.
I called the President at 9:15 and told him that silver
closed last night at 75.15 - China selling - India buying.
Yesterday we bought 250,000 ounces at 74$ in London. This
morning the Chase is trying to get it and can't get it at
any price. The normal thing would be to let 250,000 ounces
go and supply the market with a little silver. Under the
present law we cannot sell any silver. The Stabilization Fund
is provided to stabilize currency. The President said he
thinks it is perfectly legitimate and told H.M.Jr. to sell
that 250,000 ounces. I then told Lochhead to sell it in
London and make them reach for it. I told him to sell it at
34 - 12/16ths.
H.M.Jr. said that Commander Thompson had accomplished what

he sent him out to do. Nothing was done in writing and
therefore we explain that it is purely an accident. From now
on all ships that come into an American harbor flying an
American flag gets preference and comes in first. In foreign
ports they do the same thing and let their own ships come in

first. This is the President's idea and H.M.Jr. carried out

his wishes.

Mr. Coolidge wanted H.M.Jr. to promise him that as long
as he was Under Secretary H.M.Jr. will not raise the price of

silver to 75. Under the law he was charged with the responsibility
of the fiscal affairs and that H.M.Jr. would have to consult
him. He implied that last week H.M.Jr. told him that he was
not going to raise the price and the next day he did. H.M.Jr.
told him that he positively would not make him any promises
that he was getting fed up on it and that he had plenty of
things to do such as the banking, RFC etc. and that they were
not being attended to. He also told Coolidge that he could
not have people around him who were not happy and he was
just warning him that he was pushing H.M. Jr. too far. Coolidge
said he wanted to see the President so H.M.Jr. reminded him
that when he returned from Montana last August that he took

over the silver program and handled it himself and at that time
he told Coolidge that he waso going to do it and that Coolidge
knew all about it. H.M.Jr. told Coolidge that he was constantly
upsetting him and that he simply could not stand it any longer
H.M.Jr. got very angry.

may /

Mr. Coolidge came in and said to me "Henry I don't know

whether I can go along with you on account of silver". I said
"Jeff please never say that to me again. If you can't go along
then resign". He said "do you want me to walk out?" "I do not
want you to walk out but please never threaten again. I just
can't stand somebody around me constantly threatening to
resign". I was very quite, did not get excited but was very
firm. He had tears in his eyes and I said "do we understand
each other"and he said "yes I will never threaten to resign
again unless I am ready to go".
H.M.Jr. called in the Canadian Minister to-day and had
Eli Frank and Mr. Oliphant present. They discussed the
attached memorandum. The Canadian Minister said he would
look into the various questions raised by Mr. Oliphant and
Mr. Frank and would come in to see the Secretary in about
a

week.

63
May 1st

H.M.Jr. phoned the President and told him the following:
We got Bob Jackson's letter and had another conference

and decided to let it rest. Instead of answering him again
I think my telegram is sufficient. He was forced to do that
in order to bring the Court to its senses and by offering to
withdraw he scared them. They begged him to withdraw his
motion which he refused. He said "the government is my

client and if you are not satisfied I will resign". I

telegraphed him that I was satisfied that he was doing a

grand job and to go ahead.

Silver yesterday was 75.45 in London and to-day it is
74.91. Nobody in the Treasury knows that our trick worked
and that we sold silver.
H.M.Jr. told the President about Coolidge and asked the
President to see him. When H.M.Jr. told the President about
Coolidge wanting H.M.Jr's word about not raising the price of
silver above 75 he said "does Coolidge expect to have me
impeached?"

May 2, 1935.

63 A

Thursday.

Guardia: Hello,
H.M.Jr:

Morgenthau.

LaG:

Yes. I - I missed you yesterday; I was in Washington.

H.M.Jr:

What do you mean you missed me? You didn't look me up.

LaG:

That's - that's true.

H.M.Jr:

If that's missing me, you missed me by a mile.
(Laughter)

LaG:

We'll be ready Wednesday.

H.M.Jr:

What?

LaG:

We'll - we will be ready Wednesday.

H.M.Jr:

Next Wednesday?

LaG:

Yes.

H.M.Jr:

What - where're you going to sign?

LaG:

In Washington as we agreed.

H.M.Jr:

Fine.

LaG:

Yes, you see our - the advertisement is up, I think,
Monday or Tuesday.

H.M.Jr:

Will you come down here next Wednesday?

LaG:

Oh, yes, that's tentative -

Will you invite the

other gentlemen there?

H.M.Jr:

We'll take care of it.
Yes. Wednesday, I'm pretty sure we'll be ready.
Want to do it in the forenoon?

LaG:

To suit your convenience.

H.M.Jr:

Well, if the - why not let's say, how're you coming down,
by - the night before or coming down I could come the night before, but it's always better for
me to take that 9:40 plane.
What time does that get in?
11 o'clock sharp.

H.M.Jr:
LaG:

LaG:

H.M.Jr:
LaG:

63B

-2 H.M.Jr:

Way 3, 100

Is that - is that standard time? of treaks

255

H.M.Jr:

Coolfige
Under
11 o'clock your time.
Well, then why not let's say - why not let's say 11:30?

LaG:

11:30 Wednesday.

H.M.Jr:

11:30 Wednesday.

LaG:

That's fine.

H.M.Jr:

O.K.

LaG:

Thank you.

LaG:

Corporation,

discussion the pasting Basking MT of 1135,
### disturbed allows the projects of the Banking
ettention an average. 16 *111 probebly 50
is his optime, defere the Nonea TORANS the bill and

term 2405 B suggested the
of splitting the easing 2 read 233

and

tranking

coparately.

pointed ank that insured beeks with

of the persement insurance we
ST

they

the

beat

name as their buildo not later than June lot.

State stated that apperently the Smalle Bill and the
An visal datails, are both
25 the House DIEZ grevella,

the media agreed) the 71/20 will be Gostroyed,
- 02 8522 Wea to the effeet

May 3, 1935.

A meeting on the program for recapitalization of banks was

alled for 3 o*clock in the office of Under Secretary Coolidge.
hose present were:

T.J. Coolidge, Under Secretary of the Treasury,
Jesse H. Jones, Chairman, Reconstruction Finance Corporation,

Leo T. Crowley, Chairman, Federal Deposit Insurance Corporation,
J.F.T. O*Connor, Comptroller of the Currency,
R.L. Hoguet, Jr.
C. B. Upham.

Before taking up the matter of bank recapitalization, there was
some discussion of the pending Banking Act of 1935.
Mr. O*Connor was disturbed about the progress of the Banking

Bill. He regards the situation as serious. It will probably be
two weeks, in his opinion, before the House hearings.
passes the bill and
the Senate Sub-committee has only just begun. He suggested the

advisability of splitting the bill, getting Titles I and III
through as expeditiously as possible and treating Title II separately.
He and Mr. Crowley pointed out that insured banks are getting nervous
about the possibility of the permanent insurance plan now on the books
going into effect on July 1st if the Banking Act of 1935 has not been
passed by that time. They anticipate that withdrawal notifications
will be coming in from some of their banks not later than June 1st.
Mr. O'Cornor stated that apparently the Senate Bill and the

House Bill, which are contradictory in vital details, are both
reputed to have Administration backing. If the House Bill prevails,
he said, (and with this Mr. Coolidge agreed) the FDIC will be destroyed.
Mr. O*Connor stated that discussion on the Hill was to the effect

-2-

that the Treasury has a record of having given a better account of

itself in the last two years than ever before - that its financing
and refunding has been handled in excellent fashion and money secured

at low rates -- that there has never been a better job of liquidating
closed banks and supervising going banks - that the condition of
National banks and Member banks was never better -- and for that

reason why invite the hostile criticism of the country in the face
of this by insisting upon a controversial Title II.
Mr. O'Connor suggested the possibility of the President
indicating to Congress his satisfaction with the passage of the noncontroversial Titles I and III with further discussion, if Congress

desires, of Title II.
With respect to Title I, Mr.Crowley was of the opinion that
even if the House passed the Steagall Bill in its present form, that
the FDIC would be protected by different language in the Senate Bill
which could be maintained in conference.
Man

Grostey

Mr. Coolidge stated that Secretary Morgenthau thinks the progress
of bank recapitalization has been much too slow and that he wants the
whole program completed not later than August 1st.

A statistical table showing the disposition to date of confidential commitments made to the Treasury and the FDIC by the RFC on
December 18, 1934 was presented by Mr. Hoguet, who prepared it, and
discussed by the group.

the

It was indicated that the first group of 77 banks with
$216,000,000 deposits could be taken care of by the RFC.

46.14

It was indicated that the second group of 36 banks with deposits
of $274,000,000 would have to be pressed by the Comptroller

-3-

and the FDIC to agree to strengthen their capital or liquidate.
It was indicated that the third group of 60 banks with
$140,000,000 deposits would have to be looked after by the FDIC,
working with State supervisors.

The task of the FDIC will be made easier if the Banking Act
of 1935 becomes law.

It was stated that there are a number of large banks included
in the picture which account for a major share of the deposits.
One of these is the Central United Bank of Cleveland which has
$8,000,000 of RFC money but only $6,000,000 of sound capital.

Mr. O'Connor said it must be kept in mind that in our tabulations
in figuring capital impairments we include both doubtful and losses,
whereas the Comptroller in sending out impairment notices does not
have so wide a discretion. He did agree with Mr. Coolidge that
about all he could do in some cases was to request the banks to
the
sell preferred stock.
Mr. Crowley said after July 1st the FDIC could ask banks to
get out of the insurance fund. He added that another examination
by the Comptroller throwing doubtful into the losses column might
make impairment notices possible.
Mr. Coolidge asked about the possibility of sending examiners

in again and have them be a little tougher than last time.
Mr. O'Connor replied that if that were done two things would
happen. In the first place people on the Hill
would point to the
and
fact that the RFC is urging banks to lend/the the Comptroller is
bearing down on them for the Loans they have, and, second, he said

there would be many letters to the President and to Congress com-

plaining about the Comptroller and his policies.

-4-

It was agreed that Mr. Hoguet would work with the RFC staff

in fixing up the 77 banks in the first group and the Comptroller and
the FDIC would push action on the 36 banks in the second group where
such persuasion was possible.

It was agreed that there would be a meeting at 3 o'clock every
Friday to check up on what has been done and that special attention
would be given to the larger banks, Mr. Coolidge being of the

opinion that the deposit total was of more significance than the
number of banks.

It was agreed that nothing much can be done withthe third
group until and unless the Banking Act of 1935 passes.
It was agreed that effort would be made to secure disbursements
to banks in group 4 by August 1.
It was agreed that an attempt would be made to make commitments
for group 5.

It was agreed that nothing need to be done about the banks in
group 6.

It was agreed that the banks in group 7 are a pretty bad lot
and that action ought to be taken. Included in this group are banks
in Ann Arbor, Michigan which everyone agrees ought tohave something
done about them promptly.

Mr. Crowley said that things would be helped by the passage
of the Banking Act of 1935 which would enable them to buy assets.
He thought there was some disadventage to RFC disbursements of

this group before the bill passes.
Mr. Coolidge thought the banks in group 7 ought to be put out
of business and that is what will eventually be done.

-5-

Mr. Crowley urged that action be postponed until the bill

passes.

Mr. O'Connor asked how much money was wanted from the RFC

as a total and Mr. Hoguet estimated $80,000,000.
Mr. O*Connor said that so far as National banks were concerned,

they want $6,081,500 and a liberalization of the regulations on
22 National banks with respect to "B" stock, in connection with
which there are commitments of $13,811,000.

Mr. Coolidge brot up one other point which he thought was not

of too great importance -- the matter of giving the RFC money to
newly organized banks. He asked opinion as to whether the RFC
should put up Government money for the organization of new banks

if there were no release of deposits.
Mr. Jones said he saw no objection to it.
Mr. O*Connor said he did not think there had been any cases
of National banks where this had happened.

69
Meeting held in the office of Secretary of the Treasury Morgenthau
at 9:30 A. M., May 6, 1935
From Beloese #17
Present:

Special
Treasury Department
Procident
Secretary Morgenthau

Mr. Oliphant
Mr. Gaston
Mr. Lochhead
Mr. Upham

Mr. Viner
Mr. Haas

State Department

Herbert Feis, Economic Adviser

Agriculture Department
Mordecai Ezekiel, Economic Adviser

Leslie A. Wheeler, Chief of Foreign Section

Commerce Department

Claude T. Murchison, Director of Bureau of Foreign and Domestic Commerce
Grosvenor Jones, Chief Financial Division

Amos E. Taylor, Assistant Chief Financial Division
At this meeting there WELS a discussion regarding Press Release # 17, issued

by the office of the Special Adviser to The President on Foreign Trade, entitled

"Letter to The President on Foreign Trade and International Investment Position
of the United States as of December 31, 1934" submitted by George N. Peek,
April 30, 1935, copy of which is attached.
The main points covered in these discussions were:

1. Mr. Taylor stated that Mr. Peek based his assumptions in that report on
Department of Commerce balance of payment data for 1934 and that on the basis of
these figures Mr. Peek's interpretation WEL S unjustified.

2. Secretary Morgenthau called attention to the confidential data which the
Treasury Department had been obtaining since December 1, 1934, a compilation of

which provides a detailed picture of capital movements from that date. If Mr.Peek
had made the same interpretation of these data as he did for the year 1934, his
interpretation would have been decidedly erroneous.
3. Mr. Murchison suggested that inasmuch as the figures on which Mr. Peek
based his interpretation Game from his Bureau, the Secretary of Commerce might be
willing to issue a press release discussing the international balance of payment
data which would serve to counteract the erroneous impressions created by
Mr. Pook's release.
Note: A press release was issued by the Department of Commerce dated May 8,1935,
a copy of which is attached.

2kt

SPECIAL

Press Release

ADVEST

For release, morning

TRADE AND INSTRUCTIONAL INVESTING

papers, Monday,
May 6. 1935.

30g 1904.

Office of the Special

Adviser to The President

on Foreign Trade.

Office of the 5 this President
on Foresign Grade,

Agree 33, 1985.
LETTER TO THE PRESIDENT

the President
ON

The White Horouse
FOREIGN TRADE

Dear Mr. President
AND

contribe

enclose for

danling with

the

INTERNATIONAL INVESTMENT POSITION
trailer
OF THE

States in its

1234#

UNITED STATES
I.

II.

III.

Foreign Trade

as of

Capital
DECEMBER 31, 1934

Foreign Trida,

irono, 1934.

IV. Summary International of United States,
Submitted by George N. Peek

1896

Avril 30, 1935

V. International Investment Position of United States are of
Demoches 31. 1934.

Exhibits I. II, and IT are in. the form used 10 my letter to

you of May 23, 3934, on Foreign and that of Assess 30, 1934, on
International Credits. 1001355W 332
the purpose hau been to

statistics and to susarise 1.02 Citylis

marcial and financial transmetions of see mater - -

LETTER FROM GEORGE N. PEEK, SPECIAL ADVISER TO THE PRESIDENT, ON
FOREIGN TRADE AND INTERNATIONAL INVESTMENT POSITION OF THE
UNITED STATES AS OF DECEMBER 30, 1934.

Office of the Special Adviser to The President
on Foreign Trade,

Washington, April 30, 1935.

The President
The White House

Dear Mr. President:

I enclose for your consideration the following exhibits
dealing with the trade and investment position of the United
States in its relation with the world, as of December 31, 1934:
I. Foreign Trade, 1934.

II. Capital Transactions, 1934.
III. Foreign Trade, by Principal World Areas, 1934.
IV. Summary of International Investments of United States,
1896-1934.

V. International Investment Position of United States as of
December 31, 1934.

Exhibits I. II, and IV are in the form used in my letter to
you of May 23, 1934, on Foreign Trade, and that of August 30, 1934, on

International Credits. Exhibits III and V are new.
The purpose has been to ascertain from available governmental

statistics and to summarize in simple arithmetic the recorded com-

mercial and financial transactions of the United States with the

-1-

rest of the world for the period 1896-1933, now extended to include 1934.
In this task the Department of Commerce has cooperated in setting up a
system of national bookkeeping, country by country, and in undertaking an

inventory of our foreign portfolio investments and foreigners' portfolio
investments in the United States.

This inventory disclosed that previous estimates of foreigners' portfolio investments in the United States were far too low, and an increase
of $2,795,000,000 has been made in this estimate by the Department of Commerce.

When the inventory has been completed final adjustments will be made in this

estimate, as well as in the estimates of our annual payments to foreigners.

Exhibit III
This is a new exhibit, and segregates the totals shown in exhibit I
into world trade areas. When the work now in progress has been completed it

will be possible further to segregate these totals 80 that our commercial and
financial relations with each trading nation may be known.
Exhibit V

Exhibit V is new also. While it must be remembered that the statistical background is as yet incomplete and unsatisfactory in certain respects,

the work now has progressed to a point where it is possible to indicate the
approximate book position of our international creditor status, set up in
the form of a simple statement of assets and liabilities as between ourselves and the world. Domestic assets representing wealth within the coun-

try and domestic liabilities such as internal debt, public and private,
are excluded from this statement, as they do not of themselves alter our

position on international account and affect it only after they have crossed

-2-

our borders in the form of goods, gold, silver, or paper evidence of ownership.

As a result of recent investigations the information on our present

holdings of foreign securities and of our securities held by foreigners
(items 1) is far more accurate than it has been in the past, and the estimates used in this exhibit appear conservative.
Items 2 and 3 are self-explanatory, although it may be observed that

there is subject to "standstill" agreement

$200,000,000.

The book figures for items 4, our direct investments in foreign coun-

tries and foreign direct investments in this country, are obsolete. A do
tailed study should be made of these investments, as the estimated returns
from them loom large in our balance of payments, and the investments them-

selves represent extremely important factors in determining our international

creditor or debtor position.
The war debts (item 5) are stated at $10,304,000,000. Of the amount

contracted by the allies, only the obligations of the Republic of Finland
with a principal value of $8,400,000 were serviced during 1934. Until
service is resumed on the war debts in default, the often stated necessity
for our purchasing from abroad additional goods, gold, silver, or services,

in order to create sufficient dollar exchange to permit the transfer of
funds for this debt service is not apparent.
The book creditor position, $16,897,000,000, may be considered

analogous to the surplus account of a corporation before adjustments in
inventory to market value and before providing reserves. Obviously the

determination of our actual position will be dependent largely upon the

-3-

findings of the value of direct investments and upon the status of the war
debts.

Progress has been made during the year in summarizing existing
records and in providing that more complete and more accurate basic data

will be available in the future, but the work is far from complete. It
should be carried forward so that all departments of the Government con-

cerned with foreign trade, for their guidance, will be provided with current summaries in simple arithmetic of our foreign trade and financial
position. Such summaries also will provide the business men of the

United States with information essential to the proper conduct of their
foreign operations.
In conclusion I submit for your consideration two recommendations:

1. The inauguration of a detailed study of our direct investments
abroad and of foreigners' direct investments in the United States, to
supplement the studies now in progress of capital movements.

2. A review of all national policies based in whole or in part
upon our international creditor status.
Faithfully yours,

George N. Peek

Special Adviser

SAF-221

75
- Exhibit I -

FOREIGN TRADE .
1934

During 1934 -

$2,133,000,000
1,655,000,000

We sold to the world goods in the amount of
we bought from the world goods in the amount of

478,000,000

thereby placing the world in debt to us for goods in the amount of
2. Our tourists spent abroad and our immigrants, charitable
organizations and others sent abroad the net amount of

352,000,000

leaving a balance owed to ne of

126,000,000

3. Services cold to the world and miscellaneous items amounted to -- $264,000,000
services bought from the world and miscellaneous items

274,000,000

amounted to

10,000,000

decreasing the balance owed to us by

116,000,000

leeving a balance owed to us of
4.

Interest and dividends received from foreign bonds held in United States
foreign bonds (interest funded)

direct investments abroad
short-term banking funds abroad

stock transfer taxes, commissions, etc.
a total of
less interest and dividends paid

$217,000,000

13,000,000
125,000,000
25,000,000
10,000,000
390,000,000
126,000,000

increased the balance owed to us by

leaving a balance owed to us by the world for goods, services,
interest and dividends of

265,000,000

381,000,000

5. Ye bought gold (including earmarking) in the net amount of $1,217,000,000
66,000,000
we bought silver in the net Amount of
we bought paper currency in the net amount of

48,000,000

a total of

thereby placing us in debt to the world in 1934 in the amount of
We paid this debt to the world by the
transfer to foreigners of capital assets
owned by us in the net amount of $970,000,000.

The detail of capital transactions is set
forth on the following page.

Distributed by Principal World Areas - Exhibit III.

Texteens

1,351,000,000

$ 970,000,000

- Exhibit II CAPITAL TRANSACTIONS
1934

During 1934 -

1. Foreigners bought and redeemed (a) foreign stocks and bonds held
in the United States and (b) American direct investments and private
and commercial balances in foreign countries
Foreigners bought American stocks and bonds and made new direct
investments in the United States

615,000,000

Foreigners' banking funds and short-term investments in the United

103,000,000

States were increased

Our banking funds and short-term investments in foreign countries

92,000,000

were decreased

a total of

As against this sur -

2. To bought American stocks and bonds
Fe bought foreign stocks and bonds and made new direct
investments in foreign countries

1,900,000,000

-$480,000,000

450,000,000

a total of

930,000,000

$ 970,000,000

leaving net capital assets transferred to foreigners in 1934

On December 31, 1933 -

-$25,202,000,000

1. Our gross foreign creditor balance amounted to

Based on a census conducted in 1934, the estimate
has been increased by

17,000,000
25,219,000,000

making the revised estimate of our gross creditor balance

Foreigners' investments in the United States were

estimated at

Based on the 1934 census, the estimate of these
investments has been increased by 1/

$1,090,000,000

-$4,557,000,000
2,795,000,000

making the revised estimate of foreigners' investments in the United States as of December 31, 1933

7,352,000,000

resulting in a corrected net creditor balance on December 31, 1933, of - - 17,867,000,000

2. Net capital assets transferred to foreigners during 1934 represented $732,000,000
a decrease in our investments in foreign countries
an increase in foreigners' investments in the United States - 238,000,000
a total of
thereby reducing the net creditor balance of the United
States (including war debts). on December 31, 1934, to

970,000,000
-$16,897,000,000

It is impossible to determine the proportion of this increase that may have occurred in
1934. However, since the mejor portion of the increase reflects an under estimate of
the position on December 31, 1933, the total adjustment is allocated to the position as

of December 31, 1933.

Note: Market values are used for transactions recorded through the Belance of International
Payments, while face values are used for bonds in the SUMMARY of our international investment position.

Rehibit III -

FOREIGN TRADE

By Principal World Areas
1934

(In millions of dollars) Europe

Latin

Canada

America

322

140

228

110

-1

111
69

_27

116

272

217

125

230

103

630

970

30
25

106

880

931

113.5

25.5

103

106

59.5

4.5
14.0

14.0

0.5

265

1217

9.5

125

1270

---

63.5

23.5

164

_84

Thereby placing us in debt to the world for goods, services, gold,
etc. in 1934 in the amount of

179

We imported silver
Balance - due to us or due from us

(b) #o exported silver

206

3.5

129

121

5.(a) We exported gold
We imported gold (including earmarking)
Balance - due to us or due from us

124

Not

Distributed

We received interest on foreign bonds held in the U.S.
We paid dividends and interest on U.S. stocks and bonds held in
foreign countries
Balance - due to us or due from us
We received securities for interest funded
and earnings on our direct investments in foreign countries
estimated transfer
Balance due to us on long-term investments
We received interest on our banking funds in foreign countri
and for brokerage fees.commisions,stock transfer taxes etc. (net)
Balance due to us

461

475

BALANCE DUE TO US OR DUE FROM US FOR GOODS AND SERVICES (Items 1

to 3 inclusive)

490

(b) We sold miscellaneous items - motion picture royalties, etc.
We bought miscellaneous items - insurance, etc.
Balance - due to us or due from us

$ 57

238

3.(a) We sold shipping and freight services
We bought shipping and freight services
Balance - due to us or due from us

$401

390

(b) Our immigrants, charitable organisations,and others sent abroad-Balance - due to us or due from

$308

489

Balance - due to us or due from us

$340

2.(a) Foreign tourists spent in the United States
Our tourists spent in foreign countries

$ 77

$950

Balance - due to us or due from us

Oceania

We sold goods
We bought goods

Africa

foundland

Kingdom
$2133
1655

Asia

and New

United

World

including

Totals for

270.5

23.5

76.5

- Exhibit IV -

SUMMARY OF INTERNATIONAL INVESTMENTS OF THE UNITED STATES
1896-1934

United States
loans to and
investments in
foreign countries

Net increase in total investments, 1895-1933
Total investments December 31, 1933

Other adjustments (See Exhibit II)
Corrected total investments December 31, 1933

Yet increase ordecrease in total investments during 1934
Total investments December 31, 1934

Total investments July 1, 1896

Foreigners'
investments in
the United
States

Balance

United States
net debtor

or not creditor

500.000.000

$2,500,000,000

$2,000,000,000

24,702,000,000

2,057,000,000

22,645,000,000

25,202,000,000

4.557.000,000

20,545,000,000

17,000,000

2,795,000,000

2,778,000,000

25,219,000,000

7,352,000,000

17,857,000,000

233,000,000

970,000,000

$7,590,000,000

$16,897,000,000

732,000,000

$24,487,000,000

- Exhibit V INTERNATIONAL INVESTMENT POSITION OF THE UNITED STATES

December 31. 1934

Liabilities

Assets

Foreign bonds held in the United
States - face value 1/
(Market value $4,016,000,000

2. Deposits and short-term funds of American
banks in foreign countries 2

3. American funds "blocked" in foreign
countries 3/

American branch factories and other direct
investments in foreign countries - book

value 4

War debts as 5/

American stocks and bonds held in

foreign countries - market value for
shares; face value for bonds 1/

$ 5,270,000,000

$ 6,000,000,000

Deposits and short-term funds of foreign
banks in the United States 6/

990,000,000

590,000,000

100,000,000

7,823,000,000

10,304,000,000 5.

Foreign branch factories and other direct
investments in the United States - book
value 6

United States net creditor:
Balance Dec. 31. 1933
Adjustments I/
Corrected balance Dec. 31. 1933
Decrease during 1934 8/
Balance December 31, 1934

1,000,000,000

$ 20,645,000,000
2,778,000,000
17,867,000,000
970,000,000

$24,487,000,000

16,897,000,000
$24,487,000,000

Our status as a creditor nation thus appears to depend upon the value of our direct investments in
foreign countries and that of the war debts.

Estimate based on "census of securities" in progress by Department of Commerce.
Estimated by Department of Commerce. Includes some $200,000,000 subject to "standstill" agreements.
Based upon questionnaire January, 1935. Largely commercial balances.
Estimate by Department of Commerce. Based on questionnaire in 1929. In 1933 the Department of Commerce stated - "these
investments are undergoing severe tests during the present world depression, and it is entirely probable that the recorded
values will have to be reduced when the necessary adjustments have been completed. No basis for making appropriate reductions
can be said to exist at this time." In the absence of a census of these investments the figure should be considered subject
to adjustment.

Accrued interest at time of refunding and interest in arrears are not included in this amount.

Estimate by Department of Commerce.

1/ See Exhibits II and IV.
See Exhibit II.
8

Immediate Release
DEPARTMENT OF COMMERCE

Washington

May 8, 1935

Secretary Roper today stated that the Department of Commerce

has recently received numerous inquiries regarding certain interpretations that have been placed upon some of the items contained in its
preliminary report on the balance of International Payments issued

April 6. In response to these inquiries Secretary Roper stated that
certain of the implications which have been drewn from the report are
not supported by the Department's figures.

For example, the implication that foreigners are not making use
of available dollar exchange to purchase American commodities is re-

futed by the fact that in 1934 American exports increased 27 per cent
in value, whereas merchandise imports increased only 14 per cent. Our
net balance for the year on account of merchandise exports was

$478,000,000, the largest since 1930, and over twice the net balance

for 1933. This indicates that foreigners have, in fact, been purchasing our exports in increased volume.

Another erroneous implication is to the effect that the net
creditor position of the United States is becoming relatively unimportant. On the contrary, the Department's figures show that in 1934
the total interest and dividends received by Americans from their holdings
of foreign securities and from direct investment abroad was nearly
three times as great as the estimated amount of interest and dividends

which foreigners derived from their investments in the United States.

-2A proper appraisal of our international credit position, therefore,
leads to the inference that the present foreign trade policy of the
Government is sound and that every effort should be made for the

further promotion of reciprocal trade treaties of the type now being
negotiated by the State Department. Resort to the exclusive bilateral
type of trade agreement would in effect be a denial of a trade policy

which is in thorough accord with the present international creditor
position of the United States.
The principal source of the misconstruction placed upon the

Department's report of April 6. is the use that has been made of an
item of $549,000,000, representing the total of a number of
unidentifiable transactions, which has been erroneously grouped with

identifiable items to make up a total of $970,000,000, in order to
support a particular contention. The Department's report contains
no such figure as $970,000,000.

All international movements of stocks and bonds, as well as net
payments on account of direct investments and the transfers of shortterm banking funds, were assembled in so far as they were identifiable

and presented in a separate classification indicating a net inflow
from such transactions of $421,000,000. It is unsound to assume that
the residual items of $549,000,000 are made up to any great extent

of security transactions. Therefore, no conclusion as to the
purchase of American securities by foreigners can be drawn by the

process of adding this residual item of $549,000,000 to the
$421,000,000 which represents the identifiable transactions in
securities.

78
May 6th

H.M.Jr. called the President and told him
that he bought 21 million ounces of silver during the week.
To-day, in honor of the King of England, the silver market is
closed, so he thought it was a good time to make the Mexicans
an offer which he did - he made them an offer of a trifle
over 734 - that is the silver which they bought in London
for speculation. The President was very pleased. H.K.Jr.
said he was always going to keep a million ounces over in
London in case he should want to sell them.

May 7th

H.M.Jr. talked with the President and told

him that sterling was 4.84 - silver is up a little. We

finished up our Mexican deal. We are paying them in sterling
and that will reduce our silver balances. We got an order
from Mexico to mint for them 60 million 50 centavos.
H.M.Jr. phoned Hull and told him that Peru
is in the same trouble as Mexico. He asked him whether he
did not want to have some of his people sound them out and
find out whether there was anything we could do for them.

ITA
May 7, 1935.

Tuesday.

H.M.Jr:

Hello.
Yes, Mr. Morgenthau.

H.M.Jr:

Mr. Speaker, please.

Byrnes:

Hello.

H.M.Jr:

Hello, Mr. Speaker.

All right, Mr. Secretary.

H.M.Jr:

How are you?

Very well, thank you sir. How are you?

H.M.Jr:

I'm fine.

That's good.

H.M.Jr:

Mr. Speaker, the bill that we call the Mrs. McClary Bill -

The which?

H.M.Jr:

Mrs. McClary - she's the widow of this policeman down in got shot down in Virginia, you know, going after those

moonshiners.
B:

Yes.

H.M.Jr:

It's known as HR6825 and it's to give her $75 a month.
I see.

H.M.Jr:

And it come up today and I wanted to let you know. I've
been down to see her. She's got four children and
she
policeman
hasn't got a penny; her husband was a
down there and because he went out of the city limits to
help the Federal Government get these moonshiners, why,

the city down there - of Alexandria - won't pay them anything.
I see.

H.M.Jr:

And he was a very courageous, very brave man and he

volunteered his time and went out on Sunday to help us
out.

Yes.

H.M.Jr:

And he got shot and killed up in the hills there.

Yes.

H.M.Jr:

And as I understand it, this bill is coming up today and

780

I wanted to let you know that I thought it was a very
worthy thing.
Well I'm glad you did. Now here's the trouble Mr.
Secretary, today. of course no one knows, you know.

H.M.Jr:

Yes.

H.M.Jr:

Somebody may object. It takes two objections.
I see.

And nobody knows who is going to do the objecting or

H.M.Jr:

Yes.

Until the field is actually called.

H.M.Jr:

I see.

And then under the rules nobody can explain it or
reserve the right and offer any explanation or urge

if anybody will object --

the objector to refrain.

H.M.Jr:
B:

I see.

In other words they just get up and object and that
ends it. Now then it's referred -- if that, if that
should happen today, and of course we're not able to
prevent it,

H.M.Jr:

Yes.

I'll make inquiry. If I can find out the-Truax is

probably the man that would be most likely to object

to it.

H.M.Jr:

Why - why would Truax do it,

Well, he just objects to everything up there like that.
I just say - he, he may not object to this.
Well if you -I really think if you'd - do you know Truax very well?
I know him pretty well.
Well, you call Truax and explain to him.

H.M.Jr:

Yes.

H.M.Jr:
B:

H.M.Jr:

78C

-3B:

H.M.Jr:
B:

Now I think he's the most likely man to object, and if he
don't object I don't think anybody Well I know Truax pretty well -Now, if it's objected to though by somebody else, two
objectors, why it'11 have to go back to the Committee.

H.M.Jr:

I see.

Then when the Committee reports it back it goes into

H.M.Jr:

objection.
I see.

It comes up on the floor and somebody can move to strike

H.M.Jr:

Well I --

There isn't any question about its passage unless some

what we call an omnibus bill and it is not subject to

it out, and then those who oppose it can get up and state
the facts.

individual just exercises that arbitrarial right to
object.

H.M.Jr:

Well I'll call him up.

You call Truax about it.

H.M.Jr:

I'll do that.

Well, if you call him I'll not speak to him, but I was
going to say I would but if you call him it would be
better.

H.M.Jr:

Supposing I call him and I'll let - I, I'll call you back

All right.

H.M.Jr:

How's that?

All rightie - and tell him

H.M.Jr:

Yes.

Tell him to -- if he says he won't object -- tell him to

H.M.Jr:

I'll tell him that.

All right.

H.M.Jr:

and let you know what he said.

see if he can't keep down objections. He's out on the
floor, you know, and I'm up in the chair.

Thank you.

18D
May 7, 1935.
Tuesday.

Mr. Truax: Hello,
Hello Mr. Truax.
H.M.Jr:
T.

Yes.

H.M.Jr:

How are you?

Fine, sir.

H.M.Jr:

Haven't seen you in a long time.

Is - is this the Secretary?

H.M.Jr:

This is Morgenthau talking.

H.M.Jr:

Well, I'm mighty glad to hear you.
Mr. Truax, we've got a little Bill coming up today --

All right.

H.M.Jr:

There was a policeman by the name of McClary down in

I wanted to tell you about it.

Alexandria. Here about a couple of months ago he
volunteered his services on a Sunday and went out and
helped our boys get a moonshiner up in the hills. In
doing the job he got shot. I went down and saw his

wife. She's got four children. They haven't got a
penny, and due to the fact that he left the city limits
why Alexandria won't help out his family. See? And
if you'd ever seen the wife and the four children you'd
feel the way I do about it.

Yes sir.
Now as I understand it there's coming up to give her
a pension of $75.00 a month - the Bill comes up today.
What's the number of it?

H.M.Jr:

It's HR6825.

6825.

H.M.Jr:

Yes.

You don't have the number on the past calendar?

H.M.Jr:

Yes, I've got that.

Have you?

H.M.Jr:

393.

H.M.Jr:

TE
-2
T:

What is it:

H.M.Jr:

393.

393?

H.M.Jr:

Yes.

Well I doubt whether we get to that Bill today but we may.

H.M.Jr:

Well, if you could see your way to giving a little boost
or at least not objecting why I - I'd appreciate it.
I saw the woman and I saw her children and it's a terrible
case.

H.M.Jr:

What ages are the children?
What's that?

What are --

H.M.Jr:

From six months up to seven years.

H.M.Jr:

I see, and there's four of them.
Yes, four of them.

And she has no --

She has no support. Nothing. She is penniless.
Was this fellow killed?

H.M.Jr:

He was killed.

I see.

H.M.Jr:

And--

When was that?

HM. Jr:

When was that?

Yes.

H.M.Jr:

About a month ago.

Well I'll look up the Bill, and I'll see that it goes

H.M.Jr:

through.

H.M.Jr:

Well that's awfully nice.

78F

-3T:

And I wish you'd do something for me.

H.M.Jr:

O.K. That's fair enough.

This is for - in the interests of the Administration, see?

H.M.Jr:

Yes.

When you see the President, you tell him to veto more of
these Bills that do pass the private calendar and on the
consent calendar.

H.M.Jr:

Yes.

Now he has votoed quite a few of them.

H.M.Jr:

Yes.

H.M.Jr:
T:

H.M.Jr:

And we have new rules on this private calendar. You can't
make a reservation of objection and thereby express your
opinion on the Bill.
Yes, I see.
All you can do is object or pass.
Well, now --

As a result there's a lot of lousy, rotten Bills go -Would you, would you do something for me so that I can get
it straight? Would you send me down, and mark it personal

confidential, a little, a one page memo expressing your
views?

All right.

H.M.Jr:

And I'11 hand it to the President.

That's right.

H.M.Jr:

How's that?

Now he has somebody down there that is doing this vetoing

and they're doing a hell of a good job of it.

H.M.Jr:

Yes.

But they don't get them all because they can't get the lowdown on them. I've got a complete report on every one of
these Bills.

H.M.Jr:

Fine.

78G

-4T:

And, and on those Bills that are passed today I'll give
you that report on those that should be vetoed.

H.M.Jr:

Yes. O.K.

Everything o.k.?

H.M.Jr:

I think so.
How's your Banking Bill? That's going through.
I think so.

Yes.

H.M.Jr:

The - Oh! I think - they'll put up a fight but they got

Oh! no.

H.M.Jr:

No.

Well, it's a long step in the right direction.

H.M.Jr:

Yes.

H.M.Jr:
T:

no votes.

It doesn't go as far as I'd want to go but of course I
can't expect it.
Well, civilization moves slowly.
(Laughter) Yes, that's right. Rome wasn't built in a day.

H.M.Jr:

No.

Well, I'll look after this for you Mr. Secretary, and get

H.M.Jr:

Thank you.

You bet.

H.M.Jr:

this other word to you.

78H
May 7, 1935.

Tuesday.
H.M.Jr:

Hello.

H.M.Jr:

Mr. Secretary.
Hello.
Go Ahead.

H.M.Jr:

Hello.

Byrnes:

Hello Mr. Secretary.

H.M.Jr:

Mr. Speaker.

Yes.

H.M.Jr:

Hello

Yes, Hello.

H.M.Jr:

Henry Morgenthau.

Yes.

H.M.Jr:

I spoke to Truax and he said, "I'11 see that that Bill

Well that's fine. You see he's out on the floor and
he's the only man that I can think of, and I didn't

H.M.Jr:
B:

H.M.Jr:

gets through".

mean to say that he would -Well --

You understood it, but he's the only one I thought might
object.
Well, he came back and asked me something and I don't

know whether I can do it or not. (Laughter).

(Laughter)

H.M.Jr:

But he said, "I'll see that that Bill gets through".

All right, fine.

H.M.Jr:

Thank you.

I'11 see what I can do.

H.M.Jr:

Thank you.

79
Dictated

May 8th

May 3d, Friday morning, I went over to the
White House and showed my speech to the President. He liked

it very much. The only part that he hesitated about was the
very end when he thought I might be stressing stabilization
too much. I then asked him how he thought I should deliver
the speech and he hesitated a little bit and said, "it is
too long for a radio" so I said, "how else would you give it"
and he said, "I suppose that is the only way you can give it".
I told him that Steve Early had told Gaston
the day before that he thought I should not go on the air,
(and that it was too much like what the President did and
that only the President should talk to the people over the
radio in fireside chats.)
After the meeting I came back to the office
and told Gaston to try to arrange for a time for me on the
radio for Monday a week.

Then got Bell, Oliphant, McReynolds together

in regard to the Executive Order for the 4 billion 8. I told

them all to help Bell to prepare an order and told them to
give them one that was good for the President and to disregard
what Hopkins, Walker and Ickes each wanted for themselves.
Oliphant thought that we ought to prepare three separate
Executive Orders and lay them on the President's desk and let
him decide. McReynolds and I thought we ought to prepare one
order.

Went to the farm over the week-end.
Lunched with the President Monday after having
gone over Executive Order which was being drafted along the
suggestions that I made on Friday.

80
Dictated by Mr. Morgenthau for diary on May 8th
Mr. Jackson came in on the eve of Mellon's
trial and asked me whether he should expose Sir Joseph

Devine's methods of conducting his business on his being

put on the stand tomorrow as witness for Mr. Mellon. I said
to Jackson "why do you ask me this question" and he said
"because I have been accused of having been too ruthless".

I said "you can't be too tough in this trial to suit me".
He jumped up and said "thank God I have that kind of a
boss" and for some reason Mr. Oliphant got tears in his

eyes. They started to leave the room but I said "wait a minute.
I consider that Mr. Mellon is not on trial but Democracy and

the privileged rich and I want to see who will win".

TO A

May 8, 1935.
Wednesday.

Operator: Mr. Conboy.

H.M.Jr: Hello.
Conboy:

Hello.

H.M.Jr:

Mr. Conboy?

Yes.

H.M.Jr:

Morgenthau talking.

Yes, sir.

H.M.Jr:

How are you?

Fine and how are you?

H.M.Jr:

Fine. Mr. Conboy, I happened to be in the President's
office the other day when the Attorney General was talking and I - I couldn't help but overhear that they said
that you were getting out on the 15th of May -

Yes.

H.M.Jr:

- much to my surprise and sorrow.

Thank you very much.

H.M.Jr:

And on account of my great interest in this Customs Case,

I wondered if one of the last shots whether you could
have time to get that confession out of Goldberg before
the 15th.

Yes.

H.M.Jr:

I don't know who's going in to succeed you and I I went in and had a talk with Oliphant -

H.M.Jr:

Yes.

And I told him that in view of the fact that you would
express a desire to

H.M.Jr:
C:

H.M.Jr:

Yes.

- and it might continue - of course, I'11 be glad to
render it
Yes.

And he spoke to the Attorney General about it and the
Attorney General mentioned it to me the same afternoon.
Yes.

-2C:

Now, I don't know what there will be accomplished between now and the date that you refer to, but I had a
call from a man representing that fellow the other day.
At that time, it was expected that he would - that
another attorney was coming in to see if we would take
Of course, the indictment has not
yet be returned -

H.M.Jr:

Yes.

- but - let me - let me handle the situation and I'll

communicate with you.
H.M.Jr;

Thank you very much. Thank you very much.

All right, all right. Goodbye.

H.M.Jr:

Goodbye.

80B

81
REPORT ON SECRETARY MORGENTHAU'S

AND MAYOR LA GUARDIA'S PRESS CON-

FERENCE, May 8, 1935:

Mr. Morgenthau: Sorry for this delay but the Mayor and I
it's the first time we've had a chance to get together and
talk the thing over and after talking the thing over, we
prepared these two statements -- the statement of the Mayor
and my statement; you can read them and any questions you

have to ask, why we're here to dispose of them.

Q. There's one question I'd like to ask -- your statement
says the contract with Consolidated Gas will be for the fiscal
years 1935 and 1936 and the Mayor's statement says the

contract will be retroactive to January 1, 1935.
A. That's the federal contract.
Mr. LaGuardia: We're retroactive -- we have the option;
we're on the calendar year.

Q. Your contract is just for the calendar year 1935; the
government contract is for two years?
Mr. LaGuardia: That's right.
Mr. Morgenthau: It goes back to July 1, 1934, and runs to
July 1, 1936.

Q. Mr. Secretary, some time ago you told us, that was off the

record, that contracts were subject to renewal; did that
mean renewal for a definite period or just for one or two
years?

A. I think we have the right to a one-year renewal.

Q. What's the effect of this on the proposed bill for the

-2-

federal and city plant?
A. Talking for the federal government, it has no effect,
one way or the other.
Q. Mr. Mayor, were the bids submitted on December 17th on
the same basis as the contracts under which you were then
operating?

Mr. LaGuardia: Yes, the same basis.

Q. No reduction at that time?
A. No-- an increase to meet my tax.
Q. How much was that increase?

A. The difference between $1,725,000 and $2,000,000.

Q. Mr. Mayor, I notice in your statement that it says
arrangements not to preclude the city taking such action as
may be advisable to protect the consumers. Do you contemplate
anything?

A. A subtraction may be necessary to give the consumer a break,
Q. Do you have any plans in mind?

A. We always have plans in mind.
Q. Such as a city-owned plant to sell to the consumers?
A. That's one of the methods of approach.
Q. Do you have such a yard-stick plan?

A. I'll have a statement on that after I consult my colleagues
on the Board of Estimates.

Q. I haven't had a chance to read this thing, but it simply
applies to the service given to the city government and not
the consumers.

-3-

A. That's right; you see, that's under the jurisdiction of
the Public Service Commission.

Q. You are not leaving your application for a loan or grant
for a plant on this visit?
A. The channels are through New York. Through the State
Engineer in New York; it would have to come from New York.
Q. Have you done anything about that up there?

A. Oh, a lot of it.
Q. I know you've done a lot of planning, but you haven't
submitted anything definite -A. No.

Q. The Treasury will take its allotment for a Federal plant,
Mr. Secretary?

Mr. Morgenthau: I don't know. We've been concentrating on

this contract; now that this is over, why we can think about it.
Q. How much was that allotment, Mr. Secretary?

A. I think it was around three and one-half -- just over
$3,000,000.

Q. Can you retain a PWA allotment for a project which will
not be started immediately?
A. All PWA projects have to be started by the 16th of June
or the decision will have to be made by that time.

Q. You are not going to start a plant by that time?
A. I'd say the chances are that we will return the money.

-4-

Q. That would be just giving it back to yourself, wouldn't
it?

A. Well,it's a lot of fun.
Q. Turnover.

A. 100% profit.

Q. Have you any large cities lined up for a similar contract,
Chicago, for instance?

A. This is the only one.
Q. Mr. Mayor, do you think that steps are definitely possible
to give the consumer a break?

Mr. LaGuardia: It's a very good idea.
Q. What do you think of the offer the Consolidated made to
Public Service this morning?

A. They made quite a few offers since the city got the help
and cooperation of the Federal Government.

Q. Didn't they make a new one this morning?

A. It wouldn't surprise me a bit; now we're past the office
stage -- we want to see something definite and concrete on
the consumer's discount bill.

Q. Can you give us the estimated cost of your electricity in
one year?

A. In the neighborhood of $10,000,000.
Q. Are you satisfied with the consumer rates now, Mr. Mayor,

or do you contemplate just to protect them so that the rates
won't be any higher?

-5-

A. No, no -- they're too high.
Q. They have just given you a reduction in consumer rates.
A. When, last night?

Q. No. I read in the paper not long ago about the Public
Service Commission --

A. That's the application; they have submitted some plan to
the Public Service Commission.
Q. Con Gas?

A. Yes.

Q. Is that plan satisfactory to you?
A. Not quite.
Q. Mostly based on the idea of the Washington plan?

A. Yes, the idea; but again we need something more than an idea.
Q. What are the plans for the rest of the day?

A. Four o'clock plane.
Q. Are you going to see anybody else?

A. I'm going to do some telephoning; I was at the Housing
Authority all morning until I camedown here.
Q. How's that getting along?
A. We're getting beyond the housing stage.
2. The PWA housing?

A. That's right.
Q. When are you going to open your projects up, Mr. Mayor?
A. What do you mean by projects?

Q. The story in the papers -A. I'll be here every Thursday and Monday until further notice.

-6INSURER DEPARTMENT

Mr. Secretary, will he take Dr. Viner's place?
Mr. Morgenthau: Well, we could do worse - lots worse.

3000

services

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(2) The in not adidas -

TREASURY DEPARTMENT

Washington
FOR IMMEDIATE RELEASE,

Wednesday, May 8, 1935.

Press Service
No. 4-91

Secretary Morgenthau announced today that he had given his approval

to the signing of new contracts for supplying electric current to Government
offices and establishments in New York City which will result in annual
savings of approximately $200,000, or more than 35% to the Government.

The contracts are for the fiscal years 1935 and 1936 with the four city
companies controlled by the Consolidated Gas Company and for the fiscal
year 1936 with the two Westchester County companies.

Each of the contracts is based on an outline of a rate plan submitted
by Floyd J. Carlisle, Chairman of the Board of the Consolidated Gas Company
to Admiral C.J. Peoples, Director of Procurement of the Treasury Department
through Admiral R.E. Bakenhus of the Navy Department, who has carried on

negotiations with the power companies on behalf of the Treasury Department.

The contracts for 1935 are retroactive and will apply to all current
consumed during the present fiscal year. It has been estimated by the Pro-

curement Division that, on the basis of the contracts in force up to June
30th of last year, the cost to the Federal Government for electric current
in New York City this fiscal year would amount to $572,439. The estimated

cost under the new contracts is $368,475, representing a saving of

$203,964, or about 35-2/3 per cent, for the fiscal year 1935.
The Treasury Department has incorporated into the contracts, with
the agreement of the electric companies, four new conditions not contained

in the outline proposal made by Chairman Carlisle in January. These
conditions in substance are:

(1) The Government is not obligated to purchase its entire require-

-2ments of power from the companies, but, if it should not do so, the contract
rates shall be subject to an equitable adjustment.

(2) The Government reserves full liberty at any time to build and
operate an electric power plant of its own in New York City if it should decide to do so.

(3) The companies concede that the rates under the new contracts are
reasonable and adequate to cover the cost of the service plus a reasonable

profit.

(4) The books of the companies will be open at all times to representatives of the Federal Government and of the State and City of New York to permit

determination of the relation of the rates charged to the Government to those
to 0 ther consumers.

In entering into the new contracts, each of the companies concerned will

accept the principle of a single consolidated contract for all service to
Government establishments for which the Treasury Procurement Division acts AS

buying agent. The advantage to the Government of the consolidated form of
contract covering all Government establishments served by a single operating

company is that it permits the application of quantity rates, based on a large

volume of current, which are similar to the rates in effect for large industrial
users of electricity. The Treasury Department since early in 1934 has been

negotiating with Consolidated Gas and its subsidiaries in an effort to obtain
these quantity rates, based on the principle that the Government is a single
user of electric energy. Consolidated Gas and its companies had consistently
refused to grant this concession until after it had become publicly known that
the construction of a Government power plant in New York City was under serious
consideration.

None of the Government establishments in Now York City has had any

contract for electric current since June 30, 1934, when 176 separate contracts for that many different Federal buildings and establishments expired.
In each of these 176 contracts the same rates had been applied as if each

contract represented a separate user of electric current. Substantially
those same ratos had been in effect to Federal establishments for more than
twenty years.

In response to calls for bids, after months of negotiation by the
Procurement Division with Consolidated Gas and its subsidiaries, the
operating companies on July 20, 1934, submitted bids on the old basis

virtually identical with the contracts previously in effect, refusing to
recognize the Government as a single buyer for all its establishments. The
Procurement Division rejected those bids, and, since July 1, 1934, service
has been furnished without contract and without payment, pending further
negotiations.

Late last year Consolidated Gas and its various subsidiaries made

known their definite refusal to execute the blanket contracts which the
Government sought. On January 21st of this your, however, Chairman Carlisle
of Consolidated Gas submitted an outline of a plan conceding the Government's

contention and offering the rates incorporated into the present contracts.

88
May 8, 1935.

The following statement was made by Mayor LaGuardia:

After conferring with Secretary Morgenthau I have decided to
accept the new bids of the Consolidated Gas Company and have instructed

Commissioner Davidson to execute contracts for service for the year 1935.

Like the Federal contracts the rates are retroactive to January 1,
1935. The bids submitted by the Consolidated Gas Company on December 17,

1934 for the 1935 service were rejected, The rates obtained by the City
for public building lighting and power are comparable to the bids submitted to the Federal Government and our saving will amount to $1,092,965.20
or about 36,06%.

The saving in our street lighting system is about

$692,554.00. There is a corresponding reduction of cost of current.
The companies assume the entire servicing of street lighting and
the greater portion of the charges is for personnel and material. We have

succeeded in obtaining for the first time a break-down of the street
lighting costs and are now in a position to study them very carefully.
The City specifications embodied what have become known as the

Federal clauses stated by Mr. Morgenthau today.

The situation insofar as the servicing for public buildings and
public purposes is concerned is settled for the year 1935. The City has an

additional responsibility and that is the rates to the consumers, The
arrangements do not preclude the City taking such action as may be advis-

able to protect the consumers at this time.

Our total saving is a little over two million four hundred thousand
less than their bids on December 17.

88A

I want to take this opportunity to express the appreciation
and thanks of the people and tax-payers of the City of New York for
the cooperation and help which we received from the Federal Government,

particularly from President Roosevelt and Secretary Morgenthau, I

believe this is the first time that a Municipality has received such
encouragement and the results speak for themselves.

88B

stain

The American Dollar

Total words

3059

It is my purpose, tonight, to state a few
simple facts which, I hope, will contribute to a
clearer understanding of the monetary policy of the

United States.
I shall not enter into complicated
or the
discussion of the theory of money. I shall merely
tell you what was done

why

and the effect.

In order to examine the record in logical

sequence, it is necessary to review, briefly, the
background of our present problems. Foreign trade
has, from the beginning, been an important factor in

the business of the American people. During the
eighteen years immediately preceding the outbreak of

the World War, we exported thirty-one billion dollars
worth of merchandise, almost all of which was paid for

with goods and services that we received. The net
127

2932

2932
-2gold movement to us was relatively small, amounting to

$174,000,000. Foreigners invested in the United States,

during those eighteen years, two billion dollars;
Americans invested abroad, one billion dollars.

the out-break of the World War, the American people owed

the world three billion dollars more than foreigners
owed us. That was what the ledger showed on July 1,

1914. billions or dollars of not foreign
With the beginning of the World War, a tremendous

change took place. From July of 1914 to the end of 1922,

we exported forty-seven billion dollars worth of merchan-

dise. Much of this was paid for with goods, services
and gold, but there remained due us a balance of 19

billion dollars, for which we took mostly promises to pay.
Now note the contrast. In the previous 18-year

period, with our country one of the world's attractive

148

2784

2642

2784

-3fields for capital investment, we drew in about one
billion dollars net from abroad, but when we became a

creditor nation, the net outflow of capital reached
nineteen billion dollars in the eight years between the
beginning of the World War and the end of 1922.

Nor did we stop there. We continued to export
more than we imported, thus accumulating an additional

two and a half billions of dollars of net foreign
investment by the end of 1929.

If we deduct from the grand total of our loans
and investments abroad all of the loans and credits
that foreigners have here and then examine the status
so

of our net foreign investment, we find that an amount

equal to two-thirds of it is today in partial or complete
default.

expart

There you have the background, from an American
period,

142

2642

-4-

2642

point of view, when in 1931 things headed toward a the

crisis all over the world. Credit and currency
difficulties which had been spreading throughout Europe
came to a head in the Spring of that year. On September
21, 1931, Great Britain suspended gold payments. Norway,
Sweden, and Denmark followed within a week. Japan acted

in December. Other nations either went off gold or took

equivalent action to control their foreign exchange.
share

As the nations went off gold, the value of their

currencies in international exchange dropped sharply,

and our customers found it difficult to get dollars
with which to pay for American products. They could
trade with each other to some extent, but they bought

from us only what they could not do without. The
physical volume of world export trade dropped about
one-fourth from 1929 to 1932, but our exports dropped

almost one-half in the same period.

159

2483

-5-

2483

During 1932, England increased her share of the

world trade by 16 percent over the previous year; and
Japan by 29 percent. To say that we merely shared in

world-wide misfortune is not entirely accurate, because

one

fifth
of sherch

our share included an additional penalty for remaining
on the old gold standard.
While total world export trade declined, those
countries which promptly went off gold increased their
share of what remained.
Some of the countries became alarmed because they

could see the bottoms of their gold bins. They and
others exerted pressure to have foreign credits called
home. Sometimes these credits responded by going in

the other direction just as fast as they could travel.
Gold was stampeding from country to country, always

leaving the place where it was needed, and rarely doing

134

2349

2349
2

-6 its new hosts any good.

In January of 1932, gold began to leave the

United States in alarming amounts. This was fair notice
to all concerned that our turn was next. The panic was
knocking at our door, but nothing effective was done to
avert it. Europeans knew that we could not maintain

our currency at the old gold level without a further
ruinous deflation of our prices, trade, and industrial

activity. Facing that crisis, the previous Administration
stubbornly refused to take action, evidently under the
impression that that was a proud achievement, when it
was obviously economic suicide.

Foreigners had left here more than a billion

dollars to enjoy our high interest rates and prospects
of quick profits. Seeing what was happening, they

not

judged that it was high time to take this money home.

137

2312
2058

2212
-7They did so, and the panic was on. We could not
They

offer them their defaulted paper when they called for
their money. We could not even offer them their paper

that was not in default. We had let them have the
money on long-term loans; and they had short-term loans

here. Our long-term paper was not due, while their
short-term loans could be collected and their stocks
sold. They could demand gold for every dollar due, and

that is what they did. Thus it. happened that, in the
first six months of 1932, we witnessed the incredible

spectacle of gold going out of the world's greatest

creditor nation on every ship nearly all of it to
nations that were in our debt. Still nothing effective
and

The

was done to avert the disaster.
Stupendous as the gold movement was, we could not

ship fast enough to meet the demand, and speculators

154

2058

2058
-8took advantage of the situation to sell the dollar.
They were not all foreigners, either. However, the
citizenship of these snipers is not important since

their dominant trait is an utter lack of patriotism

or loyalty to any nation. They would sell civilization
itself short if they could, and for all they knew at
that time, they might have been doing so.

the

Our loss of gold, added to the calamity of
declining trade, falling commodity prices, and widespread
unemployment, caused bewilderment and then panic. The

disaster swept over our country with the fury of a of
hurricane. Within a few months our financial structure

was in a state of collapse. In the month of February,
1933, and up to the time President Roosevelt took office,

about half a billion dollars in gold and nearly two

began

billion dollars in currency were withdrawn from our banks.

145

1913

913
-9They were closing, not individually, but by whole states

at a time. That was the situation when this Administration came into office. On taking his oath, Mr. Roosevelt
assumed both the duties of President and receiver for

a concern the richest on earth but on that
tragic day face to face with insolvency.
We were headed for disaster unless the run on
the banks could be stopped, and our gold reserves
reassembled. Both objectives were promptly achieved.

TWO
FIFTHS

The President's Proclamation closed the banks, ending

the run, and the gold was ordered into the custody of
Uncle Sam under penalties. Those two acts met the
domestic emergency. An embargo on gold exports was

declared and that ended the outward flow. This effectively took us off the old gold standard and the dollar began

to adjust itself to the realities of the world situation.

142
1876

1778
- 10 In going off gold, we were not the first, we were the
thirty-first. The operation was completed in January
of 1934 when the dollar was revalued and set at 59.06

percent of its former gold content. Since that time
we have enjoyed the soundest currency in the world. It

is, in fact, so sound that we find gold flowing back into
this country to take refuge in our dollar; not to pay
balances but to find safety. Some of the same sharpshooters who personally conducted the flight of gold
from this country during 1932 and the first two months

of 1933 are now bringing it back.
But let us return to the record and see what

our new dollar did for our foreign trade. I shall take
all three of the commonly used yardsticks and apply them.
Child

First: Measured in physical volume, the United
States increased its export trade during 1934 as compared
national

167

1604

1604
- 11 with both 1932 and 1933.

Second: Measured in dollar value the United States
increased its foreign trade in 1934 as compared with 1932

and 1933. or

And, finally: Measured by percentage share in the
physical volume of total world trade, we again show an
increase over both 1932 and 1933.

This is the more remarkable because the volume

of our agricultural exports was declining.
In 1934 we shipped one-third less cotton than in

1932; but.. we got seven percent more money for it.
We also got a higher price for our wheat, but
the drought can account for most of the increase.
Our wheat exports have also been affected by
quotas and embargoes. Some of our former customers

prefer, for reasons of national policy, to grow their
own wheat, regardless of price.

150

1454

1459
- 12 Because of these unusual factors, I can not trace

with accuracy and fairness the full effect of our monetary
policy upon agricultural exports.
A better test is offered by manufactured goods.
The physical volume of all our finished manufactures exported in 1934 increased 37 percent compared
with 1932; semi-manufactures increased 47 percent in
the same period.

To be concrete, let us take a specific article,
such as the automobile. In 1930 we exported 238,000
cars.

In 1932, with our country one of the very few

remaining on the old gold standard, we exported 65,000
cars. In 1933 under the Roosevelt monetary program our

exports shot up to 107,000 cars. Last year they more
than doubled; they came right back to where they had
been in 1930.

147

1304

1307
- 13

During the disastrous period of declining sales,

the world still wanted American automobiles but it

could not get the dollars to pay for them. Nothing
startling developed in the way of foreign competition;
our dollar prices had not gone up; and quality remained
just as good, or improved.
We simply had an interim during which we could

not sell because the dollar was too high in relation to
THREE

other world currencies; this Administration lowered the

FIFTHS

gold content of the dollar and the foreign market is
being restored to our automobile manufacturers with

such rapidity that the benefits are already nation-wide.
Some people have been telling you that there

934,

simply could not be any benefit in restoring trade by
bringing our money into reasonable relation with the
other moneys of the world. I decided to get the answer

138

1169

11.69
- 14 20

to that question from the manufacturers themselves.

They ought to know best. I asked the executive heads
of twenty-nine large representative firms whose products

are a oross-section of our industry to tell me:
First: Whether they are getting any more foreign
trade.

Second: Whether employment in their plants has
increased.

Then, I examined their published reports to find
out whether they were making any profits. Here are the
combined answers.

To the first question

whether they are getting

any more foreign trade they answer "yes". In 1934,
which was the first full year under the Roosevelt
monetary program, their export sales were 59
= percent

greater than in 1932.

with

113

1056

1056
- 15 To the second question

of their employees has increased

whether the number

they also answer

"yes". Two hundred and four thousand more men and

women were working in their plants during 1934 than in
1932, an increase of 34 percent.

To the third question
any money

whether they are making

the answer is again "yes". Their combined

Loss in 1932 was one hundred and twenty-one million

dollars; their combined profits for 1934 were in excess
of one hundred and twenty-eight million dollars. These
figures include their losses and earnings on domestic

sales also. Domestic sales followed substantially the
same course as their foreign sales. When foreign sales
hit rock bottom so did domestic sales; and when foreign
sales recovered under the Roosevelt monetary program,
sowayd

domestic sales recovered with them. So there you have

144

912

1009

912

- 16 accord.

the testimony of the best qualified witnesses.
sould

Under the monetary policy of this Administration,

they lifted themselves out of a deficit in excess of
one hundred million dollars to earnings in excess of
one hundred million dollars; and employment increased
by more than 200,000.

There are many indications that world trade

will continue to increase. Our monetary policy

relation to foreign trade is not intended to capture
business, but merely to protect our
normal share.
So
of our
the
far from engaging in a competitive devaluation
race
receiving

with the other nations, we hold out to them a currency
gold

and

of such steadiness that the normal tendency may very

well be for the rest of the worldVarious
to move gradually

toward practical exchange stabilization. If that can
be achieved, the final step should come easily and

134
778

978
- 17 -

almost of its own accord. Unless somebody rocks the
boat that would be the natural course.

In estimating the future of our foreign trade
in relation to our monetary policy, we may as well
face the question whether we wish to sell abroad vast

quantities of goods that the buyers can not pay for,
unless we lend them the money. of course, if we want
more paper there are plenty of international bankers

to arrange the details. We felt rich on that paper
during the roaring twenties. Now we know better.
In place of paper, under the operation of our
new monetary policy, we have been receiving large

shipments of gold and silver. Some of it came to settle
trade balances, and some represents capital seeking

refuge in our sound currency. Various economists will

tall you that this policy is likely to end our foreign
145

633

633
- 18 -

trade; that first we strip the world of gold and then

our foreign trade dies. But we are not stripping the
world of gold. We have more gold than ever before,

FOUR

but the world supply of monetary gold is also increasing

FIFTHS

rapidly. Production now proceeds at the rate of about

one billion dollars annually, and will continue to
increase. The great nations are restoring their reserves.
Meanwhile, percentages of the total held by the various
nations show no alarming changes. We had 41.7 percent
of all the monetary gold in 1922 and now we have 38.8

percent. France had 8.4 percent in 1922 and now she

has 24.8. Great Britain lost gold heavily before she
suspended gold payments in 1931, but since then has

increased her share from 5.2 percent to 7.2 percent.
With increasing gold production, and hundreds

of millions of dollars worth of the yellow metal being
181

452

452
- 19 -

brought out of hiding, surely some of it can be used
deolaring

to pay balances. We are also endeavoring to restore

silver to greater usefulness as a monetary metal. It
is the money of a large part of the world's population.
Objection to our course is sometimes based upon

the assertion that we would bring vast quantities of
the world's gold and silver here, only to be locked up

in the United States Treasury the phrase commonly
used is that the gold and silver thus become sterile.
At least, however, it goes to swell our monetary

reserves. Loans in default are not very good backing
to

for currency; indeed they might, without undue asperity,

be described as also sterile. If we must choose
between the two, this Administration elects payment of
international balances in monetary metals.

134

318

318
- 20 You have heard the argument that we should

stabilize by declaring that we will not change the
present gold content of the dollar. Some even go 80

far as to say that the other nations would certainly
follow, if we took the lead. If we launched out alone
on such a course, it would put us right back where we

were in 1932, and offer a tempting invitation for the
others not to follow, but again to take advantage of
our disadvantage.

We realize the importance of world prosperity,

and will evade no opportunity to assist in that
direction

except the ever-present opportunity to

donate prosperity at our own expense.

In conclusion, I should like to summarize this
statement by saying:

First: You have an absolutely sound dollar
130

188

318
- 20 You have heard the argument that we should

stabilize by declaring that we will not change the
present gold content of the dollar. Some even go so

far as to say that the other nations would certainly
follow, if we took the lead. If we launched out alone
on such a course, it would put us right back where we

were in 1932, and offer a tempting invitation for the
others not to follow, but again to take advantage of
our disadvantage.

We realize the importance of world prosperity,

and will evade no opportunity to assist in that
direction

except the ever-present opportunity to

donate prosperity at our own expense.

In conclusion, I should like to summarize this
statement by saying:

First: You have an absolutely sound dollar.
130

188

188
- 21 dollar.

Second: The monetary policy of this administration rescued us from chaos; held the fort through the
most trying period of our recovery program; and is now
the spearhead as we advance steadily toward our goal.

Third: of the great trading nations that
revalued their currencies, we were the last, until
quite recently, when Belgium joined us.
The world should know that when it is ready to
seek foreign exchange stabilization, Washington will

not be an obstacle. Our position was that of an
innocent bystander who suffered untold loss in a fight
that he did not start, and from which he could not
escape. Why should we be singled out and admonished

that the moral duty to restore order is primarily ours?
Before we make any commitments, we must be sure that we

133

Way 34, 1900.

- 22 will not lose what we have just regained. We are not

unwilling to stabilize. However, if the great trading
nations elect to continue under the present absence

of rules we are no longer at a disadvantage. We
revalued our currency no more than was necessary and

we can go either way.

Our hands are untied.

88C
May 14, 1935.
W. Randolph

Burgess: Find your ethics all right?
H.M.Jr:

Yes. Did anybody like the speech in New York?

Well, I haven't talked to - much with anybody yet.

H.M.Jr:

I see.

I think - my feeling - I think the feeling is, on

the whole, that the general effect will be good.
Now, the best test on that is your marketing -

H.M.Jr:

Yes.

- And your market is in a little - better perhaps

H.M.Jr:
B:

H.M.Jr:

today -

the

Yes.

- Not much, it took the shade better.
Well, if you hear any of the gossip, give me a ring,
will you?

All right, sir.

H.M.Jr:

Thank you.

All right.

H.M.Jr:

Goodbye.

ITD
May 14, 1935.
Tuesday.

Robinson:Hello, Henry?
H.M.Jr:

Hello, Joe.

Joe talking.

H.M.Jr:

Yes.

I listened to your speech last night; let me congratulate

you.

H.M.Jr:

That's awfully nice of you to call me, Joe.

I wonder - I called you, however, about W. E. Reynolds -

H.M.Jr:

Yes.

How long has he been in the Treasury Department?

H.M.Jr:

I don't know that he is.

What's that?

H.M.Jr:

I never heard of him.

Well, W. E. Reynolds is the man who was accused by Glavis
of having a close contact with Watts of Stewart & Company.

H.M.Jr:

W. E. Reynolds was -

W. E. Reynolds.

H.M.Jr:

- was accused of what?

H.M.Jr:

He was accused by Glavis Glavis.

- of having a close personal contact with Stewart & Company

H.M.Jr:

Having close personal contact It was alleged that through Reynolds Stewart was able to
get modifications in the conference. Now, Reynolds was
mentioned in the report of Admiral Peoples or the letter
of Admiral Peoples which went to Glavis in February '35.

H.M.Jr: I see.
Now, Huey Long is talking about the Glavis letter right
R:

now on the floor.

H.M.Jr:

Yes.

My recollection is that Reynolds has been in the Treasury

TTE

-2Department through many years and many Administrations.
H.M.Jr:
R:

H.M.Jr:
R:

Well, now, where are you talking from?
I'm talking from the Democratic cloak room of the Senate.
Can I call you back in two minutes?
You can, please.

I'll call in two minutes.
I'll be waiting for you.

This

May 14, 1935.

TTF

Tuesday.

H.M.Jr: Hello.
Robinson:Hello, Henry.
H.M. Jr:

Joe, this is what I find out: we investigated every
charge that Glavis made against W. E. Reynolds -

Yes,
thatRecord.
and I put it in the Record yesterday.
That'sI know
all in the

H.M.Jr:

Well, now do you know this that the time that he was
supposed to be entertained by Watts, see -

Yes.

H.M.Jr:

Reynolds wasn't in the city at that time at all.

Yes.

H.M.Jr:

See?

Yes.

H.M.Jr: In other words, every investigation that - every charge
that Glavis made against Reynolds was - I mean, Reynolds
was cleared of. He wasn't entertained by Watts; he
wasn't in the city when they said he was and all that
sort of thing.
Yes, I understand all that.

H.M.Jr:

He was brought into the Treasury by Chip Roberts.

He was?

H.M.Jr:

Yes.

I see.

H.M.Jr:

Yes.

He was brought into the Treasury by Chip Roberts.

H.M.Jr:

Yes.

I thought that he was an old timer.

H.M.Jr:

No, he was brought in by Chip Roberts.

I see. All right, sir, thank you so much.

H.M.Jr:

You're welcome.

89
May 14th

After talking to the President this morning
I told Lochhead to sell 250,000 ounces of silver in London.
Silver jumped from 73.60 in London to 76.31. I felt that
the advance was too sharp and under the London agreement

I am authorized to stabilize the price of silver.

89A
May 15, 1935.
Wednesday.
Buchanan:

Hello, Mr. Secretary.

H.M.Jr:

Hello, Mr. Buchanan.

How're you?

H.M.Jr:

I'm fine.

Well, listen, I've been going over the estimates; expect to start hearings on next Monday among other
things on public buildings -

H.M.Jr:

Oh, yes.

The District of Columbia in that.

H.M.Jr:

Yes.

I understand they've got an enlarged plant for the
Bureau of Printing and Engraving -

H.M.Jr:

Yes.

Which takes about five - something over five million.

H.M.Jr:

That's too much.

Well -

H.M.Jr:

We don't need that much to print the money for Mr. Patman.

H.M.Jr:

And then that - and I understand that leaves about two
hundred and fifty thousand feet of space to leave the
Treasury building and other activities, and I'm wondering if we adopt that enlarged building would you
actually need or insist upon your annex.
Well, I'd much rather have the annex than I would the
Bureau of Engraving.

What?

H.M.Jr:

I need that annex worst of all.

You think your annex is more important?

H.M.Jr:

I need that for Danny Bell, yes.
The only trouble about your annex, it'11 cost about two
million dollars for your - for your ground.
How long are you going to be in your office?

H.M.Jr:

890

My 18.

- 2 - Redna
B:

I'll be in here -

H.M.Jr:

Be there for another fifteen or twenty minutes?

Sure.

H.M.Jr:

Let me get Bell down here and have a talk with him.

All right.

H.M.Jr:

And I'll call you back.

All right.

H.M.Jr:

I appreciate your calling me.

All right, Mr. Secretary.

Six

the Pressury^s

cell

ostinate

backs
the

the

May 15, 1935.

89c

Wednesday.
H.M.Jr:

Mr. Buchanan?

Buchanan:

Yes, sir.

H.M.Jr:

Iafternoon.
find out that McReynolds is out of the building this

H.M.Jr:

Yes.

Would
tomorrow
morning be time enough or do you want
an answer
this afternoon?

No, sir, tomorrow morning is plenty time enough. I
suggest to you to make it tomorrow afternoon.

H.M.Jr:

All right. Well, we'll call you tomorrow afternoon.
As I - as I understand it, you feel that we can't have
both
an annex
annex,
is thattoit?the Bureau of Engraving and a Treasury

That's it, on an enlarged program because it exceeds
the Budget.

H.M.Jr:

H.M.Jr:
B:

I see. In other words - as I get it, you're setting
aside in your mind about five million dollars for buildings in the District, is that it?
No, there were six million dollars Six million.
- of the District, Bureau of Printing and Engraving and
if you increase the Bureau of
annex in the Budget
Printing and Engraving to five million two hundred
thousand.

H.M.Jr:

Well, I didn't know about that. But, you've set aside
six million dollars for public buildings for the Treasury
in the District?

Yes.

H.M.Jr:

Is that right?
Yes, sir.

H.M.Jr:

Now, we've got to come within that.

Yes, sir, that's the estimate, that's the Treasury's estimate
I know. Well, thanks very much. I'll get McReynolds
tomorrow and we'll call you back.
Ask him to call me in the afternoon. He might not get me might not find me tomorrow, I'm a roustabout in the morn-

H.M.Jr:
B:

ing.

-2H.M.Jr:

All right. Thank you.

You're welcome.

move 704 -

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89E
ABSTRACTS OF RADIO SPEECH

May 24, 1935.

J. B. Sarratt, San Francisco, California - "I very much enjoyed
listening to your talk over the radio last Monday night, and would
appreciate receiving a copy of your address".
Charles A-Eron, New York, New York - "I have listened very

attentively to you over the radio. Your simplicity of style and
your frankness certainly carries the note of truth and sincerity
in sharp contrast to the rhetorical blah-blah of some of your critics.
I am particularly struck by your gentle modesty. Next to the President, yours is certainly the most important and vital job in the
country. You are guiding us through the darkest and most crucial

epoch in the history of our country. It is a stupendous task. How

many men are there that could have accomplished what you have? And

yet you take no credit for it. This is true modesty."

Robert B. Johnston. Akron. Ohio. after hearing Mr. Morgenthau's

radio talk on May 13th, writes the President "It is my belief the

average American citizen has little understanding of foreign trade

and exchange and how a settlement is effected when we buy perfume f

from Paris or coffee from Brazil or sell tires to Great Britain.
May I respectfully suggest that in future radio talks involving

international exchange and foreign trade that the fundamentals of
international payments be explained to the public in other than
economic terms? In other words, 'Tell it to the Finnegans and the

Stuyvesants will understand's The result, I believe will be a

clearer understanding by the people and a greater appreciation of
the problems with which your Administration has been confronted
and the progress it has made."

George Felsing, Laurens, Iowa, violently criticises the
Secretary's radio address saying that he is fooling the public.
Mr. Felsing says that if, as the Secretary claims. the President
is the receiver of a country faced w1 th insolvency, there is all
the more reason that the Administration should absolutely control
the banks and turn the present bankers out as unfit custodians of

public funds.

89F

SURVEY OF LETTERS QUEETING ON RADIO SPEECH

Att

May 15, 1935.

About 20 letters on the speech divided nearly half and half
in praise and attack as follows:
PRO
John J. McCann - Coal - Poughlesepsie, New York.
"Congratulations on your speech which was put over very

effectively. It was conservative, constructive and reasurring.

With best wishes and kind regards,"

C. E. Moore, Collector of Internal Revenue, Cleveland.

"Last night I listened to your talk over the radio.

Personally, I was greatly pleased with it because of its

clarity, its direct dealing with the facts and its freedom

of confusing statistics. However - and what is more important - every reaction I have had today from people, all outside this office, who heard you last night or read your address in today's papers, has been good. I know this informtion will be of interest to you. You made a very clear and
convincing talk on a subject that to most people is very con-

fusing."

Mr. N. Ross Oamerota - Cleveland.

"After hearing your eloquent address over the radio last
evening, I could not refrain from writing you to extend my
hearty congratulations for your most sensible, sane, clear and
adopt account of the money situation. I cannot help but tell
you that I think your address was the most constructive and concise that I have heard on the radio since President Reosevelt's
innaguration."
G.Edgar Locks, Brooklyn, New York.

#I thoroughly enjoyed your radio talk tonight and only re-

gret it wasn't longer. It will do a great deal to placate those
people who, in their ignorance, have become unduly alarmed over

the pernicious phrase "unsound dollar". Your dosing statement
with relation to the Administration's maintaining a free hand as
regards stabilization is notice to the world that we will not be
made the goats, and notice to us that we are indeed fortunate in

having a Secretary of the Treasury in Washington who knows 'shat

it's all about

89G

-2Mr. S. M. Jackson Jacobs of New York City.

"I am one of the general public who is trying to understand
this money question. I listened attentively to your radio address
and found it very luoid to the layman mind and think we should hear

more from you."

Herman Bernstein - Sheffield, Mass.

#I wish to congratulate you heartily on your splendid address

last evening. It is a remarkably fine document. You are establishing a most notable and praiseworthy record of constructive and digni-

fied achievement."

Robert W. Dowling. New York City.

"My father and I listened to your radio address last night and
we enjoyed it very much. I want to congratulate you and let you

know how fine we thought it was."
Nathan Straus, New York City.

"Although I know you are very busy, and I know you receive
thousands of letters, I cannot help congratulating you on your radio

broadcast last night. I know too little of international finance to

be able to appreciate in detail the soundness of the policy you are
pursuing. That, however, does not prevent me from admiring the clarity
of your presentation, and it does not prevent - from deriving especial
pleasure from one sentence in your speech. I have cut it out and kept

it for future quotation."

H. D. Munday of Schnectady.

Mr. Monday gives a list of the names of 8 people to whom he would
like copies of the address sent. No comment but he most have thought
it good.

The Professor of Public Speaking at Georgetown University has also
requested a copy. merely saying he was interested in the speech.

Also an anonymous letter in ironic vein saying, #I have listened

to your speech and President Roosevelt's and am convinced that neither
one of you know a thing about running our country. You don't promise
enough things that cannot be carried out. The next time you or the
President make a speech you should promise many wild things such as

'Every Man a King', etc., to make a big hit with the simple minied."

89H

-3LON
Mr. L. William of New York quotes Senator Glass as describing
the Administration's program as, Mishenest, dishomorable, innoral
A Democrat all his life Mr. Williams says he is thoroughly disgusted

and worried. The talk was a let of misrepresentation of facts and left
many important things mand. The blame belongs to Roosevelt but Mr.

Morgenthan and Governor Lehana get their share.

The v. Mednoriff. President of Suna-Finah 011 Corporation of New

York says, "I was disappointed in your talk last evening. It was well

prepared and delightfully given, but leaders of the business world mast
to know what the Administration's plans are on gold value, silver policy,
balancing the budget, etc. Shall business go ahead with new buildings,
machinery and plans for the future? Is it safe to employ more men? A
statement on future policy would help to restore confidence which is the
thing most needed by the Maintstration".
Five postal cards varying from extremely abusive to the type signed

"A disgusted Democrat".
Samples

"In spite of your recent optimism things are still lousy for
the average business man."

"All I'm Dealers should jump in the Potomac or be shot at
sunrise."

"As Secretary of the Treasury I would say you are a good farmer."
"We saved and you spent. Inflation means rain and a Republican

victory in 1936."

#Don't you know your boss said it was a 'libel on the credit of
of the United States for Hoover to say we nearly went off the
gold standard'?

policy

8914

ABSTRACTS OF RADIO SPESCH

May 16, 1935.

Dorothy L. Benson, Chicago, Illinois - "Secretary Morgenthau's
speech was very interesting and he cited so many important statistics

that I would like to have a copy of his talk".

Mr. O. W. Ulrich, Chicago, Illinois - "I listened to your radio
address with a great deal of interest on Monday and would appreciate

your sending me a copy".

Birge Kinne, Des Moines, Iowa (partial, letter being acknowledged

for H.M.Jr's signature) - "Besides getting a real thrill as I always
do when I hear you over the radio, I felt last night when you
finished that I had really heard a thesis on money. It was so good
that I wanted to write you and tell you about it. If every department
in the government could explain its moves in a manner like you did
last night, we would find the country and the business men, in particular,
much more in sympathy with the government".

David S. Muir, Elizabethtown. Indiana, - "I wish to say I enjoyed

your speech very much and would like to have a copy. I was a former
Republican but sure am for the New Deal 100%. I am a farmer and can

say I am enjoying the effects of same. Tell Franklin D. R. I love him

for standing pat on the Bonus".

E. J. Huyge, Chicago, Illinois -"Your radio address of last evening

entered our home, and we desire to thank you for the information so

generously imparted - it is, indeed, refreshing to hear the truth

about the money side of the previous administration, who made no "bones"
about misleading us common people. Again W6 thank you for employing

plain language that caused us to readily understand your very interesting radio address".

Paul Bollinger, Detroit, Michigan - "May I not take this means of

congratulating you on your splendid discussion of the monetary policy

of this Administration, over the radio last night. How any patriotic
American can hold any other view is beyond my comprehension. Never-

theless, I do think that, by failing to keep the facts, such as you

presented, constantly before the public, the Administration has invited
much of the unsound and ridiculous adverse criticism to which the policy
has been subjected.

P.B. Flynn, Wichita Falls, Texas - "I have just read newspaper

account of your radio speech of last evening, and I want to add my
voice to the millions of American citizens who I know are elated over

590

-2your masterful and concise handling of your subject. This should
be a final answer to the rabble of brokers and U. S. C. of C. who
want stabilization ad who claim they want to know where we stand.
I think this speech will go down in history as one of the greatest
utterances that history will record for your department and so truly
I want to congratulate you and our great President in having
appointed such an able Secretary of the Treasury.
E. V. Morgan, Berrien Springs, Michigan - "We appreciate the fact
that we have a Treasurer who is willing to make occasional reports
to the public. Keep up the good work and please send me a copy of
your talk".
A. Walker, Coconut Grove, Florida - "Your most interesting and

important talk over the radio was very much enjoyed last night. I
think every thinking citizen of the U. S. owes you thanks for your
untiring labor, so unselfishly given for the good of our land. May
the time come soon when this fact will be universally recognized.
Norman H. Davis, New York, New York (being acknowledged for

Secretary's signature) - "I want to congratulate you on your speech

outlining our financial policy. I particularly like the simple,

concise and explanatory historical analysis. It should be of considerable educational value and have a good political effect. I have
gotten rather tired of arguing here and abroad with those who ignorantly
assert that there was no reason or necessity for our going off gold and
that we are blocking efforts at stabilization. You have answered
conclusively.

S. Eugene Twining, Atlantic City, New Jersey - "Your incontrovertible statement of facts with regard to the American dollar should
be most gratifying to every unbiased free thinking American citisen.
It was intensely gratifying to me that you should have made psychoanalytical
incursions into the minds of the incumbents of high office during the
past Wall St. controlled mis-administration and turned the searchlight
of scrutiny on the manipulations of the 'snipers' who had sold America
'short', who had shipped our gold into defaulting Nations
Joseph J. Chapper. Pirce Lawn, Missouri -"We heard your talk over
the radio and must say was disappointed. We expected you to explain
the government's monetary system as applied to the running of our own
business. We don't give a whoop for the international phase. What we
want to know is are you going to keep up the practice of borrowing to
carry on the affairs of the government here at home."
Emerson C. Ives, White Plains, New York . quotes the Secretary's
sentence about the removal of gold in 1932 and says "I have no fault
to find with just and fair criticism, but when you make such a statement
you are creating an impression which is not trus. Had you omitted the

89J

-3last sentence (about economic suicide) it would not have been so
bad"
Mr. Ives quotes the President's speeches about the
danger of going off the gold standard and says "Regardless of your
remarks of last evening there are many persons who believe we would
be much farther advanced on the road to recovery had there been
less tinkering with the currency since 1933."
John H. Black, East Cleveland, Ohio, submits several words
which he claims the Secretary mispronounced and says that they
struck harshly on the ears of the inlanders.

Five or six requests for copies of the speech containing no

comments one way or the other.

V. Y. Dallman, Springfield, Illinois - "Permit me to congratulate

you upon the address which you delivered last night. Enclosed please
find an editorial which I wrote, and which appeared in the columns of

the Illinois State Register today. Hoping this meets with your

approval and with kind personal regards."

Dan M. Nee. Kansas City, Mo. - "May I congratulate you upon
your discourse of the administration's monetary system, which you
so ably presented on the radio last evening. It was most comprehensive
and presented in very understandable language, and is a complete
answer to the criticisms of the monetary policies of the President

and yourself. The reaction is quite favorable, and for your

information I am enclosing clippings from today's Kansas City papers.
The Kansas City Times published your address in full, and I was

pleased at the attitude of the Journal-Post in its article concerning
your talk, as it is, and has been, a strong anti-administration paper."

the american Nollar
7/1/155
ABSTRACTS OF LETTERS COMMENTING
ON THE RADIO SPEECH

89K

PFLUEGER, PAUL A. - "It was a splendid address. The policy laid
down regarding stabilization was especially good."
SCHULMAN, MRS. A. W. - "Want to congratulate the Hon. Henry

Morgenthau, Jr. upon his exceedingly clear and informative radio
talk and that he succeding in making the situation of "money" a
bit clearer than ordinary person."
SANDERS, J. T. - "You did very well on your talk over the radio

last evening We should have about $10,000,000,000 put into
circulation by the Frazier-Lemke route. If Roosevelt does not do
this, someone else will."

LEWIS, C. M. - "I listened to your radio address and much of it

was true but some of it unfair. You referred to the low condition
of finance in 1932. Had Pres. Roosevelt met with Mr. Hoover soon
after the election and cooperated there would not have been the
great loss in bank withdrawals and panic. The uncertainty as to

the policies of Roosevelt and his saying "it was not his baby"
caused the panic more than any other one thing.'

A GENTLEMAN WHO SIGNS HIMSELF "BILL" - "Heard your broadoast last

night telling how Europe can now buy our goods in spite of the

Tariff - ohiefly automobiles. Like all political speeches you told
people "something they like to hear" Why didn't you also tell
them that foreign mdse. cost the same as in 1932 in foreign coun-

tries but by the time we pay the Gov't. rate (not the $ rate) on

the duty, pay the Bankers their graft on the Exchange the same mdse.
cost American Suckers 70 to 90% more than it did under the Gold
Standard. You have some Bum mathematicions in Washington for us
Suckers."

(Continued on Next Page)

892

-2Mr. W. T. Kemmer. Chairman of Comparco Trust COMPANY. Kansas City,

Missouri, - "Thinking you might like to know what the Democrats of this
state think of your speech of Monday night, I enclose a letter which was
received this morning from the publicity director of the State Committee.
Am glad to tell you also that the reaction was fine from a very large
majority of the bankers to whom I have talked within the last two days,
and I have had a good opportunity to talk to them since yesterday was the
principal day of the Missouri Bankers Association meeting at Excelsior
Springs, at which meeting I was in attendance." Mr. Harvey, as Publicity
Director of the State Committee, says, "I have spent the morning admiring
the simplicity and force of Secretary Morgenthau's radio speech last night.
It was a classic in vivid and clarified treatment of an unusually profound
subject".

V. Ast of Chicago. Illinois. - "Allow me to express my appreciation
for Mr. Morgenthan's last Monday night radio speech. I am a sincere
admirer of the Secretary of the Treasury and his interesting and frank
discussions are always a source of great delight to me. Unfortunately,
the newspapers of Chicago, without exception, are not very friendly to
the present Administration and any of its capable members, and perhaps

for that reason did not deem it necessary to print the full text of Mr.
Morgenthau's address. Their space is probably too valuable for educational
facts and must be reserved for prejudiced and boisterous editorials. There-

fore, I hereby take the liberty of asking you to kindly send me, if at all
possible, a copy of Mr. Morgenthan's informative speech entitled "The
American Dollar."

James W. Walton of Washington. D. 0. says, "Your broadcast impressed
me with its baloney".

L. B. Wilson of Flushing New York. - "I wish to express my satisfaction
with the friendly, confidence-inspiring talk on the dollar delivered by you
recently over the broadcasting system."
Amos Pinchot sends a multigraphed copy of a telegram addressed to the

Secretary, probably mailed out in quantity. (n.b. We did not see the original
message from Mr. Pinchot.) "I must confess that your radio speech of
Monday, May 13th, called the American Dollar seems to be a somewhat alarm

ing document. * Indeed, your speech, it seems to me, might well have
been written after advising only with international bankers having little
interest in American producers and being concerned mainly with problems of

foreign exchange. In your speech you felicitate the country on the

gains made under your 1934 monetary policy, which in reality reversed
Roosevelt's 1983 policy and checked the recovery. It seems to me that with
over twenty million paupers supported by public charity, with business in

irons, with literally millions of farms and homes taken from their owners by
deflation, and with our huge unemployment practically stationary in spite of
vast government expenditures and mounting debt, your feliciation should, to
say the least, not be too emphatic".

59m

-3H. L. Hatch of Detroit sends a critical editorial from the Detroit
Free Press. He had previously written the Secretary complaining of the
difficulties facing elderly persons with small incomes.
George B. Could of Colorado Springs. Colorado. - "I enjoyed 'listening
in'
and
by doing so obtained a much more intelligent understanding of the
money situation.

John K. Henry of Bereva. Pa. - "I will greatly appreciate receiving a
copy of your radio address. It was excellent. The Administration is doing

a great work, and God Bless and protect our great President."

C. E. Pattison. Shaw High School. East Cleveland. Ohio. - "May I say
how I was pleased and interested in the address which you delivered over
the radio net works May 13. I found the information which you gave of so
much value that I should like to have it available in permanent form."
S. A. Baldus. Managing Editor of Extension Magazine asks for the
address "on the stabilization of world currencies", and wishes to be put

on the list for press releases.

Walter O. Dilks. a Philadelphia Insurance Agent & Broker. - "Your
talk was very interesting but it seemed to be highly problematical.
People carrying large foreign deposits are alarmed but probably from the
much talked of subject 'inflation'. That assurance do the people of this
country have to protect themselves? Much could be accomplished by establishing in the minds of our of tisens some assurance as to the future and sta-

bility of the country's currency."

Halph A. Wilhoit of Los Angeles. - "Radio address was not released

here. The newspapers carried only portions of it. We have a truly great
President, and I am getting delightful entertainment and a liberal education from following the weaving of the web of economic recovery."

J. Russell Carney of the Federal Deposit Insurance Corporation. -"Your speech Monday night has brought a great deal of favorable comment

to me and I congratulate you on the excellent way you put this difficult
subject across. It was pleasant to listen to your voice and it came over

my radio very nicely indeed."

A. E. Vandercook of Tandercook Co. - Gold. - "First, let me congratulate
you upon your radio address. I was particularly interested in view of the
fact that I am a gold producer and making distant commitments. Mr. V. goes
on to ask about the outlook on deflation and on technical questions about
gold.

ran

-4Clarence P. Taylor of New York City telegrams Senator Wagner who

forwards it on to us. - "Today I feel that many citisens who have been
filled with doubt and fear which I honestly confess has obscessed me regarding the New Deal see a new light in Secretary Morgenthau's address of

last night stop The authority and power of this nation given voice to in
his words has startled Wall Street and at times the silence of the tickers gave
mute acknowledgment of the supremacy of the power of the United States. stop
I am sending my congratulations to Mr. Morgenthan through you to whom I feel
near enough to impose this pleasant duty."
Anonymous. "Your radio talk was intended, no doubt, to reassure Americans.

My circle and I are very much worried over the safety of life insurance and
life savings. The New Deal has no confidence from American patriots. This

graft - political relief - is not fooling any one only yourselves." Sends
clipping about Mills estate.

J. R. Edwards. Investment Securities. Cincinnati. - #I heard your radio
address the other night with respect to the monetary situation. Outside of

the statement that our dollar is safe, you did not explain the fact that it

does not fluctuate in buying power and that it has not been devalued."

Mr. Evart G. Cowper. Newfane, New York. "I liked your radio address
this week very well and it cleared up a number of points in my Republican
mind."

C. W. Kennedy, Editor of "The Sentinel". "Coming at a time when there

exists so many conflicting opinions on policies affecting national welfare,
your radio discourse last Monday night revealed a picture that should leave
no doubt in the minds of thinking citizens as to what chartered course we
should take. I cannot permit the passing of this opportunity to express to
you my sincere admiration of your stand and the clarity with which you so
ably presented it."
Mr. Peter Chituras of New York City. "The brilliant generalities of

your recent statements over the radio have served to remind us of something
which touches us deeply as taxpayers. I am referring to the unbalanced

budget."

Walter Burch of St. Louis. Missouri. "Your redio address upon the
Administration's Monetary Policy, on the evening of May 13th, was the
clearest and most convincing discussion of the subject to which I have
at-

listened. It should be widely distributed."

"The

present

tacks on our President have their origin in those who seek to gain control
of the Government for selfish purposes. I have feared that the Coughlins
and Longs might divide the liberal element and make possible the victory of
the Old Guard. So, I hope the President will continue to fight in the open
for public welfare". Mr. B. gives a long and detailed analysis of Ogden
Mills' reply to the Secretary, and quotes some pertiment paragraphs from other
speeches of Mr. Mills, as well as pre-election speeches of Mr. Hoover -

all very interesting material. He tells us, "I am not a radical, perhaps

not as radical as the Mministration has been, but I feel that we must
follow our President or lose the benefits we have gained."

$90
-5Milton A. Miller. Collector of Customer Portland, Oregon. #I am
pleased to write you that your late speech on the money question was very
favorably commented upon and I believe mets with general approval of all

classes of our people. I am especially pleased with your position on this
very important question. I extend congratulations and am ready and willing
to render any assistance that I can in helping you to carry out your
splendid program."

A gentlemen who signes himself #A Demycrate says he mistook the

Secretary for Ed Wymn.

Miss Sara B. Hill of New York City asks if anyone has thought that it
might be well to use some of the four billion eight hundred million to pay

Government debts. She believes that the taxpayers would be relieved by
this type of investment, and the Government would not be thought unfair and

dishonest in its financial dealings. "Your talk over the radio was

purposely misleading and will influence only the unthinking voters. It is
regrettable that there are so many."

MEMORANDUM ON EDITORIAL REACTION TO SEC. MORGENTHAU'S RADIO ADDRESS MAY 13

Total number of editorials: 106
Favorable: 53

Unfavorable: 27

General Discussions: 26
General Discussions

Favorable

Unfavorable

Memphis Commercial Appeal (Dem) 5/15

Youngstown Vindicator (IndDem) 5/15
Grand Rapids Press (Ind) 5/15
Racine
Journal-Times (Rep) 5/16
Portland Oregonian (IndRep) 5/15
Beaumont Enterprise (Dem) 5/15
Bangor News (Ind) 5/16
Wichita Eagle (Ind) 5/15
Butte Standard (Ind) 5/15
Colorado Springs Gasette (IndRep) 5/15 Altoona Tribune (IndRep) 5/15
Saginaw News (Ind) 5/15
South Bend Tribune (Rep) 5/15
Wilmington
Journal (Ind) 5/16
Des Moines Register (Ind) 5/16
Washington Post (Ind) 5/17
Butte Post (IndRep) 5/14
Detroit Free Press (IndRep) 5/15
St. Louis Globe-Democrat (Ind) 5/16
Louisville Herald-Post (Ind) 5/16
Denver Post (Ind) 5/14
Waterbury Republican (IndRep) 5/15
Lynchburg News (Dem) 5/16
New Haven Journal-Courier (Ind) 5/15
Columbus Dispatch (Ind) 5/15
St. Paul News (Ind) 5/14
Concord Monitor (Ind) 5/14

Sioux City Tribune (Ind) 5/15
Ft. Smith American (Dem) 5/15

Esmilton Journal (Ind) 5/15
Buffalo News (Rep) 5/15
Rochester Dem. & Chron. (Rep) 5/16
Cedar Rapids Gasette (Ind) 5/15
Davenport Times (IndRep) 5/16

Detroit News (Ind) 5/15

Boise Statesman (Rep) 5/15

Salt Lake City Tribune (Ind) 5/15

Wheeling Register (Dem) 5/15
Houston Chronicle (IndDem) 5/14
Miami Herald (IndDem) 5/15
Birmingham News (Dem) 5/15
Houston Post (IndDem) 5/15

Minneapolis Tribune (Ind) 5/15
Norfolk Va.-Pilot (IndDem 5/15

Richmond Times-Dispatch (IndDem) 5/15 Chattanooga Times (IndDem) 5/15
Springfield, Mass., Republican (Ind) 5/14
Canton Repository (IndRep) 5/15

Springfield, Mass., Union (Rep) 5/15
N. Y. Herald Tribune (IndRep) 5/16

Rockford, Ill., Star (Rep) 5/15

Cleveland Plain Dealer (IndDem) 5/15
N. Y. Journal of Commerce (Ind) 5/15
Hartford Courant (Rep) 5/15
Brooklyn Eagle (Ind) 5/15
Indianapolis Star (IndRep) 5/15
Kansas City Jour.-Post (Ind) 5/14
New Haven Register (Ind) 5/14
Shreveport Times (Dem) 5/15
Boston Transcript (IndRep) 5/14
Tulsa World (Dem) 5/15
Washington
Post (Ind) 5/15
St. Louis Post-Dispatch (IndDem) 5/15
N. Y. Herald Tribune (IndRep) 5/15
N. Y. Wall St. Journal (Ind) 5/17
Richmond News Leader (Dem) 5/14
Lincoln Journal (IndDem) 5/14

Galveston News (IndDem) 5/15
Du-ham Herald (Ind) 5/15

Kansas City, Mo., Star (Ind) 5/14

Manchester Union (Ind) 5/15
Newark News (Ind) 5/15

Holyoke Transcript (Ind) 5/14
Springfield, Mass., News (Dem) 5/14
Chicago Tribune (Ind) 5/15

New York Times (IndDem) 5/15
Baltimore Sun (IndDem) 5/15
Baltimore Evening Sun (IndDem) 5/14
Dallas News (Dem) 5/10

Detroit Free Press (IndRep) 5/11

May 22, 1935

Prepared

Division of Press Intelligence
MEMORANDUM ON EDITORIAL REACTION TO SEC. MORGENTHAU'S RADIO ADDRESS MAY 13

Total number of editorials: 106
Favorable: 53

Unfavorable: 27

General Discussions: 26
General Discussions

Favorable

Unfavorable

Memphis Commercial Appeal (Dem) 5/15

Youngstown Vindicator (IndDem) 5/15
Grand Rapids Press (Ind) 5/15
Racine Journal-Times (Rep) 5/16
Portland Oregonian (IndRep) 5/15
Beaumont Enterprise (Dem) 5/15
Bangor News (Ind) 5/16
Wichita Eagle (Ind) 5/15
Butte Standard (Ind) 5/15
Colorado Springs Gasette (IndRep) 5/15 Altoona Tribune (IndRep) 5/15
Saginaw News (Ind) 5/15
South Bend Tribune (Rep) 5/15
Wilmington Journal (Ind) 5/16
Des Moines Register (Ind) 5/16
Washington Post (Ind) 5/17
Butte Post (IndRep) 5/14
Detroit Free Press (IndRep) 5/15
St. Louis Globe-Democrat (Ind) 5/16
Louisville Herald-Post (Ind) 5/16
Denver Post (Ind) 5/14
Waterbury Republican (IndRep) 5/15
Lynchburg News (Dem) 5/16
New Haven Journal-Courier (Ind) 5/15
Columbus Dispatch (Ind) 5/15
St. Paul News (Ind) 5/14
Concord Monitor (Ind) 5/14

Sioux City Tribune (Ind) 5/15

Ft. Smith American (Dem) 5/15

Hamilton Journal (Ind) 5/15
Buffalo News (Rep) 5/15
Rochester Dem. & Chron. (Rep) 5/16
Cedar Rapids Gasette (Ind) 5/15
Davenport Times (IndRep) 5/16

Detroit News (Ind) 5/15

Boise Statesman (Rep) 5/15

Salt Lake City Tribune (Ind) 5/15
Wheeling Register (Dem) 5/15
Houston Chronicle (IndDem) 5/14
Miami Herald (IndDem) 5/15
Birmingham News (Dem) 5/15
Houston Post (IndDem) 5/15

Minneapolis Tribune (Ind) 5/15
Norfolk Va.-Pilot (IndDem) 5/15
Calveston News (IndDem) 5/15
Durham Herald (Ind) 5/15

Brooklyn Eagle (Ind) 5/15
Kansas City Jour.-Post (Ind) 5/14
Shreveport Times (Dem) 5/15
Tulsa World (Dem) 5/15

St. Louis Post-Dispatch (IndDem) 5/15

N. Y. Wall St. Journal (Ind) 5/17
Lincoln Journal (IndDem) 5/14

Richmond Times-Dispatch (IndDem) 5/15 Chattanooga Times (IndDem) 5/15
Springfield, Mass., Republican (Ind) 5/14
Canton Repository (IndRep) 5/15

Springfield, Mass., Union (Rep) 5/15
N. Y. Herald Tribune (IndRep) 5/16

Rockford, Ill., Star (Rep) 5/15

Cleveland Plain Dealer (IndDem) 5/15
N. Y. Journal of Commerce (Ind) 5/15
Hartford Courant (Rep) 5/15
Indianapolis Star (IndRep) 5/15
New Haven Register (Ind) 5/14
Boston Transcript (IndRep) 5/14
Washington Post (Ind) 5/15
N. Y. Herald Tribune (IndRep) 5/15
Richmond News Leader (Dem) 5/14

Kansas City, Mo., Star (Ind) 5/14

Manchester Union (Ind) 5/15
Newark News (Ind) 5/15

Holyoke Transcript (Ind) 5/14
Springfield, Mass., News (Dem) 5/14
Chicago Tribune (Ind) 5/15

New York Times (IndDem) 5/15
Baltimore Sun (IndDem) 5/15
Baltimore Evening Sun (IndDam) 5/14
Dallas News (Dem) 5/10

Detroit Free Press (IndRep) 5/11

MEMORANDUM ON EDITORIAL REACTION TO SEC. MORGENTHAU'S RADIO ADDRESS MAY 13 (Cont'd)

Favorable (Cont'd)

St. Paul Pioneer Press (Ind) 5/15
Greenville, S. C., News (IndDem) 5/15
Philadelphia Public Ledger (Ind) 5/15
Worcester Telegram (Rep) 5/15

Louisville Courier-Journal (Ind) 5/15
Providence News-Tribune (Dem) 5/15

Lowell Cour ier-Citizen (Ind) 5/15

Brooklyn Times Union (IndRep) 5/15
Milwaukee Journal (Ind) 5/15

New York Wall Street Journal (Ind) 5/16
Cincinnati Enquirer (IndDem) 5/15
Birmingham Age-Herald (Dem) 5/15
Hartford Times (IndDem) 5/14

Brooklyn Citizen (Dem) 5/14
Broekton Enterprise & Times (Ind) 5/15
Dayton News (IndDem) 5/14

Boston Herald (Rep) 5/15
Boston Globe (Ind) 5/15
Scranton Times (Dem) 5/14
Syracuse Post-Standard (Rep) 5/15
Boston Christian Science Monitor 5/15
Providence Journal (Ind) 5/15
St. Louis Globe-Democrat (Ind) 5/15
Portland, Me., Press-Herald (Rep) 5/15
Boston Christian Science Monitor 5/14

New York Wall Street Journal (Ind) 5/15

EXCOPPED

Favorable

Morgenthan's report on the status of the dollar is refreshing. That it showed a healthy trend was reflected
in the response from business interests throughout the country. It is to be hoped that we are, after all, on the

right road" -Memphis Commercial Appeal (Dem) 5/15

Mr. Morgenthau is nothing if not forthright. He speaks so plainly that he leaves nothing in doubt At last

we have a currency system that operates for the benefit of the people, not international speculators and gold
bankers

-Siour City Tribune (Ind) 5/15

"See. Morgenthan made an able defense of the Administration monetary policy, and at the same time indicated that

the United States is willing to join in world money stabilization when other commercial nations are ready

Galveston News (IndDem) 5/15

"Reception abroad of Sec. Morgenthan's demarche on 'stabilisation' appears to be decidedly mixed fact that we
have committed ourselves at least to a willingness to discuss the matter is admittedly something gained it
seems that the main hope for action rests in ourselves making the move. That would be an earnest of our desire

for results and would perhaps partly offset the impression that we were merely a 'free lance' satisfied togo

either way, without any kind of responsibility to anyone or anything but our own temporary advantage"
New York Wall St. Journal (Ind) 5/16
and

there is a wholesome change of emphasis from the hints thrown out by the President and the Treasury a year
more ago. The emphasis then was on depreciation of the dollar Now, the emphasis has been placed on

stability Cincinnati Enquirer (IndDem) 5/15

"Mr. Morgenthan's speech is like a beacon in the inky darkness of international economic relations
Christian Science Monitor 5/14

just a little, American monetary policy is the clearer for the Treasury head's statement
Wall St. Journal (Ind) 5/15

Boston

New

York

Typical excerpts (Cont'd)
Unfavorable

The net effect of Secretary Morgenthan's speech is to leave uncertainty und isturbed. What he left unsaid
remains more important than what he said" Grand Rapids Press (Ind) 5/15

What is needed is leadership, not a negative attitude in which the first move is left to somebody else".

Richmond Times-Dispatch (IndDem) 5/15

while he declared the Washington government would not stand in the way of stabilisation he also made it

clear that it would not take the initiative in such a move. Such a position.. is unfortunate this country
cannot shirk its share of responsibility for economic rehabilitation. Holding as we do close to 40 per cent
of the world's gold. there is little either in Sec. Morgenthan's latest address or in the monetary policy

which he defends to suggest that we are cognisant of the responsibilities and obligations that our creditor
position imposes upon us "---Cleveland Plain Dealer (IndDem) 5/15

"An uninviting invitation. if other countries are fearful that the United States plans further reduction of
the gold content of the dollar. Morgenthau's address is reassur ing. On the other hand, it is now evident
that little sympathy can be expected in Washington for any new attempt to lower trade barriers and revive the
international movement of capital, as a prerequisite for lasting monetary stabilisation. We want a general
return to the gold standard now, but we are not interested in correcting the causes which precipitated

wholesale abandonment of that standard in 1931"- New York Journal of Commerce (Ind) 5/15

The fast of failure can be read between the lines of the radio address The effort to gloss over this
fact for political effect will deceive nobody who has followed the record with any care"---Washington Post
(Ind) 5/15
General Discussions

...There seems to be an utter lack of unanimity on the nation's policy in money matters now, just as there has
been ever since we went off the gold standard"-Altoons Tribune (IndRep) 5/15
That the British government will follow Mr. Morgenthau's lead immediately no one anticipates, probably.

if Great Britain is not yet interested as a great world trader. then which nation presents the 'obstacle'
to a movement universally admitted to be essential to full world recovery? All this may fairly be said; yet,
having expressed itself as unopposed to stabilization, the Roosevelt administration is in duty bound to neglect
no favorable opportunity to promote the end in view"-Springfield, Mass., Republican (Ind) 5/14

he did something to clarify the situation in what he failed to say about the 'commodity dollar

it is a fair inference that this unsettling policy has been abandoned on the important subject of silver
purchases by the government the secretary throws no light at all...' Kansas City, Mo., Star (Ind) 5/14
Morgenthau's words will go up as a trial baloon. The President can not yet afford to go unguardedly into
an international monetary conference"---Dallar News (Dem) 5/10

89T

List of those invited to hear broadcast:

Relay
Viner

2 Secretary and Mrs. Morgenthau

2 Mr. and Mrs. Klots
2 Mose 1

2 Mr. and Mrs. McReynolds
3 Mr. Gaston and family

2 Mr. Crowell and Mrs. Pierce
2 Dr. and Mrs. Haas
1 Mr. Oliphant

21 Rockhead

1 Mr. Upham
1 Miss Chauncey

Total 18

Newspaper men

2 Mr. and Mrs. Kinter (N.Y. Herald Tribune)
2 Mr. and Mrs. Gridley (United Press)
1 Mr. Shaeffer (Associated Press)
2 Mr. and Mrs. Bean (N. Y. Times)
1 Mr. Huff (Wall Street Journal)

1 Mr. Henderson (Central News)
1 Mr. Thornburgh (International News Service)

Total 11

1 Mr. Bakins (United Press)

Grand total 29

frace /
one

894
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Monday, May 13. 1935.
5-11-35.

Press Service
No. 4-92

Secretary of the Treasury Morgenthau announced today that subscriptions
aggregating $678,000,000 had been received up to the close of business

Saturday for the 2-7/8 percent Treasury Bonds of 1955-60, offered only in
exchange for First Liberty Loan bonds of any series. With $863,000,000 of
the First Liberty Loan bonds exchanged for Treasury Notes of Series A-1940,

the total of Firsts exchanged to date is approximately $ 1,541,000,000, or
about 80 percent of the outstanding First Liberty Loan.
The subscription books for the Treasury bonds, which have been issued

at 100-1/2 since last Wednesday, will remain open until further notice.

89V
TREASURY DEPARTMENT

Washington
FOR RELEASE, MORNING NEWSPAPERS,

Wednesday, May 15, 1935.

Press Service
No. 4-95

5-14-35.

Secretary of the Treasury Morgenthau announced today (May 14) that the

subscription books for the current offering of 2-7/8 percent Treasury Bonds
of 1955-60, in exchange for First Liberty Loan bonds called for redemption
on June 15, 1935, will close at the close of business Thursday, May 23, 1935.
Subscriptions placed in the mail before 12 o'clock, midnight, Thursday,
May 23, will be considered as having been entered before the close of the
subscription books.

As announced yesterday, about 80 percent of the outstanding First
Liberty Loan bonds have already been exchanged. The subscription books

are being kept open for the additional period in order that all holders
of the called bonds, and particularly the small holders, may have ample
opportunity to take advantage of the exchange offering.

90
May 15th

looking

Key Pittman came in to see Mr. Morgenthau this morning

and H.M.Jr. said, "After you fellows gave me the vote of confidence the price of silver dropped and we picked up 10 million
ounces at less than 72+. While that thing was going up I could
not buy any silver. This is a purely artificial market again
to-day. If a person sold a lot of silver to-day it would drop
the market 5c. Up around 78$ it is not a sound market. I would
like to go along for a day or two and then maybe the silver
Senators could get together again and have a little talk".
Key Pittman said that you can never tell what Wheeler,
McCarran and Thomas will do. Thomas has no interest in silver
except from an inflation standpoint. He said that Thomas gets
a bright idea and just shoots his mouth off. He also said that
he will never let the Thomas amendment pass.

H.M.Jr. told Senator Pittman that we bought silver
direct from Saigon, Indo-China - old French coins. He sent a
cable to our Consul there. It takes 51 days to bring it over
and we will bring it on an American boat. It costs less to
bring this silver from Indo-China to San Francisco than from
London to America.

H.M.Jr. phoned Eccles to-day as follows:
H.M.Jr: Did you get good cooperation from the Open Market
Committee?

Eccles: I would say yes.
H.M.Jr: It is not explained, but from the day I came in
to date the Open Market have not increased their
holdings. If I had to depend on the Open Market
Committee to pull us out of this hole we would not
be where we are to-day. As our Fiscal Agents
George Harrison, who is Chairman, and Dr. Burgess
when it comes to carrying out our orders, while
they have not believed in what I have done, they
have carried out my orders.

H.M.Jr: If it had not been for the various Trust Funds

which I had at my disposal we never would have
gotten where we did. I have spent as much as 43

million in one day to keep the market where it is.

The Open Market Committee have done nothing in the
interest of the government.

91
H.M.Jr:

From my standpoint, I am looking to the ultimate
goal that the government should own the stock of
the Open Market Committee. I do not want the
Treasury to have anything to do with it. We have
more than we can do. As far as I am concerned,
I do not know that the Federal Reserve exists.
Would the Open Market Committee buy a long-term
bond from us? They would not.

H.M.Jr:

It is just too bad that the Federal Reserve can't
be free from politics just like the Supreme Court.
I want it just as free from private business influence, banking, etc., as well as political.
It so happens that the Open Market Committee has
not functioned since I have been here.

May 15, 1935.

91A 8

Wednesday.

H.M.Jr:

Hello.

Glass:

H.M.Jr:

Mr. Secretary?
Hello.

All right, Mr. Secretary.

H.M.Jr:

How are you?

Mr. Secretary -

H.M.Jr:
G:

H.M.Jr:

Yes, sir.
Would you be - would it be convenient for you to come

up before our sub-committee on Banking and Currencies
sometime tomorrow for a few minutes.

Senator, it's always convenient; it doesn't give me
very much time unless you would tell me what you had
in your mind, I mean, I'd have to do a little studying.

Well, I just wanted to ask you whether you've had any
trouble with the open market committee and the Federal
Reserve Banking System.

H.M.Jr:

Would - would Friday be just as good?

Yes.

H.M.Jr:

If you say Thursday, though, I'll come Thursday.

What?

H.M.Jr:

Would Friday be just as good?

Yes, or Thursday either.

H.M.Jr:

Well, Friday would give me a little bit more time.

All right.

H.M.Jr:

What time Friday would you like me?

Well, I don't expect to detain you more than ten minutes.

H.M.Jr:

All right.

H.M.Jr;
G:

Unless you want to testify in detail.
I'd rather not.
I assumed that. (Laughing )

-2H.M.Jr:

Yes.

H.M.Jr:

Very well, Friday morning at half past ten.
Friday morning at ten-thirty.

Yes.

H.M.Jr:

I'll be there and I'm not going to bring any - any

prepared statement.

What?

H.M.Jr;

I - I'll just come with an answer -

H.M.Jr:

oh, yes, I just want to ask you one or two questions.
Ten-thirty on Friday and it'11 be mostly on the open

market.

Yes, yes.

H.M.Jr:

I see.

H.M.Jr:

I just want to ask you one or two questions.
Well, I'm always at your service, Senator.

All right.

H.M.Jr:

Thank you.

91B

may

BANKING ACT OF 1935
HEARINGS
BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON BANKING AND CURRENCY

UNITED STATES SENATE
SEVENTY-FOURTH CONGRESS
FIRST SESSION
ON

S. 1715 and H. R. 7617
BILLS TO PROVIDE FOR THE SOUND, EFFECTIVE, AND
UNINTERRUPTED OPERATION OF THE BANKING
SYSTEM, AND FOR OTHER PURPOSES

[CONSOLIDATED]
APRIL 19 TO JUNE 3, 1935

Printed for the use of the Committee on Banking and Currency

UNITED STATES

GOVERNMENT PRINTING OFFICE
129688

WASHINGTON : 1985

BANKING ACT OF 1935
FRIDAY, MAY 17, 1935
UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY,

Washington, D.C.
The subcommittee met, pursuant to adjournment on yesterday, at
10:30 a. m., in room 301, Senate Office Building, Senator Carter Glass

presiding.

Present: Senators Glass (chairman of the subcommittee), Bulkley,
McAdoo, Byrnes, Townsend, and Couzens.
Senator GLASS. The committee will come to order. Mr. Secretary
will you be good enough to take the stand, please?
STATEMENT OF HENRY MORGENTHAU, JR.. SECRETARY OF THE
TREASURY, WASHINGTON, D. C.

Senator GLASS. Mr. Secretary, I did not imagine that you cared

to make any detailed statement about these bank bills. I merely
wanted to ask you one or two questions. The first one is, whether or
not, as Secretary of the Treasury, you have had the cooperation of the
existing Open Market Committee, provided by the statute, to conduct
open-market operations?
Secretary MORGENTHAU. Senator Glass, I have been in the Treasury, now, about a year and a half, and it so happened that it was the

week that I came into the Treasury that was the last week of the
Open Market Committee purchases of securities, and from that day
to this they have not increased their holdings. I have gotten along
extremely well with the Open Market Committee. There have been

no differences. I have no complaints to make as to their attitude
toward me, and I do not think they have any complaints to make of
my attitude toward them. But as to their effectiveness, during the
past year and a half I must say that they have played a very unimportant role, during the year and a half that I have been in office.
They stopped their purchases the week I came in; and with the exception of turning over their securities as they came due and reinvesting,
they have played a very minor part in Government securities.
Senator GLASS. They have not put any of your securities out on
the market, have they?
Secretary MORGENTHAU. I think their investments are about two
and a half billion dollars, and they have kept them constant.

Senator
Treasury?

GLASS. Do you not regard that as cooperation with the
503

504

BANKING ACT OF 1935

Secretary MORGENTHAU. I have no complaint to make. They
have kept them constant. At times I thought that they might have
shown a little more courage and bought long-term securities. They
did not think so, and they have kept the bulk of their money in shortterm securities. But that is their judgment against mine, and I do
not say that they are wrong or that I am right.
Senator GLASS. That is simply the difference between long term
and short term Treasury securities, is it not?
Secretary MORGENTHAU. That is right. During the period up to
very, very recently they have constantly, as their securities came due,
invested the proceeds in short term securities.
Senator GLASS. Is not that good business?
Secretary MORGENTHAU. It has not proven to be in this last year

and a half, because the investors investing in long-term securities

have made money out of them.
Senator GLASS. At a little higher rate of interest?
Secretary MORGENTHAU. A bigger return on their money, much
bigger.

505

all be centered in one place. I believe that they should all be centered with a Government authority; and, looking toward the future,
I think that the engineer and the fireman should be working together

and that there should not be a possibility, if a crisis should arise,
that one might want to go full steam ahead and the other might not
want to put the coal under the boiler.
Senator BULKLEY. It might be better not to have any independent
judgment on the part of the Open Market Committee, you think?
Secretary MORGENTHAU. No: I would not say that, sir. But these
various methods are for controlling the credit for the whole Nation,
and I think that that function should be lodged with a Government
agency. By that I do not mean the Treasury.
Senator GLASS. But that does not answer my question, Mr. Secretary

Secretary MORGENTHAU. I did not mean to avoid it. I was trying
to explain how I felt.

Senator GLASS. I wanted to know if you have any substantive

Committee?

reason to suppose that an open market committee, for example, composed of the present membership of the Federal Reserve Board, would
operate more efficiently or more satisfactorily than the existing open

Secretary MORGENTHAU. The relationship is such that we can get
on perfectly well, because there is nothing really to have a row about.

I were trying to avoid; but what I am trying to if I do not

Senator GLASS. Have you any substantive reason to anticipate that

you cannot get on in agreement with the existing Open Market

They use what they think is their best judgment in investing their
money, and as custodian for the various trust funds I use my best
judgment. I think that the record would show that in the last year
and a half I have done better for my clients than they have for theirs;
but I invested largely in long-term securities and they have invested
largely in short-term securities, and as a result of that my trust funds
have done better than theirs.
Senator GLASS. You have the taxing power behind your operations,
have you not?
Secretary MORGENTHAU. Ido not quite understand what you mean,

Senator.

Senator GLASS. I mean, the Treasury can appeal to Congress to
issue securities and tax the people of the country to redeem them when

they mature. Is not that a fact?
Secretary MORGENTHAU. I still do not quite understand, sir.

Senator GLASS. The Open Market Committee has no such authority as that, has it?

Secretary MORGENTHAU. No. Their only authority, as I understand it, is to buy and sell Government securities for the Federal
Reserve System.

Senator GLASS. They are not confined to Government securities

altogether, are they?
Secretary MORGENTHAU. I don't think so.

Senator GLASS. I want to ask you this specific question. Have
you any substantive reason to suppose that an open market committee
composed of the present membership of the Federal Reserve Board

would operate more efficiently than the Open Market Committee

market committee.

Secretary MORGENTHAU. Well, again, it may sound as though

answer your question, you may ask me again-is that we have three
functions for credit control, and I believe that those three functions
should be located in the same place.

Senator GLASS. I understand your belief as to that. But still that
does not answer my question.
Secretary MORGENTHAU. Well, I would hope that they would oper-

ate as well or as successfully if they were located with the Federal
Reserve Board. But time would answer that I could not.
Senator BULKLEY. Suppose we should abandon the theory of an
open market committee exercising independent judgment and put the
investment policy of the Federal Reserve banks under your discretion
Secretary of the Treasury; would you place more long-term Government securities with the banks?
Secretary MORGENTHAU. I will have to answer that question in two
as

sections. In the first place, I would not want that authority. Idonot
think I should have If I did have it I would follow the same policy
that have followed during the past year for the various trust and other
funds that we have, representing over a billion dollars. With regard
to these various funds, during the past year as the money comes due
have invested it in long-term Governments, and it so happened that
we have been able in every case to increase the value of the portfolio
through that policy. That is a matter of record; and we have followed
a uniform policy for all of our trust funds, to put them into longterm Governments.

Senator BULKLEY. In answer to my suppositious question, you say

that you would not want that power as Secretary of the Treasury
However, you would like to see that power concentrated somewhere,

which is now established by statute?

would you?

Secretary MORGENTHAU It would take me a minute or two to
answer that, if you do not mind. I have a definite philosophy and
thought back of it. The various controls of credit I believe should

independent Government agency.
Senator BULKLEY. Independent of what?

Secretary MORGENTHAU. I would like to see it concentrated in an

BANKING ACT OF 1935

506

Secretary MORGENTHAU. Of all outside influences-just as independent as you can makei
Senator BULKLEY. Independent of the President, too?

Secretary MORGENTHAU. Only that he should have the appointive
power, the way he has with regard to the Supreme Court.

Senator BULKLEY. You mean, appoint somebody that he had no
more power to remove or influence than he has with regard to the
Supreme Court?
Secretary MORGENTHAU. Right.

Senator GLASS. That would mean that no member of that board

could be removed except by impeachment?
Secretary MORGENTHAU. Yes.

Senator GLASS. Mr. Secretary, I do not want to embarrass you
pressing my particular question. I can realize why you might
not want to answer it more definitely than you have; but you have
answered it sufficiently to enable me to conjecture what your real
by

judgment of it is.
Senator COUZENS. Have you any statement to make in connection
with the bill, Mr. Secretary?
Secretary MORGENTHAU. No, Senator.
Senator COUZENS. Have you read the bill?
Secretary MORGENTHAU. I have read the summary which I have
here, and I have studied it.
Senator GLASS. But you had not read that summary until recently,
had you?

Secretary MORGENTHAU. The summary was not written until
recently.

Senator COUZENS. I would like to have the Secretary's opinion, It
seems to me that the question of membership on the board and the
whole operation of the Federal Reserve System is closely allied to the
Treasury under this proposed bill. It does not seem to me that up
to date we have got any expression from him as to his views about
the bill and whether he believes in it or not, and I would like to be
informed, because it seems to me that his position justifies some influence with this committee.

But I understand you to say that you have nothing to say with
respect to this pending bill?
Secretary MORGENTHAU. We have discussed this bill for months in
the Treasury, and we have had meetings with the various agencies
who lend money, that is, the heads of the various agencies, and we
have gone over the controversial points and spent hours on it, and I

think I may say that I understand the fundamental philosophy, the
important points. I am frank to say that when you get into title III
and title I, containing a lot of technical banking questions, as you

know, I am not 8 banker I am not trained as one; but we have experts

on that in the Treasury and we leave those questions to them. I
have personally spent hours and hours discussing this bill and the
important points in the bill I am in favor of But the experts in the
Treasury have spent literally hours on this bill.
Senator TOWNSEND. Are you in favor of title II AS it is now written

in the bill?
Secretary MORGENTHAU. I am in favor of the principles of title II.

507

Senator GLASS. Do you think the Government, without one dollar
of proprietary interest in the Federal Reserve banking system, should
be authorized, without restraint, to loan the money of the System in
open-market operations?
Secretary MORGENTHAU. Senator, happen to belong to that school

that thinks that the Government should own the stock of the Federal
Reserve System; and then it would have that right.
Senator GLASS. You belong to the school that believes the Government should own the stock?
Secretary MORGENTHAU. Yes.

exercise of banking skill- the Government which has no pecuniary risk at stake should be permitted to spend other people's money
without any restriction?

Secretary MORGENTHAU. Well, Senator, I am very timid about
putting myself up against your opinion, because you have lived with
this thing

Senator GLASS. I am asking you your opinion.

Secretary MORGENTHAU. I think that the Government has got
everything at stake in this. This gets right down to the whole question
of credit. After all, as I understand it, the Government is the people.
And we have got everything at stake.
Senator GLASS. Does the Government own a dollar of pecuniary
interest in the Federal Reserve System?
Secretary MORGENTHAU. No; but I think it should.
Senator GLASS. You are for a central bank owned by the Government, then?

Secretary MORGENTHAU. If I may put it this way, I would like to
see, if Congress could work it out somehow, that the Government
owned this stock and would surround the trustees of it with every
possible protection and precaution, that they should not be subjected
not only to political pressure but to that of private business and
banking interests as well, and that they should keep just as independent as possible, and serve the financial and business interests of the
country with only one motive in mind, and that is to serve them well.
Senator GLASS. And to absorb all of the individual banks?
Secretary MORGENTHAU. No: oh, no.

banks with directors. But the question of interest is fixed here in
Washington. The question never has been raised that the control of
the Farm Credit should be held by anybody else but the Government, and I honestly believe that the trust that the Farm Credit
had for the farmers and the millions and millions of dollars which
they handled have been handled without outside influence.
Senator GLASS. That was an emergency measure, was it not?
Secretary MORGENTHAU. I would not call it that.

BANKING ACT OF 1935

508

Senator GLASS. I am not talking about the Land Bank System.
Secretary MORGENTHAU. I consider Farm Credit a permanent
institution.
Secretary GLASS. I know you gentlemen consider everything that
has been done as permanent, but it started out simply as an emergency

Secretary MORGENTHAU. I look forward to Farm Credit as an
institution which I hope will live to serve the farmers for a long time.
Senator GLASS I can readily understand how one might advocate
central bank owned by the United States Government. We have
had them. But I would like to get more definitely your judgment as to
whether a Government should have the right to loan somebody else's
money without restraint or restriction.
Secretary MORGENTHAU. I think it should have that same supervision over the credit of the country that it has over inspecting the
banks or anything else. After all, I cannot make a distinction between the Government and the people.
Senator GLASS. The inspection of banks is to require them to conform to the law in the conduct of their business. But when you take
charge of their business, that is a different proposition, is it not?
Secretary MORGENTHAU. I do not say that we should tell the Federal Reserve Bank of New York or Chicago or San Francisco whether
they should make a commercial loan, or how they shall conduct their
actual transactions; but when it comes to having a national policy as
to rates of discount for example, I believe that is a function which
should be exercised by a public body. I make that distinction.
Senator GLASS. Well, considering a central bank, I can very
readily understand how you would think that
a

Senator COUZENS. The Chairman spoke a while ago about whether
you were satisfied with the operations of the Open Market Committee

as it now exists under the law. I recall your answer, and I ask this
question in connection with it. Is it not possible, under the existing
open-market operations and the activities of the Treasury for there
to be a very definite conflict?
Secretary MORGENTHAU. Oh, yes,

Senator COUZENS. Is it not the purpose of this bill to avoid such
conflict?

Secretary MORGENTHAU. I should say so.
Senator GLASS. Do you conceive that the Federal Reserve System
was set up to finance the Government?
Secretary MORGENTHAU. No.
Senator GLASS. But under this bill it could be used for that purpose,
could it not?
Secretary MORGENTHAU. I would have to take your judgment for
that.

Senator GLASS. Then my judgment is in accord with yours?
Senator TOWNSEND. Presumably.

Senator GLASS. No: there is no presumption about it.
Senator McADOO. Mr. Secretary, we hear a good deal of talk about
inflation these days. I wonder if you would give us your definition of

inflation.

Secretary MORGENTHAU. To go up against two Secretaries of the
Treasury is kind of tough.

509

Senator GLASS. You are only up against one, now. I did not vote
for the Patman bill.
Secretary MORGENTHAU. Senator McAdoo, in view of the fact that
that

bill is pending before the President, I would like to be excused

from answering your question.

Senator McADOO. The definition of "inflation" has nothing to do
with that. We are talking finance and economics now.
Secretary MORGENTHAU. If you do not mind, with the bill pending
before the President, I would like to be excused.
Senator McADOO. Of course, I will excuse you if you do not want
to answer. On the other hand, I suppose you do not object to telling
us what you think is sound money?
Secretary MORGENTHAU. I am not a very good theorist on these
things, Senator. I think the President put me in there as an administrator and not as a money theorist
Senator McADOO. I am not asking your theories, but your judgment as a practical business man as to what you consider sound
money.

Secretary MORGENTHAU. I would be glad to hear from you, sir.
Senator McADoo. Iwant information; I am looking for information.
Would you consider United States notes, commonly called "greenbacks," that now have back of them and have had for some time a
40-percent gold reserve, to be sound money?

Secretary MORGENTHAU. Senator, I am not very smart at these
things. I have just got to go back to your question. .There is a bill
pending before the President that has this question of greenbacks
in it at this time, and if you do not mind I would like to ask to be
excused from getting into that discussion.

Senator McADoo. We have had statements which show a little
more than 40 percent of gold back of a certain amount of greenbacks.

I was just curious to know whether you considered that sound

money or not.

Secretary MORGENTHAU. Would this be fair? If after the President has taken action on the bonus bill, and this committee still
wants me to come here and theorize, I would be glad to do it then.
Senator McADOO. This does not involve the question before the
President at all, because there is no gold reserve back of this proposed
note issue. I am just trying to get an idea, in view of the present state
of our finances, what your view is as to sound money that is, whether
40 percent gold back of our currency would be considered sound.
Secretary MORGENTHAU. We have got a lot of experts down at the
Treasury who can discuss the theory of money and currency:

Senator McADoo. I am not talking about theory. I am talking

about actualities.

Secretary MORGENTHAU. I cannot qualify.
Senator McADoo. All right.

Senator GLASS. Have you ever come in contact with unexpert

experts?

Secretary MORGENTHAU. Here is one right here.

Senator GLASS. Unless there are further questions we will excuse

you, Mr. Secretary.

(Secretary Morgenthau withdrew from the committee table.)

BANKING ACT OF 1935

510

STATEMENT OF MAX B. NAHM. DIRECTOR, FEDERAL RESERVE

BANK IN ST. LOUIS, MO.: VICE PRESIDENT. CITIZENS NA.

TIONAL BANK, BOWLING GREEN TRUST CO., BOWLING GREEN.
KY.

BANKING ACT OF 1935

Senator GLASS. You may state your name and occupation, Mr.
Nahm.

Mr. NAHM. Max B. Nahm Mr. Chairman and gentlemen, I am
a resident of Bowling Green, Ky., a small town of about 18,000 inhabitants, and I am vice president of the Citizens National Bank
there, a country bank. I have prepared a statement that I will be
glad to dip into now and then if it please you. The first paragraph
of it is a bit of history drawn with a view of attempting to show that

what I stand for is in line with the thought of the makers of the
Constitution, and that particular part, if you do not mind, I will

UNITED STATES SENATE,
SUBCOMMITTEE OF THE COMMITTEE ON
BANKING AND CURRENCY
Washington, D. O.

The subcommittee met, pursuant to adjournment on yesterday, at

read.

10:30 a. m., in room 301, Senate Office Building, Senator Carter Glass

The founders of the Government of the United States, in their
wisdom, set up three great independent departments, the executive,
the legislative, and the judicial.
The judicial department, the Supreme Court, through the genius
of John Marshall, Chief Justice from 1801 till 1835, became one of
the great courts, if not the greatest court of law in the world.
Only twice in its history, both in the previous century, did politics
ever enter into its judgments. Its decisions are accepted as final.
In line with. the thought of setting up an independent department
of government, in 1913 there came into being an entirely new department of government that was not contemplated at all by the founders
of the Government. In 1913 a new element entered into American
national development, the Federal Reserve System, set up by Congress to furnish an elastic currency, to rediscount commercial paper

and to establish a more effective supervision of banking. This

system as originally conceived was an adequate working machine and

functioned well through the World War, for which it was highly

praised. At that time there was no criticism about it whatever that
I know of. Everybody accepted its work as being as good as could
be done, and it certainly piloted us and is given credit for having
piloted us financially through the Great War.
In the years following the Great War there have arisen many
emergencies and problems, and to meet these emergencies there have
been set up many Government loaning bureaus, all functioning well

in their own spheres, the physical and clerical labor of which was
committed in some of the principal bureaus to the Federal Reserve
regional banks.

The result, unforeseen at the time, was to diminish the functions
of

FRIDAY, MAY 17, 1935

the Federal Reserve System, and of the commercial banks, to such

an extent that at the present time there are in the Federal Reserve
System only about 6 to 7 millions of loans.
In January 1932, the Reconstruction Finance Corporation was
organized; in July 1932, the Federal Home Loan Bank Act was
passed; in May 1933, the Farm Credit Administration Act was passed,
and in October 1933, the Commodity Credit Corporation was organ-

presiding.

Senator GLASS. Mr. Secretary, I did not imagine that you cared
to make any detailed statement about these bank bills. I merely
wanted to ask you one or two questions. The first one is, whether or
not, as Secretary of the Treasury, you have had the cooperation of the
existing Open Market Committee, provided by the statute, to conduct
open-market operations?
Secretary MORGENTHAU. Senator Glass, I have been in the Treasury, now, about a year and a half, and it so happened that it was the

no differences. I have no complaints to make as to their attitude
toward me, and I do not think they have any complaints to make of
my attitude toward them. But as to their effectiveness, during the
past year and a half I must say that they have played a very unimportant role, during the year and a half that I have been in office.
They stopped their purchases the week I came in: and with the exception of turning over their securities as they came due and reinvesting,
they have played a very minor part in Government securities.
Senator GLASS They have not put any of your securities out on
the market, have they?

Secretary MORGENTHAV. I think their investments are about two
and a half billion dollars, and they have kept them constant.
Senator GLASS. Do you not regard that as cooperation with the

Treasury?

ized.

All of these have functioned wisely and well, and for all of them the
Federal Reserve banks have done a large volume of work as fiscal

503

BANKING ACT OF 1935

Secretary MORGENTHAU. I have no complaint to make. They
have kept them constant. At times I thought that they might have
shown a little more courage and bought long-term securities. They

all be centered in one place. I believe that they should all be centered with a Government authority; and, looking toward the future,
think that the engineer and the fireman should be working together
and that there should not be a possibility, if a crisis should arise,
that one might want to go full steam ahead and the other might not
want to put the coal under the boiler.
Senator BULKLEY. It might be better not to have any independent
judgment on the part of the Open Market Committee, you think?
Secretary MORGENTHAU. No: I would not say that, sir. But these
various methods are for controlling the credit for the whole Nation,
and I think that that function should be lodged with a Government
agency. By that I do not mean the Treasury.
Senator GLASS. But that does not answer my question, Mr. Secre-

505

504

did not think so, and they have kept the bulk of their money in short-

term securities. But that is their judgment against mine, and I do
not say that they are wrong or that I am right.
Senator GLASS. That is simply the difference between long term
and short term Treasury securities, is it not?
Secretary MORGENTHAU. That is right. During the period up to
very, very recently they have constantly, as their securities came due,
invested the proceeds in short term securities.
Senator GLASS. Is not that good business?
Secretary MORGENTHAU. It has not proven to be in this last year

and a half, because the investors investing in long-term securities

tary

have made money out of them.
Senator GLASS. At a little higher rate of interest?
Secretary MORGENTHAU. A bigger return on their money, much

Secretary MORGENTHAU. I did not mean to avoid it. I was trying
to explain how I felt.

Senator GLASS. I wanted to know if you have any substantive

bigger.

Senator GLASS. Have you any substantive reason to anticipate that

you cannot get on in agreement with the existing Open Market

Committee?

market committee.

Secretary MORGENTHAU. The relationship is such that we can get
on perfectly well, because there is nothing really to have a row about

Secretary MORGENTHAU Well, again, it may sound as though
I were trying to avoid; but what I am trying to say- and if I do not

They use what they think is their best judgment in investing their
money, and as custodian for the various trust funds I use my best
judgment. I think that the record would show that in the last year

answer your question, you may ask me again- is that we have three
functions for credit control, and I believe that those three functions
should be located in the same place.
Senator GLASS. I understand your belief as to that. But still that

and a half I have done better for my clients than they have for theirs;
but I invested largely in long-term securities and they have invested
largely in short-term securities, and as a result of that my trust funds
have done better than theirs.
Senator GLASS. You have the taxing power behind your operations,

does not answer my question.
Secretary MORGENTHAU. Well, I would hope that they would oper-

ate as well or as successfully if they were located with the Federal
Reserve Board. But time would answer that. I could not.
Senator BULKLEY. Suppose we should abandon the theory of an
open market committee exercising independent judgment and put the
investment policy of the Federal Reserve banks under your discretion

have you not?
Secretary MORGENTHAU. do not quite understand what you mean,

Senator.

Senator GLASS. I mean, the Treasury can appeal to Congress to
issue securities and tax the people of the country to redeem them when

as Secretary of the Treasury; would you place more long-term Government securities with the banks?
Secretary MORGENTHAU. I will have to answer that question in two

Secretary MORGENTHAU I still do not quite understand, sir.
Senator GLASS. The Open Market Committee has no such authority as that, has it?
Secretary MORGENTHAU. No. Their only authority, as I under-

sections In the first place, I would not want that authority Idonot
think should have it If I did have it would follow the same policy

they mature. Is not that a fact?

stand it, is to buy and sell Government securities for the Federal
Reserve System.

Senator GLASS. They are not confined to Government securities
altogether, are they?

Secretary MORGENTHAU. I don't think so

Senator GLASS. I want to ask you this specific question. Have
you any substantive reason to suppose that an open market committee
composed of the present membership of the Federal Reserve Board

thatIhave followed during the past year for the various trust and other
funds that we have, representing over a billion dollars. With regard
to these various funds, during the past year as the money comes due
invested it in long-term Governments, and it so happened that
we have been able in every case to increase the value of the portfolio
through that policy That is a matter of record; and we ve followed
a uniform policy for all of our trust funds, to put them into long-

term Governments

Senator BULKLET In answer to my suppositious question, you say
that you would not want that power as Secretary of the Treasury.
However, you would like to see that power concentrated somewhere,

would operate more efficiently than the Open Market Committee

would you

which is now established by statute?

Secretary MORGENTHAU It would take me a minute or two to
answer that, if you do not mind. I have a definite philosophy and
thought back of it. The various controls of credit I believe should

Secretary MORGENTHAT I would like to see it concentrated in an
independent Government agency.
Senator BULKLEY. Independent of what?

506

BANKING ACT OF 1935

507

pendent as you can make it.
Senator BULKLEY. Independent of the President, too?

Senator GLASS. Do you think the Government without one dollar
of proprietary interest in the Federal Reserve banking system, should
be authorized, without restraint, to loan the money of the System in

Secretary MORGENTHAU. Only that he should have the appointive
power, the way he has with regard to the Supreme Court.

open-market operations?
Secretary MORGENTHAU Senator, [happen to belong to that school

Secretary MORGENTHAU. Of all outside influences-jus as inde-

Senator BULKLEY. You mean, appoint somebody that he had no
more power to remove or influence than he has with regard to the
Supreme Court?
Secretary MORGENTHAU. Right.

Senator GLASS. That would mean that no member of that board
could be removed except by impeachment?
Secretary MORGENTHAU. Yes.

Senator GLASS. Mr. Secretary, I do not want to embarrass you
by pressing my particular question. I can realize why you might
not want to answer it more definitely than you have; but you have
answered it sufficiently to enable me to conjecture what your real

judgment of it is.
Senator COUZENS. Have you any statement to make in connection
with the bill, Mr. Secretary?
Secretary MORGENTHAU. No, Senator.
Senator COUZENS. Have you read the bill?

Secretary MORGENTHAU. I have read the summary which I have
here, and I have studied it.
Senator GLASS. But you had not read that summary until recently,

had you?

Secretary MORGENTHAU. The summary was not written until
recently.

Senator COUZENS. I would like to have the Secretary's opinion. It
seems to me that the question of membership on the board and the
whole operation of the Federal Reserve System is closely allied to the
Treasury under this proposed bill. It does not seem to me that up
to date we have got any expression from him as to his views about
the bill and whether he believes in it or not, and I would like to be
informed, because it seems to me that his position justifies some influence with this committee.
But I understand you to say that you have nothing to say with
respect to this pending bill?
Secretary MORGENTHAU. We have discussed this bill for months in

the Treasury, and we have had meetings with the various agencies
who lend money, that is, the heads of the various agencies, and we
have gone over the controversial points and spent hours on it, and I
think I may say that I understand the fundamental philosophy, the
important points. I am frank to say that when you get into title III
and title I, containing a lot of technical banking questions, as you
know, I am not a banker; I am not trained as one; but we have experts
on that in the Treasury and we leave those questions to them. I
have personally spent hours and hours discussing this bill andIthe
important points in the bill I am in favor of. But the experts in the
Treasury have spent literally hours on this bill.
Senator TOWNSEND. Are you in favor of title II as it is now written
in the bill?

Secretary MORGENTHAU. I am in favor of the principles of title II.

Senator GLASS. That is a different proposition. I am asking you if
the Government, which does not own a dollar of pecuniary interest in
the system, with the assets acquired over a period of 20 years by the
exercise of banking skill-that the Government which has no pecuniary risk at stake should be permitted to spend other people's money
without any restriction?
Secretary MORGENTHAU. Well, Senator, I am very timid about
putting myself up against your opinion, because you have lived with
this thing

Senator GLASS. I am asking you your opinion.

Senator GLASS. What does your central bank amount to if it does
not absorb all the indiviudal banks and use them as branches?
Secretary MORGENTHAU. You see, I came up to this position
through Farm Credit, which is a pretty big institution, and we have a
somewhat similar situation there, I believe. We have strong regional
banks with directors. But the question of interest is fixed here in
Washington. The question never has been raised that the control of
the Farm Credit should be held by anybody else but the Govern-

ment, and I honestly believe that the trust that the Farm Credit
had for the farmers and the millions and millions of dollars which
they handled have been handled without outside influence.
Senator GLASS. That was an emergency measure, was it not?
Secretary MORGENTHAU. I would not call it that.

508

BANKING ACT OF 1935

Senator GLASS. I am not talking about the Land Bank System.
Secretary MORGENTHAU. I consider Farm Credit a permanent

institution.
Secretary GLASS. I know you gentlemen consider everything that
has been done as permanent, but it started out simply as an emergency

Secretary MORGENTHAU. I look forward to Farm Credit as an
institution which I hope will live to serve the farmers for a long time,
Senator GLASS. I can readily understand how one might advocate
a central bank owned by the United States Government. We have
had them. But would like to get more definitely your judgment as to
whether a Government should have the right to loan somebody else's
money without restraint or restriction.
Secretary MORGENTHAU. I think it should have that same supervision over the credit of the country that it has over inspecting the
banks or anything else. After all, I cannot make a distinction between the Government and the people.
Senator GLASS. The inspection of banks is to require them to conform to the law in the conduct of their business. But when you take
charge of their business, that is a different proposition, is it not?
Secretary MORGENTHAU. I do not say that we should tell the Fed.
eral Reserve Bank of New York or Chicago or San Francisco whether
they should make a commercial loan, or how they shall conduct their
actual transactions; but when it comes to having a national policy as
to rates of discount for example, I believe that is a function which
should be exercised by a public body. I make that distinction.
Senator GLASS. Well, considering a central bank, I can very
readily understand how you would think that

Senator COUZENS. The Chairman spoke a while ago about whether
you were satisfied with the operations of the Open Market Committee
as it now exists under the law. I recall your answer, and I ask this
question in connection with it. Is it not possible, under the existing
open-market operations and the activities of the Treasury for there
to be a very definite conflict?
Secretary MORGENTHAU. Oh, yes.

Senator COUZENS. Is it not the purpose of this bill to avoid such

conflict?

Senator GLASS. Then my judgment is in accord with yours?
Senator TOWNSEND. Presumably

BANKING ACT OF 1935

Senator GLASS. You are only up against one, now. I did not vote
for the Patman bill.
Secretary MORGENTHAU. Senator McAdoo, in view of the fact that

that bill is pending before the President, I would like to be excused
from answering your question.

us what you think is sound money?
Secretary MORGENTHAU. I am not a very good theorist on these
things, Senator. I think the President put me in there as an administrator and not as a money theorist

Senator McADoo. I am not asking your theories, but your judgment as a practical business man as to what you consider sound
money.

Secretary MORGENTHAU. I would be glad to hear from you, sir.
Senator McADOO. Iwant information; I am looking for information.
Would you consider United States notes, commonly called "greenbacks," that now have back of them and have had for some time a
40-percent gold reserve, to be sound money?
Secretary MORGENTHAU. Senator, I am not very smart at these

things. have just got to go back to your question. There is a bill
pending before the President that has this question of greenbacks
in it at this time, and if you do not mind I would like to ask to be
excused from getting into that discussion.

Senator McADoo. We have had statements which show a little

more than 40 percent of gold back of a certain amount of greenbacks.

I was just curious to know whether you considered that sound

money or not

Secretary MORGENTHAU. Would this be fair? If after the President has taken action on the bonus bill, and this committee still
wants me to come here and theorize, I would be glad to do it then.
Senator McADOO. This does not involve the question before the
President at all, because there is no gold reserve back of this proposed
note issue. I am just trying to get an idea, in view of the present state
of our finances, what your view is as to sound money; that is, whether
40 percent gold back of our currency would be considered sound.
Secretary MORGENTHAU. We have got a lot of experts down at the
Treasury who can discuss the theory of money and currency.

Senator McADOO. I am not talking about theory. I am talking

about actualities.

Secretary MORGENTHAU. cannot qualify.
Senator McADOO. All right.

Senator GLASS. No: there is no presumption about it.
Senator McADoo. Mr. Secretary, we hear a good deal of talk about
inflation these days. I wonder if you would give us your definition of

experts?

Secretary MORGENTHAU. To go up against two Secretaries of the
Treasury is kind of tough.

you, Mr. Secretary.

inflation.

509

Senator GLASS. Have you ever come in contact with unexpert
Secretary MORGENTHAU Herei one right here.
Senator GLASS. Unless there are further questions we will excuse

(Secretary Morgenthau withdrew from the committee table.)

BANKING ACT OF 1935

510

STATEMENT OF MAX B. NAHM. DIRECTOR, FEDERAL RESERVE
BANK IN ST. LOUIS, MO.: VICE PRESIDENT. CITIZENS NA.
TIONAL BANK, BOWLING GREEN TRUST CO., BOWLING GREEN,
KY.

Senator GLASS. You may state your name and occupation, Mr.
Nahm.

Mr. NAHM. Max B. Nahm. Mr. Chairman and gentlemen, I am
a resident of Bowling Green, Ky., a small town of about 18,000 inhabitants, and I am vice president of the Citizens National Bank
there, a country bank. I have prepared a statement that I will be
glad to dip into now and then if it please you. The first paragraph
of it is a bit of history drawn with a view of attempting to show that

what I stand for is in line with the thought of the makers of the
Constitution, and that particular part, if you do not mind, I will

read.

The founders of the Government of the United States, in their

wisdom, set up three great independent departments, the executive,
the legislative, and the judicial.
The judicial department, the Supreme Court, through the genius
of John Marshall, Chief Justice from 1801 till 1835, became one of
the great courts, if not the greatest court of law in the world.
Only twice in its history, both in the previous century, did politics
ever enter into its judgments. Its decisions are accepted as final.
In line with the thought of setting up an independent department
of government, in 1913 there came into being an entirely new department of government that was not contemplated at all by the founders
of the Government. In 1913 a new element entered into American
national development, the Federal Reserve System, set up by Congress to furnish an elastic currency, to rediscount commercial paper

and to establish a more effective supervision of banking. This

system as originally conceived was an adequate working machine and

functioned well through the World War, for which it was highly
praised. At that time there was no criticism about it whatever that
I know of. Everybody accepted its work as being as good as could
be done, and it certainly piloted us and is given credit for having
piloted us financially through the Great War.

In the years following the Great War there have arisen many
emergencies and problems, and to meet these emergencies there have
been set up many Government loaning bureaus, all functioning well

in their own spheres, the physical and clerical labor of which was
committed in some of the principal bureaus to the Federal Reserve
regional banks.

The result, unforeseen at the time, was to diminish the functions
of the Federal Reserve System, and of the commercial banks, to such

an extent that at the present time there are in the Federal Reserve
System only about 6 to 7 millions of loans.
In January 1932, the Reconstruction Finance Corporation was

organized; in July 1932, the Federal Home Loan Bank Act was

passed; in May 1933, the Farm Credit Administration Act was passed,
and in October 1933, the Commodity Credit Corporation was organized.

All of these have functioned wisely and well, and for all of them the
Federal Reserve banks have done a large volume of work as fiscal

EXCERPTS FROM THE PRESIDENT'S PRESS CONFERENCE

May 17, 4: o'clock p.m.

Question: Mr. Morgenthau said this morning in the Hearing that
he thought the Government should own stock in Federal Reserve
Banks and I wonder if you would care to express an opinion on
that.

The President: I think it would solve a great many questions if

we did, I will tell you something off the record. was talking

a couple of days ago with a very deep student of American history
about the old fight between Andrew Jackson and the Bank of the

United States and at that particular time, his Secretary of the
Treasury went in to see him and he said "You are in a sort of a
jam Mr. President. Here is this Bank of the United States that
is privately owned", he said. "You are licking them; you are
probably going to put them out of business", and of course the
thing had been going on for two or three or four years, this
fight. He said, "The United States has a minority interest in
that Bank. Why don't you go to the Congress and get a majority
interest and then you won't have any trouble about the control
of the bank." Well, Jackson couldn't see his way clear to do it.
That's a hundred years ago but it would have solved the banking
situation at that time in a much more satisfactory way and probably would have prevented the era of wildcat banking during the
next ten years that held sway over the country. I just cite that
as an interesting historical incident.
Question: (Stevenson) Did you say the next ten years or the last
ten years? (laughter).

Question: While Steve made your position on the Bonus very clear
to us yesterday morning, nevertheless there are several reports
going around up on Capitol Hill which say that you would not mind
if the Senate overrode your veto. Can you go into any further
explanation on that subject for us?

Answer: Let's put it on this basis: You have Steve to a point
where you are questioning his veracity (laughter). Steve comes
back from the Woodmont Club and tells what is literally true -

that we did not discuss the Bonus at the Woodmont Club. But
there are some people who do not believe Steve. Well, he happened
to be telling the truth 100% and now his veracity is questioned
on the Bonus and I have got to admit that he again is stating the
truth absolutely.

In other words the bill is going to be vetoed. That is
number one. It is going to be vetoed as strongly as I can veto
it. And number three, I hope with all my heart that the veto
will be sustained. Now, is that clear?

Note:

what Secretary Morgenthau said
-

before Sub-committee Banking and Currency
Senate May 17, 1935 - Friday.
MORGENTHAU ASKS TO BE EXCUSED FROM DEFINING

INFLATION ON THE GROUND THAT THE PATMAN BILL
IS NOW PENDING

11:30

WASHN - SECY MORGENTHAU ASKED TO BE EXCUSED

FROM DEFINING INFLATION - HE GAVE AS HIS REASON
THAT THE PATMAN GREENBACK BONUS BILL IS NOW

PENDING- THUS THE ADMINISTRATION-S CHIEF FISCAL
OFFICER DODGED AN OPPORTUNITY TO CONDM-- CONDEMN

THE MEASURE WHICH IT HAS BEEN STATED THE PRESIDENT PLANTS TO VETO IN A MOST FORCEFUL MESSAGE
SECY MORGENTHAU SAID THAT THE BILL BEFORE THE
PRESIDENT HAS THE QUESTION OF GREENBACKS IN IT
AND THAT ON THAT ACCOUNT HE WOULD LIKE TO BE
EXCUSED FROM ANSWERING SENATOR MCADOO-S QUES-

TION AS TO WHAT CONSTITUTES INFLATION THEN TURNING TO CHRMAN GLASS HE SAID

-WOULD THIS BE FAIR MR CHAIRMAN- IF AFTER THE
PRESIDENT HAS ACTED THE COMMITTEE STILL WANTS
ME TO THEORIZE I WOULD BE GLAD TO COME BACKTHE SECY OF THE TREASURY HAS CONCLUDED HIS TESTIMONY AND LEFT THE HEARINGWHEN SENATOR MCADOO DEM OF CALIF AND LEADING
BONUS ADVOCATE FIRST PROPOUNDED HIS QUESTION AS

TO WHAT CONSTITUTES INFLATION SECY MORGENTHAU

SAID -I AM UP AGAINST TWO SECRETARIES OF THE
TREASUYRY THAT IS KIND OF TOUGH- HE REFERRED
TO SENATOR GLASS AND SENATOR MCADOO BOTH OF
WHOM HAVE SERVED AS SECRETARIES OF THE TREASURY

SENATOR GLASS RETORTED -YOU ARE UP AGAINST

ONLY ONE- I DIDN-T VOTE FOR THE PATMAN BILLSENATOR COUZENS ASKED SECY MORGENTHAU WHETHER A

CONFLICT COULD NOT BE POSSIBLE BETWEEN THE
TREASURY AND THE OPEN MARKET COMMITTEE AS NOW

CONSTITUTED - SECY MORGENTHAU REPLIED -OH YESSENATOR COUZENS ASKED WHETHER IT WAS NOT THE

PURPOSE OF THE PENDING BILL TO MAKE SUCH CONFLICTS IMPOSSIBLE AND SENATOR GLASS INQUIRED WHETHER IT WAS SECY MORGENTHAU-S IDEA THAT THE
FEDERAL RESERVE SYSTEM WAS SET UP TO FINANCE
THE GOVT- SECY MORGENTHAU REPLIED -NO

10.15
BYRNS SAYS BONUS VETO TO BE WITHHELD UNTIL
MONDAY

WASHN - HOUSE LEADERS HAVE RECEIVED ASSURANCE FROM THE WHITE HOUSE THAT THE PRESIDENT-S
VETO MESSAGE ON THE BONUS WILL NOT BE SENT TO
CONGRESS BEFORE MONDAY SPEAKER OF THE HOUSE

STATED FRIDAY - THE SPEAKER SAID IT IS PLANNED
THAT THE HOUSE WILL ACT UPON THE BONUS ISSUE
IMMEDIATELY AFTER THE PRESIDENT-S VETO MESSAGE

HAS BEEN RECEIVED - HE BELIEVES THAT THE HOUSE
WILL OVERRIDE THE VETO BUT FEELS THAT THE VETO
WILL BE SUSTAINED IN THE SENATE-

10,00
VICE PRESIDENT EXPECTED TO SIGN BONUS AT

II 0-CLOCK
WASHN - THE VICE PRESIDENT-S OFFICE AT THE
CAPITOL STATES THAT VICE PRESIDENT GARNER IS
EXPECTED TO SIGN THE BONUS BILL AT ABOUT

II 0-CLOCK AND HAVE IT SENT TO THE PRESIDENT
SHORTLY THEREAFTER-

11.08
ADD ADVISORY COUNCIL--WASHN

DIVIDING THE PROVISIONS OF TITLE II INTO
THREE GENERAL SUBJECTS THE COUNCIL POINTS OUT

THAT THE FIRST HAS TO DO WITH THE CONTROL OF
MONEY THE ORGANIZATION SET UP TO EXERCISE THIS
CONTROL QAND THE POWERS TO BE EMPLOYED-

-THE EXERCISE OF THESE POWERS IS OF THE
GREATEST IMPORTANCE TO THE COMMERCE INDUSTRY

AND AGRICULTURE OF THE COUNTRY - AS FAR AS
POSSIBLE THE MEMBERS OF THE BODY TO WHOM IS TO BE ENTRUSTED THIS VAST AUTHORITY SHOULD BE FREE
OF WRONGFUL INFLUENCES WHETHER POLITICAL OR

FINANCIAL-

11,10
MORGENTHAU BELIEVES POWER TO DETERMINE OPEN

MARKET POLICY DISCOUNT RATES AND RESERVE REQUIRE

-MENT SHOULD BE CENTRALIZED IN A SINGLE GOVT
AGENCY AS INDEPENDENT OF THP PRESIDENT AS THE
U S SUPREME COURT

WASHN - SECY OF THE TREASURY MORGENTHAU

TESTIFIED THAT HE THOUGHT THE POWER TO DETER-

MINE THE OPEN MARKET POLICY THE DISCOUNT RATES
AND RESERVE REQUIREMENTS OF MEMBER BANKS SHOULD

BE LOCATED IN A CENTRAL PLACE PRESUMABLY THE
FEDERAL RESERVE BOARD WHICH HE SAID SHOULD BE

AS INDEPENDENT OF THE PRESIDENT AS IS THE U S
SUPREME COURT- HE SAID IT SHOULD BE LIKEWISE
INDEPENDENT OF ANY OTHER OUTSIDE INFLUENCEHIS TESTIMONY FOLLOWED QUESTIONS BY CHRMAN

GLASS AS TO WHETHER IN MR MORGENTHAU-S OPINION
THE OPEN MARKET COMMITTEE PROPOSED IN THE PEND-

ING BANK BILL WOULD OPERATE MORE EFFICIENTLY
THAN THE PRESENT SET UP-

10.55
MORGENTHAU SAYS HE HAS GOTTEN ALONG EXTREMELY

WELL WITH EXISTING OPEN MARKET COMMITTEE

WASHN - BUESTI-- QUESTIONED BY CHAIRMAN
GLASS OF THE SENATE BANKING & CURRENCY SUBCOM-

MITTEE CONDUCTING HEARINGS ON THE BANKING BILL
AS TO WHETHER AS SECY OF THE TREASURY MR MORGEN

-THAU HAD HAD THE COOPERATION OF THE EXISTING
OPEN MARKET COMMITTEE IN CONDUCTING OPEN MARKET

OPERATIONS THE TREASURY HEAD REPLIED
-I HAVE GOTTEN ALONG EXTREMELY WELL"WITH THEM-

-I HAVE BEEN IN THE TREASURY A YEAR AND A

HALF- HE SAID - -IT so HAPPENED THAT THE WEEK
I CAME IN WAS THE LAST WEEK IN WHICH THE OPEN
MARKET COMMITTEE PURCHASED ANY SECURITIES- FROM

THAT DAY TO THIS THE COMMITTEE HAS NOT INCREASED ITS HOLDINGSTHE COMMITTEE HEARING WAS UNUSUALLY WELL
ATTENDED TODAY AMONG THOSE PRESENT BEING

RUDOLPH HECHT PRESIDENT OF THE AMN BANKERS ASSN
AND

FRANCIS M LAW FOR PRESIDENT OF THE ABA-

ADD MORGENTHAU E BELIEVES--WASHN

11115

-LOOKING TOWARD THE FUTURE- SECY MORGENTHAU

SAID -I THINK THE ENGINEER AND THE FIREMAN
SHOULD BE WORKING TOGETHER AT ALL TIMES AND

THAT IT MIGHT BE WELL TO MAKE SURE THAT AT SOME
FUTURE CRIC-- CRITICAL MOMENT THEY WOULD NOT

DISAGREE AND WORK IN OPPOSITE DIRECTIONSSENATOR BULKLEY OHIO DEMOCRAT ASKED WHETH-

ER IN THE SECY-S OPINION IT WOULD BE BETTER TO
HAVE NO INDEPENDENT JUDGMENT ON THE PART OF THE
OPEN MARKET COMMITTEE THE SECY REPLIED NO THE
FUNCTION SHOULD BE LODGED IN AN INDEPENDENT
GOVT AGENCY-

SENATOR BULKLEY INQUIRED WHETHER IF SECY
MORGENTHAU HAD THE POWER TO DIRECT OPEN MARKET

POLICY HE WOULD PLACE MORE LONG TERM SECURITIES

WITH THE BANKS - SECY MORGENTHAU REPLIED THAT
HE WOULDN-T WANT THAT POWER BUT THAT IF HE HAD
IT HE WOULD FOLLOW THE SAME POLICY AS HE HAS
WITH THE 60 TRUST FUNDS NOW UNDER HIS ADMINISTRATION - THEY HAVE BEEN INVESTED IN LONG TERM
GOVERNMENTS OTHE SECY SAID AND WITHOUT EXCEP-

TION HAVE SHOWN A PROFIT- -THAT IS JUST A
MATTER OF RECORD- HE SAID-

SECY MORGENTHAU ARRIVES AT GLASS SUBCOMMITTEE

HEARING ROOM TO TESTIFY ON BANK BILL
WASHN - SECY OF THE TREASURY MORGENTHAU HAS
ARRIVED AT THE GLASS SUBCOMMITTEE-S HEARINGS

ON THE BANK BILL- THE SECY WILL ANSWER QUESTION
OF COMMITTEE MEMBERS BUT HAS NO PREPARED STATEMENT-

II 36 AM DST

11.09
MORGENTHAU SAYS HE THINKS GOVT SHOULD OWN
STOCK OF FEDERAL RESERVE BANKS

WASHN - IN ANSWER TO A QUESTION BY SENATOR
GLASS SECY OF TREASURY MORGENTHAU SAID HE WAS
OF THE SCHOOL THAT THOUGHT THE FEDERAL GOVERNMENT SHOULD OWN THE STOCK OF THE FEDERAL RESERVE
BANKS-

May 17, 1935.

Secretary Morgenthau appeared at 10:30 A.M. before a

subcommittee of the Senate Committee on Banking and Currency,

at the request of the Chairman of the subcommittee, Senator Glass,
in connection with hearings being held on the proposed Banking Act
of 1935.

The subcommittee met, pursuant to adjournment on yesterday, at

10:30 A.M., in room 303, Senate Office Building, Senator Carter
Glass presiding.

Present Senators Glass (chairman of the subcommittee), Bulkley,
McAdoo, Byrnes, Townsend, and Couzens.

Senator Glass: The committee will come to order. Mr. Secretary
will you be good enough to take the stand, please?
STATEMENT OF HENRY MORGENTHAU, JR., SECRETARY OF THE TREASURY,
WASHINGTON, D.C.

Senator Glass: Mr. Secretary, I did not imagine that you cared
to make any detailed statement about these bank bills. I merely
wanted to ask you one or two questions. The first one is, whether
or not, as Secretary of the Treasury, you have had the cooperation
of the existing Open Market Committee, provided by the statute, to
conduct open-market operations?

Secretary Morgenthau: Senator Glass, I have been in the Treasury,
now, about a year and a half, and it so happened that it was the week
that I came into the Treasury that was the last week of the Open
Market Committee purchases of securities, and from that day to this
they have not increased their holdings. I have gotten along extremely
well with the Open Market Committee. There have been no differences.

I have no complaints to make as to their attitude toward me, and I do
not think they have any complaints to make of my attitude toward them.

-2-

But as to their effectiveness, during the past year and a half I
must say that they have played a very unimportant role, during
the year and a half that I have been in office. They stopped
their purchases the week I came in; and with the exception of
turning over their securities as they came due and reinvesting,
they have played a very minor part in Government securities.

Senator Glass: They have not put any of your securities out
on the market, have they?

Secretary Morgenthau: I think their investments are about
two and a half billion dollars, and they have kept them constant.
Senator Glass: Do you not regard that as cooperation with
the Treasury?

Secretary Morgenthau: I have no complaint to make. They
have kept them constant. At times I thought that they might have
shown a little more courage and bought long-term securities. They

did not think so, and they have kept the bulk of their money in shortterm securities. But that is their judgment against mine, and I do
not say that they are wrong or that I am right.
Senator Glass: That is simply the difference between long term
and short term Treasury securities, is it not?
Secretary Morgenthau: That is right. During the period up to
very, very recently they have constantly, as their securities came
due, invested the proceeds in short term securities.
Senator Glass: Is not that good business?

Secretary Morgenthau: It has not proven to be in this last
year and a half, because the investors investing in long term securities have made money out of them.

-3-

Senator Glass: At a little higher rate of interest?
Secretary Morgenthau: A bigger return on their money, much

bigger.

Senator Glass: Have you any substantive reason to anticipate
that you cannot get on in agreement with the existing Open Market

Committee?

Secretary Morgenthau: The relationship 18 such that we can

get on perfectly well, because there is nothing really to have a
row about. They use what they think is their best judgment in
investing their money, and as custodian for the various trust funds
I use my best judgment. I think that the record would show that
in the last year and a half I have done better for my clients
than they have for theirs; but I invested largely in long-term
securities and they have invested largely in short-term securities,
and as a result of that my trust funds have done better than theirs.
Senator Glass: You have the taxing power behind your opera-

tions, have you not?

Secretary
Senator.

Morgenthau: I do not quite understand what you mean,

Senator Glass: I mean, the Treasury can appeal to Congress to
issue securities and tax the people of the country to redeem them
when they mature. Is not that a fact?

Secretary Morgenthau: I still do not quite understand, sir.
Senator
Glass: The Open Market Committee has no such authority
as that,
has it?

Secretary Morgenthau: No. Their only authority, as I understand it, is to buy and sell Government securities for the Federal
Reserve System.

97
Senator Glass: They are not confined to Government securities
altogether, are they?

Secretary Morgenthau: I don't think so.
Senator Glass: I want to ask you this specific question. Have
you any substantive reason to suppose that an open market committee
composed of the present membership of the Federal Reserve Board

would operate more efficiently than the Open Market Committee which
is now established by statute?

Secretary Morgenthau: It would take a minute or two to answer

that, if you do not mind. I have a definite philosophy and thought
back of it. The various controls of credit I believe should all
be centered in one place. I believe that they should all be centered with a Government authority; and, looking toward the future,
I think that the engineer and the fireman should be working together
and that there should not be a possibility, if a crisis should arise,
that one might want to go full steam ahead and the other might

not want to put the coal under the boiler.
Senator Bulkley: It might be better not to have any independent
judgment on the part of the Open Market Committee, you think?

Secretary Morgenthau: No; I would not say that sir. But these
various methods are for controlling the credit for the whole Nation,
and I think that that function should be lodged with a Government
agency. By that I do not mean the Treasury.
Senator Glass: But that does not answer my question, Mr.
Secretary.

Secretary Morgenthau: I did not mean to avoid it. I was trying

to explain hew I felt. invested 10 in

-5-

Senator Glass: I wanted to know if you have any substantive
reason to suppose that an open market committee, for example,
composed of the present membership of the Federal Reserve Board,

would operate more efficiently or more satisfactorily than the
existing open market committee.

the

Secretary Morgenthau: Well, again, it may sound as though

I were trying to avoid; but what I am trying to say - and If I
do not answer your question, you may ask me again - is that we

have three functions for credit control, and I believe that those
three functions should be located in the same place.

Senator Glass: I understand your belief as to that. But
still that does not answer my question.
Secretary Morgenthau: Well, I would hope that they would
operate as well or as successfully if they were located with the
Federal Reserve Board. But time would answer that. I could not.
Senator Bulkley: Suppose we should abandon the theory of an
open market committee exercising independent judgment and put the
investment policy of the Federal Reserve Banks under your discretion

as Secretary of the Treasury; would you place more long-term
Government securities with the banks?

Secretary Morgenthau: I will have to answer that question in

two sections. In the first place, I would not want that authority.
I do not think I should have it. If I did have it I would follow
the same policy that I have followed during the past year for the
60 trust funds that we have, representing over a billion dollars.
With regard to these various 60 trust funds, during the past year
as the money comes due we have invested it in long-term Governments,

and it so happened that we have been able in every case to increase

-6-

the value of the portfolio through that policy. That is a matter
of record; and we have followed a uniform policy for all of our
trust funds, to put them into long-term Governments.

Senator Bulkley: In answer to my suppositious question, you
say that you would not want that power as Secretary of the
Treasury. However, you would like to see that power concentrated
somewhere, would you?

Secretary Morgenthau: I would like to see it concentrated
in an independent Government agency.

Senator Bulkley: Independent of what?

Secretary Morgenthau: of all outside influences--just as
independent as you can make it.

Senator Bulkley: Independent of the President, too?
Secretary Morgenthau: Only that he should have the appointive
power, the way he has with regard to the Supreme Court.
Senator Bulkley: You mean, appoint somebody that he had no
more power to remove or influence than he has with regard to the
Supreme Court?

Secretary Morgenthau: Right.
Senator Glass: That would mean that no member of that board
could be removed except by impeachment?

Secretary Morgenthau: Yes.

Senator Glass: Mr. Secretary, I do not want to embarrass you
by pressing my particular question. I can realize why you might
not want to answer it more definitely than you have; but you have
enswered it sufficiently to enable me to conjecture what your real
judgment of it is.

100
Senator Couzens: Have you any statement to make in connection

with the bill, Mr. Secretary?
Secretary Morgenthau: No, Senator.

Senator Couzens: Have you read the bill?
Secretary Morgenthau: I have read the summary which I have

here, and I have studied it.
Senator Glass: But you had not read that summary until
recently, had you?

Secretary Morgenthau: The summary was not written until
recently.

Senator Couzens: I would like to have the Secretary's opinion.
It seems to me that the question of membership on the Board and

the whole operation of the Federal Reserve System is closely allied
to the Treasury under this proposed bill. It does not seem to me
that up to date we have got any expression from him as to his views

about the bill and whether he believes in it or not, and I would
like to be informed, because it seems to me that his position
the
justifies some influence with this committee.
But I understand you to say that you have nothing to say with
respect to this pending bill?
Secretary Morgenthau: We have discussed this bill for months
in the Treasury, and we have had meetings with the various agencies

who lend money, that is, the heads of the various agencies, and
we have gone over the controversial points and spent hours on it,
and I think I may say that I understand the fundamental philosophy,

the important points. I am frank to say that when you get into
Title III and Title I, containing a Iot of technical banking
myself

40P

spinions because

you

-8-

101

questions, as you know, I am not a banker; I am not trained as
one; but we have experts on that in the Treasury and we leave
those questions to them. I have personally spent hours and

hours discussing this bill and the important points in the bill
I am in favor of. But the experts in the Treasury have spent

literally hours on this bill.
Senator Townsend: Are you in favor of Title II as it is now
written in the bill?
Secretary Morgenthau: I am in favor of the principles of Title
II.
Senator Glass: Do you think the Government, without one

dollar of proprietary interest in the Federal Reserve banking system
should be authorized, without restraint, to loan the money of the
System in open-market operations?

Secretary Morgenthau: Senator, I happen to belong to that
school that thinks that the Government should own the stock of the
Federal Reserve System; and then it would have that right.

Senator Glass: You belong to the school that believes the
Government should own the stock?

Secretary Morgenthau: Yes.

Senator Glass. That is a different proposition. I am asking
you if the Government, which does hot own a dollar of pecuniary

interest in the system, with the assets acquired over a period of
20 years by the exercise of banking skill--that the Government which
has no pecuniary risk at stake should be permitted to spend other
peoples money without any restriction?
Secretary Morgenthau: Well, Senator, I am very timid about
putting myself up against your opinion, because you have lived with

-9-

102

this thing
Senator Glass: I am asking you your opinion.
Secretary Morgenthau: I think that the Government has got

everything at stake in this. This gets right down to the whole
question of credit. After all, as I understand it, the Government
is the people. And we have got everything at stake.
Senator Glass: Does the Government own a dollar of pecuniary
that
interest in the Federal Reserve System?
1%

Secretary Morgenthau: No; but I think it should.
Senator Glass. You are for a central bank owned by the Government, then?

Secretary Morgenthau: If I may put it this way, I would like
to see, if Congress could work it out somehow, that the Government

owned this stock and would surround the trustees of it with every
possibly protection and precaution, that they should not be subjected
not only to political pressure but to that of private business and
banking interests as well, and that they should keep just as
independent as possible, and serve the financial and business
interests of the country with only one motive in mind, and that is
to serve them well.

Senator Glass: And to absorb all of the individual banks?
Secretary Morgenthau: No: oh, no.
Senator Glass: What does your central bank amount to if it
does not absorb all the individual banks and use them as branches?
Secretary Morgenthau: You see, I came up to this position

through Farm Credit, which is a pretty big institution, and we have
a somewhat similar situation there, I believe. Fe have strong
regional banks with directors. But the question of interest is

-10-

103

fixed here in Washington. The question has never been raised
that the control of the Farm Credit should be held by anybody
else but the Government, and I honestly believe that the trust that
the Farm Credit had for the farmers and the millions and millions
of dollars which they handled have been handled without outside
influence.

Senator Glass: That was an emergency measure, was it not?

Secretary Morgenthau: I would not call it that.
Senator Glass: I am not talking about the Land Bank System.
Secretary Morgenthau: I consider Farm Credit a permanent

institution.
Senator Glass: I know you gentlemen consider everything
that has been done as permanent, but it started out simply as an
emergency.

Secretary Morgenthau: I look forward to Farm Credit as an

institution which I hope will live to serve the farmers for a
long time.

Senator Glass: I can readily understand how one might
advocate a central bank owned by the United States Government.
We have had them. But I would like to get more definitely your
judgment as to whether a Government should have the right to
loan somebody else's money without restraint or restriction.
Secretary Morgenthau: I think it should have that same

supervision over the credit of the country that it has over
inspecting the banks or anything else. After all, I cannot make
a distinction between the Government and the people.

Senator Glass: The inspection of banks is to require them I
to conform to the law in the conduct of their business. But when

104

you take charge of their business, that is a different proposition,
is it not?
Secretary Morgenthau: I do not say that we should tell the
Federal Reserve Bank of New York or Chicago or San Francisco

whether they should make a commercial loan, or how they shall conduct

their actual transactions; but when it comes to having a national

policy as to rates of discount for example, I believe that is the
function of the Government. I make that distinction.
Senator Glass: Well, considering a central bank, I can very
readily understand how you would think that.
Senator Couzens: The Chairman spoke a while ago about whether
you were satisfied with the operations of the Open Market Committee

as it now exists under the law. I recall your answer, and I ask
this question in connection with it. Is it not possible, under the
existing open-market operations and the activities of the Treasury
for there to be a very definite conflict?
Secretary Morgenthau: Oh, yes.

Senator Couzens: Is it not the purpose of this bill to avoid
such conflict?
these
Secretary Morgenthau: I should say so.
Senator Glass: Do you conceive that the Federal ReserveSystem

was set up to finance the Government?

Secretary Morgenthau: No.

Judge

Senator Glass: But under this bill it could be used for that

purpose, could it not? from you, siz

Secretary Morgenthau: I would have to take your judgment for.

that. United States nature,

Senator Glass: Then my judgment is in accord with yours?

-12-

105

Senator Townsend: Presumably.

Senator Glass: No; there is no presumption about it.
Senator McAdoo:Mr.Secretary we hear a good deal of talk about

inflation these days. I wonder if you would give us your definition
of inflation.
Secretary Morgenthau: To go up against two Secretaries of
the Treasury is kind of tough.

Senator Glass: You are only up against one, now. I did not
vote for the Patman bill.
Secretary Morgenthau: Senator McAdoo, in view of the fact

that that bill is pending before the President, I would like to
be excused from answering your question.

Senator McAdoo: The definition of "inflation" has nothing
to do with that. We are talking finance and economios now.
Secretary Morgenthau: If you do not mind, with the bill
pending before the President, I would like to be excused.
Senator McAdoo: Of course, I will excuse you if you do not
want to answer. On the other hand, I suppose you do not object to
telling us what you think is sound money?

Secretary Morgenthau: I am not a very good theorist on these
things, Senator. I think the President put me in there as an
administrator and not as a money theorist.
Senator McAdoo: I am not asking your theories, but your judgment as a practical business man as to what you consider sound money.

Secretary Morgenthau: I would be glad to hear from you, sir.
Senator McAdoo: I want information; I am looking for information. Would you consider United States notes, commonly called
"greenbacks," that now have back of them and have had for some

-13-

106

time a 40-percent gold reserve to be sound money?

Secretary Morgenthau: Senator, I am not very smart at these

things. I have just got to go back to your question. There is a
bill pending before the President that has this question of greenbacks in it at this time, and if you do not mind I would like to
ask to be excused from getting into that discussion.
Senator McAdoo: We have had statements which show a little

more than 40 percent of gold back of a certain amount of greenbacks.
I was just curious to know whether you considered that sound money
or not.

Secretary Morgenthau: Would this be fair? If after the
President has taken action on the bonus bill, and this committee
still wants me to come here and theorize, I would be glad to do
it then.

Senator McAdco: This does not involve the question before
the President at all, because there is no gold reserve back of

this proposed note issue. I am just trying to get an idea, in
view of the present state of our finances, what your view is as
to sound money; that is, whether 40 percent gold back of our
currency would be considered sound.

Secretary Morgenthau: We have got a lot of experts down at
the Treasury who can discuss the theory of money and currency.

Senator McAdoo: I am not talking about theory. I am talking
about actualities here.
Secretary Morgenthau: I cannot qualify.
Senator McAdoo: All right.
Senator Glass: Have you ever come in contact with unexpert
experts?

-14-

39,

you

107ML

Secretary Morgenthau: Here is one right here.
Senator Glass: Unless there are further questions we will
excuse you, Mr. Secretary.

(Secretary Morgenthau withdrew from the committee table)

have

really

you

and

they

16132
heda

greduating
and

in file morning

and

was

top

still

the

base

107A

May 17, 1935.

Friday.

H.M.Jr:
Randolph:

H.M.Jr:

Hello.

Good afternoon, Mr. Secretary?
Hello, Mr. Randolph.

I'm delighted to talk with you and I won't detain you
long, sir. There is in my congressional district,

about two hours and a half from Washington, a very
fine college, Potomac State College.

H.M.Jr:

Yes.

They have asked me to make a particular effort to

have you as their commencement speaker and have asked

me to ask you if you will not come that - to really
do them the honor of having you there.

H.M.Jr:
R:

H.M.Jr:

Well, it's terribly nice - I appreciate it.
I'd love to accompany you up. It's in the morning on
the - they would arrange it if the week of June 3rd
- that they would arrange it either Thursday, Friday
or Saturday morning. They particularly want you, and
of course, I doubly want you.

Well, that's awfully nice, but it's - it's almost im-

possible for me to speak, you know. I don't speak I've spoken three times over the radio and that's about
the extent and it takes me about four months to pre-

pare a speech.
R:

Oh, well, you wouldn't do that for a college commence-

ment speech.
H.M.Jr:

Well -

We wouldn't have to talk money, you know.

H.M.Jr:

No -

H.M.Jr:
R:

And they will Well, let me think it over, but I'm very doubtful,
Mr. Randolph, whether I could do it.
I see. Well, it means a lot to me if you'd

H.M.Jr:

Well, I'd love to do it for you, particularly. I'd love

But, it is a wonderful college. of course, they will

to.

perhaps have a hundred in the graduating class - it'11
be at ten-thirty in the morning and we could leave here
even in the morning and fly or drive up and come back

107B

195

-2- get back here by, oh, one or two in the afternoon
so that it wouldn't really ruin a day.
H.M.Jr:

Well, thank you very - I'll think it over and I'll

let you know Monday, but I appreciate very much your
asking me.

You're very kind.

H.M.Jr:

Thank you.

Thank you, sir.

109
May 20th

At his 9:30 group this morning Mr. Morgenthau

told the men that, until after the President has delivered

his veto message on the bonus, he was going to concentrate
on doing nothing but helping the President and he wanted

them to help by taking Treasury matters off his shoulders.
Mr. Morgenthau talked to the following people
along the lines outlined in conversation between Mr. Morgenthau and Roy Howard, of Scripps-Howard, copy of which
is attached herewith.
Arthur Sulzberger

New York Times

William H. Grimes

Wall Street Journal

Roy Howard

Scripps-Howard

Merlin H. Aylesworth

National Broadcasting Company

William S. Paley

Columbia Broadcasting Company

Harper Sibley

National Chambers of Commerce

Jewett Shouse

Liberty League

William L. Chenery

Colliers

William M. Kiplinger

Kiplinger Washington Agency

Joe Kennedy

Securities & Exchange Commission

Paul Block

Frank Gannett
Charles Michelson

He talked over the telephone with some of
them and many of them came into the office to see him.
All offered their whole-hearted cooperation.

Up to the time that the President delivered
his Bonus speech Mr. Morgenthau worked very very hard
toward getting the people to help the President.

May 20, 1935.

logA

Monday.

H.M.Jr:

Hallo.

AylesworthsHello Mr. Secretary?
H.M.Jr:

Yes.

This is Aylesworth.

H.M.Jr:

Yes.

H.M.Jr:

I've been working ever since I talked with you.
Well, I've already had some of the results.

You have?

H.M.Jr:

Governor Harrison called up and asked me whether it
would be acceptable to the President if Owen D. Young
would talk.
Yes.

And I told him that I could without consulting the
President say unqualifiedly it would be acceptable.

Well, you know I had - I had two conferences with him -

H.M.Jr:

Yes.

The first one he was
our advirsory council -

chairman of

H.M.Jr:

Yes.

And he has never - and he has always turned down requests

to speak on N.B.C. time, our own time, on conferential
questions.

H.M.Jr:
A:

H.M.Jr:

Yes.

Well, I had to overcome that and I finally found a way to
do it if you can help me. Now, he wanted to do it Good.
Are

- and he's not afraid to do it and I was glad of that because I know that it might be embarrassing to him from a
lot of people who might take a crack at him.

H.M.Jr:
A:

Yes.

And he's not that kind of a fellow. Now, the Washington
Star Forum is Thursday night, that's the night you want
-

H.M.Jr:

Yes.

It goes cosat to coast

109B

H.M.Jr:

Yes.

- from 11:30

H.M.Jr:

Yes.

- covers everything, and our mutual friend Marriner is

do
-

supposed to be on that evening.

H.M.Jr:

Marriner who?

Reeles.

H.M.Jr:

Yes.

H.M.Jr:
A:

which I could arrange for and which
would be a beautiful way of doing it and wouldN't make
it appear he's coming on the N.B.C. at his own request.
Now,

Swell.

Now, if you could arrange to have Eccles take another
time, I'll give him as good a time and as big an audience.

H.M.Jr:

Yes.

And I could put him in any place.

H.M.Jr:

Swell.

- except Thursday night.

H.M.Jr:

Well, he could go on, say, Friday night.

Well, I think I could arrange it Friday night. I will

H.M.Jr:

arrange it - you can tell Marriner for me, we're old
Salt Lake friends, you know I see.
the

- and that I'll take care of him.

H.M.Jr:

Well,

And see that he gets a good time and as quickly as possible - I mean by that, within a night or so to reach the
audi ence he wants to reach, the same audience he'd reach

here.
H.M.Jr:

I'll tell Marriner to call you up direct.

will you?

most

H.M.Jr:

I'11 call him at once and I'll ask him to call you direct.
I'm sure it'11 send
be all right.

I - I hope SG because this is the one way I know to -

-3-

logc

Young says it may take him from - about eighteen minutes.

He wants to do this job right.

H.M.Jr:

Well, I'll call Marriner and I'll ask him to call you at

Because - then, of course, he'll have a chance to get our

once.

publicity -

H.M.Jr:

Yes.

Oh, by the way, Mr. Young asked me to ask you a question.

H.M.Jr:

Yes.

He said if it were possible for you to send him confidentially the uncompleted draft, not the completed, but the
form. It would help him because he
uncompleted
must get his talk ready so that we can get the national
publicity on his too for Thurs - for Friday morning's

H.m.Jr:

paper I see.

And I could be sure they coordinate, see?

H.M.Jr:

Well, I'll see what I can do, that's a little difficult,

but I'll see what I can do.

Well, perhaps you can - perhaps you can do this - pardon
me for giving you suggestions -

H.M.Jr:

Well, that's -

You might be able - if you can't do that - to get him in

H.M.Jr:

That's right.

- which would cover the subject.

H.M.Jr:
A:

H.M.Jr:
At

some form a confidential memorandum -

I get you.
have
He wants to write him and if we want the bigger
press follow-up
so that we can circulate him before he goes on.

I'll get you a confidential memorandum; I'm sure I can
get that.
If you could - if-you could either mail it to him or me.

H.M.Jr:

Well, I'll most likely mail it to him direct or even may

If you could send it to him - then, you see he'd be ready

send it up to him by hand.

his - he's only got a short time - to be ready to get it

1090

out so that in time he'll have his full draft in the hands
of all the newspipers to the effect there for Friday
morning.

H.M.Jr:

I'11 take care of it at once; I'll call Marrinor immodiately.

best

SPON

Yes, you have Marriner call me. Now, one other suggestion,
Mr. Secretary. I have another suggestion to offer you.

H.M.Jr:

Please.

- following Thursday. I'm going to call you up Friday,
if I may -

H.M.Jr:

Yes.

- and suggest three or four or five names -

H.M.Jr:

Grand.

- then I'm going to ask you confidentially to see that
they respond in working with your confidential request,

and then I'll invite them.

H.M.Jr:
A:

Fine.

Then we coordinate perfectly.
Beautiful.

Now, one other thing. We're arranging for our microphones,
of course, for - in Congress.

H.M.Jr:

Yes.

The only question will be whether they'11 let us in.

H.M.Jr:

In Congress?

Yes.

H.M.Jr:

Well, if you have any trouble, you let me know and I'll
see that Secret Service takes care of you.
and I'll go right at them.

H.M.Jr:

If you have any trouble you let me know and I'll see that
Secret Service will help you.

We'll try to do it ourselves first.
All right.

H.M.Jr:
A:

H.M.Jr:

In the meantime, I'll'hear from Marriner?
You'll hear from him - if he's in you'll hear from him in

109E

-5two minutes.
A:

Yes,
because we ought to make our arrangments tonight if
we can.

H.M.Jr:

If he's in you'll hear from him in two minutes.

Thank you.

H.M.Jr:

Goodbye.

May 20, 1935.
Monday.

H.M.Jr:

109F

Hello.

Harrison: Hello, Henry.
H.M.Jr:
H:

H.M.Jr:

Hello, George.

I'm glad to hear you.
I'm glad to hear you.

I had hopedwe were going to have a meeting today so when

H.M.Jr:

Oh, I see.

I heard that was off I came on back.

H.M.Jr:

But, I'll be down there Wednesday, if you want me.
Good, I certainly do.

Now, Henry, I've been talking to Owen Young; I've got
something I want to ask you, if you' 11 let me.

H.M.Jr:

Please.

He's been asked by the National Broadcasting Company-

H.M.Jr:

Yes.

- to make a radio statement, I think, Thursday.

H.M.Jr:

Yes.

It's a

H.M.Jr:

Yes.

H.M.Jr:
H:

of what will presumably be the President's
veto of the bonus thing.
He's always reluctant to make radio speeches, but he's
rather anxious to do this because, as I think you know,
he'd love to support the President where he can un enthu
- quite enthusiastically and unqualifiedly as he could
in this case.

Yes, well, I And I don't think he wants to do it Well, I think it would be perfectly grand if he would.
Well, I was going to say, he - I didn't think he'd want
to do it unless he know it was quite acceptable to you
and the President if he would do it.

H.M.Jr:

Well, I can - without asking anybody, I can say unqualifiedly, it would be acceptable.

-2-

109G

Harrison: You can?
Absolutely1
H.M.Jr:
H:

H.M.Jr:
H:

H.M.Jr:

Well, then I - I think he'd love to do it on that basis.
Well, I - I think it would be grand.
Because he feels very strongly about it, of course.
Yes, well, I don't know anybody I'd rather see do it than
he.

Well, then - there's one other thing - he had a little
bit in his mind and I'd rather - I know he'd want to be

frank with you and I want to be frank with you -

H.M.Jr:
H:

Sure.

- before you say that too definitely. Glass has been
pushing him pretty hard to testify on the Bank Bill.
Well, the two things have nothing to do with each other.
No, he probably will do it and he probably will oppose
some parts of it -

H.M.Jr:

That's all right.

So I just wanted you to know that will be likely to be

H.M.Jr:

That's all right.

That's what - I should think you would feel that way.

H.M.Jr:

The two things have no connection.

Yes, all right, Henry. I'll tell him that and I can say

the case.

that you know that goes for the President too.

H.M.Jr:

I can say that - I'll take that responsibility in this

All right.

H.M.Jr:

Yes.

Well, that's first rate. I'll tell him because he - he's

case talking for him.

promise to tell the broadcasting people promptly this
afternoon, so -

H.M.Jr:

Yes, well, I'lltake that responsibility and say that it's

First rate. All right, Henry, thank you so much.

H.M.Jr:

Thank you.

acceptable to the President.

May 30, 1935.

log H

Monday.

H.M.Jr: Steve?
Gibbons: Yes.

H.M.Jr: I'm awfully sorry to hear you're ill.
an and
infected
toe nail, the damn thing,
II've
letgot
it go
wellingrown
it -

H.M.Jr:

Well, now listen Steve, when are you going to be able to

I'll be around, I'm sure, tomorrow.

H.M.Jr:

Well, could you use the phone?

Yes.

get around?

H.M.Jr: All right. You know, the President's gone right out on
the end of the limb on this bonus G:

Yes.

H.M.Jr:

And I'm going with him.

Yes.

H.M.Jr:

And as far as I can find, I'm the only member of the

H.M.Jr:
G:

cabinet that givesa God damn what he's doing.

I think that's true.
Now, Jim Farley's up dedicating a post office at Monticello. He ought to be here working for the President.
Yes.

H.M.Jr:

Now, I told the President that he's up at Monticello and
I think the President's calling him back.

Yes.

H.M.Jr:

Now, what I want to find out is - you could find out -

Yea.

H.M.Jr:

Now, it doesn't take an awful lot of votes, from the House
to sustain the President.
He doesn't think he can do it in the House, does he?

the New York Congressional Delegation, how're they going
to vote on the veto message.

H.M.Jr: No one's thinking of it but me - I'm the only fellow.
G:

Yes.

2H.M.Jr:

1090

I mean, I'm just bash enough to think that if the
Delegation
wants to - going to override his
veto -

Yes. In the House?

H.M.Jr:

In the House, I'm just talking about the House -

Yes.

H.M.Jr:

Now apparently he's in Dutch and this might be a chance
for them to pull themselves out, see?
Yes.

H.M.Jr:

Now, I - I wouldn't - I'd let Jim handle this, but he
isn't here - he's away -

Sure.

H.M.Jr:

Now, let's you and I go to work. You can call up Dooley

O.K., all right.

H.M.Jr:

and ask him -

- where they stand on the bonus, are they going with the
President or arent they.

Yes,

H.M.Jr:

And I want to know - you - don't tell him I want to know,

H.M.Jr:

but we want to know.

Oh, no, no. But, at first they won't - there will be a

lot of them from Brooklyn and all around that will vote
they'11 say, well, it'11 be turned down in the Senate and
why should we put ourselves on the end of the limb - we'll Wait a minute. The Senate is going to sustain the President.

H.M.Jr:

I know he is - I know they are.

Well, why - it's the same old thing. Here's the argument Tammany always - be here for years - well, let's put it

New York City democracy. They haven't once taken theleadership. They haven't once done anything but be a bunch
of sheep -

Yes, yes.

H.M.Jr:

Now -

Here's a chance for them to display some sense and intelligense.

-3 -

1095

H.M.Jr: Yes, and O'Connor - who heads that Delegation, O'Connor?
O'Connor, yes.

H.M.Jr:

Well, will you go to work on it?
I'll get a hold of John O'Connor right away, yes.
of course, there's just a chance -

Yes.

H.M.Jr:

And course, if the New York - what have they got, thirty

H.M.Jr:
G:

H.M.Jr:

votes?

Yes, they got thirty odd votes.
Well, if the New York delegation would vote with the
President that would end it.

Sure.

H.M.Jr:

And God, it would just put O'Connor right on the map nobody ever heard of O:Connor.

Yes.

H.M.Jr:

And, well, it would be wonderful.

Yes, I get your point. All right.

H.M.Jr:

And that's New York Democracy would stand for something

H.M.Jr:

now - you know what they are as well as I do.

Oh, they never - it's terrible.
Now, listen when you get that done - you're a pretty good
friend of Jim's, why don't you call him up and say for
Christ's sake, Jim, why aren't you here on the job?
I don't know - he's always absent at the psychological
moment.

H.M.Jr: Yes.
G:

I - I've been sitting over here fretting for a week, of

course, but I couldn't get a shoe on. Sunday, yesterday,
was my youngster's birthday and I had to stay here and -

H.M.Jr: Well, let's take care of O'Connor and the New York Delegation and I'll find out what they've done at the White
House about Tetting Jim know, see?

Yes.

H.M.Jr: And will you call me baok?

like 20, 2006

4G:

Monday,

I will, yes.

loak

H.M.Jr: Thank you.
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May 20, 1935.
Monday.
H.M.Jr:

110

Hello.
Hello.

H.M.Jr:

Roy Howard?
Yes.

H.M.Jr:

Henry Morgenthau, Jr.

Good morning to you, sir.

H.M.Jr:

How are you?

Fine, thank you. How're you?

H.M.Jr:

H.M.Jr:
H:

H.M.Jr:

Never better. Mr. Howard, very much off the Record and

confidentially I'd like to talk to you about the Bonus -

Yes, sir. How and where and when?

Well, I want to tell you what I got for mine and then you
tell me when, where and how.

All right.
The first - may I say, as near as I can tell

are the only group that are really putting up a fight.
Well, as far as I can know, I think they are.
And I read all the newspapers this morning and the only
story any newspaper carried is what the Veterans want and
not what the taxpayer wants.

Yes, sir.
Now, what I want is That's the whole picture just in that one sentence.
Right. Now, what I want is your help and advice and what
we can do after the President gives this talk on Wednesday
to carry on after he's given his talk, see?

Yes.

H.M.Jr:

And I want -

I'm surerthat my help would be good than I am that my

advice would be good.

H.M.Jr:

You're what?

I think my help might be worth more than my advice.

111
2-

H.M.Jr: Well, I want to You give me the advice and I'll give you the help and
H:

that'11 make it fifty-fifty.

H.M.Jr:

Well, I don't know, I mean -

Well, I don't either very frankly.

H.M.Jr:

But, it'just seems to me America doesn't know what's
happening to it. It's just another Wayne B. Wheeler
shoving down prohibition down their throats.

Absolutely, it's just exactly that.

H.M.Jr:

Yes.

Well, I'll be very glad to - as a matter of fact, I've
cut in on the thing or tried to cut in on it last week,

and I always thought my nose was a little bit out of
joint, although I've gotten used to that and I don't take
it seriously, but I couldn't get to the President although
the last time I was down there I could have if I wanted

to raise hell, but I didn't feel like raising hell, but I

had an idea about it because there was a very pernicous
and deliberate attempt to short circuithim by creating
this impression that you now know about that - that he

didn't really mean it; that he hoped that
put it over his veto, you see?

H.M.Jr:

I know.

I tried to get to him because I get a little different

point of view on that stuff than you do down there in
Washington through our cross section, and I thought it
was damn serious.

H.M.Jr:
H:

Well, it was.
Well, the result is - he's got to do something to break
Steve Early down unless some people that are trying to
help him get to him.
Yes. Well, now Well, now, Mr. Secretary, how about it? Do you want me
to come down there?

H.M.Jr:
H:

I'd like you to come down here, kind of open up headquarters.

In the meantime, may I ask - may I - have you met Clark

V. Parker?

H.M.Jr: No.

112
Clark V. Parker is the editor-in-shief of our whole

H.M.Jr:

group and formerly, for a great number of years,
operator from New York. This thing has gotten so
hot that I couldn't be down in Washington all the
time; he's my right hand editorial man; I sent him
down there, he's now located at the Washington News
office and what I'd like very much to do would be because time is the essence.
Time is the essence.

I'd like to get a hold of Parker on the phone this

H.M.Jr:

That's o.k.

Have you got a luncheon date or where?

H.M.Jr:

Well, I'm lunching with the President today.

I see. Well, all right.

H.M.Jr:

But, I - I - I mean, I'm doing nothing but this and

morning and ask him to come and see you.

H.M.Jr:

my whole time is on this.

Well, I'll get in touch with - of course, you've got
an hours difference in time - it's only half past nine
down there, isn't it?
Yes, but if you come down, even if it's for twenty-four
hours - and let's -

Surely I can.

H.M.Jr:

And let's start together on this.

Surely, I'll come down - how about tomorrow?

H.M.Jr:

Any time you say.

Well, I'll - I'll come down - I've got an appointment
I can come
here on Wednesday

down tomorrow, but in the meantime, I'd like to have
Parker - have you see Parker either this morning or
this afternoon.

H.M.Jr:

I'll tell my girl when Parker calls to put him on im-

mediately.
H:

All right.

H.M.Jr:

Now, why don't you - I don't know whether you fly or
you -

thito

Yes, I fly always.

113

H.M.Jr: Well,
why
don'tyou
you
some down tonight. There's a nine
o'olook
plane,
know
H:

H.M.Jr:

H.M.Jr:
H:

Yes,

- gets in here - get a good night's rest and get in
here, I think it's about nine-thirty, something like
that - ten o'clook standard time. There's a late
plane they run out of New York, I think at nine Well, there's an early plane out of here and for the
hours difference in time, I can get down to Washington
as soon as anybody that's tomorrow morning.

Right. Well, I'm - I I'11 come down on that - I'11 come down on that early

morning plane.

H.M.Jr: Well, why don't you send me a wire what time that - I
think that's the plane - I don't know - send me a wire
what time you get in, will you?
H:

H.M.Jr:

Yes, yes.

And I'll figure fifteen minutes from the time that you
get in that you'll be in my office.

Come to the office?

H.M.Jr:

Yes.

O.K.

H.M.Jr:

How's that?

That's fine. Now, in the meantime, the message isn't
going to - the veto isn't going to - the message isn't
going to be delivered today?
No, no, no, it's not until Wednesday.

H.M.Jr:
H:

H.M.Jr:

I see.

Now, what I'm thinking about and I want to get the best
brains I can get a hold of to help me, what we're going

to do after this is over. Now I - I think we're all

right on the Patman bill, I mean, on licking it, see?
H:

Yes.

H.M.Jr: Then it's going to be the X Bill and the Y Bill and they're
going to keep this up.
H:

Yes.
Japanese

H.M.Jr:

See?

5H:

114

Well, that's what - of course,
morning papers. Well, now, I want to ask you, as a matter of
maintaining
the contenta, is it agreeable to you if I bring
Parker with me tomorrow morning?

H.M.Jr:Sure.
H:

Because he's going to be there permanently.

H.M.Jr:Sure.
H:

And I'm going to tell you very frankly, I'm - because you
were very - you were very candid with me, and in fact, you
weren't - I really mean when I say no that I'm positively
damn dumb on matters of finance and you were kind enough to
say that you didn't regard yourself as
executive job.

H.M.Jr:Yes.
H:

All right. Now, I'll be - I'll give you everything that

we've got, but what I want to impress on you is that I'm so
certain that he's got to be supported in that thing that
we'll get together and talk it over - I'd find out what the
ticket is and this is one case - and I don't get into very
many of them, where I'll play it blind if he says he's got
a plan that he wants to go through with.
H.M.Jr:0.k.
H:

Now, just one thing. Probably nobody has got a keener appreciation of other peoples time than I have because mine
is damn little and I'm telling you that. So, I would not,
under any circumstances, tax the President's time with anything that wasn't important and I would never tax it with
anything that was in my own interest because I don't think

I've got any call for him on that, but honest H.M.Jr:Well, if you'll - but honest to God, I think that the situation is a little
absurd when I've got the largest single audience that is
devoted wholeheartedly to supporting him that I can't get
H:

through to him down there in an emergency.

I-

M.Jr:Well, now listen, I'll see that that's taken care of, but
H:

I would never transgress on that because I have a respect
for other people's time and as I say, I would never under
any circumstances have the temerity to do anything in my

own interest, but when it's in the interest -

H.M.Jr:When you H:

- of the Japanese

to get to him.

I think I ought to be able

-6-

115

H.M.Jr:

When you come back - when you're here tomorrow, I'll
have a message for you from the President.

O.K., and I'll send you word, Henry, what time that that plane gets in.

H.M.Jr: Right.
H:

Thank you very much.

May 20, 1935.
Monday.
Grimes:

Oh, yes, Mr. Secretary.

H.M.Jr:

Grimes, I want to talk to you off the Record - con-

Yes.

H.M.Jr:

Now, about this bonus business, see -

Yes.

H.M.Jr:

We mean business -

Yes.

H.M.Jr:

115A

fidentially - hello -

And I know how your paper is. Now, I - I wish you'd do
this
for me - you've got some of the best men on the Hill,
see?
Yes.

And, if you could kind of keep in touch with the thing and
let me know direct - I'd rather not have it come through
your - even through your Washington office, see?

Yes.

H.M.Jr:

I mean, I - I don't want to get - I want to keep in the

background on this.

Yes.

H.M.Jr:

I'm not leaving a stone unturned to lick the bonus - any

Yes.

H.M.Jr:

And the President's got a swell message.

Yes.

H.M.Jr:
G:

H.M.Jr:

H.M.Jr:
G:

kind of a bonus, see?

Now, if you've got any suggestions or if you think of anything I can do down here, I wish you'd tell me, see?
Well, now what do you want to know, what the line-up is
there on the Hill?
Yes, I know what it is now, but maybe we're kidding ourselves, see? We think we've got four or five votes to
spare in the Senate.
Well, now that's what Flynn tells me, Mr. Secretary.
Yes, but the thing might That you've got four or five votes to spare.

-2H.M.Jr:
G:

H.M.Jr:
G:

H.M.Jr:

115B

Yes,
but the thing might shift over night - it might shift
in an hour.
It might.
And
rather have
it come
through you than even through
your I'd
Washington
bureau,
see?

All right.
And if there's any shift, I'd like to know it.
All right.
Understand, I'm telling you that this is a real fight and
we don't mean - this is no - this is no shadow boxing.
This - there's several - tell me, let me ask you this
thing;
all
off?this stuff of veto with the tongue and cheek is

All off.

Well, now, let me ask you this; supposing they come through

H.M.Jr:

Well, we'll - I'm - I say we're going right down the line,

Don't want any bonus?

with another bill?

we don't want any bonus.

H.M.Jr:

No. We've got a contract for these fellows that comes due
in 1945. If - without - if the law stands the way it is,
by, 1945 we'll pay the man in uniform fifteen billion
dollars.

Yes.

H.M.Jr:

Which is three-quarters of what the whole World War cost.

Yes.

H.M.Jr:

Which I think is plenty.
Yes, that is.
And the thing that I can't get through my head - you read
- there isn't a God damm thing in there

H.M.Jr:

want. There a man

the except morning what paper the Veterans that isn't has business opened his

or a manufacturer or an organization

mouth. They're just sitting back and taking this thing.

You read any morning paper, any New York morning paper -

H.M.Jr:

That's true.
- there isn't a line about anybody except what the Veterans

want.

115c

That's true.

H.M.Jr:

And there's no difference between this and Wayne B. Wheeler

and
prohibition.
I mean, it's the same - they're using
exactly
the samemethod.

H.M.Jr:

Well,
these fellows are stronger than Wayne B. Wheeler ever
was.

Correct. But, the American business man is just sitting
back and isn't saying a "peep", and if he doesn't get busy,
he's going to have this thing. I mean, the President's
going absolutely out on the end of the limb.

Yes.

H.M.Jr:

Now, he does this on Wednesday -

Yes.

H.M.Jr:
G:

H.M.Jr:

Now, if the rest - it's up to the rest of the community to
help him. This is Well, I think if he puts out that kind of message, he'll
get the help.
Well, there's - no one can write a stronger message - it's
the strongest thing he's said since his inaugural address.

Yes, glad to hear it.

H.M.Jr:

See?

All right. I'll tell you what - I'll - I'll get a hold of

Flynn on the phone this evening and tell him I want him to
keep in touch with me direct, -

H.M.Jr:
G:

H.M.Jr:

Right.

- on any line-up and then I'll let you know.
That's right.
All right, thank you very much, Mr. Secretary.
Now, listen - now wait a minute -

Yes.

H.M.Jr:

If you get any ideas - if there's anybody you think I could
call personally, see,

Yes.

H.M.Jr:

let me know.

Well, what do you mean, anybody on the Hill?

-4H.M.Jr:

Well, I'll give you an example. I can't find out where
Paul Block stands on this stuff -

Yes.

H.M.Jr:

- and where de Ridder stands.

Yes.

H.M.Jr:

Do you suppose you could find out - in any way?

H.M.Jr:

115D

Paul Block - yes, I think I can.
I mean, as far as we can tell, Paul Block's papers haven't
taken any stand. I don't think the de Ridder papers have
either.

Yes.

H.M.Jr:

See?

H.M.Jr:
G:

Yes, I think I can find out where they stand on the
thing. You mean, the -

Well, I - I'm not in that kind of competition, but I'm
thinking more of the Paul Block's papers.
The Paul Block's papers.

Yes, Paul Block. Maybe you've got some contact with it.
Yes, I think I can find out where they stand on the thing.

I can give you a guess if you'd like to hear it.

H.M.Jr:
G:

Yes.

I think they're against the bonus; they don't want to they haven't wanted to crawl out in opposition at this
time. Well, you know Paul Block's attitude. He rather
missed - I think, also he hasn't wanted to crawl out
this time because he hasn't been - well, he heard those
stories I see.

- that there'd be a veto with the - with a wink. His
attitude being what it was, he probably gave them some
credit, I mean, we always like to believe things like
that about the people we're mad at. So, he didn't want
to fight a losing fight.

H.M.Jr:

Well -

And I think if there's a good strong veto message out of

there, you'll see a lot of rallying around.

-5 H.M.Jr:

Fine. Well,

115E

703 32,
Modday

and

The

And
I'll keep in touch with you on the thing, Mr. Seoretary.

H.M.Jr:

Fine, thank you.

Goodbye.

H.M.Jr:

Mr.

is there

Goodbye.
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May 20, 1935.
Monday.

Operator:

Mr.
on a cruise
to Jamaica on official businessBaker's
- on business
-

H.M.Jr:

Yes.

Operator:

His Secretary, Mr. McDonald is there. Do you want to

H.M.Jr:

Yes.

Just a moment.

McD:

Hello.

Go ahead.

H.M.Jr:

Hello.

McD:

Hello.

H.M.Jr:

This is Henry Morgenthau, Jr.

McD:

H.M.Jr:
McD:

H.M.Jr:

speak with him?

Yes, sir.
In Mr. Beck's absence, who can I talk to?
In connection with what, Your Honor?
In connection with the bonus.

McD:

Editorially?

H.M.Jr:

What's that?

McD:

Editorially?

H.M.Jr:

Yes.

McD:

Now, just a minute, I'll see if Mr.

hand -

H.M.Jr:

All right.
he's our editor.

McD:

H.M.Jr:

that

O.K.

World

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May 20, 1935.

lise

Monday.

H.M.Jr:
Paley:

H.M.Jr:

Hello.

Hello, Mr. Secretary.

Hello, Mr. Paley. Mr. Paley, I'd like to talk to you as
newspaper men say, confidentially and off the Record,
ifthe
I may.

Good.

H.M.Jr:

I want to talk about the bonus.

Yes.

H.M.Jr:

Now, frankly I've been doing nothing else for the last
three days and I don't mind saying that this talk that the
President's going to give over the radio when he addresses
Congress, I think, is the greatest address he's made since
his inauguration.
Yes.

Now, I don't know how you stand on the bonus, but the pointthat I'm interested in is the follow-up after the President's made his speech.
Yes.

And in reading the papers today there isn't a single newspaper that carries any item about the bonus except what
the veterans have to say.

What the who have to say?

H.M.Jr:

The veterans.

Yes.

H.M.Jr:

Now, what I want to find out is, from you, what suggestions
you have as how we can get the other side of the question
presented to the editorial man over the air, see?
Yes. That comes right down, I imagine,other
to personalities
side of thatas

to who is

question plausibly with understanding.

H.M.Jr:

Yes.

We'd be more than glad to offer periods on the air for that
particular use.

H.M.Jr:

I didn't get that,
We'd be than had to offer time on the air for that
particular use if that will be of any help.

Yes.

115 K
2

H.M.Jr:

Well, Mr. Paley, do you people run your own editorial hours
where you arrange for the speakers on two sides of questions?

Yes, we do.

H.M.Jr:

You do?

Yes.

H.M.Jr:

Do
you feel that this bonus thing is important enough to
do that?

Well, I think that it's one of the most important questions

that Congress has had in a long time.

Yes,

H.M.Jr:

There's no question about its importance and therefore devoting as much time to it as I think would be necessary at

this moment.

Yes. Well, the way I feel is that - I don't know - that I

H.M.Jr:

- maybe we've fallen down, but certainly reading the papers
you'd think that there was only one side to the question.

I've been thinking that myself for the last four or five

days.
H.M.Jr:

And now that the President is really risking everything on

When is he going to deliver that message?

H.M.Jr:

Pardon me?

When does he intend to deliver that message?

this thing -

As I understand it, I mean, as Congress - their meetings
hasn't beenas I understand it, they say their
fixed yet about one o'clock Wednesday.

H.M.Jr:

I see.

Now what I - of course, I imagine the White House will ask
for the courtesy of your chain.

H.M.Jr:

BREMM

on yes, he'll certainly get that.
And then what I'm thinking of is, I mean, this - you're un
expert on this, I'm not - how, after this thing is over,

H.M.Jr:
I

veroan get other speakers to follow up and - because this
isn't - if the Senate sustains the President on the Patman

B134 there's going to be just one other bonus bill after
smother until Congress adjourns about

misanga OF note
Yes.

-3H.M.Jr:

1156

And this is certainly from the President's Standpoint and
my standpoint to be nothing as important as this.
Mr. Secretary, can you give me some idea as to who you

think the qualified speakers would be?

H.M.Jr: Well, I'd have to think about it, see? I just wanted to
talk to you first and get acquainted and see whether you'd
feel sympathetic, that's all.
We feel sympathetic to avoid the - every side of a controversial question especially one as important as that.
P:

H.M.Jr: Yes.
P:

We have a custom to always maintain neutral position, but
there's always time available for speakers on both sides
and naturally we're very anxious to get the most qualified
speakers there are so as to be able to present each side
as forcibly as possible. Very often we're not
in
as good
the
situation
a position as people
in determining who the best people are

H.M.Jr: Yes. Well, let me ask you this from a standpoint of publie reaction which would be better, I mean, if the Columbia
organizes an editorial hour on this and invited speakers or
whether people like myself did it - I mean, would it be
much better if you people did it and then you could ask us
for suggestions.
You think we ought to have a public form giving both sides
of the story?
P:

H.M.Jr: Yes.
P:

H.M.Jr:

H.M.Jr:
P:

Well, we could do that or we could invite you or two or
three others who might be qualified. We've given enough
time to the other side so I don't think we're duty bound
now to go out of our way to give much more time to it.

Well, I - I mean, I'm not thinking of myself - I mean I the President's going to do this and I think the less
administration people the better after he's spoken.
Well, I think one other - and personally my own reaction
to it, I think one more important administration leader
ought to do it - something about it, as well as other
speakers who probably aren't mixed up in the political
phrase of his speech.
I see.

I think if the - as a matter of fact, I don't know whether
it would be wise for anyone to speak about it before his

message or not.

1155
4H.M.Jr:

No, no, I think you're perfectly right.

Now, I think that probably the speeches ought to be made
after his message, don't you?

H.M.Jr:

I think your judgment is absolutely sound.

Yes. Now, we could get people to go on Wednesday night.

H.M.Jr:

Yes.

We'd like to have you go on Wednesday night, if that would
be agreeable.

H.M.Jr:

Well, I - I - I won't be ready, I mean, they've squeezed me
about as dry as the very driest punch.

H.M.Jr:

I can imagine - the strain must be terrific.
And I - I wasn't thinking of myself in this - I mean I the only person that - down here - that gives a damn besides the President and I - I'm -

Well, Mr. Secretary, could I have my Washington man -

H.M.Jr:

Yes.

H.M.Jr:

- come over and see you Sure. Who's that?

Harry Butcher.

H.M.Jr:

Oh, yes, I'll be glad to see him.

And he can sit down and go over the whole thing with you -

he's in much closer touch with that situation -

H.M.Jr:

Fine.

- knows more about qualified speakers than we do in New

York.
H.M.Jr:
P:

H.M.Jr:

But, would Between the two of you, you might be able to form a
campaign that might be very effective.
Well, would you give us - would you mind personally think-

ing a little bit about it?

What's that?

H.M.Jr:

Would you mind thinking about that - how to present it?

-5P:

11514

I'll certainly be glad to do that. I'll. call my Washington
office right away and have a long talk with Mr. Butcher on
the telephone.

H.M.Jr:

Grand.

Go over the ground as carefully as I possibly can -

H.M.Jr:

Grand.

H.M.Jr:

And ask him to go over to your office.
Yes, that'11 be swell.

I'll do that, Mr. Secretary.

H.M.Jr:

Thank you.

Thank you, Mr. Secretary.

have

breathing

and

fill
the

President.
Tee

What

arber
peter

that

dies

038

thane which

pick
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not

a single word shows anybody the best
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this feel,
I this this So minily
adidas south 45 thing that Weyne

part for prohibition with for resour OF

othermake
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tary?

are you what da you suggest 69924 the dream Mark Searc-

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white I'm thinking, the Strat pleas, the pressure bogue overlee
grandback printing press and the follex MR his gentlemen adidas
mara and and more about what gramback inflution are to
the world is 18th Own D. Young others So BEEN 15 his own

May 20, 1935.
Monday.

lisL

H.M.Jr: Hello.
Aylesworth:

Hello.

H.M.Jr:

Mr. Aylesworth?

Yes.

H.M.Jr:

Henry Morgenthau, Jr.

Yes, Mr. Secretary.

H.M.Jr:

Mr. Aylesworth, I'd like to talk to you for a couple of
fidentially.
All right.

minutes, as the newspaper men say, off the Record and conA:

H.M.Jr:

Mr. Aylesworth, I have been living, breathing and half
sleeping on the bonus for the last three days with the
President.

e H.M.Jr:

Yes.

I don't mind saying that in my opinion the address that
he's going to give to Congress is the most striking and
the most forcible since his inauguration.
Yes.

H.M.Jr:

I don't know how you personally feel on the bonus. What
I am anxious in doing in getting help and advice is after
he makes his address - that this thing just won't peter
off and that the thing will continue only from one side,
which is the Veterans Organization - I mean, if you pick
up this morning's newspapers you won't find a single story
except those which emanate with the Veterans. There's not
a single word about anybody who's against the bonus.

Yes.

H.M.Jr:

Now, this is the way I feel, I mean, that this is simply

another minority drive - same sort of thing that Wayne
B.Wheeler put over for prohibition and for some reason or
other I don't understand it - the American public just
aren't awake to what's happening.

What are you - what do you suggest could be done, Mr. Secretary?

a H.M.Jr:

Well, what I'd like to suggest is this, I mean, this is just

what I'm thinking, the first place, the present bonus carries who
greenback printing press and the fellow - the gentleman
knows and saw more about what greenback inflation did to
the world is Mr. Owen D. Young when he saw it with his own

115m

eyes in Germany. I mean, there's nobody that I know of
knows that story better - Hello.

Yes, sir.

H.M.Jr: And I wondered if Mr. Young would care, say some time
along Thursday or Friday, go on the air and say what he
saw happened in Germany due to the printing press.
A:

Yes.

H.M.Jr:

That's number one. Now, I don't know enough how you run

your business, but do you people ever create - well, I
don't know, I'd call it Editorial Hours, where you'd get
both sides of the question.
Oh, yes, we do, Mr. Secretary. We're, of course, always
anxious to have both sides of the proposition presented
by people that really represent editionals.

H.M.Jr: I know.
A:

of course, as you probably know, we've been accused by
most everybody here at the National Broadcasting Company

as being pro administration. Hello.
H.M.Jr: I hear you.
A:

some of the old people think we're
too much of the other side, but the great criticism has
in fact, everything that
come to us

we put on there is pro administration. Now, the criti-

cism is not justified -

H.M.Jr: No.
A:

H.M.Jr:
A:

The reason is that there have been more people talking
for than against.

That's right.
And that's not artificial, that's simply a general situation. We have time open for both sides and unfortunately,
at times, not in connection with administration, but other
matters. You'll get quite - well, you know some people

down in Washington who want to talk all the time.
H.M.Jr: Yes.
A:
That doesn't mean that they're pro administration
think sometimes they want to take as many talks as they
can to attach.
H.M.Jr:

see.

lisn

And it's very difficult to get the balance because it's SO
hard to get the speaker. I presume the President's address,
of course, will be on the air.

E.M.Jr:

I understand that he's going to ask both broadcasting
companies to give him the priviledge of the air.

Well, of course, he'll get it.

H.M.Jr:

And I imagine -

That goes without saying -

H.M.Jr:

And I imagine what he'll do is that he'll again also ask
that the thing be repeated at night the way it was done the
last time.

Yes.

H.M.Jr:

From a record.

Yes.

H.M.Jr:

And - that was taken care of, but what I don't know, because I've never gotten in on a thing like this before is
whether the initiative should come, say, from the Broadcasting Company - they say that - well, this bonus is so
vital, it hits everybody's pocketbook, we're going to
devote half an hour everyday at noon and half an hour at
night and give both sides a chance to express their views.
Now whether the initiative would come from you or your
organization would get the speakers or whether you would
want somebody outside to do it. Now, that's what I don't
know.

Yes. Well, now what you're talking
about
in thatonregard,
our own
programs
public
we tried - tried
affairs and government issues, we've tried always
to get the request from others who would come
in and speak both sides, but on the other hand we try here
in designing our editorial policy not to take one side or
the other but to invite on important subject a discussion
from both sides.

H.M.Jr:

Of course, from my standpoint, it would be much better if
you people took the lead of the thing.

I beg pardon.

H.M.Jr: It would be much better from my standpoint if you people
took the lead. I mean, you know A:

Yes.

H.M.Jr:

It was your move and you invited the people to talk on
your hour rather than our trying to find the speakers, see?

Yes,

-4H.M.Jr:
A:

H.M.Jr:
A:

1150

To take care of the side why we shouldn't have a bonus.
Yes.

But -

Let me go to work on that. Perhaps I can - perhaps I can
think out some things that might be beneficial, Mr. Secretary,
that will be
from the way they're done,
but
and at the same time I

might be able to carry out your first suggestion. I'll
do my very best.

H.M.Jr:

Well, I mean, I'm being perfectly honest and above board

about it. I mean, you know what I want. I mean, I'd like
to get over the reason why the contract that the government
has with the bonus should not be paid ten years in
advance.
Yes.

Just let me give you one figure. If we carry out the
present agreement with the veterans and just the present
law as it stands, we'll pay them by 1945 fifteen billion
dollars which is three-quarters of the entire cost of the

war, A:

Yes.

H.M.Jr:

- if the law isn't changed. I think that's pretty handsome myself.

H.M.Jr:
A:

H.M.Jr:

Yes, I agree with you.

There's a limit - there's a limit to what we can do.
Well, Mr. Secretary, let me ask you this - suppose that
the President delivering his speech to the Senate and the
House - of course, that'11 be heard on the air and the
papers will cover it, probably in full. Now, I wonder if
we couldn't arrange time on that same evening so that the
President might, in a short address, not repeating his
general message, but in a short address to the
at
thepeople
next night
night - perhaps that might or
make one of those short brief fireside statements that he
makes so well to the homes in the country as a follow-up.
I think it would certainly be worth his while.
Well, let me just say - I've been practically living with
him for three days

Yes.

H.M.Jr:

And we've gone all over it. I doubt whether he'd do
this -

1159

-5

because this is an address rather than a veto message
A:

H.M.Jr:

H.M.Jr:
A:

That's true.
A nd what I think he would ask is - what happened at the last time he went, I think a record was made of his
talk and it was repeated at night.
Mr. Secretary, we never do that.

I think you did do it.
I don't think we've ever done it. I'll tell you why -

that's a policy that we never have followed for this
reason, everybody that we have on the air would like to
make records, except their not over the network because
it would destroy our business over night if -

H.M.Jr:

I'll tell you what it was.

I beg pardon?

H.M.Jr: I'll tell you what it was. You remember Columbia had
and they made a record
and they repeated it at night. That's what it was.
A:

Oh, they did?

H.M.Jr:

What?

Well, I never do that.
H.M.Jr: That's what happened. It wasn't - it wasn't - they had

this

speech on the fourth of

March.
A:

Yes, I remember that.

H.M.Jr:

Well, now look, let's leave it - if you put your brain on
this - after all, you're an expert on this -

I'll go right to work on it.

H.M.Jr:

And then will you call me back maybe this afternoon?

I will do it and when do you think the President will speak?

H.M.Jr:

Well, ofcourse, they're working on that now. I and - I -

Sometime this week?

H.M.Jr:

The best guess is one o'clock Wednesday.

Yes.

-6-

115Q

H.M.Jr:

That's the best guess.

And
that. what we ought to do is whatever we can do to follow

H.M.Jr:
A:

H.M.Jr:

Is to follow that.
All right.
And this isn't just one day - this is going - this might I'm so bold to prophesy that this might continue until the
day Congress adjourns.

Yes, I understand.

H.M.Jr:

And up to now it's been entirely a one-sided affair.

What does the - what position does the Commander of the

Legion take?
H.M.Jr:

Well, of course, he wants the bonus. He doesn't care how

Yes.

H.M.Jr:

it's paid.

He's refused to say how he wants it paid, he just wants the

bonus.
A:

H.M.Jr:

Yes, I understand.

But, when a person looks into this thing the way I have,
it's simply a contract and what they're asking us to do
is to meet the contract ten years in advance.
Yes, I understand.

And just let me, I mean, just - it's - the whole thing is
just a cold steel and if you and I enter into a contract

over a twenty-year period with accumulative interest and I
demand payment at the end of ten years in full, you'd just

laugh at me.
A:

Yes, I understand.

H.M.Jr:

See?

I understand.

H.M.Jr:

And I can't see any difference between this drive and the
drive that Wayne B. Wheeler made for prohibition and got

away with.
A:

Yes, I understand perfectly.

This,
H.M.Jr:

THER

Yes.

Well, I'll go right to work on it and you'll hear from

H.M.Jr:

Grand.

All right. Thank you.

me, Mr. Secretary.

IN $

May 20, 1935.

Monday.

H.M.Jr: Hello, Mr. Sibley?
Harper

Sibley: Yes.
Henry Morgenthau, Jr.
H.M.Jr:
S:

H.M.Jr:
S:

H.M.Jr:

Oh, yes. Good morning.

Good
morning.
Mr.bonus
Sibley,- I'm very anxious to see you
and talk
about the
Yes.

- and the position of the Chamber - I mean, I'd like to
talk to you about it if I could, off the Record and confidentially and let you know -

Well, I'd be very glad to talk with you. It's a matter
of great worry to all of us.

H.M.Jr: Yes. Now, when are you going to be back in the city here?
S:

Well, I'm going to be back tomorrow morning -

H.M.Jr:

Fine.

H.M.Jr:
S:

Unfortunately, I agreed to come over here and meet some
people today in New York and I'm coming back on the midnight.
Do you want to make an appointment now?

Anytime that suits you.
How's ten o'clock?
That'11 be fine.

H.M.Jr:

Would you come to see me?

I certainly will.

H.M.Jr:
S:

that

lieland

bill.

Well, that'll be grand.
All right, I'll come in about ten.
Grand. Thank you.
Good.

made

045

Art

this,
fight

and

the
Now,

allWoyan

that expenses

5ell, thet that dooun't watter.

Bus Itheir
anwishes
illustration
68 of 6.
to the majority.

that

May 21, 1935.

11ST

Tuesday.
Ganett:

Hello.

H.M.Jr:

Frank Ganett?

H.M.Jr:
G:

H.M.Jr:

Yes, Mr. Secretary. How are you?
I'm fine. How are you?

Well, I'm glad to hear from you. Fine.
I talked to our mutual friend,Ed Babcook, Sunday.
Good. He told me.

And I just want to talk to you for a few minutes off the
record and confi -

Absolutely.

H.M.Jr:

- and confidentially.

H.M.Jr:

Absolutely. Nobody knows you're talking to mo.
Now, this message that the President's going to give at

Yes.

H.M.Jr:
G:

H.M.Jr:

12:30 tomorrow -

- I'm so bold to say that it's the strongest message he's
written since his inaugural.
Fine.

It's a wonderful message and nobody after he hears it can
misunderstand or question where he as President of the
United States stands on the bonus. Now, the thing that

I'm interested in is, after the message, his friends have
to see that he gets support.

H.M.Jr:

Right.

Because this is - this - after the Patman Bill is licked
it'11 be some other bill, then it'11 be some other bill.

Yes.

H.M.Jr:

And the way I look at this, it's - I can't see any dif- B.
ference between this fight and the fight that Wayne
Wheeler made on prohibition. Now, of course, I know that
you're a dry so that argument doesn't hold very good with
you.

H.M.Jr:

very

Well, that - that doesn't
matter.
it
But, it was - I use/as an illustration as - of a minority
the
foreing their wishes on to the majority.

-2G:

H.M.Jr:

H.M.Jr:
G:

1154

Yes.

And I - I hope that you feel sincerely that you can't
support the President in his desire that we don't pay
a contract which isn't due for ten years.
When - sure we - we will support him; we have supported
him and I had Sibley on the phone after Ed called me
Sunday and
Sibley came down to Atlantic City
with the Statement and, of course,
Yes.

- this Patman Bill, of course, he can oppose on the
monetary side and most enthusiastically.

H.M.Jr:

Yes.

Do you think - do you think the bills will pass over his
veto?

H.M.Jr:
G:

H.M.Jr:

No, in the House - in the House, but not in the Senate.
Well, I mean They can't - Congress have not got enough votes to override the President on the Patman Bill.

They haven't?

H.M.Jr:

No.

That's - that's gratifying.

H.M.Jr:
G:

H.M.Jr:

They absolutely haven't.
But, when you've got nearly two-thirds of Congress ready
to issue greenbacks Yes.

H.M.Jr:

- almost - you may lick it by two or three
votes or
someI suppose,
and
you've
thing like that - you have
serious situation that affect your
got a very
part of the
The ice is very thin.

What?

H.M.Jr:

The ice is very thin.
Oh, I should say it is.
And the strange thing is, up to very recently, the - the

H.M.Jr:

business man doesn't seem to be aware of the dangers that

115V

-3-

are - so far as on this question of greenbacks are concerned
money. Now, the thing that's impressed me about
the speech is the figure that - if we have no new legislation, the man that wore the uniform, four and one-half
million of them, will receive fifteen billion dollars from
1924 to 1945 and that is three-quarters of what the whole
World War cost.

Think of that!

H.M.Jr:

Now, there's a limit to this and I think we've reached our

H.M.Jr:

limit -

Well, of course And - Sibley was in this morning and evidently what you
said to him helped a lot and he's taken off his coat and
vest and he's going to go to work.
Oh, that's fine.
And he said - he said he's got to arouse the people because
he admits that the business man is just asleep on this
thing.

Oh, there's no doubt about it.

H.M.Jr:

And, but -

H.M.Jr:
G:

But, Sibley is really aroused over it this thing.
Oh, that's fine.
And I've talked to people like the Liberty League - they're
tremendously aroused.

Yes.

H.M.Jr:

Manufacturers Association - people like that - I've been
talking to all of these people and they're really interested,
and - but. it's going to be a terrific fight - we need all
the help that we can get.
Well now, we'll - I'll help you and up to the present
tomorrow we have proposed it and I'm doing it
I'm writing a statement - I think
statement I make about the Patman Bill which I go back to
the monetary thing and of course, I go back to it every
time as a fundemental that we should have a dollar stable
which the President's promised us
purchasing price
and that - that we should have. I - I - we shouldgreenbacks.
have a some way of preventing inflation even if we
Net only recovering some deflation, but preventing inflation.
On that side I hope you'll
Well - the President doesn't stress the inflation side very

H.M.Jr:

now

strongly
in his speech, but he hits it and hits it awful
hard.
G:

He does?

H.M.Jr:

Awful hard.

H.M.Jr:

Vincon MLS

Well, I'm - I'm glad on that because once you do it it's
like a girl losing her virtue, once she's done it she don't
mind doing it again and that's the danger that we get into.
That's what they tell me.

Well, I don't know , I - (Laughing)

H.M.Jr:

Well, I just read about it, I'll take your word for it.

Well, anyway it's a frightful thing to have hanging over,
Congress says it is and I think next to killing the bonus,
the
next thing is to set up the right kind of a monetary
system and then I'm - I'm
and all your friends are and Well, I'd be delighted if - if you would put on the wire

H:M.Jr:

your message - I'd - I'd like to read it.

Well, I'll send it out to you -

H.M.Jr:

All right, and if you get any ideas will you call me - how
you think we might help after the President's made his
speech.

Indeed I will. of course, our papers will all go to
form on it and we'll do all we can.

H.M.Jr:

Fine.

And now, tell him that we're in his corner on it, -

H.M.Jr:

I'll tell him that.

-For it and I'll do anything that you want. You just call
me anytime and any suggestions - if I have any suggestions
I'll surely send them out to you.

H.M.Jr:

Thank you.

How's the Banking Act: Is that going to go through as it is
or not?

H.M.Jr:

I don't know, I - I've just forgot about it, that's all - I

mean, I'm letting other people handle it. Coolidge's watching for me and of course, Eocles is and I'm just concentrating on this.
Oh, I see, in this thing.

-5 -

115,

H.M.Jr: I'm just concentrating on this.
Well, is the Vinson Bill
G:

H.M.Jr:
G:

I - I, personally - and I don't wany any new bonus legislation.
Yes, well -

Fifteen billion dollars is enough.
Yes,
that's
enough
question
about
it. to upset the apple cart, there's no

H.M.Jr:

And fifteen billion dollars is enough even for the new deal.

Yes.

H.M.Jr:

Yes.

It's a lot of money.

H.M.Jr:
G:

they

All right.
Well, thanks for calling; I appreciate it.
All right.
Goodbye, good luck.
the

gost