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DIARY Book 530 May 20 - 22, 1942 -ABook Page 530 223 Airplanes U.S.S.R. - shipment to: Kamarck report - 5/21/42 Aircraft despatched, week ending May 19, 1942 British Air Commission report - 5/22/42 Alcohol Tax Unit - New York City Trial of 20 employees - Irey report - 5/21/42 356 183 Appointments and Resignations Gamble, Ted R.: Appointed Assistant to the Secretary at $1 a year - 5/22/42 286 Army Commissaries and Post Exchanges Applicability of retailers' excise taxes discussed in War-Justice-Treasury correspondence - 5/20/42 Automobile Workers, United 95 See United Automobile Workers B- Berle, Adolf A., Jr. Rum: Correspondence concerning 6 bottles from Haiti as a gift - 5/20/42 103 Brazil See Foreign Funds Control -CCanada War Savings Campaign: White (Hoflich) report on 5/20/42 138 (See also Book 532, pages 273, 286, 292, and 309) a) Canadian General Electric Company: Book 532, page 304 b) Commissions paid to bond salesmen, investment bankers, and to banks discussed at group meeting - 5/29/42: Book 534, page 7 c) HMJr's telegram urging circulation in War Savings of Hoflich report - 6/1/42: Book 535, page 32 China Adler report on industrial and mineral production 5/20/42 167 5/21/42 208 United Kingdom-China financial aid agreement - copy of a) Terms discussed by Phillips with State and Treasury; growing Chinese animosity toward British discussed - 5/21/42 Adler report on economic and financial conditions in Chungking and Shanghai - 5/22/42 Civilian Defense 220 372 See Revenue Revision Commissaries and Post Exchanges, Army See Army Commissaries and Post Exchanges Correspondence Mrs. Forbush's resume' - 5/22/42 328 -D Dietrich, Marlene Tax situation discussed by Treasury group - 5/22/42 Book Page 530 265 Disney, Walt See Financing, Government: War Savings Bonds -EExports 35 Freight Situation - Haas memorandum - 5/20/42 Exports to Russia, Free China, Burma, and other blocked countries, 10-day period ending May 10, 1942 - 362 5/22/42 Federal Reserve Banks See Financing, Government: War Savings Bonds Fiji Islands United States Treasury plan for disposal of United States paper currency not to be adopted - 5/22/42 376 Financing, Government War Savings Bonds: See also Canada: War Savings Campaign War Department: Secretary of War thanked for energetic campaign - 5/20/42 Issuing Agents: Report as of May 16, 1942 - 5/20/42. Robeson, Paul: Thanked for performance - 5/20/42 a) Robeson's reply - 5/28/42: See Book 533, page 163 Jessel, George: Jesse Jones--Treasury correspondence concerning - 5/21/42 Sales, May 1-20 - 5/21/42 Sayk, Arthur: Drawings discussed by Treasury group - 47 50 58 184 188 269 5/22/42 Disney, Walt: Sponsorship by General Motors discussed by Treasury group - 5/22/42 Federal Reserve Districts: Comparison of sales and quota - 5/22/42 Myers, William I. (Cornell): Will help on agricultural part of program during July and August - 5/22/42 (See also Book 534, page 171 - 5/30/42) Intimidation, etc., - HMJr warns against in memorandum to the field - 5/22/42 270 298 316 317 Foreign Funds Control Brazil thanked for cooperation in preventing benefits from transactions in dollar currency for the Axis countries - 5/22/42 Freight, Export See Exports 370 -Book Page Gamble, Ted R. Sec Appointments and Resignations -HHalifax, Lord "There Were Giants in the Land": HMJr thanks Halifax for foreword for British edition - 5/22/42 530 358 a) Halifax acknowledges: See Book 532, page 53 Hoflich, Harold J. See Canada -J Jessel, George See Financing, Government: War Savings Bonds Jewish Encyclopedia (Universal) See Morgenthau, Henry, Jr. LLatin America Central Banks, etc.: Forthcoming conference discussed in State-Treasury correspondence - 5/20/42 Brazil: See Foreign Funds Control 158 Leffingwell, Russell See Revenue Revision: Estate and Inheritance Taxes -M- Military Reports British operations - 5/20/42, etc Coordinator of Information reports: British Political Warfare Executive weekly directive 5/20/42. The War This Week, May 14-21, 1942 173,239, 240,378 174 242 British Ministry of Information Weekly Guidance 5/22/42 379 British Political Warfare Executive German directive (proposed), week of May 31-June 6 - 5/22/42 381 week of May 22-28 - 5/22/42 383 British Political Warfare Executive Italian directive, Military situation according to Military Intelligence Kamarck report - 5/20/42 Kamarck summary - 5/22/42 176 385 - M - (Continued) Book Page Morgenthau, Henry, Jr. Jewish Encyclopedia (Universal): Article as prepared by Gaer (Joseph) - draft 1 5/20/42. 530 59 Draft as revised by Gaston - 5/27/42: See Book 532, page 210 Myers, William I. (Cornell) See Financing, Government: War Savings Bonds - Office of Civilian Defense See Revenue Revision Office of Price Administration Expenditures in Personnel: Graves memorandum - 5/20/42.. 102 -PPost Exchanges and Commissaries, Army See Army Commissaries and Post Exchanges -RRevenue Revision Tax-Exempt Securities: Washington News editorial record on - 5/20/42 Civilian Defense: Contributions toward constitute allowable income tax deductions - 5/20/42. Estate and Inheritance Taxes: Acceptance of bonds and 85 92 notes at par in payment - Russell LeffingwellTreasury correspondence concerning - 5/20/42 99 United Kingdom: Individual income tax rates - Winant summary of - 5/21/42 212 RKO Postmaster General Walker told by White of investigation of financial status - 5/20/42 Robeson, Paul Run 72 See Financing, Government: War Savings Bonds See Berle, Adolf A., Jr. -SSilver Supplies loaned for industrial purposes in connection with shortage of strategic materials - protection of discussed by Jones and HMJr - 5/22/42. Straus, Nathan 287 Address at third annual award for meritorious housing service by United Tenants Leagues, New York City 5/21/42 325 - S - (Continued) Book Page 530 165 Sweden Neutrality - lack of discussed in connection with proposals to send supplies to - 5/20/42 Sayk, Arthur See Financing, Government: War Savings Bonde -TTaxation See Revenue Revision Tax-Exempt Securities See Revenue Revision "There Were Giants in the Land" HMJr thanks Halifax for foreword for British edition 5/22/42 358 a) Halifax acknowledges: See Book 532, page 53 Time Magazine Kuhn advises against any action in connection with articles on Treasury and HMJr - 5/22/42. 293 -UU.S.S.R. Shipment of Planes and Tanks - Kamarck report 5/21/42 223 concerning continued production - 5/21/42 190 United Automobile Workers A-20 Bomber produced in Murray Body Corporation, Detroit, Michigan: Correspondence with HMJr United Kingdom See China Revenue Revision W- War Department See Financing, Government: War Savings Bonds War Savings Bonds See Financing, Government Washington News See Revenue Revision: Tax-Exempt Securities 1 May 20, 1942 9:05 a.m. FINANCE Present: Mr. Bell Mr. Haas Mr. Buffington Mr. Lindow Mr. Baker H.M.JR: What have you got there? MR. BELL: This is entirely a refunding problem. (Paper handed to the Secretary). You might look at that sheet; that shows the amounts. Maybe you would want to take the ones coming due on July 1 as one refunding, take the second group as a second refunding, and then the certificates would be a separate operation. H.M.JR: This is entirely new. What is the first? MR. BELL: Those are the Home Owners' Loan and the RFC notes falling due July 1, a billion one hundred fifty million in operation, and you could increase that by the September, two-percent Treasury notes, making it a billion four ninety-three. But as long as you have got to do a refunding job in October, you might as well pick up those three and make another refunding job at that time, rather than stressing this. one? H.M.JR: Well then, your thought is just to do number MR. BELL: Yes, at this time. That is the view of the group here. H.M.JR: You have your room here? -2- ment. 2 MR. LINDOW: Yes, it is fine, very much an improveH.M.JR: Did they put Tickton somewhere else? MR. LINDOW: No, we took the next room to where we were before and put a partition down the middle. It has glass in it so the light comes through beautifully from one side to the other, wallboard and then glass and wallboard on the top. H.M.JR: And you get the light through? MR. HAAS: I think they (Lindow) designed it. MR. LINDOW: It is sort of a compromise. They had a little trouble getting materials. The glass was helpful to use from that point of view. H.M.JR: Well then, it gets down to this, doesn't it-MR. BELL: Down to the refunding of that first block. H.M.JR: Yes. MR. BELL: It is a question where we are going to put it. H.M.JR: What suggestions have you got? MR. BELL: We talked about it yesterday afternoon, and we started out with-- (The Secretary left the conference temporarily.) H.M.JR: You were going to say you were recommending something. MR. BELL: No, we discussed yesterday the possibility of the note and the possibility of a short bond. It is a little early yet to make up your mind just where you want to go. After discussion we kind of shifted to the short 3 3- bond, because the note market, which is New York, is a little tight on reserves, and we think maybe that a period around five, seven-year bond, one and three-quarters, one and seven-eighths might do this. This is largely a banking issue. Most of these securities-H.M.JR: Do you know where these things are? MR. HAAS: Yes, sir, they are in the banks. Have you got the sheet? (Mr. Haas hands paper to the Secretary.) MR. HAAS: The second sheet is a list of the twentyfive largest holders. MR. BELL: Was that, George, as of April 30? MR. LINDOW: March 31. MR. BELL: Guaranty sold out some of theirs last week, week before last. H.M.JR: You never gave me that letter for Eccles. MR. BELL: I have it on my desk. H.M.JR: Ready for me? MR. BELL: Yes, sir. H.M.JR: Want to do it when this is over? MR. BELL: Yes, sir. H.M.JR: You say the Guaranty Trust has sold some? MR. BELL: They sold quite a block, I think, last week. MR. HAAS: Yes, Rouse called me up to get the list of the holders. 4 -4H.M.JR: Where are your things showing where the five years and that group is? MR. LINDOW: You mean this calendar? H.M.JR: No, I don't mean that. I mean where they - let me just see that. I have an idea. Forty-seven is five years, isn't it? MR. BELL: Yes. June '47 is vacant as a maturity date; there may be some securities cross it. H.M.JR: How much do I have to pay for five years? MR. BAKER: One and three-quarters. MR. BELL: What do you mean, a bond, '57? The note is four and a half percent. That would be '46 12/15/46, which would be four and a half years. MR. LINDOW: Take one and five-eighths to do it. H.M.JR: This is what is running through my mind. This is a billion dollars - too much. I think these banks, we ought to give them - got to build these places up anyway so they begin maturities, affix the date at more or less - eventually have them so they come almost every three months. MR. BELL: We have them almost that way now. H.M.JR: Not fixed, no. MR. BELL: No, not fixed, but we have called-H.M.JR: Supposing you put it in June 15, '47. MR. BELL: As a definite call date? -5- 5 H.M.JR: Yes. MR. HAAS: Fixed maturity. MR. LINDOW: You would make it a note then, wouldn't you, Mr. Secretary? It would be a straight five-year note then? H.M.JR: Yes. MR. LINDOW: The only thing against it that I can see is that you would have to go up to a one and five- eighths coupon. You could keep it at one and a half, if you are short six months - it is just the appearance of it, that is all. H.M.JR: Where would that put it? MR. BELL: December '46. MR. BAKER: One and a half for four and a half years would be something we are in agreement on. H.M.JR: You are in agreement? MR. LINDOW: Yes. MR. BELL: MR. Fourteen to twenty-one? LINDOW: Twelve to twenty. MR. BELL: Keep it down around a quarter. H.M.JR: Put it down - back up to September. MR. BELL: That makes it richer. H.M.JR: I am confused. MR. BELL: March '47, is that too much? MR. LINDOW: I am a little bit afraid of the size here. -6- 6 It would be the biggest note we have, and I thought we ought to be a little bit conservative in pricing it. H.M.JR: Well, I am just throwing it out - this is the first meeting - as a suggestion. I mean, I always remember some fellow from Baltimore came in here - the trouble is, you fix up their portfolio, and they can't schedule their maturities. You see, we got things all over the lot. How long since we have sold a note? MR. BAKER: It is a year. MR. BELL: November 1, 1941, four years - no-MR. LINDOW: We offered - the date of the announcement was October 23, 1941. H.M.JR: We haven't done a note since then? I think it is time we did a note. MR. HAAS: Then, reserves were choice. New York is really the note market, and the reserves in New York have gone against us ever since. That was one of the reasons. H.M.JR: Well, we can try it out. MR. BAKER: I feel if you are going to do a note, you will have to make it a little more attractive because the note market hasn't shown any signs of life lately. Of course, this is a refunding which will absorb some of that disadvantage, but I wouldn't be afraid of putting out one and a half for four and a half years even if it looks a little sweet on paper because you wouldn't have a keen demand. MR. BELL: A lot of these held in New York? MR. LINDOW: Yes, forty percent in New York. MR. BELL: Forty percent of the whole in New York. 7 7- MR. HAAS: This would be a lot easier if they had done something about reserves. H.M.JR: Well, they wouldn't do it, George. What was that you were trying to tell me about the Advisory Committee, the reserves were flowing back to New York? MR. BELL: Yes, they talked about reserves over there Monday at the Advisory Group. While I didn't get to discuss it very much with George Harrison, he said that the consensus of the group was that we shouldn't touch reserves at this time as a major operation, mentioning lowering reserve requirements. There was a feeling that funds were now flowing back to New York, and I believe there is some evidence of that in the last week or ten days. I think the New York situation would correct itself. Furthermore, they thought that New York was becoming of less importance in this financing; that defense industries were outside of New York and the money wasn't really going there, was going other places. Maybe we should stop working on New York. MR. HAAS: The thing is that the proportion of the banking resources in the United States which are located in New York is so huge - I don't think you could just skip the banking-MR. BELL: You have to bear in mind, too, that the people on the Advisory Committee have people representing sections outside of New York, except George Harrison. H.M.JR: When Walter Stewart - he will be here tomorrow - comes down, be sure and talk to him about this reserve thing; you, George, too. MR. HAAS: He feels very strongly. I agree with him a hundred percent. H.M.JR: Something has to be done. He also thinks it is a shame that I always have this knock-out and drag-out fight with the Federal Reserve to get them to do anything. 8 -8- I think we ought to have a program of our own on reserves; "This is what we want, now go ahead and do it." MR. BELL: Eccles has three amendments to the law that he would like to get through in a hurry, and one that will materially affect reserves in New York and Chicago. H.M.JR: Which way? MR. BELL: Increase them, increase Chicago about - a billion, and MR. HAAS: If they change their classification. # MR. BELL: And Chicago two hundred fifty million, some- thing like that. H.M.JR: Let Stewart look at that tomorrow. MR. BELL: All right. noon? H.M.JR: What have you got scheduled for this after- MR. BELL: Three o'clock is Eccles, and I have left it to him, as you suggested, who should come with him. H.M.JR: Why don't we do that letter so these men could be working on this thing? MR. BELL: O.K. 9 MATURITIES UP TO DECEMBER 31, 1942, EXCLUSIVE OF TREASURY BILLS I $ 875M 2-1/4 HOLC bonds, July 1 1% RFC notes, July 1 276 $ 1,151M II 2% Treasury notes, September 15 $ 342M 7/8% RFC notes, October 15 320 1-3/4% Treasury notes, December 15 232 $ 894M III 1/2% Treasury certificates, November 1 Total Office of the Under Secretary May 20, 1942 $ 1,507M $ 3.552M 10 May 20, 1942 9:24 a.m. HMJr: Hello. Operator: Mr. Sproul and Mr. Rouse are both out of their office, and it will take a few minutes to get them. HMJr: Oh. Well, all right. Operator: Right. May 20, 1942 9:29 a.m. HMJr: Robert Rouse: HMJr: R: HMJr: R: HMJr: How are you? I'm fine. And you? oh, alive. Sorry I missed you at the War Savings place the other morning. You didn't miss much. (Laughs) We were up there in the afternoon. I see. The thing that I wanted to give you to think about was this. On this refunding R: Yes. HMJr: Just a minute. Somebody was - I sent a conference over in the corner 80 that - this refunding, we only want to do the RFC notes and the Home Owner's Loan. Hello. R: Yes. HMJr: Because Bell - I mean, it comes to a billion one or a billion two, something like that. Hello. R: Yes. 11 -2HMJr: And I made the suggestion, which I want you to think over, that we might try a - something around four and a half years, around one and a half per cent R: Uh huh. HMJr: .....to a fixed maturity. You see? R: Yeah. HMJr: What's your first-hand reaction to that? R: HMJr: R: HMJr: R: Well, I think it would go a long way towards straightening us out in that area. You do. The market doesn't particularly want it; in fact, it's been selling some of that type of stuff. Yeah. But we also have a problem we want to straighten out HMJr: Yeah. R: .....in those yields between the notes and the bonds. HMJr: R: I see. Allan and I have a date at quarter of ten to discuss this thing HMJr: Yeah. R: ..... with a view to talking both with you and Marriner later. HMJr: Yeah. R: And I'm awfully glad you gave me this so we could have that to work on. 12 -3HMJr: R: HMJr: Well, the boys gave - as a first suggestion gave me something in a short bond, but we just did one - we haven't done a note since last fall Uh huh. and I think that we're going to have to fill those dates in anyway, and this is about the amount that I think we'll have to put into a note from now on. R: Yeah, I do, too. HMJr: What? R: I do, too. HMJr: Well R: I've been thinking in terms of this, and a bond of 147-148. HMJr: Well..... R: We haven't any fixed ideas on it here yet. HMJr: Well, that's what they had, but I thought it was time for a note and that's my first suggestion. R: Uh huh. HMJr: But talk it over, and I'll talk to you later in the day. R: Good. Thank you, sir. HMJr: Thank you. 13 May 20, 1942 10:53 a.m. HMJr: Hello. Operator: Mr. Graves. HMJr: Harold. Harold Graves: Yes, sir. HMJr: I'm sending you in a clipping on War Bonds and what Chairman Davis has to say, see. G: Yes. HMJr: I think you ought to contact him G: Yes. and have a talk with him yourself. HMJr: G: All right, sir. HMJr: He's going off the deep end on this thing. G: Yes. HMJr: See? G: Yes. All right, sir. I'll do it. HMJr: I don't think you ought to lose any time. G: All right, eir. I'll do it right away. HMJr: Okay. G: Yes, sir. HMJr: All right. G: Good-bye. cc - Dr. White 14 May 20, 1942 2:07 p.m. HMJr: Hello. Operator: Mr. Long. HMJr: Okay. Operator: Go ahead. Breckinridge Long: Hello. HMJr: Hello. L: Henry. HMJr: Yes. L: Breck Long. HMJr: Hello, Breck. L: Yesterday you spoke about information from South America. HMJr: Yeah. L: And I've had it up here. I talked to Mr. Hull HMJr: Yeah. L: about it. He thought that we were equipped down there and asked me to go into it some, and I have, and I thought I'd either come over to see you or talk to you this way and then you could appoint some - designate somebody you'd like to - this is specifically the way we are, that we're not now reporting specifically on certain matters that you may want. HMJr: I see. L: And we're not doing it in detail, because we're not advised just what it is you want. 15 -2HMJr: I see. L: Now, we have arrangements with Commerce and HMJr: Yeah. with Agricul ture my L: and they have set out in a sort of a form exactly what they would like us to furnish them with. HMJr: Yeah. L: Certain types of information. HMJr: Yeah. L: And we are doing that, and I think it is doing very - being done very successfully. Now, if you want to tell us in more detail what you want, why we're very glad to try to get it; and we think we're equipped. HMJr: Well, you know - I may - you said that you'd do it or else, and I said no, there was no "or else"; as far as I was concerned, I was sure the State Department could. Do you remember? L: Yeah. HMJr: You remember that. L: Yeah. Well, I'm - I remember - yes - I didn't I - because I was just talking off the record, trying to be helpful. Yes. that's - well, I tell you, supposing I talk Well, with White HMJr: L: HMJr: Yeah. and tell him to prepare a memorandum showing the kind of information that we want L: Uh huh. HMJr: .....and need 16 -3L: Yeah. and then that he take it up with you. HMJr: L: HMJr: L: All right. And then if - I'm sure that - if after that..... After that if we don't - if our staff isn't capable or isn't sufficiently numerous, why we'll do whatever we can. HMJr: Well, I think that's fine, and I'm delighted at the quick come-back. L: Yeah, all right. Well, I always like to play ball; and you and I, irrespective of other things that happen here, I think that we can keep things rocking along somehow. HMJr: Well, it's most helpful and very encouraging, this call. L: All right, Henry. Fine. And I'll wait until I hear from White, or, we have a man who's a liaison with you who's arranged these other schedules with Treasury - with Commerce and with Agriculture, that's Geist. Do you know Geist? HMJr: No, I don't. L: Well, if Geisthe's anda very able fellow; and if he and - HMJr: White. L: White would get together and have a talk, I think it would probably simplify the problem for each of them. HMJr: Well, touch supposing with Geist. - I'll ask White to get in L: All right. HMJr: G-e-1 17 L: HMJr: Right. L: Yeah. HMJr: Thank you so much. L: Fine. 18 MEMORANDUM May 20, 1942. TO: FROM: Secretary Morgenthau Mr. Sullivan TLS SUBJECT: Conference in Secretary Jones' office. PRESENT: Secretary Morgenthau Secretary Jones Assistant Secretary of Treasury Sullivan Under Secretary of War Patterson Assistant Secretary of Navy Bard Under Secretary of Commerce Taylor Assistant Secretary of Commerce Hinckley Mr. Leon Henderson, Administrator of O.P.A. Mr. Maverick of the W.P.B. Governor Lehman of New York Governor O'Conor of Maryland Governor Broughton of North Carolina Governor Saltonstall of Massachusetts Governor Stassen of Minnesota The purpose of the meeting was outlined by Secretary Jones and Mr. Bane, Secretary of the Council of State Governors, as an effort to make known to the states, state laws, regulations and conditions which were impeding the war effort and describing to the states the manner in which they could be more helpful to the Federal Government in extending the war effort. Specifically outlined as general objectives were the following: 1. To determine what state statutes are impeding the war effort. 2. To examine their nature. 3. To discover what can be done to remedy it and how soon. After the Treasury had indicated that it had no unusual problems at the present time, Secretary Jones called on Under Secretary Patterson of the War Department to speak on the difficulties resulting from state labor laws and transportation laws. 19 -2Mr. Henderson spoke of the state fair trade laws the necessity of reducing maximum vehicle speed laws, the desirability of coordinating state and Federal rent laws, and the problem of the impact of gas rationing upon state revenue. Assistant Secretary Bard of Navy spoke of the interference on coal transportation of state pilot laws in inland waters and off-shore waters. Mr. Maverick of W.P.B. requested every governor to ask for emergency powers for himself and for his war council or defense committee, so that they would have authority to relax those state statutes which were deterring the war effort. He also spoke of the difficulties resulting from migrant labor laws and its impact in canning and harvesting in 27 states. He further referred to local regulations on house trailers, plumbing and electrical codes, building codes and factory regulations. Mr. Scott, representative of Mr. Eastman of the Interstate Commerce Commission, spoke of state license laws and the desirability of reciprocity on automobile licenses. He referred to the problem of migrant labor and the train size limit law and the full train crew laws. Mr. Henderson left after he had spoken briefly and Governor Saltonstall expressed his regret that he had not had an opportunity to discuss with Mr. Henderson O.P.A's plans to have its own enforcement force throughout the country. Accordingly, Mr. Bane sent for the deputy administrator of O.P.A., Mr. John Hamm, who spoke about the difficulty of enforcement by state officers. All of the five governors present stated that the state and local enforcement officers would handle this problem much better than a new force of Federal investigators and expressed the fear that if a Federal agency tried to enforce these rationing regulations within the states we might have a repetition of the lack of cooperation and occasional hostility between Federal, state and municipal enforcement officers just as we had in prohibition days. Despite the unanimous opinion of the Governors' Council that this could best be handled by already existing state and municipal enforcement agencies, Mr. Hamm refrained from agreeing that it should be done this way. At the afternoon session it was decided that the states should be given ten days in which to issue proclamations confirming the transportation regulations for trucks and pleasure vehicles laid down by the War Department. It was further agreed that in the event any appreciable number of states failed to accomplish this within ten days the Governors' Council would join with the Jones Committee to ask the President to issue a proclamation calling upon the states. to relax their regulations in accord- ance with the desires of the War Department. 20 - -3 - It was further decided that all government agencies wishing state cooperation should channel their requests through the Department of Commerce which in turn would communicate with the states through Mr. Bane the Executive Assistant of the Governors' Council. 21 May 20, 1942 3:10 p.m. FINANCING Present: Mr. Eccles Mr. Bell Mr. Haas Mr. Buffington Mr. Lindow Mr. Baker Mr. Szymczak Mr. Piser H.M.JR: Well, got it all fixed? This thing - I told Bell that this is getting to be sort of a weekly affair, no time for the weary. I told Nelson he is exceeding himself. MR. ECCLES: You mean Don? H.M.JR: Don Nelson, he is doing a good job. MR. ECCLES: He is sure getting the money out. H.M.JR: Have you fellows looked it over? MR. ECCLES: Yes. H.M.JR: What horse have you picked? MR. ECCLES: Same one you have. H.M.JR: I see. Good. On the nose or across the board? MR. ECCLES: We know you didn't pick it because we did, and you know we didn't because you did; we both had the same kind of good judgment on it. Well, anyway, we 22 -2- analyzed the thing, discussed it rather extensively. I talked to Allan yesterday and asked him if he wanted to come down, he and Williams, and they both thought that unless we required them to they would just as soon not do it. I told them I didn't think it was necessary on this refunding issue, that it wasn't any problem, so they said that they wouldn't come down. I talked to them just a little while ago; I talked to Allan this morning and talked to Williams a little while ago. Allan had been talking the thing over with Rouse, and we had agreed among our selves over there, before talk- ing to Allan, that we would favor the refunding of just the two issues and leave the - there was no point at this time, we felt, in calling the September bills because with the RFC coming due in November, you would have to have a refunding of those and therefore it would be too small, and you might just as well call the September bills along with the RFC bills; and that we would, there- fore, recommend only that you refund the HOLC's and the RFC's at this time, and that the one and a half note should be put out. It would appear to us, the way the structure is now, and we have agreed to maintain this pattern, that it should fall between June of '46 and March of '47, and that it looked like it ought to be priced with a sufficient premium so as to assure the refunding if it hit about December; that that would give them enough leeway, and that if there was any weakness whatever in the market we would support it vigorously around that level until it was absorbed; that the market is pretty inactive at the moment, and as to whether or not a billion and a hundred and fifty million of bills go out, they shouldn't affect it, because with what the Federal owns and with what the banks own there is over eighty percent of them that are in that category. MR. BELL: How much does the Federal own? MR. ECCLES: Sixty some odd million. MR. SZYMCZAK: Sixty-eight. -3- 23 MR. PISER: The sixty-eight we own includes the Treasury notes. It is only two million - the two guaranteed issues. MR. ECCLES: Well, there is seventy-seven of the two. Is that right? MR. PISER: Sixty-eight. MR. ECCLES: Seventy-eight some odd, Piser, seventy- seven of the two that are held by the banks. MR. PISER: That is right. MR. BELL: But you only hold two million of the maturing. MR. ECCLES: I had overlooked the fact that what we had was the note, but even with seventy-seven of the two, the great bulk of them being in the banks, that likewise called for a note issue inasmuch as we had just put out a two-percent bond issue; and so that is the way we feel about the note picture. H.M.JR: In December? MR. ECCLES: That is right. You felt, Piser, on that, that ought to have anywhere from a minimum of nine to fifteen, or twenty, thirty-seconds? MR. PISER: Yes, although I think the pricing can be done a little more accurately after the market knows that there is to be a refunding. H.M.JR: And coupon? MR. PISER: One and a half. MR. BELL: We figured a little higher than that, twelve up. MR. LINDOW: Twelve to thirty, thirty-seconds. They -4- 24 are about the same. ECCLES: It ought to be adequate, plenty, for shortMR. issues. H.M.JR: Well, Dan, you have had all day to think about it, nothing else to do. MR. BELL: It is all right with me. It had to be in that area some place, I thought. It wouldn't make much difference to me if it were a five to seven year bond. I think this is all right. H.M.JR: I meant just as to a note. MR. BELL: Yes, that is all right. MR. ECCLES: I think I would save that bond until next month. MR. BELL: Well, we will need something next month. MR. ECCLES: I think you might well need that bond in there next month. H.M.JR: Well, we haven't done a note since last fall. MR. ECCLES: That is right; that is another reason, because you have been increasing everything but notes. The proportion of the notes in relation to your total outstanding is dropping. H.M.JR: Supposing I call up New York. I talked to them early this morning. MR. ECCLES: I talked to Allan at eleven o'clock, and that is the way they felt about it. H.M.JR: Is it all right if I talk to them? MR. ECCLES: Yes, and I t al ked to Williams at two- thirty. 25 -5- H.M.JR: Because I thought if he was in agreement we might tell Schwarz to tell the press we are going to do a refunding and that it will be a note. MR. ECCLES: Both he and Rouse. H.M.JR: Get the market ready. MR. ECCLES: He said he didn't care whether he included September or not, that it wouldn't make any difference, but I think we felt a little stronger that it shouldn't be included, possibly, than he did, and that he didn't have any alternative. He just figured that this December issue fit right into what - I mean, the December maturity would fit the situation perfectly; that is the impression I got. MR. BELL: Picking up September's and the October RFC's and the December's makes about a nine hundred million dollar refunding in the latter part of August. H.M.JR: And a billion one hundred million makes a nice size note anyway. MR. BELL: If you are going to put it in one place, I would say it was enough. H.M.JR: I thought Sproul appointed a good committee and I wanted to tell him that. I saw it in the paper this morning. you? MR. ECCLES: You saw the committee before that, didn't H.M.JR: They never show me anything. MR. ECCLES: Just tell them you approve it and sign your name ? it. MR. BELL: He may not have seen it, but he approved H.M.JR: I get my clippings in the morning. If I don't read them, I don't know what is going on. -6- - 26 MR. DRAPER: That was in the Times this morning. H.M.JR: I mean, Buffington didn't-MR. ECCLES: Buffington knew. MR. BUFFINGTON: I told you about it. MR. BELL: He wasn't here, was he, over the week end? it. H.M.JR: Did you hear what he said? He told me about MR. ECCLES: I know I got a copy. H.M.JR: Well, that is a very powerful committee. If they can't sell anything in New York - God, they ought to be able to sell the Statue of Liberty. MR. DRAPER: Probably will before they get through, too. MR. BELL: If they can't sell them maybe they will buy them. MR. ECCLES: Well, it is important now that they get their man that is going to be there, their manager and then get their-H.M.JR: They haven't got that yet, have they? MR. ECCLES: No, they don't have it yet, but what they are going to do all over is call in these committees. There was a question of whether the traveling expenses it isn't going to be bad in New York because there are most of them there, but out in places like Kansas City and San Francisco, they have got to come in from a distance and they have raised that question about whether these fellows are willing to give all their time and whether they should pay all their expenses. That was a question that they had raised. Then when the committee comes in for a meeting, which we ought to meet to organize and select their manager and discuss the regional committees, T7- 27 and then this manager would have to follow through, go to work and get these regional committees set up and functioning. (The Secretary held a telephone conversation with Mr. Sproul, as follows:) 28 May 20, 1942 3:19 p.m. HMJr: Hello. Operator: Mr. Sproul is tied up on a long-distance call, and he'll call you as soon as he's through. HMJr: Would they send in a note to him, please? Operator: Yes. HMJr: What? Operator: I'll tell them to. HMJr: Will they? Operator: Right. HMJr: Well, if he's - would they send in a note to him? Operator: All right. May 20, 1942 3:21 p.m. HMJr: Hello. Operator: Mr. Sproul. HMJr: Hello. Allan Sproul: HMJr: Hello, Mr. Secretary. How are you? You're on the air here with some of the Federal Reserve people and ourselves. S: All right. HMJr: And I wanted to congratulate you on that committee you got together in New York. S: I think it's a pretty high-powered committee, don't you? 29 -2HMJr: I just said to the boys here that I thought you could sell the Statue of Liberty and Dan Bell said, "You may have to buy it before you get through. S: (Laughs) HMJr: So - no, I think they ought to be able to sell S: (Laughs) Well, we may try it. HMJr: What? S: We may try it. HMJr: Yeah. That's a S: HMJr: the fire hydrant on the corner. Try them out on that first. No, I read about it in the papers, and it looked all right to me. S: Well, I'm glad you like it. HMJr: Yeah. S: It looks all right to me. HMJr: They're laughing at me because I told them it was the first I knew about it, it W&S in the newspapers. S: Well, that's just because your people don't HMJr: Can you hear them laugh? S: Yes. HMJr: What? S: Yes, I could. HMJr: All right. That's right. On this, what I tell you anything down there. thought I'd do - Marriner says he's talked with you and if it WES all right with you 30 -3and you thought well of it, we'd tell the press that early next week we were going to do this refunding, and it would be a note. S: Yes. HMJr: That would give the note market a chance to S: Yeah. HMJr: What do you think? adjust itself. I think it's all right. I talked with Bob S: Rouse, who's now on the telephone, after you had talked with him this morning and we both agreed and subsequently talked with Marriner and he agreed that that seemed to be the best bet for this financing was the note. HMJr: Well, then if that's all right with you, we'll S: That's on the RFC'E and the HOLC's, clearing out the September note. HMJr: It'11 be the two and a quarter HOLC bonds and the one per cent RFC notes. S: Right. Well, that's all right with us. HMJr: And - well, I never have had less arguing, and no arguing. S: There must be something wrong with us, all three of us being in agreement. HMJr: Well S: But it makes good sense. HMJr: I think so. I think so. Just a moment. No, they're all happy here. S: HMJr: All right, we'll We've got a thunder-storm down here right now. What've you got up there? 31 -4 S: We've got good weather up here, as usual. HMJr: Is the sun shining? S: The sun is shining. HMJr: I see. Well, that's the way it usually 1s. S: And the grass is growing in Wall Street. HMJr: (Laughs) S: (Laughs) HMJr: S: All right. All right. We'11 expect to read of this in the papers. That's where we'll see about it. HMJr: What's that? S: We'll expect to read of this in the papers in the morning. HMJr: S: What's that? This announcement that you're going to do it with a note. HMJr: Oh, I thought you meant about the grass. S: (Laughe) HMJr: I'11 tell you what I'll do. I'll get you a priority from Donald Nelson for a couple of lawn mowers. S: Well, I'll take you up on that, and I'll sell them to the Stock Exchange people. HMJr: S: HMJr: All right. Well, if they put in the application, I'11 get them the priority. All right, thanks. And the gasoline. 32 -5S: Right. HMJr: Okay. S: Thank you. HMJr: Good-bye. S: Good-bye. 33 -8H.M.JR: He is feeling good. MR. ECCLES: Yes, in spite of the grass. (Laughter) H.M.JR: It is too easy. MR. ECCLES: We hope you will keep right on putting out these bills. We feel that they are gradually getting a little wider distribution of them, and it takes a little time. The Reserve Bank fellows are all working in the field, and I think it is just a question of time when you will have a wide national market, that the banks instead of sitting there with reserves will feel when they have got them, they will use them; and then if they need them again, they have got something they can quickly adjust. That is terribly important, and I think we have to put enough bills out, just keep putting them out, until they can get what they want. The fact that we stand ready to buy the bills all the time - the bills have been just a little under three quarters, and everybody is still not getting all the bills they want. I think you are going to have to keep putting them out. I hope you will, more or less indefinItely, just as long as this thing is-H.M.JR: We have no change, have we? MR. BELL: It is part of our financing program for June. H.M.JR: One thing that I wish you people would do is this. We here are still worried about the excess reserves. Walter Stewart will be down tomorrow morning; he only comes about one day in two weeks. He also is quite disturbed about it. Would you have time to see some of our boys tomorrow morning and talk with Stewart about excess reserves? MR. ECCLES: Yes, I will be glad to talk to him. H.M.JR: Would you? I will tell you what you do, Dan, find out what time he is coming down, then find out what time is agreeable for Marriner, and get an appointment at the Federal Reserve and go over there and talk this thing over with him tomorrow morning. 34 -9MR. BELL: Sure, be glad to. MR. ECCLES: I have an appointment at ten - make it some time - eleven or twelve or in the afternoon. MR. BELL: Any time at your convenience. H.M.JR: I would like to save the afternoon. MR. ECCLES: Let's figure, say, eleven o'clock. H.M.JR: Get him here at eleven. MR. BELL: He generally comes in early. I will make it eleven o'clock, subject to change when he comes in. H.M.JR: You had better tell him of the appointment. MR. BELL: Is he coming down on the nine o'clock train? H.M.JR: I don't know; you might call him up. Will you call him, because if you could meet on that over there, I mean-- MR. ECCLES: I will be glad to discuss it, give him our point of view, and what our view of a program is. Of course we agreed, in discussing the last financing program, on a pattern of rates with the three-eighths at the bottom and the '67-'72's out on the end, and maintaining the thing in between. In order to accomplish that, we proposed to establish this buying rate for bills, which we have done, and I am sure it is going to be effective, and it has kept the bills right along that line. We will buy all, of course, that they want to offer, and we have created the facilities for doing it, so they don't have to go through dealers in New York. They go right into their bank and get - without any commission they just turn them over, and it facilitates the thing. Now, that helps them to meet the reserve situation and doesn't cause them to sell bonds and other stuff to do it. Likewise, the long bond, it shows that they are well distributed, that they have held at a substantial 35 - 10 premium without any support whatever, so it shows that your market generally is in very good shape. If the refunding with bills now would indicate in that middle gap any weakness whatever, we expect to buy notes. We will buy whatever notes are necessary. We expect over the next few weeks to add substantially to the portfolio. In other words, if we can automatically - as the pressure comes on the market it will manifest itself by of bills to us, by the sale of certificates, by the the salesale of notes. H.M.JR: But you haven't had to buy much, have you? MR. ECCLES: No. What we did - in fact, last week we sold mostly - the only thing that we sold was the certifi- cates. But, what happened, the insurance companies sold the Fed about fifty million of certificates in order to take the two and a halfs, you see, which was the desirable thing to do, so we immediately took the certificates off. Then the reserves went up last week a little over two hundred million; some of the banks wanted to buy the certificates, and particularly out of New York. We weren't anxious to place the certificates in New York, but we felt that it was desirable and felt that that is what the Treasury would like, to have the certificates get widely distributed outside; and so they sold some of those certificates, and that is all that was sold last week. There weren't enough bills offered last week to offset the bills that run off. We had a certain number of bills in the portfolio that run off; and the bills that were offered to us didn't offset them; but we expect this week now - you see, there is a drop in reserves this week due to the payment of the last offering of bonds. You see, there is a certain amount, always a certain amount of cash payments that comes in out of the banks that they don't credit to the war loan account, and so there are several hundred million of drop, which is largely due to the payment of this last issue. 36 - 11 - MR. BELL: That will go out before your reporting date on Wednesday. MR. ECCLES: That is right, those will go back out again, but we expect this week to buy a substantial amount of bills. We think that there will be buying for several weeks to come. I don't know what, but I would say anywhere around twenty-five, fifty, or seventy-five millions we will be buying. MR. BELL: There is this situation there, that the Chinese Government wants to invest two hundred million so that to the extent that that is invested it might offset yours. That is the same as adding reserves. MR. ECCLES: That is right. H.M.JR: What do they want to buy? MR. BELL: They had asked the Federal for recommenda- tions, and Rouse was going to cable them that in view of the nature of the fund that he thought they ought to put it in short-term securities, preferably, bills and certificates. MR. ECCLES: Those funds are lying there in Fed, and they might just as well be out into the reserve picture now, so there will be two hundred million go out from there. H.M.JR: What has happened the last week or so, or two weeks, in New York? MR. BELL: A hundred thirty million, I think they went up last week. MR. ECCLES: They fluctuate. Here is what has happened. The reserves May 6th went down to five thirty-three. Last week they went up to six sixty-two; this week with the payment for this financing they have gone down again to five thirty something. MR. PISER: Thirty-four. That is only through Monday, of course. We don't have Tuesday's and Wednesday's figures. 37 - 12 - MR. BELL: That is not a public report. MR. ECCLES: No, this is for the week. Now, I don't think you are going to be able to keep reserves in New York for this reason, that as long as Fed stands ready to buy, which they know - they are not like the country bank, because they know they can buy today and sell tomorrow, and they are going to invest everything they have got. They are going to keep invested up, and you are not going to be able to keep reserves in there; they will buy everything and keep them right down in spite of everything you do. That was one reason that we were so anxious to get the bills widely distributed throughout the country and not rely upon the New York reserve picture, but to get the country as a whole, because these New York fellows will not keep those reserves. They are so hard pressed for earnings that they are going to invest every nickel that they can get hold of. That is their policy. H.M.JR: Well-- MR. ECCLES: It doesn't make any difference. I wouldn't be concerned whether they got the reserves or not, so long as we stand there ready to keep this pattern at threeeighths, on the one hand, and the other pattern on the other. Now, that is going to make the reserves you have got effective, and we are going to be just as concerned as you are about the successful financing; and if we feel something needs to be done on this reserve thing, we certainly don't want-- H.M.JR: I would like you to go in it, because our boys still feel that way, and I think you can have a talk tomorrow. MR. ECCLES: We will be glad to talk about it. H.M.JR: Stewart feels quite strongly about it. We will over.be in touch with each other. Thank you all for coming MR. BELL: You had better announce this is going to be done early in the week, and not Monday. H.M.JR: I will get Schwarz. 38 Calendar of Direct and Guaranteed Bonds and Notes 1 April 1, 1942 (In millions of dollars) Fixed maturities Description Date Direct Guaranteed Callable issues 2 First callable Direct Guaranteed Final maturities Direct Guaranteed 1942-Jan. Feb. Mar. Apr. May June July 1 July 1 Aug. Sept.15 Oct.15 RFO 1% 276 HOLO 2-1/4% (1942-44) Note 2% 875 342 320(T) RFO 7/8% Nov. Dec.15 Note 1-3/4% Total 232 574 596 875 1943-Jan. Feb. Mar.15 Note 3/4% 66(T) Apr. May 1 000 3/4% June15 June15 Note 1-1/8% Bond 3-3/8% (1943-47) July15 289 629 454 RFO 1-1/8% 324(T) Aug. Sept.15 Oct.15 Note 1% 279 Bond 3-1/4% (1943-45) 1,401 Nov. Dec.15 Note 1-1/8% Total 1944-Jan. Feb. 1 Mar.15 Mar.15 Apr.15 Apr.15 May 1 May 15 June15 July 1 USHA 1-3/8% Note 1% FFMC 3-1/4% (1944-64) 421 1,395 613 114 515 95 Bond 3-1/4% (1944-46) 1,519 RFC 1% HOLO 3% (1944-52) FFMC 3% (1944-49) Note 3/4% 1,855 571(T) 779 835 416 HOLO 2-1/4% (1942-44) 875 Aug. Sept.15 Sept.15 Note 1% 283 Note 3/4% 635(T) Oct. Nov. Dec. 15 Bond 4% (1944-54) Total 1,037 ,849 685 2,556 1,709 875 1945-Jan. Feb.15 Mar.15 CCC 1-1/8% Note 3/4% 412(T) 718 Apr. May June 1 July HOLC 1-1/2% (1945-47) 755 Aug. Sept.15 Oct.15 Nov. Dec.15 Dec.15 Bond 2-3/4% (1945-47) Bond 3-1/4% (1943-45) Bond 2-1/2% Note 3/4% Total ,214 1,401 541 531(T) 1,790 412 1,214 755 1,401 1 2/ Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA for which an exchange offer has been made and accepted bydebentures, the bulk ofand the issues holders, Callable withmaturities. respect to which a definite notice of call has been made are listedissues as fixed 39 Calendar of Direct and Guaranteed Bonds and Notes 1/ April 1, 1942 (In millions of dollars) Fixed maturities Date 1946-Jan. 1 Description Conversion 3% Feb. Mar.15 Mar.15 Apr.15 May June15 June15 Note 1% Direct Guaranteed Callable issues 2/ First callable Direct Guaranteed Final maturities Direct Guaranteed 16 503(T) Bond 3-3/46 (1946-56) Bond 3-1/46 (1944-46 489 1,519 1,036 Bond 3% (1946-48) Bond 3-1/8% (1946-49) 819 July Aug. Sept. Oct. Nov. Dec. Total 1947-Jan. 1 Conversion 3% 519 2,344 1,519 13 Feb. Mar. Apr. May June 1 June15 HOLO 1-1/2% (1945-47) Bond 3-3/8% (1943-47) 755 454 July Aug. Sept.15 Oct.15 Bond 2-3/46 (1945-47) Bond 4-1/4% (1947-52) 1,214 759 Nov. Dec.15 Bond 2% 701 Total 714 759 1,668 755 1948-Jan. Feb. Mar.15 Mar.15 Bond 2% (1948-50) 1,115(T) 1,223 Bond 2-3/46 (1948-51) Apr. May June15 Bond 3% (1946-48) 1,036 July Aug. Sept.15 Bond 2-1/2% 451 Oct. Nov. Dec.15 Bond 2% (1948-50) Total 571 451 2,909 1,036 1949-Jan. Feb. Mar. Apr. May 15 June15 June15 FFMO 3% (1944-49) 835 Bond 3-1/8% (1946-49) Bond 2% (1949-51) 1,014(T) Bond 3-1/8% (1949-52) Bond 2-1/2% (1949-53) 1,786 819 July Aug. Sept. Oct. Nov. Dec.15 Dec.15 Total 1, 491 3,291 S19 Excludes special issues, issues redeemable at option of holder, Postal Savings accepted by the bulk of the holders. Callable issues with respect to which a definite notice of call has been made bonds, FHA debentures, and issues for which an exchange offer has been made and 2 835 are listed as fixed maturities. 40 Calendar of Direct and Guaranteed Bonds and Notes 1/ April 1, 1942 (In millions of dollars) Fixed maturities Date Description Direct Guaranteed Callable issues 2 First callable Direct Guaranteed Final maturities Direct Guaranteed 1950-Jan. Feb. Mar.15 1,115(T) Bond 2% (1948-50) Apr. May June July Aug. Sept.15 Bond 2-1/2% (1950-52) 1,186 Oct. Nov. Dec.15 571 Bond 2% (1948-50) Total 1,186 1,686 1951-Jan. Feb. Mar.15 1,223 Bond 2-3/4% (1948-51) Apr. May June15 June15 Bond 2% (1949-51) Bond 2-3/4% (1951-54) 1,014(T) 1,627 July Aug. Sept.15 Bond 3% (1951-55) 755 Oct. Nov. Dec.15 Dec.15 Bond 2-1/4% (1951-53) Bond 2% (1951-55) Total 1,118 510(T) 4,010 2,237 1952-Jan. Feb. Mar.15 Apr. May 1 June15 Bond 2-1/2% (1952-54) HOLO 3% (1944-52) Bond 2-1/4% (1952-55) 1,024(T) 779 1,501(T) July Aug. Sept.15 Oct.15 Nov. Dec.15 1,186 Bond 2-1/2% (1950-52) Bond 4-1/4% (1947-52) 759 Bond 3-1/8% (1949-52) Total 491 2,525 2,436 779 1953-Jan. Feb. Mar. Apr. May June15 Bond 2% (1953-55) 725 July Aug. Sept. Oct. Nov. Dec.15 Dec.15 Bond 2-1/2% (1949-53) Bond 2-1/4% (1951-53) Total 1 2 1,786 1,118 725 2,904 Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and accepted by the bulk of the holders. Callable issues with respect to which a definite notice of call has been made are listed as fixed maturities. 41 Calendar of Direct and Guaranteed Bonds and Notes 1/ April 1, 1942 (In millions of dollars) Fixed maturities Date Description Direct Guaranteed Callable issues 2/ First callable Final maturities Direct Guaranteed Direct Guaranteed 1954-Jan. Feb. Mar.15 1,024(T) Bond 2-1/2% (1952-54) Apr. May June15 June15 Bond 2-3/4% (1951-54) Bond 2-1/4% (1954-56) 1,627 681 July Aug. Sept. Oct. Nov. Dec.15 Bond 4% (1944-54) Total 1,037 681 3,688 1955-Jan. Feb. Mar.15 Bond 2-7/8% (1955-60) 2,611 Apr. May June15 June15 Bond 2% (1953-55) Bond 2-1/4% (1952-55) 725 1,501(T) July Aug. Sept.15 Bond 3% (1951-55) 755 Bond 2% (1951-55) 510(T) Oct. Nov. Dec.15 Total 2,611 3,491 1956-Jan. Feb. Mar.15 Mar.15 Bond 3-3/46 (1946-56) Bond 2-1/2% (1956-58) 489 1,449(T) Apr. May June15 Bond 2-1/4% (1954-56) 681 July Aug. Sept.15 Oct. Bond 2-3/4% (1956-59) 982 Nov. Dec. Total 2,431 1,170 1957-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 1 2. Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and accepted by the bulk of the holders. Callable issues with respect to which a definite notice of call has been made are listed as fixed maturities. 42 Calendar of Direct and Guaranteed Bonds and Notes 1 April 1, 1942 (In millions of dollars) Fixed saturities Date Description Direct Guaranteed Callable issues 2/ First callable Direct Guaranteed Final maturities Direct Guaranteed 1958-Jan. Feb. Mar.15 1,449(T) Bond 2-1/2% (1956-58) Apr. May June15 Bond 2-3/46 (1958-63) 919 July Aug. Sept. Oct. Nov. Dec. Total 919 1,449 1959-Jan. Feb. Mar. Apr. May June July Aug. Sept.15 Bond 2-3/4% (1956-59) 982 Oct. Nov. Dec. Total 982 1960-Jan. Feb. Mar.15 2,611 Bond 2-7/8% (1955-60) Apr. May June July Aug. Sept. Oct. Nov. Dec.15 1,485 Bond 2-3/4% (1960-65) 1,485 Total 2,611 1961-Jan. Feb. Mar. Apr. May June 1 July Panama 3% 50 Total 50 Aug. Sept. Oct. Nov. Dec. 1/ Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures. and issues for which an exchange offer has been made and accepted by the bulk of the holders. 2, Callable issues with respect to which a definite notice of call has been made are listed as fixed maturities. 43 Calendar of Direct and Guaranteed Bonds and Notes V April 1, 1942 (In millions of dollars) Fixed maturities Date Description Direct Guaranteed Callable issues 2/ First callable Direct Guaranteed Final maturities Direct Guaranteed 1962-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 1963-Jan. Feb. Mar. Apr. May June15 Bond 2-3/4% (1958-63) 919 July Aug. Sept. Oct. Nov. Dec. Total 919 1964-Jan. Feb. Mar.15 FFMC 3-1/4% (1944-64) 95 Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 95 1965-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.15 Bond 2-3/46 (1960-65) Total 1,485 1,485 1 Excludes special issues, issues redeemable at option of holder, Postal Savings bonds, FHA debentures, and issues for which an exchange offer has been made and accepted by the bulk of the holders. 2/ Callable issues with respect to which a definite notice of call has been made are listed as fixed maturities. 44 Calendar of Direct and Guaranteed Bonds and Notes 1/ April 1, 1942 (In millions of dollars) Fixed maturities Date Description Direct Guaranteed Callable issues 2 First callable Direct Guaranteed Final maturities Direct Guaranteed 1966-Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total 1967-Jan. Feb. Mar. Apr. May June July Aug. Sept.15 2,716(T) Bond 2-1/2% (1967-72) Oct. Nov. Dec. 2.716 Total . . Bond 2-1/2% (1967-72) . . 1972-Sept.15 . 2,716(T) Excludes special issues, issues redeemable at option of holder, Postal Savings 1 bonds, FHA debentures, and issues for which an exchange offer has been made and accepted by the bulk of the holders. 2 Callable issues with respect to which a definite notice of call has been made are listed as fixed maturities. Sales of United States Savings Bonds CONFIDENTIAL From May 1 through May 19, 1942 Compared with Sales Quota for Same Period (At Issue Price in millions of dollars) Daily 1 2 4 5 6 7 8 9 11 12 13 14 15 16 18 20 21 22 23 25 26 27 28 29 Sales to to to Date as % of Date Date Quota May 1 Date Quota, May 1 : Actual Sales Series F and G Actual Sales Quota, May 1 May 1 Total Sales to to as % of Date Date Quota $ 7.3 $ 7.3 $ 12.0 Daily Actual Sales Quota, : Sales to to to Date as % of Date Date Quota $ 20.0 $ 20.0 $ 26.0 to Date May 1 Daily May 1 : Series E 76.9% 12.7 11.6 $ 12.7 $ 14.0 24.3 25.7 94.6 7.9 15.2 21.4 71.0 19.4 39.4 47.1 83.7 22.3 47.8 57.8 70.5 84.0 98.0 109.7 97.3 96.0 104.7 115.5 116.5 117.3 10.3 7.6 15.6 12.1 6.4 25.5 33.1 48.8 60.8 67.2 72.8 39.4 49.3 64.9 76.9 86.1 92.6 64.7 18.4 23.2 17.2 14.5 46.5 55.5 73.8 97.0 114.2 128.7 32.6 16.6 34.0 35.3 23.6 20.0 72.0 88.6 122.6 157.9 181.4 201.5 87.2 107.1 135.4 160.9 184.1 202.5 82.6 82.7 90.5 98.1 98.5 99.6 23.3 9.4 15.8 16.9 14.9 14.3 152.0 161.3 177.1 194.0 208.9 223.2 131.8 141.8 154.5 168.0 182.0 193.7 115.3 113.8 114.6 115.5 114.8 115.2 8.1 4.6 104.2 110.6 120.8 129.3 136.5 142.1 77.5 77.2 79.0 79.8 80.3 31.3 14.0 24.8 24.6 21.7 19.5 232.8 246.8 9.0 7.7 6.8 5.2 80.8 85.4 94.4 102.1 108.9 114.1 271.5 296.2 236.0 252.4 275.3 297.3 318.5 335.8 98.6 97.8 98.6 99.6 99.8 100.5 24.3 9.8 247.5 257.4 215.8 225.8 238.5 252.0 266.0 277.7 114.7 114.0 9.4 4.2 123.5 127.7 153.0 159.2 169.6 178.4 186.1 192.3 80.7 80.2 33.7 14.0 371.1 385.1 368.8 385.0 408.1 430.4 452.1 470.0 100.6 100.0 8.9 299.8 309.8 322.5 336.0 350.0 90.7% 5.6 204.9 212.5 226.2 238.7 250.0 60.8% 67.1 75.2 79.1 78.0 78.6 78.1 317.9 337.4 504.7 522.3 548.7 574.7 600.0 May 20, 1942. Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not gecessarily add to totals. Takes into account both the daily trend during the week and the monthly trend dairing the month. Sales of United States Savings Bonds From May 1 through May 19, 1942 Compared with Sales Quota for Same Period (At issue price in millions of dollars) 28 29 : 27 : 26 to Date Date : 25 : 23 : 22 : 21 : 20 : : 19 Quota to : : 0 : 16 : 15 : 14 : 13 : 12 : 11 : 9 : 7 8 Date* Daily Sales to Date as & of Quota $ 7.3 $ 9.0 $ 20.0 $ 20.0 $ 23.0 94.6 15.2 16.0 95.0 19.4 39.4 41.7 94.5 47.8 57.8 70.5 84.0 98.0 109.7 97.3 96.0 104.7 115.5 116.5 117.3 10.3 25.5 33.1 48.8 60.8 67.2 72.8 29.5 37.1 49.8 60.3 69.3 76.3 86.4 89.2 98.0 100.8 97.0 95.4 32.6 16.6 34.0 35.3 23.6 20.0 72.0 88.6 122.6 157.9 181.4 201.5 77.3 94.9 120.3 144.3 167.3 186.0 93.1 93.4 101.9 109.4 108.4 108.3 152.0 161.3 177.1 194.0 208.9 223.2 131.8 141.8 154.5 168.0 182.0 193.7 115.3 113.8 114.6 115.5 114.8 115.2 6.8 5.2 80.8 85.4 94.4 102.1 108.9 114.1 89.8 97.4 110.1 120.6 129.6 136.6 90.0 87.7 85.7 84.7 84.0 83.5 31.3 14.0 24.8 24.6 21.7 19.5 232.8 246.8 271.5 296.2 317.9 337.4 221.6 239.2 264.6 288.6 311.6 330.3 105.1 103.2 102.6 102.6 102.0 102.1 247.5 257.4 215.8 225.8 238.5 252.0 266.0 277.7 114.7 114.0 9.4 4.2 123.5 127.7 150.1 157.7 170.3 180.8 189.8 196.8 82.3 81.0 33.7 14.0 371.1 385.1 365.9 383.5 408.8 432.8 455.8 474.5 101.4 100.4 24.3 25.7 22.3 23.2 17.2 14.5 46.5 55.5 73.8 97.0 114.2 128.7 23.3 9.4 15.8 16.9 14.9 14.3 24.3 9.8 18.4 Date Quota : 6 to Quota, May 1 7.9 $ 14.0 8.9 5 May 1 to : 4 May 1 May 1 $ 7.3 $ 12.7 11.6 $ 12.7 Daily : 1 2 Date as % of to Date as & of Total Actual Sales : Date to : Sales : to to Date Series F and G Actual Sales Quota, : May 1 Sales : Daily : Date : Quota, May 1 : Series E Actual Sales 299.8 309.8 322.5 336.0 350.0 90.7% 7.6 15.6 12.1 6.4 5.6 8.1 4.6 9.0 7.7 210.3 217.9 230.5 241.0 250.0 81.1% 87.0% 510.1 527.7 553.0 577.0 600.0 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Takes into account daily trend within the week baladoes not addition acount the trend by weeks during the month. May 20, 1942. 47 MAY 20 1942 My dear Henry: Thank you for your letter of May 12, 1942, and the enclosure of your Circular No. 77 describing the War Department's "Pay Reservation" Plan. One hundred copies of my letter of April 25th have been sent to the Chief of Finance, War Bond Division, in accordance with your request. I am aware of the efforts being made by the War Department to promote the sale of War Savings Bonds, and you have my gratitude for keeping this subject before all military and civilian personnel in your Department. Sincerely, (Signed) Henry The Honorable The Secretary of War Washington, D. C. c. file Original LBW1lk 5-19-42 to thoupan 48 MAY 12 1942 The Honorable, The Secretary of the Treasury. Dear Henrys Receipt is acknowledged of your letter of April 25, 1942, and the inclosures contained therewith. I have no criticisms or suggestions to make concerning your circular letter of April 25, 1942, or the pamphlet, "Enlist Your Current Savings to Help Win This War". Both are admirably prepared, and should, I believe, help materially in stimulating War Bond sales throughout the country. May I ask that 100 copies of each publication be sent to the Chief of Finance, War Bond Division, 19th & A Streets, S. E., Washington, D. C., so that the information contained therein can be transmitted throughout the Army? I am making every effort, as you know, to impress upon all personnel (military or civilian) in or under the War Department, the desirability of making voluntary purchases of War Savings Bonds and Stamps. A "Pay Reservation" Plan for the installment purchasing of War Bonds is now in full operation throughout the Military Estab lishment and Corps Area and similar commanders are taking energetic steps to educate military personnel as to the advantages that will accrue to both the purchaser and the government from the systematic and regular purchase of these securities. I am inclosing a copy of W. D. Circular No. 77, March 16, 1942, which explains the principal features of the Mar Department Plan. Your attention is particularly invited to Section I of this circular. Sincerely yours, HENRY L. STIMSON Secretary of War. 1 Incl. W. D. Circular No. 77 TO ACCOMPANY ORIGINAL 49 [CIR 771 CIRCULAR No. 77 WAR DEPARTMENT WASHINGTON, March 16, 1942 Section Sale of Defense Savings Bonds and Stamps I Pay reservation plan for purchase of United States Defense Savings Bonds by military personnel (officers, Army nurses. warrant officers. contract surgeons, enlisted men) and civilian employees 11 / Sale of Defense Savings Bonds and Stamps-1. General.-4. Attention is directed to section V. Circular No. 58, War Department, 1942 b. The program for the sale of Defense Savings Bonds and Stamps will Involve- (1) A continuous educational program sufficiently comprehensive to reach all Army personnel and all civilian employees In or under the War Department. (2) Methods for effecting the purchase of Defense Savings Bonds (3) Methods for effecting the purchase of Defense Savings Stamps c. In accomplishing these objectives the procedure outlined below will be followed 2. Educational program.-4. Purpose.-Prior to the actual securing of voluntary subscriptions for the purchase of Defense Savings Bonds an intensive educational program will be conducted during which all members of the Army (officers, nurses, warrant officers, contract surgeans, enlisted men) and civilian employees in or under the War Department will be thoroughly informed as to the objectives to be achieved. the benefits to be derived from the purchase of Defense Savings Bonds and Stamps, and the procedures to be followed in purchasing them Commanders responsible for the conduct of the educational program (see b below) will be supplied with informational literature in sufficient quantities to cover their needs for this purpose. This literature will be widely distributed and utilized to the best advantage Subsequent supplies will be requested of the Chief of Finance, Defense Bond Division, New Armory Building, 19th and A Streets, S. E. Washington, D. C. b. Responsibility.-The following commanders will be responsible for the effective Inauguration and prosecution of the educational program which must be continued Indefinitely so as to reach personnel newly inducted into the service: (1) Corps area commanders.-(a) All Army personnel and civilian employees under the War Department located within the geographical limits of their corps areas (except personnel on duty in the War Department or in military Installations located within the District of Columbia), including those of exempted establishments and tactical units, The Commanding General, Second Corps Area, will also have this responsibility with respect to the Greenland and Newfoundland Base Commands (b) The responsibility for the educational program has been assigned to corps area commanders as such assignment provides the simplest decentralization for effective action. So far as the conduct of the program pertains to tactical units, corps area commanders or their representatives will make arrangements satisfactory to the commanders of theaters of operation, armles, air forces, and the commanders of subordinate tactical units Similar arrangements will be made with the commanders of Independent establishments The Instructions contained herein do not affect the authority of commanders of tactical units or independent establish*434758*-42 [Cia 77] [Cin 77) 2 3 ments However, such commanders will cooperate with and assist corps area commanders in every practical way in making arrangements for the conduct of educational programs within the elements of their commands Corps area Defense Bond officers should be permitted and encouraged to deal direct with commanders of units of the field forces and with commanders of Independent establishments (2) Department commanders.-A Army personnel and civilian employees under the War Department located within the geographical limits of their departments The Commanding General, Puerto Rican Department, will also have this responsibility with respect to the Antigua and Jamaica Base Commands The Commanding General, Panama Canal De- partment, will also have this responsibility with respect to the British Guiana, Saint Lucia, and Trinidad Base Commands, and with respect to the U. S. Army Forces in Aruba, Curacao, and Surinam. (3) Commanding General, Bermuda Base Command.-All Army personnel and civilian employees under the War Department located within the geographical limits of his base command (4) Commanding General, Alaskan Defense Command.-All Army personnel and civilian employees under the War Department located within the geographical limits of his defense command (5) Commanding General, U. 8. Army Forces in Iceland.-All Army per- sonnel and command. civilian employees under the War Department within his (6) Commanding General, U. 8. Army Forces in British Isles.- Army personnel and civilian employees under the War Department within his command (7) Commanding General, U. Army Forces in Australia.-Al Army personnel commandand civilian employees under the War Department within his (8) Commanding General, personnel on duty in his office. Army Ground Forces.-All War Department (9) Commanding General, Army Air Forces.-All War Department personnet on duty in his office. (10) Commanding General, Services of Supply.-All War Department personnel on duty in his office. (11) Chiefs of all supply arms and services.-All War Department per- sonnel on duty in their respective offices (12) Chiefs of all administrative services.-All War Department per- sonnel on duty in their respective offices. (13) Executive officer, Office of Under Secretary of War.-All War De- partment personnel on duty in that office. (14) Secretary. War Department General Staff.-AI War Department personnel on duty with the War Department General Staff. (15) Commanding generals or commanding officers of each of the following installations in the District of Columbia.-All personnel under theirmilitary respective commands: (a) Army Medical Center. (b) Washington Quartermaster Depot. (c) Headquarters Brigade. and Headquarters Company. Washington Provisional (d) General Dispensary. U.S Army. (e) Finance Office, U.S. Army. c. Defense Bond officer.-(1) Each corps area and department commander, and the commanding general of the Alaskan Defense Command, of the U. S. Army Forces in Iceland, of the Army Forces in the British Isles, and of the U. S. Army Forces in Australia will designate, without delay. as a member of their special staffs, a Defense Bond officer. Corps area commanders are also authorized to appoint an assistant corps area Defense Bond officer. (2) Corps area Defense Bond officers should be selected initially from the officers at present on duty in the respective corps areas, and should be officers whose age will prohibit their being placed on duty with troops Corps area Defense Bond officers will supervise Defense Bond and Stamp activities at the various posts and stations and will see that necessary arrangements are made for the conduct of educational programs for tactical units and independent establishments (3) Selection of Defense Bond officers will not be restricted to any arm or service, and their detail and relief are the responsibility solely of the commander concerned. (4) The success or failure of the program will depend largely upon the interest, enthuslasm. Ingenuity. and the executive ability of the Defense Bond officer. He will be responsible for the inauguration and energetic prosecution of the program: hence he should be charged with no other duties since his activities as Defense Bond officer will require his undivided attention. d. Conduct.-(1) While no competitive campaign will be instituted. the educational program will be so thorough that all Army personnel and civilian employees in or under the War Department will be acquainted with the desirability and methods of purchasing bonds and stamps. All will have impressed upon them not only the opportunity offered to provide for their own security, but the greater importance of providing funds for the support of the Government of the United States in time of need. (2) Corps area and department commanders and the commanding generals of the Alaskan Defense Command, of the U. S. Army Forces in Ice land, of the U.S. Army Forces in the British Isles, and of the U. S. Army Forces in Australia will at once take steps to establish their Defense Bond organizations Post and other subordinate commanders will take such measures as may be desirable to accomplish the objectives prescribed herein Post commanders will be responsible for the conduct of the educational program at their respective stations. Under the supervision of the corps area or department Defense Bond officer, they may be employed to make necessary arrangements with tactical commanders for the conduct of the educational program within such organizations. (3) Members of the Defense Savings Staff, U. S. Treasury Department. in each State are ready to extend full cooperation to all military organizations and will provide speakers and such other help as may be requested. (4) Officers responsible for the educational program in the District of Columbia (see b above) will assure themselves that all Army personnel and civilian employees on duty in their respective offices or commands are fully acquainted with the importance of purchasing Defense Bonds and Stamps and the methods available for such purchases. (5) In order to proceed without loss of time and to carry on the program effectively, full advantage should be taken of the echelons of command by placing the work under the direct charge of officers, assisted by noncom- (CIR 77) [CIR 771 4 5 missioned officers and civilians selected for the duty and impressed with the patriotic necessity of making It a pronounced success c. Effective date.-(1) It is realized that corps area and similar commanders will require time to establish their Defense Bond organizations and to conduct the educational program. Time will also be required for the War Department to supply such commanders with educational litera. ture, authorization forms, etc. No definite date will therefore be fixed by the War Department for the securing of authorizations in the manner indicated hereinafter for the purchase of Defense Bonds When corps area and similar commanders have completed the educational program and have received and distributed the authorization and cancellation forms (W. D. Forms Nos. 29-5 and 80-5), they will then take effective measures to secure voluntary subscriptions for the purchase of Defense Savings Bonds. (2) Similar action will be taken by the officers responsible for the educational program in the District of Columbia (see b above). 3. Purchase of bonds.- G. Bonds will be purchased by a "Pay Reserva. tion" plan, the actual accounting for which will be centralized in Washington in a newly created division in the office of the Chief of Finance. b. Details concerning the Pay Reservation plan are contained in section II of this circular. c. Procedure to be followed by local disbursing officers is prescribed in Finance Bulletin No. 34, March 18, 1942. 4. Purchase of Stamps.-Corps area Defense Bond officers should assure themselves that each post, camp, and station within the corps area has provided effective and convenient facilities for the cash purchase of Defense Savings Stamps. Similar action will be taken by Defense Bond officers of departments, etc. Consideration should be given to the sale of stamps by trative adjudication to become effective. They are revocable at the will of the subscriber. (2) Subscriber.-The "subscriber" is the person who authorizes a pay reservation to be made from his pay. b. Classification.-Pay reservations authorized under the provisions of this circular are designated "Class A Pay Reservations." They should not be confused with Class E allotments or Class D or Class N deductions 2. Accomplishment.-a By whom made. -Class A pay reservations may be requested by commissioned officers, Army nurses, warrant officers, contract surgeons, enlisted men, and civilian employees In or under the War Department, no matter where they may be located so long as such individuals are being paid on pay rolls or pay vouchers administratively ex amined by the Chief of Finance or Chief of Engineers, or which are paid by the Chief Disbursing Officer, Treasury Department. Retired military personnel are also permitted to make such pay reservations Contractor's employees, paid by contractors and not by Army disbursing officers, are not authorized to make class A pay reservations under this plan. b. Amount.-Class A pay reservations will be accepted only in multiples of $1.25 and in the minimum amounts Indicated In d(1), (2), (3), and (4) below. c. Procedure.-(1) Class A pay reservations will be prepared in quadruplicate, on the authorization form (W. D. Form No. 29-5). The original and duplicate of each form will be sent direct to the Chief of Finance, Defense Bond Division, New Armory Building, 19th and A Streets, SE., Washington, D. C. The triplicate will be retained by the commanding officer or personnel officer. In the event subscriber certifies his own vouchers he will give the triplicate copy of authorization form to his commanding officer or personnel officer. The quadruplicate will be retained by the exchanges, company funds, and like agencies. subscriber. 5. Chief of Finance.- a The Chief of Finance is hereby designated as the War Department agent in the management and direction of all educational, financial, accounting. and other operations incident to the Inauguration and prosecution of the Defense Savings Bond and Stamp program throughout the Military Establishment. b. The Chief of Finance will develop methods and procedures which will Insure the success of the program and which will enable him at all times to know the state of participation of Army personnel therein. In accomplishing these missions be is authorized to deal direct, as the representative of the Secretary of War, with the various commanding officers who are responsible for the educational program. Such commanders are likewise authorized to deal direct with the Chief of Finance with respect to all matters pertaining to the sale of Defense Savings Bonds II. Pay reservation plan for purchase of United States Defense Savings Bonds by military personnel (officers, Army nurses, warrant officers, contract surgeons, enlisted men) and civilian employees.- General-a. Defttions.-(1) Pay reservation. The words "pay reservation" as used herein refer to a definite portion of the pay of an officer, Army nurse, warrant officer, contract surgeon, enlisted man of the Army, or civilian employee in or under the War Department, which is authorized to be used for the purchase of United States Defense Savings Bonds. Reservations of pay are purely voluntary acts of the subscribers; they carry no corresponding allowance or other obligation of the Government, and require no adminis (2) The subscriber (if he prepares and certifies his own vouchers). or the commanding officer or personnel officer (In all other cases) is responsible that the pay reservation is Immediately entered on all pertinent records as a charge against the pay of the subscriber, and further, that such charge has been entered on the pay voucher or pay roll as a deduction for the period for which the reservation was authorized. These charges will be made in the following manner: In the service record of enlisted men (W. D., A. G. O. Form No. 24), under "Remarks-Financial," will be enfrom month per tered the remark "Class A Pay Reservation $ 19- This same remark will be entered on the first pay roll or Individual voucher of all personnel. On pay rolls of enlisted men (War Department Forms Nos. 866 and 366a), the monthly deduction for Defense Bonds will be entered opposite the name of each subscriber. The column "Subsistence" under "Allowances" will be used for this purpose. In the event no subsistence allowances appear, the caption "Subsistence" will be changed to read "Class A Pay Reservations." In the event both subsistence allowances and Defense Bond deductions appear on the same pay roll, the caption "Subsistence" will be changed to read "Subsistence and Class A Pay Reservations," and a capital "S" will be placed after each subsistence allowance listed, and a capital "A" after each bond deduction listed. On pay and allowance accounts (War Department Form No. 336). the remark "Class A Pay Reservation" will be entered in the blank spaceffollowing Item 14, and the amount of each monthly deduction (Cit 77] (Cin 77] 6 7 entered in the proper column. Class A pay reservations authorized by civilian employees will be listed on pay rolls under the heading "Deduetions" in the column "other," which will be changed to read "Class A (o) Whenever, because of reduction to grade, continued misconduct, stop- page of pay. loss of or damage to Government property, or for any other reason, the subscriber's available pay will not warrant continuance of the Pay Reservations." When deductions, except for Defense Bonds, are listed In this column, the word "other" will be appropriately changed, and capital "A" will be placed after each Defense Bond deduction listed. d. When not accepted.-Class A pay reservations will not be accepted reservation (d) When forfeiture of pay by sentence of court martial is such that if the reservation is continued, the forfeiture cannot be collected in full prior to the discharge of the subscriber. (e) Whenever the status of a subscriber changes from that of a civilian to that of an officer, warrant officer, contract surgeon, or enlisted man, or a when- (1) Reservation is for an amount which is not a multiple of $1.25 (2) Reservation authorized by a commissioned officer, Army nurse, warrant officer, or contract surgeon is for less than $3.75 per month. (3) Reservation authorized by an enlisted man Is for less than $1.25 per vice versa. (f) Whenever, in the case of a civilian subscriber, the voucher period for which the subscriber is paid has been changed from the period In effect when original authorization was submitted (see par. of below). In month. (4) Reservation authorized by a civilian employee is for less than $1.25 such cases the subscriber must authorise a new class A pay reservation In accordance with the new voucher period. per pay day If employee is paid weekly, or for less than $2.50 per pay day If employee is paid semimonthly. (8) When notice of a discontinuance of a class A pay reservation has (5) Subscriber already has a class A pay reservation in effect. (Only one reservation per subscriber is permitted.) (6) Subscriber designates as place of delivery of bonds an address outside the limits of the 48 states of the Union or the District of Columbia. (7) Subscriber has not supplied all essential data required by the authori- been mailed by the subscriber (If be prepares and certifies his own vouch ers). or by the commanding officer or personnel officer (in all other cases), deductions for such reservations may cease at once. (4) When a class A pay reservation of an enlisted man has been dis- continued the remark. "Class A Pay Reservation per month from 19 discontinued 19- will be entered under sation form (W. D. Form No. 29-5) (8) A civilian subscriber is a contractor's employee not paid by an Army "Remarks-Financial" of the service record disbursing officer. c. Suspensions.-When a subscriber on any pay day is unable to meet the conditions of his authorization, no notice of that fact will be sent to e. The minimum of $1.25 per month has been established for enlisted men in order to permit them to participate in the program as soon as they are Inducted into the service. It is believed, however, that enlisted men having more than 4 months' service should be able to authorize at least $3.75 per the Chief of Finance, Defense Bond Division, Washington, D. C. month f. Effective date and period.-Class A pay reservations will not be made effective prior to the date of commission, enlistment, or Induction of military personnel, or prior to the date of appointment of civilian employees. Such pay reservations will not extend beyond the date the individual is discharged, relieved from active duty, or otherwise separated from the service. 3. Changes, discontinuances, suspensions, renewals, refunds.-4 hanges-Changes in amounts of class A pay reservations are not permitted. Other changes (changes in names and addresses of beneficiaries, coowners, etc.) will be requested on W D. Form No. 30-5, properly executed In quadruplicate. The four copies of this form will be disposed of as were the copies of the original authorization b. Disconfinuances- (1) Subscribers (if they prepare and certify their own vouchers), commanding officers or personnel officers (in all other cases) may discontinue or cancel class A pay reservations at any time under the conditions listed in (2) below by properly executing W. D. Form No. 80-5 in quadruplicate, and disposing of the four copies thereof as were the copies of the original authorisation Particular care will be exercised to insure the prompt discontinuance of B class A pay reservation in case of the death of the subscriber. (2) Requests for discontinuance of class A pay reservations will be submitted(a) Upon the request of a subscriber (b) Upon the death, desertion, or mental Incapacitation of a subscriber. 00 d. Renescals.-Class A pay reservations once canceled or discontinued will not be renewed under authority contained in original authorization. If it is desired to renew a canceled authorization a new W. D. Form No. 29-5 must be submitted e. unds.-Payment of all refunds pertaining to class A pay reservations will be made by the Chief of Finance, Defense Bond Division, New Armory Building, 19th and A Streets, S. E., Washington, D. C. Any balance remaining to the credit of a subscriber and which has not been liquidated by the purchase of a Defense Bond will be sent him on receipt of proper request therefor. No refunds will be made until final report of deductions for Defense Bonds has been received and processed, and, in the event subscriber has died, until proper certificate of settlement has been Issued by the General Accounting Office, Washing ton, D. C. This period is variable, depending on many factors (location of subscriber when last deduction was made, etc.), but in any case will probably not be less than 90 days. In the absence of directions to the contrary. the proceeds from such accounts will be mailed to the subscriber at the address be directed to be used when be signed original authorization form (Form No. 29-5). In the event the subscriber Is no longer a member of the Military Establishment, the Chief of Finance, Defense Bond Division, Washington, D.C., will require such proof of Identity. etc., as may be necessary before making refunds 4. Sentences by courts martial and stoppages of pay. -When authorized stoppages are in excess of two-thirds of the accrued pay of a subscriber no deduction for class A pay reservation will be made. Such deductions win be resumed only when the subscriber has sufficient credits to justify such action. [Cin 771 (CIR 77] 9 8 keeping at no expense to purchaser. Subscribers who are seldom at home 5. Miscellaneous- The Instructions appearing on the reverse of Forms Nos. 29-5 and 30-5 are very important and should be strictly followed. b. Receipt of Forms Nos. 29-5 and 30-5 will not be acknowledged by the Chief of Finance, Defense Bond Division, Washington, D. a c. The original of Forms Nos. 29-5 and 30-5 which are incorrectly or incompletely executed will be returned to sender. The Chief of Finance, Defense Bond Division, will indicate on such forms or in a letter of trans mittal why such forms cannot be accepted. Forms returned to sender should be destroyed and new ones prepared and submitted to the Chief of when mail is delivered should designate their business or place of employment address rather than their residence address k Inquiries concerning nonreceipt of bonds, refunds, etc., should be sent direct to the Chief of Finance, Defense Bond Division, New Armory Building, 19th and A Streets, 8. E., Washington, D. C., under whose direction all individual installment records will be kept. No Inquiry concerning nonreceipt of bonds or refunds should be made prior to 90 days from the date last deduction therefor was made. L Requests for educational material and supplies of Forms Nos. 29-5 and 30-5 should be sent to the Chief of Finance, Defense Bond Division, New Armory Building. 19th and A Streets, S. E., Washington, D. C., through Finance, Defense Bond Division. d. The copies of Forms Nos. 29-5 and 30-5 which are retained by commanding officers or personnel officers of enlisted men will be fastened securely in the service record (W. D., A. G. O. Form No. 24). In the case the corps area or department Defense Bond officers m. Commanding officers will encourage personnel of their commands to make voluntary reservations of pay for the purchase of Defense Savings Bonds All enlisted men will be given an opportunity to authorize class A pay reservations at the time of their enlistment or induction into the military service. Pending publication of changes, MR 1-7, October 1, 1940, is of subscribers who certify their own vouchers, such copies will be filed until subscriber is no longer on duty in that organization, at which time they will be returned to subscriber. In the case of civilian employees, such copies will be filed until subscriber is transferred to a new permanent duty station within the War Department, at which time they will be forwarded to his new station. e. Deductions for class A pay reservations will not normally be made on final statements or final pay rolls. The account of a subscriber will ordinarily be closed out as of the end of a pay period prior to the date subscriber ceases to be a member of the Military Establishment. Form No. 30-5 should amended in this respect. n. Any instructions in conflict with the provisions of this circular are hereby revoked. O. This circular will be given wide publicity. [A. G. 168 (3-12-42).) BY ORDER OF THE SECRETARY OF WAR: be used for this purpose. G. c. MARSHALL f. Class A pay reservations of civilian subscribers will be authorized "per Chief of Staff. month." "per semimonth." or "per week" to agree with pay periods. Where pay periods do not coincide with periods for which pay rolls of disbursing officers are stated, the authorizations will be executed to agree with the pay roll period. g. Personnel officers preparing pay rolls for War Department personnel paid by the Chief Disbursing Officer, Treasury Department, Washington, D. C., will furnish that officer an additional copy of each pay roll on which class A pay reservations appear. This copy will be plainly marked or stamped: "Forward to Chief of Finance, U. S. Army, Accounting Division, 401 23d Street, N. W., Washington, D. C." Each such pay roll will be accompanied by Schedule of Voucher Deductions (Standard Form No. 1096), in quadruplicate, indicating thereon the title of the roll and the total collections on that roll only. A. The Chief of Engineers, with respect to class A pay reservations authorIzed by employees of the Corps of Engineers engaged upon river and harbor work will furnish the Chief of Finance, Accounting Division, 401 23d Street, N. W., Washington, D. C., Schedules of Voucher Deductions (Standard Form No. 1096), in duplicate, showing by disbursing officer's voucher number and by name of employee the amounts withheld from the pay of such employees on account of class A pay reservations, together with the duplicate copy of Treasury Department Form No. 6599, indicating that the disbursing officer involved has deposited to the credit of the Disbursing Officer, War Department, Defense Bond Division, Office Chief of Finance, the total amounts shown on these various Standard Forms No. 1096. & Bonds will be dated as of the month in which the last payment therefor has been made. J. The Treasury Department will mail bonds to an address within the 48 States of the Union or District of Columbia only, or will old_bonds in safe- OFFICIAL: J. A. ULIO, Major General, O The Adjutant General. R. GOVERNMENT PRINTING OFFICE 1942 50 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 TO Secretary Morgenthau FROM Mr. Haes CA The four tables attached present data on corporations qualifying as issuing agents during the week ended May 16. A summary of the data incorporated in the tables follows: 1. On May 16, there were 1, 624 corporations qualified to issue war savings bonds purchased by their employees under the payroll savings plan. These companies employed almost five million workers, roughly one-fourth the total number covered by payroll savings plans. (Table 1) 2. During the week ended May 16, 149 corporations qualified as issuing agents for war savings bonds. The number of corporations which qualified as issuing agents during this week and the week ended May 9 was consider- ably higher than during preceding weeks. (Table 2) 3. Of the 4 778 corporations with 500 or more employees which had payroll savings plans, 1,064, or 22 percent, had become qualified issuing agents by May 16. The Federal Reserve Banks of Richmond and Minneapolis are lag- ging behind the other banks in qualifying larger corporations as issuing agents. These banks, it is noted, qualified only 11 percent of the larger corporations in their districts. (Table 3) 4. There were 20 corporations with 5,000 or more employees which qualified as issuing agents during the past week, among them the Pennsylvania Railroad and the Chrysler Corporation. Together, these 20 corporations employed 372,000 workers, or 72 percent of the 516,000 workers employed in all corporations qualifying during the week ended May 16. (Table 4) 51 TABLE 1 Corporations Acting as Issuing Agents for Savings Bonds Purchased by Their Employees Under Payroll Savings Plans January 31, 1942 to date : payroll : : : : : : : plans in the country: : : agents tions with : corpora- : : : : : agents ing as issuing : : issuing in all : : ing as tions act- : tions act-: in corpora- employees : employees : Date Number of : corpora- Number of : Percent of Number of employees in corpora- tions acting as issuing agents : January 31 351 * 15,000,000 February 28 686 * 17,000,000 March 28 931 * 19,000,000 * April 4 980 * 19,000,000 * April 11 1,050 * 20,000,000 * April 18 1,110 3,179,349 20,000,000 15.9 April 25 1,223 3,449,927 20,000,000 17.2 May 2 1,331 3,934,448 20,000,000 19.7 May 9 1,475 4,401,738 20,000,000 22.0 May 16 1,624 4,917,904 20,000,000 24.6 Office of the Secretary of the Treasury, Division of Research and Statistics. Not available. * * May 19, 1942. 6 9 4 2 25 18 26 11 16 16 14 2 16 149 May : 9 4 May 3 41 16 11 21 24 7 3 4 3 7 May 19, 1942. 144 : 8 2 11 May 6 7 8 2 1 1 8 10 11 108 : 8 65 2 3 - 3 25 3 3 - : 35 4 11 11 113 April : 4 2 1 5 5 - 6 2 1 - : 2 60 32 18 April TABLE April 18, 1942 to date Corporations with Payroll Plans Appointed as Issuing Agents Total Federal Reserve District Division of Research and Statistics. Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco office of the Secretary of the Treasury, 18 24 36 16 11 21 31 29 11 18 26 14 22 34 14 10 13 29 22 11 16 24 12 48 49 22 agents Percent Week Ended appointed 16 as issuing 20 May 19, 1942. May 9 : May 16 96 87 214 44 11 26 19 52 265 153 1,064 Week Ended 82 77 appointed as issuing agents 194 May 9 : May 16 43 34 30 11 23 17 43 254 146 954 or more employees Number of corpo. : rations with 500 : : TAEL 72 475 902 427 592 446 228 868 152 101 147 368 4,778 Number of with 500 or in the Federal corporations more employees Reserve District Progress of the Federal Reserve Banks in Appointing Corporations With 500 or More Employees as Issuing Agents Federal Total Division of Research and Statistics. Reserve District Boston New York Philadelphia Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Kansas City Dallas San Francisco Office of the Secretary of the Treasury, TABLE 4 Companies Qualifying as Issuing Agents May 9 and May 16, 1942 Week ended May 9 Week ended May 16 : Company Number Number of Company Employees Ford Motor Company, Detroit, Mich 117,999 Pennsylvania Railroad Co., Philadelphia, Pa 112,925 Chrysler Corp., Detroit, Mich 51,004 16,838 New England Power Service Co., Boston, Mass 20,319 Atlantic Coast Line Railroad Co. Wilmington, N. C 12,000 New York 15,562 Koppers United Co., Pittsburgh, Pa Horn & Hardart Company, New York, New York 155,556 Continental Can Co., Inc., New York, Proximity Manufacturing Co., Greensboro, N. C Employees 1. Companies with 5,000 or more employees: 1. Companies with 5,000 or more employees: New York Central Railroad, New York, New York of 10,585 13,624 John Hancock Mutual Life Insurance Co., Boston, Mass Federal Cartridge Corp., Now Brighton, Minnesota 10,000 White Construction Company, New York, New York 8,279 Consolidated Steel Corp. of Texas, Orange, Texas 8,042 Walworth Corporation, New York, New York 8,000 Electric Boat Corporation, Bayonne, New Jersey Hazel-Atlas Glass Co., Wheeling, West Virginia 7,200 6,640 Standard 011 Co. of Louisiana, Baton Rouge, La Butler Bros., Chicago, Illinois 6,568 6,138 General Cigar Company, New York, New York 6,000 Liggett Drug Company, New York, New York 6,000 Georgia Power Company, Atlanta, Georgia 5,113 Subtotal Companies with 5,000 or more employees 348,327 11,555 Edward G. Budd Mfg. Co., Philadelphia, Pennsylvania Libby, McNeill & Libby, Chicago, Ill. 11,3 10,080 Seattle-Tacoma Shipbuilding Corp. Seattle, Wash 9,702 Magnolia Petroleum Co., Dallas, Tex 9,440 The Murray Corporation of America, Detroit, Mich 9,325 Loose Wiles Biscuit Co., Kansas City, Missouri 7,805 Philadelphia Electric Co., Philadelphia, Pa 7,200 Avondale Mills, Sylacauga, Ala 6,556 Norton Co., Worcester, Mass 6,010 Lever Bros. Co., Cambridge, Mass 5,952 Hearst Publications, Inc. San Francisco, Calif 5,579 Curtiss-Wright Corp. (Propeller Div.) Caldwell, N. J. 5,000 Southern California Gas Co., Los Angeles, Calif 5,000 Union Electric Company of Missouri, St. Louis, Mo 5,000 Subtotal Companies with 5,000 or more employees 371,583 2. All other companies 118,963 2. All other companies 144,583 3. Total all companies qualifying 467,290 3. Total all companies qualifying 516,166 Office of the Secretary of the Treasury, Division of Research and Statistics. May 19, 1942. 55 Analysis of Exposure to Payroll Savings Plans May 16, 1942 Number exposed Total number in the savings plans (estimated) to payroll country Percent of total exposed Part A - Summary by Number of Organizations Exposed I. Business Organizations 471 476 4,641 17,249 6,067 26,938 (4) Subtotal - large firms 22,361 33,481 (5) Firms with less than 100 employees 59,037 (6) Total business organizations 81,398 (1) Firms with 5,000 employees or more (2) Firms with 500 to 4 999 employees (3) Firms with 100 to 499 employees II. Governmental organizations 99 67 # * III. Grand total 81,398 Part B - Summary by Number of Employees Exposed I. Business organizations 1,700,000 1 19,983,000 1 . (6) Total business organizations 18,283,000 1 30,400,000 2 . (5) Firms with less than 100 employees 6,384,000 I 4,149,000 . (4) Subtotal - large firms 7,750,000 1 # (1) Firms with 5,000 employees or more (2) Firms with 500 to 4,999 employees (3) Firms with 100 to 499 employees 66 II. Governmental organizations (1) Federal Government (2) State and local governments 1,083,214 1,700,000 2 2,700,000 (3) Total governmental organizations 1,481,195 4,400,000 III. Grand total 397,981 21,464,195 1/ 34,800,000 2 office of the Secretary of the Treasury, Division of Research and Statistics. 1 Revised. 2 Excludes agricultural employees, military personnel, employees on WPA or NYA or CCC projects, proprietors, firm members, self-employed, casual workers and persons in domestic service. Data not available. 23 40 34 62 May 22, 1942. 56 Firms Employing 100 to 499 Persons Participating in Payroll Savings Plans (As reported by the Defense Savings Staff's State Administrators) : : State : : savings plans Total number of firms (estimated) : Number of firms with payroll Percent of total having payroll savings plans Apr. 18 May 9 May 16 Apr. 18 May 9 Alabama 149 184 194 52 65 Arizona 43 48 48 64 67 75 75 Arkansas 44 47 47 142 31 33 33 512 555 561 561 91 99 100 756 792 797 1,171 65 68 68 113 116 282 116 124 91 94 94 277 285 622 45 45 46 21 40 43 84 25 48 51 52 57 62 152 34 38 41 Florida 147 157 165 165 89 95 100 Georgia Idaho 133 175 191 589 23 30 32 31 31 31 39 79 1,300 1,386 1,420 2,252 58 79 62 29 415 475 511 586 71 81 87 271 61 68 73 Northern California Southern California Colorado Connecticut Delaware District of Columbia Illinoi Indiana May 16 285 68 Iowa 165 185 199 Kansas 276 276 276 276 100 100 100 Kentucky 136 151 151 312 like 48 48 179 206 222 381 47 54 58 60 70 73 198 30 35 Maryland 177 210 213 405 44 Massachusetts 639 658 675 1,523 42 Michigan 689 764 774 1,022 67 Minneaota 376 406 407 407 92 99 20 100 59 61 62 143 41 43 43 531 664 71 80 80 100 Louisiana Maine. Mississippi Missouri 472 531 37 53 43 44 76 40 41 42 42 95 98 103 106 106 123 84 86 86 Nevada 14 16 16 21 67 76 76 New Hampshire 89 96 98 145 61 66 68 463 549 572 867 53 63 66 New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota 79 49 54 79 58 61 64 29 PM 48 62 1,178 1,739 65 67 68 33 33 33 42 2,060 2,304 2,455 4,239 282 305 320 499 14 14 18 1,173 1,126 166 170 178 49 52 248 252 345 271 48 211 78 92 93 1,682 1,780 1,819 2,032 83 88 90 154 167 173 224 69 75 77 71 87 92 174 41 50 53 22 21 21 Tennessee 199 199 199# Texas 326 394 403 36 38 38# 60 60 Utah Vermont Virginia 59 96 44 1,375 24 111 32 63 29 NOT 34 94 95 95 338 83 97 100 76 78 134 247 140 272 49 51 51 278 312 322 680 41 46 47 17 17 17 17 100 100 100 100 100 100 Alaska 328 2* 2 Total 91 44 72 West Virginia Railroads 91 44 323 281 234 Wyoming 23 449 338 253 140 Washington Wisconsin 79 2 Montana Nebraska 2 49 49 49 52 94 94 94 15,365 16,759 17,249 26,938 57 62 64 Office of the Secretary of the Treasury, Division of Research and Statistics. Data are for May 9, inasmich as no May 16 report was received. May 22, 1942. 57 Firms Employing 500 Persons or More Participating in Payroll Savings Plans (As reported by the Defense Savings Staff's State Administrators) savings plans Apr. 18 49 41 Connecticut Delaware District of Columbia Florida 9 Colorado savings plans Apr. 18 May 16 May 9 67 56 67 12 75 75 75 49 9 Northern California Southern California Percent of total having payroll 73 Arizona Arkansas May 16 May 9 Total number of firms (estimated) 9 : Alabama : State Number of firms with payroll 16 16 16 22 73 73 73 122 123 123 173 70 71 71 121 125 125 161 75 78 78 93 96 96 76 76 71 25 26 26 27 114 115 115 151 15 17 17 24 Z5 71 32 32 32 53 60 60 60 44 45 45 28 29 29 64 Georgia 86 97 97 111 77 Idaho 11 11 11 11 100 100 100 391 401 407 539 73 74 76 Indiana 88 101 103 165 53 61 62 Iowa 22 26 Kansas 23 Illinois 87 87 27 40 55 65 68 24 24 24 96 100 100 70 54 56 56 76 38 41 47 91 91 82 83 Kentucky 38 39 39a Louisiana 29 31 36 Maine 48 53 53 58 83 84 87 88 106 79 237 24h 254 348 68 70 73 265 271 271 308 86 88 88 94 Missouri 79 79 94 94 29 29 37 70 78 78 26 132 78 83 83 100 100 100 74 77 77 86 80 80 94 94 Montana 3 3 Nebraska New Jersey 31 24 24 23 Nevada New Hampshire 110# 110 103 5 Mississippi 79 84 3 Massachusetta Michigan Minnesota 3 Maryland 4 4 4 29 29 29 31 94 142 152 153 193 74 79 79 100 100 100 New York 759 778 788 1,075 71 72 73 North Carolina 103 117 120 159 65 74 75 5 5 5 North Dakota 0 0 0 Ohio 0 0 0 0 419 419 31 34 37 48 52 551 561 61 69 84 92 412 Oklahoma Oregon Pennsylvania Rhode Island South Carolina 5 New Mexico 490 84 86 86 50 62 68 74 53 91 98 100 565 616 89 91 92 69 81 75 85 85 93 103 82 89 90 100 100 100 Tennessee 50 50 50k 102 49 49 49 Texas 63 72 72 143 4h 50 50 8a 14 57 57 57 12 100 100 100 97 South Dakota 5 5 5 8 8 Utah Vermont 5 12 12 12a 93 97 97 100 93 97 Washington 49 50 50 71 69 70 70 West Virginia 36 39 40 61 59 64 66 127 132 134 152 3 3 Total 30 3 Railroads 1 Alaska 1 Wyoming 1 Wisconsin 1 Virginia 84 87 88 100 100 100 100 100 100 109 109 109 115 95 95 95 4,864 5,061 5,112 6,543 74 77 78 office of the Secretary of the Treasury, Division of Research and Statistics. . Data are for May 9, inasmuch as no May 16 report was received. May 22, 1942. 58 May 20, 1942 Dear Mr. Robeson: Mrs. Morgenthau and I were sorry that we missed seeing you after the broadcast on Sunday night. We both felt that you had given a most beauti- ful and impressive performance. I am writing just to tell you how much all of us at the Treasury appreciate your part in making this program a success. Sincerely, (Signed) B. MorgentMau, Jr. Mr. Paul, Robeson, o/o Mr. Robert Rockmore, 10 East 40th Street, New York, New York FK:blb see hes eck of 5/28 59 May 20, 1942 Draft #1 of article about HM, Jr for the Universal Mr. Gaer. Jewish Encyclopedia, prepared by 60 MORGETTHAU. KERRY n. farmer, publisher, 50th Secretary of the United States Treasury; b. New York City, 1891. Educated in private schools, at the Phillips Exeter Academy, and Cornell University. Upon leaving Cornell in 1913, where Morgenthau studied agriculture, he made an extensive survey of farming opportunities is the United States, traveling from coast to coast with a trained agricultural economist and gathering firsthand information on various farming enterprises. During this early agricultural investigation he became acquainted with some of the farm problems and the reforms needed to place the farmer and his family upon as equal footing with the city dweller. This trip was followed by his purchase of several adjoining tracts of land in Duchess County, New York, which were turned into the one large farm he has worked and lived on ever since. He soon entered actively into community affairs and. together with his 61 -2neighbore. worked on improvements in rural education, better health facilities, cooperative need buying, and the encouragement of greater consumption of home-produced foods through a system of canning clubs. Convinced that the farmer's plight could be bettered through mechanisation on the land, he demonstrated the benefits of the tractor, as well as other labor-saving machinery through their use OR his owa fare and by participating in demonstrations at county fairs and other gatherings of farmers. Among his neighbors in Duchess County there was one who was destined to have a great influence both on his career and his social outlook. That neighbor was young Franklin Delano Recevelt, at the time Assistant Secretary of the Havy. Receevelt, already a political power in New York State, drew Norgenthau more and more into the political and social activities of the Democratic Party in Duchess County. When the United States entered World Var I, Morgenthau, working under the Food Administration, inaugurated a system of 62 -3cooperative activities in Duchess County to increase home produced food. Then he contrived the idea of a tractor regiment for France which would increase France's food production at home and, what was at the time even more important, release United States food carrying ships. Upon the request of the Food Administration to carry the idea into practice, Morgenthau organised the tractor regiment and sailed to France to put it into operation. When he returned home early in 1918 he received a commission in the Navy as Lieutenant (35) and was assigned to the Quartermaster Corps in New York. At the end of the war he returned to the farm and devoted considerable time and energy with groups urging America's entry into the League of Nations as a measure to prevent future wars. In the elections of 1920, his friend, Franklin Delano Reesevelt, who was running for the Vice-presidency, went down in defeat, and the nation turned in reaction against Wilson's idealism and the League of Nations. Though industrial America 63 -4seemed to rise on a spiral of prosperity, the farmers were in a very precarious condition. Fara mortgage indebtadness had rises from three billion dillers in 1910 to nearly eleven billion dollars in 1923. With fare income and land valuation rapidly decreasing. baskruptcy was clearly stalking toward millions of debt-burdened farms. unless something drastic was done for their rescue through legislation. At this time Morgenthan acquired the American Agriculturalist which he used as an outlet to plead the case of the American farmer. Through his journal he gained a still wider knowledge of the problems besetting New York State farmers and what they thought they needed to alleviate their difficulties. When Receevelt ran for Governor in 1928 Morgenther was in a position to reach the rural voters through his journal with convincing discussions on their legislative needs and the advantages of a Roosevelt administration. Morgenthan's first opportunity to carry out some of his ideas for farm refers came when Governor-elect Receevelt 64 -5appointed him Chairman of an Agricultural Advisory Commission, which was to study various agricultural problems in New York State and make recommendations for legislation. Within three months the Commission made a large number of recommendations, ranging from methods for improving farm-to-market roads to an adjustment is taxation for the benefit of agricultural cooperatives. All the recommendations made by the Commission were designed to improve the let of the farmer. and more particularly the let of the low income farmer. The recommendations made by the Commission were approved by the Legislature. In 1930 Morgenthan was appointed Conservation Commissioner for the State of New York. By that time the state, as well as the nation. was rapidly sliding into the trough of depression. Commissioner Morgenthan reorganised his department completely, placing each division on a business-like basis and eliminating political patronage. Wherever he suspected corruption he personally investigated 18; wherever he found corruption, he 65 -6uprooted 18 fearlessly. His most important contribution as Commissioner was the development of a vast program of referestre- tion and soil conservation for New York State, designed to absorb large numbers of unemployed and to enrich the State's natural wealth. The scope of this reforestration program might be grasped from the fact that for thirty years prior to 1930, the annual average planting. both by the State and by private individuals. was approximately two and one-quarter million trees. During Commissioner Morgenthan's two years in office well over one hundred million trees were planted. The people of New York State will enjoy these millions of oak and spruce, oedar and locast, ash and balsen fir for generations. This reforestration program later served as a pattern for the Civilian Conservation Corps. Morgenthan resigned as Commissioner of Conservation when Roosevelt was elected President in 1932. and came to Washington as adviser to the President-elect OR agricultural and mometary problems. He was appointed Chairman of the Federal Farm Board 66 -7and started work on a plan to save debt-burdened farmers from bankruptcy. He helped in the preparation of legislation which resulted in the Farm Credit Administration, and when this agency came into existence, the President appointed him its first Governor. But even at the time he was working on agricultural problems he was also carrying out many confidential missions for the President in stabilising commodity prices and the value of the dollar. During the first year in Washington he demonstrated his skill as an administrator. and his wide grasp of the financial probleme of a nation deep in economic depression. Though still a young man and relatively unknown outside of his own state, he quickly gained the confidence of legislators, financiers, and Government leaders throughout the nation. More and more of the Treasury responsibilities fell upon Morgenthan's shoulders during Secretary Weodin's illness: and 67 -8when Woodin resigned at the end of 1933. Morgenthan was appointed Secretary of the Treasury to take Voodin's place. Since Congress first adopted the dollar as a monetary unit there has never been a decade in which the Treasury was called upon to meet so many perplexing fiscal problems as in the days of its 50th Secretary. Secretary Morgenthan steered the financial ship through the worst depression in our history and the serious disturbances accompanying the financing of our part in World Var II. He successfully raised the great loans of many billions of dollars needed by the Government during this period and at the same time reduced the rates of interest until they reached the lowest point ever paid by our Government. Added to this the Treasury succeeded in maintaining the dollar the soundest currency in the world. In the field of taxation he has improved and simplified the Internal Revenue Administration and prosecuted tax evaders irrespective of their inflaence or position. He has fought 68 incessantly for tax legislation which would bring about a more equitable distribution of the national income, although he has not always succeeded in obtaining the legislation reconstituded. In the Alcohol Division he has stamped out all illegal traffic and cleared the administration of any laxity in the enforcement of the law. Every other division in the Treasury has been likewise reorganised for most efficient functioning. Outstanding among his achievements, under the leadership of the President, is the shifting of the monstary control from Vall Street to Washington. On the international seene. Secretary Morgenthau brought about international cooperation for monetary stabilisation, which functioned well up to the outbreak of the var and which will usdoubtedly be used as a pattern for currency stabilization when the war is over. In his activities Secretary Norgenthan always tried to carry out the conviction he has often expresseds That we must #jealously guard our liberties against infringement"; that we can have democracy 69 - 10 - only if we have an equitable distribution of wealth; that "without a more equitable distribution of income. a balance of production and consumption at high levels is impossible"; and, finally. that our youth must be trained "to advance our work and turn the knowledge we have gained into a lasting security for all. Heary Morgenthan, Jr. is a member of the Foreign Service Buildings Commission: member of the Board of Trustees of the Smithsonian Institution: chairman of the Board of Trustees. Endowment Fund, American Red Cross: member of the Board of Trustees, Postal Service System: member of the National Archives Council; member of the National Park Trust Fund Board; chairsan, Library of Congress Trust Fund Board: member, Board of Trustees of the National Gallery of Art: member, Foreign-Trade Zones Board; member, National Munitions Control Board; trustee, Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund. Secretary Morgenthau received an honorary degree of Doctor of Laws from Temple University in 1938 and the honorary degree of 70 - 11 Doctor of Laws from Amheret in 1942. On April 17. 1916, Heary Morgenthan. Jr., married Nies Elinor Fatman of New York City. They have three children: Henry III, Robert Morris, and Jean Elisabeth. 71 May 20, 1942 My dear Claude: I have just read in the May 18th Congressional Record that Senator Russell made use of my letter to him of May 1st in regard to the Farm Security Administration program. I hope that my letter was helpful. Yours sincerely, (Signed) Henry Honorable Claude Wickard, Secretary of Agriculture. (Copy to Mr. C. B. Baldwin.) n.m.c. 72 May 20, 1942. Postmaster General Walker telephoned Mr. White at 12:35 on May 20 to say that he had met Mr. Schaeffer, Head of R.K.O. in New York and that Mr. Schaeffer had told him of the matter that he had placed before the Treasury for consideration. Mr. Walker said that Mr. Schaeffer was a very reliable man and that he (Walker) wondered what the status of the negotiations were. Mr. White told him that the status of the R.K.O. was being investigated and that we had not yet received a report to its financial status but that as soon as we did, we would not delay taking it up with Mr. Schaeffer again. Mr. Walker wanted to know whether there is any possibility of accomplishing anything and Mr. White replied that if the financial status of the company was as is indicated, it was not a hopeless case. Mr. Walker asked that Mr. White let him know as soon as any progress was made in the matter. H.D.W. MAY 20 1942 men My dear Mr. Secretary: memo filed 5/15/99 I am appending a memorandum which I submitted to the President with an enclosure which I think you will find self-explanatory. The President told me to continue the study of the proposal in conjunction with the State Department, Board of Economic Barfare and Export-Import Bank and to speak to him again about the project after we had progressed further in our study and after I had obtained the views of the State Department. I as also asking the Federal Reserve Board to join us in the study. I would appreciate it very much if you would designate someone to represent your department to meet with me at 3:00 P.M. on Monday, May 25. The proposal is, of course, in the study stage and if before the meeting you want more information on the matter, Harry White is available and will be glad to discuss it at your convenience. Sincerely yours, (Signed) a. Mergenthan, m Secretary of the Treasury. The Honorable, The Secretary of State. Enclosures inh 142. cc. n.m. Dr.white By 4:45 74 MAY 20 1942 My dear Mr. Secretary: I - appending a a which I submitted to the President with an enclosure which I think you will find self-explanatory. The President told me to continue the study of the proposal in conjunction with the State Department, Board of Economic Marfare and Export-Inport Bank and to speak to him again about the project after we had progressed further in our study and after I had obtained the views of the State Department. I an also asking the Federal Reserve Board to join us in the study. I would appreciate it very such if you or someone you would care to designate would meet with - at 3:00 P.M. on Monday, May 25. The proposal is, of course, in the study stage and if before the meeting you want more information on the matter, Harry White is available and will be glad to discuss it at your convenience. Sincerely yours, (Signed) 3. Norgeathan, ⑉ Secretary of the Treasury. The Honorable Jesse Jones, Secretary of Commerce. Enclosures cc. n.m.c. cc- D. white By Mensanger HDW I dah 5/20/42. Bunny 4:45 75 MAY 20 1942 My dear Mr. Eccles: I an appending a memorandum which I submitted to the President with an enclosure which I think you will find self-explanatory. The President told - to continue the study of the proposal in conjunction with the State Department, Board of Economic Warfare and Export-Import Bank and to speak to him again about the project after we had progressed further in our study and after I had obtained the views of the State Department. I would very much like to have the Federal Reserve Board join us in the study. I would appreciate it very such if you or someone you would care to designate would meet with me at 3:00 P.M. on Monday, May 25. The proposal is, of course, in the study stage and if before the meeting you want more information on the matter, Harry White is available and will be glad to discuss it at your convenience. Sincerely yours, (Signed) 4, Mergesthan, and Secretary of the Treasury. The Henorable Marrinor S. Eecles, Chairman, Board of Governors of the Federal Reserve System, Washington, D.C. Enclosures cc- cc-n-mc. fite By Members HDW:dah 5/20/42. Bunay 4:45 76 MAY 20 1942 Dear Mr. Vice President: I am appending a menorandum which I submitted to the President with an enclosure which I think you will find self-explanatory. The President told me to continue the study of the proposal in conjunction with the State Department, Board of Economic Barfare and Export-Import Bank and to speak to him again about the project after we had progressed further in our study and after I had obtained the views of the State Department. I as also asking the Federal Reserve Board to join us in the study. I would appreciate it very much if you would designate someone to represent the Board of Economic Warfare to meet with me at 3:00 P.M. on Monday, May 25. The proposal is, of course, in the study stage and if before the meeting you want more information on the matter, Harry White is available and will be glad to discuss it at your convenience. Sincerely yours, (Signed) N. Morgentham. in Secretary of the Treasury. The Honorable, The Vice President. n.m.c. Dr.White Enclosures By Messenger Bunny 4:45 HDW:dah 5/20/42. INCOME TAX COLLECTION AT THE SOURCE Statement of Randolph E. Paul, Tax Adviser to the Secretary of the Treasury, Before the Ways and Means Committee of the House of Representatives on the reasons for recommending collection at source May 20, 1942 In his statement of March 3, 1942, Secretary Morgenthau suggested that part of the income tax be collected at source for those types of income for which this method of collection is practicable. Before presenting an outline of the method by which collection at source could be put into operation, we should like to indicate the advantages of this method, particularly under present circumstances. These advantages are primarily: (1) Lightening the burden on the taxpayer; (2) greater speed and flexibility in meeting the threat of inflation; and (3) greater assurance of collection for certain groups of taxpayers. 1. The convenience of the taxpayer. -- At present exemption levels, approximately 20 million taxpayers are expected to pay a tax on their 1942 incomes. At the lower exemption levels tentatively approved by the House Ways and Means Committee, the number of taxpayers would be increased by about 8 million, making a total of about 28 million taxpayers in all. Under the rates proposed by the Treasury, the tax would begin at sixteen percent on the first dollar of income above the exemption. The rates are rapidly progressive, as they must be, to raise in an equitable way the amount of revenue that needs to come from the income tax. The result is a tax burden that many persons will find very difficult to meet under the present method of payment. At present, individuals pay their tax in the year following the receipt of the income on which the tax is levied. Most persons, especially in the middle and lower income brackets, make little if any advance provision for their tax liabilities by building up reserves during the year when the income is being earned. They are therefore obliged to pay the tax in, at most, four quarterly installments, out of the income of the following year, These installments.are in many cases very hard to meet because they have not been built up bit by bit, week by the week, or month by following month. Furthermore, numerous cases income of the year is lessthan in the income of the taxable year and, accordingly, the tax liability must be met out of a smaller income. This problem threatens to be particularly acute at the end of the war. Many will suffer large declines in income and yet be obligated to pay heavy wartime taxes on the high incomes of the preceding year. 31-71 -2- 78 The burden on the taxpayer would be considerably lightened 1f the tax were taken from his income week by week or month by month as he receives it. Collection at the source provides a convenient method of accomplishing this objective, of enabling the taxpayer to pay his tax currently in a large number of small installments rather than in a few large installments in the succeeding year. While no method of paying taxes can make them painless, collection at source is the most nearly painless of any method because the tax is paid in small amounts before the taxpayer receives his income and spends it. Furthermore, it is very much to the taxpayer's advantage to have a substantial part of his tax liability liquidated while he is receiving his income. Under the present system he ends each year in debt to the Government. This debt for his income tax is as burdensome as any other debt and can have just as serious effects on the taxpayer's budget if his income falls off or his expenses greatly increase. The first reason for urging the adoption of a system of collecting the income tax at source on such portions of income as are adapted to this method is, therefore, that the convenience of the taxpayer is thereby served and the weight of the tax burden is reduced. 2. The control of inflation. The introduction of collection at the source is essential not only because it would be a permanent improvement in the income tax, but also because it would make the income tax a more effective fiscal instrument for the control of inflation. In order that increases in taxes contribute most effectively to the control of inflation, they must begin to withdraw income at once. Under present methods of payment, an increase in income taxes enacted now will not affect tax payments until March 1943. By the time the higher collections become effective, the inflationary damage may be done. Collection at source would largely eliminate this lag. Income taxes can be increased and the collections under the increased rates can begin almost immediately instead of many months or even a year later. Collection of income taxes simultaneously with the production of the income will make the income tax better adjusted to the needs of the economy at all times, and not only at times like the present, when inflation threatens. In periods when incomes are falling and unemployment is increasing, it will contribute to economic stability if the taxpayers are out of 79 -3debt to the Government, so that their purchases of goods and their other economic activities are not unduly hampered by the necessity of paying income taxe on income received in a more prosperous year. Accordingly, to get the maximum effect in restraining inflation, and to make the income tax better suited to the needs of the economy, it is important that as much of the income tax as possible be collected currently while the income is being earned. The most practical method of doing this is through collection at source for those parts of the income to which this method is applicable. If collection at source were introduced July 1, 1942, at a 10-percent rate, there would be withheld from consumers during the last 6 months of this year alone about a billion and a quarter dollars under the lowered exemptions tentatively adopted by the House Ways and Means Committee. This is at an annual rate of 21 billion dollars. If the present system of collection is retained, there will be no increase in the amounts collected from consumers until March 1943. 3. The improvement of collections from small taxpayers As the number of taxpayers increases the problem of getting a full reporting of income likewise increases. The American system of income taxation is one of self-assessment. The taxpayer files his return, lists his income, and computes his tax. To a considerable extent, of course, he is assisted in these operations by representatives of the Government, but the initiative is his. By and large, this system has worked well, although, as we all know it has not worked perfectly. That non-reporting and underreporting have not been greater 18 attributable in considerable measure to the reporting of information at source. The employer, for example, is required to submit to the Government a slip for every person receiving more than $800 of wages or salary showing his name, address, and the amount of wages or salaries paid to him. Ordinarily, a copy of this slip is sent also to the employee. This reporting system, on the one hand, gives the employee notice that the Government has been informed of his income and, on the other hand gives the Government a source of information against which to check the income-tax return. While the appropriations made available to the Bureau of Internal Revenue have not permitted a complete check of the information returns against the income-tax returns, a great deal of checking has been done with the result that the reporting by workers has been found to be very high and the loss of revenue due to lack of reporting relatively low. 80 Nevertheless, the lowering of exemptions and increase in number of returns subjects to the income tax groups that are less well informed about tax matters and are less likely to file a return at the same time that it increases the task of checking the returns. Further, when the checking reveals a delinquency, the delinquency must be treated taxpayer by taxpayer. The collection-at-source method not only gives the Government information about the employee's compensation but also gives the Government a large part of the tax, the part it receives depending on how much of the tax is collected at source. With the income tax extending more and more into the masses of the population, collection is thereby assured in areas where there would be an increasing likelihood of its breaking down. The importance of this problem is illustrated by the experience of England and Australia. In both countries taxation at the source was introduced primarily for the purpose of easing the payment problem and of facilitating the collection of the income tax, rather than for ant1-inflationary purposes. The third reason for adopting collection at source is therefore the more complete tax collection that should result therefrom. Against these advantages of collection at source must be set the disadvantage arising from the administrative diffi- culty inherent in this type of collection. Collection of an income tax at source involves the same type of administrative difficulty of matching returns as in the administration of the Social Security pay-roll taxes. It involves some additional difficulty, notably in checking the tax return at the end of the year against the payments which have been made from time to time by the employer on account of his employees and in making refunds in those cases where too large an amount has been collected because of irregularity of employment. These administrative problems are revealed in more detail by the description that follows of the plan that has been developed for the collection of the individual income tax at source. While this plan can doubtless be improved in some of its details, I believe we have succeeded in working out an entirely practicable plan. It is our conviction that if proper provisions are made for its administration, collection at source is a highly desirable method of collecting the income tax and that its very great advantages far outweigh the administrative difficulties which would arise. Accordingly, we recommend to the committee that it provide for collection of the income tax 81 -5at source on salaries, wages, bond interest, and dividends, The income tax is no longer a tax on the fortunate few; it has become a people's tax. This change in coverage demands a change in methods of collection. Self-assessment and quarterly installments are no longer adequate. They should be supplemented by collection at source, the only method that is suited to the needs of a multitude of new taxpayers. The enactment of collection at source will prove a boon to these taxpayers, will convert the income tax into an effective fiscal instrument for the control of inflation, and will insure the collection of the taxes levied. An income tax which covers as many as 20 or 30 million people cannot function effectively without collection at source. In my opinion the very existence of the income tax of the scope proposed depends upon the adoption of this new collection device. SUMMARY OF PLAN FOR COLLECTION OF INDIVIDUAL INCOME TAX AT SOURCE Collection at source will apply to three types of income: (1) Wages and salaries, (2) bond interest, and (3) dividends. A. CURRENT WITHHOLDING 1. Wages and salaries -- (a) Each employee will fill out and give to his employer an exemption certificate, indi- cating marital and dependency status, and, if married, whether the spouse is also employed. (b) On the basis of the exemption certificate, the employer will classify the employee according to the exemption to which he is entitled. (c) Each pay period the employer will withhold from the employee's wage or salary an amount determined by applying the withholding rate to the excess of the wage or salary over the exemption to which the employee is entitled. (a) The employer will determine the exemption to which the employee is entitled by reference to a table to be furnished by the Bureau of Internal Revenue. (See attached exhibit) This table will show the exemption for different marital status and dependent groups and for different pay periods (weekly, semimonthly, monthly). -6 - 82 (e) This table will be computed by adding an arbitrary allowance for deductions to the annual personal exemption and credit for dependents, and prorating the sum over the number of pay periods. (f) At the end of each quarter, the employer will remit to the Bureau of Internal Revenue the amounts withheld during that quarter. (g) At the end of the year the employer will send to the Bureau of Internal Revenue the exemption certificates of filled out by the employees, entering on each the amount wages paid during the year and the amount of tax withheld. (h) At the end of the year, or at the termination of employment, the employer will give the employee a duplicate of his exemption certificate, entering on this duplicate the amount of wages paid during the year and the amount of tax withheld. This duplicate will serve as a receipt for the taxes withheld. In addition, small employers will be required to give the employee each pay period a receipt for the amount of tax withheld. (a) Corporations Bond interest and dividends. and other institutions exempt from the individual income tax 2. will file exemption certificates with the payors of interest or dividends certifying to their exempt status. (b) Individuals who expect their total annual income to be less than the exemption and dependent credit to which they are entitled may also file exemption certificates with the payors, certifying to that effect. (c) Payors of bond interest and dividends will withhold the tax on payments to all recipients who have not filed exemption certificates. The amount withheld will be computed by applying the withholding rate to the total amount of interest or dividends paid. By not withholding on payments to persons who have filed exemption certificates, relief is given to persons with small incomes derived largely from interest and dividends. (a) All payments of dividends and interest on which the tax has been withheld will be accompanied by a receipt for the amount withheld. (e) At the end of each quarter, payors of dividends or bond interest will remit to the Bureau of Internal Revenue the amounts withheld during that quarter. (f) At the end of the year, the employer will send to the Bureau of Internal Revenue a list of all payments made during the year, the amount of tax withheld from each recipient, and the exemption certificates for recipients not subject to withholding. 83 -7B. YEAR-END ADJUSTMENT (a) All persons from whom any tax has been withheld will be required to file an individual income-tax return by required to file returns. (b) The tax liability will be computed as at present. (c) The tax form will carry space for entering the March 15 of the following year, along with all other persons amount of tax withheld at source. (a) If the tax liability exceeds the amount withheld, the difference represents the amount the taxpayer must pay to satisfy his liability. (e) If the amount withheld exceeds the tax liability, the difference represents the refund to which the taxpayer is entitled. (f) If the refund claimed is less than $50 and if the taxpayer submits with his tax return receipts for all amounts withheld at source, the refund will be made promptly without further evidence. (g) The information given by employers and by payers of interest or dividends will be matched with the individual income-tax returns. This will furnish a check on the additional tax liability of individuals whose liability exceeds the amount withheld at source and a validation of the claims for refunds. (h) Refunds not made promptly (as described in (f) above) will be made as soon as the tax returns have been compared with the reports of employers and of payers of interest and dividends. 84 Exhibit 1. Amount of wage or salary to be exempt from collection at source under personal exemptions and credit for dependents tentatively adopted by House Ways and Means Committee: Single person (not head of family), married person or head of family, and each dependent, by payroll period : : $ 11 $ Each dependent : : Weekly : Married person : or head of family : period : Single person (not head of family) : Payroll 26 $ 8.50 Bi-weekly 22 52 17.00 Semi-monthly 23 55 18.00 Monthly 46 110 36.00 Quarterly 138 330 108.00 Semi-annually 276 660 216.00 Annually 552 1,320 432.00 Treasury Department, Division of Tax Research. May 20, 1942 85 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 TO Secretary Morgenthau FROM Ferdinand Kuhn, Jr. You asked this morning about the editorial record of the Washington News on the subject of tax exempts. The attached clippings will show that the News and others in the Scripps-Howard - chain have been quite active in fighting tax exempts and in onoutstanding issues. Insupporting other words, position, except our yesterday's editorial was quite consistent with the News' policy for the past few months. F.K. Attachments: player return these cripping 86 for Schwary's files. 7.k. D TheuNews APR 10 1942 'AND THE DEFICIT GROWS WITHIN a few days Congress will complete action on the latest $18,000,000,000 Army supply bill-bringing the total appropriations for war purposes to $160,000,000,000. Meanwhile there is little progress to report on the war revenue bill under which we are supposed to start paying a larger share of of the tremendous costs of this conflict. Right after Pearl Harbor, Treasury Secretary Morgenthau told the American peoDJE to get ready for much stiffer taxation. The people then were al ready. But weeks dragged by while the Treasury's experts labored over the new program. When the program was finally revealed, the reason for the delay was obvious. The experts had not designed a tax measure alone for the primary objective of immediately raising urgently needed new revenue. Rather, they had undertaken a large-scale revision of the revenue statutes, bringing again to the front many old and stoutly disputed controversies. There is, for instance, the provision to require husbands and wives to file joint returns on income taxes- proposal long and bitterly contested last year, and finally voted down. Now we are heading into another extended debate on the same issue, and doubtless it again will be defeated. The net result will be precious time wasted. Opportunity was ripe to end for all time the sale of tax-exempt bonds of state and local governments. Congress was ready to vote the reform, and the people were ready. But Mr. Morgenthau muddied up the waters by proposing to tax not only that future state, county and municipal issues, but also to tax outstanding issues. He thereby started a constitutional argument that will continue indefinitely. Mr. Morgenthau hasn't a chance to win that argument-and he shouldn't win-for to tax out- standing securities would mean breaking faith with the people who bought those bonds at very low interest rates with the implied, if not specific, pledge that the bonds would always remain tax free. The proposal is unethical as well as unconstitutional. It will be defeated-an in this instance, not only will more time be wasted, but it is also possible that Mr. Morgen- thau's "gilligaloo bird" will ruin the opportunity to prohibit future tax-exempt issues. Very little actual revenue is involved in these time-consuming disputes. But while they are being debated, the new_revenueraising measure is being delayed-and the deficit grows larger. 87 TheaNews JAN 2 0 1942 TAX-EXEMPTS AND COURTHOUSE GANGS ONE tax proposal before Congress is so eminently fair and sound that it should be adopted without further debate. It has been debated for more than a quarter century-ever since the graduated income tax became a part of our Federal revenue system. And no good argument has ever been made against it. It is the recommendation that President Roosevelt has renewed-for about the tenth time-that Congress forbid future issues of tax-exempt securities. Every President since Woodrow Wilson has asked for this reform. So has every Secretary of the Treasury. The obvious has long been recognized-that gradu- ated taxation, on the principle of ability to pay, cannot exist side by side with tax exemption. A few years ago John W. Hanes, then Undersecretary of the Treasury, disclosed that many citizens in the millionaire class were paying no Federal income tax whatever: they had invested all their money in bonds that were wholly tax exempt. The Treasury recently stopped putting tax-exemption clauses in new issues of Federal securities. Defense bonds, for example, are subject to full Federal income taxation. But the securities of state and county governments, municipalities, school districts and other sub-divisions-some 20 billion dollars' worth outstand- ing-are wholly tax exempt. And every week such issues are being refunded and new issues peddled, with the no-tax guarantee written on the face of the bonds. In each session of Congress a proposal is made to stop this racket-but each time the proposal lands in a pigeonhole. The reason is clear to all who understand the workings of politics. Many of our lawmakers in Washington-too many-got where they are today by playing ball with the city-hall crowds and the courthouse gangs back home. The city-hall and courthouse boys keep themselves in power by borrowing money at low interest. rates. If the tax-immunity privilege were taken out of their bond offerings, they might have to pay higher interest on state and local government bonds. Indeed, they might find borrowing too expensive and be compelled to start paying off the city, county and state debts. To do that, they might have to lay heavier taxes on local citizens, and as a result become so unpopular that they would be voted out of office. Well, the fight is on again this session. Let's watch closely and see which is stronger with the congressmen-the public interest and the principle of taxation according to ability to pay, OF the selfish interest of the city-hall and courthouse gangs. 88 TheuNews 89 AUG _9 1941 LWash. Daily News AUS AGAIN-THE - TAX-EXEMPT LOOPHOLE TESTIFYING before the Senate Finance Committee on the revenue bill, Secretary Morgenthau mentioned again a proposal which we were afraid he had forgotten-his recommendation that Congress forbid future issues of tax-exempt securities. We hope the Senate will act favorably on this suggestion, and that the House will concur. Until such action is taken our steeply graduated income-tax schedule will continue to be an illusion. Mr. Morgenthau has already cut down the tax-exemption features of Federal securities-that is, all the recent Treasury issues have been made subject to Federal income taxes. But they are still exempt from state taxes. And all issues of state and local government bonds are still exempt from Federal taxation-indeed, most of them are exempt from all taxation. Here is an all-too-perfect refuge for timid capital. A super-super-rich man, for instance, whose income reaches the topmost Federal surtax bracket-where the Government takes 86.9 per cent-can get a larger net return on a 3 per cent tax-free state, county or municipal bond than on a private business investment paying a gross return of 20 per cent. This glaring loophole in our income tax laws should be closed. TheuNews JAN - 1 1941 ash News 1/1/41 HOW TAX-EXEMPTS WORK THE article by Marshall McNeil on page 6 is worth your read- ing. So will be other articles which he is to write, citing other examples of wealthy citizens who avoid the payment of equitable income taxes thru the convenient process of investing their surplus capital in tax-exempt bonds. It would not be fair to blame the rich for buying tax-free securities: the law invites them to do so. Our governmentsFederal, state and local-have to borrow money to meet emergencies, and sometimes to finance ordinary expenditures. Capital invested in public securities should not be called "slacker money" when government itself fixes the terms of the investment. But it is unwise, we think, for our governments, which are supported by taxes, to continué in effect a set of laws which wield the ax on one class of investors and confers immunity on another. The fairest tax is one assessed in proportion to ability to pay. That is what the graduated income tax attempts to do But it fails of its purpose in respect to persons who derive all of part of their income from tax-free securities. The example Mr. McNeil cites today is of a New Yorker who has a taxable income (from private business sources) of $224,441, plus a tax-free income of $880,408-making a total net income of $1,104,849. On that the man pays an income-tax bill of $134,027 to New York State and the Federal Government. If all his income were taxable, his income-tax bill would be $818,386. President Roosevelt and Secretary of the Treasury Morgenthau are asking the next Congress to enact a law making all future issues of governmental securities subject to the same income taxes that are applied to the securities of private industries. We think this program deserves support for mapy reasons. For one, it would make the phrase "ability to pay" mean what it says. For another, it would take away the premium which the Government now offers to capital seeking a sure return without risk-and it would encourage investments in private enterprises that provide real jobs at real wages. 90 91 TheuNews JAN -1 - 1941 Tax-Exempt Bond Fight Due in New Congress See editorial "How Taz Exempts Work" on Page,22 By MARSHALL McNEIL The Treasury is marshaling facts and arguments to support its drive, in Congress next Friday, to tax the interest from all future issues of Government securities. Altho elimination of tax-exempt bonds has been advocated by Secretaries o fthe Treasury since Andrew Mel- lon's day, it now appears that Secretary Morgenthau is really going to bat. backed by the full power of the Ad- ministration The fight for abolishing tax-exempts may be a curtain-raiser to the muchneeded overhauling of the entire Federal revenue system. FACES STIFF OPPOSITION Mr. Morgenthau will encounter or- business last year was $224,441. Also. he received $880,408 in interest from wholly tax-exempt bonds This would give him a net income of $1,104,849 HOW IT WOULD LOOK On the $224,441 he would pay, ac- cording to 1940 rates. a New York State income tax of $17,441. Then he would pay a Federal income tax of $116,586. His total Federal and state income tax: $134,027. position. not only from those who op- However. If that $880,408 in interest from Government bonds had not been especially from local and state gov- tax-free, this same Taxpayer A would have had to pay Federal and state in- Jose taxing Federal securities. but more ernments and agencies that now issue their bonds free from state and Federal income taxes. Behind the Secretary. however, will be the opinion of many experts that tax-exempts must be eliminated before our Federal revenue structure can ever function fairly on the ability-to-pay principle. Here is one example of how tax exemption confers special benefits: come taxes totaling $818,386 $87,874 to New York State, $730,512 to the Fed- eral Treasury This is one reason why a recent study of tax-exempt bonds by the Temporary National Economic Committee said: "A most reprehensible form of fax favortism benefiting the wealthy, need such favors least of any group in ho Taxpayer A is a resident of New the population, is the issuance of any York State, and his income from his exempt Government securities." 92 MAY 20 1942 Dear Mr. Delmar: This is in reply to your letter of May 16, 1942, with reference to the deductibility for purposes of the Federal income tax of contribu- tions for civilian defense. You will be interested to know that the Bureau of Internal Revenue has given careful consideration to this question and has ruled that contributions made to civil defense committees formed in accordance with the Executive Order of the President of the United States, dated May 20, 1941, constitute allowable deductions in the individual returns of the donors. Sincerely yours, (Signed) H. Morgeathan. IN Secretary of the Treasury. Kr. Charles Delmar, Woodward Building. Washington, D. C. CTD:18 5/19/42 photo file n.m.c. By File Messenser Buy 4:35 Ca- Dean Lansin 93 OFFICE OF THE SECRETARY OF THE TREASURY May 20, 1942 TO: Dean Landis For your information. H. Morgenthau, Jr. CHARLES DELMAR WOODWARD BUILDING WASHINGTON, D.C. May 16th 1942 Honorable Henry Morgenthau, Jr. Secretary of the Treasury, Washington, D. C. My dear Mr. Secretary, Last evening you will undoubtedly recall that you suggested I drop you a note today about the deduction from income tax of funds contributed to Civilian Defense. I would greatly appreciate your having someone look into this matter for me, for since talking to you I have seen and obtained money from a number of our immediate neighbors, and they all invariably ask whether or not this is a deductible item. It was very kind of you to take an interest in the matter, and I will appreciate hearing from you at your convenience. Very sincerely, Marles Delman CD.R 95 MAY 20 1942 My dear Mr. Attorney General: This is in acknowledgment of your letter of May 11, 1942, requesting the views of the Treasury Department with respect to the taxability of Army commissaries and post exchanges under the Federal excise taxes imposed under Chapter 19 of the Internal Revenue Code. We shall be glad to study this matter further, and to give particular attention to the factors emphasized in the enclosed letter from the War Department. When the opinion of our General Counsel is rendered, I shall communicate with you again. Sincerely yours, (Signed) H. Morgenthau, 307 Secretary of the Treasury. The Honorable The Attorney General. Filste Thompson complete n.m.c. 96 C 0 OFFICE OF THE ATTORNEY GENERAL P Y Washington, D. C. May 11, 1942 The Honorable, The Secretary of the Treasury. My dear Mr. Secretary: Enclosed herewith is a copy of a letter from the Under Secretary of War dated May 4, 1942, requesting my opinion with respect to the taxability of Army commissaries and post exchanges under the Federal Retailers' Excise Tax provisions of chapter 19, Revenue Act of 1941. Since the Treasury Department administers the statute involved, it will be appreciated if you will furnish me your views and those of your General Counsel on the question presented. Respectfully, (Signed) Francis Biddle Attorney General. Enc. 214942 97 COPY WAR DEPARTMENT Office of the Under Secretary Washington The Honorable, The Attorney General. Dear Mr. Attorney General: On November 28, 1941, the War Department transmitted to the Commissioner of Internal Revenue a letter requesting a ruling in the matter of the taxability of Army commissaries and post exchanges under the Federal Retailers' Excise Tax provisions of chapter 19, Revenue Act of 1941. On February 25, 1942, a second letter was transmitted to the Secretary of the Treasury requesting careful consideration of this subject matter and further advice before any adverse ruling be published by the Treasury Department. On April 21, 1942, the Secretary of War was advised by letter that commissaries and post exchanges are held by the Treasury Department to be liable for the retailers' excise taxes imposed under chapter 19 of the Internal Revenue Code and to be required to make returns and payments of the taxes to the collectors of internal revenue for the districts in which they are located. There is no question that Army commissaries and post exchanges are instrumentalities of the United States. The Bureau of Internal Revenue has expressed the view that the taxes here concerned are imposed upon the retailers--who in this care are the Army commissaries and post exchanges. The Bureau contends, however, that because the economic burden of such taxes may be passed on to the purchasers, the tax in effect is upon the purchasers, and the governmental agencies are the more collectors of the tax. The accompanying memorandus of The Judge Advocate General expresses the view of the War Department that the Federal retailers' excise taxes are not applicable to the Army comissaries and post exchanges. The Army commissary and post exchange are old, well established institutions within the military establishment, and are an integral part of the Army. Their object is not to profit from the soldier's purchases, but to supply at a minimum cost needs which are essential to his ordinary daily life, yet not supplied to his by the Army. There is no profit from commissaries and any profit which may result from the post exchange opera- tions is used to provide the enlisted personnel with facilities for their comfort, recreation, amusement or the improvement of their messes. The sales made both by the commissary and post exchange are distinguishable from ordinary private commercial transactions. Actually, they are sales for a public use. 98 -2- The earnings of both the post exchange and the soldier are small. It is indeed doubtful whether the exchange could absorb the excise taxes in question. To pass these taxes on to the soldier-purchaser would not only reflect a further reduction of his already meager pay. with resultant hardship to him, but would also adversely affect his morale at a time when the nation is making most pressing demands upon him. The Bureau's theory of the application of the Federal retailers' excise tax would directly disrupt the very object of the commissary and post exchange, inflict hardship on both the War Department and the coldier and disrupt morale. Moreover, the imposition of the taxes would cause serious adminis- trative difficulties. The levy of these taxes, aside from the question of their legal invalidity, would place a great burden upon the employees of the Var Department in establishing and operating the accounting and records made necessary by the collection of the taxes. Such records would presumably have to be open for inspection by agents of the Treasury Department who would necessarily hamper the proper functioning of the particular activities concerned and interfere with the administrative control of the Var Department. The imposition of the taxes in question has already caused the Quartermaster General of the Agay to contemplate the discontinuance of sales of all taxable items at Army commissaries, however essential they might be to the soldier. This matter is of immediate and serious concern to the Army. Your opinion is therefore requested as to whether or not the subject taxes are applicable to Aray commissaries and post exchanges. Sincerely yours, s/ Robert P. Patterson Under Secretary of Var. 1 Incl. Cpy. OP. JAG. COPY MAY 20 1942 39 Dear Mr. Leffingwell: I have your letter of May 14, 1942, suggesting provision be sade in the next long-term issue for acceptance in payment of inheritance taxes or estate taxes at par, calling attention to the fact that you had some such arrangements in the Liberty Loan issues. The provision for accepting bonds and notes in payment of Federal estate and inheritance taxes was & part of the Second Liberty Bond Act, which provided that bonds and notes carrying a rate higher than 4 percent could be accepted in payment of these taxes at par. Under this authority the Treasury has re- ceived approximately $66,000,000 in these securities, most of which were received in the early 20's when Government securities were selling at a substantial discount. This law is still in effect but there is only one issue now outstanding to which the law applies, the 4-1/4 percent Treasury Bonds of 1947-52, which are selling at a substantial premium. In a recent amendment to the Second Liberty Bond Act, authority was obtained under which the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, may accept any obligations of the United States redeemable upon demand of the owner or holder in payment of any taxes at the value of such obligations at the time of such payment. This enables the Treasury to accept any obligations which are matured at their face value and any United States Savings Bonds at their current redemption value in payment of any taxes due. A person could accumulate each year, as much as $5,000 of Series E bonds, and $50,000 of Series F or G bonds, or a combination of the two latter, which could be later turned in to the Treasury in payment of estate or inheritance taxes, if approved by the Secretary of the Treasury. To accept long-term bonds of a market issue, at par, as suggested in your letter, in payment of such taxes would require legislation. We did consider this matter early in March when appearing before Congress for an increase in the debt limitation, but decided it was not necessary at this time. Thank you very much for writing me. Sincerely yours, (Signed) E. Morgentham. 197 Secretary of the Treasury Mr. R. C. Leffingwell, 23 Hall Street, New York City. D.Biceian 5/18/19/42 Photo File n m c capiesta Bills offere Wall Street NewYork Dear May 14, 1942 Mr. Secretary: It occurs to me that you might consider offering to accept United States war bonds of the next long-term issue at par in payment of inheritance taxes or estate taxes. We did that in respect to some of the Liberty Loans if I remember correctly in the other war. It helped sell a lot of taxable bonds of longer maturities to people who were worried about the ability of their executors to liquidate their estates without undue loss in case of death particularly in wartime. I doubt if it prematured many bonds, and it certainly sold a lot. Nowadays inheritance taxes are stiff, and stock market prices are down and markets are thin. I have a hunch that a lot of more or less rich people are worrying about what would happen to their families if they were to die. So you should sell a good lot of long-time bonds to them if they had this privilege. I guess on the law of averages only a very small percentage of the people who bought the bonds with that in mind would die during the war or soon after. Most of them would Live a lot longer just for having this protection for their llies. I suppose if you were worried about it you could have Treasury's records looked up to see how many bonds that had 2. this privilege in the last war were used to pay death duties or estate taxes and how fast they were prematured. However I should 15 I were you be willing to act on a hunch that the law of averages, which is good enough for the insurance companies, would be good enough for the Treasury. My guess is that this would be a big selling point with the rich and the well-to-do who get little or nothing by way of interest after taxes anyway and need something to tempt them into taking the long bonds, instead of short ones and notes certificates and bills, or even to draw out their bank deposits. Don't bother to answer this. It is just a thought in the hope of being helpful to you in your great task. I am, my dear Mr. Secretary, with great respect Faithfully yours The Honorable The Secretary of the Treasury Washington, D. C. 102 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE May 20, 1942 TO FROM Secretary Morgenthau Harold Gravest Referring to your request for information concerning the estimated expenditures to be made by O.P.A. during the current fiscal year (1942), and the approximate number of persons currently employed by that Agency: O.P.A. will expend this year approximately $31,400,000. Due to constant fluctuation, it would be impossible to furnish an accurate estimate of O.P.A.'s current personnel without directly contacting that Agency. From information obtained from another source, however, it appears that by June 30th next, O.P.A. will be em- ploying over 37,000 people, divided 6,200 in Washington and 31,000 in the field, the latter including 20,000 employees of local rationing boards. The above information was obtained with the understanding that it would not be made public nor used as a basis for an official communication. If it is planned to use these figures for either of the above purposes, I would suggest that we formally obtain the information from either O.P.A. or the Bureau of the Budget. Regarding the fiscal year 1943, no figures have been released, the matter still being under consideration by the Bureau of the Budget. Estimates of the number of persons to be employed by O.P.A. range from 70,000 to 80,000. The size of the force will depend in large measure upon the extent to which the rationing program is expanded. 103 May 20, 1942. Dear Mr. Berles I - returning unofficially your papers in the matter of one bottle of run. I - also enclosing unofficially a copy of a letter that is not being sent. The Georgetown Customhouse has had instructions under date of May 1, 1942, to permit the forfeiture of one bottle and the delivery of five. Very truly yours, (Initialed) H.E.S. Herbert B. Gaston, Assistant Secretary of the Treasury. Non. Adolf A. Berle, Jr., Assistant Secretary of State, Washington, D. C. Enclosures. REGepa Raming TO: MR. CAIRNS 104 The papers marked "ENCLOSURE" should be returned to Mr. Berle with the letter. RC 5/19 From: MR. CHAMBERS 105 THE SECRETARY OF THE TREASURY WASHINGTON Personal Dear Adolf: Since receiving your letter of May 7, 1942, I have had some inquiries made in the case of the six bottles of rum. The release of all six bottles in the District of Columbia is prevented by a statute which limits the quantity which may be brought in to one gallon. The District of Columbia Alcohol Control Board, which administers the statute, takes the position, which it has adhered to in previous cases, that the law gives it no discretion to make exceptions. As you know, you can secure the five bottles which make up the one gallon limit by complying with the usual customs requirements and agreeing to the forfeiture of the other bottle. The only way I know of to obtain all six bottles is to have them shipped in customs custody to some place (such as Baltimore) where the State law allows delivery. Someone acting as your representative would need to make preliminary arrangements at the customhouse in Washington and take delivery of the rum after it reaches Baltimore. There would be the usual duty and tax to pay, plus shipping charges to Baltimore. I believe it would be a violation of the District law to bring all six bottles over from Balti- more on one trip. The customhouse here will cooperate in carrying through whichever plan you decide upon. Faithfully, iseal, , Hon. Adolf A. Berle, Jr. Assistant Secretary of State. is 106 Dear Adolf: Since receiving your letter of May 7, 1942, I have had some inquiries made in the case of the six bottles of run. The release of all six bottles in the District of Columbia is prevented by a statute which limits the quantity which may be brought in to one gallon. The District of Columbia Alcohol Control Board, which administers the statute, takes the position, which it has adhered to in previous cases, that the law gives it no discretion to make exceptions. As you know, you can secure the five bottles which make up the one gallon limit by complying with the usual custons requirements and agreeing to the forfeiture of the other bottle. The only way I know of to obtain all six bottles is to have then shipped in customs custody to some place (such as Baltimore) where the State law allows delivery. Someone acting as your representative would need to make preliminary arrangements at the customhouse in Washington and take delivery of the rum after it reaches Baltimore. There would be the usual duty and tax to pay, plus shipping charges to Baltimore. I believe it would be a violation of the District law to bring all six bottles over from Balti- more on one trip. The customhouse here will cooperate in carrying through whichever plan you decide upon. Faithfully, Hon. Adolf A. Berle, Jr., Assistant Secretary of State. MLF mr 108 mwr Johnson 107 TOST o WR can we not puice a way to release Mr Bule's Rinth tattle of rum? yo-ho-ho ! ms TO 100 all may be shiffie to(1) Betterne (2) annual must sign statement liquor is for personal we and not 3) for sale any representation owner am ame xin of pay duty 9 Taxes given 109 q21 DEPARTMENT OF STATE WASHINGTON May 7, 1942 (Personal) Dear Henry: I did not mean to take you up about your kindly offer the other night to intervene in the case of the six bottles of rum. When the Customs and Alcohol Control Board opened them, it developed that two bottles were for the President, two for me, and two for Mr. Charles Thomson who runs cultural affairs here at State. The Alcohol Control Board says we can only bring in five and that if I will destroy one of my bottles the other five can come in against payment of duty on them which I have made. I am quite willing to do that, though it leaves rather slim pickings for me for the rum is good rum, and the President likes it! Attached are the papers. It is not much of a thing to worry about when you are financing several wars. Faithfully, The Honorable Henry Morgenthau, Jr., Secretary of the Treasury. 110 632.11 MAY 1942 Deputy Collector of Custome, Georgetom Castombouse, 1221 - 31st Street, N. W., Washington, D. C. Sirs Reseipt is acknowledged of your letter of April 25, 1942 (JFB/b), transmitting the potition of Adolf A. Baria, Sr., for revission of the forfeiture of five bottles of rm. The record shows that six 1/5th bottles of F were received in your office from Miami, Florida, under I. T. entry No. 891 A. In view of the fact that the laws of the District of Columbia prohibit the importation of distilled spirits in quantities in excess of one wine gallon unless imported by the holder of a liquor license, the merchantise is subject to forfeiture under the provisions of section 593(b) of the Tariff Act of 1930. The petitioner requests a remission of the forfeiture of five bettles of the F and assents to the forfeiture of the one extra bottle. In visw of the reported facts, and since the spirits in question are for personal me, the forfeiture incurred 10, under the authority conferred in section 618 of the tariff are, hereby remitted insofer as five bottles of the FOR are resourced. The other bottle should be disposed of in the regular manner and the five bottles should be - leased, provided all custome requirements are complied with. Please advise the petitioner of the Bureau's decision. CO: Comptroller Collector, Baltimore Very truly yours, (Signed) G.H. Griffth SS/LEK 4-29-42 Acting Deputy Commissioner. M 4 1942 April 29, 1942. V 111 Memorandum to Mr. Griffith From Mr. Stephens I am sending this letter direct to the deputy collector at Georgetown, rather than through the collector of customs at Baltimore, since Mr. Berle's office has called me in the matter and desires that the decision be expedited as much as possible. We are sending the collector at Baltimore a copy for his information. 5315 112 TREASURY DEPARTMENT 632.11 UNITED STATES CUSTOMS SERVICE OFFICE OF THE DEPUTY COLLECTOR Custom House Washington, D. C. April 25, 1942 The Commissioner of Customs, Treasury Department, Washington, D. C. Sir: by A petition for mitigation of forfeiture with r espect to one case which arrived at this office under Miami I. T. 891 A, which case contains 6 4/5th bottles of rum, is forwarded for consideration. H. R. 7950 restricts the importation of alcoholic beverages to one gallon, for delivery to one person, at any one time, in the District of Columbia. This matter was the subject of a telephone conversation with Mr. Shirley Stephens on the 17th inst. Respectfully JFB/b Encl. Deputy incharge. 7am. Collector RECEIVED APR 28 1942 DIVISI OF ENFORCEMENT 113 ASSISTANT SECRETARY OF STATE WASHINGTON April 24, 1942. Inclosure Deputy Collector in Charge, Custom House, 1221 - 31st Street, 4-25-42 Washington, D. C. Dear Sir: Referring to the shipment addressed to me from Port-au-Prince, Haiti, consisting of six bottles of Rhum, I hereby request that forfeiture on five bottles be remitted and at the same time assent to the forfeiture of one bottle. These bottles were sent to me as a gift. Very truly yours, Adolf A. Berle, Jr. 114 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 TO FROM Secretary Morgenthau Mr. White Subject: Reciprocal aid negotiations. Mr. Acheson has sent me tentative drafts for an exchange of notes between the British and Australian Governments and the State Department to formalize the terms of reciprocal aid, and he would like to have our views upon them. 1. According to the draft agreement the United Kingdom is to supply the following items as reciprocal aid: a. All military equipment, whether provided in the U.K., in the field, or in the United States. It is specifically provided that materials produced from British contracts in the United States will be supplied as reciprocal aid, but the United States agrees to pay the balance that will remain due upon these contracts at June 1. At the present time British contracts are for ordnance, which are in the process of being taken up by the Army, for ships, which the British have indicated they want to pay for themselves, and for aircraft. The proposal would therefore result in the take-over of the unpaid balance of aircraft contracts, which on June 1 will amount to about $235 million. Acceptance of this provision might save some small amount of dollars that would otherwise be paid to Britain for materials diverted from its contracts, but would increase Britain's dollar receipts by about $235 million. b. Other supplies, materials, facilities, and services for the United States forces in the Sterling Area, except for the pay and allowances of troops and for purchases of local supplies obtained other than through the official establishments of the government of the U.K. C. For supplies, materials, and services, other than in the construction of tasks in United Kingdom or in wages and salaries of United States citizens, needed the Colonial Empire, other than at leased bases. 115 Division of Monetary -2- Research The bases leased by the United States from the British were not excluded in previous documents on reciprocal aid from the areas in which the United Kingdom would undertake to provide material for the construction of tasks. Their exclusion would serve to increase Britain's dollar receipts. d. Supplies, materials, and services needed in the construction of tasks in territory other than the United Kingdom, British Colonies, or the United States, when the United Kingdom or a British Colonial country is the most practicable source of supply. 2. Conversely, the United States would supply dollars for the following: a. All war material produced in the United States and made available to the United Kingdom, excepting war materials produced on British contracts in the United States. The United States would undertake to pay the unpaid balance on British contracts in the United States as of June 1. b. Pay and allowances of American troops abroad. C. Wages and salaries for citizens of the United States engaged in construction of tasks in United Kingdom or its Colonies. d. Supplies and services needed in the construction of tasks at bases leased to the United States in British Colonial areas, and at points outside the British Colonial Empire when the United States or another of the United Nations is a more practicable source of supplies. 3. There is also presented a draft memorandum of the agree- ment with Australia which follows closely the form of the draft of the British agreement. 4. No mention is made of British and Colonial commercial and raw material exports, but it is presumed that these will be paid for in dollars. There is also no mention made of oil, which the British would like to have considered as a special case, their suggestion being that they would provide oil in the Sterling Area upon reciprocal aid unless the oil had cost the United Kingdom dollars. 116 -3 5. On May 15, 1942 the British held $661 million of "available" and "scattered" gold and dollars, and total gold and dollars of $776 million. Our most recent estimates of Britain's gold. and dollar receipts and expenditures for the remainder of 1942 indicate a deficit on current account of approximately $420 million, and capital receipts from gold production, sales of facilities and contracts, and American troop expenditures abroad, of approximately $485 million. Consequently, we estimate that the "available" and "scattered" gold and dollar balances of the British by the end of this year will be about $725 million. If the United States, in accordance with the terms of the State Department's draft for a reciprocal aid agreement, is to take over the $235 million balance remaining due upon airplane contracts, and if the United States is to pay in dollars for supplies used in the construction of bases in areas leased from the British Government (perhaps $20 million), Britain's dollar balance by the end of the year will be $255 million larger than estimated above, or almost $1 billion. 6. The breakdown of the estimates given above is as follows: (In millions) I. Britain's gold and dollar balance, May 15, 1942 "Available" and "scattered" gold and dollars $661 Belgian gold 105 10 Gold held against immediate liabilities Total gold and dollars $776 II. Estimated British expenditures on current account May 15 through December 31, 1942 A. Payments to U.S. by U.K. (a) On BPM commitments (b) Other merchandise outside lend-lease (c) Services outside lend-lease (d) Other $294 74 66 51 $485 B. Payments to U.S. by other Sterling Area (a) Merchandise imports (b) Services $113 47 160 C. Payments by Sterling Area outside U. S. requiring gold or dollars (a) 011 (b) All other, including $22 million for payments to Iran $ 38 47 85 117 -4When negotiations for a BritishIranian exchange settlement first arose, it was estimated that $5 million a month would be required to meet the sterling deficit of Britain in Iran. The terms of the final settlement, however, call for British payment of Iranian dollar obligations and only 40% of the remaining British deficit. We do not know how much of a change this will make in the original estimate supplied by the British, but it may reduce Britain's expenses on this account from $40 million for the 8-month period to $25 million. Total gold and dollar expenditures on current account $730 III. Estimated British receipts on current account May 15 through December 31, 1942 A. U. K. receipts from U. S. (a) Merchandise $60 (b) Services 47 (c) All other 48 $155 B. Rest of Sterling Area (a) Merchandise $132 This estimate is $38 million higher than that made in our Blue Book study. The former figure excluded exports from Australia and New Zealand. Since it now appears that these areas will be held and will continue to export, they have been included, Exports from Ceylon and British India, however, are still excluded. If these areas should be held our estimate would be $200 million. (b) Services Total sterling area receipts on current account 23 155 310 118 -5IV. Estimated Sterling Area gold and dollar deficit on current account May 15 through December 31, 1942 $420 V. To offset this deficit the British will obtain the following special receipts: A. Current gold production $235 This excludes the gold production of Australia, New Zealand, and British Oceania, which produced about $80 million of gold in 1941, although we under- stand that these countries are continuing to produce gold. The estimate of $235 for the period May 15 to December 31 is equiva- lent to about 60 percent of the gold production of British African countries in the same number of months in 1941. B. Army purchase of British plant facilities 60 This includes only those plants for which a presidential directive for purchase has been given. In addition to this, the British might succeed in selling $30 million of other plants. C. Purchase of army ordnance contracts 85 D. Balance of RFC loan and Australian 40 wool receipts E. Dollar receipts from U.S. troops in the Sterling Area This is based on the British 65 estimate that American troops spend $200 per year per man, and that there might be as many as 500,000 troops abroad. The figure is much lower than the Army's estimates, and may prove to be still lower when the bill increasing the Army's pay is approved. Total receipts on capital account 485 119 -6VI. These special receipts of $485 million are $65 million larger than our estimates of Britain's deficit on current account. Her "available" and "scattered" gold and dollars at the end of this year may therefore be about $725 million. We vative, dollar balances well be aswere as addition believe that these estimates conser- on and receive due her to large aircraft this payment and at the that amount, $800 end for contracts, Britain's million. of the Britain the $235 her year gold million are If gold may and in to dollar balances would be over $1 billion. VII. After the end of this year Britain's deficit on current account should be reduced to about $200 million per year because of the cessation of payments on BPM contracts. There will be available to meet this deficit current gold produc- tion of perhaps as much as $400 million per year, and a large volume of American troop expenditures in the Sterling Areas. We may expect, therefore, that Britain's dollar balance will increase further after the end of the year, even if other unexpected expenditures, such as that occasioned by the Iranian incident, should occur. Confidential 120 ESTIMATE OF CASH TO BE SPEET BY UNITED STATES ARMED FORCES IN FOREIGN TERRITORY DURING 1942 Military and Civilian Pay Supplies and Sterling Area (Army) $276,355,000 $121,150,000 $397,505,000 Sterling Area (Navy) 40,462,000 21,840,000 62,302,000 $316,817,000 $142,990,000 $459,807,000 93,616,000 33,600,000 127,216,000 $410,433,000 $176,590,000 $587,023,000 Total Materials Lend-Lease Sub-total Outside sterling area Total Lend-Lease Lead-Lease 542,000 Grand Total $410,975,000 effects plans. Secretary 11, 1942. if with with the the of $ 140,000 $176,730,000 $ 682,000 $587,705,000 121 . ESTIMATE OF ACTUAL CASH TO BS SPENT BY UNITED STATES ARMED FORCES IN FOREIGN TERRITORY DURING 1942 ND-LEASE Military and Civilian Pay Supplies and Materials $ 59,518,000 2.8 42,385,000 2.1 $ 50,721,000 38,137,000 14,226,000 3,410,000 Total Sterling Area (Army) Bernuda 16,120,000 .7 697.000 550,000 655,000 349,000 348,000 5,056,000 1.7 1,500,000 1.5 Bahamas 2,555,000 1.7 Jamaica 1,775,000 9 Antigua 1,706,000 .9 St. Lucia 2,737,000 16,168,000 6.8 Trinidad British Quiana Egypt & Sudan Eritrea 1,190,000 .6 2,250,000 2.2 3,750,000 3.7 9,646,000 India 233,000 825,000 1,375,000 3,510,000 4.2 330,000 23,000 839,000 176,000 660,000 440,000 440,000 469,000 200,000 Iceland Equatorial Africa (Free French) Bolgian Congo Kenya Colony Iraq New Caledonia Sub-total 1,046,000 9,039,000 100,000 400,000 600,000 600,000 3,347,000 276,355,000 9 / Fiji Islands I Palestine 4 6 6 3 121,150,000 1 New Zealand 97,404,000 14.0 ( England & Scotland Australia $110,239.000 80,522,000 111,630,000 19.530,000 5,753,000 2,050,000 3,210,000 2,124,000 2,054,000 15,905,000 1,423,000 3,075,000 5,125,000 13,156,000 530,000 1,069,000 9,878,000 276,000 1,060,000 1,040,000 1,040,000 3,816,000 397,505,000 ( Ireland Sterling Area (Havy) Sub-total 5,400,000 15,000,000 1,000,000 440,000 21,840,000 16,000,000 37,200,000 4,200,000 4,902,000 62,302,000 326,817,000 142,990,000 459,807,000 ( Africa Iceland 10,600,000 22,200,000 3,200,000 4,462,000 40,462,000 i & North Ireland Australia & New Zealand a British Islee (Ingland, Sootland 4 Surinan Colombia Ecuador Pera Sub-total .5 2,614,000 3,353,000 7,081,000 2,780,000 .3 110,000 9.3 4,727,000 7 5 16.2 1.6 613,000 21,278,000 28.1 15,021,000 5,798,000 22,231,000 4,440,000 410,000 14,027,000 2,418,000 64,345,000 I Brasil 12,407,000 2,445,000 15,150,000 1,660,000 300,000 9,300,000 1,605,000 43,067,000 1 Newfoundland Aruba & Curacao ( Outside Sterling Area (Army) $ 122 outside Sterling Area (Cont) Brought forward Bolivia Paraguay Venesuela Chile Liberia China Arabia Iran Military and Civilian Pay $ 43,067,000 600,000 300,000 6 .3 220,000 110,000 372,000 Total $ 64,345,000 820,000 410,000 1,397,000 13,818,000 2,467,000 8,914,000 1,025,000 9,187,000 2,266,000 7,696,000 4 201,000 2.3 1,218,000 200,000 .2 330,000 2,640,000 6,240,000 67,941,000 31,000,000 98,941,000 715,000 5,560,000 19,400,000 25,675,000 150,000 1,100,000 1,350,000 2,600,000 865,000 6,660,000 20,750,000 28,275,000 93,616,000 33,600,000 127,216,000 $410,433.000 $176,590,000 $587,023,000 30,000 110,000 272,000 410,000 542,000 140,000 682,000 $410,975,000 $176,730,000 $587,705,000 3,600,000 Sub-total Supplies and Materials $ 21,275,000 .8 9.0 3.6 4,631,000 530,000 Outside Sterling Area (Havy) Surinan Brazil Atlantic bases Sub-total Total Outside Sterling Area .. TOTAL LEND-LEASE OT LEND-LEASE Greenlands Mexico Health AMD GRAND TOTAL ev 5-15-42 242,000 300,000 . 3 123 OFFICIAL SECRETARY OF STATE DEPARTMENT OF STATE WASHINGTON May 19, 1942 Dear Harry: I am enclosing drafts of two exchanges of notes relating to reciprocal aid to the United States from Great Britain and from Australia about which we talked. As I said to you, these are submitted for substance and not, at the present time, for form. I am not sure as to the particular form which proper usage requires. I hope to discuss these drafts with Mr. Hull today. If the substance is acceptable to him, to the Treasury, the Board of Economic Warfare, and the Office of LendLease Administration, I presume that Secretary Hull or Secretary Morgenthau or both of them will wish to discuss with the President the matter of taking over the unpaid installments of the British pre-lend-lease contracts, since, as all the discussions have revealed, anything which is done on reverse lend-lease sooner or later encounters this problem. / Could I have your views tomorrow if possible? Sincerely yours, Green Gebroon Dean Acheson Assistant Secretary Enclosures (4) Dr. Harry White, Assistant to the Secretary, FORDEFENSE BUY daviduse (ween't Treasury Department, Washington, D. C. 1 YAM UNITED STATES SAVINGS BONDS AND STAMPS 10 avisiviti donament 123 OFFICIAL SECRETARY OF STATE WASHINGTON c. DEPARTMENT OF STATE WASHINGTON May 19, 1942 Dear Harry: I am enclosing drafts of two exchanges of notes relating to reciprocal aid to the United States from Great Britain and from Australia about which we talked. As I said to you, these are submitted for substance and not, at the present time, for form. I am not sure as to the particular form which proper usage requires. I hope to discuss these drafts with Mr. Hull today. If the substance is acceptable to him, to the Treasury, the Board of Economic Warfare, and the Office of LendLease Administration, I presume that Secretary Hull or Secretary Morgenthau or both of them will wish to discuss with the President the matter of taking over the unpaid installments of the British pre-lend-lease contracts, since, as all the discussions have revealed, anything which is done on reverse lend-lease sooner or later encounters this problem. / Could I have your views tomorrow if possible? Sincerely yours, Aren Gebran Dean Acheson Assistant Secretary Enclosures (4) Dr. Harry White, Assistant to the Secretary, FORDEFENSE BUY UNITED Treasury Department, Washington, D. C. see 01 YAM STATES SAVINGS BONDS AND STAMPS 10 aoistvi(1) document rutenoM 124 DRAFT FROM THE BRITISH AMBASSADOR TO THE SECRETARY OF STATE with a view to supplementing Articles II and VI of the Agreement of February 23, 1942 between our two Governments for the provision of reciprocal aid, I have the honor to set forth below my understanding of the principles and procedures applicable to the provision of aid by the United Kingdom to the armed forces of the United States and the manner in which such aid will be correlated with the maintenance of those forces by the United States Government. 1. Each of our Governments pledged itself in the United Nations Declaration of January 1, 1942 to employ its full resources, military or economic, against those nations with which it is at war. Each government undertook in the Agreement of February 23, 1942 to provide the other with such articles, services, facilities or information, useful in the prosecutio... of their common war under- taking, as each may be in a position to supply. The general principle to be followed in providing such aid is that 125 -2- that the war production and war resources of both nations should be used by the armed forces of each, and of the other United Nations, in ways which most effectively utilize available materials, manpower, productive facilities and shipping space. 2. Where appropriate, decisions as to the most effective use of resources shall be made in common, pursuant to common plans for winning the war. 3. As to financing the provision of such aid, within the fields mentioned below, it is my understanding that the general principle to be applied is to reduce to a minimum the need of each government for the currency of the other. It is accordingly my understanding that the United States will provide, to the extent authorized under the Act of March 11, 1941, the share of its war production made available to the United Kingdom. The United Kingdom will provide, on the same terms and as reciprocal aid, the share of its war production made available to the United States. 4. The 126 -3- 4. The United Kingdom will provide the United States or its armed forces with the following types of assistance, as such reciprocal aid, when it is found that they can most effectively be procured in the United Kingdom or in the British colonial empire: (a) All military equipment, munitions and military and naval stores, whether provided in the United Kingdom, in the field, or in the United States, including such material produced in the United States under United Kingdom contracts, it being understood that the United States will finance, to the extent that funds have been or may be made available, the payment with respect to such contracts of all installments remaining unpaid on June 1, 1942; (b) Other supplies, materials, facilities and services for the United States forces, except for the pay and allowances of such forces and such local purchases as its official establishments may make other than through the official establishments of the 127 -4- the Government of the United Kingdom as specified in Paragraph a. (o) Supplies, materials and services needed in the construction of tasks and similar capital works required for the common war effort in the United Kingdom or in the British colonial empire, other than at leased bases, except for the wages and salaries of United States citizens. (d) Supplies, materials and services needed in the construction of such tasks and capital works in territory other than the United Kingdom or the British colonial empire or territory of the United States to the extent that the United Kingdom or the British colonial empire is a more practicable source of supply than the United States or another of the United Nations. 5. Requests by the United States for such aid will be presented by duly authorized authorities of the United States to designated authorities of the United Kingdom. 6. It 128 -5- 6. It is my understanding that all such aid accepted by the President of the United States or his authorised representatives from the United Kingdom will be received as a benefit to the United States under the Act of March 11, 1941. 7. The aid to be provided each other by the signatory Governments under the Agreement of February 23, 1942, and as indicated above, will be provided on the same terms by each Government to the forces of such of the other United Nations as shall enter into similar arrangements with them. If the Government of the United States concurs in the foregoing, I would suggest that the present note and your reply to that effect be regarded as placing on record the understanding of our two Governments in this matter. I have the honor to be et cetera, et cetera. 129 DRAFT FROM THE SECRETARY OF STATE TO THE BRITISH AMBASSADOR I have the honor to acknowledge the receipt of your note of today's date concerning the principles and procedures applicable to the provision of aid by the Government of the United Kingdom to the armed forces of the United States, the terms of which are 88 follows: (The British Ambassador's note is here quoted) In reply I have the honor to inform you that the Government of the United States agrees with your under- standing as expressed in that note and that, in accordance with the suggestion contained therein, your note and this reply will be regarded as placing on record the understanding between our two Governments in this matter. Accept, Excellency, the renewed assurances of my highest consideration. 130 DRAFT FROM THE AUSTRALIAN MINISTER TO THE SECRETARY OF STATE with a view to supplementing Articles II and VI of the Agreement of May , 1942 between our two Govern- ments for the provision of reciprocal aid, I have the honor to set forth below my understanding of the prin- ciples and procedures applicable to the provision of aid by the Commonwealth of Australia to the armed forces of the United States and the manner in which such aid will be correlated with the maintenance of those forces by the United States Government. 1. Each of our Governments pledged itself in the United Nations Declaration of January 1, 1942 to employ its full resources, military or economic, against those nations with which it is at war. Each government undertook in the Agreement of May , 1942 to provide the other with such articles, services, facilities or information, useful in the prosecution of their common war under- taking, as each may be in a position to supply. The general principle to be followed in providing such aid is that -2- that the war production and war resources of both nations should be used by the armed forces of each, and of the other United Nations, in ways which most effectively utilize available materials, manpower, productive facilities and shipping space. 2. Where appropriate, decisions as to the most effective use of resources shall be made in common, pursuant to common plans for winning the war. 3. As to financing the provision of such aid, within the fields mentioned below, it is my understanding that the general principle to be applied is to reduce to a minimum the need of each government for the currency of the other. It is accordingly my understanding that the United States will provide, to the extent authorised under the Act of March 11, 1941, the share of its war production made available to Australia. The Commonwealth of Australia will provide, on the same terms and as reciprocal aid, the share of its war production made available to the United States. 4. The 131 -3- 4. The Connonwealth of Australia will provide the United States or its armed forces with the following types of assistance, as such reciprocal aid, when it is found that they can most effectively be procured in Australia: (a) All military equipment, munitions and military and naval stores; (b) Other supplies, materials, facilities and services for the United States forces, except for the pay and allowances of such forces and such local purchases as its official establishments may make other than through the official establishments of the Australian Government as specified in paragraph 5. (o) Supplies, materials and services needed in the construction of tasks and similar capital works required for the common war effort in Australia, except for the wages and salaries of United States citizens. (d) Supplies, materials and services needed in the construction of such tasks and capital works in 132 -in territory other than Australia or territory of the United States to the extent that Australia is a more practicable source of supply than the United States or another of the United Nations. = 5. Requests by the United States for such aid will be presented by duly authorized authorities of the United States to designated authorities of the Commonwealth of Australia. 6. It is my understanding that all such aid accepted by the President of the United States or his authorized representatives from the Government of Australia will be received as a benefit to the United States under the Act of March 11, 1941. 7. The aid to be provided each other by the signatory Governments under the Agreement of May , 1942, and as indicated above, will be provided on the same terms by each Government to the forces of such of the other United Nations as shall enter into similar arrangements with them. If the Government of the United States concurs in the foregoing 133 -5foregoing, I would suggest that the present note and your reply to that effect be regarded as placing on record the understanding of our two Governments in this matter. I have the honor to be et cetera, et cetera. 134 DRAFT FROM THE SECRETARY OF STATE TO THE AUSTRALIAN MINISTER I have the honor to acknovledge the receipt of your note of today's date concerning the principles and procedures applicable to the provision of aid by the Government of Australia to the armed forces of the United States, the terms of which are as follows: (The Australian Minister's note is here quoted) In reply I have the honor to inform you that the Government of the United States agrees with your under- standing as expressed in that note and that, in accordance with the suggestion contained therein, your note and this reply will be regarded as placing on record the understanding between our two Governments in this matter. Accept, Sir, the reneved assurances of my highest consideration. 135 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 TO Secretary Morgenthau FROM Mr. Haas Subject: Expor% Freight Situation. Lighterage freight in storage and on hand for unloading in New York harbor last week held within the range of recent weeks, declining by 405 cars to a total of 20,585 cars. (See Chart 1.) Additional storage space for 6,678 carloads was available at the end of the week. Exports from New York last week recovered partially from the sharp drop of the previous week, increasing by 974 cars to an estimated total of 6,878 cars, (See Chart 2, upper section.) Receipts of freight for export at New York declined slightly further last week to 6,513 cars, a reduction of 155 cars from the previous week. Receipts of export freight at 9 other North Atlantic ports and at 6 Pacific ports also declined somewhat, the former by 17 cars to a total of 2,708 cars, and the latter by 455 cars to a total of 3,136 cars. (See Chart 2, lower section.) LIGHTERAGE FREIGHT IN STORAGE AND ON HAND FOR UNLOADING IN NEW YORK HARBOR* 1941 1942 CARLOADS CARLOADS Thousands Thousands 24 24 22 22 20 20 18 18 16 16 14 14 12 12 10 10 WHILL 8 JAN MAR MAY JULY SEPT NOV JAN MAR. MAY 1941 1942 . - of - - Office of the Secretary of the Treasury in JULY Largely export freight but about 10% represents freight for local and coastal shipment. Figures exclude grain. SEPT. NOV 8 EXPORT FREIGHT MOVEMENT 137 1941 1942 CARLOADS CARLOADS Thousands Thousands Exports 10 10 9 9 8 8 From New York . 7 7 6 6 5 5 mmm 4 4 3 3 2 2 JAN MAR MAY JULY SEPT. NOV. JAN MAR MAY JULY SEPT. NOV. 1942 1941 CARLOADS CARLOADS Thousands Thousands Receipts for Expert 10 9 9 8 8 At New York 7 7 6 6 4 3 2 mm m 5 4 At 9 other North Atlantic Ports .. 3 2 I 5 I At 6 Pacific Ports o o JAN MAR MAY JULY SEPT. NOV. JAN. MAR. 1941 As estimated from date of general managers' association of New York Association of American Reitroods of the Secretary of the Treasury - - Middle MAY JULY 1942 SEPT NOV. Treasury Department 138 Division of Monetary Research Date May 20, 1 19 42 To: From: Secretary Morgenthau H. D. White Attached are the first two reports on the Canadian War Savings Campaign received from Mr. Hoflich, and digests of them prepared by Miss Kistler. 139 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 TO FROM Mr. White Miss Kistler Subject: Canada's War Savings Campaign Mr. Hoflich has visited Ottawa and Hamilton, Ontario, a predominantly industrial city of 156,000, located 42 miles northeast of Toronto. On the basis of visits to these two places and conversations he has had with national and local officials there, he reports as follows: 1. Two local committees are functioning in Hamilton. The committee in charge of the sale of War Savings Certificates and Stamps is composed largely of prominent local people, principally businessmen. The work is carried on through a small executive group and a large number of committee and subcommittee members. An attempt is made to get as many active participants as possible while keeping the directing control in the hands of a small compact group. 2. Canada's War Savings Program is a continuous one, although to date two special War Savings drives have been conducted for the purpose of stepping up payroll deductions rapidly and of selling a large volume of stamps in addition to the regular payroll deductions. A special feature of these campaigns in Hamilton has been the central role played by school children through radio broadcasts and school concerts. Other devices used have been a Sunday afternoon parade featuring British refugee children, theatre nights to which admission was paid in stamps and at which local talent was featured, and stunt flying by aviators from nearby training centers. Devices used during the bond sales campaign have been of a similar nature. 3. In Hamilton, at least, Canadian War Savings Certificates are sold larely on a payroll deduction basis. At the present time 48,000 out of a working population of 56,000 are 140 -2- Division of Monetary Research pledged on a continuous basis. The 1941 goal was 5 percent of payrolls with an average of 3-1/2 percent realized by the end of the year. The present goal is a progressive one of 8 percent, 10 percent and 12 percent, depending upon the wage bracket. Because of the emphasis placed on payroll deductions, no house-to-house canvassing is done in Hamilton. 4. Whereas, as far as can be gleaned from two reports received from Mr. Hoflich, the proceeds from the sale of War Savings Stamps and Certificates are clear receipts to the Canadian Government, this is definitely not so in the case of War Bonds. Not only are paid commission salesmen, usually from bond and insurance firms, hired to do the house-to-house canvassing, but the bond houses, which lend the services of members of their staff to organize and direct these periodic intensive Victory Loan Campaigns, receive a commission on the bonds sold. This commission is distributed locally among the various bond firms according to a formula worked out in Ottawa. There have been some adverse criticisms of this feature in Hamilton but not enough to interfere with sales. 5. In Hamilton, labor participation on the organizing and directing committee to sell Victory Bonds has been conspicuous by its absence. The two labor representatives on the local executive committee are reported not even to have attended meetings. 6. In an effort to attract the small investor, particu- larly wage earners, Victory Loans were issued in as low as $50 denominations in June 1941 and installment purchase through payroll deductions was also instituted at the same time. 7. In Hamilton quotas are set for Victory Bond sales for each firm with 50 or more employees and for each of the four zones into which the city is divided. The Victory Loan Campaigns are intra-family affairs to a large extent, somewhat along the lines of the Treasury plan with a pyramid having key executives as the pinnacle and employee key men each responsible for canvassing 15 to 20 141 -3- Division of Monetary Research smaller employees as the base. Much pre-campaign work is done, with the frequent result that individual plant quotas are exceeded before the campaign opens. The rest of the city is covered by paid commission salesmen operating from the four zone offices, each of which is run by professional bond men acting as organizers and assistant organizers. 8. Under the reorganization now in progress, professional bond people are being given key organizational jobs. It is expected that they will inject the necessary aggressive driving spirit, as well as professional bond experience, into the newly created National War Finance Committee, although fear is expressed in some quarters that they will alienate the nonprofessional volunteer workers participating in the War Savings Campaign. 9. Another interesting feature of the Canadian system is the free publicity given by newspaper and magazine publishers, who are organized for this purpose on a national, provincial and local scale. Dr. Clark considers this system far superior to press releases but admits the scheme has one drawback in that the publishers want the publicity given to be considered as their quid pro quo. You may be interested in the description of War Savings Certificates and Stamps which is attached. The material which Mr. Hoflich enclosed with these reports, as well as a copy of each of the reports, has been forwarded to Mr. Graves' office. 142 Canadian War Savings Certificates and Stamps Canadian War Savings Certificates are issued in denom- inations of $5, $10, $25, $100 and $500. They are sold at 80 percent of the maturity value and mature in 7-1/2 years; the increment in value is equal to interest at 3 percent compounded semi-annually. They are exempt from income taxes. The schedule of redemption value is similar to that of United States War Savings Bonds. The certificates are registered, non-transferable, nonassignable and may not be used as collateral for loans. The large number of small denomination certificates makes registration expensive but small denominations are believed useful in tapping small savers who do not purchase bonds on the installment plan. War Savings Certificates may be purchased by cash or by the surrender of War Savings Stamps. The War Savings Stamps are issued in denominations of 25 cents only and are not redeemable. THE CANADIAN WAR SAVINGS CAMPAIGN The Canadian War Savings system is still in the process of 143 a reorganisation begun in January, 1942. In order to understand the nature and objectives of the present National War Finance Committee it is necessary to review briefly the Canadian experience. The first two War Loans, of January and September, 1940, were sold through regular investment channels. No special organisation was set up to handle these loans. The increased financial needs of the government, and the necessity of increasing savings among the lower income groups, led to the creation of the Victory Loan Committee to distribute the Victory Loan of June, 1941, with bonds as low as $50 in denomination. Under the general direction of the Dominion Victory Loan Committee, committees were set up in each province. Each province in turn was divided into districts, and a high pressure three weeks "blitz" campaign was organised. The canvassers consisted of four groups: (1) professional bond people largely from the staffs of security dealers and brokers, (2) other paid salesmen recruited largely in the various localities, (3) local unpaid voluntary workers, and (4) bond salesmen whose services were contributed by their employers. The objectives of the campaign were two: (1) to raise funds by the sale of bonds to institutional and other large investors, and (2) to increase the savings of lower income groups, particularly through the medium of the $50 bonds. The payroll deduction plan was instituted at this time, selling the bonds to employees on the installment plan, usually over a period of seven or eight months. After eight months, the Second Victory Loan was launched, using essentially the same organization and selling technique. In In May, 1940, the sale of War Savings Certificates and Stamps 144 was begun. A completely separate and to a considerable extent a competing organisation was set up - the War Savings Committee. Under the National Committee in Ottawa, the provincial and local committees consisted largely of voluntary workers. Although this was set up as a continuing campaign, two special drives, in February, 1941 and the fall of 1941, were held to stimulate sales. Special emphasis was put on the regular systematic purchase of certificates by wage and salary deductions. The certificates are issued with maturity values ranging from $5.00 to $500.00, and are sold at 80% of the maturity value. The term is 73 years. The accretion in value is equal to interest at 3% compounded semi-annually. The schedule of redemption values prior to maturity is similar to that of United States War Savings Bonds. The increment in value is exempt from income tax. Certificates are registered, nonetransferable, non-assignable, and may not be used as collateral for loans. The large number of $5 and other small denomination certificates makes registration extremely expensive. But the small denomination instrument is believed to be useful in appealing to those small savers who do not purchase on the installment plan. The certificates, issued by the Bank of Canada, may be purchased by cash or by the surrender of War Savings Stamps. The stamps are issued in denominations of 25 cents only, and are not redeemable. They can be used only for the purchase of certificates. The War Savings Committee has been concerned with the sale of stamps as well as bonds. Until the end of 1941 the two overlapping and competing organisations - the Victory Loan Committee and the War Savings Committee - existed side by side. In January, 1941 the Dominion established established the National War Finance Committee to take over the 145 f unctions of the two old organisations. The merger in the field was interrupted by the Second Victory Loan, of February, 1942. Due to this interruption and the size of the task, as well as a certain amount of jealousy between the two older committees, the merger is not yet complete in the provinces and the local communities. The lack of a clear-out organisation in the field makes an analysis and appraisal of the system difficult at this time. However, it is believed by those in charge of the Dominion office in Ottawa that a study of the local units can be undertaken with profit with such organizations as exist in the local COMmunities. Professional bond people play an important role in the new set-up. On the National Committee the Professional Vice-Chairman is chosen by the large bond houses. He is a partner in a large Toronto bond house, but still paid by his firm and taking a very prominent part in the direction of the National Committee. The same procedure is followed in the provincial committees. A bond man, similarly chosen and compensated, will act as "professional organizer" for each local unit. These men are in a position to play a dominant role in the organization. It seems to be generally believed in the Dominion office in Ottawa that the presence of these bond men will inject the necessary aggressive, driving spirit, as well as professional bond knowledge and experience, into the new organisation. It is admitted that this element may in some instances interfere with the harmony within the groups of voluntary workers associated with the old War Savings organisation, It is admittedly an experiment, but the consensus of opinion among the national officials is that the plan will work out well in practice. practice. I gather from some remarks made that this opinion is 146 not unanimous. Everyone I have talked with here seems convinced that the "blits" high-pressure bond campaigns, with a good deal of emotional pressure, must continue as an integral part of the War Savings scheme. It is intended to hold one of these (lasting three weeks) about every eight months. Some surprise is expressed that the United States Treasury has not come to this point of view also. Mr. W. H. Budden, Associate Field Director (title not yet formalized) of the National War Finance Committee (also Deputy Chairman of the Securities Department of the Bank of Canada) expressed the opinion that people will budget their regular pledges and deductions and consider these as their maximum possible contributions, unless these are supplemented by the additional pressure of special campaigns in order to swell the total sales volume and cut purchasing power sufficiently to close the in- flationary gap. He admits that stamp and certificate sales tend to fall off somewhat and redemptions increase after a "blits" campaign. But he believes that the total results, over a period of time, are better as a result of the special drives. Of possible interest in the Canadian scheme are the Publishers' Committees, on a national, provincial, and local scale, and representing all newspaper and magasine publishers. These are organised to cooperate with the savings committees and to give out publicity on their own initiative. Dr. W. C. Clark, the Deputy Minister of Finance, considers this most effective and far superior to simply handing out press releases, as he thinks the material is more likely to be used if it comes from the publishers' own committee. The only "fly in the ointment", as expressed by Dr. Clark, is that 147 -5that the publishers recommend to the national and provincial com- 147 m ittees a plan and scale of advertising, as their "quid pro quo", which cannot be ignored. This is part of the set-up. But, in Dr. Clark's opinion, the publishers have not taken "undue" advantage of their position in this regard. On the whole, he thinks that they are fulfilling their publicizing function in an effective and patriotic manner. 148 The War Savings and Victory OntarioLoan Campaignsin Hamilton, Reference is made to my report of May 12 for the distinction between the War Savings Campaign ($5.00, $10.00, $25.00, $100.00 and $500.00 certificates, and 25 cent stamps) and the Victory Loan Campaigns (bonds with denominations of $50.00, $100.00 and up. to any larger amount). Hamilton, Ontario, is a predominantly industrial city with a population of 156,000, of which the working population numbers 56,000. It is known as the #Pittsburgh of Canada", producing 55% of the raw steel used in the Dominion. It is located 42 miles northeast of Toronto. The three largest industrial companies are the Steel Company of Canada, employing 6,000, the Otis-Fenson Elevator Company with 6,000 employees, and the International Harvester Company employing 4,000 people. There are numerous other important industrial plants both large and small, The War Savings Plan Organization At the top. of the Hamilton unit organization is the War Savings Unit Committee, composed of prominent local people, largely business men, all serving on a voluntary unpaid basis. The Chairman, who was chosen by the Provincial Chairman, selected the other committee members with the advice of a few of the best known and more public spirited men in the community. Most of the members are chairman of sub-committees. The Chairman is Mr. 0. H. Boothe, manager of the largest department store in town. He is assisted by four Vice-Chairmen and serves as chairman of the Executive Committee, which includes also the ViceChairmen and the chairmen of the following sub-committees: (1) -2 - 149 (1) Employer-employee Committee. This committee is in charge of the payroll deduction plan in all concerns having 25 employees or more. (2) Retail Committee, in charge of sales to employees of smaller firms, largely retail stores, with two to 25 employees. (3) School Committee. This committee has done one of the out- standing jobs in Hamilton, in planning and supervising the sale of stamps to and by school children. (4) Flying Committee, responsible for obtaining airplanes for publicity purposes from nearby flying schools and the Air Force. (5) Bank Committee to synchronize the efforts of the banks. (6) Publicity Committee, with 24 sub-committees such as parades and bands, press, radio, schools, theatres, retail stores, service clubs, employee publicity, speakers, hotels, women's organizations, etc. These committees are composed usually of people in the activity indicated. All of the committee members and other workers serve on a purely voluntary basis. Although the chairman is the actual directing head of the organization, it issaid that the responsibility is pretty well divided among the executive committee members. Both the War Savings chairman, and Mr. C. H. Isard, publicity chairman of the two Victory Loans, stress the desirability of having (1) a small executive group, and (2) many other committee and subcommittee members. This serves the important purpose of getting a large number of people in the community actively interested in the campaign, plus the advantages of a small directing group. Operation 150 -3Operation and Results 150 Certificate sales are largely on the payroll deduction basis. The 1941 goal was 5% of payrolls. An average of about 31% was accomplished by the end of 1941. The present goal is 8% for low wage groups, 10% for those considered to be in the medium wage group, and 12% in the higher wage brackets. Out of a working population of around 56,000, about 48,000 are pledged on a continuing basis. House-to-house canvassing is not done. It is felt that the results would not be worth the effort, since such a large proportion of the population is reached through the payroll deduction plan. The War Savings Campaign is a continuous one, efforts being made constantly to increase savings, through moderate publicity and the operations of the various sub-committees. Twice, however, in February, 1940 and February, 1941, intensive 30 days War Savings drives were staged, for the purposes of (1) stepping up payroll deductions rapidly and (2) selling a large volume of stamps and certificates in addition to the regular payroll savings. The goal in the last drive was $300,000, representing the cost of three bombers. $294,000 was raised. 151 Special Stunts During the Intensive Drives During the intensive campaigns, school children operated an entire radio station for two nights each week for half an hour. The announcers, speakers, entertainers and technicians were all school children, supervised of course by the regular staff. This was considered to be unusually effective, because, it is said, every parent and relative of all the school children in town were listeners since all the children were either participating or listening. On another occasion, every school in the city put on a concert the same night. Every school and hall was packed. The children provided musical and other entertainment. About half way through the concert, the same War Savings Stamp speech was broadcast at each concert. Each person had to buy at least one stamp at the ticket window in order to gain admission,keeping the stamp. At each concert total stamp sales were credited to the school staging the event. In all the schools, children were chosen by their class-mates to prepare and broadcast eight minute stamp speeches on the subject "Why buy War Savings Stamps?" Then full-page advertisements were run in the newspapers, prominently displaying the names of the children chosen to speak. Eight speeches per day were broadcast throughout the campaign. One Sunday afternoon at three o'clock a Church Parade was staged, made up of bands, veterans, militia, Home Guard, and women's A. R. P. units. In the center of the parade were two large furniture trucks, and between the trucks were cars with seventy English refugee children. The trucks bore large banners with the words "We were bombed out of our homes. You are only asked to lend. Buy War Savings Certificates". Theatre Theatre Night marked the opening of the 1940 drive. At 152 every theatre admission was gained only by buying stamps, two at the larger theatres and one at the smaller ones. The regular movie shows were supplemented by the best local talent. Some ran raffles to raise campaign expense money. Theatre owners donated the theatres for the night. Similarly, on several nights, patrons of dance halls bought stamps in order to be admitted. In connection with the goal of $300,000 or three bombers, planes were displayed in prominent places. Others flew over, stunting, sometimes broadcasting. This was arranged largely in cooperation with a number of flying schools nearby. Other stunts said to be effective were torchlight parades, tank parades, band concerts and window displays. The Victory Loan Campaigns Superimposed on the continuous War Savings program is the periodic Victory Loan drive, selling bonds to raise large sums in a short time, and to drain off additional savings. Victory Loan drives took place in June, 1940, and February, 1942. Another will be staged in October of this year, and it is planned to hold them every six months after that. Organization In the past, an entirely separate organization has been set up to handle the Victory Loan campaigns. However, in Hamilton at least, many Victory Loan committee members have been War Savings people as well. The organisation is nominally headed by an Honorary Chairman who is not active, but simply lends the prestige of his name. He is named by the Provincial Chairman. In Hamilton he is the Honorable -6- Honorable S. C. Mewburn, a highly respected retired lawyer and 153 business man. The dominant executives throughout are professional bond people. It is strongly believed here that this is necessary to furnish the necessary aggressive "drive" and knowledge of securities. -They all work on a voluntary basis, being paid manwhile by their firms. The firms receive a commission on bonds sold. Since the bonds are not sold directly by the dealers, total commissions on all sales are divided among all the local bond houses on the basis of a formula worked out in the Dominion offices in Ottawa. The formula is based on sise of sales force, volume of bonds sold in the old War Loans, normal volume of business, et catera. The two local vice-chairmen are bond men. They "run the show". The senior member, from Toronto (the only outside man in the local organisation) is practically the executive director. It is thought that an outsider can work with and direct local bond people better than one of their own number, but the reason does not seem to be clear. He chose the Honorary Vice Chairmen, including Mayor William Morrison and nine prominent business men. These constitute an advisory board. There are also two joint chairmen, business men, who are more active than the Chairman or Honorary Vice-Chairmen. The Executive Committee is made up of those mentioned above, and four additional members - two business executives, the District Chairman of the C. I. 0., and the District Chairman of the A. F. of L. It is stated that these four are not at all active, and do not even attend committee meetings. The 154 -7- The campaign is carried on through the agency of six sub- 194 committees: General Subscriptions, Employees, Special Names, Publicity, Administration and Finance, and Banks' Committee. Each of these committees has as vice-chairman a bond man who is actually the executive in charge. Operations and Results The General Subscriptions Committee is in charge of all payroll deductions for firms with less than fifty employees. Four sone subscription offices are set up in the city, each under an organizer and one or two assistant organisers (all bond mon). In each office are groups of paid commission salesmen, under captains, working on the door-to-door canvass. Working singly, they call at every home, apartment, and smaller places of business (less than fifty employees). The salesmen are chosen by the chairman and vice-chairman of the General Subscriptions Committee through applications by the salesman. The main sources of these salesmen are insurance companies and bond and stock houses. Also, salesmen unemployed because of the war, such as automobile and tire salesmen, are hired. These sales people are given one week's schooling before the beginning of the three weeks' campaign. All commissions were pooled and divided (in the last campaign) according to the rating given to the salesmen by the Executive Committee. Class A men were paid $25 more than the others in the last campaign, and the B, c and D men were all paid the same. But it is considered that those in Classes B. C and D are classified for the next campaign, when additional differentials probably will be introduced. In this last campaign, the Class A salesmen received about $320 each, and those rating B, c and D around $295. It is said that there were some complaints in the community that the remmeration was too high, but that the complaints were not numerous enough to interfere with the campaign. Quotas Quotas are set up for each zone and each business firm 153 by the officers of the General Subscription Committee. Each company quota is based on the payroll and the average wage. The Employees Committee makes a survey of the last payroll of all companies in the city, and takes under its jurisdiction all with fifty or more employees. It then sets up a sub-committee including the key executives of most of Hamilton's large companies. Before the campaign starts each sub-committeeman calls on one or more companies (not his own), to make the original contact and prepare the way for the campaign. He "selle" them the #8 Point Plan", the essence of which 1st the sub-committeeman "sells" the management, the management "sells" the key men, each key man "selle" the campaign to a number of employees, not over 25 and preferably only 15. The Hamilton publicity chairman says "From there on it rolls". This plan originated in Hamilton and was considered so successful that it is now used throughout Canada. It is said that often a plant's quota is exceeded before the opening of the campaign. During the pre-campaign and campaign period the "service men" are busy, calling on a number of plants, each giving all the help they can, and turning in daily progress reports for each of the plants. These service men are loaned by bond houses on a full-time basis and are not paid. Every other day the standing of as many companies as possible is publicized in the newspapers. The attached clipping is an example. Quotas are set up for each company on the basis of total payroll and average wage. The Special Names Committee compiles a list of all corporations and individuals who it is felt can purchase $25,000 or more. These Special Names are then canvassed by volunteer non-paid bond men and -9- and others, some of them members of the Executive Committee. 196 For publicity expenses in the last Victory Loan Campaign $4,650 was contributed by 25 local business firms. 43 per cent was returned to each contributor after the campaign was over. The publicity sub-committees are organized the same as in War Savings, 24 in all. Special Promotional Stunts At the opening of the last campaign at 9:00 A. M. Monday all factory whistles and locomotive whistles were blown, and guns were fired in the center of the city "to make certain that everyone in the city know the campaign was on". Planes dropped pamphlets. During the course of the campaign a free children's concert was given. A huge thermometer was set up in a prominent place showing the progress of the campaign. Runners were used in theatres. Radio speeches were given, and frequent local "spot" announcements used. There were parades with bands, banners, and speeches. A special sub-committee of window decorators provided many window displays. 58 speakers were on call to talk at employees' meetings, service clubs, theatres, et cetera. A prepared speech was sent out to every women's meeting. Band concerts were effective in drawing crowds to hear a short speech. In the stadium, seating 14,000 to 15,000 persons, a children's show was given, featuring mass formation demonstrations, physical training exhibits, bands, high school cadet corps, and a five minute Victory Loan speech. This was most effective in bringing out parents. Merger 157 -10- Merger The merger of the War Savings Committee and the Victory Loan Committee has not yet taken place in Hamilton. See my report of May 12, 1942, for the background on this. May 14, 1942. 158 MAY 20 1942 by dear Mr. Secretary: This is in reply to your letter of May 4, 1942, informing so of the fortheoming conference of representatives of the Central Banks and equivalent or analagous institutions of the American Republics in accordance with Resolution VI adopted at the Rio conference. We have been informed by representatives of the State Department that this conference will deal primarily with freening central problems and will be attended by the fressing control authorities of the American Republics. In accordance with your request, the Treasury Department is compiling the information for transmission to the Inter- American Financial and Economic Advisory Committee. The Treasury Department is also preparing a detailed agenda for the conference setting forth the major questions which this Department is interested in having fully discussed. The Treasury Department is prepared to discuss with your Department the manner in which this Government can most offee- tively participate in the fortherning conference of freening central authorities. Sincerely yours, (Signed) B. Morgentham. Jr. Secretary of the Treasury The Heaverable, Cordell Hall, Secretary of State, Washington, D. C. n.m.c. cc-Thompson a-Da.k like RMB/af 5/19/42 Relt Secretary office TO SECRETARY STATE DEPARTMENT OF STATE WASHINGTON May 4. 1942 My dear Mr. Secretary: In accordance with Resolution VI adopted at the Third Meeting of Ministers of Foreign Affeirs of the American Republics held in Rio de Jeneiro, the InterAmerican Financial and Economic Advisory Committee has resolved to convoke before July 1, 1942 in Weehington, a conference of representatives of the central banks or equivelent or enalogous institutions of the American republics for the purpose of drafting standards of procedure for the uniform handling of bank credits, collections, contracts of lease and consignments of merchendise, involving real or juridical persons who are nationale of a State which has committed en act of aggression against the American Continent. There is attached a copy of 8 letter of April 27, 1942 from the Cheirmen of the Committee transmitting the text of its resolution. You will note that the Committee has requested that the governments furnish deta relative to the control systems and edministrative practices applied in their respective countries with regard to the operations listed in Resolution VI of Rio de Janeiro, such as texts of the lews and regulations now in force in this matter; description of the government organization charged with the enforcement of said laws and regulations; rules of procedure edopted by seid government organization; various types of operations authorized by the abovementioned organization in the performence of its official deem functions, and ell other information which they may useful in the study of the probleme to be faced by the Conference. As your Department is directly concerned with the operations of the freezing controls edopted by the United States, and the problems which have arisen in the administration of such controls, the Department would appreciate your compiling the information requested for transmission to the Committee. In The Honoreble Henry Morzenthau, Jr. Secretary of the Treasury, Washington, D. C. -2- In addition, the Department believes that it would be helpful if the United States suggested 8 detailed agenda for the Conference 80 that the major questions in which this Government is interested will be fully discussed. It would accordingly welcome your ideas as to questions which should be pleced on the agenda. Sincerely yours, Conduce Shee Enclosure: Copy of letter of April 27, 1942, with resolution. THERAMERICAN FINANCIAL AND ECONOMIC ADVISORY COMMITTEE PAN AMERICAN UNION WASHINGTON April 27, 1942 Excellency: Enclosed herewith I have the honor of sending you a copy of the resolution approved at the regular session of April 16, 1942, by the Inter-American Financial and Economic Advisory Committee, relative to the convening of a Conference of Representatives of Central Banks or Equivalent or Analogous Institutions of the American Republics, action which the Committee has taken pursuant to the provisions of Resolution VI adopted by the Third Meeting of Consultation of the Ministers of Foreign Affairs of the American Republics, held in Rio de Janeiro. On behalf of the Committee, and in accordance with the text of the resolution, I beg to request from your Government all such data and information which may be deemed useful in the s tudy and solution of the problems to be considered by the Conference. May I, Sir, take this opportunity to renew the assurances of my sincere esteem and consideration. (Signed) SUMNER WELLES Chairman The Honorable The Secretary of State Washington, D. C. INTER-AMERICAN FINANCIAL AND ECONOMIC ADVISORY COMMITTEE Resolution XXV Resolution on the Convening of 9 Conference of Representatives of Central Banks or Equivalent or Analogous Institutions of the American Republics The Inter-American Financial and Economic Advisory Committee considers that it is now the opportune time to convene & Conference of Representatives of Central Banks or Equivalent or Analogous Institutions of the American Republics, for the purpose of drafting standards of procedure for the uniform handling of bank credits, collections, contracts of Jease and consignments or merchan- dise, involving real or juridical persons who are nationals of a State which has committed an act of aggression against the American Continent, pursuant with the terms of Resolution VI of the Third Meeting of Consultation of the Ministers of Foreign Affairs of the American Republics held in Rio de Janeiro. The Committee recommends, therefore, that, allowing for a sufficient time to make adequate preparations and in order that the delegates may attend with the best information of their respective Governments on the topics to be discussed, the sforesaid conference be held prior to -2- to July 1st of the present year in the City of Washington. When a report on this resolution is sent to the Governments, they shell be requested to submit their particular points of view regarding the Agenda of the Conference. They shall likewise be requested to send data relative to the control systems and administrative practices applied in their respective countries with regard to the operations listed in Resolution VI of Rio de Janeiro, such as texts OI the laws and regulations now in force in this matter; description of the government organization charged with the enforcement of said laws and regulations; rules of procedure adopted by said government organization; various types of operations authorized by the abovementioned organization in the per- formance of its official functions, and all other information which they may deem useful in the study of the problems to be faced by the Conference. Approved at the Regular Session of April 16, 1942. 164 Hay 20, 1948 Mr. White Mr. Dietrich with reference to my of May 18 regarding the accidenplated purchase of $25,000,000 in gold for the Bestron & Brikeson account, which account is the property of the Beak of Sweden, Mr. Liddy of the Federal Reserve Bank of New York informed se today that this purchase will not be made as Mr. Naguassen advised his that he had atercad his instructions. the presents of the saturing United States Treasury bills mentioned in ay memorandum will be reinvested is similar United States obligations. I understand that the $25,000,000 is gold purchased for the Besk of Sveden, which was also referred to is my will be transferred to the Bostros & Brikeson account at the Federal. (3) 165 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 Mr. White TO FROM Subject: Mr. Kamarck Military Aspects of Proposals to send supplies to Sweden 1. Sweden has repeatedly declared her neutrality in the present war. In so far as she has modified her neutrality, it has been in favor of Germany. After the German conquest of Norway, Sweden allowed Germany to bring her soldiers across Sweden to Germany for rest from isolated Norwegian garrisons. In this way, Sweden preserved these soldiers from becoming exposed on their way home to the blows of the British. Early in the Russo-German war, Sweden committed a flagrant breach of neutrality in favor of Germany. The German Army was permitted to send across Swedish territory at least one division fully equipped into Finland to attack the Murmanak railroad, (along which a large part of American supplies to Russia flow.) There have been, no doubt, other occasions when Sweden did not violate her neutrality on German request. This sort of virtuous conduct is after all no more than to be expected from a country which insists on its neutrality in the war. 2. In view of Sweden's neutral position, it is to the German, rather than to our advantage that the Swedish army be strengthened. In Sweden's present encircled position and with her large industrial contribution to the German war effort, an invasion of Sweden would not be worth its cost to the Germans. And, as a matter of fact, the Germans have not invaded Sweden. On the other hand, should the Allies make a landing in Norway, Trondheim is the most likely spot. From Trondheim, a movement into and across Sweden would possess great strategic value for the United Nations. A successful Allied invasion of Sweden would cut off the important Swedish supplies to Germany and would secure good bases for action against northern Germany. In other words, the main danger to Sweden of invasion stems not from Germany, but from the United Nations. The Swedes have drawn, it seems, the proper conclusions. According to the Swedish Press Service, in the last week of February, 1942, the Swedish Army carried out its winter maneuvers in Jamtland Province. -2- 166 There were no maneuvers in southern Sweden. It appears evident that these maneuvers were directed against the possibility of an Allied invasion, rather than against a German invasion. Jamtland Province, the scene of the maneuvers, adjoins Trondheim, Norway, which is, as suggested above, the most probable scene of an Allied invasion of Norway. On the other hand, a German invasion of Sweden would, from the nature of the terrain, the concentration of Swedish population, and the geographical position of Germany, make its main effort through southern Sweden - where no Swedish maneuvers took place. The conclusion is irresistible that the Swedish Army is preparing mainly against an Allied invasion of Scandinavia and not against a German invasion. The Germans too have made the proper inferences. According to the Ministry of Economic Warfare, the Germans agreed in a December, 1941 compact to deliver to Sweden one hundred and ten 105 - howitzers with the proper ammunition, and 2,000 machine guns. Furthermore, Sweden was promised that she might later receive 240 more howitsers. A further substantiation of the fact that Sweden is not regarded by the Germans as a threat to them can be seen from the disposition of German troops in Norway. It is a matter of public knowledge that there are only around 10 German divisions in Norway. These 10 divisions are disposed to hold down the Norwegians and to defend the coasts against an Allied invasion - not for defense against the Swedes. 3. Even should the Germans for some reason wish to invade Sweden, they could not do so this summer - except in the case of the highly improbable possibility of the Swedes' deciding to attack Germany. Germany is suffering from a man-power shortage and cannot spare any soldiers this summer for any task which is not vital to her existence. So long as the bulk of the German military forces are pinned down in Russia, there can be no threat to Sweden. It follows that Swedish safety from Hitler is best assured by strengthening the Russian Army and not the Swedish at the expense of the fighting nations. With all the help that we could ship to Sweden, she could not hold out for any significant length of time, should the collapse of the Russian front free the German Army for dealing with Sweden. 4. It is becoming clear that the war in Europe may be decided this summer. It is essential, therefore, that we concentrate on strengthening all the decisive sectors where fighting is now going on, or will soon occur, at the expense of the non-essential non-fighting sectors. The Swedish Army is not fighting on the side of the United Nations, and according to all available reports, has no intention of entering the war voluntarily on our side. Any material sent to Sweden and which necessarily will be diverted from one of the fighting countries, will be pure waste. 167 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE May 20, 1942 TO FROM Secretary Morgenthau Mr. Dietrich With reference to telegram #563, May 16, 10 p.m., "from Adler for Secretary of the Treasury", we have been advised by the State Department that the first sentence of SECTION TWO should read as follows: "One. It was announced on May 7 that Ministry of Finance had established Public Bond Subscription Commission to handle sale of Allied victory bonds this year including equivalent in Chinese national currency of Chinese national currency dollars one point seven billion of United States dollar backed bonds and issue of Chinese national currency dollars one billion." 168 Chungking MJL This telegram must be paraphrased before being communicated to anyone other than a Governmental agency. (BR) Dated May 16, 1942 Ree'd 11:40 a.m. Secretary of State, Washington. 563, May 16, 10 p.m. (SECTION ONE) FROM ADLER FOR SECRETARY OF THE TREASURY. "TF 36 (SECTION ONE). Industrial and mineral production. One. Available data underscort how undeveloped industrial production in free China is whether for war or civilian purposes, and how dependent China is on outsids world for cesential supplies. Undoubted relative progress made in last few years insignificant in relation to China's needs. Greatest progress appears to have been made in Government Enterprises many of which, however, do not COVER costs and require sustained sub- sidies. All mineral production EXCEPT coal government operated; most of industrial SAVE Electrical supplies privately operated. Appended figures does not include government arsenal production which it is reported has COVERED much of China's small arms needs, though shortage of raw materials may affect their ability to do so in the future. Two. Mineral 169 -2- #563, May 16, 10 p.m. (SECTION ONE) from Chungking TWO. Mineral production 1941. (appended figures give total of both government and private production unless otherwise indicated; figures in brackets are 1940 production). (a) Coal and oil. Coal 6.2 million tons (5.7), gasolins, cruds and lubireating oil about one million gallons (.25). Conversion of wood-all into gasoling already started. It was hoped to Expand producti of Kansu oil field-estimated capacity 10,000 gallons per day--but fate of refining machinary in Wanting still unknown. (b) Tungsten concentrates 12.4 thousand tons (9.1) antimony pure 7.8 thousand tons (8.3); tin 7000 tons (3.7), BE FOURY 122 tons (120), copper 1.2 thousand tons (2.3) GAUSS WSB 170 Chungking MJF This telegram must be being paraphrased beforeanyone to communicated other than a Governmental agency. (BR) Dated May 16, 1942 Rec'd 3:35 o.m. Secretary of State, Ws shington. 563, May 16, 10 a.m. (SECTION TWO) In first quarter of 1942 production of tungsten concentretes three point one thousand tone or 30% more than consamote and that of tin one point nine thousand tons. Three thousand tone of tungsten and tin, mostly former, between Lashio and wanting awaiting Export when Japanese broke through. In view of cessation of forEign demand entimony production already curtailed and that of tungsten and tin will possibly follow suit Three. Manufactures . 1941 (A) Iron end steel. Pig and cpst iron and steel fourteen point five thousand tons ( SEVEN point four). In first quarter of 194? iron production five thouse d tons and steel much less. It is hoped to get A number of furnaces started this year though impossibility of importing Equipment A serious hendicap in this AS in other spheres. Above figures do not include production by native processes. (b) Machine tools and Electric supplies. Machine tools 171 -2- #563, May 16, 10 a.m. (SECTION TWO) from Chungking tools 1,210 sets (983); Electric bulbs 627,000 (699); wireless receiving and transmitting sets 2,130 (2,121); Electric power - Government operated - Eight point Eight million kilowette - (two point one). (c) ChEmicals. Alcohol four point one million gellons (three point nine); shortage of raw materials may Entail Encreaching on food supplies to maintain production. Motor alcohol one point five million gallone (point6); basic acids Eight point two thousand boxes (SEVEN point Eight); BOAD 401,000 CARES (280); matches 191,000 CASES (14). (a) Building materials. CEMENT 150,000 barrels (297); fireproof materials 275,000 tens (4). (E) Other. Wheat flour 4510 thousand bags (300,921); machine made cotton year 112 thousand PIECES (44). SECTION TWO One. It was announced on May 7 that Ministry of Finance had EstablishEd public bons subscription notes to handle sale of Allied victory bonds this year including Equivalent in Chinese national currency of dollers Chinese national currency one point SEVEN billion of United States dollar backed bonds and issue of Chinese national currency dollars one billion. Former issued on May let and to be purchased volunterily, the latter 172 -3- #563, May 16, 10 a.m. (SECTION TWO) from Chungking the latter to be issued within two months and to be sold by compulsory methods to high income brackets. Minister of Finance confidentially informed ME on May 14 that PB flotation of saving certificate and United States d ollar backed bonds will not suffice to COVER deficit it WAS decided to AMKE an additional Chinese national currency dollars one billion issue against which part of fortheoming sterling loan will be used PB a reserve thought it will not be redeemable in sterling. Two. Sales of BRVING certificates to May 14: Chungking Chinese national currency dollers thirty million, Kunming Chinese national currency dollars twelve million, other Chinese national currency dollars Eighteen million, total Chinese national currency dollors fifty million. (END OF MESSAGE) GAUSS KLP HTM 5/21/42 178 REFUNDING TO BE OFFERED MAY 25, 1942 2-1/4% HOLC bond due July 1 $ 875 M 1-1/2% RFC note due July 1 276 $1,151 M 179 LAST TWO NOTE ISSUES November 1, 1941 - Offered 1% 4-year 4-1/2 month note (maturing March 15, 1946) in exchange for $300M 7/8% RFC notes and $203M 1% CCC notes (total $503M) January 31, 1941 - Offered 3/4% three years 8 months note (maturing September 15, 1944) for cash in amount of $635M Excludes offering of 3/4% two year note of March 15, which was reopened March 31 and June 2, 1941, and which we issued only $66M May 21, 1942 180 Period Per Cent Childs 3-1/2 years 1-1/8 Devine 4-1/2 years 1-3/8 5 years 1-1/2 Discount First of Boston 2 years 4. 1/2 years 1-1/2 (OK) Salomon Brothers 4 - 9 years 1-1/2 3 years 1-1/8 Guaranty Trust 4 - 5 - 4 yrs. D. W. Rich 4-1/4 years May 21, 1942 5 years 1 Bankers Trust 1-3/8 1-1/2 (too rich 1-1/4 173 COPY NO. 13 BRITISH MOST SECRET (U.S. SECRET) OPTEL No. 166 Information received up to 7 A.M., 20th May, 1942. 1. NAVAL 19th. PRINZ EUGEN and 4 destroyers have arrivod at KIEL. LUTZOW was locate by aircraft at GRIMSTADT FJORD (south of BERGEN) and was later observed proceeding northward. 2. MILITARY LIBYA. During 18th, increased enemy M/T movement developed in area ELUET EL AGGARA. Main enemy M/T concentration is still in RUNDA-SIGNALI area. RUSSIA. No information as to progress of German counter attack reported in OPTEL No. 163. The Russian attack south of KHARKOV is progressing well and has penetrated on a front of 50 miles to a depth of about 40 miles. On KERCH PENINSULA Russians admit a serious reverse and no longer hold any fixed line. 3. AIR OPERATIONS WESTERN FRONT. 19th. Six Hurricane bombers escorted by 9 Squa- drons of Spitfires bombed railway at ST. OMER, and 8 additional Spitfire Squadron carried out offensive swoops. 4 enemy fighters destroyed, 3 probably destroyed and 5 damaged. 4 of our aircraft are missing, 2 pilots safe. 19th/20th. Aircraft were despatched - MANNHEIM 197, ST. NAZAIRE 65, sea mining 9, leaflets 13, enemy aerodromes 7. LUTZOW off Norwegian Coast also objective for 31 aircraft but no attack was made. 15 aircraft (including 8 heavy bombers are missing. 35 enomy aircraft operated between FLAMBOROUGH HEAD and SKEGNESS. 12 of these flow inland, attacking HULL and the vicinity. In HULL, several fires occurred, also damage to residential property and utility services, and to docks and railway line, casualties so far reported, 12 killed and 33 seriously injured. MALTA. Between 3.40 P.M. 18th and 1.08 P.M. 19th, 67 Fighters and 3 bombers attacked. Two enemy aircraft destroyed and 3 damaged. 174 UNITED STATES GOVERNMENT COORDINATOR OF INFORMATION WASHINGTON, D.C. NO SECURITY May 20, 1942 The Honorable The Secretary of the Treasury Washington, D. C. Dear Henry: The attached is taken from the British Political Warfare secret weekly strategy directive. Sincerely, Bill William J. Donovan 175 Russian front: a. Minor Soviet attacks without positional changes on Murmansk front along Volkhov River southeast of Leningrad and Lake Llmen sector; b. German resistance stiffening on Kharkov front after Russian attack had made progress and developed into a major operation extending from few miles north of Volohansk to near Krasnograd. The most promising Russian advances are southeast of Kharkov; c. Probably Russians still holding part of town of Kerch even after Germans original attack with two or three divisions was reinforced by two or three more. German attack continues to make progress. Malta: Reduced attacks with defense continuing vigorously. Libya: Slight eastward movement by four enemy groups including tanks and motorized transport toward Sidi Breghisic and E1 Chebir with increasing patrol activities both sides. Southwest Pacific: Concentration of Japanese transports on May 7 suf- ficient to carry one division supported by warships attacked by allied forces near Louisade Archipelago, one aircraft carrier, one cruiser sunk, one aircraft carrier damaged, twenty-three Jap aircraft reported destroyed. Burna: No certain information but reason to believe British troops successfully withdrawing from western Burna toward Indian Frontier. Chinese sources report Japanese occupied Bhamo May 5, Myitkyina Railway terminus north of Rangoon May 8. Jap advanced up Burna Road far as Lunging in Yunnan Province with fighting reported May 11. W 176 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE May 20, 1942 Secretary Morgenthau TO Mr. Kamarck FROM Subject: Intelligence The military situation according to Military Pacific The Japanese Navy has returned to Japan. The Japanese naval concentration in the southwest Pacific which led to the Battle of the Coral Sea thus no longer exists. The main body of our fleet likewise is no longer in the central or southern Pacific. The only activity north of Australia, therefore, is that of air patrol, reconnaissance and some reciprocal bombing. Military Intelligence is inclining to the view that the next big move the Japanese will make is an attack on Siberia. Burma The Japanese control Burma and are able to move about in the country at will. The few remaining Chinese forces still in Burma are either dispersed or are on their way back to Yunnan cross-country. General Stillwell is expected to be in Calcutta in a few days. This is probably in connection with his desire to equip completely with American supplies an army of 100,000 Chinese in India. Russia There is no information on what is happening on the Russian front. There is a general unwillingness in Military Intelligence to make an estimate on the probable course of the fighting in Russia, mainly because there is no informa- tion as to the strength of the Russians. It is believed that the situation in Leningrad is very bad. The food shortage in the city is believed to be acute. -2- 177 Mediterranean Military Intelligence has no information that the human torpedo attack on Alexandria five days ago had any effect. The British and the Axis each have about 600 tanks at the front. In addition, the British have around 400 tanks in brigades in the rear which will be ready for action some time late in June. The British have air superiority. Although it appears that the bombing of Malta has slackened somewhat, the situation still remains dangerous. British women were evacuated from the island at the end of April. The only supplies reaching the island are carried by air or submarine and the constant bombing attacks have led to a shortage of anti-aircraft ammunition. There have been some indications that preparations for a descent upon the island have been made in Sicily. To relieve Malta, the British are considering a plan to make a limited offensive in Libya for the purpose of taking Benghazi. With fighters based on Benghazi, the British would be able to give the fighter protection necessary to send convoys of supplies to Malta. 181 May 21, 1942 MEMORANDUM FOR THE SECRETARY: Yesterday (Wednesday) morning we had a conference in Mr. Sullivan's office with Commissioner Helvering and various other officials of the Bureau of Internal Revenue. After considerable discussion, it developed that the Commissioner is entirely in sympathy with the objective of withholding or collecting income taxes on wages and salaries at source, but fears that under existing circumstances the Bureau would not be able to secure the personnel and business machines necessary for satisfactory administration. This fear is accen- tuated by the fact that the Bureau has been given a very low priority rating and is losing trained personnel to other Governmental agencies. The Commissioner indicated his willingness to appear before the Committee and state that he could administer collection at source, provided he was supplied with the personnel and machines necessary to do the job. Later yesterday Chairman Doughton requested the appearance of Mr. Helvering because of doubts which have been conveyed to the Committee regarding the administrative feasibility of collection at source. It was arranged for him to appear tomorrow (Friday) at 10:30 A.M. I think it would be an excellent idea if you couldnt could have a short conference with Mr. Helvering just see before he goes to the Hill at 10:15 in order to reassure him that you are strongly in favor of withholding In the absence OI such a conference, I am a little afraid that Mr. Helvering may weaken in the a ttitude he finally adopted at our conference in Mr. Sullivan's office. REP. 182 HEADQUARTERS MILITARY DISTRICT OF WASHINGTON UNITED STATES ARMY JJT WASHINGTON May 21, 1942 Honorable Henry Morgenthau, Jr., Department of the Treasury, 15th and Pennsylvania Avenue, N.W., Washington, D. C. My dear Mr. Secretary: I express to you my appreciation for your assistance in obtaining the barracks for the units of the 71st Coast Artillery (AA) and the 703d Military Police Battalion (ZI), which are furnishing the guard at the White House. Their present quarters in the Treasury Department are occupied through your kind cooperation and were it not for this, the quartering of those units would have presented a serious problem and would, no doubt, have proved a particular hardship to the soldiers involved. Your kindness in assisting in this matter will be remembered and appreciated by members of this command. Very sincerely, JOHN T. LEWIS, Brigadier General, U. S. Army, Commanding. 183 TREASURY DEPARTMENT TREASURY ENFORCEMENT AGENCIES OFFICE WASHINGTON OF M COORDINATOR May 21, 1942 TO: FROM: Secretary Morgenthau Elmer Irey The trial of the twenty employees of the Alcohol Tax Unit in New York is proceeding. During the course of this trial five of the Government employees have pleaded guilty. This includes one who was assistant chief of the entire group. It is expected that the trial of the remaining fifteen will be concluded within ten days or two weeks. fish 184 May 21, 1942 Dear Jesse: Many thanks for telling me about George Jessel. Undoubtedly we shall have use for him this summer, and our War Savings people believe that he will be most helpful. We have written him suggesting that he place himself at the disposal of the United Theatrical War Activities Committee which has a talent pool from which we draw. That is our usual way of obtaining stars for War Bond rallies and other activities in connection with our campaign. Sincerely, (Signed) Henry Hon. Jesse H. Jones, The Secretary of Commerce, Washington, D. C. FK/cgk Phone file n.c.