The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
245
MEMORANDUM
To:
Secretary Morgenthau
From: Mr. Paul
June 24, 1942
Attached is a copy of the Robertson
motion on the post-war credit, with changes
roughly indicated. Later in the day I will
send you a copy of the finally enacted motion.
Attachment
REP
246
Mr. Robertson offered the following motions
PROPOSAL FOR POST-WAR CREDIT
In the interest of efficient production during the war, of
facilitating the transition from a war to a peace time economy, and of
contributing to the maintenance of a high level of economic activity in
the post-war period, it is recommended that part of the excess-profits
taxes paid under the Revenue Act of 1942 or subsequent legislation during
the war period be returned to the taxpayers after the end of the war.
In this connection, I move thats
1. The amount returned be 14 percent of the adjusted excess-profits
net income - the base upon which the excess profits tax is computed. (Giving
effect to the proposed refund, therefore, the net excess profits tax rate will
be 80 percent).
2. The refund be effected by the redemption of bonds issued to the
taxpayer.
3. The bonds to issued within three months after the payment of the
related tax, or the final quarterly installment thereof, for any taxable
year.
4. The bonds nature, subject to prior call, as follows one-third
second
at the end of the Street calendar year following the cessation of hostilities;
third
one-third at the end
of the second
fourth
such year) and one-third at the end of the ticked such year. - 4 the same
order for any
5. The bonds shall be callable, upon three months' notide,at any time
prior to maturity date.
6. The maturity date of all the bonds be advertised within 30 days
after the cessation of hostilities, and in such away that the maturity date
247
of any bond shall be readily ascertainable.
7. The bonds be issued under the provisions of the Second Liberty
Bond Act.
8. The bonds be non-negotiable and non-interest bearing,
9. The bonds be assignable after certation of hostilities
10. The amount of bonds issuable to any taxpayer in consideration of
the tax paid for any taxable year be adjusted for any overage or shortage
in the aggregate amount issued to such taxpayer for the prior year or years,
any overage finally remaining to be adjusted by cancellation or, at the
election of the taxpayer, by purchase at face value.
11. No amount be included in gross income for any year by reason
of the receipt of bonds or of amounts paid for their redemption.
12. No amount be available, by reason of the issue of bonds or their
redemption, for any of the following purposest
(1) The payment of dividends in cash or stock.
(2) The payment of bomuses or salary increases to executive.
(3) The increase of cash reserves unless employed in the business.
(4) The purchase of securities.
6/22/42
248
MEMORANDUM
To:
Secretary Morgenthau
From:
Mr. Paul
June 24, 1942
Attached is a copy of the Robertson
motion on the post-var credit, with changes
roughly indicated. Later in the day I will
send you a copy of the finally enacted motion.
Attachment
REP:mrm
Mr. Robertson offered the following motions
249 I
PROPOSAL FOR POST-WAR CREDIT
In the interest of efficient production during the war, of
facilitating the transition from a war to a peace time economy, and of
contributing to the maintenance of a high level of economic activity in
the post-sar period, it is recommended that part of the excess-profits
taxes paid under the Revenue Act of 1942 or subsequent legislation during
the war period be returned to the taxpayers after the end of the war.
In this connection, I move thats
1. The amount returned be 14 percent of the adjusted excess-profits
net income - the base upon which the excess profits tax is computed. (Giving
effect to the proposed refund, therefore, the net excess profits tax rate will
be 80 percent).
2. The refund be effected by the redemption of bonds issued to the
taxpayer.
3. The bonds do issued within three months after the payment of the
related tax, or the final quarterly installment thereof, for any taxable
year.
4. The bonds nature, subject to prior call, as follows one-third
second
at the and of the first calendar year following the cessation of hostilities;
third
one-third at the andwith
of the second
such year) and one-third at the end of the third such year, and in the same
order for any longer period.
5. The bonds shall be callable, upon three months' notide,at any time
prior to maturity date.
6. The maturity date of all the bonds be advertised within 30 days
after the cessation of hostilities, and in such away that the maturity date
250
of any bond shall be readily ascertainable.
7. The bonds be issued under the provisions of the Second Liberty
Bond Act.
8. The bonds be non-asgutiable and non-interest bearing.
9. The bonds be assignable. after cereation of hostilities
10. The amount of bonds issuable to any texpayer in consideration of
the tax paid for any taxable year be adjusted for any overage or shortage
in the aggregate amount issued to such taxpayer for the prior year or years,
any overage finally remaining to be adjusted by cancellation or, at the
election of the taxpayer, by purchase at face value.
11. No amount be included in gross income for any year by reason
of the receipt of bonds or of amounts paid for their redemption.
12. No amount be available, by reason of the issue of bonds or their
redemption, for any of the following purposest
(1) The payment of dividends in cash or stock.
(2) The payment of bomines or salary increases to executive.
(3) The increase of cash reserves unless employed in the business.
(4) The purchase of securities.
6/22/42
251
UNIVERSAL TRADING CORPORATION
630 FIFTH AVENUE
ARCHIE LOCHHEAD
NEW YORK, N.Y.
PRESIDENT
June 24th, 1942
My dear Mr. Secretary:
In view of the very brief cable messages received
in this country announcing Mr. Manuel Fox's death, we dispatched a cable to Mr. K. P. Chen for further information on
behalf of Mrs. Fox.
The contents of the attached copy of the cable
reply from Mr. Chen has been transmitted to Mrs. Fox, and I
thought it might also be of interest to you.
as
Sincerely yours,
Archie Lochhead.
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
251
UNIVERSAL TRADING CORPORATION
630 FIFTH AVENUE
ARCHIE LOCHHEAD
NEW YORK. N.Y.
PRESIDENT
June 24th, 1942
My dear Mr. Secretary:
In view of the very brief cable messages received
in this country announcing Mr. Manuel Fox's death, we dispatched a cable to Mr. K. P. Chen for further information on
behalf of Mrs. Fox.
The contents of the attached copy of the cable
reply from Mr. Chen has been transmitted to Mrs. Fox, and I
thought it might also be of interest to you.
as
Sincerely yours,
Archie Lochhead.
The Honorable
Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
252
C
0
P
Y
Received: June 23, 1942
COPY OF CABLEGRAM TO: MR. BANG HOW, NEW YORK
FROM: MR. K. P. CHEN, CHUNGKING
MANUEL DIED PEACEFULLY DURING SLEEP. COMPETENT PHYSICIAN
DIAGNOSED ACUTE HEART FAILURE AS SOLE CAUSE OF DEATH. PHYSICIAN
BELIEVED TIME OF DEATH TO BE 4:50 A.M. AND SAID THAT THE ATTACK WAS
SO SUDDEN AND ACUTE THAT MANUEL PERHAPS DIED WHILE SLEEPING WITHOUT
HAVING AWAKENED BY THE SICKNESS. HE HAD BEEN FEELING TIRED SINCE
RETURNING TO CHINA BUT PHYSICIAN HE CONSULTED COULD FIND NO VISIBLE
AILMENT. HAD BEEN RESTING IN COUNTRY RESIDENCE SINCE JUNE 16
APPARENTLY HEALTHY AND HAPPY WHILE HAD DINNER WITH CLOSE FRIENDS
JUNE 20. RETIRED AT 11 P.M. WITHOUT ANY SIGN OF ILLNESS. DEATH
TOTALLY UNEXPECTED AND TERRIFIC SHOCK TO EVERYBODY. BURIED JUNE
22 AT INTERNATIONAL COMMUNITY CEMETERY, CHUNGKING. ALREADY SENT
MESSAGE OF CONDOLENCES TO MRS. FOX CARE TREASURY. PLEASE CONVEY
TO MRS. FOX PERSONALLY MY PROFOUNDEST REGRETS FOR THE DEATH OF A
WORTHY COLLEAGUE AND DEAR FRIEND.
s
June w
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
cancelled
appt.
DATE
TO
FROM
June 24, 1942.
Secretary Morgenthau
Mr. White
Subject: Cuban Gold Purchase Contract.
1. You will recall that when the Cuban Finance Minister
was here in March you approved our plan to sell gold on
120-day credit to Cuba provided the unpaid amount sold did not
exceed $5 million at any one time. The contract would expire
June 30, 1943, subject to earlier termination at any time.
The purpose of this contract is to enable the Cuban Govern-
ment to issue peso currency against 100% gold cover in order
to purchase dollars during a period of balance of payments surplus
such as Cuba is at present experiencing. The dollars thus
purchased would at once be used to pay for the gold.
Cuba's use of this device grew out of the recommendations
which our Technical Mission made last November.
2. The Cuban Finance Minister has now informed us that
the contract, which will be signed on Cuba's behalf by the
Cuban Ambassador, is satisfactory to his Government. The Legal
Division has examined the documents forwarded by the Finance
Minister and has informed me that they are in order. The Cuban
Ambassador is ready to sign the contract at your convenience.
3. When would you like to sign the contract? The Inter-
American Conference on Foreign Funds Control opens next Tuesday
and it might be helpful if the contract could be signed before
then.
TO:
Miss Claiming 254
plis continued
as of today
6/24/42 &
From: LIEUT. STEPHENS
255
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
FROM
June 24, 1942
Secretary Morgenthau
in
Mr. Haash
Subject: The Export Freight Situation
The amount of lighterage freight in storage and on hand
for unloading in New York harbor continues to hold within
the range of the past 6 months, increasing by 434 cars last
week to a total of 20,88 cars. (See Chart 1.) In comparison with 14,033 carloads in rail storage facilities at the
end of the week, there was additional storage space avail-
able for 5,758 cars.
Exports from New York last week were reduced by
318 cars to an estimated total of 7,163 care. (See Chart 2,
upper section.)
Receipts of export freight at New York increased by
1,338 cars last week to 7,554 cars, largely recovering the
decline of the previous week. Sharp gains were shown in
receipts for export at 9 other North Atlantic ports and
at 6 Pacific ports. The former increased by 43 percent
(1,207 cars) to a total of 4 ,005 cars. The Pacific Coast
receipts rose 52 percent (1,461 cars) to a total of
4,264 cars, a new high for the 16-month period covered by
our figures. (See Chart 2, lower section.)
LIGHTERAGE FREIGHT IN STORAGE
AND ON HAND FOR UNLOADING IN NEW YORK HARBOR*
1942
1941
CARLOADS
CARLOADS
Thousands
Thousands
24
24
22
22
20
20
18
18
16
16
14
14
12
12
JAN.
10
MAR
++++++++
HALL
++++++++
MAY
SEPT
JULY
I/--
NOV
8
JAN
MAR.
MAY
JULY
SEPT.
NOV.
1942
1941
.
10
Largely export freight, but about 10% represents freight for local
and coastal shipment. Figures exclude grain.
Office of the Secretary of the Treasury
C-303-D
8
EXPORT FREIGHT MOVEMENT
1942
1941
CARLOADS
CARLOADS
Thousands
Thousands
Exports
10
10
9
9
8
8
From New York
7
7
6
6
5
mmm
4
3
uu IIII IIIII
2
JAN
MAY
MAR
SEPT.
JULY
NOV.
JAN.
MAR.
MAY
JULY
SEPT.
1942
1941
-
5
4
3
2
NOV.
CARLOADS
Thousands
CARLOADS
Thousands
Receipts for Export
10
10
9
9
8
8
At New York®
7
7
6
6
5
4
my
5
4
At 9 other North
Atlantic Ports ..
3
3
2
2
I
At 6 Pocific Ports
o
JAN.
MAR
MAY
JULY
SEPT.
NOV.
JAN.
MAR.
1941
MAY
JULY
SEPT
o
NOV
1942
a
As estimated from date of general managers' association of New York.
. Association of American
- of / - -
Office of the Secretary of the Treasury
C-382-0
258
NMC
La Paz
This telegram must be
paraphrased before being
Dated June 24, 1942
other than a Governmental
Rec'd 12:23 a .M., 25th.
communicated to anyone
agency. (BR)
Secretary of State,
Washington.
469, June 24, 6 p.m.
June23
Department's circular telegram of July 24,
regarding United States currency.
As reported in Embassy's telegram 425 of June 13,
1 p.m., Bolivian Government has instituted no control
measures in accordance with Department's suggestions.
Banks have not been informed officially and C.S
precautionary measure are refusing to buy United States
currency or EVEN accept it for transmittal to the
United States. There consequently is no legitimate
market. Embassy understands SOME dollars are being
bought in Black Market at 20% discount but has no
information concerning volume of such trade; amount
is undoubtedly small. No large blocks of United States
currency are seeking markets.
Charge Treasury.
BOAL
RR
259
PMW
PLAIN
Ottawa
C
Dated June 24, 1942
Rec'd 3:50 P.M.
0
P
Y
Secretary of State,
Washington.
97. twenty-foursh.
1942-43 budget announced June 23 contemplates total
outlay of $3,900,000,000 with total revenue after allowing
for the proposed taxes amounting to $2,050,000,000 representing increase in revenue of $378,000,000 part of which
is attributable to the new and increased taxes. $1,850,000,000
must be obtained through borrowing. The figures of outlay include United Kingdom spending in Canada which is considered
the same for budget purposes as Canadian war expenditure.
The defense tax will be combined with the income tax
and will be collected at the source as will also a large per-
centage of the graduated tax. The total tax payable has been
approximately doubled in the middle brackets slightly increased
in the lower brackets and in the higher brackets. A portion of
the tax will be refundable after the war with interest at 2 percent.
For low incomes the refundable portion is greater than the
increase in total tax collected. For incomes in the lower
middle brackets the increase in taxes is approximately equal to
the amount of the refundable portion and for other incomes the
relative importance of the refundable portion becomes progressively less. Income tax increases not including refundable portions
are expected to yield an additional $115,000,000 for a full year.
The refundable provision is estimated to yield $125,000,000 for
a full year with 20 percent refundable after the war.
Excess profits tax has been increased from 75 to 100 percent.
Revenue from this source for a full year is estimated at $58,000,000.
Whereas the compulsory savings aspect of the new proposals is
an important innovation there still remains almost $2,000,000,000
that must be borrowed. The test of the new budget will be in the
extensive campaigns that must be conducted in an effort to obtain
voluntary savings from individuals, thus drawing off more funds
from income and avoiding expansion of bank credit.
260
New or increased taxes have been selectively imposed
on such items as alcoholic beverages cigarettes and tobacco
candy soft-drinks transportation night clubs telephone service
furs and other luxury items. Revenue from these items is
estimated at $28,000,000 for a full year.
For the year 1941-42 aggregate expenditures amounted to
$1,895,000,000 as compared to $1,250,000,000 in 1940-41.
Total revenues amounted to $1,481,000,000 or 78 percent of
expenditures. Including financing of United Kingdom expenditures
of $1,050,000,000 approximately 50 percent of expenditures were
obtained from revenues. $1,834,000,000 was borrowed from the
public in the two victory loans $85,000,000 from the sale of
war savings certificates and stamps with a negligible increase
in borrowing from the Bank of Canada or the chartered banks.
Despite increased taxation and compulsory savings approximately
the same amount will have to be borrowed during 1942-43 fiscal
year.
A detailed analysis of the budget will be forwarded
shortly.
MOFFAT
CSB
Copy:enk:6.25.42
261
Treasury Department
Division of Monetary Research
Date 7/1
19
To: Miss Chauncey
From: H. D. White
Please call to the Secretary's
attention.
AAK
262
Treasury Department
Division of Monetary Research
Date
To:
From:
June 29, 1942
19
Secretary Morgenthau
Mr. White
Germany - Securities Control
Fuller information on the German securities
ordinance of June 15 indicates that the ordinance
was misrepresented by the American press and is
of no great importance. The ordinance does not
involve any reversal of the previous sympathetic
attitude of the German government toward corporate profits. It does not imply any change in
the control over German industry.
The ordinance is directed toward preventing
any large diversion of funds into the security
markets and any substantial rise in security
prices--to the extent that these might become a
public scandal. All that it requires is that
any individual who has made a net investment of
over 100,000 marks ($40,000) in securities since
the atbreak of war, must (a) offer the excess
over 100,000 marks for sale to the Reichsbank at
the price of Dec. 31, 1941 before offering them
to anybody else and (b) must sell this excess of
purchases
initiative. to the Reichsbank, at the Reichsbank's
This ordinance has no effect on anybody who
has not made net purchases of more than $40,000
of securities since the outbreak of war. Should
the Reichsbank choose to abstain from exercising
the initiative permitted by this ordinance, the
ordinance might not even have any effect in the
cases where more than $40,000 worth of securities have been purchased.
Amer. Embassy, London, No. 3524, June 24, 1942
263
C
PARAPHRASE OF TELEGRAM RECEIVED
0
P
Y
FROM:
American Embassy, London, England.
DATED:
June 24, 1942, 10 Pomo
NUMBER: 3524
This telegran which refers to the Department's
telegram no. 2831 of June 19, transmits the following
message from Mr. Lauren Casaday for the Secretary of the
Treasury.
Specialists on German affairs in the British Treasury
and Ministry of Economic Warfare state that the report
concerning the transfer to the Rebehbank of all bonds
and stocks listed on the exchange in Berlin as given in
the first paragraph of the above-mentioned telegram is
not precisely correct.
The German general price control program has involved
a rather long series of laws and decrees, of which the
new measure is the latest, designed to control stock exchange prices and speculation. The prices of second hand
goods (which have assumed greater importance as the war
has continued), real estate and securities have proved
the nost difficult items to control.
Although the Treasury is probably conversant with
earlier measures taken to control share prices, a brief
recapitulation will help place the ordinance in question
in its
264
in its proper setting, as viewed by Treasury and Ministry
of Economic Warfare officials.
A. There was first promilgated at the beginning of
the war and even earlier a series of decrees setting
limits in terms of percentages of capitalization on
declared dividends. Next a limit was set, lower then
the percentage of capitalization that might be declared
as dividends, above which any distribution of dividends
to stockholders was subject to the payment of a pre-
hibitive tax.
Although these measures were apparently designed to
increase governmental control, they were followed, as
is characteristic of Nasi purpose and method, by a measure
offering a legitimate loophole. The restrictive effect
of the earlier decrees could be overcome largely or
wholly by increasing, under broadly defined circumstances,
the share capitalization of the companies involved by
issuing new shares. These new shares could be issued
only to existing stockholders. This was expected to
result in a sharp price declines per share and in lower
dividend rates, although with the same total of cash
distribution.
This
265
This attempt to permit the usual "per share" dividend declarations and distribution, while reducing "per
share" prices and dividend rates, reportedly failed in
its purpose. Stock prices fell slightly but only temporarily and soon showed a tendency to rise.
B. In preparation for the registration and eventual
"call=up" of securities more direct measures were adopted.
The Reich Minister of Economics, under a decree issued
on December so 1941 by the Ministerial Council for Reich
Defense was given the power to investigate share holdings
purchased after September 1, 1939. To carry out the
purpose of this decree the Minister of Economics was
empowered to require the compulsory registration of such
securities wi th such agencies as he night designate. He
was also authorised to F egulate the sale of such registered
securities and the investment of the proceeds. The decree,
which was in the nature of an enabling act, also cantained various minor supplementary powers, and its
operation was extended to include all the "incorporated
eastern territories".
C. On January 2, 1942 the first executive regulation
was issued under the dearee. This regulation was a preliminary outline of the conditions under which shares
aog: ired
266
...
acquired since September 1, 1939 were to be registered.
It provided:
(1) That anyone holding on the designated registration day shares purchased or otherwise acquired since
September 1, 1939 would have to report the nominal value
of all such shares to the Reichabank.
(2) Shares which, since September 15, 1941, had been
transferred to any relatives, employees, subsidiary com-
panice, et catera, and which were subject to the registration order had to be registered in the name of the prior
owner. (Apparently transfers had been made with evasive
intent on the news of the imponding restrictions.)
(3) An amount expressed in reichsmarks on a "current
value" or exchange quotation basis as of a given date
was to be fixed at a later time. Only net purchases
since September 1, 1939 in excess of this amount were
liable to registration.
(4) Unlisted shares and securities traded on Netherlands Bourses could be brought under the registration
requirement at the discretion of the Reich Minister of
Economics.
D. The registration date was set for March 15, 1942
by a regulation of March 1, 1942. An amount of 100,000
reichsmarks
267
was fixed as the limit of exemption above which net purchases since September 1, 1939 were to be determined.
This amount was to be calculated on the basis of the
official quotation on December 31, 1941 or on the basis
of the last quoted price before that date.
E. The controls outlined above were extended and
more precisely defined by the ordinance of June 1942
referred to in the Department's telegram no. 2831. The
following paraphrase includes such information concerning
the regulations as is available and is from a resume
published in the NEWS DIGEST dated June 16, 1942 of the
British Ministry of Information. The DIGEST article in
turn was secured from the REICHSGESETZBLATT, part I, no. 62,
January 12, 1942 in which was published the text of the
ordinance. The Ministry of Economic Warfare has provided
such tentative comment and explanation as is presented
below: The ordinance provides:
(1) If and when the Minister of Economics so orders,
{securities registered since March 15, 1942 must be sold to
the Reichabank at a price equal to the quotation ruling on
December 31, 1941. (Only such securities as are demanded
by the Minister of Economics need be sold. Only those
securities which represent an excess of purchase over sales
of an
268
- 6of an amount exceeding 100,000 Reichmarks since September
1, 1939 are subject to call. What basis will be used for
determining the particular issues to be demanded out of
the onnor'stotal holdings has not been clarified.)
(2) Registration is compulsory for all new purchases
made after March 15, 1942 if the result of such purchases
is to bring up to 100,000 Reichmarks the total of purchases since September 1, 1939. (Apparently, if purchases
reach 100,000 Reichmarks during the war, registration
is compulsory, although it is make clear that the regulations regarding enforced sale include only securities
representing not purchases.
(3) The Minister of Economics at hi. discretion may
(at any time reduce the figure of 100,000 Reichmarks now
used as the basis of determining whether one's holding
are subject to registration or to calling up.
(4) Owners of registered securities may sell any
of their securities only if the securities to be sold
(are first offered in writing to the Reighsbank and the
Reichsbank refuses the offer.
(5) The Reichabank will pay for any 5 equitios actually called up with interest bearing Reich Treasury bonds
of current issue which will be placed in blocked accounts.
The
269
...
The Minister of Economic Warfare interprets the
purposes of the foregoing regulations as follows.
The first is to prevent any undue rise in 8 took
^market prices or at least the a, pearance of such a rise.
Because of the real or fancied role which the stock nar
kot played in the great inflation following the last
war, the German public has become most sensitive to flue-
tuations of the stock exchange and is especially fearful
of marked rises. Next, it is believed that the not that
the state prevents, or at least rigidly controls,
profiteering and speculation is to be de onstrated by
the foregoing regulations to both the German public
and to foreign countries.
The regulations are also to held to denonstrate that
the state controls or intends to control German industry.
Third, security prices are to be kept within the general
price control program by monne of those regulations.
Probably only such restriction will be effected as
(appears necessary f or propaganda purposes and to maintain
a reasonably stable price level, although real restrice
tion may be exercised.
While a reduction in share trading may be anticipated
with a resultant check on price rises, the regulations
are not
270
are not expected to have effects of a sweeping character.
These may be regarded as a threat, leaving doubt as to
the wisdom of engaging in trading extensively enough to
subject the trader to registration. No change in the
government's control over German industry is contexplated
by the regulations, it is exphatically stated. Only
securities traded in since the beginning of the war, when
their not purchases by any individual have amounted to
s
more than 100,000 Heichsmarks are affected by the ordin-
and Largo, permanently held capital aggregations which
are still largely intact are not hecossarily affected.
It is felt that a very considerable proportion of the
total outstanding shares in Germany will be unaffected,
although a large number of shareholders are subject to
the regulations.
A permanent change in the ownership of the securities
involved will of course occur whenever the power to call
up registered securities is actually exercised.
It is not thought that there will be any sweeping
change in the relationship between German security owners
and the German Government.
The Economic Warfare Section of the Embassy collabor-
ated in accuring the information presented above. Further
details will be forwarded at a leter date in a despatch
271
from that Section.
WINANT
272
COR
Y
HEL
Montevideo
This telegram must be paraphrased before being communicated
to anyone other than a Governmental
Dated June 24, 1942
agency. (BR)
Rec'd 1:09 P.m.
Secretary of State,
Washington.
529, June 24, noon.
Referring to the Department's circular telegram dated June 19, 11 P.M.
A decree published today although bearing date of June 18 confers
upon Bank of the Republic the exclusive right to purchase, sell, import
and export United States currency. Purchases and sales to persons proceeding to and from the United States may not exceed $100 per person.
The customs authorities are directed to insure compliance.
Present holders must declare within ten days the amount of United
States currency and all pertinent information. The bank shall decline
to negotiate as currency not desired within this period. After examining
the declarations the bank may convert the United States currency into
Uruguayan pesos, However the bank assures the Embassy that it proposes
to receive such currency solely for transmission to the United States
on a collection basis and that conversion into pesos will be made only
if the Treasury Department approves.
The bank of the Republic states that regulations and forms will be
issued shortly. Text of decree will be forwarded by airmail.
DAWSON
LMS
Copy:inc:6/25/42
273
COPY NO.
1.3
BRITISH MOST SECRET
U.S. SECRET
OPT.I No. 215
Information received up to 7 A.M., 24th June, 1942.
1. MILITARY
LIBYA. 22nd. Enemy movement continued towards the frontier undor
observation of our mobile columns. Infantry reinforcements have arrived in the
MATHUH Area where work on the position is proceeding. No nows of yestorday's opera.
tions has beon received.
SEVASTOPOL. On the 19th German forces were within half a kilometer
of the north shore of the Northern Harbour. In the Southern sector a slight German
advance had brought the enemy to within 9 kilometers of the centre of the town. On
21st Gorman reserves were still arriving and the Russian garrison was nearing exhaustion.
2. AIR OPERATIONS
WESTERN FRONT. 22nd/23rd. EMDEN. 130 tons of H.E. and 262 tons of
incondiaries were dropped by 195 aircraft. Weather was excellent with no cloud and
only slight haze, identification greatly helped by flares. Fires, small at first,
increased as attack developed and finally many large fires wore seen in the Southorn
and Wastern parts of the town and in the docks area. 23rd. Bostons, with fighter
escort bombed DUNKIRK docks where a 4,000 ton vessel WILS hit and MORLAIX norodromo.
2 enemy fighters were shot down by Spitfires, two of which arv missing. 23rd/24th.
52 aircraft were sont SUR mining and 14 others to attack ST. NAZAIRE Harbour. 2 are
nissing and 2 crashed. 1 enemy aircraft was destroyed over this country and intruders shot down 2 others over HOLLAND.
MALTA. Between 1/45/22 and 0530/23 about 50 aircraft attacked, 2
of which were destroyed.
LIBYA. 22nd. Bostons bombod an onemy landing ground and traffic
on the TOBRUK Road near BARDIA.
MEDITERRANEAN. 22nd/23rd. Wollingtons scored hits on n large morchant vessel oast of PALERMO and on the 23rd 2 7,000 ton merchant vossols and a dos-
troyer on a South Easterly course were attacked and hit by Beauforts off CAP
PARTIVENTO. We lost 2 Beauforts.
TOBRUK. The Harbour can be used by Cruisers, Destroyers and Sub-
marinos. There are 5 mooring huoys for Cruisers and 5 for Dostroyors. The estimated
capacity is 1,200 tons daily. Discharge is principally by lighters. During the
past fortnight particular attention has been paid by Gurman reconnaissance aircraft
to the Donl-Dovor and PORTSMOUTH-SOUTHAMPTON-ISLE OF YIGHT area.
274
E
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 24,1942
Secretary Morgenthau
TO
Mr. Kamarck
FROM
Subject:
Summary of Military Reports
Convoys to Malta
Complete information is now available on the two
attempts to get convoys through to Malta:
In the convoy from Gibraltar, two supply ships
arrived at Malta. Four were sunk.
The convoy from Alexandria was forced to turn back.
Out of the ten merchant ships concerned, two were sunk
and two were damaged.
The total naval casualties of the operation were
one cruiser and five destroyers sunk; four cruisers,
two destroyers, and a minesweeper damaged. The Itelians
lost one 8-inch cruiser and one destroyer WAS severely
damaged.
(Except against Italian opposition, the British
would never have been able to keep Malta supplied in
the past. If the Germans keep their forces in the
Mediterranean, supplying Malta will remain too expensive
an operation to carry out. If no second land front is
opened in Europe, the fall of Malta will probably be
inevitable).
(U.K. Operations Report, June 11 - 18, 1942)
Italian Navy
Photographic reconnaissance of Taranto on June 17
did not find any evidences of damage to the Italian
battleships. (The reports that the battleships were
damaged by U.S. Army airplanes and British Fleet Air
Arm bombers appear, therefore, to have been inaccurate).
(U.K. Operations Report, June 11 - 18, 1942)
-2-
275
Japanese Air Strength
According to a study prepared in the Office of Strategic
Services, Japanese first-line air strength and available
combat reserves probably declined from 5,200 in December to
3,700
at the end of April.
The calculations are as follows:
First-line strength and combat reserves,
December 1, 1941
5,200
Five months production to May 1 at 500
combat planes a month (a high estimate)
Officially reported combat losses to
May 1
2,500
1,310
Non-combat losses based on A conserva-
tive interpretation of European
experience
Total losses to May 1
Net loss to May 1
First-line strength and combat reserves,
May 1, 1942
2,690
4,000
1,500
3,700
(Office of Strategic Services, "The War This Week", June 11-18,
1942)
276
June 25, 1942
9:30 a.m.
GROUP MEETING
Present:
Mr. Sullivan
Mr. Buffington
Mr. Blough
Mr. Gamble
Mr. Graves
Mr. Thompson
Mr. Schwarz
Mr. Bell
Mr. White
Mr. Foley
Mr. Kuhn
Mr. Gaston
Mr. Odegard
Mrs. Klotz
H.M.JR: Where is Roy Blough?
MR. BLOUGH: Right here.
H.M.JR: I can't kid George Haas. He is sick,
poor fellow - his favorite tax, the joint returns.
What happened?
MR. BLOUGH: What happened to joint returns?
H.M.JR: Yes.
MR. BLOUGH: I don't know, unless Milton West
and Gearhart got in some awfully good licks.
H.M.JR: You don't know what happened?
MR. BLOUGH: I don't know what happened, frankly.
I understand the arguments they used were two-fold,
277
-2-
first, "This is going to be beaten on the floor, anyway,
and you don't want to have the prestige of the Ways
and Means Committee slapped down." 11 The second is,
"Don't be hard on the boys; they have to go back and
be renominated this summer, and all the fellows from
Texas and California and these other community property
States will have tough going if you knock out this
community property business." I don't know to what
extent those are true. Those are the stories I heard,
but it was a last-minute thing and the Republicans were
solidly against joint returns and enough Democrats went
with them to swing it.
(Mr. Odegard entered the conference.)
H.M.JR: Well, you know it is real easy to be a
liberal in Washington in the Treasury because you can
go just as far to the left as you want to and know you
are perfectly all right. You can recommend tax,
future, past, and present - you may not get much backing from anybody, but you go out on the end of a limb
and he is perfectly all right.
Those fellows just don't know there is a war on,
do they?
MR. BLOUGH: No signs of it.
MR. GASTON: The democratic mouthpiece, you know,
the New York Times, told them mildly yesterday-H.M.JR: Did you say the great mouth?
MR. GASTON: The great democratic mouthpiece
informed them yesterday that joint returns wouldn't
do.
H.M.JR: The Tribune takes credit this morning
for its editorial in its news column - that it was
their editorial in the Tribune which killed joint
returns.
278
-3(Mrs. Klotz entered the conference.)
H.M.JR: Yesterday when Doughton and I walked in
to see the President, Doughton says, "Well, what do you
want? What did you send for me for?" and sort of looked
at him. The President said, "I want to know whether
you are going to get the tax bill", and so forth, so
nothing new took place. This is strictly in the room
here. After they talked ten or fifteen minutes the
President, hoping they wouldn't lay the tax bill on
his doorstep on the first of November - Doughton says,
"Now, if you are not busy" - first the President said
something, that he was sorry he kept us waiting an
hour. Doughton says, "Oh, Mr. President, you are so
busy, my waiting an hour a day is unimportant", so
forth and so on.
So then he got through. "Now, Mr. President, if
you have got a little time I would like to talk to
you. The President looked at me. He says, "You
know, Mr. President, you have got plans to build a
dam at High Point, which is just outside and above
my Congressional District, and all I am telling you
is that, by God, if they pass this thing at High Point
and don't build one in my district I just won't come
back. So the President went like this to me (winked).
He didn't say "by God", but that was his attitude. He
says, "They just can't have it." He says, "I don't
care if they have one at High Point - they say it is
for power, but that doesn't interest me, but" he says,
"we can give them power and water conservation" and
so forth and so on "if they do it in my district.'
So the President said, "Well, that is very
interesting, Bob," he says, "I tell you what I will
do, Bob." He says, "I have got the money; we will
build one at High Point, build one in your district,
and throw it all into one bill for the St. Lawrence."
(Laughter) "We will make it one bill," he says, "we
will put them all together."
279
-4So I stayed behind a minute afterward, and the
President said, "Wasn't I good, Henry?" I said, "Yes,
you were wonderful, that idea of throwing High Point
and the other in, throwing South Carolina in with the
St. Lawrence, wonderful. If
MR. BELL: He should have put in the Florida Canal,
too.
H.M.JR: Doughton, it hit him on the chin when
he brought up the St. Lawrence. He kind of went like
that (indicating).
Well, so that is what the whole conf erence was
about yesterday, nothing talked about - yes, Doughton
did say to the President he thought the President
would be interested in knowing that Speaker Rayburn
had told Doughton he was doing a good job.
MR. BLOUGH: We sort of thought that Doughton
was trying to get enough ble ssing there to take the
heat off what you might want to say in the Senate.
H.M.JR: Now, what I did tell Doughton - I had
to talk about something for an hour, and what I told
him he seemed to be interested, so that you pass this
on to Paul - that on this question of Harold Graves'
plan to deduct five percent from your pay roll,
beginning with January, that as long as they had agreed
on that he wanted to make it voluntary so the person
could file his own return if he wished to on the first
of February and then pay monthly after that. Now, the
reason I brought it up was he said, "What do you think,
if a person didn't pay all of his tax on the 15th of
March, from then on we charge him interest?" I said
I thought that was adding injury to already a very stiff
situation. I said I was opposed to charging any
interest, but what did he think. I explained it to
the old boy three times, that the man could, if he
wanted to, file his return on the first of February,
then pay it monthly, purely optional, you see. He
280
- -5- -
says, "Or could he do it on the 15th of March and then
do it monthly from then on?" I said I didn't - either
way, make it optional, and I thought staggering it, it
wouldn't hit the Bureau all on the 15th of March.
Do you see anything the matter with that, John?
MR. SULLIVAN: I want to go into it.
H.M.JR: Well, anyway, I suggested it. If you
think we will have it, I might make the recommendation
at the Senate, and the other thing, Roy, the thing that
I am very much interested in, and Paul's answer doesn't
satisfy me at all - that is that we give people who owe
a thousand dollars or less some kind of tax credit to
pay off that debt.
MR. BLOUGH: I am sorry that the answer didn't
satisfy you because it is going to take a very great
deal of money.
H.M.JR: How much will it take?
MR. BLOUGH: We don't have the figures on it, but
most people owe money, most people--
MR. WHITE: There is something to be said on
the other side of that.
H.M.JR: There always is.
MR. WHITE: Something that I believe overweighs
the advantages.
H.M.JR: There always is when you are in the
meeting. (Laughter)
MR. WHITE: I take that as a regular compliment,
whether you meant it that way or not. (Laughter)
H.M.JR: You are welcome, Harry.
MR. WHITE: I think there has been a tendency to
stress only the other side of that, and I think it ought
to be considered carefully.
281
-6H.M.JR: Well, I am frankly thinking of election,
and I would like something that tastes good. Doughton
said, "Now, Mr. President, don't worry about the tax bill,
the people are satisfied with that. They don't mind their
taxes; they are willing to pay them," but he said, "It
is Donald Nelson and Leon Henderson, those are the boys
that are making the trouble for us in election."
I said, "Well, give Donald Duck a little credit."
Herbert? Got any dams you want to build?
MR. GASTON: No, I can't think of any.
H.M.JR: Edward?
MR. FOLEY: We had a meeting with representatives of
the State Department.
H.M.JR: You were through, Herbert?
MR. GASTON: Yes.
H.M.JR: Do you want to say something?
MR. GASTON: No.
MR. FOLEY: We had a meeting with representatives
of the State Department on this Inter-American conference
that is scheduled for next week, and John Pehle feels
quite strongly that Knoke should be added.
H.M.JR: Excuse me. I hope that Harry told you that
as part of that, for your being chairman, we expect some
of that 1744 liquor. (Laughter)
MR. FOLEY: Yes, he told me. (Laughter)
MR. WHITE: We pried some money loose from the State
Department.
H.M.JR: Did you do--
282
-7MR. WHITE: I don't think enough to buy any 1744
liquor.
MR. FOLEY: The State Department says they have got
money for lunch that Welles will give, and a dinner that
the Treasury will give.
H.M.JR: Yes, but what about the liquor?
MR. FOLEY: Well, we will look into that. That is
part of the quid pro quo.
H.M.JR: After all, you don't think you were made
chairman without a reason. (Laughter)
MR. FOLEY: I know.
H.M.JR: Go ahead.
MR. FOLEY: Anyway, they think it would be very
helpful in the administration of freezing control if
Knoke was made advisor.
H.M.JR: Swell.
MR. FOLEY: And the State Department is willing to do
it, and I wanted to clear it with you before - a letter
apparently--
H.M.JR: The letter has gone, hasn't it, to Knoke?
MR. FOLEY: Yes, but the letter to the-H.M.JR: But the letter to Knoke has gone.
MR. FOLEY: I think maybe it was a couple of phone
calls from New York down here, rather than phoning the
other way.
H.M.JR: What do you call it - I - what do you call
it, confirm?
283
-8MR. BELL: Confirm.
H.M.JR: Concur is the present.
MR. BELL: Confirm is better.
MR. FOLEY: Ratified, confirmed, and approved.
H.M.JR: Ratified - what else?
MR. FOLEY: That is all.
H.M.JR: O.K., Mr. Chairman.
Ted?
MR. GAMBLE: This is the first material on the
July 17 day. (Paper entitled "American Heroes Day"
handed to the Secretary.)
H.M.JR: This is the new stuff?
MR. GAMBLE: Yes, sir. The retailers have given a
little help on it; we have added the United States Chamber
of Commerce to give us a hand all over the United States
on it, as well as the American Legion. We are taking the
poll this week of the leading retail chairmen in all the
States.
H.M.JR: Who is doing ads - who is going to do the ads?
MR. GAMBLE: The retailers themselves.
H.M.JR: That isn't the Advertising Council?
MR. GAMBLE: No, sir. They used some of the Adver-
tising Council material as a basis for their own.
H.M.JR: Not original advertising?
MR. GAMBLE: The retailers prefer to do their own
in the different cities.
H.M.JR: Did we print this, or they?
MR. GAMBLE: This was printed by one of the western
newspaper union people, and it--
H.M.JR: I think that is grand.
284
-9MR. GAMBLE: That is generally what is going on and
by the end of this week we may be able to give a report on
what is happening throughout the country, how many days we
can expect to have, how many towns will be participating.
H.M.JR: What else? Did you get my note to your
secretary?
MR. GAMBLE: Yes, sir, that will be here later in the
day.
H.M.JR: She said you were ahead of me.
MR. GAMBLE: And I can't give you much of the details,
but I can give you a report on the miners, and the manufacturer-labor meetings are progressing, and we will have a
meeting with Mr. Skouras. I talked to him this morning.
H.M.JR: Will you bring in the Women's Division on
that, the miners' meeting? After all, the miner's wife is
a pretty important person.
MR. GAMBLE: I met with Mr. Welch yesterday, and he
will also be tied in.
H.M.JR: Mr. Welch's status is so he won't be drifting?
MR. GAMBLE: No, as a matter of fact, I spent a couple
of hours with him yesterday and told him about our decision
so he can try to crystallize his own plans. He is now develop-
ing plans as to how he will fit into this whole program. I will
have it in the next few days, and we can go over it with you.
H.M.JR: Let's fix it definitely.
MR. GAMBLE: I will see him today.
H.M.JR: A definite niche. I am sorry, John, you
said you wanted to go.
MR. SULLIVAN: You remember there is the Processing
Tax Board of Review matter, and we have an executive order
drafted. We have an executive order drafted, and I thought
I might show that to the Board of Tax Appeals before I
talked with you. I hadn't dared to do it yet.
285
- 10 H.M.JR: The Board of Tax Appeals - not making them
a court?
MR. SULLIVAN: No, no, that isn't on that at all, sir.
It is a question of taking away the functions of the
Processing Tax Board of Review, and giving those functions
to the Board of Tax Appeals.
H.M.JR: The day that gets public - would you mind
doing it over the week end when I am up on the farm?
MR. SULLIVAN: Yes, I thought that probably the week
end after the tax bill comes off the floor of the House
would be about the right time to send this to the President.
H.M.JR: Did you hear why I turned down making the
Board of Tax Appeals a court?
MR. SULLIVAN: No, I didn't know you had turned it
down.
H.M.JR: Yes, I did. They told me that only lawyers
could practice, that it was one of these closed-shop
American Lawyers Guild businesses.
MR. SULLIVAN: Well, anybody as busy as you has to
make a mistake once in a while. (Laughter)
H.M.JR: I thought it was only going to be lawyers
that practice, and 1 am against the closed shop, so on
that ground I-MR. SULLIVAN: They get into a lot of trouble over
there, Mr. Secretary, by people not knowing the rules of
evidence, trying cases, bringing them before the Board.
MR. WHITE: Just think how much more trouble they
would be getting into by not knowing any economics. (Laughter)
MR. BELL: Not knowing accounting. (Laughter)
MR. FOLEY: They have hundreds of lawyers practicing
before them now.
286
- 11 -
H.M. JR: Yes, but if this thing went through that
John is lobbying, you couldn't get in to practice unless
you were a lawyer.
MR. BLOUGH: May I get a nickel's worth in at this point?
H.M.JR: I hope it is worth a dime.
MR. BLOUGH: The Committee voted yesterday to change
the name of the Board of Tax Appeals to Court, but to continue accountants, as continuing the right of accountants
to practice before it.
H.M.JR: John doesn't like that.
MR. BLOUGH: I don't like it changed to Court for other
very much more fundamental reasons.
H.M.JR: Didn't they put in evidence the Attorney
General's letter?
MR. BLOUGH: Yes, that was read to them. It was out
of respect to Mr. Wesley Disney, whose brother is on the
Board of Tax Appeals. Several people who said they were
against it did not vote against it because they didn't want
to do anything that Wesley Disney didn't want. They said
it wouldn't go through anyway - nice gesture.
H.M.JR: What else, John?
MR. SULLIVAN: There is a man named Harwood out in
Louisville who has been writing to you and the President
and the Commissioner for ten or twelve years about investigating some people in the liquor business who, he
says, made a great deal of money. We sent all kinds of
investigators out there, even sent Secret Service fellows
out there when he had said he had no confidence in our
revenue men. He has written another letter to the President,
and the Commissioner thinks we should disregard it. If we
answer it, it will start him all over again.
H.M.JR: O.K.
287
- 12 -
MR. SULLIVAN: There is a meeting of the American
Council on Education here next Monday on this Form 990,
the information return. They wrote to Randolph and
asked him and Mr. Surrey to attend the meeting, and
Randolph asked me if I would go over. I think that
probably both Randolph and I should attend.
H.M.JR: O. K.
MR. SULLIVAN: It is on Monday.
I have Monsignor Ready's letter. Both the Commissioner
and I feel that there are two things in those regulations
that well can be reviewed, the matter which Monsignor
Ready speaks of and also educational institutions. We
don't know how we are coming out on the educational
institutions.
H.M.JR: Can you write a letter for me to sign to
Monsignor Ready?
MR. SULIIVAN: Yes, I think I can, if you are willing to state that we are willing to reexamine the problem.
H.M.JR: I will do whatever you and the Commissioner
recommend.
MR. SULLIVAN: All right, sir.
The other matter is a letter from Nelson Rockefeller
who wants a letter from you to him clarifying the advertising
situation for tax purposes because he is trying to encourage advertisers to maintain their South American
advertising.
H.M.JR: Well, Nelson put up a phony to me on that
a month or two ago, on the theory, as I remember it - it
was a couple of months ago - we ought to allow the advertising
down there and not in any way penalize the people because
it really would help propaganda in South America.
MR. SULLIVAN: I explained to him that any kind of
advertising that was done down there, having as its
288
- 13 purpose continuing the markets for American business
after the war is over and they are able to make the
goods and ship them down, would be allowable. Purely
propaganda advertising would not be.
H.M.JR: You handle it. There is no reason for
me to write him. Iou are in charge. You write him.
MR. SULLIVAN: All right, I will. The Commissioner
wanted me to give you a memorandum he wrote you on that
withholding tax. There are questions all over; he wanted
it on record.
H.M.JR: What else, John?
MR. SULLIVAN: That is all I have. If you will
excuse me, I will go.
H.M.JR: I am still waiting for two things from you.
These various non-taxable institutions were to have their
returns in on the fifteenth of May, weren't they?
MR. SULLIVAN: Yes, they were, and of the thirty
thousand - thirty-five thousand we expected to be filed
last Tuesday, there were thirteen hundred here in
Washington. You see, the collectors' offices have not
yet gotten through tabulating the income tax returns
that were filed on March 15, and we have got to wait
a bit on that until those others get in. They have
orders and they are working on those returns which were
on that list of ninety that the Department of Justice sent
over.
H.M.JR: Look out or else Morris Ernst will get
you.
MR. SULLIVAN: Well, I am not disturbed by that
threat.
MR. WHITE: John, it seems to me that, going back to
the decision before that, just the opposite ought to be
true. You are permitting him to allow deductions for
business purposes and not for propaganda, is that what
you said?
289
- 14 -
MR. SULLIVAN: That is right.
MR. WHITE: To me the very opposite seems to be
justified on Government grounds.
MR. SULLIVAN: You mean as a business expense,
Harry?
MR. WHITE: Well, I don't understand why you would
allow - why you would allow the deduction of advertising
on the grounds that they keep their business in the future
and at a time like this not permit them to spend money
when it is for the public well-being, which propaganda,
if it is propaganda, and desirable propaganda, would be
doing. It seems to me that is what you want to encourage
and discourage the other.
MR. SULLIVAN: well, the law says that advertising,
reasonable and ordinary business expenses, are deductible.
MR. WHITE: Reasonable and ordinary?
MR. SULLIVAN: That is right.
MR. WHITE: Couldn't propaganda fall under "reasonable"?
MR. SULLIVAN: No, I don't think it could.
MR. WHITE: Well, you are interpreting reasonable,
then, not in accord with the times, because what is
reasonable at some times is unreasonable at others.
MR. SULLIVAN: Harry, a corporation is in business
to make money and promote the sale of its own products,
and not to promote international relationships.
MR. WHITE: Yes.
MR. SULLIVAN: I will be glad to talk that over with
you when I get back f rom the Hill.
290
- 15 -
H.M.JR: One little thing, could you get your
liquor people to give me a little informal ruling?
For instance, in a State which says that you can only
sell liquor by the bottle, could the USO - I have
South Carolina in mind - set up a place, not on
Government property - I mean a place and have a bar, and
so forth and so on, in, ,say, Charleston?
MR. SULLIVAN: Yes, it could get licensed as a
club and I think the clubs in South Carolina - in most
States the clubs are allowed to do that.
H.M.JR: Could you, for instance, give it to me?
MR. SULLIVAN: By each State?
H.M.JR: Yes, I would like to take it up with
Chester Barnard. I mean, where the USO could run its
own bar and sell liquor on non - I mean, not on a
Government reservation - outside - rather than a milk
bar or something. Would you give it to me? I would
like it tomorrow because I would like to write a letter
to him and bring it to his attention because this thing the sailors have got to buy a whole bottle of liquor
to get a drink or buy poisonous liquor. In Charleston
they can't buy any liquor after sundown, so they have
got to go to these joints and the boys are being sent to
the hospital with poison.
MR. SULLIVAN: All right, I will be glad to.
H.M.JR: Ted?
MR. GAMBLE: I just have one other thing, that is,
Mr. Madden's report will be here during the morning.
.M.JR: Will you be sure that I get it?
MR. GAMBLE: Yes, sir.
MR. BELL: Ted, why don't you tell the Secretary
about that New Jersey situation with respect to charges
for redemption of Savings Bonds.
291
- 16 MR. GAMBLE: The Clearing House Association - Mr.
Bell called it to my attention - the Newark Clearing
House Association recommended all the banks be placed
in charge for the redemption of bonds, and Mr. Sparks
went up there and visited with Mr. Corbin and Mr. Green
of the Newark Clearing House Association, and subsequently
Mr. Stonier of the American Bankers Association, and they
have sent out a bulletin to the American Bankers Association
urging the banks throughout the country not to make any
charge, and if they have to make any charge not to go beyond
the fifteen cents for registration and three cents for
postage.
H.M.JR: Mentioning Stonier reminds me of an idea
which I had which I have been wanting to tell you. I
was very much impressed with that little series of
tickets worked out by the Manufacturers' Trust.
MR. GAMBLE: Victory Fund.
H.M.JR: Yes, and I wondered if you could get Stonier
to take that and circularize the members of the American
Banke rs.
MR. GAMBLE: Yes, they will be very glad to do it.
Mr. Madden tells me other banks are asking for the same
thing.
H.M.JR: Could you clear that some time today?
MR. GAMBLE: Yes.
H.M.JR: And give me a report on what they do?
MR. GAMBLE: Yes, sir.
H.M.JR: Particularly if they know that it has brought
in so many new accounts.
Anything else?
MR. GAMBLE: That is all.
MR. BUFFINGTON: There is a memorandum. (Paper
handed to the Secretary.)
292
- 17 H.M.JR: I don't do anything- -MR. BUFFINGTON: I just wanted you to see it.
H.M.JR: There won't be any trouble now with Harold
Graves' people on this, on these salaries for the Victory
Fund, Harold?
MR. GRAVES: I don't know about it.
H.M.JR: Well, in Chicago they are going to pay
Francis Patton seventy-five hundred; Richmond, seventyfive hundred; San Francisco, seventy-five hundred - to
the man who is the head of the Victory Fund Committee.
MR. GRAVES: You mean the executive officers?
H.M.JR: Yes. It has got Bell's initials on it,
but I am just raising it - for the purpose of these meetings-MR. BELL: What do you pay, Harold, to the State
administrators?
MR. GRAVES: State administrators, we have three that
receive eight thousand, New York, Pennsylvania, and Illinois,
and another group that gets sixty-five hundred and some
fifty-six, according to the State.
H.M.JR: O.K.
What else?
MR. BUFFINGTON: That is all.
MR. KUHN: I have nothing.
H.M.JR: Ferdie, would you, this morning, and let
me know during the day, please take a look at what stuff
is going out over the radio, in view of the change in the
war news and the temperament of the people this week as
compared to last week. I wish you would take a look at
what is going out of the shop over there.
293
- 18 -
MR. KUHN: I do take a look at it all the time
except that what I have got on my desk now won't go
out until the middle of next month.
H.M.JR: Yes, but that doesn't answer me, Ferdie,
I mean, there might be-a lot of stuff on the desks of
these radio chains which are entirely out of tune and if
necessary they should be killed, so you had better - if
that is the case, you had better look at what has been
going on the last two weeks.
MR. KUHN: I will do that.
H.M.JR: I mean, there might be a lot of stuff just
completely out of tune. Will you?
MR. KUHN: Yes, sir.
H.M.JR: Look at what has gone out the last couple
of weeks.
MR. BLOUGH: In case you haven't been informed,
the Committee is planning to meet again on July 7 to
read the bill, and to report it on the fifteenth, which
means that it probably won't get out of the House until
about the end of July.
H.M.JR: Peter?
MR. ODEGARD: I have asked Professor Wilson of
Harvard down here today. I don't know whether you want
to see him.
H.M.JR: Yes, I would.
MR. ODEGARD: In connection with this--
H.M.JR: Yes, I would, that is - I don't want to see
him if he turns you down flat.
MR. ODEGARD: I will call Fitzgerald.
H.M.JR: Yes, I would like to see him. Both you and
Harold and Gamble, on any important changes such as
294
- 19 -
that in the setup I would like to be consulted.
Anything else?
MR. ODEGARD: Here is an idea that I talked over
with Ferdie the other day. I have had from several
places suggestions that the war hero enterprise might
be reversed, that is to say, that the English are in
as much need. He says - these people tell me, one of
them representing the Ministry of Information, that the
British are in very great need of more information and
more in the nature of promotion of American - understanding the American position.
H.M.JR: How would we do that, Peter?
MR. ODEGARD: There are many ways in which we
might do it.
H.M.JR: We have no formal request?
MR. ODEGARD: No, no formal request has been made.
H.M.JR: I kind of hate to take the initiative on
a thing like that.
MR. ODEGARD: The point was mentioned that in England
at the present time the Russians - the terrific concern
that the English people are paying to the Russians is
mainly because of the fact they have no one else. They
feel isolated. They feel that the Americans are scarcely
in the war. They don't understand our position. They
don't understand where we come into the picture.
H.M.JR: Who said this?
MR. ODEGARD: I got this from two places. I got it
several months ago from a member of the British
Ministry of Information who was here, and I got it the
other day from the man who is head of the Central European
Section of the Donovan organization.
MR. KUHN: I think it would be very easy to talk
295
- 20 -
about this informally with friends here in town, see
how
they feel about it, not do anything until we get
a formal request.
MR. WHITE: How does that help sell bonds in the
United States? I don't say that that should be your
motive, but I am wondering - it has to be appropriate
for Treasury's activities. I can see your being convinced that somebody - whose job it is - I don't see
how the Treasury steps out to build up morale in
England appropriately.
MR. ODEGARD: I wasn't suggesting it necessarily
as a Treasury activity except that the Treasury had
taken the initiative in bringing the English heroes,
which I believe has been one of the best things we
have done.
MR. WHITE: That is right.
MR. ODEGARD: And it has been suggested that that
process be reversed.
MR. KUHN: It would have to come from the Army and
Navy, anyway, since they would supply the people.
MR. WHITE: That is all right. I thought it was
a Treasury operation.
H.M.JR: Harriman is coming in at a quarter of
twelve. 1 sort of hate to - I mean, I hate to push the
thing.
MR. ODEGARD: I wouldn't push it.
H.M.JR: That is the way I feel. I mean the way to
push it would be, if we wanted to, to send the film of our
things over to the head of War Bonds in England who sent
us his film and said they are crazy to have ideas. I take
it that that has been done.
MR. KUHN: That is being done through the Ministry of
Information in London.
296
- 21 H.M.JR: Then if the man sees that who says he is
hungry for ideas, he would say, "Well, now, if we do that
for U.S.A., why can't they do it for us?" but I just kind
of hate to--
MR. WHITE: Another possibility, you might send the
British Treasury a memorandum on what success you have had
with that - merely handing it to the British Treasury - in
helping you sell your bonds, a suggestion to them.
H.M.JR: Well, I am a little cold on it. I mean,
Lord Halifax can't even get excited about what the English
have done in this country.
MR. KUHN: The British Consul in Chicago went up
to Milwaukee especially to see this Milwaukee show and
has written a report on it which I am trying to get. I
would like to have you see what he tells us on it.
H.M.JR: I am not saying anybody shouldn't, but
let's see what happened.
MR. KUHN: Mr. Secretary, you may be interested to
know that that slowpoke town of Portland, Oregon, is clos-
ing down all the stores, I think, this morning, all the
stores - tomorrow morning, all the stores in the town,
during the celebration. (Laughter)
H.M.JR: I am amazed.
MR. KUHN: So was I.
MR. ODEGARD: You don't ordinarily expect that from
that part of the country.
H.M.JR: No, no.
MR. ODEGARD: It shows that they are actually waking
up out there.
H.M.JR: Is that story true that they ran out and
got some shells to shell Portland in order to wake them
up? (Laughter)
297
- 22 MR. KUHN: It was a War Bond promotion.
H.M.JR: Chick?
MR. SCHWARZ: The Cleveland group, the mayor, and
the president of the Federal Reserve are coming in this
afternoon at three?
H.M.JR: And the Assistant Secretary of the Army
for Air.
MR. SCHWARZ: I will send down a short memorandum
with the background before that time.
H.M.JR: Right.
Incidentally - what is the man's name?
MR. KUHN: Lovett.
H.M.JR: He had some nice things to say about you
last night.
MRS. KLOTZ: Strange.
MR. KUHN: Did you mention anything about these
men that he provided for us?
H.M.JR: I said thank you to him.
MR. KUHN: He has been very nice.
H.M.JR: Even though he didn't break his ankle.
MR. KUHN: He has been very nice. I know - it was
breaking his shoulder.
H.M.JR: I thanked him enthusiastically.
White?
MR. WHITE: A Brazil representative was in yesterday.
The five-year agreement, under which they are able to
298
- 23 -
buy gold or leave gold on collateral, is about to run
out. They would like to have it extended another five
years and have the amount raised to a hundred million
dollars. We are preparing the papers since it involves
no risk at all. I don't see what good it does them, but
if they want it I presume it is all right with us.
H.M.JR: Yes, sir.
MR. WHITE: You have gone into the Canadian dollar
position with reference to some new orders which have
recently been given and some that are contemplated.
H.M.JR: I referred that to you.
MR. WHITE: It looks as though Canada is going to end
with a good deal more money than might be regarded as
reasonable. I thought you might, on your own initiative,
like to call a meeting of the various persons who are involved, to possibly make some decision with respect to
a continuation of the placing of those orders to be paid
for with dollars. The initiative will not come from the
Canadians. They are keeping very far away from us. They
are getting along-H.M.JR: You call a meeting for next week and
I
will attend it.
MR. WHITE: Army, Navy, Lend-Lease, and Currie.
H.M.JR: At that time why not call a meeting of
that and ask Dean Acheson to make a report on Lend-Lease
in Reverse. It is about three weeks since we met.
MR. WHITE: Well, then, will you want the same
people
H.M.JR: Sure.
MR. WHITE: British, and just add Canadian.
There is a Board of Economic Warfare meeting this
morning at ten o'clock. I don't know whether you want
to attend.
299
- 24 -
H.M.JR: Nobody told me, so I can't. Do you want
to go?
MR. WHITE: I don't think that is necessary. There
is nothing there - they were discussing two things,
according to the agenda. One is the proposal to construct ships wholly out of wood which they initiated last
time and they are reporting on this time. They will carry
small cargoes and apparently will be able to be built
outside the United States under a new corporation that is
being set up. I think Rockefeller is at the head of it,
or at least his organization. A second is with regard
to the food situation in South America, neither of which
I think touches us.
H.M.JR: Anything else?
MR. WHITE: The Cuban agreement is going to be signed
today. That is all.
H.M.JR: Harold?
MR. GRAVES: Nothing.
H.M.JR: Harold, now, does Miss Elliott know about
this? (Indicating paper submitted by Mr. Gamble.)
MR. GAMBLE: I think not.
H.M.JR: Would you inform her? Women do a lot of
buying, and so forth. Will you inform her?
MR. GAMBLE: Yes, sir.
H.M.JR: She paid your organization, Harold, I
thought, a very nice compliment. She said that she has
been so used to, in her former contacts in Washington
when she was here - people would get her aside and say,
"Now look, we have got to take care of this person. They
are going to double cross this person; and that person
will stab you in the back. Look out for this person.
She said there hadn't been a thing like that. It is like
300
- 25 a breath of fresh air. She says nobody has whispered to
her about anything.
MR. GRAVES: Good.
MR. ODEGARD: Just a big happy family. (Laughter)
H.M.JR: She said she didn't know there was any-
thing like that in Washington. She said, "I have been
in two other organizations."
MRS. KLOTZ: Stabbed so many times.
H.M.JR: That is a nice compliment to you, Harold.
MR. GRAVES: I think so, too.
H.M.JR: Mr. Bell?
MR. BELL: Did you read Mills memorandum?
H.M.JR: I have got it right here in front of me.
He wants to submit his resignation July 1 to get back
home.
MR. BELL: No, I think you sent it to me.
H.M.JR: Well, you know, three strikes and out. I
mean, if he really wants to go - have you talked to him?
MR. BELL: Yes, a little last night. I think he
would stay if you would ask him, but this is the second
or third time he has asked to be relieved. I don't
think he has had much to do, and I think there has probably
been a little misunderstanding because I thought he was
going to work for Harold. I think it was understood that
way.
GRAVES: The Secretary made the suggestion that
we should use him on the F and G, to specialize on F and
MR.
G Bond sales, and I talked with Mr. Mills about that, and
I think perhaps the thing got no further because of the
arrangements that were made on the Victory Fund Committee
thing. But I still would like very much to have Mr. Mills.
301
- 26 -
H.M.JR: He is a good man.
MR. GRAVES: He is. We would like him.
H.M.JR: It is too bad to let that fellow slip through
your fingers.
MR. GRAVES: I would be delighted to keep him and
use him on this assignment.
H.M.JR: It is impossible for me to keep giving
people assignments all the time.
MR. GRAVES: I think Dan and I can work that out
with him.
MR. BELL: He was working on the agent thing, and
also some on the financing, helping on that, but he
isn't doing much on the agents now and we are sort of
waiting for the other assignment. It didn t develop
and I think he feels he isn't doing enough to justify
staying here.
H.M.JR: Why don't you and Harold see him and
have a talk with him. My impression is he is a good
man.
MR. GRAVES: Mine too.
MR. BELL: I think he will do a good job there.
H.M.JR: Evidently he has slipped through between
you two fellows.
MR. BELL: That is right. I just sort of forgot
him because I thought he was going to work on the
other side.
H.M.JR: Can I leave it-MR. BELL: Yes, we will work it out.
I don't know whether you saw the story in the Post
302
- 27 that Lowell Mellett's organization was turning down a
Packard car that somebody offered to donate. They said
we didn't have the authority to accept it and it would
take legislation and that legislation is pending. The
Post got hold of it and they ran a funny story on it.
that?
MR. GASTON: The Office of Information told them
H.M.JR: We do accept cars?
MR. BELL: Yes. I called Lowell this morning and
told him he had better straighten out the story, that it
would become dirty if he didn't get on top of it.
H.M.JR: I only learned the other day - you know
this fellow over at - Keezer, did you know that he was
Lowell Mellett's son-in-law?
MR. GASTON: Yes.
H.M.JR: I didn't - because he has been so opposed
to our volunteer bond drive, and that might account for
why Lowell Mellett has been so unfriendly to us. I
didn't know that.
MR. KUHN: It is the other way around, Mr. Secretary.
Lowell Mellett's unfriendliness, I think, preceded Keezer's.
It started way back, didn't it?
MR. ODEGARD: Yes.
MR. KUHN: Way back in the spring of '41.
H.M.JR: I see, but there is one influence - it is
the other way around.
MR. ODEGARD: They both might.
MR. WHITE: Keezer is a pretty good economist. They
might have arrived at it independently. (Laughter)
303
- 28 -
I can't correct that. (Laughter)
MR. GASTON: There are two sides to that question.
MR. WHITE: A good side and a bad side.
H.M.JR: You see, the trouble is, Harry, you have
been teaching these boys repartee and they are beginning
to learn it, so you have to improve on yourself.
MR. WHITE: I have to get better - I will do some
homework.
H.M.JR: They are beginning to get a couple of
your curves.
MR. GASTON: It is just a matter of precedence.
(Laughter)
MRS. KLOTZ: I think he sort of got that.
MR. WHITE: I didn't get it.
H.M.JR: Norman?
MR. THOMPSON: I wonder if Mr. Gaston cleared with
you on the appointment of Professor Yntema as a member of
the Committee on Practice. We have a vacancy and Mr.
Gaston is recommending Mr. Yntema.
H.M.JR: Didn't old Herman Oliphant use him once?
MR. GASTON: Yes, he used him on several projects.
One of those was the declaratory rulings, then he has
since done a very voluminous work for Justice, the codi-
fication of all Federal regulations.
H.M.JR: What do you mean, another lawyer? You have
got Sammy Klaus.
MR. GASTON: I would like to have him on the Committee
on Practice. Ed has him now; that is one of the reasons
I am short.
304
- 29 MRS. KLOTZ: He will give him back to you, be
careful. (Laughter)
H.M.JR: What do you want a lawyer for?
MR. GASTON: There is a Committee on Practice
is a
H.M.JR: Practice of what?
MR. GASTON: Before the Department. It used to be
called the Committee on Enrollment and Disbarment. Hanna
was the New York practicing
other the members. chairman. One He is Carrington, full-time man. There were two
lawyer, and the other is Cook, who is on the Northwestern
Law School faculty. Actually in the last year Hanna has
run it pretty much as a one-man show.
H.M.JR: Does that come under you?
MR. GASTON: Yes. Norman Thompson committed it to
me some months ago.
H.M.JR: And you want Yntema?
MR. GASTON: Yes, on recommendation of the General
Counsel's Office.
H.M.JR: He is a good man.
MR. GASTON: Hanna, himself, doesn't want it. He
has put up all sorts of arguments against it and all of
his arguments seem to me to work in reverse.
H.M.JR: I mean, have they disbarred anybody
recently?
MR. GASTON: Only the perfunctory cases of people who
have been committed, convicted, or disbarred. But they
do hold meetings. Therefore, every time they get a group
of contested cases the Board has to meet.
H.M.JR: Have they ever gone through the whole works,
305
- 30 started
challenging everybody who has got a
license cleaning,
to practice?
MR. GASTON: They did that originally.
H.M.JR: The new man, why couldn't he--
MR. GASTON: I think it would be a good idea to
review
the whole,
only the personnel, but practices,
and
methods
of the not
Board.
H.M.JR: Everybody that has a license, why not
make him prove he is entitled to a license.
MR. GASTON: I think they could well recheck on
the list.
H.M.JR: O.K. What else?
MR. THOMPSON: I should get out an order on July
Fourth as to whether we are going to work or not.
H.M.JR: What do you recommend?
MR. T OMPSON: Well, I think the same practice we
had for prior holidays should apply to the Fourth. The
President has given us the same word through the Bureau
of the Budget, that if it will further the war effort
we may stay open. I think most of the departments are
going to follow that.
MR. BELL: All stay open?
MR. THOMPSON: Stay open - most of them.
H.M.JR: Gosh, I don't know--
MR. BELL: I would be inclined to give one holiday
in there. The Fourth is a pretty important one.
H.M.JR: The Fourth - it is a Saturday, too?
306
- 31 MR. THOMPSON: May 30 was a Saturday, too.
MR. BELL: This is a more important day in the
country, I think, and it is only a half a day. I
would be inclined to close one day.
MR. THOMPSON: The President has left it up to
the heads of the departments.
H.M.JR: Who wants to close on the Fourth of July?
It is unanimous.
MR. THOMPSON: After all, I think it would probably
be a good thing to close. Employees are losing vacations,
and one half a day won't--
H.M.JR: Oh, I think - I mean, when you see all
the rest of the time and money that is wasted - I mean,
those people are working hard. I think they are entitled
to a half a day.
MR. GASTON: As far as any emergency is concerned,
you can handle it through the switchboard - notify
them who is available and they can be called.
H.M.JR: I mean, I get so disgusted with a lot of
things which aren't going well, and I think when people
are working hard they are entitled to a half a day.
MR. BELL: And they are working hard.
H.M.JR: I would close for the Fourth of July.
MRS. KLOTZ: It gives them a chance to go away for
the week end.
H.M.JR: I don't think they should get an early
start on Friday, or anything like that.
MR. THOMPSON: Oh, no.
H.M.JR: O.K. All right, thank you all.
TO Inside Request appointment
Mr. Sullinan
Before you write a
letter based upon
this menso
Jenue 26, 1942
o
From: MR. FITZGERALD
308
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF
MISSIONER OF INTERNAL REVENUE
June 25,1942.
ONER INTERNAL REVENUE
AND REFER TO
Memorandum to the Secretary.
In accordance with Mr. Sullivan's request, you are
informed that licenses may be issued under the laws of
the following States authorizing the sale of liquor
(distilled spirits) by the drink: Arizona, California,
Colorado, Connecticut, Delaware, Florida, Illinois,
Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska
(in cities and villages voting for it), Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Dakota,
Chio, Pennsylvania, Rhode Island, South Dakota, Vermont,
Wisconsin and Wyoming; also the District of Columbia.
Answering the specific question raised by Mr. Sullivan,
it appears that the U.S.O. should be able to secure licenses
to sell liquor (distilled spirits) by the drink in the States
above enumerated.
If, however, the activities of the U.S.O. in any of
these States are to be conducted on military reservations,
attention is invited to Section 1350, Title 10, U.S. Code,
which provides:
"The sale of or dealing in beer, wine or
any intoxicating liquors by any person in any
post exchange or canteen or Army transport or
upon any premises used for military purposes
by the United States, is prohibited. The
Secretary of War is hereby directed to carry
the provisions of this section into full force
and effect."
The laws of the remainder of the States do not authorize
the sale of liquor (distilled spirits) by the drink.
BUY
Commissioner.
309
June 25, 1942.
12:16 p.m.
HMJr:
Hello.
Harold
Graves:
Yes, sir.
HMJr:
Go ahead, Harold.
G:
I found that Miss Dietrich has settled her
case
HMJr:
G:
oh.
by stipulation; that she never made any
effort to withhold any information or facts
about the matter. It was wholly a technical
question, one of community property, by the
way, as to whether her husband and she could
file separate returns.
HMJr:
G:
Oh.
And there is this about it. She has not yet
paid the amount of this deficiency, which is
$160,000.
HMJr:
G:
HMJr:
G:
Yes.
She is not making any effort to evade that,
but she has funds tied up in England
Yes.
and she has the case pending before our
Foreign Funds people - in which she's asking
that that amount of money be unfrozen, so
that she can apply it to pay this tax liability.
HMJr:
I see.
G:
That is still pending. Now the people that I
talked to in the Bureau - there Was Mr. Cann,
Assistant to the Commissioner - told me that
this woman has never had a bad record, never
had a case against her before. The - the
deficiency in this case involves no penalty,
and he has expressed to me when I told him
what the question was, this opinion that there's
nothing in that record that would disqualify her
from being used by us.
310
-2HMJr:
I see. Well, let me just - while I'm in on
it - you - why is Foreign Funds holding up
the money which would flow to us?
That I - I don't know and I doubt if the
G:
Revenue
people
know. I think Mr. Foley has
that matter
in hand.
HMJr:
G:
HMJr:
G:
I see.
At least, Mr. Cann so told me.
Yeah. But I mean they've frozen the money
which
she has which she could use to pay a
tax with?
Well, it's - it's a question of getting this
money out of England.
HMJr:
G:
Oh.
Now whether that is technically a frozen funds
transaction, I wouldn't know.
HMJr:
I see.
G:
But she has the funds there and has made
HMJr:
application.
But - but - what's the man's name in the
Bureau?
G:
Cann.
HMJr:
You mean he says there's nothing in her record
which
G:
HMJr:
G:
Nothing.
should make us avoid her.
That's right. He said she's not a bad taxpayer; she didn't - she didn't do anything
to fight this case; that the question was
wholly a technical one; and he knows of no
reason why we should not use her
HMJr:
I see.
G:
....on this program.
311
-3HMJr:
G:
Well, what do you recommend in view of that?
I recommend that we go ahead with it.
HMJr:
All right. Fine. But in the future
G:
Those cases will all be cleared with me.
HMJr:
They'11 all be cleared with you.
G:
Always.
HMJr:
And from now on.
G:
Yes, sir.
HMJr:
And - well, that's that.
G:
Yes, sir.
HMJr:
But - I still - I don't know whether you're
in agreement with me or not - I don't know
how many bonds we'd sell using a woman like
this, do you?
G:
No, I don't know either.
HMJr:
What?
G:
That's - that's one of the things that we've
gone - were discussing yesterday
HMJr:
G:
Yeah.
and we're going to straighten this whole
thing out. But this is all programmed. I
find that she's appearing here Sunday, and
that ende it, and I believe we should go
right ahead with it.
HMJr:
O.K., Harold.
G:
Fine. Thank you.
HMJr:
You're welcome. Goodbye.
Checked
D
312
June 25, 1942.
3:40 p.m.
Grace
Tully:
Hello, Mr. Secretary?
HMJr:
In person.
T:
(Laughs) I hate to bother you in person
about this, but I wondered if I could ask
you if by any chance you have any vacancies
opening
for messengers over in your place
for the summer?
HMJr:
T:
Well, are they
I understand some of these youngeters around
get jobs, and I have a nephew who is interested in doing a little work this summer.
HMJr:
We have - we've got a big, wide, open space
for him.
T:
Do you think so?
HMJr:
I know so.
T:
Grand. He's about seventeen. He goes to
St. John's, and he has another year to finish
up but I - he thought and my sister thought
it might be good for him to be busy this
summer.
HMJr:
Well, I mean - could he do something else,
T:
Well, he has no - he has no training for any-
or is it that he
thing else. I mean he's just in school still,
in high school, you see. He finishes next
year.
HMJr:
Where is he now?
T:
He's in Washington.
HMJr:
Well, do you want to have him come in with a
T:
All right.
HMJr:
Tomorrow morning about ten o'clock? I'd like
little note from you
to meet him myself.
313
-2T:
HMJr:
Grand. Well, that's very nice, Mr. Secretary,
but I don't want you to really bother
No, no.
HMJr:
....but I wanted to ask you SO that you could.
Listen, Grace, I bother you a hundred times
T:
Well, you - you never bother me, you know that.
T:
and this is a teeny little once.
But I just thought if you could tell me if
there was a chance that there might be an
opening, then I'd send him over. Otherwise,
I didn't want to really have you do anything
about it.
HMJr:
I don't know where the opening is, but he's he'e got a job here.
T:
All right. Grand, Mr. Secretary, that's fine.
HMJr:
Now what's his name?
T:
Harold Sinton. S-1-n-t-o-n.
HMJr:
Harold Sinton. That's the name of my pilot.
T:
Really? Is it?
HMJr:
S-1-n-t-o-n.
T:
HMJr:
That's right.
That's - he was co-pilot on the trin up with
- to New Hackeneack with Churchill.
T:
Oh, really.
HMJr:
They borrowed
T:
oh yes, they said he was going to guide them
in or something, wasn't he?
HMJr:
Well, his name is Sinton. S-1-n-t-o-n.
Isn't that funny? Uh huh.
T:
314
-3HMJr:
T:
So you have him over here at ten tomorrow,
take care of him.
and I'11 - I'd like to meet him and I'11
All right. Grand, Mr. Secretary. That's
very kind. Thank you ever 80 much.
HMJr:
Not at all.
T:
I'11 have him there.
HMJr:
Don't thank me. It's a pleasure.
T:
Grand. Thank you, sir. (Laughs) Goodbye.
HMJr:
Goodbye.
315
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE June 25, 1942.
TO
FROM
Secretary Morgenthau
Abbot L. Mills, Jr.
Subject: Issuing
Status of the Members of the Aircraft War Production
Council,Agency
Inc.
The following telegram has been received from Mr. John C. Lee,
Manager, Aircraft War Production Council:
"A. L. Mills, Jr.
Board of Directors of Aircraft War Production Council, which
comprises the Consolidated, Douglas, Lockheed, North American, Northrop,
Ryan Vega and Vultee Companies, today unanimously adopted a Resolution
recommending that the Companies arrange to issue War Bonds subscribed
by employes. Please inform the Secretary and Under-Secretary. Letter
follows. Best wishes."
churke
316
June 25, 1942.
4:00 p.m.
HMJr:
Abbott
Hello.
Mills:
Abbott Mills, sir.
HMJr:
Hello, Mills. I just got your memo about
the Aircraft War Production Council, and
I'm simply delighted.
M:
HMJr:
M:
Well, isn't it good news! It certainly is.
I think that that's a swell job you did.
Well, many thanks. If it'11 just stay put.
HMJr:
Mills
M:
Yee, sir.
HMJr:
Normally I'm perfectly willing to take the
blame when it's mine, but in this case it
doesn't happen to be. I talked - have you
talked with Bell and Graves today?
M:
No, sir.
HMJr:
Haven't you?
M:
No.
HMJr:
M:
HMJr:
Well, each one thought the other one was
keeping you busy. Hello
Yeah.
....and I was amazed to find out that - that
they hadn't and the thing slipped between
them. Now I'd like you to talk with both
Bell and Graves before you decide anything,
you see?
M:
HMJr:
All right, sir.
And it really - they both felt badly about
it. Each one thought that you - they - that
you were working for the other one.
M:
Uh huh.
317
-2HMJr:
But theydone
wereit?to talk to you today. They
haven't
M:
No. Well - they - it's early yet. (Laughs)
HMJr:
What?
M:
It's early yet.
HMJr:
I don't hear you.
M:
It's still early.
HMJr:
But they haven't done it?
M:
HMJr:
M:
No, not - not yet, sir.
Well, I'm sorry. They will.
All right, sir.
HMJr:
Thank you.
M:
You bet. Thank you.
318
June 25, 1942.
4:02 p.m.
HMJr:
Harold.
Harold
Graves:
Yes, sir.
HMJr:
Gosh, what can I do to make you see Mills
and give him something to do?
G:
See who?
HMJr:
Mills. Abbott Mills.
G:
Oh - I - you don't have to do anything more
than you've done.
HMJr:
G:
HMJr:
Well,
I - well, I can't get you to talk to
him.
Well, I'd be delighted to talk to him.
I just called him up to congratulate him.
He got those eight aircraft companies as
issuing agents.
G:
HMJr:
Yes.
Then I said to him, "I suppose you've seen
Mr. Graves?" He said, "No, I haven't heard
from him. "
HMJr:
(Laughs) Well, I'11 get at him right away.
Well, it's hard enough to get good men without just letting them slip through your
fingers, Herold.
G:
Yes, sir. That's right.
HMJr:
You did promise this morning at Staff you'd
G:
Yes, well, I promised that - that Dan and I
G:
see him.
would take care of him.
HMJr:
G:
But you haven't, either of you.
Yeah, well, I'11 take care of him within
fifteen minutes. How's that?
-2HMJr:
G:
319
Yeah,
Harold. I don't like to keep checking up,
Yes, sir. I've - I've had a great many
people on my neck today.
HMJr:
G:
HMJr:
G:
Yeah, but take care - take care of the bose
first, will you?
You bet I will. Yes, sir.
I - I come first.
You're
right. One hundred percent. I'll do
it.
HMJr:
Thank you.
G:
You're welcome. Goodbye.
Check 320
June 25, 1942.
4:09 p.m.
HMJr:
Hello.
Operator:
Miss Michener. Go ahead.
HMJr:
Miss Michener?
Miss
Michener:
Yes, Mr. Secretary.
HMJr:
Would you and Daggit come in here at quarter
past four
M:
Quarter past four.
and bring with you the chart that you
HMJr:
give me on every Monday which shows these
controlled and uncontrolled prices, particularly the one with pork, you see?
M:
HMJr:
Yes.
Because that one, by golly, showed Monday that
the thing had gone up, and on that thing I
went out on the end of the limb and asked
Wickard why it'd gone up - the one I got on
Monday.
M:
Yeah, last Monday.
HMJr:
This Monday past.
M:
Yes.
HMJr:
Come in with Daggit on that
M:
Yes.
HMJr:
M:
HMJr:
because I don't understand why on that
chart - I think it's amonget the uncontrolled
Yes.
And that shows it's gone up, but this whole
memorandum shows that it's been stable, and
that's what Mr. Wickard said. There's something wrong somewhere.
321
-2M:
HMJr:
Yeah, I'11 get that.
Come in at quarter past with Daggit.
M:
Yes.
HMJr:
Please.
322
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25, 1942
TO
FROM
Secretary Morgenthau
Miss Michener amm
Attached is a statement on the price situation for pork
products, with particular reference to the effect of the
price ceilings on hog prices, submitted in response to your
request of. June 24. The statement was prepared by Mr. Daggit.
323
June 25, 1942
The price situation for pork products
Price ceilings
Wholesale prices of pork products were put under ceilings
somewhat earlier than the effective date of the General Maximum
Price Regulation. By a temporary order announced March 10,
effective March 23, ceilings were established on wholesale
prices of most pork products at the levels prevailing during
the 5-day period March 3 - 7. The permanent order now in effect
16 on substantially the same basis.
Lard had been placed under wholesale price ceilings on
December 13, at the levels of November 26 (9.85 cents for prime
steam lard at Chicago). The ceiling was later revised about
11 percent higher to 10.93 cents, effective January 2; again
revised upward to 12.695 cents, effective February 4; and still
later revised to 12.90 cents (the highest price charged in
February) effective June 8.
Ceilings on retail prices of pork products were imposed
under the General Maximum Price Regulation on May 18. There
is no ceiling on wholesale prices of live hogs, because of
specific prohibition in the Emergency Price Control Act of
ceilings on primary farm products.
Price trends
The attached large chart compares (1) the Chicago composite wholesale value of hog products derived from 100 pounds
of live hog, as computed by the Department of Agriculture,
with (2) the Chicago wholesale price of live hogs as reported
by the Bureau of Labor Statistics (the basic commodity quotation), and (3) the mid-month farm price of hogs.
It will be noted that the announcement on March 10 of the
temporary price ceiling order was followed by some decline in
the wholesale value of hog products. While the decline was
later regained, the general effect of this and the later per-
manent order has been to level out the wholesale price quotations on pork products.
It would appear from this comparison that the price of
live hogs did not respond to the price ceilings on pork pro-
ducts until about a month later. Since early April, however, 15
hog prices have levelled out, and the farm price on May (The
was slightly lower than the price a month earlier.
June 15 farm price will be available next week.)
-2-
324
Two points should be mentioned in connection with these
recent price trends. First, the continued rise in hog prices
during the month after ceilings were placed on pork products
was due in part to wide margins existing when the ceilings
were imposed. The rise in pork prices during February and
early March apparently originated largely in expanded demand,
both from consumers and from Government purchases, which
lifted pork prices more sharply than live hog prices. As
commented upon by the Bureau of Agricultural Economics "The
spread between prices of live hogs and hog products was
fairly wide during the first week of March, the base period
for ceiling prices on pork products. This wide spread permitted hog prices to advance in recent weeks in response to
the strong demand for hogs." (The Livestock Situation,
April, 1942.)
A second point is that the stabilization of pork and hog
prices during the past few months may have been facilitated by
the seasonal spring increase in hog marketings, which usually
reaches a peak in May or June. Hogs slaughtered under Federal
inspection totalled 4,320,000 in May, as compared with
4,196,000 in April, and a low of 3,892,000 in February. This
influence may have been offset, however, by increased lendlease purchases.
Retail prices of principal pork products continued to
rise in May, as shown by mid-month BLS data (before the May 18
effective date of retail price ceilings), despite the
stabilization of wholesale prices. Retail quotations as of
June 2, however, based on BLS sample data, indicate some decline from the May levels. Retail prices for pork chops,
bacon, and ham are shown on the attached small chart.
325
Week
ended
December 6. 1941
December 13
December 20
December 27
(Data shown on large chart)
Prices of hogs and pork products
(Dollars per 100 pounds)
Average farm
Wholesale price Wholesale value
of
hog
products
price of hogs,
of live hogs 1
2
10.125
11.175
10.025
11.475
15th of month
10.76
11.58
12.10
11.90
12.02
12.47
12.43
10.32
January 10
January 17
January 24
January 31
11.375
11.525
11.475
11.625
12.000
February 7
February 14
February 21
February 28
12.525
12.850
12.925
13.100
13.03
13.54
13.83
11.85
March 7
March 14
March 21
March 28
13.375
13.425
13.500
13.650
14.38
14.40
14.03
14.12
12.52
April 4
14.39
April 11
April 18
April 25
13.850
14.400
14.150
14.375
May 2
May 9
May 16
May 23
May 30
14.025
14.000
14.150
14.275
14.400
14.76
14.62
June 6
June 13
June 20
June 24
14.200
14.175
14.350
14.425
January 3. 1942
12.28
10.69
12.39
14.18
14.54
14.58
14.66
14.52
13.48
13.28
14.52
14.60
14.56
14.53
14.56
1 Good to choice, 200-220 pounds, Chicago, Friday prices.
Bureau of Labor Statistics.
2 Value of all edible products, fresh basis, in 100 1b. of
live hog, computed from wholesale prices on carlot basis,
Chicago. Department of Agriculture.
326
(Data shown on small chart)
Retail prices of selected pork products
(Cents per pound)
Bacon
Year and month
Pork chops
(sliced)
1941
Hams
(whole)
November
36.0
36.3
32.0
December
34.5
36.0
31.9
January
35.0
36.7
34.6
February
36.8
37.3
35.5
March
40.0
38.4
37.0
April
42.0
38.6
37.2
May
43.2
39.3
37.8
June 2 est.
41.7
39.1
37.7
1942
1
Mid-month prices. Bureau of Labor Statistics
327
RETAIL PRICES OF SELECTED PORK PRODUCTS
CENTS PER POUND
42
PORK CHOPS.
June 2 eat
40
June 2est
BACON
38
June 2 out
1
HAM (WHOLE)
36
34
32
30
NOV.
1941
DEC.
JAN.
FEB
MAR.
1942
MID-MONTH PRICE, B.L.S.
APR.
MAY
JUNE
328
328
PRICES OF HOGS AND PORK PRODUCTS
DOLLARS
PER 100 LBS.
Announcement of ceilines
pose products
15
WALENG
June 24
Wholenals price of livel hogs
Avertage form.price of bags
II
to
e
941
$ 10
IT
JAN
1942
24
31
7
DEC
27
21
14
FEB.
28
21
H
28
11
18
25
9
16
23
30 6
13
4
T
20
Z
la
MAR
APR
MAY
JUNE
20
27
checker
329
June 25, 1942.
4:17 p.m.
HMJr:
Hello.
Operator:
Mrs. Lindheim.
HMJr:
Thank you. Hello.
Mrs.
Lindheim:
Hello.
HMJr:
Mrs. Lindheim?
L:
Hello, Mr. Morgenthau.
HMJr:
How are you?
L:
Fine. How are you?
HMJr:
All right.
L:
To what can I attribute this honor?
HMJr:
Well, Mrs. Lindheim, do you remember when
you came up to see us on the farm?
L:
Yes.
HMJr:
We talked about bringing some of those
L:
Yes.
HMJr:
And the question was whether we could house
them or not.
L:
Yes.
HMJr:
Now we could house quite a few of them
L:
Yes.
HMJr:
boys down in the fall to pick the apples.
and I wondered whether the situation was
such that - this - I think you call it the
Vermont Plan
L:
Yes.
HMJr:
.... whether these boys would be available
around the first of September.
330
-2L:
HMJr:
L:
HMJr:
When we spoke - oh, first of September when we spoke, I believe we mentioned girls.
Was it girls?
Well, I - we might have boys, but it was
about girls that we spoke
Well
because at that time Mrs. Morgenthau was
L:
very interested in having them trained.
HMJr:
L:
Oh, well I've - I thought, well I - 80 much
happens that I can't trust my memory. It was
girls.
Yeah. (Laughs) But as a matter of fact, we
have many, many more boys. We've been able
to place very few girls. It's heartbreaking.
HMJr:
Yes.
L:
Because we had about three hundred - over
three hundred really top girls, and we have
only been able to place eighty.
HMJr:
Yes.
L:
This is very bad.
HMJr:
Well, the thing is this - I'm going up to the
farm this week-end.
L:
Yes.
and - of course, my farmer's kind of old-
HMJr:
fashioned and he wante boys 80 they can get
up on these thirty and forty-foot ladders,
you see.
L:
Yeah.
HMJr:
The question is whether the girls can do it.
L:
Would you want some boys now?
HMJr:
Not right now, although I think right after
the Fourth of July we could begin to use.
331
-3L:
I'11 tell you why, we're - we have a lot of
youngsters that are not being able to be
placed because the Vermont farmers have not
come through with all the placements that
we had expected
HMJr:
Yes.
L:
and we're having to turn down some kids
after we accepted them.
HMJr:
How old would they be?
L:
Well, they're all over sixteen, and they're
HMJr:
Well, Mrs. Lindheim
L:
Yes.
HMJr:
L:
HMJr:
good because we've only - e've really weeded
out those that we thought in any way were
not desirable.
To me - I mean, you see - the important thing
is to have them in September.
Yes, sir.
Now couldn't - what assurance would I have
that these boys wouldn't leave me in the
middle of September?
L:
Well, I don't know. This is an entirely new
problem that we'd have to look into. You see,
when I spoke to your wife about it, the idea
was to come about the middle of September
when the work in Vermont was over
HMJr:
Oh.
and to stay as long as they were needed
L:
HMJr:
L:
Oh.
and now that I couldn't say because if
when school opene, unless they'd be released
there would be a problem there. With girls
there may not be that problem if we get girls
who are going to stay in longer and train.
332
4HMJr:
Well
L:
Couldn't we re-train your farmer?
HMJr:
Pardon me?
L:
Couldn't we re-train your farmer?
HMJr:
Well, he may - we all may have to be re-
L:
I think 80 too. I think it's - I think you
trained.
ought to be convincing enough to convey that.
HMJr:
Well, it's this question, will these girls
get dizzy up - when they get that - on these
forty-foot ladders, you see?
L:
Oh, no, no more than boys.
HMJr:
Well, anyway, I'11 tell you what we'll do.
We now have two separate houses
L:
Yes.
HMJr:
them
L:
and we've got people who can cook for
Yes.
and we're - we're in shape and I've got
HMJr:
the biggest crop we've ever had, you see
L:
HMJr:
Yes.
and right after the Fourth of July we do
start with raspberries so we would have work.
L:
How many boys - how many boys would you want
after the Fourth of July?
HMJr:
Well, I don't - I'd know better after Saturday
when I come back here Monday.
L:
Well, perhaps you could let me know then.
HMJr:
Well, could you do this - could you look into
it and then - and let me know. But the thing
that I'd want - whoever I take on, I'd want
some kind of a pledge from them
333
-5Yes.
L:
HMJr:
.... that they'd stay through our MacIntosh
harvest.
L:
When is that?
HMJr:
Well, it begins about the first week in
September.
And ends when?
L:
HMJr:
L:
It will run through till about the first of
October.
It runs through the first of October. Well,
supposing school opens before?
HMJr:
Well, you know - under the New York State I
think they can get - I think it's three
weeks.
L:
A release?
HMJr:
Yes.
L:
You haven't any idea even that - when you
say you have two houses, now let me ask you
this about the supervision of these youngsters
HMJr:
Now I'd - we'd have to have somebody. We'd
L:
You'd have to have somebody.
HMJr:
Yes, definitely.
L:
Well, maybe I could get somebody.
HMJr:
Yeah, we need somebody that would come and
supervise them and
L:
Yes.
HMJr:
have to
and I think it would be easier if we'd
decide all boys or all girle because then
it could be one supervisor.
-6L:
It would have to be one or the other.
HMJr:
Yeah.
L:
Fine. And then the question is, well -
HMJr:
L:
about the pay and all that, we can discuss
later.
Well, if you could do this, I'm going to -
you don't suppose that I could - you could
get me off some kind of a letter tomorrow.
Yes.
to Hopewell Junction.
HMJr:
L:
334
Hopewell Junction.
that you could mail me tomorrow?
HMJr:
L:
Hopewell Junction.
HMJr:
Hopewell Junction.
L:
I'11 try. I mean it isn't a question of
time. I can do it in the time. It's only
a question of policy. Now we'll have to I'11 have to get together with John
Rothschild. Arthur Root isn't here
HMJr:
L:
HMJr:
L:
Oh.
and - but on the other hand, we have a
very definite problem on our hands with
boys that we've not been able to place
Why?
and I'm heartbroken about it. This may
be a wonderful way out.
HMJr:
Well, I suppose the maximum that we could
take of boys and girle is - to give you
some idea - would be twenty-five.
L:
Twenty-five.
HMJr:
That would be the maximum.
335
-7L:
Well, that's something.
HMJr:
Yee.
L:
And I'11 scout around then right away and
also see about if there's any possibility
of getting in line with a supervisor.
A girl that I spoke to Mrs. Morgenthau about
- if she would be free, Katherine Freeman,
she would be excellent for that.
HMJr:
L:
HMJr:
She would.
She's really trained in agriculture, and
she'd be very fine. I'11 find out though.
Well, if - if you could give me some kind
of a line that you could mail tomorrow
afternoon
L:
HMJr:
L:
Yes.
and then my county - assistant county
agent is coming down Saturday
I see.
the man in charge of the fruit
HMJr:
L:
HMJr:
L:
HMJr:
L:
HMJr:
Yes.
and they had some kind of a meeting
Wednesday night to talk it over with the
Yes.
.... orchard people, and I'd know Saturday
what the local situation is
I see.
and how much they want in southern
Dutchess. Now in northern Dutchess they're
running a very successful thing with
Brooklyn College, with girls
L:
Yes, girls.
336
-8-
L:
HMJr:
L:
Girls. And they're feeding them out of
the cafeteria of the Central High School.
They're what?
They're feeding them out of the cafeteria
of the Central High School there
How excellent.
-
HKJr:
and they've worked that out, and it's
HMJr:
been a great success.
L:
Oh, that's wonderful. You know I'm going
to have the opportunity of seeing all of
these because I'm going around the country
HMJr:
to investigate all of these
Well, let's
projects, either for the Volunteer
L:
National or possibly the Government.
HMJr:
Well, the one at Red Hook
L:
The what?
at Red Hook, the girls up there - that's
HMJr:
been a great success.
L:
At Red Hook. Well, I must go and see that.
HMJr:
Yes.
L:
By the way, I was going to write to you and
say that if when I'm touring the country I
can be of any service, I'm a very good
speaker.
HMJr:
Good.
L:
I mean to you.
HMJr:
Fine.
L:
So maybe I could hook up with it.
HMJr:
Fine.
337
-9L:
Anyway the - then I'11 do my best right this
minute, and I think I can do something.
HMJr:
Thank you.
L:
Okay, sir. I'11 let you hear then - oh you I'11 hear from you on Monday and I'll let you
know if possible by letter right away.
HMJr:
Thank you.
L:
Thanks.
HMJr:
Goodbye.
338
June 25, 1942
4:35 p.m.
HMJr:
Hello.
Operator:
Mr. Henderson has gone to New York but he'll
HMJr:
Oh. What's his General Counsel's name -
Operator:
All right.
be back tomorrow morning.
Ginsberg. See 1f Ginaberg is there.
HMJr:
And try Ginsberg first, and 1f Gineberg
isn't there, try Hamm.
Operator:
All right.
June 25, 1942
4:37 p.m.
David
Ginsberg:
HMJr:
G:
Very well - well, not very well.
Well, I'm sorry.
Have we done something wrong to the Treasury,
too?
HMJr:
No, no, no. No, you've
G:
We've got our hands full now.
HMJr:
I know you have. No, I'm calling up - (Laughs) -
you boys must be sensitive over there.
G:
HMJr:
G:
HMJr:
(Laughs) We're getting 60 now.
No, this is - I'm going in where angels only
would fear to tread. I got into an argument
with the Secretary of Agriculture on the
price of pork.
On the price of pork.
And other food, and then I pressed him very
339
-2hard, and I found - he finally admitted that
there's practically no cooperation between what
the Army and Navy buys and Agriculture. I mean,
if something is getting out of hand or a ceiling
18 being pressed hard, you see; the Army and
Navy might be buying pork chops or something
or other, and pressing very hard on something
where you people are having trouble, and I
gather
G:
You mean sort of out-bidding - bidding a little
high in the market?
HMJr:
Yes, or buying a great deal of one thing, you
see.
G:
That's right. That's it. And that means
HMJr:
Hello.
G:
Yes.
HMJr:
And he didn't want to answer me, but I sort of
pressed him and I found that since - that if
you people are having trouble with - I'm using
pork chops as an example - and you
G:
That's your favorite.
HMJr:
Hello.
G:
That's - hello. Yes.
HMJr:
Because it happene to be one of the things that no one, I gather, would go to the Army and
Navy and say, "Well, if you're - supposing you
don't serve them pork chops seven days a week,
you only serve it to them five days a week."
Hello.
G:
Yes.
HMJr:
And if beef is a little weak, they might in-
crease the purchases of beef and bring it up
and ease off on something else. I gather that
isn't being done.
340
-3G:
HMJr:
G:
HMJr:
G:
HMJr:
That's exactly right. It 18 not being done.
And therefore I was bringing it to you to
Henderson with the idea that I - my reason,
of course, 18 I'm interested that there should
be
as little pressure on the ceilings as possible.
That's right.
And particularly on the foodstuffs.
That's
right. That's where it's getting very
bad now.
And I had quite a time with Wickard, and finally
I pressed him on this thing and he admitted
that this situation is 80. Now
G:
HMJr:
G:
Well, let's us try and work on the thing a
little bit. I know that Wickard has been trying
to do something along that line out in the
country, you know, having - buy this or that
because we've got a surplus and it's patriotic
to eat chicken; and he's done some good with
it that way.
Well, that would help, but
I know, I know.
I wasn't - I was thinking more of the
HMJr:
pressure of the purchases of the Army and
Navy irrespective of what the ceilings were.
G:
HMJr:
That's right.
And if they're not cooperating, I should think
that - I don't know who does the buying, the
Quartermaster General, or how it's done
G:
HMJr:
That's right.
but I'm bringing it to you; and if you
can do something or cannot do something, if
you would just tell me
G:
Fine.
341
4HMJr:
G:
I'd be very glad to be kept posted,
because I am 60 interested in seeing these
ceilings stay stable.
Fine. Well, thank you very much, Mr. Secretary,
and I'll see that we get it up and get it into
the works right away.
HMJr:
G:
HMJr:
G:
Good. So - I'm calling 88 a friend.
Thank you. You're the first one in about a
month now. Thanks so much.
Well, don't forget the days when poor old
Leon went away and he left me as your
That's right.
Father Confessor.
HMJr:
G:
I know. These are almost as bad as then.
HMJr:
Well, I'm still here.
G:
Well, thank you.
HMJr:
And I'm still a friend.
G:
Thanks 80 much, Mr. Secretary.
HMJr:
Okay.
G:
Good-bye.
342
June 25, 1942
Lit mude
HM Jr called McIntyre and told him Treas had no
opening for Andrew Somers, and McIntyre suggested
that HM Jr take it up with the President sometime
when he sees him.
343
Conference of Mr. Bewley with Mr. White and Mr. Hicks in Mr. White's
office June 25, 1942, 3:30 P. M.
Mr. Bewley asked first about the status of Britain's request for
silver. He said that he had seen a statement in the paper that the
Silver Committee had rejected the proposal. Mr. White said the sug-
gestion had been presented to the Silver Committee, and that the members
of the Committee had seemed to be interested. The following day,
however, Mr. McCarren gave out the story that Mr. Bewley had seen. Mr.
White said that the figure of Britain's monetary requirements of 2 1/2
million ounces per month had been given to the Committee in confidence,
and that it was the Committee that had released the figure to the papers.
Mr. White said the Treasury was continuing to work on the proposal and
that it might be still possible to make some arrangement through the
medium of the Lend-Lease Administration.
Mr. Bewley then referred to a statement he had seen in the paper that
there was to be a meeting of central bankers of North and South America.
He asked whether this meeting concerned the British in any way. Mr. White
replied that the Rio Conference had agreed to hold a meeting on foreign
funds control. The conference would be attended by the agency in each
of the American governments that has control over foreign funds, Central
Banks in some cases and treasuries in others. The American delegate
would be Mr. Foley of the Treasury.
Mr. Bewley then read from a cable he had received from London on the
negotiations with R.K.O. The cable said that R.K.O. was submitting its
case to the Treasury through Allport. Allport was being told that the
British Treasury must have a statement from the other companies concerned
before the final decision could be reached. The cable implied that after
such a letter had been received the British Treasury would be sympathetic
to R.K.O.'s request. The cable also said that the British Treasury would
like to know what the other companies say in their letter to the United
States Treasury. Mr. White said that Mr. Patterson had asked for the
letter, but that two of the companies concerned were reluctant to provide
it, fearing that the letter might prejudice their own case. The industry
is to have a meeting next week on the point. Mr. White said he told
Patterson that he did not believe the other companies would prejudice
their case by providing such a letter, since the grounds upon which the
industry's case rests are different from that upon which R.K.O.'s rests.
Mr. Bewley agreed. Mr. White promised to send Mr. Bewley a copy of the
letter when it had been received.
Before leaving Mr. Bewley expressed his sorrow at the death of
Mr. Fox.
344
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
June 25, 1942
TO THE SECRETARY:
You might be interested in the
redemption of United States Savings Bonds
by series from the beginning of the program
in March, 1935. These figures are, of
course, on a maturity value basis. You
will note that the Series A-1935, which
has been out now approximately seven years,
has been redeemed to the extent of about
27.6% or approximately 4% a year on the
average. A rough estimate was made early
in the program that approximately 50% of
the issues would be redeemed by maturity.
This, of course, was based on a normal
program and not on war enthusiasm.
and
DEFENSE
-
BUY
UNITED
STATES
BONDS
345
UNITED STATES SAVINGS BONDS
(Maturity value)
Figures as of February 28, 1942
Sales
Series A-1935
$
272M
Redemptions
Per
cent
$ 75M
27.6
Series B-1936
493
127
25.8
Series C-1937
626
140
22.4
Series C-1938
721
121
16.8
Series D-1939
1,149
132
11.5
Series D-1940
1,394
103
7.4
Series D-1941
611
21
3.4
Series E-1941
1,611
26
1.6
Series E-1942
906
$7,783M
1/ $15,475 redeemed
-
1
$745M
9.6
346
WAR DEPARTMENT
WASHINGTON
June 25, 1942.
MEMORANDUM for Lieutenant I. J. Stephens,
Aide to the Secretary of the Treasury:
On Tuesday, June 23rd, the Secretary
of the Treasury called me with regard to reports of
high pressure salesmanship being used to sell War bonds
and stamps to the enlisted men of the Army.
On checking, I find that the attached
Confidential memorandum was dispatched to all units of
the Army through the Adjutant General's Office on May
29th. I believe this will take care of the situation.
If, however, the Secretary knows of any specific incident
in which this policy is being violated, he will have you
bring it to my attention informally, I will have an unofficial investigation made in order not to disclose the
source of his information.
EUGENA Lr. HARRISON
Colonal, Cavalry
Aide to the Secretary of War.
is
8m
92
NOC
and
CONFIDENTIAL
CONFIDENTIAL
347
WAR DEPARTMENT
The Adjutant General's Office
Washington
May 29, 1942.
AG 168 Defense Bonds (5-25-42)MS-A-M
SUBJECT: Voluntary Purchase of War Bonds and
Stamps to be Safeguarded in the Army
of the United States.
TO:
The Commanding Generals,
Army Ground Forces; Army Air Forces;
Services of Supply; Eastern, Western,
and Alaska Defense Commands; Armies;
Puerto Rican, Panama Canal, and Hawaiian
Departments; Army Corps; Corps Areas;
The Commanding Officers,
All Posts, Camps, and Stations.
1. It has come to the attention of the War Department that the
sale of war bonds and stamps has been placed on a competitive basis in
several posts, camps and stations. Such a method of selling bonds and
stamps is not approved by the War Department, and where now employed will
be abandoned.
2. It is earnestly desired that all War Department installations
lend enthusiastic and continuous support to the sales of war bonds and
stamps, but that there be no use of high pressure salesmanship in the
sale of bonds and stamps to military personnel.
3. The War Department is confident that the amount of war bonds
and stamps which will be purchased by military personnel, through strictly
voluntary subscriptions, will reflect great credit on the Army of the
United States.
By order of the Secretary of War:
Habiley
Major General,
The AdQutant Goveral.
COPIES FURNISHED:
The Inspector General;
The Provost Marshal General;
The Chiefs of Supply Services;
The Divisions of the War Department
General Staff.
CONFIDENTIAL
2
Nnr
and
CONFIDENTIAL
348
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
June 25, 1942
The Secretary
TO
FROM
Mr. Gamble
The information from Mr. Madden has not arrived as yet and may not
get here before you go home. I talked with Mr. Madden again on the phone
and he informed me that this information has already been mailed. I'll
get it to you just as quickly as it comes in.
349
TREASURY DEPARTMENT
14
INTER OFFICE COMMUNICATION
DATE June 25, 1942
The Secretary
FROM
Mr. Gamble
With reference to your request that we send the Victory Savings Club
Kits to all of the banks in the country, please be advised that Rand MoNally
has agreed to supply us with a kit for each bank. The Manufacturers Trust
Company will produce a broadside for us covering the details of the operation
of the plan. These details will include reference to the number of new
accounts which have been brought into the banks since the inception of the
program. We have requested the American Bankers Association to distribute
both of these items for us, together with their recommendations that banks
take advantage of the idea. We expect to hear from them tomarrow.
350
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
June 25, 1942
Secretary Morgenthau
FROM Ferdinand Kuhn, Jr.
I have looked carefully over our radio announcements scheduled for use between June 23 and July 5th.
They are tough and hard hitting in all their references
to the war, and there is not one line of bragging or
bluffing. All the emphasis is on the hard war ahead
and on the terrific effort that civilians will have to
make on the home front. In addition, we are plugging
hard along two lines: first, to get the people to cut
down on their buying and to put their money into War
Bonds instead; second, to spread the idea of our "10% Club",
which is a way of popularizing and dramatizing the need
for ten percent every pay day. I have the announcements
for June 23 to July 5th in case you would like to see them.
You know, of course, that each of these announcements
had been submitted to me and many had been sent back for
rewriting before printing.
3. K.
351
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25, 1942
TO
Secretary's Files.
FROM Mr. Kuhn.
Regarding the last paragraph of the Secretary's telegram,
a speech to sell bonds has been made at every meeting of the English
War Heroes tour, and in some cases, as in Denver, direct selling has
taken place among the audiences.
J.K.
E
352
A
S
U
WE 25
119 QR COLLEOT NT
Y
T
TOWD BEACON NY MAY 30 42
1942 JUN I AM 9 05
E
E
HIROLD GRAVES**DELIVER MONDAY JUNE 1 OFFICE SECY TREASURY
G
(MR KUHN)
R
I AM DISAPPOINTED TO LEARN THAT MR HOFLICH'S REPORT ON CANADA
HAS NOT BEEN CIRCULATED GENERALLY AMONGST THE HEADS OF THE
VARIOUS DIVISIONS OF YOUR STAFF I WANT TO DRAW YOUR PARTICULAR
ATTENTION TO THE INTERVIEW WITH MR TURNBULL OF THE MONTREAL
VICTORY LOAN CAMPAIGN WHO SAYS QUOTE HE POINTED OUT THAT THE
A
P
H
T
GOAL OF ALL PUBLICITY IS TO CLOSE THE SALE AT THE TIME IN THE
MINDS OF THE SPECTATORS THE ONE IMPORTANT QUESTION WITH RESPECT
TO ALLPUBLICITY IS DOES IT SELL BONDS UNQUOTE
E
A
WITH THIS IN MIND I DEFINITELY WANT A SHORT SPEECH TO SELL
S
BONDS AT EACH MEETING OF ENGLISH AVIATORS COPY OF THIS TELEGRAM
TO PETER ODEGARD FERDINAND KUHN AND MRS KLOTZ
HENRY MORGENTHAU JR
823A
G
R
A
H
Y
T
E
L
E
G
R
353
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25, 1942.
TO
FROM
Secretary Morgenthau
Mr. Schwarz
Cleveland's bomber fund was launched more than
three months ago by the Cleveland News after a number
of citizens wrote letters to the editor asking for it.
The immediate response was so tremendous that the
editors of the News decided to turn the program over
to a Civic Committee so that the entire community could
carry on the campaign as a Greater Cleveland community
project.
The fund total yesterday noon was $296,769.56, to
which was being added the proceeds of a fund-closing
boxing show staged in Cleveland Stadium Tuesday night.
Shortly after the bomber campaign opened the
Cleveland public schools staged a patriotic program in
every school in the city. Children on that day contri-
buted without solicitation more than $19,400 to the
bomber fund. Suburban, parochial and other schools have
brought the school total to more than $25,000. Thousands
of men and women working on war orders in Cleveland
industrial plants have contributed a half or full day's
pay to the fund, many through their unions, others through
plant-wide programs. In all cases the programs were
organized and carried on by the organization or plant.
Individual contributions have ranged up to $4,000. There
were several for $1,000 each. Union painters worked a
day for the bomber and contributed $22,640. Cleveland
Graphite Bronze Company employes sent in more than
$10,000. Bedridden children in a city-operated
tuberculosis cottage contributed $10. Mayor Frank J.
Lausche of Cleveland is General Chairman of the fund.
Matthew J. Fleming, President of the Federal Reserve
Bank of Cleveland, is treasurer.
-00o-
354
June 25, 1942
To the Presidents of International Unions,
State Federations of Labor and City Central Bodies
of the American Federation of Labor:
On Washington's Birthday, 1942, the undersigned, in a
joint radio broadcast, announced the One Billion Dollar War
Bond pledge of the American Federation of Labor, which was
recognized throughout the country as an outstanding feature
of the United States Treasury's War Savings program and as
the largest single pledge of its kind ever undertaken by a
group of citizens.
In developing its campaign to make good this patriotic
pledge, the American Federation of Labor has placed at the
disposal of the Treasury Department all of its own organizer
personnel and as many as possible of the organizers employed
by its affiliated unions. Under the general direction of
Frank P. Fenton, Director of Organization of the American
Federation of Labor, and James L. Houghteling, Director of
the National Organisations Division of the War Savings Staff,
the country has been divided into four districts -- the North
Atlantic States, the Southern States, the Middle Western
States and the Far Western States -- and the responsibility
for organising each district has been assigned to a member
of the War Savings Staff of the Treasury and a Regional
representative of the American Federation of Labor.
In the North Atlantic States the War Savings Staff is
represented by Gilbert E. Hyatt and the Federation by Regional
Representative John J. Murphy; in the Southern States, James F.
Barrett of the War Savings Staff and Regional Representative
George L. Googe; in the Middle Western States, Elmer Dowell
of the War Savings Staff and Regional Representative Harry E.
O'Reilly; and in the Far Western States, Charles F. West, Jr.,
2.
355
of the War Savings Staff and Regional Representative
Daniel V. Flanagan. Messrs. Fenton, Murphy, Googe, O'Reilly
and Flanagan have been sworn in as volunteer members of the
Treasury Department staff. The men named above are in the
midst of an intensive program of mobilizing all available
organizers, representatives and local union officers affiliated with the American Federation of Labor. This is for
the purpose of helping all A.F. of L. local unions to P each
the twin objectives of the War Savings program of the Treasury:
participation by at least 90% of all members, and allotments
averaging at least 10% of all pay rolls.
We know that leaders of American Federation of Labor
bodies are already deep in this great patriotic undertaking.
Many A.F. of L. organizations are reporting that 100% of their
members are buying War Bonds systematically and using at least
10% of their earnings for this purpose. This is one of the
surest ways in which you can insure the future welfare of your
members, combat the danger of ruinous inflation, and above all,
help to win the war and protect the future of human freedom.
In addition to what you are already doing, we ask that
you get into touch with the men named in the earlier part of
this letter and that you lend them the services of your paid
and volunteer organizers for this great program.
Very cordially yours,
JUST
Secretary of the Treasury
President, American Federation of Labor
FK/cgk
356
TREASURY DEPARTMENT
WASHINGTON
*******
AVINGS STAFF
To the Presidents of International Unions,
State Federations of Labor and City Central Bodies
of the American Federation of Labor:
On Washington's Birthday, 1942, the undersigned, in a joint radio
broadcast, announced the One Billion Dollar War Bond pledge of the American
Federation of Labor, which was recognized throughout the country as an outstanding feature of the United States Treasury's War Savings Program and as
the largest single pledge of its kind ever undertaken by a group of citizens.
In developing its campaign to make good this patriotic pledge, the
American Federation of Labor has placed at the disposal of the Treasury Department all of its own organizer personnel and as many as possible of the
organizers employed by its affiliated unions. Under the general direction
of Frank P. Fenton, Director of Organization of the American Federation of
Labor, and James L. Houghteling, Director of the National Organizations Division of the War Savings Staff, the country has been divided into four districts
-- the North Atlantic States, the Southern States, the Middle Western States
and the Far Western States -- and the responsibility for organizing each district has been assigned to a member of the War Savings Staff of the Treasury
and a Regional Representative of the American Federation of Labor.) In the
North Atlantic States the War Savings Staff is represented by Gilbert E. Hyatt
and the Federation by Regional Representative John J. Murphy; in the Southern
States, James F. Barrett of the War Savings Staff and Regional Representative
George L. Googe; in the Middle Western States, Elmer Dowell of the War Savings
Staff and Regional Representative Harry E. O'Reilly; and in the Far Western
States, Charles F. West, Jr. of the War Savings Staff and Regional Representative Daniel V. Flanagan. Messrs. Fenton, Murphy, Googe, O'Reilly and
Flanagan have been sworn in as volunteer members of the Treasury Department
staff. The men named above are in the midst of an intensive program of
mobilizing all available organizers, representatives and local union officers
affiliated with the American Federation of Labor. This is for the purpose
of helping all A. F. of L. local unions to reach the twin objectives of the
War Savings Program of the Treasury: participation by at least 90% of all
members, and allotments averaging at least 10% of all pay rolls.
FOR DEFENSE
-
BUY
UNITED
STATES
SAVINGS
BONDS
357
--
We know that leaders of American Federation of Labor bodies are
already deep in this great patriotic undertaking. Many A. F. of L. organi-
zations are reporting that 100% of their members are buying War Bonds system-
atically and using at least 10% of their earnings for this purpose. This is
one of the surest ways in which you can insure the future welfare of your
members, combat the danger of ruinous inflation, and above all, help to win
the war and protect the future of demooratio freedom and justice. human freedom.
In addition to what you are already doing, we ask that you get into
touch with the men named in the earlier part of this letter and that you loan land
them the services of your paid and volunteer organizers for this great program.
Very cordially yours,
Henry Morgenthau, Jr.
Secretary of the Treasury
William Green
President, American Federation of Labor
35
D:
Mr. Kuhn
Mrs. McHugh wanted to know also
whether you have reported this to
the Secretary.
C.G.K.
me Kuhm said
the told the Say
about the
cek
359
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25, 1942
TO
FROM
Mrs. McHugh
Mr. Kuhn
The four newsreels were flown to England by the
British Embassy. One went to the King and Queen, two
for the Chief of the Air Staff, and one for the Ministry
of Information. The British in Washington have cabled
the Ministry of Information asking that the British War
Savings authorities be invited to see the newsreel.
F.K.
2
360
June 24, 1942
Miss Keleher:
At the Group Meeting on Monday the Secretary asked
Mr. Kuhn to let him know to whom the four reels of
movies of the British War Heroes were distributed.
These were the reels which were given to Lord Halifax.
Could you let me know whether Mr. Kuhn has reported
to the Secretary on this?
Thanks.
Mrs. McHugh
361
June 22, 1942
FOLLOW-UP FOR THE SECRETARY:
Is the attached memo on the distribution of the
copies of the movies of the War Heroes finished?
362
o
P
y
June 18, 1942
THE SECRETARY
TED R. GAMBLE
Four extra prints, making a total of five of the newsreel shots of
the Mar Heroes, have just arrived in my office. I am turning them over
to Mr. Kuhn for distribution to the proper people.
363
June 18,
Ted Gamble and Ferdinand Kuhn
Secretary Morgenthau
What happened to the copies of the movies of
the War heroes that I was to send to England, also the
letter I was to write to the King accompanying those news
reela
1942.
CONFIDENT
364
UNITED STATES SAVINGS BONDS - TOTAL
Comparison of June sales to date with sales during the
same number of business days in April and May 1942
(At issue price in thousands of dollars)
Cumulative sales by business days
:
May
:
June
April
:
:
sales
:
daily
:
:
:
:
Date
June
June as
:percent of May
June 1942
1
2
3
4
5
5
6
8
9
10
11
12
13
15
16
17
18
19
20
22
23
24
$ 29,539
$ 29,539
$ 19,981
$ 24,980
15,903
21,604
31,162
34,132
21,744
45,442
67,046
98,208
132,341
154,085
39,430
72,048
88,605
122,575
157,866
45,933
115.2
64,147
82,937
111,289
129,786
110.8
108.0
97.6
38,574
13,863
30,029
23,220
21,952
21,439
192,659
206,523
236,552
259.772
281,724
303,163
181,431
201,464
232,801
246,756
271,525
296,152
149,409
168,289
185,904
196,667
229,895
242,969
31,235
11,099
23,285
18,587
27,435
14,354
334,398
345,497
368,782
387,369
414,804
429,158
317,861
337,371
371,066
385,098
409,987
439,987
257,280
279,933
295,244
309,780
339,594
353,636
102.4
99.4
100.6
101.2
97.5
39,655
16,526
25,108
468,812
485,338
510,446
466,171
485,109
518,829
374,391
394,628
416,474
100.6
100.0
98.4
(fice of the Secretary of the Treasury,
Division of Research and Statistics.
147.8%
93.1
106.2
102.5
101.6
105.3
103.8
102.4
105.2
June 25, 1942.
urce: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note:
Figures have been rounded to nearest thousand and will not necessarily
add to totals.
AI
CONFIDENTIAL
365
UNITED STATES SAVINGS BONDS - SERIES E
Comparison of June sales to date with sales during the
same number of business days in April and May 1942
(At issue price in thousands of dollars)
:
June
:
:
sales
Cumulative sales by business days
June as
May
April
:percent of May
:
daily
:
:
:
Date
June
June 1942
1
2
3
4
5
2
b
8
9
10
11
12
13
15
16
17
18
19
20
22
23
24
$ 19,834
$ 19,834
$ 12,679
8,008
12,970
17,388
24,789
15,209
$ 12,993
27,841
40,811
58,199
82,988
98,197
24,263
46,532
55,460
73,824
97,049
24,256
35,050
47,119
65,115
73,795
112.4
101.2
27,048
8,912
20,085
15,678
16,550
15,230
125,245
134,157
154,242
169,920
186,470
201,700
114,218
128,670
151,956
161,346
177,133
194,047
85,714
97.925
108,707
116,081
138,272
146,937
109.7
104.3
101.5
105.3
105.3
103.9
23,984
7,535
15,815
12,288
19,421
10,987
225,684
233,218
249,033
261,321
280,742
291,729
208,939
223,242
247,532
257,374
271,079
290,485
154,623
168,103
178,870
189,156
207,742
217,104
108.0
104.5
100.6
101.5
103.6
100.4
29,386
10,692
15,866
321,114
331,806
347,673
309,584
323,705
347,494
229,140
241,644
256,076
103.7
102.5
100.1
ice of the Secretary of the Treasury,
ivision of Research and Statistics.
156.4%
114.7
87.7
104.9
June 25, 1942.
rce: All figures are deposits with the Treasurer of the United States on
ote:
account of proceeds of sales of United States savings bonds.
Figures
have been rounded to nearest thousand and will not necessarily
add to totals.
CONFIDENTIAL
366
UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED
Comparison of June sales to date with sales during the
same number of business days in April and May 1942
(At issue price in thousands of dollars)
May
:
June
:
:
:
:
:
sales
Cumulative sales by business days
:
daily
April
:
:
:
Date
June
June as
:percent of May
June 1942
$ 9,705
2
3
4
5
6
8
9
10
11
12
13
$ 9.705
17,601
26,235
40,009
49,353
55,888
15,168
25,516
33,145
48,751
60,817
21,677
29,097
35,818
46,174
55,991
11,526
4,952
9,945
7,542
5,402
6,210
67,414
72,366
82,310
89,852
95,254
101.464
67,213
72,794
80,845
85,410
94,391
102,106
63,695
70,364
77,197
80,586
91,623
96,031
100.3
99.4
101.8
105.2
100.9
99.4
108,923
114,129
123,534
127,724
138,908
149,502
102,657
111,829
116,374
120,625
131,852
136,532
99.8
98.4
96.9
98.7
96.5
91.9
156,587
161,404
171,335
145,250
152,983
160,398
94.3
95.1
7,251
3,564
17
7,470
18
6,299
8,014
3,367
108,715
112,279
119,749
126,048
134,062
137,429
10,269
5,834
9,242
147,698
153,532
162,774
22
23
24
132.9%
7,895
8,634
13,774
9,344
6,535
15
20
$ 11,987
116.0
102.8
120.7
101.2
16
19
$ 7,302
fice of the Secretary of the Treasury,
Division of Research and Statistics.
91.9
95.0
June 25, 1942.
urce: All figures are deposits with the Treasurer of the United States on
Note:
account of proceeds of sales of United States savings bonds.
Figures have been rounded to nearest thousand and will not necessarily
add to totals.
367
CONFIDENTIAL
Sales of United States Savings Bonds
From June 1 through June 24, 1942
Compared with Sales Quota for Same Period
(At issue price in millions of dollars)
1
3
29
30
:
27
:
26
:
25
:
373.0
390.0
413.5
441.1
466.8
489.2
530.6
550.0
:
24
108.7
112.3
119.7
126.0
134.1
137.4
130.9
137.3
147.8
157.0
164.6
170.6
83.0
147.7
153.5
162.8
181.9
189.2
201.3
212.0
221.0
228.0
81.2
81.1
5.0
9.9
7.5
5.4
6.2
321.1
331.8
347.7
:
23
82.0
81.2
101.4
103.1
95.4
92.9
91.8
88.5
88.4
86.6
:
22
82.2
89.2
99.6
108.4
115.4
120.8
120.0
132.4
149.6
170.0
189.0
205.6
99.9
98.7
98.1
:
20
67.4
72.4
82.3
89.9
95.3
101.5
8.6
7.3
3.6
7.5
6.3
8.0
3.4
86.1
10.3
85.1
84.1
5.8
9.2
:
19
76.5
69.1
78.4
80.1
69.3%
80.5
82.6
82.9
82.6
84.0
81.8
81.0
80.3
81.5
80.5
80.9
to
Date
:
:
18
:
17
23.0
37.9
51.0
61.7
69.4
11.5
29.4
10.7
15.9
7.5
17.6
26.2
40.0
49.4
55.9
104.3
15.8
12.3
19.4
11.0
16
7.9
13.8
9.3
6.5
236.5
251.1
271.3
295.2
317.4
336.9
24.0
$ 14.0
87.9
91.5
104.3
104.8
225.7
233.2
249.0
261.3
280.7
291.7
15
:
13
:
12
$ 9.7
46.4
63.6
79.6
93.7
Date
Quota
$ 9.7
to
Quota, : Sales
: June 1 : to Date
:
11
Date*
Daily
June 1
:
20.1
15.7
16.5
15.2
10
:
8.9
9
125.2
134.2
154.2
169.9
186.5
201.7
:
27.0
8
32.0
:
6
27.8
40.8
58.2
83.0
98.2
91.2%
86.9
Date
:
5
2
$ 19.8
$ 21.7
Quota
to
:
13.0
17.4
24.8
15.2
Date
to
June 1
Actual Sales
:
2
Date
Daily
June 1
to Date
as & of
Total
:
8.0
to
:
$ 19.8
to
to Date
as % of
: Sales
:
Daily
June 1
Sales
:
June 1
Date
4
: Quota,
Actual Sales
Series F and G
: Quota,
Actual Sales
:
Series E
as % of
Quota
82.6%
$ 29.5
$ 29.5
$ 35.7
15.9
45.4
21.6
31.2
34.1
21.7
67.0
55.0
84.3
98.2
132.3
154.1
114.6
141.3
163.1
38.6
13.9
30.0
23.2
22.0
21.4
192.7
206.5
202.2
221.6
249.2
278.4
304.4
326.4
95.3
93.2
94.9
93.3
92.5
92.9
31.2
11.1
334.4
367.4
388.4
419.1
452.2
482.0
91.0
89.0
88.0
85.7
507.5
84.6
554.9
84.5
83.8
83.0
236.6
259.8
281.7
303.2
18.6
27.4
14.4
345.5
368.8
387.4
414.8
429.2
39.7
16.5
25.1
468.8
485.3
510.4
23.3
241.4
250.0
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 both the daily trend during the week and the monthly trend during the month.
82.5
79.5
85.7
93.6
94.5
579.2
614.8
653.1
687.8
717.2
86.1
772.0
800.0
June 25, 1942.
6-25-42
TREASURY DEPARTMENT
368
WASHINGTON
OFFICE OF
COMMISSIONER OF INTERNAL REVENUE
ADDRESS REPLY TO
IONER OF INTERNAL REVENUE
AND REFER TO
MEMORANDUM for the Secretary:
Reference is made to the plan which has for its
object the collection of a portion of the income tax at
the source. A certain plan has been under discussion for
some time and this Bureau has submitted comments in regard
to its feasibility and has prepared an estimate of the
administrative costs. The estimated cost is more than
$24,000,000 for the first full year. This Bureau has
pointed out the many complexities involved in the plan
and the difficulties that will be encountered should the
plan be enacted into law.
It was observed in the morning paper of Saturday,
June 20th, that Treasury representatives had, on Friday,
June 19th, presented to the Ways and Means Committee of
the House of Representatives a revision of the previous
plan which for the first two years would be far more complex than anything heretofore discussed. This recommended
change in the withholding plan came as a distinct surprise
to the Bureau of Internal Revenue as the proposed revision
had not been discussed with representatives of this office
and we had not been given an opportunity to express an
opinion concerning the feasibility of the plan. The pur-
pose of the proposed revision is to prevent extreme hard-
ships being imposed upon employees, stockholders and bond-
holders during the first year the withholding plan is in
operation. The methods by which this objective would be
accomplished, however, would impose hardships upon the
employers and employees of the country, as well as the
Bureau of Internal Revenue, which would be well-nigh insur-
mountable.
Briefly, the revised plan provides that during the
year 1943, 10% shall be withheld from salaries and wages
and from bond interest and dividends. The taxpayer would
369
-2be permitted to credit against his March 15, 1943, install-
ment of 1942 taxes half of the amounts withheld at the
source during January and February, 1943. Against his
June 15 installment, half of the amounts withheld during
March, April and May may be credited. Against his September
15 installment, half of the amounts withheld during June,
July and August, 1943, may be credited. Likewise, half
of the amounts withheld during September, October and
November, 1943, may be credited against the taxpayer's
December 15, 1943, installment. The remaining one-half
of the amounts withheld during the months from January
through November, 1943, plus all of the amount withheld
during December, 1943, would be credited against the tax-
payer's liability for 1943 payable in March, 1944.
The revised withholding plan contemplates that the
employers or other withholding agents will give receipts
to the individual income taxpayers involved covering the
amounts withheld. The receipts with respect to credits to
be taken in 1943 are presumed to accompany the tax return
filed in March, 1943, and the tax bills which will be re-
turned to the Collector in connection with the subsequent
installment payments. Upon the basis of these receipts,
the Collector would apparently be required to post credits
in the accounts of the individuals. In order to protect
the revenues of the Government, Collectors, at the present
time, may take credit in their internal revenue accounts as
the result of payments made by taxpayers only to the extent
of the amounts disclosed on certificates of deposit issued
by the Federal Reserve Banks or national bank depositories.
If Collectors are authorized to give taxpayers credit on
the basis of receipts issued by third parties, this would
have the effect of materially weakening the accounting system
which has been proved over many years. The duplicate postings
imposed upon Collectors would add materially to the work.
The amounts of all tax assessments are charged in the revenue
accounts of the Collectors and those officials are responsible
under their bonds to the United States of America for the
charges made against them. In order to give Collectors
credit for such unorthodox entries as would be necessary
under the proposed plan, it would be necessary to arrange
370
-3with the General Accounting Office to accept schedules
prepared on the basis of the receipts in lleu of certificates of deposit issued by depository banks. There are
many other serious accounting problems as well as oppor-
tunities for dishonest practices both on the part of the
taxpayers and Bureau employees.
2
It seems appropriate at this juncture to consider
some of the difficulties that will be experienced by employers. It has been mentioned hereinbefore that the plan
contemplates the individuals will submit with their returns
or bills the receipts to evidence withholding applicable
to 1942 tax liabilities disclosed on the returns filed in
1943. It should be mentioned at this point that when credit
is taken for 50% of the amounts withheld in the 1943 return
filed in 1944 additional receipts will be necessary. Thus,
if an employer pays his employees on a weekly basis, it
would be necessary for him to give them two receipts each
pay day, or 104 receipts yearly. It would be necessary
for the employees to preserve one-half of the receipts
until the return is filed the following year and submit
them therewith. This materially increases the heavy burden
on employers over that imposed by the original withholding
plan in that every employer must, under the proposed new
plan, give two receipts each pay day, while under the
original plan employers of eight or more were required to
give receipts only once annually and employers of fewer
than eight were required to give only one receipt each pay
period.
In regard to the burden that would be placed upon em-
ployees, it may be stated that if a receipt is lost, destroyed or stolen, it would be incumbent upon the Collector
to disallow the credit for the amount of the missing receipt
when claimed by the taxpayer either in his return or in his
quarterly bill. In the event 800 million receipts are issued
in duplicate yearly, or 1,600,000,000 documents, it is anticipated there will be many receipts lost by the individual
taxpayers and when the individuals find that they cannot receive the credit to which they are entitled, numerous complaints will be made against the Treasury Department. In
371
order to remedy these situations, it will be necessary to
await the filing of the employers' information returns and
exemption certificates at the end of the year or to make
special investigations during the course of the year at
the employers' places of business. If the employer, in
the meantime, has discontinued business and left no records
available (as so often happens) the employees will be placed
in the position of having to make duplicate payments of that
portion of their tax liability which cannot be supported by
receipts.
It is possible there may be approximately three million
employers affected. Many of these withholding agents are
illiterate and difficulties will be experienced in impressing
upon them the many intricacies of the plan. It may be said
that an educational program will be ample to relieve this
difficulty but it should be borne in mind that this particular plan is only in effect during a limited transitory period
beginning January 1, 1943, and there will be little, if any,
time for an educational program. It is likewise possible
that as many as twenty million workers may be affected. Many
of the workers are illiterate and it is predicted that it will
be impossible to impress upon them the necessity for having
two receipts covering each pay period. Many of them will not
realize the importance of preserving the receipts for many
months to come. Many will not understand why the 24 receipts
received by them during the months of January, February and
March, 1943, will be used in this fashion: Of the eight re-
ceipts received in January, four will be used in March, 1943,
and four will be used in March, 1944. Of the eight receipts
received in February, four will be used in March, 1943, and
four in March, 1944. The complication will come in making
the employees understand that of the eight receipts received
in March, 1943, four will be used in June, 1943, and the remaining four in March, 1944. This same difficulty repeats
itself each quarter during 1943.
As an evidence of the difficulty with which the taxpaying employee will be confronted, reference is made to
the note on page 3 of the statement submitted by the Tax
Advisor to the Secretary in which it is indicated that
"a problem would arise for persons receiving income both
372
-5from sources subject to the withholding and from sources
not subject to withholding." The solution given to this
problem in the same paragraph is that "the taxpayer could
be required to pay in cash in March, 1944, twice the difference between 5 percent of surtax net income and the
credit for taxes actually withheld at source plus 1/4 of
the balance of his tax liabilities." If this is to be
a
requirement of the law, it will seriously interfere with
the objectives of the Treasury Department in its endeavor
to provide a simplified tax return form.
The foregoing objections are respectfully submitted
after a very hasty study of the proposed revised withholding plan. Time does not permit a more detailed study and
recital of the many additional difficulties which would be
encountered, not only from an accounting and administrative
viewpoint but from the viewpoint of the difficulties with
which the employers and employees of this country will be
confronted.
This office views with grave apprehension the effect
on the collection machinery if the proposed revised withholding plan is enacted into law.
This office fully appreciates the need of easing the
impact of withholding in 1943 in which year returns must
be filed under the higher rate structure. It is suggested
as an alternative to the plan discussed that the rate of
withholding for 1943 be at 5% instead of 10% since it
appears that the result sought will be in that manner ob-
tained without the serious difficulties that must otherwise
be encountered.
Imy Heloring
Commissioner.
373
June 25, 1942
Dear Eleanor:
In reply to your letter of June 24th,
notwithstanding the fact that the Committee has just knocked out joint returns, I would very much like to have
Dorothy Kenyon and Rose Schneiderman
meet with Mr. Randolph Paul. If they
would let Mrs. Klots know what day they
could come down, she will arrange the
appointment.
Affectionately yours,
(Bigmed) Heart
Mrs. Franklin D. Roosevelt,
The White House.
firen.c.
ris 5:10pm.
374
THE WHITE HOUSE
WASHINGTON
New York, N.Y.
June 24, 1942
Dear Henry:
The enclosed was left with me today
by Dorothy Kenyon, a lawyer well known among
vomen, and Rose Schneiderman, of the Women 8
Trade Union League.
They are primarily interested in
the effect which the joint income tax will
have on married people with small incomes.
Miss Kenyon would like to come down and talk
to the person in the Treasury who has had
charge of the whole thing.
If you can
convince her, she will be able to help in
convincing many women's organizations.
I must say that this list seems
to indicate that people with low incomes
suffer by entering into an obligatory joint
income tax return. She feels there is
nothing gained because they can file joint
returns under the present law if they wish
to do so.
Affectionately,
T.If
375
29 WASHINGTON SQUARE WEST
NEW YORK. NEW YORK
Dear Mrs. Klotz:
I forgot to enclose this in a
letter which Mrs. Roosevelt wrote to
Secretary Morgenthau.
Mrs. Roosevelt
wrote to the Secretary about Dorothy
Kenyon, Rose Schneiderman and the joint
income tax.
Please apologize to the Secretary
for my inefficiency!
Very cordially youre,
Malinua C. Thompoon
376
Effect of Mandatory Joint Return on
1942 Income Tax of Married Persons
having incomes as noted, no dependents,
using the personal exemptions and rates
proposed by the Secretary of Treasury,
and without claiming any deductions.
H. Income
H. Tax
W. Income
W. Tax
(1)
$1,200.
$99.
$1,200.
$99.
(2)
3,600.
665.
1,200.
99.
(3)
6,000.
1379.
1,800.
219.
(4)
4,000.
777.
2,500.
381.
(5)
12,000.
3593.
1,300.
118.
snow
2010
Total
198
766
J.R. Income
Jt.lay
J.R. Tax
$2,400.
$219.
10.61
4,800.
833.
9.03
7,800.
1,769
1158
6,500.
1,348.
16.41
3711
13,300.
3,891.
15.90
1598
500000
Note: The percentage of penalty tax varies and may bear quite heavily on the
wife. For example, in case (5) above the penalty tax on the Joint Return
is only 4.9%; but the penalty tax on the wife is 15.9% whereas, it is
only 4.5% on the husband.
Ins.
7.80
2.3
376
Effect of Mandatory Joint Return on
1942 Income Tax of Married Persons
having incomes as noted, no dependents,
using the personal exemptions and rates
proposed by the Secretary of Treasury,
and without claiming any deductions.
H. Income
H. Tax
W. Income
W. Tax
(1)
$1,200.
$99.
$1,200.
$99.
(2)
3,600.
665.
1,200.
99.
(3)
6,000.
1379.
1,800.
219.
(4)
4,000.
777.
2,500.
381.
(5)
12,000.
3593.
1,300.
snow
50000
20hl
Total
198
766
J.R. Income
Jt.lay
J.R. Tax
$2,400.
$219.
10.61
4,800.
833.
9.03
7,800.
1,769
1158
6,500.
1,348.
16.41
118. 3711
13,300.
3,891.
15.90
1598
Note: The percentage of penalty tax varies and may bear quite heavily on the
wife. For example, in case (5) above the penalty tax on the Joint Return
is only 4.9%; but the penalty tax on the wife is 15.9%, whereas, it is
only 4.5% on the husband.
Ins.
7.80
2.3
377
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25, 1942
TO
FROM
Secretary Morgenthau
Mr. White
ubject: Excessive Department Store Inventories
I believe something ought to be done to force a gradual reduction in retail store inventories and thereby help relieve the
upward pressure on prices. The Treasury Department is not, of
course, the appropriate agency to carry out such a program but
you might wish to have Mr. Haas study the matter further and
then if warranted raise the question with Henderson, Nelson, and
Eccles.
The value of department store inventories has grown enormously
during the past year. On May 31, 1942, New York City department
stores held inventories 86 percent larger than a year ago. For
the country as a whole, department store inventories on April 30,
1942 were 57 percent higher than a year ago. While part of this
increase in the value of department store inventories reflects
higher prices, the greater part is simply an accumulation of larger
physical stocks of goods.
The rapid growth of department store inventories began in
June, 1941 and has been especially marked since January, 1942.
The principal reasons for the accumulation of excessive inventories
were the anticipation that prices would rise, that difficulties
would be encountered in acquiring supplies, and that sales would
continue to increase.
In the first four months of this year, department store sales
were 22 percent above the level of the corresponding period of 1941.
Recently, however, sales have begun to decline, and in May, 1942
department S tore sales in the New York district were 4 percent less
than a year ago. This recent tendency for sales to decline has
accentuated the excessive nature of the present large inventories.
The accumulation of excessive inventories unquestionably has
contributed to the rise in prices. However, the gradual reduction
of these inventories to their normal levels would do much to maintain the present price ceiling against the pressure of consumer
expenditure.
The War Production Board is apparently planning to control
inventories, but protest by retailers at each mention of the
possibility has prevented action from being taken as yet.
Treasury Department
Division of Monetary Research
378
!!!!
Date June 25, 1942
To:
Secretary Morgenthau
From:
Mr. White
19
According to present trends, Canada will
end 1942 with $350 to $500 million of gold and
U.S. dollars, as compared to roughly $400
million at the outbreak of war.
Canada's international position is
stronger today than it was in Sept. 1939.
Since then Canada has sold about $100 million
of U.S. assets, but she has also repurchased
$475 million of Canadian securities from U.K.
and has accumulated a $630 million obligation
against the British Government.
U.S. Government orders in Canada have
?roughly tripled since Jan. 1, 1942. Orders for
munitions and supplies have risen from $225
million on Jan. 1 to $745 million on June 15,
with a few large orders still pending. In
:dition, Metals Reserve Corporation has considerably expanded its purchase program for
for three other metals.
Canadian aluminum and has placed new contracts
The question arises whether these U.S.
Government orders are utilizing otherwise
excess capacity or whether they represent a
diversion of Canadian production from U.K.
and Canadian account to U.S. account.
The appended memorandum, prepared by Miss
Kistler, gives the details of Canada's dollar
position.
MR. WHITE
Branch 2058 - Room 2141
379
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
TO
Lr. White
FROM
Miss Kistler
Subject:
DATE June 23, 1942
Canada's U. S. Dollar Position
Since January 1, 1942, there have been three important developments
affecting Canada's U. S. dollar position:
1. Official Canadian holdings of gold and U. S. dollars have increased by about $70 million, January 1 - June 18, 1942, to reach a total
of about $250 million on the latter date. This rise is in sharp contrast
to the drain of $68 million forecast for this period by the Canadian
Government last March.
2. The United States Government has placed $520 million of additional
orders for munitions and supplies in Canada through War Supplies, Limited,
January 1 through June 15, 1942. This is twice the value of all contracts
signed with war Supplies, Limited, through the close of 1941.
3. In addition, Metals Reserve Corporation has signed contracts for
the delivery of zinc concentrates, mercury and cobalt, and has considerably
expanded its purchasing program for Canadian aluminum.
As a consequence of these three developments, Canada's holdings of
gold and U. S. dollars are expected to rise by at least another $100
million, and possibly by as much as $250 million, July through December 1942.
If these estimates are accurate, the Canadian Government will end the year
with a gold and U. S. dollar reserve of $350 to $500 million.
This favorable trend is expected to continue into 1943, in the absence
of any unforeseen unfavorable developments and a sharp curtailment in
Canadian gold production. If the trend does continue, the Canadian Govern-
ment's holdings of gold and U. S. dollars will increase still further after
the close of the current year.
1. Canada's holdings of gold and U. S. dollars.
During the first 5 1/2 months of 1942, funds held by the Federal
Reserve Bank of New York for the account of Canada have increased over
$80 million - from $25 million on January 1 to $108 million on June 18.
If, as seems likely, the Canadian Government has sold no gold out of its
reserves during the past six months and, if also, the decline in official
Canadian balances held outside the Federal Reserve Bank of New York has
380
Division of Monetary
Research
-2been no greater, May through June, than it was during the previous four
months, then Canada has an official reserve of gold and U. S. dollars
amounting to $255 to $260 million, as compared to $188 million on
January 1. (official Canadian funds outside the New York Federal Reserve
Bank fell $9 million, January through April 1942.)
This $70 million increase in the Canadian Government's U. S. dollar
holdings is in sharp contrast to the Canadian-anticipated drain of $68
million, January through June 1942. An itemized explanation of this
divergence of $140 million between the Canadian forecast and the actual
change will have to wait a few weeks upon receipt of promised data from
the Canadian Ministry of Finance. However, from the information at hand,
we know that Canadian net imports of capital from the United States and
Canadian exports of newly mined gold were both considerably higher than
anticipated, while Canada's net U. S. dollar requirements for interest
and dividend transfers as well as on merchandise account were lower than
expected by the Canadian Government last March. On the other hand, so
far as we can ascertain, United States Government payments to Canada on
Hyde Park transactions, January 1 - June 18, 1942, have been about as
forecast.
2. United States Government orders placed through War Supplies, Limited.
The placing of United States Government orders for munitions and
supplies in Canada through War Supplies, Limited, has been greatly
facilitated and accelerated since the establishment six months ago. of
the Joint War Production Committee. The value of contracts has risen
rapidly to reach a total of $745 million on June 15 - an increase of
$520 million since January 1 and of $480 million since February 16, when
the latest Canadian Government forecast submitted to the Treasury was made.
The tremendous expansion in United States Government orders placed through
War Supplies, Limited, January 1 through June 15, is shown below:
Value of U. S. Government Contracts with war Supplies, Limited
(Million-U.S.)
1942:
January 1
February 16
$225
265
(This figure plus the ship deal
of $150 million served as the
basis of the latest Canadian
Government forecast)
March 31
June 15
418
745
381
Division of Monetary
Research
-3From various sources, it is known that the contracts signed by
the United States Government since February 16 have increased the
Canadian Government's expected U. S. dollar receipts for the period,
July through December 1942, by at least $75 to $80 million above the
figure used in drawing up their March forecast. This anticipated in-
crease does not allow for the receipt of any payments from the United
States Government during the remainder of 1942 on $160 million of orders
placed since March 31. In view of this fact, the Canadian Government's
actual receipts of U. S. dollars on U. S. contracts with War Supplies,
Limited, through December 1942 may exceed their forecast of last March
by an even greater sum.
By the close of 1943 the bulk of United States Government contracts
with Tar Supplies, Limited, will have expired and most of the payments
thereon made to the Canadian Government.
In addition to the $745 million of contracts signed by the United
States Government through June 15, there are United States Government
orders still pending which aggregate another $300 million and a tank
deal under discussion which may amount to as much as $350 million. If
these deals go through they will further swell Canada's U. S. dollar
receipts during the next year and a half and in time, presumably be reflected in increased dollar holdings of the Canadian Government.
3. Materials contracts placed in Canada through Metals Reserve Corporation.
Metals Reserve Corporation has also considerably expanded its program
for purchases of raw materials in Canada since the latest Canadian Government forecast was submitted to the Treasury. It has signed new contracts
for zinc concentrates, mercury and cobalt, and has substantially expanded
delivery schedules for Canadian aluminum. Deliveries under the latter
are already running much higher than anticipated in February. We do not
have a recent forecast of payments to be made by the United States on
these contracts, but from January 1 through June 18, 1942, Canada received almost $40 million of U. S. dollars from the Metals Reserve
Corporation instead of only $9 million as forecast in March by the Canadian
Government. If this trend continues, Canada's U. S. dollar receipts on
material contracts will be $40 million to $50 million higher, July through
December 1942, than expected by the Canadian Government in March.
4. Canada's U. S. dollar prospects, exclusive of Hyde Park transactions.
The Canadian Government in March estimated that it would have a
deficit of U. S. dollars, July through December 1942, aggregating $11
million. If this forecast for the period is as wide of the mark as the
companion estimates submitted for the first six months of the year, then
382
Division of Monetary
Research
-4Canada's U. S. dollar balances at the end of 1942 will be still higher,
and perhaps by as much as another $100 to $150 million.
5. Canada's U. S. dollar position after 1942.
The increase in United States Government orders in Canada during the
past four months should be sufficient to offset the effects, during the
next year or so, of any unfavorable developments which are likely to
occur, including the loss of receipts from newly mined gold. Barring any
catastrophic development, payments by the United States Government on
orders placed in Canada should be sufficiently large to permit Canada to
continue to add to its gold reserve for some time in the future.
The optimistic outlook for Canada's U. S. dollar position, coupled
with the need to reach decisions soon on a few large contracts still
under discussion, make it imperative for the Treasury to examine continuously and carefully Canada's U. S. dollar position. The promised
quarterly revision of the Canadian forecast of Canada's U. S. dollar
expenditures and receipts will be available to the Treasury in about a
month. Mr. Plumptre has promised to inquire about our receiving a
monthly report on Canada's actual gold and U. S. dollar holdings. It
is necessary that the Treasury receive this information currently if we
are to avoid a possibly embarrassing situation.
383
June 25, 1942
MEMORANDUM FOR THE SECRETARY
Canadian Tax Changes
Canada's Fourth Wartime Budget was presented to
the Commons on June 23, 1942. This summary of the
major proposals is based on information obtained by
telephone and is subject to revision.
Proposed increases in the rates of the personal
income tax, the corporation taxes, and the excises
are estimated to yield $378,000,000 in 1942-43. This
will increase 1942-43 tax collections to $2,050,000,000
or 52 percent of estimated expenditures.
Individual income tax
The graduated income tax rates. now ranging from
15 percent on the first $1,000 of taxable income to
85 percent on amounts over $500,000, have been increased
to range from 30 percent on the first $500 to 85 percent
on amounts over $100,000.
The flat rate National Defence Tax has been increased and incorporated into the regular income tax.
The new rates are 7 percent, 8 percent, or 9 percent,
depending on marital status and size of income of the
taxpayer.
The 4 percent surtax on investment income is
retained without change.
The combined maximum rate is 92 percent for married
persons and 94 percent for single individuals without
investment income. For those with investment income, the
maximum rate is 96 percent for married persons and 98 percent for single persons. The maximum rates apply to portions of income in excess of $100,000.
The personal exemptions have been reduced. For
married persons without dependents, for example, the
$1,500 exemption is reduced to approximately $1,150. The
tax liability at selected income levels is shown in the
accompanying table.
384
-2Compulsory savings for individuals
Part of the individual income tax is treated as
compulsory savings. The maximum savings are $800 for
a single person, $1,000 for a married person without
dependents, and an additional $100 for each dependent.
(See attached table). The savings will be evidenced
by non-negotiable 2 percent certificates, repayable
during the first fiscal year commencing after the war.
Net life insurance premiums, repayments of printions to pension or retirement funds are allowed as a
deduction from compulsory savings.
Collection at source
cipal on mortgages against owned homes, and contribu-
A substantial portion of the income tax on wages
and salaries will be collected at the source, beginning
September 1, 1942. The corresponding taxes on income
from other sources will be payable currently in quarterly
instalments. The details of the plan have not been fully
developed.
Excess profits tax rate
The excess profits tax rate has been increased from
75 percent to 100 percent. The minimum combined income
tax and excess profits tax rate of 40 percent is retained.
Post-war credit for corporations
Twenty percent of the excess profits tax will be
repaid to corporations over the first two fiscal years
after the war, without restrictions on the use made of
the money. The credits will be evidenced only by book
account. No certificates will be issued and no interest
will be paid.
Excise taxes
Important changes are proposed in indirect taxes
including those on alcoholic beverages, tobacco products,
soft drinks, and communications. A 30 percent manufacturers' excise tax is proposed on candy and chewing gum
and a 25 percent retail sales tax on jewelry, china,
clocks, and watches.
385
Personal income taxes payable under Canadian tax
rates proposed June 23, 1942 and under rates and
exemptions tentatively adopted by
the Ways and Means Committee
(Includes both flat rate tax and graduated tax)
Single person
A.
2
Proposed tax - Canada 1/
tax
Canada 1
income
Total
Tax
:
Present
Taxable
portion
U.S. tax
under plan
: Savings
adopted by
portion
:
$
700
$
1,000
2,000
5,000
50,000
Ways & Means
Committee
40
20
87
172
92
80
84
340
601
441
1,332
28,392
2,128
1,728
875
35,703
34,903
160
400
800
35
$
20
$
$
32
258
25,316
B. Married - no children
$ 1,500
$
2,000
3,000
5,000
50,000
175
400
217
431
884
1,000
26,965
1,878
34,553
75
$
109
231
584
1,378
33,553
$
108
200
300
500
306
708
1,000
24,840
45
132
C. Married - with two children
$ 1,500
2,000
3,000
5,000
$
25
24
-
215
668
107
108
-
334
334
1,662
1,062
600
162
540
35
49
60
215
735
Everything over $30,000 assumed to be investment income for pur-
poses of these tables, subject to 4 percent special tax.
Rong Blough
1
386
June 25, 1942
MEMORANDUM FOR THE SECRETARY
Canadian Tax Changes
Canada's Fourth Wartine Budget was presented to
the Commons on June 23. 1942. This summary of the
major proposals is based on information obtained by
telephone and is subject to revision.
Proposed increases in the rates of the personal
income tax, the corporation taxes, and the excises
are estimated to yield $378,000,000 in 1942-43. This
will increase 1942-43 tax collections to $2,050,000,000
or 52 percent of estimated expenditures.
Individual income tax
The graduated income tax rates, now ranging from
15 percent on the first $1,000 of taxable income to
85 percent on amounts over $500,000, have been increased
to range from 30 percent on the first $500 to 85 percent
on amounts over $100,000.
The flat rate National Defence Tax has been increased and incorporated into the regular income tax.
The new rates are 7 percent, 8 percent, or 9 percent,
depending on marital status and sise of income of the
taxpayer.
The 4 percent surtax on investment income is
retained without change.
The combined maximum rate is 92 percent for married
persone and 94 percent for single individuals without
investment income. For those with investment income, the
maximum rate is 96 percent for married persons and 98 per-
cent for single persons. The maximum rates apply to portione of income in excess of $100,000.
The personal exemptions have been reduced. For
married persons without dependents, for example, the
$1,500 exemption is reduced to approximately $1,150. The
tax liability at selected income levels is shown in the
accompanying table.
387
-2Compulsory savings for individuals
Part of the individual income tax is treated as
compulsory savings. The maximum savings are $800 for
a single person, $1,000 for a sarried person without
(See attached table). The savings will be evidenced
by non-negotiable 2 percent certificates, repayable
during the first fiscal year commencing after the war.
dependents, and an additional $100 for each dependent.
Net life insurance premiums, repayments of principal on mortgages against owned homes, and contribu-
tions to pension or retirement funds are allowed as a
deduction from compulsory savings.
Collection at source
A substantial portion of the income tax on wages
and salaries will be collected at the source, beginning
September 1, 1942. The corresponding taxes on income
from other sources will be payable currently in quarterly
instalments. The details of the plan have not been fully
developed.
Excess profits tax rate
The excees profits tax rate has been increased from
75 percent to 100 percent. The minisus combined income
tax and excess profits tax rate of 40 percent is retained.
Post-war credit for corporations
Twenty percent of the excess profits tax will be
repaid to corporations over the first two fiscal years
after the war, without restrictions on the use made of
the money. The credits will be evidenced only by book
account. No certificates will be issued and no interest
will be paid.
Excise taxes
Important changes are proposed in indirect taxes
including those on alcoholic beverages, tobacco products,
soft drinks, and conmunications. A 30 percent manufaoturers' excise tax is proposed on candy and chewing gun
and a 25 percent retail sales tax on jewelry, china,
clocks, and watches.
E-R:MA:eb
6/25/42
RB
388
Personal income taxes payable under Canadian tax
rates proposed June 23, 1942 and under rates and
exemptions tentatively adopted by
the Ways and Means Committee
(Includes both flat rate tax and graduated tax)
Single person
A.
Taxable
income
Proposed tax - Canada 1/
Present
tax
Total
Canada
: Savings
Tax
adopted by
: portion
portion
:
:
$
U.S. tax
under plan
Ways & Neans
Committee
700
35
40
20
20
32
1,000
2,000
5,000
50,000
87
so
84
340
172
601
92
441
1,332
28,392
2,128
35.703
1,728
34,903
160
400
800
258
875
B.
8
25,316
Married - no children
$ 1,500
75
2,000
3,000
5,000
50,000
175
400
217
431
884
1,000
26,965
1,878
34,553
$
109
231
584
1,378
33,553
$
108
200
300
500
132
306
708
1,000
24,840
45
G. Married - with two children
& 1,500
40
25
24
2,000
3,000
5,000
215
215
668
107
334
735
1,662
1,062
108
334
600
1
-
-
162
540
Everything over $30,000 assumed to be investmenincome for pur-
poses of these tables, subject to 4 percent special tax.
389
I
or - -
DATE
Fiscal Agent of the United States
June is. take.
sin
Attention m. 2. Metto
We are pleased to enclose - of - eable
No. so of June 23. agre, seas to the Central Beak of
(hine in - with year telephone request, retative to the reasonal of the arrangement not forth in our
Letter of July 14, 1937. - - A oow of their
suply Sharete to also enclosed.
Please advise - of your wishes regarding the
request of the Central Book of china for a further
- of the assingment.
Requestfully,
(am.) & s. senford,
Hanager. Foreign Department.
the Benerabile,
the Secretary of the Treasury.
Weshington, 3. e.
e
.
P
Y
-
390
-- 29. agle
=
a Instrul Beak of this
-
a.m
to with to refer to - to purchase as fiscal - of the United States - forth
in - letter of July 14, 1937 as - is
- obligation to Purchase Team also - 30. agle please alvise w able if you
/
to
/
-
with further - which w shall be stat to
Infer last - paragraph three our letter
--
Instructions evering interest
- posited enter I 18. take not reserved.
Please obvies.
-
w
-
TORK
391
SOPT
GARLES
Manghing, June 24, 19th
Federal Reserve Beak of New York
New York
#15
Dobit Central Seak of Okine account - I
Board and m yourselves w $70,783.63 being equivilent as
the rate of 29 3/8 and 29 1/2 of Chinese Year 185,176.27 and
95.952.88 respectively representing interest at 1 1/25 - to
- 10th agre - your assount with a Central Book of Chim.
in the - of Federal Deceme Bank of New York
as flood agent of - United States. Details w mil.
Value - 10th 19th.
Central Beak of Chiss
--
P
Y
Juse s. agre
langhing. - 3. 1948
Federal Receive Bank of New Test
no. 16
Your No. a
w wish to extend 1937 agreement for further 6
months Please connects Secondary and atvise
Please refer to - eable m. 15.
a Central Bank of this
Suggisme:6/26/4e
392
393
JUN 25 1942
Dear Mr. Berle:
Reference is made to your letter of May 18,
1942 (FD), regarding the proposed replacement of
British coins in Liberta by American surrency. I
note that it is the view of the State Department
that it would be highly desirable if some means
could be devised for accomplishing the proposed
change without involving the Government of Liberia
in loss or serious expense, particularly in view of
the fact that the Liberian Government has been
extremely cooperative with this Government in all
measures relating to the military program which
United States is carrying out in Liberia.
This Department appreciates your Department's
recognition of the desirability of avoiding any
embarrassment to the British Government in effecting
the proposed change in the Liberian currency system.
Beth departments are in general agreement that it is
probably desirable to refrain from discussing with
the British at this time the basis on which British
silver soins which may accumulate in the Liberian
Treasury or in the Bank of Nenrovia may be converted
either into sterling balances or into dollars.
The Treasury Department sees no objection to
giving assurances to the Liberian Government that,
as British silver coin accumulates in the Liberian
Treasury OF in the Bank of Nonrovia in quantities
beyond the financial capacity of that Government to
held, arrangements will be made from time to time
to convert such accumulations of soins either into
sterling balances, or into dollars at a rate of 64
per pound sterling, in accordance with the needs of
the Liberian Government and without cost to that
Government. However, this Department considers it
essential that the Liberian Government indicate the
total amount of British coin to which these assurances
will relate. Unless this is done we can envisage a
situation - however unlikely its occurrence - in which,
394
should sterling depreciate further, our glaraatee
to purchase British ceia from Liberta at the fixed
rate of #4 would tempt - inflow of such sein to
Liberta from other parts of Africa for conversion
into dollars at the fixed rate. In addition, it
would seem desirable to be assured by the Libertan
Government that neither the Liberian Treasury ser
the Bank of Neurevie would prefis at any time from
the conversion of British sein into dollars.
As to the precedare to be followed in
implementing the guarantee to the Libertan Govern-
ment, we plan to have the Stabilisation Fund from
time to time purchase the accumulations of British
coins in Liberta. There are several ways in which
these coins can then be disposed of and it does
not seem necessary to make detailed arrangements
at this time.
Sincerely yours,
(Signed) R. Morgenthan, is
Secretary of the Treasury.
The Honorable
idelf A. Berle, 3r.,
Assistant Secretary of State.
Photo file n.m.c.
Onig file Thompson
CC- Dr whate
AS:da:5/27/42 - 2.
TREASURY DEPARTMENT
395
INTER OFFICE COMMUNICATION
DATE May 27, 1942.
TO
Secretary Morgenthau
FROM
Mr. White
HDW
Subject: Problem.
Use of the Stabilization Fund to handle the Liberian Currency
1. Over a period of several months - most recently in Mr.
Berle's letter to you of May 18 - the State Department has discussed
with this Department the problem involved in substituting American
for English silver coins in Liberia. This problem arises for two
reasons:
(a) The Liberian Government is eager to discontinue
the use of British coins and the State Department urges
that, in view of Liberian cooperation with our Army, we
endeavor to assist Liberia in this matter.
(b) The British are unable to supply the additional
quantities of coin which are going to be necessary due to
the use of Liberia as a base by our Army.
2. As American coin enters Liberian circulation in large quantities it is predicted by persons familiar with Liberian conditions
that it will be preferred to British coin. It is therefore expected
that British coin will accumulate in the Liberian Treasury or in the
Bank of Monrovia.
The State Department wants to be able to assure the Liberian
Government that arrangements will be made for the conversion of this
accumulated British coin into either sterling balances or United
States dollars as needed by Liberia, without cost to the Liberian
Government.
3. In our opinion it is undesirable to approach the British
at this time to arrange the conversion - it does not seem advisable
to give the British the impression that we want to drive British
coins from Liberia.
Therefore, we propose the following: (a) Authorize the State
Department to give the above assurances to the Liberian Government.
(b) Authorize the Stabilization Fund to acquire British coins from
Liberia at a rate of $4 per pound sterling.
The Stabilization Fund should subsequently have no difficulty
in disposing of the British coins either (a) by making them available
to the Army for use in North Ireland, etc., or (b) by making arrangements to sell them to the British. Inasmuch as the British have
indicated that there is a shortage of coins in British territory it
should not be difficult to arrange this latter.
396
-2The risk lies of loss in to the Stabilization Fund in handling
$4, conversions the Fund would the fact that, should sterling decline these
from Liberia at the still be obligated to purchase the below
but it isknow
$4 rate.
This seemsto
to tell
me the
a rather
British
coin risk
must
in advisable
State
remote
Fund will
be the
maximum
amount coin
of British
probably
obligated
advance Department
which thatwe
the
should
to purchase.
not think the amount
exceed
the equivalent Iofas
$1,000,000.
your
above signature.
in mind we have
drafted
the
4. With
the
attached
for appropriate wartime The procedure outlined above seems
letter
not seem use of the Exchange Stabilization Fund. to us an
on the matter. necessary for you to go before the Congressional committees It would
size
the to in feeling. wish
6/23
COMMUNICATIONS
E SECRETARY OF STATE
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
May 18. 1942
FD
My dear Mr. Secretary:
Reference 1F made to Mr. Bell's letter of May 4,
1949 regarding the proposed replacement of British
coins in Liberia by American currency and to the
further conference on this matter between officers
of the Departments of State and Treasury which was
held on May 8, 194°,
The conference under reference WAS attended by
Mr. Herry A. McBride who recently returned from
Liberia after completing a special mission to that
country AR a personal representative of the President
of the United States. Mr. McBride has discussed the
proposed chance in the monetary system of Liberia in
detail with President Barclay of that country. President Barclay has exoressed himself as extremely desirous
of using United States currency for the circulating medium
of Liberia, a project which the Liberian Government has
favored for some years. At the same time President Barclay
has expressed himself as being obdosed to a solution of
Liberia's currency difficulties which would involve any
attempt to continue British coin in circulation in Liberia
after substantial amounts of American coin have been introduced. The President of Liberia is convinced that the only
satisfactory way in which the situation can be met is by a
definite plan for the withdrawal of British currency from
circulation. However, because of the extremely limited
financial resources of Liberia he does not believe that
his Government could afford to hold indefinitely the
British coin displaced from circulation until some time
in the future when it might prove feasible to convert
such coin into dollars.
It 18
PDEFENSE The Honorable
BUY
UNITED
Henry Morgenthau, Jr
Secretary of the Treasury.
It is the view of this Department that it would be
highly desirable from the point of view of our inter-
national relations if some means could be devised for
accomplishing the pronosed change in the currency system
of Liberia without involving the Government of that
country in loss or what would be for Liberta serious
expense. The Government of Liberta has been extremely
cooperative with this Government in all measures relating
to the military program which the United States is carry-
ing out in that country President Barclay has sancifically requested the assistance of the United States in
placing its currency system on a dollar bagis AS one of
the relatively small favors being asked by Liberia in
exchange for the material assistance and privileres now
bein accorded by Liberia to t'is Government.
It has occurred to this Department that the problem
of converting the British coin in Liberia into dollars
at relatively slight cost to the Literian Government might
be anoroached in either of the two following ways:
(a) This Government mirht ask the Fritish Government
to purchase the coin for dollars ani mirht assure the
British Government that any doller expenditures incurred
by that Government PF the result of such a conversion
would be taken into account when mensures for maintaining
British dollar balances at A antisfactory level are considered by this Government
(b) Alternatively the Treasury epartment through the
Stabilization Fund or otherwise might purchase in Liberta
for its own account the co.n displaced from
circulation and "CAUSE such CA! this country in AmeriCAN
warehing. The Treasury Department could then at some
later date work out with the Pritish Treasure the 2st
convenient time and method of converting the soin !r.to
dollars.
with respect to the approach indicated in (a) move
this Department has taken cornizance of
the Treasure Departs not's letter of
in bility of evoldin 'r ANTWOY harressing
Government in effection the
thepronosed
currency
to avoid any embaprea to
-time
matter preference of cf the Fritter for continuing
this
circulation in Liberia, particularly in view of the
inability of the British Government to supply Liberia
with an adequate amount of such coin in existing
circumstances, should be allowed to override the
strongly expressed preference of the Libertan Govern-
ment for American coin. In view of all the circumstances,
however, this Department is inclined to believe that
alternative (b) might be preferable both to the British
Government and to the Liberian Government. It is thie
Department's understandine in this connection that should
alternative (b) Grove feesi'le from the point of view of
the Treasury Department the conversion of the British
coin into American currency could be effected at little
or no cost to the Government of Liberin.
I would appreciate bein; advised as to the views of
the Treasury Department on the forepoing suggestions.
Sincerely yours,
Alolf'A. Perle, Jr.
Assistant Secretery
400
C
0
811.51/4316
P
Y
TELEGRAM RECEIVED
LSH
This telegram must be
paraphrased before being
communicated to anyone
other than a Governmental
Buenos Aires
FROM
Dated June 25, 1942
Rec'd 8:35 p.m.
agency. (BR)
Secretary of State,
Washington.
1246 June 25, 8 p.m.
Department's 909, June 19. 7 p.m.
The Central Bank is disposed to subject to blocking at once all
imports of dollar currency except limited amounts brought by travelers
from the United States: the exportation of United States and all other
foreign currencies except by license; and the purchase and sale of
dollar currency L in Argentina currency by banks and exchange houses or
by individuals. Prebisch, however, is now very reluctant to have the
Central Bank act as the intermediary in shipments to the United States
as he feels that the "prestige" of the bank would be prejudiced in
cases in which releases were not made even though the bank made clear
that it acted only in the capacity of an agent in the shipments.
The bank proposes that holders who wish to ship to the United
States be told by us that they should make complete declarations under
oath at the Embassy after which they could take the declarations to the
Central Bank and obtain the export licenses. The bank stated that it
would be glad to furnish the Embassy with all available pertinent
information which could be transmitted to Washington. However the
bank is not disposed to send to the United States itself even the holdings
of banks and other institutions under its control without definite
assurances that the Treasury Department would release the funds and it
has been given to understand that while very sympathetic consideration
would be given in these cases no definite assurances could be given.
Apparently the bank prefers not to become involved in any shipments aside
from granting export licenses more or less automatically upon the
presentation of declarations sworn to at the Embassy because of possible
criticism even though the bona fide funds involved would be facilitated
thereby. Concerning the time limit for applying for export licenses the
bank believes that this might be more appropriately handled by our
401
-2-
Government more especially as the Argentine export restrictions would
apply to all foreign currencies.
In a conversation this morning when an officer of the Embassy
referred to the new control of Uruguay it was pointed out that the
Central Bank here does not allude to the commercial functions of the
Bank of Uruguay and that this limitation would make it difficult to
assume all of the control functions of the latter. As regards the
turning over of all holdings the bank states that after consulting
its legal advisors it considers that it does not have the power either
to require this or to require a declaration of holdings and Prebisch
fears that it would not be good policy and would probably not serve any
materially useful purposes if holders were simply invited to declare
their holdings.
ARMOUR
HTM
Copy:1c:7/20/42
402
C
0
P
DEPARTMENT OF STATE
Y
WASHINGTON
In reply refer to
June 25, 1942.
FD 824.51/1197
If
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
transmits herewith a copy of despatch No. 42 with
enclosures, dated June 8, 1942, from the American
Embassy, La Pas, Bolivia, concerning press attacks on
the proposed stabilisation agreement between the
United States and Bolivia,
Enclosure:
From Embassy, La Pas,
No. 42, June 8, 1942.
Copytime:6/26/42
403
0
EMBASSY OF THE
UNITED STATES OF AMERICA
La Pas, Bolivia, June 8, 1942
No. 42
Subject: Press Attacks on Proposed Stabilization Agreement
between the United States and Bolivia.
CONFIDENTIAL
(Enclosures not confidential)
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
With reference to the proposed stabilization credit to be
extended by the Treasury Department to the Bolivian Government
and Banco Central, I have the honor to report that *Ultima Hora",
normally quite pro-American in its news and editorial columns,
came out on June 1, 1942, with a bitter and unsound attack on
the United States on the ground that the form which the credit
would take is not what was expected or "promised". A copy of
the article which appeared under page-wide headlines on the
editorial
21/
editorial page, where the most important non-cable news is
usually carried, is enclosed.
The article, with typical Bolivian logic, objects to the
credit's being on the basis of collateral in the form of Bolivian
currency, the inference being that it should be unsecured because of Bolivia's generosity in making the payment of $1,750,000
in settlement of the Standard 011 case. With complete lack of even
elementary economic knowledge, the article alleges that, if the
credit takes the form indicated, it will be an "outrageous joke
against good faith and confidence of Bolivia" because it will in
no way add to Bolivia's foreign exchange reserves. Actually, of
course, the simplest arithmetic would show that if, as is approxi-
mately the case, there are now the equivalent of $31,000,000
circulating with $15,000,000 in reserves the granting of a credit
of $2,000,000 would have the effect of raising the reserves to
$17,000,000 with the circulating medium increased to $33,000,000
if a new emission of bank notes should prove necessary, 1.0., that
coverage would rise from 48% to at least 52% purely from the operation if extraneous factors were not brought into play by the
Bolivian fiscal authorities.
The main argument in the article is that the Standard 011 payment constituted a "great drain" on the country's reserves of gold
and foreign exchange and should be compensated for by the United
States. It is even alleged that the Standard 011 payment was
specifically based on the promise of such a loan, it being overlooked that Bolivia had signed an international document at the
Rio de Janeiro Consultative Meeting by which it promised to make
the Standard 011 payment without the slightest mention at the
time of any stabilisation credit quid pro quo being loans up to
$15,500,000 to the proposed Bolivian Development Corporation.
Actually, of course, the payment of $1,750,000 from reserves of
some $15,500,000 could hardly be considered a "great drain" on
these reserves and a "tremendous loss". Furthermore, the excess
exchange which has been rolling in because of a favorable balance
of trade has in the month and a half since the Standard Oil payment practically brought reserves back to where they were when
it was made. In the month of May, reserves increased about
$1,100,000. This tendency will certainly continue as long as
the War lasts. Bolivia is enjoying bonansa in exchange matters
and a stabilisation credit is justifiable only on the grounds of
political expediency, not real need.
The June 1 article in *Ultima Hora" bears all the earmarks
of having been inspired by Mr. Joaquin ESPADA, the Minister of
Finance, and his minion, Mr. Humberto CUENCA, the Manager of the
Banco Central, who were opposed to the Standard Oil payment. Mr.
Espada has done everything possible in a veiled and underhanded
manner to discredit the Rio agreements signed by his rival, Dr.
Eduardo ANZE MATIENZO, the Minister of Foreign Affairs, as a
selling of Bolivia down the river to the United States without
receiving in return as much as might have been secured. The
Embassy's suspicion that the June 1 article was fostered by
Mr. Espada has been confidentially confirmed by one of the
editors of *Ultima Hora".
"Tierra",
404
405
-3"Tierra", another normally friendly newspaper, published
a similar article on June 2, calling the proposed stabilisation
credit a "swindle". In addition to the fine Italian hand of
Mr. Espada in these machinations, a part was undoubtedly played
by the fact that the editors-in-chief of "Ultima Hora" and
"Tierra" were advised some time ago by the Bolivian Foreign
Office that they would be invited to the United States on a tour
of journalists but have received no confirmation of this from
United States sources and are consequently disappointed and somewhat piqued.
On June 2 in a conversation with me the Minister of Foreign
Affairs brought up the subject of the June 1 *Ultima Hora"
article and its unfortunate effect. He promised that he would
take steps to remedy the bad effect which has been produced by
having a rectification published. At the same time Mr. Allan
DAWSON of the Embassy's staff approached the editor-in-chief of
"Ultima Hora" through a friendly intermediary suggesting that
the June 1 article was based on misconceptions, pointing out
specifically that the proposed terms of the stabilization credit
were similar to those in stabilization agreements with other
countries such as Brasil and Peru and that the Treasury Depart-
ment necessarily had to follow the provisions of legislation
setting up the stabilization fund as well as a general policy
applicable to others of the American Republica. The result of
these various representations was the publication in "Ultima
Hora" on June 2, 1942, of the article a translation of which is
transmitted herewith as enclosure No. 2. This was published in
the same place as the previous article and given equal promi-
nence. It will be noted that, while the second article counteracts the first to a very appreciable extent, even it refers
under inspiration from the Foreign Office to the "probability"
that Bolivia will get special treatment in the economic and
financial conditions". As has been pointed out before, any
special conditions in Bolivia lie in the fact that it is
relatively more prosperous than at the outbreak of the War in
contrast to many of the American Republics but Bolivians
naturally wish to believe the contrary.
In conversation with President PENARANDA on June 3, credit 1942,
brought a up the question of the proposed stabilization
he in the same sense as the Minister of Foreign Affairs. The his
latter in a subsequent conversation remarked that it was be
that the credit could more satisfactorily
own granted opinion on the collateral of the Banco Central's $3,000,000 bolivianos, of
gold in New York than on the basis of purchase of would,
since the latter would mean inflation. Such collateral Whatof be much more secure than paper bolivianos. I trust that
course, decision is finally reached on the matter, of merely
ever the Treasury Department will follow its intention
a line of credit for use if and when emergencies making
opening justifying such a course arise instead of actually a
loan without the need thereof being patent.
It is requested that a copy of this despatch and Chief its
made available to Mr. Merwin L. BOHAN, arrival of in
enclosures the United be States Economic Mission to Bolivia on his
Respectfully yours,
Washington.
For the Ambassador
ALLAN DAWSON, First Secretary of Embassy
Enclosures: Two translations from *Ultima Hora"
Original and 5 copies by courier.
851/891 AD/IJ
824.51/1197 (COPY:MLE)
Copytime:6/26/42
406
ENCLOSURE No. 1 to Despatch No. 42 of June 8, 1942, from
the American Embassy, La Pas, Bolivia.
Source:
"Ultima Hora" of
June 1, 1942.
NEWSPAPER ARTICLE REGARDING PROPOSED STABILIZATION
ARRANGEMENT BETWEEN THE UNITED STATES AND BOLIVIA.
Partial Translation
There will be no Such Loan of Two Million Dollars
for Monetary Stability.
The Operation Would be Reduced to the Conversion of
Bolivian Currency for this Sum in Dollars, the Gold
and Foreign Exchange Reserves being Consequently
not Increased One Single Cent. If the Report is
Confirmed it Will be an Outrageous Joke Against
the Good Faith and Confidence of Bolivia, the Coun-
try Having been Deceived in order to Secure the
Delivery of the $1,750,000 Paid to the Standard oil.
Without any official documents having been issued,
the formal and repeated offer of the United States to
grant to Bolivia a LOAN of $2,000,000 for monetary sta-
bility, 1.0., a CREDIT FOR THIS SUM IN NORTH AMERICAN
EXCHANGE has been expressed & hundred times in statements
of the Foreign Minister, in statements of Ambassador
Guachalla, in perliamentary debates, in authorized press
statements, etc., which exchange would be LOANED to be
repaid by the Banco Central in a reasonable period when
the economic and financial conditions of the country have
improved and its monetary system has been strengthened as
a result of this cooperation which would be intended to
inculcate greater confidence and security in our currency
or for the utilization of this loan to confront future
crises or emergencies which might endanger our economy.
At no time has there been any thought that the United
States would give us facilities to convert our currency
but, we insist, only of a LOAN, balancing thus in a
measure the tremendous loss which the reserves of the
Banco Central experienced with the payment of $1,750,000 a
to the Standard oil, a payment based principally on
desire for good economic and industrial relations of
Bolivia with the United States.
Now, from information which has been sent to us by
a compatriot in the United States, we learn that the
operation has taken the form of an unusual modue operandi,
substantially
-2
substantially different from what has been announced.
In effect, the United States would make the
$2,000,000 available to Bolivia BUT NOT AS A LOAN
rather in exchange for its equivalent in Bolivian
currency. In other words, it would not be a credit
but a simple operation for the conversion of the
boliviano which would not increase by a single cent
the gold and foreign exchange reserves of our currency
inasmuch as to BUY the $2,000,000 it would be necessary to issue 90,000,000 bolivianos, the approximate
equivalent of this foreign exchange, the entry of the
latter into the vaults of the Banco Central being thus
compensated by the super-emission destined to pay for
it, the circulating medium composed of deposits and
bank notes being consequently increased in equal proportion.
The backing for our currency would thus gain
nothing by such a transaction, frustrating the possibility of compensating, by the announced and offered
loan, the great drain on our gold reserves which the
payment to the Standard Oil, BASED SPECIFICALLY ON
THE PROMISE OF THIS LOAN, has represented. The fact
is of such grave import that, if it is confirmed, it
would mean an outrageous joke against the good faith
and confidence of our country and would completely
disprove the policy of economic cooperation and help
which the United States says it has toward Bolivia.
Endeavoring to confirm the report, inasmuch as
we have received only en unofficial version, we visited
the Manager of the Banco Central this morning.
Don Humberto Cuenca told us that it was as yet
impossible to say anything definite about the operation
pending receipt of the text of the contract which is
coming by mail but that he had received a letter from
Ambassador Guachalla from a short and sketchy paragraph of which it may be presumed that the modus
operandi of the operation would be in effect that
stated by "Ultima Hora", i.e., not a loan of $2,000,000
but a conversion process whereby the United States
would deliver the $2,000,000 against its equivalent
in Bolivian currency. Mr. Cuenca added that he has
80 informed the Minister of Finance asking him to
request cable clarification from Washington to dispel
the justified and legitimate distrust which the question
has aroused.
In a telephone conversation Don Joaquin Espada
(the Minister of Finance) advised us that official but
incomplete information tends to the conclusion that
the version received by "Ultima Hora", i.e., that the
loan has been blotted out, being reduced to a mere
sale of dollars to our country, and that, in case this
were so, "the operation would be inadvisable", but that
any
407
408
-any definite opinion would necessarily be subject to
study of the contract and of the concrete stipulations
contained in it about which nothing definite can be
judged now since the document has not been received.
XEX
AD/rj
1
Copy:bj 6-26-42
409
C
ENCLOSURE No. 2 to Despatch No. 42 of June 8, 1942, from
the American Embassy, La Paz, Bolivia.
Source:
"Ultima Hora" of
June 2, 1942.
THE SCOPE OF THE CREDIT OPERATION WITH THE UNITED
STATES FOR MONETARY STABILITY IS
CLARIFIED.
The Text of the Contract has been Received and is
now under Study. The Operation will be in Accord
with North American Banking Practice and is
Identical in its Procedure with those Already
Carried out by the United States with other
Countries of the Continent. There will be put
at the Disposition of the Banco Central a Fund of
Foreign Exchange Which will Enable it to Face any
Economic Emergency, Guaranteeing the Stability of our
Currency.
Knowing that the Government had yesterday 'received the
text of the basic contract for the granting of the credit of
$2,000,000 which the United States will lend to our country
for monetary stabilization in compliance with the fourth point
of the Memorandum of August 1941 which defined the ends for
which North American cooperation would be extended, we visited
the Ministry of Foreign Affairs where we were informed as
follows:
The text of the contract has been received and it is
being studied and will be the object of careful study. From
what is already known of it there is no basis for the presumption that the offer of a loan to guarantee the stability
of our currency has been disavowed. It should be made clear is
that the negotiations which the Banco Central de Bolivia
carrying on through the intervention of the Government and
official and diplomatic channels with the North American lenders its
to obtain a sum in dollars which will balance the drain 011 are on
reserves caused by the payment made to the Standard
still in a tentative stage and consequently subject to obser-
vations, revisions and modifications; the Bank will have economic a marging
of reserves adequate to permit it to face any future able
emergencies and above all to avoid the Black Market's being in
to take advantage of the weakness of the Bank's reserves
foreign exchange to unbalance exchange and after our monetary
regime.
410
-2
The operation, add our informants, is in accord with
the banking practices of the United States and is identical
in procedure with those already carried out by that nation
with other Latin American countries to which loans for
monetary stability have been made. Naturally, because of our
special economic and financial conditions, Bolivia aspires to
receive somewhat more liberal treatment which it is probable
will be the case. The result will be to place at the disposal
of our central banking entity a sum in foreign exchange which it
will be able to use at any time to control the money market and
to defend the stability of the boliviano, avoiding pernicious
fluctuations in exchange rates. It will mean no increase in the
circulation of currency, the transaction being an effective loan
intended to back our currency with proper guarantees.
Finally our informants state that the policy of cooperation
and closer relations with the United States is based on principles
of loyalty and understanding and should be based on a feeling of
mutual confidence. It is necessary to stress the fact that the
satisfactory development of these countries is of as much interest
to the Nation of the North as to ourselves and it will therefore
not be niggardly in its help toward that end. The granting of
credits for monetary stability is clearly provided for in the
Memorandum of August 1941 and they will now be put into effect
under conditions which we hope will be fully satisfactory. The
country should have confidence that the present Government will
always know how to defend the national interests efficiently.
AD/rj
Copy: 10: 6/26/42
411
NMC
This telegram must be
paraphrased be fore being
communicated to anyone
other than a Governmental
agency. (BR)
Chungking
Dated June 25, 1942
Rec'd 8:10 p.m.
Secretary of State,
Washington.
755, June 25, #2 p.m.
FOR THE SECRETARY OF THE TREASURY FROM ADLER:
TF45. Weekly Economic (Section One).
One, Retail prices Chun king May; general
4300 food 3940 (Farmers Bank January to June
1937 Equals 100) or, respectively, 13 and 18%
more than April. Most oi increase occurred in first
half of month.
Two. Sale of saving certificates to June 17
Chinese national currency dollars 62.5 million.
Learn from unofficial source that sale of United
States dollar backed bonds since May 1 not more
than Chinese national currency dollars ten million.
Government now convinced that voluntary purchase
of certificates and bonds will be insignificant end
verious plans to USE "persuasion" being considered.
Three. Centr 1 Bank to be, sole bank for issue
from July 1.
Four.
412
-2- #755, June 25, 2 p.m., from Chungking
Four. Meeting of Chinese industrial cooperatives
board of directors June 13 decided to apply for loan
of Chinese national currency dollars 60 million from
government and Chinese national currency dollars
40 million from banks to Expand production.
(Section Two)
First national food administration conference
ended June 6. Generalissimo in addressing conference
stressed need for Equity in collection of land tax
and compulsory food purchases demanding that latter
EXCEED former and that progressive principle be used
in latter. Neverthrless, Ministry of Food plans to
collect 43 million piculs (one picul equal 110 pounds)
by land tax in kind in 1942-1943 - almost double
last year - and 33 million piculs by compulsory
purchases. Minister of Food announced application
of progressive principle must await completion of
land registration; compulsory purchases are to be made
30% in cash and 70% in United States dollar backed
securities or rice certificates. Conference resolved
that Ministry of Food should institute control of
grain prices on regional and district basis.
GAUSS
WSB
413
C
0
P
Y
BE
This telegram must be
paraphrased before being
communicated to anyone
other than a Governmental
agency. (BR)
Managua
Dated June 25. 1942
Rec'd 11:50 p.m.
Secretary of State,
Washington.
304, June 25, 7 p.m.
Reference Department's circular telegram of May 18, 4 p.m. and
June 9. 9 p.m.
The need for and character of measures restricting the movement
of dollar currency into and out of Nicaragua was discussed with the
Minister of Finance June 24. The Nicaraguan Government is not only
willing to cooperate in defeating the efforts of Axis countries to
derive advantages from looted United States currency but has drafted
and presented to the Chamber of Deputies a law designed to restrict
and control the importation and exportation of United States cur-
rency. The draft legislation which is expected to be enacted during
the week June 28-July 4 not only follows in general the standards and
objectives contained in the Department's telegram but coordinates
the new restrictions with the basic control measures in law number
77 of February 17th, 1942 which applies to those persons or firms
whose names appear on the United States Proclaimed List. The principal
features of the projected law are:
The absolute prohibition of the importation and exportation
of United States Currency from or to countries outside the continent.
One
Two The right to import and export currency of the American
Republics is to be reserved exclusively for the National Bank of
Nicaragua.
Three Nicaragua will restrict persons entering the country to
$200 currency and will hold excesses in the National Bank until
investigated.
Four Travelers leaving Nicaragua will be limited to $200 United
States currency which can be taken only under permit from the National
Bank.
414
-2-
Five The Commission of Exchange will not authorize the sale
of Exchange when its destination to Proclaimed List persons is
suspected.
A despatch discussing the law in more detail will be sent
airmail and notice of the final action on the legislation by the
Chamber of Deputies will be reported promptly.
STEWART
EDA
Copy:1c:6/29/42
415
0
P
DEPARTMENT OF STATE
Y
WASHINGTON
In reply refer to
FD
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury and
encloses copies of telegram no. 289, dated June 25.
1942, from the American Legation, Asuncion, Paraguay,
concerning United States currency movements in Paraguay.
Copies of telegram no. 238, referred to in no. 289,
are also enclosed.
Enclosures:
1. From Legation, Asuncion,
no. 289, June 25, 1942.
2. From Legation, Asuncion,
no. 238, May 29, 1942.
Copy:1c: 6/29/42
416
0
0
P
Y
JG
This telegram must be
paraphrased before being
communicated to anyone
other than a Governmental
agency. (BR)
Asuncion
Dated June 25, 1942
Rec'd 9:03 p.m. 26th
Secretary of State,
Washington.
289, June 25, 6 p.m.
Reference Department's circular June 22, 11 p.m.
The Bank of the Republic of Paraguay which is the
only institution which can buy and sell exchange has
established two buying rates for dollar notes and bills.
As compared with buying rate of 317 for checks or drafts
the rate for notes is 275 for bills in quantities of less
than $150 presented by an owner who in the judgement of the
bank has acquired the funds legitimately. This rate applies
to a restricted number of persons largely travelers from
the United States who have dollars for the payment of
expenses.
A second rate of 190 pesos to the dollar is paid for
so-called doubtful dollars which will be accepted only after
explanation of owners shipment and source of origin and in
limit mentioned above. This rate directly fluctuates with
open market rate in Buenos Aires for dollar bills. Bank
417
-2-
will accept such bills only for deposit and will not (repeat not)
make conversion payment until the bills have been forwarded to
the Federal Reserve Bank and have been accepted and credited to
the account of the Bank of the Republic.
Volume of trade very small probably not more than 1000 per
week. Everything being done to present contraband entrance of
dollar bills purchased in Buenos Aires.
The Bank of the Republic states that it would like to
maintain a dollar currency reserve largely for sales to
travelers going to the United States amounting to about $15,000.
When this balance is exceeded over supply will be sent to Federal
Reserve Bank. Comment of Federal Reserve Bank on maintenance
of this reserve by Bank of Paraguay will be appreciated.
Only comparatively large block of United States funds involved
locally is that covered by Embassy's telegram dated May 29, 5 p.m.
regarding sale tobacco and which funds the Treasury has agreed to
accept from Bank of Paraguay. It is understood that the total
amount involved is not 80,000 as originally reported but $52,000.
Bank of Pareguay plans to remit these funds by air in near future
in several installments. Full details will be furnished Embassy
which will in turn telegraph the Department for the information
of the Federal Reserve Bank and authorities in Miami.
FROST
EMB
Copy: cc:6/29/42
418
0
P
Y
NWN
Asuncion
This telegram must be
paraphrased before being
Dated May 29, 1942
communicated to anyone
other than a Governmental
agency. (BR)
Rec'd. 12:47 a.m., 30th
Secretary of State,
Washington.
238, May 29, 5 p.m.
Reference Department's triple priority circular May 18, 4 p.m., re-
garding Treasury Department's control over importation into the United
States of dollar currency and Department's circular May 27, 10 p.m. regarding regulations made effective by Brazilian Government this entire
subject discussed with Paraguayan authorities and with officials of Bank
of the Republic and full cooperation has been promised.
According to conditions Paraguayan decree law number 5017. dated
February 10, 1941, Bank of the Republic of Paraguay is already the only
institution in this country which can buy and sell foreign exchange and
is likewise the sole importer and exporter of foreign currencies. The
intent to the new regulations drawn up by Treasury Department that a
central bank only be authorised to buy or sell American banknotes is
therefore adequately covered by existing Paraguayan legislation. Furthermore, Paraguayan law under reference prohibits individuals or firms from
holding foreign exchange or foreign currencies and all such must be
delivered to the bank within 48 hours of realisation.
I have been informally informed by the acting manager of the Bank of
Paraguay that regulations comparable to those promulgated by Brazil will
be made effective immediately with allowance for exchange law now in
operation. The bank has requested clarification from the Treasury Department as regards a sale of Paraguayan tobacco made to the Spanish tobacco
monopoly in Morocco in March for which payment in the amount of $80,000
in currency has already been received. This is the first and only such
transaction which will be permitted under these conditions. The bank before liquidating this dollar credit in Paraguayan pesos desires to know
whether upon the basis of its investigations which indicates that this
transaction was legitimate the Treasury Department will accept this currency from the Bank of Paraguay without prejudice. I understand that this
sale was arranged during the month of March by and with the approval of
the Bank of Paraguay but its consummation must, in view of recent developments, depend upon the disposition of the Treasury Department to accept
419
-2the currency. I beg to recommend such acceptance will accordingly be
appreciated if the Department can consult with Treasury officials and
inform the Embassy definitely of their attitude at the earliest possible moment. The Embassy has the assurance of the Bank of Paraguay
that no further transactions of this type are in the course of liquidation. It wishes on its own volition to go so far as to prohibit all
commercial transactions in the future when in dollar currency is in-
volved.
FROST
WSB
Copy:vw: 6-29-42
420
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 216
Information received up to 7 A.M., 25th June, 1942.
1. NAVAL
A naval minesweeper was sunk by aircraft off MURMANSK on 24th.
MEDITERRANSAN. One of H.M. submarines torpedoed and possibly sank
G 7,000 ton ship off BENGHAZI on 20th. Two Greek submarines reported sinking nine
Caiques during recent patrol in the AEGEAN. Three schooners, two motor launches,
two lighters, a tug and 21 other craft were lost at TOBRUK, some of which any soon
be used by the enemy. Submarine attacks - an 8,000 ton British vessel was sunk off
MOZAMBIQUE on the 11th.
2. MILITARY
EGYPT. 23rd. There was no serious pressure on the SOLLUM defended
locality though small parties of enemy were engaged along the front throughout the
day, our mobile groups succeeded in keeping the enemy to the west of the frontier
wire. Main enemy concentration and activity appeared to be in the area SIDI OMAR Libyan SCHEFERZEN.
24th. In the morning the enemy was reported in some strength with
tanks and a total of 3,000/4,000 M.T. in the areas southeast of SCHEFERZEN and east
and south of HAMRA. The general trend of his movement was oastwards and some parties
were reported moving northeast in the direction of SIDI BARRANI. Our mobile units
continued to harass the enemy's flanks. Our forward troops have been withdrawn from
the frontier position from which most of the stores have been successfully evacuated
and effective demolitions, including water points, completed.
3. AIR OPERATIONS
WESTERN FRONT. 24th/25th. 21 aircraft were sent to attack ST.NAZAIRE
locks and 10 to enemy aerodromes. All returned safely but one crashed. Weather at
T. NAZAIRE was good and the majority of aircraft attacked. About 50 enemy aircraft
ropped bombs over widely scattered areas of the Midlands and-Eastern Counties. 3
ere destroyed and two damaged by Mosquitos and Boaufighters shot down two more.
LIBYA. Between the 22/23 and the evoning of the 24th our aircraft
nombed landing grounds at TMIMI and GAZALA and laid sea mines off TOBRUK. On 23rd
Light bombers and fighter bumbers attacked, with good results, enemy concentration
of M.T. in the SCHEFERZEN area and further south, fighter offensive patrols over the
frontier area met no enemy aircraft. From all operations 2 of our aircraft are
missing.
421
--2-
4 enomy aircraft attacked our landing ground near SIDI BARRANI.
4. HOME SECURITY
24th/25th. NUNEATON. 11 persons were killed, the Canel Bank
broken and about 100 houses damaged.
422
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 222
period 18th to Following
25th June.is supplementary resume of operational events covering the
1. NAVAL
Russian submarines are now operating in the BALTIC. Two Swedish ships
have been sunk and a Danish ship torpedoed. Consequently the Swedes have reinstituted coastal convoys. Projected German transport movements to
are reported delayed and all enemy to GULF OF
routed through Swedish territorial waters. Some Russian
GULF Black Estonian OF Sea FINLAND Coast Fleet have shipping the units Finnish BOTHNIA of the and and
SEVASTOPOL. been carrying out night bombardments of enemy positions round
Reported Russian landing at YALTA not yet confirmed. Only one (four
missing
groups)
TRIPOLI during the week making the total tonnage arrived
there during
Junereached
37,000 tons.
Submarine Warfare. Provisional figures for week ending 21st show
reduction in shipping losses. 21 ships totalling 78,000 tons were sunk by submarine a
Temporary suspension of sailing from Western Gulf of Mexico ports and control of
sailings from PANAMA doubtless largely accounts for this. There were fourteen
attacks on U-boat and eight by surface craft. Two by each method are considered
promising. 1,116 ships were convoyed of which 8 were lost from all
our aircraft sank or damaged about 40,000 tons of
Imports estimated
into that the enemy causes. shipping. It is
U.K. in convoy for the week ending 20th were 774,000 tons including
181,000 tons
Total U.K. imports for May were 2,245,000 tons including
1,190,000
tonsof
of oil.
food.
2. MILITARY
The possibilities of United Nations strategy during the next year depend not only on our own production but also with increasing directness on the future
course of the Russo-German war for the forecasting of which there is little reliable
coming Gorman offensive may succeed initially in the Russians
butsome
how far distance,
it is impossible
yet driving
to estimate.
It only be
back evidence.
The
can
said that the depth of the Russian defences suggests VORONEZH-SVOBODA-KAMENSK-River
DONETS as a possible line on which it might be checked after the first impetus has
been expended. The success of the German offensive will in turn perhaps to
by the resistance offered during the three weeks at SEVASTOPOL
more
vigorous
andaffected
successful
defenders which
have
been has
beenthan
past the
mayGermans
expected.have
proveThe
have contained a force of some eight German Divisions and have not only
inflicted such losses as to reduce materially the German troops subsequently avail-
able
night.
for their main attack, but also delayed its start by at least a valuable fort-
ASSAM and BURMA. There was no contact with the enemy. Small bodies
have
been
reported
on the CHINDWIN as far north as (2 groups missing) 3 miles north
east of HOMALIN.
FAR EAST. No troop movements of particular significance were reported
but the general slowing-down of Japanese activity in CENTRAL CHINA is consistent
with reports that troops are to be withdrawn from that area to MANCHURIA.
3. AIR OPERATIONS
WESTERN FRONT. A Focke Wulf 190 landed intact on one of our aerodromes
after a fight with Spitfires. Our night fighters shot down eight enemy bombers.
Two squadrons of Typhoons operated for the first time in a fighter sweep. About
nine hundred tons of bombs were dropped on EMDEN in the course of three attacks. 151
aircraft of bomber command laid 361 sea mines for the loss of one aircraft.
LIBYA. Our light bombers and fighter bombers continued intensive attacks on enemy armour, mechanical transport and ground forces in support of our own
troops. At night a heavy bombing attack was made on BENGHAZI HARBOUR. Axis air
activity was spasmodic. On some days few fighters were met and opposition was slight.
On others, special efforts were put forward to support his ground attacks and on such
occasions the number of enemy air sorties was considerable.
On 17th there was especially pronounced fighter activity which ceased
Kittyhawks. after an effective surprise attack on his fighter base at GAZALA by bomb-carrying
423
-
MEDITERRANEAN. Two enemy escorted convoys were successfully attacked
by day by Beauforts with Beaufighters (2 groups missing), total of four merchant
vessels, one destroyer and one escort vessel being hit. Two other large merchant
vessels were hit, one being set on fire by Wellingtons at night.
4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS
ON ENEMY TERRITORY IN EUROPE.
COLOGNE. It (?appears that the) authorities were quite unable to cope
with the situation resulting from the R.A.F. big attack. Emergency feeding, first
aid and evacuation measures broke down and some people had to walk over 30 miles to
find lodging. S.A. and S.S. officials deserted the city under the pretext of sooking
emergency accommodation for the homeless. The raids are said to have placed heavy
burdens on the German war supply organisation and to have seriously deranged sup-
plies of Ruhr coal and coke for industry.
EMDEN. Photographs 21st show damage by fire and blast to sheds and
buildings in the docks area and to industrial premises in the town OSNABRUCK.
Photographs 20th show an area of about 9 acres devastated by fires which were still
burning the day after the attack.
FRANCE. The R.A.F. locomotive hunt organised recently was very effective. On the Nord system which was already desperately short of locomotives, 50
have been put out of action.
SEA MINING. One of Germany's latest 1,200 ton minesweepers fitted with
anti-magnetic mining gear was sunk by mine on May 11th.
5. OPERATIONAL AIRCRAFT BATTLE CASUALTIES
METROPOLITAN AREA. British in the air - Bombers 26, Fighters 15,
Constal 4, total 45. 1 fighter pilot is safe.
(Key: (1) Destroyed, (2) Probably destroyed, (3) Damaged.)
13
Fighters
14
(2)
(3)
10
2
(1)
Bombers
Nil
8
Enemy
TOTAL
27
18
2
MIDDLE EAST including MALTA
British in the air - Bombers 9, Fighters 24, Total 33. On the ground
Bombers 1, Fighters 2, Total 3. 1 crow and 5 pilots are safe.
11
19
4
12
16
2
TOTAL
8
Fighters
(3)
(2)
1
(1)
Bombers
1
Enemy
FAR EAST - British and Allied in the Air - Fighters 15. 4 pilots safe.
10
7
TOTAL
5
10
(3)
6
Fighters
(2)
1
Nil
4
(1)
Bombers
1
Enemy
NOTE: No account is taken of enemy aircraft destroyed on the
ground in any theatres nor of British Naval aircraft casualties.
6. HOME SECURITY
Industrial damage - Pirolli Electric Cable Works EASTLEIGH 21st/22nd.
Estimated
civilian
casualties for wook ending 0600/24 - Killed 46, seriously wounded
42.
NOTE: Signal received corrupt.
424
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 25,1942
Secretary Morgenthau
TO
Mr. Kamarck
FROM
Subject:
Summary of Military Reports
Second Front
During the past two weeks, particular attention
has been paid by German reconnaissance airplanes to
the Dover and the Portsmouth-Southampton areas.
(Probably preparations for invasion of Europe are
going on in these areas).
(U.K. Operations Report, June 24, 1942)
Libya
The British are constructing a defense position
in the Mersa Matruh area (the original British position
from which Wavell started his campaign against Graziani
in 1940).
(U.K. Operations Report, June 24, 1942)
Tobruk Harbor
The harbor of Tobruk can be used by cruisers,
destroyers, and submarines. There are five mooring
buoys for cruisers and five for destroyers. The estimated
cargo capacity of the harbor is 1,200 tons daily. Un-
loading is principally by lighters.
(U.K. Operations Report, June 24, 1942)
R.A.F. Activity
(Although the Royal Air Force is now getting little
publicity, the bombing campaign is still continuing.
Recently, the R.A.F. concentrated on the port of Emden
for three nights and dropped altogether more than 1,000
tons of bombs - or as much as was dropped in each of the
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spectacular attacks on Essen and Cologne).
The description of Sunday night's attack is as follows:
Weather was excellent with no cloud and only slight haze.
Identification was greatly helped by flares. The fires,
small At first, increased 88 the attack developed and,
finally, many large fires were seen in the southern and
western pants of the town and in the docks area.
The detailed statistics of the raids follow:
Number of planes
participating
Night
June 19/20
June 20/21
June 22/23
dropped
(est. )
194
157
195
Totals
Tons of bombs
546
390
325
392
1,107
(It is to be noted that the average weight of bombs
carried per bomber is now two tons, compared to one ton e
year ago. Probably two-thirds of the tonnage dropped is
composed of incendiary bombs. The Germans used the
reverse proportion in their bombings of England. The
British discovered that one ton of incendiary bombs did
more damage than two tons of explosive bombs. The R.A.F.
is now making use of this lesson in bombing Germany).
426
NUMBER 37
SECRET
OFFICE OF STRATEGIC SERVICES
THE WAR
THIS WEEK
June 18-25,1942
Printed for the Board of Analysts
Copy No. 6
the Sunday of the Jacusyay
SECRET
JUNE 18-25, 1942
Office of Strategic Services
THE WAR THIS WEEK
With disconcerting suddenness Marshal Rommel's desert
blitz this week developed new power, smashed the resistance
of the British, captured Tobruk, and rolled on into Egypt.
Some military observers expect an early and powerful Nazi
drive into Egypt and are unwilling to predict where the
Germans can be stopped. Simultaneously the enemy was
drawing an iron ring about the critically important Russian
naval base at Sevastopol, whose situation is considered grave.
Observers emphasize that Tobruk and Sevastopol would
offer the Germans new advantages for a possible descent on
the Near and Middle East, if they decide to turn in that direction. The recently reported German offensive in the
Kharkov sector would be a logical element in such a campaign.
As the Nazis won fresh successes, Vichy moved nearer the
collaborationist fold. While Pétain had recently associated
himself completely with Laval, the latter has now declared
publicly and in unvarnished words that he hopes for a German
victory.
In the Far East the steady movement of Japanese forces
into Manchuria continues to suggest an attack on Siberia,
but observers disagree as to when it may come. The
Japanese campaign in eastern China has slowed, but the
danger of an early reduction of that area remains. Such a
conquest might have far-reaching implications for the Chinese
war effort, particularly if the Japanese undertook a serious
economic blockade of China. Finally, a letter from Gandhi
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to the Generalissimo roundly states the present Congress
position: let Britain give India freedom and India will
welcome the United Nations as Allies.
retreat from the whole forward area made total destruction
impossible.
Rommel then lost little time in pressing on with strong
armored forces to occupy the Bardia-Capuzzo line facing the
Major British Reverse in Libya
The British have met in Libya a military disaster of such
magnitude that it imperils Egypt, Alexandria, and the
Canal, and perhaps endangers the whole Allied position in
the Near East. The significant factor is less the fall of
Tobruk than the very severe losses sustained by the Eighth
Army in men and equipment. Some observers believe this
defeat may seriously prolong the war. Its repercussions,
coupled with German gains in southern Russia, must be
watched not only on the military front, where an Axis drive
through Egypt must be recognized as a distinct and imminent
possibility, but also on the political front, where it will
unquestionably affect all the watching, wavering countries
from Spain to Turkey and Iran, as well as the position of the
Churchill government at home.
Egyptian border. At latest report his advance forces are
thrusting at Sidi Barrani in the north and also preparing an
encircling attack to the south.
Decisive factors in the German victory were the perfected
combat-team technique of German ground and air forces;
the superiority of German over British tanks, particularly in
fire power; the excellence of German tank recovery and
maintenance service; the high quality and flexibility of Axis
artillery, especially the 88-mm. anti-tank gun; the superior
staff work and tactical genius of General Rommel, coupled
with the hard and aggressive combat ability of his troops and
officers; and the persistent British underestimation of enemy
strength. The 88-mm. gun was apparently instrumental in
giving Rommel the initiative. Reputedly provided with a
special armor-piercing shell, and with control apparatus and
rate of fire designed for fast moving targets, it was used with
devastating effect both defensively and offensively to estab-
The Military Defeat
lish "tank proof" localities and batter Allied tanks.
The military disaster began with the terrifically heavy
destruction of Allied armored equipment-especially in the
days after June 13-in the "cauldron" area southwest of
Possible Axis Moves
Tobruk. The British, who had earlier been forced to abandon their two outposts at Bir Hacheim and El Gazala, were
now driven back on Tobruk. They were apparently still in
drive on Egypt long enough to allow the British to reorganize
and reinforce their defenses. His plan is probably to combine
a flanking sweep through the southern desert with a direct
It is not to be expected that Rommel will delay his main
retreat, without having had time to make full defensive
assault along the coastal strip aiming to break through
preparations, when Tobruk was stormed by a concentration
of Axis armored force supported by dive bombers and artillery
attacking from three sides. The size of Rommel's booty in
prisoners and stores is not yet known, but the rapid British
around Solum and Sidi Barrani and strike directly toward
2
Alexandria.
Rommel clearly received far greater reinforcements over
the past several months and during the campaign than the
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Allies estimated. He is still believed to possess a powerful
armored striking force that may number better than 300
tanks by the end of June, in addition to tanks salvaged from
the British. There are indications that he has received air
reinforcements, and, with a new deep-water port at Tobruk,
he may be expected to get rapidly the critical supplies he
needs.
In the coming campaign Rommel may possibly be aided
by parachutists flown from Crete and landed behind the
British defensive lines. It is believed that 8,000 would be a
reasonable guess as to the number of parachutists in Crete,
besides perhaps two divisions of infantry. And it is known
that Germany has been stocking the whole Aegean area with
aviation gasoline for some time. There is some possibility
that these forces will be used for either a diverting or all-out
attack on Cyprus and Syria; but the relative proximity of the
Egyptian theater has caused many observers to look in this
direction.
Opposing this possible Axis advance are geographical difficulties and lengthening supply lines, a strong British air force,
and whatever elements of the Eighth Army were successfully
withdrawn to the British defense lines, together with reinforcements which the British state have arrived and are to
arrive. It may also be assumed that some forces can be
transferred from the Ninth and Tenth Armies now in Syria,
Iran and Iraq, though they are themselves credited with only
limited strength.
British and Italian Naval Positions in the Mediterranean
The critical situation in Libya has directed attention once
more to the current position of the British and Italian navies
in the Mediterranean. Deputy Prime Minister Attlee has
announced that in the recent convoy actions in the Medi-
terranean, the British lost one light cruiser, four destroyers
and two escort vessels, losses which he held were about
equivalent to those of the enemy listed last week (The War
This Week, June 11-18, p. 12). This underlines the weakness
of the British Mediterranean position, where all ship movements can be observed by the enemy and subjected to some
four days of continuous air and sea attack from bases that
stretch from Sardinia to the Dodecanese. Moreover, the
British have had to divide their reduced Mediterranean
forces between Gibraltar and Alexandria to cover both ends
of that Sea.
A new threat to Alexandria has appeared with Rommel's
advance. Apart from any overland threats to Alexandria
and the Canal, the Axis now controls Libyan airdromes that
will make possible continuous fighter-supported bombings of
the British naval base.
However, the losses and damage sustained by the Italian
fleet, especially its heavier units, have been so severe that
there is probably little danger of Italy's using her central position to inflict a decisive blow on either of the British forces.
Of the six battleships with which Italy entered the war, it is
believed that only one (of the old Cavour class) is now available for operations, with the other five undergoing more or less
extensive repairs. The two battleships listed as under construction-the Roma and Impero-are reported nowhere near
completion. Of the eight heavy cruisers with which Italy
began the war, five and probably six have been sunk, and the
other two are believed to be damaged. Of a total of sixteen
light cruisers, four have been sunk, three are obsolete, and
three are under repair.
In lighter ships, the Italian position is somewhat better.
They are estimated to have 77 destroyers and torpedo boats
(having lost 53 of an original 128) and to have 67 submarines
(having lost about half of their original flotilla). The Italians
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4
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also have at least 84 MAS boats (MTB's) in operation, and
may have more.
A basic weakness of the Italian fleet is its lack of carrier
strength, which means that it is in general limited to operations within the range of land-based planes.
Expected Repercussions Among the Mediterranean Peoples
The simultaneous Axis advances in Libya and southern
Russia can be expected to cause general restiveness in the
Near East, and a sharp decline in Britain's waning prestige,
according to one close observer. Egypt's government may
continue to stay out of actual war, but the Egyptian people
have become alarmed, and the British may be obliged to
undertake an embarrassingly large amount of police work to
maintain order amidst a jittery population.
Rumblings and possible eruptions may follow all through
the Arab world, long restive under British control and newly
The London Press and the Fall of Tobruk
In the London press there is no attempt to minimize the
defeat suffered in the fall of Tobruk. Almost without
exception it is admitted that the Germans not only had
better equipment, but also that they were better led. As
the Daily Herald puts it, "We have been outweaponed and
outwitted." The general estimate of Rommel's performance
is succinctly put in the London Times, "Consummate leadership."
In assigning the blame the London press is almost unanimous in charging it to bad management. This is equally true
of radical papers like the Daily Herald and of ultra conserva-
tive organs like the Daily Telegraph. "Either there are
dangerous weaknesses in our intelligence services or else
those who are directing the military effort persist even to
this day in underestimating the enemy" (Daily Herald).
fearful of Zionism. If the Allied position progressively
"Events declare that there has been something very wrong in
the Middle East operations, and the cabinet must recognize
deteriorates, there may be trouble in Iraq and Iran, now
the necessity to set it right without delay, however drastic
dangerously poised in enforced adherence to the Allied cause.
and comprehensive the measures required" (Daily Telegraph).
Turkey lies between the Axis drives. She realizes that she
may be enveloped as Sweden is, but she wants to keep out
of the war and do so with dignity. Concessions may have to
The Evening News is perhaps the most bitter in its reaction.
be made, but Turkey will try not to gamble her independence,
our observer feels.
Among the larger nations of the western Mediterranean
the repercussions of Tobruk cannot yet be gauged, but the
effect on Italian morale is said to be one of sheer exaltation,
strengthening the pro-Axis elements in that country. A
further extension of Axis success would undoubtedly influence the course of French and Spanish policy, perhaps along
the lines indicated by press reports stating that Hitler has
asked Vichy to turn over a million tons of French shipping
now in the Mediterranean.
"Parliament will fail in its duty if it does not probe this
There are few
new inglorious failure to its source
people, very few, who delude themselves today that we are
winning the war or that we have any apparent prospect of
winning it in our present form."
Political Repercussions in London
As to the political consequences of the defeat in England,
there is a unanimous demand by the London press for an
immediate investigation with the disposition either expressed
or implied to attach much of the blame to Churchill himself.
The news indicates that Mr. Churchill has been notified that
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6
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his presence is urgently needed in London and that a group
of M. P.'s led by Sir John Wardlaw-Milne (who has hereto-
fore been rather outstpoken in his criticism of the government) intends to propose a resolution in the House of Commons "admiring the conduct of British troops but disclaiming
all confidence in the military direction of the war." A still
later report, however, predicted that not more than 25 or 30
votes could be mustered in the House of Commons in support
of a vote of lack of confidence. It is further indicated that
Cripps and Eden, Churchill's only possible successors, are
both standing loyally in support of him. Latest press reports
indicate that Churchill intends to offer a full explanation to
the House on his return and then demand a vote of confidence.
Zero Hour at Sevastopol
As the German communiqués each day have reported the
capture of new defensive works-without explicit Soviet
denial-it has become apparent that the naval fortress of
Sevastopol is in dire peril. To the south of the city, however, the Nazis are probably still far from the harbor itself.
The line of battle may run from Balaklava north along the
Chernaya (or perhaps along the range of hills to the west of
the Chernaya) to Inkermann, which is doubtless in German
hands. In the sector south and west of Sevastopol, the Nazi
troops are apparently attempting the capture of "8 domi-
nating height"-identified by one press report as Mt.
Sapoun. The Russians for their part, according to reports
from Bern, have landed marine detachments on the southern
Crimean coast in the rear of the besieging forces.
North of the city, the Germans have announced the reduction of all the Soviet forts along the Severnaia Bight.
Despite some doubt as to the exact whereabouts of the Stalin,
Gorki, and Molotov forts claimed by the Germans, the Soviet
admission that a "wedge" had been driven into their lines
gives an indication of the perilous situation in this sector.
It seems likely that the attacking troops-identified by the
Russians as at least five German and two Rumanian divisions-will soon be in control of the whole northern shore
of Sevastopol harbor.
After Sevastopol What?
The imminent fall of Sevastopol, coupled with the capture
of Tobruk, has occasioned renewed speculation on the possibilities of coordinated Axis offensives in the Near East and
southern Russia. Specifically, the German successes in the
Crimea have drawn attention once again to the possibilities
of an all-out offensive from the Ukraine to the Caspian Sea.
From Stockholm, for instance, comes the report (ostensibly
from a Swedish general staff source) that Hitler has trans-
ferred his GHQ train to the vicinity of Kiev-with the implication that a big push in southern Russia is not far off.
Other commentators, in view of the fact that the Fuehrer
has let June 22 pass without any dramatic announcement of
a large scale offensive, point out that there may never be a
general attack launched with press and radio fanfare. In
the opinion of an American military observer, the Nazi
seizure of the Kerch peninsula, the counter-attack around
Kharkov, and the assault on- Sevastopol may be preparatory
actions which can merge imperceptibly into two wide-sweep-
ing offensives-one from the Kharkov sector and one from
the Kerch peninsula-directed toward the Volga. The
German general staff, this observer points out, may have no
cut-and-dried plan, but may simply be intending to take
advantage of strategic opportunities as they arise-with the
ultimate aim of denying the Grozny and Maikop oil fields to
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8
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the Russian armies, of cutting the railway and pipe line which
carry Baku oil north, of seizing the naval base of Novorossiisk
and the oil pipe line terminus at Tuapsi, and of separating
the Soviet forces guarding the Caucasus from the bulk of the
Russian army.
The Finns meanwhile are reported from Helsinki as inexpressibly relieved that the coincidence of Molotov's visit to
America and Hitler's trip to Finland has not caused a crisis in
The Political Front
renunciation of territorial ambitions in her treaty with
In the face of the menace to Sevastopol President Kalinin
has sounded an optimistic note and declared that the German
army is no longer capable of a general attack along the whole
front and can hope only for local successes. In soberer vein,
Ambassador Litvinov has renewed his plea for a second
front-bluntly pointing out that "when the initiative was in
the hands of the Red Army, when the German troops were
weakened and demoralized
this moment was allowed
to slip". Finally, in a long but singularly noncommital
address before the Supreme Soviet of the U. S. S. R., Foreign
Minister Molotov has presented for ratification the AngloSoviet treaty and the lend-lease agreement with the United
Finnish relations with the United States. The Finns' first
reaction was one of dismay at the vague wording of Russia's
Britain. Yet on second thought many Finns appear grateful
to the United States for what they regard as a last-minute
intervention in their favor. As for Britain, however, the
Finns still regard with suspicion a nation which they believe
would be willing to sacrifice Finland to the strategic necessities
of her Russian ally.
Murmansk Again
So far as military operations are concerned, the Finnsalthough deeply gratified by Hitler's surprise visit and the
tribute paid by him to Marshal Mannerheim and the Finnish
army in general-continue to protest that they will take no
States.
offensive action this summer. According to a source
Despatches from Kuibyshev suggest that the Russian
press reception of the two agreements has been unprece-
ostensibly close to the Finnish general staff (and hence under
dentedly warm-with emphasis on the yet untried war potential of the United States, and an implicit assumption that the
selves prefer that Finland should concentrate on maintaining
Allies will establish a second front in 1942. Furthermore,
Foreign Minister Molotov, according to a British observer,
has been "a new man" since his return from London and
Washington. Molotov's trip has apparently opened his eyes
to the friendly sentiments of his Allies and has done much to
dispel the distrust of foreigners that diplomatic isolation and
a lack of foreign travel have created in Soviet high places.
Similarly, our observer asserts, the Red Army has inaugurated
a new policy of keeping British military representatives in
Russia informed on current operations.
the suspicion of being Nazi-inspired), the Germans themher tottering economy this summer rather than that she should
engage in exhausting military operations. Nor will the
Nazi troops in northern Finland (in view of their inexperience
in forest warfare) attempt an attack on the Murmansk railroad; they are simply standing guard against an AngloAmerican invasion. In the opinion of many Germans, our
observer concludes, the best way to cut the northern supply
route to Russia would be by an attack from south of Leningrad straight east to Vologda-thereby interdicting the railway from Archangel to Moscow.
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Laval Calls for a German Victory.
Following recent Nazi military successes, Laval has now
expressed publicly his hope of German victory and has called
on French skilled labor to volunteer for work in the Reich.
In two recent speeches, in which he claimed to be speaking
for Pétain as well, Laval is reported to have said that France
was wrong to have made war, and wrong not to have organ-
ized a peace of understanding following the armistice. He
held out to French labor the prospects of good working con-
ditions, of helping the fight against Bolshevism, of freeing
French prisoners. It appears that many strings are still
attached to the latter hope, however, and if healthy prisoners
are freed, it may only be for a short leave after which they
will return to Germany as "free workers". If there is a real
exchange, Germany will get men skilled in metallurgical
trades, while sending back the sick and despondent and
perhaps some agricultural labor. The return of farm labor
would be in accord with the German policy of reducing the
rest of Europe to agricultural dependencies of an industrialized Reich.
On top of these pro-German utterances, it is reported that
Vichy has secured Nazi permission to recruit a division for
the "protection" of France, to manufacture 100 tanks over an
extended period, and to produce munitions for Dakar.
Darlan is also said to have ordered the removal of arms to
Senegal, to keep them out of pro-Ally French hands. From
Martinique come reports of continued vacillation in the ful-
fillment of obligations contracted by the local and Vichy
more pro-Axis line since the return of Laval. Next door in
the Spanish zone there are indications of Spanish preparations for some possible future action against French Morocco,
despite General Orgaz's repeated professions of wanting only
peace and neutrality. There is said to be no reason to expect
any rash step at once, but future plans may well be influenced
by the war in Egypt, and by Suner's current visit to Italy,
during which he is seeing both Mussolini and the Pope.
There is also a persistent but unconfirmed rumor indicating
the existence of a German-Spanish accord by which Spain
would be obliged to oppose to the limit an Allied attack on
North Africa.
De Gaullist Suspicions
While Nazi influence is growing in Vichy and in Morocco,
there are reports of continued bickerings and suspicions in
the de Gaullist camp. Chagrined by his apparent isolation
from the United Nations' solution of the problem of Madagascar and Martinique, General de Gaulle has warned his
headquarters at Brazzaville of possible future moves by the
Allies against parts of the French empire, and was reported to
be only partially appeased by British assurances. Meanwhile, the gallant stand of Free French troops at Bir Hacheim
has apparently forced Vichy to adopt a more lenient attitude
towards Free French soldiers, while contrasting their courage
with the "desertion of these Frenchmen by the British" and
the "cowardly action" of the de Gaullist leaders.
officials.
Statistical Footnote to the British Air Offensive
French and Spanish Moroccan Preparations
In French Morocco, where the Nazis are said to be directing
defensive preparations, the press has taken a consistently
After the month's impressive beginnings at Cologne and
Essen, the British air offensive-an experiment of some
moment in the affairs of the United Nations-has proceeded
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12
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ET
on a less spectacular plane. A statistical analysis by the
Economics Division of the Office of Strategic Services yields
some results of interest on the day-to-day bombings over a
period of months, with some comparisons as well with the
mass attacks.
For one thing, there is no reason to believe-as is popularly
supposed-that the number of planes lost is proportionately
less as the scale of operations increases. In night bomber
operations for the period March 1 to June 7, the losses averaged about 4 percent, with considerable individual variations
but with no indication that large scale attacks were any less
costly in the percentage of casualties than small scale opera-
tions. The most important factors determining variations
were weather, distance, and the opposition encountered.
There was no correlation between the number of planes on a
mission and their ability to locate the primary target. An
average of about 72 percent of the planes despatched reached
the target, and here again weather was undoubtedly the
most important factor.
In the Cologne and Essen raids more than 1,000 aircraft
were used each night, but for the period March 1 to May 24,
the average was 147 per night of bomber activity. The ratio
of high explosives to incendiary bombs dropped varied widely
in different raids, although statistical analysis confirms previous reports that the Cologne-Essen raids were unusual in
this respect. For the whole period, the ratio between incendiaries and high explosives was roughly 1 to 2. At Cologne the
ratio was about 2 to 1, and at Essen, 1 to 1.
Continuing Preparations in Manchuria
Although the Far East has become-momentarily at least-
a relatively quiet theater of the war, there is no lack of
evidence of preparation for renewed action. Reports now
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indicate that the Japanese have despatched to Manchuria
during the past month three divisions from Japan and two
from North China. Of the numerous reserve units in Japan,
six divisions are now ready for combat, but ten more will be
fully trained by the beginning of August.
On the occasion of "informal wars" with the Russians during the past decade, the Japanese were so badly beaten that
some observers believe that they will not dare to attack until
they attain a numerical superiority of two to one. Although
their superiority in numbers and in quality of units is already
substantial, they are still far from reaching the above ratio.
The weather is more favorable to military operations toward
the end of the summer-a further incentive to postponement
of the campaign, which military observers quite generally
believe will begin some time this summer.
Some observers believe that Japan may want to have
2,000 operational planes available before precipitating war
with Russia. The Japanese have made notable shifts of
planes to Manchuria and Japan from the south in recent
weeks. The Japanese have concentrated ground forces in
Manchuria primarily opposite the Maritime Province (chiefly
against Vladivostok) and secondarily in the region south of
Khabarovsk. Forces on the northern and western frontiers
of Manchuria are believed to be very light.
The Japanese in the Aleutians
The object of the Japanese in occupying the westernmost
of the Aleutian Islands is not yet clear, but may be more farreaching than merely to screen an attack on Siberia. Some
observers believe that the Japanese may plan to occupy the
Aleutians one after another in small hops with the help of
land-based and carrier-based fighter planes. Finally, by occupying Dutch Harbor, they could seriously threaten Alaska
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and its communications. In this connection, it is reported
that the Japanese are already preparing a field for land-based
fighter planes on the island of Kiska. The distance from
Kiska to Dutch Harbor is about 700 miles.
It has also been suggested that as a secondary motive in
occupying the western Aleutians, the Japanese may seek to
protect the vital Japanese fishing grounds off the eastern
shore of the Kamchatka peninsula.
Checkmate in China
Japanese operations in China have declined notably in
intensity, and the Chinese themselves are claiming the
principal successes. The Japanese drives east from Nanchang and west from Chekiang have still to close the pincers
king, Dr. T. F. Tsiang, American educated minister without
portfolio and former ambassador to Russia, said that there
still is no indication of an "all-out knock-out blow against
China."
Deadlock on Supplies Via Russia
Russian desires to avoid offending Japan are cited by the
Chinese counsellor at Kuibyshev as one reason for a current
deadlock in negotiations to supply the Chinese over routes
from Russia. The Russians, according to this source, refuse
to give China gasoline in exchange for tin until China fulfills
earlier promises to send wolfram and tin to the Soviets.
The Chinese maintain that the original agreement was made
on the 46-mile gap along the Chekiang-Kiangsi railway
between Kuei-chi and Shang-jao. Chinese guerrillas are
with sea transport in view, and now nothing can be done
about shipment until gasoline and spare parts are received.
The Russians nevertheless have indicated their desire to
harassing Japanese communication lines both in Chekiang
continue the discussions, it is said.
and Kiangsi.
Although the influential Chungking newspaper, Ta Kung
Pao, has virtually conceded the loss of Chekiang and east
Kiangsi, it has called on the army to hold firm on a new
north-south line through Nanchang in Kiangsi, 300 miles
from the coast. The loss of Chekiang alone may have very
serious implications for the Chinese economy, since it is the
source of much of the salt consumed in the interior provinces
of Anhwei, Hunan, and Kiangsi itself (see Appendix II).
Further incursions westward toward Hunan, according to
Ta Kung Pao, would seriously endanger important sources of
national defense minerals.
Skirmishes have continued in Hupeh, Honan, and Kwang-
tung, with no further news of important action either in
Yunnan or at Pao-t'ou in Suiyuan. Monsoon rains in
Yunnan are reported to have become torrential. At Chung16
Chinese Leadership in Post-War Asia
Chinese self-confidence, which mounted discernibly with
the fall of Singapore and has apparently increased with each
new adversity of the colonial powers in the Far East, now is
beginning to project itself into the future. Sun Fo, president
of the Legislative Yuan, who frequently is allowed to express
opinions which correspond with the general trend of Chinese
thinking but are too delicate for more "official" statement,
has declared that India, Burma, and Indochina will all be
free when the war is over. Wu Tieh-ch'eng, secretarygeneral of the Kuomintang, has expressed the same sentiments about Burma. Both statements, according to a highly
placed American observer at Chungking, reflect the attitude
of many Chinese leaders, now certain that their country will
lead Asia after the war.
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These indications of Chinese leadership to counter the
imperialistic designs of Japan are neither new nor illogical
in the light of Chinese history. Prior to the modern period
there were under the Chinese Empire two chief patterns of
relationship between Chinese and non-Chinese territories.
The first, no different from other colonial imperialisms, consisted of direct political control and economic exploitation.
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This does not mean that the Chinese necessarily think in
terms of establishing direct political control over their
neighbors, according to competent observers. Chinese territorial designs are largely disclaimed, unofficially as well as
officially. The Chinese see themselves rather as the "natural"
future leaders in Eastern Asia, by reason of their historic
culture, size, population, and geographical position.
Turkestan, some parts of Mongolia, and even those sections
of China's western provinces which were inhabited by the
various non-Chinese tribes-people, are instances. The second
general relationship was that of suzerain and tributary. It
consisted of the Chinese emperor's claim to suzerainty over
lesser states on China's periphery, based largely on the position of China as the center of culture and acknowledged by
the sending of tribute in connection with trade. Korea,
Liu-ch'iu (Ryukyu), Annam, Siam, Burma, Laos, and Sulu
were all in the official lists of tributaries of the Manchu
dynasty.
Gandhi Writes to Chiang Kai-shek
In a letter to Generalissimo Chiang Kai-shek, Mahatma
Gandhi has given a clear-cut formulation of the policy which
he has gradually been maturing ever since the breakdown of
the Cripps mission. The Mahatma makes the following
assertions: First, he has no intention of impeding the Chinese
or Indian war effort, or of abetting Japanese aggression.
Second, he will do all in his power to avoid an open conflict
with the British Raj, but if, in the interests of Indian independence, such a struggle becomes absolutely unavoidable,
he is ready to run any risks. Third, if his country first
Persistence of the "Imperialist" Tradition
achieves independence, a Free India will then welcome the
These historical relationships have not been forgotten in
modern China and have undoubtedly impeded China's entry
into the western comity of equal states. Chinese maps of
Asia-especially school textbook maps-often include brief
Asia as their base of operations.
In the opinion of Shen, the Chinese high commissioner to
explanations of the date when territory of some former
colonial appendage was ceded to a foreign power or when
some former tributary was "lost" by foreign occupation.
The Chinese are politically as much aware of these historical
relationships as they are of Manchuria or the treaty port
"concessions". Ties between China and its former tributaries in fact have been strengthened in the nineteenth and
twentieth centuries by Chinese emigration.
troops of Allied nations who may desire to use southern
India, the letter is nothing but a "statement of appeasement." On the other hand, Gandhi himself implies that his
words may be intended as a safety valve for pent-up Indian
emotions. Other observers see in them a plea for aid directed
at China and the United States, or an eleventh-hour warning
to the British.
The last interpretation would appear to be the most logical.
According to Pandit Nehru, the majority of the Congress
leaders, including himself, agree with Gandhi in demanding
immediate independence for India, and following on that
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(but only after independence has become a reality) an alliance
with the United Nations and an all-out military and industrial
effort.
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being held in Bangkok, would no doubt try to take full advantage of the situation.
It is not certain that Gandhi will be able to induce the
With Congress local leaders already on the alert, advices
from New Delhi suggest that a meeting of the Working Committee of the Congress is scheduled for July 4. This meeting
may well decide on a series of general strikes to start about
Congress to adopt a program of mass civil disobedience. But
it is not impossible that the Mahatma, following his practice
in more or less analogous circumstances in the past, might
the middle of July. It is believed likely that these strikes
will take the form of hartals, involving a general shutdown
of business. In the past hartals have often been accompanied by serious disorders. The aim of the strikes, our
observers conclude, will be to raise the prestige of the Con-
members to his will. If the one fasting dies in such circumstances, Hindus believe that the guilt falls upon the person
whose injustice led the injured person to undertake the fast.
In the past, such a fast by Gandhi has always stirred India
profoundly and has always been successful. It might very
gress at the expense of Rajagopalachariar and the moderates,
well be successful now.
engage upon a "fast to death" to compel recalcitrant Congress
and to mobilize the laboring populations of India behind
Gandhi's unwavering demand for immediate independence.
The Threat of Civil Disobedience
A close observer of the Indian scene points out that a con-
certed campaign of civil disobedience at the present time
would create general confusion-crippling the Imperial field
armies and facilitating Japanese aggression. The campaign
might aim at boycotting courts and government-aided schools
-in fact all government services-and at picketing shops
selling British-made goods. Congress leaders might call for a
walkout of the employees of the Indian railways, telegraphs,
posts, banks, industrial plants, and all other organizations
giving support to the British war effort. Meanwhile the
Japanese would be sure to intensify their propaganda and to
send agents provocateurs to create dissension between Hindus
and Moslems and to provoke violent action by Imperial
troops against mass civil disobedience groups. Fifth columnists, such as the followers of the Boses and others probably
associated with the Axis-sponsored India convention now
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reveals that Germany is already able to achieve a somewhat precarious balance
between absolutely essential requirements and available supplies (The War This
Week, May 21-28, p. 19-20).
APPENDIX I
Effect on the United Nations
OIL IN THE EASTERN HEMISPHERE
The great petroleum producing regions of the world lie in the Western Hemisphere. The fields of the Eastern Hemisphere produce less than & quarter of
the world's annual supply, and almost all of this comes from Russia and Asia
There, too, production is concentrated in two principal areas-in the Caucasus
Iraq-Iran triangle and in the Netherlands Indies (see map).
German conquest of this area would deprive the Allies of virtually all of their
remaining convenient and safe sources of oil for supplying the military theaters in
Russia, the Indian Ocean and large parts of Africa. American production alone
would be ample in quantity for all essential needs of the United Nations, but the
supply routes are long and dangerous. Moreover, exclusive dependence on American oil would mean the diversion of tankers from other important duties, and the
creation of new burdens for the convoy system.
PETROLEUM PRODUCTION IN 1941
Could Germany Exploit Her Conquest?
Western Hemisphere
United States
Million
Percent
barrels
of total
1,762
78
.404
62
Venezuela
223
10
Other countries
135
Eastern Hemisphere
488
22
Soviet Union
242
11
Near and Middle East
111
Germany's ability to realize in the near future on the Caucasian and Near
Eastern fields, if captured, is open to question. Demolition could wreck the
6
5
Greater Japan
79
3.5
Greater Germany
54
2.5
India
2
World total
250
100
Possible Conquests by Germany
In the oil picture, the Caucasus-Iraq-Iran triangle is the center of current
strategic interest. The loss of Caucasian oil would drastically limit the Russian
war effort. The loss of Iran and Iraq would deal a heavy blow to the war effort
of the United Nations. Potent reasons, therefore, impel the Germans to a conquest
of this area What the Nazis will actually elect to do is of course a matter of
speculation. But both Rommel's sweep to the borders of Egypt and the impending reduction of Sevastopol have improved the German position for a possible
conquest of the oil of the Near and Middle East.
The journalists have fastened our attention on the other side of this picture:
the German need for oil. It is true that the acquisition of the natural oil from
those fields would lift a significant strain from the German economy, occasioned
by the severe civilian rationing and by the present production of synthetic and
substitute fuels. But a recent and careful analysis of the German oil position
22
refineries and render the fields unusable for a considerable period, and the Russians are said to have made preparations for such demolition. The Germans
could of course rehabilitate demolished wells, by redrilling if necessary, but such
an operation would take time and entail considerable economic effort.
So far as refineries are concerned, Axis Europe has a sufflicent capacity for its
needs, provided its plants are spared by air raids. Germany has removed cracking
equipment from plants in Occupied France to distant points in Germany and has
excess refining capacity in Rumania awaiting Russian oil.
Transport would offer special difficulties. Unless the Axis could impress into
service French tankers, it would not have sufficient tanker tonnage in the Mediterranean to ship Russian oil across the Black Sea and meet its essential commercial
and military requirements in that theater. In Northern Europe, Germany has a
large number of idle tankers. But since the last attempt in the summer of 1941,
which ended disastrously, the Germans have ceased sending tankers through the
Straits of Dover.
Importance of Iran
If the Axis were successful in pushing its conquests as far as Iran, it would
deprive the United Nations of one of the richest known oil fields and one of the
world's largest refineries at Abadan, with storage capacity for 800,000 metric
tons. From this area comes excellent aviation gasoline, of great value to Allied
forces in the Near and Middle East. This refinery alone could supply Allied
needs in those areas, and, with adequate rolling stock on the Trans-Iranian railroad, might be of some use to Russia.
Although Iran dominates the Near and Middle East both in the recovery and
refining of petroleum, civilian consumption is low and all the fields, except in
Egypt, have a relatively large exportable surplus. The Iraq field serves Palestine,
with a large refinery at Haifa, and also Syria Most Arabian petroleum goes to
Bahrein Island for refining.
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NEAR AND MIDDLE EAST PETROLEUM DATA FOR 1940
[In thousands of metric tons)
Refinery capacity
(Jan. 1, 1941)
tion
Crude
3,440
Iraq
Palestine
7,500
950
975
0
Grand total
975
765
2,675
957
1,620
600
102
855
47
675
0
Egypt
435
2,145
722
A few small fields remain unconquered in the Far East. India has two, which
are not sufficient to meet her own peacetime requirements. Australia has small
refineries but no fields. China has a field in the northwest province of Kansu,
which this year will produce only about 250,000 barrels of crude. To expand
this field, China was importing 3000 tons of drilling and refining equipment
through Burma, of which the Japanese captured more than a third. Finally,
Siberia has a vulnerable field of poor grade in the Russian half of Sakhalin Island,
which ships oil in barges up the Amur river principally to a small refinery at
Khabarovsk, whose annual capacity of only about one and a half million barrels
of crude is still sufficient to handle the entire Sakhalin output.
8,965
3,440
0
Total
Unconquered Far Eastern Fields
99
0
Bahrein Is
Saudi Arabia
crude
231
0
Total
Surplus
1,565
195
0
Syria
Cracking
16,000
10,530
con-
sumption
0
Iran
Civilian
1,679
1,620
600
149
823
823
197
817
16,472
20, 588
9, 272
3, 296
Introduction to the map
1,530
6
Country
Crude
produc-
fleet of some 60 tankers, most of which are capable of making 19 knots. Such
fast ships are difficult for submarines to stalk, and few of them have been destroyed. Furthermore, much oil from the captured fields can be used on the spot
without being shipped to other theaters or to Japan for refining.
13,176
Note applicable to peace time: Turkey has no production or refineries, covers
its limited requirements across the Black Sea from Russia. Syria receives half
the Iraq production by pipe-line for reexport. Some crude from Saudi Arabia
goes to Iran for refining. Transport to refineries not served by pipe-lines, i. e.
by boat, are: Saudi Arabian crude from port at Ras Tannura to Bahrein Island
or Iran, Egyptian crude about 200 miles on Red Sea to Suez, and reexport of
crude from Syria.
Japan's Exploitation of Her Conquests
In the Far East, the Japanese have already occupied all important oil fields.
These conquests provide Japan with productive capacity adequate to meet her
requirements. Her estimated consumption in 1940 was 35 to 40 million barrels,
whereas the potential productive capacity of controlled fields and synthetic plants
is about 80 million.
Competent observers believe that Japan can rehabilitate enough of the captured
wells to fill her needs before the exhaustion of her stocks (of unknown size).
Anticipating demolition, she assembled drilling and repair equipment in Hainan
before precipitating war. A high official of Dutch Shell believes that demolition
was thorough in the Netherlands Indies fields of Tarakan, Balikpapan, Palembang, Brandan, and Tjepoe, which together account for about three-fourths of
the petroleum. Other reports, however, indicate that the largest refinery, in
the Palembang area, was not demolished. Moreover, the oil of Tarakan is of
such quality that it can be used for fuel directly without refining.
Japan should experience no shipping difficulties for oil in the near future.
Her economy is geared to the importation of large amounts of crude in a modern
The map shows for the Near and Far East in 1941 the production of crude oil
and refinery capacities for both straight run of crude oil and for cracking. With a
crude of average grade, the straight run process recovers from 20 to 30 percent of
gasoline, and by cracking the recovery can be increased to 40 or 50 percent.
Japan, not shown on the map, has a substantial daily refining capacity of between 65,000 and 80,000 barrels (about 25 to 30 million per year) although its
largest refinery handles considerably less than ten thousand a day. Its annual
production of crude oil, however, is only about three million barrels, supplemented
by about a million barrels of synthetic fuel.
APPENDIX II
SALT AND SMUGGLING IN CHINA'S ECONOMY
An air-tight blockade of the Chinese coastal area which the Japanese are now
attempting to conquer might break resistance and morale in the provinces of
central China within three months, according to a memorandum of the Far
Eastern Section of the Office of Strategic Services. Nothing in the history of
Japanese occupation in China, however, would suggest that the Japanese military
might now be willing to forego the illicit profits they gain by lax enforcement;
and aside from graft, there are also the substantial physical difficulties involved
in thoroughgoing administrative control. Officials at Tokyo nevertheless must
certainly be aware of the immediate advantages of such a blockade. The Chekiang drive in any case is to be viewed not merely as a campaign to forestall the
bombing of Japanese cities; it has also "economic-strategie" implications of very
considerable importance.
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25
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In the Chekiang region, salt is a factor of prime importance. Most China's
salt is produced by solar evaporation of sea water along the seaboard-wherever
there are tidal flats. Chekiang is the chief source for the provinces of Anhwei,
Kiangsi, and Hunan. The only inland sources are three brine-well areas in Sneechwan, the salt mines in Yunnan, and salt lakes in Shansi, Shensi, and far to the
west in Kansu. Production of Szechwan salt now costs about CNC $100 a picul
(about 110 pounds), compared with CNC $15 for solar-evaporated salt (pre-war
comparative costs were about CNC $2.50 and CNC $0.50, respectively). Szechwan
produces only enough for western China, Overland transportation costa are
prohibitive, due to the shortage of gasoline, oil, and spare parts. The Japanese
control river transport to or from the upper Yangtze by holding Ichang (which
thus becomes one of the most important strategic centers in China). If the
Japanese should reduce both Chekiang and Kwangtung, and should strictly enforce
the Yangtze blockade, Kiangsi and Hunan provinces would suffer a severe salt
famine within two months.
$120,000,000 were smuggled into Free China from or through Occupied China in
1940, and the figure was probably larger in 1941. This year, with Free China
virtually isolated by land and sea from her Allies, with prices soaring and with
all consumption goods (including salt) becoming critically scarce, friends of the
Chinese-and Chungking as well-are hoping that illicit trade can be still further
enlarged.
The chief imports in the "muck and truck" trade, as usually defined, are cotton
yarns and piece goods, cotton knitted wear, dyes, pins, needles, and soap. But
in the past that trade has included cars, trucks, tires, tools, gasoline and oils,
and in the future it will doubtless include salt. Chungking authorities quite
naturally have viewed these proceedings with mixed feelings, attempting not to
halt the trade so much as to control it. Even now, when the illicit trade presumably will be almost wholly with the Japanese themselves, Chungking will
probably make no serious effort to halt it, even though the official attitude calls
for a boycott of Japan.
Importance of Salt in the Chinese Economy
The Machinery of Smuggling
Few foreigners understand the basic and vital importance of salt in the Chinese
economy. The welfare of the rural population depends in large part on the availability of salt at reasonable prices for use in curing pork, fish, and vegetables in
season, and the manufacture of soybean and other universally used food sauces.
The estimated annual requirements per capita are ten pounds, although since 1940
provinces far removed from sources have been rationed at six pounds per capital
(small additional amounts have been secured by black-market purchases). In
general, the poorer the population, the greater the demand. No province of
China lacking its own sources of salt now has more than a 60 days' supply, and
some have reserves for less than a month.
Smuggling is largely managed by graft. There are, for example, lively exchange
centers at Wan-hsien and Pa-tung on the upper middle Yangtze river. Chinese
hotels there have secret "travel agents" who for a fee undertake to pass travelers
through the Japanese lines and deliver them safely at Hankow. Japanese-held
Pao-t'ou in communist northwest China is another exchange center, where the
wool, hides, and skins produced in Kansu and Shensi Provinces can reach the
Japanese, in exchange for badly needed medical supplies, cotton yarn, and piece
Both production and transportation of salt have been under government
supervision for 2,500 years, with actual production and distribution largely
controlled by private enterprise. The present emergency-through inflation-
grow larger. Much will depend upon Japanese army morale. If, as the jibe runs,
the Japanese military resented the Burma road primarily because they lost the
"squeeze" on the traffic, their objectives in Chekiang and Kwantung become more
than plain. From Kwantung's three foreign ports alone (British Hongkong,
Portuguese Macao, and French Kwangchowan) the 1941 monthly average of
goods smuggled through the Japanese blockade is estimated to have been about
20,000 tons-more than twice the amount shipped over the Burma road. In one
month imports of some 60,000 tons were reported. With its 800-mile coastline
and three foreign ports, Kwangtung offered an ideal situation for smuggling foreign
so reduced the purchasing power of merchants' capital that private resources
were inadequate. With transportation also disorganized, the government
proclaimed a state monopoly of salt on January 1, 1942. Even before this,
however, the government was closely identified with, and held responsible for,
the supply of salt to the people, in return for the collection of the salt tax. This
has meant that not only public welfare but public confidence in the government
have varied directly with the supply of salt. When salt was adulterated or scarce
political unrest normally followed.
Smuggling in China
Only the continued venality of the Japanese military in China can ease the
shortages of salt and other necessities. This means that China's "muck and
truck" trade in smuggled goods has now assumed a vital role in her economy.
The trade has indeed become increasingly important with each new extension of
Japanese authority over Chinese territory and communications Observers at
Chungking estimate that manufactured consumers goods valued at roughly US
26
goods.
Profits are large, and with neither the provincial governments nor the central
government at Chungking apparently able to limit prices, they will no doubt
manufactures into China.
Advantages for Japan
Now, however, the Japanese have not only the incentive of graft, but they can
dominate the trade themselves. Wolfram, formerly flown to Hongkong from
Nan-hsiung for export to the United States, may now be collected by puppet
agents and delivered through the blockade to Japanese merchants at Canton or
Hongkong. Kwangsi, Hunan, Kwangtung, and Kiangsi all have valuable mineral
exports which may find their way to Japan-not altogether to the advantage of
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APPENDIX IV
the
Allies,
but presumably
necessary for the moment, if China is to avoid critical
internal
economic
difficulties.
Were this not the case, or should the Japanese themselves suddenly decide to
forego both graft and materials, the situation with regard at least to salt might
not be long in coming to a crisis. Other "muck and truck" goods might be sacri.
ficed, but Chungking itself underlined the strategic significance of salt, when in
1934-35 it instituted a salt blockade against the communist area in Kiangai
province. Resistance which had been maintained against military pressure for
several years was brought to an end in the course of months.
THE VISIT OF KING GEORGE OF GREECE IN RETROSPECT
While America was hailing King George II as the symbol of Greek resistance,
it appears that among his people at home there is widespread hostility to his return
to the throne. According to one seasoned observer, the King is popularly assoclated with reactionary elements in Greece, and is considered to have deserted his
people in their hour of supreme suffering.
Succeeding to the crown in 1922 as the eldest son of King Constantine, King
George remained in Greece in 1923 forced his abdication He spent
APPENDIX III
DECLINE OF THE JAPANESE MERCHANT MARINE
In the Battle of the Sea Lanes the Japanese have lost well over 100,000 gross
tons of merchant shipping a month (net average) since the outbreak of the war,
according to a reliable current estimate. With the lull in operations in the southwest Pacific, the Japanese have about 1,065,000 gross tons available on June 1 for
fresh operations. The present rate of losses, however, would consume that surplus in about one year and leave the Japanese in a distinctly taut position 80 far
as a further large scale offensive in any distant area were concerned
The Japanese lost about 850,000 tons up to June 1, compared with 510,000 as
of March 1-an average of more than 140,000 tons per month for the whole
period, 113,000 per month for the less active period since March 1. New construction yields an average of only about 25,000 tons a month.
Japan's total tonnage (ships of more than 1,000 tons gross) is 6,165,000 tons, of
which 3,000,000 are used in the economic supply of Japan and her troops in
China and Manchuria, 400,000 tons are absorbed in naval auxiliaries, 700,000
tons are under repair or otherwise laid up, and 100,000 tons are unusable types
or devoted to domestic service, according to the same estimate. In addition,
the supply of Japanese troops holding conquered areas in the southwest Pacific
requires 900,000 tons of shipping.
An earlier estimate, in March, had forecast a Japanese surplus of 1,500,000
gross tons after completion of operations in the Indies. This estimate, however,
was made on the basis of a generous analysis of Japanese ability to utilize shipping
space, allowing them only 700,000 tons to supply conquered areas in the southwest
Pacific. It now appears that 200,000 additional tons are needed for that purpose.
War losses and normal marine casualties (roughly 878,000 tons) are no longer
offset by estimated gains through new construction and ships captured at the
outset of the war (about 675,000 tons), cutting the total available by another
200,000 tons. These changes, plus some others of less importance, reduced by
nearly one-third the original estimate of surplus tonnage which should now be
available to the Japanese.
most of his exile in England. Following the political turmoil in Greece in the early
thirties, there was considerable sentiment for a restoration and, after a coup
d'état and referendum, which some suspect was "fixed," the King was recalled
to the throne in 1935.
King George has never been a powerful monarch. On August 4, 1936, he
allowed the dictator, John Metaxas, to assume control of the Government and
he issued decrees dissolving Parliament and suspending constitutional guarantees.
There is evidence that his tolerance of the dictatorship and his flight from Greece
at the time of the German occupation have caused him to lose whatever popularity and affection he may have had among the people in Greece.
Since his flight from Greece and Crete in the spring of 1941, the King and his
cabinet went from Egypt to South Africa, and finally established headquarters
in London. The British supported his government-in-exile in spite of the fact
that there was continued resentment in Greece against all connected with that
regime. Gradually the unpopular Metaxas group has been purged and Professor
Kanellopoulos, known as a rising liberal, exiled by Metaxas, has recently been
appointed vice premier. This move, and a personal appearance of the King, were
apparently successful in winning back the loyalty of the Greek armed forces being
reconstituted in Egypt and Palestine.
The Greek language groups in America arranged to present a united front in
presenting the King as a symbol of Greek sufferings, in the hope that he might
be able to secure some tangible benefit for the homeland from all his conferences
here. With only a few lapses the liberal, pro-Venizelos press and the pro-royalist
factions have avoided political controversy. It should also be noted that GrecoAmericans are more cordial to the King, probably because they have not had to
live for six years under the system of government of which he was the nominal
head.
It would be a mistake, however, our observer feels, to follow Pathé News in
presenting the King as a beloved monarch who will return to his people after the
war. The best evidence from Greece is that the King is not beloved by his people
and that he will return to Greece to rule only if some foreign power carries through
the restoration by force. This is what many Greeks in Greece fear, despite
assurances from Premier Tsouderos that the sovereign people will be consulted.
Unless he has secured real aid for his country, it is doubtful that the King has
strengthened his position to any great extent by his visit here, and his adherence
to the four freedoms is viewed with skepticism by those who know the record.
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APPENDIX V
SERBS AND CROATS HERE AND ABROAD
The visit of King Peter of Yugoslavia has come in the midst of an intensifying
conflict among the racial elements which compose the Yugoslavian Kingdom and
are represented also in the population of the United States. In the United States
Serbs, Croats and Slovenes supply important numbers of workers in defense industry, and the ill feeling which has recently been engendered among them is
feared to have had some adverse effect upon the war effort.
The difficulty began with recriminations which arose almost inevitably between
Serbs and Croats after the swift military collapse of their common country.
Croats were denounced by Serbs as traitors, and agonizing stories were spread of
atrocities perpetrated by pro-Axis Croatian irregulars. The Serbian agitation.
developing into a campaign for a Greater Serbia after the war instead of a federated Yugoslavia, came to a high point in the Amerikanski Srbobran, a newspaper
published in Pittsburgh.
The Government of Yugoslavia is represented in the United States not only by
its diplomatic envoy, Constantin Fotich, but by no less than six ministers of
state, of whom three have considerable political importance. Two of these
three are Croats and the third a Slovene. These three assert outspokenly their
belief that the Serbian anti-Croat agitation stems from the Yugoslav legation in
Washington and from the Yugoslav ministry of foreign affairs in London. The
Foreign Minister, Ninchich, is said by them to represent all that was worst in the
old Yugoslavia; they allege that Minister Fotich in Washington is his faithful
servant; and do not hesitate to point out that Mr. Fotich is related by blood to
the Serbian Quisling, Nedich, and also to the Croatian Quisling, Ante Pavelich.
While the situation in Yugoslavia itself as between Nedich, Pavelich and Mihailovich becomes increasingly tragic and confused, the American scene is disturbed
also, in the midst of the King's visit, by disintegration and antagonism among the
Americans who have sprung from his multi-racial land.
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U.S. GOVERNMENT PRINTING OFFICE: 1948