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231
OFFICE OF
THE SECRETARY OF THE TREASURY
2/16/37
Senator Lundeen of Minnesota wants five
minutes with the Secretary in the morning
about Joe Wolfe.
Farley tells Gibbons that what Lundeen wants
if to have Wolfe, now Democratic National
Committeeman (just being replaced) be
a ppointed Collector of Internal Revenue
in place of James R. Dandy.
Farley would like to have the Pecretary
not commit himself on the matter until
Farley returns in about ten days.
Upm
Oh
THE
232
16 February, 1937
4 p. m.
COAST GUARD OPERATIONS IN FLOOD AREA
With the withdrawal of the few remaining boats at
Paducah, the Coast Guard has completed evacuation of
its forces in the Ohio Valley.
An office, manned by personnel from the patrol boat
DIONE, is being set up at Hatchez as is also a radio
communication center, to facilitate operations in the
Mississippi Valley in collaboration with the Army Engineers and Red Cross.
Captain Reinburg at Memphis reports conditions
favorable all along the Mississippi and all levees
holding.
General Water Level Situation.
Crest near Vicksburg 52.7' and rising slowly to
the southward. Water level 18.5 at New Orleans - the
same as yesterday, - but expected to reach about 19'
on February 18-19.
Hell
233
February 16, 1937
The following were dinner guests of the Secretary
at his home this evening:
Mr. Jacob Baker, of WPA
Mr. Udo Rawl, of WPA
Senator Robert M. La Follette, Jr.
Mr. John Carmody, of Resettlement
Governor William I. Myers
Mr. Walter Packard, of Resettlement
Mr. Harry Hopkins
The group discussed the establishment in Washington
of a self-help cooperative similar to the one managed by
Miss Amy Guy in Richmond, Va. The group decided to start
one in Washington.
February 16, 1937.
234
Mr. Eccles, Mr. Ransom, Mr. Taylor and Mr. Upham had lunch
with Mr. Morgenthau at 1 o'clock.
Mr. Eccles explained that he had been on the Hill during the
morning testifying before the House Banking and Currency Committee
on his bill to extend the time during which Federal Reserve Banks
might use Government securities as collateral for Federal Reserve
Notes. He said that they asked him a number of questions about
the operation of the Stabilization Fund and that he had referred
them to the Secretary of the Treasury. They asked about sterilization of gold and whether the Treasury had legal authority to
borrow money to buy gold and Mr. Eccles told them that they should
ask that question of the General Counsel of the Treasury.
There was some discussion in the committee why foreigners
can get gold and Americans cannot and Mr. Eccles explained that
to t he committee.
Mr. Eccles began a discussion of how to deal with inflow of
foreign funds and said that he thought the increase in the withholding tax would not be effective -- that more than that is needed.
Mr. Morgenthau suggested that they defer discussion of that
until the meeting at his house tonight. He said that he wanted to
mention two things. He said that the Treasury would build $300
million of bills into the June tax date as the Reserve System wishes.
He indicated that he was becoming reluctant to give up 9-month bills
and swing back to 6-month maturities. He is inclined to the view
that more bills should be kept in the market. He also indicated
that there are no maturites in 1942 and that it might be possible
to issue in March a 5 year, 1-3/8% note.
235
-2-
Mr. Morgenthau also told Mr. Eccles and Mr. Ransom that
someone in England had requested permission to ship gold by
parcel post to the Federal Reserve Bank of New York and had been
told that the gold could not be consigned to that institution.
Nevertheless, it was and the Federal Reserve Bank is asking for
some backing in refusing the shipment.
Mr. Morgenthau told them that he would back them up in such
refusal. He was of the opinion that they are trying to chisel on
the rate or cost of shipment.
Mr. Eccles reported that the Advisory Council is in town for
its regular meeting.
Mr. Ransom said that they report generally good business
conditions everywhere, even in the flood area. He said it is
turning out that things are not as bad as they seem. Few commercial bank loans are being sought for rehabilitation purposes.
There was some discussion of the proposed increased tax on
sugar and there was some discussion also on the increase of indi-
vidual income taxes which will be due this year as a result of
dividends paid out because of the enactment of the undistributed
earnings tax.
Mr. Morgenthau said that his own tax was considerably increased
and that he was anticipating complaints from "the man across the
street" when he gets around to making out his return.
Upm.
Tuesday
236
February 16, 1937
3:55 p.m.
HMJr:
Sen. Ernest
Hello
Lundeen:
Hello
HMJr:
Henry Morgenthau, Jr. -
L:
Yes, yes
HMJr:
Senator -
L:
Yes
HMJr:
I wondered if I couldn't save you a trip, because
I've made some inquiries about this, -
L:
You've been what?
HMJr:
This is Senator Lundeen of Minnesota?
L:
Yes, yes it is.
HMJr:
L:
HMJr:
I've been inquiring about Joe Wolf.
Oh yes, yes, indeed, that's who I was interested in.
Yes, well I understand that Mr. Farley is working on
it, see? And is trying to locate a place for him but
they haven't been able to do it yet. Now, the President spoke to me about it himself. And, as I understand it, they're trying to make some kind of a swap
up there. But the matter is really in Farley's hands
and hasn't come to me yet.
L:
HMJr:
L:
HMJr:
Yes - well, the only - the only position I think he's
interested in is Collector of Customs, I think.
Yes - Well I don't know whether they have him in mind for that
or not.
Well frankly, it hasn't come to me yet. And the
organization is working on it and they - it hasn't
gotten to my desk yet.
L:
HMJr:
Yes - well, do you expect it soon?
Well, as I understand it, Mr. Farley's going away
and he suggested that we let it wait until he gets
back.
237
-2L:
And when will that be, about?
HMJr:
I think a week or ten days.
L:
I see. Well, that's the way it stands now, then?
That's the way it stands
L:
-
HMJr:
Well, then we'll cancel the appointment tomorrow
morning.
HMJr:
But
I want you to feel that I'm at your service
any time.
L:
Yes, well I appreciate that, indeed, I appreciate
it. And the - perhaps this - perhaps this will
serve the purpose just as well.
HMJr:
L:
But I told I wish you'd make a notation that he's interested
in - there were some other positions mentioned
but he is only interested in the Collector of Customs.
HMJr:
Collector of Customs?
L:
Yes
HMJr:
Well, I'll pass that on -
L:
Yes
HMJr:
- to Steve Gibbons -
L:
And really, you know, here's what I want to say to
you about Joe -
HMJr:
Yes
L:
Now he's a sort of a quiet sort of unassuming fellow.
HMJr:
Yes
L:
And he doesn't fight for his position as he should
Now, in 1932 he organized a State for Roosevelt.
HMJr:
Yes
L:
And it had never been carried by a Democratic
President - candidate for President - in all the
history of Minnesota.
238
-3HMJr:
Is that right?
L:
It had been carried by Theodore Roosevelt in 1912
on the Progressive ticket but no Democrat had ever
carried it! And, by jove, he organized that in
such a manner, of course he had the candidate and
he had the situation, but it had never been done
before and I think he should have some credit for
that.
HMJr:
Well, the President personally has spoken to me
L:
Yes
HMJr:
But, I am waiting, I don't like to pass the buck,
about Wolf.
but I am waiting to hear from the Democratic organization.
L:
Yes
HMJr:
And the next move is up to them.
L:
Yes - I see. You mean the National Organization?
HMJr:
National -
L:
I see.
HMJr:
The National -
L:
Well, that's just fine.
HMJr:
So I'11 -
L:
All right, I'11 make that record here and then, will
I hear from you then when it comes to you?
HMJr:
Absolutely -
L:
Thank you very much.
L:
I've got it in mind because you've spoken to me And then I'll cancel the appointment for tomorrow.
HMJr:
All right.
L:
All right, thank you very much.
HMJr:
Thank you.
HMJr:
Tuesday
239
February 16, 1937
4:25 p.m.
W. Randolph
Burgess: - all right.
HMJr:
Burgess, notes that we sold went below par today.
B:
Well,
of course,
that's the problem with the readjustment
in rates.
HMJr:
Yes
B:
It's - even so, it's out of line with the other -
HMJr:
Yes, I know.
B:
- the other rates. It's yield is less and it's a
longer maturity, so that if we have a readjustment
of rates this is going on a little on those things HMJr:
Yes
B:
- It's almost impossible to prevent that.
Well, do you think it's something that we should
HMJr:
worry about?
B:
HMJr:
B:
No, I'd let it go.
You'd let it go?
It didn't seem to me it mattered much. But as there's
bound to be a readjustment of those rates, I think,
under these circumstances, and -
HMJr:
B:
What will the banks sell? I mean, are they going to
sell the notes in order to readjust their - themselves?
Well, I - some of them will let the notes go;
some will let some bonds go. I don't think there'11
be much selling. I think it's mostly that they think
that rates are changing a little bit so that - that
they'11 try to guess ahead, you know?
HMJr:
Yes
B:
And get rid of things before the change takes place.
My guess is that it won't go much below par and it
won't stay very long perhaps.
HMJr:
It won't.
-2-
B:
240
But since that note is out of line, it seems to
me it would be a mistake to support it.
HMJr:
Yes
B:
I don't think it means very much.
HMJr:
Yes
B:
I've been watching it and -
HMJr:
Yes
B:
We've been talking about it some, there.
HMJr:
Well, I'll see you fellows tomorrow. I just wondered
how you felt.
B:
Yes, well, we've discussed it pretty carefully and
it didn't seem to us it would be wise to support it.
I don't think it'11 make any fuss. People are expecting a little change in interest rates.
Yes - Well, I'll see you tomorrow.
First rate.
HMJr:
All right, goodbye.
B:
HMJr:
241
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
MEMORANDUM OF DAY'S ACTIVITIES
FOR FEBRUARY 16th
TO
Secretary Morgenthau
FROM
Mr. Magill
DATE February 16,1937
1. Taxation of non-resident aliens
At the conference this afternoon with representatives of the
State Department, Federal Reserve Board and the Securities & Exchange
Commission (minutes will be sent to you later) Mr. de Wolf of the
State Department presented a memorandum to the effect that the proposed
increase in the withholding rate would not violate any important treaty
provision; but he requested that the Bill contain a re-affirmation of
the present provision in the law exempting income to the extent required
by any existing treaty. Mr. de Wolf's memorandum also indicated that
protests were filed by various foreign countries when the withholding
rate was fixed at 10 percent in the 1936 law. These protests were
based on grounds of general equity and not on any explicit treaty pro-
visions. Mr. Feis of the State Department re-affirmed his unofficial
opposition to the proposal, but stated that the State Department would
not officially oppose the Bill, nor would its representatives appear
before any Congressional Committee in opposition. Finally, letters of
protest from foreign governments would be referred to us for disposition.
In the discussion of the proposed new administrative provisions
Dr. Gourrich (Securities & Exchange Commission) suggested the addition
of a provision designed in substance to require every American purchaser
of securities to certify that he was purchasing on his own behalf, or,
if not, to state for whom he was purchasing. It was agreed that this
proposal required further study; the Treasury representatives believed
that such legislation should be an amendment to the Securities & Exchange
Act.
2. Carriers Taxing Act
I gave Senator Harrison a memorandum containing the background
of the proposed extension legislation and explained the legislation to
him. He called Mr. Pelley of the Association of Railroad Executives.
Mr. Pelley stated that he had no objection to the extension and that he
understood the brotherhoods had no objection. Senator Harrison said
that he would call a Committee meeting probably Thursday or Friday, to
consider the Bill, and that he expected to get favorable action upon it
in the Senate early next week.
Rm
242
MEETING AT 2201 R STREET ON RESTRICTION
OF FOREIGN CAPITAL INFLOW
Present:
February 16, 1937
8:30 P.M.
Mr. Magill
Mr. Taylor
Mr. Upham
Mr. Gaston
Mr. Bryan
Mr. Gardner (of Federal Reserve)
Mr. Lochhead
Mr. Landis
Mr. Oliphant
Mr. Haas
Mr. Zucker
Mr. White
Mr. Seltzer
Mr. Eccles
Magill:
Well, this is a draft message to Congress on the
subject of what we are talking about - (not) the
proposed tax on sugar.
Taylor:
I've got that message here.
Magill:
"For many months past I have been increasingly disturbed by the volume and activity of foreign funds
which have come and are still coming to this country,
a large part of them for speculation and investment
in American securities. Last November I directed
the Secretary of the Treasury, the Chairman of the
Board of Governors of the Federal Reserve System, and
the Chairman of the Securities and Exchange Commission
to make a special study of the problems raised by
these capital movements and to suggest possible
remedies. This study has progressed sufficiently
far to convince me that a large proportion of these
inflows has been distinctly unhealthy both in character and in volume - unhealthy for our own citizens
and unhealthy for the citizens of the countries from
which these funds are coming.
"In part these inflows of foreign funds into the
United States represent a continuation of those
erratic and undisciplined movements motivated by
fear or by the hope of speculative gains from
exchange fluctuations that threatened the currency
stability of many countries a few years ago. In
larger part, however, they represent funds attracted
here for participation in the profits of American
business recovery.
-2-
243
"We do not need these funds. Their immediate
effect is merely to add to our already large
gold reserves. They are not contributing to our
business recovery. The metallic reserves of the
United States are ample for all our present and
foreseeable future needs. A number of other
countries are much less happily situated in this
respect. Yet, a substantial amount of the foreign
funds coming to the United States are being sent
from such countries.
"From the standpoint of our own interests, no less
than from the standpoint of the other countries
with which we are maintaining and improving trade
relationships, the present volume of these capital
inflows is altogether undesirable. They raise new
problems. To the extent that these funds are used
to make speculative purchases of American securities,
the effectiveness of the wholesome regulatory activities of the Securities and Exchange Commission is
impaired.
"As you all know, the Treasury has already had to
take special action to protect the country's
banking structure from the potentially undesirable
effects of these foreign funds.
"Control over erratic movements in foreign exchange,
which was greatly aided by the 'gentlemen's agreement'
reached by the United States with a number of other
countries last year, is also rendered more difficult
by large capital movements to this country.
"It is clear, therefore, that our own interests and
those of the world as a whole would be better served
if the present volume of foreign capital funds coming
to the United States for speculative and similar
purposes were substantially reduced.
"As a first step in a program to regulate and to
restrict the undesirable flow of foreign capital to
this country, the Secretary of the Treasury, the
Chairman of the Board of Governors of the Federal
Reserve System, and the Chairman of the Securities
and Exchange Commission have joined in recommending
an increase in the withholding rates applicable to
244
-3- the incomes of aliens who do not reside here and
who have no offices here. Aliens who reside here
are already subjected to the same income taxes as
our own citizens, but non-resident aliens have
always received special treatment.
"Quite aside from the present issue, I believe that
the withholding rates as fixed in the Revenue Act
of 1936 are too low in comparison with the rates
applicable to our own citizens. Thus, the tax on
dividends, interest, rents, and royalties received
by a non-resident alien individual is a flat ten
percent. Our own citizens pay a normal tax of four
percent, plus graduated surtaxes ranging from one
to seventy-five percent, depending upon the size
of their incomes. While it is impossible to S ecure
perfect equivalents as among taxpayers with varying
incomes, between a tax imposed at a flat rate and
one imposed at progressive rates, it is significant
that the average rate of tax on dividends paid by
American citizens with net incomes of ten thousand
dollars and over is approximately twenty percent.
Moreover, American investors in Great Britain are
subject to a withholding rate of twenty-three and
three fourths percent, and in France of twelve,
eighteen, and twenty-four percent, depending upon
the type of securities held. Consequently, a
substantial increase in withholding rates upon the
current incomes of non-resident alien individuals
and corporations is desirable on grounds of tax
equality alone.
"The Revenue Act of 1936 freed non-resident alien
individuals and corporations with no offices or
business here from the tax on capital gains which
is borne by our own citizens. It had been found
difficult to obtain returns from persons outside
the country in respect of transactions which could
be completed outside the country. Nevertheless,
I am not satisfied with 8 tax system which encourages
foreign speculation in our securities to the possible
injury of our citizens, and with partial or complete
exemption from the tax burdens which our citizens
must bear.
"I am therefore having further studies made of
various possible methods of imposing effective
245
-4taxes upon the profit obtained by foreigners from
transactions in American securities. If practicable
methods are devised, I may find it desirable to make
recommendations in respect thereto.
"Independently of any further recommendations that I
may find it desirable to make in the future, in connection with the problem of unwholesome inflows of
foreign funds I ecommend for your immediate consideration the enactment of substantial increases
in the withholding rates of tax on the incomes of
non-resident aliens without place of business in
this country."
H.M.Jr:
Do you have copies for Eccles and Landis there?
Magill:
Yes.
H.M.Jr:
Doesn't somebody want to criticize it?
I've got a few comments on it. One, I wish the
Landis:
thought that is in here as to the inequality of
treatment accorded foreigners as compared with our
citizens would come out earlier in the message, and
I think it ought to come out like that (demonstrating
with fist). It does come out later, but I think if
that was turned sround a little bit so that that
thought would come out with a good crack right pretty
near the start, it would help this quite a bit.
One other idea that occurred to me as you read it
was this thought, especially where you speak of the
capital gains tax - is that those capital gains,
wherever derived, are due to American industry. I
mean the thought immediately occurs to somebody that
if I buy United States Steel in London for 50 and
sell it in London for 100, why, that isn't an
American transaction. And yet, basically, back of
it, of course, is the fact that the increase in
value is due in the main to American enterprise.
I think if you could get that thought just in a
few short words - it doesn't take much - I think
that would also avert a possible query that might
be in people's minds.
Magill:
Taking that second point, Jim, would it be all
right to put that in toward the end?
246
-5
Landis:
Yes, that comes in toward the end.
Magill:
You S ee - you understand the way the general
Landis:
development of this thing is? The first section
here has to do with the history
I think the structure is very good.
Magill:
of the proposal, and then next the reasons why
some
is necessary;
for
thisaction
particular
action. and then, finally, a support
Landis:
The third idea I had in mind was whether you would
want to put into this message some justification or
argument for a discretionary
Magill:
Well,
we omitted that advisedly, you see, so far as
this is concerned.
Landis:
Well, I assumed you had.
H.M.Jr:
Well, why?
Magill:
Wait and see what the
H.M.Jr:
H.M.Jr:
well, I mean could the President very well, after
sending this message, ask for discretionary powers?
No, that isn't what I meant. If he wants the discretionary power, we'll put that in there.
Could there be - where you touch upon that, could
there be a substitute page?
Certainly.
Could there be a substitute page? Say page 3 and
Magill:
Yes.
H.M.Jr:
Because
Magill:
As a matter of fact, that should have been here. We
should have had it here tonight.
H.M.Jr:
Well, I know you had very little time. But I think
that that is one of the things I'd like very much to
Magill:
H.M.Jr:
Magill:
page 3-A? Huh?
247
-6discuss tonight, that discretionary question, because
I saw Eccles today and he had some doubts in his mind,
and I'd like to go to the President with as nearly a
united front as possible, particularly on account of
the position that the State Department is taking.
Would you (Magill), while giving Eccles a sort of
chance to catch his breath as he picks this up,
tell them your impression of it just the way you
told me there, so we an'talk frankly - the way Feis
left the thing this afternoon; because it kind of
bothers me.
Magill:
Well, some of the rest of you may add to what I say.
But he - my understanding of his position was this:
That unofficially he was at least as much opposed to
this proposal as he had indicated that he was opposed
on the preceding day at the meeting we had in the
Secretary's office. Officially, what he said was
this: that he was clear that the State Department
would not take any official position on the proposal
one way or the other, and he emphasized the "official."
So we then asked him, "Suppose that some representa-
tive of the State Department is asked to appear before
one of the Committees to give the views of the Depart-
ment with respect to this proposal." His reply in
substance was that the Department would seek to avoid
in every way any appearance before the Committee, and
if they appeared they would say that they did not wish
to take an official position one way or the other.
Then further, in response to inquiries, he stated that
he had no doubt that there would be bitter complaints
by foreign governments with respect to this proposal,
and dilated upon that a good deal, and then presently
agreed that - well, his first proposition was that
when these complaints came in they would forward
them to the Legislative Committee, and next he said,
more or less in response to a request of ours, that
he would send them over to us for reply.
Landis:
Haas:
Magill:
Well, of course, that's bound to happen, that foreign
governments don't approve of this.
They don't like this.
He came over with a bundle of protests against the
ten percent rate.
248
-7 Oliphant:
And his statement about the position, his unofficial
position, went both to the wisdom of the action and
to the effectiveness. Thought it was wrong both as
to thinking
the action wise or as to thinking this
action
effective.
Magill:
Yes.
H.M.Jr:
Well, I don't know whether you other gentlemen have
had any experience with the State Department in
legislation the way we have. But they S tarted just
the way they are on this and then before we got
through we had all kinds of trouble. And I just
want to make it plain, because if - we are more or
less in it together. But last year we had one thing
on narcotics and we had another thing on your
Oliphant:
Canadian alcohol.
H.M.Jr:
Zones of smuggling. Didn't do anything. But somehow
or other, word gets up on the Hill that the State
Department doesn't like it, and then it makes it
Landis
Doesn't that have a tendency to help its passage?
Oliphant:
It makes more work.
H.M.Jr:
No, it makes it more difficult, and then it involves
a great shuffling around about who's going to represent them. No, it makes it more difficult.
Oliphant:
Well, I should say in the case of the Canadian
H.M.Jr:
Oliphant:
liquor their opposition was effective.
Yes. why don't we start this page by page and
let's see if anybody likes it.
Might I make a general observation on it? It
strikes me that one thing you might consider -
you probably have it in mind: two types of documents,
one a document in which the President confines himself
to a statement of broad questions of policy involved,
keeping entirely away from the details; and, of course,
among those broad questions of policy would be the
question of executive discretion, which of course would
give a much shorter document. And then more - somewhat
249
-8in more detail would be the type of statement, for
instance, the Secretary would make before the
Committee. The reason I mention that is because
of the hypersensitivity of the two Committees dealing with taxation, and particularly of the staffs
working with them.
H.M.Jr:
Well, I'd like to make my position clear. If the
President asks my advice, and even if he doesn't
I think I'll volunteer it, I'd much rather see him
send nothing other than possibly a letter, or the
best thing would be just a telephone message to Joe
Robinson. But I'm not sure that that is what he
wants. But I mean I think - I mean talking very
confidentially, I think just at this time that just
a letter or a telephone message would be the best.
But he asked us to give him a letter and a message.
Magill:
What did he mean by the letter?
H.M.Jr:
Well, I think he just meant a letter, say to
Magill:
H.M.Jr:
to Chairman
No, to Joe Robinson and to the Speaker, simply indi-
cating his interest in this type of legislation.
But he didn't - Landis, I don't know, have you - I
don't know of letters which he's made public; I know
of private letters that he's sent up, but I don't
know of public letters.
Landis:
Sometimes they have been made public. I remember his
letter - one of the letters addressed to the Chairmen
of the Committees on the Public Utility Holding Company
Act. It was, however, in the midst of the debate that
it was made public. And the same thing was true on the
Stoch Exchange bill - a couple of letters made public
then.
Magill:
I didn't know quite what he contemplated.
Eccles:
You mean letter of transmittal sending bill up only
to those men, possibly.
Well, I would agree with you that better no message,
or even no letter. But speaking on the assumption
that there is going to be a message, I thought it
Oliphant:
250
-9might be better if you had a two page, or two or
three page statement, in which the President merely
dealt with the broad statesmanlike considerations
of international policy, and then reserved all the
other material for the statements made by the heads
of the respective departments - when you got down
to four percent and three percent and the history and
all that sort of thing.
H.M.Jr:
I don't know.
Gaston:
Can the Ways and Means Committee initiate a tax
H.M.Jr:
Oh yes.
Gaston:
Can they?
bill without a formal recommendation?
Oliphant: Yes.
Magill:
Yes.
Upham:
Oh yes.
Oliphant:
Executive officers not at liberty to recommend them
without request.
H.M.Jr:
Well, let's do this page for page.
Magill:
On your proposition, of course
Do you mind if I ask a couple questions first, b ecause
I've been down in the deep South. And these are some
notes which - which were mental notes first, and I
think that they are questions which we ought to ask
ourselves. Having asked them, we ought to be able
to prepare to answer them, because they are questions
which will be asked.
Taylor:
I think they are five. They relate to what is the
purpose of the proposed legislation. The first
heading is Revenue. The second is Credit or Deposit
Control. Third, Regulation of the Stock Market.
Fourth, Control of Capital Movements. And the fifth
is Foreign Ownership of United States Industry.
I think if we wish to maintain or establish monetary
251
- 10 leadership we must determine whether under any
circumstances we wish to act as the custodian of
the world's gold and the world's deposits. Having
to have foreign control of any of our industries or
foreign investment in our liquid securities.
determined this point, we can decide whether we wish
Seltzer:
Well, do you make these mutually exclusive objectives?
Taylor:
No.
Seltzer:
That is, couldn't you just say that here is a lot of
gold coming in here for speculative investments, and
it raises a lot of problems, hits all of those things?
Taylor:
I think we have to think in terms of under what circumstances we wish to be custodian of any portion
of the world's gold stock and any portion of the
world's liquid deposits.
Eccles:
Well, we are custodian today. It is just a question
of whether we want to be custodian of an undue
proportion.
Taylor:
All right, you have to write the rules - on what
Eccles:
Well, I don't believe you can determine to a nicety
just how much foreign investment you are going to
permit or how much gold - the world's gold that we
don't need - we are going to hold. I think that is
a very difficult thing to undertake.
Well, I think - I mean before we take this preliminary step and go to the others - I'm not saying
Taylor:
basis you are willing to become
which way we ought to go because I think you can
play any set of rules you want to. But it is a
series of questions which I think we have to answer
for ourselves, because they are questions which are
going to be asked to us.
White:
Why use the term "custodian" in this connection?
We have obtained a certain amount of gold; that gold
we have a legal right to. I am not speaking of
earmarked gold, and I presume you are not speaking
of it either. It appears to me quite within the
rules of the game as stated, or under any modification we wish, to assume you are wholly justified,
252
- 11 -
Taylor:
Oliphant:
Taylor:
if for sufficient economic reasons you feel you
don't wish to acquire any more gold, in placing
such restrictions as you feel are best under the
circumstances to reduce the inflow. I don't quite
see the pertinence of that first question.
Well, obviously, that is one of the reasons why
we are worried about this situation.
Your question is why we are worried about it and
what is the extent of our worry?
Yes, and what are we prepared to do next? Because
White:
it gets into this whole question of whether you are
going to - if you are going to assume monetary
leadership or be one of the monetary leaders, what
are those rules going to be? And under any circumstances are you going to be willing to accept
deposits from other countries? Accepting the
deposits happens to cause the flow of the gold.
Is that a question that has to be answered?
Taylor:
I mean in the statement, the President's message,
Haas:
why, that question immediately is raised.
Well, Wayne, you take the question of earmarking,
which is a very simple case of custodianship. Even
on that the Federal Reserve Bank - for example, they
don't commit themselves to an indefinite amount.
They can question any amount. The point is here
that there is some belief that the amount coming in
is excessive. We want to establish forces which
would discourage rather than tend to increase that
amount.
Oliphant:
No, I think he is asking, excessive in relation to
Taylor:
Well
Oliphant:
You see the amount is excessive. He says, Excessive
Taylor:
No, I merely state these are questions which we
should be able to answer, because they are basic
what objective?
in relation to what objective?
253
- 12 questions in connection with the place which we
wish want
our country
you
to calltoit play
that.as a monetary power, if
Eccles:
Does monetary leadership involve taking - permitting
enough of the gold of the world to come here to
where it creates an unstable situation throughout
the world? It seems to me that in attempting to
prevent gold from coming in here to the extent
that it is - that that is taking a position of
monetary leadership. We are doing what is not
only in our own interest here, but we are doing
what is in the interest of the world. Certainly
a continuation of a flow of gold to this country
is not going to in any way make for world stability.
The gold that we are getting is needed in other
countries, needed by the world at large, much more
than it is needed here. And we are only - the way
we show, assume a position as one of the monetary
leaders in the world, it seems to me, is to do
what we can to not unduly, certainly, attract the
gold here.
White:
Are you (Taylor) doing something other than raise
the question as to the wisdom of this procedure at
this time? Is there something beyond that?
Taylor:
No, I think you can write the rules either way,
but I think we have to take into full consideration
what we are doing when we take this step.
White:
Well, it seems to me the criterion which lies behind
all this is the general welfare of the American
people in pursuing a certain course, and in that
course you have decided that further inflows of gold
have disadvantages. You have decided to restrict
that inflow in this way, or at least to attempt to
restrict it in this way. It seems to me that the
criterion is there, that you don't have to write
any further rules. And I don't see that you need
any more specific objective than that you will take
as much gold as you feel is for the best interests
of the country and for the world in so far as it
affects the country. Haven't we, by determining the
wisdom, dictated a restriction of the flow? Haven't
we already assumed our criterion and passed upon the
wisdom of accepting that as a criterion? And it seems
254
- 13 -
to me that if you are not raising the whole
question again I don' t quite see the relevance.
Taylor:
Well,
isn't of
thegold?
thing to do simply to stop
furtherwhy
imports
H.M.Jr:
Wayne, do you mind if I interrupt? I don't really
think it is fair to Landis and Eccles to tie them
up on this thing when we've been at this thing now
during the time you were away. And I really think
that those are questions that we really ought to
ask among ourselves in the Treasury. I mean we
have gone so far
Taylor:
Ilation,
thinkI that's
right. It's going to be our legisassume.
H.M.Jr:
I think it is a question that we ought to ask
we've agreed as to the principle. I think the
only question as far as I know that Eccles may want
to raise is this question of the
Presidential discretion.
of making it discretionary. And I think in
fairness to them that we could be here until
ourselves, because I've brought them here and
Upham:
H.M.Jr:
five in the morning and we couldn't answer those
questions. I mean don't you think so?
Taylor:
Well, I've been out of that. I thought those ques-
tions ought to be asked before we made a recommenda-
tion.
H.M.Jr:
I think they ought to be asked, but I think they
ought to be asked in the Treasury and not take
these people's time, because certainly we can't
get anywhere tonight if we're going to start
answering those questions. I mean we just wouldn't
get to first base.
And what I'd like to do is - I mean having brought
these men here - would be to take this thing up and
find out if they are willing or if this comes to
eighty or ninety percent of what they think and
they'11 go along tomorrow and say to the President,
"This is a first draft. We'd like to know whether
this is anywhere near what you'd like to send to
255
- 14 Congress." I mean that's what I've got these
people here for tonight. After all, one man has
to do the work, and when we go over there I'd like
to have Landis and Eccles also say, "Well, for a
first draft, this is about what we stand for,"
or "It isn't." Isn't that right?
Eccles:
(Nods yes)
H.M.Jr:
I really think that we have traveled far enough.
At least I have anyway, as far as the group in the
Treasury - everybody, including the Federal Reserve
and S.E.C., are all agreed that we could go this
far as a first step. I mean there wasn't a single
voice. The only question raised by anybody was
making it discretionary in the hands of the Presi-
dent. Is that right? Am I overstating it?
H.M.Jr:
No, I think there is some relevance to his point
which will appear later if I gather correctly.
Am I overstating it?
Upham:
No.
Eccles:
As far as I'm concerned, we agreed to this as a
White:
first step, realizing that it was the mildest form
that any action could take; and this in itself, it
seems to me, would possibly be justified on the
basis of equity between our own citizens and foreign
citizens without regard to whether or not we may be
getting excessive gold imports. I mean you can jus-
tify this without getting into the broader field, it
seems to me, Wayne, that you raise.
Taylor:
I think you can justify this on many bases. But when
you bring the various other factors into the message,
why, that is where I think we have to answer these
other questions.
H.M.Jr:
Wayne, this is just as though Gardner would say
tonight, "I don't think you got enough gold; I want
to see more." And I'd say, "Why didn't you say that
before?"
Gardner:
Not Gardner.
H.M.Jr:
Well, I mean I wouldn't say that tonight. I wish you'd
256
- 15 -
brought that up a couple days ago. I mean that
doesn't - I mean I just think that to get into a
very broad discussion tonight - I'm afraid we
wouldn't be anywhere and I wouldn't be able to
find out what Eccles and Landis think of this
first draft, and that's what I'd really like to
get - or anybody else to comment on this draft.
Is that all right, Wayne?
Taylor:
(Nods yes)
H.M.Jr:
And you can get our boys together in your room and
have our customary free-for-all. Huh?
Well now, you want to take this page by page?
Eccles:
Shall I read this first page?
I'd like to read a page and then discuss it, if
H.M.Jr:
Or paragraph by paragraph. Why not do it one para-
Magill:
"For many months past I have been increasingly dis- -
Magill:
that's all right.
graph each time?
turbed by the volume and activity of foreign funds
which have come and are still coming to this country,
a large part of them for speculation and investment
in American securities. Last November I directed
the Secretary of the Treasury, the Chairman of the
Board of Governors of the Federal Reserve System, and
the Chairman of the Securities and Exchange Commission
to make a special study of the problems raised by these
capital movements and to suggest possible remedies.
Gaston:
Did you say September?
Magill:
No, November.
Eccles:
I'd just like to think of this: "a large part of them
for speculation" - why say "and investment" in
securities?
Magill:
I think we had this thought as to this thing: that
this particular move that we are making is open to
criticism, as you have pointed out, as not being
sufficiently directed against the speculator.
257
- 16 Eccles:
I see. and inasmuch as it isn't, you want to cover
more than speculation.
Magill: Right.
Eccles:
Large amounts are coming for investment, aren't they?
Your taxed income in general, and that covers income
Magill:
Right.
Eccles:
Gardner:
Yes, I see the point.
"ouldn't it be better to say "investment or specula-
Haas:
Well, he develops a little further, don't you, your
Oliphant:
Oliphant:
That word "activity" means activity after it gets
here, Ros? It bothered me both times.
Well, these funds keep turning over; they are active
in this way.
Activity after they get here; is that it, Ros?
Magill:
Yes. Ready for the next one?
H.M.Jr:
Don't hurry them.
Magill:
"This study has progressed sufficiently far to convince me that a large proportion of these inflows
has been distinctly unhealthy both in character and
in volume - unhealthy for our own citizens and unhealthy for the citizens of the countries from which
Oliphant:
Seltzer:
from stocks and bonds, income from any source.
tion"?
details on that a little bit.
these funds are coming."
Landis:
I wonder if that might not be written in this way.
The thought occurs to me that if this volume should
stop today - that is, if your cumulative inventory
changes would go down rather than up - a query as to
whether we'd really have a serious situation as it
exists today. It is the continued up-curve that
raises the problem rather than a steady condition
today of whatever it may be.
258
- 17 Magill:
Well then, you'd prefer "This study has progressed
sufficiently far to convince me that a continuation
of these inflows will be distinctly unhealthy."
Eccles:
Otherwise, the foreigner may get the impression we
are
going
attempt
to to do something about what's in here and
Magill:
Shall I mark up this copy?
Haas:
Magill:
Will you make the notes on it, Larry?
Yes, we'd better keep one copy the way it was.
Who's going to do it?
Haas:
Peltzer's going to do it.
Magill:
hen
you want to make it "A continuation of these
inflows
Gaston:
What about "threatens to create a situation that
would be unhealthy"?
Magill:
Haas:
Lochhead:
Magill:
Eccles:
Magill:
"A continuation of these inflows will be distinctly
stick in something like that.
Get the thought, Larry, and fix it up.
"Unhealthy for the citizens of the countries from
which these funds are coming." I think it may be
quite healthy for the citizens, but not the country.
Yes, I think so. Cut out "the citizens of the" and
make it "unhealthy for the countries from which these
funds are coming." I think that's right.
With those two suggestions, I think it's all right.
"In part these inflows of foreign funds into the
unhealthy both in character and volume." We'll
United States represent a continuation of those
erratic and undisciplined movements motivated by
fear or by the hope of speculative gains from
exchange fluctuations that threatened the currency
stability of many countries a few years ago. In
larger part, however, they represent funds attracted
here for participation in the profits of American
business recovery."
259
- 18 Oliphant:
"A few years ago" is a little, long.
White:
Yes, and why should the funds be coming in now,
if I understand the tense, as a consequence of what
happened? Or did I understand?
Magill:
Seltzer:
A continuation of those erratic movements that
threatened us a few years ago.
Perhaps "recent years" instead of
Eccles:
You've got three reasons here: The fear; and the
Magill:
Too long.
Landis:
The thought I have is in the last sentence there the last sentence is too good, it is too kind to
the foreigner. You say "In larger part, however,
they represent funds attracted here for participation in the profits of American business recovery.
That looks like a pretty good reason for coming
over. Actually they are very liquid. They are not
coming over here with the idea of getting a real
return out of business recovery, but they are trying
to play the stock market. I mean this is too respec-
opportunity of speculative profit through the fluctuations and the currency gains from exchange
fluctuation; and the profits to be obtained by
investment in American securities. Those are the
three
reasons. It is just a question of how you
state them.
table.
Haas:
You can put that in terms of "capital gains resulting
Landis:
Yes, I thought if you emphasize that angle
Why don't you say "speculative profit as a result
of capital gains through operation of the stock
Eccles:
from "
market."
Magill:
Or "quick profits." We've got "speculative" in here a
Gaston:
Aren't you afraid you're going to create the impression that we haven't got a real recovery, but just
lot of times.
a stock market boom?
260
- 19 -
Oliphant: That's the impression it makes on me.
Seltzer:
You've got plenty of "speculation" in here.
Haas:
Of course there's a lot of
Seltzer:
I don't know that you got the last point. We
deliberately put in here this business about
exchange - speculation on the exchanges, to get
away from the stock market, historically that
having preceded this stock market business.
Magill:
Landis:
Gardner:
"hy don't we cut out that last sentence, Jim, and
carry over that idea with your capital gains thought?
I don't think the last sentence is necessary.
The first sentence of the paragraph. There has been
no outflow of foreign funds. It has all been a
movement into the security market; partly foreigners
reducing their securities, to a larger extent
foreigners buying American securities. And they have
been buying American securities, I suppose, partly
because of bad conditions in Europe, such as currency
fears, war fears, and to a larger extent undoubtedly
because of the profits anticipated from American
business recovery.
Taylor:
The minute you make that statement, don't you have to
be willing to answer question Number Five?
(Hearty laughter)
H.M.Jr:
That's all right. You know, these - everybody goes
away for a week and it's unfair; they gt a chance
to think. It isn't fair to the rest of us.
Taylor:
I was answering questions about the Supreme Court.
Haas:
I think there's a danger of making this appear too
alarming. In other words, a good deal of these funds
aren't as "hot" as some people might lead one to
believe. I mean I think there is a large bulk of
those that really stay for a number of years, and
they're going to stay here as long as the outlook
is good.
Gardner:
The fact is that the "cool" money is about as dangerous
as the "hot" money.
261
- 20 Haas:
That's right.
Gaston:
You
don't have to throw the whole weight on speculation.
Magill:
Then you wind up by leaving in the last sentence.
Seltzer:
Why sure, we left it in; I never took it out.
Eccles:
I think we can generally agree on the three points
that are made there. It is a question of phrasing.
After all, you can't work out here, it seems to me,
the exact phrasing. If you agree on the three
particular reasons why the funds come here - and
Magill:
then it is a question of how it is stated.
Well, we'll look for a disreputable adjective of
White:
Except that exchange depreciation is no longer
Magill:
Well, our next paragraph. "We do not need these
Upham:
Magill:
some sort.
playing a significant role, either in attracting
or keeping it there.
funds. Their immediate effect is merely to add
to our already large gold reserves. They are not
contributing to our business recovery."
I object to that sentence.
"The metallic reserves of the United States are
ample for all our present and foreseeable future
needs." Including yours, Upham. "A number of
other countries are much less happily situated
in this respect. Yet, a substantial amount of
the foreign funds coming to the United States are
being sent from such countries." That ought to be
"is." Seltzer, by golly, you've got another
error. He's got a "proportion is" up here somewhere.
Oliphant:
The amount "is."
Magill:
"Substantial amount are" isn't right. Ought to be
"is."
Oliphant: That takes a load off my mind, Ros.
Taylor:
When you make that statement, which countries do you
262
- 21 mean?
White:
France is one, and those which are included under
Seltzer:
The stuff that comes from England, you see, is
Taylor:
I mean are you prepared to say that is France?
There are several countries about which that is
not true, but there are more in number about which
White:
the
list of "other countries" - lot of small countries.
routed through England.
it is.
Eccles:
Taylor:
Speaking about future needs, you might apply it to
England if they are going to finance France.
But I think you have to be prepared to answer that
question if you make that statement.
Landis:
What's the purpose of that sentence? I didn't
Magill:
Mr. Landis wants to know what the last two sentences
Seltzer:
The purpose of what?
Magill:
The last two sentences.
Seltzer:
Well, that is to introduce the idea that these other
countries need the other gold more than we do, and
we are proposing to do this thing to help them as
well as help ourselves.
Well, the situation being what it is at the moment,
Seltzer, that isn't true. It isn't the fact that
the gold is moving out; it's the condition causing
the gold to move out that they are worried about.
That's the real worry.
Oliphant:
quite get it.
are in there for.
Haas:
It works both ways.
Taylor:
You're in an awful spot if you make that statement,
making derogatory remarks about one of our pals in
the tripartite agreement.
263
- 22 Oliphant:
Taylor:
Your point is that it might tend to weaken the
franc very materially.
Yes, you're damn right.
Taylor:
Well, if the funds couldn't come readily from
England here, they may go to South America and
other countries and help the whole world picture.
But that's not the statement. I think that would
be a better statement: the fact that the gold is
not going to the places where it is most needed
rather than that it is leaving countries that
need it badly.
That's my point.
Eccles:
That's it, that we are getting it instead of its
Seltzer:
I don't know. Politically, you are on much weaker
ground when you say, "Well, this gold is leaving
these other countries anyhow, but we don't want it.
"e've got enough of it. Let it go to South America
and other countries." You are on much more defensible ground - I mean just psychologically - when
you are in the position of wanting to discourage
an exodus of gold from countries that can use it.
To use "We don't need it" - the minute you go around the minute you introduce the question of other countries getting it if we don't, you raise some other
questions: Do we want South America to get it from
England, France, etc., and thereby set up trade
relations with these countries rather than with us?
Magill:
Of course, there was one reason that we may have
put those sentences in - was that we may have been
over-influenced by these State Department arguments
Eccles:
White:
going to places where it is needed more.
this afternoon. That is, they were full of thunder
about the likelihood of the foreign countries coming
in and urging that we were discriminating against
them, etc. And I imagine there was some idea of
putting a little color in here to indicate we were
doing this for the benefit of some of these countries
as well as for the good it might do us.
Eccles:
The difficulty of being specific this way - it is
difficult to tie it down to a country.
- 23 -
264
Magill:
I think that's true.
Eccles:
What we are interested in is world trade and world
stabilization. Therefore, it seems to me that, to
the extent that we get no more of the world's gold
and that the gold is left in other countries, it
means that it is more likely to be better distributed. And, without being specific as this is,
I think that the other suggestion that White made
here certainly is a much more defensible one.
Magill:
Well, one thing that occurs to me, as a chronic
compromiser, is that you might leave in that next
to the last sentence and then put in White's in
the last, or something of that sort.
Landis:
You could leave out both those sentences and then
extend the next sentence of the next paragraph.
White:
I think you are placing a little too much emphasis and I think Taylor was coming to this possibly - you
place too much emphasis on the equity provision.
By placing emphasis on the equity provision you put
yourself in a difficult spot if you wanted to pass
any more legislation if you find this isn't effective,
because the legislation that you will have to get
later cannot be based upon equity nearly so much as
this can. And therefore, if you don't strengthen that
too much, you don't put yourself in the position of
making it difficult later. I think possibly Taylor
had that in mind.
Oliphant:
And then there is a big hole in there too that can
be pointed out.
White:
It isn't too strong.
Magill:
That equity argument isn't one hundred percent.
Eccles:
That's where we had trouble with our memorandum on
Oliphant:
this thing.
We don't lay taxes in order to be equitable. We do
it in order to raise revenue. And beyond a certain
point, the higher the rate the less revenue you get.
The Ways and Means Committee knows why that rate has
been where it is. They have talked about that for
- 24 -
285
hours
and hours and hours. And the Finance Committee
know too.
White:
And if you are speaking of equity, how you going to -
if it is equitable at twenty percent, how you going
to raise it to forty and still call it on the basis
of equity?
Magill:
Well, of course, we have tried to cover that as well
as you can. That is, we have said here, "We are doing
this for one reason, because we want to try to take a
first step in stopping
these movements; secondly, as an
adjustment
of the rate."
White:
It is quite true, but it means possibly that you have
to put a little more emphasis on the gold flow.
I'd like to point out that this whole argument, that
Oliphant:
we are not taxing the foreigner as much as our own
American, has been impressed on both those Committees,
and they have turned down that argument knowing just
what they are talking about. They turned it down on
the
basis of the yield - of the rate that would give
the revenue.
H.M.Jr:
vive what, Herman?
Oliphant:
Yield the revenue. They weren't worried about abstract
equity. They wanted a rate that would yield revenue.
Well, you've got some additional evidence, in fact, in
cases where you know of Americans going abroad and
working through corporations to get the benefit of the
Taylor:
Oliphant:
differentiation, which you didn't have at that time.
State that again, will you, Herman. I don't quite
get that.
I mean this talk that we are not taxing these people
H.M.Jr:
Yes, and what happened?
Oliphant:
That was all turned down in favor of the present rate.
Upham:
Because
H.M.Jr:
abroad as much as we tax our own people was urged on
the Ways and Means Committee when the thing was up
before.
266
- 25 Oliphant:
the primary thing that they had in mind was
revenue
yield
rather than driving this money into
tax exempt
securities.
Zucker:
Another point that impressed them was that the
foreigners don't tax capital gains either, and
that gave them parity of treatment here.
Landis:
As far as the arguments in the Committees go, we
can present this angle later if it turns out that
this is too weak a method to discourage foreign
investment: that if this is too weak, then the
tax rate is not the controlling factor in investment here; therefore, raising the tax rate will
mean an increase in revenue rather than a decrease
in revenue.
Oliphant:
You see, we go down on the Hill, try to get this
through before the 15th, and talk with them - it's
all in terms - well, this is wholly disconnected
with any of these general tax bills, if there is
to be one at all; and so in presenting the case the
stress should not be on the tax aspect of the thing,
equalizing the tax system, etc. The stress should
be on the emergency which has arisen and the need
for action and the reason why you are taking this.
Eccles:
Oliphant:
Yes, but you've got to mention the other. I don't
think you've got to stress the other; I don't think
you should. But
It will be mentioned later. But it is not the broad
statesmanlike reason that the President is giving
for recommending this action.
Eccles:
Oliphant:
I agree with that.
It's a detail and it will develop when the arguments
start on this.
Eccles:
It's just one justification. It is a minor one.
White:
It is a minor one.
Haas:
It's a minor one; it's not airtight, either.
Eccles:
Do we want to say "They are not contributing to our
267
- 26 -
Seltzer:
business recovery"? I think those funds have up
to the present time certainly contributed.
Did
you want to say "Further inflows will not
contribute"?
Eccles:
Maybe. I think that would be better.
Landis:
Say that they are not necessary.
Eccles:
That's better.
Seltzer:
Well, we - in this sense, we don't believe so. We
believe they will hurt us rather than help us.
Otherwise, we wouldn't be going about this. So when
we say they won't help us we are speaking of our best
knowledge at the moment, everything being subject to
our limited - our lack of omniscience.
Haas:
Well, if you change it, Larry, to "further flows are
not necessary," I think that would take Mr. Landis's
point.
Eccles:
Haas:
Seltzer:
"Further inflows are not necessary to our business
recovery." That would assume that the past has been.
We'll admit that.
You have to make it neutral and
We'll make it "The recent inflows are not contributing to our business recovery." That is certainly
true.
Landis:
The idea you really want to get across is this,
isn't it: that the necessary investment for business
reocvery can be gotten in this country without resort
abroad. Now, it is technically true that any money
that has gone into investment has contributed to
business recovery, irrespective of what source the
money came from. Technically that is correct. But
the other idea is the real idea, which you have tried
to write shorthand in this fashion.
Zucker:
You mean you want to bring out no dependence on these
Magill:
Suppose you say "Our business recovery can be financed
funds for recovery.
at home."
268
- 27 Eccles:
"We are not dependent upon these funds for business
recovery. "
Seltzer:
It is a good deal weaker than this as it stands.
Haas:
Say "These funds are not required" and you don't
make it present, past or future.
Bryan:
Does the word "contributing" as it stands - doesn't
that mean now? That doesn t beg the question as to
the past, does it?
Haas:
Well, that's a doubtful question.
There are two major effects from these funds. The
first is the primary effect in the stock market, and
that, we feel, is bad; now that the stock market is
tending to get ahead of the business recovery, that
the danger there lies that it will run too far ahead,
and we have curtailed the use of foreign funds in the
stock market. But the inpouring of foreign funds
Gardner:
continues and constitutes a danger just of the same
character as
White:
In other words, had these funds not come in
Gardner:
The primary effect on the stock market is bad. The
second effect of these funds is that they bring gold,
and the gold doesn't contribute to our domestic
recovery; it piles up in the inactive holdings of
the Treasury and enlarges the public debt. Neither
of those things appears to help our recovery; both
create problems, one for the Federal Reserve and
S.E.C., the other for the Treasury.
H.M.Jr:
would I just interrupt at this stage for a minute?
This discussion about putting these words in the
mouth of the President, as I am listening, is just
absolutely frightening me to death, and I think
we're just taking off entirely too much here. The
reason I have kept quiet, I have been thinking, and
it just scares me to death. And I think before we
go further I'd like to just talk a minute, even
though he's asked for a message. I mean after all
we're coming here and if we give him this - I mean
after spending several hours on it, and I'm going
over again tomorrow. I mean the three of us walk
in there; after all, it looks to us - I mean if we
269
- 28 walk in there and say, "This is what we recommend"
I just wondered if you couldn't stop and pause a
minute and if there isn't another method of approach-
ing this thing without taking in practically the
putting it in the mouth of the President. This just
whole monetary policy of the Government and then
scares me to death. I mean there are a lot of things
here which we are talking about which I couldn't
recommend; I'm not sure.
- we are doing a which
more backed along, orthe
off I less
thing he's
And
it's go
lastcouldn't
threefrom
years;
that
is,always
we are
tying his hands by committing him to a definite
policy. I just wonder if we couldn't pause a minute
and it wouldn't be a much simpler approach
I want to say this: I think Magill, considering the
time - it is a remarkable document that he's got
there, and it certainly covers the whole thing.
But I wonder if there isn't some simpler way which
would act as a vehicle of transmitting this desire
for legislation to the Hill but still not commit
the President to an over-all monetary policy, internal
and external. I just wonder if somebody wouldn't
talk to that point.
Oliphant:
I had this suggestion, Mr. Secretary
Taylor:
In that message you have answered these five questions without knowing what the message was going to be - in
the affirmative.
Oliphant:
This is a possibility: that the President might call
attention to the fact, by letter or message, that he
had asked this study to be made and the study had
reached a point where he wanted to put the proposal
before the respective Committees and the heads of
the various departments; and just stop at that.
H.M.Jr:
Landis, what do you think?
Magill:
I didn't get you on that.
I mean just take another angle at this thing. I
didn't mean to interrupt you (Magill).
I think you are right on the proposition of putting
H.M.Jr:
Landis:
too much in his mouth.
270
- 29 H.M.Jr:
I mean just stop and think a minute. Let's just
See? I mean let's stop and think a minute. Is
there another method entirely different of doing
this?
say that Magill hadn't done what I asked him to do.
Landis:
Well, one thing that I think is a sort of - would
meet his design, as far as I can guess it, in the
situation, is to simply say this: "You will recall
that I called the attention of the country to this
problem, that I asked these people to S tudy it.
They have studied it. They have transmitted their
suggestions to me, which are suggestions for immediate action, and for a first step in a program that
they are working on; and I am transmitting that to
you."
H.M.Jr:
What would that be?
Landis:
The bill.
Eccles:
Well, if that is all, that is merely a letter of
Seltzer:
transmittal. That, it seems to me, would be the
safest thing for him to do. If that is what he wants
to do, that is certainly the safest procedure.
Of course, if you do that, you lose all the psychological effect of a formal message from the President
to Congress.
Eccles:
Landis:
Well, do you need that in connection with this particular proposal?
You can pick that up, a considerable portion of that
up, by a simple statement that "I think something
ought to be done about it, and quickly; even though
at the present time it is impossible to propose a
complete program, the situation is such that it calls
for very prompt action."
Eccles:
He might indicate that this isn't sufficient, that
this is a first step.
Taylor:
You can do that - you can indicate that the studies
are proceeding, "but the one thing that has become
apparent while these studies are proceeding, and
all three are willing to recommend, is this differential - rather, preferential treatment which is being
- 30 -
Magill:
271
afforded foreigners." Which will indicate that
the rest of it is going on.
No, there you get into the difficulty you were
talking about earlier. As far as these - let me
say here for the sake of the record that these
first two pages - I of course knew nothing about
them of my own knowledge, because I wasn't around
here when this thing was prosecuted. What I did
was to take the sundry memoranda which were designed
to show why such action should be taken and try to
put them in two pages; that is, these two pages.
think I have a habit of making things too clear
sometimes.
H.M.Jr:
I
Well, I just wonder if the very simplest statement
of transmittal Let's say tomorrow we could have
a rough draft of a bill, just a rough draft, and
we went over to him and the President concentrated
on that. And let's say that he decided after seeing
the bill whether he wanted to have it a flat rate or
have it discretionary. Then he'd say, "I like this,"
or "I don't like this thing." And then we gave the
legal division a chance to make it absolutely as
nearly foolproof and Constitutional - which certainly,
Herman, you'd want more time than you have had,
wouldn't you?
Oliphant:
Yes, I'd like to.
H.M.Jr:
And then just gave this - so the President would
say, "All right, I like this, it's all right. I
want it permissive," or "I don't." And then explain
to him why we don't think he should go into all the
aspects and repercussions, etc., whether gold did
help us or didn't help us, or whether we want any
more or whether we don't want any more gold, and
this whole question of gold. And then we open up
ourselves - "Why didn't you do this long ago?
You've got twelve billion dollars. And what you
going to do about Eccles' silver policy?"
(Hearty laughter)
Oliphant: What you meant was Utah silver policy.
H.M.Jr:
That's right.
- 31 Eccles:
272
Sponsored by Herman Oliphant.
Oliphant: un no.
Eccles:
King and Oliphant.
H.M.Jr:
King and Eccles.
Oliphant: Synonomous.
Eccles:
Itiemight
be guilty of a hell of a lot, but you can't
that on me.
Oliphant:
Well, may I make this observation there? I agree
that it ought to be some very short document from the
President going to the Hill. I'd like to call attention to this thing that we have run into over and
over again down on the Hill. It's true, I think,
that there is always difficulty about sending down
the draft of a bill even to any Committee. There's
been some serious repercussions very recently on
bills that were sent down to Committees other than
these two Committees. But in connection with Ways
and Means, Mr. Secretary, and Finance Committee,
we've got an especially difficult situation on
personalities. If we send a bill down there, it
will greatly prolong the process of getting it
through. They will just - merely because it comes
from that end of the Avenue, they will change
things they otherwise wouldn't change, and it'11
get into all sorts of difficulties. But if, on the
other hand, we say that the experts, etc., are
available, what will actually happen is that the
paper will be passed at the proper time. But if it
goes through the President, it will create lots of
difficulty.
Gaston:
Therefore, your message has got to say something;
even though two short paragraphs, it's got to say
something.
H.M.Jr:
Well, Herman, just for a matter of the record, my
suggestion was - and you were there when we talked
with Pat Harrison and Doughton - that we go up Landis, Eccles, and I go up on the Hill and meet
with the same group that we met when Eccles, Jones,
and I went up on the Hill, and explain this thing in
a two-hour conference. And then they say, "Have you
got something that we can work on?" and we say, "Why,
273
- 32 probably we can give you something tomorrow,"
having the thing in the hip pocket all the time.
And then we give them this draft and they are so
tickled to get it, and they hang in one or two
words and that's the way it works.
Oliphant:
Saves you a world of trouble.
H.M.Jr:
And then Landis can say, why, he's interested in
in this, and Eccles can say, why, he's interested,
and I can add my little bit. It's all with no
stenographer present, and then these boys make
the speech. That's the way I'd like to see this
thing handled.
Eccles:
That will leave the President, of course, entirely
out of sending anything up.
H.M.Jr:
Eccles:
Well, if he followed my advice, that's the way he'd
do it; that's the way he'd do it.
That's right, at this present time, because we
may need him later when we come to something more
important.
H.M.Jr:
Haas:
Eccles:
If you want to get this by the 15th of March, if
you want any deadline, we've got to move awful fast,
and I'd have to - personally, this document, for me
to be satisfied, I'd have to work two weeks on it;
it would take me two weeks, and then I don't know
that I'd be satisfied. I mean to cover up everything
in that thing.
The people here agree, are of the same opinion. That's
the way we feel about it.
It is my view that to have the President write a
message covering this particular action that is proposed is giving it an entirely exaggerated importance,
an importance that the particular action here in no
way justifies. If at this time we were covering the
entire program we were proposing - what we say we may
follow up with - then there might be some justification for a message; but this is so mild and in my
opinion will be so ineffective in really doing very
much about this thing, except temporarily because of
the psychological effect possibly, that for the
274
- 33 President to send an extended message in connection
with
this legislation - it attaches altogether too
much importance to it.
Taylor:
I tipped your hand without knowing what your hand is.
Oliphant:
The thing that Wayne now - you are now signing off.
Upham:
He put his five questions in his pocket.
That's a suggestion: send up the five questions.
I predict the method you had in mind originally
would save about two weeks' time in getting the
bill up to the White House for signature.
Haas:
Oliphant:
Magill:
Save more than two weeks.
H.M.Jr:
I want to say that Magill told me today that he
very much hoped they wouldn't send any message.
Magill:
Oh, very much.
H.M.Jr:
And if he had to handle this thing, which he would,
Magill:
Oh, absolutely.
H.M.Jr:
So he only did this on my urging him to. But his own
opinion was no message. I just want to make it clear
he was just doing what I asked, just putting it up
Eccles:
on the Hill, they would not send any. Is that right?
there for us to look at.
I think if the President is going to send a message,
even a short one - if he is going to give it Presidential recognition, that then he's got to say something. And I would sooner see what is proposed here
in this legislation go up there without any recognition on the part of the President at all, giving it
any importance, because it isn't very important.
Seltzer:
Of course, in so far as you want to bluff, it's all
Eccles:
I don't like to bluff. I mean the idea of bluffing
is - it doesn't last long. It's a poor way, it
the more necessary to have a message.
seems to me.
Lochhead:
At his press conference the President said there
275
- 34 was
nothing
on this. Then tomorrow you're going
to give
him this.
Haas:
H.M.Jr:
Gaston:
H.M.Jr:
Eccles:
H.M.Jr:
Well, you can learn a lot in a day.
Well, after all, he did - at his press conference
in the middle of November he did talk about "hot"
money, and so he's hooked up to it all right. I
mean don't worry.
That wouldn't give anybody heart failure, if one
day he said he didn't know anything about it and the
next day he sent it up in a message.
No, in the minds of the public Roosevelt and Eccles
is what they're worried about, not money.
Well, we were just anticipating a situation we knew
that you'd all appreciate in time, you see.
What do you think, Roswell, after my raising this
thing?
Magill:
Well, my feeling is much as you described it before.
As far as getting the thing through Congress, I
don't think there is any question as to which is
the better method, and that is no message. I think
that is true for a dozen different reasons, most of
which have been mentioned.
Eccles:
Magill:
I'd sooner defer any action at all on this until after
the 15th if he wants to send a message, and then open defer it until after that date saying we are still
studying it, and then complete the program in one
bill and have him send a message. Now, if it is
decided to send this up, certainly I would very
strongly favor having it handled without any recognition being given to it by the President.
I want to just stick in this oar: that if there is no
message going up, if it is just a tax bill, you two
(Landis and Eccles) have still got to lay the groundwork for the thing. In other words, we are not doing
this to see if we can get five or ten more million
dollars for the Treasury; we are doing it on account
of this situation that the President described in
November. So that somebody has got to put the under-
pinning under it. We can't put it merely on this
- 35 -
H.M.Jr:
276
equity ground, that these rates are too low, etc.
I very definitely said if we are going up on the
Hill for this meeting - Robinson, Harrison, and
Class, and Bankhead, Doughton, and Steagall - I
mean that whole group, the way we did the other
time, I certainly would want and take it for
granted that Eccles and Landis would go up there
too and say their piece.
White:
Mr. Secretary, I think there is more in this than
has been mentioned to support the point of view
you have taken, because a Presidential message will
receive a lot of popular attention, and the public
may be prone to evaluate this move by the criticism
it receives, which may take this form: that this gold
has been coming in because of the position of gold in
relation to the devalued dollar; that we have been
pursuing that course and on the other hand we are
trying to prevent the gold from coming in. I don't
say that is sound. I say a good deal is made of that
criticism and you are reopening that whole question
by giving it too popular a discussion if it is contained in a Presidential message.
H.M.Jr:
The other thing they are going to ask is why we pay
White:
You mean gold.
H.M.Jr:
Gold, gold. "id I say silver? It's that Utah
Oliphant:
I was just going to ask you if Eccles had your price
of silver up to $35 an ounce.
He just gets the 77 cent part.
Let me just ask a question. "hat is the status, Herman,
Taylor:
H.M.Jr:
Oliphant:
$35 an ounce for silver, and isn't that what is
bringing the gold in.
influence.
of the bill?
Well, I should say that it is all ready in shape if
you did it by your method; that Ros could take it up
with Beeman and Parker and decide after they take it
up whether they'11 want to work on it with Kent and
Ros and with Lusk.
277
- 36 H.M.Jr:
I meant is it in such shape that we could show it if we do have this 12:30 appointment, in such shape
that we could show it to the President?
Oliphant:
It can be for that purpose. It's going to be
H.M.Jr:
unfortunate, because there's a lot of minute changes
of this page and that page, and it's a very poor
way, I think, to lay it before the President.
We'll put it another way. Can Magill and Oliphant
give us a piece of paper to put on his desk?
Eccles:
That's right - one, two, three, four, five.
Not the bill, but what the bill purports to do.
H.M.Jr:
Could you do that and have that by 12:30?
Oliphant:
(Nods yes)
H.M.Jr:
Why, gentlemen, isn't that as far as we should attempt
Eccles:
I think it is.
H.M.Jr:
Landis?
Eccles:
With reference to the
Landis:
(Nods yes)
Eccles:
With reference to the optional
H.M.Jr:
I'd like to have a little fight on that with you
Eccles:
I was just going to say with reference to the
optional provision that we might discuss the two
methods of finishing this question. When we get
Oliphant:
to go tomorrow?
tonight.
up there before that Committee, we may find what
we found when we discussed a similar situation
before, when you and Jesse Jones and I were up
there. Now, what if we do find that attitude on
the part of those people that we may meet?
H.M.Jr:
Well, Marriner - I mean so the others know - I mean
we went up there with the idea that we'd ask for an
extension for four years - I mean for two years, with
278
- 37 -
the right of the President to extend it two years
more. And as soon as they heard that they said no,
they wouldn't give him that; that was taking certain
prerogatives
away from Congress. They immediately
said no,
Eccles:
Didn't want to give any option.
H.M.Jr:
No option. Now, I think that this is different,
because we already have four precedents for this
procedure, all in the foreign field. here are
four different cases, all in the foreign field, where
the thing has been given - the power, to the Presi-
dent.
Eccles:
Magill:
Eccles:
Did you have it in connection with taxation at all?
Yes, one. We put one in in 1934. In case a foreign
country discriminated against our nationals and the
President so found, then the President should have
the power to double the tax rate applicable to
nationals of that country in this country, and if
he found that that discrimination had stopped, then
he could pull the rate down again.
Well, of course, if you tied into that provision
this one here - but you don't want to tie it into
that.
Magill:
No, but that's simply answering your question, that
there is a similar provision in the Revenue Act.
Eccles:
But if you used that as a justification for giving
discretionary power, then the question could very
readily be raised that that is a pretty definite
definition of the extent of the discretion; in
other words, there.is a limitation on the discretion.
Magill:
It is not as clear, probably, as my statement makes
it appear. Let me read it if you are interested
in it. "Whenever the President finds that, under
the laws of any foreign country, citizens or corporations of the United States are being subjected toYou
discriminatory or extraterritorial taxes
see, that is really pretty vague when you come right
down to business on it.
279
- 38 H.M.Jr:
Then there is the case of the tariff. It's an
adjustable tariff. You had four. Reel them off.
Then you had gold content of the dollar; that's
three. And then there was a fourth one, countervailing duties.
Taylor:
Those are all based upon positive action - I mean
Eccles:
White:
That's the point. They are based upon
With the exception of gold content of the dollar.
H.M.Jr:
Well, Marriner, let's put it a little bit - let's
of somebody else.
Eccles:
get down to brass tacks, if you don't mind. Let's,
for the moment, put aside what Congress thinks is
right or wrong or the best way. I mean you raise
one objection, that you don't think, on account of
our previous experience, that Congress will do
that very readily.
Well, I meant if they raised the question, then
H.M.Jr:
What other objection? I mean let's get them all.
Eccles:
I think it puts us in a more difficult position with
foreign countries, especially if we are going to
put this thing entirely on the basis of equity,
what position would there be?
equalizing; then it seems to me it more or less
destroys that argument.
Haas:
We agreed that argument wasn't very good.
Eccles:
Even to the extent that you use it at all, to the
extent that we are justified in increasing this tax.
Then the fact that you have the power to levy a
tax far in excess of any tax that a foreign country
levies upon our nationals - just to that extent, of
course, I don't think that you can make any argument
that this is equitable. I think you've got to leave
the whole argument of equity out of it.
Magill:
Of course, under that proposal he could pull the
rate down too, couldn't he?
Oliphant:
By the way, your fourth precedent was not counter-
vailing duties; that's fixed. The fourth example
290
- 39 -
was his discretionary war power to control exports
White:
for the purposes of neutrality.
There's another one of where if he finds certain
conditions
that's five.he can impose an additional duty; then
Taylor:
My r 'eason is a political reason.
H.M.Jr:
What's that?
Taylor:
It's his own personal interest. If he wants - asks
for one more piece of legislation at this minute where
the discretion is placed in him - extremely foolish
thing for him to do.
H.M.Jr:
Eccles:
I think you're right.
Well, that's the
Taylor:
To me that's the
Eccles:
That's what I thought of when you go before the
Committee.
Taylor:
That's the controlling thing at the - factor right
at the minute. I don't think this particular thing
is worth taking the chance on.
Eccles:
No. I don't think that - if you just send no message,
the bill isn't made public, they draft the bill, and
you go before the few of those leaders privately, they
will advise you likely against it for that reason, see?
And it would be a mistake to try to insist upon it or
try to argue for it. And even if they were willing
to undertake it, is it good politics at this time to
do it?
White:
Except in this particular field. I think that arguit was anything in the domestic field. After all,
ment has a little less potency than it would have if
the Congress has indicated
Taylor:
Oliphant:
Doesn't make any difference what field it's in.
Well, the opinion of the Supreme Court sanctioning it
in the international field is still ringing in people's
ears.
(Secretary leaves room)
281
- 40 Taylor:
Eccles:
Oliphant:
That's all right, but that was before recent events.
It's hard to explain that to the public right now.
In other words, the opposition can very easily make
a story out of this thing, and it could get a hearing.
Well, nobody suggested, for instance, there ought to
be full discretion in the Secretary for the administration of the Stabilization Fund. It never even
occurred to anybody.
Eccles:
He always had that. He got that discretion, Herman,
at a time when it was recognized the discretion
should be given. All you did was renew an existing
power.
Taylor:
But that happened to be the Secretary.
Oliphant:
But the Secretary was under the President, Wayne.
Taylor:
Well, it's a very important difference at the
Eccles:
now important is it to have discretionary powers
Oliphant:
present time.
in this particular thing?
I think it is because you don't know that it is
important.
Landis:
This thing is an instrument of policy; it's got to
be flexible.
Haas:
Otherwise people will think you are putting down
something permanently, that we don't want and never
Eccles:
Haas:
Eccles:
will want these funds. It's a short term proposition,
or it might be a very short
Well, do you expect this really to be an important
instrument in influencing the flow of capital?
Well, it would be more important, I would say, if it
were flexible. That's one aspect of it. I think
it would have more effect if it was flexible.
Well, maybe more. But the fact that it is a minor
method of meeting the problem would seem to me to
take away some of the justification for flexibility.
282
- 41 -
If this was the major means of meeting this, then
Icase
couldfor
see
it.a good deal of argument in making a
Magill:
Well, for all you know now, it may be.
White:
It may be in the future.
Haas:
Of course, Marriner, you may say that if it is not
flexible - you say, "Is it worth the effort to go
down and try to do it?" I mean to go through all
this.
I mean it might be just that ineffective
without it.
Gardner:
What criteria for the use of this flexible power
would be written into the law?
Magill:
We've got lots of them.
Eccles:
Well, if you get a criterion for that, that in
itself might satisfy the public and Congress that
after all this isn't wide discretionary power.
Oliphant:
That had to be put in in order to take care of the
"hot oil" cases.
Eccles:
I think that would go a long way, the criteria,
toward meeting the political objection.
Oliphant:
Shall I read the four suggested standards or not?
"Whenever, from time to time, the President has
reason to believe that
" (1) The foreign commerce of the United States has
been or is about to be injured as a result of the
operation of the taxes at any of the rates herein
provided, or
"(2) The interests of the United States have been
or are about to be adversely affected by reason
of the value of the currency of any other government or governments in relation to the currency of
the United States, reached or maintained as a
result of the operation of the taxes at the rate
herein provided, or
283
- 42 -
(3) The diplomatic relations of the United
States have been or are about to be adversely
affected or the performance on the part of the
United States of any commitments, engagements
or arrangements made, or in course of negotiation, by or on behalf of the nited States to
or with any foreign country, by means of treaties,
executive agreements, mutual statements of intention, or otherwise, is or will be prevented or
impeded as a result of the operation of the taxes
at the rate herein provided, or
" (4) The net outflow of gold from the United
States as a result of the operation of the taxes
at the rate herein provided is or is about to be
so great in proportion to the then existing quantity of gold in the United States as adversely to
affect domestic credit conditions
That is confined to outflow?
"
Gardner:
White:
Oliphant:
Might want to move it up - the inflow.
That's right.
the maintenance of the domestic price level, or
the security of bank deposits,
he shall cause immediate investigation to be
made to determine such facts. If, after such investigation, the President finds the existence of such
facts and that the suspension of any portion of the
rate (but not to exceed two thirds thereof)" - that
leaves the ten percent minimum - "will prevent any
of such adverse effects, he shall proclaim such
determination. On the fifth day after the date of
such proclamation the applicability of the portion
of the rate so determined shall be suspended."
"
"
284
- 43 White:
I think there is much to be said for the last one,
possibly
for the third; not so much for the first
two.
Oliphant:
You are thinking from an operating standpoint.
White:
I am also thinking of it from the point of view of
Congress; that the first one likely doesn't seem
to relate directly enough to the problem which
you are raising in Congress for them to be a
little bit suspicious that the powers are too
broad. Whereas the last one definitely looks at
the power you are after.
Oliphant:
Well, the third one is pretty nearly a paraphrase
of the recent Supreme Court decision; that's the
reason for it.
White:
Well, the third one is possibly valid, but the
first two
Eccles:
Read that first one. You (White) asked the question
Oliphant:
Now, notice, these are all in the alternative; they
are not conjunctive. They are all in the alternative.
on it if
"The foreign commerce of the United States has been
or is about to be injured as a result of the operation
of the taxes at any of the rates herein provided."
Second - did you want the second one read?
Eccles:
Which one did you (White) raise?
White:
The first one and the second that I raised.
Gardner:
Could we summarize the points, perhaps? The details,
Oliphant:
Well, adverse effect on foreign commerce.
Gardner:
Yes.
Oliphant:
Interests of the United States about to be adversely
affected by fluctuation in foreign currency as a
I mean - keep it more in mind. Quite difficult
result of the operation of the tax.
285
- 44 Gardner:
Exchange rates there.
Oliphant:
The blocking of treaties and other arrangements.
Gardner: Diplomatic embarrassments.
oliphant: And finally the flow of gold in a fashion adverse
to the
the tax.
interests of the United States as a result
of
Gardner:
Well, I don't see any reason why that shouldn't be
(Secretary returns)
Oliphant:
What we were doing while you were absent, we were
suggesting the question if you made this discretion-
ary what standards would you set up that would guide
the President in the exercise of his discretion; that's
the way to state it from a legal standpoint. Stating
it from an operating standpoint, what would be the
situation under which - the more important circumstances under which the President might want to change
it. And I've just gone over those now. I can state
them again if you'd like them.
H.M.Jr:
Please.
Oliphant:
He may change the rates whenever he finds that the
foreign commerce of the United States is being
adversely affected as a result of the operation of
a particular rate; whenever the interests of the
United States are adversely affected as a result of
a change in any foreign currency, which change of the
value of the foreign currency results from the oper-
ation of this tax; third
H.M.Jr:
What are you reading from, Herman?
Oliphant: The statute - the proposed statute.
Third, whenever you are negotiating a treaty or a
gentlemen's agreement, or so and so, which would
be affected - the consummation of which would be
adversely affected by the particular rate; necessary
to change the rate in order to conclude a treaty.
And fourth, whenever the movement of gold as a
result of the operation of the tax was adversely
286
- 45 -
affecting the domestic credit conditions of the
country
level. or the maintenance of the domestic price
Eccles:
The third one is the only one that seems to me to
Negotiation of treaties - it's an invitation to the
foreign country and the State Department to bring
pressure for an adjustment of the tax.
Oliphant:
No, there's this sort of situation. You might want
to supplement the gentlemen's agreement and might
find that a particular rate was embarrassing, want
to shift that rate. The particular reason that
was wasCourt
because it is nearly
an the
third exact one paraphrase put in of Supreme pretty decision
holding that the President had very broad discre-
tionary powers in the foreign relations field.
Eccles:
Well, I think that if you - with criteria like that,
it certainly does take away some of the objections
to giving the discretionary power. It's different
than the discretionary power which was asked with
reference to the R.F.C. and Stabilization Fund.
Magill:
We talk about it as a discretionary power, but of
course anybody speaking before the Committee, for
example - or, as a matter of fact, it is far from
a discretionary power, as that phrase is ordinarily
understood. Certain definite things have to be found.
Here they are.
Taylor:
I don't see how you could prove any except Number
Three.
Magill:
Well, I know
Landis:
That's the beauty of it.
(Hearty laughter)
H.M.Jr:
That's a snappy comeback.
Eccles:
Well, of course, under our system there is no possible
way for anybody to go behind the President in such
findings, and presumably the Chief Executive would not
be irresponsible in making those findings.
287
- 46 Taylor:
Well, I don't see how he could prove those to his
own satisfaction.
Oliphant:
Well, I think right this moment the Secretary has
a very keen appreciation as to whether or not the
movement of gold is embarrassing. I think he knows
by a paper that's on his desk every morning.
Oh yes, I could go to the President and in a very
short time on that thing - well, I mean if you want
to - I mean you wouldn't have to draw terribly on
your imagination that the movement of gold to this
country is going to break down the tripartite agree-
H.M.Jr:
ment.
Gardner:
H.M.Jr:
White:
H.M.Jr:
What that makes clear is that he should not be
governed by considerations of equity in taxation,
but by considerations of international policy.
And for that reason this thing should be discretionary.
If you remember that this is entirely a question of
building this up following other questions on which
he has the discretion in the foreign field
Don't you think it is quite possible they might be
more favorable to the bill if they were to feel that
there is a way out to reduce it when the urgency
exists? Supposing they were to say, "Well, this is
a condition right now. How do you know it will continue?" Then you are in a position to say, "That's
why we want it flexible. If it does continue, all
right. If it doesn't continue, we have the power
very quickly to reduce it."
Well, I could give you a very extreme example. Sup-
posing of these eight billion dollars - let's say
that of those securities - what proportion belong to
England, 25 percent?
Eccles:
23 something.
H.M.Jr:
Belong to England.
Taylor:
Higher than that.
Eccles:
I don't know; do you know, Gardner?
288
- 47 Gardner:
A magnitude of that character, about a quarter.
Magill:
Two billion out of eight.
H.M.Jr:
And let's say just for example - I mean again it
is extreme - that England went to war and she
seized the securities held by her nationals abroad
and sold them, and wanted to bring that money back
to England. I mean just using that as an example extreme, very extreme. We might not be so keen on
that. This
extreme
case.device
I'm just taking a very
Taylor:
Well, this particular rate of income tax wouldn't
have the slightest effect on that situation.
H.M.Jr:
No, but I mean I wouldn't be sitting here worrying
about my end of it, that they are buying six or
seven million dollars worth of our securities
every day - and Eccles, it affects his job, and
it affects Landis's job, and it affects each one
of the three of us in the job that we are hired
and paid to do at the moment. I mean when you
get to three, six, or seven million dollars worth,
each one of us - it makes our work very, very difficult.
Taylor:
I'm not arguing about that at all. But the ability
to vary the withholding rate on certain income-producing securities I don't think would have any
important effect one way or the other on that situation.
H.M.Jr:
But on the other hand you might again want to make
Eccles:
If you take out the I think if we approach this
it attractive to make capital come here. Well look
from the standpoint of justification for discretionary
power, with the criteria that Herman has read here seemed to be justifiable criteria - then it seems to me
that we should be pretty careful in dealing with the
equity in the situation; that the equitable part of it
certainly should - it is a question if it even should
be raised at all. But if it is raised - I question
even the advisability of raising it at all, except
we may go so far only that our present rate it
- 48 -
289
substantially lower than the tax rate charged in
any other country, but not in any way stress the
fact that it may not be inequitable.
Oliphant:
If I went down there and talked to the Ways and
Means Committee about equity, Vincent would howl
at me, "Now Oliphant, are you going to bring that
up again?"
Gaston:
I'd turn that equity argument around and make some
vague statement about we are offering - we are
entering into unfair competition with the European
economy - there is some indication that we are - by
offering
unfair extra inducements for capital to
come over here.
Eccles:
Another reason I don't like the equity argument is
that we want to go considerably farther than this;
that we - it is a little deceptive, and that at the
time that this is proposed we certainly all recognize that it isn't likely to be sufficient and we
have other things in the back of our head; that if
they are proposed, certainly they will not be proposed
for the reason of equalizing the situation. And that
is another reason that I think we should
Oliphant: I think
Eccles:
Oliphant:
Magill:
I think we will make a much better case, if we are
going to have this flexible provision, by
I think all of our experience and observation is to
the effect that we get along better with Committees
if we are wholly candid; and the candid reason is
that we are worried about the gold flow and not
because of equity.
But don't forget the equity is a good secondary
reason. There is another thing that motivates in
me this thought, which hasn't been mentioned, on the
rate proposition, and that is that any of us who
have dealt with those financial Committees know
that rates are particularly their - you start trying
to tell them what the rates are going to be and
you're going to get smacked right on the chin. And
that indirectly affects your equity argument.
290
- 49 Eccles:
Well, can't we say there is a justification for
this on that basis but not use that as an argument
why
should
be done - as to why we are proposing
this that
at that
time?
Magill:
Well, if you look at this statement, I tried to word
that part of it very adroitly with a view to bringing
before them the information to the effect that the
foreign rates are in fact higher than ours - the
withholding rate - and that consequently is part of
the picture. We were offering a certain inducement
there which the foreign countries don't offer.
Eccles:
All this argument is another reason why the President
H.M.Jr:
shouldn't be injected into the picture.
May I ask you just - because I think we're all getting
tired; I know I am anyway. Let me ask Landis and
Eccles: As I understand, what we are proposing to do
tomorrow is to go over there and lay a piece of paper
on the President's desk, giving him an outline of a
proposed bill along the lines we are talking, and
making it a flat rate or discretionary. And I'd
like to ask how Landis feels about it. I mean in
presenting it - I mean which position he's going to
argue or urge the President to take. Is that fair
to ask you that at this stage?
Landis:
Yes, I think so. I think I made the answer a little
while ago: that I feel it is very important that it
Landis:
should be discretionary; unless it is discretionary,
I should doubt the validity of doing anything.
I see. I mean that's your position?
Yes, that's my position.
H.M.Jr:
Well, that's mine. Now I'd just like to I take
Eccles:
Well, I have much less objection to the discretionary
power with the criteria that have been read. That is
a matter that hadn't been discussed. I think that
H.M.Jr:
the same position. I'd just like to ask Eccles.
gives far more justification for it; makes it certainly more palatable politically because of the
President. And it isn't any wide discretionary
power. At least, it is held within certain bounds
- 50 -
291
and limitations which are in the public interest.
And if we will not at the same time attempt to
argue the equities of the situation and we eliminate the equities of it, and with the criteria,
I think I would be in the position to say that,
this being merely a primary step, I think it would
be more effective, be more justifiable as a piece
of legislation, than it possibly would be merely
to fix a rate of, say, twenty percent or some fixed
rate.
There is, of course, the assumption on the part of
foreigners - they are going to figure for all
practical purposes thirty percent if you put that
as the limit. Certainly from the standpoint of
their estimation, their own calculations, they are
only safe in figuring a possible thirty percent
tax. That, of course, makes it a little more justifiable
of
view. and palatable, certainly, from my point
H.M.Jr:
I do think, however, that we should indicate to
the President the possibility of what some of these
men on the Hill might - the question they might raise
at this time as to the political aspect, and ask him
what we should say to this Committee that we are
going to meet in case they do raise the question
of the discretionary power. I would be willing to
go over and approach it from that standpoint.
That's all right. Can we do any more than that
tonight?
Magill:
Eccles:
No, I don't think so.
I would like to say this, Mr. Secretary. I think
that you and Landis and I, in order to get the full
effect of this - that it is important inasmuch as
the press has said considerable about it, and they
are all - the public, the foreigners in particular,
are waiting for something - that either we individually
should agree on what we may say or we should say it
collectively to the press, either before or after we
possibly go up to the Committees. We should prepare
before what we are going to say after, and I think
at that time we should pretty definitely point out
that this is just a first move and that we hope to
be able to take further moves if the situation
292
- 51 -
requires it.
H.M.Jr:
Well, as far as I'm concerned, I'd much rather have
a joint statement coming from the three of us,
carefully prepared, and to go out over the three
names.
Landis:
Tomorrow?
H.M.Jr:
No, no, if and when we ever make a statement.
Landis:
on yes.
Eccles:
I think we should be prepared to make one, but
prepared before we take it on the Hill, because
of what has been said, of what has gone on through
the press. I think that we should not have any
impression given out that we think this is the
solution.
H.M.Jr:
Eccles:
H.M.Jr:
I don't know what your policy is, but when I go on
the Hill, my policy is that I don't do - I never
make a statement. That's what I've always done.
Well, what about after you've been up there.
No, I don't make a statement, but when I go up I
refer them to see Joe and he makes a statement and
he loves it.
293
GRAY
U
London
Dated February 16, 1937
Rec'd 3:15 p.m.
Secretary of State
Washington
RUS
71, February 16, 7 p.m.
FOR TREASURY FROM BUTTERFORTH.
The more important London newspapers carry strai,htforward declarative reports under Washington datelines
on the hearings of the House Appropriation Committee and
the meeting of the President's Special Committee on the
inflow of foreign capital into the United States. The
latter is particularly headlined in the FINANCIAL PRESS
and Mr. Eccles is quoted as predicting that 'something
concrete will emerge". No editorial comment has appeared
in today's press. (END SECTION ONE)
ATHERTON
RR:CSB
294
GRAY
RB
London
Dated February 16, 1937
Rec'd 3:30 p. m.
Secretary of State
Washington.
71, February 16, 7 p. m. (SECTION TWO)
January trade returns show an increase in imports of 8%,
in exports of 131% and reexports of 17% over January of
last year. Unemployment increased but by much less than
the usual seasonable amounts and in these figures the
indication in cotton and wool manufactures and coal mining
is already reflected. It appears that at long last the
more depressed and important basic industries -- coal,
cotton, and wool manufactures--which were slow to benefit
by the general revival are now picking up, that the rise
in price of primary products is stimulating purchasing
power in important markets for these goods. Another
indication of the improved position of these industries
is the great drop in the advances loaned to them by the
clearing banks--many of which were formerly considered
frozen. The analysis of bank advances published by the
Bank of England (see the ECONOMIST page 306) which com-
pared advances to various industries in 1936 with figures
compiled
295
-2-#71, February 16, 7 p. m. from
RB
London (SECTION TWO)
compiled for MacMillan Committee in 1929-30 show a drop
from 81,000,000 to 40,000,000 pounds for the textile
industries and from 30,000,000 to 18,000,000 for mining
industries. Bank chairmen commenting on the fact that
total advances had not increased at the rate which might
have been expected from the degree of industrial revival
pointed out that the quality of their advances had greatly
improved and mentioned the thawing of loans.
The statistics giving the direction of British trade
in 1936 have just become available: the proportion of
both exports and imports to and from the Empire continues
to rise, the Empire having taken 49.2% of British domestic
exports in 1936 as compared with 49% in 1935 while imports
from the Empire in 1936 constituted 36.8% of total imports
and in 1935 35.1%
Exports and reexports to the United States showed
a marked increase in 1936 and although imports from the
United States also increased the ratio for the year of
imports to total exports stood at 21 to 1, whereas in
1935 the ratio was 3 to 1, and in 1934 it was 4 to 1.
A large element in the increase of British exports to the
United States in 1936 was the heavier shipments of spirits.
Continued
296
RB
-3-#71, February 16, 7 p. m. from
London (SECTION TWO)
Continued increases in industrial activity are
confidentially expected and the overseas trade returns
in January are welcomed by those who emphasize the importance
of increasing exports to offset the rising prices of raw
materials and other essential imports especially during
this intensive rearmament period. ( END OF MESSAGE)
ATHERTON
CSB
297
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE February 16, 1937
The Secretary
TO
Miss Lonigan
FROM
Attached are a few further points from my interview with
Mr. Hopkins last week, in addition to what I reported over the
telephone.
238
At first Mr. Hopkins was hesitant about his using the figures
in our table on Government Emergency Payments. He was searching
for the reasons back of it all. He suggested that he might write
an article for the New York Times, or make a speech on it. Then
he decided that it might be used, after conference with the President,
as preparation for the President's announcement about next year's
relief policy, to be made about March 25th.
Mr. Hopkins then began thinking outloud about the use that could
be made of the material. He said that in distributing the national
income it made no difference whether people received it for work
in industry or for work as soldiers, relief workers, old-age pensions,
or direct relief. It was all distribution of purchasing power.
He suggested that we add to the table columns showing the number
of people at work in regular government departments, and in the Army
and Navy.
He suggested that he call a conference including Mr. Lubin and
some other interested people to go over the implications of the
material thoroughly before preparing the interpretation of it.
He went on to say that he was convinced the redistribution of
income mist come through Federal financing. The States and cities
were powerless because their tax base was too narrow. They had only
real estate, but the Federal Government had all the taxing power
it needed.
299
February 17, 1937.
MEMORANDUM ON CONFERENCE WITH MESSRS. ECCLES, OLIPHANT
AND KENT:
RE: TAX ON NON-RESIDENT ALIENS.
Mr. Eccles inquired whether the proposed increase in
the withholding rates could not be rendered wholly nugatory through
the provisions of the law which now give lower rates to individuals
and corporations having an office or place of business in this
country. He pointed out that it would be easy for a Scotch investment trust to establish an office in New York or New Jersey.
I called Mr. Eccles' attention to the fact that 8 resident foreign corporation is compelled to file e tax return and to
include in the return its capital gains. The capital geins would
not be subject to tax to a non-resident foreign corporation. Furthermore, the corporation by establishing an office in this country would
subject itself to State laws regarding the service of process and
to State taxation.
After discussion, Mr. Eccles agreed that the danger did
not seem to be very great in view of these additional factors.
Rm
300
February 17, 1937.
MEMORANDUM ON NON-RESIDENT ALIENS:
RE: CONFERENCE WITH RANDOLPH BURGESS.
Mr. Burgess questioned the desirability of removing
the exemption of non-resident aliens from taxation on interest
on United States bonds to be issued in the future. Burgess
stated that the central banks of the different countries
either have deposits in banks, investments in bankers' acceptances or in investments in government obligations. Under
our present law, the interest on foreign deposits in American
banks is exempt from American taxation as is also the interest
on bankers' acceptances. Burgess said that it seemed to him
questionable policy to subject the interest on our governmental
obligation to tax while retaining the exemption on interest on
bank deposits, thereby subjecting the governmental obligations
to a burden which we do not impose on private obligations.
I said that I would bring the matter to the Secretary's
attention.
Rm
301
February 17, 1937
To:
Secretary Morgenthau
Mr. Eccles
Mr. Landis
From:
Mr. Magill
Subject: Conference on taxation of non-resident aliens
The attached summary of the draft legislation agreed upon by
the three agencies WAS laid before the President. It WAS pointed
out that the proposed rate of tax approximated that in effect with
respect to our own citizens receiving dividends and also the British
and French withholding rates applicable to non-residents of those
countries.
The President raised the question of the effect of this pro-
posal upon foreigners having more or less permanent investments in
this country. He enquired whether it would be possible to arrange
for some drawback or refund of the proposed additional tax if the
foreigner could show that he had held his American investment for
a year or more. It was suggested that the administrative machinery
would be extremely difficult to arrange since American securities
are frequently registered in the names of foreign brokerage concerns
and endorsed by them in blank. The certificates then circulate in
bearer form for five or more years. Hence the difficulties of an
ascertainment of the beneficial owner by the Bureau of Internal Revenue
are very great.
The President also pointed out that the flexible feature of the
proposal would be difficult to justify on grounds of equity as between
Americans and foreigners. Mr. Landis indicated the desirability of
flexibility in any matter which affects our foreign relations.
The President asked that the three agencies consult with the
Secretary of State in order to secure his approval, particularly in
view of the Department's interest in reciprocal trade agreements.
It was agreed that such a conference would be arranged at once and
the President advised of the result.
The President in general approved of the proposal as a mild
first step, but requested additional study on the drawback or refund
point.
Rm
302
SUMMARY OF THE PROPOSED LEGISLATION
A - Changes in rates:
1. Change the rate upon the taxable income of non-resident
alien individuals from United States sources from the
present rate of 10 per cent to 20 per cent if the rate is
to be fixed or between 10 and 30 per cent if the rate is
to be variable upon Presidential proclamation.
2. The corresponding change in the case of non-resident corporations would be from the present rates of 10 per cent on
dividends and 15 per cent on other taxable income to the
rates of 20 and 25 per cent respectively if the rates are
to be fixed and, if they are to be flexible, from 10 to 30
per cent on dividends and 15 to 35 per cent on other income.
B - If the foregoing tax rates are to be flexible, the standards for
guiding executive action and rendering this delegation of power
valid would consist of Presidential determination of the effect of
these rates on:
1. Possible injury to the foreign commerce of the United States.
2. Adverse changes in foreign exchange rates as result of these
taxes.
3. Adverse effects upon diplomatic relations including the performance or negotiation of treaties and other international
understandings.
4. Movements of gold to and from the United States adversely
affecting domestic credit conditions and the domestic price
levels.
C - To prevent evasions, it is proposed to broaden the power of the
Commissioner of Internal Revenue, with the approval of the Secretary, to require information returns from brokers, nominees, and
others showing details as to purchase prices, profits, and losses
on security transactions originating from abroad.
D - Obligations of the United States and its instrumentalities hereafter issued, which under the existing law are exempt from all
taxes when owned by non-resident aliens or foreign corporations
not engaged in trade or business in the United States, will be
made taxable and fitted into the general plan of taxing foreign
individuals and corporations on private obligations owned by them.
rum
Prepared by Mr. Zucker
Division of Research and Statistics
303
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
FROM
February 17, 1937
Secretary Morgenthau
Mr. Magill
Subject: Minutes of meeting on suggested tax proposals dealing
with foreign capital movements, held February 16, 1937.
A meeting was held in my office at which there were present
members of the technical staffs of the Federal Reserve Board,
Securities Exchange Commission, State Department, and the Treasury
Department, as follows:
Messrs. Gardner and Bryan from the Federal Reserve Board;
Messrs. Gourrich, Goldschmidt, and Green, from the Securities
Exchange Commission; Messrs. Feis, Livesey, and de Wolf from
the State Department; and Messrs. Magill, Oliphant, Opper, Lusk,
Haas, Seltzer, White, and Zucker from the Treasury Department.
Mr. Opper read a proposed draft of a bill for taxing nonresident aliens and foreign corporations, which had been prepared jointly by the staff members of the several agencies.
Discussion was had thereon, culminating in a series of agreed
uoon suggestions for revision. In connection with the imposing
of a 20 percent withholding rate, it was pointed out by Mr. Haas
and Mr. Zucker that such rate can be justified on the premise of
treating foreigners on an equal footing with Americans, with
respect to measure of tax burden on income. It was mentioned
that for all individuals in the $10,000 a year class and over,
the effective rate of tax is around 20 percent. It WES further
pointed out that if dividends were treated as the last increment
of income and superimposed on all other sources, then, for the
same group of individuals the effective rate on dividends would
be approximately 29 percent.
The State Department representatives at this point took up
the discussion. Mr. Herbert Feis, in particular, stated that his
Department is wholly against the decision that there is need for
something to be done about the influx of foreign capital. He also
stated that the proposed tax against nonresident aliens does not
carry out the purpose claimed for it, and that, in any event, the
suggested rates were discriminatory against foreigners. He emphasized this latter point by saying that even the existing 10 percent rate is already discriminatory. Mr. de Wolf of the State
Department presented a memorandum which summarized objections,
304
Secretary Morgenthau - 2/17/37 - 2
made by foreign countries, to the tax provisions now existing,
applicable to nonresident aliens. The general tone of the objections was that the 10 percent rate would interfere with
foreigners seeking investments in the United States. He also
read from the proposed treaty with Canada, as a result of which
the withholding rate for Canadian Nationals may be reduced to
5 percent.
Mr. Gourrich and Mr. Bryan each presented a memorandum in
compliance with your request, in which are set forth arguments
in support of and explanation of the proposed tax bill for in-
creasing the withholding rates, and also containing other proposals in the order of their preference to be considered as a
"second step." No discussion was had on these memoranda at the
meeting.
Mr. Oliphant and Mr. Opper pointed out that the contemplated
draft of the bill would include provisions requiring the filing
of information returns by brokers, bankers, nominees, etc., with
the Treasury Department only, and not with the Securities Exchange
Commission or other agencies. It was the original request of
Mr. Green of the Securities Exchange Commission that information
reports be filed with the SEC. Mr. Opper stated, however, in
view of the provision of Section 55 of the Revenue Act of 1936.
procedure now exists which permits the disclosure to the other
departments of information from tax returns.
The meeting adjourned to permit members of the legal staff
to continue with the drafting of the proposed bill.
Wednesday
305
February 17, 1937
1:00 p.m.
Fred I.
Kent:
Mr. Morgenthau?
HMJr:
Yes
K:
Mr. Morgenthau, when I found I couldn't get you
first this morning I thought I'd wait until this
afternoon, because I'm having a little conference
here, a confidential conference, so I thought I
HMJr:
might have something of value for you.
Oh -
Now, if you would like to have me see you any time
Friday, I can come over, tomorrow afternoon.
HMJr:
Well It might be that you'd prefer to receive my letter
which I am sending this afternoon first. In that
case you could telegraph me or have your secretary
phone me.
HMJr:
K:
Well, supposing I wait, then. If you could - can
you put a 'Special Just one second, please - hello, I don't quite hear
you.
HMJr:
Will you put a 'Special Delivery' on it?
K:
What was it?
HMJr:
Put a 'Special Delivery stamp Put a 'Special Delivery on it?
HMJr:
Yes
Yes, all right, I'll do that. Now, I could - of
HMJr:
course I could come tonight, but it's - I have some
meetings tomorrow and I'm studying this matter for
you a little and I thought that it would be much
better Friday, if that's agreeable to you.
Well, let me get - let me get your letter and see
what you've got in your mind, because I don't know
along what lines you are thinking.
-2K:
Yes, I see. All right, then, the letter will go
'Special Delivery this afternoon and you can get
word to me so that I get that four-thirty train
tomorrow afternoon for Washington. Then I'll be
there and I can make it any time Friday that suits
your convenience.
HMJr:
Thank you.
K:
All right, Mr. Morgenthau. Thank you for calling.
HMJr:
Goodbye
306
307
GRAY
1111
LONDON
Dated Feb. 17, 1937
Rec'd. 1:15pm.
Secretary of State
Washington, D.C.
72, February 17, 2pm.
FOR TREASURY FROM BUTTER VORTH.
The following comments by financial Editors have
appeared in todays London press on the subject of curbing
influx of foreign funds into the United States.
DAILY TELEGRAPH "KEEN attention is being paid to
the discussions in Washington on the problem of foreign
investment and speculation in Wall Street. Londoners have
in the last few days lightened their NEW York commitments,
and there has been a decline in the volume of buying of
American stocks from this side of the Atlantic. These
discussions, as our special Wall Street correspondent
pointed out yesterday, will probably continue for several
WEEKS. While WE await the up shot two points may be
remembered. Both here and in NEW York it is believed that
nothing can check the irresistible force of the nonentur
of recovery in America. Secondly Mr. Roosevelt is probably
on his guard against the hot money' danger but possibly
this is a COSE where he may prefer to bark rather than to
bite".
308
rn 72 Feb.17,2pm. from London. -2bite".
FINANCIAL NEWS "on the whole the investor who is
hoping for further profitable participation in the American
market can take heart from the EVENTS of Monday. The
remarks made by Mr. Morgenthau and Mr. Eccles after the
meeting of the connittee to consider the inflow of foreign
capital indicate more clearly than anything has yet done
that the administration is taking the 'hot noney! question
very seriously. But they indicate just as clearly that the
authorities are finding it extremely difficult to discover
any satisfactory means of deterring or excluding foreign
capital from Wall Street. Some form of Exchange rationing
or control is probably the only Efficient method unless
the cooperation of foreign governments is obtained. It is
interesting to note that lir. Morgenthau said he was opposed
to Exchange control EXCEPT as C. last resort".
FINANCIAL TIMES 11 there SEEIIS to be no doubt in the
minds of financial circles in the city that action will be
taken, but, as it is believed that there can be no question
of any legislation being retrospective, conpetent authorities
cannot find any reason why the dollar should be offered.
All that they do EXPECT is a check to the influx of noneys
for investment (and perhaps speculation) on Wall Street,
with C. consequent curtailment of the demand for dollars on
that
309
IIII 72 Feb.17,2pn. from London -3.
that account. There remains the consercial factor.
Speculation was rife yesterday what Mr. Morgenthau meant when
he said that conferences on the subject of capital inportation restrictions had not taken into consideration any change
in the American gold price. London WCS puzzled and argued
that unless the question of the gold price had been discussed
the Secretary to the Treasury would not have referred to the
matter. It is inconceivable that any change would be made
EXCEPT towards the 41.34 per OUNCE level".
From my own inquiries I gather that although the
city is vitally interested in whether the attitude of the
American authorities has been and will be translated into
positive action it is at the moment singulorly unperturbed
at the prospect. It takes the view that just 0.0 more British
money vent to the United States in 1935 than in 1936 so there
will bE still less in 1937; in other words the main movement
against which action is contemplated has already taken place.
It also holds that the difficulties of differenticting between
"hot money" and stable bona fide investment are almost
unsurrountablE. In this connection it is frequently pointed
out (one) the British speculator is really not interested in
dividends but in capital appreciation and will therefore
operate in the American market as long as the capital
appreciation
310
run 72 Feb. 17, 2pn. from London. -4-
appreciation prospects make it worth his while; (two)
drastic transfer penalties will further stimulate the
novement of putting American stocks in the names of British
jobbers and increasing the already substantial market in
London for American securities.
ATRERTON
CSB
Fin
311
MEETING WITH EXECUTIVE COMMITTEE OF
FEDERAL RESERVE OPEN MARKET COMMITTEE
Present:
February 17, 1937
11:00 A.M.
Mr. Upham
Mr. Lochhead
Mr. Harris
Mr. Harrison
Mr. Burgess
Mr. Bell
Mr. Taylor
Mr. Haas
Mr. Eccles
Mr. Piser
Mr. Szymczak
Mr. Ransom
H.M.Jr:
Well, I think it would be nice to open the meeting by
letting Dr. Burgess give us a review of the market in
New York maybe.
Burgess:
Well, Mr. Secretary, the market has gradually been
readjusting to what it regards as a changed situation following the increase in reserve requirements.
The actual change in quotations is pretty small, but
the notes have gradually been working off and the
shorter term bonds have been working off some. I
think the Treasury bills have perhaps reflected the
movement as well as anything. They have worked up
to a point where they were - where the new issues
sold at a .40 basis. Now, they slipped; the last
two issues have been .37, indicating some sign of
stabilizing it at about that point, I think. So
that my own feeling is that a considerable part of
the readjustment has already been made. But the
market is still "softish."
From one technical point of view, the market is
strong. The dealers' position is very small. The
dealers' position - that is, the portfolio held by
Government security dealers is the smallest it has
been for a long time.
On the other hand, if you take the relationship of
the Government market and the corporate market, the
spread is greater than it has been for some time;
that is, corporate bonds have been weaker than Treasury bonds, so that that spread has increased; this
second chart shows it. So that from that point of
view Governments are not so strong technically.
312
2-
Now, I think one should say that that probably
reflects a read justment to a more normal relationship. Take the period during the twenties when
was a a and
the Government debt was being retired each
Governments
and corporate
There in the yield spread basis of, between
say, point a quarter
year.
bonds. Recently that spread has been running more
around three quarters of a point, or even as low as
half a point here between this two and seven-eighths
and corporate bonds. So that the spread up until
very recently has compared very closely with the
spread during the War and the immediate post-War
period, when the Government debt was increasing.
Now, with the new prospect on debt, it is natural
to expect that spread will be greater.
But the movement has been so rapid in the last few
months that you will have to say from that point of
view the Government market is not technically in as
stable a position as it was a couple of months ago.
So technically you've got those two different indications - the Government dealers' position and the
spread between Governments and corporate bonds.
It has been a very quiet market. There has been
no heavy selling. There has been some buying by
insurance companies and by others coming in and
picking up bonds, particularly. But there's a good
deal of feeling that the note market is working
toward somewhat lower levels; a question mark on
the bond market, but nobody having any very sub-
stantial convictions as to whether that is due to
work off a little or not; and the corporate bond
market has shown a considerable amount of weakness,
with recent new issues having gone pretty badly,
some of them. Of course New York Citys went badly.
The longer terms went badly. Canadians went badly.
There are three or four others that have been very
hard to dispose of. A few others have gone very well.
The whole corporate market has worked off quite a
little. So that I think there is a feeling that
corporate bond prices of highest grade have hit
their top and they are likely to work off a little
over a period.
H.M.Jr:
Well now, let's tell you what our needs of money
313
-3-
are
from now until the first of July, see, without
saying
how it will be raised.
Bell:
H.M.Jr:
Yes
Bell:
Well, I believe that we need five hundred million
dollars of new money. If we raise five hundred of
new money, our balances going out of June will be
about nine hundred million dollars.
Burgess:
Bell:
What will it be going out of May, Dan?
with five hundred million?
Burgess:
Yes. Seven hundred million?
Bell:
Yes, be about 740 or 750 million.
Burgess:
Of course, you've got June open. I mean the end of
June isn't so much the question before you, as much
as what you have before June.
H.M.Jr:
Well, what will we go out of May with?
Bell:
Raising five hundred million dollars of new money,
we go out of May with about 739 million dollars.
We expect to go into March, on the basis of these
estimates, with about 669 million. Be a little
shift there and that may drop down to 640. And we
may lose in the first eight days of March as much as
a hundred million. But then from the tenth to the
14th, we'll probably pick up 75 million of it, so
million dollars.
In the Treasury we have gotten this far in our thinking: that in order to help out the situation generally,
we are ready to sell some bills into - which will
mature on the 15th or 16th of June. I mean we are
ready to do that; that is one thing we are ready to do.
Now, in talking this thing over - say we started to
we ought to go into the 15th with around six hundred
H.M.Jr:
sell those bills on the second of March, and that
we would stop selling our nine months; it would only
be fifty million a week. I had a few minutes with
Burgess this morning and he says that that would not
314
-4be necessary; if you wanted to continue to sell
nine months, we could continue to sell them right
straight through, and add fifty million a week of
the June bills.
Burgess:
Well, of course, they appeal to a little narrower
market.
H.M.Jr:
What's that?
Burgess:
There is always a broader market for the shorter
H.M.Jr:
bills than there is for the nine months bills.
Well, if we did the latter thing, and kept on
selling the nine months right S traight through,
then sold another fifty million a week for six
weeks, that would give three hundred of the
five hundred new money we need.
Bell:
That's right.
H.M.Jr:
Then we'd need another two hundred million. What?
Bell:
Yes, sir.
Are you (Burgess) quite sure that the market would
take the regular nine months bills and then another
fifty million a week?
(Nods yes) Been very good bidding for bills at
these rates - 150 million and 170 million in bids
H.M.Jr:
Burgess:
a week.
H.M.Jr:
Well then, it gets down to pretty much two plans.
Either we can drop the nine months and raise five
hundred million in some way, on some kind of
securities, or continue the nine months, and then
we feel we need another two hundred million to be
safe.
Bell:
We'd either have to have two hundred million along
Burgess:
Well, it would be all right to raise it the 15th
H.M.Jr:
You'd run down awfully low, wouldn't you?
there some time or pick it up in July and August.
of June, wouldn't it, Dan?
315
-5Bell:
No, we'd have five hundred million balance going
H.M.Jr:
You see, another thing, to throw everything on the
table - I'd like to, if possible, this year sell
five year notes maturing in '42, because '42 is
out of May.
blank. But there's no use talking about selling
a five year note at this time; it would just weaken
the note market that much more, and it now looks
as though it is going lower. So if we stay pretty
close to the wind from now until the 15th of June
and then can sell a fairly sizable five year note
on the 15th of June, and then pick up whatever bills
and extra money we needed in June
Bell:
H.M.Jr:
Yes.
What?
Bell:
es, sir.
H.M.Jr:
I mean doesn't that state about all the alternatives,
Dan, we've been talking about?
Bell:
Yes, I think that states them all.
H.M.Jr:
We are very anxious here to borrow our money so that
it will disturb the money market as little as possible and so there will be as little criticism of
the Federal Reserve Board - I mean we don't want
to aggravate the situation. That's why we're taking
before, because I want to do it in a way that will
make the least possible disturbance as a result, and
the least criticism for all of us, because we are all
in the same boat. And, as I say, I have spent more
more time on this borrowing than I have ever taken
time on this financing and I feel it is distinctly
worth while, because each week we get a little bit
more light. Now, two weeks ago it wasn't so obvious
that the note market was going to be so weak, and also
it wasn't obvious that the bill market wasn't going
to continue to run up. I mean two weeks ago I was
worried about the bill market; now it looks as though
it's struck a lull. I mean for two weeks it's been
the same. So I feel a little bit more kindly disposed
towards borrowing in the bill market; that's why I've
shifted. And I'm a little bit more worried about the
note market. The picture gradually changes.
316
-6Harrison:
There is one point in figuring on your new bills
in addition to your nine months roll-over bills.
It seemed to me that you'd have to be careful the
last half of April about pushing the bill market,
because that will be just two weeks prior to the
increase in reserve requirements the first of May,
and you might have to skip those two weeks.
H.M.Jr:
Well now, Harrison, we'd be out...
Bell:
...on the 7th of April.
Bell's figured it out.
H.M.Jr:
Szymezak:
Burgess:
H.M.Jr:
Going right through March, taking every week in
March? I thought perhaps - have you (Burgess)
talked to the Secretary about skipping?
No. There would be some merit in skipping the
17th of March, when you're going to have a considerable drain on the market.
I wouldn't want to do that. I think that would be
a sign of weakness.
Bell:
You mean because of the funds coming in?
Burgess:
Because you're locking up a good deal of funds.
Bell:
Well, if that occurs, or it looks that way, what
we'd do is have the 50 million paid in the War Loan
account and pay off the maturing fifty from the
General account.
Burgess:
Well, I don't think
Bell:
We've done that.
Burgess:
No.
Bell:
'34.
burgess:
Bell:
uh, one issue I guess we did.
Two or three issues in 134.
H.M.Jr:
Bell's looked it up. But I mean to skip it - I
think I may be wrong to skip a week. That would make
news.
317
- -7 Harrison:
Well,
bills. I mean skip a week only for your additional
H.M.Jr:
I know, but if you're going to start on a program
six weeks,
Ifor
wouldn't,
but II hate
hate like
like the
the devil
devil - I don't say
Burgess:
It doesn't really matter much.
H.M.Jr:
If it doesn't matter - if Burgess said, "I can't
handle it," then But if he says, "It doesn't
Burgess:
Bell:
matter much, If I think if you start on a six weeks'
program you ought to carry it through.
You could start on February 24 if you wanted.
Yes. No, we've already sent out the notice for
the 24th. You'll open on Friday this time because
Monday's a holiday.
Burgess:
You mean you've announced the issue?
Bell:
It went out last night.
Did it really?
Burgess:
Bell:
H.M.Jr:
Bell:
Didn't you read this morning's papers?
I'll be glad to give you a New York paper.
Well, I'm not so sure that we shouldn't provide
credit in the War Loan account on four issues after
the 10th.
Eccles:
You mean the bills?
Bell:
Yes.
Eccles:
Why not? Why isn't that a good thing to do?
Bell:
I think it is at that time.
Eccles:
You can always draw money out, but it's difficult
Bell:
Yes
to put it back, and it certainly would help to
control your balances with the Reserve System,
wouldn't it?
318
-8Harrison:
You mean to give them the option?
Bell:
Oh yes, they'd have the option. But the War Loan
balances are now down to the lowest level they
have been for some time, so a lot of them would
take advantage of it.
Harrison:
Haas, would you recommend that?
Haas:
Yes.
Burgess:
H.M.Jr:
I don't see any very great objection to it.
You (Bell) haven't sold me on that yet.
Bell:
Haven't I?
H.M.Jr:
No.
Burgess:
It's a little irregular.
Bell:
Well then, how about depositing some income tax
payments in twelve, fifteen large banks throughout
the country?
H.M.J.:
Burgess:
Well, I'll tell you what I want to do. I just want
a chance to think that part of it over. I just
want to study on it for a couple of days.
Between those two, I think it is much preferable to
let them pay for the bills, because the minute you
make deposits in the banks, you are showing favoritism.
H.M.Jr:
I'd have to look up which of the banks were Democrats.
Burgess:
Harrison:
Well, everybody would get out the magnifying glass.
At that time you might find out there are Democrats
H.M.Jr:
But not "before Chicago." Isn't that right?
Szymczak:
Right.
H.M.Jr:
Well, that question of where we deposit that money I mean I'd just like a little time. It's new and
I'd like to have a chance
among the banks, and that might be an embarrassment.
319
-
Eccles:
We discussed this yesterday about an hour or two
hours. Randolph was down, and George. Fleming
came down; he's not a member of the Committee.
He wasn't feeling well, so he went back. And we
had the members of the Board. We came to somewhat
of a unanimous conclusion as to what our views of
the situation were. Maybe you'd like to hear those.
H.M.Jr:
Please.
Eccles:
We asked Randolph to jot it down.
Burgess:
Well, it's very much along the lines we have been
discussing. Our feeling about bills was to start
in practically right away, and if it was too late
for February 24 then commence March third, taking
an extra 50 million a week maturing in June. Our
thought then was to skip the 17th, but as you say
that isn't particularly important. If they paid
with book credit, you could avoid any difficulty about
locking up funds after the 15th.
I think our feeling about starting right in with
the bills was to get that out of the way and have
as quiet a situation by May first as you could
possibly have.
Then we discussed the question of the March financing,
and I think our feeling there was
Szymczak: You mean the April financing in March.
Yes, refunding the April thing. Discussed whether
Burgess:
that should be done in March or April, and there
was some feeling that sticking to the quarterly
period was desirable, although in this particular
case there were some merits in waiting; but that
the general advantage of sticking to the quarterly
periods was sufficient to outweigh the particular
advantages at thistime in waiting until you might
know what your market was a little better.
Also it was felt with respect to this thing that if
you could get by without asking for new money at
that time, there would be a very considerable advan-
tage in doing it. First, you are just getting the
returns on your tax program. You don't know what
- 10 -
320
they are going to be; they may run heavier than
you expect. Second, the market is unsettled. You
don't know just what position it is in. It is
hard to put out an issue and price it right, and
you don't want to unsettle it further by rushing
it very hard. And if you don't ask for any new
money, the rolling over of these notes is a very
relatively simple operation and it leaves the
market undisturbed. Then we have a feeling that
you can operate this putting bills into the tax
period sufficiently to take care of your requirements for new money.
We discussed the particular kind of obligation
itself and we came to the same conclusion that you
have, that the note market is not in a favorable
position at the moment to finance in, that the bond
market is better. Can't tell what it will be two
weeks from now, but at the present time the note
market looks slippery and if you put in another
note you're going to make it weaker still. So our
feeling was that a bond was the thing to sell, and
we talked about an additional amount of these 23's
that were sold last time, or a new 2g of perhaps a
year longer maturity - year longer call date. If
you feel, looking over your picture, that it is
essential to have new money, our thought would be
to take 300 million more of cash, say, in this bond
issue, whatever you use for the new financing.
I think that covers the points.
Eccles:
There was the question of the September bills.
Burgess:
Oh yes. Our feeling was that this decision that
you made with respect to June should be carried
through also for September. And we raised the
question whether, when you have done the job for
June, you couldn't then start in with selling bills
with a September maturity, not waiting until after
the June financing but giving them a little longer
usance than that would give.
Eccles:
Instead of the nine months bills, you'd make the
nine months bills mature in September.
Burgess:
Yes, you could do that. In the middle of April,
when you got this done, instead of selling nine
months bills you could start selling September
321
- 11 -
bills. Then that would leave you free if at the
end of six weeks there you wanted to consider
shortening the usance of your bills to six months you'd be in a position to start doing it.
I think we have in the back of our mind that, as
a permanent thing for the Treasury, these nine
months bills have a little question mark on them.
H.M.Jr:
Burgess:
They won't go as well in a jam. If money rates are
higher and if money conditions are tighter, then
they won't begin to go as well as the six months or
a ninety-day bill.
That time isn't here now.
No, but it is a query whether we oughtn't to begin
to think about shifting back to the six months'
usance.
H.M.Jr:
I raised that a week ago, that very thing about the
six months, and then after thinking it over and see-
ing the shift, I didn't think it was just the time
to do it.
Eccles:
Well, we weren't - we're not - at least I'm not so
strong for shifting from the nine to the six. The
general feeling - I would say the majority feeling
was that it was desirable for the market to continue
the present amount of bills out rather than reduce
them; that until such time as there was an increase
in the volume of acceptances and other short term
paper, it would be a mistake to materially reduce
the present amount of outstanding bills. This suggestion to make the nine months bills maturing in
April to come due in September doesn't in itself con-
Burgess:
Eccles:
template a reduction in bills to six months. That
bridge could be crossed, of course, in June or July.
But it leaves you free to reconsider if you want to.
That's right.
Bell:
What did you consider for June when you mapped out
that program?
Burgess:
Well, we hadn't got that far. In June you could
raise any new money you wanted.
322
- 12 Bell:
Of course, we'd have to
Burgess:
You'd have a clear field.
Harrison:
You might have your 1942 notes in June.
Eccles:
You see, Dan, you'd be in this position in June.
All the increase in reserve requirements would
have gone into effect the first of May, which would
be six weeks before your June financing. And it
was our thought that if there wasn't any new money
raised in March it would help the whole bond market,
the whole Government market - not to call at this
time for any new money; it would have a very good
psychological effect.
H.M.Jr:
Well, if we were going to do something, the announcement would come Thursday. If we announce new bills,
it would be Thursday a week, wouldn't it?
Bell:
Yes
H.M.Jr:
What?
Bell:
Thursday a week, yes.
H.M.Jr:
Bell:
would be the time to do it, wouldn't it?
That's right.
H.M.Jr:
That would make it.
Bell:
March 3.
H.M.Jr:
March 3. Well, I want to say the thing hasn't yet
cleared in my mind and I want all the time, I can get.
I mean it's getting clearer but I'm not satisfied
yet; because the nearer we get to the 15th of March
I think the clearer it's going to be. So I'd like
to have one more meeting a week from today, because
two weeks ago these - talking for myself, I wasn't
so conscious of the fact that the note market was
going to be what it is today, I didn't know that we
had reached evidently a top on what we'd have to pay
for nine months. Now in the last two weeks that thing
has cleared. Now, I'd like - Marriner, I'd like if
323
- 13 you would - if you fellows would meet with me
again a week from today, and then at that time
we will certainly make up our mind about the June
bills, see, and then
Eccles:
That will be convenient for me. What about you,
George?
Harrison:
Well, I'll be away next week. It isn't necessary
for me to come back, but I should think it would
not be necessary on this one question of the bills
for next week.
H.M.Jr:
It isn't only that; it's more than that - I mean the
whole thing. We are trying to do a job now. I mean
if it was just the Treasury I could make up my mind
like that. And furthermore, we have no selfish
interest in this, because we don't own any bills or
notes.
Burgess:
(Laughs)
Harrison:
You'll want a meeting, will you not, too, Mr.
Secretary, the first week in March?
H.M.Jr:
You fellows do.
Harrison:
Anyway.
.M.Jr:
Harrison:
Yes.
You will want a meeting the first week in March
anyway.
H.M.Jr:
Well, that would be Wednesday - would be what?
Bell:
The third.
Burgess:
There's one other thing
H.M.Jr:
Let me get my dates. This next Wednesday ...
Burgess:
The 24th.
H.M.Jr:
And then would it be two weeks - take it to the third,
Burgess:
One week.
or one week?
324
- 14 H.M.Jr:
Burgess:
Well
then, the
I want
a meeting
a meeting
week
after. next week and I want
One other point mentioned, Mr. Secretary, that
bears on this question of dating. I think we felt
that if you do put out a cash offering, it ought to
be announced earlier than the eighth; that is, the
eighth wouldn't give us time to handle properly a
cash offering. If it is just an exchange offering
H.M.Jr:
That's
allby
the
more
reason why. Would you (Harrison)
be back
the
third?
Harrison:
I'll
be back on the first; I'll be in Washington on
the first, Monday.
H.M.Jr:
But Burgess could be here a week from today.
Harrison:
I'll be here if you want me to.
H.M.Jr:
I'll leave it this way: if the situation doesn't
get any worse than it is now, the answer is no;
but if the note market begins to slip away from us
and the bill market - the rate we pay goes up, then
I might want you.
Harrison:
I could come back overnight.
H.M.Jr:
But if it's just a decision of deciding on the bills,
that's all right; but if the situation gets worse,
then I would like you to come back.
Harrison:
H.M.Jr:
I'll come back; that's quite fair. Then I would be
here the following week anyway.
Harrison:
Are you going further south than Charleston?
Just a few miles.
H.M.Jr:
Well then, it's just a matter of - by train it's
Harrison:
H.M.Jr:
No, it isn't even overnight.
You don't fly, do you?
Harrison:
Not if I can avoid it. I have done it.
only overnight.
325
- 15 H.M.Jr:
Let me ask Wayne - you want to say anything?
Taylor:
(Nods no)
H.M.Jr:
George?
Haas:
No, sir.
H.M.Jr:
Dan?
Bell:
Well, I question the advisability of raising new
money on Treasury bills and financing at the same
time in March, if that's in the picture at the
present time.
Eccles:
What do you mean, Dan?
Bell:
Well, we've been talking about adding an additional
fifty millions a week beginning March 3, of Treasury
bills. Now, if we're going to announce a billion
dollars in financing on March 15th, then I question
Burgess:
the advisability of raising that additional money.
If you just roll over the April note, that wouldn't
Bell:
That wouldn't hurt.
Eccles:
If you're going to get three hundred million in bills
in addition to the 50 million, then you wouldn't need
hurt.
more than - and you start that next week - then you
wouldn't need more than two hundred million new money
in March. Instead of the five hundred it would have
to be seven hundred.
Bell:
Burgess:
Eccles:
Bell:
But you've got to make up that three hundred million
in either March, April, or June.
Well, you can do it in June.
Well, our thought was that the three hundred would
be made up in June. Or you can go ahead and let
that do just - in June you could start issuing those
fifty million a week for September maturity, just as
you are now doing for June maturity, if you didn't
arrange for September maturity prior to that time.
I question whether we should raise any additional
326
- 16 money on a major financing in March if we are
going to take additional money on Treasury bills.
And if we don't have any new money on major financing,
I question whether we should refund on March 15 the
April
maturities.
ing ahead
of time?Wouldn't it look funny just refundTaylor:
Bell:
Burgess:
Bell:
Just for the sake of sticking to your quarterly dates.
Well,
I say wouldn't it look peculiar, even for that
sake?
I think the market wouldn't think that strange, Dan?
We've done the financing so regularly on the quarterly
dates now that I think they quite expect it, really.
Well then, we could raise the three hundred million
to run us through bills, refund the five hundred
million in a bond, and then in June raise eight
hundred million in notes. That would complete the
picture, give us the five hundred million new money
we want.
Harrison:
I personally think that is the prettiest picture.
Eccles:
Yes.
Taylor:
Then you've got a chance to look at your March
Eccles:
You've got a better chance to look at your market if
income tax.
you don't go to the market for new money in March,
except in the bill market. It seems to me that it
is going to help your market. It will be a good
breathing spell. There will be no new offering, and
by June they may be hungry for something.
Burgess:
And when you announced your bills, when you started
these new bills going, you announced at the same time
that you weren't going to ask for any new money in
connection with your March financing, but just going
to refund the Aprils - if you did that, that would
clear the decks so the bills would go without any
question at all.
Bell:
And that would help your note market.
Burgess:
Oh yes.
327
- 17 Eccles:
Yes.
Harrison:
Yes.
H.M.Jr:
You
what
I said,
that that.
we didn't own any
bills noticed
or notes.
You
noticed
Burgess:
We're not worried about ourselves.
Harrison:
Mr. Bell, in making your calculations in balances
at the end of each month, you estimated how much
income tax receipts in March?
Bell:
About nine hundred million.
Harrison:
Nine
million. That's probably conservative,
isn't hundred
it?
Bell:
I think it is.
Haas:
We're hoping so, but last fall when the tax bill
was in nobody agreed with us.
Burgess:
That's the same estimate as last fall, isn't it,
George?
Haas:
Not quite.
Burgess:
But you haven't adjusted for this upward swing in
the business index, have you, that took place? The
swing was stronger than your
Haas:
Yes, this estimate was one that was made in November,
Eccles:
Nine hundred million, you say, is the estimate?
Haas:
Yes. Of course, in addition to the estimating the
total - I mean on the fiscal basis - we had some
additional difficulties this year about that undistributed profit tax and estimating the distribution.
Harrison:
It's extraordinary how many individuals with whom
I've talked, though, around New York are already
complaining how much increased their tax is going
so we had that more or less in it.
to be this year as a result of distribution at the
end of last year.
328
- 18 H.M.Jr:
Why single out New York (nodding at Taylor)?
Taylor:
You'd
haveatheard
some plain and fancy cursing
yesterday
lunch.
H.M.Jr:
I'm just waiting until the President starts working
on his income tax. The President said to me yesterday,
"Who the hell is responsible for this tax law?" he
says. "Now, you know, Henry, what you told me, you'd
have more left when you got through than when you
started." I said, "That's right."
Eccles:
Harrison:
I don't think you've got to go to New York. Anybody
working on his income tax the last ten days.
That only indicates, though, the revenue that you
are likely to get, because everybody is hollering.
Well, I think it's an important factor in making
your guess as to what you're going to get. The
individual's estimate of his own situation gives
you some idea of how large these taxes are going to
be.
H.M.Jr:
Have you figured yours yet?
Harrison:
Not yet.
H.M.Jr:
Well, I think this is about as far as we can go.
Eccles:
"nd then shall we say 11 o'clock a week from today?
That suits me.
Harrison:
And then if for any reason you want me, Mr. Burgess
H.M.Jr:
Well - and we'll try to be ready at that time, know
about the bills, and also try to be ready so if we
do announce that we are going to sell an extra fifty,
that that will take the place of any new financing for
will let me know.
the 15th of March.
Eccles:
H.M.Jr:
Eccles:
That is, you will know next week.
We'll be ready when we come in. I mean a week from
today.
That would make the first bill offering when?
- 19 Bell:
The third.
Eccles:
The third.
Burgess:
The holiday has busted this week, hasn't it?
Going right through with six weeks
Eccles:
Bell:
329
... that will end on the 7th of April - plenty of
time before May.
Eccles:
And you will probably arrange that War Loan account
H.M.Jr:
We'll be ready by that time, but I don't want to make
any commitments today. But I mean we will have done
our home work before we meet with you next Wednesday.
This isn't clear enough yet. I think by that time it
will be.
Harrison:
I agree with you, Mr. Secretary, as to the importance
of frequent contacts right along now, if only because
of the very different situation you've got in the
money market as a result of the increase in reserve
requirements.
Eccles:
For the next three months, until the increase goes
into effect and the whole market throughout the
country has a chance to get adjusted to it, it isn't
a question so much of the condition that it creates
in the market actually, but it is the psychology
that it creates on the part of bankers generally,
who are more or less in a waiting frame of mind to
know whether or not they want to buy notes or whether
they want to buy bonds. And they ve got extra cash,
extra reserves; they will have a large amount of
excess reserves after this action, but they won't
be - it's a perfectly natural 'rame of mind to be
in to simply say, "Well, I'm going to just wait now
and see before I move." And I don't think there is
any way of overcoming that except the element of
time.
H.M. Jr:
Well, thank you for coming.
330
February 17th
Monday, February 16th, I lunched with the President.
He asked me, "What do you think about the French situation" and
I said, "It is getting steadily worse". He said, "Don't you
remember that about two weeks ago I prophesied that the French
would have to go to exchange control on February 15th". I could
not remember that he had said any such thing but I did not contradict him. The President furthermore said, "I prophesy that
that within a year the English will have to go to exchange control".
I said, "The whole thing is the tremendous increasing expenditures for armaments. AS long as that continues the situation
will get worse". I said, "I am glad and was surprised that
when I brought it up a week ago you encouraged me to study the
situation."
The President said, "I had lunch with Mr. Hull, Norman
Davis and Sumner Welles two or three days before and while Hull
has done a perfectly magnificient job in South America he said,
"I talked with him while I was down there about the world situ-
ation and Hull could only think in terms of trade treaties and
their effect (I told him this a week before) and, he said, "On
account of the way Hull is thinking you just came along a couple
of days later and I was ready to talk to you. You and I are thinking along the same lines".
With this additional encouragement I said, "I think
you ought to call a Washington Conference similar to the one
in 1921". He said, "The conditions are so different now than
they were then" and then he went ahead and sketched the whole
Washington Conference of 1921.
Much to my surprise he seemed in a frame of mind that
he would consider calling a Disarmament Conference. He said,
"If I call it I will have just about half a dozen countries,
have them meet with me and simply outline the situation to
them, tell them to adjourn to some other building, tell them
that the problem is theirs and that they should try to find
a solution and then come back and see me again." The President
said that he would not make any suggestions as to how they should
solve their own political troubles but that he would try to
start them to discuss disarming over possibly a five year period
on a constantly increasing scale of reduction. He, furthermore,
said that any country refusing to comply with the majority rule
that they would apply economic boycott to that country.
331
-2-
I was dumbfounded how rapidly I made progress with
him, furthermore that he seems to have made up his mind that
he cannot use Hull or Norman Davis on this program.
It is up to me now to develop suggestions and keep
giving them to him until I can work him up to the point that
he will call a conference.
332
February 17, 1937
I went in to tell Taylor that I would see the boy
if Taylor wanted me to, but he said that he had asked the
boy to write the story out for him and that after he had
from Alcohol Tax, about whom he spoke to me last night,
read the story he would then decide whether I ought to see
the boy or not.
m
333
17 February, 1937
4 p. m.
COAST GUARD OPERATIONS IN FLOOD AREA
In view of the improved situation throughout the
Mississippi Valley, all of the six 165-foot patrol boats
are to be returned to their regular stations on the Atlantic and Gulf coasts by the end of this week.
The Coast Guard force at present operating in the
Mississippi flood sone numbers 22 seagoing units and 25
boats, the latter operating under the immediate direction
of the DIONE at Natches, Mississippi, where a shore office
and communication center is being maintained.
Captain Reinburg reported that Coast Guard boats
transported approximately 25,000 persons to safety in the
area between Louisville and Paducah.
GENERAL WATER LEVEL CONDITION.
Water falling at Vicksburg and crest approaching
Natches where there was a depth of 57.3', a rise of 3/10ths
of a foot since yesterday. Depth of 18.5' at New Orleans
unchanged since yesterday.
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
CONFIDENTIAL FILES
L. W. Knoke
W
DATE February 17, 1937.
TELEPHONE CONVERSATION WITH
BANK OF ENGLAND.
Mr. Bolton called me at noon today with reference to our
cable No. 71/37 of February 11 which dealt with the question of
a 24 hours notice. As he understood our cable, he said, the new
feature of the tripartite agreement was that it was now subject to
24 hours notice. I replied that it was true that the agreement was
subject to a 24 hour notice but that this was not a new feature but
that it had been stated in all previous announcements of the Secretary
of the Treasury. Furthermore, it was exactly the same basis on which
he and we and the Bank of France and we had been operating. I repeated that the cable was sent merely because the Swiss had raised a
question which seemed to make it imperative that all possibility of
a misunderstanding should be eliminated. Bolton then asked me
whether it was correct to state the case briefly as follows: "All
dealings in gold cease immediately upon receipt of notification."
I replied that that seemed to me to be a correct sumping up but that
I would prefer to give it more thought and would discuss it with him
again the next time I spoke to him. Bolton then suggested the insertion, in paragraph one of our cable of February 11, after the words
*20 be earmarked or released," of #by either party." They had no
other comments to make, he said.
In discussing current operations, I made mention of the
shipment of gold by parcel post consigned to us by Samuel Montagu &
Company in London, and of the fact that we had definitely refused to
act as consignee for Montage. Bolton replied that he was very glad to
335
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
to
ROM
DateFebruary 17, 1037.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION BITH
L. W. Knoke
BANK OF ERGLAND.
==-
hear it; it seemed to him it was just about time that this sort of
thingabesammy
stopped. He also mentioned that shipment by pareel post
of
meant as much as five cents per ounce in the gold price, so that
operators in London could pay up to 84.82 against what we consider
the gold point of 34.77.
336
PARAPHRASE OF SECTIONS TWO AND THREE OF TELEGRAM
NO. 230 of February 17, 1937, from the American Embassy,
Paris.
I visited the Paris manager of the National City
Bank at noon today. His franc deposits he said had declined below their level as of September 25. He understood
the same condition prevailed in other Paris-American Banks.
The financial situation of the Government is considered
quite serious by this banker. Maturing Treasury bills and
national defense bonds, he said, are being turned in for
cash rather than being renewed. The past few days a
private broker has been visiting National City, Guaranty,
and Morgans seeking their subscription to short term
paper of the Treasury. The bankers were told by the broker
that he was doing this under direct instructions of the
Ministry of Finance, which was endeavoring to raise from
six to nine billion france in this way.
The above-mentioned incident is the first such type
of soliciting that the has been
by the Parishave experienced
been
American banks. Protests/made by American bankers to
the Bank of France against the latter's refusal to rediscount paper which was thought by the bankers to deserve
consideration under usual rules, and which covered bona-
fide commercial transactions. They were met by the reply
that they should go to the Ministry of Finance if the
decision of the Bank of France did not please them.
337
-2
The contact which I have on the Bourse was informed
today by a representative of the Bank of Indo-China that
the person who heads that institution, Paul Baudoin, has
definitely accepted (?) Labeyrie as Governor of the Bank
of France provided this may be considered as a temporary
appointment and that he is not thereby precluded from
returning to the position he formerly held. Furthermore,
it is understood that Ent Baudoin is in favor of changing
the policy penalizing the holders
of gold and also in favor
about
of immediate stabilization at/the present level. There
is increasing circulation of opinion in regard to the
Red tendencies of Labeyrie, as reflected in the political
confusion which he has created in the Bank and by his
outspoken condemnation of the theory and practice of pri-
vate profits and interest.
Should Baudoin NET take the post at the Bank of France
this apparently would indicate the likelihood of a change
in the monetary and financial policies of the Government and it might conceivably involve the incorporation
in the cabinet of one or more conservative advisers of the
Reynaud or Caillaux school. Auriol would be most likely
to be replaced by one of these.
END MESSAGE.
BULLITT
EA:HF:LWW
PARAPHRASE OF TELEGRAM RECEIVED
338
FROM: American Embassy, Paris
DATE:
February 17, 1937, 9 p.m.
NO. 233 FROM COCHRAN
STRICTLY CONFIDENTIAL.
Rueff telephoned me again tonight regarding the
possibility of a loan by a French public body such as
the City of Paris or the Credit Foncier on the American
market despite the discouraging nature of the personal
opinions which I had expressed to him Monday at the
Ministry of Finance. (reported in my telegram No. 211
of February 15, 1937, 5 p.m.) The request was made of
me by Rueff as to whether I was willing to convey to my
Government the inquiry if it objected to the French
Government asking the American Attorney General for a
decision in regard to the flotation in the United States
of a French loan of the above-mentioned kind. To me
it seemed preferable that any request of this type involving consideration of a borrowing proposal by a body
which was seeking to secure a ruling that its operations
did not fall within the terms of the Johnson Act should
be made by the bankers acting for that body rather than
handled as a matter between the Governments. Accordingly
I told Rueff that it seemed best to me that the bankers
in Max New York make the inquiries,
which should be put before the appropriate Washington
authorities. When Rueff spoke of Morgans, I said that
Parker Gilbert therein or some member of the Morgan banking
institutions
339
-2institutions would know how to deal with such matters.
I was told by Rueff that the French would immediately
begin to make inquiries of the above-mentioned kind.
In this regard I should add that along in December,
I was told by Dean Jay, Paris Morgan partner, that he had
made an effort to discourage the French when they asked
him about the possibility of borrowing in the United States.
Even if a French loan should not be ruled out by the Johnson
Act, he said his firm could not envisage any change for an
operation of any size on the market in the United States.
In a great emergency, a very small sum might conceivably
be obtained through an American financial institution
passing on French securities to some of its correspondent
banks. But in the circumstances which then obtained, there
could be no success for a public offering. In January
when I was in Washington I reported that earlier in the
month the Paris National Bank had been approached on the
same subject by Rueff. The latter had been told that
New York had reported it had no "appetite for continental
securities".
The telegrams which I sent this week, including my
No. 230 of today, have pictured the desperate financial
situation which the Government is now in. In my mind, it
is certain that any funds that might be obtained through
an operation abroad by any of the French bodies in
question would go to the French Treasury direct. The
London
340
-3London loan in the name of the French railways ** has gone
to the stabilization fund of France. The Bank of France
gold is security for this credit, and on Monday, while
I was at the Bank, it was requested to ship gold to the
Bank of England in London this week to the maximum that
the French can handle.
END MESSAGE
BILLITT.
EA:HF/LWW
341
RB
GRAY
M
London
Dated February 17, 1937
Rec'd 3:20 p. m.
Secretary of State
Washington.
75, February 17, 7 p. m.
FOR TREASURY FROM BUTTER'VORTH.
This afternoon the Chancellor of the Exchequer opened
the two day debate which will take place on rearmament
expenditure. His speech was primarily of a political
character and one felt that he was speaking as much as the
prospective Prime Minister as the present Chancellor of the
Exchequer. He particularly emphasized the need for the
expenditure and indicated that if the situation either
improved or deteriorated the amount (now set at 1,500,000,000
pounds for the five years period) would be decreased or
increased. He defended his proposal to obtain authority
to borrow up to 400,000,000 pounds on the basis (one) that
the tax payer will in any case bear currently three fourths
of the excenditure; (two) that an increase in taxation
sufficient to cover the total expenditure would be disastrously crippling. Chamberlain indicated that he would
speak again late tonight answering at that time technical
financial
342
RB
-2-4/55, February 17, 7 p. m. from
London
financial questions.
Le Norcy, Acting French Financial Attache, who has
just returned from period of consultation in Paris, said
that Blum and his Cabinet were now fully aware of the
importance of the financial problem and were coming to
the realization of the necessity of attacking not the
symptoms such as speculative activity but the cause,
namely, lack of confidence. He had found a definite
intention to attempt to hold prices and to curb excessive expenditure. He also was given the impression
that the French authorities were moving towards the
establishment of a free gold market in Paris which would
in reality mean the abandonment of the penal regulations
on both gold hoarding and funds abroad (rumor has it that
Bandouin has made this a sine qua non of his acceptance
of the Bank of France post).
Le Norcy referred to his previous assurance that
the French authorities had no intention at the present
time of lowering the value of the franc and said that this
still held good although a change might at a later date be
made and he intimated that there was strong backing for the
idea of fixing at a definite level the value of the franc
on the
343
RB
-3-#75,
February 17, 7 p. m. from
London
on the ground that French psychology required such a step if
confidence was to be restored.
Le Morcy did not attempt to minimize the dangers in
the situation although he had some hope that if the contemplated measures were acted upon quickly the forces of
economic recovery in France might possibly win their race
over those making for financial deterioration.
ATHERTON
CSB
344
R3
GRAY
Paris
Dated February 17, 1937
Rec'd 4:20 p. m.
Secretary of State
Washington.
230, February 17, 6 p. m.
FROM COCHRAI .
Total foreign trade of France for January increased
by 1,875,000,000 francs. Imports up 1,305,000,000 and
exports up 570,000,000. Unfavorable trade balance for
January 1,546,000,000 compared with 1,376,000,000 for
preceding month and 811,000,000 for January 1936.
Government recently stressed that substantial de-
crease in withdrawals of savings reflected returning
confidence and upturn in economic activity. Deposits
in postal savings banks for December 587,000,000 francs
and withdrawals 589,000,000. Deposits in private savings
banks first fifteen days of February 164,000,000 francs
withdrawals 61,000,000.
Government is working on legislation to check rise
in prices and to punish infringement of present regulations pertiment thereto.
Paris exchange market today fairly slow although
Bank of France
M
345
RB
-2-/230, February 17, 6 p. m. from
Paris
Bank of France yielded considerable sterling this afternoon. Kentes opened 2 francs up and closed with gains
of from 1.40 to 1.80. Observers inclined to attribute
strength of rentes to: (1) renewed rumors that Labeyrie
would be replaced by Baudoin, (2) gossip that Auriol would
resign, (3) report that French monetary policy would be
altered, (4) press story that United States is likely to
take drastic measures to check influx of capital, (5)
rumor that franc might be definitely stabilized and, (6)
rumor of break between Communists and Radical Socialists.
Toward end of Bourse session an official denial of any
contemplated change in Ministry or in Government policy
was issued. (END SECTION ONE)
BULLITT
CSB
Thursday
346
February 18, 1937
12:35 p.m.
HMJr:
H. M.
Can you hear me?
Cochran:
Yes, very well.
HMJr:
Fine - well now, I got your cable.
C:
Yes
HMJr:
In -towith
to that special question put
up
youreference
by that man.
C:
Yes
HMJr:
And, there's nothing we can answer him.
C:
Well, I didn't expect an answer. I just wanted to
let you know that it was going through.
Isee?
understand. Well, now - but I wanted to tell you -
HMJr:
C:
Yes
HMJr:
- that, - in the first place it's what you call an
"if" question, you know?
C:
Yes
HMJr:
"If" they do so and so what would we do, see?
C:
Yes
HMJr:
Well, the answer is that until it's put up to us we
have no answer.
C:
HMJr:
Yes
And then, - but I can tell you that if it is put up
to us -
C:
Yes
HMJr:
- they're going to get no encouragement.
C:
That's what I tried to let them know. I went pretty
HMJr:
Yes
far that first day.
-2C:
As you saw in my telegram -
HMJr:
Yes
C:
I mean I tried to discourage the whole thing.
HMJr:
Yes
C:
But they're just grasping at straws now.
HMJr:
Yes, well, it's unfortunate, but I'm afraid that
347
under the law there's nothing that we can do.
HMJr:
Well, that is my conviction.
Yes - Well, I wanted to tell you that rather than
to attempt to put it in a cable.
Yes, yes - Then I shan't cable on it any more. It's
up to them to work through their bankers.
Well, - work through any channels that they have.
C:
What's that?
HMJr:
Yes, I mean, there's nothing that you can do officially
C:
HMJr:
C:
to help them.
HMJr:
Oh, no no - And I didn't want it to come up officially, That's right.
C:
- between Governments.
HMJr:
That's right. It's - under the law we just can't
C:
help them.
C:
Yes - that was my suggestion.
HMJr:
Right
C:
I hoped I can discourage them from it on Monday, but
HMJr:
C:
HMJr:
they're trying it anyway.
Oh, they're going to go ahead with it?
They - I mean, last night indicated that they are
going to try to go ahead with the inquiry.
You say, they are or they are not?
-3C:
They are.
HMJr:
They are?
C:
Yes
348
All right. Well, that's their privilege.
HMJr:
C:
Yes, yes
HMJr:
You were here the last time that happened.
C:
Yes
HMJr:
And you know how I handled that.
C:
Surely
HMJr:
Well, we feel exactly the same.
C:
Yes, yes
HMJr:
See?
C:
Surely
HMJr:
So the situation on this side hasn't changed one iota.
C:
Yes, fine.
HMJr:
How are you?
C:
Quite all right. I'm getting into things again now.
HMJr:
Good
C:
And, today things went a little better -
.
HMJr:
Yes
C:
There was sort of a heavy demand for a while -
HMJr:
Yes
C:
- for sterling. And just now, though, I talked to
our friend at the bank, five minutes ago.
HMJr:
Yes
C:
Hello?
-4-
349
HMJr:
Yes
C:
And he said that sterling was being offered rather
heavily by outside people.
HMJr:
I see.
C:
The rate dropped from 105.13 to 105.10
HMJr:
Yes
C:
That's purely political.
HMJr:
I see.
C:
From these rumors, you see?
HMJr:
Yes
C:
About the prospective change at the bank or in the
Cabinet.
HMJr:
C:
HMJr:
C:
HMJr:
C:
Yes
And he told me that, while the man at the bank is
probably doomed to go Yes
- that it looks now as if he will not go as long as
our other friend is in the Ministry of Finance.
I see.
And it looks like the Premier is going to hold on
to that man.
HMJr:
I see.
C:
So, while the situation is tense -
HMJr:
Yes
C:
I don't think there is going to be an immediate
HMJr:
You do not?
C:
I do not think so.
climax or crisis.
350
-5HMJr:
C:
HMJr:
C:
HMJr:
All right.
And they're trying to get some sort of a loan in
Amsterdam for the telegraph office or one of these
other bodies, you see?
I see.
And, my
is coming over to your side, leaving
here
the chief
twenty-fifth.
Yes - For his vacation?
C:
No, the man across the street from you -
HMJr:
Yes
C:
- said that he wanted to see him.
HMJr:
I see.
C:
HMJr:
C:
HMJr:
C:
I don't know whether it was purely involuntary or
what, but anyway, he's going to stay just two weeks.
I see.
So he'll sail the twenty-fifth.
All right.
Everything is going well here and I am trying to get
around to see a variety of people to keep you
informed.
HMJr:
Thank you very much.
C:
But, one second -
HMJr:
Yes
C:
HMJr:
C:
HMJr:
C:
Do you want to say anything to the Ambassador - he just
came in this minute.
I!d love to!
I say, Mr. Bullitt just came in my room as I was talking.
I'd love to say hello to him.
Fine
-6-
351
Wm
Bullitt:
Hello, Henry.
HMJr:
Hello, Bill
B:
How are you, my boy?
HMJr:
I see you're coming over to see us.
B:
You bet I am. I'll be back there on about the fourth.
HMJr:
Good!
B:
How is life moving?
HMJr:
Oh, on this side everything is going along very well.
Not - we're a little bit more peaceful.
B:
Yes - Henry, -
HMJr:
Yes
B:
Are you going to get your bill through the Senate?
The Supreme Court Bill - ?
HMJr:
Am I - my Bill?
B:
Yes, are you going to get the Supreme Court Bill
through the Senate?
HMJr:
B:
HMJr:
B:
Oh, I think so.
You do? That's good.
Yes, I think so.
That's fine. Well, God bless you, boy, see you soon.
HMJr:
All right.
B:
Good luck.
HMJr:
Goodbye
B:
Goodbye.
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
M352
FROM: American Embassy, Paris, France
DATE:
February 18, 1937, 5 p.m.
NO.:
237 FROM COCHRAN
Statement of Bank of France as of February 12 showed
no change in gold basis holdings or in advances to the
Government. Changes in other items not significant with
coverage 55.31 versus 55.01.
Rentes today opened one franc down but later regained
yesterday's levels with some going 25 centimes above.
Gossip continues that Baudoin is to succeed Labeyrie in the
immediate future but there is less talk of possible shift
in the Cabinet.
French Parliament continues to work on gold clause
legislation. Press reports Senate Committee on Commerce
has decided to study the question of world distribution
of raw materials with relation to German colonial demands.
Introduction of fiscal identity card in France is being
delayed possibly until May.
Officer in charge of Guaranty Trust of Paris visited
me yesterday evening. This officer gave me information quite
similar to that provided by the National City re the French
banking and financial situation, which was incorporated in
my telegram No. 230 of February 17, 1937, 6 p.m. I was told
by this officer that belief that the French will soon definitely stabilize is becoming so firm among certain usually
well informed speculators that they are selling sterling
forward
--
353
forward and buying French rentes.
It is my understanding that Beyen is giving up all
Netherland business connections except that with Phillips
with a view to devoting all of his time to his duties
at the BIS, as resident officer in charge.
It is said that Sir Otto Niemeyer is willing to accept
the chairmanship of the board provided by so doing he will
not have to give up other positions which he now holds it is presumed this includes membership on the League's
Financial Committee - and provided he will not be obligated
to attend every meeting of the BIS. Effort is just now being
made by Italian and French central bankers to influence
drafting by BIS staff of a resolution to be considered at
the director's meeting in March regarding the chairmanship
of the BIS. The Italians and the French are anxious to
guarantee that the position rotate between all founding
central banks, while it is said the British are less inclined toward having it this way.
On Monday while I was talking with Cariguel he said that
the Bank of France had informed the Ministry of Finance that
the American proposition for transfer of earmarked gold between club members on reciprocal basis was acceptable to the
Bank of France. My contact was not certain whether there
would be a handling charge of one quarter per cent if the
Bank of France transferred, for example, some gold held
by
354
-3-
by it under earmark with the New York Federal Reserve for
its own account or the account of the French stabilization
fund to the Bank of England's account.
END MESSAGE.
BULLITT.
el
EA:LWW
Department of State
EA
10
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
TREASURY
Mr. Lochhead
U.S.
1-1033
355
NO.
366
Paris, February 18, 1937.
355
subject. explanations furnished by the Minister
of Finance regarding the French
financial situation.
The Honorable
The Secretary of State,
Washington, D. 0.
Sir:
Reference is made to the Embassy's despatch
No. 861 of February 10, 1937, which provided information
relating to the negotiation of the British credit of
ree million concluded in London on January 29. and to
the events which lod to the appearance of the Minister
of Finance before the Parliementory Finance Committees
and the financial debate which took place in the Chamber
and Senate on February 4, 5, end 9.
I now have the honor to provide the following
summary of official statements published in the press
following evidences of public uneasiness and concern
regarding the financial situation and renewal of pressure
on the franc towards the end of January.
on January 27. the Minister of Finance issued
Immunique
January
1937
a octaunique to the press indicating that be would
explain the position of the Treasury to the Perliamentary
Finance Committees, but that in the asentime be desired
to make it clear that certain figures published relating
to requirements of the Treasury were absolutely false
and that a systematic campaign was afout to disturb
public opinion to undermine the Government. The deficit
of the ordinary budget for 1937 would be less than last
year, and that increasing revenue would fill up the
Sap. Ne agreed that the special budget (national
defense end public works expenditures) was considerable,
but necessary. He was convinced, be said, that the
Railway deficit would be attenusted if economic recovery
continued. He would demonstrate to the Parliamentary
Committees that the program established for the Treasury
would permit the Government to provide for requirements
in a normal manner. The Government would defect the
efforts of these who were attempting to bring about a
further devaluation of the frenc,- it was determined
to avoid any disturbance in the de facto ratio ("rapports
de fait established between the currencies. No one
would profit by a return to monetary disorder. on the
contrary, stability was in the interest of all. France
would devote all her efforts to this end, and he did
not doubt that the other parties to the tripertite
monetary arrangement would likewise do the aame.
Turning to ways and means of suppressing
speculation, the Minister insisted that the Government
was well armed and would leave no stone unturned to
defeat
356
defect attacks on the currency.
357
The Minister of Finance appeared before the
linence
Chamber Finance Committee on February 3. The following
pears
summary of his explanations is based upon semi-official
ifers Finance
smittees
accounts published
sister
In the first place the Minister
protested against false rumors in circulation,
and announced his determination to punish
the authors.
No then recalled the "disguised"
borrowing of the preceding government
from the Bank of France. and stressed
that such practices had now cassed. and
that advances were clearly shown in the
weekly statement.
At December so. 1936, advances by
the Bank totalied 5,400 millions, and
8.959 millions of Treasury bonds were out
standing, leaving a mergin of 4,600 millions
as concerned the advance account. and a
margin of issue of 5,600 million france es
concerned the 20 billion franc limit of
ordinary Treasury bonds.
From June 23 to December 31, 1936,
the resources of the Treasury amounted to
15,445 million francs, end expenditures
to be not totalled 15,222 million france.
For the whole year expenditures of
the
the Treasury amounted to 27,700 million
francs, not counting the reimbursement
of the exceptional discounts (about 14
billion francs) at the Bank of France.
or this total 1,800 million frence could
be laid to laws voted by the present
Government.
so far, no limit of authorization
had been exceeded. and no margin of
authorisation had been exhausted. The
Finance Law for 1937 had fixed the limit
of issue of ordinary Treasury bonds at
as billions; the cumulated total of bonds
and advances from the Bank was under
13,400 millions, leaving a margin available
to the Treasury of 9,600 millions.
The Minister contended that astronomic
figures had been put forward regarding
Treasury requirements for 1937, to be not
by borrowing. AS a matter of fact. total
direct charges of the State to be set by
the Treasury amounted to 20,485 millions.
Adding "special" charges of 3,370 millions,
and advances to collectivities of 12,278
millions. the total would be 36,127 millions.
AS concerned loan issues to cover those
requirements, taking into account the London
credit of January 29. 1939, and the National
Defense loan of December 17, 1936. the need
to
358
to borrow would, as a result, be reduced
from 36 billions to 28 billions (for the
State 20 billions, and for the collectivities
8 billions). This was not more than for
previous years when borrowing varied between
24 and 27 billions.
Referring to predictions that the
money market could not possibly respond
to such calls upon it, the Minister said
that the Government would appeal to the
country. which was reviving economically.
and which could provide the money". Be
agreed that the first faw months would be
difficult, and that all unnecessary expense
must be stopped.
The Minister looked for better results
as concerned the marketing of Treasury bonds,
following the increase in interest rates,
and he was also pressing for settlement or
unpaid taxes between 1934 end 1936. Furthermore,
he had requested the departments and communes
to provide for their own financial needs.
Shile a credit had been arranged in
London, in reality the French market should
provide the funds necessary for the Treasury.
The Government, as for as it was concerned,
had done what it could. It had offered a
three-year loan repayable at 140 francs.
and is had made public all of its accounts.
359
It was inadmissible that speculative
operations should continue to hamper the
security and produce markets, and for
this reason the Bank of France had decided
to raise the discount rate. Furthermore,
the Government considered that the
interest rates of the Bank had proved
too low for the Paris market, and the
rate for Treasury bonds had evidently
not been sufficiently high to encourage
the renewal of Treasury bonds.
It was by such means that the Minister
hoped to find the necessary funds during
the next three OF four months, which were
usually difficult for the Treesury Later
on, he would appear again before the
Committee to explain the situation, and
ways and means of meeting requirements
until the end of the year.
The Committee then requested the
Minister to reply to three direct questions.
The first was whether he considered
that it was possible to fix the value of
the frane at 48 milligrams of gold without
upsetting the tripartite agreement, and
without running the risk of further
devaluation by another country.
In reply, the Minister pointed out
that the three governments concerned
"had
360
"had declared their intention to use
appropriate available resources so as
to avoid as far as possible any disturbance
which may affect the new bases of the
exchanges resulting from readjustment of
the frano", and added that it had been
understood that necessary consultations
would be assured to this and between the
two other governments and between the
banks of issue.
The second question was whether if
the frane were stabilized at 43 milligrens
of gold. the profit should not be used to
repay advences from the Bank of France
to the State.
The Minister replied that, as far as
he was concerned "the question did not
arise". Be would simply refer to the terms
of the convention dated September 25. 1936.
which provided that "the proceeds of the
additional revaluation which must eventually
be carried out following the fixation of the
new gold content of the from will be
attributed to the State under conditions
which will be made the object of an ulterior
convention. These proceeds, as well as the
proceeds of the liquidation of the Exchange
Equalisation Fund can only be applied to
the amortisation of the public debt".
Finally
001
361
Finally, the Committee asked whether
the whole of the 1,030,606,297 francs
set sside in October last for the repayment
of the British credit, arranged in February,
1936. had been entirely used.
The Minister replied that about 1 billion
france of the money had been used for this
purpose.
In reply to a supplementary question,
the Minister stated that the guarantee
clause of the recent British credit was
in all respects similar to that agreed
upon for the operation arranged by his
predecessor in February, 1936. He described
68 follows the mechanism of the guarantee
The Bank of France would deposit to its
account at the Bank of England an amount
of gold or of currencies equel to that
of the credit, which would serve as a
guarantee and should be recovered immediately
upon reimbursement of the credit."
The Minister went on to say that if
it was established that a syndicate of
French bankers had taken part of the French
credit in London, it was abominable
He intended to open on inquiry in this
respect, be said.
The Minister repeated. in reply to
further
362
further questions, that the Exchange
Equalization Fund still possessed "a
substantial amount of gold and currencies
363
and that, contrary to numers in circulation.
"it was far from being exhausted
The Minister then appeared before the Senate
Finance Committee. and gave similar explanations,
it is said. At the conclusion of the hearing this
body issued the following communiqué to the press:
"The Senate Finance Committee has
listened to the explanations of H. Auriol
relating to the Treasury situation. The
Committee, taking note of the sinister's
assurance that he is resolutely hostile
to further devaluation, and to exchange
control. considers that under present
circumstances the Treasury problems present
particular importance end has therefore
decided to follow developments attentively."
The debate in the Chamber on February 4 on
Date in the
number on
ebruary 4
the bill grouping supplementary and extraordinary
credits relating to the budgetary year 1936. provided
the opposition with on opportunity to express its
views on the financial situation and on the financial
policy of the Government. The discussion in this
respect is reported on pages 320 to 333 of the
JOURNAL
JOURNAL OFFICIEL of February 5. 1937.
364
Deputy Fernand-lsurent (Independent
Republican - Mendel Group) held that
from the arrival in power of the Popular
Front Government to the and of 1936, the
gold holdings had, in reality, decreased
by one-third. At May 1, 1936. the reserve
totalled 61,937 million frenes ("Poincere"
francs). At December 31 it was 60.558
million france ("Hium-Juriel" france),
or in "Feinearé" france. 48 billions.
CB the other hand, the note circulation
had increased during the BASE period from
82. 757 million france so 89.341 millions.
an increase of 7 billions in six months.
In spite of the devaluation. the ratio
of gold cover at December 31 was only 57.44
percent compared with 66.47 percent at
May 1. 1936. If devaluation had not
intervened the percentage would have fallen
almost to the level of the legal cover,
namely, 35 percent.
Deputy Fernand-Leurent invited attention
to the decision to raise the discount rate
on the same day as the London credit was
concluded January 29) and insisted that
the explanation of these two developments
WAS that the French Exchange Fund was NO
longer
longer in control of the market. Turning
to needs for 1939, Fernand-Laurent referred
to the estimate of 58 billions put forward
by the Radiosl-Socialist Deputy Potut. but
indicated that as the Minister of Finance
had stated before the Finance Commisses
that it was 36 billions, he would take
this figure se a minimum. He doubted that
the French market would furnish the money
required, and insisted that while under
normal conditions a foreign loan would
bring gold to the Treasury. the contrary
was the case under present conditions.
Another possibility of providing necessary
funds was further devaluation. but the
Minister had said that he would not do this.
The fourth and last possibility, as FornandLaurent saw it. was inflation. and this
facility the Treasury was actually utilizing,
he insisted, and after examining in detail
the situation of authorisations to borrow,
and the advance account at the Bank of France,
soncluded that the Treasury had gone beyond
authorisations. (Note The Minister did
not apparently contest this suggestion.)
He claimed that the only solution to the
financial problem was to change the Government.
Investors would not land to the Popular Front
Government as they had no confidence in it.
The
365
The fanous cheek "drawn on the future which
366
M. Blum talked of would, in his view, prove
to be a check without provisions".
M. Paul Reynoud referred at length to
the necessity for France to borrow abroad
four months after devaluation, while, for
instance, Switserland was actually converting
its interior loans. In his view, speculation
was not to blane for the financial difficulties
as the Minister of Finance had claimed. The
cause of the trouble was elsewhere. Reynoud
congratulated the Minister for having given
up the idea of "open market" operations, as
the result would have been, he thought, to
provide speculators with frones with which to
gamble on the currency. No dwelt at some length
on the "costly" credit operation just concluded
at London. He suggested that 1/2 percent had
been added to the interest rate because the
credit was negotiated in the name of the
Railways and not of the state, and expressed
particular concern about the resulting diminution
of the gold reserves, as the result of the
security clause. In reality, be pointed out,
the gold reserves will, for the next few months.
include 4 billion france "which really belong
to the British".
He agreed that the Government had taken
office under difficult conditions, but impressed
upon
upon the Minister of Finance that the
London credit would only be justified if
the Government changed its poliey during
the respite thus afforded. He wondered
if the Government contemplated exchange
control, if it were driven into a eerner,
and recalled that some time ago the Minister
favored such a policy. "Happily", Reynoud
continued (addressing the Minister), this
is a measure to which you cannot have recourse
under the terms of the tripartite agreement.
The latter not only inferred that the French
Government would not establish exchange control
but, furthermore, obliged the French Government
"to pursue E liberal economic and financial
policy". Reynoud particularly stressed the
view that exchange control would mean the
rupture of the tripartite arrangement, and
added that "the consequences would not be
of a financial order only".
He then turned to runors about possible
legal stabilisation of the frone, and stressed
the view that in presence of a flooting pound
(which he referred to as "the world currency"),
and in presence of the uncertain economic
conditions. "it would be a crime against the
country to stabilize under present circumstances"
simply in order to permit the Treasury to take
over the Stabilization Fund, and to appropriate
the
367
the profit from revaluation of the gold stock.
At this point the Minister of Finance
interrupted to express his "entire agreement"
with the position which Reynoud took regarding
exchange control, and stabilization. Reynaud
said be BOOK note of the Minister's declaration
with pleasure. "as it was desirable to put a
stop to certain false rumore".
Raynaud stated that he was definitely
against further devaluation which would
not have a chance of success if it were not
combined with a new poliey".
The real problem, Reynsud went on, was
the abstention of subscribers to Treasury
bonds, and this encouraged speculators to
attack. Investors, he claimed. were influenced
by the economic policy of the Government.
French cost prices were already higher than
British cost prices, and the price problem
was the vital problem, he emphasized, and
provided striking evidences of disparities
between French and Belgian prices.
Reynoud then pointed to other sources
of disquietude, such as fear that financial
restrictions would be renoved, and emphasized
that although Blum declared for a liberal
policy, he hoped action would prove "the
reality of the intention". Referring to the
fact that deflation and devaluation experiments
had
368
005
had been made, he expressed keen regret that
France accused doomed to always halt helf-way
in the carrying out of its financial, economic
and monetary policies.
Finally, Reynoud assured the Chamber
that the essential, in his view, was not
a change of Government, but a change of
policy. without loss of time.
It should be mentioned here that during the
discussion outlined above it was brought out that
the combined budgetary deficit for the city of Paris,
and the Department of the Seine. for 1937, amounted
to about 1,500 million franes.
Replying to his eritics of the previous day,
ply of the
sister of
nence on
bruary 5
the Minister of Finance told the Chamber that he
considered that he had already provided the Chamber
Finance Committee with all necessary explanations
and information. and recalled that he had also made
public, in the form of a communique, the essential
features of his declaration. He had, he said,
explained the plans of the Government, and he did
not consider that further detailed explanations
would serve any purpose. He complained that repeated
requests for information seriously interfered with
his duties, and left him no time for reflection.
Nevertheless, the Minister proceeded to make
certain observations on the criticisms of the
Government's
369
Government's policy made by Persand-Leurent, and
Paul Reynoud, and to express satisfaction that both
of these gentlemen had agreed that be had been frank
and had withheld nothing. However, he noted that
neither of then had made any precise proposals,
although urged = change of Government,
and Reynoud had counselled a change of policy.
The Minister claimed that if. tomorrow.
he asked for subscriptions to a loan issue.
and there was no response, the bisme could
not be placed upon the Government, which
had done its duty, "but on those who, for
political reasons. and by egoism. had refused
their assistance".
with respect to ways and means envisaged
to cover Treasury requirements, the Minister
accured the Chember that he realized the
dangers of inflation. and that be "bad taken
all useful measures to procure the resources
that would make it unnecessary to have recource
to an issue of notes".
M. Ferman4-Laurent had asked if he
intended to present a new monetary law,
the Minister reselled, and replied that he
regreed with Paul Reynoud that this would
be disastrous and inadmissible".
Neither would be have recourse to new
taxation, which was already too heavy.
There remained the possibility of
borrowing. and 18 there remained no other
way
370
way out he saw no reason against it. He
was unable to understand why holders of
gold had refused to fulfill their duty,
when their country called on them, and
those with small economies, OR the other
hand, had shown their confidence as
reflected in deposits in the savings
banks.
He was then led to state that the
Railweys owed 6 billion francs to the
Treasury, and that every week they borrowed
more "because they were unable any longer
to sell their securities". Furthermore,
that the City of Paris had asked for
authority to issue a loan of 1 billion
"for public works". and that he had agreed.
provided conditions of the loan did not
hamper State issues, and that the Government
would be consulted regarding the date of
issue.
with respect to the immediate future.
the Minister reminded the Chamber that
"they were now approaching the low water
period as concerned revenue from texation",
but expressed the opinion that "after
April or May the possibility of making
lean issues would be greater". Therefore,
be was obliged. in the first place, to
provide resources for the Treasury during
the
371
012
the first three months of 1937. and he was
certain, he said, that he would not have
to draw on the margin of authorization to
borrow at the Bank of France. with the
view, apparently, of making clear the
position of the Treasury in this respect,
he added that he had requested the Railways
to repay their debt of 6 billion francs.
However, a deputy interrupted to suggest
that the method of repayment envisaged was
for the Government to borrow abroad in the
name of the Railways. The Einister
protested that be had procured a written
undertaking from the Railways to make
repayment. and said that he had proved
(before the Parliamentary Finance Committees)
that the conditions of the recent London
credit were similar to $hose of the credit
of 1935, and that the gold security would
not cease to belong to the State and to the
Bank or France, but that the state had given
the undertaking to reimburse the amount of
the credit in the event that the Railways
were unable to proceed to make necessary
loan issues".
Regarding repayment of the British
credit, the Minister was confident "that
increased exports. and foreign currencies
which will be left by tourists visiting
the
372
the Exposition will permit the Treasury
to make arrangements to this end without
selling on the Bank to relinquish the
gold deposited as guarantee".
The Minister of Finance, in conclusion, pleaded
with the chember so aid him in the Bask of breaking
down resistance to the Government's appeal for
financial assistance.
"If this can be done, with the British
credit of 4 billion france, renewed
subscriptions to short-term Treasury bonds.
the collection of unpaid taxes for 1933.
1934, and 1935. the Treasury could wait
and could pass the critical period."
Ee would need to borrow perhaps
SC billion francs for the rest of the
year. His plan was to make short term
loan issues to cover the ordinary budgetary
deficit, and for temporary requirements of
the Treasury, and medium or long term loans
to cover the special budget of armanent
and public works. This, he insisted,
should not be impossible. seeing that the
requirements of previous years had thus
been covered. However, be revealed that
difficulty in placing short term Treasury
bonds was causing emberrassment to the
Government. it present, only 4-1/2 billions
of such bonds were in circulation, which
he
373
he considered was out of all proportion
to a note circulation of 66 billions.
The Minister failed to understand
the hositation of the public to buy long
term securities. as he had denied that
be would inflate", and he "had pointed
out the dangers of a now monetary referm
Furthermore, be would say "no" to exchange
control - auterchy would follow such a
decision. The Minister continued "We
will avoid anything that could destroy
the happy monetary arrangement of the
three great democracies, and to which
other countries have adhered. 40 will
take care not to isolate ourselves. when
the interest of Europe and of the world.
and our own interest, leads us, and obliges
us to maintain monetary. economic and
political soliderity". No continued that
the Government hold to monetary and economic
order, and that "it would maintain close
contact with the two great countries which
had never ceased to colleberate with .
constant friendship for which he would
express from the floor of the House the
grateful thanks of all A currency or
economy which resured its independence,
which separated itsolf from the others,
would be unfortunate for all, be instated.
The
374
The Minister denied the claim by
Fermand-Laurent on February 4 that the
21
needs of the Exchange Fund had foreed
the Government to double the official
discount rate, and to borrow in London.
The Fund. be said. had ceded , billion
frenos to the Bank at the commencement,
and later had taken beek 4 billions to
repay the British credit, and had now
recovered the remaining 3 billions.
Finally, he said he hoped that be
had dissipated the fears of M. Reynoud.
He regretted that be could not give
satisfaction to M. Fernsnd-Isurent who
had saked for a change of Government",
and he concluded. significantly
"Gentleman. I think you will all agree
that these are dangerous words, certainly
not for the Government, but if really this
is the motive of the tightening up of capital.
and refusal to collaborate in the national
defense, the problem would thus take on
extreme gravity".
Paul Reynaud impressed upon the Government
that without a change of policy, coupling
deflation with the devoluation that had already
been nade, the Government was needed towards
economic collapse. He outlined the problem
as
375
as follows There was a mortal contradiction
between a liberal monetary policy (which
happily the Government had adopted) and
a policy of economic authrehy. The Government
could not maintain the frane without exchange
control. and without further devaluation,
if it allowed French prices to outstrip world
prices, and thus aggravate the unfavorable
commercial balance. It was true that world
prices were rising. but the rise was less
than the rise in French prices".
The discussion of the supplementary credits
bate in the
bill for 1936 also furnished the Senate with the
ebruary 9
occasion to review the financial policy of the
nate on
Government. The essential features of the discussion
concerned the warning of M. Gardey, reporter of the
Senate Finance Committee, to halt expenditures, and
notice served on the Government by M. Caillaux.
President of the Senate Finance Committee. that that
body would henoeforth reject any requests for
expenditure not accompanied by appropriate ways and
mouns.
Gardey, in an objective analysis of
the situation. said that the Government's
calculation that 36 billions over and above
budgetary revenue would be required during
1937 was open to question and that, based
on figures furnished by the Minister of
Finance himself, requirements totalled
between
376
23 between 38 and 39 billions, including
loans for the Hailways. It is noted that
this was not contested by the Minister
of Finance.
Assuming that at February 1 the
Treasury had at its disposal ordinary
Treasury bonds of 6-1/2 billion france.
and 1 billion france still available at
the Bank of France, Gardey examined the
possibilities of procuring the additional
30 billions. He recalled that Auriol had
concluded before the Chamber that loan
issues must provide necessary funds.
Pointing out that the various ways and
means resorted to to cover last year's
expenditures were mostly "expedients"
(17-1/2 billion franes from the Bank of
France, profits from devaluation 6 billions,
and Treasury bonds and loan issue, 1 billion
he expressed doubt that similar procedure
would succeed as concerned the year 1937.
E was far from convinced that Auriol's
hopes for obtaining funds would be realized
(in this respect particular reference was
made by Gardey to the Government's ennoursed
intention of calling upon the Departments
and Communes to repay advances), and he
could not believe that the Government
envisaged borrowing through a third party.
He
377
29
He noted that, with the view of finding
some relief, the Government envisaged the
postponement of certain public works projects,
and observed that, by "this prudent gesture
the Government provided an indication that
it had ceased to have complete faith in the
virtues of the development of purchasing
power.
Gardey laid particular stress on the
necessity for the Government to take steps
to halt rising prices, and to put a stop.
immediately and effectively to the rising
flood of expenditures. its celled upon the
Government to state clearly and definitively
its intentions. "se as to dissipate the
anxiety of a large part of the populase,
and the illusions of others".
Finally, he insisted that the country
must be accorded a breathing spell to
rebuild its reserves, and to enable it to
respond to the calls of the Treasury for
credit. The currency, national defense
and liberty were at stake, he solemnly warned
the Senate.
The Einister of Finance asked the Senate
to permit him to make "improvised" and brief
observations to M. Gardey for the reason
that his time and attention had been taken
up
378
up by preccupations of one kind and
another. Briefly, he recalled previous
budgetary deficits. and the unfavorable
development of French finances under other
governments. He did not contest Gardey s
estimate of requirements for 1937, but
hopefully pointed to increased revenue
receipts of 202 million france for December
and 263 million franes for January (free
indirect taxes alone). This improvement
encouraged him to hope that budgetary
estimates of revenue for 1937 would be
amply justified, and be thought that
especially during the last half of 1937
revenue would be satisfactory on account
of the stimulus of the Exposition. He
complained that be was criticized but no
one had brought any solutions. lie could
not raise taxes, nor would he have recourse
to a new devaluation. He would not bring
another monetary law before Parliament.
Therefore, borrowing was the only solution.
But in connection with this necessity to
borrow, and the credit of the State, the
Minister bogged "certain newspapers and
certain people to cease alarming the
public, and appealed to all good citizens
to group themselves around the Government.
The
379
26
The Minister then proceeded to
emphasize again the position of the
Government with respect to devaluation,
exchange control, and the tripertite
monetary arrangement. He would, he said,
repeat what he had said before the
Parliamentary Committees, and before the
Chamber. France had signed & tripartite
agreement with two great denearscies.
"France would not prectize a policy of
monetary isolation, it would not shut
itself out from the world at . moment
when it was necessary for French financial
and economic interests to draw closer to
the great democracies, and consequently
to consolidate existing agreements, and
not to break them". Exchange control,
he went on, would mean the breaking up
of the monetary arrangement The Government
was in agreement with him that, on the
contrary. it was towards an extension and
a consolidation of the monetary arrangement
that they should devote their efforts.
He thought it was necessary to remind
the country. however, that while he had
promised freedom of monetary exchanges.
he had also insisted that there should be
no froud. and there existed no contradiction
in
380
in this respect, as had been claimed.
27
He insisted that exchange transactions
381
must be "normal".
381
The Minister then invited the
attention of the Senate to the fact
that no one had brought forward any
other solution to the Government's
difficulties then borrowing. However,
it was said that the "climate" was not
favorable. But, be complained, false
rumors circulated about further devaluation.
empty Treasury. et cetera, could not possibly
erects a "favorable climate". In conclusion.
he refused to believe that such is campaign
had political ends, but he regretted to
note that "an important Right organ" had
predicted the day before that in three
weeks anarchy and revolt would be rempont
in Faria", and this at # moment when
foreigners were prepering to some to France.
M. Caillaux, President of the Senate
Finance Committee, then presented his views
on the situation. He impressed upon the
Government that unless the price problem
received an early solution the situation
would become "extremely perilous". Turning
to the financial situation. he claimed that
while the present administration could not
be held entirely responsible for the present
emberrassment
embarrassment, the principal cause was the
program of the Popular Front. Is a word,
a part of the deficit areas from the policy
of reflation, based on the theory of
purchasing power which Caillaux characterized
as "abourd". He observed that the Government
had to go abroad for funds because the
French public had withdrawn its confidence
in the administration. The reason was
because the public was alermed at everincreasing expenditures, and he predicted
that SOON even foreign sources of revenue
would dry up. If the Government was
encountering difficulties in raising money
it was not because of the opposition of any
particular money blook The money blook
if one existed, was composed of millions
of small investors who were unwilling to
subscribe to Government loans because they
consider that the State expends too much.
and that the administration of public finances
is exactly the opposite of what it should be
to gain public confidence.
A country whose public debt had increased
by 100 billion francs in seven years could not
possibly survive, Caillaux continued, and
concluded by warning the Government that
his Committee would henceforth refuse all
authorizations for expenditures not accompanied
by
3 82
382
by ways and means. 29
M. Spinesse, Minister of National
Economy, closed the debate by explaining
his view of the price problem, and
expressed the hope that by the organization
of labor, it would be possible to increase
production and thus bring about a reduction
of prices, and the soat of living. and
revive trade exchanges. He exphasized.
however. that French economy would have
to borrow several billion france. at audium
and long term. during the eaming months.
In conclusion, it may be said that the
declarations made by the Minister of Finance
relating to the situation of the Treasury, ways
and means envisaged by the Government to nest its
financial requirements for the coming months. and
assurances given regarding the intentions of the
Government as concerns further devaluation of the
frone, and freedom of movement of capital, have
epperently not made a profound impression on public
opinion. There are no outstanding indications
that investors have become less hesitant about
extrusting their funds to the Government, and that.
if a public issue were decided upon, there would
be a faverable response. New legislation now
in preparation, designed to curb prices and to halt
the increase in the cost of living. may prove to
be
383
383
384
- so -
be beneficial and revive confidence sufficiently
to induce the public to subscribe to public loan
issues. However, in order to induce those who
have funds available to GOME to the assistance
of the Government, the latter will have to
effectively demonstrate that it can definitely
control the situation and that there exists a
reasonable chance of obtaining the reimbursement
of capital invested.
Respectfully yours.
For the Ambassador
Edwin G. wilson
Counselor of Hmbnosy
In quintuplicate.
HMG/AQ/JF
little
385
Feb.18, 1937.
MR. OLIPHANT
MR. KENT
In re: Interstate Commerce Commission Report -
Undistributed Profits Tax
I have not had time, due to my illness last week, to pre-
pare a memorandum discussing in detail the contents of the Com-
mission's proposed letter to the President.
Much of it does not go to the heart of the essential issues
and will not be too difficult to answer. The one surprise in it
is the material on pages four and five which indicates some informal contact between an official of the Commission and someone
in Legislation and Regulations Division while the report was in
process of preparation. I asked Mr. Lus to find out what he
could about the matter, for their inquiries never came to my own
nor Mr. Lusk's attention. Apparently, someone did talk to Mr.
Adams, Assistant Head, and Attorney Mitchell some months ago, but
they have only the vaguest recollection of what the inquiries were
or what was said. Hence, we do not know how closely the statement
on page five is to the facts. No copy of the Director's memorandura of October 21, 1936, to the Legislative Division to which reference is made at the top of page five is appended to the above let-
ter in the file.
It is obvious that, if the statement on page five is true,
had judgment was shown by someone in feiling to see the importance
of the issues about to be raised by the Commission and insisting
that the matter be cleared formally through the Secretary. But
this does not absolve the Commission from failure to appreciate
the impropriety of speaking as it did on a matter of such importance to the Department without clearing it with the head of the
Department.
AHKirgh 2/18/37
386
Thursday
February 18, 1937
12:35 p.m.
HMJr:
Can you hear me?
H. M.
Cochran:
Yes, very well.
HMJr:
Fine -
C:
Yes
HMJr:
well now, I got your cable.
In -towith
to that special question put
up
youreference
by that man.
C:
Yes
HMJr:
And, there's nothing we can answer him.
C:
Well, I didn't expect an answer. I just wanted to
let you know that it was going through.
I understand. Well, now - but I wanted to tell you see?
HMJr:
C:
HMJr:
Yes
- that, - in the first place it's what you call an
"if" question, you know?
C:
Yes
HMJr:
"If" they do so and so what would we do, see?
C:
Yes
HMJr:
Well, the answer is that until it's put up to us we
C:
Yes
HMJr:
And then, - but I can tell you that if it is put up
C:
Yes
HMJr:
- they're going to get no encouragement.
C:
That's what I tried to let them know. I went pretty
HMJr:
Yes
have no answer.
to us -
far that first day.
387
-2C:
As you saw in my telegram -
HMJr:
Yes
C:
I mean I tried to discourage the whole thing.
HMJr:
Yes
C:
But they're just grasping at straws now.
HMJr:
Yes, well, it's unfortunate, but I'm afraid that
under the law there's nothing that we can do.
C:
HMJr:
C:
Well, that is my conviction.
Yes - Well, I wanted to tell you that rather than
to attempt to put it in a cable.
Yes, yes - Then I shan't cable on it any more. It's
up to them to work through their bankers.
HMJr:
Well, - work through any channels that they have.
C:
What's that?
HMJr:
Yes, I mean, there's nothing that you can do officially
to help them.
HMJr:
Oh, no no - And I didn't want it to come up officiallyThat's right.
C:
- between Governments.
HMJr:
That's right. It's - under the law we just can't
C:
help them.
C:
HMJr:
C:
HMJr:
C:
HMJr:
Yes - that was my suggestion.
right
I hoped I can discourage them from it on Monday, but
they're trying it anyway.
Oh, they're going to go ahead with it?
They - I mean, last night indicated that they are
going to try to go ahead with the inquiry.
You say, they are or they are not?
-3-
388
C:
They are.
HMJr:
They are?
C:
Yes
HMJr:
All right. Well, that's their privilege.
C:
Yes, yes
HMJr:
You were here the last time that happened.
C:
Yes
HMJr:
And you know how I handled that.
C:
Surely
HMJr:
Well, we feel exactly the same.
C:
Yes, yes
HMJr:
See?
C:
Surely
HMJr:
So the situation on this side hasn't changed one iota.
C:
Yes, fine.
HMJr:
How are you?
C:
Quite all right. I'm getting into things again now.
HMJr:
Good
C:
And, today things went a little better -
BMJr:
Yes
C:
There was sort of a heavy demand for a while -
HMJr:
Yes
C:
- for sterling. And just now, though, I talked to
our friend at the bank, five minutes ago.
HMJr:
Yes
C:
Hello?
339
-4HMJr:
Yes
C:
And he said that sterling was being offered rather
heavily by outside people.
HMJr:
I see.
C:
The rate dropped from 105.13 to 105.10.
HMJr:
Yes
C:
That's purely political.
HMJr:
I see.
C:
From these rumors, you see?
HMJr:
Yes
C:
About the prospective change at the bank or in the
Cabinet.
HMJr:
Yes
C:
And he told me that, while the man at the bank is
probably doomed to go
HMJr:
C:
-
Yes
- that it looks now as if he will not go as long as
our other friend is in the Ministry of Finance.
HMJr:
I see.
C:
And it looks like the Premier is going to hold on
HMJr:
I see.
C:
So, while the situation is tense -
HMJr:
Yes
C:
I don't think there is going to be an immediate
HMJr:
You do not?
C:
I do not think so.
to that man.
climax or crisis.
390
-5HMJr:
All right.
C:
And they're trying to get some sort of & loan in
Amsterdam for the telegraph office or one of these
other bodies, you see?
I see.
HMJr:
C:
And, my chief is coming over to your side, leaving
here the twenty-fifth.
Yes - For his vacation?
HMJr:
C:
No, the man across the street from you -
HMJr:
Yes
C:
- said that he wanted to see him.
HMJr:
I see.
C:
I don't know whether it was purely involuntary or
what, but anyway, he's going to S tay just two weeks.
I see.
HMJr:
C:
C:
-
HMJr:
So he'll sail the twenty-fifth.
All right.
Everything is going well here and I am trying to get
around to see a variety of people to keep you
informed.
HMJr:
Thank you very much.
C:
But, one second -
HMJr:
Yes
C:
HMJr:
Do you want to say anything to the Ambassador - he just
came in this minute.
I'd love to!
HMJr:
I say, Mr. Bullitt just came in my room as I was talking.
I'd love to say hello to him.
C:
Fine
C:
391
-6Wm.
Bullitt:
Hello, Henry.
HMJr:
Hello, Bill
B:
How are you, my boy?
HMJr:
I see you're coming over to see us.
B:
You bet I am. I'll be back there on about the fourth.
HMJr:
Good!
B:
How is life moving?
HMJr:
Oh, on this side everything is going along very well.
B:
Yes - Henry, -
HMJr:
Yes
B:
Not - we're a little bit more peaceful.
Are you going to get your bill through the Senate?
The Supreme Court Bill - ?
HMJr:
Am I - my Bill?
B:
Yes, are you going to get the Supreme Court Bill
through the Senate?
HMJr:
Oh, I think so.
B:
You do? That's good.
B:
Yes, I think so.
That's fine. Well, God bless you, boy, see you soon.
HMJr:
All right.
B:
Good luck.
HMJr:
Goodbye.
B:
Goodbye.
HMJr:
392
Thursday
February 18, 1937
12:50 p.m.
HMJr:
Hello
Ernest
Lundeen:
Hello, Mr. Secretary
HMJr:
How are you?
L:
-
get down there and see you -
HMJr:
Yes
L:
- some time in the next day or two.
HMJr:
Well, is it about Joe Wolf?
L:
Well, it might have something to do with that.
HMJr:
Yes, well, the reason I'm calling is this. I've
been called away from Washington unexpectedly.
And I've got to go tonight for two days. And if
it's about Joe Wolf I can tell you just where it
stands. And then next week I'd be delighted to
see you.
L:
Yes, well that will be all right.
HMJr:
Well, the President talked to me about Mr. Wolf
and he has it in mind
-
L:
Yes
HMJr:
Now, what's happened is, Mr. Farley's gone away
for ten days and he's asked us not to do anything
about it until he gets back.
L:
Yes
HMJr:
Now that's the status.
L:
Yes
HMJr:
See?
L:
Now, when will you be back?
HMJr:
Oh, I'll be back here Monday.
L:
Yes
-2HMJr:
Or Tuesday
L:
Well, I'll give you a ring then, next week.
Will you do that?
HMJr:
L:
HMJr:
Yes
I'11 be
to see you
time, but, if
you
justdelighted
will understand
I - any
I didn't know
that
I'm going to have to leave town tonight for
two days.
L:
Yes, all right, thank you very much.
HMJr:
Thank you
393
Thursday
February 18, 1937
12:52 p.m.
HMJr:
334
Hello
Treas.
Operator:
Chairman Landis' Office on the line - she says that
she understood
you
were all to go to Secretary
Hull's
office at that
three
o'clock.
HMJr:
HMJr:
No, they're to meet here first at two-thirty.
To meet here first at two-thirty?
That's right.
T.O.:
Right, I'll tell her.
T.O.:
395
18 February, 1937
4 p. m.
COAST GUARD OPERATIONS IN FLOOD AREA
Coast Guard small boat forces were concentrated on
the evening of February 17th in the region of Deer Park,
Louisiana, where danger of break in levee arose.
Coast Guard force at present operating in the
Mississippi flood zone numbers 22 seagoing units and
25 boats, the latter operating under the immediate direction of the DIONE at Natches, Mississippi, where a
shore office and communication center is being maintained.
GENERAL WATER LEVEL CONDITION
Depth 52.7' at Vicksburg, a rise of 1/10th foot
since yesterday; 57.5' at Natches and rising: 18.81 at
New Orleans, a rise of 3/10ths a foot since yesterday.
336
TREASURY-FEDERAL RESERVE-S.E.C. GROUP ON
RESTRICTION OF FOREIGN CAPITAL INFLOW
Present:
February 18, 1937
2:30 P.M.
Mrs Klotz
Mr. Oliphant
Mr. Magill
Mr. Haas
Mr. Taylor
Mr. Eccles
Mr. Landis
Magill:
As I understand it, the legal S taff retired and
considered
precisely how such a provision might
be
formulated.
Oliphant:
Magill:
Oliphant:
I discussed the matter with lawyers from Helvering's
shop. What's that man's name?
Secrist.
Secrist, who actually administers this matter of
taxing foreigners. But addressing myself to this
question: Would it be possible to frame a statute
reasonably satisfactory both as a matter of statutory workmanship and from the standpoint of admin-
istration, which would give a refund to long time
investors? And the concensus of opinion was that,
while the problem is a difficult one, it was feasible
to do so, and much more feasible if we for the present
took some date and sawed it off; for instance, January
1, 1936 - if you owned your security before that time,
you would be entitled to a refund. If you did that
for the present rather than making it a moving period
of two years or three years
H.M.Jr:
Oliphant:
I don't follow you, Herman. I don't follow you.
I mean that last.thing.
Yes. Well, people are to get refunds, under this
plan, if they are relatively permanent investors in
this country. Now, you either have a rule that for
a particular taxable year you must have held that
security, say, three years, in order to be entitled
to a refund, or you could put in the statute and say
that people will not be entitled to a refund as to a
397
-2 - -
particular security unless they owned it, bought it,
on or before January 1, 1936.
H.M.Jr:
You mean rather than from the day they bought it,
going back, say, two years?
Oliphant:
Yes. And that would, of course - if it were in
operation long enough, it would soon get antiquated.
But since the problem is not a permanent problem and
could be changed from year to year as legislation -
well, that tends to get you into detail, doesn't it?
The answer is that, while difficult, it is feasible
to develop such legislation.
H.M.Jr:
Well, that's what he asked you to study yesterday?
Oliphant:
(Nods yes)
Eccles:
Gosh, I hope we don't do that. I thought in deciding
on this bill now it was because it was a thing that
could be done very quickly because it was relatively
simple and it would be recognized that it would likely
be minor in dealing with the important problem of
capital imports for speculation; that a withholding
tax, whether twenty percent or thirty percent, would
not be a sufficient deterrent to stop the speculator
who is desirous of a capital gain. Now, if we propose
now only this withholding tax, leaving discretionary
power according to a certain criterion, and then
making a lot of exceptions for the purpose of refunding
Oliphant:
Just one exception.
Eccles:
Well, one exception then. The one exception would be
the time of the purchase. If there is an exception,
that seems to me not to be very equitable, because the
people who are the best able and who have profited the
most by recovery are those who purchased these secur-
ities, as many of them did, in '34 and '35 and '36,
and therefore if they have a right to a refund because
they held them prior to present prices, they are not
paying their equitable proportion of the cost of our
recovery and the benefits that they have derived from
it. I mean there is that equitable argument there.
It seems to me that the real objection the State
Department seems to be making to this proposal
398
-3H.M.Jr:
May I interrupt you just one minute. When Mr.
Hull comes in, he may not have seen that sheet
that we gave the President of one page.
Oliphant:
May I volunteer a suggestion: that if when Mr.
Hull came in the situation of capital movements
were described to him and he were asked what he
thinks we could do about it for the time being,
itthat
would
be better
looked
like than if we started with anything
H.M.Jr:
Oliphant:
Icondensed.
know, but he hasn't seen this and this is all
I'm just raising the question do you want to start
Landis:
with the problem or start with your solution?
Well, I'm only - what do you think, Landis?
In dealing with Mr. Hull, you mean?
H.M.Jr:
Yes.
Landis:
I think we ought to deal with him on the basis of
the present suggestion. Why I think that is that
this has a tendency to confuse the issue, and if
you admit the desirability of this drawback idea
for long term investment, you destroy the whole
basis of your argument for equality.
Magill:
Oliphant:
Well, Herman didn't mean that.
You state what I mean.
Magill:
What he meant was this: that it'd be better in deal-
H.M.Jr:
ing with Mr. Hull to describe to him briefly the
problem that we are confronted with. That is, what
is this "hot" money situation that we are trying to
deal with? Why are we trying to do anything about
it? And then come along and after the first fifteen
minutes say, "Now, we've thought about this and we've
thought about that and something else, and this out-
line here indicates
Landis:
Magill:
Oh yes, I think
that our best thought is along
399
-4Eccles:
As a first step.
Landis:
I think unquestionably that is the way to present it.
Let's present the problem first.
Magill:
Eccles:
He ought to have the background as to why this is
being proposed.
Oliphant:
I think one of Dr. Feis's difficulties has been he
trying to find a solution for.
hasn't seen how serious the problem is that we are
Landis:
Unfortunately, it's been referred to as the "hot"
money problem, and we're not really concerned with
"hot" money.
H.M.Jr:
Well, let's - one person ought to present it. I'm
not that person. I mean how do you want to do it?
Landis:
I think that is for you to determine.
H.M.Jr:
No, I mean
Landis:
I'll do my best.
H.M.Jr:
What?
Landis:
Yes.
H.M.Jr:
Well, just - I mean how would you like to do it?
Well, I think the way it ought to be presented is
this: First, the significance of foreign movements
into this country, the problem of why they are
coming to this country; just some general suggestions as to why they come here. The question of
how to deal with them. The discriminatory situation
as it exists today in this country; that is, discrimination in favor of the alien. The various methods
of doing so. The difficulties of certain approaches,
such as the capital gains approach and the transfer
tax approach. And the immediate desirability of
doing something now and the possibility of moving
immediately to correct one situation, which can be
done at the present time.
Landis:
Do you want to present it?
400
-5H.M.Jr:
Well, why don't you present it and then when it
comes
the particular
plan
Magill pick up
the ball to
there?
How would
thatlet
be?
Landis:
I'll do my best.
H.M.Jr:
What? Is that all right with you (Eccles)?
Eccles:
It's all right with me. I think that the order of
presenting it should be He is particularly
interested in this: the effect upon the countries
of the world, see - losing this capital. They can
buy less wheat, they can buy less cotton. It
doesn't help his foreign trade picture, because if
they put capital over here in our securities, it
depresses their own picture of France today, and
England, needing its own capital possibly. So that
we are really not working against the interests,
generally speaking, of those countries.
All right. Then the effect upon us, who don't need
the capital; that it comes in, it adds to our bank
deposits; it costs the Government money by having to
sterilize the gold, and increases its debt; it increases - creates a speculative market that is not
representative of a true condition of values of
recovery necessarily; and then, there is of course
always the danger of that money being taken out
through sale of securities at a time when we least
need or desire that it be taken out. It seems to me
that that is the sequence of the thing, isn't it?
Landis:
(Nods yes)
H.M.Jr:
The only suggestion I might make in presenting it -
H.M.Jr:
I don't think I'd be apologetic about the foreign
field. I'd let them bring that up. I mean I think
I'd present it as a positive thing.
Yes, don't raise any question about it.
Yes, I wouldn't apologize or try to excuse anything.
Landis:
Apologetic along what line?
H.M.Jr:
Well, I mean Marriner started in by saying, "By
letting this money come we are taking it away from
the cotton and the wheat." I mean I wouldn't start
off by trying to get him thinking along those lines.
Eccles:
401
-6-
I mean if he says, "Well, it's going to hurt my
trade treaties," then I think it would be time
enough.
Eccles:
You mean hold out the best argument until the
H.M.Jr:
I mean I'm in pretty fast company here and I just
don't know. I just wonder if we don't want to just
state the case and then if he begins to argue and
say, "Well, this may hurt my trade treaties," then
bring that up. I don't know.
Eccles:
Oliphant:
What we are doing is not against his trade treaties.
I wouldn't undertake to tell Hull what his problems
are.
H.M.Jr:
That's exactly what I had in mind.
Landis:
Oh, I wouldn't bring in the trade treaties there.
Eccles:
The monetary aspect of it.
Landis:
You're really not harming the foreign countries by
doing this.
May I say this: The idea I'm trying to get across -
Oliphant:
to illustrate, if we spent an hour with Feis describthat he got a very keen appreciation that here is a
ing capital movements and its consequences, etc., so
very live picture, and then had spent 30 minutes we'd have been better off doing it the other way
around. He didn't get a keen appreciation.
Eccles:
Haas:
H.M.Jr:
I thought he was sitting in conference.
He had a representative, but he wasn't here.
I think what you've got to say for them is this,
because Mr. Hull is terribly hot and bothered about
the trade treaty legislation and he's having a lot of
trouble. I think he's been concentrating on that and
hasn't had time to pick this thing up, any more than
I have had time to pick up Henry Wallace's sugar stuff.
I just refused to be pulled in on it; I can't do my
homework on it.
402
-7- The reason I'd just as leave have Landis or Eccles
state it rather than somebody from the Treasury is
that - I don't know how you are, but I look at you
with the State Department all the time and I don't
imagine that you do. I mean that your paths don't
cross.
more as a neutral, because we have so many differences
Landis:
Oh, our paths cross.
H.M.Jr:
Oh, do you? I mean I was just suggesting that
possibly it might taste a little sweeter - I don't
know. But we are all here to pitch in. I don't
expect very much trouble. I mean I've always found
he stands up for what he believes, but - I mean he's
Eccles:
always very polite about it.
With reference to this thing that Herman was discussing, this proposal for a tax refund, my personal
view is that I would sooner see a flat withholding
tax, base it on equity pretty largely, which would
meet most of the State Department question.
Oliphant:
I didn't mean to infer from what I said about the
difficulty that it would take us long to be ready
with that. We'd be ready to discuss it with Beeman
and Parker in a very short time.
Eccles:
I would say if it isn't going to be just As
a plain
I got the
simple tax that if you based it on
thought of the President yesterday, if there would be
a justification for a flat tax, if it was in line
with what other governments charged Americans, then
we could justify an increase on that basis that the
State Department or nobody else could seriously
Oliphant:
object to. But the discretionary provision, of
course, was the thing that raised the difficulty.
Of course, you might think of it in terms, Marriner in terms of what they would charge Americans if they
were confronted with a like influx of capital. That
is what we are not trying to do. We are trying to
control the movement of capital. And our equity
argument won't last very long down on the Hill.
Eccles:
Then if we do that, we shouldn't make these drawback
exceptions. That's the point. I'm for the flexible
403
-8 -
H.M.Jr:
provision just as it is, but when we begin to get
to the equitable aspect of it, then I'm not for it.
If we can treat it as it is without dealing with the
question of the equitable aspect, all right. If we
can't, if we're going to make exceptions because
of equitable situations, then I say let's go to the
flat tax and deal with it purely as an equitable
matter and not as a legislation to deal with a capital
import problem, except just incidentally.
We had a meeting here this morning. I can't talk
for Taylor, but I think with the exception - I
don't know, may have changed. Or I'll just put it
this way, that talking for myself after talking
with you people, we have pretty well come to the
conclusion that if we can't have this thing on a
flexible basis I don't know whether we want to go
up and ask for it at all.
Eccles:
I agree with you.
H.M.Jr:
We have pretty near come to that basis, because if
Eccles:
you just increase it from ten to twenty and leave it
flat, why, what's the use of going through all the
energy, going up on the Hill, and all the rest of
the stuff?
This is my position. If we can't put it through
about like it is, with the chance to go to thirty
percent, the flexible basis, then I say I'm against
doing anything until we are prepared to meet this
whole problem. Let's take further time to S tudy it.
Let's decide what we can do about the capital gains
tax on stocks, or on the transfer tax, and defer any
H.M.Jr:
action at this time until - for another month or two
months, until we can actually prepare a program to
deal in finality with this problem.
But I want to tell you this: that we here in the
Treasury will not deal with the capital gains thing
unless we deal with it domestically, and there is
very good chance there isn't going to be any tax
bill. I want you to know that. Marriner, did you
a
get what I said?
Eccles:
Yes, I got it. But of course, this is a separate
problem.
404
-9- H.M.Jr:
I know, but we cannot deal with a capital gains.
We are not prepared. We are in an untenable
tion if we open up capital gains on foreigners posi- and
at the same time don't handle our own. I don't know
whether you go along with me or not, Landis, or
Landis:
Well, I go along with you on that. I don't see how
you could handle capital gains - the whole question
you'll have
would gainson
beforeigners,"
tax popped.then
"Impossible
all capital these
fellows like King and his crew; they'11 say, "Why
do you have a capital gains tax at home? The
to be done away with." Then
is immediatelyabad,
ought in fight
thing are
"cat-and-dog"
of you
the toughest
kind on that capital gains proposition. Whether you
want to take that on is not my business to suggest.
well, we're not ready to take it on. And I also want
to say that there is a fifty-fifty chance there will
be no tax bill at all this year, so I don't want
Eccles or somebody to say, "Well. " - I mean I want
to make the Treasury position absolutely clear. There's
a fifty-fifty - I don't think I'm over- or understating
it, do you, Magill or Oliphant, when I say there is a
fifty-fifty chance of no tax bill, see?
Other than the extension of the excise taxes.
If you say, - a
H.M.Jr:
Magill:
H.M.Jr:
Oh yes. Well, I don't consider that as taxes. When
I mean taxes I mean grief. I mean with the exception
of that.
405
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
MEMORANDUM OF THE DAY'S ACTIVITIES
FOR FEBRUARY 18th
TO
DATE February 18,1937
Secretary Morgenthau
FROM Mr. Magill
1. Taxation of non-resident aliens
My conferences today on this subject have already been
reported to you or you have attended them. After Mr. Oliphant and I
left you this morning, we discussed with several members of his staff
the administrative feasibility of refunds of some portion of the
taxes on dividends and interest, to foreigners who have held our
securities for some time. It was decided that although there were
serious difficulties, legislation could probably be drawn which would
be practicable. Mr. Hans and Mr. White expressed serious doubt as
to the desirability of any such refunds on the grounds that the force
of the whole proposal would be seriously crippled or defeated. It
was agreed that Mr. Oliphant's staff would undertake the preparation
of a provision for refunds to foreigners who have held their investments for a long period; and that Mr. Haas and Mr. White would prepare
a brief statement of the objections to amending our original proposal
in this regard.
I requested Mr. Oliphant to assign one or two good members of
his staff to work on a plan for the taxation of transfers of stock to
and from non-resident aliens. The proposal could be associated with
a tax on capital gains or the two could be kept separate.
the
I neglected to report to you yesterday g substance of my conference with Dr. Burgess. Attached hereto is a memorandum of his com-
ments and also a memorandum summarizing the conference with Mr. Ecoles.
2. Sugar tax
Mr. Eccles told me after this afternoon's conference that he
would like to discuss the sugar tax with me when it came before me.
I told him that I knew nothing about it as yet, but I should be glad
to get the background from him.
Attachments
Rw
406
February 18, 1937.
Dear Doctor Feis:
I believe that your letter of February
17, 1937, correctly summarizes your expressions in
our conference of February 16, 1937, regarding the
attitude of the Department of State.
We should be happy to advise you of any
future meetings which may be held by representatives
of the three agencies, directed by the President to
study the problem.
Sincerely,
(Signed) Roswell Magill
Under Secretary of the Treasury.
Doctor Herbert Feis,
Department of State,
Washington, D. C.
RMschhdrg
mailed by cost 2/18-
407
COPY
DEPARTMENT OF STATE
WASHINGTON
February 17, 1937.
Deer Dr. Magill:
The Secretary of State has authorized me to confirm the arrangements which we discussed in regard to various situations that may present
themselves in connection with the proposed changes of taxation applicable
to the income received by non-resident aliens from American securities.
Should the following situations arise, the Department would endesvor
to deal with them as herein set forths
(1) If, as appears unlikely, the Department should be requested to
appear before committees of Congress to discuss this proposal, it will
state its opinion that the matter is not one primarily within the field
of its action or responsibility and therefore has no presentation to
make before the congressional committees.
(2) That if, as is frequently done, the interested coanittees of
Congress refer the proposed legislative changes to it by letter for conment, the Department will limit its consent to the treaty phases of the
subject.
(3) Should foreign governments enter protests or communications of
the character received when the present legislation was enacted, it will
transmit these communications to the Treasury for the formulation of the
response.
I trust that these arrangements are satisfactory to the Treasury.
If you have any further suggestions to make in regard to this matter,
please do not hesitate to send them along.
I assume, unless informed to the contray, that the treaty aspect of the subject will be taken care of in the manner discussed at
yesterday's meeting, to wit, by the enactment of an exemption for obligations that may be assumed under treaties.
The Department is appreciative of the opportunity that has
been extended of keeping itself informed of developments in the net-
ter, and will appreciate similar opportunity in the event that further
action should be given consideration.
Sincerely yours,
(Signed) Herbert Feis
COPY
408
DEPARTMENT OF STATE
WASHINGTON
February 17, 1937.
Dear Dr. Magilla
The Secretary of State has authorized me to confirm the arrangements which we discuss'd in regard to various situations that may present
themselves in connection with the proposed changes of taxation applicable
to the income received by non-resident aliens from American securities.
Should the following situations arise, the Department would endeavor
to deal with them as herein set forths
(1) If, as appears unlikely, the Department should be requested to
appear before committees of Congress to discuss this proposal, it will
state its opinion that the matter is not one primarily within the field
of its action or responsibility and therefore has no presentation to
make before the congressional committees.
(2) That if, as is frequently done, the interested committees of
Congress refer the proposed legislative changes to it by letter for conment, the Department will limit its comment to the treaty phases of the
subject.
(3) Should foreign governments enter protests or communications of
the character received when the present legislation was enacted, it will
transmit these communications to the Treasury for the formulation of the
response.
I trust that these arrangements are satisfactory to the Treasury.
If you have any further suggestions to make in regard to this matter,
please do not hesitate to send them along.
I assume, unless informed to the contray, that the treaty aspect of the subject will be taken care of in the manner discussed at
yesterday's meeting, to wit, by the enactment of an exemption for obligations that may be assumed under treaties.
The Department is appreciative of the opportunity that has
been extended of keeping itself informed of developments in the mat-
ter, and will appreciate similar opportunity in the event that further
action should be given consideration.
Sincerely yours,
(Signed) Herbert Feis
409
MEETING WITH SECRETARY HULL ON
RESTRICTION OF FOREIGN CAPITAL INFLOW
Present:
February 18, 1937
3:00 P.M.
Mr. Hull
Mrs Klotz
Mr. Feis
Mr. Oliphant
Mr. Magill
Mr. Haas
Mr. Taylor
Mr. Eccles
Mr. Landis
Hull:
It's a very tempting thing to propose an exchange
of some personnel between the two Departments when
I come over here. I can't - I'm restrained from
saying much on account of Feis being along with me.
Feis:
Just as well for everybody, Mr. Secretary.
H.M.Jr:
What do you want to swap Feis for?
Hull:
Well, I've talked too much already.
H.M.Jr:
Do you want a catcher or a runner?
(Hearty laughter)
Hull:
Well, I'm glad you people have no more problems on
hand than you have.
H.M.Jr:
Don't know just how to take that. I'm always glad
that you think there is less publicity - the chance
for publicity - in the Treasury than there is in
the State Department.
Hull:
H.M.Jr:
Well, we're mighty close-mouthed over there, and
we have thirty or forty fellows who make their living
just tramping around in those corridors and putting
out things to the country. I thought it would save
you folks any bother about that.
Well, I appreciate your coming very much. Now, I
think if one of these gentlemen might explain to you
what we have in mind, and then you interrupt just as
you feel like it.
410
-2Hull:
Yes. If I may just make this remark, we can appre-
ciate your difficulties to a more or less positive
extent, and have some ideas about them; and, without
going too far into the merits of them, we have run
into another phase that hits us. And so we have our
difficulties, which I hope in the proper spirit we can
carry along with you gentlemen, and let us do the
best we can about it.
H.M.Jr:
Well, I think it is possible for us to obtain our
ends without embarrassing you, and that's what we'd
like to have a chance to explain to you, and we'll
Hull:
Landis:
do it briefly as possible.
It will be awfully interesting.
I think I might perhaps open the discussion of this
problem, because it has concerned our outfit just as
much as it's concerned any other outfit.
We have been watching for quite some time the capital
inflow from abroad into this country, which moves
primarily into our security markets. It jumped up
enormously last fall, still has been on the steady
increase, and has had rather abnormal increases in
the last two months.
Some aspects of that flow are particularly interesting.
First, that it is in large measure of a speculative
character. We can judge that by watching the total
balance, the total amount of sales and purchases of
our securities, and then comparing that with the net
inventory change as a result of those changes.
That capital inflow into this country in the field
of American securities seems primarily due to obvious
things abroad. Namely, the disturbed condition of
the European countries; also, the fact that their
security markets are out of line - much more out of
line with any rational prices than are ours in this
country.
Of course, that raises problems for us. It raises
problems perhaps of major importance for Mr. Eccles
and his group and for the Secretary of the Treasury
and his group. It means, of course, the flow of gold
into this country, with its consequent increase of
411
-3 bank deposits and the cost to the Government involved
in that by the required sterilization of that gold.
In our security markets it means the introduction
of - well, approximately two billion dollars of funds
within a very short period of time, until we have
something in the way of eight billions invested in
American S ecurities in this country.
The problems there don't show any tendency to decrease;
I mean the tendency is rather one of increase than
otherwise. In examining that problem, methods of dealing with it have been suggested. The field that has
been most thoroughly canvassed is the tax field. In
considering that, we are struck with rather an extraordinary situation of discrimination against our own
nationals in the tax field. We find, for example,
that the alien - the non-resident alien and people
in his category are not subject to the capital gains
tax in the way in which our nationals are subject to
that, therefore permitting - giving an edge to them
to speculate in our securities which we deny to our
own nationals.
Hull:
Now, that relates to all classes of investors from
Landis:
Yes, all classes of investors except those that are
resident here or that we can reach through the fact
abroad, does it?
of being resident in this country.
We find also this to be true: that from the ordinary
standpoint of taxation there is a discrimination too
against our nationals. The withholding tax on interest payments and dividends runs about - runs ten
percent as against the alien. With reference to
our own nationals, of course, the tax starts on a
four percent basis but it has a progressive effect,
so that, according to the Treasury figures, if one
would try and draw a rough generalization between
this progressive tax on our nationals and the straight
withholding tax upon foreigners, the figure would be
more in the neighborhood of twenty percent than the
Hull:
existing ten percent.
The withholding tax, of course, is a gross tax - tax
on gross income rather than net, isn't it?
Landis:
Yes.
412
-4Hull:
Magill:
Whereas the other is strictly a net tax based upon
the assembling of all the capital.
Well, of course, the alien's other transactions that
would give the net are assembled at the place of his
residence. And then of course, further, there would
not be many deductions which would be attributed to
these items like dividends and interest, on which
the withholding is made.
Hull:
I was asking the question as much as making a state-
ment. It is practically a gross tax - tax on his
gross income, isn't it?
Magill:
Well, it is, yes, in one sense; that is, the with-
Hull:
Magill:
He gets no deductions or abatements or exemptions.
No, not here.
Hull:
And pays on the gross amount from this country.
Magill:
But, as you doubtless know, we have the same situation,
for instance, among our own states.
Hull:
Yes.
Magill:
Exactly the same condition exists there. And I think
the general theory is that he should get the deductions in the place of his domicile rather than in the
place in which his income has the source, if there are
holding is from the gross amount of dividends or
interest which are payable to him.
the two places.
Landis:
Well, to go ahead with the examination of the field
and see what possible remedies there are that would
deal with this situation, as we view it, both to the
good of our own country and to the good of the world
generally.
We canvassed very carefully the application of the
capital gains tax so as to bring equality of treatment
with reference to that tax as between nationals and
non-resident aliens, and we find that there are enor-
mous difficulties in working that thing out administratively. You can readily appreciate that when you
413
5-
recognize that many of these transfers never occur
in this country. They are transfers made abroad.
Despite that fact, though, the increase in capital
that results from a transfer of an American security
made abroad is an increase flowing from the fact of
American enterprise at home, and in justice that
increase ought to bear the burden of taxation just
as much as an increase occurring from a transfer
here in this country.
The difficulty of the approach through the capital
gains tax has been the administrative approach.
Idealistically, I suppose it might be desirable
to look at it from that standpoint. Furthermore,
I think the general judgment is that there is an
immediacy in the present situation; I think Mr.
Eccles particularly is disturbed about that from
his angle; frankly, I am disturbed about it from
the standpoint of the increasing speculative activity that has been showing in the market over the
past two months.
Hull:
May I - you don't mind if I interrupt you as we go
along.
Landis:
Hull:
No, not at all.
Just so I can understand a little more fully, is it
your primary purpose to curb this situation or to
impose these taxes, or both?
Landis:
The primary purpose, I should say, is to curb the
situation. But if you find that one cause for the
situation results in a favorable treatment that is
accorded which from a broad standpoint seems not to
have any justification, at least that deserves to be
cured, even though it may not cure the entire situa-
tion. Other measures may be necessary, but that one
way of movement seems to be free of difficulties that
might be present in another method of attacking the
situation.
The result of that examination in the capital gains
tax, I think, brought us to the realization that if
we want something to be immediately done with the
problem, we can't use the capital gains tax route.
Nor did we feel that the imposition of a transfer
tax on stocks, directed against aliens as such, was
a very desirable solution to the problem. It had
414
6
aspects of discrimination, beside aspects of dif-
ficulties of administration.
On the other hand, we are now administering a
withholding tax, and an increase in the rates of
that withholding tax seemed to us not to create
administrative - new administrative difficulties.
they are already present; the Treasury has already
worked out the method of administration there. And
from a - generally, from a legislative standpoint,
it seemed easy to attack it in that way.
Therefore, the judgment of the group here was that
if we wanted to attack that thing immediately, and
there was a desire to attack it immediately, the
best way would be to move towards increasing the
rates on the withholding taxes imposed on non-resident
aliens.
Hull:
May I ask a question? Would it be possible to get at
these speculators from abroad by making their admission
to the stock market - require them as a condition
precedent to entering, their appearance - make these
transfers within our tax jurisdiction?
Landis:
That raises the type of administrative problem that
has really balked us for the time being in the
administration of the capital gains tax: the difficulty of finding the beneficial ownership beneath
transfers of this character. It raises that problem.
It means that you have to constantly watch a transfer
day by day in order to discover when the individual
Hull:
that you are after enters into the picture.
I was just wondering if you haven't got sufficient
basis there - sufficient evidence of the accumulation
of taxable income to require some kind of safeguarding
by these foreign speculators in the way of a preliminary showing. It seems to me - not my business to
suggest; I wouldn't venture to do that - but I just
inquire whether there couldn't be an avenue of approach from that angle to this.
Landis:
You mean before
Hull:
The speculator who gets in here and avoids the capital
gains tax and avoidsall taxes, practically. They
practically avoid this ten percent tax, it is so
difficult.
415
-7
Landis:
There is that difficulty even with reference to the
withholding tax, but I think you increase that difficulty enormously when you think in terms of trying
to deal with the individual transaction as such, put
some barrier up as against the foreigner acquiring the
stock in the first instance. I don't think there is
anybody here that doesn't recognize the deficiencies
that are present with reference to the present scheme.
It doesn't attack the speculator as such; it attacks
him indirectly, because the burden of that tax falls
equally as against the person who is a day-by-day
trader and as against the person who holds and has
held the security over a period of time. But, contrariwise, that person today - the long term investor,
foreign investor in this country, has an undue preference and therefore to attack him is not discriminatory;
at least, as it seems to me.
Furthermore, one further device that we have in mind
as a cure against the speculator is to give the
President himself a discretionary power, within
certain limits - rather, a flexible power within certain limits, to elevate that tax rate. I mean - the
thought was to thirty percent at the most - between
ten percent, the existing rate, and thirty percent.
As such, we of course have to consider the legislative problem that would be raised with reference to
the grant of flexible power elsewhere in the field
of taxation; but it seemed particularly easy to get
that flexible grant in this field, where you are
dealing in part with an instrument of policy in the
foreign field, where delegation to the Executive is a
common tradition.
The flexible power admittedly has some difficulty of
justification on the ground purely of equality of
treatment between aliens and nationals in this country. Yet, from the standpoint of being a discouraging
threat towards the speculator - its liability from the
former standpoint seemed less than its asset from the
latter standpoint. In fact, I think we feel rather
clearly that unless some discretionary power is involved there, the mere raising of the withholding tax
from ten, we'11 say, to twenty percent, possesses not
too great a virtue. It may be enough, and yet we have
some doubts about that without the discretionary power,
inasmuch as this is a moving problem from day to day
and has to be handled as such.
416
- -8 Hull:
Which countries are chiefly represented here, do
you think, in these groups - three groups, two or
three
groups of investments over here? The British
and French?
Landis:
Well, England itself possesses the largest amount
of investment in this country. Perhaps the most
quick-moving countries, as I see them, are the Dutch
in this field and also the French are rather quickmoving. That is, I think if you try to measure
speculative activity, the speculative activity perhaps among the Dutch is greater in ratio to their
Feis:
change in inventory position than that among the
English, but the English is a. greater volume.
May I ask a question just for information? How is
it you can get at the fellow who receives a dividend
on a thousand shares of United States Steel and yet
can't get at a capital gain that he might make by
selling the thousand shares of Steel? What is the
point that makes one thing feasible and the other
not feasible? I just don't
Landis:
I think Herman Oliphant could answer that easily.
But the first thing that occurs to me is this: that
in getting at the fellow who receives a thousand
dollars as dividends on United States Steel, you
only have to look at the source of that, whereas if
you are getting at the fellow who has bought a hundred shares of Steel and sold it the next day, and
bought a hundred shares and sold it the next day,
you are constantly - every day, every hour, you are
trying to find where the ownership of that is, and
that raises an administrative problem that can be
stepped up in intensity to almost any level.
H.M.Jr:
Well, I must just say at this stage that even if it
was feasible, we don't want to raise the question of
capital gains tax at this time, because we feel that
we can't raise it for the foreigners without raising
it for our own citizens, and we are not prepared to
raise it domestically. I'd like to just take a
minute to explain. We have an understanding with
Harrison and Doughton at this time that, with the
exception of the possible extension of the miscel-
laneous taxes in toto, we won't consider a tax bill
until after the 15th of March, and there is a
417
9-
fifty-fifty percent likelihood that we will have
no tax bill this year of any kind. So we couldn't
very well raise this capital gains tax for foreigners
without opening up the whole tax field of our own,
and they are not prepared to do that at this time.
And that is another reason why we wanted to use an
excuse, a reason for hurrying this thing. We have
a financing on the 15th of March and - I don't know
if it's been pointed out to you - under the Second
Liberty Loan Act foreigners holding United States
Government securities are free from all taxes on
the income received from such a source.
Hull:
That was put on back there, was it, to bolster up
the value of our securities - back following the
War?
Oliphant:
Facilitate their sale.
H.M.Jr:
And we thought that we could go to the Hill and
say, "Now, we like this legislation but we have to
have it before the 15th of March so that the secur-
ity we sell on that date will not continue to - the
foreigners who buy that will not continue to enjoy
that privilege." As you know, we've got to have
some kind of excuse these days to get anything
through in a hurry. I just wanted to give you that
lighting, background, as to where our tax bill and
tax legislation stands.
Hull:
Well, we've whittled down our own exemptions on
interest from Federal securities to a little nothing,
haven't we? It used to be five thousand dollars
flat exemption plus a surtax only. What have we
got now?
Magill:
Well, I think the bulk of them is free from normal
tax, subject to surtaxes.
Hull:
The same as it used to be, except the five thousand
Taylor:
Hull:
is stricken out.
The five thousand is still in.
Then it's still - it's surtaxes plus an exemption
of five thousand dollars.
418
- 10 Taylor:
Jumped from the normal exemption up to five thousand
dollars, and then subject to surtaxes.
Hull:
Well, that's what it's been all the time.
Landis:
What I think might be desirable in order to appreciate our problem here - I have tried to give it
from the angle of security control - is that perhaps
Mr. Eccles could give something of a broader picture
of it than I can give, from the angle of the effect
upon gold reserves in this country.
Yes, thank you. This proposed increase of the flat
tax from ten to twenty percent - have you any estimate
as to the relative proportion of the long term investments and the bank deposits and the speculations, all
from abroad, that this twenty percent - how it would
hit each of those three groups?
Mr. Haas could give that.
Hull:
Magill:
Haas:
Let's see, there are some rough estimates, Mr.
Secretary, on the total amount of foreign investments
in this country - as you know, somewhere between
Hull:
Haas:
seven and eight billion dollars. Of that amount,
about three and a half billion is estimated to be
in securities of one form or another, stocks and
bonds. I don't recall offhand the other breakdown.
I think there's about a billion and a half estimated
in bank balances and the rest of it is in direct
investments, in plants. And then there are some
other miscellaneous items in there to make up that
total. But just how that is taxed - this withholding
tax would operate, would be withheld from all income
derived from these investments, whether it is dividends, interest, rents, or royalties.
Yes. I imagine - just imagine that you could get
at the income from these long term investments in
this country more fully than you could get at the
profits or income from either - certainly the
speculations and the stock market. I don't know
how it is about the bank deposit situation.
If I understand what you mean, it is easier to get
at the longer term fixed investment income than it
is to the income otherwise derived. I think you're
right.
- 11 Hull:
Landis:
419
I was trying to see what group of this foreign
capital in here this would hit principally, or
whether it would hit all three groups in somewhat
relative proportion.
Well, you see, it would hit the speculator because
his costs for carrying a position in this country
are increased as a result of that tax. It hits
him. It perhaps doesn't hit him as severely as we
would like it to hit him. Now, I think another
thing that is admittedly true is that in large
measure one is working in the dark on this matter;
we don't know how much of a pressure is sufficient
to bring about an appropriate deterrent to the spec-
ulator in this country that one wants.
Hull:
Just how
Then you take short term investments;
do they grow principally out of owners of money and
credit abroad who are scared and looking - who are
hunting for hiding places?
Landis:
I don't think in the short term field that is so.
From the standpoint of bank deposits in this country,
there are a great many bank deposits here which are
not drawing interest, which must be simply the flight
of capital because they are scared abroad. It is
not a speculative venture; it is based upon the desire
for safety rather than anything else. With reference
to your outstanding good short term obligations, I
suppose the same thing would be true. Whether that
would be true with reference to short term obligations
of a speculative character, of which quite a few
exist - I doubt that and I would imagine that the
speculative influence would be at work there too.
Hull:
Now, was some other gentleman going to say something?
Landis:
I was thinking that you (Eccles) might just bring
out the significance of this problem from your
standpoint.
Eccles:
I think Mr. Landis has covered the situation very
well and quite fully. Very little that I can add to
it, except to say that foreign capital coming to this
country adds to the increase of bank deposits; bank
deposits at the present time are about two billion
dollars in excess of what we had in 1929. They are
420
- 12 -
of sufficient amount that, given the velocity of
the turnover of 129, we could support a national
incomedollars.
at the 1929 price level of about ninety
billion
We can control - at least, can influence the domestic
creation of bank deposits. Bank deposits domestically,
of course, are created by domestic credit, bank credit;
whereas deposits that are created as a result of gold
imports - we exercise no control over their creation.
It may be coming at a time, as we think it is, when
it is undesirable, and it may go out at a time when
it is the least desirable to lose it. Therefore they
accentuate the domestic credit control problem. The
problem of the Reserve Board has been greatly mini-
mized as the result of the gold sterilization.
Hull:
H.M.Jr:
How much of that is sterilized now, approximately?
What's that, a hundred and some odd million?
160 or 170 million.
Eccles:
It only went into effect in December. That prevents
H.M.Jr:
172.
Eccles:
It prevents that gold from adding to the excess bank
Eccles:
those
reserves,
Hull:
Yes
Eccles:
which create - when added to the reserves the
problem is of course greatly increased, because upon
each dollar of reserves the amount of credit that
can be expanded upon that is greatly multiplied.
So that the sterilization has eliminated that problem. It has of course increased the Treasury problem
of financing that cost. And so long as gold is coming
in, gold is being sterilized, there is always an
inite future, of those getting out into the credit
element of danger with Congress, looking to the indef-
mechanism. There is no danger today so long as the
present situation prevails, because the Treasury and
ourselves have a very clear picture of the problem
and an understanding of it, so that we have no concern
421
- 13 -
about this sterilized gold getting into the banking
system and creating an inflationary situation,
unless Congress should do something about it, which
is not likely at this time at least. We would much
prefer to not have the gold here, where it is not
needed.
Now, we of course are indirectly interested in the
production prices, as they are closely related to
the problem of domestic credit control. And
to
if they
And
the extent that these funds come in
were used for the purpose of buying domestic - of
producing and giving employment to the market at
this particular stage, it would possibly be helpful.
But to the extent that they create fictitious price
levels by going into the speculative channels, either
commodity futures - I mean commodity speculator or
stock speculation, they tend to upset the equilibrium
of an orderly recovery. The withdrawal of them would
of course tend to accentuate the declines.
That is the problem as we see it and that we are
interested in.
Hull:
Naturally we desire to work with you gentlemen and
try to work with you just as you undertake to reciprocate with us, and I think altogether we get along
very well. We are trying to ease along - have been
trying to ease along with respect to this situation
and cause a minimum of bother to you folks in whatever you have in mind to do.
Naturally, I get some very earnest pleas from outstanding people about the idea of seemingly contra-
dicting our commercial policy as it realtes to
international commerce and trade.
I think, for instance, if we take the tax phase of
this. I can understand how you'd want to from
any viewpoint gather from those taxes from abroad
their full and equitable share at least, if not more.
Well, that's one proposition.
The question of the extent to which you can use the
tax method to curb this capital - these international
capital movements, is what gives us some concern.
For instance, I think some months ago we negotiated a
422
- 14 tax arrangement with Canada under which each of
our countries - at least we only charge five percent
instead of this ten percent that we have now and
which
is to be raised to twenty percent. I don't
remember who started that.
H.M.Jr:
Hull:
Well, under this - if this went through, this
wouldn't interfere with your Canadian treaty.
No, I know it wouldn't. But what I am coming to
is that every week, and sometimes more frequently,
we are struggling to induce other countries to
remove discrimination against us. We have tried it
in every form, and if they can find any ground or
plausible pretext to plead that we are doing something
of
the similar,
road. then they stop right in the middle
For instance, you take this situation. I haven't
worked it out. I know - don't know whether I could
at this time or not; I could at one time, but that's
beyond me. They will contend that it is awfully
difficult to compare the incidence and all phases
of a tax on gross receipts with a tax on income.
All questions of reductions and exemptions and
abatements such, for instance, as the British
income tax system contains, do not enter into the
calculation when we tax a British subject on, say,
long term investments over here. So different -
investment in our securities. It will be in his
name that the protest would probably come, if one
should come; it wouldn't be in the name of these
gamblers in the stock market or these owners of
scared capital that is rushing here, yonder and
other places. and I was wondering whether this
tax proposition wouldn't hit these long term investors to such a heavy extent as would give them all
the more ground to make complaints. I merely raise
that as an illustration.
At this time, speaking in great confidence - Mr.
Benry Morgenthau knows about it, of course; he
knows anything that I know that he wants to know
about our trade movements - just now we are making
some progress in our appeals to the biggest com-
mercial countries abroad to take up seriously for
- 15 -
423
the first time the question of abandoning all of
these preferential and discriminatory practices
and methods they have in international finance
and commerce, and move in our direction. We are
right on the brink of something - some accomplish-
ments in that direction, according to my best
impression. In that I may be mistaken in the end,
but that's the way I feel about it.
Now, that calls for some precaution on our part to
guard against any particular step that would give
them a chance to say, "Well, you're starting in here
doing something that squints in that same direction."
I'm not saying we are, understand; I am raising the
question just at this particular time.
of course, I may be mistaken, but I think unless
these other important countries in Europe, for
instance, do wake up and move somewhat in the
direction of liberalizing their economic liberalism, they will go into an economic catastrophe
over there within another two or three years, putting
what they have got in armaments and having an unsound
economic structure to start with. Then we would all
be, of course, in trouble.
It is that broad situation that we are trying to
deal with from our angle, and of course you gentlemen
appreciate that and have given your cooperation in
that direction, and we very highly - we are very
-
highly appreciative of it. Now, it is a question of
so far as I see it, it is a question of being as
sure-footed as possible as we approach this complex
and conflicting - more or less conflicting situation.
If, of course, it were only a question of equalizing
these taxes right now and six months from now, after
this critical situation in our field has passed, that
would be one proposition. But if this is a ma jor
factor in reaching and curbing the worst conditions
that exist over here - I mean those relating to
gambling in the market, this short term capital
rushing around, in contrast with the more legitimate
long term investments that people have over here, which
none of us are disposed seriously to disturb, I think it is those phases that have a more or less conflicting
nature that give them a chance to decline to correct
424
- 16 their methods and practices, that obstruct and
interfere with our whole movement to advance more
liberal
commercial policy in the international
situation.
Now, that is our concern, and we want to go to the
outside limit in cooperating with you, and we not
only would like to but we know you will not overlook
this other angle in our field as you feel your way
along in your efforts to deal with this situation,
which we all can appreciate.
H.M.Jr:
Well, looking at this thing from a Treasury or even
a broader standpoint, I think that all of us - I don't
think there is any difference of opinion that this
situation of foreign capital seeking investment here
States has got to be so large that it is becoming a
dangerous factor as it affects our domestic economy.
I mean all of us that have studied it agree as to
that. There was a time when we were very glad to see
it come to our shores. Looking at it purely from the
selfish standpoint, we don't need it now. We don't
on a permanent or speculative basis in the United
need this money.
Hull:
Mr. Secretary, I've forgotten whether you estimated
the amount of this seven or eight million that is
invested in long term securities and the amounts
invested in the other two categories.
Landis:
No, that is total investments.
I know that is the total, but what proportion comprise these three categories?
I could attempt to answer that, Mr. Secretary. There
are no estimates - at least I haven't seen any - which
break the foreign investment down into short and long
term, for example. You have an estimate of investment foreign investment in securities, which includes bonds
and stocks. One difficulty we have there in attempting
Hull:
Haas:
to estimate short and long is: What do you mean by a
short term investment, you see? Some stock investments
work out to be very long term investments for some
people and not for others. But they are - out of the
seven or eight billion, three and a half billion are
in stocks and bonds, and we'll say about a billion
and a half in bank balances. Now, a good portion of
425
- 17 those stocks and bonds probably are short term
investments; you can't tell. But such short term
investments as are there are in some - some of
those certainly are short term investments. Then
the bank balances - they also may be rather permanent;
a goodly portion are held here for genuine
trade purposes.
Hull:
What I was trying to get at is that you can do
considerable to these gamblers and scared people
who rush their properties over here without their
governments' taking any notice of it. But if we
go too far in what they might be able to construe
as discrimination against long term legitimate
investments over here, then they go to retaliating
on us, of course.
Magill:
Well, we have had that very much in mind in attempt-
ing a solution here. As I think Mr. Landis said,
to attempt to get the speculator, so far as we can
see, involves quite an elaborate attempt to tax
capital gains on transactions that are quite fre-
quent and moreover do not necessarily take place
in this country, and are being conducted by persons
who are not resident here. So, with the transaction
very frequently out of the country, the individual
who is liable for the tax out of the country, the
certificate of stock itself for the most part out
of the country, it is not at all easy to formulate
a scheme which will effect the desired result without
very elaborate machinery.
And, speaking then from your point of view, I would
suppose that if we came to Congress now with a pro-
posal to attempt to tax capital gains or speculative
transactions, its elaborate character itself would
be an affront to any foreign country which is engaged
in these negotiations with you.
Now, as contrasted with that, this proposed increase
in the withholding rate which we have spoken of, is
a very simple thing to do so far as the legislation
itself is concerned. It involves no great administrative machinery. Furthermore, we can justify what
we propose to do so far as the proposed rate is concerned by the proposition that both in Great Britain
and in France the rates applied to our own nationals
withholding rates applied to our own nationals, are
-
- 18 -
426
as high or higher than the rate which we now have
in mind. And furthermore, the effective rates as
applied to our own nationals here at home with
respect to their income here, works out in a rough
approximation to be the rate which we now wish to
apply to the non-resident alien.
Hull:
Of
course, it is very difficult to compare those
rates.
Magill:
It is really impossible to get an exact equivalent.
That's what I referred to, frankly. That's the
thing that gives me some concern, as it applies to
income from long term investments. They can't go
in there and contrast those two situations enough.
Not in every instance, but in some cases it gives
Hull:
it some semblance of discrimination.
Magill:
Well, they operate - I have seen, as you have - they
operate on a hypothesis that for the most part is
completely false. That is, they start in by showing
the rates which are applicable to American citizens
in the lower brackets, and then they contrast that
rate with the withholding rate and they say, "Look,
the withholding rate is much higher than the rate
applicable to your own citizens of small incomes."
Well, that is of course perfectly true in itself.
Nevertheless, as our best information indicates,
the foreigner with a thousand dollar income or five
thousand dollar income is not apt to invest in this
country at all. So that the comparison which is
made in these discriminatory protests - protests of
discrimination - the comparison really isn't a proper
comparison.
Hull:
Pardon us, Mr. Secretary. We took you off the floor.
H.M.Jr:
That's all right. I'm used to it and like it. I
don't know where I was, but I wonder if it wouldn't I don't think what I was saying - I've forgotten it
for the moment, but I'll skip what I was going to
say. I'll reserve the right to come back. This
device which we worked out as a proposal, which we
showed to the President yesterday - Eccles and Landis
there - I'd like to show you that device, because I
wonder if after you've seen that it might not possibly
alter some of the doubts you have in your mind. We
427
- 19 -
have a finding of facts in there. There are four
findings of different kinds of criteria, and one
of
is trade
treaties.
to them
show that
to Mr.
Hull? Don't you (Magill) want
Magill:
I'm very sorry I don't have an original. (Hands
Mr. Hull copy of paper entitled "Summary of the
Proposed Legislation," dated 2-17-37, copy attached)
Taylor:
That's the flexible portion.
H.M.Jr:
I mean that's what we gave the President yesterday.
I think posIf you will give Herbert Feis one
sibly after you've seen that it may answer some of
your doubts.
Hull:
You notice the press - that is natural - the press
is creating this sort of psychology: that the sole
purpose really is to curb these movements rather
than one of taxation; that that is purely incidental.
Now, if it should work out that this tax should hit a
good bit between the eyes the income from these long
term investments, rather than the other two categories if that sort of psychology gets abroad and gets definitely fixed, I think that's the thing that gives us
the trouble.
(Hull reads summary)
(Mrs Klotz leaves)
Hull:
This is very close to the matter.
Is it the judgment of you gentlemen that a country
would be led to believe - that is, that this same
psychology would persist on an increasing scale that
the purpose of these steps is really primarily to
curb these capital movements rather than one of
taxes? And if so, whether it strikes largely at
if that is the case, do you think that does merit
this income from these long term investments. Now,
any further consideration?
H.M.Jr:
Hull:
I don't think I quite understand. You mean as to
how the country will receive it, or how?
The effect it would have on our efforts to deal
with other countries on discriminations and our
efforts to induce them to get in behind the move-
428
- 20 ment to abandon a lot of these practices and methods
in international
finance and commerce that are causing
so much trouble.
Oliphant:
I was going to say, Mr. Secretary, that if, as I
take it would be the case, the President geared his
exercise of this discretion to these erratic movements, the business world would very soon appreciate
that that was the purpose of the legislation - his
using the power only so far as necessary.
Hull:
It is your
with
him,idea,
is it?then, to make this discretionary
Oliphant: Upon making any one of those four findings.
H.M.Jr:
And we might do nothing even; the President might
do nothing.
Oliphant:
Might do nothing.
Feis:
Mr. Secretary, I don't want to shift the discussion
from your emphasis of the question of what type of
capital this would affect, but before the discussion
ends on this one, two, three, four, I want to venture
the impression that it would have a result of bringing
the whole question of tax policy into the international
bargaining field, which would be extremely full of
consequences. All with the exception of four, which
is the thing that Mr. Oliphant has just emphasized.
As long as it rested on four, it wouldn't do it. You
rest it on one, two, and three and you will have
brought it into the international bargaining field.
Well, what you are saying boils down to this. It is
a question of giving these various considerations X
H.M.Jr:
amount of weight.
Now, what I started to say before. Landis has got
his problems; he's got to watch the stock market.
Eccles has got his question of credit. I've got mine.
All of us find our task increasingly difficult due to
the fact that this money is continuing to come at a
very rapid rate. This whole question of domestic
economy is involved, and it is our particular responsibility for all three of us, and it is being made
more and more difficult.
429
- 21 -
I don't think there is any question that this
proposal which we make will fall on the man who
has had his money invested here for a long period;
not with the idea of fright or anything else; he's
come here because he thinks it is a good place to
invest. And it will fall on him just the way it
will on the speculator.
After three months, the various technical staffs,
with two members, I think, from the State Department
sitting in from time to time - the only device that
we can agree on as a start is this one. Now, we all
recognize the problem and we do feel that, whether
this is the device or something else, the only thing all the other devices are much more drastic - but that
we've got to do something. Now, against that we have
to weigh pending important trade treaties, and I think
that the final answer is - which far be it from me is: Which is more important, the problem which the
three agencies are facing and trying to handle, or
the problem of extending these treaties and our trade?
And possibly the thing that we are suggesting will
not be considered offensive to the countries that
you have in mind, for the following reason, and
that's what I'm leading up to: Certainly, talking
very much in this room, the present French situation
is aggravated by a large flow of capital from France
to England to the United States. Now, our withholding
tax isn't going to solve the internal situation in
France. But, on the other hand, we are not doing
anything to injure the French Government and, not too
indirectly, we are merely doing something to assist
them; because if we are successful in retarding the
flow, and that's all we can hope for, we may back
up this capital into France, even though the people
don't want to keep it there.
Now, Switzerland has already made it - taken a move
to make it difficult to bring gold into Switzerland.
Holland has started this week to do something. And
I just wonder whether England and France at this time
might not welcome such a move on our part, because
it is increasingly difficult for England to be the
funnel through which these funds flow.
Hull:
Yes
430
- 22 H.M.Jr:
See what I mean? Rather than objecting, they may
just at this time welcome this thing, providing
we can explain it to them - that we are not going
to tax
aliens
living abroad any more than we do
our
own
citizens.
Hull:
Well
H.M.Jr:
That's what I wanted to say.
Hull:
Well, this is right in that connection. Of course,
I would biff all of this gambling situation and all
this wildcat capitalistic movement right in the
face if I could - which you gentlemen are trying to
do. But if they are badly scared over there, as I
think they are, they wouldn't stop to think whether
the tax over here was five percent or fifty percent
or twenty-five percent; they would come on. If they
want to gamble and got the gambling instinct, like
some of us have over here, they wouldn't stop to
inquire about the tax matter; they'd jump right in.
Now, I am wondering whether the amount of good that
this first initial tax proposition, which will wake
up the permanent investor, as you say - I am wondering whether the amount of good that it would do in
the way of curbing these worst phases would be suf-
ficient to justify its immediate application. That
H.M.Jr:
is one thing.
May I answer that? After all, on all the problems
that are here, that we are very much worried about,
we have to make a start somewhere, and amongst ourselves we have agreed - and we wouldn't want to have
this agreement without expressing it to you - that
this is only a beginning if the funds continue to
flow as rapidly as they have.
Now, to show you - I don't know whether the President
told you this yesterday at lunch - but what he's told
me, how far he's thinking, he's even asked me to
think how can I go about to register the holdings of
all aliens in the United States - what possibility
of taking over their securities, all of them? Well
now, I mean - and he's asked me to be thinking about
machinery to do that if this thing continues.
Hull:
Yes.
431
- 23 H.M.Jr:
Hull:
H.M.Jr:
Now, the fact that this proposal that we make
doesn't hit the worst offender, I am not convinced,
if you don't mind my saying, is really an argument
sufficient to keep us from making any start at all.
Yes, sir. Well, of course
because, frankly, after three months we can't
find anything that we can all agree on as a start
except this particular thing, and that is the only
thing we can agree on at this date, keeping in mind
that we don't want to at this time open up the
question of our own tax legislation.
Hull:
Now, I hope you will appreciate our situation when
we raise questions with these other governments and
they say, "What is your position about curbing all
kinds of capital movements in your country? Are you
advocating that?" We are in a difficult position to
say "Yes" when we are appealing to these other countries to do just the opposite. That's why we've been
easing along to make ourselves agreeable to you
gentlemen. Mr. Feis was the best man we could send
over here for that.
H.M.Jr:
But isn't the question of, let's say, exchange control
as it has just been established in Japan, the exchange
control in Italy, the exchange control in Germany,
which is a deterrent to exchange of goods - isn't
that something entirely different than this question
of trying to slow up the flow of capital for investment and speculative purposes coming to our shores?
Hull:
Well, of course, if they make the charge that this is
more or less of a discrimination in the first place and governments get up charges pretty easily that way
at times - and then raise the other question that it
is a substantial factor, that it is an important
factor - I'm not discussing the merits of it now that it is an important factor in obstructing the
flow of capital and commerce back and forth among
nations they can make a somewhat broad general
statement like that, and when, as I say, we have
every kind of an obstruction and discrimination under
present methods and practices in international trade
and finance that we are asking these countries as
fast as they will to abandon. So we are in a very
432
- 24 -
difficult position. We are like we were, if you
will recall, when Germany approached us to buy
eight hundred thousand bales of cotton and somebody
put it on me to decide on it. I was down in the
middle of the Cotton Belt, where everybody wanted
to sell cotton. I decided against the sale because
it required us to set a precedent that would fly up
in our face every step we took throughout all of the
future
prosecution of this reciprocity and economic
program.
So it is difficult for us to say that we approve
what the country may consider as more or less - and
again I'm not discussing the merits; I understand
something about your problems and your difficulties.
I am doing my best to keep out of the way here, but
I am trying to make a little more clear where we are.
Now, we can ease along just as we are starting in to
ease along, but you must - if the country decides
that this is really a purpose to obstruct normal and
not unnatural movements of capital through honest
legitimate long term investments, that we are
standing for it because it gets us into trouble
under our policy - I just hope you'll appreciate
our situation.
H.M.Jr:
Well, I'm trying to, but I want to be - I simply
think we ought - I want to be just as frank as I can
be with you. Let's say, for instance, the President
decides, or we decide of our own accord, that we
won't do anything at this time, see? Well then, I
am fairly sure that if the situation keeps on as
it is, when we do move the thing will be far more
drastic and we will have to move so fast that we
definitely would then be coming in conflict with your
trade treaties. I don't think there is any question
about it. I mean if we delay this making a start,
what I am fearful of is the next move is really going
Eccles:
to be a drastic one. And I don't know whether these
other two gentlemen agree with me or not, but they've
got their own minds to speak.
Secretary Hull, it seems to me that to the extent
that this proposed action would reduce the amount of
capital coming here, it would help your problem. It
would help to stabilize world economy and would help
433
- 25 to increase the volume exchange of goods and
services. The loss of gold by many of the
countries that need gold will tend sooner or
later to create a restricted credit development
in those countries, reduce their buying power from
this country. Restricted credit tends to break
down their prices; or, on the other hand, they
would be forced, if they don't restrict credit,
to permit their currencies to be devalued further
in relationship to our dollar.
Hull:
Yes.
Eccles:
International stabilization of our currencies seems
to me to depend upon those countries that need
capital being able to get it. Those creditor countries such as this country is - it would be more
natural for us to make foreign credit extensions
rather than have foreign credit extensions made to
us, which the capital movement to this country
really amounts to. It seems to me that any program
that will reduce or even eliminate altogether the
movement of capital this way - even so far as the
loss of some of the foreign capital that we have,
which would mean a loss of gold - would be in the
interest of world stability. And it may tend, then,
to have those countries that are sending capital
here who are creditor countries and have it to send,
to direct the flow of that capital to the debtor
countries that may need the capital.
Hull:
Do you get any intimation about the attitude - what
Eccles:
I haven't, except some - nothing except of a trivial
Hull:
is in the mind of the British about this proposition?
nature.
You don't know whether they have really considered
Eccles:
it yet?
I really couldn't say.
H.M.Jr:
I haven't - we haven't had anything, have we, Wayne?
Taylor:
Stuff in the papers, quite a lot.
H.M.Jr:
Well, we haven't taken it up with them.
- 26 Hull:
434
I agree with you, Mr. Eccles, about the objective
there. The only question is how far the nations
can go in artificial methods of bringing about just
what you describe there - this sound, wholesome
objective. Heretofore, when one country would do
an arbitrary thing for a legitimate purpose, then
another country would do something arbitrary to
offset that, and of course we pile up and stack
up an artifical, arbitrary economic
your were to avoid that
what
why
then of course I'd be a hundred percent in agreement
Now, situation if in accomplishing idea you describe, structure. sort of a
with you. We are trying in our field, as you know,
to move in a natural direction of gradually abandoning these artifical and arbitrary methods and
devices that each government has been stacking up
for some temporary purpose or to offset something
that some other government has done.
Eccles:
Hull:
Of course, isn't it true that a managed currency
system within the various countries and a managed
international exchange is getting away from the
automatic international operation of the gold
standard, and isn't action of this sort necessarily
an inherent part of a managed national and international currency situation?
It may be. I don't pretend to be versed in the
fundamentals and in the mechanics of international
finance and exchange and credit. I just want you
to know our position. And if you feel that the
benefits of this withholding tax proposition will
be greater to this country than the possible hazards
which it creates in our immediate trade negotiations,
for one reason, why then you gentlemen - as far as
I'm concerned, you go along, provided you will give
us permission to adhere to our original doctrines
which are supposed to underly the program for
economic rehabilitation that we are prosecuting.
Would that be agreeable?
H.M.Jr:
Well, anything's agreeable, and the decision isn't
mine.
May I ask you this? This idea of making this thing
flexible in the hands of the President, rather than
435
- 27 having a flat increase - how does that device
impress you?
Hull:
Well, I imagine that would be - if you can make
that workable, as you probably - you gentlemen
have gone into that.
Feis:
Mr. Secretary, may I speak to that?
H.M.Jr:
Do you mind one minute if I just get Mr. Hull's
idea - which he would think.
Hull:
I haven't looked into the mechanics of this, the
technical side of it, but in brief of course,
I'd like to see you gentlemen succeed one hundred
percent. I'm just sorry you haven't got a pretty
wild runaway capital that's coming in here, instead
of commencing at the other end, but that's nobody's
fault.
drastic remedy on these gamblers and those - this
H.M.Jr:
But I want to get just your "horseback" opinion as
to which you think would be the least objectionable
to the aliens and their governments - having it a
flat increase from ten to twenty, or having it
flexible in the hands of the President?
Hull:
To raise it ten to twenty? Well, the way it's
written here it's flexible from ten to thirty.
I mean flexible or have it the other way?
H.M.Jr:
Hull:
Well, that would bring up the question - my idea
would be that that would be determined by the
possibilities of discrimination under either plan.
If one would give the countries abroad more chance,
more ground to complain of discrimination than the
other, then I'd take the other.
H.M.Jr:
Well, which one?
Hull:
Whichever one gave other countries the least ground
to make charges that we are discriminating against
them.
H.M.Jr:
But I don't know which one.
Hull:
I know. I don't know which one. I haven't studied
it. Apparently the discretionary one, if it ranges
- 28 -
436
from ten to twenty percent. I don't know. I
haven't studied to see how that is based, whether
that would give more ground for discrimination
charges than the other.
Landis:
Could one put it this way, Mr. Secretary: If, for
example, the initial rate established on an effective basis treated our nationals like the - treated
the aliens like the nationals - if one could meet
that burden of proof so that there was a clear
equality argument present there, the criticism of
discrimination
that might be voiced to you would
be met.
Hull:
Un-huh.
Landis:
Secondly, if beyond that effective rate you gave
the Executive Department a power of varying that
rate to meet, we'll say, either changes in the
effective domestic rate or to meet objectives international objectives which, in the judgment
of the State Department, are fully in accord with
the general movement that the State - the general
objectives of the State Department in the foreign
field, it would seem to me that that would meet the
problem.
Hull:
Well, nobody at home or abroad could object to the
actual equalization of any of our tax laws. There
is no doubt about that.
Landis:
Nor would I think that the State Department could
say, "Well now, if the objective of flexibility
which will be vested in the President is the realization of objectives which we are now fighting for
in the foreign field" - then I should think that that
very flexibility would be attractive to the State
Department rather than otherwise.
Hull:
Yes, yes.
Landis:
Now, I think one would have to analyze the conditions
of flexibility to be sure that those conditions were
in accord with the general desires of the State
Department.
Hull:
Well, of course, if that could be worked out, why,
that would be a happy
437
- 29 Feis:
Can I talk some to that point?
H.M.Jr:
Yes, you better. I thought Herbert was going to
break
blood vessel. He's just been bursting for
half anahour.
Feis:
That's right.
I agree there might be reasons why the variable
scheme, the discretionary scheme, is better; but
it would bring the whole question of tax rate into
the field of diplomatic bargaining throughout the
world. If we go along giving the Executive the
discretion to modify tax rate on the basis of
injuring the foreign commerce - it is one and three
particularly that disturb me as creating a whole new
field of diplomatic controversy, and secondly, and
I am being as brief as possible, a whole new range
of argument over discrimination. So I would ask, if
it was decided to make it a variable scheme, that
there be lots of time taken to discuss with the
Department the particular grounds cited. That's
the first point.
The second, of a totally different nature, is something that I am not sure can be passed over as
quickly as it has been - the point you (H.M.Jr) made:
that if this action is not taken and this situation
develops to a greater extent than at present, it
might compel action of a much more far-reaching
nature. I think that is true, but I wonder whether
all possible types of action have been considered.
Certainly in the discussions that I have heard the
major approaches haven't even been mentioned. For
example, bank deposits was cited, the problem of
constant accretion of bank deposits, a problem rising
mainly out of domestic causes, to a certain extent
out of foreign causes. It is possible to visualize
some adaptation of our banking arrangements or reserve
arrangements that might take care of that problem as
a whole.
Similarly, the problem of speculation. It is predominantly domestic speculation, to a fractional
degree foreign speculation. It is possible to
visualize policies
Landis:
That percentage runs - it has run twenty percent.
438
- 30 Feis:
That still leaves eighty of domestic.
Landis:
Well
Feis:
It is possible to visualize an answer such as
increase of all transfer taxes or variations that
might deal with it. My second point would be to
imply that I haven't seen in these discussions
Well, you haven't heard - read the
I go on to say
H.M.Jr:
Feis:
H.M.Jr:
But if you don't mind my saying, they are all mentioned in the - our paper.
Haas:
We've got a 30-page memorandum on the transfer tax.
Feis:
Well, on the general transfer tax applicable domestic
as well as foreign?
Haas:
Yes, we've gone into that.
Magill:
We've gone into that. That is not in Bryan's memor-
Eccles:
Bryan's is with capital gains.
You see, these technical staffs - and + can't understand; you are supposed to have had two men sitting
on it - spent three months looking at these other
devices; and when they got all through this one
H.M.Jr:
andum, but we've gone into that on our own.
seemed the best of a bad lot.
Now, what I'd like to do - I mean I realize this is
tremendously important, to talk about eight billion
dollars worth of investments in this country and the
future external policy of this government. Now, the
last thing in the world I want to do is to rush
anybody, and what I'd like to suggest, if it's agreeable to you, is take it over the weekend, chew over
it, send for anybody here that you'd like to talk
to, and then let's meet again on Tuesday.
Hull:
H.M.Jr:
That might facilitate
I'm not - I mean it's too important from everybody's
439
- 31 standpoint and certainly one weekend isn't going
to hurt anything; and if by - Monday's a holiday and if by Tuesday you are ready to talk again,
we'll hold ourselves ready to come see you or hold
a meeting wherever you'd like to hold it.
Hull:
H.M.Jr:
Well,
can. we will work in the most sympathetic way we
I've got two partners in this. Is that all right?
Itwo
mean
if you don't - if that is agreeable to my
partners.
Hull:
Yes, yes.
Eccles:
I'm not as hopeful that this proposal will be effective in doing what we desire to have done as some
of them are, and I have a preference of dealing with
the speculative aspect of the situation. But it
involves this capital gains tax, which - the Secretary has explained the reason why that is not feasible
at this time. As a member of the committee I have
agreed to this proposal, recognizing that it appears
to be the best one that is available at the moment,
with the understanding that something more drastic,
if necessary, will be done later. I just wanted to
Yes, yes, and it probably will.
Did you mind? I just wanted to ask.
That brings to mind the story of a fellow who talked
to Joe Cannon one time. He was mentioned for
President every four years for a quarter of a cen-
Hull:
H.M.Jr:
Hull:
tury, and when the time came around the newspapers
mentioned him for President; and some fellow met
Uncle Joe and tried to compliment him on this refer-
ence in the papers for President. And he tilted his
cigar and said, "Well, they could go further and do
worse. And they probably will."
440
me
SUMMARY OF THE PROPOSED LIGHTSLATION
A - Changes in rates
1. Change the rate upon the taxable income of non-resident
alien individuals from United States sources from the
present rate of 10 per cent to 20 per cent if the rate is
to be fixed or between 10 and 30 per cent if the rate is
to be variable upon Presidential proclumation.
2. The corresponding change in the case of non-resident cerporations would be from the present rates of 10 per cent on
dividends and 15 per cent on other taxable income to the
rates of 20 and 25 per cont respectively if the rates are
to be fixed and, if they are to be flexible, from 10 to 30
per cent on dividends and 15 to 35 per cent on other income.
B - If the foregoing tax rates are to be flexible, the standards for
guiding executive action and rendering this delegation of power
valid would consist of Presidential determination of the effect of
these rates one
1. Possible injury to the foreign connerce of the United States.
2. Adverse changes in foreign exchange rates as result of those
taxes.
3. Adverse effects upon diplomatic relations including the performance or negotiation of treaties and other international
understandings.
4. Movements of gold to and from the United States adversely
affecting domestic credit conditions and the domostic price
levels.
C - To prevent evasions, it is proposed to broaden the power of the
Commissioner of Internal Revenue, with the approval of the Secretasy, to require information returns from brokers, nominees, and
others showing details as to purchase prices, profits, and losses
on security transactions originating from abroad.
D - Obligations of the United States and its instrumentalition hereafter issued, which under the existing law are except from all
taxes when owned by non-resident aliens or foreign corporations
not engaged in trade or business in the United States, will be
made taxable and fitted into the general plan of taxing foreign
individuals and corporations on private obligations owned by them.
2/17/37
441
February 18, 1937
The Secretary telephoned to the President at 10:15
today and said, "We got an exciting cable from Cochran.
Roueff, who is Under-secretary of the Treasury there,
has been desperately trying to get Cochran to ask us
whether the City of Paris or the Credit Foncier could
borrow in our market and Cochran told them that they
ought to take it up through the bankers who are going
to handle it. My feeling is that we should not answer
an 'if' question and if the National City or the Guaranty
Trust should ask us I would follow what you told us the
last time -- that the spirit of the Johnson Act would
say 'no'."
The President replied in substance, The French
Government should seize all gold and silver in Paris
and all the gold held abroad by their citizens and turn
it into the Treasury, just the way we did in this country.
After the conversation with the President was concluded,
the Secretary remarked in connection with the President's
statement, "I am not sure that the French have not already
done this.")
The President also said, in substance, That is the
kind of thing that they haven't got the 'guts' to do in
France. They get away with half the income tax they
ought to pay.
Replying to the President's remarks, the Secretary
said, "They have gone half way and have gotten cold feet
and they are now talking of back-tracking and have not
done what you have just mentioned. Belgium handled it
much better."
The President asked, "Bonnet arrives today or tomorrow and should I see him right away?" HM,Jr. answered,
"I think you ought to keep him waiting until the middle of
the week, under the circumstances. Inasmuch as they are
so desperate and we can't do anything, I would suggest not
seeing him until the middle of the week."
"I am inclined to think," thePresident said, "That
what I said to de Laboulaye got back to him." In substance, he continued, When de Laboulaye came to say good-
bye, he said, 'I am sure you will 1 ike my successor' and
442
-2-
I raised my eyebrows and said, We will see. And then
I told de Laboulaye that I did not like Bonnet's making
SO many speeches and that he was coming over as a special
ambassador.
(Note: The President feels that de Laboulaye
brought back to Bonnet the conversation he had with the
President because from the announcement in the papers,
Bonnet is coming over as a regular ambassador.)
HM,Jr. asked the President if it would be agreeable
to him if he, HM,Jr., left on the midnight tonight to
spend tomorrow with Mrs. Morgenthau who is in New York.
HM,Jr. explained that it was Mrs. Morgenthau's birthday
and the anniversary of her mother's death and he said he
did want to spend the day with her. The President told
HM,Jr. it was perfectly all right for him to skip Cabinet,
but asked him not to fly to New York.
443
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Tokyo, Japan
DATE: February 19, 1937, 5 p.m.
NO.: 50
Reference is made to telegram No. 48 of February 8,
6 p.m., from the Embassy.
FOR THE SECRETARY OF THE TREASURY.
The Japanese financial outlook in general is much
brighter than it was a month ago. This is due largely to
public confidence in Yuki's policies. Yuki's principal
policy is that it is better first to augment the economic
resources in order to care for increasing burdens, rather
than impose overly heavy burdens of governmental spending
on the inadequate economic structure. The budget has
therefore been decreased somewhat, which has checked the
too-rapid price rise. The belief is now held that with
the aid of Ikeda and Tsushima, Yuki will be able to float
the Government deficit bonds in 1937 - which are somewhat
less in amount than the Baba estimate - without great
difficulty although it is possible that he may not be able
to convert more outstanding bonds at high interest rates
into issues at low interest.
Operation of the foreign exchange control is effective.
The yen is firm with the actual exchange value being one
shilling two pence as well as the nominal value. The
Government
--
444
Government is steadily granting permits for exchange to
cover import business previously booked, and some new
business is being covered now also. The belief is held that
the administration of the exchange control by Yuki will be
more liberal than that of Baba in order that Yuki's policy
of fostering industry and trade will not be interfered with.
Yuki intimated yesterday, in reply to interpellations
in the Diet, that specie shipments abroad may be made in
order to settle international trade accounts. He said that
no uneasiness regarding Japan's specie reserve need be
felt because of such limited shipments. The possibility
was put forward by some observers that Yuki may use a part
of the idle specie reserve which is greatly in excess of
the proportion usually considered necessary to secure the
currency issue to buy up some of the bonds floated in the
United States - 6 1/2 percent Japanese dollar bonds.
GREW.
EN :LWW
445
Friday
February 19, 1937
9:30 a.m.
HMJr:
Ernest
Lundeen:
- this fellow that he was very anxious to have
us take and as I understand it Jim has gone away
for ten days so I thought I'd wait until he got
back.
Well,
is gets
that back?
definite, that you are going to wait
until he
HMJr:
It's
back.definite that I'll do nothing until Jim gets
L:
I don't want to hurry it at all, but of course,
take the whole picture of representation in various
departments of the Government. Ohio is so far
under-represented
that I don't like to see us slip
back
by a bit.
HMJr:
L:
Well,
assure you, until Jim gets back nothing
will beI can
done.
All right, that's fine. I'd like to talk to you
and to him both when he does get here
HMJr:
Because he's got somebody he's been trying to place
L:
Well, is it somebody not from Ohio?
HMJr:
It is somebody not from Ohio.
L:
That's pretty tough.
HMJr:
Yes
L:
"ell, all right -
HMJr:
Will you talk to Jim when he gets back?
L:
Yes, I will.
HMJr:
All right, thank you.
L:
O.K.
HMJr:
Thank you.
for four years, he says.
446
GROUP MEETING
February 19, 1937
9:30 A.M.
Present:
Mrs Klotz
Mr. Oliphant
Mr. Gaston
Mr. Lochhead
Mr. Taylor
Mr. Upham
Miss Roche
Miss Lonigan
Mr. Magili
Mr. McReynolds
H.M.Jr:
I asked Miss Lonigan so I wouldn't have to tell the
story twice. We had at our house a meeting last
night of people that Hopkins invited, and they
were, amongst others, Jake Baker - and who's Baker's
assistant?
Lonigan:
Rall.
H.M.Jr:
What country does he come from?
Lonigan:
Germany.
H.M.Jr:
He looks Scandinavian. I thought he was Scandinavian.
Is he an American citizen?
Lonigan:
I think so.
H.M.Jr:
He's good, isn't ne? And John Carmody and Mr. Stude-
baker and Bill Myers. And after three hours they've
agreed that they are going to start at once a selfhelp cooperative in Washington, under the charge of
Mrs. Amy Guy. And they are going to concentrate it
in Washington, see? And it took three hours.
And I thought the interesting thing was, coming
from LaFollette - he said, "Of all the evenings
I've spent in Washington
Oliphant: LaFollette?
Yes. "....it was the most interesting." Now, of
H.M.Jr:
course, the whole thing is a question of management,
and I told him I wanted you (Lonigan) to be with
them as they go along. So I'd get in touch this
morning with Jake Baker, find out what's going on,
and give it just as much time as they'11 let you.
447
-2 But, in this room here, Jake Baker made a very
poor impression, very poor impression. And the
reports I'm getting on him are - now this is just
in the room - are that he is just a washout. And
it frightens me because I - but this fellow Rall
seemed to know what he was talking about, had the
stuff on his fingertips - but I'm sorry because I
don't want this thing to fail, see? I don't know
what
you (Roche) know about Jake Baker. About the
same?
Roche:
No,
sir. I don't know anything about his administrative work.
H.M.Jr:
You don't know.
Roche:
But as an administrator
H.M.Jr:
I don't know, it took me two hours to get him to
say he'd even do this, so finally I said, "What's
the matter, Baker, are you afraid?"
Lonigan:
Well, he's enormously enthusiastic.
H.M.Jr:
Well, at this stage we need executive ability.
I can't imagine why he'd be silent.
It took three hours to do this thing. He wasn't
Lonigan:
H.M.Jr:
silent, but he took thirty minutes to tell me
how marvelous a cooperative they had in France on
French brandy - the most asinine thing to take up
thirty minutes with. I said, "Let's take up our
home proposition. If you learned everything abroad,
all right." He went all through a lot of stuff that
had nothing to do with Richmond. Well, I don't want
him to do anything else but this self-help thing as
it clicked in Richmond. I'm not interested in this
Iowa thing or this fish cooperative in South Carolina;
I'm not interested.
I said, "For two years I wanted - your work has been
flat, and you haven't got a nickel. Now you've got
it and you're going to get it."
448
3-
And Bob LaFollette said, "I won't go to Baltimore.
I'll come here. I'll come one night a week." I
said I'd come one night a week. But they won't go
to Baltimore; they won't go down to Richmond. And
I don't want this thing - because Baker thinks this
is a chance for him to get a lot of money to spread
this thing, you see - I want this thing, and Hopkins
finally said that he's sold and he's going to do
this thing and they are going to concentrate on
Washington, see?
Lonigan:
H.M.Jr:
Now, you watch it for me and let me know, will you?
Yes, Mr. Secretary.
But I mean after three hours they agreed this thing
would go and Hopkins finally is enthusiastic, and
he personally is going to start this thing - personally, and he's very enthusiastic.
O.K., now you watch it and don't let him run any
fish cooperatives in on me from South Carolina or
any lumber camps or anything else. I mean this
money has got to go to the District for self-help
cooperatives.
(Lonigan goes out)
Now listen, Mac, I want to go after this slum
clearance, see, and I want a committee in with
Peoples, but nobody that's got anything to do with
it in the sense that he wants to grab it off, see?
And at eleven o'clock today I want you and you're
(Upham) not too busy?
Upham:
No.
H.M.Jr:
And who's the fellow I brought down from New York
to help Peoples?
McReynolds: Oh, Roy Barton.
H.M.Jr:
Yes. And the fellow over at Farm Credit who's got
it.
McReynolds: Do you want Peoples?
449
--4-
Mrs Klotz: Emmerich.
H.M.Jr:
Emmerich. I want Roy Barton, I want Emmerich, I
want yourself, and you (Upham). Then I'll sketch
what I want to do. I want to get the information
together on what has been done publicly, privately,
and the Wagner Bill, see - anybody that's got
anything; what the Delano Committee did last year.
I'll sketch in fifteen minutes at eleven o'clock
what I want to do.
McReynolds: Barton and Emmerich are the only outsiders?
H.M.Jr:
That's right. Can you think of anybody else?
McReynolds: No. Do you want any current information about
Ickes' slum clearance?
H.M.Jr:
What?
McReynolds: Do you want any current information about Ickes'
slum clearance?
H.M.Jr:
Yes. I'll sketch it at eleven o'clock.
McReynolds: I was just thinking whether there's anybody from
over there you want.
H.M.Jr:
No. What I'd like to start for this three or four
MCR:
Yes.
H.M.Jr:
Then I don't want to get it noised around here that
days is to just get the information together, see?
the Treasury is trying to get in on this housing.
If we just said to the Ickes shop, to Federal
Housing Administration: what information have they
got? - and what information has Fahey got, see?
What information has Wagner's office got? Mr.
Ellenbogen's office - what information has he got,
see? And get this stuff all together for me by the
middle of the week, see?
Roche:
May I make a suggestion that if or when any future
planning for any sort of program comes along, the
Public Health people be included in it this time?
They have engineering people who have a good deal
450
-5of information:
H.M.Jr:
Well, who?
Roche:
Well, Tarbett or his assistant. I can give Mr.
McReynolds the proper names.
H.M.Jr:
They know something?
Roche:
Well, they do. I don't know how much they know
about this directly. Tarbett is the Chief Engineer.
I'm
not sure whether he's in the city, but I'll find
someone.
H.M.Jr:
All right, fine.
I've made up my mind that we either get a bill which
will be terrific from the standpoint of finance and
the people that we are trying to serve, or somebody's
got to do it who doesn't want to do it - I mean in a
sense. But it took me a year and a half to put
across that thing last night and now I'm going to go
after this slum clearance.
Roche:
The health feature hasn't been in any of the previous
H.M.Jr:
Anybody else got someone who knows something?
Oliphant:
Well, Opper has followed it for years with Emmerich,
H.M.Jr:
like to, if it is agreeable
All right.
groups that have been working so long - beenconsidered.
and the biggest problem is that title problem. I'd
McReynolds: Send Clarence in here at eleven o'clock.
Anybody else that
H.M.Jr:
Gaston:
Would you like to use Lucius Wilmerding on it?
McR:
You (H.M.Jr) let him go. He's down in Florida. Been
H.M.Jr:
I don't think we want Lucius; I don't want the Peter
Grimm slant on this thing. I mean I can talk to my
in bad.
451
6-
own crowd - what the heck?
Gaston:
What I thought about Lucius is he's a pretty good
gatherer
together of figures and that sort of
thing.
H.M.Jr:
I just don't want Peter Grimm running down here.
This is just to gather together all the information
and digest it. What's been done publicly and
privately? What has anybody got? What has Senator
Wagner's office got? What has Mr. Ellenbogen's
office got? What has Mrs. Simcovich got up in New
York? She's got a house. Tenement House Commission
of New York - Commissioner is a two-fisted guy.
Taylor:
Post.
Magill:
Langdon Post.
H.M.Jr:
See? Let's get the stuff together. I'm so sick and
tired of money, my dollar spits are dry. And I'd ten
times rather do this thing than sugar business. My
soul needs recleaning.
Taylor:
Sweetening.
H.M.Jr:
Got a recleaning last night. Best thing that's
happened to me in months. I mean if a fellow like
LaFollette feels that way, just think what it does
to.me. Why, to sit here for two hours and try what
we went through yesterday with Mr. Hull - he was
here for two solid hours yesterday; it makes it
tough going.
Well, that's all I got. I'm going to leave about
one o'clock today, Mac, so if you can extend the
thing for seven days I accept.
McR:
All right, a week from today.
Magill:
Make it Thursday instead of Friday.
H.M.Jr:
"on't you be here?
Magill:
(Nods no).
452
-7- H.M.Jr:
All right, make it Thursday.
Gaston:
How about your other thing? Change your other thing.
Mrs Klotz:
McR:
H.M.Jr:
Make it Wednesday. No, you can't make it Wednesday.
Well, what
Say listen, you've got to stay here today anyway.
You're going to Cabinet at two o'clock, so you
better plan on a five o'clock train. Got something
tonight?
Magill:
(Nods yes)
H.M.Jr:
What've you got? Well, think it over. You settle
between yourself and Wayne. Somebody's got to go.
As a punishment, one of you will have to go to Cab-
Gaston:
inet; I don't care who.
Planes will be operating today.
H.M.Jr:
Seriously
Magill:
I've got two hours of classes this afternoon commencing from four o'clock.
H.M.Jr:
Magill:
Oh. Oh, I didn't know that. Classes scheduled.
And we've got a very elaborate schedule for all
H.M.Jr:
I thought they were Saturdays.
Magill:
I've got to go up Friday about through March. Then
H.M.Jr:
All right. Well, I didn't know that. You hadn't
Magill:
H.M.Jr:
I'm just as sorry as you are.
I didn't know that.
Magill:
I thought you did. I'll bring you a copy of the
semester.
I'll be done.
told me.
schedule.
-8-
453
H.M.Jr:
No,
no. Does that mean you can't ever go to
Cabinet?
Magill:
I can after March.
H.M.Jr:
Wayne, are you willing to go to Cabinet this afternoon?
Taylor:
Yes, sir. I'll have to break some important engage-
H.M.Jr:
All right. Now, who wants to ask me something?
Oliphant:
I'd like to have an opportunity to - before you
get away, toclear the Goldberg settlement. It
won't take long. I should think five minutes
would give the picture.
H.M.Jr:
How about 11:30?
Mrs Klotz:
What are you going to do with him at eleven - Puleston?
H.M.Jr:
I've shifted him four times this morning. Who's
Mrs Klotz:
You just started this group.
Oh well, tell that group - make the group 11:15.
H.M.Jr:
Oliphant:
H.M.Jr:
Gaston:
ments, but I think I'll be able to.
coming at eleven?
We'11 settle the housing problem at 11:15.
And you'll see me....
..at 11:30.
Shall we tell the newspapermen that we are still
working on the "hot" money problem, that there are
no conferences of principals scheduled for today,
that there will be no announcement over the weekend?
H.M.Jr:
That's right.
Gaston:
Not going to see Landis and Eccles today.
H.M.Jr:
No, it's a holiday.
Gaston:
I looked at the wrong calendar.
H.M.Jr:
All right, what else.
That's all.
All right.
Gaston:
H.M.Jr:
454
GROUP ON HOUSING
February 19, 1937
11:20 A.M.
Present:
Mr. McReynolds
Mr. pham
Mr. Gaston
Mr. Opper
Miss Roche
Miss Switzer
Mr. LeRoy Barton, Procurement Division
Mr. Herbert Emmerich, Farm Credit
Mr. Joseph M. Dalla Valle, Asst. Sanitary Engineer, PHS
Roche:
Mr. Dalla Valle, Mr. Secretary.
H.M.Jr:
Civil engineer?
Dalla Valle: Sanitary engineer.
H.M.Jr:
You're the fellow that + used to fight with up at
New York when Dr. Parran was up there, over when
a stream was polluted. Used to rule that it was
all right to kill a human being as long as it didn't
kill a trout. That was, if the trout didn't die,
it didn't make any difference if it killed a hundred
people.
Dalla Valle: Yes.
H.M.Jr:
It's true. You know it.
Well, anyway, this is what I'd like to do. I'd like
to collect from every governmental agency what they
have on low cost housing in cities. See? I'd like
to know first what the Federal Government has done
to date: buildings completed, under what plan, how
they've been financed, rents, occupancy, and so forth
and so on. That's buildings completed, buildings
under construction, and buildings projected. That
includes Public Works. Hopkins did do one or two.
I think they were turned over to somebody, I don't
know to whom. I know he started to do a couple. He
stopped that.
Federal Housing - what they 've done in the way of
guaranteeing the mortgages, financing. What the
attitude of Mr. Fahey and his crowd is. Mr. Eccles
has a man who's working on this.
455
-2Upham:
Baker?
H.M.Jr:
Upham:
Is he still with him?
I think he has left.
H.M.Jr:
There's another man.
Upham:
Oh, I didn't know that.
H.M.Jr:
Procurement has a lot of cost figures on it.
Barton:
Yes, we have quite a lot of information. We'll get it.
H.M.Jr:
Then also what people are doing under state and city
housing authorities, if anything. In other words,
I'd like to get together all the information which
has been floating around, try to boil it down - what
we have done; and then something as to the needs.
See? As to the needs.
Now, what I am particularly interested in is really
low cost. I mean anything over ten dollars I'm not
interested in - per room per month. I mean the
really low cost.
And there's a series of articles which - Mr. Kahn,
is it? - that he wrote - of Frankfort,
and
if he
He
wrote,
I think,
is back in this country again
the most sensible articles, and they're in this
Architectural Review, I believe.
Emmerich:
Ernst Kahn.
Upham:
Architectural Forum.
H.M.Jr:
Well, he wrote a series of articles on how to finance
low cost housing, and I thought it at the time the
most sensible thing I've read. Of course, they are
in line with In other words, what I'd like to do is
to get together everything that's available and let's
get it down on a piece of paper, see?
And of course, what I hope to get out of this thing
is a suggestion which the Treasury can make on how
can these things be financed, see? I mean what is a
456
-
sound method of the Federal Government going into
this picture, see? I mean how - what can we do?
I mean I want to take a positive view. T don't
want to say, "Are we going to do anything?" but
positive attitude toward this thing: "What can the a
Federal Government do towards this?"
The President had something in
say, ten million dollars a
years as a subsidy, or of
Kahn's contribute, ten something. mind, that year course, we'd for
idea, to boil it all down, was to subsidize
it through a low interest rate. He
one percent
interest means
so muchper
roomthat
month.
He's
worked
interprets
that allper
out in
the way of interest
rates.
I mean one - the difference between four and three
means so much per room per month, and he's actually
worked those figures out; because he has the back-
ground. He was financial editor of the Frankforter
Zeitung, and then was honorary mayor of the City of
Frankfort and Director of Housing there. So he has
all that background.
Now, have you fellows lost your touch on this thing?
Emmerich:
I've kept a little in touch with it the last few
years.
Roche:
H.M.Jr:
We're organizing a departmental committee from all
the agencies on the housing, under our general
departmental committee, to bring together the work
that's been done to date. It isn't functioning yet.
It's on its way.
Well, I'd like to do this for me, sort of, you know.
And of course, Mac has the contact with the Department of Interior. Get more from them than anybody
else.
You people over at Procurement - you just have the
cost figures. Have you kept in touch with this at
all?
Barton:
To some extent. We have had somebody at all the
meetings, kept informed of what was going on and
what was being contemplated.
H.M.Jr:
What I was going to - ifAnd
youI'm
could
adjourn
going
to pintoit Mr.
on to
McReynolds' room
457
you (McReynolds) And get this: I want something
by the middle of next week, Wednesday. And then
just divide up who's going to do what. I mean you
may say to Cy - he knows people over at Federal
Housing Administration. You can divide up what
each person is going to do, you see. And then get
it inyou?
and then let's get it down and look at it.
Will
McReynolds: Yes, sir.
H.M.Jr:
You want to ask any questions?
McR:
No. I've got a girl that I gave George Haas for
H.M.Jr:
McR:
his secretary the other day, who had been loaned
to Delano for a year working with that committee.
I asked her after the meeting this morning
You mean she is going to be loaned or she was
loaned?
No, she was loaned and now she's back here working
in George Haas' section. I told her to get from
their files over there a brief statement that had
been recently prepared on this question of what has
been done on housing. That committee has prepared
such a statement; it may be of some use.
H.M.Jr:
Well, something preliminary by Wednesday, because
I don't know when the President is going tc call up
and ask us for a plan for low cost housing. They
asked us to analyze the Wagner bill and we said we
didn't feel - we couldn't go along on this immediately,
but if the President would ask the Treasury to submit
a method of low cost housing financing, we'd like to
be able to. I don't want to wait until the last
minute, so that's why I'm starting in on this, so
that when the hurry-up call does come - "Please
give us a plan" - I'm hopeful we can have something.
I know everybody's tried, everybody's failed, but
that's no reason why we shouldn't make a stab at it.
Have you lost your contact over there, Clarence?
Opper:
Not entirely, but I haven't had much.
H.M.Jr:
But you know the troubles Mr. Oliphant has had with
458
- -5the land.
Opper:
Yes
H.M.Jr:
Of
course, that is largely Mr. Ickes' trouble, as
I understand.
Opper:
That's right.
H.M.Jr:
I mean the question of title, and he has no authority
to condemn land for this.
Opper:
No, that was declared unconstitutional in that
Louisville case.
H.M.Jr:
And isn't that one of the things?
That's right, land costs.
Opper:
H.M.Jr:
Now, can the New York State housing authority - can
they take land from me?
Opper:
I don't think they can. I haven't followed that
H.M.Jr:
Of course, we could in the State Conservation Commission. We could take any land we wanted for
Opper:
very closely.
state park purposes. It's a question of whether
housing is a public purpose that's tripped up Ickes.
The very question that was cited in that Louisville
case. As far as the Federal Government is concerned,
they can condemn for park purposes and things of that
kind. But in this case it was held that housing was
not a public purpose so far as the Federal Government
was concerned. Now, there is of course a different
argument when you are dealing with a municipality.
But the reason why I said I didn't think they could
is because I'm afraid they may be upset the same way.
H.M.Jr:
You - could you put somebody to work on how could
Opper:
It's a good place to start.
H.M.Jr:
Well, Mac, if you don't mind
you get the land at a reasonable cost? That's
where you've got to S tart.
(Group adjourns to Mr. McReynolds' office)
459
2-19-37
My dear Mr.
The delay in receiving a copy of your draft letter to
the President regarding the comments in your Annual Report
in respect to the undistributed profits tax, as well as the
pressure of other matters, has prevented me from responding
more promptly to your suggestion of a conference between us.
I should like to discuss the matter with you at your canvanience toward the end of next work.
Sincerely,
Secretary of the Treasury
Reservable Joseph B. Sustman,Commissioner,
Interstate Commerce Commission,
Teshington, D.C.
3/22/97
460
OFFICE OF
THE SECRETARY OF THE TREASURY
February 19, 1937.
MEMORANDUM FOR THE SECRETARY:
I attach a further telegram received this
afternoon from Bullitt, together with a draft
of a reply which I have sent to the State Department at their request.
I believe that the St. Pierre matter is in a
fair way to being disposed of to our satisfaction.
GRAVES.
4-7-t
481
Paris, February 19, 1937.
Your No. 97, February 18, 10 p.m.:
The Ministry of Foreign Affairs informs us that the 4th decree mentioned
in the first paragraph of Embassy's 238, February 18, 6 p.m., is intended
to prohibit the importation of bulk alcohol which might be used in snuggling, even though such alcohol may possess a trade name.
The Ministry of Foreign Affairs suggests that the question raised by our
Treasury Department might be met by defining "alcool de traite" in the
decree itself, and suggests that our Treasury Department itself should
propose the definition of "alcool de traite."
If you find this arrangement satisfactory, the French Government, as a
matter of form proposes to issue the decree in the following manner:
Decrees 1 and 2 as given in our 238, February 18, 6 p.m.; Decrees3 and
4 to be consolidated into one decree, which would: (a) prohibit the
importation of "alcool de traite" into St. Pierre-Miquelon; (b) define
"alcool de traite"; and (c) prohibit the installation of any distillery
of alcohol in the islands of St. Pierre and Miquelon.
I should greatly appreciate a reply at your earliest convenience.
BULLITT.
482
Washington, D. C., February 19.
Treasury Department considers the arrangement outlined in your tele-
gram of February 19 as satisfactory, subject to the acceptance of sub-
stantially the following definition of the term "alcool de traite":
"The term 'alcool de traite' means ethyl alcohol from whatever source or by whatever process produced, including
dilutions or mixtures thereof, but not including beverages,
perfumes, pharmaceuticals, flavoring extracts, and similar
substances or preparations when bottled and packaged by
reputable manufacturers and labeled as such under appro-
priate trade or brand names."
433
BUREAU OF INTERNAL REVENUE
OFFICE OF
CHIEF, INTELLIGENCE UNIT
February 19, 1937.
Memorandum in re: V. V. Lamkin,
Applicant for appointment as
Collector of Internal Revenue
at New Orleans, Louisiana.
A conference was held in the office of the
Secretary at 10:30 this morning, at which were
present the Secretary, Commissioner Helvering,
Senator Overton and myself.
The Secretary outlined to the Senator the
facts reported in the attached file indicating
that Mr. Lamkin, acting in his capacity as Mayor
and Chief of Police at Alexandria, has permitted
open gambling in that town, has allowed the sale
of intoxicating liquor there on Sundays in violation of city ordinance, and has accepted pay-
ments of moneys from operators of gambling machines.
The Secretary pointed out to Senator Overton that,
in view of these facts, it would not be proper to
consider Mr. Lamkin for the position. He suggested
to the Senator that the best course would be for
Mr. Lamkin to withdraw his application for the position.
Senator Overton stated that while he was not
convinced the charges were true, he realized that
the matter rested with the Secretary and Commissioner,
and stated, therefore, that he would take steps to
have Mr. Lamkin withdraw. He stated further, in
response to the suggestion of the Secretary, that
he would proceed to select a person to be recommended
for the position and indicated that he thought it
wise to refrain from recommending a politician.
CARTER GLASS. VA..
KENNETH MCKELLAR TENN
ROYAL COPELAND, N.Y.
FREDERICK HALF. MAINE
HENRY W. KEYES,
GERALD P. NYE.N. DAK.
CARL HAYDEN ARIZ
MER THOMAS. OKLA.
FREDERICK STRIWER. OREG.
484
United States Senate
PETER NORBECK, DAK.
AS BYRNES, s.c.
L DICKINSON IOWA
ALLARD E. MD.
JOHN G. TOWNSEND, JR., DEL
ROBERT D. CAREY, WYO.
INDIVIS
RICHARD
JR.,GA.
MARCUS A. COOLIDGE, MASS.
ALVA B. ADAMS, COLD
PATRICK MCCARRAN NEV.
COMMITTEE ON APPROPRIATIONS
JOHN OVERTON LA.
JOHN BANKHEAD, ALA.
February 1, 1937.
JOSEPH c. O'MAHONEY WYO.
WILLIAM GIBBS MC ADOO, CALIF.
HARRY 5. TRUMAN, MO.
KENNEDY F. REA. CLERK
JOHN W. R. SMITH. ASST. CLERK
RE: Collector of Internal
Revenue, New Orleans.
V. V. Lamkin
The Honorable,
The Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
Following our visit to your office the
other day, when we presented Hon. V. V. Lamkin of
Alexandria, Louisiana, to you in person, we are
formally recommending him for appointment as Collector of Internal Revenue at New Orleans, Louisiana.
Your file will show that, on May 7,1936,
Senator Overton recommended Mr. Lamkin's appointment
with the concurrence of the then Junior Senator from
Louisiana, Mrs. Rose McConnell Long, and with the
endorsement of Governor Richard W. Leche, National
Committeeman from Louisiana.
We may add that Governor Leche continues
to concur in Mr. Lamkin's selection for this position.
It is our understanding that following
the recommendation of May 7th of last year a thorough
investigation was made of Mr. Lamkin by your Department and we assume that no further investigation is
now necessary.
Very sincerely yours,
JohnJOHN
H. OVERTON
that
ALLEN J. ELLENDER
TOO
STANDARD FORM NO. 14a
TREASURY DEPARTMENT
APPROVED BY THE PRESIDENT
MARCH 10. 1926
WASHINGTON
TELEGRAM
465
CHARGE TREASURY DEPARTMENT APPROPRIATION FOR
OFFICIAL BUSINESS -GOVERNMENT RATES
Commissioner 's Office 12:55 p.m.
The appropriation from which payable must be stated on above line.
- 2-14111
June 17, 1936
Honorable John H. Overton
Senate Office Building
Washington, D.C.
Retel sixteenth Everything possible being done to expedite investigation
concerning availability of V. V. Lamicin for Collectorship STOP
Thoroughly appreciate the reasons which prompt your request
SECRETARY
G.T.Helvering
COPY
(Mr. Irey's Office have this file.)
466
19 February, 1937
Ant
4 P. m.
COAST GUARD OPERATIONS IN FLOOD AREA
Anxiety felt yesterday concerning possibility of break
in levee at Deer Park, Louisiana, relieved, according to report
of Commander, Coast Guard Relief Force, and the situation reported
well under control after aerial survey by Coast Guard plane.
Coast Guard force at present operating in the Mississippi flood zone numbers 22 seagoing units and 25 boats, the latter operating under the immediate direction of the DIONE at
Natchez, Mississippi, where a shore office and communication con-
ter is being maintained.
GENERAL WATER LEVEL CONDITIONS:
Crest at Vicksburg 52.81 this morning; Natches 57.6', a
rise of 1/10th a foot since yesterday; and New Orleans 18.7' a
drop of 1/10th a foot.
Hill
467
Referred to
An
7 february 19, 1937
DEPARTMENT OF AGRICULTURE
WASHINGTON
The Honorable
The Secretary of the Treasury
My dear Mr. Secretary:
In the course of certain investigations of its own activities
conducted by the resettlement hiministration, information has been obtain
ed regarding irregularities on the part of employees of the Procurement
Division of the Treasury. Since the Department does not feel that it
should investigate matters involving the employees of another agency of
the Government, 1 felt that these matters should be brought to your
personal attention.
The particular complaints which I have received involve Hr. J.
Hiley Rankin, who is the Livison Representative between the Procurement
Division and the resettlement Administration, and Mr. Thomas G. Crawford,
who is in charge of the "esettlement administration's Procurement Unit
of the Procurement Division. It has been alleged that Mr. Renkin, while
making trips on Government business and during his official hours in
washington, has used coercive methods in attempting to sell employees
of the Resettlement administration stock in a tung oil development
company in which he has a financial interest, and that in addition he
has used the prestigo of his position to influence employees of the Resettlement Administration to so draw specifications on paint MS would
result in orders being placed for peint made from tung oil. It is also
alleged that ir. Hankin attempted to sell tung oil land in which he had
financial interest to at least one concern which has received considerable bisiness through the Procurement Division.
It is also alleged that ler. Crawford used the prestige of his
office to encourage the drawing of specifications whereby tung oil paint
would be purchased, and that he has issued invitations to bid in such a
way as to enable one contractor to receive contracts for a particular
type of land clearing equipment.
Since neither Mr. Crawford nor Hir. Rankin is an employee of the
Resettlement Administration, this information is being given you for
such action as you may care to take. The Resettlement Administration
will not carry its investigation any further insofar as these allegations
are concerned, but will be glad to cooperate with investigators of your
Department in establishing the truth or falsity of the charges.
Year Hewnj-
Sincerely yours,
There animo carbons Hawaiia
this in our files. It aw.
Secretary
469
Friday
February 19, 1937
9:30 a.m.
HMJr:
this fellow that he was very anxious to have
-
us take and as I understand it Jim has gone away
for ten days so I thought I'd wait until he got
back.
Ernest
Lundeen:
HMJr:
L:
Well, is that definite, that you are going to wait
until he gets back?
It's definite that I'll do nothing until Jim gets
back.
I don't want to hurry it at all, but of course,
take the whole picture of representation in various
departments of the Government. Ohio is so far
under-represented that I don't like to see us slip
back by a bit.
HMJr:
L:
Well, I can assure you, until Jim gets back nothing
will be done.
All right, that's fine. I'd like to talk to you
and to him both when he does get here.
HMJr:
Because he's got somebody he's been trying to place
for four years, he says.
L:
Well, is it somebody not from Ohio?
HMJr:
It is somebody not from Ohio.
L:
That's pretty tough.
HMJr:
Yes
L:
Well, all right -
HMJr:
Will you talk to Jim when he gets back?
HMJr:
Yes, I will.
All right, thank you.
L:
0. K.
HMJr:
Thank you.
L:
470
OFFICE OF
THE SECRETARY OF THE TREASURY
February 19, 1937.
AM
MEMORANDUM FOR THE SECRETARY:
I hand you herewith copies of two cablegrams received late yesterday by the State Department from Ambassador Bullitt, and telephoned over to me.
These are in response to the cable sent
Bullitt on February 15, which I showed you,
regarding the St. Pierre matter.
I attach also a copy of a proposed reply
which I have sent to the State Department.
GRAVES.
MA
Paris, February 17, 11 p.m.
AA
471
Last night I communicated to Delbos (Minister of Foreign Affairs)
the substance of your No. 85 of February 15, 4 p.m.
This morning Blum, to whom I had already spoken, telephoned and
asked me to have a conversation with the Minister of Colonies, who
called on me this evening, accompanied by his expert in the affairs
of St. Pierre-Miquelon, M. Merat, Director of Economic Affairs at the
Ministry of Colonies. Merat, who stated that he had been in St. PierreMiquelon in 1935-36, conducted most of the conversation in behalf of
the Minister of Colonies.
He asserted that when he had been in St. Pierre-Miquelon he had
discussed the question of suppressing the contraband trade with our
Consul, Mr. Gunsaulus, and that Mr. Gunsaulus had approved fully of
the measures which the French Government now proposes to adopt. He
suggested that our Government should communicate with Gunsaulus. He
was confident that Gunsaulus would agree with him that the new method
devised by the French Government for suppressing the contraband trade would
be more effective than the method now in force.
He and the Minister stated that their sole desire was to suppress
completely the contraband trade from St. ?ierre-Miquelon to the United
States. They said that with this object in view they had asked the
Assembly at St. Pierre-Miquelon to vote a law forbidding the importation
into St. Pierre-Miquelon of all alcohol except French alcohol; the law
had been voted. In return the inhabitants of St. Pierre-Miquelon had
requested that they should be treated in the same manner as the inhabi-
tants of all other French colonies, that is to say, the regime of export
under bond should be suppressed. (superseded)
The Minister and his expert both stated that the French Government
was prepared to promise that no alcohol de traite would be exported from
France to St. Pierre-Miquelon.
They were further prepared to promise that if the American Government
should find reason to object to the new regime in St. Pierre-Miquelon
THEY WOULD ESTABLISH A QUOTA FOR IMPORTATIONS of alcoholic beverages to
St. Pierre-Miquelon.
They stated, further, that one of their chief reasons in desiring to
change the law was the ***** wish to reduce the expenses of the French
Government in maintaining St. Pierre-Miquelon. They asserted that the
revenues of the Islands now amounted to approximately 1,000,000 francs
annually, and asserted that the expenses of the Islands amounted to
8,000,000 francs annually, which required an annual contribution by the
French Government of about 7,000,000 francs. They wished to reduce the
number of customs inspectors at St. Pierre-Miquelon in order to reduce
the expenses of the French Government.
The expert of the Minister of Colonies there said that they would
be very glad to put on more customs inspectors if the United States should
be prepared to pay for them. I asked him if he were speaking seriously,
472
-2-
as we were willing to go to great lengths to prevent this traffic. He
replied that of course the French Government would have to select and pay the
agents with our money.
They finally said that if the new regime should be established and the
American Government should find objection thereto, they were prepared to
reintroduce the regime now in force.
I asked if they would hold up the new decree, and they said they could
hold it up for a few days. The difficulty was that the law passed by the
Assembly of St. Pierre-Miquelon forbidding the importation of alcohol except
of French origin was now to take effect. They have secured the passage of
this law by promising that the regime of export under bond would be
suppressed. Moreover, the bonding system was of doubtful legality. It
would, therefore, be more embarrassing for them to delay the suppression
of the bonding system. I asked why it would be embarrassing, and they repeated that the colonists of St. Pierre-Miquelon had demanded to be treated
on the same footing as all other French colonists. I said that I did not
believe that the French Government had to be too particular about the finer
feelings of a lot of smugglers.
I said, further, that we did not believe the system thay propose to
install would prevent the importation into St. Pierre Miquelon of alcohol
from other countries than France under French labels and under false French
certificates. I added that we did not believe that exports from France
would be controlled properly, and stated that we believed the only purpose
of the new decree was to permit smuggling. After a vigorous discussion,
I was again assured that the only desire of the French Government was to
put an end, once and for all, to all smuggling from St. Pierre-Miquelon.
BULLITT.
473
Paris, February 18, 6 p.m.
The Ministry of Foreign Affairs now expresses the willingness to
issue four decrees on this subject: 1, abrogating the present bonding
system, except as it concerns alcohol and alcoholic beverages of what-
ever origin now in stock at St. Pierre-Miquelon; 2, prohibiting the
importation of all alcohol and alcoholic beverages of foreign origin,
no derogations being permitted; 3, prohibition of the manufacture of
alcohol in the Islands; and, 4, prohibition of the importation of all
"alcool de traite" of whatever origin into the Islands.
Foreign Office now says that alcohol de traite includes all alcohol
and alcoholic beverages other than those having a trade name.
If the American Government finds that there has been a revival of
smuggling under the new regime, the Foreign Office and the Ministry of
Colonies have both agreed that the decree of April 9, 1935, will be
reenacted, and written assurances to that effect will be given.
The Foreign Office, in this connection, requests that the Department again give consideration to the French Ambassador's proposals of
1935 that the United States Lines be induced to arrange cruises to
St. Pierre-Miquelon.
BULLITT.
474
Washington, D. C., , February 18
Treasury Department advises they have no substantial objection to first
three decrees referred to in your telegram of February 18, 6 p.m. Stop.
Regarding fourth decree, prohibiting importation of all "alcool de traite"
of whatever origin, and in the light of Foreign Office definition of this
term, Treasury points out that bulk alcohol commonly smuggled into this
country from Europe via St. Pierre and otherwise usually has a trade
name, such as "Hand Brand," "Swan Brand," etc. Stop. Treasury fears
that this proposed limitation would therefore not prove effectual against
resumption of smuggling from St. Pierre. Stop. They urge that either
the present bonding system should be continued in force with respect to
all exports of bulk alcohol of whatever origin from St. Pierre, or the
importation of bulk alcohol, even though having a trade name, should be
controlled through a quota system or an import tax. Stop. Treasury advises
further that it is common gossip in the underworld in this country that
smuggling operations based on St. Pierre will soon be resumed, and they
urge that no loop_hole through which bulk alcohol could lawfully be
withdrawn from St. Pierre be permitted in any proposed decree.
475
February 23, 1937
I let the President read the attached memorandum
from Taylor, dated February 19, and he was very much
interested.
476
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
To
The Secretary
FROM
Mr. Taylor
February 19, 1937
I had a call this afternoon from the Japanese Ambassador, accompanied
uh. Orakawa,
by the Financial Attache assigned to Washington, Paris and London, and Mr.
A
Ukawa, the Commercial Attache stationed in New York. The purpose of the call
was to check a series of questions about the operation of our gold licensing
system, nationalization of gold, the operations of the Tripartite Agreement,
earmarking, etc. I gathered the impression that the Japanese Government
is endeavoring to follow the model of having a very close supervision, if not
complete control, of their central banking and monetary policies, but that
they were encountering various difficulties.
They expressed great interest in the possibility of their cooperating
with the Tripartite group, which enabled me to call attention to some of
the most important aspects of the statement on monetary policy. I got a
distinct impression, which is more or less confirmed by the most recent
cable from the Embassy, that the Japanese are adjusting their policies and
at least temporarily have decided to be less aggressive in the Far East and
to attempt to cooperate wi th occidental countries.
They also had a series of questions relating to the Johnson Act
and any other controls which we might have over foreign loans floated in
this market. I explained the situation as I understood it and referred
to the history of the 1920's, during which the State Department was asked
to express an opinion as to whether there were any political reasons
which would make it undesirable to float a loan in this country, and also
477
-2the statement required from the Treasury regarding the indebtedness
of a country to this Government. There was enough discussion
about this point so that it may be that the Japanese are thinking
in terms of attempting to float a loan over here. However, in
connection with discussing the situation and the provisions of
the Johnson Act I had the opportunity of saying that to all intents
and purposes the questions raised as to the actual provisions of
the Johnson Act answered themselves, as I did not think that a
private banking group could be found which would undertake to
attempt to float a loan in this market for a country where the
political picture was very clouded, as it was on the continent
at the present time, and it also gave me an opportunity to discuss
various difficulties which had arisen in the German, French and
other financial pictures which happened to apply with great completeness to the existing Japanese situation.
On the whole it was quite an interesting discussion and on
a rather different plane than the one you had last year with the
new Financial Attache's predecessor.
of
478
NED
GRAY
PARIS
Dated February 19, 1937
RECEIVED 7:17 p.m.
Secretary of State
Washington
245, February 19, 6 D.M.
FROM COCHRAN.
Journal Official today promulgates law
abrogating Article Six of the monetary law of
October 1, 1936. It provides as follows: "the
provisions of the monetary law of October 1, 1936,
are not applicable to international payments which
prior to the promulgation of this law were validly
stipulated in gold francs. Payments Effected between
France, Algeria, Tunis, Morocco, the dolonies,
protectorates, and states and territories under
French mandate are not international payments.
The provisions of this law will be Effective dating
from October 1, 1936".
This law received the approval of Parliament
yesterday. In reply to criticism the Minister of
Finance pointed out that it had received the
unanimous approval of the Parliamentary, Legal
and Finance Committees, and furthermore that its
provisions
479
MED - 2 - #245, February 19, 6 p.m. from Paris
provisions were similar to those Enbodied in the
monetary act of June 25, 1928.
A decree was published in the Journal Official
of February 17, which among other things provides
that gold and gold currencies are subject to the
provisions of Article No. 492 4 of the custons
code relating to penalties applicable to the suppression of contrabrand. Under this article customs
agents are authorized to make search of residence
when considered necessary and municipal agents may
also participate in the search,
END SECTION ONE.
BULLITT
SMS:EMB
480
GRAY
RB
Paris
Dated February 19, 1937
Rec'd 7:35 p. m.
Secretary of State
Washington.
245, February 19, 6 p. m. (SECTION TWO)
It is stressed in the press that the measure has
obviously been decided upon so as to place holders of
undeclared gold in the class of smugglers and that it is
a clever move from a purely juridicial point of view.
However, it is pointed out that it is contrary to the
policy of liberalism which it has recently been hoped
the Government might follow. Financial editor of the
LONDON FINANCIAL NEWS referring to this "reenforcement
of vindictive legislation" today remarks that Auriol is
making an exceptional record for consistently doing the
wrong thing.
Franc strenghtened against sterling in late trading
yesterday on purely political reasons buttrend reversed
today with Bank of France yielding important amount of
sterling. Bank also provided market with some dollars
one transaction this afternoon amounting to $100,000.
Swiss franc better with Lazard buying. Rentes were down
fifty
481
RB
-2-#245, February 19, 6 p. m. from
Paris (SECTION TWO)
fifty centimes at opening but closed a little above
this level. Not much gossip on bourse in regard to
political and central bank situation.
(END SECTION TWO)
BULLITT
MRD
SMS
482
MED
A portion of this
PARIS
closely paraphrased
before being communioated to anyone (b)
Dated February 19, 1937
message must be
REC ved 7:88 pell.
Secretary of State
Washington
245, February 19, 6 p.m. (SECTION THREE). (GRAY).
Paris TECHNO Ed Reuter report from London this
morning to the Effect that United States would reduce
buying price of gold but nothing was heard of this
gossip this afternoon. Paris American Bank says it
has been able to purchase SOME gold bars on London
market today due to the withdravel of Swiss competition. There is, the Swiss evidencly cannot continue
to buy gold in London and ship it by parcel post to
NEW York in view of the increase that has been made
in insurance charge. Bank in question is selling
this gold in turn to Chemical which is shipping on
Bernstein Line.
Market observers think there has been SOME
cessation in French purchase of American securities
pending outcome of comittee studies in Washington
on capital influx question. Edie cables L'INFORTLITI ON
that the "vague and contradictory statements made by
Messrs. Morgenthau, Eccles, and Landis relative to
the
483
-2the nature and the application of legislation which will
be proposed with a view to reducing imports of foreign
funds seem to indicate that the Government is experiencing
difficulties in solving the problem practically.
I have learned confidentially from Swiss banking
sources that the Swiss banks have refused a request by
the French for a loan of one billion france for one of the
French public bodies.
I was asked by Rueff to come to see him on Saturday
at 4 p.m. at the Ministry of Finance.
END OF MESSAGE.
BULLITT.
EA:LWW
93V1303R
98537
VKURA3HT