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DIARY Book 554 July 27 and 28, 1942 -- Book Page 554 138 Airplanes Aircraft despatched, week ending July 21, 1942 British Air Commission report - 7/27/42 Shipments to British Forces, week ending July 28, 1942 Hoflich report 358 American Bankers' Association Treasury prepares congratulatory letter for FDR for 67th annual convention - 7/27/42 70 Appointments and Resignations Dodson, Albert: Cooper (Congressman, Tennessee) asks HMJr to take care of old friend in a modest job 7/27/42 44 (See also Book 555, page 243 - 7/31/42) -BBusiness Conditions Haas memorandum on situation, week ending July 25, 1942 7/27/42 101 -Canada Forecast of United States dollar position, July 1942 Plumptre memorandum given to White - 7/27/42 Navy promises to inform Treasury of any sizable orders placed in Canada - 7/27/42 146 156 Cochran, H. Merle White reports no word from Cochran in Latin America 7/28/42. 370 Cooper, Jere (Congressman, Tennessee) See Appointments and Resignations: Dodson, Albert Corn HMJr picks four ears for the White House - Rosenman-HMJr conversation - 7/27/42 21,28 -DDodson, Albert See Appointments and Resignations -EEcuador See Latin America Engraving and Printing, Bureau of Negro and White Employees: Situation in lunchroom. etc., explained in Reynolds (Senator, North Carolina) correspondence - 7/28/42. 291 -FBook Page 554 168 Farben, I. G. See Foreign Funds Control: Sydney Ross Company Financing, Government August program discussed by HMJr, Bell, Haas, and Buffington - 7/28/42. a) Victory Fund Committee suggestions b) Sproul-HMJr conversation c) Ransom-HMJr conversation War Savings Bonds: 194,288 184 187 Victory Fund Committees: Post Office asked to extend franking privilege to - 7/27/42 Payroll Savings Plan: Report of companies where deductions have reached more than 10% - 7/27/42 Sales - May, June, July, 1942 - 7/27/42 Total daily shipments by denominations, July 1-24, 1942 (last report) - 7/27/42 79 84 90 94 Mrs. FDR and HMJr discuss presentation by movies and radio - 7/28/42 a) "No more between-the-acts talkers" - 7/29/42: 259 See Book 555, page 8 b) Gamble memorandum after talk with Smith, Cohen, and Robinson: Book 555, page 56 Roanoke, Virginia, meeting on August 23 instead of August 20 discussed by Carter Glass and HMJr 264 7/28/42 a) August 23rd not possible: Book 555, page 49 b) August 20th agreed upon: Book 555, page 211 Newsreels acknowledged for King and Queen of England 308 7/28/42 New York survey - Gamble report - 7/28/42 Payroll Savings Plan - report for June 1942 - 7/28/42.. 310 of Economic Warfare report - 7/27/42 119 Foreign Funds Control Sydney Ross Company: Exports to Latin America - Board 352 -GGermany Changes in war economy - Hoflich memorandum - 7/28/42 362 -LLatin America Ecuador: White memorandum on report of drop in value of United States currency - 7/28/42. 371 Lend-Lease Purchases, week ending July 25, 1942 - 7/28/42 294 - L - (Continued) Lend-Lease (in Reverse) HMJr discusses with Acheson - 7/27/42 British-American exchange of planes: General Meyers-HMJr conversation - 7/27/42 Conference; present: HMJr, Meyers, White, and Hicks - 7/28/42. Conference; present: HMJr, Meyers, Phillips, White, and Hicks - 7/28/42 a) Hicks memorandum McCloy-HMJr conversation - 7/28/42 Book 554 Page 25 37 217 230 244 276 Phillips note on "Planes diverted off British contracts" - 7/30/42: See Book 555, page 228 Phillips agrees to text - Acheson reports to HMJr 8/4/42: Book 556, pages 146 and 176 a) Conference; present: HMJr, Bell, White, Paul, and Cairns: Book 556, page 183 b) Meyers (Brigadier General) memosandum on "Airplanes diverted from British contracts" - 8/4/42: Book 556, page 195 Library of Congress Friends of Music give $5000 plus for dep(sit in Permanent Loan Fund; HMJr OK's - 7/27/12 98 -M- Military Reports British operations - 7/27/42, 7/28/42 167,385 -NNegroes See Engraving and Printing, Bureau of New York See Financing, Government: War Savings Binds -PPost Office Department See Financing, Government: War Savings Binds -R- Relief Activities, War See War Relief Activities Revenue Revision Ruml, Beardsley: Disapproves of Treasury "check-off" plan for collecting taxes; proposes "Tay-as-You-Go" plan - 7/27/42 a) Paul memorandum and Ruml testimory before Senate Finance Committee Withholding Tax: Bureau of Internal Revinue's objections again reiterated by Cann - 7/28/42 66 68,69 285 -- Book Page Reynolds, Robert R. (Senator, North Carolina) See Engraving and Printing, Bureau of Roanoke, Virginia See Financing, Government: War Savings Bonds Ross Company, Sydney See Foreign Funds Control Ruml, Beardsley See Revenue Revision -Sterling Products See Foreign Funds Control: Sydney Ross Company Sydney Ross Company See Foreign Funds Control -V- Victory Fund Committees See Financing, Government -W- War Relief Activities Davies (Joseph E.) report on agencies - 7/27/42 War Savings Bonds See Financing, Government 554 115 S 1 U R Y T E L E 1942 JUL 27 AM 8 03 G R A NUWE15 29 NT ITHACA NY JULY 26 1942 H ENRY MORGENTHAU JR T R SECY OF THE TREASURY E A S ULD APPRECIATE YOUR CALLING ME YOUR CONVENIENCE ABOUT AN U R RICULTURAL MATTER WHICH I WOULD LIKE TO CALL TO ATTENTION THE PRESIDENT I BELIEVE TO BE EXTREMELY IMPORTANT Y T E H E BABCOCK. L E 00AM JULY 27. G R A P H 2 July 27, 1942 12:20 p.m. GROUP Present: Mr. Buffington Mr. Gamble Mr. Thompson Mr. Schwarz Mr. Odegard Mr. Paul Mr. Cairns Mr. Haas Mr. Bell Mr. White H.M.JR: I want to ask a couple of questions. Where is Gamble? They gave out an announcement, "Over 1,000,000 persons on the War Department pay- roll have voluntarily set aside part of their pay to purchase War Savings Bonds." Do you think that is true? MR. GAMBLE: A million persons? H.M.JR: One million. MR. GAMBLE: It is possible that is true. H.M.JR: You might check up. From what the Navy says I doubt it - about the Army. MR. BELL: I think that possibly includes the armed forces, not just the civilians. H.M.JR: I would like to know how many civilians there are in the Army. And then, Harry, I see on the ticker here, "An order limiting industrial use of silver in order to 3 -2divert larger quantities of other metals to war uses has been issued by War Production Board with approval from President Roosevelt." Were we at all consulted? MR. WHITE: War Department? H.M.JR: War Production Board. That is what we said we had no objection to - that I had no objection? MR. WHITE: That you had no objection to it. H.M.JR: O.K. I think we will do first this Executive Order, Mr. Paul. If you will sit up here, I can see you better. I can't tell whether you are smiling or frowning at that distance. MR. PAUL: It is enough to make you frown. We had a conference yesterday. Mr. White was there, and Mr. Cairns, and Mr. Bernstein. H.M.JR: Nice way to spend a Sunday. MR. PAUL: Well, I didn't mind it because I had an empty Sunday, but they no doubt suffered. As a result of that, we drew two orders, one covering wages and the other covering agricultural prices, the latter being much the more difficult problem, for reasons I will give in a moment. H.M.JR: Needless to say this is triple confidential. MR. PAUL: All we can say is our orders are very much better than the order presented by Dave Ginsberg at the conference Saturday morning. H.M.JR: Says you. MR. PAUL: Well, I don't have any doubt of that; I think Dave would -- H.M.JR: Dave plus James Byrnes. -3MR. PAUL: Well, we sent that order to Judge Rosenman yesterday afternoon, but I don't think that that did much good, because I later - I tried to get him on the telephone several times, and I later found that he had registered at the Willard, and I still later found that he wasn't in town yesterday. H.M.JR: He is in town today because he was supposed to have lunch with me, and he said he was very sorry he couldn't but if I would send four ears of corn over to the President for lunch, he would be able to eat two of them. (Laughter) MR. PAUL: That is better information. I had the information he wasn't going to get in until this afternoon. H.M.JR: So I sent four ears of corn from the farm to the President so that Judge Rosenman could have two of them. (Laughter) MR. PAUL: I have copies of these orders here; I don't know whether you want to go into them. The principal problem - the wage situation is much easier for the simple reason that there the question is only one of lack of authority. In connection with the agricultural prices we have a much harder problem because we have a definite edict in the Emergency Price Control Act that no existing law shall be in effect - shall be used. H.M.JR: Supposing I called up the Judge and ask him when he wants to see some of us? MR. PAUL: That would be a good idea. He planned a conference today, be told us Saturday, which would include Oscar Cox and Dave Ginsberg and somebody from Budget. I have to be at the-the-- H.M.JR: Which route do you take, the 5-B, or 5 - 4. - MR. PAUL: We take route 5-B, primarily, yes, but we have a lot - we also sent the Judge a memo containing a number of other alternative routes, some of which we thought should be held in reserve, and there is - Huntington found one statute which may help. It is the military zoning statute. and it wasn't passed until after the other act. This military zoning statute was not passed until March 21, 1942, and it wasn't the existing law at the time of the Emergency Price Control Act. Now, it gives the President the right to establish zones, and on the theory that this is a total war you can establish a zone and have price control there - farm price control or wage control - on the theory that if you continue to do something like that your prices would get out of hand and that would hurt the war. But that, we thought, should be something that should be held in reserve. H.M.JR: But that came subsequent to farm prices? time. MR. PAUL: Yes, it wasn't existing law at the H.M.JR: Does that help you in the courts? MR. PAUL: It would certainly be one of our main points if we were briefed on it, but it seems more drastic as a practical, political problem than the other. We thought we ought to go out under 5-B and then perhaps use this argument to convince Senator Barkley, who is against this, saying we could do it by a more drastic means if we wanted but we take this pleasanter route. H.M.JR: Tell him it is a pre-Pearl Harbor matter. MR. PAUL: Now, I was up for a few minutes at the session this morning. Senator George asked me to be 6 -5up at two o'clock. I think he plans to have an execu- tive session. I think he is going to ask us - after determining that you can't get this or that, maybe the State bond exemption or the joint returns or something, he is going to say, "Now, what are your alternative suggestions?" I am going to say, We are not prepared to submit them today, but if it is clear that you are not going to give us the other, we will submit some further ideas to you in a few days." H.M.JR: This thing that he questioned - that group of economists got something out a week ago from today which I never saw. Who saw that - twentyseven economists signed something-- MR. WHITE: You mean a booklet on financial policy? H.M.JR: Something criticizing the Treasury. MR. WHITE: Financial policy. Well, if it is what I saw, it is a little booklet which had the effect only of making me thoroughly ashamed of my profession, if that is the same thing he refers to. That is my view of their comment. H.M.JR: Well, they asked me at press a week ago today whether I had seen it. Do you want to dig it up and give it to me later? MR. WHITE: Twenty-seven economists? H.M.JR: Isn't that what they said, Chick? You were there. MR. SCHWARZ: It was about that. It was a round- robin thing. -6MR. WHITE: Excuse me, I am not certain - you would like the pamphlet with the comments? self. H.M.JR: I would like to see the booklet itMR. WHITE: Yes. MR. PAUL: I think we probably have that. MR. BELL: It was in the paper, I think, Monday. It sort of indicated you had had a conference with them. H.M.JR: What? MR. BELL: It sort of intimated that you had had a conference with them and had turned a deaf ear, or something, but I think the deaf ear came in your press conference of Tuesday - is that your press conference? H.M.JR: The press conference was Monday, but anyway it appeared in some - dig it up, Chick, for heaven's sake, and tell him which one it is. MR. SCHWARZ: We have a copy. H.M.JR: Tell White which one it was that the boys were asking about. If you tell White which it is, he can find out. 8 -7H.M.JR: Norman? MR. THOMPSON: I have nothing. H.M.JR: Mr. Bell? MR. BELL: I have two documents for your signa- ture. One is a letter to the Postmaster General asking for the franking privilege for the Federal Reserve Banks. H.M.JR: For the Federal Reserve Banks? MR. BELL: Yes, for Treasury business. We had it during the last war, but they have never given it to us since. (Letter to the Postmaster General, dated today, signed by the Secretary.) MR. BELL: This is an amendment to an old Public Debt circular which incorporates a recent Act of Congress. (Document entitled "Department Circular No. 660" signed by the Secretary.) H.M.JR: What else? MR. BELL: I don't know whether you are interested in the final results of the Treasury campaign. H.M.JR: Yes, sure. (Chart handed to the Secretary.) About ten, eight. Do you mind if I put on my dark glasses to look at this? (Laughter) I would like to study this. Who is thi s S way out here - Monetary Research. That is rubbing it in - by gawd, that is rubbing it in. They go way out over thirteen percent, you see, on this thing, and here they are inside the Treasury fighting us tooth and nail on the War Bonds. But they just want to demonstrate that they are good sports. MR. BELL: High-salaried people. (Laughter) 9 8- MR. WHITE: I hope it isn't a mistake in the computation. (Laughter) MR. ODEGARD: Mr. Secretary, they have a lot of high-salaried people in Monetary Research. Maybe it ought to be more than thirteen. (Laughter) H.M.JR: I think it is pretty good, knowing how they feel, from the top down, anyway. Incidentally, I think I told you that, along those lines - he asked me not to tell it outside - right after the argument was settled Leon Henderson wrote me a personal note that he was having ten percent taken out of his check each two weeks. He didn't want it publicized, but he just wanted to let me know that the fight was over and that is where he stood, which I thought was very nice. MR. PAUL: He was very appreciative of your proposing the rate tax. I had dinner with him Thursday night and he mentioned it. H.M.JR: I have got to see Leon. He needs a friend badly. MR. PAUL: I don't know whether he understands it. He was in a fighting mood the other night; he didn't seem to understand he needed a friend. MR. BELL: He is leaving tonight. (Memorandum concerning resignation of Mr. Mills handed to the Secretary.) H.M.JR: I am seeing him at quarter of three. MR. BELL: I think that is nice. I told him in view of the fact that he didn't want to accept these two or three jobs we had around here possibly it is better for him to go back and get up to date on what has happened in his bank, and then maybe we can call him back later, if that is all right. That is all I have. 10 -9H.M.JR: Harry? MR. WHITE: Mr. McCloy called to say that they have to know, preferably today, whether anything is to be done about taking over more planes from the British, because they are right at the point where a decision has to be made, and pay for them with dollars. You remember the last time we canvassed the situation it was decided not to go ahead with anything more. Now they have some more contracts before them which they want to finish up or salt away, and they have got to have a decision, if possible. I said we would call them back today. H.M.JR: I don't understand that. MR. WHITE: Well, there are still some plane contracts and payments about which they have to know how we want them handled, because once a decision is made not to do any more it will be too late to do anything about it. H.M.JR: I wonder if he couldn't drop over here and talk to me about it. MR. WHITE: That would be General Meyers. H.M.JR: Supposing I call them up on the phone. MR. WHITE: He asked me to get in touch with General Meyers if we have an opinion. H.M.JR: Who, McCloy? MR. WHITE: McCloy. H.M.JR: Supposing I talk to Mr. McCloy. What else, Harry? 11 - 10 - MR. WHITE: Here is a little note which might be of passing interest. The Lord Chancellor of the Exchequer said England is not going to return to the gold standard, and other things of that nature. I don't think it merits any importance. (Paper handed to the Secretary.) H.M.JR: Chick? MR. WHITE: I have one other. The final conference that we had with the Lend-Lease people has indicated that they definitely do not want to lendlease for coins, and that leaves them willing to lendlease for war purposes. I suggest a possible step-H.M.JR: That is like saying a fellow needs a if he is on a red meat diet, "Wouldn't you like to have some chi cken?" MR. WHITE: Of course that isn't true of England. To England coins are secondary. To Australia coins are primary, and to the South American countries they are primary. I don't think they have very good reasons for not wanting to go along. It simmers down to this, that they feel that the public reaction to such a step would be adverse to them. They are reluctant to do it. H.M.JR: I can't do it now, but let's have another silver session. I have got another idea. See? MR. WHITE: Then we will hold everything up until you have that conference. H.M.JR: I have got another idea. I think we could sit down with Mexico and possibly help Mexi CO make an arrangement with England and Canada, especially if they are going to be held down to thirty-five cents. 12 - 11 MR. WHITE: Did you want Mexicans in at that session? H.M.JR: No, no, just Mexican Bell and Mexican you and Mexican me, that is all. (Laughter) MR. WHITE: Then we will hold everything up. H.M.JR: Just us three Mexicans. MR. WHITE: Mr. Hays called up - he telephoned, and he for several minutes-- H.M.JR: Can you talk a little louder? MR. WHITE: For several minutes he gave me what must be simply characterized as an awful lot of applesauce - to you and to me. (The Secretary held a telephone conversation with Miss Zinsser, secretary to Mr. McCloy.) H.M.JR: You know who she is? She is Lew Douglas's niece. MR. BELL: . Is she? He is Lew Douglas's brother- in-law. H.M.JR: Well then, what's-his-name is her uncle - McCloy is her uncle. She is working for her uncle. (Discussion off the record) MR. WHITE: Hays said-- H.M.JR: I hope Meyers comes. He is a breath of fresh air. MR. WHITE: Mr. Hays said that he was informed-- 13 - 12 - H.M.JR: Excuse me. I would like you here at three-fifteen, Bell, as well as White. MR. WHITE: He was informed of all the details of the morning meeting which you had had. H.M.JR: Who was? MR. WHITE: Mr. Hays - of all the details. He emphasized that, and he said that he thoroughly approves and he is glad that you are doing it that way, and it is just fine and it is lovely, and he will want to cooperate. H.M.JR: He is smart. O.K.? MR. WHITE: That is all. H.M.JR: Make any offers? MR. WHITE: No. H.M.JR: What? MR. WHITE: No. H.M.JR: Remember, fifty-fifty, Harry. (Laughter) MR. WHITE: It depends on what it is. (Laughter) H.M.JR: Chick? That is right, you are quite right. I might wan't a hundred percent. (Laughter) MR. WHITE: It may be that kind of an offer. (Laughter) MR. SCHWARZ: Variety ran, also, an inaccurate story on this Stage Door Canteen, and after talking with Charlie Bell, who said he had an assignment from you, we confirmed the fact that you were making space available in the B elasco. - 13 - 14 H.M.JR: Making space available - my gawd, after they had been turned down one hundred percent by Reynolds, and told by him and the Treasury it couldn't be done, Norman Thompson got the inspiration and decided to do it. Is that right, Norman? MR. THOMPSON: That is right. MR. SCHWARZ: I thought that would backstop Ted's story. H.M.JR: We just turned ourselves inside out on that for - what is his name, this actor? MR. SCHWARZ: Douglas. H.M.JR: Yes, Melvyn Douglas. (The Secretary held a telephone conversation with Judge Rosenman.) H.M.JR: He just got in. He hasn't even opened the envelope yet, Paul. MR. PAUL: If he does call up this afternoon, I will get back from the Finance Committee just as soon as I can; and if I am not back here, or can't get back, Bernstein had better go over. H.M.JR: All right. MR. PAUL: He has been in on it before. H.M.JR: Peter? MR. ODEGARD: Just one or two things. The poll that you asked to have made on the workers' attitude toward the withholding of income at the source-- H.M.JR: Yes, can you talk a little louder? My ears are all stopped up. MR. ODEGARD: We had a session on Friday with Friedman in John Sullivan's office on that, and decided on the questions for a resurvey of employers as to their specific attitude toward the effect this might have upon their 15 - 14 pay-roll savings operation. We also agreed upon a series of questions that we should put to employees and a preliminary test of that is already in the field, or should be today, through the Bureau of Intelligence of OWI. I thought you might like to know. H.M.JR: Oh, through - will that go through Likert? MR. ODEGARD: Likert sat in - I went over to OWI to go over the questions with him. He sat in on it. H.M.JR: Good. MR. ODEGARD: There is one matter-- H.M.JR: When will we get an an swer on that? MR. ODEGARD: Well, we ought to get some prelimi- nary action from the field pretty quickly. H.M.JR: On employees? MR. ODEGARD: On employees, yes. There is a flag- raising ceremony at the Ford plant that I would like to talk with you about. Then there is an editorial in the New Republic for this week that says something that I think is not quite accurate. H.M.JR: You mean on the forced savings? MR. ODEGARD: On forced savings. H.M.JR: No, it is wholly inaccurate. I read it. MR. ODEGARD: It says that the Treasury has been in favor of forced savings, but has been held off it by the President. H.M.JR: The whole article is wrong, and while you are on that, if anybody is interested in the State Department, I highly recommend reading The Nation, July 25, on Mr. Hull. 16 - 15 MR. SCHWARZ: It called him an anachronism. H.M.JR: The whole State Department. MR. WHITE: Does anybody here listen to Cal Tinney? He broadcasts Monday, Wednesday and Friday. I strongly recommend it. MR. PAUL: What time? H.M.JR: An aunt of mine wrote me she listened to him Friday, a week ago, and couldn't I do something to stop him, but she didn't say what he said. MR. WHITE: I forget what he said. He is very much worth listening to. H.M.JR: Isn't he with the New York Evening Post? MR. SCHWARZ: He used to be. MR. WHITE: Used to be where? MR. SCHWARZ: They tried to make a second Will Rogers out of him, but it didn't work. H.M.JR: Isn't he the fellow that wrote that dirty article about me? MR. SCHWARZ: Yes,sir. H.M.JR: What does he say, Harry? (Laughter) MR. WHITE: I didn't read the article. (Laughter) Between your aunt and the article I sort of stepped into so mething. He still is very good. I have heard him about three times. The last time he took Secretary Hull's speech and compared it with Secretary Hull's record, and he surely did a beautiful job. H.M.JR: Again, if anybody is at all interested in Secretary Hull's speech and what was back of it, the tip-off was in Arthur Krock's article yesterday. Arthur Krock tipped the thing off yesterday. I mean, to me it 17 - 16 - has been a great mystery, but if you read Arthur Krock yesterday, you will see what is behind it. MR. BELL: Ernest Lindley gave him a good send-off this morning. H.M.JR: Krock tips the hat. I think I am not exaggerating, in the one article - I think Krock said six times in his article, and the article is not very long, "Every single word of Hull's speech was approved by the President." No Utopias about a glass of milk a day, and all the rest of that stuff. Do you want to see me later? MR ODEGARD: Just for a minute, only I would like to have Ted stay, too. H.M.JR: You and Ted. As far as I know nobody else wants to see me after this meeting. George, are you feeling all right? MR. HAAS: I am feeling much better. H.M.JR: You ought to take out cold insurance. You would make money on it. MR. HAAS: The insurance company would certainly be out of luck. H.M.JR: Are you all right? MR. HAAS: I think I will be - as soon as the humidity goes away, I will be all right. H.M.JR: Have you got to wait that long? (Laughter) MR. HAAS: I think so. H.M.JR: What else, George? MR. HAAS: I have nothing. 18 - 17 H.M.JR: Huntington? MR. CAIRNS: Elmer Davis is writing a letter to Petrillo because of his order as it affects the Treasury radio program. He wanted the Treasury lawyers to pass on it, but I refused to do it, and said he should get he is filing suit, and anyway we are not his counsel. hold of Justice, because Thurman Arnold had announced So I told him to get in touch with Cox, who knows most about the case. H.M.JR: Who calls us up from there, just as a matter of curiosity? MR. CAIRNS: I got the call from Cailahan. I didn't talk to Davis' office. H.M.JR: In other words, you figure we have enough troubles? MR. CAIRNS: We couldn't approve the letter. We might make suggestions, but we certainly couldn't clear it. H.M.JR: I think you are right. After all, we are not his counsel. Anything else? MR. CAIRNS: That is all I have. H.M.JR: On that same subject, Mrs. Morgenthau said you were most helpful in that Robinson, the composer-- MR. CAIRNS: I am glad it worked out. H.M.JR: She said you were most helpful on that. MR. GAMBLE: The number of radio stations is up to six hundred and twenty-one, now. Mr. Callahan has made a very fine report on some of the outstanding work the early stations are doing. I thought you should have it, so I made it up for you. (Paper handed to the Secretary.) 19 - 18 H.M.JR: What else, Ted? MR. GAMBLE: Another matter you asked me to take up today was whether or not Wednesday or Friday would be a good day for you to go to New York. H.M.JR: I will talk to you two guys about it. Which, who, and how is it, in Ferdie Kuhn's absence I know Ferdie Kuhn is supposed to read all the stuff that goes out from War Bonds, literature and so forth. Who does that during his absence? MR. GAMBLE: Odegard. MR. ODEGARD: I have been doing it. H.M.JR: Will you take it over for Ferdie? You don't normally do it, do you? MR. ODEGARD: I usually look over most of it. H.M.JR: Well, when this cartoonist or artist comes down Wednesday or Thursday, whatever his name is-MR. ODEGARD: Szyk. H.M.JR: The one I had such difficulty in getting I would like to see him when he first comes down. I would like to tell him why. MR. GAMBLE: That is all. MR. BUFFINGTON: I have asked the District Executive Managers to hold any publicity, the ones with whom I have talked, until you, at some later date - there seems to still be some of it in the paper. I don't know how it originated. H.M.JR: Everybody finished? MR. WHITE: Randolph, are you prepared to suggest to the Secretary the possibility of - the desirability 20 - 19 of preparing that supplementary tax measure to accompany this order? MR. PAUL: I think that should be pos tponed until after we see what happens in the two o'clock session. The thought Harry has in mind is that we are limiting wages, or proposing to limit wages and agricultural prices. We have also got some mention in here of the wages end of it, the higher salaries, but we can't go any further than that. That is, we can't go into the question of dividends and corporate profits which is the capital end of it, through this instrumentality;we are convinced we have to do it through taxation. Now, the question is whether these executive orders or any publicity in connection with them should contain some reference to the fact that you are proposing to go in with some supplementary tax proposals to tie in with this. I don't think we can decide that. We are undoubtedly going to have to go in with supplementary tax proposals, anyway, after this afternoon's session, and I think it would be much more in the clear when I see what happens up there at two o'clock. MR. SCHWARZ: Could I raise a point, Mr. Secretary? We just about have ready now the annual salaries lists which we are required to give out, seventy-five thousand and over. I would like to time it when it will do us the most good. H.M.JR: Talk it over with Paul. MR. PAUL: I did say to the Judge the other day - he didn't know that this twenty-five thousand limitation of the President's had not been turned down, that it simply hadn't been voted on. He thought it had been turned down. I told him that produced a lot of problems, that particular way of doing it, but that you could do much by way of accomplishing the same general practical result by a heavy rate schedule in the higher brackets. He was quite interested in that. H.M.JR: I will talk with Gamble and Odegard. 21 July 27, 1942. 12:25 p.m. HMJr: Hello. Operator: Judge Rosenman hasn't come in yet. They expect HMJr: him in about ten or fifteen minutes. Well, leave word I'd like to talk to him as soon Operator: All right. as he comes in. 12:38 p.m. HMJr: Sam? Judge Rosenman: Henry! HMJr: I want you to know that I personally went out, morning, and picked four ears of corn. with the dew on the ground, at five-thirty this R: Four? HMJr: Well, I figured three for you and one for the R: HMJr: R: HMJr: President. (Laughs) That's wonderful. And it's on the way over. And is it raw or cooked? No, no, no, Mrs. Nesbitt is going to cook it with her little hands herself. R: I - I - that's good, and I hope you sent a little HMJr: No, I figured that you'd make the speech for me. note over that this is from Dutchess County. 22 -2R: I'll make the speech then. HMJr: Are three ears for you enough? I know. Three - three ears for me are enough, one for the President, and that makes four. R: HMJr: That's right. R: And they were flown down this morning, I take it. HMJr: R: That's right. Okay (laughs). I - we just landed. HMJr: Oh, you just landed. R: Yeah. HMJr: I see. R: And I hope - I hope he doesn't forget that I'm HMJr: (Laughs) R: HMJr: R: HMJr: in on it. (Laughs) He was met by 80 many people that he's liable to overlook me in the crowd. I'll have to go and stand in the door. Well, when are we going to get together on the prices of corn? (Laughs) I don' t know. Have your boys told you about our talk? Yeah, they've sent a lot of new bright ideas over to you. R: Yes, well, I - I see something from the Treasury Department which I haven't opened yet. HMJr: R: HMJr: Yeah, and they sent it around to these other lawyers that you had in Uh huh. ....in order to save your time. 23 -3R: HMJr: R: HMJr: All right. Well, I'11 - I'11 get a hold of them. I'm going to spend this lunch on - the only reason is to work on this subject. Yeah, well - after lunch give me a ring, will you? Yeah, all right. And be sure and tell the President that he only gets one ear. R: Okay, I'11 tell him. HMJr: All right. HMJr: (Laughs) All right, thanks. I'll hear from you later. R: Yeah. HMJr: Goodbye. R: Thanks, Henry. R: 24 July 27, 1942. 12:34 p.m. HMJr: Miss today or whether he wants to send somebody over. But I'm free at three-fifteen. Zinsser: All right. Now, Mr. Morgenthau, you particularly HMJr: No. wanted him? It was .... General Myers who started agitating about with Mr. White. Z: it, and I think he's the one who's been talking HMJr: He'd be adequate. Z: He would be adequate. (Laughe) HMJr: Yes. Z: See him at three-fifteen. HMJr: Right. Z: HMJr: Z: if Mr. McCloy thought he knew more about it? I'11 leave it to Mr. McCloy, and if I don't hear from you I'11 expect either or both at threefifteen. How's that? That's fine. I'11 let your office know who who's coming. HMJr: That will be wonderful. 2: All right. HMJr: Thank you. Z: Goodbye. cc-Dr. White 25 July 27, 1942. 2:37 p.m. HMJr: Dean Hello. Henry. This is Dean Acheson. Acheson: Hello, HMJr: How are you? You sound a mile away. A: Well, I - I'm right here. HMJr: A: Dean, it's been quite awhile since we met in the office on this Lend-Lease in Reverse, and it seems to me that we ought to decide something pretty soon, We - we have - are carrying out the decision which you reached in your office. HMJr: Yes. A: We ran into one trouble with the Australians HMJr: Yeah. which I think is now straightened out. A: HMJr: Yeah. A: The British have accepted the principles which HMJr: A: were laid down in that last discussion. Yes. And we have - we worked all the language and everything out with them. We are now waiting for the Australians, to get a return cable. HMJr: A: HMJr: A: Yeah. We've had three exchanges back and forth with Australia Yeah. and I expect on Wednesday or Thursday to have their final answer, and that they will go along with us. -2HMJr: Now do you know, in the meantime, what the A: Yes. I was over in McCloy's office on Friday. HMJr: What - what are they doing? 26 Army and Navy are doing? They are actually operating under this arrange- A: ment just as though it had been made. HMJr: Yeah. They are getting both in North Ireland and in A: Australia and in New Zealand. HMJr: Yeah. A: .... the materials which there are on the spot, some which the British have imported, and are just giving receipts for those, and the British are - are writing it down in their book and Lend-Lease is writing it down in theirs. But no - no money is passing and no promise to pay, just the credit. HMJr: How about in England? A: That's the same thing. HMJr: Same thing. A: Yes. HMJr: So it's - I mean the fact that we've been at it A: 80 long, we haven't lost any ground. Oh, no, we - we're actually operating under the thing now. HMJr: Oh, good, good. A: The only difficulty has been the - the Australians. HMJr: Oh. Well, when you do hear, will you let me know? A: Yes, I'll - I'll let you know in any event this The British have always accepted this. week. I'11 give you a report on just where we are. HMJr: Will you do that? A: Yes, Henry. 27 -3HMJr: And on the personal side, sorry we couldn't A: Well, we will - we will do that again. We'11 want HMJr: That's fine. AT ....to get you out on the tennis court and see come out to your farm. whether you're up to your old form. HMJr: A: Well, I'm sure I'm not that (laughs), but at least I enjoy whenever I can get on the court. All right, well, we'll - we'll try to do it, Henry. HMJr: All right. My regards to your wife. A: Thank you very much. HMJr: Goodbye. A: Goodbye. 28 July 27, 1942. 2:56 p.m. Operator: Go ahead. HMJr: Hello. Judge Rosenman: The corn was a very great social and gastro- HMJr: R: HMJr: nomic success. Yeah, I suppose all I could do 18 to be permitted to smell your breath. That's as close (Laughs) Well, the President, of course, butchers his corn by cutting it off the cob. .that's as near as I can get to the high and mighty. R: Yeah, well, I'11 let you - I'11 let you touch me. HMJr: Wonderful. R: (Laughs) Ah HMJr: Did he enjoy it - did the President enjoy it? R: Yeah, he did. I told him that at five o'clock this morning this was on the HMJr: Yes. R: ....on the - vine, I called it. I guess that's wrong HMJr: What did he say? R: ....in Dutchess County. (Laughs) HMJr: (Laughs) Stalk. R: Stalk, that's right. I said vine in Dutchess County HMJr: Yeah. 29 -2picked by five-thirty R: HMJr: Yeah. R: ....and flown here especially. HMJr: Yeah. Was it good? R: Oh, it was very good. HMJr: Good. R: And I'm sorry you only picked four. HMJr: (Laughs) R: (Laughs) I told him - I told him that you said three were for me and one for him. HMJr: R: Good. He said, "Well, Mrs. Nesbitt seems to have divided them more equally." HMJr: I see. R: So I only got two. They were damn good. HMJr: Good. R: Now, Henry, I - I got some ideas from him as to what he wants done, and I think I'm going to phone Bernstein to come over. I guess I better phone Paul, hadn't IT HMJr: Yeah, Paul's on the Hill, but you could R: Well HMJr: I can do it for you. Save you time, if you' 11 tell me what you want. R: Well, I was going to suggest that they come right over. I was going to get Ginsburg over too. HMJr: Do you want them right away? 30 -3- Yeah. Well, let's - let's make it at three-thirty, huh? R: HMJr: Three-thirty. Well, one or the other, you really - I really don't need both. R: HMJr: Well, it's - I - he - as a matter of fact, he's on R: Yeah. HMJr: the Hill, you see? I don't think he can come, but I'11 - I'11 tell him that you're asking for him, how's that? R: Okay. HMJr: What? R: But if he can't come, just send Bernie. That's enough really. HMJr: That's right R: Okay. HMJr: ....and. R: Anything else? HMJr: How did the President feel about it? R: Well, he's got some brand-new ideas, but he - he wants to use this - he wants to enumerate 5-b in the list of - of weapons that he has. HMJr: Good. R: As a matter of fact, I think it was very ingenious. HMJr: Yeah. Tell me R: I think it was damn good, and I - I went HMJr: ....did - did you go the whole hog on both agri- culture and wages? R: For your information, yes, sir. 31 -4HMJr: R: HMJr: Good, good. Yes, sir. Well.... He's got some new ideas of machinery but - but R: HMJr: R: that's really unimportant. The idea is he's really going to work on it. Right. All right, Sam, what else? That's all right now. HMJr: How long - how long you going to be here? R: Well, I think I'11 be here right along now. HMJr: Good. R: HMJr: R: HMJr: Dorothy's ooming down tomorrow, I think, and we'll be here except, I guess, for week-ends. Well, we'll get together soon. All right, Henry. If I asked you for supper tonight, you'd think I was trying to influence you on the Executive Order. R: No, you've got no interest in this Executive Order. (Laughs) But I - but I - any time you can bring any corn back, no offense. HMJr: (Laughs) All right. R: It's very good. HMJr: All right, Sam. R: We'11 get together soon, boy. HMJr: Right. R: HMJr: All right. You'll tell Bernie or.. I'll do it right away. -5then I won't have to call him. R: HMJr: Yeah. R: Three-thirty, huh? HMJr: Yeah. R: All right. HMJr: Yeah. R: Thank you. HMJr: Goodbye. 32 33 July 28, 1942. MEMORANDUM At the meeting at the White House on July 27, 1942, attended by Judge Rosenman, David Ginsburg, General Counsel for OPA, and myself. Judge Rosenman stated that he had discussed all the matters with the President and that the President had decided to out across section 3 of the Emergency Price Control Act and regulate agricultural prices and that he wanted the following action to be taken on the wage matters 1. Designate a Wage Stabilization Moderator who would determine all policy questions with respect to wages. The Moderator would have an Advisory Committee consisting of representatives of the various interested agencies who will be satisfactory to the Moderator. 2. The War Labor Board would continue to handle the administrative matters that it is currently handling and will carry out the policy laid down by the Moderator. 3. There is to be set up a national average cost of living index based on absolute necessities of food, clothing and rent and excluding any luxury and anything on the borderline between luxury and necessity. The average is to be fixed as of August 1, 1942. 4. The Moderator is to take the average of wages paid in an industry on a nation-wide basis as of August 1, 1942. Where an employee is getting the average or in excess of this average wage, he will get no increase of wages for the balance of the war. Any employee receiving less than the average wage can by collective bargaining, etc., receive pay to the average paid in the industry. 5. Wages are then fixed until there is a 5 per cent increase in the cost of living index above referred to. It was pointed out to Judge Rosenman that the national average would be wages paid in the south together with wages paid in the north and that there is a considerable disparity in such wage rates, so that workers in the north would be getting little, if any, wage increases. Judge Rosenman said nevertheless the President wanted the average determined on a national basis rather than on a regional basis. It was also pointed out to Judge Rosenman that in many industries such as perhaps steel, there is no great disparity between what is paid in one business and in another business and consequently it would mean very little, if any, wage increase. 34 -2Judge Rosenman stated that what the President wanted to do was to greatly curtail any wage increases and that the Treasury formula made it possible to carry out the War Labor Board decisions and perhaps be even more liberal with labor. 6. The President is very anxious to adopt the Treasury's suggestion of including salaries and bonuses under the system of control. The Moderator is also to investigate high bonuses paid on war contracts with view to reducing the bonuses. In connection with this program, high salaries are to be studied from the point of view of the tax angle and also from the point of view of preventing further increases in salaries. a Judge Rosenman was uncertain as to whether anything should be done to cut down existing high salaries. The President wanted the Executive Order to recite specifically all his statutory authority including 5(b). It was anticipated that instead of delegating all of the statutory authority to the Moderator for the purpose of carrying out provisions of the Order, the Moderator would be authorized to use directives to those Government agencies already exercising these statutory powers, telling them to take action under such powers to carry out the program of this Order. 7. Although we asked Judge Rosenman about the matter several times, the President apparently said nothing concerning the problem of wage inequalities. We pointed out that wage inequalities might result in migration of labor from one important industry to another. Miscellaneous. Question was raised as to whether we can tell U.S. Steel that it cannot for tax purposes deduct bonuses paid by it to persons obtaining Government contracts for U. S. Steel. Oscar Cox has prepared a memorandum on the President's powers to deal with wage and agricultural problems and Ginsburg is to furnish a copy of it. 8. Judge Rosenman will want a memorandum outlining the defects in the President's wage proposal. However, he apparently does not want that memorandum just at this time. He stated that after an Order had been drafted, all the interested agencies will be called in together for a conference at the White House and at that time will have an opportunity to express their views. Judge Rosenman left open the question as to whether the labor unions would be consulted. 35 -3 Agriculture The President decided that despite the attitude of Judge Byrnes, Senator Barkley, and Leon Henderson, he wanted to cut across section 3 of the Emergency Price Control Act, and control agricultural prices. He had in mind having someone like the Wage Moderator fix the policies on agricultural prices but to have OPA administer the prices. Ginsburg said that although in the wage and labor field it was desirable to have a Moderator fix the policies and the existing agencies do the adminis- trative work, this formula would not be sound in the agricultural field, since the Moderator of Agricultural Prices would simply have to duplicate all the work currently being done by the OPA. The President had indicated that one of the senators had written to him and said that although section 3 fixed parity at 110 per cent, the real purpose was to assure farmers 100 per cent of parity. I pointed out that there was something in the legislative history to support this point of view and that the line we might take in the Order was to recognize that we were cutting across the literal words of the statute for the purpose of carrying out the substance of the Order, namely, assure to farmers 100 per cent of parity even if in certain instances it necessitated the paying of certain subsidies. In connection with subsidies, the OPA said they would have to be paid anyway and that the subsidies would not amount to a great deal if through this approach we were able to lop off the extra 10 per cent and only have to assure farmers 100 per cent of parity. The President had in mind also changing the existing formula for determining parity. He wanted conception of parity revised so as to include not only the prices paid by farmers but also the prices paid by other persons. He wanted in effect to put the farmers on the same level with other persons. It was admitted by all that just what the President had in mind was unclear. Furthermore, Ginsburg said that it was very dangerous and undesirable to attempt to revise the conception of parity, since what was likely to result was a revision of the formula to the advantage of the farmer. Ginsburg is to submit a memorandum to Judge Rosenman on this problem of the parity formula showing why we do not want to redefine parity. Ginsburg also made the point that most of the agricultural products had already gone above 110 per cent of parity or were so far below parity because of the great supply such as in the field of wheat and corn that these items presented no problem. He said that there were not more than 36 - -4- perhaps four items which were important from the point of view of having their prices fixed. These items were butterfat, some vegetables, some fruits, and milk in some areas. Ginsburg felt that fixing the prices on these items was not sufficiently important to justify the President running counter to the OPA statute and Henderson is seeing the President on July 28 to attempt to argue him out of going counter to the agricultural provisions of the OPA Act. Ginsburg said that in the field of poultry and meats, the prices were in excess of 110 per cent of parity. The difficulty that existed was that OPA normally fixed prices at the processor rather than prices on the farm and that as a result of the lend-lease program in which, for example, a huge amount of hogs are being bought for shipment abroad, the prices of hogs on the farm are higher than the price that the processor can charge for pork. Ginsburg is to give Judge Rosenman and me a copy of a memorandum in which he lists the farm items that have not as yet reached 110 per cent of parity. Ginsburg is also to draft a new Order embodying the program discussed at the meeting and is to include in the Order certain of the provisions in the Treasury draft of Order. In this connection, it is to be noted that Ginsburg submitted at the meeting a revised draft of Order in which he had already included some of the provisions of the Treasury Order. Judge Rosenman also indicated that when he discussed the matter with the President, particularly the problem of controlling agricultural prices, he pointed out to the President that instead of fixing prices directly, prices can be controlled through the medium of controlling credit to farmers. Judge Rosenman said the President saw the point immediately and agreed. Bernard Bernstein. 37 July 27, 1942. 3:20 p. m. AID TO BRITAIN Present: Mr. Bell Mr. White General Meyers Mr. Hicks H.M.JR: Now, do you want to buy some planes from England and pay them cash? GENERAL MEYERS: No, sir. H.M.JR: You didn't-sir? mind. GENERAL MEYERS: I wasn't quoted that way, was I, H.M.JR: Well, you said you had to make up your GENERAL MEYERS: That is right. We have to make up our mind. We are taking over, under the recent Arnold-Towers-Portal agreement, certain airplanes that are on British contract. Likewise, we are giving England certain airplanes from America, U.S. contracts, both Air Corps and Lease-Lend. Now, our thought on the matter was that it would be a credit to the Lease-Lend account if those airplanes could be taken over from British contracts. H.M.JR: Talk to me in dollars, can you? GENERAL MEYERS: Roughly, I would say that we are taking over a hundred million dollars worth of airplanes that the British are paying for. H.M.JR: Dollar contracts? 38 -2GENERAL MEYERS: Dollar contracts. H.M.JR: That the British have contracts for here? GENERAL MEYERS: That they have contracts for here, and have substantially already paid for them. In some instances there are still some balances due on those contracts. We are giving the British, under that agreement, from American contracts which the United States Govern- ment paid for, roughly, a hundred and fifty million dollars' worth of airplanes, substantially from LeaseLend appropriations, however. H.M.JR: But giving it? GENERAL MEYERS: But giving it. H.M.JR: A hundred and fifty? GENERAL MEYERS: Yes, sir. H.M.JR: Against a hundred? GENERAL MEYERS: Yes, sir. H.M.JR: Well, what other way-I mean, on the hundred and fifty that we are giving them, would the bulk be Lease-Lend? GENERAL MEYERS: Substantially so, yes. MR. BELL: Would they get the dollars for their hundred million - would the British get the dollars for the hundred million? GENERAL MEYERS: No, no. Our thought was that we would credit the Lease-Lend account with the value of the airplanes that we took over from their contracts. That is the point at issue, of course. MR. WHITE: That is in addition to the seventy million? 39 -3GENERAL MEYERS: Yes, this is entirely apart from that old deal that transpired in December. MR. WHITE: Instead of paying a hundred million, your suggestion is to merely credit them against the Lease-Lend account? GENERAL MEYERS: That is right. MR. BELL: I don't see the advantage in it. MR. WHITE: In one case they will get a hundred million dollars from us and in the other they won't. That is the advantage. GENERAL MEYERS: That is all it is in a nutshell. MR. BELL: Then I don't see the advantage in what he is proposing. MR. WHITE: He is suggesting instead of paying a hundred million dollars, say to them, "We will regard that hundred million dollars' worth of planes which we are taking from you as part of your repayment on Lend- Lease obligations. We will credit you - the stuff we are giving you - against Lend-Lease. MR. BELL: Yes, but I don't see that it makes any difference one way or the other as long as there aren't any dollars passing. GENERAL MEYERS: The other way there would be. The other way we would actually refund, give to the British a hundred million dollars in cash. MR. BELL: That was the reason, to get the refund and get the dollars. Wasn't that the purpose? MR. WHITE: That was an additional amount. At the time of the conference they spoke of the three hundred million, roughly-they didn't know exactly-and then you did give them seventy million. There were a few million more which you were going to give them after you settled what 40 -4the value might be. GENERAL MEYERS: Yes, and then there is an additional twenty-five million or so that they are getting out of the facilities. MR. WHITE: Out of the facilities. Now, here is a hundred million, part of the additional two or three hundred million that we had been talking about, and which we agreed at the time to hold off, and the General is now raising the question: What is the decision? Shall we pay them dollars for this hundred million, or shall we just credit them and they won't get the hundred million? H.M.JR: Well, is this hundred million dollars' worth of planes - has this been under consideration as a part of anything else? GENERAL MEYERS: It is part of an agreement. There was no monetary consideration taken in in the agreement of Arnold, Towers, and Portal, which was approved by the combined Chiefs of Staffs. That is, in other words, it was a distribution of American production of airplanes, and when that consider- ation was given to this distribution, there was no thought - it made no difference whatsoever in regard to who bought the airplanes. It was American production. H.M.JR: Let me put it another way. This hundred and fifty which we are giving to them, is that something new was that also part of this three-way agreement? GENERAL MEYERS: It is part of the three-way agree- ment, sir, but it isn't something new, because if this agreement hadn't taken place we would have given them a considerable portion of those airplanes, anyhow, under the Lease-Lend. MR. WHITE: You see, these are - we are going back, now, to the pre-Lend-Lease contracts. H.M.JR: I think, in fairness to the English, I 41 -5ought to give them a chance to tell their side of the story. MR. WHITE: They have, haven't they, Mr. Secretary? H.M.JR: Not to me. When do you have to make up your mind? GENERAL MEYERS: It is very critical right at the moment. I would like to do it by tomorrow. H.M.JR: Do you want to do it tomorrow? We move fast here if we have to. MR. BELL: Are the British expecting dollars for these? MR. WHITE: The British are uncertain. They asked for it. H.M.JR: I just want to be fair. What is the time factor? GENERAL MEYERS: The time factor? H.M.JR: Delivery of the planes? GENERAL MEYERS: Delivery of the airplanes. For example, a company does not want to turn the British airplanes over to us until the British release them, and in some instances the British haven't made final payment, and the company wants to know where they can get their money from, of course. H.M.JR: How can I identify this to Phillips so he will know? GENERAL MEYERS: I should think if you would identi- fy it by reference to the recent Arnold-Portal-Towers agreement which was confirmed by the combined Chiefs of Staffs-H.M.JR: How recent? GENERAL MEYERS: About three weeks ago. 42 -6H.M.JR: As recent as that? GENERAL MEYERS: Yes, sir. MR. WHITE: Wait a minute. H.M.JR: This doesn't go back to that-MR. WHITE: It doesn't refer back to that other deal at all H.M.JR: This is something new which I never heard of. MR. WHITE: These are part of the planes which the British have bought and paid for, and which they hope we will take them out of. H.M.JR: But this is an other agreement that the Treasury never heard of. GENERAL MEYERS: I am sure this never came up. MR. WHITE: Doesn't that apply to planes prior to January first? GENERAL MEYERS: That was the - no, that was even prior to the Arnold-Portal agreement. We commandeered, or requisitioned these airplanes between December seventh and January first. That was one thing. That was a clean-cut deal in which we made our decision to reimburse them for those airplanes that we took from their contracts, which was their property, in effect. We made that deci- sion. We made them for them. Now, that was done, except for the final adjustment. H.M.JR: I will tell you what I will do. I think the best thing is this. Have you heard of this agree- ment within the last three weeks? MR. WHITE: No. GENERAL MEYERS: I have a copy if you would like to look at it. 43 -7H.M.JR: Could White look at it, and Bell? GENERAL MEYERS: Yes, sir. H.M.JR: And could you come back at ten o'clock tomorrow morning and we will settle the thing then, and we will have the English here. How is that? GENERAL MEYERS: That will be fine. MR. BELL: I don't see that we are involved, Harry, if it isn't a question of taking these planes and giving these British actual dollars. MR. WHITE: You are involved to the extent that if you do take these planes you give them a hundred million dollars instead of giving them a credit. H.M.JR: Needless to say, the Army doesn't want to pay them the hundred million. GENERAL MEYERS: I am sure that is the War Depart- ment's thought on the matter. I am sure it is Mr.Lovett's and Mr. McCloy's. MR. BELL: No doubt about that. H.M.JR: But I think we have got to be fair. GENERAL MEYERS: I think we should, too. H.M.JR: I think you had better step back a minute with Mr. White and unburden your soul on this agreement which we don't know about, this Arnold-Portal-GENERAL MEYERS: Towers. H.M.JR: -Towers agreement. Do you mind? If you have got another five or ten minutes-GENERAL MEYERS: Yes, sir. 44 Mr. Thompson: speak to the Secretary about n Please this in the morning. appr. $ 1 440 Sen. seey and 7/3/ Thom 45 July 27, 1942 3:38 p.m. HMJr: Congressman Hello, hello. Jere Cooper: Hello, Henry. HMJr: Hello, Jere? C: All right. How are you getting along? HMJr: How's the old campaigner? C: All right, fine. I want to congratulate you on that statement you made over in the Senate Committee. HMJr: Well, I'm glad you liked it. I think it's C: Well, I - I thought it was fine. HMJr: Yeah? C: I - in fact, I've been using part of this the only man of the Ways and Means that did. afternoon calling Secretaries congratulating them. I called Cordell Hull and congratulated him on that big speech he made. HMJr: That's good. C: Henry? HMJr: C: Yes,.sir. You told me any time I really needed help to come to you in person. HMJr: That's right. C: All right. I have an awfully good, old friend. HMJr: C: Yeah. .... that I want a little job for. 46 -2HMJr: Right. He's an elderly man, but in splendid health, and he has a Civil Service status as a junior C: clerk. HMJr: C: HMJr: C: Yeah. And I want to get a place for him. Is he over eighty? No, no, he's not that old. HMJr: (Laughs) C: No, he's younger than Bob Doughton. HMJr: He's younger than Bob Doughton. (Laughs) C: Yeah. HMJr: What's his name? C: Mr. A - Albert HMJr: Yeah. R.... C: HMJr: R. C: Dodson - D-o-d-s-o-n. HMJr: Yeah, and where does he live? I know it's Tennessee but what C: No, he's here in Washington. HMJr: He's here in Washington. C: Yeah, his address is 7208 HMJr: 7208 C: HMJr: ..Blair.... How do you spell that? 47 -3C: B-1-a-1-r. HMJr: B-1-a-1-r. C: Road. HMJr: Road, yeah. C: Washington, D. C. HMJr: Now where is he working now, Jere? HMJr: Well, he's not working now. He's not working. C: No, I tell you what the fact is, Henry, he HMJr: Can he spell? C: Oh, my, he's - I want to tell you right now in C: just a word. He - he's one of the most competent, best qualified, and capable men I ever knew. He's a - he was the leading banker in my district for forty years. HMJr: My God. C: That's right - leading banker in my district for forty years and who had a big insurance business. HMJr: Yes. C: Really an outstanding, top-notch man. HMJr: Well, I won't try to kid you because this is your serious day. But you'd like me to take care of him? C: That's right. I want a little - oh, a fourteen, HMJr: Well C: Now the situation is this, Henry, he has one - fifteen, sixteen hundred job for him. has a daughter whose husband is a commander in the Navy 48 -4 HMJr: Yeah. and - the old man's been up here for some time living with them. C: HMJr: Yeah. C: But he's active and vigorous and energetic, HMJr: and he wants a little job himself. Yeah, well, Jere, after what you did for us on the tax bill, this would be the - this is cheap. C: HMJr: Well, fine. And I - and I'd do it, if you hadn't done anything anyway. C: I know that. HMJr: Yeah. C: HMJr: C: HMJr: C: You know I don't call on you unless I really Well, the old friends are the best friends. Well, thank you. I'11 be - I'11 - we'll - I don't know how we'll do it, but by hook or crook, we'll do it. Well, I'm going to tell him that it'11 be done, and he'11 hear from you soon. HMJr: You tell him it will be done. I don't know how C: A1i right, Henry. HMJr: Thank you. C: Thank you 80 much. HMJr: Goodbye. C: Bye-bye. but I'11 do it. 49 July 27, 1942 3:40 p.m. INFLATION Present: Mr. Bell Mr. White Mr. Haas Mr. Friedman H.M.JR: Now, where were we when we got this interruption? MR. BELL: You started out with the statement that you wanted the three economic groups-H.M. JR: I want the three economic groups to go to work on this memorandum which Harry White gave me in regard to rationing of money. (Memorandum referred to entitled "A New Program for Inflation Control and Government Borrowing, dated July 20, 1942.) Now, we started on this thing last fall, and we had this man from New Jersey sitting here - you remember Viner - and this thing has been kind of aggravated in my mind by the challenge which Taft made to me that we would have to go to the banks and sell them about twice as many securities as they have now. That is what he said. As a matter of fact, I asked this man Warren here a month ago to make a study of everything that he could to criticize the Treasury financing, remember? MR. HAAS: Yes, he is working on that. H.M.JR: I asked that. Well, this is what I am doing. I can't over-emphasize the fact that I want this within the Treasury, and I don't want to read about it in the Wall Street Journal. But Harry has 50 2- raised the point - he raised it before, before I was interested. At that time I think Henderson said they couldn't do anything for six months, or something or other. I don't know, but, frankly, I want to look at this thing entirely fresh, you see. I don't know where it will lead us, but I am worried about after the first of January where we are going to go. Now, as I said before, the hard thing to explain is that just increasing the bonds held by the banks that alone doesn't necessarily mean we have inflation, if there are enough other curtailments around, ceilings, and so forth, and so on. But if this war is going to be a long one, and I say we in the Treasury have to figure on a five-year war - that is the only way we can figure the thing - then we have got to do something different than has ever been done before. And quoting Stewart, he told me two months ago, or a month or two ago - he said, "Mr. Morgenthau, you can go for the rest of this calendar year the way you are, but after that you will have to do something else." I don't know whether he told you that or not. MR. BELL: Yes. H.M.JR: Now, maybe this is it; maybe it isn't. I have got a completely open mind. I don't know, but I want you fellows to go full steam ahead. What is England's experience on this question of giving the man the books? He can spend so much on clothing, so much on food. If we did do rationing, what would we do about voluntary bonds, compulsory savings? And then, while this may not fit particularly in this group you might tell Paul this because I would like Paul to hear the whole story - but what I am going to say now comes to Paul in his capacity in taxes rather than as General Counsel. The thing that I can't get through my head is this. I think that if we were successful in getting deduction at the source through, that the man and woman when they do understand it would say, "Well, the 51 3 Treasury put one over on us, the dirty so and so" because they would wake up to the fact that they are paying about a year and a half of taxes in one year. Isn't that right, Friedman? MR. FRIEDMAN: It is about a year and a quarter. H.M.JR: Well, it will look like two years to them. And the thing, again, talking of taxes - the thing that I want to raise - and I raised this with Helvering before and he threw his hands up in holy horror - was instead of doing this tax anticipation business I would like to consider next year - I mean, let's say - well, it is irrespective of this rationing - that we might want to say to the people during 43, "We are going to ask you to pay your '42 taxes each month. See? MR. BELL: Pay your '42 or '43? H.M.JR: '42 taxes in '43, each month, and have that come along. "Now, maybe we can do it by sending you a bill or maybe we can deduct it at the source. You see what I mean? You follow me, Friedman? MR. FRIEDMAN: Yes. H.M.JR: There are two ways to do it and not try over a period of three years to catch up, so that you are trying to do the current thing, because I don't think you can - when I raised this question of going to employees, everybody - I mean, they said, "Well, if you did explain it, if they ever did understand, they would be against it." I mean that was the general idea, and I don't think you should do something like that - I mean that you are afraid to have the man explain it. But I am raising the point of getting a man to pay in '43 his '42 taxes either by sending him a bill, a notice once a month, or possibly deducting it at the source, you see, and not trying to catch up. 52 -4Now, this whole business, this question of volunteer savings, all rests there. We will let that go for the time being, but the rationing thing I want. Now, I have invited Dr. Viner to come back. I don't know anybody whose criticisms I would rather have on this thing, and also Stewart, to be here on this thing because it goes right down to the guts of the thing, Dan, doesn't it? MR. BELL: It sure does. We ought to review anyway what we have been thinking about. H.M.JR: Then I sent word to what is his name - Warren - fully a month ago. I wanted a criticism of what we have been doing. What is it, about a month ago? MR. HAAS: In the neighborhood of that, three weeks ago. H.M.JR: I haven't got it, but I don't want personally I doubt very much if we do anything before election. Now, I did mention it to the President in connection with this message, and the President said, "Well, Henry, if I do this thing, frankly, I don't want to bring in any new idea. I don't want to get, you know, off on something else. If So I did sort of plant the seed. I thought he should be thinking about it. Now, I think as long as Harry has done more on the rationing, as far as I know, than anybody else, I will make him chairman of this committee of the three of you, Blough, Friedman, and he. But I would like the thing to go ahead full steam because - and I again emphasize that for the time being it is strictly Treasury family, with the exception of Viner and Stewart. MR. HAAS: Warren. H.M.JR: And Warren. 53 -5MR. HAAS: He is in. MR. WHITE: Warren? MR. HAAS: Robert Warren. H.M.JR: He is with the Bamberger Institute. Now, do you want to add anything, Dan? MR. BELL: No. You said Harry submitted a memorandum on it. Is that the memorandum you sent me a copy of? MR. WHITE: Well, yes, but there were a lot of memoranda earlier on this particular point, none on this financing, but on the rationing. Is that what-MR. BELL: The Secretary said he had a memorandum from you. MR. WHITE: This is the one. H.M.JR: This is the one. In that Harry talked about - he said if you did the rationing, you wouldn't have to do anything else. MR. WHITE: As far as inflation is concerned, but not so far - there were a lot of other things in the memo, as far as that-- H.M.JR: You said you may not be able to do the rationing, and then you would have to do other things. MR. WHITE: I think we understand each other. It didn't have to do - it had to do only with inflation. There were other things that bore on financing which you are not discussing. H.M.JR: No, you distinctly said, Harry, if you could do the rationing, fine, but then if you couldn't do the rationing you had alternatives. 54 -6MR. WHITE: Possibly you didn't read it carefully. MR. BELL: That is the way I understood it. H.M.JR: That is what you said, Harry. Did you read it? MR. BELL: Yes. H.M.JR: Read it again, Harry. You said, "If you do the rationing, that is O.K.; but if for political or other reasons you can't do the rationing, then here are a lot of other suggestions. MR. WHITE: "Then here are other suggestions" and then it went on. It was indented a little more and there were other things. H.M.JR: Take another look at it. MR. BELL: He is right. - I think he had a program there which scares me a little. MR. WHITE: That is right, but I just wanted to make it clear that this part has to do only with inflation. H.M.JR: Well, the part that I am asking the three of you to do here is to explore this thing, rationing, in connection with inflation. MR. WHITE: That is right. I just wanted to make it clear that there were other things in there that didn't relate to inflation. H.M.JR: Anyway, are we clear on that? As I understand it from Harry, and I don t want you people to think anything at all - I mean I am completely of an open mind - if we did this rationing that would take care of the inflation. MR. WHITE: That was our decision; everybody agreed with that. 54 -6MR. WHITE: Possibly you didn't read it carefully. MR. BELL: That is the way I understood it. H.M.JR: That is what you said, Harry. Did you read it? MR. BELL: Yes. H.M.JR: Read it again, Harry. You said, "If you do the rationing, that is O.K.; but if for political or other reasons you can't do the rationing, then here are a lot of other suggestions. II MR. WHITE: "Then here are other suggestions" and then it went on. It was indented a little more and there were other things. H.M.JR: Take another look at it. MR. BELL: He is right. . I think he had a program there which scares me a little. MR. WHITE: That is right, but I just wanted to make it clear that this part has to do only with inflation. H.M. JR: Well, the part that I am asking the three of you to do here is to explore this thing, rationing, in connection with inflation. MR. WHITE: That is right. I just wanted to make it clear that there were other things in there that didn't relate to inflation. H.M.JR: Anyway, are we clear on that? As I understand it from Harry, and I don t want you people to think anything at all - I mean I am completely of an open mind - if we did this rationing that would take care of the inflation. MR. WHITE: That was our decision; everybody agreed with that. 55 7- MR. HAAS: If it works - I mean, that is the proviso. MR. BELL: Well, it certainly leaves the money some place out there that can't be spent. H.M.JR: Then the question is how are you going to get the money in. MR. BELL: If they put it in the bank, borrow the bank money. MR. WHITE: We don't need to get it so far as inflation, but we might so far as financing is concerned. H.M.JR: Well, I agree that if you could take this money and keep it from being spent and it stays there in the people's pockets, then the question of getting it is that much easier; and of course I also agree that the first thing is to try to keep the people from spending it, and the thing that nobody yet has been willing to face is that somebody has got to go before the country and say we have to reduce our standard of living. We have to reduce it. We can't live as well as we have. Isn't that right? MR. FRIEDMAN: It certainly is, absolutely. H.M.JR: Now, somebody has got to go and say, "You can't have - if you are accustomed to two bathrooms, and twenty electric lights, and two ice boxes," and so forth and so on, "you have got to get along with one ice box and half as many lights, If etcetera, etcetera. After all, it gets down to - and I heard somebody say - well, I was discussing this with somebody and they got out a pencil and paper and figured that we would spend less than we did in '32 on civilian goods. Of course I never said anything. Somebody threw that in my face. MR. HAAS: Pretty close. 56 -8MR. WHITE: We will have to buy as little goods as in the depths of the depression, but they will be higher priced so there will be more money. H.M.JR: But they will have to buy less. Some- body, I don't know-- MR. WHITE: That is the one problem. H.M.JR: Some unkind soul threw that in my face, that we would have to have less civilian goods at the disposal of people than we had in '32. MR. BELL: Less available. MR. HAAS: And a different distribution of goods. H.M.JR: Well now, it gets back to that whole business, and then if we block this thing off, then where do we end up? How much money would there be in the pockets and vaults and safes that I could borrow? Then the question of how we would get it, that is something else again. MR. WHITE: That is a separate question. H.M.JR: That can be put in a separate pocket. MR. BELL: Yes. H.M.JR: Do you agree? MR. HAAS: Yes. MR. WHITE: Yes, sir. MR. FRIEDMAN: Yes, sir. H.M.JR: What I am asking, if you can block off this money so it can't be spent, how I get it in the Treasury is something else again. Is that all right? 57 -9MR. WHITE: Or if you get it in the Treasury either if or whether. H.M.JR: I will get it in the Treasury, but how I get it in the Treasury is something else. MR. FRIEDMAN: The only relation it has is that the more effectively you can get it in the Treasury the easier it will be to enforce the other controls. That is, if it is left lying around and not gotten into the Treasury directly, there will be more of a tendency for people to break the law with respect to the other money. H.M.JR: In other words, you mean if the liquor is in the safe it is not as hard to say, "I won't drink" as if you have a glass in front of you and you say you won't drink it. You don't have much faith in humanity, do you? MR. FRIEDMAN: Exactly. H.M.JR: Harry, have I stated the thing? MR. WHITE: The immediate task before us, I think, is clear. H.M.JR: Now, George? MR. HAAS: Yes, sir. H.M.JR: Now, I can't overemphasize how anxious I am to have something within a couple of days, even if it is just an outline. MR. WHITE: Yes, we will have something. H.M.JR: An outline. After all, we have been at this since last October or November. MR. WHITE: That is the reason we can have an outline. 58 - 10 H.M.JR: Do you want to add anything? MR. BELL: No. I think it is fine we are going over it. H.M.JR: Now, when we get this outlined, and, as I say, we will all take a look at it, and we will have meetings here to decide what we are going to do with it. MR. BELL: I think it is time to review the whole past six months to see where we have gone and where we ought to go from here. H.M.JR: That is why I asked-MR. HAAS: You started this thing a week or two ago when you raised that question on taxing idle balances - I mean, you raised the question again. H.M.JR: It keeps popping up all the time, but I just-- MR. HAAS: I think next fall, beginning then, the real pressure is going to start. It looks like that to me. H.M.JR: Next fall? MR. HAAS: I think so, after the summer lull. H.M.JR: Well, one of the things that bothers me and that I don t know enough about again, is they keep saying, "When the inventories are exhausted, that is the time." MR. HAAS: That is right. H.M.JR: And, of course, this is a good time to start this, now that the President is going to go ahead with some kind of an announcement on prices. Well, that again will temporarily take care of the 59 - 11 thing, and then we will have to come along, and I think after he does that the people will be shouting all the more, "Why doesn't the Treasury do something?" Well, a couple of days, gents, and then you tell Blough and Paul, and please impress on them two things: One, the need of secrecy, and two, the question of speed. MR. FRIEDMAN: I certainly shall. H.M.JR: I don't want - for everybody I don't want to read about it in the Wall Street Journal. am looking at the ceiling. O.K. I 60 THE WHITE HOUSE WASHINGTON July 27, 1942. MEMORANDUM FOR THE SECRETARY OF THE TREASURY: FOR YOUR INFORMATION. F.D.R. 61 RESOLUTION OF THE NATIONAL GRANGE ON INFLATION ADOPTED AT 75th ANNUAL SESSION AT WORCESTER, MASS., November 13, 1941. INFLATION The right to store up the results of skill and labor in the form of property is fundamental to the preservation of the American way of life. One of the greatest dangers this country faces is from inflation, which, unless controlled, may destroy the foundations of our democracy, There are two methods of control. First is the use of economic devices designed to lessen the pressure of surplus income on inadequate supplies. Second is the arbitrary control of prices, labor, rents, commissions, etc. Among the economic devices are: 1. Encouraging savings and building individual reserves, to meet the shock of post-war adjustments. 2. Increase in income taxation, coupled with efficient and economical administration of government, which will serve to retard inflation and prevent the passing of an unnecessary dobt burden to future generations. 3. Encouraging investment (by individuals in preference to banks) in government securities which finance the borrowing from which employment and excess income are derived. 4. kaximum production of all consumer goods, which can be produced without hampering production of nooded defense materials. 5. Restricting credit to productive purposes and sound investments in order to discourage speculation. 6. Voluntary reduction of selling prices, when increased volume results in lower costs and increased profits. This will promote the benefits of R cycle of plenty by reducing living costs, reversing the trond of the evils leading to inflation, and laying a firm foundation for post-war adjustments. If these measures do not serve to prevent prices advancing unreasonably it may be necessary to resort to measures of arbitrary price control. In that event, certain definite principles should be borne in mind: First, some advance in price is a natural accompaniment of the great destruct tion of wealth as a result of war. This advance is not inflation. It is an unavoidable which cost which all must bear. Any adjustments of prices, wages, rents or commissions relieve any group of bearing its share of the cost will result in increasing the burden of others, and are unsound. Second, any effort to increase profits because of the increased demand is inflationary. If arbitrary control is necessary, it should be limited to profiteering. Third, if control is necessary, further than well-defined cases of profiteering, all should be subject to control, so that equity among all groups will be assured. The administration of any price control legislation should be vested in a board with a chairman appointed by the President and any authority so granted should be terminated as of a specified date. 62 2- National Grange Resolution Fourth, Congress should not allow the authority to fix prices to be vested in any agency which is not constantly subject to Congressional Control. Congress should require prompt reports on all actions of any price control body should retain to itself (1) the right to review and revoke by joint resolution any order issued by such agency, and (2) the right to revoke by joint resolution any powers thus granted to such agency. The unlimited right to control prices is tantamount to the right to legislate. and Fifth, Congress should establish standards for the guidance of any price control agency and provide a court of appeals. The purpose should be to attain equitable income and equitable relationships between groups. No group should receive more or less than an equitable and just share of the national income. In the consideration of farm prices, farmers should not ask more nor agree to accept less than actual parity, but it is essential that a just rule be provided for determining parity. Some flexibility in administration will be necessary to assure actual parity Three facts bearing upon agriculture's place in this problem should be kept in mind: FIRST, Not once in twenty years has agriculture's income reached parity. On the contrary, the farmer's proportionate share of the national income has declined alarmingly, and substantial increase in prices are necessary to bring farm purchasing power back to normal. SECOND, with farmers receiving substantially less than half of the consumer's dollar, there is no justification for passing on to the consumer any increase further than the increase received by the farmer, unless justified by some other valid cause. THIRD, Agriculture, with its 6 million individual producing units, is the least likely of all industries to exact monopolistic prices from consumers. If farmers can get equitable prices for their products, they can and will produce in abundance. If they cannot get adequate prices, exhortation to raise food to win the war and to write the peace will not suffice, not because of lack of will serve, but because of financial inability to carry on. The Grange, therefore: 1. Favors application of economic devices as the best means for holding down inflationary tendencies. 2. Opposes arbitrary price fixing unless necessary. 3. If arbitrary price fixing becomes necessary, demands: (a) that all groups be included to assure equity, (b) that the activities be devoted to preventing profiteering, (c) that standards be provided, as far as possible, to assure equity for all, (d) that Congress retain control. The Grange will oppose arbitrary price fixing if these principles are not complied with. 63 July 27, 1942 4:40 p.m. HMJr: Hello. Operator: Sir Frederick Phillips hasn't returned. His assistant, Mr. Bewley, is there. HMJr: Bewley? Operator: Yes. HMJr: Iin.don't understand - all right, I'll put it Operator: You want to talk to him? HMJr: I'11 talk to Bewley. Operator: All right, I'11 get him on. HMJr: Hello. Operator: Mr. Bewley. HMJr: Hello. T. K. Bewley: Hello, Bewley speaking. HMJr:. How are you? B: I'm very well. How are you? HMJr: Pretty well. I've been trying to get hold of Sir Frederick Phillips for over an hour now and. B: Phillips isn't feeling well. I think he's probably in bed. I'm not sure. HMJr: Oh, well, they told me he'd be back in the office in a few minutes when I called up a little after three. B: oh, really? Well, he hasn't come back yet. He wasn't feeling well this morning. -2HMJr: Oh, I'm sorry. B: Could I give him a message or anything? HMJr: Yes - and if he's not going to be able to be B: I will. HMJr: Or let my office know. Well. B: Certainly. HMJr: 64 here tomorrow - I wish you'd let me know. ....Mr. McCloy put up a proposal to me about they're thinking of taking over a hundred million dollars of airplanes that the English have on - on order in this country. Yeah. B: HMJr: At the same time, there's a proposal to let you have a different lot of a hundred and fifty million of airplanes. Under the - they said that the agreement was signed three weeks ago between Portal and Arnold and our air man in the Navy, I can't remember his name. B: HMJr: B: HMJr: B: Yeah. And - I said before I did anything about it, I wanted to hear the English side of the story. Yeah. And that's what I wanted to see Sir Frederick about tomorrow morning at ten-fifteen. All right. I - I should think he'd be likely to be available at ten-fifteen. I'11 find out HMJr: how he is, and what ought to be done. But if he can't come - maybe you could come. B: Yeah. One of us will come at ten-fifteen anyhow. HMJr: And you might post yourself on it. 65 -3B: Oh, I'11 find out what I can. HMJr: It's - it's - you - you got the story. Yes - you're thinking of taking over a hundred million of the airplanes off our contracts and letting us have a different hundred and fifty B: millions worth. HMJr: That's right. B: Yes. HMJr: The question is how they're going to be paid for. B: Yes, yes. HMJr: And the Army has one idea, and I thought that B: Yeah. Right you are. before I heard - decided it, I'd better hear your side of the story. HMJr: Thank you. B: Thank you. HMJr: B: I hope Sir Frederick - is he seriously 111? Oh, I don't think so. He was feeling rather rotten this morning, and he went off. I haven't seen him since. HMJr: Oh. B: But he was only just feeling rather rotten. I HMJr: I see. All right. B: I'11 let him know anyhow. HMJr: Thank you. don't suppose it's anything very serious. 66 MR. PAUL: PLEASE SPEAK TO ME ABOUT THIS SOON. 18 SECRETARY pas wild of a SMOKE RESILT - NAGE EA 12: 8/3/4 TIME, the SMAY TAXPAYERS BE FSI 600 a CURRENT goods BY & - PLAN NHICK would, 274 SEESCY, COMPLETED 12 IMAGATE POTMENTS FOR - YEAR PLAN, NE EXPLAINED, a TAXPAYER TAXES IN THAT SAME YEAR By wasting with MADE TAB RTS IM RECORDANCE WITH the 1942 INCORE, WHICH WOULD KILL - - BARCH as PHRITIZN OFF AND TNX we THAT weeks LITTING THE TAX CLECK AREAR to MT with - LASS as REVENUE TO THE 02 38 yes L 676 ADD TAXES, SENATE BEARDSLEY RUML, CHAIRMAN OF THE FEDERAL RESERVE BANK OF NEW YORK, ENOUNCED THE TREASURY'S "CHECK-OFF" PLAN FOR COLLECTING INCOME TAXES IT THE SOURCE AND PROPOSED A *PAY-AS-YOU-CO" PLAN WHICH WOULD, IN OFFECT, ELIMINATE TAX PAYMENTS ON 1942 INCOME. HE CHARGED THAT THE TREASURY'S PLAN WOULD REQUIRE TAXPAYERS IN THE LOWEST BRACKETS TO PAY TO THE GOVERNMENT 24 PER CENT OF THEIR INCOME IN 1943. THE WITHHOLDING TAX INCORPORATED IN THE HOUSEAPPROVED BILL WOULD RESULT IN "DOUBLE TAXATION," NE TOLD THE OMMITTEE, BECAUSE WAGE EARNERS WOULD HAVE TO PAY TAXES ON 1942 AND 194 INCOME AT THE SAME TIME. RUML PROPOSED THAT TAXPAYERS BE PUT ON A CURRENT BASIS BY A PAY-AS-YOU-GO PLAN® WHICH WOULD, IN EFFECT, COMPLETELY ELIMINATE INCOME TAX PAYMENTS FOR ONE YEAR. UNDER THE PLAN, HE EXPLAINED, A TAXPAYER WOULD START PAYING TAXES 1943 INCOME IN THAT SAME YEAR INSTEAD or WAITING UNTIL MARCH, 944, TO FILE HIS RETURN IN ACCORDANCE WITH PRESENT LAW. THE TAX ON 1942 INCOME, WHICH WOULD NORMALLY FALL DUE ON MARCH 5, 1943, WOULD BE *WRITTEN OFF* BY THE TREASURY, NE SAID. THAT WOULD RESULT IN "SETTING THE TAX CLOCK AHEAD," HE ADDED, AND TOULD MEAN NO LOSS OF REVENUE TO THE GOVERNMENT. 7/27--R1213P 68 MEMORANDUM To: Secretary Morgenthau From: Mr. Paul July 27, , 1942 With reference to the Ruml testimony and the particular report which you sent to me, I am attaching it to a copy of the latest revision of the "Pay-As-You-Go Plan" as presented today by Ruml to the Senate Finance Committee. From several questions asked me informally by the Committee, I take it that Ruml aroused some interest 69 Testimony BEARDSLEY RUML before FINANCE COMMITTEE of the SENATE on Pay-As-You-Go Income Tax Plan July, 1942 Statement of Beardsley Ruml Mr. Chairman, my name is Beardsley Ruml. I am the Treasurer of R. H. Macy & Co., and also Chairman of the Federal Reserve Bank of New York and Advisor of the National Resources Planning Board. The Committee is familiar with the weakness in the American scheme of things which is caused by the universal indebtedness of income taxpay- ers to the federal government. It is my purpose to emphasize the seriousness of this weakness, to point out briefly some of the consequences, and to make a suggestion as to what may be done about it at the present time. I should like, if I may have permission, to submit for incorporation in the record a printed statement which analyzes the problem and the suggested solution in some detail. Every income taxpayer on the first of January of this year was in debt to the federal government for his income tax on his income for 1941. By the time he paid the first installment on March 15, 1942, he was already in debt for the tax on his income from the first of January, 1942 to the middle of March-so he is always in debt for the tax on about a year's income. This situation is not a new one. The year before he was similarly in debt; and so also in the year before that, back to the first year after he had a taxable income. Generally speaking, this debt, the income tax on last year's income, was paid out of the next year's income, and by and large it didn't cause any difficulty-rates were low and most citizens weren't liable for any income tax anyway. But the days of low rates and general immunity from income tax have gone, and what was once a minor defect has become a serious and a growing weakness; and an obstacle to urgently required tax measures. In general, the American taxpayer is counting on paying his 1941 tax out of 1942 income. Some few, to be sure, being accounting-minded, have accrued their income taxes, but these are few indeed. For most the desirability of accruing personal income taxes only became evident after rates became so high that it was impossible to double up-to accrue the tax on this year's in- come and to pay the tax on last year's income during the same year. Nothing is to be gained by arguing that people ought to save this year's tax out of this year's income. The fact exists that they did not do it, and now they cannot do it. We need rather to adopt a plan which automatically shifts taxpayers to a current basis. It would have done little good to argue [2] with employers or employees that, in order to save power, everyone ought to go to work at eight o'clock in the morning instead of at nine; the same result in power saving was achieved much more simply by moving all the clocks forward an hour, so that we actually go to work at eight o'clock, although we nominally still go at nine. And so as a matter of practical fact, most in- come taxpayers are counting on paying their year's debt to the federal government out of in- come they haven't yet received and which will itself be subject to income tax. Some day, for each and every taxpayer, that counted-on-income to pay last year's income tax will not materialize. Already today, many an income taxpayer is in difficulties because of this income tax debt. Who are these taxpayers? First of all, there are the men in the armed forces and those who have gone into government service at lower income. Next, there are those who had been successfully employed in non-war industries, who have seen their income shrink because of priorities and allocations, and who have not completed their adjustment to war occupation. There are the thousands and thousands who every year suffer reduced income because of accident, sickness, old age. For all of these, their income tax debt, especially now because of the high rates, creates an intolerable situation. [8] And for the tens of thousands who are actually in distress, there are millions who are in danger, in danger of loss of income through being drawn into military or government service, through war- time industrial displacement, through accident, through sickness, through retirement because they can no longer keep up the pace. To be sure, the lightning will not strike all in 1942; but it is sure to strike some of us-which, we do not know, but we are all in danger. This danger will be increasingly felt by the tax debt free, there would be no problem of pay- ing two years' taxes in one, and a withholding tax could be imposed forthwith. I believe I have said enough to demonstrate that the tax debt of income taxpayers is a dangerous weakness, that it causes widespread hardship and apprehension, that the danger is an increasing one, and that it obstructs desirable tax measures. I think all will agree that it would be highly desirable to get rid of this tax debt and that it is well worthwhile to attempt to solve this people as income tax rates go higher and as a major problem even at the risk of a few minor friend here and an acquaintance there is en- imperfections. gulfed by his income tax debt. For the welfare and morale of the country it is a situation which is not good. We should get our income taxes on a current basis and at once. We should get out The suggestion that I am offering is not being presented as the only or even as the best solu- of debt to the federal government. any case, it may serve to emphasize the problem There is a compelling reason for doing something about it now. Sooner or later we shall be demobilizing our war industries, and war time incomes will cease, There will be a period of readjustment. Suppose we are still a year behind, a year in debt on income tax. Can we imagine income taxes being paid by the unemployed out of their unemployment compensation Finally, this income tax debt makes difficult or impossible the full use of the withholding tax. If we did not have this debt, if we were currently [4] tion. It is the best that I and those with whom I have consulted have been able to devise. In and to be a starting point for others who will have alternative and better suggestions. The Pay-As-You-Go Income Tax Plan is intended to apply to individual income, not to corporations or to estates. In order to get individuals free of tax debt to the federal government, and to keep them from that time on a current basis, we must solve three problems. 1. How can we get on to a current basis without paying two years' taxes in one year [5] 2. If we are to file a tax return near the beginning of a year, how can we estimate in advance the amount of the new year's income 3. What tax rate should be applicable to the new year's income1 Taking up these problems in order, we make these suggestions: 1. How can we get on to a current basis with- out paying two years' taxes in one year! We are now paying a tax in 1942. It is considered a tax on 1941 income. Suppose we move the taxclock ahead, suppose we re-define our tax and say that the tax we are paying in 1942 represents a tax on our income for 1942. In 1943 we continue to pay a tax which becomes a tax paid with respect to income which will be received in 1943. Although the tax on 1941 income drops out of existence, the Treasury continues to receive its revenue and the taxpayer continues to pay his taxes. The great difference is that the taxpayer is now on a current basis. He continues to pay his taxes every year on income received in that year. But when he dies or ceases to receive income, he does not owe a tax as he does under the present income tax paying generation, and occurs beneficially for each taxpayer at the time when his income fails. As for the Treasury, the Treasury has never considered taxes receivable as an asset, and accordingly they can be written off the balance sheet of the government without the change of a single penny. As to the second problem-if we are to pay in any given year a tax based on the income of that year, how are we to know the amount of the income? We make this suggestion. In March of each year the taxpayer should declare a tenta- tive tax for that year-but because he does not yet know the exact amount of income for the current year, the tentative tax should be measured by the income of the preceding year; that is, a return filed on March 15, 1942 would be a return of tentative tax for 1942, based on 1941 income, rather than a tax for 1941. In the subsequent year's return, end-of-the-year adjustments would be made to correct the tentative tax to the actual tax liability. I will try to explain a little later the way in which these adjustments could be made. The problem of how the taxpayer will know what tax rate is applicable can be solved by a present system. Reduction of tax payment by the taxpayer as a result of setting the tax-clock ahead occurs only at some future date when and as the taxpayer's income ceases or declines. The reduc- technical change. Under the present system when the Congress changes the rates of tax this year, the new rates will be made applicable to 1942 in- tion is therefore spread over the lifetime of the come-but the tax on 1942 income will not be [6] [7] paid until 1943. We suggest that under the Pay. As-You-Go plan the new rates, for taxpayers subject to the plan, be made first applicable to income received in 1943. In so far as the government is concerned, this change will make no difference in tax collections in 1943; under the present system, as well as under the proposal, the new rates first affect payments of income tax made in 1943. The way in which the plan would work out in owes him a refund or a credit of the tax on the $500 differential. The tax on that amount could be credited against the taxpayer's tentative tax liability for 1943. Continuing into 1943-the taxpayer would file a return in March 1943 showing tentative tax for 1943 based on his actual 1942 income. He would pay in 1943 this tentative tax plus any deficiency that was owed for 1942 or minus any credit for an overpayment of his 1942 tax. In the same way, in each succeeding year practice is perhaps made clearer by a simple example. Suppose a taxpayer received $5,000 tax- the taxpayer would pay a tentative tax for the current year plus or minus any differential be- able income in 1941. His return filed on March tween the tentative tax and the actual tax liability for the preceding year. 15, 1942 showed a tax measured by the 1941 in- come. Under the plan this tax instead of being his 1941 tax would be his tentative tax on 1942 in- come. This tentative tax is paid in 1942. If at the end of 1942 he finds that his taxable income For taxpayers with stable income the plan means that they owe no taxes to the government at the end of the year. For taxpayers with increasing or decreasing income, there is ordi- in that year was actually $5,000, the same amount narily an adjustment to be made at the end of as in 1941, his full tax has been paid and he owes the government nothing. If at the end of 1942 he the year. However, there are some cases where it would seem to be unnecessary for the taxpayer whose income has decreased to pay his tentative tax at the high level of the preceding year and then claim a credit for the overpayment. Take, finds instead that his 1942 income was actually $5,500, he owes the government a tax on the addi- tional $500, but this is certainly better than his owing the government, as under the present system, a tax on the full $5,500. This deficiency tax on the additional $500 would be payable in March of 1943 at the time his tentative tax for 1943 is returned. If at the end of 1942 he finds that his for example, the men who have gone into the armed services. Suppose a particular individual, who received $7,500 in 1941, and who is now holding a commission in the army and receiving $2,000. 1942 income was actually $4,500, the government Under the plan as stated he would pay tentative tax for 1942 on the basis of the $7,500; but since [8] (9) his actual income in 1942 is only $2,000, he would suggest that in cases such as this, where income sible for a taxpayer to pay his tax on a high income in the year it is received, and the higher income is never reflected in tax receipts until the has decreased and will clearly remain at the following year. Certain taxpayers with fluctu- lower level, the taxpayer should, upon proper certification, be required to pay tax only on the lower ating income might be glad of the opportunity to pay their taxes on the high income currently and certainly the option to do so could never operate be entitled to a credit on the overpayment. We income of the current year. In such cases provision could now be made for waiving collection of future installments payable in 1942 to the extent they exceeded the amended 1942 tax, or for crediting the taxpayer with amounts already paid in excess of that figure. We have called this the relief provision, and have suggested that it be made applicable only to income from personal services. In these cases the lower current income could be certified and tax paid only on that amount. This would give immediate relief to the taxpayer whose income has decreased, and eliminate the necessity for unnecessary payment and crediting. The relief provision could probably not be extended beyond income from personal services as the administrative difficulties might to the disadvantage of the revenues. I do not want to take the Committee's time to go into any detailed consideration of the general effects of the plan on taxpayers and on the government-these are outlined in the printed statement of the plan. The advantages of the plan to taxpayers are self-evident. All taxpayers would be largely freed of tax debt immediately since the larger part of their tax liabilities would be paid in the years in which the income was received. When a taxpayer died, or ceased to receive income, or came to a period when his income had markedly decreased, there would not be the additional burden of a tax debt based on the full earnings of a previous year. outweigh the advantages. We do not believe that the adoption of the plan When income has increased in the current year over the level of the preceding year, we suggest that the taxpayer should be given the right to, and be encouraged to, make a voluntary declaration of the increase and pay tentative tax at the higher current level. At the present time it is impos[10] would prejudice the revenues. Every taxpayer will continue to pay income tax every year-the only difference is that under the plan he would be paying a tax on this year's income rather than on last year's income. The skipping of a year's tax actually occurs only when the taxpayer dies [11] or he ceases to receive income. This resulting loss of revenue is spread over the years as the current generation of taxpayers cease to be tax. payers. This loss of revenue, spread perhaps over a period of fifty years, would be partially offset by certain increases in tax collections under the plan; and in any case could be made up by slightly higher rates over this long period of time. Balancing any possible net loss in revenue to the government are certain important advantages. It is as essential for the government to ers out of tax debt and on to a current taxpaying basis, does, however, also solve the great difficulty encountered under the present system in the imposition of a withholding tax. Under the present system it is extremely difficult to institute a withholding tax without some amount of double taxation during the transition period. The difficulty lies in the fact that under the present system taxpayers will be paying in 1943 a full year's tax on 1942 income. If withhold- collect taxes currently as it is for the taxpayer ing is instituted in 1943 against 1943 income (and therefore credited against 1943 tax which is not to pay them currently. The problem of delin- payable until 1944), the taxpayer will have to quencies in tax collections, although it has not been serious in past years of higher exemptions and lower rates, is certain to become serious in pay in 1943 not only the full year's tax on 1942 the future if taxes are not paid on a current basis. The entire problem of tax collection in general becomes more difficult as we widen the income tax base. The collection problem has brought to the forefront the desire for some type of withholding tax. Yet a withholding tax im- income, but also the amounts withheld out of 1943 income. Even under the provision in the Bill as it was passed by the House under which the withholding rate in 1943 would be 5 per cent instead of 10 per cent, there would still be a 5 per cent additional tax during both of the transition years 1943 and 1944. With the rate schedule of the House Bill this will mean that the tax- plies current tax collections-it does not fit well into our present tax system. In one sense, as a withholding tax becomes more desirable, our payer will be paying in 1943 a rate of 24 per cent on the lowest bracket of taxable income. present tax collecting system becomes more cum- in 1943 would be a current tax on 1943 income; therefore, amounts withheld against 1943 income could be directly credited against the installments of tentative tax on 1943 income. Further, since bersome. The Pay-As-You-Go plan, although it is primarily designed as a method of getting taxpay[12]] Under the Pay-As-You-Go plan the tax paid [13] the amounts withheld in 1943 could be directly credited against the installments of tentative tax, the withholding rate could be set at the rate equivalent to the sum of the normal tax rate plus the lowest bracket surtax rate-19 per cent, under the rates of the Bill as it was passed by the House. Under the Treasury's proposal it would be impossible to set the withholding rate so high since withholding superimposed on the present system necessarily involves to a considerable extent an additional tax burden during the transition period. dividuals could not have built up their 1941 incomes with prevision that this plan would be suggested or adopted and therefore no deliber- ate manipulation of income for this purpose is involved. In so far as there is inequity in the plan on this account, it resides in being too beneficial to some few taxpayers; but since the plan is beneficial to all and harmful to none, inequity of this kind, though regrettable, is an imperfection of a minor order as compared with the great good that will be achieved. We believe that the problem of tax debt must In our discussions during recent months, we have sincerely looked for objections and criticisms, and the plan as it now stands has profited greatly from these conversations, One criticism that the plan does not meet should be mentioned and answered. It has been pointed out that under the PayAs-You-Go plan there will be a certain number of individuals who will benefit unduly because of the fact that for them 1941 happened to be a year of unusually large income, larger than that be solved in some manner. As I have pointed out, the problem is an intensely personal one affecting every taxpayer. The suggested solution offered in the Pay-As-You-Go plan gives relief to the taxpayer and yet does not embarrass the revenues. Whether the solution of the problem of income tax debt takes the form suggested in the Pay-As-You-Go plan or some other form is not important; what is important is that the problem should be solved. of the years that preceded or that followed. Con- sequently, in selecting 1941 as the year to be omitted, they receive unintended benefits. We concede the fact. In answer, we point out that no tax program will cut with the precision of a surgical knife. Furthermore, these few in[14] [15] 70 JUL 27 1942 MEMORANDUM FOR THE PRESIDENT: In accordance with your request of July 15, I take pleasure in handing you herewith a draft of a letter for your signature to Mr. H. W. Koeneke, President of the American Bankers Association, con- gratulating that Association on the occasion of its sixty-seventh annual convention. (Signed) H. Morgenthau, Jr. Photostatic file to NMC Orig. File to Thompson Delivered agent 7/27/16 by 4:45 Secut Service 71 My dear Mr. Koeneke: Please extend my hearty congratulations to the members of the American Bankers Association on this their sixtyseventh annual convention. It is appropriate that the manner of your meeting in this year of historic decision should reflect the determination of American bankers to leave nothing undone that can in any way contribute to the object we all have in view--the defeat of our enemies. By holding this "convention in print" instead of assembling together as you have done for more than half a century, you are helping to conserve vital transportation and other facilities at a time when they are taxed to the utmost by the demands of war. The bankers of America have a great obligation and a great opportunity to serve our beloved Country in this hour of peril and they have answered the call to service joyfully and with stout hearts. For over a year they have played a distinguished role as volunteers in the promotion and sale of War Savings Bonds. They have met unprecedented demands from industry for the expansion and conversion necessary to win the battle of production. They have been in the fore- front of the fight against inflation not only through the sale of savings bonds to the people but by putting Into effect restrictions on consumer credit and combatting unnecessary expenditures of all kinds. They have been indispen- sable in the freezing of foreign funds to prevent their use directly or indirectly by the enemy. I mention all this in the past tense not because the job is done but because even now It represents a record of accomplishment of which you all may be justly proud. But no one knows better than American bankers that we have only just begun to fight. American fighting forces are moving into battle on lines that encircle the globe. If we on the home front are to be worthy of them, we must carry on the battle of production, wage war on inflation, combat complacency and fear with the same spirit of courage 72 -2- and sacrifice with which they meet the enemy on land and sea and in the air. We like they can have no other thought than to win the war. All considerations of private interest or personal comfort must give way to a single-minded devotion to that aim. As community leaders, bankers have a unique opportunity to promote that unity and teanwork which is so necessary to success. Involved in this conflict are values too precious to be expressed in economic or financial terms. They include all those intangibles which make the name America a synonym for freedom throughout the world. Faith in freedom, in the honor and integrity of the common man, is what sustains us as a Nation. United in this faith we are invincible. With best wishes, and again congratulations, Sincerely yours, Mr. H. W. Koeneke, President, The American Bankers Association, Ponca City, Oklahoma. PHO/mff 73 July 18, 1942. Dear Mr. Koenekes Secretary Morgenthau has asked me to thank you for your letter of July 10th and for the compliment which you have paid him in asking him to address a message to the bankers of the country through the medium of the magazine "Banking". It will be a pleasure for the Secretary to address the members of the ABA through this "Convention in Print". I wonder if you will let me know the approximate length of the message you wish and also the latest date on which you can receive it for publi- cation in the September issue. Mr. Morgenthau has received word from the White House that the President will be very glad to send the letter which you requested. You will receive this in plenty of time for publication in the September issue. Sincerely, Fordinand Kuhn, Jr., Assistant to the Secretary. Mr. H. E. Koeneke, President, The American Bankers Association, Ponca City, Oklahoma. FK1eg TO: Mr. Kuhu 74 I believe he should make a good statement V the problem just the same as if he were making a speech DWB 1-18 office of the Under Secretary TO: mr. D. w. Bell 75 hie you anim the Securitary should send a really good statement to the a.B.a. - something more Than juic a bond plug on a thank you note ? I'de he glad to have you ideas on this. F.K. . MR. KUHN 13 76 THE AMERICAN BANKERS ASSOCIATION - OFFICE OF THE PRESIDENT THE SECURITY BANK OF PONCA CITY PONCA CITY. OKLAHOMA July 10, 1942 W. KOENEKE PRESIDENT The Honorable Henry Morgenthau Jr. The Secretary of the Treasury Washington, D. C. My dear Mr. Secretary: We have often had reason to feel appreciative of your understanding attitude toward banks and the job they are trying to do for the winning of the war. If it were possible to hold our convention this year in the usual way, I should regard it as a high honor to have you come and speak to us on the financing problems of the Treasury. Because of the transportation situation and the need for conserving facilities in every way, we are substituting this year a "convention in print" through our magazine BANKING. It gives me great pleasure, therefore, to invite you to address a letter or message of some kind to the bankers of the country, calling attention to the ways in which they can help the national effort. A word also about the size of the job still to be done might be appropriate. The bankers of the country will appreciate hearing from you, and I shall be deeply grateful. Sincerely yours, President. THE WHITE HOUSE WASHINGTON July 15, 1942 MEMORANDUM FOR THE SECRETARY OF THE TREASURY: With the return of the accompanying letter from H. W. Koeneke, President, The American Benkers Association, will you be good enough to write for the President's signature an appropriate letter in response to Mr. Koeneke's request. William X.Noued WILLIAM D. HASSETT JUL 16mm 78 THE AMERICAN BANKERS ASSOCIATION OFFICE OF THE PRESIDENT THE SECURITY BANK OF PONCA CITY PONCA CITY. OKLAHOMA July 10, 1942 H W KOENEKE PRESIDENT Mr. Franklin D. Roosevelt The President Washington, D. C. My dear Mr. President: We are holding our annual convention in an unusual way this year. It is the first time since the organization was founded sixty-seven years ago that we have missed meeting together. For several months we have been in conference with Mr. Joseph B. Eastman of the Office of Defense Transportation. In line with his suggestions, the American Bankers Association can- celled its annual meeting, which was to be held in Detroit, and we propose to do the next best thing under the circumstances. Our monthly magazine BANKING goes to all members of the Association, and we want to present in the September issue of this publication some kind of substitute for the discussions that usually take place at our conventions. We desire very earnestly to include a message from our Commander in Chief, I have the honor, on behalf of our member banks, to invite you to be present at this wartime "conference in print." Knowing that you have many things to do, I suggest a message or letter to the banks of the country, perhaps calling attention to the necessity of every individual and every organization putting war needs first and giving a secondary place to everything else, including the time-honored institution of oonventioning. I feel that I can assure you, Mr. President, that your words will be read with appreciation by the bankers of the country who are giving their fullest effort to the successful proseqution of the war. Sincerely yours, Howkaway President. HWK:mfb 79 July 27,1942 My dear Mr. Postmaster General In order to finance the Ear expenditures, it is necessary to borrow enormous sums of money, and in such connection it is desirable to borrow directly from the people of the United States so far as possible, rather than from the banking institutions of the country, which has been the usual practice. With this objective in mind, a War Savings Organisation was specifically charged with promoting the sale of War Savings Bonds and Stamps. The organization is a part of the Treasury Service and comprises the War Savings Staff, at the Treasury in Washington, and State organizations in the field, As a result of the promotional efforts it was found necessary to complement the Postal Service and Federal Reserve Banks as agen- cies for the sale of War Savings Bonds of Series E. About 25,000 private concerns have qualified as official issuing agents, includ- ing many commercial organizations, offering plans which permit their employees systematically to buy Savings Bonds through deductions from pay. These agents are subject to the direction of the Treasury, through the Federal Reserve Banks as fiscal agents of the United States, for the issuance of the bonds. At the outset of the program the Treasury realised that these agents would be put to considerable expense in acting as issuing agents and it has been gratified by their generous and patriotic response in absorbing these costs. Many of the agents spent and are spending relatively large sums of their own funds not only to perform the duties of an issuing agent but for advertising the program. However, there has always been an undercurrent of discontent among the agents, sometimes expressed openly, because of their being required to assume postage and registration costs for mailings required in connection with their bond activities. Generally, they cannot understand why they should be required to pay a Governmental establishment for mailings effected for the Government. This was a particularly troublesome matter for the Treasury. Accordingly, when the pay roll savings plan was sponsored, requiring greatly increased mailings of bonds, this Department believed it could no longer request the agents to continue to absorb the costs and agreed to reimburse issuing agents for postage and registry fees involved where personal delivery is impractical. Subsequently, the 80 -2- agents were given reimbursement for postage and fees on returns of stubs and bonds to Federal Reserve Banks on shipments made in accordance with your instructions. These reinbursement items have become material charges against the Treasury appropriation. There has been much criticism, too, of the use of the registered sails in the delivery of the bonds, both from the agents because of the work involved and from the public because of the cost. The postal charge for the delivery of a $25 bond, which is the unit for the greater part of the mailings, is 18 cents, which charge is hard to explain to a person receiving his bond from the Government. The same situation is true regarding mailings by Federal Reserve Banks. Many requests have been received for simplification and saving by use of ordinary mail. I should dislike to effect the change and believe that general satisfaction might be obtained both from the Treasury appropriation and issuing agent and public viewpoints if the franking privilege and free registration were permitted for the mailing of bonds. of course, a statement of the mailings would be rendered your Department for credit purposes. It is believed that a real saving will accrue to agents by eliminating the function of affixing necessary postage or metering mail. This Department, of course, would be glad to consider any simplified plan for mailing and delivery of savings bonds affording the protection of establishing delivery of the bonds to the postal service and receipt by the addressee. Aside from the War Savings program, but as a part of the Treasury's effort to borrow money from non-inflationary sources and at the same time to take advantage of and coordinate the generously offered services of the commercial banking institutions and the investment bankers of the country, I have established Victory Fund Committees under the Presidents of the Federal Reserve Banks. The organisation and its purposes are briefly set forth in my statement of May 14, a copy of which I am enclosing. There is established in each Federal Reserve District, headed by the President of the Federal Reserve Bank, a Victory Fund Committee. Under this Committee, other committees are being formed to cover each Federal Reserve District. The service for the most part is voluntary but a paid organization in each district has been authorized to perform essential organization work. Under the Federal Reserve Banks, in addition to the restricted paid personnel, out-of-pocket expenses, including official postage required for dispatching publicity matter and for rendering reports and generally for establishing and maintaining contacts, are authorized and reimbursed by the Treasury. Accounting for postage is troublesome and vexatious, and again it is difficult to explain to the Victory Fund Committees that, although they constitute official agencies of the Treasury, they may not exercise the franking privilege in the conduct of their promotional efforts for the Treasury for the sale of Government securities. In this connection, 1 am enclosing a copy of a letter from Mr. L. R. Rounds, First Vice President of the Federal Reserve Bank of New York which, in measure, presents the situation. might add that other Federal Reserve Banks have made personal representations to the same effect. I 81 -3- At this point I wish to emphasize that the organization of Fund Committees to promote the direct sale to investors of Government Victory obligations will continue during the War emergency. The ar Savings program and the Victory Fund program are complementary and taken as a whole, in measure, serve the same end as did the Liberty Loan Committee Organization during the last War. It is of the utmost importance to the welfare of the country that promotional efforts of the Victory Fund Committees be facilitated in every possible In such connection, I-hope you will find it possible to grant way. the franking privilege to the Federal Reserve Banks and to the Victory Fund Committees for the dissemination of official publicity matter and generally for the conduct of their efforts to promote the sale of Government securities. The foregoing matters are presented for your consideration and I hope you will find it possible to rule that during the emergency these privileges may be extended in such connection. An early reply would be appreciated. Very truly yours, Secretary of the Treasury The Honorable, The Postmaster General, Washington, D. C. Enclosures WSB:M 7/13/42 Copy for Secretary's files 82 TREASURY DEPARTMENT Washington Press Service FOR RELEASE, MORNING NEWSPAPERS, No. 31-59 Thursday, May 14, 1942. 5/13/42 Secretary Morgenthau today announced plans for the organiza- tion throughout the country of Victory Fund Committees to be set up in each Federal Reserve district and to be made up of bankers and members of the securities industry to aid the Treasury's financing program. This organization will work chiefly with the larger investors and will in no way duplicate the work of the War Savings Staff. Because the nation's war needs have increased tremendously the money-raising responsibilities of the Treasury, the Secretary of the Treasury has accepted the offer of the banking and securities industry to co-ordinate their efforts in helping to distribute Government securities. The organization announced today, in which committees headed by presidents of the Federal Reserve Banks will be set up in each Federal Reserve district, developed through assistance given the Treasury by the banking and securities industries. The collaboration of these organizations will be formalized with the establishment of the new Victory Fund Committees, tied together nationally by a committee of Federal Reserve bank presidents, of which the Secretary of the Treasury will be chairman. The Chairman of the Board of Governors of the Federal Reserve System will provide the liaison between the Reserve banks and the Treasury. In some districts executive committees may be set up for operating purposes, and district committees, with approval of the Secretary of the Treasury, may set up regional subcommittees. -000- 83 FEDERAL RESERVE BANK of New York June 5, 1942. Honorable D. W. Bell Under Secretary of the Treasury Treasury Department Washington, D. C. Dear Mr. Bell: Te have recently been giving particular thought to the matter of controlling expenses which will arise incident to the operations of the Victory Fund Committee. One point to which we have been giving thought in this connection is the desirability of using franked envelopes for mailing purposes. AS you know, committees of this kind are likely to do a very large amount of mailing and a good deal of this work may be decentralized with local committees. This imposes considerable difficulty in the control of the use of postage. We believe this burden would be considerably reduced if arrangements could be made so that these committees could use the franked penalty envelopes for this pur- pose. You will doubtless recall during the First World War the Liberty Loan Committees and the Federal Reserve Banks as wall were permitted to use the Treasury Department frank for all mailing connected with the fiscal agency work, and this continued to the end of 1920 when use of the franking privilege was discontinued. life are not familiar with the reasons which may have led to this discontinuance, but since they were not discontinued until long after the end of the war, it occurs to us that the conditions which now exist may again justify the use of this frank in connection with the war effort. There may be reasons why it would not seem advisable to extend this privilege to the Federal Reserve Banks for use in all fiscal agency work, and if so we would not be inclined to press a request for that privilege. We do think, however, that there are much greater reasons arguing for the franking privilege for use in connection with the general publicity effort, advertising, etc. as it will be carried on by the Victory Fund Committees. Also the problem of controlling the use of postage by these committees is much greater than it is in connection with the control of postage actually used by the Reserve Banks. May we ask that you give consideration to the granting of the franking privilege for use either in all matters having to do with fiscal agency operations, or at least for the use of the Victory Fund Committee in its advertising and proactional program. Very truly yours, (Signed) L. R. Rounds First Vice President 84 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO FROM JUL 27 1942 Secretary Morgenthau Mr. Haas the Subject: Operation of payroll savings plan in companies where deductions have reached 10 percent of payroll. In accordance with your request to Mr. Graves, the State Administrators of the War Savings Staff are reporting to us each week the names of organizations which have reached the goal of 10 percent of payroll deducted under the payroll savings plan. These reports cover plants, units, branches, or subdivisions of companies as each of these reaches the goal of 10 percent of payroll deducted for the purchase of war savings bonds. As of July 25, 1942, 7,343 companies, firms, plants, branches, units or subdivisions were reported to have reached the goal of 10 percent of payroll, These organizations employed 488,000 persons according to the reports or approximately 2.2 per- cent of the 22 million persons employed in companies that have installed the payroll savings plan. Details on the amount deducted in the organizations with more than 1,000 employees which were included in the reports are shown in the table attached. Attachment 85 Firms with 1,000 or More Employees Reported to be deducting 10 Percent or More of Aggregate Payroll Under Payroll Savings Plans (As Reported by the War Savings Staff's State Administrators July 22, 1942) Westinghouse Electric and Mfg. Co., Ohio Dry Dock Association, Pa Owl Drug Co., Calif Heier and Frank Co. Inc., Ore Continental Roll and Steel Foundry Co. Ind Wilson and Co. Inc., Okla Hiram Walker and Sons, Ill Keystone Steel and Wire Co Ill Munsingwear, Inc., Minn Dixie Mercerizing Co., Tenn Stockham Pipe and Fitting Co. Ala Oliver Iron and Steel Corp., Pa National Supply Co., Ohio Albina Engine and Machine Works, Ore American Hoist and Derrick Co., Minn Gibbs Gas Engine Co., Fla Geo. H. Buckler, Ore R. K. Le Blond Machine Tool Co., Ohio Chicago Mill and Lumber Co., III E. B. Badger and Sons, Mass 0. D. Purington Co., R. I I. Miller and Sons, N. Y Colonial Radio Corp., N. Y Stinson Aircraft, Mich N. A. Handley Mfg. Co., Ala T. Stuart and Son Co., Mass Bayonne Associates, N. J Magee Carpet Co. Pa Magma Copper Co. Ariz Continental Steel and Foundry Co., Pa United Aircraft Corp., Hamilton Standard Propellor Div., Conn Office of the Secretary of the Treasury, Division of Research and Statistics. * Not available. 2,500 2,386 2,383 2,284 2,195 : Barber Colman Co., I11 : Morrells, S. D. $ 27,600 Percent of aggregate pay deducted : Arms Corporation, N. Y 4,500 4,200 3,200 3,000 2,800 : Carbide and Carbon Chemical Corp., W. Va Kaiser Co., Inc., Ore 30,000 26,000 6,796 6,034 : McLellan Stores Company, N. Y. 132,340 : Oregon Shipbuilding Co. Ore Westinghouse Elec. and Mfg. Co., Pa Ex-Cell-0 Corp., Mich : General Electric Co., N. Y : employees monthly payroll (in thousands) : of Approximate aggregate : Name of firm and state Number Average monthly deduction per employee $ 20.86 10 10 6,247 26.43 11 11 337 5.58 10 10 * * 13 814 406 11 540 10 30.52 14.88 19.28 12 601 10 689 12 294 10 278 497 12 2,000 1,994 1,880 1,685 1,660 450 10 346 344 10 10 191 10 22.50 17.35 18.30 11.34 141 10 8.49 1,619 1,567 1,550 1,512 1,450 223 10 237 298 10 13.77 15.12 19.26 300 12 24.82 1,400 1,400 1,329 1,325 1,308 277 14 27.70 333 14 1,300 1,300 1,279 1,228 1,225 180 180 13 1,200 1,176 1,156 1,128 1,000 24.03 34.65 12.34 12.17 27.17 10 10 12 10 324 24.38 10 10 35.64 18.00 18.00 18.58 23.61 13 216 11 290 10 10 297 10 409 10 165 13 206 226 10 24.75 34.78 18.55 18.26 22.64 10 10 July 25, 1942 86 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO FROM July 27, 1942 Secretary Morgenthau Vincent F. Callahan Re: DIRECT SALE OF BONDS BY RADIO STATIONS As of today 621 out of 856 radio stations have agreed to become direct agents of the Treasury Department in the sale of War Savings Bonds. These stations are being qualified daily. Following are early reports from a number of cities: BALTIMORE, MARYLAND WBAL (50,000 watts) starts off campaign with a series of full page advertisements in Baltimore News Post. Proof of first advertisement which runs today is attached. PITTSBURGH, PENNSYLVANIA KDKA (50,000 watts) launches campaign tonight with a half-hour program. Officially inaugurates campaign tomorrow with public celebration on steps of City Hall. Speakers include the Mayor, local War Savings Committee representatives, and others. KDKA directing campaign to listeners outside city, particularly in small communities in Ohio, Pennsylvania, and West Virginia. KDKA is printing special envelope in which Bonds will be sent to purchasers. 87 -30 BUTLER, PENNSYLVANIA WISR (250 watts) started campaign Friday, July 24. Stocked up with $5,000 in Bonds and sold out first day - total sales $6,500. PHILADELPHIA, PENNSYLVANIA WFIL inaugurated announcers' contest with announcers making direct personal appeal to listeners. Announcer selling most Bonds in each week will be given a $25.00 Bond by the station. Station also has built "chuck wagon" manned by volunteer workers who will tour city. CHICAGO, ILLINOIS WBEN devoting one and one-quarter hours daily in the afternoon to sell Bonds. POUGHKEEPSIE, NEW YORK WKIP selling Bonds by series of radio auctions. Feature was so successful that the first Bond supply was sold out in several days. Have asked Federal Reserve Board for more Bonds. CINCINNATI, OHIO WOPO (250 watts) has made tie-up with RKO theater chain and has enlisted aid of Junior League Girls. Promoting Bonds on all programs. BANGOR, MAINE WOBI offering $5.00 prise to person writing best suggestion as to how station can sell more Bonds. Touring Band Wagon through streets, and have arranged to have Western Union boys deliver Bonds. 88 -3- NEW YORK, NEW YORK WJZ (50,000 watts) selling Bonds direct over the air and have erected a booth in Radio City with tie-up with American Women's Volunteer Service. This station has hired one person to handle Bond sales. WASHINGTON, D. C. WINX making direct sales in cooperation with Blue Light Taxi Company Drivers of taxicage are delivering Bonds. BUFFALO, NEW YORK WGR and WKBM inaugurated youth movement called "Commando Corps of the Court of Honor". Awards are made during week to local youngsters for their sale of Bonds. $25.00 sale makes boy a Corporal and $50.00 sale a Sergeant. SAN ANTONIO, TEXAS KTSA, in cooperation with local women's club, is setting up lobby in city's leading hotel. Listeners are urged to buy Bonds and Stamps at the hotel booth. DES MOINES, IOWA WHO sent in following message: "Starting July 23 Herb Planbeck, Farm News Editor, and Bob Burlingame, Assistant News Editor in charge of night side, will sell War Bonds. Each has large and loyal following. Will build up competition between them. Announcers will take sides. Urge listeners to support their favorite. Send order at once Plambeck or Burlingame. Orders will be acknolwedged on air." CHICAGO, ILLINOIS WLS (50,000 watts) opening campaign this week with all-night program. Station talent divided into two teams with artists making direct appeal over the air. Prizes for team selling most Bonds. Vincent Caelahan Sure, it Makes You Mad! You can't do it by waving. by slogans, and b cheers. It takes planes - tanks -guns-bombs-shells-ships. And 0 YOU REALIZE that thousands of our good American soldiers are behind brbed wire-with Jap sentries marching up and down outside? these don't grow on trees, You-and you and you-must buy these things. Not the Jap way, nor the Nazi way, nor the Fascist way. The American way freely and gladly. In War Bonds, And your money will buy the stuff to heat the Axis- Do you know that American women and children, too. are in Jap concentration camps? How long do you want them there-and what are you willing to do to get them out? to attack them to bomb them. to make them wish they'd never picked a scrap with Uncle Sam! Now You Can Buy War Bonds Thru WBAL By Mail.. By Phone Just Lexington 4900 I WBAL 50.000 WATTS BALTIMORE Listen to the WBAL Honor Roll Next Monday at 6.30 P.M. @ You'll hear news of WAL'S War Bond drive, the best one OF AMERICA'S GREAT RADIO STATIONS THE STATION MOST PEOPLE LISTEN TO MOST-1000 ON YOUR DIAL in band music. and names of people who have purchased bonds thru WBAL. In Person order MONDAY NEWS Reg. No 42 First Prest DOMINICK Sure, it Makes You Mad! You can't do it by -waving. by slogans, and cheers. It takes planes - tanks -guns-bombs-shells-ships. And 0 YOU REALIZE that thousands of our good American soldiers are behind brbed wire-with Jap sentries marching up and down outside? these don't grow on trees, You-and you and you must buy these things. Not the Jap way, nor the Nazi way, nor the Fascist way. The American way freely and gladly. In War Bonds, And your money will buy the stuff to beat the Axisto attack them to bomb them. to make them wish they'd never picked a scrap with Uncle Sam! Do you know that American women and children, too. are in Jap concentration camps? How long do you want them there-and what are you willing to do to get them out? Now You Can Buy War Bonds Thru WBAL By Mail WBAL 50.000 WATTS P BALTIMOR a one OF AMERICA'S GREAT RADIO STATIONS THE STATION MOST PEOPLE LISTEN TO MOST-1000 ON YOUR DIAL By Phone Listen to the WBAL Honor Roll Next Monday at 6.30 P.M. You'l hear of WAL'S War Bond drive, the best band music. and names of people who bonds thru WBAL. In Person CONFIDENTIAL 90 UNITED STATES SAVINGS BONDS - SERIES E Comparison of July sales to date with sales during the same number of business days in June and May 1942 (At issue price in thousands of dollars) Cumulative sales by business days June May : : : : : sales July : daily : : : : Date July July as percent of June : July 1942 1 2 79.8% $ 15,821 $ 15,821 $ 19,834 $ 12,679 14,880 16,822 30,701 47,523 27,841 40,811 24,263 46,532 110.3 116.4 29,797 17,724 21,599 22,746 24,772 19,077 77,320 95,044 116,643 139,390 164,161 183,238 58,199 82,988 98,197 125,245 134,157 154,242 55,460 73,824 97,049 114,218 128,670 151,956 132.9 114.5 118.8 111.3 122.4 118.8 26,550 15,744 18,407 17,828 22,345 12,233 209,787 225,532 243,938 261,766 284,111 296,344 169,920 186,470 201,700 225,684 233,218 249,033 161,346 177.133 194,047 208,939 223,242 247,532 123.5 120.9 120.9 116,0 121.8 119.0 261,321 280,742 291,729 321,114 331,806 347,673 257,374 271,079 290,485 309,584 323,705 347,494 125.4 121.1 122.8 117.2 119.0 116.7 3 6 7 8 9 10 11 13 14 15 16 17 18 20 21 22 23 24 25 31,368 12,239 18,184 18,261 18,588 10,695 327,712 339,951 358,135 376,396 394,984 405,679 Office of the Secretary of the Treasury, Division of Research and Statistics. July 27, 1942. Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. CONFIDENTIAL 91 UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED Comparison of July sales to date with sales during the same number of business days in June and May 1942 (At issue price in thousands of dollars) June May : : : : : sales July : daily Cumulative sales by business days : : : Date July July as :percent of June : July 1942 $ 12,597 $ 9.705 $ 7,302 9,389 10,455 21,986 32,441 17,601 26,235 15,168 25,516 124.9 123.7 16,734 13,386 21,852 17,172 22,983 17,050 49,175 62,561 84,413 101,585 124,568 141,618 40,009 49,353 55,888 67,414 72,366 82,310 33,145 48,751 60,817 67,213 72,794 80,845 122.9 126.8 151.0 150.7 172.1 172.1 20,614 14,358 15,400 13,842 15,314 9,696 162,232 176,590 191,991 205,833 221,147 230,842 89,852 95,254 101,464 108,715 112,279 119,749 85,410 94,391 102,106 108,923 114,129 123,534 180.6 185.4 189.2 189.3 197.0 192.8 21,888 9,447 16,327 15,174 14,399 8,816 252,731 262,178 278,505 293,679 308,077 316,893 126,048 134,062 137,429 147,698 153,532 162,774 127,724 138,908 149,502 156,587 161,404 171,335 200.5 195.6 202.7 198.8 200.7 194.7 $ 12,597 1 2 3 6 7 8 9 10 11 13 14 15 16 17 18 20 21 22 23 24 25 ffice of the Secretary of the Treasury, Division of Research and Statistics. 129.8% July 27, 1942. ource: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Note: Figures have been rounded to nearest thousand and will not necessarily add to totals. CONFIDENTIAL 92 UNITED STATES SAVINGS BONDS - TOTAL Comparison of July sales to date with sales during the same number of business days in June and May 1942 (At issue price in thousands of dollars) June : : July : : : : sales Cumulative sales by business days : July daily May : : : Date July as percent of June July 1942 1 2 3 6 7 8 9 10 11 13 14 15 16 17 18 20 21 22 23 24 25 $ 28,418 $ 28,418 24,269 27,277 52,687 79,964 46,531 31,110 43,451 39,918 47,755 36,127 $ 29,539 45,442 $ 19,981 96.2% 67,046 39,430 72,048 115.9 119.3 126,495 157,605 201,056 240,974 288,729 324,856 98,208 132,341 154,085 192,659 206,523 236,552 88,605 122,575 157,866 181,431 201,464 232,801 128.8 119.1 130.5 125.1 139.8 137.3 47,164 30,102 33,807 31,670 37,659 21,929 372,020 402,122 435,929 467,599 505,257 527,186 259.772 281,724 303,163 334,398 345,497 368,782 246,756 271,525 296,152 317,861 337,371 371,066 143.2 142.7 143.8 139.8 146.2 143.0 53,257 21,686 34,511 33,434 32,987 19,510 580,443 602,129 636,640 670,075 703,062 722,572 387,369 414,804 429,158 468,812 485,338 510,446 385,098 409,987 439,987 466,171 485,109 518,829 149.8 145.2 148.3 142.9 144.9 141.6 fice of the Secretary of the Treasury, Division of Research and Statistics. July 27, 1942. urce: All figures are deposits with the Treasurer of the United States on Note: account of proceeds of sales of United States savings bonds. Figures have been rounded to nearest thousand and will not necessarily add to totals. 93 Sales of United States Savings Bonds From July 1 through July 25, 1942 CONFIDENTIAL Compared with Sales Quota for Same Period (At issue price in millions of dollars) Quota 66.9% Daily to Date $ 12.6 $ 12.6 $ 19.4 $ 43.0 24.3 27.3 52.7 80.0 123.6 62.5 64.7 46.5 31.1 43.5 39.9 47.8 36.1 126.5 208.6 233.5 276.7 319.3 355.9 384.3 60.6 67.5 72.7 75.5 81.1 84.5 372.0 433.8 455.6 493.4 529.0 561.5 587.9 85.8 88.3 88.3 88.4 90.0 89.7 635.7 657.7 698.1 737.6 774.5 804.5 91.3 91.5 91.2 90.8 90.8 89.8 : : : 77.3 95.0 116.6 139.4 164.2 183.2 61.3 68.2 71.9 73.4 76.0 77.4 16.7 13.4 21.9 17.2 23.0 17.1 49.2 62.6 84.4 101.6 124.6 141.6 82.6 94.2 114.5 129.5 139.9 147.7 59.6 66.5 73.7 78.5 209.8 225.5 243.9 261.8 284.1 296.3 273.2 287.6 311.6 335.5 358.7 377.4 76.8 78.4 78.3 78.0 79.2 78.5 20.6 14.4 15.4 13.8 15.3 160.6 168.0 181.8 193.5 202.8 210.5 101.0 105.1 105.6 106.4 109.0 109.6 47.2 30.1 33.8 31.7 9.7 162.2 176.6 192.0 205.8 221.1 230.8 21.9 467.6 505.3 527.2 327.7 340.0 358.1 376.4 395.0 405.7 411.8 425.9 451.1 477.5 503.8 525.0 79.6 79.8 79.4 78.8 78.4 77.3 21.9 9.4 16.3 15.2 14.4 8.8 252.7 262.2 278.5 293.7 308.1 316.9 223.9 231.8 247.0 260.1 270.7 279.5 112.9 113.1 112.8 112.9 113.8 113.4 53.3 21.7 34.5 33.4 33.0 19.5 580.4 602.1 636.6 670.1 703.1 722.6 1 7 18.4 17.8 22.3 12.2 8 31.4 12.2 22 18.2 24 18.3 18.6 25 10.7 31 $ 28.4 126.0 139.3 162.2 189.8 216.0 236.6 21 30 $ 28.4 47.5 15.7 29 66.0% 64.9 60.4 64.0 14.9 16.8 14 28 Quota 36.4 50.6 26.5 27 Date 22.0 32.4 13 23 Date 9.4 10.5 19.1 C Quota 64.1 65.1 11 18 Date to 47.9 73.0 10 17 as % of 562.7 577.2 601.3 625.8 650.0 295.1 304.3 322.1 337.5 350.0 July Sales to 30.7 17.7 16 to Daily $ 15.8 21.6 22.7 24.8 15 to Date : Quota, to Date as % of $ 15.8 29.8 9 Sales : $ 23.6 3 6 : Date : as % of : to Total Actual Sales July 1 : : 2 to Date to Date : : Daily July 1 Sales : Actual Sales July 1 : Quota, Series F and G Quota, Actual Sales July 1 July 1 : Series E 89.1 95.9 37.7 84.3 157.6 201.1 241.0 288.7 324.9 402.1 435.9 857.8 881.5 923.4 963.3 1,000.0 Office of the Secretary of the Treasury, Division of Research and Statistics. Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of United States savings bonds. Figures have been rounded and will not necessarily add to totals. Note: Quota takes into account both the daily trend during the week and the monthly trend during the month. July 27, 1942. 94 July 27, 1942 The Secretary today directed that this report be discontinued. UNITED STATES SAVINGS BONDS, SERIES E 7/25/42 95 TOTAL DAILY SHIPMENTS BY DENOMINATIONS FROM JULY 1 TO JULY 24, 1942 : 2 3 6 7 8 9 15 16 17 18 20 21 22 23 24 tal : 14 : 11 13 : 10 : 1 $50 $100 : ly $25 $500 : : Shipment Denominations - Number of Pieces : Date of Total Pieces $1,000 441,453 515,964 464,350 736,205 678,221 558,650 440,389 672,288 643,310 654,983 673,000 548,501 384,250 555,023 599,366 629,367 603,350 583,946 527,745 450,650 79.590 94,404 80,760 82,647 163,951 106,000 89,212 117,122 121,615 118,591 109.750 156,626 91,600 138,080 109,552 60,200 57,130 82,850 90,120 109,600 78,344 93,481 79,220 89,767 160,712 115,461 112,623 107,512 135,412 98,816 102,000 152,361 107,800 124,232 98,646 98,900 93,272 92,000 114,838 65,800 2,256 3,068 8,320 8,475 24,510 15,039 7,807 5,508 5,062 6,314 7.775 12,270 13,010 8,378 6,052 4,150 11,947 6,535 13,001 11,275 3.510 3,565 2,235 13,894 3.790 5,816 5.967 15,649 8,528 10,000 14,535 19.955 10,066 9.777 9,885 10,035 9.777 15,751 9,300 11,361,011 2,059,400 2,121,197 180,752 184,562 ly 25, 1942 MRL/kwk mathe 2,527 604,170 710,427 636,215 919.329 1,041,288 798,940 655,847 908,397 921,048 887,232 902,525 884,293 616,615 835,779 823,393 802,502 775,734 775,108 761,455 646,625 15,906,922 96 July 27, 1942 Dear Jake: I am sending you herewith, by air mail, a very confidential memorandum prepared by Harry White. I wish you would read it and carefully consider the (7-20-42) contents. I think I remember correctly that you said you would be willing to stay as long as I needed you, so I think you had better bring enough collars and shirts to last you a week. Yours sincerely, (Signed) Henry Dr. Jacob Viner, 5554 Kenwood Avenue, Chicago, Illinois. nmc air mail Spec Del. Taken to Messenger 97 July 27, 1942 Dear Walter: I am enclosing herewith a very confidential memorandum from (7-20-42) Harry White, which I shall want to discuss with you Wednesday and Thursday when you are here. Yours sincerely, (Signed) Henry Dr. Walter W. Stewart, Gladstone, New Jersey. nmc air 98 JUL 27 1942 Dear Mr. MacLeishi There is returned herewith your letter of July 16, 1942, recommending acceptance of the offer of The Friends of Music in the Library of Congress to give $5,340.69 to the Library of Congress Trust Fund Board for deposit in the Permanent Loan Fund, upon which Secretary Morgenthan has indicated his agreement with your recommendation. Very truly yours, (Signed) D. W. BELL Under Secretary of the Treasury. Honorable Archibeld MacLeish, Librarian of Congress, Library of Congress, Washington, D. C. 00 Miss Chauncey. Enclosure. WTH:mlb 7-25-42 99 THE LIBRARY OF CONGRESS TRUST FUND BOARD IC Mashington July 16, 1942 THE Dear Mr. Secretary: I have the honor to submit to your attention a photostat copy of a letter received from Mr. Myron W. Whitney, President of the Friends of Music in the Library of Congress, dated June 15, 1942. This letter proposes a gift to the Library of Congress, to be credited to the permanent loan account of the Library of Congress Trust Fund Board, the income therefrom to be applied to the purposes of the Music Division. In accordance with the Act entitled "An Act to create a Library of Congress Trust Fund Board and for other purposes" as amended, this offer is hereby submitted for your approval as & member of the Board. I reconsend that this offer be accepted. Faithfully yours, Amount Archibald MacLeish The Librarian of Congress Secretary of the Library of Congress Enclosure Trust Fund Board I vote in favor of acceptance I vote against acceptance The Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. RARY OF CONGRESS up JL1 1942 STARTS OFFICE 100 ADMINISTRATIVE ASSISTANT The Friends of Music in the Library of Congress CHIEF ASST. LIERARIAN WASHINGTON, D.C. President Ms MYSON . Warrant Var Presidents Please apply to JUL 1 - 942 305 MUNSEY BUILDING WASHINGTON ac Telephone Middle - Ma CARL Excess Mas Romer Woose Buss Min Christmas R Hill - . de Security Ma Expert HUTCHING Mas NICHOLAS LONGWORTH June 15, 1942 How Passens C WATORY Servicery Mass GRACE DUMMAN GUNST Treaser Ma CLASENCE A AMOUNT Ex of The Chaf of the Music Division Dr. Luther H. Evans Acting Librarian of Congress The Library of Congress Washington, D. C. Library of Congress Da HABOLD SAVACHS Dear Dr. Evans, The Friends of Music in the Library of Congress, after much deliberation, has decided to suspend its activities and operations for an indefinite period. The times are difficult for a society of its nature, and its out-of-town members at present receive little or no benefit from their membership. The primary purpose of the organisation, of course, is to make possible the acquisition of rarities by the Music Division of the Library of Congress, but this becomes increasingly difficult in the light of present day circumstances. In entering its period of indefinite suspension, the Friends of Music desires to transfer its financial resources, with no obligations outstanding. to the permanent loan fund of the Library of Congress. This gift amounts to $5,340.69 and will be subject to increase by volustary contributions. From the interest it will bear, it should insure to the Music Division our permanent support and cooperation. The income from the fund may be applied to purchases of rare books, pieces and manuscripts or may be used to defray any expenses incurred by the Music Division in pro- moting activities congenial to us in the past. It is our hope that our suspension will be of relatively short duration. If so, we can again resume our work for music and our furtherance of in creasing the Library's musical collections. Meanwhile we trust that the proposal stated in this letter will be satisfactory to you and will keep alive the relation- ship between your institution and our Society. Very sincerely yours, myson 3, whatever Hyron W. Whitney President, The Friends of Music in the Library of Congress MMW:bd 101 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE July 27, 1942 TO FROM Secretary Morgenthau Mr. Has. Subject: The Business Situation, Week ending July 25, 1942. Summary (1) Industrial activity in June fell behind earlier Federal Reserve Board estimates but still forged ahead to record levels. The FRB seasonally-adjusted index of industrial production for the month rose to 177 from 174 (revised) in May. Since our entry into the war the index has risen 11 points. (2) Steel shortages are now reported to be holding up truck production and forcing curtailment of electric utility expansion plans, in addition to hampering shipbuilding. In view of the very heavy demand for steel, it now appears likely that the projected 10 percent expansion program for the steel industry will not be curtailed as much as expected a short time ago. An expansion of 9,700,000 tons by June 1943 is now being recommended by the Steel Branch of the WPB. (3) Contrary to earlier indications, the cost of living rose further after price ceilings were imposed. The BLS costof-living index (revised) for June shows a gain of 0.4 percent over the previous month, due to increased food prices. (4) The BLS index of basic commodity prices showed a further moderate decline last week and touched the lowest level since mid-June. However, butter prices moved higher as the Agricultural Marketing Administration raised the support level 3 cents per pound. (5) Factory employment and payrolls continued to expand to new record highs in June, according to confidential BLS indexes. Factory payrolls stood 28 percent above year-earlier levels while employment was 8 percent higher. (6) Construction contract awards in June, as reported by the F. W. Dodge Corporation, jumped 57 percent above the highest previous month on record. All categories except residential construction showed wide gains over year-earlier levels. 102 -2Industrial production index for June revised downward Industrial activity rose to a new high in June, but the level attained was somewhat below earlier estimates of the Federal Reserve Board. The seasonally-adjusted FRB index of industrial production advanced to 177 from 174 (revised) in May. (See Chart 1, upper section.) These figures compare with previously reported estimates of the Federal Reserve Board of 180 for June and 176 for May. In contrast with the new peak of 177 reached in June, the index stood at only 106 in the pre-war month of August 1939. Last November, prior to our entry into the war, the index stood at 166. The 11 point rise in the production index since last November has been due, as might be expected, to expansion in the armament industries. It has been estimated that in June almost 50 percent of industrial output (as measured by the FRB index) was war production, taking into account also the machinery, supplies, etc., necessary to produce the war materials. A year earlier only 20 percent of the index is estimated to have been accounted for by war production. The dominant industries in the further rise in industrial activity last month were machinery and transportation equipment (including shipbuilding and aircraft) (Refer to Chart 1, lower section.) Nondurable goods output on the whole showed little change from the previous month. Soft coal output receded, ore continued in very heavy volume. On the other hand, steel but still attained high levels, while lake shipments of iron production declined somewhat. Steel plant expansion program reconsidered Press reports last week indicated that a shortage of steel is slowing up truck output and is causing a cut in the expansion program of the electric utility industry, and Chairman Nelson of the WPB was quoted as saying "The lack of steel is BO great that we must shorten our production lines. Against this background, the WPB is apparently reconsidering a program for a major expansion in steel capacity. Originally an expansion program designed to step up steel capacity by nearly 10,800,000 tons was approved by SPAB. Early in June it was said that probably only 65 to 70 percent of the program would be carried out, due to a desire to save critical raw materials by cutting down on plant expansion projects. However, during the past week it was disclosed that the Steel Branch of the WPB has now recommended an expansion of over 9,700,000 tons, or only about 10 percent less than the original proposal. If carried out, this would increase the industry's total 103 3 capacity to 98,300,000 tons by June 30, 1943 as compared with 88,600,000 tons at the end of 1941. Among other features the program would require an increase of nearly 11,000,000 tons in pig iron capacity, involving the construction of 20 new blast furnaces and the restoration or enlargement of 15 others. Steel operations fail to reach capacity Despite the contentions made in the Gano Dunn report last year that a steel operating rate of 102-1/2 percent of capacity could be maintained under emergency conditions, the highest rate attained this year was 99.6 percent of capacity during two weeks in May. During June the average operating rate slumped to 96.4 percent of capacity. While some improvement has been shown recently, the rate scheduled for this week is again down to 97.0 percent. (See Chart 2.) However, operating rates are still being calculated on the basis of capacity last December 31, and it is estimated that by the end of June the steel capacity had been increased by about 1,000,000 tons. Thus recent operating rates are even lower than indicated, and eventually will be revised downward to conform to the expansion in capacity since the end of last year. Living costs continue to rise The cost of living, contrary to earlier indications, shows an increase since price ceilings were imposed. The BLS cost-of-living index has been revised back to April, and now shows an increase rather than a decrease. (See Chart 3.) As of June 15, the combined index had increased 0.4 percent above that of a month earlier, due to a continued rise in food prices. The cost of clothing, on the other hand, has declined since April, and the weighted average of rent, fuel, and light has declined also in that period. Housefurnishings and other costs were unchanged in the past month. Basic commodity prices decline Commodity prices declined somewhat last week on reports of the possibility of more aggressive action being taken against inflation. The BLS price index of 28 basic commodities declined for the second successive week, and touched its lowest level since mid-June. (See Chart 4.) The component indexes of controlled and uncontrolled commodities have been revised back to June 26 to transfer the price of gum rosin from the controlled to the uncontrolled group, because of its exemption from OPA control. 104 The inc X of 9 uncontrolled commodities declined moderately last week, but was still within its range of the last two months. Barley prices were sharply lower, due to an increased Government crop estimate. Rosin prices continued to lose some of the previous sharp gain. Cotton declined for the third successive week. Wheat and corn prices increased somewhat. The price of butter increased to 394 from 370, owing to the Department of Agriculture's raising of the support level by 30 a pound. Prices of steers increased to the highest since April 28. Hog prices declined on the Secretary of Agriculture's announcement that Lend-Lease purchase prices would be lowered. The index of 19 controlled commodities was also somewhat lower. Tallow prices declined sharply as a result of a revision in the fats and oil ceiling structure. In the week ended July 18, the BLS all-commodity index declined 0.2 percent, continuing to move within its range of the past four months. At 98.3, the index stands 31.1 percent above the August 1939 pre-war level. Retail price levels maintained by OPA "rollbacks" As rising production costs continue their pressure on prices, various rollback orders are being issued by the OPA to keep retail prices below the ceilings. The net result in most cases is to relieve the pressure on retailers! and distributors' profit margins by reducing the margins at some earlier stage. Among recent measures are the following: (1) Canners' prices for Maine sardines have been reduced 11 percent below March prices in an order designed to eliminate the squeeze on distributors. (2) An extensive revision of the price structure of fats and oils will partly compensate the soap industry for its earlier cancellation of price increases made before the price regulation became effective. The rollback on inedible tallow was planned to restore soap manufacturers' profit margins to normal. (3) Manufacturers' maximum prices for Kraft wrapping paper are to be reduced, and distributors' markups have been lowered from March levels to those prevailing during the first half of 1941. 105 5- (4) Pulpwood prices are to be fixed below current market levels to enable wood pulp producers and paper manufacturers to maintain their established ceiling prices. (5) Maximum prices on rice at the milling level may be reduced 10 percent to allow wholesalers to maintain their ceilings without loss. Price ceilings breached for canned fruits The OPA has announced increases of 15 to 25 percent in canners' ceiling prices on the 1942 fruit pack, effective July 29, to compensate for increases in costs of labor and raw materials. At the same time wholesalers and retailers were promised corresponding price increases. The increases granted are somewhat more than had been implied in the OPA's first announcement several weeks ago. Agriculture moves to remedy meat packers' difficulties As the impact of the Government's meat purchases and meat price control came to a climax last week in vanishing profit margins for packers and shortages of pork and beef in retail markets, the Secretary of Agriculture took cognizance of conditions in the meat markets by announcing a program designed to help alleviate the situation. The three points of the program are as follows: (1) Effective this week, the maximum prices to be paid for most meat products being purchased for Lend-Lease will be revised downward. (2) In connection with Lend-Lease purchases, adjust- ments in price differentials in different areas will be made to bring prices more nearly in line with the actual cost to packers there, and to favor shipments to the East. (3) Small packers squeezed between the higher cost of livestock and the ceiling prices for meat may continue to operate by purchasing and processing livestock to be bought by the Department of Agriculture. Press reports indicate that this project will be financed by a subsidy from LendLease funds. 106 6- The Secretary stated that in all probability purchases of meat for Lend-Lease will be reduced somewhat during the next few weeks. The shortage was ascribed by the Secretary to a continuation of the unusually high demand for meat for domestic requirements, for the Army and Navy, and for LendLease during the period when marketings of meat animals are the smallest of the season. He pointed out that later such marketings will increase, especially of hogs, which will ease the situation. The meat shortage is reported to be confined to pork and beef. The price ceiling on beef has operated to encourage the shipping of cattle to market without fattening, because packers refuse to pay sufficiently high prices for heavy cattle. Although packers operating under Federal inspection (and therefore eligible to supply Lend-Lease requirements at premium prices) have 80 far been able to operate under the OPA ceiling for Government orders, the margins between the price of live hogs and pork products have declined close to zero. (See Chart 5.) Localities formerly supplied mainly by intrastate packers, however, are now failing to receive their customary share of meat deliveries, because those packers are being forced out of the market by the high prices for live animals. As there is a tendency to allocate restricted ship- ments in accordance with past sales distribution, shortages may easily appear in war-production centers where the number and purchasing power of consumers have risen sharply. Government purchases drop as receipts decline Purchases of pork products by the Department of Agriculture were suspended during the week ended July 11, when hog slaughter declined seasonally to a new low for the year, but were resumed in the following week. Chart 6 shows weekly purchases of canned, oured and frozen pork by the Department of Agriculture since last December, in comparison with hog prices at Chicago and with slaughter under Federal inspection at 27 markets. Factory employment and payrolls rise to new peaks The expansion in factory employment and payrolls continued last month and reached new record levels, according to preliminary and confidential BLS indexes just made available, 107 -7which will be published later in the week. (See Chart 7.) Payrolls continued to rise more rapidly than employment, but the disparity was less marked than in earlier months. During the year ending in June, payrolls rose 28 percent as compared with a gain of only 8 percent in employment. Estimated average weekly earnings of factory workers showed but little further gain in June, but stood 18 percent above year-earlier levels. (Refer to Chart 7.) Further steps in the direction of enlarged factory payrolls occurred last week, as the Bethlehem Steel Corporation and the Weirton Steel Company granted factory workers wage increases of 44 cents per day in line with the recent WLB decision in the "Little Steel" wage case. Construction contract awards at record high Despite the various restrictions on building activity and recent steps toward cutting down plant expansion programs, construction contract awards in June, as reported by the F. W. Dodge Corporation, jumped sharply to a new record high. In fact the monthly total for 37 eastern states, amounting to $1,190,000,000, was 57 percent above the previous record set in August 1941. The gain over the corresponding month in 1941 was 121 percent, with all major classifications except residential construction showing wide gains, as will be seen in the following table: June 1942 Residential Non-residential Public works Utilities Total 186 568 203 233 1,190 June 1941 (Millions of dollars) 206 200 100 33 539 The non-residential total included manufacturing buildings aggregating $272 millions. Contracts for "automobile and aircraft" building construction rose to $90 millions, while chemical construction work jumped to $65 millions. F.R.B. INDEX OF INDUSTRIAL PRODUCTION 1935-39=100 Seasonally Adjusted 1943 1942 1941 1940 1939 PERCENT PERCENT 190 190 180 180 170 170 160 160 150 150 140 140 130 130 120 120 110 110 100 100 90 N o M S M F J o N A M F J D N o F J D 1940 D N J 1939 M J 90 1942 1941 1943 Selected Components May 1942 and June 1942 Compared with Nov. 1941 PERCENT Transportation Equipment 140 Machinery Chemicals Metal Mining 120 COMBINED INDEX drea and Steel Nonferrous Metals *Fuels (crude) Manufactured Foods 100 Lumber, etc. Leather, etc. 80 60 40 20 o Nov. 1941 Mov June 1942 1942 108 Office of the Secretary of the Treasury - - - Stution 12 C-435 Chart 1 Chart 2 109 STEEL INGOT PRODUCTION Per Cent of Capacity PER CENT 100 41 42 80 :40 60 40 Amer / and S Inst. 20 JAN. MAR. Office of the Secretary of the Treasury Division of Research and Statistics MAY JULY SEPT. NOV C-419 Chart 3 110 COST OF LIVING AND SELECTED ITEMS June 1939-100 1940 1939 1941 1942 PERCENT PERCENT 125 125 120 120 Cost of Living 115 115 110 110 105 105 100 100 140 140 135 135 130 130 Food 125 125 120 120 Clothing 115 115 110 110 105 105 100 100 Household Furnishings and Miscellaneous Rent, Light, and Heat 95 95 D $ M 1939 - of - - 1940 1941 1942 Souce B.L.S. Office of the Secretary of the Treasury c - 413-1 MOVEMENT OF BASIC COMMODITY PRICES 1941 1942 PERCENT PERCENT August 1939-100 190 190 185 185 9 Uncontrolled Commodities . 180 180 175 175 170 28 Commodities 170 165 165 160 160 19 Controlled Commodities 155 155 150 150 145 145 140 SEPT. NOV. JAN. MAR. MAY JULY 1941 140 SEPT. NOV 1942 PERCENTAGE CHANGE DEC. 6. 1941 TO JULY 17 AND JULY 24,1942 PERCENT PERCENT 19 Controlled +45 9 Uncontrolled Commodities +45 Hage 464 Commodities +40 +40 +35 +35 +30 Pleased 30.18 +30 +25 +25 +20 Lord 195% +20 Shellee 13.8% +15 +15 *Steare / LAX Lood Cottoneed Oil TAX Print Cloth TAX +10 Butter 130% +10 Cotton R +5 Road 5.28 Sugar 4.9% Zinc 2X +5 or Change Hides sa Tin. Rubber Coffee. Copper. o o St Screedom St -5 Cocce Tollow se Barley - -5 Wheat 423 Wool Tops -3.5% 10 Dec 6 1941 July 17 1942 July 24 1942 10 Dec. 6 1941 July 17 July 24 1942 1942 Leo Controlled and . Uncontrolled previous to June 26 Office of the Secretary of the Treasury 111 P-244-3 Weekly, July 1941 to date 1941 AUG. DOLLARS 1942 OCT. DEC. FEB. APR. JUNE AUG. OCT. DOLLARS PER PER 100 LBS. 100 LBS. 15 15 COMPOSITE WHOLESALE VALUE OF Hoe PRODUCTS 14 14 13 13 12 12 WHOLESALE PRICE OF LIVE Hogs .. 11 11 10 10 GROSS GROSS MARGIN MARGIN GROSS MARGIN (CENTS) (CENTS) 100 100 0 0 -100 AUG. OCT. DEC. 1941 FEB. APR. 100 JUNE AUG. OCT. DEC. 1942 . .. WHOLESALE VALUE OF ALL EDIBLE PRODUCTS IN 100 LB. OF LIVE HOGS. GOOD CHOICE, 180-200 LBS. 5 SOURCE: U.S.D.A. Office of the Secretary of the Treasury Dividen of Research and - P 246 Chart 6 113 HOG PRICES COMPARED WITH HOG SLAUGHTER AND U.S.D.A. PURCHASES 1942 1941 DEC FEB. APR JUNE AUG. OCT. DEC. TOOLLARS DOLLARS TTT Per 100 Lbs. Per 100 Lbs. 15 15 14 14 13 13 Price of Live Hogs 12 12 11 11 10 10 MILLIONS THOUSANDS OF HOGS OF LBS. (U.S.D.A. (Slaughter) Purchases) 1000 Slaughter 27 Centers 800 160 600 120 U.S.D.A. Purchases 400 80 200 40 o 0 DEC. 1941 FEB. APR AUG. JUNE OCT. DEC 1942 "Chicago, good to choice, 180-200 pounds Source: Department of Agriculture Office of the Secretary of the Treasury Division & - and Statistics P-248 CONFIDENTIAL FACTORY EMPLOYMENT. PAYROLLS AND WAGES FIRST 6 MONTHS OF 1939 = 100, UNADJUSTED 1939 1940 1941 PER 1942 PCR CENT CENT 220 220 200 200 180 180 PAYBOLLS 160 160 Est 140 140 EMPLOYMENT 120 120 100 100 AVERAGE WEEKLY EARNINGS OF FACTORY WORKERS 80 M 80 J N M J 1939 1940 M J 1941 1942 SOURCE: B.L.S. Office of the Secretary of the Treasury Dividen of - and I c - 414 115 FOR THE PRESS IMMEDIATE RELEASE JULY 27, 1942 Joseph E. Davies, Chairman of the President's Committee on War Relief Activities, today submitted to the President a report, the text of which follows: "Your Committee on War Relief Agencies respectfully sub- mits the following report. "In the foreign relief field, a degree of success has been achieved in reducing the number of agencies and coordinating the activities of those remaining. The number of active foreign rolief agencies is now approximately 300 as compared with some 700 or more during the peak period in early 1941. While this is a definite improvement, further coordination and consolidation is desirable in the public interest. "Funds and contributions in kind raised by agencies registered with the Department of State from the beginning of the war to the end of May 1942 have totalled over $71,000,000. During the same period other foreign rolief agencies raised a total estimated at $25,000,000. It is significant that the administrative and other costs of the agencies registered with and subject to supervision by the Department of Stato have averaged only about 10 percent of total receipts while those of other foreign rolief agencies have averaged, on the basis of somowhat incomplete information, 30 percent or more. It is also significant that administrative exponses of the latter group have shown an appreciable decrease since the President's Committee requested periodic reports from them, oven though the Committee has been ablo to exercise only advisory supervision. The present rate of collections by foreign relief agencies, other than the Rod Cross, is substantially below the poak, with a resulting increase in the percentage of overhead costs, but this decrease in collections is far more than offeet by the increase in domestic relief solicitations. "In the domostic rolief and welfare field, the entry of the United States into the war has quite naturally resulted in the ostablishment of a very large number of now agencies appealing to the public for funds and contributions for the rolief and welfare of our own civilian population and armod forces. As there is at presant no contral registration or other regulatory authority, these organizations are subject to no coordinated supervision or control and even their number can only be estimated. "While actuated by the highest humanitarian motives, thoso agencies tend to duplicate each other's efforts causing public confusion and uncortainty. Unduo competition among thomselves and betwoon them and the foreign rolief agencies leads to a waste of financial resources and manpower and thus tends to hamper the national war effort. There is a lack of corrolation botwoen the programs of the private agencies in both the domestic and foreign rolief fields, and those of the Red Cross and of the soveral governmental agencies concerned with various phases of roliof and welfare. "Certain important objectivos of the Committee have not BO far boen accomplished, because of lack of authority. There remain, as indicated above, two important factors affecting national unity of effort in these times of emergency--(a) the public is subject to solicitation from far too many agencies representing an excessive amount of duplication and (b) the limited amount of leadership that exists for charitable, welfare and Government var bond campaigns is overly occupied and its effectiveness seriously diminished and dissipated. "The Committee bolieves that those facts call for a central authority with general jurisdiction and powers to bring about coordination of effort and elimination of duplication and waste. Pursuant thoreto, the Secretary of Stato, upon whose recommendation this Committoo was originally appointed, has suggested that, as the domestic relief field is now dominant, it would be in the national interest to consolidate, in such a contral authority, supervision over both domestic and foreign relief agencies, including the administration of Section 8(b) of the Neutrality Act, 1939, now vested in the Secretary of State. 116 -2"The Committee recommonds, therefore, that adequate powers be delogated to a central authority and suggests that this might be done by the issuance of an Exocutive Order. In accordance with the recommendation of the Committee the President has signed an Exocutive Order, the text of which follows: EXECUTIVE ORDER ESTABLISHING THE PRESIDENT'S WAR RELIEF CONTROL BOARD AND DEFINING ITS FUNCTIONS AND DUTIES By virtue of the authority vested in me by the Constitution and statutes of the United States, as President of the United States of America and Commandor-in-Chief of the Army and Navy, because of omergencios affecting the national security and dofonso, and for the purpose of controlling in the public interest charities for foreign and domestic rolief, rehabilitation, reconstruction, and welfare arising from war-created needs, it is hereby ordered as follows: 1. The President's Committoo on War Rolief Agencies, appointed by me on March 13, 1941, is horeby continued and eatablished as the President's War Relief Control Board, horoinafter referred to as the Board. The Chairman of the Board shall be responsible to the President. 2. The Board is hereby authorized and empowered-- (a) to control, in the interest of the furtherance of the war purpose, all solicitations, sales of or of- fore to sell merchandise or services, collections and receipts and distribution or disposition of funds and contributions in kind for the direct or implied purpose of (1) charitios for foreign and domestic relief, ro- habilitation, reconstruction and wolfare arising from war-created noods in the Unitod States or in foreign countries, (2) refugee rolief, (3) the rolief of tho civilian population of the United States affected by enemy action, or (4) the roliof and welfaro of the armod forces of the Unito States or of their depondonts; Provided, that the powers horoin conferred shall apply only to activities concerned directly with war roliof and wolfaro purposes and shall not oxtend to local charitable activities of a normal and usual charactor nor in any caso to intra-state activities other than thoso immodiately affecting the war effort; (b) (1) to provide for the registration or licensfor the ronowal or cancellation of such registration or ing of persons or agencios ongagod in such activities and licenses; (2) to regulate and coordinate the times and amounts of fund-raising appeals; (3) to define and promulgato ethical standards of solicitation and collec- tion of funds and contributions in kind; (4) to require accounts of receipts and expenditures duly and roliably auditod, and such other records and reports as the Board may doom to be in the public interest; (5) to eliminate or morgo such agencies in the interests of efficiency and economy; and (6) to take such stops as may be neces- sary for the protection of ossential local charities; and (c) to prescribe such rules and regulations not incon- sistent with law as tho Board may determine to be necessary or desirable to carry out the purposes of this Order. 117 3. The provisions of section 2 of this Order shall not apply to (a) the American National Red Cross or (b) established religious bodies which are not independently carrying out any of the activities specified in section 2 of this Order. 4. Under the authority given me by Section 13 of the Joint Resolution of Congress approved November 4, 1939 (54 Stat. 8, 11) and Title I of the First War Powers Act, 1941, approved December 18, 19h1 (Public Law No. 354, 77th Congress), and pursuant to the sugges- tion of the Secretary of State, it is ordered that the administration of any and all of the provisions of Section 8 (b) of the said Joint Resolution relating to the solicitation and collection of funds and contributions for relief purposes, heretofore by me vested in the Secre- tary of State, be and it hereby is transferred to the said Board. All rules and regulations and forms which have been issued by the Secretary of State pursuant to the provisions of said Section 8 (b) and which are in effect shall continue in effect until modified, superseded, revoked or repealed by the Board. 5. Any and all matters within the jurisdiction of said Board which may be affected with a question relating to the foreign policy of the Government of the United States in connection with the administration of the powers vested in the Board by this Order shall be determined only after conference with the Secretary of State, to the end that any action with respect to such matters shall be consistent with the foreign policy of the United States. 6. For the purpose of economy in administration, the Board is authorised to utilize the services of available and appropriate per- sonnol of the Department of State and other Government departments and agencies and such other services, equipment, and facilities as may be made available by these departments and agencies. 7. For the purpose of effectively carrying out the provisions of this Order, the Board may require that all war relief and welfare policies plans, programs, procedures and methods of voluntary agencies be coordinated and integrated with those of the several Federal departments, establishments and agencies and the American Red Cross; and all these organizations shall furnish from time to time such information as the Board may considor necessary for such purposes. 8. The Board shall from time to time submit to the President such reports and recommendations regarding war charities, relief and welfare in foreign countries and in the United States and the relationship of public and private organizations, resources and programs in those and related fields, as the public interest may require. 9. The members of the Board shall serve as such without compensa- tion, but shall be entitled to necessary transportation, subsistence, and other expenses incident to the performance of their duties. 10. This Order shall remain in force during the continuance of the present war and for six months after the termination thereof, unless revoked by Presidential order. FRANKLIN D. ROOSEVELT THE WHITE HOUSE, July 24, 1942. 118 BOARD OF ECONOMIC WARFARE WASHINGTON, D.C. OFFICE OF THE EXECUTIVE DIRECTOR July 27, 1942 AGENDA FOR THE MEETING OF THE BOARD OF ECONOMIC WARFARE TO BE HELD THURSDAY, JULY 30, AT 10:00 A.M. IN THE OFFICE OF THE VICE PRESIDENT IN THE CAPITOL There is attached a brief report on export licenses issued to the Sydney Ross Company allowing shipments of cer- tain drugs to Latin America. It is requested that each affected agency arrange to have available such additional information as it may have bearing on the general subject of drug exports to Latin America, and particularly exports by the Sydney Ross Company. Attachment SECRET 119 July 27, 1942 SYDNEY ROSS COMPANY EXPORTS TO LATIN-AMERICA Export licenses for drugs to the Sydney Ross Company have been to assist that company in maintaining its trade war in Latin America against Nazi controlled producers and distributors of pharmaceutical goods. The salient facts in the matter follow: 1. The company's trade war is being waged mainly against the German aspirin and caffeine compound called "Cafiaspirina". Sydney Ross competed against this "commercial swastika" with its own aspirin and caffeine compound called "Mejoral". Apparently its trade war strategy has been expertly conceived and vigorously executed. The June issue of "Fortune" gives the company a big "hand" for its aggressive campaign. The article deplores the Government's lack of initiative in not itself seizing the opportunity to strike vigorously at I. G. Farben through the Sterling controlled companies. 2. In May of this year Sydney Ross faced an increasingly critical supply problem, and requested BEN to expedite the licensing of the company's minimum requisites of supply and shipping. Since the Sydney Ross Company had originally been part of the I. G. Farben cartel group, a meeting was promptly called of the interested agencies to review the status of the Sydney Ross Company and to decide what, if any additional aid should be extended. The meeting held on June 5, 1942, was attended by representatives of the Treasury Department, the Department of State, the Coordinator of InterAmerican Affairs, and the Alien Property Custodian. As a result of this meeting -- at which the company was given a substantially clean "bill of health" by the Treasury Department -- a decision was reached to extend further aid to the company in its trade war. * A 500 page investigation report of the Treasury Department com- pleted early in July concluded that in general and subject to investigation of purchasers and personnel abroad the Sterling Products group "has appar- ently made a sincere effort to fill its obligations under the Representations it made to the Foreign Funds Control Committee on August 15, 1941". MAR -2- 3. After this decision, the company's applications for additional export licenses were granted. The chief items involved were the acetyl salicylic acid and caffeine needed by Sydney Ross for "Mejoral", the big competitive item against the similar German compound "Cafiaspirina". The licenses alsoeffective covered sales advertising matter, of labels and other material necessary in the distribution "Mejoral". 4. The decision to grant the licenses obviously involved consider- ations of economic warfare as well as those of requirements and supplies. South America is becoming increasingly dependent upon us for drugs. Howover, the amounts actually licensed were within the quantities indicated for exportBoard. to the countries in question by the Drug Branch of the War Production .5. In adopting this program of increased assistance at the interdepartmental conference on June 5, it was specifically understood: a. That the Sydney Ross Company would keep the Board fully informed at all tinos* as to its oporations, activities and affairs; and, b. That similar aid would be made available to any other American companies in good standing, engaged or proposing to engage in similar economic warfare against Axis firms in Latin America. 120 -3 ASPIRIN (Tablets and Bulk) Licenses Granted for Export to Latin-America January 1, 1942, to Date Licenses Granted to Liconses Granted to Others Pounds Storling Products and Subsidiaries Pounds 2,700 January February 39,894 March 147,454 April 71,336 May 34,282 June 3,556 July 44,137 TOTALS 343,359 3,500 270,525* 274,025 * 3-6 months' supply The Drug Branch, War Production Board, has indicated that exports should not exceed 50,000 pounds a month, and also an additional annual reserve of 200,000 pounds could bo made available. QUININE SULPHATE - EQUIVALENT Licenses Granted for Export to Latin-America January 1, 1942 to Date Licenses Granted to Others Licenses Granted to Sterling Products and Subsidiarics Ounces January February Ounces 42,080 101,456 March 167,889 April 75,364 73 May 156,606 1,331 June 14,187 July 28,850 3,695 3,367 TOTALS 616,432 8,466 * 3-6 months' supply The Drug Branch, War Production Board, has requested that individual ship- accurately inventories monts be cleared with it. It is realized, however, that 2 million ounces will be needed in 1942 in Latin America, but local are not known. Sinco April no quinine has been exported except for antimalarial control unless it was compounded in other medicines and in Board stockOrder priorNo. toM-131. April. This is in strict compliance with War Production 121 -CAFFEINE Licenses Granted for Export to Latin-America January 1, 1942, to Date Licenses Granted to Others Licenses Granted to Sterling Products & Subsidiarios Including Sydney Ross Co. Pounds January 1,472 February 2,873 March 5,959 April 5,267 May 2,190 June 914 July 402 Pounds 750 15,750# . TOTALS 19,077 16,500 The caffeine content of compounds is not included in the table. Compounds containing 191 lbs. of caffeine were licensed to the Storling Products Company and subsidiaries during the period. The Drug Branch, War Production Board, has indicated that exports should not exceed 10,000 pounds monthly. # 3-6 months' supply. 122 JUL 27 1942 Ny dear Mr. Presidents I - enclosing report on our exports to some selected countries for the period ending July 10, 1942. Faithfully, (Signed) H. Morgenthau, Jr. Secretary of the Treasury The President, The White House. Enclosure. HDW HDM/aff 7/2/23 cc Dr White nme Delinered by FILE COPY agent for 45 SECRET 123 July 22, 1942 Exports to Russia, Free China, Burma, France and other blocked countries, as reported to the Treasury Department during the ten-day period ending July 10, 1942. 1. Exports to Russia Exports to Russia as reported during the ten-day period ending July 10, 1942 amounted to about $36,000,000 as compared with ap-> proximately $50,000,000 during the previous ten-day period. Among the military equipment exported during the period under review were 60 P-40 pursuit fighters, 39 light bombers, 4 medium bombers and 77 tanks. (See Appendix 0.) 2. Exports to Free China and Burma Exports to Free China as reported during the ten-day period under review amounted to $7,900,000. Military equipment accounted for nearly 85% of the total. (See Appendix D.) Exports to Burma as reported during the period under review amounted to about $45,000. (See Appendix E.) 3. Exports to France Exports to France during the period under review amounted to less than $500. 4. Exports to other blocked countries Exports to other blocked countries are given in Appendix A. Exports to Portugal were most important, amounting to $162,000. ISF/fs 7/23A2 STRICTLY CONFIDENTIAL 124 SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1/ July 28, 1941 to July 10, 1942. (In thousands of dollars) July 28 Total Domestic Exports 8673,409 June 20 June 30 Period ended July 10 $587,872 $49,919 835,618 ree China 84,500 1,664 7,900 94,064 urma 2 12,435 5/ 45 12,480 Period ended to 1. S. S. R. rance 3/ pain 56 2,849 witsorland 10,710 reden 17,778 tugal rench North Africa w 9,036 6,283 - 56 5/ 93 11,394 82 17,862 162 9,363 591 2 165 5/ Treasury Department, Division of Monetary Research 2,849 - 6,283 July 21, 1942. Many of the export declarations are received with a lag of several days or more. Therefore this compilation does not accurately represent the actual shipment of a particular period. The longer the period covered, the closer will these figures come to Department of Commerce revised figures. From September 11, 1941 to date - it is presumed that a large percentage of material listed here, consigned to Burne, is destined for Free China. Includes both Occupied and Unoccupied France - no breakdown is obtainable from Department of Commerce. Includes Morocco, Algeria, and Tunisia. Less than 8500. Wirl 7/21/42 SECRET 125 APPENDIX B Exports from the U. S. to Free China, Burma U.S.S.R. as reported to the Treasury Department and July 28, 1941 - July 10, 1942 V (Thousands of Dollars) Exports to Exports to Free China July 28 - Aug. 2 Aug. 4 - Aug. 9 Aug. 11 - Aug. 16 Aug. 18 - Aug. 23 Aug. 25 - Aug. 30 Sept. 2 - Sept. 6 Sept. 8 - Sept.13 Sept.15 - Sept.20 Sept.22 - Sept.274 Sept.29 - Oct. Oct. 6 - Oct. 11 Oct. 13 -- Oat. 18 27 310 - - 15 22 Nov.24 Nov. 1- Dec. Dec. 6 - Lov. Oct. Oct. ov. 20 17 Nov. Nov. Dec. Nov. Nov. Nov. Oct. 25 1 8 Dec. Dec. Dec. Jan. 15 8 Dec. Dec. Dec. Jan. Jan. 20 13 29 27 3 1 -10 Feb. w 4.525 309 986 2,735 1,025 4,280 5,217 20h 2,281 3,822 w 110 449 2, 1,225 5,312 1,157 6. 5 269 405 4.772 1,672 88 2,851 1,228 3,239 - May 10 I Mar. May Apr. Apr. Apr. 1 Mar. Apr. 20 20 10 31 30 May 11 - May May June - May 20 31 6 1 21 - June 11 21 -- June 1 - July 10 July June time June 20 10 30 Total 1,364 18 1 196 8 2 35 91 1,075 1,695 447 6,938 4,889 4,855 923 20 - Feb. 28 Mar.10 1 -- Mar. 10 Mar. 11 -- Apr. 21 1,021 791 2,337 1,054 26,174 583 28,119 23 Feb. Feb. Feb. Jan. Jan. Jan. Feb. Jan. Jon. 10 17 24 20 31 10 20 Mar. 6 1 - -Apr. U.S.S.R. Burma 395 - 22 29 512 - Jam. 19 26 - Exports to 5.255 296 1,872 2.535 3.399 2.707 1,664 7,900 $96,667 447 639 5 234 .06 45 $11,367.06 18,000 26,180 12,764 53.799 49,919 35,657 $674,152 126 APPENDIX B Page 2 1. These figures are in part taken from copies of shipping manifests. 2. Figures for exports to Free China during these weeks include exports to Rangoon which are presuned to be destined for Free China. 3. It is presumed that a large percentage of exports to Burma are destined for Free China. 4. Beginning with February 1 figures will be given for 10-day period instead of week except where otherwise indicated. 5. 8-day period. 6. 11-day period. 7. Due to changes in reporting procedure by the Department of Commerce this report is incomplete for the period indicated. Treasury Department, Division of Monetary Research ISP/efs 7/22/42 July 22,1942 SECRET 127 APPENDIX c Principal Exports from U. S. to U. S. S. R. as reported to the Treasury Department during the ten-day period ending July 10, 1942 Value Unit of Quantity (Thousands of dollars) Quantity $ 35,657 TOTAL EXPORTS Principal Items: Aircraft Fighter, pursuit (P-40) Light bomber (A-20) Medium bomber (B-25) Ammunition .30 caliber .32,.38 and .45 caliber .50 caliber 20 - Oerliken 37 - anti-sircraft 75 - high explosive and armor piercing 81 - mortar shells Links and belts for small arms ammunition Military tanks Light tanks Medium tanks Aircraft parts and accessories Copper wire Submachine guns (.45 cal.) Pork and sausage, canned & not canned Tracklaying tracters Iron and steel bara and reds Motor trucks Combat vehicles Seout ears Light armored ears Ordnance combat vehicles,n.e.s. 10,326 60 No. No. No. 39 2,675 No. No. No. No. No. 7,222,829 1,286,000 1,528,700 No. No. 22,88h 21,168 No. 1,165,000 106,500 102,330 2,665 No. No. 57 20 1,942 - 3,853,946 1,218 No. 5,700 1,212 Lb. 3,027,219 No. 181 1,156 1,126 Lb. 12,299,030 825 Lb. No. 762 722 No. No. No. Treasury Department, Division of Monetary Research ISF/efa 7/22/42 502 97 80 39 July 22,1942 SECRET 128 APPENDIX D Principal Exports from U. S. to Free China as reported to the Treasury Department during the ten-day period ending July 10, 1942 (Thousands of Dollars) TOTAL EXPORTS Principal Items: Military equipment Other iron and steel manufactures Printed matter Surgical and medical instruments Relief supplies - surgical and hospital Treasury Department, Division of Monetary Research ISF/efa 7/22/42 $ 7,900 6,654 369 125 115 July 22,1942 SECRET 129 APPENDIX E Principal Exports from U. S. to Burna as reported to the Treasury Department during the tem-day period ending July 10, 1942 (Thousands of Dollars) TOTAL EXPORTS e 45 Principal Items Steel sheets, black Treasury Department, Division of Monetary Research ISF/efs 7/22/42 45 Jay 22,1942 130 JUL 27 1942 My dear Mr. Secretary: I am enclosing copy of report on our exports to some selected countries for the period ending July 10, 1942. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury The Honorable, The Secretary of State, Washington, D. C. Enclosure. nmc NDN/efe 7/22/42 FILE COPY on 7/27/42 5:15 Bundy) SECRET 131 July 22, 1942 Exports to Ruesia, Free China, Burna, France and other blocked countries, as reported to the Treasury Department during the ten-day period ending July 10, 1942. 1. Exports to Russia Exports to Russia as reported during the ten-day period ending July 10, 1942 amounted to about $36,000,000 as compared with ap- proximately $50,000,000 during the previous ten-day period. Military equipment accounted for more than one-half of the total. (See Appendix C.) 2. Exports to Free China and Burne Exports to Free China as reported during the ten-day period under review amounted to $7,900,000. Military equipment accounted for nearly 85% of the total. (See Appendix D.) Exports to Burns as reported during the period under review amounted to about 845,000. (See Appendix E.) 3. Exports to Press Exports to France during the period under review amounted to less than 8500. 4. Exports to other blooked countries Exports to other blocked countries are given in Appendix A. Exports to Portugal were most important, amounting to $162,000. ISF/efa 7/23/42 STRICTLY CONFIDENTIAL 132 SUMMARY OF UNITED STATES DOMESTIC EXPORTS TO SELECTED COUNTRIES AS REPORTED TO THE TREASURY DEPARTMENT FROM EXPORT DECLARATIONS RECEIVED DURING THE PERIOD INDICATED 1/ July 28, 1941 to July 10, 1942. (In thousands of dollars) July 28 Total Domestic Exports June 20 June 30 Period ended July 10 S. S. R. $587,872 $49,919 835,618 $673,409 ree China 84,500 1,664 7,900 94,064 area a/ 12,435 5/ 45 12,480 rance 3/ 56 Period ended to pain itserland breaden or tugal ranch North Africa w 2,849 - - 10,710 592 17,778 2 9,036 6,283 56 5/ 165 5/ reasury Department, Division of Monetary Research 2,849 93 11,394 82 17,862 162 9,363 - 6,283 July 21, 1942. Many of the export declarations are received with a lag of several days OF more. Therefore this compilation does not accurately represent the actual shipment of a particular period. The longer the period covered, the closer will these figures come to Department of Commerce revised figures. From September 11, 1941 to date - 18 is presumed that a large persentage of material listed here, consigned to Burma, is destined for Free China. Includes both Occupied and Unoccupied France - no breakdown is obtainable from Department of Commerce. Includes Morocco, Algeria, and Tunisia. Less than $500. Mirl 7/21/42 SECRET 133 APPEEDIX B Exports from the U. S. to Free China, Burma and U.S.S.R. July as reported 28, 1941 - to July the Treasury 10, 1948 V Department (Thousands of Dollars) Experts to Exports to V Free China July 28 - Aug. 2 595 Aug. 11 - Aug. 16 Aug. 18 - Aug. 23 Aug. 25 - Aug. 30 309 Aug. 4 - Aug. 9 Sept. 2 - Sept. 6 Sept. 8 - Sept.13 Sept.15 - Sept.20 Sept.22 - Sept.27 Sept.29 - act. 4 Oct. 6 - Oct. 11 4,525 1,025 4,280 1 204 2,281 3,822 110 5,217 x 1,225 5,312 Oct. 13 - Ost. 18 Oct. 20 - Oct. 25 Oct. 27 - Nov. Exports to U.S.S.R. 1,157 405 1 Nov. 3 - Nov. 8 Nov. 10 - Nov. 15 Nov. 17 - Nov. 22 Nov. 24 - Nov. 29 2,851 1,228 3,239 Dec. 8 - Dec. 13 2,337 Dec. 1 - Dec. 6 Dec. 15 - Dec. 20 Dec. 22 - Des. 27 Dec. 29 - Jan. 3 Jan. 5 - Jan. 10 Jen. 12 - Jan. 17 Jan. 19 - Jan. 24 Jan. 26 - Jan. 51 1 35 88 1,022 1,364 18 8 196 2 1,073 1,695 Feb. 1 - Feb. 10 w Feb. 10 - Feb. 20 Feb. 20 - Feb. 28 23 Mar. 10 - Mar. 20 Mar. 20 - Mar. 51 447 Mar. 1 - Mar. 10 Apr. 1 - Apr. 10 Apr. 11 - Apr. 20 Apr. 21 - Apr. 30 May 1 - May 10 I May 11 - May 20 May 21 - May 31 June 1 - June 10 June 11 - June 20 June 21 - June 30 July 1 - July 10 Total 659 - 296 1,872 2,535 1,664 7,900 $96,667 - 18,000 26,180 12,764 5 234 .06 45 $11,367.06 35,657 $674,151 134 Page 2 APPENDIX B 1. These figures are in part taken from copies of shipping manifests, 2. Figures for exports to Free China during these weeks include exports to Rangoon which are presuned to be destined for Free China. 3. It is presumed that a large persentage of exports to Burna are destined for Free China. 4. Beginning with February 1 figures will be given for 10-day period instead of week except where otherwise indicated. 5. 8-day period. 6. 11-day period, 7. Due to changes in reporting precedure by the Department of Commerce this report is incomplete for the period indicated. Treasury Department, Division of Monetary Research ISF/afs 7/22/42 July 22,1942 SECRET 135 APPENDIX c Principal Exports from U. S. to U.S.S.R. as reported to the Treasury Department during the ten-day period ending July 10, 1942 (Thousands of Dollars) TOTAL EXPORTS 8 35,657 Principal Items: Military equipment Copper wire Pork and sausage, eanned and not eanned Tracklaying tractors Iron and steel bars and rods 20,582 1,218 1,156 1,126 825 Motor trucks Tallow and lard Relief supplies - surgical and hospital Brass and blanks, plates and sheets Telephone instruments and parts Refined copper in bare, billets and eathodes 482 Wheat flour Diesel marine engines Relief supplies - elothing Linseed oil Wheels of artificial abrasives Treasury Department, Division of Monetary Research ISF/efa 7/22/42 501 July 22,1942 SECRET 136 APPENDIX D Principal Exports from U. S. to Free China as reported to the Streamy Department during the tea-day period ending July 10, 1948 (Thousands of Dollars) TOTAL EXPORTS Principal Items: Military equipment Other iron and steel manufactures Printed matter Surginal and medical instruments Relief supplies - surgical and hospital 8 7,900 6,654 K 115 Treasury Department, Division of Monetary Research July 22, 1942 ISF/efs 7/22/42 SECRET 137 APPENDIX E Principal Exports from U. S. to - as reported to the Treasury Department during the twi-day period ending July 10, 1942 (Thousands of Dollars) TOTAL EXPORTS s 45 Principal Items Steel sheets, black Treasury Department, Division of Monstary Research ISP/efa 7/22/42 45 day 22,1942 138 BRITISH AIR COMMISSION 1785 MASSACHUSETTS AVENUE WASHINGTON, D.C. TELEPHONE HOBART 9000 PLEASE QUOTE REFERENCE NO With the compliments of British Air Commission who enclose Statement No. 43 - Aircraft Despatched - for week ended July 21, 1942. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. July 27, 1942. 139 MOST SECRET STATEMENT NO. 43 AIRCRAFT DESPATCHED FROM THE UNITED STATES NEEK ENDED JULY 21st. 1942 ASSEMBLY POINT DESTINATION CONSOLIDATED FAIRCHILD PT 26 Cornell . B 24 D PBY 5 B FLIGHT DEL'D FOR USE IN GAR 1 7 Middle East Middle East Canada Canada Buez Middle East 24 R 9 BY AIR Canada on route U.K. U.K. Liberator II BY SEA . TYPE 3 4 2 LOCKHEED (a) & 28 Hudson VI Middle East Middle East # . . . # If GLENN MARTIN Baltimore B 26A Marauder ILA . (c) If Ventura 2 VIA Middle East Middle East W C 60 Lodest Canada en route U.K. # . # 2 # . . 3 . (b) A 28 2 . A 28 A 28 2 . # . 1 New Zealand Auckland Canada Canada U.K. Canada en route U.K. Canada en route South Africa South Africa Middle East Middle East NORTH AMERICA B 250 4 1 12 South Africa 9 1 South Africa Port Sudan Middle East 7 2 12 U.K. Canada on route India Bombay 1 VULTEE TOTALS 6 14 65 5 Vengeance NOTE (a) Were exported week ended July 7th but were not reported at that (b) Were exported week ended July 7th, but were not reported. (c) Were exported week ended July 14th but were not reported. British Air Commission July 25th, 1942. time. 140 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 27, 1942 TO Secretary Morgenthau FROM Mr. White Subject: Official British Statements on International Financial Organization after the Armistice (Cable from London, July 24, 1942, No. 4124) You may be interested in the debate in the House of Lords on July 22, during which Lord Simon gave the Government's views on the restoration of the gold standard and the re-adoption of other orthodox economic policies. 1. In summing up a long debate, the Lord Chancellor stated: "The whole object of our post-war financial policy must be to do all that is possible to give practical and lasting effect to the admittedly general language of the Atlantic charter I am speaking with the authority of the Treasury when I say that it may well be that in the course of our common discussions we shall find that new and far-reaching international measures are called for. We do not intend to be bound by the orthodoxies of the nineteenth century. We shall, at all times, be ready to join with our allies in following a course which may be, as far as past experience goes, comparatively uncharted, if it is going to lead us to the greater welfare of all the people whom the Atlantic charter seeks to serve." " 2. The Lord Chancellor quoted frequently from the President's fifth report to Congress on Lend-Lease operations, the concluding paragraphs of which develop Article VII of the Master Lend-Lease Agreement as follows: "All the United Nations are seeking maximum conversion to war production, in the light of their special resources. If each country devotes roughly the same fraction of its national production to the war, then the financial burden of war is distributed equally among the United Nations in accordance with their ability to pay 3. In answer to a direct question from the floor, asking for the prevailing opinion in Treasury and banking circles, Lord Simon said that ne had heard "no whisper and no echo" of any intention to repeat the return to the gold standard after the end of this war. 4. The pronouncement on the gold standard is similar to pre-war statements. More interesting is Lord Simon's emphasis on joint Anglo-American policy statements, which indicates that traditional canons of international finance will not interfere with the British Government's readiness to take cooperative action in order to attain " the desired objectives. 141 PLAIN MEC London. Dated July 24, 1942 Rec'd 8:30 p.m. Secretary of State, Washington. 4124, July twenty-fourth. FOR DEPARTMENT AND TREASURY FROM CASADAY In t.l.e House of Lords on July 22 (where the debates of late have attracted more attention than usuel) there was a discussion of post-war financial problems. In the Lord Chancellor's winding-up speech, two important declarations were made, be- sides a number of significant references to and quotations from the President's fifth report to Congress on lease-lend operations. The official report of the debate, which covers 40 pages, is being forwarded by air pouch. The following are the more important points from Lord Simon's speech: 1. During the debate, Lord Strabolgi asked the Lord Chancellor to reply to 8 direct question 88 to whether there is "any hankering now in treasury circles - meaning banking, financial and money-lending circles in the city who all work together - for a return to 142 -2- #4124, July twenty-fourth, from London. return to the gold standard after the war". He also urged that the dollar and pound must be linked together and said that the policy must be an informational one and "should be under close study now and the results be made known to the people". He added "I hope this is not being discussed in secret treasury conclave, as Lord Perry suggested, but as openly as possible between the leaders of the great alliance". Lord Simon, in his replying speech said that Lord Strabolgi had, as he was entitled to do, asked him a specific question, which he would answer as well as he could. The Lord Chancellor continued "he asked this question: is there any prospect of our returning to the gold standard? Now, I am not a prophet or the son of a prophet, but we have had our experience of returning to the gold standard last time. That experience did not turn out to be a very happy one, and I have heard no whisper and no echo, from these secret conclaves on which the noble Lord looks with some suspicion, of any intention to repeat our former experience in that matter. I trust that that will be regarded as a straightforward answer; I can herdly be expected to say more". 2. In the 143 -3- #4124, July twenty-fourth, from London. 2. In the course of the debate, more than one speaker, and in particular Lord Addison who opened the debate, and Lord Strabolgi later, stressed the importance of realizing that there should be no going back to the pre-war financial system. Lord Simon made the following statement regarding this: "The whole object of our post-war financial policy must be to do all that is possible to give practical and lasting effect to the admittedly general language of the Atlantic charter. Lord Strabolgi raised a question, very naturally, as to whether we were after the war simply going to return to the old ways and to employ the old methods and limi- tations in economic policy. Let me try to answer that in a sentence or two. I am speaking with the authority of the Treasury when I say that it may well be that in the course of our common discussions we shall find that new and far-reaching international measures are called for. We do not intend to be bound by the orthodoxies of the nineteenth century. We shall, at all times, be ready to join with our allies in following a course which may be, as far 8.8 past experience goes, compara- tively uncharted if it is going to lead us to the greater welfare of all the people whom the Atlantic charter seeks to serve." 3. In his 144 -4- #4124, July twenty-fourth, from London. 3. In his speech, the Lord Chancellor also laid particular stress on the passage in the President's speech regarding equality of sacrifice so far as the money cost of the war is concerned, as well 8.6 to article VII of the lease-lend agreement, stating with regard to the President's reference to this article that here the President is "making precisely the same effirmation 86 I have ventured to make on behalf of His Mejesty's Government this efternoon". Besides also referring to recent pronouncements of Mr. Wellace, Hull, Sumner Welles, the Lord Chencellor welcomed in lauditory terms the visit of Mr. Stettinius on behalf of the Government. 4. With regard to the debate in general, it is perheps notable that, though ell the speakers, nemely Lord Addison, Stenhope, Percy, Moyne, Bennett end Strabolgi, stated that they spoke with diffidence to E body which includes meny distinguished financial ex- perts, none of the "financial experts" contributed to the debate. Notably Lord Keynes, Kindersley and Wardington for example, were absent or silent. Nevertheless the fact that such e debate was held in the House of Lords et this time is significent. It may not be a coincidence that such an opportunity was efforded to 145 -5- #4124, July twenty-fourth, from London. efforded to the Government through the Lord Chancellor's speech in reply, to offer an official response to the numerous recent speeches by American statesmen which have received wide publicity here and have prompted at least one journal - viz. THE ECONOMIST on July 18 - to deplore the absence (up to thet time) of any official response on this side. In fact, Hercourt Johnston (Perliamentery Secretary of the Board of Trede) and Mr. Eden have since mede speeches which can be regarded P.B edditional official expressions on questions of postwer economic eime. WINANT CSB FORECAST OF CANADA'S UNITED STATES DOLLAR POSITION JULY 1948 146 SECRET TABLE I. Fisancing Canada's Needs for United States Dollars. II. Canada's Deficiency of United States Dollars on Current Account Trageactions with the United States. III. Capital Account Transactions with the United States. IV. Effect of Hyde Park Transactions, Gross. V. United States Dollars obtained from Newfoundland and other Non-Sterling Area Countries. VI. Canada's Liquid Reserves. Note: These estimates embody only such changes in present trends as can be estimated now with reasonable accuracy. It will be noted (Table I, Item 14) that they point to an increase in Canada's stock of United States dollars during the calendar year 1942 and for the first quarter of 1943. But the actual increase is not likely to be nearly as large as the present estimate for the following reasons: 1. The import of United States capital into Canada may cease. The sale of securities in the United States, which has been running at . high level, may dry up for any one of several reasons. This alone would reduce our not credits by the $35 million which has been included in Table III, Item 3, as the probable sise of this sale of Canadian securities in the United States should present trends continue. 2. Further shortages of materials would reduce our imports from the United States but they would reduce much more the value of our exports to the United States of both war and non-war products. The probable dimension of the consequent worsening of our position is impossible now to estimate. It might conceivably wipe out much of the rest of the increase in our U.S. dollar balances which 10 estimated in Table I, Item 14. 3. There is a further minor factor to be considered. These estimates do not include any item estimating the change in our not indebtedness to the United States on current account. When imports have been increasing rapidly, as in the immediate past, there my be a delay in paying for them which results in a current, but purely temporary, addition to our exchange reserves. There is some evidence also that purchases of exchange to transfer the earnings on American capital invested in Canada are lagging markedly behind the actual earnings themselves. For both those reasons the immediate future might see the use of American dollars somewhat in excess of the estimates here set down, thus further reducing the not acquisition of United States dollars here estimated. Handed by Mr. Plumptre to Mr. White in Mr. White's office, July 27, 1942, at 2:30 P.V. 147 SECRET TABLE I. Financing Ganada's Noods for United States Dollars (Millions of U.S.Dollars) Present Forecast Calendar Year Year Quarters of 1948 I 1943 II III IV I 1948 Calendar 1941 1948 Calendar Calendar Year Year Quarters of 1948 I 1941 Forecast compiled in March 1942 II III IV I. Canada's Needs for U.S.Dollars: 142 286 491 111 146 111 123 292 488 106 117 130 135 130 292 494 112 125 128 129 2. 550 556 135 153 138 150 119 550 505 135 135 120 115 S. 1,191 1,443 319 380 365 379 335 1,191 1,358 324 364 333 337 539 140 139 131 129 506 526 131 128 131 136 506 126 5. 900 338 234 205 193 905 867 213 218 222 214 905 229 6. 11 18 19 16 141 157 107 136 as 33 (c) Imports of goods Lend-Leased to the U.K.and transferred to Canada under (d) Total needs for United States dollars (1/7/8) 6 22 22 19 18 48 3 Hyde Park agreement.) 69 8. 45 33 2 (b) Bond maturities and other debits on capital account (Table III) 4 4. 9 Total of all current receipts 174 5 Exports 136 7 Total of all current payments 146 8 Other imports 87 5 military equipment 543 5 Chief items in this excess are (Table II)Imports for war production and 286 1. 8 transactions) 8 (a) Excess of current payments over receipts (excluding Hyde Park 322 637 98 175 166 196 165 381 9. 107 157 63 61 142 61 467 174 10. 18 14 15 15 564 163 183 II. Says of meeting these needs: 3 614 /117 6517 79 448 4169 142 4651 165 123 166 196 564 82 163 383 609 - - 16 18 - 287 - , 16. 2 III. Errors and omissions (9 of. 15) 17 30 2 15. 382 327 1 This item is introduced is Section I of this Table because it is included in Section II(a) below and because in the absence of the Hyde Park agreement Canada procumbly would need United States dollars to cover the importe is this item. the " This amount includes $36 million as the estimated not sale of Canadian and U.S. securities is the United States by residents of Canada during the last half of 1948, Should this flow dry up the increase in Canada's U.S. dollar balances for calendar year 1942 would be less by that amount. 66 163 16 22 9 142 327 2 14. 58 94 58 279 85 1637 8 13. 94 15 20 22 18 24 11 10 62 8 24 3 12, 3 (e) Total (10/12/15/14) 6 (Table VI) 6 (d) Loss (or gain A) in stocks of gold and United States dollars H 5 (e) Sales of securities and other credits on capital account (Table III) 19 4 (b) U.S. dollars obtained from Newfoundland and other non-sterling area countries (Net) (Table v) 47 11. 72 83 5 (Table IV) which includes the U.S.dollar content of Hyde Park exports accurting to 398 5 (a) Hyde Park transactions gross 141 157 148 SECRET TABLE II. Canada's Deficiency of U.S. Dollars on Current Account Transactions with the United States. (Millions of U.S.Dollars) Present Forecast Year II I Year Quarters of 1942 1943 III IV I 1942 Calendar 1941 1942 Calendar Calendar Year Year Quarters of 1942 III II I 1941 Calendar Forecast compiled in March 1942 IV I. Payments by Canada to U.S. (a) Imports: Nar production and military equipment (excl,Lease-Lend) 1. 292 488 106 117 130 135 130 292 494 112 125 188 189 2. 550 556 135 153 138 130 119 550 505 135 135 120 115 3. 842 1,044 241 270 268 265 249 842 999 247 260 248 244 4. 86 125 21 34 35 25 86 96 20 88 20 5. 15 15 15 15 6. 85 87 19 24 19 25 20 85 85 19 24 18 24 (a) Dividends & profit 7. 118 112 20 32 24 36 22 118 118 23 36 24 35 (f) Miscellaneous 8. 45 60 14 16 15 15 15 45 45 11 12 11 11 9. 1,191 1,443 319 380 365 379 335 1,191 1,358 324 364 333 337 10. 506 539 140 139 131 129 126 506 526 131 128 131 136 11. 185 148 44 42 35 27 20 185 160 42 43 39 36 12. 54 64 16 16 16 16 16 54 60 14 15 15 16 by the U.S. in Canada 13. 73 42 7 11 17 73 40 10 19 the U.S 14. 47 50 12 18 15 11 47 41 10 12 10 15. 40 57 13 14 15 15 16 40 40 10 10 10 10 16. 905 900 238 234 229 205 193 905 867 213 218 222 214 986 543 87 146 136 174 148 286 491 111 146 111 123 28 4 4 4 4 4 3 in the U.S (d) Interest 35 4 (b) Freight payable in U.S. dollars (c) Tourist & other travel 4 Total Imports 3 Other Total Payments II. Receipts by Canada from the U.S. (a) Exports of merchandise by Canada (excl.Hyde Isrk) it, Exports of newly mined gold (c) Freight receipts in U.S.$ (d) Tourist & other travel 7 6 7 6 (e) Interest, dividends and profits from 9 9 (f) Miscellaneous Total Receipts III. Excers of Payment over Receipts Item 9 minus Item 16 17. , Including net expenditures by the United States Government in northern Canada. 149 SECRET TABLE III. Capital Account Transactions with the United States. (is millions of U.S. dollars) Item Calendar Years Qmarters of 1948 III 1943 No. 1941 1948 Sales of U.S. securities and other U.S. assets held is Canada 1. 40 41 19 Sale of Canadian securities and other Canadian assets 3. 54 182 33 44 so as 25 3. 94 163 as 58 87 38 38 Bond asturities 4. 26 Other debt repayments 5. IV , , a I , Total capital imports (1,48) I Receipts: II Payments: 7 8 19 5 1 7 4 5 45 27 5 1 47 1 138 1 61 1 4 7. 6 as , 33 4 Excess of capital inflow from the U.S. (3-6) 6. 4 Total capital export (4/5) 21 27 TABLE IV. Effect of Hyde Park Transactions, Gross (in millions of U.S. dollars) Calendar Years Quartere of 1948 II III 13 56 117 Total Hyde Park Exports 1. Deduct exports against prepayments 2. Add propayments and capital advances 3. 50 78 44 34 Total current yield of U.S. dollars from Hyde Park exports (1-2/3) 4. 56 378 55 85 I - 161 15 16 110 188 145 10 10 11 as as 19 18 109 148 157 174 - 27 1943 141 5 327 IV - 1948 1941 , No. I Item 8 8 - Add petrcleum products purchased by the United States on account of the United Kingdom for the British Commonwealth Air Training so - 5. - Plan 644 imports of goods Land-Leased to the United Kingdom and transferred 7. s Total contribution of Hyde Park transactions gross # (4/5/6) 69 6. 6 to Canada under the Hyde Park Agreement 467 61 61 # as the United States dollar content of Hyde Park exports 18 included under war imports (Table II Item 1) is the current account, 10 has not been deducted here from the Hyde Park contribution; bence the use of the term "gross" to describe the total arrived at in this table. The amount of this U.S. content is estimated for Hyde Park exports as follows: 6 47 12 14 15 15 3 The petroleum products purchased by the United States on behalf of the United Kingdom for the B.C.A.T.P. will also require purchases of crude petroleum by Canada in the United States. The amount likely to be involved cannot be estimated yet. 150 TABLE V. United States Dollars obtained Outside the United States (Net) (in millions of U.S. dollars) 15 5. 24 14 13 10 26 36 7 4. 45 11 62 10 10 18 13 19 11 11 9 Total receipts from Newfoundland and non-sterling areas (ast) (3/4) 9 Receipts from Newfoundland (act) 13 1943 IV 7 3. 21 4 Receipts from non-sterling areas (Net) (1-2) 79 18 8 2. 71 3 Payments it U.S. dollars to non-sterling areas outside the U.S 88 Quarters of 1942 II III 3 1. 1942 8 1941 8 Receipts of U.S. dollars from Non-sterling area countries cutside the U.S Calendar Years I No. ! Item 20 10 TABLE VI. Canada's Liquid Reserves (in millions of U.S.dollars) U.S. $ Gold , Balances Total Official , Private Balances " Total I. Amounts (a) Actual September 15, 1939 December 31. 1940 December 31, 1941 205 56 261 136 194 330 136 52 March 188 126 104 230 - 230 125 119 244 - 244 260 - 31, 1942 30, 1942 391 330 - June 130 188 (b) Estimated- 260 - 271 - September 30, 1942 December 31, 1942 March 31, 1943 322 271 322 Lemo: Estimated net II. Changes in amounts from previous period- capital import (a) Actual 69 -142 -142 55 15 (42 -130 -61 - -142 - 42 /14 - - -1 - -10 - June 31, 1942 30, 1942 ,138 - Karch -59 - September 15, 1939 Lecember 31, 1940 December 31, 1941 12 /16 61 47 45 19 (b) Estimated - /51 /11 27 - 31, 1943 /16 - March /11 - September 30, 1942 December 31, 1942 /51 27 , Total "official" holdings - Foreign Exchange Control Board, Minister of Finance and Bank of Canada. # Total holdings of U.S. dollars by all other residents of Canada, excluding Canadian banks and insurance companies whose holdings of U.S. dollars are required for the purpose of their U.S. business. The totals shown are exclusive of 820 million in minimum working balances. 151 COPY July 23, 1942. EX-1593 3:10 p.m. Following for Plumptre from Knox, begins: Sales of Canadian bonds with a foreign payment feature accounted for $65 million of the total sales of $67 million of Canadian bonds in the six months ending in June 1942. Sales of Dominion Guaranteed Canadian National Railway issues represent $35 million of this total. Most of these were concentrated in "three way" issues payable in United States or Canadian dollars or sterling. Sales of outstanding Dominion issues of $14 million and of provincial issues of $14 million make up most of the remainder. It appears that there has been a reappraisal of investment opport- unities in Canada by United States investors (primarily institutional investors) since the entry of the United States into the war. No doubt internal conditions in Canada as well as curtailed possibilities for investment in other foreign countries were factors influencing strengthened markets and higher prices in the United States for high grade Canadian issues payable optionally in U.S. dollars. With markets favorable for trading, Canadian insurance companies and others sold substantial amounts of their holdings of Canadian optional-pay issues in the United States. During the Victory Loan Campaign important blocs of such Canadian issues were sold out of the deposits of U.S. insurance companies with the Receiver General, to be replaced with Victory Bonds. U.S. dollar forecast being sent this afternoon. July 22/42. Ends. rtr, 152 L JUL 27 1942 MEMORANDUM FOR THE PRESIDENT: I have gone over Dr. Currie's memorandum on Canadian affairs which you sent to me on July 15. The problems he touched upon are followed closely by the Treasury. I have recently held a meeting in my office of representatives of all the agencies concerned with the placing of contracts in Canada -- War, Navy, Reconstruction Finance Corporation, the Maritime Commission, Lend-Lease Administration, War Production Board, the Board of Economic Warfare, State Department, and the Treasury. The discussion at the meeting revealed that this Government, in pursuance of the general policy laid down in the Hyde Park Agreement, has placed an aggregate of over $1 billion of contracts in Canada for munitions, ships, critical and strategic materials. As a consequence, Canada's U. S. dollar position has improved during recent months and Canada may close the current year with an official gold and U. S. dollar reserve roughly equivalent to the amount held in September 1939. Canada entered the war with gold and available U. S. dollar balances aggregating $390 million. Present indications are that Canada will end 1942 with an official gold and U. S. dollar reserve of $350-8500 million -- or $100$250 million more than on July 1. If the present trend continues, Canada's holdings of U. S. dollars may reach a level which would be difficult to justify under present circumstances. The situation, however, is not yet out of hand. We will continue to watch developments closely and will inform you if the situation seems to call for a modification of the purchasing program being carried under the Hyde Park Declaration. (Signed) H. Morgenthau, Jr. File-nmc HDW: TMK: dal 7-23-42 Delivered choSecut agent 2:45 7/27/42 153 THE WHITE HOUSE WASHINGTON July 15, 1942. MEMORANDUM FOR THE SECRETARY OF THE TREASURY To read and return for my files. F.D.R. [. THE WHITE HOUSE WASHINGTON July 1, 1942. MEMORANDUM FOR THE PRESIDENT: Re: Canadian Affairs I have been spending a good deal of time on Canadian-American relations in the past year and I should like to indicate some of the things that have been done and some of the emerging problems. You will recall the Hyde Park Agreement. The flow of orders to Canada following i was petering out by last December when the Joint War Production Committee, U. S. and Canada, which you set up on my recom-endation, began to function. It has, in many respoets, accomplished such more than I had dared hope. Some 500 million of orders have been placed in Canada in the past five months, exclusive of the $1.75 million ship deal. Much of this represents production that would not otherwise have been undertaken. Hundreds of millions are pending or under negotiation. Considerable progress has been made in integration and in standardisation. Work is proceeding on the exchange of information on best production techniques. A very competent Canadian has been added to the Anglo-American Ordnance Technical Committee (I worked this out. with General Somervell). A general report on accomplishments will be submitted to you shortly by the Chairman. The problem now looming is the conversion of a shortage of U. S. dollar exchange into a surplus. I have suggested to Secretary Morgenthau that we re-examine the exchange picture. Various possibilities suggest themselves: 1. We might slacken off on new orders. 2. We might continue orders provided the Canadians cut down on their production of gold and divert the resources freed to the war. 3. We might do the same with other exports such AS newsprint. 4. We might place new orders for ourselves and arrange that certain existing orders to Canada under lend- lease to Britain be shifted directly to Britain. 5. We should maintain a close watch that the surplus of dollar exchange is not used up through an increase of non-essential imports from us by Canada. July 1, 1942. for President Candian Affairs I explored the situation informally with Clarence Howe, Waister of Munitions in Canada, over the weekend. I got the And that neither be nor the Minister of Finance would in the slightest to cutting down Canadian gold production. the various alternatives, this appeals to me most as it could result in an actual increase in the overall war effort. Lauchlin Currie 156 JUL 27 1942 Dear Jim Thank you for your note of July 21, 1942, enclosing . copy of the menorandum of the sams date which you sent to all Bureau Chiefs in the Navy and in which you asked for a report on contracts placed by the Navy in Canada. I appreciate the promptness with which you acted. The requested information should be adequate for Treasury purposes. Sincerely, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Honorable James Forrestal, Under Secretary of the Navy, Department of the Havy, Washington, D. C. Photostatic file to NMC Orig. File to Thompson TMK:dal 7-24-42 DEPARTMENT OF THE NAVY OFFICE OF THE UNDER SECRETARY SO:LLS WASHINGTON 21 July 1942 Dear Henry: I have a full account of the meeting in your office this morning, which I very much regret I was unable to attend. I am enclosing a copy of memorandum which I have sent to all the Bureau Chiefs in the Department, and which will enable me to advise you from time to time of any sizeable orders which we may contemplate placing in Canada. Sincerely, Fountal James Forrestal Honorable Henry Morgenthau, Jr. The Secretary of the Treasury (COPY) DEPARTMENT OF THE NAVY OFFICE OF THE UNDER SECRETARY WASHINGTON July 21, 1942 The Under Secretary of the Navy The Chief of Office of Procurement and Material The Chief of the Bureau of Aeronautics The Chief of the Bureau of Ordnance The Chief of the Bureau of Ships The Chief of the Bureau of Supplies and Accounts The Chief of the Bureau of Yards and Dooks From: To: Canada - Procurement of Materiel from. Subject: 1. The Seoretary of the Treasury has requested information with respect to all contemplated contracts for purchase of material by the Navy Department in Canada. 2. Information should include (a) name and location of contractor; (b) whether affiliated with a U. S. company; (o) dollar value of contract; (d) general character of items to be purchased; (e) whether raw or semi-finished materials required will be imported from U.S.; and (f) an opinion from the contracting Bureau or Office as to whether the Canadian facilities used to manufacture such items would otherwise be idle. In order that the present status of contracts may be accurately determined, it is requested that information, with respect to existing contracts, ALL indicated in paragraph 2, with the exception 3. of 2(f), be This/prince as of 25 July 1942. L Forrestal so 159 IIII 27 1942 Centlemen: Attention: B. L. Senford Reference is made to my letter of February 26, 1936. enclosing a form of letter which I approved and which I authorised and requested you, as fiscal agent of the United States, to write to the Bank if Canada, Ottars, Ontario, Ganada, respecting the purchase of newly-nised Canadian silver, and also to my letters of May 13. 1936. November 5. 1936. January 26, 1938, March 29. 1940 and September 14. 1940. is this connection. It is my understanding that the Bank of Canada has advised you that it wishes to renew, for the month of August, 1942, the arrangement pre- vided for by your letter to 11 of February 29. 1936 as anonied and clarified by your letters of May 27. 1936. November 10. 1936, January 27. 1938, March 30. 1940 and September 24, 1940. This is to advise you that you are authorised and requested, as fiscal agent of the United States, to renev such arrangement for the month of August, 1942, all as stated in your letter to the Bank of Canada above mentioned, as amended and clarified, except that during August, 1942, you may purchase novly-sized Ganadian silver which according to the production date marked on the bare was produced in Ganada during July, August or September, 1942, and se to advise the Beak of Canada, and to carry out during such month the treasactions contemplated by your letters of February 29. 1936, May 27. 1936. November 10. 1936. January 27. 1938, March 30, 1940 and September 24, 1940. It is understood that the terms of the Department's letter to you of June 19. 1934, regarding the purchase for the account of the United States of silver, at home or abroad, shall apply to the action taken by you persuant to the foregoing. except that the silver purchased pursuant to this authorisation need not be of the degrees of fineness, or carry the marks, required for "good delivery is the market of the place where the purchase is made or where delivery is to be taken. Very truly yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. Federal Reserve Bank of New York, 33 Liberty Street, New York, New York. RH:imo:7/17/42 nmc 160 JUL 27 1942 Centlemen: Attention: N. L. Sanford Reference is made to my letter of November 19. 1941. enclosing a form of letter which I approved and which I authorised and re- quested you, as fiscal agent of the United States, to write to Banco do Mexico, S. A., Mexico City, Mexico, respecting the purchase of novly-sined Mexican silver. It is my understanding that Banco do Mexico has advised you that it wishes to reaso, for the month of August, 1942, the arrangemeat provided for by your letter of November 21, 1941, to 18. This is to advise you that you are authorised and requested, as fiscal agent of the United States, to renew such arrangement for the month of August, 1942, all as stated in your letter to Banco do Mexico above mentioned, except that during August 1942. you may purchase newlymined Mexican silver which according to the production date marked OR the bars was produced is Mexico during July, August or September, 1942, and so to advise Banco do Mexico, and to carry out during such month the transactions contemplated by your letter of November 21, 1948. It is understeed that the terms of the Department's letter to you of June 19. 1934, regarding the purchase for the account of the United States of silver, at home or abroad, shall apply to the action taken by you pursuant to the foregoing, except that the silver parchased pursuant to this authorisation need not be of the degrees of fineness, or carry the marks, required for "good delivery in the market of the place where the purchase is made or there delivery is to be taken. Very truly yours, (Signed) H. Morgenthau. Jr. Secretary of the Treasury. Federal Reserve Bank of New York, 33 Liberty Street, New York, New York. NMC 161 C 0 P Y WAR DEPARTMENT WASHINGTON CONFIDENTIAL July 27, 1942 WD 580.81 (7-24-42)NS-AFDAS The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: In regard to your letter of July 24, 1942, I am able to advise you that the Air Force will fly the gold from Nome, Alaska to Denver, Colorado. How- ever, it is believed essential that a representative of the Treasury Department accompany this flight to take charge of the shipment. I will appreciate it if you will advise me 88 to the name of this representative. I believe that this representative will then be able to arrange all later details regarding this flight directly with the Air Force authorities. Sincerely yours, /s/ Henry L. Stimson Secretary of War. CONFIDENTIAL Copy:vw:8-12-42 162 DRAFT OF LETTER TO BE WRITTEN BY RUSSIAN AMBASSADOR My dear Mr. Secretary: I have been informed that a shipment of 28 eases of gold shipped by the Government of the Union of Seviet Socialist Republica has arrived at Breekiyn, N. Y. Please arrange with the Federal Reserve Bank of New York to have the gold transported, unissered, free Breeklyn to the United States Assay Office in New York where 18 is to be do- posited for the account of the Secretary of the Treasury of the United States by order of the Government of the Union of Seviet Socialist Republics. The gold contained is this shipment is to be applied against the amount seld under the agreement of January 3. 1942. Please request the Federal Reserve Bank of New York to communicate with the State Beak of the U.S.S.R., Nessow, relative to any expenses which it may issur in connection with the transportation of this gold. Sincerely years, The Fenerable The Secretary of the treasury. Washington, D. 6. Initialed: FD Approved by 3.3. 7D:1ap-7/27/42 163 P EMBASSY OF THE Y UNION OF SOVIET SOCIALIST REPUBLICS WASHINGTON, D. C. July 27, 1942 My dear Mr. Secretary: I have been informed that a shipment of 28 cases of gold shipped by the Government of the Union of Soviet Socialist Republica has arrived in Brooklyn, N. Y. Please arrange with the Federal Reserve Bank of New York to have the gold transported, uninsured, from Brooklyn to the United States Assay Office in New York where it is to be deposited for the account of the Secretary of the Treasury of the United States by order of the Government of the Union of Soviet Socialist Republics. The gold contained in this shipment is to be applied against the amount sold under the agreement of January 3, 1942. Please request the Federal Reserve Bank of New York to communicate with the State Bank of the U.S.S.R., Moscow, relative to any expenses which it may incur in con- nection with the transportation of this gold. Sincerely yours, /a/ Maxim Litvinoff The Honorable The Secretary of the Treasury Washington, D. C. Copy:1c:8/10/42 Boom an - FD 164 Stabilination Fund July 37. 1948 Federal Reserve Dank of New York, New York, New York. Attention: L. v. Incite Confirming telephonic conversation. you are authorised and directed, as fiscal agent of the United States, to accept delivery of as cases of gold at the point of arrival, to transport the gold missured to the United States Assay Office is New York and to deposit 10 there for account of the Secretary of the Treasury of the United States by order of the Government of the Valee of Seviot Socialist Regublica. Appropriate instructions will be given w the treasury to the hears office regarding the disposition of the gold. You will be atviced by letter as so reinbursement of your expenses. (SIGNED) D. W. BELL Asting Secretary of the treasury. aled: FD - 33 WH WNT FDIVWI 7-27-43 165 I July 27. 1942 Yes U. s. Department of - Division of Foreign trate Statistics, Attentions Mr. Simpoon will you kindly insinte in your Weekly Statement of cold and Silver Exports and Importe for the week eating July 29. 1942 - import late New Yesk of 54,234,119 fine - of gold valued as $1,896,194.16. this shipment - from Bussia. IS will not so covered w any other entry papers. (Signed) D.W. BELL D. W. Bell Under Secretary of the treasury Initialed: FD EMB 166 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 27, 1942 TO FROM Secretary Morgenthau J. W. Pehle You may be interested in the following item broadcast by Tokyo radio and picked up by the Federal Communication Commission's monitoring service. Tokyo radio says today, July 27, is really the first anniversary of the war between the U. S. and Japan. The Japanese arrive at this conclusion by alleging that "it was on this day that Japan was subjected to the freezing order which out off long standing (commercial) ties between the two nations and was actually driven into a state of war with the U. S. by none other than the crucial declaration of President Roosevelt". Justice 167 COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 257 Information received up to 7 A.M., 27th July, 1942. 1. NAVAL Two AA trawlers were engaged by four of our steam gun boats off NORMANDIE during the night 25th/26th. One trawler was left sinking and one damaged. A French ship, 3,350 tons, suspected of carrying cobalt for the enemy was stopped north of ORAN yesterday and is being escorted into GIBRALTAR. 2. MILITARY EGYPT. 25th. No change. Enemy continuing to dig in. 3. AIR OPERATIONS WESTERN FRONT. 25th/26th. DUISBURG--about 550 tons of H.E. and in- cendiaries including fifty-seven 4,000 pound bombs were dropped over the area. A Mosquito operating in the vicinity on the following day reported smoke drifting from DUISBURG and four large fires burning. 26th. In the early morning a Spitfire off LE TOUQUET sighted a 2,000 ton vessel which had been attacked the previous night by Hurricane bombers smoking heavily. It is believed to have sunk later. Three sweeps by Spitfires over THE PAS DE CALA produced a reaction of about 80 enemy aircraft. During these and other operations nine FW 190's were destroyed, 3 probably destroyed and ten damaged. A T-boat was sunk. Three Spitfires are missing. Mosquitos dropped bombs on three places in the RUHR. A merchant vessel attacked by a Sunderland off SAN SEBASTIAN was later seen making for the "panish coast at much reduced speed. 26th/27th. 433 aircraft were sent out - HAMBURG 404 including 189 heavy, aerodromes 29. Weather at HAMBURG was perfect being cloudless with bright moon. The objective was easily identified and numerous large fires were caused in the target area. Preliminary reports indicate an outstanding success. 29 bombers are missing, including 12 heavy. 20 Coastal Command aircraft were sent to attack a convoy off the FRISIAN ISLANDS. One 4,000 ton vessel was hit. 27th. In the early morning about 25 enemy aircraft taking advantage of cloud and rain flew overland and dropped some bombs over a wide area. EGYPT. 24th/25th. Our bombers attacked TOBRUK EL DABA landing ground and aerodromes in CRETE. Torpedo aircraft scored one hit on an escorted merchant vessel off BOMBA. MALTA. Between 1240/25th and 1215/26th about 40 enemy bombers and 60 fighters operated. One fighter was destroyed and 3 aircraft were damaged. 1. HOME SECURITY 25th/26th. BILLINGHAM There will be some loss of production at I.C.I. works. MIDDLESBOROUGH there was no serious damage to key points but 10 persons wereAtkilled. 168 July 28, 1942 9:15 a.m. FINANCING Present: Mr. Bell Mr. Haas Mr. Buffington MR. BELL: We will need two billion two hundred and fifty million dollars of new money in August, and that is based on the assumption that we will get one billion dollars in Savings Bonds, three hundred million in tax notes, and five hundred million, Treasury bills. We recently sent out a telegram to the chairmen of the Victory Fund Committees asking them for their suggestions on the August financing, and if they wanted, to give us some ideas on the full three months. I can give you sort of a summary of that if you would like to have it. H.M.JR: Yes, I would. MR. BELL: Two and a half percent, '62-'67, it was suggested by Boston, New York, Philadelphia, Richmond - well, all of them except one - that we reopen that issue, and the estimates ran anywhere from five hundred to seven hundred and fifty million dollars. H.M.JR: That is the so-called tap issue? MR. BELL: That is the so-called registered tap, yes. There were some suggestions that we reopen - that it be made available for estate taxes and that it be made a coupon bond so that it could transfer freely in the markets. They said there was a great deal of sales resistance to the registered security. Now, we have an amendment to the circular drawn which would permit its acceptance or its redemption, rather, in connection with the estate taxes, but George and I both feel that to make it a coupon bond would certainly make it sell 169 -2a good deal higher on the market, and we ought to give consideration to extending the term from '62 '67 up nearer the '67-'72, wouldn't you say, George - maybe not quite that. But we don't think that ought to be done. H.M.JR: I don't think you want to sell more of the same one-- MR. BELL: You do, you say? H.M.JR: I don't; I think if we make it a coupon that the price will be too high. MR. HAAS: Yes. H.M.JR: Why would a coupon bond sell - you mean, with no limitations? MR. BELL: You would have a limitation that the banks couldn't own it, but how you would police that would be through your supervisory authorities, whereas now we police it through our registered records. MR. HAAS: It would be difficult to tell a bank examiner that a bank couldn't hold United States Govern- ment bonds. MR. BELL: Practically all of them suggested that you do your August financing, that is, your major financing, by a certificate of indebtedness from six months to a year. Two or three of them suggested - one of them suggested three-quarters percent, May 1943; and one, seven-eighths, August '43, but they all practically suggested a certificate. Philadelphia suggests that we increase bills from four hundred million dollars - from three hundred fifty million dollars to four hundred million dollars in August and raise them to five hundred million dollars a week in September. Richmond and St. Louis also made that suggestion. 170 -3Kansas City made a rather novel suggestion, that many of these country banks still don't know how to bid on Treasury bills, and they suggest that each week they remain on sale, Treasury bills, at the highest bid; in other words, sort of a tap Treasury bill, so that the banks can come in and buy at that rate rather than bidding in competition with the larger banks. Philadelphia, Minneapolis, and Dallas suggested the so-called short tap issue. H.M.JR: Now who made this survey? MR. BELL: This is the Victory Fund Committees'. H.M.JR: I see. MR. BELL: St. Louis said there was a divergence of opinion on this tap issue, but it is recommending that, in order to get some of the funds and keep the financing out of the banks. Boston suggested that we have periodic drives on financing rather than an attempt that we have now to sustain steady sales efforts. They thought that we ought to have, say, a big financing program and everybody all out for it and then stop maybe for a month or two. We had two suggestions, one coming from New York and the other from Richmond, that in connection with the refunding early in September of the eight hundred ninety-four million securities maturing this fall, we do that with a Treasury note and we raise a half a billion dollars in cash in connection with that refunding, which would make your billion and a half issues about what we are trying to hold to. New York suggests that we give consideration to a four or five billion dollar issue late in September, or early in October, and that an early decision on this should be made in order that proper preparation should be made for it. There were several suggestions that we raise the limit on series A tax notes from twelve hundred to five 171 -4thousand. New York even suggested we might put it at ten thousand, and that the rate on series B be raised from forty-eight hundredths to seventy-two hundredths. Philadelphia and Minneapolis suggest that same thing. There are miscellaneous suggestions, such as New York still thinks that the responsibility for the sale of F and G's ought to be given to the Victory Fund Committee, that all market bond issues under war financing should be at fixed rates rather than giving the Treasury an option. I don't know why. It seems to me to be more important to give an optional date in war financing because of its size than any other plan. Philadelphia says that shortcomings in the organizational set-up are responsible for the lack of greater success in the sale of F and G Savings Bonds. They said also that there is sales resistance in the discount features of series G Bonds. St. Louis thought that the two and a quarter percent bond might be considered. They don't necessarily recommend it, but they thought that if the Treasury certificate was not wanted that the two and a quarter percent bond - that is what was wanted before, and there still is a lot of interest in that in the District. Minneapolis suggested, by the way, that we increase the F and G to a two hundred and fifty thousand limit instead of a hundred thousand; and we have one man who particularly wanted his views known to you that we should eliminate F and G's altogether, that they were a demand obligation on the Treasury, and the people who invested in those should go to a two and a half long tap. H.M.JR: Who is that? MR. BELL: No particular name; it just said one individual in the group wanted you to particularly know how he felt about it. 172 -5Dallas suggested you might have a seven to ten year bond issue. It would be well received in their District. H.M.JR: You had better give me those. MR. BELL: Yes, I can give you the letters if you want them. (Paper handed to the Secretary.) H.M.JR: No. MR. BELL: They are quite long. There are one or two yet to hear from. Now, in your - I think maybe we ought to draw up a little agenda for your discussion on-- H.M.JR: This is from the Victory Fund? MR. BELL: Yes. We will have a better analysis of that, Mr. Secretary, when they are all in. That is very brief. H.M.JR: That is all right. MR. BELL: For your three o'clock meeting tomorrow afternoon, I think maybe we ought to draw up a little agenda and try to stick to it. If we don't t, we will get all over the lot, and we are getting now so that we can't talk to the Federal on the subject that we don't switch and get back to the tap issue. We submitted to them our tax note. H.M.JR: I was going to ask you that. MR. BELL: Well, they didn't like it. The Board didn't like it particularly, but I think Allan Sproul and Bob Rouse said that they thought it was a good suggestion. MR. HAAS: And Williams, Al Williams. 173 -6 MR. BELL: He thought it was a good suggestion. They didn't like it as well as the short tap. H.M.JR: Sure, their copyrighted idea. MR. BELL: I think there was some author's pride in it, but nevertheless they said that they thought it was important that we go ahead on a short tap of some kind, and they would go along with this one that we could get together on. H.M.JR: I think we ought to do it right away. MR. BELL: If we are going to do it, it ought to be announced before the first of August, before anybody begins to invest in that tap, the old tax note, in August. We can get the notes ready, I think, by the fifteenth. I think you ought to do it. H.M.JR: The thirty-first is a Friday. Why couldn't we settle it before Friday? MR. BELL: I think we can. I think maybe you will be able to settle it this week - this week, Friday. H.M.JR: This is only Tuesday. MR. BELL: But, you shouldn't settle it, I don't think, until after the meeting tomorrow. H.M.JR: Pardon? MR. BELL: I don't think you should settle it until after the meeting tomorrow and give them a chance to argue against it. They said that there was no inducement like there was in their tap issue. In other words, they had a beginning three-eighths percent rate and it graduated up, and the longer a man held it, there was inducement to hold on to it. 174 -7Now, I asked Henry to look into the question of leaving the rate on the tax note for the first six months like it is, forty-eight hundredths, increasing it one cent every six months up until nine cents in the last six months, and that would give an average of about three-quarters. IN MR. HAAS: That makes new series every month. MR. BELL: No, I don't think so. It is the same thing. We can put a schedule on there. H.M.JR: Supposing there was a new series every month? MR. HAAS: The mechanical - I mean, that is-- MR. BELL: We would have to issue it like Treasury bills. The trouble with tax notes is they are so hard for a collector to handle. The computations on the face of the note have got to be simple; if the collector has ten notes of one denomination he can't look through each denomination and see the amount. He has to look at one on a certain date and multiply by ten. It has to be simple for him, but I thought tomorrow-- H.M.JR: Well, I personally think we ought to go ahead now with this tax note. That answers that argument about if there are - how long would it be, two years, three years? MR. BELL: We thought that we would make them December thirty-one, 1943 - I mean '45. That is a little over three years. We had it in your memorandum three years, but we thought we would complete the calendar year, go to December thirty-one, '45, instead of August. H.M.JR: But you will have to advance them a cent a month. 175 -8MR. BELL: No. Then on January first of this next year we would have a new series and go to December thirty-first, 1946. Each January we would have a new series, and just extend it out three years from that date. That is what we do now. H.M.JR: Do we? MR. BELL: Yes, we have a new series every January. H.M.JR: It seems to me if you are going to have the sliding scale you ought to have one every three months. MR. HAAS: You like a sliding scale rather than that seventy-two is sweet. We put it that way. H.M.JR: No, I would like - the thing that Bell has been talking about, the first six months at this same rate, then increase it a cent a month. MR. BELL: I think that would be attractive. Just figuring it out roughly, I think you would get around seventy-five, wouldn't you, three-quarters percent on that basis? MR. HAAS: Off-hand I don't see any objection. H.M.JR: Well, you fellows have got all day today to study it. MR. BELL: Well, I thought tomorrow that you might put down something to talk about - would be first the reopening of the two and a half's, when we ought to do that. H.M.JR: Yes. MR. BELL: It has been suggested that we do that August third. That is Monday. And then the next thing I think you ought to discuss, probably, is this tax note, 176 -9one, raising the limit from twelve hundred on A to some figure - it has been suggested five - one fellow said ten - and then go and change the B to take in both the idle funds and the tax funds. And then think you ought to consider what you ought to do in I the major job. H.M.JR: Well now, just a second, if we reopen the tap issue, how much do you think we would get out of it? MR. BELL: Well, it is estimated anywhere from five to seven fifty. I thought six hundred million. H.M.JR: Let's say six hundred million; and if we did this new tax note, how much would we get? MR. BELL: Gosh, that is hard to say. We are getting now around three hundred or three hundred and fifty million dollars a month, and that might go to seven or eight hundred million. H.M.JR: Let's say six hundred on that. What? MR. BELL: That is a billion two. H.M.JR: Which would leave a billion. MR. BELL: No, because in the two billion two hundred fifty I have considered three hundred million tax notes, so it is really a billion three. H.M.JR: How much do you think we would have to raise outside of that? MR. BELL: I was thinking we ought to raise about a billion and a half - a billion six outside of this new tap issue; and I would be inclined to go ahead and raise the billion six - billion and a half or billion six - and then test the new note. That would cut down on your September financing. 177 - 10 H.M.JR: If you ask for more than a half and took five percent over, you would get-- MR. BELL: That is all right. H.M.JR: You asked for a billion and a half five percent is what, seven fifty? MR. BELL: Seventy-five million. H.M.JR: You could run a little-MR. BELL: We took eighty-eight million on the last certificate. H.M.JR: I mean, don't you think about a billion and a half? MR. BELL: That suits me fine. over. H.M.JR: Then you could take six or seven percent MR. BELL: And we are sure to get some funds here on this new tax. H.M.JR: Then it gets down to how we are going to do the billion and a half. MR. BELL: That is right, and it has been suggested by all of them that you do another certificate; some have suggested nine months, May, at three-quarters, and some have suggested a year at seven-eighths. H.M.JR: You mean another certificate? We have two out now. MR. BELL: Yes, sir, and most all of them would like six billion dollars of certificates outstanding. Eccles would like eight. He would like eight billion dollars in certificates and six billion dollars-- 177 - 10 H.M.JR: If you ask for more than a half and took five percent over, you would get-- MR. BELL: That is all right. H.M.JR: You asked for a billion and a half five percent is what, seven fifty? MR. BELL: Seventy-five million. H.M.JR: You could run a little-MR. BELL: We took eighty-eight million on the last certificate. H.M.JR: I mean, don't you think about a billion and a half? MR. BELL: That suits me fine. over. H.M.JR: Then you could take six or seven percent MR. BELL: And we are sure to get some funds here on this new tax. H.M.JR: Then it gets down to how we are going to do the billion and a half. MR. BELL: That is right, and it has been suggested by all of them that you do another certificate; some have suggested nine months, May, at three-quarters, and some have suggested a year at seven-eighths. H.M.JR: You mean another certificate? We have two out now. MR. BELL: Yes, sir, and most all of them would like six billion dollars of certificates outstanding. Eccles would like eight. He would like eight billion dollars in certificates and six billion dollars-- 178 - 11 - H.M. JR: What was the last? Excuse me, I didn't mean to interrupt. What did you say? MR. BELL: I say Eccles would like eight billion dollars of certificates, that is, two billion dollars on each of the maturity dates, and he would like six billion dollars of Treasury bills. H.M.JR: He is going up. MR. BELL: He has gone up a little. But most of them suggest that we have eventually six billion dollars of Treasury certificates. H.M.JR: Well, we always figured, didn't we, in August on doing a billion and a half? MR. HAAS: I thought you were figuring on that. H.M.JR: In certificates. MR. BELL: Either in August or September we said we would have another certificate issue. MR. HAAS: November - was it February, May, August - I mean it is even quarters. MR. BELL: Those are maturity dates. We set February first, May first, August first, and November first. H.M.JR: I think, particularly if we are going to do the tap issue, this will be the time to do the certificate. MR. BELL: I think you are right. it? H.M.JR: That doesn't sound too difficult, does MR. HAAS: No. It would be difficult if you tried to do a big job in August, but I guess that is out. 179 - 12 - MR. BELL: I think it is too early to do a big job. Then the next thing I think you ought to discuss at the meeting would be the longer term program as to whether or not we want to do a big job some place along here, say in September, and get their views on that, and get them thinking about it. If we decide that we want to give consideration to - I think we ought to give consideration to whether or not we ought to announce that we are considering it so as to let the market talk-H.M.JR: You are going to have trouble with me on that with all this other stuff in the wind until we see what the President does on the cost of living and rationing. MR. BELL: He would be pretty well out by that time. Isn't he coming out next week? By the way, is that going to hurt our financing? H.M.JR: Help it. MR. BELL: Ought to help it, ordinarily. H.M.JR: Ought to help it, if he does the-MR. BELL: The right thing. H.M.JR: If he does what they were talking about up to seven o' clock last night, it would help us. Now, the question is - everybody is going to go at him, and the question is how much he will water it down. But I know that Henderson is going over there today to try to get him to change, but he certainly was toughminded yesterday. MR. BELL: Who is that - Henderson is going to try to get him to change? H.M.JR: Yes, it is too tough for Henderson; even Henderson couldn't stomach it. 180 - 13 - MR. BELL: I think he has got to get tough. H.M.JR: I think whatever he does would help us, Dan. MR. BELL: Certainly we shouldn't announce that we are considering it until after our books are closed and there is some distribution of the C/I's probably around the tenth or fifteenth of August. H.M.JR: You won't get me to commit myself until I come back. MR. BELL: Not commit, just announce to the market that you are considering it. H.M.JR: You won't get me to do anything on this until I come back from my week's holiday. MR. HAAS: If you discuss it here, the Fed will have it all out anyway. MR. BELL: It was in the paper Sunday. H.M.JR: We will slap them down. We slapped them down before. MR. BELL: Yes, that the Treasury was considering it. I think that came from the Victory "und Committees. I wonder if you want to discuss that in the meeting tomorrow. H.M.JR: No. MR. BELL: They will bring it up. H.M.JR: Let them bring it up. MR. BELL: Allan Sproul will. H.M.JR: That is all right. 181 - 14 MR. BELL: Then you ought to discuss the Treasury bill program as to whether the three fifty is enough. Allan Sproul thought that you ought to go to four hundred million on September ninth. I think that is the maturity date of the three hundred million dollars. That is the beginning of the maturity date. That would be a good time to go to four hundred, he thought, and then you would have in the picture also the reserves. The reserves are down, what is it, two ninety? H.M.JR: Yes, I wish you would certainly put something in on that. MR. HAAS: I think you have to. It has gone down where you have to. MR. BELL: Allan Sproul suggested the other day at the meeting that possibly we ought to lower reserve requirements in New York and Chicago by two percent. That would give about four hundred million, wouldn't it, George? MR. HAAS: That is right. MR. BELL: And then in September and October do the same thing. H.M.JR: I wish you would put that up to the head of the list because I have got to do something about that and quit fooling about it. MR. HAAS: You have reached the stage where you have to. H.M.JR: They have got to do something. I wish you would put that up as number one. Please put that number one on the agenda. MR. BELL: Well, I-MR. HAAS: Don't they realize that, Dan? I thought Sproul discussed it. 182 - 15 - MR. BELL: I think Sproul feels that if you are going to do financing from month to month, just like we have been putting out bank issues, that you have got to put out some additional reserves, but he thinks that two percent a month would do it. He thinks that - I believe he thinks that you can go by August and no harm will be done. H.M.JR: What are the reserve requirements in New York? MR. BELL: Twenty-six percent. They want to lower it to twenty eventually. H.M.JR: Why not do it at once? Why this nig- gardly business-- MR. BELL: I think if you do it at once you throw a billion two hundred dollars' worth of money into the market which is going to seek investment and probably rush the price of securities up, which I don't think should be done. You certainly have heard no kick on the reserves. No one is worried about the reserves any more because they have got flexibility. H.M.JR: I am worried; it tightens the money market. MR. BELL: I don't think it is tight. H.M.JR: Why do they want to raise the short- term money rate? MR. BELL: That is for a different reason. I think that also ought to be on the agenda. H.M.JR: Is Sproul ready to go ahead on the two percent? MR. BELL: I think he is. Wouldn't you say - I don't think-- 183 - 16 MR. HAAS: He will ask - coupled with that, he will ask to raise the three-eighths on bills to a half, which I agree with the Secretary on, no. MR. BELL: I don't think he was free to talk, but he did suggest we do the two percent a month. H.M.JR: I will see how serious he is. They begin doing that when? MR. BELL: In August. MR. HAAS: It ought to be done before this financing. MR. BELL: Announce it about the time-H.M.JR: They ought to announce it this week. MR. HAAS: They ought to announce it so the banks know where they are at before you offer it, several days before. MR. BELL: I should think if you announced it the first of the week it would be all right. Don't announce it far enough in advance so they go into the market and start buying. That is what you don't want them to do. (The Secretary held a telephone conversation with Mr. Allan Sproul as follows:) 184 July 28, 1942. 9:50 a.m. HMJr: Hello. Operator: Mr. Sproul. HMJr: Hello. Allan Spreal: Good morning, Mr. Secretary. HMJr: How are you? S: Fine. HMJr: You going to have lunch with me tomorrow? S: Yes, I just got the message, and I've planned to. HMJr: Good. I was just sitting here with Bell and Haas talking about the financing, and Bell tells me that you have a plan to lower the reserves two percent a month in New York and Chicago till you get them down to twenty? S: I suggested that, yeah. HMJr: Well, are you going to - you're serious about S: HMJr: that? Well, I'm serious about it, but that's something that's in the Board's hands, not in the Open Market Committee's or the banks, 60 it's that the Board has to act on that. Yeah, but as far as you're concerned, you're serious. S: That's right. HMJr: I see. Well, I just wanted to - I just wanted S: Yeah. HMJr: .... because I think it should be done. to make sure 185 -2- S: HMJr: S: Well, it's tied up with some other things. It' 8 not a separate thing by itself. Yeah. Well, you're - what are you going to try to do, deal with me? Well, I'm not - no, I - I - my suggestion 18 a is a complete - a complete program, more or less a complete program, not isolated action. I can't deal with you. (Laughs) HMJr: S: HMJr: S: HMJr: Well, you make a good stab at it. (Laughs) Well, I try sometimes. (Laughs) All right. Okay. All right. All right. Thank you. 186 - 17 (The Secretary held a telephone conversation with Mr. Ransom as follows:) 187 July 28, 1942. 9:53 a.m. HMJr: Operator: HMJr: Hello, Mr. Ransom. Hello. Ronald Ransom: Good morning. HMJr: How are.you, Ronald? R: Fine. I hope you're well. HMJr: Are you in your own office? R: I am. HMJr: Good. Ronald, I hope that the Board will entertain a suggestion of lowering the reserves now. As I understand it, Proul Sproul's made the suggestion two percent a month till you get it down to twenty for New York and Chicago. R: HMJr: Yes. Well, I think to run along with $200 million dollars reserve in New York is just plain dumb - hello? R: HMJr: R: HMJr: Yes, I'm listening to you. And I hope I'm not going to have to have a row about it. I don't see why you should ever have a row with us or we with you. No, and I don't know where you stand, but I know - you told me that you saw no reason to increase the three-eighths rate, and of course this is tied up with that. R: Well, may - may I take just a minute of your time? 188 -2HMJr: Sure. R: I was sitting here trying to dictate a memo- HMJr: Sure. randum on this general subject R: HMJr: Yeah. R: ....to relieve my own mind. HMJr: Yeah. R: I came out of the last meeting between the Treasury people and ourselves HMJr: R: HMJr: R: Yeah. in a most unhappy frame of mind, as did everyone there 80 far as I know Yeah. ....and trying to analyze the cause for that, I came to several conclusions, first, that the Board itself should deal much more directly with you HMJr: R: HMJr: Yeah. that, secondly, that we should try to hold staff discussions to the staff level Yeah. and I'm not including Dan as staff because R: he is principal, of course HMJr: R: Yeah. but to try to get our respective staffs to clarify the questions that we are both jointly interested in HMJr: Yeah. 189 -3and when they come out at a point, then let you and the Board, respectively, reach some understanding as to the staff recommen- R: dation. It seems to me we - we wholly lack that direct contact with you which I think in this emergency period 18 of the utmost importance. HMJr: Well, let's be frank with each other. Is it R: No, I don't know that it's anybody's fault, my fault? Henry. I think it's - I think we all have failed to quite realize that in this situation it's - is of the utmost importance that you and we--you and Dan, I'11 say, and the Board-should have direct contact HMJr: R: Well... ....to discuss these things face-to-face rather than HMJr: R: Yeah. in the perplexing, round-about way we have followed. HMJr: I think R: It's not your fault. I HMJr: R: HMJr: that all of the initiative of asking the Board to meet with me, I think, comes from me. Yes. I think every time that we want to get together, it's I'm asking the Board to sit down with me and advise me R: Yes. with me HMJr: R: Yes. 190 -4HMJr: ..and I'm not conscious of the fact that the Board wants to see me except when I ask for it. R: Well, I - I think there's something in that. HMJr: What? HMJr: I think there's something Just stop and think, I mean now. R: Yes. R: I don't know when the Board's asked to see HMJr: me. R: HMJr: Well, perhaps we've been - that's a possibility. But I agree with you. I - I think we ought to meet regularly once a week. R: HMJr: Well, that would be fine. Yeah, whether we have a financing or not. Now this week I'm starting a week earlier with you fellows. R: Yes. HMJr: But I'd be delighted to meet once a week. R: Yes. Well, I think that's a grand idea. HMJr: Yeah. R: I really do, because this is no time to have any differences. HMJr: But I didn't know that you fellows were upset over there. R: Well, we're not upset. I said I came out of the meeting HMJr: Yeah. 191 -5quite unhappy, not on account of anything R: that was said or not said, but I thought it was apt to be - it was the - we had reached the point of utter futility. We were not getting anywhere, you see? That's what's worrying me. HMJr: R: HMJr: R: HMJr: Yeah. Well, of course, I wasn't conscious of that - I mean No, I know that's clear out of your but I must say, I - as far as my relationship with the Board, I've got a clear conscience. Your conscience is pretty clear now, isn't it? Yeah, it's - it's - yeah, I - I think 80. R: I think it 18. Now HMJr: But anyway R: Let me - let me - let me go just a minute HMJr: Yes. R: further if I may. I suggested that tomorrow after that meeting in fact, I wasn't on the Executive Committee but I made a motion and got somebody else to put it, and the Executive Committee to tentatively agree--that we ask Goldenweiser and Williams, John Williams, on our part, to ask Dan to put two fellows from your senior staff, Haas or - anybody that you fellows wanted, and ask those four to sit down and state points of agreement, pointe of doubtful agreement, and points, if any, not in agreement HMJr: R: Yeah, yeah. and that we take a look at it. Well, Dan said that looked to him as if we were moving it only one step further from you, and that it was a pretty good way to go at it, so I said, "All right," when Marriner reported that to me, "let's just have our own staff to pass such a statement and let us take a look at it." 192 6- HMJr: R: HMJr: R: HMJr: R: HMJr: R: HMJr: R: Well, Dan has been bringing to my attention that - I want to - don't want you to think that he hasn' Yes. .... that there should be closer working - I mean, he has told me that Yes. and that's why we're having these meetings this week. Dan's responsible for that. Yes. But I'11 have to stop now, but I - I'm more than pleased to work - and see you fellows just as often as possible and talk to you as often as possible. Well, that's fine. Now. And you think over these reserve requirements, will you? Yes, sir, it's tangled up in 80 many other things, I'd like to discuss the whole thing face-to-face with you. HMJr: Well, we'11 - we'll do that tomorrow. R: Fine. HMJr: Okay. R: Okay. 193 - 18 MR. BELL: Of course I didn't say that you shouldn't discuss it; I said you should, but I thought we were moving one point further. (Mr. Buffington entered the conference.) H.M.JR: George, I want to ask you one question. Do you know - could you give me an estimate, if we decide to make this tax anticipation note, your old friend and pal, which you once used to sell - if we made that more available or more popular along the lines we have been talking, not today, but other days, whether your boys - how much they could sell? Have you any way of getting or making an estimate? MR. BUFFINGTON: It would be difficult to make an accurate estimate. I think from what Dan has told me, and I have heard in those Federal Reserve meetings it would be much more flexible, therefore much more salable to corporations where they wouldn't have to accurately estimate their tax requirements but could carry them for other purposes. I will make an effort to make an estimate. I don't know how accurate it will be. H.M.JR: Make an estimate, and then sometime tomorrow morning let me have it, will you? MR. BUFFINGTON: O.K., sir.