Full text of Diaries of Henry Morgenthau, Jr. : Volume 605 : Part 1

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DIARY

Book 605

January 21 - 31, 1943

-B-

Book Page

Board of Economic Warfare

Wallace's letter and order as result of placing of

administration of foreign rubber program in hands
of Jesse Jones' Rubber Reserve Company - 1/25/43.
Meeting scheduled for January 28, 1943 - 1/26/43
a) Discussion planned on
1) Cork and bristles reports
2) Gold mining in Colombia and Nicaragua
Bristles

605

132
155

156,160,181

See Board of Economic Warfare

-cCanada

See Lend-Lease
Cork

See Board of Economic Warfare
Correspondence

Mrs. Forbush's mail reports - 1/22/43, 1/29/43.

19,192

-FFinancing, Government

Federal Reserve operations in Government securities 1/23/43, 1/30/43

45,213

War Savings Bonds:

Payroll Savings Plan: Analyses as of January 16
and 23 - 1/22/43, 1/29/43

17,190

-GGold

See Board of Economic Warfare

-IInternational Stabilization Fund
See Post-War Planning

-LLend-Lease

Allocations, obligations, and expenditures of funds
appropriated to the President - report as of
December 31, 1942 - 1/26/43

Report for week ending January 23, 1943 - 1/26/43..
Stettinius' statement (proposed) before House Foreign
Affairs Committee on extension of Act - 1/30/43

149

153
215

- L - (Continued)
Lend-Lease (Continued)
Canada: December 1942 supplement to quarterly estimate

of balances of payments - 1/30/43
U.S.S.R.: Status of Soviet Aid Program as of

Book

Page

605

233

128

December 31, 1942 - 1/23/43
United Kingdom:

Aircraft despatched, weeks ending January 19 and 26 1/25/43, 1/30/43

130,241

Federal Reserve Bank of New York statement showing

dollar disbursements, week ending January 20, 1943 -

236

1/30/43

Library of Congress
Minutes of Trust Fund Board meeting held June 5, 1941,

sent to HMJr by MacLeish on January 21, 1943

-M-

Military Reports

British operations - 1/21/43, etc
Office of War Information reports - 1/15/43, 1/22/43

12,14,41,122
123.139.165,
180.186.187,
243,244
184,185

-0Office of Economic Stabilisation
Minutes of meeting - 1/22/43
a) Discussion of
1) Relation between agricultural prices and
increased production of foodstuffs (Wickard)

16-A

2) Relation of agricultural wages to supply of
farm labor (McNutt)

-PPost-War Planning

International Stabilization Fund: Conference in

D. W. Bell's office; present: Bell, White; Berle
and Pasvolsky, of State Department - 1/26/43
-R-

Rubber

See Board of Economic Warfare

142

-sStabilization Fund, International
See Post-War Planning

-UU.S.S.R.
See Lend-Lease

-WWar Savings Bonds
See Financing, Government

1/23/43
1

Original to Mr. Bell.

THE LIBRARY OF CONGRESS
TRUST FUND BOARD

CINGRE

THE

Washington

HOMELAND

THE SECRETARY OF THE TREASURY

HENRY MORGENTILAL JR
SECRETARY
THE

LIBRARISM OF CONGRESS

ARCHIRALD MAGLEINI

January 21, 1943

Dear Henry:

I enclose a copy of the minutes of the meeting of the Library of Congress Trust Fund Board held
in your office at 10 a.m., on June 5, 1941.

I apologize for the delay in submitting these
minutes. It will probably be necessary to call a meeting of the Board to confirm various poll votes in the
near future. If, therefore, you have any comments on
the attached minutes, I should be grateful if I might
receive them at your convenience.

Faithfully yours,
Enclosure

and mader

Archibald MacLeish

The Honorable
Henry Morgenthau

Secretary of the Treasury
Washington, D. C.

THE LIBRARY OF CONGRESS
TRUST FUND BOARD

CONGRESS

Washington
CHAIRMAN

THE SECRETAR THE TREASURY
HENHY MORGENTHAK.JH
SUCHETARY

THE LIBRARIAN OF CONGRESS
AMCHIBALI

A meeting of members of the Library of Congress Trust Fund

Board was held in the Office of the Secretary of the Treasury on Thursday morning at 10 o'clock, June 5, 1941. Present were: The Chairman
of the Board, Henry Morgenthau, Jr., the Secretary of the Treasury;
Dr. Adolph C. Miller; and the Secretary of the Board, Mr. Archibald
MacLeish. The purpose of the meeting was to confirm action taken by
numerous poll votes since the last meeting of the Board, and to consider any other business which might come before the meeting.
HUNTINGTON TRUST

In confirmation of the poll vote of June 5, 1940, and the instrument of June 22, 1940, appointing Mrs. Meyer as trustee to succeed
Mr. Huntington, the following resolution was adopted:
RESOLVED That the Library of Congress Trust Fund Board
hereby confirms the appointment on June 22, 1940, of Mrs.

Eugene Meyer, a member of the Board, as individual trustee
to succeed Archer Milton Huntington, resigned, under
Indenture of Trust dated November 17, 1936, between said
Archer Milton Huntington as grantor and Bank of New York

and Trust Company (now Bank of New York)and said Archer

Milton Huntington as trustees.

Under date of June 7, 1940, the Librarian received from the firm

of Cadwalader, Wickersham and Taft a communication informing him of the

sale, on May 10, 1940, at a price of 180-1/4 a share, of the 5,000

shares of Newport News Shipbuilding and Drydock Company stock. The suggestion was made by the attorneys named that the expense of a judicial

settlement might be saved if the beneficiaries of the trust were satisfied with the price and would express their approval to the trustee.

Accordingly, an Account of the Proceedings of the Trustees under Deed of
Trust of Archer Milton Huntington, dated November 17, 1936, was submitted
for examination and approval by the Board. The account having been

-2examined and found satisfactory in all respects, the following resolu-

tions were adopted by a poll vote of the Board and are hereby confirmed:
RESOLVED That the Board of the Library of Congress Trust
Fund Board hereby approves the accounts of Archer M.
Huntington and Bank of New York, as Trustees under Indenture of said Archer M. Huntington dated November 17, 1936,
covering the period from November 17, 1936 to and includ-

ing July 2, 1940, as submitted at this meeting, and the
form of release annexed thereto;

FURTHER RESOLVED That Archibald MacLeish, Secretary of the

Library of Congress Trust Fund Board, be and he hereby is
authorized to execute the said release on its behalf.
The vote of December 17, 1940, approving the payment to the
Bank of New York of its principal paying commission, which

will amount to $9022.50, to be charged to principal "in

two equal installments every ten years beginning May 10,

1950", was confirmed.
PENNELL ESTATE

The Librarian on June 28, 1940, approved of repairs on the premises 2031 Boston Avenue, Philadelphia, Pennsylvania, to the amount of
$400, upon the statement of the Provident Trust Company that if such

repairs were made it was felt it would be possible to rent the property

immediately for $22 per month. Certain of the repairs have now been made
and the property has been rented (September 1, 1940) at $22 per month.
The action of the Librarian was approved.

The following poll votes, taken since the meeting of October 31,
1939, were confirmed:

Vote of November 16, 1939, approving acceptance of an offer
transmitted by the Provident Trust Company of Philadelphia

under date of November 1, 1939, for the property located at
2111 South Street and rear, 2108 Rodman Street, Philadelphia,
Pennsylvania.

Vote of February 13, 1940, approving a resolution authorizing
the Librarian of Congress to execute "Applications for the

3Exemption of Real Estate" for each of the Philadelphia
and suburban properties held in the Pennell Fund, and
to file the same in the Office of the Board of Revision
of Taxes.

Vote of July 8, 1940, approving acceptance of an offer
transmitted by the Provident Trust Company of Philadelphia
under date of June 24, 1940, for the property located at
1262 North Frazier Street, Philadelphia, Pennsylvania

Vote of July 10, 1940, approving five resolutions relating to the Philadelphia properties. The covering communication to the Members of the Board and the five resolutions

are here entered in full:

July 10, 1940

To the Members of the Library of Congress Trust Fund Board:
Last December the Treasury Department wrote to the Li-

brarian of Congress that the Pennell donation properties
in Philadelphia appeared to be entitled to exemption from
state and city taxes. The Librarian at once wrote to the
Provident Trust Company, which manages these properties,

asking for a full report, which was duly forthcoming on
January 5, 1940, in the form of a letter from the Company's
attorneys, MacCoy, Brittain, Evans and Lewis, stating their
opinion that the circumstances surrounding the original
acquisition seem to disentitle these properties to tax
exemption. At the suggestion of the Provident Trust Company,
the matter was taken up with the Board of Revision of Taxes
in Philadelphia, and subsequently applications for exemption
of real estate were executed by the Librarian of Congress,
with the approval of the Trust Fund Board, and forwarded
to the Board of Revision of Taxes in Philadelphia. These
applications were declined as of April 15, 1940.
Preparatory to testing the matter in the Federal Courts,
we are advised by the Treasury Department that the present
arrangement with the Provident Trust Company should be modi-

fied to change it from a trustee and cestui que trust relationship (with record title in the Company) to a principal and

4agent relationship (with record title in the United States).

This can be accomplished by revoking the Deed of Trust of

August 5, 1937, in its entirety, pursuant to clause Seventh
thereof, and giving the Provident Trust Company of Philadelphia

a power of attorney containing powers of management and sale

similar to those in the Deed.
Resolutions authorizing the desired steps are presented
herewith for the approval of the Board by poll vote, to be
confirmed at the next meeting. will you please indicate your
opinion below on each of the three appended resolutions?
Faithfully yours,
The Acting Librarian of Congress
and Secretary pro tempore,
Library of Congress Trust Fund Board

The resolutions are as follows:
RESOLVED That the Deed of Trust from Herbert Putnam, the

Librarian of Congress, to the Provident Trust Company of
Philadelphia, as trustee, dated August 5, 1937, and recorded
at Philadelphia,"Rennsylvania, on October 16, 1937, in Deed

Book D. . H. No. 432, at page 184, be and it hereby is
revoked in its entirety, pursuant to the power reserved to
this Board in the clause SEVENTH thereof.

RESOLVED That the Librarian of Congress be and he hereby is

authorized to execute and deliver to the Provident Trust
Company of Philadelphia the necessary deed of revocation with
instructions to cause such deed to be recorded, and instruc-

tions to cause record title to all the property real and per-

sonal which now forms the corpus of the Trust, to be placed
in the name of the Library of Congress Trust Fund Board.

RESOLVED That the Librarian of Congress be and he hereby is

authorized to execute and grant, on behalf of and in the name
of this Board, a revocable power of attorney to the Provident
Trust Company of Philadelphia to do all acts necessary or
proper to manage and administer all real estate, mortgages,
and ground rents now held in the Pennell Fund, and to sell

the same in such manner and upon such terms and conditions as
may be approved by this Board, for which such Attorney shall

-5receive as its commission five per centur of all income
collected, as and when it is collected, and five per centum

of the selling price of all property sold: Provided, however, that where a licensed real-estate broker is retained

and paid in connection with any sale, the total combined
commission for such sale for Attorney and broker shall not
exceed seven and one-half per centum.

RESOLVED That no Philadelphia real estate taxes should be
paid upon the properties held in the Pennell Fund pending

final determination of the question whether such properties
are legally exempt from taxation.
RESOLVED That the Librarian of Congress, as Secretary, be and

he hereby is authorized and directed to request the Provident
Trust Company of Philadelphia, Trustee, in the name of this
Board, to withhold payment of Philadelphia real estate taxes
for 1940 and subsequent years on the real estate held in
the Pennell Fund until final determination of the question
whether such properties are legally exempt from taxation or
until otherwise directed by this Board.
WHITTALL FOUNDATION

The Secretary reported additional gifts from Mrs. Gertrude Clarke
Whittall, in further augmentation of the Whittall Fund, in the amount of
$10,000 received December 22, 1939, and of $100,000 received February

21, 1940. These gifts were accepted by the Chairman of the Board, with
the approval of the Joint Committee on the Library, under the resolution
adopted at the meeting of October 31, 1939, authorizing the Chairman to
accept further sums proffered by Mrs. Whittall. The report of the
Librarian was accepted.

HEGEMAN ENDOMENT

The poll vote of June 25, 1940, approving the letter to be sent
to the Cosmos Club with reference to the property at Sixteenth and I
Streets, N. W., set forth below, was confirmed.
June 25, 1940

Dear Dr. Simon:

I am replying to your letter of June 6 in which you set
forth certain proposals for the lease by the Cosmos Club of

6the Porter property on the southwest corner of Sixteenth
and I Streets.
The terms of your proposal have been considered by
the Library of Congress Trust Fund Board. The Board finds

the,Let of your proposal to differ BO widely from the terms
on which I was authorized to negotiate with you (as set
forth in my letter to Dr. L. H. Adams on November 27, 1939)

that it cannot accept them. In view, however, of the

Board's desire to reach an arrangement with the Cosmos Club,

if agreement is possible, the Board has been willing to
make certain concessions with regard to the terms set forth
in my letter of November 27. It has, therefore, authorised
me to inform you of these concessions. The Board wishes me
to state that the terms now suggested are the minimum terms
which the Board feels it would be justified in accepting.

Those terms are as follows:

The valuation of the property for the purposes of the
proposed lease will be based upon the assessed valuation and
taken at $375,000. The average rental over the period of

the lease will be four percent net upon that valuation, the

lessee assuming all charges for repair, upkeep, etc. etc.
The period of the lease will be the period suggested by the

Cosmos Club, i.e., thirty years. Rentals will begin at
$12,000 for the first five years, rising to $14,000 for the

second five years, to $15,000 for the next ten years, and to
$17,000 for the next ten years. The lessee will have an option
to buy at $375,000 for the first two years of the lease and
thereafter for the next three years $400,000. Thereafter the
option to purchase will expire.
If the Cosmos Club can accept these terms, an early meeting of representatives of the Cosmos Club and the Trust Fund
Board should be arranged to prepare a detailed agreement.

I should be glad to have a reply at your earliest con-

venience.

Dr. Louis A. Simon
Vice President

Faithfully yours,
(signed)

Cosmos Club, Washington, D.C.

Archibald MacLeish

The Librarian of Congress

and Secretary, Library of
Congress Trust Fund Board

-7The poll vote of December 5, 1940, approving the use of the
Hegeman property for the month of December by the District
of Columbia Committee of the Council of Social Agencies in

connection with its work in the repairing of toys and various
other food, toy and clothing operations, was confirmed.
The poll vote of January 30, 1941, approving the acceptance
of the offer of the Federal Works Agency, acting in behalf
of the government to lease the building and coach house at
1600 I Street, N. W. for the use of the Executive Office of
the President, Division of Defense Housing Coordination, was
confirmed.

The poll vote of May 6, 1941, authorizing the payment of the

insurance premium on 1600 Eye Street in the amount of $186.26
from rental moneys now in the hands of the Board, was con-

firmed.

The Secretary reported to the Board that he had received from the
President an opinion of the Attorney General rendered upon the question
whether or not the Library of Congress Trust Fund Board is empowered to
divide between the Library of Congress and the Smithsonian Institution

the proceeds of the leasing of the property at 16th and I Streets, given

to the Library of Congress Trust Fund Board by Miss Annie May Hegeman
on December 20, 1938, Miss Hegeman's gift having provided only for the

division of the proceeds in the event of sale and not for the division
of moneys received by way of rental. It is the opinion of the Attorney
General that under statute U. S. C., title 2, Sec. 156, the Trust Fund
Board is not authorized to apply income from donations to any purpose

other than for the benefit of the Library, its collections, or its

services, except when a proper condition is attached to the donation.
In view, however, of the possibility that the property may remain un-

sold for a considerable period of time, it is the Attorney General's

opinion that the safer course would be "for the Library of Congress Trust
Fund Board to explain the situation to the donor, seek her approval of
a division of the income with the Smithsonian Institution, and then, if
such approval is had, recommend the enactment of enabling legislation".
After consideration of the question thus presented, the Board

instructed the Secretary to communicate with Miss Hegeman, as suggested

by the Attorney General, to ascertain whether now, or after a reasonable period of time, she would wish to approve a division of any income

-8received from the property by way of lease.
MINUTES

The minutes of the meetings of October 31, 1939 and of November
2, 1939, having been previously communicated to the members of the Board

individually, were confirmed without being read.

The minutes of the special meeting of June 21, 1940 were read

and confirmed.

The minutes of the present meeting will be communicated to the

members of the Board individually, to await confirmation at its next
meeting.

CONGRESS OF THE UNITED STATES
JOINT COMMITTEE ON REDUCTION OF
NONESSENTIAL FEDERAL EXPENDITURES

There will be a meeting of the Joint Committee in

Room 314 Senate Office Bldg., on Friday, Jan. 22,
at 10 a.m., (10-11 executive session)
To hear Dr. Studebaker, Office of Education

1/21/43

advised

HARRY FLOOD BYRD,

owBell 1/22

Heffelfinger attended

Chairman.

NOT TO BE RE-TRANSMITTED
COPY NO.

BRITISH MOST SECRET
U.S. SECRET

OPTEL No. 30

Following
is supplementary
resume of operational events covering the
period 14th - 21st
January,
1943.
1. NAVAL

NORTHERN WATERS. Combined effect of Allied Submarine and air attack

which has caused heavy casualties in medium-sized ships, of minelaying, of the
laying-up of diesel-engined ships owing to shortage of fuel, of the divorsion of
merchant tonnage for naval purposes and of long delays in repair work has brought
about a serious enemy shipping shortage in northern waters, and GERMANY may soon be
faced with the need to expand her shipping construction and repair programme.
MEDITERRANEAN. A convoy from MALTA reached ALEXANDRIA without incident

Destroyers operating from BONE and MALTA made successful sweeps off coasts of
TUNISIA and TRIPOLITANIA and in Central MEDITERRANEAN. M.T.Bs. raided TRIPOLI

Harbour. At least 9 ships, many small craft, and one Italian submarine were sunk
by these attacks and by H.M. submarines and naval aircraft. Enemy Mediterranean
traffic continues to be concentrated on SOUSSE and BIZERTA and to a less extent on
TUNIS.
SUBMARINE WARFARE. Week ending 20th 7 attacks on U-boats by surface

craft and 12 by aircraft, 5 considered promising. Belated reports of 5 promising
attacks received from U.S. Naval authorities, one of these in S.W. PACIFIC. At
present U-boat policy in ATLANTIC seems to be concentration in N.R. Approaches.
SHIPPING CASUALTIES. During the week 16th - 22nd inclusive, 11 ships

were reported torpedoed. A large Panamanian oil refinery ship in a homebound convoy
S.W. of ICELAND, a British ship in convoy east of DEMERARA, a small British schooner
sunk, probably by a submarino, off CURACAO, 2 cased petrol carriers (Greek and
Norwegian) off the coast of CYRENAICA and one British ship suhk and one U.S. ship
damaged off SYDNEY, N.S.F., one U.S. and 2 British ships were damaged by aircraft
off
the N. and
African
coast and a Belgian ship was damaged by mino off W. coast of
SCOTLAND
beached.
TRADE. Four ocean convoys totalling 86 ships arrived in Home Wters
without
loss.
Imports
convoy into United Kingdom week ending 16th - 515,000
tons of which 244,000inoil.
GERMAN FLEET. SCHARNHORST and PRINZ EUGEN believed returned BALTIC
December.
from SKAGERRAK.

Reported that HIPPER was damaged in action off North Norway 31st

JAPANESE FLEET. Estimated now in southwest Pacific - Battleships 5,

converted aircraft carriers 2, 8" cruisers 8, 5'25" cruisers 7.
2. MILITARY

FRENCH NORTH AFRICA. In the Northern Sector rains continued to limit

activity to patrolling. Enemy is now strongly entrenched. Operations further south
as
reported
in daily
OPTEL.
Estimated enemy combatant strength now 40,000 Germans,
19,000
Italians,
tanks
unaltered.
FAR EAST. BURMA. ARAKAN. Japanese resistance continues on line
DOMBAIK (MAYU Peninsula) - RATHWDAUNG. Advance restricted by difficult country,
where thick bamboo groves provide concealment for Japanese snipers and ambushes.

One Japanese
NEW BRITAIN viaGENERAL.
CAROLINE ISLANDS.

Division has loft Central CHINA believed for

FRANCE. Various reports indicate transfer German formations almost certainly to RUSSIA. Move of 7th Panzer Division confirmed but number of other Divisions

which have moved or may be moving not yet known.

-2-

3. AIR OPERATIONS

WESTERN FRONT. 2 heavy night raids on BERLIN caused the Germans to

react on a heavier scale than for some time. Features of the German raid on LONDON

17th/18th were the large number of different units, represented each by a few air-

craft, from which the attacking force was drawn and that at least half the total

force came from about 6 different Reserve Training Units, of about 70 aircraft

despatched about 50 reached the outskirts of Greater LONDON and 25 of them pone-

trated to within a 10 mile radius from the centre.

MEDITERRANEAN. About 20,000 tons of enemy shipping were sunk by our

aircraft during the week, other promising attacks on ships were made whose results
could not be conclusively estimated. At least 15 enemy transport aircraft between

SICILY and TUNISIA were destroyed.

RUSSIA. An indication that the Russian Air Force is keeping well up
behind its advancing armies is givon bet the location on 15th of some 230 Russian
aircraft in an area on the STALINGRAD-KRASNODAR railway about 60 miles behind their
forward troops.
4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACK

ON ENEMY TERRITORY IN EUROPE.

ROMILLY-SUR-SEINE. U.S. attack 20th December. Reported considerable

casualties among German personnel especially in A.A. gun positions. Direct hit
on Officers' Mess. Morale of French in neighbourhood raised by attack.
DUISBURG. Attack 6th/7th December. Eye witness states tramway depot
almost totally destroyed (statement confirmed by photographic reconnaissance).
This was main depot for whole town and was nearly full, adjacent tram repair depot

also almost totally destroyed. Considerable traffic dislocation for 4 days resulting
in much absenteeism and late arrivals in factories. Relief trams from neighbouring
towns impracticable since gauge non-standard. Skeleton bus service eventually
organized was insufficient and lateness of workers persisted for some time.
5. HOME SECURITY

No damage of military importance. Estimated civilian casualties week
ending 20th (not including fighter bomber raid south LONDON midday 20th) - killed
99, seriously wounded 264 of which 78 and 221 in London.

NOT TO BE RE-TRANSMITTED
COPY NO.

MOST SECRET

OPTEL No. 24

Information received up to 7 A.M., 21st January, 1943.
1. NAVAL

Two of H.M. Destroyers Bank a 3,000 ton ship off SOUTH SARDINIA on
18th. Two other Destroyers in operations off TRIPOLITANIA on 19/20 sank one small
merchant ship and ten other small vessols. One of H.M. Submarines torpedoed and
probably sank a 5,000 ton ship off East TUNISIA on 19th.
2. MILITARY

LIBYA. 19th. The enemy continued his withdrawal westward from
TARHUNA and also ZAULA west of TRIPOLI. Contact with his rearguard WES made south

east of TARHUNA in the evening. 7th Armoured Division and 2nd New Zealand Division
continued advance in parallel columns meeting practically no opposition but slowed
up by difficult ground and mines. 51st Division continuing advance along coast
road entered ZLITEN morning and continued towards HOMS.

RUSSIA. The Russiano have captured PROLET ARSKAYA about 20 miles

northeast of SALSK. In the northern CAUCASUS they are pursuing the retreating
German forces northwestward astride the BAKU-ROSTOV railway.
3. AIR OPERATIONS

WESTERN FRONT. 20th. Mosquitos obtained a number of direct hits
on the Hengelo diesel engine works. Fighters over FRANCE damaged 6 locomotives and
destroyed one F.W. 190 and damaged 2. About 60 enomy aircraft flew over southeast
ENGLAND, 30 of them (F.N. 190's) flying low operated over KENT, SUSSEX and SURREY

12 penetrated the LONDON Area. Enemy casualties 13, 3, 9. Ours 2 Spitfires, one

pilot safe. 20th/21st. 8 aircraft wont sea mining. 10 enemy aircraft operated

over southeast ENGLAND. Enemy casualties 2, nil, nil. Ours one Mosquito.

LIBYA. 19th. Fighter bombers continued throughout the day to

attack enemy M.T. in the TARHUNA area. U.S. LIBYA-based Liberators bombed TRIPOLI
Harbour. At night Malta Wellingtons patrolled off FRENCH NORTH AFRICA.
18th/19th. Bisleys attacked objectives betwoon TUNIS and SOUSSE

and blew up & train believed carrying petrol. Wellingtons dropped 26 tons of bombs
on BIZERTA starting large fires. 19th. 56 U.S. Fortresses bombed railway contros
and other objectives south of TUNIS. SOUSSE was attacked by U.S. Liberators and
a small ship was hit. Successful attacks were made on MEDENINE and on M.T. in the

DJERBA-MARETH area.

MEDITERRANEAN. 18th/19th. MALTA aircraft torpedoed a 9,000 ton

ship which WILE left sinking. Two others of 4,000 tons were probably hit. 19th/20th.
Albacores off DJERBA sank one ship of 6,000 tons and another of 2,000 tono.
4. HOME SECURITY

20th. LONDON. Shortly after midday bombs were scattered in South
Eastern districts accompanied by machine gun fire. h direct hit on B London County
Council School at LEWISHAM caused several casualties amongst children. Elsewhere
damage not extensive although one large fire in SURREY Docks. In LONDON aroa 53

killed reported so far. About the same time bombs were dropped at many places in

SUSSEX, SURREY and ISLE OF WIGHT without serious damage. Also considerable
machine gun fire.

January 22, 1943

MEMONANDUM FOR THE SECRETARY:

We had a preliminary meeting in Chairman Doughton's

office this morning, attended by the Chairman, Jere
Cooper, Wes Disney, and Robertson of Virginia. Stan
also attended. We discussed the Ruml situation at
some length and the withholding problem for 1943. No
specific conclusions were reached and it was decided to
have another neeting Monday evening, January 25th, at

7:30. In the meantime, I am to furnish those attending
the meeting with short statements of various methods
for preventing undue doubling-up under withholding.

It was also suggested by Robertson that the Treasury
get out some statement on the Rural plan. I said we
would draft a statement for the Monday meeting for the
ideas of the Committee members. I gathered the general
impression that all those attending the meeting were
a ainst the Rural plan. The Chairman suggested that

collection at the source could not be woll started before
July 1st, but everybody agreed that it should begin
at some high rate thon - the rate to be determined
must depend upon what is done about the doubling-up

problem. I outlined to the meeting four plans for
treating the doubling-up situation:
1. No forgiveness, but amortization of the
unforgiven tax over a reasonable period.

2. No forgiveness, but collection of the
unfor given tax by additional collection at the source.
3. No forgiveness, but application of the

unforgiven tax against compulsory lending requirements

if compulsory londing should be in the bill.

4. The 19% forgiveness idea. It was implicit

that forgivoness should be applicable for only one-half

-2of the year; then later we talked at some length
whether there should be more than one-half a year's
forgiveness if collection at the source was not to be
done until July 1.
Stam su gested some additional plans, notably the
1941 or 1942 (whichever is lower) plan, and his
$5000-$30,000 earned income plan. He also suggested

the idea of forgiveness of the two top brackets.

So far as I could gather, the 19% for giveness
idea seemed to be the most acceptable, but no one
has apparently closed his mind.
(Initialed)

REP/kie

R.E.P.

16-A
MINUTES or BOARD MKETING

January 22, 1943, 11:00 A. M.
East Hing White House

Presents The Director (Presiding)
Mr. Wickard
Mr. Jones
Miss Pericins

Mr. Bell (acting Secretary of the Treasury)
Mr. Smith
Mr. Seales

Mr. Holfatt

Mr. Davis

Mr. Brown

Mr. Flenders
Mr. Jobaston

Mr. Mallust read a memorundus on the relationship between agricult-

ural wages and the supply of farm labor. He pointed out that the sages TO
ceived by farm labor are still, for the most part, sub-otandard. The average
hourly wage is still less than 30 cente, and the average daily wage is $2.80
without board. These wages, Mr. Malfutt stated, are substentially less then
those paid in even the lowest paid industrial occupations.

This disperity, according to reports received from the field by the
Employment Service, is one of the principal factors which make it difficult

to regruit agricultural labor.

The situation is especially acute with respect to workers engaged in
the production of dairy products, poultsy and livestock, which are year-around
occupations. The situation is aggravated by the fact that workers in these
activities are generally the most skilled of all farm laborers, and by the
further fast that many deiries are located in industrial areas, where the desand for labor at higher sages is strongest. This situation will grow worse
in 1943, stated Mr. Holluse. Dairy and livestock production are already beginning
to show the effect of this shortage. While wages cannot be relied upon as the
sole or over the principal method of securing additional labor for those active
ition, is will be accessary to increase wage rates if production is to be maintained.

Partnermare, Mr. Holluss indicated that wide wage disporition exist

within agriculture stoals, thus placing farmers in the position of bidding

wages up by pirsting from each other.

The ready will be difficult to work out, said Mr. McNutt, but a

number of alternative approaches are available. No stated that in EngLand
the same situation was not by the imposition of a national minimum wage for
agriculture, with additional local minimum wages not by wage boards in the

various agricultural areas. Another possibility, he stated, would be to stab
iline agricultural wage rates at the entering rate for unckilled industrial
labor in the particular area.

-1-

16-B

Miss Perkins pointed out that the average straight time daily sage
for common labor in industry is 85.08. Mr. Davis expressed the opinion that
it would be impossible to raise farm wages to the level prevailing in industry.
Evidently, he said, the farmer believes that he is unable to pay higher wages,
and to double his wage bill would not solve the problem.
Mr. Mellust agreed that wage increases alone would not solve the problem,
but contended that such increases were indispensible to a solution.

Mr. Wickard pointed out that, while farm vages are still low, they
have increased substantially since 1936. Mr. Holfutt admitted that this is true
but also pointed out that farm income has increased for more then farm wages, the
gap between the two having widened steedily since 1939.
Mr. Wickard stated that we are running short of sampower, and that

agriculture has always constituted a residual supply of surplus labor, but that
these reserves have now been exhausted.

The Director inquired whether the importation of Mexicon labor had been
considered. Mr. Mellutt stated in reply that substantial numbers of Mexicans would
be imported, with & guaranteed wage of 30 cents per hour, or the provailing rate,
whichever is higher. These guarantees were insisted upon by the Mexicon government.

Mr. Wiskard also stated that the importation of Bahang labor into Florida is being considered, but that Florida growers are refusing to sign contracts
with the Department of Agriculture to obtain domestic workers unless assured that
Bahanan labor will also be brought in. Mr. Wickard expressed the opinion that the
reason for this was that the growers believed Bahaman labor would be more docile.

The Director expressed the opinion that we must use all available sources
of supply, and that the importation of Bahanan labor would free manpower for other
necessary purposes.

Mr. Hollute stated that he and Secretary Rickard had prepared a program

for submission to the Congress, calling for the recruitment and transportation of
a land Army of about 3,500,000 signatory farm workers. In this connection, the
Director suggested that the American Legion in every lecality be enlisted to
cooperate is this resruitment program. Mr. Wickard stated that it was planned to
use the office of Civilian Defense, the American Legion, service clabs, and other
community organisations. However, be expressed the opinion that it would be in
possible to rely exclusively upon this voluntary type of local labor. Regular
sigratory workers must also be resruited to travel for considerable distances as

part of a land Army. In order to afford sufficient security and incentive to
attract individuals into such - Anny, it will be necessary to assure them in ad-

vance of certain stated wages and working conditions. The Director agreed.

Mr. Eeeles stated that wages are not the only insentive applicable to
agriculture and to farm labor. No pointed out that the farmer is now more presperous than ever before in our history, and yet we face a shortage of essential
foods and fibers. The real threat is a sense of future insecurity, based upon a

16-C
-3threatened shortage of labor regardless of wages, upon the shortage of machinery
and the rationing of certain essential supplies.
Mr. Flanders stated that a land Aray would not solve the problem of
year-around agricultural laber for dairy and livestock production. He suggested

that it might be possible in many localities to resrait and trein women for this

work.

The Director and Mr. Hickard also stated that a program of incentive
payments to induce increased agricultural production was being drafted for presentation to the Congress. Mr. Jones inquired whether this was a subsidy. The
Director replied that it was not a subsidy, but on incentive payment designed
to compensate the farmer for producing more instead of less. Mr. Eeeles pointed
to the difficulty caused by these incentive payments when other essential crops
ware in competition with the crope for which such payments were offered.
Mr. Brown expressed the opinion that the Congress would not be so much
opposed to incentive payments as to out-right subsidies.

The Director also read a telegranfron Mr. Patton stating that sages
and prices were not the orux of the food problem, and that the most important
contribution to increase production would be the provision of credit and supervision designed to increase the production of more than 1,000,000 family type far
ners whose manpower is not now fully utilized.
11:00 A. M.

The Board adjourned at 12:45 to meet again on February 5, 1943 at

1-22-43
UNIT

16-D

STATES DEPARTMENT OF AGRICULTUR.

RELATION BETWEEN AGRICULTURAL PRICES AND INCREASED PRODUCTION
OF FOODSTUFFS

Assuming normal weather conditions, the total output of farm products
in 1943 can be increased in only two ways:

(1) By getting more production from the land now in cultivation
(2) By bringing in new land
There is a small amount of additional land that can be brought in, but the
bulk of the increase must come from higher yields per acre and more live-

stock production from the land now in use. That means greater effort on
existing farms and higher costs incurred for the additional product. These
costs must be compensated for in the form of higher prices or by other means

of increasing farmers' returns.
In 1942 our total output of agricultural products was 27 percent
above the average for 1935-39. In the last year, production increased only
8 percent from the average of 1910-14 to the years 1918-19. Although there

are very definite limits to increasing the total output of farm products,
the more essential products can be increased both by obtaining a higher

yield per acre or per animal and by shifting from one crop to the other,
such as from oats to soybeans and from short-staple cotton to peanuts.
The increase that can be obtained from shifting production into the more

essential products is by far the most important. For instance, the acreage
of soybeans harvested for beans was increased from 5,881,000 acres in 1941
to 10,762,000 acres in 1942, and the acreage of peanuts picked and threshed
was increased from 1,914,000 acres in 1941 to 3,690,000 acres in 1942.
Acreage shifts of this kind are made by farmers who have been producing

the crop in the old producing areas and by new growers in the old producing
areas, as well as by new growers in new producing areas. The tremendous

16-E

increase in peanut acreage in 1942 involved establishment of many new
producing areas. The increase in dry bean acreage which we are attempt-

ing to get for 1943 will require establishment of new producing areas
in the Eastern Plains States where beans will be substituted for wheat,
Prices received for farm products serve as the income inducements

for production increases and for shifts of the type just mentioned. They

therefore affect increased output in four different ways, as outlined
below.

1. Adequate Income Incentives for High Output

Prices for the products produced on any one farm or group of farms

must be sufficiently high to cover expenses and to leave a satisfactory
income to the farmer and his family. The prospect of considerably higher

returns for the increased effort that is necessary for a high level of
output is a powerful incentive to induce the farm family to work harder
and to take the additional risks involved in increased production.
Necessity for an income incentive to increased effort is recognized in
the war contracts of other industries and in wage agreements with war workers,

Farm incomes must also be sufficiently high to hold farm families in agriculture in competition with other work opportunities. Cash income from
farm marketings in 1942 are estimated at about 15.6 billion dollars, or 37
percent higher than in 1941. Thus farm incomes are satisfactory in most

areas and on most sizes and types of farms, But if farm output is to be
increased in 1943 it will be necessary to obtain maximum production on

all farms that have sufficient land and equipment to make a significant
contribution. Some adjustments in income incentives will be needed,
especially in some areas, to got maximum output.

-3-

16-F

2. Larger Output Costs More Per Unit of Product

If production of a product such as milk is increased greatly on
any one farm or a group of farms, the expenses usually rise faster than
the output and therefore the additional product costs more to produce than

the normal volume of production. For instance, if milk production is to
So increased considerably on a farm whoro as many COWS are now being kept

as there is barm room for and the present labor force can handle and if
little moro home-grown food can be producod, the cost por 100 pounds of

the additional milk will be much higher than for the normal output. If
the COWS on hand are already fed to capacity, more COWS would have to be

kopt, and porhaps now sholtor would have to be provided for thom. Pur
chased food is usually more expensive than homo*grown foods. An oxtra

milkor might have to be hired or a now milking machine purchased (if one

could be had). To got increased output under such circumstances, it is

necessary to provido oither higher prices for the ontire production or a
return for the additional product that moro than covers the increased
exponso. Otherwiso the farmer will have no larger income for himself

than if he had not increased production, and he will have carried all the
burdon and risk involved in increasing output.
3. Production in Now Arcas Moro Expensivo

If increased production of a crop, such as bonns, necossitates
growing them in a now producing area, or at lonst on farms where boans
have not previously boon produced, some special probloms are mot and higher

costs are incurred. Farmers must learn how to grow beans. Thoir yields

are likely to be low for the first your or two oven if the area is adapted

-4-

16-G

for bean growing, because the farmers have not developed sufficient skill

in handling them. (This was true of peanuts in 1942.) The new growers
must have an inducement to shift out of the crops they have been growing
and to make the now investment necessary for equipment, seed, and other

supplies for a crop in which they have not had experience. This requires
compensation for the additional risk involved in shifting to the now crop.
It is comparable to conversion from automobile manufacture to tanks or
airplanes.
4.

Income from Products Most Nooded Must Bo

High Enough to Got Required Increase in
Output

Since increased in the essential products must come either from

higher yields per acro and per animal or from shifting away from other

crops, it is necessary to adjust prices or other income incentivos of
those products so that land and labor can bc drawn into their production
to whatover extent is necessary to got the desired output.
The price increases or income incontivos that are needed to induco

the amount of shifting that is required to moot the needs for essential
products must be monsured against the not returns that can be obtained

from alternative uses of land and labor. For instance, with present
pricos for cotton, farmors will nood to got about $125 a ton for ponnuts

in order to shift land and labor from short staple cotton to pomuts. In
1942 the incroaso in poanut noroage came largealy out of corn and idlc land.
A wide margin botwoon returns for the product of which an increase
is desired and the closely compoting products usually brings prompt production response. For instance, production of soyboans in 1942 was nearly

double that of 1941, and most of the increase resulted from larger plantings,

16-H

The prico in December 1941 was 82 percent abovo the prico in December 1940.

Production in 1942 was increased in responso to favorable returns from
soyboans, and because corn allotments restricted corn acrcago in 1942.

Thus the alternative crop was oats in most areas, and the income margin
between onts and soybeans was rather vide. Soybean prices in December

1942 were only 8 percent higher than they were a year enrlier. To insure
a continued high level of production Boybean prices will be supported at
$1.60 to $1.75 depending on oil content.
Table 1 shows the recent price and production changes for some of

the farm products important in the var effort. While price increases
alone do not account for the differences in production response it is
fairly evident that increased prices have exerted an important influence.
For instance, among the crops soybeans head the list of price indrenses from
December 1940 to December 1941 and they also have the largest increase in

production. Similarly, hog prices have increased most in the livestock
group, and hogs also show the largest increase in production. A discussion
of the price and production changes in some of the other commodities follows.
Dry Beans

Wi th a price of $5.12 per bag as of December 15, 1942, and a pre-

planting season price of roughly $4.60, farms last year planted only 95
percent as many dry edible beans as they did in 1941 when the December 15

price was $4.93 and the pre-planting season price was $3.68. This indi-

cates that the form price required to obtain the present goal of 3.3.
million acros -- a 43 percent increnso over 1941 plantod acroage -- would
be considerably above $4.60 at planting time, The average price to farmors

16-I

at harvost timo in 1942 was $4.89. With two-thirds of the been crop in
1942 grown in the States of Michigan, California and Idaho, where boets,
potatoes and soyboans compete with ediblo beans, it appoars impossible

to got the increase of bonns asked for in old arocs. New aroas will have
to be ostablished and C. program orgenized from the ground up. Now cross

in the Plains Statos might produce the borns at present prices after they
aro once established, but further incontivos soom necessary to induce

shifting into the now entorprise.
Hogs

The recont pig crop report indicatos that formers plan to increase
the number of SOWS farrowed this spring by 24 percent compared with the

number farrowed C. year ago. This is wolcomo information. Such an increase,

if also continued for fall farrowings, would exceed the 1943 goal for hog
production.

Farmers have increased hog production by such a proportion because

of the vory favorable rolationship botwoon the costs and returns involved.
During the Soptombor-Docember period just ended, the period when farmors

word making their plans for spring forrow of sows, the average hog-corn

price ratio, based on pricos received by farmers, was 18.4 for the United

States. Farmers' responso to this ratio is in accord with past roactions
to changes in the relationship butwoon hog prices and food costs.
So long C.S the hog-corn price ratio stands at about 15, it may be

expected that farmors will tond to maintain the level of hog production

anticipated this your. Prospectivo prices for grain in 1943 make it

-7 -

16-J

necessary that hogs sell at about maximum prices permitted under price

ceilings, if the hog-corn price ratio is to be held near 15.0. If production of hogs is to be expanded still further in 1944, a ratio more
favorable than 15 may be required during the last four months of 1943.
Inasmuch as farmers are near their capacity for producing hogs without

seriously curtailing production of other things, future price policy with
respect to hogs must be governed by the need for other types of production.
Milk

The butterfat-feed ratio for the United Stateswis 26.4 in December -7 percent above the average 1922-41 butterfat-feed price ratio of 24.6,
but a ratio of 29.0 is considered necessary to encourage farmers to produce

the goal of 122 billion pounds of milk in 1943. The present ratio of 26.4
is too low to reach the goal. Another aspect that needs to be considered
is the level of whole milk prices. The average price received by farmers
for milk sold in December was $3.01 per 100 pounds. The December milk-feed

price ratio was 1.44. This ratio was at a level comparable to that needed
to reach the milk goal in 1943. However, because of recent increases in

feed prices, the ratio likely to prevail during the year will be less than
required to assure achievement of the goal. To obtain buttorfat-food and

milk-foed price ratios in 1943 sufficiently high to reach the milk goal
returns received by farmers for butterfat would nood to be 8 cents por
pound higher than prospectivo prices, and for whole milk about 50 cents
por hundredweight higher.

-8-

16-K

with the prospectivo quantities of .milk to be sold in 1943 as whole
milk and 0.8 buttorfat in crocam, farmers would nood to receivo in increased
pricos about 400 million dollars above what would be received from prosont

pricos of dairy products in order to roach the goal for milk production.
However, if an incontivo payment program wore incugurated under which

individual farmers would be Givon a rolatively large paymont for additional

milk production instead of C. smallor increase in price for total milk, the
incronsos in total returns nooded to roach the goal would be reduced to
about 250 million dollars.
Eggs

The avorage price received by farmors for oggs in the United States
in 1942 WC.S 30 conts per dozon. The average 1942 ogg-food price ratio WC.S

19.0. It is bolioved that c. ratio of this level is necessary during 1943
to oncourage production of the 4,780 million dozon 9668 callod for by the
1943 goc.1. The Department's program to oncourage production of oggs assures

on average farm price for cggs in the United States during the spring months,
whon production is seasonally largo, of not less than 30 conts por dozen,

and an annual avorage price of not loss than 34 conts. Pricos received
by farmors for oggs in 1943 are likely to average at loast 15 percent
higher then in 1942, and in the spring months of flush production the
increase will be relatively groater than for the year C.S C. whole. Although
food pricos may avorego somewhat higher in 1943 than in 1942, the situa-

tion with respect to production of oggs is expected to be sufficiently
favorable to encourage the 1943 goal lovol of production.

16-L

TABLE I

Farm price of some products on December 15, 1942,
Persent increase in price from December 1940 to December 1941,
Percent increase in production 1942 over 1941, price increase 1942,

and direction of goal for 1943

lbs.

Flaxsood

bu,

Hogs

Buttorfat
Milk, wholesale
Eggs

ovt.
lbs.
cvt.
doz.

Dollars Porcont

Percont

1.59
5.12
1.12
.0397
2.36

13.27
.421

3.01
397

All poanuts for nuts

2, Pigs raised

1941

Percont
108

Same

105

104

151

105

135

130

170 1

126

129

132

175

124 2

129

138

182

198

176

105

)

:
:

Peanuts for oil

: of 1941

bags

1940

Potatoos

:percent ofins percent : porcont of : in 1943
:

Boans, dry odiblo bu.

bu.

Soyboans

: 1942

:Unit: Doc.

Product

:Price Doc. :Production : Price Doc. : Desired
direction
1942 as
1941 as : in 1942

:Price

128

103)

113

127

118

116

1/22/43

The Relation of Arricultural Wage Rates
to the Supply of Farm Labor

The relation of agricultural wage rates to the supply of farm labor
is a question which WILD discussed at Bome length at the meeting all the

Economic Stabilization Board on last October 30. You will recollect that
on that occasion I voiced the opinion that unless rapid and effective action
wore taken to stabilize farm wage rates at substantially higher levels than
then prevailed, little else that the Far Manpower Commission or other
governmental agencies could do would be effective in preventing 5 farm labor

crisis, and serious curtailment in the volume of agricultural production in 1943.
On that same occasion, Secretary Richard indicated the need for seeing

that workers in agriculture are paid better wages in order to provide an
adequate labor supply to keep up agricultural production. He compared the
average earnings of fare workers of less than 30# per hour with average earnings

in manufacturing industries of over 80g per hour. He characterized this disparity

as & gross inequity to farm workers, said that they could not bo expected to
stay on fires if this dispority continued as wide 8.8 it is.
Two rooks later, the Economic Stabilisation Director, on November 13, lifted

emporarily the ceiling on agricultural wages, recognising in taking this action
that agricultural wages in general are substandard.
Because the problem of farm wage rates in relation to labor supply has

rendy been outlined before this Board, I do not wish to do more than to
mariso this problem in the light of the experience of the Far Vanpover
mission. During the east yehr, the greatost single obstacle oneountered by the
ployment offices of the War Manpower Commission in recruiting agricultural

or has been the relatively low wages offered for farm work. During the past
there has been no shortage of potential agricultural workers. Bus the

-availability of those workers has been seriously curtailed by the level of
wages prevailing for farm work. In many instances farm labor shortages have

occurred during the past year which it has been impossible to alleviate by
extraordinary recruiting efforts.Where wage rates have been adjusted, however,

our experience in a majority of cases has been that workers wore available to
harvest the crops.
During the months of October and November, the War Manpower Commission

worked out in cooperation with the Department of Agriculture AD employment

stabilisation program for dairy, livestock and poultry farms. An intogral part
of this program, which was recognised as essential to its effectuction, was action

by the Secretary of Agriculture to effect adjustments in wage rates on airy,
poultry and livestook farms to assit in securing and holding an adequate supply
of hired labor. This program is in partial operation now, although one Repect
of it relating to the deferment and transfer of workers has been superseded by
a recent amendment to the Selective Training and Service Act. Special training
and recruiting programs are being rushed vigorously, and transportation is being
provided by the government to bring workers to farming areas where these types

of farms need workers. But the ultimate success or failure of the program will
depend upon the action which is yet to be taken with respect to adjusting the
wage rates of workers on dairy, livestock and poultry farms.
At the time this program WAS being developed, I requested information
from the Regional Offices of the War Manpower Comission concerning the causes

of the labor shortage on these types of farms. Nourly every regional office
reported that it could recruit milkers, feeders, husbandmen and poultrymen,
provided employers were willing to pay ade junta wages. They reported also that

they were encountering the greatest difficulty in filling orders for workers at
the low wage rates offered by many employers. Although other factors, such as
poor housing and discrimination against certain types of workers,were also

sported as obstacles to recruiting, low wages was the outstanding problem.

be location of much of the dairy industry in areas of industrial activity has
da dairy farm wages extremely unattraction in comparison with other wage reter
In Massechusetts, 100 unfilled orders for dairy hands were reported, at wages
ranging from $30 to $80 per month thith room and board. In Pennsylvania, the
employment offices reported offers of employment at from $20 to $70 per month

for experienced farm hands. In Illinois, farmers were reported to be generally
offering 355 to $65 per month, and in Wisconsin, from $50 to $70 per month for
experienced general farm and dairy hands. It has been almost impossible to

recruit experienced, qualified workers at those wage rates. The prevalence of
those rates has been the most important single factor in the Movement of workers

away from farms to better paying jobs in war industries.
The wage rates I have quoted illustrate andther troublesome aspect of

the farm wage problem. There is wide variation in the wage rates offered, even for
similar work on farms in the same locality. The lack of reasonably uniform wage rate
Leads to heavy turnover in employment, and the shifting of workers from farm to

farm. Often the local employment offices can place workers st the higher rates
offered, but not at the lower rates. In Palm Beach County, Florida, workers
today are receiving $7 and #8 per day for picking beans, and as low GB $2.25
per day for work in potatoes and sugar cane. An & consequence, workers are

flocking to the bean fields, while sugar and potato work is neglected. Our
biggest problem in Florida today is not the lack of enough workers, but our
inability to get workers to perform some of the lower paid Jobs. The War
Kanpower Commission has asked the Department of Agriculture to take action

ithin its power to narrow this disparity in wage rates, and to raise substandard
rates to a fair level. Upon such action as much as upon the importation of
additional workers for work depends depends B reasonable solution of the Florida

farm labor problem.

Serious as our difficulties have been during the past year, the largest
arop in history has been successfully harvested, There are signs, however,
that we cannot look for a repotition of this achievement in 1943, unless
coordinated measures are undertaken to provide an adequate supply of labor.

Sheep and attle reachers in the vest are sharply reducing the sine of their
flooks and herds. Dairy production during the fall and winter months has fallen

off more rapidly than is normal at this time of year, Farmers are hesitating
to maintain or expand their crop acreages because of uncertainty as to the

availability of labor.
The War Manpower Commission and the Department of Agriculture will take

every possible measure to mobilise the army of farm workers which will be
needed this year. Thousands of new workers will be trained, whole communities
will be mobilised for emergencies, Mexican and other foreign workers will be
recruited, young people, woman, and other sources of labor will be drawn upon.

Every possible consideration is being given to agriculture in the administration

of the Selectivo Training and Service Act. Workers of military age are not
now permitted to loave agricultural employment without the consent of their
local draft boards. I must emphasise again, however, that the SUCCESH of these

measures will desend upon whether prompt and positive action is taken to narrow

the present disparity between wage rates.in agriculture and in eltern tive
ployment. Workers are continuing to move from the farms to the still expanding
ployment opportunities in the shipyards, the munitions, ordnance, and vircraft

stort, to war plants of every kind. Among them are many of the highly skill
a experienced farm hands who cannot be replaced by new recruite, fresh from

short training course in farming. Conditions must be improved on farms, BO
t this Rovement can be alowed, and SO that qualified replacements can be

who are willing to step into the jobs that now are vacant,

-5In my opinion, it will not be enough marely to remove oailings on form

go rates in order to permit then to rise to levels which will hold labor the farms and attract qualified new workers. There have been no restricte
imposed by the government on the wages that farmers could pay to their hired
mom. What has hap ened during the last few years? Wages paid to fare workers

have advanced, it is true, But on the first of this month, the Department
of Agriculture reports that for the country as a whole average farm wages by
the day were $2.83 without board, and $62.43 by the month, without board,

This is still an average of less than 30$ per hour for the country AB & whole,
In comparison with increases in farmer's gross and net incones, the wages paid
to farm workers have lagged behind. In each successive year since 1938, the total
amount paid out in farm wages has been.a smaller percentage of the total gross

income and the total net income of farm operators. The total net farm income
received by farm operators in 1942, as reported by the Bureau of Agricultural
Boonomics, was 105 percent greator than the average net income received in the

years 1936-1940. The total wages paid out to rafe workers in 1942, on the other
hand, was only 53 percent larger than the average wage payment in 1936-1940.

If farmers had paid twice as much for labor in 1942 as actually was paid, they
still would have received the highest net incomes since 1918 and 1919. While
the War Manpower Commission, course, has mode no detailed investigation of

to ability of farmers to pay higher wege rates, these figures would soon to
ggost that they can afford to pay higher wage rates without the need for
dising existing price ceilings plan farm products.

The record SOONS to show conclusively that farrors are slow to

increase wage rates in accordance with their ability to GO so. It seems

seontial that prompt action be takun by thu impartaint of Agriculture to
bring about the adjustments which are needed in view of the emergency situa-

tion now facing agriculture. The Lepartment of riculture has been given

the authority to take such action, an: it will have to take such action if
the objectives of this grant of authority are to be fully achieved. This
has b en the exp rience in Great Britain, which, when faced with & similar
crisis, acted bromptly to stabilize farm wage rates at levels which were
adequato to maintain the supply of hired labor.

I do not bolieve it will be necessary to raise farm ware rates to
the lov 1 o: wases in manufacturing industries. very allowance should be

mAde for lower living costs in rural areas, for the perquisites furnished
to form workers, and for the natural preference of many persons for farm

work. In a summary statement entitled "Regulation of Farm agos" issued by

the Farm Security disinistration of the Losartment of Agriculture last
November after authority over farm wage rates was delegated to the Department,

the suggestion is made that th parity concept be applied to farm wages as
is now the case with farm prices. Under this formula farm wage rates would
be established which would bring them to the same ratio with common labor

Pates in industry as prevailed in 1920, or in the y are 1910 to 1914. nother'
poroach would be Lo set farm wage rates at the equivalent of entrance rates

or common industrial labor, with due allowance for differences in costs of
Living, and board and lodgin when furnished by the farmer. I cannot underake to advise this Board as to whether either of those approaches, or any

ther would be best. But I can and do say that unless & Off actio is taken
oon to stabilize farm wage rates at levels which are fair both to worker

-7employer, we can have no confidence that the labor which will be avail-

U this year to agriculture will be adequate to meet the critical food
eduction problem with which each of us, in his way, 1. concerned.
In summary, allow no to list the conclusions which may be drawn from
our experience and observation of the farm wage problem.

1. The level of farm,wag" rates Is among the most important,
and in my judgment the most important single factor affecting the adequacy, in terms of numbers und in terms of

quality, of the farm labor supply.
2. Kare ratee must be raised to narrow the present inequality
between farm and non-farm wage rates.

3. ide differentiale between wage rates on different farms
for the same king of work, and between different typ 8
of farm work must be narrowed.

4. Mere liftin of wage ceilings will not achieve these
purposes. Farmers are slow to raise wapes in accord-

ance with their ability to do so, and wages on different
farms, or in different occupations do not stay in proper
relationship to each other.

5. A reasonable formul for adjusting fare wage rates, with
due allowance for regional variations and differences in
various typos of farm work should 16 worked out.

6. In line with these suggestions to the Department of Apriculture should, without further delay, take the action
with respect to farm wage rates which will be essential
to the achievement of the 1943 food production program.

Analysis of Exposure to Payroll Savings Plans
January 16, 1943

Classification

Number of

firms exposed to
payroll savings plans

Total

number of firms

in the country
(estimated)

Percent

of total
exposed

Number of

employees exposed to

payroll savings plans

Total
number of employees

in the country
(estimated)

Percent

of total
exposed

I. Business organizations

(1) Firms with 5,000 employees or more

470

473

8,645,091

5,710

5,844

7,989,062

(3) Firms with 100 to 499 employees

25,662

29,146

5,793,554

(4) Subtotal - large firms

31,842

35,463

22,427,707

3,325,799

25,753,506

32,700,000 1

2,376,067

2,800,000 1,

1,427,347

2,900,000

3,803,414

5,700,000

170,487

(6) Total Business organizations

138,645

(5) Firms with less than 100 employees

(2) Firms with 500 to 4,999 employees

II. Governmental organizations
(1) Federal Government
#

(3) Total governmental organizations

170,487

III. Grand total
Treasury Department

V Excludes agricultural employees, military personnel, employees on WPA or NYA or CCC projects,
proprietors, firm members, self-employed, casual workers and persons in domestic service.
Date not available

(2) State and local governments

29,556,920

38,400,000 1/

January 22, 1943

Firms Employing 100 Persons or More Participating in Payroll Savings Plans
(As reported by the War Savings Staff's State Administrators)
January 16, 1943

Firms employing 100 - 499 persons
Total
number

of firms
(estimated)

Alabama

Arisons
Arkansas

100

134

133

159

156

101

728

1,133
137

582

165

155

Florida

Georgia

Maryland

Massachusetts
Michigan
Minnesota

Mississippi
Missouri

Montana
Nebraaka
Nevada

New Hampshire

New Jersey

393

127

126

2,190

100

2,109

735

503

498

169

178

150

812
214
300
293
332

North Carolina
North Dakota

Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee .
Texas
Utah

Vermont

Virginia
Washington

West Virginia

Wisconsin
Wyoming

302

91
95

405

354

111

1,378
1,318

1,215
1,022

100

737

100

143

100
78

170

149

1,180

999

100

4,275

3,985

554

491

100

200

100

199

100

933

913

141

138

100

1,775

303
296

2,321

307

159

504

486

100

517

432

1,010

736

100

638

625

100
100

125

124

100

111

359

349

399

370

220

100
100

292
680

111

139

100

lihe

100

14h

166

328

352

287

107

310

100

336

119

2,708

287

440

325

100

444
976

100

52
55
55

100

160

1,916
Oklahoma
Oregon

290
242

168

New Mexico
New York

Maine

52
50

Louisiana

99
98

Kentucky

219

100

Kansas

356

100

Indiana

Iowa

177

419

Idaho

Illinois

142

190

with payroll

savings plans

692
63

Percent

of total

savings plans

258

795

District of Columbia

of firms
(estimated)

Number

of firms
with payroll

1,254

Connecticut

savings plans

number

332
131

Colorado
Delaware

savings plans

of total
with payroll

Total

Northern California
Southern California

of firms
with payroll

Firms employing 500 persons or more

Percent

State

Number

501

100

100
100

154

100
100

Alaska
2

100

Total

29,146

25,662

Treasury Department

Data are for January 9, inasmuch as no January 16 report was received.

Railroads

115

109

6,317

6,180

January 22, 1943

MEMORANDUM FOR THE SECRETARY.

January 22, 1943.

Mail Report

Though somewhat lighter in volume, the mail

follows last week's receipts in subjects mentioned,
and proportion of complaints to praise.
Taxes are uppermost in the public mind. There
are fewer complaints about the Victory Tax, but many

more endorsements of some sort of "pay-as-you-go"

plan. Out of 60 letters favoring such a scheme, onefourth praised the Ruml Plan by name. There were 2

letters of outright opposition, and 17 letters con-

demned the idea of forgiving a year's taxes.

There continue to be many letters asking specific

questions about the new income tax measures, and com-

plaints of nonreceipt of reply are beginning to appear.

Many of those who are worried by rumors of heavier

taxes still to come, state that they will cash their

Bonds if rates are raised.

Four correspondents report a rumor that the Car
Use Stamp for the coming year will be $25, and all

vigorously protest this.

On the Bond front, innumerable telegrams and let-

report came in that no reductions were being requested,
and some letters spoke of increased pledges. Many
letters combine Bonds and taxes by saying that uncer-

tainty of future income taxes is either causing cancel-

lation of Bond pledges or preventing an increase in such
pledges for fear they cannot be met.

MEMORANDUM FOR THE SECRETARY.

January 22, 1943.

Mail Report

Though somewhat lighter in volume, the mail

follows last week's receipts in subjects mentioned,
and proportion of complaints to praise.
Taxes are uppermost in the public mind. There
are fewer complaints about the Victory Tax, but many

more endorsements of some sort of "pay-as-you-go"

plan. Out of 60 letters favoring such a scheme, onefourth praised the Ruml Plan by name. There were 2

letters of outright opposition, and 17 letters con-

demned the idea of forgiving a year's taxes.

There continue to be many letters asking specific

questions about the new income tax measures, and com-

plaints of nonreceipt of reply are beginning to appear.

Many of those who are worried by rumors of heavier

taxes still to come, state that they will cash their

Bonds if rates are raised.

Four correspondents report a rumor that the Car
Use Stamp for the coming year will be $25, and all

vigorously protest this.

On the Bond front, innumerable telegrams and let-

ters have replied to the widely distributed appeal not
to permit reduction in payroll pledges because of the
Victory Tax. Only a small percent of these replies
were antagonistic or discouraging. In most cases, the
report came in that no reductions were being requested,
and some letters spoke of increased pledges. Many
letters combine Bonds and taxes by saying that uncer-

tainty of future income taxes is either causing cancellation of Bond pledges or preventing an increase in such
pledges for fear they cannot be met.

-2Memorandum for the Secretary.

January 22, 1943.

Five would-be purchasers were unable to secure
Stamps and Bonds from local Post Offices. There were
36 Bonds submitted for redemption, and individual

complaints reached 52 -- half of these, as usual,

being from employees of the War Department.

Toward the end of the week a few letters, 3 of them
from Congressmen, questioned the legality of a recent
issue of $660,000,000 in Federal Reserve Bank notes.

There was an unusually large group of requests for
the Annual Report and for the Bulletin of the Treasury.

Galmaille E Forbush

General Comments

Scott A. Edwards, Clerk, U. S. District Court, Augusta,
Georgia. At the request of Mr. Seraphim Peroulas, a
subject of Greece, who has made his declaration of intention to become an American citizen, I am transmitting
herewith a Money Order in the sum of $50, which he
desires to contribute to be used for national defense
purposes. On January 30, 1942, Mr. Peroulas forwarded

to you, through the Clerk of Court at Roanoke, Virginia,
a contribution of $32.50, and he has today exhibited to

me a Defense Bond in the sum of $500 which he has just
purchased at Augusta, Georgia.

W. L. Renn, Investments, Norfolk, Va. May I take the
liberty or privilege of extending to you my sincere
congratulations on your financing policy? The pattern
of maturities and the rates of interest thereon are
certainly well considered and should easily finance
the war in the range specified, eliminating past uncertainty by a definite and comprehensive program. *
Charles Friedrick Harris, Woodhaven, L. I., New York.
I would like to find out from you in what way would
it be best for me to pay my 1942 Federal income tax.
Last year I pay the 1941 Federal income tax, on witch

it cost me $113.93 cents. I paid it in 3 instalments.

For 1942 - income tax will be more. Ever man in the

Navy Yard say the best way to pay the 1942 income tax

is to pay it with the Unted States Savings Bond. * *

I have 9 - $25 Bonds to my good - and I have two (2)

$50 Bonds. I have one $50 Bond for Navy Day and the
other $50 Bond for December 7 - and Pearl Harbor Day.

The two Bonds I would like to give away. Now when it-comes time to pay the income tax what would you doe

would you help pay the Federal income tax or it best
to pay in cash, pay it in Bonds. Mr. H. Morgenthau
would you please let me no?

-2Favorable Comments on Bonds

A. M. Mengelt, R.R. Carrier, West Salem, Wisconsin.
Since a year ago last December I have had a little
contest in my 6 rural schools in buying Stamps and

Bonds. * About 90% of pupils are buying Stamps
every week. So far this year the schools have bought
around 800.
I.have bought 6 pictures of the flag
which I am going to give them at the end of the year.
Since last April 1, I have sold better than $500 worth
of Stamps and Bonds a month on my rural route. So

far this month, it is almost $700 worth. If all the

rural carriers would try to do the same, they could do
just as well.

S. L. Swartz, Middletown, Pa. I am writing this letter
in protest to action taken by the Citizens Bank and

Trust Company of Middletown, Pa., when they insisted
upon payment of a Promisory Note at the expense of
cashing in three War Bonds. This note was but $75.
It was never defaulted, and the endorser was more than

willing to have it renewed, and is accepted as a responsible citizen whose credit is unquestionable. I have
been willing to pay 6% interest on my obligation at
this bank, and at the same time purchase War Bonds at

considerable less interest value, because it is my
patriotic duty to do so. I was amazed when, on four
days' notice, my obligation was called in, and could

hardly believe my hearing was correct when they accepted
my offer to cash my Bonds to pay this note; as it was
the only available method I had on such short notice.

As a matter of fact, they offered to send the Bonds to
the Federal Reserve Bank for payment, an d proceeded to
do so. I have received the check for the Bonds and will
have paid this obligation when this letter reaches you.

It is my firm belief that the banking institutions

of this Country should welcome the opportunity to lend
money to private citizens for the purpose of purchasing

War Bonds, if it is their desire to sacrifice to this

extent to perform their duty as a citizen; not to induce

people to cash their Bonds in payment of obligations in
these institutions when they are secured by willing
endorsement or collaterally sound.

Mrs. Julia Sutherland, Grants Pass, Oregon. I have
received the letter which you requested Mr. Upham

to write me, and I have shed tears of gratitude for

the same. I cannot express how happy I am to realize

that such a high official of the U. S. Government,
at this busy time, would spare time to write me in

regard to the small amount of money I have to put in
Bonds. I did not expect an answer. However, I bought
a Bond yesterday, and will buy at least one more during the year, and possibly more. I find that the Bank
pays only one percent, and the Post Office pays two
percent, so very likely I may transfer the money to
the Post Office.

Dr. A. B. Parmenter, Drake, North Dakota. Your cir-

cular letter headed, "A Message to the American Farmer",

was received and read. It is a very sensible letter,

and I read it and re-read several times and enjoy the
way it is brought out. I believe we are doing something and will continue to do more and more. With such

a huge scarcity of labor, it is an uphill pull, but not

nearly so hard as the dear boys in the lines that are
doing our real work. I am running a large farm of

1,820 acres, and at present have only one man on it, and

he is apt to be called in the draft any day. We will
continue to do more, and win.

John and Katherine Rothenberg, Chicago, Ill. May I
offer you my sincere and hearty thanks for the "Citation"
presented to my husband and myself on January 7 at

Chicago Stadium. We are humbly grateful to you for

this high honor and we shall try very hard to live up

to the name of "Champion War Bond Buyers". To start

the year off, we have decided to do without that rug

I had been saving up for. We dropped pennies and dimes

into a milk bottle for the past twelve months, but now
we realize that such things would be very little comfort
to us if anything should happen to change our American

way of life. So it is with a happy heart I shall add
another $50 Bond to my collection, and rather than think
of it as a sacrifice, we consider it a God given privilege
to be able to do our little bit for our country.

-4-

Warren J. Snyder, Alhambra, Calif. My father, age 88,
and mother, age 80, are buying War Bonds out of an

income of $44 a month. * * # The last few years their

only income was the Old Age Pension given by the State
of Indiana, which was for mother, $18 per month, for
dad, $20 a month. From this amount they saved enough

to buy two $25 Bonds. Now here is a quotation from their
last letter. "We got our checks yesterday and they gave
us a raise of $3 each -- Ma $21 and mine is $23, so you
see we now will get $44 a month, and we will take the
$3 and every three months will buy a $25 War Bond. We

are going to start and get one this month then April 1,

July 1 and September 1, and so on as long as we last.
We can get along fine and help Uncle Sam that much."
My father gives over 40% of his income to his country,

knowing that the odds are he will never live to receive
anything back during his lifetime. It should put to
shame the great number of men and women who are crying
over the 5% to 10% the Government asks them to invest
for Bonds.
#

George T. Martin, Brooklyn Trust Co., Brooklyn, N. Y.
As I am employed as a head teller in a bank, I have
noticed that quite a number of people are redeeming
their War Bonds. Now as you know, that does not help
the War effort, so with your permission, may I make a

suggestion that I believe should help this situation?

Why not make it possible for a bank to make loans against
War Bonds as collateral, and in the event that a borrower
defaulted, then the bank could redeem the Bonds for the
amount due, and the proceeds left to be sent to the
borrower. The contact could be made when a Bond holder
asks the bank to redeem the Bond, then the bank could

explain the necessity for the party holding on to the

Bond and then could suggest the bank would be willing
to loan him money against his Bond as collateral. #

-5John F. Williams, DuBois, Pa. Our Good Earth, Keep

It Ours. As a father of 9 children living on a small

farm, having followed events from Munich till now,

I feel I have an understanding of the conditions that
confront our nation. Well, to sum it up, the B. & 0.

Railroad, where I work, asked us to invest 10% of our
wages in Freedom. I am glad to be able to report the
family -- wife and kids -- have seventeen $25 Bonds
and will buy through the B. & O. one $50 Bond every
month. This for not only my own boy who is in the Navy,
enlisted December, 1940, but all the other boys from

other homes. We in this family will do our best to
further the War effort. My wages are from $140 to

$150 per month. I think the American people will come
through when they are all awake. Yours for Victory.

-6Unfavorable Comments on Bonds

C. S. Boothby, (Engraving), Chicago, Illinois.
We shall, of course, do everything we can to urge our

employees to continue their purchase of War Bonds in
spite of the Victory Tax and the extremely heavy
income tax. However, the New Deal Administration must
eventually learn that "IT'S IMPOSSIBLE TO GET BLOOD

OUT OF A TURNIP". The WPB has restricted the use of

copper in our photo engraving industry to 60% of our
needs and zinc to 50% of our requirements.
Naturally, our men have suffered a heavy reduction in
their income during the past year - over 13%. And they

still feel obligated to buy food and clothing for their

families, even if they are prevented from keeping their
houses warm enough to live in because of the stupidity
and hindsight of the New Deal Administration. Therefore, from our industry all over the United States I
prophesy that with any more burdens and restrictions

piling on us, you will necessarily and inevitably face

a reduction of the purchases of War Bonds by our employees.

Carl H. Elshoff, President, The Mine "B" Coal Company,

Springfield, Illinois. Your letter of January 14, re-

garding the continuation of our 10% War Bond Payroll
plan along with the Victory Tax. We have been advised
that because of this Tax, the miners employed by us

wish to discontinue this plan to at least April to

ascertain what is to be done about the wage scale.
I personally am so disgusted with the ramification of

the Victory Tax plan that it is difficult to get behind
it whole heartedly. The administration of the tax and
its collection is so burdensome that in all, it will
result in a waste and loss rather than an income. It

is the desire of the Company to cooperate and we feel
that our miners have done a splendid job during 1942
in buying over $100,000 worth of Bonds, but we are next

to helpless in putting over this job under the conditions.

Senator James J. Davis forwards the following letter
he has received from John C. Syling, Superintendent,
Lawrence County Public Schools, New Castle, Pa.:

Dear Senator Davis: I feel that I should write to you
concerning the amount of advertising material that is

coming out of the Treasury Department on the sale of
Stamps and Bonds. We are selling both Stamps and Bonds
in every school in Lawrence County, and more than that,

we are doing an excellent job of it. However, I feel

that the expense in connection with the advertising is
uncalled for. * The amount of paper used so unnecessarily must surely interfere with the production of
the paper needed for other purposes. The colored
posters certainly are expensive to make, and what is
more, in a County the size of Lawrence, even though it

is small, it is impossible to get the material all delivered to the schools. # * I hope that you will be

able to help in saving some of the money which is apparently being wasted in excess advertising.

Fitzgerald Hall, President, The Nashville, Chattanooga
and St. Louis Railway, Nashville, Tenn. I have your
wire of the 14th about urging employees to increase
their purchases of War Bonds. # # * Perhaps you do not
understand that probably most of these employees have

no income, or practically none, except their salary or

wages. They do not know what their tax burden this
year will be. To make definite and absolute commitments under those circumstances are, from their standpoint, of doubtful wisdom, and until the Government can
give them the information so they can definitely know
what their tax burden will be, I do not see how we can
be expected to insist that they assume more burdens
than they are already doing. Probably, also, you may
not have in mind that many railroads pay to some employees has not been increased at all during the War

period. * # Practically everything I read in the

papers purporting to be statements of public officials
seem to assume that the public generally has largely

-8increased incomes. That is not true in many cases

and presents a very difficult problem. * We are

just as unselfish and patriotic as anybody else, and

we will do all we can within the proprieties, but I do
not feel we should try to overpersuade employees to

make commitments until they know with some reasonable

degree of definiteness whether they can fulfill them

or not. # * *

Ella Louise Waterbury, Oriskany, N.Y. May an exasperated citizen suggest that less urging to buy Bonds
and more attention to make it easy as possible for the

willing public to buy might be conducive to larger
sales of War Savings Bonds? On December 30, 1942,

with $40 cash in hand, I made application at our Post
Office for a $37.50 Bond -- only to be told that no
Bonds of this denomination were available or would be

before the following week. I inquired several times
during the following weeks, without success in obtaining a Bond. Finally, on January 11 at about 4:30 p.m.,
when in the Post Office on other business, I learned
on inquiry that the Bonds were then available. I hurried
home to pick up the cash and returned to the Post Office
about 5:10 to be told that it was too late to make out

a Bond that day, as the forms had to be forwarded to
Washington on the day the Bond was sold and the last
outgoing mail of the day was then made up. Under normal

transportation conditions I should, without waiting all
this time, have gone into the Bank at Utica to purchase
the Bond, but under present conditions, restrictions,
etc., such a trip seems scarcely justified.

Clifford E. Paige, President, The Brooklyn Union Gas

Company, Brooklyn, N.Y. Telegram regarding employee

subscriptions to War Bonds is received. Why this is
a telegram instead of a letter, I don't understand.
You are right that many doubtless intend to reduce or
discontinue their subscriptions. How can they help it
with constantly increasing taxes on their incomes?

We shall continue doing everything we can to encourage
them to keep what they buy and to buy all they can.

Your telegram will be posted as a bulletin so that all
employees may see it.

-9Favorable Comments on Taxation

Walter E. Daley, President & Treasurer, The Bridgeport
Grinding Machine Co., West Haven, Conn. The collection
of the second week's 5% Victory Tax from our employees
has presented somewhat of a problem to me as Treasurer
of this company. Our weekly deduction amounts to ap-

proximately six hundred dollars, and it is the total

of 13 weeks' deductions, amounting to nearly eight
thousand dollars, that I am concerned about. Our
company, like others, is of course acting as a Collector
for the Treasury Department, but. having this money in

our possession is quite a responsibility. It could be
a temptation - to put it to temporary use in our busi-

ness - it could be looked upon by creditors (if we had

any) as a nice sum to attach in civil suits, etc., etc.,
and it is subject to all the vicissitudes of business.
Wouldn't the Treasury be benefitted a great deal
if the Victory Tax collected by employers was turned

over to it as it was collected, in most cases weekly,

and a final report and adjustment made on a quarterly
basis? In this way the Treasury would have a regular

weekly receipt of the taxes and it certainly would be
a large sum based on the total payrolls of the country.
If and when this Victory Tax is increased, and a thholding tax against the current year's income taxes is

put into effect, the weekly receipts would be tremendous
and the responsibility of the employer collecting and
having such taxes in his possession would also be
greatly increased.

M. G. Lawson, Rockford, Illinois. Release forms at

once ! Permit those who wish, to pay 1942 taxes in cash
with some discount allowed.

Charles L. Myers, Baltimore, Md. I am inclosing fifteen
cents for the Victory Tax, as I made three dollars by
carrying orders at an A & P Store.

Marcus M. Browne, Bethlehem, Pa. Please do not louse up

the Ruml income tax pay plan. We little people need it
desperately. Call it the Morgenthau-Ruml Plan even, but

let us have it.

- 10 Julius B. Kuriansky, Stamford, Conn. I have been following with great interest the varied discussions reported in the newspapers and elsewhere, concerning the
payment of Federal income taxes on a "pay-as-you-go"

basis. Apparently, the Administration is now committed

to such a policy, and rightly so. I do not hold myself
out as an expert on the question, nor do I feel that
I fully appreciate all the ramifications of the problems.
Common sense likewise rejects the beguiling Ruml Plan.
I am instinctively suspicious of a situation where one
receives something for nothing. On the other hand, if

we continue under the present set-up, the Government

will one day find itself in the not very enviable position
of having spent money which it had anticipated it would
receive, but actually never would. Certainly this is
one instance where anticipation is not greater than
realization. *

- 11 Unfavorable Comment on Taxation

T. F. Flanagan, Harrison, N.Y. I had two young

Merchant Marine Officers at my home for dinner a few
days ago. They had just returned from a seven months'
hazardous trip. They had seen a tanker torpedoed

within a few miles of their ship, and two torpedoes
had missed their ship by a matter of feet. Yet when
they were paid off early in January, the Victory Tax

of 5% was deducted from their entire seven months' pay.

I am sure this situation has been called to your attention previously. This is obviously a matter of severe

injustice, and I hope the Treasury Department will main-

tain its reputation for integrity by seeing that the
situation is corrected.
George P. Orr, Law Offices, Orr, Hall & Williams,

Philadelphia, Pa. There is a practice in your Depart-

ment that is causing universal resentment on the part

of attorneys and taxpayers. * It is the practice

of collecting taxes, which the Circuit Courts have held
are not collectible, "because the Treasury does not
acquiesce in said decisions" - but no appeal is taken.
The taxpayers naturally feel that no appeal is taken
because the Treasury Department fears the Supreme Court

will affirm the Circuit Courts. In the meantime, the
Treasury Department collects millions from taxpayers

who do not wish to go to the expense of litigation.

A short time ago the Attorney General gave an opinion
that even the ruling of the Labor Board was the "LAW"
until reversed - even though an appeal was pending.

It therefore seems that decisions of our Circuit Courts
of Appeal - unappealed from - should have at least
equal weight. Here in Philadelphia two estates are
confronted with exactly the same tax problem. Estate

"A" litigates, and the Circuit Court of Appeals for
the Third Circuit affirms the decision of the Court
below that there is no tax due. Two other Circuit

Courts follow the reasoning which is based upon a
recent decision of the Supreme Court. The Department
has not taken any of these cases to the Supreme Court,

- 12 yet Estate "B" is now assessed contrary to the decision

of the Circuit Court in this District. Thus the ignorant
and trusting must pay, while others, with exactly the

same problem, are exempt. I have heard the argument

that the Department is hoping for a contrary decision in

one of the other Circuits, but in the particular case I

refer to, years have gone by with not a single decision

in favor of the Treasury. I should be glad to have

your opinion and explanation.

John C. Beck, Cincinnati, Ohio. Why not mail income

tax forms after the first of the year instantly to

registered taxpayers? Many could calculate and pay
early in these days of urgent tax money. Others could
merely calculate, having their figures well in advance

to avoid that last-minute rush. * * Why not insist

on employers delivering to their employees their annual
wage statements on, say, January 10th of each year (or
before)? Most employees do not receive their annual
statements until March. What an additional defeat of
the time element confronting the Treasury! The annual
March rush is a headache to all, including Washington.

Cincinnati District has witnessed a scarcity of
all forms. Rationing of these forms, designed to pro-

vide the very tax money of which we are so short, should

not thus informally be in evidence. In all the saving
of paper, these should be most plentiful.

Donald F. Walker, Manager, Chamber of Commerce, Pontiac,

Mich. I noted over the week-end an appeal from you,

addressed to all of us income taxpayers, to file our
returns early. This will advise you that I have been
trying to file since January 4, and that the Pontiac
branch office of the Collector of Internal Revenue in
Detroit has not had blanks for that purpose during that
period, at least at the times that I called them. Most
of us are more than willing to pay the large tax, but
it is vitally important that we learn exactly what the
tax is so as to make our arrangements accordingly.

- 13 C. R. Armstrong, H. R. Terryberry Co., (Manufacturing
Jewelers), Grand Rapids, Mich. May we take this opportunity to express our humble opinion regarding the

present "feeble fluttering in high places", regarding

the payment of income tax. The radio announcers and
news analysts of late, have been allowed to inform the

public that there was a possibility of their being

forgiven the 1942 income tax. A modified, but equally
demoralizing version of the income tax question has

been the statement that if not cancelled entirely, the
1942 income tax would undoubtedly be declared under

moratorium. May we, as a typical manufacturing firm,
go on record as being whole-heartedly opposed to any such,

let us say, "credi-cidal" action as cancelling an in-

come tax, or declaring a-moratorium on it. It has been
our practice throughout the past year, while our em-

ployees have been earning substantial incomes, to continue to impress upon them the importance of laying
aside money for the payment of their income taxes.
Only this morning, one employee, while consulting us
regarding a matter of his personal finance problems,

made the statement when asked about paying income tax,

"I can use the money for something else now. You know
the Government is going to cancel the income tax for
1942". This badly warped conception of business is
shared by many, and from what we have heard, they can't
be blamed for it.

Charles A. Bracher, Dayton, Ohio. There is a widespread misunderstanding here in Dayton, among some

75,000 defense workers, as well as business and indi-

vidual taxpayers, in regard to filing an income tax
return for the calendar year of 1942. Many of these
folks are under the impression that they will not be
required to file an income tax return for 1942 at all.
That the tax for 1942 will be withheld in 1943, along
with the 5% Victory Tax. For instance, last year at
this time, hundreds of income tax returns were filed,
while this year there are practically none. Should
this situation continue for a number of weeks, it would
be impossible to handle the thousands of taxpayers that

- 14 -

would come in at the last minute. In fact, it would
swamp the Collectors' offices. I would keenly appreciate it if your office would advise if it will be necessary to file a return for 1942, even in event
Congress passes a new tax law before March 15.

Mrs. Harry Selker, Fort Wayne, Ind. We working

people are willing to pay our way in this war. We
know it is expensive, but at the same time the cost of
living has certainly gone up. We didn't kick about 5%
Victory Tax. Many of us are already putting 10% in Bonds
and I know some who are putting more than that in. We
expect high income tax, but why all the other -- Federal

Social Security, increasing Victory Tax, etc. That's

a little too much. I myself am wearing some 5 and 6
year old dresses and coats and slippers right now. We

are not trying to have a lot of luxuries. We're working
people and don't expect them, but we would like enough
to have the necessities. Perhaps we'll be as bad off
as the Germans after all. If so, why go on and fight

the War out? Of course, the new Congress won't be think-

ing of the lower classes, I know, but in the longrun,

we re the ones who pay for the Wars, both in money and

lives. *

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680

TELEPHONE REPUBLIC 7860

BENJAMIN FRANKLIN STATION

WASHINGTON, D.C.

January 22, 1943

Dear Miss Kistler,

With reference to my letter of January 21, I am writing
to say that after all we shall not have any amendments to make to our
balance of payments table for the period January 1,1943 through March 31,
1943, in spite of the three changes of Lend-Lease policy to which Sir
Frederickare
Phillips
referred when he saw Mr. White the other day. The
reasons
as follows:(1) - South Africa
The changes of Lend-Lerse colicy which were recently
proposed by the State Department to the South African

Minister are, I understand, still under negotiation
between them, and I am told that the figures for the

first quarter of this year are unlikely to be materially
altered.
(2) Tobacco
OLLA have informed us that they have decided to fill

all our tobacco requisitions that were on file with

them on December 31 and will look to us to take care
of our subsequent requirements. The requisitions on

file will be sufficient in all probability, to cover
the first quarter of this year so that the effect of

this change of policy on our cash position will first

appear in the second quarter of 1943.

(3) - Icelandic Produce

Though the position is not entirely clear to us yet,

we are informed that the British Treasury hopes to be
able to obtain necessary supplies for Iceland for sometime at least without expenditure of dollars.
I ELID sorry to have held this matter up so long with the
amendments to the note on the assets table which were sent to you in Sir
Fredcrick Phillips letter of January 20 to Mr. White and my letter to you
of January 21. I think the tables are now complete and agreed. If you are
having them duplicated, I would be grateful if you could send me a half
dozen copies of them in their final form.
S Kistler
.S. Treasury
Division of Monetary Research
Washington, D.C.

Yours sincerely,

E.W. Playfair

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
TELEPHONE REPUBLIC 7860

Box 680
BENJAMIN FRANKLIN STATION
WASHINGTON, D.C.

January 21, 1943
IMMEDIATE

Dear Miss Kistler,

I am sorry to keep on pestering you with

amendments, but London have telegraphed to say that there

was a mistake in the figures on which they founded the note
which Sir Frederick Phillips sent to Mr. White on January 20.

The actual figure is just over $2,804 million instead of being
over $3 billion. Would you kindly substitute for the words
"over $3 billion, or seven time as great" the words "nearly
$3 billion, or over six times as great. 11
I hope to let you have the revision of the
balance of payments figures within the next couple of days.
Yours sincerely,

E.W. Playfair

Miss Kistler

U.S. Treasury

Division of Monetary Research

Washington, D.C.

COPY

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680

Benjamin Franklin Station
Washington, D.C.

January 20, 1943.
IMMEDIATE

Dear Mr. White:

I have received a telegram from London asking
me to make an amendment to the table of "British Gold & Dollar
Exchange Assets" which you are preparing for use during the
hearings on the Appropriation Bill.
reads as follows:

The last sentence of the note at the bottom
"Thus the recent increase in our holdings has

been accompanied by a very much greater increase in

our overseas liabilities".

London would like it instead to read:"The growth of $432 million during 1942 in our
gold and official dollar balances must be looked at
against the background of a deterioration of over
$3 billion, or seven times as great, in our net
overseas capital position in all other respects."
amendment made.

I would be grateful if you could have this
Yours sincerely,

/s/ F. Phillips
(F. Phillips)
Dr. Harry White,
Director of Monetary Research,
United States Treasury,
Washington, D.C.

THE BRITISH SUPPLY COUNCIL IN NORTH AMERICA
Box 680

7860

BENJAMIN FRANKLIN STATION

WASHINGTON D.C.

January 13, 1943

IMMEDIATE

Dear Miss Kistler,

In view of your statement last night that you might be
forced to publish our statements, we have had second thoughts about their
presentation. What worries us is the figure of $1066 millions for total
"available gold and dollar assets." They are not all available in any
real sense, as the notations show. I therefore enclose a revised lay-out
in two alternative forms of "Available gold and dollar assets", disclosing
exactly the same information, but meeting this point; I would be glad if
you would consider it.
with pastyears

If this lay-out is adopted, the table comparing the data/could

remain unchanged, except that a note should be added to the word "gold"

to explain that these figures exclude Belgian gold, if lay-out A is

adopted; this note would not be necessary if lay-out B were adopted.

Personally, I prefer B, since though it is less logical, it keeps uniformity in the basic figure for gold.
Yours sincerely,

AlPPanfair

E.W. Playfair

Miss Kistler
U.S. Treasury

Division of Monetary Research
Washington, D.C.
Enc.

AVAILABLE GOLD AND DOLLAR ASSETS

1. Gold

793

Less $105 million of gold borrowed from
Belgium, which involves a definite gold

liability of like amount

105
688

Less sterling funds held by foreign
countries which carry specific rights
of conversion into gold amounting to
approximately

2. Official dollar balances

190

498

243

Less the amount of U.S. registered

sterling accounts, which carry the
right of conversion into dollars

on demand. These amounted at November

30, 1942, the latest available date,
to

3. U.S. Securities

190

135

Less securities which the British do
not regard as readily marketable,
estimated at

Total - Available gold and dollar assets

768

AVAILABLE GOLD AND DOLLAR ASSETS

1. Gold

688

Less sterling funds held by
foreign countries which carry
specific rights of conversion
into gold, amounting to
approximately

190

(In addition, the British hold
borrowed

from $105 million Belgium. of This gold gold is

not included in the British
assets since it involves a

definite gold liability of
like amount)

As in lay-out A
3.

498

41
COPY NO.

NOT TO RE RE-TRANSMITTED

BRITISH MOST SECRET
U.S. SECRET

OPTEL NO. 25.

Information received up to 7 A.M. 22nd Jan, 1943.
1. NAVAL.

On 19th/20th three motor torpedo boats carried

out a light raid on Tripoli (L) Harbour. A U-boat in tow

of three tugs was sunk off the entrance and one tug was
set on fire and beached. Shore batteries heavily engaged
the motor torpedo boats while subsequently attacking the Mole,
all were hit but none seriously damaged, two ratings wounded.
Off Bougie on 19th one of H.M. Destroyers shot down a torpedo

bomber and one of H.M. Canadian Corvettes escorting a
Westbound convoy sank an Italian submarine capturing 23 crew.
2. MILITARY.

Libya. 19th/20th. Enemy vehicles packed the roads
from Tarhuna to Castel Benito and the coast road West to

Tripoli as well as 100 miles of road Tripoli to Zuara.

Leading troops of 51st Division entered Homs during the night
and on 20th afternoon were still in contact with enemy rearguards six miles West of the town. Our mobile troops also
in contact at Gussabat. 7th armoured division occupied
Tarhunasa.

20th. An enemy rearguard strong in artillery held
throughout the day Defile ten miles to the West.
Tunisia. 19th. The enemy advanced South West of
Pont du Fahs. One infantry cqlumn with tanks reached a point
about 18 miles South West of Pont du Fahs during afternoon
causing the French forces to withdraw. Another column

advanced South West along high ground South East of Pont du

Fahs - Siliana road. On first army Southern flank contact
was made with the enemy and the road Pont du Fahs - Siliana was
shelled from East of Bou Arada. British infantry supported
by tanks have cleared the enemy from the road Bou Arada - Go
Bellat. To conform with the French withdrawal British forces

have vacated their most advanced positions South of Bou Arada
and El Aroussa but a garrison remains North East of Bou Arada.
Russia. The German withdrawal North Westwards astride

the railway Baku - Rostov continues at a rapid pace, the
Russians are now within fifty miles of Armavir a railway
junction which is indispensible for the Germans to hold if they
hope to retain the Maikop oilfields. They have also announced
the capture of Voroshilovsk.
3. AIR OPERATIONS. Western Front. 21st.

Our light bombers attacked airfields in Northern

France and shipping at Cherbourg and Flushing. Escorts and
sweeps involved 33 squadrons of fighters. Enemy casualties

4, 4, 2.

21st/22nd. 169 (aircraft despatched) Essen 82
(4 missing) sea mining 85 (six missing 1 crashed). Intruders
2. 25 enemy aircraft operated off the South coast. About 8
of them made brief landfalls.

French North Africa. 20th. 16 U.S. Fortresses scored

hits on barracks at Gabes. Hurricanes successfully bombed road
transport and troops.

Mediterranean. 20th/21st. A Naval Albacore from
Malta sank a three to four thousand ton ship off Cape Bon. A
Beaufighter
also hit with torpedo an enemy tanker in the.
Sicilian Channel.

Sicily, 21st. Malta Spitfires bombed barracks and
chemical factory at Licata also hangers on Gela airfield.
Libya. 21st. Liberators dropped about 25 tons of
bombs on Tripoli. Light bombers and fighters made 230 sorties
against M.T. in the Tripoli - Tarhuna areas.

-2-

BRITISH MOST SECRET
U.S. SECRET

CORRECTION TO OPTEL 24 PARAGRAPH 3, AIR OPERATIONS.
LIBYA

Cancel whole paragraph and substitute amended

version as follows:

"Libya. 19th. Fighter bombers continued throughout
the day to attack enemy M.T. in the Tarhuna area, U.S.
Libya-based Liberators bombed Tripoli Harbour, At night
Malta Wellingtons effectively attacked M.T. and other objectives
in the Tripoli area. Enemy aircraft attacked our forward
troops.

French North Africa. 18th/19th.

Bisleys attacked objectives between Tunis and
Sousse and blew up a train believed carrying petrol.
Wellingtons dropped 26 tons of bombs on Bizerta starting large
fires. 19th. 56 U.S. Fortresses bombed Railway Centres and
other objectives South of Tunis. Sousse was attacked by

U.S. Liberators and a small ship was hit. Successful attacks

were made on Medenine and on M.T. in the Dierba-Mareth Area.

Mediterranean 18th/19th. Malta Aircraft tor-

pedoed a 9,000 ton ship which was left sinking. Two others

of 4,000 tons were probably hit. 19th/20th. Albacores off

Djerba sank one ship of 6,000 tons and another of 2,000 tons.

January 23. 1943
TO THE SECRETARY:

Books on two billion dollar certificate
offering close at close of business today.
Final results will not be known until Monday.
Present indications are that issue will be
greatly oversubscribed. Subscriptions up to
present time total well over three and one-half
billion dollars. Nothing unusual happening
here. Regards from the bunch.
BELL

Uia Coast guard
DWB:NLE

FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES

For certificates, Column , above

Net decrease

Market sales 1/

dollars as follows:

for all securities except certificates.

Net increase

Market purchases

operations is millions of

Column a shows price changes is 32ada

Special one-day certificates g/

Marketable issues:

Column A shows Federal Reserve

Page

yield changes is decimale,

Direct purchases from Treasury

STRICTLY CONFIDENTIAL

Maturities.

This Week
Last Week
Monday r

Full Week

Jan. 18
3

Direct purchases from Treasury

+56.4

44.9

+47.1

+211.6

-75.4

-62.9

-5.9

-37.5

-209.8
-#77.3

Special one-day certificates

Net change

+5.1

+36.0

-77.3

Maturities

-66.0

-36.1

-21.7

-164.0

-32.1

-15.5

-6.1

-25.5

Market purchases
Market sales

-10.4

+110.4

+18.5

+18.8

-25.6

-61.7

+9.4

+18.8

1. JUNEARY

Marketable issues:
+15.3
-18.0

+22.8

Full Week

Jan. 11

Saturday

Friday

Thursday

20
19

Description

Index

Saturday

Friday

Thursday

Wednesday

Tuesday

Mantay

Wednesday

Tuesday

-3.5

-68.7

Total not increase (+) or decrease (-)
Wednesday report of total portfolio

-119.6

-13.3

-6.1

5975.0

-116.1

+2.0

-2.9

-6.5

+39.0

+30.1

49.6

#29.3

-61.5

-50.5

+9.6

-75.5
5818.0

5818.0

11. Taxable securities

Bills all issues combined
+16.2

+19.3

+14.8

+9.4

+18.8

+104.1

+25.6

-61.1

-10.4

-21.5

-17.8

-10.5

-27.1

-149.0

+5.8

-4.5

+38.5

+164.8

-36.5

-167.7

-m77.1

Total net increase (+) or decrease (-)

-110.9

-5.3

-1.1

-3.0

-68.2

+17.3
-14.7

Maturities

-66.0

-66.0
-36.1

Market purchases
Market sales

-108.7

-4.5

+2.6

+29.3

-.9

+2.0

-#77.3
-60.2

Certificates
A-

5/85

2-1

.025

.024

-.02

11-1 43
5

.03

-.02%

-014

024

5-1-43

7/8

.024

.025

51 41

024

7/8

12-1

+7.0

.02%

-old

.02%

-.02%

+5.0

+1.0

4.5

+15.6

+7.0

+5.01-.02
+31.4/+.02

Special one-day certificates
Treasury notes
3/4

3-15

1/4

9-15

1-1/4

3-15

12-15

1/4

all

-5.4
45

3-15

-2.5

12-15

1-1/2

-5.3

-2.3

Treasury bonds

-1.5

48-50

1-15

25
+3

6-15 48

1-3/4

6-15
+2

3-15

50-52

12-15

51-55

2-1/2

3-15

52-54

2-1/4

6-15

52-55

-5.0

-6.0

-1.0

-6.0

-2.0

2-1/2
2-1/2

-5.9
-9.5

-1.0

-7.0

-2.5

3-15 56-58
6-15 62-67
12-15 61-68

2-1/2

49-51

12-15

-2.0

49-51

9-15 49-51

2-1/2

67-72

9-15

Guaranteed securities

RFC 1-1/85 7-15 by

+1
+1

4-15

RFC

-1

000 1-1/8 0 - 2-15 45
All taxable securities
Marketable issues:

+25.6

+16.2

+19.3

-61.7

-10.4

-25.5

+14.8

9.4

+18.8

+104.1

-17.8

-15.5

-32.1

-163.0

Market purchases
Market sales

-66.0

Maturities

-66.0

+17.3
-21.7

+7.0

+31.1

-5.0

-68.0

Direct purchases from Treasury

+5.8

-72.2

-3.0

-6.1

-13.3

-124.9

444.9

+45.5

+201.2

-5.9

-37.5

-199.5

-77.3

Special one-day certificates:
Net change

-36.1

Total net increase (+) or decrease (-)
Original figures revised.

-4.4

*2.0

-114.2

Office of the Secretary of the Treasury. Division of Research and Statistics,
Less than $50,000.
V Purchases and sales recorded as of day of transaction and not day of delivery. transactions after 4 o'clock are included is the sext day.
2/ Transactions are entered as of the day following that to which that apply. since data are not available until the following morning.

-6.0

+39.0

+6.0

-75.6

FEDERAL RESERVE OPERATIONS IN GOVERNMENT SECURITIES

Column a shows price changes is 32nda.

Market purchases 1/

Column A above Federal Reserve

Page

operations is millions of
dollars as follows:

Market sales y

Materities.

STRICTLY CONFIDENTIAL
This Veek

Last Week
Thursday

Full Week

Jan. 18

Saturday

Friday

Thursday

Full Week

11
A

will

Wednesday

Tuesday

Vednesday

Tuesday

Monday

Description

Index

Saturday

Friday

III. Tax-exempt securities

treasury notes

9-15

12-15

1-1/8

3-15
M

106

107

105

6-15

43-47

9-15 45-47

5-1/8

2-1/2

-1

-2

2-1/2

12-15 40-53

117

2-1/2

118

2-3/4

9-15 50-52
6-15 51-54
9-15 51-55

2-1/4

120

121

2-1/4

123

2-7/1

124

2-3/4

126

2-3/4

=.6

-.9

-3.0

-1

51-53

6-15

53-55

-3.0

-1

+3.0
+1

-1

12-15

-1

+3.0

-1

-1.0

-1.0
-.9

-.9

6-15 54-56
3-15 55-60

-.8

9-15 56-59
6-15 58-63

12-15

-1

-.9

49-52

116

125

-.5

-.6

12-15

122

-.5

9-15 48

3-1/8

-.5

48-51

115

119

-1

3-15

12-15 48-50

114

+1.0

47-52

10-15

2-3/4

-1.1

6-15 46-48
6-15 46-49
12-15

113

-1

-.5
+1.0

46-56

3-15

I-3/4

4-1/4

12-15

2-1/2

109

112

-1

+.9

+.5

12-15 44-54

110

111

+1.3

+.1

+2.5

44-46

4-15

+1.1

10-15 43-45

108

-2

boads

2-3/4

107

1-1/4

106

-.5

3-15

104

-1

+.8

3-1/4

103

-2

9-15

3-1/89

102

-2

6-15

01/4

Treasury
101

-2

A-

105

-1

-1 1 103

1-1/85 6-15

101

102

-1

-.5

-8

-1.0

-2.0

60-65

Quarenteed securities

000 1/45 , 5-1
TIMA 1-3/8 2-1
103 FFMC 5-15 44-49
43

101

106

+1.5

+3.5

*2.0

102

+.8

+.7

+2.0

TIME 3-1/4 3-15 44.64
5-1

+.5

+1.0

14-52

104

HOLC

105

HOLO 1-1/2 6-1 45-47

+6.3

+.5

+3.5

-1.0

-1.0
+2.3

+5.3

-5

+3.5

Office of the Secretary of Research and Statistics.
Less than $50,000.

Market purchases
Market sales.

+1.5

+1.4

-1.4

and

+.6

+1.2
+.5
+1

4.9
-1.4

+1.0

-2.5

-.5

+1.6

+10.4

-10.3

-1.5

Maturities

Total not increase (+) or decrease (-)

+1.5

Original figures revised.

recorded
sales
the Treasury. Purchases
Division of as
of day
of transaction and not day of delivery. transactions after 4 o'clock are included is the next day.
V

+.1

+.2
+.2

+.3

All tax-essept securities
+2.3

-1

+1.6

+.1

43222

JAN 23 1943

Dear Mr. Browns

I have Mr. Hemierson's letter of January s. 1943. addressed
to secretary Morgenthen, with which he enclosed two copies of a

plan by Mr. Holf Hagent for instalment seiling for post-mar
delivery.

the advantages claimed for this plan are that payments under
is would be related to the purchase of tangible merchantise, these

making it possible for individuals to m the #fool* of spending

out of what is really saving, and so saw mores and that 10 would
provide a means for as orderly return to peace-time production
and distribution.
It is my opinion that these admatages would not be achieved
and that the plan would involve very definite

(1) the alleged tengibility of the mode offered under
the plan would, in fact, be illumony.
(2) the not increase in personal saving resulting from
the alam would not be appreciable.

(3) the plan would occasion a whelly manumated use of
manpover and materials.

(b) the cost of raising money under the plan would be
excessive.

(5) the plan would require these participating is 11

to make present Joigments of their post-ma needs
and would essicing these "bern too late* from any
participation whatever.

(6) the plan would be grossly unfair to members of the
armed foress.

.2.
(1) Union Mr. Expent's plan as individual would be led to
believe that he was purchasing a tangible commodity, c.c. a

refrigerator. an automobile, or - other specific darable and

In reality, be would acquire no more than a certifiests entitiing

his to purchase at as withous price a Non-existent darable good

the under
certificate
- hethis OF

at - indeterminate future date. Its mine would be as more than

many current
post-marsavings
to prodictwith
or tothe

or the cost of the durable be

had nature, chandise the paid each such the for for surrender plans quality, 10. for It value linking is delivery. impossible, of no goods glamatee more any sale other which than of the what & will -

available after the mr. Changes in technology. which are being

accelerated by the war, may well realier obsolete some of the goods
which would to sold now under the plan.

(2) Mr. Magnet estimates that the aloption of his plan would
result in annual savings w individuals of 16 billions, approxinotely half of which would represent additions to savings. I

doubt, Revever, that the amount of - not additions, as dis-

tinguished from the funds which would be obtained w the ashett-

tution of one - of saving for another. would be substantial.
It is likely that, w diversifying the appeal for small savings,

a means might be provided by which individuals could avoid their
savings obligations entirely. Individuals sight, and many probably
would, withines from payroll savings plans on the plea that they

were enrolling in "post-war delivery certificate savings plans.

Many of then, however, would withdraw from one plan without enter

ing another. in order to secure the main mobilisation of
individual savings, as is accounty that policies appeals be

focused at a single point. Mr. Begent's plan would make this in
possible and, compaquently. might well result in a decrease is
aggregate individual savings.

(3) 1 question the desirability of the absorption of -

materials and office equipment which Mr. Regent's plan would entail.
s contration that the people employed would be women, or new

above military age without special skills, does not stwike - as a

wild - for this expenditure of mangover, - long as Reflexes

in the agencies is seares and there are Jobe more concential than

selling non-existent darable mode for delivery at intefinite future
dates to which individuals set acceptable for military service could
devote their emergies. Salesm activated by generous commissions

would be Sept out of work vital to the vising of the was. Verture

and would be harmoned by thousands of mileson competing

-3with each other and trying to sell them goods for future delivery

covering every conseivable need. - taction

would be need to servings prompective castenors that, saless they

purchased priority certificates, they would not to able to by the
things they need for - years following the mr. Such practices
would serve real purpose and would underbubtedly detrest from
the business of winning the mr.

the retailers of durable goods, the finance companies, and the
advertising agencies are not the only branches of business enterprice which have had to morifies "Business as usuall. and to

cartail their operations as a result of the MAFT and there I to

be no reason why they should to accorded special treatment in this
connection. other businesses expect to rebuild their organizations
after the war, and the agencies which have been attached to the in-

statement selling business in the past - do liberise.

(4) Mr. Engent's plan mile for the payment of conviscions

and expenses of a signitule which would not be telemated in counce-

tion with the Ristation of regular is of Government securities.

these cannot be dismissed as payments in lion of in-

torest. they do not . to the lealers, but to the dealers. they
should be considered, therefore, in the light of as underwriter's

spread.

Mr. Bagent's contention, that the commissions to to deducted
from the amount received by the Government water his plan would

invoive less cost to the Treasury than the interest charge ea savings banis. is based on the accupation that the interest cost
on series 1 savings beate is 2.9 percent from the outset. the full
2.9 percent interest is paid, however, only if the banis are hold

for the full - period. - esample, if the war onis in

Johrmary 19th. the east to the Government for the use is frate in
vested in Year banis released six months after the close of the was
(the lag administ w Mr. Regent for the delivery of merchantise)

would be 1.06 percent per - while the cost of $100. obtained
as a post-our delivery payment, would amount to 3.2 percent per

- only If the - lasts four more years would the cost for
the was of $800 be approximately the - in both inconclusive time,

If the - onis in January 1947. the cost to the Government for the
use of funds invested in for bonis would be 1.72 percent per while the cost of $100, obtained as a post-mar delivery payment.

would - to 1.67 percent per -

.4.
(5) Mr. Engent administree that his plan would not have

any exhotential effect - the total post-mar market for the

goods covered and that as would not increase the emply of 1

goods available. the essence of the plan, therefore, . for as

the post-mar period is conserved. to bound - is the matter of

priorition. these priorities would be established - the basis

of - present julgments of their post-var noods. there
is no warrant for expecting that such Jelgerate will mineide

with noods as actually determined after the war.

Mr. Sugart's proposal, therefore. mounts to posalising all
those who are not fortunate enough to have g correctly
their post-ma requirements, w depriving them of the discount

to which holders of priority certificates are entitled, or w

foreing them to purchase the mode actually needed from other

individuals. who hold and do not and the appropriate priorities,
at a profit to the seller. while attempting, although is my
opinion not very mannefully, to prevent specialian w a for
at the expense of the my, he would, in effect, faree every in
dividual to operalate on his - post-ser requirements, and to
invest in priority certificates for all sorts of ammudities,
lest at the and of the was he should find himself provided with
all of these articles covered by the plan except the one really
nooded. of course, the individual would leas his discount ea
all those certificates on which he chose not to emercise his

priority righter but, is any event, the dealer would have n
coived Me commission

There so, annover, - necessary relationship between

present ability to - and post-ear requirements. go is w

eximale, if not probable, that many people, whose mode after
the - for cartain derable goods covered by the plan would be

most wgmt, are correctly in no position to undertake the -

any purchase of priority certificates. In this - of course,

would be Sound these new or but recently employed. and those

who are assimally reaching their maration and weiting - at

ditiem family with. the - of such Intividuals shorts too

late* would increase as the - continued.

Mr. Sugars reaggions most of these points and suggests ing exceptions in mak eases. I fear. however, that the exceptions

sight very well I the rule, especially if the - should to a

long eme, and that the alministration expense and absorption of

- involved in the scheme would these be mitiplied memoriesly.
obviously, to the extent that exceptions are unde, the mine of

-5the plan as a means of providing - with foremate of
donand on which they would Inco enterly production schedules,
would be seriously diminished.

(6) the provision - for webers of the - foress to
more formal then exbstantial. the concessions proposed in the
form of longer payment periods, the wriving of and
the establishment of RAN and eye polarity senies would fall for
short of componenting for the differences between civilian in-

- and these of - in the asset foreon. a 1 concossions,

furtherwore, can really attack - equally important problem which

faces soldiers, onilors, or marines in active service, many

the exhanced as to the fature which militates against

their being able to sale wild docisions as to their post-mar n
eniments for derable goods. Such decisions would unleabledly
seen of trivial Emportance to many of those mm, particularly

those in contrat areas. Particulars, the great bulk of the in the and services are married, or, 12 married, have not
actually established home and cannot do - will after the was.
they are woble to anticipate their post-mar requirements.

Finally, at seens w - that the purchase of Was monings benie
commiliation everything which would be accomplished w the -

chass of the certification prepared by Mr. and accumplishes
it better and with form complications. Mr. Begent's certificates
- give - guarantee of the price or quality of the mode which

would be delivered is the post-our period, but their producers
are worthslees ties down to contracts for specific types of works
water penalty of testing all return ea their investments if they

/ their state. Holders of - savings bonis on the other

hand, can pardness statement they desire in the post-our period or

- continue to hold their savings at interest as they please.

(signed
Union secretary of the Treasury.
Interable Proctice m. Broon,
Administrator,

office of Price Ministration,
Weddington, D. a.

1/22/43

COPY

52
OFFICE OF PRICE ADMINISTRATION

Washington, D. C.
January 8, 1943

The Honorable

The Secretary of Treasury
My dear Mr. Secretary:

I am sending you herewith two copies of a plan

for instalment selling for post-war delivery which the
Office of Price Administration is releasing today for publication on Sunday, January 10, 1943.

The plan is designed primarily as an anti-inflationary weapon. By providing an opportunity for buying goods
now for delivery after the war we believe that additional
purchasing power can be withdrawn from the market for current
goods.

In addition, the plan would produce several
important and desirable by-products. It would add to the
total volume of purchasing power after the war; it would
provide a means of bringing demand into line with the
production of automobiles, refrigerators and other goods
that might be covered by the plan; and it would provide

a measure of relief to many salesman and small businesses

that have been hard hit by the stoppage of production of

certain consumers' goods.

OPA's interest in the plan lies primarily in
its usefulness as an anti-inflationary device. Many other
government agencies, however, would be concerned not only

with its operation but also with its objectives. The plan

proposes administration by the Federal Reserve System. It
also calls for the routing of funds received in payment
for post-war-delivery goods to the Treasury and a payment
by the Treasury for the use of these funds.
I am aware that you have expressed opposition

to this idea in a recent press conference. Your comments
appear, however, to have been directed toward an incomplete

The Secretary of Treasury

-2-

and not fully accurate press report concerning the plan.

I believe you will find your objections fully met in the

detailed plan.

I hope you will give the plan the careful consideration which I believe it deserves.
Very truly yours,
Leon Henderson

Administrator
Enclosures

FOR RELEASE JAN.

1943

A Plan
for
INSTALMENT SELLING FOR POST-WAR DELIVERY

Rolf Nugent, Special Advisor
Office of Price Administration

Revised
December, 1942

Note: In the development of the plan presented in this memorandum
the writer has had the helpful advice and assistance of Dr. Bonnar
Brown, of the Board of Governors of the Federal Reserve System, of
Mr. Abraham Friedman of the New York Bar, and of Mesars. Wroe
Alderson and F. B. Hubachek of the Office of Price Administration.

55
TABLE OF CONTENTS
Page

Foreword

I. THE PLAN IN BRIEF
II. OBJECTIVES OF THE PLAN.

Inflationary significance of conversion of
consumers' goods industries

Ways of diverting surplus purchasing power

Expenditure vs. saving for post-war delivery

Instalment payments as expenditures

Magnitude of deflationary effects

III. BY-PRODUCTS

Stimulation of post-war business activity.

Control of demand for consumers' durables

Preservation of sales machinery

IV. INCENTIVES FOR PURCHASERS

Resistance to the sale of futures

Appeal of priorities

The price discount as an incentive

Incentives for prompt payment
Payment schedules
V. WORK AND MOTIVATION OF OTHER PARTICIPANTS

Characteristics of certificate sales

Dealers' sales commissions

Incentives for manufacturers and public utility companies

Selection of collection and bookkeeping agencies

56
TABLE OF CONTENTS (cont'd.)
Page

Work of the sales finance and local collection agencies.
Collection and bookkeeping commissions
Work and compensation of the Federal Reserve Banks
The Post-War Delivery Corporation

VI. TREASURY PAYMENTS AND FEDERAL RESERVE BOARD MANAGEMENT

Treasury payments

Comparison with costs of war savings bonds
Other advantages for the Treasury
Administration by the Federal Reserve Board

VII. THE PROBLEM OF POST-WAR PRICES
80

Advantages and disadvantages of selling at fixed prices

Use of post-war-delivery certificates

Post-war price competition
88

VIII. THE CONTROL OF PRIORITIES
88

Selection of goods for post-war-delivery sale
Goods needed for essential services

Protecting the military forces
101

Preventing speculation
104

Treatment of incomplete payments
107

IX. MECHANICS OF THE PLAN IN OPERATION.
107

Instalment contracts
109

Collections and transfers of funds
113

Delivery of goods
115

A typical transaction

57
FOREWORD

Whatever its advantages or disadvantages in time of peace, the American

practice of credit buying has real usefulness in time of war. Consumer credit

lends itself readily to service in the progressive battle that must be fought
against war-time inflation.
The development of our full military power was bound to produce distortions in our civilian economy. Government expenditures for armaments substan-

tially increase the national income and total consumer purchasing power. On
the other hand, the diversion of materials and labor to war production and the

recruitment of manpower for the military forces limit the production of goods
which consumers want to buy. Three stages in the transition to a war economy

can be recognized. At each of these stages, there has been the possibility of
using consumer credit as the means of easing the impact on the civilian economy.

The first stage is one in which there are shortages of specific materials,
skills and productive equipment, while supplies in other fields remain abundant.

At this stage, appropriate action in the consumer credit field would be to
tighten credit terms for automobiles, refrigerators, oil burners, washing
machines, and similar good,s that absorb metals, skills and tools needed for
armaments production. The purpose would be to reduce demand for these specific

goods without preventing a continuous expansion of the national income that

would draw idle productive factors into use. Consequently, an increase in
down-payments for selected goods. should be the primary restriction.
The second stage occurs when the area of shortages has expanded, when incomes and demand are increasing more rapidly than production, and when the

general price level has begun to rise. At this stage more general restraints

upon consumer credit are called for. Stringent down-payment requirements should

be applied over the broadest practicable field; the maturity of instalment contracts should be shortened generally; and restraints should be imposed upon
charge-account credits, and SO far as possible upon accommodation loans. In

other words, the general deflationary influence of a rapid liquidation of consumer credit should be brought to bear upon the rising national income.
A third stage can be recognized when important consumers durable goods
industries have been completely converted to armaments production and when the

goods formerly produced by these industries are no longer available in the
market. Under these circumstances it would be appropriate to throw the instal-

ment credit system into reverse-to sell goods on the instalment plan for postwar delivery. In this way, the deflationary effects of instalment payments
could be continued after previous credit commitments have been liquidated.

We entered the first of these three stages in the late fall of 1940. By
summer of the following year, the second stage had arrived.

Action on the consumer credit front came belatedly at the beginning of
September 1941 with the promulgation of Regulation W by the Federal Reserve

Board. Very properly, the initial regulation was directed primarily toward the
tightening of down-payments, which would reduce demand for specific goods, and

secondarily at the limitation of maturities, which would result in a general
liquidation of consumer credit. Subsequent amendments have, with equal propriety, been directed toward broadening the scope of the down-payment restric-

tions and reducing maturities for instalment and charge account credits on a
broad front.
The effects have been substantial, and of tremendous importance to the

-2-

office of Price Administration. Demand for goods which competed with armanents

for scarce materials and skills was reduced precipitately. The liquidation of
consumer credit, induced in part by restrictions of the regulation and in part
by limitations on the supply of goods commonly sold on credit, has provided a
new and powerful deflationary force.

We are now well into the third stage. Production of passenger automobiles-next to residential housing the most important of all consumers durable goods-was discontinued in February 1942 and the overwhelming majority of our citizenry
has been excluded from the automobile market by selective rationing. Subse-

quently, civilian production of a large number of other consumers' durables has
been stopped. For some of these goods, inventories have been reserved for
specific purposes. For others, inventories have already been exhausted or are
rapidly approaching exhaustion.

Both from a psychological and from an economic standpoint, the time is

ripe for appropriate action on the consumer credit front.
It is the purpose of this memorandum to show how goods could be sold on

instalment contracts calling for delivery in the post-war period and how such

sales would aid in the fight against inflation.
SHOP

-3-

THE PLAN IN BRIEF

The plan presented here is designed primarily to divert consumers
purchasing power from the market for current goods and thereby to relieve

the inflationary pressure on the price level. It would, however, have a
number of important by-products: it would provide additional funds for
financing the war; it would build up a back-log of purchasing power that

would facilitate the transition to a peace-time economy; it would provide
the means of bringing post-war demand into line with supply in markets that

are certain to be badly out of balance; it would provide some measure of our-

rent relief for enterprises that have been or will be hurt by the discontinuance of production of the goods which they sell; and it would preserve

at least a rudimentary selling and financing structure as the basis for
rapid post-war expansion.

Three cardinal principles have been followed in the development

of the plan. First, the customary machinery of instalment selling has been

relied upon so far as possible in its operation. This serves the dual purpose of enlisting the drive and ingenuity of private salesmanship in the selling and collection effort and of avoiding expansion of the federal bureaucracy.
Second, payments on goods for post-war delivery have been related 80 far as

possible to expenditures for merchandise, and characteristics that would
link them to savings have been avoided. This is of prime importance because

nothing would be gained on the anti-inflation front if consumers merely
shifted their savings from purchases of war bonds or from other savings media

-4- -

into post-war-delivery purchases. Finally, it has been the policy to avoid
distortion of the normal machinery of distribution. The plan contemplates
a shift to free market conditions as quickly as possible after the war and
it attempts to preserve the position of various competitive elements in the
distributive process.
It seems doubtful that many persons would be willing to buy, for

deferred delivery, goods that can be bought for current delivery. Hence an
essential requirement in the selection of goods to be sold under the plan
is their unavailability at present. Many types of consumers durable goods and
even some services meet this requirement and would lend themselves to post-

war-delivery sale. However, the plan is most readily adaptable to the sale
of relatively high-priced goods that are presently in common use and are
produced by comparatively small numbers of substantial manufacturers. For

this reason it is proposed that the plan be applied at the outset only to
automobiles, refrigerators, pianos, oil burners and automatic stokers. Later,
the list should be expanded to cover other goods and services, where careful

study and consultation with the trades concerned indicate the adaptability

of the plan to their sale.
Because it is impossible to predict accurately the level of production costs after the war, no attempt would be made to establish at the
time of the instalment sale the prices at which goods would be delivered.
The purchaser would acquire a certificate which would be accepted in payment

of the post-war purchase price of a specified article. Certificates would
be issued in various denominations, identified with price-classes of goods,
and they could be applied toward the purchase of any make or model in the

- -5-

specified price-class. Manufacturers would probably build their products
SO far as possible to meet the market established by certificate values. But

if post-war prices differed from the value of certificates, differences could
be readily adjusted in cash or in finance company credits.
Certificates would be sold only on instalment terms in order to
encourage payment out of current income. Payment schedules should be re-

lated to certificate values, ranging from 12 monthly payments for $100 cer-

tificates to 25 monthly payments for $2,000 certificates. In order to
equalize the situation of civilians and persons in the armed forces, the
latter would be permitted to buy on longer payment schedules.

To prevent speculators from acquiring claims to large quantities of
goods for purposes of resale, the number of certificates that may be purchased

by any one person would be limited. Prior to the date of their validation for
the delivery of goods, certificates would be non-traneferable except under a
limited number of circumstances such as inheritance or beguest, executions in

satisfaction of judgment, and distribution of assets in bankruptcy. Following

their validation, certificates would be fully transferable.
Consumers would be offered two incentives for purchasing post-war-

delivery certificates: a prior claim to the goods subject to sale, and a
discount from the established post-war price.
Priority numbers would be determined by the month in which the pur-

chaser entered his instalment contract, with adjustments for delinquency in
making payments. Thus, if the purchaser entered his contract during the
first month of operation of the plan and made his payments promptly, he

would be assigned priority number 1; if the purchase was initiated during
the second month, he would be assigned priority number 2; etc. If he were

-6-

delinquent beyond a reasonable grace period, his priority number would be

increased in relation to the degree of delinquency.
The price discount would be accomplished by giving the post-war-

delivery certificate a "merchandise" value greater than its purchase price.

It is proposed that this differential be fixed at 10%. Thus, a certificate
for which the purchaser pays $200 would be worth $220 in exchange for postwar goods and a certificate costing $1000 would be worth $1100 in exchange

for goods. The differential would be made up at the time of delivery by
the sacrifice of part of the normal gross profit by the dealer who completes
the sale and by a rebate to that dealer by the manufacturer whose goods are
delivered.

Certificate sales would be made by established dealer organiza-

tione -- by automobile sales agencies, by refrigerator and piano dealers
and by heating equipment contractors. The purchaser would sign a postwar-delivery contract and make a modest down-payment, varying with the

denomination of the certificate, which the dealer would keep as his initial
sales commission. The dealer would then send the contract to a sales finance
agency that had been authorized by a Federal Reserve Bank to supervise collections and do the bookkeeping.

Upon receipt of the post-war-delivery contract, the sales finance
agency would issue a payment book to the purchaser and open a ledger account

for him. These agencies would be responsible for recording payments, for
transmitting funds to the Federal Reserve Banks, for sending delinquent

notices, for referring defaulted contracts back to the dealer, for computing delinquency charges, and for assigning priority numbers.
Instalment payments would be made, however, to a different set
of agencies. The agencies that accept payments from purchasers should be
- -7 -

readily available to all purchasers, equipped to accept money payments,

financially responsible, and without an interest either in selling the purchaser goods or in lending him money. These local collection agencies might
include the telephone, gas and electric companies -- in which case instalments

could be paid with bills for services -- the telegraph companies and the Post
Office. They would accept and receipt for payments, tear from payment books

coupons that identify the purchaser, the sales finance agency, and the
amount of the payment, and forward the coupons with remittances to the ap-

propriate salee finance agencies, which would use the coupons to post its
ledger accounts.

The sales finance agency would send the funds on to the Federal

Reserve Bank or branch of the district in which its office is situated. The
Bank would credit its receipts to a special post-war-delivery account in the
name of the United States Treasury.

Both the sales finance agency and the local collection agency would
receive modest commissions on payments handled by them to compensate them

for their work. These commissions would be subtracted from collections in
passing on the proceeds. The dealer would also receive a further sales commission upon completion of the purchaser's payments. Sales and collection
commissions would be subtracted directly from the payments made by the pur-

chaser; but they would be covered, when the certificate becomes valid for the
delivery of goods, by the payment which the Treasury would make for the use

of the purchaser's money. In this way each certificate would have three

different values: (1) a withdrawal value equal to the amount paid in by the
purchaser, less sales and collection commissions and delinquency charges;

-8-

(2) a cash value at maturity equal to the amount paid in by the purchaser,
exclusive of delinquency charges; and (3) a merchandise value at maturity

equal to 110 per cent of the cash value.

In addition to its regular commission on funds collected, the sales
finance agency would also receive a more substantial fraction of delinquency
charges to compensate for the work of sending delinquent notices and computing charges. The remainder should be divided between the Treasury, to com-

pensate for the loss of the use of funds during the period of delinquency,
and the Federal Reserve Bank.
When the purchaser has completed his payments and charges for de-

linquency have been collected, the sales finance agency would pay the dealer

his final commission, assign a priority number to the purchaser's account
and send it to the Federal Reserve Bank for audit. The Benk would examine

the computation of charges and the assignment of priority and inspect its
records to prevent the purchaser from acquiring more certificates than he is

entitled to. If the record was satisfactory, it would then issue a registered, paid-up certificate bearing the appropriate priority number and send
it to the purchaser.
The calling of priority numbers when production is resumed would

be the responsibility of the Federal Reserve Board. As soon as dealers have

received satisfactory inventories, priority numbers would be called as rapidly as additional goods are produced, unless there should be a tendency to
expand productive capacity beyond the reasonable limits of normal demand.

The Board should also have the power to grant special priorities where this

was in the public interest.

Paid-up certificates, when countersigned by purchasers and exchanged for goods, would be deposited to dealers' bank accounts at their cash
values and they would be honored by the Federal Reserve Banks from funds made

available by the Treasury. Control of the distribution of goods would be exercised by the upstream flow of coupons attached to paid-up certificates, which
would entitle the dealer both to a rebate from the manufacturer and to the

shipment of another article to replace the one delivered to the certificate
holder.

- 10 -

II.

OBJECTIVES OF THE PLAN

During the past several years between 10 and 12% of all consumer
expenditures have been devoted to the purchase of consumers' durable goods,
other than houses.

In 1941 expenditures for such goods approached 10 billion dollars,

in spite of shortages of materials and limitations on production, and in
spite of credit restrictions and excise taxes imposed during the latter part
of the year to dampen demand. Almost three-fifths of this sum was spent
for automobiles and for automobile parts and accessories, almost one-fifth
was spent for household appliances and fixtures. The remainder went for
home furnishings, pleasure boats, watches and jewelry, cameras, etc. Automobiles, refrigerators, pianos and automatic furnaces--the goods which would
be most readily adaptable to post-war-delivery sale--accounted for more than
60% of the total volume of expenditures for consumers' durable goods, and
perhaps as much as 90% of the total volume of expenditures for goods which

have since disappeared, or are currently disappearing, from the open market.
inflationary,Significance of Conversion of Consumers' Goods Industries

War requirements have out heavily into the industries that supplied
these goods. Some OI these industries, such as those manufacturing automo-

biles, refrigerators, washing machines, suction cleaners, and radios have
been completely converted to war production. Others are in the process of
conversion; and still others have been stopped or substantially curtailed

- 11 -

by the scarcity of essential materials. Of the whole list of consumers'
durable goods only wooden furniture and certain types of housefurnishings

have been relatively unaffected by the impact of military requirements.
The volume of consumers' durable goods currently reaching the market is prob-

ably less than one-third the volume that came into the market a year ago.
And it can be expected to decline still further in subsequent months.
Under normal circumstances, a decline in production of consumers'

durable goods would be accompanied by a decline in the incomes of the factory
workers, raw material suppliers, managers, landlords, and stockholders who

depend upon such production for their livelihood. Thus, a decline in the
supply of consumers' goods would be roughly compensated by a decline in the

incomes available for expenditure on such goods. But at present most consumere' goods industries that have discontinued production are engaged in
the manufacture of military equipment. Consequently, there has been no

decline in incomes to compensate for the decline in the quantity of goods

that are available to consumers. In fact, as the national income figures
clearly show, money incomes have risen progressively throughout the
period when production of many types of consumers' durable goods was being
discontinued.

This situation provides one of the essential elements of inflation.

Inevitably inflation has its origins either in a restriction of production
of consumers' goods relative to the flow of money incomes or in an increase
in

- 12 -

the flow of money incomes relative to production of consumers' goods.

But there is another essential ingredient: there must be a capacity
and a will to spend the excess income. It is therefore of crucial importance
to ask what consumers will do with the part of their incomes which they
formerly spent for goods that are now no longer available.
This question brings us at the outset to an observation concerning
the nature of expenditures for consumers' durable goods that is of prime importance to an understanding of the current problem.
Consumers' durable goods are family capital goods; and within the
limits of the crude bookkeeping systems used by most families, purchases of
such goods are treated in much the same way as the capital goods of business

and industrial enterprises. And for much the same reasons, because neither

the capital outlays of business enterprises nor the capital expenditures of
consumers are properly chargeable to the immediate income period in which
they are made.

Business enterprises charge their capital expenditures to capital
accounts which are gradually reduced by depreciation charges against current

income. The great majority of consumers buy their capital goods on the in-

stalment plan, which is merely another way of amortizing an initial capital
expenditure by periodic payments out of income. From the standpoint of the
market, such purchases take place when the goods are delivered. But from

the standpoint of the individual purchaser, the purchase takes place over an
extended period of time in the form of a series of payments from income,
each of which is looked upon as an expenditure for the use and eventual

- 13

ownership of the article.
For this reason part of the current income of the American people
18 still being diverted to the purchase of consumers' durable goods, the
production and sala of which have been stopped. Instalment payments will

continue for some time to absorb at least part of the income that would

otherwise be available for current purchases. But this drain will gradually
dwindle in volume. As individual instalment contracts are completed, additional purchasing power will be freed for other purposer.

The deflationary effects of the liquidation of instalment sales
contracts have been supplemented and reinforced by restrictions designed to
compel partial liquidation of personal loans and charge accounts. However,
because of the greater magnitude of instalment sales credits as compared
with instalment loan and charge-account credits, the drain upon incomes

resulting from the liquidation of consumer credit as a whole will certainly
dwindle even if credit restrictions are broadened and intensified to their

fullest practicable limit.
Ways of diverting surplus purchasing power

The purchasing power that will be freed by the gradual completion

of the liquidation of previous instalment purchases could conceivably be
captured and diverted from the market for goods in a variety of ways.

First, it might be taxed out of existence. The Revenue Act which
has just been passed by the Congress provides for an impressive increase in

taxes, and personal and corporate taxes applicable to 1942 incomes will be

- 14 -

the highest in our history with respect both to rates and to total yield,
Yet the increase in tax revenues during the coming year will fall far short

of the increase in military expenditures. The Director of the Budget estimated on October 7 that in spite of the increase in texes, the Federal gov-

ernment deficit will increase from 21.7 billion dollars in the fiscal year
ending June 30, 1942, to 63.1 billion dollars for the fiscal year ending
June 30, 1943. These rising deficit expenditures will be a force for expending the national income and increasing the volume of funds available for
expenditure by consumers, Consequently the present tax program, however

burdensome, cannot be expected to ease the inflationary pressure created by
the disappearance of important consumers' durable goods.
Second, this excess purchasing power might be saved, There can

be little doubt that the stoppage of production of most consumers' durable

goods will give a considerable impstus to saving. Through tradition or
trial and error experience, families generally accustom themselves to a
crude allocation of their incomes between savings, food, housing, clothing
medical care, recreation, and consumers' durable goods. When funds cannot

be spent for the latter goods, there will be resistance to increasing expenditures for other categories of goode. Consequently, savings can be expected
to increase,

This resistance to an increase in expenditures for other goods

has its limits, however, and it 10 only in the short run that a considerable
part of the funds formerly spent for consumers' durables is likely to be saved
We know that a given savings margin between income and expenditures-- margin
- 15 -

which varies from income class to income class and from family to family-stands very high in the hierarchy of family values. When incomes are reduced, this margin will be preserved at the expense of most other budget

items. But at a given income level the subjective value of additions to
these established savings margins drops off very fast. Hence, with the
passage of time, larger and larger proportions of the funds which can no
longer be spent for consumers' durable goods are likely to be spent to
satisfy other wants.

Third, we could continue to sell consumers' durable goods for de-

livery in the post-war period. Because it preserves the existing expenditure
pattern, this would be the easiest way of preventing funds customarily
spent for consumers' durable goods from being shifted to other markets.
Funds that have customarily been spent for purchases of consumers' durable

goods would continue to be spent for such goods, but delivery would be postponed. Since these funds would command no goods until the end of the war,

they would in reality constitute savings. Yet there is every reason to believe that claims on post-war production could be offered in such a way
that payments on them would be treated almost universally as current expenditures.

Expenditure VS. saving for post-war delivery

It is of substantial importance to the usefulness of installment
selling for post-war delivery as an anti-inflationary weapon that consumers be
encouraged to treat their installment payments as expenditures for goods

- 16 -

rather than as savings. To the extent that this is accomplished. the resistance to an increase in savings will be avoided and the diversion of purchasing power from the market for current goods will be substantially increased.

Instalment selling for post-war delivery will produce deflationary
effects only if it decreases the propensity to consume, or, in other words, if
it reduces the proportion of the national income that would otherwise be spent
for current consumers' goods and services. The flow of incomes is sustained
by expenditures that lead to the production of additional goods. When consumers spend their incomes for current goods, their expenditures in turn
create incomes for those who sell and deliver the goods and for those who

participate in the production and shipment of additional goods to replace the
goods that were sold. When consumers withhold part of their incomes from the

market for current goods, the transmission of incomes is interrupted and the
flow declines.

Even if instalment payments for post-war delivery were treated as
savings by all purchasers, some reduction in the total volume of expenditures

that would come into the market could be confidently expected. The offer of
a hew kind of savings with an unusual appeal would, of itself, lead to some

expansion of overall savings. In addition, there would be a particularly
strong pressure on certain classes of consumers to increase their savings.
Many persons whose entire savings take the form of fixed payments to pension

- 17 -

funds, for annuity premiums, for building and loan shares, or for debt retirement, would undoubtedly make instalment payments without reducing the

flow of funds into these fixed savings programs. Many others. who are con-

stitutionally incapable of foregoing the expenditure of every cent which
comes into their hands, or who lack an incentive for, or an interest in,
further saving, would divert part of their incomes to the purchase of postwar-delivery certificates rather than go without new goods when production

is resumed. Still others save 80 little that even though their entire savings were shifted into post-war-delivery certificates they would have to
increase their savings to meet the required payments.
The net increase in savings that would result even under these

unfavorable circumstances would probably be aufficient to warrant the intro-

duction of a plan for instalment selling for post-war delivery. But the deflationary effect of such sales can be substantially enhanced if consumers

treat their post-war-delivery payments as current expenditures. In
view of the importance of diverting as much purchasing power as possible

from the current market, it is exceedingly worthwhile to do everything
possible to produce this result.
Most gainfully-occupied persons who are prospective purchasers

of post-war-delivery certificates have, particularly at a time of full employment at high wages, a considerable margin of "free" savings beyond their
fixed or scheduled savings commitments. These free savings normally go

into savings banks, into the securities markets, and into war bonds and

stamps. If post-war-delivery certificates should satisfy all the requirements

- 18 -

of savings and provide an attractive medium for savings, there would be a

substantial shift of savings from their normal channels into post-war-

delivery certificates. To the extent that this occurred there would be no
net gain in the diversion of purchasing power from the current market. But

to the extent that post-war-delivery certificates fail to satisfy the requirements of savings and payments on such certificates are therefore treated as
current expenditures, the invasion of other forms of savings will be minimized

and payments for post-war-delivery certificates will be reflected largely in
a decrease in expenditures for current goods and services.
Instalment payments as expenditures

Several circumstances will contribute to the treatment of instalment payments on purchases for post-war delivery as "spendings" rather than
savings.

First, there is the established pattern of family expenditures and

the resistance to change in that pattern. In part, the pattern is established by existing commitments: by insurance and annuity contracts, by
agreements for purchase of building and loan shares, war bonds, etc.; by
fixed rentals on houses and apartments; by real estate taxes and mortgage

payments; by instalment purchase obligations. In part, it is established by
intra-family budget allocations; by the husband's personal allowance; by

allowances to the housewife for food, for clothing for herself and her
children, and for household supplies and equipment; and by reserves for medical expenses and other emergency needs.

Purchases of goods for post-war delivery can be expected to fit
- 19 -

naturally and easily into this expenditure pattern. Such purchases need not
disrupt established obligations nor distort customary budget allocations.

On the contrary, they will fill the gap left by the disappearance of important
consumers' durable goods from the market. For those who already have instalment commitments, payments on contracts for post-war- delivery will merely

replace payments on contracts for goods already delivered. For others, the
family budget item for household equipment can be diverted, in the absence of
current goods, to the purchase of "futures." Because instalment payments

for goods for post-wer delivery will replace expenditure items in family
budgets, there will be a strong tendency to treat them as expenditure items.
Second, instalment payments have been traditionally treated as

expenditures and it seems probable that this traditional treatment would

carry over naturally into payments on goods for post-war delivery. In the
normal instalment sales transaction periodic payments are almost completely

disassociated from the delivery of the article subject to purchase and they
bear no necessary relationship to its use. Yet each instalment payment represents a charge against current income--a periodic expenditure for the
eventual ownership of the article.
The persistence of the treatment of instalment payments as current

expenditures is illustrated by the reaction to changes in instalment credit

terms. If the credit balance resulting from an instalment sale is paid off
more rapidly than the goods depreciate in value, it is obvious that some part
of each instalment payment represents a saving. The larger the payments on

a given credit balance, the greater is the rate of saving. Yet this fact
-20- -

appears to be virtually neglected. in the budget calculations of consumers.
One of the primary assumptions underlying the restriction of instalment
credit terms by the Federal Reserve Board is that, when instalment payments

are increased through the reduction of maturities, the consumer will continue
to treat the increased payment as an expenditure and balance his budget by

reducing his spendings rather than his savings. There is every reason to

believe that this assumption is realistic.

Third, even if it were not for the traditional treatment of instalment payments as expenditures, it seems unlikely that consumers generally

could be brought to look upon them as savings. Families generally save for
three primary purposes: (1) to establish a reserve that can be used in emergencies, (2) to provide a competence for the period of retirement, and (3)

to create an estate for the protection of wives and children. So long as
post-war delivery sales are releted to specific goods, instalment payments

will fail to serve any of these purposes satisfactorily.
While these circumstances will contribute heavily to the general
acceptance of instalment payments for post-war goods as current expenditures,

it is nevertheless important to eliminate 80 far as possible any characteristics which might link these transactions to savings and thereby encourage
competition with existing forms of savings.
The proposal to offer a special issue of war bonds that could be
redeemed in goods after the war seems objectionable for this reason. Total
sales of war bonds would undoubtedly be increased by the offer of a merchandise

- 21 -

bond. But for the most part such bonds would merely compete with other

types of war bonds and with other forms of saving for the limited funds
which consumers are willing to set aside from their current incomes. Total
savings--in the sense of income funds withheld from the current market for
goods and services--would probably increase very little.
In order to avoid so far as possible any savings aspect, purchases

for post-war delivery should be linked to specific merchandise; liquidations
in cash should be penalized prior to the time when priority numbers have

been called; transferability of purchase certificates should be limited; and
interest accruals should be avoided. The requirement of instalment payments
18 equally important. To be most effective purchases must be made periodi-

cally out of income. To permit i urchases by full cash payment would be to
encourage a shift of funds from savings banks, securities markets, etc., and
to minimize the diversion of incomes from other types of expenditures.
Magnitude of deflationary effects

The potentialities of instalment selling for post-war delivery as
an ant1-inflationary weapon are tremendous. Yet only the crudest of estimates

can be made to indicate the order of magnitude of the deflationary effects
of the plan.
At present income levels, we could expect about 12 billion dollars
worth of expenditures for consumers' durable goods, exclusive of houses, if
materials, labor and productive capacity were available to make the goods.
Expenditures for automobiles, refrigerators, and furnaces alone would probably

be close to 8 billion dollars. The potential market for post-war-delivery

-22-

certificates, however, would be far greater than the potential market for
delivered goods if peace and civilian production were suddenly and completely

restored tomorrow. Prospective purchasers of actual goods under these oircumstances would be confined to those who know they want immediately the

goods subject to sale. Prospective purchasers of certificates, on the other
hand, would include the far larger number of persons who believe they will

want these goods in the indefinite future.

In the light of the strong incentives for post-war delivery purchases, it would not seem overly optimistic to assume that certificate sales
could be maintained at an average rate of 6 billion dollars a year for several
years, provided that the list of goods and services covered by the plan was
progressively expanded. This means that the average annual volume of certif-

icate sales would approximate the dollar volume of sales of automobiles, refrigerators, pianos and automatic furnaces in 1941, when incomes after taxes
were substantially below present levels and when moderate restraints on demand for these goods had already been applied.

If certificate sales were distributed evenly at the rate of 500
million dollars a month and instalment payments were extended over the period

of 24 months, collections would approximate 1> billion dollars during the first
year, 41/2 billion dollars during the second year, and 6 billion dollars during

the third year. It seems likely, however, that the rush to get low priority
numbers, particularly for automobiles, would concentrate purchases heavily

in the initial months of the program. Moreover, the period of payment for
many certificates would be much shorter than 24 months. Hence the volume of

- 23 -

instalment payments during the first year would probably be substantially
larger and the volume during the third year would probably be lower. The

volume of payments might readily be 3 billion dollars during the first year,
412 billion during the second year, and 43 billion during the third year.
Not all of these payments would be diverted from the market for
current goods and services. Commissions averaging about five percent
of the volume of payments would be paid for sales and collections, and
a large part of these disbursements would become apendable incomes again.

This factor, however, is sufficiently small to be neglected for purposes of
our crude calculations. Of substantially greater importance is the fact that
in spite of every effort to encourage the treatment of instalment payments
as expenditures, there would still be some encroachment upon savings. Many
persons whose incomes are little above the subsistence level would be compelled to choose between post-war-delivery purchases and their customary

methods of saving, and many others would cut into their savings in order to
meet part of their instalment payments. These reductions in savings might,
even under the plan presented here, reduce the deflationary effects of instalment payments for post-war-delivery by as much as 30 or 40 percent.
Leakages of this sort are bound to occur, however, no matter what
means are used to attack the problem of excess purchasing power. The increased

taxes provided for in the recent Revenue Act will bite heavily into the savings of many tax-payers, thereby limiting the impact of tax collections upon
the volume of consumer expenditures. Similarly, the deflationary effects of
purchases of war savings bonds are reduced substantially by the diversion of

- 24 -

funds from previously accumulated savings and from other forms of current

saving. Some students of the question believe that no more than 50 percent
of the sales of war savings bonds represent increases in savings. Provided
that care is taken to encourage the treatment of payments on post-war-delivery
purchases as current expenditures, there is every reason to believe that the
leakages in the deflationary effects of these payments would be no greater

than the leakages in the deflationary effects of tax payments or of savings
bond purchases.

The deflationary effects of a given volume of post-war-delivery
payments appear, therefore, to be roughly comparable with the deflationary

effects of at least an equivalent volume of tax collections and purchases of
war savings bonds. However, since post-war-delivery payments would repre-

sent a new and additional deflationary force, it is appropriate to compare
the prospective volume of payments with the prospective increment in tax

collections and with the prospective increment in sales of war savings bonds.
The increase in taxes that is expected to result from the now Revenue Act

has been estimated at 7 or 8 billion dollars a year. Consequently, 1f our
assumptions and calculations concerning the volume of post-war-delivery pay-

ments are correct, their deflationary effects during the first year would be
less than half as great as those of the new Revenue Act, and during the second

and third years they would be more than half as great as the effects of that
Act. Since the outbreak of war, sales of war savings bonds show only a mod-

erately rising trend, after adjustments are made for the shift of previously
accumulated savings. Unless compulsion is used, the increase in such purchases can be expected to provide a much smaller deflationary force than
that which would be contributed by payments on post-war-delivery certificates.
- - 25 -

III
BY-PRODUCTS

While the creation of an additional deflationary force is the major
objective of the plan presented here--and most characteristics have been de-

signed to maximize its anti-inflationary effects--there would be a number of
significant and highly desirable by-products. The most important of these

appear to be: (1) the stimulation of business activity and employment in the
post-war period; (2) the control of demand for consumers' durable goods when
production is resumed; and (3) the preservation of selling machinery needed

for rapid post-war expansion of civilian goods production.
Stimulation of post-war business activity
Much stress has been laid in the preceding section on the importance of inducing consumers to treat post-war-delivery payments as "spendings"

rather than savings. This question of how instalment payments for post-war
goods will be treated in consumers' budgets has an equally important bearing

upon the stimulating effects of the plan in the post-war period.

There is strong resistance to the expenditure of savings. If payments on post-war-delivery certificates were looked upon exclusively as

savings during the period of accumulation, the exchange of certificates for
goods when production is resumed would be treated as an expenditure. Conse-

quently, in order to preserve the balance between income and outgo, which is

still just as essential to family well-being as it was in Poor Richard's day,
- 26 -

the purchaser would tend to cut other expenditures substantially. Under

these circumstances, the call of priority numbers in the post-war period

would be likely to result in a relatively minor and short-lived expansion of
consumer demand and the resulting stimulus to employment and business activ-

ity would be minimized.
The situation changes, however, when instalment payments for post-

war goods are treated as current expenditures. If each such payment is
looked upon as money spent, the final exchange of the certificate for goods
will represent merely the postponed delivery of something already fully paid
for out of previous income and there will be no budgetary readjustments to
compensate for the "spending" of the certificate. Under these circumstances

the calling of priority numbers in the post-war period will pour out additional purchasing power into the markets for consumers' goods and services.

The effort to divorce certificate purchases 80 far as possible from savings is therefore directed at the maximization not only of the
deflationary effects of instalment payments but also of the stimulating

effects of post-war deliveries. The stimulating effects of the plan during
the post-war period are controlled, and in large degree measured, by its de-

flationary effects during the war period. To the extent that instalment payments are met by reducing other forms of saving both the deflationary effects
during the war period and the stimulating effects during the post-war period

will be partially neutralized. To the extent that instalment payments are
added to normal savings, purchasing power will be effectively skimmed

- 27 -

off the current market and added to the post-war market.
The release in the post-war period of purchasing power stored up

in the form of post-war-delivery certificates would have economic effects

similar to those of an equivalent deficit expenditure by the Federal goverment. Suppose the total amount of prepaid instalment sales should amount

to 18 billion dollars at the close of the war and that priority numbers
were called over a period of two years. Even if the net addition to total
purchasing power were only two-thirds of the face value of certificates

called, this would represent an injection of 6 billion dollars a year into
the income stream. In view of the accumulating requirements for new indus-

trial equipment, an additional stimulant of this magnitude might prove to be

sufficient to keep the national income at a high level without recourse to
government deficit spending.

The ability to avoid entirely, or to minimize, or even to delay the
necessity for, government deficit spending in the post-war period without
risking severe contraction of the national income would be exceedingly valu-

able. The public debt at the end of the war will be tremendous, and strong
pressure for balancing the Federal government budget can be expected. From a

social standpoint, also, production in response to consumer demand is likely
to be preferable to production in response to expenditures by public agencies.

If individuals make the choice, the nation will be assured of getting goods
which its citizens want. If government agencies must make the choice, the
very magnitude of the task of organizing quickly an adequate spending pro-

gram is likely to produce goods that are less socially useful.

- 28 -

Control of demand for consumers' durables

It will be noted that the writer has avoided any claim that postwar-delivery instalment sales will increase the immediate post-war demand

for consumers' durable goods. They will, it is true, create an assured and
measurable market that will certainly be much larger over the long run than
it would otherwise have been. But the primary consequence of a large back-

log of prepaid order for consumers' durables will not be an enlargement of
the post-war market for those goods but the preservation of the market for
goods and services that would otherwise be sacrificed to meet payments for
durables.

Regardless of the operation of any plan for selling goods for postwar delivery, demand for consumers' durables is likely to exceed productive

capacity for considerable periods of time after production is restored. Domand for heavy consumers' durables is more volatile than that for any other

category of consumers' goods and services. If the market were left to its
own devices, we would no doubt have a tremendous and short-lived upsurge of
demand, which would be accompanied by high prices, excessive profits, and

over-expension of facilities for production and distribution, followed by a
severe drop in demand which would be accompanied by cut-throat price competi-

tion, dealer bankruptcy, unemployment, and idle equipment.

The machinery for controlling prices will undoubtedly be continued

into the post-war period. But in the face of hunger for goods that have not
been available during the war, a tremendously excessive demand in relation to
the immediate supply of such goods, and the natural relaxation of public

support of price regulations that would follow the end of the var, it seems
- 29 -

exceedingly unlikely that price control alone could be effective. Continua.
tion of a full-fleAged wartime rationing program would provide the necessary

complement to price control. But political resistance to such a program after
the restoration of production of civilian goods would undoubtedly be strong.
The system of priorities proposed here would provide a feasible

solution to the problem of preventing chaotic conditions in the markets for
consumers durable goods. It would permit demand to be closely related to
production, thereby preventing erratic price movements. Production itself

could be limited by withholding the call of priority numbers if this seemed
desirable either to prevent excessive plant expansion or to accomplish a
systematic plan of gradual transition to peacetime production and employment, or to conserve materials more urgently needed for other purposes.
The system of priorities would amount in essence to a post-war

rationing plan. But eligibility, under this form of rationing, would have
to be earned by foresight and self-denial during the period of the war. This
is certainly much more equitable and would have much more ready support from

the public than a system which would give those in certain occupations

greater rights than other citizens.
Preservation of sales machinery

The stoppage of production of automobiles, refrigerators, washing
machines and many other consumers' durable goods threatens the existence of

a large number of business enterprises that have been engaged in the retail

distribution of those goods. Instalment selling for post-war delivery would

- 30 -

provide some measure of current relief to these agencies and would, by pro-

viding useful work, preserve at least a skeleton sales and financing structure upon which to build the post-war expansion of distribution.
The full impact of production stoppages upon sales and financing
agencies has not yet been felt. Instalment payments on previous sales of
consumers durable goods are still being made to sales finance agencies.

There is still a trickle of new car sales under the automobile rationing program and a substantial, though declining, volume of used car and service

sales to sustain automobile dealers. Increased profit margins both on new

car and used car sales have tended partially to offset the decline in the
total volume of sales. For many other types of consumers' durable goods
whose production has been stopped, retail inventories have not yet been exhausted.

Nevertheless, the machinery for selling and financing consumers
durable goods is rapidly disintegrating. Already, many dealers have gone OIL
of business, some voluntarily, others as the result of bankruptcy and compulsory liquidation. Many sales finance companies have completely liquidated,
and others have severely cut the number of their branch offices. The process
of disintegration will continue and accelerate unless other use can be made

of these facilities.
The misfortunes of these enterprises represent, in a sense, the
hazards of war, which are never equitably distributed. Nevertheless, the

public at large has interests of two kinds in their difficulties. In the
first place, it has been the policy of all nations to prevent any one class

- 31 -

of citizens from bearing an unreasonably large share of the burden of war.

In the second place, it is desirable to preserve at least a rudimentary
sales and financing structure as a nucleus for post-war expansion.
Congress has already given evidence of its desire to ease the burdens
imposed upon automobile dealers by the var. The Murray-Patman Act, a produot of the deliberations of the Senate and House Small Business Commit-

tees, contains several features which come close to an outright subsidy to
dealers in rationed goods. But while subsidies and other types of benefits
may help individual business men, they will not prevent the disintegration
of the machinery for selling and financing consumers' durable goods. The

only way to preserve this machinery is to give it work to do.
Instalment selling for post-war delivery provides the opportunity
for work that is both useful to the nation and reasonably profitable to selling and financing agencies whose business has been disrupted by the stoppage

of consumers' durable goods production. Fortunately, the plan involves
kinds of work that do not require able-bodied manpower needed elsewhere.

The sales job can readily be handled by men who are beyond the age for military service and who have no aptitude for production or by men who are

physically handicapped. The work of receiving, recording, and auditing can
well be done by women.

- 32 -

INCENTIVES FOR PURCHASERS

It scarcely needs to be said that the usefulness of instalment selling for post-war delivery in reducing the inflationary pressure does not
guarantee its practicability. However dangerous the prospect of inflation
for the nation as a whole, one cannot expect many individuals to act against

their own self-interest to further SO intangible an objective as the maintenanos of stable prices. For example, everyone would concede that higher

taxes are necessary to combat inflation, yet most individuals will struggle
to minimize their own taxes and it is necessary to support tax legislation
with an elaborate system of audit and compulsion.

Because voluntary action is contemplated, any plan for selling

futures must rely upon strong individual incentives if it is to work on a
satisfactory scale. The conditions must be such that consumers will want tc
buy goods for post-war delivery.

Resistance to the sale of futures
It has been argued by some that any plan of instalment selling for
post-war delivery is bound to fail through the unwillingness of consumers to
buy goods that are not yet in existence and therefore cannot be displayed or
demonstrated. Let us examine the merits of this argument.

The history of merchandising is full of illustrations of sales of
goods which the purchaser has not seen. The mail order houses have distributed tremendous quantities of goods and have progressively increased their

- 33 -

share of the market on the basis of catalogues which give photographs,

aketches, or more verbal descriptions of the articles offered for sale, Department stores and specialty shops make a considerable proportion of their
sales in response to telephone or mail orders based on newspaper or handbill
descriptions or sketobes. Houses, cooperative apartments, and boats have

long been sold from architects' plans; and one scarcely expects to see an
oil burner, automatic stoker or home air-conditioning system demonstrated

or displayed on the premises of the heating contractor who sells them.
It can properly be argued that the characteristics and performance
of these goods are well-known to buyers even if they do not see them before

making their purchases. Yet the consumer will certainly not be buying a pigin-a-poke when he commits himself to the purchase of an automobile, a refrig-

erator, a piano, or an oil-burner. The usefulness and technical performance
of these goods have long been demonstrated. The consumer knows that he will

need sudh articles in the post-war period. He also knows that Chevrolet, Ford,
Plymouth, and other automobile manufacturers will make good low-priced cars,

and that Frigidaire, General Electire, Kelvinator, Servel, Westinghouse, and
other manufacturers will make good refrigerators. Under the plan proposed here
he would be free to choose among various makes and models at the time of delivery.

Technological advances induced by the war can be expected to change

substantially the construction and design of most consumers' durable goods.
But the consumer knows that these developments should make post-war goods more

desirable than pre-var goods. Under these circumstances the inability of

-34-

manufacturers to describe precisely their pust-war product may be an asset

rather than a handicap to promotional efforts. It presents both a challenge
and an opportunity to the advertising profession. Colorful sketches indicating progress in the improvement of design and performance could be used to

attract the consumer's interest and to what his appetite for the new goods.

Color plastics, light metals, and functional design offer enormous potentia-

lities for appeal to the eye.
There is nothing essentially novel in the idea of accumulating funds
for the purchase of goods by instalment payments in advance of delivery.
Examples of instalment buying for deferred delivery can be found both here and

abroad. While these examples are far from conclusive, they provide no evidence to indicate that there would be any considerable resistance by consumers
to post-war-delivery purchases.
The most comparable example is the sale of the Volkswagen or people's

car in Germany. The motives underlying the original plan, which resulted from

an order of Hitler in the spring of 1937, are obscure; but it seems probable

that its purposes were: (1) to create a sufficiently large market to permit
the manufacture of a small pleasure car at a price the German working classes

could afford to pay, (2) to create a government-owned factory that would be

useful for the production of military equipment, (3) to create a stock of
civilian automobiles which could be used for military purposes, and (4) to
gain popular support for large expenditures for highways intended for military use.

The details of the plan did not begin to emerge until August 1938,
when it was announced that the price of the car would be 990 marks--the
- 35 -

equivalent of about $350.00--payable in weekly instalments of 5 marks or
multiples thereof. Collections, which started in September, were made through

the Labor Front. Later the price was increased to 1230 marks to cover liabil-

ity, fire, and theft insurance for the first two years, and shipping charges.
A large plant, called the Volkswagen Works, with a town to house its workers,
was built near Brunswick. Production was scheduled at 100,000 cars in 1940,
200,000 in 1941, and 250,000 in 1942.

While the original program appears to have contemplated delivery of
automobiles before instalment payments were completed, the detailed plan made

it clear that no oar would be delivered until the purchase price had been

fully paid. This suggests that an additional motive--to divert purchasing
power from the market--had in the meantime been added to the earlier ones. It
is even conceivable that the primary purposes from the start may have been to
finance the production of armaments and to hide from the outside world the
creation of an additional armament plant. Although models were shown at the

International Automobile Show in Berlin in 1939 and later in various provinces,
in order to stimulate instalment purchases, no oars were ever delivered even
though thousands of buyers had paid the full purchase price.
By July 1939, 10 months after the plan became effective, 253,000 pur-

chasers had paid in 110 million marks against the future delivery of bars. No
later figures have been published. Following the outbreak of war in September,
purchasers were urged to continue their payments and it was announced that the
Volkewagen plant had been converted to var production.

- 36 -

Although the number of instalment purchasers was relatively small,
it should be remembered that automobiles are owned only by the wealthy
classes in Germany. Few among the working classes knew how to drive a car,

and workers' homes lacked facilities for storing one. Moreover, the incomes of German workers were BO low that even the relatively small instalment
payments represented a substantial sacrifice. 1
There have also been examples of instalment purchases for deferred

delivery in this country. Lay-away plans, by which instalment payments are
made in advance of the delivery of merchandise, have been COMMON in many fields

of merchandising, notably clothing. Christmas savings plane, the success of
which was limited only by the low yields on short-term investments, were in
reality means of accumulating the price of Christmas expenditures by advance

instalment payments. In the automobile field, the General Motors Corporation
experimented with a pre-payment plan in 1925 and 1926. In order to encourage

a continuing relationship with the Chevrolet doaler who sold him a car, the
purchaser was encouraged to accumulate payments for a new car and a discount

on service bills was credited to his new-car fund.
Lay-away plans have never been used on a large scale and the

Chevrolet experiment produced a relatively small number of prepaid sales.

But the significant fact is that they should have succeeded at all under the

The writer 18 indebted to the Research Project on Social and Economic
Controls in Germany and Russia, undertaken by the Graduate Faculty of

Political and Social Science, New York, and especially to Dr. Ernest

Hamburger, for the information on which these comments on the Volksvagen
were based.

- 37 -

circumstances of their use. Those schemes had to compete with offere of

identical goods on the usual instalment terms, and it is little wonder that
most consumers preferred to enjoy the merchandise while they were paying for

it.
If the goods offered for sale under the post-war-delivery plan could
be purchased for immediate delivery on the usual instalment credit terms, a

very limited volume of sales could be confidently predicted. But the present
situation is completely different from that under which deferred-delivery instalment sales have been offered previously. The goods subject to sale for
post-war delivery would be those which are no longer available for current
delivery on any terms. Under these circumstances deferred-delivery instalm ut
sales need not compete with current-delivery instalment sales of the same

goods. The only competition would be with increased quantities of other types

of goods which remain in the market. This is a competition in which instalment sales for post-war delivery can readily come out on top if adequate incentives are offered.

Appeal of priorities
By far the most important of the two advantages that would be offere

to purchasers of post-war-delivery certificates is the prior claim to the
post-war product. By virtue of the stoppage of civilian production of major
types of consumers' durable goods, a backlog of potential demand is rapidly

being built up. The longer the war lasts the larger will be this pent-up
demand. Besides, after the conclusion of the war it will take time to get

- 38 -

into production again. Millions of people will want a now automobile or

refrigerator or oil-burner as quickly as possible after the conclusion
of the war. But many will have to wait.

In the automobile field, for instance, at least 2.5 million care
would normally be junked each year and this rate 18 likely to be increased by
gasoline and tire rationing. By the close of 1943, the replacement demand
alone could be expected to equal the number of oars produced during the Seat

previous automobile year. But even if the war ended then, it would take
months to reestablish production lines for passenger automobiles. The period
of transition to peace-time production has been estimated at roughly four
months if 1942 models are repeated and at least eight months 1f the post-ver

automobile is to be redesigned. It is apparent therefore that, even if the
war is of relatively short duration, the immediate replacement demand for

automobiles is likely to exceed a full year's production. To the replacement
demand must be added the inventory requirements of dealers for display and
demonstration purposes and the demand from those who will want a car or an

additional cer for the first time. This means that acme people who would like
to buy a oar promptly after the conclusion of the war will have to wait for
months-and perhaps for years if the war is long.
In varying degrees, the same thing is likely to be true of many
other types of consumers' durable goods.

If a prior claim to post-war production is given to instalment buyere
of "futures," each such sale would still further postpone the date of delivery
for those who failed to make such purchases. As the number of instalment

- 39 -

purchasers increases, the hopes of well-established customers for preferen-

tial treatment from their dealers will disappear, and their only hope of
prompt delivery will be to enter instalment purchase contracts themselves.
As the war goes on, the wearing out of automobiles and household appliances

will also impel participation in the plan. When these goods are no longer
serviceable, it will be brought home to the consumer how important they are
in his life and how desirable it would be to replace them as soon as possible.
The price discount as an incentive

The offer of a price discount would probably be a less powerful

incentive than a priority to post-war production. Nevertheless, it should add

substantially to the appeal of the plan. Every individual naturally tries to
get the most for his money, and the strong sales appeal of a bargain price is
well-known to the merchandising profession. The offer of a discount from the
standard price for post-war-delivery purchases would permit "futures" to com-

pete more effectively with present goods for the consumer's dollar.

Moreover, a price discount is fully justified by the circumstances.
On one hand, since money commands a rental, the person who pays for his goods

in advance of delivery should, in the interest of equity, obtain a price advantage over the person who pays at the time of delivery. On the other hand, the
creation of a large backlog of prepaid orders for consumers' durable goods in

specific price classes will permit economies in production and distribution
which should be shared with the purchaser who helps to create them.

The allowance of a discount from the post-war price rather than an

- 40 -

interest rate is desirable for a number of reasons. First, it would eliminate
expensive interest calculations, Second, it would encourage prompt use of

certificates to obtain delivery of goods after their priority numbers have
been called. Third, it would more clearly identify the instalment transaction with the purchase of merchandise. The delivery of an interest-beering
certificate would certainly induce a much higher degree of competition with
other forms of saving.
Discounts from standard retail prices have been commonly offered by
dealers in automobiles and other consumers' durablo goods, either in the form

of a reduced price or an excessive trade-in allowance, Consequently, only a

relatively substantial price-discount would be considered significant by
post-war-delivery purchasers. It 18 recommended that the discount from the
established purchase price should approximate 10 percent. This can best be
accomplished by giving the post-war-delivery certificate a merchandise value
10% greater than the amount paid in by the purchaser.
The amount of the discount for post-war-delivery purchases should b

reconsidered from time to time in relation to the prospective period of deferment of delivery. For instance, the discount might be reduced progressively
at six-month intervals, unless 80 many certificates had been sold that the

delay in delivery after the war promised to offset the approach to the end of

hostilities.
The price discount for post-war-delivery purchases would be made up

when the goods were delivered by the sacrifice of part of the usual gross prefit

- 41 -

margin on the part of the dealer who delivers the goods and by a rebate
to that dealer on the part of the manufacturer whose goods are delivered. In

the light of the relative benefits that would accrue to dealers and to ran.
facturers under the plan, a 10 percent price differential might be divided in
the proportion of 7 to the dealer who delivers the goods and 3 to the manufacturer whose goods are delivered.

Since commissions paid out for the sale of certificates and for the
collection and recording of payments would be covered by the Treasury payment

for the use of the purchaser's money during the period prior to the delivery
of the goods, the purchaser who meets his payments promptly could be guaran-

teed the return of the full amount paid after his priority number has been
called if he should prefer to take cash instead of goods. The cash withdrawal
right would probably never be exercised because at that point it would be pos-

sible to sell the certificate--undoubtedly at a profit. But the guarantee of
the return of the amount paid in after priority numbers had been called voted
undoubtedly be a valuable selling point.
Cash withdrawals should also be permitted before the completion of
payments and before the purchaser's priority number has been called. But such

withdrawals would be penalized by the loss of the commissions paid out for
sales and collections.
Incentives for prompt payment
Prompt payment of instalment accounts should be encouraged by pena-

lizing delinquencies. Two types of penalties are roadily available: the

- 42 -

deferment of the priority to which the purchaser would otherwise be entitled
and a decrease in the price-discount allowed for advance payment.

The deferment of priorities in cases of delinquency is important not
only as a means of encouraging prompt payment in order to minimize collection
costs, but also as the means of assuring equitable treatment of purchasers.

If there were no such penalty and if priorities were assigned solely on the
basis of the date of the instalment purchase contract, it would be possible
for the purchaser to get a low priority number by making an immediate downpayment and defaulting on all subsequent payments. TN18 would give him an

unfair advantage over those who meet their commitments. It is obviously desir-

able that the deferment of priorities be progressive--the greater the degree
of delinquency, the greater the deferment of priority--end that the schedule
of deferment be 80 arranged that the purchaser would benefit by waiting until
he could meet his instalment payments rather than by entering a contract on
which he would be unable to perform.

Similarly, the reduction of the price-discount in cases of delinquency is important not only to stimulate prompt payment but also to compense GL

for the additional expense of following up delinquencies and for the shorter
period of time for which the United States Treasury would have the use of the
purchaser's money. It would obviously be unfair to permit the purchaser who
made an initial down-payment and defaulted on later payments to buy goods at
the same price-discount as the purchaser who made his payments according to

schedule. Like the deferment of priorities, the decrease in the price discount should be related to the degree of delinquency, and the schedule of

- 43 -

delinquent charges should be so adjusted that it would pay to postpone enter
ing an instalment contract until payments could be met promptly.

Delinquency could be calculated most efficiently if all instalments
were payable on the first of each month. However, in order to prevent peak

loads for collection agencies, due-dates for individual contracts should be
scheduled for the tenth, twentieth or thirtieth of each month, to suit the oonvenience of the purchaser. Each month should be treated as having thirty
days for purposes of calculating delinquency. The use of rounded payment dates

would still leave a very simple calculation, which clerks could soon compute
and check with great speed.

Purchasers might be allowed a delinquency of 99 payment days without

penalty. On a twenty-payment contract, this would represent an average grace
period of 5 days for each payment. Such an allowance would compensate for
payment dates that would fall on Sundays and holidays and allow a reasonable

leeway for the receipt of mailed payments, for delays due to illness, etc. It
is further recommended that the priority number to which the purchaser would

be entitled by virtue of the date of entering an instalment purchase contract
be increased by one for each additional two hundred delinquent payment days,

or fraction thereof, and that delinquency charges be computed at 0.2% of the

cash value of the certificate for each additional one hundred delinquent payment days, or fraction thereof.
Delinquency charges should be computed and collected after all

scheduled payments have been met. Since it is an objective of the plan to
insure regular periodic payments out of income, no compensating credit should
be allowed for prepayment of any instalments.

- 44 -

79
Payment schedules

Payment schedules should be designed to produce as large payments

as possible without creating excessive sales resistance and without penalizing too severely those with low incomes.

Two considerations point to the desirability of high payment require-

ments. The first is the cost of collection. Most cost elements vary with the
number of items handled rather than with the number of dollars collected.
This means that the larger and fewer the payments, the lower the total collec-

tion cost. The second is the deflationary effect: the larger the payments,
the larger the diversion of purchasing power from a given income.
It 18 obvious, however, that excessive payment requirements could

defeat the economic objectives of the plan. Large groupe of potential purchasers would be eliminated from participation by fixing down-payments and

instalments at figures that are beyond their reach. Consequently, even though
the flow of funds from those who could meet the required payments might be

speeded up, the total deflationary effects of the plan would be substantially
reduced by the reduction in the volume of certificate sales.
Beyond this there are social objections to excessive payments,

because the priority system would operate to deny prompt delivery of goods in
the post-war period to those who were financially unable to meet the payments.
The exclusion of some prospective purchasers is unavoidable. Even though the
payments were exceedingly low, some persons who would like to purchase post-

war-delivery certificates would be unable to do BO by virtue of their poverty.
But these persons would be equally unable to buy such goods in an absolutely
- 45 -

free market. It should be a prime objective in fixing post-war-delivery payments not to increase the difficulties of low-income classes in acquiring CO
sumers' durable goods. This means, in effect, that the terms offered for
post-war-delivery sale should not be much more etaingent than those which

would normally be offered in a free market.

In the normal instalment sales transaction, particularly for automobiles, down-payments are fixed relatively high in order to cover the initial
depreciation which occurs when the goods become "used." In actual practice
however, automobile down-payments are generally covered by trade-in allowances.

A large down-payment for post-war-delivery sales is not only unnecessary, but

undesirable because it would create additional sales resistance. The downpayment should be such that prospective purchasers would be likely to have the
sum in their pockots at the time they are approached by salesmen. Other
reasons for keeping the down-payment modest will be discussed in the succes
ing section.
Instalment payments should be more substantial than down-payments.
Once the purchaser has made a down-payment he can be expected to adjust his

budget to meet a more substantial sum out of his next pay-check. These read-

justments of expenditures are, in fact, the key to the deflationary effects of
post-war-delivery purchases.
The following payment schedule is proposed as one which would main-

tain a satisfactory balance between these various conflicting objectives:
- #6 -

Merchadise

Value of Certificate

Cash Value

of Certificate

$ 110

$100

165

150

220

200

330
440

300
400

550
770

500
700

1,100
1,540
2,200

Down

Payment

120
11
12

- 47 -

Payment

1 @ $9 ;

1,000
1,400
2,000

Instalment

10 @ $11
13 @ $14;

6 C $19:
15 @ $22;
12 @ $25;
19 @ $33;
22 @ $45
9 @ $61;
20 @ $83;

11 @ $8
3 @ $12
1 @ $13
10 @ $18
3 @ $21
8 @ $24
2 @ $32
14 @ $60
4 @ $82

WORK AND MOTIVATION OF OTHER PARTICIPANTS

The willingness of consumers to buy is obviously of crucial import-

ance to the successful operation of any plan of instalment selling for postwar delivery. However, the purchaser is but one of several parties to the
instalment sales transaction. Adequate incentives must be offered to moti-

vate the voluntary action of other participants. Dealers must want to sell
post-war-delivery certificates; the collection agencies must be willing to
handle funds and to maintain bookkeeping records; and manufacturers and pub-

lic utilities companies must have reason to play the parts assigned to them.

Characteristics of certificate sales
There may be some broad categories of goods--such as food--which

consumers will buy in stable quantities at given income and price levels, re-

gardless of the amount of sales effort that is exerted. But this is not true
of the category of consumers' durable goods. Even less is it true of indivi-

dual articles in that category or of certificates for the future delivery of
such articles. Sales effort will be needed to overcome the natural inertia
that has always characterized markets involving commitments for the payment

of relatively large sums.
Sales efforts cost money and the dealer should be compensated for

them. Costs of selling post-war-delivery certificates, however, would be
substantially lower than cost of selling the goods themselves and the commissions offered dealers can properly be much lower than the usual sales commission.

- 48 -

The techniques of selling for post-war delivery would differ sub-

stantially from those of normal sales. There would be no dickering for tradein allowances, no competition with other makes at the point of the instalment
sale, and no demonstrations. There would be no inventories to store and f1nance and no additional overhead to maintain. The primary objective of the
sales effort would be to bring the advantages of instalment purchases for

future delivery forcefully to the attention of every household. The potential
list of customers would include all gainfully-occupied persons. House-tohouse canvasses would probably be profitable as soon as solicitation of
dealers' regular customer lists had been exhausted.
The sales efforts of dealers would be reinforced by pressures upon

the purchaser which do.not usually exist. Priorities would provide a powerful
force for reducing sales resistance. In fact, many purchasers could be expected to seek out their dealers in order to buy post-war-delivery goods as
promptly as possible. The sales campaign would be supported by government

pronouncements that purchases for post-war delivery help the war effort.
The complete freedom of choice of makes and models should also facilitate

certificate sales. The purchaser would buy only a right to an automobile, or
a refrigerator, or an automatic stoker, and he would have none of the hesitations and uncertainties that naturally arise when he puts his hard-earned
money on the line for specific goods.

Not only is it practicable to offer relatively modest commissions
but there are positive reasons for keeping commissions as low as possible.

- 49 -

In the first place, as has already been indicated, commissions paid
for sales and collections should be limited to the amount which the Treasury
would pay for the use of the purchaser's money prior to the date of delivery

of the goods. In this way the purchaser can be assured of the return of the

amount which he had paid 1f he should choose to take cash instead of goods

when the priority number of his certificate has been called.
In the second place, the deflationary effects of instalment payments
would be offset to the extent that these payments are diverted to the payment
of sales and collection commissions.

Finally, it is in the interest of making the best use of our manpower resources to keep sales commissions low. The stoppage of production of

major consumers' durable goods was necessary not only to release materials for
production of military equipment but also to release manpower. Many of those
who sold these goods are as readily adaptable to war work as those who operated machines or worked on assembly lines. The compensation offered to sales-

men should be sufficient only to attract those who are for one reason or
another not readily adaptable to other work. Sales could readily be made by
physically handicapped men or by previously unemployed women. This work would

lend itself readily to part-time employment. The number of salemen engaged

in selling post-war-delivery certificates should be only a small fraction of
the number normally employed in selling goods for current delivery, but each
salesman should be able to produce many times as many sales as the peacetime average.

- 50 -

Dealers' sales commissions
The down-payment made by the purchaser would be kept by the dealer

as his initial sales commission. By treating the entire down-payment as part
of the sales commission, the necessity of holding thousands of individual
dealers accountable for funds collected by them can be avioded. The down-pay-

ment should vary with the value of the certificate, but it should be modest

even on certificates of substantial value. This is desirable in the interests
of reducing sales resistance and of minimizing competitive reductions in downpayments. If a large down-payment were required, there would undoubtedly be

a tendency for buyers, knowing that the down-payment goes to the dealer, to
"shop" for a dealer who would reduce the down-payment or eliminate it entirely.
An additional sales commission would be paid to the dealer upon

completion of the purchaser's payments, or, if it seems desirable, at specific
stages in the fulfillment of the instalment contract--for instance, upon the
payment of the sixth, the twelfth, and, if there are more than twelve, the
final instalment. These secondary commissions should be paid only to dealers
who follow up delinquent accounts referred back to them by the sales finance
agencies. Otherwise, dealers might prefer to take the secondary commissions

that would come to them automatically and to avoid the exertion of additional
sales pressure on accounts in default.
The amount to be paid dealers through down-payments and secondary

commissions should be determined in relation to the amount which must be paid

to cover costs of collection and the amount which the U. S. Treasury would

pay for the use of the purchaser's money. The following schedule of dealers'
commissions, however, would appear to be feasible:
- 51 -

Secondary Commission

Purchase Price Initial Commission (2% of Purchase Price)

of Certificate

(Down Payment)

Monthly Payment:

Total Commission
Amount

Percent of
Purchase Pric

$ 100

$ 3.00

$ 1.94

$ 4.94

4.9

150

4.00

2.92

6.92

4.6

200

5.00

3.90

8.90

4.4

300

6.00

5.88

11.88

4.0

400

7.00

7.86

14.86

3.7

500

8.00

9.84

17.84

3.6

700

9.00

13.82

22.82

3.3

1,000

10.00

19.80

29.80

3.0

1,400

11.00

27.78

38.78

2.8

2,000

12.00

39.76

51.76

2.6

Participation of dealers in the plan would be encouraged not only

by the commissions that would be paid for selling post-war-delivery certifi-

cates but also by their stake in the final delivery of the goods. Even
though the certificate would be valid for purchase with any dealer, it could
be anticipated that most certificate holders would buy from the dealer who

sold them their certificates. Certainly the dealer who made the initial sale
would have a strong competitive advantage when the certificate becomes valid

for delivery.
Beyond these incentives of self-interest, however, one can rely
heavily upon the patriotic desire of consumers' durable goods dealers to

participate in a program that will contribute to the war effort. Automobile
dealers, refrigerator and piano dealers and heating equipment contractors
are frequently among the leading citizens of their communities and most of

them are itching for an opportunity to be more directly useful toward the
winning of the war. Post-war-delivery sales would provide this opportunity,
and even if the commissions were smaller than those suggested above, full
- 52 -

cooperation of dealers could be anticipated.
The dealer who finally delivers the goods in the post-war period

would, as has been indicated, forego part of his normal gross profit. If
the suggestion made here is followed, the final dealer would discount the

established retail price by about 7 percent. But this concession would represent only a little more than 1/4 of the customary dealer's gross profit margin
on automobile sales and about 1/5 of the customary dealer's margin on refricerators, pianos and heating equipment. Besides, more than a commensurate

part of the selling job would have been done. The development of customers,

ready, willing, and able to buy, constitutes a very large part or the procedure of selling consumers' durable goods and the dealer who completes the sale
in the post-war period will be presented with such customers.

Trade-in bargaining, particularly in the automobile field, would take
place as usual when the sale is completed. But the dealer who completes the

sale would be in a much stronger position to resist pressure for excessive

trade-in allowances. In fact, since certificates would presumably cover the
full purchase price of the new car, the sale of the used car might readily
become an entirely separate transaction, the sale being made to the highest
bidder whether he be the dealer who delivers the new car, another new car

dealer, or a used car dealer.
Incentives for manufacturers and public utility companies

and

Manufacturers would be expected to contribute to the plan by provid-

ing part of the post-war-delivery price-discount in the form of a rebate to
dealers who deliver their goods in exchange for a certificate. It has been
suggested that this rebate should approximate 3% of the established retail

price. They would also be expected to reinforce the sales efforts of dealers
- 53 -

and their salesmen through national promotional advertising.

In return for their contributions to the plan, manufacturers
would benefit in four different ways.
First, the plan would help to preserve the present pattern of consumer expenditures. In the absence of some scheme for absorbing the purchas-

ing power that can no longer be devoted to the purchase of consumer durables,

other categories of goods are bound to get a larger share of the consumer's

dollar. The further this shift of spending habits progresses, the more difficult it will be for durable goods manufacturers to regain their previous
position in the expenditure pattern when production is restored.
Second, it would provide an enormous assured market for specific

price-classes of consumers' durables in the post-war period. A large and
measurable market has been the dream of every production man. It would per-

mit the planning of production and distribution by the industries concerned
in response to accurate advance knowledge of the character and distribution

of demand. This would lower production and distribution costs all along the
line, which might be the means of preserving the favorable competitive position of the American manufacturers of automobiles and other consumers' dur-

able goods in relation to foreign manufacturers in the post-war period. Even
more important it would facilitate rapid--but controlled--expansion of production and employment. The consumer durable goods industries are fully aware

of their large responsibility for absorbing at the conclusion of the war a
substantial part of the manpower now devoted to the military effort.

- 54 -

Third, it would help to preserve the facilities for retail sales
upon which the manufacturer must depend for the distribution of his products

in the post-war period. The mortality among their dealers has already led
several automobile manufacturers to consider plans for dealer subsidies as
a means of preserving a skeleton sales organization.

Fourth, it would help to conserve substantial investments in the
trade-names of their products. Values built up through years of promotional
advertising and product performance will gradually disintegrate if these
trade-names are not kept before the public. From the standpoint of the manufacturers concerned, it is just as important to preserve these trade-names

as it is to preserve the plant and specialized tools that are capable of
manufacturing the product. There is general agreement that present institutional advertising campaigns, based on the contribution of the manufacturer to

the war effort, have reached the point of rapidly diminishing returns and that
a new advertising appeal is essential. Advertisements directed toward the pro-

motion of instalment sales for post-war delivery would fill this need. They
would serve the double purpose of contributing to the battle against inflation
and preserving product trade-names.

Public utility companies would be expected also to support the
sales campaign with promotional advertising and to serve as agencies through
which payments would be made. These companies have long recognized their

special interest in the sale of household appliances. Such sales not only

increase the total market for gas or electricity, but produce operating
economies through an increase in the average billing for domestic service
and through the creation of a demand which tends to balance the industrial
load,

-55 -

These advantages, plus the prospect of excess productive capacity

in the post-war period, can be expected to guarantee enthusiestic participation of the gas and electric power companies in the promotion of the sale of
household appliances for post-war delivery. In fact, several such companies

have indicated their willingness to bear the full coat of making such sales,
Selection of collection and bool Leeping agencies

Provision must also be made for the collection and recording of

instalment payments if the plan for post-war-delivery sales is to work. It
is not enough merely to collect the purchase price of the certificate by the

time the instalment contract matures. If the deflationary potentialities of
the plan are to be fully exploited and the Treasury is to get its money's
worth, it is necessary to require regular payments at stated intervals, to
send delinquent notices and to refer cases of substantial delinquency back to
dealers, and to assess delinquency charges. This means that the amount and
date of each instalment payment on each certificate must be recorded currently.
Two considerations make it seem inadvisable to permit dealers to

collect instalment payments. First, instalment sales have been used by some
merchants as the means of exposing customers to pressure for the purchase of

additional merchandise at the time of each instalment payment. Since refrigerators and other household appliances are frequently sold by merchants who

deal in household furnishings, clothing, or jewelry, post-war-delivery sales
might be used to stimulate sales of these latter goods. Whatever the merits

- - 56 -

of this merchandising device during normal times, it seems highly undesirable
to allow a plan which is designed to take purchasing power off the market to

be used to stimulate additional sales of current goods. Second, the mortality among dealers in consumers' durable goods is likely to be high, in spite
of the additional income which instalment sales for post-war delivery would

provide, and it is desirable to avoid the necessity of establishing an auditing system to protect purchasers against default by dealers.
The agencies best equipped to undertake the job of recording payments, sending delinquent notices and computing delinquency charges are the

enterprises which have been previously engaged in financing instalment sales
of consumers' durable goods. Moreover, because their businesses have been

badly hurt by the discontinuance of production of such goods they have the

best claim to the right to do it.
Sales finance agencies already have the personnel and the office
equipment necessary for the work. The recording of payments for post-war-

delivery certificates would replace naturally and easily the recording of
payments on conventional instalment purchase contracts. The remaining branch-

office structure and the clerical office force of these enterprises would be
given employment and thereby kept intact. But there would be no need for the
able-bodied men normally employed to chase "skips" and to repossess care, who

properly belong in the military forces or in war industries.
Sales finance agencies should be required to meet two standards

before they are authorized to participate in the plan. First, they should

- 57

be required to show that at the time Regulation W was promulgated they were

engaged, as a major activity, in financing the purchase of goods subject to

post-war-delivery sale. This is desirable both for the purpose of assuring
the availability of trained personnel, of adequate office equipment, and of
established relationships with dealers--all of which would be important to
smooth and efficient operation--and for the purpose of limiting the advantages of the plan to enterprises that have been most seriously affected by the
discontinuance of production of consumers' durables. Second, they should be

required to furnish a bond, to hypothecate securities, or otherwise to provide

a guarantee of their responsibility for funds passing through their hands.
The sales finance agencies have, however, two important handicape

so far as the collection of instalment payments from purchasers is concerned,

First, their remaining offices are situated primarily in the large cities, 80
that residents of smaller places would be able to make payment only by checks
sent through the mail or by money order. Second, many of them are also engaged

in the business of lending money. To permit these enterprises to use the
personal contacts with individual purchasers which the acceptance of payments

would give them for the solicitation of personal loans not only would handicap the attainment of the economic objectives of the plan but would be inequitable to competing lending agencies which would be excluded from participation.

For these reasons, it seems desirable to arrange for the acceptance
of cash payments by agencies which have no interest in selling the purchaser
goods or in lending him money and whose offices are numerous, readily accessible to purchasers, and equipped to accept cash payments. A number of agencies

- 58 -

would meet these standards. The telephone companies would be ideal. The

post offices and the telegraph companies would be almost equally satisfactory.
Mutual and other savings banks that have no personal loan service would also
meet the requirements. The gas and electric companies could also be used,

but care should be taken to protect the interests of independent household
appliance dealers where the utility company is engaged directly or through a
subsidiary in the sale of household appliances. Use of the telephone and ,
public utility companies would permit the payment of instalments with bills

for telephone, gas, or electric service.
Payments by check sent through the mail could go directly to the
sales finance agency. But that agency should be prohibited from accepting

cash payments, from addressing solicitations of any sort to purchasers for
post-war delivery or from revealing the names of purchasers.

Work of the sales finance and local collection agencies
This division of labor between the sales finance agency, which would
do the bookkeeping, and the local collection agency, which would accept and

receipt for payments, need not involve any duplication of effort. On the con-

trary, this functional division is a natural one and it would assign to each
agency the work which it is best equipped to do. The lack of offices generally
accessible for cash payments has long been recognized as a handicap of sales
finance companies. Only recently two large sales finance companies undertook
to remedy this shortcoming by arranging for payment through the Western Union

Telegraph Company, a device virtually identical with that proposed here.

- 59 -

The most satisfactory collection procedure would appear to be as
follows:

Upon receiving a post-war-delivery sales contract from the dealer,
the sales finance agency would issue a payment book to the purchaser and
open a ledger account for him. The payment book should contain a coupon and

a stub for each payment, imprinted with the purchaser's serial number, the
payment number, the amount of the payment, and the name and address of the

sales finance agency which issued it. The payment book should also show the
names and addresses of the local collection agencies to which cash payments
could be made in each community.

The local collection agency would accept payments made by the pur-

chaser, stamp the coupon and the stub to show the collection agency and the

date of payment, tear out the coupon and initial the stub in the payment book.

Coupons would be a periodically and sent with remittances to the appropriate sales finance agency, which would use the coupons to post its ledger
accounts. If the purchaser wished to do so, however, he could send checks or
money orders directly to the sales finance agency.
The sales finance agency would keep a current record of payments

for each purchaser to which it had issued a payment book, send a series of

notices to delinquents, and refer cases of substantial delinquency to the

dealer for additional sales effort. The notification of delinquents would
serve not only to minimize delinquency but also to prevent theft by cashiers
of local collection agencies, since the failure to forward payments would be
quickly discovered. The sales finance agency would send remittances periodic-

ally to the Federal Reserve Bank or branch of the district in which its office
- 60 -

is situated. When the last payment has been made, it would compute delinquency
charges, notify the purchaser of the amount and instruct him to make payment
to his local collection agency. When delinquency charges have been collected,

it would send the dealer his final sales commission, assign a priority number
to the account, and send it to the Federal Reserve Bank for audit and the

issuance of a paid-up certificate.
Collection and bookkeeping commissions

The work of local collection agencies could be handled at very lit-

tle cost. There would be no necessity for maintaining files, for looking
up records, for recording names and amounts, for making computations, or for

referring to schedules of charges. Making change would be simplified by
keeping the payments in even dollars. The cashier need only take the payment,

stamp the payment book at two points, initial the stub, and tear out a coupon.
This operation could be done with ease at the rate of two a minute, although
allowances would have to be made for questions and for irregularities, such

as the failure to present a payment book.1 Many local collection agencies

could handle this additional work by fuller utilization of present personnel.
The sorting of coupons could be done with great speed and would add

1 Although receipts could readily be given by the local collection difficul- agency
for payments made without the tender of the payment book, the

ties of the sales finance agency in identifying the purchaser other than
through the serial number and the possibilities of error in attempting

to that it would appear to be the best policy not to
unless the book or the coupon was puraccept
do SOlost
who any
paymentshould
has such payment
back presented. to the dealer A
chaser
hisarebook
be sent

who would obtain a new payment book from the sales finance agency upon

the payment by the purchaser of a small fee to cover the cost.
- 61 -

little to the cost. It would probably be necessary to list the serial numbers of the coupons by sales finance agencies as a protection against loss

of the coupons in the course of delivery to sales finance agencies, but this
also could be done very rapidly and would involve the transcription of only
one figure.

The money-order service of the Post Office is somewhat similar to

that which would be rendered by local collection agencies. Charges for
money orders range from 6 an item for amounts of $2.50 or less to 22d for
amounts from $80.01 to $100. The procedure for handling them is elaborate.

The money-order clerk must first get the customer to fill out a blank; then
he must transcribe the names and addresses of the payor and payee and the
amount to be sent at two places on the money-order form; he must stamp the

form, look up the fee and add it to the amount to be sent, and collect the
total from the customer. For each money order issued, funds must also be

paid out to the payee and these transactions must be accounted for through
inter-office bookkeeping.
Thus, while postal money orders serve a somewhat similar purpose,

the procedure for handling them is of necessity far more costly than the
collection system proposed here. Observations of actual transactions of both
types indicate that the acceptance of payments on a coupon basis requires

less than one-fifth as much time as the issuance of money orders. The difference in clerical time required for completing the transaction--from payment
by the payor to repayment to the payee--1a probably even greater.

Commercial services virtually identical with those that local
- 62 -

collection agencies would be expected to perform have been recently contracted
for at 7$ an item. Costs may have increased somewhat since these contracts

were entered into, but any rise in costs would probably be offeet by the
tremendous volume of payments that could be expected. A fee of 7d an item

would appear therefore to provide adequate compensation for local collection
agencies. These fees should be subtracted from receipts in computing remittances to sales finance agencies.
Sales finance agencies would need larger commissions than local col-

lection agencies to cover their costs. The posting of payments would be exceedingly simple since the amount of the payment would be determined by the

value of the certificate subject to purchase and it would be necessary only
to enter the date of payment on the purchaser's ledger account. In addition to posting payments, however, the sales finance agency would send delinquent notices, compute delinquency charges, pay dealers for secondary commis-

sions, and assign priority numbers. They would also be expected to supply
the contract forms used by dealers and the payment book issued to purchasers.
As compensation for sending notices to delinquents and for computing delinquency charges, sales finance agencies should be permitted to keep

part of the delinquency charges. The income from such charges should be large

enough to encourage a continuous effort to collect delinquent accounts. In
the absence of such an incentive, some sales finance agencies could be expected to take the income from payments that came in automatically and to

neglect their delinquent accounts.
- 63 -

It is suggested that the sales finance agency retain one-quarter

of all delinquency charges collected, less the 7$ per item retained by the
local collection agency for its services. Since delinquency charges would
be collected in a lump sum at the end of the payment period, and the grace

period would avoid the collection of negligible amounts, the collection fee
would usually be small in relation to the sales finance agency's share of
delinquency charges.

As compensation for furnishing contract forms, payment books and

bookkeeping services, for supervising collections, and for assigning priorities, the sales finance agencies should be given a commission on all collections handled by them. This commission should be expressed as a percentage

of purchaser's instalment payments, and it should cover the fees paid to

local collection agency. It is proposed that this commission be fixed at
1 percent of all payments less than $30.00 and 1 percent of all payments of
$30.00 or more.

This method of computing bookkeeping commissions of the sales finance

agencies has substantial advantages from an accounting standpoint. It is

useful for purposes of internal controls and of reports to the Federal Reserve

Banks to treat the total value of coupons collected as receipts. The fixed
percentages of coupon values for bookkeeping and collection services would

then be subtracted from receipts and credited to current earnings; another

fixed percentage would be subtracted from receipts and transferred to a liability account for dealers' secondary commission; and the remainder would be

- 64 -

forwarded to the Federal Reserve Bark. The fees withheld by local collection
agencies would be treated as an operating expense of the sales finance agency
chargeable against its income account.
The use of two percentage rates in computing bookkeeping commis-

sions adds a complication to the plan, but this appears to be unavoidable.

If all dealers sold certificates covering the whole range of denominations,
a single percentage rate could be established because sales finance companies

would take the unprofitable accounts in order to get the profitable ones.
Refrigerator dealers, however, would produce only certificates of the smaller
denominations. Consequently, if a single percentage rate should be used,

sales finance agencies could be expected to neglect refrigerator dealers in
favor of automobile dealers, whose business would be considerably more profitable.

The lowest payment contemplated for refrigerator certificates is $8.
The collection and bookkeeping revenue from such a payment would be 12 cents,

out of which the local collection agency would take 7 cents. The remaining
5 cents per item would not cover the sales finance agency's cost. However,

refrigerator dealers will also produce contracts calling for payments of $19,
from which the revenue would be 29 cents per item. The sales finance agency

would retain 22 cents, which would undoubtedly exceed its cost by a substantial margin. For payments of $33 OX $700 automobile certificates revenue
would be 33 cents per item, of which 26 cents would go to the sales finance
agency. The highest payments would be $83, for which the sales finance
agency's revenue would be 76 cents per item,

- 65 -

The right of the sales finance agency to the fixed percentages of

all collections should be absolute. Its right to one-fourth of the delinquency
charges should, however, depend upon satisfactory performance. It should be

within the power of the Federal Reserve Bank to limit any sales finance
agency's share of the delinquency charges to the generally applicable collec-

tion commission if it persistently fails to follow up delinquencies or is
chronically careless in the computation of delinquency charges.
Even if the compensation offered to sales finance agencies were un-

attractive, many would undoubtedly find it to their own interest to participate. When the var ends and production of consumers' durable goods is resumed,

post-war delivery accounts subject to collection would be a principal source
of sales finance business in the commodity fields covered by the plan. As the
priority numbers of those whose payments had not been completed were reached,

the agencies handling collections would naturally be the ones to finance the
unpaid balance.

Commissions paid for bookkeeping and collections like those paid for
sales would be taken directly from payment made by the purchaser and they would

be subtracted from the amount paid in by him should he wich to withdraw funds

prior to the time his priority number is called. Thereafter, these commissions
would be covered by the payment which the Treasury would make for the use of
the purchaser's money.
Work and compensation of the Federal Reserve Banks

The Federal Reserve Banks and their branches would have a number of

functions under the plan.
- 66 -

-100

erid At the outset they would select and assure the financial presponsi-

bility of sales finance agenoies which would apply for authorizat fon to partif
cipate in the plan. They would approve or disapprove local collection agencies
cies which might be proposed by sales finance agencies, They-would approve IUG

the contract form to be used by sales finance agencies, and they would printed
and sell payment books to them. The issuance of payment books by the Federal
Reserve Banks would permit standardization of the form and content of the tamoo

book, save printing costs, and facilitate control of the total liability of FOBLE
each sales finance agency. Payment books could be printed in blank and de- age

livered to the sales finance agency for imprinting its name and its serial [sow
numbers, or arrangements could be made with the Federal Reserve Banks to include the name of the sales finance agency and its serial numbers when books 07

are printed. The use of a separate set of serial numbers by each salee finance
agency would facilitate the posting of payments. of bellqga

SIOW

BEJOT

The Federal Reserve Banks would receive periodically the funds colon
lected by the sales finance agencies, less collection and bookkeeping commis-

sions. They would credit these funds to a special post-wer-delivery account 38

in the name of the U. S. Treasury. They would audit the reports of the sales
finance agencies and would forward summaries to the Federal Reserve Board.
When a Federal Reserve Bank receives the payment record of a pur-abe
chaser who has completed his payments, it would examine the payment record,

audit the calculation of delinquency charges and the priority assignment
check its files to prevent the purchaser from anquiring claims to more goods

than he is entitled to, and issue a post-war-delivery certificate to the
purchaser.

- 67 -

It will be noted that the dealer's secondary commission and the collection and bookkeeping commission proposed here have been expressed, for the

sake of accounting simplicity, as percentages of instalment payments made by

purchasers rather than as percentages of the total purchase price of certificates. These commissions do not apply to down-payments. Since the subtraction of down-payments from the rounded purchase price leaves odd amounts, the

commissions resulting from the application of fixed percentages to these
amounts are also add. If, on the other hand, the same percentage rates were

applied to the purchase price of certificates, the resulting commissions
would be rounded figures.

It is convenient, therefore, to permit the Federal Reserve Banks to

retain the difference between the amount withheld for dealers' and sales finance agencies' commissions and the amount that would result if the same com-

mission rates were applied to the total purchase price. This is the same thing
as saying that the Federal Reserve Banks should receive a percentage of downpayments equal to the percentage of instalment payments which dealers and

sales finance agencies receive. This sum would range from 10 cents on $100

certificates to 42 cents on $2,000 certificates. Assuming that the average
price of post-war-delivery certificates would be $400, the revenue of the
Federal Reserve Banks from this source would average 25 cents per certificate.
-Since the time required to check the delinquency charges and the

priority assignment before issuing a post-war-delivery certificate would
depend in part upon the degree of delinquency, the Federal Reserve Bank

- 68 -

should also receive one-quarter of the delinquency charges. It is believed
that these two types of revenues would provide adequate compensation for the

"out of pocket" costs of the Federal Reserve Banks in fulfilling their
obligations under the plan.
The Post-War-Delivery Corporation

It would probably prove desirable to create a separate corporate

entity to enter into contracts with purchasers, sales finance agencies, local
collection agencies, and other participants in the plan. Such a corporation,
which should be controlled by the Federal Reserve Board, might well be called
the Post-War-Delivery Corporation.

This corporation should receive an income which could be used to
defray unforseen expenses and to supplement the income of specific local

collection agencies or other participants, if for one reason or another their
commissions should prove inadequate to cover the costs of services essential

to the operation of the plan. It is proposed that one-helf of 1% of all payments of $30 or more be transferred by the Federal Reserve Banks to the ac-

count of this corporation. This further payment out of the proceeds of
collections would bring deductions for sales, collection and management
expenses, exclusive of down-payments, to 3210 of the cash value 01 all

classes of certificates.

- 69 -

VI.
TREASURY PAYMENTS AND FEDERAL RESERVE BOARD
MANAGEMENT

Two government agencies would play important parts in the plan of

instalment selling for post-war delivery. The United States Treasury would

be expected to pay a part of the purchase price of each certificate for
the use of the purchaser's money. The Federal Reserve Board would be ex-

pected to manage the operation of the plan.
Treasury payments

The Treasury would be asked to contribute to the cash value of
each certificate a sum which would cover the commissions paid out to
dealers, collection and bookkeeping agencies, Federal Reserve Banks, and

the Post-war Delivery Corporation, provided that the certificate is held until
its priority number has been called. In this way, the cash value of each
certificate would equal its purchase price when it becomes valid for the de-

livery of goods. The Treasury's payment would be in lieu of interest for the
use of the purchaser's money between the time the proceeds of each payment

were credited to the Treasury's account with the Federal Reserve Bank and

the time the paid-up certificate was presented for payment, following its
exchange for goods.

If the schedule of commissions suggested here should be followed,
the Treasury would be called upon to pay these amounts:

- 70 -

92
Purchase Price

of Certificate

Treasury Payments
Amount

Percent of Cash Value

$ 100

$ 6.50

6.5

150

9.25
12.00
16.50
21.00
25.50
33.50
45.00
60.00
82.00

6.2
6.0
5.5
5.3
5.1
5.0
4.5
4.3
4.1

200
300
400
500
700

1,000
1,400
2,000

The payment by the Treasury of a fixed sum for the use of the purchaser's money means that the interest costs of funds raised through the sale

of post-war-delivery certificates would vary with the length of the war and
of the period that would be required to reestablish production of consumers'

durable goods and to distribute an initial inventory to dealers. If the
period between the initial instalment payment and the delivery of goods is

short, the cost expressed as a rate of interest will be relatively high; but

if the period is long, the interest cost will be low.
These variations, however, would appear to offer an advantageous

hedge for the Treasury. If the war is short, the nation will be better able
to absorb a relatively high interest cost. The longer the war, the more difficult will be the problem of financing government deficits and the more
welcome a low interest rate.
Comparison with costs of war savings bonds

In order to compare the interest costs of funds raised through the

sale of post-war-delivery certificates with the interest costs of funds

- 71 -

raised through the sale of war savings bonds, it is necessary to make assumptions concerning the length of the war and of the period that will be required

to reestablish production and to distribute an initial inventory to dealers.
It is impossible, of course, to make any accurate predictions concerning the
duration of the war. There appears to be some degree of agreement as to the

earliest possible date of its termination--that is, in the summer of 1944.
But the probabilities seem to lie in the direction of a war of considerably
longer duration.
Our calculations have been based on three assumptions concerning

the date of termination of the war: (1) in July, 1944; (2) in February
1945; and (3) in January, 1947. In each case it has been assumed that

sales of certificates will begin in January, 1943 and that retail deliveries
will begin six months after the end of the war. It has also been assumed

that certificate sales during the first month of operation of the plan would
absorb the first month's production, that sales during the second month
would absorb the second month's, and SO on during the initial period to
which there calculations pertain. Under these circumstances the Treasury
would have the use of the funds for equal periods whether purchases were

made in the first or fourth month. It should be remembered that the plan
calls for a reduction of the Treasury's payment if this assumption should
prove to be unrealistic.
The following figures compare the interest rates paid on Series E
and G bonds with the interest cost of funds raised by post-war-delivery sales,
subject to the schedule of commissions proposed here, under these three sets
of assumptions:

- 72 -

Interest Cost of

Interest Cost of Funds Raised by
Post-War-Delivery Sales

War Bonds

Purchase Price

of Certificate
$100
150
200
300
400
500
700

1,000
1,400
2,000

Series E Series G
(Percent) (Percent)
2.9
2.9
2.9
2.9
2.9
2.9
2.9
2.9
2.9
2.9

War Ends

July 1944
(Percent)

Feb. 1945
(Percent)

Jan. 1947

4.41
4.34
4.34
4.14
4.20
4.34
4.23
4.12
4.05
4.02

2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5
2.5

(Percent)

3.20
3.12
3.10
2.91
2.90
2.94
2.82
2.71
2.63
2.59

1.67
1.61
1.58
1.46
1.42
1.41
1.33
1.26
1.22
1.03

This comparison suggests that if the war should end in February

1945 the interest cost of funds raised by the sale of post-war-delivery
certificates would approximate the interest cost of funds raised through

the sale of Series E bonds. If the war is shorter, the interest cost would
be higher, and if the war is longer, the interest cost would be lower, then
for Series E bonds. These figures, however, do not provide a fully accurate

comparison. In actual practice, the true interest costs of post-war-delivery
funds would be somewhat lower and the true interest costs of war-savings-

bond funds would be substantially higher than the figures given above.
The calculated interest costs of post-war-delivery funds would be
reduced by cancellations before maturity and by delinquency. The Treasury
payment would accrue only when certificates were held until there

priority numbers have been called. While this feature of the plan is
designed to discourage withdrawals and to differentiate post-war purchases

- 73 -

from savings, it would also give the Treasury the use of some funds for which
no compensation would be paid. True, a sacrifice of interest also accom-

panies the cancellation of war savings bonds. But the interest rate is not
reduced to zero as is the case with post-war-delivery certificates. De-

linquency would also reduce the average interest cost. Since the delinquency charges proposed here approximate 1 percent a month on delinquent

payments, the payment of half of such charges to the Treasury would more

than compensate for its loss of the use of delinquent funds.
Of considerably greater importance to the comparison is the fact

that the interest calculations for post-war-delivery funds represent total
costs after all operating expenses have been paid, while operating expenses

must be added to the interest rates quoted for war savings bonds. Under the
plan proposed here, the Treasury payment would be used solely to cover selling,
collection, and administrative expenses. The commissions paid to dealers would

provide the stimulus for sales. The commissions and fees paid to sales finance agencies, local collection agencies, and Federal Reserve Banks would

provide compensation for the maintenance of detailed records, for the issu-

ance of certificates, and for the channeling of funds in bulk to the Treasury's
account.

In the sale of war savings bonds, on the other hand, the costs of

selling and of collecting funds and accounting for them are in addition to

the interest cost. These additional expenditures fall in part upon the

- -74- -

Treasury and in part upon the Post Office and private enterprises. The payroll, traveling expenses, advertising expenditures, and other operating expenses of the Treasury's War Savings Division are directly attributable to the
cost of raising funds through the sale of war savings bonds. The expenses

which the Post Office incurs in selling bonds or in handling franked promo-

tional literature are equally attributable to such costs. Even the free
services that private enterprises have devoted to the bond sales campaign are

paid for in part by the Treasury through the loss of tax revenues. Free services rendered by individuals in the promotion of bond sales are expensive in
terms of the diversion of manpower and they are likely to be less readily
available as the labor shortage becomes more stringent.
Two other considerations need to be applied in comparing the in-

terest costs of war savings bonds and post-war-delivery certificates

First, in issuing Series E bonds, the Treasury contracts to pay
$33.33 per hundred for the use of funds for 10 years. In participating in the
post-war-delivery plan under the commission schedules proposed here, the

Treasury would pay from $4.27 to $6.95 per hundred for the use of accumulating
monthly payments and, when payments have been completed, the full balance for

the duration of the war and the subsequent period of preparation for retail

distribution of the goods subject to sale. Disregarding the factors which
distort these figures in favor of war savings bonds, the contracted payment
for Series E bonds is five to eight times as great as the contracted payments

for post-war-delivery certificates. If the war is long, the advantage to the
Treasury of raising funds through the sale of post-war-delivery certificates

is obvious. But if the war is short, the Treasury is in a position to
refinance its obligation in a more favorable market.
- 75 -

when the war has ended and production of civilian goods has been fully re-

stored, the inflationary danger of refinancing federal government obligations

through financial institutions will have disappeared. There is little doubt
that the Treasury could at that cime refinance its obligations for post-wardelivery certificates for the remainder of the ten-year period at considerably less cost than the difference in the contracted payments.
Second, the plan of instalment selling for post-war-delivery would
divert an additional volume of funds from the market for consumers' goods and

services to the U. S. Treasury. If an accurate comparison is to be made, it
is necessary to measure the costs of post-war-delivery funds not against the
present average cost of war-savings-bond funds but against the still higher
costs that would have to be incurred to raise an equivalent additional volume
of funds through the sale of war savings bonds.

Taking all of these factors into consideration, it seems probable
that, even if the war ends as quickly as the most optimistic forecasts would
permit us to hope, the true costs to the Treasury of post-war-delivery funds
under the schedule of commissions proposed here would probably be less than

the costs of raising an equivalent additional volume of funds through the

sale of war savings bonds. If the war is longer than this most optimistic
minimum, sales of post-war-delivery certificates would become a progressively
cheaper means of raising funds. The commissions proposed here, however,

should not be taken as fixed. They are suggested only to illustrate the

principles of the plan. It is possible that a more satisfactory schedule of
commissions can be worked out.

- 76 -

Other advantages for the Treasury

The Treasury's interest in instalment sales for post-war delivery
should, however, go far beyond their usefulness in raising funds at reason-

able cost. Rising prices would add tremendously to the cost of the war. As
fiscal agent for the federal government, the Treasury Department is vitally
concerned with the maintenance of a stable price level. To the extent that
additional purchasing power can be drained from the current market for goods

through instalment sales for post-war delivery, the inflationary pressure will

be relieved and the possibilities of maintaining the current price level will
be substantially enhanced.

But there is still another aspect of the plan in which the Treasury
has an enormous stake. As has already been pointed out, instalment selling
for post-war delivery would create a reserve fund of purchasing power that
can be poured into the post-war market. The economic effects of such an

injection of purchasing power are similar to those of a deficit expenditure of
equal magnitude by the federal government. The need for federal deficit

spending as a stimulant during the period of transition to a peace-time economy may therefore be minimized by the release of post-war-delivery funds.
Measured by these standards, the ultimate saving to the Treasury

through instalment selling for post-war delivery may indeed represent a sub-

stantial fraction of the principal amount raised by this device.
Administration of theFederal Reserve Board
The Board of Governors of The Federal Reserve System would appear

to be the logical agency to undertake the job of administration. The
- 77 -

primary responsibility of the Board for credit and monetary management has

been recognized by statute. A recent Executive Order also identifies the

Board specifically with the field of consumer credit control, to which
instalment selling for post-war delivery is intimately related. The semiprivate character of the Federal Reserve System, its relative immunity from

political pressures, and its decentralized system of administration
through regional banks and their branches make the Board the ideal adminis.

trative agency for this purpose. Moreover, administration of the plan of
instalment sales for post-war delivery can be done most efficiently and
effectively when combined with the function of regulating consumer credit.
The Federal Reserve Board would be responsible for: (1) devel-

oping the forms and contracts to be used, and otherwise perfecting the

details of the plan; (2) establishing standards for the selection of sales
finance and local collection agencies; (3) issuing reports concerning postwar-delivery sales; (4) accounting to the Treasury for payments transmitte?

and certificates issued; (5) releasing goods covered by the plan by calling
priority 'numbers.

When the rationing and price-control functions presently exercised
by the Office of Price Administration and the War Production Board are discontinued, the Federal Reserve Board should have responsibility for issuing

such special priority certificates as may appear to be in the public interest
and fixing the maximum wholesale and retail price of goods covered by the

plan where such price-fixing becomes necessary in order to prevent exploitation of post-war-delivery purchasers.
- 78 -

Administration planning and policy-making in connection with instal
ment selling for post-war delivery would appear to be 80 closely related to
the objectives of the Federal Reserve Board that these functions could be
properly financed through its customary sources of revenue.

- 79 -

primary responsibility of the Board for credit and monetary management has

been recognized by statute. A recent Executive Order also identifies the

political pressures, and its decentralized system of administration
through regional banks and their branches make the Board the ideal adminis-

and certificates issued; (5) releasing goods covered by the plan by calling
priority numbers.

such special priority certificates as may appear to be in the public interest
and fixing the maximum wholesale and retail price of goods covered by the

plan where such price-fixing becomes necessary in order to prevent exploitation of post-war-delivery purchasers.
- 78 -

Administration planning and policy-making in connection with instal
ment selling for post-war delivery would appear to be so closely related to
the objectives of the Federal Reserve Board that these functions could be
properly financed through its customary sources of revenue.

- 79 -

VII.
THE PROBLEM OF POST-WAR PRICES

One of the most difficult questions of operating detail is how
to deal with the prices at which specific consumers' durable goods should

be sold for post-war delivery. On one hand, there is the uncertainty concerning the level of production costs in the post-war period, and on the
other hand there is the problem of how to assure competition with respect

to price and quality in the face of a large prepaid demand that will tax

productive facilities for a substantial period.
Advantages and disadvantages of selling at fixed prices

A number of important considerations suggest the desirability

of providing for the sale of goods for post-war delivery at specific
prices--for instance, the prices established for various types and models

in 1940 or 1941, less the discount for prepayment For one thing, this
treatment would help to identify post-war-delivery transactions as sales
of merchandise and to minimize their relationship to savings in the eyes

of purchasers. For another thing, it would eliminate one of the variable
elements in a plan which necessarily involves a number of such elements.

Still further, it would appeal to those who might fear a substantial rise
in prices. Purchases for post-war delivery at fixed prices would provide

a hedge against inflation. But, unlike the hedge of putting money into
current goods, which would accelerate the forces of inflation, purchases

for post-war delivery would reduce the inflationary pressure by diverting
purchasing power from the current market.
These advantages, however, are offset by a number of serious.
-80- -

handicaps, which appear to be controlling. After extensive discussion and
careful consideration of the pros and cons, it has seemed essential to avoid
any attempt to sell goods at predetermined prices,
The most serious difficulty is that someone would have tc take

the risk of a substantial increase in the price-level. If manufacturers
could reduce quality to compensate for increased costs, the purchaser

would beer the risk and this would eliminate the principal advantages of
selling at established prices. Manufacturers might be asked to guarantee

delivery of goods of specified quality and thereby accept the risks of
rising costs. It seems doubtful, however, that many would be willing to do
SO voluntarily and any attempt at compulsion would not only be difficult but
would change completely the essential nature of the plan. The United States
Treasury might also be asked to accept the risk of an increase in menu-

facturing costs. But the responsibility for action necessary to hold prices
steady lies primarily with Congress and with the Office of Price Administra-

tion. The Treasury's authority in this field is limited Lacking the power
to assure a constant price level. the Treasury would undoubtedly object to
underwriting the cost of production of tremendous quantities of goods.
Prospective changes in post-war producte would also make it diffi-

cult to sell at established prices. Recent technological developments seem

likely to revolutionize the post-war automobile and to have a substantial
effect upon the construction and design of other consumers' durable goods.

Consequently, the price for which pre-wer models were sold might be utterly
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inappropriate for post-war models. The possibility of great technological
improvements and of substantially reduced costs might make consumers unwill-

ing to buy specified models at established prices.

Use of post-wer-delivery certificates
For these reasons the writer proposes that prices be kept flexible
and that the instalment purchaser be offered certificates of various denominations, which can be exchanged for specific goods at prices to be estab-

lished in the post-war period. The certificate denominations should correspond roughly with present price-classes for various goods. For instance,
automobile certificates might be issued in $700, $1,000, $1,400, and $2,000
denominations; piano and automatic heating equipment certificates in $200,
$300, $400, and $500 denominations; refrigerators in $100, $150, and $200
denominations.

Certificates should be identified 80 far as possible with specific
kinds of goods or with groupe of specific kinds of goods. Thus, an automobile

certificate should be valid only for the purchase of an automobile, and a.re-

frigerator certificate should be valid only for a refrigerator. Certificates
should also be identified with price-classes of goods. For instance, a $700

automobile certificate should be valid only for the lowest price-class of
cars, typified today by Plymouths, Chevrolets, and Fords; $1,000 and $1,400

certificates should be valid respectively for the next highest price-classes,
typified today by Mercurys, Dodges, Pontiace, and low-priced Buicks and

-82- -

Chryslers, and $2,000 certificates would be valid for the most expensive
cars. Such an arrangement seems to be necessary in order to prevent those

who want high-priced cars from acquiring a priority to them by purchasing

a certificate of the lowest denomination.
Some degree of flexibility, however, seems to be important because
the circumstances of many purchasers are bound to change. Some who now

foresee the need for an inexpensive car will later want an expensive one,
and some who believe they will want an expensive car will not be able to
afford it when the time comes to take delivery. Also some who purchased

an automobile certificate will want an oil-burner instead, and some who

bought a piano certificate will later want an automobile.
There would seem to be no reason to prevent exchanges of certificates, provided that adequate measurements of the accumulated demand for

various products and of the number of purchasers in each priority and price
class can be maintained; and provided further that casual changes of mind

were restrained by priority penalties and that costs of exchanges were met
by fees, The Federal Reserve Banks might therefore be authorized to ex-

change certificates generally for a fee of $1 and for a deferment of the
priority number by 2. Each certificate might be made exchangeable for a

certificate of equal value calling for delivery of another commodity.
Certificates of larger denominations might be exchangeable for two or

more certificates for different commodities or for a certificate of lower denomination and cash. A certificate of low denomination might be also

traded in on a certificate of larger denomination upon the payment

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in cash of the difference between their cash values. The latter transaction,
however, should require a larger penalty in the form of priority deferment.
The existence or large numbers of prepaid purchase certificates of

various denominations will undoubtedly lead manufacturers generally to fit
their products to the price classes established by certificate denominations.

This will follow traditional practice since the design, material content, and
construction of various consumers' durables have always been strongly in-

fluenced by the views of sales departments as to the price at which various
products can be sold with the least resistance. Nevertheless, it is impossible

to expect that all goods will be priced exactly at certificate values. For
many types of commodities, model variations requiring price differentials will
undoubtedly be more numerous than the certificate denominations, Also,

freight charges will compel differences in price in various areas. It seems
necessary therefore to include in the plan some method of dealing with differences between prices and certificate values.
Where post-war prices for individual commodities are higher than the

values of certificates for their purchase, the situation can be handled very
simply by the payment of the balance by the purchaser at the time of delivery

either in cash or through a sales finance agency. Where certificate values
are higher than post-war prices of the goods which they command, the purchaser

should be entitled to a cash rebate. Since commissions for selling and collection will have been pa: L out of the proceeds of the instalment sale,
rebate should bear the sam relationship to the excess value of the certificate

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as the cash value of the certificate bears to its merchandise value.
Some dealers would undoubtedly prefer to encourage the purchaser to spend the

remainder of the face value of his certificate for merchandise. There would
seem to be no reason for preventing this, provided that the purchaser has the
option of taking the cash rebate.
Post-war price competition

Since the plan of instalment selling for post-war delivery contemplates the sale of "futures" by dealers who have heretofore sold the same products and the reenforcement of these selling efforts through national advertising by manufacturers, it is tempting to propose that Ford dealers should sell
Fords, Studebaker dealers should sell Studebakers, General Electric dealers

should sell General Electric refrigerators, etc. This would obviously increase
the interest of dealers and manufacturers in maximizing the number of deferred

delivery sales. However, the effects of such an arrangement on the post-war
market seem to outweigh substantially any advantages which might be gained.

In the first place, it would undoubtedly tend to cut down substantially the number of enterprises which could enter the post-war market.
Manufacturers who might, by virtue of their war production experience, want
to turn to the field of consumers' durable goods would lack a market for

their production. Also the competitive position of small independent enterprises would probably be injured. Many purchasers, who would prefer the
goods of small independent manufacturers if they could wait until the goods
were delivered before making a choice, would probably feel impelled to buy
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the products of large and well-established manufacturers if a choice had to
be made at the time of entering an instalment contract for post-war delivery.

In the second place, it would seriously restrict post-war price
competition if individual manufacturers were presented in the post-war period

with prepaid orders which would absorb their productive capacity for a long
time and which could be cancelled only with substantial sacrifice to purchasers. There would be no competitive pressure toward minimizing prices and

maximizing quality. And in the absence of effective price competition, the
Federal government would undoubtedly be compelled to fix prices--a recourse

which the writer would like to avoid if possible.
For these reasons it seems desirable to sell certificates for automobiles and refrigerators and other consumers' durable goods of certain price
classes and to permit the purchaser to choose the make and specific model at

time of delivery. Since there would be a strong tendency for the purchaser

to take delivery from the dealer who originally sold the certificate, individual dealers would still have an important stake in the sale, apart from their
immediate compensation. But the preference for the original dealor and the
make which he handles would hold only where the product competed favorably

with other products with respect both to price and to quality. Business
would certainly flow to the dealer and manufacturer who offered superior values.
Each industry as a whole would of course be in somewhat the same posi-

tion as an individual manufacturer with guaranteed orders. But the effects
upon price competition are far different when it is the industry rather than
the individual enterprise that has the orders. The priority scheme would
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100

provide the means of limiting demand at any one time to the available supply.
This would prevent run-away prices and assure a considerable degree of price

competition among individual dealers and manufacturers. In fact, the intensity of price competition can be determined by the Federal Reserve Board

through its policy in timing its calls of priority numbers. It is true that
shifts to the more popular makes would be restrained by the fact that certificate holders whose priority numbers had been called would have to wait longer

to get delivery of products that were in greatest demand. But a situation in

which certificate holders were willing to wait a month or two after their
priority numbers had been called to obtain the best "buy" would exert strong
competitive pressure for price readjustments by other manufacturers. Sales of
products which failed to compete would be alowed down with respect to produc-

tion schedules, with consequent increases in costs of production, storage,
and inventory financing. Also, the manufacturer would lose prestige, which 1
always a substantial factor in competition in the consumer durable goods fiel

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The offer of a prior claim to post-war production to those who buy

post-war-delivery certificates also raises a number of difficult questions,
What kinds of goods lend themselves most readily to priority control? How

far can we afford to go in giving those who hold post-war-delivery certificates the right to acquire goods ahead of those who need such goods for the

performance of essential services? What can be done to prevent the priority
scheme from penalizing those in the military services? What can be done to

prevent speculators from acquiring priorities to large quantities of goods for
resale at excessive prices? How can uncompleted contracts be assigned priorities?

Selection of goods for post-war-delivery sale
As has already been indicated, only goods which are no longer available should be selected for post-war-delivery sale. Most consumers would

probably be unwilling to purchase post-war-delivery certificates for goods

that can be bought freely in the current market. This is partly because the
appeal of present goods is stronger than the appeal of future goods of the
same type, and partly because the offer of priorities would be an empty
gesture when there is no prospect of a large unsatisfied demand for the goods

subject to sale.

Two other criteria for selecting goods for the post-war-delivery
sale have been suggested or implied in the preceding sections. One of

these is a relatively high price. Because the ratio of selling costs to

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101

certificate values increases as the denomination of the certificate declines,

it is desirable to limit post-war-delivery sales to goods of substantial
value. The other is general consumer acceptance. The mcre important the

place a particular article has in the consumption pattern and the more gen-

eral the knowledge of its usefulness and performance, the eacier it will be

to sell post-war-delivery certificates for that article.
But there is an equally important criterion that has yet to be

discussed; i.e., the applicability of priorities to the distribution of the
commodity. Several characteristics play an importent role in determining

whether specific goods lend themselves readily to priorities control.
First, the goods subjected to priority control, however important

in the pattern of consumption, should not be necessities of life. For instance, even if food met all the other standards for post-war-delivery sale,
it would scarcely be feasible to exclude those who failed to buy certificates
from post-war food markets. This requirement is met automatically, however,
if the plan is applied only to goods whose production has been discontinued

for the duration of the war.
Second, there should be reason to enticipate an excessive post-war

demand in relation to immediate productive capacity. Unless there is such a

prospect, there is little point to the priority device. The fact that civil.
ian goods will not be available for the period of the war does not necessaril;
assure a poat-war shortage of those goods. For instance. even though airplanes cannot now be purchased for ordinary civilian use and the post-war

- 89 -

demand will undoubtedly be large, the ready convertability of our enormously

expanded facilities for producing military transport and training planes can
be expected to assure an adequate supply to meet civilian demand,

Third, the goods should be produced by a relatively few manufac-

turers. This would not only facilitate the enforcement of priorities in
the post-war period but would increase the benefits that would accrue to
each manufacturer from a large volume of prepaid orders for specific tyres
of goods.

Fourth, the goods should be such that large-scale production and &

considerable capital investment are necessary. It would be exceedingly dif-

ficult to enforce the control of priorities for goods which could be produced
readily by a small-scale assembly operation, or in an ordinary foundry,
sheet-metal shop, or electrical repair shop. Moreover, it would appear to
be undesirable from an economic and social standpoint to prevent the expan-

sion of small-scale production of such goods.
It is with these considerations in mind that the recommendation has

been made to limit the application of the plan at the outset to automobiles,
refrigerators, pianos, oil burners, and automatic stokers. These goods meet

all of the standards for post-war-dolivery sale. They are no longer generally
available to the public and post-war demand for them is likely to exceed pro-

ductive capacity for considerable periode of time. Their prices are relatively
high; even the lowest price-classes of refrigerators and pianos can properly

be covered by $100 certificates. They require large-scale, capital-intensive
production and they have been produced in the recent past by a relatively
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102

small number of manufacturers. Although these goods are well-established in

the consumption pattern, they are not necessities. There will be used cars,
used refrigerators and used pianos on the market for those who cannot BUT

along without these articles, and hand-fired furnaces can serve the purpose

of those who fail to acquire post-war-delivery certificates for automatic
equipment.

These goods should represent only the beginning. It would be un-

fortunate if the plan were not progressively extended to other goods and

services which fall short of the ideal standards. Careful examination of the
problems that would be created in each field by the application of instalment

selling for post-war-delivery would undoubtedly indicate solutions if the
full cooperation of the trades concerned can be obtained.
There are a number of types of consumers' durable goods that meet

the standards in all respects but price. Among these are washing machines
and dryers, suction cleaners, household sewing machines, radios and phono-

graphs, cameras, and household motion-picture projectors. Although many
models of these goods have been priced too low to be readily adaptable to

post-war-delivery sale, the prices of other models have approached or ex-

ceeded $100. It might be possible therefore to subject only the deluxe
models to post-war-delivery sale. These WOULD probably be the models which

would appeal most strongly to post-war-delivery purchasers. If necessary,
certificates could be sold in denominations of $70.
If such a segregation by price-classes should be found to be

practicable, a number of additional fields would be opened. The principal
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shortcomings of stoves, ranges, and water-heaters for post-war-delivery B&l

are (1) the low prices of the cheaper models, (2) the fact that they may be
necessities under some circumstances, and (3) the ease with which certain

types could be produced by handicraft production. However, all of these
handicaps would be remove? if priorities were applicable only to deluxe models
and the cheaper and less desirable models could be bought in the open market.
Studies of the post-war market have indicated that many housewives have their

eyes firmly fixed upon durable water-heaters, made of copper or nickel alloys,

and upon streamlined cooking ranges, done in colors or light metals with all
the up-to-date gadgets.
Still another. group of consumers' durable goods meets all the stand-

ards except that of widespread consumer acceptance. In this group are elec-

tric dishwashers, home air-conditioning systems, and television sets. While
electric dishwashers have been on the market for a long time, and many are

in use, the general public has never been fully convinced of their practibility. Few consumers have had an opportunity to try out a modern television set

or to appraise its worth in terms of the price asked. Home air-conditioning
systems, while no longer a novelty, have not been installed on a considerable
scale.

It would be an important contribution to post-war employment if a
large market for these goods could be developed through sales of post-war-

delivery certificates. The potentialities of television are enormous but the
development of this field has been prevented by the lack of receiving sets in

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103

the hands of the public, on one hand, and the rapid obsolescence of expensive
sending equipment on the other. These obsolescence charges can be borne only

if there is a large receiving audience. For electric dishwashers and home
air-conditioning systems, an enlargement of the market would permit price

reductions, which in turn would further enlarge the market. Thus post-wardelivery sales, by creating a large volume of prepaid orders, may be the key
to unlock the mass market for these goods.

The job of selling such goods on a large scale would be difficult

but not in the least impossible. Sales of television sets in particular
would challenge the ingenuity of the marketing profession. But if manufacturers of unquestioned integrity and technical competence offered to produce

a television set that would meet certain standards of performance, and if the
broadcasting companies announced their intention to televise programs as soon
as sending equipment could be had, a well-organized campaign should offer

real hope of success. In order to minimize the natural "show-me-first-your-

wares" reaction, it might be desirable to sell certificates that would be
valid either for a television receiving set or for a fine radio-phonograph
combination. In appraising the adaptability of such goods to post-wardelivery sales, it should be remembered that millions of wage-earners are
now receiving far larger incomes than ever before and the goods upon which
these incomes would normally be spent are no longer available. Under these

circumstances, intensive sales efforts are likely to produce substantial
results in fields that would normally be barren.

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Some services would also be susceptible to post-war-delivery sales

if modifications are made in the priority scheme. For instance, pleasure
cruises and foreign travel, which had widespread consumer acceptance before

the war, have been virtually eliminated by the war. The American people, restricted in their movements by automobile, gasoline, and tire rationing and
weary of wartime shortages, can be expected when the war ends to be hungry

for the freedom and luxury of cruise ships, and cabin space is likely to be
in great demand. It should be possible for travel agencies, among the first

business casualties of the war, to sell post-war-delivery certificates for
cruises and trans-Atlantic and trans-Pacific passages. Foreign travel by air

might also be sold for post-war-delivery. If railroad travel should be restricted, all-expense trans-continental tours might well be covered also.
Priorities would create the major problem in applying the plan to

transportation services. It would obviously be impractical to prevent those
who failed to purchase post-war-delivery certificates from undertaking neces-

sary business travel. This difficulty might be avoided, however, by reserv-

ing sectione of ships or specific ships on certain runs for certificate
holders, or by reserving only the most desirable accommodations in luxury

trains and in transport planes.
Army Jeeps could also be sold very readily for post-war delivery.
Soldiers who have driven them have frequently expressed the wish to own one

after the war, and many civilians have had their fancy caught by their small
size, efficiency, and rough and tumble quality. When the war ends there will

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104

undoubtedly be many thousands of jeeps in good condition for which the Army

will have no further use and it can be expected that these will be offered

for sale. The liquidation of military vehicles at that time, however, would
have had economic effects since expenditures for them would not create additional incomes. This unfortunate consequence would be avoided to the extent

that they could be sold now and their purchase price collected out of current
incomes.

Residential houses are by far the most important type of consumers

durable goods and the potentialities of their sale for post-war delivery,
both from the standpoint of current deflationary effects and from the stand-

point of peace-time reconstruction are enormous. The difficulties of applying the plan, however, are also great.

The problems that would arise out of the application of priorities
would constitute the primary handicap. Production of houses is localized,

and it would be highly unlikely that certificate sales would be distributed
in accordance with construction facilities in each community. Consequently,

if priority controls were exercised on a nation-wide basis, there would be a
shortage of supply in relation to certificate demand in some places and an
excess of supply, with resulting unemployment in the building trades, in
other communities. Moreover, even if priority numbers were called in

relation to the demand-supply situation in each locality--a policy which

would be exceedingly difficult to administer--control would be virtually
impossible because of the large number of small builders and the difficulty
of establishing standard prices for non-standard goods.

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If prefabricated houses should be offered by a few manufacturers,
these problems would be avoided. Post-war-delivery sales of such houses would

fit nicely into the plan proposed here. For homes that are to be built
locally, however, it would appear to be necessary to eliminate the priority

feature. While priorities to post-war production appear to be essential at
the outset to stimulate widespread public participation in the plan, it may
be possible, once consumers have been educated to such purchases, to eliminate

the offer of priorities in order to cover goods which do not lend themselves

readily to priority control.
Goods needed for essential services

Instalment selling for post-war delivery should be limited, of
course, to goods that are designed primarily for household or personal use.
The field of producers' goods should be avoided. This means that passenger
cars should be included, while trucks and busses should be excluded from the

plan; that refrigerators of the sizes commonly used by households should be
included, and the sizes commonly used in hotels, restuarants and butcher
shops should be excluded; that oil burners and automatic stokers designed for
private homes should be included and those designed for theatres, apartment
houses, business buildings and factories should be excluded. The need to
distinguish consumer goods from goods of the same class that are used predom-

inantly for business purposes has arisen in connection with the regulation of
consumer credit and the precedents established by the Federal Reserve Board

for this purpose will be helpful in defining the field of post-war-delivery
sales.

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105

Even after the exclusion of goods specifically designed for business

use, however, there is still the problem of an overlap. For instance, passenger automobiles of the types generally used for personal and family transportation are also used by police and fire departments, by physicians, by public
utility companies for inspection, repair and collection services, by manurac-

turers and wholesalers I or the transportation Us team, etc. Hotel rooms
may be equipped with radios that are commonly used for household purposes,

and refrigerators of household sizes may be purchased in quantity for use in
apartment houses.

No.matter how essential the services which they render, there would

appear to be no reason to exclude any group from the operation of the prior-

ity system, provided that purchases of certificates were feasible for that
group and the objectives of the plan would be served by compelling them to

acquire priorities in this way. For instance, physicians could purchase
automobiles for post-war-delivery just as readily as those who wanted cars
for purely personal use; and the economic effects of advance purchases by

physicians could be expected to be generally similar to those of purchases
by ultimate consumers. The same thing would hold true for other professional
people, for farmers and for small business men. Most of them use passenger
automobiles both for business and personal purposes. To exclude them not
only would be unfair to those who were compelled to pay in advance in order

to assure prompt delivery, but also would minimize the deflationary effects
of the plan, since professional people, farmers and small business men, as

well as ultimate consumers, are likely to threat their instalment payments as
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curront expendituros.

When WO comc to large business ontorprisos, the situation is
somowhat different. These enterprisos, with their advanced accounting systems,
would undoubtodly treat post-war-dolivory payments as capital investments.
Consoquently, unloss shortagos of cash compel restriction of other expenditures

in order to provido funds for instalment payments, cortificate purchases by

this group would not be doflationary. Novortheless, because of the difficulty
of distinguishing botwoon productivo and consumptivo usos of goods in the

professional, agricultural and small business fields, it sooms desirable to
require participation in tho plan by all business ontorprisos which may wish

to obtain prompt dolivory of goods subject to post-war-dolivory sale.
Thoro is ovon groator roason for subjecting purchases by public
ngoncios to tho requirements of the plan. The accounts of states, counties,
and municipalitics are genorally kopt on a cash, rather than on an accrual,

basis. Thoro is usually an offort to koop current oxpondituros within tax
revenues. Largo capital outlays aro genorally financod by specific bond
issues, but purchases of automobilos and other consumors' durable goods are

likely to be troatod as curront expondituros. For this reason, instalmont
purchasos for post-war dolivory by government agencios would undoubtedly

have a deflationary effect.
Somo exceptions, however, must bo mado. Now businosses will bo

nooded to stimulate privato employment in the post-war period, and thoir
developmont should not be rotarded by thoir inability to buy necessary oquip-

mont. For some typos of ontorprisos. automobile prioritios might provo to bo
- 98 - - -

106

a serious handicap. Also the construction of apartment houses, the need for
which cannot be accurately foreseen, should not be prevented by the inability

of builders to equip them with refrigerators.
The right to exempt purchasers from the priorities system should
rest with the Federal Reserve Board. So long as the Office of Price Admin.
istration and its local War Price and Rationing Boards remain in existence,
the Federal Reserve Board might well establish general rules for exceptions
and delegate administration to OPA and the Boards. Thereafter, the Federal
Reserve Panks might well become the administrative agency.

Two tests for exemption suggest themselves: (1) the importance to
the community of the use to which the goods would be put; and (2) the

inability of the applicant to foresee the need for the goods and to provide
for them by buying post-war-delivery certificates. Naturally those permitted
to acquire goods without certificates would not be entitled to a discount.
Protecting the military forces
It would be unfortunate indeed if post-war-delivery sales operated
to give civilians an advantage over the military forces in post-war markets
for consumers goods. But there is no reason why this should be so.

Soldiers, sailors, and marines could, of course, enter instalment
purchase contracts like anyone else. The principal handicap to their partici-

pation lies in the fact that their incomes are generally lover than those of
comparable civilians. This disadvantage, however, can be overcome by offering

the military forces long-term contracts, by making sales through personnel
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officers, chaplains, the Red Cross, and the U.S.O., and by making collections
through payroll deductions.

By reducing monthly payments for the uniformed services to half the

payments required of civilians, goods subject to post-war-delivery sale could
be brought within ready reach of those in the lowest salary grades. The avoid.
ance of commissions for sales and collections would eliminate down payments

and give certificates a cash value equal at all times to the full amount paid
in. This would permit military personnel to buy certificates at lower prices
than civilians. Treasury payments should be reduced to 1/3 of the amount

payable on civilian certificates to compensate for the smaller amounts available to the Treasury. But these payments would be added to the amount paid in

by the purchaser in determining the cash value of military certificates upon
maturity. After adding the Treasury payment, the merchandise value of these

certificates would be increased by ten per cent. The military forces would

therefore get a better deal than civilians.

So far as the battle against inflation is concerned, it is just as
useful to divert purchasing power of military personnel from the current
market for goods as to do the same thing for civilians. The matter has become

more important since the recent increase in the base-pay of the various fight-

ing services. This increase has not only added substentially to their purchasing power, but has provided a surplus beyond the traditional standard of
expenditures of men in the ranks, from which savings can be drawn without

hardship. Since the great majority of enlisted men have no dependents, the

additional funds are likely to be reflected to a considerable extent in larger
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107

expenditures of doubtful social value. It would probably be a boon to those
interested in morale and discipline, as well as to the men themselves, to
have a plan which would encourage the withholding of part of their pay for
goods that they can enjoy in the post-war period.

Because of the difficulty of reaching quickly military men in
foreign service, such men should be entitled to the lowest priority number

if they enter instalment contracts any time within six months of the initiation of the plan. It would seem proper also to give all men in the fighting
services an edge over civilians by distinguishing their priority number as

1A, 2A, etc., as compared with B, 2B, etc., for civilians. This would also
permit a more refined adjustment between demand and supply by the administrative agency.

Preventing speculation

It seems desirable to discourage the purchase of post-war-delivery

certificates for the purpose of resale of the goods when production is resumed.

Without such restraint there might readily be a large initial rush of instalment purchases by business enterprises or individual investors in anticipation

of the resale of goods to non-certificate holders at a substantial profit in
the post-war period. This would risk giving a limited number of individuals
a monopolistic position in the post-war free market for goods subject to

priorities. It would also minimize the economic objectives of the plan, since
such large-scale purchases, even though paid by instalments, would undoubted-

ly be treated as investments to be financed out of capital accumulations

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rather than as an expenditure to be paid out of current income.
The best means of preventing purchases for resale would appear to

be to limit the number of post-war-delivery certificates which could be issued
to any one person or corporation. Each person or corporation should be able

to buy only one priority certificate for each type of goods covered by the

plan or one priority certificate for each such article owned by him at the
time of entering the purchase contract. Since the assignment of priority
numbers would be controlled by the Federal Reserve Banks after the instalment payment contract had been completed, the riske of discovery and of loss

of priority would probably prevent attempts to acquire priorities to large
numbers of care.

The limitation of purchases to the number of articles now owned
seems to be the most effective way of dealing with business enterprises which

might want to buy certificates to replace their passenger car fleets or with
landlords who might want to buy certificates to replace refrigerators, stoves,
and other household appliances in dwellings owned by them. While the policy
of permitting those who own a number of pleasure cars to acquire an equal

number of priorities might be questioned. the number of such buyers is not

likely to be large and the administrative difficulties inherent in any effort
to distinguish between business and personal uses would seem to outweigh the

desirability of a further limitation on purchases by those who own several
cars for purely personal use.

It has been previously suggested that priority certificates should

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108

be non-assignable. This seems important not only to prevent borrowing against

the collateral value of the certificate, which would minimize the economic

effects of the purchase but also to prevent the acquisition of certificates
by speculators. Once instalment payments had been completed and priority

numbers had been assigned, it would be difficult to prevent speculators from

buying up certificates if they were then freely assignable.
On the other hand, there would appear to be no reason to prevent

the resale of goods subject to purchase, even if it were feasible to do so.
People's circumstances change. In the post-war period, some certificate
holders will no longer want the goods to which they have claims while other
persons who failed to purchase certificates will want the goods that others
command. It would be both foolhardy and unnecessary to try to keep buyers and

sellers apart at this point. When goods are ready for delivery, the person
who has acquired a claim to them through foresight and thrift should be able

to sell at a profit to any person who then wants the goods more than the orig-

inal buyer. It would appear therefore to be only a matter of practical con-

venience to permit free negotiability of certificates after their priority
numbers have been called.

By deferring the negotiability of certificates until their validation for purchase, it seems likely that the development of large speculative
holdings can be avoided and unconscionable resale prices can be prevented.

Instead of a concentration of free-market goods in the hands of a relatively
few enterprises, there are likely to be large numbers of persons ready to

- 103 -

give up their claims for a modoet profit. Moreover, the full oconomic advantagos of the plan would by that time have boon assured.
Troatmont of incomplete payments

The plan of instalmont solling for post-war dolivory contomplatos
tho assignment of priority numbers after the last paymont has been made.
Whon the war ends, now post-war-dolivory salos would be stoppod; but paymonts

on oxisting contracts would bo continuod. By the timo production has boon

rosumed and stocks of goods have ocomo available for rotail distribution,
millione of paid-up certificator boaring appropriate priority numbors would
prosumably havo boon issuod. As ourly priority numbers are called and
cortificatos are exchanged for goods, it could bc expected that payments
would bo completed on other contracts and additional paid-up cortificatos
would bo issued. Consequently, instalmont contracts subject to payment whon
tho war ends would gonorally have boon completed boforo goods have bocomo

available for delivory to thoso purchasors.
But those expoctations would not bo realizod undor all circumstancos
Since paymont schedulos on somo civilian certificates would extend for as

long as 24 months, it is fully concoivable that civilian production might
bo rosumod boforo the final payment was duo on any contract for the purchase

of such cortificatos. A similar situation could ariso if cortificato salos
woro small in relation to production capacity. In the lattor case paid-up
certificates might bo oxhausted boforo payments had boon completed on all
contracts.

- 104 -

109

More important is the situation of military purchasors, where payments would be spread over a longer period than those of civilians. Even
though an ample number of civilian certificates should be availabla to obsorb
production, members of the military forces whose payments had not yet been

completed would be entitled to the name priority as civilian certificateholders who entered instalment purchase contracts during the same month.

For these reasons, it is necessary to provide for the issuance of
certificates and the assignment of priority numbers to purchasers whose payments have not been comple ed.

It is proposed that whenever the number of paid-up certificates is
expected to beinadequate to absorb production, the Federal Reserve Board

should direct the Federal Reserve Banks to instruct sales finance agencies

to forward accounts subject to payment for the issuance of certificates and
priority numbers and to notify purchasers to discontinue payments after a

certain date. Accounts would be called in order of the month in which instalment contracts were entered into. The purchaser would receive a partial-payment certificate having a cash value equal to the amount of his payments,
less accrued delinquency charges, and a merchandise value ten percent groater

than its casl value. Priority numbers would be assigned in the same way as

paid-up certificates. The partial-payment certificate would therefore provide the same priority to goods as paid-up certificato, but its cash and
merchandise value would be less than those of paid-up certificates. Differonces between the merchandise value of partial-payment cortificates and the

105 -

purchase price of goods for which they are exchanged would be settled by cash
payments or by credit arrangements.

It is proposed also that military accounts be closed upon the discharge of the purchaser from the military forces. Payment records would be
forwarded to the Federal Reserve Banks for the issuance of partial-payment

certificates. Those who remain in the military forces and continue their payments should be notified whenever the Federal Reserve Board anticipates call-

ing priority numbers to which they would be entitled by virtue of the date of
entering their contracts. They should be given the choice of completing their
payments or of obtaining partial-payment certificates.

- 106 -

110

MECHANICS OF THE PLAN IN OPERATION

All the essential elemente in the plan of instalment selling for
post-war delivery have now been described. Only minor operating details have

yet to be added. Consequently, it seems desirable at "this point to complete
the picture of the mechanics of the plan by showing how it would work in
practice.

Let us undertake first to describe chronologically in generalized
terms the various steps involved in purchasing goods for post-war delivery

and then to follow a typical transaction through from application to delivery,
for each of the various participants.
Instalment contracts

The first step in the plan is the signing of an instalment contract
for a post-war-delivery certificate. The initiative may come either from the
purchaser or from a dealer. Since the plan should be put into effect with as
much publicity as possible, many prospective purchasers can be expected to
apply to dealers from whom they have previously made purchases. After the

first rush of such applicants is over, however, contracts are more likely to

arise as the result of solicitation by dealers and their salesmen.
Instalment contracts should be made in duplicate on forms supplied

to dealers by authorized sales finance agencies. The forms should conform to
a standard prescribed by the Federal Reserve Board. The dealer should have

- 107 -

the right to choose the sales finance agency with which he prefers to deal.
Thus, an automobile dealer selling General Motors cars might choose to do
business with the General Motors Acceptance Corporation, another sales fi-

nance company, or with a local bank, provided that each of these institu-

tions had qualified with the district Federal Reserve Bank.
The contract form should give the name of the agency which issued

it. It should provide space for recording the date, the name and address
of the dealer, the name and business and home address of the purchaser, the

name and address of a beneficiary d of a contingent beneficiary, to whom

the certificate would revert in case of death. It should indicate the kind
and denomination of certificate subject to purchase and the date when the
purchaser wished his payments to come due, i.e., the 10th, 20th, or 30th of
each month. Each purchaser should be required to state that he wishes to
buy the goods for use and not for resale, and he should be asked whether he

has entered a previous contract for the same kind of certificate.
A separate contract should be made for each type of goods. But if
the purchaser wishes to buy several automobiles or refrigerators or pianos,

these should be covered by a single contract. In such cases, the applicant
should be required to state the number of such goods which he presently owns

and the use to which they are put.
At the time of executing the contract, the purchaser would make a
down-payment, varying with the denomination of the certificate, and get a
receipt from the dealer. The dealer would keep the down-payment as his

initial sales commission, acknowledge its receipt on the contract form, and

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1-1753-BU-COB-WP

111

send the original copy of the contract to the sales finance agency.
Contracts would be forwarded by the sales finance agencies to the
Federal Reserve Banks, where they would serve four purposes. First, they

would provide statistical information concerning the number of verious trysc
of post-war-delivery contracts that had been executed. Periodic publication

of totals by types of goods and by areas would be likely to stimulate further
purchases, since it would remind those who had not entered such contracts

of the growing number of prior claims to post-war goods. Second, they would

reveal purchases from sever deelers, thereby preventing multiple buying
for speculative purposes. Third, they would provide protection against defalcations by sales finance agencies. Knowledge of the number and value of
accounts subject to collection would permit the Federal Reserve Dank to

assure that the amount of the bond or of encrow securities is sufficient to
cover the liability of each sales finance agency. Transmission of contracts
could be enforced by limiting the initial quantity of payment books furnished
to sales finence agencies and by sending additional books only as contracts

are received. Fourth, they could be used to test collections. If receipts
from any sales finance agency should fall substantially below anticipations
based on its contrants, the issuing agency may either be withholding funds or

failing to follow up delinquencies. In either case, action by the Federal
Reserve Bank would be called for.

Collections and transfers of funds
The sales finance agency that receives the contract from the dealer

- 109 -

would issue a payment book to the purchaser and open a ledger account for
him. Payment books should be printed for each kind and denomination of

certificate. They should indicate the dates when payments are due and contain coupons showing the amount of each payment. They should give the nutes
of local collection agencies to which cash payment can be made and the name

of the sales finance agency to which payments can be made only through the
mail. The sales finance agency would send the payment book to the dealer for

delivery to the purchaser.
If payments are made in cash, the purchaser would take his payment

book and cash or a check for the payment to one of the local collection
agencies named in the payment book. The cashier would accept the payment,

stamp the date on the coupon and stub, initial the stub, and tear out the
coupon. The local collection agency would record the sorial numbers and for-

ward the coupons to the sales finance agency with its check for the total
value of coupons received, less collection fees. The coupons would then be
used by the issuing agency to post to customers' accounts. If payments are
made by mail or money order, the coupon should be mailed to the sales finance
agency with a check or money order for the payment. Acknowledgment of such
payments could be made on a penny postcard.

Sales finance agencies would maintain a ledger account for each
purchaser. They would send delinquent notices to purchasers whose payments

were two weeks past due. A second notice calling attention to the provision
of the contract for delinquency charges and for the deferment of priorities

- 110 -

112

should be sent two weeks later. If payment has not been received by the end

of a further two-weeks period, the account should be referred to the dealer

for further sales effort. It might be desirable to provide a means of adjusting contracts to lower certificate values wherever purchasers find themselves
unable to keep up their payments.

Local collection agencies would transfer funds and coupons to
issuing agencies weekly. Presumably each local collection agency would deal

with a number of sales finance agencies. Consequently, in preparing their
weekly reports, coupons should be sorted and serial numbers listed by the
name of the sales finance agency stamped or printed on the back.

Each sales finance agency should report monthly to its Federal Reserve Bank or branch, showing the total amount payable that month on various

types of certificates, the amount of payments collected, and the amount of
commissions withheld by it for its own account and for the account of local
collection agencies and dealers. When instalment contracts have been completed, the sales finance agency would also report the amount of delinquency
charges collected and the amount withheld for commissions. A check for the
amount collected less commissions withheld should accompany the report.

The Federal Reserve Banks would credit receipte from sales finance

agencies, less their own commissions, to a special post-war-delivery account
in the name of the United States Treasury. The Banks would send notices of

credits to that account to the appropriate officials of the Treasury Department. They should report monthly to the Federal Reserve Board, giving

- 111 -

summaries of the monthly reports of sales finance agencies and showing the

amount credited to the account of the Treasury during the month.
When payments have been completed on any instalment contract, the

sales finance agency would calculate the number of delinquent payment days.

If total delinquency does not exceed the grace period allowed, the card
should be marked with the priority number appropriate to the date of entry
into the instalment purchase contract and sent to the Federal Reserve Bank or

branch. If delinquency exceeds he grace period, the sales finance agency
would compute the delinquency charges and notify the purchaser that they must

be paid before e. certificate can be issued. When the delinquency charges
have been paid, the sales finance agency would send the card with a deferred

priority assignment to the Federal Reserve Bank. The dealer's secondary
commissions would be paid periodically or upon completion of each instalment
contract.

Upon receiving the ledger card the Federal Reserve Bank should

check the calculations of delinquency charges and the priority number. If
the delinquency charges were inaccurately calculated by more than 10 cents,
the sales finance agency should be required to make appropriate adjustments

with the purchaser. If the delinquency charges and priority assignments are
accurate, the Federal Reserve Bank would issue a post-war-delivery certificate
showing the kind of goods subject to purchase, the denomination of the
certificate, and the name and address of the purchaser and his contingent

beneficiaries. The certificate should indicate its cash value before and
after its priority number had been celled. A manufacturer's credit coupon

- 112 -

113

should be attached to the certificate.
The certificate would then be sent to the deeler for delivery to the
purchaser. The dealer should require the purchaser to sign the certificate
so that his counter-signature can be compared before goods are delivered when

the certificate is presented in exchange for goods.
Delivery of goods

When production is resumed in the post-war period the Federal Re-

serve Board would authorize t Chipment to dealers of initial inventories of
goods subject to priorities in accordance with any scheme proposed by manu-

facturers which appears equitable. The method of distributing inventories
should, however, take into consideration the geographical distribution of
post-war-delivery certificates and the time required for transportation from

the point of production. After the initial inventory has been distributed,
further shipments from fectories to dealers should be permitted only to replace goods delivered on post-wer-delivery certificates.
As soon as an initial inventory, somewhat larger than the number of

holders of priority number 1, has reached dealers in all parts of the country,
the Federal Reserve Board would declare certificates bearing priority number 1

to be valid for obtaining delivery. If the number of such priority certificates should be exceptionally large, the class could be divided by calling

only number 1A certificates, 1,e., those sold to men in the military forces.
The next priority number should not be called until additional factory production had equaled the total number of certificates bearing that priority

- 113 -

number. Thereafter, the calling of successive priority numbers for various
types of goods should be determined by the volume of production and by the

number of certificates bearing those priority numbers in each field. Allowance should be made for those who will postpone taking delivery of goods

even though their priority numbers have been called. Inventory and price
movements should be watched carefully and stabilized by speeding up or slow-

ing down the call of priority numbers in relation to production.
The post-war-delivery purchase will have been completed when the

certificate holder has selected, and a dealer has delivered, goods of a spec-

ifio make and model in the price-class covered by the certificate. The purchaser would countersign the certificate in the dealer's presence and hand it
to him in payment in the same way as he would tender a traveller's check in
exchange for a purchase. The certificate would be accepted at its face value

by the dealer in full or in partial payment of the purchase price of the goods
and the purchaser would pay any balance due in cash or through a sales finance

company. If the face value of the certificate should exceed the retail price
of the goods, the customer would be entitled to change, calculated on the
basis of the cash value of the amount by which the merchandise value of the

certificate exceeds the purchase urice of the goods. The dealer would clip
the manufacturer's credit coupon and forward it to the wholesaler, jobber,
or manufacturer from whom he purchased goods of the type sold. This coupon

would provide dealers not only with the means of obtaining additional goods

the replace those delivered in exchange for certificate is but also with a
credit amounting to 3 percent of the retail purchase price against

114

his supplier's billing for additional goods.
The remeinder of the certificate would serve as a Treasury note

meturing with the calling of its priority number. The dealer would morely
deposit the certificate, properly countersigned by the purcheser and endorsed

by the dealer, to the credit of his bank account. The Federal Reserve Banks
would honor properly endorsed matured certificates at their cash value from
funds supplied by the Treasury to meet each call of priority numbers.

A typical transaction
The essential simplicity of the plan from the standpoint of indivi

dual participants can readily be illustrated by following through parts whithe buyer, seller, sales finance agency, local collection agency and Federal
Reserve Bank would play in a typical transaction.
Let us take, for example, the purchase of a $1,000 automobile cert

icate from a Dodge dealer in York, Pennsylvenia, during the first month of
operation of the plan. The dealer, who has customarily sold his instalment
sales contracts to the Commercial Credit Company, wishes to continue this re
uses the application forms of that company, which has
lationship. So

previously qualified its necrest brench office at Harrisburg with the Federa
Reserve Bank of Philadelphia. The local collection e.gencies in York are the
post office, and the local offices of the Bell Telephone Company of Pennsylvania, the Western Union and Postal Telegraph Companies, the Penn Central
Light and Power Company, and the Peoples Gas Company.

The purchaser's part in this transaction is confined to a few very

- 115 -

number. Thereafter, the calling of successive priority numbers for various
types of goods should be determined by the volume of production and by the

number of certificates bearing those priority numbers in each field. Allowance should be made for those who will postpone taking delivery of goods

even though their priority numbers have been called. Inventory and price
movements should be watched carefully and stabilized by speeding up or alow-

ing down the call of priority numbers in relation to production.
The post-war-delivery purchase will have been completed when the

certificate holder has selected, and a dealer has delivered, goods of a spec-

ific make and model in the price-class covered by the certificate. The purchaser would countersign the certificate in the dealer's presence and hand it
to him in payment in the same way as he would tender a traveller's check in
exchange for a purchase. The certificate would be accepted at its face value

by the dealer in full or in partial payment of the purchase price of the goods
and the purchaser would pay any balance due in cash or through a sales finance

certificate exceeds the purchase price of the goods. The dealer would clip
the manufacturer's credit coupon and forward it to the wholesaler, jobber,
or manufacturer from whom he purchased goods of the type sold. This coupon

would provide dealers not only with the means of obtaining additional goods

to replace those delivered in exchange for certificat) but also with a
credit amounting to 3 percent of the retail purchase price against

- 114 -

114

his supplier's billing for additional goods.
The remeinder of the certificate would serve as a Treasury note

meturing with the calling of its priority number. The deeler would mcrely
deposit the certificate, properly countersigned by the purcheser and endorsed

by the dealer, to the credit of his benk account. The Federal Reserve Banks
would honor properly endorsed matured certificates at their cash value from

funds supplied by the Treasury to meet each call of priority numbers.

A typical transaction
The essential simplicity of the plan from the standpoint of indivi
dual participants can readily be illustrated by following through parts whithe buyer, seller, sales finance agency, local collection agency and Federal
Reserve Bank would play in a typical transaction.
Let us take, for example, the purchase of a $1,000 automobile cert

icate from a Dodge dealer in York, Pennsylvenie, during the first month of
operation of the plan. The dealer, who has customarily sold his instalment
sales contracts to the Commercial Credit Company, wishes to continue this re
uses the application forms of that company, which has
lationship. So

previously qualified its necrest brench office at Harrisburg with the Federa
Reserve Bank of Philadelphia. The local collection egencies in York are the
post office, and the local offices of the Bell Telephone Company of Pennsylvania, the Western Union and Postal Telegraph Companies, the Penn Central
Light and Power Company, and the Peoples Gas Company.

The purchaser's part in this transaction is confined to a few very

- 115 -

simple steps:

1. He pays $10 down, signs the instalment purchase contract for a
$1,000 automobile certificate calling for 22 payments of $45 each; names his
wife and son as beneficieries; and elects to make payments on the 10th of
each month.

2. On the 10th of the following month he makes his first payment
to the Bell Telephone office, bringing with him the payment book which hes

in the meantime been delivered , him by the dealer.
3. He makes 21 additional payments--ten on the due date; three

five days late; two fifteen days late; end six a month lete, by virtue of
skipping a payment which fell due while he was on vecation

4. Soon after the last instelment has been paid, he gets a notice
from the Commercial Credit Corporation that there was a total delinquency

in his account of 225 payment days for which there is a charge of $4.00 and

a priority deferment of 1. He pays the delinquency charge to the Bell
Telephone office on his next pay day.

5. Two weeks later the Dodge dealer delivers to him a peid-up
certificate for en automobile, having a merchendise value of $1,100, a cash
value at maturity of $1,000, and an interim withdrawal value of $955. The

certificate bears priority number 2. The dealer has him sign the certificate
and warns him not to countersign it until he is ready to take delivery of
the car.

6. When the Federal Reserve Board matures the certificate by

- 116 -

115

validating priority number 2 for purchase, the purchaser examines a number of
makes and models which the Board lists as being in the price-classes covered

by a $1,000 certificate. While the purchaser had in mind one of the more
expensive Dodges when he purchased the certificate, he now prefers a Chevrolet

which sells for $850 delivered. He countersigns his certificate in the presence of the dealer and receives $227.27 in change (the cash value of the
$250 difference between the merchandise value of the certificate and the purchase price of the automobile). He drives the car away and the transaction is completed.

The Dodge dealor's part in this transaction is primarily one of explaining the plan to the prospective purchaser and inducing him to enter a
post-war-delivery instalment contract. He collects and keeps the $10 downpayment as a sales commission. If the purchaser had defaulted, the dealer

would have been expected to attempt to resell him on the desirability of
completing his contract. When the instalment contract has been completed or

at specified intervals, the dealer would receive an additional sales commission totaling $19.80.
The dealer also performs a number of relatively minor ministerial

acts. He assists the purchaser in filling in his contract and forwards a
copy to Commercial Credit Company. When the payment book is received, he

delivers it to the purchaser and explains its use. And when the paid-up

certificate is received, he delivers it to the purchaser and explains the
purchaser's rights and privileges under it.

- 117 -

The part of the Bell Telephone Company office in this transaction is

purely mechanical. It has no interest in the identity or performance of the
purchaser. Its function is solely to accept the monthly payments of $45 with
their identifying coupons and to transmit money and coupons to the Commercial

Credit Company. It receives 7 cents a payment, or a total of $1.54, as compensation for this service.
The Commercial Credit Company must do a number of things before it

is ready to do business. First, it must qualify its offices with the appropriate Federal Reserve Banks by showing that they were engaged in financing
instalment sales before September 1, 1941, and by meeting the requirements

with respect to a bond or escrow securities. Second, it must prepare contract
forms based on the Federal Reserve Board's model for distribution to dealers

whose collection business it wishes to solicit. Third, it must make arrangements for cash payments with local collection agencies in the communities in

which it chooses to solicit dealers' business.
When the contract is received by the Commercial Credit Company's

Harrisburg office, it issues a payment book and sends it to the Dodge dealer

in York for delivery to the purchaser, opens a ledger account for the purchaser, and sends the application to the Federal Reserve Bank of Philadelphia.
When coupons and payments are received from the telephone company office, it

enters the payments in the purchaser's ledger account, and transmits the face
value of coupons, less 3%, to the Federal Reserve Bank of Philadelphia. On
each coupon of $45, the Commercial Credit Company would transmit $43.65 or

$1.35 less than the value of the coupon. Of the latter sum 90 cents would be

- 118 -

116

credited to the dealer, 7 cents would already have been withheld by the telephone office, and the remaining 38 cents would be retained by the Commercial
Credit Company as compensation for its services.
The Commercial Credit Company sends notices of delinquency, and when

the final instalment has been paid, it computes the number of delinquent payment days. Since the delinquency exceeds the grace period, it computes the

delinquency charge and the priority penalty and notifies the purchaser of
both. When the $4.00 delinquency charge has been collected. the ledger card

with a priority number assigned is sent to the Federal Reserve Bank of Philadelphia, together with three-fourths of the delinquency charge. The Commercial
Credit Company would retain the remaining fourth of the delinquency charge,

less the 7 cent collection fee of the telephone company office. The responsibility of the Commercial Credit Company toward the transaction would be ful-

filled when it has transmitted the final commission to the dealer. Its total
compensation for handling the account would be $9.29.

The dealer who delivers the Chevrolet automobile in the post-war

period also plays a part in the transaction. He displays the car and delivers
it in exchange for the countersigned certificate and a cash rebate. He clips
the manufacturer's credit coupon and sends it to the factory branch office of
the Chevrolet Motor Company. The coupon entitles him to delivery of an additional

car and to a credit of a specified percentage of the retail pur-

chase price of the car delivered. He deposits the remainder of the certificate
in his bank account, where it is credited at its cash value.

- 119 -

The part which the Federal Reserve Bank of Philadelphia plays in

this transaction also begins before the post-war-delivery contract is signed.
It selects sales finance agencies and local collection agencies in accordance
with standards established by the Federal Reserve Board. It prints payment

books for distribution to sales finance agencies. The Bank maintains ledger
accounts for sales finance agencies charging each agency with payment books

issued and anticipated collections and crediting it with collections transmitted.

When the contract forwarded by the Dodge dealer in York reaches the

Federal Reserve Bank of Philadolphia, it should be filed alphabetically to
determine whether the same person has applied for additional cars. When the
completed ledger card is received from the Commercial Credit Company, the card

should be audited and the alphabetical file again checked for multiple appli-

cations. If the record is satisfactory, it issues a paid-up certificate for
a $1,000 automobile which certificate is sent to the Dodge dealer for delivery
to the purchaser.

when the certificate is finally exchanged for a Chevrolet automobile,
and the dealer has deposited it with his bank, the Federal Reserve Bank of

Philadelphia accepts the certificate at its cash value, credits that sum to the
account of the bank which forwarded the certificate and charges the account
of the United States Treasury with the withdrewal of the same amount.

120-

117

1/23/43

Saturday, 11 a.m.

As of possible interest to Secretary Morgenthau
The Embassy has just received word that Mr. Leon

Henderson will arrive in Cuba at 5 p.m. this afternoon for a brief
stay of five or six days, and that he will probably proceed to Varadero
for a day or two next Wednesday.

Rolly

118

Original to Mr. Bell 1/23/43

THE COMBINED CHIEFS OF STAFF
WASHINGTON

January 23, 1943

MEMORANDUM FOR TREASURY DEPARTMENT:

Enclosure:

Paraphrase copy of message re-

ceived Jan. 22, 1943 from Algiers.

The above mentioned enclosure is forwarded for the

information of the Treasury Department. Copies of it
have been placed in the hands of the State Department.

PERRY R. TAILOR,

Lt. Comdr., U.S.N.R.

Thosing
U. S. SECRET
BRITISH MOST SECRET

1/22/43
J

THE FOLLOWING IS A PARAPHRASE OF A MESSAGE RECEIVED TODAY
FROM ALGIERS:

No. 6469 (NAF 114) (Paraphrase)
January 20, 1943.
From SOS ETOUSA and AGWAR action Fiscal Division

State and Treasury, information Combined Chiefs of staff and
USFOR British Chiefs of Staff.
1.

Paraphrased in M 114 January 161307Z. Cite FHCIV

Murphy from Bernstein. Who are now in Navy, Army and Coast

Guard could be profitably used in handling monetary fiscal and
exchange and property control matters arising in West and North

Africa? Services of all expert treasury personnel

(gar-

bled) in your confidential S 1282 January 14.
2.

The request in our 3222 December 2707172 that seven

treasury representatives be sent immediately was a minimum re-

quest at that time and furthermore did not include personnel
now needed for West Africa.
3.

It is hoped that the men referred to in our 3222

and as many of the men referred to in your S 1182 as can be

transferred immediately will be sent to Algiers without further
delay. The need of at least 10- treasury experts having the
experience and ability which both the personnel referred to by
us and the personnel referred to by you possess is urgent and the
selection of those men from these two groups who can arrive at

the earliest time in Algiers is left to your discretion.
4.

The handling of the above mentioned matters in this

area has been assigned to the Civil Affairs Department of the
NAEB and it is assumed in view of this fact, that any military

Freedom, Algiers to USFOR, AGWAR).

Distribution:
Wer Department

G copies

Mr. F.R.H. Millar

1 copy

State Department

Maj. Berkeley
Lt. Comdr. Taylor
BEW

5 copies
2 2 copies copies

1 copy

Treasury Department 1 copy

-2-

122
NOT TO BE RE-TRANSMITTED
U.S. SECRET
BRITISH MOST SECRET

COPY NO.

OPTEL 26.

Information received up to 7 A.M. 23rd January.
1.

NAVAL.

One of H.M. Subs in the Gulf of Genoa has sunk a
medium size ship and shelled à hanger at Finale Marina.
2.

MILITARY

Libya. Our advance continues. The troops moving

by the Coast Road reached Castel Verde 35 miles West of
Homs by 0530/22. Those further South passed through the
Defiles West of Tarhuna and by 8 A.M. 22nd were 16 miles
South of Castel Benito.

Tuniaia. In the Northern Sector the area North
of Bou Arada has been cleared of the enemy. A further
enemy advance has been made down the Road Pont Du Fahs-Robaa
(15 miles South of Bou Arada). In the Central Sector the

enemy have gained more ground and threaten Ousselta (12

miles South of Robaa). A small British armoured force has
gone to help the French in the Robaa area. Two small
parties of enemy parachutists dropped in the area Northwest
of Tebessa have been captured.

Russia. The Russians have captured Saask.
3.

AIR OPERATIONS

Western Front - 21/22

Essen. Owing to cloud and thick ground haze our
aircraft bombed the estimated position of the town on
which 180 tons of bombs were dropped. 22nd - 53 medium
and light bombers escorted and covered by 25 Squadrons

of Fighters attacked oil installations near Ghent and
airfields in Northern France. Enemy casualties 7, 2, Nil.

Ours 4 Bombers, 6 Fighters lost. One bomber crashed.
An R.A.A.F. Hampden torpedoed a 2,000 ton ship off Norway.
22nd/23rd - Seventeen enemy aircraft crossed our coasts,
one was destroyed. Some bombs were dropped in Durham and
Yorkshire, damage negligible, also in Dorset and Devon

5 persons killed.
French North Africa. 20/21.

Wellinstons dropped 20 tons of bombs on Bizerta

starting large fires. Bisleys attacked communications in
the Tunis, Tebourba and Pont Du Fahs areas. 21st - U.S.

bombers attacked M.T. on the Gabes-Ben Gardene Road.
Libya.

On 20th and 21st our aircraft attacked

retreating enemy columns as far West as Ben Gardene in

Tunisia. Many vehicles were destroyed or damaged. In
attack on Castel Benito Airfield 3 enemy aircraft were

destroyed and many others damaged on the ground.

Mediterranean. 21st.

A medium size ship was sunk and another damaged by

U.S. Marauders off Cape Bon. 22nd - An 800 ton ship was
set on fire by Beaufighters off Gabes.

123

COPY NO.

NOT TO BE RE-TRANSMITTED
U.S. SECRET
BRITISH MOST SECRET

OPTEL 277

1943.

Information received up to 7 A.M. 24th January

NAVAL

Mediterranean 22nd/23rd. Two of H.M. cruisers with 4

destroyers bombarded Zuara. Good fires and explosions were
observed. No shipping was seen in the harbour and no damage or
casualties were sustained by our forces.
MILITARY

Libya To noon 23rd. Our forward troops entered Tripoli at

5 a.m. 23rd but Azizia, 27 miles to the south, held out until

9.40 a.m., when New Zealand divisional cavalry pushed through.

2nd New Zealand division was still just south of Azizia and 7th
armoured division immediately south west of Tripoli. Our
armoured cars are moving west to gain contact with the enemy.

Tunisia 20th 21st. An enemy attack 4 miles north west of Bou
Arada was initially successful, but all positions were
subsequently retaken. 21st. The enemy thrust southwestwards

down the Ousseltia Valley (between DJ. Sardj and A Mestour)
was continued and reached the Ousseltia-Kairouan Road. The French

still hold the high ground each side of the valley and some
of our troops are still operating north of Ousseltia (15 miles

north north west of Pichon).

Burma 22nd. No change Mayu front. Large M.T. column seen and
attacked on Prome-Taungup Road and considerable troop movement
on Irra waddy and on west bank Prome-Padaung area reported.

Russia South of Voronezh the Russians have captured the railway
town of Volokonovka 25 miles north north west of Valuiki and
in the Caucasus have taken Armavir.
AIR OPERATIONS

Western Front 23rd. 31 U.S. Fortresses dropped 66 tons of
H.E. on Lorient U-Boat base, bursts on the objectives were seen.
17 Fortresses bombed Brest. Enemy casualties by bombers not yet
assessed. 5 Fortresses missing. Our fighters provided escort
and in other operations attacked 40 locomotives and silenced 4

A.A. positions. Enemy casualties nil, 1, 1. Ours 3, nil, 2.
One pilot safe. 23rd/24th. 205 aircraft sent out. Lorient

117 (1 missing) Dusseldorf 83 (2 missing) (leaflets 4, intruders

Preliminary reports.

Lorient Attack considered very successful, visibility excellent;
many fires, including some very large ones.
Dusseldorf Objective obscured by cloud, about 60 aircraft

carried out a blind bombing attack, anti-aircraft intense and

accurate at 24,000 feet.

124

Libva 21st/22nd and 22nd. Our aircraft maintained heavy
attacks on M. T. west of Ben Gardene. Numerous vehicles were
destroyed or damaged. In a daylight attack by 56 escorted
Kittyhawks, jetties at Zuara were hit and 20 vehicles destroyed
or damaged near the harbour. Enemy casualties 4,1,5. Ours
3,1,4.

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