Full text of Diaries of Henry Morgenthau, Jr. : Volume 610 : Part 1

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DIARY

Book 610

February 18 - 21, 1943

-A-

Book Page

Agricultural Credit Corporation, Regional
See Financing, Government

American Bankers' Association
See Financing, Government: War Savings Bonds

-BBernstein, E. M.
Increase to $7500 discussed by Treasury group - 2/19/43.. 610

116

-CCalifornia, San Diego
See Collector of Internal Revenue
China

Treasury thanked for approving request for drawing
$20 million from un-earmarked portion of U.S.$500

million loan - 2/19/43

204

Collector of Internal Revenue
California, San Diego: Recommendation of Isac and Miss
Gahagan and lack of recommendation by Senator Downey
discussed in Gaston memorandum - 2/19/43
Delaware: Tunnell (Senator) recommends Norman Collison -

186
72

2/18/43
Collison, Norman

See Collector of Internal Revenue

Correspondence

Mrs. Forbush's mail report - 2/19/43

188

Currency

Autographing of dollar bill legal - 2/20/43

379

-DDelaware

See Collector of Internal Revenue

Dollar Bill

See Currency

-EEmpire Hotel - San Francisco, California
See Reconstruction Finance Corporation

-IFinancing, Government

Federal Reserve operations in Government securities 2/20/43

353

- F - (Continued)
Financing, Government (Continued)
Non-defense Expenditures, Committee on Reduction of:

Meeting - 2/19/43

Book

Page

610

141

a) Discussion of Regional Agricultural

Credit Corporation
b) Additional reports to Congress

364,365

(See also Book 611, page 203)

War Savings Bonds:

Reorganization:
For Thomas (Harold) report, see Book 608
Gamble plan discussed by HMJr, Bell, and Gamble 2/18/43

Haas memorandum discussed by HMJr. Bell, Graves, and

Buffington - 2/18/43
Conference of Treasury group and Patterson. Isbey,
Moore, Trounstine, Collins, Young, Fleek, Hall, and
Patton - 2/18/43
Conference: present: HMJr, Bell, Young, Collins,
Isbey, and Patton - 2/19/43
Conference; present: HMJr, Young, Collins, Isbey,
and Patton - 2/19/43
a) Seventh District memorandum agreed to
(For copy see page 106)
Conference; present: HMJr, Bell, White, Gaston, and
Paul - 2/19/43

110

a) Reorganization of security sales set-up
discussed

Conference; present: HMJr, Bell, Buffington,
Trounstine, Moore, and Fleek - 2/19/43
a) Fleek memorandum explaining differences among
representatives of Ohio War Savings Staff and
Federal Reserve Bank of Cleveland
Conference; present: HMJr, Buffington, Young, Patton,

Isbey, Collins, and Gamble - 2/19/43
a) Seventh District plan again discussed
Conference; present: HMJr, Bell, and Eccles - 2/20/43.
Conference; present: HMJr, Bell, Buffington, and
Fleek - 2/20/43

124

128

130
236
257

Conference; present: HMJr, Graves, and Gamble 2/20/43

Conference; present: HMJr, Bell, Sproul, Hall,
Manning, Patterson, and Ford - 2/20/43
a) New York suggestions

266

272
291

Conference; present: HMJr, Bell, Williams, Bendere,
Ross, and Ludlow - 2/20/43
Conference: present: HMJr, Bell, Graves, Gamble,

Isbey, Trounstine, Moore, and Collins - 2/20/43
a) Memorandum

292
302
317

American Bankers' Association: First draft of report by
Economic Policy Committee on the place of banks in the
April 1943 financing sent to Treasury by Burgess
("The 100 Billion Budget and the Banks" - see page 151) 2/23/43

329

2/19/43

150

Series' E: Sales, July 1941 through November 1942 -

-G-

Book Page

Gamble, T. R.

See Financing, Government: War Savings Bonds

-LLend-Lease

U.S.S.R.: War Production Board report on production
performance against materials and equipment commitments
of Second Russian Protocol - 2/19/43
United Kingdom: Aircraft despatched, weeks ending

February 9 and 16 - British Air Commission reports 2/19/43, 2/20/43

610

217

230,380

-N-

Military Reports

British operations - 2/18/43, etc

80,81,232
388,389

-INational Gallery of Art
Financial report - 2/20/43

369

Norway

Financial position of Government-in-Exile - 2/19/43

210

-0Office of Economic Stabilisation
Minutes of Board meeting - 2/19/43
a) Discussion of 48-hour week

140-A

-PPehle, John W.

Increase to $8,250 discussed by Treasury group - 2/19/43.

Pencions
See Revenue Revision

117

-RReconstruction Finance Corporation

Impire Hotel - San Francisco, California: Correspondence
concerning purchase of - 2/20/43
(See also Book 612. page 221 - 2/27/43)
Regional Agricultural Credit Corporation

373

See Financing, Government
Revenue Revision

Pensions of school teachers (New York City) discussed in
correspondence with Mrs. FDR and Treasury - 2/18/43
Pay-as-you-go
Plan: Committee voting reported by Cooper
to Paul - 2/20/43
(See also Book 611. page 82 - 2/22/43)
a) Cooper plan discussed by Paul at 9:30 meeting 2/23/43: See Book 611. page 118

366

-SBook Page
San Diego, California
See Collector of Internal Revenue
School Teachers

Pensions: See Revenue Revision

Stabilization Fund
Annual report for fiscal year ending June 30, 1943, sent
to FDR, Wallace, and Rayburn - 2/19/43

610

179
185

a) FDR's acknowledgment

-TTaxation
See Revenue Revision

Tunnell, James M. (Senator, Delaware)
Recommends Norman Collison as Collector of Internal
Revenue - 2/18/43

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

-VWar Savings Bonds

See Financing, Government

February 18, 1943
9:35 a.m.
TAXES

Present: Mr. Bell

Mr. Paul
Mr. Gaston

Mr. Sullivan

Mr. Blough
Mr. White
Mr. Surrey

H.M.JR: What am I going to say in answer to the
President's letter to Congressman Doughton? (Copy of

letter attached.) Have you all read it?

What do you think, Herbert? Have you read the
letter?

MR. GASTON: I haven't read the full letter, but
I read the summary of it.

H.M.JR: I read it in full. He says two things.

One is that we recommended in April a method of taxing
through income tax, and he asks why they don't do some-

thing about it. Then he goes on and says that if they
don't want to do that, they want a ninety-percent tax.

MR. PAUL: That is the new scheme that was submitted to Byrnes.

H.M.JR: Ninety percent, and a tax on the tax-

exempts.

MR. PAUL: We submitted it to Byrnes both ways.
H.M.JR: Byrd?

MR. PAUL: Justice Byrnes.

-2H.M.JR: I never agreed to that.
MR. PAUL: We just did a mechanical job of drafting

the thing. He asked us for any substitute - I wrote you

a memorandum about this - Ben called me one day and said,

"Is there any substitute we can get together?'

So we came down, and Surrey and I worked out this

substitute. I took it over and talked it over with

Byrnes. I put the tax-exempts up to Byrnes and specifically said that it could be done either way.
MR. BLOUGH: This isn't Federal tax-exempts.

MR. PAUL: No, just State tax-exempts.

MR. BLOUGH: That is right. The letter doesn't say
so.

MR. PAUL: That was pointed out to Byrnes.

H.M.JR: Yes, but it isn't in the President's
letter. It says, "including income from tax-exempt
securities.

MR. BLOUGH: That is what it says; I read it.
MR. PAUL: That was one of the points Byrnes muffed,
I suppose. We gave him a draft of the law.which states

it exactly.

H.M.JR: I wouldn't necessarily say that Byrnes
muffed it; I would say that this is something that the
President has wanted off and on always - to sort of go
around it.

Herbert, if they a sked me, could I say, "I am sorry,
but I have no comment. The first I saw the letter was
when I read about it in the newspapers"?
MR. GASTON: I don't think so.

-3H.M.JR: You mean that it just cheapens me?

MR. GASTON: I am afraid so. I just don't think
it is any good. I think that now the thing is out we
have to act as if we were in on it.
H.M.JR: Yes.

MR. BELL: Suppose he is asked the direct question,
"Did you know about it before it went up"?
MR. PAUL: Technically we knew about it.
H.M.JR: You did? Don't misunderstand me. You did?

MR. PAUL: I didn't know it, Mr. Secretary.
H.M.JR: You didn't see the letter?
MR. PAUL: No, I got it from the Ways and Means

clerk.

H.M.JR: You didn't see it?

MR. PAUL: I didn't see it.
MR. GASTON: Unless it is something that we feel

as a matter of principle, we ought to disagree on - I

don't think that is the case - I think we ought to say
what is within the bounds of the truth, that the Treasury

was consulted.

H.M.JR: No, I am not going to say that.
MR. GASTON: Weren't we?

H.M.JR: No, because they asked - I wasn't consulted
by the President.
MR. SULLIVAN: Mr. Secretary, this went on as an
amendment to the Gearhart amendment. It went on as an
amendment to the Public Debt Act. When that first came

-4up, I got in touch with Justice Byrnes, because we
wanted to know whether this was his fight or ours,
and if it was ours how strong a fight should we put

up. They indicated all along that we should lay low,
and we have. There was a hearing, and we made ourselves available. In the course of those conversations,
about two weeks ago, Ben outlined to me the type of a

letter the President was considering sending up, but
there wasn't any discussion of this particular item at
all.
H.M.JR: When they talk a bout taxing the income
from tax-exempts, that opens up the whole thing, and

I am on record as saying that I wouldn't do it by
direction or indirection.
MR. PAUL: That is Federal.

H.M.JR: Well, this letter doesn't qualify. It

just says "from tax-exempt securities," which would
mean all securities.

MR. PAUL: I don't think the President meant that.

H.M.JR: I think he did. How else would you interpret it?
MR. PAUL: Well, considering what I know about the
background, Byrnes probably wrote the letter and dis-

cussed it with us. He probably had in his files a
statute all drawn which specified only State. I think
that the President meant only what Byrnes meant.

H.M.JR: No one will interpret it that way who can
read, I mean, that didn't know what went on behind the
scenes. I didn't know what went on behind the scenes.
MR. PAUL: Those are the kindsof things that
happened. If Byrnes had submitted that letter to us,
we would have been able to correct that.
MR. GASTON: I think the reason that they say

just tax-exempt securities is because they didn't

-5want to complicate the issue. They didn't want it to
be confusing.

MR. BLOUGH: It would have taken two lines.

H.M.JR: I am sorry, but I don't agree with you,
knowing what has been going on the last three or four
years. You have heard this discussion, Bell, haven't
you? Haven't you heard the President on this?
MR. BELL: On tax-exempts?

H.M.JR: Yes.

MR. BELL: No, I don't think so.
H.M.JR: I mean, he has always been trying to inch

up to it, you see, and we here have always felt that it

was something you had to go through the courts on, through
Congressional legislation.
MR. SULLIVAN: I can recall two conferences we had

with him in which he brought that up and you said, "No,"
and immediately we dropped it.

H.M.JR: I made it flat - I know that when he knows
I don't agree with him he just doesn't show me the thing.
MR. PAUL: We didn't think you needed to go through
the courts on State.
H.M.JR: But Federal?
MR. PAUL: Yes, Federal.

H.M.JR: It is the whole question of the Government

bond market, and good faith, and all the rest of it.

MR. PAUL: That is true; it is not a legal question.
MR. GASTON: That is the one serious question.

H.M.JR: You had better go.

-6MR. PAUL: I can call you up in the middle of the

session if you want.

H.M.JR: That won't help me; I have a press conference at ten-thirty. I had hoped you could be here.
Let Roy stay behind.

MR. PAUL: Stanley Surrey could help you.

H.M.JR: This is just a question of public relations,

Roy. You had better go on.

MR. PAUL: If you want any help on the salary, we
can leave Stanley behind. He knows all about it. He
worked through every bit of it with me. He was present
at the conferences with Byrnes.
H.M.JR: O.K., send him in.
Where are you on your Ruml Plan today?

MR. PAUL: I don't know what the Chairman is going
to spring on me at ten minutes of ten.

H.M.JR: All right.
(Mr. Paul and Mr. Blough left the conference.)

H.M.JR: Herbert, I just don't know - the only way
is to argue the thing out; but if they ask me point-

blank if I saw the letter before it went up, I don't
see why I should - if I say I have no comment--

MR. GASTON: I don't know whether or not they will

ask you that directly.

H.M.JR: Was I consulted?

Of course, I can answer the way I want to; "This is
White House business, and you men know I can't discuss it."
MR. GASTON: They regarded it over there as a matter

of salary regulation, rather than revenue taxation. Then
the second--

MR. BELL: In that respect, the Treasury is just
an agent.

MR. GASTON: In that respect, the Treasury is just

an agent. That is, it is following through, with the

prospect of Congress knocking down the twenty-five thou-

sand dollar limitation, as a matter of Executive Order

under the salary regulation power.

Now he is asking them by regulation to accomplish
the same thing, not as a matter of revenue but as a matter

of salary regulation.

The record is that the subject was discussed generally
with Mr. Sullivan and Mr. Paul as to the wording and as
to the method of accomplishing the objective.
MR. SULLIVAN: I beg your pardon, it was not discussed.

Just for your information, Ben told me that that was the
type of letter the President was considering.
MR. GASTON: Yes. Well, Paul was asked as to the

method of accomplishing it. Didn't he say here that they
asked him how to do it?

(Mr. Surrey entered the conference.)

H.M.JR: I suppose, Herbert, the easiest thing to do
when they ask me is to say, "Look, gentlemen, this is

White House business. Any information you want about it,
you will have to get from the White House.

I have been all through this. Should I write a
letter to the President and say, "Why didn't you consult

me before he sent it up?"
Then he will come back and say that this was some-

thing I wasn't to handle, or should handle, and all that.
So, I think it best to leave it alone.
MR. GASTON: I certainly think we ought not to
register any differences before the newspapermen here.

H.M.JR: If you are out of step with the President,

why discuss it?

-8MR. GASTON: That is the way I feel. There is one

very substantial matter, that matter of the taxation of
Federal Securities, which are by contract tax-exempt.
They might get into that.
H.M.JR: Well, Surrey, Paul said you were - in
these drafts that you sent over, were they for Federal
or State securities?

MR. SURREY: It was only for the State securities,
and that was pointed out to the people in Justice Byrnes'
office that we were sticking to the policy which we had

last year with respect to tax-exempt securities. we
didn't touch the Federal.
H.M.JR: I am on record.

MR. SULLIVAN: That isn't just last year's policy;
the Secretary's record has been clear all the way back.
H.M.JR: Back to the Cleveland speech.
MR. SURREY: Last year we drew a distinction between

Federal securities. I mentioned that because of the
contract, and that was pointed out to Justice Byrnes'
people. We have the same distinction this year.
H.M.JR: Have you read the letter?
MR. SURREY: Yes, sir.

H.M.JR: How do you interpret it? What securities

do you think they mean?

MR. SURREY: I would interpret it the same as what
we urged last year.

H.M.JR: But it says that the revenue from tax-exempt

securities should be included. It doesn't distinguish

as between Federal and State.

MR. SURREY: No, but I got the impression that the
term was used in its more popular sense - in other words,

-9to describe the securities generally which the Administration has been seeking to tax.

H.M.JR: Why don't I call up Byrnes and ask him?

MR. SULLIVAN: If this reaction is any good to

you, Mr. Secretary, I read the letter - and didn't know
about this draft that had been sent over - and I assumed
it was merely S+ate securities.
H.M.JR: Let me call him up and ask him.
MR. GASTON: They are the only thing wholly taxexempt, except for our notes and-MR. SULLIVAN: He can authorize you to say it was

perfectly clear that the White House and the Treasury

had in mind merely the income from State and municipal

securities. It seems to me that is your whole problem,

Mr. Secretary.

H.M.JR: I will ask him.
MR. BELL: That might be a good place to give an

interpretation of it, while it is fresh, if that is what
they meant.

MR. GASTON: Yes, if you can get that interpretation.
H.M.JR: What is that?
MR. GASTON: Dan says it might be a good spot to

give an interpretation now if they agree over there that
they don't mean to tax the Federal.

H.M.JR: Does anybody want to bet me that they

say Federal?

MR. SULLIVAN: I bet you a package of Spuds.

MR. WHITE: I bet they say Federal.
(The Secretary held a telephone conversation with
Justice Byrnes' secretary.)

- 10 H.M.JR: Does anybody have that letter?
MR. BELL: What letter?

MR. SURREY: I can get a copy of it. I have it

upstairs.

(Mr. Surrey left the conference.)

H.M.JR: The only paper it is in is the "Times."

I thought he would have a more accurate copy.

MR. WHITE: I think you could probably diminish the

interest in it if in addition to your remark that that is

a White House matter, you say, "But, of course, we have
been discussing this matter for two years now" - something

like that.

H.M.JR: If I say, "You men all know what my position

is," If then it puts me right into a fight with the White
House, and I don t want any fights.

MR. BELL: Unless what you have said before agrees
with what they have in mind.

H.M.JR: White, do you think that they meant all?

MR. WHITE: I should think so. I think that is the

view of some of the men over there. I don't know whether
their view has prevailed on Byrnes.
H.M.JR: I think that is where what's-his-name would
be, wouldn't you - Ben Cohen - for taxing all?
MR. WHITE: I think so.
MR. BELL: Do you want to talk to Ben instead of--

H.M.JR: I think if I did it now, it could be
interpreted as sort of sneaky, that I first tried to get

him and then talked to Byrnes afterwards. If Byrnes
doesn't call me back before my press conference, I will

- 11 -

called Ben. But, having asked for him - don't you see
what I mean - it is as though somebody put in a call
for me and I wasn't there. He wanted to know what I
was going to do on the bond market. So then he calls
you up while waiting, and then talks to me.

I think I will get this. I will let you people

know what they say. We may have another meeting.

(Mr. Surrey reentered the meeting.)
MR. SURREY: Mr. Russell is the one I spoke to on
the tax-exempt.
MR. WHITE: Recently?

MR. SURREY: I pointed out the way it was drafted.
He agreed at the time.
(Mr. Surrey handed to the Secretary a mimeographed

copy of the President's letter to Chairman Doughton.)

H.M.JR: It says, "including income from tax-exempt
securities.

What you had better do, Surrey, is this: You had
better go right to work on the various things that I
have said on this thing, not necessarily for my press
conference, but I may have to write the President a letter
saying, "This is the position - If and urge him very
strongly that he back me up on my position if they have
done it the other way. You had better get at it.
Miss Chauncey could help you on this thing. Do

you know Miss Chauncey?
MR. SURREY: Yes.

H.M.JR: Then you had better have the memoranda

that we submitted. In other words, prepare a case on

this thing for me so that if I have to write the President

- 12 and say, "What did you mean when you said to include

the tax, was it only from S+ates?" - I want you to give
a clarified statement.
There is another point in connection
with that, that our tax exemption does not cover surtaxes
in any of the long-time securities, and this would be a
surtax, so they would be exempt from it, except just
MR. GASTON:

for the bills and short-term notes.

MR. BELL: Not the bills; the bills are now out
of the picture.
MR. WHITE: You will be the first one to comment

publicly on that this morning. That is why it is
important, I think.
H.M.JR: In thirty-five minutes.

MR. SURREY: Will it be all right if I check with
Mr. Russell? He probably prepared this letter, and I
could find out what he had in mind.

H.M.JR: No, wai t until I get through talking to
Byrnes. They have only four or five people over there,
haven't they? They will say, "Morgenthau had Surrey

call up." You know, I don't gain anything. I will

ask Byrnes; he will know.

MR. WHITE: In any case, I think it is well to get

Byrnes' statement. Even a subordinate statement will
not be adequate.

H.M.JR: No, I will have to get Byrnes' statement,

and then we may have to write him a letter and simply

say, "Now, look, this thing has got to be straightened
out, because this is my position."
MR. SURREY: I have a recollection that Mr. Paul

or I mentioned that to Mr. Byrnes earlier, too, the
first time we saw him.

H.M.JR: You had better get busy. I will let you

all know.

February 17, 1943

Congressman Doughton, Chairman of the House Committe on

Ways and Means, today made public a letter from the President, the
text of which follows:
"Some days ago you wrote me that there was a proposal

before your Committee to amend the Public Debt Bill by adding a
provision nullifying the Executive Order issued by me under the Act

of October 2, 1942, limiting salaries to $25,000 after taxes, and
asked if I cared to submit any views with reference to the proposal.
In reply, I told you that I hoped the Public Debt Bill could be

passed without adding amendments not related to the subject, but

that if the Committee thought otherwise, I would later write you my

views.

"In a message to the Congress on April 27, 1942, I stated,
discrepancies between low personal incomes and very high personal incomes should be lessened; and I therefore believe that in
time of this grave national danger, when all excess income should go
to win the war, no American citizen ought to have a net income, after
he has paid his taxes, of more than $25,000 a year. Thereafter the
Treasury advised the Committee, 'To implement the President's proposal,

the Treasury now recommends the enactment of a 100% war supertax on

that part of the not income after regular income tax which excoods a
personal exemption of $25,000. * * * It is recommended that for
the purpose of the suportax, joint returns be made mandatory and that
a porsonal exemption of $25,000 for each spouse bc allowed, or in
effect $50,000 for the married couple.
"So far as I know, noither House of the Congress acted upon

the recommendation.

"When the Act of October 2, 1942 was passed, it authorized
mo to adjust wages or salarios whonover I found it necessary 'to

correct gross inequities and also aid in the effectivo prosecution of
the war.' Pursuant to this authority, I issued an Exocutivo Order in
which, among other things, it was provided that in order to correct
gross inoquitics and to provide for greater equality in contributing
to the war cffort, no salary should be authorized to the oxtont that
it excoods $25,000 not after the payment of taxes. Provision was
made for certain allowances in order to prevont unduc hardships.

"The legality of the Executive Order was attested by the
Attorney General, prior to its issuance. No Executive Order is issued
without such approval.

February 17, 1943

Congressman Doughton, Chairman of the House Committe on

Ways and Means, today made public a letter from the President, the
text of which follows:
"Some days ago you wrote me that there was a proposal
before your Committee to amend the Public Debt Bill by adding a

provision nullifying the Executive Order issued by me under the Act
of October 2, 1942, limiting salaries to $25,000 after taxes, and
asked if I cared to submit any views with reference to the proposal.
In reply, I told you that I hoped the Public Debt Bill could be
passed without adding amendments not related to the subject, but
that if the Committee thought otherwise, I would later write you my

views.

"In a message to the Congress on April 27, 1942, I stated,
discrepancies between low personal incomes and very high personal incomes should be lessened; and I therefore believe that in
time of this grave national danger, when all excess income should go
to win the war, no American citizen ought to have a net income, after
he has paid his taxes, of more than $25,000 a year.' Thereafter the
Treasury advised the Committee, 'To implement the President's proposal,

the Treasury now recommends the enactment of a 100% war supertax on

that part of the not income after regular income tax which excoods a
personal exemption of $25,000. * * * It is recommonded that for
the purpose of the suportax, joint returns be made mandatory and that
a porsonal exemption of $25,000 for each spouse bc allowed, or in
effect $50,000 for the married couple.
"So far as I know, neither House of the Congress acted upon

the recommendation.

"When the Act of October 2, 1942 was passed, it authorized
mc to adjust wages or salarios whonover I found it nocessary 'to
correct gross inequitios and also aid in the effective prosecution of
the war.' Pursuant to this authority, I issued an Exocutivo Order in
which, among other things, it was providod that in ordor to correct
gross inoquities and to provido for greater equality in contributing
to the war cffort, no salary should be authorized to the oxtont that
it excoods $25,000 not after the payment of taxes. Provision was
mado for certain allowances in order to prevent unduc hardships.

"The legality of the Executive Order was attested by the
Attorney General, prior to its issuence. No Executive Order is issued
without such approval.

"The regulation issued under this Order, with my approval,
was so worded that it affected only gross salaries in excess of $67,200,

the amount of taxes due upon such salaries reducing them to approximately

$25,000 net. I could not exercise the discretion vested in me by the
Congress to adjust salaries, without finding that it is a gross inequity
in wartime to permit one man to receive a salary in excess of $67,200 a
year while the government is drafting another man and requiring him to

serve with the armed forces for $600 per year. I believed it a gross
inequity for the President of a Corporation engaged in the production
of materials for the government, to receive a salary and bonus of
$500,000 a year while the workers in the Corporation were denied an
increase in wages under the provisions of the law and my Executive

Order. The correction of such inequities, I believed, would aid in
the effective prosecution of the war.

"I call your attention to the fact that the limitation of

salaries was, by the language of the Order, limited to the war period;

and that the law upon which the Order was based expires June 30, 1944,

and can be continued only by the effirmative action of the Congress.
Therefore, no fair argument can be made that the limitation was intended
either by the Congress or by the Executive to become permanent law. The
intention was made plain in my original message. I then and there

affirmed my belief that this limitation should be made 'in time of this
grave national danger when all excess income should go to win the war.'

"This desire to limit personal profits during wartime is

no new thought. Its origin is neither alien nor obscure. It is in

accord with the solemn pledges of the Republican Party and the Democratic Party.

"In 1924, just after our soldiers had returned from the
first World War and the leaders of both parties were conscious of the
views of the returning soldiers as to war profiteering, the Republican
Party declared in its platform:
n.e believe that in time of war the nation should

draft for its defense not only its citizens but

also every resource which may contribute to success.
The country demands that should the United States
ever again be called upon to defend itself by arms
the President be empowered to draft such material
resources and such services as may be required,
and to stabilize the prices of services and essen-

tial commodities, whether utilized in actual war-

fare or private activity.'

-3The Democratic Party platform the same year solemnly pledged:

'In the event of war in which the man power of the

nation is draited, all other resources should likewise be drafted, This will tend to discourage war

by depriving it of its profits.

I repeat, this was in 1924, not 1928, and that these were the plat-

forms of the Republican and Democratic Parties,

"I agree with those who say that the limitation of salaries

does not deal adequately with the problem of excessive personal profits

and that the limitation should extend to all income. Ny Executive
Order endeevored to correct the inequity to the extent of the power

granted me, The Congress can, however, make the limitation adecuate
by extending it to the coupon clipper as well as the man who earns
the salary.

"Therefore, I urge the Congress to levy a special war super-

tax on net income from whatever source derived (including income from
tax exempt securities) which, after payment of regular income taxes,
exceeds 25,000 in the case of a single person, and $50,000 in the
case of a married couple. If the Congress does not approve the recommendation submitted by the Treasury last June that a first 100% supertax
be imposed on such excess incomes, then I hope the Congress will provide
a minimum tax of 50% with steeply graduated rates as high as 90%. The
exact amount of the exemptions to be allowed and the exect rate of

taxation to be applied pre necessarily arbitrary and these are matters

the Congress must decide.

"If taxes are levied, which substantially recomplish the purpose I have indicated, either in a soparate bill or in the general
Revenue Bill you are considering, I shall innedictely rescind the

section of the Executive Order in question. The Congress may appropriately provide that such taxes should take the place of the $25,000
limitation imposed by Executive Order.

"I trust, however, that without such tax levies, the Congress
will not rescind the limitation and permit the existence of inequities
that seriously effect the morale of soldiers and snilors, farmers and
workers, imperiling efforts to stabilize rages and prices, and thereby
impairing the effective prosecution of the war."

February 18, 1943
9:48 a.m.
HMJr:

Hello.

Operator:

Justice Byrnes 1e out of his office for a few

HMJr:

Well, is....

Operator:

His secretary is on the wire.

minutes.

HMJr:

Let me talk to....
All right.
Is it him or a her?

Operator:

A lady.

HMJr:

All right.

Operator:

Go ahead.

Justice
Byrnes'Secy:

Hello.

HMJr:

Good morning.

Yes, Mr. Secretary.

HMJr:

How long before Mr. Byrnes will be back?

I think in about ten minutes.

HMJr:

Oh.

Shall I call you when he returns?

HMJr:

Yeah, I'm very anxious to speak to him.

HMJr:

Operator:

Fine. Well, I'll call you just as soon as

he comes in.
HMJr:

It's - all right - will - because I wanted to

get some information before my press conference.

All right, fine. Will ten - will that - that'11

be all right within about ten or fifteen minutes,
will it? I'll call you just as soon as he comes
anyway.

17
-

HMJr:

Right.

Fine.

February 18, 1943
10:00 a.m.
HMJr:

Hello.

Operator:

Mr. Byrnes.

HMJr:

Right.

Operator:

Go ahead.

HMJr:

Hello. Hello.

Justice J.
Byrnes:

Hello.

HMJr:

Henry talking.

Yes, Henry.

HMJr:

How are you?

Fine.

HMJr:

Jimmy, I'm at a disadvantage in two ways: one,

I'm having a press conference at ten-thirty,

so I'll be the first person to be asked publicly
about this letter of the President's, which I
read in the New York Times this morning for the
first time. Now the thing that I don't understand is the thing where it says, "Therefore, I
urge the Congress to levy a special war supertax on net income from whatever source derived

now this is the point - including income from
tax-exempt securities." = Hello?

Yes.

HMJr:

Now what does that mean - "including income from
tax-exempt securities.

HMJr:
B:

Well, that's the - that was the - what Paul in

his message - I mean in his statement last year
had been - had suggested, originally.
No, well, of course, he
Remember he had tax - he had a proposal of a
hundred per cent.

-2HMJr:

Yeah, but he

I think you ought to get your fellows to give

you that
HMJr:

Well, I

....

HMJr:

that recommendation.

I had Paul, but he was referring to State
securities, not Federal.

Well, it - the language - that language is, I
think, copied from - from that message.

HMJr:

Well, if that - if you used Paul's memorandum,
then it was State securities.
Well, it was Paul's memorandum that we had, yes had here. Why don't you say

Well, Paul - could I send Surrey over there to
see somebody right away so I could

Right. Send him right away.

HMJr:

Could you see him?

Yes, because I - McPherson's here, but I'll see
Surrey because you'll want to know before you
get to that

HMJr:

Before ten

press conference to that thing. He's got a he suggested - I got Paul to draft - draft a
proposal

HMJr:

Yeah.

with me and I'll give it to you. For this
very thing, for this tax.

HMJr:

Well, I've - I talked with Paul but Doughton
sent
for him to be up there at ten minutes of
ten

Yes. Well, now, I - I have that thing. I
have Paul's memorandum

-3 HMJr:
B:

HMJr:
B:

Yeah.

and really, I think it was drawn by Surrey.

Have you talked to Surrey?

Yeah, he's been here too.

Well, it's - wait one second there. I think
really Surrey drew the thing, and it may - it
may save him.

HMJr:

Well, what I want - hello?

Yes.

HMJr:

I mean because we're on record here over threefour years

(Talks aside: Where's that tax proposal that
Paul and Surrey said - see whether it's in
that thing and give to me.) Go ahead.

...and that neither by direction or indirection

would we tax the income from Federal securities

because the Federal Government had a contract
outstanding, you see?
B:

Yeah.

HMJr:

And it's - that part is terribly important to
me.

Yeah.

HMJr:

So....

Now wait - I'll find it.

HMJr:

Let - let me send Surrey over. He'd be there
in a couple of minutes. May I do that?

Yes, I was just trying to find that - if he's
got that

HMJr:

The memo that they furnished you?

Yeah, that's where it's supposed to come from.

-4HMJr:

I'll tell him to take it along with him.

Fine.

HMJr:

Thank you.

February 18, 1943
10:04 a.m.

HMJr:

Stanley
Surrey:
HMJr:

HMJr:

Byrnes says, Surrey, that he - this thing was
based on the memoranda which you furnished.

Yes, sir.
Now if you could lay your hands on them and rush
across the street, he'll see you because he wants
to help me out before ten-thirty.

I'll go right over there.
Now the thing that I want -- (laughs) I forgot to
mention the most important thing -- if possible,
is to get something from him that I could use at

ten-thirty clarifying this point, you see?

HMJr:

All right. I'll - I'11 see if I can get that.
Or either that I can do it, or say, refer the
newspaper - it would be much better to - to get
him to clarify it, you see?

I'11 see what I can do on that.

HMJr:

I mean if he would say to the newspapermen,

"Well, if they'11 come over, we'll clarify it,"

something 80 this thing can be cleared up, because from the bond market standpoint this is

terrible, and the longer we wait, the worse it
will grow. It's like a snowball going down hill.
S:

Yes, sir. I'll see him right away.

HMJr:

So rush over there, and - but I got to know before

ten-thirty.
All right.

February 18, 1943

10:06 a.m.
HMJr:

Justice J.

Hello.

Byrnes:

Hello, Henry?

HMJr:

Yes.

The - the bill which I have found - the proposed

bill has this provision: "For the purpose of
subsection (a) gross income computed under
section 22 shall include interest received or
accrued upon the obligations of the State or

political subdivision thereof." So it did not
refer to the Federal, and I'11 send this over
to you so you can have it.

HMJr:

Well, Surrey's on his way over there now.

Fine, I'll just turn it over to Surrey, and

HMJr:

Well, now...

But that, as I say....

HMJr:

Can I

Yes.

HMJr:

then he'll have it.

Can I say publicly - I mean to the press, or
would you rather say it

What? No, I don't give out press - it's on this?

HMJr:

Can I say that this sec.. - this thing was

Yeah, here's a - that's what - that's what the

based - that that's what it meant?

HMJr:

President meant, yes.
And that's what the President meant?

Yes.

HMJr:

You think it's all right to interpret - because
the longer we wait, the worse it will get.

-2B:

HMJr:

Well, why not say that it's very clear that from
his statement that - what he meant - and that that - why not say that at the - that a memorandum
had been prepared of - by - by Mr. Paul and it
specifically provided that.
And that I just - that I discussed this thing with
you this morning, and you say that's what it meant.

No, why not hand it to them? I don't think that it
would help by saying that we were all discussing it,
and say, "Why, I think that's very clear what's
meant. It means no thing but State securities. I
think the President acted on a memorandum, and

here's the memorandum."
HMJr:

I see.

And then read it to them....

HMJr:

I see. Well, I'll

for the purpose, and - and I'11 give it to Surrey
to give you, and it just shows it means nothing to
you. I - I can know only that - what the President
meant from this memorandum.

HMJr:

I see, and

And I'd dismiss it with that.

HMJr:

What's that?

I'd dismiss it with that, because it's very clear
that that's all that was meant, and there's no

reason
or justification for anybody saying anything
else.

HMJr:

Okay.

I'd shoot them right clean.

HMJr:

Thank you.

Goodbye.

February 18, 1943
10:16 a.m.

HMJr:

Hello.

Operator:

Mr. Paul calling from the Capitol.

HMJr:

Right.

Operator:

Go ahead.

HMJr:

(Talks aside: Well, it's this - he knows he's
coming here. You better call him right up.

He knows he's coming here. ) Hello.
Randolph
Paul:

Hello, Mr. Secretary.

HMJr:

Yes.

HMJr:
P:

Randolph. I was afraid there was a little confusion as I got thinking about what we were
discussing when I came up to the Hill, and I
wanted to straighten it out
Yes.

in case Stanley Surrey didn't. There 18 a

distinction, you know, on this - on this totally exempt and partially exempt. The
partially exempt are only exempt from the normal
tax, 80 there's no violation of - of contract
when you subject partially exempts to this to this supertax. It's just the wholly exempts
that have to be let out. Do you have that

President's new idea between wholly exempt -

distinction in mind?

HMJr:

Well, I - I didn't because - but the - I talked
to Justice Byrnes

HMJr:

Yeah.

and he said what they had in mind was
entirely based on the memorandum which you furnished them.

Yeah, well, that's all right then.

- 2:

HMJr:

And that I could use that memorandum in ex-

plaining it.
Yeah, well, that's all right then

HMJr:

And I'm going to have Surrey at my press

Oh, that'11 be fine, because he understands

conference.

it. I - I didn't want any confusion on that

distinction between - because they - that
sort of confusion can get all muddled through
the press. But there is no reason in the
world why - there's no violation of contract

or any direct or indirect troub. - invasion

when you - when you subject partially exempts
to this supertax.

HMJr:

Well, I - he said we could use this memorandum
and say, "This is what the letter was based on. If

Well, that's per. - that's fine, because the

memorandum will be all right, but I was afraid I didn't want you to - when I got coming up

here I got thinking about it, and
HMJr:

Well, I was - I was mixed up.

Well, I was disturbed for fear - that's the
reason I called you.

HMJr:

But I'm going to have Surrey here.

Well, that'11 be - he understands it perfectly.
Because I think if we don't explain it, all
the editorial writers and everything will begin
to talk about breach of contract - breach of
faith.

HMJr:

Well, I'm glad you're going to have Surrey

there, because he understands it, and he's a

very good man anyway.
HMJr:

Right. Thank you.

Okay.

February 18, 1943
10:20 a.m.

TAXES

Present: Mr. Gaston
Mr. Sullivan
Mr. Bell
Mr. White
Mr. Surrey
Mr. Schwarz

H.M.JR: Since talking to you a couple of things
have happened. I talked to Byrnes, and he said that

whatever they did was based on the Treasury memorandum.

Then he got this memorandum out and read this

part to me which says, "For the purpose of sub-section
(a), gross income computed under section 22 shall include interest received or accrued upon obligation of

the State or political subdivisions thereof, with the
following adjustments." He said he was only referring

to State.

MR. WHITE: That simplifies it.
H.M.JR: Then Paul called me up and said that they
were going into the surtax and all that business.

Do you (Surrey) understand all of that? I am

going to have you at my press conference.

MR. SURREY: Yes, sir, I understand it.

H.M.JR: I think what I am going to say is this:
I will get Schwarz to have them ask me questions and
then I will say - why not say that I have been assured

by Justice Byrnes that the President's letter was based
on a memorandum furnished by the Treasury, which says

the following, and Mr. Surrey can explain the implications
of it?

-2MR. WHITE: Why not merely say, "It is based,
instead of, "I have been assured"?

MR. GASTON: Say, "I interpret this to mean just

what we have been working for - I have been working

for - for the last year and a half, and that is, the
taxation of the States and localities. "
H.M.JR: You wouldn't say that Byrnes had a memorandum?

MR. GASTON: I don't think so.

MR. SULLIVAN: That indicates that we initiated
the whole thing.

H.M.JR: How would you say it, Herbert?
MR. GASTON: "I understand this to mean the taxa-

tion of the State and local tax-exempt securities the very thing for which I have been working for the
last two years."

MR. BELL: Aren't they going to follow that with,

"Were you consulted?"

H.M.JR: I can say we furnished a memorandum on

that phase of it.

(Mr. Schwarz entered the conference.)

H.M.JR: What I want to do, Chick, is this: You
see, the thing I have been working on for an hour is I

have been bothered about this sentence, II

including

income from tax-exempt securities." I want to have

somebody ask me, 'What does that mean? Does that mean

Federal, or does that mean State?"

MR. SCHWARZ: They have asked us about it. I had
better check to make sure.

-3H.M.JR: They have been asking us?
MR. SCHWARZ: They asked us yesterday afternoon,

yes, sir.

H.M.JR: Well, I am prepared, now.
Whom do I owe some cigarettes to?

MR. SULLIVAN: Me. I took both of them up.

H.M.JR: Harry didn't bet with you.
MR. SULLIVAN: Harry was betting with you against me.

H.M.JR: I bet you a package of Spuds. Harry can
settle his own bets.

You and I didn't bet, did we, Harry?
MR. WHITE: No. I thought I knew how Ben Cohen felt
and I thought--

H.M.JR: We are all right now, aren't we?

MR. GASTON: Yes. I think it is a good thing to

get out.

H.M.JR: I think it is very good, and I think that

Surrey should be here on the thing.

February 18, 1943
10:23 a.m.
HMJr:

Hello.

Operator:

Go ahead.

HMJr:

Hello.

P.W.Meekins

(Doughton's

Secretary):
HMJr:

Yes, sir, Mr. Secretary.
Will you tell Mr. Doughton that I appreciate
very much that seat that he sent down?

Yes, sir. I'll be glad to, Mr. Secretary.

HMJr:

Will you tell him I called up myself?

I will do it, and tell him you called personally.

HMJr:

Yes.

And he did the very best he could, sir.

HMJr:

Well, thank you so much.

Yes, sir, Mr. Secretary.

Miss Chauncey: The Secretary

has the only copy of Mr. Gamble's
chart.

February 18, 1943
11:40 a.m.

FINANCING

Present: Mr. Bell
Mr. Gamble

(First part of meeting not reported.)
H.M.JR: I have from now until quarter of twelve.
I can't argue with you about that now, but I will some
time later in the day because I don't agree with you.
MR. GAMBLE: That we should have a prominent man?

H.M.JR: I don't care whether he is prominent,

but I think that - well, I might as well just stop at
that. I look at this thing this way. I will be very

frank.

I think that Mr. Bell - either Mr. Bell or I could

do this job, but Mr. Bell and I should not be tied down
on any one thing. I mean that we have so many irons
in the fire. We have to have time to think.
MR. GAMBLE: I agree with that, that one man should

do it, Mr. Secretary. My plan calls for that.

H.M.JR: Where is there one man in the organization,
in the Treasury, now, who can do it?

MR. GAMBLE: It is all a part of this plan. This
plan piecemeal is no good. I would like to start-H.M.JR: I thought you were arguing against it.
MR. GAMBLE: No, I am arguing against going outside

and bringing in a man for this. I know you have to have
a man. If you don't do it today, you are going to have
to do it two months from now.

-2H.M.JR: You are just arguing whether we should
take him from the present organization or go outside?
MR. GAMBLE: Right.

H.M.JR: But you said there should be a man-MR. GAMBLE: I have a man.

H.M.JR: From my standpoint, who the man is or

where he comes from is unimportant.

MR. BELL: Yes, as long as you can get the right
one.

MR. GAMBLE: That is why I prefaced my remarks as

I did. I think you have some values you want to
hold. The person you put in charge of this job is

the one who can hold the most of those values for you.

I made a chart. I made it myself, so it is not

as professional as the ones you have been looking at.

I didn't want it to get out of my hands. (Chart handed
to the Secretary.)

I started by setting up a war finance committee,
which Mr. Bell would head, and it would involve people
who represent some factor that is indispensable to you
in this program.
I dropped down to what I think - and I might say
in this connection that the reason I am talking to you
alone about it is because our people don't agree with
that. Mr. Graves does not agree with this, and he does
not like any plan that is built on personalities, which
I do believe in. I think we should take our whole
organizations - and you can talk about coordination
forever, and we aren't going to get anywhere until we
get one organization. It has got to be one. Coordination
is just going to bring about future problems, so I would
put the whole thing under the Federal Reserve banks.

-3-

I would make this so-called Victory Fund operation
a special banking - a special drives committee, as a
part of the War Savings organization.
I would have a planning board over here (indicating)
to plan just those drives, headed by Mr. Buffington.
I would come down through my Federal Reserve banks

for my whole War Bond operation, whether it be

special drives or E Bond sales. Put the whole thing
under him in the Seventh Federal Reserve District, or
anywhere, and I would put the States following that

district.

I would try to break away from the Federal Reserve
splits so you could put the whole State of Pennsylvania,

for instance, under one man. I think that is just a

detail that could be worked out. One man would take Ohio
and give up Pennsylvania, for instance, so that your
Federal Reserve presidents would have, on the average,

four States. It does not work out that way, but you

would have those people heading up your operation.

That is, they would have the supervision of all the
States within their area.

MR. BELL: This is not entirely different from the

executive committee idea that the Secretary had, except
that you eliminate the one man.
MR. GAMBLE: Not only that, but you eliminate the

one organization. You see, you are just going to patch
up something, and two months later it is going to break
out again.

First it was the F and G Bonds. The F and G Bond

thing was just to build up the morale of these people.
I don't criticize them for their complaints they made,

but--

H.M. JR: Who?

-4MR. GAMBLE: The Victory Fund people. And if it had
not been the Victory Fund, it would have been us.
H.M.JR: The decision I made on F and G was - they

were perfectly happy about it in the field. They weren't
happy here. It worked out all right.
MR. GAMBLE: It worked out all right. First it was
the F and G Bonds; and then it was the December drive

that they didn't want; then it is some activity of ours
which is going on at the time they are conducting their
drive.

If you are ever going to get the maximum good out

of your field forces you are going to have to put them
together on some basis. When you put them together,
someone has to give way and somebody has to take.

I have tried to take care of the banks by putting
them in as supervisors of the whole operation.
H.M.JR: You have them under the forty-eight States.

Can you get them somehow under the twelve?

MR. GAMBLE: Yes, but I put in the State lines be-

cause there is a sales value to it. We are not distributing automobiles. Hell's bells, in this Thomas report
they set it up on the distribution of heavy manufacturing
equipment.

We want competition between States. We want the

City of Chicago to want to name a cruiser. We want
everybody in the community interested. We want the

governors interested. We want to decentralize. In
fact, I would like to see us get down to counties and
start talking about autonomous units instead of States.
MR. BELL: That is what the Thomas report did, and
it seemed to have value. You get your counties competing on a Federal Reserve district basis.
MR. GAMBEL: But a county in Idaho competing with a

county in Southern California, that does not work.

-5H.M.JR: Take, for instance, New Jersey, which I

happen to know. You don't think, for instance, that
you could say that from Trenton south that could go
to Philadelphia, and northern New Jersey - for instance,
Newark, which is part of the metropolitan area - would
go to New York?

MR. GAMBLE: Yes, you could.

H.M.JR: As Sproul said, what you will have is a

State administrator for War Bonds and a deputy State

administrator. Let's say the deputy would be in Newark
and the State administrator would be down in Trenton

where he is now.

MR. GAMBLE: Or vice versa.

H.M.JR: Wouldn't that be possible when you have
a thing like Newark, which is so close to New York?
MR. GAMBLE: Yes.

MR. BELL: What would you do with New Jersey?

MR. GAMBLE: They could decide with us on the State

line. I like the State lines, but it is not vital. It
can be split if you want to do it.

But I think you would eliminate a lot of objections
to this once you said to the Federal Reserve bank presidents, "Look, this is going to be your responsibility.
You sit down and start-H.M.JR: But they didn't want to face these fellows.

They wanted me to say which States went which way. They

didn't want to go up against the State administrators,
and be unpopular in the field.

MR. BELL: They didn't think it could be done without some directions from Washington, and I think that
is probably right.

-6H.M.JR: Sure, we would have to sit down and get
the man in, and in one day we could settle these things.
MR. GAMBLE: I have the man.

H.M.JR: Are they meeting now in the other room?

MR. BELL: I think not. Hap Young and the executive

managers are down with Buffington going over what the

discussion has been, but I don't think anybody else is
meeting. Harold may have his group in.
MR. GAMBLE: He has the administrators in there.

H.M.JR: Today is only Thursday, isn't it?
MR. GAMBLE: Yes.

My idea is that before the Treasury is ever going

to get any real good out of everything it has in the
field, those at the local level - the so-called Victory

Fund Committees - have got to be part and parcel of one
organization.

To put it another way, the two have got to be the

same crowd.

MR. BELL: Eventually we have to do this thing.
MR. GAMBLE: The longer you delay it, the more
serious the problem will become because the more they

will build local ties and the more they will strengthen
their own organization. Therefore, the more difficult
it will become to put the two together.
When you want to say it you will ring a bell and
you will say, "I want everything put behind this opera-

tion.' That is what I mean, that you will never get it
put behind it until you put these people in the same
family. It is just human nature, and you can't have
two organizations, each paddling their own canoes in
different directions.

-7 I have tried to set forth here something that
takes care of all of the people who have to be taken
care of.

That (indicating) represents a group - for example,
I think it is important that the women and the farmers that ultimately we are going to have a big job for them

to do, and I think it is important that they sit in on
this.

I think it is important that Mr. Bell head up this

war finance committee here, which is the policy-making
one.

Then I think, personally, that the best administrator for this kind of an operation (indicating) that I

have ever known is Harold Graves. I think he would be
the number one man.

I have reduced to writing something that I believe
in, and something I believe will work and something I
think we can sell everybody. I think we can sell everyone.

You will have a little difficulty - sure, somebody
will want to know what you are going to do with this

administrator and that executive manager, but you are
going to have that problem to deal with whenever you
get down to actually meeting this problem of coordination.
MR. BELL: How hard would it be to put the War
Savings Staff on a Federal Reserve basis?

MR. GAMBLE: I don't think you would want to do it.
H.M.JR: Do what?

MR. BELL: Put the War Savings Staff on a basis
of Federal Reserve districts like Thomas suggested,
rather than a State basis.
MR. GAMBLE: If you do that you overlook the great
number of volunteer people. You overlook a great number
of people that are helping this program, like newspaper

publishers, radio station managers, and motion picture
operators, who think community and State-wise, but not
Federal Reserve.

MR. BELL: Don't they think community-wise rather

than State-wise?

MR. GAMBLE: You have a State pride. It has taken

two years to set up a national organization on a State
basis. Now--

MR. BELL: I am not arguing for it. I am just

asking.

MR. GAMBLE: I am perfectly willing to see that
organization adjusted to meet the Secretary's problem.

But I don't think you would want to see - and I don't
think the Federal Reserve bank presidents would want

to see - if you sat down and said to them; "From now
on you are not only going to have the problem of
supervision, but you are part and parcel of the War
Savings organization and you are going to supervise
both" - so that you will know when your April drive

comes along and your August and November, that you have

got everyone in every community behind you in this

operation - I don't think, then, that they would want
to break it down, Mr. Bell.
Their problem is today that they just see half of

it because they have only been charged with the responsi-

bility of half of it. But if you charge them with the
responsibility of more of it, I think they are going to
start taking over the problem. I think they are going to
look at it a little differently because I think most of
them realize there is a value in our organization.

You solve your problems here in the Treasury with
your war finance committee.

H.M.JR: Well, the important thing is, supposing
you did this on this drive, who would sell what?

-9MR. GAMBLE: These people - all it changes is their

names, and we would immediately put behind them every-

thing we can get our people to do. They would be told
that we are not going to be able to do all of this and

get this organization working in its final form before
April, but that in the meantime we want everything put

behind us in this April operation.

Now, you settle it all right here because you

have everyone there (indicating) and here you have
all of your immediate--

MR. BELL: You probably don't settle it unless

somebody makes a decision. You add them all in at the

last. Nothing has been settled.

MR. GAMBLE: That is because each is still talking

about their own side of the road. This is on the

assumption we all go down the same road. You know who
makes the decision here.

MR. BELL: Somebody has to make decisions. It is
the same in the other committee. Somebody had to have

authority to make the decision after they heard full
discussion of it. It comes back to one man making the
decision anyhow.

MR. GAMBLE: That is right, you head up one group

and Mr. Graves the other. He is the man that is going
to put it in motion, and the decisions are going to be

made in this war finance committee. The reason you
want the decisions made there is because you have involved in that committee all phases of your operation.

H.M.JR: Let me stop now, and I will see you later

on during the day. That is that for the minute. Anyway, it is a constructive suggestion.
MR. BELL: Yes, it is.

February 18, 1943
2:20 p.m.

FINANCING

Present: Mr. Bell

Mr. Graves

Mr. Buffington

H.M.JR: I just thought that I would have a minute
or two with you gentlemen before I went across the hall.
Have you gotten anywhere?

MR. BUFFINGTON: This morning we started going
through the plan which George Haas suggested in his
memorandum. These three men, with Hap Young, do not

feel that they can do the kind of a job that they think
is required in April by doing it without a general
solicitation.
They don't think the plan set out in that memorandum will work practically.
H.M.JR: Which memorandum?

MR. BUFFINGTON: In George Haas' memorandum - the

plan of restricting the solicitation to the four hundred
thousand names.

They have considered the possibility of the

coordinator within each district. They don't think
that is practical.
They think the question finally resolves itself
into their having the opportunity or right for a general
solicitation for the month of April, with the War Savings
Staff directing its efforts during that period to pay-roll
savings.

-2MR. BELL: And with, as I understood it, the
privilege of calling on the War Savings Staff for help
in the drive.
MR. BUFFINGTON: That is right. Those not engaged

in the pay-roll savings would help them in general

solicitation.

H.M.JR: Who is here besides Hap Young?
here.

MR. BELL: Hap Young is the only other president
MR. BUFFINGTON: Patton, Fleek, Young, Hall, Hobbs,

George Haas, Lindow, and I met this morning first. Then

Dan was with us for a few minutes.

H.M.JR: This is what I thought of doing, Dan. I

thought I would tell Hap Young, and your man - what is

his name?

MR. BUFFINGTON: Which one?

H.M.JR: The Victory Fund manager.
MR. BUFFINGTON: Francis Patton.

H.M.JR: Who is the State administrator?
MR. GRAVES: Collins.

H.M.JR: What I thought I would do is this. We
don't seem to be getting anywhere here at the top, in
Washington. I thought I would tell Young and Patton
and Collins to sit down together, the three of them, and
then tell them what I want.
Then when they are ready, I would like to see them

without - alone. I mean, with you (Bell) and without
you (Graves) and without you (Buffington).
I would do the same with Cleveland. I would tell
these fellows what I want and see whether the three of

-3them in that territory couldn't get together and work

out a plan for that district.

MR. BELL: Are your men here from Ohio and from
New York?

MR. GRAVES: Yes.

MR. BELL: They would be paired off just right
except that the presidents would not be here.
H.M.JR: But the other two could meet, and then

I will meet with them by districts.

MR. GRAVES: Isbey should be in with Hap Young
and Collins.

MR. BELL: He isn't here.
MR. GRAVES: Yes, he is.

H.M.JR: I will simply tell them I want them to

resolve themselves into groups and tell them what I
want. Then if they think they have something - when

they have something they can come and see Bell and me.

I am not getting anywhere at the top here in

Washington, unfortunately. So let me see if they
can't get together on the community level.
Do you take any offense to that?
MR. GRAVES: No, sir.
H.M.JR: Do you?
MR. BUFFINGTON: No.

H.M.JR: I am not saying to you that they should
not speak to you in their considerations, but when
they come in here I want to see them as a district.
What do you think, Bell?

-4-

MR. BELL: I think that is all right.
H.M.JR: There seems to be friction around here
which I was not cognizant of.

It is like the F and G's. If I had stayed around

here I would have thought that I was committing hari-kari;
then I go out to St. Louis and Kansas City, and everything is lovely.

So I just want to ask - I mean, I don't want to

pop something which you might take offense to or object
to.

MR. BUFFINGTON: No, we want the result.

H.M. JR: Do you think that is all right?
MR. BELL: Yes, from my angle. These (Graves and

Buffington) are the boys involved. I think it is a
good suggestion.

H.M. JR: I told them to lock themselves in a room,
figuratively speaking, and nothing has happened. Now,

let's try it this way.

MR. BELL: It is a smaller group. Maybe something

will happen.

H.M.JR: Then I will meet with a smaller group.

Maybe Cleveland or maybe Chicago can work out something.
Maybe they have a pattern.
Now, Gamble came through with something which was

helpful in the field. I take it he has told you.
MR. GRAVES: In a very general way.

H.M.JR: I think I will try it this way. I have

got to put these fellows to work. They are sitting
around and not doing anything, aren't they?

-5MR. BUFFINGTON: They are doing a lot of talking.
They have been discussing it ever since they came in
this morning.

MR. BELL: They have not been together. They
have been discussing it all morning.

H.M.JR: The thing is gradually taking a plan in
my mind.

Let's go in there.

February 18, 1943
2:30 p.m.
FINANCING

Present: Mr. Bell

Mr. Graves

Mr. Buffington

Mr. Sloan

Mr. Hobbs
Mr. Gamble

Mr. Haas
Mr. Coyne

Mr. Patterson
Mr. Isbey

Mr. Moore

Mr. Trounstine

Mr. Collins

Mr. Young

Mr. Fleek

Mr. Hall

Mr. Patton

H.M. JR: We have asked you gentlemen to come here to

help us solve a problem which for the moment seems difficult,

but I am sure solvable. It is this, that in the next

drive which we are going to have, where we are going to
have to raise somewhere from thirteen billion dollars up,
Mr. Bell and I are desirous that everybody who is associated
with the Treasury - that has anything to do with selling
a war stamp or a bond - put his back to the wheel and help
us.
Now, as far as Washington is concerned, while we

haven't done it yet on paper, I don't think we will have
any trouble here. Mr. Bell and I are the bosses, and we
haven't had any trouble in being recognized in our capacity.
What I am anxious for is to get in each State and in each
county the combined forces working together for selling
Treasury securities.

We have made some suggestions, but we haven't made

much headway. The time is passing, and we have to get

-2over this organization phase and get down to business.

We asked you people in, thinking that after all it is
in the territory that this thing has to work, not here
in Washington.

If we could get you together here, rather than
have you go around from one district to another, which
you won't have time to do, we might be able to work it

out with you. What I would like to suggest is this:

We have invited the presidents of the Federal Reserve
for New York and Philadelphia. They are not here yet,

but they will be here Saturday and Sunday. If you think
well of this suggestion, for instance, to have Mr. Young,
who is president of the Federal Reserve Bank in the
Chicago District and who represents me there, both as
fiscal agent and as my representative on Victory Fund,

to sit down with Mr. Collins, our State chairman for

Illinois, and any other State chairmen in his district,
Mr. Isbey, and Mr. Patton, who is administrator for the
Federal Reserve - I am just using that as an example.
I would like you people to get together, and have the
thing duplicated in each territory where there are

opposite numbers, so to speak, with this in view: It
has taken us since 1935 to work up this thing, first
with Savings Bonds, and then we started just about two
years ago to work up this War Savings thing on a State
basis.

I think we have a grand organization in War Savings

Bonds. They are enthusiastic. The majority of the people

are volunteers, and they have done, against the most
unfavorable publicity possible, an almost unbelievable

job of getting twenty-five or thirty million people on
the pay-roll allotment plan. It is the hardest kind of
selling to do, because it is the greatest number of
people, and it is in small units, but they have done it

against constant unfavorable pressure, mostly here from
Washington - unfortunately from some of my associates
who work for Mr. Roosevelt - but, notwithstanding that

they have done it. It is a dynamic thing, and I think
it would be the height of stupidity to overlook it or
to throw it away.

-3The Victory Fund people in December did an excep-

tionally good job. They sold the people in the upper

brackets close to thirteen billion dollars, and they
did it with salesmen giving their time. It is one of

the greatest successes, I suppose, any company has ever

seen. They are dealing with a special class of people,
and a special class of corporations. I was very careful
at the time to point out to them that I did not want
them to go down into - for a better word - the masses.
I limited the bonds to five hundred dollars, and so forth,

and so on.

In many communities they are not organized at all,

and it would be very difficult for them to get organized,
because there are no security salesmen in a lot of these
places. I mean, to use the extreme example, the States
of Idaho and Nevada are very difficult to cover, but you
might perfectly well in almost every county in Nevada or
Idaho have a War Savings man.

The Red Cross, I suppose, is organized in every
community. They have been able to do it, but they have

one organization. It is the only organization in the
country that contacts me every year.

Now, taking New York, which I know a little bit

better geographically - I don't want to for this drive,
say, divide New Jersey in half and lose the identity of
the State. On the other hand, Newark is in the metro-

politan area, and Trenton belongs to Philadelphia. We
have a good organization in the State of New Jersey.

I don't know just how it can be worked out, but it
certainly can't be insurmountable. It is one-thousandth

as simple as moving several hundred thousand troops over

a period of a month and getting them all through Gibralter
at the same hour. Now, if the Army and Navy can work out

a logistics problem like that, we certainly ought to be
able to work out a simple problem.

We are all human; we all have the same interest; we

all want to sell Government securities; we all live in
the same country; and we are all friends.

-4MR. BELL: We are all working for the Treasury.

H.M.JR: All working for the Treasury, whether it
is New York, Chicago, or Philadelphia. If you sit down,
with everybody realizing what the objective is - and
that is that for this drive we all put our shoulders to
the wheel and put this thing over.
As I say, in down-state Illinois you (Young) may
perfectly well say, "I haven't any securities salesmen

in ten counties. Collins, will you take those ten counties
off my hands? I don't want to go in - I haven't the time.

Northern Michigan may never have seen a security
salesman; I don't know. There is money up in "them
thar hills" around some of the copper mines where they
are working, and there might not have been a security

salesman there since 1929. I am just using these as
examples.

I may be wrong, but Elmira, New York, may not have

one, and, on the other hand, they may. But if you said,

"The lower counties of New York State are covered by War

Savings; for heaven's sake, take it, and we won't attempt

to take it. Those counties are yours. We just can't go
in there. The securities business has died out."

I am using general statements. There may be a swell
little firm in Binghamton or Elmira, and they may have an
active salesman; but, on the other hand, they may not.
You might just say, We can handle Buffalo, but when it
comes to that lower territory in New York State, you,
the War Savings Staff, can go in there exclusively. "
Frank Knox had lunch with me today, and he was telling

me about the drive he is putting on for a battleship - his

paper - forty million dollars; Atlanta, thirty-five million dollars, or thirty-seven, to replace the Atlanta.

Those kinds of things are all good. They are all helpful,

and we don't want to discard them. We don't want the
War Savings people to lose heart, because they shouldn't.
They have done too good a job. I want the Victory Fund
people on there, too.

-5I am looking to the twelve presidents of the Federal
Reserve Banks as my coordinators in the District. After
all, you are our best customer. I want to look to you
as a coordinator, and not as chairman of the Victory Fund.
I am looking to you (Young) as the Treasury fiscal agent
in Chicago. You are my man as far as this goes. You
are representing Bell and me in Chicago. I mean, you have
all of these things. You are not Victory Fund; you are

not Federal Reserve; you are not War Savings; you are

there for the Treasury, which capacity is agreeable to
the Federal Reserve Board here and to Mr. Eccles, as you
know. We thrashed that all out.

I have a perfect right, and it is perfectly proper

for me to ask you, or any of the other people, to represent

me on this thing. Chicago may be easy, Chicago may be

difficult, I don't know. But, it seems to me with this

time running fast against us that with your people here and if you want to send for any more, get them on the

train tonight - if you want Indiana or any other place I would like you to sit down and see whether you can't

work it out in your district and come in with a plan.
Now, I am going to ask New York and Cleveland to

do the same. I don't know whether everybody here in the
room would fall into the group of New York, Cleveland, or

Chicago - would they?
MR. BELL: Yes.

H.M.JR: Then, when any one of these groups are

ready, Mr. Bell and I are going to see you alone. We are
not going to allow either Buffington or Graves to come in.
I asked them if they would take any offense at that, and
they said, "No" - both of them. They said it was perfectly

all right.

The reason I am doing that is because both of them

are so loyal to their organizations that they both want to
keep their organizations going. That is why I like them,
and that is why I had them on the job. I mean, each fellow
thinks it is his crowd and his bunch and he has to fight
for them, which is right, and that is the kind of fellows
I like to have around. But, when you come to putting if you want to call it & shot-gun marriage - you have got
to have a sheriff. I am going to be the sheriff. (Laughter)

-6We will leave the papas out, because they are too pre-

judiced in favor of their favorite child. I think that

is a pretty good example at that. (Laughter) Each of
these operations is the apple of their eye, and they
have lived with it and for it, and each of them have
done a swell job. They are doing what I would expect
them to do, what I would do for the Treasury opposite
another department.

So, if you men would be willing to take that on and
divide up into districts, as soon as you are ready Bell
and I will be ready to see you. What would you like to
add?

MR. BELL: I think you have covered it very well.
H.M.JR: Young, you are the only fiscal agent here.

What do you think?

MR. YOUNG: It will be all right. I can see Mr.

Isbey and Mr. Collins.

MR. BELL: Mr. Fleek is here for Cleveland.
H.M.JR: Who else?

MR. BELL: Your man from Pennsylvania isn't here, is

he, Harold?

MR. GRAVES: I can have him tomorrow.

H.M.JR: Who is here from New York?

MR. BELL: Williams won't be here until Saturday.
down?

H.M.JR: Do you New York fellows want somebody else

MR. HALL: When did you say that Mr. Sproul was

coming down?

H.M.JR: Saturday.

-7MR. HALL: What did you contemplate, Mr. Secretary,
that I do, remain here and meet with him when he comes,
go back to New York and meet with him there, or how?

H.M.JR: You had better stay here. If you want
Friday in New York and will be back Saturday morning,

it is all right with me.

MR. PATTERSON: I was thinking of this, Mr. Secretary,
taking the thought of Perry Hall, that maybe we could
trot back to work - start work tomorrow and come back

Saturday.

MR. HALL: That was my thought.

H.M.JR: Look, it is up to you.
MR. PATTERSON: If that meets with your approval-me.

H.M.JR: Any way you want to work is all right with

If you are coming back Saturday, you had better
have some other State than New York. Let's have New
Jersey down.

MR. BELL: New Jersey and Pennsylvania are coming

down with Al Williams. I think I had better call Al
this afternoon and tell him what you told this group.

Harold should tell the administrators of Pennsylvania
and New Jersey the same thing.

MR. GRAVES: What do you want to do with the admin-

istrator of New Jersey, have hime come here or go to

New York?

H.M.JR: Have him here Saturday morning.

MR. GRAVES: The bulk of his business is in New York.
MR. PATTERSON: Could these others meet with Mr.
Hall and me in New York tomorrow?

-8H.M.JR: Any way that you want.
MR. PATTERSON: You want us to expedite this.

H.M. JR: I want to get a couple more State administrators in from War Bonds.
MR. GRAVES: Get Manning to go to work and have our
Delaware people and Pennsylvania people meet here on

Saturday.
close.

H.M.JR: Should we bring in Richmond? It is so

MR. GRAVES: I can have my people easily enough.
MR. BELL: We could get them.

H.M.JR: It would make another district.
MR. BELL: We can do that very easily.

H.M.JR: Might I suggest that when this is over,
Buffington - you decide with Graves what other districts
you want to bring in.
MR. BELL: Let's have Philadelphia and Richmond.

MR. FLEEK: Mr. Secretary, the Fourth District

president, Mr. Fleming, is in Florida and will not be

home until next week. We want to do whatever you want
us to do.
H.M.JR: We knew that.

MR. FLEEK: Did you want to have Mr. Einstein?
H.M.JR: I wanted you here on account of your

activity in originally helping me to set this thing up.
MR. MOORE: Mr. Secretary, do you want us of

Cleveland to work with Mr. Fleek, rather than Mr.

Fleming?

H.M.JR: Well, we discussed that, and we decided

that since Fleming was ill there was no use bringing

him in. But, if that district needs somebody else-MR. BELL: You mean an other State? We might talk
about that, but I should think maybe you two gentlemen

could discuss the matter, and then we could call Mr.
Fleming on the telephone either Friday afternoon or
Saturday and discuss it with him.
this?

H.M.JR: Is everybody willing to have a try at
(Affirmative response.)

want.

H.M.JR: You stay here and see what other ones they
MR. BELL: Yes, sir.

away.

H.M.JR: Maybe you can't do anything with Fleming
MR. BELL: I think we can.

H.M.JR: I think you want more than just Ohio.
MR. FLEEK: Western Pennsylvania and eastern Kentucky.

H.M.JR: In view of what I am suggesting, you may
want to bring in a few other people.

As I say, as soon as the first one hatches out, let

me know. Get some maps, and when I see you I would like
to have your maps and districts and what you are going to

do. Write down whether or not you are going to meld the

people, have everybody sell all securities, or is Victory

Fund going to sell one group and War Bonds another. I
mean, I would like to get a complete plan, you see.

I don't think - no one is arguing about pay-roll deduction, but are you going to use your (Patterson's) group? Are
these fine women that you have in the booths in New York

- 10 -

going to sell everything, the whole basket, so to speak?
MR. PATTERSON: They would like to.

H.M.JR: I mean, you have thousands of women there

doing a swell job. When you come in, I would like to

have it as near sewed up as possible.

I think there is enough good will in the people

so that before you go back home again we can have a
plan. We have got to, gentlemen, because we have to get

started. It isn't as though I were trying to amalgamate

the Treasury with a Chancellor of the Exchequer in

England. I mean, we are all in the same country, in the
same Department.

MR. ISBEY: This is purely for April, Mr. Secretary?
H.M.JR: No. We have got to get together. I mean,
I may not be able to go as far as I would like to in
April, but I think what we do in April ought to be a
step in the right direction so we don't have to take
two steps backwards. We here feel that certainly in

Washington it should be one place, one man, one boss,

and that should be duplicated in each district.

Unfortunately the Federal Reserve is not on State

lines, but I don't think that is insurmountable. I

don't want to give up my fine State War Bond organizations

and their enthusiasm.

MR. PATTERSON: I don't quite understand the job of
the coordinator, Mr. Secretary.
H.M.JR: You don't understand the job?
MR. PATTERSON: Not quite, no sir.

H.M.JR: The way I see it he is going to represent

the Secretary of the Treasury. He will be somebody under
the Secretary of the Treasury who I give my authority to,

- 11 and he will be the Treasury representative and the boss

for so many States, let's say for four States or five
States. He will be the boss.

MR. PATTERSON: In other words, in New York State,

where I am the chairman, on policy must I go to Mr.
Sproul?

H.M.JR: There will be a national policy laid down.
MR. PATTERSON: From Washington?

H.M.JR: I mean, it will be laid down from Washington,

and then it will be turned over to Mr. Sproul. It will

be up to Mr. Sproul to see in four or five States, whatever

it is, that the thing is carried out.

MR. PATTERSON: In other words, is he in charge of
operations from now on - I mean, Mr. Sproul?

H.M.JR: I don't know. I asked Sproul - and he can

tell you for himself - he doesn't want to do it this way.
What we did in Farm Credit - we had the same sort

of thing, and we had four different lending agencies. I

appointed twelve representatives of the Government in

Farm Credit, gave them full authority to work in the
forty-eight States, and we called them - what did we
call them?

MR. BELL: General agents.

H.M.JR: And they had full publicity, legal, accounting - everything - and they were responsible for these

four lending agencies as general agents of the Government

for Farm Credit. We looked up the book the other day,

and it is still that way.

MR. PATTERSON: I have just one final question, Mr.

Secretary.

H.M. JR: Mind you, I talked to Sproul, and he doesn't

like it this way. I have got to have somebody, and it is

- 12 too much from Washington to try to contact forty-eight
State administrators or three thousand counties, and
so forth, and 80 on, 80 somebody has to be the boss.
Now, the Federal Reserve presidents are fiscal
agents of the Treasury, and as such they are directly

responsible to me. They have all the contacts with the
banks. We need the banks; we need what the banks can

do for us. I am not saying that this is final, but this
is a suggestion I am making, and I am emphasizing the
fact that Sproul doesn't like it.
MR. BELL: You are asking them to get together on
a plan of coordination and cooperation in each of the

districts, and they are to work out--

MR. GAMBIE : Even if it means a merging of the two?

H.M.JR: Yes. I am not saying that the Federal
Reserve agent has to be the representative, but it is
the best suggestion I have had. I am asking you to
come back. I made that suggestion to Sproul and

Williams, and neither of them liked it.

MR. PATTERSON: Henceforth, Mr. Secretary, if that

were to go through, then I would no longer contact Mr.

Graves, Mr. Gamble, and Mr. Coyne, but contact Mr. Hall
or Mr. Sproul.

H.M.JR: You would go through the Treasury coordinator,

whoever he is?

MR. PATTERSON: In my district it is Allan Sproul.
In other words, everything I do would be with his approval?

In other words, he is my boss from now on?

MR. BELL: If this suggestion-MR. PATTERSON: I mean if it goes through, that

assumption --

H.M.JR: You people may come hack and say, "Morgenthau,

I am just throwing out a suggestion; this is the best I have."

- 13 -

Now, I am not telling you this is the plan; I am
saying this is the - I am telling you - in other words,
Sproul, nor Williams, of Philadelphia, like it. But I
still say that I haven't found anything better. Some-

body has to represent us. We have to divide the country

up, and somebody on the spot has to decide.

MR. PATTERSON I agree with you that you have to

have a boss.

H.M.JR: To answer your question - if I were writing
the ticket today and Sproul was the State administrator,

there would be an executive committee there; and if you

wanted something, he would be the boss on promotion and

advertising, and so forth, and so on.

MR. PATTERSON: Mr. Secretary, you must bear in

mind that he had better resign what he is doing now if

he is going to take this over. He can't do the job
and accept the responsibility. He can't do it in New York

State unless he resigns as president of the Federal Reserve
Bank.

H.M.JR: Well, those are the kinds of discussions

you fellows can have together. You can come in and say,

"All right, he can't do it." That is O.K., but then you

have to come back and say who can do it.

MR. PATTERSON: Perry Hall can do it.

H.M.JR: But, Dick, all I am saying to you gentlemen
today is please get together in the district and come in
with a constructive suggestion. That is all I am saying.
I don't think there is anybody in this room who agrees.
but what for this drive and subsequently we have to get
together.

MR. PATTERSON: All right, I am game, but I hate to

lose the best boss I have had in a long time: This fellow
here, Graves: I want that on the record.
H.M.JR: He is still here.

- 14 MR. PATTERSON: Yes, but I am through with him if
this business goes through.

H.M.JR: Only that he would be advising with me and
with Bell on what we should do as to War Bonds, Then

the thing would flow from here to the various districts,

and you would not be in direct contact with him any more
than the Buffalo branch of the Federal Reserve calls up

Mr. Eccles to find out what they should do. The country
is too big.
MR. COLLINS: Mr. Secretary, after we do bring in

these plans from the various districts, out of all of the

plans are you going to synchronize them and get them
through one plan which will govern the country?

H.M.JR: That is right, we will pick the best one.
MR. COLLINS: Would there be a possibility of saying
we will have the Federal Reserve submit one plan and the

Victory Fund another and the War Savings another plan?

H.M.JR: Don't come to see me on that basis. (Laughter)

No, I have had that, and I am full of it.

What I want is a Chicago District plan or a Philadelphia

District plan. They may not be at all alike, but talk

about it, and then we will take the best of each and get a
plan. But I have to get going next week, and you fellows
have to get to work. No, I have plenty of those.

In all sincerity, these fellows wouldn't be worth

their salt if they didn't think that their organization

was the best damned organization that there was. That
is the kind of a fellow we have around here.

MR. ISBEY: I agree with you on that.
MR. PATTERSON: I agree with you provided the

president of the Federal Reserve District resigns, and on
no other basis - unless you request me. That is something

different. (Laughter)

- 15 H.M.JR: You remind me of when I first went up to
Albany in the Conservation Department. I took Judge
Rosenman around the park and I said, 'Sam, I just can't

do this. I won't do this; it is absolutely wrong."

He looked at me and said, "Henry, when you are in
politics never say you can't do anything, because you
never know when you may have to." (Laughter)

So let's have a try; and just as soon as the first
gang is ready, let me know. Anybody can talk to anybody

else. It is one great big happy family, I hope. (Laughter)
I am available at any time.

61
FEB 18 1943

Dear Electors

I have your note of February 12. 1943. enclosing the letter written
you by Impel 6. Follock, of New York city. regarding the tomotion of
pensioners.

The present provisions of the income tax Inc are designal to separate
possion reseipts into two parts. One part is considered to be a return of
the pensioner's capital, the assess he OF the pet date the fund. the other
includes any contributions made w the employer and the interest earned the capital is the fund.

so make this opporation, the statute - provides that eat of wash

year's pension rescipts - - equal to a persons of the - contributed
to the fund w the pencloser shall be considered earnings of the pencloser's

capital. those earnings. 1 interest and dividends - other Invoice
are texable I the additional mounts received are treated as the
return of capital and eminied free income for tax purposes will the -

signer has received free of tax on - to his total payments into

the fuel. thereafter. all pension reseipts are treated as taxable -

state the interest earnings on the feed and employer's contributions were

not taxed over the years when the fund was accumulated.

Recipients of pensione are entitled to the personal accouptions allowed
unies the iscuse tax, the earned income exolit, and other allowable detections.
Generally those allowance represent a substantial portion of the presentes
Income which is subject to tax. Miss Follook montiess the cost of medical

are and you - wish to all her attention to the - provision in the Inc

which allows the delection of oppositures for metional care in - of

8 persons of not I (mg to a - of n.m.). and which - be of
considerable benefits to her.

Z - this information will be helpful to you is considering Miss

Follows Letter, which is being returned to you.

Affectionately,
(Signed) Henry

Mrs. Freekifs a. Receivelt
the white House

PKH

- 706FILE
ER
COPY

3-16-48

Harress
RB

22 East 29 Shut
<

her gut city
Feb. 1943/1
Urs Franklin D. Rmult

father

nur Day Would telegram am m
my dear Wrs ReneveltS am writing regar ar diug
the taking of the pensions 7 deluly schural be clurs
These persons have earned then pensions hard

unr-here there span of life is hita very few

years- their earning Jamas part - they is
fevally weed then small pusines - went
are m Jucle malete - as a life of teaching
S nearing

m my oum case J am 65 years old- after
6

41 years of waching - in from Health - having
had a perus 7 oper alimo - my salary was

cry small during most of my eaching earner

and so there are small savings my
purum S harely enough In my simple nuds
and unr a large propotion s being didusted
In Cart alim

antrup alina 9 itus - Shave applied 7x
employ munt at unt of the teaching agency,
and the general agen cus - to he lold that

J am too old

hent it Jan to et sect some exemption m
the cases of retered voclurs me 65 years dd

I am very much interested m the War Effnt
my only histure was killed m a tim in the
World Nar ,

XILL

Yours sincerelyL4.

P
he r. Pallock htt publication )

64
#

THE WHITE HOUSE
WASHINGTON

February 12, 1943

Referred to Honorable Henry Morgenthau
by Mrs. Roosevelt

GROVER

COPY

22 East 29 Street
New York City
Feb. 3, 1943

Mrs. Franklin D. Roosevelt
My Bay World Telegram, N. Y.

My dear Mrs. Roosevelt -

I am writing regarding the taxing of the pensions of elderly

school teachers. These persons have earned their pensions hard.

Now when their span of life is but a very few years . their earning

powers past - they especially need their small pensions - most are

in feeble health - as a life of teaching is wearing.

In my own case I am 65 years old - after 41 years of teaching in poor health - having had a series of operations - my salary was
very small during most of my teaching career - and so there are
small savings. My pension is barely enough for my simple needs.
And now a large proportion is being deducted for taxation.

Anticipating this - I have applied for employment at most of
the teaching agencies and the general agencies - to be told that

I am too old,

Isn't it fair to expect some exemption in the cases of retired

teachers over 65 years old.

I am very much interested in the war effort. My only brother
was killed in action in the World War.
Yours sincerely,

/s/ I.G.P.
(Isabel G. Pollock - not for publication)

Congress of Industrial Organizations
CIO
718 Jackson Place, N. W. . Washington, D.C.
OFFICE OF

EXECUTIVE 5581

THE PRESIDENT

February 18, 1943
A

The Secretary of the Treasury

The Treasury Department
Washington, D. C.

Dear Mr. Secretary:

I have just received your letter of February 10,
and the Treasury Department certificate for distin-

guished services in the War Savings Program rendered by
the CIO, for which I express grateful acknowledgment.

It is a source of satisfaction for our organizain these and all other matters affecting the successful
tion to cooperate with the Treasury and the Government

prosecution of the war.

Sincerely yours,

President

FEB 23 1943

-19/43 67

My dear Mr. Murray:

It gives - great pleasure to hand you
herewith a citation recording the thanks and
appreciation of the United States Treasury Department for the admirable service and cooperation of
the Congress of Industrial Organizations in the
War Savings Program. Neither the Treasury Department nor I personally have over called upon your

organisation or yourself for help in the national

was effort without being not with a most generous
response. a has been one of the most encouraging
features of our program to have had the sholehearted
cooperation of the millions or officers and members
of the great labor bodies which you represent. This

citation is only a gesture of our recognition, but

it is a sincere and wholehearted gesture.

Very cordially yours,

Philip Murmay, Kaq.,
President,

Congress of Industrial Organizations,
716 Jaskeen Place, N. W.,
Washington, D.C.
JLH:G

AMERICAN FEDERATION OF LABOR
Executive Connell
President WILLIAM GREEN
Decease

MEANT
D.C.

D.C.

Man

SECURITY

DISTANCE TELEPHONE NATIONAL 3870-1-2-3-4
CABLE ADDRESS AFEL.

Washington, D.C.

February 18, 1943

Honorable Henry Morgenthau, Jr.

Secretary of the Treasury

Treasury Department
Washington, D. C.

My dear Mr. Secretary:

I am profoundly grateful to you for the citation
which you sent me expressive of the appreciation of the
United States for the service and cooperation of the

American Federation of Labor in the War Savings Program.
You honor the American Federation of Labor very greatly

through the fine tribute you pay it.

It has ever been the purpose of the American

Federation of Labor to give to you, as Secretary of the
Treasury and to those associated with you in the
development of the War Savings Program, a full and
complete measure of support. Please rely upon us to
continue giving to you the generous and wholehearted

support of the American Federation of Labor. We will
gladly respond to any call you may make for service and
help.

When
Very sincerely yours,

President,
American Federation of Labor

FEB1943

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION

DATE Feb. 24, 1943
TO:

Mr. Horace Peters

FROM:

Gilbert E. Hyatt

RSH

Here is another letter, a companion to the one received
from Mr. Murray.

You may be aware that Mr. Houghteling is contemplating
a ceremony at which Secretary Morgenthau will present these awards
in a more formal manner. Perhaps a reply and acknowledgment can

await such action on the part of Mr. Houghteling.

Enclosure

February 18, 1948

Dear Mr. Davis:

I acknowledge your letter of
February 10th, informing me that
Mr. James R. Brackett will become

your Deputy Director for the
Treasury Department.

I have informed these of the
Treasury staff who are concerned
with information matters of
Mr. Brackett's appointment, and
we shall be happy to work with him.
Sincerely,
(Signed) H. Morgenthan, Jr.

Mr. Elmer Davis,
Director,

Office of War Information,

Washington, D. C.
SBC/Lk

Photo file in Diary
File to Thompson

Yeston

OFFICE OF WAR INFORMATION

FEB

WASHINGTON

OFFICE OF DIRECTOR

February 10, 1943

The Honorable

The Secretary of the Treasury
Washington, D. C.

Dear Mr. Secretary:

As you know, Mr. James Allen has been for some time
representing me as Deputy Director for your department.
Mr. Allen has been more and more taking on the duties of
Assistant Director in the Domestic Branch until now we are

asking him to devote himself entirely to that field.
Replacing him as the Office of War Information Deputy
for your department will be Mr. James R. Brackett. Mr. Brackett

comes to us with a wide background of experience in newspaper
and government information work, having been for many years
with newspapers in South Dakota, New York, and Paris, France;

with the Associated Press, New York; later with the Securities
and Exchange Commission; and as Executive-Secretary of the
Temporary National Economic Committee. Most recently he has

been Executive Assistant to the Trustees of the Associated
Gas and Electric Corporation.

Mr. Brackett will represent me fully in your department

on all matters of information policy. It will be his duty to

keep this office thoroughly informed of all d evelopments in
your department which may affect information policy. Similarly
he will be prepared to keep you and your staff advised of views
of the Office of War Information, and to cooperate in making
available to you the full assistance of our staff and the

facilities of our office.

With kind personal regards, I am,
Cordially,

Elmer Dans
Elmer Davis

Director

1943

February 18, 1943.

Dear Mr. President:

I am enclosing a suggested reply to the
letter to you, dated February 5, from Senator
James M. Tunnell of Delaware.

Faithfully,
(Signed) H. Morgenthau, Jr.

The President
The White House.

Del. by Mess.Brown 4:27 2/18/43

Photo file in Diary
File in Gaston's office

Suggested draft of letter for The President's signature. 73

My dear Senator Tunnell:

I am sorry that I have not had an earlier
chance to reply to your letter of February 5, in

which you suggest the appointment of Norman Collison

of Bridgeville, in place of James H. Latchum, as
Collector of Internal Revenue in Delaware.

In view of the pressure that is now on the
Bureau of Internal Revenue and all of the collectors'
offices as the March 15 payment date approaches, I

should like to defer for a time consideration of any
change in the Delaware district.
Sincerely,

The Honorable James M. Tunnell,

United States Senate.

with

74
THE WHITE HOUSE

gon

WASHINGTON

February 16, 1943

MEMORANDUM FOR

H. M. Jr.

For preparation of reply
for my signature.

F. D. R.
1.

Enclosures

THE WHITE HOUSE
WASHINGTON

February 6, 1943

EMORANDUM TO MISS TULLY:

Senator Tunnell of Delaware has asked

that the attached letter to the President definitely reach him personally for his consideration.
Knowing that if I place it in your most
capatie hands, Senator Tunnell will receive the
satisfaction he seeks, I am herewith turning same

over to you.

Sincerely yours,

James
EUGENE CASEY

Special Executive Assistant
to the President

Inc.

CAPPER KANS.
VANDEHIERS
WHITE

United States Senate

JR..
MINN.

COMMITTEE ON FOREIGN RELATIONS

February 5, 1943

Hon. Franklin D. koosevelt
President of' the United States
The White House

Washington, D. C.

Dear Mr. President:

I am writing with reference to the position
of Internal hevenue Collector for the District of Delaware.

The present Collector is James H. Latchum who has held this

position for several years. He is a man of ability and a
Democrat. However, I think n change is desirable. I sug-

gest the name of Norman Collison from Bridgeville, Delaware,
who is also of unimpeachable character, and is in my opinion

capable of performing the duties of the office efficiently.
Thanking
you for any consideration you may give
to thin matter,
I reunin

Very sincerely yours,

JMT:F

James JAMES M. TURNELL

February 17, 1943.

MEMORANDUM

TO:

Secretary Morgenthau

FROM: Mr. Gaston

There is attached a reply for your signature

to the President's memorandum of February 16 and

a suggested draft of reply for the President's sig-

nature to Senator Tunnell.

The present incumbent, Latchum, took office
on July 1, 1938, on the recommendation of Senator

Hughes, Tunnell's predecessor. Guy Helvering tells
me that he is only a passable collector but that he
would certainly not want to see any change made at

this time and only later if there is a prospect of

getting a substantially better man.

ns
Attachments.

TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE

Secretary Morgenthau

February 18, 1943

Frances McCathran
CONTROVERSIAL ISSUES BEFORE CONGRESS

1. Salary Ceiling - In his letter to Rep. Doughton made public
yesterday, President Roosevelt said that "the desire to
limit personal profits during wartime is no new thought",
and that while his executive order attempted to "correct
the inequity to the extent of the power granted" him (and
its legality was passed upon by the Attorney General, the
President added), Congress could now "make the limitation
adequate by extending it to the coupon clipper as well as
the man who earns the salary". If, however, Congress would
levy a special war super-tax on all income exceeding
$25,000 for a single person and $50,000 for a married
couple, regardless of source of income (including taxexempt securities), it would "substantially accomplish"
his purpose and consequently he would "immediately rescind"
his salary limitation order. But if Congress does not
pass such a tax, the President hoped that it would "not
rescind the limitation and permit the existence of inequities
that seriously affect the morale of soldiers and sailors,
farmers and workers, imperiling efforts to stabilize
prices, and thereby impairing the effective prosecution of
the war." This is the second time President Roosevelt has
urged the House Ways and Means Committee not to tack

amendments on to the Debt Limitation Bill which, as he said,
are "not related to the subject". Rep. McCormack, House
majority leader, said afterwards that if Congress doesn't
like the President's methods, it should accomplish his

objective of preventing "a lot of blood millionaires as
after the last war" in another way. Although Congressional
momentum to nullify the President's Salary Order probably
was slowed as a result of his appeal, leaders predicted that

the Disney amendment will pass the House easily. In a meeting
today of the House Ways and Means Committee, some members
said a move will be made to reconsider the action, but others
discounted the possibility.

War Loan Deposit Exemption Bill - The Senate Banking and

Currency Committee voted yesterday to report favorably on
the Wagner Bill which would exempt for the duration banks
from paying the FDIC assessment on War Loan Deposits, re-

sulting from the sale of securities by the Treasury to
the banks. Earlier the Committee had heard both Chairman
Eccles and Crowley testify in favor of the bill. Eccles
said passage of the bill would help the Treasury carry out
its heavy April financing, by making it easier for the
banks to participate in the handling of war loan deposits.
He also added that he thought the United States was doing
a "very bad" job of financing the war in comparison with
other countries and claimed this country is doing more
"borrowing through banks instead of directly from the people
than other countries". He suggested that the inflation

gap of $40,000,000,000 between purchasing power and available

goods be taken up through additional taxation and war bond

purchases.

3. R.A.C.C. Hearings - General consensus of opinion, expressed
in testimony before the Byrd Committee by banking and farm
representatives yesterday, was decidedly against government farm loans and the proposed revival of the Regional

Agricultural Credit Corporation. "It won't do the farmers

any good to lend them more than they can pay back," said
Albert Goss, the Grange head, and A. L. M. Wiggins, Vice
President of the Bankers Ass'n., added that the new program
under the RACC "will produce confusion, if not havoc, in

the production credit field". Senator George also claimed

that the Agriculture Department's new $225,000,000 farm

lending program "will torpedo the efforts of the Treasury
to finance the war program through the sale of war bonds
in country banks, and added that since "we are now facing
the greatest financing operations in the nation's history
anything that will weaken the credit structure

will weaken the whole Treasury financing program".

4. Independent Offices Appropriation Bill - After much debate, the House passed yesterday a $2,616,972,913

Appropriation Bill for Independent Agencies, after trimming
funds for the Budget Bureau, the Home Loan Bank, and the

Federal Works Agency. Restoration of funds of the National

Resources Planning Board, which was expected to be a major

issue, was ruled out on the grounds that the House could
not consider appropriations for an agency created by Execu-

tive order only. Elimination of funds for the FCC was
narrowly avoided by Speaker Rayburn's plea that this is
the only agency having control over the air.

80
NOT TO BE RE-TRANSMITTED
COP NO.
BRITISH MOST SECRET
U.S. SeCRET

OPTEL No. 56

Information received up to 7 A.M., 18th February, 1983

ASURY

1. NAVAL

HOME WATERS. 17th/18th. One of H.M. Destroyers sank one of 7 Eboats operating off LOWESTOFT.

MEDITERRANEAN. One of H.M. A.A. Ships previously reported torpedoed
(OPTEL 34) capsized in BOUGIE Harbour on 13th.
2. MILITARY

TUNISIA. 1st Army. On 16th enomy attacked U.S. positions in area
SIDI BOUZID-SBEITLA using 40-60 tanks. Confused fighting continued all day. One
U.S. infantry force was isolated north of SIDI BOUZID and withdrew leaving the

major part of its transport. Another force isolated 5 miles southeast of SIDI
BOUZID held its position during day and WILS still holding out on morning of 17th.
During 16th/17th enemy attacked and penetrated Allied positions three milos east
of SBEITLA from which U.S. troops were ordered to withdraw. Airfield at SBEITLA
has been evacuated. On 17th C U.S. holding force covered evacuation of THELEPTE

airfield (FERIANA). In order to conform to the situation in the south U.S. and
French forces in OUSSELTIA area are withdrawing to a chain of hills about ten miles
east of MAKTAR. During last few days U.S. losses in tanks have been heavy. Casual
ties are reported heavy and considerable number of guns and vehicles have been lost.
Eighth Army. Patrols now astride BAN Gardane-med.nine Road 17 miles
west of BaN GARDANE.
3. AIR OPERATIONS

WESTERN FRONT. 16th/17th. About 985 tons of bombs were dropped on

LORIENT. 17th. EMDEN and other adjacent targets bombed by five Wellingtons. Six
locomotives damaged by fighters in Northern FRANCE. 7 enemy aircraft caused some
damage to property on south and east coasts.

17th/18th. Aircraft were despatched - sea mining 12, anti-shipping
4, RUHR 2. One small ship destroyed, one probably destroyed.
TUNISIA. 15th/16th. Wellingtons dropped over 20 tons bombs on
BIZERTA docks. 15 Bisleys attacked M.T. near KAIROUAN. 16th. Gun emplacements

at SIDI SOUZID successfully attacked by 6 U.S. Bostons (A. 20).

CRETE. 16th/17th. Airfield Heraklion bombed by 5 Liberators (B. 24).

80
NOT TO BE RE-TRANSMITTED
COPY NO.

BRITISH MOST SECRET
U.S. SECRET

OPTEL No. 56

Information received up to 7 A.M. , 18th February, 1

AUGH

1. NAVAL

HOME WATERS. 17th/18th. One of H.M. Destroyers sank one of 7 Eboats operating off LOWESTOFT.

MEDITERRANEAN. One of H.M. A.A. Ships previously reported torpedoed
(OPTEL 34) capsized in BOUGIE Harbour on 13th.
2. MILITARY

major part of its transport. Another force isolated 5 miles southeast of SIDI
BOUZID held its position during day and was still holding out on morning of 17th.
During 16th/17th enemy attacked and penetrated Allied positions three miles east
of SBEITLA from which U.S. troops were ordered to withdraw. Airfield at SBEITLA
has been evacuated. On 17th C U.S. holding force covered evacuation of THELEPTE

airfield (FERIANA). In order to conform to the situation in the south U.S. and
French forces in OUSSELTIA area are withdrawing to a chain of hills about ten miles
east of MAKTAR. During last few days U.S. losses in tanks have been heavy. Casual
ties are reported heavy and considerable number of guns and vehicles have been lost.
Eighth Army. Patrols now astride BAN GARDANE-MED.NINE Road 17 miles
west of BEN GARDANE.
3. AIR OPERATIONS

WESTERN FRONT. 16th/17th. About 985 tons of bombs were dropped on

at SIDI BOUZID successfully attacked by 6 U.S. Bostons (A. 20).

CRETE. 16th/17th. Airfield Heraklion bombed by 5 Liberators (B. 24).

81
NOT TO Be RE-TRANSMITTED
COPY NO.

BRITISH MOST SECRET
U.S. SECRET

OPTEL No. 62

Following is supplementary resume of operational Pents covering
the period 11th - 18th February, 1943.
3

1. NAVAL
TNENT

2
4

HOME WATERS. On 10th evening an armed raider of about 5,000 tons
was sighted off CALAIS steering down channel and subsequently put back into
tried
BOULOGNE. On 14th afternoon she was located in DUNKIRK. Light Naval forces
unsuccessfully to intercept and aircraft made attacks on her both at BOULOGNE and
DUNKIRK.
MEDITERRANEAN. 5 enemy merchant ships have been reported sunk by
H.M. to TUNISIA Submarines decreased and 2 by probably about half sunk upon in addition last week. to small craft. Traffic from ITALY

SUBMARINE WARFARE. Believed that considerable force of U-boats is
in the area between NEWFOUNDLAND and ICELAND (c) but so far little activity has
developed. U-boats again appeared in the Cape area. During week ending 17th 16

attacks on U-boats made by aircraft and 14 by surface craft. 6 of those attacks
are considered promising, 4 of them being by surface craft.
SHIPPING CASUALTIES. Only 3 ships were reported to have been torpodoed during the week 13th to 19th. A British ship was sunk S.W. of CAPE AGULHAS
a U.S. ship was sunk South of PORT KLIZABETH and a Dutch tanker was torpedoed in
the MEDITERRANEAN, but was boached and later refloated. 2 British ships, one a

tanker, have been reported overdue in this country.

Trade imports in convoy into United Kingdom week ending 13th.

311,000 tons including 89,600 oil. After examination of all French controlled
shipping in North and West African ports agreement has been reached as to those

which shall be chartered to Allied C. in C. and those operated by French for their
African economic requirements. 9 French liners totalling 96,000 tons and 172,000
tons of cargo shipping will be chartered and 198,000 tons of smaller ships (many
reported at presont unseaworthy) will remain under control of French authorities.
French ships only will maintain services between North and Vest African ports.
2. MILITARY

TUNISIA. As result of German attack started dawn 14th our line
evening 18th ran along hills north and west of OUSSELTIA to SBIBA to which our
forces had withdrawn to conform, thence along high ground northwest of railway
SB.ITLA-FERIANA. Since withdrawn further to hills on west side OUSSELTIA valley
of strong British armoured and infantry forces have been brought south to hold north
SBEITLA and form an army reserve while Americans reorganize. U.S. casualties
heavy and at least 100 medium tanks, 60 guns and much transport lost. Enemy forces
battle employed FAID-SBEITLA operations estimated at least 1 Gorman armoured division with

groups of German infantry and 1 Italian battle group.

Eighth Army. Advance westward accelerated when causeway over
MARSTH marches TAGULEMIT area completed. One armoured division now pressing enemy into

position and 51st division moving up from TRIPOLI area where remainder
eighth Army concentratod. Reoponing TRIPOLI port proceeding most satisfactorily

FAR EAST. BURMA. Position north of AKYAB substantially unchanged.
Our of well further attacks have made little progress against Japanese defences consisting

north concealed
weapon
pits
great depth. Minor engagements have taken place
of MYITKYINA
and north
of in
KALEMYO.
3. AIR OPERATIONS

WESTERN FRONT. Day. High level attack by 65 U.S. Fortresses on
railway NAZAIRE docks. R.A.F. attacks on shipping, power stations, war industry and
Ours, 16 communications. At least 19 locomotives damaged. Enomy losses 17, 6, 9.
ST.

tacks missing. Night. Out of 2,093 sorties 44 bombors missing. 2 heavy at-

whole on town LORIENT when about 2,122 tons of bombo dropped. Results very successful,

supplies virtually devastated, water works destroyed, communications and power
affected. Other attacks on COLOGNE, MILAN and WILHELMSHAVEN
twice. 235seriously
sea mines
laid.

81
NOT TO Be RE-TRANSMITTED
COPY NO.

BRITISH MOST SECRET
U.S. SECRET

OPTEL No. 62

Following is supplementary resume of operational
the period 11th - 18th February, 1943.
1. NAVAL

ants covering
3

HOME WATERS. On 10th evening an armed raider of about 5,000 tons
was sighted off CALAIS steering down channel and subsequently put back into
BOULOGNE. On 14th afternoon she was located in DUNKIRK. Light Naval forces tried
unsuccessfully to intercept and aircraft made attacks on her both at BOULOGNE and

DUNKIRK

MEDITERRANEAN. 5 enemy merchant ships have been reported sunk by

H.M. Submarines and 2 probably sunk in addition to small craft. Traffic from ITALY
to TUNISIA decreased by about half upon last wook.

attacks on U-boats made by aircraft and 14 by surface craft. 6 of those attacks
are considered promising, 4 of them being by surface craft.

SHIPPING CASUALTIES. Only 3 ships were reported to have been torpodoed during the week 13th to 19th. A British ship WES sunk S.W. of CAPE AGULHAS
a U.S. ship was sunk South of PORT KLIZABETH and a Dutch tanker was torpedood in
the MEDITERRANEAN, but was beached and later refloated. 2 British ships, one a
tanker, have been reported overdue in this country.

Trade imports in convoy into United Kingdom week ending 13th.

311,000 tons including 89,600 oil. After examination of all French controlled
shipping in North and West African ports agreement has been reached as to those

which shall be chartered to Allied C. in C. and those operated by French for their
African economic requirements. 9 French liners totalling 96,000 tons and 172,000
tons of cargo shipping will be chartered and 198,000 tons of smaller ships (many
reported at present unseaworthy) will remain under control of French authorities.
Franch ships only will maintain services between North and West African ports.
2. MILITARY

FUNISIA. As result of German attack started dawn 14th our line
evening 18th ran along hills north and west of OUSSELTIA to SBIBA to which our
forces had withdrawn to conform, thence along high ground northwest of railway
SB.ITLA-FERIANA. Since withdrawn further to hills on west side OUSSELTIA valley
strong British armoured and infantry forces have been brought south to hold north
of SBEITLA and form an army reserve while Americans reorganize. U.S. casualties
heavy and at least 100 medium tanks. 60 guna and much transport lost. Enemy forces
employed FAID-SBEITLA operations estimated at least 1 Gorman armoured division with
battle groups of German infantry and 1 Italian battlo group.
Eighth Army. Advance westward accelerated when causeway over
marches TAGULEMIT area completed. One armoured division now pressing enemy into
MARETH position and 51st division moving up from TRIPOLI area where remainder
eighth Army concentrated. Reoponing TRIPOLI port proceeding most satisfactorily
FAR EAST. BURMA. Position north of AKYAB substantially unchanged.
Our of further attacks have made little progress against Japanese defences consisting
well concealed weapon pits in great depth. Minor engagements have taken place
worth of MYITKYINA and north of KALEMYO.
3. AIR OPERATIONS

WESTERN FRONT. Day. High level attack by 65 U.S. Fortresses on
ST. NAZAIRE docks. R.A.F. attacks on shipping power stations, war industry and
railway communications. At least 19 locomotives damaged. Enony losses 17, 6, 9.
Ours, tacks 16 missing. Night. Out of 2,093 sorties 44 bombors missing. 2 heavy atwhole on LORIENT when about 2,122 tons of bombs dropped. Results very successful,
town virtually devastated, water works destroyed, communications and power
supplies
seriously
affected.
Other attacks on COLOGNE, MILAN and WILHELMSHAVEN
twice. 235
sea mines
laid.

-2RUSSIA. DONETS Area. Successful Russian attacks on airfields near

KRAMATORSKAYA and GORLOVKA.

CAUCASUS. Russians appear still to be concentrating their main

activity on this front where weather has been good. Attacks were made on airfields
at SLAVYANSKAYA and TIMOSHEVSKAYA and also KERCHY and BAGEMOVO in the CRIMEA.

Russian Air Force also supported their bridgehead near NOVROSSISK by incessant
attacks on German positions. Increased bombing by Germans reported between KURSK
and OREL where some reinforcement seems to have taken place, probably from the
MOSCOS/SMOLENSK sector where air activity has been quiet.
4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS ON RESULTS OF AIR ATTACKS
ON ENEMY TERRITORY IN EUROPE.

HAMBURG. 30th/31st January. Considerable damage in docks to shipping

alongside shipyards and oil tanks. Interruption electricity supply.

station hit. DUSSELDORF. 27th/28th January. Opera house burnt out, main railway
WILHELMSHAVEN. 11th/12th February. Blind bombing attack - see OPTEL

No. 50. Ammunition depot of naval docks completely destroyed, area of 150 acres
completely
oil
tanks. devastated and explosion affected Deutsche Werke, other workshops and 3

TURIN. 4th/5th February. Photographs confirm fresh damage. Notably
Fiat Aero Engine Works, Fiat Steel Works, 4 other unidentified factories, one of
which still burning next day, several commercial and residential buildings damaged,
road viaduct over railway broken.
BERLIN. Reports on 2 night raids state Brosig Rhein metal works hit,
Templehof hangar destroyed, Opem repair depot and goods station badly damaged,

power station West Berlin hit resulting in failure some hours. Daylight raid 30th

January caused panic in streets.
5. HOME SECURITY

Extensive damage Swansea General Hospital by U.X.B. after evacuation.

Estimated civilian casualties week ending 17th. Killed 113, seriously wounded 202.

February 19, 1943
10:10 a.m.

FINANCING

Present:

Mr. Bell
Mr. Young

Mr. Collins
Mr. Isbey
Mr. Patton
Mrs. Klotz

MR. YOUNG: We met last night, and there was substantial agreement on everything.

This was our suggestion: That the War Savings

organization continue and even intensify the pay-roll
savings plan.

Second, that the "ar Savings shall have a directive issued by the Secretary of the Treasury to the

State administrators, that they offer their staff and
workers to the fiscal agent of the Treasury, the president of the Federal Reserve of Chicago; that as soon

as this drive gets under way, they shall offer the

services of all the employees other than those on the
pay-roll plan for the two weeks before and during the

drive.

We suggest that a national quota be established an over-all quota, rather than a quota for E Bonds and a
quota for the others. They agreed to having just one
quota so they could sell everything and there wouldn't

be any fights for this quota or that quota. Then also

we suggest that the national advertising be correlated
so that the objective is the quota - amount you want.

They all agreed to that. I finally got hold of Mr. Collins
this morning.

MR. BELL: There is one thing you didn't tell the
Secretary: That the directives from you would go through
the administrator in each State rather than to--

-2-

MR. YOUNG: Yes, we would map out the policy.

The State administrator of each State and his deputies

would meet with Mr. Patton and myself and we would work

out the policy and the working arrangement. And then
the directives to their own workers would be signed by
them so there would not be any absorption or any feeling
that they were losing out.
We would know what they were doing and map out the

policy. They would instruct their workers over their
own signatures, as before, for the month of April. So,
to all intents and purposes they are just working with
us and are still issuing the orders, and so there
wouldn't be any confusion.

This morning I finally got hold of Mr. Collins. He

said they had a meeting last night.
H.M.JR: Who is "they"?

MR. YOUNG: He meant all the war Savings adminis-

trators. He said, "Well, that is all off. We decided
as a unit that we are not going to be for it.' Those

were the words he used. "We will go our way and you go

your way, and the only thing that we are in favor of,

of what we have heard, is the Haas plan about you calling
on people of fifteen thousand and over and we taking the

rest. We will go our way, but we will go to you if
we have any differences of opinion. If we quarrel with
the Victory Fund, you iron out the dispute.

Cleveland apparently was - they copied Chicago's
statement and apparently there was an agreement there.

Mr. Fleek called Mr. Fleming this morning and read it
to him, and Fleming said that was all right with him.
H.M.JR: What time had you come to an agreement -

up to when?

MR. YOUNG: Yesterday afternoon - just our group, of
course, the two administrators and Mr. Patton and myself.

-3H.M.JR: Who are the two?
MR. YOUNG: Isbey from Michigan and Collins from
Chicago.

MR. PATTON: It didn't take us fifteen minutes
to come to an agreement with those two fellows. They
were very nice about it.

H.M.JR: Let me see if I understand this thing,

because this looks pretty much like this (indicating Bell's chart).

MR. BELL: Exactly like that, Mr. Secretary, only
on an informal basis rather than formalizing.
H.M.JR: Let me see if I understand it. What you
were saying was that I should get up a directive to
you as fiscal agent--

MR. YOUNG: And to the State administrators telling

them to report to me and offer the services of their

staff and workers other than those employed on the pay-

roll savings plan for the month of April.
(Mr. Isbey entered the conference.)

H.M.JR: Let me see where we were. I am to issue,
as you say - the understanding is that I am to issue a

directive to you as fiscal agent, not as chairman of the
Victory Fund. Is that right?
MR. YOUNG: The fiscal agent and to the State
administrators.

H.M. JR: Saying that I want the State administra-

tors to cooperate with the fiscal agent, both before
and during the drive, and make everything available
that they have.

MR. YOUNG: With the exception of the pay-roll
division.

-4-

H.M.JR: Now, let's just say, for a minute, that

that was done. Then what was your idea? I mean,
what use would you make of the people that the State
administrator made available?

MR. YOUNG: For example, take Mr. Isbey's State,

the State of Michigan. Mr. Isbey, the State adminis-

trator, Walter McLucas as chairman of the National
Bank of Detroit, and the manager for the Detroit area
would get together with Mr. Hoover and myself and map
out a policy as to the procedure and as to methods.
Then Mr. Isbey would go right ahead with his
workers and issue his own instructions, and they
wouldn't come from me or Mr. McLucas. They would
come from Isbey.

He would work and we would know what he was doing,
and we would keep him acquainted with what we were doing.

So there would just be a working out of this original

plan informally between us.

H.M.JR: Would you still keep your position as

chairman of the Victory Fund?
MR. YOUNG: Yes.

H.M.JR: But you would also be my coordinator in
your capacity as fiscal agent?
MR. YOUNG: That is right.

(Mr. Collins entered the conference.)
H.M.JR: Would you use these people? Would you give
them everything to sell?
MR. YOUNG: Yes, everything - E, F, and G - whatever

we had - the entire basket, short, medium, or long - whatever you decided on.

-5-

H.M.JR: How would you - for instance, take Chicago I mean, how would you divide up as between, let's say,
people that Collins had available - let's say he had a
lot of women available-MR. YOUNG: We would work it out to the best advan-

tage and he would issue the instructions.
MR. PATTON: The women are working for us, now.
MR. YOUNG: We could have a working arrangement

with all of our State administrators. There would not
be any trouble, and there would not be any so-called

face-saving.

They would be working as they always have, only
they would be coordinated and he would discuss things
every morning on policy.
H.M.JR: You wouldn't need anything more than

that from Washington?

MR. YOUNG: That is an informal directive. to the
State administrators asking them to go to the president
of the Federal Reserve bank and offer the services of

their staff and their workers for this campaign in
April, and making it very definite that they should
cooperate to the fullest extent, looking towards obtaining this quota, then leaving it to us.
H.M.JR: Do you mean a quota in your Federal
Reserve district?

MR. YOUNG: The over-all quota, then a quota for

our district, rather than a separate quota for each,
and so forth.

H.M.JR: But fifteen billion - so much of it is-MR. YOUNG: Say a billion and a half for the Seventh

District. Then we could decide with Mr. Isbey - he

has excellent ideas as to what the quota should be for

-6-

Michigan. We could have a self-imposed quota, and
as far as the county organization is concerned, we

could discuss that with him. If he has a better chair-

man in some county than we have - we could work that

out. It doesn't make any difference because the object

is to sell the bonds for that drive. They would be
selling everything, and the over-all quota is so they
won't have to strive for that individual quota on the
E Bonds.

MR. PATTON: That would only be for April, Mr.

Secretary.

H.M.JR: I understand.
MR. YOUNG: Definite instructions would not have

to be given. We could work that out between us. That

was my idea.

H.M.JR: I understand that after supper you had

a meeting and something else happened.

MR. COLLINS: We did discuss it somewhat.

H.M.JR: Who did you meet with, Mr. Collins?
MR. COLLINS: Mr. Isbey and Mr. Moore.
H.M.JR: Who is Mr. Moore?

MR. COLLINS: He is from Ohio - and Mr. Trounstine,

and we had dinner with Mr. Gamble and Mr. Graves and one

other. But we just had dinner with them; we didn't
discuss it except from the War Savings Staff point of
view. But I don't think that had any bearing on what
our action would be, Mr. Secretary.

H.M.JR: Where are you right now, at the moment?
MR. COLLINS: We are in disagreement and, I think,
subject to another conference.

-7-

H.M.JR: Because I got word from Mr. Bell that he
thought that you people were together.
MR. BELL: That is, when I went home last night
about half past six I understood you were pretty well
in agreement.

MR. ISBEY: We discussed it, Mr. Secretary. There

is no question about getting along all right, but I don't

think anybody here in Washington, or any State adminis-

trator, or any State chairman, can deliver his organization lock, stock, and barrel, like chattel goods, and
I have got too many fine men in our organization that

have worked for eighteen months.

I can't say that I am going to take the retail

program of Michigan under Mr. Webber, who is putting
in three thousand dollars worth of newspaper ads a week,

plus spending about sixty thousand dollars in cash of
his money, and say, "Now you are going to do this."

Take all the rest of our organization - because
they have been upset three or four times in this picture
with Victory Tax and a lot of other things. As you
said yesterday, "Keep it going along fighting. "

I think that, as chairman, I have to consult - we
want to make this goal. I don't say I failed in Michigan,
and I am not going to accept that.

H.M.JR: Who said you failed?

MR. ISBEY: This would look like we have failed.
H.M.JR: Why?

MR. ISBEY: Because you can't take a group for
thirty days and superimpose somebody else's boss; it

would be better off to get out of the picture and let
somebody else have it. We have sold all the E Bonds
that we have been asked to sell and--

-8H.M.JR: That's no - now, don't tell me that kind
of stuff like that, because you people - if you want

it straight, the War Savings Staff hasn't once come
up to what they said they would do - not once.
MR. ISBEY: I have in Michigan.

H.M.JR: Not the War Savings Staff. I am Secretary
of the Treasury - gawd damn it, they sit there and tell
me this bunk. I mean, what is the use of kidding me?
Now, they haven't once come up - I have had to sit here
and take it from Congress and take it from the press,
that we haven't once made the quota. It is Henry

Morgenthau, Jr. - it isn't you and it isn't this fellow,
but when a thing misses, who gets it in "Time" magazine who gets it all the time? I do.
MR. ISBEY: That is right. I want to help you do
this over-all job.

H.M.JR: All right then, don't tell me - the War

Savings Staff hasn't once come up to its promises not a single time. They told me they would have twenty

million. I am Secretary of the Treasury - I am not
administrator for the State of Michigan - and there

hasn't once - I don't know whether you have or whether

you haven't - I haven't examined the thing, but I
haven't seen a single State that has made its quota.

MR. ISBEY: We have. We made six percent more than

our quota.

H.M.JR: I would have to see it. Every month?
MR. ISBEY: Every month. We have never taken a
cut, Mr. Secretary.

H.M.JR: All right, but the War Savings Staff for

the United States hasn't once come up to its quota. Am

I right, Bell?

MR. BELL: I think you are.

-9-

H.M.JR: What is the use of sitting there - you

are down for a billion and a half for April. I have
got to get it. All this pretty talk about this - who
do they do it for? They do it for the Government this man that does this retail, he doesn't do it for
you - he doesn't do it for me-too.
war.

MR. ISBEY: He wants to do it for you, and I do,
H.M.JR: They go on because they want to win the

The one thing that we have got to do is to raise

the money. We can't bother the Commander-in-Chief

about this stuff. I can't go around and whine - and
these people - it is all impersonal. I am asking the

people to get together and you talk as though they were
your chattels.

MR. ISBEY: No, no, I just say, as a matter of

cooperation--

H.M.JR: All right.
MR. ISBEY: I would rather say "We are going to
do" - thus and so.

H.M.JR: But I am talking now in the room. I
haven't said anything about failure, and so forth and
so on, but I relied on the War Savings Staff for the
United States - the forty-eight States - and they haven't
once made good.
then.

MR. ISBEY: I would get a new War Savings Staff,
H.M.JR: They haven't once made good - not once.

What is the good of kidding ourselves on dollars?
They promise me that and they always fall flat, and I
have got to stand here before the representatives of

the press of the United States and I take it on the

- 10 -

chin because somebody told me they would have eight

hundred, nine hundred, or a billion dollars, or they

would have so many thousand people on the pay roll,
and never once have they come up to what they told me
they would.

MR. ISBEY: That is right. I will take that

responsibility for Michigan.

H.M.JR: But I have got to take it. All you have
got to do is read the papers, and it is always Henry
Morgenthau, Junior. It isn't Marriner Eccles, it
isn't the Federal Reserve, and it isn't Hap Young;
it is always Henry Morgenthau, Junior, and I have

always taken it. I have always taken it, and I have
always defended the War Savings Staff in public, and

I always will.

MR. ISBEY: That is right. I have told them that
you said you would take it three or four times and then

you wouldn't any more and they had better get busy.

H.M.JR: Now, gawd damn it, we are going to get

together.

MR. ISBEY: I don't think there is any question

about Mr. Young and our group getting together.

H.M.JR: I am going to sit around here until Sunday

night and if you fellows can't get together I have told
them I am going to write the directives. There isn't
going to be any face-saving about this thing. It isn't
a question of saving faces, it is a question of cnntinuing to deliver the money to the Commander-in-Chief;
that is what it amounts to. So that fellow doesn't
have to worry about this end of the thing the way he has
to worry about every other end. My gawd, whether it

is Wilson or berstadt or Nelson - all this stuff in
the papers. I wouldn't have anything like that in the

papers, and he doesn't have to worry. All he does, he

- 11 -

gets a piece of paper and he signs it, and that is the

only thing; or else he helps me by buying a bond before

the moving pictures, and that is the way it is going
to stay as long as I continue to sit here. We are all
of age.

MR. ISBEY: You are taking a different attitude
at me, sir.
H.M.JR: Taking it at you because you are the

toughest one of the bunch. If I can crack you, I can
crack anybody.

MR. ISBEY: If I had had anything to do with it at

the start, I would have been tougher than you have been.

You have been very considerate.

H.M.JR: You are one of the tough guys. If I can

crack you I can crack anybody.

You told me the other day, you said that as far
as the Victory Fund in Detroit, you could be chairman

of it.

MR. ISBEY: We could get along fine.

H.M.JR: O.K. Let's get along now.
MR. ISBEY: I wanted to come and discuss it some

more. I said to Hap that I would call at eight; I
called around eight-thirty and couldn't get him.

H.M.JR: But up to supper time everything was

lovely; then after supper all bets were off.

MR. ISBEY: No, no, the only discussion - nobody
can change my mind.

H.M.JR: What is your mind, now?

MR. ISBEY: First of all, you want to sell bonds.
Nobody is going to kid me about the bond selling business.

- 12 -

I know something about that in Michigan. I haven't
seen anybody yet that has sold as many bonds as

Frank Isbey in Michigan, so I am the authority in

Michigan to sell War Bonds. Right?

H.M.JR: All right.
MR. ISBEY: I put in a retail sales program which

was started in Michigan and was my idea, and it went

across the United States. I started the school program,
and that went across the United States. There wasn't

anything I started that failed. I am not egotistical
I called in the thirty-seven industrialists in '41 and

about that. I know what happened on the pay-roll savings.
got them to put it in en masse.

H.M.JR: I know. I have given you credit publicly

and privately, and I pulled you down here to teach the
other boys to do it.

MR. ISBEY: You are the chief and I will do whatever

you say. I just want to sit down and plan a little bit
further. I said yesterday, "How would we get down to
the counties? Who is going to be the boss there?"

You can't take an organization for thirty days.

Is this going to be a permanent arrangement? We have
got men that have been boss of F and G and haven't

been told to sell anything else. We have sold the F and
G Bonds, Mr. Secretary, in cooperation with the Victory

Fund Committee. We never stopped at any one time. There

is no dividing line in Michigan. You have got to have

the money; that is all. I believe, like you do, that
this is just like losing a battle. We have to get this
fifteen billion dollars, and I have - I am-H.M.JR: Just remember that the man in the county the man who works - he is working because we wants to win
the war and not because he likes you or he likes me.

- 13 MR. ISBEY: But you have to start out to build an
organization. You built one, believe me! You started
this organization. You started it better than anyone
started anything down here.

H.M.JR: But I told you in the room there, I put
it right on the line - I want to keep my State War

Savings Staffs; I want to keep my State administrators,
and I can do it.

MR. ISBEY: All right, sir.
H.M.JR: I can do that; it can be done. Excuse me
if I pace. I think that before we get done we may have

to bend some of the lines in the Federal Reserve. The

Federal Reserve Districts, if they had their choice, I
will bet you there isn't one that wouldn't want to
change the thing - do a little gerrymandering.

I mean, some of them just don't make sense today,
now that we have got airplanes and so forth and so on.

I mean, if I had to do it - I mean the way Detroit has

grown - I think Detroit should be chopped off and made

another district. I mean, it is a community entirely
by itself. Right?
MR. YOUNG: Sure.

H.M.JR: There is no reason why that shouldn't be
the thirteenth Federal Reserve District.

MR. YOUNG: It is, to all intents and purposes. We

just made it one last week.

H.M.JR: I am just using that as an example. There
is no reason why - I think State lines are good; it gives
you competition; it gives you your quotas, and it gives

you a lot of things. It gives you a lot of fine people.
I don't want to give it up. My gawd, we sweat hard
enough for two years to build this thing up.

- 14 -

MR. ISBEY: That is what I thought you said yesterday: "I am planning so it doesn't disintegrate and
"

overnight go to pieces."

H.M.JR: But I cannot - if I bring in as assistant
here to Bell and me the greatest organizer and salesman in the world, he still - the United States is too
big for any one man to cover, and you have to break it
down. You said so yourself the other day.

MR. ISBEY: I believe in the decentralization a
hundred percent.

H.M.JR: You have to break it down into districts.
MR. YOUNG: It is only thirty days, and what
difference does it make whether John Jones is chairman,
or Jim Smith? Make them co-chairmen - we can work that
out.

MR. ISBEY: Let's go back and finish our ordeal. I

want to finish it. I have got my fighting--

H.M.JR: Ordeal, or New Deal? (Laughter)
MR. ISBEY: You certainly have stood back of the
War Savings Staff, and I have been the fellow that has
said, "The Secretary has taken it on the nos e, and you
had better wake up.

MR. COLLINS: Let's not go into details, Mr. Secretary.

Give us five or ten minutes and we may be able to come back.

MR. ISBEY: A half an hour, or an hour.
H.M.JR: Go ahead, and when you are ready, give me
a ring.

- 15 -

MR. COLLINS: We did this thing in reverse last
July. The Victory Fund went to work under the State
administrator and sold F and G Bonds. It worked very

nicely in our district.

MR. YOUNG: We can work together.

H.M.JR: No, what I said in here, when I got a

little excited, I don't want magnified or blown up,

but I just had to shock you a little bit. (Laughter)
MR. BELL: I think we should have sent these men
back to Chicago last night and kept them out of the

Washington atmosphere. (Laughter)

MR. COLLINS: We would have been in agreement.

MR. ISBEY: I say this - we have to get the fifteen
billion dollars, whatever the quotais in Michigan.
H.M.JR: I don't care who they talk to because if they

made an agreement now and then these other people talked to
them they would be unhappy. Let them talk to anybody.
MR. PATTON: May I ask one question? My understand-

ing was that all we were to do - the four of us - was to
say what we thought would work in the Seventh Federal
Reserve District. We are not interested in the rest of

it. We are not supposed to say what should be done in New York.
H.M.JR: No, no.
MR. PATTON: That was my understanding. That is the

only part of the country we can speak for.

H.M.JR: How can this family get along in the Seventh

Federal Reserve District?

MR. ISBEY: You can look up the record for Michigan,

and when the Seventh District comes back they will still
lead.

- 16 -

H.M.JR: The Seventh District?
MR. ISBEY: Yes, sir.
MR. COLLINS: Do you want a temporary plan or a

permanent plan from us? I think we have been in disagreement in that, also.
MR. PATTON: The April drive plan, only?

H.M.JR: I think so, to see us through the April

drive successfully.

When you are ready, you let Bell know.

February 19, 1943
11:30 a.m.

FINANCING

Present: Mr. Young
Mr. Collins
Mr. Isbey
Mr. Patton

H.M.JR: Are you all smiling?
MR. YOUNG: We have all agreed to this (indicating
Seventh District memorandum, copy attached). We typed

it in a hurry.

H.M.JR: Let's put a few initials on this thing.
MR. ISBEY: Can't you take our word? (Laughter)

H.M.JR: I can take it, backed up by the stenotype
report and your signatures. (Laughter)

I haven't even read it. Maybe you are firing me I haven't read it. (Laughter)
MR. COLLINS: We are all resigning. (Laughter)

H.M.JR: That is all right. We will all resign

together. (Laughter)

(The Secretary read the Seventh District memorandum.)
H.M.JR: By number six do you mean a national

advertising policy?

MR. ISBEY: We mean a local advertising policy
which in our case in Michigan is equal to what the
national advertising policy has been.

100

-2-

H.M.JR: That is all right.
MR. ISBEY: That is the volunteer ads, Mr. Secretary.

H.M.JR: That is all right. I didn't understand it.
MR. ISBEY: I will explain number seven. I wouldn't
want any directive to go out of here before we could get
our key men in the War Savings Staff, the first part of
the week, together and say, "This is what is going to
happen," and then your directive goes out. Otherwise
it goes out ahead of time.
MR. YOUNG: It won't come as a surprise to them.

MR. ISBEY: We have to take the labor unions into the
picture, and a few more. They are on our staff.

H.M.JR: That is good. That is what I am trying
to do. I want to get your cooperation - I don't seem
to be getting it now.
I think this memorandum is splendid.
MR. YOUNG: The Victory Fund won't be getting credit

for all this? In any of our publicity or release we will

say the Victory Fund Committee and the War Savings?

H.M. JR: Or the Treasury Department - just the

Treasury Department.

MR. YOUNG: So there won't be any--

H.M.JR: The only thing you didn't put in here this is very encouraging. It pays to get mad, sometimes.
(Laughter)

MR. ISBEY: We have to hold you sometimes. You

get mad at the right time. (Laughter)

MR. PATTON: There is such a thing as righteous
indignation.

101

-3H.M.JR: The other thing which I would like to have
in here, unless it is self-understood, is that you (Young)

will act as fiscal agent in this, and not as chairman of

any one committee. I mean you are the direct representative. You are not a member of the Victory Fund nor the

War Savings. You are my fiscal agent. That is not in

here.

MR. YOUNG: In the preamble, Mr. Secretary, I

didn't spell it out, but I said-"

H.M.JR: Oh,

for the Treasury." Yes.

such bank acting as Fiscal Agent

MR. YOUNG: I was trying to tie it in, in that
statement, but it wasn't very clear.
H.M.JR: You ought to resign as chairman of the

Victory Fund Committee.

MR. PATTON: That doesn't maintain, in view of

the original setup-H.M.JR: What?

MR. PATTON: If the Federal Reserve bank presidents
were to resign as chairmen of the Victory Fund Committees,

it doesn't preserve the identity of the Victory Fund
Committees unless you immediately substitute somebody

else.

H.M.JR: What I am thinking of is this. Have I got

this picture right - that in the field there will be

Mr. Young, there will be yourself (Patton), and each
of the State administrators, who will form an executive
committee to decide everything on the spot?
MR. YOUNG: That is right.

H.M.JR: Now, all these other committees and every-

thing else will have to be subordinate to this.

102

-4-

MR. PATTON: Suspended for thirty days.

MR. YOUNG: That is the way we talked about.

MR. ISBEY: Yes, I thought we would get together

not to lose our identity as a War Savings Staff, but
stay and operate where we are.

H.M.JR: No, let's say the quota for the Seventh
Federal Reserve is one billion. Mr. Young represents

me, and he has an executive committee composed of the

State administrators and the Victory Fund. They
settle everything on the spot; they divide up the

territory, and 80 forth. This group sells everything
except pay-roll savings.

MR. YOUNG: That is right. The only thing is, I
don't think it would be necessary for any resignations

as chairmen of the committees. It would just be an
understanding between us that I am acting as your
fiscal agent.

MR. PATTON: And not in the capacity of chairman.
MR. YOUNG: And the two organizations are going to
work together.

MR. ISBEY: He is the neutral chairman.

H.M.JR: He is a direct representative of the

Secretary of the Treasury and speaks for the Secretary

of the Treasury. If I have any communication that I

want to get into that district, I send it to my chairman

and then, in turn, if he wants anything in War Savings
he does it through the State administrator or chairman
of each State.

MR. PATTON: That is correct.

H.M.JR: Or if he wants to send something to the

Victory Fund. Then we would have an executive committee

103

-6-

here that would meet, and if we wanted to do something
we would send a communication out from this office.
We would have a corresponding group here - somebody in
the War Savings Staff, somebody from the Victory Fund,
and Mr. Eccles representing the Federal Reserve Board,

and Mr. "X", if I can find him.

MR. PATTON: That would work beautifully in our

district.

H.M.JR: Then when we get out any directives they would

come from this committee.

MR. YOUNG: That is satisfactory, isn't it, Frank?
MR. ISBEY: Yes.

MR COLLINS: How about Mr. Harrison, for thirty

days, to assist you as the Mr. "X"?
H.M.JR: Harrison?

MR. ISBEY: I object to that, Mr. Secretary.
H.M.JR: Who is he?

MR. COLLINS: President of the New York Life Insurance
Company.

H.M.JR: To assist and help for this? That suggestion

has been made before. No.

MR. ISBEY: I think you are a pretty good director

of the War Savings program, Mr. Secretary.

H.M.JR: No, I need help. Without going in to

George - George never sold anything in his life.

MR. COLLINS: No, but he has a feel of the market;
he has a pulse for the feel of salesmanship.

104

-7H.M.JR: That isn't what we need, if you don't
mind. We have got plenty of pulse takers on the
Federal Security market.

MR. PATTON: We need audit takers.

H.M.JR: That is just why I used this excellent

man from the Manufacturers' Trust - what was his name?
Who did that swell job in New York?
MR. PATTON: Johnson did a grand job.

H.M.JR: The man that did all that organizing organized the house-to-house campaign.
MR. PATTON: There was a man who did a grand job
for the manufacturers.

H.M.JR: I meant before that on the house-to-house -

that small stuff.

MR. ISBEY: You mean the pledge drive?
H.M.JR: Yes.

Now, what I would like to do is - this is very en-

couraging. Mr. Gamble is, as near as I can make out,
room. He would like a chance to sit down and talk with
you on the field end, and see how it will work out-with
the War Savings Staff. So as the next step, I would like
the four of you to get together with Mr. Gamble, right
now. After you have talked with Gamble, I would like

ninety percent with us on this thing. He just left the

to see the five of you. I have got a plan here from

Gamble which he gave me a couple of days ago, which is

practically this plan. I have got to do it this way be-

cause some of the War Savings Staff are with me, and so on.
Gamble is entirely on his own; he has come in with this

plan. So, would the four of you meet with him?
MR. ISBEY: That is a good suggestion.

105

-8H.M.JR: The four of you. After you meet with Mr.
Gamble, alone, then meet with Mr. Buffington and see

what faults he can find with the thing. Then, after
Cabinet, I will see you again, but I won't be able to
see you until then. It will be after four o'clock.
O.K.

Feb19. 1943
11.30 H.M. 106

Mr. Frank Isbey, State Administrator for the State of Michigan;
Mr. Norman B. Collins, State Administrator for the State of Illinois;

Mr. Francis F. Patton, Executive Manager for the Seventh Federal
Reserve District, Mr. C. S. Young, President of the Federal Reserve
Bank of Chicago, such bank acting as Fiscal Agenty for the Treasury;
met and discussed methods of procedure and cooperation for the April
Drive.

The following suggestions, in order to be helpful, are offered
to the Secretary of the Treasury:
1.

We believe that time does not permit, prior to April 1, to
consolidate or merge the War Savings organisation and Victory

Fund Committees.

2. Prompt appointment of National Sales Director responsible to
the Secretary of the Treasury.

3. War Savings organisation should continue their efforts on
Payroll Savings plans.

4. A Directive be issued by the Secretary of the Treasury to each
State Administrator of War Savings organization to offer to

the President of each Federal Reserve Bank the services of the
staff and workers who are not employed on Payroll Savings plan.

5. That over-all quota be established for month of April.
6. The objective of all advertising should be the obtainment of
over-all quota.

7. Such Directive should not be issued until the State Administrators have had sufficient time to contact and inform their
organisation of the contemplated action for the April Drive.

9. All a

8. War Savings organisation and Victory Fund Committees shall main-

tain their identities.

of the
two organisations.
publicity
should make it clear that this is joint effort undertaking

be D.

Mani January

ts Patton

7eb19. 1943

11.30 H.M.

107

Mr. Frank Isbey, State Administrator for the State of Michigan;
Mr. Norman B. Collins, State Administrator for the State of Illinois;

Mr. Francis F. Patton, Executive Manager for the Seventh Federal
Reserve District, Mr. C. S. Young, President of the Federal Reserve
Bank of Chicago, such bank acting as Fiscal Agenty for the Treasury;
net and discussed methods of procedure and cooperation for the April
Drive,

The following suggestions, in order to be helpful, are offered
to the Secretary of the Treasury:

1. We believe that time does not permit, prior to April 1, to
consolidate or merge the War Savings organization and Victory

Fund Committees.

2. Prompt appointment of National Sales Director responsible to
the Secretary of the Treasury.

3. War Savings organization should continue their efforts on
Payroll Savings plans.

4. A Directive be issued by the Secretary of the Treasury to each
State Administrator of War Savings organization to offer to

the President of each Federal Reserve Bank the services of the
staff and workers who are not employed on Payroll Savings plan.

5. That over-all quota be established for month of April.
6. The objective of all advertising should be the obtainment of
over-all quota.

7. Such Directive should not be issued until the State Administrators have had sufficient time to contact and inform their
organisation of the contemplated action for the April Drive.
8. War Savings organisation and Victory Fund Committees shall main-

tain their identities.

9.All
should
that
this
is
a
of thepublicity
two organisations.
make it clear joint effort undertaking

Maria
it Fatton

b. D.

January

Feb19. 1943

11.30 A.M.

108

Mr. Frank Isbey, State Administrator for the State of Michigan;
Mr. Norman B. Collins, State Administrator for the State of Illinois;

Drive.

The following suggestions, in order to be helpful, are offered
to the Secretary of the Treasury:

1. We believe that time does not permit, prior to April 1, to

consolidate or merge the War Savings organisation and Victory

Fund Committees.

2. Prompt appointment of National Sales Director responsible to
the Secretary of the Treasury.

3. War Savings organisation should continue their efforts on
Payroll Savings plans.

4. A Directive be issued by the Secretary of the Treasury to each
State Administrator of War Savings organisation to offer to

the President of each Federal Reserve Bank the services of the
staff and workers who are not employed on Payroll Savings plan.

5. That over-all quota be established for month of April.
6. The objective of all advertising should be the obtainment of
over-all quota.
7. Such Directive should not be issued until the State Administrators have had sufficient time to contact and inform their
organisation of the contemplated action for the April Drive.
8. War Savings organisation and Victory Fund Committees shall main-

tain their identities.

9. All should make it clear that this is a effort

publicity joint undertaking
b. D.

of the two organisations.

Mana
75. Fatton January

Febl 19. 1943

11.30 #. M.

109

Mr. Frank Isbey, State Administrator for the State of Michigan;
Mr. Norman B. Collins, State Administrator for the State of Illinois;

The following suggestions, in order to be helpful, are offered
to the Secretary of the Treasury:

1. We believe that time does not permit, prior to April 1, to

consolidate or merge the War Savings organization and Victory

Fund Committees.

2. Prompt appointment of National Sales Director responsible to
the Secretary of the Treasury.

3. War Savings organization should continue their efforts on
Payroll Savings plans.

4. A Directive be issued by the Secretary of the Treasury to each
State Administrator of War Savings organization to offer to

the President of each Federal Reserve Bank the services of the
staff and workers who are not employed on Payroll Savings plan.

5. That over-all quota be established for month of April.
6. The objective of all advertising should be the obtainment of
over-all quota.
7. Such Directive should not be issued until the State Administrators have had sufficient time to contact and inform their
organization of the contemplated action for the April Drive.
8. War Savings organization and Victory Fund Committees shall main-

tain their identities.

should this
makeisitjoint
cleareffort
that a undertaking
9. All
publicity
of the two organizations.

b. D.

73 Patton

Thanks

110

February 19, 1943
4:15 p.m.
SPECIAL GROUP

Present: Mr. Bell

Mr. White
Mr. Gaston
Mr. Paul

H.M.JR: What I am doing is this, I thought I
would
let you people know that I am alive. I have got
fifteen minutes.
What I am working at is that Mr. Bell and I are
trying to reorganize our security sales organization.
We are having quite a battle, but we are making a little
headway.

MR. PAUL: With whom?

H.M.JR: We are reorganizing our whole method of
selling securities between this Victory Fund and War
Savings and Federal Reserve and the field, and here.

We still want to keep the control of it here, and we
still want the cooperation of the bankers and the
Federal Reserve and the War Savings Staff. We have

had quite a battle, but I think so far we are all right.

We got the Chicago District to agree, anyway.
MR. BELL: We got one out of twelve.

H.M. JR: I just didn't want you fellows to think

I was loafing these days.

I think it will be all right, but it is quite a

battle. It runs pretty deep.

MR. GASTON: I am glad it is your job and not mine.

111

-2- -

H.M.JR: I told them all that I would give them a

chance to get together. I have each group working by

territory. I told them that if they didn't do it by

Sunday night, -I would do it Monday morning. I just

want to let you know. If I get this done, then the

people can go into the field, and they have got a month

and a half to get ready for this next drive.

The thing is, they are trying again to take it
from the Treasury, but I don't think they will. After
ten years I don't think they will, will they?
MR. BILL: No.
H.M.JR: Paul?

MR. PAUL: They are voting now - that is the reason
I am here so early - they are voting on the various pay-

as-you-go plans. There are 80 many leaks about how each
man votes that I asked the Committee to excuse us in

order that it could never be said that we leaked, so
we are down here. We will get the vote, however, from
some of the members very promptly after the session.

MR. GASTON: After the newspapers have printed it.

(Laughter)

H.M. JR: If you can get it as quick as the "Wall

Street Journal," If you are good. (Laughter)

MR. PAUL: I can get it about as quick as anybody.
MR. BELL: Will they come out with a plan tonight?
MR. PAUL: They may. They will vote down Ruml, I
am sure. They may vote for the chairman's fifty-percent

Ruml Plan. I doubt it, though.

H.M.JR: At Cabinet the President asked me if I

had anything. I said, "No."

He said, "I don't suppose you will have anything

until April on your financing.

112
.

-3-

I said, "That is right." So, I don't-MR. PAUL: I didn't know for sure whether they
were going to vote or not.
H.M.JR: But they are voting?
MR. PAUL: They are spending the afternoon on it.
H.M.JR: What is a vote worth?

MR. BELL: Eight hundred thousand to a million
dollar man. (Laughter)

H.M.JR: I will say this here and on the record,
that I don't think anybody could have done as well or

more than you have.

MR. PAUL: Thanks.

H.M.JR: Anything else, particularly? I am going
to try to work you in tomorrow if I can, but this thing -

you see, we brought these people in for Saturday and
Sunday.

that.

I gave you your increases. You tell the boys.
MR. PAUL: I did as soon as I heard. I have done

H.M.JR: I will try my best to work you in, but

Bell and I have to work with this crowd Saturday and
Sunday.

Harry?:

MR. WHITE: There are a few things, but I am sure

they are not urgent. One you might want to settle
outside. We are now ready for Pehle's group and Paul's

and ourselves.

H.M.JR: Do you want to take me outside and each

take our coat off? (Laughter)

113

-4MR. WHITE: No, it is one of the things we may not

want to get into. We are ready with all the material

for the taking of a census of foreign property owned by

Americans. It is a very laborious and difficult job to
get agreement upon among all the departments.

H.M.JR: I approved that in principle.
MR. WHITE: Yes, you did. Since then there has been

a little disturbance on the Hill about getting questionnaires, but there apparently will be support for this one.
The next step is with the Budget. If we get the Budget
approval, it is allright to go ahead?
H.M.JR: Sure.

MR. PAUL: We appeared at the Appropriations Committee-H.M.JR: I read your memorandum about Senator Lodge

saying you should get an E flag - you mean on Foreign

Funds?

MR. PAUL: No. We appeared again on Roy Blough
and Stanley Surrey this morning, and Senator George

attended and gave us quite a boost - not only he, but
Senator Lodge put it on the record about what a good
job we were doing.

H.M.JR: George has been all right, hasn't he?
MR. PAUL: He certainly acted swell this morning.
I will show you his remarks on the record.
MR. BELL: Lodge seems to be getting friendly.
He was friendly to Harold Graves, too.
MR. PAUL: He was very friendly; he went out of

his way. He said that he didn't see how we got the

work done.

MR. BELL: So was Tydings friendly to the Treasury.

114

-5H.M.JR: I think some of the - you have to give

some credit to these State War Bond organizations. I
think that they have had influence within the State
which we just can't throw away - if for no other
reason - well, that sounds good.
MR. WHITE: The Canadian thing is ready to go.
It should go before that Wallace Committee.
H.M. JR: What is the Canadian thing?

MR. WHITE: You remember we were going to make a

recommendation with respect to their dollar assets.
The next step is to submit it to that committee.
H.M.JR: I would do it.
MR. WHITE: All right. There are the International
Stabilization Fund letters which are ready for you to
send. We haven't heard from Berle. It is a matter

they have made almost no progress on in seven or eight

weeks. I think we ought to go ahead and just send them.
MR. BELL: They were to have them ready two weeks
ago last Tuesday.

H.M.JR: Who signs the letters?
MR. WHITE: You ought to sign them. What I would

suggest we do is to just take the certain ones; leave
out the uncertain ones until the later date, the uncertain
ones being the exiled governments.

H.M.JR: Would Mr. Hull - don't they have to go
through Mr. Hull's office?

MR. WHITE: Not this letter signed by you. It is
a letter which keeps - you remember-H.M. JR: Couldn't I do something--

MR. WHITE: They agreed on the letter.

115

-6H.M.JR: Mr. Hull has?
MR. WHITE: Berle did, and before Berle came I
asked him whether he was speaking for Mr. Hull or not.

H.M.JR: You write a letter like this: "Dear
Cordell: I am sending the attached letter to the

following people. Just so there could be no misunderstanding, would you mind indicating your approval and

returning this letter to me."

MR. BELL: Before you went away, you asked me to

get in touch with Hull and have that meeting. I did,

and he sent Berle as his representative. We had that
meeting. Berle said that he would informally discuss
this memorandum with the British, the Chinese-MR. WHITE: Which he did.
MR. BELL:

and the Russians.

MR. WHITE: He sent them a letter very much like-MR. BELL: One week after that he said we could

send this letter to those governments on that list.

That is the last we have heard.

H.M.JR: Just so there can be no possible misunder-

standing, I simply would send this little note to Cordell,
"I would appreciate your approving this thing, so there

can be no possible misunderstanding between our two
departments. Then we make the record and it comes back.
Do you gentlemen approve of that?
MR. WHITE: Yes.

H.M. JR: You fix that up for me, and I will send it

to him.

MR. WHITE: There is a third item, which I think

has been taken care of. You asked me to show you this
memorandum by Phillips on the exchange values of

currency of various invaded countries. Now, Dan is

116
7-

calling a meeting for Monday or Tuesday, at which there
are a number of other questions that are coming up, as

well as that. That takes care of that.
There is a third matter which is more important to

me. Three months ago I asked your permission to give

E. M. Bernstein an increase, to give him seventy-five
hundred. At that time you told me to see you within
another month. He very richly merits it.
H.M.JR: It hasn't come to me. Do you mind waiting

until Norman Thompson comes back?

MR. BELL: That will be Monday.

H.M.JR: We have arrived at a sort of rule which we

are following now. If it is just a question of increase
and not creating a new position, it is all right; but if

has to create a new position, we don't want to do it.
MR. WHITE: It is an increase.
MR. BELL: What does he get?

MR. WHITE: Sixty-five hundred.

MR. BELL: That is a thousand-dollar promotion. That

will be the difficulty of going over the steps.

H.M.JR: See Norman. Then if you don't get what you
want, see Norman and me together. I took care of Paul's
where I didn't have to create a new position.
MR. WHITE: No, there is no new position. We have

three assistant directors, and two of them are gone. He

is the only one left.
H.M.JR: There won't be any trouble; but if you have
to create a new position, there will be trouble. That is
the procedure I am following.

MR. GASTON: The difficulty will be that jump from

one grade to another.

MR. PAUL: I suppose that is why you held Pehle down.

H.M.JR: No, Pehle is under Civil Service.

117

-8MR. PAUL: I know, but there seemed to be some

dispute if you had to limit him to that.

MR. BELL: He only got a one-step promotion there,

two hundred and fifty dollars. That is what this fellow

should get unless he hasn't had a promotion for some time.

H.M.JR: Norman felt very strongly about Pehle. He
showed me the increases and thought it would be difficult
to defend it.
MR. WHITE: A one-jump promotion would be fifteen

hundred dollars; that is the trouble.

H.M.JR: The Pehle thing sounded reasonable to me,

but Norman--

MR. PAUL: There is a lot to be said on the other side.
H.M.JR: What I normally do is have the man in, but
you weren't around. You told me the night before that you
were in such a hurry, so I moved.
MR. PAUL: It doesn't harm anything to put this one

through, does it?

H.M.JR: Who, Pehle?

MR. PAUL: As it stands.

H.M.JR: The two hundred and fifty is all right; I
approved that.

MR. PAUL: I know you did.

H.M. JR: Norman isn't here. I put through the two hundred and fifty, but he recommended against the other on
account of the Civil Service status. And having to go

through Civil Service, he said it would stick out like a

sore thumb. I gave you your thousand and fifteen hundred
on the others.

MR. PAUL: I know you did, that is fine.
H.M.JR: You got three out of four.

118

-9MR. PAUL: What was the fourth?

H.M.JR: The Pehle - I didn't give you the full
thing.

MR. PAUL: Two out of three.
H.M.JR: And Norman has to go up and defend

these things, but if you have a vacancy there won't

be any trouble; but if I have to create a new position

it is difficult.

MR. WHITE: It isn't a new position - just an in-

crease. He can't get a promotion--

H.M.JR: But if you have a vacancy, what title

do you want to give him on the new thing?
MR. WHITE: What time?

H.M.JR: What title?

MR. WHITE: The same title. He is assistant director.
MR. BELL: You want to raise his grade, that is what
you want to do - from thirteen to fourteen.
MR. WHITE: Fourteen is eight thousand dollars.
H.M.JR: Look, go see Norman and then I will see
the two of you.

MR. WHITE: All right.
H.M.JR: That is what I normally do, but I have been
trying to move on your front and still keep the hours

that you keep here, which is a little difficult for

both of us. (To Paul)

MR. PAUL: I sent you in two or three names for

Procurement.

119

- 10 -

H.M.JR: I just haven't done anything. We will

sit tight on that.

What are we giving Pehle now with the two-fifty?
MR. PAUL: Eight thousand, two-fifty.
MR. WHITE: He gets that now and you want more?

H.M.JR: He got eight and he wanted to promote him

to nine. I gave him two hundred and fifty.

MR. PAUL: He did a marvelous job on this appro-

priation that practically got us by.

H.M.JR: I think eighty-two fifty is a pretty good

salary.

MR. PAUL: All our men - I don't know how we are
holding some of our men.

H.M.JR: But he has Civil Service status, now.

MR. PAUL: I know. A lot of these fellows are
getting offers every day up to twenty thousand dollars -

in the tax field, particularly.

H.M.JR: Whether I give him eighty-two fifty or
nine thousand, we can still have that.
MR. PAUL: We will wait on that discussion?

H.M.JR: Let's wait - I am at a disadvantage.
MR. PAUL: So am I. I don't remember all the story.
H.M.JR: I am at a disadvantage. Normally-what I
did in your case was very unusual. Usually I have the

man in with Norman and I have a chance, but you told me
in such a hurry, so I moved.

120

- 11 -

MR. PAUL: It is very difficult for me to get down
here until about five o'clock.
H.M.JR: I am not complaining, much. I can't have
you in two places at the same time and I can't go up

on the Hill and talk to you there. All you can do is

to give me eighteen hours a day. (Laughter)

MR. GASTON: I don't know whether Ted Gamble has

been in touch with you or not, but he has that Georgia

situation well in hand. I talked to him this morning.
It is going to work out all right. There is some

doubt about whether Senator George will go or not, but

he is going to have Knox give him a very fervent invi-

tation to go. It is his show.

You sent me a letter from George Milton. I
imagine you want to do that, and it is a question of

selecting the material that he is to look at.
H.M.JR: That is right.

MR. GASTON: Shall I go ahead with it through -

shall I write him a note and go ahead with it through

Mrs. Klotz?

H.M.JR: That is right.
MR. GASTON: O.K.

You are not interested in Truman Cash, are you?
H.M.JR: Truman Cash?

MR. GASTON: He is Radcliffe's candidate for collector

in Maryland.

H.M.JR: No.

MR GASTON: I got a bad preliminary report and am
sending it over to Frank Walker and thrashing it out

with him.

121

- 12 -

H.M.JR: All right otherwise?
MR. GASTON: You had my note about the Secret

Service men going to Africa?

H.M.JR: I didn't read it.
MR. GASTON: I think it is very, very important,

and we are lining up two men to go over there.

H.M.JR: I thought if you thought it was important

that that was enough. I just didn't read it.

MR. WHITE: As a point of interest, we also have

a man going to Lisbon.

H.M.JR: I approved that. They said it was my

suggestion when we came on the plane.

I want you to know that Mrs. Klotz brought it to

my attention. I said, "If Gaston approves it, it is
all right.'
MR. GASTON: We got two French-speaking men.

H.M.JR: What the hell are they going to do? (Laughter)

MR. BELL: He didn't think he would have to justify

it. (Laughter)

MR. GASTON: The counterfeit situation is getting

rather bad there. I anticipated it might.

H.M.JR: My father, when he was a lawyer - practicing
as a lawyer - he used to go before the bar, and the judge

one day said to him, "Morgenthau, when you have won your
case, quit arguing - I may change my mind." II He always
told me - he said, "When you have won your case, quit arguing."

MR. PAUL: That is like Tilden's maxim, "Never change
a winning game."

H.M.JR: Anything else, Herbert?

122

- 13 -

MR. GASTON: No, not unless you have something.

Persomel matters are still unadjusted, but they can
float along.
H.M.JR: Dan?

MR. BELL: I saw the gentleman, Mr. Todd, who
wired you this week to come down and see you, and I

believe he saw that you got some nice theater tickets
last Saturday night.

H.M.JR: Oh my gawd. He is the manager - he owns
the show -"Something for the Boys."

MR. BELL: Apparently. If what he says is true,

he has made an awful lot of money the last year.
H.M.JR: What did he want?

MR. BELL: He wants to put on a colossal show for

the next drive in April - put it on Saturday night or
Sunday night before the drive, or the following Satur-

day or Sunday night after the drive.

H.M.JR: I paid cash for those tickets. All I got

was two good seats, but I paid cash. He didn't imply
that he gave them to me, did he?

MR. BELL: No, he said that the show was all sold

out. Once in a while he has to get tickets for people
like yourself, but he said that this is a show that he

has been dreaming about for a long time, and he thought

this would be a nice time to do it. It wouldn't cost

the Treasury a cent, and the admission to the show
would be a Treasury bond - a thousand dollars for
standing room and twenty-five thousand for a seat, and

he says he is sure he can sell twenty-five million
dollars in bonds the night before you open your drive.
He has a scheme whereby--

H.M.JR: Look, turn it over to Ted Gamble, will you?
That is right down his alley.

123

- 14 -

MR. BELL: This is a drive thing.

H.M.JR: Still, give it to Ted Gamble.
MR. GASTON: They can't buy twenty-five thousand

dollars worth of War Savings; it has to be another type
of security.

MR. BELL: It is for the drive in April.
H.M.JR: Give it to Ted.
MR. BELL: He has to know by Tuesday in order to
get started.
H.M.JR: He has a wonderful show there.
MR. BELL: Apparently he has made a lot of money

if what he says is true.

H.M.JR: He is making a lot of money?

MR. BELL: Yes. He said, "If you don't believe

it, look at my income tax return I am filing.
H.M.JR: Should I write him a little note?
If

MR. BELL: Later on, maybe.

124

February 19, 1943
4:45 p.m.

FINANCING

Present: Mr. Bell

Mr. Buffington
Mr. Trounstine
Mr. Moore

Mr. Fleek

H.M.JR: Are you all together?
MR. MOORE: We are sitting together - speaking

together. (Laughter)

H.M.JR: Will one of you talk?
MR. FLEEK: Mr. Secretary, I don't know who should

start, or where. I spoke yesterday of the fact that
Mr. Fleming was away. I talked with him last night and
again this morning, so that I would feel, if I did any
acting, that I was authorized by him so to represent
him. Consequently, I have his authorization to act in

his place and stead as far as any recommendations which

we have are concerned.

I should say that this morning we had a very pleasant
meeting. Yesterday Mr. Trounstine, Mr. Moore, and I met.
It was a very pleasant, friendly meeting. We had another
one this morning.

We found, however, we did not resolve our differences
of opinion and that we would agree to disagree, and each
one has with him what he had in mind. So I have here
what Mr. Fleming and I have worked out; and Mr. Trounstine
and Mr. Moore have their memoranda.

H.M.JR: But you are not together?

125

-2-

MR. FLEEK: No, sir.

H.M.JR: Well, it is awfully hard. Let me do this:

Let me give you a signed memorandum from all interested
parties in the Seventh Federal Reserve, where they have

agreed. I might say that this is pretty much along =
the alley that I want. Why don't you people take
this - and they are here in town - and see if you can't
get together somewhere along that line. It is a signed

agreement from War Savings, the president of the Federal
Reserve Bank, and the head of the Victory Fund. They
have come to an agreement that is acceptable to me.
MR. FLEEK: Yes, sir.

H.M.JR: They are here if you want to consult with
them. But frankly, I don't want to get befuddled by
hearing more differences - you see? There is a group
that has gotten together.

MR. FLEEK: You would rather, then, for the time
being, that we hold our separate memoranda and give
this study.

H.M.JR: Yes. These gentlemen are in town and you

can talk to them. You can talk to Collins, you can

talk to Frank Isbey, you can talk to Patton and Hap
Young.

MR. TROUNSTINE: We have talked to them, Mr.Secretary.

MR. FLEEK: I have talked to Mr. Young, also.

H.M.JR: Since they have signed this?
MR. FLEEK: Yes.

H.M.JR: Have another go at it, will you?
MR

to do.

MOORE: I don't think we know what you want us

126
-3- - -

H.M.JR: It is very simple, what I want. I want

everybody that is working for the Treasury to get

together and help put over a drive in April. I have
been asking how they can do it in the different districts. The Seventh District has gotten together and

has given me a program.

MR. TROUNSTINE: We don't believe that is the

answer. Now, of course, you are the judge. We are
trying to be honest.
H.M.JR: Why isn't it the answer?
MR. TROUNSTINE: We believe the two organizations
can work side by side.
H.M.JR: How?

MR. TROUNSTINE: Providing each is given a definite,

specific field in which to work.

MR. BELL: Do you think that field can be divided?
MR. TROUNSTINE: I think that field must be deter-

mined by the Secretary. We can't determine that field.
MR. BELL: Even if he determines it, can you draw

that line in the district?

MR. TROUNSTINE: I would think so.
MR. BELL: You think so, but I mean, can you (Moore)
draw it?
MR. MOORE: We can't draw it alone.

H.M.JR: I have to stop. What are you doing right
now, Dan? You sat in on this thing.
MR. BELL: I have an appointment at five o'clock.
I can delay that, though.

127

-4-

MR. TROUNSTINE: Do you want to hear the memorandum?
else?

MR. BELL: Do you want to go ahead with something

H.M.JR: See if you could shoot Hap Young in here.
want to see what has happened since he has been with

Gamble.

Do you mind swapping districts with me? You take
the Cleveland bunch and let me have back the Seventh.

Bell and I are just one on this thing.
MR. MOORE: Mr. Secretary, we don't want to be
stubborn and obstinate about this, and we don't want

to go into something we think is wrong without your

knowing we think so.

H.M.JR: Do you mind pouring it on Bell? He is
a young fellow. (Laughter)

128
Washington, D. C.,
February 19, 1943.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:

Pursuant to your request, representatives of the Ohio War Savings
Staff and the Federal Reserve Bank of Cleveland, have twice met and have

tried to reach an agreement as to coordination of their respective

activities in the April drive. It was found that their difference

could not be resolved and that each would submit his own recommenda-

tions. The undersigned, as authorized by Mr. M. J. Fleming, President
of the Federal-Reserve Bank of Cleveland, respectfully submits the following recommendations for the purpose of accomplishing a coordinated
and effective effort to produce maximum sales of Government securities

in the April drive.

1. The War Savings Staff will continue to function independently
in the following:
(a) Payroll allotment plans and promotion.
(b) War stamp sales and promotion.

(e) Other special situations now in operation, such as radio
station, department store, and other special issuing
agents, except banks and savings and loan associations.

2. The Presidents of the Federal Reserve Banks as representatives

as well as fiscal agents of the Secretary of the Treasury will
have charge of solicitations for and sale of all Government

securities, except in those fields listed above, during the

month of April.

3. An over-all quota for the District will be established for an
aggregate of all issues, including Series E.

4. Publicity and advertising will be directed to the achievement
of the over-all quota.
5. A Directive is to be issued by the Secretary of the Treasury,
to all State Administrators of the War Savings Staff, to
cover the foregoing and to instruct them to offer the services of their personnel residing in the counties within the
boundaries of their district, not engaged in the work set
forth in paragraph one, to the Presidents of their respective
Federal Reserve Banks; and these Presidents may use them

wherever they think best, in collaboration with and through
the channels of such State Administrators.

John S. Fleek

Washington, D. C.,
February 19, 1943.
MEMORANDUM FOR THE SECRETARY OF THE TREASURY:

Pursuant to your request, representatives of the Ohio War Savings
Staff and the Federal Reserve Bank of Cleveland, have twice met and have
tried to reach an agreement as to coordination of their respective

activities in the April drive. It was found that their difference

could not be resolved and that each would submit his own recommenda-

tions. The undersigned, 88 authorized by Mr. M. J. Fleming, President
of the Federal Reserve Bank of Cleveland, respectfully submits the following recommendations for the purpose of accomplishing a coordinated
and effective effort to produce maximum sales of Government securities

in the April drive.
1. The War Savings Staff will continue to function independently
in the following:
(a) Payroll allotment plans and promotion.
(b) War stamp sales and promotion.

(c) Other special situations now in operation, such as radio
station, department store, and other special issuing
agents, except banks and savings and loan associations.

2. The Presidents of the Federal Reserve Banks as representatives

as well as fiscal agents of the Secretary of the Treasury will
have charge of solicitations for and sale of all Government
securities, except in those fields listed above, during the
month of April.

3. An over-all quota for the District will be established for an
aggregate of all issues, including Series E.

wherever they think best, in collaboration with and through
the ubannels of such State Administrators.

John S. Fleek

130
February 19, 1943
4:55 p.m.

FINANCING

Present: Mr. Buffington
Mr. Young

Mr. Patton
Mr. Isbey

Mr. Collins
Mr. Gamble

H.M.JR: I asked you gentlemen - you are my

Exhibit A - I just sent Cleveland out.

Have you had a conference with Buffington?
MR. YOUNG: Yes.

H.M.JR: Let's just start with George. George,
what criticism have you got? Where do you think,

my Washington manager of the Victory Fund, that this
won't work?

MR. BUFFINGTON: I think this plan will work. I am

sure it will work in the Seventh District.

H.M.JR: If it will work in the Seventh, why won't

it work in the other eleven?

MR. BUFFINGTON: Personally, I can't see any

reason why it shouldn't work in all districts. You

know of the difference in some of the other places.

H.M.JR: But from your standpoint, it looks all

right?

MR. BUFFINGTON: It looks practical and looks as
though it should work.

H.M.JR: Can you gentlemen stay in town a little bit
longer? I need you as an exhibit. Have you got a place

to sleep?

131

-2-

MR YOUNG: Yes, sir.

H.M.JR: Do you mind sticking around for a day

or so? It is pretty important to me.

MR. ISBEY: One day - I have been here since
Monday.

H.M.JR: Since Monday? Stay around one more day,
anyway. Can some of you stay Saturday and Sunday if

necessary? It will save you a lot of time in the long
run, because what I am trying to do is get the thing
settled.

MR. ISBEY: I would do everything I could, except

in Holland we have seven plants on Monday. Maybe until
Sunday if I can get up there Monday morning.

H.M.JR: I want to save everybody's time. I want

to get this thing settled and then send you home and
let you go to work, and then Washington won't bother you
any more - much. (Laughter)
MR. YOUNG: We have our reservations for Sunday

afternoon, Mr. Secretary.

H.M.JR: I don't see why that won't be all right.

I am going to try to delay this at least until the
middle of April. While waiting, one of the things we

can do, we can go to the banks on that first two billion
dollar loan the beginning of April instead of the end
of April, which would give us - we could run almost to
the end of April if we wanted to.
(Mr. Gamble entered the conference.)
MR. YOUNG: Would you have tromaturities?

H.M.JR: We are talking of two. Supposing we so 1d
a seven-eighths note again something like that - if we
do that we can go tothe end of April - we can go certainly

to the end of April.

132

-3MR. YOUNG: The 15th would be better than the 5th

if you have the bank drive first - put it off, give us

more time to organize and get busy.
H.M.JR: Give you until when?

MR. YOUNG: Say the 15th of April.

H.M. JR: I told OWI we wouldn't start until the
middle of April and I think we may not start until the

first of May. I will give you all the time I can.

Ted, I have asked Buffington whether he had any

suggestion to make after talking with these people, and
he said no, that he was satisfied.

Now I ask you to talk with them, and I would like
to get the benefit of your suggestions.
MR. GAMBLE: I have suggested to them, Mr. Secretary,

that I thought that to accomplish the good that I know

you want to accomplish - and I think that it is essential
that we have everybody's spirit in this, and we have a

green light all the way down the line - that it would be
well to go a step further than this and try to set a
pattern for the future as well as this month. I don't
think a temporary arrangement will work out.

H.M. JR: How much further would you go?

MR. GAMBLE: I would go all the way. I would

settle it.

H.M. JR: How?

MR. GAMBLE: I recommended the plan for it.

I went over it with Mr. Young. I think he thinks
it would work. I think Mr. Patton thinks it would work.
H.M.JR: What is that? I haven't talked to anybock

133

-4-

MR. GAMBLE: I recommended we go ahead and put

these two organizations together now, and that we put
them in charge of the Federal Reserve people so that
we are assured that we have everybody's help.

Now, you will find as you talk to these other States,
Mr. Secretary, that I think Chicago is a little bit of an
exception. I think we have a particularly friendly
relationship out there between Mr. Young, Mr. Collins,
and Mr. Patton, and Mr. Isbey. All of them are working

very well together. I think it is easier for them to
adjust themselves to a temporary program than other

sections of the country. I am not thinking alone of
their particular problem in the Seventh District, be-

cause if they are the only people who have a plan that

works, it isn't going to help the program. I am
thinking of something that will work for all of them.
I think you are going to have to settle the problem of
putting these two organizations together.

H.M.JR: How would you put them together?
MR. GAMBLE: In the manner that I recommended.

H.M.JR: I don't see - you will have to explain

it to me - refresh my memory.

MR. GAMBLE: My recommendation was that we set up

an executive director here, and under the executive
director the presidents of the twelve Federal Reserve
Districts as supervisors of all the War Bond operations
both as to special drives and as to continuing operations; that under the twelve Federal Reserve presidents
that we have an administrator in every State.

The problem of whether it would be confined strictly
to the State lines or whether there would have to be
some division of lines within a Federal Reserve district,
I left open because I think the presidents are better
qualified to answer that problem. But under them they

would have an administrator who would have all of these
forces united twelve months in the year. When you came

134

-5up to one of these drives, then turn the whole organization loose on it. Then you would have the special
drives which would, in effect, be the same thing as the
Victory Fund Committee, today, headed up by some sales

head, and he would spend all of his time from one drive
to another planning with all of the people in War Savings,
or War Bond, or War Financing, or whatever you call it,

for the big jobs that lie ahead.
H.M.JR: You may be right, but I am a little fear-

ful that if I try to force that now, I would just have
too much trouble, that is all.

MR. GAMBIE : I think it is the only way you are
going to get these people to really work, Mr. Secretary.

H.M.JR: Here is the only Federal Reserve district

I have been able to get to come to a volunteer agreement.
Now, Coyne made a suggestion - I am just thinking

out loud - which was a little bit different. He said

to make the president of the Federal Reserve the Treasury
representative, and then have a State organization for
the Treasury and go back to, say, the way it was in
New York, where Perry Hall used to be a section under
our War Bond administrator. That is the way he was
last May. Is that what you have in mind?
MR. GAMBLE: Not the same. I think you have to set

a pattern for this job. In other words, I think that the

special drives committee, which would be set up alongside
of the War Savings organization, has to take on more importance than we have ever given to any particular operation because I think one recognizes, Mr. Secretary, that

on them falls the big responsibility for financing the war.
H.M.JR: On whom?

MR. GAMBLE: On the special drives committee which

would take the place of the Victory Fund. But for them
to do their job now or later they are going to have to
have the help of the retailers, they are going to have
to have the help of the farmers, and of everybody in the
community.

135

-6Now you have an organization today that spent two

years organizing these various groups. If you want to
get the real benefit of those groups - you may not need
to in April, but certainly before we get through - you
ought to put them together.

H.M.JR: Let me sleep on that.

MR. GAMBLE: I went through this in detail with
Mr. Young and Mr. Patton, at your suggestion. They,

I think, agree on it. Mr. Isbey doesn't.

H.M.JR: Let's go left to right.
MR. PATTON: I agree on it, with some modifications.

In the first place, I agree with Mr. Gamble, entirely,
that there ought to be one organization. I think if

you were going to ask the Federal Reserve bank presi-

dents to take the responsibility of managing that organization, they ought to have the decision as to how

it is going to be set up. I wouldn't diagram it for

the new management quite the same as Mr. Gamble has.

MR. GAMBLE: You have the organization, Mr. Patton you don't mind my answering this as we go along? We

have the organization. Mr. Patton is going on the assumption that we would organize an entirely new group like
the Thomas recommendation. I think that the war will be
over before we get them all organized.
I

think we ought to take advantage of what we now

have. I think it is up to the president of the Federal

Reserve district to adjust himself and his organization
as quickly as he can to the job he has to do. Certainly,

if he starts with something, he is going to do it faster
than if he started with nothing.
MR. PATTON: Pardon me for differing with you, but
I only mean to make myself clear. I only mean I would
certainly expect them to take advantage of what exists.
I wouldn't tell them exactly how they were to take
advantage of it. I wouldn't put a new management under

- 136
7-

the Secretary's direction and say to do it this way or
that way.

MR. GAMBLE: That wasn't a part of the plan.
MR.PATTON: In other words, my diagram
wouldn't come
=
down as far as yours.

MR. GAMBLE: It would go down to the Federal
Reserve bank and stop. I am interested in what we have

been doing for two years and not throw it out the window.
MR. PATTON: They have a chance to find it out and
wouldn't throw it out the window.
MR. GAMBLE: We would be guilty of folly, to do

that. That is something I think they would determine
themselves. You can't give them a job and tie them
up; I agree on that.
.MR. PATTON: That is all I am saying.
MR. GAMBLE: That is not part of my recommendation.

MR. PATTON: It is part of the chart.
MR. GAMBLE: The chart takes advantage of what I

now have. I don't think you can say you are going to
throw this or that away, or anything else. You have
to work it out.

MR. PATTON: You don't have to tell them just how

they are going to use it.

H.M.JR: Did I interrupt you?

MR. PATTON: No, sir. I just want to make it clear

that Mr. Gamble and I are in exact agreement that there
ought to be one organization and it would be much superior
to a patchwork job. That is my own personal opinion.

H.M.JR: But for the April drive?

137
8-

MR. PATTON: Of course, I was encouraged by having

Mr. Gamble agree with what I have felt right along,
that if the thing could be done and could be on a

permanent basis, that it could be effective for the
April drive. That is my own feeling, but lots of people
down here have told me it couldn't be done. Mr. Gamble
thinks it could, and so do I.

MR. ISBEY: I think that we ought to go all out
together on this drive, and that we can make the quota
and that you ought to give it serious consideration,

because there are other things involved here than

just we can settle as an over-all picture, and to see
this drive function together, now, I think that you
would get into the same thing we are talking of here

between Mr. Gamble and Patton - of who is good and

who is bad.

Your orders as a directive is to everybody. Both
groups are to get in and pitch and do this job. You

could see how they function, and certainly know they
are delivering the goods.

H.M.JR: George, do you want to get in on this?
MR. BUFFINGTON: I believe in the one organization,
but I question that you have the time between now and

the April drive to consolidate and work out a permanent

organization. I think the plan that we have now, if
it will work in all districts as well as in the Seventh,
or as well as I know it will work in the Seventh, I
think we ought to work it out and if it proves to be
a good plan, then later give that responsibility to the

Federal Reserve presidents and let them decide how they

would best utilize all the available personnel that is

now working for the Treasury.
H.M.JR: Mr. Young?

MR. YOUNG: I went over this plan with Mr. Gamble,

and I agree substantially with him. But my only thought

138

-9-

about this was that we didn't have sufficient time.
I

agree with Mr. Buffington. This agreement we drew

up here was, as far as our district is concerned - I
believe that is the only feasible plan, right now.

Maybe Mr. Gamble is right that we could do it now.
That would be desirable, of course, if we could, but I
just question whether we have sufficient time.
H.M.JR: Mr. Collins?
MR. COLLINS: I believe we have too have such a plan,

Mr. Secretary, and I am agreeable to putting it in as
soon as we can. As long as we can't sell Mr. Patton
on the last plan, I think Mr. Gamble's plan works out
very well. I question whether we have enough time to

do it. I would like to see it done.

H.M.JR: Well, I think we all feel that eventually

we are going to have to have a Treasury sales organiza-

tion. That isn't a very good name, but I can't think
of a better one for the moment. Somebody can. But
I mean a Treasury bond selling organization.
MR. ISBEY: War Finance.

MR. GAMBLE: I think that is very reasonable that
you have to adopt some plan right now, because in the
minds of these people is going to be the thought that
there is going to be something, and they are going to be

confused and say, "What is it going to be? Is this

something we are going to be doing temporarily, or something we are going to continue to do?"

H.M.JR: As of tonight, if I could put this across
I would be satisfied. I can put it across because if
I want to ask the people, I am sure they will do it.
I am hesitant about going the whole way at this time

because I am not sure enough.

I don't think, even if I drew a directive from

this memorandum and then gave it out, I wouldn't expect

139

- 10 -

that each Federal Reserve bank president - each of the

twelve districts - would carry it out the same way, any
more than the twelve districts or the Victory Fund,
all use the same tactics.
MR. GAMBLE: Not expect them to be generally embarked on the same kind of a program?

H.M. JR: Yes, lay down a directive, and if neces-

sary, in a week or so if it didn't go, I would fly to
the district and sit with the people and get the thing
straightened out. But just the way the Victory Fund

used certain tactics in New York, and in chicago they
used others. In New York they have teams of banks, as
I don't think you did. Each bank had a team by the name
of the bank. That didn't mean that Chicago had to have
a team. I believe it worked, and they had competition
between the banks. Isn't that the way it worked?
MR. PATTON: Each bank went out against the other.

H.M.JR: It seemed to work in New York, but not in
Chicago. It wouldn't have to be completely tight, but
they would know that this man, as the fiscal agent for
the Treasury, was the boss of the district.
MR. BUFFINGTON: That is why you want to stop with

leaving that responsibility with the Treasury. He knows
conditions in his district.
H.M.JR: He would have the authority to ask each

State administrator to cooperate with him. Then it

would be up to the State administrator of war Bonds to
see that they came through.

MR. GAMBLE: I think that is fine, as far as that

goes, and the State administrator would, but he can't
deliver the people to the president of the Federal Reserve
unless he can tell them where they are going.

H.M.JR: Well, he will have to work it out. Let
this thing - he will be able to tell them.

140

- 11 -

MR. GAMBLE: Of course, I think probably you will

want to discuss this after you have heard from all your
districts, because you are going - as I understand,
you are going to take a composite.
H.M.JR: Yes, I have to hear from New York and
Philadelphia, tomorrow.

I don't think I can go much further tonight.
Thank you all, and if you will be on hand in the
morning-

MINUTES OF MEETING

140-A

February 19, 1943, 11:00 A. M.
Economic Stabilization Board
East Wing, White House

Present: The Director (Presiding)
Mr. Wickurd
Mr. Jones
Miss Perkins

Mr. Bel (acting Secretary of Treasury)

Mr. Smith
Mr. Brown

Mr. Davis
Mr. Eccles
Mr. McNutt
Mr. Flanders
Mr. Green

1. The Director announced that, between December 15, 1942 and

January 15, 1943, the cost of living had risen .2 of one percent,
the smallest increase in many months. Miss Perkins stated that this
increase W&D due principally to the rise in price of milk and fuels.
The Director expressed the opinion that this reduction in the rate
of increase was a favorable sign. Miss Perkins also remarked that
newspapers had all increased their prices recently, and Mr. Brown
stated that the news print industry is requesting an increase in

price of their commodity.

2. Mr. Brown summarized a statement, later circulated among the
members of the Board, with reference to the effect of the President's
48 hour week Order upon the cost of living. He stated that, in general,
the profits of inaustry were ample to absorb whatever cost increases
would be entailed by the increased overtimo payments. The total increase
in costs will not amount to more than $1,100,000,000, and probably less
than this sum, since most of the retail and service inqustries are not
subject to the overtime requirements of the Fair Labor Standards Act.
On the other hand, industrial profits for 1942 were about $19,000,000,000.
Mr. Flanders commented upon the misleading interpretation which the New
York Times and other newspapers had laced upon this Executive Order.
Mr. Davis commented that often there might be an increase in the

utilization of existing lant and the existing labor supply which

would in purt compensate for the increased overtime payments. Miss

Perkins expressed the opinion that the inflationary effect of the
Executive Order will be very small; and that the real problem is the
increased purchasing ower already created by increased employment.

Mr. socies stated that, while industrial profits in general

may be higher, there may be u number of consumer goods industries in
which the margins are not sufficient to absorb the increased overtime

payments. Mr. Wickard shared this apprehension, and felt that in the
1

-2- -

140-B

food industry there might be some danger that the increased cost would

be rolled back upon the farmer. The Director stated that, on the

other hand, application of the 48 hour work week would release more

than a million workers, thereby easing the pressure on the agricultural

labor supply.

Mr. Green also called the board's attention to the fact that

the resourcefulness and skill of management and labor would uncover
ways and means of increasing efficiency so as to absorb a measure of
the cost increase necessitated by overtime payments. Mr. Flanders
stated that the problem of overtime in connection with the increased
work week is not essentially a wage problem. A large number of workers
in heavy industry have already best working 48 hours or more, so that

elimination of the overtime pay would constitute for them a sharp cut
in the weekly pay envelope. Mr. Flanders ex) pressed the opinion that
the elimination of overtime in nis own plant, for instance, would have

a very unfavorable effect upon morale and production.

Mr. Eccies agreed that it would be impossible to eliminate
overtime pay at the present time when so many workers are already receiving it. Therefore, he suggested the payment of premium wages in
nar Bonds, and the deduction of 60 percent of overtime pay from income
taxes by those employ rs who are not in the excess profits bracket.

This, he felt, would storilize the increased purchasing power, and
overcome the resistance of employers to increased costs. Mr. Davis
replied that the proposal of Mr. Secles might sim ly result in the
r duction of existing War Bond purchases by workers. Mr. Eccles stated
that British and Canadian experience might give rise to a contrary
inference.
Mr. McNutt read to the Board a general description of the

manner in which the #ar Mangower Commission proposed to apply the 48
hour work week in the various industries and regions. This memorandum
was later circulated among the members of the Board.

The Board adjourned at 1:10 to meet again on March 5, 1943.

140-C
February 18, 1943

THE EFFECT OF A MANDATORY 48-HOUR WORK WEEK

ON PRICE GEILINGS IN CIVILIAN INDUSTRIES

A madatory 48-hour work week with tim-and-e-balf for all hours in
excess of 40 would increase average hourly earnings in all industries
is which the scheduled work week is less than 48 hours. If output per

- remains unchanged, this would result in an increase in labor

cost per unit of output. Whether price ceilings would be affected
depends upon the profit position of the industry affected-its ability
to aboorb the increase in cost of production.

In the durable goods industries generally the scheduled work week with

for exceptions is currently above 48 hours. In these industries, there-

fore, average hourly earnings and labor costs of production would not be
effected by the institution of the longer work week. In the nondurable
industries, on the other hand, the scheduled work week is generally
Below 48 hours. In these industries the 48-hour week would result in
an increase is labor costs. The profit position in the mondarable
industries, however, apart from individual firms and industries whose
output will be sharply ourtailed, is so favorable that the increase in

labor costs could be absorbed without undue impairment of profits.
Effects Upon Average Yourly Paralage and Annual Parrolla

In estimating the effects of a 48-hour week, it is important to distinguish between the length of the scheduled work week and the BLS measurements of average weekly hours of employment. The former refers to the

number of hours which the employee is expected to work; the latter, to
the average hours actually worked per week by all wage earners on the
payrell for any part of the pay period. Because of such factors as
labor turnover and absenteeism, average weekly hours of employment in

general fall short of the scheduled work week by about 2 hours.

Table 1, attached, shows for all important segments of nonagricultural
industries, as of October 1942, annual payrolls, average weekly hours
of employment, and the percentage increase in average hourly earnings
and the dollar increase in total payrolls which would result from application of a 48-hour work week.

Durable Manufacturing

In the field of durable manufacturing, average weekly hours of employment stood at 45.7 in October 1942. Taking account of the factors of

absenteeism and labor turnover, a 48-hour work week applied in October
would have increased average hourly earnings by 1 percent and would

have increased annual payrolls by $157 million. While the figures are

140-D

-2not available on a current basis, average hours worked per week in the
durable industries have increased since October. The cost of a
48-hour work week today would, therefore, be substantially below the
figure cited.
Nondurable Manufacturing

In the nondurable field, average weekly hours of employment in October
were 40.6. A 48-hour work week applied in that month would have
increased average hourly earnings by 4.2 percent and would have added

$346 million to annual payrolls. Here again, although the precise
amount cannot be estimated, the present cost would fall considerably
short of this figure.
Retail and Wholesale Trade

Concern is frequently expressed that a 48-hour week would exert acute

pressure upon costs in the fields of wholesale and retail trade. In

October 1942, average weekly hours in whelesale trade were 41.7. Had

a 48-hour week been instituted in October, it would have resulted in
an increase of 3.7 percent in average hourly earnings and an increase

of $105 million in annual payrolls. In the ease of retail trade, the

comparable figures are 404 percent increase in average hourly earnings
and $193 million increase in annual payrolls.

There are two factors, apart from the increase since October in average
weekly hours of employment, which would out the cost substantially below

these estimates. First is the fact that 25 percent of the workers in

trade work for firms employing 8 or fewer. Inasauch as the employees of
such firms would probably be exempt, the cost would be reduced by approx-

inately one-quarter. Second, in retail trade average weekly hours of
employment stand at a low figure for the reason that a considerable
fraction of the working force is employed upon a part-time basis, to
meet the pressure of peak shopping loads. While the scheduled hours of
employment in retailing can be raised, the pressure of peak loads places
definite limits upon the extent to which part-time work can be eliminated.
Furthermore, the workers engaged in this part-time work are to a large
extent available only upon that basis.

In the field of mining, particularly anthracite and bituminous coal,

average weekly hours of employment are low. In both these cases the
scheduled work week in October was 35 hours. This work week will be
increased to 42 hours when current negotiations with the coal industry
and the mine workers are completed. The result will be an increase in
average hourly earnings of 8.3 percent and an increase in payrolls of

$9 million for anthracite and $60 million in the case of bituminous coal.

140 - E
-3. While profits in this industry have increased enormously from possetime
levels, the existence of a very large member of high-cost marginal mines
W.S
induced
the costs.
QPA to undertake to raise the price of coal to cover the
increase
in labor

A scheduled 42-hour work week in the field of coal mining, it should be
noted, is the equivalent of a scheduled 48-hour work week in other
industries
because
of the time required getting down to and up from the
working
levels
of a mine.
The Absorbability of the Labor Cost Increases

The increase in labor cost per wait of output which would result from the

general application of a 48-hour week will present little threat to
price ceilings. This is indicated by the prefit developments of recent
years, which are shown in Table 2.
While specific profit data, industry by industry, on a basis strietly

comparable to the industrial breakdown shown in Table 1 are not available

at this time, the over-all profit position, together with such prefit
data for major industries as are available, leave little room for doubt
on this score. Strietly comparable profit data are now being prepared.
The aajor fields in which increased labor costs will present a problem
are those in which output or sales will be sharply ourtailed. These
include the fields of retail and wholesale trade, paper and pulp, and
pottery. In these fields and possibly others as the maspower shortage
becomes more acute, price relief may be required before the end of 1943.
Even in these cases the outcome, however, is open to doubt. It should
be noted that increase in the length of the working week will reduce the
pressure on manpower and therefore the need to reduce output for this
reasons

While there is little likelihood that price ceilings will be threatened

by the 48-hour week, there will, of course, be many individual firms,
the high-cost marginal producers in almost every field, which will require

relief. At this time it is difficult to say how large this number may be.

Attachments 2

140
Estimated Maximum Additional Costs of Overtime Premiums Under

A 43-Hour work week In Non-Agricultural Industries
Payrolls
:

: of dollars) Hours
Not affected
Durable goods

Affected

Not affected
Bendurable goods
Affected

24,524
17,643
6,881

43.6

16,284
9,517
6,767

45.7

8,240
8,126

40.6

114

Not affected

Iron and steal and their
products

Electrical machinery
Mashinery except electrical
Automobiles

Non-forrous metals and their
products

Stone clay and glass products

Food and kindred products

Tobacco manufactures

Paper and allied products

Printing, publishing, and

allied industries

Checical and allied products
Products of petroleum and eoal
Bubbor products

Miscellaneous manufacturing
Industries
onstruction
Non-federal
Federal

I Increase in

I Payrolls

1 (annual rate

in millions
of dollars)

2.1
2.9

503

1.0
2.3

157

4.2

346

4.3

346

503

157

2.3

4,932
1,294

47.1
44.9

802

45.6
42.5

81
-

3.0

42.8
39.8

2.6
4.6

40.4

4.7

36.8
36.9
41.9
40.4
43.4

6.6
5.6
3.6
4.6
2.0
5.9
3.4

373

38.5
42.3
40.5
42.7

4.8
3.0

569

44.1

1.6

1,348
2,600

38.0
40.8

1.3
2.7

649

498
580

Textile mill products and other
fiber sahafasturers
1,632
Apparel and other finished testile products
1,006

Leatner and leather products

Increased to

43.4
40.4
48.6

Lumber and timber basis products
Furniture and finished lumber
products

if Hours are

3,546
1,263
2,760

Transportation equipment eept automobiles

Hourly Earnings
I

11 manufacturing
Affected

in Average

Neekly

: in millions

Average

Industry

(annual rate

Percent Increase

Table 1.

457

1,596
113

485
568

1,224

67
25

57
4

"
42
13
9

114

140-G of
Page a

Payrolls
(annual rate

in millions
of dollars)

Industry

Railroads, Glass I

Public utilities, not including railroads

3,392

Average
weekly
Rears

In Average
Hourly Barriage

if Hours are
Increased to 48

Retail

(inrike
millim

of -

40.3

1,785

42.6

3.5

2,847
4,393

41.7
40.9

3.9

305

4.4

195

111

35.1
34.2
44.0

8.3
8.3

1.8

162

45.7
39.8

5.2

619

44.0

1.6

Trade

Wholesale

Peyrolls

Mining

Anthrasite goal

Bituminous coal

717

Metalliferous
Marrying and Nonestallie

178

Crude petroleum
Services

Based on average weekly wages in non-ogrieultural industries as of October 1968
v/

Percent increase in average hourly earnings we computed as the accuption that
a scheduled 48-hour work week means an average work week of 46 house

V Excess of average work week of 46 hours.

Sourees Except for railroad date which were derived from Interestate Commission N-500, October 1942, the Signatus were derived Stra

Burean of Labor Statistics, Employment and Payrolls, and Issue Earnings, December 1942.

office of Prine
MMageesaf

Division of Research
February 10, 1963

TABLE 2

PROFITS BEFORE FEDERAL INCOME TAXES, 1936-1942

Mining and Manufasturing
Trade and Service

Transportation and Public Utilities

1936-39
Average

1936

$2.83
0.68
0.69

$3.29
0.79
0.69

1939

1938

1937

1941

1942 (Est.)

$5.11
1.13
1.18

$9.50
2.20
2.00

$13.50
2.50
3.30

1940

(dollars in Millions)
$3.41
0.72
0.78

$1.29
0.39
0.40

$3.31
0.81
0.87

Indeseal 1936 "
Mining and Manufacturing
Trade and Service

Transportation and Public Utilities...

100

116

120

117

181

336

477

100

116

106

119

166

324

368

100

113

126

171

290

478

Sources From 1936 to 1940, inclusive - Statistics of Income, Bureau of Internal Revenues 1941 and 1942
estimated by OPA Statistical Branch.

140-

U.S. DEPARTMENT OF LABOR
BUREAU OF LABOR STATISTICS

WASHINGTON

February 18, 1943
KORANDOM
Tel

The Secretary

From

A. F. Hiarishe

Subjects Significance
the 48-Hour Standard Workwook for the Problem
of Begnesisofliabilitation

1. The Insective Order establishing a 48-hour schedule as the standard

is the United States was limited in its application, by

authority of the War Nanpover Commission, to only a small segment

of intestry. Net only was its application restricted to 32 designated

labor market areas, but provision was made for exemption - generally

on as establishment basis - wherever the Var Nampower Commission deemed

its application inexpedient or unnecessary.

2. The potential inflationary effect of the overtime premium upon wage
payments is, therefore, rather negligible because of the restricted
geographic application of the Executive Order and industry or establishnext comption within tight labor market areas; because the overtime
provisions of the Fair Labor Standards Act do not cover broad areas of
employment) and because a large part of industry (manufacturing,
particularly) was already working beyond 40-hours and paying overtime.
3. Veekly hours actually worked is the durable manufacturing industries
averaged 46.2 in December 1942. The scheduled workweek in those

industries, therefore, generally averaged 48 hours or more - actual
hours reported necessarily average less than scheduled hours because of new
hires, separations, and absenteeism. Even in the mondurable goods industries, which averaged 42.1 hours of actual work in December, many
establishments were operating on 44 and 48-hour schedules.

4. New small the potential increase in pay rolls in manufasturing would be is
indicated by an estimate of the Bureau of Labor Statistics, which shows
that if the Executive Order was enforced in all areas of the country, without any esceptions, factory pay rolls would rise by less than 3 percent, or
less than 8750 million on an annual basis. (See attached table).

5. Therefore, while it is true that an individual formerly working 40 hours
would receive a pay increase of 30 percent if he worked 48 hours and received

time and a half overtime, the figure of 30 percent is not significant either
from the cost point of view of the producer or from the point of view of
the problem of inflation.

140-J
- Memorandum to the Secretary

February 18, 1943

6. There is not even a prima facio case for the argument that the payment of
overtime will necessarily require an adjustment of price ceilings now in
effect. At most, wage payments for a manufacturer would be increased by
8 1/3 percent - on the assumption that previously he was operating 40
hours and paying no overtime and, under the Executive Order, would now pay

time-and-one-half on 8 additional hours. The effect of the overtime vage

premium would be considerably smaller percentagevise because of the fast

that labor costs are only a fraction of total costs of production.
Detailed studies of individual industries and firms would be necessary to
prove that commodity price ceilings would need to be increased in any
particular case.

7. The more fact that many plants preferred to remain on a 40-hour schedule
is not conclusive proof that the overtime provision of the Fair Labor
Standards Act was prohibitive from the point of view of production costs.
Many other factors accounted for the decision of firms to remain on a
40-hour schedule. In an increasingly tight labor market, many firms
wanted to retain a labor reserve to cover future losses to the armed
services or to other industries. Many firms were not under pressure to
extend hours because, even though they were losing workers to industries
offering higher weekly earnings, their volume of output was declining.
In many instances, workers were willing to remain in such establishments
because, especially in the case of women, considerations of health and
household responsibilities made overtime work undesirable. Further, in
many establishments, the operating process was adjusted to a 40-hour
schedule and it was convenient to continue on that basis as long as
possible. (The continuous-process industries are special examples) more
typical cases are to be found in the nondurable manufacturing group).
8. The amount of overtime premium to be paid because of the impact of the

Executive Order is so negligible that it is a minor consideration in the
general problem of inflation. It was the surtailment of consumer goods
(in a situation of mounting wage payments) which gave rise to the
inflationary gap, now estimated at between fifteen and twenty billion

dollars. Further surtailment of consumer goods will intensify the

inflationary danger more than the increased wage payments attributable

to the Executive Order. Hense the argument that the Order is inflationary because individual workers will receive 30 percent additional

wage payments for producing (approximately) 20 percent more output is

not particularly relevant because it is highly unlikely that the volume
of consumer goods will be maintained. The inflationary effect of the
Order could be immobilised by payment of the overtime in the form of var
bonds. But the general problem of inflation is little changed by the
Order. Taxation, rationing, compulsory savings, cost subsidies and other
devices are the measures of control by which the general problem of
inflation is (and should be) approached.

CONFIDENTIAL

140-

February 19, 1943
ECONOMIC EFFECTS OF MANDATORY 48-HOUR WEEK

Marrinor S. Ecoles
Manpower Aspects:

It is essential that the 48-hour order be applied flexibly in
each locality, if its inflationary potentialities are to be minimized.

War Manpower Commission apparently is in agreement on this. Plans call
for:

1. Exempting firms with less than 8 employees;
2. Exempting self-employed workers and domestic servants;

3. Allowing for technical production probloms involved in
balancing departments and maintaining smooth plant
operations;

4. Allowing time for reaching a full 48-hour basis gradually;
5. Applying the order immediately only to the 32 labor shortage areas in which the Manpower Commission is prepared

to utilize in other jobs workers released by the extension of hours; and

6. Exempting part-time workers.
In each case, the basic tests should be whether increasing hours
to 48 will release manpower which can be transferred to good advantage or

will increase output of war or essential civilian goods and services. If

neither of these things is to be accomplished, hours should not be
lengthened since longer hours may drive from the labor force workers (housewives, handicapped or older persons) who cannot work long hours, and premium

rates for overtime will raise labor costs unnecessarily, reduce profits,
and intensify pressure on price ceilings,

As a practical matter, forced reductions in hours should be made
in some lines. Retail stores in some areas, for example, should be prohibited from working more than 30 hours. Such a limitation would force
the stores affected to obtain their labor from among the pool of persons
who can work part-time but who cannot work full-time. The growing necessity for bringing married women into the labor force in large numbers makes
it imperative that opportunities for part-time employment be increased.
This is entirely consistont with the requirement that the regular fulltime labor force lengthen its hours of work.

140-L
-

The following estimates, obtained for confidential use, show the
current pattern of hours worked by all persons engaged in nonagricultural
activities (excluding armed forces). Average hours worked in January for

all nonfarm persons WAS 44.8.

HOURS WORKED IN NONAGRICULTURAL ACTIVITIES

January 1943

Millions of
nonfarm
workers

Per cent of
total nonfarm
workers

42.3

100.0

Under 30 hours

3.8

9.0

30-34

1.4
1.5

3.3

8.8
5.1
11.5

20.8
12.1
27.2
24.1

Total employed

35-39
40

41-47
48

49 and over

10.2

3.5

Similar data showing the distribution of hours are not available
by industry. However, other figures available provide rough indications
of the areas affected by the 48-hour order. Most industries manufacturing

durable goods are already operating close to or above 48 hours. The only
important exceptions are blast furnaces, steel works, and rolling mills,
lumber, and furniture. As a group, industries producing nondurable goods
average around 41 hours. Textiles of all kinds, leather goods, canning and
preserving, tobacco, and printing and publishing average about 40 or less.
Few nondurable industries average above 43 hours.

Several large nonmanufacturing industries work around 40 hours or
less. Coal mining recently concluded agreements which will increase hours

from 35 to 42. Telephone and telegraph, electric light and power, retail
trade, and construction are all around 40 hours or less.
In general, the 48-hour order will affect nonwar industries and
those whose products or services enter directly into the cost of living.

Hourly wages in these industries are, on the average, somewhat below those
in the industries already working overtime.

Reference to the table on page 2 shows that of the 42 million
persons engaged in nonagricultural activities, nearly 22 million are already working 48 hours or more. An additional 5 million are working less
than 35 hours and are mainly part-time workers who are unable to work full
schedules. Those two groups total 27 million. This number, at least, will
not be affected by the 48-hour order. About 15 million persons are left
whose hours might be increased. However, of the 15 million, it is estimated

140-M

-36 million are exempt because they are self-employed, domestic servants,
State and local government employees, or employed in establishments with
less than 8 workers.

Therefore, if the order is applied throughout the country to all
covered persons in surplus as well as in shortage areas and if no exemptions
are made other than those listed above, about 9 million persons will increase their hours of work. On the average the 9 million affected will have
to work 7 hours or 16 per cent more than in January to reach 48 hours. If
total man hours, and presumably production, are held the same, this increase theoretically would make possible the release of about 1.3 million
workers for service in the armed forces.

As a practical matter, it is unlikely that as many as 1 million
workers will actually be released as a result of the order. Labor market
frictions, such as geographic and skill immobilities, ability to transfer
workers, etc., will limit materially the number released.
Cost-Price Aspects:

Not all of the 9 million workers whose hours will be increased
are entitled by law to premium rates of overtime. However, collective
bargaining agreements in some cases and the pressure of competition with

firms paying premium rates will probably result in a large proportion of
the 9 million receiving overtime ratos.

Of the 9 million, it is estimated that about 3 million will increase their work week 9 per cent (4 hours), their average hourly earnings

4 por cent, and their weekly earnings 13 per cent. About 6 million will
increase their work week 20 per cent (8 hours), their average hourly earnings 8 1/3 per cent, and their weekly earnings 30 per cent.
On the average, the 9 million will work a 16 per cent (7 hours)
longer week, will earn 7 per cent more per hour and 24 per cent per week.
The average cost to the employers affected is a rise in unit
labor costs of 7 per cent, if productivity per hour remains unchanged. If
employers do not release any workers, their payroll will increase 24 per

cent but this will be offset by a 16 per cent increase in output. If em-

ployers release an equivalent number of workers, the higher weekly wages
paid will apply to a smaller number of workers.

If employers' labor costs represent one-fourth of total costs and
other costs remain the same, employers' total costs will rise about 1.7 per
to
cent. Unless costs can be out, profits will be reduced, prices will have
increase, or direct or indirect subsidies paid to cover the rise in labor
costs.

140- N
-4- -

The workers affected constitute a little over one-fifth of all
nonfarm workers. An average hourly wage increase of 7 per cent for these
workers represents an increase of about 1.5 per cent when it is spread over
all nonagricultural wages and salaries. In terms of an $80 billion wage and

salary bill, this means a total increase) resulting from the 48-hour order,

of around $1.2 billion.

If total production and man hours are increased and all of the 9
million workers receive increases in weekly earnings averaging 24 per cent,
the increase will amount to around $4.5 billion. Except for the $1.3
billion caused by payment of overtime rates, however, this amount is not
attributable to the 48-hour order but to the fact that more man hours are
worked. Except for premium rates it makes no difference whether total man
hours are increased by longer hours for some persons or by shorter hours
for more people.

On the whole, the net effect of the order is probably deflationary.
Given a labor situation which is becoming increasingly tight, the 48-hour
order creates more man hours than would have been available otherwise. If
no action had boon taken, employers would have been faced with hiring more
untrained workers. Pressure for higher basic wages, both from employers
seeking to hold or attract workers, and from workers, would have been in-

tensified and might well have resulted in substantially higher basic wage
rates and costs than those occasioned by this order.

Policies Required:

The rise in unit labor costs will be concentrated in those
industries and services the prices of which enter directly into the cost
of living. These industries and services are already being faced with

higher costs because of sharp curtailment of supplies and equipment avail-

able to them. There is real danger that the higher costs will result in

higher prices with consequent demands for wage increases. Strong action
is required now to prevent the beginning of a new price-wage spiral.
On the income side, the increase in wage and salary income resulting from payment of promium rates for overtime, must not be allowed
to increase further the disparity between spendable income and purchasable

goods. To neutralize the inflationary effects of longer hours at overtime

rates, workers should be required to accept in the form of war saving bonds,

which are not redeemable until after the war, that portion of their weekly
earnings which is attributable to overtime premiums. It would be unfair

to apply this requirement only to those workers who receive premium pay as
a result of the 48-hour order. For the most part, wagos of workers whose

hours are now being lengthened are below the wages of workers who worked

long hours before the order. On equity as well as administrative grounds,
it is undesirable to discriminate botwoon persons receiving promium pay for
overtime before and after the order. Therefore, it will be necessary to rer

quire all workers to accept war bonds for the amounts due them as promium

wages for overtime.

140-0
-

On the cost side, it is clear that this order imposes higher costs
on employers producing civilian goods and services. The extra costs of
overtime rates are required because of the national interest in releasing
manpower, in maintaining stable labor relations, and in preventing inflationary increases in basic wages. Employers in war industries who were
working longer hours before the order have had the opportunity of including
extra costs of overtime premiums in their cost-price structures and in
their Government contracts. Therefore, employers whose labor costs increase as a result of the 48-hour order should be accorded similar consideration.

The best way to prevent hardship to employers whose labor costs

advance is to allow adjustments in their tax liabilities. In most cases
the Government will automatically absorb a sizeable share of premium pay-

ments. Net incomes will decline by the amount of increased labor costs

and tax liabilities will fall accordingly -- by up to 90 per cent of

premium payments in the case of excess profits corporations and by up to
40 per cent in other cases. Procedures should be devised to take care of
the remaining portion of premium payments when relief is needed. One way

of doing this is to grant additional relief to corporations without excess

profits income. These would be allowed to deduct from their normal and
surtax liability an amount equal to that part of their premium payments

not already reflected in lowered tax liability.

The cost to the Government of granting these tax deductions

to all corporations without excess profits that pay overtime is difficult

to estimate. Such an estimate depends not only on the aggrogate amount
of promium payments but also on the way premium payments are distributed
between corporations making excess profits and other corporations, In

any case, it appears that the resulting reduction in tax receipts would
be small relative to the costs of permitting prices to rise or of failing

to utilizo fully manpower available. The attached memorandum explains in
more detail the proposal for tax relief to cover, where needed, the extra
costs of overtime payments.

Conclusion:

The 48-hour order has come at a critical point in the battle to
prevent inflation. It is important that the order not be allowed to become an instrument for breaking down the economic stabilization program.

These suggestions if put into operation will neutralize the effect of

premium payments on income, minimize the pressure on costs, and reduce

resistance to the extension of hours at premium rates.

Attachment

140-P
Attachment

Tax Relief to Offset Premium Wage Payments

The government will have to provide some relief for increased
labor costs due to premium payments on overtime. The granting of tax

credit is the best way to do it. It is simpler and less inflationary

than an upward adjustment of price ceilings would be; it is less cumbersome than cash subsidies and less provocative a precedent for future sub-

sidies. By providing relief through tax reduction, use is made of existing administrative machinery. Moreover, the tax method offers a relatively
simple if approximate way of adjusting the amount of relief granted to the
need of the corporations receiving it.
There is a clear case for selective and against general relief.
To minimize the inflationary force of the relief prevision, it should be restricted to those firms which have a real need for it. That is, only those

corporations should be given relief whose net income after taxes has been
depressed most. Desirable though it may be, it is impossible to handle the
problem on an individual firm basis. Some general demarkation line must be
drawn and an obvious way to draw it is between corporations with and corporations without excess profits income. The criterion should be established
that premiums for overtime should be absorbed in excess profits income if
possible, but that they should not be permitted to reduce normal corporate
net income after tax. If premium payments result in a reduced normal income after tax the Treasury should assume the burden by way of tax reduction.

The distinction between excess profits corporations and others is
admittedly arbitrary. However, it is convenient because it coincides with
that drawn in the tax law and it is no more arbitrary than any other demarkation would be. Against applying this distinction here it may be held
that the relief thus provided would be too liberal in many cases. Surely,
it could not be held that the relief would be insufficient and that excess
profits corporations should be given similar credits. Excess profits
corporations will be reimbursed automatically and without specific relief
provisions for up to 90 per cent of premium payments due to reduced excess

profits tax liabilities.

Tax Relief for Corporations

a. A corporation with no excess profits income would be permitted to deduct from its normal and surtax liability such part of premium
payments as is not absorbed automatically in a reduced corporate income

tax liability. A corporation with net income above $50,000 and a combined
normal and surtax rate of 40% would thus be permitted to offset 60% of its
premium payments against its tax liability. Thereby net income after tax

would be restored to exactly the amount obtained prior to premium payments

(see attached illustration). Clearly, it would be excessive to permit the

deduction of the full amount of premium payments, since taxes are automatically reduced by 40 per cent of premium payments (or by a smaller per-

centage if a lower surtax rate applies) due to a reduction in surtax net
income by the amount of premium payments.

140- Q
Attachment - page 2

One major exception to this rule would be necessary. If the sum
of premium payments and not income exceeds the excess profits credit, it
follows that the corporation would have had not income subject to excess
profits tax had no premium been paid. 1 A part of the premium cost equal
to the amount of this potential excess profits income is automatically off-

set by a reduced excess profits tax liability; no additional relief is required against it. The offset against normal and surtax liability should,
therefore, be 60 per cent (or less, if a lower surtax rate applies) of
residual premium payments only, i.e., total premiums minus the potential

excess profits income thus computed.

In most cases, normal and surtax liability would be sufficiently

large to permit the full offset of the premium credit (i.e., that part of

overtime payments not automatically reflected in a lower tax liability).
Where the tax liability would not suffice, the corporation should be permitted to carry the offset credit forward for a number of years. If it
were desired to limit the credit more narrowly, provisions along these
lines might be included: (1) Relief might be restricted to an amount which
does not raise net income after taxes above last year's figure; (2) Relief
might be restricted to an amount which, if added to surtax net income does

not
raise the total above, say, 80 per cent of the statutory excess profits
credit.
b. A corporation with excess profits income would be given no
relief beyond that provided automatically through reduction in excess
profits liability. Had premium payments not been made, excess profits

would have been increased by the amount of premium payments and excess

profits tax liability would have exceeded actual liability by up to 90 per
cent of this amount. 1

Tax Relief for Noncorporate Business

The above plan applies to incorporated business only. It might
be supplemented by a corresponding credit against personal income tax li-

ability on income arising from business sources. A provision of this kind
would be more difficult, however, and perhaps less necessary. If establishments employing less than eight persons are to be exempted from the 48-hour

requirement, a relief provision applicable to corporations should cover the
large majority of cases. Also, it is likely that many small businesses

have been on a 48-hour basis for some time and have therefore had an oppor-

tunity to adjust their price-cost structure accordingly.

It is assumed that prices and hence sales receipts would have been the
same, notwithstanding the lower labor cost.

140-R
Attachment - page 3

If tax relief was to be provided to non-incorporated business
the line between needy and other cases would be difficult to draw. No
existing statutory distinction between normal and excess income could be
referred to. Possibly a tax credit (for premium payments not automatically
reflected in a lower personal income tax liability) qould be made dependent
on and be adjusted to a decline in the ratio of net profits from business
to total business receipts below the ratio shown for the preceding (or
another base) year. Cases of greatest hardship might be met more simply by
permitting partial offset of premium payments against income tax liability
if a net loss is shown from business income.

140-S
ILLUSTRATION

TAX RELIEF FOR PREMIUM WAGE PAYMENTS

Corporation Income Tax

hour
week

With 40

After change to

48 hours 1
Present law
Proposal

1,000,000

300,000
300,000
600,000

300,000
25,000
300,000
625,000

3. Gross profit from sale (1 - 2d)

400,000

375,000

4. Deductions

300,000
100,000
5,000
95,000

300,000
75,000
5,000
70,000

95,000
100,000

70,000
75,000

22,800
16,000
38,800

16,800
12,000
28,800

61,200

46,200

15,000
13,800
61,200

1. Gross sales

2. Cost of goods sold
a. Wage cost (basic rate)
b. Wage cost (premium)

O. Other cost

d. Total (a+b+o)

5. Net income (3 - 4)
6. Partially tax exempt income
7. Adjusted net income (5 - 6)
8. Income subject to excess profits tax 2
9. Normal tax net income (7 - 8)
10. Surtax net income (5 - 8)

11. Tax:

a. Normal tax (24% of 9)
b. Surtax (16% of 10)
C. Total tax

12. Net income after tax (5 - 11)
13. Tax credit (60% of 2b)
14. Adjusted tax (11 - 13)
15. Net income after adjusted tax (5 - 14)

1 Total hours of employment remain unchanged but workers previously employed

at 40 hours are shifted to a 48-hour week; the labor force is thus reduced by 1/6. Time-and-a-half is paid for overtime.

It is assumed that the statutory excess profits credit exceeds $100,000
(item 5) plus $15,000 (item 13).

140-T
OFFICE FOR EMERGENCY MANAGEMENT

WAR MANPOWER COMMISSION
WASHINGTON D.C.

February 18, 1943

Chairman

PAUL V. McNUTT
SECURITY ADMINISTRATOR

MEMORANDUM

Mr. James F. Byraes

TO:

Director, Office of Economic Stabilisation

Paul V. McNutt
Chairman, War Manpower Commission

FROM,

SUBJECT: Executive Order 9301

I. Steps Taken to Effectuate the Order
A. Soope of Application

In taking steps to carry out the President's Order, I have
interpreted the purpose of the Order to be the conservation
of manpower for purposes essential to the war. Accordingly,
I have taken steps immediately to provide for application of
the Order in those areas and those industries in which the
shortages of labor warrant such action. Furthermore, I

have delegated to the Regional Directors of the War Manpower
Commission the authority to extend the application of the
order to areas and industries where in their judgement the

48 hour week will aid in alleviating labor shortages that
are impeding the war program. In formulating regulations
and procedures to carry out the order, I have specifically
avoided applying it immodiately in areas and industries
where its net effect would be merely to release workers

who could not be readily absorbed in employment and who
would, therefore, remain unemployed.

Similarly, I intend to issue specific orders, applying the

48 hour week to essential industries, whose operations are
impeded by labor shortage but which, because of the nature

of their activities, are usually not located in industrial
areas and would, therefore, not be covered by the applica-

tion of the order to such areas. Typical of those industries
are lumbering, ooal mining, metal mining, mica mining, and

CTORY

BUY
WAR

fluorspar mining. In general, the extractive industries
(other than agriculture) will be dealt with in this ways
other industries will be covered insofer as they occur in

areas of labor shortage and share the manpower problems of
such areas.

140- V
Mr. James F. Byrnes

-2-

February 18, 1943

B. Coverage and Exclusions

The regulations specify that the order is applicable to all
employment within the designated areas and industries except
certain types of employment which are specified for exclusion.

These are:

1) Agriculture, because in most cases it is difficult to

measure the employee workweek in this industry, and because
most agricultural workers are already working more than 48
hours a week.

2) Employment in establishments employing seven persons or

less, because of the administrative difficulties involved
and because it is assumed that the application of a

minimum workweek to any such establishment would not

significantly effect its labor requirements.

3) Employees of States and their political subdivisions and
wholly owned instrumentalities thereof, because of the
legal and administrative questions which they present.
4) Employment of persons less than sixteen years old, because
a long workweek might be injurious to the health and welfare
of such persons.
5) Employment of individuals who for some good reason are not

available for full-time work, but whose part-time partisipa-

tion in the labor market should be encouraged because it

will help to alleviate labor shortage.
C. General Procedures

In order to permit the orderly transfer of released workers, I

have specified that in cases where the lengthening of the workweek will permit the release of employees who cannot readily be
placed in other jobs, such action shall be taken only at such
time as approved by the Regional Manpower Director or his

representative and shall not be required prior to April 1. In
areas or industries to be designated hareafter, in general,
I expect to allow one month after the amouncement of the
application of the Order.

In those areas in which the Order has been invoiced, employers
who could adopt the minimum workweek without releasing any

labor are required to do so as soon as practicable. In these
cases the lengthening of the workweek will permit the expension
of production and reduce the need for additional employees.
Employers who will find it necessary to release laber as a
result of the adoption of the minimum workweek may be required

140 - V

Mr. James F. Byrnes

February 18, 1943

to adopt it as soon as possible and release such workers if
the workers so released can be expected to find suitable
employment promptly. If the workers to be released would
not be readily absorbed, the employer is to adopt the minimum

workweek when he has filed with the War Manpower Commission a

schedule of releases from his employment and has been notified
by the War Manpower Commission to proceed with these releases.
This is intended to give the War Manpower Commission an
opportunity to find new employment for such workers in essential

work, and thereby facilitate orderly transfer.

If an employer is not complying with these provisions, he is
prohibited from hiring additional workers.
D. Provision for Exceptions
I am fully aware that there are many kinds of employment in

which the adoption of a minimum 48-hour workweek would not be

feasible or would not effectuate the purposes of the Order.
In the course of drafting our regulations and procedures, we
have explored many industrial situations in which the uniform

adoption of a 48-hour minimum workweek would not only contribute

nothing to the alleviation of labor shortage but might actually
be detrimental to the war effort. I have, therefore, specified
that the regulations shall be designed to obtain compliance

with "a minimum wartime workweek" which will under most
circumstances be 48 hours but which may be less for good reasons.

In general, three classes of reasons are recognized and are
specified in the regulations as justifying a workweek of less

than 48 hours:

1) Where a workweek of 48 hours would be impracticable in

view of the nature of the operations; e.g., where a
plant is operating three shifts of eight hours minus a

meal period. In such cases, the minimum wartime workweek
of 45 hours might be considered in compliance.

2) Where a workweek of 48 hours would not contribute to the
reduction of labor requirements; e.g., where the pressmen
in a newspaper establishment need work only long enough

each day to print the daily required number of oopies of
the paper and if no useful purpose would be served by

keeping them any longer.

3) Where a workweek of 48 hours would confliot with any Federal,

State or local law or regulation limiting the hours of work
as specified in Section 5 of the Executive Order.

140 W

Mr. James F. Byrnes

-4-

February 18, 1943

While I expect that there will be many exceptions under one or
another of those conditions, I have specified that in these eases
there shall be no blanket release from the provisions of the Order
but that the workweek shall always be the greatest number of hours

less than 48 feasible in the light of the above conditions.

For your information, I - attaching a oopy of the regulations and of
the areas to which the Order is being initially applied. These are
areas found by the War Manpower Commission to be areas of critical
labor shortage in which all measures for the mobilisation and conserva-

tion of labor (including the withdrawal of war contracts) are being
undertaken.

140 - X

F. Byrnes

February 18, 1943

II. General Affect Upon Labor Costs

The affect of the lengthened workweck upon unit labor costs depends

three factors: first, whether the industries to which the order is applied
pay a premium rate for hours ir excess of some specified number (generally

40); second, the extent to which the application of the Order will actually
increase the number of hours to be compensated at the premium rate; and,

third, the effect of possible longer hours on average production per hour.
In establishments which do not pay overtime at a premium rate, the longer
workweek may have no affect on labor costs: presumably, the additional

pay will be compensation exactly for additional work. If there is no change
in hourly production, costs will be unchanged.

In establishments which pay time-and-a-half for hours over 40, if
workers affected by the order previously worked exactly 40 heurs, and if
as a result of the Order, they have increased their hours of work to
exactly 48, labor costs (assuming no change in hourly efficiency) would
be increased by 8.33 per cent (52 hours' pay for 48 hours of work). This
is the greatest possible effect which the Order could have on any establishment if efficiency is not changed (except in those rare instances where
overtime rates begin below 40 hours).

It should be noted, however, that a 48-hour scheduled workweek is
commonly reduced by normal absenteeism and turnover to about 46 hours.

In this case, the labor costs would be increased by 6.50 per cent (49
hours' pay for 46 hours' work).

Further, many establishments are already working well over 48 hours.

The latest data of the Bureau of Labor Statistics indicate that the

average number of hours actually worked in all manufacturing industries
was 44.0 in November 1942. This average, of course, includes many
industries maintaining scheduled workweeks of 48 hours and above. For
example, the latest reports of the War Production Board show that the
average worker in selected metal industries worked 47.9 hours per week
in January-equivalent to a scheduled workweek of 50 hours or more. On
the other hand, hours in non-durable manufacturing are much less, averag-

ing in some industries less than 40. Raising all manufacturing industries

to a minimum 48-hour scheduled workweek would raise the average hours worked

well above 46-probably between 47 and 48. The Bureau of Labor Statistics
has estimated that a 46-hour actual workweek for all employees in manufacturing who worked less than 46 hours in November 1942 (leaving unchanged
the hours of those who worked 46 or more) would increase labor costs per
hour by 2.71 per cent.

As a matter of fact the change in costs will vary from industry to
industry and from establishment to establishment. The attached table.
prepared by the Bureau of Labor Statistics, shows, for manufacturing
industries the amount of additional overtime premium that would have

140 - Y
James F. Byrnes

- -6-

February 18, 1943

resulted from a minimum 46-hour workweek for all manufacturing employees
in November 1942, and the corresponding increase in labor costs. It may
be assumed that establishments in these industries located in the shortage
areas. where the Executive Order is to be invoked, were already working

longer than the average for the entire industry and that the increase

would be correspondingly less.

It should be noted that these estimates refer specifically to increases in unit labor costs. It has been repeatedly pointed out that
increases in the earnings of individual workers will be substantially
greater. On the other hand, the increase in the total costs of an
industry or establishment will be materially less, depending on the

ratio of labor costs to total costs. If, for example, labor costs
were 25 per cent of all costs in an industry, the effect of the

lengthened workweek on cost would be only one-fourth AS great as the

effect on labor costs alone. Of course, the effect on earnings after
taxes would, in most cases, be still less.

140-2
LIST OF AREAS DESIGNATED FOR THE APPLICATION OF EXECUTIVE ORDER 9301

Bath, Maine

Manitowoo, Wis.

Bridgeport, Conn.

Sterling, Ill.

Hartford, Conn.

Brunswick, Ga.

New Britain, Conn.

Charleston, S. C.

Portsmouth, N. H.

Macon, Ga.

Springfield, Mass.

Mobile, Ala.

Waterbury, Conn.

Panama City, Fla.

Buffalo, N. Y.

Pascagoula, Miss.

Somerville, N.J.

Wichita, Kans.

Baltimore, Md.

Beaumont, Tex.

Elkton, Md.

Cheyenne, Wyo.

Hampton Roads, Va.

Ogden, Utah

(Norfolk

Newport News
Portsmouth)

Washington, D. C.

Las Vegas, Nev.

Akron, Ohio

Portland, Ore.

Dayton, Ohio

San Diego, Calif.

Detroit, Mich.

Seattle, Wash.

140 AA
Estimated Increase in Weekly Manufacturing Payrells Caused by Additional
Overtime Premium if Plant Average Weekly Hours are Raised to a Minists
of 46 (Scheduled 48)

November 1949
Woodly

payrells

Industry Group

Average

(thousands weekly
hours
of dollars)

in payrells

Percent
increase
is

(thousands

payrells

Amount of
increase

of dollars)

All manufacturing

506,356.0

18,713.8

2.71

Durable goods

$41,723.0

5,733.8

1.68

1,606.6

2.29
1.18

Iron and steel and their

70,002.5
26,289.2
55,478.6
105,855.3
32,775.1

44.7
47.0
49.5
47.7
45.5

16,855.0
Lumber and timber basic products 18,128.2
Stone, olay, and glass products 11,596.5
9,742.4
Furniture

46.0
41.7
41.4
42.8

270.9
759.3
664.0
411.0

1.61
5.78
5.73
4.22

164,633.0
32,379.8

40.8

7,980.0
1,909.0

4.85
5.90

20,183.9
9,190.5
2,210.8
9,767.5

37.0
39.0
40.6
44.0

1,306.4

6.47
6.56
6.40
2.90

11,735.2
25,123.7
5,549.3
6,634.8
12,603.2
29,253.4

39.5
43.9
41.8
43.4
45.0
42.4

768.7
735.2
281.8
232.8
283.1

products

Electrical machinery
Machinery, except electrical
Transportation equipment
Automobiles

Menferrous metals and their
products

Mondurable goods

Textile mill products
Apparel and other finished
textile products

Leather and leather products

Tobacco manufactures

Paper and allied products

Printing, publishing and
allied industries

Chemicals and allied products
Products of petroleum and ooal
Rubber products

Miscellaneous industries
Food and kindred products

Prepared by: Bureau of Labor Statistics
Occupational Outlook Division
February 16, 1943

802.3
226.1
926.2
568.4

603.2
141.5
283.7

1,434.6

.61
.87

1.73

6.55
2.93
5.08
3.51
2.25
4.90

TITLE 29 - LABOR

140-B B

CHAPTER VII - BAR KAMPOWER COMMISSION
PART 903 - MINIMUM BAKTINE WORKBLEX OF 48 HOURS

By virtue of authority vested is me as Chairesa of the
far Manpower Commission by Executive Order No. 9301 establish
ing a Minimum Nartime Berkweek of 48 hours, and by Insecutive

Orders NOS. 9139 and 9279, I hereby prescribe the following
Regulations:

903.1. General Poliar for Intereratation and
of Executive Order. Executive Order No. 9301 shall be se
construed and applied as best to effectuate its frademontal
purpose, which is to aid in meeting the sangever requirements
of our armed forces and our expanding was production progress

by a fulling utilisation of our available anapower. Effectmen

tion of this purpose requires that is situations of labor
shortage employers do not hire now workers whos their needs can effectively be net by a fuller utilisation of thats
current labor force, and that workers who eas be released by
an extension of the workweek are released under circumstances

which will permit and facilitate their effective utilisation
elsewhere in the war effort.

903.2. Application to Areas and Activities The Chairman
of the Bar Mangower Commission will from time to time by order

designate areas and activities as subject to the provisions
of Executive Order No. 9301. Regional Manpower Directors -

designate additional areas and activities eithin their
respective regions as subject to the provisions of Executive
Order No. 9301, if they find and by appropriate public notice

140.00

so declare, that such action will aid is alleviating laber
shortages which are impeding the war effort. Unless and

until as area or activity has been se designated, employers
therein will not be required to extend their workwook.

903.3. Delegation of Authority, Regional and Area
Manpower Directors are authorised and directed to determine

all questions arising within their respective regions and
areas with respect to the interpretation and application of
these Regulations, is confernity with such precedures and
instructions as the Executive Director of the War Bangover
Commission say issue is implementation thereof.

903.4. Mister Barbine Background Minimum Bartine
Berkweek® as used in these Regulations sease a workwook of

48 hours, except in cases where a workwork of 48 hours (a)

would be impracticable is view of the nature of the operations,

(b) would not contribute to the reduction of labor requiremonte, or (e) would conflict with any Federal, State or

local law or regulation limiting hours of work. In such
cases *Minimum Bartime Berkweek® means the greatest member

of hours (less than 48) feasible is the light of the sature
of the operations, the reduction of labor requirements or

the applicable Federal, State and local las or regulation,
as the 0000 may be.

903.5. Extension of Markees in Destroated
Activities. If the workwook applicable to any worker employed

in any plant, factory or other place of employment is - area
or as activity designated as subject to the provisions of

149-DD
of either Director a statement as to the number
of workers whose release would be involved and their

occupational classification, together with a proposed schedule for the timing of such releases.
The Regional or Area Manposer Director or desig-

nated representative will authorise & schedule for
the extension of the workweek to the Minimum

Bartine borkweek and for the release of workers is
terms of labor market acode and the employer shall
thereupon proceed to extend the workweek in accesdance with such schedule.

903.6. Restriction Upon Hiring of herkers. No employer

shall hire any worker is an area or activity designated as
subject to the provisions of Executive Order No. 9301, if
the employer has failed in any sanner to comply with the pre-

visions of Section 903.5 of these Regulations in the plant,
factory or other place of employment in which the worker would
be employed.

903.7. Exclusions. No provision of these Regulations
shall be construed or applied so as to require the extension
of a workweeks

(a) in any establishment or other place of employment
in which less than eight workers are regularly
employed,

(b) in any establishment or place of employment principally engaged in agriculture)

political subdivision thereof, or any instrumentality
of any one or more of the foregoings

140-EE

Executive Order No. 9301, is less than the Minimum Martine
Borkweek, such workweek shall be extended to the Minimum
Markine Herkwook as follows

(a) Whonever extension of such workseek to the
Minimum Bartime Baskwook would not involve the

release of any workers, the affected employer shall
proceed promptly to extend the workweek to the
Minimum Martine Berkweak.

(b) Thonever the Regional or Area Maspover Director

or a designated representative of either determines
that extension of such worksook to the Minimum
Bartime Barkweek would involve the release

only of workers who can be promptly placed is
suitable employment with other employers, the

affected employer will be notified of such detersinction and thereagen shall proceed property to
estend the worksook to the Main Bartino Backwook.

Barkwook would involve the release of - were
and the Regional or Area Reapour Minostor or

designated representative has and determined -

artified the employer that 1 - - grouptly
be placed is suitable employment with other employees,

the - shall an be extended - as Load bales. a or before level 4 MO, the

effected employer shall - w - or
Area Mangooor Minester or the designated -

140 FF

(a) of youth under the age of sixteen years, or
(e) of individuals who on account of other employment,

household responsibilities, or physical limits-

ticus, are not available for full time work.
903.8. Definitions. As used in these Regulations
(a) "Workwork" seans the number of hours within a
period of seven successive days, beginning with
the same calendar day each week, during which

workers are normally required to be on auty.

(w) "Agrieulture" seans those farm activities carried
on by farm owners or tenants on farms in counce-

tion with the cultivation of the seil, the hare
vesting of crops, or the raising, feeding, or
management of livestock, boes, and poultry, and

shall not include any packing, easning, processing,
transportation OF marketing of articles produced

- farms unless performed or carried on as as

insident to ordinary farming operations w dis-

Chairman,
Bar Hanpower Commission

February . 1963

gaished free manufacturing or commercial operations.

Mrs. Klatz
TREASURY DEPARTMENT

141
owns

WASHINGTON

February 19, 1943.
MEMORANDUM ON MEETING OF THE JOINT
COMMITTEE ON REDUCTION OF NON-DEFENSE EXPENDITURES

A meeting was called at 10:30 A.M., Friday, February 19,
1943, in the Senate Finance Committee Room in the Senate Office
Building. There were present:
Senators:
Byrd
Wherry
George

Department of Agricultures
Governor Black, FCA
Mr. Wells, RACC
Mr. McConnaughey

Bureau of the Budget:
Mr. Lawton

The meeting opened at 10:30. Senator George did not arrive
until 12:05 and left at 12:50. The Committee reporter made a stenographic transcript of the meeting. Reporters were present.
Senator Byrd opened the meeting and said that Governor

Black, representing the Secretary of Agriculture, would furnish
information relative to the reestablishment of the Regional
Agricultural Credit Corporation.
Governor Black read for the record a short statement summarising the authority under which the Regional Agricultural Credit
Corporation was organized and previous activities with respect to
the establishment and dissolution of RACC's. He explained that
everyone was familiar with the possibility of shortage occurring in
available food supply and said it was recognized that numerous
factors enter into this picture, namely, manpower, availability of
equipment and credit. He said the Department of Agriculture had
explored the available credit resources and had determined to
reestablish the RACC so there could be no question of lack of

credit facilities. He said loans would be made through this

agency which would be general liens on the credit of the borrower

and non-recourse loans would be made which would be secured solely

by the proceeds of the crops. He explained in more detail the manner
in which the new organization would operate and said that loans would
be made at 5% to cover operations for one season. He also said the
BUY plan was not intended to compete with other sources of agricultural
BONDS

-2-

142

credit and that they had explored plans to interest local banks in
extending credit on the basis of governmental guarantees. In this
connection he said that the attorneys had advised that there was no
legislation under which such loans could be made on the basis of
Federal guarantees. Mr. Black pointed out that the RACC can sell
the notes which it takes from farmers to commercial banking institutions and would be prepared to sell such notes at 1/2 of 1%
without recourse. He also said that specific instructions had been
given to field agents not to compete with other sources of agricultural credit and that the Department of Agriculture had been somewhat
surprised at the attitude taken by banking institutions after the
new program had been announced.

Senator Wherry then undertook a general interrogation of
Governor Black and asked a number of questions concerning different
types of agricultural credit being made available by the Government
and particularly with reference to the FSA. Governor Black denied
having knowledge of any information concerning FSA activities and
for a short while it appeared that he would be a hostile witness.
This situation, however, cleared up when Senator Wherry shifted his
line of questioning to agencies under the FCA. During this discussion
Governor Black insisted there was a need for the RACC and when Senator

Wherry insisted that the same class of loans could be made through the
FSA, Governor Black stated that Mr. Baldwin, head of the FSA, had told
him sometime ago that all the funds available to that agency had been
committed. Governor Black also stated that the PCA's were local
cooperative organizations and could not undertake the classes of loans
proposed to be handled by the RACC. Governor Black also said there
were indications that the food production program will be hindered if
the RACC is not set up.

Senator Byrd pointed out that the 1944 budget estimate
included substantial sums for the continuation of FSA. Governor
Black said that FSA loans were primarily to cover the low income
group and PCA loans were to cover the higher income group. He said

there was a need for credit facilities for the farmers in the inter-

mediate class, those for whom FSA loans were not available but who
could not meet the high credit standard of the PCA. Governor Black

said in his opinion most loans of the RACC will go to farmers not in
the FSA group and Senators Byrd and Wherry countered with the

statement that FSA is contending as a basis of its right to be
continued that it is a war agency engaged in increasing food pro-

duction.

Senator Wherry said in his opinion the action sought to be
reached could probably be covered by some form of Federal guarantee
to banks carrying these loans and Governor Black agreed this could be

done but such action would require legislation. Governor Black also
admitted that credit was not the primary factor in the food program
and only was the factor in some instances. He said, in general,

-3-

143

manpower and availability of equipment were the prime factors.
There was a general discussion as to the extent of the
organization to be set up by the RACC and Governor Black pointed out
that existing personnel in the PCA, National Farm Loan Associations,
FSA and AAA would be utilized. Senator Byrd pointed out that there
was a large reservoir of personnel in these agencies which are at
present overstaffed. Governor Black insisted that Secretary Wickard
had given instructions to have the additional work of RACO absorbed
by existing organizations and to confine the employment of additional
personnel to the minimum.

Senator Byrd inquired whether any consideration had been
given to expanding the Emergency Crop and Feed Loan organization
which he claimed was doing a good job in making loans to farmers.
Governor Black said this could not be done without change in legis-

lation and time did not permit this action. He pointed out that the

present loan limit for emergency crop and feed loans is $400 and
legislation would also be necessary to broaden the purposes for which
such loans could be made. Senator Byrd said in his opinion the existing Emergency Crop and Feed Loan organisation should be used and asked

why legislation had not been submitted to Congress along these lines.
Governor Black pointed out that obtaining legislation is a timeconsuming operation and that the crop season was here.

In reply to Senator Byrd's inquiry as to what changes
Governor Black would recommend in existing legislation to extend
the Emergency Crop and Feed Loan organization, Governor Black

pointed out 4 details, as follows:

(1) Loan limit must be raised;
(2) Purposes for which funds may be used must be
broadened;

(3) The amount available for lending must be
increased; and

(4) Interest rates should be made more flexible
inasmuch as the rates are fixed under
present law at 4%
Senator Byrd asked whether legislation had ever been recom-

mended for the purpose of simplifying the agricultural credit agencies

setup and Governor Black said recommendations have been made from time

to time to the agricultural committees. Governor Black said in his
opinion considerable simplification could be made in the existing
setup.

144

Senator Byrd requested Governor Black to furnish a great
deal of information for the record, such as the number of employees
in the various agencies under the jurisdiction of the FCA and the
amount of over-all expenditures for administrative purposes.
Governor Black was also requested to submit a statement as to how he
thought the FCA could be streamlined.

There was a general discussion as to the need for reviving
the RACC and Governor Black said this was apparent some 2 or 3 months
ago, in December, 1942.

There was a general discussion of the purposes for which
loans would be made and the distinction between the two classes of

the loans and the activities of the county committees, particularly
with respect to the charges that such committees were soliciting
loans. During a discussion of the propriety of making loans through
the RACC to farmers for the purpose of paying their income taxes,
Governor Black said he saw nothing unusual in this practice.
During a discussion of the county organizations Governor
Black pointed out that the county organizations are composed of the
Chairman of each of the County War Boards. It also developed that generally the Chairman of the County War Board is Chairman of the County
AAA organization. In addition to the Chairman of the War Board the
county committees include one other agent. This other agent is
designated by the RACC to represent it. Information shows that to
date the agents designated by the RACC include 725 representatives
of PCA 688 Farm Security supervisors; 742 AAA representatives,
usually those handling paper for the CCC; 86 employees from the
Emergency Crop and Feed Loan offices, and 188 from other agricultural
agencies. Of the total designated to date about 1/3 come from
agencies under the FCA, 1/3 from FSA and 1/3 from AAA.

Governor Black, in reply to inquiries as to whether any
study had been made as to the need for additional credit facilities

to be extended through RACC, stated that the Central Agency of the
Agricultural War Board in Washington had furnished a figure of
$160,000,000 as the amount of credit that would be needed and which
could not be furnished through existing agencies.

Senator George made a few observations. He said if there
could be shown a need for the revival of the RACC he would support
it, but in his opinion no need had been shown and from personal

observation in his own district he was not satisfied that any need

could be shown. Senator George asked to whom it was contemplated
loans would be made and Governor Black replied that the County War
Boards are checking each farm plan in every county and determine
whether credit is needed. Senator George contended that he thought

145

-5the main problem was the lack of manpower, machinery and fertilizer.
He particularly referred to the program to encourage the growing of
Spanish peanuts and pointed out that in his home county 40,000 acres
of this crop were planted last year. Senator George contended that
the net result of making RACC loans to stimulate additional planting
in his county would result in a decrease of production over what was
accomplished last year. He also contended that RACC operations would
weaken country banks.

Mr. Wells, President of RACC, testified that the Agricultural War Board in Washington had estimated that it would be

necessary to make 400,000 loans through RACC, in the amount of
$160,000,000. He said this was an estimate and he did not know on

what basis it was made, but that 10 days ago the Washington office
had wired each State and requested the State organization to obtain

from each County War Board the number of loans which would be needed

in each county. He said this information was due in Washington on
Saturday, February 20, and would be available in a week as it would

take that long to compile the information. Mr. Wells insisted that
if there is a need for credit to stimulate war crops, the Department
of Agriculture wanted to be in a position to be ready to meet such
need.

Senator Wherry said that if FCA can show him that there is
a need for credit through RACC, he would support the present proposal,
but he was not satisfied that such a need had been shown up to this
point.

The meeting adjourned at 12:55 P.M.

less

146

TREASURY DEPARTMENT
WASHINGTON

February 19, 1943.

MEMORANDUM FOR THE SECRETARY:

Re: Attached Clipping.
This project is one which has been handled
by Peter Odegard, and I am not familiar with the
details.

Mr. Odegard is not here and will not be

here until Monday.

If satisfactory to you, Mr. Odegard and

I will come in to see you Monday.

HarobyN. Graves

Assistant to the Secretary.

PORVICTORY

BUY

WarKondDrive
2

Started

Dy Newspapers
Big Integrated Advertising
Campaign to Get Under
Way Here on March 15
A large, integrated newspaper
advertising campaign on behalf of

war bonds and stamps will be

started in eight Manhattan news.
papers about March 18. it was announced yesterday by Nevil Ford,
New York State Administrator for
Treasury War Savings Staff. The

program calls for at least one
1,000-line advertisement in each

daily each week, and might reach

a maximum of three such adver-

tisements in each newspaper

weekly.

The eight newspapers which

have banded together for the joint

effort, at the reuest of the Treasury Department, are "The Daily

Mirror, The Daily News," "The
New York Journal . American.'
The New York Post," "The New
York Sun." "The New York Times,'

The New York World-Telegram."

and the New York Herald Tribune.

Under the name of the War

Bond Advertising Representatives

New York, the eight newsJers have formed a separate
organization for the sole purpose
of obtaining pledges for this war
bond advertising campaign. Walter

J. Merrill, newspaper advertising
executive, has been named director of the co-operative group
and has opened headquarters in

the R. K. O. Building. adjacent

to the office of the New York War
Savings Staff.

A staff of six men has been re-

cruited to call on New York stores.

banks, and business firms to explain the plan and obtain sponsors. These men include William
H. Mann. formerly general manager of Marshall Field & Co., Chicago; Bernard Palmedo, for many

years with various New York
dallies: Arthur H. Clauss, a manu-

facturers' representative; Porter
Caruthers, former local advertising manager of the New York
Herald Tribune; A. D. 8. Palmer.
former advertising manager of
the National Sugar Refining Co.,
and George A. Hammer, a former
advertising executive with leading
magazines.

Launching of the program in

(Continued on page 27. column 6)

148

TREASURY DEPARTMENT
WASHINGTON

February 19, 1943.
MEMORANDUM FOR THE SECRETARY:

Mr. Odegard has given me the following information
regarding the story in this morning's TIMES concerning
newspaper advertising of war bonds in New York City.
A month or six weeks ago, the advertising managers

of the eight New York daily papers collectively presented
to the War Savings Staff a plan to increase the quantity
of sponsored war-bond advertising in the newspaper
columns. The plan involved the use of a standardized

and uniform technique by the advertising solicitors of
the cooperating newspapers, under which commercial ad-

vertisers would be asked to join together in a regular
program providing at least one full-page war-bond

advertisement each week in each newspaper, names of

sponsors to appear in a credit line, which might, f or

example, include 75 sponsors for one such advertisement.

There has been only an incidental discussion of
copy in the conferences which have taken place regarding the plan, which, as I understand, has now been

perfected and agreed to between the newspapers and

ourselves. The plan involved only the matter of
methods to be used by advertising solicitors in asking
their clients to sponsor our advertisements.
In talking with Mr. Odegard today, I asked him

whether the advertisements which might develop under

this plan could be used for the general financing drive

in April. He said this:

"One of the things we talked about
yesterday at the meeting was precisely that

point. The Treasury is faced in April with

the job of another major financing. We would

BUY

149

Memo. for the Secretary--2

probably want to have that space devoted to

the over-all plan. Everyone agreed that this
would make it possible for us to develop a
hard-hitting, consistent, over-all appeal on
a general financing plan."

At the conclusion of our discussion, I said this
to Mr. Odegard:

"The Secretary was worried that this was

strictly a War Bond thing, and that it would
exclude the use of these newspapers for the
general financing."

His reply was as follows:

"You can tell him that not only is that
not true, but that the April and subsequent

Treasury financings were specifically discussed,
and everyone was not only agreeable to including
that, but very glad."

I enclose a transcript of my conversation with Mr.
Odegard, which touched on some further details of the
proposed operation, which probably are not significant.

For the period beginning July 1941 through November 1942, sales of
Series "E" War Savings Bonds are reported as follows:
City

Sales

Per Capita
Sales

$154,528,000

95.18

82,639,000

94.09

New York

623,043,000

83.57

Chicago

266,420,000

78.43

Philadelphia

133,406,000

69.07

Los Angeles

102,528,000

68.12

Detroit
Cleveland

Detroit in December sold approximately $14.36 per capita.

150

151

Series "B" War Savings Bond Sales Summary

from May 1, 1942 to January 31, 1943

For All States having a Monthly Quota in Excess of
$15,000,000.00

(in thousands of dollars)
Quota

Sales

Percent

$ 311,746

$ 277,200

88.92

Indiana

164,802

129,770

78.74

Ohio

394,543

300,962

76.28

Texas

242,173

176,637

72.94

California

521,389

372,352

71.42

Wisconsin

151,113

107,490

71.13

Connecticut

164,743

113,992

69.19

Illinois

543,134

370,519

68.22

Pennsylvania

569,948

384,951

67.54

New Jersey

286,086

191,853

67.06

Missouri

176,110

117,350

66.63

Massachusetts

293,554

182,754

62.25

1,235,591

656,907

53.17

$5,054,932

$3,382,737

66.92

State

Michigan

New York

Grand Total

Quotas used are based on the total dollar sales expected from all
series of War Bonds, that is, E, F and G. Sales credited on this
sheet are for "B" Bonds only at issue price -- percentage is sale

of "E's" against states total quota for all bonds.

152

War Savings Bond Sales Summary

From May 1, 1942 to January 31, 1943

For All States having a Monthly Quota in Excess of
$15,000,000.00

(in thousands of dollars)
Quota

State

Sales

Percent
105.38

$ 311,746

$ 328,526

Indiana

164,802

170,081

Ohio

394,543

394,436

99.97

Wisconsin

151,113

145,369

96.2

Pennsylvania

569,948

547,307

96.03

Connecticut

164,743

156,226

94.83

Massachusetts

293,554

277,487

94.53

Texas

242,173

228,550

94.37

Illinois

543,134

512,234

94.31

Missouri

176,110

161,439

91.67

California

521,389

470,465

90.23

New Jersey

286,086

256,077

89.51

1,235,591

1,015,894

82.22

$5,054,932

$4,664,091

92.27

Michigan

New York

Grand Total

103.2

The above 13 states account for more than 70% of the National quota.

153

DES FEB 19 PM E 40

V9 (FIVE)L6
PCO ATLANTA CA 1048A FEB 19 1943
HONORABLE HERNY MORCANTHAU

SECRETARY OF THE TREASURY TREASURY BLDG WASHN DC

I HAVE GIVEN EARNEST AND CONSCIENTIOUS CONSIDERATION TO YOUR
TELEPHONE REQUEST. DUE TO PERSONAL AND FAMILY CONSIDERATIONS I

AM FORCED TO DECLINE THIS I DO WITH KEENEST REGRET FIRST
BECAUSE OF THE IMPORTANCE OF THE TRASK AND SECOND BECAUSE OF YOUR

EVIDENT CONFIDENCE IN ME BUT NO OTHER DECISION IS POSIBLE
REGARDS

HARRISON JONES.
1227P

154

February 19, 1943

Secretary Henry Morgenthau, Jr.
Treasury Department
Washington, D. C.

Dear Mr. Secretary:

Herewith is the list of names of men that
have been recommended to us as being top marketing
men. As understood, you have ready means to check

in detail as to their qualifications.

As you know, we are meeting with the Grant
Committee on Monday, and are looking forward to seeing
you at your convenience.
Cordially yours,

HB housed
H. B. Thomas
H. M. Stevens
J. H. Wood

155

NATIONAL SALES MANAGER FOR MASS MARKET

William A. Packer

Vice-President and General Sales Manager
Packard Motor Company, Detroit, Michigan

Roy P. Peed

Vice-President De Soto Division, Chrysler Corp.,

George Mason

President, Nash Kelvinator, Chicago, Ill.
formerly top sales executive of Chrysler

Mervin Cotes

Vice-President, Motor Wheel Corp., Detroit, Mich.

Thomas McCabe

President, Scott Paper Company, Philadelphia, Pa.

formerly sales manager

157

NATIONAL DIRECTOR OF SALES FOR WAR FINANCING

Clarence Francis

"ill Dodge

President, General Foods, New York
Up through Sales to President
Marketing Vice-President of Texas Company,

New York

C. R. Palmer

President, Cluett Peabody, New York
Up through Sales to President

Robert W. Woodruff

Chairman of Coca Cola, Atlanta
Head man of very smart marketing company

Formerly President of White Motors

158

ADMINISTRATIVE ASSISTANT TO NATIONAL DIRECTOR OF SALES

Harold Graves

W. S.S., Washington, D. C.

159

NATIONAL MANAGER WOMEN'S DEPARTMENT

Miss Harriet Elliot

W.S.S., Washington, D. C.

160
NATIONAL SALES MANAGER FOR PAYROLL MARKET

Theodore Gamble

W.S.S., Washington, D. C.

John A. Stevenson

President, Pennsylvania Mutual Life
Insurance Company, Philadelphis, Pa.

161

NATIONAL MANAGER FOR ADVERTISING AND PROMOTION DEPARTMENT

Raymond Rubicam

Chairman Executive Committee
Young & Rubicam, New York

Neil McElroy

Member Executive Committee

James Gamble Rodgers

Office of War Information
Former Executive Vice-President of

Proctor and Gamble, Cincinnati, Ohio

Denton and Bowles, New York

162

NATIONAL SALES MANAGER FOR BANK MARKET

Robert Strickland

President, Trust Company of Georgia,
Atlanta, Georgia

Thomas K. Smith

President, Boatman's National Bank
St. Louis, Missouri

James M. Kemper

President, Commerce Trust Company

Kansas City, Missouri

163

NATIONAL SALES MANAGER FOR LARGE INVESTOR MARKET

Joseph Ripley

Partner, Harriman-Ripley, New York
(Averell Harriman's firm)

Charles McCain

Dillon-Read, New York

B. A. Tompkins

Vice-President, Bankers Trust Company, New York

164

List of names suggested by Harold Thomas

phoned in advance of receipt of his letter.

2/19/47

165

NATIONAL DIRECTOR OF SALES FOR WAR FINANCING

Clarence Frances,
President,
General Foods, New York.

(Up through sales to President)
Will Dodge,

Marketing Vice President,
Texas Company,
New York.

C. R. Palmer,
President,
Clewett Peabody.

(Up through sales to President)
Robert W. Woodruff,
Chairman,
Coca-Cola,

Former President White Motors.
Alexander Patterson,

Executive Vice President of Mutual Life.
Dwight Armstrong,

Vice President of Armstrong Cork.

Harry Bullitts

President of General Mills.

Dmard II, Davis

William O'Neill,

W.P. B.

President of General Tire and Rubber.
John Stevenson,

President of Penn Mutual Life.

166

NATIONAL SALES MANAGER FOR LARGE INVESTORS' MARKET

Joseph Ripley,

Harriman, Ripley & Co., New York.

(Averill Harriman's firm)

Charles McCain,

Dillon Reed,

New York.

B. A. Tompkins,

Vice President of Bankers Trust.

NATIONAL SALES MANAGER FOR GENERAL MARKET

Robert Strickland,
President of Trust Company of Georgia,
Atlanta, Georgia.
Thomas K. Smith,

President,

Boatman's National Bank, St. Louis.
James Kemper,

President,

Commerce Trust Company,

Kansas City.

167

NATIONAL SALES MANAGER FOR MASS MARKET

William A. Packer,
Vice President and General Sales Manager,
Packard Company.

Roy Reed,

Vice President of DeSoto Division,
Chrysler Company.

(former sales manager)

George Mason,

President of Nash Kelvinator,
(Former top sales executive of Chrysler)
Mervin Cotes,

Vice President,
Motor Wheel Corporation, Detroit.
Thomas McCabe,

President, Scott Paper Company,
Philadelphia.

168

NATIONAL SALES MANAGER FOR FARM MARKET

J. L. McCaffrey,
Vice President and Sales Manager,
International Harvester Company,
Chicago.

J. Y. Williams,
Vice President and Sales Manager,
American Agricultural Chemical Company,
New York.

A. F. McGraw,
General Sales Manager,

Tractor Division,
Allis Chalmers,

Milwaukee.

C. L. Reisner,
Sales Manager,

DeLaval Separator,

New York.

169

NATIONAL MANAGER FOR ADVERTISING AND PROMOTION

Raymond Rubicam,

Chairman of Executive Committee,

Young & Rubicam,
New York.

Neil McElroy,
Member of Executive Committee,
Proctor & Gamble.
James Gamble Rodgers,

O.W.I.,
Washington, D.C.

(Former Executive Vice President of
Benton & Bowles, New York)

Dm Fran cisco

170

NATIONAL SALES MANAGER FOR PAYROLL MARKET

Theodore Gamble

War Savings Staff,
Washington, D.C.
John A. Stevenson,

President of Penn Mutual Life,
Philadelphia.

ADMINISTRATIVE ASSISTANT

Harold Graves,

War Savings Staff,
Washington, D.C.

NATIONAL MANAGER OF WOMEN'S DEPARTMENT

Miss Harriet Elliott,

War Savings Staff,
Washington, D.C.

171

FEB 19 1943

Dear Governor Amalls

Thank you for your very gracious invitation
to be your guest when Secretary Knox and I come to
Atlanta on March 12.

It is our plan at this writing to be there
over night, and I will be very happy to be your guest
on this occasion.

I understand Secretary Knox has written you an
acceptance today.

With cordial best wishes, I am
Sincerely yours,
(Signed) H. Morgenthau, Jr.

Henorable Ellis Amall
Governer of the State of Georgia
Atlanta, Georgia

TROt esa

File in Diary

171

FEB 19 1943

Dear Governor Amall:

Thank you for your very gracious invitation
to be your guest when Secretary Knox and I come to
Atlanta on March 12.

It is our plan at this writing to be there
over night, and I will be very happy to be your guest
on this occasion.
I understand Secretary Knox has written you an
acceptance today.

With cordial best wishes, I am
Sincerely yours,
(Signed) H. Morgenthau, Jr.

Honorable Ellis Amall
Governor of the State of Georgia
Atlanta, Georgia

TROtesa

File in Diary

172
2/17

Office of the Governor
Atlanta

ELLIS ARNALL

GRACE CANNINGTON
SECRETARY

GOVERNOR

February 15, 1943

Gamble know
Dear Mr. Secretary:

I sincerely hope that you and Mr. Knox will
be my house guests when you come to Atlanta to attend
the dinner and celebration on March 12th in connec-

tion with war bond sales for the construction of the
new cruiser "Atlanta."

We are delighted that it will be possible
for you to be in Georgia at that time.
With every good wish, I am
Sincerely yours,

Ellis
Amuce
Ellis Arnall
Governor

Honorable Henry Morganthau, Jr.

The Secretary of the Treasury

Washington, D. C.

173

FEB 19 1943

Ny dear Mr. Presidents

I have prepared for your signature the enclosed

letter to Mr. R. c. Leffingwell which you requested
February 16, 1943.

I - returning Mr. Leffingvell's letter with
its enclosures to you.

Faithfully yours,

(Signed) H. Morgenthan, Jr.

The President
The white House

Tholoouree

File in Diary
Del. by Harmon 5:00 2/19/4

3-R:OLH:eb

2/18/43

Po175
THE WHITE HOUSE
WASHINGTON

February 16, 1943
MEMORANDUM FOR

H. if. Jr.
For preparation of reply
for my signature.

F. D. R.
Enclosures
D

176
0

23 WALL STREET

NEW YORK

R. 0. Leffingvell
February s. 1943

Dear Mr. Presidents

When I heard you had gene I had a good laugh at syself for
having bethered you again about inflation. of course you had no
time to see no. What a grand thing it was you did, and what a new

ispetus you a to everything. It was a gorgeous adventure. How

glad I on you got back safe. That thought leads me to send you

this little clipping from the tail end of a string of financial

paragraphs in Thursday's Sun in se obscure a corner that your prese

clipper will not have bethered you with it probably. It is terribly
funny. though a bit sacrilegieus. I feel sure that it will give you
a laugh. I don't know how sound the Vice-Presdent's sense of Immor
is and whether this would amuse him. I have only not him ence or
twide - once at Morris Frant's.
How the African expedition and your own journy to Casablanca

have confunded your critics. As I told you then, I was against a
third term. I have known a long time that I was mistakes. You

have been a great war leader, a great Gonnander-in-Chief: and by
doods you have confuted these who oziod for a second frent and about
India and against Darlan and whatnet. Serry I was wrong,

As a matter of fact. I did not see Secretary Morgenthau who
was away 111, and I was not able to keep the appointment which
Undersetretary Bell gave me because I myself was ill in turn. How-

ever I shall try to see them both as soon as I can. I hope to see

you too again some time to talk about inflation once more, because

as I said to you 11 is your third front.

I am, my dear Mr. President, with great respect

Faithfully yours,
s./R. C. LEFFINGVELL
The President
The White House

Washington, D. a.
Enclosures

P.S. (Handwritten) The Ruml plan is a phoney. You yourself have
endorsed pay-as-you-go. Here's a plan for doing its 1. monthly

instead of quarterly payments, 2. relief for those who died
or & to war. Details attached.

177

Pay as you go

From 1913 to 1917 inclusive the incomes of each year ended
December 31st were reported March 1st following and payable in one lump

sum in June next (June 30th at first, later June 15th). In the last
var, improvement was made, in the interest of the taxpayers and the
Treasury, and income taxes (still computed on the basis of the
previous year's income) were made payable in four quarterly instalments
on the 15th day of March, June, September and December. Further
improvement should be made now, in view of the immense amount of taxes
and great number of taxpayers.

In the case of a steeply graduated income tax such as ours,

it is impossible to know at what rate of surtax a taxpayer's income
is to be taxed until the year's income has been received. Some people

die, some lose their jobs, others get better jobs and higher pay.
Some business men's profits and losses are seasonal, some speculative.
Farmers and professional men have uncertain and fluctuating income.

Investment income is uncertain. So it seems undesirable to attempt so

collect, currently, graduated supertaxes on estimates of the current year's
income. What would such estimates have been worth, for instance, in
1920, 1929. or 19371 Then, many taxpayers lost their jobs, and some

their shirts, in the last quarter of the year.
We shall be, as nearly as may be, on a pay-as-you-go basis,
I suggest, if we require the income of each year ended December 31st

to be reported as promptly as possible thereafter (Derhaps February 15th
next year instead of March 15th), and the tax thereon to be
paid in twelve equal monthly instalments

178

-2beginning with the filing of the return.

It would seen prasticable to give direct relief to those
who die or resign or loss their jobs, by forgiving them

outright their last year's taxes, or a part of them, if is is
thought fair to do so, without shifting the whole tax structure
a year, and basing supertaxes on estimates.

It is undesirable to require deduction at the source of
a graduated supertax. That would involve every taxpayer's
making a return not only to the Treasury but to every one who
makes him a payment of income, to every employer, to every

tenant, and to every company that pays him interest or dividends.

This would be a violation of the decent privacy of the taxpayer,
and would involve a lot of paper work and duplication of effort.

179

FEB19 1943

by dear Mr. President:

Pursuent to subsection (a) of section 10 of the Gold Reserve Act of
1934, approved January 30, 1934, as assended by the Act of June 30, 1941,

I have the honor to submit this ameal report for the fiscal year ending

June 30, 1942, of the Exchange Mabilization Fund ereated by section 10(b)

of that Act, including a - of operations of the Fund from its estab-

listment to Jene 30, 1942.

Section 10(b) of the Gold Reserve Act of 1934 appropriated the - of
62,000,000,000 from the receipts representing the increment resulting from
the reduction is the weight of the gold dollar, which was covered into the
Treasury as missellaneous reseipte is accordance with section 7 of the Act.
Section 10(a) of the Gold Reserve Ast of 1934 authorised the Secretary of
the Treasury, with the approval of the President, to deal is gold and
foreign exchange and such other instruments of credit and monities as he
may door necessary for the purpose of stabilising the exchange value of
the dollar.
The Fund was set up on the books of the Treasury on March 9, 1934,

and $ April 27, 1934, $2,000,000,000 is gold free the increment resulting
from the reduction in the weight of the gold dollar was transferred to the
Fund. Simultaneously $200,000,000 was treasforred from the principal
account of the Fund to accounts with the Treasurer of the United States
and the Federal Reserve Bank of New York to be used as working capital.

As originally provided, the Fund was to have a life of two years from
January 30, 1934, wilesa geoner terminated by the President. However, the
President was authorised to extend such period for not more than one additional year. On January 10, 1936, the President issued a Proclamation
extending the Fund for one additional year free January 30, 1936. is
January, 1937, (Fublic No. 1, 79th Congress, approved January 23, 1937)
Congress extended the life of the Fund to June 30, 1939. In July, 1939,
(Public No. 165, 76th Congress, approved July 6, 1939) Congress extended
its life to June 30, 19425 and again in June, 1941, (Public No. 142, 77th
Congress, approved Jane 30, 1961) its life was extended w Congress to
June 30, 1943, unless seener terminated w the President.

There are enclosed the following tables aboving the condition as of
June 30, 1942, and giving summer of transactions is all of the accounts
of the Exchange Stabiliasties Fund for the period April 26, 1934 to June 30,
1935, and for each fiscal year thereafter to Jess 30, 1942:

180

Exhibit A

- Statement or condition as of June 30, 1942.

Ishibit B - Reseptulation of profis from April 26, 1934
to June 30, 1942.

inhibit B-1 - Analysis of profit free April 26, 1934 to
June 30, 1942.

Rehibit C - transactions in gold from April 26, 1934 to
June 30, 1942.

Exhibit D - transactions in silver from April 26, 1934 to
June 30, 1943.

Exhibit E - Transactions in British starling from April 26,
1934 to June 30, 1942.

lishibit ,

- transactions in French france from April 26,
1934 to June 30, 1942.

Ishibit a

transactions in Mexican peace from April 26,

1934 to June 30, 1963.

inhibit H

transactions in Chinese yuan from April 26,

1934 to June 30, 1942.

lahibit I

Transactions is Betherlands guilders fres
April 26, 1934 to June 30, 1942.

Inhibit ,

transactions in Belgian belgas from April 26,

1934 to Jess 30, 1942.

Inhibit K

- Transactions is Swice france from April 26,
1934 to June 30, 1942.

transactions in Brasilian milreis from

Rehibit L

April 26, 1934 to June 30, 1942.

Inhibit a
Exhibit N
0

transactions in investments is United States
countities from April 26, 1934 to June 30, 1942.
-

transactions conducted by the Federal Reserve
Beak of New York as Fiscal Agent of the United
States on behalf of and for account of the Bank
of Fromes, Bank of England, and Beak of

Netherlands, respectively, under the Sripertite

arrangement.

A shows the condition of the Fund as of June 30, 1942.

lichibite B and 8-1 are a recepitulation and analysis of the prefite of the

181

-3Stabilisation Fund from April 26, 1934 to June 30, 1942. These two
exhibits show that the operations of the Stabilisation Fund have resulted

in a not profit of $29,157,652.60. The net profit for the fissel year

1942 was $2,270,496.58.

As shown by Exhibit c, the Stabilisation Fund acquired $632,146,440.97
gold and disposed of $715,135,919.70 in gold during the fissal year
1942, thus reducing the gold balance of the Fund from $81,916,836.28 at
the close of the fiscal year 1941 to $7,936,045.47 at the close of the
fiscal year 1942.

During the fiscal year 1942, the Secretary of the Treasury entered
into three special agreements with the Government of the Union of Sevies
Socialist Republica providing for the purchase of gold by the Stabilisetion Fund. The first of these agreements, entered into on August 15,
1941, provided for the purchase of 301,000 fine ounces of gold, valued
at $10,535,000, to be delivered within 90 days, and an advance payment
of $10,060,000 to the U.S.B.R. by the Stabilisation Fund for the purchased
gold. The second agreement, which was signed on October 10, 1941, provided for the purchase of 903,000 fine ouress of gold, valued at
$31,605,000, to be delivered within 180 days, and an advence payment of
$30,000,000 to the U.S.S.R. by the Stabilisation Fund for the purchased
gold. The delivery date was later extended for an additional 60 days.
The third agreement, which was signed on January 3, 1942, provided for
the purchase of 602,000 fine ounces of gold, valued at $21,070,000, to
be delivered within 180 days and an advance payment of $20,000,000 to
the U.S.S.R. by the Stabilisation Fund for the purchased gold. The
delivery date was later extended an additional 100 days. The U.S.S.R.
complied with its obligations under the first two agreements prior to
the delivery dates and had delivered sufficient gold under the third
agreement by the and of the fiscal year 1942 to reduce the balance of
the $20,000,000 advance payment to $22,886,732.26. The delivery date
of the third agreement is Excember 29, 1942.
As shown w Inhibit D, the Stabilization Fund engaged in no silver
transactions during the fiscal year 1942.

labibite 8 to L inclusive summarise the transactions of the Stabilisation Fund is foreign currencies free the establishment of the Fund to
June 30, 1942. During the fiscal year 1942 the Stabilisation Fund acquired

one million Swiss france valued at $233,629.79 and still hold these Jwiss

frones at the close of the fiscal year 1942. In addition, the Stabili-

sation Fund engaged is transactions under the Stabilisation Agreement
with Breail and the 1937 Mabilisation Agreement with China. The amounts
of foreign currency, exclusive of Chinese year and dwiee franes, held on
June 30, 1942 had a dollar value of appreximately 83,500.
Under the agreement of July 14, 1937, covering the purchase of
yean free China, which that country agreed to repurchase at the same
rate at which the yuan were sold to the Fund, there were held on

182
4-

June 30, 1942, 65,000,000 yuan with . dollar value of $19,112,500,
secured by gold collateral deposited with the Federal Reserve Bank of
New York for the account of the Stabilisation Fund, having a dollar
value of $19,379,015.63. These year were acquired on various dates
prior to the fiscal year 1942. The agreement was extended for additional siz-month periods on December 31, 1941, and on June 30, 1942.

On April 25, 1941, the decretary of the treasury entered into -

agreement with the Republic of China and the Central Bank of China for
the purpose of stabilising the exchange value of the Chinese year with
respect to the United States dollar. This arrangement called for the
establishment by China of a United States Collar-Chinese Yuan Stabilisation Fund, the transfer to this Fund's account by Chinese Government
banks of at least $20,000,000, and the purchase of Chinese year by the
United States Stabilisation Fund up to the equivelent of 850,000,000
exclusive of accrued interest. China agreed to repurchase the years
upon request at the same rate as that at which such year were sold to
the Fund. The agreement was extended for one year on June 30, 1941,
and for another year on June 30, 1942. There had been no purchases of yuan
under this agreement by the end of the fiscal year.

On July 15, 1937, the United States entered into - agreement
with Aresil under which the United States undertakes (1) to sell gold
to Brasil at such times and is such amounts as the Ireailian Government
may request, up to a total of $60,000,000 and (2) to make dollar
exchange available to the Government of Irasil or its fiscal agent
under conditions which safeguard the interests of both countries for
the purpose of promoting exchange stability. In accordance with the
first part of the agreement, the Fund sold to Branil $9,975,059.92 in
gold during the fiscal year 1942, making . total of $34,453,301.04
sold since the inception of the agreement. Under the second part of
the agreement, the Fund purchased 160,000,000 airreis free Hyssil
during the fiscal year 1942, making 60,000,000 available to the Government of Brasil. These milrois were repurchased before the and of the

fiscal year. The expiration date of this agreement is July 15, 1942,
and negotiations were is progress at the and of the fissal year for a

renewal of the agreement.

Three new agreements were signed is the fiscal year 1942. The
agreement signed on November 19, 1941, by the Secretary of the Treasury,
the Beak of Mexico, and the Government of the Republic of Mexico for
the purpose of stabilising the United States dellar-Maxisan peso rate
of exchange provided for the purchase of Mexican peace by the United

States Stabilisation Fund up to the equivalent of 44,000,000, exclusive
of accrued interest. This agreement was not operative at the and of
the fiscal year as Mexico had not yet ratified it.

The agreement signed on February 27, 1942, by the Secretary of
the Treasury and the Government of the Republic of Seuader for the

purpose of stabilising the United States dollar-Eunderan suare rate

182

-4June 30, 1942, 65,000,000 yuan with a dollar value of $19,112,500,
occured by gold collateral deposited with the Federal Reserve Bank of
New York for the account of the Stabilisation Ford, having a dollar
value of $19,379,015.65. These year were acquired on various dates
prior to the fiscal year 1942. The agreement was extended for additional siz-month periods on December 31, 1941, and on June 30, 1942.

On April 25, 1941, the decretary of the treasury entered into -

agreement with the Republic of China and the Central Bank of China for
the purpose of stabilising the exchange value of the Chinese year with

respect to the United States dellar. This arrangement called for the
establishment by China of a United States Collar-Chinese Yean Stebilisation Fund, the transfer to this Fund's account by Chinage Government
banks of at least $20,000,000, and the purchase of Chinese year by the
United States Stabilisation Fund up to the equivelent of 850,000,000
exclusive of accrued interest. China agreed to repurchase the years
upon request at the same rate as that at which such year were sold to
the Fund. The agreement was extended for one year on June 30, 1941,
and for another year OR June 30, 1942. There had been no purchases of yuan
under this agreement by the end of the fiscal year.
On July 15, 1937, the United States entered into on agreement

with Bresil under which the United States undertakes (1) to sell gold
to Brasil at such times and in such amounts as the Ireailian Government
may request, my to a total of $60,000,000 and (2) to make dollar
exchange available to the Government of Arasil or its fiscal agent
under conditions which safeguard the interests of both countries for
the purpose of promoting exchange stability. In accordance with the
first part of the agreement, the Fund sold to Irasil $9,975,059.92 in
gold during the fiscal year 1942, making . total of $34,453,301.04
sold since the inception of the agreement. Under the second part of
the agreement, the Fund purchased 160,000,000 milrois free Breail
during the fiscal year 1942, asking 66,000,000 available to the Govern-

neat of Brasil. These milrois were reperchased before the and of the
fiscal year. The expiration date of this agreement is July 15, 1942,
and negotiations were in progress as the and of the fissal year for &

renewal of the agreement.

Three new agreements were signed is the fiscal year 1942. The
agreement signed on November 19, 1942, by the Secretary of the Treasury,
the Bank of Merice, and the Government of the Republic of Memico for

the purpose of stabilising the United States dellar-Mexican peso rate

of exchange provided for the purchase of Memican passe by the United
States Stabilisation Fund up to the equivalent of $40,000,000, exclusive

of accrued interest. This agreement was not operative at the and of
the fiscal year as Mexico had not yet retified it.
The agreement signed on February 27, 1942, by the Secretary of
the Treasury and the Government of the Republic of Lounder for the

purpose of stabilising the United States dollar-teunderan suare rate

183

-sof exchange provided for the purchase of Eounderan sucres by the United

states Stabilisation Fund up to the equivalent of 55,000,000 exclusive
of accrued interest. This agreement was not operative as the and of
the fiscal year as Senader had not yet retified 18.

On May 5, 1942, the Secretary of the Treasury entered into as agree
ment with the Government of Ieeland and the National Bank of Iseland for
the purpose of stabilising the United States dellar-Iceleadie knows rate
of exchange. This arrangement provided for the purchase of Isolandie
krona by the United States Stabilisation Fund up to the equivalent of
$2,000,000 exclusive of accrued interest. This agreement was not opere-

tive at the end of the fiscal year as Ieeland had not yes retified it.

The Stabilisation agreement with the Government of the Argentine
Republic, which was signed during the fiscal year 1941, expired without
being retified by Argentine.

As indicated w Ashibit N, there were no transactions is investments in United States occurities during the fiscal year 1942.
The accompanying Ambibite N, 0 and F summarise the transactions
conducted by the Federal Reserve Beak of New York as fiscal agent of
the United States on behalf of and for account of the Bank of France,
the Bank of England and the Bank of the Netherlands, respectively,
under the Tripartite arrangement of September, 1936. Transactions with
England and France under the Tripartite arrangement were suspended

following the outbreak of hostilities in 1939. Operations under the

arrangement were, of course, not possible with the German occupied
countries of Belgium and the Betherlands. No transactions have been
made with Switserland under the arrangement since the outbreak of war
is 1939.

The Gold Reserve Act of 1934, as originally enacted, requires
that as annual audit of the operations of the Fund be made and . report
through be submitted to the President. The amendment of July 6, 1939,
extending the life of the Fund to June 30, 1941, provides that a report
should also be made to the Congress. In view of the confidential
nature of the transactions of the Fund, it was not deemed advisable to
permit decements covering these transactions to leave the Treasury or
to permit any outside auditors to come into the Treasury to review the
records. It was decided, therefore, that the audit should be made by
a committee composed of three Treasury officials who are not in any
way connected with the operations of the Fund and who have served is
the Tressary for periods ranging from twenty-five to thirty years.
They are thoroughly conversant with Treasury fiscal operations. Kach
year this committee, together with employees working under their
immediate jurisdiction, have audited every transaction of the Fund, and
the committee's reports and accompanying certifications have been

184

submitted to the President as required by the Gold Reserve Ast of 1934.
No statements showing the position of the Fund were published prior to
March, 1939. Since that date arrangements have been made for the publieation of quarterly balance sheets of the Fund.
Similar reports are being subsisted to the Congress.
Fasthfully,
(Signed) H. Morgenthau, Jr.

Secretary of the Treasury.

The President,
The White House.

Inclosures.

Report was to
volumenon to

att to this com

(similar letter sent to
Rayburn and Wallace)

Copy in Diary

Copies to White's office
Del. by Harmon 5:00 2/19/43
JHO/gro

1/25/43