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6, 1924 <

Bear Henry?
Donald Helaon wrote to sd on December 3
for my official opinion regarding gold mining
equdpaeat for foreign mine* sad indicated i» his
letter that ho hetd Z.I20 addressed a similar coato /ou asking for your views*
I have giiraa him a frank axpreaaion of
say own opinion and X am sending you a copy for
yoar inforsuatlort*

Sincerely youra,

Honorable Wmry Morgenthay^
Secretary of the Treasury,
Washington, D. C*

December 16,
Mr. Donald K« Kelson,
Executive Director,
Supply Priorities and
Allocation Board,
Social Security Building,
Washington, D. C.
My dear Mr* Kelson:
This is to acknowledge your letter of December 3 asking for
my official opinion regarding gold mining equipment for foreign sines
and possible measures to avoid a dollar deficit if foreign gold production is curtailed*
Priority measures tending to reduoe new gold production under
present circumstances are, in ay judgment, highly desirable. Th©
United States stock of gold is already redundant. Its dollar value is
more than five times as great as in the 1920*s. From the standpoint of
credit control in this country further additions to gold stock are not
only unnecessary; they are harmful. By swelling excess bank reserves,
they add to Inflationary dangers and make the maintenance of a stable
and productive economy more difficult. From the standpoint o f war output of the allied countries, the materials, machinery, and labor devoted to gold production are largely wasted.
The need for continued gold production to obtain dollar exchange will probably be greatly reduced in 19^2. Among the allied
nations the most important gold producers are those of the sterling
area, Canada, and the U.S.S.R. The official British data on the balance
of payments of the sterling area, which includes the Union of South
Africa and Australia, indicate that the serious shortage of dollars experienced by this area in the past has now been relieved. The bulk of
current transactions which require dollars are being handled under LendLease. The sale of newly produced gold from this area to the United
States in the last half-year has served principally to reduoe the obligations incurred by the British Supply Council prior to the passage of
the Lend-L@as© Act. Remaining obligations incurred prior to Lend-Lease
can be repaid in full during the coming year, according to the British
estimates, after which time the sterling area balance of payments should
be such as to enable the British to accumulate reserves of dollar
balances or gold.
In the case of Canada, the Hyde Park agreement of April, 19Ul
has gone a long way to overcome the Canadian deficit of U. S* dollars
and the operations of the newly constituted Joint Committee on Defense
Production, which will extend the principle of the Hyd# Park agreement

Kr. Donald M. Kelson


December 16, 19Ul

pooling the productive armament resources of the two countries, may be
expected to carry this process still further. Shipments of goods to the
U.S.S.R. are largely such as can be handled under Lend-Lease and R.F.C,
loans. Accordingly, It is neither necessary nor desirable to encourage
allied gold production in order to provide dollar exchange for war needs*
Even if gold production abroad were so sharply curtailed as
to bring about a deficiency of dollars, the situation could be met more
appropriately by extension of the principles of the Lend-Lease and Hyde
Park arrangements, by further R.F.C. and Stabilination Fund loans, or by
employment of the resources of the Federal Reserve Banks. Purchase of
gold in the ground by th® United States, however, would offer too m a y
complications in practice to make experimentation with it advisable whan
simpler and more direct methods are available*
Since new gold output is largely unnecessary and diverts materials, machinery, and labor from production of war supplies, I strongly
favor curtailing it so far as is practicable through the priorities system* I would suggest that no machinery be allowed to foreign mines for
the expansion of gold outputj and that machinery and supplies for the
maintenance and repair of gold mines should be restricted to the minimum
consonant with the principles adopted by tho Supply Priorities and Allocations Board for other non-defense industries*
The effect of these measures could, it is true, be nullified
if the foreign countries that are denied gold mining machinery from the
United States should undertake to produce it for themselves. Hot only
sight they thereby retain in tho gold industry all the factors now engaged in it, but they might, because of less efficient methods, hav© to
divert more resources to making gold mining machinery than the United
States would save by stopping its manufacture. This would retard the
total war effort. Therefore, I believe it is advisable for the Supply
Priorities and Allocation Board and other interested government departments and agencies to enlist the cooperation of the foreign governments concerned. In fact, the foreign governments might be encouraged
to go farther than merely to restrain their own producers of gold
mining machinery. It would seem appropriate for them to take mora farreaching measures to transfer labor and other resources from gold
mining to the production of war supplies that now they must procure
from us. If, in the process, relief had to be afforded to some elements in the gold mining industry abroad, such relief could better b®
extended by the governments iiaaediately concerned than by the United
States* In order to obtain suoh cooperation, however, it may b©
necessary to convince our allies abroad that we were dealing as firmly
with our own gold industry as we are asking them to deal with theirs*

<*. ^

Mr* Donald M. Nelson


December 16, I9I4I

In making these suggestions, I have spoken frankly, believing
that such m a your desire. Ihile I have no reason to think that other
members of the Board differ with the views here stated, they are not,
of course, eoisraitted by this letter.

Sincerely yours,
(signed) V« S. Eccles.
M, S» Rccles,




December 20, 1941

Dear Marriner:
Thank you for sending me a copy of your letter
of December 16 to Mr. Nelson,
I am enclosing a copy of my reply to a similar
inquiry Mr. Nelson made to the Treasury and a copy
of my letter to the Minister of the Union of South
Africa dealing with a similar matter* These two
letters indicate the attitude of the Treasury toward
the problem raised in Mr. Nelson's letter,
I judge from your letter that, on the whole,
Y e are in substantial agreement as to what the
Government policy should be toward use of short
materials for gold mining during the emergency period, except that I should place more emphasis on
the desirability of examining the particular situation in each country before applying the general
principle. As indicated in my letter to Mr. Nelson,
we have made such an examination in the South African
case and we are proceeding with one in the Canadian
Should our examination of any particular case
seem to warrant our recommendation that export of
machinery for gold mining be given a high priority,
I have instructed Mr. White to discuss the matter
with anyone in your organization you would care to
designate before such recommendation here is made.



SI \ ! I S

Hon. Marriner S. Eccles,
Chairman, Board of Governors of the
Federal Reserve System,
Washington, D. C.

. 15, 1941.
My dear Mr. Kelson:
This is in reply to your letter of December 3, 1941, asking
for our official opinion concerning the supply of gold-mining
equipment abroad, and for our opinion on the possibility of purchasing gold for post-war delivery to ease the dollar position
of certain countries.
It is our opinion that because of the scarcity of raw
materials, an export of machinery to be used for gold mining
is hardly justified except where special conditions surrounding
a particular case make a maintenance or increase in gold production desirable. Such a special case might exist when a relatively
small amount of steel and machinery would yield substantial output
of gold, and when, further, there was danger of a shortage of
dollar exchange during the ensuing year; and when, moreover, there
was not better means of helping those countries to obtain the
needed dollar exchange. Political considerations would in some
cases also have to be an element in the general evaluation. It
is clear from the above that each application would have to be
considered on its individual merits before any preference ratings
on exports of mining machinery should be granted.
The Treasury has already received a request from the Canadian
Government and the South African Government for our assistance in
obtaining priorities on gold-mining machinery. I am enclosing for
your information our reply to Mr« Glose, the South African Minister,
which indicates our position in that specific case. We are still
studying the Canadian case.
I think it would be helpful if we could be informed as a
routine matter of any request that comes to you for any gold-mining
machinery for export. We could then send you our opinion as to
whether or not the particular country making the request is in
need of dollar exchange for the prosecution of the war, and
whether an increase in gold production is the best method of
supplying the needed exchange. I presume that the State Department would be the appropriate agency to pass on the importance of
the political considerations that might apply in any given case.

- 2 It should be clear that the above opinions refer only to mining
machinery for export. Domestic gold production in war-time serves
no military purpose, but does consume labor and materials that have
usefulness in military production, particularly in the mining of
scarce metals. We do not believe, therefore, that domestic gold
mines should receive any preference rating for machinery unless
the gold is produced with a substantial amount of much needed byproduct metals or ores, or unless it is produced in a mine so
peculiarly situated that serious and sustained unemployment of men
not eligible for defense jobs would result from its shutdown.
I refer now to your question on the possibility of supplying
dollars by the purchase of gold "in the ground" for post-war
The Treasury, as you probably know, has recently purchased
gold for future delivery and stands ready to undertake such transactions where the conditions indicate such action to be desirable.
However, I do not feel that the Treasury would be warranted in
purchasing gold for delivery at so uncertain a date as post-war.
So far as we know, there has been no instance in which a country
has needed goods for the common war effort, that has not been able
to find ways of financing those purchases with United States'
Very sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
Fir. Donald M. Nelson,
Executive Director,
Supply Priorities and Allocation Board,
Social Security Building,
Washington, D, C.


• ''

December 1$, 1941.

My dear Mr. Minister:
The Treasury Department has been considering the questions
relating to steel mills and steel plates for gold mines which you
laid before us. I regret the delay in answering your request, but
the problems you raise are new and have required a good deal of
discussion with other departments as well as study inside the
The decision regarding priority for steel mills and steel
rolling mills for the Government of South Africa lies outside the
province of the Treasury.
The decision regarding priorities for articles in short
supply in the U.S. and needed for South African gold mines is,
however, a matter in which the Treasury along with several other
departments has an interest. That interest derives from the
Treasury's responsibility for foreign exchange. At a recent
meeting of representatives of departments interested in the question
of priorities for gold mining, the consensus was that in the
case of foreign gold mines, high preference ratings for equipment
and supplies should be given only in special circumstances — such
as a difficult foreign exchange position. If the Treasury
obtains information that there is, or is likely to be, a deficit
or acute shortage of dollar exchange assets of South Africa, or
the British Empire, and that the application of U.S. priorities
is likely to result in a serious reduction of the output of gold,
and therefore in a worsening of the dollar exchange position of the
British Empire or of South Africa, the Treasury will be glad to
assist on this problem.
Unfortunately the material which you have given us does not
contain data on the above points. If this government is to allocate
to foreign gold mines materials urgently needed for vrax purposes
because of the exchange position of foreign countries, it will
be necessary for the Treasury to have detailed data on the present
foreign exchange position, and the prospective balance of payments
of the country or countries concerned. We would also require — as
would the other departments concerned — detailed estimates of the
probable reduction in gold output if the materials request should
not be forthcoming.

- 2 -

In the meantime, however, we feel that the decision respecting
the granting of priorities for steel to South Africa will have
to be determined by the Priorities Committee on its merits
independent of the gold (or dollar) assets of the British Empireand South Africa.
I hope you will understand that this decision is in no way
evidence of a lack of cooperation on the part of the Treasury
or a lack of desire to assist whenever ana wherever it appropriately can. We shall be glad at any time to receive further
communications and information from you which would indicate the
danger or imminence of a shortage of necessary dollar exchange.
Very sincerely yours,
(Sgd.) H. Morgenthau, Jr.
Secretary of the Treasury.

The Honorable Ralph W. Close,
Envoy Extraordinary and Plenipotentiary
of the Union of South Africa,
South African Legation,
Washington, D. C.


January 5»

Dear Henry;
As I hare been out of town, I hare not
thanked you before for your letter of December 20
enclosing a copy of your letter of December 15 to
Donald Nelson, as well as the copy of your letter
to the Minister of the Union of South Africa, both
dealing with the problea of priorities for gold
mining equipment. I am gratified to find that you
and I are in substantial agreement as to what Government policy should be.
I appreciate your instruction to Mr.
White to discuss any particular case that may arise
with someone whom I designate from this office. In
accordance with your suggestion, I have designated
Dr. Goldenweiser.
Sincerely yours,

Signed) M. 3,!es
Honorable Henry Morgenthau, Jr*
Secretary of the Treasury,
Washington, D. C.