Politico-economic situation
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N*^^*^ i/fP^ 1ASHIHOTOH, D. C.f
, , January 10th,
^3/a
/
2^
My Lord,
The 76th Congress met on January 4th to hear
1939
the President read his annual message*   I am writing in
detail on the foreign policy aspect of this message in
a separate despatch, "but Mr* Roosevelt succeeded so
skilfully In basing his appeal for national unity for
internal reconstruction upon the argument that the storm
signals from across the seas necessitated putting the
American house in order that in all probability foreign
and domestic issues will interlock throughout the
forthcoming session.   If this is so the process of
educating the public towards an intelligent appreciation
of America's position in the modern world may well be
considerably advanced this year*   Whether the increased
interest in foreign affairs which undoubtedly exists
throughout the country will tend towards greater or less
enthusiasm for complete isolation is one of the problems
which the session may help to solve.   The debate will be
stimulated at the outset by a message which the
President is about to send to Congress on the subject of
national defence.   It will further be stimulated at a
later date by an attempt to repeal or modify the
Neutrality Act.   It is thought likely that this subject,
which bristles with prejudices and antagonisms, may be
left over for a month or two yet to give time for the
Administration/
The Right Honourable
The Viscount Halifax, K.G»,
etc.,        etc., etc.
TKB:VALM:DH
Administration to sense the general feeling of the
Legislature*   Meanwhile there is ample matter for
discussion la the Budget message suggesting appropria-
tions of $8,996 millions for the fiscal year 1959-40,
as well as an additional #875 millions for relief
during the remaining months of the current fiscal year,
in the suggestion that nearly $600 million in new taxes
will be desirable to prevent abrupt curtailment of
spending on relief and national defence, in the problem
of elaborating a satisfactory hill to rehabilitate the
railways, and in a fresh attempt to reorganise the
machinery of Government in order to provide the President
with the administrative powers for which he asked in his
message.
2. The mood of the new Congress will be less
subservient than that of its predecessor and yet the last
Congress on two vital occasions, those of the Supreme
Court Bill in 1937 and the Executive Reorganisation bill
in 1938, proved itself recalcitrant to the extent of
rejecting the President's proposals.   Underlying the
mood of Congress is undoubtedly the traditional suspicion
of the powers of the Executive, which all Mr. Roosevelt's
strictures against dictatorship have failed to allay.
The "New York Times" recently suggested that one of the
most useful things that this Congress could do would be
to reconsider in the light of present needs the various
emergency powers which the President has accumulated
during the past five years.   Under existing law the
President can again devalue the dollar at any time that
he chooses to do so;   he can issue three billion dollars
in notes at his discretion;   he can introduce a
bimetallic standard by a stroke of the pen by decreeing
the unlimited coinage of silver;   he can fix the value
of the silver dollar at any ratio to gold that he sees
fit;   he can presage the rules and regulations under
which gold can be held and acquired, transported,
melted or traded, imported or exported;* ,he can
through the Treasury operate a stabilisation fund of
two billion dollars;   he can suspend trading on any
stock exchange for a period ef 90 days;   he can under
the trade agreements act raise or lower tariffs by 50&
he can spend, subject only to certain broad
limitations, funds for relief, farm benefits, etc*
amounting to more in a single year than was entrusted
in tile aggregate to the discretionary powers of all
the Presidents before him in the history of the country.
On the whole it is admitted that the President has
used these vast powers with moderation, and in sueh
instances as the trade agreements act with skill and tact.
Nevertheless, if Congress is in a mood for economy and
retrenchment, as it is reported to be, there will
certainly be severe criticism of the semi-dictatorial
powers of which the President can avail himself.
3. Mr. Roosevelt may succeed in carrying his
programme of spending for prosperity*   His argument
regarding the present unemployment of capital and the
need to attain a total turnover of business, or total
national income of 80 billion dollars a year, may prove
persuasive.   It was notable that during the reading of
his message a passage which evoked great applause was
one In which he indicated the alternative course of
reducing the present activities of Government by one-
third and cutting down expenditure to that extent. But
the applause was less vociferous when he pointed out
that in order to do so Congress would have to take the
responsibility of drastic reductions in expenditure upon
assistance to farmers, veterans pensions, flood control,
highways,/
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highways, waterways and other public works, grants for
social security, Civilian Conservation Corps, relief for
the unemployed or national defence.   Such drastic
curtailments might easily provoke the resentment of an
electorate which has learned to believe that the public
parse is bottomless.   The alternative pointed out by
Mr. Roosevelt is to maintain government activities and
expenditure and even to increase them, to stimulate
private enterprise to employ its capital by putting men
to work and thereby In a very short time raise the
national income to 80 billion dollars, at which point
1% should suffice without increased taxation to yield
enough to balance the budget.
4. Thus the President has not turned his back upon
the New Deal.   He has, however, made it clear that he
does not propose any drastic fresh legislation but
rather the amendment and perfecting of existing
legislation on social security and labour relations. He
does however ask once more for executive reorganisation
to enable the administration to make the best use of
the vast machinery under the New Deal, and promote
greater government efficiency.   In his Jackson Day party
speech on January 7th he stressed once more his view
that the Democratic Party must be a liberal party and
that those who were too faint-hearted to go along with
him on this road had better Join the Republicans. By
this of course he indicated that he considered the
Republican Party unregenerate and reactionary, as it
had always been since Lincoln with the possible
exception of a few years under Theodore Roosevelt.
Some of those present at the Jackson Day dinner came
away with the impression that Kr. Roosevelt was making
a/

a bid for a third term of office for himself. XJthera
felt that he was mainly concerned with an attaint to
stimulate the conservative minded Democrats of/ the
Southern States to a realisation that if thejrfaltered
in their allegiance and refused to vote for liberal
measures the Party must ultimately be split*
5. As anticipated in my despatch Ho* 1141 E
of December 23rd last Mr* Harry Hopkins has been
appointed secretary of Commerce and Colonel Harrington
has succeeded him at the head of the Works Progress
Administration.   Mr* Prank Murphy, a former Governor-
General of the Philippines and more reeently Governor
of Michigan* has been appointed Attorney General. He
is forty-five years old and described as an ascetic*
an idealist* an able lawyer and administrator* His
governorship of Michigan was marked by severe strikes in
which his critics complained he adopted too complaisant
an attitude towards the strikers* although his
supporters tiebflm that by so doing he averted very
serious bloodshed*   Another important nomination is that
of Professor Felix Frankfurter to the vacant Bench in
the Supreme Court*   It seems generally agreed that
Professor Frankfurter is a highly suitable nominee to
carry on the liberal traditions of the late Justice
Cardoso*   He is a Jew, like his predecessor, and was
bom in Austria but has lived in the United States since
he was twelve.   All these three nominations have got to
run the gauntlet of confirmation by Congress but they
will almost certainly not be rejected.   The three men
are all of them liberals and Hew Dealers, and the
reconstituted Cabinet will reflect the President vs point
of view more accurately than before*   There is however
no/
no reason to believe that as a result the tendency will
be further towards the Left;   on the contrary, the
restraining influence of the Moderates in Congress and
the great authority over that body exercised by the
Vice President will if anything impart a rather more
conservative flavour to the legislation.
6* The Sheppard Committee of the Senate^ has
issued its report on the Works Progress Administration.
It haw detailed various abuses whereby Democratic candidates
availed themselves of the Works Progress Administration
for euXfcural purposes, one of the offenders being Senator
Barclay, the Senate Leader, although the Committee found
nothing to show that he himself had any personal
knowledge of the activity of persons who solicited
contributions from Federal employees on his behalf or of
political activity in the ranks of the Works Progress
Administration personally working in his interests.
The Committee has made 16 recommendations mostly dealing
with the methods for extending and tightening the
present provisions of the law against soliciting
contributions to party funds by Federal employees. Other
recommendations require a fuller accounting of funds
and a limitation of the amounts which may be contributed
on behalf of candidates seeking election.    It Is also
recommended that candidates be prohibited from promising
work, employment, money or other benefits not connected
with publle relief.   The Committee found that there had
been in several States unjustifiable political activity
in connection with the work of the Works Progress
Administration and it believed that funds appropriated by
Congress/
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Congress for relief had la many instances been diverted
to political ends.   Congress will probably turn its
mind to the problem of getting relief out of politics,
a difficult task in the absence of a proper Civil
Service,   The promotion of the highly political Mr.
Hopkins will perhaps help in this.   It certainly seems
time that the tax-payer at least can feel sure of getting
value for money spent.   The President has Just asked
Congress for a deficiency appropriation of $875 million
for the next five months of the Works Progress
Administration an amount which exceeds the total
expenditure of the Federal Government for the entire year
before America's entrance in the World war.   This means
that the V/orks Progress Administration has succeeded in
spending the last penny allowed by a generous Congress
even in the event of "some extraordinary emergency
which could not be anticipated".   The emergency
obviously never actually arose, because the bill
authorising the money which has now been spent was passed
in June at the bottom of the depression, since when the
index of industrial production has risen from 77 to 103
and the Labour Department * s index of factory employment
has risen from 82 to 91,   Actually the expenditure by
the works Progress Administration tended to rise until
November 5th, since when it has been falling,   Men have
been leaving relief for private employment, but an
average of three million workers are expected to be
dependent upon the Works Progress Administration in
February and March with a reduction by June to 2,700,000,
7, Another Congressional Committee which has
issued its report is the Dies Committee on un-American
activities.   The report, regarding which I shall have
the/
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the honour to address Tour Lordship in a separate
despatch, is vitiated by the unbalanced and unproven
accusations in which it abounds, including charges
against members of the Cabinet.   It aims at proving the
revolutionary character of the American Communist Party,
and also at showing that Nazi and Fascist groups with
their own special techniques are aiming at the destruction
of free institutions in this country*   The hearings of
the Committee have undoubtedly served to focus public
attention on such groups and their operations, and it
may well be that Congress will either reconstitute the
Committee or appoint a better one to follow up the clues
which it has revealed.   The present report is otherwise
of little interest or value, and the Committee has in
the words of the "New York Times" "Solemnly listened to
a great deal of obviously hysterical tosh",
8. I am sending copies of this despatch to the
High Commissioner for the United Kingdom in Canada, the
Prime Minister of Australia c/o the Dominions Office,
and the Department of Overseas Trade*
I have the honour to be,
with the highest respect,
My Lord,
Tour Lordship,s most obedient,
humble servant,
(SOD)   V. A* L. HALLS?
H.M. Charge* d'Affaires.