^•¦(^p?    V I       WASHINGTON, D. G.!
HarcH 28nd, 19S9
NO. 536 B "   (        ' I
'¦¦
My Lord,
The President is now deeply involved in
controversy with his critics in Congress over the two
subjects which are fundamental to his whole policy. On
the question of foreign policy and its concomitant of
rearmament the next few weeks will show whether he can
throw sufficient weight behind his supporters in
Congress to carry the type of revision of the Neutrality
Act which he desires*   This, however, is a subject which
I shall have the honour to deal with in a separate
despatch.   The President*s other struggle, in the
sphere of internal polities, centres upon the question
whether the left-wing New Dealers with their philosophy
of spending for recovery, continued social reform
legislation and sympathy for progressive trade-
unionism are to continue to dictate the policy of the
Democratic Party, or whether the more conservative
element of that Party rallying around the Vice
President will gain control, dictate the platform and
nominate the Democratic candidate in 1940.
3» Tne New Deal has always represented a social
challenge to white supremacy in the Southern States
and has never been popular there;   in the agricultural
West it shows its greatest strength as it has become
more
The Bight Honourable
The Viscount Halifax, K.G.,
etc.,        etc., etc.
more and more an economic necessity;   in the industrial
North-East the country has long been divided on the
subject of the New Deal owing not only to disputes
between capital and labour but to the internecine
disputes between the rival labour organisations* This
great industrial area contains the greatest voting
power and it can turn the seals in 1940.   The President
well realises that the continued divisions between the
American Federation of Labor and the Congress of
Industrial Organisations can only play Into the hands of
the capitalists and that this Hay suffice to swing the
balance towards the Republican Party*   This is therefore
his principal motive in appealing, as he has recently
done, to both labour organisations to get together and
make peace*   Mr* Roosevelt's appeal, which was referred
to in paragraph 3 of my despatch No* 255 of March 2nd,
has been followed by meetings between the two bodies
acting under a strong hint from Mr* Roosevelt that if
after every effort has been exhausted the conferees are
unable to make peace he will probably be forced to step
in with a proposal of his own.   The Republican Party
can be expected to encourage resistance by the American
Federation of Labor whose membership consists of the
more conservative and highly paid craftsmen who form a
kind of aristocracy of labour in this country.   Mr* John
L* Lewis's proposals appear to include the formation of a
new American Congress of Labor which would supersede and
embrace the two existing organisations as well aa the
independent four big railway unions*   There is as yet
no indication of an agreement being near*
5* Meanwhile in Detroit Mr. Homer Martin has
set up an independent union outside the United
Automobile/
Automobile Workers Union from which he has seceded.
Mr, Martin* 8 supporters to ted: In favour of reopening
negotiations with the Ford Company.    Ha has been accused
of having sold out to the reactionary motor manufacturers,
who have recognised the need for collective bargaining
and will be glad to find a sufficiently amenable union
to bargain with.   The actual strength of Mr. Martin's
union is not yet apparent.   He claims more than half of
the former members of the United Automobile Workers
Union, whereas 'tike Congress of Industrial Organisations
declare that he represents less than one-tenth of its
membership*
4. If the President can succeed this summer in
composing the differences between the rival labour
groups he will certainly be in a stronger position to
influence Congress which will be thinking of the labour
vote at the next elections, and to that extent the
moderates headed by Messrs. Garner, Farley and Pat
Harrison, any find it advisable not to press their
opposition too openly.   Even so Mr. Roosevelt will
probably decide to continue with his business appeasement
policy because he must have some further recovery to
show if he Is to be able to nominate his successor in
1940.
5. I mentioned la my despatch He* 855 S of
the 2nd March that, as part of a policy of business
appeasement, the suggestion was made by the Secretary
of the Treasury that Congress should examine what taxes
if any are holding business back.   The two chairmen of
the Ways and Means committee of the House and of the
Finance Committee of the Senate promptly wrote to Hr.
Morgenthau expressing gratification and the desire to
cooperate,/
cooperate, and suggesting that the Treasury should lay
before their respective Committees Its views and
recommendations for tax revision as soon as the
March 15th Income tax returns had been received. Chare
the matter stands at present, no specific proposals
having yet been formulated.   A certain amount of
scepticism has been expressed whether anything really
valuable will be accomplished along this line at the
present time, since it seems generally agreed that while
expenditures are running at their present level no
reduction can be made in the aggregate of taxes* The
President moreover has spoken rather discouragingly at
press conferences of the prospects of serious tax
revision at present.   At the same time as the proposals
for reconsideration of the tax system were put forward
Senator Harrison of Mississippi issued a statement saying
that he was opposed to increasing the present legal
maximum of the national debt, namely §45,000 millions,
but that if this were to be avoided, a radical and
substantial cut in Government expenditure was necessary,
unless additional taxes, which would act as a deterrent to
business revival, were to be imposed.   This statement was
backed up by other members of Congress, and Senator
Byrd has again rebuked Mr. Secies for his views on the
desirability of high public expenditures, but no sign
of practical economy is to be seen in the appropriations
which are actually being voted, and the President has
intimated that he is opposed to forsaking the "spending-
lending" policy, and has again asked for the $150
millions which was cut by the Congress from the Works
Progress Administration appropriations for the remainder
of the current fiscal year, on the grounds that otherwise
400,000/
400,000 workers will have to "be dropped by the Works
Progress Administration on April 1st and another
800,000 "by Jane.   The Administration has agreed under
pressure from Senator Harrison not to ask for any
increase in the total debt limit daring the present
session of Congress, hut since the gross deht at
present stands at a little under §40,000 millions, this
allows for a farther Increase of over $5,000 millions,
and does not imply any reduction in the rate of
spending, since the legal limit would not in any case
be reached before next year's Session is well under
weigh.   Mr. Morgenthau has had printed and placed on
his desk a blue notice reading "Does it contribute
towards recovery** but so far the answer has not been
given.
6* Congress has not yet passed a single
important measure.   As is usual at this period of the
Session the various committees are actively engaged in
hearings and estimates.   A battle has started again on
the subject of government reorganisation.    It will be
remembered that last year the President's attempt to
get such a measure passed ended in disaster.   This year
a much less sweeping bill was introduced and passed the
House by 246 votes to 153 on March 8th.   The measure as
it passed the House empowered the President to submit
plans to merge or abolish certain bureaus or eliminate
duplications in them and provided that such plans would
become effective unless both Houses adopted a
concurrent resolution specifically banning the changes
within sixty days.   The bill also provided for six
special assistants to the White House staff with
salaries of £10,000 a year*   The features which last
year caused so much controversy, namely those abolishing
the Comptroller-General and reorganising the Civil
Service Commission under a single commissioner were
omitted from the hill.   The hill as introduced already
exempted seventeen of the More important independent
agencies from its operation;   various amendments in
the House added three other agencies and deducted one
from the exempted list.   Yesterday the Senate by a
majority of one approved Senator Wheeler's amendment
to the hill whereby the reorganisation plans drawn up
by the President would only become effective after a
concurring majority vote* of both Houses.   If this
amendment is maintained, it will mean that, instead of
Congress having to bring in hills and pass a negative
vote to stop reorganisation plans ordered by the
President within sixty days, no plans could go forward
without being first submitted to and approved by
Congress*   This Wheeler amendment, which was rejected
last year and has now been passed, in effeet wrecks the
whole bill,   what it means is that Congress is afraid
of losing a great deal of useful patronage which at
present resides in the numerous independent agencies,
many of which would be merged or abolished if the
President had his way*   The bill is not dead yet, but
its prospects are not good, and the rebuff to the
President is discouraging to those of his supporters
who hoped that he had still enough strength in the
Senate to carry important legislation.    It would
certainly be most unreasonable if the President were
denied even the Increased White House staff which is so
obviously needed.   At present he has only three
secretaries, two of them, Messrs* Mclntyre and Early
being farmer journalists and the third, just appointed,
it
-7-
a former military officer, Brigadier-General Edwin
Watson* who has hitherto been his military aide-de-camp.
7* One of the main subjects which Congress is
supposed to tackle this session is that of railway
reorganisation*   A bill has been introduced in the
Senate by Senator Wheeler with the object of setting up
a reorganisation court to have charge of railroad
reorganisation*   The court would be expected to adjust
It a reorganisation plans to the earning power of the
railroad properties rather than to unrealistic and
fanciful ideas of the value of sueh property; to
investigate frauds and irregularities* and reorganise
the whole financial structure of the nation*s railroads,
one—third of which are at present bankrupt*
8. The Vacancy in the Supreme Court which was
created by the retirement of Justice Brandeis has been
filled by Mr. William Orville Douglas* the forty-year old
Chairman of the Securities and Exchange Commission* Mr*
Douglas was born in Minnesota, educated In the Far West
and has since lived in Connecticut*   He is an ardent
Hew Dealer and has been a Professor of Law at Yale*
Although very young for this appointment Mr* Douglas is
generally considered to be a first-class lawyer and his
nomination is well received and sure to be confirmed by
the senate*
8* I am sending copies of this despatch to the
'pj- u     ¦ .High Commissioner for the United Kingdom in Canada.
the/
the Prise Minister of Australia, e/o the
Dominions Office, and the Department of Overseas
Trade.
Z have the honour to he*
with the highest respect,
My Lord,
Your Lordship's most obedient,
humble servant,
(SOD) R. C. LINDSAY