politico-economic situati
/39
5*
on
He. 393 £
My Lord,
When I wrote in paragraph 6 of my despatch
No. 336 E of March 22nd that the prospects of the
Government Reorganisation Bill passing Congress were
not good I was, as It turned out, unduly pessimistic*
The very next day in fact the Senate reversed its
previous decision on the Wheeler wrecking amendment
and passed the hill more or less in the form in which
it had reached them from the House of Representatives*
On March 30th after a conference of both Houses the
House of Representatives accepted such amendments as
had been introduced into the hill and sent it up to the
President for his signature*   The hill authorises the
President to group and coordinate government agencies,
with twenty-one exceptions, as nearly as may he
according to their more important purposes, to reduce
the number of agencies by consolidating those which
have similar functions, te abolish those not necessary
to the efficient conduct of government* and to eliminate
over-lapping and duplication*   Any plan submitted to
Congress automatically becomes effective unless both
Houses within sixty days adopt a concurrent
resolution rejecting it.   The bill also authorises six
additional White House Secretaries, and there is much
speculation/
The Right Honourable
The Viscount Halifax* K*G
• 9
etc

speculation as to how these selfless paragons are to be
discovered.   It weald be easy enough if a higher grade
civil service existed:   as it is, people are already,
wondering whether Mr. Corcoran, Mr* Cohen and other bright
young brain trusters will get these jobs, and I cannot
help thinking that Mr. Berle may.   The bill itself is a
mere shadow of what the President asked for and failed
te get last year, and it is unlikely to result in any
serious economies, bat it should if wisely applied enable
the President to promote greater efficiency in those
government agencies which are independent of Cabinet
Ministers* control, and perhaps lead to greater reforms
in the future.
2* Congress has also* as reported in my despatch
No* 363 of March 28th, passed an emergency bill
authorising expenditure of $358 millions on the Army*
On March 27th the Senate approved the largest peace-time
appropriation for the War Department, amounting to $513
millions, without a dissenting vote.   On the other hand,
the next day the Senate reduced from $102 millions to
42 millions an estimate for building up a stock of
"strategic and critical materials11 not produced in the
United States*   As the authorisation was anyhow to
cover a period of four years, and as the sum at present
voted is likely to be more than ean be spent in the
current year, this vote is probably not of great
importance*
3* The President's request for an extra $150
millions for the Works Progress Administration, referred
/i£    to in paragraph 5 of my despatch Ho* 556 E, is
encountering difficulties*   The House has reduced the
sum to §100 millions and has thereby once more shown its
desire/
55
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desire for economy.    This vote followed upon a strong
criticism by Representative Woo drum, Democrat, of
Virginia, in which he declared that the whole system of
relief administration needed drastic overhauling, that
the actual administrative overhead costs of the Works
Progress Administration were more than $60 millions a
year and that nosey was "being wasted quite recklessly*
The House has named a committee to investigate the
expenditure of funds by the Works Progress Administration*
which is expected te formulate a policy which will guide
Congress when further appropriations are asked for* On
the actual additional sum at present under discussion
the Senate will no doubt have a good deal to say* and
it is always possible that they may restore the §50
millions cut out by the House*   The President's
supporters will however have great difficulty In
achieving this result beeause of the split in the
Demoeratic Party which shows no signs of healing.
4. A further sign of the strength of the
movement for economy In the House was a division which
took place on March 28th which cut from the Department
of Agriculture's Supply Bill for 1940 the sum of $250
millions intended for farm price parity payments* Brer
since the war the United States Government has been
wrestling with the farm problems raised by over-
abundant crops, shrinking foreign markets* accumulating
surpluses and diminishing prices*   The New Deal,
although thwarted by the Supreme Court* has aimed at
restoring parity between the prices of agricultural
products and manufactured products*   Parity prices on
crops were defined in the Act of 1938 as those which
will give farmers the average purchasing power they
5J>
had from 1909 to 1914.   The Government programme has
sought to restore parity through a complicated system
of acreage reduction, loans on crops, crop insurance,
and disposal of surplus commodities at subsidised cut
rates "both at home and abroad*   Last year Congress
voted $212 millions for direct payments to wheat,
maize, cotton, rice and tobacco growers to make up part
of the difference "between their selling prices and the
parity prices, such payments being additional to and
not in substitution of any other payments authorised by
law*   The Administration had left parity payments out
of the 1940 budget submitted to Congress in January but
the House Appropriations Committee had inserted a sum
of $250 millions for this purpose in the annual
Agriculture Department Supply Bill*    It was this sum
which was rejected on the floor of the House, but it is
quite conceivable that the senate will restore the sua
to the estimates,
5* The cotton situation has been under
discussion by Congress for weeks but no agreement is in
sight on the numerous measures before the Agricultural
Committees of both Houses*   On March 28th the President
produced his own "cotton plan", which contemplates a
small payment to producers to induce them to release to
the market the cotton they have pledged to the Government
against a loan of 8*3 cents a pound and a subsidy
estimated at 2 or 3 cents a pound on all cotton
exported after the plan goes into operation* Import
quotas on cotton manufactures   and payments on exports
were proposed to compensate domestic manufacturers for
the cheaper price at which foreign manufacturers would
buy subsidised American cotton.   The Presidentfs plan
has/
has se fw "been ignored where it has not been opposed
in Congress and the Senate proceeded to pass the
Bankhead bill under which 3,000,000 bales of loan
cotton would be delivered te producers for sale to the
market on payment of 5 cents a pound and an undertaking
to reduce further their production by that amount
during the current year, the Government losing the
difference between 5 cents and the amount of the loan
and storage charges*   There is no likelihood of the
Bankhead bill being accepted by the House, where Mr*
Marvin Jones, Chairman of the Agricultural Committee
has a subsidy plan of his own.   The State Department
informed a member of my staff that, much as they
dislike the prospect, they have to face the probability
that Congress will pass an export subsidy for cotton in
some form or other and their efforts will have to he
directed te minimi slag as far as possible any
prejudicial effects on other countries and on the
trade agreements policy.
6. The struggle over both general expenditure
pelley and tax amendment has continued in an
inconclusive manner.   As regards the spending policy
Mr. Secies made a farther statement before a Senate
Committee in which he opposed the theory that greater
economic activity could he brought about "by the
issuance of additional currency, arguing that such
currency would not stay in circulation and would only
add to the present huge excess of bank reserves, and
that accordingly what should be done is to encourage
private industry to set to work the "great surplus of
idle funds, idle men and idle resources which we have
in this country today", hut that since private
enterprise/
enterprise is unable or unwilling to do this government
expenditure must take its place.   Mr. Keeles went on to
say that apparently a great majority of people thought
that business confidence would be restored by budget
balancing, and that while he was convinced that such a
policy under present conditions would have disastrous
results, "we live in a democracy and therefore I
believe that the viewpoint of the majority should be
made effective", and that this could be done by Congress
at once reducing expenditures to the level of receipts*
"In order to do this Congress would have to reduce
substantially practically all of the large items in
the budget such as work relief projects, Civilian
Conservation Corps camps, roads and public works of all
kinds, veterans benefits* all farm benefit payments
and national defence"?   This mocking challenge of Mr*
Eccles1 has received a rather bad press since it is of
course obvious that steps towards budget balancing must
be taken gradually and must be taken by agreement between
the Administration and Congress.   Despite the load
protestations of desire to reduce the deficit by members
of Congress the appropriations are in fact running at
present at least as high as these called for in the
President's budget message, and in view of the
opposition to making drastic cuts in individual
appropriations there seems little reason to believe at
present that the move for economy will end in reducing
the deficit much, if at all, below that suggested by
the President,   as regards the question of tax revision
the only definite further step which has been taken 1b
a proposal on the part of the Secretary of the Treasury
that the Social Security payroll taxes, which were due
51
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to be increased "by one-half of one per cent on "both
employers and employees at the beginning of the calendar
year 1940, should, in order to lighten the tax load on
business, be kept at their present level or at least be
increased by a lesser amount.   As a corollary of this
proposal it was proposed that the full reserve which
was to have been built up against future Social Security
payments and which was calculated to reach some $47
thousand millions by 1980, should be dropped and a
reserve created of only the amount of two or three years*
payments.   These payroll taxes have been the subject of
considerable criticism by business and the proposal is
one which I should expect to go through, although,
unless some other tax is substituted, its effect will of
course be to increase the actual cash deficit of the
budget.
7. The Joint Congressional Committee which has
sat for nine months investigating the Tennessee Valley
Authority and which was last referred to in paragraph 2
of Mr. Mallet's despatch Wo. 1072 E of December 7th
last, has at length issued a long report in which the
majority of investigators declare that the charges of
dishonesty brought by the former Chairman Br* Arthur
Morgan against his two colleagues were without foundation,
not supported by evidence and made without due
consideration of the available facts.   The report commendec
the other members of the Board for acting with dignity
and forbearance but added that this could not be said
of Dr. Arthur Morgan.   The minority report signed by
three Republicans attacked the Tennessee Valley Authority
for being wasteful and inefficient and recommended
complete reorganisation.   The report evidently does not
serve/
-8-
serve to enlighten Congress very much, because both
majority and minority have reported on purely partem
lines.
8. The move to impeach the Secretary of Labor
which was referred to in my despatch Ho. 101 £ of
January 26th, has been killed by a report from the
House Judiciary Committee which found that there was no
evidence of conspiracy to prevent the deportation of
Harry Bridges.
9. The Supreme Court on March 27th over-turned
a long-standing precedent by deciding that there is
nothing in the Federal Constitution to prohibit the
Federal or State Governments from taxing the income of a
State or Federal employee.   That is to say that a Federal
employee can be called upon to pay State income tax in
the State in which he resides on the salary he receives
from the Federal Government, and a State employee can be
called upon to pay Federal income tax on his income
received from a State*   One result of this may be that
an income tax may be introduced for the District of
Columbia where previously it was thought impracticable
owing to the fact that nearly everybody living in
Washington is a Federal employee.
10. The Neutrality hearings are about to begin in
Committee, but it is impossible to forecast when the
question of amending the existing bill will reach the
floor of either House.   It is generally expected that
this must occur before May 1st. when section 2 (the
cash and carry clause) of the present law expires
automatically.   Meanwhile a ridiculous bill was introduced
by Senator Bone to tax war profits.   The measure would
impose a §9$ income and surtax on all taxable income
over/
over $207060 and has many other entirely impracticable
provisions which are not worth going into at this stage*
Fifty Senators backed the bill tat when the press began
to mock at it and enquiry was made of the Senators it
was discovered that only ten of them had read it* It
will no doubt be discussed in committee along with many
other proposals but nobody seems to be afraid of its
getting very far.
11. I am sending copies of this despatch to the
High Commissioner for the United Kingdom in Canada,
the Prime Minister of Australia, e/o the Dominions
Office* and the Department of Overseas Trade*
I have the honour to be.
with the highest respect*
Hy Lord*
Your Lordship*s most obedient*
humble servant*
(SGD) R. C. L2SD3AY
I