EFENSE AID SUPPLEMENTAL APPROPRIATION BILL, 1941 /. W -J HEARINGS BEFORE THE SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES SEVENTY-SEVENTH CONGRESS FIRST SESSION ON THE DEFENSE AID SUPPLEMENTAL APPROPRIATION BILL, 1941 MAKING APPROPRIATIONS TO CARRY OUT AN ACT TO PROMOTE THE DEFENSE OF THE UNITED STATES (H. R. 1776—PUBLIC LAW NO. II), APPROVED MARCH II, 1941 Printed for the use of the Committee on Appropriations EFENSE AID SUPPLEMENTAL APPROPRIATION BILL, 1941 HEARINGS HEKOKK TUB SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS HOUSE OF REPRESENTATIVES DEFENSE AID SUPPLEMENTAL APPROPRIATION BILL, 1941 MAKING APPROPRIATION'S TO CARRY OUT AN ACT TO PROMOTE THE DEFENSE OF THE UNITED STATES (H. R. 1770—PUBLIC LAW NO. 11), Printed for the use of the Committee on Appropriations SEVENTY-SEVENTH CONGRESS FIRST SKSSION ON Till-; APPROVED MARCH 11. 1941 UNITED STATES GOVERNMENT PRINTING OFFICE WASHINGTON : 1941 COMMITTEE OX APPROPRIATION'S EDWARD T. TAY CLARKN'CK CANNON, Missouri CLIFTON A. WOODRliM, Virginia LOl'IS LfDLOW, Indiana MALCOLM C. TARVKR. Qfonila JED JOHNSON. Oklahoma J. BCKI.L SNYDER, Pennsylvania EMMET O'NEAL, Kentucky OEOROE W. JOHNSON, West Virginia JAMES O. SCRUOHAM. Nevada JAMES M. riTZPATRIOE, New York LOUIS C. RADAUT, Michigan DAVID D. TERRY. Arkansas JOHN M. HOUSTON, Kansas JOE 8TARNE8, Alabama ROSS A. COLLINS, Mississippi CHARLES II. LEAVY, Washington JOSEPH K. CASEY. Massachusetts JOHN H. KERR, North Carolina OEOROE H. MAHON. Texas HARRY R.SIIEIM'ARD. California BUTLER It. HARE. South Carolina HARRY I*. REAM. Illinois ALBERT THOMAS, Texas VINCENT V. HARRINGTON. Iowa MaBCSUVS LOR. Colorado. Chairman JOHN' TADER, New York RICHARD B. WIOOLESWORTII. Massachusetts WILLIAM P. LAMBERT80N, Kansas D. LANE POWERS, Now Jersey J. WILLIAM DITTEH. Pennsylvania ALBERT E. CARTER. California ROBERT P. RICH. Pennsylvania CHARLES A. PLUM LEY. Vermont EVERETT M. DIRKSKN, Illinois ALBERT J. KNO EL, Mlclilguii KARL STEFAN, Nvnrnskn FRANCIS II. CASE. South Dakota FRANK B. KKKFK. Wisconsin NOBLE J.JOHNSON. Indlnnn ROBERT F.JONES. Ohio C. Sueilt*. CUrt Subcommittee on Deficiencies EDWARD T. TAYLOR. Colorado, Chairman CLIFTON A. WOODRUM. Virginia JOHN TABER, New York RICHARD B. WIOOLKSWORTH. Massachusetts WILLIAM P. LAMBERTSON. Kansas J. WILLIAM DITTEH. Pennsylvania CLARENCE CANNON. Missouri LOUIS LUDLOW, Indiana J. ItUELL SNYDER. Pennsylvania EMMET O'NEAL, Kentucky OEOROE W. JOHNSON. West Virginia LOUIS <'. RABAUT. Michigan ..... Also partlclpalins: Messrs. SCRUOHAM and POWERS II DEFENSE AID SUPPLEMENTAL APPROPRIATION BILL, 1941 hearings conducted by the subcommittee of the committee on appropriations. house of representa- tives, in charge of deficiency appropriations, messrs. edward t. taylor | chairman), clifton a. woodrum, clarence cannon, louis ludlow, j. buell snyder. emmet o'neal, george w. johnson, louis c. rabaut, john taber, richard b. wigglesworth, william p. lambertson, and j. william ditter; also participating, messrs. scruoham and powers; on the days following, namely: Thursday, March 13, 1941. STATEMENTS OF HON. CORBELL HULL, SECRETARY OF STATE; HON. HENRY L. STIMSON, SECRETARY OF WAR; HON. FRANK KNOX, SECRETARY OF THE NAVY; GEN. GEORGE C. MARSHALL, CHIEF OF STAFF, UNITED STATES ARMY; REAR ADMIRAL R. E. INGEESOLL. ASSISTANT CHIEF OF NAVAL OPERATIONS; AND HAROLD D. SMITH, DIRECTOR OF THE BUDGET BUDGET ESTIMATE Mr. Woodri m. This is a hearing before the Deficiency Sub- committee on House Dooiment 139 an estimate, in the amount of §7,000,000,000, to carry out provisions of an act to promote the defense of the United States, approved March 11, 1941, as follows: The Whitr House, Washington, March 12, 1941, Hon. Sam Uayhukn, Speaker, House of Representatives, Washington, D. C. My Dkah Mil Si'kakkr: This Nation has felt that it was imperative to the security of America that we encourage the democracies' heroic resistance to aggrWstons, by not only maintaining but also increasing the flow of material assistance from this country. Therefore, the Congress lias enacted and I have signed H. K. 1776. Through this legislation our country has determined to do its full part in creating an adequate arsenal of democracy. This great arsenal will l>c here in this countrv. It will be a bulwark of our own defense. It will be the source of the tools of defense for all democracies who are fighting to preserve them- selves against aggression. While the defense equipment produced under H. It. 1770 remains under the control of the I'liitcd States until it is ready for disposition, it is the fixed jwlicy of this Government to make for democracies every gun, plane, and munition of war that we possibly can. To accomplish these objectives I am transmitting an estimate in the amount of S7,000.000,000, the details of which arc set forth in the accompanying letter from the Director of the Bureau of the Budget, I strongly urge the immediate enactment of this appropriation. Respectfully. _ . Fhanklin I). ItoosKVELT. 2 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1911 SPECIAL DKKKNsli KIWI) To enable the President, throuph such departmerits <>r a«cneics of the Govern- ment as lie may designate, lo carry out the provisions of the act entitled "An act to promote the" defense of the United Suites," approved March 11, 1941, and for each and every purpose incident to or necessary therefor there is hereby appro- priated out of any money in the Treasury not otherwise appropriated: (a) For the procurement, by manufacture or otherwise, of defense articles for the government of any country whose defense the President deems vital to the de- fense of the I'nited States, including services and expenses in connection therewith, as follows: Ordnance and ordnance stores, supplies, span- parts, and materials, including armor and ammunition and components thereof..........SI, 313, 000, 000 Aircraft and aeronautical material, including en- gines, spare parts, and accessories......._____ 2, 054, 000, 000 Tanks, armored cars, automobiles, trucks, and other automotive vehicles, spare parts, and accessories............................... 302, 000, 000 Vessels, ships, boats, and other watercraft, and equipage, supplies, materials, spare parts, and accessories................................. 029, 000, 000 Miscellaneous military equipment, supplies, and materials................................... 260, 000, 000 Facilities and equipment for the manufacture or production of defense articles, including the con- struction, acquisition, maintenance and opera- tion thereof, and the acquisition of land_______ 7o2. 000, 000 Agricultural, industrial, and other commodities and articles.............................. 1, 350. 000, 000 (b) For testing, inspecting, proving, repairing, outfitting, reconditioning, or otherwise placing in good working order any defense articles for the government of any countrv whose defense the President deems vital to the defense of the United States.................. 200. 000. 000 Provided, That not to exceed 20 percent of any of the foregoing appropriations may be transferred by the President to any other such appropriation, but no appropriation shall be increased more than 30 jwrcent thereby: And provided further. That any defense atticles procured under the foregoing ap- propriations may be allocated bv the President to any department or agency of this Government for the use of such department or agency. (c) For necessary services and expenses for carrying out the purposes of said act not specified or included in the foregoing................................... 40, 000, 000 (d) I'or administrative expenses........................ 10, 000, 000 In nil, S7.000.0O0.000, to remain available until June 30, 1943: Provided, That the President may transfer from the foregoing appropriations to appropriate current appropriations of any department or agency amounts equivalent to the value of defense articles disposed of by such department or agency to the government of any country whose defense the President deems vital to the defense of the United States, not exceeding in total SI,300,000.000. STATEMENT OF HON. C0RDELL HULL, SECRETARY OF STATE Mr. Secretary Hull, the committee is very happy to have you hero today, sir, and we will ho very glad (o have you make such statement as you feel appropriate to be made upon this occasion. GENERAL STATEMENT Secretary Hull. Mr. Chairman and members of the committee: JI always gives mc satisfaction and stimulation to revisit these scenes DEFENSE All) SUPPLEMENTAL APPROPRIATION", 19-11 3 of so many years of association and of what I thought were very important activities on my part. When I appeared before the Committee on Foreign Affairs on January 15 last, 1 said that the proposed lend-lease bill was designed to promote the defense of the United States. I also stated in sub- stance that that measure would set up machinery which would enable us to make the most effective use of our resources for our own needs and for the needs of those nations whom, in our own self-defense, we arc determined to aid; that the measure would make it possible for us to allocate our resources in ways best calculated to provide for the security of this Nation and of this continent in the complex and many-sided conditions of danger with which we arc and are likely to be confronted; that above all, it would enable us to do all these things in the speediest possible manner; and that, overwhelmingly, speed is our greatest need today. During the 2 months that have elapsed, other areas have been added to those overrun by the brutal forces of conquest and destruction. Several more are on the list for immediate seizure and subjugation. Upon the seas the menace of death and disaster has grown. This country by now should have no longer any illusions as to the nature or magnitude of the dangers which confront us. The United States has desired and has overwhelmingly approved a foreign policy based on the safety, integrity, and the free institutions of the country. It has no association with European political dis- putes. But it has recognized and must recognize that a force has ftnsen transcending the disputes which were formerly the subject of European wars. It has seen a combination of forces come into being which, step by step, has challenged the right of every nation, including our own, to exist save at the dictation of alien masters. In every case, the nation whose turn had not come up was told that there was no danger; that it needed to do nothing but sit still and all would be well. And, with deadly certainty, the governments which have swallowed this bait have been, in their turn, destroyed. Onlv those which de- voted every ounce of then energy toward immediate defense, and which were read}' to cooperate with others, have escaped destruction. But these other nations which endeavored to avoid danger by inaction had an excuse which we do not have. They could at least indulge the hope that tjio conqueror might respect their lawful integrity. They perhaps were entitled to hope that the rules of international law might somehow save them. They perhaps could plead surprise. We can do none of these things. Our immediate business is to sec to it that the would-be conquerors of the world shall not be in a position in which they can command the seas, attack any country in this hemisphere and. when they are able, attempt to deal with us as they have been dealing with Europe and with Asia. In the clear light of the repeatedly avowed purposes of conquest without limit and of the striking harmony of their acts and their words on the part of the rulers of the lawless nations, the fact is well- nigh inescapable that, if thev succeed in securing control of the high seas along with that of the other continents, they will without material delay move to secure domination of some of the rich undeveloped foodstuffs, raw materials, and other natural resources of this Western Hemisphere, in those parts least prepared for self-defense. I must, in 4 DEFENSE AID SUPPLEMENTAL APPROPRIATION. 194 1 all conscience, say to the American people that in my judgment this hemisphere and this Nation are in serious danger and that every possible step for national defense must be taken with the utmost rapidity. In the presence of such dangers, our safety and security lie in creating for ourselves impregnable means of defense and in utilizing these means whenever and wherever they may be most effective. The country has overwhelmingly accepted the view that the render- ing of the greatest practicable material aid to those nations which are actively resisting the forces of conquest is an essential part of our own defense effort. Through the enactment of II. R. 1776, this has become a settled and decided policy of the Nation. The measure now under consideration by your committee is the next and indispensable step in the carrying out of that policy. It appropriates funds necessary to furnish in adequate amounts and with adequate speed planes, ships, guns, and food for the nations which now heroically endeavor to stop the. movement of conquest. There is no need now for me to discuss in detail the necessity for this entire course in the defense of our own sicuriiy and vital interests. All the reasons have been advanced and tested in the full freedom of debate. We are united upon it, we have set our hands lo the plow— the people, the Congress, and the Executive. The war which is being fought in Europe and in Africa together with the hostilities and the moves of conquest which arc going on in Asia have become, under the Tripartite Agreement, closely interre- lated. In the light of this situation, we are sending materials to several countries, in various parts of the world, whose defense is essential to our defense. The effort which we make will have to be on a large scale, because the needs which it is intended to meet are ami will be large needs. Some of these countries cannot manufacture for themselves the complicated machinery and the great variety of munitions for which they now have urgent need. This country is fortunate in being able to produce vast quantities of most of 'the things that are called for. This country will have to produce them— we will produce them. I advocated the passage of the lend-lease bill and I now urge prompt action on this appropriation as essential for the execution of sound foreign policy for the I'nited States. The object of that policy is to assure the safety, tin1 independence, and the interests of the United States against all threats. That cannot be successfully done unless we ourselves arc strong and are in a position to share our strength with other nations which are helping to defend our interests. If we have to find protection through our foreign policy, we must be strong. Today, as ever, the essential basis of the strength of a nation is the spirit and courage of its people. Hut no matter how great the spirit and courage, it cannot sustain itself without adequate arms. The production of adequate arms requires the coordination of finance, industry, labor, sacrifice, and brains of the whole people. Our unity and our purpose must express themselves in the continuous and combined industry of all ol those who play a part in production. Our safety and the success of the course upon which we have set ourselves demand the courage and the wisdom to go full out in furnish- ing adequate material aid to the nations whose defense is necessary to our defense. When we do this, we take the most effective step DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 5 l>ossible in the circumstances to keep war away from our hemisphere, from otir own Nation. Doing this, we act in defense of our homes, our institutions, our liberties, our way of life. In this task, half measuies will not suffice. There is much to be done and the task is urgent . We must strive with all our will, all our power, and all our resources. To be content with less would be to invite disaster. No people in history have had such opportunity to learn from the tragic example of others. We cannot stint and we must not falter. Mr. Wooohi m. Mr. Secretary, the committee appreciates your statement and, in executive session, before you gentlemen came in, we decided, if agreeable to you, we would first like to have a statement from you. Secretary Stiinson and Secretary Knox and then perhaps the committee would like to ask you some questions. Now, Mr. Secretary Stiinson, the committee will he very glad to hear from you. STATEMENT OF HON. HENRY L. STIMSON, SECRETARY OF WAR GENEKAL STATEMENT Secretary Stimson. Thank you, Mr. Chairman. The Secretary of State has admirably summarized the broad reasons for the bill and, as I reflected over your request, I thought probably I could be most helpful if I gave, as tersely as possible, the nature of this bill as it relates to the War Department and the reasons for the necessity of the broad and flexible items of appropriation which (he estimates have set forth. Of course, this set of estimates is vitally diirercnt from the ordinary requests for appropriations for our Army in time of peace. These are for an estimated amount necessary to enable a number ol other nations, whose defense the President deems to be vital to our defense, to make a successful defense in a war which is now actually going on. Thus, we arc making estimates for the appropriations necessary for the defense of a number of nations. First, these nations are already engaged in a gigantic war. This war covers an area of many portions of the world, from Great Britain to the Far East, containing many very different terrains, such as northeast Africa and Malay Asia, in addition to Europe. The charac- ter of the weapons vitally necessary for success in such a war are con- stantly- changing and developing and, finally, the time necessary for the construction of such modem weapons is very long—from 1 to 2 years. In the next place, these nations are fighting a very powerful enemy which has great power of secrecy itself, with the constant power of suprise attack. And this same country which has been able to main- tain such complete secrecy over its own actions, lias shown an intense and meticulous effort to spy out the resources and powers of its ene- mies. Finally, the British Isles which are now the pivot of the defense on which our own defense is based, are at a special disadvantage. Thev are a small terrain, surrounded by a huge semicircle of attack. They are, therefore, under constant reconnaissance. Germany has an unusual power to learn Britain's defense and for the element of 6 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1011 the morale of Great Britain, which is one of the most vital element, which have entered into her defense thus far, it is important that such elements of secrecy as she has been able to maintain under these most adverse conditions should not be broken, if possible, while she is undergoing that attack. These preliminary points which 1 have shown by this analysis show the reasons why an'appropriation bill, and the estimates for that bill, must necessarily have as much flexibility in the breadth of the items and the contents of ttie bill and 08 much freedom from publicity as is compatible with free government. That, however, of course does not mean that this bill has abandoned all safeguards in favor of purely uncontrolled Executive action. The bill itself contains very great changes over the situation which has existed hitherto and these, are in the direction of the interests of American defense. When you contrast the situation which has existed, you can see the advantages of these changes. Hitherto, all efforts by the various democracies which were seeking weapons in our market were separate were competitive, and were entirely in their own hands, the supervision which we could exercise being very slight. That was disruptive to our own defense and that placed in the hands of others the power of interference with our own facilities for manufacture. This bill places in the hands of the representatives of this Govern- ment the decision as to what, if any, weapons are to bo transferred and the amount of such transfers. And, what is more, it postpones t he transfer, leaving tho entire matter in our hands of the decision of which shall go to which place until the weapons are completed and the knowledge is in our hands as to where they will do the most good. And, furthermore, tho bill requires, as of course you gentlemen know, periodic reports to the Congress of what has been done during each 90 days of its operation. But the essence of the new situation is that the bill has placed in the'hands of representatives of the United States, responsibly devoted to the defense of the United States alone, the entire decision upon all of the activities in the making of munitions which take place in this country, and that is an enormous change for the benefit of tho United States in the sitation which we now are facing. Now I want to enumerate the efforts which we have made to super- vise and systematize these efforts, in this situation which is so novol and so extraordinary. It has not been a haphazard effort at all. Wo have endeavored to exorcise all of the care, so far as the War Department is concerned, which we do over the ordinary estimates which we lay before you gentlemen every year. In the first place, the British submitted a confidential list some months ago of their requirements. That list was placed in the hands of our supply officers who held long conferences with the British as to that list. During those conferences the supply officers of the Depart- ment matched the estimated unit costs of theBritish requirements as against the unit costs with which we were familiar as to our own weapons. Then they determined the amount which, according to their best judgment, it was advantageous to produce and finance at this time. In this task wliich I have thus described, each of the supply arms and services of the War Department worked over the British data— DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 7 ami their work was coordinated through the office of the Under- secretary of the War Department and the Chief of StafT of the War Department in the same way which is done regularly with our regular estimates. And after that came the review of the Budget in tho ordinary way. In summation of this, I wish to make it clear that the British require- ments as now presented have gone through the normal course of War Department procedure in respect to appropriations which we now ask for and present. Now, as to some further characteristics which come up: Of the War Department items, practically all or 95 percent are those which can be used for our own Army purposes and which would be vitally useful in case Britain should fall. Only 5 percent represent purely British types of weapons, including the facilities to be erected for such weapons, as distinguished from our American types and their facilities. And even in the case of this last 5 percent, the plant facilities neces- sary for construction, that is. the tools and the plants for these purely British items, could be used by us on very short notice. In other words, as you are doubtless familiar, I might give as an example that the British use the .303 caliber rifle. The facilities for the construction of that rifle which they are using in this country today, under their contracts for its creation, could be transferred so as to manufacture the .30 caliber rifle which we use, I am informed, in about 2 months. And, in the same way, the facilities for the ammuni- tion could be transformed. And that is true largely of other British items. Then, finally, there is this thing to be remembered. There have been great benefits accruing to this country in the cooperation which this bill and the formulation of these items have involved. There has been a standardization of weapons to a very large extent between the two countries, ami such a standardization would be vitally important if, in the exigencies and contingencies of the future, this war should spread to this hemisphere while the British were engaged in fighting in other parts of the world. In the second place, vital improvements have been secured for our own weapons in this free exchange of information which has passed between the two countries. Most of those improvements arc such that it would not be in the national interest to make them public, but I think it is already known, for instance, that one of the examples has been that we are now using in our planes and tanks a revolving turret which is of the utmost importance, and which came to us from Great Britain. To sum up the estimates with relation to this bill, I can put it m a very few words. The Army has already made a large contribution from its stores to the British defense when, last June, it largely re- equipped the British Expeditionary Forces after the defeat at Dun- kirque. It can contribute further a number of vital articles and munitions during the year 1941. But the majority of the items of appropriation requested in this bill are for the equipment of the forces of Great Britain in 1942. . With wonderful courage in this hour of crisis ami suffering, she is planning to continue the fight until she has not only saved the British Isles but has rescued Europe from the subjugation which it is now s DEFENSE AID SUPPLEMENTAL APPROPRIATION', 1941 under, put an end to the rule of force, nnd restore free government among the nations. The defense of South America, if we were alone, would be a far more difficult and expensive task than to render this aid to Great Britain now. In such an event, practically every item contemplated hero would ho vitally useful to us. That, Mr. Chairman, in a few words, or as briefly as 1 could make it. represents my view of the scopo of the bill from the standpoint of tho Army. Mr. Woodrum. Thank you, Mr. Secretary. We will now hear Secretary Knox, of the Navy Department. STATEMENT OF HON. FRANK KNOX. SECRETARY OF THE NAVY GENERAL STATEMENT Secretary Kxox. Mr. Chairman, you have listened to such excellent statements touching the general features of this situation, particularly the statement of the Secretary of War as to some of the details, that I will not burden you with anything; save a very brief statement. The estimates'for naval material which are incorporated in the vari- ous subdivisions of this bill were made by our regular naval officials after consultation with representatives of tho British as to their requirements. These conversations created a picture in the minds of our naval representatives of the most urgent needs of the British Admiralty for defense articles. On tins basis we then prepared esti- mates of the cost of procuring these needs. In addition, we also prepared estimates of the cost of facilities necessary to produce them, the administrative cost of procurement, and a necessarily very rough estimate of the cost of testing, repairing, and so forth. The figures so prepared were presented to the Director of the Budget. It should be remembered that, in appraising the needs, it was neces- sary to take into consideration the possibility that particular items of ordnance or airplanes, for example, might have to be produced to designs quite different from those at present in use, to keep pace with the developments of the war. This factor was, of course, taken into consideration in preparing the estimates. Likewise, it might happen during the progress of the war that more articles in a certain category and less in another would be required. In order to meet this difficulty, the bill before the committee permits limited transfer be- tween categories. The articles to be procured are suitable for transfer to a foreign country and, with minor exceptions, are also suitable for our own use should circumstances, when they are completed} dictate that they should be retained. That concludes my statement, Mr. Chairman. Mr. Woodrum. Thank you, Mr. Secretary. We will now hear Mr. Smith, the Director of the Budget. Mr. Smith, we will be glad to have your general statement, and then the members of the com- mittee may want to ask you some questions. DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 9 STATEMENT OF HAROLD D. SMITH, DIRECTOR OF THE BUREAU OF THE BUDGET PROCEDURE IN PREPARATION OF THE ESTIMATES Mr. Smith. Mr. Chairman, in developing this estimate, the Bureau of the Budget was confronted with a special situation. The needs to bo met by this estimate are not those of Federal departments and agencies operating in the regular framework. Normally, a depart- ment or agency would present its requests and justify them in con- siderable detail. But this estimate deals with the needs of other countries whose defense is vital to our own. Obviously, it could not conform to the traditional pattern of budgetary procedure. We started with a general outline of the requirements of the British Government. These requirements were segregated and distributed to appropriate Federal departments and agencies for study ami process- ing. The main problem was to relate them to plans for the production of our own defense articles. For example, where the requirements concerned the Departments of Wax and Navy they were analyzed by those Departments with the aid of the Office of Production Manage- ment. Where raw materials were involved, it was ascertained through the Office of Production Management whether or not these raw materials were available for disposition to other countries. We also discussed with that Office the requirements for machine tools, steel, and iron. The requirements for food and other agricultural products were discussed with the Secretary of Agriculture. The amounts set forth in the estimate represent the considered judgment of the various agencies and of the Bureau of the Budget. In short, we have a pro- gram that is closely related to our own needs and effectively responsive to the needs of the other democracies. FORM OF THE ESTIMATE In setting these estimates into a framework of appropriation lan- guage we have not been able to use the traditional form. We are providing defense articles for countries at war, and a considerable degree of flexibility is necessary. New emergencies arise, conditions of warfare change, and a weapon that is in use today may be obsolete tomorrow. In this estimate we are attempting to forecast the needs of other nations for their war efforts in the months to come. We have endeavored, therefore, not only to identify as clearly as possible the broad categories of aid to be furnished, but to provide at the same time a reasonable degree of flexibility in meeting the need for such aid. Flexibility in the administration of an appropriation of this charac- ter is also a primary necessity. It was believed that maximum llexi- bilitv in administration could be attained by making the appropriation to the President for allocation to the several departments and agencies. For obvious reasons it would hi' difficult if not impracticable to catalog the separate requirements of the individual agencies with respect to a program of this nature, or determine in advance which agency at a given time might be best equipped to handle a particular item. In the form adopted the agency best fitted to do a particular job can he given the money with which to do it, and effective over-all direction of the program will be facilitated. 10 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 In item (a) funds have boon requested to carry out the purpose of section 3 (a) (1) of the bill, which provides for the manufacture and procurement of defense articlos, including facilities for production and manufacture. These funds have been classified according to major canzones of expenditure, and the classifications used will facilitate procurement ami accounting in the departments. From a budgetary point of view, adequate control is achieved without unduly restricting freedom of operation. , . In item (b) provision is made for the testing, repairing, and recon- ditioning of defense articles as contemplated by section 3 (a) (3) of the act. With respect to the articles provided for in items (a) and (b) it is realized thai any estimate of future need is subject to almost constant change. Under oalegories as specific as those set forth in the above items, the determination of requirements can only be approximate. An emergent situation might develop with respect to any one of these categories. We have, therefore, provided for inlcrchangoability between the various items included in (a) and (b) by adding a proviso for that purpose. With this proviso, it would be possible either to take an amount from a single appropriation item under which the need might not be so great as originally estimated, or to take smaller amounts from several appropriation items. In no case can a single appropriation be reduced by more than 20 percent, nor can any single appro- priation be increased by more than 30 percent. It is believed that the percentages suggested will provide sufficient flexibility to meet any emergencies. Should any further shifting between categories be necessary, we can come back to the committee for necessary adjust- ments. A question was raised as to the right of this Government to use articles procured under the authority of section 3 (a) (1) of the act. To remove any doubt on this point, a further proviso has been added under which the President would be clearly authorized to allocate any such articles to the appropriate department or agency of this Govern- ment. In items (c) and (d) provision is made for administrative expenses and for any other necessary services and expenses not previously specified. Item (c) is also available for unforeseen contingencies and to carry out other provisions of the act to which items (a) and (b) do not apply. Instead of providing under each category for the necessary adminis- trative expenses incident thereto, it was believed that these expenses could be better controlled if there were a delinite limitation as to the total amount and the several departments and agencies were required to justify their requests to the Bureau of the Budget. In the final paragraph, there is a proviso authorizing reimburse- ment to agencies and departments which dispose of defense articles under section 3 (a) (2) of the act. This proviso will permit immediate replacement of defense articles which were originally procured for our own Government but subsequently transferred to another govern- ment. For example, it would permit the President to transfer to the Army's current ordnance appropriation an amount equal to the value of Army ordnance materiel which might be disposed of to a foreign government. In this way we shall not only have a clearer DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 11 picture of the cost of this program, but the. program of ordnance procurement for our own Arnry can be kept intact. Of course this might be done by making subsequent appropriations, but that would mean either changing our procurement schedules because of the inter- vening time until a new appropriation was made, or the continuous submission of piecemeal requests for appropriations for necessary replacements. The reimbursable feature is not limited to appropri- ations heretofore made, but will be also available for reimbursement, if necessary, of regular appropriations subsequently authorized to be used for the purposes of this act. We have in mind that requests for allocation of funds from these appropriations will be made by the departments and agencies to the President through the Bureau of the Budget. The Bureau will process these requests and prepare them for review and approval by the President. After his approval, the appropriate departments and agencies will undertake to procure the defense articles through their regular channels. This whole process of review and approval of allocation of funds will, of course, operate within a broad framework of policy determined upon by the President. We plan to keep a careful record of the allo- cations for procurement and for reimbursement. This information will, of course, be available to this committee. In brief, it is felt that the enactment of the appropriation in this form will permit the most effective utilization of the departments and agencies in carrying out this program, and will retain in the President the necessary fiscal control. Mr. Woodrum. Thank you, Mr. Smith. You will please remain, because the members of the committee may wish to ask you some questions. Questions Propounded by Members of the Subcommittee to Secretary Hull, Secretary Stimson, and Secretary Knox At this time, I will request the members of the subcommittee, in their order, to ask such questions as they may desire of Secretary Hull, Secretary Stimson, and Secretary Knox. Unless there is some other suggestion, we will proceeu in that order. COUNTRIES TO BE AIDED Mr. Cannon. Mr. Secretary, you referred to "other countries" it was proposed to assist. What are those other countries? Secretary Hull. If you will keep in mind that, according to all appearances, the worlcl is faced with a movement of invasion and conquest through force without limit as to area, and our assistance would contemplate any country that is carrying forward a movement of resistance against the three invading forces, which, under the tri- partite agreement, are rather closely interrelated countries. Our assistance would be to countries whoso defense would be essential to ours, as was stated here. You will find that that will be deter- mined by day-to-day developments. This situation is moving so rapidly that nobody knows from one week to another or from one day to another what nations may be swallowed up or what nations 12 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1911 may resist. It would be any country that would thus get into that picture. , . Mr. Cannon. Would it include Asiatic countries? Secretary Hull. We have been dealing with a world-wide situa- tion. We have been cooperating with China to quite a little extent, thai country coming within that same categoiy. REALLOCATION OF DEFENSE ARTICLES RY ONE AIDED COUNTRY TO ANOTHER Mr. Ludlow. Mr. Secretary, is it your construction of the lend- lease bill that we can furnish materials to Britain to be re-allocated by Britain to the other democracies, or must our furnishing of materials to those other democracies be direct? Secretary Hull. These gentlemen would tell you perhaps more accurately on the technical side; but I think you will find that this means that any of those things would be done by consent of each country concerned—ours, Britain. Greece, or whatever the other country may be. It might be much more convenient, for example, for some express agreement to be entered into which would facilitate transportation. Sometimes we are in a vciy difficult position with regard to transportation, whereas Great Britain might not be. Such considerations might arise. Mr. Ludlow. I take it that the disposal of this vast store of material would be on a program that would be sanctioned by Britain through- out. Secretary Hull. We would keep our hands on this thing when it comes to going to third countries until we were satisfied, and each country, by mutual agreement, worked out. Mr. Woodkum. Mr. Secretary, under section 4 of the act it is specifically provided that if any of these materials arc given to any country they cannot be transferred to anyone else without the specific consent of America. Secretary Hull. As I say, we will keep our hands on it. You understand that I followed my friend Ludlow when 1 was in Congress, and we still agree on most things, though not quite all. So I made it clear when I came over here that I would endeavor to supply any information possible with respect to the foreign-relations side, the diplomatic side, of tin- conditions under which this state of danger developed. The technical side, the production and distribution side, I would leave to these other Departments. Mr. Woodrum. Thank you, Sir. Secretary. LIST OF BRITISH REQUIREMENTS Mr. Ludlow. Mr. Chairman, I have one or two questions that I would like to ask of Secretary Stimson. Mr. Secretary, you stated that the British furnished a list of British requirements, which was considered by your Department. As of what date was that list furnished? Secretary Stimson. About a month ago, as I recall it, sir. Mr. Ludlow. Is that list presumably the list- of British require- ments at this time? Secretary Stimson. I understand it was altered. Mr. Ludlow. I mean, if they were submitting another list, would they submit substantially that list? •a DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 13 Secretary Stimson. I do not think so; because, as I told you, the mere comparison of those lists with the lists of what we were doing in many other ways served to change what they had brought out. AMKR1CAN MANPOWER Mr. Ludlow. Mr. Secretary, you stated that the aid to the democ- racies that is contemplated by this bill is hard to visualize now, but mainly takes the form of equipment. You used the word "mainly." You do not see anything in the picture now to indicate that the British will require our manpower? Secretary Stimson. No, sir; there is nothing in this that refers to manpower. PROPORTION OF MATERIAL TO BE ACQUIRED THAT WILL HE USABLE RE- UNITED STATES (Sec p. 20) Mr. Snyder. Mr. Secretary, 1 was very much impressed with your statement that 95 percent or more of the equipment, material, and articles that we are ouilding and will build for the aid of Britain could in an emergency be used in our set-up here at home. Is that right? Secretary Stimson. That is true; and that did not happen by acci- dent. That happened as a result of the efforts of the agents of the War Department to accomplish that, and the consent of the British to do so. Mr. Snyder. I commend the Secretary- of War and his staff for bringing that about. I think it is an excellent procedure. AGRICULTURAL PRODUCTS (Sec pp. 20,32, 35,39,51) Mr. O'Neal. Mr. Chairman, I have a couple of questions that I would like to ask both the Secretary of War and the Secretary of the Navy, for the reason that I am uncertain as to whether the subjects I have in mind have been covered in drafting the bill. The bill attempts to set out the categories under which this money shall be spent, and I wondered if that might be interpreted as exclusive of any category not mentioned in the bill. For instance, is there some saving clause which would entitle you or enable you to spend money for foodstuffs, which are a very vital defense item, in my opinion? I see no category that might include food. Mr. Smith. Agricultural commodities. Secretary Stimson. Thero is a category there, is there not? Mr. O'Neal. I just called that to your attention because I do not see it offhand. Mr. Smith. It very clearly mentions agricultural commodities. Mr. O'Neal. Thank you. If it does, I had not noticed it. Another category would be services. I can see very well where services might be very much needed. Also chemicals; I do not see any chemical warfare, unless it may come under some other defense item. m Secretary Stimson. I'nder miscellaneous military equipment. The chemicals would certainly come under that. 14 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 Mr. O'Neal. Then where do we find the provision with regard to food? , ¦ x Mr. Smith. It is the last item under (a). Mr. O'Neal. Now, as to the question of services, I wonder whether that might not be very important? I merely wanted to call that to the attention of the committee. It is not necessary to answer it now, but it can be considered. DISPOSITION OP MATERIAL AFTER DEFENSE EFFORT HAS CEASED (Sec p. 43) Mr. Johnson of West Virginia. Mr. Secretary, under this lend- lease bill, suppose wo should turn over to England a great number of guns, tanks, and maybe ships. Does that mean that after the war is over, if those ships arc existence, they will be returned to us? Secretary Stimson. I think you can judge of that fairly by what has been done in the past in the disposal of the spare stocks of weapons which wore transferred and sold to Great Britain before the drafting of this bill. In all those cases there was an effort made to obtain a substantial and fair quid pro quo. Under the Lease Lend Act the terms and considerations for the transfer are made broader and more flexible, but 1 think you can count upon the interests of the United States being fully protected. Mr. Johnson of West Virginia. In other Words, if we send a lot of tanks and a lot of guns and even some ships over there, and this war results in favor of Great Britain, and they have all our material over there, then is it your understanding that that material is to come back to this country, or as much of it as possible? Secretary Stimson. I think you will find as full an answer as can be made to that question was forecast in the President's speech when he originally proposed this method of transaction. Mr. Johnson of West Virginia. This is a pretty big undertaking, and sometimes when these materials get across the water it may not be convenient, for some reason, to send them back. Now, I want this stuff returned if it is in existence when they get through with it. If you lend a thing, you want it returned when the borrower is through with it. Mr. Woodrum. Try to get all of it back that you can, Mr. Secre- tary. NEW PLANT FACILITIES (Sec pp. 37, 58) Mr. Taber. With reference to these major items in this Budget estimate that is up here, are you able to segregate for us as to each one the portion thereof that could be currently procured from exist- ing facilities over the period that will be required for delivery and what proportion would require the creation of additional facilities? Secretary Stimson. I think it would be a rather difficult question to answer in extenso; details are very difficult to present. It would necessarily be subject to change as other changes come from the war. Mr. Taber. There are $752,000,000 set up here for additional facilities. I can see why there might be some special items that would require some small amount of facilities. On the other hand it is DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 15 rather difficult to follow the provision for a lot of additional facilities superimposed upon the facilities that have already been provided for or appropriated for for the Army and the Navy, especially in view of the fact that months are required for the setting up of some of the facilities; on some of them production comes in quantities months later, and that means a long time before some of these tilings can begin to be produced. I would like to have some kind of a comment from both the Secretary of War and the Secretary of the Navy on (hat subject if I could get it. Mr. Woodrum. Secretary Stimson. Secretary Stimson. I am not sure that I understand Mr. Tabor's request; I do not know that 1 understand how much he is asking for details. I can say this, to guide us as to what my feeling is as to it: I think that it would not be in the interest of this country, or this country's defense, to indicate what weapons or what munitions are going to what countries. Mr. Taber. 1 was not asking for that at all; that is not what I was getting at. I will try to repeat the question. Secretary Stimson. I may have misunderstood it. Mr. Taber. We have a set-up of $750,000,000 for proposed addi- tional facilities. Now, considering the fact that it takes months to provide some of these facilities, and considering the fact that we have already provided probably $2,000,000,000 for that sort of thing in previous bills for the Army and the Navy, and considering the fact that those facilities require months in some cases to come into production, are we not getting to a point where we are providing for facilities, to the point where the provision for facilities is delaying this defense program rather than a means of accelerating it? Secretary Stimson. I think not, sir. Hut I cannot go into details here now. 1 do not have them before me. I know this, however; I know that every effort has been made both in the Department and in the Office of Production Management to keep going at the fastest possible production the facilities which we have now, and without impairing the production of those we now have to bring into production as rapidly as possible the facilities which we have contemplated or under construction. In other words, that we are going as fast as we can in regard to the creation of these facilities. I think nothing is included in this—although I should like to have the opportunity to correct myself if I find afterward I am wrong— I think nothing is included in this which will not come into production in the time stated in the bill, and have its effect on the defense of these other countries to whom the weapons are intended before that time. General Marshall tells me that he can add to the details of that if you care for him to do so. Mr. Taber. Will someone later on give us more of a break-down of what actually will have to go into new facilities? General Marshall. If I may interject this statement: This has been very carefully calculated against the time element, having in mind what we already have in the way of facilities, what has already been authorized, and money provided for, and what would be required to produce the mass of materiel on the British list, to produce the facilities for the requirement of the list. There is also the necessity 30070G—11-2 16 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 for facilities against the possibility of emasculation or destruction of existing facilities of Groat Britain. That is very important in this matter. They have these standing plants that this week arc in full production and next week cease to exist, and some facilities in this country to meet that possibility, that may in some cases be a prob- ability, would be in here as one of the corrective measures. This data on production cost of certain facilities being presented for appropriation was only composed after n careful investigation by the Office of Production Management, under Mr. Knudscn, and other similar officers, to see what was going to be required, also having in mind the time element, and that it has to he gotten out as quickly as we ran. If it were not for the time element it would be more econom- ical to allow the existing plants to turn out the materiel over a long period of time, but time is the costly item in this particular, with the necessity of having certain plant facilities provided against the possi- bility of British plants being destroyed. PERIOD OF USE OF Ft'XDS (See p. 17) Mr. Taker. Within what time is it anticipated that this fund will be used? General Marshall. It has to be used before June 30, 1943. Mr. Taber. I understand that, but has it been laid out so that it is expected that this fund will last until June 30. 1943? Would anyone of you be able to answer that; and I would rather ask that for the moment of either of the Secretaries. Secretary Stimson. Will you repeat your question? Mr. TABER. Has the program of getting these things been laid out, to get the things you have in mind, or is it expected that you will have to supplement this later? Secretary Stimsox. That is subject, Mr. Taber, to so many con- tingencies of war that it is almost impossible to answer it exactly. Sir. TABER. I appreciate it. Let me frame the question in this way: Has this estimate been prepared with the idea of covering what the British needs are, as you can envisage them at this time, without taking into consideration contingencies that might result as the progress of the war develops. Can you answer that? Secretary Stimsox. Wo think that can be answered "yes." BRITISH FINANCES (See p. 65) Mr. Wiggles worth. I will address this question to Sccretarv Stimson. In the testimony on the lend-lease bill, by Secretarv Morgenthau, it was indicated that the gold and dollar exchange assets of the United Kingdom as of August 31, 1939, amounted to $4,483,- 000,000; as of December 31, last, $2,167,000,000. Are those dollar exchange assets considered in any wav in deter- mining the total of the request before us or is that something cntirelv for the future as defense weapons are provided? Secretary Stimsox. I do not think those estimates were taken into consideration in the preparation of these requirements. Mr. Wiggleswortii. in other words, that is a matter for negotia- tion in the future. Secretary Stimsox. Yes. DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 17 PERIOD OF USE OF FUNDS (See p. 16) Mr. Wiggleswortii. I assume that you contemplate that the production covered by this $7,000,000,000 appropriation can in fact, if necessary, be produced prior to Jury 1, 1943? Secretary Stimson. That is the fact. Mr. Wiggleswortii. Can you say what proportion of that $7,000,- 000,000 would be necessary for expenditure? Secretary Stimson. May I interpose this statement?—that I have been speaking not as to the whole of the $7,000,000,000, but merely as to the War Department's share. And I think that is true as regards the Navy. Mr. W igglesworth. May I ask Secretary Knox if that is true as to his Department? Secretary Knox. I think so. Mr. Wiggleswortii. Is it possible to state what portion of this $7,000,000,000 under the contemplated program would be actually required for expenditure in the fiscal year 1942? .Sir. Woodri m. You mean contract authorizations or cash, Mr. Wiggleswortii. Secretary Stimson. I was going to say that question involves contract authorizations. Mr. Wiggleswortii. If there is no objection I would like it to cover both. Secretary Stimson. Then you mean, is it susceptible of being covered completely, when you take in both cash payments and contracts? Mr. Wiggleswortii. I mean how much of the $7,000,000,000 which is before us will be required for (ll—January (."Miniate)..... 74.0 118.4 55.1 58.5 February (estimate).... 73.8 117.4 56.5 70.7 Mar. 8. week ending 68.6 8». S (estimate)............ 74.1 117.1 NEW PLANT FACILITIES (Sec pp. 14, 58) Mr. Ludlow. Will this material be produced in plants that are existing now and producing war materials at this time or does it mean the erection of a vast number of new facilities? General Burns. Some will be produced in existing plants, some will be produced in plants under construction, and a part also will be produced in the additional wave of plants that are going to be created. Mr. Ludlow. Will that additional wave be a large number? General Burns. It will be an appreciable number. DISPOSITION OF DEFENSE ARTICLES Mr. Ludlow. I gather from my correspondence that one of the principal fears the people have about this lend-lease program is that it might impinge upon the requirements for our own national defense. What system have vou set up or will set up to check that matter to sec that it does not ; that is, to see that the supplying of this material to the British to the vast degree indicated does not endanger our own defense? What will be the modus operandi to accomplish that? General Burns. Of course, vou wrote into the law that ihe President had to consult the Chief of Staff before the items pertaining to the Armv can be released to a foreign government. Mr. Ludlow. I was just wondering if the mechanics of the thing have been worked out. General Burns. The mechanics were starlet! to the extent that no release of stocks or materials, or production, is being given out without the President consulting the Chief of Staff. 38 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 Mr. Ludlow. And it is the intention to religiously follow that ^General Burns. It certainly is to be religiously followed, and the departments are gearing themselves up to do that. BUREAU OF BUDGET TO COORDINATE DATA ON PROGRAM (Seo p. 27) Mr. Ludlow. Whore will the records of this vast transfer of material bo kept; will thev be kept in your office? Mr. Smith. I do not know exactly what sort of a system we will have, but the original records, of course, will bo kept m the depart- ments, with some provision for centralizing summaries. Mr. Ludlow. There will be a centralized office for records; is that the idea? Mr. Smith. Records will all head up at a central point; but they originate at various points- Mr. Ludlow (interposing). Have you any idea how many persons will bo required to keep those records systematized at some central place? Mr. Smith. I do not know at this time. Mr. Ludlow. Anil you do not know yet how or to whom the records will 1)0 made available for inspection? Mr. Smith. Thev will be made available, of course, to the President. Mr. Ludlow. Will they be made available to committees of the Congress, or Members of the Congress? Mr. Smith. The President is to report every 90 days. Mr. Taber (interposing). Mr. Smith, there is no question but what there is going to be an absolute record kept in some central place of all of these transfers? Mr. Smith. That is right- Mr. Taber. And it is going to be kept so that it will be made available to the President and to the committees of Congress who have charge of this situation all of the time. Mr. Smith. That is right. Some records are of a confidential nature. Mr. Taber. There will be some of them that you will have to keep from the public in your statoment? Mr. Smith. That is correct. Mr. Ludlow. 1 want to ask you in that connection, do you not think that in keeping the records they will also be available to Members of Congress who have responsibility in this matter, especially to committees? Mr. Smith. There will be such records available. Mr. Ludlow. Britain has submitted a list of the requirements so jar 1 understand Do you contemplate, or do you have any know- ledge of any further list of Britain's requirements coming later on? Mr. Smith. 1 do not. administrative expense (Sco pp. 61,03) Mr. Snyder In setting up the personnel to take care of the added Trn« 7-Jt naturalfrcomc l0 cach department, such as the treasury, did I understand you to say vou will pav the expenses of DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 39 personnel, for instance, in the Treasury in this way; that is, it would be taken out of the $7,000,000,000 fund, or any additional fund to handle that requirement created by this demand? Mr. Smith. It will be taken out of the administrative expenses; yes; that is item (d) under the bill. Mr. Snyder. Most of this production for these various implements and materials are in the category that there will be just another pro- duction for the plants that are already in existence? Kor instance, you have a plant down here manufacturing certain types of shell; wo have plants for those, and the same condition, the same contractual condition, will exist in putting out this order for the democracies, as exists at present? General Burns. I think that is correct. AOBICULTURAL FHODUCTH (See pp. 13,20,32,35,51) Mr. Snyder. My third question is with reference to the agricultural phase, Mr. Smith, in which you stated that the Department of Agri- culture would have to come in on this. Have you called in the Secre- tary of Agriculture or anybody under him in your consultations up to the present time with reference to the commodities that arc being taken up under this program? Mr. Smith. The Secretary of Agriculture and four or five members of his staff sat in with us in the discussion of this item as well as a representative of the Defense Commission concerned with food. Mr. Snyder. They can fulfill the conditions that might be asked of them in supplying these agricultural commodities? Mr. Smith. So far as they know them now. Mr. O'Neal. Mr. Smith, if any part of this should be off the record you are at liberty to delete it. TITLE TO DEFENSE ARTICLES (See p. 21) This bill is not simply a lend-lease bill in that you have authority to do other things than lend and lease; that is, to make outright pur- chases and outright sales. In other words lend-lease is not fully descriptive of the powers conferred in the bill. Is that correct? Mr. Smith. That is right. Mr. O'Neal. I would like to ask this question: As I understand, the title to anything which the Government is transferring to some foreign power does not pass until actual delivery is made. Am I correct? Mr. Smith. That is my understanding. In some cases it may nevor vest, depending upon the agreement that is made. Mr. O'Neal. Now, if the war were to end very soon and delivery had not been taken the Government would be under no obligation to furnish the materials or to make them up for some foreign govern- ment; the Government would not be under obligation to go ahead, nor would the other government be required to pay; is that correct? Mr. Smith. I am not quite clear with respect to the last part of your question. Mr. O'Neal. For instance, you are under contract to deliver a certain amount of material to some foreign country, and if the war should end we would not continue to bo under obligation to do that? 40 DEFENSE AID SUPPLEMENTAL APPfiOPRIATION, 1941 Mr. Smith. Probably not. Mr. O'Neal. Or arc they under obligation to pay for it? Mr. Smith. I assume they would not have to pay for tilings they did not receive. . ,, , , - , . Mr O'Neal. In oilier words, they would not be required to pay; and we could stop operating, and possibly salvage something from the money appropriated. Mr. Smith. Yes. , .„ , Mr O'Neal. Under this bill, title will not pass until the actual delivery takes place and no obligation to pay for it will accrue until delivery is ready. Am I correct in that? Mi-. Smith. Obligation insofar as any foreign country is concerned? Mr! O'Neal. That is what I mean; yes. Mr. Smith. The terms of the agreement would decide that. PROCUREMENT OUTSIDE UNITED STATES OF DEFENSE ARTICLES (See pp. 21,42) Mr. O'Neal. I would like to ask this further question: Under this law do you have authority to construct facilities both at home and abroad? Mr. Smith. We have authority to purchase from foreign countries. Mr. O'Neal. And to contract for the manufacture? Mr. Smith. That is not my understanding. Mr. Woodrum. You can purchase gootfs that arc made abroad, but you cannot set up facilities in foreign countries. Mr. O'Neal. You can buy at home or abroad under the bill, but 3rou cannot actually erect facilities outside the territorial limits of this country. Am I correct? Mr. Smith. That is my understanding. Mr. Johnson of West Virginia. General Burns, you have stated, I believe, and it was approved by Mr. Smith, that by comparison of cost of articles that were purchased in the last war you found that prices now were lower? General Burns. That is correct; that is my understanding. DISPOSITION OF PLANTS AFTER DEFENSE EFFORT HAS CEASED (See pp. 14,43) Mr. Johnson of West Virginia. Going back to these factories, or these facilities that you propose to build, suppose the war would end, say, in 6 months or a year and England would be successful, what would be the need of these factories? General Burns. Well, 1 think the situation would have to be re- viewed then and the general policy determined as to what we should do. Mr. Johnson of West Virginia. But, in the meantime, we have gone into contracts to build these facilities. General Burns. Right. struction?1^0^ °f ^ ^ Virginia' And thcy have already started con- \n^hTwl uUwS- As kn,ow> exactly that same thing happened the World War; we had a lot of plants under way, a lSt of orders under way, and Congress passed a law in reality requiring the cancela- DEFEXSE AID SUPPLEMENTAL APPROPRIATION, 194 1 41 tion of a great many of those projects. I presume the same thing would happen again, and we would have to work out a scheme for liquidating our war effort. Mr- Johnson of West Virginia. That is what I want: Is there any cancelation clause in these contracts that would enable the Govern- ment to release itself from that obligation? General Burns. I do not recall whether we put in a cancelation clause. Note.-—When copies of contracts were produced it was found that thev do contain cancelation clauses. Mr. Johnson of West Virginia. So that, if the war should end within a year, we would have little or not need of these plants and their equipment? Genera! Burns. No; I do not think we would need them; because, with the plants we have already started or will start with the money you have given us or will give us, I think we will have ample support for our military effort. This program is over and above that, and I have no doubt if the war stopped, with the situation reasonably favor- able to us, we could liquidate a good deal of this. SUPPLY OF ELECTRIC POWER Mr. Scrugham. Mr. Smith, a few months ago I read a statement emanating, I think, from the Federal Power Commission, that if the requirements for war munitions and such implements as are given in this lend-lease bill were continued we would face a serious power shortage in 2 or 3 years. Now, partly to rectify that situation, plans and specifications were presented to the Budget for authorizing funds for one or more power plants. I have particularly in mind the Bull's Head site on the lower Colorado River. Are you taking such factors of power shortage into consideration? Mr. Smith. Yes; we arc. Mr. Scrugham. Has there been any action taken to prevent the power shortages? Mr. Smith. There has been action on several such plants. In fact, we have, with respect to every such issue that has arisen, consulted the Federal Power Commission and had their staff people in with us. Mr. Scrugham. I am interested in the Bull's Head project. You do not recall any Budget, action on that request for construction funds? Mr. Smith. No, sir. Mr. Woodrum. Any questions, Mr, Tabcr? Mr. Taher. I am not going to ask any questions at this point. I have some questions with reference to the status of the British finan- cial situation and what they would have available to pay, and I am going to ask just this one question: I understand, Mr. Smith, you are prepared to answer those ques- tions? Mr. Smith. Not at the moment, sir. Mr. Tabbr. You are not? Mr. Smith. No, but I can get the information for you and for the record. The Treasury will furnish it. Mr. Taber. When you come back here this afternoon, I would like to have you prepared for it, if you can do so. That information ought 42 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 104 1 to be available to the committee. I am not going (o ask it, however, and I am going to suggest that we not ask it until after we get through with the detail of this bill. PROCUREMENT OUTSIDE UNITED STATES OF DEFENSE ARTICLES (See pp. 21, 40) Mr. Woodrum. Mr. Wigglesworth? Mr. Wigglesworth. I will pass also, except for one question. Under section 8, which Mr. O'Neal's interrogation referred to, it says— The Secretaries of War nnd of the Navy are hereby authorized to purchase or otherwise acquire arms, Ammunition, and implements of war produced within the jurisdiction of any country to which section 3 is Applicable. I would simply like to ask if the request before us contemplates the purchase or acquisition of any arms, ammunition, or implements of war in any country other than the United States? Mr. Smith. It cloes not, so far as I know. General Burns. There is no plan under way to do that at all, that I have heard of. Mr. Taber. That is not within the range of what you have brought here to submit? General Burns. No, sir; it is not. procedure in administration of funds (See p. 25) Mr. Ditter. Now, Mr. Smith, just briefly: I confess I have not gotten into my head what the mechanics of tliis program will be. Let us assume we are to make 100 tanks: Will the allocation for that 100 tanks go into the War Department and be accounted for by the War Department, or will it be budgeted and carried through "some new agency? Mr. Smith. It will be processed through the War Department exactly as our own munitions are processed. Mr. Ditter. For instance, then, the War Department, in its supply account, or whatever the particular account might be, would have in there, first of all, the cost of these 100 tanks and then, if there were a credit established by the reason of the sale of those 100 tanks to Great Birtain, that would be an offset item on the credit side of the account? Is that the way the operation would be handled? Mr. Smith. Yes. Mr. Ditter. So that, to that extent, there would be a possible increase in the personnel needed by the War Department to handle this new overhead; is that right? Mr. Smith. Yes. Mr. Ditter. This accounting? Mr. Smith. That is right. Mr. Ditter. But, when it came to the administrative cost incident to that, it would not come out of the War Department's administrative funds, but would come out of this special administrative set-up that would be provided for under (d) in the bill? Mr. Smith. Right. Mr. Ditter. Is my theory, generally speaking, correct? DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 43 Mr. Smith. That is right. Otherwise, we would not be able to keep track of the additional amount of administrative expense due to the lend-lease bill. Mr. Ditter. And the same thing would be tru.> with reference to the Navy; for instance, if the Navy built a destroyer and had that destroyer transferred to Great Britain, the cost of that would be in "Construction and repair, engineering," and so on, and then whatever ou sold it for would be a credit established on the other side of the edger for it? Is that your general thought as to the way this thing will be carried out? Mr. Smith. That is right. application of existing law to procurements (See p. 27) Mr. Ditter. Mr. Lawton, I confess—and this is not argumentative in any way, but in answer to one question, I think propounded by the chairman, as to the powers under this bill vested in the hands of the President, I believe you made the observation and used as an analogy the Walsh-Hcalcy Act and said, for instance, that you felt there was no power in this bill, the lend-lease bill, for the President to set aside the terms of the Walsh-Henley Act. Was I correct in so understand- ing your statement? Air. Lawton. I said that in its report the Committee on Foreign Relations, in interpreting this phrase—"Notwithstanding the pro- visions of any other law"—made that statement. Mr. Ditter. Now for the present, we shall not set-up the Com- mittee on Foreign Affairs as the interpretive body of what the law means, shall we? Mr. Lawton. Well, they are the committee that brought out the bill, and I assume are the best qualified to speak. Mr. Ditter. Well, cannot we ask you, as a skilled expert, what your opinion is with reference to the powers here, rather than the Foreign Affairs Committee? Mr. Lawton. No; I am sure the interpretation of this law, in the executive branch, would have to be by the Attorney General. Mr. Ditteh. If I may pursue that further, you used the word word "conflict", "those things which would not bo in conflict." There are some who feel that the Walsh-IIcalcy Act is in conflict with the spirit and intent of the lend-lease bill. Now, would that change your opinion in any way? Mr. Lawton. I am afraid the Attorney General would have to decide that question; I could not. DISPOSITION OF MATERIAL AFTER DEFENSE EFFORT HAS CEASED (See p. H) Mr. Johnson of West Virginia. Just one question there: Pursuing Mr. Ditter's inquiry on the 100 tanks, suppose we built the 100 tanks under the lend-lease bill and then delivered them to England and they would get them over there and the war would stop, and perhaps those tanks would be intact—what would become of those tanks? Mr. Smith. Well, I should say it would depend on the terms of the agreement. 44 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1911 Mr. Ditteu. It would bo entirely dependent on the agreement, would it not, Mr. Smith? Mr. Smith. Yes. Mr. Ditter. They might be loaned to them, or they might be sold to them? Mr. Smith. That is right. Mr. Ditter. Or they might be leased to them; in fact, any one of a number of conditions might be present? Mr. Smith. Right. Mr. Johnson of West Yiiginia. Well, suppose you lent them in- stead of selling them, what would physically become of those tanks? And, of course, what will apply to the tanks will apply to everything else, unless it lie powder, which they would consume; but it would apply to airplanes, for instance. Mr. Smith. The agreement might provide for their return or, in the agreement, we might have traded tanks for some raw materials which we could secure from some of the British dominions. We might prefer that they keep the tanks and we keep the raw materials. Sir. John-son of West Virginia. Welt, have you given that matter any thought? Sir. Smith. Those agreements will have to be worked out at the time articles are to be disposed of under the law. Mr. Johnson of West Virginia. Well, now. you may have 100 tanks delivered in the next 90 days, and you do not know now whether you want potash, sulfur, tin, or what. Now, how are you going to take care of that situation? Mr. Smith. Well, the lease-lend bill provides under section 3 (b): The terms and conditions ui>on which any such foreign government receives any aid authorized under subsection (a) shall be those which the President deem* satisfactory, and the benefit to the I'liited States may \>q payment or repayment in kind or projwrty, or any other direct or indirect l>enefit which the President deems satisfactory. Mr. Johnson of West Virginia. Well, we nil admit that the success of England will be much to our ad vantage, and the President might come to the conclusion that, by reason of that fact, he would be justified in letting England keep the 100 tanks without repaying anything. Is not that true; could not that be so construed? Mr. Smith. It might be. Mr. Johnson of West Virginia. In other words, we take a chance here on building all of these facilities and furnishing all of this material and. at the end of the war, England might have them without paying a dollar for them, or obligated to nay a dollar for them? Mr. Smith. I assume we take that chance. Mr. Johnson of West Virginia. I say it is possible under this ap- propriation to do that? Mr. Smith. It is under the lend-lease bill. Mr. Johnson of West Virginia. It would be possible? Mr. Smith. Yes. PERSONNEL UNDER CIVIL SERVICE Mr. Taker. Just one question. Now, these folks Unit are em- ployed in the departments as the result of this bill, or anywhere else DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 45 insofar as the Government setup goes—will they be under tho civil service, just like the rest? Mr. Smith. I assume that all existing laws with respect to personnel will be applied. Mr. Taber. The civil-service requirements will not be waived for that purpose—for the purpose of handling this bill? Mr. Smith. All the present provisions would apply. Mr. Ditter. And there will be no new bureau established, no new alphabetical agency? Is that right, Mr. Smith? Mr. Smith. I do not know of plans for any. Mr. Ditter. There will be no B. A. B., for instance? Mr. Smith. I do not know of any. Mr. Ludlow. What about the ability of the Civil Service Com- mission to supply all of the personnel needed in this very vast expan- sion? Mr. Smith. They seem to be doing it now. and are doing a very good job of it. Mr. Ludlow. Up to date? Mr. Smith. Yes. Friday, March 14, 1941. STATEMENT OF WILLIAM S. KNUDSEN, CHAIRMAN. OFFICE OF PRODUCTION MANAGEMENT CONTRACTS HERETOFORE PLACED FOR PLANTS AND MATERIEL Mr. Woodrvm. Mr. Knudsen, the committee has before it esti- mates in the amount of $7,000,000,000 for the implementing of the lease-lend bill. A very important part of that, or course, is repre- sented by funds for expediting production and providing for extra production. The committee would be very glad to have any state- ment you wish to make on the subject, following which we shall ask you questions. Mr. Kxl-dsex. Mr. Chairman, would you care to know where we are todav, what we have done up to date? Mr. Woodrum. The committee would like very much to know that. Mr. Knudsen. I might start by saying that since we came down here in June, the total contracts placed for materiel, not for facilities, up to date, amount to almost SI2,600.000.000. In order to handle this amount of work, we have spent for Govern- ment plants, or contracted for, 51,574,000,000. That has been spent in 302 establishments. , ' . . On top of that, the British have financed 61 plants, in the amount of $171,000,000. . , , .... We have certified privately financed plants in the number oi Ul at a cost of $393,000,000. So that the total amount that we have as dealing, of course, with Government contractors. That is where wo are today. 46 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 NUMBER AND TYPE OF PLANTS HERETOFORE PROVIDED FOR I can tell you how the plants are distributed, if you are interested. Mr. Woodhum. Yes, sir. Mr. Knudsen. Aircraft: Wo have 11 engine plants, 20 plane plants, and 66 parts and accessories plants. Ammunition and ammunition components: We have 11 plants on explosives, 3 on small arms ammunition. Shells, bombs, and torpedoes, 18; munitions loading plants, 9. Guns: Wc have 5 plants on machine guns, 2 on other small arms, and 27 on artillery. Ships: 40 establishments have been started or enlarged. Tanks, 5. Armor plate and heavy forgings, 12. Machine tools, 20. Optical instruments, 9. Miscellaneous, such as chemicals, 5. Metals, 7. Pumps and blowers, 5. Ship engines, propelling machinery, 3. Miscellaneous, 5. In addition to that, we have rehabilitated existing arsenals to the number of 19. That totals up to 302, the figure I gave you a minute ago. Mr. Wooduum. Those plants are either already in operation or in the course of construction? Mr. Knudsen. Yes, sir. f . ¦'• • _ . Mr. Knudsen. We expect to have all of those completed by July. Mr. Taker. The list that you gave us includes only Government- owned establishments altogether? Mr. Knudsen. Yes, sir; Government financed. Mr. Tabeh. What is that? Mr. Knudsen. Government financed. Mr. Taker. That does not include the 421 private plants? Mr. Knudsen. That is right. Mr. Taker. Those are in addition to that? Mr. Knudsen. Yes, sir. Mr. Cannon. What is the total number of plants available for the various facilities enumerated, both public and private? Mr. Taker. He has done that already; 421 private, 302 Govern- ment, and 61 others. Mr. Knudsen. There is a total of 784. Mr. Cannon. What we are interested in knowing is how many of each class; how many for explosives, how many for ordnance, how many for small arms, and in each case public or private. Mr. Knudsen. I do not have the figures of the private plants. I brought Government figures here. Mr. Cannon. Are the figures for private plants available? Mr. Knudsen. Surely, we can get them for you. Mr. Cannon. You can supply them? Mr. Knudsen. Yes, sir. Mr. Cannon. In determining the number of these plants, were you governed by the number that you needed or by the number available? Mr. Knudsen. We were guided by what the schedule required. DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1041 47 Mr. Cannon. You have made arrangements for even- manufactur- ing facility you need or desire, or that could be profitably used for the purpose; you have no need for additional facilities outside of these plants r Mr. Knudsen. For the present Army program yes Mr. Cannon. Does that include the entire program to bo under- taken under the / billion dollar proposed expenditure? Mr. Knudsen. No, sir. u ,KIr- PfiNN0N" InJ.whaJ resI)ect » total 11,300,000,000. I would like to ask you this question, Mr. Smith. Is the reimburse- ment provision that I have referred to, on page 3, line 21, intended to bo applicable to defense articles procured from appropriations made before lease-lend, or is it intended to cover also defense articles procured from appropriations hereafter made that may have been made available for that purpose? Mr. Smith. It is intended to cover appropriations made prior to the Lease-Lend Act on which there is a limitation of $1,300,000,000. And it is also intended to cover any appropriation subsequent to the effective date of the Lease-Lend Act. in the event the Congress puts language in that particular appropriation bill allocating any material to any country whose defense is important to our own. The provision is permissive. Air. Woodrum. Permissive? Mr. Smith. That is right. Mr. Ludlow. This hill is called the lend-lease hill or the British aid bill. Is there any provision that Britain shall pav anv cash at all for any of this material, or do thev give anv security for anv of the material? Mr. Smith. That would be arranged in the agreements that are to be signed. Mr. Ludlow. Is that contemplated? Mr. Smith. I assume so. Mr. Ludlow. There is no suggestion of security in the form of real estate or stock that they own in this hemisphere, is there? Mr. Smith. Assets will be given consideration in connection with agreements. DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 65 Mr. Woodrum. I think we have wound up this end of it, unless you have something further to say. Mr. Smith. I have nothing, except to say that I have not received the other documents to answer some questions raised here. I have the index of raw-material prices. There were a number of questions raised as to the comparison between prices now and the prices dur- ing the last World War. I have here the raw-material price index of the Bureau of Labor Statistics. The index for 1917 was 122.0, for 1918 it was 135.8, and for December 1940 it was 73.6. Mr. Cannon. That is for what class of material? Mr. Smith. This is the index of raw material prices. Mr. Cannon. For all raw materials? Mr. Smith. Yes, sir. Mr. Cannon. Including the material that would enter into the fabrication of these articles? Mr. Smith. Yes, sir; that index was set up with 1920 as the base. Mr. Woodrum. We asked for some information, and 1 will ask Mr. Taber to interrogate Mr. Smith at this time. Mr. Smith. The information has not been completed. Mr. Cannon. We were also to receive copies of the contracts. Have thev been supplied? General Burns. Yes. sir; we have them here. Saturday, March 15, 1941. STATEMENTS OF HAROLD D. SMITH, DIRECTOR OF THE BUDGET, AND FREDERICK J. LAWTON, ADMINISTRATIVE ASSISTANT TO THE DIRECTOR OF THE BUDGET BRITISH FINANCES AND HOLDINGS IN UNITED STATES (See p. 16J Mr. Woodri m. Mr. Smith, do you have the information these gentlemen asked you for yesterdav? Mr. Smith. Yes. Yesterday, this committee propounded a number of Questions with respect to British orders for defense materials prior to tlie enactment of the lease-lend hill, and British assets. Those were rather specific questions to which wc sought specific answers from the (Question 1 was: It is understood that British orders up to January 1, 1941. were nboiit S't.(Mlfl.flOO.f)(>0 and thai expenditures were about $o0O.000,000. Is that correct? What have the British spent hero since that time? The answer is that the total of the orders placed in this country by the British Purchasing Mission up to January 1, 1941, was approxi- mately 82,700,000,000. Up to January 1, 1941, the British Purchas- ing Mission had made payments of approximately $1,300,000,000 on these orders. Mr. O'Neal, fash payments, those were? Mr. Smith. That is right. From January 1 to March 12, payments by the British Purchasing Mission were $3S2,0O0,onn. I assume, therefore, that if you want the total to March 12, you would add SI ,300,000,000, plus $382,000,000, or a total of $1,682,000,000 of cash Treasury 66 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 194 1 payments on British Purchasing Mission's orders up to March 12? 19Mr. Snyder. In other words, they just have about $1,000,000,000 yet to pay? . . ' , . , Mr T\ber. Now, arc there any orders since the 1st of January to add to the $1,018,000,000 left? Mr. Smith. I am not sure that I can answer that 100 percent cor- rectly, but it is my impression that the British have not placed large orders for several months. Sir. Woodium. What were the total orders up to January 1, Mr. Smith? Mr. Smith. S2.7OO.000.OO0. Mr. Taber. You do not know whether there are any since the 1st of Junuarv, or not? ... Mr. Smith. I am sure that there are not any substantial orders of any kind, because they have not been placing orders for some months. There have been minor orders. Mr. Snvder. I think that is right. I checked that the other day. Mr. Woodrum. So far as you know, are they up to date on pay- ments, or are they in default on any of them? Mr. Smith. So*fur as I know, they are up to date on their payments. Mr. Ludlow. What do you know about the prospect of the cash running out? Mr. Smith. May I go on with this, because that question is covered. Mr. Woodrim. Yes; go on. Question 2 was: lias the policy been to pay cash or securities for orders up to this time? The answer is that the practice of the United Kingdom has been to pay cash on all orders placed in the United States up to this time. All goods delivered have been fully paid for. A substantial portion of the value of (lie goods delivered was paid for in advance, and u portion of the value of the goods yet to be delivered has already been paid for. Generally, they have paid 25 percent, cash when orders were placed, in addition to the capital investments required. The dollars to pay for these orders have been derived by the British Government partly from the sale of British invesments in the United States, partly from the liquidation of British dollar balances, partly from the. sale of British gold holdings to the United States Treasury, and partly from dollars acquired from a variety of other sources. Mr. Woodrum. There is no reason why all this should not go in the record. Mr. Smith. I assumed that the committee would want all of this for the record. Question 3 was: What is the proposal as to paying for deliveries of existing orders? The answer is that part of the cost of the future deliveries under existing orders has already been met by- advance payments. The remaining liabilities of the United Kingdom in respect to such orders will be met from her existing dollar resources and with dollars which she will acquire m the future. Such dollars will come from further sales of British holdings of United Slates securities, the sale of British direct investments m the United States, gold acquired by the British Government, and the net dollar proceeds of British exports of goods and services to the United States and elsewhere DEKEXSE AID SUPPLEMENTAL APPROPRIATION', 1941 67 Mr. O'Neal. That is, holdings of British citizens, in part, is it? Mr. Smith. Yes. Mr. O'Neal. Not only of the Government, but the holdings of British eitizens? Mr. Smith. Yes. Mr. Woodrim. By implication, then, at least, it is not contem- plated at the present time that any of this $7,000,(11)0,000 fund will be utilized to pay for any of these goods already ordered by Great Britain? Mr. Smith. Xo. Mr. Woodri m. Can that be said positively? Mr. Smith. Yes. it is not contemplated that any of the $7,000,000,- 000 is to be used for that pur|>ose. Orders that have been placed by the British Purchasing Mission are to be paid for, I understand, by the British out of their dollar assets. Mr. Johnson of West Virginia. Do you understand that any additional orders that might come in before this act becomes effective, will likewise be paid by the British people? Mr. Smith. I would assume that if the British Purchasing Mission continued to place orders now, they would have the assets to pay for those. Mr. Johnson of West Virginia. The same thing would apply to any future orders that has applied to orders in the past? Mr. Smith. Yes. Mr. Ludlow. Are you going to give us a rough inventory or esti- mate of the British holdings in tliis country later on? Mr. Smith. It is the next question. 1IHT >(||IJ> Ul Will...., ......n. 1041, is, according to British estimates presented bv the Trensury to Congress. $616,000,000 of marketable securities and approximately S900.000.000 of direct investments. Mr. Cannon. Is that holdings by the British Government, or bv its nationals? Mr. Smith. Except for the securities which have been vested by the British Government, that is, turned over to the Government in exchange for British Government securities, tin--.- holdings belong to British nationals. To repeat: The value of British holdings in the United States as of January 1, 1941, is, according to British estimates presented by the Treasury to Congress, S616,000,000 of marketable securities and about $9*00,- 000.000 of direct investments. Mr. I AiiKit. What do you menu by that—direct investments? _ Mr. Smith. The Department of (Commerce defines foreign direct investments in t he United States as all foreign investments in corpora- tions or enterprises operating within the United States which are con- tr°lled by a person or persons domiciled outside the United States. Mr. Tabbr. Are they unmarketable securities? Mr. Smith. They are unmarketable only in the sense that they are not listed on our organized exchanges and for the most part no niarkei^ for them has been developed in this country. Mr. Taber. They are not readily marketable? 68 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 Mr. Smith. They an- not as readily marketable as listed securities; MrmOGLBSWORTH. Held by the Government, or by its nationals? Mr Smith Except for the securities which have been vested by the British Government, that is. turned over to the Government in exchange for British Government securities, these investments belong to British nationals. # m Mr. LUDLOW. What authority did the British Government lm\e over the transfer of holdings of lUs nationals for the liquidation of Us debt? Mr. Smith. 1 cannot tell you that. Mr. Taker. Oh, thev have taken it all over. Mr. Smith. The British Government at this moment, has control over the resources of that country, including assets of individuals. Mr. O'Neal. Is it known whether the British nationals or the British Government have quite large amounts of securities and things of value held in this country in the names of American citizens; have you attempted to find out whether or not that is a fact? Mr. Smith. 1 presume the Treasury would be cognizant of that situation. Mr. O'Neal. In other words, a cor|H>ration might be formed here which, in itself, is owned by British nationals but an American cor- poration, and it, in turn, own a great many American securities. You do not know whether (hat is included in this figure of the total amount of holdings estimated by the Treasury? Mr. Smith. I will check it, but I am pretty certain it is. Mr. Taker. Would you like to explain that item a little bit thai $900,000,000 of direct Investments? It does not include the cost of plants for procuring ammunition or airplanes, or whatever you might call it, that the British Government has invested, does it? Mr. Smith. It is my understanding that it does not. ¦ Mr. Taber. Let me ask one other question about the S900.000.000: Do.-", that represent the cost of the British, or an inventory value as of January I? Mr. Smith. It is a rough estimate of the amount which the direct investments would probably bring if they were sold gradually over a period of time. Mr. Tahkr. Go ahead. Mr. Smith. The nominal value of the United Kingdom's invest- ments in Canada is nearly tin- equivalent of $2,000,000,000 United States dollars and the United Kingdom's investments in Latin Amer- ica is the equivalent of over $3,500,000,000. This refers to nominal value; the market value would, of course, be much less. In the case of the Canadian investments, the market value is much closer to the nominal value than is the case with the Latin-American investment-. The I'nited Kingdom is using a substantial amount of its Canadian investments each month to pay for war materials obtained from Canada. Some of the investments in Latin America are in complete default; many are in partial default; whereas nearly all are pavable ni sterling or in local currencies. The liquidation'value in United States dollars of these Latin American securities, pnrlicularlv in view of the widespread control of foreign exchange transfers, is'verv un- certain. The detnils of these investments will be found on page .p>4 ] DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 69 of the hearings before the House Committee on Foreign Affairs on H. K. 1776. Mr. Wooihm m. Dors that complete the answers, Mr. Smith? Mr. Smith. No; that is question 4. Mr. Taker. Do you want to go ahead and give the other answers? Mr. Wiocii-EswoiiTii. Before you do that. I call your attention to mittee, the total as of December 31, HMO. is given as $2,167 00( I wonder if you have not omitted the gold holdings and what' are referred to as official dollar balances and private dollar balances in the statement you have given us? Mr. Smith. Yes; that is correct. In addition to SO 10.000.000 of marketable I'nited States securities and $900,000,000 of direct in- vestments in the United Stales, the British held on December 81, 1940. S20'J.00O.O()0 of gold. $:,4.00fi.o percent of her expected national income. Mr. Taber. Yon mean of the whole country, rathei than the Government? Mr. Smith. That is right. Canada with 11,000.000 people would never have an ordinary budget of that size. In addition, Canada is supplying Britain with large increasing amounts of goods and services in return for a considerable part of which she is getting either blocked sterling in excess of her needs or repatriated Canadian securities held in the I'nited Kingdom. •lust as in the case of Canada, Australia. New Zealand, South Africa, and India have under way and are financing themselves, a war effort of considerable magnitude in relation to their national income. In addition, these countries are acquiring excess blocked sterling in London and some are acquiring repatriated securities as payment for exports of merchandise, services and gold to the United Kingdom and to l he dollar exchange areas. This is a form of economic ami financial assistance of considerable value to the British war econoinv. Question 8: What has Great Britain, its dominions and particularly Canada appropriated for this war? This information is not readily available; but we have requested it for the committee. However, because of differences in budgetary praetice, such figures will not be at all comparable with'thedefense- appropriation figures for tho I'nited States. Mr. Cannon. With reference to the remaining quarter billion dollars, have you any information as to the proportion in which that amount is being spent by the respective dominions, of the several countries? Mr. Smith. No; we do" not have that, Mr. Cannon. Mr. Cannon. You do not know the proportional monthly expendi- ture of Australia? r ¦ y 1 Mr. Smith. Australia is spending the equivalent of about $50,000,- 000 a month. Mr. Wiggleswortr. It would appear that Canada is putting up about $100,000,000 if you split up her portion of the one-quarter billion. Mr. Smith. Yes; in addition Canada is rendering a variety of services that cannot bo translated into dollars. DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 71 Question 9: What arc the potash and borax holdings of the British in tlie western part of the United States? Our preliminary information is that there arc three large potash and borax companies with properties in the western United States in which the value of the British investment is estimated to be roupblv more than $20,000,000. These properties are included in the British direct investments referred to in question 4. Question 10: What have we bought in the way of gold from Great Britain and its dominions, including Canada, since 1934, by years? The net imports of gold from the British Empire by years are given in the table below. It should be pointed out that Ixmdon has been, prior to the war, the leading gold market of the world and hence gold imports from the British Empire were not solely for British account. The table is as follows: Net imports of gold from liritish Empire, 198/,-40 CnHfd Kinjc-doni Ottwr liritbh Km pirt> ToUl MOO, 000.000 316.000.000 $163,000,000 m. ooo. ooo fora.ooo.ooo .',...(.. i,iui ms..................................................... IBM..................................................... 174.000.000 S92.000.000 2OJ.000.W!) 3M, 000.000 l.lr...(..i,i.<> 1,200.000.000 1,826.000.000 633.000.000 H». 000,000 »ro, ooo, ooo tuo.oai 1,3A3.000,000 '>.MV.I"U->I l.-.N <¦•><¦» 5, MO. 000.000 t. m. ooo. ooo io.4is.noo.ooo Mr. Rahaut. I take this viewpoint, Mr. Smith: Of course, if we were to force Kngland to liquidate all of her accounts or assets at the present time, or sell such shares as she has in this country, we could not well do that without creating a tremendous effect upon our own holdings, because there would naturally be a recession in the entire market for securities. Mr. Smith. It all depends on how it is handled: Proper precau- tions. I understand, are being taken. Mr. Scruoham. J am interested in the British ownership an Control of the borax and potash industries in this country. To your knowledge, arc any definite steps being: taken to acquire those inter- ests by the United States Government in part payment for the pro- posed advance of $7,000,000,000? Mr. Smith. I know of no steps to acquire that by the Government, but Stops are under way to liquidate British assets here in this country. Mr. Srur<;iiAM. While advancing this vast sum of money to Great Britain, should it not be done with the distinct understanding that they will transfer their ownership and control of the potash and borax- industries, which are of vital importance to this country, to the United States Government? I realize the emergency requires liaste. of course, but these industries mentioned are of basic importance for obtaining purelv domestic supplies. The British should promptly transfer them to this Nation, as a small repayment, as well as South American properties that are now also controlled by the British. Is there any comment von would like to make on the subject.' Mr. Smith. Mv only comment respecting the industries you men- tion is that negotiations are under way to deal with the liquidation of assets in relation to the whole situation under this lend-lease bill. 72 DEFENSE AID SUPPLEMENTAL APPROPRIATION", 194 1 Mr. O'Neal. I would like to ask for the record this question: Do the holdings you have given of British nationals in this country include the indirect holdings of British nationals in this country? I mean bv that, holdings through holding companies organized in this country, where the beneficial interest is in British nationals, or held through dummies of some kind or other? Mr. Smith. My understanding is that these holdings insofar as these are known'are included in the British estimates presented to Congress in January. .... * Mr. Ludlow. The British are not actually giving any security for this, in the sense that we generally understand the term "security," but it is siraplv a matter of good faith? Mr. Smith.'Under the lease-lend bill, there will be an agreement. Mr. Ludlow. With respect to payment for this particular material covered by the bill? Mr. Smith. The form has not been decided upon, so far as I know. Mr. Rabaut. Yesterday, when we were in executive session, a question came up as to whether or not the present amount of con- tracts which the British have in this country, and which totals some- where between S 1.000,000,000 and SI,500,000,000, could be paid from this amount that is, whether or not any money from this appropriation could be used to pav the cost of those contracts. 1 understand that this morning, before I came into the room, that matter came up here, and I understand that Mr. Smith's answer was that this money could not be used to pay those contractual obligations. Mr. Smith. It is my understanding that it is not contemplated to use any of this money for this purpose. Mr. Taber. The testimony by Mr. Smith this morning was that the British have a total cash or dollar balance to meet balances of $1,018,000,000 of contracts that they have hanging. Mr. Rabaut. 1 am asking Mr. Smith now. but I thank you for your observation. Mr. Smith. I meant to say it could be legally paid, but whether it would be done or not- Mr. Rabaut. First, can it be done? And then 1 will ask, "Will it be done?" Mr. Woodkum. If it would not be done, we need not bother about the other question. I do not think there is any boubt about the fact that they could do it. Mr. Smith. As to the second question, it will not be done, because it is pretty clear that you would have to establish a bench mark as to where British orders left off and where lend-lease orders began. Otherwise we would be in confusion as to transactions. It is con- templated, as indicated in this testimony, that the British would make payment for outstanding orders that the British Purchasing Mission have committed themselves to up to the passage of the Lend- Lease Act. Mr. Rabaut. That is the reason the question was advanced, and I asked about this entire situation in the terms of national defense. Now, if there is to be $1,000,000,000 worth of orders for the British, or if they have on order Sl.000.000,000 worth of material, that means SI,000,000,000 worth of defense material. Now. it we come along and augment that with S7,000.000,000. that would mean SS.OOO.OOO.oOO worth of defense material, but if we pav for that SI ,000,000,000 worth DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 73 of material from funds under this bill, it would leave only $7,000,000,- 000 worth of defense material that is being produced. If that is done—and you do not think it will be done—but if that should be done, we would have lessened the amount of defense material to the extent of $1,000,000,000. Mr. Smith. I think the record that has been made is clear on that point. If it is not. I will make it clear. Mr. Raiiaut. There was quite a discussion about that in the committee. Mr. Taber. You did not tell us the amount of cash balance that the British have. You gave the securities, but you did not give the cash bal-.nces. I)«> you know anything about that? Perhaps they do not have any. 1 do not know. Mr. Smith. At the present time the cash balance is small. Mr. TaBER. On December 31, say that the dollar assets amounted to approximately !ji:t50,000,000. Mr. Smith. And since then they have paid out $382,000,000. Mr. Taiikr. I-et me ask you this, and I would like you to be in a position to answer it for the record, if you can: There are a lot of these British-held securities. To a certain extent they have been liquidated, and they have been a menace to our own security market. It is impossible to dump them. In addition, there are a lot that are not readily marketable securities held by them. Now, will it be the disposition of the administration to take those securities that cannot be marketed without upsetting our own financial structure and with- out sacrificing those securities too seriously, as security for such defense materials as are sent to Cleat Britain, and that are procured ----i—i km? if mn «re tint in a Dosition to as the resim oi ine uwinu. . »j . . , ¦ . answer that now, make a note of it, and answer it m ^CTewrd. Mr. Sm,th. I am in a position right now to answen he a hiin ative With full assurance. It is my understanding h*™™^'^ proceeds of liquidation of British-held BCCunfaee the United States will be needed to complete payment on cxistui„ British orders. ^'r; Tamer. Now, the result of (he answer you have given me, Mr. Smith, is this, is it not, that if this Government pays out money for airplanes, tanks, repairing ships, building ships, or anything else, that may be turned over to the British, insofar as their assets will permit, upon delivery our Government will receive their securities which are not marketable and cannot be turned into cash, insofar as they are available us security for the payment (if these things. Mr. Smith. Yes. Insofar as thev are not needed for payment on existing British orders. Mr. Ludlow. Do we understand thai there will he a segregation of the accounting of items under the lend-lease bill from items under the regular operations? Mr. Smith. Yes, sir. Mr. Li'DLOW. I wonder if you will find any difficulty in that, where for instance a manufacturing establishment will be partially engaged in manufacture to meet the requirements of the United States and partly in the manufacture of articles to meet the lend-lease program reoutrcments. How will it be possible to make that segregation? Mr. Smith. Let me |M>int out to you that we have the cost of the items at the time they are transferred to any other couiitn-. 74 DEFENSE AID SUPPLEMENTAL APPROPRIATION, 1941 Mr. Ludlow. Do you think you could make a clean-cut segrcgatio there? Mr. Smith. Yes, sir; it would be a fairly simple accounting problem. Mr. Woodrum. Isn't it just as important to help Britain maintain her economy as it is to furnish her weapons with which to fight? Mr. Smith. I certainly believe that it is. The upheaval of war is a severe blow to her economy and we must develop our relationships under the Lend Lease Act-with this in mind. If these relationships are such as to unduly weaken her economy the effect will be in reality a partial cancelation of our intended aid. We must not think solely of aid in terms of defense articles, but of the problem as a whole. Back of the weapons must be an economy capable of sustaining the war effort. Mr. WOODRUM. Thank you very much, Mr. Smith, for your statement. INDEX A Appropriations: Interchange of......----------......---------................. 60 Transfer of, to replace defence articles disposed of under SI,300,000,000 authority.......--------------------................-------- 64 Aurand, I.t. Col. H. S., statement of................................. 25 Agricultural products---........-----...................-- 13, 20. 35, 39, 51 Agriculture, industrial, and other commodities----------------......2, 58, 64 Aircraft and aeronautical material.......----...........-------...... 56 Administrative expenses________________-------------------------38, 61, 63 B British finances and holdings in the United States--------------------- 16, 65 Budget Bureau to coordinate data on program-..............--------- 27,38 Budget estimate_____________________--------------------—------- Form of...................................................... 9 Procedure in preparation of...................................-- ? Burns, Maj. Gen. J. II., statement of................................ *o C Contracts: Cancelation clause* in_____________----------------------------- 32, ou Heretofore placed for plants and materiel......................... ™ Contractors, advances to—......-----------......................- ™ Countries to be aided.............-------......................---- 11 D Defense articles: Disposition of.........__________.....-.....................,n Procurement of, outside the United States.....................^1- « Retention or use of, bv the United States......................... w, bi Title to......................................................»h 39 £ Electric power, supply of.........................................-- 41 F Facilities and equipment for production.------.......-;.......,4*?5 Facilities program under funds for defense aid to other countries........47. .rf Funds, procedure in administration of..---------------------------- ' B 2 Hull, Hon. Cordell, statement of----................................ K g Knox, Hon. Frank, statement of—.---------------.......... 45 Knudscn, \V. S., statement of--------------*----------""' L Law to procurements, applicatiou of existing.....-..................25* of Lawton, F. J., statement of...................-----..........."""" ' 7o INDKX M r« Marshall, Gen. G. C, statement of ---------.......:?2 Material, disposition of, after defense effort has ceased................. 14, 43 Miscellaneous military equipment.................................-- Miscellaneous services and expenses................................ •>». 01, »•> N New plant facilities.........-...................................... 37 0 Ordnance and ordnance uteres..........----......................... *> Organization, new overhead to be established......................... ^o, -54 P Personnel under civil service....................-.................-- Plants, disposition of, after defense elTort has ceased................ 14, 40, 43 Plains heretofore provided for, number and type of-----............... 46 Prices in England and the I'nited States, comparison of................ 31 Procurement contracts, provisions in....................-.......AA'-ic (C Production costs and prices. ..... --------.....29,36,48,01 Q Questions propounded by the mcmljcrs of the subcommittee to Secre- taries Hull, Stirnson, and Knox........................-......----- 11 Agricultural products................................. 20, 32, 3.>, 39, 51 American manpower,.......................................... Jo American planes by the British, use of—........................ IS British finances...............-....... ------.......-........... 16. 65 British potash and borax plants in the United States.............. 19 British requirements, list of-----................................ 12 Coast Guard, transfer of. to Navy............................... 19 Contract authorization for part of needs..........---------------- 17 Defense articles, reallocation of, by one aided countrv to another---- 12 Defense articles, title to........................................ 21,39 Funds, period of use of......................................... 16, 17 Material after defense effort has ceased, disposition of.............. 14, 43 Material furnished Britain after evacuation of Dunkerquc__________ 18 Material to he acquired that wiil be usiiable by the United States, proportion of..............______.___._______________________ 13. 20 New plant facilities......................................... 14, 37. 58 Procurements in foreign countries....________________............ 21 S Services and cx|>cnses under categories (a) and (6)_________..__________ 62 Smith, H. D., statement of___.....................____............. 9, 65 Stirnson. Hon. Henry I*., statement of___..............___________.___ 5 T Tanks, armored cars, trucks____.................................... 56 Tawresey, Commander A. P. H., statement of____________........_____ 25 Testing, inspecting, servicing, etc., for defense articles.................. 60 V Vessels and other wotercraft......................__________________ 56 W War Department facilities board, personnel of......._________....... • 54 o l