This is a transcript of a tape-recorded interview conducted for the Harry S. Truman Library. A draft of this transcript was edited by the interviewee but only minor emendations were made; therefore, the reader should remember that this is essentially a transcript of the spoken, rather than the written word.
Numbers appearing in square brackets (ex. ) within the transcript indicate the pagination in the original, hardcopy version of the oral history interview.
The Papers of Bernard Bernstein are in the Library's archival collection.
This oral history transcript may be read, quoted from, cited, and reproduced for purposes of research. It may not be published in full except by permission of the Harry S. Truman Library.
Opened December 1976
Harry S. Truman Library
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Oral History Interview with
July 23, 1975
by Richard D. McKinzie
BERNSTEIN: I was a student at the Columbia Law School from 1927 to 1930. In my first year at the law school I took, like all the other students that year in the opening class, the course in contracts. The professor who taught contracts was Herman Oliphant. He gave me the only A+ in the class.
After graduation from law school I went to work for a prominent New York law firm, Taylor, Blanc, Capron and Marsh, at what happens to have been the highest salary paid
any law clerk in the City of New York at the time, $3,000 a year. I worked there for a few years.
President Roosevelt and the New Deal, obviously struck a response in the hearts and minds of young people all around the country. I read in November 1933 that Henry Morgenthau had been appointed Under Secretary of the Treasury and that his General Counsel was Herman Oliphant who had been his General Counsel at the Farm Credit Administration. I decided some time in December 1933 to write a letter to Herman Oliphant reminding him of the favorable relationship he and I had had as professor and student at Columbia and saying I would be interested in coming down to work. He invited me to come down to see him.
I went to Washington and waited in
Oliphant's outer office for quite a while. He was a busy man. As soon as Oliphant and I began to talk he said that I should just start working.
I said that I couldn't quite do that; I'd been working with a law firm for several years and I had to go back and get their approval and prepare a memorandum about my cases so that an associate could take over my work.
He said that is all right, but I should come down as soon as I can.
I went back to New York. The man I worked for, a partner in the firm, was Charles Angulo, a wonderfully able lawyer, a very hard-working and dedicated lawyer from whom I learned a lot of law as I had occasion later to tell some of my colleagues at the Treasury. He understood my wanting to go to the Treasury. I think I worked over a Christmas four-day weekend, almost around the clock, dictating
my views on various matters that I had worked on at the office, where the matters stood, what were the succeeding steps, and what we were trying to accomplish. I was told that for years thereafter the memorandum was used in dealing with the cases.
I then went back to Washington I think toward the end of December, just before the New Year weekend. Herman Oliphant found a legal division at the Treasury of just a few lawyers, who had been there many years and who were lawyers of modest ability. Herman Oliphant was a lawyer and professor of great ability, great imagination, and the highest standards. He was proceeding to put together a legal staff of considerably increased numbers and of outstanding quality. I make the point because I think the course that he followed had a direct relationship to the war effort, and had a direct
relationship to what happened in Washington in the ensuing dozen or more years.
I wrote this in the little paper that I'm going to read in a minute. That legal division was the greatest single source of new ideas in the Treasury, and combined with it was a Treasury chief (Henry Morgenthau), who was not only receptive to new ideas, but affirmatively kept pushing the legal division to produce new ideas; a Treasury chief who had this unusual relationship with the President of the United States. They were close friends and that friendship and association gave the Treasury, through President Roosevelt, an opportunity to bring forward ideas on matters that weren't strictly Treasury business.
Well, the first couple of years at the Treasury I worked most of my time on matters relating to gold and silver. We were calling
in all the gold at $20.67 an ounce. The President in January, 1934 had fixed a price of $35 for an ounce of gold. A lot of people who had gold were reluctant to turn it in at $20.67 an ounce. Similarly people who owned gold clause obligations did not like the idea of such obligations being paid off dollar for dollar after the devaluation of the dollar. Such people wanted $1.69 for every dollar of their gold clause obligation. The Joint Resolution of June 5, 1933 made all gold clause obligations, both public and private obligations, payable in any U.S. legal tender currency dollar for dollar.
We had a great deal of work in administering the various gold control orders and in participating in litigation that attacked gold controls and the gold clause resolution. It culminated in a famous group of cases
coming before the United States Supreme Court, the famous gold clause cases. As a young lawyer I was given the opportunity of working on the briefs in the Supreme Court cases. This surely was, up to then, the high point of my career as a lawyer. I participated in the development of the Government's strategy in these cases, in the writing of the briefs and in the preparation for the oral arguments.
MCKINZIE: How was the strategy determined?
BERNSTEIN: A small group of lawyers from the Treasury and Justice Departments and the Reconstruction Finance Corporation worked together over a period of months in 1934 and 1935 on the group of cases that came from lower courts to the Supreme Court. Perry v. United States involved a gold clause in a U.S. Government Bond; Nortz v. United States
involved U.S. currency called gold certificates; and Norman v. Baltimore & Ohio and United States v. Bankers Trust involved gold clauses in private obligations.
Because of the depreciation in value of greenbacks during the Civil War, the practice developed in the United States of including in all private and public obligations a provision for payment of gold dollars of a certain weight and fineness, which was really based on gold being worth $20.67 an ounce. President Roosevelt, on coming into office, sought ways and means to break the terrific deflation that was undermining the nation's economy. After extensive discussion with Treasury and other financial advisors, the President embarked on a program of gold purchases at prices in excess of $20.67 an ounce.
Herman Oliphant who at the time was
General Counsel for Morgenthau at the Farm Credit Administration, found an existing statute which he felt authorized the President to pay more than $20.67 an ounce for gold.
At the Treasury from March to November 1933 the Under Secretary of the Treasury was Dean Acheson. The Secretary of the Treasury was William Woodin, an elderly and sickly gentleman. Therefore, in a sense, Acheson was the real driving force at the Treasury. I think Acheson also had some help from lawyers, young lawyers in the Government with whom he was acquainted, and with whom he had a great capacity to work. I found it a great privilege as a young lawyer to work with Dean Acheson.
In any event, Acheson had the view that the President could not pay more than $20.67 for an ounce of gold. It was that conflict of view that turned the President against Acheson and resulted in Acheson being fired and Morgenthau
being brought over to the Treasury with Herman Oliphant as his General Counsel.
The gold buying matter not only played an important role in helping to turn the economy upward; it also played a great role in the change of personnel at the Treasury. Among the outstanding lawyers that Herman Oliphant brought onto his staff, there were Clarence Opper, who had been associated with Oliphant at the Farm Credit Administration and was also a graduate of Columbia Law School, and thereafter became a judge on the Tax Court; John Laylin, who happened to be very closely associated with Dean Acheson and remained on at the Treasury for a couple of years and then went over to Dean Acheson's law firm as a partner, an outstandingly able man; and Robert Jackson, who came to the Treasury as an Assistant General Counsel and who later held many important
posts in the Roosevelt administration and ultimately became a Justice of the Supreme Court. At one point when Robert Jackson was an Assistant General Counsel his office was right next door to mine when I was Assistant General Counsel on what we called the first floor of the Treasury. Another Treasury Assistant General Counsel was Clinton Hester, a man of outstanding capacity to understand and work with the members of Congress and further the Treasury programs on the Hill. And then in turn, a lot of younger men were brought in, generally speaking of high caliber from good schools, hard workers and quite loyal to the Roosevelt Administration.
I do want to say this about the gold matter. There were probably in all between 75 to 100 lawsuits in various courts around the country. I think it's fair to say that
we didn't lose any case. Even in the Perry case, the Liberty Bond case, where the Supreme Court said that not to pay in gold coin as provided in the bond was a breach, the majority of the Court nevertheless held that there were no damages because if the Treasury had paid in gold the bondholder would have had to turn the gold back to the Treasury at $20.67 an ounce.
There was also a good deal of work relating to silver. The Treasury was buying a great deal of silver at the time. There was a lot of criticism of the administration for buying silver. The feeling was that the administration was giving in somewhat to the so-called silver Senators. I remember one observation that Herman Oliphant made in defending the silver-buying program. I think we were paying roughly 60-odd cents for an
ounce of silver. We were buying great quantities of it from China, among other countries. Oliphant said it seemed to him that it was better for international trade to move on a road paved with silver than on a road paved with defaulted paper. I think actually it proved in the end to have been a very successful program in terms of making money for the United States because ultimately the silver was sold by the Treasury at a price greatly in excess of the price the Treasury had paid.
In connection with the silver program, there was legislation enacted by the Congress imposing a tax on profits made by speculators in silver, and the tax was retroactive to the date the bill was introduced into the Congress. That was then a most unusual provision and it was subject to legal attack as being unconstitutional as a retroactive tax. As the Treasury
lawyer handling the matter, I formulated the legal principle that the Congress had to have the power to freeze a situation while the Congress was considering what to do about it, and therefore, it was legitimate for the Congress to say in effect, "While we're considering whether there should be a silver tax, we have the right also when we decide that there will be a tax to make it retroactive to the beginning of our consideration." In that way someone can't take advantage of the fact that it's now become known that Congress is considering imposing a silver tax.
Well, the Supreme Court upheld that thesis and sustained the retroactive silver tax. It seems to me an important principle of law and important for Congress to have that power.
In 1937, the Japanese sank the American
gunboat called the Panay in the Yangtze River in China. The President asked the Secretary of the Treasury if he had some ideas as to what the Government might do. Secretary Morgenthau talked to Herman Oliphant and Herman Oliphant talked to Clarence Opper and me. Clarence and I almost locked ourselves up in Opper's office. Oliphant was so concerned about possible leaks that he asked Opper to have the venetian blinds in his office shut so that nobody could spy on us from the Washington Hotel across the street. What we produced at that time, was the first document that ultimately came to be known as Foreign Funds Control, based on Section 5(b) of the Trading With the Enemy Act of 1917. We said that the President had the power to control banking transactions under certain circumstances. We drafted a document for the President by which he would impose controls on banking transactions in
which the Japanese had an interest. For reasons formulated at the top level of Government, the President decided not to go forward with issuing that order.
Thereafter, for I would say three years to about--in any event, to April 1940, everytime there was a crisis in international affairs, generally speaking precipitated one way or another by Hitler and the Nazis, I would take out these old documents, redraft them in terms of the current crisis, and we always were ready with our written plans as to how to proceed. Now, if I may, it's at this point that I would like to read some ideas that I put down on paper.
Beginning sometime in 1936 or '37, the Secretary of the Treasury, Henry Morgenthau, Jr., as a result of his own foresight and sound judgment, as well as his close personal
and official relationships with the President, began to be increasingly concerned about the dangers to the democratic nations of the world of Nazism and aggressions on the part of Germany and Japan. He was continuously studying and seeking ways and means of building up the strength of the United States, of the Western democracies, and of China, and of weakening the power of Germany and Japan. He directed his top staff to focus on the problems and to bring him suggestions and ideas. As Robert Sherwood in his book on Roosevelt and Hopkins states on page 162 and I quote:
Outside of the Service Departments--which, as has been said, were at the time in enfeebled condition--the Treasury was the only one that was functioning on an emergency basis. Indeed, in his prolonged dealings with the French and British Purchasing Commissions, and in his promotion of aid for China, Henry Morgenthau had been exercising some of the most vital functions of the War Department and
even of the State Department, not by a process of usurpation, but by default.
Similarly in Volume II of his memoirs on page 557, Winston Churchill while discussing the period after May 1940, emphasized that, and I quote: "In Morgenthau, Secretary of the Treasury, the cause of the Allies had a tireless champion."
The Legal Division played a particularly active part in Mr. Morgenthau's program. As Churchill in the same volume on page 568 points out the lawyers of the Treasury Department, and I quote, "had been stirred by Secretary Morgenthau."
This was indeed true. Herman Oliphant, General Counsel until his death in 1938, Edward H. Foley, General Counsel thereafter until his entry into the Army in the latter part of 1942; Clarence Opper, Assistant General Counsel until appointed to the Tax
Court in 1938; Charles Kades, Assistant General Counsel until the activation of his Reserve commission as an infantry lieutenant about the middle of 1942; Oscar Cox, Assistant General Counsel of lend-lease, and I as an Assistant General Counsel and my associates John Pehle, who later became director of the Foreign Funds Control, Ansel Luxford, who took over my desk when I went overseas with the Army in 1942, and Josiah DuBois who was one of my key assistants, were working under pressure to develop and submit to Secretary Morgenthau suggestions, plans, new programs and extensions of existing programs, to strengthen the position of the United States, Britain, France and China, against the threatening aggressions of Nazi Germany and Japan, and conversely to weaken the aggressors. I think it is fair to say that Secretary Morgenthau, beginning
in about 1937, made of the Treasury Department--and the Legal Division in particular--a workshop to assist President Roosevelt in formulating plans to protect the security of the United States. I noted with a great deal of interest that Dean Acheson on page 22 of his excellent book, Present at the Creation, states and I quote:
Meanwhile, two other potent instruments for helping friends and harming foes were being forged--furnishing supplies to our friends by lend-lease and withholding them from foes by financial freezing orders. Both came out of the Treasury. Henry Morgenthau was the most dynamic character in Washington; he had passion. His description of the kind of man he wanted hired was: 'Does he want to lick this fellow Hitler . . ., that is what I want to know . . . Does [he] hate Hitler's guts.' Henry did.
Well, this legal staff, as I say, was constantly formulating programs which would both protect assets of those we considered our friends and make things difficult for the Axis powers
in the fields of finance and economics. For example, at one time when Hitler was taking over 25 million dollars worth of gold that belonged to the Czech National Bank, we prepared a little plan to try and prevent that gold from coming into the World Market and make funds available to Hitler. In April 1945 we found the gold in a salt mine in the middle of Germany.
But another more dramatic experience that I had was being called to Herman Oliphant's office sometime in 1938 and his saying to me that a Frenchman by the name of Jean Monnet had come from France to Washington for the purpose of trying to get a speed-up in the delivery of military planes for France. Against the background of what I've been saying about Treasury activities, naturally Monnet came over to the Treasury for help. Mr. Monnet was talking to
Secretary Morgenthau about the procurement problem. The Treasury had as one of its divisions the Procurement Division.
In addition to that, Morgenthau was in a sense almost the sparkplug at that time in the administration to speed up production of military equipment which the French and the British needed. There was a considerable inadequacy in the Secretary of War at that time, and the President was anxious to have Morgenthau play a role in the speed-up of military production.
In the course of the discussion, Morgenthau brought up the problem of France's ability to pay for the planes and other war supplies that France was buying. That led to a discussion of France establishing a foreign exchange control because the French people don't readily accommodate themselves
to the Government coming along and controlling their financial affairs.
Secretary Morgenthau said he would think about it and maybe the Treasury would come up with some suggestions.
He passed the word on to Herman Oliphant. I was at the time Assistant General Counsel handling, among other things, international monetary matters and stabilization fund matters. Oliphant told me of the discussions and asked if I had any ideas. I said that I did; that we could take a census in the United States of all assets belonging to our partners in the stabilization agreement. We had a stabilization agreement with Britain, France, Belgium, Holland and Switzerland. I said that we could take a census of assets belonging to nationals of those countries, by name and address, and as part of our stabilization
arrangements, make that information available to our partners, including France. Oliphant said that I should prepare some papers.
I worked for almost two days pretty solidly except for a few hours of sleep. I drafted and I redrafted, I drafted and I redrafted, and I finally sent a paper up to Herman Oliphant. And about an hour later it came back to me with a notation in the upper right-hand corner, "A good first draft. HO." That was just intended to spur me on.
Well, I worked with Jean Monnet. This is when I first met Jean Monnet. He was a man of extraordinary dynamism and devotion to France, Britain and the West. He liked the idea of the census. He saw how it would make it possible for France to set up an exchange control and enforce it. A good part of the Frenchman's foreign assets were held in the
United States either directly in the Frenchman's name or by way of Swiss banks. We had the power under the Trading with the Enemy Act of 1917, if we wanted really to use it, to compel the Swiss banks to furnish us the names of the real owners or we would keep the assets blocked and frozen.
The financial situation of France and its need for funds to pay for military equipment were very much in the air at that time. We said to Monnet that if he thought the idea was a good one he should telephone to [Edouard] Daladier, the Premier of France and discuss the idea with him over the phone and then we would push the plan along. Monnet said he could not telephone because it always leaks on the phone. He said he would have to carry the plan back to Paris. In those days he crossed the Atlantic by ship. While Monnet was at sea,
the Daladier government fell on the issue of foreign exchange control, in part because some of the French believed a foreign exchange control could not be enforced. We did not set up the plan at that time, but the idea did not go to waste. When we set up the freezing control system we had an absolutely extraordinary census called TFR-300 which took the census as of June 14, 1941 of all assets of every description in the United States owned directly or indirectly by a foreigner. That census was greatly used during the war and after the war to assist some of our allies in finding assets they needed to meet their international obligations and also to facilitate many of the economic warfare activities of the U.S. Government during the war.
In April 1940, the Germans invaded Denmark and Norway. We had another one of these
meetings in the Secretary's office that was typical when a crisis in the world arose. At the meeting there were officials from the State Department, Federal Reserve Board and the Treasury to consider financial and economic matters that we might engage in in view of the Nazi invasion. As usual, I had taken the old documents that had been drafted and rewrote them to apply to Denmark and Norway. I had the documents all prepared, the Executive Order, the Treasury Regulations, the instructions to the Federal Reserve Banks, etc., a whole sheaf of papers in a folder. There they were, all we really had to do was to take them out of a safe in the General Counsells office, make t em applicable to the current situation an we had a set of documents ready for signature.
The discussion went on almost all day in the Secretary's office as to what to do
and how to do it. I think the consensus was that we have to take measures to protect assets in the United States belonging to Danish nationals and Norwegian nationals. One group thought we could do it in a sort of voluntary manner by giving some guidance to the banks. The other group, led by Secretary Morgenthau, said that this could only be done by executive order and regulations to apply uniformly to all banking institutions and anyone else who held any kind of property in which Danes or Norwegians had an interest. It would also be necessary to have a regulatory system in which you permitted some transactions and you didn't permit other transactions, and you got reports and so on.
At around 5 o'clock on April 10, 1940 Secretary Morgenthau picked up the telephone from the wall back of his desk, called the
President, very briefly summarized the views that had been expressed at the meeting, and in almost less time than it's been taking me to make this statement the President told the Secretary to send over the Executive Order for the President to sign.
That night we issued Executive Order 8389 and the Treasury Regulation. That was the beginning of the Foreign Funds Control system. This program got to be applied to every country as that country was overrun. Then it got to be applied on a broader scale.
Soon after the Executive Order was issued a Dutch banker came to the Treasury, into the office of the Under Secretary of the Treasury, Daniel Bell. Dan Bell asked me to come to the meeting. The Dutch banker seemed very upset. He felt that Holland was going to be invaded. He had been talking in New York to
some lawyers and to the Federal Reserve Bank people in New York as to whether the freezing control order applied to securities or whether it only applied to transfers of money in banks. He had been told in New York that the control only applied to bank transfers and didn't apply to securities and security transactions. The Dutch had a billion dollars or more of securities in American corporations that belonged to Dutch nationals.
I said I didn't agree with that construction of the freezing control. I believed that it applied to securities as well as to bank transfers. That gave the Dutch banker a little bit of reassurance. When he left I said to Dan that this was a question I've got to discuss with Ed Foley because it's not an open and shut question from the language of the statute.
Bell said, "By all means do so."
I went down the hall to Ed Foley's office and told him of the problem. I had with me at the time the executive order and the quotation from the statute, and we began to discuss it. Ed is a very able and careful lawyer and he wanted to get another opinion. He called in Huntington Cairns, who was also an Assistant General Counsel. Among other things Cairns was in charge of the opinion section of the General Counsels office. The three of us continued to discuss the matter. Cairns also talked to one of his assistants, Ernest Fiedler, who was a very able lawyer and in the opinion section. Cairns and Fiedler came to a different conclusion from mine. They said that Section 5(b) of the Trading With the Enemy Act only applied to bank transfers and didn't apply to securities or to transfers of securities.
Well, that resulted in a kind of a warm discussion. Ed Foley and I went into Dan Bell's office, and the discussion carried on. This was only one of two occasions when Ed
Foley and I had a difference of view on a legal question. He was always very fair and a very fine lawyer to work for. Dan Bell at one point said he had never seen me so upset in discussing a legal question. I said to Bell that he understood just as well as I did the importance of the control applying to securities as well as to bank transfers.
We went back to Ed's office and he telephoned Judge Townsend at the Department of Justice. Townsend sort of headed up the Opinion Section of Justice. Townsend was an old Government lawyer, quite able and had a high prestige. His first reaction was similar to Cairns', that the statute didn't apply to securities.
Ed made an appointment right then and there, through Townsend, to have a conference the following morning with Robert Jackson who
was then the Attorney General. I spent a good part of the night with my brilliant assistant Joseph Friedman going through the history of Section 5(b) of the Trading With the Enemy Act with a finetooth comb and lining up my arguments.
We went over to Bob Jackson's office the next day and Ed Foley presented his view, which was as I stated, that Foreign Funds Control and the statute were limited to controlling bank transfers of money. Townsend stated his view, which was the same. Then Ed who always treated me fairly and with understanding said to Bob Jackson, "Bernie has a different view."
Jackson said to me, "What's your view?"
I said, "What's open?"
Jackson said, "Everything's open."
So, for the next ten minutes I discussed the problem. I discussed the language in the
statute, I discussed the language in the executive order and I discussed the profound importance in terms of protecting the interests of the United States and the interests of the overrun countries in preventing Hitler from taking over these assets and using them to further his purposes. I said in substance that the program should be as follows: We should issue from the Treasury a general ruling stating our position, namely that the executive order applies to transfers and holdings of securities as well as bank transfers. We should immediately draft legislation which clarifies the statute and which ratifies what the President and Secretary have done and we should take the proposed legislation up to the Hill with an urgent Presidential message to the Congress and try to persuade the Congress to enact it promptly.
Bob Jackson then said that what Bernie has stated will be our program.
We left Bob Jackson's office and returned to Secretary Morgenthaus office, who meanwhile had been briefed on the issue by Dan Bell. When Ed Foley and I came into the Secretary's office, the Secretary was almost sitting at the edge of his seat. He was very tense until Ed Foley told him what had been the decision in Bob Jackson's office. At that point Secretary Morgenthau was very greatly relieved and fully approved the program. It was about the second half of April 1940. The General Ruling was issued on April 19, 1940. Legislation was drafted and was taken to the Hill with a Presidential message.
Ed Foley and I spent a considerable amount of time up on the Hill, furnishing information to Congressmen and Senators and doing what we could to get the bill through.
One day I had, for me, an unusual experience. I was sitting at the back of the Senate floor with Ed Foley while the bill was being considered in the Senate. A Senator whom I didn't recognize, I had never met him and I don't recall having seen his photograph, came up to Ed Foley while we were sitting together and said, "Ed, what's this bill all about?" Ed in brief terms told the Senator what the bill was all about and why the Treasury and President felt so strongly about it. The Senator said, "I think you're right. I'll support the bill," and he left.
And Ed Foley said to me, "That's Senator Truman."
That legislation was enacted by the Congress on May 7, 1940. The German invasion of Holland and Belgium took place on May 10, 1940. That gives an idea of the degree of cooperation between the President and Congress
in a time of crisis and the prompt recognition by the Congress, as well as by the administration, of the necessity of protecting all the assets in the United States belonging to nationals of the countries being overrun and of foiling Hitler's efforts to use these assets for his aggressive purposes. Of course, the freezing control program was extended to Belgium, Holland and Luxembourg upon the commencement of the invasion by Germany.
The invasion of the low countries took about five days. As soon as the invasion started the Dutch came to the Treasury and asked could we do anything to help them with these vast amounts of securities and values that they had in Holland. The American foreign funds control was being applied basically to assets in the United States.
On Sunday night a meeting was called atthe residence of Secretary Morgenthau. There
were Treasury, State Department and Federal Reserve people there. I had prepared a plan and had worked on it with Adolph Berle, who was at the time Assistant Secretary of State. Basically the idea was that the Dutch Government would go into its banks, open up the vaults, open up the safe deposit boxes, take out all of the securities, anything of value, money, etc., and make lists and affidavits of what was taken out. Our consuls over there would verify the lists and affidavits and these valuables would be destroyed and not allowed to fall into German hands. The currency would be destroyed, the securities would be destroyed, etc. This was applying for the first time the scorched earth policy to money and securities and comparable valuables.
There was a long meeting that night at the Secretary's home. All of the representatives of the United States Government
strongly supported the plan. The Dutch were very tense. Not only was the Dutch ambassador present but he had with him some of his colleagues, including a lawyer who made a good impression. He was a tall, imposing looking man, able, and spoke English well. The Dutch said they would have to take it up with their government. The lawyer's name I think was von Saher. He came to my office the following Tuesday morning to say that the Dutch Government was unable to go ahead with the proposed program. He then broke down in tears. Within another 24 or 48 hours the fighting was over--the Germans had overrun Holland.
The next great step in foreign funds control was in about June 1941. We had been arguing for a year at the Treasury that the foreign funds control should be applied to
all of Europe, to Germany and to Italy, Russia, everybody in Europe, and should be used not only as a defensive instrument, to protect the assets in the United States, but as a strongly offensive instrument to try and interfere with Hitler's plans in which he used money and financial assets to wage his war.
The State Department had opposed this all the time. Interestingly enough I saw in Acheson's book that Acheson was sympathetic to our view all the time, but he was overruled at the State Department. It wasn't until June 1941 that foreign funds control was applied to all of Europe.
Incidentally, I think it's interesting to note that when Russia invaded and occupied the three Baltic countries, Estonia, Lithuania and Latvia, we just automatically applied the
foreign funds control to those three countries and wouldn't allow the Russians to touch the assets in the United States belonging to nationals of those three countries. We treated the Soviet Union exactly the same way as we treated Nazi Germany, in terms of protecting assets in the United States of nationals of countries that were overrun. There was just no question about it. I prepared the documents; they were approved by the various divisions in the Treasury; the Secretary and the President signed the documents, and the documents were issued.
We also began in June 1941, as I said, the great census of foreign-owned assets. There was very extensive and painstaking preparation for it, and preparation of the forms and instructions. With the help of the Federal Reserve system and the banking system of the United States, we obtained this information which was invaluable to us and to our allies.
MCKINZIE: How long did that take, sir, do you recall?
BERNSTEIN: The census?
BERNSTEIN: Oh, it was being taken over a period of a couple of years. I think the Treasury published a report on the census. As I said information was made available promptly to the French Government and the British Government which was of help to them. We obviously were interested in their financial well-being. That brings me to another story.
There was a very famous press conference, a conference that President Roosevelt held in I think December of 1940, in which he first developed the lend-lease idea. He said in substance that when your neighbor's house is on fire, you lend him your hose, you don't
ask him a price for it, and you let him use your hose. The President said that is what we have got to work out, to help Britain and France and the other democracies. Again he turned to Morgenthau for some ideas. Morgenthau turned to Ed Foley, his General Counsel. Ed Foley, Oscar Cox and I sat down and worked almost over a two-day period and produced a draft of the lend-lease bill that came to be known as HR-1776. I think Arthur Krock sometime in 1943 had a column in the New York Times in which he has the story of the origin of this lend-lease legislation, and mentioned various names, including names I just stated, and how the President got all the departments concerned to review it immediately. Dean Acheson, who at this time was in private practice, was called in by Morgenthau to assist on the proposed legislation, reviewing it and tightening it up. Colonel Stimson, the
Secretary of War, reviewed the bill. The State Department, of course, reviewed the plan and a lend-lease bill was presented to Congress. This was another product of the Treasury and of the Treasury Legal Division and a result of this unusual relationship between the President of the United States and the Secretary of the Treasury, and the encouragement that the President and the Secretary of the Treasury gave to new ideas, to creativity, to new approaches to the solution of problems. However, I feel bound to say that in all fairness the real credit for lend-lease belongs to President Franklin D. Roosevelt.
You can understand that I may be a little biased about Franklin D. Roosevelt. I sit under an etching of him, which I think is more beautiful than the etchings by the same artist that are at Hyde Park. I think
that some time, with the consent of my family, I want to donate this etching to Hyde Park. It was given to me as a gift. Isn't that a wonderful etching?
MCKINZIE: Indeed it is.
BERNSTEIN: He was a great force in the world and in my life. I remember a few years ago at a dinner meeting at Columbia Law School I said I felt that he was the greatest man who lived in my lifetime. It was obviously a marvelous experience and a wonderful opportunity to work in his administration.
For a good while, the Treasury had an active hand in the administration of the lend-lease program. I myself didn't work on it, I was working so much on the foreign funds control and other international financial matters. Oscar Cox was working on lend-lease a good deal as well as the Secretary and Ed
Foley. Then lend-lease was lifted out of the Treasury and set up as a separate administration. I think it was first turned over to Hopkins to run and I think Oscar Cox was a big driving force in the development of the lend-lease administration. But Secretary Morgenthau was the one who sat on top of the problem of how were the British and the French going to pay for purchases in the U.S., and he drove a tough bargain in protecting American interests. He made the British sell their securities in some big American companies in which the British had a big direct investment. Morgenthau, with the backing of the President, forced the sale to produce cash to pay for war supplies that we were selling to the British. But the impact of that program was greatly to stimulate war production in the United States at a time when our war production situation was very weak. I think that men like Secretary Stimson
and General [George C.] Marshall give credit to Morgenthau and to the friendship between Morgenthau and President Roosevelt for the stimulation of the war production facilities in the United States in the period of 1939 to 1941. When we got into the war in December 1941 war production was moving ahead and we did not have to start from a standstill.
Well, throughout this period we were working closely with Latin-American countries. We had a conference with all the Latin-American countries to persuade them to adopt a financial and economic control program comparable to our program. Of course, we knew there were a great deal of Nazi German and Japanese interests down there that were working against us, and trying to get goods and supplies and financing to aid the Japanese and German war