Commander TAWRESEY. The Paymaster General estimated that he would need about a hundred more accountants to handle the accounting.

Mr. POWELL. If these departments get many more employees, they will probably begin to hang them on hooks.

Mr. TABER. Mr. Smith, can you tell us for the record when you are going to begin to need all of these items under (b) and (c) and (d), and within what time the items will probably be exhausted?

Mr. SMITH. I should say that some part of all three of these items, will be needed immediately.

Mr. TABER. And within what time will all of those items be required, in your opinion?

Mr. SMITH. I should say 1942. I rather think this item for administrative expense probably would run through the entire program, 1943, but again there may be much more involved in this than we

can see.

TRANSFER OF APPROPRIATIONS TO REPLACE DEFENSE ARTICLES DISPOSED OF UNDER $1,300,000,000 AUTHORITY

Mr. WOODRUM. Referring to this language on page 3, beginning in line 21

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 $1,300,000,000.

I would like to ask you this question, Mr. Smith. Is the reimbursement provision that I have referred to, on page 3, line 21, intended to be 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.

Mr. WOODRUM. Permissive?

Mr. SMITH. That is right.

Mr. LUDLOw. This bill is called the lend-lease bill or the British aid bill. Is there any provision that Britain shall pay any cash at all for any of this material, or do they give any security for any 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.

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 during the last World War. I have here the raw-material price index of the Bureau of Labor Statistics. The index for 1917 was 122.6, 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 1926 as the base. Mr. WOODRUM. We asked for some information, and I 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 they 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. 16)

Mr. WOODRUM. Mr. Smith, do you have the information these gentlemen asked you for yesterday?

Mr. SMITH. Yes. Yesterday, this committee propounded a number of questions with respect to British orders for defense materials prior to the enactment of the lease-lend bill, and British assets. Those were rather specific questions to which we sought specific answers from the Treasury.

Question 1 was: It is understood that British orders up to January 1, 1941, were about $3,000,000,000 and that expenditures were about $600,000,000. Is that correct? What have the British spent here 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 approximately $2,700,000,000. Up to January 1, 1941, the British Purchasing Mission had made payments of approximately $1,300,000,000 on these orders.

Mr. O'NEAL. Cash payments, those were?

Mr. SMITH. That is right. From January 1 to March 12, payments. by the British Purchasing Mission were $382,000,000. I assume, therefore, that if you want the total to March 12, you would add $1,300,000,000, plus $382,000,000, or a total of $1,682,000,000 of cash

payments on British Purchasing Mission's orders up to March 12,

1941.

Mr. SNYDER. In other words, they just have about $1,000,000,000 yet to pay?

Mr. TABER. Now, are 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 correctly, but it is my impression that the British have not placed large orders for several months.

Mr. WOODRUM. What were the total orders up to January 1, Mr. Smith?

Mr. SMITH. $2,700,000,000.

Mr. TABER. You do not know whether there are any since the 1st of January, 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. SNYDER. I think that is right. I checked that the other day. Mr. WOODRUM. So far as you know, are they up to date on payments, or are they in default on any of them?

Mr. SMITH. So far 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. WOODRUM. Yes; go on.

Question 2 was: Has 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 the goods delivered was paid for in advance and a 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 in the future. Such dollars will come from further sales of British holdings of United States securities, the sale of British direct investments in 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.

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 citizens?

Mr. SMITH. Yes.

Mr. WOODRUM. By implication, then, at least, it is not contemplated at the present time that any of this $7,000,000,000 fund will be utilized to pay for any of these goods already ordered by Great Britain?

Mr. SMITH. No.

Mr. WOODRUM. 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 purpose. 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 estimate of the British holdings in this country later on?

Mr. SMITH. It is the next question.

Question 4 was: What is the value of British holdings in the United States and in the Western Hemisphere outside of the United States? 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, $616,000,000 of marketable securities and approximately $900,000,000 of direct investments.

Mr. CANNON. Is that holdings by the British 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 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, $616,000,000 of marketable securities and about $900,000,000 of direct investments.

Mr. TABER. What do you mean by that-direct investments?

Mr. SMITH. The Department of Commerce defines foreign direct investments in the United States as all foreign investments in corporations or enterprises operating within the United States which are controlled by a person or persons domiciled outside the United States. Mr. TABER. 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 market for them has been developed in this country.

Mr. TABER. They are not readily marketable?

Mr. SMITH. They are not as readily marketable as listed securities; that is right.

Mr. WIGGLESWORTH. 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.

Mr. LUDLOW. What authority did the British Government have over the transfer of holdings of its nationals for the liquidation of its debt?

Mr. SMITH. I cannot tell you that.

Mr. TABER. Oh, they 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. I presume the Treasury would be cognizant of that situation.

Mr. O'NEAL. In other words, a corporation might be formed here which, in itself, is owned by British nationals but an American corporation, and it, in turn, own a great many American securities. You do not know whether that 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. TABER. Would you like to explain that item a little bit-that $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 $900,000,000: Docs that represent the cost of the British, or an inventory value as of January 1?

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. TABER. Go ahead.

Mr. SMITH. The nominal value of the United Kingdom's investments in Canada is nearly the equivalent of $2,000,000,000 United States dollars and the United Kingdom's investments in Latin America 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 investments. The United 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 payable in sterling or in local currencies. The liquidation value in United States dollars of these Latin American securities, particularly in view of the widespread control of foreign exchange transfers, is very uncertain. The details of these investments will be found on page 54